Corporation Law Case Digests

Corporation Law Cases
Atty. Manuel T. Gatcho

TITLE I
1. G.R. No. 117416 December 8, 2000

Avelina G. Ramoso, vs.Court of Appeals,
QUISUMBING, J.:
Facts:
Commercial Credit Corporation was registered with SEC as a general financing and investment corporation. CCC made proposals to several investors for the organization of franchise
companies in different localities. Each investor was required to sign a continuing guarantee for bad accounts that might be incurred by CCC due to discounting activities. CCC
attempted to obtain a quasi-banking license from Central Bank of the Philippines. But there was a hindrance because under Section 1326 of CB’s "Manual of Regulations for Banks and Other
Financial Intermediaries, Dealings of a bank with any of its directors, officers or stockholders and their related interests should be in the regular course of business and upon terms not less
favorable to the bank than those offered to others. (Emphasis supplied)
The above DOSRI regulation and set guidelines are entitled to make sure that lendings by banks or other financial institutions to its own directors, officers, stockholders or related interests are
above board. In view of said hindrance, what CCC did was divest itself of its shareholdings in the franchise companies. It incorporated CCC Equity to take over the
administration of the franchise companies under new management contracts. In the meantime, CCC continued providing a discounting line for receivables of the
franchise companies through CCC Equity. Thereafter, CCC changed its name to General Credit Corporation (GCC).
Adverse media reports unraveled anomalies in the business of GCC. Upon investigation, petitioners allegedly discovered the dissipation of the assets of their respective franchise
companies. Among the alleged fraudulent schemes by GCC involved transfer or assignment of its uncollectible notes and accounts; utilization of spurious commercial
papers to generate paper revenues; and release of collateral in connivance with unauthorized loans. Furthermore, GCC allegedly divested itself of its assets through a
questionable offset of receivables arrangement with one of its creditors, Resource and Finance Corporation.
Petitioners filed a suit against GCC, CCC Equity and RFC. All respondents, except CCC Equity, filed a motion to dismiss asserting that petitioners were not the real parties in interest.
Ultimately, petitioners pray that should the afore-stated companies be considered as one, then petitioners’ liabilities should be nullified.
Issue:
Whether or not GCC’s alleged fraud upon the petitioners and mismanagement of the franchise warrant the piercing of its veil of corporation fiction
Held:
No. SEC en banc decided against the petitioners, saying: "Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or
adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded... [T]he control and breach of duty must proximately cause the injury or unjust loss for which
the complaint is made.
The test may be stated as follows:
In any given case, except express agency, estoppel, or direct tort, three elements must be proved:
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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 perpetrate the violation of the statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal rights; and
3. the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents ‘piercing the corporate veil." 5
The SEC stated further that:
"The second element required for the application of the instrumentality rule is not present in this case. Upon close scrutiny of the various testamentary and documentary evidence presented
during trial, it may be observed that petitioner’s claim of dissipation of assets and resources belonging to the franchise companies has not been reasonably supported by said evidence at hand
with the Commission. In fact, the disputed decision of the hearing officer dealt mainly with the aspect of control exercised by GCC over the franchise companies without a concrete finding of
fraud on the part of the former to the prejudice of individual petitioners’ interests. As previously discussed, mere control on the part of GCC through CCC Equity over the operations and business
policies of the franchise companies does not necessarily warrant piercing the veil of corporate fiction without proof of fraud. In order to determine whether or not the control exercised by GCC
through CCC Equity over the franchise companies was used to commit fraud or wrong, to violate a statutory or other positive legal duty, or dishonest and unjust act in contravention of
petitioners’ legal rights, the circumstances that caused the bankruptcy of the franchise companies must be taken into consideration." 6
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 .7 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. 8 It cannot be presumed.9
We agree with the findings of the SEC concurred in by the appellate court that there was no fraud nor mismanagement in the control exercised by GCC and by CCC Equity, over the franchise
companies. Whether the existence of the corporation should be pierced depends on questions of facts, appropriately pleaded. Mere allegation that a corporation is the alter ego of the individual
stockholders is insufficient. The presumption is that the stockholders or officers and the corporation are distinct entities. The burden of proving otherwise is on the party seeking to have the
court pierce the veil of the corporate entity.10 In this, petitioner failed.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision and resolution of the Court of Appeals dated October 8, 1993 and September 22, 1994, respectively, are
AFFIRMED. Costs against petitioners.
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2. A.M. No. P-01-1464 March 13, 2001
(Formerly OCA IPI. No. 99-730-P)
SALVADOR O. BOOC ,vs. MALAYO B. BANTUAS, SHERIFF IV, RTC, BRANCH 3, ILIGAN CITY
DE LEON, JR., J.:
Facts:
Complainant is the President of Five Star Marketing Corporation. Respondent Sheriff Malayo B. Bantuas, pursuant to a Writ of Execution issued in Civil Case No. 1718 filed a Notice of
Levy with the Register of Deeds, Iligan City over a parcel of land covered by TCT No. T-19209 and owned by Five Star Marketing Corporation. Complainant alleged that respondent
sheriff, at the instance of plaintiff, former Judge Felipe Javier, proceeded to file the Notice of Levy despite respondent sheriff's knowledge that the property is owned by the corporation which
was not a party to the civil case.
Respondent sheriff stressed that the levy was made on the share, rights and/or interest and participation which Rufino Booc, as President and stockholder , may have in the
parcel of land owned by Five Star Marketing Corporation. Respondent sheriff averred that the corporation is merely a dummy of Rufino Booc and his brother Sheikding Booc.
Respondent sheriff submitted as an exhibit an affidavit executed by Sheikding Booc wherein the latter admitted that when Judge Felipe Javier won in the civil case against Rufino Booc, the
latter simulated a transfer of his shares of stock in Five Star Marketing Corporation so that the property may not be levied upon. 1
Complainant, in his reply to respondent sheriffs comment belied the latter's allegation that the corporation never questioned the auction sale. Complainant averred that contrary to the
respondent sheriff's assertion, the trial court in fact issued a restraining order which was withdrawn after plaintiff's counsel manifested that the respondent sheriff would only auction Rufino
Booc's shares of stock in the corporation and not the subject property.
Issue:
Whether or not the property shall be levied even if it is owned by the corporation
Held:
No. It is settled that a corporation is clothed with a personality separate and distinct from that of its stockholders. It may not be held liable for the personal indebtedness of its
stockholders. In the case of Del Rosario vs. Bascar, Jr , 2 we imposed the fine of P5,000.00 on respondent sheriff Bascar for "allocating unto himself the power of the court to 'pierce
the veil of corporate entity' and improvidently assuming that since complainant Esperanza del Rosario is the treasurer of Miradel Development Corporation, they are one and the same." In
the said case we reiterated the principle that the mere fact that one is a president of the corporation does not render the property he owns or possesses the property of the
corporation since the president, as an individual, and the corporation are separate entities.
Based on the foregoing, respondent Sheriff Bantuas has clearly acted beyond his authority when he levied the property of Five Star Marketing Corporation . The fact, however, that respondent
sheriff, in levying said property, had stated in the notice of levy as well as in the certificate of sale that what was being levied upon and sold was whatever rights, shares interest and/or
participation Rufino Booc, as stockholder and president in the corporation, may have on the subject property, shows that respondent sheriff's conduct was impelled partly by ignorance of
Corporation Law and partly by mere overzealousness to comply with his duties and not by bad faith or blatant disregard of the trial court's order. Hence, we deem that the penalty of a fine of
Five Thousand Pesos (P5,000.00) to be imposed on respondent sheriff would suffice.
WHEREFORE, respondent Malayo B. Bantuas, Sheriff IV of the RTC of Iligan City, Branch 3, is hereby FINED in the sum of Five Thousand Pesos (P5,000.00) with the STERN WARNING that a
repetition of the same or similar acts in the future will be dealt with more severely.
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3. AM. No. P-05-2031 December 9, 2005
D.R. CATV SERVICES, INC., JESUS R. RAMOS, Sheriff III, Metropolitan Trial Court, Branch 41, Quezon City
GARCIA, J.:
Facts:
A prosecution for violation of Batas Pambansa Blg. 22 filed at the instance of one Armi dela Cruz-Carreon against Danilo Red, President of D.R. CATV Services, Inc., the MeTC of Quezon City
found Danilo Red guilty as charged. On appeal, however, the Regional Trial Court (RTC) at Quezon City set aside the judgment of conviction, but nonetheless found Danilo Red civilly liable and,
accordingly, ordered him to pay the offended party the amount of ₱1,100,000.00, representing the face value of the dishonored check, plus interest and attorney’s fees.
Pursuant to the writ, respondent Ramos repaired to the Province of Marinduque and, via a Notification2 dated August 4, 2004, advised Danilo Red to pay the money judgment aforestated within
five (5) days from receipt thereof. As related in the herein complaint, respondent, even before the expiration of the five-day period, proceeded to levy on the equipment owned by D.R.
CATV and cut the cable wire connected to lampposts, thus effectively paralyzing the operation of D.R. CATV’s cable TV services in the town of Buenavista, Marinduque.
Issue:
Whether or not the properties of the corporation may be levied to satisfy a personal judgment against a stockholder
Held:
No. Respondent sprang a surprise on Danilo Red by levying on the equipment of D.R. CATV, which, needless to stress, has a personality distinct and separate from its stockholders, and
is not affected by the personal obligations and transactions of the latter . There can be no quibbling that respondent overstepped his authority when he attached the property of a
corporation which had not been adjudged as a debtor. That Danilo Red is a stockholder and even the President of D.R. CATV Services, Inc., is really of little moment. F or, corporate assets
belong to the corporation and stockholders have no claim on them as owners, but have merely an inchoate right to the same should any remain upon the dissolution of
the corporation after all corporate creditors have been paid.10 We stress the hornbook law that corporate personality is a shield against the personal liability of its officers 11 or the
personal indebtedness of its stockholders.12
WHEREFORE, respondent Jesus R. Ramos, Sheriff III, MeTC, Quezon City, Branch 41, is adjudged GUILTY of grave abuse of authority and ordered to pay a fine of Five Thousand Pesos
(₱5,000.00), with a stern warning that a repetition of the same or similar act shall be dealt with more severely. Let copy of this Resolution be attached to the personal records of respondent.
4. G.R. No. 127181 September 4, 2001

LAND BANK OF THE PHILIPPINES, petitioner, vs.
THE COURT OF APPEALS, ECO MANAGEMENT CORPORATION and EMMANUEL C. OÑATE, respondents.
QUISUMBING, J.:
Facts:
Appellant Land Bank of the Philippines (LBP) extended a series of credit accommodations to appellee ECO, using the trust funds of the Philippine Virginia Tobacco Administration
(PVTA) in the aggregate amount of P26,109,000.00. The proceeds of the credit accommodations were received on behalf of ECO by appellee Oñate. On the respective maturity dates of the
loans, ECO failed to pay the same. Oral and written demands were made, but ECO was unable to pay. ECO claims that the company was in financial difficulty for it was unable to collect
its investments with companies which were affected by the financial crisis brought about by the Dewey Dee scandal.
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ECO proposed and submitted to LBP a "Plan of Payment" whereby the former would set up a financing company which would absorb the loan obligations. The Trust Committee of LBP resolved
to reject the revised plan of payment and stated that if LBP did not hear from PVTA, such silence would be construed to be an approval of LBP’s intention to file suit against ECO and its
corporate officers.
Landbank filed a complaint for Collection of Sum of Money against ECO and Emmanuel C. Oñate. Petitioner contends that the personalities of Emmanuel Oñate and of ECO
Management Corporation should be treated as one, for the particular purpose of holding respondent Oñate liable for the loans incurred by corporate respondent ECO from Land Bank.
According to petitioner, the said corporation was formed ostensibly to allow Oñate to acquire loans from Land Bank which he used for his personal advantage.
Issues:
Whether or not the corporate veil of ECO Management Corporation should be pierced; and whether or not Emmanuel C. Oñate should be held jointly and severally liable with ECO
Management Corporation for the loans incurred from Land Bank.
Held:
No. A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it as well as from any other legal entity to which it may
be related.12 By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities of the said corporation, and vice versa. 13 This separate and distinct personality is,
however, merely a fiction created by law for convenience and to promote the ends of justice.14 For this reason, it may not be used or invoked for ends subversive to the policy and purpose
behind its creation15 or which could not have been intended by law to which it owes its being. 16 This is particularly true when the fiction is used to defeat public convenience, justify wrong,
protect fraud, defend crime,17 confuse legitimate legal or judicial issues, 18 perpetrate deception or otherwise circumvent the law. 19 This is likewise true where the corporate entity is being used
as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. 20 In all these cases, the notion of corporate entity will be pierced or
disregarded with reference to the particular transaction involved.21
The burden is on petitioner to prove that the corporation and its stockholders are, in fact, using the personality of the corporation as a means to perpetrate fraud and/or escape a liability and
responsibility demanded by law. In order to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. 22 In the absence of any
malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities.23
The mere fact that Oñate owned the majority of the shares of ECO is not a ground to conclude that Oñate and ECO is one and the same . Mere ownership by a single
stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate personalities. 24 Neither is the fact that the
name "ECO" represents the first three letters of Oñate’s name sufficient reason to pierce the veil. Even if it did, it does not mean that the said corporation is merely a dummy of Oñate. A
corporation may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders.
That respondent corporation in this case was being used as a mere alter ego of Oñate to obtain the loans had not been shown. Bad faith or fraud on the part of ECO and
Oñate was not also shown. As the Court of Appeals observed, if shareholders of ECO meant to defraud petitioner, then they could have just easily absconded instead of going out of their
way to propose "Plans of Payment."25 Likewise, Oñate volunteered to pay a portion of the corporation’s debt. 26 This offer demonstrated good faith on his part to ease the debt of the corporation
of which he was a part. It is understandable that a shareholder would want to help his corporation and in the process, assure that his stakes in the said corporation are secured. In this case, it
was established that the P1 Million did not come solely from Oñate. It was taken from a trust account which was owned by Oñate and other investors. 27 It was likewise proved that the P1 Million
was a loan granted by Oñate and his co-depositors to alleviate the plight of ECO. 28 This circumstance should not be construed as an admission that he was really the debtor and not ECO.
In sum, we agree with the Court of Appeals’ conclusion that the evidence presented by the petitioner does not suffice to hold respondent Oñate personally liable for the debt of co-respondent
ECO. No reversible error could be attributed to respondent court’s decision and resolution which petitioner assails.
WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of the Court of Appeals in CA-G.R. CV No. 43239 are AFFIRMED. Costs against petitioner.
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5. G.R. No. 153535. July 28, 2005
SOLIDBANK CORPORATION vs. MINDANAO FERROALLOY CORPORATION
PANGANIBAN, J.:
Facts:
The Maria Cristina Chemical Industries (MCCI) and three (3) Korean corporations, namely, the Ssangyong Corporation, the Pohang Iron and Steel Company and the Dongil Industries Company,
Ltd., decided to forge a joint venture and establish a corporation, under the name of the Mindanao Ferroalloy Corporation (Corporation for brevity) with principal offices in Iligan City.
Ricardo P. Guevara was the President and Chairman of the Board of Directors of the Corporation . Jong-Won Hong, the General Manager of Ssangyong Corporation, was the Vice-
President of the Corporation for Finance, Marketing and Administration. So was Teresita R. Cu. The Board of Directors of the Corporation approved a ‘Resolution’ authorizing its President and
Chairman of the Board of Directors or Teresita R. Cu, acting together with Jong-Won Hong, to secure an omnibus line in the aggregate amount of ₱30,000,000.00 from the Solidbank x x x.
The Corporation and the Bank agreed to consolidate and, at the same time, restructure the two (2) loan availments, the same payable on September 20, 1991. The Corporation executed
‘Promissory Note No. 96-91-00865-6’ in favor of the Bank evidencing its loan. Teresita Cu and Jong-Won Hong affixed their signatures on the note. To secure the payment of the said loan,
the Corporation, through Jong-Won Hong and Teresita Cu, likewise executed a ‘Deed of Assignment’ in favor of the Bank. Moreiver, The Corporation executed a ‘Quedan’, by way of
additional security, Jong-Won Hong and Teresita Cu affixed their signatures thereon for the Corporation. The Corporation, also, through Jong-Won Hong and Teresita Cu, executed a
‘Trust Receipt Agreement’, by way of additional security for said loan. However, shortly after the execution of the said deeds , the Corporation stopped its operations. The Corporation failed
to pay its loan availments from the Bank inclusive of accrued interest. The Bank sent a letter to the Corporation demanding payment of its loan availments inclusive of interests due. The
Corporation failed to comply with the demand of the Bank. The Bank sent another letter to the Corporation demanding payment of its account but the Corporation again failed to comply with
the demand of the Bank.
The Bank filed a complaint against the Corporation with the Regional Trial Court of Makati City, entitled and docketed as ‘ Solidbank Corporation vs. Mindanao Ferroalloy Corporation, Sps. Jong-
Won Hong and the Sps. Teresita R. Cu for ‘Sum of Money’ with a plea for the issuance of a writ of preliminary attachment. Under its ‘Amended Complaint’, the Plaintiff alleged that it
impleaded Ricardo Guevara and his wife as Defendants because, Defendants JONG-WON HONG and TERESITA CU, are the Vice-Presidents of defendant corporation, and also
members of the company’s Board of Directors. They are impleaded as joint and solidary debtors of petitioner bank having signed the Promissory Note, Quedan, and Trust
Receipt agreements with petitioner in this case. Petitioner argues that the individual respondents were jointly or solidarily liable with Minfaco, either because their participation in the loan
contract and the loan documents made them comakers; or because they committed fraud and deception, which justifies the piercing of the corporate veil.
Issue:
Whether or not the individual respondents are liable, either jointly or solidarily, with the Mindanao Ferroalloy Corporation
Held:
No. These tribunals found that, although he had not signed any document in connection with the subject transaction, Respondent Guevara was authorized to represent Minfaco in
negotiating for a ₱30 million loan from petitioner. As to Cu and Hong, it was determined, among others, that their signatures on the loan documents other than the Deed of Assignment
were not prefaced with the word "by," and that there were no other signatures to indicate who had signed for and on behalf of Minfaco, the principal borrower. In the Promissory Note, they
signed above the printed name of the corporation -- on the space provided for "Maker/Borrower," not on that provided for "Co-maker."
Basic is the principle that a corporation is vested by law with a personality separate and distinct from that of each person composing 9 or representing it.10 Equally fundamental is the
general rule that corporate officers cannot be held personally liable for the consequences of their acts, for as long as these are for and on behalf of the corporation , within
the scope of their authority and in good faith. 11 The separate corporate personality is a shield against the personal liability of corporate officers, whose acts are properly attributed to the
corporation.12
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Tramat Mercantile v. Court of Appeals13 held thus:
Moreover, it is axiomatic that solidary liability cannot be lightly inferred. 14 Under Article 1207 of the Civil Code, "there is a solidary liability only when the obligation expressly so states, or when
the law or the nature of the obligation requires solidarity." Since solidary liability is not clearly expressed in the Promissory Note and is not required by law or the nature of the obligation in this
case, no conclusion of solidary liability can be made. Furthermore, nothing supports the alleged joint liability of the individual petitioners because, as correctly pointed out by
the two lower courts, the evidence shows that there is only one debtor: the corporation. In a joint obligation, there must be at least two debtors, each of whom is liable
only for a proportionate part of the debt; and the creditor is entitled only to a proportionate part of the credit. 15
So too, the Promissory Note in question is a negotiable instrument. Under Section 19 of the Negotiable Instruments Law, agents or representatives may sign for the
principal. Their authority may be established, as in other cases of agency. Section 20 of the law provides that a person signing "for and on behalf of a [disclosed] principal or in a
representative capacity x x x is not liable on the instrument if he was duly authorized."
The authority of Respondents Cu and Hong to sign for and on behalf of the corporation has been amply established by the Resolution of Minfaco’s Board of Directors, stating that "Atty.
Ricardo P. Guevara (President and Chairman), or Ms. Teresita R. Cu (Vice President), acting together with Mr. Jong Won Hong (Vice President), be as they are hereby authorized for and in
behalf of the Corporation to: 1. Negotiate with and obtain from (petitioner) the extension of an omnibus line in the aggregate of ₱30 million x x x; and 2. Execute and deliver all
documentation necessary to implement all of the foregoing."17
In the totality of the circumstances, we hold that Respondents Cu and Hong clearly signed the Note merely as representatives of Minfaco.
Under certain circumstances, courts may treat a corporation as a mere aggroupment of persons, to whom liability will directly attach. The distinct and separate corporate personality may be
disregarded, inter alia, when the corporate identity is used to defeat public convenience, justify a wrong, protect a fraud, or defend a crime. Likewise, the corporate veil may be pierced when
the corporation acts as a mere alter ego or business conduit of a person, or when it is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.20 But to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established; it cannot be
presumed.21
Unfortunately, petitioner was unable to establish clearly and precisely how the alleged fraud was committed. It failed to establish that it was deceived into granting the
loans because of respondents’ misrepresentations and/or insidious actions. Quite the contrary, circumstances indicate the weakness of its submission.
WHEREFORE, this Petition is PARTIALLY GRANTED. The assailed Decision is AFFIRMED, but the award of moral and exemplary damages as well as attorney’s fees is DELETED. No costs.
SO ORDERED.
6. G.R. No. 142616 July 31, 2001

PHILIPPINE NATIONAL BANK vs. RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE, respondents.
KAPUNAN, J.: (PNB-IFL AND PNB)
Facts:
Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan
General Merchandise are domestic corporations, likewise, organized and existing under Philippine law.
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PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount
of US$300,000.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City. This credit facility was later increased successively to US$1,140,000.00 in
September 1996; to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998. Respondents made repayments of the loan
incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified
the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall.
Respondents file for injunction. Petitioner filed a motion to dismiss on the ground of the absence of any privity between the petitioner and respondents. Respondents argue that even
assuming arguendo that petitioner and PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of
foreclosing respondents' properties. Respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that
petitioner is merely an alter ego or a business conduit of PNB-IFL.6
Issue:
Whether or not petitioner is a real party in interest being a mere attorney-in-fact authorized to enforce an ancillary contract
Held:
No. The contract questioned is one entered into between respondent and PNB-IFL, not PNB . In their complaint, respondents admit that petitioner is a mere attorney-in-fact for
the PNB-IFL with full power and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent with
limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts entered into by respondents and PNB-IFL.
The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the loan contracts, and the respondents. Yet, despite the recognition that
petitioner is a mere agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them in accordance with
the terms and conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to PNB by herein respondents. 9
Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract. Respondents, therefore, do not have any cause of action against
petitioner.
The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members, and is not affected by the personal rights, obligations
and transactions of the latter. 13 The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to
perform legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their
respective business. The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity.
Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a
corporation is abused or used for wrongful purposes. 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. 15
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere
instrumentality of the latter are present. Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil
exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar.
Page 8 of 24
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent
company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without
compelling reasons be considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or defended in the name of the real party-in-interest, unless otherwise
authorized by law or these Rules. 18 In mandatory terms, the Rules require that "parties-in-interest without whom no final determination can be had, an action shall be joined either as plaintiffs
or defendants."19 In the case at bar, the injunction suit is directed only against the agent, not the principal.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the
Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED.
SO ORDERED.
7. G.R. No. 167530 March 13, 2013

PHILIPPINE NATIONAL BANK vs. HYDRO RESOURCES CONTRACTORS CORPORATION
G.R. No. 167561 (PNB AND DBP; NMIC-HERCON, INC.)
LEONARDO-DE CASTRO, J.:
Facts:
Petitioners DBP and PNB foreclosed on certain mortgages made on the properties of Marinduque Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and PNB
acquired substantially all the assets of MMIC and resumed the business operations of the defunct MMIC by organizing NMIC. DBP and PNB owned 57% and 43% of the shares of NMIC,
respectively, except for five qualifying shares. The members of the Board of Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino Agbada,
were either from DBP or PNB.
Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and Road Construction Program in 1985 for a total contract price of ₱35,770,120. Hercon,
Inc., the latter found that NMIC still has an unpaid balance of ₱8,370,934.74. 10 Hercon, Inc. made several demands on NMIC, including a letter of final demand dated August 12, 1986, and
when these were not heeded, a complaint for sum of money was filed in the RTC of Makati, Branch 136 seeking to hold petitioners NMIC, DBP, and PNB solidarily liable for the amount
owing Hercon, Inc.11
Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger. This prompted the amendment of the complaint to substitute HRCC for Hercon, Inc. 12 Thereafter,
then President Corazon C. Aquino issued Proclamation No. 50 creating the APT for the expeditious disposition and privatization of certain government corporations and/or the assets thereof.
Pursuant to the said Proclamation, DBP and PNB executed their respective deeds of transfer in favor of the National Government assigning, transferring and conveying certain
assets and liabilities, including their respective stakes in NMIC.13 In turn and on even date, the National Government transferred the said assets and liabilities to the APT as trustee
under a Trust Agreement.14 Thus, the complaint was amended for the second time to implead and include the APT as a defendant.
DBP’s answer17 raised the defense that HRCC had no cause of action against it because DBP was not privy to HRCC’s contract with NMIC. Moreover, NMIC’s juridical personality is
separate from that of DBP. PNB also invoked the separate juridical personality of NMIC and made counterclaims for moral damages and attorney’s fees. APT set up the following defenses in its
answer: lack of cause of action against it, lack of privity between Hercon, Inc. and APT, and the National Government’s preferred lien over the assets of NMIC. 22 All three petitioners assert that
NMIC is a corporate entity with a juridical personality separate and distinct from both PNB and DBP.
Page 9 of 24
Issue:
Whether or not there is sufficient ground to pierce the veil of corporate fiction
Held:
No. A corporation is an artificial entity created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its
existence.37 It has a personality separate and distinct from that of its stockholders and from that of other corporations to which it may be connected. 38 As a consequence of its status as a
distinct legal entity and as a result of a conscious policy decision to promote capital formation, 39 a corporation incurs its own liabilities and is legally responsible for payment of its
obligations.40 In other words, by virtue of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder. 41 This protection from
liability for shareholders is the principle of limited liability. 42
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For
reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons. 43
However, the rule is that a court should be careful in assessing the milieu where the doctrine of the corporate veil may be applied. Otherwise an injustice, although unintended, may result from
its erroneous application.44 Thus, cutting through the corporate cover requires an approach characterized by due care and caution:
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the
corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly
established; it cannot be presumed. x x x.45 (Emphases supplied; citations omitted.)
Sarona v. National Labor Relations Commission 46 has defined the scope of application of the doctrine of piercing the corporate veil:
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is
a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation. (Citation omitted.)
Here, HRCC has alleged from the inception of this case that DBP and PNB (and the APT as assignee of DBP and PNB) should be held solidarily liable for using NMIC as alter
ego.47 The RTC sustained the allegation of HRCC and pierced the corporate veil of NMIC pursuant to the alter ego theory when it concluded that NMIC "is a mere adjunct, business conduit or
alter ego of both DBP and PNB." 48 The Court of Appeals upheld such conclusion of the trial court. 49 In other words, both the trial and appellate courts relied on the alter ego theory when they
disregarded the separate corporate personality of NMIC.
In this connection, case law lays down a three-pronged test to determine the application of the alter ego theory, which is also known as the instrumentality theory, namely:
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal right; and
Page 10 of 24
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of. 50 (Emphases omitted.)
The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be completely under the control and domination of the parent. 51 It examines the parent
corporation’s relationship with the subsidiary. 52 It inquires whether a subsidiary corporation is so organized and controlled and its affairs are so conducted as to make it a mere instrumentality or
agent of the parent corporation such that its separate existence as a distinct corporate entity will be ignored. 53 It seeks to establish whether the subsidiary corporation has no autonomy and the
parent corporation, though acting through the subsidiary in form and appearance, "is operating the business directly for itself." 54
The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using the subsidiary corporation be unjust, fraudulent or wrongful. 55 It examines the
relationship of the plaintiff to the corporation. 56 It recognizes that piercing is appropriate only if the parent corporation uses the subsidiary in a way that harms the plaintiff creditor. 57 As such, it
requires a showing of "an element of injustice or fundamental unfairness." 58
The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm
suffered.59 A causal connection between the fraudulent conduct committed through the instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff should be
established. The plaintiff must prove that, unless the corporate veil is pierced, it will have been treated unjustly by the defendant’s exercise of control and improper use of the corporate form
and, thereby, suffer damages.60
To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of three elements: control of the corporation by the stockholder or parent corporation, fraud or
fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any of these elements prevents
piercing the corporate veil.61
This Court finds that none of the tests has been satisfactorily met in this case.
WHEREFORE, the petitions are hereby GRANTED.
The complaint as against Development Bank of the Philippines, the Philippine National Bank, and the Asset Privatization Trust, now the Privatization and Management Office, is DISMISSED for
lack of merit. The Asset Privatization Trust, now the Privatization and Management Office, as trustee of Nonoc Mining and Industrial Corporation, now the Philnico Processing Corporation, is
DIRECTED to ensure compliance by the Nonoc Mining and Industrial Corporation, now the Philnico Processing Corporation, with this Decision.
SO ORDERED.
8. G.R. No. 124950 May 19, 1998

ASIONICS PHILIPPINES, INC. and/or FRANK YIH vs. NATIONAL LABOR RELATIONS COMMISSION, YOLANDA BOAQUINA, and JUANA GAYOLA
VITUG, J.:
Facts:
Petitioners Asionics Philippines, Inc. ("API"), and its President and majority stockholder, Frank Yih, seek to annul and set aside the decision of the National Labor Relations
Commission ("NLRC") which has ordered, inter alia, that they grant separation pay, computed at one-half (1/2) month per year of service, to private respondents Yolanda Boaquina and
Juana Gayola.
Page 11 of 24
API is a domestic corporation engaged in the business of assembling semi-conductor chips and other electronic products mainly for export . Yolanda Boaquina and Juana
Gayola started working for API as material control clerk and as production operator. API commenced negotiations with the duly recognized bargaining agent of its employees, the Federation of
Free Workers ("FFW"), for a Collective Bargaining Agreement ("CBA"). A deadlock, however, ensued and the union decided to file a notice of strike. This event prompted the two customers of
API, Indala and CP Clare Theta J, to thereupon refrain from sending to API additional kits or materials for assembly. API, given the circumstance that its assembly line had to thereby grind to a
halt, was forced to suspend operations pursuant to Article 286 3 of the Labor Code. Private respondents Boaquina and Gayola were among the employees asked to take a leave from work.
Claiming that the strike staged by Lakes Union was illegal, API brought before the NLRC National Capital Region Arbitration a petition for declaration of illegality of the strike. Lakas Union
countered that their strike was valid and staged as a measure of self-preservation and as self-defense against the illegal dismissal of petitioners aimed at union busting in the guise of a
retrenchment program.
Meanwhile, at the instance of several employees which included private respondents Boaquina and Gayola, a complaint for illegal dismissal, violation of labor standards and separation pay,
as well as for recovery of moral and exemplary damages, was filed against API and/or Frank Yih.
Issue:
Whether or not a stockholder/director/officer of a corporation can be held liable for the obligation of the corporation absent any proof and finding of bad faith
Held:
No. The court cannot agree with the Solicitor-General in suggesting that even if Frank Yih had no direct hand in the dismissal of the respondents he should be personally liable therefor on
account alone of his being the President and majority stockholder of the company. The disquisition by the Court in Santos vs. NLRC14 is quite succinct and clear. Thus —
A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid
grounds can exist to warrant, albeit done sparingly, the disregard of its independent being and the lifting of the corporate veil. As a rule, this situation might arise when a corporation is
used to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out similar unjustifiable aims or intentions, or as a subterfuge to commit injustice
and so circumvent the law.
It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages and money claims to its
employees. In A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the Minimum Wage Law, the responsible officer of an employer corporation could be
held personally liable for nonpayment of backwages for "(i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for evading payment of
backwages." In the absence of a clear identification of the officer directly responsible for failure to pay the backwages, the Court considered the President of the corporation as such
officer. The case was cited in Chua vs. NLRC in holding personally liable the vice-president of the company, being the highest and most ranking official of the corporation next to the
President who was dismissed, for the latter's claim for unpaid wages.
A review of the above exceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction personal liability on the part of the company officer.
In A.C. Ransom, the corporate entity was a family corporation and execution against it could not be implemented because of the disposition posthaste of its leviable assets evidently in
order to evade its just and due obligations. The doctrine of "piercing the veil of corporate fiction" was this clearly appropriate. Chua likewise involved another family corporation, and
this time the conflict was between two brothers occupying the highest ranking positions in the company. There were incontrovertible facts which pointed to extreme personal animosity
that resulted, evidently in bad faith, in the easing out from the company of one of the brothers by the other.
The basic rule is still that which can deduced from the Court's pronouncement in Sunio vs. National Labor Relations Commission (127 SCRA 390), thus:
Page 12 of 24
We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the payment of the
backwages of private respondents. This is reversible error. The Assistant Regional Director's Decision failed to disclose the reason why he was made personally liable.
Respondents, however, alleged as grounds thereof, his being the owner of one-half (1/2) interest of said corporation, and his alleged arbitrary dismissal of private
respondents.
Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on record that he
acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act.
It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as 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. Petitioner Sunio, therefore, should not have been made personally answerable for the
payment of private respondents' back salaries.
The Court, to be sure, did appear to have deviated somewhat in Gudez vs. NLRC (183 SCRA 644), however, it should be clear from our recent pronouncement in Mam Realty
Development Corporation and Manuel Centeno vs. NLRC (244 SCRA 797), that the Sunio doctrine still prevails.15
Nothing on record is shown to indicate that Frank Yih has acted in bad faith or with malice in carrying out the retrenchment program of the company. His having been
held by the NLRC to be solidarily and personally liable with API is thus legally unjustified.
WHEREFORE, the questioned decision of the NLRC is MODIFIED insofar as it holds herein petitioner Frank Yih personally liable with Asionics Philippines, Inc., which portion of the decision is SET
ASIDE; in all other respects, however, the questioned decision is AFFIRMED and remains unaffected. No costs.
9. RUPERTO SULDAO v. CIMECH SYSTEM CONSTRUCTION, INC. and ENGR. RODOLFO S. LABUCAY
YNARES-SANTIAGO, J.: (Constructive dismissal)
Facts:
Respondent Cimech Systems Construction, Inc. employed the services of petitioner Ruperto Suldao as a machinist with a daily wage of P300.00 on a contractual status for a period of
five months. After January 31, 2002, respondent continued to engage the services of petitioner as a machinist until he became a permanent employee. Engr. Rodolfo S. Labucay, President
and General Manager of the respondent corporation.
Petitioner alleged that owing to a dearth in projects being handled by the respondent, he was ordered by Ms. Elsa Labocay to take a leave of absence from November 1 to 6, 2002. He reported
for work on November 7, 2002 but was again ordered to take a leave of absence from November 7 to 14, 2002. On November 15, 2002, he was purportedly ordered to make a letter-request for
field work transfer which he complied. The following day, he failed to report back for work because he was sick. On November 17, 2002, he reported for work but was allegedly barred from
entering by the security guard on duty. On November 21, 2002, he was again barred from entering the premises, hence he filed the instant complaint 4 for constructive
dismissal.5
Issue:
Whether or not respondent Engr. Rodolfo Labucay is also liable for constructive dismissal
Page 13 of 24
Held:
No. While the liability of the respondent corporation for the constructive dismissal of the petitioner has been clearly established, the same does not hold true with the other respondent, Engr.
Rodolfo S. Labucay, President and General Manager of the respondent corporation. 16 In finding Labucay also liable, the Labor Arbiter declared that:
The foregoing circumstances support the view that complainant was constructively dismissed in an illegal manner. Consequently, respondents, in solidum, are ordered to reinstate the
complainant to his former position and pay complainant his backwages x x x.
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 veil of corporate 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. 17
In the instant case, no reason exists that will justify the piercing of the veil of corporate fiction such as to hold Labucay, as the president and general manager of the respondent corporation,
solidarily liable with it. Thus, the liability for the constructive dismissal of the petitioner solely devolves upon the respondent corporation. Consequently, the decision of the Labor Arbiter and of
the NLRC should be modified in that only the respondent corporation should be held liable.
WHEREFORE, the petition is GRANTED. The June 23, 2005 Decision of the Court of Appeals in CA-G.R. SP No. 83963 and its January 10, 2006 Resolution are REVERSED and SET ASIDE.
The February 27, 2004 Resolution of the National Labor Relations Commission in NLRC CA No. 036963-03 affirming the decision of the Labor Arbiter finding that petitioner was constructively
dismissed, is REINSTATED with MODIFICATION that only the respondent corporation, Cimech System Construction, Inc. is held liable.
10. G.R. No. 178352 June 17, 2008

VIRGILIO S. DELIMA vs. SUSAN MERCAIDA GOIS
YNARES-SANTIAGO, J.: (Vehicle levied was registered in the name of respondent- principally used by the corporation )
Facts:
A case for illegal dismissal was filed by petitioner Virgilio S. Delima against Golden Union Aquamarine Corporation (Golden), Prospero Gois and herein respondent Susan
Mercaida Gois before the Regional Arbitration Branch No. VIII of the National Labor Relations Commission on October 29, 2004, docketed as NLRC RAB VIII Case No. 10-0231-04.
A writ of execution was issued and an Isuzu Jeep with plate number PGE-531 was attached. Respondent Gois filed an Affidavit of Third Party Claim claiming that the attachment of
the vehicle was irregular because said vehicle was registered in her name and not Golden’s; and that she was not a party to the illegal dismissal case filed by Delima against Golden. 4
Issue:
Whether or not the vehicle principally used in the business operations of the corporation but registered under teh name of private respondent may be subject to garnishment
Page 14 of 24
Held:
No. A corporation has a personality distinct and separate from its individual stockholders or members and from that of its officers who manage and run its affairs. The rule is that obligations
incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. Thus, property belonging to a corporation cannot be attached to satisfy the debt of a
stockholder and vice versa, the latter having only an indirect interest in the assets and business of the former. 16
Since the Decision of the Labor Arbiter dated April 29, 2005 directed only Golden to pay the petitioner the sum of P115,561.05 and the same was not joint and solidary obligation with Gois, then
the latter could not be held personally liable since Golden has a separate and distinct personality of its own. It remains undisputed that the subject vehicle was owned by Gois, hence it should
not be attached to answer for the liabilities of the corporation. Unless they have exceeded their authority, corporate officers are, as a general rule, not personally liable for their official acts,
because a corporation, by legal fiction, has a personality separate and distinct from its officers, stockholders and members. No evidence was presented to show that the termination of the
petitioner was done with malice or in bad faith for it to hold the corporate officers, such as Gois, solidarily liable with the corporation.
WHEREFORE, the petition is PARTLY GRANTED. The assailed Decision of the Court of Appeals dated December 21, 2006 annulling and setting aside the May 31, 2006 and August 22, 2006
Resolutions of the National Labor Relations Commission; and its Resolution dated February 5, 2007 are AFFIRMED with the MODIFICATION that Golden Union Aquamarine Corporation is
ordered to REIMBURSE respondent Susan M. Gois the amount of P115,561.05.
SO ORDERED.
11. G.R. No. 178760 July 23, 2009

CARMEN B. DY-DUMALASA vs. DOMINGO SABADO S. FERNANDEZ
CARPIO MORALES, J.:
Facts:
Domingo Sabado S. Fernandez, et al. (respondents) are former employees of Helios Manufacturing Corporation (HELIOS), a closed domestic corporation engaged in soap
manufacturing located in Muntinlupa, of which petitioner is a stockholder, a member of the Board of Directors, and Acting Corporate Secretary.
Respondents filed a Complaint5 against HELIOS for illegal dismissal or illegal closure of business, non-payment of salaries and other money claims against HELIOS. Both complaints also
impleaded HELIOS’ members of the Board of Directors (The Board) including herein petitioner. Despite service of summons, 8 of the remaining four members of the Board, only Leonardo Dy-
Dumalasa, HELIOS’ President and General Manager-husband of petitioner, appeared with counsel. 9
Pursuant to Writ, Sheriff Antonio Datu issued a Notice of Levy on Real Property 22 under which a house and lot in Ayala-Alabang in the name of petitioner and her husband Leonardo Dy-
Dumalasa23 were levied upon. Petitioner moved to quash 24 the Writ, putting up the defense of corporate fiction as well as lack of jurisdiction over her person.
Issue:
Whether or not the properties personal to the Board or stockholders may be attached and levied
Held:
Page 15 of 24
No. Interestingly, the assailed Court of Appeals Decision did not categorically rule on the issue of bad faith and piercing the corporate veil, it focusing instead on the issues of jurisdiction and
the propriety of the NLRC Resolutions. However, the Labor Arbiter found HELIOS et al. guilty of bad faith when they closed the company’s Muntinlupa plant 15 days before the scheduled
cessation of operations, only to reestablish a plant in Carmona, Cavite sometime later as "Pat & Suzara," in response to the newly-created workers’ union.
As to HELIOS being a separate juridical entity, the Labor Arbiter held that it and "Pat & Suzara" are one and the same, using the same machineries and personnel in the new plant.
The Labor Arbiter thus concluded that "indeed, fraud and bad faith on the part of the management are well-established" and, as such, HELIOS et al. are liable for the judgment award.
While the appellate court reinstated the Labor Arbiter’s decision, it held that since its fallo did not indicate with certainty the solidary nature of the obligation, the obligation is merely joint. The
Court finds this ruling well-taken. As held in Industrial Management Int’l. Development Corp v. NLRC: 28
It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of a decision or order is the controlling factor as to settlement of
rights of the parties.1awph!1
A perusal of the Labor Arbiter’s Decision readily shows that, notwithstanding the finding of bad faith on the part of the management, the dispositive portion did not expressly mention the
solidary liability of the officers and Board members, including petitioner. Further:
A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. In a joint obligation each
obligor answers only for a part of the whole liability and to each obligee belongs only a part of the correlative rights.
Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a solidary liability only when the obligation expressly so states, when the law so provides or when the
nature of the obligation so requires.29 (Emphasis and underscoring supplied)
And as held in Carag v. NLRC:30
To hold a director personally liable for debts of the corporation, and thus pierce the veil of corporate fiction, the bad faith or wrongdoing of the director must be established clearly and
convincingly. Bad faith is never presumed. Bad faith does not connote bad judgment or negligence. Bad faith imports a dishonest purpose. Bad faith means breach of a known duty through
some ill motive or interest. Bad faith partakes of the nature of fraud. (Emphasis and underscoring supplied)
Ineluctably, absent a clear and convincing showing of the bad faith in effecting the closure of HELIOS that can be individually attributed to petitioner as an officer thereof, and without the
pronouncement in the Decision that she is being held solidarily liable, petitioner is only jointly liable.
The Court in fact finds that the present action is actually a last-ditch attempt on the part of petitioner to wriggle its way out of her share in the judgment obligation and to discuss the defenses
which she failed to interpose when given the opportunity. Even as petitioner avers that she is not questioning the final and executory Decision of the Labor Arbiter and admits liability, albeit only
joint,31 still, she proceeds to interpose the defenses that jurisdiction was not acquired over her person and that HELIOS has a separate juridical personality.
As for petitioner’s questioning the levy upon her house and lot, she conveniently omits to mention that the same are actually conjugal property belonging to her and her husband. Whether
petitioner is jointly or solidarily liable for the judgment obligation, the levied property is not fully absolved from any lien except if it be shown that it is exempt from execution.
WHEREFORE, the petition is DENIED. The Decision dated April 28, 2006 and the Resolution dated June 29, 2007 of the Court of Appeals are AFFIRMED.
Page 16 of 24
The liability of the respondents in NLRC-NCR South Sector Case No. 30-10-04950-01 and NLRC-NCR South Sector Case No. 30-11-05301-01 pursuant to the Decision of Labor Arbiter Nieves V.
de Castro dated August 30, 2002 should be, as it is hereby, considered joint, without prejudice to the enforcement of the award against petitioner’s co-judgment obligors in said cases.
SO ORDERED.
12. G.R. No. 123893 November 22, 2001

LUISITO PADILLA and PHOENIX-OMEGA DEVELOPMENT AND MANAGEMENT CORPORATION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SUSANA REALTY, INC., respondents.
QUISUMBING, J.:
Facts:
Susana Realty, Inc. (SRI), by a deed of absolute sale, sold to the Light Rail Transit Authority (LRTA) several parcels of land located in Taft Avenue Extension, San
Rafael District, Pasay City. Under paragraph 7 of the deed of sale, SRI reserved to itself the right of first refusal to develop and/or improve the property sold should
the LRTA decide to lease and/or assign to any person the right to develop and/or improve the property.
The LRTA and Phoenix Omega Development and Management Corporation (Phoenix Omega) entered into a Commercial Stall Concession Contract authorizing the
latter to construct and develop commercial stalls on a 90 sq. m. portion of the property bought from SRI. SRI opposed the agreement as having violated the deed of
sale it entered with LRTA. A tripartite agreement was later concluded by the parties, however, whereby SRI agreed to honor the terms of the concession contract and
to lease to Phoenix Omega its (SRI's) property (remaining property) adjacent to the 90 sq. m. portion subject of the concession contract. 1âwphi
A contract was thus entered into between Phoenix Omega and SRI with LRTA whereby Phoenix Omega undertook to construct commercial stalls on the 90-sq. m.
property in accordance with plans and specifications prepared by the latter, the construction to begin, however, only upon SRI's approval of such plans and
specifications. Also, Phoenix Omega, by a deed of assignment, assigned its right and interests over the remaining property unto its sister company, PKA
Development and Management Corporation (PKA). Signatories to the deed of assignment were Eduardo Gatchalian in his capacity as President of
Phoenix Omega, and Luisito B. Padilla (Padilla), one of the petitioners herein, in his capacity as President and General Manager of PKA. The development
of the remaining property having been assigned to PKA, it entered into a contract of lease with SRI likewise on July 28, 1988:
In the meantime, SRI sold part of its remaining property to a third party. An amended contract of lease was thus forged in January 1989 among SRI, PKA
and Phoenix Omega, whereby the parties agreed to substitute the already sold portion ,of SRI's remaining property with 2 parcels of land also belonging to SRI. In
this amended contract of lease, PKA was again represented by Padilla in his capacity as its President and General Manager. And Phoenix Omega. which was not a
party, to the July 28. 1988 lease contract sought to be amended but which was a party to the amended contract. was also represented by Padilla as Chairman of the
Board of Directors of Phoenix Omega.
PKA's building permit was later revoked due to certain violations of the National Building Code (BP 344).
reconsideration in a resolution dated January 17, 1994.
Page 17 of 24
A writ of execution was issued in due course by the RTC. Possession of the subject properties was subsequently restored to SRI, but the monetary award was left
unsatisfied. Thus, SRI filed a motion for issuance of an alias writ against herein petitioners, based on the trial court's observation that PKA and Phoenix-Omega are
one and the same entity.
Petitioners assailed these orders as confiscatory, since they were never parties to the case filed by PKA against SRI, and they were unable to present evidence on
their behalf.
Issue:
Whether or not the petitioners jointly and severally liable with PKA
Held:
In the present case, we note that the trial court never acquired jurisdiction over petitioners through any of the modes mentioned above. Neither of the petitioners was
even impleaded, as a party to the case.13
Without the trial court having acquired jurisdiction over petitioners, the latter could not be bound by the decision of the court. Execution can only be issued against a
party and not against one who was not accorded his day in court. 14 To levy upon their properties to satisfy a judgment in a case in which they were not even parties is
not only inappropriate; it most certainly is deprivation of property without due process of law.15 This we cannot allow.
The courts a quo ruled that petitioner Padilla, in particular, had his day in court. As general manager of PKA, he actively participated in the case in the trial court. He
"ha(d) the right to control the proceedings, to make defense, to adduce and cross examine witnesses, and to appeal from a decision." 16 Therefore, Padilla and
Phoenix-Omega, of which Padilla is chairman of the board, could not now argue that they did not have the opportunity to present their case in court, according to
private respondent.
To begin with, it is clear that Padilla participated in the proceedings below as general manager of PKA and not in any other capacity. The fact that at the same time he
was the chairman of the board of Phoenix-Omega cannot, by any stretch of reasoning, equate to participation by Phoenix- Omega in the same proceedings. We
again stress that Phoenix-Omega was not a party to the case and so could not have taken part therein.
Private respondent, however, insists that the trial court had pierced the veil of corporate fiction protecting petitioners, and this justifies execution against their
properties.
The general rule is that a corporation is clothed with a personality separate and distinct from the persons composing it. It may not be held liable for the obligations of
the persons composing it, and neither can its stockholders be held liable for its obligations. 17
This veil of corporate fiction may only be disregarded in cases where the corporate vehicle is being used to defeat public convenience, justify wrong, protect fraud, or
defend crime.18 PKA and Phoenix-Omega are admittedly sister companies, and may be sharing personnel and resources, but we find in the present case no
allegation, much less positive proof, that their separate corporate personalities are being used to defeat public convenience, justify wrong, protect fraud, or defend
Page 18 of 24
crime. "For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be
presumed."19 We find no reason to justify piercing the corporate veil in this instance.
We understand private respondent's frustration at not being able to have the monetary award in their favor satisfied. But given the circumstances of this case, public
respondent cannot order the seizure of petitioners' properties without violating their constitutionally enshrined right to due process, merely to compensate private
respondent. 1âwphi1.nêt
WHEREFORE, the instant petition is GRANTED. The assailed decision and resolution of the Court of Appeals in CA-G.R. SP No. 36685 are SET ASIDE, and the
order of the trial court dated November 29, 1994 and the alias writ of execution issued on the same date in connection with Civil Case No. 7302, are declared NULL
and VOID.
13. G.R. No. 151438 July 15, 2005

JARDINE DAVIES, INC., vs. JRB REALTY, INC., Respondent.
CALLEJO, SR., J.:
Facts:
Respondent JRB Realty, Inc. built a nine-storey building, named Blanco Center, on its parcel of land located at 119 Alfaro St., Salcedo Village, Makati City. An air conditioning system was needed
for the Blanco Law Firm housed at the second floor of the building. The respondent’s Executive Vice-President, Jose R. Blanco, accepted the contract quotation of Mr. A.G. Morrison,
President of Aircon and Refrigeration Industries, Inc. (Aircon), for two (2) sets of Fedders Adaptomatic 30,000 kcal (Code: 10-TR) air conditioning equipment with a net total selling
price of ₱99,586.00. 2 Thereafter, two (2) brand new packaged air conditioners of 10 tons capacity each to deliver 30,000 kcal or 120,000 BTUH 3 were installed by Aircon. When the units with
rotary compressors were installed, they could not deliver the desired cooling temperature. Despite several adjustments and corrective measures, the respondent conceded that Fedders Air
Conditioning USA’s technology for rotary compressors for big capacity conditioners like those installed at the Blanco Center had not yet been perfected. The parties thereby agreed to replace the
units with reciprocating/semi-hermetic compressors instead. In a Letter dated March 26, 1981, 4 Aircon stated that it would be replacing the units currently installed with new ones using rotary
compressors, at the earliest possible time. Regrettably, however, it could not specify a date when delivery could be effected.
TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the maintenance of the units, inclusive of parts and services. Later, the respondent learned, through newspaper
ads,5 that Maxim Industrial and Merchandising Corporation (Maxim, for short) was the new and exclusive licensee of Fedders Air Conditioning USA in the Philippines for the manufacture,
distribution, sale, installation and maintenance of Fedders air conditioners. The respondent requested that Maxim honor the obligation of Aircon, but the latter refused. Considering that the ten-
year period of prescription was fast approaching, the respondent then instituted an action for specific performance with damages against Aircon & Refrigeration Industries, Inc., Fedders
Air Conditioning USA, Inc., Maxim Industrial & Merchandising Corporation and petitioner Jardine Davies, Inc. 6 The latter was impleaded as defendant, considering that
Aircon was a subsidiary of the petitioner.
The petitioner filed its notice of appeal with the CA, alleging that the trial court erred in holding it liable because it was not a party to the contract between JRB Realty, Inc. and Aircon, and that
it had a personality separate and distinct from that of Aircon.
Issue:
Whether or not Jardine Davies Inc. is liable for the alleged contractual breach of aircon because Aircon was formerly Jardine’s subsidiary.
Page 19 of 24
Held:
No. Applying the doctrine of piercing the veil of corporate fiction, both the respondent and trial courts conveniently held the petitioner liable for the alleged omissions of Aircon, considering that
the latter was its instrumentality or corporate alter ego. It is an elementary and fundamental principle of corporation law that a corporation is an artificial being invested by law with a
personality separate and distinct from its stockholders and from other corporations to which it may be connected. While a corporation is allowed to exist solely for a lawful purpose, the law will
regard it as an association of persons or in case of two corporations, merge them into one, when this corporate legal entity is used as a cloak for fraud or illegality. 14 This is the doctrine of
piercing the veil of corporate fiction which applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. 15 The rationale behind
piercing a corporation’s identity 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.16
While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that Aircon’s corporate legal existence can just be disregarded. In Velarde v. Lopez, Inc.,17 the Court
categorically held that a subsidiary has an independent and separate juridical personality, distinct from that of its parent company; hence, any claim or suit against the latter does not bind the
former, and vice versa. In applying the doctrine, the following requisites must be established: (1) control, not merely majority or complete stock control; (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 acts 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. 18
The records bear out that Aircon is a subsidiary of the petitioner only because the latter acquired Aircon’s majority of capital stock. It, however, does not exercise complete control over Aircon;
nowhere can it be gathered that the petitioner manages the business affairs of Aircon. Indeed, no management agreement exists between the petitioner and Aircon, and the latter is an entirely
different entity from the petitioner. 19
To carry on the business of manufacturers of commercial and household appliances and accessories of any form, particularly to manufacture, purchase, sell or deal in air conditioning and
refrigeration products of every class and description as well as accessories and parts thereof, or other kindred articles; and to erect, or buy, lease, manage, or otherwise acquire manufactories,
warehouses, and depots for manufacturing, assemblage, repair and storing, buying, selling, and dealing in the aforesaid appliances, accessories and products. … 23
The existence of interlocking directors, corporate officers and shareholders, which the respondent court considered, is not enough justification to pierce the veil of corporate fiction, in the
absence of fraud or other public policy considerations. 24 But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only
when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. 25 To warrant resort to this extraordinary remedy, there must be proof that the corporation is
being used as a cloak or cover for fraud or illegality, or to work injustice. 26 Any piercing of the corporate veil has to be done with caution. 27 The wrongdoing must be clearly and convincingly
established. It cannot just be presumed.28
In the instant case, there is no evidence that Aircon was formed or utilized with the intention of defrauding its creditors or evading its contracts and obligations. There was nothing fraudulent in
the acts of Aircon in this case. Aircon, as a manufacturing firm of air
conditioners, complied with its obligation of providing two air conditioning units for the second floor of the Blanco Center in good faith, pursuant to its contract with the respondent.
Unfortunately, the performance of the air conditioning units did not satisfy the respondent despite several adjustments and corrective measures. In a Letter 29 dated October 22, 1980, the
respondent even conceded that Fedders Air Conditioning USA has not yet perhaps perfected its technology of rotary compressors, and agreed to change the compressors with the semi-hermetic
type. Thus, Aircon substituted the units with serviceable ones which delivered the cooling temperature needed for the law office. After enjoying ten (10) years of its cooling power, respondent
cannot now complain about the performance of these units, nor can it demand a replacement thereof.
We sustain the petitioner’s separateness from that of Aircon in this case. It bears stressing that the petitioner was never a party to the contract. Privity of contracts take effect only between
parties, their successors-in-interest, heirs and assigns. 32 The petitioner, which has a
separate and distinct legal personality from that of Aircon, cannot, therefore, be held liable.
IN VIEW OF THE FOREGOING, the petition is GRANTED. The assailed decision of the Court of Appeals, affirming the decision of the Regional Trial Court is REVERSED and SET ASIDE.
The complaint of the respondent is DISMISSED. Costs against the respondent.
Page 20 of 24
SO ORDERED.
14. G.R. No. 165442 August 25, 2010

NASECO GUARDS ASSOCIATION-PEMA (NAGA-PEMA) vs. NATIONAL SERVICE CORPORATION (NASECO)
VILLARAMA, JR., J.:
Facts:
Respondent National Service Corporation (NASECO) is a wholly-owned subsidiary of the Philippine National Bank (PNB) organized under the Corporation Code in 1975. It supplies security and
manpower services to different clients such as the Securities and Exchange Commission, the Philippine Deposit Insurance Corporation, Food Terminal Incorporated, Forex Corporation and PNB.
Petitioner NASECO Guards Association-PEMA (NAGA-PEMA) is the collective bargaining representative of the regular rank and file security guards of respondent. NASECO Employees Union-PEMA
(NEMU-PEMA) is the collective bargaining representative of the regular rank and file (non-security) employees of respondent such as messengers, janitors, typists, clerks and radio-telephone
operators.4
Respondent entered into a memorandum of agreement 5 with petitioner. The terms of the agreement covered the monetary claims of the petitioner such as salary adjustments, conversion of
salary scheme under Republic Act (R.A.) No. 6758 6 to R.A. No. 6727,7 signing bonus, leaves and other benefits. A year after, petitioner demanded full negotiation for a collective bargaining
agreement (CBA) with the respondent and submitted its proposals thereto. Also, petitioner and respondent agreed to sign a CBA on non-economic terms. 8
Petitioner filed a notice of strike before the National Conciliation and Mediation Board (NCMB) against respondent and PNB due to a bargaining deadlock. The following day, NEMU-PEMA
likewise filed a notice of strike against respondent and PNB on the ground of unfair labor practices. 10 Petitioner contends that PNB should be held liable to shoulder the CBA benefits awarded to
them by virtue of it being a company having full financial, managerial and functional control over respondent as its subsidiary, and by reason of the unique "no loss, no profit" scheme
implemented between respondent and PNB.
Issue:
Whether or not PNB, being the undisputed owner of and exercising control over respondent, should be made liable to pay the CBA benefits awarded to the petitioner.
Held:
No. Verily, what the petitioner is asking this Court to do is to pierce the veil of corporate fiction of respondent and hold PNB (being the mother company) liable for the CBA benefits.
In Concept Builders, Inc. v. NLRC,26 we explained the doctrine of piercing the corporate veil, as follows: 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.
Also in Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations Commission, 27 this Court ruled:
Page 21 of 24
Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done
with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not
meant to promote unfair objectives.
Applying the doctrine to the case at bar, we find no reason to pierce the corporate veil of respondent and go beyond its legal personality. Control, by itself, does not mean that the controlled
corporation is a mere instrumentality or a business conduit of the mother company. Even control over the financial and operational concerns of a subsidiary company does not by itself call for
disregarding its corporate fiction. There must be a perpetuation of fraud behind the control or at least a fraudulent or illegal purpose behind the control in order to justify piercing the veil of
corporate fiction. Such fraudulent intent is lacking in this case.
Petitioner argues that the appreciation, analysis and inquiry of this case may go beyond the presentation of respondent, and therefore must include the PNB, the bank being the undisputed
whole owner of respondent and the sole provider of funds for the company’s operations and for the payment of wages and benefits of the employees, under the "no loss, no profit" scheme. 28
We disagree. There is no showing that such "no loss, no profit" scheme between respondent and PNB was implemented to defeat public convenience, justify wrong, protect fraud or defend
crime, or is used as a device to defeat the labor laws, nor does the scheme show that respondent is a mere business conduit or alter ego of PNB. Absent proof of these circumstances,
respondent’s corporate personality cannot be pierced.
It is apparent that petitioner wants the Court to disregard the corporate personality of respondent and directly go after PNB in order for it to collect the CBA benefits. On the same breath,
however, petitioner argues that ultimately it is PNB, by virtue of the "no loss, no profit" scheme, which shoulders and provides the funds for financial liabilities of respondent including wages and
benefits of employees. If such scheme was indeed true as the petitioner presents it, then there was absolutely no need to pierce the veil of corporate fiction of respondent. Moreover, the Court
notes the pendency of a separate suit for absorption or regularization of NASECO employees filed by petitioner and NEMU-PEMA against PNB and respondent, docketed as NLRC NCR Case No.
06-03944-96), which is still on appeal with the National Labor Relations Commission (NLRC), as per manifestation by respondent. In the said case, petitioner submitted for resolution by the
labor tribunal the issues of whether PNB is the employer of NASECO’s work force and whether NASECO is a labor-only contractor. 29
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated May 27, 2004 and Resolution dated September 22, 2004 in CA-G.R. SP No. 76667 are hereby REVERSED and SET ASIDE as
to the order to remand the case to the Secretary of Labor for introduction of supporting evidence. Accordingly, the Orders of the Secretary of Labor dated January 15, 2003 and March 11, 2003
are REINSTATED and UPHELD.
15. G.R. No. 150920 November 25, 2005

CHILD LEARNING CENTER, INC. and SPOUSES EDGARDO L. LIMON and SYLVIA S. LIMON, vs.TIMOTHY TAGARIO
AZCUNA, J.:
Facts:
This petition started with a tort case filed with the Regional Trial Court of Makati by Timothy Tagorio and his parents, Basilio R. Tagorio and Herminia Tagorio, docketed as Civil Case No. 91-
1389. The complaint1 alleged that during the school year 1990-1991, Timothy was a Grade IV student at Marymount School, an academic institution operated and maintained by Child Learning
Center, Inc. (CLC). In the afternoon of March 5, 1991, between 1 and 2 p.m., Timothy entered the boy’s comfort room at the third floor of the Marymount building to answer the call of nature.
He, however, 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.
An action under Article 2176 of the Civil Code was filed by respondents 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 . In its defense,2 CLC maintained that there was nothing
Page 22 of 24
defective about the locking mechanism of the door and that the fall of Timothy was not due to its fault or negligence. CLC further maintained that it had exercised the due care and diligence of
a good father of a family to ensure the safety, well-being and convenience of its students.
Issue:
Whether or not there is a basis to pierce CLC’s separate corporate personality
Held:
Bo. We, however, agree with petitioners that there was no basis to pierce CLC’s separate corporate personality. 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. 13 The evidence on record fails to show that these elements are
present, especially given the fact that plaintiffs’ complaint had pleaded that CLC is a corporation duly organized and existing under the laws of the Philippines.
WHEREFORE, the petition is partly granted and the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 50961 dated September 28, 2001 and November 23, 2001, respectively,
are MODIFIED in that petitioners Spouses Edgardo and Sylvia Limon are absolved from personal liability. The Decision and Resolution are AFFIRMED in all other respects. No pronouncement
as to costs.
SO ORDERED.
16. G.R. No. 166405 August 6, 2008

CLAUDE P. BAUTISTA vs. AUTO PLUS TRADERS, INCORPORATED and COURT OF APPEALS
QUISUMBING, J.:
Facts:
Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and Transport Corporation, purchased various spare parts from private respondent Auto Plus
Traders, Inc. and issued two postdated checks to cover his purchases. The checks were subsequently dishonored. Private respondent then executed an affidavit-complaint for violation of Batas
Pambansa Blg. 223 against petitioner. Consequently, two Informations for violation of BP Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao City against the petitioner.
Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and that the corporation, which has a separate personality from its officers, is solely liable for the value of
the two checks. Private respondent counters that petitioner should be held personally liable for both checks. Private respondent alleged that petitioner issued two postdated checks: a personal
check in his name for the amount of P151,200 and a corporation check under the account of Cruiser Bus Lines and Transport Corporation for the amount of P97,500. According to private
respondent, petitioner, by issuing his check to cover the obligation of the corporation, became an accommodation party. Under Section 29 9 of the Negotiable Instruments Law, an
accommodation party is liable on the instrument to a holder for value. Private respondent adds that petitioner should also be liable for the value of the corporation check because instituting
another civil action against the corporation would result in multiplicity of suits and delay.
Issue:
Page 23 of 24
Whether or not petitioner, as an officer of the corporation, is personally and civilly liable to the private respondent for the value of the two checks. 8
Held:
No. Juridical entities have personalities separate and distinct from its officers and the persons composing it. 13 Generally, the stockholders and officers are not personally liable for the obligations
of the corporation except only when the veil of corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice. 14 These situations, however, do not exist in this case.
The evidence shows that it is Cruiser Bus Lines and Transport Corporation that has obligations to Auto Plus Traders, Inc. for tires. There is no agreement that petitioner shall be held liable for
the corporation's obligations in his personal capacity. Hence, he cannot be held liable for the value of the two checks issued in payment for the corporation's obligation in the total amount
of P248,700.
Likewise, contrary to private respondent's contentions, petitioner cannot be considered liable as an accommodation party for Check No. 58832. Section 29 of the Negotiable Instruments Law
defines an accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name
to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. 15 An accommodation party lends his
name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto. 16 The
first two elements are present here, however there is insufficient evidence presented in the instant case to show the presence of the third requisite. All that the evidence shows is that petitioner
signed Check No. 58832, which is drawn against his personal account. The said check, dated December 15, 2000 , corresponds to the value of 24 sets of tires received by Cruiser Bus Lines and
Transport Corporation on August 29, 2000. 17 There is no showing of when petitioner issued the check and in what capacity. In the absence of concrete evidence it cannot just be assumed that
petitioner intended to lend his name to the corporation. Hence, petitioner cannot be considered as an accommodation party.
Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially since there is no evidence that the debts covered by the subject checks have been paid.
WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004 and the Resolution dated October 29, 2004 of the Court of Appeals in CA-G.R. CR No. 28464 are REVERSED
and SET ASIDE. Criminal Case Nos. 52633-03 and 52634-03 are DISMISSED, without prejudice to the right of private respondent Auto Plus Traders, Inc., to file the proper civil action against
Cruiser Bus Lines and Transport Corporation for the value of the two checks.
No pronouncement as to costs.
SO ORDERED.
Page 24 of 24

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Atty. Manuel T. Gatcho

1. G.R. No. 117416 December 8, 2000

The test may be stated as follows:

The SEC stated further that:

4. G.R. No. 127181 September 4, 2001

6. G.R. No. 142616 July 31, 2001

7. G.R. No. 167530 March 13, 2013

WHEREFORE, the petitions are hereby GRANTED.

8. G.R. No. 124950 May 19, 1998

10. G.R. No. 178352 June 17, 2008

11. G.R. No. 178760 July 23, 2009

And as held in Carag v. NLRC:30

12. G.R. No. 123893 November 22, 2001

reconsideration in a resolution dated January 17, 1994.

13. G.R. No. 151438 July 15, 2005

14. G.R. No. 165442 August 25, 2010

15. G.R. No. 150920 November 25, 2005

Whether or not there is a basis to pierce CLC’s separate corporate personality

16. G.R. No. 166405 August 6, 2008

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