1.) Good Earth Emporium Inc.

vs Court of Appeals
194 SCRA 544 [GR No. 82797 February 27, 1991]

Facts: A lease contract, dated October 16, 1981, was entered into by and between
Roces-Reyes Realty Inc. as lessor, and Good Earth Emporium Inc. (GEE) as lessee for
a term of three years beginning November 1, 1981 and ending October 31, 1984 at a
monthly rental of Php65,000. The building which was the subject of the contract of lease
is a five story building located at the corner of Rizal Avenue and Bustos Street in Sta.
Cruz, Manila. From March 1983 up to the complaint was filed, the lessee had defaulted
in the payment of rentals, as a consequence of which, private respondent Roces-Reyes
Realty Inc. filed on October 14, 1984 an ejectment case against herein petitioners,
Good Earth Emporium Inc. and Lim Ka Ring. After the latter had tendered their
responsive pleading, the lower court on motion of Roces rendered judgement on the
pleadings dated April 17, 1984 to which petitioners were ordered to vacate the premises
and surrender the same to the plaintiffs. On May 16, 1984, Roces filed a motion for
execution which was opposed by petitioners on May 28, 1984 simultaneous with the
latter’s filing of a notice of appeal. However, on August 15, 1984, GEE thru counsel filed
a motion to withdraw said appeal citing as reason that they are satisfied with the
decision of the lower court.

Issue: Whether or not the payment made by GEE to the Roces brothers constitute
payment to private respondent corporation which would result to the extinguishment of
the obligation.

Held: No. Under article 1240 of the civil code of the Philippines – Payment shall be
made to the person in whose favor the obligation has been constituted, on his
successor in interest or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc.
or to its successors in interest nor is there positive evidence that payment was made to
a person authorized to receive it. No such proof was submitted but merely inferred by
the RTC from Marcos Roces having signed the lease contract as President which was
witnessed by Jesus Marcos Roces. The later, however, was no longer President or
even an officer of the Roces-Realty Inc at the time he received the money and signed
the sale with pacto de retro. He, in fact denied being in possession of authority to
receive payment for the respondent corporation nor does the receipt show that he
signed in the same capacity as he did in the lease contract at a time when he was
President for respondent corporation.

A corporation has a personality distinct and separate from its individual stockholders or
members. Being an officer or stockholder of a corporation does not make one’s property
also of the corporation, and vice-versa, for they are separate entities. Share owners are
in no legal sense the owners corporate property which is owned by the corporation as a
distinct legal person. As a consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor
is the stockholder’s debt or credit that of the corporation.
2.) Cruz vs Dalisay 152 SCRA 482

FACTS: In 1984, the National Labor Relations Commission issued an order against
Qualitrans Limousine Service, Inc. (QLSI) ordering the latter to reinstate the employees
it terminated and to pay them backwages. Quiterio Dalisay, Deputy Sheriff of the court,
to satisfy the backwages, then garnished the bank account of Adelio Cruz. Dalisay
justified his act by averring that Cruz was the owner and president of QLSI. Further, he
claimed that the counsel for the discharged employees advised him to garnish the
account of Cruz.

ISSUE: Whether or not the action of Dalisay is correct.

HELD: No. What Dalisay did is tantamount to piercing the veil of corporate fiction. He
actually usurped the power of the court. He also overstepped his duty as a deputy
sheriff. His duty is merely ministerial and it is incumbent upon him to execute the
decision of the court according to its tenor and only against the persons obliged to
comply. In this case, the person judicially named to comply was QLSI and not Cruz. 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.

3.) Bank of America vs CA

FACTS: On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua, filed a
Complaint before the RTC of Pasig against the Bank of America NT&SA and Bank of
America International, Ltd. alleging that: they were engaged in the shipping business;
they owned two vessels: Don Aurelio and El Champion, through their wholly-owned
corporations; they deposited their revenues from said business together with other
funds with the branches of said banks in the United Kingdom and Hongkong up to 1979;
with their business doing well, the defendant banks induced them to increase the
number of their ships in operation, offering them easy loans to acquire said vessels;
thereafter, the defendant banks acquired, through their (Litonjuas) corporations as the
borrowers: (a) El Carrier; (b) El General; (c) El Challenger; and (d) El Conqueror; the
vessels were registered in the names of their corporations; the operation and the funds
derived therefrom were placed under the complete and exclusive control and disposition
of the petitioners; and the possession the vessels was also placed by defendant banks
in the hands of persons selected and designated by them (defendant banks).
The Litonjuas claimed that defendant banks as trustees did not fully render an account
of all the income derived from the operation of the vessels as well as of the proceeds of
the subsequent foreclosure sale; because of the breach of their fiduciary duties and/or
negligence of the petitioners and/or the persons designated by them in the operation of
private respondents six vessels, the revenues derived from the operation of all the
vessels declined drastically; the loans acquired for the purchase of the four additional
vessels then matured and remained unpaid, prompting defendant banks to have all the
six vessels, including the two vessels originally owned by the private respondents,
foreclosed and sold at public auction to answer for the obligations incurred for and in
behalf of the operation of the vessels; they (Litonjuas) lost sizeable amounts of their
own personal funds equivalent to ten percent (10%) of the acquisition cost of the four
vessels and were left with the unpaid balance of their loans with defendant banks. The
Litonjuas prayed for the accounting of the revenues derived in the operation of the six
vessels and of the proceeds of the sale thereof at the foreclosure proceedings instituted
by petitioners; damages for breach of trust; exemplary damages and attorneys fees.

Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and
lack of cause of action against them but it was subsequently denied by the trial court.
Instead of filing an answer the defendant banks went to the Court of Appeals on a
Petition for Review on Certiorari which was aptly treated by the appellate court as a
petition for certiorari. They assailed the above-quoted order as well as the subsequent
denial of their Motion for Reconsideration. The appellate court dismissed the petition
and denied petitioners Motion for Reconsideration hence the petitioners filed herein
petition on the ground that respondent CA failed to consider the fact that the separate
personalities of the private respondents (Mere Stocholders) and the foreign corporations
(the real borrowers) clearly support, beyond any doubt, the proposition that the private
respondents have no personalities to sue.

Petitioners argue that the borrowers and the registered owners of the vessels are the
foreign corporations and not private respondents Litonjuas who are mere stockholders;
and that the revenues derived from the operations of all the vessels are deposited in the
accounts of the corporations. Hence, petitioners maintain that these foreign
corporations are the legal entities that have the personalities to sue and not herein
private respondents

ISSUE: Did the trial court commit grave abuse of discretion in refusing to dismiss the
complaint on the ground that plaintiffs have no cause of action against defendants since
plaintiffs are merely stockholders of the corporations which are the registered owners of
the vessels and the borrowers of petitioners?

HELD: No. Petitioners argument that private respondents, being mere stockholders of
the foreign corporations, have no personalities to sue, and therefore, the complaint
should be dismissed, is untenable. A case is dismissible for lack of personality to sue
upon proof that the plaintiff is not the real party-in-interest. Lack of personality to sue
can be used as a ground for a Motion to Dismiss based on the fact that the complaint,
on the face thereof, evidently states no cause of action. In the case at bar, the
complaint contains the three elements of a cause of action. It alleges that: (1) plaintiffs,
herein private respondents, have the right to demand for an accounting from defendants
(herein petitioners), as trustees by reason of the fiduciary relationship that was created
between the parties involving the vessels in question; (2) petitioners have the obligation,
as trustees, to render such an accounting; and (3) petitioners failed to do the same.

Petitioners insist that they do not have any obligation to the private respondents as they
are mere stockholders of the corporation; that the corporate entities have juridical
personalities separate and distinct from those of the private respondents. Private
respondents maintain that the corporations are wholly owned by them and prior to the
incorporation of such entities, they were clients of petitioners which induced them to
acquire loans from said petitioners to invest on the additional ships.

4.) Avon Dale Garments vs NLRC, CA

FACTS: Private respondents were employees of petitioner Avon Dale Garments, Inc.
and its predecessor-in-interest, Avon Dale Shirt Factory. Following a dispute brought
about by the rotation of workers, a compromise agreement was entered into between
petitioner and private respondents wherein the latter were terminated from service and
given their corresponding separation pay. However, upon refusal of the petitioner to
include in the computation of private respondents' separation pay the period during
which the latter were employed by Avon Dale Shirt Factory, private respondents filed a
complaint with the labor arbiter claiming a deficiency in their separation pay. According
to private respondents, their previous employment with petitioner's predecessor-in-
interest, Avon Dale Shirt Factory, should be credited in computing their separation pay
considering that Avon Dale Shirt factory was not dissolved and they were not in turn
hired as new employees by Avon Dale Garments, Inc.

ISSUE: Whether or not the petitioner is a separate and distinct entity and therefore not
liable for private respondents' separation pay from Avon Dale Shirt Factory?

HELD: No. The two entities cannot be deemed as separate and distinct where there is a
showing that one is merely the continuation of the other. In fact, even a change in the
corporate name does not make a new corporation, whether effected by a special act or
under a general law, it has no effect on the identity of the corporation, or on its property,
rights, or liabilities. The mere filing of the Articles of Dissolution with the Securities and
Exchange Commission, without more, is not enough to support the conclusion that
actual dissolution of an entity in fact took place. On the contrary, the prevailing
circumstances in this case indicated that petitioner is not distinct from its predecessor
Avon Dale Shirt Factory, but in fact merely continued the operations of the latter under
the same owners, the same business venture, at same address, and even continued to
hire the same employees (herein private respondents).

5.) Concept Builders vs NLRC

FACTS: Petitioner Concept Builders, Inc., a domestic corporation, while private
respondents were employed by said company as laborers, carpenters and riggers.

On November, 1981, private respondents were served individual written notices of

termination of employment by petitioner, stating that their contracts of employment had
expired and the project in which they were hired had been completed.

Public respondent found however, that at the time of said termination, the project in
which they were hired had not yet been finished and completed. In fact, petitioner had to
engage the services of sub-contractors whose workers performed the functions of
private respondents.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor
practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month
pay against petitioner with the Labor Arbiter (LA). The LA ruled against the petitioner.
Petitioner moved for MFR with the NLRC but it dismissed on the ground that the said
decision had already become final and executory.

ISSUE: Whether or not the doctrine of piercing the corporate veil should apply in this
case?

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.

There is no hard and fast rule but 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.

4. Methods of conducting the business.

Likewise, the Court laid down 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 rights; and

The aforesaid control and breach of duty must proximately cause the injury or unjust
loss complained of.

The absence of any one of these elements prevents piercing the corporate veil in
applying the instrumentality or alter ego doctrine, the courts are concerned with reality
and not form, with how the corporation operated and the individual defendants
relationship to that operation.

In this case, the NLRC noted that, while petitioner claimed that it ceased its business
operations on April 29, 1986, it filed an Information Sheet with the Securities and
Exchange Commission on May 15, 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.

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

Also, in view of the failure of the sheriff, in the case at bar, to effect a levy upon the
property subject of the execution, private respondents had no other recourse but to
apply for a break-open order after the third-party claim of HPPI was dismissed for lack
of merit by the NLRC.

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the
break-open order issued by the Labor Arbiter.

6.) First Phil. International Bank vs CA.

FACTS: In the course of its banking operations, the defendant Producer Bank of the
Philippines acquired 6 parcels of land with a total area of 101 hectares located at Don
Jose, Sta. Rosa, Laguna and covered by TCT No. T-106932 to T-106937. The property
used to be owned by BYME Investment and Development Corporation which hd them
mortgaged with the bank as collateral for a loan. The plaintiff originals, Demetrio
Demetria and Jose Janolo wanted to purchase the property and thus initiated
negotiations for that purpose. In the early part of August 1987 said plaintiffs, upon the
suggestion of BYME investment’s legal counsel, Fajardo met with defendant Mercurio
Rivera, manager of the property management department of the defendant bank. The
meeting was held in pursuant to plaintiffs’ plan to buy the property. After the meeting,
plaintiff Janolo, following the advice of defendant Rivera made a formal purchase offer
to the Bank through a letter dated August 30,1987. Negotiations took place and an offer
price was fixed at P5.5million. During the course of the negotiations, the defendant bank
was placed under conservatorship and a new conservator was appointed to which the
name has been refused to recognize. A derivative suit has been filed against Rivera for
the damages suffered from the alleged perfect contract of sale involving the 6 parcels of
land.

ISSUE: Whether or not a derivative suit may lie involving the bank and its stockholders.

HELD: No. An individual stockholder is permitted to institute a derivative suit on behalf

of the corporation wherein he hold stock in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones, to be sued or
hold the control of the corporation. In such actions, the suing stockholder is regarded as
a nominal party with the corporation as the real party in interest.

In the face of the damaging admissions taken from the complaint in the second case,
petitioners, quite strangely, sought to deny that the second case was a derivative suit,
reasoning that it was brought not by the minority shareholders, but by Henry Co. etal.
who not only hold or control over 80% of the outstanding capital stock, but also
constitute the majority in the board of directors of petitioners bank. That being so, then
they really represent the bank, so whether they sued derivatively or directly, there is
undeniably an identity of interest/entity represented.

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

From the facts, the official bank price, at any rate, the bank placed its official, Rivera is a
position of authority to accept offers to buy and negotiate the sale by having the offer
officially acted upon by the bank. The bank cannot turn around and 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 on knowingly permits
one of its officers, or any other agent, to do acts within the scope of 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.

A bank is liable for wrongful acts of its officers done in the interest of the bank or in he
course of dealings of the officers in their representative capacity but not for acts outside
the scope of their authority. A bank holding out its officers and agents as worthy of
confidence will not be permitted to profit by the frauds they my thus be enabled to
perpetrate in the apparent scope of their employment; nor will it be permitted to shrink
its responsibility for such fraud even through no benefit may accrue to the bank
therefrom. Accordingly, a banking corporation is liable to innocent third persons where
the representation is made in the course of its business by an agent acting within the
general scope of its authority even though, in the particular case, the agent is secretly
abusing his authority and attempting to perpetrate fraud upon his principal or some
other person, for his own ultimate benefit.

Section 28-A of BP 68 merely gives the conservator power to revoke contracts that are,
under existing law, deemed not to be effective – 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.

7.) Francisco Motors vs CA

FACTS: In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio Manuel to
recover from a him a sum of money in the amount of P23,000.00+. Said amount was
allegedly owed to them by Manuel for the purchase of a jeep body plus repairs thereto.
Manuel filed a counterclaim in the amount of P50,000.00. In his counterclaim, Manuel
alleged that he was the Assistant Legal Officer for FMC; that the Francisco Family,
owners of FMC, engaged his services for the intestate estate proceedings of one Benita
Trinidad; that he was not paid for his legal services; that he is filing the counterclaim
against FMC because said corporation was merely a conduit of the Francisco Family.
The trial court as well as the Court of Appeals granted Manuel’s counterclaim on the
ground that the legal fees were owed by the incorporators of FMC (an application of the
doctrine of piercing the veil of corporation fiction in a reversed manner).

ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction was properly
used by the Court of Appeals.

HELD: No. In the first place, the doctrine is to be used in disregarding corporate fiction
and making the incorporators liable in appropriate circumstances. In the case at bar, the
doctrine is applied upside down where the corporation is held liable for the personal
obligations of the incorporators – such was uncalled for and erroneous. It must be noted
that that Atty. Manuel’s legal services were secured by the Francisco Family to
represent them in the intestate proceedings over Benita Trinidad’s estate. The
indebtedness was incurred by the Francisco Family in their separate and personal
capacity. These estate proceedings did not involve any business of FMC. The proper
remedy is for Manuel to sue the concerned members of the Francisco Family in their
individual capacity.

8.) Reynoso vs. CA

FACTS: Reynoso was the branch manager of Commercial Credit Corporation – Quezon
City(CCC-QC), a branch of Commercial Credit Corporation (CCC). it was alleged that
Reynoso was opposed to certain questionable commercial practices being facilitated by
CCC which caused its branches, like CCC-QC, to rack up debts. eventually, Reynoso
withdrew his own funds from CCC-QC. This prompted CCC-QC to file criminal cases for
estafa and qualified theft against Reynoso. The criminal cases were dismissed and
Reynoso was exonerated and at the same time CCC-QC was ordered to pay Reynoso's
counterclaims which amounted to millions. A writ of execution was issued against CCC-
QC. The writ was opposed by CCC-QC as it now claims that it has already closed and
that its assets were taken over by the mother company, CCC. Meanwhile, CCC
changed its name to General Credit Corporation (GCC).Reynoso then filed a petition for
an alias writ of execution. GCC opposed the writ as it argued that it is a separate and
distinct corporation from CCC and CCC-QC, in short, it raises the defense of corporate
fiction.

ISSUE: whether or not GCC is correct.

HELD: No. The veil of corporate fiction must be pierced. It is obvious that CCC's change
of name to GCC was made in order to avoid liability. CCC-QC willingly closed down and
transferred its assets to CCC and thereafter changed its name to GCC in order to avoid
its responsibilities from its creditors. GCC and CCC are one and the same; they are
engaged in the same line of business and single transaction process, i.e. finance and
investment. When the mother corporation and its subsidiary cease to act in good faith
and honest business judgment, when the corporate device is used by the parent to
avoid its liability for legitimate obligations of the subsidiary, and when the corporate
fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the
problem. When that happens, the corporate character is not necessarily abrogated. it
continues for legitimate objectives. However, it is pierced in order to remedy injustice,
such as that inflicted in this case.

9.) Simeon De Leon vs. NLRC, 358 SCRA 274

FACTS: Petitioners are security guards assigned in the premises of Fortune Tobacco
Services, Inc. (FTC) pursuant to a contract for security services with Fortune Integrated
Services Inc. (FISI). Sometime after, FISI stockholders executed a “Deed of Sale of
Shares of Stock” in favor of a group of new stockholders, it also amended its Articles of
Incorporation changing its name to Magnum Integrated Services, Inc. (MISI). FTC
terminated the contract with FISI which resulted in the displacement of some 582
security guards assigned to FTC, including petitioners herein.
FTC Labor Union which is an affiliate of NAFLU, sent a Notice of Strike which resulted
in the picketing of the premises of FTC, however, RTC of Pasig, issued a writ of
injunction to enjoin the picket. Petitioners then filed the instant case to the Arbitration
branch of the NLRC.

Petitioners that they were regular employees of FTC which was also using the corporate
names FISI and MISI, averring that they work under the control and supervision of
FTC’s security supervisors, and that, they were dismissed without just cause and due
process. They also claimed that their dismissal was the design of their employer to bust
their newly organized union. Respondent FTC, on the other hand, maintained that there
was no EE-ER relationship, that petitioners were employee of MISI a separate and
distinct corporation from FTC.

LA ruled for respondents. NLRC reversed.

Issue: WON respondents are guilty of ULP.

Held: Yes, respondents are guilty of ULP.

Ratio: Respondents were guilty of interfering with the right of petitioners to self-
organization which constitutes unfair labor practice under Article 248 of the Labor
Code. Petitioners have been employed with FISI since the 1980s and have since been
posted at the premises of FTC (main factory plant, tobacco re-drying plant and
warehouse). FISI, while having its own corporate identity, was a mere
instrumentality of FTC, tasked to provide protection and security in the company
premises. The 2 corporations had identical stockholders and the same business
address. FISI also had no other clients except FTC and other companies belonging to
the Lucio Tan group of companies. Moreover, the early payslips of petitioners show
that their salaries were initially paid by FTC. To enforce their rightful benefits under the
laws on Labor Standards, petitioners formed a union which was later certified as
bargaining agent of all the security guards. On February 1, 1991, the
stockholders of FISI sold all their participations in the corporation to a new set
of stockholders which renamed the corporation Magnum Integrated Services, Inc. On
October 15, 1991, FTC, without any reason, pre-terminated its contract of security
services with MISI and contracted 2 other agencies to provide security services for its
premises. This resulted in the displacement of petitioners. As MISI had no other
clients, it failed to give new assignments to petitioners. Petitioners have remained
unemployed since then. All these facts indicate a concerted effort on the part of
respondents to remove petitioners from the company and thus abate the growth of
the union and block its actions to enforce their demands in accordance with the
Labor Standards laws.

The test of whether an employer has interfered with and coerced employees
within the meaning of section (a) (1) is whether the employer has engaged in
conduct which it may reasonably be said tends to interfere with the free exercise
of employees’ rights under section 3 of the Act, and it is not necessary that there be
direct evidence that any employee was in fact intimidated or coerced by statements of
threats of the employer if there is a reasonable inference that anti-union conduct of
the employer does have an adverse effect on self-organization and collective
bargaining.”

A corporation is an entity separate and distinct from its stockholders and from
other corporations to which it is connected. However, when the concept of separate
legal entity is used to defeat public convenience, justify wrong, protect fraud or defend
crime, the law will regard the corporation as an association of persons, or in case of two
corporations, merge them into one. The separate juridical personality of a
corporation may also be disregarded when such corporation is a mere alter ego
or business conduit of another person. FISI was a mere adjunct of FTC. FISI, by
virtue of a contract for security services, provided FTC with security guards to safeguard
its premises. However, records show that FISI and FTC have the same owners
and business address, and FISI provided security services only to FTC and other
companies belonging to the Lucio Tan group of companies. The purported sale of the
shares of the former stockholders to a new set of stockholders who changed the
name of the corporation to Magnum Integrated Services, Inc. appears to be part of a
scheme to terminate the services of FISI’s security guards posted at the
premises of FTC and bust their newly-organized union which was then beginning to
become active in demanding the company’s compliance with Labor Standards
laws. Under these circumstances, the Court cannot allow FTC to use its separate
corporate personality to shield itself from liability for illegal acts committed against its
employees.

10.) PNB vs. Andrada Electric & Engr. Co., 381 SCRA 244

Facts: On 26 August 1975, the Philippine national Bank (PNB) acquired the assets of
the Pampanga Sugar Mills (PASUMIL) that were earlier foreclosed by the Development
Bank of the Philippines (DBP) under LOI 311. The PNB organized the ational Sugar
Development Corporation (NASUDECO) in September 1975, to take ownership and
possession of the assets and ultimately to nationalize and consolidate its interest in
other PNB controlled sugar mills. Prior to 29 October 1971, PASUMIL engaged the
services of the Andrada Electric & Engineering Company (AEEC) for electrical
rewinding and repair, most of which were partially paid by PASUMIL, leaving several
unpaid accounts with AEEC. On 29 October 1971, AEEC and PASUMIL entered into a
contract for AEEC to perform the (a) Construction of a power house building; 3
reinforced concrete foundation for 3 units 350 KW diesel engine generating sets, 3
reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets,
among others. Aside from the work contract, PASUMIL required AEEC to perform extra
work, and provide electrical equipment and spare parts. Out of the total obligation of
P777,263.80, PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of
27 June 1973, amounting to P527,263.80. Out of said unpaid balance of P527,263.80,
PASUMIL made a partial payment to AEEC of P14,000.00, in broken amounts, covering
the period from 5 January 1974 up to 23 May 1974, leaving an unpaid balance of
P513,263.80. PASUMIL and PNB, and now NASUDECO, allegedly failed and refused
to pay AEEC their just, valid and demandable obligation (The President of the
NASUDECO is also the Vice-President of the PNB. AEEC besought said official to pay
the outstanding obligation of PASUMIL, inasmuch as PNB and NASUDECO now owned
and possessed the assets of PASUMIL, and these defendants all benefited from the
works, and the electrical, as well as the engineering and repairs, performed by AEEC).

Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay their
obligations, AEEC allegedly suffered actual damages in the total amount of
P513,263.80; and that in order to recover these sums, AEEC was compelled to engage
the professional services of counsel, to whom AEEC agreed to pay a sum equivalent to
25% of the amount of the obligation due by way of attorney's fees. PNB and
NASUDECO filed a joint motion to dismiss on the ground that the complaint failed to
state sufficient allegations to establish a cause of action against PNB and NASUDECO,
inasmuch as there is lack or want of privity of contract between the them and AEEC.
Said motion was denied by the trial court in its 27 November order, and ordered PNB
nad NASUDECO to file their answers within 15 days. After due proceedings, the Trial
Court rendered judgment in favor of AEEC and against PNB, NASUDECO and
PASUMIL; the latter being ordered to pay jointly and severally the former (1) the sum of
P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from 25
September 1980 until fully paid; (2) the sum of P102,724.76 as attorney's fees; and, (3)
Costs. PNB and NASUDECO appealed. The Court of Appeals affirmed the decision of
the trial court in its decision of 17 April 2000 (CA-GR CV 57610. PNB and NASUDECO
filed the petition for review.

Issue: Whether PNB and NASUDECO may be held liable for PASUMIL’s liability to
AEEC.

Held: Basic is the rule that a corporation has a legal personality distinct and separate
from the persons and entities owning it. The corporate veil may be lifted only if it has
been used to shield fraud, defend crime, justify a wrong, defeat public convenience,
insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine
National Bank (PNB) acquired ownership or management of some assets of the
Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at
the resulting public auction by the Development Bank of the Philippines (DBP), will not
make PNB liable for the PASUMIL's contractual debts to Andrada Electric &
Engineering Company (AEEC). Piercing the veil of corporate fiction may be allowed
only if the following elements concur: (1) control — not mere stock control, but complete
domination — not only of finances, but of policy and business practice in respect to the
transaction attacked, must have been such 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 a fraud or a wrong to
perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an
unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of
duty must have proximately caused the injury or unjust loss complained of. The
absence of the foregoing elements in the present case precludes the piercing of the
corporate veil. First, other than the fact that PNB and NASUDECO acquired the assets
of PASUMIL, there is no showing that their control over it warrants the disregard of
corporate personalities. Second, there is no evidence that their juridical personality was
used to commit a fraud or to do a wrong; or that the separate corporate entity was
farcically used as a mere alter ego, business conduit or instrumentality of another entity
or person. Third, AEEC was not defrauded or injured when PNB and NASUDECO
acquired the assets of PASUMIL. Hence, although the assets of NASUDECO can be
easily traced to PASUMIL, the transfer of the latter's assets to PNB and NASUDECO
was not fraudulently entered into in order to escape liability for its debt to AEEC. Neither
was there any merger or consolidation with respect to PASUMIL and PNB. The
procedure prescribed under Title IX of the Corporation Code 59 was not followed. In
fact, PASUMIL's corporate existence had not been legally extinguished or terminated.
Further, prior to PNB's acquisition of the foreclosed assets, PASUMIL had previously
made partial payments to AEEC for the former's obligation in the amount of
P777,263.80. As of 27 June 1973, PASUMIL had paid P250,000 to AEEC and, from 5
January 1974 to 23 May 1974, another P14,000. Neither did PNB expressly or impliedly
agree to assume the debt of PASUMIL to AEEC. LOI 11 explicitly provides that PNB
shall study and submit recommendations on the claims of PASUMIL's creditors. Clearly,
the corporate separateness between PASUMIL and PNB remains, despite AEEC's
insistence to the contrary.

11.) Estelita Burgos Lipat vs. Pacific Banking Corp., 402 SCRA 339

FACTS: Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's
Export Trading" (BET), a single proprietorship engaged in the manufacture of garments
for domestic and foreign consumption, which was managed by their daughter Teresita
B. Lipat. The spouses also owned the "Mystical Fashions" in the United States, which
sells goods imported from the Philippines through BET, managed by Mrs. Lipat. In order
to facilitate the convenient operation of BET, a special power of attorney was executed
appointing Teresita Lipat to obtain loans and other credit accommodations from
respondent Pacific Banking Corporation (Pacific Bank) and to execute mortgage
contracts on properties owned or co-owned by her as security for the obligations. By
virtue of the special power of attorney, a loan was secured for and in behalf of Mrs.
Lipat and BET, a Real Estate Mortgage was executed over their property.

BET was then incorporated into a family corporation named Bela's Export Corporation
(BEC) engaged in the business of manufacturing and exportation of all kinds of
garments and utilized the same machineries and equipment previously used by BET.
Eventually, the loan was later restructured in the name of BEC and subsequent loans
were obtained with the corresponding promissory notes duly executed by Teresita on
behalf of the corporation. BEC defaulted in payments when it became due and
demandable. Consequently, the real estate mortgage was foreclosed and was sold at
public auction to respondent Eugenio D. Trinidad as the highest bidder.

The spouses Lipat filed a complaint alleging, among others, that the promissory notes,
trust receipt, and export bills were all ultra vires acts of Teresita as they were executed
without the requisite board resolution of the Board of Directors of BEC. They also
averred that assuming said acts were valid and binding on BEC, the same were the
corporation's sole obligation, it having a personality distinct and separate from the
spouses.

The trial court ruled that there was convincing and conclusive evidence proving that
BEC was a family corporation of the Lipats. As such, it was a mere extension of
petitioners' personality and business and a mere alter ego or business conduit of the
Lipats established for their own benefit. The Lipats timely appealed which however, was
dismissed by the appellate court for lack of merit. Hence, this petition.

ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction is applicable
in this case.

HELD: Petitioners' contentions fail to persuade this Court.

A careful reading of the judgment of the RTC and the resolution of the appellate
court show that in finding petitioners' mortgaged property liable for the obligations of
BEC, both courts below relied upon the alter ego doctrine or instrumentality rule, rather
than fraud in piercing the veil of corporate fiction. When the corporation is the mere
alter ego or business conduit of a person, the separate personality of the corporation
may be disregarded. This is commonly referred to as the "instrumentality rule" or the
77

alter ego doctrine, which the courts have applied in disregarding the separate juridical
personality of corporations.
We find that the evidence on record demolishes, rather than buttresses,
petitioners' contention that BET and BEC are separate business entities. Note that
Estelita Lipat admitted that she and her husband, Alfredo, were the owners of BET
and were two of the incorporators and majority stockholders of BEC. It is also
undisputed that Estelita Lipat executed a special power of attorney in favor of her
daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf.
Incidentally, Teresita was designated as executive-vice president and general
manager of both BET and BEC, respectively. We note further that: (1) Estelita and
Alfredo Lipat are the owners and majority shareholders of BET and BEC, respectively;
(2) both firms were managed by their daughter, Teresita; (3) both firms were engaged
in the garment business, supplying products to "Mystical Fashion," a U.S. firm
established by Estelita Lipat; (4) both firms held office in the same building owned by
the Lipats; (5) BEC is a family corporation with the Lipats as its majority stockholders;
(6) the business operations of the BEC were so merged with those of Mrs. Lipat such
that they were practically indistinguishable; (7) the corporate funds were held by
Estelita Lipat and the corporation itself had no visible assets; (8) the board of directors
of BEC was composed of the Burgos and Lipat family members; (9) Estelita had full
control over the activities of and decided business matters of the corporation; and that
(10) Estelita Lipat had benefited from the loans secured from Pacific Bank to finance
her business abroad and from the export bills secured by BEC for the account of
"Mystical Fashion." It could not have been coincidental that BET and BEC are so
intertwined with each other in terms of ownership, business purpose, and
management. Apparently, BET and BEC are one and the same and the latter is a
conduit of and merely succeeded the former. Petitioners' attempt to isolate themselves
from and hide behind the corporate personality of BEC so as to evade their liabilities to
Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate
entity seeks to prevent and remedy. In our view, BEC is a mere continuation and
successor of BET and petitioners cannot evade their obligations in the mortgage
contract secured under the name of BEC on the pretext that it was signed for the
benefit and under the name of BET.
We are thus constrained to rule that the Court of Appeals did not err when it
applied the instrumentality doctrine in piercing the corporate veil of BEC.
Wherefore, the petition is denied.