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Gallagher v Germania Brewing Co.

Facts: Caram was ordered by the CA to jointly and

severally pay the plaintiff the amount of P50,000.00
Facts: Plaintiff, as assignee of Westphal, brought for the preparation of the project study and his
this action to recover goods sold and delivered by his technical services that led to the organization of the
assignor (Westphal), to the defendant corporation. corporation. Their position is that as mere
However, Barge and Vander Horck intervened, and subsequent investors in the corporation that was
stated that they could intervene because they owned later created, they should not be held solidarily liable
all the capital stock of the defendant, and that no with the Filipinas Orient Airways, a separate juridical
other person but themselves had an interest in the entity, and with Barretto and Garcia, their co-
stock and property of Germania Brewing Co. They defendants in the lower court, who were the ones
also contended that they had a COA against who requested the said services from them.
Westphal which accrued before the assignment to
the plaintiff, and that Westphal was utterly insolvent. Issue: WON the Carams are also and personally
The relief they were seeking was that to equitably liable for such expenses.
set-off their claims against Westphal from those that
Gallagher (as Westphal’s assignee) has against the Held: No. The petitioners are not liable at all, jointly
defendant corp. Gallagher states that Barge and or jointly and severally. The petitioners were not
Vander had no such interest in the litigation as to really involved in the initial steps that finally led to
entitle them to intervene and that their claims cannot the incorporation of the Filipinas Orient Airways.
be set off against a claim against the corporation, Barreto was also described as the “moving spirit”.
The project study was undertaken by the private
since a corporation is a legal entity, entirely distinct
respondent at the request of Barretto and Garcia
from its stockholders who, upon its completion, presented it to the
petitioners to induce them to invest in the proposed
Issue: WON the claims of Barge and Vander airline. The airline was eventually organized on the
Horck can be equitable set-off against the basis of the project study with the petitioners as
claims of Gallagher as against Germania major stockholders and, together with Barretto and
Brewin Corp. Garcia, as principal officers. Caram was properly
compensated not only for having actively
Held: No. Their claims against Westphal participated in the preparation of the project study
for several months and its subsequent revision but
(Gallagher’s assignor) are not subjects of
also in his having been involved in the pre-
equitable set-off to a claim against the organization of the defendant corporation, in the
defendant corporation. preparation of the franchise, in inviting the interest of
the financiers and in the training and screening of
To allow the set-off in the case at bat, it will be personnel.
tantamount to totally ignoring the legal doctrine, or
fiction, that a corporation is an entity separate and The above finding bolsters the conclusion that the
distinct from the body of its stockholders. It has been petitioners were not involved in the initial stages of
absolutely essential, for the administration of justice, the organization of the airline, which were being
to treat a corporation as a collective entity, without directed by Barretto as the main promoter. It was he
who was putting all the pieces together, so to speak.
regard to its individual shareholders. If the rights or
The petitioners were merely among the financiers
liabilities of a corporation could be affected by the whose interest was to be invited and who were in
acts of the stockholders, except when acting in the fact persuaded, on the strength of the project study,
corporate name, it can easily be seen into what to invest in the proposed airline.
confusion and chaos corporate affairs would
inevitably fall. In as much as the 2 intervenors own There was no showing that the Filipinas Orient
all the stock of this corporation (Germania), the facts Airways was a fictitious corporation and did not have
of this case seem comparatively free from a separate juridical personality, to justify making the
embarrassments, and the contention of the petitioners, as principal stockholders thereof,
responsible for its obligations. As a bona fide
respondent quite plausible. But suppose there were
corporation, the Filipinas Orient Airways should alone
50 other stock holders, what would be the result? be liable for its corporate acts as duly authorized by
Could interveners then interpose their claims as set- its officers and directors.
offs, and if so, could they do so to the full amount of
their claims? No. Illustration might be multiplied The petitioners cannot be held personally liable for
indefinitely to show that to recognize any such right the compensation claimed by the private respondent
would result in the worst sort of complications, and for the services performed by him in the organization
that the only safe or sound rule is to adhere strictly of the corporation. To repeat, the petitioners did not
to the doctrine of a corporate entity distinct from the contract such services. It was only the results of such
services that Barretto and Garcia presented to them
individual stockholders.
and which persuaded them to invest in the proposed
airline. The most that can be said is that they
benefited from such services, but that surely is no
justification to hold them personally liable therefor.
Caram vs CA Otherwise, all the other stockholders of the
corporation, including those who came in later, and
regardless of the amount of their share holdings,
would be equally and personally liable also with the perpetuate fraud or confuse legitimate issues; or to
petitioners for the claims of the private respondent. circumvent the law or perpetuate deception; or as an
alter ego, adjunct or business conduit for the sole
PALAY, INC. and ALBERT ONSTOTT benefit of the stockholders.
JACOBO C. CLAVE, Presidential Executive We find no badges of fraud on petitioners' part. They
Assistant NATIONAL HOUSING AUTHORITY and had literally relied, albeit mistakenly, on paragraph 6
NAZARIO DUMPIT respondents. of its contract with private respondent when it
rescinded the contract to sell extrajudicially and had
Facts: Palay, Inc., through its President, Albert sold it to a third person.
Onstott executed in favor of Nazario Dumpit, a
Contract to Sell a parcel of Land of the Crestview In this case, petitioner Onstott was made liable
Heights Subdivision in Antipolo, Rizal, owned by said because he was then the President of the corporation
corporation. The sale price was P23,300.00 with 9% and he was the controlling stockholder. No sufficient
interest per annum, payable with a downpayment of proof exists on record that said petitioner used the
P4,660.00 and monthly installments of P246.42 until corporation to defraud private respondent. He
fully paid. Paragraph 6 of the contract provided for cannot, therefore, be made personally liable just
automatic extrajudicial rescission upon default in because he "appears to be the controlling
payment of any monthly installment after the lapse stockholder". Mere ownership by a single stockholder
of 90 days from the expiration of the grace period of or by another corporation is not of itself sufficient
one month, without need of notice and with forfeiture ground for disregarding the separate corporate
of all installments paid. personality.

Dumpit paid the downpayment and several

installments amounting to P13,722.50. The last
payment was made on December 5, 1967 for Dulay Enterprises v. CA
installments up to September 1967.
In this case the Dulay Enterprises is a Closed
Almost 6 years later, Dumpit wrote petitioner offering Corporation with Manuel Dulay owning more than
to update all his overdue accounts with interest, and 98% of the shares of the corporation, being the
seeking its written consent to the assignment of his
managing director and president. There is no doubt
rights to a certain Lourdes Dizon. Replying
petitioners informed respondent that his Contract to that despite Dulay Enterprises being a family
Sell had long been rescinded pursuant to paragraph corporation the majority of the power rests upon
6 of the contract, and that the lot had already been Manuel Dulay.
resold. Dumpit questioned the validity of the
rescission of the contract with the NHA. NHA found Dulay Enterprises owns an apartment in the Pasay
the rescission void in the absence of either judicial or area. Dulay Enterprises later undertook to build a
notarial demand, ordered Palay, Inc. and Alberto Hotel and due to lack of funds had to obtain several
Onstott in his capacity as President of the
loans. Later Dulay Enterprises/Manuel Dulay (he was
corporation, jointly and severally, to refund
immediately to Nazario Dumpit the amount of empowered by a board resolution) sold the
P13,722.50 . apartment to spouses Veloso for 300k with the right
of repurchase for 2 years, however such right to
Issue: WON Onstott, as the President, should repurchase was not annotated in the TCT issued in
be solidarily liable with Palay Inc to refund the favor of the spouses Veloso. Before the 2 years was
amount finished one of the spouses Veloso subsequently
mortgaged the apartment to Mr. Torres, this
Held: No. Only Palay Inc should refund the mortgage was not known to Manuel Dulay/Dulay
payment made by Dumpit Enterprises. Due to failure to pay, the apartment was
foreclosed and Mr. Torres being the only bidder was
It is important to note that even though there has sold the property, after this the Velosos transferred
been a stipulation of automatic rescission of the their right to redeem to Manuel Dulay. A year has
contract in case of default of payment of
passed and the property was not redeemed, Mr.
installments, still, a notice should be given. This was
not done in the case at bar. Torres became the owner of the apartment.

Torres moved to eject some of the tenants of the

It is basic that a corporation is invested by law with a
apartment including the lawyer of the corporation.
personality separate and distinct from those of the
persons composing it as when as from that of any The corporation intervened in favor of the tenants.
other legal entity to which it may be related. As a Ultimately the metropolitan trial court granted the
general rule, a corporation may not be made to action for ejectment and ordered the said tenants to
answer for acts or liabilities of its stockholders or vacate. The corporation through its lawyer appealed
those of the legal entities to which it may be to the RTC to annul the decision, RTC refused. So did
connected and vice versa. However, the veil of the CA. upon bringing the matter to the SC they
corporate fiction may be pierced when it is used as a
questioned the validity of the sale of the apartment
shield to further an end subversive of justice; or for
purposes that could not have been intended by the by Manuel Dulay to the Veloso Spouses.
law that created it; or to defeat public convenience,
justify wrong, protect fraud, or defend crime or to
In light of these the corporation attempted to use the eventually asked that the supposedly perfected
courts to render void the board resolution to sell the contract of sale be executed. Motorich however did
said apartment by saying that such board resolution not honor the contract of sale made by its treasurer
was void. They allege that the board resolution to sell since such sale was not authorized by a board
the apartment did not have the approval of all its resolution. San Juan corporation then went to the
members. To this the court replied: courts to enforce the contract of sale. The courts
declined to enforce such sale. The RTC dismissed the
case altogether; the CA merely ordered that the
down payment received by the treasurer be
In the instant case, petitioner returned. The Supreme Court further elaborates on
corporation is classified as a close the action of the lower courts.
corporation and consequently a
board resolution authorizing the sale Primarily the question raised was if the acts of the
or mortgage of the subject property treasurer (here treasurer and her husband owns 98+
is not necessary to bind the
% of the stocks of the corporation) would bind the
corporation for the action of its
president. At any rate, corporate corporation. The Supreme Court said no. first a
action taken at a board meeting corporation need to act through agents but such
without proper call or notice in a agents must be empowered by the corporation itself
close corporation is deemed ratified through a board resolution. The court states that:
by the absent director unless the
latter promptly files his written
objection with the secretary of the A corporation is a juridical person
corporation after having knowledge separate and distinct from its
of the meeting which, in his case, stockholders or members.
petitioner Virgilio Dulay failed to do. Accordingly, the property of the
corporation is not the property of its
stockholders or members and may
It is relevant to note that although a not be sold by the stockholders or
corporation is an entity which has a members without express
personality distinct and separate authorization from the corporation's
from its individual stockholders or board of directors. Section 23 of BP
members, the veil of corporate fiction 68, otherwise known as the
may be pierced when it is used to Corporation Code of the Philippines,
defeat public convenience justify provides;
wrong, protect fraud or defend crime.
The privilege of being treated as an
entity distinct and separate from its Sec. 23. The Board of Directors or
stockholder or members is therefore Trustees. — Unless otherwise
confined to its legitimate uses and is provided in this Code, the corporate
subject to certain limitations to powers of all corporations formed
prevent the commission of fraud or under this Code shall be exercised,
other illegal or unfair act. When the all business conducted and all
corporation is used merely as an alter property of such corporations
ego or business conduit of a person, controlled and held by the board of
the law will regard the corporation as directors or trustees to be elected
the act of that person. The Supreme from among the holders of stocks, or
Court had repeatedly disregarded the where there is no stock, from among
separate personality of the the members of the corporation, who
corporation where the corporate shall hold office for one (1) year and
entity was used to annul a valid until their successors are elected and
contract executed by one of its qualified.
Indubitably, a corporation may act
Ultimately the Supreme Court denied the petition to only through its board of directors or,
when authorized either by its bylaws
annul the decision of the MTC and upheld the
or by its board resolution, through its
decision of the MTC. Here while the Dulay Enterprises officers or agents in the normal
has a separate entity from Manuel Dulay, the court course of business. The general
cannot acquiesce to the corporation’s allegation that principles of agency govern the
Manuel Dulay acted without the knowledge of other relation between the corporation and
directors. Manuel Dulay cannot hide behind the its officers or agents, subject to the
corporation and allege that his sale of the apartment articles of incorporation, bylaws, or
relevant provisions of law. Thus, this
as void due to some technicality with the board
Court has held that "a corporate
resolution. officer or agent may represent and
bind the corporation in transactions
San Juan Structural v. CA with third persons to the extent that
the authority to do so has been
Summarily stated the secretary of the corporation conferred upon him, and this includes
came into contract with another company (san Juan) powers which have been intentionally
to sell a parcel of land. The other company conferred, and also such powers as,
in the usual course of the particular distinct and separate personality. As
business, are incidental to, or may be such, it should only be the
implied from, the powers corporation, not the person acting for
intentionally conferred, powers
and on its behalf, that properly could
added by custom and usage, as
usually pertaining to the particular be made liable thereon.
officer or agent, and such apparent
powers as the corporation has The case however said that the above is not
caused persons dealing with the a hard and fast rule. In certain circumstance
officer or agent to believe that it has the corporate officers may be held liable in
conferred." cases of:

Second citing the previous case of Dulay v. CA, the 1. He assents (a) to a patently
decision in that case is not applicable here given that unlawful act of the corporation, or
Motorich is not a closed corporation. The court (b) for bad faith, or gross negligence
adamantly posited that under no stretching of the in directing its affairs, or (c) for
imagination can the treasurer sell the subject lot, conflict of interest, resulting in
damages to the corporation, its
even if she and her husband own 98% of the stock of
stockholders or other persons; 4
the corporation. A board resolution to the effect that
the corporation intends to sell the subject lot is
2. He consents to the issuance of
needed for such sale to be possible. The mere fact watered stocks or who, having
that the corporation refuses to ratify the acts of the knowledge thereof, does not
treasurer shows that such act of its officer is not forthwith file with the corporate
according to the will of the corporation. Finally the secretary his written objection
court chastises the petitioner corporation (san juan) thereto; 5
and its president for falling to such machination
being in the business for 10 years, they should have 3. He agrees to hold himself
known that corporate treasurers are not empowered personally and solidarily liable with
to sell corporate property the corporation; 6 or

4. He is made, by a specific provision

of law, to personally answer for his
Tramat Mercantile v. CA corporate action.

Dela Cuesta sold a tractor to Tramat corporation. Clearly Ong has not committed any of the
David Ong (president of Tramat) paid dela Cuesta via above mentioned and shouldn’t be held
a check. Tramat modified the tractor and made it into personally liable.
a lawn mower and subsequently sold the same to
NAWASA. NAWASA refused to pay Tramat for the
tractor saying that it had defects and that the tractor
Marvel Building Corporation et al. v David
engine is reconditioned. Tramat through David ong
subsequently caused a stop payment of the check
Facts: Plaintiffs, as stockholders of Marvel Building
paid to Dela Cuesta (lesson, take cash or cash in
Corp (corp) wants to enjoin from selling at public
auction properties in the complaint that included 3
parcels of land, namely the Aguinaldo Building, Wise
Dela Cuesta ofcourse sued Tramat for non-payment
Building, and Dewey Boulevard-Padre Faura Mansion,
and asked that Tramat and David Ong be solidarily
all registered in the name of the corp. Said properties
held liable. The RTC granted this and asked the
were seized to collect war profit taxes against
above mentioned to pay jointly and severally (aka
plaintiff Maria Castro. Plaintiffs allege that the 3
solidarily). The CA said the same.
properties belong to the Corp and not to Maria Castro
The Supreme Court generally agreed that Tramat while defendant claims that Castro is the true and
should pay however in the case of David Ong being exclusive owner of the said properties. In the Articles
merely the President of the company corporation, he of Incorporation (AI) of the corp, the capital stock was
should not be held personally liable for transactions at P2M but what was only subscribed and paid was
carried in the name of the corporation. It must be P1.025M by 11 stockholders. Maria Castro was the
remembered that the corporation has a separate and president of the corp. Of the 11 stockholders, it
distinct personality from its officers (even its appears that Castro was related to almost all of them
president) and the liability incurred by the (half brothers, half sisters, brother-in-law, husband of
corporation is to be born by the corporation. The Maria CAstro). The stockholders never held any
court said essentially the same: business meetings, the by-laws of the corp was never
presented, and no reports of the affairs of the
Ong had there so acted, not in his corporation has been made, either of its transactions
personal capacity, but as an officer of or its accounts. From the books, advances were
a corporation, TRAMAT, with a made by Maria Castro to the corp 3 times amounting
to almost P400K.
Issue: WON Maria Castro is the sole and ISSUE: Whether or not the Court of Appeals erred in
exlclusive owner of all the shares of stock of affirming the lower court’s decision that the subject
Marvel Building Corp and that the other properties owned by the corporation are also
properties of the estate of Forrest Cease
partners are her mere dummies

Held: Yes. HELD: NO. The trial court indeed found strong
support, one that is based on a well-entrenched
1. Maria Castro had endorsements in blank of principle of law which is the theory of "merger of
Forrest L. Cease and The Tiaong Milling as one
the shares of stock issued in the name of the
personality", or that "the company is only the
other incorporators, and she has possession business conduit and alter ego of the deceased
of them. She signed 25 stock certificates but Forrest L. Cease and the registered properties of
only 11 were issued. Tiaong Milling are actually properties of Forrest L.
Cease and should be divided equally, share and
2. The stockholders did not have that much share alike among his six children, ... ", the trial court
income to pay the amounts corresponding to aptly applied the familiar exception to the general
their shares. It was found that Castro profited rule by disregarding the legal fiction of distinct and
separate corporate personality and regarding the
a lot in her business. This shows that Castro
corporation and the individual member one and the
furnished all the money that the Corp had. same. In shredding the fictitious corporate veil, the
trial judge narrated the undisputed factual premise,
3. It is also significant that the plaintiffs, the thus:
supposed subscribers, should have come to
court to assert that they actually paid for While the records showed that
their subscriptions and that they are not originally its incorporators were
mere dummies. They never did. They could aliens, friends or third-parties in
have rebutted the charges, but they kept relation to another, in the course of
slent. its existence, it developed into a
close family corporation. The Board
4. Stockholders never met to discuss business of Directors and stockholders belong
to one family the head of which
Forrest L. Cease always retained the
majority stocks and hence the control
5. The books of account were kept as if they and management of its affairs. It
belonged to Castro alone. must be noted that as his children
increase or become of age, he
6. Castro advanced a big amount of money for continued distributing his shares
the corporation. among them adding Florence, Teresa
and Marion until at the time of his
All these show that Castro was the sole and exclusive death only 190 were left to his name.
owner of the shares and that the subscribers were Definitely, only the members of his
her mere dummies. family benefited from the
Cease vs. Court of Appeals
G.R. No. L-33172 October 18, 1979 The corporation 'never' had any
account with any banking institution
or if any account was carried in a
bank on its behalf, it was in the name
of Mr. Forrest L. Cease. There is truth
Forrest Cease and five (5) other American in plaintiff's allegation that the
citizens formed Tiaong Milling and Plantation corporation is only a business conduit
Company. Eventually, the shares of the other original of his father and an extension of his
incorporators were bought out by Cease with his personality, they are one and the
children. The company’s charter lapsed in June 1958. same thing. Thus, the assets of the
Forrest Cease died in August 1959. There was no corporation are also the estate of
mention whether there were steps to liquidate the Forrest L. Cease, the father of the
company. Some of his children wanted an actual parties herein who are all legitimate
division while others wanted a reincorporation. Two children of full blood.
of his children, Benjamin and Florence, initiated
Special Proceeding No. 3893 with CFI Tayabas asking
A rich store of jurisprudence has established the rule
that the Tiaong Milling and Plantation Corporation be
known as the doctrine of disregarding or piercing the
declared identical to Forrest Cease and that its
veil of corporate fiction.
properties be divided among his children as intestate
heirs. Defendants opposed the same but the CFI
ruled in favor of the plaintiffs. Defendants filed a GENERAL RULE: a corporation is vested by law with a
notice of appeal from the CFI’s decision but the same personality separate and distinct from the persons
was dismissed for being premature. The case was composing it as well as any other legal entity to
elevated to the SC which remanded it to the Court of which it may be related. By virtue of this attribute, a
Appeals. The CA dismissed the petition. corporation may not, generally, be made to answer
for acts or liabilities of its stockholders or those of the
legal entities to which it may be connected, and vice
versa. This separate and distinct personality is,
however, merely a fiction created by law for Hacienda Pamplona located in Pamplona, Negros
convenience and to promote the ends of justice Oriental. It appears that Hacienda Pamplona was
formerly owned by a certain Mr. Bower who had in
EXCEPTIONS: Such rule may not be used or invoked his employ several agricultural workers. When the
for ends subversive of the policy and purpose behind company took over the operation of Hacienda
its creation or which could not have been intended by Pamplona in 1993, it did not absorb all the workers of
law to which it owes its being. This is particularly true Hacienda Pamplona. Some, however, were hired by
where the fiction is used to defeat public the company as seasonal workers. Pamplona
convenience, justify wrong, protect fraud, defend Plantation Leisure Corporation was then established
crime, confuse legitimate legal or judicial issues, for the purpose of engaging in the business of
perpetrate deception or otherwise circumvent the operating the golf course constructed on one part of
law the plantation, and other leisure activities. Pamplona
Plantation Labor Independent Union conducted an
organizational meeting wherein several who are
This is likewise true where the corporate entity is either union members or officers participated in said
being used as an alter ego, adjunct, or business meeting. Upon learning that some of the respondents
conduit for the sole benefit of the stockholders or of attended the said meeting, Petitioner Jose Luis
another corporate. In any of these cases, the Bondoc, manager of the company, did not allow
notion of corporate entity will be pierced or respondents to work anymore in the plantation.
disregarded, and the corporation will be treated Thereafter, on various dates, respondent filed their
merely as an association of persons or, where there respective complaints with the NLRC, for illegal
are two corporations, they will be merged as one, the dismissal.
one being merely regarded as part or the
instrumentality of the other.
Respondent Carlito Tinghil amended his
complaint to implead Pamplona Plantation Leisure
An indubitable deduction from the findings of the trial Corporation. Labor Arbiter Jose G. Gutierrez rendered
court cannot but lead to the conclusion that the a decision finding respondents, except Rufino
business of the corporation is largely, if not wholly, Bacubac, Antonio Caolas and Felix Torres who were
the personal venture of Forrest L. Cease. There is not complainants in another case, to be entitled to
even a shadow of a showing that his children were separation pay.
subscribers or purchasers of the stocks they own.
Their participation as nominal shareholders
emanated solely from Forrest L. Cease's gratuitous On appeal to NLRC, the same reversed the
dole out of his own shares to the benefit of his ruling of the LA and ruled that petitioners except
children and ultimately his family. Carlito Tinghil, failed to implead Pamplona Plantation
Leisure Corporation, an indispensable party and that
'there exist no employer-employee relation between
If the Court sustained the theory of petitioners that the parties.
the trial court acted in excess of jurisdiction or abuse
of discretion amounting to lack of jurisdiction in
deciding the civil case as a case for partition, Tiaong CA reversed the ruling of the NLRC.
Milling and Plantation Company would have been
able to extend its corporate existence beyond the ISSUE: Whether the case should be dismissed for the
period of its charter which lapsed in June, 1958 under non-joinder of the Pamplona Plantation Leisure
the guise and cover of F. L, Cease Plantation Corporation.
Company, Inc. as Trustee which would be against the
law, and as Trustee shall have been able to use the HELD: No.
assets and properties for the benefit of the Piercing the Corporate Veil
petitioners, to the great prejudice and defraudation.
of private respondents. Hence, it becomes necessary For both the coconut plantation and the golf course,
and imperative to pierce that corporate veil. there is only one management which the laborers
deal with regarding their work. The weekly payrolls
The judgment appealed from is AFFIRMED. 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
PAMPLONA PLANTATION COMPANY, INC. and/or firm known as Pamplona Plantation Co., Inc., the
JOSE LUIS BONDOC, Petitioners, vs. reason they sued their employer through that name
RODEL TINGHIL, MARYGLENN SABIHON, was natural and understandable.
BONIFACIO TINGHIL, NOLI TINGHIL, True, the Petitioner Pamplona Plantation Co., Inc.,
EDGAR TINGHIL, ERNESTO ESTOMANTE, and the Pamplona Plantation Leisure Corporation
SALLY TOROY, BENIGNO TINGHIL JR., appear to be separate corporate entities. But it is
ROSE ANN NAPAO, DIOSDADO TINGHIL, settled that this fiction of law cannot be invoked to
ALBERTO TINGHIL, ANALIE TINGHIL, and further an end subversive of justice.
The principle requiring the piercing of the corporate
FACTS: veil mandates courts to see through the protective
shroud that distinguishes one corporation from a
Pamplona Plantations Company, Inc. was seemingly separate one. The corporate mask may be
organized for the purpose of taking over the removed and the corporate veil pierced when a
operations of the coconut and sugar plantation of 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 LA: Illegal Dismissal
thereby, or where a separate corporate identity is
used to evade financial obligations to employees or NLRC: Reversed.
to third parties, the notion of separate legal entity
should be set aside and the factual truth upheld.
When that happens, the corporate character is not ISSUES: 1. Whether the partnership which had
necessarily abrogated.[27] It continues for other hired petitioner Yu as Assistant General Manager had
legitimate objectives. However, it may be pierced in been extinguished and replaced by a new
any of the instances cited in order to promote partnerships composed of Willy Co and Emmanuel
substantial justice. Zapanta;

In the present case, the corporations have basically 2. Whether petitioner Yu could nonetheless
the same incorporators and directors and are headed assert his rights under his employment contract as
by the same official. Both use only one office and one against the new partnership.
payroll and are under one management.
Respondents allege that they worked under the
supervision and control of Petitioner Bondoc -- the 1. In the case at bar, just about all of the partners
common managing director of both the petitioner- had sold their partnership interests (amounting to
company and the leisure corporation 82% of the total partnership interest) to Mr. Willy Co
and Emmanuel Zapanta. The record does not show
what happened to the remaining 18% of the original
BENJAMIN YU, petitioner, partnership interest. The acquisition of 82% of the
vs. partnership interest by new partners, coupled with
NATIONAL LABOR RELATIONS COMMISSION and the retirement or withdrawal of the partners who had
JADE MOUNTAIN PRODUCTS COMPANY LIMITED, originally owned such 82% interest, was enough to
WILLY CO, RHODORA D. BENDAL, LEA BENDAL, constitute a new partnership.
CHIU SHIAN JENG and CHEN HO-FU, respondents.
The occurrence of events which precipitate the legal
FACTS: Benjamin Yu was formerly the Assistant consequence of dissolution of a partnership do not,
General Manager of the marble quarrying and export however, automatically result in the termination of
business operated by a registered partnership with the legal personality of the old partnership. Article
the firm name of "Jade Mountain Products Company 1829 of the Civil Code states that:
Limited" ("Jade Mountain"). He had a monthly salary
of P4,000. However, he only received half of his
monthly salary since he had accepted the promise of [o]n dissolution the partnership is not
the partners that the balance would be paid when terminated, but continues until the
the firm shall have secured additional operating winding up of partnership affairs is
funds from abroad. Sometime in 1988, without the completed.
knowledge the rest of the partners sold and
transferred their interests in the partnership to In the ordinary course of events, the legal personality
private respondents Willy Co and Emmanuel of the expiring partnership persists for the limited
Zapanta. The partnership now constituted solely by purpose of winding up and closing of the affairs of
Willy Co and Emmanuel Zapanta continued to use the partnership. In the case at bar, it is important to
the old firm name of Jade Mountain, though they underscore the fact that the business of the old
moved the firm's main office from Makati to partnership was simply continued by the new
Mandaluyong, Metropolitan Manila. The actual partners, without the old partnership undergoing the
operations of the business enterprise continued as procedures relating to dissolution and winding up of
before. All the employees of the partnership its business affairs. In other words, the new
continued working in the business, except for partnership simply took over the business enterprise
Benjamin Yu. Having learned of the transfer of the owned by the preceding partnership, and continued
firm's main office from Makati to Mandaluyong, using the old name of Jade Mountain Products
petitioner Benjamin Yu reported to the Mandaluyong Company Limited, without winding up the business
office for work and there met private respondent affairs of the old partnership, paying off its debts,
Willy Co for the first time. Petitioner was informed by liquidating and distributing its net assets, and then
Willy Co that the latter had bought the business from re-assembling the said assets or most of them and
the original partners and that it was for him to decide opening a new business enterprise.
whether or not he was responsible for the obligations
of the old partnership, including petitioner's unpaid Under Article 1840 creditors of the old Jade Mountain
salaries. Petitioner was in fact not allowed to work are also creditors of the new Jade Mountain which
anymore in the Jade Mountain business enterprise. continued the business of the old one without
His unpaid salaries remained unpaid. liquidation of the partnership affairs. Indeed, a
creditor of the old Jade Mountain, like petitioner
Benjamin Yu filed a complaint for illegal Benjamin Yu in respect of his claim for unpaid wages,
dismissal and recovery of unpaid salaries accruing is entitled to priority vis-a-vis any claim of any retired
from November 1984 to October 1988, moral and or previous partner insofar as such retired partner's
exemplary damages and attorney's fees, against Jade interest in the dissolved partnership is concerned.
Mountain, Mr. Willy Co and the other private
respondents. The partnership and Willy Co denied 2. As regards Yu’s assertion of his right to the
petitioner's charges, contending in the main that employment contract, he cannot be maintained as a
Benjamin Yu was never hired as an employee by the managing partner due to redundancy, the position
present or new partnership. has already been assumed by Willy Co.
INDOPHIL TEXTILE MILL WORKERS UNION- businesses of private respondent and Acrylic, neither
PTGWO, petitioner, are we inclined to apply the doctrine invoked by
vs. petitioner in granting the relief sought. The fact that
VOLUNTARY ARBITRATOR TEODORICO P. the businesses of private respondent and Acrylic are
CALICA and INDOPHIL TEXTILE MILLS, related, that some of the employees of the private
INC., respondents. respondent are the same persons manning and
providing for auxilliary services to the units of Acrylic,
FACTS: In 1987, Petitioner Indophil Textile Mill and that the physical plants, offices and facilities are
Workers Union-PTGWO and private respondent situated in the same compound, it is our considered
Indophil Textile Mills, Inc. executed a collective opinion that these facts are not sufficient to justify
bargaining agreement effective from April 1, 1987 to the piercing of the corporate veil of Acrylic.
March 31, 1990.
In the same case of Umali, et al. v. Court of
Meanwhile, Indophil Acrylic Manufacturing Appeals (supra), We already emphasized that "the
Corporation was formed and registered with the legal corporate entity is disregarded only if it is
Securities and Exchange Commission. sought to hold the officers and stockholders directly
liable for a corporate debt or obligation." In the
instant case, petitioner does not seek to impose a
In 1988, Acrylic became operational and hired claim against the members of the Acrylic.
workers according to its own criteria and standards.
Sometime in July, 1989, the workers of Acrylic
unionized and a duly certified collective bargaining Furthermore, We already ruled in the case
agreement was executed. of Diatagon Labor Federation Local 110 of the
ULGWP v. Ople (supra) that it is grave abuse of
discretion to treat two companies as a single
In 1990 or a year after the workers of Acrylic have bargaining unit when these companies are
been unionized and a CBA executed, the petitioner indubitably distinct entities with separate juridical
union claimed that the plant facilities built and set up personalities.
by Acrylic should be considered as an extension or
expansion of the facilities of private respondent
Company pursuant the CBA. In other words, it is the Hence, the Acrylic not being an extension or
petitioner's contention that Acrylic is part of the expansion of private respondent, the rank-and-file
Indophil bargaining unit. employees working at Acrylic should not be
recognized as part of, and/or within the scope of the
petitioner, as the bargaining representative of private
The petitioner's contention was opposed by private respondent.
respondent which submits that it is a juridical entity
separate and distinct from Acrylic.
Pantranco vs. NLRC
Voluntary Arbitrator ruled in favour of Indophil. G.R. No. 170689 March 17, 2009


COMPANY FOR PURPOSES OF UNION Facts: The Gonzales family owned owned two
corporations, namely, the Pantranco North Express,
Inc. (PNEI) and Macris Realty Corporation (Macris).
Under the doctrine of piercing the veil of PNEI provided transportation services to the public,
corporate entity, when valid grounds therefore exist,
and had its bus terminal stood on four valuable
the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its pieces of real estate (known as Pantranco properties)
members or stockholders may be disregarded. In registered under the name of Macris. The Gonzaleses
such cases, the corporation will be considered as a incurred financial loss and debts. One of their
mere association of persons. The members or creditors took over the management of PNEI and
stockholders of the corporation will be considered as Macris. By 1978, full ownership was transferred to
the corporation, that is liability will attach directly to
one of their creditors, the National Investment
the officers and stockholders. The doctrine applies
when the corporate fiction is used to defeat public Development Corporation (NIDC), a subsidiary of the
convenience, justify wrong, protect fraud, or defend PNB.
crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the mere
alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its Macris was later renamed as the National
affairs are so conducted as to make it merely an Realty Development Corporation (Naredeco) and
instrumentality, agency, conduit or adjunct of eventually merged with the National Warehousing
another corporation. Corporation (Nawaco) to form the new PNB
subsidiary, the PNB-Madecor.
In the case at bar, petitioner seeks to pierce
the veil of corporate entity of Acrylic, alleging that
the creation of the corporation is a devise to evade
the application of the CBA between petitioner Union NIDC sold PNEI to North Express Transport,
and private respondent Company. While we do not
Inc. (NETI), a company owned by Gregorio Araneta III.
discount the possibility of the similarities of the
In 1986, PNEI was among the several companies
placed under sequestration by the Presidential of whether a subsidiary is but a mere instrumentality
Commission on Good Government (PCGG) shortly of the parent-corporation, to wit:
after the historic events in EDSA. In January 1988,
PCGG lifted the sequestration order to pave the way 1. The parent corporation owns all or most of
for the sale of PNEI back to the private sector the capital stock of the subsidiary;
through the Asset Privatization Trust (APT). APT thus
took over the management of PNEI. 2. The parent and subsidiary corporations
have common directors or officers;
PNEI applied with the SEC for suspension of
payments. A management committee was then made
which recommended that PNEI should be sold 3. The parent corporation finances the
through privatization and suggested the subsidiary;
retrenchment of some of the PNEI employees. PNEI
ceased operation. Labor claims were made by former 4. The parent corporation subscribes to all
PNEI employees. the capital stock of the subsidiary or
otherwise causes its incorporation;

5. The subsidiary has grossly inadequate

Labor Arbiter issued Writ of Executions capital;
commanding the Sheriffs to levy the assets of the
PNEI to satisfy the claims of the unpaid laborers. The
6. The parent corporation pays the salaries
Pantranco properties which were registered under
and other expenses or losses of the
the name of PNB-Medecor were included in the said

7. The subsidiary has substantially no

business except with the parent corporation
Issue: whether the properties (specifically the or no assets except those conveyed to or by
Pantranco properties) of PNB, PNB-Madecor and the parent corporation;
Mega Prime can be attached to satisfy the unpaid
labor claims against PNEI. 8. In the papers of the parent corporation or
in the statements of its officers, the
subsidiary is described as a department or
division of the parent corporation, or its
Held: No. The subject property is not owned by the
business or financial responsibility is referred
judgment debtor, that is, PNEI. Nowhere in the
to as the parent corporation’s own;
records was it shown that PNEI owned the Pantranco
properties. Petitioners, in fact, never alleged in any of
their pleadings the fact of such ownership. What was 9. The parent corporation uses the property
established, instead, in PNB MADECOR v. Uy and PNB of the subsidiary as its own;
v. Mega Prime Realty and Holdings Corporation/Mega
Prime Realty and Holdings Corporation v. PNB was 10. The directors or executives of the
that the properties were owned by Macris, the subsidiary do not act independently in the
predecessor of PNB-Madecor. Hence, they cannot be interest of the subsidiary, but take their
pursued against by the creditors of PNEI. orders from the parent corporation;

Assuming, for the sake of argument, that PNB 11. The formal legal requirements of the
may be held liable for the debts of PNEI, petitioners subsidiary are not observed.
still cannot proceed against the Pantranco properties,
the same being owned by PNB-Madecor, None of the foregoing circumstances is present in the
notwithstanding the fact that PNB-Madecor was a instant case. Thus, piercing of PNB-Madecor’s
subsidiary of PNB. The general rule remains that PNB- corporate veil is not warranted. Being a mere
Madecor has a personality separate and distinct from successor-in-interest of PNB-Madecor, with more
PNB. The mere fact that a corporation owns all of the reason should no liability attach to Mega Prime.
stocks of another corporation, taken alone, is not
sufficient to justify their being treated as one entity.
If used to perform legitimate functions, a subsidiary’s
separate existence shall be respected, and the
liability of the parent corporation as well as the
subsidiary will be confined to those arising in their
respective businesses.

In PNB v. Ritratto Group, Inc. we outlined the

circumstances which are useful in the determination