A.

DEFINITION AND ATTRIBUTES OF A CORPORATION

1.Statutory definition (Sec. 2)

2.Attributes

2.1. Artificial being

2.1.1 Doctrine of corporate entity (separate personality)

Stradcom Corporation v. Orpilla, G.R. No. 206800, July 2, 2018

Topic: Separate Personality

Doctrine: It is well-settled that a corporation has its own legal personality separate and distinct
from those of its stockholders, directors or officers. Absence of any evidence that a corporate
officer and/or director has exceeded their authority, or their acts are tainted with malice or bad
faith, they cannot be held personally liable for their official acts.

Statement of facts: Respondent Joyce Anabelle L. Orpilla was employed by Stradcom as

Human Resources Administration Department Head (HRAD), under a probationary status for six
months. Her duties included administrative and training matters. Jose Chua, the President and
Chief Executive Officer (CEO) of Stradcom, issued a Memorandum announcing the
reorganization of the HRAD and efect of which was the respondent and training section will be
reporting directly to COO.
Respondent inquired from Chua as to her status in the light of the said reorganization. Chua, on
the other hand, replied that the management has lost its trust and confidence in her and it would
be better if she resigned. Respondent protested the resignation and insisted that if there were
charges against her, she was open for formal investigation. Chua, however, was not able to come
up with any charges.
Respondent reported for work but the guards refused her entry and advised her to take a leave of
absence. Likewise, respondent claimed that she was informed by Accounting Manager that her
salary was already deposited in her bank account which included the proportionate 13th month
pay for the year 2003 and was her last and final pay. After such, respondent no longer received
any kind of payment from petitioners. Respondent claimed that she was constructively dismissed
and turned into an actual dismissal on when she received her last pay.
Hence, respondent filed a complaint for constructive dismissal with monetary claims of back
wages, attorney's fees and damages.

Petitioner’s Version
Respondent was instructed to commence preparations for Stradcom's 2002 Christmas party. But
respondent was strip of any responsibility because she was not comfortable with the idea to
include Lares (an affiliate of Stradcom) in the Christmas party. Later, they were surprised to find
out the over pricing food, the price of the food was actually ₱200 per head and not ₱250 per
head, as represented by respondent. Suspicious about the correct pricing, it began its
investigation and found out respondent’s moonlighting or using company resources for purposes
not related to the affairs of the company.
Considering her position is one that requires the trust and confidence of the management, it
would be difficult to force herself on the management. Thus, respondent conveyed her
willingness to resign. In view of this, Stradcom's officers agreed that any formal investigation on
respondent was unnecessary in view of her willingness to resign

Issue: WON petitioner Chua, as corporate officer, may be held jointly and severally liable with
co-petitioner Stradcom for the payment of whatever monetary award in favor of the respondent?

Held: No. It is well-settled that a corporation has its own legal personality separate and distinct
from those of its stockholders, directors or officers. Absence of any evidence that a corporate
officer and/or director has exceeded their authority, or their acts are tainted with malice or bad
faith, they cannot be held personally liable for their official acts.
Here, there was neither any proof that Chua acted without or in excess of his authority nor was
motivated by personal ill-will towards respondent to be solidarily liable with the company.
Appellant Chua's acts were official acts, done in his capacity as an officer of appellant
corporation on its behalf. There is no showing of any act, or that he acted without or in excess of
his authority or was motivated by personal ill-will toward appellee. Stated simply, appellant
Chua was merely doing his job. In fact, he even tried to save appelle from undue embarrassment.

Bustos v. Millians Shoe, Inc., G.R. No. 185024, April 4, 2017

Doctrine: The general doctrine of separate juridical personality, which provides that a
corporation has a legal personality separate and distinct from that of people comprising it. By
virtue of that doctrine, stockholders of a corporation enjoy the principle of limited liability: the
corporate debt is not the debt of the stockholder. Thus, being an officer or a stockholder of a
corporation does not make one's property the property also of the corporation.

Statement of facts: Spouses Fernando and Amelia Cruz owned a lot which the City Government
of Marikina levied the property for nonpayment of real estate taxes. The Notice of Levy was
annotated on the title. The City Treasurer of Marikina auctioned off the property, with petitioner
Joselito Hernand M. Bustos emerging as the winning bidder.
The Regional Trial Court, Marikina City rendered a final and executory Decision ordering the
cancellation of the previous title and the issuance of a new one under the name of petitioner.
Meanwhile, notices of lis pendens were annotated on the title. These markings indicated that the
property was covered and included it in the Stay Order issued by the RTC as part of the
rehabilitation proceeding of Millians Shoe Inc (MSI) which the spouses is an officers and
stockholders.
Petitioner moved for the exclusion of the subject property from the Stay Order. He claimed that
the lot belonged to Spouses Cruz who were mere stockholders and officers of MSI. He further
argued that since he had won the bidding of the property before the annotation of the title the
auctioned property could no longer be part of the Stay Order. RTC denied its petition.
CA ruled that in a close corporation, the stockholders and/or officers usually manage the business
of the corporation and are subject to all liabilities of directors, i.e. personally liable for corporate
debts and obligations. Thus, the Cruz Spouses being stockholders of MSI are personally liable
for the latter's debt and obligations.

Issue: WON properties of Spouses Cruz as officers and stockholders answerable for the
obligations of MSI?

Held: No. Applying the doctrine of separate juridical personality, we ruled that the parcels of
land of the spouses could not be considered part of the corporate assets that could be subjected to
rehabilitation proceedings. In rehabilitation proceedings, properties merely owned by
stockholders cannot be included in the inventory of assets of a corporation under rehabilitation.
Stay orders should only cover those claims directed against corporations or their properties,
against their guarantors, or their sureties who are not solidarily liable with them, to the exclusion
of accommodation mortgagors.
Given that the true owner the subject property is not the corporation, petitioner cannot be
considered a creditor of MSI but a holder of a claim against respondent spouses.

Secosa, et al. v. Heirs of Erwin Suarez Francisco, G.R. No. 160039, June 29, 2004, 433 SCRA
273

Doctrine: The so-called veil of corporation fiction treats as separate and distinct the affairs of a
corporation and its officers and stockholders.
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.

Statement of facts: Erwin Suarez Francisco, an eighteen year old third year physical therapy
student of the Manila Central University, was riding a motorcycle along Radial 10 Avenue.
Traveling behind the motorcycle driven by Francisco was a sand and gravel truck, which in turn
was being tailed by the Isuzu truck driven by Secosa. The three vehicles were traversing the
southbound lane at a fairly high speed. When Secosa overtook the sand and gravel truck, he
bumped the motorcycle causing Francisco to fall. The rear wheels of the Isuzu truck then ran
over Francisco, which resulted in his instantaneous death. Fearing for his life, petitioner Secosa
left his truck and fled the scene of the collision. The truck was owned by petitioner, Dassad
Warehousing and Port Services, Inc.
Respondents, the parents of Erwin Francisco, thus filed an action for damages against Raymond
Odani Secosa, Dassad Warehousing and Port Services, Inc. and Dassads president, El
Buenasucenso Sy. RTC rendered decision in favor of the respondents. The CA affirmed in toto.

Issue: WON the president Sy is solidarily liable with petitioner Dassad Corporation and Sercosa
in violation of the corporation law?

Held: No. Petitioner El Buenasenso Sy cannot be held solidarily liable with his co-petitioners.
While it may be true that Sy is the president of petitioner Dassad Warehousing and Port Services,
Inc., such fact is not by itself sufficient to hold him solidarily liable for the liabilities adjudged
against his co-petitioners.
It is a settled precept in this jurisdiction that a corporation is invested by law with a personality
separate from that of its stockholders or members. It has a personality separate and distinct from
those of the persons composing it as well as from that of any other entity to which it may be
related.
Mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not in itself sufficient ground for disregarding the separate
corporate personality. A corporation’s authority to act and its liability for its actions are separate
and apart from the individuals who own it.
The so-called veil of corporation fiction treats as separate and distinct the affairs of a corporation
and its officers and stockholders. 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.
The records of this case are bereft of any evidence tending to show the presence of any grounds
enumerated above that will justify the piercing of the veil of corporate fiction such as to hold the
president of Dassad Warehousing and Port Services, Inc. solidarily liable with it.

PNB v. Aznar, G.R. No. 171805, May 30, 2011

Doctrine: A corporation has a personality separate and distinct from those of its stockholders
and other corporations to which it may be connected. Thus, the interest of the stockholders over
the properties of the corporation is merely inchoate and therefore does not entitle them to
intervene in litigation involving corporate property.
Statement of facts: RISCO (RURAL INSURANCE & SURETY CO. INC.) ceased operation
due to business reverses. In plaintiffs’ (Aznar) desire to rehabilitate RISCO, they contributed a
total amount of ₱212,720.00 which was used in the purchase of the three parcels of land. After
the purchase of the above lots, titles were issued in the name of RISCO. The amount contributed
by plaintiffs constituted as liens and encumbrances on the aforementioned properties as
annotated in the titles of said lots. Such annotation was made pursuant to the Minutes of the
Special Meeting of the Board of Directors of RISCO.
Thereafter, various subsequent annotations were made on the same titles, including the Notice of
Attachment and Writ of Execution in favor of herein defendant PNB. As a result, a Certificate of
Sale was issued in favor of Philippine National Bank, being the lone and highest bidder of the
three parcels of land.
Plaintiffs-appellees to file the instant complaint seeking the quieting of their supposed title to the
subject properties, declaratory relief, cancellation of TCT and reconveyance with temporary
restraining order and preliminary injunction. Plaintiffs alleged that the subsequent annotations on
the titles are subject to the prior annotation of their liens and encumbrances.
Defendant further asserted that plaintiffs, as mere stockholders of RISCO do not have any legal
or equitable right over the properties of the corporation. PNB posited that even if plaintiff’s
monetary lien had not expired, their only recourse was to require the reimbursement or refund of
their contribution.
RTC ruled against PNB on the basis that there was an express trust created over the subject
properties whereby RISCO was the trustee and the stockholders, Aznar, et al., were the
beneficiaries or the cestui que trust.
Appellate court opined that the monetary contributions made by Aznar, et al., to RISCO can only
be characterized as a loan secured by a lien on the subject lots, rather than an
express trust.

Issue: WON there is an express trust in favor of Aznar et at.?

Held: No. Creation of an express trust must be manifested with reasonable certainty and
cannot be inferred from loose and vague declarations or from ambiguous circumstances
susceptible of other interpretations.
Hence, we find that Aznar, et al., have no right to ask for the quieting of title of the properties at
issue because they have no legal and/or equitable rights over the properties that are derived from
the previous registered owner which is RISCO, the pertinent provision of the law is Section 2 of
the Corporation Code (Batas Pambansa Blg. 68), which states that "[a] corporation is an artificial
being created by operation of law, having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its existence."
As a consequence thereof, a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected. Thus, we had previously ruled
in Magsaysay-Labrador v. Court of Appeals that the interest of the stockholders over the
properties of the corporation is merely inchoate and therefore does not entitle them to intervene
in litigation
involving corporate property.
 2.1.1.1 Nationality

a. Incorporation test
b. Control test [Sec. 3(a), RA 7042, as amended]
c. Grandfather rule (less than 60% Filipino ownership)

Roy III v. Herbosa, et al., G.R. No. 207246, November 22, 2016

Topic: Nationality

Doctrine: The Gamboa Decision already held, in no uncertain terms, that what the Constitution
requires is full and legal beneficial ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights must rest in the hands of Filipino nationals.

And, precisely that is what SEC-MC No. 8 provides, “For purposes of determining compliance
with the constitutional or statutory ownership, the required percentage of Filipino ownership
shall be applied to both (a) the total number of outstanding shares of stock entitled to vote in the
election of directors; and (b) the total number of outstanding shares of stock, whether or not
entitled to vote.

FULL BENEFICIAL OWNERSHIP RULE

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere
legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the
stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of
which have been assigned or transferred to aliens cannot be considered held by Philippine
citizens or Philippine nationals.

Securities Regulation Code Definition

Any person who, directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares voting power (which includes the power to vote or direct
the voting of such security) and/or investment returns or power (which includes the power to
dispose of, or direct the disposition of such security).

Statement of facts: The heart of the controversy is the interpretation of Section 11, Article XII
of the Constitution, which provides: "No franchise, certificate, or any other form of authorization
for the operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least sixty per centum
of whose capital is owned by such citizens.
On June 28, 2011, the Court issued the Gamboa Decision that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election
of directors, and thus in the present case only to common shares, and not to the total outstanding
capital stock (common and non-voting preferred shares).
Securities and Exchange Commission issued SEC-MC No. 8:
Section 2. All covered corporations shall, at all times, observe the constitutional or
statutory ownership requirement. For purposes of determining compliance therewith, the
required percentage of Filipino ownership shall be applied to BOTH (a) the total number
of outstanding shares of stock entitled to vote in the election of directors; AND (b) the
total number of outstanding shares of stock, whether or not entitled to vote in the election
of directors.
Hence, petitioner Roy, as a lawyer and taxpayer, filed the Petition assailing the validity of SEC-
MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision and Resolution and
for having been issued by the SEC with grave abuse of discretion.

Issue: WON SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa
Decision and Gamboa Resolution?

Held: No. Pursuant to the Court's constitutional duty to exercise judicial review, the Court has
conclusively found no grave abuse of discretion on the part of SEC in issuing SEC-MC No 8.
The heart of the controversy is the interpretation of Section 11, Article XII of the Constitution,
which provides: "No franchise, certificate, or any other form of authorization for the operation of
a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of whose
capital is owned by such citizens.
The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is
full and legal beneficial ownership of 60 percent of the outstanding capital stock, coupled with
60 percent of the voting rights must rest in the hands of Filipino nationals.
And, precisely that is what SEC-MC No. 8 provides, "For purposes of determining compliance
with the constitutional or statutory ownership, the required percentage of Filipino ownership
shall be applied to both (a) the total number of outstanding shares of stock entitled to vote in the
election of directors; and (b) the total number of outstanding shares of stock, whether or not
entitled to vote.

Gamboa v. Teves, G.R. No. 176579, June 28, 2011 and October 9, 2012; See SEC
Memorandum Circular No. 8, s. 2013

DOCTRINE: In determining the nationality of the corporation, the 60-40 ownership

requirement in favor of Filipino citizens in the Constitution to engage in certain economic
activities applies not only to voting control of the corporation, but also to the beneficial
ownership of the corporation.

FACTS: The undisputed facts are as follows: (1) Foreigners own 64.27% of the common shares
of PLDT, which class of shares exercises the sole right to vote in the election of directors, and
thus foreigners control PLDT; (2) Filipinos own only 35.73% of PLDT’s common shares,
constituting a minority of the voting stock, and thus Filipinos do not control PLDT; (3) preferred
shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of
the dividends that common shares earn; (5) preferred shares have twice the par value of common
shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and
common shares only 22.15%.
Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the
question of whether PLDT violated the 60-40 ownership requirement in favor of Filipino citizens
in Section 11, Article XII of the 1987 Constitution. Such question indisputably calls for a
presentation and determination of evidence through a hearing, which is generally outside the
province of the Court’s jurisdiction, but well within the SEC’s statutory powers. Thus, for
obvious reasons, the Court limited its decision on the purely legal and threshold issue on the
definition of the term "capital" in Section 11, Article XII of the Constitution and directed the
SEC to apply such definition in determining the exact percentage of foreign ownership in PLDT.

ISSUE: How is the interpretation of the term "capital" in Section 11, Article XII of the
Constitution used in defining nationality of the corporation

RULING: This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40
ownership requirement in favor of Filipino citizens in the Constitution to engage in certain
economic activities applies not only to voting control of the corporation, but also to the
beneficial ownership of the corporation. Thus, in our 28 June 2011 Decision we stated:
Mere legal title is insufficient to meet the 60 percent Filipino owned "capital" required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent
of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with
the constitutional mandate. Otherwise, the corporation is "considered as non-Philippine
national[s]."
Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine
whether a corporation is a "Philippine national."

Narra Nickel Mining and Development Corp. v. Redmont Consolidated Mines Corp., G.R. No.
195580 April 21, 2014 and January 28, 2015

DOCTRINE: Shares belonging to corporations or partnerships, at least sixty percent (60%) of

the capital of which is owned by Filipino citizens, shall be considered as of Philippine
nationality.” This is a straightforward approach since there is no need to further trace the
ownership of the 60% (or more) Filipino stockholdings of an investing corporation. Hence, a
corporation which is at least 60% Filipino-owned is already considered as a Filipino
corporation.
Grandfather rule is defined as the method by which the percentage of Filipino equity in a
corporation engaged in nationalized and/or partly nationalized areas of activities provided for
under the constitution and other nationalization laws is computed, in cases where corporate
shareholders are present, by attributing the nationality of the second or even subsequent tier of
ownership to determine the nationality of the corporate shareholder. Under this rule, the Filipino
ownership of the investing corporation and the investee corporation are combined to determine
the percentage of Filipino ownership.
It should be noted that the grandfather rule is only applicable when the 60 percent-40 percent
Filipino-foreign equity ownership is in “doubt” or when there is non-compliance with the
provisions of the constitution with respect to nationality restriction. For instance, when the
investing corporation has less than 60 percent Filipino stockholdings and the investee
corporation has either 60-40 Filipino-foreign ownership ratio or is less than 60 percent Filipino,
it is with more reason that the stricter, more stringent grandfather rule shall be applied.
“Doubt”, however, is not limited to these circumstances.

FACTS: Sometime in December 2006, respondent Redmont Consolidated Mines Corp.

(Redmont), a domestic corporation organized and existing under Philippine laws, took interest in
mining and exploring certain areas of the province of Palawan. After inquiring with the
Department of Environment and Natural Resources (DENR), it learned that the areas where it
wanted to undertake exploration and mining activities where already covered by Mineral
Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed
an application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences
Bureau (MGB), Region IV-B, Office of the Department of Environment and Natural Resources
(DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares
in Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which
includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and
EP were then transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006,
assigned to petitioner McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and
Patricia Louise Mining & Development Corporation (PLMDC) which previously filed an
application for an MPSA with the MGB, Region IV-B, DENR on January 6, 1992. Through the
said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in
barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC
conveyed, transferred and/or assigned its rights and interests over the MPSA application in favor
of Narra.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3)
separate petitions for the denial of petitioners’ applications for MPSA designated as AMA-
IVB-153, AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and
Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it
was the driving force behind petitioners’ filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining activities through corporations
which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks
were mostly owned by MBMI, they were likewise disqualified from engaging in mining
activities through MPSAs, which are reserved only for Filipino citizens.
ISSUE: Whether or not the Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign
corporations based on the "Grandfather Rule" is contrary to law, particularly the express mandate
of the Foreign Investments Act of 1991, as amended, and the FIA Rules

RULING: Basically, there are two acknowledged tests in determining the nationality of a
corporation: the control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020,
Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the
Constitution and other laws pertaining to the controlling interests in enterprises engaged in the
exploitation of natural resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000
shares are registered in the name of a corporation or partnership at least 60% of the capital stock
or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as
owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be
counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered
as of Philippine nationality," pertains to the control test or the liberal rule. On the other hand, the
second part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in
the corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent
grandfather rule.
Obviously, the instant case presents a situation which exhibits a scheme employed by
stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine,
therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be used.
The CA found that through a "web of corporate layering, it is clear that one common controlling
investor in all mining corporations involved x x x is MBMI." Thus, it concluded that petitioners
McArthur, Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.
All of the exceptions stated above are present in the instant case. We of this Court note that a
grave violation of the Constitution, specifically Section 2 of Article XII, is being committed by a
foreign corporation right under our country’s nose through a myriad of corporate layering under
different, allegedly, Filipino corporations. The intricate corporate layering utilized by the
Canadian company, MBMI, is of exceptional character and involves paramount public interest
since it undeniably affects the exploitation of our Country’s natural resources. The corresponding
actions of petitioners during the lifetime and existence of the instant case raise questions as what
principle is to be applied to cases with similar issues. No definite ruling on such principle has
been pronounced by the Court; hence, the disposition of the issues or errors in the instant case
will serve as a guide "to the bench, the bar and the public." Finally, the instant case is capable of
repetition yet evading review, since the Canadian company, MBMI, can keep on utilizing dummy
Filipino corporations through various schemes of corporate layering and conversion of
applications to skirt the constitutional prohibition against foreign mining in Philippine soil.

2.1.1.2 Constitutional rights

Bache & Co, Inc. v. Ruiz, G.R. No. L-32409, February 27, 1971

DOCTRINE: When corporation to whom the seized documents belong, and whose rights have
thereby been impaired, is itself a petitioner, it waives no constitutional immunities. On that score,
petitioner corporation here stands on a different footing.

FACTS: On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue,
wrote a letter addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a
search warrant against petitioners for violation of Section 46(a) of the National Internal Revenue
Code, in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208
and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to
make and file the application for search warrant which was attached to the letter.
In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness,
respondent Arturo Logronio, went to the Court of First Instance of Rizal. They brought with
them the following papers: respondent Vera’s aforesaid letter-request; an application for search
warrant already filled up but still unsigned by respondent De Leon; an affidavit of respondent
Logronio subscribed before respondent De Leon; a deposition in printed form of respondent
Logronio already accomplished and signed by him but not yet subscribed; and a search warrant
already accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed
his Deputy Clerk of Court to take the depositions of respondents De Leon and Logronio. After
the session had adjourned, respondent Judge was informed that the depositions had already been
taken. The stenographer, upon request of respondent Judge, read to him her stenographic notes;
and thereafter, respondent Judge asked respondent Logronio to take the oath and warned him that
if his deposition was found to be false and without legal basis, he could be charged for perjury.
Respondent Judge signed respondent de Leon’s application for search warrant and respondent
Logronio’s deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge and
accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the
search warrant petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal.
Petitioners’ lawyers protested the search on the ground that no formal complaint or transcript of
testimony was attached to the warrant. The agents nevertheless proceeded with their search
which yielded six boxes of documents.

ISSUE: Is a corporation entitled to protection against unreasonable search and seizures

RULING: In the Stonehill case only the officers of the various corporations in whose offices
documents, papers and effects were searched and seized were the petitioners. In the case at bar,
the corporation to whom the seized documents belong, and whose rights have thereby been
impaired, is itself a petitioner. On that score, petitioner corporation here stands on a different
footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by
petitioners — at least partly — as in effect admitted by respondents — based on the documents
seized by virtue of Search Warrant No. 2-M-70. Furthermore, the fact that the assessments were
made some one and one-half months after the search and seizure on February 25, 1970, is a
strong indication that the documents thus seized served as basis for the assessments. Those
assessments should therefore not be enforced.

Stonehill v. Diokno, 20 SCRA 383 (1967)

DOCTRINE: Corporations have their respective personalities, separate and distinct from the
personality of herein petitioners, thus having the right against unreasonable searches and
seizures.

FACTS: A total of 42 search warrants against petitioners herein and/or the corporations of
which they were officers, directed to the any peace officer, to search the persons above-named
and/or the premises of their offices, warehouses and/or residences, and to seize and take
possession of the following personal property to wit:
Books of accounts, financial records, vouchers, correspondence, receipts, ledgers,
journals, portfolios, credit journals, typewriters, and other documents and/or papers
showing all business transactions including disbursements receipts, balance sheets and
profit and loss statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used
or intended to be used as the means of committing the offense," which is described in the
applications adverted to above as "violation of Central Bank Laws, Tariff and Customs Laws,
Internal Revenue (Code) and the Revised Penal Code."

ISSUE: Is a corporation entitled to protection against unreasonable search and seizures

RULING: Court hold that petitioners herein have no cause of action to assail the legality of the
contested warrants and of the seizures made in pursuance thereof, for the simple reason that said
corporations have their respective personalities, separate and distinct from the personality of
herein petitioners, regardless of the amount of shares of stock or of the interest of each of them in
said corporations, and whatever the offices they hold therein may be. Indeed, it is well settled
that the legality of a seizure can be contested only by the party whose rights have been impaired
thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be
availed of by third parties. Consequently, petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things seized from the offices and premises
of the corporations adverted to above, since the right to object to the admission of said papers in
evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not
be invoked by the corporate officers in proceedings against them in their individual capacity.
Bataan Shipyard & Engineering Co. v. PCGG, G.R. No. L-75885, May 27, 1987, 150 SCRA
181

DOCTRINE: The right against self-incrimination has no application to juridical persons.

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.

ISSUE: Whether 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

RULING: 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 of such privileges * *
* * 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."

2.1.1.3 Civil and criminal liability

Professional Services, Inc. v. Court of Appeals, G.R. No. 126297, February 11, 2008

Doctrine: The corporate negligence doctrine imposes duties on a hospital: (i) to use reasonable
care in the maintenance of safe and adequate facilities and equipment, (ii) to select and retain
only competent physicians, (iii)to oversee as to patient care all persons practice medicine within
its walls, and (iv) to formulate, adopt, and enforce adequate inks and policies to ensure quality
care for its patient. These special tort duties arise from the special relationship existing between a
hospital or nursing home and its patients, which are based on the vulnerability of the physically
or mentally ill persons and their inability to provide care for themselves.
Facts: Dr. Miguel Ampil diagnosed Natividad Agana of suffering from "cancer of the sigmoid."
On April 11, 1984, Dr. Ampil, assisted by the medical staff of the Medical City Hospital,
performed an anterior resection surgery on Natividad. He found that the malignancy in her
sigmoid area had spread on her left ovary, necessitating the removal of certain portions of it.
Thus, upon the permission of Natividad’s husband, Dr. Juan Fuentes performed hysterectomy on
her. After he had completed the hysterectomy, Dr. Ampil took over, completed the operation and
closed the incision. However, the operation appeared to be flawed.
Two weeks from being back home in the Philippines from the US for further medical treatments,
her daughter found a piece of gauze protruding from her vagina. Upon being informed about it,
Dr. Ampil proceeded to her house where he managed to extract by hand a piece of gauze
measuring 1.5 inches in width. He then assured her that the pains would soon vanish but the
same did not come true. Instead, the pains intensified, prompting Natividad to seek treatment at
the Polymedic General Hospital. While confined there, Dr. Ramon Gutierrez detected the
presence of another foreign object in her vagina -- a foul-smelling gauze measuring 1.5 inches in
width which badly infected her vaginal vault. A recto-vaginal fistula had formed in her
reproductive organs which forced stool to excrete through the vagina. Another surgical operation
was needed to remedy the damage. Thus, in October 1984, Natividad underwent another surgery.
This prompted Natividad and her husband to file a complaint for damages against the
Professional Services, Inc. (PSI), owner of the Medical City Hospital, Dr. Ampil, and Dr. Fuentes
before the RTC of Quezon City. Pending the outcome of this case, Natividad died and was duly
substituted by her children (the Aganas).
On March 17, 1993, the RTC rendered its Decision in favor of the Aganas, finding PSI, Dr.
Ampil and Dr. Fuentes liable for negligence and malpractice. On appeal, the CA affirmed the
RTC. The Aganas alleged that PSI as owner, operator and manager of Medical City Hospital, did
not perform the necessary supervision nor exercise diligent efforts in the supervision of Drs.
Ampil and Fuentes and its nursing staff, resident doctors, and medical interns who assisted Drs.
Ampil and Fuentes in the performance of their duties as surgeons. While, PSI alleged that Dr.
Ampil is not its employee, but a mere consultant or independent contractor. As such, he alone
should answer for his negligence.

Issue: Whether PSI is directly liable to the Aganas for the negligence of Dr Ampil and Dr.
Fuentes

Ruling: Yes, under the doctrine of corporate negligence. This doctrine has its genesis in Darling
v. Charleston Community Hospital where the Supreme Court of Illinois held that "the jury could
have found a hospital negligent, inter alia, in failing to have a sufficient number of trained nurses
attending the patient; failing to require a consultation with or examination by members of the
hospital staff; and failing to review the treatment rendered to the patient." In Tucson Medical
Center, Inc. v. Misevich, it was held that a hospital, following the doctrine of corporate
responsibility, has the duty to see that it meets the standards of responsibilities for the care of
patients. Such duty includes the proper supervision of the members of its medical staff. And in
Bost v. Riley, the court concluded that a patient who enters a hospital does so with the reasonable
expectation that it will attempt to cure him. The hospital accordingly has the duty to make a
reasonable effort to monitor and oversee the treatment prescribed and administered by the
physicians practicing in its premises.
The corporate negligence doctrine imposes duties on a hospital: (i) to use reasonable care in the
maintenance of safe and adequate facilities and equipment, (ii) to select and retain only
competent physicians, (iii)to oversee as to patient care all persons practice medicine within its
walls, and (iv) to formulate, adopt, and enforce adequate inks and policies to ensure quality care
for its patient. These special tort duties arise from the special relationship existing between a
hospital or nursing home and its patients, which are based on the vulnerability of the physically
or mentally ill persons and their inability to provide care for themselves.
In this case, it was duly established that PSI operates the Medical City Hospital for the purpose
and under the concept of providing comprehensive medical services to the public. Accordingly, it
has the duty to exercise reasonable care to protect from harm all patients admitted into its facility
for medical treatment. Unfortunately, PSI failed to perform such duty. Adopting the findings of
the trial court, the Supreme Court ruled that PSI’s liability is traceable to its failure to conduct an
investigation of the matter reported in the nota bene of the count nurse. Such failure established
PSI’s part in the dark conspiracy of silence and concealment about the gauzes. The Court cannot
accept that the medical and the healing professions, through their doctors, and their institutions
like PSI’s hospital facility, can callously turn their backs on and disregard even a mere
probability of mistake or negligence by refusing or failing to investigate a report of such
seriousness as the one in Natividad’s case.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the assistance of
the Medical City Hospital’s staff, composed of resident doctors, nurses, and interns. As such, it is
reasonable to conclude that PSI, as the operator of the hospital, has actual or constructive
knowledge of the procedures carried out, particularly the report of the attending nurses that the
two pieces of gauze were missing. In Fridena v. Evans, it was held that a corporation is bound by
the knowledge acquired by or notice given to its agents or officers within the scope of their
authority and in reference to a matter to which their authority extends. This means that the
knowledge of any of the staff of Medical City Hospital constitutes knowledge of PSI. Now, the
failure of PSI, despite the attending nurses’ report, to investigate and inform Natividad regarding
the missing gauzes amounts to callous negligence. Not only did PSI breach its duties to oversee
or supervise all persons who practice medicine within its walls, it also failed to take an active
step in fixing the negligence committed. This renders PSI, not only vicariously liable for the
negligence of Dr. Ampil under Article 2180 of the Civil Code, but also directly liable for its own
negligence under Article 2176.
As to the corollary issue of whether PSI is solidarily liable with Dr. Ampil for damages, PSI,
apart from a general denial of its responsibility, failed to adduce evidence showing that it
exercised the diligence of a good father of a family in the accreditation and supervision of the
latter. In neglecting to offer such proof, PSI failed to discharge its burden under the last
paragraph of Article 2180 and, therefore, must be adjudged solidarily liable with Dr. Ampil.
Child Learning Center, Inc. v. Tagario, G.R. No. 150920, November 25, 2005

Doctrine: To disregard the corporate existence, the plaintiff must prove: (1) Control by the
individual owners, not mere majority or complete stock ownership, resulting in complete
domination not only of finances but of policy and business practice in respect to a transaction 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 a dishonest and unjust act in
contravention of the plaintiff’s legal right; and (3) the control and breach of duty must
proximately cause the injury or unjust loss complained of. The absence of these elements
prevents piercing the corporate veil.

Facts: During the school year 1990-1991, Timothy was a Grade 4 student at Marymount School,
an academic institution operated and maintained by Child Learning Center, Inc. (CLC). In the
afternoon of March 5, 1991, Timothy entered the boy’s comfort room at the third floor of the
Marymount building to answer the call of nature. However, he found himself locked inside and
unable to get out. Timothy started to panic and so he banged and kicked the door and yelled
several times for help. When no help arrived, he decided to open the window to call for help. In
the process of opening the window, Timothy went right through and fell down three stories.
Timothy was hospitalized and given medical treatment for serious multiple physical injuries.
This prompted Timothy and his parents, Basilio and Herminia to file an action under article 2176
of the Civil Code against the CLC, the members of its Board of Directors, namely Spouses
Edgardo and Sylvia Limon, Alfonso Cruz, Carmelo Narciso and Luningning Salvador, and the
Administrative Officer of Marymount School, Ricardo Pilao. The RTC of Makati City ruled in
favor of Timothy and his parents, disregarding the corporate fiction of CLC and held the Spouses
Limon personally liable because they were the ones who actually managed the affairs of the
CLC. On appeal, the CA affirmed the decision of the RTC.
Timothy and his parents contend that CLC failed to provide precautionary measures to avoid
harm and injury to its students in two instances: (1) failure to fix a defective door knob despite
having been notified of the problem; and (2) failure to install safety grills on the window where
Timothy fell from. While, CLC argued that they exercised the due diligence of a good father of a
family in the selection and supervision of its employees and that there was no basis to pierce
CLC’s separate corporate personality.

Issue: Whether CLC’s corporate fiction should be disregarded

Ruling: No, to disregard the corporate existence, the plaintiff must prove: (1) Control by the
individual owners, not mere majority or complete stock ownership, resulting in complete
domination not only of finances but of policy and business practice in respect to a transaction 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 a dishonest and unjust act in
contravention of the plaintiff’s legal right; and (3) the control and breach of duty must
proximately cause the injury or unjust loss complained of. The absence of these elements
prevents piercing the corporate veil.
In this case, the evidence presented by Timothy and his parents fail to show that these elements
are present, especially given the fact that their complaint had pleaded merely that CLC is a
corporation duly organized and existing under the laws of the Philippines. Hence, Spouses
Edgardo and Sylvia Limon, being among the members of the board of directors of CLC, are
absolved from personal liability.

Espiritu Jr. v. Petron Corporation, G.R. No. 170891, November 24, 2009

Doctrine: Before a stockholder may be held criminally liable for acts committed by the
corporation, it must be shown that he had knowledge of the criminal act committed in the name
of the corporation; and he took part in the same or gave his consent to its commission, whether
by action or inaction.

Facts: Espiritu, Jr. et al are the stockholders, directors and officers of Bicol Gas Refilling Plant
Corporation (Bicol Gas). On April 2001 Bicol Gas agreed with KPE for the swapping of
captured cylinders.
In the course of implementing this arrangement, JOSE visited the BICOL GAS refilling plant
wherein he noticed several Gasul tanks in Bicol Gas’ possession. They agreed to have a swap
after LLONA was given permission for the swap involving around 30 Gasul tanks held by Bicol
Gas in exchange for assorted tanks held by KPE. JOSE noticed that Bicol Gas still had a number
of Gasul tanks in its yard and offered to make a swap for these but LLONA declined. Bicol Gas
owners wanted to send those tanks to Batangas. JOSE observed on almost a daily basis that Bicol
Gas trucks carried a load of Gasul tanks and he noted that KPEs volume of sales dropped
significantly from June to July 2001.
On August 4, 2001, JOSE saw a Bicol Gas truck on the Maharlika Highway whereby it had on it
one unsealed 50kg Gasul tank and one 50kg Shellane tank. JOSE followed the truck and when it
stopped at a store, he asked the driver, Jun Leorena, and the Bicol Gas sales representative,
Jerome Misal, about the Gasul tank in their truck. JOSE found that it wasn’t empty. Misal and
Leorena then admitted that the Gasul and Shellane tanks on their truck belonged to a customer
who had them filled up by Bicol Gas.
This prompted KPE to file a complaint for violations of R.A. 623 (illegally filling up registered
cylinder tanks), as amended, and Sections 155 (infringement of trade marks) and 169.1 (unfair
competition) of the Intellectual Property Code (R.A. 8293).
The Provincial Prosecutor found Probable Cause only for violation of R.A. 623 and charges on
the same can only be filed against Mirabena, Misal, Leorena, and petitioner Llona. The Office of
the Regional State Prosecutor, Region V ordered the filing of additional informations against the
four employees of Bicol Gas for unfair competition. It ruled that no case for trademark
infringement was present. The Secretary of Justice denied the appeal of Petron and KPE and
their motion for reconsideration. The Court of Appeals ordered the filing of additional charges of
trademark infringement against the concerned Bicol Gas employees. It also ruled that since the
Bicol Gas employees presumably acted under the direct order and control of its owners, the
Court of Appeals also ordered the inclusion of the stockholders of Bicol Gas in the various
charges, bringing to 16 the number of persons to be charged, now including petitioners Manuel
C. Espiritu, Jr., Freida F. Espiritu, Carlo F. Espiritu, Rafael F. Espiritu, Rolando M. Mirabuna,
Hermilyn A. Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A. Mirabuna, Ken Ryan A.
Mirabuna, Juanito P. de Castro, Geronima A. Almonite, and Manuel C. Dee (together with Audie
Llona), collectively, petitioners Espiritu, et al.

Issue: Whether Espiritu, Jr. et al, as stockholders, are liable for the acts of Bicol Gas

Ruling: No, Espiritu, Jr. et al, as stockholders, are not liable for the acts of Bicol Gas, because, it
was not shown that they had knowledge of the criminal act committed in the name of Bicol Gas;
and he took part in the same or consented to its commission, whether by action or inaction.
Bicol Gas is a corporation. As such, it is an entity separate and distinct from the persons of its
officers, directors, and stockholders. It has been held, however, that corporate officers or
employees, through whose act, default or omission the corporation commits a crime, may
themselves be individually held answerable for the crime.
The owners of a corporate organization are its stockholders and they are to be distinguished from
its directors and officers. The petitioners here, with the exception of Audie Llona, are being
charged in their capacities as stockholders of Bicol Gas. But the Court of Appeals forgets that in
a corporation, the management of its business is generally vested in its board of directors, not its
stockholders. Stockholders are basically investors in a corporation. They do not have a hand in
running the day-to-day business operations of the corporation unless they are at the same time
directors or officers of the corporation. Before a stockholder may be held criminally liable for
acts committed by the corporation, therefore, it must be shown that he had knowledge of the
criminal act committed in the name of the corporation and that he took part in the same or gave
his consent to its commission, whether by action or inaction.
The finding of the Court of Appeals that the employees could not have committed the crimes
without the consent, permission, or participation of the owners of Bicol Gas is a sweeping
speculation especially since, as demonstrated above, what was involved was just one Petron
Gasul tank found in a truck filled with Bicol Gas tanks. Although the KPE manager heard
petitioner LLONA say that he was going to consult the owners of Bicol Gas regarding the offer
to swap additional captured cylinders, no indication was given as to which Bicol Gas
stockholders LLONA consulted. It would be unfair to charge all the stockholders involved, some
of whom were proved to be minors. No evidence was presented establishing the names of the
stockholders who were charged with running the operations of Bicol Gas. The complaint even
failed to allege who among the stockholders sat in the board of directors of the company or
served as its officers.

Gosiaco v. Ching, G.R. No. 173807, April 16, 2009

Doctrine: The general rule is that a corporate officer who issues a bouncing corporate check can
only be held civilly liable when he is convicted. The civil liability of a corporate officer as
signatory of a check is from the wrongful act of signing the check despite the insufficiency of the
corporation's bank funds. While the civil liability of the corporation itself is the obligation to pay
or the consideration for its execution.

Facts: Gosiaco invested 8 million pesos in ASB Holdings, Inc. (ASB). Ching is a manager in
ASB, and in behalf of ASB, issued bank checks to Gosiaco. ASB wrote Gosiaco telling him that
these checks are proofs that ASB owes Gosiaco. The checks, both signed by Ching, were drawn
against DBS Bank-Makati. ASB acknowledged that it owed petitioner the abovementioned
amounts. Upon maturity of the ASB checks, petitioner went to the DBS Bank San Juan Branch to
deposit the 2 checks: dishonored because of a stop payment order and for insufficiency of funds.
Petitioner informed respondents thru letters and demanded replacement checks/return of the
money placement but to no avail. Thus, petitioner filed a criminal complaint for violation of B.P.
Blg. 22 before the MTC-San Juan against Ching and Casta.
The MTC acquitted Ching but it did not absolve her from civil liability. As a corporate officer of
ASB, Ching was civilly liable since she was a signatory to the checks. The RTC exonerated
Ching from civil liability and ruled that the subject obligation fell squarely on ASB. Thus, Ching
should not be held civilly liable. the Court of Appeals affirmed the decision of the RTC and
stated that the amount petitioner sought to recover was a loan made to ASB and not to Ching.
Roxas’ testimony further bolstered the fact that the checks issued by Ching were for and in
behalf of ASB. The Court of Appeals ruled that ASB cannot be impleaded in a B.P. Blg. 22 case
since it is not a natural person and in the case of Roxas, he was not the subject of a preliminary
investigation. Lastly, the Court of Appeals ruled that there was no need to pierce the corporate
veil of ASB since none of the requisites were present.

Issues:
1. Whether Ching, as a corporate officer, is civilly liable under BP 22
2. Whether ASB can be impleaded in the BP 22 case

Ruling:
1. No, Ching, as corporate officer, is not civilly liable under BP 22. The general rule is that a
corporate officer who issues a bouncing corporate check can only be held civilly liable when he
is convicted. In the recent case of Bautista v. Auto Plus Traders Inc., the Court ruled decisively
that the civil liability of a corporate officer in a B.P. Blg. 22 case is extinguished with the
criminal liability. The records clearly show that it is ASB who is civilly obligated to petitioner. In
the various stages of this case, petitioner has been proceeding from the premise that he is unable
to pursue a separate civil action against ASB itself for the recovery of the amounts due from the
subject checks. From this premise, petitioner sought to implead ASB as a defendant to the B.P.
Blg. 22 case, even if such case is criminal in nature.
2. No, ASB cannot be impleaded in the BP 22 case because the civil liability of ASB as a
corporation is different from the civil liability of its corporate officer, Ching. The civil liability of
Ching as signatory of the check is from the wrongful act of signing the check despite the
insufficiency of ASB’s bank funds. While, the civil liability of the corporation is itself the
obligation to pay or the consideration for its execution.
Petitioner is not correct in stating that he is entitled to implead ASB in the B.P. Blg. 22 case, or
any other corporation for that matter, even if the Rules require the joint trial of both the criminal
and civil liability. A basic maxim in statutory construction is that the interpretation of penal laws
is strictly construed against the State and liberally construed against the accused. Nowhere in
B.P. Blg. 22 is it provided that a juridical person may be impleaded as an accused or defendant in
the prosecution for violations of that law, even in the litigation of the civil aspect thereof.
Nonetheless, the substantive right of a creditor to recover due and demandable obligations
against a debtor-corporation cannot be denied or diminished by a rule of procedure. Nothing in
Section 1(b) of Rule 11 prohibits the reservation of a separate civil action against the juridical
person on whose behalf the check was issued. What the rules prohibit is the reservation of a
separate civil action against the natural person charged with violating B.P. Blg. 22, including
such corporate officer who had signed the bounced check.
In theory, the B.P. Blg. 22 criminal liability of the person who issued the bouncing check in
behalf of a corporation stands independent of the civil liability of the corporation itself, such civil
liability arising from the Civil Code. B.P. Blg. 22 itself fused this criminal liability of the signer
of the check in behalf of the corporation with the corresponding civil liability of the corporation
itself by allowing the complainant to recover such civil liability not from the corporation, but
from the person who signed the check in its behalf.
With the insistence under the amended rules that the civil and criminal liability attaching to the
bounced check be pursued jointly, the previous option to directly pursue the civil liability against
the person who incurred the civil obligation–the corporation itself–is no longer that clear. In
theory, the implied institution of the civil case into the criminal case for B.P. Blg. 22 should not
affect the civil liability of the corporation for the same check, since such implied institution
concerns the civil liability of the signatory, and not of the corporation.

Ching v. Secretary of Justice, G.R. No. 164317, February 6, 2006, 481 SCRA 626

Doctrine: The law specifically makes the officers, employees or other officers or persons
responsible for the offense, without prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees responsible for the offense.
If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and penalized for
the crime; A corporation may be charged and prosecuted for a crime if the imposable penalty is
fine.

Facts: Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. . Sometime in
September to October 1980, PBMI, through petitioner, applied with the Rizal Commercial
Banking Corporation (respondent bank) for the issuance of commercial letters. Respondent bank
approved the application, and irrevocable letters of credit were issued in favor of petitioner. The
goods were purchased and delivered in trust to PBMI. Petitioner agreed to hold the goods in trust
for the said bank, with authority to sell but not by way of conditional sale, pledge or otherwise;
and in case such goods were sold, to turn over the proceeds thereof as soon as received, to apply
against the relative acceptances and payment of other indebtedness to respondent bank. When the
trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their
value amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal complaint
for estafa against petitioner in the Office of the City Prosecutor of Manila. Petitioner appealed to
the Minister of Justice but was dismissed. Petitioner moved for reconsideration and was granted.
The City Prosecutor was ordered to move for the withdrawal of Informations. Respondent bank
filed an MR but was denied. The RTC granted the Motion to Quash the Informations filed by
petitioner.
In 1995, respondent bank re-filed the compaint for estafa. Respondent bank appealed the
resolution to DOJ via petition for review and was granted. Petitioner filed a petition for certirari
with the CA, but the CA dismissed the petition.

Issue: Whether or not the CA erred.

Held: Yes.
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers,
employees or other officers or persons responsible for the offense, without prejudice to the civil
liabilities of such corporation and/or board of directors, officers, or other officials or employees
responsible for the offense. The rationale is that such officers or employees are vested with the
authority and responsibility to devise means necessary to ensure compliance with the law and, if
they fail to do so, are held criminally accountable; thus, they have a responsible share in the
violations of the law.
If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and penalized for
the crime, precisely because of the nature of the crime and the penalty therefor. A corporation
cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by
imprisonment. However, a corporation may be charged and prosecuted for a crime if the
imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a
corporation may be prosecuted and, if found guilty, may be fined.

2.1.1.4 Recovery of moral damages

Pen Development Corporation v. Martinez Leyba, Inc., G.R. No. 211845, August 9, 2017

Doctrine: A juridical person is generally not entitled to moral damages because, unlike a natural
person, it cannot experience physical suffering, or such sentiments as wounded feelings, serious
anxiety, mental anguish or moral shock. While the courts may allow the grant of moral damages
to corporations in exceptional situations, it is not automatically granted because there must still
be proof of the existence of the factual basis of the damage and its casual relation to the
defendant’s acts. Moral damages, though incapable of pecuniary estimation, are in the category
of an award designed to compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer.
Facts: Plaintiff-Appellee Martinez Leyba, Inc. is a corporation organized and existing under
Philippine Laws and the registered owner of 3 parcels of land in Antipolo, Rizal. Defendant-
Appellants Pen Devt and Las Brisas Resorts are also domestic corporations duly organized and
existing under Philippine laws, which merged into one corporate entity under the name Las
Brisas Resorts Corporation. Their land is situated adjacent to the lands owned by Martinez.
Martinez noticed that Las Brisas’ fence seemed to encroached on its land. Upon verification by
surveyors, Martinez was informed that the fence of Las Brisas overlaps its property. Martinez
and Las Brisas exchanged letters but the fence remained on Martinez’ land. Martinez filed a
Complaint for Quieting of Title, Cancellation of Title and Recovery of Ownership with Damages
against Las Brisas before RTC Antipolo City which ruled in favor of the plaintiff. Petitioners
filed a joint Motion for Reconsideration but RTC held its ground. Petitioners appealed before the
CA but the CA affirmed the RTC decision, but with modifications, deleting moral and exemplary
damages and adding nominal damages.

Issue: Whether or not the CA erred in its decision.

Held: No. The SC affirmed CA’s decision in toto. According to the CA:
A juridical person is generally not entitled to moral damages because, unlike a natural person, it
cannot experience physical suffering, or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock. While the courts may allow the grant of moral damages to
corporations in exceptional situations, it is not automatically granted because there must still be
proof of the existence of the factual basis of the damage and its casual relation to the defendant’s
acts. Moral damages, though incapable of pecuniary estimation, are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty on the
wrongdoer. In this case, We find no evidence that Martinez suffered besmirched reputation on
account of the Las Brisas encroachment on Martinez’s land. Hence, the award of moral damages
should be deleted.
Neither is Martinez entitled to exemplary damages. Exemplary damages may only be awarded if
it has been shown that the wrongful act was accompanied by bad faith or done in a wanton,
fraudulent and reckless or malevolent manner. Exemplary damages are allowed only in addition
to moral damages such that no exemplary damage can be awarded unless the claimant first
establishes his clear right to moral damages. As the moral damages are improper in the instant
case, so is the award of exemplary damages.
Nevertheless, an award of nominal damages of P100,000.00 is warranted since Las Brisas
violated the property rights of Martinez.

Filipinas Broadcasting Network v. Ago Medical and Educational Center, G.R. No. 141994,
January 17, 2005, 448 SCRA 413

Doctrine: The Court’s statement in Mambulao Lumber Co. v. PNB, 22 SCRA 359 (1968), that
“a corporation may have a good reputation which, if besmirched, may also be a ground for the
award of moral damages” is an obiter dictum.
Since Article 2219(7) of the Civil Code does not qualify whether the plaintiff is a natural or
juridical person, a juridical person such as a corporation may validly complain for libel or any
other form of defamation and claim for moral damages.
Where the broadcast is libelous per se, the law implies damages, in which case, evidence of an
honest mistake or the want of character or reputation of the party libeled goes only in mitigation
of damages.

Facts: Exposé is a radio documentary program hosted by Rima and Alegre. The program is aired
every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc.
(FBNI). Exposé is heard over Legazpi City, the Albay municipalities, and other Bicol areas.
Rima and Alegre exposed various alleged complaints from students, teachers and parents against
Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its
administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago, as Dean
of AMEC’s College of Medicine, filed a complaint for damages against FBNI, Rima and Alegre
on 27 February 1990. The trial court ruled that FBNI and Alegre are liable for libel. Both parties
appealed to the CA. The Court affirmed the trial court’s decision but with modification, holding
Rima solidarily liable with FBNI and Alegre.

Issue: Whether or not AMEC is entitled to moral damages.

Held: A juridical person is generally not entitled to moral damages because, unlike a natural
person, it cannot experience physical suffering or such sentiments as wounded feelings, serious
anxiety, mental anguish or moral shock. The Court of Appeals cites Mambulao Lumber Co. v.
PNB, et al. to justify the award of moral damages. However, the Court’s statement in Mambulao
that “a corporation may have a good reputation which, if besmirched, may also be a ground for
the award of moral damages” is an obiter dictum.
AMEC’s claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any
other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or
juridical person. Therefore, a juridical person such as a corporation can validly complain for libel
or any other form of defamation and claim for moral damages.
Where the broadcast is libelous per se, the law implies damages. In such a case, evidence of an
honest mistake or the want of character or reputation of the party libeled goes only in mitigation
of damages. Neither in such a case is the plaintiff required to introduce evidence of actual
damages as a condition precedent to the recovery of some damages. In this case, the broadcasts
are libelous per se. Thus, AMEC is entitled to moral damages. However, we find the award of
P300,000 moral damages unreasonable. The record shows that even though the broadcasts were
libelous per se, AMEC has not suffered any substantial or material damage to its reputation.
Therefore, we reduce the award of moral damages from P300,000 to P150,000.
Manila Electric Co. v. TEAM Corporation, G.R. No. 131723, December 13, 2007, 540 SCRA
62

Doctrine: Actual damages are compensation for an injury that will put the injured party in the
position where it was before the injury; Basic is the rule that to recover actual damages, not only
must the amount of loss be capable of proof; it must also be actually proven with a reasonable
degree of certainty, premised upon competent proof or the best evidence obtainable.
Exemplary damages are imposed by way of example or correction for the public good in addition
to moral, temperate, liquidated, or compensatory damages; In this case, to serve as an example—
that before a disconnection of electrical supply can be effected by a public utility, the requisites
of law must be complied with—the Court affirms the award of P200,000.00 as exemplary
damages.
As a rule, a corporation is not entitled to moral damages because, not being a natural person, it
cannot experience physical suffering or sentiments like wounded feelings, serious anxiety,
mental anguish and moral shock, the only exception to this rule is when the corporation has a
reputation that is debased, resulting in its humiliation in the business realm.

Facts: Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent

TEC, were parties to two separate contracts denominated as Agreements for the Sale of Electric
Energy. Under the aforesaid agreements, petitioner undertook to supply TEC’s building known
as Dyna Craft International Manila (DCIM) located at Electronics Avenue, Food Terminal
Complex, Taguig, Metro Manila, with electric power. Another contract was entered into for the
supply of electric power to TEC’s NS Building. A team of petitioner’s inspectors conducted a
surprise inspection of the electric meters installed at the DCIM building, witnessed by Ultra’s
representative, Mr. Willie Abangan. The two meters were found to be allegedly tampered with
and did not register the actual power consumption in the building. Petitioner informed TEC of
the results of the inspection and demanded from the latter the payment of P7,040,401.01
representing its unregistered consumption from February 10, 1986 until September 28, 1987, as a
result of the alleged tampering of the meters. For failure of TEC to pay the differential billing,
petitioner disconnected the electricity supply to the DCIM building on April 29, 1988.TEC
demanded for reconnection, claiming it had nothing to do with the alleged tampering but the
latter refused to heed the demand. TEC and TPC filed a complaint for damages against petitioner
and Ultra before RTC Pasig. The court ruled in favor of TEC and TPC. Ultra and petitioner
appealed to the CA which affirmed the RTC decision, with a modification of the amount of
actual damages and interest thereon.

Issue: Whether or not the CA committed grievous errors.

Held: No. As to the damages awarded by the CA, we deem it proper to modify the same. Actual
damages are compensation for an injury that will put the injured party in the position where it
was before the injury. They pertain to such injuries or losses that are actually sustained and
susceptible of measurement. Except as provided by law or by stipulation, a party is entitled to
adequate compensation only for such pecuniary loss as is duly proven. Basic is the rule that to
recover actual damages, not only must the amount of loss be capable of proof; it must also be
actually proven with a reasonable degree of certainty, premised upon competent proof or the best
evidence obtainable. Respondent TEC sufficiently established, and petitioner in fact admitted,
that the former paid P1,000,000.00 and P280,813.72 under protest, the amounts representing a
portion of the latter’s claim of differential billing. With the finding that no tampering was
committed and, thus, no differential billing due, the aforesaid amounts should be returned by
petitioner, with interest, as ordered by the Court of Appeals and pursuant to the guidelines set
forth by the Court.
As to the payment of exemplary damages and attorney’s fees, we find no cogent reason to disturb
the same. Exemplary damages are imposed by way of example or correction for the public good
in addition to moral, temperate, liquidated, or compensatory damages. In this case, to serve as an
example— that before a disconnection of electrical supply can be effected by a public utility, the
requisites of law must be complied with—we affirm the award of P200,000.00 as exemplary
damages. With the award of exemplary damages, the award of attorney’s fees is likewise proper,
pursuant to Article 2208 of the Civil Code. It is obvious that TEC needed the services of a lawyer
to argue its cause through three levels of the judicial hierarchy. Thus, the award of P200,000.00
is in order.
We, however, deem it proper to delete the award of moral damages. TEC’s claim was premised
allegedly on the damage to its goodwill and reputation. As a rule, a corporation is not entitled to
moral damages because, not being a natural person, it cannot experience physical suffering or
sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only
exception to this rule is when the corporation has a reputation that is debased, resulting in its
humiliation in the business realm. But in such a case, it is imperative for the claimant to present
proof to justify the award. It is essential to prove the existence of the factual basis of the damage
and its causal relation to petitioner’s acts. In the present case, the records are bereft of any
evidence that the name or reputation of TEC/TPC has been debased as a result of petitioner’s
acts. Besides, the trial court simply awarded moral damages in the dispositive portion of its
decision without stating the basis thereof.

Crystal v. Bank of PI, G.R. No. 172428, November 28, 2008

Doctrine: While the Court may allow the grant of moral damages to corporations, it is not
automatically granted; there must still be proof of the existence of the factual basis of the damage
and its causal relation to the defendant’s acts.

Facts: Spouses Raymundo and Desamparados Crystal obtained a loan in behalf of Cebu
Contractors Consortium Co. (CCCC) from BPI-Butuan. The loan was secured by a chattel
mortgage on heavy equipment and machinery. On the same date, the spoused executed in favor
of BPI-Butuan a Continuing Suretyship where they bound themselves as surety of CCCC.
Thereafter, Raymundo Crystal executed a promissory note. CCCC renewed a previous loan, this
time from BPI-Cebu. The renewal was evidenced by a promissory note signed by the spouses in
their personal capacities and as managing partners of CCCC. The promissory note states that the
spouses are jointly and severally liable with CCCC. Before the original loan could be granted,
BPI-Cebu required CCCC to put up a security. However, CCCC had no real property to offer as
security for the loan, hence, the spouses executed a real estate mortgage over their own property.
They executed another REM over the same lot in favor of BPI-Cebu to secure additional loan for
CCCC. CCCC, as well as the spouses, failed to pay their obligations. BPI resorted to the
foreclosure of the chattel and real estate mortgage. BPI filed a complaint for the sum of money
against CCCC and the spouses before RTC Butuan. The spouses filed an injunction. RTC
dismissed the spouses’ complaint and ordered them to pay moral and exemplary damages and
attorney's fees to BPI. The spouses appeal but was dismissed. The spouses moved for
reconsideration but the CA also denied their motion.

Issue: Whether or not the award for damages is proper

Held: In the more recent cases of ABS- CBN Corp. v. Court of Appeals, et al., 301 SCRA 572
(1999) and Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol
Christian College of Medicine (AMEC-BCCM), 448 SCRA 413 (2005), the Court held that the
statements in Manero and Mambulao were mere obiter dicta, implying that the award of moral
damages to corporations is not a hard and fast rule. Indeed, while the Court may allow the grant
of moral damages to corporations, it is not automatically granted; there must still be proof of the
existence of the factual basis of the damage and its causal relation to the defendant’s acts. This is
so because moral damages, though incapable of pecuniary estimation, are in the category of an
award designed to compensate the claimant for actual injury suffered and not to impose a penalty
on the wrongdoer.
The awards of exemplary damages and attorney’s fees, however, are proper. Exemplary damages,
on the other hand, are imposed by way of example or correction for the public good, when the
party to a contract acts in a wanton, fraudulent, oppressive or malevolent manner, while
attorney’s fees are allowed when exemplary damages are awarded and when the party to a suit is
compelled to incur expenses to protect his interest. The spouses instituted their complaint against
BPI notwithstanding the fact that they were the ones who failed to pay their obligations.
Consequently, BPI was forced to litigate and defend its interest. For these reasons, BPI is entitled
to the awards of exemplary damages and attorney’s fees.

UP v. Dizon, G.R. No. 171182, August 23, 2012

Topic: Recovery of Moral Damages

Doctrine: A corporation as an artificial person is incapable of experiencing pain and moral

sufferings.

Facts: UP, through its then President Jose V. Abueva, entered into a General Construction
Agreement with respondent Stern Builders Corporation, for the construction of the extension
building and the renovation of the College of Arts and Sciences Building in the campus of
UPLB. In the course of the implementation of the contract, Stern Builders submitted three
progress billings corresponding to the work accomplished, but the UP paid only two of the
billings. The third billing worth P273,729.47 was not paid due to its disallowance by COA.
Despite the lifting of the disallowance, the UP failed to pay the billing, prompting Stern Builders
and dela Cruz to sue the UP and its co-respondent officials to collect the unpaid billing and to
recover various damages (actual and moral) and attorney’s fees. After trial, the RTC rendered its
decision in favor of the plaintiffs.
Following the RTC’s denial of its motion for reconsideration, UP filed a notice of appeal. The
RTC denied due course to the notice of appeal for having been filed out of time and granted the
private respondents’ motion for execution. The RTC issued the writ of execution and the sheriff
of the RTC served the writ of execution and notice of demand upon UP. UP filed an urgent
motion to reconsider the order, to quash the writ of execution and to restrain the
proceedings. However, the RTC denied the urgent motion. UP assailed the denial of due course
to its appeal through a petition for certiorari in the Court of Appeals but the latter dismissed the
petition for certiorari upon finding that the UP’s notice of appeal had been filed late. The UP
sought a reconsideration, but the CA denied the UP’s motion for reconsideration.
UP appealed to the Court by petition for review on certiorari. The Court denied the petition for
review. The UP moved for the reconsideration of the denial of its petition for review but the
Court denied the motion which denial became final and executory. In the meanwhile, that the UP
was exhausting the available remedies to overturn the denial of due course to the appeal and the
issuance of the writ of execution, Stern Builders and dela Cruz filed in the RTC their motions for
execution despite their previous motion having already been granted and despite the writ of
execution having already issued. The RTC granted another motion for execution filed. The
sheriff served notices of garnishment on the UP’s depository banks. The UP assailed the
garnishment through an urgent motion to quash the notices of garnishment; and a motion to
quash the writ of execution but was denied by the RTC. UP moved for the reconsideration of the
order but was denied by the same court.
On their part, Stern Builders and dela Cruz filed their ex parte motion for issuance of a release
order which the RTC granted and authorized the release of the garnished funds of the UP. The UP
brought a petition for certiorari in the CA to challenge the jurisdiction of the RTC in issuing the
order of December 21, 2004. While pending resolution, CA issued a temporary restraining order
(TRO) upon application by the UP. In its decision CA dismissed the UP’s petition for certiorari,
ruling that the UP had been given ample opportunity to contest the motion to direct the DBP to
deposit the check in the name of Stern Builders and dela Cruz; and that the garnished funds
could be the proper subject of garnishment because they had been already earmarked for the
project, with the UP holding the funds only in a fiduciary capacity. After the CA denied their
motion for reconsideration on December 23, 2005, the petitioners appealed by petition for
review.

Issues:
Whether or not UP’s funds can be subject to garnishment
Whether or not RTC had authority to issue the subject writ of execution
Whether or not Stern Builders is entitled to moral damages
 I. UP’s funds being governmental funds are not subject to garnishment
Despite its establishment as a body corporate, the UP remains to be a "chartered institution"
performing a legitimate government function – promote quality and accessible education.
As a government instrumentality, the UP administers special funds sourced from the fees and
income enumerated under Act No. 1870 and Section 1 of Executive Order No. 714, and from the
yearly appropriations, to achieve the purposes laid down by Section 2 of Act 1870, as expanded
in RA No. 9500 which constitutes a special trust fund.
The funds of the UP are government funds that are public in character which cannot be made
subject of the RTC’s writ of execution or garnishment hence the adverse judgment rendered
against the UP in a suit to which it had impliedly consented was not immediately enforceable
because suability of the State did not necessarily mean its liability.
As discussed in Municipality of San Fernando, La Union v. Firme, suability depends on the
consent of the state to be sued, liability on the applicable law and the established facts. The
circumstance that a state is suable does not necessarily mean that it is liable; on the other hand, it
can never be held liable if it does not first consent to be sued.
The CA and the RTC thereby unjustifiably ignored the legal restriction imposed on the trust
funds of the Government and its agencies and instrumentalities to be used exclusively to fulfill
the purposes for which the trusts were created or for which the funds were received except upon
express authorization by Congress or by the head of a government agency in control of the funds,
and subject to pertinent budgetary laws, rules and regulations.

II. The execution of the monetary judgment against the UP was within the primary
jurisdiction of the COA
The RTC had no authority to direct the immediate since it is settled jurisprudence that upon
determination of State liability, the prosecution, enforcement or satisfaction thereof must still be
pursued in accordance with the rules and procedures laid down in P.D. No. 1445, otherwise
known as the Government Auditing Code of the Philippines. All money claims against the
Government must first be filed with the Commission on Audit which must act upon it within
sixty days. Rejection of the claim will authorize the claimant to elevate the matter to the
Supreme Court on certiorari and in effect, sue the State thereby.
In Viuda de Tan Toco v. Municipal Council of Iloilo, the Court ruled that "where property of a
municipal or other public corporation is sought to be subjected to execution to satisfy judgments
recovered against such corporation, the question as to whether such property is leviable or not is
to be determined by the usage and purposes for which it is held."

III. Period of appeal did not start without effective service of decision upon counsel
of record; Fresh-period rule announced in Neypes v. Court of Appeals can be
given retroactive application
It is true that a decision that has attained finality becomes immutable and unalterable, and cannot
be modified in any respect, even if the modification is meant to correct erroneous conclusions of
fact and law, and whether the modification is made by the court that rendered it or by this Court
as the highest court of the land. Public policy dictates that once a judgment becomes final,
executory and unappealable, the prevailing party should not be deprived of the fruits of victory
by some subterfuge devised by the losing party. Unjustified delay in the enforcement of such
judgment sets at naught the role and purpose of the courts to resolve justiciable controversies
with finality. Indeed, all litigations must at some time end, even at the risk of occasional errors.
But the doctrine of immutability of a final judgment has not been absolute, and has admitted
several exceptions, among them: (a) the correction of clerical errors; (b) the so-called nunc pro
tunc entries that cause no prejudice to any party; (c) void judgments; and (d) whenever
circumstances transpire after the finality of the decision that render its execution unjust and
inequitable. Despite the absence of the preceding circumstances, the Court is not precluded from
brushing aside procedural norms if only to serve the higher interests of justice and equity.
It is settled that where a party has appeared by counsel, service must be made upon such
counsel. Service on the party or the party’s employee is not effective because such notice is not
notice in law.
Equity calls for the retroactive application in the UP’s favor of the fresh-period rule that the
Court first announced in its ruling in Neypes v. Court of Appeals that to standardize the appeal
periods provided in the Rules and to afford litigants fair opportunity to appeal their cases, the
Court deems it practical to allow a fresh period of 15 days within which to file the notice of
appeal in the Regional Trial Court, counted from receipt of the order dismissing a motion for a
new trial or motion for reconsideration.
The retroactive application of the fresh-period rule, a procedural law that aims "to regiment or
make the appeal period uniform, to be counted from receipt of the order denying the motion for
new trial, motion for reconsideration (whether full or partial) or any final order or resolution," is
impervious to any serious challenge. This is because there are no vested rights in rules of
procedure.

IV. Awards of monetary damages, being devoid of factual and legal bases, did
not attain finality and should be deleted

a. Actual Damages: The statement that "due to defendants’ unjustified refusal to pay their
outstanding obligation to plaintiff, the same suffered losses and incurred expenses as he
was forced to re-mortgage his house and lot located in Quezon City to Metrobank (Exh.
"CC") and BPI Bank just to pay its monetary obligations in the form of interest and
penalties incurred in the course of the construction of the subject project" was only a
conclusion of fact and law that did not comply with the constitutional and statutory
prescription. The statement specified no detailed expenses. The omission of such
expenses or losses directly indicated that Stern Builders did not prove them at all.
b. Moral Damages: The moral damages constituted another judicial ipse dixit, Stern
Builders, as an artificial person, was incapable of experiencing pain and moral sufferings.
Even provided that its President and General Manager dela Cruz had experienced moral
sufferings, it is to be noted that his personality is separate and distinct from Stern
Builders.
c. Attorney’s Fees: The general rule is that a successful litigant cannot recover attorney’s
fees as part of the damages to be assessed against the losing party because of the policy
that no premium should be placed on the right to litigate. Nonetheless, with attorney’s
 fees being allowed in the concept of actual damages, their amounts must be factually and
legally justified in the body of the decision and not stated for the first time in the decretal
portion. That the attorney’s fees granted to the private respondents did not satisfy the
foregoing requirement suffices for the Court to undo them. The grant was ineffectual for
being contrary to law and public policy, it being clear that the express findings of fact and
law were intended to bring the case within the exception and thereby justify the award of
the attorney’s.
Nonetheless, the absence of findings of fact and of any statement of the law and
jurisprudence on which the awards of actual and moral damages, as well as of attorney’s fees,
were based was a fatal flaw that invalidated the decision of the RTC only as to such awards.
As the Court declared in Velarde v. Social Justice Society, the failure to comply with the
constitutional requirement for a clear and distinct statement of the supporting facts and law
"is a grave abuse of discretion amounting to lack or excess of jurisdiction" and that
"(d)ecisions or orders issued in careless disregard of the constitutional mandate are a patent
nullity and must be struck down as void."

Jardine Davies v. CA, 333 SCRA 684

Topic: Recovery of moral damages

Doctrine: The award for moral damages to a corporation whose reputation has been besmirched
is proper.

Facts: During the height of the power crisis in 1992 which the country experiencing, Pure Foods
Corporation decided to install two 1500 KW generators in its food processing plant in San
Roque, Marikina City to remedy and curtail further losses due to the series of power failures.
Sometime in November 1992, bidding for the supply and installation of the generators was held.
Out of the eight prospective bidders, Far East Mills Supply Corporation or hereinafter FEMSCO
won the bid.
Thereafter, in a letter dated December 12, 1992 addressed to FEMSCO President Alfonso Po,
Pure Foods confirmed the award of the contract to FEMSCO. Later, however, ten days thereafter,
Pure Foods unilaterally canceled the award due to alleged "significant factors” and re-bid of the
project." Consequently, FEMSCO protested the cancellation of the award.
However, on March 26, 1993, before the matter could be resolved, Pure Foods already awarded
the project and entered into a contract with Jardine Nell, a division of Jardine Davies, Inc.
hereafter Jardine.
FEMSCO thus wrote Pure Foods to honor its contract with the former, and to Jardine to cease
and desist from delivering and installing the two generators at Pure Foods. Its demand letters
unheeded, FEMSCO sued Pure Foods for reneging on its contract, and Jardine for its
unwarranted interference and inducement.
Trial then ensued, Demurrer to Evidence filed by Jardine was granted while Pure Foods was
ordered to indemnify FEMSCO. The trial court dismissed the counterclaim filed by Pure Foods
for lack of factual and legal basis.
Upon appeal, Court of Appeals affirmed in toto the decision of the trial court. It also ordered
Jardine and Pure Foods to each pay FEMSCO P2,000,000 as moral damages.

Issue: Whether or not the award for moral damages is proper.

Ruling: Yes. The award for moral damages to a corporation whose reputation has been
besmirched is proper.
The controversy in this case lies in the consent - whether there was an acceptance of the offer,
and if so, if it was communicated, thereby there is a perfected contract.
Article 1326 of the Civil Code, provides that "advertisements for bidders are simply invitations
to make proposals," accordingly, the Terms and Conditions of the Bidding disseminated by
petitioner Pure Foods constitutes the "advertisement" to bid on the project. The bid proposals or
quotations submitted by the prospective suppliers including respondent FEMSCO, are the offer
and, the reply of petitioner Pure Foods, the acceptance or rejection of the respective offers. The
December 12, 1992 letter of petitioner Pure Foods to FEMSCO constituted acceptance of
respondent FEMSCO’s offer as contemplated by law.
Hence, by the unilateral cancellation of the contract, the defendant has acted with bad faith and
this was further aggravated by the subsequent inking of a contract between defendant Pure foods
and erstwhile co-defendant Jardine. It is very evident that Pure foods thought that by the
expedient means of merely writing a letter would automatically cancel or nullify the existing
contract entered into by both parties after a process of bidding. This, to the Court’s mind, is a
flagrant violation of the express provisions of the law and is contrary to fair and just dealings to
which every man is due.
In the instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished
after it immediately ordered equipment from its suppliers on account of the urgency of the
project, only to be canceled later. The Court thus sustain respondent appellate court's award of
moral damages. However, the award is reduced from P2,000,000.00 to P1,000,000.00, as moral
damages are never intended to enrich the recipient.
Further, the Court finds no sufficient evidence on record to support the allegation that Jardine
induced Pure Foods to violate the contract with FEMSCO and therefore the award for moral
damages is not granted.

2.1.1.5 Practice of profession

A corporation cannot engage in the practice of a profession

Exception: RA No. 9266

Samahan ng Optometrists v. Acebedo International Corp., 270 SCRA 298 (1997)

Topic: Practice of Profession

Doctrine: The fact that private respondent hires optometrists who practice their profession in the
course of their employment in private respondent's optical shops, does not translate into a
practice of optometry by private respondent itself.

Facts: On February 22, 1991, private respondent filed an application with the Office of the
Mayor of Candon, Ilocos Sur, for the issuance of a permit for the opening and operation of a
branch of the Acebedo Optical in that municipality.

The application was opposed by the Samahan ng Optometrists sa Pilipinas (SOP) which
contended that private respondent is a juridical entity not qualified to practice optometry. Private
respondent filed its answer, arguing it is not the corporation, but the optometrists employed by it,
who would be practicing optometry.
A committee was formed to address the issuance of permit for Acebedo. The committee rendered
a decision denying [private respondent's] application for a mayor's permit to operate a branch in
Candon and ordering x xx [private respondent] to close its establishment.
Respondent filed with the Court of Appeals a petition for certiorari questioning the decision of
respondent committee. Its petition, however, was referred to the trial court which dismissed its
petition on the grounds that it is operating an optical shop and it is practicing optometry where its
charter does not grant to it authority to practice the former.
Upon appeal, CA reversed the trial court’s decision ruling that, Acebedo International
Corporation is not an optical clinic. Nor is it - but rather the optometrists employed by it who are
- engaged in the practice of optometry. It simply dispenses optical and ophthalmic instruments
and supplies and that the Optometry Law does not prohibit corporations, like . . . [private
respondent] from employing licensed optometrists, what it prohibits is the practice of the
profession without license by those engaged in it.

Issue: Whether or not Acebedo International Corporation violated the Optometry Law and the
Corporation Code when it employed optometrists to engage in the practice of optometry under its
name and for its behalf

Ruling: No. The fact that private respondent hires optometrists who practice their profession in
the course of their employment in private respondent's optical shops, does not translate into a
practice of optometry by private respondent itself. Private respondent is a corporation created
and organized for the purpose of conducting the business of selling optical lenses or eyeglasses,
among others.
The clientele of private respondent understandably, would largely be composed of persons with
defective vision and thus need the proper lenses to correct the same and enable them to gain
normal vision. The determination of the proper lenses to sell to private respondent's clientele
entails the employment of optometrists who have been precisely trained for that purpose. Private
respondent's business is not the determination itself of the proper lenses needed by persons with
defective vision. Private respondent's business, rather, is the buying and importing of eyeglasses
and lenses and other similar or allied instruments from suppliers thereof and selling the same to
consumers.
It is significant to note that even under RA. No. 8050, known as the Revised Optometry Law, we
find no prohibition against the hiring by corporations of optometrists. Hence, there is no law that
prohibits the hiring by corporations of optometrists or considers the hiring by corporations of
optometrists as a practice by the corporation itself of the profession of optometry.

Alfafara v. Acebedo Optical Company, 381 SCRA 293 (2002)

Topic: Practice of Profession

Doctrine: A corporation cannot be engaged in a practice of a profession, whether directly or

indirectly, through its hired employees

Facts: Alfafara and other petitioners are optometrists and members of the Samahan ng
Optometrists sa Pilipinas – Cebu Chapter. They brought an injunctive suit in the RTC to enjoin
Acebedo Optical Co., Inc. and its agents/representatives/employees from practicing optometry in
Cebu. They alleged that Acebedo opened several optical shops in Cebu and advertised the
availability of “ready-to-wear” (RTW) eyeglasses for sale and free services by optometrists in
such outlets. They claimed that through the licensed optometrists under its employ, Acebedo
Optical Co., Inc. had been engaging in the practice of optometry by examining the human eye,
analyzing the ocular functions, prescribing ophthalmic lenses, prisms, and contact lenses; and
conducting ocular exercises, visual trainings, orthoptics, prosthetics, and other preventive or
corrective measures for the aid, correction, or relief of the human eye. Such acts were done in
violation of the Optometry Law (R.A. No. 1998) and the Code of Ethics for Optometrists.
Their evidence showed Acebedo’s advertisements of its RTW eyeglasses. A witness testified that
he purchased a pair of eyeglasses without any prior eye examination by an optometrist and later
on had visual difficulty. Optometrists sought to prove that the selling of RTW eyeglasses by
Acebedo was detrimental to the public.
Acebedo averred that the advertisements were part of the promotion of its new branches in Cebu;
that incidental to its business of selling optical products, it hired duly licensed optometrists who
conducted eye examination, prescribed ophthalmic lenses, and rendered other services; that it
exercised neither control nor supervision over the optometrists under its employ; and that the
hired optometrists exercised neither control nor supervision in the sale of optical products and
accessories by Acebedo. Acebedo maintained that before the customers purchased the RTW
eyeglasses on display, they either have a prior prescription from an optometrist or had to be
examined first by the branch optometrist.
RTC rendered judgment in favor of the optometrists ruling that the hiring of licensed
optometrists by Acebedo was unlawful because it resulted in the practice of the optometry
profession by Acebedo, a juridical person. As to whether Acebedo’s selling of RTW eyeglasses
without prior eye examination violated applicable laws and was detrimental to the public, RTC
ruled that the doctors failed to substantiate such claim.
Acebedo appealed to the CA which reversed and dismissed the complaint of the optometrists.
Citing the case of Samahan ng Optometrists sa Pilipinas, Ilocos Sur-Abra Chapter v. Acebedo
International Corporation, the CA ruled that Acebedo’s hiring of licensed optometrists did not
constitute practice of optometry nor violate any law. However, anent other minor issues, court
ruled in favor of the optometrists. (It was not necessary to implead the optometrists, who were
not indispensable parties since the decision would only affect Acebedo; the issue was only
against its hiring of optometrists. Optometrists committed no forum shopping since the
administrative case before the Professional Regulation Commission was not decided on the
merits while their letters sent to government officials did not constitute judicial proceedings).
The optometrists filed a motion for reconsideration but their motion was denied.

Hence, petition for certiorari alleging that the CA erred in holding that Acebedo was not engaged
in the practice of optometry.

Issue: Whether Acebedo Optical Co., Inc. engaged in the practice of optometry?

Ruling:
Optometrists’ argument #1:
Optometrists contend that the case Samahan ng Optometrists sa Pilipinas, Ilocos Sur-Abra
Chapter v. Acebedo International Corporation (1997) used by the CA to rule in favor of Acebedo
was no longer controlling because of the later case of Apacionado v. Professional Regulation
Commission (1999).
In Apacionado v. PRC, 2 optometrists who were employed by Acebedo were suspended from the
practice of optometry for 2 years by the Board of Optometry for violation of RA 1998 and Art.
III, §6 of the Code of Ethics for Optometrists for having participated in the promotional
advertisement of Acebedo, entitled “Libreng Konsulta sa Mata: Reading Glasses P60.00.” The
SC affirmed the suspension, because the services of the optometrists were the ones being offered
to the public for free.
Petitioners contend that the optometrists violated the law, through Acebedo. They cannot deny
that it was their skills as optometrists as well as their licenses which Acebedo used in order to
enable itself to render optometric services to its clientele. Under such arrangement, the
optometrists acted as tools of Acebedo so that the latter can offer the whole package of services
to its clientele.

Court says: The contention has no merit.

An “optometrist” is a person who has been certified by the Board of Optometry and registered
with the Professional Regulation Commission as qualified to practice optometry in the
Philippines. Thus, only natural persons can engage in the practice of optometry and not
corporations. Acebedo, which is not a natural person, cannot take the licensure examinations for
optometrist and, therefore, it cannot be registered as an optometrist under R.A. No. 1998.
It is noteworthy that, in Apacionado, the Court did not find Acebedo to be engaged in the
practice of optometry. The optometrists in that case were found guilty for having participated, in
their capacities as optometrists, in the implementation of the promotional advertisement of
Acebedo.
In contrast, in the case at bar, Acebedo is merely engaged in the business of selling optical
products, not in the practice of optometry, whether directly or indirectly, through its hired
optometrists.
There is no reason to deviate from the ruling in the case of Samahan ng Optometrists vs.
Acebedo International Corp., that a duly licensed optometrist is not prohibited from being
employed by Acebedo and that Acebedo cannot be said to be exercising the optometry profession
by reason of such employment.

Optometrists’ argument #2:

Optometrists argue that an optometrist, who is employed by a corporation, such as Acebedo, is
not acting on his own capacity but as an employee or agent of the corporation. They contend
that, as a mere employee or agent, such optometrist cannot be held personally liable for his acts
done in the course of his employment as an optometrist under the following provisions of the
Civil Code.

Court says: This contention likewise has no merit.

While the optometrists are employees of Acebedo, their practice of optometry is separate and
distinct from the business of Acebedo of selling optical products. They are personally liable for
acts done in the course of their practice in the same way that if Acebedo is sued in court in
connection with its business of selling optical products, the optometrists need not be impleaded
as party defendants. In that regard, the Board of Optometry and the Professional Regulation
Commission regulate their practice and have exclusive original jurisdiction over them.
In the later case of Acebedo Optical Company, Inc. v. Court of Appeals, Acebedo was granted by
the City Mayor of Iligan a business permit subject to certain conditions. The Samahang
Optometrist sa Pilipinas-Iligan Chapter sought the cancellation and/or revocation of Acebedo’s
permit on the ground that it had violated the conditions for its business permit. After due
investigation, Acebedo was found guilty of violating the conditions of its permit and, as a
consequence, its permit was cancelled.
The SC held that a business permit is issued primarily to regulate the conduct of a business and,
therefore, the City Mayor cannot, through the issuance of such permit, regulate the practice of a
profession, like optometry. The SC held Acebedo to be entitled to a permit to do business as an
optical shop because, although it had duly licensed optometrists in its employ, it did not apply for
a license to engage in the practice of optometry as a corporate body or entity.

2.1.2 Doctrine of piercing the veil of corporate fiction

2.1.2.1 Defeat public convenience

Sarona v. NLRC, et al., G.R. No. 185280, January 18, 2012

Topic: Doctrine of piercing the veil of corporate fiction (Defeat public convenience)
Doctrine: 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.

FACTS: Petitioner, a security guard in Sceptre since April 1976, was asked by Sceptre’s
operations manager to submit a resignation letter as a requirement for an application in Royale
and to fill up an employment application form for the said company. He was then assigned at
Highlight Metal Craft Inc. from July 29 to August 8, 2003 and was later transferred to Wide
Wide World Express Inc.
On September 2003, he was informed that his assignment at WWWE Inc. was withdrawn
because Royale has been allegedly replaced by another security agency which he later
discovered to be untrue. Nevertheless, he was once again assigned at Highlight Metal sometime
in September 2003and when he reported at Royale’s office on October 1, 2003, he was informed
that he would no longer be given any assignment as instructed by Sceptre’s general manager. He
thus filed a complaint for illegal dismissal.

ISSUE: Whether or not Royale’s corporate fiction should be pierced for the purpose of
compelling it to recognize the petitioner’s length of service with Sceptre and for holding it liable
for the benefits that have accrued to him arising from his employment with Sceptre.

RULING: YES. The doctrine of piercing the corporate veil is applicable on alter ego cases,
where a corporation is merely a farce since it is a mere alter ego or business conduit of a person,
or where the corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation.
The respondents’ scheme reeks of bad faith and fraud and compassionate justice dictates that
Royale and Sceptre be merged as a single entity, compelling Royale to credit and recognize the
petitioner’s length of service with Sceptre. The respondents cannot use the legal fiction of a
separate corporate personality for ends subversive of the policy and purpose behind its creation
or which could not have been intended by law to which it owed its being.
Also, Sceptre and Royale have the same principal place of business. As early as October 14,
1994, Aida and Wilfredo became the owners of the property used by Sceptre as its principal
place of business by virtue of a Deed of Absolute Sale they executed with Roso. Royale, shortly
after its incorporation, started to hold office in the same property. These, the respondents failed to
dispute. Royale also claimed a right to the cash bond which the petitioner posted when he was
still with Sceptre. If Sceptre and Royale are indeed separate entities, Sceptre should have
released the petitioner’s cash bond when he resigned and Royale would have required the
petitioner to post a new cash bond in its favor.
The way on how petitioner was made to resign from Sceptre then later on made an employee of
Royale, reflects the use of the legal fiction of the separate corporate personality and is an
implication of continued employment. Royale is a continuation or successor or Sceptre since the
employees of Sceptre and of Royale are the same and said companies have the same principal
place of business.

Enriquez Security Services, Inc. v. Cabotaje, G.R. No. 147993, July 21, 2006, 496 SCRA 169

Topic: Doctrine of piercing the veil of corporate fiction (Defeat public convenience)

Doctrine: In appropriate cases, the veil of corporate fiction may be pierced as when it is used as
a means to perpetrate a social injustice or as a vehicle to evade obligations.—The attempt to
make the security agencies appear as two separate entities, when in reality they were but one,
was a devise to defeat the law and should not be permitted. Although respect for corporate
personality is the general rule, there are exceptions. In appropriate cases, the veil of corporate
fiction may be pierced as when it is used as a means to perpetrate a social injustice or as a
vehicle to evade obligations. Petitioner was thus correctly ordered to pay respondent’s retirement
under RA 7641, computed from January 1979 up to the time he applied for retirement in July
1997.

FACTS: Sometime in January 1979, respondent Victor A. Cabotaje was employed as a security
guard by Enriquez Security and Investigation Agency (ESIA). On November 13, 1985, petitioner
Enriquez Security Services, Inc. (ESSI) was incorporated.
Respondent continued to work as security guard in petitioner’s agency. On reaching the age of 60
in July 1997, respondent applied for retirement.
Petitioner acknowledged that respondent was entitled to retirement benefits but opposed his
claim that the computation of such benefits must be reckoned from January 1979 when he started
working for ESIA. It claimed that the benefits must be computed only from November 13, 1985
when ESSI was incorporated.
Respondent consequently filed a complaint in the National Labor Relations Commission
(NLRC) seeking the payment of retirement benefits under Republic Act No. (RA) 7641,
otherwise known as the Retirement Pay Law.2
On January 15, 1999, labor arbiter Eduardo Carpio decided in respondent’s favor:
Complainant is entitled to retirement pay. This entitlement was not denied by
respondents. xxx The computation of this benefits shall cover the entire period of his
employment from January 1979 up to July 16, 1997 based on his latest monthly salary of
P5,383.15 per the payroll sheet submitted by respondents. While respondents claim that
respondent corporation was merely registered with the DOTC on November 13, 1985,
they did not deny however that complainant was an employee of the then Enriquez
Security and Investigation Agency, and that complainant’s services with the said security
agency up to the present respondent corporation was uninterrupted. The obligation of the
new company involves not only to absorb the workers of the dissolved company, but also
to include the length of service earned by the absorbed employee with their former
employer as well. To rule otherwise would be manifestly less than fair, certainly less than
just and equitable.
On appeal, the NLRC set aside the labor arbiter’s award of one-month salary for every year of
service for being excessive. It ruled that under RA 7641, respondent Cabotaje was entitled to
retirement pay equivalent only to one-half month salary for every year of service.
On March 15, 2000, the NLRC denied petitioner’s motion for reconsideration.
On May 25, 2000, petitioner filed a special civil action for certiorari with the Court of Appeals.
On September 26, 2000, the appellate court affirmed the NLRC decision. It also denied the
motion for reconsideration on May 8, 2001.

ISSUE: Whether or not the petitioner’s veil of corporate fiction should be pierced.

RULING: YES. The consistent rulings of the labor arbiter, the NLRC and the appellate court
should be respected and petitioner’s veil of corporate fiction should likewise be pierced. These
are based on the following uncontroverted facts: (1) respondent worked with ESIA and petitioner
ESSI; (2) his employment with both security agencies was continuous and uninterrupted; (3)
both agencies were owned by the Enriquez family and (4) petitioner ESSI maintained its office in
the same place where ESIA previously held office.
The attempt to make the security agencies appear as two separate entities, when in reality they
were but one, was a devise to defeat the law and should not be permitted. Although respect for
corporate personality is the general rule, there are exceptions. In appropriate cases, the veil of
corporate fiction may be pierced as when it is used as a means to perpetrate a social injustice or
as a vehicle to evade obligations. Petitioner was thus correctly ordered to pay respondent’s
retirement under RA 7641, computed from January 1979 up to the time he applied for retirement
in July 1997.

2.1.2.2 Fraud cases

Umali v. Court of Appeals, G.R. No. 89561, September 13, 1990

Topic: Doctrine of piercing the veil of corporate fiction (Fraud cases)

Doctrine: To set aside a document solemnly executed, proof of fraud must be clear.—Neither will
an allegation of fraud prosper in this case where petitioners failed to show that they were
induced to enter into a contract through the insidious words and machinations of private
respondents without which the former would not have executed such contract. To set aside a
document solemnly executed and voluntarily delivered, the proof of fraud must be clear and
convincing.

Piercing the veil of corporate entities, not proper remedy when the corporation employed fraud
in the foreclosure proceedings.—Under the doctrine of piercing the veil of corporate entity, when
valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or stockholders may be disregarded. In such
cases, the corporation will be considered as a mere association of persons. The members or
stockholders of the corporation will be considered as the corporation that is, liability will attach
directly to the officers and stockholders. The doctrine applies when the corporate fiction is used
to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as
a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.

FACTS: Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The Castillo
family is the owners of a parcel of land located in Lucena City which was given as security for a
loan from the Development Banks of the Philippines. For their failure to pay the amortization,
foreclosure of the said property was about to be initiated. This problem was made known to
Santiago Rivera, who proposed to them the conversion into subdivision of the four (4) parcels of
land adjacent to the mortgaged property to raise the necessary fund. The idea was accepted by
the Castillo family and to carry out the project, a Memorandum of Agreement was executed by
and between Slobec Realty and Development, Inc., represented by its President Santiago Rivera
and the Castillo family.
In this agreement, Santiago Rivera obliged himself to pay the Castillo family the sum of
P70,000.00 immediately after the execution of the agreement and to pay the additional amount of
P400,000.00 after the property has been converted into a subdivision. Rivera, armed with the
agreement, approached Mr. Modesto Cervantes, President of defendant Bormaheco, and
proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8. Subsequently, a
Sales Agreement was executed on December 28, 1970, which was accepted by the latter and
executed Sales Agreement. The balance of the consideration was secured by a surety bond from
ICP (Insurance Corporation of the Phil.) which was in turn secured by a mortgage, the properties
of the Castillos.

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

RULING: NO. Petitioners seek to pierce the veil of corporate entity of Bormaheco, ICP and PM
Parts, alleging that these corporations employed fraud in causing the foreclosure and subsequent
sale of the real properties belonging to petitioners.
In the instant case, petitioners do not seek to impose a claim against the individual members of
the three corporations involved; on the contrary, it is these corporations which desire to enforce
an alleged right against petitioners. Assuming that petitioners were indeed defrauded by private
respondents in the foreclosure of the mortgaged properties, this fact alone is not, under the
circumstances, sufficient to justify the piercing of the corporate fiction, since petitioners do not
intend to hold the officers and/or members of respondent corporations personally liable therefore.
Petitioners are merely seeking the declaration of the nullity of the foreclosure sale, which relief
may be obtained without having to disregard the aforesaid corporate fiction attaching to
respondent corporations. Secondly, petitioners failed to establish by clear and convincing
evidence that private respondents were purposely formed and operated, and thereafter transacted
with petitioners, with the sole intention of defrauding the latter.
The mere fact, therefore, 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.

Mendoza and Yotoko v. Banco Real Development Bank, G.R. No. 140923, September 16, 2005

Topic: Doctrine of piercing the veil of corporate fiction (Fraud case)

Doctrine: Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; Obligations
incurred by a corporation, acting through its directors, officers or employees, are its sole
liabilities, but the veil with which the law covers and isolates the corporation from its directors,
officers or employees will be lifted when the corporation is used by any of them as a cloak or
cover for fraud or illegality or injustice.—The general rule is that obligations incurred by a
corporation, acting through its directors, officers or employees, are its sole liabilities. However,
the veil with which the law covers and isolates the corporation from its directors, officers or
employees will be lifted when the corporation is used by any of them as a cloak or cover for
fraud or illegality or injustice.

FACTS: The petition alleges that on August 7, 1985, the Board of Directors of Technical Video,
Inc. (TVI) passed a Resolution authorizing its President, Eduardo A. Yotoko, petitioner, or its
General Manager-Secretary-Treasurer, Manuel M. Mendoza, also a petitioner, to apply for and
secure a loan from the Pasay City Banco Real Development Bank (now LBC Development
Bank), herein respondent.
On September 11, 1985, respondent bank extended a loan of P500,000.00 to TVI. In his capacity
as General Manager, petitioner Mendoza executed a promissory note and chattel mortgage over
195 units of Beta video machines and their equipment and accessories belonging to TVI in favor
of respondent bank.
On October 3, 1986, TVI and two other video firms, Fox Video and Galactica Video, organized a
new corporation named FGT Video Network Inc. (FGT). It was registered with the Securities
and Exchange Commission. Petitioner Mendoza was the concurrent President of FGT and
Operating General Manager of TVI. Thus, the office of TVI had to be transferred to the building
of FGT for easier monitoring of the distribution and marketing aspects of the business.
For TVI’s failure to pay its loan upon maturity, respondent bank, on January 26, 1987, filed with
the Office of the Clerk of Court of the Regional Trial Court (RTC), Pasay City, a petition for
Extra Judicial Foreclosure and Sale of Chattel Mortgage.
However, the Sheriff’s Report/Return dated January 27, 1987 shows that TVI is no longer doing
business at its given address; that its General Manager, Mr. Manuel M. Mendoza, is presently
employed at FGT Video Network with offices at the Philcemcor Bldg., No. 4 Edsa cor.
Connecticut St., Greenhills, San Juan, Metro Manila; that when asked about the whereabouts of
the video machines, in the presence of the representative of respondent bank and its counsel, Mr.
Mendoza denied any knowledge of their whereabouts; and that action on respondent’s petition is
indefinitely postponed until further notice from the bank.
Respondent then wrote TVI demanding the surrender of the video machines. TVI simply refused
and ignored the demand and kept silent as to the whereabouts of the video machines.
On July 13, 1990, respondent bank filed with the RTC, Branch 110, Pasig City,7 a complaint for
collection of a sum of money against TVI, FGT and petitioners. Only petitioners filed their joint
answer to the complaint.
In their joint answer, petitioners specifically denied the allegations in the complaint, raising the
defense that the loan is purely a corporate indebtedness of TVI. Hence, the instant petition.

ISSUE: Whether herein petitioners are personally liable for TVI’s indebtedness of P500,000.00
with respondent bank.

RULING: YES. Both the trial court and the Appellate Court found that the petitioners
transferred the Beta video machines from TVI to FGT without the consent of respondent bank.
Also, upon inquiry of the sheriff, petitioner Mendoza declined knowledge of the whereabouts of
the mortgaged video machines. Moreover, the fact that the NBI seized the video machines from
FGT glaringly shows that petitioners transferred the same from TVI. More importantly, a
comparison of the list of video machines in the Chattel Mortgage Contract and the list of video
machines seized by the NBI from FGT shows that they have the same serial numbers.
The courts below also found that TVI is petitioners’ mere alter ego or business conduit. They
control the affairs of TVI. Among its stockholders or directors, they were the only ones who
became incorporators of FGT. They transferred the assets of TVI to FGT.
The general rule is that obligations incurred by a corporation, acting through its directors,
officers or employees, are its sole liabilities. However, the veil with which the law covers and
isolates the corporation from its directors, officers or employees will be lifted when the
corporation is used by any of them as a cloak or cover for fraud or illegality or injustice. Here,
the fraud was committed by petitioners to the prejudice of respondent bank. It bears emphasis
that as reported by the sheriff, TVI is no longer doing business at its given address and its
whereabouts cannot be established as yet. Obviously, they acted in bad faith to defraud
respondent bank.

Heirs of Pajarillo v. Court of Appeals, G.R. Nos. 150056-57, October 19, 2007

Doctrine: Labor Law; Corporation Law; Piercing the Veil of Corporate Fiction; The
corporate mask may be lifted and the corporate veil may be pierced when a corporation is but the
alter ego of a person or another corporation. —It is a fundamental principle of corporation law
that a corporation is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. However, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to promote justice. Hence,
when the notion of separate juridical personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime, or is used as a device to defeat labor laws, this separate
personality of the corporation may be disregarded or the veil of the corporate fiction pierced.
This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego
of another corporation. The corporate mask may be lifted and the corporate veil may be pierced
when a corporation is but the alter ego of a person or another corporation.

Facts: Panfilo V. Pajarillo (Panfilo) was the owner and operator of several buses plying certain
routes in Metro Manila. He used the name "PVP Liner" in his buses. Private respondents were
employed as drivers, conductors and conductresses by Panfilo. Private respondents worked at
least four times a week or for an average of fifteen working days per month. They were required
to observe a work schedule starting from 4:00 in the morning up to 10:00 in the evening on a
straight time basis. Private respondent drivers were paid a daily commission of 10%, while
private respondent conductors and conductresses received a daily commission of 7%. In sum,
each of the private respondents earned an average daily commission of about P150.00 a day.
They were not given emergency cost of living allowance (ECOLA), 13th month pay, legal
holiday pay and service incentive leave pay. 5 The following were deducted from the private
respondents' daily commissions: (a) costs of washing the assigned buses; (b) terminal fees; (c)
fees for sweeping the assigned buses; (d) fees paid to the barangay tanod at bus terminals; and
(e) rental fees for the use of stereo in the assigned buses. Any employee who refused such
deductions were either barred from working or dismissed from work. 6 Private respondents and
several co-employees formed a union called "SAMAHAN NG MGA MANGGAGAWA NG
PANFILO V. PAJARILLO". Upon learning of the formation of respondent union, Panfilo and his
children ordered some of the private respondents to sign a document affirming their trust and
confidence in Panfilo and denying any irregularities on his part. Other private respondents were
directed to sign a blank document which turned out to be a resignation letter. Private respondents
refused to sign the said documents, hence, they were barred from working or were dismissed
without hearing and notice. Panfilo and his children and relatives also formed a company union
where they acted as its directors and officers. Respondent union and several employees filed a
Complaint for unfair labor practice and illegal deduction before the Labor Arbiter with "Panfilo
V. Pajarillo Liner" as party-respondent. The respondent union filed an Amended Complaint
alleging this time not only unfair labor practice and illegal deduction but also illegal dismissal.
Respondent union and several employees filed another Complaint for violation of labor standard
laws claiming non-payment of (1) ECOLA, (2) 13th month pay, (3) overtime pay, (4) legal
holiday pay, (5) premium pay, and (6) service incentive leave. Panfilo denied the charges in the
complaints. He maintained that private respondents were not dismissed from work on account of
their union activities; that private respondents and several of their co-employees either resigned
or were separated from work, or simply abandoned their employment long before the respondent
union was organized and registered with the DOLE; that the private respondents are not entitled
to ECOLA and 13th month pay because they received wages above the minimum provided by
law; that the private respondents are not entitled to overtime and legal holiday pay because these
are already included in their daily commissions; that the private respondents are not entitled to
five days incentive leave pay because they work only four days a week; that no deductions were
made in the daily commissions of the private respondents; that the private respondents
voluntarily and directly paid certain individuals for barangay protection and for the cleaning of
the assigned buses; that he had no participation in these activities/arrangements; that the private
respondents were not dismissed from work; and that the private respondents either abandoned
their jobs or voluntarily resigned from work. On 29 January 1991, Panfilo died. Labor Arbiter
Manuel P. Asuncion rendered a Decision dismissing the consolidated complaints for lack of
merit. Respondent union appealed to the NLRC which reversed the decision of Arbiter Asuncion
and ordered the reinstatement of, and payment of back wages, ECOLA, 13th month pay, legal
holiday pay and service incentive leave pay to, private respondents. Respondent union filed a
motion for reconsideration but this was denied by the NLRC Court of Appeals rendered a
Decision granting the respondent union's petition and nullifying the Orders of the NLRC.
Panfilo's counsel filed a motion for reconsideration but this was denied by the appellate court.

Issue: W/N petitioners is correct that no unfair labor practice was committed, and that private
respondents were not illegally dismissed from work.

Held: NLRC made an exhaustive discussion of the allegations and evidence of both parties as
regards unfair labor practice and illegal dismissal. It concluded that private respondents, officers
and members of respondent union were dismissed by reason of their union activities and that
there was no compliance with substantial and procedural due process in terminating their
services. It also held that the private respondents who were not members of the respondent union
were also dismissed without just or valid cause, and that they were denied due process. These
factual findings and conclusions were supported by substantial evidence comprised of affidavits,
sworn statements, testimonies of witnesses during hearings before Arbiter Asuncion, and other
documentary evidence. These findings were sustained by the Court of Appeals. The rule is that
findings of fact of quasi-judicial agencies like the NLRC are accorded by this Court not only
respect but even finality if they are supported by substantial evidence, or that amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion. We find no
compelling reason to deviate from such findings of the NLRC as affirmed by the Court of
Appeals. Consequently, the private respondents are entitled to reinstatement, backwages and
other privileges and benefits under Article 279 of the Labor Code. Separation pay may be given
in lieu of reinstatement if the employee concerned occupies a position of trust and confidence.
The private respondents, as former bus drivers, conductors and conductresses of petitioners, do
not hold the position of trust and confidence. Nonetheless, it appears from the records that some
of the private respondents, had executed a Quitclaim/Release discharging petitioners " from any
and all claims by way of unpaid wages, separation pay, overtime pay, differential pay, ECOLA,
13th month pay, holiday pay, service incentive leave pay or otherwise." Generally, deeds of
release, waivers, or quitclaims cannot bar employees from demanding benefits to which they are
legally entitled or from contesting the legality of their dismissal, since quitclaims are looked
upon with disfavor and are frowned upon as contrary to public policy. Where, however, the
person making the waiver has done so voluntarily, with a full understanding thereof, and the
consideration for the quitclaim is credible and reasonable, the transaction must be recognized as
being a valid and binding undertaking. There is no showing that the executions of these
quitclaims were tainted with deceit or coercion. On the contrary, each of the private respondents'
Sinumpaang Salaysay, which accompanied the quitclaims, evinces voluntariness and full
understanding of the execution and consequence of the quitclaim. In their said Sinumpaang
Salaysay, the private respondents stated that their lawyer had extensively explained to them the
computation and the actual amount of consideration they would receive; that they were not
forced or tricked by their lawyer in accepting the same; and that they already received the
amount of consideration. Further, the considerations received by the private respondents were
credible and reasonable because they were not grossly disproportionate to the computation by the
NLRC of the amount of backwages and other money claims. The quitclaims should be
considered as binding on the private respondents who executed them. It is settled that a
legitimate waiver which represents a voluntary and reasonable settlement of a worker's claim
should be respected as the law between the parties. Accordingly, the private respondents who
made such quitclaims are already precluded from claiming reinstatement, backwages, ECOLA,
13TH month pay, legal holiday pay, service incentive leave pay, and other monetary claims. With
regard to the other private respondents who did not execute such quitclaims, they are entitled to
reinstatement, backwages, ECOLA, 13TH month pay, legal holiday pay and service incentive
leave pay in accordance with the computation of the NLRC.

2.1.2.3 Alter ego cases

International Academy of Management and Economic v. Litton and Company, Inc., G.R. No.
191525, December 13, 2017

Zambrano, et al. v. Phil. Carpet Manufacturing Corporation, et al., G.R. No. 224099, June 21,
2017

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

Heirs of Pajarillo v. Court of Appeals, G.R. Nos. 150056-57, October 19, 2007

Tomas Lao Construction v. NLRC, G.R. No. 116781, September 5, 1997

DOCTRINE: Piercing the Veil of Corporate Fiction; Where it appears that [three] business
enterprises are owned, conducted and controlled by the same parties, both law and equity will,
when necessary to protect the rights of third persons, disregard the legal fiction that the three
corporations are distinct entities, and treat them as identical.

FACTS: From October to December 1990 private respondents individually filed complaints for
illegal dismissal against petitioners with the National Labor Relations Commission Regional
Arbitration Branch No. VIII (NLRC-RAB VIII), Tacloban City. Alleging that they were hired for
various periods as construction workers in different capacities they described their contractual
terms.
Within the periods of their respective employment, they alternately worked for petitioners Tomas
Lao Corporation (TLC), Thomas and James Developers (T&J) and LVM Construction
Corporation (LVM), altogether informally referred to as the "Lao Group of Companies," the
three (3) entities comprising a business conglomerate exclusively controlled and managed by
members of the Lao family.
TLC, T&J and LVM are engaged in the construction of public roads and bridges. Under joint
venture agreements they entered into among each other, they would undertake their projects
either simultaneously or successively so that, whenever necessary, they would lease tools and
equipment to one another. Each one would also allow the utilization of their employees by the
other two (2).
Sometime in 1989 Andres Lao, Managing Director of LVM and President of T&J, 3 issued a
memorandum 4 requiring all workers and company personnel to sign employment contract forms
and clearances which were issued on 1 July 1989 but antedated 10 January 1989. To ensure
compliance with the directive, the company ordered the withholding of the salary of any
employee who refused to sign. Quite notably, the contracts expressly described the construction
workers as project employees whose employments were for a definite period, i.e., upon the
expiration of the contract period or the completion of the project for which the workers was
hired.
Except for Florencio Gomez 5 all private respondents refused to sign contending that this scheme
was designed by their employer to downgrade their status from regular employees to mere
project employees. Resultantly, their salaries were withheld. They were also required to explain
why their services should not be terminated for violating company rules and warned that failure
to satisfactorily explain would be construed as "disinterest" in continued employment with the
company. Since the workers stood firm in their refusal to comply with the directives their
services were terminated.
NLRC RAB VIII dismissed the complaints lodged before it, finding that private respondents
were project employees whose employments could be terminated upon completion of the
projects or project phase for which they were hired. The decision of Labor Arbiter was reversed
on appeal by the Fourth Division of the National Labor Relations Commission (NLRC) of Cebu
City which found that private respondents were regular employees who were dismissed without
just cause and denied due process.
NLRC disregarded the veil of corporate fiction and treated the three (3) corporations as forming
only one entity on the basis of the admission of petitioners that "the three (3) operated as one (1),
intermingling and commingling all its resources, including manpower facility.

ISSUE: W/N the NLRC erred in disregarding the veil of corporate fiction.

RULING: NO.
Public respondent NLRC did not err in disregarding the veil of separate corporate personality
and holding petitioners jointly and severally liable for private respondents’ back wages and
separation pay. The records disclose that the three (3) corporations were in fact substantially
owned and controlled by members of the Lao family composed of Lao Hian Beng alias Tomas
Lao, Chiu Siok Lian (wife of Tomas Lao), Andrew C. Lao, Lao Y. Heng, Vicente Lao Chua, Lao
E. Tin, Emmanuel Lao and Ismaelita Maluto. A majority of the outstanding shares of stock in
LVM and T&J is owned by the Lao family. T&J is 100% owned by the Laos as reflected in its
Articles of Incorporation. The Lao Group of Companies therefore is a closed corporation where
the incorporators and directors belong to a single family. Lao Hian Beng is the same Tomas Lao
who owns Tomas Lao Corporation and is the majority stockholder of T&J. Andrew C. Lao is the
Managing Director of LVM Construction, and President and Managing Director of the Lao
Group of Companies. Petitioners are engaged in the same line of business under one
management and use the same equipment including manpower services. Where it appears that
three business enterprises are owned, conducted and controlled by the same parties, both law and
equity will, when necessary to protect the rights of third persons, disregard the legal fiction that
the three corporations are distinct entities, and treat them as identical.

Concept Builders, Inc. v. NLRC, G.R. No. 108734, May 29, 1996, 257 SCRA 149

DOCTRINE: Doctrine of Piercing the Veil of Corporate Fiction; The separate and distinct
personality of a corporation is Doctrine of Piercing the Veil of Corporate Fiction is merely a
fiction created by law for convenience and to promote justice; When the notion of separate
juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend
crime, or is used as a device to defeat the labor laws, this separate personality of the corporation
may be disregarded or the veil of corporate fiction pierced.

FACTS: Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355
Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private
respondents were employed by said company as laborers, carpenters and riggers.
Public respondent found it to be, the fact, however, that at the time of the termination of private
respondent’s employment, the project in which they were hired had not yet been finished and
completed. Petitioner had to engage the services of sub-contractors whose workers performed the
functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and
non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.
The Labor Arbiter ruled against petitioner and ordered to reinstate private respondents and to pay
them their backwages.
A writ of execution directing the sheriff to execute the Decision, dated December 19, 1984. The
writ was partially satisfied through garnishment of sums from petitioner’s debtor, the
Metropolitan Waterworks and Sewerage Authority. Thereafter, an Alias Writ of Execution was
issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the sum of
P117,414.76, representing the balance of the judgment award, and to reinstate private
respondents to their former positions.
The alias Writ of Execution cannot be enforced by the sheriff because all the employees inside
petitioner’s premises in Valenzuela claimed that they were employees of Hydro Pipes Inc (HPPI)
and not by petitioner. NLRC then issued a break-even order against Concept Builders and HPPI.
Hence, this present case. Petitioner alleges that NLRC committed grave abuse of discretion when
it ordered the execution of its decision despite a third-party claim on the levied property.
Petitioner further contends that that the doctrine of piercing the corporate veil should not have
been applied in this case in the absence of any showing that it created HPPI in order to evade its
liability to private respondents.

ISSUE: W/N the doctrine of piercing the corporate veil should be applicable in this case.
HELD: YES.
It is a fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it may be connected. But, this
separate and distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion of separate juridical personality is used
to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device
to defeat the labor laws, this separate personality of the corporation may be disregarded or the
veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct,
a business conduit or an alter ego of another corporation.
The conditions under which the juridical entity may be disregarded vary according to the
peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down,
but certainly, there are some probative factors of identity that will justify the application of the
doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is
as follows:jg
1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of:chanrob1es virtual 1aw library
The absence of any one of these elements prevents ‘piercing the corporate veil’. In applying the
‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendant’s relationship to that operation.

In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations
on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission
on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro
Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar
information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro
Manila.
Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of back wages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to petitioner corporation.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open
order issued by the Labor Arbiter.
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated
April 23, 1992 and December 3. 1992. are AFFIRMED.

2.1.2.4 Other cases

Francisco Motors v. Court of Appeals, G.R. No. 100812, June 25, 1999, 309 SCRA 72

DOCTRINE: “Piercing the Veil of Corporate Entity” Doctrine; Basic in corporation law is the
principle that a corporation has a separate personality distinct from its stockholders and from
other corporations to which it may be connected.

FACTS: On January 23, 1985, Francisco Motors filed a complaint against Spouses Gregorio
and Librada Manuel to collect the balance of the jeep body purchased by the Manuels from
petitioner, and the unpaid balance for the cost of the repair of the vehicle.
Private respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel in
the amount of fifty thousand pesos (P50,000) which was not paid by the incorporators, directors
and officers of the petitioner. The trial court decided the case on June 26, 1985, in favor of
petitioner in regard to the petitioner’s claim for money, but also allowed the counter-claim of
private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals sustained the
trial court’s decision. Hence, the present petition.chanrobles virtual la
On the question of its liability for attorney’s fees owing to private respondent Gregorio Manuel,
petitioner argued that being a corporation, it should not be held liable therefor because these fees
were owed by the incorporators, directors and officers of the corporation in their personal
capacity as heirs of Benita Trinidad. Petitioner stressed that the personality of the corporation,
vis-à-vis the individual persons who hired the services of private respondent, is separate and
distinct, hence, the liability of said individuals did not become an obligation chargeable against
petitioner.
Court of Appeals ruled that however, this distinct and separate personality is merely a fiction
created by law for convenience and to promote justice. Accordingly, this separate personality of
the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is
used as a cloak or cover for found (sic) illegality, or to work an injustice, or where necessary to
achieve equity or when necessary for the protection of creditors. Corporations are composed of
natural persons and the legal fiction of a separate corporate personality is not a shield for the
commission of injustice and inequity.
In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is
composed of the heirs of the late Benita Trinidad as directors and incorporators for whom
defendant Gregorio Manuel rendered legal services in the intestate estate case of their deceased
mother. Considering the aforestated principles and circumstances established in this case, equity
and justice demands plaintiff-appellant’s veil of corporate identity should be pierced and the
defendant be compensated for legal services rendered to the heirs, who are directors of the
plaintiff-appellant corporation.

ISSUE: W/N CA erred in applying the Doctrine of Piercing the Corporate Veil.

HELD: Basic in corporation law is the principle that a corporation has a separate personality
distinct from its stockholders and from other corporations to which it may be connected.
However, under the doctrine of piercing the veil of corporate entity, the corporation’s separate
juridical personality may be disregarded, for example, when the corporate identity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the
corporation is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation, then its distinct personality may be ignored.
19 In these circumstances, the courts will treat the corporation as a mere aggrupation of persons
and the liability will directly attach to them. The legal fiction of a separate corporate personality
in those cited instances, for reasons of public policy and in the interest of justice, will be
justifiably set aside.
In our view, however, given the facts and circumstances of this case, the doctrine of piercing the
corporate veil has no relevant application here. Respondent court erred in permitting the trial
court’s resort to this doctrine. The rationale behind piercing a corporation’s identity in a given
case is to remove the barrier between the corporation from the persons comprising it to thwart
the fraudulent and illegal schemes of those who use the corporate personality as a shield for
undertaking certain proscribed activities. However, in the case at bar, instead of holding certain
individuals or persons responsible for an alleged corporate act, the situation has been reversed. It
is the petitioner as a corporation which is being ordered to answer for the personal liability of
certain individual directors, officers and incorporators concerned. Hence, it appears to us that the
doctrine has been turned upside down because of its erroneous invocation. Note that according to
private respondent Gregorio Manuel his services were solicited as counsel for members of the
Francisco family to represent them in the intestate proceedings over Benita Trinidad’s estate.
These estate proceedings did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family members but
also from petitioner corporation on the claims that its management had requested his services and
he acceded thereto as an employee of petitioner from whom it could be deduced he was also
receiving a salary. His move to recover unpaid legal fees through a counterclaim against
Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep
body could only result from an obvious misapprehension that petitioner’s corporate assets could
be used to answer for the liabilities of its individual directors, officers, and incorporators. Such
result if permitted could easily prejudice the corporation, its own creditors, and even other
stockholders; hence, clearly iniquitous to petitioner.
Considering the nature of the legal services involved, whatever obligation said incorporators,
directors and officers of the corporation had incurred, it was incurred in their personal capacity.
When directors and officers of a corporation are unable to compensate a party for a personal
obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting
injustice, and be thereby held liable therefor by piercing its corporate veil. While there are no
hard and fast rules on disregarding separate corporate identity, we must always be mindful of its
function and purpose. A court should be careful in assessing the milieu where the doctrine of
piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may
result from its erroneous application.chanroblesvirtualawlibrary
The personality of the corporation and those of its incorporators, directors and officers in their
personal capacities ought to be kept separate in this case. The claim for legal fees against the
concerned individual incorporators, officers and directors could not be properly directed against
the corporation without violating basic principles governing corporations. Moreover, every
action — including a counterclaim — must be prosecuted or defended in the name of the real
party in interest. 20 It is plainly an error to lay the claim for legal fees of private respondent
Gregorio Manuel at the door of petitioner (FMC) rather than individual members of the
Francisco family.

Wensha Spa Center, Inc. v. Yung, G.R. No. 185122, August 16, 2010

DOCTRINE: Elementary is the rule that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it and from that of any other legal
entity to which it may be related.

FACTS: Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business of sauna bath and
massage services. Xu Zhi Jie a.k.a. Pobby Co (Xu) is its president,[3] respondent Loreta T.
Yung (Loreta) was its administrative manager at the time of her termination from employment.
In her position paper,[4] Loreta stated that she used to be employed by Manmen Services Co.,
Ltd. (Manmen) where Xu was a client. Xu was apparently impressed by Loreta's performance.
After he established Wensha, he convinced Loreta to transfer and work at Wensha. Loreta
introduced positive changes to Wensha which resulted in increased business. This pleased Xu so
that on May 18, 2004, she was promoted to the position of Administrative Manager.
Loreta recounted that on August 10, 2004, she was asked to leave her office because Xu and a
Feng Shui master were exploring the premises. Later that day, Xu asked Loreta to go on leave
with pay for one month. She did so and returned on September 10, 2004. Upon her return, Xu
and his wife asked her to resign from Wensha because, according to the Feng Shui master, her
aura did not match that of Xu. Loreta refused but was informed that she could no longer continue
working at Wensha. That same afternoon, Loreta went to the NLRC and filed a case for illegal
dismissal against Xu and Wensha.
Wensha and Xu denied illegally terminating Loreta's employment.
The Labor Arbiter (LA) Francisco Robles dismissed Loreta's complaint for lack of merit. He
found it more probable that Loreta was dismissed from her employment due to Wensha's loss of
trust and confidence in her.
Loreta moved for a reconsideration of the NLRC's ruling but her motion was denied. Loreta then
went to the CA on a petition for certiorari. The CA reversed the ruling of the NLRC on the
ground that it gravely abused its discretion in appreciating the factual bases that led to Loreta's
dismissal. The CA noted that there were irregularities and inconsistencies in Wensha's position.
The CA ruled that Wensha Spa Center, Inc. and Xu Zhi Jie are jointly and severally liable to
Loreta T. Yung.

ISSUE: W/N the CA erred in holding that Wensha Spa Center and Xu Zhie Jie are jointly and
severally liable assuming that respondent was illegally dismissed.

HELD: The Court finds merit in the argument of petitioner Xu that the CA erred in ruling that
he is solidarily liable with Wensha.
Elementary is the rule that a corporation is invested by law with a personality separate and
distinct from those of the persons composing it and from that of any other legal entity to which it
may be related. "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."
In labor cases, corporate directors and officers may be held solidarily liable with the corporation
for the termination of employment only if done with malice or in bad faith. Bad faith does not
connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty through some motive or interest or
ill will; it partakes of the nature of fraud.
In the subject decision, the CA concluded that petitioner Xu and Wensha are jointly and severally
liable to Loreta. We have read the decision in its entirety but simply failed to come across any
finding of bad faith or malice on the part of Xu. There is, therefore, no justification for such a
ruling. To sustain such a finding, there should be an evidence on record that an officer or
director acted maliciously or in bad faith in terminating the services of an employee. Moreover,
the finding or indication that the dismissal was effected with malice or bad faith should be stated
in the decision itself.

Zaragoza v. Tan, G.R. No. 225544, December 4, 2017

DOCRINE: The doctrine of piercing the veil of corporate fiction comes to play only during the
trial of the case after the court has already acquired jurisdiction over the corporation.
it is therefore correct to say that the court must first and foremost acquire jurisdiction over the
parties; and only then would the parties be allowed to present evidence for and/or against
piercing the veil of corporate fiction. If the court has no jurisdiction over the corporation, it
follows that the court has no business in piercing its veil of corporate fiction because such action
offends the corporation's right to due process.
to hold a director or officer personally liable for corporate obligations, two requisites must
concur: (1) complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad
faith; and (2) complainant must clearly and convincingly prove such unlawful acts, negligence or
bad faith.

Facts: Rogel N. Zaragoza was the Area Sales Manager of Consolidated Distillers of the Far East
Incorporated (Condis)
He was dismissed he filed an illegal dismissal case with money claims against Condis, Winston
Co and Dominador D. Hidalgo
Labor Arbiter (LA) issued his Decision finding that petitioner was illegally dismissed
Condis alleging that petitioner can no longer be reinstated as his former sales position no longer
existed and there was no equivalent position to which he could be reinstated
Condis and Hidalgo appealed the LA decision to the National Labor Relations Commission
NLRC affirmed with modification the LA decision by deleting the award of nominal damages
CA affirmed with modification the NLRC Decision and Resolution, and absolved Hidalgo of
liability petitioner then filed a motion for issuance of alias writ of execution with notice of
appearance, arguing that he is likewise entitled to accrued salaries by reason of the order of
reinstatement
He prayed that respondent Tan, as President of Condis, should be held personally liable for the
awards; and that respondent EDI should also be held jointly and solidarily liable with Condis for
the judgment award as the transfer of manufacturing business of the latter to the former was done
in bad faith in order to evade payment/satisfaction of their liabilities in the labor case, applying
the doctrine of piercing the veil of corporate fiction.
respondents Katherine Tan and EDI to be jointly and severally liable with Condis, the LA found
that the execution of the Asset Purchase Agreement and the termination of the Services
Agreement were purposely done by Condis and respondent EDI to defraud petitioner
January 16, 2007 Asset Purchase Agreement was executed earlier than petitioner's dismissal on
December 3, 2007, Condis was still operational for the period convenient to its purpose; the
Asset Purchase Agreement and the letter terminating the Services Agreement were signed by Co
as the Managing Director of EDI, and Co used to be Condis' Senior Vice-President prior to its
alleged cessation of operation; both companies were represented by one and the same lawyer
when they filed their respective Comment/Opposition; and Condis raised the issue of cessation
of operation and separate corporate personality only in the course of the... execution of the
decision in the illegal dismissal case. Thus, the corporate fiction is pierceable by reason of fraud
The LA did not acquire jurisdiction over the respondents, since they were neither summoned nor
voluntarily appeared before the LA, and not being impleaded in the case, respondent EDI cannot
be subject to the LA's process of piercing the veil of corporate fiction, and respondent Tan cannot
also be subject to the LA's process of determining bad faith which would make an officer
personally liable for the claims of a dismissed employee.

Issues: WHETHER OR NOT THE MONETARY AWARD IN FAVOR OF PETITIONER IN

NLRC CASE NO. SRAB V-07-00089-08 CAN STILL BE ENFORCED AGAINST
RESPONDENT TAN IN HER CAPACITY AS PRESIDENT OF CONDIS AND AGAINST
RESPONDENT EDI, EVEN THOUGH THEY WERE NOT IMPLEADED IN SAID LABOR
CASE

Ruling: We find no merit in this petition.

As Ransom had the intention of evading its just and due obligations to the employees, We
allowed the piercing of the veil of corporate fiction by making the officers of Ransom personally
liable for the debts of the latter.
in A.C. Ransom, the officers and agents were already held liable in the final and executory
decision as they were named individual respondents in the case. Here, respondents were included
in this case only in petitioner's motion for issuance of alias writ of execution.
In the absence of malice, bad faith, or a specific provision of law making a corporate officer
liable, such corporate officer cannot be made personally liable for corporate liabilities.

2.2. Created by operation of law

2.2.1 Created by special law (Sec. 4)

Republic v. City of Parañaque, G.R. No. 191109, July 18, 2012

Doctrine: Two requisites must concur before one may be classified as a stock corporation,
namely: (1) that it has capital stock divided into shares; and (2) that it is authorized to distribute
dividends and allotments of surplus and profits to its stockholders. If only one requisite is
present, it cannot be properly classified as a stock corporation. As for non-stock corporations,
they must have members and must not distribute any part of their income to said members.

Facts: The Public Estates Authority (PEA) is a government corporation created by virtue of
Presidential Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its Powers
and Functions, Providing Funds Therefor and For Other Purposes) which took... effect on
February 4, 1977 to provide a coordinated, economical and efficient reclamation of lands, and
the administration and operation of lands belonging to, managed and/or operated by, the
government with the object of maximizing their utilization and hastening their... development
consistent with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President
Ferdinand Marcos, PEA was designated as the agency primarily responsible for integrating,
directing and coordinating all reclamation projects for and on behalf of the National
Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380
transforming PEA into PRA, which shall perform all the powers and functions of the PEA
relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of
Manila Bay, including those located in Parañaque City, and was issued Original Certificates of
Title (OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer Certificates of
Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.
On February 19, 2003, then Parañaque City Treasurer Liberato M. Carabeo (Carabeo) issued
Warrants of Levy on PRA's reclaimed properties (Central Business Park and Barangay San
Dionisio) located in Parañaque City based on the assessment for delinquent real property... taxes
made by then Parañaque City Assessor Soledad Medina Cue for tax years 2001 and 2002.
On January 8, 2010, the RTC rendered its decision dismissing PRA's petition. In ruling that PRA
was not exempt from payment of real property taxes, the RTC reasoned out that it was a GOCC
under Section 3 of P.D. No. 1084. It was organized as a stock corporation because it had an...
authorized capital stock divided into no par value shares. In fact, PRA admitted its corporate
personality and that said properties were registered in its name as shown by the certificates of
title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of Section 193... of
Republic Act (R.A.) No. 7160 [Local Government Code (LGC)] which was the prevailing law in
2001 and 2002 with respect to real property taxation. The RTC also ruled that the tax exemption
claimed by PRA under E.O. No. 654 had already been expressly repealed by R.A. No.
7160 and that PRA failed to comply with the procedural requirements in Section 206 thereof.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the
Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987
Constitution because it is not required to meet the test of economic viability. Instead, PRA is a...
government instrumentality vested with corporate powers and performing an essential public
service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code.
Although it has a capital stock divided into shares, it is not authorized to distribute... dividends
and allotment of surplus and profits to its stockholders. Therefore, it may not be classified as a
stock corporation because it lacks the second requisite of a stock corporation which is the
distribution of dividends and allotment of surplus and profits to the... stockholders.
It insists that it may not be classified as a non-stock corporation because it has no members and it
is not organized for charitable, religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or similar purposes, like... trade, industry,
agriculture and like chambers as provided in Section 88 of the Corporation Code.
Moreover, PRA points out that it was not created to compete in the market place as there was no
competing reclamation company operated by the private sector. Also, while PRA is vested with
corporate powers under P.D. No. 1084, such circumstance does not make it a corporation but...
merely an incorporated instrumentality and that the mere fact that an incorporated
instrumentality of the National Government holds title to real property does not make said
instrumentality a GOCC. Section 48, Chapter 12, Book I of the Administrative Code of 1987
recognizes a... scenario where a piece of land owned by the Republic is titled in the name of a
department, agency or instrumentality.
Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is
exempt from payment of real property tax except when the beneficial use of the real property is
granted to a taxable person. PRA claims that based on Section 133(o) of the LGC, local...
governments cannot tax the national government which delegate to local governments the power
to tax.
It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt
from the payment of real estate taxes. Reclaimed lands retain their inherent potential as areas for
public use or public service. While the subject reclaimed lands are still in its... hands, these lands
remain public lands and form part of the public domain. Hence, the assessment of real property
taxes made on said lands, as well as the levy thereon, and the public sale thereof on April 7,
2003, including the issuance of the certificates of sale in favor of... the respondent Parañaque
City, are invalid and of no force and effect.
ISSUE : Whether or not Philippine Reclamation Authority (PRA) is an incorporated
instrumentality of the national government and is, therefore, exempt from payment of real
property tax under sections 234(a) and 133(o) of Republic Act 7160
HELD: Yes it is a Government Instrumentality.
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock
corporation. It cannot be considered as a stock corporation because although it has a capital stock
divided into no par value shares as provided in Section 74 of P.D. No. 1084, it is not authorized to
distribute dividends, surplus allotments or profits to stockholders. PRA is a government
instrumentality vested with corporate powers and performing an essential public service pursuant
to Section 2(10) of the Introductory Provisions of the Administrative Code. Being an
incorporated government instrumentality, it is exempt from payment of real property tax.
Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency
or instrumentality is deemed a GOCC. The fundamental provision above authorizes Congress to
create GOCCs through special charters on two conditions: 1) the GOCC must be established for
the common good; and 2) the GOCC must meet the test of economic viability. In this case, PRA
may have passed the first condition of common good but failed the second one - economic
viability. Undoubtedly, the purpose behind the creation of PRA was not for economic or
commercial activities.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by
PRA. On the other hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts
PRA from paying realty taxes and protects it from the taxing powers of local government units.
Section 234(a) of the Local Government Code states that real property owned by the Republic of
the Philippines (the Republic) is exempt from real property tax unless the beneficial use thereof
has been granted to a taxable person.
Section 133 of the Local Government Code states that "unless otherwise provided" in the Code,
local governments cannot tax national government instrumentalities.
In this case, there is no proof that PRA granted the beneficial use of the subject reclaimed lands
to a taxable entity. There is no showing on record either that PRA leased the subject reclaimed
properties to a private taxable entity.

Boy Scouts of the Philippines v, COA, G.R. No. 177131, June 7, 2011

DOCTRINE: BSP is a private corporation beyond the audit jurisdiction of the COA.
Accordingly, the specific provisions in the BSP charter creating the BSP as a private corporation
are void. Considering the Constitutional infirmity of its creation, BSP's recourse is either to
incorporate under the Corporation Code of the Philippines or to exist as an unincorporated
association.

FACTS: The COA maintains that the functions of the BSP that include, among others, the
teaching to the youth of patriotism, courage, self-reliance, and kindred virtues, are undeniably
sovereign functions enshrined under the Constitution and discussed by the Court in Boy Scouts
of the Philippines v. National Labor Relations Commission. The COA contends that any attempt
to classify the BSP as a private corporation would be incomprehensible since no less than the law
which created it had designated it as a public corporation and its statutory mandate embraces
performance of sovereign functions. The COA claims that the only reason why the BSP
employees fell within the scope of the Civil Service Commission even before the 1987
Constitution was the fact that it was a government-owned or controlled corporation; that as an
attached agency of the Department of Education, Culture and Sports (DECS), the BSP is an
agency of the government; and that the BSP is a chartered institution under Section 1(12) of the
Revised Administrative Code of 1987, embraced under the term government instrumentality.
The COA concludes that being a government agency, the funds and property owned or held by
the BSP are subject to the audit authority of the COA pursuant to Section 2(1), Article IX (D) of
the 1987 Constitution.
BSP claims that it has a unique characteristic which "neither classifies it as a purely public nor a
purely private corporation"; that it is not a quasi-public corporation; and that it may belong to a
different class altogether.

ISSUE: Whether or not the BSP is public corporation.

RULING: YES. BSP is a public corporation and its funds are subject to the COA’s audit
jurisdiction. It is a public corporation or a government agency or instrumentality with juridical
personality, which does not fall within the constitutional prohibition in Article XII, Section 16,
notwithstanding the amendments to its charter. Not all corporations, which are not government
owned or controlled, are ipso facto to be considered private corporations as there exist another
distinct class of corporations or chartered institutions which are otherwise known as "public
corporations." These corporations are treated by law as agencies or instrumentalities of the
government which are not subject to the tests of ownership or control and economic viability but
to different criteria relating to their public purposes/interests or constitutional policies and
objectives and their administrative relationship to the government or any of its Departments or
Offices.
Note that the Administrative Code of 1987 designates the BSP as one of the attached agencies of
the Department of Education, Culture and Sports ("DECS"). An "agency of the Government" is
defined as referring to any of the various units of the Government including a department,
bureau, office, and instrumentality, government-owned or -controlled corporation, or local
government or distinct unit therein. BSP still remains an instrumentality of the national
government. It is a public corporation created by law for a public purpose, attached to the DECS
pursuant to its Charter and the Administrative Code of 1987. It is not a private corporation which
is required to be owned or controlled by the government and be economically viable to justify its
existence under a special law.

Veterans Federation of the Phils. V. Reyes, G.R. No. 155027, February 28, 2006, 482 SCRA
526

FACTS: Petitioner claims that it is not a public nor a governmental entity but a private
organization, and advances this claim to prove that the issuance of DND Department Circular
No. 04 is an invalid exercise of respondent Secretary’s control and supervision. Petitioner
claims that its funds are not public funds because no budgetary appropriations or government
funds have been released to the VFP directly or indirectly from the DBM, and because VFP
funds come from membership dues and lease rentals earned from administering government
lands reserved for the VFP.

ISSUE: Whether or not the VFPA is a private corporation.

RULING: NO.
The functions of petitioner corporation enshrined in Section 4 of Rep. Act No. 2640 should most
certainly fall within the category of sovereign functions. The protection of the interests of war
veterans is not only meant to promote social justice, but is also intended to reward patriotism. All
of the functions in Section 4 concern the well-being of war veterans, our countrymen who risked
their lives and lost their limbs in fighting for and defending our nation. It would be injustice of
catastrophic proportions to say that it is beyond sovereignty’s power to reward the people who
defended her.
Like the holding of the National Centennial Celebrations, the functions of the VFP are executive
functions, designed to implement not just the provisions of Rep. Act No. 2640, but also, and
more importantly, the Constitutional mandate for the State to provide immediate and adequate
care, benefits and other forms of assistance to war veterans and veterans of military campaigns,
their surviving spouses and orphans.
The fact that no budgetary appropriations have been released to the VFP does not prove that it is
a private corporation. The DBM indeed did not see it fit to propose budgetary appropriations to
the VFP, having itself believed that the VFP is a private corporation. If the DBM, however, is
mistaken as to its conclusion regarding the nature of VFP’s incorporation, its previous assertions
will not prevent future budgetary appropriations to the VFP. The erroneous application of the law
by public officers does not bar a subsequent correct application of the law.
Since petitioner VFP is a public corporation. As such, it can be placed under the control
and supervision of the Secretary of National Defense, who consequently has the power to
conduct an extensive management audit of Petitioner Corporation.

Leyson Jr. v. Office of the Ombudsman, G.R. 134990, April 27, 2000 41. G.R. No. 134990.
April 7, 2000

TOPIC: Created by operation of law

DOCTRINE: Requisites for a corporation to be a GOCC, namely:

1. any agency organized as a stock or non-stock corporation;
2. vested with functions relating to public needs whether governmental or proprietary in
nature; and,
3. owned by the Government directly or through its instrumentalities either wholly, or,
where applicable as in the case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock.
FACTS: A domestic corporation, International Towage and Transport Corporation (ITTC)
entered into a 1-year contract with Legaspi Oil, Granexport and United Coconut comprising the
Coconut Industry Investment Fund (CIIF) for the transport of coconut oil in bulk.
Prior to the expiration of the contract, CIIF companies new president herein respondent,
Torralba, terminated the previous contract with ITTC without the required advance notice.
Hence, the petitioner filed a complaint against Torralba with the respondent Office for alleged
corrupt practices. Petitioner asserts that corporations formed and organized from those funds
whose controlling stocks are from coconut levy funds which are public funds, said corporations
are government owned and/or controlled corporations.
The Office of the Ombudsman dismissed the said complaint and based its finding that the case is
a simple case of breach of contract with damages which should have been filed in the regular
court. The public respondent claimed that the entities involved are private corporations over
which the Office has no jurisdiction. In their defense, private respondents counter that CIIF
companies were duly organized and are existing by virtue of the Corporation Code. Their
stockholders are private individuals and entities.

ISSUE/S: WON the CIIF companies are GOCCs?

RULING: NO. The Supreme Court held that petitioner failed to prove that the CIIF companies
are “government owned or controlled corporation” contained in par. (13), Sec. 2. Administrative
Code of 1987.
According to the Court, three requisites must concur, namely:
1. any agency organized as a stock or non-stock corporation;
2. vested with functions relating to public needs whether governmental or
proprietary in nature; and,
3. owned by the Government directly or through its instrumentalities either wholly,
or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock.
In the present case, the three corporations were organized as stock corporations. Further, The
UCPB-CIIF owns 44.10% of the shares of LEGASPI OIL, removing it from the definition of
GOCC as required by the law. As for GRANEXPORT and UNITED COCONUT, petitioner
failed to substantiate the second requisite that these corporations are vested with functions
relating to public needs.
Therefore, the petition is dismissed. CIIF companies are not GOCCs.

Liban v. Gordon, G.R. No. 175352, January 18, 2011

TOPIC: Created by operation of law

DOCTRINE: PNRC enjoys a special status as an important ally and auxiliary of the government
in the humanitarian field in accordance with its commitments under international law.
: The passage of several laws relating to PNRC’s corporate existence notwithstanding the
effectivity of the constitutional ban on the creation of private corporations by law, is a
recognition that the PNRC is not strictly in the nature of private corporation contemplated by the
aforesaid constitutional prohibition.

FACTS: This case originated from a petition filed by petitioners seeking to declare respondent
Gordon as having forfeited his seat in the Senate when he accepted the chairmanship of the
PNRC Board of Governors.
In the assailed decision by herein respondent and intevenor, the Court held that respondent did
not forfeit his seat in the Senate when he accepted the chairmanship of the PNRC.
However, aside from this issue, the Court further declared that the PNRC charter is void insofar
as it creates PNRC as a private corporation therefore PNRC should incorporate under the
Corporation Code and register with the SEC.
PNRC argues that the issue on constitutionality of RA 95 (PNRC Charter) was not raised by the
parties, hence the Court went beyond the case in deciding such issue. PNRC also contends that it
was never a party to the instant controversy and that the current charter of PNRC is PD 1264 not
RA 96. PNRC also argues that its structure is sui generis because despite several amendments of
its charter, the passage of several laws relation to PNRC’s corporate existence notwithstanding
the effectivity of the constitutional ban on the creation of private corporations by law, is a
recognition that the PNRC is not strictly in the nature of private corporation contemplated by the
aforesaid constitutional prohibition.

ISSUE/S: WON PNRC is a private corporation whose existence is prohibited under the
Constitutional provision?

RULING: NO. National Societies such as the PNRC act as auxiliaries to the public authorities
of their own countries in the humanitarian field and provide a range of services including disaster
relief and health and social programmes. National societies are therefore organizations that are
directly regulated by international humanitarian law, in contrast to other ordinary private entities,
including NGOs.
So must this Court recognize too the country’s adherence to the Geneva Convention and respect
the unique status of the PNRC in consonance with its treaty obligations. The Geneva Convention
has the force and effect of law. Under the Constitution, the Philippines adopts the generally
accepted principles of international law as part of the law of the land.
By requiring the PNRC to organize under the Corporation Code just like any other private
corporation, the Decision of July 15, 2009 lost sight of the PNRC’s special status under
international humanitarian law and as an auxiliary of the State, designated to assist it in
discharging its obligations under the Geneva Conventions.
Further, although PNRC is neither a subdivision, agency or instrumentality of the government
nor a GOCC or subsidiary thereof, so much so that the assailed decision allowed Respondent
Gordon to concurrently serve as Chairman while he served as a Senator, such conclusion does
not ipso facto imply that PNRC is a private corporation.
Feliciano v. COA, G.R. No. 147402, January 14, 2004

TOPIC: Created by operation of law

DOCTRINE: LWDs exist by virtue of PD 198, which constitutes their special charter. Since
under the Constitution only government-owned or controlled corporations may have special
charters, LWDs can validly exist only if they are government-owned or controlled.

FACTS: This is a petition for certiorari to annul the COA Resolution denying petitioner’s
Motion for Reconsideration regarding COA’s audit services and audit fees against LMWD.
A special audit team was formed to audit the accounts of LMWD. Thereafter, LMWD received a
letter from COA requesting payment of auditing fees. Herein petitioner, Feliciano, refused to pay
said audit fees and contends that COA has no jurisdiction to audit LMWD because they are a
private corporation which is beyond COA’s jurisdiction.
The COA ruled that this Court has already settles COA’s audit jurisdiction over local water
districts because LWDs are government owned or controlled corporations which are within the
ambit of COA’s auditing power.
Due to the denial of his MR, Feliciano filed herein petition to this Court.

ISSUE/S: WON LMWD created under PD 198 is a government-owned or controlled

corporation subject to audit jurisdiction of COA

RULING: YES.The COA’s audit jurisdiction extends not only to government “agencies or
instrumentalities,” but also to “government-owned and controlled corporations with original
charters” as well as “other government-owned or controlled corporations” without original
charters.
Section 16, Article XII of the Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Governmentowned or controlled corporations
may be created or established by special charters in the interest of the common good and subject
to the test of economic viability.
The Constitution emphatically prohibits the creation of private corporations except by a general
law applicable to all citizens. The purpose of this constitutional provision is to ban private
corporations created by special charters, which historically gave certain individuals, families or
groups special privileges denied to other citizens

In short, Congress cannot enact a law creating a private corporation with a special charter. Such
legislation would be unconstitutional. Private corporations may exist only under a general law
(Revised Corporation Code).
The Constitution authorizes Congress to create government owned or controlled corporations
through special charters. Since private corporations cannot have special charters, it follows that
Congress can create corporations with special charters only if such corporations are government-
owned or controlled.
LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the
Constitution only government-owned or controlled corporations may have special charters,
LWDs can validly exist only if they are government-owned or controlled.

2.2.2 Created under a general law (See Sec. 16, Article XII of the 1987
Constitution)

2.3. Right of succession

SME Bank, Inc. v. De Guzman, G.R. Nos. 184517 and 186641, October 8, 2013. TOPIC:
Right of Succession

DOCTRINE: In asset sales, the rule is that the seller in good faith is authorized to dismiss the
affected employees, but is liable for the payment of separation pay under the law. In contrast
with asset sales, in which the assets of the selling corporation are transferred to another entity,
the transaction in stock sales takes place at the shareholder level. Because the corporation
possesses a personality separate and distinct from that of its shareholders, a shift in the
composition of its shareholders will not affect its existence and continuity.

FACTS: Respondents are employees of SME Bank. Originally, the bank’s principal shareholders
and corporate directors were Agustin and De Guzman. Sometime in 2001, SME Bank
experienced financial difficulties that resulted in the sale of stocks to Samson through Letter
Agreements.
As a result of Espiritu (General Manager) persuasion, the respondents tendered their resignation
with the promise that they would be rehired upon reapplication.
On 11 September 2001, Agustin and De Guzman signified their conformity to the Letter
Agreements and sold 86.365% of the shares of stock of SME Bank to spouses Abelardo and Olga
Samson. Spouses Samson then became the principal shareholders of SME. However, respondent
employees were not rehired.
Aggrieved by the loss, the employees filed a case with the NLRC for illegal dismissal. NLRC
ordered Agustin and De Guzman (former shareholders/ seller) to pay separation pay to the
employees.
Hence, De Guzman and Agustin filed instant petition arguing that they are no longer liable for
the payment of separation pay to the dismissed employees because of the sale of stocks and
change of management. As in the case of SME Bank represented by Samson, they argue that
there being a transfer of the business establishment, the innocent transferees no longer have any
obligation to continue employing respondent employees.

ISSUE/S: WON there was a change of establishment hence new stockholders are not liable for
the illegally dismissed employees
RULING: NO. There are two types of corporate acquisitions: asset sales and stock sales. In asset
sales, the corporate entity sells all or substantially all of its assets to another entity. In stock sales,
the individual or corporate shareholders sell a controlling block of stock to new or existing
shareholders.
In asset sales, the rule is that the seller in good faith is authorized to dismiss the affected
employees, but is liable for the payment of separation pay under the law. In contrast with asset
sales, in which the assets of the selling corporation are transferred to another entity, the
transaction in stock sales takes place at the shareholder level. Because the corporation possesses
a personality separate and distinct from that of its shareholders, a shift in the composition of its
shareholders will not affect its existence and continuity.
Thus, notwithstanding the stock sale, the corporation continues to be the employer of its
people and continues to be liable for the payment of their just claims. Furthermore, the
corporation or its new majority shareholders are not entitled to lawfully dismiss corporate
employees absent a just or authorized cause.
In the instant case, the Letter Agreements show that the main objective of the sale is the
acquisition of shares of stock by the Samson Group. Following the argument above, this involves
a stock sale, whereby the transferee acquires controlling shares of stock of the corporation,
therefore, the debts and obligations of the corporations continue to exist.

2.4. Possess powers, attributes, and properties

2.4.1 Theory of special capacities

2.4.2 Theory of general capacities