CORPORATION

LAW CASE DIGESTS

3C & 3S ATTY. CARLO BUSMENTE

GOOD EARTH EMPORIUM vs. CA

FACTS:
A lease contract was entered between Roces Realty, Inc. (lessor) and Good
Earth Emporium, Inc. (GEE) (lessee) for a term of 3 years at a monthly rate of
P65,000.00 for a 5-storey building located at Sta. Cruz, Manila. GEE had
defaulted in its payments and as a consequence, Roces filed an ejectment case
(Unlawful Detainer) against GEE.

MTC ordered GEE to vacate the premises. A motion for execution was filed by
Roces while simultaneously, GEE filed a Notice of Appeal. However, GEE filed
motion to withdraw the appeal. Upon ex-parte motion by Roces, the trial court
issued an alias writ of execution. GEE then filed a motion to quash the writ and
notice of levy and an a motion for the issuance of a restraining order. The
lower court issued a restraining order to the sheriff to hold the execution
pending hearing in the motion to quash. While the motion was pending, GEE
filed a petition for relief from judgment before another court but was
dismissed. MTC denied the Motion to quash. CA denied appeal and remanded
the case to the RTC.

RTC found the amount of P1M evidenced by Exhibit "1" and another P1M
evidenced by pacto de retro sale instrument (Exhibit "2") were in full
satisfaction of the judgment obligation. CA reversed.

ISSUE:
WON there was full satisfaction of the judgment debt in favor of Roces which
would justify the quashing of the writ of execution.

HELD:
The exhibits show that nowhere in any of said exhibits was there any writing
referring to any settlement between the parties of petitioners' judgment
obligation. Moreover, there is no indication in the receipt, Exhibit "1", that it
was in payment, full or partial, of the judgment obligation. Likewise, there is no
indication in the pacto de retro sale which was drawn in favor of Jesus Marcos
Roces and Marcos V. Roces and not the respondent corporation, that the
obligation embodied therein had something to do with petitioners' judgment
obligation with respondent corporation.

Article 1240 CC provides that: "Payment shall be made to the person in whose
favor the obligation has been constituted, or his successor in interest, or any
person authorized to receive it."

In the case at bar, the supposed payments were not made to Roces-Reyes
Realty, Inc. or to its successor in interest nor is there positive evidence that the
payment was made to a person authorized to receive it. No such proof was
submitted but merely inferred by the RTC from Marcos Roces having signed the
Lease Contract as President which was witnessed by Jesus Marcos Roces. The
latter, however, was no longer President or even an officer of Roces-Reyes
Realty, Inc. at the time he received the money and signed the sale with pacto de
retro. He, in fact, denied being in possession of authority to receive payment for
the respondent corporation nor does the receipt show that he signed in the
same capacity as he did in the Lease Contract at a time when he was President
for respondent corporation.

A corporation has a personality distinct and separate from its individual
stockholders or members. Being an officer or stockholder of a corporation does
not make one's property also of the corporation, and vice-versa, for they are
separate entities. Shareowners are in no legal sense the owners of corporate
property (or credits) which is owned by the corporation as a distinct legal
person. As a consequence of the separate juridical personality of a corporation,
the corporate debt or credit is not the debt or credit of the stockholder, nor is
the stockholder's debt or credit that of the corporation.

CRUZ vs. DALISAY

DOCTRINE: A corporation has a personality distinct and separate from its
individual stockholders or members.

FACTS:
In a sworn complaint dated July 23, 1984, Adelio Cruz (complainant) charged
Quiterio Dalisay (respondent), Senior Deputy Sheriff of Manila, with
malfeasance in office, corrupt practices and serious irregularities allegedly
committed as follows: (a) Respondent attached and/or levied the money
belonging to complainant Cruz when he was not himself the judgment debtor in
the final judgment of an NLRC case sought to be enforced but rather the
company known as Qualitrans Limousine Service, Inc.. (b) Respondent also
caused the service of the alias writ of execution upon complainant who is a
resident of Pasay City, despite knowledge that his territorial jurisdiction covers

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3C & 3S ATTY. CARLO BUSMENTE

Manila only and does not extend to Pasay City. The respondents contention
was that when he garnished complainants cash deposit at the Philtrust bank he
was merely performing a ministerial duty. And that while it is true that said
writ was addressed to Qualitrans Limousine Service, Inc., it is also a fact that
complainant had executed an affidavit before the Pasay City assistant fiscal
stating that he is the owner/ president of Qualitrans. Because of that
declaration, the counsel for the plaintiff in the labor case advised him to serve
notice of garnishment on the Philtrust bank. On November 12, 1984, this case
was referred to the Executive Judge of the Regional Trial Court of Manila for
investigation, report and recommendation. Prior to the termination of the
proceedings, however, complainant executed an affidavit of desistance stating
that he is no longer interested in prosecuting the case against respondent
Dalisay and that it was just a "misunderstanding" between them. Upon
respondent's motion, the Executive Judge issued an order dated May 29, 1986
recommending the dismissal of the case.

ISSUE:
WON the action of Dalisay was correct

HELD:
NO. The Respondents actuation in enforcing a judgment against complainant
who is not a judgment debtor in the case calls for disciplinary action. What is
incumbent upon respondent is to ensure that only the portion of a decision
ordained or decreed in the dispositive part should be the subject of the
execution. The tenor of the NLRC judgment and the implementing writ is clear
enough. It directed Qualitrans Limousine Service, inc., to reinstate the
discharged employees and pay them full backwages. Respondent, however,
choose to pierce the veil of corporate entity usurping a power belonging
to the court and assumed improvidently that since the complainant is the
owner/president of Qualitrans Limousine Service, Inc., they are one and
the same. It is a well settled doctrine both in law and equity that as a legal
entity, a corporation has a personality distinct and separate from its
individual stockholders or members. The mere fact that one is president of
the corporation does not render the property he owns or possesses the
property of the corporation, since that president, as an individual, and the
corporation are separate entities.

BANK OF AMERICA vs. CA

FACTS:
The Litonjuas were engaged in the shipping business and owned two vessels,
through their wholly-owned corporations. With their business doing well, the
petitioner banks induced them to increase the number of their ships in
operation, offering them easy loans to acquire said vessels. Thereafter,
petitioners acquired, through Litonjuas' corporations as borrowers, four
additional vessels which were registered in the names of their corporations.
The Litonjuas claimed, among others, that petitioners as trustees did not fully
render an account of all the income derived from the operation of the vessels as
well as the proceeds of the subsequent foreclosure sale and that the loans
acquired for the purchase of the four additional vessels matured and remained
unpaid, prompting petitioners to have all the six vessels, including the two
vessels originally owned by the private respondents, foreclosed and sold at
public auction. Petitioners filed a motion to dismiss on grounds of forum non
conveniens and lack of cause of action against.

ISSUE:
WON plaintiffs have no cause of action against defendants since plaintiffs are
merely stockholders of the corporations which are the registered owners of the
vessels and the borrowers of petitioners.

HELD:
No. Petitioners' argument that private respondents, being mere stockholders of
the foreign corporations, have no personalities to sue, and therefore, the
complaint should be dismissed, is untenable. A case is dismissible for lack of
personality to sue upon proof that the plaintiff is not the real party-in-interest.
Lack of personality to sue can be used as a ground for a Motion to Dismiss
based on the fact that the complaint, on the face thereof, evidently states no
cause of action.

In the case at bar, the complaint contains the three elements of a cause of
action. It alleges that: (1) plaintiffs, herein private respondents, have the right
to demand for an accounting from defendants (herein petitioners), as trustees
by reason of the fiduciary relationship that was created between the parties
involving the vessels in question; (2) petitioners have the obligation, as
trustees, to render such an accounting; and (3) petitioners failed to do the
same.

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3C & 3S ATTY. CARLO BUSMENTE

AVON DALE GARMENTS, INC. vs. NLRC

FACTS:
Private respondents were employees of petitioner Avon Dale Garments, Inc.
and its predecessor-in-interest, Avon Dale Shirt Factory. Following a dispute
brought about by the rotation of workers, a compromise agreement was
entered into between petitioner and private respondents wherein the latter
were terminated from service and given their corresponding separation pay.
However, upon refusal of the petitioner to include in the computation of private
respondents' separation pay the period during which the latter were employed
by the Avon Dale Shirt Factory, private respondents filed a complaint with the
labor arbiter claiming a deficiency in their separation pay According to private
respondents, their previous employment with petitioner's predecessor-in-
interest, Avon Dale Shirt Factory, should be credited in computing their
separation pay considering that Avon Dale Shirt factory was not dissolved and
they were not in turn hired as new employees by Avon Dale Garments, Inc. The
instant petition is now brought by petitioner Avon Dale Garments, Inc.,
anchored on the sole ground that, as a separate and distinct entity, it should not
be held liable for private respondents' separation pay from Avon Dale Shirt
Factory.

no effect on the identity of the corporation, or in its property, rights, or

liabilities. Respondents NLRC therefore, did not commit any grave abuse of
discretion in holding that petitioner should likewise include private
respondents' employment with Avon Dale Shirt Factory in computing private
respondents' separation pay as petitioner failed to substantiate its claim that
it is a distinct entity.

CONCEPT BUILDERS vs. NLRC
FACTS:
Herein petitioner is a domestic corporation, with principal office at 355 Maysan
Road, Valenzuela, Metro Manila, is engaged in the construction business.
Private respondents were employed by said company as laborers, carpenters
and riggers.

Private respondents were then served individual written notices of termination
of employment by petitioner, effective on November 30, 1981. It was stated in
the individual notices that their contracts of employment had expired and the
project in which they were hired had been completed.

Petitioner had to engage the services of sub-contractors whose workers
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.

On December 19, 1984, the LA rendered judgment against petitioner. On
appeal, the NLRC dismissed the motion for reconsideration.

Thereafter, the LA issued a writ of execution directing the sheriff to execute the
decision dated Dec 19, 1984. The writ was partially satisfied through
garnishment. On February 1, 1989, an alias writ of Execution was issued by the
LA directing the sheriff to collect the balance of the judgment award.

On July 13, 1989, the sheriff issued a report stating that he tried to serve the
alias writ of execution on petitioner through the security guard on duty but the
service was refused on the ground that petitioner no longer occupied the
premises.

ISSUE:
WON petitioner is a separate and distinct entity from Avon Dale Shirt.

HELD:
No. Petitioner failed to established that Avon Dale Garments, Inc., is a
separate and distinct entity from Avon Dale Shirt Factory, absent any
showing that there was indeed an actual closure and cessation of the
operations of the latter. The mere filing of the Articles of Dissolution with the
Securities and Exchange Commission, without more, is not enough to support
the conclusion that actual dissolution of an entity in fact took place. On the
contrary, the prevailing circumstances in this case indicated that petitioner
company is not distinct from its predecessor Avon Dale Shirt Factory, but in
fact merely continued the operations of the latter under the same owners,
the same business venture, at same address, and even continued to hire the
same employees (herein private respondents). Thus, conformably with
established jurisprudence, the two entities cannot be deemed as separate
and distinct where there is a showing that one is merely the continuation of
the other. In fact, even 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

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3C & 3S ATTY. CARLO BUSMENTE

A second alias writ was issued by the court but again it had not been enforced
on the ground that the employees inside petitioners premises claimed they
were employees of Hydro Pipes Philippines, Inc. (HPPI).

The said special sheriff recommended that a "break-open order" be issued to
enable him to enter petitioner's premises so that he could proceed with the
public auction sale of the aforesaid personal properties on November 7, 1989.

On November 6, 1989, 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.

notion of separate juridical personality is used to defeat public convenience,

justify wrong, protect fraud or defend crime, or is used as a device to defeat the
labor laws, this separate personality of the corporation may be disregarded or
the veil of corporate fiction pierced. 11 This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego of another
corporation.

The conditions under which the juridical entity may be disregarded vary
according to the peculiar facts and circumstances of each case. No hard and fast
rule can be accurately laid down, but certainly, there are some probative factors
of identity that will justify the application of the doctrine of piercing the
corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.

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 plaintiff's legal rights; and

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

The absence of any one of these elements prevents "piercing the corporate
veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are
concerned with reality and not form, with how the corporation operated and
the individual defendant's relationship to that operation.

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 opposed the motion alleging that the 2 corporations are engaged in 2
different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner
was then engaged in construction.
The LA denied the motion for break-open order while NLRC on appeal, set aside
the LAs order and issued the said order.
ISSUE:
WON the doctrine of piercing the corporate veil should not have been applied
in this case, in the absence of any showing that it created HPPI in order to evade
its liability to private respondents

HELD:
We find petitioner's contention to be unmeritorious. It is a fundamental
principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be
connected. But, this separate and distinct personality of a corporation is merely
a fiction created by law for convenience and to promote justice. So, when the

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3C & 3S ATTY. CARLO BUSMENTE

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. This Court ruled
that the filing by a party of two apparently different actions, but with the same
objective, constituted forum shopping

FIRST PHIL. INTERNATIONAL BANK vs. CA

FACTS:
Producer Banks of the Philippines (Bank for brevity) acquired BYMEs six
[foreclosed] parcels of land in Sta. Rosa. Thereafter, Demetria and Janolo
wanted to purchase said properties. After several negotiations between Rivera
(Banks Manager) and Demetria and Janolo, the purchase price was agreed at
P5.5 million. However, sometime in 1987, Encarnacion, the new conservator of
the bank, wrote a letter to Demetria and Janolo, and informed them that the
proposal to purchase the proprieties was still under study. (So hindi pa raw
ibebenta, ganyan) Consequently, Demetria and Janolo sent demand letters to
the Bank; they claimed that the contract of sale was already perfected. They
even sent a check as payment. The Bank, conversely, had advertised the said
properties for sale to any buyer. The Bank justified its noncompliance with
Demetrio and Janolos demands based on Riveras lack of authority, thus such
sale was illegal. Suits ensued. Demetria and Janolo filed for specific
performance with damages against the Bank. [First case]

Co, allegedly owned 80% of Banks shares of stocks, filed a motion to intervene,
which the trial court denied for being filed late (case had been concluded). On
the other hand, the Bank, Rivera, and Encarnacion appealed the trial courts
decision, which favored Demetria and Janolo.
Persistent, Co and other stockholders filed a derivative suit to declare the
sale void. [Second case] Janolo answered that the second case was barred by
litis pendentia/forum shopping; there was already a pending case in CA
involving the same parties, issues (Alam nyo naman na elements eh!).

Nevertheless, CA sustained trial courts ruling.
[Ejercito subsequently substituted Demetria and Janolo pursuant to an
assignment made by the latter.]

ISSUE:
WON there was forum shopping/litis pendentia to justify the piercing of
corporate veil.

HELD: [caveat: lengthy ruling]
Yes. The original complaint in the court a quo which gave rise to the instant
petition was filed by the buyer (Demetria and Janolo, and Ejercito as substitute)
against the seller (Bank) to enforce the alleged perfected sale of real estate. On
the other hand, the complaint in the Second Case seeks to declare such

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". In the caption itself, petitioners
claim to have brought suit "for and in behalf of the Producers Bank of the
Philippines". Indeed, this is the very essence of a derivative suit:

"An individual stockholder is permitted to institute a derivative suit
on behalf of the corporation wherein he holds stock in order to
protect or vindicate corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones to be sued or hold the
control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in
interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; Emphasis
supplied).

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

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3C & 3S ATTY. CARLO BUSMENTE

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."

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 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 fora 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.

FRANCISCO MOTORS COPORATION vs CA & SPOUSES MANUEL

FACTS:
Petitioner filed a complaint against private respondents Gregorio and Librada
Manuel to recover P3,412.06, representing the balance of the jeep body
purchased by the Manuels from petitioner; an additional sum P20,454.80
representing the unpaid balance on the cost of repair of the vehicle; and
P6,000.00 for cost of suit and attorney's fees. To the original balance on the
price of jeep body were added the costs of repair. In their answer, private
respondents interposed a counterclaim for unpaid legal services by Gregorio
Manuel in the amount ofP50,000 which was not paid by the incorporators,
directors and officers of the petitioner. The trial court decided the case on June
26, 1985, in favor of petitioner in regard to the petitioner's claim for money, but
also allowed the counter-claim of private respondents. Both parties appealed.
On April 15, 1991, the Court of Appeals sustained the trial court's decision.
Hence, the present petition. The Manuels said that he was petitioner's Assistant

Legal Officer, he represented members of the Francisco family in the intestate

estate proceedings of the late Benita Trinidad. However, even after the
termination of the proceedings, his services were not paid. Said family
members, he said, were also incorporators, directors and officers of petitioner.
Hence to counter petitioner's collection suit, he filed a permissive counterclaim
for the unpaid attorney's fees.

RTC: In favor of Manuels.

RESPONDENTS CONTENTION: That the plaintiff-appellant Francisco Motors
Corporation is composed of the heirs of the late Benita Trinidad as directors
and incorporators for whom defendant Gregorio Manuel rendered legal
services in the intestate estate case of their deceased mother. Considering the
aforestated principles and circumstances established in this case, equity and
justice demands plaintiff-appellant's veil of corporate identity should be
pierced and the defendant be compensated for legal services rendered to the
heirs, who are directors of the plaintiff-appellant corporation."

ISSUE:
WON the doctrine of pirecing the veil of corporate entity shall apply.

HELD:
Given the facts and circumstances of this case, the doctrine of piercing the
corporate veil has no relevant application here. Respondent court erred in
permitting the trial court's resort to this doctrine. The rationale behind piercing
a corporation's identity in a given case is to remove the barrier between the
corporation from the persons comprising it to thwart the fraudulent and illegal
schemes of those who use the corporate personality as a shield for undertaking
certain proscribed activities. However, in the case at bar, instead of holding
certain individuals or persons responsible for an alleged corporate act,
the situation has been reversed. It is the petitioner as a corporation which
is being ordered to answer for the personal liability of certain individual
directors, officers and incorporators concerned. Hence, it appears to us
that the doctrine has been turned upside down because of its erroneous
invocation. Note that according to private respondent Gregorio Manuel his
services were solicited as counsel for members of the Francisco family to
represent them in the intestate proceedings over Benita Trinidad's estate.
These estate proceedings did not involve any business of petitioner.

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The personality of the corporation and those of its incorporators, directors and
officers in their personal capacities ought to be kept separate. The claim for
legal fees against the concerned individual incorporators, officers and directors
could not be properly directed against the corporation without violating basic
principles governing corporations. Moreover, every action including a
counterclaim must be prosecuted or defended in the name of the real
party-in-interest. It is plainly an error to lay the claim for legal fees of
private respondent Gregorio Manuel at the door of petitioner (FMC)
rather than individual members of the Francisco family.

The petition of Francisco motors is granted w/o prejudice of the private
respondent to file another suit against concerned members of Francisco
family.

REYNOSO vs. CA

FACTS:
Commercial Credit Corporation (CCC) decided to organize franchise companies
in different parts of the country by resorting to decentralization (branching
out). Petitioner Reynoso was designated as resident manager of CCC-Quezon
City.

CCC-QC entered into an exclusive management contract with CCC wherein CCC-
QC shall sell, discount, or assign its receivables to CCC. However, this was
discontinued due to the DOSRI Rule imposed by the Bangko Sentral ng
Pilipinas.

In order to avoid the new restriction, CCC formed CCC-Equity. CCC transferred
30% of its equity to CCC-Equity. However, a complaint of sum of money with
preliminary attachment was instituted against Reynoso. CCC-Equity dismissed
the employment of Reynoso. The complaint alleged that Reynoso embezzled the
funds of CCC-QC and used it to purchase a house and lot.

The trial court ruled in favor of Reynoso.
Meanwhile, CCC became General Credit Corporation (GCC). RTC ordered GCC to
file its comment. However, GCC opposed it and allege that it was not party to
the case. It contends that it is a corporation separate and distinct from CCC-QC
and, therefore, its properties may not be levied upon to satisfy the monetary
judgment in favor of petitioner. In short, respondent raises corporate fiction as
its defense. Petitioner replied that CCC-QC is an adjunct, conduit and agency of

CCC and invoked the decision in Ramoso vs. GCC declaring that CCC-Equity and
other franchised companies were declared as one corporation.

ISSUE:
WON the judgment in favor of petitioner may be executed against respondent
General Credit Corporation.

HELD:
YES. A corporation is an artificial being created by operation of law, having the
right of succession and the powers, attributes, and properties expressly
authorized by law or incident to its existence. It is an artificial being invested by
law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it may be
related. It was evolved to make possible the aggregation and assembling of
huge amounts of capital upon which big business depends.

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.
When the mother corporation and its subsidiary cease to act in good faith and
honest business judgment, when the corporate device is used by the parent to
avoid its liability for legitimate obligations of the subsidiary, and when the
corporate fiction is used to perpetrate fraud or promote injustice, the law steps
in to remedy the problem. When that happens, the corporate character is not
necessarily abrogated. It continues for legitimate objectives. However, it is
pierced in order to remedy injustice, such as that inflicted in this case.

Factually and legally, the CCC had dominant control of the business operations
of CCC-QC. The exclusive management contract insured that CCC-QC would be
managed and controlled by CCC and would not deviate from the commands of
the mother corporation. In addition to the exclusive management contract, CCC
appointed its own employee, petitioner, as the resident manager of CCC-QC.

Petitioners designation as resident manager implies that he was placed in
CCC-QC by a superior authority. In fact, even after his assignment to the
subsidiary corporation, petitioner continued to receive his salaries, allowances,
and benefits from CCC, which later became respondent General Credit

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Corporation. Not only that. Petitioner and the other permanent employees of
CCC-QC were qualified members and participants of the Employees Pension
Plan of CCC.

There are other indications in the record which attest to the applicability of the
identity rule in this case, namely: the unity of interests, management, and
control; the transfer of funds to suit their individual corporate conveniences;
and the dominance of policy and practice by the mother corporation insure that
CCC-QC was an instrumentality or agency of CCC.

As petitioner stresses, both CCC and CCC-QC were engaged in the same principal
line of business involving a single transaction process. Under their discounting
arrangements, CCC financed the operations of CCC-QC. The subsidiary sold,
discounted, or assigned its accounts receivables to CCC.

Paraphrasing the ruling in Claparols v. Court of Industrial Relations, reiterated
in Concept Builders Inc. v. National Labor Relations, it is very obvious that
respondent seeks the protective shield of a corporate fiction whose veil the
present case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation of its employees.

DE LEON vs. NLRC

FACTS:
Fortune Tobacco Corporation (FTC) and Fortune Integrated Services, Inc. (FISI)
entered into a contract for security services where the latter undertook to
provide security guards for the protection and security of the former. The
petitioners were among those engaged as security guards pursuant to the
contract. The incorporators and stockholders of FISI sold out lock, stock and
barrel to a group of new stockholders by executing for the purpose a "Deed of
Sale of Shares of Stock". On the same date, the Articles of Incorporation of FISI
was amended changing its corporate name to Magnum Integrated Services, Inc.
(MISI). A new by-laws was likewise adopted and approved by the Securities
and Exchange Commission.

FTC terminated the contract for security services which resulted in the
displacement of some five hundred eighty two (582) security guards assigned
by FISI/MISI to FTC, including the petitioners in this case. FTC engaged the
services of two (2) other security agencies, Asian Security Agency and Ligalig
Security Services. the Fortune Tobacco Labor Union, an affiliate of the National

Federation of Labor Unions (NAFLU), and claiming to be the bargaining agent of

the security guards, sent a Notice of Strike to FISI/MISI. The members of the
union which include petitioners picketed the premises of FTC. The Regional
Trial Court of Pasig, however, issued a writ of injunction to enjoin the picket.

Simeon de Leon, together with sixteen (16) other complainants instituted the
instant case before the Arbitration Branch of the NLRC. Petitioners alleged that
. They were assigned to work as security guards at the company's main factory
plant, its tobacco redrying plant and warehouse. They averred that they
performed their duties under the control and supervision of FTC's security
supervisors. They were severed from work without valid cause. Respondent
FTC, on the other hand, maintained that there was no employer-employee
relationship between FTC and petitioners. It said that at the time of the
termination of their services, petitioners were the employees of MISI which
was a separate and distinct corporation from FTC.

The Labor Arbiter found respondents liable for the charges. Rejecting FTC's
argument that there was no employer-employee relationship between FTC and
petitioners, he ruled that FISI and FTC should be considered as a single
employer. On appeal, the NLRC reversed and set aside the decision of the Labor
Arbiter. First, it held that the Labor Arbiter erred in applying the "single
employer" principle and concluding that there was an employer-employee
relationship between FTC and FISI on one hand, and petitioners on the other
hand. It found that at the time of the termination of the contract of security
services which, at that time, had been renamed Magnum Integrated Services,
Inc. had a different set of stockholders and officers from that of FTC. They also
had separate offices. The NLRC held that the principle of "single employer" and
the doctrine of piercing the corporate veil could not apply under the
circumstances.

ISSUE:
WON the petitioners interfered with the rights of the workers.

HELD:
An examination of the facts of this case reveals that there is sufficient ground
to conclude that respondents were guilty of interfering with the right of
petitioners to self-organization which constitutes unfair labor practice under
Article 248 of the Labor Code.[8] Petitioners have been employed with FISI since
the 1980s and have since been posted at the premises of FTC -- its main factory
plant, its tobacco redrying plant and warehouse. It appears from the records

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3C & 3S ATTY. CARLO BUSMENTE

that FISI, while having its own corporate identity, was a mere instrumentality
of FTC, tasked to provide protection and security in the company
premises. The records show that the two corporations had identical
stockholders and the same business address. The stockholders of FISI sold all
their participations in the corporation to a new set of stockholders which
renamed the corporation Magnum Integrated Services, Inc. without any
reason, preterminated its contract of security services with MISI and
contracted two other agencies to provide security services for its
premises. This resulted in the displacement of petitioners.

The test of whether an employer has interfered with and coerced employees
within the meaning of section (a) (1) is whether the employer has engaged in
conduct which it may reasonably be said tends to interfere with the free
exercise of employees' rights under section 3 of the Act, and it is not necessary
that there be direct evidence that any employee was in fact intimidated or
coerced by statements of threats of the employer if there is a reasonable
inference that anti-union conduct of the employer does have an adverse effect
on self-organization and collective bargaining.

We are not persuaded by the argument of respondent FTC denying the
presence of an employer-employee relationship. We find that the Labor Arbiter
correctly applied the doctrine of piercing the corporate veil to hold all
respondents liable for unfair labor practice and illegal termination of
petitioners' employment. It is a fundamental principle in corporation law that a
corporation is an entity separate and distinct from its stockholders and from
other corporations to which it is connected. However, when the concept of
separate legal entity is used to defeat public convenience, justify wrong, protect
fraud or defend crime, the law will regard the corporation as an association of
persons, or in case of two corporations, merge them into one. The separate
juridical personality of a corporation may also be disregarded when such
corporation is a mere alter ego or business conduit of another person.

The purported sale of the shares of the former stockholders to a new set of
stockholders who changed the name of the corporation to Magnum Integrated
Services, Inc. appears to be part of a scheme to terminate the services of FISI's
security guards posted at the premises of FTC and bust their newly-organized
union which was then beginning to become active in demanding the company's
compliance with Labor Standards laws. Thus, we find that the termination of
petitioners' services was without basis and therefore illegal.

PNB vs. ANDRADA

FACTS:
PNB acquired the assets of Pampanga Sugar Mill (PASUMIL) that were earlier
foreclosed by DBP. Prior to acquisition, PASUMIL engaged the services of
Andrada Electric and Engineering Company for electrical rewinding and repair,
leaving several unpaid accounts. After several partial payments, the total
unpaid balance amounted to P513,263.80. National Sugar Development Corp.
(NASUDECO), the sugar arm of PNB, took ownership and possession of the
assets and to nationalize and consolidate its interest on other PNB controlled
sugar mills.

Since PNB and NASUDECO refused to pay the amount, Andrada filed an action
for the unpaid balance as well as damages. The Trial Court ruled in favor of
Andrada. CA affirmed.

PNB posit that they should not be held liable for the corporate debts of
PASUMIL, because their takeover of the latter's foreclosed assets did not make
them assignees. On the other hand, Andrada asserts that petitioners and
PASUMIL should be treated as one entity and, as such, jointly and severally held
liable for PASUMIL's unpaid obligation.

ISSUE:
WON PNB is liable for the unpaid debts of PASUMIL to Andrada.

HELD:
No. As a rule, a corporation that purchases the assets of another will not be
liable for the debts of the selling corporation, provided the former acted in good
faith and paid adequate consideration for such assets, except when any of the
following circumstances is present: (1) where the purchaser expressly or
impliedly agrees to assume the debts, (2) where the transaction amounts to a
consolidation or merger of the corporations, (3) where the purchasing
corporation is merely a continuation of the selling corporation, and (4) where
the transaction is fraudulently entered into in order to escape liability for those
debts.

The question of whether a corporation is a mere alter ego is one of fact.
Piercing the veil of corporate fiction may be allowed only if the following
elements concur:

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3C & 3S ATTY. CARLO BUSMENTE

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

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

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

The absence of the foregoing elements in the present case precludes the
piercing of the corporate veil. First, other than the fact that petitioners acquired
the assets of PASUMIL, there is no showing that their control over it warrants
the disregard of corporate personalities.

Second, there is no evidence that their juridical personality was used to commit
a fraud or to do a wrong; or that the separate corporate entity was farcically
used as a mere alter ego, business conduit or instrumentality of another entity
or person.

Third, respondent was not defrauded or injured when petitioners acquired the
assets of PASUMIL.

The court further ruled that there is no consolidation or merger with respect to
PASUMIL and PNB. In fact, PASUMIL's corporate existence had not been legally
extinguished or terminated. Further, prior to PNB's acquisition of the
foreclosed assets, PASUMIL had previously made partial payments to
respondent for the former's obligation. Neither did petitioner expressly or
impliedly agree to assume the debt of PASUMIL to respondent. PNB shall study
and submit recommendations on the claims of PASUMIL's creditors. Clearly, the
corporate separateness between PASUMIL and PNB remains, despite
respondent's insistence to the contrary.

BURGOS LIPAT vs. PACIFIC BANKING CORP.

FACTS:
Petitioners Sps. Lipat owned Belas Export Trading (BET), a single
proprietorship. 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, to manage BET in the Philippines
while she was managing the Mystical Fashions in the US. Sometime in 1979,
Teresita, by virtue of the special power of attorney, was able to secure for and
in behalf of her mother and BET, a loan from Pacific Bank amounting to P583K
to buy fabrics to be manufactured by BET and exported to Mystical Fashions
in the US. As security therefor, the Lipat spouses executed a Real Estate
Mortgage over their property in QC. Later, BET was incorporated into a family
corporation named Belas Export Corporation (BEC). 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. Unfortunately, BEC defaulted in its payments. The
real estate mortgage was foreclosed. A certificate of sale was issued to
respondent Eugenio D. Trinidad as the highest bidder. In 1989, the spouses
Lipat filed before the QC RTC a complaint for annulment of the real estate
mortgage. Trial Court pierced the veil of corporate fiction and held that Belas
Export Corporation and Lipats are one and the same.

ISSUE:
WON the doctrine of piercing the veil of corporate fiction is applicable

HELD:
Yes. We find that the evidence on record demolishes, rather than buttresses,
petitioners contention that BET and BEC are separate business entities. Note
that Mrs. Lipat admitted that she and her husband Alfredo, were the owners of
BET and were two of the incorporators and majority stockholders of BEC. BET
and BEC are one and the same and the latter is a conduit of and merely
succeeded the former. Petitioners attempt to isolate themselves from and hide
behind the corporate personality of BEC so as to evade their liabilities to Pacific
Bank is precisely what the classical doctrine of piercing the veil of corporate
entity seeks to prevent and remedy. In our view, BEC is a mere continuation
and successor of BET and petitioners cannot evade their obligations in the
mortgage contract secured under the name of BEC on the pretext that it was
signed for the benefit and under the name of BET. We are thus constrained to
rule that the CA did not err when it applied the instrumentality doctrine in
piercing the corporate veil of BEC.

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