GERARDO LANUZA, JR. and ANTONIO O. OLBES, petitioners, vs.

BF
CORPORATION, SHANGRI –LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO
B. COLAYCO, MAXIMO G. LICAUCO III, and BENJAMIN C. RAMOS, respondents.

FACTS

BF Corporation and Shangri-la entered into an agreement wherein the former construct
for Shangri-la a mall and a multi-level parking along EDSA. Shangri-la had been
consistent in paying BF corporation in accordance with its progress billing. However, by
October 1991, Shangri-la started defaulting payment.

Eventually, BF Corporation completed the construction of the buildings and Shangri-la

started taking possession over the building without paying its outstading balance
against BF Corp.

BF Corp. filed a collection complaint against Shangri-la and alledged that the Shangri-
la’s directors where in bad faith in directing Shangri-la’s affairs and that they should be
held jointly and severlly liable with Shangri-la for its obligations and damages against
BF Corp..

Shangri-la then filed a motion to suspend the proceeding on the ground that BF Corp.
failed to submit its dispute in arbitration in accordance to the arbitration clause in in their
agreement.

The RTC granted the motion for recommendation and ordered arbitration upon all
defendants. However, petitioners argue that they cannot be held personally liable for the
acts of the corporation and its obligations. They argue that they are third parties to the
agreement between BF and Shangri-La and that according to the provisions of the
agreements arbitration should bind only the parties.

ISSUE: WHETHER OR NOT DIRECTORS OF SHANGRI-LA BE HELD SOLIDARILY

LIABLE TO BF CORPORATION.

RULING

Shangrila’s directors are not liable for the contractual obligations of Shangri-la to BF
Corporation.
A corporation is an artificial entity created by fiction of law. This means that while it is
not a person, naturally, the law gives it a distinct personality and treats it as such.
Because a corporation’s existence is only by fiction of law, it can only exercise its rights
and powers through its directors, officers, or agents, who are all natural persons. A
corporation cannot sue or enter into contracts without them. A consequence of a
corporation’s separate personality is that consent by a corporation through its
representatives is not consent of the representative, personally. Its obligations, incurred
through official acts of its representatives, are its own. A stockholder, director, or
representative does not become a party to a contract just because a corporation
executed a contract through that stockholder, director or representative. Hence, a
corporation’s representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and liabilities
incurred on or in behalf of the corporation.

A stockholder, director, or representative does not became a party to a contract just

because a corporation executed a contract through that stockholder, director or
representative. Hence, a corporation’ s representatives are generally not bound by the
terms of the contract executed by the corporation. They are not personally liable for
obligations and liabilities incurred on or in behalf of the corporation.
REPUBLIC v. MEGA PACIFIC ESOLUTIONS,INC.
FACTS:
Republic Act No. 8436 authorized the COMELEC to use an automated election
system for the May 1998 elections. However, the automated system failed to materialize
and votes were canvassed manually during the 1998 and the 2001 elections.
During the 2004 elections, the COMELEC again attempted to implement the
automated election system. They invited bidders to apply for the procurement of
supplies, equipment, and services. Respondent MPEI, as lead company, purportedly
formed a joint venture — known as the Mega Pacific Consortium (MPC) — also
submitted its bid proposal to COMELEC.
The COMELEC evaluated various bid offers and subsequently found MPC and
another company eligible to participate in the next phase of the bidding process. The
two companies were referred to DOST for technical evaluation. After due assessment,
the project was awarded to MPC. The COMELEC favorably acted on the
recommendation and issued Resolution No. 6074.
Despite the award to MPC, the COMELEC and MPEI executed automation
contract for the aggregate amount of P1,248,949,088. MPEI agreed to supply and
deliver 1,991 units of ACMs and such other equipment and materials necessary for the
computerized electoral system in the 2004 elections. MPEI delivered 1,991 ACMs, and
COMELEC made partial payments to MPEI in the aggregate amount of P1.05 billion.
However, the full implementation of the automation contract was rendered
impossible when it was declared null & void for the reason that COMELEC entered into
the contract with inexplicable haste, and without adequately checking and observing
mandatory financial, technical, and legal requirements.
A complaint for Damages was filed by respondents against COMELEC and
sought to collect their balance with the RTC Makati. Petitioner by way of Counterclaim
sought the return of payments that was made pursuant to the voided automation
contract and claimed that incorporators should be impleaded and made accountable for
MPEI’s liabilities. COMELEC applied an attachment of properties of the respondents w/
c the RTC denied. On appeal, the CA reversed the ruling and approved the issuance of
writ of preliminary attachment.

ISSUE:
1. Whether petitioner has sufficiently established fraud on the part of respondents to
justify the issuance of a writ of preliminary attachment in its favor; and

2. Whether a writ of preliminary attachment may be issued against the properties of

the incorporators (individual respondents).
RULING:
The petition is meritorious.
1. Fraud on the part of respondent MPEI was sufficiently established by the factual
findings of this Court in the latter’s 2004 Decision and subsequent
pronouncements. The evidences were:

- respondents committed fraud by securing the election automation contract

and, in order to perpetrate the fraud, by misrepresenting the actual bidder as
MPC and MPEI as merely acting on MPC’s behalf;
- while knowing that MPEI was not qualified to bid for the automation contract,
respondents still signed and executed the contract; and
- respondents acted in bad faith when they claimed that they had bound
themselves to the automation contract, because it was not executed by MPC
— or by MPEI on MPC’s behalf but by MPEI alone.
- MPEI has defrauded petitioner
- Fraud on the part of respondent MPEI was further shown by the fact that
despite the failure of its ACMs to pass the tests conducted by the DOST,
respondent still acceded to being awarded the automation contract.

2. Since fraud is established, then application of piercing doctrine justifies the

issuance of a writ of preliminary attachment over the properties of the individual
respondents. Veil-piercing in fraud cases requires that the legal fiction of
separate juridical personality is used for fraudulent or wrongful ends.

Applying the facts of the case, notwithstanding the doctrine of separate juridical
personality, the Court held that they see red flags of fraudulent schemes in public
procurement, all of which were established in the 2004 Decision. The red flags
are:
- overly narrow specifications;
- unjustified recommendations and unjustified winning bidders;
- failure to meet the terms of the contract; and
- shell or fictitious company.

The Court further stated that a corporation’s privilege of being treated as an

entity distinct and separate from the stockholders is confined to legitimate uses,
and is subject to equitable limitations to prevent it being exercised for fraudulent,
unfair, or illegal purposes.
Since all respondents actively participated in the perpetration of fraud against
petitioner, through their individual statements in which they never denied their
participation in the questioned transactions of MPEI, their personal assets may
be subject to a writ of preliminary attachment by piercing the corporate veil. MPEI
must be treated as a mere association of persons whose assets are unshielded
by corporate fiction.
JOSE EMMANUEL P. GUILLERMO, Petitioner, v. CRISANTO P. USON, Respondent.

PERALTA, J.:
FACTS:
On March 11, 1996, respondent Crisanto P. Uson (Uson) began his employment with
Royal Class Venture Phils., Inc. (Royal Class Venture) as an accounting clerk.
Eventually, he was promoted to the position of accounting supervisor, until he was
allegedly dismissed from employment on December 20, 2000.
On March 2, 2001, Uson filed with the Sub-Regional Arbitration Branch No. 1, Dagupan
City, of the NLRC a Complaint for Illegal Dismissal.
The Labor Arbiter rendered a decision in favor of Uson, ordering respondent to reinstate
him to his former position and pay his backwages, 13th month pay as well as moral
damages, exemplary damages and attorney’s fees. RCVPI did not file an appeal but
repeated issuances of Writs of Execution against the same remained unsatisfied.
Uson filed another Motion for Alias Writ of Execution and to Hold Directors and Officers
of Respondent Liable for the Decision and quoted from the sheriff’s return: a) that at
RCVPI’s address (to which the writs are being served) there is a new establishment
named “ Joel and Sons Corporation” which was a family corporation owned by the
Guillermos, in which Jose Emmanuel Guillermo, the President and General Manager of
RCVPI, is one of the stockholders; b) that Jose received the writ using the nickname
“Joey” concealing his real identity and pretended to be the brother of Jose; c) that
RCVPI has already been dissolved.
On December 26, 2002, Labor Arbiter Irenarco R. Rimando issued an Order granting
the motion filed by Uson. The order held that officers of a corporation are jointly and
severally liable for the obligations of the corporation to the employees and there is no
denial of due process in holding them so even if the said officers were not parties to the
case when the judgment in favor of the employees was rendered. Thus, the Labor
Arbiter pierced the veil of corporate fiction of Royal Class Venture and held
herein petitioner Jose Emmanuel Guillermo (Guillermo), in his personal capacity,
jointly and severally liable with the corporation for the enforcement of the claims
of Uson.
Guillermo who appears to be the owner of the said corporation which was alleged to be
dissolved, filed, by way of special appearance, a Motion for Reconsideration/To Set
Aside the Order of December 26, 2002. The same, however, was not granted.
On January 5, 2004, Guillermo filed a Motion for Reconsideration of the above Order,
but the same was promptly denied by the Labor Arbiter in an Order dated January 7,
2004.
Guillermo elevated the matter to the NLRC by filing a Memorandum of Appeal with
Prayer for a (Writ of) Preliminary Injunction dated June 10, 2004, the NLRC dismissed
Guillermo's appeal and denied his prayers for injunction. On August 20, 2010, Guillermo
filed a Petition for Certiorari. On June 8, 2011, the Court of Appeals rendered its
assailed Decision which denied Guillermo's petition and upheld all the findings of the
NLRC. Hence, the instant petition.
ISSUE:
Whether or not piercing the veil of corporate fiction is proper.
RULING:
YES. The veil of corporate fiction can be pierced, and responsible corporate directors
and officers or even a separate but related corporation, may be impleaded and held
answerable solidarily in a labor case, even after final judgment and on execution, so
long as it is established that such persons have deliberately used the corporate vehicle
to unjustly evade the judgment obligation, or have resorted to fraud, bad faith or malice
in doing so.
A finding of personal and solidary liability against a corporate officer like Guillermo must
be rooted on a satisfactory showing of fraud, bad faith or malice, or the presence of any
of the justifications for disregarding the corporate fiction.
In the case at hand, respondent Uson’s sworn allegations stating that Guillermo was the
responsible officer in charge of running the company as well as the one who maliciously
and illegally dismissed Uson from employment when Uson exposed the practice of the
said President/General Manager of dictating and undervaluing the shares of stock of the
corporation was uncontroverted. Guillermo, likewise, was shown to have a role in
dissolving the original obligor company in an obvious "scheme to avoid liability" which
jurisprudence has always looked upon with a suspicious eye in order to protect the
rights of labor.
Furthermore, it was Guillermo himself, as President and General Manager of the
company, who received the summons to the case, and who also subsequently and
without justifiable cause refused to receive all notices and orders of the Labor Arbiter
that followed. He, likewise, was shown to have a role in dissolving the original obligor
company in an obvious "scheme to avoid liability".
Finally, the records likewise bear that Guillermo dissolved Royal Class Venture and
helped incorporate a new firm, located in the same address as the former, wherein he is
again a stockholder. The circumstances clearly indicate a pattern or scheme to avoid
the obligations to Uson and frustrate the execution of the judgment award, which this
Court, in the interest of justice, will not countenance.
Commissioner of Customs vs. Oilink International Corporation
Facts:
Union Refinery Corporation (URC) was established under the Corporation Code of the
Philippines. URC imported oil products into the country from 1991 to 1994. In 1996,
Oilink was incorporated for the primary purpose of manufacturing, importing, exporting,
buying, selling or dealing in oil and gas and their refinements and by products at
wholesale and retail of petroleum. URC and Oilink had interlocking directors when Oilink
started its business.
On March 4, 1998, the District Collector of the Port of Manila demanded from URC to
pay its tax liabilities on its oil imports that had arrived at the Port of Lucanin. This was
followed by another demand letter, asking URC to pay for the reduced sum of
P289,287.486.60 for the VAT, special duties and excise taxes for the years 1991-1995.
When URC failed to heed the demands, the Customs Commissioner formally directed
URC to pay the amount of P119,223.541.61 representing URC’s special duties, VAT,
and Excise Taxes. The said deficiency taxes were then reduced to P99,216.580.
The URC denied the liability and insisted instead to pay only P28,933.079.20 by way of
compromise but it was rejected by the Commissioner. URC then proposed to pay only
the P94,216.580 of which the initial amount of P28,264.974 would be taken from the
collectibles of Oilink from the National Power Corporation and the balance to be paid in
monthly installments over a period of three years.
However, the Commissioner rejected the proposal and demand to pay the whole
amount from URC including Oilink which later on formally protested the assessment,
stating that it was not the party liable for the assessed deficiency taxes. Because of this
protest made Oilink, Commissioner Tan replied that the Bureau of Customs would not
issue any clearance to Oilink unless the assessed deficiency taxes are paid and a
performance bond is posted by URC/Oilink to secure payment of any adjustment from
the BIR’s review of the said liabilities.
This prompted Oilink to appeal to the CTA which declared null and void the assessment
of the Commissioner of Customs. On petition for review filed by the Commission of
Customs in the CA which affirmed the decision of the CTA.
Issue:
Whether or not Oilink is liable for the tax liability of URC based on the doctrine of
piercing the veil of corporate fiction
Held:
No.
The court held that the doctrine of piercing the corporate veil has no application here.
Indeed, a corporation has a personality separate and distinct from those of the persons
composing it as well as from any other legal entity to which it may be related. Therefore,
a stockholder cannot be held liable for the acts or liabilities of the corporation, and vice
versa. However, this separate and distinct personality of the corporation is a mere
fiction established by law for convenience and to promote the ends of justice. Therefore,
it cannot be invoked for ends that subvert the policy and purpose behinds its
establishment, or intended by law to which the corporation owes its being. This is true
particularly when the fiction is used to defeat public convenience, to justify wrong, to
protect fraud, to defend crime, to confuse legitimate legal or judicial issues, to
perpetrate deception or otherwise to circumvent the law. 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. In such instances, the veil of
corporate entity will be pierced or disregarded with reference to the particular
transaction involved. In applying the “instrumentality” or “alter ego” doctrine, the courts
are concerned with reality, not form, and with how the corporation operated and the
individual defendant’s relationship to the operation. Consequently, the absence of any
one of the foregoing elements disauthorizes the piercing of the corporate veil.
In the case at bar, the Commissioner of Customs did not establish that Oilink had been
set up to avoid the payment of taxes or duties, or for purposes that would defeat public
convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or
judicial issues, perpetrate deception or otherwise circumvent the law. It is also evident
from the fact that from the outset the Commissioner of Customs sought to collect the
deficiency taxes and duties from URC, and that it was only on July 2, 1999 when the
Commissioner of Customs sent the demand letter to both URC and Oilink. It revealed
that because the Commissioner of Customs failed to pursue the remedies against URC
from the outset manifested that its belated pursuit of Oilink was only an afterthought.