JD 2-1 Corporation Law Additional Cases:

Corporation as an artificial Being

1. Stonehill v. Diokno, G.R. No. L-19550, June 19, 1967

FACTS: 42 search warrants were issued by herein respondent-judges against petitioners, directing any
peace officers to search the petitioners and the premises of their offices and/or residences and seize
personal properties enlisted in the warrants, for the alleged violation of the Central Bank Laws, Tariff
and Customs Law, Internal Revenue and the Revised Penal Code. Petitioners filed directly to the
Supreme Court, assailing the validity of the search warrants contending among others that the said were
issued to fish evidence against them for the deportation case filed and prayed for the issuance of writ of
preliminary injunction restraining respondents-prosecutors from using the same as evidence in the
deportation proceedings.

ISSUE: Whether or not the warrant issued for the seizure of the properties in their offices and/or
residence is valid.

RULING: We hold that petitioners herein have no cause of action to assail the legality of the contested
warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations
have their respective personalities, separate and distinct from the personality of herein petitioners,
regardless of the amount of shares of stock or of the interest of each of them in said corporations, and
whatever the offices they hold therein may be.Indeed, it is well settled that the legality of a seizure can
be contested only by the party whose rights have been impaired thereby,and that the objection to an
unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently,
petitioners herein may not validly object to the use in evidence against them of the documents, papers
and things seized from the offices and premises of the corporations adverted to above, since the right to
object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the
seized effects belong, and may not be invoked by the corporate officers in proceedings against them in
their individual capacity.

Doctrine of Separate Legal Entity

1. Roxas v. CA, G.R. No. 100866, July 14, 1992

Facts: The private respondent herein, Heirs of Eugenia V. Roxas, Inc., is a corporation that was
primarily engaged in agriculture business. After sometime, it changed its purpose to enable it to
engage in resort and restaurant business in Calauan, Laguna. Petitioners are stockholders of the
corporation and two of the heirs of Eugenia. By tolerance of the respondents the petitioners
were allowed to occupy some of the properties of the corporation as their residence. However,
the board of directors of the corporation passed a resolution evicting the petitioners from the
property of the corporation because the same will be needed for expansion. At the RTC, private
respondent presented its evidence averring that the subject premises are owned by the
corporation. Petitioners failed to present their evidence due to alleged negligence of their
counsel. RTC handed a decision in favor of private respondent. Petitioners appealed to the Court
of Appeals but the latter denied the petition and affirmed the ruling of the RTC. Hence, they
 appealed to the Supreme Court. In their appeal, petitioners argues that the CA made a mistake
in upholding the decision of the RTC, and that their occupancy of the subject premises should be
respected because they own an aliquot part of the corporation as stockholders, and that the veil
of corporate fiction must be pierced by virtue thereof.

Issue: 1. Whether petitioner’s contention were correct as regards the piercing of the corporate veil. NO
2. Whether petitioners were correct in their contention that they should be respected as regards their
occupancy since they own an aliquot part of the corporation. NO

Held: 1. Petitioner’s contention to pierce the veil of corporate fiction is untenable. The Court held that:
“The separate personality of a corporation may ONLY be disregarded when the corporation is used as a
cloak or cover for fraud or illegality, or to work injustice, or when necessary to achieve equity or when
necessary for the protection of creditors.”

2. With regards the petitioner's contention that they should be respected on their occupancy by virtue
of an aliquot part they own on the corporation as stockholders, it also fails to hold water. The court held
that: “properties owned by a corporation are owned by it as an entity separate and distinct from its
members. While shares of stocks are personal property, they do not represent property of the
corporation. A share of stock only typifies an aliquot part of the corporation’s property, or the right to
share in its proceeds to that extent when distributed according to law and equity, but its holder is not
the owner of any part of the capital of the corporation. Nor is he entitled to the possession of any
definite portion of its property or assets. The holder is not a co-owner or a tenant in common of the
corporate property.”

2. Silverio v. Filipino Business, G.R. No. 143312, August 12, 2005

Doctrine: A corporation is a juridical person distinct from the members composing it. Properties
registered in the name of the corporation are owned by it as an entity separate and distinct from its
member

Facts: Petitioner Silverio, Jr. is the President of two corporations namely Esses Devt. Corp., and Tristar
Farms, Inc. The above-mentioned corporations were in possession of the Calatagan Property and
registered in the names of Esses and Tristar. On Sept. 22, 1995, Esses and Tristar executed a Deed of
Sale with Assumption of Mortgage in favor of Filipino Business Consultants, Inc. (FBCI). Esses and Tristar
failed to redeem the Calatagan Property.

On May 27, 1997, FBCI filed a Petition for Consolidation of Title of the Calatagan Property with RTC-
Balayan. FBCI obtained a judgment by default. Subsequently, two land titles in the name of Esses and
Tristar were cancelled and new land title was issued in favor of FBCI.

On April 20, 1998, RTC-Balayan issued a writ of possession in FBCI’s favor. The latter then entered the
Calatagan Property. When Silverio, Jr., Esses and Tristar learned of the judgment by default and writ of
possession, they filed a petition for relief from judgment and the recall of the writ of possession. Silverio
et. al. alleged that the judgment by default is void because the RTC-Balayan did not acquire jurisdiction
over them as a result of forged service of summons on them.

On May 23, 2000, FBCI filed with RTC-Balayan an Urgent Ex-Parte Motion to Suspend Enforcement of
Writ of Possession. FBCI pointed out that it is now the new owner of Esses and Tristar having purchased
the “substantial and controlling shares of stocks” of the two corporations.

Issue: Whether FBCI’s acquisition of shares of stocks of Esses and Tristar representing a controlling
interest of the two corporations would also give FBCI a proprietary right over the Calatagan Property
owned by both Esses Corp. and Tristar.

Ruling: No. FBCI’s alleged controlling shareholdings in Esses and Tristar merely represent a
proportionate interest in the properties of the two corporations. Such controlling shareholdings do not
vest FBCI with any legal right or title to any of Esses and Tristar’s corporate properties. A corporation is a
juridical person distinct from the members composing it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its members.

3. Delima v. Gois, G.R. No. 178352, June 17, 2008

Facts: Virgilio Delima filed a case for illegal dismissal against Golden Union Aquamarine Corporation
(Golden), Prospero Gois and Susan Mercaida Gois before the Regional Arbitration Branch No. VIII of the
National Labor Relations Commission in 2004. In April 2005, Labor Arbiter (LA) Montaces ruled in favor
of Virgilio and ordered Golden to pay him a total of P115,561.05 (backwages, separation pay, salary
differentials, service incentive leaves, and attorney’s fee). Golden failed to perfect an appeal hence the
decision became final and executory. A writ of execution was issued and a certain Isuzu Jeep was
attached. Mercaida Gois on the other hand, filed an affidavit of third party claim alleging that the
attached vehicle was hers and not Golden and that she was not a party to the case. The LA denied her
claim asserting she was properly impleaded and summons were served upon her and Prospero Gois.
They also both verified Golden’s Position Paper and alleged therein that they are the respondents; and
that respondent is one of the incorporators/officers of the corporation. Gois filed an appeal before the
NLRC. He also filed a motion before the LA requesting the release of the vehicle after substituting same
with a cash bond.

The LA in his January 2006 decision ordered the sheriff to release the subject vehicle. Meanwhile, the
NLRC issued a resolution dated May 31, 2006 dismissing Gois’ appeal for lack of merit. It also denied
Gois’ motion for reconsideration. Its decision later on became final and executory and an entry of
judgment was issued in September 2006. Aggrieved, Gois’ filed a petition for certiorari before the CA
claiming that she is not an officer but merely a stockholder in the company hence she should not be
forced to pay its debt. The CA ruled in favor of Gois stating that the LA’s decision only referred to Golden
and did not mention that the liability is joint and solidary with petitioner Susan Gois despite them being
included as respondents in the complaint. Corporate officers cannot be held liable for damages because
the employer corporation has a personality separate and distinct from its officers who merely acted as
its agents. They are only solidarily liable with the corporation for the termination of employment of
employees if the same was done with malice or in bad faith. Hence the present petition.

Issue: WON Gois’ personality is separate and distinct from Golden and that the judgment ordering the
corporation to pay Delima could not be satisfied out of her personal assets.

Held: Yes. A corporation has a personality distinct and separate from its individual stockholders or
members and from that of its officers who manage and run its affairs. The rule is that obligations
incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities.
Thus, property belonging to a corporation cannot be attached to satisfy the debt of a stockholder and
vice versa, the latter having only an indirect interest in the assets and business of the former.

Since the Decision of the Labor Arbiter dated April 29, 2005 directed only Golden to pay the petitioner
the sum of P115,561.05 and the same was not joint and solidary obligation with Gois, then the latter
could not be held personally liable since Golden has a separate and distinct personality of its own. It
remains undisputed that the subject vehicle was owned by Gois, hence it should not be attached to
answer for the liabilities of the corporation. Unless they have exceeded their authority, corporate
officers are, as a general rule, not personally liable for their official acts, because a corporation, by legal
fiction, has a personality separate and distinct from its officers, stockholders and members. No evidence
was presented to show that the termination of the petitioner was done with malice or in bad faith for it
to hold the corporate officers, such as Gois, solidarily liable with the corporation.

4. Remo v. IAC, G.R. No. L-67626, April 18, 1989

FACTS: December, 1977: the BOD of Akron Customs Brokerage Corporation (Akron), composed of Jose
Remo, Jr., Ernesto Bañares, Feliciano Coprada, Jemina Coprada, and Dario Punzalan with Lucia Lacaste as
Secretary, adopted a resolution authorizing the purchase of 13 trucks for use in its business to be paid
out of a loan the corporation may secure from any lending institution

January 25, 1978: Feliciano Coprada, as President and Chairman of Akron, purchased the trucks from
E.B. Marcha Transport Company, Inc. (Marcha) for P 525K as evidenced by a deed of absolute sale.
Parties agreed on a downpayment in the amount of P50K and that the balance of P 475K shall be paid
within 60 days from the date of the execution of the agreement.

They also agreed that until balance is fully paid, the down payment of P 50K shall accrue as rentals and
failure to pay the balance within 60 days, then the balance shall constitute as a chattel mortgage lien
covering the cargo trucks and the parties may allow an extension of 30 days and Marcha may ask for a
revocation of the contract and the reconveyance of all trucks.
The obligation is further secured by a promissory note executed by Coprada in favor of Akron. It is stated
that the balance shall be paid from the proceeds of a loan obtained from the Development Bank of the
Philippines (DBP) within 60 days

After the lapse of 90 days, Marsha tried to collect from Coprada but the Coprada promised to pay only
upon the release of the DBP loan. Marsha sent Coprada a letter of demand dated May 10, 1978.
Coprada reiterated that he was applying for a loan from the DBP from the proceeds of which payment of
the obligation shall be made.

Meanwhile, 2 of the trucks were sold under a pacto de retro sale to a Mr. Bais of the Perpetual Loans
and Savings Bank at Baclaran. March 15, 1978: sale was authorized by board resolution. Marsha found
that no loan application was ever filed by Akron with DBP.

Akron paid rentals of P 500/day pursuant to a subsequent agreement, from April 27, 1978 (the end of
the 90-days to pay the balance) to May 31, 1978. Thereafter, no more rental payments were made.

June 17, 1978: Coprada wrote Marsha begging for a grace period of until the end of the month to pay
the balance of the purchase price; that he will update the rentals within the week; and in case he fails,
then he will return the 13 units should Marsha elect

August 1, 1978: Marsha through counsel, wrote Akron demanding the return of the 13 trucks and the
payment of P 25K back rentals from June 1 to August 1, 1978.

August 8, 1978: Coprada asked for another grace period of up to August 31, 1978 to pay the balance,
stating as well that he is expecting the approval of his loan application from a financing company, and
that 10 trucks have been returned to Bagbag, Novaliches.

December 9, 1978: Coprada informed Marsha that he had returned 10 trucks to Bagbag and that a
resolution was passed by the board of directors confirming the deed of assignment to Marsha of P 475K
from the proceeds of a loan obtained by Akron from the State Investment House, Inc.

In due time, Marsha filed a compliant for the recovery of P 525K or the return of the 13 trucks with
damages against Akron and its officers and directors

Remo Jr. sold all his shares in Akron to Coprada. It also appears that Akron amended its articles of
incorporation thereby changing its name to Akron Transport International, Inc. which assumed the
liability of Akron to Marsha.

CA affirmed RTC: favor of Marsha

ISSUE: W/N Remo Jr. should be held personally liable together with Akron Transport International, Inc.
HELD: NO. Petition is granted.

The environmental facts of this case show that there is no cogent basis to pierce the corporate veil of
Akron and hold petitioner personally liable

While it is true that in December, 1977 petitioner was still a member of the board of directors of Akron
and that he participated in the adoption of a resolution authorizing the purchase of 13 trucks for the use
in the brokerage business of Akron to be paid out of a loan to be secured from a lending institution, it
does not appear that said resolution was intended to defraud anyone Coprada, President and Chairman
of Akron, who negotiated. The word "WE' in the said promissory note must refer to the corporation
which Coprada represented in the execution of the note and not its stockholders or directors. Petitioner
did not sign the said promissory note so he cannot be personally bound thereby.

As to the sale through pacto de retro of the two units to a third person by the corporation by virtue of a
board resolution, Remo Jr. asserts that he never signed the resolution.

Be that as it may, the sale is not inherently fraudulent as the 13 units were sold through a deed of
absolute sale to Akron so that the corporation is free to dispose of the same. Of course, it was stipulated
that in case of default , a chattel mortgage lien shall be constituted on the 13 units. The new corporation
confirmed and assumed the obligation of the old corporation. There is no indication of an attempt on
the part of Akron to evade payment of its obligation. It is his inherent right as a stockholder to dispose of
his shares of stock anytime he so desires.

Fraud must be established by clear and convincing evidence. If at all, the principal character on whom
fault should be attributed is Feliciano Coprada, the President of Akron. Fortunately, a judgment against
him from the trial court has long been final and executory.

5. Asionics Philippines, Inc. v. NLRC, G.R. No. 124950, May 19, 1998

FACTS: API is a domestic corporation engaged in the business of assembling semi-conductor chips and
other electronic products mainly for export. Yolanda Boaquina and Juana Gayola are working as
material control clerk and as production operator. API commenced negotiations with the duly
recognized bargaining agent of its employees, the Federation of Free Workers ("FFW"), for a Collective
Bargaining Agreement ("CBA"). A deadlock, however, ensued and the union decided to file a notice of
strike. This event prompted the two customers of API, Indala and CP Clare Theta J, to thereupon refrain
from sending to API additional kits or materials for assembly. API, given the circumstance that its
assembly line had to thereby grind to a halt, was forced to suspend operations pursuant to Article 286 of
the Labor Code. Private respondents Boaquina and Gayola were among the employees asked to take a
leave from work.
Dissatisfied with their union (FFW), Boaquina and Gayola, together with some of other co-employees,
joined the Lakas ng Manggagawa sa Pilipinas Labor Union ("Lakas Union") where they eventually
became members of its Board of Directors. Lakas Union filed a notice of strike against API on the ground
of unfair labor practice.API filed for a petition for declaration of illegality of the strike.
Lakas Union countered that their strike was valid and staged as a measure of self-preservation and as
self-defense against the illegal dismissal of petitioners aimed at union busting in the guise of a
retrenchment program.

ISSUE: Whether a stockholder/director/officer of a corporation can be held liable for the obligation of
the corporation absent any proof and finding of bad faith.

RULING: No, API’s president and main stockholder Frank Yih cannot be held liable for the obligation of
the corporation to its employees. 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 rule is
that obligations incurred by the corporation, acting through its directors, officers and employees, are its
sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to
warrant, albeit done sparingly, the disregard of its independent being and the lifting of the corporate
veil. As a rule, this situation might arise when a corporation is used to evade a just and due obligation or
to justify a wrong, to shield or perpetrate fraud, to carry out similar unjustifiable aims or intentions, or
as a subterfuge to commit injustice and so circumvent the law.

6. Francisco Motors Corporation V. CA, G.R. No. 100812, June 25, 1999

DOCTRINE: When directors and officers of a corporation are unable to compensate a party for a
personal obligation, it is farfetched to allege that the corporation is perpetuating fraud or promoting
injustice, and be thereby held liable therefor by piercing its corporate veil.

FACTS: Petitioner filed a complaint against spouses Manuel a complaint to recover P29,596.86 that
represented different transactions. Private respondent Manuel interposed a counterclaim for unpaid
legal services of P50,000 that was not paid by the incorporators, directors, and officers of the petitioner
whom respondent represented in the intestate estate proceedings of the late Benita Trinidad. This claim
by respondent Manuel was proven in the lower court.

However, the petitioner company argued that being a corporation, it should not be held liable
therefor because these fees were owed by the incorporators, directors and officers of the corporation in
their personal capacity as heirs of Benita Trinidad. The RTC and CA ruled against the petitioner.

ISSUE: Whether the CA erred in applying the doctrine of piercing the veil of corporate entity

RULING: The doctrine of piercing the corporate veil has no relevant application here.

Basic in the corporation law is the principle that a corporation has a separate personality distinct
from its stockholders and from other corporations to which it may be connected. When directors and
officers of a corporation are unable to compensate a party for a personal obligation, it is farfetched to
allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable
therefor by piercing its corporate veil.

Private respondent Manuel’s 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. His move to recover unpaid legal fees through a
counterclaim against petitioner 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.

7. Torres v. Rural Bank of San Juan, Inc., G.R. No. 184520, March 13, 2013

DOCTRINE: Absent any evidence that they have exceeded their authority, corporate officers are not
personally liable for their official acts.

FACTS: Petitioner’s job was terminated after issuing a clearance for Jacinto that was unauthorized.
When he was questioned by RBSJI as to why he issued an unauthorized clearance, petitioner submitted
his explanation on the same day clarifying that his decision was only based on the receipts presented by
the cashier of N. Domingo branch. He had no knowledge of Jacinto’s unliquidated cash advances and
questionable transactions and that the clearance did not extend to those matters. But the HRD
recommended petitioner’s termination for his actions have been prejudicial to the company’s interests.
Petitioner filed a case against RBSJI and individual respondents.

The labor arbiter ruled in favor of the petitioner and awarded moral and exemplary damages.
The NLRC, after a motion for reconsideration, found in favor of petitioner but the CA reversed this
decision. Throughout the trial, respondents never submitted the clearance that petitioner issued and
never proved the amount they actually lost.

ISSUE: Whether or not the petitioner was validly dismissed from employment.

RULING: Petitioner was not validly dismissed because there was no proven fraud or willful breach of
trust. But there the award of moral and exemplary damages is misplaced because there is no bad faith.
Also, the individual respondents must not be held solidarily liable with RBSJI.

Bad faith does not merely connote bad judgment or negligence; it imports a dishonest purpose
or some moral obliquity and conscious doing of wrong. There is no showing that individual respondents
exceeded their official authority.

A corporation has its own legal personality separate and distinct from those of its stockholders,
directors or officers. Hence, absent any evidence that they have exceeded their authority, corporate
officers are not personally liable for their official acts. As discussed above, the acts imputed to the
respondents do not support a finding of bad faith. In addition, the lack of a valid cause for the dismissal
of an employee does not ipso facto mean that the corporate officers acted with malice or bad faith.
There must be an independent proof of malice or bad faith, which is absent in the case at bar.

8. Saw v. CA, G.R. No. 90580, April 8, 1991

DOCTRINE: The interest of shareholders in corporate property, is purely inchoate; and this purely
inchoate interest will not entitle them to intervene in a litigation involving corporate property.

FACTS: A collection suit with preliminary attachment was filed by Equitable Banking Corporation against
Freeman, Inc. and Saw Chiao Lian, its President and General Manager. The petitioners – stockholders of
Equitable–moved to intervene, alleging that (1) the loans between Saw Chiao Lian and Equitable were
not approved by the stockholders representing at least 2/3 of corporate capital; (2) Saw Chiao Lian had
no authority to contract such loans; and (3) there was collusion between the officials of Freeman, Inc.
and Equitable Banking Corp. in securing the loans.

Equitable demurs, contending that the collection suit against Freeman, Inc, and Saw Chiao Lian
is essentially in personam and, as an action against defendants in their personal capacities, will not
prejudice the petitioners as stockholders of the corporation. at the time the motion for intervention was
filed, there was pending between Freeman, Inc. and the petitioners SEC Case No. 03577.

The motion to intervene of petitioner-stockholders was thus denied.

ISSUE: Whether or not the petitioner stockholders had the right to intervene.

RULING: The petitioners do not have such right.

The interest of shareholders in corporate property, is purely inchoate; and this purely inchoate
interest will not entitle them to intervene in a litigation involving corporate property. Intervention is not
an independent proceeding, but merely an ancillary and supplemental one, which in the nature of
things, must be in subordination to the main proceeding, unless otherwise provided for by statute or by
the Rules of Court.

The Court observes that even with the denial of the petitioners’ motion to intervene, nothing is
really lost to them. The denial did not necessarily prejudice them as their rights are being litigated in the
case now before the Securities and Exchange Commission and may be fully asserted and protected in
that separate proceeding.

9. Republic v. Sandiganbayan, G.R. No. 113420, March 7, 1997

DOCTRINE: Corporations organized with ill-gotten wealth, but are not themselves guilty of
misappropriation, fraud or other illicit conduct, there is no need to implead them.
FACTS: Petitioner filed a complaint in the Sandiganbayan in June 1987. Said complaint sought to recover
from individual defendants alleged ill-gotten wealth. Defendant Marcelo was alleged to control a
corporation that must be sequestered and among the assets apparently acquired illegally by defendants
were respondent corporations. On October 30, 1991, the complaint was amended to include both
corporations as parties-defendants.

The defendants claim that no proper judicial action was filed against respondent corporations in
compliance with Section 26, Article XVIII of the Constitution because said provision allows the
sequestration and freeze orders only for not more than 6 months.

The complaint to include the corporations as defendants was only filed in October 1991, which
is beyond the 6-month period. However, the Solicitor General claims that this case justifies the
application of the doctrine of “piercing the veil of corporate fiction” because said corporations were
used by defendants to hide their ill-gotten wealth. Anyhow, he says, this is now moot and academic with
the amendment of the complaint impleading respondent corporations as parties-defendants in the
aforementioned case.

ISSUE: Whether a proper judicial action was filed against respondent corporations in compliance with,
and within the period contemplated in the Constitution

RULING: There was a proper judicial action filed, and there was even no need to implead respondent
corporations. Corporations organized with ill-gotten wealth, but are not themselves guilty of
misappropriation, fraud or other illicit conduct, there is no need to implead them. Distinguished, in
terms of juridical personality and legal culpability from their erring members or stockholders, said
corporations are not themselves guilty of the sins of the latter. Even if the Government failed to implead
the sequestered corporations as defendants, the defect is not fatal, but one correctible under applicable
adjective rules—e.g., Section 10, Rule 5 of the Rules of Court, which specifies the remedy of
amendment.

In a previous case, the Court ruled that there was faithful compliance with Section 26, Article
XVIII of the Constitution where corporations were among the properties listed in the original complaint
as having been accumulated by the defendants in breach of public trust and were subsequently
impleaded as parties-defendants in the same case by way of an amended complaint duly granted by the
Sandiganbayan.

10. Palm Avenue Holding CO., Inc. v. Sandiganbayan, G.R. No. 173082, August 6, 2014

DOCTRINE: Failure to implead companies in a suit against them would necessarily be denying such
entities their right to due process.

FACTS: Petitioner-corporations owned stocks that were alleged as ill-gotten wealth. However, in a
complaint filed in 1986 by the PCGG, they were merely listed as corporations alleged to be owners of
Romualdez. The Court ordered the PCGG to amend their complaint and implead petitioner-corporations
as defendant, which PCGG did. Then, petitioner-corporations filed a motion to release sequestered
funds with the Sandiganbayan. PCGG was ordered to submit a bill of particulars. However, since such bill
of particulars were insufficient and thus were not enough to present a valid cause of action, petitioner-
corporations filed a motion to dismiss. The motion to dismiss was granted by the Sandiganbayan.

Upon denial of Republic’s motion for reconsideration, it filed a petition to this Court contesting the
dismissal. On the other side, since the amended complaints were invalid insofar as having impleaded
petitioner-corporations, the latter argued that these amendments were deemed not filed together with
the civil case filed back in 1986, and they argue that they were not properly impleaded within the 6-
month period as prescribed in Section 26, Article XVIII of the Constitution because said provision allows
the sequestration and freeze orders only for not more than 6 months. Therefore, they pray for the lifting
of the sequestration of their assets.

ISSUE: Whether or not Sandiganbayan committed grave abuse of discretion in granting petitioner-
corporations' motion to release all shares of stock and funds in the custody of PCGG

RULING: No, the Sandiganbayan did not commit grave abuse of discretion. The necessity of the Republic
to actually implead corporations as defendants in the complaint is needed. Failure to do so would
necessarily be denying such entities their right to due process. Here, the writ of sequestration issued
against the assets of petitioner-corporations is not valid because the suit 1986 against Benjamin
Romualdez as shareholder in the petitioner-corporations is not a suit against the latter. Petitioner-
corporations were merely mentioned as Item Nos. 47 and 48, Annex A of the Complaint, as among the
corporations where defendant Romualdez owns shares of stocks.

The bill of particulars filed by the PCGG was also found insufficient. Simple justice demands that
the Palm Companies must know what the complaint against them is all about.

11. WPM International Trading V. Labayen, G.R. No. 182770, September 17, 2014

FACTS: WPM entered into a management agreement with the respondent to operate, manage and
rehabilitate Quickbite, a restaurant owned and operated by WPM. Pursuant to the agreement, the
respondent engaged the services of CLN Engineering Services (CLN) to renovate Quickbite-Divisoria.
After sometime, Quickbite-Divisoria’s renovation was finally completed, and its possession was
delivered to the respondent. However, out of the renovation cost, the proceeds of CLN for the
renovation was insufficient of ₱112,876.02. Hence, CLN filed a complaint for sum of money and
damages before the RTC against the respondent and petitioner, however the latter later on was
excluded. The RTC ruled in favor of CLN, thus respondent is liable to pay actual damages
In return, the respondent filed a complaint for damages against the petitioners, WPM and
Manlapaz. The respondent alleged that in the previous case, she was adjudged liable and that her
participation in the management agreement was limited only to introducing Manlapaz to CLN’s general
manager.Thus, Manlapaz claimed that it was his fellow incorporator/director Alcansaje who was in-
charge with the daily operations of the Quickbite outlets but the latter left WPM which resulted the
respondent as the manager.
The RTC held that the respondent is entitled to indemnity from Manlapaz which the CA
affirmed.

ISSUE: Whether WPM is a mere instrumentality, alter-ego, and business conduit of Manlapaz

RULING: No, WPM is a not mere instrumentality, alter-ego, and business conduit of Manlapaz
The rule is settled that a corporation has a personality separate and distinct from the persons acting for
and in its behalf and, in general, from the people comprising it. Following this principle, the obligations
incurred by the corporate officers, or other persons acting as corporate agents, are the direct
accountabilities of the corporation they represent, and not theirs. Thus, a director, officer or employee
of a corporation is generally not held personally liable for obligations incurred by the corporation; it is
only in exceptional circumstances that solidary liability will attach to them.
Incidentally, the doctrine of piercing the corporate veil applies only in three (3) basic instances, namely:
a) when the separate and distinct corporate personality defeats public convenience, as when the
corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud cases, or when
the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter
ego cases, i.e., where a corporation is essentially 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 so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation.
Piercing the corporate veil based on the alter ego theory requires the concurrence of three
elements, namely:
(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 right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of.
The absence of any of these elements prevents piercing the corporate veil.
In the present case, the attendant circumstances do not establish that WPM is a mere alter ego
of Manlapaz. Aside from the fact that Manlapaz was the principal stockholder of WPM, records do not
show that WPM was organized and controlled, and its affairs conducted in a manner that made it merely
an instrumentality, agency, conduit or adjunct ofManlapaz. Moreover, the records of the case do not
support that Manlapaz had control or domination over WPM or its finances. That Manlapaz concurrently
held the positions of president, chairman and treasurer, or that the Manlapaz’s residence is the
registered principal office of WPM, are insufficient considerations to prove that he had exercised
absolute control over WPM.

12. Veterans Federation v. Montenejo, G.R. No. 184819, November 29, 2017
FACTS: VFP entered into a management agreement with VMDC. Under the said agreement, VMDC was
to assume exclusive management and operation of the VFPIA in exchange for forty percent (40%) of the
lease rentals generated from the area.

In managing and operating the VFPIA, VMDC hired its own personnel and employees. However, later on,
the VFP board passed a resolution terminating the management agreement. VMDC conceded to the
termination and eventually agreed to turn over to VFP the possession of all buildings, equipment and
other properties necessary to the operation of the VFPIA.

The President of VMDC then issued a memorandum informing the company's employees of the
termination of their services. Hence, petitioners filed a case for dismissal.

Contending in the main that their dismissals had been effected without cause and observance of due
process, Montenejo, et al. filed before the Labor Arbiter a complaint for illegal dismissal, money claims
and damages.

VMDC, for its part, denied the contention. It argued that the dismissals of Montenejo, et al. were valid
as they were due to an authorized cause-the cessation or closure of its business. VMDC claimed that the
cessation of its operations was but the necessary consequence of the termination of such agreement.

VFP, on the other hand, seconded the arguments of VMDC. In addition, however, VFP asserted that it
could not, at any rate, be held liable under the complaint because it is not the employer of Montenejo,
et al.

Labor Arbiter ordered VFP and VMDC to pay, solidarity, each complainant his/her salaries for 11 months.

NLRC reversed and set aside the decision of the LA and ruled that VFP and VMDC illegally dismissed
petitioners. CA affirm the NLRC decision. Hence, this appeal.

ISSUE: May VFP and VMDC be held solidarily liable with VMDC for any monetary award that may be
found due to Montenejo, et al?

Held: No. Contrary to the holding of the NLRC and the CA, the application of the doctrine of piercing the
veil of corporate fiction is not justified by the facts of this case.

The doctrine of piercing the veil of corporate fiction is a legal precept that allows a corporation's
separate personality to be disregarded under certain circumstances, so that a corporation and its
stockholders or members, or a corporation and another related corporation could be treated as a single
entity. The doctrine is an equitable principle, it being meant to apply only in situations where the
separate corporate personality of a corporation is being abused or being used for wrongful purposes.

In Concept Builders, Inc. v. NLRC, we laid down the following test to determine when it would be proper
to apply the doctrine of piercing the veil of corporate fiction:
 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.

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.

13. PNB v. Ritratto Group, Inc., G.R. No. 142616, July 31, 2001

FACTS: PNB International Finance Ltd. (PNB-IFL), a subsidiary company of PNB, organized and doing
business in Hong Kong, extended a letter of credit in favor of the respondents secured by real estate
mortgages constituted over 4 parcels of land in Makati City. This credit facility was later increased
successively in September 1996; in November 1996; in February 1997; and decreased in April 1998.
Respondents made repayments of the loan incurred by remitting those amounts to their loan account
with PNB-IFL in Hong Kong.

However, their outstanding obligations stood at US$1,497,274.70 and pursuant to the terms of the real
estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure
of all the real estate mortgages and that the properties subject thereof were to be sold at a public
auction at the Makati City Hall.

Respondents then filed a complaint for injunction with prayer for the issuance of a writ of preliminary
injunction and/or temporary restraining order before the RTC of Makati. The trial court judge issued an
Order for the issuance of a writ of preliminary injunction and the motion to dismiss was denied by the
trial court judge for lack of merit.

Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of
preliminary injunction before the Court of Appeals. However, the appellate court dismissed the petition.
Hence, this petition.

ISSUE: May petitioner be held liable on the ground of parent-subsidiary relationship between PNB and
PNB-IFL?
HELD: No. The general rule is that as a legal entity, a corporation has a personality distinct and separate
from its individual stockholders or members, and is not affected by the personal rights, obligations and
transactions of the latter. The mere fact that a corporation owns all of the stocks of another corporation,
taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate
functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation
as well as the subsidiary will be confined to those arising in their respective business.

While there exists no definite test of general application in determining when a subsidiary may be
treated as a mere instrumentality of the parent corporation, some factors have been identified that will
justify the application of the treatment of the doctrine of the piercing of the corporate veil.

Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable
doctrine developed to address situations where the separate corporate personality of a corporation is
abused or used for wrongful purposes. 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 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.

Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of
the indicative factors that the former corporation is a mere instrumentality of the latter are present.
Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing
the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the
alter ego or instrumentality doctrine finds no application in the case at bar.

14. Sps. Nisce v. Equitable PCI Bank, G.R. No. 167434, February 19, 2007

Facts: Spouses Ramon and Natividad Nisce contracted loans evidenced by promissory notes with herein
respondent Equitable PCI Bank, Inc secured by a real mortgage on the former’s parcel of land. Having
defaulted, respondent as creditor-mortgagee filed a petition for extrajudicial foreclosure. Petitioners
alleged, among others, that the bank should have compensated their debt with their dollar account
which they maintain with PCI Capital Asia Ltd. (Hong Kong), a subsidiary of Equitable. The Bank, for its
part, contends that although the spouses’ debt was restructured, they nevertheless failed to pay.
Moreover, it alleged that there cannot be legal compensation because PCI Capital had a separate and
distinct personality from the PCIB, and a claim against the former cannot be made against the latter.

Issue: Whether or not legal compensation may operate to extinguish the petitioner’s obligation?

Ruling: No. Admittedly, PCI Capital is a subsidiary of respondent Bank. Even then, PCI Capital [PCI
Express Padala (HK) Ltd.] has an independent and separate juridical personality from that of the
respondent Bank, its parent company; hence, any claim against the subsidiary is not a claim against the
parent company and vice versa.

This Court, in Martinez v. Court of Appeals held that, being a mere fiction of law, peculiar situations or
valid grounds can exist to warrant, albeit sparingly, the disregard of its independent being and the
piercing of the corporate veil. The veil of separate corporate personality may be lifted when, inter alia,
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 those cases where valid grounds exist for piercing the veil of a corporate
entity, the corporation will be considered as a mere association of persons. The liability will directly
attach to them. The Court likewise declared in the same case that the test in determining the application
of the instrumentality or alter ego doctrine is as follows:

1. Control, not mere majority or complete stock control, but complete dominion, 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
complaint of. The Court emphasized that 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.
Petitioners failed to adduce sufficient evidence to justify the piercing of the veil of corporate entity and
render respondent Bank liable for the US$20,000.00 deposit of petitioner Natividad Nisce as debtor. On
hindsight, petitioners could have spared themselves the expenses and tribulation of a litigation had they
just withdrawn their deposit from the PCI Capital and remitted the same to respondent. However,
petitioner insisted on their contention of setoff

15. Zambrano v. Philippine Carpet Manufacturing Corporation, G.R. No. 224099, June 21, 2017

FACTS: On January 3, 2011, petitioners, who were employees of private respondent Philippine Carpet
Manufacturing Corporation, were notified of the termination of their employment effective February 3,
2011 on the ground of cessation of operation due to serious business losses. They were of the belief that
their dismissal was without just cause and in violation of due process because the closure of Phil Carpet
was a mere pretense to transfer its operations to its wholly owned and controlled corporation, Pacific
Carpet Manufacturing Corporation (PacificCarpet). They asserted that their dismissal constituted unfair
labor practice as it involved the mass dismissal of all union officers and members of the Philippine
Carpet Manufacturing Employees Association (PHILCEA).

In its defense, Phil Carpet countered that it permanently closed and totally ceased its operations
because there had been a steady decline in the demand for its products due to global recession, stiffer
competition, and the effects of a changing market. Thus, in order to stem the bleeding, the company
implemented several cost-cutting measures, including voluntary redundancy and early retirement
programs. Phil Carpet likewise faithfully complied with the requisites for closure or cessation of business
under the Labor Code. The petitioners and the Department of Labor and Employment were served
written notices one (1) month before the intended closure of the company. The petitioners’ •were also
paid their separation pay and they voluntarily executed their respective Release and Quitclaim before
the DOLE officials.

In the September 29, 2014 Decision, the Labor Arbiter dismissed the complaints for illegal dismissal and
unfair labor practice. The NLRC affirmed the findings of the LA, which was subsequently affirmed by the
CA.

ISSUE: Whether or not the quitclaims signed by petitioners are valid and binding.

RULING: Yes. The quitclaims were valid and binding upon the petitioners. Where the person making the
waiver has done so voluntarily, with a full understanding thereof, and the consideration for the
quitclaim is credible and reasonable, the transaction must be recognized as being a valid and binding
undertaking.

In this case, the petitioners question the validity of the quitclaims they signed on the ground that Phil
Carpet's closure was a mere pretense. As the closure of Phil Carpet, however, was supported by
substantial evidence, the petitioners' reason for seeking the invalidation of the quitclaims must
necessarily fail. Further, as aptly observed by the CA, the contents of the quitclaims, which were in
Filipino, were clear and simple, such that it was unlikely that the petitioners did not understand what
they were signing. Finally, the amount they received was reasonable as the same complied with the
requirements of the Labor Code.

16. Maricalum Mining Corporation v. Florentino, G.R. No. 221813, July 23, 2018

FACTS: The National Government thru the Asset Privatization Trust (APT) executed a Purchase and Sale
Agreement (PSA) with G Holdings, a domestic corporation primarily engaged in the business of owning
and holding shares of stock of different companies. G Holding bought 90% of Maricalum Mining's shares
and financial claims in the form of company notes. G Holdings assumed Maricalum Mining's liabilities.
Upon the signing of the PSA and paying down payment, G Holdings immediately took physical
possession of Maricalum Mining's Sipalay Mining Complex, as well as its facilities, and took full control of
the latter's management and operations.

Maricalum Mining's workers, including complainants, and some of Sipalay General Hospital's employees
jointly filed a Complaint with the LA against G Holdings, its president, and officer-in-charge, and the
cooperatives and its officers for illegal dismissal, underpayment and nonpayment of salaries,
underpayment of overtime pay, underpayment of premium pay for holiday, nonpayment of separation
pay, underpayment of holiday pay, nonpayment of service incentive leave pay, nonpayment of vacation
and sick leave, nonpayment of 13th month pay, moral and exemplary damages, and attorney’s fees.

Complainants claimed they have not received any increase in wages since they were allegedly rehired;
Maricalum Mining's assets have been exposed to pilferage by some of its rank-and-file employees
whose claims for collective bargaining benefits were undergoing litigation; the payrolls for their wages
were supposedly prepared by G Holdings' accounting department, they have not been paid their salary;
and some of their services were dismissed without any due process.

Complainants posited that G Holdings violated their "tenurial rights"; G Holdings implemented a
retrenchment scheme to dismiss the caretakers it hired before the foreclosure of Maricalum Mining's
assets; and G Holdings was their employer because it allegedly had the power to hire, pay wages,
control working methods and dismiss them.

ISSUE: Whether the transfer of assets from Maricalum Mining to G Holdings is enough to invoke the
equitable remedy of piercing the corporate veil.

RULING: No clear and convincing evidence was presented by the complainants to conclusively prove the
presence of fraud on the part of G Holdings. Although the quantum of evidence needed to establish a
claim for illegal dismissal in labor cases is substantial evidence, the quantum need to establish the
presence of fraud is clear and convincing evidence. Thus, to disregard the separate juridical personality
of a corporation, the wrongdoing must be established clearly and convincingly-it cannot be presumed.

The complainants did not satisfy the requisite quantum of evidence to prove fraud on the part of G
Holdings. They merely offered allegations and suppositions that, since Maricalum Mining's assets appear
to be continuously depleting and that the same corporation is a subsidiary, G Holdings could have been
guilty of fraud. Bare allegations do not prove anything. There must be proof that fraud-not the inevitable
effects of a previously executed and valid contract such as the PSA-was the cause of the latter's total
asset depletion. The presence of control per se is not enough to justify the piercing of the corporate veil.

17. Complex Electronics Employees Association v. NLRC, G.R. No. 121315, July 19, 1999

FACTS: Due to losses on production of the petitioner, it was constrained to cease operations. In the
evening of April 6, 1992, the machinery, equipment and materials being used for production at Complex
were pulled-out from the company premises and transferred to the premises of Ionics Circuit, Inc.
(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, illegal closure/illegal lockout, money claims for vacation leave, sick leave, unpaid wages, 13th
month pay, damages and attorney’s fees. The Union alleged that the pull-out of the machinery,
equipment and materials from the company premises, which resulted to the sudden closure of the
company was in violation of Section 3 and 8, Rule XIII, Book V of the Labor Code of the Philippines and
the existing CBA. 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.

The Union anchors its position on the fact that Lawrence Qua is both the president of Complex and
Ionics and that both companies have the same set of Board of Directors. It claims that business has not
ceased at Complex but was merely transferred to Ionics, a runaway shop. To prove that Ionics was just a
runaway shop, petitioner asserts that out of the 80,000 shares comprising the increased capital stock of
Ionics, it was Complex that owns majority of said shares with P1,200,000.00 as its capital subscription
and P448,000.00 as its paid up investment, compared to P800,000.00 subscription andP324,560.00 paid-
up owing to the other stockholders, combined. Thus, according to the Union, there is a clear ground to
pierce the veil of corporate fiction.

ISSUE: WON Ionics is merely a runaway shop

HELD: NO. A “runaway shop” is defined as an industrial plant moved by its owners from one location to
another to escape union labor regulations or state laws, but the term is also used to describe a plant
removed to a new location in order to discriminate against employees at the old plant because of their
union activities. It is one wherein the employer moves its business to another location or it temporarily
closes its business for anti-union purposes. A “runaway shop” in this sense, is a relocation motivated by
anti-union animus rather than for business reasons.

In this case, however, Ionics was not set up merely for the purpose of transferring the business of
Complex. At the time the labor dispute arose at Complex, Ionics was already existing as an independent
company. As earlier mentioned, it has been in existence since July 5, 1984 (8 years prior to the dispute).
It cannot, therefore, be said that the temporary closure in Complex and its subsequent transfer of
business to Ionics was for anti-union purposes. The Union failed to show that the primary reason for the
closure of the establishment was due to the union activities of the employees.

The mere fact that one or more corporations are owned or controlled by the same or single stockholder
is not a sufficient ground for disregarding separate corporate personalities. 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.
 18. Indophil Textile Mill Workers Union v. Calica, G.R. No. 96490, February 3, 1992
FACTS: Indophil Union is a legitimate labor organization duly registered with the DOLE and the exclusive
bargaining unit of all rank and file employees of Indophil Textile Mills. On April 1987, the Union and
Indophil executed a CBA effective April 1, 1987 to March 31, 1990. On November 1987, Indophil Acrylic
was formed and registered with the SEC. In 1998, Acrylic became international and hired workers
according to its criteria and standards. Sometime in July 1989, the worker of Acrylic unionize and a duly
certified CBA was executed. In 1990, the Union claimed that the plant facilities built and set up by
Acrylic should be considered as an extension or expansion of Indophil pursuant to Sec. 1(c) of ARt. 1of
the CBA to wit: This agreement shall apply to all companies, facilities, and installations and to any
extension and expansion threat. THe union sought that Acrylic be considered part of the bargaining
unit.

Their contention is that the articles of incorporation of two corporation establish that the two entities
are engaged in the same kind of business, which is the manufacture and sale of yarns of various counts
and kinds and of other materials of kindred character or nature. Furthermore, they emphasize that the
two corporations have practically the same incorporators, directors and officers.

Also the two corporations have their facilities in the same compound. That many of Indophil’s own
machineries such as dyeing machines, reeler, broiler were transferred to and are now being used by the
Acrylic plant. That services of a number of units, departments or sections of private respondents are
provided by Acrylic and that the employees of Indophil are the same persons manning and servicing the
units of Acrylic. Both parties submitted the issue to LA Calica. Calica ruled for Indophil and stated that
Acrylic is not extension Indophil, hence their CBA does not extend to the employees of Acrylic.

ISSUE: WON Acrylic is a separate and distinct entity from Indophil for purposes of union representation.
WON the operations in Acrylic are an extension or expansion of Indophil.

HELD: Acrylic is not an alter ego or an adjunct or a business conduit of Indophil because it has a separate
legitimate business purpose. Indophil engages in the manufacture of yarns while Acrylic is to
manufacture, buy, sell at wholesale basis, barter, import, export and otherwise deal in various kinds of
yarns. Two corporations cannot be treated of yarns. Two corporations cannot be treated as single
bargaining unit just because they have related businesses.

The Union seeks to pierce the veil of Acrylic alleging that the corporation is a device to evade the
application of the CBA. However, the CA held that said doctrine is only used on the existence of grounds.
In the case at bar, the fact that the business of Indophil and Acrylic are related that sometimes the
employees of Indophil are the same persons manning and providing for auxiliary services to the units of
services to the units of Acrylic, that the physical plants, offices, and facilities are situated in the same
compound. It is the SC’s considered opinion that these facts are not sufficient to justify the piercing of
the corporation veil of Acrylic. Furthermore, the legal entity is disregarded only if sought to hold the
officers and stockholders liable. In the instant case e instant case, the Union does not seek relief from
Indophil.

19. Banking Corporation vs. Dyne-Sem Electronics Corporation, G.R. No. 149237, June 11, 2006

Facts: Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed a total of P8,939,000 from petitioner China
Banking Corporation. The loan was evidenced by six promissory notes. 1 The borrowers failed to pay and.
Petitioner consequently instituted a complaint for sum of money against them. Summons was not
served on Dynetics, however, because it had already closed down. Lim, on the other hand, filed his
answer denying that “he promised to pay [the obligations] jointly and severally to [petitioner.

The case was scheduled for pre-trial with respect to Lim while case against Dynetics was archived.

A complaint4 was filed by petitioner to RTC impleading respondent Dyne-Sem Electronics Corporation
(Dyne-Sem) and its stockholders arguing that respondent was formed and organized to be Dynetics’
alter ego as both engaged in the same line of business; [t]he principal office and factory site of Dynetics,
Inc. were used by respondent as its principal office and factory site; [r]espondent acquired some of the
machineries and equipment of Dynetics, Inc. from banks which acquired the same through foreclosure
and respondent retained some of the officers of Dynetics, Inc.

Respondent filed its answer that t]he incorporators as well as present stockholders of [respondent] are
totally different from those of Dynetics, Inc; [t]he various facilities, machineries and equipment being
used by [respondent] in its business operations were legitimately and validly acquired; [t]he present
plant site is under lease from Food Terminal, Inc., a government-controlled corporation

Trial Court ruled that Dyne-Sem Electronics Corporation is not an alter ego of Dynetics, Inc. Thus, Dyne-
Sem Electronics Corporation is not liable under the promissory notes which later on was affirmed by CA

Issue: Whether the Doctrine of Piercing the Veil of Corporate Fiction is not applicable in the case at bar.

Ruling: No, the Doctrine of Piercing the Veil of Corporate Fiction is not applicable.

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. 14 This is a fiction created by law for
convenience and to prevent injustice.

But 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.”

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.

The similarity of business of the two corporations did not warrant a conclusion that respondent was but
a conduit of Dynetics. As we held in Umali v. Court of Appeals,19 “the mere fact that the businesses of
two or more corporations are interrelated is not a justification for disregarding their separate
personalities, absent sufficient showing that the corporate entity was purposely used as a shield to
defraud creditors and third persons of their rights.”

Likewise, respondent’s acquisition of some of the machineries and equipment of Dynetics was not proof
that respondent was formed to defraud petitioner. As the Court of Appeals found, no merger took place
between Dynetics and respondent Dyne-Sem. What took place was a sale of the assets of the former to
the latter. Thus, 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

20. Pacific Rehouse Corporation v. Court of Appeals, G.R. No. 199687, March 24, 2014

FACTS: A complaint was instituted with the Makati City Regional Trial Court (RTC), Branch 66, against EIB
Securities Inc. (E–Securities) for unauthorized sale of 32,180,000 DMCI shares of Pacific Rehouse
Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation, and East
Asia Oil Company, Inc. In its October 18, 2005 Resolution, the RTC rendered judgment on the pleadings,
directing the E–Securities to return to the petitioners 32,180,000 DMCI shares, as of judicial demand. On
the other hand, petitioners are directed to reimburse the defendant the amount of [P]10,942,200.00,
representing the buy back price of the 60,790,000 KPP shares of stocks at [P]0.18 per share. The
Resolution was ultimately affirmed by the Supreme Court and attained finality.

When the Writ of Execution was returned unsatisfied, petitioners moved for the issuance of an alias writ
of execution to hold Export and Industry Bank, Inc. liable for the judgment obligation as E–Securities is
“a wholly–owned controlled and dominated subsidiary of Export and Industry Bank, Inc., and is[,] thus[,]
a mere alter ego and business conduit of the latter. E–Securities opposed the motion[,] arguing that it
has a corporate personality that is separate and distinct from the respondent.

The RTC eventually concluded that E–Securities is a mere business conduit or alter ego of petitioner, the
dominant parent corporation, which justifies piercing of the veil of corporate fiction, and issued an alias
writ of summons directing defendant EIB Securities, Inc., and/or Export and Industry Bank, Inc., to fully
comply therewith. It ratiocinated that being one and the same entity in the eyes of the law, the service
of summons upon EIB Securities, Inc. (E–Securities) has bestowed jurisdiction over both the parent and
wholly–owned subsidiary.

Export and Industry Bank, Inc. (Export Bank) filed before the Court of Appeals a petition for certiorari
with prayer for the issuance of a temporary restraining order (TRO) seeking the nullification of the RTC
Order. The Court of Appeals reversed the RTC Order and explained that the alter ego theory cannot be
sustained because ownership of a subsidiary by the parent company is not enough justification to pierce
the veil of corporate fiction. There must be proof, apart from mere ownership, that Export Bank
exploited or misused the corporate fiction of E–Securities. The existence of interlocking incorporators,
directors and officers between the two corporations is not a conclusive indication that they are one and
the same. The records also do not show that Export Bank has complete control over the business
policies, affairs and/or transactions of E–Securities. It was solely E–Securities that contracted the
obligation in furtherance of its legitimate corporate purpose; thus, any fall out must be confined within
its limited liability.

ISSUE: Whether or not E-Securities is merely an alter ego of Export Bank so that “piercing the veil of
corporate fiction” is proper.

RULING: NO. An alter ego exists 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 control necessary to
invoke the alter ego doctrine is not majority or even complete stock control but such domination of
finances, 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.

The Court has laid down a three–pronged control test to establish when the alter ego doctrine should be
operative:

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 right; and
The aforesaid control and breach of duty must [have] proximately caused 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. Hence, all three
elements should concur for the alter ego doctrine to be applicable.
In this case, the alleged control exercised by Export Bank upon its subsidiary E–Securities, by itself, does
not mean that the controlled corporation is a mere instrumentality or a business conduit of the mother
company. Even control over the financial and operational concerns of a subsidiary company does not by
itself call for disregarding its corporate fiction. There must be a perpetuation of fraud behind the control
or at least a fraudulent or illegal purpose behind the control in order to justify piercing the veil of
corporate fiction. Such fraudulent intent is lacking in this case.
While the courts have been granted the colossal authority to wield the sword which pierces through the
veil of corporate fiction, concomitant to the exercise of this power, is the responsibility to uphold the
doctrine of separate entity, when rightly so; as it has for so long encouraged businessmen to enter into
economic endeavors fraught with risks and where only a few dared to venture.
The decision of the Court of Appeals in favor of Export Bank (reversing the RTC Order) is affirmed.

21. PNB v. CA, G.R. No. L-27155, May 18, 1978

Facts: This case rooted from the Court of Appeals order that petitioner, as third-party defendant, to pay
respondent Rita Gueco Tapnio, as third-party plaintiff, the sum of P2,379.71, the same amounts which
Rita Gueco Tapnio was ordered to pay the Philamgen

Plaintiff Philamgen executed its Bond with defendant Tapnio as principal, in favor of the Philippine
National Bank Branch to guarantee the payment of defendant Tapnio’s account with said Bank. In turn,
to guarantee the payment of whatever amount the bonding company would pay to the Philippine
National Bank. Defendant Tapnio was indebted to the bank in the sum of P2,000.00 which she failed to
pay despite demands. The Bank wrote a letter of demand to plaintiff; whereupon, plaintiff paid the bank
owing in the sum of P2,379.91, for and on account of defendant Rita Tapnio’s obligation.

Plaintiff, in turn, made several demands, upon defendants but to no avail. “Defendant Rita Gueco told
the plaintiff that she did not consider herself to be indebted to the Bank at all because she had an
agreement with Tuazon whereby she had leased to the latter her unused export sugar quota for a total
of P2,800.00, which was already in excess of her obligation guaranteed by plaintiff’s bond.. This lease
agreement, according to her, was with the knowledge of the bank. But the Bank has placed obstacles to
the consummation of the lease, and the delay caused by said obstacles forced Tuazon to rescind the
lease contract

Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said Bank. The
same was submitted to the branch of the bank. The latter required the parties to raise the consideration
of P2.80 per picul or a total of P2,800. Mr. Tuazon informed the manager that he was agreeable to
raising the consideration to P2.80 per picul. The branch manager of the Bank recommended the
approval of the contract of lease at the price of P2.80 per picul but the board returned the
recommendation unacted upon, considering that the current price prevailing at the time was P3.00 per
picul. This lead Tuazon to cancel the lease which resulted for Tapnio’s loss of P2,800 which could have
paid the bank.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own
Charter and under the Corporation Law, to safeguard and protect its rights and interests under the deed
of assignment, which include the right to approve or disapprove the said lease of sugar quota and in the
exercise of that authority, its Board of Directors necessarily had authority to determine and fix the rental
price per picul of the sugar quota subject of the lease between private respondents and Tuazon.

Issue: Whether the bank is liable for the damage caused

Ruling: Yes, PNB bank shall be civilly liable. A corporation is civilly liable in the same manner as natural
persons for torts, because “generally speaking, the rules governing the liability of a principal or master
for a tort committed by an agent or servant are the same whether the principal or master be a natural
person or a corporation, and whether the servant or agent be a natural or artificial person. All of the
authorities agree that a principal or master is liable for every tort which he expressly directs or
authorizes, and this is just as true of a corporation as of a natural person. A corporation is liable,
therefore, whenever a tortious act is committed by an officer or agent under express direction or
authority from the stockholders or members acting as a body, or, generally, from the directors as the
governing body.”

In the case at bar, while petitioner had the ultimate authority of approving or disapproving the proposed
lease since the quota was mortgaged to the Bank, the latter certainly cannot escape its responsibility of
observing, for the protection of the interest of private respondents, that degree of care, precaution and
vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar
quota. The law makes it imperative that every person “must in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good
faith.”4 This petitioner failed to do. Certainly, it knew that the agricultural year was about to expire, that
by its disapproval of the lease private respondents would be unable to utilize the sugar quota in
question

22. Naguiat v. NLRC, G.R. No. 116123, March 13, 1997

FACTS: Sergio Naguiat was the president of Clark Field Taxi, Inc. (CFTI) which supplied taxi services to
Clark Air Base. At the same time, Naguiat was a director of the Sergio F. Naguiat Enterprises, Inc. (SFNEI),
their family-owned corporation along with CFTI.

In 1991, CFTI had to close due to “great financial losses and lost business opportunity” resulting from the
phase-out of Clark Air Base brought about by the Mt. Pinatubo eruption and the expiration of the RP-US
military bases agreement.

CFTI then came up with an agreement with the drivers that the latter be entitled to a separation pay in
the amount of P500.00 per every year of service. Most of the drivers accepted this but some drivers did
not. The drivers who refused to accept the separation pay offered by CFTI instead sued the latter before
the labor arbiter.
The labor arbiter ruled in favor of the taxi drivers. The National Labor Relations Commission affirmed the
labor arbiter. It was established that when CFTI closed, it was in profitable standing and was not
incurring losses. It ruled that the drivers are entitled to $120.00 (or its peso equivalent) per every year of
service subject to exchange rates prevailing that time.

The NLRC likewise ruled that SFNEI as well as CFTI’s president and vice president Sergio Naguiat and
Antolin Naguiat should be held jointly and severally liable to pay the drivers. The NLRC ruled that SFNEI
actively managed CFTI and its business affairs hence it acted as the employer of the drivers.

ISSUE: Whether or not the ruling of the NLRC is correct.

RULING: It is only partially correct. NLRC is correct when it ruled that Sergio Naguiat is jointly and
severally liable to pay the drivers the award of separation pay in the amount so determined. As
president of CFTI, Sergio Naguiat is considered an “employer” of the dismissed employees who is
therefore liable for the obligations of the corporation to its dismissed employees. Moreover, CFTI, being
a close family corporation, is liable for corporate torts and stockholders thereof shall be personally liable
for corporate torts unless the corporation has obtained reasonably adequate liability insurance (par. 5,
Section 100, “Close Corporations”, Corporation Code). Antolin Naguiat is absolved because there was
insufficient evidence as against him.

23. Ching v. SOJ, G.R. No. 164317, February 6, 2006

DOCTRINE: When a penal statute does not expressly apply to corporations, it does not create an offense
for which a corporation may be punished; Corporate officers or employees, through whose act, default
or omission the corporation commits a crime, are themselves individually guilty of the crime.

FACTS: The petitioner, the VP of Philippine Blooming Mills Inc. (PBMI)applied for the issuance of
commercial letters of credit to finance the importation of assorted goods of their company with the Rizal
Commercial Banking Corporation. This was approved, and then the petitioner agreed to hold the goods
in trust for RCBC, with authority to sell but not by way of conditional sale, pledge or otherwise; and in
case such goods were sold, to turn over the proceeds thereof as soon as received, to apply against the
relative acceptances and payment of other indebtedness to respondent bank. In case the goods
remained unsold within the specified period, the goods were to be returned to respondent bank without
any need of demand. Thus, said “goods, manufactured products or proceeds thereof, whether in the
form of money or bills, receivables, or accounts separate and capable of identification” were respondent
bank’s property.
However, when the trust receipt matured the petitioner failed to return the goods to RCBC or their
valued in the amount of P6,940,280.66 despite demands, hence after several demands RCBC filed a
criminal complaint for estafa before the City Prosecutor of Manila which after preliminary investigation
found no probable cause to charge the petitioner, but this was reversed after the respondent bank
appealed the decision before the DOJ which issued Resolution 250 finding probable cause on the basis
that the petitioner issued executed 13 trust receipts, sufficient to indict him therein for the violation of
P.D. No. 115, as it covers not only only goods ultimately destined for sale, as this issue had already been
settled in Allied Banking Corporation v. Ordoñez.
The case was then elevated to the Court of Appeals through a petition for certiorari, on the ground that
there is no evidence to prove the participation in the alleged transaction, and that it lacks the sufficient
basis to prosecute the petitioner. The CA dismissed the petition for lack of merit both on procedural
grounds and that the Secretary of Justice did not err in its issued resolution. Hence this petition,
petitioner posits that, except for his being the Senior Vice-President of the PBMI, there is no iota of
evidence that he was a participes crimines in violating the trust receipts sued upon; and that his liability,
if at all, is purely civil because he signed the said trust receipts merely as a x x x surety and not as the
entrustee.

ISSUE: Whether or not the Secretary of Justice committed grave abuse of discretion in finding probable
cause against the petitioner for violation of estafa under Article 315, paragraph 1(b) of the Revised Penal
Code, in relation to P.D. No. 115.

RULING: No the Secretary of Justice did not commit grave abuse of discretion. “The crime defined in P.D.
No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315 of the Revised
Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other juridical
entity or by natural persons. However, the penalty for the crime is imprisonment for the periods
provided in said Article 315.

The Supreme Court explained, “A crime is the doing of that which the penal code forbids to be done or
omitting to do what it commands. A necessary part of the definition of every crime is the designation of
the author of the crime upon whom the penalty is to be inflicted. When a criminal statute designates an
act of a corporation or a crime and prescribes punishment therefor, it creates a criminal offense which,
otherwise, would not exist and such can be committed only by the corporation. But when a penal
statute does not expressly apply to corporations, it does not create an offense for which a corporation
may be punished. On the other hand, if the State, by statute, defines a crime that may be committed by
a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or employees
of such corporation or other persons responsible for the offense, only such individuals will suffer such
penalty. Corporate officers or employees, through whose act, default or omission the corporation
commits a crime, are themselves individually guilty of the crime.

The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to
those corporate agents who themselves commit the crime and to those, who, by virtue of their
managerial positions or other similar relation to the corporation, could be deemed responsible for its
commission, if by virtue of their relationship to the corporation, they had the power to prevent the act.
Moreover, all parties active in promoting a crime, whether agents or not, are principals. Whether such
officers or employees are benefited by their delictual acts is not a touchstone of their criminal liability.
Benefit is not an operative fact.”
In this case, The Vice President of the PBMI signed the trust receipts in question, the respondent bank
demanded their payment, but to no avail they are pressed to file the necessary charge to collect. Being
in the position to sign, execute, and act on behalf of the corporation he cannot, thus, hide behind the
cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl Warren, a
corporate officer cannot protect himself behind a corporation where he is the actual, present and
efficient actor. Wherefore, the petition is denied for lack of merit.

24. Jardine Davies, Inc. v. CA, G.R. No. 128066, June 19, 2000 .

Doctrine: Moral damages may be awarded to a corporation whose reputation has been besmirched.

Facts: During the height of the power crisis in 1992 which the country experiencing, PURE FOODS
CORPORATION (hereafter PUREFOODS) decided to install two (2) 1500 KW generators in its food
processing plant in San Roque, Marikina City to remedy and curtail further losses due to the series of
power failures.

Sometime in November 1992, bidding for the supply and installation of the generators was held. Several
suppliers and dealers were invited to attend a pre-bidding conference to discuss the conditions, propose
scheme and specifications that would best suit the needs of PUREFOODS.

Out of the eight (8) prospective bidders, FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO)
won the bid. A letter was sent to the FEMSCO President, where PURE FOODS Corporation confirm the
award of the contract, and advised that once finalized a formal contract shall be signed. The
performance bond of FEMSCO in return was acknowledged and PUREFOODS on the other hand returned
the bidders bond to FEMSCO.

Later, however, in a letter dated 22 December 1992, PUREFOODS unilaterally canceled the award due to
alleged "significant factors” and re-bid of the project." Consequently, FEMSCO protested the
cancellation of the award. However, on 26 March 1993, before the matter could be resolved,
PUREFOODS already awarded the project and entered into a contract with JARDINE NELL, a division of
Jardine Davies, Inc. (hereafter JARDINE).

Trial ensued and on 27 June 1994 the Regional Trial Court of Pasig, Br. 68, granted among others the
award for moral damages in the amount of P2,000,000.00 each for JARDINE and PUREFOODS,
respectively.

Issue:

1. Whether or not the award of morale damages in favor of FEMSCO is proper.

2. Whether or not JARDINE should also be held liable to pay morale damages for supposedly
inducing PUREFOODS to violate the contract with FEMSCO.
Ruling: 1. Yes, the award of morale damages is proper. This Court has awarded in the past moral
damages to a corporation whose reputation has been besmirched.

In the instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished
after it immediately ordered equipment from its suppliers on account of the urgency of the project, only
to be canceled later. We thus sustain respondent appellate court’s award of moral damages. We
however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never intended
to enrich the recipient. Likewise, the award of exemplary damages by way of example for the public
good is excessive and should be reduced to P100,000.00.

2. No, Jardine should not be held liable to pay moral damages. The similarity in the design submitted by
two persons and the tender of a lower quotation by one are insufficient to show that such party indeed
induced the principal to violate its contract with the other party.

In this case there is no specific evidence on record to support that in deed Jardine induced Purefoods to
violate its term of contract with FEMSCO, the similarity in the design submitted to petitioner
PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender of a lower quotation
by petitioner JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner
PUREFOODS to violate its contract with respondent FEMSCO.

25. Filipinas Broadcasting Network, Inc. v. AGO Medical, G.R. No. 141994, January 17, 2005

Doctrine: An employer and employee are solidarily liable for a defamatory statement by the employee
within the course and scope of his or her employment, at least when the employer authorizes or ratifies
the defamation.

Facts: Trial ensued after the respondent filed a complaint for damages for libel against the broadcaster
and the petitioner, alleging that the broadcast of “Expose” aired through the radio network of the
petitioner is defamatory and that the network is equally responsible for failing to exercise due diligence
in the selection and supervision of its employees, particularly Rima and Alegre.

The trial court rendered a Decision12 finding FBNI and Alegre liable for libel except Rima. The trial court
held that the broadcasts are libelous per se. The trial court rejected the broadcasters’ claim that their
utterances were the result of straight reporting because it had no factual basis. The broadcasters did not
even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial
court found that FBNI failed to exercise diligence in the selection and supervision of its employees.
While Rima’s speech was found within the bounds of freedom of expression. Therein the trial court
ordered the petitioners as jointly and severally liable to pay the respondent the amount of ₱300,000.00
moral damages, plus ₱30,000.00 reimbursement of attorney’s fees, and to pay the costs of suit.

Hence this petition, FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of
damages and attorney’s fees because it exercised due diligence in the selection and supervision of its
employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and
Alegre, undergo a "very regimented process" before they are allowed to go on air. "Those who apply for
broadcaster are subjected to interviews, examinations and an apprenticeship program."

Issue: Whether FBNI is solidarily liable with Rima and Alegre for payment of moral damages, attorney’s
fees and costs of suit.

Ruling: Yes, Filipinas Broadcasting Network, Inc.is solidarily liable for the payment of the moral damages,
attorney’s fees, and the cost of suit.

The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort
which they commit. Joint tort feasors are all the persons who command, instigate, promote, encourage,
advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is
done, if done for their benefit.

An employer and employee are solidarily liable for a defamatory statement by the employee within the
course and scope of his or her employment, at least when the employer authorizes or ratifies the
defamation. In this case, Rima and Alegre were clearly performing their official duties as hosts of FBNI’s
radio program Exposé when they aired the broadcasts. FBNI neither alleged nor proved that Rima and
Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did
not authorize and ratify the defamatory broadcasts. Wherefore, the petitioner is denied.

26. First Philippine Int’l Bank v. CA, G.R. No. 115849, January 24, 1996

FACTS: Producer Bank of the Philippines acquired 6 parcels of land at Laguna. The property used to be
owned by BYME Investment and Development Corporation which had them mortgaged with the bank as
collateral for a loan. Demetrio Demetria and Jose O. Janolo wanted to purchase the property and thus
initiated negotiations for that purpose.

In August 1987, Demetria and Janolo met with Mercurio Rivera, Manager of the Property Management
Department of the Bank to discuss their plan to buy the property. Thereafter, they had a series of letters
where parties accepted the offer of Demetria and Janolo. Later in October, the conservator of the bank
(which has been placed under conservatorship by the Central Bank since 1984) was replaced; and
subsequently the proposal of Demetria and Janolo to buy the properties was under study pursuant to
the new conservator’s mandate. After which, a series of demands ensued.

One of the petitioners’ arguments lies within the corporate fiction, which states that the personality of
the Bank is separate and distinct from its shareholders.

ISSUE: Is the personality of the Bank separate and distinct from its shareholders in this case?

RULING: NO. When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of
a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and
isolates the corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.

The corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against
forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a
derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the
corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in
using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants
to use their shareholders as fronts to circumvent the stringent rules against forum shopping.

27. Sta. Monica Industrial v. DAR Regional Director, G.R. No. 164846, June 18, 2008

FACTS: Asuncion Trinidad is the owner of five parcels of land with a total area of 4.69 hectares in
Calumpit, Bulacan. Private respondent Basilio De Guzman is the agricultural leasehold tenant of
Trinidad.

As an agricultural leasehold tenant, De Guzman was issued certificates of Land Transfer on July 22, 1981.

De Guzman filed a petition for the issuance of patent under his name with the Regional Office of DAR.
The DAR sent notices to Trinidad requiring her to comment. Instead of complying, Trinidad filed a
motion for bill of particulars.

After due proceedings, the Regional Director of DAR issued the order granting Emancipation Patent in
favor of De Guzman as qualified farmer-beneficiary of Agrarian Reform Program.

A year later, petitioner Sta. Monica filed a petition for certiorari and prohibition with CA assailing the
order of DAR. Sta. Monica claimed that while it is true that Trinidad was the former owner of the
disputed parcel of land, the said landholding was sold on Jan. 27, 1986 in favor of Sta. Monica.

ISSUE: Is Sta. Monica, a corporation with separate juridical personality has been denied of the
opportunity of notice and hearing when the DAR awarded land ownership to an agrarian reform farmer-
beneficiary, in the person of De Guzman?

RULING: NO. The corporation Sta. Monica was not denied of the opportunity of notice and hearing.
Trinidad is still deemed the owner of the agricultural land sold to Sta. Monica; no need for separate
notice of coverage under CARP law.

Buyer Sta. Monica is owned and controlled by Trinidad and her family of which they own 98% of the
outstanding capital stock. As owners of 98% of outstanding capital stock, they are beneficial owners of
all the assets of the corporation including the agricultural land sold by Trinidad to Sta. Monica. At the
very last, the notice to her is already a notice to Sta. Monica because the corporation acted as a mere
conduit of Trinidad.
The sale of the land from Trinidad to Sta. Monica was a mere ploy to evade the applicable provisions of
the agrarian law. But it is a fiat that the corporate vehicle cannot be used as a shield to protect fraud or
justify wrong. Thus, the veil of corporate fiction will be pierced when it is used to defeat public
convenience and subvert public policy.

28. A.C. Ransom Labor Union-CCLU v. NLRC, G.R. No. L-69494, May 29, 1987

FACTS: The petitioners A.C. Ransom Labor Union-CCLU contend their right to backwages due the 22
employees. Sometime after, the Union filed another Motion for Execution alleging that although
RANSOM had assumed a posture of suffering from business reverse, its officers and principal
stockholders had organized a new corporation, the Rosario Industrial Corporation (thereinafter called
ROSARIO), using the same equipment, personnel, business stocks and the same place of business. For its
part, RANSOM declared that ROSARIO is a distinct and separate corporation, which was organized long
before these instant cases were decided adversely against RANSOM.

The Decision of the CIR was rendered on August 19, 1972. Clearance to RANSOM to cease operations
and terminate employment granted by the Secretary of Labor was made effective on May 1, 1973. The
right of the employees concerned to backwages awarded them, therefore, had already vested at the
time and even before clearance was granted. Note should also be taken of the fact that the clearance
was without prejudice to the right of subject employees to seek redress of grievances under existing
laws and decrees.

ISSUE: WON the judgment against the Corporation to reinstate employees with backwages enforceable
against its agents and officers in their individual, private and personal capacities?

RULING: YES. Court set aside NLRC ruling and reinstated GENILO ORDER with modification that personal
liability for the backwages of the 22 strikers be limited to Ruben Hernandez (President of RANSOM in
1974), jointly and severally with other Presidents of RANSOM from 1972 up to the time corporate life
was terminated. In PD 525, where a corporation fails to pay the emergency allowance therein provided,
the prescribed penalty "shall be imposed upon the guilty officer or officers" of the corporation. The
record does not clearly Identify "the officer or officers" of RANSOM directly responsible for failure to pay
the back wages of the 22 strikers. In the absence of definite proof in that regard, we believe it should be
presumed that the responsible officer is the President of the corporation who can be deemed the chief
operation officer thereof. Thus, in RA 602, criminal responsibility is with the "Manager" or in his default,
the person acting as such. In RANSOM, the President appears to be the Manager.

29. DBP v. Hydro Resources, G.R. No. 167603, March 13, 2013

FACTS: Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made 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. 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.

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. 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. The case was docketed as Civil
Case No. 15375.

Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger. This prompted
the amendment of the complaint to substitute HRCC for Hercon, Inc.

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 on even date, the
National Government transferred the said assets and liabilities to the APT as trustee under a Trust
Agreement. Thus, the complaint was amended for the second time to implead and include the APT as a
defendant.

In its answer, NMIC claimed that HRCC had no cause of action. It also asserted that its contract with
HRCC was entered into by its then President without any authority. Moreover, the said contract
allegedly failed to comply with laws, rules and regulations concerning government contracts. NMIC
further claimed that the contract amount was manifestly excessive and grossly disadvantageous to the
government. NMIC made counterclaims for the amounts already paid to Hercon, Inc. and attorney’s
fees, as well as payment for equipment rental for four trucks, replacement of parts and other services,
and damage to some of NMIC’s properties.

For its part, DBP’s answer raised the defense that HRCC had no cause of action against it because DBP
was not privy to HRCC’s contract with NMIC. Moreover, NMIC’s juridical personality is separate from
that of DBP. DBP further interposed a counterclaim for attorney’s fees.

PNB’s answer also invoked lack of cause of action against it. It also raised estoppel on HRCC’s part and
laches as defenses, claiming that the inclusion of PNB in the complaint was the first time a demand for
payment was made on it by HRCC. PNB also invoked the separate juridical personality of NMIC and
made counterclaims for moral damages and attorney’s fees.
ISSUE: Does the doctrine of piercing the corporate veil apply?

RULING: NO. In this case, nothing in the records shows that the corporate finances, policies and
practices of NMIC were dominated by DBP and PNB in such a way that NMIC could be considered to
have no separate mind, will or existence of its own but a mere conduit for DBP and PNB. On the
contrary, the evidence establishes that HRCC knew and acted on the knowledge that it was dealing with
NMIC, not with NMIC’s stockholders. The letter proposal of Hercon, Inc., HRCC’s predecessor-in-interest,
regarding the contract for NMIC’s mine stripping and road construction program was addressed to and
accepted by NMIC. The various billing reports, progress reports, statements of accounts and
communications of Hercon, Inc./HRCC regarding NMIC’s mine stripping and road construction program
in 1985 concerned NMIC and NMIC’s officers, without any indication of or reference to the control
exercised by DBP and/or PNB over NMIC’s affairs, policies and practices.

HRCC has presented nothing to show that DBP and PNB had a hand in the act complained of, the alleged
undue disregard by NMIC of the demands of HRCC to satisfy the unpaid claims for services rendered by
HRCC in connection with NMIC’s mine stripping and road construction program in 1985. On the
contrary, the overall picture painted by the evidence offered by HRCC is one where HRCC was dealing
with NMIC as a distinct juridical person acting through its own corporate officers

Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB were interlocking
has no basis. HRCC’s Exhibit “I-5,” the initial General Information Sheet submitted by NMIC to the
Securities and Exchange Commission, relied upon by the trial court and the Court of Appeals may have
proven that DBP and PNB owned the stocks of NMIC to the extent of 57% and 43%, respectively.
However, nothing in it supports a finding that NMIC, DBP, and PNB had interlocking directors as it only
indicates that, of the five members of NMIC’s board of directors, four were nominees of either DBP or
PNB and only one was a nominee of both DBP and PNB. Only two members of the board of directors of
NMIC, Jose Tengco, Jr. and Rolando Zosa, were established to be members of the board of governors of
DBP and none was proved to be a member of the board of directors of PNB. No director of NMIC was
shown to be also sitting simultaneously in the board of governors/directors of both DBP and PNB.

In reaching its conclusion of an alter ego relationship between DBP and PNB on the one hand and NMIC
on the other hand, the Court of Appeals invoked Sibagat Timber Corporation v. Garcia, which it
described as “a case under a similar factual milieu.” However, in Sibagat Timber Corporation, this Court
took care to enumerate the circumstances which led to the piercing of the corporate veil of Sibagat
Timber Corporation for being the alter ego of Del Rosario & Sons Logging Enterprises, Inc. Those
circumstances were as follows: holding office in the same building, practical identity of the officers and
directors of the two corporations and assumption of management and control of Sibagat Timber
Corporation by the directors/officers of Del Rosario & Sons Logging Enterprises, Inc.

Here, DBP and PNB maintain an address different from that of NMIC. As already discussed, there was
insufficient proof of interlocking directorates. There was not even an allegation of similarity of corporate
officers. Instead of evidence that DBP and PNB assumed and controlled the management of NMIC,
HRCC’s evidence shows that NMIC operated as a distinct entity endowed with its own legal personality.
Thus, what obtains in this case is a factual backdrop different from, not similar to, Sibagat Timber
Corporation.

In relation to the second element, to disregard the separate juridical personality of a corporation, the
wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and convincingly
established; it cannot be presumed. Without a demonstration that any of the evils sought to be
prevented by the doctrine is present, it does not apply.

In this case, the Court of Appeals declared:

We are not saying that PNB and DBP are guilty of fraud in forming NMIC, nor are we implying that NMIC
was used to conceal fraud. x x x.

Such a declaration clearly negates the possibility that DBP and PNB exercised control over NMIC which
DBP and PNB used “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.” It is a
recognition that, even assuming that DBP and PNB exercised control over NMIC, there is no evidence
that the juridical personality of NMIC was used by DBP and PNB to commit a fraud or to do a wrong
against HRCC.

There being a total absence of evidence pointing to a fraudulent, illegal or unfair act committed against
HRCC by DBP and PNB under the guise of NMIC, there is no basis to hold that NMIC was a mere alter ego
of DBP and PNB. As this Court ruled in Ramoso v. Court of Appeals

As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to
the contrary appears. When the notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.
Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud that may
work inequities among members of the corporation internally, involving no rights of the public or third
persons. In both instances, there must have been fraud, and proof of it. For the separate juridical
personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.

As regards the third element, in the absence of both control by DBP and PNB of NMIC and fraud or
fundamental unfairness perpetuated by DBP and PNB through the corporate cover of NMIC, no harm
could be said to have been proximately caused by DBP and PNB on HRCC for which HRCC could hold DBP
and PNB solidarily liable with NMIC.

30. Reynoso v. CA, G.R. No. 116124, November 22, 2000

FACTS: Sometime in the early 1960s, the Commercial Credit Corporation (CCC), a financing and
investment firm, decided to organize franchise companies in different parts of the country, wherein it
shall hold 30% equity. CCC employees were designated as resident managers of the franchise
companies. Petitioner Reynoso was designated as the resident manager of the franchise company in
Quezon City, known as the CCC of Quezon City (CCC-QC), which entered into an exclusive management
contract with CCC whereby the latter was granted the management and full control of the business
activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its receivables to
CCC. Subsequently, however, this discounting arrangement was discontinued pursuant to the so-called
"DOSRI Rule", prohibiting the lending of funds by corporations to its directors, officers, stockholders and
other persons with related interests therein. CCC, then, decided to form CCC Equity Corporation (CCC-
Equity), a wholly-owned subsidiary, to which CCC transferred 30% percent equity in CCC-QC, together
with two seats in the latter’s Board of Directors. Under the new set-up, several officials of CCC, including
petitioner Reynoso, became employees of CCC-Equity.

ISSUE: Does the doctrine of piercing the corporate veil apply in this case?

RULING: YES. A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes, and properties expressly authorized by law or incident to its
existence. It is an artificial being 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. Any
piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to use its
supervisory and adjudicative powers where the corporate fiction is used as an unfair device to achieve
an inequitable result, defraud creditors, evade contracts and obligations, or to shield it from the effects
of a court decision. It is obvious that the use by CCC-QC of the same name of Commercial Credit
Corporation was intended to publicly identify it as a component of the CCC group of companies engaged
in one and the same business, i.e., investment and financing. Aside from CCC-Quezon City, other
franchise companies were organized such as CCC-North Manila and CCC-Cagayan Valley. The
organization of subsidiary corporations as what was done here is usually resorted to for the aggrupation
of capital, the ability to cover more territory and population, the decentralization of activities best
decentralized, and the securing of other legitimate advantages. But when the mother corporation and
its subsidiary cease to act in good faith and honest business judgment, when the corporate device is
used by the parent to avoid its liability for legitimate obligations of the subsidiary, and when the
corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the
problem. When that happens, the corporate character is not necessarily abrogated. It continues for
legitimate objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this
case.

31. Rosales v. New A.N.J. H., G.R. No. 203355, August 18, 2018

FACTS: Respondent New ANJH Enterprises (New ANJH) is a sole proprietorship owned by respondent
Noel Awayan (Noel). The petitioners are its former employees.
Respondent Noel wrote to the Department of Labor and Employment (DOLE) regarding New ANJH’s
impending cessation due to dwindling capital. Respondent Noel offered the petitioners their separation
pay.

Respondent Noel then signed a Deed of Sale selling New ANJH’s equipment to respondent NH Oil Mill
Corporation (NH Oil) represented by respondent Heidi Ilagan, respondent Noel’s sister.

The Articles of Incorporation of NH Oil revealed that respondent Noel had more than 2/3 of the
subscribed capital stock of the corporation and the remaining shares were subscribed by respondent
Heidi and other members of the family.

The petitioners then filed a case for illegal dismissal against the respondents claiming that New ANJH
resumed its operations as NH Oil using the same machineries and with the same owners and
management. The petitioners assert that the dissolution was a circumvention of their security of their
tenure.

The Executive Labor Arbiter (ELA) found in favor of the petitioners. The ELA pierced the veil of corporate
fiction of respondent NH Oil as it found that the buyer of the assets of respondent New ANJH was the
same as the seller and that respondent NH Oil was managed by respondents Noel and Heidi.

ISSUE: Is the piercing of the corporate veil justified?

RULING: Yes. The Supreme Court ruled that The application of the doctrine of piercing the veil of
corporate fiction is frowned upon. However, this Court will not hesitate to disregard the corporate
fiction if it is used to such an extent that injustice, fraud, or crime is committed against another in
disregard of his rights.

Admittedly, mere ownership by a single stockholder of all or nearly all of the capital stock of the
corporation does not by itself justify piercing the corporate veil. Nonetheless, in this case, other
circumstances show that the buyer of the assets of petitioners' employer is none other than his alter
ego.

In this case, the ELA held that respondent Noel ceased New ANJH’s business operations allegedly due to
dwindling capital to the prejudice of the petitioners by circumventing their security of tenure as it and
found that: the stockholders of respondent NH Oil are members of respondent Noel’s family with
respondent Noel as the controlling stockholder and director; the buyer and seller of respondent New
ANJH’s assets are the same; and respondents Noel and Heidi continue to manage NH Oil.

Hence, the piercing of the corporate veil is valid.

32. Erson Ang Lee v. Samahang Manggagawa, G.R. No. 193816, November 21, 2016
Facts: Erson Ang Lee... through Super Lamination, is a duly registered entity principally engaged in the
business of providing lamination services to the general public.

Samahan ng mga Manggagawa ng Super Lamination Services (Union A) is a legitimate labor

organization... a local chapter affiliate of the National Federation of Labor Unions - Kilusang Mayo Uno.

Union A filed a Petition for Certification Election... on the same date, Express Lamination Workers' Union
(Union B) also filed a Petition for Certification Election. Also on the same date, the Samahan ng mga
Manggagawa ng Express Coat Enterprises, Inc. (Union C) filed a Petition for Certification Election Super
Lamination, Express Lamination, and Express Coat, all represented by one counsel, separately claimed in
their Comments and Motions to Dismiss that the petitions must be dismissed on the same ground —
lack of employer-employee relationship between these establishments and the bargaining units that
Unions A, B, and C seek to represent as well as these unions' respective members.

All three Petitions for Certification Election of the Unions were denied. On the ground that there was no
existing employer-employee relationship between the members of the unions and the companies
concerned.

DOLE found that Super Lamination, Express Lamination, and Express Coat were sister companies that
had a common human resource department responsible for hiring and disciplining the employees of the
three companies.

To DOLE, these circumstances showed that the companies were engaged in a work-pooling scheme, in
light of which they might be considered as one and the same entity for the purpose of determining the
appropriate bargaining unit in a certification election.

DOLE applied the concept of multi-employer bargaining under Sections 5 and 6 of DOLE Department
Order 40-03, Series of 2003. Under that concept, the creation of a single bargaining unit for the rank-
and-file employees of all three companies was not implausible and was justified under the given
circumstances.

Aggrieved, petitioner instituted an appeal before the CA, which denied his Petition and affirmed the
Decision of DOLE. It sided with DOLE in finding that Super Lamination, Express Lamination, and Express
Coat were sister companies that had adopted a work-pooling scheme. Therefore, it held that DOLE had
correctly applied the concept of multi-employer bargaining in finding that the three companies could be
considered as the same entity, and their rank-and-file employees as comprising one bargaining unit.

Issues: Whether the application of the doctrine of piercing the corporate veil is warranted

Ruling: Petitioner argues that separate corporations cannot be treated as a single bargaining unit even if
their businesses are related, as these companies are indubitably distinct entities with separate juridical
personalities.
Hence, the employees of one corporation cannot be allowed to vote in the certification election of
another corporation, lest the abovementioned rule be violated.

A settled formulation of the doctrine of piercing the corporate veil is that when two business enterprises
are owned, conducted, and controlled by the same parties, both law and equity will, when necessary to
protect the rights of third parties, disregard the legal fiction that these two entities are distinct and treat
them as identical or as one and the same.

This formulation has been applied by this Court to cases in which the laborer has been put in a
disadvantageous position as a result of the separate juridical personalities of the employers involved.
Pursuant to veil-piercing, we have held two corporations jointly and severally liable for an employee's
back wages. We also considered a corporation and its separately incorporated branches as one and the
same for purposes of finding the corporation guilty of illegal dismissal. These rulings were made
pursuant to the fundamental doctrine that the corporate fiction should not be used as a subterfuge to
commit injustice and circumvent labor laws.

The following established facts show that Super Lamination, Express Lamination, and Express Coat are
under the control and management of the same party — petitioner Ang Lee. In effect, the employees of
these three companies have petitioner as their common employer

Further, we discern from the synchronized movements of petitioner and the two other companies an
attempt to frustrate or defeat the workers' right to collectively bargain through the shield of the
corporations' separate juridical personalities. We make this finding on the basis of the motions to
dismiss filed by the three companies. While similarly alleging the absence of an employer-employee
relationship, they alternately referred to one another as the employer of the members of the bargaining
units sought to be represented respectively by the unions.

We hold that if we allow petitioner and the two other companies to continue obstructing the holding of
the election in this manner, their employees and their respective unions will never have a chance to
choose their bargaining representative. We take note that all three establishments were unorganized.
That is, no union therein was ever duly recognized or certified as a bargaining representative.[46]
Therefore, it is only proper that, in order to safeguard the right of the workers and Unions A, B, and C to
engage in collective bargaining, the corporate veil of Express Lamination and Express Coat must be
pierced. The separate existence of Super Lamination, Express Lamination, and Express Coat must be
disregarded. In effect, we affirm the lower tribunals in ruling that these companies must be treated as
one and the same unit for purposes of holding a certification election.

The foregoing considered, we find no error in the CA's affirmance of the DOLE directive. We affirm
DOLE's application by analogy of the concept of multi-employer bargaining to justify its Decision to treat
the three companies as one. While the multi-employer bargaining mechanism is relatively new and
purely optional under Department Order No. 40-03, it illustrates the State's policy to promote the
primacy of free and responsible exercise of the right to collective bargaining.[51] The existence of this
mechanism in our labor laws affirm DOLE's conclusion that its treatment of the employees of the three
companies herein as a single bargaining unit is neither impossible nor prohibited.[52] It is justified under
the circumstances discussed above.

33. ABS CBN v. Hilario, G.R. No. 193136, July 10, 2019

Doctrine: The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: (1)
defeat 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.

Facts: Petitioner ABS-CBN Broadcasting Corporation’s (ABS-CBN) Scenic Department initially handled
the design, construction and provision of the props and sets for its different show and programs.
Subsequently, ABS-CBN engaged Edmund Ty to handle the sets and props.

Creative Creatures, Inc. (CCI) was formed and incorporated by Ty with some officers of ABS-CBN.
Meanwhile ABS-CBN’s Scenic Department was abolished. Respondents Honorato Hilario and Dindo
Banting were hired by CCI from 1995 to 2003 and 1999 to 2003, respectively.

Ty decided to retire from CCI to create his own company, Dream Weaver Visual Exponents, Inc.
(DWVEI). DWVEI was then engaged by ABS-CBN. CCI then decided to dissolve the corporation and
terminated the respondents’ services.

The respondents then filed a complaint for illegal dismissal against the ABS-CBN claiming that the
closure of CCI was not due to any of the authorized causes provided by law but was done in bad faith
and that CCI was still conducting operations under the guise of DWVEI.

ABS-CBN and CCI, represented by the same counsel, maintained that an employer may close its business
even if it is not suffering from losses or financial reverses, as long as it pays its employees their
termination pay and that ABS-CBN and CCI are separate and distinct corporations and that there was no
factual and legal basis to disregard their separate corporate personalities.

ABS-CBN also argued that the fact that CCI is a subsidiary of ABS-CBN and that a majority of ABS-CBN’s
stockholders are also the stockholders of CCI is not a justification to treat the said corporation as a
single entity.

Issue: Should ABS-CBN and CCI be treated as a single entity?

Ruling: Yes. The Supreme Court pronounced that the doctrine of piercing the corporate veil applies only
in three (3) basic areas, namely: (1) defeat 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.

The present case falls under the third instance where a corporation is merely a farce since it is a mere
alter ego or business conduit of person or in this case a corporation. First, the internal Scenic
Department which initially handled the props and set designs of ABS-CBN was abolished and shut down
and CCI was incorporated to cater to the props and set design requirements of ABS-CBN, thereby
transferring most of its personnel to CCI. Notably, CCI was a subsidiary of ABS-CBN and was incorporated
through the collaboration of Ty and the other major stockholders and officers of ABS-CBN. CCI provided
services mainly to ABS-CBN and its other subsidiaries. When Edmund Ty organized his own company,
ABS-CBN hired him as consultant and eventually engaged the services of his company DWVEI. As a result
of which CCI decided to close its business operations as it no longer carried out services for the design
and construction of sets and props for use in the programs and shows of ABS-CBN, thereby terminating
respondents and other employees of CCI. ABS-CBN clearly exercised control and influence in the
management and closure of CCI's operations, which justifies disregarding their separate corporate
personalities and treating them as a single entity. In sum, the corporation’s must be treated as the same
entity.

34. Magaling v. Ong, G.R. No. 173333, August 13, 2008

FACTS: Respondent Peter Ong filed a complant for sum of money against spouses petitioner Reynaldo
Magalingand Lucia Magaling. The respondent claims that he was approached by petitioner Reynaldo and
was induced to lend the spouses’ company Termo Loans and Credit Corp. (Termo Loans). Petitioner
Reynaldo allegedly assured the respondent that the loan will be paid. The respondent lent P350,000 and
the spouses issued checks in payment of the loan, however, the checks were dishonored.

On the other hand, the spouses counter that the checks were issued by Termo Loans as a corporation
and the spouses were not liable in their individual capacity.

The Regional Trial Court (RTC) first ruled in favor of the respondent but subsequently reversed its ruling
on the ground that Termo Loans had a personality separate and distinct from petitioner Reynaldo who
was only a stockholder and president at that time.

On appeal, the Court of Appeals (CA) reversed the RTC’s ruling and found petitioner Reynaldo liable as
he was grossly negligent in managing the affairs of the corporation. The CA noted that when the
company became insolvent, petitioner Reynaldo resigned and no one took over as president of the
company. Neither were the investors informed about the bankruptcy
ISSUE: Is the piercing of the corporate veil warranted?

RULING: Yes. The Supreme Court held that 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 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.

In this case, the Court found petitioner Reynaldo’s casual manner, insouciance and nonchalance, nay,
indifference, to the predicament of the distressed corporation glaringly exhibited a lackadaisical attitude
from a top office of a corporation, a conduct totally abhorrent in the corporate world. Petitioner
Reynaldo was also a seasoned businessman running several lending companies. Hence, the piercing of
the corporate veil is justified.

35. Lanuza v. BF Corporation, G.R. No. 174938, October 1, 2014

FACTS: Respondent BF Corporation (BF Corp.) filed a collection complaint against respondent Shangri-La
Properties, Inc. (Shangri-La) and the members of its board of directors: petitioners Gerardo Lanuza, Jr.,
Antonio Olbes, respondents Alfredo Ramos, Rufo Colayco, Maximo Licauco III, and Benjamin Ramos
(respondent board of directors) before the Regional Trial Court (RTC).

Respondent BF Corp. alleged that it entered into agreements with Shangri-La for the construction of a
mall along EDSA. Respondent Shangri-La initially was consistent in paying its bills however it started to
fall behind in its payments. Respondent Shangri-La allegedly misrepresented that it had funds to pay for
its obligations.

The petitioners and respondents Shangri-La, board of directors, and the petitioners filed a motion to
suspend the proceedings, in view of respondent BF Corp.’s failure to submit the matter for arbitration as
provided in the contract. The RTC denied the motion but the Supreme Court (SC) finally ruled that the
matter must be submitted for arbitration.

Respondent BF Corp. then initiated the arbitration proceedings but the petitioners claim that they
should be excluded from the proceeding as they were not parties to the contract of the corporations.

The trial court opined that the petitioners and respondent board of directors were interested parties.
The Court of Appeals also held that they were necessary parties in the arbitration proceedings.
The petitioners argue that since they did not sign the arbitration agreement in any capacity, they cannot
be forced to submit to the jurisdiction of the Arbitration Tribunal in accordance with the arbitration
agreement.
.
Meanwhile, the Arbitral Tribunal absolved the petitioners and respondent board of directors from
liability.

ISSUE: Is the piercing of the corporate veil warranted?

RULING: No. The Supreme Court ruled that a consequence of a corporation's separate personality is that
consent by a corporation through its representatives is not consent of the representative, personally. Its
obligations, incurred through official acts of its representatives, are its own. A stockholder, director, or
representative does not become a party to a contract just because a corporation executed a )C contract
through that stockholder, director or representative.

However, in cases alleging solidary liability with the corporation or praying for the piercing of the
corporate veil, parties who are normally treated as distinct individuals should be made to participate in
the arbitration proceedings in order to determine if such distinction should indeed be disregarded and,
if so, to determine the extent of their liabilities.

In this case, the Arbitral Tribunal entered a decision, finding that BF Corporation failed to prove the
existence of circumstances that rendered petitioners and the other directors solidarity liable. It ruled
that petitioners and Shangri-La's other directors were not liable for the contractual obligations of
respondent Shangri-La to respondent BF Corp. The Arbitral Tribunal's decision was made with the
participation of the petitioners, albeit with their continuing objection. Hence, the piercing of corporate
veil is no longer warranted.