corporation law

Table of Contents

DOCTRINE OF SEPARATE LEGAL PERSONALITY.....................................................................................................2

PALAY, INC. AND ALBERT ONSTOTT V. JACOBO CLAVE AND NAZARIO DUMPIT.........................................................................2ADELIO C. CRUZ V. QUITERIO L. DALISAY..........................................................................................................................2INDOPHIL TEXTILE MILL WORKERS UNION - PTGWO V. VOLUNTARY ARBITRATOR TEODORO CALICA AND INDOPHIL TEXTILE MILLS, INC............................................................................................................................................................................3EPG CONSTRUCTION COMPANY, INC. AND EMMANUEL DE GUZMAN V. CA AND UNIVERSITY OF THE PHILIPPINES.........................5REBECCA BOYER-ROXAS AND GUILLERMO ROXAS V. CA AND HEIRS OF EUGENIA V. ROXAS, INC.................................................5MATAGUINA INTEGRATED WOOD PRODUCTS, INC. V. CA, DAVAO ENTERPRISES CORPORATION AND MINISTER (NOW SECRETARY) OF NATURAL RESOURCES....................................................................................................................................................7TRADERS ROYAL BANK V. CA, FILRITERS GUARANTY AND ASSURANCE CORPORATION AND CENTRAL BANK OF THE PHILIPPINES........8ASIONICS PHILIPPINES, INC. AND/OR FRANK YIH V. NLRC, YOLANDA BAOQUINA AND JUANA GAYOLA.......................................10FRANCISCO MOTORS CORPORATION V. CA AND SPOUSES GREGORIO AND LIBRADA MANUEL...................................................11COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA) V. NLRC, COMPLEX ELECTRONICS CORPORATION AND IONICS CIRCUIT, INC., ET AL................................................................................................................................................................12RUFINA LUY LIM V. CA AND AUTO TRUCK TBA CORPORATION, ET AL..................................................................................13LAND BANK OF THE PHILIPPINES V. CA, ECO MANAGEMENT CORPORATION AND EMMANUEL OÑATE.......................................14PHILIPPINE NATIONAL BANK V. RITRATTO GROUP, INC., ET AL............................................................................................15RICARDO S. SILVERIO AND ESSES DEVELOPMENT CORPORATION AND TRI-STARS FARMS, INC. V. FILIPINO BUSINESS CONSULTANTS, INC..........................................................................................................................................................................16CHINA BANKING CORPORATION V. DYNE-SEM ELECTRONICS CORPORATION..........................................................................17SUBHASH C. PARISCHA AND JOSEPHINE A. PARISCHA V. DON LUIS DISON REALTY, INC...........................................................18SPOUSES RAMON M. NISCE AND A. NATIVIDAD PARAS-NISCE V. EQUITABLE-PCI BANK, INC...................................................19YAMAMOTO V. NISHINO LEATHER INDUISTRIES, INC..........................................................................................................20

DOCTRINE OF PIERCING THE CORPORATE VEIL..................................................................................................21

VILLA REY TRANSIT, INC. V. EUSEBIO E. FERRER, ET AL......................................................................................................21A.C. RANSOM LABOR UNION – CCLU V. NLRC, A.C. RANSOM (PHILS.) CORPORATION.........................................................22SHOEMART, INC. V. NLRC AND MORIS INDUSTRIES WORKERS’ UNION................................................................................23MANUEL R. DULAY ENTERPRISES, INC., ET AL. V. CA AND EDGARDO PABALAN, ET AL.............................................................24First Philippine International Bank (Formerly Producers Bank of the Philippines) and Mercurio Rivera v. CA, Carlos Ejercito, in substitution of Demetrio Demetria and Jose Janolo..................................................................25

P a g e | 2Corporation Law Digests

Doctrine of Separate Legal Personality

Palay, Inc. and Albert Onstott v. Jacobo Clave and Nazario DumpitG.R. No. L-56076, 21 September 1983, FIRST DIVISION (Melencio-Herrera, J.)

Palay, Inc., through its President, Albert Onstott executed in favor of Nazario Dumpit, a Contract to Sell a parcel of Land of the Crestview Heights Subdivision in Antipolo, Rizal, with an area of 1,165 square meters registered under the corporation’s name

Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all installments paid

Dumpit paid the downpayment and several installments, the last payment was made on December 5, 1967 for installments up to September 1967

Almost six (6) years later, Dumpit wrote Palay, Inc. offering to update all his overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. Replying Palay, Inc. informed Dumpit that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold

Questioning the validity of the rescission of the contract, Dumpit filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an altenative prayer for refund

NHA ruled that the rescission of the contract was void and on appeal, the Office of the President affirmed such ruling, thus, the present case wherein Dumpit is seeking to hold Onstott personally liable for the amounts paid to Palay, Inc.

ISSUE: Whether or not Onstott as president of Palay, Inc. may be held personally liable for the refund

HELD: Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality

It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as wen as from that of any other legal entity to which it may be related. As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or defend crime; or to perpetuate fraud or confuse legitimate issues; or to circumvent the law or perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders.

We find no badges of fraud on Palay, Inc. and Onstott's part. They had literally relied, albeit mistakenly, on paragraph 6 (supra) of its contract with Dumpit when it rescinded the contract to sell extrajudicially and had sold it to a third person

In this case, petitioner Onstott was made liable because he was then the President of the corporation and the controlling stockholder. No sufficient proof exists on record that said petitioner used the corporation to defraud Dumpit. He cannot, therefore, be made personally liable just because he "appears to be the controlling stockholder". Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality

Shery Paige A. Lim3AA, A.Y. 2011-2012


Adelio C. Cruz v. Quiterio L. DalisayA.M. No. R-181-P, 31 July 1987, THIRD DIVISION (Paras, J.)

Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff of Manila, with "malfeasance in office, corrupt practices and serious irregularities" allegedly committed when he attached and/or levied the money belonging to complainant Cruz when he was not himself the judgment debtor in the final judgment of NLRC-NCR sought to be enforced but rather the company known as "Qualitrans Limousine Service, Inc.," a duly registered corporation

Dalisay explained that when he garnished Cruz's cash deposit at the Philtrust bank, he was merely performing a ministerial duty. While it is true that said writ was addressed to Qualitrans Limousine Service, Inc., yet it is also a fact that Cruz had executed an affidavit before the Pasay City assistant fiscal stating that he is the owner/president of said corporation and, because of that declaration, the counsel for the plaintiff in the labor case advised him to serve notice of garnishment on the Philtrust bank

Prior to the termination of the proceedings, however, Cruz executed an affidavit of desistance stating that he is no longer interested in prosecuting the case against Dalisay and that it was just a "misunderstanding" between them

It has been held that the desistance of complainant does not preclude the taking of disciplinary action against respondent. Neither does it dissuade the Court from imposing the appropriate corrective sanction. One who holds a public position, especially an office directly connected with the administration of justice and the execution of judgments, must at all times be free from the appearance of impropriety

ISSUE: Whether or not an owner of a corporation may be held liable for payment of a debtor-corporation’s obligation

HELD: The mere fact that one is president of a corporation does not render the property he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate entities

Dalisay’s actuation in enforcing a judgment against complainant who is not the judgment debtor in the case calls for disciplinary action. Considering the ministerial nature of his duty in enforcing writs of execution, what is incumbent upon him is to ensure that only that portion of a decision ordained or decreed in the dispositive part should be the subject of execution. 2 No more, no less.

That the title of the case specifically names Cruz as one of the respondents is of no moment as execution must conform to that directed in the dispositive portion and not in the title of the case

The tenor of the NLRC judgment and the implementing writ is clear enough. It directed Qualitrans Limousine Service, Inc., to reinstate the discharged employees and pay them full backwages. Dalisay, however, chose to "pierce the veil of corporate entity" usurping a power belonging to the court and assumed improvidently that since Cruz is the owner/president of Qualitrans Limousine Service, Inc., they are one and the same.

It is a well-settled doctrine both in law and in equity that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members. The mere fact that one is president of a corporation does not render the property he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate entities



Indophil Textile Mill Workers Union - PTGWO v. Voluntary Arbitrator Teodoro Calica and Indophil Textile Mills, Inc.

G.R. No. 96490, 3 February 1992, FIRST DIVISION (Medialdea, J.)

Indophil Textile Mill Workers Union-PTGWO is a legitimate labor organization duly registered with the Department of Labor and Employment and the exclusive bargaining agent of all the rank-and-file employees of Indophil Textile Mills, Incorporated

Indophil Textile Mills, Inc. is a corporation engaged in the manufacture, sale and export of yarns of various counts and kinds and of materials of kindred character

Indophil Textile Mill Workers Union-PTGWO and private respondent Indophil Textile Mills, Inc. executed a collective bargaining agreement effective from April 1, 1987 to March 31, 1990

Indophil Acrylic Manufacturing Corporation was formed and subsequently applied for registration with the Board of Investments for incentives under the 1987 Omnibus Investments Code. The application was approved on a preferred non-pioneer status.

Acrylic became operational and hired workers according to its own criteria and standards. The workers of Acrylic unionized and a duly certified collective bargaining agreement was executed

A year after the workers of Acrylic have been unionized and a CBA executed, the petitioner union claimed that the plant facilities built and set up by Acrylic should be considered as an extension or expansion of the facilities of private respondent Company pursuant to Section 1(c), Article I of the CBA, to wit: This Agreement shall apply to the Company's plant facilities and installations and to any extension and expansion thereat

Upon submitting the controversy to Calica, Calica rendered an award that Acrylic cannot be considered as an extension of Indophil, thus, the 1987 CBA does not extend to the employees of Acrylic

Indophil Textile Mill Workers Union-PTGWO emphasizes that the two corporations have practically the same incorporators, directors and officers. In fact, of the total stock subscription of Indophil Acrylic represents seventy percent (70%) of the total subscription was subscribed to by Indophil Textile Mills, Inc.

Indophil Textile Mill Workers Union-PTGWO notes that the foregoing evidence sufficiently establish that Acrylic is but an extension or expansion of Indophil Textile Mills, Inc., to wit: the two corporations have their physical plants, offices and facilities situated in the same compound (Bulacan); many of Indophil Textile Mills, Inc.'s own machineries, such as dyeing machines, reeling, boiler, Kamitsus among others, were transferred to and are now installed and being used in the Acrylic plant; services of a number of units, departments or sections of Indophil Textile Mills, Inc. are provided to Acrylic; and employees of Indophil Textile Mills, Inc. are the same persons manning and servicing the units of Acrylic

Indophil Textile Mills, Inc. insists that the existence of a bonafide business relationship between them (Acrylic) is not a proof of being a single corporate entity because the services which are supposedly provided by it to Acrylic are auxiliary services or activities which are not really essential in the actual production of Acrylic. It also pointed out that the essential services are discharged exclusively by Acrylic personnel under the control and supervision of Acrylic managers and supervisors

ISSUE: Whether or not the creation of Acrylic is a devise to evade the application of the CBA between the Indophil Textile Mill Workers Union-PTGWO and Indophil Textile Mills, Inc.



HELD: The legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable for a corporate debt or obligation

Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of persons. The members or stockholders of the corporation will be considered as the corporation, that is, liability will attach directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the 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 fact that the businesses of Indophil Textile Mills, Inc. and Acrylic are related, that some of the employees of the Indophil Textile Mills, Inc. are the same persons manning and providing for auxiliary services to the units of Acrylic, and that the physical plants, offices and facilities are situated in the same compound, it is our considered opinion that these facts are not sufficient to justify the piercing of the corporate veil of Acrylic

The legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable for a corporate debt or obligation. In the instant case, petitioner does not seek to impose a claim against the members of the Acrylic

EPG Construction Company, Inc. and Emmanuel De Guzman v. CA and University of the Philippines

G.R. No. 103372, 22 June 1992, FIRST DIVISION (Cruz, J.)

EPG Construction Co., Inc. and the University of the Philippines entered into a contract for the construction of the UP Law Library Building

Upon its completion, the building was formally turned over by EPG to the private respondent UP issued a certification of acceptance stating that: College of Law Library Annex Building, University of the Philippines, Diliman, Quezon City, has been satisfactorily completed as per plans and specifications as of January 11, 1983 without any defects whatsoever and therefore accepted. Release of the 10% retention is hereby recommended in favor of EPG Construction. Inc.

Thereafter, UP complained to EPG that 6 air-conditioning units on the third floor of the building were not cooling properly. After inspection of the equipment, EPG agreed to shoulder the expenses for their repair, including labor and materials

For whatever reason, the repair was never undertaken. UP repeated its complaints to EPG which again sent its representatives to assess the defects. Finally, it made UP a written offer to repair the system.

UP insisted that EPG was obligated to repair the defects at its own expense under the guarantee provision in their contract, EPG demurred. UP then contracted with another company, which repaired the defects, for which UP seeks to be reimbursed by EPG

ISSUE: Whether or not Emmanuel P. de Guzman has a separate legal personality from EPG Construction Co., Inc. and should not be held solidarily liable with it

HELD: By way of exception to the general rule that a manager of a corporation cannot be held liable for corporate acts, the presence of bad faith renders such person liable solidarily



It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members.

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. The general manager of a corporation therefore should not be made personally answerable for the payment of the employee's backwages unless he had acted maliciously or in bad faith in terminating the services of the employee

The exception noted is where the official "had acted maliciously or in bad faith," in which event he may be made personally liable for his own act. That exception is not applicable in the case at bar, because it has not been proved that De Guzman acted maliciously or in bad faith when, as President of EPG, he sought to protect its interests and resisted UP's claims. Whatever damage was caused to UP as a result of his acts is the sole responsibility of EPG even though De Guzman was its principal officer and controlling stockholder

Rebecca Boyer-Roxas and Guillermo Roxas v. CA and Heirs of Eugenia V. Roxas, Inc.

G.R. No. 100866, 14 July 1992, THIRD DIVISION (Gutierrez, Jr., J.)

In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna against Rebecca Boyer-Roxas and Guillermo Roxas respectively, Heirs of Eugenia V. Roxas, Inc., prayed for their ejectment from buildings inside the Hidden Valley Springs Resort located at Laguna, allegedly owned by the respondent corporation

Respondent corporation alleged that Rebecca is in possession of two (2) houses, one of which is still under construction, built at the expense of the respondent corporation; and that her occupancy on the two (2) houses was only upon the tolerance of the respondent corporation

Respondent corporation alleged that Guillermo occupies a house which was built at the expense of the former during the time when Guillermo's father, Eriberto Roxas, was still living and was the general manager of the respondent corporation; that the house was originally intended as a recreation hall but was converted for the residential use of Guillermo; and that Guillermo's possession over the house and lot was only upon the tolerance of the respondent corporation

Petitioners never paid rentals for the use of the buildings and the lots and that they ignored the demand letters for them to vacate the buildings

Petitioners traversed the allegations in the complaint by stating that they are heirs of Eugenia V. Roxas and therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of the property, they have the right to stay within its premises

Petitioners maintain that their possession of the questioned properties must be respected in view of their ownership of an aliquot portion of all the properties of the respondent corporation being stockholders thereof. They propose that the veil of corporate fiction be pierced, considering the circumstances under which the respondent corporation was formed.

Originally, the questioned properties belonged to Eugenia V. Roxas. After the death, the heirs of Eugenia V. Roxas, among the petitioners herein, decided to form a corporation — Heirs of Eugenia V. Roxas, Incorporated (private respondent herein) with the inherited properties as capital of the corporation. The corporation was incorporated with the primary purpose of engaging in agriculture to develop the inherited properties. The Articles of Incorporation of the respondent corporation were amended in 1971 to allow it to engage in the resort business. Accordingly, the



corporation put up a resort known as Hidden Valley Springs Resort where the questioned properties are located.

ISSUE: Whether or not the veil of corporate entity can be pierced in order to confer upon petitioners the right to possess the properties in dispute

HELD: The separate personality of the corporation may be disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or when necessary for the protection of the creditors

The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the members composing it. There is no dispute that title over the questioned land where the Hidden Valley Springs Resort is located is registered in the name of the corporation. The records also show that the staff house being occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which was later on converted into a residential house occupied by petitioner Guillermo Roxas are owned by the respondent corporation

Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate. 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 stockholder is not a co-owner or tenant in common of the corporate property

The petitioners point out that their occupancy of the staff house which was later used as the residence of Eriberto Roxas, husband of petitioner Rebecca Boyer-Roxas and the recreation hall which was converted into a residential house were with the blessings of Eufrocino Roxas, the deceased husband of Eugenia V. Roxas, who was the majority and controlling stockholder of the corporation. In his lifetime, Eufrocino Roxas together with Eriberto Roxas, the husband or petitioner Rebecca Boyer-Roxas, and the father of petitioner Guillermo Roxas managed the corporation. The Board of Directors did not object to such an arrangement

The petitioners' stay within the questioned properties was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino Roxas, who during his lifetime, controlled and managed the corporation. Eufrocino Roxas' actions could not have bound the corporation forever. The petitioners have not cited any provision of the corporation by-laws or any resolution or act of the Board of Directors which authorized Eufrocino Roxas to allow them to stay within the company premises forever. We rule that in the absence of any existing contract between the petitioners and the respondent corporation, the corporation may elect to eject the petitioners at any time it wishes for the benefit and interest of the respondent corporation

The petitioners' suggestion that the veil of the corporate fiction should be pierced is untenable. The separate personality of the corporation may be disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or when necessary for the protection of the creditors. The circumstances in the present cases do not fall under any of the enumerated categories



Mataguina Integrated Wood Products, Inc. v. CA, Davao Enterprises Corporation and Minister (now Secretary) of Natural Resources

G.R. No. 98310, 24 October 1996, SECOND DIVISION (Torres, Jr., J.)

Acting Director of the Bureau of Forest Development issued Provisional Timber License (PTL) covering an area of 5,400 hectares to Ms. Milagros Matuguina who was then doing business under the name of Matuguina Logging Enterprises (MLE), a sole proprietorship venture

A portion, of the said area was located within the territorial boundary of Gov. Generoso in Mati, Davao Oriental, and adjoined the timber concession of Davao Enterprises Corporation (DAVENCOR)

Thereafter, Matuguina Integrated Wood Products, Inc. (MIWPI), was incorporated with Henry Wee as majority stockholder. Milagros Matuguina became the majority stockholder of MIWPI when the Board of Directors approved by Resolution the transfer of shares from Henry Wee to Milagros Matuguina, thus giving her seventy percent (70%) stock ownership of MIWPI

Milagros Matuguina requested the Director for a change of name and transfer of management of PTL, from a single proprietorship under her name, to that of MIWPI

Milagros Matuguina and petitioner MIWPI executed a Deed of Transfer 5 transferring all of the former's rights, interests, ownership and participation in the PTL for and in consideration of shares of stocks in MIWPI. A copy of said deed was submitted to the Director of Forest Development and petitioner MIWPI had since been acting as holder and licensee of PTL

Pending approval of the request to transfer the PTL to MIWPI, DAVENCOR, through its Assistant General Manager, complained to the District Forester at Mati, Davao Oriental that Milagros Matuguina/MLE had encroached into and was conducting logging operations in DAVENCOR's timber concession

The Decision of the Minister of Natural Resources suspending the PTL became final and executory, Philip Co and DAVENCOR requested the respondent Minister to issue immediately a writ of execution.

Matuguina Integrated Wood Products Inc. (MIWPI, for brevity) filed this action for Prohibition, Damages and Injunction, in order to prevent the respondent Minister (now Secretary) of Natural Resources from enforcing its Order of Execution against it, for liability arising from an alleged encroachment of the petitioner over the timber concession of respondent DAVENCOR located in Mati, Davao Oriental

ISSUE: Whether or not MIWPI, as transferee of MLE’s interest renders it liable for MLE’s illegal logging operations

HELD: Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of the corporation, is not itself a sufficient warrant for disregarding the fiction of separate personality.

The writ of execution issued by the Secretary of Natural Resources on January 8, 1987 clearly varies the term of his Decision of October 1, 1986, inasmuch as the Writ includes the MIWPI as party liable whereas the Decision only mentions Milagros Matuguina

The issue of whether or not petitioner is an alter ego of Milagros Matuguina/MLE, is one of fact, and which should have been threshed out in the administrative proceedings, and not in the prohibition proceedings in the trial court, where it is precisely the failure of the respondent Minister of Natural Resources to proceed as mandated by law in the execution of its order which is under scrutiny

But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed. In the case at bar, there is, insufficient basis for the appellate court's ruling that MIWPI is the same as Matuguina



The alleged control of plaintiff corporation was not evident in any particular corporate acts of plaintiff corporation, wherein Maria Milagros Matuguina Logging Enterprises using plaintiff corporation, executed acts or powers directly involving plaintiff corporation. Neither was there any evidence of defendants, that Maria Milagros Matuguina Logging Enterprises, using the facilities and resources of plaintiff corporation, involved itself in transaction using both single proprietorship and plaintiff corporation in such particular line of business undertakings

Maria Milagros Matuguina became the controlling stockholder of plaintiff corporation, on account of the change of name and transfer of management of PTL, this circumstance, we repeat, does not of itself prove that plaintiff corporation was the alter ego of Maria Milagros Matuguina Logging Enterprises

Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of the corporation, is not itself a sufficient warrant for disregarding the fiction of separate personality. It is recognized as lawful to obtain a corporation charter, even with a single substantial stockholder, to engage in specific activity and such activity may co-exist with other private activities of the stockholder

It is likewise improper to state that the MIWPI is the privy or the successor-in-interest of MLE, as the liability for the encroachment over DAVENCOR's timber concession is concerned, by reason of the transfer of interest in PTL from MLE to MIWPI. More importantly, even if it is deemed that there was a valid change of name and transfer of interest, this only signifies a transfer of authority, from MLE to MIWPI, to conduct logging operations in the area covered by PTL. It does not show indubitable proof that MIWPI was a mere conduit or successor of Milagros Matuguina/MLE, as far the latter's liability for the encroachment upon DAVENCOR's concession is concerned

Traders Royal Bank v. CA, Filriters Guaranty and Assurance Corporation and Central Bank of the Philippines

G.R. No. 93397, 3 March 1997, SECOND DIVISION (Torres, Jr., J.)

Filriters Guaranty Assurance Corporation (Filriters) executed a 'Detached Assignment' whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness (CBCI)

The Detached Assignment contains an express authorization executed by the transferor (Filriters) intended to complete the assignment through the registration of the transfer in the name of PhilFinance, which authorization is specifically phrased as follows: '(Filriters) hereby irrevocably authorized the said issuer (Central Bank) to transfer the said bond/certificates on the books of its fiscal agent

Petitioner Traders Royal Bank entered into a Repurchase Agreement with PhilFinance which included CBCI previously acquired by PhilFinance from Filriters but PhilFinance failed to repurchase the CBCI on the agreed date of maturity when the checks it issued in favor of petitioner were dishonored for insufficient funds

Owing to the default of PhilFinance, PhilFinance executed a Detached Assignment in favor of the TRB to enable the latter to have its title completed and registered in the books of the respondent. And by means of said Detachment Assignment, Philfinance transferred and assigned all its rights and title in the said CBCI to TRB and, furthermore, it did thereby 'irrevocably authorize the said issuer (CB) to transfer the said bond/certificate on the books of its fiscal agent

TRB presented the CBCI, together with the two (2) aforementioned Detached Assignments (to the Securities Servicing Department of the CB, and requested the latter to effect the transfer of the CBCI on its books and to issue a new certificate in the name of TRB as absolute owner but CB failed and refused to register the transfer as requested



Filriters contend that it is the registered owner of the CBCI and it constitutes part of the reserve investment against liabilities required of Filriters as an insurance company under the Insurance Code

Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any board resolution, knowledge or consent of the board of directors of Filriters and without any clearance or authorization from the Insurance Commissioner, executed a detached assignment purportedly assigning CBCI to Philfinance, therefore, the detached assignment is patently void and inoperative because the assignment is without the knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board

ISSUE: Whether or not the doctrine of piercing of corporate veil may apply in the case at bar since Philfinance owns 90% of Filriter's equity and the two corporations have identical corporate officers as to give validity to the transfer of the CBCI from the registered owner to petitioner TRB

HELD: The fact that a corporation owns majority shares in anoher corporation is not by itself a ground to disregard the independent corporate status of each corporation.

TRB cannot put up the excuse of piercing the veil of corporate entity, as this is merely an equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person

Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine

The fact that Philfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters.

In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of indebtedness from Philfinance. On its face, the subject certificates state that it is registered in the name of Filriters. This should have put the petitioner on notice, and prompted it to inquire from Filriters as to Philfinance's title over the same or its authority to assign the certificate. As it is, there is no showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of the certificate

The terms of the CBCI contain a provision on its TRANSFER. Thus: This Certificate shall pass by delivery unless it is registered in the owner's name at any office of the Bank or any agency duly authorized by the Bank, and such registration is noted hereon. After such registration no transfer thereof shall be valid unless made at said office (where the Certificate has been registered) by the registered owner hereof, in person, or by his attorney, duly authorized in writing and similarly noted hereon and upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered owner thereof

This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to submit such an authorization from Filriters. Petitioner knew that Philfinance is not the registered owner of CBCI. The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify or inquire as to the title of Philfinance to dispose of the CBCI



Moreover, CBCI is governed by CB Circular, known as the Rules and Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides that: Assignment of registered certificates shall not be valid unless made at the office where the same have been issued and registered or at the Securities Servicing Department, Central Bank of the Philippines, and by the registered owner thereof, in person or by his representative, duly authorized in writing. For this purpose, the transferee may be designated as the representative of the registered owner.

Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular

Asionics Philippines, Inc. and/or Frank Yih v. NLRC, Yolanda Baoquina and Juana Gayola

G.R. No. 124950, 19 May 1998, FIRST DIVISION (Vitug, J.)

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 started working for API as material control clerk and as production operator

API commenced negotiations with the duly recognized bargaining agent of its employees, the Federation 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 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 and Boaquina and Gayola were among the employee asked to take a leave from work

Upon the resolution of the bargaining deadlock, a CBA was concluded between API and FFW and Boaquina was directed to report back since her previous assignment pertained to the issuance of raw materials needed for the production of electronic items being ordered by Indala, one of API's client which promptly resumed its business with API

On the other hand, Juana Gayola, among other employees, could not be recalled forthwith because the CP Clare/Theta J account, where she was assigned as the production operator, had yet to renew its production orders

API was constrained to implement a company-wide retrenchment affecting one hundred five (105) employees from a work force that otherwise totalled three hundred four(304) The selection was based on productivity/performance standards pursuant to the CBA. Yolanda Boaquina was one of those affected by the retrenchment and API

Boaquina was informed that her services were to be dispensed with although she did not have to render any service for the month of January she being by then already considered to be on leave with pay. While Juana Gayola was not supposed to be affected by the retrenchment in view of her high performance rating, her services, nevertheless, were considered to have been ended when she was ordered by API to take an indefinite leave of absence. She had not since been recalled

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 "(ULP") allegedly committed by the latter, specifically, for union busting, termination of union officers/members, harassment and discrimination



ISSUE: Whether or not Frank Yih, as president and controlling stockholder, may be held solidarly liable with API

HELD: The bank which paid the beneficiary under an expired LC may claim reimbursement from applicant to prevent unjust enrichment.

It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages and money claims to its employees

There appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act. 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

Francisco Motors Corporation v. CA and Spouses Gregorio and Librada Manuel

G.R. No. 100812, 25 June 1999, SECOND DIVISION (Quisumbing, J.)

FMC filed a complaint against private respondents to recover a sum of money representing the balance of the jeep body purchased by the Manuels from FMC

In their answer, private respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the incorporators, directors and officers of FMC. Private respondent Gregorio Manuel alleged as an affirmative defense that, while he was FMC's Assistant Legal Officer, he represented members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad. However, even after the termination of the proceedings, his services were not paid. Said family members, he said, were also incorporators, directors and officers of FMC

ISSUE: Whether or not doctrine of piercing of corporate veil may be applied to the case at bar thereby allowing private respondents to recover from FMC

HELD: The doctrine of piercing the corporate veil is a tool to hold individual stockholders liable for corporate obligations and not to hold the corporation liable for the obligations of individual stockholders.

Basic in 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. However, under the doctrine of piercing the veil of corporate entity, the corporation's separate juridical personality may be disregarded, for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation 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, then its distinct personality may be ignored.

In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to them. The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of justice, will be justifiably set aside.

The doctrine of piercing the corporate veil has no relevant application here. The rationale behind piercing a corporation's identity in a given case is to remove the



barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities.

However, in the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneous invocation

Note that according to private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidad's estate. These estate proceedings did not involve any business of petitioner. Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner corporation on the claims that its management had requested his services and he acceded thereto as an employee of petitioner from whom it could be deduced he was also receiving a salary.

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

Complex Electronics Employees Association (CEEA) v. NLRC, Complex Electronics Corporation and Ionics Circuit, Inc., et al.

G.R. No. 121315, 19 July 1999, FIRST DIVISION (Kapunan, J.)

Complex Electronics Corporation (Complex) was engaged in the manufacture of electronic products. It was actually a subcontractor of electronic products where its customers gave their job orders, sent their own materials and consigned their equipment to it

The customers were foreign-based companies with different product lines and specifications requiring the employment of workers with specific skills for each product line. Thus, there was the AMS Line for the Adaptive Micro System, Inc., the Heril Line for Heril Co., Ltd., the Lite-On Line for the Lite-On Philippines Electronics Co., etc.

The rank and file workers of Complex were organized into a union known as the Complex Electronics Employees Association, herein referred to as the Union

Complex received a facsimile message from Lite-On Philippines Electronics Co., requiring it to lower its price by 10%. Complex informed its Lite-On personnel that such request of lowering their selling price by 10% was not feasible as they were already incurring losses at the present prices of their products. Under such circumstances, Complex regretfully informed the employees that it was left with no alternative but to close down the operations of the Lite-On Line. Complex filed a notice of closure of the Lite-On Line with the Department of Labor and Employment (DOLE) and the retrenchment of the ninety-seven (97) affected employees

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 filed with the NLRC for unfair labor practice, illegal closure/illegal lockout. Ionics was impleaded as a party defendant because the officers and



management personnel of Complex were also holding office at Ionics with Lawrence Qua as the President of both companies

Ionics contended that it was an entity separate and distinct from Complex and had been in existence eight (8) years before the labor dispute arose at Complex. Like Complex, it was also engaged in the semi-conductor business where the machinery, equipment and materials were consigned to them by their customers. While admitting that Lawrence Qua, the President of Complex was also the President of Ionics, the latter denied having Qua as their owner since he had no recorded subscription. Ionics further argued that the hiring of some displaced workers of Complex was an exercise of management prerogatives. Likewise, the transfer of the machinery, equipment and materials from Complex was the decision of the owners who were common customers of Complex and Ionics

The Union presented additional documentary evidence which consisted of a newspaper clipping in the Manila Bulletin bearing the picture of Lawrence Qua with the following inscription: RECERTIFICATION. The Cabuyao (Laguna) operation of Ionic Circuits, Inc. was recertified to ISO 9002 as electronics contract manufacturer by the TUV, a rating firm with headquarters in Munich, Germany. Lawrence Qua, Ionics president and chief executive officer, holds the plaque of recertification. The Union claimed that the said clipping showed that both corporations, Ionics and Complex are one and the same. Ionics explained that the photo which appeared at the Manila Bulletin pertained only to respondent Ionics' recertification of ISO 9002. There was no mention about Complex Electronics Corporation. Ionics claimed that a mere photo is insufficient to conclude that Ionics and Complex are one and the same

ISSUE: Whether or not Ionics and Complex are one and the same, thus, Ionics may be held liable to Complex’s workers

HELD: 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.

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

As earlier mentioned, it has been in existence since July 5, 1984. 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. Ionics may be engaged in the same business as that of Complex, but this fact alone is not enough reason to pierce the veil of corporate fiction of the corporation.

As to the additional documentary evidence which consisted of a newspaper clipping filed by petitioner Union, we agree with respondent Ionics that the photo/newspaper clipping itself does not prove that Ionics and Complex are one and the same entity. The photo/newspaper clipping merely showed that some plants of Ionics were recertified to ISO 9002 and does not show that there is a relation between Complex and Ionics except for the fact that Lawrence Qua was also the president of Ionics. However, as we have stated above, the mere fact that both of the corporations have the same president is not in itself sufficient to pierce the veil of corporate fiction of the two corporations

Going now to the issue of personal liability of Lawrence Qua, it is settled that in the absence of malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities. In the present case, while it may be



true that the equipment, materials and machinery were pulled-out of Complex and transferred to Ionics during the night, their action was sufficiently explained by Lawrence Qua in his Comment to the petition filed by the Union. We quote: The fact that the pull-out of the machinery, equipment and materials was effected during nighttime is not per se an indicia of bad faith on the part of respondent Qua since he had no other recourse, and the same was dictated by the prevailing mood of unrest as the laborers were already vandalizing the equipment, bent on picketing the company premises and threats to lock out the company officers were being made. Such acts of respondent Qua were, in fact, made pursuant to the demands of Complex's customers who were already alarmed by the pending labor dispute and imminent strike to be stage by the laborers, to have their equipment, machinery and materials pull out of Complex.

Rufina Luy Lim v. CA and Auto Truck TBA Corporation, et al.G.R. No. 124715, 24 January 2000, SECOND DIVISION (Buena, J.)

Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y. Lim whose estate is the subject of probate proceedings while private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing, Inc., Active Distributing, Inc. and Action Company are corporations formed, organized and existing under Philippine laws and which owned real properties covered under the Torrens system

Private respondent corporations, whose properties were included in the inventory of the estate of Pastor Y. Lim, then filed a motion for the lifting of lis pendens and motion for exclusion of certain properties from the estate of the decedent

Petitioner contends that Pastor Y. Lim personally owned during his lifetime the abovementioned corporations and that their capital, assets and equity were however, personally owned by the late Pastor Y Lim. Hence the alleged stockholders and officers appearing in the respective articles of incorporation of the above business entities were mere dummies of Pastor Y. Lim, and they were listed therein only for purposes of registration with the Securities and Exchange Commission

ISSUE: Whether or not corporate properties may be included in the inventory of the estate of a deceased person

HELD: A corporation is invested by law with a personality distinct and separate from its stockholders or members.

A perusal of the records would reveal that no strong compelling evidence was ever presented by petitioner to bolster her bare assertions as to the title of the deceased Pastor Y. Lim over the properties. Inasmuch as the real properties included in the inventory of the estate of the late Pastor Y. Lim are in the possession of and are registered in the name of private respondent corporations, which under the law possess a personality separate and distinct from their stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed

It is settled that a corporation is clothed with personality separate and distinct from that of the persons composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for the personal indebtedness of its stockholders or those of the entities connected with it. Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its stockholders or members. In the same vein, a corporation by legal fiction and convenience is an entity shielded by a protective mantle and imbued by law with a



character alien to the persons comprising it. Nonetheless, the shield is not at all times invincible

Further, the test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal right; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any of these elements prevent "piercing the corporate veil”

Land Bank of the Philippines v. CA, ECO Management Corporation and Emmanuel Oñate

G.R. No. 127181, 4 September 2001, SECOND DIVISION (Quisumbing, J.)

Land Bank of the Philippines (LBP) extended a series of credit accommodations to appellee ECO, using the trust funds of the Philippine Virginia Tobacco Administration (PVTA). The proceeds of the credit accommodations were received on behalf of ECO by appellee Oñate

On the respective maturity dates of the loans, ECO failed to pay the same. Oral and written demands were made, but ECO was unable to pay. ECO claims that the company was in financial difficulty for it was unable to collect its investments with companies which were affected by the financial crisis brought about by the Dewey Dee scandal

ECO proposed and submitted to LBP a "Plan of Payment" whereby the former would set up a financing company which would absorb the loan obligations. It was proposed that LBP would participate in the scheme through the conversion of P9,000,000.00 which was part of the total loan, into equity. LBP approved the payment plan but stated that it shall not participate in the undertaking in any manner whatsoever

ECO submitted to LBP a "Revised Plan of Payment" deleting the latter's participation in the proposed financing company, however, LBP resolved to reject it. LBP then sent a letter to the PVTA for the latter's comments stating that if PVTA does not responde within five (5) days from the latter's receipt of the letter, such silence would be construed to be an approval of LBP's intention to file suit against ECO and its corporate officers. PVTA did not respond to the letter

Landbank filed a complaint for Collection of Sum of Money against ECO and Emmanuel C. Oñate

ISSUE: Whether or not the corporate veil of ECO Management Corporation should be pierced and Oñate be held liable for the amount of the judgment

HELD: Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate personalities; A corporation may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders.

Petitioner submits the following arguments to support its stand: (1) Respondent Oñate owns the majority of the interest holdings of the corporation, (2) The acronym ECO stands for the initials of Emmanuel C. Oñate, which is the logical, sensible and concrete explanation for the name ECO, in the absence of evidence to the contrary.



(3) Respondent Oñate has always referred to himself as the debtor, not merely as an officer or a representative of respondent corporation. (4) Respondent Oñate personally paid P1 Million taken from trust accounts in his name. (5) Respondent Oñate made a personal offering to pay his personal obligation. (6) Respondent Oñate controlled respondent corporation by simultaneously holding two (2) corporate positions, viz., as Chairman and as treasurer, beginning from the time of respondent corporation's incorporation and continuously thereafter without benefit of election. (7) Respondent corporation had not held any meeting of the stockholders or of the Board of Directors, as shown by the fact that no proceeding of such corporate activities was filed with or borne by the record of the Securities and Exchange Commission (SEC). The only corporate records respondent corporation filed with the SEC were the following: Articles of Incorporation, Treasurer's Affidavit, Undertaking to Change Corporate Name, Statement of Assets and Liabilities

Private respondents, in turn, contend that Oñate's only participation in the transaction between petitioner and respondent ECO was his execution of the loan agreements and promissory notes as Chairman of the corporation's Board of Directors.

The mere fact that Oñate owned the majority of the shares of ECO is not a ground to conclude that Oñate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate personalities

Neither is the fact that the name "ECO" represents the first three letters of Oñate's name sufficient reason to pierce the veil. Even if it did, it does not mean that the said corporation is merely a dummy of Oñate. A corporation may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders.

If the shareholders of ECO meant to defraud petitioner, then they could have just easily absconded instead of going out of their way to propose "Plans of Payment."

Likewise, Oñate volunteered to pay a portion of the corporation's debt. This offer demonstrated good faith on his part to ease the debt of the corporation of which he was a part. It is understandable that a shareholder would want to help his corporation and in the process, assure that his stakes in the said corporation are secured. In this case, it was established that the P1 Million did not come solely from Oñate. It was taken from a trust account which was owned by Oñate and other investors. It was likewise proved that the P1 Million was a loan granted by Oñate and his co-depositors to alleviate the plight of ECO. This circumstance should not be construed as an admission that he was really the debtor and not ECO

Philippine National Bank v. Ritratto Group, Inc., et al.G.R. No. 142616, 31 July 2001, FIRST DIVISION (Kapunan, J.)

Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations, likewise, organized and existing under Philippine law

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 four (4) parcels of land in Makati City

Respondent failed to pay its obligations, thus, 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



Petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner and respondents. Respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents' properties

ISSUE: Whether or not a subsidiary, as an agent of the principal, may be considered as the party-in-interest

HELD: The existence0 of a parent-subsidiary relationship between two corporations does not warrant the application of the doctrine of piercing of corporate veil

Respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded. 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

The case of Garrett vs. Southern Railway Co. is enlightening. as a general rule the stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation. Said Court then outlined the circumstances which may be useful in the determination of whether the subsidiary is but a mere instrumentality of the parent-corporation: The parent corporation owns all or most of the capital stock of the subsidiary; The parent and subsidiary corporations have common directors or officers; The parent corporation finances the subsidiary; The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation; The subsidiary has grossly inadequate capital; The parent corporation pays the salaries and other expenses or losses of the subsidiary; The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation; In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own; The parent corporation uses the property of the subsidiary as its own; The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation; The formal legal requirements of the subsidiary are not observed

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

In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a suit against the principal



Ricardo S. Silverio and Esses Development Corporation and Tri-Stars Farms, Inc. v. Filipino Business Consultants, Inc.

G.R. No. 143312, 12 August 2005, FIRST DIVISION (Carpio, J.)

Silverio, Jr. is the President of Esses and Tri-Star. Esses and Tri-Star were in possession of the Calatagan Property and registered in the names of Esses and Tri-Star. Esses and Tri-Star executed a Deed of Sale with Assumption of Mortgage in favor of Filipino Business Consultants, Inc. ("FBCI"). Esses and Tri-Star failed to redeem the Calatagan Property

FBCI filed a Petition for Consolidation of Title of the Calatagan Property and subsequently, the title in the names of Esses and Tri-Star was cancelled and a new title was issued in FBCI's name

FBCI filed with the RTC 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 Tri-Star having purchased the "substantial and controlling shares of stocks" of the two corporations. FBCI also informed RTC that a new board of directors for Esses and Tri-Star had been convened following the resignation of the members of the board of directors

ISSUE: Whether or not Land Bank correctly paid Monet’s suppliers despite discrepancies in the shipped goods and Monet’s specifications

HELD: Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members; While shares of stock constitute personal property, they do not represent property of the corporation

FBCI's acquisition of the "substantial and controlling shares of stocks" of Esses and Tri-Star does not create a substantial change in the rights or relations of the parties that would entitle FBCI to possession of the Calatagan Property, a corporate property of Esses and Tri-Star. Esses and Tri-Star, just like FBCI, are corporations. A corporation has a personality distinct from that of its stockholders

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. While shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate

Thus, FBCI's alleged controlling shareholdings in Esses and Tri-Star merely represent a proportionate or aliquot interest in the properties of the two corporations. As a stockholder, FBCI has an interest in Esses and Tri-Star's corporate properties that is only equitable or beneficial in nature. Even assuming that FBCI is the controlling shareholder of Esses and Tri-Star, it does not legally make it the owner of the Calatagan Property, which is legally owned by Esses and Tri-Star as distinct juridical persons.

As such, FBCI is not entitled to the possession of any definite portion of the Calatagan Property or any of Esses and Tri-Star's properties or assets. FBCI is not a co-owner or tenant in common of the Calatagan Property or any of Esses and Tri-Star's corporate properties

China Banking Corporation v. Dyne-Sem Electronics CorporationG.R. No. 149237, 11 July 2006, SECOND DIVISION (Corona, J.)

Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed from petitioner China Banking Corporation. The borrowers failed to pay when the obligations became due, thus, petitioner consequently instituted a complaint for sum of money



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]."

An amended complaint was filed by petitioner impleading respondent Dyne-Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, Antonio Garcia and Jacob Ratinoff. According to petitioner, respondent was formed and organized to be Dynetics' alter ego as established by the following circumstances: Dynetics, Inc. and respondent are both engaged in the same line of business of manufacturing, producing, assembling, processing, importing, exporting, buying, distributing, marketing and testing integrated circuits and semiconductor devices; Principal office and factory site of Dynetics, Inc. located at Avocado Road, FTI Complex, Taguig, Metro Manila, were used by respondent as its principal office and factory site; Respondent acquired some of the machineries and equipment of Dynetics, Inc. from banks which acquired the same through foreclosure; Respondent retained some of the officers of Dynetics, Inc.

Respondent filed its answer alleging that: incorporators as well as present stockholders of [respondent] are totally different from those of Dynetics, Inc., and not one of them has ever been a stockholder or officer of the latter; N ot one of the directors of [respondent] is, or has ever been, a director, officer, or stockholder of Dynetics, Inc.; various facilities, machineries and equipment being used by [respondent] in its business operations were legitimately and validly acquired, under arms-length transactions, from various corporations which had become absolute owners thereof at the time of said transactions; these were not just "taken over" nor "acquired from Dynetics" by [respondent], contrary to what plaintiff falsely and maliciously alleges; Respondent acquired most of its present machineries and equipment as second-hand items to keep costs down; present plant site is under lease from Food Terminal, Inc., a government-controlled corporation, and is located inside the FTI Complex in Taguig, Metro Manila, where a number of other firms organized in 1986 and also engaged in the same or similar business have likewise established their factories; practical convenience, and nothing else, was behind [respondent's] choice of plant site; respondent] operates its own bonded warehouse under authority from the Bureau of Customs which has the sole and absolute prerogative to authorize and assign customs bonded warehouses; again, practical convenience played its role here since the warehouse in question was virtually lying idle and unused when said Bureau decided to assign it to [respondent]

ISSUE: Whether or not the doctrine of piercing of corporate veil applies in the case at bar

HELD: Even the overlapping of incorporators and stockholders of two or more corporations will not necessarily lead to such inference and justify the piercing of the veil of corporate fiction

To disregard the separate juridical personality of a corporation, the wrongdoing must be proven clearly and convincingly. 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.

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. Merger is legally distinct from a sale of assets. 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.

The machineries and equipment were transferred and disposed of by the winning bidders in their capacity as owners. The sales were therefore valid and the transfers of the properties to respondent legal and not in any way in contravention of petitioner's rights as Dynetics' creditor

Even the overlapping of incorporators and stockholders of two or more corporations will not necessarily lead to such inference and justify the piercing of the veil of corporate fiction

Subhash C. Parischa and Josephine A. Parischa v. Don Luis Dison Realty, Inc.

G.R. No.

Don Luis Realty leased to Parischa 9 units of the San Luis Building located at Ermita, Manila. However, the lease for 3 units did not materialize leaving only 6rooms as the subject of the lease contract

Parischa dealt with Francis Pacheco, then General Manager, who was replaced by Roswinda Bautista

Parischa religiously paid the rent but after some time, refused to pay despite repeated demands, thus, an action for ejectment was instituted by Don Luis Realty as represented by Bautista

Parischa: Non-payment is justified since there is an internal squabble within the corporation as to the person authorized to receive payments

Pending resolution of the dispute, SEC suspended and eventually revoked the corporation’s certificate of registration

Trial court dismissed: Bautista’s lack of authority to sue on behalf of the corporation due to the cancellation of certificate of registration

ISSUE: W/N the corporation has legal standing to sue in view of the suspension and revocation of its certificate of registration by SEC

HELD: The SC upheld the corporation’s capacity to institute the ejectment case since such

was instituted prior to the cancellation of its registration. Moreover, SEC later on set aside the suspension and revocation of the corporation’s certificate of registration rendering the issue at hand moot and academic

Spouses Ramon M. Nisce and A. Natividad Paras-Nisce v. Equitable-PCI Bank, Inc.

G.R. No. 167434, 19 February 2007, THIRD DIVISION (Callejo, Sr., J.)

Natividad frequently traveled abroad and needed a facility with easy access to foreign exchange. She inquired from E.P. Nery, the Bank Manager for PCI Bank Paseo de Roxas Branch, about opening an account. He assured her that she would be able to access it from anywhere in the world. She and Nery also agreed that any balance of account remaining at maturity date would be rolled over until further instructions, or until she terminated the facility

Convinced, Natividad deposited US$20,500.00 the bank issued a passbook and upon her request, the bank transferred the US$20,000.00 to PCI Capital Asia Ltd. in Hong Kong via cable order



Thereafter, the spouses Nisce secured a P20,000,000.00 loan from the Bank secured by REM

PCI Capital issued Certificate of Deposit as proof of receipt of the US$20,000.00 transferred to it by PCI Bank Paseo de Roxas Branch as requested by Natividad and payable at the office of the depositary in Hong Kong upon presentation of the Certificate of Deposit

Unfortunately, two sons of the Nisce spouses were stranded in Hong Kong. Thus, Natividad called the Bank and requested for a partial release of her dollar deposit to her sons. However, she was informed that according to its computer records, no such dollar account existed. Subsequently, she submitted her US dollar passbook with a xerox copy of the Certificate of Deposit for the PCIB to determine the whereabouts of the account

The spouses requested the bank to set off the peso equivalent of their obligation against their US dollar account with PCI Capital Asia Limited (Hong Kong), a subsidiary of the Bank

In the meantime, in 1994, the Equitable Banking Corporation and the PCIB were merged under the corporate name Equitable PCI Bank

In a letter, the bank informed Natividad that it had acted merely as a conduit in facilitating the transfer of the funds, and that her deposit was made with PCI Capital and not with PCIB. PCI Capital had a separate and distinct personality from the PCIB, and a claim against the former cannot be made against the latter. It was later advised that PCI Capital had already ceased operations

Spouses contended that as a majority stockholder of PCI Capital, PCIB should set off their liabilities

ISSUE: W/N there can be offsetting as to a subsidiary’s liability in favor of the parent corporation’s claim

HELD: Indeed, a certificate of deposit is a written acknowledgment by a bank or borrower

of the receipt of a sum of money or deposit which the Bank or borrower promises to pay to the depositor, to the order of the depositor; or to some other person; or to his order whereby the relation of debtor and creditor between the bank and the depositor is created

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.

The evidence on record shows that PCIB, which had been merged with Equitable Bank, owns almost all of the stocks of PCI Capital. However, the 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 shall be respected, and the liability of the parent corporation, as well as the subsidiary shall be confined to those arising in their respective business.

A corporation has a separate personality distinct from its stockholders and from other corporations to which it may be conducted. This separate and distinct personality of a corporation is a fiction created by law for convenience and to prevent injustice

Yamamoto v. Nishino Leather Induistries, Inc.G.R. No. 150283, 16 April 2008, (Carpio-Morales, J.)



Doctrine of Piercing the Corporate Veil

Villa Rey Transit, Inc. v. Eusebio E. Ferrer, et al.G.R. No. L-23893, 29 October 1968, En Banc (Angeles, J.)

Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant to certificates of public convenience granted under Villarama’s name by the Public Service Commission which authorized him to operate a total of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and vice-versa

Villarama sold the two certificates of public convenience to the Pangasinan Transportation Company, Inc. (otherwise known as Pantranco) with the condition, among others, that the seller (Villarama) "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer."

Barely three months thereafter, a corporation called Villa Rey Transit, Inc. (referred to hereafter as the Corporation) was organized with the Villarama family as incorporators

Less than a month after its registration in SEC, the corporation bought five certificates of public convenience, forty-nine buses, tools and equipment from one Valentin Fernando and on the same day, the parties thereto immediately applied with the PSC for its approval, with a prayer for the issuance of a provisional authority in favor of the vendee Corporation to operate the service therein involved

Before the PSC could take final action on said application for approval of sale, however, the Sheriff of Manila levied on two of the five certificates of public convenience pursuant to a writ of execution issued by the Court of First Instance in favor of Eusebio Ferrer, judgment creditor, against Valentin Fernando, judgment debtor

A public sale was conducted and Ferrer was the highest bidder, and a certificate of sale was issued in his name. Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval their corresponding contract of sale to the PSC. Pantranco therein prayed that it be authorized provisionally to operate the service involved in the said two certificates

The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, and that of Ferrer and Pantranco, were scheduled for a joint hearing

PSC issued an order disposing that during the pendency of the cases and before a final resolution on the aforesaid applications, the Pantranco shall be the one to operate provisionally the service under the two certificates embraced in the contract between Ferrer and Pantranco. The Corporation took issue with this particular ruling of the PSC and elevated the matter to the Supreme Court, which decreed, after deliberation, that until the issue on the ownership of the disputed certificates shall have been finally settled by the proper court, the Corporation should be the one to operate the lines provisionally

Corporation filed in the Court of First Instance, a complaint for the annulment of the sheriff's sale. Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that Villarama and the Corporation, are one and the same; that Villarama and/or the Corporation was disqualified from operating the two certificates in question by virtue of the aforementioned agreement between said Villarama and Pantranco, which stipulated that Villarama "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer."

ISSUE: Whether or not Villa Rey Transit was organized in order to circumvent the stipulation in the contract

HELD:



The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the Corporation, alleging that he did not become such, because he did not have sufficient funds to invest, his wife, however, was an incorporator with the least subscribed number of shares, and was elected treasurer of the Corporation

The finances of the Corporation which, under all concepts in the law, are supposed to be under the control and administration of the treasurer keeping them as trust fund for the Corporation, were, nonetheless, manipulated and disbursed as if they were the private funds of Villarama, in such a way and extent that Villarama appeared to be the actual owner-treasurer of the business without regard to the rights of the stockholders

The evidence further show that the initial cash capitalization of the corporation was mostly financed by Villarama

Villarama supplied the organization expenses and the assets of the Corporation, such as trucks and equipments; there was no actual payment by the original subscribers of the amounts appearing in the books; Villarama made use of the money of the Corporation and deposited them to his private accounts

The foregoing circumstances are strong persuasive evidence showing that the Corporation is his alter ego

A.C. Ransom Labor Union – CCLU v. NLRC, A.C. Ransom (Phils.) Corporation

G.R. No. 69494, 29 May 1987, FIRST DIVISION (Melencio-Herrera, J.)

Upon application filed by RANSOM, it was granted clearance by the Secretary of Labor to cease operation on account of financial difficulties of obligations incurred prior to 1966 and terminate employment without prejudice to the right of subject employees to seek redress of grievances

The UNION filed for a 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 the assailed cases were decided adversely against RANSOM

ISSUE: Whether or not the veil of corporate fiction may be pierced in the case at bar

HELD: RANSOM was found guilty by the CIR of unfair labor practice holding the officers

and agents personally liable to the union This finding does not ignore the legal fiction that a corporation has a personality

separate and distinct from its stockholders and members, for, as this Court had held "where the incorporators and directors belong to a single family, the corporation and its members can be considered as one in order to avoid its being used as an instrument to commit injustice," or to further an end subversive of justice

The alleged bankruptcy of RANSOM furnishes no justification for non-payment of backwages to the employees concerned taking into consideration Article 110 of the Labor Code, which provides: In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation

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.

Aggravating RANSOM's clear evasion of payment of its financial obligations is the organization of a "run-away corporation," ROSARIO at the time the unfair labor practice case was pending before the CIR by the same persons who were the officers and stockholders of RANSOM, engaged in the same line of business as RANSOM, producing the same line of products, occupying the same compound, using the same machineries, buildings, laboratory, bodega and sales and accounts departments used by RANSOM, and which is still in existence. Both corporations were closed corporations owned and managed by members of the same family. Its organization proved to be a convenient instrument to avoid payment of backwages and the reinstatement of the 22 workers. This is another instance where the fiction of separate and distinct corporate entities should be disregarded.

Shoemart, Inc. v. NLRC and Moris Industries Workers’ UnionG.R. Nos. 90795-96 and 91125-26, 13 August 1993, SECOND DIVISION (Narvasa, C.J.)

Moris Industries, Inc. (MORIS, for short), a private corporation engaged in the manufacture of leather products, e.g., bags, belts, etc. It had in its employ seventy-three (73) workers, fifty-six (56) of whom are members of a labor organization known as Moris Industries Workers Union (UNION, for short)

The UNION affiliated itself with the Philippine Association of Free Labor Unions (PAFLU), thereafter, PAFLU sent a letter to Moris inviting it to enter into CBA negotiations

Within two days, Moris suddenly closed shop and ceased operations, claiming that such a closure had become inevitable because of business reverses.

The UNION (PAFLU) filed a complaint for unfair labor practice against MORIS. A week later, it commenced another case against MORIS, this time for recovery of wage differentials and other monetary benefits (emergency cost of living allowance [ECOLA], sick leave, vacation leave benefits, etc.)

Shoemart, Inc., the other corporation involved in these cases, was impleaded by the UNION in both cases, together with the former's president, Mr. Henry Sy, on the stated theory that Shoemart, Inc. (hereafter, simply SHOEMART) and MORIS were one and the same juridical entity

SHOEMART's position paper set up the claim inter alia that its corporate personality was separate and distinct from that of MORIS, and there was no employer-employee relationship between it and the UNION's members. SHOEMART and Henry Sy, Sr. moved to dismiss the complaint against them on the ground of lack of jurisdiction, there being no employment relationship between SHOEMART and the UNION members, MORIS' employees

ISSUE: Whether or not, upon the facts obtaining in the cases at bar, the employees of MORIS have the right to be "reinstated" or absorbed into the pool of employees of SHOEMART

HELD: An examination of the Incorporation papers of SM Shoe Mart and Moris

Manufacturing show (sic) that except for Elizabeth Sy — all other five (5) incorporators and directors of Moris Industries are major stockholders of SM

The SM Shoe Mart is the exclusive buyer of all of Moris products and Both are housed in one building and Moris for many years has been using the payrolls of SM



Shoe Mart. SM glibly excuses this fact by alleging that this was done without its knowledge. We, however, considering the close relationship of the parties, find this incredible

No claim is made that SHOEMART is other than a marketing company, or has ever engaged in manufacturing leather goods or products, or any other commodities. It seems undisputed, too, that MORIS has not been in operation for several years; its business is non-existent; it is a dead company, to all intents and purposes. It is a defunct company at this time, whatever might have been the original cause or motivation for its initial closure and cessation of operations. Its stockholders and officers have caused its extinguishment: a reality that cannot but be acknowledged. Under the circumstances, reinstatement of the employees to MORIS is no longer possible. Compulsion of the stockholders and officers to reopen for business is not a rational option

Neither may SHOEMART be compelled to open a manufacturing company to engage in the same line of business as MORIS in order to accommodate the latter's former employees, numbering some seventy or so, or to absorb these seventy workers latter into its own business, considering the obvious difference and diversity in skills, experience and orientation, etc. between its employees and those of MORIS

No reasonable alternative thus presents itself except to require the payment of separation pay in lieu of the reinstatement decreed by the judgment of the respondent Commission. That liability may in the premises properly and justly be imposed on SHOEMART, as well as on MORIS and on the latter's president or executive head, jointly and severally

Manuel R. Dulay Enterprises, Inc., et al. v. CA and Edgardo Pabalan, et al. G.R. No. 91889, 27 August 1993, SECOND DIVISION (Nocon, J.)

Manuel R. Dulay Enterprises, Inc., a domestic corporation with the following as members of its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general manager; Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as secretary. The corporation owns a parcel of land located at Pasay

Manuel Dulay, obtained various loans for the construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from petitioner Virgilio Dulay to be able to continue the hotel project. As a result of said loan, petitioner Virgilio Dulay occupied one of the unit apartments of the subject property while at the same time managing the Dulay Apartment as his shareholdings in the corporation was subsequently increased by his father

Manuel Dulay by virtue of Board Resolution sold the subject property to private respondents spouses Maria Theresa and Castrense Veloso as evidenced by the Deed of Absolute Sale

Subsequently, Manuel Dulay and private respondents spouses Veloso executed a Memorandum to the Deed of Absolute Sale giving Manuel Dulay within two (2) years to repurchase the subject property which was, however, not annotated

Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property to private respondent Manuel A. Torres for a loan which was duly annotated. Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property was sold to private respondent Torres as the highest bidder in an extrajudicial foreclosure sale

Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in favor of Manuel Dulay assigning her right to repurchase the subject property from private respondent Torres as a result of the extrajudicial sale. Neither Veloso nor



Manuel Dulay were able to redeem the property, thus, upon Torres’ application, a new title was issued to Torres

However, when petitioner Virgilio Dulay appeared in court to intervene in said case alleging that Manuel Dulay was never authorized by the petitioner corporation to sell or mortgage the subject property, the trial court ordered Torres to implead the corporation as an indispensable party but the corporation moved for the dismissal of his petition which was granted

Torres and Edgardo Pabalan, real estate administrator of Torres, filed an action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment for the recovery of possession, sum of money and damages with preliminary injunction. Petitioner corporation filed an action against private respondents spouses Veloso and Torres for the cancellation of Torres’ title. Private respondents Pabalan and Torres filed an action against spouses Florentino and Elvira Manalastas, a tenant of Dulay Apartment with petitioner corporation as intervenor for ejectment

The trial court ordered the defendants to vacate the premises Petitioners contend that the respondent court had acted with grave abuse of

discretion when it applied the doctrine of piercing the veil of corporate entity in the instant case considering that the sale of the subject property between private respondents spouses Veloso and Manuel Dulay has no binding effect on petitioner corporation as Board Resolution which authorized the sale of the subject property was resolved without the approval of all the members of the board of directors and said Board Resolution was prepared by a person not designated by the corporation to be its secretary

ISSUE: Whether or not acts done without the approval of all the members of the board of directors are binding upon the corporation

HELD: In close corporations, a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president

In the instant case, petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, a corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in this case, petitioner Virgilio Dulay failed to do

The privilege of being treated as an entity distinct and separate from its stockholders or members is therefore confined to its legitimate uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act. When the corporation is used merely as an alter ego or business conduit of a person, the law will regard the corporation as the act of that person

Virgilio E. Dulay's protestations of complete innocence to the effect that he never participated nor was even aware of any meeting or resolution authorizing the mortgage or sale of the subject premises is difficult to believe. On the contrary, he is very much privy to the transactions involved. To begin with, he is an incorporator and one of the board of directors designated at the time of the organization of Manuel R. Dulay Enterprises, Inc. In ordinary parlance, the said entity is loosely referred to as a 'family corporation'. The nomenclature, if imprecise, however, fairly reflects the cohesiveness of a group and the parochial instincts of the individual members of such an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its incorporators being close relatives



Besides, the fact that petitioner Virgilio Dulay executed an affidavit that he was a signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor of private respondent Torres indicates that he was aware of the transaction executed between his father and private respondents and had, therefore, adequate knowledge about the sale of the subject property to private respondents

Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject property to private respondents by Manuel Dulay is valid and binding

First Philippine International Bank (Formerly Producers Bank of the Philippines) and Mercurio Rivera v. CA, Carlos Ejercito, in substitution of

Demetrio Demetria and Jose JanoloG.R. No. 115849, 24 January 1996, THIRD DIVISION (Panganiban, J.)

Producer Bank of the Philippines acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna formerly owned by BYME Investment and Development Corporation which had them mortgaged with the bank as collateral for a loan

The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated negotiations for that purpose with an initial offer of 3.5Million. In reply, the bank made a counter-offer in the amount of 5.5Million to which Janolo offered to pay 4.25Million. The bank did not reply. Thereafter, Janolo sent a letter stating that the counter-offer of 5.5Million is accepted

In the meantime, Leonida Encarnacion was appointed as acting conservator and Mercurio Rivera replied to the acceptance of the counter-offer stating that the proposal to purchase the properties is still under study and will be submitted to the conservator of the bank for consideration

What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff considered as a perfected contract of sale, which demands were in one form or another refused by the bank. The Bank, through Acting Conservator Encarnacion, repudiated the authority of defendant Rivera and claimed that his dealings with Demetria and Janolo, particularly his counter-offer of P5.5 Million are unauthorized or illegal, thus, the action for specific performance

Henry Co and several other stockholders of the Bank filed an action purportedly a "derivative suit" against Encarnacion, Demetria and Janolo "to declare any perfected sale of the property as unenforceable and to stop Ejercito from enforcing or implementing the sale". Janolo argued that the Second Case was barred by litis pendentia by virtue of the specific performance case then pending in the Court of Appeals

ISSUE: Whether or not there is forum shopping on the part of the Bank

HELD: Corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping

Petitioner also tried to seek refuge in the corporate fiction that the personality of the Bank is separate and distinct from its shareholders. But the rulings of this Court are consistent: "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."



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

There is forum shopping where there is identity of parties, or at least such parties as represent the same interests in both actions, as well as identity of rights asserted and relief prayed for, the relief being founded on the same facts, and the identity on the two preceding particulars is such that any judgment rendered in the other action, will, regardless of which party is successful, amount to res adjudicata in the action under consideration

Very simply stated, the specific performance case which gave rise to the instant petition was filed by the buyer (herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to enforce the alleged perfected sale of real estate. On the other hand, the derivative suit seeks to declare such purported sale involving the same real property "as unenforceable as against” the Petitioner. The majority stockholders, in representation of the Bank, are seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the relief being sought, though worded differently, is the same, namely, to enable the petitioner Bank to escape from the obligation to sell the property to respondent

In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the plaintiffs in the Second Case (Henry L. Co, et al.) are not name parties in the First Case, they represent the same interest and entity, namely, petitioner Bank, because: Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter in controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the assailed contract of sale; and Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a "derivative suit". In the caption itself, petitioners claim to have brought suit "for and in behalf of the Producers Bank of the Philippines"

Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum in said case. Indeed, by praying for affirmative reliefs and interposing counter-claims in their responsive pleadings, the petitioners became plaintiffs themselves in the original case, giving unto themselves the very remedies they repeated in the derivative suit

The bank cannot turn around and later say, as it now does, that what Rivera states as the bank's action on the matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against anyone who has in good faith dealt with the corporation through such agent, he estopped from denying his authority

It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during the time that the negotiation and perfection of the contract of sale took place. Petitioners energetically contended that the conservator has the power to revoke or overrule actions of the management or the board of directors of a bank

In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its viability."



Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution

Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective — i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's board of directors. What the said board cannot do — such as repudiating a contract validly entered into under the doctrine of implied authority — the conservator cannot do either


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villa rey transit

sm shoe mart

indophil textile mills

nishino leather induistries

tpu service identical

qualitrans limousine service

defeat public convenience

unfair labor practice