PHILIPPINE NATIONAL BANK v.

BANK v. HYDRO RESOURCES CONTRACTORS on even date, the National Government transferred the said assets and liabilities to
CORPORATION the APT as trustee under a Trust Agreement.

G.R. No. 167530, March 13, 2013

 Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
ISSUE:
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)

Whether or not there is sufficient ground to pierce the veil of corporate fiction of
FACTS: NMIC and held DBP and PNB solidarily liable with NMIC?

Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made RULING:
on the properties of Marinduque Mining and Industrial Corporation (MMIC). As a
result of the foreclosure, DBP and PNB acquired substantially all the assets of MMIC
and resumed the business operations of the defunct MMIC by organizing NMIC.7
No.
DBP and PNB owned 57% and 43% of the shares of NMIC, respectively, except for five
qualifying shares. As of September 1984, the members of the Board of Directors of
NMIC, namely, Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo Agulto, and
Faustino Agbada, were either from DBP or PNB. From all indications, it appears that NMIC is a mere adjunct, business conduit or
alter ego of both DBP and PNB. Thus, the DBP and PNB are jointly and severally
liable with NMIC for the latter’s unpaid obligations to plaintiff.

Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping
and Road Construction Program in 1985 for a total contract price of P35,770,120.
After computing the payments already made by NMIC under the program and
crediting the NMIC’s receivables from
Hercon, Inc., the latter found that NMIC still has an unpaid balance of
P8,370,934.74.10 Hercon, Inc. made several demands on NMIC, including a letter of
final demand dated August 12, 1986, and when these were not heeded, a complaint
for sum of money was filed in the RTC of Makati, Branch 136 seeking to hold
petitioners NMIC, DBP, and PNB solidarily liable for the amount owing Hercon, Inc.
Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a
merger.
Thereafter, on December 8, 1986, then President Corazon C. Aquino issued
Proclamation No. 50 creating the APT for the expeditious disposition and privatization
of certain government corporations and/or the assets thereof. Pursuant to the said
Proclamation, on February 27, 1987, DBP and PNB executed their respective deeds of
transfer in favor of the National Government assigning, transferring and conveying
certain assets and liabilities, including their respective stakes in NMIC. In turn and
Then concluded that, "in keeping with the concept of justice and fair play," the
corporate veil of NMIC should be pierced.For to treat NMIC as a separate legal entity
from DBP and PNB for the purpose of securing beneficial contracts, and then using
such separate entity to evade the payment of a just debt, would be the height of
injustice and iniquity. Surely that could not have been the intendment of the law
with respect to corporations.
The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate
entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego
cases, where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation
 DOCTRINES:
VIRATA vs. NG WEE (DIGEST)
WON the corporate veil of Power Merge should be pierced in order to hold Virata
January 5, 2020 by CaseDigestsPh liable? (YES)
The circumstances of Power Merge clearly present an alter ego case that warrants the
piercing of the corporate veil:
G.R. No. 220926 (2017)
(a) Virata not only owned majority of the Power Merge shares; he exercised complete
Velasco, J.
control thereof. He is not only the company president; he also owns 374,996 out of
Piercing the Corporate Veil
375,000 of its subscribed capital stock. Meanwhile, the remainder was left for the
nominal incorporators of the business.
SUMMARY:( check pass this summary may facts of the case after this see what (b) The reported address of petitioner Virata and the principal office of Power Merge
works best for you. The digest is kinda haba but I cannot cut the details baka are even the same.
they are important) (c) The clearest indication of all: Power Merge never operated to perform its business
functions, but for the benefit of Virata. Specifically, it was merely created to fulfill his
Ng Wee entered into two ‘sans recourse’ agreements with WinCorp Investment obligations under the Waiver and Quitclaim, the same obligations for his release from
Corporation. Under these sans recourse contracts, WinCorp will look for corporate liability arising from Hottick’s default and nonpayment.
borrowers and the investors (one of which is Ng Kee) will provide the money. The (d) Virata would later on use his control over the Power Merge corporation in order to
borrower that was matched with Ng Wee was Hottick Holdings Corporation (Hottick) fulfill his obligation under the Waiver and Quitclaim.
which is owned by a Malaysian named Saad. Petitioner Virata also executed a Surety
Agreement in favor or Wincorp. The Asian Financial Crisis struck which rendered WON the corporate veil of UEM Mara should be pierced in order to hold it liable for
Hottick unable to pay. Wincorp filed a collection suit against Hottick that was the obligation of its owner Virata? (NO)
eventually abandoned because Virata guaranteed the payment of the debt. UEM-MARA is an entity distinct and separate from Power Merge, and it was not
established that it was guilty in perpetrating fraud against the investors. It was a
Ng Wee learned of Hottick’s financial difficulties but was convinced by Wincorp that nonparty to the “sans recourse” transactions, the Credit Line Agreement, the Side
the latter will shoulder any loss arising from the Hottick transaction. Thus, Ng Wee Agreements, the Promissory Notes, the Confirmation Advices, and to the other
was convinced to roll over his initial investment and even invested additional transactions that involved Wincorp, Power Merge, and Ng Wee.
amounts in the ‘sans recourse’ agreements. This time, he was matched with Power
Merge Corporation (owned by Virata). Hence, Wincorp, in favor of Power Merge
opened a 2Billion Credit Line. Power Merge then executed a Promissory Note (PN) in FACTS:
favor of Wincorp as evidence of its indebtedness. It appears however, that Power
1998 – Ng Wee, a valued client of Westmont Bank, was enticed by the bank manager
Merge did not really bind itself to pay the PN; it merely executed the PN so that
to make money placements with Westmont Investment Corporation (Wincorp), an
Wincorp will be able to hold a Power Merge PN. Wincorp, in exchange assigned the
investment house and an affiliate of the bank. These money placements would take
Hottick PN to Power Merge (i.e., now Power Merge owes Wincorp and Hottick owes
the form of ‘sans recourse’ transactions.
Power Merge). To embody this real agreement between Wincorp and Power Merge,
Side Agreements were executed whereby it is stipulated that Power Merge will not be
Mechanics of the ‘sans recourse’:
liable to the holder of the PN.
– Wincorp will screen corporate borrowers.
– Once a borrower qualifies, Wincorp will open a Credit Line on which the borrower
When Ng Wee tried to collect from Power Merge, the latter refused to pay invoking the
can draw upon. Promissory notes shall evidence every drawdown by the borrower.
Side Agreements. Hence, Ng Wee filed a collection case against Wincorp, Wincorp’s
– Wincorp then scouts for investors willing to provide the funds needed by the
BOD and corporate officers, Power Merge, Virata and UEM Mara (another company
accredited borrower. The investor is matched with the accredited borrower.
owned by Virata).
– An investor who provides the fund is issued a Confirmation Advice, which indicates
the amount of his investment, the due date, the term, the yield, the maturity and the
The issue here is WON the corporate veil of Power Merge should be pierced in order to
name of the borrower.
hold Virata liable and WON the corporate veil of UEM Mara should be pierced in
order to hold it liable for the obligation of its owner Virata.
Lured by representations that the “sans recourse” transactions are safe, stable, high-
yielding, and involve little to no risk, Ng Wee placed investments thereon under Confirmation Advices to Ng Wee and his trustees, as well as to the other investors
accounts in his own name, or in those of his four trustees. who were matched with Power Merge.
– Unknown to Ng Wee, however, was that additional contracts (Side Agreements) were
Initial Investments: Ng Wee’s initial investments were matched with Hottick Holdings likewise executed by WinCorp and Power Merge absolving Power Merge of liability as
Corporation (Hottick)The majority shares of Hottick was owned by a Malaysian regards the Promissory Notes it issued. Note: Under these Side Agreements, it
national by the name of Halim Saad. appears that Power Merge only entered with the Credit Line Agreements with
– Halim Saad was also then the controlling shareowner of UEM-MARA, which has WinCorp so that WinCorp will be able to hold promissory notes signed by Power
substantial interests in the Manila Cavite Express Tollway Project (Cavitex). Merge and not those signed by Hottick. The promissory notes issued by Hottick (see
– Hottick was extended a credit facility with a maximum drawdown of P 1.5B. initial investments above) will then be assigned by WinCorp to Power Merge. In sum,
– Luis Juan Virata executed a Suretyship Agreement in favor of Wincorp. Power Merge will owe WinCorp and Hottick will owe Power Merge. Hence, a protection
– Hottick fully availed of the loan facility extended by Wincorp, but it defaulted in clause in favor of Power Merge (as a mere accommodation party) is included as
paying its outstanding obligations when the Asian Financial Crisis struck. follows: Power Merge shall have no obligation to pay under its promissory notes
– WinCorp filed a collection suit against Hottick & Saad. Virata was not impleaded as executed in favor of Wincorp but shall be obligated merely to return whatever it may
a party-defendant in the case. have received from Wincorp pursuant to this agreement.
– To induce the parties to settle, petitioner Virata offered to guarantee the full
payment of the loan. The guarantee was embodied in the Memorandum of Agreement RTC – Manila: Despite repeated demands, Ng Wee was not able to collect Power
(July 27, 1999) between Virata and WinCorp. Merge’s outstanding obligation under the Confirmation Advices for P 213,290,410.36.
– A compromise agreement between Wincorp and Saad which was embodied in a This prompted Ng Wee, to institute a Complaint for Sum of Money with Damages. As
Settlement Agreement (July 28, 1999) wherein Saad agreed to pay USD 1M to alleged in the complaint:
Wincorp in satisfaction of all claims of Wincorp. – Ng Wee claimed that he fell prey to the intricate scheme of fraud and deceit that
– Wincorp executed a Waiver and Quitclaim (December 1, 1999) in favor of Virata, was hatched by Wincorp and Power Merge.
releasing the latter from any obligation arising from the Memorandum of Agreement – As he later discovered, Power Merge’s default was inevitable from the very start
except for his obligation to transfer 40% equity of UEM Development Philippines, Inc. since it only had subscribed capital in the amount of P37,500,000.00, of which only
(UDPI) and 40% of UDPI’s interest in the tollway project to Wincorp. P9,375,000.00 is actually paid up.
– Apparently, the Memorandum of Agreement is a mere accommodation that is not – He then attributed gross negligence, if not fraud and bad faith, on the part of
meant to give rise to any legal obligation in Wincorp’s favor as against Virata, other Wincorp and its directors for approving Power Merge’s credit line application and its
than the stipulated equity transfer. subsequent increase to the amount of P2,500,000,000.00 despite its glaring inability
– Alarmed by the news of Hottick’s default and financial distress, Ng Wee confronted to pay.
Wincorp and inquired about the status of his investments. Wincorp assured him that – Wincorp officers Ong and Reyes were likewise impleaded for signing the Side
the losses from the Hottick account will be absorbed by WinCorp and that his Agreements that would allow Power Merge to avoid paying its obligations to the
investments would be transferred instead to a new borrower account. investors.
– Ng Wee also sought to pierce the separate juridical personality of Power Merge since
Subsequent Investments: Ng Wee continued making money placements, rolling over Virata  owns almost all of the company’s stocks.
his previous investments in Hottick and even increased his stakes in the new – It was further alleged that Virata acquired interest in UEM-MARA using the funds
borrower account — Power Merge Corporation. swindled from the Wincorp investors, thus, Ng Wee also would like to hold UEM
– Petitioner Virata is the majority stockholder of Powermerge. MARA liable.
– In a special meeting of Wincorp’s BOD, the Board resolved to file a collection case
against Halim Saad and Hottick, and then approved Power Merge’s application for a The RTC ordered the defendants Virata, UEM-MARA, Wincorp, Ong, Reyes, Cua,
credit line amounting to P 1.3B. Vicente and Henry Cualoping, Santos-Tan, and Estrella to jointly and severally pay
– Present in this special meeting are the following: John Anthony B. Espiritu Ng Wee.
(Chairman of the Board), Antonio T. Ong  (President), Mariza Santos-Tan, Manuel N.
Tankiansee, Manuel A. Estrella, Simeon Cua, Henry T. Cualoping,Vicente Cualoping The RTC found compelling need to pierce through the separate juridical personality of
– Wincorp’s President (Ong) and Vice-President for Operations (Anthony Reyes) Power Merge since Virata exercised complete control thereof, owning 374,996 out of
executed a Credit Line Agreement in favor of Power Merge with Virata’s conformity. 375,000 of its subscribed capital stock. Similarly, the separate juridical personality of
– The credit line was increased to P 2.5B. UEM-MARA was pierced to reach the illegal proceeds of the funds sourced from the
– After receiving the required promissory notes from Power Merge, Wincorp, issued defrauded investors.
 a business conduit or an alter ego of another corporation, this separate personality of
Court of Appeals – affirmed lower court’s decision. Wincorp misrepresented Power the corporation may be disregarded or the veil of corporate fiction pierced.
Merge’s financial capacity when it accredited Power Merge as a corporate borrower
and granted it a P2,500,000,000.00 credit facility despite the telling signs that the The circumstances of Power Merge clearly present an alter ego case that warrants the
latter would not be able to perform its obligations, to wit: piercing of the corporate veil:
– Power Merge had only been in existence for two years when it was granted the (a) Virata not only owned majority of the Power Merge shares; he exercised complete
credit facility; control thereof. He is not only the company president; he also owns 374,996 out of
– Power Merge was thinly capitalized with only P37,500,000.00 subscribed capital; 375,000 of its subscribed capital stock. Meanwhile, the remainder was left for the
– Power Merge was not an ongoing concern since it never secured the necessary nominal incorporators of the business.
permits and licenses to conduct business, it never engaged in any lucrative business, (b) The reported address of petitioner Virata and the principal office of Power Merge
and it did not file the necessary reports with the SEC; and are even the same.
– No security was demanded by Wincorp or was furnished by Power Merge in relation (c) The clearest indication of all: Power Merge never operated to perform its business
to the latter’s drawdowns. functions, but for the benefit of Virata. Specifically, it was merely created to fulfill his
– The intent of Wincorp to deceive became even more manifest when it entered into obligations under the Waiver and Quitclaim, the same obligations for his release from
the Side Agreements with Power Merge. The Side Agreements rendered worthless liability arising from Hottick’s default and nonpayment.
Power Merge’s Promissory Notes that Wincorp offered to Ng Wee and the other (d) Virata would later on use his control over the Power Merge corporation in order to
investors. fulfill his obligation under the Waiver and Quitclaim.

Impelled by the desire to settle the outstanding obligations of Hottick under the terms
ISSUES: of the settlement agreement, Virata effectively allowed Power Merge to be used as
Wincorp’s pawn in avoiding its legal duty to pay the investors under the failed
(1) Whether or not it is proper to pierce the veil of corporate veil of Power Merge in
investment scheme. Pursuant to the alter ego doctrine, petitioner Virata should then
order to hold Virata liable to Ng Wee? (YES)
be made liable for his and Power Merge’s obligations.
(2) Whether or not it is proper to pierce the veil of corporate veil of UEM MARA in
order to hold it liable for the obligation of its owner, Virata? (NO)
(2) IT IS NOT PROPER TO PIERCE THE VEIL OF UEN MARA
UEM-MARA is not liable. The RTC and the CA held that the corporation ought to be
RATIO: held solidarily liable with the other petitioners in order that justice can reach the
illegal proceeds from the defrauded investments of Ng Wee under the Power Merge
(1) YES IT IS PROPER TO PIERCE THE VEIL OF POWER MERGE account.

Petitioner Virata reiterates his claim that piercing the corporate veil of Power Merge According to the trial court, Virata laundered the proceeds of the Power Merge
for the sole reason that he owns majority of its shares is improper. He adds that the borrowings and stashed them in UEM-MARA to prevent detection and discovery and
Credit Line Agreements and Side Agreements were valid arm’s length transactions, hence, UEM-MARA should likewise be held solidarily liable.
and that their executions were in the performance of his official capacity, which he
cannot be made personally liable for in the absence of fraud, bad faith, or gross UEM-MARA is an entity distinct and separate from Power Merge, and it was not
negligence on his part. established that it was guilty in perpetrating fraud against the investors. It was a
nonparty to the “sans recourse” transactions, the Credit Line Agreement, the Side
The Court rejects these arguments. Concept Builders, Inc. v. NLRC instructs that as Agreements, the Promissory Notes, the Confirmation Advices, and to the other
a fundamental principle of corporation law, a corporation is an entity separate and transactions that involved Wincorp, Power Merge, and Ng Wee.
distinct from its stockholders and from other corporations to which it may be
connected. But this separate and distinct personality of a corporation is merely a There is then no reason to involve UEM-MARA in the fray. Otherwise stated,
fiction created by law for convenience and to promote justice. respondent Ng Wee has no cause of action against UEM-MARA. UEM-MARA should
not have been impleaded in this case.
Thus, authorities discuss that when the notion of separate juridical personality is
used (1) to defeat public convenience, justify wrong, protect fraud or defend crime; (2)
as a device to defeat the labor laws; or (3) when the corporation is merely an adjunct, DISPOSITIVE:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
Petitioner Ng Wee, ordering the defendants Luis L. Virata, Westmont Investment
Corporation (Wincorp), Antonio T. Ong (committed suicide in 2009), Anthony T.
Reyes, Simeon Cua, Vicente and Henry Cualoping, Mariza Santos-Tan, and Manuel
Estrella to jointly and severally pay Ng Wee.

LIVESEY VS BINSWANGER (G.R. NO. 177493 MARCH 19, 2014)
Livesey vs Binswanger Philippines Inc.
G.R. No. 177493 March 19, 2014
J. Brion
Facts: In December 2001, petitioner Eric Godfrey Stanley Livesey filed a complaint
for illegal dismissal with money claims against CBB Philippines Strategic Property
Services, Inc. (CBB) and Paul Dwyer. CBB was a domestic corporation engaged in
real estate brokerage and Dwyer was its President.
Thereafter, the parties entered into a compromise agreement which LA Reyno
approved in an order dated November 6, 2002. Under the agreement, Livesey was to
receive US$31,000.00 in full satisfaction of LA Reyno’s decision, broken down into
US$13,000.00 to be paid by CBB to Livesey or his authorized representative upon the
signing of the agreement; US$9,000.00 on or before June 30, 2003; and US$9,000.00
on or before September 30, 2003. Further, the agreement provided that unless and
until the agreement is fully satisfied, CBB shall not: (1) sell, alienate, or otherwise
dispose of all or substantially all of its assets or business; (2) suspend, discontinue,
or cease its entire, or a substantial portion of its business operations; (3)
substantially change the nature of its business; and (4) declare bankruptcy or
insolvency.
CBB paid Livesey the initial amount of US$13,000.00, but not the next two
installments as the company ceased operations. In reaction, Livesey moved for the
issuance of a writ of execution. LA Eduardo G. Magno granted the writ, but it was not
enforced. Livesey then filed a motion for the issuance of an alias writ of execution,
alleging that in the process of serving respondents the writ, he learned “that
respondents, in a clear and willful attempt to avoid their liabilities to complainant . . .
have organized another corporation, [Binswanger] Philippines, Inc.” He claimed that
there was evidence showing that CBB and Binswanger Philippines, Inc. (Binswanger)
are one and the same corporation, pointing out that CBB stands for Chesterton
Blumenauer Binswanger. Invoking the doctrine of piercing the veil of corporate
fiction, Livesey prayed that an alias writ of execution be issued against respondents
Binswanger and Keith Elliot, CBB’s former President, and now Binswanger’s
President and Chief Executive Officer (CEO).
Issue: Whether or not the doctrine of piercing the corporate veil may be applied.
Held: Yes. It has long been settled that the law vests a corporation with a personality
distinct and separate from its stockholders or members. In the same vein, a
corporation, by legal fiction and convenience, is an entity shielded by a protective
mantle and imbued by law with a character alien to the persons comprising it. 43
Nonetheless, the shield is not at all times impenetrable and cannot be extended to a
point beyond its reason and policy. Circumstances might deny a claim for corporate
personality, under the “doctrine of piercing the veil of corporate fiction.”
Piercing the veil of corporate fiction is an equitable doctrine developed to address
situations where the separate corporate personality of a corporation is abused or
used for wrongful purposes. Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for non-legitimate purposes, such as
to evade a just and due obligation, or to justify a wrong, to shield or perpetrate fraud
or to carry out similar or inequitable considerations, other unjustifiable aims or
intentions, in which case, the fiction will be disregarded and the individuals
composing it and the two corporations will be treated as identical.
In the present case, we see an indubitable link between CBB’s closure and
Binswanger’s incorporation. CBB ceased to exist only in name; it re-emerged in the
person of Binswanger for an urgent purpose — to avoid payment by CBB of the last
two installments of its monetary obligation to Livesey, as well as its other financial
liabilities. Freed of CBB’s liabilities, especially that owing to Livesey, Binswanger can
continue, as it did continue, CBB’s real estate brokerage business.
Livesey’s evidence, whose existence the respondents never denied, converged to show
this continuity of business operations from CBB to Binswanger. It was not just
coincidence that Binswanger is engaged in the same line of business CBB embarked
on: (1) it even holds office in the very same building and on the very same floor where
CBB once stood; (2) CBB’s key officers, Elliot, no less, and Catral moved over to
Binswanger, performing the tasks they were doing at CBB; (3) notwithstanding CBB’s
closure, Binswanger’s Web Editor (Young), in an e-mail correspondence, supplied the
information that Binswanger is “now known” as either CBB (Chesterton Blumenauer
Binswanger or as Chesterton Petty, Ltd., in the Philippines; (4) the use of Binswanger
of CBB’s paraphernalia (receiving stamp) in connection with a labor case where
Binswanger was summoned by the authorities, although Elliot claimed that he
bought the item with his own money; and (5) Binswanger’s takeover of CBB’s project
with the PNB.
While the ostensible reason for Binswanger’s establishment is to continue CBB’s
business operations in the Philippines, which by itself is not illegal, the close
proximity between CBB’s disestablishment and Binswanger’s coming into existence
points to an unstated but urgent consideration which, as we earlier noted, was to
evade CBB’s unfulfilled financial obligation to Livesey under the compromise
agreement.

LANUZA v. BF CORPORATION G.R. No. 174938 October 1, 2014 Piercing the
Veil of Corporate Fiction
JUNE 19, 2019
FACTS:
BF Corporation entered into agreements with Shangri-La wherein it undertook to
construct for Shangri-La a mall and a multilevel parking structure along EDSA.
When Shangri-La started defaulting in payment, Shangri-La induced BF Corporation
to continue with the construction of the buildings using its own funds and credit.
According to BF Corporation, ShangriLa misrepresented that it had funds to pay for
its obligations with BF Corporation.
BF Corporation eventually completed the construction of the buildings. Shangri-La
allegedly took possession of the buildings while still owing BF Corporation an
outstanding balance.
BF Corporation filed a collection complaint Shangri-La and the members of its board
of directors. BF Corporation alleged that despite repeated demands, Shangri-La
refused to pay the balance owed to it.
Shangri-La, et al. filed a motion to suspend the proceedings in view of BF
Corporation’s failure to submit its dispute to arbitration, in accordance with the
arbitration clause provided in its contract. The RTC  denied the motion to suspend
proceedings.
Shangri-La, et al. filed a petition for certiorari with the CA.
The CA granted the petition for certiorari and ordered the submission of the dispute
to arbitration.
Hence, this petition.
Petitioners argue that they cannot be held personally liable for corporate acts or
obligations, and that they are third parties to the contract between BF Corporation
and Shangri-La. Provisions including arbitration stipulations should bind only the
parties. Based on our arbitration laws, parties who are strangers to an agreement
cannot be compelled to arbitrate.
ISSUE:
Whether petitioners should be made parties to the arbitration proceedings, pursuant
to the arbitration clause provided in the contract between BF Corporation and
Shangri-La.
RULING:
The petition must fail.
Corporate representatives may be compelled to submit to arbitration proceedings
pursuant to a contract entered into by the corporation they represent if there are
allegations of bad faith or malice in their acts representing the corporation.
Indeed, as petitioners point out, their personalities as directors of Shangri-La are
separate and distinct from Shangri-La.
A corporation, in the legal sense, is an individual with a personality that is distinct
and separate from other persons including its stockholders, officers, directors,
representatives, and other juridical entities.
Because a corporation’s existence is only by fiction of law, it can only exercise its
rights and powers through its directors, officers, or agents, who are all natural
persons. A corporation cannot sue or enter into contracts without them.
Because a corporation’s existence is only by fiction of law, it can only exercise its
rights and powers through its directors, officers, or agents, who are all natural
persons. A corporation cannot sue or enter into contracts without them.
A corporation’s representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and
liabilities incurred on or in behalf of the corporation.
However, there are instances when the distinction between personalities of directors,
officers,and representatives, and of the corporation, are disregarded. We call this
piercing the veil of corporate fiction.
Piercing the corporate veil is warranted when “[the separate personality of a
corporation] is used as a means to perpetrate fraud or an illegal act, or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues.”
Among the persons who may be treated as the corporation itself under certain
circumstances are its directors and officers.
When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these
persons and the corporation should be treated as one.
Hence, when the directors, as in this case, are impleaded in a case against a
corporation, alleging malice or bad faith on their part in directing the affairs of the
corporation, complainants are effectively alleging that the directors and the
corporation are not acting as separate entities. They are alleging that the acts or
omissions by the corporation that violated their rights are also the directors’ acts or
omissions.
They are alleging that contracts executed by the corporation are contracts executed
by the directors. Complainants effectively pray that the corporate veil be pierced
because the cause of action between the corporation and the directors are the same.

It is because the personalities of petitioners and the corporation may later be found
to be indistinct that we rule that petitioners may be compelled to submit to
arbitration.

In ruling that petitioners may be compelled to submit to the arbitration proceedings,

we are not overturning.
 for their monetary claims. Basing their conclusion on the Memorandum

CASE 15: T. Ramirez, et al. vs. Mar Fishing Co., Inc,. et al., G.R. of Agreement and Supplemental Agreement between Miramar and Mar

No. 168208, June 13, 2012 Fishings labor union, as well as the General Information Sheets and

DOCTRINE: Company Profiles of the two companies, petitioners assert that

The mere showing that the corporations had a common Miramar simply took over the operations of Mar Fishing.

director sitting in all the boards without more does not authorize 5. In addition, they assert that these companies are one and the same

disregarding their separate juridical personalities. entity, given the commonality of their directors and the similarity of

It bears emphasizing that since piercing the veil of corporate fiction is their business venture in tuna canning plant operations.

frowned upon, those who seek to pierce the veil must clearly establish

that the separate and distinct personalities of the corporations are set ISSUE: WON Miramar and Mar Fishing are separate and distinct

up to justify a wrong, protect a fraud, or perpetrate a deception. entities, based on the marked differences in their stock ownership

FACTS:

1. Respondent Mar Fishing sold its principal assets to co- HELD: YES, they are separate and distinct entities.

respondent Miramar Fishing Co., Inc. (Miramar) through public bidding. RATIO: Miramar and Mar Fishing are separate and distinct entities,

The proceeds of the sale were paid to the Trade and Investment based on the marked differences in their stock ownership. Also, the

Corporation of the Philippines (TIDCORP) to cover Mar Fishings fact that Mar Fishings officers remained as such in Miramar does not by

outstanding obligation. itself warrant a conclusion that the two companies are one and the

2. In view of that transfer, Mar Fishing issued a Memorandum informing same. As this Court held in Sesbreo v. Court of Appeals, the mere showing

all its workers that the company would cease to operate by the end of that the corporations had a common director sitting in all the boards

the month. Merely two days prior to the months end, it notified the without more does not authorize disregarding their separate juridical

DOLE of the closure of its business operations. personalities.

3. Thereafter, Mar Fishings labor unions entered into a Memorandum of Neither can the veil of corporate fiction between the two companies be

Agreement which provided that the acquiring company, Miramar, shall pierced by the rest of petitioners submissions, namely, the alleged

absorb Mar Fishings regular rank and file employees whose take-over by Miramar of Mar Fishings operations and the evident

performance was satisfactory, without loss of seniority rights and similarity of their businesses. At this point, it bears emphasizing that

privileges previously enjoyed. since piercing the veil of corporate fiction is frowned upon, those who

4. Petitioners questioned the holding that only Mar Fishing was liable seek to pierce the veil must clearly establish that the separate and
distinct personalities of the corporations are set up to justify a wrong,

protect a fraud, or perpetrate a deception. This, unfortunately,

petitioners have failed to do.

Having been found by the trial courts to be a separate entity, Mar

Fishing and not Miramar is required to compensate petitioners. Indeed,

the back wages and retirement pay earned from the former employer

cannot be filed against the new owners or operators of an enterpris

 Yes.

TIMOTEO H. SARONA v. The doctrine of piercing the corporate veil applies in alter ego cases, where a
corporation is merely a farce since it is a mere alter ego or business conduit of a
NATIONAL LABOR RELATIONS COMMISSION 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
G.R. No. 185280, January 18, 2012
another corporation.
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
The respondents’ scheme reeks of bad faith and fraud and compassionate justice
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)
dictates that Royale and Sceptre be merged as a single entity, compelling Royale to
credit and recognize the petitioner’s length of service with Sceptre. The respondents
cannot use the legal fiction of a separate corporate personality for ends subversive of
FACTS: the policy and purpose behind its creation53 or which could not have been intended
by law to which it owed its being.
On June 20, 2003, the petitioner, who was hired by Sceptre as a security guard
sometime in April 1976, was asked by Karen Therese Tan (Karen), Sceptre’s
Operation Manager, to submit a resignation letter as the same was supposedly
required for applying for a position at Royale. The petitioner was also asked to fill up Also, Sceptre and Royale have the same principal place of business. As early as
Royale’s employment application form, which was handed to him by Royale’s General October 14, 1994, Aida and Wilfredo became the owners of the property used by
Manager, respondent Cesar Antonio Tan II (Cesar). Sceptre as its principal place of business by virtue of a Deed of Absolute Sale they
executed with Roso.57 Royale, shortly after its incorporation, started to hold office in
After several weeks of being in floating status, Royale’s Security Officer, Martin Gono the same property. These, the respondents failed to dispute.
(Martin), assigned the petitioner at Highlight Metal Craft, Inc. (Highlight Metal) from
July 29, 2003 to August 8, 2003. Thereafter, the petitioner was transferred and
assigned to Wide Wide World Express, Inc. (WWWE, Inc.).
Royale also claimed a right to the cash bond which the petitioner posted when he was
On September 17, 2003, the petitioner was informed that his assignment at WWWE, still with Sceptre. If Sceptre and Royale are indeed separate entities, Sceptre should
Inc. had been withdrawn because Royale had allegedly been replaced by another have released the petitioner’s cash bond when he resigned and Royale would have
security agency. The petitioner, however, shortly discovered thereafter that Royale required the petitioner to post a new cash bond in its favor.
was never replaced as WWWE, Inc.’s security agency. When he placed a call at
WWWE, Inc., he learned that his fellow security guard was not relieved from his post.
However, the manner by which the petitioner was made to resign from Sceptre and
On September 21, 2003, the petitioner was once again assigned at Highlight Metal,
how he became an employee of Royale suggest the perverted use of the legal fiction of
albeit for a short period from September 22, 2003 to September 30, 2003.
the separate corporate personality.
Subsequently, when the petitioner reported at Royale’s office on October 1, 2003,
Martin informed him that he would no longer be given any assignment per the
instructions of Aida Sabalones-Tan (Aida), general manager of Sceptre. This
prompted him to file a complaint for illegal dismissal on October 4, 2003.

ISSUE:

Whether or not Royale’s corporate fiction should be pierced for the purpose of
compelling it to recognize the petitioner’s length of service with Sceptre and for
holding it liable for the benefits that have accrued to him arising from his
employment with Sceptre?

RULING:
PANTRANCO EMPLOYEES ASSOCIATION v. NLRC G.R. No. 170689, March 17,
2009
NO.

PANTRANCO EMPLOYEES ASSOCIATION v. NLRC G.R. No. 170689. March 17,

2009 First, the subject property is not owned by the judgment debtor, that is, PNEI.
Nowhere in the records was it shown that PNEI owned the Pantranco properties.
 Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)

(Topic: Doctrine of Piercing the Veil of Corporate Fiction)

FACTS:
The Gonzales family owned two corporations, namely, the PNEI and Macris Realty
Corporation (Macris). PNEI provided transportation services to the public, and had its
bus terminal at the corner of Quezon and Roosevelt Avenues in Quezon City. The
terminal stood on four valuable pieces of real estate (known as Pantranco properties)
registered under the name of Macris.  The Gonzales family later incurred huge
financial losses despite attempts of rehabilitation and loan infusion. In March 1975,
their creditors took over the management of PNEI and Macris. By 1978, full
ownership was transferred to one of their creditors, the National Investment
Development Corporation (NIDC), a subsidiary of the PNB.
In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned
by Gregorio Araneta III. In 1986, PNEI was among the several companies placed
under sequestration by the Presidential Commission on Good Government (PCGG)
shortly after the historic events in EDSA. In January 1988, PCGG lifted the
sequestration order to pave the way for the sale of PNEI back to the private sector
through the Asset Privatization Trust (APT). APT thus took over the management of
PNEI.
In 1992, PNEI applied with the Securities and Exchange Commission (SEC) for
suspension of payments. A management committee was thereafter created which
recommended to the SEC the sale of the company through privatization. As a cost-
saving measure, the committee likewise suggested the retrenchment of several PNEI
employees. Eventually, PNEI ceased its operation. Along with the cessation of
business came the various labor claims commenced by the former employees of PNEI
where the latter obtained favorable decisions.
the settled rule that the power of the court in executing judgments extends only to
properties unquestionably belonging to the judgment debtor alone.  To be sure, one
mans goods shall not be sold for another mans debts.  A sheriff is not authorized to
attach or levy on property not belonging to the judgment debtor, and even incurs
liability if he wrongfully levies upon the property of a third person.
Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities
separate and distinct from that of PNEI. PNB is sought to be held liable because it
acquired PNEI through NIDC at the time when PNEI was suffering financial reverses.
PNB-Madecor is being made to answer for petitioners labor claims as the owner of the
subject Pantranco properties and as a subsidiary of PNB. Mega Prime is also included
for having acquired PNBs shares over PNB-Madecor.
The general rule is that a corporation has a personality separate and distinct from
those of its stockholders and other corporations to which it may be connected.  This
is a fiction created by law for convenience and to prevent injustice.  Obviously, PNB,
PNB-Madecor, Mega Prime, and PNEI are corporations with their own personalities.
Neither can we merge the personality of PNEI with PNB simply because the latter
acquired the former. Settled is the rule that where one corporation sells or otherwise
transfers all its assets to another corporation for value, the latter is not, by that fact
alone, liable for the debts and liabilities of the transferor. 

ISSUE:
Whether or not PNEI employees can attach the properties (specifically the Pantranco
properties) of PNB, PNB-Madecor and Mega Prime to satisfy their unpaid labor claims
against PNEI?
Lastly, while we recognize that there are peculiar circumstances or valid grounds that
may exist to warrant the piercing of the corporate veil,   none applies in the present
case whether between PNB and PNEI; or PNB and PNB-Madecor.

RULING:
CASE: Cagayan Valley Drug Corporation vs. Commissioner of Internal Revenue
(G.R. No. 151413 February 13, 2008)
PONENTE: Velasco, Jr., J.:
FACTS:
Cagayan Valley Drug Corporation, a domestic corporation, is a duly licensed retailer
of medicine and other pharmaceutical products.
Cagayan alleged that in 1995, it granted 20% sales discounts to qualified senior
citizens on purchases of medicine pursuant to Republic Act No. (RA) 7432.
In compliance with Revenue Regulation No. (RR) 2-94, Cagayan treated the 20% sales
discounts granted to qualified senior citizens in 1995 as deductions from the gross
sales in order to arrive at the net sales, instead of treating them as tax credit as
provided by Section 4 of RA 7432.
Thereafter, Cagayan filed with the BIR a claim for tax refund/tax credit of the full
amount of the 20% sales discount it granted to senior citizens for the year 1995 in
accordance with Sec. 4 of RA 7432.
The BIR’s inaction on its claim for refund/tax credit compelled Cagayan to file a
petition for review before the CTA.
The CTA rendered a Decision dismissing the petition for review for lack of merit. It
ruled that the 20% sales discounts Cagayan granted to qualified senior citizens
should be deducted from its income tax due and not from petitioner’s gross sales as
erroneously provided in RR 2-94. However, notwithstanding Cagayan’s entitlement to
a tax credit, the CTA denied the tax credit to Cagayan on the ground that it had
suffered net loss in 1995.
The CTA ratiocinated that on matters of tax credit claim, the government applies the
amount determined to be reimbursable after proper verification against any sum that
may be due and collectible from the taxpayer. However, if no tax has been paid or if
no amount is due and collectible from the taxpayer, then a tax credit is unavailing.
RULING:
A)      Yes, the president can sign the verification and certification. The Court has
recognized the authority of some corporate officers to sign the verification and
certification against forum shopping. In Mactan-Cebu International Airport Authority
v. CA, we recognized the authority of a general manager or acting general manager to
sign the verification and certificate against forum shopping; in Pfizer v. Galan, we
upheld the validity of a verification signed by an “employment specialist” who had not
even presented any proof of her authority to represent the company; in Novelty
Philippines, Inc., v. CA, we ruled that a personnel officer who signed the petition but
did not attach the authority from the company is authorized to sign the verification
and non-forum shopping certificate; and in Lepanto Consolidated Mining Company v.
WMC Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of
the Board and President of the Company can sign the verification and certificate
against non-forum shopping even without the submission of the board’s
authorization.
In sum, we have held that the following officials or employees of the company can
sign the verification and certification without need of a board resolution: (1) the
Chairperson of the Board of Directors, (2) the President of a corporation, (3) the
General Manager or Acting General Manager, (4) Personnel Officer, and (5) an
Employment Specialist in a labor case.
While the above cases do not provide a complete listing of authorized signatories to
the verification and certification required by the rules, the determination of the
sufficiency of the authority was done on a case to case basis. The rationale applied in
the foregoing cases is to justify the authority of corporate officers or representatives
of the corporation to sign the verification or certificate against forum shopping, being
“in a position to verify the truthfulness and correctness of the allegations in the
petition.”

Aggrieved, Cagayan elevated the matter before the CA

***(please note that , now, Decisions of CTA can no longer be appealed to CA).

One of the issues raised before the CA is the irregularity of the verification and
certification of non-forum shopping as it was signed by the president without any
proof of authorization by the Board of Directors of Cagayan.

ISSUES:

A) Whether Cagayan’s president can sign the subject verification and certification
sans the approval of its Board of Directors.

THE HEIRS OF THE LATE PANFILO
vs.
PAJARILLO VS. CA, NLRC, et al.
G.R. No. 155056-57. October 19, 2007
FACTS:
Private respondents were employed as drivers, conductors and conductresses
by Panfilo. In sum, each of the private respondents earned an average daily
commission of about P150.00 a day. They were not given emergency cost of living
allowance, 13th month pay, legal holiday pay and service incentive leave pay.The
following were deducted from the private respondents’ daily commissions.
Thereafter, private respondents and several co-employees formed a union
called “SAMAHAN NG MGA MANGGAGAWA NG PANFILO V. PAJARILLO”. The
Department of Labor and Employment issued a Certificate of Registration in favor of
the respondent union. Upon learning of the formation of respondent union, Panfilo
and his children ordered some of the private respondents to sign a document
affirming their trust and confidence in Panfilo and denying any irregularities on his
part. Other private respondents were directed to sign a blank document which
turned out to be a resignation letter. Private respondents refused to sign the said
documents; hence, they were barred from working or were dismissed without hearing
and notice. Panfilo and his children and relatives also formed a company union
where they acted as its directors and officers.
On 25 August 1987, respondent union and several employees filed a
Complaint for unfair labor practice and illegal deduction before the Labor Arbiter with
“Panfilo V. Pajarillo Liner” as party-respondent. After hearing and submission by
both parties of their respective position papers and memoranda, Labor Arbiter
Manuel P. Asuncion rendered a Decision dated 28 December 1992, dismissing the
consolidated complaints for lack of merit. Respondent union appealed to the NLRC.
On 18 June 1996, the NLRC reversed the decision of Arbiter Asuncion and ordered
the reinstatement and payment of backwages, ECOLA, 13th month pay, legal holiday
pay and service incentive leave pay to, private respondents.
ISSUE:
Whether the Honorable Court of Appeals seriously erred in piercing the veil of
corporate entity of Pvp Pajarillo Liner Inc.
RULING:
NO.
Hence, when the notion of separate juridical personality is used to defeat
public convenience, justify wrong, protect fraud or defend crime, or is used as a
device to defeat labor laws, this separate personality of the corporation may be
disregarded or the veil of the corporate fiction pierced. This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego of another
corporation. The corporate mask may be lifted and the corporate veil may be pierced
when a corporation is but the alter ego of a person or another corporation. It is clear
from the foregoing that P.V. Pajarillo Liner Inc. was a mere continuation and
successor of the sole proprietorship of Panfilo. It is also quite obvious that Panfilo
transformed his sole proprietorship into a family corporation in a surreptitious
attempt to evade the charges of respondent union. Given these considerations,
Panfilo and P.V. Pajarillo Liner Inc. should be treated as one and the same person for
purposes of liability.
(got this from the orig case just in case necessary) It is apparent that Panfilo started
his transportation business as the sole owner and operator of passenger buses
utilizing the name PVP Liner for his buses. After being charged by respondent union
of unfair labor practice, illegal deductions, illegal dismissal and violation of labor
standard laws, Panfilo transformed his transportation business into a family
corporation, namely, P.V. Pajarillo Liner Inc. He and petitioners were the
incorporators, stockholders and officers therein. P.V. Pajarillo Inc. and the sole
proprietorship of Panfilo have the same business address. P.V. Pajarillo Inc. also uses
the name "PVP Liner" in its buses. Further, the license to operate or franchise of the
sole proprietorship was merely transferred to P.V. Pajarillo Liner Inc. The testimony
of Abel during the hearing before Arbiter Asuncion that P.V. Pajarillo Liner Inc. was a
mere continuation and successor of the sole proprietorship of Panfilo. I
PETRON CORPORATION AND PETER C. MALIGRO
vs.
NATIONAL LABOR RELATIONS COMMISSION AND CHITO S. MANTOS
G.R. No. 154532. October 27, 2006
FACTS
On May 15, 1990, Petron, through its Cebu District Office, hired the herein
private respondent Chito S. Mantos, an Industrial Engineer, as a managerial,
professional and technical employee with initial designation as a Bulk Plant
Engineering Trainee. He attained regular employment status on November 15, 1990
and was later on designated as a Bulk Plant Relief Supervisor, remaining as such for
the next five years while being assigned to the different plants and offices of Petron
within the Visayas area.
It was while assigned at Petron’s Cebu District Office with petitioner Peter
Maligro as his immediate superior, when Mantos, thru a Notice of Disciplinary Action
was suspended for 30 days from November 1 to 30, 1996 for violating company rules
and regulations regarding AWOL, not having reported for work during the period
August 5 to 27, 1996. Subsequently, his services was terminated effective December
1, 1996, by reason of his continued absences from August 28, 1996 onwards, as well
as for Insubordination/Discourtesy for making false accusations against his
superior. Meanwhile, contending that he has been constructively dismissed as of
August 5, 1996, Mantos filed with the NLRC-RAB, Cebu City, a complaint for illegal
dismissal.
ISSUES:
Whether or not Maligro is solidarily liable with Petron.
RULING:
NO.
The NLRC erred in holding petitioner Peter Maligro jointly and severally liable
with petitioner Petron for the money claims of the private respondent.
Settled is the rule in this jurisdiction that a corporation is invested by law
with a legal personality separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it. Thus, obligations incurred by
corporate officers acting as corporate agents are not theirs but the direct
accountabilities of the corporation they represent. True, solidary liabilities may at
times be incurred by corporate officers, but only when exceptional circumstances so
warrant.
In the present case, the apparent basis for the NLRC in holding petitioner
Maligro solidarily liable with Petron were its findings that (1) the Investigation
Committee was created a day after the summons in NLRC RAB was received, with
Maligro no less being the chairman thereof; and (2) the basis for the charge of
insubordination was the private respondent’s alleged making of false accusations
against Maligro.
Those findings, however, cannot justify a finding of personal liability on the
part of Maligro inasmuch as said findings do not point to Maligro’s extreme personal
hatred and animosity with the respondent. It cannot, therefore, be said that Maligro
was motivated by malice and bad faith in connection with private respondent’s
dismissal from the service.
CHINA BANKING CORPORATION
vs.
DYNE-SEM ELECTRONICS CORPORATION
G.R. No. 149237. June 11, 2006
FACTS:
On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O. Lim
borrowed a total of P8,939,000 from petitioner China Banking Corporation evidenced
by six promissory notes. The borrowers failed to pay when the obligations became
due prompting the petitioner to institute a complaint for sum of money against them.
Summons was not served on Dynetics, however, because it had already closed down.
An amended complaint was filed by petitioner impleading respondent Dyne-Sem
Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, Antonio
Garcia and Jacob Ratinoff. According to petitioner, respondent was formed and
organized to be Dynetics alter ego as established by the following circumstances: (a)
Dynetics, Inc. and respondent are both engaged in the same line of business of
manufacturing, producing, assembling, processing, importing, exporting, buying,
distributing, marketing and testing integrated circuits and semiconductor devices; (b)
the principal office and factory site of Dynetics, Inc. located at Avocado Road, FTI
Complex, Taguig, Metro Manila, were used by respondent as its principal office and
factory site; (c) respondent acquired some of the machineries and equipment of
Dynetics, Inc. from banks which acquired the same through foreclosure; (d)
respondent retained some of the officers of Dynetics, Inc.
ISSUE:
Whether the Doctrine of Piercing the Veil of Corporate Fiction is applicable in
the present case.
RULING:
YES.
The general rule is that a corporation has a personality separate and distinct
from that of its stockholders and other corporations to which it may be connected.
This is a fiction created by law for convenience and to prevent injustice.
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds may
exist to warrant the disregard of its independent being and the piercing of the
corporate veil.
The veil of separate corporate personality may be lifted when such personality is used
to defeat public convenience, justify wrong, protect fraud or defend crime; or used as
a shield to confuse the legitimate issues; or when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation or where the
corporation is so organized and controlled and its affairs are so conducted as to make
it merely an instrumentality, agency, conduit or adjunct of another corporation; or
when the corporation is used as a cloak or cover for fraud or illegality, or to work
injustice, or where necessary to achieve equity or for the protection of the creditors.
In such cases, the corporation will be considered as a mere association of persons.
The liability will directly attach to the stockholders or to the other corporation. To
disregard the separate juridical personality of a corporation, the wrongdoing must be
proven clearly and convincingly.
In this case, petitioner failed to prove that Dyne-Sem was organized and
controlled, and its affairs conducted, in a manner that made it merely an
instrumentality, agency, conduit or adjunct of Dynetics, or that it was established to
defraud Dynetics creditors, including petitioner.
MARUBENI CORPORATION, RYOICHI TANAKA, RYOHEI KIMURA
and SHOICHI ONE
vs.
FELIX LIRAG
G.R. No. 130998. August 10, 2001
FACTS:
 Marubeni Corporation is a foreign corporation organized under the laws of
Japan. It was doing business in the Philippines through its duly licensed, wholly
owned subsidiary, Marubeni Philippines Corporation. Petitioners Ryoichi Tanaka,
Ryohei Kimura and Shoichi One were officers of Marubeni assigned to its Philippine
branch.
On January 27, 1989, Lirag filed with the RTC of Makati a complaint for
specific performance and damages in the sum of P6M as commission pursuant to an
oral consultancy agreement with Marubeni for obtaining government contracts of
various projects. Lirag claimed that on February 2, 1987, petitioner Ryohei Kimura
hired his consultancy group for the purpose of obtaining government contracts of
various projects. The agreement was merely oral because of the mutual trust
between Marubeni and the Lirag family which dates back to the 1960s. One of the
projects handled by respondent Lirag, the Bureau of Post project, amounting to
P100,000,000.00 was awarded to the “Marubeni-Sanritsu tandem. Despite repeated
demands of his 6% commission was never paid.
Marubeni claimed that Ryohei Kimura did not have the authority to enter
into such agreement in their behalf. Only the general manager, upon issuance of a
SPA by the principal office in Tokyo, Japan, could enter into any contract in behalf of
the corporation. They also claimed that Marubeni never participated in the Bureau
of Post project nor benefited from such project.
ISSUE:
Whether or not there was a consultancy agreement to make Lirag entitled to
commission.
RULING:
NO.
The only basis of Lirag in claiming from Marubeni was because he claims
that they are sister companies since Marubeni was the supplier and contractor of the
Sanritsu. Not because two foreign companies came from the same country and
closely worked together on certain projects would the conclusion arise that one was
the conduit of the other, thus piercing the veil of corporate fiction.
The separate personality of the corporation may be disregarded only when
the corporation is used as a cloak or cover for fraud or illegality, or to work injustice,
or where necessary for the protection of creditors. Aside from the self-serving
testimony of respondent regarding the existence of a close working relationship
between Marubeni and Sanritsu, there was nothing that would support the
conclusion that Sanritsu was an agent of Marubeni.
Any agreement entered into because of the actual or supposed influence
which the party has, engaging him to influence executive officials in the discharge of
their duties, which contemplates the use of personal influence and solicitation rather
than an appeal to the judgment of the official on the merits of the object sought is
contrary to public policy. Consequently, the agreement, assuming that the parties
agreed to the consultancy, is null and void as against public policy. Therefore, it is
unenforceable before a court of justice.
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION
vs.
RITA C. MEJIA, as Executrix of ANDREA CORDOVA VDA. DE GUTIERREZ
G.R. No. 141617. August 14, 2001
FACTS:
Gutierrez was the registered owner of a parcel of land which was later
subdivided into five lots. In 1964, Gutierrez and Cardale Financing and Realty
Corporation executed a Deed of Sale with Mortgage relating to the four of the five lots
for the consideration of P800,000.00. Upon the execution of the deed, Cardale paid
Gutierrez P171,000.00. To secure payment of the balance of the purchase price,
Cardale constituted a mortgage on three of the four parcels of land.
In 1968, owing to Cardale's failure to settle its mortgage obligation, Gutierrez
filed a complaint for rescission of the contract with the Quezon City Regional Trial
Court. In 1969, during the pendency of the rescission case, Gutierrez died and was
substituted by her executrix, respondent Rita C. Mejia.
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, whose President and majority
stockholder is Francisco.
ISSUES:
Whether or not the corporate fiction of Cardale will be pierced.
Whether or not the corporate entity of Merryland must be pierced.
RULING:
YES.
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.

NO.
Merryland cannot be 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. Thus, Merryland's separate
juridical personality must be upheld.
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT
CORPORATION (NASUDECO)
vs.
ANDRADA ELECTRIC & ENGINEERING COMPANY
GR No. 142936. April 17, 2002
FACTS:
Respondent is a partnership duly organized, existing, and operating under
the laws of the Philippines is a semi-government corporation duly organized, existing
and operating under the laws of the Philippines; whereas, NASUDECO is also a semi-
government corporation and the sugar arm of the PNB; and the defendant Pampanga
Sugar Mills (PASUMIL in short), is a corporation organized, existing and operating
under the 1975 laws of the Philippines; that the plaintiff is engaged in the business of
general construction for the repairs and/or construction of different kinds of
machineries and buildings.
On August 26, 1975, PNB acquired the assets of the defendant PASUMIL that
were earlier foreclosed by the DBP. PNB organized the defendant NASUDECO in
September, 1975, to take ownership and possession of the assets and ultimately to
nationalize and consolidate its interest in other PNB controlled sugar mills; that prior
to October 29, 1971, the defendant PASUMIL engaged the services of defendant for
electrical rewinding and repair, most of which were partially paid by the defendant
PASUMIL, leaving several unpaid accounts with the plaintiff; that finally, on October
29, 1971, the plaintiff and the defendant PASUMIL entered into a construction
contract.
The defendant PASUMIL and the defendant PNB, and now the defendant
NASUDECO, failed and refused to pay the plaintiff their just, valid and demandable
obligation based on the contract. Defendant prayed that judgment be rendered
against the defendants PNB, NASUDECO, and PASUMIL.
ISSUE:
Whether or not the Veil of Corporate Fiction should be pierced in this case.
RULING:
NO.
The absence of the elements in the present case precludes the piercing of the
corporate veil. First, other than the fact that petitioners acquired the assets of
PASUMIL, there is no showing that their control over it warrants the disregard of
corporate personalities. Second, there is no evidence that their juridical personality
was used to commit a fraud or to do a wrong; or that the separate corporate entity
was farcically used as a mere alter ego, business conduit or instrumentality of
another entity or person. Third, respondent was not defrauded or injured when
petitioners acquired the assets of PASUMIL.
Being the party that asked for the piercing of the corporate veil, respondent
had the burden of presenting clear and convincing evidence to justify the setting
aside of the separate corporate personality rule. However, it utterly failed to discharge
this burden; it failed to establish by competent evidence that petitioner’s separate
corporate veil had been used to conceal fraud, illegality or inequity.
AZCOR MANUFACTURING INC., FILIPINAS PASO and/or ARTURO
ZULUAGA/Owner
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND CANDIDO CAPULSO
G.R. No. 117963. February 11, 1999
FACTS:
Candido Capluso has been working for petitioner for more than 12 years as a
ceramics worker. On February 1991, Capulso requested to go on sick leave, it
appearing that his illness was directly caused by his occupation. Upon recovering,
Capulso was not allowed to resume work and was not reinstated after having tried
five times. He filed a complaint for constructive illegal dismissal and illegal deduction
against AZCOR and Arturo Zuluaga.
AZCOR moved to dismiss the complaint alleging that no employer- employee
relationship existed. Petitioner further added that Capulso became an employee of Fil
Paso on March 1990 but voluntarily resigned after a year as evidenced by a letter of
resignation allegedly tendered by Capulso.
The Labor Arbiter dismissed the complaint for lack of merit and ordered
AZCOR to refund the deducted salaries. On Appeal, the NLRC ruled that the
Contract of Employment stated that the work to be done by Capulso was with Fil
Paso and added the fact that the latter denied having executed and signed the said
resignation letters. Pending the trial of AZCOR’s petition for Certiorari, Capulso
succumbed to asthma and heart disease.
ISSUE:
Whether the petitioners are jointly liable for backwages in favor of the heirs
being separate and distinct entities.
RULING:
YES.
Capulso was led into believing that while he was working with Filipinas Paso,
his real employer was AZCOR. Petitioners never dealt with him openly and in good
faith, nor was he informed of the developments within the company, i.e., his alleged
transfer to Filipinas Paso and the closure of AZCOR's manufacturing operations
beginning 1 March 1990. AZCOR manifested for the first time before the Court that
it had already ceased its business operations. Understandably, Capulso sued AZCOR
alone and was constrained to implead Filipinas Paso as additional respondent only
when it became apparent that the latter also appeared to be his employer.
In the case, the corporate fiction was used as a means to perpetrate a social
injustice or as a vehicle to evade obligations or confuse the legitimate issues. Such
corporate fiction would be discarded and the two (2) corporations would be merged as
one, the first being merely considered as the instrumentality, agency, conduit or
adjunct of the other.
EDUARDO CLAPAROLS, ROMULO AGSAM and/or
CLAPAROLS STEEL AND NAIL PLANT
vs.
COURT OF INDUSTRIAL RELATIONS, ALLIED WORKERS' ASSOCIATION
and/or DEMETRIO GARLITOS, et al.
G.R. No. L-30822. July 31, 1975
FACTS:
In a case filed by private respondents against petitioners for unfair labor
practices, CIR held petitioners liable for reinstatement and back wages from the date
of their dismissal up to their actual reinstatement. Motion for execution was granted
and an examination of petitioners’ payrolls and other records for the computation of
the back wages. When respondents returned to work, the company accountant
refused on the ground that there was no order from the plant owner.
This was on the ground that the records of Claparols Steel Corp. (CSC) show
that it was established on July 1, 1957 succeeding the CSNP which ceased
operations on June 30, 1957, and that the CSC stopped operation on Dec. 7, 1962.
Petitioners filed an opposition alleging that they cannot personally reinstate
respondents because of the present status of the corporation; back wages should
only be limited to 3 months; and that since it ceased to operate on Dec. 7, 1962,
reinstatement should only be up to that date. Respondents opposed and alleged,
among others, that CSNP and CSC is one and the same corporation controlled by
petitioner Claparols, with the latter corporation succeeding the former.
ISSUE:
Whether or not CSNP and CSC is one and the same corporation.
RULING:
YES.
Respondent Court’s findings that indeed the CSNP, which ceased operation
in June 30, 1957, was succeeded by the CSC effective next day, July 1, 1957 up top
December 7, 1962, when the latter finally ceased to operate, were not disputed by
petitioners. It is very clear that the latter was a continuation and successor of the
first entity, and its emergence was skillfully timed to avoid the financial liability that
already attached to its predecessor. Both corporations were owned and controlled by
petitioner Eduardo Claparols and there was no break in the succession and
continuity of the same business. This “avoiding-the-liability” scheme is very patent,
considering that 90% of the subscribed shares of the CSC were owned by Claparols
himself, and all the assets of the dissolved CSNP were turned over to the CSC.
COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA)
vs.
THE NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 121315. July 19, 1999
FACTS:
Complex was engaged in the manufacture of electronic products. It was
actually a subcontractor of electronic products where its customers gave their job
orders, sent their own materials and consigned their equipment to it. Thus, there was
the AMS Line for the Adaptive Micro System, Inc., the Heril Line for Heril Co., Ltd.,
the Lite-On Line for the Lite-On Philippines Electronics Co., etc.
The rank and file workers of Complex were organized into a union known as
the Complex Electronics Employees Association, herein referred to as the Union.
Due to its financial reverses, Complex regretfully informed the employees that it was
left with no alternative but to close down the operations of the Lite-On Line. The
Union on the other hand filed a notice of strike with the NCMB. 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 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. 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.
Complex, on the other hand, averred that since the time the Union filed its
notice of strike, there was a significant decline in the quantity and quality of the
products in all of the production lines. Fearful that the machinery, equipment and
materials would be rendered inoperative and unproductive due to the impending
strike of the workers, the customers ordered their pull-out and transfer to Ionics.
Ionics contended that it was an entity separate and distinct from Complex and had
been in existence 8 years before the labor dispute arose at Complex. 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
P1,200,00.00 in Ionics as claimed by the Union.
ISSUE:
Whether or not Complex and Ionics are one and the same.
RULING:
YES.
Ionics may be engaged in the same business as that of Complex, but this fact
alone is not enough reason to pierce the veil of corporate fiction of the corporation.
Well-settled is the rule that a corporation has a personality separate and distinct
from that of its officers and stockholders. This fiction of corporate entity can only be
disregarded in certain cases such as when it is used to defeat public convenience,
justify wrong, protect fraud, or defend crime. To disregard said separate juridical
personality of a corporation, the wrongdoing must be clearly and convincingly
established.
As to the additional documentary evidence which consisted of a newspaper
clipping filed by petitioner Union, we agree with respondent Ionics that the
photo/newspaper clipping itself does not prove that Ionics and Complex are one and
the same entity. The photo/newspaper clipping merely showed that some plants of
Ionics were recertified to ISO 9002 and does not show that there is a relation between
Complex and Ionics except for the fact that Lawrence Qua was also the president of
Ionics. However, as we have stated above, the mere fact that both of the corporations
have the same president is not in itself sufficient to pierce the veil of corporate fiction
of the two corporations.
FRANCISCO MOTORS
vs.
CA and SPOUSES GREGORIO and LIBRADA MANUEL
G.R. No. 100812. Jun 25, 1999
Facts:
This case arose from the decision o the trial court granting the counter claim
of the herein private respondents. Such counterclaim is based from the fact that
Gregorio Manuel, while he was petitioner’s Assistant Legal Officer, he represented
members of the Francisco family in the intestate estate proceedings of the late Benita
Trinidad. However, even after the termination of the proceedings, his services were
not paid. Said family members, he said, were also incorporators, directors and
officers of petitioner. Hence to counter petitioner’s collection suit, he filed a
permissive counterclaim for the unpaid attorney’s fees.
ISSUE:
Whether or not the petitioner corporation is liable for the attorney’s fee owing
to the respondents.
RULING:
NO.
Petitioner argued that being a corporation, it should not be held liable
therefore because these fees were owed by the incorporators, directors and officers of
the corporation in their personal capacity as heirs of Benita Trinidad. Petitioner
stressed that the personality of the corporation, vis-à-vis the individual persons who
hired the services of private respondent, is separate and distinct, hence, the liability
of said individuals did not become an obligation chargeable against petitioner.
In this case, the piercing of the corporate veil was not applied because
rationale behind piercing a corporation’s identity in a given case is to remove the
barrier between the corporation from the persons comprising it to thwart the
fraudulent and illegal schemes of those who use the corporate personality as a shield
for undertaking certain proscribed activities. However, in the case at bar, instead of
holding certain individuals or persons responsible for an alleged corporate act, the
situation has been reversed. It is the petitioner as a corporation which is being
ordered to answer for the personal liability of certain individual directors, officers and
incorporators concerned. Furthermore, according to private respondent Gregorio
Manuel his services were solicited as counsel for members of the Francisco family to
represent them in the intestate proceedings over Benita Trinidad’s estate. These
estate proceedings did not involve any business of petitioner.
The personality of the corporation and those of its incorporators, directors
and officers in their personal capacities ought to be kept separate in this case. The
claim for legal fees against the concerned individual incorporators, officers and
directors could not be properly directed against the corporation without violating
basic principles governing corporations.
SOL LAGUIO, RENE LAOLAO, ANNALIZA ENSANDO, EDELIZA ASAS, LILIA personalities were used to perpetuate fraud, or circumvent the law said corporations
MARAY, EVELYN UNTALAN,* ROSARIO CHICO, REYNALDO GARCIA, MERLITA were rightly treated as distinct and separate from each other.
DE LOS SANTOS,* JOSEPHINE DERONG,* GEMMA TIBALAO BANTOLO, LUCY
ALMONTE,* CRISPINA VANQUARDIA, NARCISA VENZON, NORMA ELEGANTE,*
AMELIA MORENO,* ABNER PETILOS, NARCISO HILAPO, DOLORES OLAES,
MELINDA LLADOC, ERNA AZARCON, and APRIL TOY, INC. WORKERS UNION –
ALAB
vs.
NATIONAL LABOR RELATIONS COMMISSION, WELL WORLD TOYS, INC., APRIL
TOYS, INC., YU SHENG LING, JENN L. WANG, EUCLIFF CHENG, CHI SHENG LIN,
NENITA C. AGUIRRE, MA. THERESA R. CADIENTE and GLICERIA R. AGUIRRE
G.R. No. 108936. October 4, 1996

FACTS:

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

ISSUE:

Whether or not April and Well World are two distinct corporations.

RULING:

YES.

The two corporations have two different set of officers managing their
respective affairs in two separate offices. It is basic that a corporation is invested by
law with a personality separate and distinct from those of the persons composing it
as well as from that of any other legal entity to which it may be related. Mere
substantial identity of the incorporators of the two corporations does not necessarily
imply fraud, 15 nor warrant the piercing of the veil of corporate fiction. In the
absence of clear and convincing evidence that April and Well World's corporate
RUFINA LUY LIM
vs.
COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING,
INC., ACTIVE DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION
COMPANY, INC.
G.R. 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. The respondent herein is the owner of
the properties subject of this. Said properties were included in the inventory of estate
late Pastor Lim. Thus he respondents moved for the exclusion of said properties
which was denied by the trial court. Petitioner contended upon filing an amended
petition that the properties were actually owned by Pastor Lim and the same were
registered under his name, hence they should be included in the inventory of his
estate, and that during his lifetime, he organized and wholly-owned the five
corporations, which are the private respondents in the instant case.
ISSUE:
Whether or not the doctrine of piercing the corporate veil is applicable.
RULING:
NO.
The test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows: 1) Control, not mere majority or complete stock
control, but complete domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own; (2) Such
control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiffs legal 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.
In this case there is no showing that the elements are present. Furthermore,
it was proven that said properties were registered in the name of the corporation,
hence the same were owned by the corporation despite the fact that, assuming true,
it was Pastor Lim who organized the corporation.
MATUGUINA INTEGRATED WOOD PRODUCTS, INC.
vs.
The HON. COURT OF APPEALS, DAVAO ENTERPRISES CORPORATION, The
HON. MINISTER, (NOW SECRETARY) of NATURAL RESOURCES AND PHILLIP
CO.
G.R. No. 98310. October 24, 1996
FACTS:
On June 28, 1973, the Acting Director of the Bureau of Forest Development
issued Provisional Timber License (PTL) No. 30, covering an area of 5,400 hectares to
Ms. Milagros Matuguina who was then doing business under the name of MLE, a sole
proprietorship venture. A portion, covering 1,900 hectares, of the said area was
located within the territorial boundary of Gov. Generoso in Mati, Davao Oriental, and
adjoined the timber concession of Davao Enterprises Corporation (DAVENCOR), the
private respondent.
On July 17, 1975, Milagros Matuguina and petitioner MIWPI executed a
Deed of Transfer 5 transferring all of the former's rights, interests, ownership and
participation in Provincial Timber License No. 30 to the latter for and in consideration
of 148,000 shares of stocks in MIWPI.
On July 28, 1975, pending approval of the request to transfer the PTL to
MIWPI, DAVENCOR, through its Assistant General Manager, complained to the
District Forester at Mati, Davao Oriental that Milagros Matuguina/MLE had
encroached into and was conducting logging operations in DAVENCOR's timber
concession.
ISSUE:
Whether or not MLE and MIWPI are separate and distinct corporations.
RULING:
YES.
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. Conversely,
a stockholder cannot be made to answer for any of its financial obligations even if he
should be its president. But when the juridical personality of the corporation is used
to defeat public convenience, justify wrong, protect fraud or defend crime, the
corporation shall be considered as a mere association of persons, and its responsible
officers and/or stockholders shall be individually. For the same reasons, a
corporation shall be liable for the obligations of a stockholder, or a corporation and
its successor-in-interest shall be considered as one and the liability of the former
shall attach to the latter.
But for the separate juridical personality of a corporation to be disregarded,
the wrongdoing must be clearly and convincingly established. It cannot be presumed.
In the case at bar, there is, insufficient basis for the appellate court's ruling
that MIWPI is the same as Matuguina. The alleged control of Plaintiff Corporation was
not evident in any particular corporate acts of Plaintiff Corporation, wherein Maria
Milagros Matuguina Logging Enterprises is using Plaintiff Corporation, executed acts
or powers directly involving Plaintiff Corporation. Also, mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stocks of the
corporation, is not itself a sufficient warrant for disregarding the fiction of separate
personality.
THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD. It is basic that a corporation has a personality separate and distinct from
vs. those composing it as well as from that of any other legal entity to which it may be
NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J. DIOSANA related. Clear and convincing evidence is needed to pierce the veil of corporate fiction.
AND MARCELO G. SANTOS In this case, the court found no evidence to show that MHICL and MHC are one and
G.R. No. 120077. October 13, 2000 the same entity.

FACTS:

MHICL is a corporation duly organized and existing under the laws of Hong
Kong. MHC is an “incorporator” of MHICL, owning 50% of its capital stock. By virtue
of a “management agreement” with the Palace Hotel (Wang Fu Company Limited),
MHICL trained the personnel and staff of the Palace Hotel at Beijing, China.
Respondent Santos accepted an employment offer from Palace Hotel. On
November 5, 1988, respondent Santos left for Beijing, China. He started to work at
the Palace Hotel. A year later he received a letter stating that his employment is being
terminated due to business reverses brought about by the political upheaval in
China. On February 20, 1990, respondent Santos filed a complaint for illegal
dismissal.

ISSUE:

Whether or not the doctrine of piercing the corporate veil is available to make
MHC liable for damages.

RULING:

NO.

MHC, as a separate and distinct juridical entity cannot be held liable. True,
MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock.
However, this is not enough to pierce the veil of corporate fiction between MHICL and
MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to
when the corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend a crime. It is done only when a corporation is a mere alter ego or
business conduit of a person or another corporation.
In Traders Royal Bank v. Court of Appeals, the court held that “the mere
ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient reason for disregarding the
fiction of separate corporate personalities.”
The tests in determining whether the corporate veil may be pierced are: First,
the defendant must have control or complete domination of the other corporation’s
finances, policy and business practices with regard to the transaction attacked. There
must be proof that the other corporation had no separate mind, will or existence with
respect the act complained of. Second, control must be used by the defendant to
commit fraud or wrong. Third, the aforesaid control or breach of duty must be the
proximate cause of the injury or loss complained of. The absence of any of the
elements prevents the piercing of the corporate veil.
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.
vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE
GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND
DEVELOPMENT CORP.
G.R. No. 129459. September 29, 1998

FACTS:

A parcel of land was sold by Nenita Lee Gruenberg, the corporate treasurer of
defendant corporation Motorich Sale in favor of San Juan Structural and Steel
Fabricators, Inc. However, the latter failed to execute the necessary Transfer of
Rights/Deed of Assignment in favor of plaintiff-appellant. Hence a case for damages
was filed. The defendant corporation questions the validity of the contract entered by
its treasurer in its behalf without authorization from the corporation’s Board.

ISSUE:

Whether or not the doctrine of piercing the veil of corporate fiction be applied
to Motorich.

RULING:

NO.

The contract cannot bind Motorich, because it never authorized or ratified

such sale. A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the corporation is not the
property of its stockholders or members and may not be sold by the stockholders or
members without express authorization from the corporation’s board of directors. The
corporation may act only through its board of directors, or, when authorized either by
its bylaws or by its board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation, bylaws,
or relevant provisions of law.
As to the piercing of the corporate veil, the same is not applicable. In the
present case, the Court finds no reason to pierce the corporate veil of Respondent
Motorich. Petitioner utterly failed to establish that said corporation was formed, or
that it is operated, for the purpose of shielding any alleged fraudulent or illegal
activities of its officers or stockholders; or that the said veil was used to conceal
fraud, illegality or inequity at the expense of third persons, like petitioner.
TELEPHONE ENGINEERING & SERVICE COMPANY, INC.
vs.
WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF RIZAL
and LEONILA SANTOS GATUS, for herself and in behalf of her minor children,
Teresita, Antonina and Reynaldo, all surnamed GATUS
G.R. No. L-28694. May 13, 1981

FACTS:

Utilities Management Corporation (UMACOR), the sister company of the

petitioner hired the late Pacifica L. Gatus as Purchasing Agent. The latter died due to
liver cirrhosis with malignant degeneration. His widow, respondent Leonila S. Gatus,
filed a "Notice and Claim for Compensation" Workmen's Compensation Section,
alleging therein that her deceased husband was an employee of TESCO, and that he
died of liver cirrhosis.
TESCO, in its reply, contended that the cause of the illness contracted by
Gatus was in no way aggravated by the nature of his work. TESCO takes the position
that there was no employer-employee relationship between them, the deceased
having been an employee of UMACOR and not of TESCO.

ISSUE:

Whether or not the contentions of TESCO is tenable.

RULING:

NO.

The court ruled that indeed TESCO is estopped from raising the defense of
non-existence of employer-employee relationship because such was raised only in the
petition for the first time. It was considered by the court as a mere afterthought to
evade liability. It was also seen that in its initial pleadings it did not deny that it is
the employer of the decedent. Petitioner even admitted that TESCO and UMACOR are
sister companies operating under one single management and housed in the same
building. Although respect for the corporate personality as such, is the general rule,
there are exceptions. In appropriate cases, the veil of corporate fiction may be pierced
as when the same is made as a shield to confuse the legitimate issues.
BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. Petitioners are merely seeking the declaration of the nullity of the foreclosure sale,
CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA C. JALBUENA which relief may be obtained without having to disregard the aforesaid corporate
and SANTIAGO M. RIVERA fiction attaching to respondent corporations. Secondly, petitioners failed to establish
vs. by clear and convincing evidence that private respondents were purposely formed
COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS and operated, and thereafter transacted with petitioners, with the sole intention of
MANUFACTURING CO., INC. defrauding the latter.
G.R. No. 89561. September 13, 1990 The mere fact, therefore, that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate personalities, absent
FACTS: sufficient showing that the corporate entity was purposely used as a shield to defraud
creditors and third persons of their rights.
Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The
Castillo family is the owners of a parcel of land located in Lucena City which was
given as security for a loan from the Development Banks of the Philippines. 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 (4) 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 the Castillo family. In this agreement, Santiago Rivera
obliged himself to pay the Castillo family the sum of P70,000.00 immediately after the
execution of the agreement and to pay the additional amount of P400,000.00 after
the property has been converted into a subdivision. Rivera, armed with the
agreement, approached Mr. Modesto Cervantes, President of defendant Bormaheco,
and proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8.
Subsequently, a Sales Agreement was executed on December 28, 1970, which was
accepted by the latter and executed Sales Agreement. The balance of the
consideration was secured by a surety bond from ICP (Insurance Corporation of the
Phil.) which was in turn secured by a mortagage, the properties of the Castillos.

ISSUE:

Whether or not the doctrine of piercing the veil of corporate fiction is

applicable.

RULING:

NO.

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.
In the instant case, petitioners do not seek to impose a claim against the
individual members of the three corporations involved; on the contrary, it is these
corporations which desire to enforce an alleged right against petitioners. Assuming
that petitioners were indeed defrauded by private respondents in the foreclosure of
the mortgaged properties, this fact alone is not, under the circumstances, sufficient
to justify the piercing of the corporate fiction, since petitioners do not intend to hold
the officers and/or members of respondent corporations personally liable therefore.
VLASON ENTERPRISES CORPORATION
vs.
COURT OF APPEALS and DURAPROOF SERVICES, represented by its General
Manager, Cesar Urbino Sr.
G.R. Nos. 121662-64. July 6, 1999
FACTS:
Poro Point Shipping Services, then acting as the local agent of Omega Sea
Transport Company of Honduras & Panama, a Panamanian company, (hereafter
referred to as Omega), requested permission for its vessel M/V Star Ace, which had
engine trouble, to unload its cargo and to store it at the Philippine Ports Authority
(PPA) compound in San Fernando, La Union while awaiting transhipment to
Hongkong. The request was approved by the Bureau of Customs. Despite the
approval, the customs personnel boarded the vessel when it docked on January 7,
1989, on suspicion that it was the hijacked M/V Silver Med owned by Med Line
Philippines Co., and that its cargo would be smuggled into the country. The district
customs collector seized said vessel and its cargo pursuant to Section 2301, Tariff
and Customs Code.
They entered into a salvage agreement with private respondent to secure and
repair the vessel which was destroyed by the typhoons that hit the province at the
agreed consideration of $1 million and “fifty percent (50%) of the cargo after all
expenses, cost and taxes.” Subsequently, the seizure was lifted for want of fraud. To
enforce its preferred salvor’s lien, herein Private Respondent Duraproof Services filed
with the Regional Trial Court of Manila a Petition for Certiorari, Prohibition and
Mandamus assailing the actions of Commissioner Mison and District Collector Sy.
ISSUE:
Whether or not the doctrine of piercing the corporate veil is applicable.
RULING:
NO.
In the present case, Bebero was the secretary of Angliongto, who was
president of both VSI and petitioner, but she was an employee of VSI, not of
petitioner. The piercing of the corporate veil cannot be resorted to when serving
summons. Doctrinally, a corporation is a legal entity distinct and separate from the
members and stockholders who compose it. However, when the corporate fiction is
used as a means of perpetrating a fraud, evading an existing obligation,
circumventing a statute, achieving or perfecting a monopoly or, in generally
perpetrating a crime, the veil will be lifted to expose the individuals composing it.
None of the foregoing exceptions has been shown to exist in the present case. Quite
the contrary, the piercing of the corporate veil in this case will result in manifest
injustice.
De Facto Corporation
C. ARNOLD HALL and BRADLEY P. HALL, petitioners,
vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED
BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of
the Far Eastern Lumber and Commercial Co., Inc., respondents.
G.R. No. L-2598. June 29, 1950
FACTS:
In 1947, the petitioners and the respondents signed and acknowledged in
Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co.,
Inc., organized to engage in a general lumber business to carry on as general
contractors, operators and managers, etc. Attached to the article was an affidavit of
the treasurer stating that 23,428 shares of stock had been subscribed and fully paid
with certain properties transferred to the corporation described in a list appended
thereto.
Immediately after the execution of said articles of incorporation, the
corporation proceeded to do business with the adoption of by-laws and the election of
its officers.
In 1947, the said articles of incorporation were filed in the office of the SEC
for the issuance of the corresponding certificate of incorporation. Thereafter, pending
action on the articles of incorporation by the SEC, the respondents filed before the
Court of First Instance of Leyte a civil case, alleging among other things that the Far
Eastern Lumber and Commercial Co. was an unregistered partnership; that they
wished to have it dissolved because of bitter dissension among the members,
mismanagement and fraud by the managers and heavy financial losses. The
petitioners alleged that the court had no jurisdiction over the civil case decree the
dissolution of the company, because it being a de facto corporation, dissolution
thereof may only be ordered in a quo warranto proceeding instituted in accordance
with section 19 of the Corporation Law.
ISSUES:
Whether or not the Far Eastern Lumber and Commercial Co., Inc. is a de
facto corporation.
RULING:
NO.
Inasmuch as the Far Eastern Lumber and Commercial Co., is a de facto
corporation, section 19 of the Corporation Law applies, and therefore the court had
not jurisdiction to take cognizance of said civil case.
There are least two reasons why this section does not govern the situation.
(1) First, not having obtained the certificate of incorporation, the Far Eastern Lumber
and Commercial Co. — even its stockholders — may not probably claim "in good
faith" to be a corporation.
Under our statue it is to be noted that it is the issuance of a certificate of
incorporation by the Director of the Bureau of Commerce and Industry (now SEC)
which calls a corporation into being. The immunity if collateral attack is granted to
corporations "claiming in good faith to be a corporation under this act." Such a claim
is compatible with the existence of errors and irregularities; but not with a total or
substantial disregard of the law. Unless there has been an evident attempt to comply
with the law the claim to be a corporation "under this act" could not be made "in good
faith."
(2) Second, this is not a suit in which the corporation is a party. This is a
litigation between stockholders of the alleged corporation, for the purpose of
obtaining its dissolution. Even the existence of a de jure corporation may be
terminated in a private suit for its dissolution between stockholders, without the
intervention of the state.
Corporation by Estoppel
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES
vs.
HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION
G.R. No. 119002. October 19, 2000
FACTS:
On June 30 1989, petitioner, through its managing director, wrote a letter to the
Philippine Football Federation (Federation), through its president private respondent
Henri Kahn, wherein the former offered its services as a travel agency to the latter.
The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the
Federation to the South East Asian Games in Kuala Lumpur as well as various other
trips to China and Brisbane.  The total cost of the tickets amounted to P449,654.83.
The Federation made two partial payments, both in September of 1989, in the total
amount of P176,467.50.
On 4 October 1989, petitioner wrote the Federation, through the private respondent a
demand letter requesting for the amount of P265,894.33. On 30 October 1989, the
Federation, through the Project Gintong Alay, paid the amount of P31,603.00.
On 27 December 1989, Henri Kahn issued a personal check in the amount of
P50,000 as partial payment for the outstanding balance of the Federation. No further
payments were made despite repeated demands.
Petitioner to filed a civil case before RTC- Manila.  Petitioner sued Henri Kahn in his
personal capacity and as President of the Federation and impleaded the Federation
as an alternative defendant.  Petitioner sought to hold Henri Kahn liable for the
unpaid balance for the tickets purchased by the Federation on the ground that Henri
Kahn allegedly guaranteed the said obligation.
Henri Kahn  averred that the petitioner has no cause of action against him either in
his personal capacity or in his official capacity as president of the Federation because
he did not guarantee payment but merely acted as an agent of the Federation which
has a separate and distinct juridical personality. The Federation failed to file its
answer, hence, was declared in default by the trial court.
The trial court ruled in favor of the petitioner and declared Henri Kahn  personally
liable for the unpaid obligation of the Federation. CA reversed the trial court. Hence
this Petition.
ISSUE: WON the doctrine of corporation by estoppel applies in this case.
RULING:
CA cited RA 3135 (Revised Charter of the Philippine Amateur Athletic Federation),
and PD 604 as the laws from which said Federation derives its existence. Both R.A.
3135 and P.D. No. 604 recognized the juridical existence of national sports
associations.  These laws granted to national sports associations certain powers and
functions which clearly indicate that these entities may acquire a juridical
personality.  Among these powers is the power to purchase, sell, lease and encumber
property which are acts that may only be done by persons, whether natural or
artificial, with juridical capacity.  
However, while we agree with the appellate court that national sports associations
may be accorded corporate status, such does not automatically take place by the
mere passage of these laws. It is a basic postulate that before a corporation may
acquire juridical personality, the State must give its consent either in the form of a
special law or a general enabling act.  
We cannot agree with the view of the CA and the private respondent that the
Philippine Football Federation came into existence upon the passage of these laws.
Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the
Philippine Football Federation.  These laws merely recognized the existence of
national sports associations and provided the manner by which these entities may
acquire juridical personality.  
The said laws require that before an entity may be considered as a national sports
association, such entity must be recognized by the accrediting organization, the
Philippine Amateur Athletic Federation under R.A. 3135, and the Department of
Youth and Sports Development under P.D. 604.  This fact of recognition, however,
Henri Kahn failed to substantiate.  In attempting to prove the juridical existence of
the Federation, Henri Kahn attached to his MR before the trial court a copy of the
constitution and by-laws of the Philippine Football Federation.  Unfortunately, the
same does not prove that said Federation has indeed been recognized and accredited
by either the Philippine Amateur Athletic Federation or the Department of Youth and
Sports Development.  We rule that the Philippine Football Federation is not a
national sports association within the purview of the aforementioned laws and does
not have corporate existence of its own.
It follows that private respondent Henry Kahn should be held liable for the unpaid
obligations of the unincorporated Philippine Football Federation.  It is a settled
principle in corporation law that any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and becomes
personally liable for contract entered into or for other acts performed as such agent.
As president of the Federation, Henri Kahn  is presumed to have known about the
corporate existence or non-existence of the Federation.   which were financed with borrowed money, fell under the term "common fund" under
We do not agree with the position taken by the CA that even assuming that the
Federation was defectively incorporated, the petitioner cannot deny the corporate
existence of the Federation because it had contracted and dealt with the Federation
in such a manner as to recognize and in effect admit its existence. The doctrine of
corporation by estoppel is mistakenly applied by the respondent court to the
petitioner.  The application of the doctrine applies to a third party only when he tries
to escape liability on a contract from which he has benefited on the irrelevant ground
of defective incorporation. In the case at bar, the petitioner is not trying to escape
liability from the contract but rather is the one claiming from the contract.
by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who
was petitioner's brother. In their Compromise Agreement, they subsequently revealed
their intention to pay the loan with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the purchase and the repair of
Article 1767. The contribution to such fund need not be cash or fixed assets; it could
be an intangible like credit or industry. That the parties agreed that any loss or profit
from the sale and operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase
of the boat, but also to that of the nets and the floats. The fishing nets and the floats,
both essential to fishing, were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so much in buying the boat
but not in the acquisition of the aforesaid equipment, without which the business
could not have proceeded.

LIM TONG LIM

vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC.
1999 Nov 3, G.R. No. 136448

FACTS:

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao
entered into a Contract for the purchase of fishing nets of various sizes from the
Philippine Fishing Gear Industries, Inc. They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim, who however was not a signatory to
the agreement. They, however, failed to pay; hence, private respondent filed a
collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ
of preliminary attachment. The suit was brought against the three in their capacities
as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a
nonexistent corporation
Yao and Chua admitted liability while Lim filed his answer. Trial court
rendered decision ruling that Philippine Fishing Gear Industries was entitled to the
Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly
liable to pay respondent.

ISSUE:

Whether or not Lim should be made jointly liable with Yao and Chua.

RULING:

YES.

Lim asserts that he should not be made liable because there was no
partnership existing between them.
The court ruled that there exist a partnership between them. It is clear that
Chua, Yao and Lim had decided to engage in a fishing business, which they started
MARIANO A. ALBERT
vs.
UNIVERSITY PUBLISHING CO., INC.
G.R. No. L-19118, January 30, 1965
FACTS:
In the original case, the court had awarded P P15,000.00 in favor of the
petitioner for damages arising out of a breach of contract. Such breach of contract
arose when the publishing company failed to pay the petitioner the agreed amount
for latter to have the exclusive right to publish his revised Commentaries on the
Revised Penal Code and for his share in previous sales of the book's first edition. The
order became final and executory. A writ of execution was issued against the
company, however the petitioner petitioned for a writ of execution against Jose M.
Aruego, as the real defendantstating, plaintiff's counsel and the Sheriff of Manila
discovered that there is no such entity as University Publishing Co., Inc. and no such
entity is registered with the SEC.
This case asks the court whether or not the judgment may be executed
against Jose M. Aruego, supposed President of University Publishing Co., Inc., as the
real defendant.
ISSUE:
Whether or not the judgment may be executed against Jose M. Aruego,
supposed President of University Publishing Co., Inc., as the real defendant.
RULING:
NO.
The Court ruled that the doctrine of corporation by estoppel was not
applicable. Although the rule is that a person acting or purporting to act on behalf of
a corporation which has no valid existence assumes such privileges and obligations
and becomes personally liable for contracts entered into or for other acts performed
as such agent, in this case, Aruego was not named as a defendant. Since he was not
named, he could not be served and be made liable for the claim because to do so
would violate his right to due process. He was not given the chance to defend himself
and be heard during trial.
Wherefore, the order was reversed and set aside and was remanded lower
court to hold supplementary proceedings for the purpose of carrying the judgment
into effect against University Publishing Co., Inc. and/or Jose M. Aruego.
Non-User of Charter vs. Continuous Inoperation
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC.
vs.
HON. COURT OF APPEALS
1997 Aug 7, G.R. No. 117188
FACTS:
LGVHAI was organized as the association of homeowners and residents of the
Loyola Grand Villas. It was registered with the Home Financing Corporation. For
unknown reasons, however, LGVHAI did not file its corporate by-laws. Sometime in
1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so.
They later discovered that there were two other organizations within the subdivision
the North Association and the South Association. According to private respondents, a
non-resident and Soliven himself respectively headed these associations. They also
discovered that these associations had five (5) registered homeowners each who were
also the incorporators, directors and officers thereof. None of the members of the
LGVHAI was listed as member of the North Association while three (3) members of
LGVHAI were listed as members of the South Association. When they inquired as to
the status of LGVHAI, the head of the legal department of the HIGC, informed him
that LGVHAI had been automatically dissolved for two reasons. First, it did not
submit its by-laws within the period required by the Corporation Code and, second,
there was non-user of corporate charter because HIGC had not received any report
on the association's activities. These prompted the LGVHAI to lodge complaint with
HIGC questioning its act of revoking its certificate of registration without due notice
and hearing and concomitantly prayed for the cancellation of the certificates of
registration of the North and South Associations by reason of the earlier issuance of a
certificate of registration in favor of LGVHAI.
ISSUE:
Whether or not the failure of a corporation to file its by-laws within one
month from the date of its incorporation, as mandated by Section 46 of the
Corporation Code, result in its automatic dissolution.
RULING:
NO.
Although the Corporation Code requires the filing of by-laws, it does not
expressly provide for the consequences of the non-filing of the same within the period
provided for in Section 46. Even under the express grant of power and authority
under Presidential Decree No. 902-A, there can be no automatic corporate dissolution
simply because the incorporators failed to abide by the required filing of by-laws
embodied in Section 46 of the Corporation Code. There is no outright "demise" of
corporate existence. Proper notice and hearing are cardinal components of due
process in any democratic institution, agency or society. In other words, the
incorporators must be given the chance to explain their neglect or omission and
remedy the same.