LANUZA JR. VS BF CORPORATION (G.R. NO.

174938 OCTOBER 1, 2014)

Facts: In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-La and the members of its
board of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C.
Ramos. BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into agreements with Shangri-
La wherein it undertook to construct for Shangri-La a mall and a multilevel parking structure along EDSA.Shangri-La had been
consistent in paying BF Corporation in accordance with its progress billing statements. However, by October 1991, Shangri-La started
defaulting in payment. BF Corporation alleged that Shangri-La induced BF Corporation to continue with the construction of the buildings
using its own funds and credit despite Shangri-La’s default. According to BF Corporation, Shangri-La misrepresented that it had funds
to pay for its obligations with BF Corporation, and the delay in payment was simply a matter of delayed processing of BF Corporation’s
progress billing statements. BF Corporation eventually completed the construction of the buildings. Shangri-La allegedly took
possession of the buildings while still owing BF Corporation an outstanding balance. BF Corporation alleged that despite repeated
demands, Shangri-La refused to pay the balance owed to it.It also alleged that the Shangri-La’s directors were in bad faith in directing
Shangri-La’s affairs. Therefore, they should be held jointly and severally liable with Shangri-La for its obligations as well as for the
damages that BF Corporation incurred as a result of Shangri-La’s default. On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B.
Colayco, Maximo G. Licauco III, and Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF Corporation’s failure
to submit its dispute to arbitration, in accordance with the arbitration clause provided in its contract. Petitioners filed their comment on
Shangri-La’s and BF Corporation’s motions, praying that they be excluded from the arbitration proceedings for being non-parties to
Shangri-La’s and BF Corporation’s agreement.

Issue: Whether or not petitioners as directors of Shangri-La is personally liable for the contractual obligations entered into by the
corporation.

Held: No. Because a corporation’s existence is only by fiction of law, it can only exercise its rights and powers through its directors,
officers, or agents, who are all natural persons. A corporation cannot sue or enter into contracts without them.

A consequence of a corporation’s separate personality is that consent by a corporation through its representatives is not consent of the
representative, personally. Its obligations, incurred through official acts of its representatives, are its own. A stockholder, director, or
representative does not become a party to a contract just because a corporation executed a contract through that stockholder, director
or representative.

Hence, a corporation’s representatives are generally not bound by the terms of the contract executed by the corporation. They are not
personally liable for obligations and liabilities incurred on or in behalf of the corporation.

A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto, as
well as their assigns and heirs.

When there are allegations of bad faith or malice against corporate directors or representatives, it becomes the duty of courts or
tribunals to determine if these persons and the corporation should be treated as one. Without a trial, courts and tribunals have no basis
for determining whether the veil of corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the
courts or tribunals must first determine whether circumstances exist towarrant the courts or tribunals to disregard the distinction
between the corporation and the persons representing it. The determination of these circumstances must be made by one tribunal or
court in a proceeding participated in by all parties involved, including current representatives of the corporation, and those persons
whose personalities are impliedly the sameas the corporation. This is because when the court or tribunal finds that circumstances exist
warranting the piercing of the corporate veil, the corporate representatives are treated as the corporation itself and should be held
liable for corporate acts. The corporation’s distinct personality is disregarded, and the corporation is seen as a mere aggregation of
persons undertaking a business under the collective name of the corporation.

A corporation is an artificial entity created by fiction of law. This means that while it is not a person, naturally, the law gives it a distinct
personality and treats it as such. A corporation, in the legal sense, is an individual with a personality that is distinct and separate from
other persons including its stockholders, officers, directors, representatives, and other juridical entities. The law vests in corporations
rights,powers, and attributes as if they were natural persons with physical existence and capabilities to act on their own. For instance,
they have the power to sue and enter into transactions or contracts. Section 36 of the Corporation Code enumerates some of a
corporation’s powers, thus:

Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code has the power and capacity: 1. To
sue and be sued in its corporate name; 2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate ofincorporation; 3. To adopt and use a corporate seal; 4. To amend its articles of incorporation in
accordance with the provisions of this Code; 5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal
the same in accordance with this Code; 6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks
in accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock corporation; 7. To
purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property,
including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and the Constitution; 8. To enter into merger or consolidation with
other corporations as provided in this Code; 9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give donations in aid
of any political party or candidate or for purposes of partisan political activity; 10. To establish pension, retirement, and other plans for
the benefit of its directors, trustees, officers and employees; and 11. To exercise such other powers as may be essential or necessary
to carry out its purpose or purposes as stated in its articles of incorporation.
#146 Republic Of The Philippines, Petitioner, V. Mega Pacific AUTHOR: Pelayo
Esolutions, Inc., Willy U. Yu, Bonnie S. Yu, Enrique T. Tansipek, Rosita Notes:
Y. Tansipek, Pedro O. Tan, Johnson W. Fong, Bernard I. Fong, And
*Lauriano A. Barrios, Respondents.
June 27, 2016 G.R. No. 184666
TOPIC: State Immunity; Exemption from Legal Requirements
PONENTE:
CASE LAW/ DOCTRINE:

FACTS:
 Republic Act No. 8436 authorized the COMELEC to use an automated election system for the May 1998 elections. However, the
automated system failed to materialize and votes were canvassed manually during the 1998 and the 2001 elections.
 For the 2004 elections, the COMELEC again attempted to implement the automated election system. For this purpose, it invited bidders
to apply for the procurement of supplies, equipment, and services.
 Respondent MPEI, as lead company, purportedly formed a joint venture - known as the Mega Pacific Consortium (MPC) - together with
We Solv, SK C & C, ePLDT, Election.com and Oracle. Subsequently, MPEI, on behalf of MPC, submitted its bid proposal to COMELEC.
 After due assessment, the Bids and Awards Committee (BAC) recommended that the project be awarded to MPC. The COMELEC
favorably acted on the recommendation and issued Resolution No. 6074, which awarded the automation project to MPC.
 Despite the award to MPC, the COMELEC and MPEI executed on 2 June 2003 the Automated Counting and Canvassing Project Contract
(automation contract)5 for the aggregate amount of P1,248,949,088.
 MPEI agreed to supply and deliver 1,991 units of ACMs and such other equipment and materials necessary for the computerized electoral
system in the 2004 elections. Pursuant to the automation contract, MPEI delivered 1,991 ACMs to the COMELEC. The latter, for its part,
made partial payments to MPEI in the aggregate amount of P1.05 billion.
 This Court in its 2004 Decision declared the contract null and void.6 We held that the COMELEC committed a clear violation of law and
jurisprudence, as well as a reckless disregard of its own bidding rules and procedure.
 All in all, Comelec subverted the essence of public bidding: to give the public an opportunity for fair competition and a clear basis for a
precise comparison of bids.

 Complaint for Damages filed by respondents with the RTC Makati and petitioner's Answer with Counterclaim, with an application for a
writ of preliminary attachment, from which the instant case arose
 Upon the finality of the declaration of nullity of the automation contract, respondent MPEI filed a Complaint for Damages before the RTC
Makati, arguing that, notwithstanding the nullification of the automation contract, the COMELEC was still bound to pay the amount of
P200,165,681.89. This amount represented the difference between the value of the ACMs and the support services delivered on one
hand, and on the other, the payment previously made by the COMELEC.
 By way of a counterclaim, petitioner demanded from respondents the return of the payments made pursuant to the automation
contract.26 It argued that individual respondents, being the incorporators of MPEI, likewise ought to be impleaded and held accountable
for MPEI's liabilities. The creation of MPC was, after all, merely an ingenious scheme to feign eligibility to bid.
 Pursuant to Section 1(d) of Rule 57 of the Rules of Court, petitioner prayed for the issuance of a writ of preliminary attachment against
the properties of MPEI and individual respondents. The application was grounded upon the fraudulent misrepresentation of respondents
as to their eligibility to participate in the bidding for the COMELEC automation project and the failure of the ACMs to comply with
mandatory technical requirements.
 The trial court denied the prayer for the issuance of a writ of preliminary attachment,29 ruling that there was an absence of factual
allegations as to how the fraud was actually committed.
 The trial court further ruled that the allegations of fraud on the part of MPEI were not supported by the COMELEC, the office in charge of
conducting the bidding for the election automation contract. It was likewise held that there was no evidence that respondents harbored
a preconceived plan not to comply with the obligation; neither was there any evidence that MPEI's corporate fiction was used to
perpetrate fraud. Thus, it found no sufficient basis to pierce the veil of corporate fiction or to cause the attachment of the properties
owned by individual respondents.
 Petitioner moved to set aside the trial court's Order denying the writ of attachment,30 but its motion was denied.
 Aggrieved, petitioner filed an appeal with the CA.
 The CA in its First Decision32 reversed and set aside the trial court's Orders and ruled that there was sufficient basis for the issuance of a
writ of attachment in favor of petitioner.
 The appellate court explained that the averments of petitioner in support of the latter's application actually reflected pertinent
conclusions reached by this Court in its 2004 Decision. It held that the trial court erred in disregarding the following findings of fact, which
remained unaltered and unreversed: (1) COMELEC bidding rules provided that the eligibility and capacity of a bidder may be proved
through financial documents including, among others, audited financial statements for the last three years; (2) MPEI was incorporated
only on 27 February 2003, or 11 days prior to the bidding itself; (3) in an attempt to disguise its ineligibility, MPEI participated in the
bidding as lead company of MPC, a putative consortium, and submitted the incorporation papers and financial statements of the
members of the consortium; and (4) no proof of the joint venture agreement, consortium agreement, memorandum of agreement, or
business plan executed among the members of the purported consortium was ever submitted to the COMELEC.
 According to the CA, the foregoing were glaring indicia or badges of fraud, which entitled petitioner to the issuance of the writ.
 Respondents moved for reconsideration36 of the First Decision of the CA.
 The CA reconsidered its First Decision37 and directed the remand of the case to the RTC Makati for the reception of evidence of
allegations of fraud and to determine whether attachment should necessarily issue.
 The CA explained in its Amended Decision that respondents could not be considered to have fostered a fraudulent intent to dishonor
their obligation, since they had delivered 1,991 units of ACMs.
 Petitioner filed the instant Rule 45 Petition,45 arguing that the CA erred in ordering the remand of the case to the trial court for the
reception of evidence to determine the presence of fraud.
ISSUE(S):
WON a writ of preliminary attachment may be issued against the properties of individual respondents, considering that they were not parties to
the 2004 case.

HELD: Yes. Petition is meritorious.

RATIO:

 A writ of preliminary attachment should issue in favor of petitioner over the properties of respondents MPEI, Willy Yu (Willy) and the
remaining individual respondents, namely: Bonnie S. Yu (Bonnie), Enrique T. Tansipek (Enrique), Rosita Y. Tansipek (Rosita), Pedro O. Tan
(Pedro), Johnson W. Fong (Johnson), Bernard I. Fong (Bernard), and Lauriano Barrios (Lauriano). The bases for the writ are the following:
 Fraud on the part of respondent MPEI was sufficiently established by the factual findings of this Court in its 2004 Decision and
subsequent pronouncements.
 A writ of preliminary attachment may issue over the properties of the individual respondents using the doctrine of piercing the corporate
 veil.
 The factual findings of this Court that have become final cannot be modified or altered, much less reversed, and are controlling in the
instant case. The delivery of 1,991 units of ACMs does not negate fraud on the part of respondents MPEI and Willy. Estoppel does not lie
against the state when it acts to rectify mistakes, errors or illegal acts of its officials and agents.
 The findings of the Ombudsman are not controlling in the instant case.
 A writ of preliminary attachment is a provisional remedy issued upon the order of the court where an action is pending. Through the writ,
the property or properties of the defendant may be levied upon and held thereafter by the sheriff as security for the satisfaction of
whatever judgment might be secured by the attaching creditor against the defendant.61 The provisional remedy of attachment is
available in order that the defendant may not dispose of the property attached, and thus prevent the satisfaction of any judgment that
may be secured by the plaintiff from the former.
 The purpose and function of an attachment or garnishment is twofold. First, it seizes upon property of an alleged debtor in advance of
final judgment and holds it subject to appropriation, thereby preventing the loss or dissipation of the property through fraud or other
means. Second, it subjects the property of the debtor to the payment of a creditor's claim, in those cases in which personal service upon
the debtor cannot be obtained.63 This remedy is meant to secure a contingent lien on the defendant's property until the plaintiff can, by
appropriate proceedings, obtain a judgment and have the property applied to its satisfaction, or to make some provision for unsecured
debts in cases in which the means of satisfaction thereof are liable to be removed beyond the jurisdiction, or improperly disposed of or
concealed, or otherwise placed beyond the reach of creditors.
 Section 1(d), Rule 57 of the Rules of Court
o Section 1. Grounds upon which attachment may issue. At the commencement of the action or at any time before entry of
judgment, a plaintiff or any proper party may have the property of the adverse party attached as security for the satisfaction of
any judgment that may be recovered in the following cases:
x xxx
(d) In an action against a party who has been guilty of a fraud in contracting the debt or incurring the obligation upon which the
action is brought, or in the performance thereof. (Emphasis supplied)
 For a writ of preliminary attachment to issue under the above-quoted rule, the applicant must sufficiently show the factual circumstances
of the alleged fraud.
 Metro, Inc. v. Lara's Gift and Decors, Inc., To sustain an attachment on this ground, it must be shown that the debtor in contracting the
debt or incurring the obligation intended to defraud the creditor. The fraud must relate to the execution of the agreement and must have
been the reason which induced the other party into giving consent which he would not have otherwise given. To constitute a ground for
attachment in Section 1(d), Rule 57 of the Rules of Court, fraud should be committed upon contracting the obligation sued upon. A debt
is fraudulently contracted if at the time of contracting it the debtor has a preconceived plan or intention not to pay, as it is in this case. x
xx.
 The applicant for a writ of preliminary attachment must sufficiently show the factual circumstances of the alleged fraud because
fraudulent intent cannot be inferred from the debtor's mere non-payment of the debt or failure to comply with his obligation. (Emphasis
supplied)
 An amendment to the Rules of Court added the phrase "in the performance thereof" to include within the scope of the grounds for
issuance of a writ of preliminary attachment those instances relating to fraud in the performance of the obligation.
 In the case at bar, petitioner has sufficiently discharged the burden of demonstrating the commission of fraud by respondent MPEI in the
execution of the automation contract in the two ways:
o Respondent MPEI had perpetrated a scheme against petitioner to secure the automation contract by using MPC as supposed
bidder and eventually succeeding in signing the automation contract as MPEI alone, an entity which was ineligible to bid in the
first place.
o Fraud on the part of respondent MPEI was further shown by the fact that despite the failure of its ACMs to pass the tests
conducted by the DOST, respondent still acceded to being awarded the automation contract.

DISSENTING/CONCURRING OPINION(S): N/A

 Case Digest: JOSE EMMANUEL P. GUILLERMO, Petitioner, v. CRISANTO P. USON, Respondent.

G.R. No. 198967

March 07, 2016
PERALTA, J.:

Facts:
Respondent Uson was an accounting supervisor in Royal Class Venture Phils., Inc. (RCVPI) until Dec. 20, 2000 when he was allegedly
dismissed by petitioner Guillermo, the company’s president/general manager, for having exposed the latter’s practice of dictating and
undervaluing the shares of stocks of the corporation. Thereafter he filed a complaint for illegal dismissal against the corporation,
RCVPI.

The Labor Arbiter rendered a decision in favor of Uson, ordering respondent to reinstate him to his former position and pay his
backwages, 13th month pay as well as moral damages, exemplary damages and attorney’s fees. RCVPI did not file an appeal but
repeated issuances of Writs of Execution against the same remained unsatisfied.

Uson filed another Motion for Alias Writ of Execution and to Hold Directors and Officers of Respondent Liable for the Decision
and quoted from the sheriff’s return: a) that at RCVPI’s address (to which the writs are being served) there is a new establishment
named “ Joel and Sons Corporation” which was a family corporation owned by the Guillermos, in which Jose Emmanuel Guillermo, the
President and General Manager of RCVPI, is one of the stockholders; b) that Jose received the writ using the nickname “Joey”
concealing his real identity and pretended to be the brother of Jose; c) that RCVPI has already been dissolved.

Labor Arbiter granted the motion filed by respondent and held herein petitioner Jose Emmanuel Guillermo, in his personal capacity
jointly and severally liable with the corporation stating that the officers of the corporation are jointly and severally liable for the
obligations of the corporation (“piercing the veil of corporate fiction”) to the employees even if the said officers were not parties to the
case.

Guillermo filed a Motion for Reconsideration/To Set Aside the Order of the labor arbiter. His contentions were a) officers cannot be
included as judgement obligor in a labor case for the first time only after the decision of the Labor Arbiter had become final and
executory b) in piercing the veil of RCVPI, he was allegedly discriminated against when he alone was belatedly impleaded despite the
existence of other officers of RCVPI; c)that the labor arbiter has no jurisdiction because the case is one of an intra-corporate
controversy, with the complainant Uson also claiming to be a stockholder and director of the corporation.

Issues:
1. Whether an officer of a corporation may be included as judgement obligor in a labor case for the first time only after the decision of
the Labor Arbiter had become final and executory.
2. Whether the twin doctrines of “piercing the veil of corporate fiction” and personal liability of company officers in labor cases apply.

Ruling:
The Petition is denied.

In earlier labor cases, the Court held that persons who were not originally impleaded in the case were, even during execution, held to
be solidarity liable with the employer corporation for the latter's unpaid obligations to complainant-employees. Personal liability
attaches only when, as enumerated by the said Section 31 of the Corporation Code, there is a wilfull and knowing assent to patently
unlawful acts of the corporation, there is gross negligence or bad faith in directing the affairs of the corporation, or there is a conflict of
interest resulting in damages to the corporation. The conferment of liability on officers for a corporation's obligations to labor is held to
be an exception to the general doctrine of separate personality of a corporation.

It also bears emphasis that in cases where personal liability attaches, not even all officers are made accountable. Rather, only the
"responsible officer," i.e., the person directly responsible for and who "acted in bad faith" in committing the illegal dismissal or any act
violative of the Labor Code, is held solidarily liable, in cases wherein the corporate veil is pierced

The veil of corporate fiction can be pierced, and responsible corporate directors and officers or even a separate but related corporation,
may be impleaded and held answerable solidarily in a labor case, even after final judgment and on execution, so long as it is
established that such persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have resorted
to fraud, bad faith or malice in doing so.

In the case at hand, respondent Uson’s sworn allegations stating that Guillermo was the responsible officer in charge of running the
company as well as the one who maliciously and illegally dismissed Uson from employment was uncontroverted. Furthermore, it was
Guillermo himself, as President and General Manager of the company, who received the summons to the case, and who also
subsequently and without justifiable cause refused to receive all notices and orders of the Labor Arbiter that followed. He, likewise, was
shown to have a role in dissolving the original obligor company in an obvious "scheme to avoid liability".

Essentially, then, the facts form part of the records and stand as further proof of Guillermo's bad faith and malicious intent to evade
the judgment obligation.

It is settled in jurisprudence that not all conflicts between a stockholder and the corporation are intra-corporate; an examination of the
complaint must be made on whether the complainant is involved in his capacity as a stockholder or director, or as an employee.

In the case at bar, Uson's allegation was that he was maliciously and illegally dismissed as an Accounting Supervisor by Guillermo, the
Company President and General Manager. It raised no intra-corporate relationship issues between him and the corporation or
Guillermo; neither did it raise any issue regarding the regulation of the corporation.

As correctly found by the appellate court, Uson's complaint and redress sought were centered alone on his dismissal as an employee,
and not upon any other relationship he had with the company or with Guillermo. Thus, the matter is clearly a labor dispute cognizable
by the labor tribunals.