Escolar Documentos
Profissional Documentos
Cultura Documentos
Upon the foregoing considerations, We are of the opinion, and so hold, that the preponderance of
evidence have shown that the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the
restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and binding
against the said Corporation. For the rule is that a seller or promisor may not make use of a corporate
entity as a means of evading the obligation of his covenant.
31
Where the Corporation is substantially
the alter ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the
covenantee.
covenantee.
A.C. RANSOM LABOR UNION-CCLU vs. NATIONAL LABOR RELATIONS COMMISSION\
G.R. No. L-69494 May 29, 1987
A.C. Ransom Philippine Corp. was found guilty of unfair labor practice and was ordered to pay the
backwages due to the 22 employees. RANSOM however manifested that it did not have the necessary
funds to pay the employees.
The UNION however alleged that although RANSOM had assumed a posture of suffering from business
reverse, its officers and principal stockholders had organized a new corporation, the Rosario Industrial
Corp. (ROSARIO), using the same equipment, personnel, business stocks and the same place of
business. RANSOM denied such allegation and said that ROSARIO is a distinct and separate
corporation, which was organized long before these instant cases were decided adversely against
RANSOM.
The UNION again filed an ex-parte Motion for Writ of Execution and Garnishment, this time, against
the Officers/Agents of RANSOM personally and or their estates, as the case may be, considering their
success in hiding or shielding the assets of said company.
The Labor Abiter granted the motion but was reversed by the NLRC. The latter ruled that as a general
rule, officers of the corporation are not liable personally for the official acts unless they have exceeded rule, officers of the corporation are not liable personally for the official acts unless they have exceeded
the scope of their authority. In the absence of evidence showing that the officers mentioned in the Order
of the Labor Arbiter have exceeded their authority, the writ of execution can not be enforced against
them, especially' so since they were not given a chance to be heard.
The Court of Appeals modified the NLRCs decision, ruling that the personal liability for the backwages
due the 22 strikers shall be limited to Ruben Hernandez, who was President of RANSOM in 1974,
jointly and severally with other Presidents of the same corporation who had been elected as such after
1972 or up to the time the corporate life was terminated.
ISSUE:
Whether the officers can be held liable.
HELD: Petition Granted.
Private respondents point out that they were never impleaded as parties in the Trial Court, and that their
personal liabilities were never at issue; that judgment holding Ruben Hernandez personally liable is
tantamount to deprivation of property without due process of law; and that he was not an officer of the
corporation at the time the unfair labor practices were committed.
Incontrovertible is the fact that RANSOM was found guilty by the CIR, in its Decision of August 19,
1972, of unfair labor practice; that its officers and agents were ordered to cease and desist from further
committing acts constitutive of the same, and to reinstate immediately the 22 union members to their
respective positions with backwages from July 25, 1969 until actually reinstated.
The CIR Decision became final, conclusive, and executory after this Court denied the RANSOM
petition for review in 1973. In other words, this Court upheld that portion of the judgment ordering
the officers and agents of RANSOM to reinstate the laborers concerned, with backwages. The inclusion
of the officers and agents was but proper since a corporation, as an artificial being, can act only through
them. It was also pursuant to the CIR Act (CA No. 103 ),
7
the Industrial Peace Act (R.A. 875)
8
the them. It was also pursuant to the CIR Act (CA No. 103 ),
7
the Industrial Peace Act (R.A. 875)
8
the
Minimum Wage Law (R.A. 602).
9
Consequently, when, in resolving the UNION's Motion for Writ of
Execution and Garnishment in the Order of March 11, 1980, Labor Arbiter Genilo named the seven (17)
private respondents herein as the RANSOM officers and agents, who should be held liable (supra), he
merely implemented the already final and executory CIR decision of August 19, 1972. The NLRC, on
appeal to it by RANSOM, could not have modified the CIR Decision, as affirmed by this Court, by
appeal to it by RANSOM, could not have modified the CIR Decision, as affirmed by this Court, by
relieving RANSOM's officers and agents of liability.
This finding does not ignore the legal fiction that a corporation has a personality separate and distinct
from its stockholders and members, for, as this Court had held "where the incorporators and directors
belong to a single family, the corporation and its members can be considered as one in order to avoid its
being used as an instrument to commit injustice," 10 or to further an end subversive of justice. 11 In the
case of Claparols vs. CIR 12involving almost similar facts as in this case, it was also held that the shield
of corporate fiction should be pierced when it is deliberately and maliciously designed to evade financial
obligations to employees, to perpetrate fraud or an illegal act, the circumvention of statutes, and or
confuse legitimate issues the veil which protects the corporation will be lifted.
The alleged bankruptcy of RANSOM furnishes no justification for non-payment of backwages to the
employees concerned taking into consideration Article 110 of the Labor Code, which provides that in
the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference
as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation,
any provision of law to the contrary notwithstanding.
The worker preference applies even if the employer's properties are encumbered by means of a mortgage
contract, as in this case
Aggravating RANSOM's clear evasion of payment of its financial obligations is the organization of a
"run-away corporation," ROSARIO, in 1969 at the time the unfair labor practice case was pending
before the CIR by the same persons who were the officers and stockholders of RANSOM, engaged in
the same line of business as RANSOM, producing the same line of products, occupying the same
compound, using the same machineries, buildings, laboratory, bodega and sales and accounts
departments used by RANSOM, and which is still in existence. Both corporations were closed
corporations owned and managed by members of the same family. Its organization proved to be a corporations owned and managed by members of the same family. Its organization proved to be a
convenient instrument to avoid payment of backwages and the reinstatement of the 22 workers. This is
another instance where the fiction of separate and distinct corporate entities should be disregarded.
INDINO v. NLRC
G.R. No. 80352 September 29, 1989
The petitioner, Benjamin G. Indino, joined the Philippine National Construction Corporation (PNCC) as
a project personnel officer on December 12, 1974. On January 6, 1981, he was transferred to private
respondent DISC, a sister corporation of PNCC, which assigned him to its Philphos Project in Isabel,
Leyte.
On July 27, 1983 petitioner received a letter-memorandum informing him of his termination from work
due to drastic business reverses. Thus, petitioner filed with the NLRC a complaint for illegal dismissal
against private respondent. Such complaint was dismissed due to the agreement of the parties for the
dismissal of the complaint and the reinstatement of petitioner Indino under the conditions set in the said
agreement.
In view of the agreement, petitioner returned to work. However on December 14, 1983 he received
another letter-memorandum informing him of his dismissal due to the critical economic situation
(referring to the assassination of Ninoy Aquino at that time). In this regard, petitioner filed a complaint
for illegal dismissal, unpaid wages, moral and exemplary damages, and attorney's fees against
respondent DISC. Later, he amended his complaint and impleaded the Philippine National Construction
Corporation (PNCC) as additional respondent.
Petitioner substantiates the inclusion of the Philippine National Construction Corporation (PNCC) as a
party respondent in the case with the fact that PNCC was originally his employer but which later
transferred him to respondent DISC, the PNCC sister company. This, according to the petitioner, shows
the link between the two respondents and for purposes of this case, deprives them of their separate
personality. personality.
ISSUE:
WON Philippine National Construction Corporation (PNCC) can be made a party to the case filed by
petitioner and that the separate personality of the corporation may be disregarded.
HELD: Petition GRANTED.
The so-called separate and distinct personality of PNCC could be validly ignored inasmuch as it would
unjustly prejudice the petitioner vis-a-vis whatever benefits he may receive by reason of his illegal
dismissal. This has been demonstrated by the amount of the separation pay given to the petitioner by
respondent DISC which appears to correspond only to the period in which the former was in the employ
of the latter. The period when the petitioner was still in the employ of PNCC was apparently ignored.
This omission should not be allowed inasmuch as there is no showing that PNCC gave the petitioner
separation benefits before he was transferred to DISC. It should always be borne in mind that the fiction
of law that a corporation, as a juridical entity, has a distinct and separate personality, was envisaged for
convenience and to serve justice; therefore, it should not be used as a subterfuge to commit injustice and
circumvent labor laws.
SHOEMART Inc. v. NLRC
MORIS Industries is an enterprise engaged in the production of leather products. The workers
UNION joined the Philippine Association of Free Labor Union (PAFLU), after which the said UNION
apprised MORIS Industries of its desire to enter into a collective bargaining agreement. Within two
days, it suddenly closed shop and ceased operations, claiming that such a closure had become inevitable
because of business reverses. because of business reverses.
Thus, the UNION failed a complaint before the Labor Arbiter for unfair labor practice. It impleaded
in its complaint SHOEMART, on the theory that said corporation and MORIS were one and the same
juridical entity, being owned by Mr. Henry Sy and the BOD are the same.
SHOEMART maintains that it had a corporate personality separate and distinct that of the MORIS,
and there was no employer-employee relationship between it and the UNIONs member.
The labor arbiter rendered a decision holding both MORIS and SHOEMART equally liable. Such
decision was affirmed by the NLRC.
In the appeal, petitioner contends that they were deny due process because they failed to complete
the cross-examination.
ISSUE:
WON the SHOEMART and MORIS may be regarded as one and the separate personality of
SHOEMART may be disregarded.
HELD: the petitions for certiorari are DENIED
With regard to issue of due process:
Under the circumstances, a claim of denial of due process on SHOEMART's part is completely
unavailing. The essence of due process is that a party be afforded a reasonable opportunity to be heard
and to submit any evidence he may have in support of his defense.
17
What is vital, in other words, is not
the opportunity to cross-examine a particular witness, but the opportunity to be heard of which, as
already stated, SHOEMART has extensively availed.
With regard to the issue of piercing the veil of corporate fiction:
The respondent Commission's conclusions on this point were drawn from the following facts, which it The respondent Commission's conclusions on this point were drawn from the following facts, which it
deemed to have been adequately established by the complainant UNION's evidence, to wit:
1. In his affidavit, Mr. (Cresencio) Edic testified that he was first employed as sample maker, by the
people who owned SM. His job was to make samples to be displayed on the window and only those
which appealed to the customers were mass produced. When he was promoted to over-all supervisor, the
factory was transferred to its present location and from then on, this production division was incorporated
separately and has undergone many changes in name, yet all throughout, the known owners of the factory
remain the same;
2. An examination of the Incorporation papers of SM Shoe Mart and Moris Manufacturing show (sic) that
except for Elizabeth Sy all other five (5) incorporators and directors of Morris Industries are major
stockholders of SM Shoe Mart as of July 20, 1985;
3. The SM Shoe Mart is the exclusive buyer of all of Moris' products;
4. Both are housed in one building and Moris for many years has been using the payrolls of SM Shoe
Mart. SM glibly excuses this fact by alleging that this was done without its knowledge. We, however,
considering the close relationship of parties, find this incredible.
The Court perceives no whimsicality or capriciousness in the manner by which the NLRC arrived at its
conclusions on the matter and will therefore decline to nullify or set them aside.
The Court ordered SHOEMART to pay the damages and backwages of the employees, because it cannot
reinstate the employees on the theory that the said corporation is not engaged in manufacturing and
MORIS is already a defunct corporation.
MANUEL R. DULAY ENTERPRISES INC., ETAL, V. COURT OF APPEALS,
G.R. No. 91889 August 27, 1993
Manuel Dulay with 19,960 shares was designated as the president of the Manuel R. Dulay
Enterprise. The remaining 40 shares are owned by the other four members of the Board of Directors
equally. The corporation owned a property known as the Dulay Apartment consisting of sixteen (16)
apartment units located at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City.
Manuel Dulay by virtue of Board Resolution sold the subject property to private respondents spouses
Maria Theresa and Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of
Absolute Sale.
Thereafter, a new TCT was issued to private respondent. Subsequently, Manuel Dulay
and private respondents spouses Veloso executed a memorandum giving Dulay 2 years to repurchase the
subject property, however, it was not annoted in either TCT.
Private respondent Maria Veloso, without knowledge of Manuel Dulay, mortgaged the property to
private respondent Manuel Torres which was duly annotated in the TCT. For failure of the Veloso to
pay the loan obtained from Torres, the latter cause the extrajudicial foreclosure of the mortgaged
property wherein he was the highest bidder. Veloso assigned their right to redeem the mortgaged
property to the Manuel Dulay.
For failure of Veloso nor her assignee Manuel Dulay to redeem the subject property within the
statutory period for redemption, respondent Torres filed an Affidavit of Consolidation of Ownership.
Torres filed a petition for the issuance of writ of possession against spouses Veloso and Manuel
Dulay. The trial court ordered private respondent Torres to implead petitioner corporation as an
indispensable party but the latter moved for the dismissal of his petition which was granted.
On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso
and Torres for the cancellation of the Certificate of Sheriff's Sale. The lower court decided in favor of
Torres and applied the doctine of piercing of the veil of corporate entity.
Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private
respondents spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without
respondents spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without
the knowledge and consent of the other members of the board of directors cannot be sustained.
ISSUE:
WON the doctrine of piercing of the veil of corporate entity in the instant case was applied properly.
HELD: Petition DENIED.
In the instant case, petitioner corporation is classified as a close corporation and consequently a board
resolution authorizing the sale or mortgage of the subject property is not necessary to bind the
corporation for the action of its president. At any rate, corporate action taken at a board meeting without
proper call or notice in a close corporation is deemed ratified by the absent director unless the latter
promptly files his written objection with the secretary of the corporation after having knowledge of the
meeting which, in his case, petitioner Virgilio Dulay failed to do.
It is relevant to note that although a corporation is an entity which has a personality distinct and separate
from its individual stockholders or members, the veil of corporate fiction may be pierced when it is used
to defeat public convenience justify wrong, protect fraud or defend crime. The privilege of being treated
as an entity distinct and separate from its stockholder or members is therefore confined to its legitimate
uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act.
When the corporation is used merely as an alter ego or business conduit of a person, the law will regard
the corporation as the act of that person. The Supreme Court had repeatedly disregarded the separate
personality of the corporation where the corporate entity was used to annul a valid contract executed by
one of its members.
Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject
property to private respondents by Manuel Dulay is valid and binding. As stated by the trial court:
. . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Theresa V. Veloso and
Castrense C. Veloso, was a corporate act of the former and not a personal transaction of Manuel R.
Dulay. This is so because Manuel R. Dulay was not only president and treasurer but also the general
manager of the corporation.
GUATSON INTERNATIONAL TRAVEL & TOURS INC. v.
NATIONAL LABOR RELATIONS COMMISSION
Where three companies are owned by one family, such that majority of the officers of these companies
are the same, the companies are located in the one building and use the same messengerial services,
and there was no showing that the employee was paid separation pay when he resigned from one
company and then, transferred to the other, the separate juridical personalities of the 3 companies may
be disregarded.
FACTS:
Petitioners Guatson Travel and Tours, Inc. (hereinafter referred to as Guatson Travel), Philippine
Integrated Labor Assistance Corp. (Philac) and Mercury Express International Courier Services, Inc.
(MEREX) assail the Decision, rendered by the National Labor
Relations Commission entitled Jolly M. Almoradie vs. Guatsons Travel Company, Philac and
MEREX. In the questioned decision, the NLRC found that Mr. Henry Ociers (Vice-President and
General Manager of petitioner Guatson Travel) actuation of threatening and forcing private respondent,
Jolly M. Almoradie, to resign amounted to illegal dismissal and thus ordered petitioners to pay private
respondent backwages.
Jolly M. Almoradie was first employed by Mercury Express International Courier Service, Inc.
(MEREX) in October, 1983 as Messenger. When it closed its operations, Almoradie was absorbed by
(MEREX) in October, 1983 as Messenger. When it closed its operations, Almoradie was absorbed by
MEREXs sister company Philippine Integrated Labor Assistance Corp. (Philac), likewise as Messenger.
In September, 1986, Almoradie was transferred to Guatson Travel, allegedly also a sister company
of MEREX and Philac, as Liaison Officer. Thereafter, he was promoted to the position of Sales
Representative. Almoradie was issued three separate memoranda asking him to explain the reason why
he didnt want to sell but he answered that it was not true. He said that he was hampered in his sales
promotion and solicitation of customer, due to financial constraint considering that the kind and nature
of work entails much expenses for which he shouldered with his personal money. He also stated that he of work entails much expenses for which he shouldered with his personal money. He also stated that he
liked her position as a messenger and preferred to be returned to his messenger position.
Almoradie was reverted to the position of Messenger, yet sometime in September, 1988, he was
again given the position of Account Executive, the nature of work of which is similar to that of a sales
representative. Almoradie accepted the transfer with the understanding that he will solely discharge the
duties of an account executive and will no longer be required to do messengerial work.
On October 1, 1988, Almoradie was allegedly summoned by Henry Ocier to his office and was there
and then forced by the latter to resign. Ocier taunted Almoradie with threats that it he will not resign, he
will file charges against him which would adversely affect his chances of getting employed in the future.
Ocier allegedly even provided the pen and paper on which Almoradie wrote and signed the resignation
letter dictated by Ocier himself. Subsequently, Almoradie filed a complaint for Illegal Dismissal.
The Labor Arbiter, however Dismissed. Upon Almoradies appeal, the NLRC reversed the decision
of the Labor Arbiter on his finding that complainant was not forced to resign, anchoring its conclusion to
the fact that Almoradie was a permanent employee who has been working for the Ociers for five long
years; that he was receiving a fairly good salary considering that he is single; that he had no potential
employer at the time of his resignation; that there was no evidence to show that Mr. Henry Ocier was
indeed not in town on October 1, 1988, when he allegedly forced Almoradie to resign.
ISSUE:
Whether Jolly Almoradie was indeed illegally dismissed by being forced to resign. YES
HELD: The petition is hereby DISMISSED for lack of merit.
The SC agreed with the finding of NLRC that Jollys resignation was not voluntary.
When Almoradie was promoted as Sales Representative he had caught the ire of management, so much When Almoradie was promoted as Sales Representative he had caught the ire of management, so much
so that he was issued no less than three memoranda in one day ordering him to answer certain charges.
Why he was again promoted to the position of Account Executive after he was reverted back to the rank
of a messenger from being a Sales Representative is rather intriguing, unless it was a scheme of
management to really rid him from the company. Apparently, Almoradie is not cut out for a sales job,
and hence could be dismissed or forced to resign for failing to make good on his job in sales. On the
other hand, it would be difficult to dismiss him while being a messenger since he is a permanent
employee and there would not be enough basis to make him resign Henry Ocier did not only say that he
will file charges against Almoradie and that he has a good lawyer but he even threatened to block his
future employment should the latter not file his resignation. This threat is not farfetched.
We uphold the NLRC. The three companies are owned by one family, such that majority of the officers
of these companies are the same. The companies are located in one building and use the same
messengerial service. Moreover, there was no showing that private respondent was paid separation pay
when he was absorbed by Philac upon closure of Merex; nor was there evidence that he resigned from
Philac when he transferred to Guatson Travel. Under the doctrine of piercing the veil of corporate
fiction, when valid ground exists, the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or stockholders may be disregarded.
Where there is a finding of illegal dismissal, the employee is entitled to both reinstatement and award of
backwages from the time the compensation was withheld, in this case in 1988, up to a maximum of three
years.
years.
The Decision of the NLRC is hereby MODIFIED to the extent that the award of backwages should be
computed based on a three-year period, while the separation pay of one month for every year of service
should be computed from the time petitioner was employed by Merex and should include the three-year
period as backwages.
FIRST PHILIPPINE INTERNATIONAL BANK v. COURT OF APPEALS
The separate juridical personality of a corporation may be disregarded where the majority stockholder
filed a derivative suit in behalf of the corporation to declare the sale as unenforceable against the
corporation despite the fact that the trial court in another case had already ruled that the contract of
sale between the corporation and its buyer was deemed perfected. There is a forum shopping where the
stockholders, in a second case, and in representation of the corporation, seek to accomplish what the
corporation itself failed to do in the original case.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner
Bank, for brevity) is a banking institution organized and existing under the laws of the Republic of the
Philippines.
Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times
material to this case, Head Manager of the Property Management Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of
original plaintiffs-appellees Demetrio Demetria and Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set
aside through this petition.
FACTS:
Petitioner First Philippine Internation Bank acquired six parcels of land located at Don Jose, Sta. Rosa,
Laguna. The property used to be owned by BYME Investment and Devt Co. which had them mortgaged
with the bank as collateral. The original plaintiffs, Demetrio Demetria and Jose Janolol, wanted to
purchase the property and thus initiated negotiations for that purpose.
BYME Investments legal counsel, Jose Fajardo met with petitioner Mercurio Rivera for the purpose of
buying the property. After the meeting, Jose Janolo made a formal purchase offer to the bank. A series buying the property. After the meeting, Jose Janolo made a formal purchase offer to the bank. A series
of demands for compliance by the bank with the plaintiff considered as a perfected contract of sale,
which demands were in one form or another refused by the bank.
The petitioner bank through its conservator repudiated the authority of petitioner Rivera and claimed
that his dealings with the plaintiffs were unauthorized or illegal. On that basis, the bank justified the
refusal of the tenders of payment and non compliance with the obligations.
Plaintiffs filed a suit for specific performance with damages against the bank, its Manager Rivera and
Conservator Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a
perfected contract of sale. The petitioners took the position that there was no such perfected sale because
petitioner Rivera is not authorized to sell the property, and that there was no meeting of the minds as to
the price.
In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of
Demetria and Janolo, in view of the assignment of the latters rights in the matter in litigation to said
private respondent.
During the pendency of the proceedings in the Court of Appeals, Henry Co and several other
stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action
stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action
purportedly a derivative suit - with the Regional Trial Court against Encarnacion, Demetria and Janolo
to declare any perfected sale of the property as unenforceable and to stop Ejercito from enforcing or
implementing the sale.
ISSUES:
Whether or not there was forum-shopping on the part of petitioner Bank. YES
Whether or not the corporate veil can be used to shield an otherwise blatant violation of the
prohibition against forum-shopping. NO
HELD: PETITION DENIED.
1)
2)
HELD: PETITION DENIED.
The original complaint in the court a quo which gave rise to the instant petition was filed by the buyer
(herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to
enforce the alleged perfected sale of real estate. On the other hand, the complaint in the Second Case
seeks to declare such purported sale involving the same real property as unenforceable as against the
Bank, which is the petitioner herein. In other words, in the Second Case, the majority stockholders, in
representation of the Bank, are seeking to accomplish what the Bank itself failed to do in the original
case in the trial court. In brief, the objective or the relief being sought, though worded differently, is the
same, namely, to enable the petitioner Bank to escape from the obligation to sell the property to
respondent.
In the instant case before us, there is also identity of parties, or at least, of interests represented.
Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties in the First Case,
they represent the same interest and entity, namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the
matter in controversy. They are not principally or even subsidiarily liable; much less are they direct
parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a
derivative suit.
Petitioner also tried to seek refuge in the corporate fiction that the personality of the Bank is separate
and distinct from its shareholders. But the rulings of this Court are consistent: When the fiction is urged
as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from
the members or stockholders who compose it will be lifted to allow for its consideration merely as an
aggregation of individuals
The corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against
forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a
derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the
corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in
using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants
to use their shareholders as fronts to circumvent the stringent rules against forum shopping.
Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is
the vexation caused the courts and parties-litigant by a party who asks different courts and/or
administrative agencies to rule on the same or related causes and/or to grant the same or substantially the
same reliefs, in the process creating the possibility of conflicting decisions being rendered by the
different for upon the same issue. In this case, this is exactly the problem: a decision recognizing the
perfection and directing the enforcement of the contract of sale will directly conflict with a possible
decision in the Second Case barring the parties from enforcing or implementing the said sale. Indeed, a
final decision in one would constitute res judicata in the other.
The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction
possible now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed.
Having said that, let it be emphasized that this petition should be dismissed not merely because of
forum-shopping but also because of the substantive issues.
TOMAS LAO CONSTRUCTION v. NATIONAL LABOR RELATIONS COMMISSION
Where it appears that three business enterprises are owned, conducted and controlled by the same
family which were all engaged in the construction business and which used the same equipment,
services and workers, both law and equity will, when necessary to protect the rights of third persons,
disregard the legal fiction that the (three) corporations are distinct entities, and treat them as identical.
FACTS: FACTS:
From October to December 1990 private respondents individually filed complaints for illegal
dismissal against petitioners with the National Labor Relations Commission alleging that they were
hired for various periods as construction workers in different capacities.
Within the periods of their respective employments, they alternately worked for petitioners Tomas
Lao Corporation (TLC), Thomas and James Developers (T&J) and LVM Construction Corporation
(LVM), altogether informally referred to as the Lao Group of Companies, the three (3) entities
comprising a business conglomerate exclusively controlled and managed by members of the Lao family.
TLC, T&J and LVM are engaged in the construction of public roads and bridges. Under joint
venture agreements they entered into among each other, they would undertake their projects either
simultaneously or successively so that, whenever necessary, they would lease tools and equipment to
one another. Each one would also allow the utilization of their employees by the other two . With this
arrangement, workers were transferred whenever necessary to on-going projects of the same company or
of the others, or were rehired after the completion of the project or project phase to which they were
assigned. Soon after, however, TLC ceased its operations while T&J and LVM stayed on.
Sometime in 1989 Andres Lao, Managing Director of LVM and President of T&J, issued a
memorandum requiring all workers and company personnel to sign employment contract forms and
clearances. These were to be used allegedly for audit purposes pursuant to a joint venture agreement
between LVM and T&J. To ensure compliance with the directive, the company ordered the withholding
of the salary of any employee who refused to sign. Quite notably, the contracts expressly described the
construction workers as project employees whose employments were for a definite period, i.e., upon the
expiration of the contract period or the completion of the project for which the workers was hired.
Except for Florencio Gomez all private respondents refused to sign contending that this scheme
was designed by their employer to downgrade their status from regular employees to mere project
employees. Resultantly, their salaries were withheld. They were also required to explain why their
services should not be terminated for violating company rules and warned that failure to satisfactorily
explain would be construed as disinterest in continued employment with the company. Since the
workers stood firm in their refusal to comply with the directives their services were terminated.
NLRC RAB VIII dismissed the complaints lodged before it, finding that private respondents were NLRC RAB VIII dismissed the complaints lodged before it, finding that private respondents were
project employees whose employments could be terminated upon completion of the projects or project
phase for which they were hired.
The decision of Labor Arbiter Gabino A. Velasquez, Jr., was reversed by the Fourth Division of
NLRC and found that private respondents were regular employees who were dismissed without just
cause and denied due process. In granting monetary awards to complainants, NLRC disregarded the veil
of corporate fiction and treated the three (3) corporations as forming only one entity on the basis of the
admission of petitioners that the three (3) operated as one (1), intermingling and commingling all its
resources, including manpower facility.
ISSUE:
Whether or not the NLRC erred when it pierced the veil of corporate personality of petitioner-
corporations. NO
HELD: PETITION DENIED.
NLRC did not err in disregarding the veil of separate corporate personality and holding petitioners
jointly and severally liable for private respondents back wages and separation pay. The records
disclose that the three (3) corporations were in fact substantially owned and controlled by members of
the Lao family composed of Lao Hian Beng alias Tomas Lao, Chiu Siok Lian (wife of Tomas Lao),
Andrew C. Lao, Lao Y. Heng, Vicente Lao Chua, Lao E. Tin, Emmanuel Lao and Ismaelita Maluto. A
majority of the outstanding shares of stock in LVM and T&J is owned by the Lao family. T&J is 100%
owned by the Laos as reflected in its Articles of Incorporation.
The Lao Group of Companies therefore is a closed corporation where the incorporators and directors
belong to a single family. Lao Hian Beng is the same Tomas Lao who owns Tomas Lao Corporation
and is the majority stockholder of T&J. Andrew C. Lao is the Managing Director of LVM Construction, and is the majority stockholder of T&J. Andrew C. Lao is the Managing Director of LVM Construction,
and President and Managing Director of the Lao Group of Companies. Petitioners are engaged in the
same line of business under one management and use the same equipment including manpower
services. Where it appears that [three] business enterprises are owned, conducted and controlled by the
same parties, both law and equity will, when necessary to protect the rights of third persons, disregard
the legal fiction that the [three] corporations are distinct entities, and treat them as identical.
The court held that the liability of petitioners extends to the responsible officers acting in the interest of
the corporations. In view of the peculiar circumstances of this case, we disregard the separate
personalities of the three (3) corporations and at the same time declare the members of the corporations
jointly and severally liable with the corporations for the monetary awards due to private respondents
CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS
COMMISSION, (First Division); and Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel
Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogello Salut, Emilio Garcia,
Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve,
Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe
Basilan, and Ruben Robalos, respondents.
FACTS:
Petitioner Concept Builders, Inc. is engaged in the construction business. Private respondents
were employed by said company as laborers, carpenters and riggers. On November, 1981, private
respondents were served individual written notices of termination of employment by petitioner, effective
on November 30, 1981 stating that their contracts of employment had expired and the project in which
they were hired had been completed. Public respondent found it to be, the fact, however, that at the time
of the termination of private respondents employment, the project in which they were hired had not yet
been finished and completed. Petitioner had to engage the services of sub-contractors whose workers
performed the functions of private respondents. performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and
non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner. The
Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to pay them
back wages equivalent to one year or three hundred working days. The National Labor Relations
back wages equivalent to one year or three hundred working days. The National Labor Relations
Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on the ground that the
said decision had already become final and executory. Subsequently, the Labor Arbiter issued a writ of
execution which was partially satisfied through garnishment of sums from petitioners debtor in the
amount of P81,385.34 said amount was turned over to the cashier of the NLRC. Subsequently, an Alias
Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner
the balance of the judgment award, and to reinstate private respondents to their former positions.
However, the sheriff failed to serve the alias writ of execution on petitioner through the security guard
on duty was refused on the ground that petitioner no longer occupied the premises. Consequently, upon
motion of private respondents, the Labor Arbiter issued a second alias writ of execution. However, such
writ had also not been enforced.
A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the
properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which
he is the Vice-President. private respondents filed a Motion for Issuance of a Break-Open Order,
alleging that HPPI and petitioner corporation were owned by the same incorporator! stockholders. They
also alleged that petitioner temporarily suspended its business operations in order to evade its legal
obligations to them and that private respondents were willing to post an indemnity bond to answer for
any damages which petitioner and HPPI may suffer because of the issuance of the break-open order.
HPPI filed an Opposition to the motion for issuance of a break-open order, contending that HPPI is a
corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations
are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was
then engaged in construction. The Labor Arbiter issued an Order which denied private respondents
motion for break-open order. Private respondents then appealed to the NLRC which set aside the order motion for break-open order. Private respondents then appealed to the NLRC which set aside the order
of the Labor Arbiter, issued a break-open order and directed private respondents to file a bond.
Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied upon.
It dismissed the third-party claim for lack of merit.
ISSUE:
Whether or not the separate juridical personalities of the two corporations may be disregarded?
HELD:
Where two corporations have the same address, the same office, the same directors and
substantially the same stockholders and the first corporation ceased operation to evade payment of back
wages to its employees, their separate juridical personalities may be disregarded. The test in determining
the applicability of the doctrine of piercing the veil of corporate fiction is as follows: (1) Control, not
mere majority or complete stock control, but complete domination, not only of finances but of policy
and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own; (2) Such control must have
been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and (3) The
aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS and GENERAL
CREDIT CORPORATION, respondents.
FACTS:
Commercial Credit Corporation (CCC), a financing and investment firm, decided to organize
franchise companies in different parts of the country, wherein it shall hold thirty percent (30%) equity.
Employees of the CCC were designated as resident managers of the franchise companies. Petitioner Employees of the CCC were designated as resident managers of the franchise companies. Petitioner
Bibiano O. Reynoso, IV was designated as the resident manager of the franchise company in Quezon
City, known as the Commercial Credit Corporation of Quezon City (CCC-QC). CCC-QC entered into an
City, known as the Commercial Credit Corporation of Quezon City (CCC-QC). CCC-QC entered into an
exclusive management contract with CCC whereby the latter was granted the management and full
control of the business activities of the former. Under the contract, CCC-QC shall sell, discount and/or
assign its receivables to CCC. Subsequently, however, this discounting arrangement was discontinued
pursuant to the so-called DOSRI Rule, prohibiting the lending of funds by corporations to its
directors, officers, stockholders and other persons with related interests therein. On account of the new
restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule, CCC decided to form
CCC Equity Corporation, (CCC-Equity), a wholly-owned subsidiary, to which CCC transferred its thirty
(30%) percent equity in CCC-QC, together with two seats in the latters Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner
Reynoso, became employees of CCC-Equity. While petitioner continued to be the Resident Manager of
CCC-QC, he drew his salaries and allowances from CCC-Equity. Furthermore, although an employee
of CCC-Equity, petitioner, as well as all employees of CCC-QC, became qualified members of the
Commercial Credit Corporation Employees Pension Plan. The business activities of CCC-QC pertain to
the acceptance of funds from depositors who are issued interest-bearing promissory notes. The amounts
deposited are then loaned out to various borrowers. Petitioner, in order to boost the business activities
of CCC-QC, deposited his personal funds in the company. In return, CCC-QC issued to him its interest-
bearing promissory notes.
A complaint for sum of money with preliminary attachment was instituted by CCC-QC against
petitioner, who had in the meantime been dismissed from his employment by CCC-Equity. The
complaint was subsequently amended in order to include Hidelita Nuval, petitioners wife, as a party
defendant. The complaint alleged that petitioner embezzled the funds of CCC-QC amounting to
P1,300,593.11. Out of this amount, at least P630,000.00 was used for the purchase of a house and lot
located in Pasig City. The property was mortgaged to CCC, and was later foreclosed. Petitioner denied located in Pasig City. The property was mortgaged to CCC, and was later foreclosed. Petitioner denied
having unlawfully used funds of CCC-QC and asserted that the sum of P1,300,593.11 represented his
money placements in CCC-QC, as shown by twenty-three (23) checks which he issued to the said
company. The trial court rendered its decision dismissing the complaint and awarding damages to
petitioner. The decision became final and, accordingly, a Writ of Execution was issued, however, the
judgment remained unsatisfied, prompting petitioner to file a Motion for Alias Writ of Execution,
Examination of Judgment Debtor, and to Bring Financial Records for Examination to Court. CCC-QC
filed an Opposition to petitioners motion, alleging that the possession of its premises and records had
been taken over by CCC. Meanwhile, in 1983, CCC became known as the General Credit Corporation.
General Credit Corporation filed a Special Appearance and Opposition, alleging that it was not a party
to the case, and therefore petitioner should direct his claim against CCC-QC and not General Credit
Corporation. Petitioner filed his reply, stating that the CCC-QC is an adjunct instrumentality, conduit
and agency of CCC.
ISSUE:
Whether or not the piercing the veil of corporate fiction is proper?
HELD:
The defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an instrument or
agent of its parent. A subsidiary is considered a mere instrumentality of the parent company if the latter
determines the personnel, administrative and finance policies, hires the employees, and funds the
operation of the former. The manager of the subsidiary could therefore enforce his claim against the
parent company even though his employment is with the subsidiary.
ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners, vs. PACIFIC BANKING
CORPORATION, REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITY
and the Heirs of EUGENIO D. TRINIDAD, respondents.
FACTS:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Belas Export Trading
(BET). BET was engaged in the manufacture of garments for domestic and foreign consumption. The
Lipats also owned the Mystical Fashions in the United States, which sells goods imported from the
Philippines through BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the
Philippines while she was managing Mystical Fashions in the United States. In order to facilitate the
convenient operation of BET, Estelita Lipat executed a special power of attorney appointing Teresita
Lipat as her attorney-in-fact to obtain loans and other credit accommodations from respondent Pacific
Banking Corporation (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on
properties owned or co-owned by her as security for the obligations to be extended by Pacific Bank
including any extension or renewal thereof.
Teresita, by virtue of the special power of attorney, was able to secure for and in behalf of her
mother, Mrs. Lipat and BET, a loan from Pacific Bank to buy fabrics to be manufactured by BET and
exported to Mystical Fashions in the United States. As security therefor, the Lipat spouses, as
represented by Teresita, executed a Real Estate Mortgage over their property located in Quezon City.
Said property was likewise made to secure other additional or new loans, discounting lines, overdrafts
and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor may subsequently
obtain from the Mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the
whole or part of said original, additional or new loans, discounting lines, overdrafts and other credit
accommodations, including interest and expenses or other obligations of the Mortgagor and/or Debtor
owing to the Mortgagee, whether directly, or indirectly, principal or secondary, as appears in the owing to the Mortgagee, whether directly, or indirectly, principal or secondary, as appears in the
accounts, books and records of the Mortgagee.
Subsequently, BET was incorporated into a family corporation named Belas Export Corporation
(BEC) in order to facilitate the management of the business. BEC was engaged in the business of
manufacturing and exportation of all kinds of garments of whatever kind and description and utilized the
same machineries and equipment previously used by BET. Its incorporators and directors included the
Lipat spouses who owned a combined 300 shares out of the 420 shares subscribed, Teresita Lipat who
owned 20 shares, and other close relatives and friends of the Lipats. Estelita Lipat was named president
of BEC, while Teresita became the vice-president and general manager. Eventually, the loan was later
restructured in the name of BEC and subsequent loans were obtained by BEC with the corresponding
promissory notes duly executed by Teresita on behalf of the corporation. A letter of credit was also
opened by Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC
after BEC executed the corresponding trust receipt therefor. Export bills were also executed in favor of
Pacific Bank for additional finances. These transactions were all secured by the real estate mortgage
over the Lipats property. The promissory notes, export bills, and trust receipt eventually became due
and demandable. Unfortunately, BEC defaulted in its payments. After receipt of Pacific Banks
demand letters, Estelita Lipat went to the office of the banks liquidator and asked for additional time to
enable her to personally settle BECs obligations. The bank acceded to her request but Estelita failed to
fulfill her promise. Consequently, the real estate mortgage was foreclosed and after compliance with the
requirements of the law the mortgaged property was sold at public auction. A certificate of sale was
issued to respondent Eugenio D. Trinidad as the highest bidder. The spouses Lipat filed a complaint for
annulment of the real estate mortgage, extrajudicial foreclosure and the certificate of sale issued over the
property against Pacific Bank and Eugenio D. Trinidad. The complaint alleged that the promissory
notes, trust receipt, and export bills were all ultra vires acts of Teresita as they were executed without the
notes, trust receipt, and export bills were all ultra vires acts of Teresita as they were executed without the
requisite board resolution of the Board of Directors of BEC. The Lipats also averred that assuming said
acts were valid and binding on BEC, the same were the corporations sole obligation, it having a
personality distinct and separate from spouses Lipat. It was likewise pointed out that Teresitas
authority to secure a loan from Pacific Bank was specifically limited to Mrs. Lipats sole use and benefit
and that the real estate mortgage was executed to secure the Lipats and BETs P583,854.00 loan only. and that the real estate mortgage was executed to secure the Lipats and BETs P583,854.00 loan only.
ISSUE:
Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case?
HELD:
When the corporation is the mere alter ego or business conduit of a person, the separate
personality of the corporation may be disregarded. This is commonly referred to as the instrumentality
rule or the alter ego doctrine, which the courts have applied in disregarding the separate juridical
personality of corporations. Where the owner of a business operating as a single proprietorship
authorized her daughter to constitute a mortgage on the proprietors property to secure a loan and the
single proprietorship was eventually formed into a corporation, the loans incurred by the single
proprietorship should be considered obligations of the corporation where the proprietor and her husband
are the majority shareholders of the corporation; both firms were managed by their daughter, engaged in
the garment business and held office in the same building owned by the spouses; the business operations
of the corporations were so merged with the spouses; the corporate funds were held by the latter with the
corporation itself having no visible assets; and that the latter benefited from the loans secured from the
Bank to finance their business both locally and abroad, then the corporation should be treated as a
conduit of and having merely succeeded the single proprietorship. Thus, the obligations under the
mortgage contract secured under the name of the corporation cannot be evaded on the pretext that it was
signed for the benefit of and under the name of the single proprietorship only.
MAVEST (U.S.A.) INC., and MAVEST Manila Liaison Office vs.
SAMPAGUITA GARMENT CORPORATION SAMPAGUITA GARMENT CORPORATION
GARCIA, J.:
FACTS
Petitioner MAVEST (U.S.A.), Inc. (MAVEST, U.S.A., for short) is a corporation duly organized and
existing under the laws of the United States of America but registered with the Philippine Board of
Investments, while co-petitioner MAVEST Manila Liaison Office is MAVEST U.S.A.s representative
in the Philippines. On the other hand, respondent Sampaguita Garment Corporation is a domestic
corporation engaged in the business of manufacturing and exporting garments.
Sometime in July and August 1989, [petitioners Mavest U.S.A. and Mavest Manila Liaison
Office] entered into a series of transactions with [respondent] Sampaguita Garment Corporation, whereby
the former would furnish from abroad raw materials to be manufactured by the latter into finished
products, for shipment to [petitioners] foreign buyers, Sears Roebuck and JC Penney.
The orders of Sears Roebuck were duly paid in full by way of letter of credit. The JC Penney
orders consisting of 8,000 pcs. Cotton Woven Pants (Styles DJ-1 BR and DJ-1 XT x x x at $3.65 per
piece or a total of $29,200.00 were not covered by a letter of credit.)
Despite shipment and receipt by JC Penney of said orders, no payment was made, thus
prompting [respondent] to send demand letters which remained unheeded. On April 27, 1990,
[respondent] filed a complaint for collection of a sum of money amounting to US$29,200.00 with
damages [before the Regional Trial Court at Makati City against the herein petitioners and two (2) others,
damages [before the Regional Trial Court at Makati City against the herein petitioners and two (2) others,
namely, MAVEST International Co., LTD and Patrick Wang, former General Manager of MLO]. In their
Answer with Counterclaim filed on June 21, 1990, [petitioners and their two co-defendants] countered
that plaintiff [Sampaguita Garment Corporation] has already been paid by virtue of legal compensation,
and that it is plaintiff which owes defendants US5, 799.57due to the damages and losses it (sic) incurred
as a result of the breaches committed in the previous shipments to Sears Roebuck. The damages and
losses refer to: i) failure to observe specifications and quantity requirements; ii) delay in shipping out the
garments; iii) over declaration of value in Style No. 33303; iv) shortshipment of garments; v) failure to
return raw materials for the unshipped garments, amounting to US$34,999.57. Moreover, [petitioners and return raw materials for the unshipped garments, amounting to US$34,999.57. Moreover, [petitioners and
their co-defendants] alleged that they also suffered losses on account of delays in the JC
Penney shipments.
ISSUE
Whether or not Mavest Liaison office is solidarily liable with Mavest Usa, Inc.
HELD
In their fourth assigned error, petitioners submits that Mavest Manila Liaison Office (MLO),
being merely an agent of Mavest U.S.A, should not be held solidarily liable with the principal.
Petitioners were two (2) of the original four (4) defendants impleaded in the basic complaint, the
other two (2) being Mavest International Co., Ltd. (MICL), a firm organized under the laws of Taiwan,
and Mr. Patrick Wang, a former manager of MICL and MLO. Both MICL and Mr. Wang, while
adjudged liable in solidum with the petitioners by the trial court, were eventually absolved from any
liability by the Court of Appeals.
In holding MLO solidarily liable with Mavest U.S.A., the appellate court proceeded on the
postulate that MLO is the liaison office of Mavest U.S.A and the extension office of both Mavest U.S.A.
and MILC.
As it were, Mavest U.S.A. appears to have constituted MLO as its representative and its fully
subsidized extension office in the Philippines. As such, MLO can be charged for the liabilities incurred
by Mavest U.S.A. in the country. And if MLO can be so charged, there is no rhyme nor reason why it
cannot be adjudged, as did the appellate court, as solidarily liable with head office, Mavest U.S.A.
PAMPLONA PLANTATION COMPANY, INC. vs. RODEL TINGHIL
PANGANIBAN, J.:
FACTS
To protect the rights of labor, two corporations with identical directors, management, office and
payroll should be treated as one entity only. A suit by the employees against one corporation should be
deemed as a suit against the other. Also, the rights and claims of workers should not be prejudiced by
the acts of the employer that tend to confuse them about its corporate identity. The corporate fiction
must yield to truth and justice.
Sometime in 1993, [Petitioner] Pamplona Plantations Company, Inc. (company for brevity) was
organized for the purpose of taking over the operations of the coconut and sugar plantation of Hacienda
Pamplona located in Pamplona, Negros Oriental. It appears that Hacienda Pamplona was formerly
owned by a certain Mr. Bower who had in his employ several agricultural workers.
When the company took over the operation of Hacienda Pamplona in 1993, it did not absorb all the
workers of Hacienda Pamplona. Some, however, were hired by the company during harvest season as
coconut hookers or sakador, coconut filers, coconut haulers, coconut scoopers or lugiteros, and
charcoal makers.
Sometime in 1995, Pamplona Plantation Leisure Corporation was established for the purpose of
Sometime in 1995, Pamplona Plantation Leisure Corporation was established for the purpose of
engaging in the business of operating tourist resorts, hotels, and inns, with complementary facilities, such
as restaurants, bars, boutiques, service shops, entertainment, golf courses, tennis courts, and other land
and aquatic sports and leisure facilities.
On 15 December 1996, the Pamplona Plantation Labor Independent Union (PAPLIU) conducted an
organizational meeting wherein several [respondents] who are either union members or officers
participated in said meeting.
Upon learning that some of the [respondents] attended the said meeting, [Petitioner] Jose Luis Bondoc,
manager of the company, did not allow [respondents] to work anymore in the plantation.
Thereafter, on various dates, [respondents] filed their respective complaints with the NLRC, Sub-
Regional Arbitration Branch No. VII, Dumaguete City against [petitioners] for unfair labor practice, Regional Arbitration Branch No. VII, Dumaguete City against [petitioners] for unfair labor practice,
illegal dismissal, underpayment, overtime pay, premium pay for rest day and holidays, service incentive
leave pay, damages, attorneys fees and 13
th
month pay.
On 09 October 1997, [respondent] Carlito Tinghil amended his complaint to implead Pamplona
Plantation Leisure Corporation x x x.
[Petitioners] appealed the Labor Arbiters decision to [the] NLRC. In the assailed decision dated 19
July 2000, the NLRCs Fourth Division reversed the Labor Arbiter, ruling that [respondents], except
Carlito Tinghil, failed to implead Pamplona Plantation Leisure Corporation, an indispensable party and
that there exist no employer-employee relation between the parties.
ISSUE
Whether the case should be dismissed for the non-joinder of the Pamplona Plantation Leisure
Corporation
HELD
Piercing the Corporate Veil
Petitioners contend that the CA should have dismissed the case for the failure of respondents (except
Carlito Tinghil) to implead the Pamplona Plantation Leisure Corporation, an indispensable party, for
being the true and real employer. Allegedly, respondents admitted in their Affidavits dated February 3,
1998, that they had been employed by the leisure corporation and/or engaged to perform activities that
pertained to its business.
Further, as the NLRC allegedly noted in their individual Complaints, respondents specifically
averred that they had worked in the golf course and performed related jobs in the recreational
facilities of the leisure corporation. Hence, petitioners claim that, as a sugar and coconut plantation
company separate and distinct from the Pamplona Plantation Leisure Corporation, the petitioner- company separate and distinct from the Pamplona Plantation Leisure Corporation, the petitioner-
company is not the real party in interest.
We are not persuaded.
An examination of the facts reveals that, for both the coconut plantation and the golf course, there is
only one management which the laborers deal with regarding their work. A portion of the plantation (also
called Hacienda Pamplona) had actually been converted into a golf course and other recreational
facilities. The weekly payrolls issued by petitioner-company bore the name Pamplona Plantation Co.,
Inc. It is also a fact that respondents all received their pay from the same person, Petitioner Bondoc --
the managing director of the company. Since the workers were working for a firm known as Pamplona
Plantation Co., Inc., the reason they sued their employer through that name was natural and
understandable.
True, the Petitioner Pamplona Plantation Co., Inc., and the Pamplona Plantation Leisure Corporation
appear to be separate corporate entities. But it is settled that this fiction of law cannot be invoked to
further an end subversive of justice.
The principle requiring the piercing of the corporate veil mandates courts to see through the
protective shroud that distinguishes one corporation from a seemingly separate one. The corporate mask
protective shroud that distinguishes one corporation from a seemingly separate one. The corporate mask
may be removed and the corporate veil pierced when a corporation is the mere alter ego of
another. Where badges of fraud exist, where public convenience is defeated, where a wrong is sought to
be justified thereby, or where a separate corporate identity is used to evade financial obligations to
employees or to third parties, the notion of separate legal entity should be set asideand the factual truth
upheld. When that happens, the corporate character is not necessarily abrogated. It continues for other
legitimate objectives. However, it may be pierced in any of the instances cited in order to promote
substantial justice.
In the present case, the corporations have basically the same incorporators and directors and are
headed by the same official. Both use only one office and one payroll and are under one management.
In their individual Affidavits, respondents allege that they worked under the supervision and control of
Petitioner Bondoc -- the common managing director of both the petitioner-company and the leisure
corporation. Some of the laborers of the plantation also work in the golf course. Thus, the attempt to
make the two corporations appear as two separate entities, insofar as the workers are concerned, should
be viewed as a devious but obvious means to defeat the ends of the law. Such a ploy should not be be viewed as a devious but obvious means to defeat the ends of the law. Such a ploy should not be
permitted to cloud the truth and perpetrate an injustice.
TIMES TRANSPORTATION COMPANY, INC., vs. SANTOS SOTELO
YNARES-SANTIAGO, J.:
FACTS
Petitioner Times Transportation Company, Inc. (Times) is a corporation engaged in the business of
land transportation. Prior to its closure in 1997, the Times Employees Union (TEU) was formed and
issued a certificate of union registration. Times challenged the legitimacy of TEU by filing a petition for
the cancellation of its union registration.
On March 3, 1997, TEU held a strike in response to Times alleged attempt to form a rival union and
its dismissal of the employees identified to be active union members. Upon petition by Times, then
Labor Secretary, and now Associate Justice of this Court, Leonardo A. Quisumbing, assumed jurisdiction
over the case and referred the matter to the NLRC for compulsory arbitration. A return-to-work order
was likewise issued on March 10, 1997.
In a certification election held on July 1, 1997, TEU was certified as the sole and exclusive collective
bargaining agent in Times. Consequently, TEUs president wrote the management of Times and
requested for collective bargaining. Times refused on the ground that the decision of the Med-Arbiter
upholding the validity of the certification election was not yet final and executory.
TEU filed a Notice of Strike on August 8, 1997. Another conciliation/mediation proceeding was
conducted for the purpose of settling the brewing dispute. In the meantime, Times management
implemented a retrenchment program and notices of retrenchment dated September 16, 1997 were sent to
some of its employees, including the respondents herein, informing them of their retrenchment effective
30 days thereafter.
On October 17, 1997, TEU held a strike vote on grounds of unfair labor practice on the part of On October 17, 1997, TEU held a strike vote on grounds of unfair labor practice on the part of
Times. For alleged participation in what it deemed was an illegal strike, Times terminated all the 123
striking employees by virtue of two notices dated October 26, 1997 and November 24, 1997.
[3]
On
November 17, 1997, then DOLE Secretary Quisumbing issued the second return-to-work order certifying
the dispute to the NLRC. While the strike was ended, the employees were no longer admitted back to
work.
In the meantime, by December 12, 1997, Mencorp Transport Systems, Inc. (Mencorp) had acquired
ownership over Times Certificates of Public Convenience and a number of its bus units by virtue of
several deeds of sale. Mencorp is controlled and operated by Mrs. Virginia Mendoza, daughter of
Santiago Rondaris, the majority stockholder of Times.
ISSUE
Whether or not it is proper to make the new owners liable in this regard
HELD
On the propriety of the piercing of the corporate veil, Times claims that to drag Mencorp, [Spouses]
Mendoza and Rondaris into the picture on the purported ground that a fictitious sale of Times assets in
their favor was consummated with the end in view of frustrating the ends of justice and for purposes of
evading compliance with the judgment is the height of judicial arrogance. The Court of Appeals
believes otherwise and reckons that Times and Mencorp failed to adduce evidence to refute allegations of
collusion between them.
We have held that piercing the corporate veil is warranted only in cases when the separate legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the
case of two corporations, the law will regard the corporations as merged into one. It may be allowed only
if the following elements concur: (1) controlnot mere stock control, but complete dominationnot
only of finances, but of policy and business practice in respect to the transaction attacked; (2) such only of finances, but of policy and business practice in respect to the transaction attacked; (2) such
control must have been used 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 a legal right; and (3) the
said control and breach of duty must have proximately caused the injury or unjust loss complained of.
[28]
The following findings of the Labor Arbiter, which were cited and affirmed by the Court of Appeals,
have not been refuted by Times, to wit:
1. The sale was transferred to a corporation controlled by V. Mendoza, the daughter of respondent
S. Rondaris of [Times] where she is/was also a director, as proven by the articles of incorporation
of [Mencorp];
2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza, Virginia R.
Mendoza, Vernon Gerard R. Mendoza, Vivian Charity R. Mendoza, Vevey Rosario R. Mendoza
are all relatives of respondent S. Rondaris;
3. The timing of the sale evidently was to negate the employees/complainants/members right to
organization as it was effected when their union (TEU) was just organized/requesting [Times] to
bargain;
5. [Mencorp] never obtained a franchise since its supposed incorporation in 10 May 1994 but at
present, all the buses of [Times] are already being run/operated by respondent [Mencorp], the
franchise of [Times] having been transferred to it.
[29]
We uphold the findings of the labor arbiter and the Court of Appeals. The sale of Times franchise
as well as most of its bus units to a company owned by Rondaris daughter and family members, right in
the middle of a labor dispute, is highly suspicious. It is evident that the transaction was made in order to
remove Times remaining assets from the reach of any judgment that may be rendered in the unfair labor
practice cases filed against it.
APEX MINING CO., INC. v. SOUTHEAST MINDANAO GOLD MINING CORP.
G.R. No. 152613 & No. 152628, 23 June 2006, FIRST DIVISION (Chico-Nazario, J.)
The doctrine of piercing the corporate veil cannot be used as a vehicle to commit prohibited acts
because these acts as the one which the doctrine seeks to prevent.
Banad and his group, who claimed to be the first to have discovered traces of gold in Mt Diwata filed a
Declaration of Location (DOL). They organized Balite. Apex entered into operating agreements with the
Banad group. Certain individuals, as well, applied for mining locations. MMC filed 16 DOLs for
mineral lands adjacent to that of the Banad Group but later abandoned the same because it covers forest
reserves. It instead applied for prospecting permit with BFA. The latter issued it and the permit
embraced the areas claims by Apex and other claimants.
MMC filed an Exploration Permit Application with BMG and was issued one. MMC thus filed a
Petition for Cancellation of Mining Claims of Apex and Small Lease Mining Permit. Apex filed a
motion to dismiss the petition. It was granted. DENR, on appeal, reversed the ruling. Apex appealed to
the OP. The latter affirmed DENRs ruling.
MMC assigned to SEM, a domestic corporation which is alleged to be a 100% owned subsidiary of
MMC EP 133. SEM then filed an MPSA application for the EP 133. It was denied.
ISSUE:
Whether or not the doctrine of piercing the corporate veil can be invoked to legitimize the prohibited
transfer or assignment of EP 133 transfer or assignment of EP 133
HELD:
Where the terms of a mining claim prohibit the assignment thereof except in favor of an agent and the
corporation, as holder of the mining claim, transferred its right to a wholly-owned subsidiary, the
separate legal personality of the subsidiary can not be pierced so that the latter shall be considered a
mere conduit or agent of the parent company to legitimize the prohibited transfer. The doctrine of
piercing the corporate veil cannot be used as a vehicle to commit prohibited acts because these acts as
the one which the doctrine seeks to prevent. To allow the subsidiary to avail itself of this doctrine and to
approve the validity of the assignment is tantamount to sanctioning illegal act which is what the doctrine
precisely seeks to forestall.
GCC v. ALSONS DEVELOPMENT AND INVESTMENT CORPORATION
G.R. No. 154975, 29 January 2007, FIRST DIVISION (Garcia, J.)
GCC established CCC Franchise companies in different urban centers of the country. In furtherance of
its business, it applied for and was granted license from CB and SEC to engage also in quasi banking
activities.
CCC-Equity was organized by GCC to take over the operations and management of the various
franchise companies. The Alsons and The Alcantara Family, each owned just like GCC, shares to CCC-
Equity. The latter issued P/N. Four years later, the Alcantaras assigned its rights and interest in the P/N
to Alsons. The latter having failed to collect from CCC-Equity, filed a complaint for sum of money
against CCC-Equity and GCC. The latter answered that it is a separate and distinct entity from CCC-
Equity.
ISSUE:
Whether there is absolutely no basis for piercing GCCs veil of corporate identity
HELD:
Commonality of directors, officers and stockholders and even sharing of office between GCC and
EQUITY; certain financing and management arrangements between the two, allowing GCC to handle
the funds of the latter; virtual domination if not control wielded by GCC over the finances, business
policies and practices of EQUITY; and the establishment of EQUITY by GCC to circumvent CB rules
are circumstances which justify the conclusion that Equity is just an instrumentality of GCC. Thus,
Alsons could enforce payment of the promissory note of Equity even against GCC.
STA. MONICA INDUSTRIAL AND DEVELOPMENT CORPORATION v. THE
DEPARTMENT OF AGRARIAN REFORM REGIONAL DIRECTOR FOR REGION III, et. al.
G.R. No. 164846, 18 June 2008, THIRD DIVISION (Reyes, R.T., J.)
Considering that Trinidad remained to be the true and legal owner of the agricultural land, there
is no need for another notice of coverage to be sent or furnished to Sta. Monica. At the very least, the
notice to her is already notice to Sta. Monica because the corporation acted as a mere conduit of
Trinidad.
Trinidad is the owner of five parcels of land with a total area of 4.69 hectares in Calumpit,
Bulacan. Private respondent Basilio De Guzman is the agricultural leasehold tenant of Trinidad. A
leasehold contract was executed between Trinidad and De Guzman.
As an agricultural leasehold tenant,
De Guzman was issued Certificates of Land Transfer. Desiring to have an emancipation patent over the De Guzman was issued Certificates of Land Transfer. Desiring to have an emancipation patent over the
land under his tillage, De Guzman filed a petition for the issuance of patent in his name with the Office
of the Regional Director of the DAR. DAR duly sent notices to Trinidad requiring her to comment.
Instead of complying, Trinidad filed a motion for bill of particulars. After due proceedings, the Regional
Director issued the Order granting the petition of De Guzman. Trinidad filed a motion for
reconsideration but her motion was denied.
A year later, petitioner Sta. Monica filed a petition for certiorari and prohibition with the CA
assailing the order of the Regional Director. Sta. Monica claimed that a portion of the Trinidad
landholding was sold to it. Sta. Monica asserted that there was a denial of due process of law because it
was not furnished a notice of coverage under the CARP law. De Guzman argued that the alleged sale of
the landholding is illegal due to the lack of requisite clearance from the DAR. The said clearance is
required under P.D. No. 27, the Tenant Emancipation Decree, which prohibits transfer of covered lands
except to tenant-beneficiaries.
CA dismissed Sta. Monicas petition to annul the DAR Order, holding that Sta. Monica is not a
real party-in-interest because it cannot be considered as an owner of the land it bought from Trinidad.
CA added that even assuming that Sta. Monica is a real party-in-interest, it was not denied due process
because it had constructive notice of the proceeding which involved its property, due to the fact
Asuncion Trinidad is the treasurer of petitioner, based on the corporations General Information Sheet.
While it cannot be said that there was proper notice to the corporation, being a corporate officer of the
petitioner, there was at least constructive notice of the fact that there was a proceeding which involved
the property of the corporation of which it may be deprived should an adverse decision be rendered by
the DAR.
ISSUE:
Whether Sta. Monica was denied due process for not receiving a notice of coverage from DAR
HELD: CA Decision AFFIRMED.
First, the sale to Sta. Monica is prohibited. P.D. No. 27, as amended, forbids the transfer or
alienation of covered agricultural lands after October 21, 1972 except to the tenant-beneficiary. The
agricultural land awarded to De Guzman is covered by P.D. No. 27. He was awarded a certificate of land
transfer in July 22, 1981. The sale to Sta. Monica in 1986 is void for being contrary to law. Trinidad
transfer in July 22, 1981. The sale to Sta. Monica in 1986 is void for being contrary to law. Trinidad
remained the owner of the agricultural land.
Second, buyer Sta. Monica is owned and controlled by Trinidad and her family. Records show
that Trinidad, her husband and two sons own more than 98% of the outstanding capital stock of Sta.
Monica. They are all officers of the corporation. There are only two non-related incorporators who own
less than one percent of the outstanding capital stock of Sta. Monica and who are not officers of the
corporation.
To be sure, Trinidad and her family exercise absolute control of the corporate affairs of Sta.
Monica. As owners of 98% of the outstanding capital stock, they are the beneficial owners of all the
assets of the company, including the agricultural land sold by Trinidad to Sta. Monica.
Third, Trinidad and her counsel failed to notify the DAR of the prior sale to Sta. Monica during
the administrative proceedings. Worse, Trinidad feigned ignorance of the sale by filing a motion for bill
of particulars seeking specifics from De Guzman of her alleged landholdings which are subject of his
petition with the DAR.
It is highly unusual and unbelievable for her not to know, or at least be aware, of the sale to Sta.
Monica. She herself signed the deed of sale as seller. She is also a stockholder and officer of Sta.
Monica. More importantly, she cannot feign ignorance of De Guzmans claim because he was her
agricultural tenant since the 1970s. She knows, or at least ought to know, that the subject matter of the
petition with the DAR was her own landholding, which she sold to Sta. Monica in direct violation of
P.D. No. 27.
The apparent lack of candor is heightened by the fact that both Trinidad and Sta. Monica are
represented by the same counsel, Atty. Ramon Gutierrez. We cannot stretch Our credulity on how
Trinidad filed a motion for bill of particulars with the DAR seeking specifics on the sale to Sta. Monica
when she herself signed for the vendor as a party to the transaction.
Fourth, it was only after an adverse decision against Trinidad that Sta. Monica suddenly filed a Fourth, it was only after an adverse decision against Trinidad that Sta. Monica suddenly filed a
petition for certiorari with the CA questioning the lack of notice of coverage under the CARP law. It is
highly unlikely that Sta. Monica, an artificial being acting only through its duly authorized
representatives, was not sufficiently informed or had no constructive knowledge of the DAR
proceedings.
Fifth, the ultimate factor that betrays Trinidad and Sta. Monica is the continued payment of lease
rentals by De Guzman. Records show that De Guzman paid and continued to pay lease rentals to
Trinidad even after she sold the land to Sta. Monica. The receipt dated May 30, 2002 discloses that De
Guzman paid 40 cavans of palay to Clodinaldo dela Cruz, the authorized representative of Trinidad, as
lease rentals for the agricultural land.
All these circumstances indicate that Trinidad has remained as the real owner of the agricultural
land sold to Sta. Monica. The sale to Sta. Monica is not valid because it is prohibited under P.D. No. 27.
More importantly, it must be deemed as a mere ploy to evade the applicable provisions of the agrarian
law.
It is a fiat that the corporate vehicle cannot be used as a shield to protect fraud or justify wrong.
Thus, the veil of corporate fiction will be pierced when it is used to defeat public convenience and
subvert public policy.
Considering that Trinidad remained to be the true and legal owner of the agricultural land, there
is no need for another notice of coverage to be sent or furnished to Sta. Monica. At the very least, the
notice to her is already notice to Sta. Monica because the corporation acted as a mere conduit of
Trinidad. The CA correctly dismissed the petition of Sta. Monica to annul the orders of the Regional
Director placing the agricultural land of Trinidad under the agrarian reform law.
SPS. PEDRO AND FLORENCIA VIOLAGO v. BA FINANCE CORPORATION and AVELINO
VIOLAGO
G.R. No. 158262, 21 July 2008, SECOND DIVISION (Velasco, Jr., J.)
The test in determining the applicability of the
The test in determining the applicability of the The test in determining the applicability of the
doctrine of piercing the veil of corporate fiction is as
follows:
1. Control, not mere majority or complete stock
control, but complete domination, not only of finances but
of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant
to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and
unjust acts in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained
of.
Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a car to
his cousin, Pedro F. Violago, and the latters wife, Florencia. Avelino explained that he needed to sell a
vehicle to increase the sales quota of VMSC, and that the spouses would just have to pay a down
payment of P60,500 while the balance would be financed by respondent BA Finance. The spouses payment of P60,500 while the balance would be financed by respondent BA Finance. The spouses
would pay the monthly installments to BA Finance while Avelino would take care of the documentation
and approval of financing of the car. Under these terms, the spouses then agreed to purchase a Toyota
Cressida Model 1983 from VMSC. The spouses and Avelino signed a promissory note under which they
bound themselves to pay jointly and severally to the order of VMSC the amount of P209,601 in 36
monthly installments of P5,822.25 a month. VMSC then issued a sales invoice in favor of the spouses.
In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as security for the
remaining balance. VMSC, through Avelino, endorsed the promissory note to BA Finance. After
receiving the amount of P209,601, VMSC executed a Deed of Assignment of its rights and interests
under the promissory note and chattel mortgage in favor of BA Finance. The sales invoice was filed with
the Land Transportation Office in Baliwag, which issued a Certificate of Registration in the name of
Pedro. The spouses were unaware that the same car had already been sold previously to Esmeraldo
Violago, another cousin of Avelino, and registered in Esmeraldos name by the LTO in San Rafael.
Despite the spouses demand for the car and Avelinos repeated assurances, there was no delivery of the
vehicle. Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA
Finance.
BA Finance filed with the RTC a complaint for Replevin with Damages against the spouses. The
RTC issued an Order of Replevin. Eventually, the RTC rendered a decision in favor of BA Finance. A
writ of execution was thereafter issued. The spouses Violago filed a motion for reconsideration and
motion to quash writ of execution. The RTC denied the motions; CA, acting on a petition for certiorari
filed by the spouses under Rule 65, nullified the RTCs order.
The spouses then filed their Answer before the RTC, alleging the following: they never received
the vehicle from VMSC; the vehicle was previously sold to Esmeraldo; and the recourse of BA Finance
should be against VMSC. The Violago spouses, with prior leave of court, filed a Third Party Complaint
against Avelino praying that he be held liable to them in the event that they be held liable to BA
Finance. VMSC was not impleaded as third party defendant. Avelino contended that he was not a party
to the transaction personally, but VMSC. Avelinos motion was denied and the third party complaint
to the transaction personally, but VMSC. Avelinos motion was denied and the third party complaint
against him was entertained by the trial court. The RTC rendered a Decision finding for BA Finance.
The RTC, however, declared that they are entitled to be indemnified by Avelino. On appeal, the CA set
aside the trial courts order holding Avelino liable for damages to the spouses, without prejudice to the aside the trial courts order holding Avelino liable for damages to the spouses, without prejudice to the
action of the spouses against VMSC and Avelino in a separate action.
ISSUE:
Whether the veil of corporate entity may be pierced considering the fraud and deception of Avelino
HELD: RTC Decision REINSTATED and AFFIRMED.
xxx The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows:
1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust acts in
contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
This case meets the foregoing test. VMSC is a family-owned corporation of which Avelino was
president. Avelino committed fraud in selling the vehicle to petitioners, a vehicle that was previously
sold to Avelinos other cousin, Esmeraldo. Nowhere in the pleadings did Avelino refute the fact that the
vehicle in this case was already previously sold to Esmeraldo; he merely insisted that he cannot be held
liable because he was not a party to the transaction. The fact that Avelino and Pedro are cousins, and
that Avelino claimed to have a need to increase the sales quota, was likely among the factors which
motivated the spouses to buy the car. Avelino, knowing fully well that the vehicle was already sold, and
with abuse of his relationship with the spouses, still proceeded with the sale and collected the down with abuse of his relationship with the spouses, still proceeded with the sale and collected the down
payment from petitioners. The trial court found that the vehicle was not delivered to the spouses.
Avelino clearly defrauded petitioners. His actions were the proximate cause of petitioners loss. He
cannot now hide behind the separate corporate personality of VMSC to escape from liability for the
amount adjudged by the trial court in favor of petitioners.
The fact that VMSC was not included as defendant in petitioners third party complaint does not
preclude recovery by petitioners from Avelino; neither would such non-inclusion constitute a bar to the
application of the piercing-of-the-corporate-veil doctrine.
CLAUDE P. BAUTISTA v. AUTO PLUS TRADERS, INCORPORATED
G.R. No. 166405, 6 August 2008, SECOND DIVISION (Quisumbing, J.)
Generally, the stockholders and officers are not personally liable for the obligations of the
corporation except only when the veil of corporate fiction is being used as a cloak or cover for fraud or
illegality, or to work injustice.
These situations, however, do not exist in this case.
Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus
Lines and Transport Corporation, purchased various spare parts from private respondent Auto Plus
Traders, Inc. and issued two postdated checks to cover his purchases. The checks were subsequently
Traders, Inc. and issued two postdated checks to cover his purchases. The checks were subsequently
dishonored. Auto Plus then executed an affidavit-complaint for violation of Batas Pambansa Blg.
22 against Bautista. Consequently, two Informations for violation of BP Blg. 22 were filed with the
Municipal Trial Court in Cities (MTCC) of Davao City against Bautista.
Bautista pleaded not guilty. Trial on the merits ensued. After the presentation of the prosecution's
evidence, Bautista filed a demurrer to evidence. The MTCC granted the demurrer and ordered Cruiser
Bus Line[s] and Transport Corporation, through the accused, to pay Auto Plus. Bautista moved for Bus Line[s] and Transport Corporation, through the accused, to pay Auto Plus. Bautista moved for
partial reconsideration but his motion was denied. Thereafter, both parties appealed to the RTC. The
RTC modified the MTCC decision, ordering Bautista directly to pay and/or reimburse Auto Plus until
the account is paid in full. Bautista moved for reconsideration, but his motion was denied. Bautista
elevated the case to the CA, which affirmed the RTC. Hence, this petition.
Bautista asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and that
the corporation, which has a separate personality from its officers, is solely liable for the value of the
two checks. Auto Plus counters that Bautista should be held personally liable for both checks for issuing
the two postdated checks: a personal check in his name for the amount of P151,200 and a corporation
check under the account of Cruiser Bus Lines and Transport Corporation for the amount of P97,500.
Auto Plus contends that Bautista, by issuing his check to cover the obligation of the corporation, became
an accommodation party.
ISSUE:
Whether Bautista, as an officer of the corporation, is personally and civilly liable to Auto Plus for the
value of the two checks
HELD: Petition GRANTED.
At the outset, we note that Auto Plus' allegation that Bautista issued a personal check disputes
the factual findings of the MTCC. The MTCC found that the two checks belong to Cruiser Bus Lines
and Transport Corporation while the RTC found that one of the checks was a personal check of the
petitioner.
A perusal of the two check return slips in conjunction with the Current Account
Statements would show that the check for P151,200 was drawn against the current account of Claude
Bautista while the check for P97,500 was drawn against the current account of Cruiser Bus Lines and
Transport Corporation. Hence, we sustain the factual finding of the RTC.
Nonetheless, we find the appellate court in error for affirming the decision of the RTC holding Nonetheless, we find the appellate court in error for affirming the decision of the RTC holding
petitioner liable for the value of the checks considering that petitioner was acquitted of the crime
charged and that the debts are clearly corporate debts for which only Cruiser Bus Lines and Transport
Corporation should be held liable.
Juridical entities have personalities separate and distinct from its officers and the persons
composing it. Generally, the stockholders and officers are not personally liable for the obligations of the
corporation except only when the veil of corporate fiction is being used as a cloak or cover for fraud or
illegality, or to work injustice.
These situations, however, do not exist in this case. The evidence shows
that it is Cruiser Bus Lines and Transport Corporation that has obligations to Auto Plus Traders, Inc. for
tires. There is no agreement that petitioner shall be held liable for the corporation's obligations in his
personal capacity. Hence, he cannot be held liable for the value of the two checks issued in payment for
the corporation's obligation in the total amount of P248,700.
Likewise, contrary to Auto Plus' contentions, Bautista cannot be considered liable as an
accommodation party xxx. An accommodation party lends his name to enable the accommodated party
to obtain credit or to raise money; he receives no part of the consideration for the instrument but
assumes liability to the other party/ies thereto. xxx All that the evidence shows is that petitioner signed
Check No. 58832, which is drawn against his personal account. The said check, dated December 15,
2000, corresponds to the value of 24 sets of tires received by Cruiser Bus Lines and Transport
Corporation on August 29, 2000. There is no showing of when petitioner issued the check and in what
capacity. In the absence of concrete evidence it cannot just be assumed that petitioner intended to lend
capacity. In the absence of concrete evidence it cannot just be assumed that petitioner intended to lend
his name to the corporation. Hence, petitioner cannot be considered as an accommodation party.
Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially
since there is no evidence that the debts covered by the subject checks have been paid.
SIAIN ENTERPRISES, INC., Petitioner, v. CUPERTINO REALTY CORP. and EDWIN R.
CATACUTAN, Respondents.
NACHURA, J.
Petitioner Siain is engaged in the manufacturing and retailing/wholesaling business. On the other Petitioner Siain is engaged in the manufacturing and retailing/wholesaling business. On the other
hand, Cupertino is engaged in the realty business. Petitioner executed a Real Estate Mortgage over its
real properties in favor of Cupertino to secure the formers loan obligation to the latter. Both executed an
amendment of Real Estate Mortgage increasing the total loan covered by the aforesaid REM. This
amendment to REM was executed preparatory to the promised release by Cupertino of additional loan
proceeds to petitioner in. However, Cupertino failed to release the said additional amount contrary to its
promise.
When petitioner tendered payment of the remaining balance of the loan subject of the REM in order to
discharge the same, Cupertino refused acceptance and instead sought for the extrajudicial sale of the
mortgage properties.
After trial, the RTC dismissed petitioners complaint and declared the foreclosure of the mortgaged
properties as valid. On appeal, the CA affirmed the RTCs ruling. Hence, this petition.
ISSUE:
Whether the lower courts erroneously applied the doctrine of piercing the veil of corporate fiction
when both gave credence to Cupertinos evidence showing that petitioners affiliates were the previous
recipients of part of the indebtedness of petitioner to Cupertino.
HELD: The petition is DENIED.
As a general rule, a corporation will be deemed a separate legal entity until sufficient reason to the
contrary appears. But the rule is not absolute. A corporations separate and distinct legal personality may
be disregarded and the veil of corporate fiction pierced when the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime.
In this case, Cupertino presented overwhelming evidence that petitioner and its affiliate corporations had
received the proceeds of the loan increase which was then made the consideration for the Amended Real
Estate Mortgage. We quote with favor the RTCs and the CAs disquisitions on this matter: Estate Mortgage. We quote with favor the RTCs and the CAs disquisitions on this matter:
That the checks, debit memos and the pledges of the
jewelries, condominium units and trucks were constituted
not exclusively in the name of [petitioner] but also either in
the name of Yuyek Manufacturing Corporation, Siain
Transport, Inc., Cua Le Leng and Alberto Lim is of no
moment. For the facts established in the case at bar has
convinced the Court of the propriety to apply the principle
known as piercing the veil of the corporate entity by
virtue of which, the juridical personalities of the various
corporations involved are disregarded and the ensuing
corporations involved are disregarded and the ensuing
liability of the corporation to attach directly to its
responsible officers and stockholders. x x x
x x x x
The conjunction of the identity of the [petitioner]
corporation in relation to Siain Transport, Inc. (Siain
Transport), Yuyek Manufacturing Corp. (Yuyek), as well
as the individual personalities of Cua Le Leng and Alberto
Lim has been indubitably shown in the instant case by the Lim has been indubitably shown in the instant case by the
following established considerations, to wit:
Siain and Yuyek have [a] common set of
[incorporators], stockholders and board
of directors;
They have the same internal bookkeeper
and accountant in the person of
Rosemarie Ragodon;
They have the same office address at 306
Jose Rizal St., Mandaluyong City;
They have the same majority stockholder
and president in the person of Cua Le
Leng; and
In relation to Siain Transport, Cua Le
Leng had the unlimited authority by and
on herself, without authority from the
Board of Directors, to use the funds of
Siain Trucking to pay the obligation
incurred by the [petitioner] corporation.
1.
2.
3.
4.
5.
incurred by the [petitioner] corporation.
Thus, it is crystal clear that [petitioner]
corporation, Yuyek and Siain Transport are
characterized by oneness of operations vested in
the person of their common president, Cua Le
Leng, and unity in the keeping and
maintenance of their corporate books and
records through their common accountant and
records through their common accountant and
bookkeeper, Rosemarie Ragodon. Consequently,
these corporations are proven to be the mere
alter-ego of their president Cua Le Leng, and
considering that Cua Le Leng and Alberto Lim
have been living together as common law
spouses with three children, this Court believes
that while Alberto Lim does not appear to be an
officer of Siain and Yuyek, nonetheless, his
receipt of certain checks and debit memos from
Willie Lua and Victoria Lua was actually for
the account of his common-law wife, Cua Le
Leng and her alter ego corporations. While this Leng and her alter ego corporations. While this
Court agrees with Siain that a corporation has a
personality separate and distinct from its
individual stockholders or members, this legal
fiction cannot, however, be applied to its benefit
in this case where to do so would result to
injustice and evasion of a valid obligation, for
well settled is the rule in this jurisdiction that
the veil of corporate fiction may be pierced
when it is used as a shield to further an end
subversive of justice, or for purposes that could
not have been intended by the law that created
it; or to justify wrong, or for evasion of an
existing obligation. Resultantly, the obligation
incurred and/or the transactions entered into
either by Yuyek, or by Siain Trucking, or by
Cua Le Leng, or by Alberto Lim
with Cupertino are deemed to be that of the
[petitioner] itself.
The same principle equally applies to Cupertino.
Thus, while it appears that the issuance of the checks and
the debit memos as well as the pledges of the condominium
units, the jewelries, and the trucks had occurred prior to
March 2, 1995, the date when Cupertino was incorporated,
the same does not affect the validity of the subject
the same does not affect the validity of the subject
transactions because applying again the principle of
piercing the corporate veil, the transactions entered into by
Cupertino Realty Corporation, it being merely the alter ego
of Wilfredo Lua, are deemed to be the latters personal
transactions and vice-versa.
x x x x
x x x Firstly. As can be viewed from the extant record of
the instant case, Cua Le Leng is the majority stockholder of
the three (3) corporations namely, Yuyek Manufacturing
Corporation, Siain Transport, Inc., and Siain Enterprises
Inc., at the same time the President thereof. Second. Being
the majority stockholder and the president, Cua Le Leng
has the unlimited power, control and authority without the
approval from the board of directors to obtain for and in approval from the board of directors to obtain for and in
behalf of the [petitioner] corporation from [Cupertino]
thereby mortgaging her jewelries, the condominiums of her
common law husband, Alberto Lim, the trucks registered in
the name of [petitioner] corporations sister company, Siain
Transport Inc., the subject lots registered in the name of
[petitioner] corporation and her oil mill property at Iloilo
City. And, to apply the proceeds thereof in whatever way
she wants, to the prejudice of the public.
As such, [petitioner] corporation is now estopped
from denying the above apparent authorities of Cua Le
Leng who holds herself to the public as possessing the
power to do those acts, against any person who dealt in
good faith as in the case of Cupertino.
D. GOVERNMENT CORPORATION
RAMON A. GONZALES, petitioner, v. THE PHILIPPINE NATIONAL BANK, respondent.
VASQUEZ, J.
Petitioner addressed a letter to the President of the Bank, requesting submission to look into the records
of its transactions covering the purchase of a sugar central by the Southern Negros Development Corp.
to be financed by Japanese suppliers and financiers; its financing of the Cebu-Mactan Bridge to be
constructed by V.C. Ponce, Inc. and the construction of the Passi Sugar Mills in Iloilo. The Asst. Vice-
President and Legal Counsel of the Bank answered petitioner's letter denying his request for being not
germane to his interest as a one-share stockholder and for the cloud of doubt as to his real intention and
purpose in acquiring said share.
In view of the Bank's refusal the petitioner instituted this action.
The court a quo denied the prayer of the petitioner on the grounds that the right of a stockholder to
inspect the record of the business transactions of a corporation granted under Section 51 of the former
Corporation Law is not absolute, but is limited to purposes reasonably related to the interest of the
stockholder, must be asked for in good faith for a specific and honest purpose and not gratify curiosity
or for speculative or vicious purposes; that such examination would violate the confidentiality of the
records of the respondent bank as provided in Section 16 of its charter, Republic Act No. 1300, as
amended; and that the petitioner has not exhausted his administrative remedies. Hence, this petition.
ISSUE:
Whether petitioners alleged improper motive in asking for an examination of the books and records of
the respondent bank disqualifies him to exercise the right of a stockholder to such inspection under
Section 51 of Act No. 1459, as amended.
HELD: The petition is DISMISSED.
Petitioner may no longer insist on his interpretation of Section 51 of Act No. 1459, as amended,
regarding the right of a stockholder to inspect and examine the books and records of a corporation. The
former Corporation Law (Act No. 1459, as amended) has been replaced by Batas Pambansa Blg. 68, former Corporation Law (Act No. 1459, as amended) has been replaced by Batas Pambansa Blg. 68,
otherwise known as the "Corporation Code of the Philippines."
The right of inspection granted to a stockholder under Section 51 of Act No. 1459 has been retained,
but with some modifications. The second and third paragraphs of Section 74 of Batas Pambansa Blg. 68
provide the following:
The records of all business transactions of the corporation and the minutes of any meeting shall
be open to inspection by any director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may demand, in writing, for a copy of excerpts from
said records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to allow any director, trustee, stockholder
or member of the corporation to examine and copy excerpts from its records or minutes, in
accordance with the provisions of this Code, shall be liable to such director, trustee, stockholder
or member for damages, and in addition, shall be guilty of an offense which shall be punishable
under Section 144 of this Code: Provided, That if such refusal is made pursuant to a resolution or
order of the board of directors or trustees, the liability under this section for such action shall be
imposed upon the directors or trustees who voted for such refusal; and Provided, further, That it
shall be a defense to any action under this section that the person demanding to examine and copy
excerpts from the corporation's records and minutes has improperly used any information secured
through any prior examination of the records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a legitimate purpose in making his demand.
As may be noted from the above-quoted provisions, among the changes introduced in the new Code
with respect to the right of inspection granted to a stockholder are the following the records must be kept
at the principal office of the corporation; the inspection must be made on business days; the stockholder
may demand a copy of the excerpts of the records or minutes; and the refusal to allow such inspection
shall subject the erring officer or agent of the corporation to civil and criminal liabilities. However,
while seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same.
It is now expressly required as a condition for such examination that the one requesting it must not have
been guilty of using improperly any information through a prior examination, and that the person asking been guilty of using improperly any information through a prior examination, and that the person asking
for such examination must be "acting in good faith and for a legitimate purpose in making his demand."
The unqualified provision on the right of inspection previously contained in Section 51, Act No.
1459, as amended, no longer holds true under the provisions of the present law. The argument of the
petitioner that the right granted to him under Section 51 of the former Corporation Law should not be
dependent on the propriety of his motive or purpose in asking for the inspection of the books of the
respondent bank loses whatever validity it might have had before the amendment of the law. If there is
any doubt in the correctness of the ruling of the trial court that the right of inspection granted under
Section 51 of the old Corporation Law must be dependent on a showing of proper motive on the part of
the stockholder demanding the same, it is now dissipated by the clear language of the pertinent provision
contained in Section 74 of Batas Pambansa Blg. 68.
Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the
books of the respondent bank, he has not set forth the reasons and the purposes for which he desires such
inspection, except to satisfy himself as to the truth of published reports regarding certain transactions
entered into by the respondent bank and to inquire into their validity. The circumstances under which he
acquired one share of stock in the respondent bank purposely to exercise the right of inspection do not
argue in favor of his good faith and proper motivation. Admittedly he sought to be a stockholder in order
to pry into transactions entered into by the respondent bank even before he became a stockholder. His
obvious purpose was to arm himself with materials which he can use against the respondent bank for
acts done by the latter when the petitioner was a total stranger to the same. He could have been impelled
by a laudable sense of civic consciousness, but it could not be said that his purpose is germane to his
interest as a stockholder.
We also find merit in the contention of the respondent bank that the inspection sought to be
exercised by the petitioner would be violative of the provisions of its charter. (Republic Act No. 1300, as
amended.) Sections 15, 16 and 30 of the said charter provide respectively as follows:
Sec. 15. Inspection by Department of Supervision and Examination of the Central Bank. The
National Bank shall be subject to inspection by the Department of Supervision and Examination
of the Central Bank'
Sec. 16. Confidential information. The Superintendent of Banks and the Auditor General, or
Sec. 16. Confidential information. The Superintendent of Banks and the Auditor General, or
other officers designated by law to inspect or investigate the condition of the National Bank, shall other officers designated by law to inspect or investigate the condition of the National Bank, shall
not reveal to any person other than the President of the Philippines, the Secretary of Finance, and
the Board of Directors the details of the inspection or investigation, nor shall they give any
information relative to the funds in its custody, its current accounts or deposits belonging to
private individuals, corporations, or any other entity, except by order of a Court of competent
jurisdiction,'
Sec. 30. Penalties for violation of the provisions of this Act. Any director, officer, employee, or
agent of the Bank, who violates or permits the violation of any of the provisions of this Act, or
any person aiding or abetting the violations of any of the provisions of this Act, shall be punished
by a fine not to exceed ten thousand pesos or by imprisonment of not more than five years, or
both such fine and imprisonment.
The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not
governed, as a rule, by the Corporation Code of the Philippines. Section 4 of the said Code provides:
SEC. 4. Corporations created by special laws or charters. Corporations created by special
laws or charters shall be governed primarily by the provisions of the special law or charter
creating them or applicable to them. supplemented by the provisions of this Code, insofar as they
are applicable.
The provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect to the
right of a stockholder to demand an inspection or examination of the books of the corporation may not
be reconciled with the abovequoted provisions of the charter of the respondent bank. It is not correct to
claim, therefore, that the right of inspection under Section 74 of the new Corporation Code may apply in
a supplementary capacity to the charter of the respondent bank.
FELICIANO VS. COMMISSION ON AUDIT
G.R. no. 147402 January 14, 2004, En Banc, Carpio, (J)
FACTS:
A Special Audit Team from Commission on Audit (COA) Regional Office No. VIII audited the A Special Audit Team from Commission on Audit (COA) Regional Office No. VIII audited the
accounts of the Leyte Metropolitan Water District (LMWD). Subsequently, LMWD received a letter
from COA dated 19 July 1999 requesting payment of auditing fees. Petitioner and General Manager of
LMWD, Engr. Ranulfo C. Feliciano sent a reply dated 12 October 1999 informing Regional Director of
COA that the water district could not pay the auditing fees. He cited as basis for his action Sections 6
and 20 of PD 198, as well as Section 18 of RA 6758. The Regional Director referred the reply to the
COA Chairman on 18 October 1999. On 19 October 1999, Feliciano wrote COA through the Regional
Director asking for refund of all auditing fees LMWD previously paid to COA. On 16 March 2000,
Feliciano received COA Chairman Gangnans Resolution dated 3 January 2000 denying his request for
COA to cease all audit services, and to stop charging auditing fees, to LMWD. The COA also denied the
request for COA to refund all auditing fees previously paid by LMWD. Feliciano filed a motion for
reconsideration on 31 March 2000, which COA denied on 30 January 2001. On 13 March 2001,
Felicaino filed the petition for certiorari.
ISSUE:
Whether a Local Water District ("LWD) is a government-owned or controlled corporation
HELD:
Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine
backed by a long line of cases culminating in Davao City Water District v. Civil Service
Commission and just recently reiterated in De Jesus v. Commission on Audit.
Petitioner maintains that
LWDs are not government-owned and controlled corporations with original charters. Petitioner even
LWDs are not government-owned and controlled corporations with original charters. Petitioner even
argues that LWDs are private corporations. Petitioner asks the Court to consider certain interpretations
of the applicable laws, which would give a "new perspective to the issue of the true character of water
districts.
The Constitution recognizes two classes of corporations. The first refers to private corporations The Constitution recognizes two classes of corporations. The first refers to private corporations
created under a general law. The second refers to government-owned or controlled corporations created
by special charters. Section 16, Article XII of the Constitution provides: Sec. 16. The Congress
shall not, except by general law, provide for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability.
The Constitution emphatically prohibits the creation of private corporations except by a general
law applicable to all citizens. The purpose of this constitutional provision is to ban private corporations
created by special charters, which historically gave certain individuals, families or groups special
privileges denied to other citizens. Thus, Congress cannot enact a law creating a private corporation with
a special charter. Such legislation would be unconstitutional. Private corporations may exist only under a
general law. If the corporation is private, it must necessarily exist under a general law. Stated differently,
only corporations created under a general law can qualify as private corporations. Under existing laws,
that general law is the Corporation Code, except that the Cooperative Code governs the incorporation of
cooperatives. The Constitution authorizes Congress to create government-owned or controlled
corporations through special charters. Since private corporations cannot have special charters, it follows
that Congress can create corporations with special charters only if such corporations are government-
owned or controlled.
Obviously, LWDs are not private corporations because they are not created under the
Corporation Code. LWDs are not registered with the Securities and Exchange Commission. Section 14
of the Corporation Code states that "[A]ll corporations organized under this code shall file with the
Securities and Exchange Commission articles of incorporation x x x." LWDs have no articles of
incorporation, no incorporators and no stockholders or members. There are no stockholders or members
to elect the board directors of LWDs as in the case of all corporations registered with the Securities and
Exchange Commission. The local mayor or the provincial governor appoints the directors of LWDs for a
fixed term of office. LWDs exist by virtue of PD 198, which constitutes their special charter. Since
under the Constitution only government-owned or controlled corporations may have special charters,
LWDs can validly exist only if they are government-owned or controlled. To claim that LWDs are LWDs can validly exist only if they are government-owned or controlled. To claim that LWDs are
private corporations with a special charter is to admit that their existence is constitutionally infirm.
Unlike private corporations, which derive their legal existence and power from the Corporation Code,
LWDs derive their legal existence and power from PD 198.
E. INCORPORATIONMARIANO A. ALBERT vs. UNIVERSITY PUBLISHING
CO., INC.
G.R. No. L-19118, January 30, 1965, En Banc, BENGZON, J.P., J.:
FACTS:
Mariano A. Albert sued University Publishing Co., Inc. Plaintiff alleged inter alia that defendant
was a corporation duly organized and existing under the laws of the Philippines. On July 19, 1948,
defendant, through Jose M. Aruego, its President, entered into a contract with plaintif whereby
defendant agreed to pay plaintiff P30,000.00 for the exclusive right to publish his revised Commentaries
on the Revised Penal Code. Defendant had undertaken to pay in eight quarterly installments of
P3,750.00 starting July 15, 1948. The contract stipulated that failure to pay one installment would render
the rest due. Later, defendant had failed to pay the second installment so plaintiff sued for collection and
won. Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the execution
and terms of the contract dated July 19, 1948 but alleged that it was plaintiff who breached their contract
by failing to deliver his manuscript. Plaintiff died before trial and Justo R. Albert, his estate's
administrator, was substituted for him. The Court of First Instance of Manila, after trial, rendered
decision in favor of plaintiff and against the defendant the University Publishing Co., Inc. However,
upon execution, it was found that University was not registered with the SEC. Plaintiff petitioned for a
writ of execution against Jose M. Aruego as the real defendant. University opposed, on the ground that writ of execution against Jose M. Aruego as the real defendant. University opposed, on the ground that
Aruego was not a party to the case.
ISSUE:
Is the University Publishing Co., Inc. a de facto corporation?
HELD: No. On account of the non-registration it cannot be considered a corporation, not even a
corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose
M. Aruego; it cannot be sued independently. The corporation-by-estoppel doctrine has not been invoked.
At any rate, the same is inapplicable here. Aruego represented a non-existent entity and induced not only
the plaintiff but even the court to believe in such representation. He signed the contract as "President" of
"University Publishing Co., Inc.," stating that this was "a corporation duly organized and existing under
the laws of the Philippines," and obviously misled plaintiff into believing the same. One who has
induced another to act upon his willful misrepresentation that a corporation was duly organized and
existing under the law, cannot thereafter set up against his victim the principle of corporation by
estoppel (Salvatiera vs. Garlitos, 56 O.G. 3069). "University Publishing Co., Inc." purported to
estoppel (Salvatiera vs. Garlitos, 56 O.G. 3069). "University Publishing Co., Inc." purported to
come to court, answering the complaint and litigating upon the merits. But as stated, "University
Publishing Co., Inc." has no independent personality; it is just a name. Jose M. Aruego was, in reality,
the one who answered and litigated, through his own law firm as counsel. He was in fact, if not, in
name, the defendant.
In Salvatiera vs. Garlitos, the court ruled: "A person acting or purporting to act on behalf
of a corporation which has no valid existence assumes such privileges and obligations and becomes
personally liable for contracts entered into or for other acts performed as such agent." Had Jose M.
Aruego been named as party defendant instead of, or together with, "University Publishing Co., Inc.,"
there would be no room for debate as to his personal liability. Since he was not so named, the matters of
"day in court" and "due process" have arisen. In this connection, it must be realized that parties to a suit "day in court" and "due process" have arisen. In this connection, it must be realized that parties to a suit
are "persons who have a right to control the proceedings, to make defense, to adduce and cross-examine
witnesses, and to appeal from a decision" (67 C.J.S. 887) and Aruego was, in reality, the person who
had and exercised these rights. Clearly, then, Aruego had his day in court as the real defendant; and due
process of law has been substantially observed.
MSCI-NACUSIP Local Chapter vs. NATIONAL WAGES AND PRODUCTIVITY
COMMISSION and MONOMER SUGAR CENTRAL, INC.
G.R. No. 125198, March 3, 1997, First Division , HERMOSISIMA, JR., J.
FACTS:
On January 11, 1990, Asturias Sugar Central, Inc. (ASCI, for brevity), executed a Memorandum of
Agreement with Monomer Trading Industries, Inc. (MTII, for brevity), whereby MTII shall acquire the
assets of ASCI by way of a Deed of Assignment provided that an entirely new organization in place of
MTII shall be organized, which new corporation shall be the assignee of the assets of ASCI. By virtue of
this Agreement, Monomer Sugar Central, Inc. or MSCI, the private respondent herein, was organized.
On January 16, 1991, MSCI applied for exemption from the coverage of Wage Order No. RO VI-01
issued by the Board on the ground that it is a distressed employer. The petitioner herein MSCI-
NACUSIP Local Chapter (Union, for brevity), in opposition, maintained that MSCI is not distressed;
that respondent applicant has not complied with the requirements for exemption; and that the financial
statements submitted by MSCI do not reflect the true and valid financial status of the company, and that
the paid-up capital would have been higher than P5 million and thus impairment would have been lower
than 25% had the pre-organization agreement between ASCI and MTII been complied with. Petitioners
argue that the paid-up capital should be P64M rather than P5M thus making it impossible for the
corporation to apply for a distressed employer because at P64M, the loss would only be at 5.25% which
does not reach the required 25% loss.
On August 17, 1993, the Board denied MSCI's application for exemption based on the finding that On August 17, 1993, the Board denied MSCI's application for exemption based on the finding that
the applicant's losses of P3,400,738.00 for the period February 15, 1990 to August 31, 1990 constitute
an impairment of only 5.25% of its paid-up capital of P64,688,528.00, can not be said to be sufficient to
meet the required 25% in order to qualify for the exemption. The motion for reconsideration, filed by
MSCI on September 20, 1993, was denied by the Board on October 12, 1993. A timely appeal was
brought before the public respondent Commission which reversed and set aside the foregoing orders of
the Board, and granted MSCI's application for exemption from Wage Order No. RO VI-01, for a period
of one (1) year from its effectivity. Petitioner has come before us by way of a Petition
for Certiorari under Rule 65.
ISSUE:
Whether or not respondent MSCI can qualify as a distressed employer from February 15, 1990 to
August 31, 1990 as well as during the interim period from September 1, 1990 to November 30, 1990 and
August 31, 1990 as well as during the interim period from September 1, 1990 to November 30, 1990 and
thus be entitled to exemption from compliance with Wage Order No. RO VI-01
HELD:
To resolve this issue, however, a pivotal determination must first be made: What is the correct paid-
up capital of MSCI for the pertinent period covered by the application for exemption P5 million
or P64,688,528.00?
The Board held that the paid-up capital of MSCI on the aforesaid dates was
actually P64,688,528.00 and not P5 million as claimed by MSCI in its application for exemption and,
thus, the established losses amounting to P3,400,738.00 constitute an impairment of only 5.25% of the
true paid-up capital of P64 million plus which losses are not enough to meet the required 25% true paid-up capital of P64 million plus which losses are not enough to meet the required 25%
impairment requirement. This conclusion is anchored on the belief of the Board that the value of the
assets of ASCI, party to the Memorandum of Agreement, transferred to MSCI on March 28, 1990
should be taken into consideration in computing the paid-up capital of MSCI to reflect its true financial
structure. Moreover, the loans or advances extended by MTII, the other party to the Agreement, to
MSCI should allegedly be treated as additional investments to MSCI and must therefore be included in
computing respondent's paid-up capital.
Public respondent-Commission thought otherwise. In reversing the Board and granting the
exemption, the Commission held that the Board exceeded its authority in computing and giving new
valuation to what should be the paid-up capital of MSCI. It stressed that RA No. 6727, or the Wage
Rationalization Act, and its implementing guidelines have not conferred upon the Board the authority to
change the paid-up capital of a corporation. The foregoing asseveration of the parties considered, we
find no grave abuse of discretion on the part of the Commission in setting aside the findings of the
Board and granting full exemption to MSCI from Wage Order No. RO VI-01.
Since the paid-up capital is the portion of the capital which has been subscribed and paid, the assets
transferred to and the loans extended to a corporation should not be considered in computing the paid-up
capital of the corporation. Not all funds or assets received by the corporation can be considered as paid-
up capital for this term has a technical signification in Corporation Law. Such must form part of the
authorized capital of the corporation, subscribed and then actually paid-up. The same test should also be
applied in determining if the paid-up capital of the Corporation has been impaired so as to qualify it for
the exemption from the increase in the minimum wages. The paid-up capital stock of MSCI for the
period covered by the application for exemption still stood at P5M. The impairment is has incurred
reached 271.08% which is beyond the 25% requirement to be an applicant.
SAMAHAN NG OPTOMETRISTS SA PILIPINAS, ILOCOS SUR-ABRA CHAPTER vs.
ACEBEDO INTERNATIONAL CORPORATION
G.R. No. 117097, 21 March 1997, J. HERMOSISIMA, JR., FIRST DIVISION
Acebedo International Corporation (Acebedo) filed an application with the Office of the Mayor
of Candon, Ilocos Sur, for the issuance of a permit for the opening and operation of a branch of the
Acebedo Optical in that municipality. The application was opposed by the Samahan ng Optometrists sa
Pilipinas (SOP) which contended that Acebedo is a juridical entity not qualified to practice optometry.
Acebedo filed its answer, arguing it is not the corporation, but the optometrists employed by it, who
would be practicing optometry.
The Mayor of Candon created a committee to pass on Acebedo's application. The committee denied
Acebedo's application. The trial court upheld the decision of the committee. Acebedo appealed
therefrom and asked the Court of Appeals to reverse the same. CA reversed the decision of the trial
court and ruled for Acebedo.
ISSUE:
Whether Acebedo, by hiring optometrists whose role in the operation of its shop is to administer
the proper eye examination in order to determine the correct type and grade of lenses to prescribe to
persons purchasing the same from their optical shop, is engaged in the practice of optometry
HELD:
Petition DISMISSED.
The fact that Acebedo hires optometrists who practice their profession in the course of their
employment in Acebedo's optical shops, does not translate into a practice of optometry by Acebedo
itself. Acebedo is a corporation created and organized for the purpose of conducting the business of
selling optical lenses or eyeglasses, among others. The clientele of Acebedo understandably, would
largely be composed of persons with defective vision and thus need the proper lenses to correct the same
and enable them to gain normal vision. The determination of the proper lenses to sell to Acebedo's
clientele entails the employment of optometrists who have been precisely trained for that purpose. clientele entails the employment of optometrists who have been precisely trained for that purpose.
Acebedo's business is not the determination itself of the proper lenses needed by persons with defective
vision. Acebedo's business, rather, is the buying and importing of eyeglasses and lenses and other
similar or allied instruments from suppliers thereof and selling the same to consumers.
For SOPs' argument to hold water, there need be clear showing that RA. No. 1998 prohibits a
corporation from hiring optometrists, for only then would it be undeniably evident that the intention of
the legislature is to preclude the formation of the so-called optometry corporations because such is
tantamount to the practice of the profession of optometry which is legally exercisable only by natural
persons and professional partnerships. The Court had carefully reviewed RA. No. 1998 however, and the
Court finds nothing therein that supports SOP's insistent claims.
It is significant to note that even under RA. No. 8050, known as the Revised Optometry Law, we
find no prohibition against the hiring by corporations of optometrists.
DOCTORS ROSA P. ALFAFARA, et al. vs. ACEBEDO OPTICAL, CO., INC.
G.R. No. 148384, 17 April 2002, J. MENDOZA, SECOND DIVISION
Acebedo Optical Co., Inc. (Acebedo) opened several optical shops in Cebu and announced to the
public the availability of ready-to-wear eyeglasses for sale at P60.00 each and free services by
optometrists in such outlets. Thereafter, members of the Samahan ng Optometrists sa Pilipinas-Cebu
Chapter filed an injuctive suit to enjoin Acebedo and its agents, representatives, and/or employees from
practicing optometry in the province of Cebu. Petitioners claimed that, through the licensed optometrists
under its employ, Acebedo had been engaging in the practice of optometry. They contended that such
acts of Acebedo were done in violation of the Optometry Law (R.A. No. 1998) and the Code of Ethics
for Optometrists.
The trial court found that the hiring of licensed optometrists by the Acebedo was unlawful because
it resulted in the practice of the optometry profession by Acebedo, a juridical person. The Court of
Appeals reversed the decision of the trial court and dismissed the complaint of petitioners Appeals reversed the decision of the trial court and dismissed the complaint of petitioners
ISSUE:
Whether the hiring of licensed optometrists by the Acebedo was unlawful because it resulted in
the practice of the optometry profession by a juridical person
HELD:
Petition DENIED.
An optometrist is a person who has been certified by the Board of Optometry and registered with
the Professional Regulation Commission as qualified to practice optometry in the Philippines. Thus,
only natural persons can engage in the practice of optometry and not corporations. Acebedo, which is
not a natural person, cannot take the licensure examinations for optometrist and, therefore, it cannot be
registered as an optometrist under R.A. No. 1998. It is noteworthy that, in Apacionado, the Court did
not find Acebedo to be engaged in the practice of optometry. The optometrists in that case were found
guilty of unprofessional conduct and their licenses were suspended for two (2) years for having
participated, in their capacities as optometrists, in the implementation of the promotional advertisement
of Acebedo. In contrast, in the case at bar, Acebedo is merely engaged in the business of selling optical
products, not in the practice of optometry, whether directly or indirectly, through its hired optometrists.
While the optometrists are employees of Acebedo, their practice of optometry is separate and
distinct from the business of Acebedo of selling optical products. They are personally liable for acts
done in the course of their practice in the same way that if Acebedo is sued in court in connection with
its business of selling optical products, the optometrists need not be impleaded as party defendants. In
that regard, the Board of Optometry and the Professional Regulation Commission regulate their practice that regard, the Board of Optometry and the Professional Regulation Commission regulate their practice
and have exclusive original jurisdiction over them.
ISLAMIC DIRECTORATE OF THE PHILIPPINES, et al. vs. COURT OF APPEALS
G.R. No. 117897, 14 May 1997, J. HERMOSISIMA, JR., FIRST DIVISION
Islamic leaders of all Muslim major tribal groups in the Philippines organized and incorporated
the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of which is to
establish an Islamic Center in Quezon City so as to facilitate the effective practice of Islamic faith in the
area. The Libyan government donated money to the IDP to purchase land.
After martial law, two Muslim groups sprung, the Carpizo Group and the Abbas Group. The
Securities and Exchange Commission (SEC) declared the election of both groups as IDP board members
to be null and void. No valid election of the members of the Board of Trustees of IDP was ever called.
The Carpizo Group caused to be signed an alleged Board Resolution of the IDP authorizing the
sale of the subject two parcels of land to Iglesia Ni Cristo (INC). The 1971 IDP Board of Trustees or the
Tamano Group, filed a petition before the SEC seeking to declare null and void the Deed of Absolute
Sale since they were not the legitimate Board of Trustees of the IDP.
Meanwhile, INC filed an action for Specific Performance with Damages against the vendor, Carpizo
Group. The IDP-Tamano Group sought to intervene but was denied. The trial court rendered Partial Group. The IDP-Tamano Group sought to intervene but was denied. The trial court rendered Partial
Judgment in favor of INC.
The SEC finally came out with a Decision declaring the sale of the two (2) parcels of land in
Quezon City covered by the Deed of Absolute Sale entered into by Iglesia ni Kristo and the Islamic
Directorate of the Philippines, Inc null and void, among others. INC sought to intervene, but was
denied. The case was elevated to the Court of Appeals (CA). It granted INCs petition. The portion of
denied. The case was elevated to the Court of Appeals (CA). It granted INCs petition. The portion of
the SEC Decision which declared the sale of the two (2) lots in question to INC as void was ordered set
aside by the CA.
ISSUE:
Whether the sale of the two (2) parcels of land in Quezon City covered by the Deed of Absolute
Sale entered into by Iglesia ni Cristo and the Islamic Directorate of the Philippines, Inc - Carpizo
Group null and void
HELD:
Petition GRANTED.
If the SEC can declare who is the legitimate IDP Board, then by parity of reasoning, it can also
declare who is not the legitimate IDP Board. This is precisely what the SEC did in SEC Case No. 4012
when it adjudged the election of the Carpizo Group to the IDP Board of Trustees to be null and void. By
this ruling, the SEC in effect made the unequivocal finding that the IDP-Carpizo Group is a bogus Board
of Trustees. Consequently, the Carpizo Group is bereft of any authority whatsoever to bind IDP in any
kind of transaction including the sale or disposition of IDP property.
Premises considered, all acts carried out by the Carpizo Board, particularly the sale of the Tandang Premises considered, all acts carried out by the Carpizo Board, particularly the sale of the Tandang
Sora property, allegedly in the name of the IDP, have to be struck down for having been done without
the consent of the IDP thru a legitimate Board of Trustees. Article 1318 of the New Civil Code lays
down the essential requisites of contracts:
There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
All these elements must be present to constitute a valid contract. For, where even one is absent, the
contract is void. As succinctly put by Tolentino, consent is essential for the existence of a contract, and
where it is wanting, the contract is non-existent. In this case, the IDP, owner of the subject parcels of
land, never gave its consent, thru a legitimate Board of Trustees, to the disputed Deed of Absolute Sale
executed in favor of INC. This is, therefore, a case not only of vitiated consent, but one where consent
on the part of one of the supposed contracting parties is totally wanting. Ineluctably, the subject sale is
void and produces no effect whatsoever.
The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo
Groups failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or
substantially all assets of the corporation:
Sec. 40. Sale or other disposition of assets. - Subject to the provisions of existing laws
on illegal combinations and monopolies, a corporation may, by a majority vote of its
board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise
dispose of all or substantially all of its property and assets, including its goodwill, upon dispose of all or substantially all of its property and assets, including its goodwill, upon
terms and conditions and for such consideration, which may be money, stocks, bonds or
other instruments for the payment of money or other property or consideration, as its
board of directors or trustees may deem expedient, when authorized by the vote of the
board of directors or trustees may deem expedient, when authorized by the vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in
case of non-stock corporation, by the vote of at least two-thirds (2/3) of the members, in a
stockholders or members meeting duly called for the purpose. Written notice of the
proposed action and of the time and place of the meeting shall be addressed to each
stockholder or member at his place of residence as shown on the books of the corporation
and deposited to the addressee in the post office with postage prepaid, or served
personally: Provided, That any dissenting stockholder may exercise his appraisal right
under the conditions provided in this Code.
A sale or other disposition shall be deemed to cover substantially all the corporate
property and assets if thereby the corporation would be rendered incapable of continuing
the business or accomplishing the purpose for which it was incorporated. xxx
The Tandang Sora property, it appears from the records, constitutes the only property of the
IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate property and assets of
IDP falling squarely within the contemplation of the foregoing section. For the sale to be valid, the
majority vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona
fide members of the corporation should have been obtained. These twin requirements were not met as
the Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and
those whose names and signatures were affixed by the Carpizo Group together with the sham Board
Resolution authorizing the negotiation for the sale were, from all indications, not bona fide members of
the IDP as they were made to appear to be. Apparently, there are only fifteen (15) official members of
the petitioner corporation including the eight (8) members of the Board of Trustees.
All told, the disputed Deed of Absolute Sale executed by the fake Carpizo Board and private All told, the disputed Deed of Absolute Sale executed by the fake Carpizo Board and private
respondent INC was intrinsically void ab initio.
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON.
COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents.
FACTS
International Express Travel and Tour Services, Inc. wrote a letter to the President of the
Philippine Football Federation, Henry Kahn because the former wanted to offer its services as a travel
agency to the latter. Kahn agreed so the travel agency procured the airline tickets for the athletes for the
South East Asian games in Kulala Lumpur as well as tickets to China and Brisbane. The federation
made partial payments. Kahn also issued a personal check for the remaining balance. Unfortunately the
federation and Kahn defaulted as to the remaining balance. The travel agency sued Kahn in his personal
capacity. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by
the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation. The trial court
held Kahn personally liable but such decision was reversed by the CA ruling that the federation is a
corporate entity which has a personality separate from its officers.
ISSUE
Whether the federation is a corporate entity
Whether the federation is a corporate entity
HELD: The decision appealed from is REVERSED and SET ASIDE.
The above powers and functions granted to national sports associations clearly indicate that these
entities may acquire a juridical personality. The power to purchase, sell, lease and encumber property
are acts which may only be done by persons, whether natural or artificial, with juridical capacity.
However, while we agree with the appellate court that national sports associations may be accorded
corporate status, such does not automatically take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical personality, the State must
give its consent either in the form of a special law or a general enabling act. We cannot agree with the
view of the appellate court and the private respondent that the Philippine Football Federation came into
existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any
provision creating the Philippine Football Federation. These laws merely recognized the existence of
national sports associations and provided the manner by which these entities may acquire juridical
personality. Section 11 of R.A. 3135 provides:
SEC. 11. National Sports' Association; organization and
recognition. - A National Association shall be organized for
each individual sports in the Philippines in the manner
hereinafter provided to constitute the Philippine Amateur
Athletic Federation. Applications for recognition as a
National Sports' Association shall be filed with the
executive committee together with, among others, a copy of
the constitution and by-laws and a list of the members of
the proposed association, and a filing fee of ten pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that said association will The Executive Committee shall give the recognition applied for if it is satisfied that said association will
promote the purposes of this Act and particularly section three thereof. No application shall be held
pending for more than three months after the filing thereof without any action having been taken thereon
by the executive committee. Should the application be rejected, the reasons for such rejection shall be
clearly stated in a written communication to the applicant. Failure to specify the reasons for the rejection
shall not affect the application which shall be considered as unacted upon: Provided, however, That until
the executive committee herein provided shall have been formed, applications for recognition shall be
passed upon by the duly elected members of the present executive committee of the Philippine Amateur
Athletic Federation. The said executive committee shall be dissolved upon the organization of the
executive committee herein provided: Provided, further, That the functioning executive committee is
charged with the responsibility of seeing to it that the National Sports' Associations are formed and
organized within six months from and after the passage of this Act.
Section 7 of P.D. 604, similarly provides:
SEC. 7. National Sports Associations. - Application for
accreditation or recognition as a national sports association
for each individual sport in the Philippines shall be filed
with the Department together with, among others, a copy of
the Constitution and By-Laws and a list of the members of
the proposed association.
The Department shall give the recognition applied for if it is satisfied that the national sports association
to be organized will promote the objectives of this Decree and has substantially complied with the rules
and regulations of the Department: Provided, That the Department may withdraw accreditation or
and regulations of the Department: Provided, That the Department may withdraw accreditation or
recognition for violation of this Decree and such rules and regulations formulated by it.
The Department shall supervise the national sports association: Provided, That the latter shall have
exclusive technical control over the development and promotion of the particular sport for which they
are organized. are organized.
Clearly the above cited provisions require that before an entity may be considered as a national
sports association, such entity must be recognized by the accrediting organization, the Philippine
Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development
under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to
prove the juridical existence of the Federation, Henri Kahn attached to his motion for reconsideration
before the trial court a copy of the constitution and by-laws of the Philippine Football Federation.
Unfortunately, the same does not prove that said Federation has indeed been recognized and accredited
by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football Federation is not a national sports
association within the purview of the aforementioned laws and does not have corporate existence of its
own.
Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid
obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation
law that any person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and becomes personally liable for contract entered into or for other acts
performed as such agent
F. CORPORATE NAME
REPUBLIC PLANTERS BANK, petitioner, vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.
FACTS FACTS
Defendant Shozo Yamaguchi and private respondent Fermin Canlas were President/Chief
Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of
Board Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent
Fermin Canlas were authorized to apply for credit facilities with the petitioner Republic Planters Bank in
the forms of export advances and letters of credit/trust receipts accommodations. Petitioner bank issued
nine promissory notes worded as:
___________, after date, for value received, I/we,
jointly and severaIly promise to pay to the ORDER of the
REPUBLIC PLANTERS BANK, at its office in Manila,
Philippines, the sum of ___________ PESOS(....)
Philippine Currency...
On the right bottom margin of the promissory notes
appeared the signatures of Shozo Yamaguchi and Fermin
Canlas above their printed names with the phrase "and (in)
his personal capacity" typewritten below. At the bottom of
the promissory notes appeared: "Please credit proceeds of
this note to:
________ Savings Account ______XX Current Account
No. 1372-00257-6 No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
Worldwide Garment Manufacturing, Inc. noted to change its corporate name to Pinch Manufacturing
Corporation. Due to the default of the corporation, the petitioner bank filed a complaint for sum of
money against the corporation. The complaint was amended in order to drop Worldwide Manufacturing,
Inc. as defendant and substitute Pinch Manufacturing Corporation it its place. Canlas contends that he
did not issue the promissory notes for he was not an officer of Pinch Manufacturing Corporation, but
instead of Worldwide Garment Manufacturing, Inc., and that when he issued said promissory notes in
behalf of Worldwide Garment Manufacturing, Inc. The RTC ruled for petitioner bank but such decision
was reversed by the CA. Hence this petition
ISSUE
Whether private respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch
Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes.
DECISION
Petition granted. We hold that private respondent Fermin Canlas is solidarily liable on each of
the promissory notes bearing his signature. Finally, the respondent Court made a grave error in holding
that an amendment in a corporation's Articles of Incorporation effecting a change of corporate name, in
this case from Worldwide Garment manufacturing Inc to Pinch Manufacturing Corporation extinguished
the personality of the original corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the
original corporation. It is the same corporation with a different name, and its character is in no respect
changed.
10
changed.
10
A change in the corporate name does not make a new corporation, and whether effected by special act or
under a general law, has no affect on the identity of the corporation, or on its property, rights, or
liabilities.
11
The corporation continues, as before, responsible in its new name for all debts or other liabilities which
it had previously contracted or incurred.
12
As a general rule, officers or directors under the old corporate name bear no personal liability for acts
done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such
officers acted in their capacity as agent of the old corporation and the change of name meant only the
continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts
of its agents if authorized by the Board. Under the Negotiable Instruments Law, the liability of a person
signing as an agent is specifically provided for as follows:
Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person
adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent, or as filling a representative character, without disclosing his principal, does
not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting
in a representative capacity or the name of the third party for whom he might have acted as agent, the
agent is personally liable to take holder of the instrument and cannot be permitted to prove that he was
merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's
personal liability.
13
INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES, petitioner, vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
REFRACTORIES CORPORATION OF THE PHILIPPINES, respondents.
FACTS
Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly
organized on October 13, 1976 for the purpose of engaging in the business of manufacturing, producing,
selling, exporting and otherwise dealing in any and all refractory bricks, its by-products and derivatives.
On June 22, 1977, it registered its corporate and business name with the Bureau of Domestic Trade.
Petitioner IRCP on the other hand, was incorporated on August 23, 1979 originally under the name
Synclaire Manufacturing Corporation. It amended its Articles of Incorporation on August 23, 1985 to
change its corporate name to Industrial Refractories Corp. of the Philippines. It is engaged in the
business of manufacturing all kinds of ceramics and other products, except paints and zincs.
business of manufacturing all kinds of ceramics and other products, except paints and zincs.
Both companies are the only local suppliers of monolithic gunning mix. Discovering that petitioner was
using such corporate name, respondent RCP filed on April 14, 1988 with the Securities and Exchange
Commission (SEC) a petition to compel petitioner to change its corporate name on the ground that its
corporate name is confusingly similar with that of petitioners such that the public may be confused or
deceived into believing that they are one and the same corporation. The SEC ruled for respondent but
after petitioner appealed it ordered respondent to drop the word refractories from its name. Petitioner
also questioned the jurisdiction of the SEC over such matters. Petitioner appealed to the CA but the
latter still ruled in favor of respondent. Hence this petition.
ISSUE
Whether there is no confusing or deceptive similarity between petitioner and respondent RCPs
corporate names. corporate names.
Whether SEC has jurisdiction.
HELD
Petitioners argument on the SECs jurisdiction over the case is utterly myopic. The
jurisdiction of the SEC is not merely confined to the adjudicative functions provided in Section 5 of P.D.
902-A, as amended.[19] By express mandate, it has absolute jurisdiction, supervision and control over
all corporations.[20] It also exercises regulatory and administrative powers to implement and enforce the
Corporation Code,[21] one of which is Section 18, which provides:
SEC. 18. Corporate name. -- 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.
It is the SECs duty to prevent confusion in the use of corporate names not only for the protection
of the corporations involved but more so for the protection of the public, and it has authority to de-
register at all times and under all circumstances corporate names which in its estimation are likely to
generate confusion.[22] Clearly therefore, the present case falls within the ambit of the SECs regulatory
powers.[23]
Likewise untenable is petitioners argument that there is no confusing or deceptive similarity
between petitioner and respondent RCPs corporate names. Section 18 of the Corporation Code
expressly prohibits the use of a corporate name which 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. The policy behind the foregoing prohibition is to
avoid fraud upon the public that will have occasion to deal with the entity concerned, the evasion of
legal obligations and duties, and the reduction of difficulties of administration and supervision over
corporation.[24] corporation.[24]
P.C. JAVIER & SONS, INC., SPS. PABLO C. JAVIER, SR. and ROSALINA F.
JAVIER, petitioners, vs. HON. COURT OF APPEALS, PAIC SAVINGS & MORTGAGE BANK,
INC., SHERIFFS GRACE BELVIS, SOFRONIO VILLARIN, PIO MARTINEZ and NICANOR
BLANCO, respondents.
This Court cannot impose on a bank that changes its corporate name to notify a debtor of such
change absent any law, circular or regulation requiring it. Such act would be judicial
legislation. The formal notification is, therefore, discretionary on the bank.
FACTS:
CHICO-NAZARIO, J.:
In February, 1981, Plaintiff P.C. Javier and Sons Services, Inc., Plaintiff Corporation, for short, applied
with First Summa Savings and Mortgage Bank, later on renamed as PAIC Savings and Mortgage Bank,
Defendant Bank, for short, for a loan accommodation under the Industrial Guarantee Loan Fund (IGLF)
for P1.5 Million.
Plaintiff Corporation defaulted in the payment of its IGLF loan with Defendant Bank
Bank initiated extrajudicial foreclosure of the real estate mortgage executed by Plaintiff spouses and
accordingly the auction sale of the property covered by TCT No. 473216 was scheduled by the Ex
Officio Sheriff on May 9, 1984.
Petitioners argue that they are legally justified to withhold their amortized payments to the respondent
bank until such time they would have been properly notified of the change in the corporate name of First
Summa Savings and Mortgage Bank. They claim that they have never received any formal notice of the
alleged change of corporate name of First Summa Savings and Mortgage Bank to PAIC Savings & alleged change of corporate name of First Summa Savings and Mortgage Bank to PAIC Savings &
Mortgage Bank, Inc.
The RTC declared that First Summa Savings and Mortgage Bank and PAIC Savings and Mortgage
Bank, Inc. are one and the same entity and that petitioner corporation is liable to respondent bank for the
unpaid balance of its Industrial Guarantee Loan Fund (IGLF) loans.
Petitioners appealed the decision to the Court of Appeals. The latter affirmed in toto the decision of
the lower court. It also denied petitioners motion for reconsideration.
ISSUE:
Whether or not P.C. JAVIER & SONS, INC. Was justified in withholding payment of a due and
demandable debt due to the lack of notice of the change of name of their creditors corporation.
HELD:
Their defense that they should first be formally notified of the change of corporate name of First
Summa Savings and Mortgage Bank to PAIC Savings and Mortgage Bank, Inc., before they will
continue paying their loan obligations to respondent bank presupposes that there exists a requirement
under a law or regulation ordering a bank that changes its corporate name to formally notify all its
debtors. After going over the Corporation Code and Banking Laws, as well as the regulations and
circulars of both the SEC and the Bangko Sentral ng Pilipinas (BSP), we find that there is no such
requirement. This being the case, this Court cannot impose on a bank that changes its corporate name to
notify a debtor of such change absent any law, circular or regulation requiring it. Such act would be
judicial legislation. The formal notification is, therefore, discretionary on the bank. Unless there is a
law, regulation or circular from the SEC or BSP requiring the formal notification of all debtors of banks
of any change in corporate name, such notification remains to be a mere internal policy that banks may
or may not adopt.
In the case at bar, though there was no evidence showing that petitioners were furnished copies of In the case at bar, though there was no evidence showing that petitioners were furnished copies of
official documents showing the First Summa Savings and Mortgage Banks change of corporate name to
PAIC Savings and Mortgage Bank, Inc., evidence abound that they had notice or knowledge thereof.
Several documents establish this fact. First, letter dated 16 July 1983 signed by Raymundo V. Blanco,
Accountant of petitioner corporation, addressed to PAIC Savings and Mortgage Bank, Inc. Part of said
letter reads: In connection with your inquiry as to the utilization of funds we obtained from the former
First Summa Savings and Mortgage Bank, . . . Second, Board Resolutionof petitioner corporation
signed by Pablo C. Javier, Sr. on 24 August 1983 authorizing him to execute a Chattel Mortgage over
certain machinery in favor of PAIC Savings and Mortgage Bank, Inc. Third, Secretarys
Certificate signed by Fortunato E. Gabriel, Corporate Secretary of petitioner corporation, on 01
September 1983, certifying that a board resolution was passed authorizing Mr. Pablo C. Javier, Sr. to
September 1983, certifying that a board resolution was passed authorizing Mr. Pablo C. Javier, Sr. to
execute a chattel mortgage on the corporations equipment that will serve as collateral to cover the IGLF
loan with PAIC Savings and Mortgage Bank, Inc. Fourth, undated letter signed by Pablo C. Javier, Sr.
and addressed to PAIC Savings and Mortgage Bank, Inc., authorizing Mr. Victor F. Javier, General
Manager of petitioner corporation, to secure from PAIC Savings and Mortgage Bank, Inc. certain
documents for his signature.
From the foregoing documents, it cannot be denied that petitioner corporation was aware of First
Summa Savings and Mortgage Banks change of corporate name to PAIC Savings and Mortgage Bank,
Inc. Knowing fully well of such change, petitioner corporation has no valid reason not to pay because
the IGLF loans were applied with and obtained from First Summa Savings and Mortgage Bank. First
Summa Savings and Mortgage Bank and PAIC Savings and Mortgage Bank, Inc., are one and the same
bank to which petitioner corporation is indebted. A change in the corporate name does not make a new
corporation, whether effected by a special act or under a general law. It has no effect on the identity of
the corporation, or on its property, rights, or liabilities.
[21]
The corporation, upon such change in its
name, is in no sense a new corporation, nor the successor of the original corporation. It is the same
corporation with a different name, and its character is in no respect changed.
HYATT ELEVATORS AND ESCALATORS CORPORATION Petitioner, vs. GOLDSTAR
ELEVATORS, PHILS., INC., Respondent. ELEVATORS, PHILS., INC., Respondent.
[G.R. No. 161026 October 24, 2005]
Well established in our jurisprudence is the rule that the residence of a corporation is the place where
its principal office is located, as stated in its Articles of Incorporation.
FACTS:
PANGANIBAN, J.:
On February 23, 1999, HYATT filed a Complaint for unfair trade practices and damages
under Articles 19, 20 and 21 of the Civil Code of the Philippines against LG Industrial Systems
Co. Ltd. (LGISC) and LG International Corporation (LGIC), alleging among others, that: in
1988, it was appointed by LGIC and LGISC as the exclusive distributor of LG elevators and
escalators in the Philippines under a Distributorship Agreement
Likewise, the motion averred that x x x GOLDSTAR was being utilized by LG OTIS and
LGIC in perpetrating their unlawful and unjustified acts against HYATT. Consequently, in order
to afford complete relief, GOLDSTAR was to be additionally impleaded as a party-defendant.
Hence, in the Amended Complaint, HYATT impleaded x x x GOLDSTAR as a party-defendant,
and all references to LGISC were correspondingly replaced with LG OTIS.
On March 17, 1999, LGISC and LGIC filed a Motion to Dismiss raising the following
grounds: (1) lack of jurisdiction over the persons of defendants, summons not having been
served on its resident agent; (2) improper venue; and (3) failure to state a cause of action. The
[trial] court denied the said motion in an Order dated January 7, 2000.
In the Order dated May 27, 2002, which is the main subject of the present petition, the In the Order dated May 27, 2002, which is the main subject of the present petition, the
[trial] court denied the motion to dismiss.
According to the appellate court, since Makati was the principal place of business of both
respondent and petitioner, as stated in the latters Articles of Incorporation.
ISSUE:
ISSUE:
Whether or not a corporation can have a place of residence, for the purpose of determining the venue of
an action.
HELD:
The resolution of this case rests upon a proper understanding of Section 2 of Rule 4 of the 1997
Revised Rules of Court:
Sec. 2. Venue of personal actions. All other actions
may be commenced and tried where the plaintiff or any of
the principal plaintiff resides, or where the defendant or any
of the principal defendant resides, or in the case of a non-
resident defendant where he may be found, at the election
of the plaintiff.
Since both parties to this case are corporations, there is a need to clarify the meaning of
residence. The law recognizes two types of persons: (1) natural and (2) juridical.
Corporations come under the latter in accordance with Article 44(3) of the Civil Code. Corporations come under the latter in accordance with Article 44(3) of the Civil Code.
Residence is the permanent home -- the place to which, whenever absent for business or
pleasure, one intends to return. Residence is vital when dealing with venue. A corporation,
however, has no residence in the same sense in which this term is applied to a natural person.
This is precisely the reason why the Court inYoung Auto Supply Company v. Court of
Appeals ruled that for practical purposes, a corporation is in a metaphysical sense a resident of
the place where its principal office is located as stated in the articles of incorporation. Even
before this ruling, it has already been established that the residence of a corporation is the place
where its principal office is established.
This Court has also definitively ruled that for purposes of venue, the term residence is
synonymous with domicile. Correspondingly, the Civil Code provides:
Art. 51. When the law creating or recognizing them, or
any other provision does not fix the domicile of juridical
persons, the same shall be understood to be the place where
their legal representation is established or where they
exercise their principal functions.
It now becomes apparent that the residence or domicile of a juridical person is fixed by the law
creating or recognizing it. Under Section 14(3) of the Corporation Code, the place where the principal
office of the corporation is to be located is one of the required contents of the articles of incorporation,
which shall be filed with the Securities and Exchange Commission (SEC).
In the present case, there is no question as to the residence of respondent. What needs to be
examined is that of petitioner. Admittedly, the latters principal place of business is Makati, as indicated
in its Articles of Incorporation. Since the principal place of business of a corporation determines its
residence or domicile, then the place indicated in petitioners articles of incorporation becomes residence or domicile, then the place indicated in petitioners articles of incorporation becomes
controlling in determining the venue for this case.
Allowing petitioners arguments may lead precisely to what this Court was trying to avoid in Young
Allowing petitioners arguments may lead precisely to what this Court was trying to avoid in Young
Auto Supply Company v. CA: the creation of confusion and untold inconveniences to party litigants.
Thus enunciated the CA:
x x x. To insist that the proper venue is the actual
principal office and not that stated in its Articles of
Incorporation would indeed create confusion and work
untold inconvenience. Enterprising litigants may, out of
some ulterior motives, easily circumvent the rules on venue
by the simple expedient of closing old offices and opening
new ones in another place that they may find well to suit
their needs.
We find it necessary to remind party litigants, especially corporations, as follows:
The rules on venue, like the other procedural rules, are
designed to insure a just and orderly administration of
justice or the impartial and evenhanded determination of
every action and proceeding. Obviously, this objective will
not be attained if the plaintiff is given unrestricted freedom
to choose the court where he may file his complaint or
petition.
The choice of venue should not be left to the plaintiffs
whim or caprice. He may be impelled by some ulterior
motivation in choosing to file a case in a particular court
even if not allowed by the rules on venue.
MARISSA R. UNCHUAN, petitioner vs. ANTONIO J.P. LOZADA, ANITA LOZADA and THE
REGISTER OF DEEDS OF CEBU CITY, Respondents. [G.R. No. 172671, April 16, 2009]
A corporation organized under the laws of the Philippines of which at least 60% of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines, is considered a
Philippine National.
FACTS:
QUISUMBING, J.:
Sisters Anita Lozada Slaughter and Peregrina Lozada Saribay were the registered co-owners of Lot
Nos. 898-A-3 and 898-A-4 in Cebu City.
The sisters, who were based in the United States, sold the lots to their nephew Antonio J.P. Lozada
(Antonio). Armed with a Special Power of Attorney from Anita, Peregrina went to the house of their
brother, Dr. Antonio Lozada (Dr. Lozada). Dr. Lozada agreed to advance the purchase price of
US$367,000 or P10,000,000 for Antonio, his nephew. Accordingly, TCT Nos. 128322 and
128323 were issued in the name of Antonio Lozada.
Pending registration of the deed, petitioner Marissa R. Unchuan caused the annotation of an adverse
claim on the lots. Marissa claimed that Anita donated an undivided share in the lots to her under an
claim on the lots. Marissa claimed that Anita donated an undivided share in the lots to her under an claim on the lots. Marissa claimed that Anita donated an undivided share in the lots to her under an
unregistered Deed of Donation
dated February 4, 1987.
Antonio and Anita brought a case against Marissa for quieting of title with application for
preliminary injunction and restraining order. Marissa for her part, filed an action to declare the Deed of
Sale void and to cancel TCT Nos. 128322 and 128323.
At the trial, respondents presented a notarized and duly authenticated sworn statement, and a
videotape where Anita denied having donated land in favor of Marissa. Dr. Lozada testified that he
agreed to advance payment for Antonio in preparation for their plan to form a corporation. The lots are
to be eventually infused in the capitalization of Damasa Corporation, where he and Antonio are to have
40% and 60% stake, respectively.
RTC Judge Leonardo B. Caares ruled in favour of Antonio Lozada.
On motion for reconsideration by petitioner, the RTC of Cebu City, Branch 10, with Hon. Jesus S.
dela Pea as Acting Judge, issued an Orderdated April 5, 1999. Said order declared the Deed of Sale
void, ordered the cancellation of the new TCTs in Antonios name
Petitioner appealed to the Court of Appeals. On February 23, 2006 the appellate court affirmed with
modification the Order of the RTC
ISSUE:
Whether or not the agreement between Antonio and Dr. Lozada resulted in Dr. Lozada owning the lands
in violation of the prohibition against aliens to own lands
HELD:
In this case, we find nothing to show that the sale between the sisters Lozada and their nephew
Antonio violated the public policy prohibiting aliens from owning lands in thePhilippines. Even as Dr.
Lozada advanced the money for the payment of Antonios share, at no point were the lots registered in Lozada advanced the money for the payment of Antonios share, at no point were the lots registered in
Dr. Lozadas name. Nor was it contemplated that the lots be under his control for they are actually to be
included as capital of Damasa Corporation. According to their agreement, Antonio and Dr. Lozada are
to hold 60% and 40% of the shares in said corporation, respectively. Under Republic Act No. 7042,
particularly Section 3, a corporation organized under the laws of the Philippines of which at least 60% of
the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines, is
considered a Philippine National. As such, the corporation may acquire disposable lands in the
Philippines. Neither did petitioner present proof to belie Antonios capacity to pay for the lots subjects
of this case.