Magsaysay-Labrador, et. al. vs.

Court of Appeals
[GR 58168, 19 December 1989]

Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special

administratix of the estate of the late Senator Genaro Magsaysay, brought before the
then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic
Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the
Register of Deeds of Zambales, for the annulment of the Deed of Assignment executed
by the late Senator in favor of SUBIC (as a result of which TCT 3258 was cancelled and
TCT 22431 issued in the name of SUBIC), for the annulment of the Deed of Mortgage
executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the amount of P
2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the
latter to issue a new title in her favor. On 7 March 1979, Concepcion Magsaysay-
Labrador, Soledad Magsaysay-Cabrera, Luisa Magsaysay-Corpuz, Felicidad
Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late senator, filed a motion
for intervention on the ground that on 20 June 1978, their brother conveyed to them 1/2
of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of
around 41 % of the total outstanding shares of such stocks of SUBIC, they have a
substantial and legal interest in the subject matter of litigation and that they have a legal
interest in the success of the suit with respect to SUBIC. On 26 July 1979, the trial court
denied the motion for intervention, and ruled that petitioners have no legal interest
whatsoever in the matter in litigation and their being alleged assignees or transferees of
certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a
personality separate and distinct from its stockholders.

On appeal, the Court of Appeals found no factual or legal justification to disturb the
findings of the lower court. The appellate court further stated that whatever claims the
Magsaysay sisters have against the late Senator or against SUBIC for that matter can
be ventilated in a separate proceeding. The motion for reconsideration of the
Magsaysay sisters was denied. Hence, the petition for review on certiorari.

Issue: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested
parties in a case where corporate properties are in dispute.

Held: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the
Magsaysay sisters have no legal interest in the subject matter in litigation so as to
entitle them to intervene in the proceedings. To be permitted to intervene in a pending
action, the party must have a legal interest in the matter in litigation, or in the success of
either of the parties or an interest against both, or he must be so situated as to be
adversely affected by a distribution or other disposition of the property in the custody of
the court or an officer thereof . Here, the interest, if it exists at all, of the Magsaysay
sisters is indirect, contingent, remote, conjectural, consequential and collateral. At the
very least, their interest is purely inchoate, or in sheer expectancy of a right in the
management of the corporation and to share in the profits thereof and in the properties
and assets thereof on dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of
the corporation, it does not vest the owner thereof with any legal right or title to any of
the property, his interest in the corporate property being equitable or beneficial in
nature. Shareholders are in no legal sense the owners of corporate property, which is
owned by the corporation as a distinct legal person.
Sulo ng Bayan vs. Araneta
[GR L-31061, 17 August 1976]

Facts: On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with the
Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against
Gregorio Araneta Inc. (GAI), Paradise Farms Inc., National Waterworks & Sewerage
Authority (NAWASA), Hacienda Caretas Inc., and the Register of Deeds of Bulacan to
recover the ownership and possession of a large tract of land in San Jose del Monte,
Bulacan, containing an area of 27,982,250 sq. ms., more or less, registered under the
Torrens System in the name of GAI, et. al.'s predecessors-in-interest (who are members
of the corporation). On 2 September 1966, GAI filed a motion to dismiss the amended
complaint on the grounds that (1) the complaint states no cause of action; and (2) the
cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and
Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds. NAWASA
did not file any motion to dismiss. However, it pleaded in its answer as special and
affirmative defenses lack of cause of action by Sulo ng Bayan Inc. and the barring of
such action by prescription and laches. On 24 January 1967, the trial court issued an
Order dismissing the (amended) complaint. On 14 February 1967, Sulo ng Bayan filed a
motion to reconsider the Order of dismissal, arguing among others that the complaint
states a sufficient cause of action because the subject matter of the controversy in one
of common interest to the members of the corporation who are so numerous that the
present complaint should be treated as a class suit. The motion was denied by the trial
court in its Order dated 22 February 1967.

Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, the Court of
Appeals, upon finding that no question of fact was involved in the appeal but only
questions of law and jurisdiction, certified the case to the Supreme Court for resolution
of the legal issues involved in the controversy.
Issue:
Whether the corporation (non-stock) may institute an action in behalf of its individual
members for the recovery of certain parcels of land allegedly owned by said members,
among others.
Whether the complaint filed by the corporation in behalf of its members may be treated
as a class suit
Held:

1. It is a doctrine well-established and obtains both at law and in equity that a

corporation is a distinct legal entity to be considered as separate and apart from the
individual stockholders or members who compose it, and is not affected by the personal
rights, obligations and transactions of its stockholders or members. The property of the
corporation is its property and not that of the stockholders, as owners, although they
have equities in it. Properties registered in the name of the corporation are owned by it
as an entity separate and distinct from its members. Conversely, a corporation ordinarily
has no interest in the individual property of its stockholders unless transferred to the
corporation, "even in the case of a one-man corporation." The mere fact that one is
president of a corporation does not render the property which he owns or possesses the
property of the corporation, since the president, as individual, and the corporation are
separate similarities. Similarly, stockholders in a corporation engaged in buying and
dealing in real estate whose certificates of stock entitled the holder thereof to an
allotment in the distribution of the land of the corporation upon surrender of their stock
certificates were considered not to have such legal or equitable title or interest in the
land, as would support a suit for title, especially against parties other than the
corporation. It must be noted, however, that the juridical personality of the corporation,
as separate and distinct from the persons composing it, is but a legal fiction introduced
for the purpose of convenience and to subserve the ends of justice. This separate
personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -
an injustice, or where necessary to achieve equity. It has not been claimed that the
members have assigned or transferred whatever rights they may have on the land in
question to the corporation. Absent any showing of interest, therefore, a corporation,
has no personality to bring an action for and in behalf of its stockholders or members for
the purpose of recovering property which belongs to said stockholders or members in
their personal capacities.

2. In order that a class suit may prosper, the following requisites must be present: (1)
that the subject matter of the controversy is one of common or general interest to many
persons; and (2) that the parties are so numerous that it is impracticable to bring them
all before the court. Here, there is only one party plaintiff, and the corporation does not
even have an interest in the subject matter of the controversy, and cannot, therefore,
represent its members or stockholders who claim to own in their individual capacities
ownership of the said property. Moreover, a class suit does not lie in actions for the
recovery of property where several persons claim partnership of their respective
portions of the property, as each one could alleged and prove his respective right in a
different way for each portion of the land, so that they cannot all be held to have
identical title through acquisition/prescription.

Bataan Shipyard & Engineering Co., Inc. vs Presidential Commission on Good

Government
Facts:
Bataan Shipyard and Engineering Co., Inc (BASECO) – private corporation

Presidential Commission on Good Government (PCGG) – issued the sequestration

order

The corporation known as BASECO was owned or controlled by President Marcos

during his administration, through nominees, by taking undue advantage of his public
office and/or using his powers, authority, or influence, and that it was by and through the
same means, that BASECO had taken over the business and/or assets of the National
Shipyard and Engineering Co., Inc., and other government-owned or controlled entities.

As evidence found in Malacanang shortly after the sudden flight of President Marcos
were certificates corresponding to more than ninety-five percent (95%) of all the
outstanding shares of stock of BASECO, endorsed in blank, together with deeds of
assignment of practically all the outstanding shares of stock of the three (3) corporations
above mentioned (which hold 95.82% of all BASECO stock), signed by the owners
thereof although not notarized. While the petitioner's counsel was quick to dispute this
asserted fact, assuring the Court that the BASECO stockholders were still in possession
of their respective stock certificates and had never endorsed them in blank or to anyone
else, that denial is exposed by his own prior and subsequent recorded statements as a
mere gesture of defiance rather than a verifiable factual declaration.
In accordance with Executive Orders Numbered 1 and 2 promulgated by President
Corazon Aquino, PCGG through its commissioners and agent ordered sequestration,
takeover and other provisional orders affecting BASECO.

Commissioner Diaz invoked the provisions of Section 3 (c) of Executive Order No. 1,
empowering the Commission —To provisionally takeover in the public interest or to
prevent its disposal or dissipation, business enterprises and properties taken over by
the government of the Marcos Administration or by entities or persons close to former
President Marcos, until the transactions leading to such acquisition by the latter can be
disposed of by the appropriate authorities.
Issues:
1. Are the provisional remedies involved in this case unconstitutional?
2. Are the acts of PCGG and its Commissioners done without or in excess of its
powers or with grave abuse of discretion?
3. Was there a violation of the right against self-Incrimination and unreasonable
searches and seizures?

Ruling:
1. No.
The Provisional or "Freedom" Constitution recognizes the power and duty of the
President to enact "measures to achieve the mandate of the people to recover ill- gotten
properties amassed by the leaders and supporters of the Marcos regime and protect the
interest of the people through orders of sequestration or freezing of assets or accounts.
And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution treats
of, and ratifies the authority to issue sequestration or freeze orders under Proclamation
No. 3. The institution of these provisional remedies is also premised upon the State's
inherent police power, regarded, as t lie power of promoting the public welfare by
restraining and regulating the use of liberty and property, and as the most essential,
insistent and illimitable of powers in the promotion of general welfare and the public
interest, and said to be co-extensive with self-protection and not inaptly termed also the
law of overruling necessity.

2. No, PCGG’s general function is to conduct investigations in order to collect evidence

establishing instances of ill-gotten wealth, issue sequestration, and such orders as may
be warranted by the evidence thus collected and as may be necessary to preserve and
conserve the assets of which it takes custody and control and prevent their
disappearance, loss or dissipation; and eventually file and prosecute in the proper court
of competent jurisdiction all cases investigated by it as may be warranted by its findings.
It does not try and decide, or hear and determine, or adjudicate with any character of
finality or compulsion, cases involving the essential issue of whether or not property
should be forfeited and transferred to the State because ill-gotten within the meaning of
the Constitution and the executive orders.

3. No. The right against self-incrimination has no application to juridical persons. While
an individual may lawfully refuse to answer incriminating questions unless protected by
an immunity statute, it does not follow that a corporation, vested with special privileges
and franchises, may refuse to show its hand when charged with an abuse of such
privileges.

Luxuria Homes vs. Court of Appeals

[GR 125986, 28 January 1999]

Facts: Aida M. Posadas and her two (2) minor children co-owned a 1.6 hectare property
in Sucat, Muntinlupa, which was occupied by squatters. Posadas entered into
negotiations with Jaime T. Bravo regarding the development of the said property into a
residential subdivision. On 3 May 1989, she authorized Bravo to negotiate with the
squatters to leave the said property. With a written authorization, Bravo buckled down to
work and started negotiations with the squatters. Meanwhile, some 7 months later, on
11 December 1989, Posadas and her children, through a Deed of Assignment,
assigned the said property to Luxuria Homes, Inc., purportedly for organizational and
tax avoidance purposes. Bravo signed as one of the witnesses to the execution of the
Deed of Assignment and the Articles of Incorporation of Luxuria Homes, Inc. Then
sometime in 1992, the harmonious and congenial relationship of Posadas and Bravo
turned sour when the former supposedly could not accept the management contracts to
develop the 1.6 hectare property into a residential subdivision, the latter was proposing.
In retaliation, Bravo demanded payment for services rendered in connection with the
development of the land. In his statement of account dated 21 August 1991, Bravo
demanded the payment of P1,708,489.00 for various services rendered, i.e., relocation
of squatters, preparation of the architectural design and site development plan, survey
and fencing. Posadas refused to pay the amount demanded.

Thus, in September 1992, James Builder Construction and Jaime T. Bravo instituted a
complaint for specific performance before the trial court against Posadas and Luxuria
Homes, Inc. On 27 September 1993, the trial court declared Posadas in default and
allowed James Builder Construction and Bravo to present their evidence ex-parte. On 8
March 1994, it ordered Posadas, jointly and in solidum with Luxuria Homes, Inc., to pay
Bravo, et. al. the balance of the payment for the various services performed by them in
the total amount of P1,708,489.00; actual damages incurred for the construction of the
warehouse/bunks, and for the material used in the total sum of P1,500.000.00; moral
and exemplary damages of P500.000.00; Attorney's fee of P50,000.00; and cost of this
proceedings. The court also directed Posadas as the Representative of the Corporation
Luxuria Homes, Incorporated, to execute the management contract she committed to
do, also in consideration of the various undertakings that Bravo rendered for her.

Luxuria Homes and Posadas appealed to the Court of Appeals. The appellate court
affirmed with modification the decision of the trial court. The appellate court deleted the
award of moral damages on the ground that James Builder Construction is a
corporation and hence could not experience physical suffering and mental anguish. It
also reduced the award of exemplary damages. Luxuria Homes' and Posadas' motion
for reconsideration, prompting them to file the petition for review before the Supreme
Court.

Issue: Whether Luxuria Homes, Inc., was a party to the transactions entered into by
Posadas with Bravo and James Builder Construction and thus could be held jointly and
severally with Posadas.

Held: It cannot be said then that the incorporation of Luxuria Homes and the eventual
transfer of the subject property to it were in fraud of Bravo and James Builder
Construction as such were done with the full knowledge of Bravo himself, as evidenced
by the Deed of Assignment dated 11 December 1989 and the Articles of Incorporation
of Luxuria Homes, Inc., issued 26 January 1990 were both signed by Bravo himself as
witness. Further, Posadas is not the majority stockholder of Luxuria Homes, Inc. The
Articles of Incorporation of Luxuria Homes, Inc., clearly show that Posadas owns
approximately 33% only of the capital stock. Hence, Posadas cannot be considered as
an alter ego of Luxuria Homes, Inc. To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. It cannot be
presumed. Bravo, et. al. failed to show proof that Posadas acted in bad faith, and
consequently that Luxuria Homes, Inc., was a party to any of the supposed
transactions, not even to the agreement to negotiate with and relocate the squatters, it
cannot be held liable, nay jointly and in solidum, to pay Bravo, et. al. Hence, since it was
Posadas who contracted Bravo to render the subject services, only she is liable to pay
the amounts adjudged by the Court.
302 SCRA 315 – Business Organization – Corporation Law – Piercing the Veil of
Corporate Fiction

Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In 1989, she
entered into an agreement with Jaime Bravo for the latter to draft a development and
architectural design for the said property. The contract price was P450,000.00. Posadas
gave a down payment of P25,000.00. Later, Posadas assigned her property to Luxuria
Homes, Inc. One of the witnesses to the deed of assignment and articles of
incorporation was Jaime Bravo.

In 1992, Bravo finished the architectural design so he proposed that he and his
company manage the development of the property. But Posadas turned down the
proposal and thereafter the business relationship between the two went sour. Bravo
then demanded Posadas to pay them the balance of their agreement as regards the
architectural design (P425k). Bravo also demanded payment for some other expenses
and fees he incurred i.e., negotiating and relocating the informal settlers then occupying
the land of Posadas. Posadas refused to make payment. Bravo then filed a complaint
for specific performance against Posadas but he included Luxuria Homes as a co-
defendant as he alleged that Luxuria Homes was a mere conduit of Posadas; that the
said corporation was created in order to defraud Bravo and avoid the payment of debt.

ISSUE: Whether or not Luxuria Homes should be impleaded.

HELD: No. It was Posadas who entered into a contract with Bravo in her personal
capacity. Bravo was not able to prove that Luxuria Homes was a mere conduit of
Posadas. Posadas owns just 33% of Luxuria Homes. Further, when Luxuria Homes was
created, Bravo was there as a witness. So how can he claim that the creation of said
corporation was to defraud him. The eventual transfer of Posadas’ property to Luxuria
was with the full knowledge of Bravo. The agreement between Posadas and Bravo was
entered into even before Luxuria existed hence Luxuria was never a party thereto.
Whatever liability Posadas incurred arising from said agreement must be borne by her
solely and not in solidum with Luxuria. To disregard the separate juridical personality of
a corporation, the wrongdoing must be clearly and convincingly established. It cannot
be presumed.
Concept Builders vs NLRC
GR 108734; 29 May 1996

Facts:

Petitioner Concept Builders, Inc., a domestic corporation engaged in the construction

business. Private respondents were employed by said company as laborers, carpenters
and riggers. However, they were illegally dismissed.

Aggrieved, private respondents filed a complaint for illegal dismissal. The Labor Arbiter
rendered judgment ordering petitioner to reinstate private respondents and to pay them
back wages. It became final and executory.

The alias Writ of Execution cannot be enforced by the sheriff because all the employees
inside petitioner’s premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed
that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by petitioner.
Thus, NLRC issued a break-open order against Concept Builders and HPPI.

Issue: Whether the piercing the veil of corporate entity is proper.

Held: Yes.

It is a fundamental principle of corporation law that a corporation is an entity separate

and distinct from its stockholders and from other corporations to which it may be
connected. But, this separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice. So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong, protect fraud or
defend crime, or is used as a device to defeat the labor laws, this separate personality
of the corporation may be disregarded or the veil of corporate fiction pierced. This is
true likewise when the corporation is merely an adjunct, a business conduit or an alter
ego of another corporation.

The conditions under which the juridical entity may be disregarded vary according to the
peculiar facts and circumstances of each case. No hard and fast rule can be accurately
laid down, but certainly, there are some probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, to wit:

Stock ownership by one or common ownership of both corporations.

Identity of directors and officers.
The manner of keeping corporate books and records.
Methods of conducting the business.
The SEC en banc explained the “instrumentality rule” which the courts have applied in
disregarding the separate juridical personality of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so
that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the
corporate entity of the “instrumentality” may be disregarded. The control necessary to
invoke the rule is not majority or even complete stock control but such domination of
instances, policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its principal. It must
be kept in mind that the control must be shown to have been exercised at the time the
acts complained of took place. Moreover, the control and breach of duty must
proximately cause the injury or unjust loss for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate
fiction is as follows:

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;
Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty or dishonest and
unjust act in contravention of plaintiff’s legal rights; and
The aforesaid control and breach of duty must proximately cause the injury or unjust
loss complained of.
The absence of any one of these elements prevents “piercing the corporate veil.” In
applying the “instrumentality” or “alter ego” doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the individual defendant’s
relationship to that operation.

Clearly, petitioner ceased its business operations in order to evade the payment to
private respondents of back wages and to bar their reinstatement to their former
positions. HPPI is obviously a business conduit of petitioner corporation and its
emergence was skillfully orchestrated to avoid the financial liability that already attached
to petitioner corporation.

Concept Builders Inc. vs. NLRC Case Digest

Concept Builders Inc. vs. National Labor Relations Commission
[GR 108734, 29 May 1996]

Facts: Concept Builders, Inc., (CBI) a domestic corporation, with principal office at 355
Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business while
Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos,
Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio,
Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve,
Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand
Torres, Felipe Basilan, and Ruben Robalos were employed by said company as
laborers, carpenters and riggers. On November 1981, Marabe, et. al. were served
individual written notices of termination of employment by CBI, effective on 30
November 1981. It was stated in the individual notices that their contracts of
employment had expired and the project in which they were hired had been completed.
The National Labor Relations Commission (NLRC) found it to be, the fact, however, that
at the time of the termination of Marabe, et.al.'s employment, the project in which they
were hired had not yet been finished and completed. CBI had to engage the services of
sub-contractors whose workers performed the functions of Marabe, et. al. Aggrieved,
Marabe, et. al. filed a complaint for illegal dismissal, unfair labor practice and non-
payment of their legal holiday pay, overtime pay and thirteenth-month pay against CBI.
On 19 December 1984, the Labor Arbiter rendered judgment ordering CBI to reinstate
Marabe et. al. and to pay them back wages equivalent to 1 year or 300 working days.
On 27 November 1985, the NLRC dismissed the motion for reconsideration filed by CBI
on the ground that the said decision had already become final and executory.

On 16 October 1986, the NLRC Research and Information Department made the finding
that Marabe, et. al.'s back wages amounted to P199,800.00. On 29 October 1986, the
Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision,
dated 19 December 1984. The writ was partially satisfied through garnishment of sums
from CBI's debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount
of P81,385.34. Said amount was turned over to the cashier of the NLRC. On 1 February
1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to
collect from CBI the sum of P117,414.76, representing the balance of the judgment
award, and to reinstate Marabe, et. al. to their former positions. On 13 July 1989, the
sheriff issued a report stating that he tried to serve the alias writ of execution on
petitioner through the security guard on duty but the service was refused on the ground
that CBI no longer occupied the premises. On 26 September 1986, upon motion of
Marabe, et. al., the Labor Arbiter issued a second alias writ of execution. The said writ
had not been enforced by the special sheriff because, as stated in his progress report
dated 2 November 1989, that all the employees inside CBI's premises claimed that they
were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by CBI; that levy was
made upon personal properties he found in the premises; and that security guards with
high-powered guns prevented him from removing the properties he had levied upon.
The said special sheriff recommended that a "break-open order" be issued to enable
him to enter CBI's premises so that he could proceed with the public auction sale of the
aforesaid personal properties on 7 November 1989. On 6 November 1989, a certain
Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the
properties sought to be levied upon by the sheriff were owned by HPPI, of which he is
the Vice-President. On 23 November 1989, Marabe, et. al. filed a "Motion for Issuance
of a Break-Open Order," alleging that HPPI and CBI were owned by the same
incorporator/stockholders. They also alleged that petitioner temporarily suspended its
business operations in order to evade its legal obligations to them and that Marabe, et.
al. were willing to post an indemnity bond to answer for any damages which CBI and
HPPI may suffer because of the issuance of the break-open order. On 2 March 1990,
the Labor Arbiter issued an Order which denied Marabe, et. al.'s motion for break-open
order.

Marabe, et. al. then appealed to the NLRC. On 23 April 1992, the NLRC set aside the
order of the Labor Arbiter, issued a break-open order and directed Marabe, et. al. to file
a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the
properties already levied upon. It dismissed the third-party claim for lack of merit. CBI
moved for reconsideration but the motion was denied by the NLRC in a Resolution,
dated 3 December 1992. Hence, the petition.

Issue: Whether the NLRC was correct in issuing the break-open order to levy the “HPPI
properties” located at CBI amd/or HPPI’s premises at 355 Maysan Road, Valenzuela,
Metro Manila.
Held: It is a fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders and from other corporations to which it may
be connected. But, this separate and distinct personality of a corporation is merely a
fiction created by law for convenience and to promote justice. So, when the notion of
separate juridical personality is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or is used as a device to defeat the labor laws, this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced.
This is true likewise when the corporation is merely an adjunct, a business conduit or an
alter ego of another corporation. The conditions under which the juridical entity may be
disregarded vary according to the peculiar facts and circumstances of each case. No
hard and fast rule can be accurately laid down, but certainly, there are some probative
factors of identity that will justify the application of the doctrine of piercing the corporate
veil, to wit: (1) Stock ownership by one or common ownership of both corporations; (2)
Identity of directors and officers; (3) The manner of keeping corporate books and
records; and (4) Methods of conducting the business. The SEC en banc explained the
"instrumentality rule" which the courts have applied in disregarding the separate juridical
personality of corporations as "Where one corporation is so organized and controlled
and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of the "instrumentality" may be disregarded. The
control necessary to invoke the rule is not majority or even complete stock control but
such domination of instances, policies and practices that the controlled corporation has,
so to speak, no separate mind, will or existence of its own, and is but a conduit for its
principal. It must be kept in mind that the control must be shown to have been exercised
at the time the acts complained of took place. Moreover, the control and breach of duty
must proximately cause the injury or unjust loss for which the complaint is made." The
test in determining the applicability of the doctrine of piercing the veil of corporate fiction
is as (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 plaintiff's legal rights;
and (3) The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of. The absence of any one of these elements prevents "piercing
the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts
are concerned with reality and not form, with how the corporation operated and the
individual defendant's relationship to that operation. Thus the question of whether a
corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a
subterfuge is purely one of fact. Here, while CBI claimed that it ceased its business
operations on 29 April 1986, it filed an Information Sheet with the Securities and
Exchange Commission on 15 May 1987, stating that its office address is at 355 Maysan
Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant,
submitted on the same day, a similar information sheet stating that its office address is
at 355 Maysan Road, Valenzuela, Metro Manila. Further, both information sheets were
filed by the same Virgilio O. Casiño as the corporate secretary of both corporations.
Both corporations had the same president, the same board of directors, the same
corporate officers, and substantially the same subscribers. From the foregoing, it
appears that, among other things, the CBI and the HPPI shared the same address
and/or premises. Under these circumstances, it cannot be said that the property levied
upon by the sheriff were not of CBI's. Clearly, CBI ceased its business operations in
order to evade the payment to Marabe, et. al. of back wages and to bar their
reinstatement to their former positions. HPPI is obviously a business conduit of CBI and
its emergence was skillfully orchestrated to avoid the financial liability that already
attached to CBI.

FRANCISCO MOTORS CORPORATION vs. COURT OF APPEALS and SPOUSES

GREGORIO and LIBRADA MANUEL
G.R. No. 100812. June 25, 1999

Facts:
1. Petitioner filed a complaint against respondents to recover P3,412.06,
representing the balance of the jeep body purchased by the Manuels from petitioner.
2. Respondents interposed a counterclaim for unpaid legal services by Gregorio
Manuel in the amount of P50,000 which was not paid by the incorporators, directors and
officers of the petitioner.
3. The trial court decided the case in favor of petitioner in regard to the petitioners
claim for money, but also allowed the counter-claim of private respondents.
4. Private respondent Gregorio Manuel, while he was petitioners Assistant Legal
Officer, he represented members of the Francisco family in the intestate estate
proceedings of the late Benita Trinidad.
5. However, even after the termination of the proceedings, his services were not
paid.
6. Said family members, he said, were also incorporators, directors and officers of
petitioner. And that is his basis in saying that the corporation is liable.

Issue:
Whether or not the corporation is liable to the unpaid legal services
Ruling:
Given the facts and circumstances of this case, the doctrine of piercing the
corporate veil has no relevant application here. The 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. Hence, it appears to
us that the doctrine has been turned upside down because of its erroneous invocation.
Note that according to Gregorio Manuel his services were solicited as counsel for
members of the Francisco family to represent them in the intestate proceedings over
Benita Trinidads estate. These estate proceedings did not involve any business of
petitioner.

His move to recover unpaid legal fees through a counterclaim against Francisco Motors
Corporation, to offset the unpaid balance of the purchase and repair of a jeep body
could only result from an obvious misapprehension that petitioner’s corporate assets
could be used to answer for the liabilities of its individual directors, officers, and
incorporators. Such result if permitted could easily prejudice the corporation, its own
creditors, and even other stockholders; hence, clearly inequitous to petitioner.

TIMES TRANSPORTATIONÂ COMPANY, INC. vs. SANTOS SOTELO [G.R. No.

163786. February 16, 2005] YNARES-SANTIAGO, J.:
FACTS: Petitioner (Times) is a corporation engaged in the business of land
transportation. Prior to its closure, the Times Employees Union (TEU) was formed.Â
Respondents were retrenched after Times†™management implemented a
retrenchment program in the height of a labor dispute between Times and TEU. In the
meantime, Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership over
Times†™Certificates of Public Convenience and a number of its bus units by virtue of
several deeds of sale. Mencorp is controlled and operated by Mrs. Virginia Mendoza,
daughter of Santiago Rondaris, the majority stockholder of Times. After the closure of
Times, the retrenched employees filed cases for illegal dismissal, money claims and
unfair labor practices against Times. The Labor Arbiter ruled that Times and RondarisÂ
are liable for unfair labor practice.
ISSUE: WON the doctrine of piercing the veil of corporate fiction was properly applied.
HELD: YES. Piercing the corporate veil may be allowed only if the following elements
concur: (1) control†” not mere stock control, but complete domination†” not only of
finances, but of policy and business practice in respect to the transaction attacked; (2)
such control must have been used to commit a fraud or a wrong to perpetuate the
violation of a statutory or other positive legal duty, or a dishonest and an unjust act in
contravention of a legal right; and (3) the said control and breach of duty must have
proximately caused the injury or unjust loss complained of. The sale of Times†™
franchise as well as most of its bus units to a company owned by Rondaris†™
daughter and family members, right in the middle of a labor dispute, is highly
suspicious. It is evident that the transaction was made in order to remove Times†™
remaining assets from the reach of any judgment that may be rendered in the unfair
labor practice cases filed against it.