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Case digest

1. Corporate Law Case Digest: Stockholders of F. Guanzon and Sons, Inc v. Register of Deeds
of Manila (1962) G.R. No. L-18216 October 30, 1962 Lessons Applicable: Strong Juridical
Personality (Corporate Law)
FACTS: Sept 19, 1960: 5 stockholders of the F. Guanzon and Sons, Inc. executed a
certificate of liquidation of the assets of the corporation, dissolution and distribution among
themselves in proportion to their shareholdings, as liquidating dividends, corporate assets,
including real properties Register of Deeds of Manila denied the registration of the
certificate of liquidation: 1. The number of parcels not certified to in the acknowledgment; 2.
P430.50 Reg. fees need be paid; 3. P940.45 documentary stamps need be attached to the
document; 4. The judgment of the Court approving the dissolution and directing the
disposition of the assets of the corporation need be presented Commissioner of Land
Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.
Stockholders appealed o contend that the certificate of liquidation is not a conveyance or
transfer but merely a distribution of the assets of the corporation which has ceased to exist
for having been dissolved
ISSUE: W/N certificate merely involves a distribution of the corporation's assets (or should
be considered a transfer or conveyance)
HELD: NO. affirm the resolution appealed from Corporation - juridical person distinct from
the members composing it. o Properties registered in the name of the corporation are owned
by it as an entity separate and distinct from its members. o While shares of stock constitute
personal property they do not represent property of the corporation. A share of stock only
typifies an aliquot part of the corporation's property, or the right to share in its proceeds to
that extent when distributed according to law and equity but its holder is NOT the owner of
any part of the capital of the corporation nor entitled to possession The stockholder is not
a co-owner or tenant in common of the corporate property.
2. G.R. No. L-15121, August 31, 1962
Gregorio Palacio and Mario Palacio (minor)
vs Fely Transportation Company
Ponente: Regala

Facts:
In their complaint, the Palacio alleged that Fely hired Alfredo
Canillo as driver who negligently run over a child (Mario).
Gregorio , the father of Mario is a welder and in the account of
his child's injuries has abandoned his shop which is the family's
source of income.

Fely filed a motion to dismiss on the grounds that there is no


cause of action against the company and that the cause of action is
barred by prior judgment. But the court deferred the determination
of the grounds alleged in the motion to dismiss until the trial of
the case.

The defendant then alleges (1) that complaint states no cause of


action against defendant, and (2) that the sale and transfer of the
jeep AC-687 by Isabelo Calingasan to the Fely Transportation was
made on December 24, 1955, long after the driver Alfredo Carillo of
said jeep had been convicted and had served his sentence.
In view of the evidence presented, the lower court barred the
judgment in the criminal case and held that the person subsidiarily
liable to pay damages is Isabel Calingasan, the employer.

Issue: Whether Fely Transportation can be held liable for the


damages.

Ruling:
The Court agrees with this contention of the plaintiffs. Isabelo
Calingasan and defendant Fely Transportation may be regarded as one
and the same person. It is evident that Isabelo Calingasan's main
purpose in forming the corporation was to evade his subsidiary
civil liability resulting from the conviction of his driver,
Alfredo Carillo. This conclusion is borne out by the fact that the
incorporators of the Fely Transportation are Isabelo Calingasan,
his wife, his son, Dr. Calingasan, and his two daughters.

Accordingly, defendants Fely Transportation and Isabelo Calingasan


should be held subsidiarily liable for P500.00 which Alfredo
Carillo was ordered to pay in the criminal case and which amount he
could not pay on account of insolvency.

3. Stonehill vs Diokno DIGEST

DECEMBER 21, 2016 ~ VBDIAZ

Stonehill vs Diokno

20 SCRA 383

Facts:

Respondents herein secured a total of 42 search warrants against petitioners


herein and/or the corporations of which they were officers, to search books of
accounts, financial records, vouchers, correspondence, receipts, ledgers, journals,
portfolios, credit journals, typewriters, and other documents and/or papers showing all
business transactions including disbursements receipts, balance sheets and profit and
loss statements and Bobbins (cigarette wrappers), as the subject of the offense;
stolen or embezzled and proceeds or fruits of the offense, or used or intended to be
used as the means of committing the offense, which is described in the applications
adverted to above as violation of Central Bank Laws, Tariff and Customs Laws,
Internal Revenue (Code) and the Revised Penal Code.
The petitioner contended that the search warrants are null and void as their issuance
violated the Constitution and the Rules of Court for being general warrants.
The documents, papers, and things seized under the alleged authority of the warrants
in question may be split into two (2) major groups, namely: (a) those found and seized
in the offices of the aforementioned corporations, and (b) those found and seized in
the residences of petitioners herein.
Issue: Whether petitioners can validly assail the search warrant against the
corporation.
Held: No.
As regards the first group, we hold that petitioners herein have no cause of action to
assail the legality of the contested warrants and of the seizures made in pursuance
thereof, for the simple reason that said corporations have their respective
personalities, separate and distinct from the personality of herein petitioners,
regardless of the amount of shares of stock or of the interest of each of them in said
corporations, and whatever the offices they hold therein may be. Indeed, it is well
settled that the legality of a seizure can be contested only by the party whose rights
have been impaired thereby, and that the objection to an unlawful search and seizure
ispurely personal and cannot be availed of by third parties. Consequently, petitioners
herein may not validly object to the use in evidence against them of the documents,
papers and things seized from the offices and premises of the corporations adverted to
above, since the right to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the seized effects belong, and may
not be invoked by the corporate officers in proceedings against them in their
individual capacity.
Feliciano vs. COA (G.R. No. 147402, January 14, 2004
Facts: COA assessed Leyte Metropolitan Water District (LMWD) auditing fees.
Petitioner Feliciano, as General Manager of LMWD, contended that the water district
could not pay the said fees on the basis of Sections 6 and 20 of P.D. No. 198 as well as
Section 18 of R.A. No. 6758. He primarily claimed that LMWD is a private corporation
not covered by COA's jurisdiction. Petitioner also asked for refund of all auditing fees
LMWD previously paid to COA.COA Chairman denied petitioners requests. Petitioner
filed a motion for reconsideration which COA denied. Hence, this petition.

Issue: Whether a Local Water District (LWD) created under PD 198, as amended, is a
government-owned or controlled corporation subject to the audit jurisdiction of COA or a
private corporation which is outside of COAs audit jurisdiction.

Held: Petition lacks merit. The Constitution under Sec. 2(1), Article IX-D and existing
laws mandate COA to audit all government agencies, including government-owned and
controlled corporations with original charters. An LWD is a GOCC with an original
charter.

The Constitution recognizes two classes of corporations. The first refers to private
corporations created under a general law. The second refers to government-owned or
controlled corporations created by special charters. Under existing laws, that general
law is the Corporation Code.

Obviously, LWDs are not private corporations because they are not created under the
Corporation Code. LWDs are not registered with the Securities and Exchange
Commission. Section 14 of the Corporation Code states that all corporations organized
under this code shall file with the SEC articles of incorporation x x x. LWDs have no
articles of incorporation, no incorporators and no stockholders or members. There are
no stockholders or members to elect the board directors of LWDs as in the case of all
corporations registered with the SEC. The local mayor or the provincial governor
appoints the directors of LWDs for a fixed term of office. The board directors of LWDs
are not co-owners of the LWDs. The board directors and other personnel of LWDs are
government employees subject to civil service laws and anti-graft laws. Clearly, an LWD
is a public and not a private entity, hence, subject to COAs audit jurisdiction

5. Magsaysay-Labrador, et. al. vs. Court of Appeals


[GR 58168, 19 December 1989]

Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the
estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of
Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas
Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulment of
the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of which TCT
3258 was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the Deed of
Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the amount of P
2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the latter to issue a
new title in her favor. On 7 March 1979, Concepcion Magsaysay-Labrador, Soledad Magsaysay-
Cabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of
the late senator, filed a motion for intervention on the ground that on 20 June 1978, their brother
conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees
of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and
legal interest in the subject matter of litigation and that they have a legal interest in the success of
the suit with respect to SUBIC. On 26 July 1979, the trial court denied the motion for intervention,
and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being
alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene
because SUBIC has a personality separate and distinct from its stockholders.

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

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

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

6. Sulo ng Bayan vs. Araneta


[GR L-31061, 17 August 1976]

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

Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, the Court of Appeals, upon
finding that no question of fact was involved in the appeal but only questions of law and jurisdiction,
certified the case to the Supreme Court for resolution of the legal issues involved in the controversy.

Issue:
1. Whether the corporation (non-stock) may institute an action in behalf of its individual
members for the recovery of certain parcels of land allegedly owned by said members,
among others.
2. Whether the complaint filed by the corporation in behalf of its members may be
treated as a class suit
Held:

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

2. In order that a class suit may prosper, the following requisites must be present: (1) that the subject
matter of the controversy is one of common or general interest to many persons; and (2) that the
parties are so numerous that it is impracticable to bring them all before the court. Here, there is only
one party plaintiff, and the corporation does not even have an interest in the subject matter of the
controversy, and cannot, therefore, represent its members or stockholders who claim to own in their
individual capacities ownership of the said property. Moreover, a class suit does not lie in actions for
the recovery of property where several persons claim partnership of their respective portions of the
property, as each one could alleged and prove his respective right in a different way for each portion
of the land, so that they cannot all be held to have identical title through acquisition/prescription.
302 SCRA 315 Business Organization Corporation Law Piercing the Veil of Corporate
Fiction
Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In 1989, she
entered into an agreement with Jaime Bravo for the latter to draft a development and
architectural design for the said property. The contract price was P450,000.00. Posadas
gave a down payment of P25,000.00. Later, Posadas assigned her property to Luxuria
Homes, Inc. One of the witnesses to the deed of assignment and articles of incorporation
was Jaime Bravo.
In 1992, Bravo finished the architectural design so he proposed that he and his company
manage the development of the property. But Posadas turned down the proposal and
thereafter the business relationship between the two went sour. Bravo then demanded
Posadas to pay them the balance of their agreement as regards the architectural design
(P425k). Bravo also demanded payment for some other expenses and fees he incurred i.e.,
negotiating and relocating the informal settlers then occupying the land of Posadas.
Posadas refused to make payment. Bravo then filed a complaint for specific performance
against Posadas but he included Luxuria Homes as a co-defendant as he alleged that
Luxuria Homes was a mere conduit of Posadas; that the said corporation was created in
order to defraud Bravo and avoid the payment of debt.
ISSUE: Whether or not Luxuria Homes should be impleaded.
HELD: No. It was Posadas who entered into a contract with Bravo in her personal capacity.
Bravo was not able to prove that Luxuria Homes was a mere conduit of Posadas. Posadas
owns just 33% of Luxuria Homes. Further, when Luxuria Homes was created, Bravo was
there as a witness. So how can he claim that the creation of said corporation was to defraud
him. The eventual transfer of Posadas property to Luxuria was with the full knowledge of
Bravo. The agreement between Posadas and Bravo was entered into even before Luxuria
existed hence Luxuria was never a party thereto. Whatever liability Posadas incurred arising
from said agreement must be borne by her solely and not in solidum with Luxuria. To
disregard the separate juridical personality of a corporation, the wrongdoing must be clearly
and convincingly established. It cannot be presumed.
Villa Rey Transit vs. Ferrer Case Digest
Villa Rey Transit vs. Ferrer

[GR L-23893, 29 October 1968]


Facts: [preceding case] Prior to 1959, 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
him by the Public Service Commission (PSC) in Cases 44213 and 104651, which authorized him to
operate a total of 32 units on various routes or lines from Pangasinan to Manila, and vice-versa. On
8 January 1959, he sold the two certificates of public convenience to the Pangasinan Transportation
Company, Inc. (Pantranco), for P350,000.00 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 3 months thereafter, or on 6 March 1959: a corporation called Villa Rey Transit, Inc. (the
Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares of the par
value of P100.00 each; P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of Jose
M. Villarama) was one of the incorporators, and she subscribed for P1,000.00; the balance of
P199,000.00 was subscribed by the brother and sister-in-law of Jose M. Villarama; of the subscribed
capital stock, P105,000.00 was paid to the treasurer of the corporation, who was Natividad R.
Villarama. In less than a month after its registration with the Securities and Exchange Commission
(10 March 1959), the Corporation, on 7 April 1959, bought 5 certificates of public convenience, 49
buses, tools and equipment from one Valentin Fernando, for the sum of P249,000.00, of which
P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final
approval of the sale by the PSC; P49,500.00 one year after the final approval of the sale; and the
balance of P50,000.00 "shall be paid by the BUYER to the different suppliers of the SELLER."

The very same day that the contract of sale was executed, 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. On 19 May 1959, the PSC granted the
provisional permit prayed for, upon the condition that "it may be modified or revoked by the
Commission at any time, shall be subject to whatever action that may be taken on the basic
application and shall be valid only during the pendency of said application." Before the PSC could
take final action on said application for approval of sale, however, the Sheriff of Manila, on 7 July
1959, levied on 2 of the five certificates of public convenience involved therein, namely, those issued
under PSC cases 59494 and 63780, pursuant to a writ of execution issued by the Court of First
Instance of Pangasinan in Civil Case 13798, in favor of Eusebio E. Ferrer against Valentin
Fernando. The Sheriff made and entered the levy in the records of the PSC. On 16 July 1959, a
public sale was conducted by the Sheriff of the said two certificates of public convenience. 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, Case
124057, and that of Ferrer and Pantranco, Case 126278, were scheduled for a joint hearing. In the
meantime, to wit, on 22 July 1959, the 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.

[present case] On 4 November 1959, the Corporation filed in the Court of First Instance of Manila, a
complaint for the annulment of the sheriff's sale of the aforesaid two certificates of public
convenience (PSC Cases 59494 and 63780) in favor of Ferrer, and the subsequent sale thereof by
the latter to Pantranco, against Ferrer, Pantranco and the PSC. The Corporation prayed therein that
all the orders of the PSC relative to the parties' dispute over the said certificates be annulled. The
CFI of Manila declared the sheriff's sale of two certificates of public convenience in favor of Ferrer
and the subsequent sale thereof by the latter to Pantranco null and void; declared the Corporation to
be the lawful owner of the said certificates of public convenience; and ordered Ferrer and Pantranco,
jointly and severally, to pay the Corporation, the sum of P5,000.00 as and for attorney's fees. The
case against the PSC was dismissed. All parties appealed.

Issue: Whether the stipulation, "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" in
the contract between Villarama and Pantranco, binds the Corporation (the Villa Rey Transit, Inc.).

Held: Villarama supplied the organization expenses and the assets of the Corporation, such as
trucks and equipment; there was no actual payment by the original subscribers of the amounts of
P95,000.00 and P100,000.00 as appearing in the books; Villarama made use of the money of the
Corporation and deposited them to his private accounts; and the Corporation paid his personal
accounts. Villarama himself admitted that he mingled the corporate funds with his own money.
These circumstances are strong persuasive evidence showing that Villarama has been too much
involved in the affairs of the Corporation to altogether negative the claim that he was only a part-time
general manager. They show beyond doubt that the Corporation is his alter ego. The interference of
Villarama in the complex affairs of the corporation, and particularly its finances, are much too
inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to separate
personal responsibilities from corporate undertakings. It is the very essence of incorporation that the
acts and conduct of the corporation be carried out in its own corporate name because it has its own
personality. The doctrine that a corporation is a legal entity distinct and separate from the members
and stockholders who compose it is recognized and respected in all cases which are within reason
and the law. 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. Hence, the Villa Rey
Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract
entered into by the latter and Pantranco is also enforceable and binding against the said
Corporation. For the rule is that a seller or promisor may not make use of a corporate entity as a
means of evading the obligation of his covenant. Where the Corporation is substantially the alter ego
of the covenantor to the restrictive agreement, it can be enjoined from competing with the
covenantee.

Concept Builders Inc. vs. NLRC Case Digest


Concept Builders Inc. vs. National Labor Relations Commission

[GR 108734, 29 May 1996]

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

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

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

Issue: Whether the NLRC was correct in issuing the break-open order to levy the HPPI properties
located at CBI amd/or HPPIs premises at 355 Maysan Road, Valenzuela, Metro Manila.

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