KUKAN, INC CASE

FACTS:
Kukan Inc, contracted a bidding for supply and installation of building signages in Makati
City. Morales win in the bid. Morales complied with his contractual undertakings but
Morales was not completely paid. A remaining balance was left UNPAID. Kukan Inc
refused to pay despite demands. Morales now file a case for collection of sum of
money. Kukan Inc did not appear on the trial prompting RTC to declared it in default.
Morales was allowed to enter evidence ex parte. RTC ruled that Kukan In must pay
Morales until fully paid with legal interest. With the decision being final and executory,
sheriff levied properties of Kukan Inc. Now, KUKAN INTERNATIONAL CORP, claimed
that the properties levied was owned by them and it was different from Kukan Inc.
KUKAN INTERNATIONAL CORP was incorporated shortly after KUKAN INC stop
participating in the case.

ISSUE/RULING:

1. Whether the trial court can, after the judgment against Kukan, Inc. has attained
finality, execute it against the property of KIC?
2. Whether the trial court acquired jurisdiction over KIC;
3. Whether the trial and appellate courts correctly applied, under the premises,
the principle of piercing the veil of corporate fiction.
ANSER:
1. NO, RTC CANNOT ALTER THE JUDGEMENT AFTER ATTAINING FINALITY
FOLLOWING THE DOCTRINE OF IMMUTABILITY OF JUDGEMENT.
The doctrine of finality of judgment is grounded on fundamental principle of public policy
and sound practice. Judgment of courts must become final on definite date fixed by
law. The only exceptions to the general rule are the correction of clerical errors, which
not not prejudice to any party. None of the exceptions obtains here to merit the review
sought.
The RTC decision directed Kukan, Inc. to pay Morales. Thus, making KIC, answerable
for the above judgment liability is a clear case of altering a decision- an instance of
granting relief not contemplated in the decision sought to be executed. It is a settled rule
that a writ of execution must conform the judgment; writ beyond the terms of the
judgment is a nullity.

2.NO. In the instant case, KIC was not made a party-defendant in Civil Case even if it
raised affirmative defenses through its aforementioned pleadings, KIC never abandoned
its challenge, the RTC’s jurisdiction over its person. KIC’s primary assertion that it was
not the same entity as Kukan, Inc.
Pertinently, KIC entered its "special but not voluntary appearance" alleging that it was a
different entity and has a separate legal personality from Kukan, Inc. KIC consistently
reiterate the assertion in all its pleadings, effectively resisting all along the RTC’s
jurisdiction of its person. KIC could not file before the RTC a motion to dismiss and its
attachments precisely because KIC was neither impleaded nor served with summons.
Consequently, KIC could only assert and claim through its affidavits, comments, and
motions filed by special appearance before the RTC that it is separate and distinct from
Kukan, Inc.

KIC cannot be deemed to have waived its objection to the court’s lack of jurisdiction
over its person. It would defy logic to say that KIC unequivocally submitted itself to the
jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are different
entities. In the scheme of things obtaining, KIC had no other option but to insist on its
separate identity and plead for relief consistent with that position.

3. NO.
Piercing the veil of corporate entity applies to determination of liability not of jurisdiction.
Doctrine of piercing the veil of corporate fiction comes only during the trial after the court
has already acquired jurisdiction over the corporation. Hence, before this doctrine can
be applied, it is imperative that the court must first have jurisdiction over the corporation.
Hence, any application of the doctrine of piercing the corporate veil should be done with
caution. 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.
Otherwise, an injustice that was never unintended may result from an erroneous
application.
This Court has pierced the corporate veil to ward off a judgment credit, to avoid
inclusion of corporate assets as part of the estate of the decedent, to escape liability
arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to
promote or to shield unfair objectives or to cover up an otherwise blatant violation of the
prohibition against forum-shopping. Only in these and similar instances may the veil be
pierced and disregarded.
The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the
matter of the time and manner of raising the principle in question, it is undisputed that
no full-blown trial involving KIC was had when the RTC disregarded the corporate veil of
KIC. The reason for this actuality is simple and undisputed: KIC was not impleaded in
Civil and that the RTC did not acquire jurisdiction over it. It was dragged to the case
after it reacted to the improper execution of its properties and veritably hauled to court,
not thru the usual process of service of summons, but by mere motion of a party with
whom it has no privity of contract and after the decision in the main case had already
become final and executory.
In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear
and convincing proof that the separate and distinct personality of the corporation was
purposefully employed TO EVADE A LEGITIMATE AND BINDING COMMITMENT and
PERPETUATE A FRAUD OR LIKE WRONGDOINGS.
As is apparent from its disquisition, the RTC brushed aside the separate corporate
existence of Kukan, Inc. and KIC on the main argument that Michael Chan owns 40% of
the common shares of both corporations, obviously oblivious that overlapping stock
ownership is a common business phenomenon. It must be remembered, however, that
KIC’s properties were the ones seized upon levy on execution and not that of Kukan,
Inc. or of Michael Chan for that matter. Mere ownership by a single stockholder or by
another corporation of a substantial block of shares of a corporation does not, standing
alone, provide sufficient justification for disregarding the separate corporate
personality.For this ground to hold sway in this case, there must be proof that Chan had
control or complete dominion of Kukan and KIC’s finances, policies, and business
practices; he used such control to commit fraud; and the control was the proximate
cause of the financial loss complained of by Morales. The absence of any of the
elements prevents the piercing of the corporate veil.41 And indeed, the records do not
show the presence of these elements.
Evidently, the aforementioned case relied upon by Morales cannot justify the application
of the principle of piercing the veil of corporate fiction to the instant case. As shown by
the records, the name Michael Chan, the similarity of business activities engaged in,
and incidentally the word "Kukan" appearing in the corporate names provide the nexus
between Kukan, Inc. and KIC. As illustrated, these circumstances are insufficient to
establish the identity of KIC as the alter ego or successor of Kukan, Inc.
The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and
controlled as they are by the same stockholders, stands without factual basis. It is true
that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the outstanding capital stock of
both corporations. But such circumstance, standing alone, is insufficient to establish
identity. There must be at least a substantial identity of stockholders for both
corporations in order to consider this factor to be constitutive of corporate identity.
NARRA NICKEL MINING CASE
Redmont, domestic corporation took interest in mining certain areas of Palawan. After
inquiring with (DENR), it learned that the areas it wanted to undertake mining activities
where already covered by Mineral Production Sharing Agreement (MPSA) applications
of petitioners Narra, Tesoro and McArthur. (The 3 have MPSA). Through the said
applications, the DENR issued MPSA.
Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate
petitions for the denial of petitioners’ applications for MPSA.
Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra
are owned and controlled by a 100% Canadian corporation. Redmont reasoned that
since the Canadian Corp is a considerable stockholder of petitioners, it was the driving
force behind petitioners’ filing of the MPSAs over the areas covered by applications
since it knows that it can only participate in mining activities through corporations
Filipino citizens. Redmont argued that petitioners’ capital stocks were mostly owned by
MBMI, they were likewise disqualified from engaging in mining activities through
MPSAs, which are reserved only for Filipino citizens.
Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining and
Development, Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED
for being considered as Foreign Corporations. Their Mineral Production Sharing
Agreement (MPSA) are hereby DECLARED NULL AND VOID.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a
Complaint with the Securities and Exchange Commission (SEC), seeking the revocation
of the certificates for registration of petitioners on the ground that they are foreign-
owned or controlled corporations engaged in mining in violation of Philippine laws.

ISSUE:
Whether CA ruling that Narra, Tesoro and McArthur are foreign corporations based on
the "Grandfather Rule" is contrary to law?
RULING:
Shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only
the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. This is CONTROL TEST.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the
portion in said Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage
of Filipino ownership in the corporation or partnership is less than 60%, only the number
of shares corresponding to such percentage shall be counted as of Philippine
nationality." Under the Strict Rule or Grandfather Rule Proper, the combined totals in
the Investing Corporation and the Investee Corporation must be traced (i.e.,
"grandfathered") to determine the total percentage of Filipino ownership.
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or
the second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity
ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and
foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other
joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino).
Stated differently, where the 60-40 Filipino- foreign equity ownership is not in doubt, the
Grandfather Rule will not apply.
Court finds that this case calls for the application of the grandfather rule since, as ruled
by the POA and affirmed by the OP, doubt prevails and persists in the corporate
ownership of petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino
equity ownership of petitioners Narra, McArthur and Tesoro, since their common
investor, the 100% Canadian corporation––MBMI, funded them.
Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur,
Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns
60% or more of their equity interests. Such conclusion is derived from grandfathering
petitioners’ corporate owners.
Again, the presence of identical stockholders, namely: Olympic, MBMI, Amanti Limson
(Limson), Esguerra, Salazar, Hernando, Mason and Cawkell. Accordingly, after
"grandfathering" petitioner Tesoro and factoring in Olympic’s participation in SMMI’s
corporate structure, it is clear that MBMI is in control of Tesoro and owns 60% or more
equity interest in Tesoro. This makes petitioner Tesoro a non-Filipino corporation and,
thus, disqualifies it to participate in the exploitation, utilization and development of our
natural resources.
 In effect, whether looking at the capital structure or the underlying relationships
between and among the corporations, petitioners are NOT Filipino nationals and must
be considered foreign since 60% or more of their capital stocks or equity interests are
owned by MBMI.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to
corporations or partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality," pertains to the control test or
the liberal... rule. On the other hand, the second part of the DOJ Opinion which
provides, "if the percentage of the Filipino ownership in the corporation or partnership is
less than 60%, only the number of shares corresponding to such percentage shall be
counted as Philippine... nationality," pertains to the stricter, more stringent grandfather
rule.
"Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the
Constitution and pertinent laws, then it becomes illegal. Further, the pronouncement of
petitioners that the grandfather rule has already been abandoned must be... discredited
for lack of basis.
It is apparent that it is the intention of the framers of the Constitution to apply the
grandfather rule in cases where corporate layering is present. Elementary in statutory
construction is when there is conflict between the Constitution and a statute, the
Constitution... will prevail. In this instance, specifically pertaining to the provisions under
Art. XII of the Constitution on National Economy and Patrimony, Sec. 3 of the FIA will
have no place of application. As decreed by the honorable framers of our Constitution,
the grandfather rule prevails and must be applied.

In other words, the Grandfather Rule or the second part of the SEC Rule applies only
when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the
joint venture corporation with Filipino and foreign... stockholders with less than 60%
Filipino stockholdings [or 59%] invests in other joint venture corporation which is either
60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40
Filipino-foreign equity ownership is not in doubt, the

Grandfather Rule will not apply.

After a scrutiny of the evidence extant on record, the Court finds that this case calls for
the application of the grandfather rule since, as ruled by the POA and affirmed by the
OP, doubt prevails and persists in the corporate ownership of petitioners. Also, as
found by the CA, doubt is present in the 60-40 Filipino equity ownership of petitioners
Narra, McArthur and Tesoro, since their common investor, the 100% Canadian
corporation MBMI, funded them. However, petitioners also claim that there is "doubt"
only when the stockholdings of

Filipinos are less than 60%.

Obviously, the instant case presents a situation which exhibits a scheme employed by
stockholders to circumvent the law, creating a cloud of doubt in the Court's mind. To
determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather
rule must... be used.
Interestingly, looking at the corporate structure of MMC, we take note that it has a
similar structure and composition as McArthur. In fact, it would seem that MBMI is also
a major investor and "controls" MBMI and also, similar nominal shareholders were
present.
GAMBOA CASE
Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT).
American company and a major PLDT stockholder, sold the outstanding common
shares of PLDT to PTIC. Prime Holding Inc., became the owner of shares of PTIC by
virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco,
which were sequestered by the PCGG which was declared by this Court to be owned by
the Republic of the Philippines.

Inter Agency Privitization Council sell PTIC shares through public bidding. Parallax won
the public bidding for PTIC. The sale of 46.125% of PTIC shares to the Philippine
Government violates Section 11 of the 1987 Philippine Constitution, increasing foreign
ownership of PLDT to 81.47%

ISSUE: Whether the consummation of the sale of PTIC shares to First Pacific violates
the constitutional limit on foreign ownership of a public utility?

RULING:

Any citizen or juridical entity desiring to operate a public utility must therefore meet the
minimum nationality requirement prescribed in Section 11, Article XII of the Constitution.
Hence, for a corporation to be granted authority to operate a public utility, at least 60
percent of its "capital" must be owned by Filipino citizens.

The crux of the controversy is the definition of the term "capital."

Does the term "capital" in Section 11, Article XII of the Constitution refer to common
shares or to the total outstanding capital stock (combined total of common and non-
voting preferred shares)?

We agree with petitioner and petitioners-in-intervention. The term "capital" in

Section 11, Article XII of the Constitution refers only to shares of stock entitled to
vote in the election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock comprising both common
and non-voting preferred shares.

Compliance with the required Filipino ownership of a corporation shall be

determined on the basis of outstanding capital stock whether fully paid or not,
but only such stocks which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals,
mere legal title is not enough to meet the required Filipino equity. FULL BENEFICIAL
OWNERSHIP OF THE STOCKS, COUPLED WITH APPROPRIATE VOTING RIGHTS
IS ESSENTIAL. Thus, stocks, the voting rights of which have been assigned or
transferred to aliens cannot be considered held by Philippine citizens or Philippine
nationals. Individuals or juridical entities not meeting the aforementioned
qualifications are considered as non-Philippine nationals. 

Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in
the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is required. The legal and beneficial
ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate. Otherwise, the
corporation is "considered as non-Philippine national[s]."

The legal and beneficial ownership of 60 percent of the outstanding capital stock must
rest in the hands of Filipinos in accordance with the constitutional mandate. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is constitutionally required for the State’s grant of authority
to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44%
owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT
common shares earn, grossly violates the constitutional requirement of 60 percent
Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less
than 60 percent of the dividends, of PLDT. This directly contravenes the express
command in Section 11, Article XII of the Constitution that "[n]o franchise, certificate, or
any other form of authorization for the operation of a public utility shall be granted
except to x x x corporations x x x organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens x x x."

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of
shares exercises the sole right to vote in the election of directors, and thus exercise
control over PLDT; (2) Filipinos own only 35.73% of PLDT’s common shares,
constituting a minority of the voting stock, and thus do not exercise control over PLDT;
(3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred
shares earn only 1/70 of the dividends that common shares earn; 63 (5) preferred shares
have twice the par value of common shares; and (6) preferred shares constitute 77.85%
of the authorized capital stock of PLDT and common shares only 22.15%. This kind of
ownership and control of a public utility is a mockery of the Constitution.
Indisputably, construing the term "capital" in Section 11, Article XII of the Constitution to
include both voting and non-voting shares will result in the abject surrender of our
telecommunications industry to foreigners, amounting to a clear abdication of the
State’s constitutional duty to limit control of public utilities to Filipino citizens.
NAGUIT CASE
NAGUIAT, doing business under the name and style CLARK FIELD TAXI, INC (CFTI)
Petitioner CFTI held a concessionaire’s contract with the Army Air Force Exchange
Services (“AAFES”) for the operation of taxi services within Clark Air Base. Sergio F.
Naguiat was CFTI’s president, while Antolin T. Naguiat was its vice-president. Like
Sergio F. Naguiat Enterprises, Incorporated (“Naguiat Enterprises”), a trading firm, it
was a family-owned corporation.
Due to the phase-out of the US military bases in the Philippines, the AAFES was
dissolved and its services terminated. The AAFES Taxi Drivers Association (union) and
CFTI agreed to give P500.00 for every year of service as severance pay, but individual
respondents refused.
Individual respondents filed a complaint against Sergio F. Naguiat Enterprises, Inc.,
Army-Air Force Exchange Services, and AAFES Taxi Drivers Association for payment
of separation pay due to termination/phase-out.
A closer scrutiny and analysis of the records, however, evince the truth of the matter:
that Sergio F. Naguiat, in supervising the-taxi drivers and determining their employment
terms, was rather carrying out his responsibilities as president of CFTI. Hence, Naguiat
Enterprises as a separate corporation does not appear to be involved at all in the taxi
business.
WHETHER OR NOT A COMPANY PRESIDENT SHOULD BE HELD SOLIDARILY
LIABLE BY NOT PAYING PROPER SEPARATION PAYS TO HIS/HER
EMPLOYEES?

Furthermore, in MAM Realty Development vs. NLRC, 37 the Court recognized that a
director or officer may still be held solidarily liable with a corporation by specific
provision of law. Thus:

. . . A corporation, being a juridical entity, may act only through its directors, officers and
employees. Obligations incurred by them, acting as such corporate agents, are not
theirs but the direct accountabilities of the corporation they represent. True, solidary
liabilities may at times be incurred but only when exceptional circumstances warrant
such as, generally, in the following cases:

4. When a director, trustee or officer is made, by specific provision of law, personally

liable for his corporate action.
As pointed out earlier, the fifth paragraph of Section 100 of the Corporation Code
specifically imposes personal liability upon the stockholder actively managing or
operating the business and affairs of the close corporation.

In fact, in posting the surety bond required by this Court for the issuance of a temporary
restraining order enjoining the execution of the assailed NLRC Resolutions, only Sergio
F. Naguiat, in his individual and personal capacity, principally bound himself to comply
with the obligation thereunder, i.e., "to guarantee the payment to private respondents of
any damages which they may incur by reason of the issuance of a temporary restraining
order sought, if it should be finally adjudged that said principals were not entitled
thereto.
THE COURT HERE FINDS NO APPLICATION TO THE RULE THAT A CORPORATE
OFFICER CANNOT BE HELD SOLIDARILY LIABLE WITH A CORPORATION IN THE
ABSENCE OF EVIDENCE THAT HE HAD ACTED IN BAD FAITH OR WITH MALICE.
IN THE PRESENT CASE, SERGIO NAGUIAT IS HELD SOLIDARILY LIABLE FOR
CORPORATE TORT BECAUSE HE HAD ACTIVELY ENGAGED IN THE
MANAGEMENT AND OPERATION OF CFTI, A CLOSE CORPORATION.
Antolin T. Naguiat was the vice president of the CFTI. Although he carried the title of
"general manager" as well, it had not been shown that he had acted in such capacity.
Furthermore, no evidence on the extent of his participation in the management or
operation of the business was preferred. In this light, he cannot be held solidarily liable
for the obligations of CFTI and Sergio Naguiat to the private respondents.
SERGIO F. NAGUIAT, ADMITTEDLY, WAS THE PRESIDENT OF CFTI WHO
ACTIVELY MANAGED THE BUSINESS. THUS, APPLYING THE RULING IN A.C.
RANSOM, HE FALLS WITHIN THE MEANING OF AN "EMPLOYER" AS
CONTEMPLATED BY THE LABOR CODE, WHO MAY BE HELD JOINTLY AND
SEVERALLY LIABLE FOR THE OBLIGATIONS OF THE CORPORATION TO ITS
DISMISSED EMPLOYEES.
Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were
"close family corporations" 34 owned by the Naguiat family. Section 100, paragraph 5,
(under Title XII on Close Corporations) of the Corporation Code, states:

(5) To the extent that the stockholders are actively engage(d) in the management or
operation of the business and affairs of a close corporation, the stockholders shall be
held to strict fiduciary duties to each other and among themselves. Said stockholders
shall be personally liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance.
SILVERIO CASE

Petitioner Silverio, Jr. is the President of two corporations namely.  The two
corporations were in possession of the Calatagan Property and registered in the names
of Esses and Tristar. Esses and Tristar executed a Deed of Sale with Assumption of
Mortgage. Esses and Tristar failed to redeem the Calatagan Property. Mortgage
obtained a judgment by default. Subsequently, two land titles in the name of Esses and
Tristar were cancelled and new land title was issued in favor of FBCI.

RTC-Balayan issued a writ of possession in FBCI’s  favor. The latter then entered the
Calatagan Property.

 When Silverio, Jr., Esses and Tristar learned of the judgment by default and writ of
possession, they filed a petition for relief from judgment. Silverio et. al. alleged that the
judgment by default is void because the RTC did not acquire jurisdiction over them as a
result of forged service of summons on them.

FBCI filed with RTC-Balayan an Urgent Ex-Parte Motion to Suspend Enforcement of Writ
of Possession. FBCI pointed out that it is now the new owner of Esses and Tristar
having purchased the “substantial and controlling shares of stocks” of the two
corporations.
Issue:
Whether FBCI’s acquisition of shares of stocks of Esses and Tristar representing a
controlling interest of the two corporations would also give FBCI a proprietary right over
the Calatagan Property owned by both Esses Corp. and Tristar.

Ruling:
No. FBCI’s alleged controlling shareholdings in Esses and Tristar merely represent a
proportionate interest in the properties of the two corporations. Such controlling
shareholdings do not vest FBCI with any legal right or title to any of Esses and Tristar’s
corporate properties.

A corporation is a juridical person distinct from the members composing it. Properties
registered in the name of the corporation are owned by it as an entity separate and
distinct from its members. 

FBCI's acquisition of the "substantial and controlling shares of stocks"25 of Esses and
Tri-Star does not create a substantial change in the rights or relations of the parties that
would entitle FBCI to possession of the Calatagan Property, a corporate property of
Esses and Tri-Star. Esses and Tri-Star, just like FBCI, are corporations. A corporation
has a personality distinct from that of its stockholders.

A corporation is a juridical person distinct from the members composing it. Properties
registered in the name of the corporation are owned by it as an entity separate and
distinct from its members. While shares of stock constitute personal property, they do
not represent property of the corporation. The corporation has property of its own which
consists chiefly of real estate. Nor is he entitled to the possession of any definite portion
of its property or assets.
Even assuming that FBCI is the controlling shareholder of Esses and Tri-Star, it does
not legally make it the owner of the Calatagan Property, which is legally owned by
Esses and Tri-Star as distinct juridical persons. As such, FBCI is not entitled to the
possession of any definite portion of the Calatagan Property or any of Esses and Tri-
Star's properties or assets. FBCI is not a co-owner or tenant in common of the
Calatagan Property or any of Esses and Tri-Star's corporate properties.

TORRES CASE
The petitioner was initially hired by RBSJI as Personnel and Marketing Manager, but
was offered the position of Vice-President for Allied Business Ventures, which he
accepted and relinquished.
The petitioner issued a clearance for Jacinto's paid cash advances and salary loan
based on receipts presented by Lily Aguilar, but had no foreknowledge of Jacinto's
unliquidated cash advances and questionable transactions. The petitioner filed a
complaint against RBSJI's Board of Directors for illegal dismissal, illegal deduction, non-
payment of service incentive, leave pay and retirement benefits. He claimed that he was
deceived to accept a Vice-President position, which turned out to be a mere clerical and
menial work. He also alleged that he was cunningly assigned at N. Domingo branch so
he could be implicated in the anomalous transaction perpetrated by Jacinto.

The solidary liability of individual respondents as corporate officers must be recalled.

In the same vein, the individual respondents cannot be made solidarily liable with RBSJI
for the illegal dismissal. Time and again, the Court has held that a corporation has its
own legal personality separate and distinct from those of its stockholders, directors or
officers. Hence, absent any evidence that they have exceeded their authority, corporate
officers are not personally liable for their official acts. Corporate directors and officers
may be held solidarily liable with the corporation for the termination of employment only
if done with malice or in bad faith. As discussed above, the acts imputed to the
respondents do not support a finding of bad faith.
In addition, the lack of a valid cause for the dismissal of an employee does not ipso
facto mean that the corporate officers acted with malice or bad faith. There must be an
independent proof of malice or bad faith, which is absent in the case at bar.

Bad faith does not connote bad judgment or negligence; it imports a dishonest purpose
or some moral obliquity and conscious doing of wrong; it means breach of a known duty
through some motive or interest or ill will; it partakes of the nature of fraud.49

Here, the petitioner failed to prove that his dismissal was attended by explicit
oppressive, humiliating or demeaning acts. The following events merely sketch the
struggle for power within the upper management of RBSJI between the "old guys" and
the "new guys"; they do not convincingly prove that the respondents schemed to
gradually ease the petitioner out, viz: (1) his promotion as Vice-President; (2) his
replacement by Jobel as Personnel and Marketing Manager; (2) his designation as
Acting Manager of N. Domingo branch and the recall thereof on the very next day; (3)
the presence of Andres, Jose and Ofelia at the N. Domingo branch in the morning of
and (4) George’s inaction on the petitioner’s request to be transferred to the operations
or marketing department. As disagreeable as they may seem, these acts cannot be
equated with bad faith that can justify an award of damages.

WPM INTERNATIONAL TRADING v. FE CORAZON LABAYEN

Fe Corazon is the owner of H.O. Systems Consultants, a management and consultant
firm, and WPM International Trading, Inc. is a domestic corporation engaged in the
restaurant business. WPM entered into a management agreement with the respondent,
by virtue of which the respondent was authorized to operate, manage and rehabilitate
Quickbite, a restaurant owned and operated by WPM. CLN Engineering Services was
engaged to renovate Quickbite-Divisoria. Jobel annexed the Personnel and Marketing
Departments to the Business Development and Corporate Planning Department,
usurping the functions of and displacing the petitioner, who was put on a floating status
and stripped of managerial privileges and allowances.

Renovation was finally completed, and its possession was delivered to the respondent
but renovation cost remains unpaid. Thus, complaint for Sum of Money
Issues:
(1) whether WPM is a mere instrumentality, alter-ego, and business conduit of
Manlapaz; and (2) whether Manlapaz is jointly and severally liable with WPM to the
respondent for reimbursement, damages and interest.

Ruling:

On September 28, 2007, the CA affirmed, with modification on the award of attorney's
fees, the decision of the RTC. The CA held that the petitioners are barred from raising
as a defense the respondent's alleged lack of authority to enter into the renovation
agreement in view of... their tacit ratification of the contract.

The CA likewise affirmed the RTC ruling that WPM and Manlapaz are one and the
same based on the following: (1) Manlapaz is the principal stockholder of WPM; (2)
Manlapaz had complete control over WPM because he concurrently held the positions
of president, chairman of the board... and treasurer, in violation of the Corporation
Code; (3) two of the four other stockholders of WPM are employed by Manlapaz either
directly or indirectly; (4) Manlapaz's residence is the registered principal office of WPM;
and (5) the acronym "WPM" was derived from Manlapaz's... initials. The CA applied the
principle of piercing the veil of corporate fiction and agreed with the RTC that Manlapaz
cannot evade his liability by simply invoking WPM's separate and distinct personality.
Piercing the corporate veil based on the alter ego theory requires the concurrence of
three elements, namely:

(1) Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own;

(2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury or
unjust loss complained of.

The absence of any ofthese elements prevents piercing the corporate veil.12

In the present case, the attendant circumstances do not establish that WPM is a mere
alter ego of Manlapaz.

Aside from the fact that Manlapaz was the principal stockholder of WPM, records do not
show that WPM was organized and controlled, and its affairs conducted in a manner
that made it merely an instrumentality, agency, conduit or adjunct ofManlapaz. As held
in Martinez v. Court of Appeals,13 the mere ownership by a singlestockholder of even
all or nearly all of the capital stocks ofa corporation is not by itself a sufficient ground to
disregard the separate corporate personality. To disregard the separate juridical
personality of a corporation, the wrongdoing must be clearly and convincingly
establishedWe find merit in the petition.

We note, at the outset, that the question of whether a corporation is a mere

instrumentality or alter-ego of another is purely one of fact. This is also true with respect
to the question of whether the totality of the evidence adduced by the respondent
warrants the application of the piercing the veil of corporate fiction doctrine.

Likewise, the records of the case do not support the lower courts’ finding that Manlapaz
had control or domination over WPM or its finances. That Manlapaz concurrentlyheld
the positions of president, chairman and treasurer, or that the Manlapaz’s residence is
the registered principal office of WPM, are insufficient considerations to prove that he
had exercised absolutecontrol over WPM.

In this connection, we stress thatthe control necessary to invoke the instrumentality or

alter ego rule is not majority or even complete stock control but such domination of
finances, policies and practices that the controlled corporation has, so tospeak, no
separate mind, will or existence of its own, and is but a conduit for its principal. The
control must be shown to have been exercised at the time the acts complained of took
place. Moreover, the control and breach of duty must proximately cause the injury or
unjust loss for which the complaint is made.

Here, the respondent failed to prove that Manlapaz, acting as president, had absolute
control over WPM.1âwphi1 Even granting that he exercised a certain degree of control
over the finances, policies and practices of WPM, in view of his position as president,
chairman and treasurer of the corporation, such control does not necessarily warrant
piercing the veil of corporate fiction since there was not a single proof that WPM was
formed to defraud CLN or the respondent, or that Manlapaz was guilty of bad faith or
fraud.

VETERANS CASE
VFP obtained control and possession of land in Taguig and developed it into the VFP
Industrial Area. VFP Management and Development Corporation VMDC hired its own
personnel and employees to manage and operate the VFPIA in exchange for 40% of
lease rentals. VFP and VMDC extended the management agreement, but the VFP
board passed a resolution terminating it. VMDC terminated its management agreement,
dismissing all employees and paying separation pay.
In this regard, both the NLRC and the CA cite the Closing Agreement42 of VFP and
VMDC which states that:

NOW THEREFORE, for and in consideration of the foregoing premises the [VFP] and
the [VMDC] hereby agree to terminate the [management agreement] for the
development and management of the [VFPIA] in Taguig effective on 3 January 2000,
subject to the following conditions:

1. The [VMDC] agrees that the [VFP] is the majority stockholder of the [VMDC]
and that all its original incorporators have endorsed all their shares of stock to
the [VFP] except one (1) qualifying share each to be able to sit as Director in the
Board of Directors of the [VMDC]. 
We disagree with the submission.
The doctrine of piercing the veil of corporate fiction is a legal precept that allows a
corporation's separate personality to be disregarded under certain cirumstances, so that
a corporation and its stockholders or members, or a corporation and another related
corporation could be treated as a single entity. The doctrine is an equitable principle, it
being meant to apply only in situations where the separate corporate personality of a
corporation is being abused or being used for wrongful purposes.
In Concept Builders, Inc. v. NLRC,45 we laid down the following test to determine when it
would be proper to apply the doctrine of piercing the veil of corporate fiction:

1. Control, not mere majority or complete stock control, but complete

domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive
legal duty, or dishonest and unjust act in contravention of plaintiff's
legal rights; and

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

The absence of any one of these elements prevents piercing the Ocorporate
veil. In applying the instrumentality or alter ego doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the individual defendant's
relationship to that operation.
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 a sufficient reason for disregarding the
fiction of separate corporate personalities. Moreover, to disregard the separate juridical
personality of a corporation, the wrong-doing must be clearly and convincingly
established. It cannot be presumed. 
THE NLRC AND CA WERE MISTAKEN IN THEIR APPLICATION OF THE
DOCTRINE TO THE CASE AT BENCH, AS THE SOLE CIRCUMSTANCE USED TO
JUSTIFY THEIR DISREGARD OF THE SEPARATE PERSONALITIES OF VFP AND
VMDC WAS THE FORMER'S ALLEGED STATUS AS THE MAJORITY
STOCKHOLDER. HOWEVER, THERE IS NO EVIDENCE THAT VFP HAD
COMPLETE CONTROL OR DOMINATION OVER VMDC.

ROSALES CASE
Respondent New ANJH Enterprises (New ANJH) is a sole proprietorship owned by
respondent Noel Awayan (Noel). Petitioners are its former employees who worked as
machine operators, drivers, helpers, lead and boiler men. Noel wrote to DOLE Region
IV-A to inform them of New ANJH's impending cessation of operations and sale of
assets, resulting in the termination of 33 employees. Noel also offered the employees,
including petitioners, their separation pay. Noel signed a Deed of Sale selling
equipment, machines, tools and/or other devices to NH Oil for P950,000.

Piercing the veil of corporate existence is justified in the present case.

The application of the doctrine of piercing the veil of corporate fiction is frowned upon.
However, this Court will not hesitate to disregard the corporate fiction if it is used to
such an extent that injustice, fraud, or crime is committed against another in disregard
of his rights.
In this case, petitioners advance the application of the doctrine because they were
terminated from employment on the pretext that there will be an impending permanent
closure of the business as a result of an intended sale of its assets to an undisclosed
corporation, and that there will be a change in the management. The termination notices
received by petitioners identically read:
Nais po naming ipaabot sa inyo na ang New ANJH Enterprises ay ihihinto na ang
operasyon dahil sa nagpasya ako bilang may-ari na ipagbili na ang ari-arian nito sa iba
kung kayat magkakaroon ng pagpapalit sa pamumunuan nito.
Kaugnay po nito at ayon sa itinatadhana ng batas ay nais kong ipaabot sa inyo na 30
araw matapos ninyong matanggap ang pasabing ito o simula sa Marso 15, 2010 ay
ititigil na ang operasyon ng New ANJH Enterprises at sa nasabi ring petsa ay
matatapos na rin ang pagtratrabaho o "employment" ninyo sa New ANJH Enterprises.
Subsequent events, however, revealed that the buyer of the assets of their employer
was a corporation owned by the same employer and members of his family.
Furthermore, the business re-opened in less than a month under the same
management.
Admittedly, mere ownership by a single stockholder of all or nearly all of the capital
stock of the corporation does not by itself justify piercing the corporate veil.
Nonetheless, in this case, other circumstances show that the buyer of the assets of
petitioners' employer is none other than his alter ego. We quote with approval the
observations of ELA Santos:
Respondents did not allege that they informed complainants neither did they state in the
notices of termination that the buyer in the "impending sale" is NH Oil Mill. Pondering on
these observations, this Office finds it too difficult to surmise that respondents' omission
was not deliberate, and so this Office holds that Noel was not in good faith in dealing
with complainants. The information disclosed by the Certificate of Registration and
Articles of Incorporation of NH Oil Mill explains respondents' motive. Its stockholders are
members of [Noel's] family known to complainants, and Noel is the controlling
stockholder and director. The immediate resumption of operation after cessation of
operation on March 15, 2010 further explains it. While complainants failed to prove that
the stockholders in NH Oil Mill were those who managed ANJH, respondents did not
dispute that there was no change in the management people, premises, tools, devices,
equipment, and machinery under NH Oil Mill. The buyer in the "impending sale"
undisclosed in the notices to complainants is divulged by subsequent development to
be practically the same as the seller. These things are inconsistent with good faith.

Here, complainants' employment was terminated for the alleged sale of assets of ANJH
to NH Oil Mill that would allegedly entail [a] change of management. The Deed of Sale
dated March 5, 2010 [that] respondents presented (Annex "20", respondents position
paper) to prove the "sale," states that [for] the consideration of Nine Hundred Fifty
Thousand Pesos (Php950,000.00), Noel sold to NH Oil Mill the equipment, machines,
tool and/or other devises being used by ANJH for manufacturing and/or extraction of
coconut oil. This Office cannot simply accept it as sufficient proof of sale by the seller to
a distinct and separate entity.

The subscribed capital stock of Noel and Heidi [in NH Oil] are worth Php790,000.00 and
Php190,000.00, respectively, or the total of Php980,000.00. Respondents claim that
Noel was managing ANJH and Heidi was its Secretary. The Deed of Sale is signed by
Noel and Heidi, Noel as [sellerl, and Heidi as representative of NH Oil Mill. Respondents
did not enumerate what [were] the equipment etc. subject of the "sale," and how they
were depreciated, and what [were] the equipment/machines owned by Avelino and
rented by NH Oil Mill and for how much? Therefrom, it is extremely difficult to conclude
by quantum of evidence acceptable to [a] reasonable mind, [that] the "sale to a distinct
entity" is genuine. And while the notices of termination state that there would be [a]
change in management, this Office notes that respondents do not deny that Noel and
Heidi continue to manage NH Oil Mill. Therefore, as far as complainants' employment is
concerned, this Office pierces the veil of corporate fiction of NH Oil Mill and finds that
the purported sale thereto of the assets of ANJH is insufficient to validly terminate such
employment. This Office cannot rule otherwise without running afoul to the mandate of
the Constitution securing to the workingman his employment, and guaranteeing to him
full protection. So this Office declares that complainants were illegally dismissed.

CIR v. Norton & Harrison Company, G.R. No. L-17618, Aug. 31, 1964
Category: Corporation Law
Plaintiffs filed a collection action against X Corporation. Upon execution of the court's
decision, X Corporation was found to be without assets. Thereafter, plaintiffs filed an
action against its present and past stockholder Y Corporation which owned substantially
all of the stocks of X corporation. The two corporations have the same board of
directors and Y Corporation financed the operations of X corporation. May Y
Corporation be held liable for the debts of X Corporation? Why?

A: Yes, Y Corporation may be held liable for the debts of X Corporation. The doctrine of
piercing the veil of corporation fiction applies to this case. The two corporations have
the same board of directors and Y Corporation owned substantially all of the stocks of X
Corporation, which facts justify the conclusion that the latter is merely an extension of
the personality of the former, and that the former controls the policies of the latter.
Added to this is the fact that Y Corporation controls the finances of X Corporation which
is merely an adjunct, business conduit or alter ego of Y Corporation. (CIR v. Norton &
Harrison Company, G.R. No. L-17618, Aug. 31, 1964)
MCLEOD CASE
John F. McLeod filed a complaint for retirement benefits, vacation and sick leave
benefits, non-payment of unused airline tickets, holiday pay, underpayment of salary
and 13th month pay, moral and exemplary damages, attorney's fees plus interest
against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta.
Rosa Textiles, Inc., Patricio Lim and Eric Hu.
In his Reply, complainant alleged that all respondents being one and the same entities
are solidarily liable for all salaries and benefits and complainant is entitled to; that all
respondents have the same address at 12/F B.A. Lepanto Building, Makati City; that
their counsel holds office in the same address; that all respondents have the same
offices and key personnel such as Patricio Lim and Eric Hu; that respondents' Position
Paper is verified by Marialen C. Corpuz who knows all the corporate officers of all
respondents; that the veil of corporate fiction may be pierced if it is used as a shield to
perpetuate fraud and confuse legitimate issues; that complainant never accepted the
change in his position from Vice-President and Plant Manger to consultant and it is
incumbent upon respondents to prove that he was only a consultant;

To disregard the separate juridical personality of a corporation, the wrongdoing must be

established clearly and convincingly. It cannot be presumed.

Here, we do not find any of the evils sought to be prevented by the doctrine of piercing
the corporate veil.

Respondent corporations may be engaged in the same business as that of PMI, but this
fact alone is not enough reason to pierce the veil of corporate fiction. At any rate, the
existence of interlocking incorporators, directors, and officers is not enough justification
to pierce the veil of corporate fiction, in the absence of fraud or other public policy
considerations.

On Patricio's personal liability, it is settled that in the absence of malice, bad faith, or
specific provision of law, a stockholder or an officer of a corporation cannot be made
personally liable for corporate liabilities.

To reiterate, 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.[56]

Personal liability of corporate directors, trustees or officers attaches only when (1) they
assent to a patently unlawful act of the corporation, or when they are guilty of bad faith
or gross negligence in directing its affairs, or when there is a conflict of interest resulting
in damages to the corporation, its stockholders or other persons; (2) they consent to the
issuance of watered down stocks or when, having knowledge of such issuance, do not
forthwith file with the corporate secretary their written objection; (3) they agree to hold
themselves personally and solidarily liable with the corporation; or (4) they are made by
specific provision of law personally answerable for their corporate action.

DE ASIS CASE

Francisco de Asis & Co., Inc. and Leocadio de Asis executed an undertaking to pay all valid
and legitimate corporate liabilities of the company in connection with its membership in
the Makati Stock Exchange.

In 1970, Francisco de Asis and his father Leocadio de Asis approached Mrs. Mercedes P.
Delgado for assistance to secure a loan in the amount of P200,000.00 from the Resource &
Finance Corporation. She was able to secure the loan and deposited it in the Bank of Asia,
Makati Branch under current account of 2-001, in accordance with the instructions of its
President Francisco De Asis. In 1973, he suggested that she invest it in shares of Philex
Mining, but this was not carried out due to a rush of claims against the company resulting
in its collapse. Mrs. Delgado had been paying on her own the loan with the Resource and
Finance Corp. as well as with her brother Benito Prieto, Jr. She is married but separated
from her husband.

Petitioners raised the same assignments of errors presented and passed upon by the
appellate court that the latter erred (1) in declaring that the obligation sued upon was
corporate loan of Francisco de Asis and Co., Inc. and not a personal loan of Francisco
de Asis with the private respondent; and (2) in holding petitioner Leocadio de Asis
liable, jointly and severally, with petitioners Francisco de Asis and Francisco de Asis &
Co., Inc. under the "Joint and Several Undertakings.

If the transaction contemplated by the parties herein is that of a personal loan to

Francisco de Asis, then plaintiff could have simply written out a check in the latter’s
name or deposited the amount of the loan in his personal account." (page 33, Rollo).
The claim of the corporation that it had not authorized Francisco de Asis to obtain loan
for the company from the private respondent is belied by the fact that upon deposit of
the sum of P200,000.00 in its current account, it had retained and disbursed the said
amount. And, assuming that it had not really authorized Francisco de Asis to borrow
money from private respondent, the company is still obliged to return the same under
Article 2154 of the Civil Code which provides:chanrobles.com.ph : virtual law library

"If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises."
Relative to the argument that Francisco and Leocadio de Asis’ liability under their "Joint
and Several Undertaking" is limited to the obligation of the corporation in connection
with its membership at the Makati Stock Exchange, their liability is spelled out by Exhibit
"A"
And, as pointed out by respondent appellate court, "Leocadio and Francisco de Asis
knowingly and voluntarily executed and signed the Joint and Several Undertaking,
Exhibit ‘A’." More so, in the case of Leocadio de Asis who is a lawyer and, therefore,
knew the legal import and far-reaching consequences of the document he signed.