Magaling vs. Ong

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LUCIA MAGALING, PARALUMAN R.

MAGALING, MARCELINA MAGALING-
TABLADA, and BENITO R. MAGALING (Heirs
of the late Reynaldo Magaling), petitioners,
vs. PETER ONG, respondent.
Corporation Law; A corporation is a juridical entity with legal
personality separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it.—It is basic that a
corporation is a juridical entity with legal personality separate and
distinct from those acting for and in its behalf and, in general, from the
people comprising it. The general rule is that obligations incurred by
the corporation, acting through its directors, officers and employees,
are its sole liabilities, and vice versa.
Same; Piercing the Veil of Corporate Fiction; Exceptional

circumstances warranting disregard of a separate personality.—There
are times, however, when solidary liabilities may be incurred and the
veil of corporate fiction may be pierced. Exceptional circumstances
warranting such disregard of a separate personality are summarized
as follows: 1. When directors and trustees or, in appropriate case, the
officers of a corporation: (a) vote for or assent to patently unlawful
acts of the corporation; (b) act in bad faith or with gross negligence in
directing the corporate affairs; (c) are guilty of conflict of interest to
the prejudice of the corporation, its stockholders or members, and
other persons; 2. When a director or officer has consented to the
issuance of watered down stocks or who, having knowledge thereof,
did not forthwith file with the corporate secretary
_______________
* THIRD DIVISION.
153
VOL. 562, AUGUST 13, 2008 153

Magaling vs. Ong
his written objection thereto; 3. When a director, trustee or officer has

contractually agreed or stipulated to hold himself personally and
solidarily liable with the corporation; or 4. When a director, trustee or
officer is made, by specific provision of law, personally liable for his
corporate action.
Same; Same; To hold a director, a trustee or an officer personally liable

for the debts of the corporation and, thus, pierce the veil of corporate
fiction, bad faith or gross negligence by the director, trustee or officer
in directing the corporate affairs must be established clearly and
convincingly.—To hold a director, a trustee or an officer personally
liable for the debts of the corporation and, thus, pierce the veil of
corporate fiction, bad faith or gross negligence by the director, trustee
or officer in directing the corporate affairs must be established clearly
and convincingly. Bad faith is a question of fact and is evidentiary. Bad
faith does not connote bad judgment or negligence. It imports a
dishonest purpose or some moral obliquity and conscious
wrongdoing. It means breach of a known duty through some ill motive
or interest. It partakes of the nature of fraud.
Same; Same; Bad faith does not arise just because a corporation fails
to pay its obligations, because the inability to pay one’s obligation is
not synonymous with fraudulent intent not to honor the obligations.—
In the present case, there is nothing substantial on record to show that
Reynaldo Magaling, as President of Termo Loans, has, indeed, acted in
bad faith in inviting Ong to invest in Termo Loans and/or in obtaining a
loan from Ong for said corporation in order to warrant his personal
liability. From all indications, the proceeds of the investment and/or
loan were indeed utilized by Termo Loans. Likewise, bad faith does not
arise just because a corporation fails to pay its obligations, because
the inability to pay one’s obligation is not synonymous with fraudulent
intent not to honor the obligations.
Same; Same; In order to pierce the veil of corporate fiction, for

reasons of negligence by the director, trustee or officer in the conduct
of the transactions of the corporation, such negligence must be gross;
Meaning of gross negligence.—In order to pierce the veil of corporate
fiction, for reasons of negligence by the director, trustee or officer in
the conduct of the transactions of the corporation, such negligence
must be gross. Gross negligence is one that is characterized by the
want of even slight care, acting or omitting to act in a situation
154
154 SUPREME COURT REPORTS ANNOTATED

Magaling vs. Ong
where there is a duty to act, not inadvertently but willfully and

intentionally with a conscious indifference to consequences insofar as
other persons may be affected; and must be established by clear and
convincing evidence. Parenthetically, gross or willful negligence could
amount to bad faith.
Remedial Law; Attachments; A writ of preliminary attachment is a

provisional remedy by virtue of which a plaintiff or other proper party
may, at the commencement of the action or at any time thereafter,
have the property of the adverse party taken into the custody of the
court as security for the satisfaction of the judgment that may be
recovered.—A writ of preliminary attachment is a provisional remedy
by virtue of which a plaintiff or other proper party may, at the
commencement of the action or at any time thereafter, have the
property of the adverse party taken into the custody of the court as
security for the satisfaction of the judgment that may be recovered.
The chief purpose of the remedy of attachment is to secure a
contingent lien on defendant’s property until plaintiff can, by
appropriate proceedings, obtain a judgment and have such property
applied to its satisfaction, or to make some provision for unsecured
debts in cases where the means of satisfaction thereof are liable to be
removed beyond the jurisdiction, or improperly disposed of or
concealed, or otherwise placed beyond the reach of creditors.
Same; Same; Two ways by which a writ of preliminary attachment

issued may be dissolved or discharged.—Once the writ of preliminary
attachment is issued, the same rule provides for two ways by which it
can be dissolved or discharged. First, the writ of preliminary
attachment may be discharged upon a security given, i.e., a counter-
bond, x x x Second, said provisional remedy must be shown to have
been irregularly or improperly issued, x x x.

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CentralBooks:Reader

LUCIA MAGALING, PARALUMAN R.

Same; Piercing the Veil of Corporate Fiction; Exceptional

VOL. 562, AUGUST 13, 2008 153

his written objection thereto; 3. When a director, trustee or officer has

Same; Same; To hold a director, a trustee or an officer personally liable

Same; Same; In order to pierce the veil of corporate fiction, for

154 SUPREME COURT REPORTS ANNOTATED

where there is a duty to act, not inadvertently but willfully and

Remedial Law; Attachments; A writ of preliminary attachment is a

Same; Same; Two ways by which a writ of preliminary attachment

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