DOCTRINE OF SEPARATE JURIDICAL ENTITY
of Payment and submit the same to us as soon as possible. (Records, p. 428)
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.:
This petition for review on certiorari seeks to reverse and set aside the decision1 promulgated on June
17, 1996 in CA-GR No. CV-43239 of public respondent and its resolution2 dated November 29, 1996
denying petitioner’s motion for reconsideration.3
The facts of this case as found by the Court of Appeals and which we find supported by the records are
as follows:
On various dates in September, October, and November, 1980, 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.
xxx
On October 20, 1981, 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. It was
proposed that LBP would participate in the scheme through the conversion of P9,000,000.00
which was part of the total loan, into equity.
On March 4, 1982, LBP informed ECO of the action taken by the former’s Trust Committee
concerning the "Plan of Payment" which reads in part, as follows:
xxx
Please be informed that the Bank’s Trust Committee has deliberated on the plan of
payment during its meetings on November 6, 1981 and February 23, 1982. The
Committee arrived at a decision that you may proceed with your Plan of Payment
provided Land Bank shall not participate in the undertaking in any manner
whatsoever.
In view thereof, may we advise you to make necessary revision in the proposed Plan
On May 5, 1982, ECO submitted to LBP a "Revised Plan of Payment" deleting the latter’s
participation in the proposed financing company. The Trust Committee deliberated on the
"Revised Plan of Payment" and resolved to reject it. LBP then sent a letter to the PVTA for the
latter’s comments. The letter stated that if LBP did not hear from PVTA within five (5) days
from the latter’s receipt of the letter, such silence would be construed to be an approval of
LBP’s intention to file suit against ECO and its corporate officers. PVTA did not respond to the
letter.
On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money against ECO
and Emmanuel C. Oñate before the Regional Trial Court of Manila, Branch 50.
After trial on the merits, a judgment was rendered in favor of LBP; however, appellee Oñate
was absolved from personal liability for insufficiency of evidence.
Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP claimed that
there was an error in computation in the amounts to be paid. LBP also questioned the
dismissal of the case with regard to Oñate.
On the other hand, ECO questioned its being held liable for the amount of the loan. Upon order
of the court, both parties submitted Supplemental Motions for Reconsideration and their
respective Oppositions to each other’s Motions.
On February 3, 1993, the trial court rendered an Amended Decision, the dispositive portion of
which reads as follows:
ACCORDINGLY, the Decision, dated December 3, 1990, is hereby modified to read
as follows:
WHEREFORE, judgment is rendered ordering defendant Eco Management
Corporation to pay plaintiff Land Bank of the Philippines:
A. The sum of P26,109,000.00 representing the total amount of the ten (10) loan
accommodations plus 16% interest per annum computed from the dates of their
respective maturities until fully paid, broken down as follows:
1. the principal amount of P4,000,000.00 with interest at 16% computed from
September 18, 1981;
2. the principal amount of P5,000,000.00 with interest at 16% computed from
September 21, 1981;
3. the principal amount of P1,000,000.00 with interest rate at 16% computed
from September 28, 1981;
 4. the principal amount of P1,000,000.00 with interest at 15% computed from
October 5, 1981;
5. the principal amount of P2,000,000.00 with interest rate at of 16%
computed from October 8, 1981;
6. the principal amount of P2,000,000.00 with interest rate at of 16% from
October 23, 1981;
7. the principal amount of P814,000.00 with interest rate at of 16% computed
from November 1, 1981;
8. the principal amount of P2,295,000.00 with interest rate at of 16%
computed from November 6, 1981;
9. the principal amount of P3,000,000.00 with interest rate at of 16%
computed from November 7, 1981;
10. the principal amount of P5,000,000.00 with interest rate at 16%
computed from November 9, 1981;
B. The sum of P260,000.00 as attorney’s fees; and
C. The costs of the suit.
The case as against defendant Emmanuel Oñate is dismissed for insufficiency of
evidence.
SO ORDERED. (Records, p. 608)4
The Court of Appeals affirmed in toto the amended decision of the trial court.5
On June 9, 1996, petitioner filed a motion for reconsideration, which was denied in a resolution dated
November 29, 1996. Hence, this present petition, assigning the following errors allegedly committed by
the Court of Appeals:
A
THE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT BASED ON THE
FACTS AS ESTABLISHED BY EVIDENCE, THERE EXISTS A SUBSTANTIAL AND
JUSTIFIABLE GROUND UPON WHICH THE LEGAL NOTION OF THE CORPORATE
FICTION OF RESPONDENT ECO MANAGEMENT CORPORATION MAY BE PIERCED.
B ground to pierce the veil of respondent corporation’s personality.8
THE COURT OF APPEALS GRAVELY ERRED IN NOT A[T]TACHING LIABILITY TO
RESPONDENT EMMANUEL C. OÑATE JOINTLY AND SEVERALLY WITH RESPONDENT
ECO MANAGEMENT CORPORATION FOR THE PRINCIPAL SUM OF P26 M PLUS
INTEREST THEREON.
C
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE
LOWER COURT THE SAME NOT BEING SUPPORTED BY THE EVIDENCE AND
APPLICABLE LAWS AND JURISPRUDENCE.6
The primary issues for resolution here are (1) whether or not the corporate veil of ECO Management
Corporation should be pierced; and (2) whether or not Emmanuel C. Oñate should be held jointly and
severally liable with ECO Management Corporation for the loans incurred from Land Bank.
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.
Petitioner submits the following arguments to support its stand: (1) Respondent Oñate owns the
majority of the interest holdings in respondent corporation, specifically during the crucial time when
appellees applied for and obtained the loan from LANDBANK, sometime in September to November,
1980. (2) The acronym ECO stands for the initials of Emmanuel C. Oñate, which is the logical, sensible
and concrete explanation for the name ECO, in the absence of evidence to the contrary. (3)
Respondent Oñate has always referred to himself as the debtor, not merely as an officer or a
representative of respondent corporation. (4) Respondent Oñate personally paid P1 Million taken from
trust accounts in his name. (5) Respondent Oñate made a personal offering to pay his personal
obligation. (6) Respondent Oñate controlled respondent corporation by simultaneously holding two (2)
corporate positions, viz., as Chairman and as treasurer, beginning from the time of respondent
corporation’s incorporation and continuously thereafter without benefit of election. (7) Respondent
corporation had not held any meeting of the stockholders or of the Board of Directors, as shown by the
fact that no proceeding of such corporate activities was filed with or borne by the record of the
Securities and Exchange Commission (SEC). The only corporate records respondent corporation filed
with the SEC were the following: Articles of Incorporation, Treasurer’s Affidavit, Undertaking to Change
Corporate Name, Statement of Assets and Liabilities.7
Private respondents, in turn, contend that Oñate’s only participation in the transaction between
petitioner and respondent ECO was his execution of the loan agreements and promissory notes as
Chairman of the corporation’s Board of Directors. There was nothing in the loan agreement nor in the
promissory notes which would indicate that Oñate was binding himself jointly and severally with ECO.
Respondents likewise deny that ECO stands for Emmanuel C. Oñate. Respondents also note that
Oñate is no longer a majority stockholder of ECO and that the payment by a third person of the debt of
another is allowed under the Civil Code. They also alleged that there was no fraud and/or bad faith in
the transactions between them and Land Bank. Hence, private respondents conclude, there is no legal
At the outset, we find the matters raised by petitioner in his argumentation are mainly questions of fact reversible error could be attributed to respondent court’s decision and resolution which petitioner
which are not proper in a petition of this nature.9 Petitioner is basically questioning the evaluation made assails.
by the Court of Appeals of the evidence submitted at the trial. The Court of Appeals had found that
petitioner’s evidence was not sufficient to justify the piercing of ECO’s corporate personality.10 Petitioner WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of the Court of
contended otherwise. It is basic that where what is being questioned is the sufficiency of evidence, it is Appeals in CA-G.R. CV No. 43239 are AFFIRMED. Costs against petitioner.
a question of fact.11 Nevertheless, even if we regard these matters as tendering an issue of law, we still
find no reason to reverse the findings of the Court of Appeals.
SO ORDERED.
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
DOCTRINE OF SEPARATE JURIDICAL ENTITY
G.R. No. 141994 January 17, 2005
FILIPINAS BROADCASTING NETWORK, INC., petitioner,
vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE,
(AMEC-BCCM) and ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review1 assails the 4 January 1999 Decision2 and 26 January 2000 Resolution of the
Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14
December 1992 Decision3 of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No.
8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes
Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and
Educational Center-Bicol Christian College of Medicine moral damages, attorney’s fees and costs of
suit.
The Antecedents
"Exposé" is a radio documentary4 program hosted by Carmelo ‘Mel’ Rima ("Rima") and Hermogenes
‘Jun’ Alegre ("Alegre").5 Exposé is aired every morning over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi City, the Albay municipalities and
other Bicol areas.6
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints
from students, teachers and parents against Ago Medical and Educational Center-Bicol Christian
College of Medicine ("AMEC") and its administrators. Claiming that the broadcasts were defamatory,
AMEC and Angelita Ago ("Ago"), as Dean of AMEC’s College of Medicine, filed a complaint for
damages7 against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly
libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM,
advise them to pass all subjects because if they fail in any subject they will repeat their year
level, taking up all subjects including those they have passed already. Several students had
approached me stating that they had consulted with the DECS which told them that there is no such
regulation. If [there] is no such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not
recognized by DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not have an
instructor - such greed for money on the part of AMEC’s administration. Take the subject
Anatomy: students would pay for the subject upon enrolment because it is offered by the school.
However there would be no instructor for such subject. Students would be informed that course would
be moved to a later date because the school is still searching for the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been
surviving for the past few years since its inception because of funds support from foreign foundations. If
you will take a look at the AMEC premises you’ll find out that the names of the buildings there are
foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very
concrete and undeniable evidence that the support of foreign foundations for AMEC is substantial, isn’t
it? With the report which is the basis of the expose in DZRC today, it would be very easy for detractors
and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical
school on the basis of the latter’s purpose. But if the purpose of the institution (AMEC) is to deceive
students at cross purpose with its reason for being it is possible for these foreign foundations to lift or
suspend their donations temporarily.8
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the
AMEC-Institute of Mass Communication in their effort to minimize expenses in terms of salary
are absorbing or continues to accept "rejects". For example how many teachers in AMEC are
former teachers of Aquinas University but were removed because of immorality? Does it mean that the
present administration of AMEC have the total definite moral foundation from catholic administrator of
Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not
merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of
Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old
woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and
undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she
is very old. As in atmospheric situation – zero visibility – the plane cannot land, meaning she is very old,
low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in
AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people.
What does this mean? Immoral and physically misfits as teachers.
May I say I’m sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit
to teach. You are too old. As an aviation, your case is zero visibility. Don’t insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at
that. The reason is practical cost saving in salaries, because an old person is not fastidious, so long as
she has money to buy the ingredient of beetle juice. The elderly can get by – that’s why she (Lola) was
taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be
influenced by evil. When they become members of society outside of campus will be liabilities
rather than assets. What do you expect from a doctor who while studying at AMEC is so much
burdened with unreasonable imposition? What do you expect from a student who aside from peculiar
problems – because not all students are rich – in their struggle to improve their social status are even
more burdened with false regulations. xxx9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposés,
FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs’ (AMEC
and Ago) reputation." AMEC and Ago included FBNI as defendant for allegedly failing to exercise due
diligence in the selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer10 alleging that
the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly
impelled by a sense of public duty to report the "goings-on in AMEC, [which is] an institution imbued
with public interest."
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to Dismiss11 on FBNI’s behalf. The trial court
denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised
due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a
broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an
apprenticeship and training program after passing the interview. FBNI likewise claimed that it always
reminds its broadcasters to "observe truth, fairness and objectivity in their broadcasts and to refrain
from using libelous and indecent language." Moreover, FBNI requires all broadcasters to pass
the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP") accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision12 finding FBNI and Alegre liable for libel
except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the
broadcasters’ claim that their utterances were the result of straight reporting because it had no factual
basis. The broadcasters did not even verify their reports before airing them to show good faith. In
holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection
and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rima’s only participation was when he
agreed with Alegre’s exposé. The trial court found Rima’s statement within the "bounds of freedom of
speech, expression, and of the press." The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of
damages caused by the controversial utterances, which are not found by this court to be really
very serious and damaging, and there being no showing that indeed the enrollment of plaintiff
school dropped, defendants Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network (owner
of the radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and
Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of ₱300,000.00
moral damages, plus ₱30,000.00 reimbursement of attorney’s fees, and to pay the costs of suit.
SO ORDERED. 13 (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other,
appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial court’s judgment
with modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate
court denied Ago’s claim for damages and attorney’s fees because the broadcasts were directed
against AMEC, and not against her. The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that
broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.14
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26
January 2000 Resolution.
Hence, FBNI filed this petition.15
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial court’s ruling that the questioned broadcasts are libelous per
se and that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of
Appeals found Rima and Alegre’s claim that they were actuated by their moral and social duty to inform
the public of the students’ gripes as insufficient to justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMEC’s administrators, the Court of Appeals ruled
that the broadcasts were made "with reckless disregard as to whether they were true or false." The
appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the students
who allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked to
identify the students. According to the Court of Appeals, these circumstances cast doubt on the veracity
of the broadcasters’ claim that they were "impelled by their moral and social duty to inform the public
about the students’ gripes."
The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a
dumping ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean
Justita Lola to minimize expenses on its employees’ salaries; and (3) AMEC burdened the students with
unreasonable imposition and false regulations."16
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of
its employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP
accreditation. The Court of Appeals denied Ago’s claim for damages and attorney’s fees because the
libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged
FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorney’s fees and costs of
suit.1awphi1.nét
 Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEY’S FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF
MORAL DAMAGES, ATTORNEY’S FEES AND COSTS OF SUIT.
The Court’s Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre
against AMEC.17 While AMEC did not point out clearly the legal basis for its complaint, a reading of the
complaint reveals that AMEC’s cause of action is based on Articles 30 and 33 of the Civil Code. Article
3018 authorizes a separate civil action to recover civil liability arising from a criminal offense. On the
other hand, Article 3319 particularly provides that the injured party may bring a separate civil action for
damages in cases of defamation, fraud, and physical injuries. AMEC also invokes Article 1920 of the
Civil Code to justify its claim for damages. AMEC cites Articles 217621 and 218022 of the Civil Code to
hold FBNI solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any
act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt
of a natural or juridical person, or to blacken the memory of one who is dead.24
There is no question that the broadcasts were made public and imputed to AMEC defects or
circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegre’s remarks such as
"greed for money on the part of AMEC’s administrators"; "AMEC is a dumping ground, garbage of xxx
moral and physical misfits"; and AMEC students who graduate "will be liabilities rather than assets" of
the society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-
making institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were
plainly impelled by their civic duty to air the students’ gripes. FBNI alleges that there is no evidence that
ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima
and Alegre exerted efforts to obtain AMEC’s side and gave Ago the opportunity to defend AMEC and its
administrators. FBNI concludes that since there is no malice, there is no libel.
FBNI’s contentions are untenable.
Every defamatory imputation is presumed malicious.25 Rima and Alegre failed to show adequately their
good intention and justifiable motive in airing the supposed gripes of the students. As hosts of a
documentary or public affairs program, Rima and Alegre should have presented the public issues "free
from inaccurate and misleading information."26 Hearing the students’ alleged complaints a month before
the exposé,27 they had sufficient time to verify their sources and information. However, Rima and Alegre
hardly made a thorough investigation of the students’ alleged gripes. Neither did they inquire about nor
confirm the purported irregularities in AMEC from the Department of Education, Culture and Sports.
Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC official who
refused to disclose any information. Alegre simply relied on the words of the students "because they
were many and not because there is proof that what they are saying is true."28 This plainly shows Rima
and Alegre’s reckless disregard of whether their report was true or not.
Contrary to FBNI’s claim, the broadcasts were not "the result of straight reporting." Significantly, some
courts in the United States apply the privilege of "neutral reportage" in libel cases involving matters of
public interest or public figures. Under this privilege, a republisher who accurately and disinterestedly
reports certain defamatory statements made against public figures is shielded from liability, regardless
of the republisher’s subjective awareness of the truth or falsity of the accusation.29 Rima and Alegre
cannot invoke the privilege of neutral reportage because unfounded comments abound in the
broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were
made. The privilege of neutral reportage applies where the defamed person is a public figure who is
involved in an existing controversy, and a party to that controversy makes the defamatory statement.30
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court
of Appeals,31 FBNI contends that the broadcasts "fall within the coverage of qualifiedly privileged
communications" for being commentaries on matters of public interest. Such being the case, AMEC
should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there
is no libel.
FBNI’s reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair
comment," thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an
action for libel or slander. The doctrine of fair comment means that while in general every discreditable
imputation publicly made is deemed false, because every man is presumed innocent until his guilt is
judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable
imputation is directed against a public person in his public capacity, it is not necessarily actionable. In
order that such discreditable imputation to a public official may be actionable, it must either be a
false allegation of fact or a comment based on a false supposition. If the comment is an
expression of opinion, based on established facts, then it is immaterial that the opinion happens to
be mistaken, as long as it might reasonably be inferred from the facts.32 (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is "genuinely imbued
with public interest." The welfare of the youth in general and AMEC’s students in particular is a matter
which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject
broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts
are not based on established facts. The record supports the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents
against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student
who made the complaint to them, much less present written complaint or petition to that effect. To
accept this defense of defendants is too dangerous because it could easily give license to the media to
malign people and establishments based on flimsy excuses that there were reports to them although
they could not satisfactorily establish it. Such laxity would encourage careless and irresponsible
broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of
their duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that
they are in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy
courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2
years before the controversial broadcast, accreditation to offer Physical Therapy course had already
been given the plaintiff, which certificate is signed by no less than the Secretary of Education and
Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this
were they careful enough to verify. And yet, defendants were very categorical and sounded too positive
when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses
which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald
Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a
big building of plaintiff school was given the name Mcdonald building, that was only in order to honor the
first missionary in Bicol of plaintiffs’ religion, as explained by Dr. Lita Ago. Contrary to the claim of
defendants over the air, not a single centavo appears to be received by plaintiff school from the
aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical
students fail in one subject, they are made to repeat all the other subject[s], even those they have
already passed, nor their claim that the school charges laboratory fees even if there are no laboratories
in the school. No evidence was presented to prove the bases for these claims, at least in order to give
semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s]
singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in
court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective
teachers like Supreme Court Justices who are still very much in demand as law professors in their late
years. Counsel for defendants is past 75 but is found by this court to be still very sharp and
effective.l^vvphi1.net So is plaintiffs’ counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still
alert and docile.
The contention that plaintiffs’ graduates become liabilities rather than assets of our society is a mere
conclusion. Being from the place himself, this court is aware that majority of the medical graduates of
plaintiffs pass the board examination easily and become prosperous and responsible professionals.33
Had the comments been an expression of opinion based on established facts, it is immaterial that the
opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.34 However,
the comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not
privileged and remain libelous per se.
The broadcasts also violate the Radio Code35 of the Kapisanan ng mga Brodkaster sa Pilipinas,
Ink. ("Radio Code"). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice
and inaccurate and misleading information. x x x Furthermore, the station shall strive to
present balanced discussion of issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues
and commentary programs so that they conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect
public interest, general welfare and good order in the presentation of public affairs and public
issues.36 (Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of
ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary
code of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a
public warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code
by which their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of
conduct of their profession, just like other professionals. A professional code of conduct provides the
standards for determining whether a person has acted justly, honestly and with good faith in the
exercise of his rights and performance of his duties as required by Article 1937 of the Civil Code. A
professional code of conduct also provides the standards for determining whether a person who willfully
causes loss or injury to another has acted in a manner contrary to morals or good customs under Article
2138 of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation.39
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish
or moral shock.40 The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the
award of moral damages. However, the Court’s statement in Mambulao that "a corporation may have a
good reputation which, if besmirched, may also be a ground for the award of moral damages" is
an obiter dictum.42
Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article 221943 of the Civil Code.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any
other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical
person. Therefore, a juridical person such as a corporation can validly complain for libel or any other
form of defamation and claim for moral damages.44
Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a case, evidence
of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of
damages.46 Neither in such a case is the plaintiff required to introduce evidence of actual damages as a
condition precedent to the recovery of some damages.47 In this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.
However, we find the award of ₱300,000 moral damages unreasonable. The record shows that even
though the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage
to its reputation. Therefore, we reduce the award of moral damages from ₱300,000 to ₱150,000.
III.
Whether the award of attorney’s fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of
attorney’s fees. FBNI adds that the instant case does not fall under the enumeration in Article 220848 of
the Civil Code.
The award of attorney’s fees is not proper because AMEC failed to justify satisfactorily its claim for
attorney’s fees. AMEC did not adduce evidence to warrant the award of attorney’s fees. Moreover, both
the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the
award of attorney’s fees.49 In Inter-Asia Investment Industries, Inc. v. Court of Appeals ,50 we held
that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than
the rule, and counsel’s fees are not to be awarded every time a party wins a suit. The power of the
court to award attorney’s fees under Article 2208 of the Civil Code demands factual, legal and
equitable justification, without which the award is a conclusion without a premise, its basis
being improperly left to speculation and conjecture. In all events, the court must explicitly state in
the text of the decision, and not only in the decretal portion thereof, the legal reason for the award of
attorney’s fees.51 (Emphasis supplied)
While it mentioned about the award of attorney’s fees by stating that it "lies within the discretion of the
court and depends upon the circumstances of each case," the Court of Appeals failed to point out any
circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorney’s fees and costs of
suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and
attorney’s fees because it exercised due diligence in the selection and supervision of its employees,
particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo
a "very regimented process" before they are allowed to go on air. "Those who apply for broadcaster are
subjected to interviews, examinations and an apprenticeship program."
FBNI further argues that Alegre’s age and lack of training are irrelevant to his competence as a
broadcaster. FBNI points out that the "minor deficiencies in the KBP accreditation of Rima and Alegre
do not in any way prove that FBNI did not exercise the diligence of a good father of a family in selecting
and supervising them." Rima’s accreditation lapsed due to his non-payment of the KBP annual fees
while Alegre’s accreditation card was delayed allegedly for reasons attributable to the KBP Manila
Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or
government regulation.
FBNI’s arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort
which they commit.52 Joint tort feasors are all the persons who command, instigate, promote,
encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of
it after it is done, if done for their benefit.53 Thus, AMEC correctly anchored its cause of action against
FBNI on Articles 2176 and 2180 of the Civil Code.1a\^/phi1.net
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages
arising from the libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory
statements published by radio or television may be had from the owner of the station, a
licensee, the operator of the station, or a person who procures, or participates in, the making of the
defamatory statements."54 An employer and employee are solidarily liable for a defamatory statement by
the employee within the course and scope of his or her employment, at least when the employer
authorizes or ratifies the defamation.55 In this case, Rima and Alegre were clearly performing their
official duties as hosts of FBNI’s radio program Exposé when they aired the broadcasts. FBNI neither
alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was
likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed
that it exercised diligence in the selection of its broadcasters without introducing any evidence to prove
that it observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it
exercised diligence in supervising its broadcasters. FBNI’s alleged constant reminder to its
broadcasters to "observe truth, fairness and objectivity and to refrain from using libelous and indecent
language" is not enough to prove due diligence in the supervision of its broadcasters. Adequate training
of the broadcasters on the industry’s code of conduct, sufficient information on libel laws, and
continuous evaluation of the broadcasters’ performance are but a few of the many ways of showing
diligence in the supervision of broadcasters.
FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters,
bearing in mind their qualifications." However, no clear and convincing evidence shows that Rima and
Alegre underwent FBNI’s "regimented process" of application. Furthermore, FBNI admits that Rima and
Alegre had deficiencies in their KBP accreditation,56 which is one of FBNI’s requirements before it hires
a broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcaster’s strong
commitment to observe the broadcast industry’s rules and regulations. Clearly, these circumstances
show FBNI’s lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily
liable to pay damages together with Rima and Alegre.

WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and
Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the
MODIFICATION that the award of moral damages is reduced from ₱300,000 to ₱150,000 and the
award of attorney’s fees is deleted. Costs against petitioner.

SO ORDERED.
Doctrine of Piercing the Corporate Veil
[G.R. NO. 149237 : June 11, 2006]
CHINA BANKING CORPORATION, Petitioner, v. DYNE-SEM ELECTRONICS
CORPORATION, Respondent.
DECISION
CORONA, J.:
On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed a total
of P8,939,000 from petitioner China Banking Corporation. The loan was evidenced by six
promissory notes.1
The borrowers failed to pay when the obligations became due. Petitioner consequently
instituted a complaint for sum of money2 on June 25, 1987 against them. The complaint
sought payment of the unpaid promissory notes plus interest and penalties.
Summons was not served on Dynetics, however, because it had already closed down. Lim,
on the other hand, filed his answer on December 15, 1987 denying that "he promised to
pay [the obligations] jointly and severally to [petitioner]."3
On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The case
against Dynetics was archived.
On September 23, 1988, an amended complaint4 was filed by petitioner impleading
respondent Dyne-Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente
Chuidian, Antonio Garcia and Jacob Ratinoff. According to petitioner, respondent was
formed and organized to be Dynetics' alter ego as established by the following
circumstances:
'Dynetics, Inc. and respondent are both engaged in the same line of business of
manufacturing, producing, assembling, processing, importing, exporting, buying,
distributing, marketing and testing integrated circuits and semiconductor devices;
'[t]he principal office and factory site of Dynetics, Inc. located at Avocado Road, FTI
Complex, Taguig, Metro Manila, were used by respondent as its principal office and factory
site;
'[r]espondent acquired some of the machineries and equipment of Dynetics, Inc. from
banks which acquired the same through foreclosure;
'[r]espondent retained some of the officers of Dynetics, Inc.5
xxx � � � xxx � � � xxx
On December 28, 1988, respondent filed its answer, alleging that:
5.1 [t]he incorporators as well as present stockholders of [respondent] are totally different
from those of Dynetics, Inc., and not one of them has ever been a stockholder or officer of
the latter;
5.2 [n]ot one of the directors of [respondent] is, or has ever been, a director, officer, or
stockholder of Dynetics, Inc.;
5.3 [t]he various facilities, machineries and equipment being used by [respondent] in its
business operations were legitimately and validly acquired, under arms-length
transactions, from various corporations which had become absolute owners thereof at the
time of said transactions; these were not just "taken over" nor "acquired from Dynetics"
by [respondent], contrary to what plaintiff falsely and maliciously alleges;
5.4 [respondent] acquired most of its present machineries and equipment as second-hand
items to keep costs down;
5.5 [t]he present plant site is under lease from Food Terminal, Inc., a government-
controlled corporation, and is located inside the FTI Complex in Taguig, Metro Manila,
where a number of other firms organized in 1986 and also engaged in the same or similar
business have likewise established their factories; practical convenience, and nothing else,
was behind [respondent's] choice of plant site;
5.6 [respondent] operates its own bonded warehouse under authority from the Bureau of
Customs which has the sole and absolute prerogative to authorize and assign customs
bonded warehouses; again, practical convenience played its role here since the warehouse
in question was virtually lying idle and unused when said Bureau decided to assign it to
[respondent] in June 1986.6
On February 28, 1989, the trial court issued an order archiving the case as to Chuidian,
Garcia and Ratinoff since summons had remained unserved.
After hearing, the court a quo rendered a decision on December 27, 1991 which read:
xxx [T]he Court rules that Dyne-Sem Electronics Corporation is not an alter ego of
Dynetics, Inc. Thus, Dyne-Sem Electronics Corporation is not liable under the promissory
notes.
xxx � � � xxx � � � xxx
WHEREFORE, judgment is hereby rendered ordering Dynetics, Inc. and Elpidio O. Lim,
jointly and severally, to pay plaintiff.
xxx � � � xxx � � � xxx
Anent the complaint against Dyne-Sem and the latter's counterclaim, both are hereby
dismissed, without costs.
SO ORDERED.7
From this adverse decision, petitioner appealed to the Court of Appeals8 but the appellate
court dismissed the appeal and affirmed the trial court's decision.9 It found that
respondent was indeed not an alter ego of Dynetics. The two corporations had different
articles of incorporation. Contrary to petitioner's claim, no merger or absorption took place
between the two. What transpired was a mere sale of the assets of Dynetics to
respondent. The appellate court denied petitioner's motion for reconsideration.10
Hence, this Petition for Review 11
with the following assigned errors:
VI.
Issues
What is the quantum of evidence needed for the trial court to determine if the veil of
corporat[e] fiction should be pierced?cralawlibrary
[W]hether or not the Regional Trial Court of Manila Branch 15 in its Decision dated
December 27, 1991 and the Court of Appeals in its Decision dated February 28, 2001 and
Resolution dated July 27, 2001, which affirmed en toto [Branch 15, Manila Regional Trial
Court's decision,] have ruled in accordance with law and/or applicable [jurisprudence] to
the extent that the Doctrine of Piercing the Veil of Corporat[e] Fiction is not applicable in
the case at bar?12
We find no merit in the petition.
The question of whether one corporation is merely an alter ego of another is purely one of
fact. So is the question of whether a corporation is a paper company, a sham or
subterfuge or whether petitioner adduced the requisite quantum of evidence warranting
the piercing of the veil of respondent's corporate entity. This Court is not a trier of facts.
Findings of fact of the Court of Appeals, affirming those of the trial court, are final and
conclusive. The jurisdiction of this Court in a Petition for Review on Certiorari is limited to
reviewing only errors of law, not of fact, unless it is shown, inter alia, that: (a) the
conclusion is grounded entirely on speculations, surmises and conjectures; (b) the
inference is manifestly mistaken, absurd and impossible; (c) there is grave abuse of
discretion; (d) the judgment is based on a misapplication of facts; (e) the findings of fact
of the trial court and the appellate court are contradicted by the evidence on record and
(f) the Court of Appeals went beyond the issues of the case and its findings are contrary to
the admissions of both parties.13
We have reviewed the records and found that the factual findings of the trial and appellate
courts and consequently their conclusions were supported by the evidence on record.
The general rule is that a corporation has a personality separate and distinct from that of
its stockholders and other corporations to which it may be connected.14 This is a fiction
created by law for convenience and to prevent injustice.15
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds may exist to
warrant the disregard of its independent being and the piercing of the corporate
veil.16 In Martinez v. Court of Appeals,17 we held:
The veil of separate corporate personality may be lifted when such personality is used to
defeat public convenience, justify wrong, protect fraud or defend crime; or used as a
shield to confuse the legitimate issues; or when the corporation is merely an adjunct, a
business conduit or an alter ego of another corporation or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation; or when the
corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where
necessary to achieve equity or for the protection of the creditors. In such cases, the
corporation will be considered as a mere association of persons. The liability will directly
attach to the stockholders or to the other corporation.
To disregard the separate juridical personality of a corporation, the wrongdoing must be
proven clearly and convincingly.18
In this case, petitioner failed to prove that Dyne-Sem was organized and controlled, and
its affairs conducted, in a manner that made it merely an instrumentality, agency, conduit
or adjunct of Dynetics, or that it was established to defraud Dynetics' creditors, including
petitioner.
The similarity of business of the two corporations did not warrant a conclusion that
respondent was but a conduit of Dynetics. As we held in Umali v. Court of Appeals,19 "the
mere fact that the businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, absent sufficient showing that the
corporate entity was purposely used as a shield to defraud creditors and third persons of
their rights."
Likewise, respondent's acquisition of some of the machineries and equipment of Dynetics
was not proof that respondent was formed to defraud petitioner. As the Court of Appeals
found, no merger20 took place between Dynetics and respondent Dyne-Sem. What took
place was a sale of the assets21 of the former to the latter. Merger is legally distinct from a
sale of assets.22 Thus, where one corporation sells or otherwise transfers all its assets to
another corporation for value, the latter is not, by that fact alone, liable for the debts and
liabilities of the transferor.
Petitioner itself admits that respondent acquired the machineries and equipment not
directly from Dynetics but from the various corporations which successfully bidded for
them in an auction sale. The contracts of sale executed between the winning bidders and
respondent showed that the assets were sold for considerable amounts.23 The Court of
Appeals thus correctly ruled that the assets were not "diverted" to respondent as an alter
ego of Dynetics.24 The machineries and equipment were transferred and disposed of by the
winning bidders in their capacity as owners. The sales were therefore valid and the
transfers of the properties to respondent legal and not in any way in contravention of
petitioner's rights as Dynetics' creditor.

Finally, it may be true that respondent later hired Dynetics' former Vice-President Luvinia
Maglaya and Assistant Corporate Counsel Virgilio Gesmundo. From this, however, we
cannot conclude that respondent was an alter ego of Dynetics. In fact, even the
overlapping of incorporators and stockholders of two or more corporations will not
necessarily lead to such inference and justify the piercing of the veil of corporate
fiction.25 Much more has to be proven.

Premises considered, no factual and legal basis exists to hold respondent Dyne-Sem liable
for the obligations of Dynetics to petitioner.

WHEREFORE, the petition is hereby DENIED.The assailed Court of Appeals' decision and
resolution in CA-G.R. CV No. 40672 are hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.
G.R. No. 142936 April 17, 2002
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION, petitioners,
vs.
ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent.
PANGANIBAN, J.:
Basic is the rule that a corporation has a legal personality distinct and separate from the persons and
entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime,
justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact
that the Philippine National Bank (PNB) acquired ownership or management of some assets of the
Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting
public auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the
PASUMIL’s contractual debts to respondent.
Statement of the Case
Before us is a Petition for Review assailing the April 17, 2000 Decision1 of the Court of Appeals (CA) in
CA-GR CV No. 57610. The decretal portion of the challenged Decision reads as follows:
"WHEREFORE, the judgment appealed from is hereby AFFIRMED."2
The Facts
The factual antecedents of the case are summarized by the Court of Appeals as follows:
"In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly organized,
existing, and operating under the laws of the Philippines, with office and principal place of
business at Nos. 794-812 Del Monte [A]venue, Quezon City, while the defendant [herein
petitioner] Philippine National Bank (herein referred to as PNB), is a semi-government
corporation duly organized, existing and operating under the laws of the Philippines, with office
and principal place of business at Escolta Street, Sta. Cruz, Manila; whereas, the other
defendant, the National Sugar Development Corporation (NASUDECO in brief), is also a semi-
government corporation and the sugar arm of the PNB, with office and principal place of
business at the 2nd Floor, Sampaguita Building, Cubao, Quezon City; and the defendant
Pampanga Sugar Mills (PASUMIL in short), is a corporation organized, existing and operating
under the 1975 laws of the Philippines, and had its business office before 1975 at Del Carmen,
Floridablanca, Pampanga; that the plaintiff is engaged in the business of general construction
for the repairs and/or construction of different kinds of machineries and buildings; that on
August 26, 1975, the defendant PNB acquired the assets of the defendant PASUMIL that were
earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI No. 311; that
the defendant PNB organized the defendant NASUDECO in September, 1975, to take
ownership and possession of the assets and ultimately to nationalize and consolidate its
interest in other PNB controlled sugar mills; that prior to October 29, 1971, the defendant
PASUMIL engaged the services of plaintiff for electrical rewinding and repair, most of which
were partially paid by the defendant PASUMIL, leaving several unpaid accounts with the
plaintiff; that finally, on October 29, 1971, the plaintiff and the defendant PASUMIL entered into
a contract for the plaintiff to perform the following, to wit –
‘(a) Construction of one (1) power house building;
‘(b) Construction of three (3) reinforced concrete foundation for three (3) units 350 KW
diesel engine generating set[s];
‘(c) Construction of three (3) reinforced concrete foundation for the 5,000 KW and
1,250 KW turbo generator sets;
‘(d) Complete overhauling and reconditioning tests sum for three (3) 350 KW diesel
engine generating set[s];
‘(e) Installation of turbine and diesel generating sets including transformer,
switchboard, electrical wirings and pipe provided those stated units are completely
supplied with their accessories;
‘(f) Relocating of 2,400 V transmission line, demolition of all existing concrete
foundation and drainage canals, excavation, and earth fillings – all for the total
amount of P543,500.00 as evidenced by a contract, [a] xerox copy of which is hereto
attached as Annex ‘A’ and made an integral part of this complaint;’
that aside from the work contract mentioned-above, the defendant PASUMIL required the
plaintiff to perform extra work, and provide electrical equipment and spare parts, such as:
‘(a) Supply of electrical devices;
‘(b) Extra mechanical works;
‘(c) Extra fabrication works;
‘(d) Supply of materials and consumable items;
‘(e) Electrical shop repair;
‘(f) Supply of parts and related works for turbine generator;
‘(g) Supply of electrical equipment for machinery;
‘(h) Supply of diesel engine parts and other related works including fabrication of
parts.’
that out of the total obligation of P777,263.80, the defendant PASUMIL had paid only
P250,000.00, leaving an unpaid balance, as of June 27, 1973, amounting to P527,263.80, as
shown in the Certification of the chief accountant of the PNB, a machine copy of which is
appended as Annex ‘C’ of the complaint; that out of said unpaid balance of P527,263.80, the
defendant PASUMIL made a partial payment to the plaintiff of P14,000.00, in broken amounts,
covering the period from January 5, 1974 up to May 23, 1974, leaving an unpaid balance of
P513,263.80; that the defendant PASUMIL and the defendant PNB, and now the defendant
NASUDECO, failed and refused to pay the plaintiff their just, valid and demandable obligation;
that the President of the NASUDECO is also the Vice-President of the PNB, and this official
holds office at the 10th Floor of the PNB, Escolta, Manila, and plaintiff besought this official to
pay the outstanding obligation of the defendant PASUMIL, inasmuch as the defendant PNB
and NASUDECO now owned and possessed the assets of the defendant PASUMIL, and these
defendants all benefited from the works, and the electrical, as well as the engineering and
repairs, performed by the plaintiff; that because of the failure and refusal of the defendants to
pay their just, valid, and demandable obligations, plaintiff suffered actual damages in the total
amount of P513,263.80; and that in order to recover these sums, the plaintiff was compelled to
engage the professional services of counsel, to whom the plaintiff agreed to pay a sum
equivalent to 25% of the amount of the obligation due by way of attorney’s fees. Accordingly,
the plaintiff prayed that judgment be rendered against the defendants PNB, NASUDECO, and
PASUMIL, jointly and severally to wit:
‘(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with
annual interest of 14% from the time the obligation falls due and demandable;
‘(2) Condemning the defendants to pay attorney’s fees amounting to 25% of the
amount claim;
‘(3) Ordering the defendants to pay the costs of the suit.’
"The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint chiefly on
the ground that the complaint failed to state sufficient allegations to establish a cause of action
against both defendants, inasmuch as there is lack or want of privity of contract between the
plaintiff and the two defendants, the PNB and NASUDECO, said defendants citing Article 1311
of the New Civil Code, and the case law ruling in Salonga v. Warner Barnes & Co., 88 Phil.
125; and Manila Port Service, et al. v. Court of Appeals, et al., 20 SCRA 1214.
"The motion to dismiss was by the court a quo denied in its Order of November 27, 1980; in
the same order, that court directed the defendants to file their answer to the complaint within
15 days.
"In their answer, the defendant NASUDECO reiterated the grounds of its motion to dismiss, to
wit:
‘That the complaint does not state a sufficient cause of action against the defendant
NASUDECO because: (a) NASUDECO is not x x x privy to the various electrical
construction jobs being sued upon by the plaintiff under the present complaint; (b) the
taking over by NASUDECO of the assets of defendant PASUMIL was solely for the
purpose of reconditioning the sugar central of defendant PASUMIL pursuant to
martial law powers of the President under the Constitution; (c) nothing in the LOI No.
189-A (as well as in LOI No. 311) authorized or commanded the PNB or its subsidiary
corporation, the NASUDECO, to assume the corporate obligations of PASUMIL as
that being involved in the present case; and, (d) all that was mentioned by the said
letter of instruction insofar as the PASUMIL liabilities [were] concerned [was] for the
PNB, or its subsidiary corporation the NASUDECO, to make a study of, and submit [a]
recommendation on the problems concerning the same.’
"By way of counterclaim, the NASUDECO averred that by reason of the filing by the plaintiff of
the present suit, which it [labeled] as unfounded or baseless, the defendant NASUDECO was
constrained to litigate and incur litigation expenses in the amount of P50,000.00, which plaintiff
should be sentenced to pay. Accordingly, NASUDECO prayed that the complaint be dismissed
and on its counterclaim, that the plaintiff be condemned to pay P50,000.00 in concept of
attorney’s fees as well as exemplary damages.
"In its answer, the defendant PNB likewise reiterated the grounds of its motion to dismiss,
namely: (1) the complaint states no cause of action against the defendant PNB; (2) that PNB is
not a party to the contract alleged in par. 6 of the complaint and that the alleged services
rendered by the plaintiff to the defendant PASUMIL upon which plaintiff’s suit is erected, was
rendered long before PNB took possession of the assets of the defendant PASUMIL under LOI
No. 189-A; (3) that the PNB take-over of the assets of the defendant PASUMIL under LOI 189-
A was solely for the purpose of reconditioning the sugar central so that PASUMIL may resume
its operations in time for the 1974-75 milling season, and that nothing in the said LOI No. 189-
A, as well as in LOI No. 311, authorized or directed PNB to assume the corporate obligation/s
of PASUMIL, let alone that for which the present action is brought; (4) that PNB’s management
and operation under LOI No. 311 did not refer to any asset of PASUMIL which the PNB had to
acquire and thereafter [manage], but only to those which were foreclosed by the DBP and
were in turn redeemed by the PNB from the DBP; (5) that conformably to LOI No. 311, on
August 15, 1975, the PNB and the Development Bank of the Philippines (DBP) entered into a
‘Redemption Agreement’ whereby DBP sold, transferred and conveyed in favor of the PNB, by
way of redemption, all its (DBP) rights and interest in and over the foreclosed real and/or
personal properties of PASUMIL, as shown in Annex ‘C’ which is made an integral part of the
answer; (6) that again, conformably with LOI No. 311, PNB pursuant to a Deed of Assignment
dated October 21, 1975, conveyed, transferred, and assigned for valuable consideration, in
favor of NASUDECO, a distinct and independent corporation, all its (PNB) rights and interest in
and under the above ‘Redemption Agreement.’ This is shown in Annex ‘D’ which is also made
an integral part of the answer; [7] that as a consequence of the said Deed of Assignment, PNB
on October 21, 1975 ceased to managed and operate the above-mentioned assets of
PASUMIL, which function was now actually transferred to NASUDECO. In other words, so
asserted PNB, the complaint as to PNB, had become moot and academic because of the
execution of the said Deed of Assignment; [8] that moreover, LOI No. 311 did not authorize or
direct PNB to assume the corporate obligations of PASUMIL, including the alleged obligation
upon which this present suit was brought; and [9] that, at most, what was granted to PNB in
this respect was the authority to ‘make a study of and submit recommendation on the problems
concerning the claims of PASUMIL creditors,’ under sub-par. 5 LOI No. 311.
"In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to
incur expenses in this case, hence it is entitled to claim attorney’s fees in the amount of at
least P50,000.00. Accordingly, PNB prayed that the complaint be dismissed; and that on its
counterclaim, that the plaintiff be sentenced to pay defendant PNB the sum of P50,000.00 as
attorney’s fees, aside from exemplary damages in such amount that the court may seem just
and equitable in the premises.
 "Summons by publication was made via the Philippines Daily Express, a newspaper with
editorial office at 371 Bonifacio Drive, Port Area, Manila, against the defendant PASUMIL,
which was thereafter declared in default as shown in the August 7, 1981 Order issued by the
Trial Court.
"After due proceedings, the Trial Court rendered judgment, the decretal portion of which reads:
‘WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the
defendant Corporation, Philippine National Bank (PNB) NATIONAL SUGAR
DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS
(PASUMIL), ordering the latter to pay jointly and severally the former the following:
‘1. The sum of P513,623.80 plus interest thereon at the rate of 14% per
annum as claimed from September 25, 1980 until fully paid;
‘2. The sum of P102,724.76 as attorney’s fees; and,
‘3. Costs.
‘SO ORDERED.
‘Manila, Philippines, September 4, 1986.
'(SGD) ERNESTO S. TENGCO
‘Judge’"3
Ruling of the Court of Appeals
Affirming the trial court, the CA held that it was offensive to the basic tenets of justice and equity for a
corporation to take over and operate the business of another corporation, while disavowing or
repudiating any responsibility, obligation or liability arising therefrom.4
Hence, this Petition.5
Issues
In their Memorandum, petitioners raise the following errors for the Court’s consideration:
"I
The Court of Appeals gravely erred in law in holding the herein petitioners liable for the unpaid
corporate debts of PASUMIL, a corporation whose corporate existence has not been legally
extinguished or terminated, simply because of petitioners[’] take-over of the management and
operation of PASUMIL pursuant to the mandates of LOI No. 189-A, as amended by LOI No.
311.
"II
The Court of Appeals gravely erred in law in not applying [to] the case at bench the ruling
enunciated in Edward J. Nell Co. v. Pacific Farms, 15 SCRA 415."6
Succinctly put, the aforesaid errors boil down to the principal issue of whether PNB is liable for the
unpaid debts of PASUMIL to respondent.
This Court’s Ruling
The Petition is meritorious.
Main Issue:
Liability for Corporate Debts
As a general rule, questions of fact may not be raised in a petition for review under Rule 45 of the Rules
of Court.7 To this rule, however, there are some exceptions enumerated in Fuentes v. Court of
Appeals.8 After a careful scrutiny of the records and the pleadings submitted by the parties, we find that
the lower courts misappreciated the evidence presented.9 Overlooked by the CA were certain relevant
facts that would justify a conclusion different from that reached in the assailed Decision.10
Petitioners posit that they should not be held liable for the corporate debts of PASUMIL, because their
takeover of the latter’s foreclosed assets did not make them assignees. On the other hand, respondent
asserts that petitioners and PASUMIL should be treated as one entity and, as such, jointly and severally
held liable for PASUMIL’s unpaid obligation.1âwphi1.nêt
As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling
corporation, provided the former acted in good faith and paid adequate consideration for such assets,
except when any of the following circumstances is present: (1) where the purchaser expressly or
impliedly agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger
of the corporations, (3) where the purchasing corporation is merely a continuation of the selling
corporation, and (4) where the transaction is fraudulently entered into in order to escape liability for
those debts.11
Piercing the Corporate
Veil Not Warranted
A corporation is an artificial being 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.12 It has a
personality separate and distinct from the persons composing it, as well as from any other legal entity to
which it may be related.13 This is basic.
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.14 For reasons of
public policy and in the interest of justice, the corporate veil will justifiably be impaled15 only when it
becomes a shield for fraud, illegality or inequity committed against third persons.16
Hence, any application of the doctrine of piercing the corporate veil should be done with caution.17 A
court should be mindful of the milieu where it is to be applied.18 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.19 The wrongdoing must be clearly and convincingly established; it cannot be
presumed.20 Otherwise, an injustice that was never unintended may result from an erroneous
application.21
This Court has pierced the corporate veil to ward off a judgment credit,22 to avoid inclusion of corporate
assets as part of the estate of the decedent,23 to escape liability arising from a debt,24 or to perpetuate
fraud and/or confuse legitimate issues25 either to promote or to shield unfair objectives26 or to cover up
an otherwise blatant violation of the prohibition against forum-shopping.27 Only in these and similar
instances may the veil be pierced and disregarded.28
The question of whether a corporation is a mere alter ego is one of fact.29 Piercing the veil of corporate
fiction may be allowed only if the following elements concur: (1) control -- not mere stock control, but
complete domination -- not only of finances, but of policy and business practice in respect to the
transaction attacked, must have been such 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 a fraud or a wrong to perpetuate the violation of a statutory or other positive legal
duty, or a dishonest and an unjust act in contravention of plaintiff’s legal right; and (3) the said control
and breach of duty must have proximately caused the injury or unjust loss complained of.30
We believe that the absence of the foregoing elements in the present case precludes the piercing of the
corporate veil. First, other than the fact that petitioners acquired the assets of PASUMIL, there is no
showing that their control over it warrants the disregard of corporate personalities.31 Second, there is no
evidence that their juridical personality was used to commit a fraud or to do a wrong; or that the
separate corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of
another entity or person.32 Third, respondent was not defrauded or injured when petitioners acquired the
assets of PASUMIL.33
Being the party that asked for the piercing of the corporate veil, respondent had the burden of
presenting clear and convincing evidence to justify the setting aside of the separate corporate
personality rule.34 However, it utterly failed to discharge this burden;35 it failed to establish by competent
evidence that petitioner’s separate corporate veil had been used to conceal fraud, illegality or inequity.36
While we agree with respondent’s claim that the assets of the National Sugar Development Corporation
(NASUDECO) can be easily traced to PASUMIL,37 we are not convinced that the transfer of the latter’s
assets to petitioners was fraudulently entered into in order to escape liability for its debt to respondent.38
A careful review of the records reveals that DBP foreclosed the mortgage executed by PASUMIL and
acquired the assets as the highest bidder at the public auction conducted.39 The bank was justified in
foreclosing the mortgage, because the PASUMIL account had incurred arrearages of more than 20
percent of the total outstanding obligation.40 Thus, DBP had not only a right, but also a duty under the
law to foreclose the subject properties.41
Pursuant to LOI No. 189-A42 as amended by LOI No. 311,43 PNB acquired PASUMIL’s assets that DBP
had foreclosed and purchased in the normal course. Petitioner bank was likewise tasked to manage
temporarily the operation of such assets either by itself or through a subsidiary corporation.44
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets pursuant to
Section 6 of Act No. 3135.45 These assets were later conveyed to PNB for a consideration, the terms of
which were embodied in the Redemption Agreement.46 PNB, as successor-in-interest, stepped into the
shoes of DBP as PASUMIL’s creditor.47 By way of a Deed of Assignment,48 PNB then transferred to
NASUDECO all its rights under the Redemption Agreement.
In Development Bank of the Philippines v. Court of Appeals,49 we had the occasion to resolve a similar
issue. We ruled that PNB, DBP and their transferees were not liable for Marinduque Mining’s unpaid
obligations to Remington Industrial Sales Corporation (Remington) after the two banks had foreclosed
the assets of Marinduque Mining. We likewise held that Remington failed to discharge its burden of
proving bad faith on the part of Marinduque Mining to justify the piercing of the corporate veil.
In the instant case, the CA erred in affirming the trial court’s lifting of the corporate mask.50 The CA did
not point to any fact evidencing bad faith on the part of PNB and its transferee.51 The corporate fiction
was not used to defeat public convenience, justify a wrong, protect fraud or defend crime.52 None of the
foregoing exceptions was shown to exist in the present case.53 On the contrary, the lifting of the
corporate veil would result in manifest injustice. This we cannot allow.
No Merger or Consolidation
Respondent further claims that petitioners should be held liable for the unpaid obligations of PASUMIL
by virtue of LOI Nos. 189-A and 311, which expressly authorized PASUMIL and PNB to merge or
consolidate. On the other hand, petitioners contend that their takeover of the operations of PASUMIL
did not involve any corporate merger or consolidation, because the latter had never lost its separate
identity as a corporation.
A consolidation is the union of two or more existing entities to form a new entity called the consolidated
corporation. A merger, on the other hand, is a union whereby one or more existing corporations are
absorbed by another corporation that survives and continues the combined business.54
The merger, however, does not become effective upon the mere agreement of the constituent
corporations.55 Since a merger or consolidation involves fundamental changes in the corporation, as well
as in the rights of stockholders and creditors, there must be an express provision of law authorizing
them.56 For a valid merger or consolidation, the approval by the Securities and Exchange Commission
(SEC) of the articles of merger or consolidation is required.57 These articles must likewise be duly
approved by a majority of the respective stockholders of the constituent corporations.58
In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB.
The procedure prescribed under Title IX of the Corporation Code59 was not followed.
In fact, PASUMIL’s corporate existence, as correctly found by the CA, had not been legally extinguished
or terminated.60 Further, prior to PNB’s acquisition of the foreclosed assets, PASUMIL had previously
made partial payments to respondent for the former’s obligation in the amount of P777,263.80. As of
June 27, 1973, PASUMIL had paid P250,000 to respondent and, from January 5, 1974 to May 23,
1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to respondent.61 LOI
No. 11 explicitly provides that PNB shall study and submit recommendations on the claims of
PASUMIL’s creditors.62 Clearly, the corporate separateness between PASUMIL and PNB remains,
despite respondent’s insistence to the contrary.63

WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No
pronouncement as to costs.

SO ORDERED.
G.R. No. 174938 October 1, 2014
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.
DECISION
LEONEN, J.:
Corporate representatives may be compelled to submit to arbitration proceedings pursuant to a contract
entered into by the corporation they represent if there are allegations of bad faith or malice in their acts
representing the corporation.
This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and October 5, 2006
resolution. The Court of Appeals affirmed the trial court's decision holding that petitioners, as director,
should submit themselves as parties tothe arbitration proceedings between BF Corporation and
Shangri-La Properties, Inc. (Shangri-La).
In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-Laand
the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo
Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos.1
BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into
agreements with Shangri-La wherein it undertook to construct for Shangri-La a mall and a multilevel
parking structure along EDSA.2
Shangri-La had been consistent in paying BF Corporation in accordance with its progress billing
statements.3 However, by October 1991, Shangri-La started defaulting in payment.4
BF Corporation alleged that Shangri-La induced BF Corporation to continue with the construction of the
buildings using its own funds and credit despite Shangri-La’s default.5 According to BF Corporation,
ShangriLa misrepresented that it had funds to pay for its obligations with BF Corporation, and the delay
in payment was simply a matter of delayed processing of BF Corporation’s progress billing statements.6
BF Corporation eventually completed the construction of the buildings.7 Shangri-La allegedly took
possession of the buildings while still owing BF Corporation an outstanding balance.8
BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the balance owed to
it.9 It also alleged that the Shangri-La’s directors were in bad faith in directing Shangri-La’s affairs.
Therefore, they should be held jointly and severally liable with Shangri-La for its obligations as well as
for the damages that BF Corporation incurred as a result of Shangri-La’s default.10
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and
Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF Corporation’s failure to
submit its dispute to arbitration, in accordance with the arbitration clauseprovided in its contract, quoted
in the motion as follows:11
35. Arbitration
(1) Provided always that in case any dispute or difference shall arise between the Owner or the Project
Manager on his behalf and the Contractor, either during the progress or after the completion or
abandonment of the Works as to the construction of this Contract or as to any matter or thing of
whatsoever nature arising there under or inconnection therewith (including any matter or thing left by
this Contract to the discretion of the Project Manager or the withholding by the Project Manager of any
certificate to which the Contractor may claim to be entitled or the measurement and valuation
mentioned in clause 30(5)(a) of these Conditions or the rights and liabilities of the parties under clauses
25, 26, 32 or 33 of these Conditions), the owner and the Contractor hereby agree to exert all efforts to
settle their differences or dispute amicably. Failing these efforts then such dispute or difference shall be
referred to arbitration in accordance with the rules and procedures of the Philippine Arbitration Law.
xxx xxx xxx
(6) The award of such Arbitrators shall be final and binding on the parties. The decision of the
Arbitrators shall be a condition precedent to any right of legal action that either party may have against
the other. . . .12 (Underscoring in the original)
On August 19, 1993, BF Corporation opposed the motion to suspend proceedings.13
In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend proceedings.14
On December 8, 1993, petitioners filed an answer to BF Corporation’s complaint, with compulsory
counter claim against BF Corporation and crossclaim against Shangri-La.15 They alleged that they had
resigned as members of Shangri-La’s board of directors as of July 15, 1991.16
After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration of its
November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,Maximo G. Licauco III, and
Benjamin Ramos filed a petition for certiorari with the Court of Appeals.17
On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the submission of
the dispute to arbitration.18
Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for review on certiorari with
this court.19 On March 27, 1998, this court affirmed the Court of Appeals’ decision, directing that the
dispute be submitted for arbitration.20
Another issue arose after BF Corporation had initiated arbitration proceedings. BF Corporation and
Shangri-La failed to agree as to the law that should govern the arbitration proceedings.21 On October
27, 1998, the trial court issued the order directing the parties to conduct the proceedings in accordance
with Republic Act No. 876.22
Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, both seeking
to clarify the term, "parties," and whether Shangri-La’s directors should be included in the arbitration
proceedings and served with separate demands for arbitration.23
Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that they be
excluded from the arbitration proceedings for being non-parties to Shangri-La’s and BF Corporation’s
agreement.24
On July 28, 2003, the trial court issued the order directing service of demands for arbitration upon all
defendants in BF Corporation’s complaint.25 According to the trial court, Shangri-La’s directors were
interested parties who "must also be served with a demand for arbitration to give them the opportunity
to ventilate their side of the controversy, safeguard their interest and fend off their respective
positions."26 Petitioners’ motion for reconsideration ofthis order was denied by the trial court on January
19, 2005.27
Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of discretion in
the issuance of orders compelling them to submit to arbitration proceedings despite being third parties
to the contract between Shangri-La and BF Corporation.28
In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’ petition for certiorari. The
Court of Appeals ruled that ShangriLa’s directors were necessary parties in the arbitration
proceedings.30 According to the Court of Appeals:
[They were] deemed not third-parties tothe contract as they [were] sued for their acts in representation
of the party to the contract pursuant to Art. 31 of the Corporation Code, and that as directors of the
defendant corporation, [they], in accordance with Art. 1217 of the Civil Code, stand to be benefited or
injured by the result of the arbitration proceedings, hence, being necessary parties, they must be joined
in order to have complete adjudication of the controversy. Consequently, if [they were] excluded as
parties in the arbitration proceedings and an arbitral award is rendered, holding [Shangri-La] and its
board of directors jointly and solidarily liable to private respondent BF Corporation, a problem will arise,
i.e., whether petitioners will be bound bysuch arbitral award, and this will prevent complete
determination of the issues and resolution of the controversy.31
The Court of Appeals further ruled that "excluding petitioners in the arbitration proceedings . . . would be
contrary to the policy against multiplicity of suits."32
The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and January 19,
2005 of public respondent RTC, Branch 157, Pasig City, in Civil Case No. 63400, are AFFIRMED.33
The Court of Appeals denied petitioners’ motion for reconsideration in the October 5, 2006 resolution.34
On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court of Appeals
decision and the October 5, 2006 Court of Appeals resolution.35
The issue in this case is whether petitioners should be made parties to the arbitration proceedings,
pursuant to the arbitration clause provided in the contract between BF Corporation and Shangri-La.
Petitioners argue that they cannot be held personally liable for corporate acts or obligations.36 The
corporation is a separate being, and nothing justifies BF Corporation’s allegation that they are solidarily
liable with Shangri-La.37 Neither did they bind themselves personally nor did they undertake to shoulder
Shangri-La’s obligations should it fail in its obligations.38 BF Corporation also failed to establish fraud or
bad faith on their part.39
Petitioners also argue that they are third parties to the contract between BF Corporation and Shangri-
La.40 Provisions including arbitration stipulations should bind only the parties.41 Based on our arbitration
laws, parties who are strangers to an agreement cannot be compelled to arbitrate.42
Petitioners point out thatour arbitration laws were enacted to promote the autonomy of parties in
resolving their disputes.43 Compelling them to submit to arbitration is against this purpose and may be
tantamount to stipulating for the parties.44
Separate comments on the petition werefiled by BF Corporation, and Maximo G. Licauco III, Alfredo
C.Ramos and Benjamin C. Ramos.45
Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners that Shangri-
La’sdirectors, being non-parties to the contract, should not be made personally liable for Shangri-La’s
acts.46 Since the contract was executed only by BF Corporation and Shangri-La, only they should be
affected by the contract’s stipulation.47 BF Corporation also failed to specifically allege the unlawful acts
of the directors that should make them solidarily liable with Shangri-La for its obligations.48
Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the parties should
undergo arbitration "clearly contemplated the inclusion of the directors of the corporation[.]"49 BF
Corporation also argued that while petitioners were not parties to the agreement, they were still
impleaded under Section 31 of the Corporation Code.50 Section 31 makes directors solidarily liable for
fraud, gross negligence, and bad faith.51 Petitioners are not really third parties to the agreement
because they are being sued as Shangri-La’s representatives, under Section 31 of the Corporation
Code.52
BF Corporation further argued that because petitioners were impleaded for their solidary liability, they
are necessary parties to the arbitration proceedings.53 The full resolution of all disputes in the arbitration
proceedings should also be done in the interest of justice.54
In the manifestation dated September 6, 2007, petitioners informed the court that the Arbitral Tribunal
had already promulgated its decision on July 31, 2007.55 The Arbitral Tribunal denied BF Corporation’s
claims against them.56 Petitioners stated that "[they] were included by the Arbitral Tribunal in the
proceedings conducted . . . notwithstanding [their] continuing objection thereto. . . ."57 They also stated
that "[their] unwilling participation in the arbitration case was done ex abundante ad cautela, as
manifested therein on several occasions."58 Petitioners informed the court that they already manifested
with the trial court that "any action taken on [the Arbitral Tribunal’s decision] should be without prejudice
to the resolution of [this] case."59
Upon the court’s order, petitioners and Shangri-La filed their respective memoranda. Petitioners and
Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos reiterated their arguments that they
should not be held liable for Shangri-La’s default and made parties to the arbitration proceedings
because only BF Corporation and Shangri-La were parties to the contract.
In its memorandum, Shangri-La argued that petitioners were impleaded for their solidary liability under
Section 31 of the Corporation Code. Shangri-La added that their exclusion from the arbitration
proceedings will result in multiplicity of suits, which "is not favored in this jurisdiction."60 It pointed out
that the case had already been mooted by the termination of the arbitration proceedings, which
petitioners actively participated in.61 Moreover, BF Corporation assailed only the correctness of the
Arbitral Tribunal’s award and not the part absolving Shangri-La’s directors from liability.62
BF Corporation filed a counter-manifestation with motion to dismiss63 in lieu of the required
memorandum.
In its counter-manifestation, BF Corporation pointed out that since "petitioners’ counterclaims were
already dismissed with finality, and the claims against them were likewise dismissed with finality, they
no longer have any interest orpersonality in the arbitration case. Thus, there is no longer any need to
resolve the present Petition, which mainly questions the inclusion of petitioners in the arbitration
proceedings."64 The court’s decision in this case will no longer have any effect on the issue of
petitioners’ inclusion in the arbitration proceedings.65
The petition must fail.
The Arbitral Tribunal’s decision, absolving petitioners from liability, and its binding effect on BF
Corporation, have rendered this case moot and academic.
The mootness of the case, however, had not precluded us from resolving issues so that principles may
be established for the guidance of the bench, bar, and the public. In De la Camara v. Hon. Enage,66 this
court disregarded the fact that petitioner in that case already escaped from prison and ruled on the
issue of excessive bails:
While under the circumstances a ruling on the merits of the petition for certiorari is notwarranted, still, as
set forth at the opening of this opinion, the fact that this case is moot and academic should not preclude
this Tribunal from setting forth in language clear and unmistakable, the obligation of fidelity on the part
of lower court judges to the unequivocal command of the Constitution that excessive bail shall not be
required.67
This principle was repeated in subsequent cases when this court deemed it proper to clarify important
matters for guidance.68
Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings in accordance
with Shangri-Laand BF Corporation’s agreement, in order to determine if the distinction between
Shangri-La’s personality and their personalities should be disregarded.
This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid litigation
and settle disputes amicably and more expeditiously by themselves and through their choice of
arbitrators.
The policy in favor of arbitration has been affirmed in our Civil Code,69 which was approved as early as
1949. It was later institutionalized by the approval of Republic Act No. 876,70 which expressly
authorized, made valid, enforceable, and irrevocable parties’ decision to submit their controversies,
including incidental issues, to arbitration. This court recognized this policy in Eastboard Navigation, Ltd.
v. Ysmael and Company, Inc.:71
As a corollary to the question regarding the existence of an arbitration agreement, defendant raises the
issue that, even if it be granted that it agreed to submit its dispute with plaintiff to arbitration, said
agreement is void and without effect for it amounts to removing said dispute from the jurisdiction of the
courts in which the parties are domiciled or where the dispute occurred. It is true that there are
authorities which hold that "a clause in a contract providing that all matters in dispute between the
parties shall be referred to arbitrators and to them alone, is contrary to public policy and cannot oust the
courts of jurisdiction" (Manila Electric Co. vs. Pasay Transportation Co., 57 Phil., 600, 603), however,
there are authorities which favor "the more intelligent view that arbitration, as an inexpensive, speedy
and amicable method of settling disputes, and as a means of avoiding litigation, should receive every
encouragement from the courts which may be extended without contravening sound public policy or
settled law" (3 Am. Jur., p. 835). Congress has officially adopted the modern view when it reproduced in
the new Civil Code the provisions of the old Code on Arbitration. And only recently it approved Republic
Act No. 876 expressly authorizing arbitration of future disputes.72 (Emphasis supplied)
In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses are liberally
construed to favor arbitration. Thus, in LM Power Engineering Corporation v. Capitol Industrial
Construction Groups, Inc.,73 this court said:
Being an inexpensive, speedy and amicable method of settling disputes, arbitration — along with
mediation, conciliation and negotiation — is encouraged by the Supreme Court. Aside from unclogging
judicial dockets, arbitration also hastens the resolution of disputes, especially of the commercial kind. It
is thus regarded as the "wave of the future" in international civil and commercial disputes. Brushing
aside a contractual agreement calling for arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.74 (Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration and to favor interpretations that
would render effective an arbitration clause was later expressed in Republic Act No. 9285:75
SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the party to make their own arrangements to
resolve their disputes. Towards this end, the State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice
and declog court dockets. As such, the State shall provide means for the use of ADR as an efficient tool
and an alternative procedure for the resolution of appropriate cases. Likewise, the State shall enlist
active private sector participation in the settlement of disputes through ADR. This Act shall be without
prejudice to the adoption by the Supreme Court of any ADR system, such as mediation, conciliation,
arbitration, or any combination thereof as a means of achieving speedy and efficient means of resolving
cases pending before all courts in the Philippines which shall be governed by such rules as the
Supreme Court may approve from time to time.
....
SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have due regard to the policy
of the law in favor of arbitration.Where action is commenced by or against multiple parties, one or more
of whomare parties who are bound by the arbitration agreement although the civil action may continue
as to those who are not bound by such arbitration agreement. (Emphasis supplied)
Thus, if there is an interpretation that would render effective an arbitration clause for purposes
ofavoiding litigation and expediting resolution of the dispute, that interpretation shall be adopted.
Petitioners’ main argument arises from the separate personality given to juridical persons vis-à-vis their
directors, officers, stockholders, and agents. Since they did not sign the arbitration agreement in any
capacity, they cannot be forced to submit to the jurisdiction of the Arbitration Tribunal in accordance
with the arbitration agreement. Moreover, they had already resigned as directors of Shangri-Laat the
time of the alleged default.
Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and distinct
from Shangri-La.
A corporation is an artificial entity created by fiction of law.76 This means that while it is not a person,
naturally, the law gives it a distinct personality and treats it as such. A corporation, in the legal sense, is
an individual with a personality that is distinct and separate from other persons including its
stockholders, officers, directors, representatives,77 and other juridical entities. The law vests in
corporations rights,powers, and attributes as if they were natural persons with physical existence and
capabilities to act on their own.78 For instance, they have the power to sue and enter into transactions or
contracts. Section 36 of the Corporation Code enumerates some of a corporation’s powers, thus:
Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code has the
power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate ofincorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the
same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury
stocks in accordance with the provisions of this Code; and to admit members to the
corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid of any political party or candidate or for
purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors, trustees,
officers and employees; and
11. To exercise such other powers asmay be essential or necessary to carry out its purpose or
purposes as stated in its articles of incorporation. (13a)
Because a corporation’s existence is only by fiction of law, it can only exercise its rights and powers
through itsdirectors, 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.
Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving their disputes.
This court recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty Corporation79 that an arbitration
clause shall not apply to persons who were neither parties to the contract nor assignees of previous
parties, thus:
A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on
arbitration, binds the parties thereto, as well as their assigns and heirs. But only they.80 (Citations
omitted)
Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court ruled:
The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is
part of that contract and is itself a contract. As a rule, contracts are respected as the law between the
contracting parties and produce effect as between them, their assigns and heirs. Clearly, only parties to
the Agreement . . . are bound by the Agreement and its arbitration clause as they are the only
signatories thereto.82 (Citation omitted)
This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals Co., Inc.83 and
Stanfilco Employees v. DOLE Philippines, Inc., et al.84
As a general rule, therefore, a corporation’s representative who did not personally bind himself or
herself to an arbitration agreement cannot be forced to participate in arbitration proceedings made
pursuant to an agreement entered into by the corporation. He or she is generally not considered a party
to that agreement.
However, there are instances when the distinction between personalities of directors, officers,and
representatives, and of the corporation, are disregarded. We call this piercing the veil of corporate
fiction.
Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used as a
means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues."85 It is also warranted in 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."86
When corporate veil is pierced, the corporation and persons who are normally treated as distinct from
the corporation are treated as one person, such that when the corporation is adjudged liable, these
persons, too, become liable as if they were the corporation.
Among the persons who may be treatedas the corporation itself under certain circumstances are its
directors and officers. Section 31 of the Corporation Code provides the instances when directors,
trustees, or officers may become liable for corporate acts:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote
for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad
faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest
adverse to the corporation in respect of any matter which has been reposed inhim in confidence, as to
which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for
the corporation and must account for the profits which otherwise would have accrued to the corporation.
(n)
Based on the above provision, a director, trustee, or officer of a corporation may be made solidarily
liable with it for all damages suffered by the corporation, its stockholders or members, and other
persons in any of the following cases:
a) The director or trustee willfully and knowingly voted for or assented to a patently unlawful
corporate act;
b) The director or trustee was guilty of gross negligence or bad faith in directing corporate
affairs; and
c) The director or trustee acquired personal or pecuniary interest in conflict with his or her
duties as director or trustee.
Solidary liability with the corporation will also attach in the following instances:
a) "When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
thereto";87
b) "When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation";88 and
c) "When a director, trustee or officer is made, by specific provision of law, personally liable for
his corporate action."89
When there are allegations of bad faith or malice against corporate directors or representatives, it
becomes the duty of courts or tribunals to determine if these persons and the corporation should be
treated as one. Without a trial, courts and tribunals have no basis for determining whether the veil of
corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the
courts or tribunals must first determine whether circumstances exist towarrant the courts or tribunals to
disregard the distinction between the corporation and the persons representing it. The determination of
these circumstances must be made by one tribunal or court in a proceeding participated in by all parties
involved, including current representatives of the corporation, and those persons whose personalities
are impliedly the sameas the corporation. This is because when the court or tribunal finds that
circumstances exist warranting the piercing of the corporate veil, the corporate representatives are
treated as the corporation itself and should be held liable for corporate acts. The corporation’s distinct
personality is disregarded, and the corporation is seen as a mere aggregation of persons undertaking a
business under the collective name of the corporation.
Hence, when the directors, as in this case, are impleaded in a case against a corporation, alleging
malice orbad faith on their part in directing the affairs of the corporation, complainants are effectively
alleging that the directors and the corporation are not acting as separate entities. They are alleging that
the acts or omissions by the corporation that violated their rights are also the directors’ acts or
omissions.90 They are alleging that contracts executed by the corporation are contracts executed by the
directors. Complainants effectively pray that the corporate veilbe pierced because the cause of action
between the corporation and the directors is the same.
In that case, complainants have no choice but to institute only one proceeding against the
parties.1âwphi1 Under the Rules of Court, filing of multiple suits for a single cause of action is
prohibited. Institution of more than one suit for the same cause of action constitutes splitting the cause
of action, which is a ground for the dismissal ofthe others. Thus, in Rule 2:
Section 3. One suit for a single cause of action. — A party may not institute more than one suit for a
single cause of action. (3a)
Section 4. Splitting a single cause of action;effect of. — If two or more suits are instituted on the basis of
the same cause of action, the filing of one or a judgment upon the merits in any one is available as a
ground for the dismissal of the others. (4a)
It is because the personalities of petitioners and the corporation may later be found to be indistinct that
we rule that petitioners may be compelled to submit to arbitration.
However, in ruling that petitioners may be compelled to submit to the arbitration proceedings, we are
not overturning Heirs of Augusto Salas wherein this court affirmed the basic arbitration principle that
only parties to an arbitration agreement may be compelled to submit to arbitration. In that case, this
court recognizedthat persons other than the main party may be compelled to submit to arbitration, e.g.,
assignees and heirs. Assignees and heirs may be considered parties to an arbitration agreement
entered into by their assignor because the assignor’s rights and obligations are transferred to them
upon assignment. In other words, the assignor’s rights and obligations become their own rights and
obligations. In the same way, the corporation’s obligations are treated as the representative’s
obligations when the corporate veil is pierced. Moreover, in Heirs of Augusto Salas, this court affirmed
its policy against multiplicity of suits and unnecessary delay. This court said that "to split the proceeding
into arbitration for some parties and trial for other parties would "result in multiplicity of suits, duplicitous
procedure and unnecessary delay."91 This court also intimated that the interest of justice would be best
observed if it adjudicated rights in a single proceeding.92 While the facts of that case prompted this court
to direct the trial court to proceed to determine the issues of thatcase, it did not prohibit courts from
allowing the case to proceed to arbitration, when circumstances warrant.

Hence, the issue of whether the corporation’s acts in violation of complainant’s rights, and the incidental
issue of whether piercing of the corporate veil is warranted, should be determined in a single
proceeding. Such finding would determine if the corporation is merely an aggregation of persons whose
liabilities must be treated as one with the corporation.

However, when the courts disregard the corporation’s distinct and separate personality from its directors
or officers, the courts do not say that the corporation, in all instances and for all purposes, is the same
as its directors, stockholders, officers, and agents. It does not result in an absolute confusion of
personalities of the corporation and the persons composing or representing it. Courts merely discount
the distinction and treat them as one, in relation to a specific act, in order to extend the terms of the
contract and the liabilities for all damages to erring corporate officials who participated in the
corporation’s illegal acts. This is done so that the legal fiction cannot be used to perpetrate illegalities
and injustices.

Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the corporate
veil, parties who are normally treated as distinct individuals should be made to participate in the
arbitration proceedings in order to determine ifsuch distinction should indeed be disregarded and, if so,
to determine the extent of their liabilities.

In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove the
existence of circumstances that render petitioners and the other directors solidarily liable. It ruled that
petitioners and Shangri-La’s other directors were not liable for the contractual obligations of Shangri-La
to BF Corporation. The Arbitral Tribunal’s decision was made with the participation of petitioners, albeit
with their continuing objection. In view of our discussion above, we rule that petitioners are bound by
such decision.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 and resolution
of October 5, 2006 are AFFIRMED.

SO ORDERED.
 THIRD DIVISION
G.R. No. 184008, August 03, 2016
INDIAN CHAMBER OF COMMERCE PHILS., INC., Petitioner, v. FILIPINO INDIAN
CHAMBER OF COMMERCE IN THE PHILIPPINES, INC., Respondent.
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari1 assailing the Decision and Resolution of the
Court of Appeals (CA) dated May 15, 20082 and August 4, 2008,3 respectively, in CA-G.R.
SP No. 97320. The Decision and Resolution affirmed the Securities and Exchange
Commission En Banc (SEC En Banc) Decision dated November 30, 20064 directing
petitioner Indian Chamber of Commerce Phils., Inc. to modify its corporate name.
The Facts
Filipino-Indian Chamber of Commerce of the Philippines, Inc. (defunct FICCPI) was
originally registered with the SEC as Indian Chamber of Commerce of Manila, Inc. on
November 24, 1951, with SEC Registration Number 64655 On October 7, 1959, it amended
its corporate name into Indian Chamber of Commerce of the Philippines, Inc., and further
amended it into Filipino-Indian Chamber of Commerce of the Philippines, Inc. on
March 4, 1977,.6 Pursuant to its Articles of Incorporation, and without applying for an
extension of its corporate term, the defunct FICCPI's term of existence expired on
November 24, 2001.7chanrobleslaw
SEC Case No. 05-008
On January 20, 2005, Mr. Naresh Mansukhani (Mansukhani) reserved the��
corporate�� name�� "Filipino�� Indian�� Chamber�� of
Commerce�� in� the Philippines, Inc." (FICCPI), for the period from January 20,
2005 to April 20, 2005, with the Company Registration and Monitoring Department
(CRMD) of the SEC.8 In an opposition letter dated April 1, 2005, Ram Sitaldas (Sitaldas),
claiming to be a representative of the defunct FICCPI, opposed and alleged that the
corporate name has been used by the defunct FICCPI since 1951, and that the reservation
by another person who is not its member or representative is illegal.9chanrobleslaw
The CRMD called the parties for a conference and required them to submit their position
papers. Subsequently, on May 27, 2005, the CRMD rendered a decision granting
Mansukhani's reservation, holding that he possesses the better right over the corporate
name.11 The CRMD ruled that the defunct FICCPI has no legal personality to oppose the
reservation of the corporate name by Mansukhani. After the expiration of the defunct
FICCPFs corporate existence, without any act on its part to extend its term, its right over
the name ended. Thus, the name "Filipino Indian Chamber of Commerce in the Philippines,
Inc." is free for appropriation by any party.12chanrobleslaw
Sitaldas appealed the decision of the CRMD to the SEC En Bane, which appeal was
docketed as SEC Case No. 05-008. On December 7, 2005, the SEC En Bane denied the
appeal,13 thus:ChanRoblesVirtualawlibrary
WHEREFORE,�� premises�� considered,�� the�� instant appeal is
HEREBY DISMISSED for lack of merit. Let a copy of this decision be furnished the
Company Registration and Monitoring Department of this Commission for its appropriate
action.14 (Emphasis in the original.)
Sitaldas appealed the SEC En Banc decision to the CA, docketed as CA-G.R. SP No. 92740.
On September 27, 2006, the CA affirmed the decision of the SEC En Banc15. It ruled that
Mansukhani, reserving the name 'Filipino Indian Chamber of Commerce in the Philippines,
Inc.," has the of the better right over the corporate name. It ruled that with the expiration
corporate life of the defunct FICCPI, without an extension having been filed and granted, it
lost its legal personality as a corporation.16 Thus, the CA affirmed the SEC En Banc ruling
that after the expiration of its term, the defunct FICCPI's rights over the name also
ended.17 The CA also cited SEC Memorandum Circular No. 14-200018 which gives
protection to corporate names for a period of three years after the approval of the
dissolution of the corporation.19 It noted that the reservation for the use of the corporate
name "Filipino Indian Chamber of Commerce in the Philippines, Inc.," and the opposition
were filed only in January 2005, way beyond this three-year period.20chanrobleslaw
On March 14, 2006, pending resolution by the CA, the SEC issued the Certificate of
Incorporation of respondent FICCPI, pursuant to its ruling in SEC Case No. 05-008.
SEC Case No. 06-014
Meanwhile, on December 8, 2005,22 Mr. Pracash Dayacanl, who allegedly represented the
defunct FICCPI, filed an application with the CRMD for the reservation of the corporate
name "Indian Chamber of Commerce Phils., Inc." (ICCPI).23 Upon knowledge, Mansukhani,
in a letter dated February 14, 2006,24 formally opposed the application. Mansukhani cited
the SEC En Banc decision in SEC Case No. 05-008 recognizing him as the one possessing
the better right over the corporate name "Filipino Chamber of Commerce in the
Philippines, Inc.25cralawredchanrobleslaw
In a letter dated April 5, 200626 the CRMD denied Mansukhani's opposition. It stated that
the name "Indian Chamber of Commerce Phils., Inc." is not deceptively or confusingly
similar to "Filipino Indian Chamber of Commerce in the Philippines, Inc." On the same
date, the CRMD approved and issued the Certificate of Incorporation27 of petitioner ICCPI.
Thus, respondent FICCPI, through Mansukhani, appealed the CRMD's decision to the
SEC En Banc.28 The appeal was docketed as SEC Case No. 06-014. On November 30,
2006, the SEC En Bane granted the appeal filed by FICCPI,29 and reversed the CRMD's
decision. Citing Section 18 of the Corporation Code,30 the SEC En Bane made a finding that
"both from the standpoint of their [ICCPI and FICCPI] corporate names and the purposes
for which they were established, there exist[s] a similarity that could inevitably lead to
confusion."31 It also ruled that "oppositor [FICCPI] has the prior right to use its corporate
name to the exclusion of the others. It was registered with the Commission on March 14,
2006 while respondent [ICCPI] was registered on April 05, 2006. By virtue of oppositor's
[FICCPI] prior appropriation and use of its name, it is entitled to protection against� the
use of identical or similar name of another corporation."32
Thus, the SEC En Banc ruled, to wit:
WHEREFORE, the appeal is hereby granted and the assailed Order dated April 05, 2006 is
hereby REVERSED and SET ASIDE and respondent is directed to change or modify its
corporate name within thirty (30) days from the date of actual receipt hereof.
SO ORDERED.33 (Emphasis in the original.)
ICCPI appealed the SEC En Banc decision in SEC Case No. 06-014 to the CA.34 The
appeal, docketed as CA-G.R. SP No. 97320, raised
the following issues:
A. The Honorable SEC En Banc committed serious error when it held that petitioner's
corporate name (ICCPI) could inevitably lead to confusion;
B. Respondent's corporate name (FICCPI) did not acquire secondary meaning; and
C. The Honorable SEC En Bane violated the rule of equal protection when it denied
petitioner (ICCPI) the use of the descriptive generic words. 35
In a decision dated May 15, 2008,36 the CA affirmed the decision of the SEC En Banc. It
held that by simply looking at the corporate names of ICCPI and FICCPI, one may readily
notice the striking similarity between the two. Thus, an ordinary person using ordinary
care and discrimination may be led to believe that the corporate names of ICCPI and
FICCPI refer to one and the same corporation.37 The CA further ruled that ICCPI's
corporate name did not comply with the requirements of SEC Memorandum Circular No.
14-2000. It noted that under the facts of this case, it is the registered corporate name,
FICCPI, which contains the word (Filipino) making it different from the proposed
corporate name. SEC Memorandum Circular No. 14-2000 requires, however, that it should
be the proposed corporate name which should contain one distinctive word different from
the name of the corporation already registered, and not the other way around, as In this
case.39 Finally, the CA held that the SEC En Bane did not violate ICCPFs right to equal
protection when it ordered ICCPI to change its corporate name. The SEC En Bane merely
compelled ICCPI to comply with its undertaking to change its corporate name in case
another person or firm has acquired a prior right to the use of the said name or the same
is deceptively or confusingly similar to one already registered with the SEC.40
The dispositive portion of the CA decision reads:
WHEREFORE, premises considered, the petition filed in this case is hereby DENIED and
the assailed Decision of the Securities and Exchange Commission en banc in SEC EN BANC
Case No. 06-014 is hereby AFFIRMED.
SO ORDERED.41�� (Emphasis in the original.)
In its Resolution dated August 4, 2008,42 the CA denied the Motion for Reconsideration
filed by ICCPI.
The Petition43
ICCPI now appeals the CA decision before this Court raisin; following arguments:
A. The Honorable Court of Appeals committed serious error when it upheld the
findings of the SEC En Banc;
B. The Honorable Court of Appeals committed serious error when it held that there is
similarity between the petitioner and the respondent (sic) corporate name that
would inevitably lead to confusion; and
C. Respondent's corporate name did not acquire secondarymeaning.44
The Court's Ruling
We uphold the decision of the CA.
Section 18 of the Coiporation Code expressly prohibits the use of a corporate name which
is identical or deceptively or confusingly similar to that of any existing
corporation:ChanRoblesVirtualawlibrary
No corporate name may be allowed by the Securities and Exchange Commission if the
proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing laws. When a change in the corporate name is approved,
the Commission shall issue an amended certificate of
incorporation under the amended name. (Underscoring supplied.)
In Philips Export B. V. v. Court of Appeals,45 this Court ruled that to fall within the
prohibition, two requisites must be proven, to wit:
1. �that the complainant corporation acquired a prior right over the use of such
corporate name; and cralawlawlibrary
2. �the proposed name is either:
chanRoblesvirtualLawlibrary(a)���� identical; or
(b)��� deceptively or confusingly similar to that of any existing corporation
or to any other name already protected by law; or
(c)���� patently deceptive,� confusing or contrary to existing law.46
These two requisites are present in this case.
FICCPI acquired a prior right over
the use of the corporate name
In Industrial Refractories Corporation of the Philippines v. Court of Appeals,47 the Court
applied the priority of adoption rule to determine prior right, taking into consideration the
dates when the parties used their respective corporate names. It ruled that "Refractories
Corporation of the Philippines" (RCP), as opposed to "Industrial Refractories Corporation of
the Philippines" (IRCP), has acquired the right to use the word "Refractories" as part of its
corporate name, being its prior registrant on October 13, 1976. The Court noted that IRCP
only started using its corporate name when it amended its Articles of Incorporation on
August 23, 1985.48chanrobleslaw
In this case, FICCPI was incorporated on March 14, 2006. On the other hand, ICCPI was
incorporated only on April 5, 2006, or a month after FICCPI registered its corporate name.
Thus, applying the principle in the Refractories case, we hold that FICCPI, which was
incorporated earlier, acquired a prior right over the use of the corporate name.
ICCPI cannot argue that it first incorporated and held the "Filipino Indian Chamber of
Commerce," in 1977; and that it established the name's goodwill until it failed to renew its
name due to oversight.49 It is settled that a corporation is ipso facto dissolved as soon as
its term of existence expires.50 SEC Memorandum Circular No. 14-2000 likewise provides
for the use of corporate names of dissolved corporations:ChanRoblesVirtualawlibrary
14. The name of a dissolved firm shall not be allowed to be used by other firms within
three (3) years after the approval of the dissolution of the corporation by the Commission,
unless allowed by the last stockholders representing at least majority of the outstanding
capital stock of the dissolved firm.
When the term of existence of the defunct FICCPI expired on November 24, 2001, its
corporate name cannot be used by other corporations within three years from that date,
until November 24, 2004. FICCPI reserved the name "Filipino Indian Chamber of
Commerce in the Philippines, Inc." on January 20, 2005, or beyond the three-year period.
Thus, the SEC was correct when it allowed FICCPI to use the reserved corporate name.
ICCPI's name is identical and
deceptively or confusingly similar to
that of FICCPI
The second requisite in the Philips Export case likewise obtains in two respects: the
proposed name is (a) identical or (b) deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law.
On the first point, ICCPI's name is identical to that of FICCPI. ICCPFs and FICCPFs
corporate names both contain the same words "Indian Chamber of Commerce." ICCPI
argues that the word "Filipino" in FICCPFs corporate name makes it easily distinguishable
from ICCPI.51 It adds that confusion and deception are effectively precluded by appending
the word "Filipino" to the phrase "Indian Chamber of Commerce."52 Further, ICCPI claims
that the corporate name of FICCPI uses the words "in the Philippines" while ICCPI uses
only "Phils, Inc."53chanrobleslaw
ICCPFs arguments are without merit. These words do not effectively distinguish the
corporate names. On the one hand, the word "Filipino" is merely a description, referring to
a Filipino citizen or one living in the Philippines, to describe the corporation's members. On
the other, the words "in the Philippines" and "Phils., Inc." are simply geographical
locations of the corporations which, even if appended to both the corporate names, will not
make one distinct from the other. Under the facts of this case, these words cannot be
separated from each other such that each word can be considered to add distinction to the
corporate names. Taken together, the words in the phrase "in the Philippines" and in the
phrase "Phils. Inc." are synonymous�they both mean the location of the corporation.
The same principle was adopted by this Court in Ang mga Kaanib sa Iglesia ng Dios Kay
Kristo Hesus, H.S.K. sa Bansang Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo Jesus, Haligi
at Suhay ng Katotohanan:54
Significantly, the only difference between the corporate names of petitioner and
respondent are the words SALIGAN and SUHAY. These words are synonymous-both mean
ground, foundation or support. Hence, this case is on all fours with Universal Mills
Corporation v. Universal Textile Mills, Inc., where the Court ruled that the corporate
names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so
similar that even under the test of "reasonable care and observation" confusion may
arise.55 (Italics in the original.)
Thus, the CA is correct when it ruled, "[a]s correctly found by the SEC en bane, the word
'Filipino' in the corporate name of the respondent [FICCPI] is merely descriptive and can
hardly serve as an effective differentiating medium necessary to avoid confusion. The
other two words alluded to by petitioner [ICCPI] that allegedly distinguishes its corporate
name from that of the respondent are the words� 'in'� and 'the'� in the
respondent's corporate name. To our mind, the presence of the words 'in' and 'the' in
respondent's corporate name does not, in any way, make an effective distinction to that of
petitioner."56chanrobleslaw
Petitioner cannot argue that the combination of words in respondent's corporate name is
merely descriptive and generic, and consequently cannot be appropriated as a corporate
name to the exclusion of the others.57 Save for the words "Filipino," "in the," and "Inc.,"
the corporate names of petitioner and respondent are identical in all other respects. This
issue was also discussed in the Iglesia case where this Court held,
Furthermore, the wholesale appropriation by petitioner of respondent's corporate name
cannot find justification under the generic word rule. We agree with the Court of Appeals'
conclusion that a contrary ruling would encourage other corporations to adopt verbatim
and register an
existing and protected corporate name, to the detriment of the public.58chanrobleslaw
On the second point, ICCPI's corporate name is deceptively or confusingly similar to that
of FICCPI. It is settled that to determire the existence of confusing similarity in corporate
names, the test is whether the similarity is such as to mislead a person, using ordinary
care and discrimination. In so doing, the court must examine the record as well as the
names themselves.59 Proof of actual confusion need not be shown. It suffices that
confusion is probably or likely to occur.60chanrobleslaw
In this case, the overriding consideration in determining wheiher a person, using ordinary
care and discrimination, might be misled is the circumstance that both ICCPI and FICCPI
have a common primary purpose, that is, the promotion of Filipino-Indian business in the
Philippines. guidelines��� of�� all concerned:

The primary purposes of ICCPI as provided in its Articles of Incorporation are: chanRoblesvirtualLawlibrary
xxx
a. Develop a stronger sense of brotherhood;
15. Registrant corporations or partnership shall submit a letter undertaking to change their
b. Enhance the prestige of the Filipino-Indian business community in the Philippines; corporate or partnership name in case another person or firm has acquired a prior right to
the use of said firm name or the same is deceptively or confusingly similar to one already
registered unless this undertaking is already included as one of the provisions of the
c. Promote cordial business relations with Filipinos and other business�
articles of incorporation or partnership of the registrant.
communities� in the� Philippines,� and other overseas Indian business
organizations; Finding merit in respondent's claims, the SEC En Bane merely compelled petitioner to
comply with its undertaking.69chanrobleslaw
d. Respond fully to the needs of a progressive economy and the Filipino-Indian
Business community; WHEREFORE, the petition is DENIED. The Decision of the CA dated May 15, 2008 in CA-
G.R. SP No. 97320 is hereby AFFIRMED.
e. Promote and foster relations between the people and Governments of the
Republics of the Philippines and India in areas of Industry, Trade, and SO ORDERED.chanRoblesvirtualLawlibrary
Culture.61chanroblesvirtuallawlibrary

Likewise, the primary purpose of FICCPI is "[t]o actively promote and enhance the Filipino-
Indian business relationship especially in view of [current] local and global business
trends."62chanrobleslaw

Considering these corporate purposes, the� SEC En Banc made a finding that "[i]t is
apparent that both from the standpoint of their corporate names and the purposes for
which they were established, there exist a I similarity that could inevitably lead to
confusion."63 This finding of the SEC En Bane was fully concurred with and adopted by the
CA.64chanrobleslaw

Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded respect and
even finality by this Court, if supported by substantial evidence, in recognition of their
expertise on the specific matters under their consideration, and more so if the same has
been upheld by the appellate court,65 as in this case.

Petitioner cannot argue that the CA erred when it upheld the SEC En Banc's decision to
cancel ICCPFs corporate name.66 By express mandate of law, the SEC has absolute
jurisdiction, supervision and control over all corporations.67 It is the SEC's duty to prevent
confusion in the use of corporate names not only for the protection of the corporation
involved, but more so for the protection of the public. It has the authority to de-register at
all times, and under all circumstances corporate names which in its estimation are likely to
generate confusion.68chanrobleslaw

Pursuant to its mandate, the SEC En Banc correctly applied Section 18 of the Corporation
Code, and Section 15 of SEC Memorandum Circular No. 14-
2000:ChanRoblesVirtualawlibrary
In implementing Section 18 of the Corporation Code of the Philippines (BP 68), the
following revised guidelines in the approval of corporate and partnership names are hereby
adopted�� for�� the��� information�� and��