unconstitutional.
On the substantive issue, the PNRC is sui
1. LIBAN V. GORDON (G.R. NO.175352; JANUARY 18, 2011)
CASE DIGEST: DANTE V. LIBAN, REYNALDO M.
BERNARDO and SALVADOR M. VIARI, Petitioners, vs.
RICHARD J. GORDON, Respondent. PHILIPPINE
NATIONAL RED CROSS, Intervenor.
FACTS: Respondent filed a motion for partial reconsideration
on a Supreme Court decision which ruled that being chairman of
the Philippine National Red Cross (PNRC) did not disqualify
him from being a Senator, and that the charter creating PNRC is
unconstitutional as the PNRC is a private corporation and the
Congress is precluded by the Constitution to create such.The
Court then ordered the PNRC to incorporate itself with the SEC
as a private corporation. Respondent takes exception to the
second part of the ruling, which addressed the constitutionality
of the statute creating the PNRC as a private corporation.
Respondent avers that the issue of constitutionality was only
touched upon in the issue of locus standi. It is a rule that the
constitutionality will not be touched upon if it is not the lis mota
of the case. ADVERTISEMENT: Work from home! Be an online
English tutor. Earn at least PHP100/hour.
ISSUE: Was it proper for the Court to have ruled on the
constitutionality of the PNRC statute?
HELD: In the case at bar, the constitutionality of the PNRC
statute was raised in the issue of standing. As such, the
Court should not have declared certain provisions of such as
generis. It is unlike the private corporations that the
Constitution wants to prevent Congress from creating. First,
the PNRC is not organized for profit. It is an organization
dedicated to assist victims of war and administer relief to
those who have been devastated by calamities, among
others. It is entirely devoted to public service. It is not
covered by the prohibition since the Constitution aims to
eliminate abuse by the Congress, which tend to favor
personal gain. Secondly, the PNRC was created in order to
participate in the mitigation of the effects of war, as
embodied in the Geneva Convention. The creation of the
PNRC is compliance with international treaty obligations.
Lastly, the PNRC is a National Society, an auxiliary of the
government. It is not like government instrumentalities and
GOCC.
The PNRC is regulated directly by international
humanitarian law, as opposed to local law regulating the
other mentioned entities. As such, it was improper for the
Court to have declared certain portions of the PNRC statute
as unconstitutional. However, it is the stand of Justice
Carpio that there is no mandate for the Government to
create a National Society to this effect. He also raises the fact
that the PNRC is not sui generis in being a private
corporation organized for public needs. Justice Abad is of
the opinion that the PNRC is neither private or
governmental, hence it was within the power of Congress to
create.
12.
13.
Lakas Union countered that their strike was valid and staged as a

ASIONICS PHILIPPINES, INC. vs. NLRC measure of self-preservation and as self-defense against the illegal

G.R. No. 124950 dismissal of petitioners aimed at union busting in the guise of a
retrenchment program.

FACTS OF THE CASE

API is a domestic corporation engaged in the business of assembling ISSUE

semi-conductor chips and other electronic products mainly for Whether a stockholder/director/officer of a corporation can be held

export. Yolanda Boaquina and Juana Gayola are working as liable for the obligation of the corporation absent any proof and

material control clerk and as production operator. API commenced finding of bad faith.

negotiations with the duly recognized bargaining agent of its

employees, the Federation of Free Workers ("FFW"), for a Collective RULING

Bargaining Agreement ("CBA"). A deadlock, however, ensued and No, API’s president and main stockholder Frank Yih cannot be held

the union decided to file a notice of liable for the obligation of the corporation to its employees. A

strike. This event prompted the two customers of API, Indala and corporation is a juridical entity with legal personality separate and

CP Clare Theta J, to thereupon refrain from sending to API additional distinct from those acting for and in its behalf and, in general, from

kits or materials for assembly. API, given the circumstance that its the people comprising it. The rule is that obligations incurred by the

assembly line had to thereby grind to a halt, was forced to suspend corporation, acting through its directors, officers and employees, are

operations pursuant to Article 286 of the Labor Code. Private its sole liabilities. Nevertheless, being a mere fiction of law, peculiar

respondents Boaquina and Gayola were among the employees situations or valid grounds can exist to warrant, albeit done sparingly,

asked to take a leave from work. the disregard of its independent being and the lifting of the corporate

Dissatisfied with their union (FFW), Boaquina and Gayola, together veil. As a rule, this situation might arise when a corporation is used

with some of other co-employees, joined the Lakas ng Manggagawa to evade a just and due obligation or to justify a wrong, to shield or

sa Pilipinas Labor Union ("Lakas Union") where they eventually perpetrate fraud, to carry out similar unjustifiable aims or intentions,

became members of its Board of Directors. Lakas Union filed a notice or as a subterfuge to commit injustice and so circumvent the law.

of strike against API on the ground of unfair labor practice.API filed

for a petition for declaration of illegality of the strike.
14. PHILIPPINE NATIONAL BANK V. HYDRO RESOURCES CONTRACTORS
CORP., G.R. NO. 167530, 167561, 167603, [MARCH 13, 2013], 706 PHIL
297-319)
FACTS: Sometime in 1984, petitioners DBP and PNB foreclosed on certain
mortgages made on the properties of Marinduque Mining and Industrial
Corporation (MMIC). As a result of the foreclosure, DBP and PNB acquired
substantially all the assets of MMIC and resumed the business operations
of the defunct MMIC by organizing NMIC. DBP and PNB owned 57% and
43% of the shares of NMIC, respectively, except for five qualifying shares.
As of September 1984, the members of the Board of Directors of NMIC,
namely, Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo Agulto,
and Faustino Agbada, were either from DBP or PNB.
Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s
Mine Stripping and Road Construction Program in 1985 for a total
contract price of P35,770,120. After computing the payments already
made by NMIC under the program and crediting the NMIC’s receivables
from Hercon, Inc., the latter found that NMIC still has an unpaid balance
of P8,370,934.74. Hercon, Inc. made several demands on NMIC, including
a letter of final demand dated August 12, 1986, and when these were not
heeded, a complaint for sum of money was filed in the RTC of Makati,
Branch 136 seeking to hold petitioners NMIC, DBP, and PNB solidarily
liable for the amount owing Hercon, Inc. The case was docketed as Civil
Case No. 15375.
Subsequent to the filing of the complaint, Hercon, Inc. was acquired by
HRCC in a merger. This prompted the amendment of the complaint to
substitute HRCC for Hercon, Inc.
Thereafter, on December 8, 1986, then President Corazon C. Aquino
issued Proclamation No. 50 creating the APT for the expeditious
disposition and privatization of certain government corporations and/or
the assets thereof. Pursuant to the said Proclamation, on February 27,
1987, DBP and PNB executed their respective deeds of transfer in favor of
the National Government assigning, transferring and conveying certain
assets and liabilities, including their respective stakes in NMIC. In turn and
on even date, the National Government transferred the said assets and
liabilities to the APT as trustee under a Trust Agreement. Thus, the
complaint was amended for the second time to implead and include the
APT as a defendant.
In its answer, NMIC claimed that HRCC had no cause of action. It also
asserted that its contract with HRCC was entered into by its then
President without any authority. Moreover, the said contract allegedly
failed to comply with laws, rules and regulations concerning government
contracts. NMIC further claimed that the contract amount was manifestly
excessive and grossly disadvantageous to the government. NMIC made
counterclaims for the amounts already paid to Hercon, Inc. and attorney’s
fees, as well as payment for equipment rental for four trucks,
replacement of parts and other services, and damage to some of NMIC’s
properties.
For its part, DBP’s answer raised the defense that HRCC had no cause of
action against it because DBP was not privy to HRCC’s contract with
NMIC. Moreover, NMIC’s juridical personality is separate from that of
DBP. DBP further interposed a counterclaim for attorney’s fees.
PNB’s answer also invoked lack of cause of action against it. It also raised
estoppel on HRCC’s part and laches as defenses, claiming that the
inclusion of PNB in the complaint was the first time a demand for
payment was made on it by HRCC. PNB also invoked the separate juridical
personality of NMIC and made counterclaims for moral damages and
attorney’s fees.
ISSUE: IS THE DOCTRINE OF PIERCING THE VEIL APPIES.
HELD: NO. In this case, nothing in the records shows that the corporate
finances, policies and practices of NMIC were dominated by DBP and PNB
in such a way that NMIC could be considered to have no separate mind,
will or existence of its own but a mere conduit for DBP and PNB. On the
contrary, the evidence establishes that HRCC knew and acted on the
knowledge that it was dealing with NMIC, not with NMIC’s stockholders.
The letter proposal of Hercon, Inc., HRCC’s predecessor-in-interest,
regarding the contract for NMIC’s mine stripping and road construction
program was addressed to and accepted by NMIC. The various billing
reports, progress reports, statements of accounts and communications of
Hercon, Inc./HRCC regarding NMIC’s mine stripping and road construction
program in 1985 concerned NMIC and NMIC’s officers, without any
indication of or reference to the control exercised by DBP and/or PNB
over NMIC’s affairs, policies and practices.
REPORT THIS AD
HRCC has presented nothing to show that DBP and PNB had a hand in the
act complained of, the alleged undue disregard by NMIC of the demands
of HRCC to satisfy the unpaid claims for services rendered by HRCC in
connection with NMIC’s mine stripping and road construction program in
1985. On the contrary, the overall picture painted by the evidence
offered by HRCC is one where HRCC was dealing with NMIC as a distinct
juridical person acting through its own corporate officers
Moreover, the finding that the respective boards of directors of NMIC,
DBP, and PNB were interlocking has no basis. HRCC’s Exhibit “I-5,” the
initial General Information Sheet submitted by NMIC to the Securities and
Exchange Commission, relied upon by the trial court and the Court of
Appeals may have proven that DBP and PNB owned the stocks of NMIC to
the extent of 57% and 43%, respectively. However, nothing in it supports
a finding that NMIC, DBP, and PNB had interlocking directors as it only
indicates that, of the five members of NMIC’s board of directors, four
were nominees of either DBP or PNB and only one was a nominee of both
DBP and PNB. Only two members of the board of directors of NMIC, Jose
Tengco, Jr. and Rolando Zosa, were established to be members of the
board of governors of DBP and none was proved to be a member of the
board of directors of PNB. No director of NMIC was shown to be also
sitting simultaneously in the board of governors/directors of both DBP
and PNB.
In reaching its conclusion of an alter ego relationship between DBP and
PNB on the one hand and NMIC on the other hand, the Court of Appeals
invoked Sibagat Timber Corporation v. Garcia, which it described as “a
case under a similar factual milieu.” However, in Sibagat Timber
Corporation, this Court took care to enumerate the circumstances which
led to the piercing of the corporate veil of Sibagat Timber Corporation for
being the alter ego of Del Rosario & Sons Logging Enterprises, Inc. Those
circumstances were as follows: holding office in the same building,
practical identity of the officers and directors of the two corporations and
assumption of management and control of Sibagat Timber Corporation by
the directors/officers of Del Rosario & Sons Logging Enterprises, Inc.
REPORT THIS AD
Here, DBP and PNB maintain an address different from that of NMIC. As
already discussed, there was insufficient proof of interlocking
directorates. There was not even an allegation of similarity of corporate
officers. Instead of evidence that DBP and PNB assumed and controlled
the management of NMIC, HRCC’s evidence shows that NMIC operated as
a distinct entity endowed with its own legal personality. Thus, what
obtains in this case is a factual backdrop different from, not similar to,
Sibagat Timber Corporation.
In relation to the second element, to disregard the separate juridical
personality of a corporation, the wrongdoing or unjust act in
contravention of a plaintiff’s legal rights must be clearly and convincingly
established; it cannot be presumed. Without a demonstration that any of
the evils sought to be prevented by the doctrine is present, it does not
apply.
In this case, the Court of Appeals declared:
We are not saying that PNB and DBP are guilty of fraud in forming NMIC,
nor are we implying that NMIC was used to conceal fraud. x x x.
Such a declaration clearly negates the possibility that DBP and PNB
exercised control over NMIC which DBP and PNB used “to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and unjust act in contravention of plaintiff’s legal
rights.” It is a recognition that, even assuming that DBP and PNB
exercised control over NMIC, there is no evidence that the juridical
personality of NMIC was used by DBP and PNB to commit a fraud or to do
a wrong against HRCC.
There being a total absence of evidence pointing to a fraudulent, illegal or
unfair act committed against HRCC by DBP and PNB under the guise of
NMIC, there is no basis to hold that NMIC was a mere alter ego of DBP
and PNB. As this Court ruled in Ramoso v. Court of Appeals
As a general rule, a corporation will be looked upon as a legal entity,
unless and until sufficient reason to the contrary appears. When the
notion of legal entity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, the law will regard the corporation as an
association of persons. Also, the corporate entity may be disregarded in
the interest of justice in such cases as fraud that may work inequities
among members of the corporation internally, involving no rights of the
public or third persons. In both instances, there must have been fraud,
and proof of it. For the separate juridical personality of a corporation to
be disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.
As regards the third element, in the absence of both control by DBP and
PNB of NMIC and fraud or fundamental unfairness perpetuated by DBP
and PNB through the corporate cover of NMIC, no harm could be said to
have been proximately caused by DBP and PNB on HRCC for which HRCC
could hold DBP and PNB solidarily liable with NMIC.
Posted on April 5, 2013 by Hector M. de Leon Jr. • Posted
in Commercial Law • Tagged corporation, piercing corporate veil
Here are select March 2013 rulings of the Supreme Court of the
Philippines on commercial law:
Corporation; separate personality. A corporation is an artificial entity
created by operation of law. It possesses the right of succession and
such powers, attributes, and properties expressly authorized by law or
incident to its existence. It has a personality separate and distinct from
that of its stockholders and from that of other corporations to which it
may be connected. As a consequence of its status as a distinct legal
entity and as a result of a conscious policy decision to promote capital
formation, a corporation incurs its own liabilities and is legally
responsible for payment of its obligations. In other words, by virtue of
the separate juridical personality of a corporation, the corporate debt
or credit is not the debt or credit of the stockholder. This protection
from liability for shareholders is the principle of limited liability. Phil.
National Bank vs. Hydro Resources Contractors Corp., .G.R. Nos.
167530, 167561, 16760311. March 13, 2013
Corporation; piercing the corporate veil. Equally well-settled is the
principle that the corporate mask may be removed or the corporate
veil pierced when the corporation is just an alter ego of a person or of
another corporation. For reasons of public policy and in the interest of
justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed against
third persons.
However, the rule is that a court should be careful in assessing the
milieu where the doctrine of the corporate veil may be applied.
Otherwise an injustice, although unintended, may result from its
erroneous application. Thus, cutting through the corporate cover
requires an approach characterized by due care and caution:
Hence, any application of the doctrine of piercing the corporate veil
should be done with caution. A court should be mindful of the milieu
where it is to be applied. It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The wrongdoing
must be clearly and convincingly established; it cannot be presumed. x
x x.
Sarona v. National Labor Relations Commission has defined the scope
of application of the doctrine of piercing the corporate veil:
The doctrine of piercing the corporate veil applies only in three (3)
basic areas, namely: 1) defeat of public convenience as when the
corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases,
where a corporation is merely a farce since it is a mere alter ego or
business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.
(Citation omitted.)
Phil. National Bank vs. Hydro Resources Contractors Corp., .G.R. Nos.
167530, 167561, 16760311. March 13, 2013
Corporation; piercing the corporate veil; alter ego theory. In this
connection, case law lays down a three-pronged test to determine the
application of the alter ego theory, which is also known as the
instrumentality theory, namely:
(1) Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will or existence of
its own;
(2) Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of
plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must have proximately
caused the injury or unjust loss complained of.
The first prong is the “instrumentality” or “control” test. This test
requires that the subsidiary be completely under the control and
domination of the parent. It examines the parent corporation’s
relationship with the subsidiary. It inquires whether a subsidiary
corporation is so organized and controlled and its affairs are so
conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate
entity will be ignored. It seeks to establish whether the subsidiary
corporation has no autonomy and the parent corporation, though
acting through the subsidiary in form and appearance, “is operating
the business directly for itself.”
The second prong is the “fraud” test. This test requires that the parent
corporation’s conduct in using the subsidiary corporation be unjust,
fraudulent or wrongful. It examines the relationship of the plaintiff to
the corporation. It recognizes that piercing is appropriate only if the
parent corporation uses the subsidiary in a way that harms the
plaintiff creditor. As such, it requires a showing of “an element of
injustice or fundamental unfairness.”
The third prong is the “harm” test. This test requires the plaintiff to
show that the defendant’s control, exerted in a fraudulent, illegal or
otherwise unfair manner toward it, caused the harm suffered. A causal
connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the
damage incurred by the plaintiff should be established. The plaintiff
must prove that, unless the corporate veil is pierced, it will have been
treated unjustly by the defendant’s exercise of control and improper
use of the corporate form and, thereby, suffer damages.
To summarize, piercing the corporate veil based on the alter ego
theory requires the concurrence of three elements: control of the
corporation by the stockholder or parent corporation, fraud or
fundamental unfairness imposed on the plaintiff, and harm or damage
caused to the plaintiff by the fraudulent or unfair act of the
corporation. The absence of any of these elements prevents piercing
the corporate veil.
This Court finds that none of the tests has been satisfactorily met in
this case.
In applying the 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. With respect to
the control element, it refers not to paper or formal control by
majority or even complete stock control but actual control which
amounts to “such domination of finances, policies and practices that
the controlled corporation has, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal.” In addition,
the control must be shown to have been exercised at the time the acts
complained of took place. Phil. National Bank vs. Hydro Resources
Contractors Corp., .G.R. Nos. 167530, 167561, 16760311. March 13, 2013
Corporation; piercing the corporate veil; ownership of shares. While
ownership by one corporation of all or a great majority of stocks of
another corporation and their interlocking directorates may serve as
indicia of control, by themselves and without more, however,
these circumstances are insufficient to establish an alter ego
relationship or connection between DBP and PNB on the one hand and
NMIC on the other hand, that will justify the puncturing of the latter’s
corporate cover. This Court has declared that “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.” This Court has
likewise ruled that the “existence of interlocking directors, corporate
officers and shareholders is not enough justification to pierce the veil
of corporate fiction in the absence of fraud or other public policy
considerations.” Phil. National Bank vs. Hydro Resources Contractors
Corp., .G.R. Nos. 167530, 167561, 16760311. March 13, 2013
15. Consolidated Bank and Trust Corp. v. CA + L.C. Diaz and
Company (2003) / Carpio
Facts
LC Diaz [professional partnership engaged in accounting] opened a
savings account with Solidbank. LC Diaz's cashier, Macaraya, filled
up two savings deposit slips, and she gave them + passbook to
messenger Calapre and instructed him to deposit the money with
Solidbank. Calapre presented the deposit slips and passbook to the
teller. He left the passbook with Solidbank first as he had to make
another deposit at Allied Bank, but when he returned, he was
informed that somebody got the passbook. Calapre reported this to
Macaraya. Macaraya + Calapre went back to Solidbank with a
deposit slip [P200k check]. When Macaraya asked about the
passbook, the teller said that someone shorter than Calapre got it.
Macaraya reported this matter.
The following day, CEO Diaz called Solidbank to stop any
transaction using the passbook until the company could open a new
account. It was found out that learned that P300k was withdrawn
from the account the previous day. The withdrawal slip bore the
signatures of two authorized signatories of LC Diaz but they denied
signing it. Noel Tamayo received this sum of money.
An information for Estafa through Falsification of Commercial
Document was filed against one of their messengers (Ilagan) and
one Roscoe Verdazola (first time they appeared in the case
discussion), but the RTC dismissed the criminal case. LC Diaz
demanded the return of their money from Solidbank, but the latter
refused and a complaint for recovery of a sum of money was filed
against them. However, Solidbank was absolved.
RTC applied rules on savings account written on the passbook
["Possession of this book shall raise the presumption of ownership
and any payment or payments made by the bank upon
the production of the said book and entry therein of the withdrawal
shall have the same effect as if made to the depositor personally."]
RTC said that the burden of proof shifted to LC Diaz to prove that the
signatures are not forged. Also, they applied the rule that the holder
of the passport is presumed to be the owner. It was also held that
Solidbank did not have any participation in the custody and care of
the passbook and as such, their act of allowing the withdrawal was
not the proximate cause of the loss. The proximate cause was LC
Diaz’ negligence. As regards the contention that LC Diaz and
Solidbank had precautionary procedures (like a secret handshake of
sorts) whenever the former withdrew a large sum, RTC pointed out
that LC Diaz disregarded this in the past withdrawal.
CA, on the other hand, said that the proximate cause of the
unauthorized withdrawal is Solidbank's negligence, applying NCC
2176. CA said the 3 elements of QD are present [damages; fault or
negligence; connection of cause and effect]. The teller could have
called up LC Diaz since the amount being drawn was significant.
Proximate cause is teller's failure to call LC Diaz. CA ruled that
while LC Diaz was negligent in entrusting its deposits to its
messenger and its messenger in leaving the passbook with the teller,
Solidbank could not escape liability because of the doctrine of “last
clear chance.” Solidbank could have averted the injury had it called
up LC Diaz to verify the withdrawal.
RATIO
On Solidbank's fiduciary duty under the law
SC says that Solidbank is liable for breach of K due to negligence
[culpa contractual]. K [savings deposit agreement] between bank and
depositor governed by provisions on simple loan; bank is the debtor
and depositor is the creditor. Banks are under obligation to treat
accounts of depositors with meticulous care [higher than diligence of
a good father of a family standard], bearing in mind the fiduciary
nature of their relationship. The bank's obligation to observe high
standards of integrity and performance is deemed written in every
deposit agreement. However, this nature does not convert K from a
simple loan to a trust agreement (failure by bank to pay depositor is
failure to pay a simple loan only).
Solidbank's breach of K-tual obligation
For breach of the savings deposit agreement due to negligence,
or culpa contractual, the bank is liable to its depositor. When the
passbook is in the possession of Solidbank’s tellers during
withdrawals, the law imposes an even higher degree of diligence.
Likewise, tellers must exercise a high degree of diligence in insuring
that they return the passbook only to the depositor or authorized
representative.
In culpa contractual, once the plaintiff proves a breach of contract,
there is a presumption that the defendant was at fault or negligent.
The burden is on the defendant to prove that he was not at fault
or negligent. In culpa aquiliana, the plaintiff has the burden of
proof. Solidbank failed to discharge this burden, after LC Diaz
establishing the breach of K-tual obligation. Hence, Solidbank is
bound by the negligence of its employees. The defense of exercising
required diligence in selecting, supervising employees is NOT a
complete defense in culpa contractual, unlike in culpa aquiliana.

Proximate cause of unauthorized withdrawal

Solidbank’s negligence in not returning the passbook to
Calapre was the proximate cause. [Definition: cause which, in
natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which the result
would not have occurred.]
RTC said that LC Diaz’ negligence was the proximate cause.
However, SC says LC Diaz was not at fault that the passbook landed
in the hands of the impostor. In fact, it was in the possession of the
bank while the deposit was being processed. CA said that teller's
failure to call LC Diaz was the proximate cause. SC says the bank
did not have the duty to call LC Diaz to confirm withdrawal.

Doctrine of last clear chance

"Where both parties are negligent but the negligent act of one is
appreciably later than that of the other, or where it is impossible to
determine whose fault or negligence caused the loss, the one who
had the last clear opportunity to avoid the loss but failed to do so,
is chargeable with the loss."
SC DOES NOT APPLY IT HERE. Solidbank is liable for breach of
contract due to negligence in the performance of its contractual
obligation to LC Diaz. This is a case of culpa contractual, where
neither the contributory negligence of the plaintiff nor his last
clear chance to avoid the loss, would exonerate the defendant from
liability. Since LC Diaz was guilty of contributory negligence,
Solidbank's liability should be reduced.
16. CHECK FULL CASE
DY-DUMALASA vs FERNANDEZ Case Digest
CARMEN B. DY-DUMALASA v. DOMINGO SABADO S.
FERNANDEZ
593 SCRA 656, (2009)
And as held in Carag v. NLRC:30
To hold a director personally liable for debts of the
corporation, and thus pierce the veil of corporate
fiction, the bad faith or wrongdoing of the director must be
established clearly and convincingly. Bad faith is never
presumed. Bad faith does not connote bad judgment or
negligence. Bad faith imports a dishonest purpose. Bad
faith means breach of a known duty through some ill
motive or interest. Bad faith partakes of the nature of
fraud. (Emphasis and underscoring supplied)cralawlibrary
FACTS: Domingo Fernandez, et al., former employees of Helios
Manufacturing Corporation (HELIOS), filed a complaint for illegal
dismissal or illegal closure of business, non-payment of salaries and
other money claims against HELIOS. The Labor Arbiter found that
the closure of the Muntinlupa office/plant was a sham, as HELIOS
simply relocated its operations to a new plant in Carmona, Cavite
under the new name of ―Pat & Suzara,‖ in response to the newly-
established local union. HELIOS and it Board of Directors and
stockholders were held liable.
The NLRC modified the Labor Arbiter’s Order, holding that Dumalasa
is not jointly and severally liable with HELIOS for Fernandez, et al.’s
claim, there being no showing that she acted in bad faith nor that
HELIOS cannot pay its obligations. Dumalasa moved for
reconsideration, but this was denied, hence, she appealed to the
Court of Appeals.
The appellate court reversed and set aside the NLRC Resolution,
holding that what the NLRC, in effect, modified was not the Order
denying the Motion to Quash the Writ of Execution, but the Labor
Arbiter’s Decision itself. This is an impermissible act since the
Decision has become final and executor; hence, it could no longer be
reversed or modified.
Respecting NLRC’s pronouncement that Dumalasa was not jointly
and severally liable, the appellate court held that the same is a
superfluity since there was no statement, either in the main case or
in the Writ, that the liability is solidary. Therefore, Dumalasa is merely
jointly liable for the judgment award. Dumalasa moved for
reconsideration of the appellate court’s Decision, which was denied.
Hence, this petition.
ISSUES:
1. Whether or not the Labor Arbiter acquired jurisdiction
over Dumalasa
2. Whether or not Dumalasa is solidarily liable with
HELIOS for the judgment award
HELD: Contrary to Dumalasa’s contention, the Labor Arbiter
acquired jurisdiction over her person regardless of the fact that there
was allegedly no valid service of summons. It bears noting that, in
quasi-judicial proceedings, procedural rules governing service of
summons are not strictly construed. Substantial compliance
therewith is sufficient. In the cases at bar, Dumalasa, her husband
and three other relatives, were all individually impleaded in the
complaint. The Labor Arbiter furnished her with notices of the
scheduled hearings and other processes. It is undisputed that
HELIOS, of which she and her therein co-respondents in the subject
cases were the stockholders and managers, was in fact heard, proof
of which is the attendance of her husband, President-General
Manager of HELIOS, together with counsel in one such scheduled
hearing and the Labor Arbiter’s consideration of their position paper
in arriving at the Decision, albeit the same position paper was Decision that she is being held solidarily liable, petitioner is only
belatedly filed. jointly liable.

Clearly, Dumalasa was adequately represented in the proceedings

The Court in fact finds that the present action is actually a last-ditch
conducted by the Labor Arbiter by the lawyer retained by HELIOS.
attempt on the part of Dumalasa to wriggle its way out of her share
in the judgment obligation and to discuss the defenses which she
failed to interpose when given the opportunity. Even as Dumalasa
Taking into account the peculiar circumstances of the cases,
avers that she is not questioning the final and executory Decision of
HELIOS’ knowledge of the pendency thereof and its efforts to resist
the Labor Arbiter and admits liability, albeit only joint, still, she
them are deemed to be knowledge and action of petitioner. That
proceeds to interpose the defenses that jurisdiction was not acquired
Dumalasa and her fellow members of the Board refused to heed the
over her person and that HELIOS has a separate juridical
summons and avail of the opportunity to defend themselves as they
personality.
instead opted to hide behind the corporate veil does not shield them
from the application of labor laws.
As for Dumalasa’s questioning the levy upon her house and lot, she
conveniently omits to mention that the same are actually conjugal
Dumalasa cannot now thus question the implementation of the Writ
property belonging to her and her husband. Whether petitioner is
of Execution on her on the pretext that jurisdiction was not validly
jointly or solidarily liable for the judgment obligation, the levied
acquired over her person or that HELIOS has a separate and distinct
property is not fully absolved from any lien except if it be shown that
personality as a corporate entity. To apply the normal precepts on
it is exempt from execution.
corporate fiction and the technical rules on service of summons
would be to overturn the bias of the Constitution and the laws in favor
of labor.

On Carmen’s liability

A perusal of the Labor Arbiter’s Decision readily shows that,

notwithstanding the finding of bad faith on the part of the
management, the dispositive portion did not expressly mention the
solidary liability of the officers and Board members, including
Dumalasa.

Ineluctably, absent a clear and convincing showing of the bad faith in

effecting the closure of HELIOS that can be individually attributed to
petitioner as an officer thereof, and without the pronouncement in the
17. PANTRANCO EMPLOYEES ASSOCIATION v. NLRC G.R. No. 170689.
March 17, 2009
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)
FACTS:
The Gonzales family owned two corporations, namely, the PNEI and
Macris Realty Corporation (Macris). PNEI provided transportation services
to the public, and had its bus terminal at the corner of Quezon and
Roosevelt Avenues in Quezon City. The terminal stood on four valuable
pieces of real estate (known as Pantranco properties) registered under
the name of Macris. The Gonzales family later incurred huge financial
losses despite attempts of rehabilitation and loan infusion. In March
1975, their creditors took over the management of PNEI and Macris. By
1978, full ownership was transferred to one of their creditors, the
National Investment Development Corporation (NIDC), a subsidiary of the
PNB.
In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a
company owned by Gregorio Araneta III. In 1986, PNEI was among the
several companies placed under sequestration by the Presidential
Commission on Good Government (PCGG) shortly after the historic
events in EDSA. In January 1988, PCGG lifted the sequestration order to
pave the way for the sale of PNEI back to the private sector through the
Asset Privatization Trust (APT). APT thus took over the management of
PNEI.
In 1992, PNEI applied with the Securities and Exchange Commission (SEC)
for suspension of payments. A management committee was thereafter
created which recommended to the SEC the sale of the company through
privatization. As a cost-saving measure, the committee likewise suggested
the retrenchment of several PNEI employees. Eventually, PNEI ceased its
operation. Along with the cessation of business came the various labor
claims commenced by the former employees of PNEI where the latter
obtained favorable decisions.
ISSUE:
Whether or not PNEI employees can attach the properties (specifically
the Pantranco properties) of PNB, PNB-Madecor and Mega Prime to
satisfy their unpaid labor claims against PNEI?
RULING:
NO.
First, the subject property is not owned by the judgment debtor, that is,
PNEI. Nowhere in the records was it shown that PNEI owned the
Pantranco properties.
the settled rule that the power of the court in executing judgments
extends only to properties unquestionably belonging to the judgment
debtor alone. To be sure, one mans goods shall not be sold for another
mans debts. A sheriff is not authorized to attach or levy on property not
belonging to the judgment debtor, and even incurs liability if he
wrongfully levies upon the property of a third person.
Second, PNB, PNB-Madecor and Mega Prime are corporations with
personalities separate and distinct from that of PNEI. PNB is sought to be
held liable because it acquired PNEI through NIDC at the time when PNEI
was suffering financial reverses. PNB-Madecor is being made to answer
for petitioners labor claims as the owner of the subject Pantranco
properties and as a subsidiary of PNB. Mega Prime is also included for
having acquired PNBs shares over PNB-Madecor.

The general rule is that a corporation has a personality separate and

distinct from those of its stockholders and other corporations to which it
may be connected. This is a fiction created by law for convenience and to
prevent injustice. Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI
are corporations with their own personalities.

Neither can we merge the personality of PNEI with PNB simply because
the latter acquired the former. Settled is the rule that 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.

Lastly, while we recognize that there are peculiar circumstances or valid

grounds that may exist to warrant the piercing of the corporate
veil, none applies in the present case whether between PNB and PNEI;
or PNB and PNB-Madecor.
18. Woodchild Holdings v. Roxas Electric G.R. No. 140667, August 12,
2004
Woodchild Holdings v. Roxas Electric
G.R. No. 140667, August 12, 2004
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)
FACTS:
The respondent Roxas Electric and Construction Company, Inc. (RECCI),
formerly the Roxas Electric and Construction Company, was the owner of
two parcels of land. A portion of one Lot which abutted the other Lot was
a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the respondent's Board of
Directors approved a resolution authorizing the corporation, through its
president, Roberto B. Roxas, to sell the Lots, at a price and under such
terms and conditions which he deemed most reasonable and
advantageous to the corporation; and to execute, sign and deliver the
pertinent sales documents and receive the proceeds of the sale for and
on behalf of the company.
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy the Lot on which
it planned to construct its warehouse building, and a portion of the
adjoining lot, so that its 45-foot container van would be able to readily
enter or leave the property.
On September 5, 1991, a Deed of Absolute Sale in favor of WHI was
issued, under which the Lot was sold for P5,000,000, receipt of which
was acknowledged by Roxas under the following terms and conditions:
The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee
the beneficial use of and a right of way from Sumulong Highway to the
property herein conveyed consists of 25 square meters wide to be used
as the latter's egress from and ingress to and an additional 25 square
meters in the corner of Lot No. 491-A-3-B-1, as turning and/or
maneuvering area for Vendee's vehicles.
The Vendor agrees that in the event that the right of way is insufficient
for the Vendee's use (ex entry of a 45-foot container) the Vendor agrees
to sell additional square meters from its current adjacent property to
allow the Vendee full access and full use of the property.
the respondent posits that Roxas was not so authorized under the May
17, 1991 Resolution of its Board of Directors to impose a burden or to
grant a right of way in favor of the petitioner on Lot No. 491-A-3-B-1,
much less convey a portion thereof to the petitioner. Hence, the
respondent was not bound by such provisions contained in the deed of
absolute sale.
ISSUE:
Whether or not the respondent is bound by the provisions in the deed of
absolute sale granting to the petitioner beneficial use and a right of way
over a portion of Lot accessing to the Sumulong Highway and granting the
option to the petitioner to buy a portion thereof, and, if so, whether such
agreement is enforceable against the respondent?
HELD:
 There can be no apparent authority of an agent without acts or conduct
on the part of the principal and such acts or conduct of the principal must
No.
have been known and relied upon in good faith and as a result of the
exercise of reasonable prudence by a third person as claimant and such
must have produced a change of position to its detriment.
Generally, the acts of the corporate officers within the scope of their
authority are binding on the corporation. However, under Article 1910 of
the New Civil Code, acts done by such officers beyond the scope of their
The apparent power of an agent is to be determined by the acts of the
authority cannot bind the corporation unless it has ratified such acts
principal and not by the acts of the agent.
expressly or tacitly, or is estopped from denying them.

Thus, contracts entered into by corporate officers beyond the scope of

authority are unenforceable against the corporation unless ratified by the
corporation.

Evidently, Roxas was not specifically authorized under the said resolution
to grant a right of way in favor of the petitioner on a portion of Lot No.
491-A-3-B-1 or to agree to sell to the petitioner a portion thereof. The
authority of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2
covered by TCT No. 78086 did not include the authority to sell a portion
of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights
thereon. Neither may such authority be implied from the authority
granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner "on such
terms and conditions which he deems most reasonable and
advantageous."

The general rule is that the power of attorney must be pursued within
legal strictures, and the agent can neither go beyond it; nor beside it. The
act done must be legally identical with that authorized to be done.30 In
sum, then, the consent of the respondent to the assailed provisions in the
deed of absolute sale was not obtained; hence, the assailed provisions
are not binding on it.
19. CHECK FULL CASE
20. Rural Bank of Makati vs City of Makati
G.R. No. 150763
Subject: Public Corporation
Doctrine: General Welfare clause (Police Power of Municipality)
Facts:
Upon the request of the municipal treasurer, in August 1990, Atty. Victor
A.L. Valero, then the municipal attorney of the Municipality of Makati,
went to the Rural Bank of Makati to inquire about the bank’s payments of
taxes and fees to the municipality. Petitioner Magdalena V. Landicho,
corporate secretary of the bank, said that the bank was exempt from paying
taxes under Republic Act No. 720, as amended.
On November 19, 1990, the municipality filed complaint with the
Prosecutor’s Office, charging petitioners Esteban S. Silva, president and
general manager of the bank and Magdalena V. Landicho for violation of
Section 21(a), Chapter II, Article 3 in relation to Sections 105 and 169 of
the Metropolitan Tax Code. On April 5, 1991, the municipality submitted
two (2) Information with the MTC against the respondent bank: 1) for non-
payment of the mayor’s permit fee and 2) for non-payment of annual
business tax. While said cases were pending with the municipal court,
respondent municipality ordered the closure of the bank. This prompted
petitioners to pay, under protest, the mayor’s permit fee and the annual
fixed tax in the amount of P82,408.66.
On October 18, 1991, petitioners filed with the RTC a Complaint for Sum
of Money and Damages. Petitioners alleged that they were constrained to
pay the amount of P82,408.66 because of the closure order, issued despite
the pendency of the criminal cases and the lack of any notice or
assessment of the fees to be paid. They averred that the collection of the
taxes/fees was oppressive, arbitrary, unjust and illegal. Additionally, they
alleged that respondent Atty. Valero had no power to enforce laws and
ordinances, thus his action in enforcing the collection of the permit fees
and business taxes was ultra vires.
Respondent municipality asserted that petitioners’ payment of P82,408.66
was for a legal obligation because the payment of the mayor’s permit fee
as well as the municipal business license was required of all business
concerns. According to respondent, said requirement was in furtherance of
the police power of the municipality to regulate businesses.
RTC rules in favor of the municipal of Makati. According to the trial
court, the bank was engaged in business as a rural bank. Hence, it should
secure the necessary permit and business license, as well as pay the
corresponding charges and fees. It found that the municipality had
authority to impose licenses and permit fees on persons engaging in
business, under its police power embodied under the general welfare
clause. Also, the RTC declared unmeritorious petitioners’ claim for
exemption under Rep. Act No. 720 since said exemption had been
withdrawn by Executive Order No. 93 and the Rural Bank Act of 1992.
These statutes no longer exempted rural banks from paying corporate
income taxes and local taxes, fees and charges.
The CA affirmed RTC’s decision in toto. CA also brushed aside
petitioners’ claim that the general welfare clause is limited only to
legislative action. It declared that the exercise of police power by the
municipality was mandated by the general welfare clause, which
authorizes the local government units to enact ordinances, not only to carry
into effect and discharge such duties as are conferred upon them by law,
but also those for the good of the municipality and its inhabitants. This
mandate includes the regulation of useful occupations and enterprises.
Hence the present complaint.
Petitioner bank claims that the closure of the bank was an improper
exercise of police power because a municipal corporation has no inherent
but only delegated police power, which must be exercised not by the
municipal mayor but by the municipal council through the enactment of
ordinances. It also assailed the Court of Appeals for invoking the General
Welfare Clause embodied in Section 16 of the Local Government Code of
1991, which took effect in 1992, when the closure of the bank was actually
done on July 31, 1991.
ISSUE: Whether or not the municipality’s police power covers the power
to tax and the power to order the respondent’s bank closure.
HELD:
Rep. Act No. 720, as amended by Republic Act No. 4106, approved on
July 19, 1964, had exempted rural banks with net assets not exceeding one
million pesos (P1,000,000) from the payment of all taxes, charges and
fees. The records show that as of December 29, 1986, petitioner bank’s net
assets amounted only to P745,432.29. Hence, petitioner bank could claim
to be exempt from payment of all taxes, charges and fees under the
aforementioned provision. However, EO 93 was issued by then President
Aquino, withdrawing all tax and duty incentives with certain exceptions.
Notably, not included among the exceptions were those granted to rural
banks under Rep. Act No. 720. With the passage of said law, petitioner
could no longer claim any exemption from payment of business taxes and
permit fees.
Indeed the Local Government Code of 1991 was not yet in effect when the
municipality ordered petitioner bank’s closure on July 31, 1991. However,
the general welfare clause invoked by the Court of Appeals is not found on
the provisions of said law alone. Even under the old Local Government
Code (Batas Pambansa Blg. 337) which was then in effect, a general
welfare clause was provided for in Section 7 thereof. of a municipal ordinance does not empower a municipal mayor to avail of
Municipal corporations are agencies of the State for the promotion and extrajudicial remedies. It should have observed due process before
maintenance of local self-government and as such are endowed with police ordering the bank’s closure.
powers in order to effectively accomplish and carry out the declared WHEREFORE, the assailed Decision dated July 17, 2001, of the Court of
objects of their creation. The authority of a local government unit to Appeals in CA-G.R. CV No. 58214 is AFFIRMED with
exercise police power under a general welfare clause is not a recent MODIFICATIONS, so that (1) the order denying any claim for refunds
development. This was already provided for as early as the Administrative and fees allegedly overpaid by the bank, as well as the denial of any award
Code of 1917. Thus, the closure of the bank was a valid exercise of police for damages and unrealized profits, is hereby SUSTAINED; (2) the order
power pursuant to the general welfare clause contained in and restated by decreeing the closure of petitioner bank is SET ASIDE; and (3) the award
B.P. Blg. 337, which was then the law governing local government units. of moral damages and attorney’s fees to Atty. Victor A.L. Valero is
No reversible error arises in this instance insofar as the validity of DELETED. No pronouncement as to costs.
respondent municipality’s exercise of police power for the general welfare
is concerned.
The general welfare clause has two branches. The first, known as the
general legislative power, authorizes the municipal council to enact
ordinances and make regulations not repugnant to law, as may be
necessary to carry into effect and discharge the powers and duties
conferred upon the municipal council by law. The second, known as the
police power proper, authorizes the municipality to enact ordinances as
may be necessary and proper for the health and safety, prosperity, morals,
peace, good order, comfort, and convenience of the municipality and its
inhabitants, and for the protection of their property.
In the present case, the ordinances imposing licenses and requiring permits
for any business establishment, for purposes of regulation enacted by the
municipal council of Makati, fall within the purview of the first branch of
the general welfare clause. Moreover, the ordinance of the municipality
imposing the annual business tax is part of the power of taxation vested
upon local governments as provided for under Section 8 of B.P. Blg. 337.
Consequently, the municipal mayor, as chief executive, was clothed with
authority to create a Special Task Force headed by respondent Atty. Victor
A.L. Valero to enforce and implement said ordinances and resolutions and
to file appropriate charges and prosecute violators. Respondent Valero
could hardly be faulted for performing his official duties under the cited
circumstances.
On the issue of the closure of the bank, we find that the bank was not
engaged in any illegal or immoral activities to warrant its outright closure.
The appropriate remedies to enforce payment of delinquent taxes or fees
are provided for in Section 62 of the Local Tax Code. Said Section 62 did
not provide for closure. Moreover, the order of closure violated
petitioner’s right to due process, considering that the records show that the
bank exercised good faith and presented what it thought was a valid and
legal justification for not paying the required taxes and fees. The violation
21. MAMBULAO VS PNB
Facts:
Petitioner Mambulao Lumber applied for an industrial loan with
herein respondent PNB and was approved with its real estate,
machinery and equipments as collateral. PNB released the approved
loan but petitioner failed to pay and was later discovered to have
already stopped in its operation. PNB then moved for the foreclosure
and sale of the mortgaged properties. The properties were sold and
petitioner sent a bank draft to PNB to settle the balance of the
obligation. PNB however alleges that a remaining balance stands
and a foreclosure sale would still be held unless petitioner remits said
amount. The foreclosure sale proceeded and petitioner’s properties
were taken out of its compound. Petitioner filed actions before the
court and claims among others, moral damages.
Issue:
Whether or not petitioner corporation, who has already ceased its
operation, may claim for moral damages.
Ruling: NO.
Herein appellant’s claim for moral damages, however, seems to have
no legal or factual basis. Obviously, an artificial person like herein
appellant corporation cannot experience physical sufferings, mental
anguish, fright, serious anxiety, wounded feelings, moral shock or
social humiliation which are basis of moral damages. A corporation
may have a good reputation which, if besmirched, may also be a
ground for the award of moral damages. The same cannot be
considered under the facts of this case, however, not only because it
is admitted that herein appellant had already ceased in its business
operation at the time of the foreclosure sale of the chattels, but also
for the reason that whatever adverse effects of the foreclosure sale
of the chattels could have upon its reputation or business standing
would undoubtedly be the same whether the sale was conducted at
Jose Panganiban, Camarines Norte, or in Manila which is the place
agreed upon by the parties in the mortgage contract.
Mambulao Lumber Co. vs PNB
GR L-22973
30 January 1968
FACTS: Petitioner (P) applied for industrial loan and granted by
Respondent bank (R). To secure payment of loan, P mortgaged a
parcel of land together with various sawmill equipment, rolling units
and other fixed assets situated therein.
P failed to pay the amortization and the amounts released to and
received by it. Repeated demands were made but upon inspection it
was found that P stopped operation. R sent a letter to R sheriff of
Camarines Norte requesting him to take possession of the parcel of
land and the chattels and to sell them at public auction. R sheriff But for the wrongful acts of herein R bank and the R sheriff of
issued corresponding notice of extrajudicial sale and sent copy to P. Camarines Norte in proceeding with the sale in utter disregard of the
P sent a bank draft for to PNB allegedly full settlement of the agreement to have the chattels sold in Manila as provided for in the
obligation after the application of the sum representing the proceeds mortgage contract, to which their attentions were timely called by
of the foreclosure sale of the parcel of land. P averred that the herein appellant, and in disposing of the chattels in gross for the
foreclosure of chattel mortgage is no longer needed for being fully miserable amount of P4,200.00, herein appellant should be awarded
paid and that it could not be legally effected at a place other than City exemplary damages in the sum of P10,000.00.
of Manila, the place agreed and stipulated in their contract.
R’s counsel wrote to P that the remitted amount was not enough for its
liability to which should be added the expenses for guarding the
mortgaged of chattels, attorney’s fees and expenses of the sale.
Notwithstanding, the foreclosure of both land and the chattels were
held.
ISSUE: Whether P is entitled to moral damages.
DECISION: No. Even if the R bank and R sheriff committed several
infractions/errors, to wit:
1. R sheriff’s actual work performed should be compensated
pursuant to Sec 4 of Act 3135, which is the governing law for
extrajudicial foreclosure and not Sec 7 of Rule 130, which is
applicable for judicial foreclosure;
2. Atty’s fees was found to be excessive and unconscionable;
3. Foreclosure should be conducted in the City of Manila, as agreed
in the contract. Ergo, R is guilty of conversion when he sells under
the mortgage but not in accordance with its terms; and
4. The amount of sale of the chattels is spurious/ grossly unfair to P.
However, P’s claim for moral damages seems to have no legal or
factual basis. Obviously, an artificial person like herein P corporation
cannot experience physical sufferings, mental anguish, fright, serious
anxiety, wounded feelings, moral shock or social humiliation which
are basis of moral damages. A corporation may have a good
reputation which, if besmirched, may also be a ground for the award
of moral damages. The same cannot be considered under the facts of
this case, however, not only because it is admitted that herein
appellant had already ceased in its business operation at the time of
the foreclosure sale of the chattels, but also for the reason that
whatever adverse effects of the foreclosure sale of the chattels could
have upon its reputation or business standing would undoubtedly be
the same whether the sale was conducted at Jose Panganiban,
Camarines Norte, or in Manila which is the place agreed upon by the
parties in the mortgage contract.
22. CHECK FULL CASE- SOLID HOMES VS CA
23. TRADER’S ROYAL BANK v. COURT OF APPEALS G.R. No. L-78412,
September 26, 1989
(Topic: Right to bring action, acquire and possess property --- relate with
Art. 46 of NCC)
FACTS:
On March 30,1982, the Philippine Blooming Mills, Inc. (PBM) and Alfredo
Ching jointly submitted to the Securities and Exchange Commission a
petition for suspension of payments (SEC No. 2250) where Alfredo Ching
was joined as co-petitioner because under the law, he was allegedly
entitled, as surety, to avail of the defenses of PBM and he was expected
to raise most of the stockholders' equity of Pl00 million being required
under the plan for the rehabilitation of PBM. Traders Royal Bank was
included among PBM's creditors named in Schedule A accompanying
PBM's petition for suspension of payments.
On May 13, 1983, the petitioner bank filed Civil Case No. 1028-P in the
Regional Trial Court, Branch CXIII in Pasay City, against PBM and Alfredo
Ching, to collect P22,227,794.05 exclusive of interests, penalties and
other bank charges representing PBM's outstanding obligation to the
bank. Alfredo Ching, a stockholder of PBM, was impleaded as co-
defendant for having signed as a surety for PBM's obligations to the
extent of ten million pesos (Pl0,000,000) under a Deed of Suretyship
dated July 21, 1977.
In its en banc decision in SEC-EB No. 018 (Chung Ka Bio, et al. vs. Hon.
Antonio R. Manabat, et al.), the SEC declared that it had assumed
jurisdiction over petitioner Alfredo Ching pursuant to Section 6, Rule 3 of
the new Rules of Procedure of the SEC providing that "parties in interest
without whom no final determination can be had of an action shall be
joined either as complainant, petitioner or respondent" to prevent
multiplicity of suits.
On July 9, 1982, the SEC issued an Order placing PBM's business, including
its assets and liabilities, under rehabilitation receivership, and ordered
that "all actions for claims listed in Schedule A of the petition pending
before any court or tribunal are hereby suspended in whatever
stage the same may be, until further orders from the Commission"
(p. 22, Rollo). As directed by the SEC, said order was published
once a week for three consecutive weeks in the Bulletin Today,
Philippine Daily Express and Times Journal at the expense of PBM
and Alfredo Ching.
ISSUE:
Whether or not the court a quo could acquire jurisdiction over Ching in
his personal and individual capacity as a surety of PBM in the collection
suit filed by the bank, despite the fact that PBM's obligation to the bank
had been placed under receivership by the SEC?
RULING:
YES.
Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of
PBM, the SEC could not assume jurisdiction over his person and
properties. The Securities and Exchange Commission was empowered, as
rehabilitation receiver, to take custody and control of the assets and
properties of PBM only, for the SEC has jurisdiction over corporations
only not over private individuals, except stockholders in an intra-
corporate dispute (Sec. 5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a
nominal party in SEC Case No. 2250, Ching's properties were not included
in the rehabilitation receivership that the SEC constituted to take custody
of PBM's assets.
Therefore, the petitioner bank was not barred from filing a suit against
Ching, as a surety for PBM. An anomalous situation would arise if
individual sureties for debtor corporations may escape liability by simply
co- filing with the corporation a petition for suspension of payments in
the SEC whose jurisdiction is limited only to corporations and their
corporate assets.
 24. Silverio v. Filipino Business Consultants, Inc.
Silverio v. Filipino Business Consultants, Inc.
(G.R. No. 143312, Aug. 12, 2005)
Carpio, J.:
Facts:
1. Petitioner Silverio, Jr. is the President of two corporations namely
Esses Devt. Corp., and Tristar Farms, Inc.
2. The above-mentioned corporations were in possession of the
Calatagan Property and registered in the names of Esses and Tristar.
3. On Sept. 22, 1995, Esses and Tristar executed a Deed of Sale with
Assumption of Mortgage in favor of Filipino Business Consultants,
Inc. (FBCI). Esses and Tristar failed to redeem the Calatagan
Property.
8. On May 23, 2000, FBCI filed with RTC-Balayan an Urgent Ex-Parte
Motion to Suspend Enforcement of Writ of Possession. FBCI pointed
out that it is now the new owner of Esses and Tristar having
purchased the “substantial and controlling shares of stocks” of the
two corporations.
Issue:
Whether FBCI’s acquisition of shares of stocks of Esses and Tristar
representing a controlling interest of the two corporations would also
give FBCI a proprietary right over the Calatagan Property owned by
both Esses Corp. and Tristar.
Ruling:
No. FBCI’s alleged controlling shareholdings in Esses and Tristar
merely represent a proportionate interest in the properties of the two
corporations. Such controlling shareholdings do not vest FBCI with
any legal right or title to any of Esses and Tristar’s corporate
properties.

4. On May 27, 1997, FBCI filed a Petition for Consolidation of Title of A corporation is a juridical person distinct from the members
the Calatagan Property with RTC-Balayan. composing it. Properties registered in the name of the corporation
are owned by it as an entity separate and distinct from its members.
5. FBCI obtained a judgment by default. Subsequently, two land titles in
the name of Esses and Tristar were cancelled and new land title was
issued in favor of FBCI.

6. On April 20, 1998, RTC-Balayan issued a writ of possession in

FBCI’s favor. The latter then entered the Calatagan Property.

7. When Silverio, Jr., Esses and Tristar learned of the judgment by

default and writ of possession, they filed a petition for relief from
judgment and the recall of the writ of possession. Silverio et. al.
alleged that the judgment by default is void because the RTC-
Balayan did not acquire jurisdiction over them as a result of forged
service of summons on them.
25. BASECO VS. PCGG ET AL DIGEST
Commissioner Mary Concepcion Bautista.

DECEMBER 21, 2016 ~ VBDIAZ

On the strength of the above sequestration order, Mr. Jose M. Balde,
G.R. No. 75885 May 27, 1987
acting for the PCGG, addressed a letter dated April 18, 1986 to the
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO),
President and other officers of petitioner firm, reiterating an earlier
petitioner,
request for the production of certain documents such as Stock
vs.
Transfer Book and other Legal documents (Articles of Incorporation,
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,
By-Laws, etc.)
CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY
CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ,
Orders were also issued in connection with the sequestration and
COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S.
takeover, such as termination of Contract for Security Services and
DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
abortion of contract for Improvement of Wharf at Engineer Island;
Change of Mode of Payment of Entry Charges; Operation of Sesiman
FACTS
Rock Quarry, Mariveles, Bataa; disposal of scrap, etc.; and the
provisional takeover by the PCGG of BASECO, “the Philippine
Challenged in this special civil action of certiorari and prohibition by a
Dockyard Corporation and all their affiliated companies.”
private corporation known as the Bataan Shipyard and Engineering
Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by
While BASECO concedes that “sequestration without resorting to
President Corazon C. Aquino on February 28, 1986 and March 12,
judicial action, might be made within the context of Executive Orders
1986, respectively, and (2) the sequestration, takeover, and other
Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution
orders issued, and acts done, in accordance with said executive orders
was promulgated, under the principle that the law promulgated by the
by the Presidential Commission on Good Government and/or its
ruler under a revolutionary regime is the law of the land, it ceased to
Commissioners and agents, affecting said corporation.
be acceptable when the same ruler opted to promulgate the Freedom
Constitution on March 25, 1986 wherein under Section I of the same,y
The sequestration order which, in the view of the petitioner
Article IV (Bill of Rights) of the 1973 Constitution was adopted
corporation, initiated all its misery was issued on April 14, 1986 by
providing, among others, that “No person shall be deprived of life,
liberty and property without due process of law.” (Const., Art. I V, Sec.
1).”
It declares that its objection to the constitutionality of the Executive
Orders “as well as the Sequestration Order * * and Takeover Order * *
issued purportedly under the authority of said Executive Orders, rests
on four fundamental considerations: First, no notice and hearing was
accorded * * (it) before its properties and business were taken over;
Second, the PCGG is not a court, but a purely investigative agency and
therefore not competent to act as prosecutor and judge in the same
cause; Third, there is nothing in the issuances which envisions any
proceeding, process or remedy by which petitioner may expeditiously
challenge the validity of the takeover after the same has been effected;
and Fourthly, being directed against specified persons, and in
disregard of the constitutional presumption of innocence and general
rules and procedures, they constitute a Bill of Attainder.”
It argues that the order to produce corporate records from 1973 to
1986, which it has apparently already complied with, was issued
without court authority and infringed its constitutional right against
self-incrimination, and unreasonable search and seizure. 14
BASECO further contends that the PCGG had unduly interfered with its
right of dominion and management of its business affairs.
ISSUE
Whether or not the sequestration order dated April 14, 1986, and all
other orders subsequently issued and acts done on the basis thereof,
inclusive of the takeover order of July 14, 1986 and the termination of
the services of the BASECO executives are valid;
DECISION
Yes. The petition cannot succeed. The writs of certiorari and
prohibition prayed for will not be issued. Other evidence submitted to
the Court by the Solicitor General proves that President Marcos not
only exercised control over BASECO, but also that he actually owns
well nigh one hundred percent of its outstanding stock.
Executive Orders Not a Bill of Attainder – In the first place, nothing in
the executive orders can be reasonably construed as a determination
or declaration of guilt. On the contrary, the executive orders, inclusive
of Executive Order No. 14, make it perfectly clear that any judgment of
guilt in the amassing or acquisition of “ill-gotten wealth” is to be
handed down by a judicial tribunal, in this case, the Sandiganbayan,
upon complaint filed and prosecuted by the PCGG. In the second place,
no punishment is inflicted by the executive orders, as the merest
glance at their provisions will immediately make apparent. In no
sense, therefore, may the executive orders be regarded as a bill of
attainder.
No Violation of Right against Self-Incrimination and Unreasonable
Searches and Seizures – It is elementary that the right against self-
incrimination has no application to juridical persons. While an
individual may lawfully refuse to answer incriminating questions
unless protected by an immunity statute, it does not follow that a
corporation, vested with special privileges and franchises, may refuse
to show its hand when charged with an abuse ofsuchprivileges * *
Scope and Extent of Powers of the PCGG – PCGG cannot exercise acts
of dominion over property sequestered, frozen or provisionally taken
over. AS already earlier stressed with no little insistence, the act of
sequestration; freezing or provisional takeover of property does not
import or bring about a divestment of title over said property; does
not make the PCGG the owner thereof.
The PCGG may thus exercise only powers of administration over the
property or business sequestered or provisionally taken over, much
like a court-appointed receiver, such as to bring and defend actions in
its own name; receive rents; collect debts due; pay outstanding debts;
and generally do such other acts and things as may be necessary to
fulfill its mission as conservator and administrator.
Powers over Business Enterprises Taken Over by Marcos or Entities
or Persons Close to him; Limitations Thereon – Now, in the special
instance of a business enterprise shown by evidence to have been
“taken over by the government of the Marcos Administration or by
entities or persons close to former President Marcos,” the PCGG is
given power and authority, as already adverted to, to “provisionally
take (it) over in the public interest or to prevent * * (its) disposal or
dissipation;” and since the term is obviously employed in reference to
going concerns, or business enterprises in operation, something more
than mere physical custody is connoted; the PCGG may in this case
exercise some measure of control in the operation, running, or
management of the business itself. But even in this special situation,
the intrusion into management should be restricted to the minimum
degree necessary to accomplish the legislative will, which is “to
prevent the disposal or dissipation” of the business enterprise.
Voting of Sequestered Stock; Conditions Therefor – So, too, it is within
the parameters of these conditions and circumstances that the PCGG
may properly exercise the prerogative to vote sequestered stock of
corporations, granted to it by the President of the Philippines through
a Memorandum dated June 26, 1986. In the case at bar, there was
adequate justification to vote the incumbent directors out of office and
elect others in their stead because the evidence showed prima facie
that the former were just tools of President Marcos and were no
longer owners of any stock in the firm, if they ever were at all.
No Sufficient Showing of Other Irregularities -As to the other
irregularities complained of by BASECO, i.e., the cancellation or
revision, and the execution of certain contracts, inclusive of the
termination of the employment of some of its executives, this Court

cannot, in the present state of the evidence on record, pass upon them.
It is not necessary to do so. The issues arising therefrom may and will
be left for initial determination in the appropriate action.
WHEREFORE, the petition is dismissed. The temporary restraining
order issued on October 14, 1986 is lifted.
Share this:
Consti II case digest: BATAAN SHIPYARD & ENGINEERING CO.,
INC. (BASECO), petitioner, vs. PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT.
Facts:
Challenged in this special civil action of certiorari and prohibition by
a private corporation known as the Bataan Shipyard and
Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2,
promulgated by President Corazon C. Aquino on February 28, 1986
and March 12, 1986, respectively, and (2) the sequestration,
takeover, and other orders issued, and acts done, in accordance
with said executive orders by the Presidential Commission on Good
Government and/or its Commissioners and agents, affecting said
corporation.
The PCGG was tasked to sequester the BASECO thru Executive
Orders 1 and 2 of President Cory Aquino.
The PCGG was able to take over the BASECO and terminate its
executive employees and requested to have the following
documents of the said company. Such as (Stock transfer book,
Legal documents, Minutes of the meetings, Financial statements,
and the likes)
Petitioner contends that he cannot produce the said documents due
to it is an infringement of its right against self incrimination.
ISSUE:
WON documents ask in by PCGG would vitiate their right against
self incrimination.
RULING:
BASECO also contends that its right against self incrimination and
unreasonable searches and seizures had been transgressed by the
Order of April 18, 1986 which required it "to produce corporate
records from 1973 to 1986 under pain of contempt of the
Commission if it fails to do so." The order was issued upon the
authority of Section 3 (e) of Executive Order No. 1, treating of the
PCGG's power to "issue subpoenas requiring * * the production of
such books, papers, contracts, records, statements of accounts and
other documents as may be material to the investigation conducted
by the Commission, " and paragraph (3), Executive Order No. 2
dealing with its power to "require all persons in the Philippines
holding * * (alleged "ill-gotten") assets or properties, whether
located in the Philippines or abroad, in their names as nominees,
agents or trustees, to make full disclosure of the same * *." The
contention lacks merit.
it is elementary that the right against self-incrimination has no
application to juridical persons.
While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not
follow that a corporation, vested with special privileges and
franchises, may refuse to show its hand when charged with an
abuse ofsuchprivileges
At any rate, Executive Order No. 14-A, amending Section 4 of
Executive Order No. 14 assures protection to individuals required to
produce evidence before the PCGG against any possible violation
of his right against self-incrimination. It gives them immunity from
prosecution on the basis of testimony or information he is
compelled to present. As amended, said Section 4 now provides
that —
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of
his privilege against self-incrimination; but no testimony or other
information compelled under the order (or any information directly
or indirectly derived from such testimony, or other information) may
be used against the witness in any criminal case, except a
prosecution for perjury, giving a false statement, or otherwise failing
to comply with the order.
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional
protections which private individuals have. * * They are not at all
within the privilege against self-incrimination, although this court
more than once has said that the privilege runs very closely with the
4th Amendment's Search and Seizure provisions.It is also settled
that an officer of the company cannot refuse to produce its records
in its possession upon the plea that they will either incriminate him
or may incriminate it." (Oklahoma Press Publishing Co. v. Walling,
327 U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be
incorporated for the benefit of the public. It received certain special
privileges and franchises, and holds them subject to the laws of the
state and the limitations of its charter. Its powers are limited by law.
It can make no contract not authorized by its charter. Its rights to act
as a corporation are only preserved to it so long as it obeys the
laws of its creation. There is a reserve right in the legislature to
investigate its contracts and find out whether it has exceeded its
powers. It would be a strange anomaly to hold that a state, having
chartered a corporation to make use of certain franchises, could
not, in the exercise of sovereignty, inquire how these franchises had
been employed, and whether they had been abused, and demand
the production of the corporate books and papers for that purpose.
The defense amounts to this, that an officer of the corporation
which is charged with a criminal violation of the statute may plead
the criminality of such corporation as a refusal to produce its books.
To state this proposition is to answer it. While an individual may
lawfully refuse to answer incriminating questions unless protected
by an immunity statute, it does not follow that a corporation, vested
with special privileges and franchises may refuse to show its hand
when charged with an abuse of such privileges.

The constitutional safeguard against unreasonable searches and

seizures finds no application to the case at bar either. There has
been no search undertaken by any agent or representative of the
PCGG, and of course no seizure on the occasion thereof.
26. FULL CASE
[G.R. NO. 149237 : June 11, 2006]
CHINA BANKING CORPORATION, Petitioner, v. DYNE-
SEM ELECTRONICS CORPORATION, Respondent.
DECISION
CORONA, J.:
On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and
Elpidio O. Lim borrowed a total of P8,939,000 from
petitioner China Banking Corporation. The loan was
evidenced by six promissory notes.1
The borrowers failed to pay when the obligations became
due. Petitioner consequently instituted a complaint for sum
of money2 on June 25, 1987 against them. The complaint
sought payment of the unpaid promissory notes plus
interest and penalties.
Summons was not served on Dynetics, however, because it
had already closed down. Lim, on the other hand, filed his
answer on December 15, 1987 denying that "he promised
to pay [the obligations] jointly and severally to
[petitioner]."3
On January 7, 1988, the case was scheduled for pre-trial
with respect to Lim. The case against Dynetics was
archived.
On September 23, 1988, an amended complaint4 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;
'[t]he 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;
'[r]espondent acquired some of the machineries and
equipment of Dynetics, Inc. from banks which acquired the
same through foreclosure;
'[r]espondent retained some of the officers of Dynetics,
Inc.5
xxx xxx xxx
On December 28, 1988, respondent filed its answer,
alleging that:
5.1 [t]he 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;
5.2 [n]ot one of the directors of [respondent] is, or has
ever been, a director, officer, or stockholder of Dynetics,
Inc.;
5.3 [t]he 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;
5.4 [respondent] acquired most of its present machineries
and equipment as second-hand items to keep costs down;
5.5 [t]he 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;
5.6 [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] in June 1986.6
On February 28, 1989, the trial court issued an order
archiving the case as to Chuidian, Garcia and Ratinoff since
summons had remained unserved.
After hearing, the court a quo rendered a decision on
December 27, 1991 which read:
xxx [T]he Court rules that Dyne-Sem Electronics
Corporation is not an alter ego of Dynetics, Inc. Thus,
Dyne-Sem Electronics Corporation is not liable under the
promissory notes.
xxx xxx xxx
WHEREFORE, judgment is hereby rendered ordering
Dynetics, Inc. and Elpidio O. Lim, jointly and severally, to
pay plaintiff.
xxx xxx xxx
Anent the complaint against Dyne-Sem and the latter's
counterclaim, both are hereby dismissed, without costs.
SO ORDERED.7
From this adverse decision, petitioner appealed to the
Court of Appeals8 but the appellate court dismissed the
appeal and affirmed the trial court's decision.9 It found that
respondent was indeed not an alter ego of Dynetics. The
two corporations had different articles of incorporation.
Contrary to petitioner's claim, no merger or absorption
took place between the two. What transpired was a mere
sale of the assets of Dynetics to respondent. The appellate
court denied petitioner's motion for reconsideration.10
Hence, this Petition for Review 11
with the following
assigned errors:
VI.
Issues
What is the quantum of evidence needed for the trial court
to determine if the veil of corporat[e] fiction should be
pierced?cralawlibrary
[W]hether or not the Regional Trial Court of Manila Branch
15 in its Decision dated December 27, 1991 and the Court
of Appeals in its Decision dated February 28, 2001 and
Resolution dated July 27, 2001, which affirmed en
toto [Branch 15, Manila Regional Trial Court's decision,]
have ruled in accordance with law and/or applicable
[jurisprudence] to the extent that the Doctrine of Piercing
the Veil of Corporat[e] Fiction is not applicable in the case
at bar?12
We find no merit in the petition.
The question of whether one corporation is merely an alter
ego of another is purely one of fact. So is the question of
whether a corporation is a paper company, a sham or
subterfuge or whether petitioner adduced the requisite
quantum of evidence warranting the piercing of the veil of
respondent's corporate entity. This Court is not a trier of
facts. Findings of fact of the Court of Appeals, affirming
those of the trial court, are final and conclusive. The
jurisdiction of this Court in a Petition for Review
on Certiorari is limited to reviewing only errors of law, not
of fact, unless it is shown, inter alia, that: (a) the
conclusion is grounded entirely on speculations, surmises
and conjectures; (b) the inference is manifestly mistaken,
absurd and impossible; (c) there is grave abuse of
discretion; (d) the judgment is based on a misapplication
of facts; (e) the findings of fact of the trial court and the
appellate court are contradicted by the evidence on record
and (f) the Court of Appeals went beyond the issues of the
case and its findings are contrary to the admissions of both
parties.13
We have reviewed the records and found that the factual
findings of the trial and appellate courts and consequently
their conclusions were supported by the evidence on
record.
The general rule is that a corporation has a personality
separate and distinct from that of its stockholders and
other corporations to which it may be connected.14 This is a
fiction created by law for convenience and to prevent
injustice.15
Nevertheless, being a mere fiction of law, peculiar
situations or valid grounds may exist to warrant the
disregard of its independent being and the piercing of the
corporate veil.16 In Martinez v. Court of Appeals,17 we held:
The veil of separate corporate personality may be lifted
when such personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime;
or used as a shield to confuse the legitimate issues; or
when the corporation is merely an adjunct, a business
conduit or an alter ego of another corporation or where the
corporation is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation; or when
the corporation is used as a cloak or cover for fraud or
illegality, or to work injustice, or where necessary to
achieve equity or for the protection of the creditors. In
such cases, the corporation will be considered as a mere
association of persons. The liability will directly attach to
the stockholders or to the other corporation.
To disregard the separate juridical personality of a
corporation, the wrongdoing must be proven clearly and
convincingly.18
In this case, petitioner failed to prove that Dyne-Sem was
organized and controlled, and its affairs conducted, in a
manner that made it merely an instrumentality, agency,
conduit or adjunct of Dynetics, or that it was established to
defraud Dynetics' creditors, including petitioner.
The similarity of business of the two corporations did not
warrant a conclusion that respondent was but a conduit of
Dynetics. As we held in Umali v. Court of Appeals,19 "the
mere fact that the businesses of two or more corporations
are interrelated is not a justification for disregarding their
separate personalities, absent sufficient showing that the
corporate entity was purposely used as a shield to defraud
creditors and third persons of their rights."
Likewise, respondent's acquisition of some of the
machineries and equipment of Dynetics was not proof that
respondent was formed to defraud petitioner. As the Court
of Appeals found, no merger20 took place between Dynetics
and respondent Dyne-Sem. What took place was a sale of
the assets21 of the former to the latter. Merger is legally
distinct from a sale of assets.22 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.

Petitioner itself admits that respondent acquired the

machineries and equipment not directly from Dynetics but
from the various corporations which successfully bidded for
them in an auction sale. The contracts of sale executed
between the winning bidders and respondent showed that
the assets were sold for considerable amounts.23 The Court
of Appeals thus correctly ruled that the assets were not
"diverted" to respondent as an alter ego of Dynetics.24 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.

Finally, it may be true that respondent later hired Dynetics'

former Vice-President Luvinia Maglaya and Assistant
Corporate Counsel Virgilio Gesmundo. From this, however,
we cannot conclude that respondent was an alter ego of
Dynetics. In fact, 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.25 Much more has to be
proven.

Premises considered, no factual and legal basis exists to

hold respondent Dyne-Sem liable for the obligations of
Dynetics to petitioner.

WHEREFORE, the petition is hereby DENIED.The assailed

Court of Appeals' decision and resolution in CA-G.R. CV No.
40672 are hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.
 27. MEL V. VELARDE v. LOPEZ, INC.
419 SCRA 422, 14 January 2004, THIRD DIVISION
Lopez Inc., granted a loan to Mel V. Velarde (Mel), the General
Manager of Sky Vision which is a subsidiary company owned by
Lopez Inc. However, Mel was not able to pay the loan and Lopez Inc.
proposed that he may use his retirement benefits to partially settle
his loan, but because of disagreement on the amount of his
retirement benefits, Mel refused the proposal which led Lopez Inc.
to file a complaint for the claim of the payment with interest. On his
answer, Mel claims that the loan was only a ”cover document” and
that it was really a reward for his loyalty and excellent performance
in the company and counterclaimed that he was entitled to a much
larger amount of retirement benefits than what Lopez Inc., was
alleging.
Lopez Inc., petitioned to dismiss the case for lack of jurisdiction
which drew MEL to assert that the veil of corporate fiction must be
pierced to hold Lopez Inc., liable for his counterclaims. The Regional
Trial Court denied the motion to dismiss and the motion for
reconsideration. Lopez Inc., then filed a petition for certiorari to the
Court of Appeals which held that Lopez Inc., is not a real party-in-
interest on the counterclaim and that there was a failure to show the
presence of any of the circumstances to justify the application of the
principle of ”piercing the veil of corporate fiction.”
ISSUE:
Whether or not Mel Velarde, on a complaint for collection of sum
of money can raise a counterclaim for retirement benefits, unpaid
salaries and incentives arising from services rendered by him in a
subsidiary company of Lopez Inc.
HELD:
While Mel Velarde correctly invokes the ruling in Atienza v. Court
of Appeals to postulate that not every denial of a motion to dismiss
can be corrected by certiorari under Rule 65 and that, as a general
rule, the remedy from such denial is to appeal in due course after a
decision has been rendered on the merits, there are exceptions
thereto, as when the court in denying the motion to dismiss acted
without or in excess of jurisdiction or with patent grave abuse of
discretion, or when the assailed interlocutory order is patently
erroneous and the remedy of appeal would not afford adequate and
expeditious relief, or when the ground for the motion to dismiss is
improper venue, res judicata, or lack of jurisdiction as in the case at
bar.
In determining which has jurisdiction over a case, the averments of
the complaint “counterclaim” taken as a whole are considered.
With regards to Mel Velarde‘s claim for unpaid salaries, unpaid share
in net income, reasonable return on the stock ownership plan and
other benefits for services rendered to Sky Vision, jurisdiction
thereon pertains to the Securities and Exchange Commission even if
the complaint by a corporate officer includes money claims since
such claims are actually part of the prerequisite of his position and,
therefore interlinked with his relations with the corporation. The
question of remunerations involving a person who is not a mere
employee but a stockholder and officer of the corporation is not a
simple labor problem but a matter that comes within the area
of corporate affairs and management as is in fact
a corporate controversy in contemplation of the Corporation Code.
Mel Velarde argues nevertheless that jurisdiction over the subsidiary
is justified by piercing the veil of corporate fiction. Piercing the veil
of corporate fiction is warranted, however, only in cases when the
separate legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, such that in the case of
two corporations, the law will regard the corporations as merged into
one.
MEL V. VELARDE, petitioner,
vs.
LOPEZ, INC., respondent.
FACTS: On January 6, 1997, Eugenio Lopez Jr., then President of
respondent Lopez, Inc., as LENDER, and petitioner Mel Velarde, then
General Manager of Sky Vision Corporation (Sky Vision), a subsidiary
of respondent, as BORROWER, forged a notarized loan agreement
covering the amount of ten million (P10,000,000.00) pesos. The
agreement expressly provided for, among other things, the manner of
payment and the circumstances constituting default which would give
the lender the right to declare the loan together with accrued interest
immediately due and payable.
petitioner failed to pay the installments as they became due,
respondent, apparently in answer to a proposal of petitioner
respecting the settlement of the loan, advised him by letter dated July
15, 1998 that he may use his retirement benefits in Sky Vision in
partial settlement of his loan after he settles his accountabilities to the
latter and gives his written instructions to it (Sky Vision).
Petitioner protested the computation in the said letter.
Respondent filed a complaint for collection of sum of money with
damages at RTC Pasig. against petitioner, alleging that petitioner
violated the above-quoted Section 6 of the loan agreement as he failed
to put up the needed collateral for the loan and pay the installments as
they became due, and that despite his receipt of letters of demand
dated December 1, 19977 and January 13, 1998,8he refused to pay.
In his answer, petitioner alleged that the loan agreement did not
reflect his true agreement with respondent, it being merely a “cover
document” to evidence the reward to him of ten million pesos
(P10,000,000.00) for his loyalty and excellent performance as General
Manager of Sky Vision…
Petitioner thus prayed for the dismissal of the complaint and the
award of the following sums of money in the form of compulsory
counterclaims:
1. P103,020,000.00, PLUS the value of Defendant’s stock options and
unpaid share from the net income with Plaintiff corporation (to be
computed) as actual damages;
2. P15,000,000.00, as moral damages; and
3. P1,500,000.00, as attorney’s fees plus appearance fees and the
costs of suit.
*Remedial: Respondent filed a manifestation and a motion to dismiss
the counterclaim for want of jurisdiction. RTC of Pasig denied
respondent’s motion to dismiss the counterclaim on the following
premises: A counterclaim being essentially a complaint, the principle
that a motion to dismiss hypothetically admits the allegations of the
complaint is applicable; the counterclaim is compulsory, hence, within
its jurisdiction; and there is identity of interest between respondent
and Sky Vision to merit the piercing of the veil of corporate fiction. MR
denied. Petition for certiorari at the Court of Appeals which held that
respondent is not the real party-in-interest on the counterclaim and
that there was failure to show the presence of any of the
circumstances to justify the application of the principle of “piercing
the veil of corporate fiction.” The Orders of the trial court were thus
set aside and the counterclaims of petitioner were accordingly
dismissed. Petitioner’s MR denied. Hence, this Petition for Review.
ISSUE: whether the defendant in a complaint for collection of sum of
money can raise a counterclaim for retirement benefits, unpaid
salaries and incentives, and other benefits arising from services
rendered by him in a subsidiary of the plaintiff corporation.
HELD: NO. Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the
Securities Regulation Code) applies to a corporate officer’s dismissal.
For a corporate officer’s dismissal is always a corporate act and/or an
intra-corporate controversy and that its nature is not altered by the
reason or wisdom which the Board of Directors may have in taking
such action.24
With regard to petitioner’s claim for unpaid salaries, unpaid share in
net income, reasonable return on the stock ownership plan and other
benefits for services rendered to Sky Vision, jurisdiction thereon
pertains to the Securities Exchange Commission even if the complaint
by a corporate officer includes money claims since such claims are
actually part of the prerequisite of his position and, therefore,
interlinked with his relations with the corporation.25 The question
of remuneration involving a person who is not a mere
employee but a stockholder and officer of the corporation
is not a simple labor problem but a matter that comes
within the area of corporate affairs and management, and
is in fact a corporate controversy in contemplation of the
Corporation Code.
But even if the subject matter of the counterclaims is now cognizable
by RTCs, the filing thereof against respondent is improper, it not being
the real party-in-interest, for it is petitioner’s employer Sky Vision,
respondent’s subsidiary.
It cannot be gainsaid that a subsidiary has an independent and
separate juridical personality, distinct from that of its parent
company, hence, any claim or suit against the latter does not bind the
former and vice versa.
Petitioner argues nevertheless that jurisdiction over the subsidiary is
justified by piercing the veil of corporate fiction. Nowhere, however, in
the pleadings and other records of the case can it be gathered that
respondent has complete control over Sky Vision, not only of finances
but of policy and business practice in respect to the transaction
attacked, so that Sky Vision had at the time of the transaction no
separate mind, will or existence of its own. The existence of
interlocking directors, corporate officers and shareholders is not
enough justification to pierce the veil of corporate fiction in the
absence of fraud or other public policy considerations.
This Court is thus not convinced that the real party-in-
interest with regard to the counterclaim for damages
arising from the alleged tortuous manner by which
petitioner was forced to retire as General Manager of Sky
Vision is respondent.

Moreover, effect a set-off, it is a condition sine qua non that the

approval thereof by “Sky/Central” must be obtained, and that
petitioner liquidate his advances from Sky Vision. These conditions
hardly manifest that respondent possessed that degree of control over
Sky Vision as to make the latter its mere instrumentality, agency or
adjunct.
PETITION DENIED.