CORPORATION LAW CASE DIGESTS | 1 1
BUSINESS ORGANIZATIONS IN GENERAL to act in general or (2) acquiescence in his acts of a
1. Yao Ka Sin Trading vs Court of Appeals
209 SCRA 763 – Business Organization – Corporation
Law – Liability of Officers – Apparent Authority
FACTS: In 1973, Constancio Maglana, president of Prime
White Cement Corporation, sent an offer letter to Yao
Ka Sin Trading. The offer states that Prime White is
willing to sell 45,000 bags of cement at P24.30 per bag.
The offer letter was received by Yao Ka Sin’s manager,
Henry Yao. Yao accepted the letter and pursuant to the
letter, he sent a check in the amount of P243,000.00
equivalent to the value of 10,000 bags of cement.
However, the Board of Directors of Prime White
rejected the offer letter sent by Maglana but it
considered Yao’s acceptance letter as a new contract
offer hence the Board sent a letter to Yao telling him
that Prime White is instead willing to sell only 10,000
bags to Yao Ka Sin and that he has ten days to reply;
that if no reply is made by Yao then they will consider it
as an acceptance and that thereafter Prime White shall
deposit the P243k check in its account and then deliver
the cements to Yao Ka Sin. Henry Yao never replied.
Later, Yao Ka Sin sued Prime White to compel the latter
to comply with what Yao Ka Sin considered as the true
contract, i.e., 45,000 bags at P24.30 per bag. Prime
White in its defense averred that although Maglana is
empowered to sign contracts in behalf of Prime White,
such contracts are still subject to approval by Prime
White’s Board, and then it still requires further approval
by the National Investment and Development
Corporation (NIDC), a government owned and
controlled corporation because Prime White is a
subsidiary of NIDC.
Henry Yao asserts that the letter from Maglana is a
binding contract because it was made under the
apparent authority of Maglana. The trial court ruled in
favor of Yao Ka Sin. The Court of Appeals reversed the
trial court.
ISSUE: Whether or not the president of a corporation is
clothed with apparent authority to enter into binding
contracts with third persons without the authority of
the Board.
RULING: No. The Board may enter into contracts
through the president. The president may only enter
into contracts upon authority of the Board. Hence, any
agreement signed by the president is subject to
approval by the Board. Unlike a general manager (like
the case of Francisco vs GSIS), the president has no
apparent authority to enter into binding contracts with
third persons. Further, if indeed the by-laws of Prime
White did provide Maglana with apparent authority,
this was not proven by Yao Ka Sin.
As a rule, apparent authority may result from (1) the
general manner, by which the corporation holds out an
officer or agent as having power to act or, in other
words, the apparent authority with which it clothes him
particular nature, with actual or constructive knowledge
thereof, whether within or without the scope of his
ordinary powers. These are not present in this case.
Also, the subsequent letter by Prime White to Yao Ka
Sin is binding because Yao Ka Sin’s failure to respond
constitutes an acceptance, per stated in the letter itself
– which was not contested by Henry Yao during trial.
2. GR No. 75875, December 15, 1989
Aurbach v Sanitary Wares
FACTS: In 1961, Sanitary Wares Manufacturing
Corporation (Saniwares) was incorporated for the
primary purpose of manufacturing and marketing
sanitary wares.
On 15 August 1962, American Standard Inc (ASI), a
foreign corporation, entered into an agreement with
Saniwarse and some Filipino investors to participate in
the ownership of an enterprise which will engage in the
manufacturing in the Philippines and sales here and
abroad of china and sanitary wares. The Philippine
operations of this enterprise were carried by the
incorporation under the name Sanitary Wares
Manufacturing Corporation.
One of the contents of the agreement was that ASI will
own 30% of the outstanding stocks and in turn, it shall
have the power to designate three out of the nine
directors of the company.
Later, ASI's stake expanded to 40%.
The parties reached a disagreement because of the
desire to expand the company's export operations
which ASI objected to since they have joint ventures in
countries where the expansion was contemplated.
On 8 March 1983, the annual stockholders' meeting was
held. Duting the meeting, the chairman, Baldwin Young
ruled against the nomination of two more persons since
the nine directors as allowed by the agreement were
already picked. Some members conducted a different
election where ASI nominated four members to the
board.
This trigerred the filing of petiton for preliminary
injunction by the Filipino group (Lagdameo Group) and
a petiton for quo warranto and application for
receivership by the ASI group (Aurbach).
The Securities and Exchange Commission upheld the
election of the Lagdameo group and denied the quo
warranto. The IAC remanded the case to SEC upon
appeal.
ISSUE: Whether or not Section 24 of the Corporation
Code which gives stockholders the right to accumulate
their votes in electing directors is applicable to
Saniwares, a joint venture.

RULING: No, Saniwares ASI stockholders may not avail
of Sec 24 of the Corporation Code.
The history and arrangements governing the policy
making of Saniware are consistent with a joint venture
and not an ordinary corporation.
"Joint venture is hardly distinguishable from partnership
since their elements are similar. The main distinction
cited by most opinions in common law jurisdictions is
that the partnership contemplates a general business
with some degree of continuity, while the joint venture
is formed for the execution of a single transaction, and
is thus of a temporary nature. This observation is not
entirely accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular or universal,
and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would
seem therefore that under Philippine law, a joint
venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme
Court has however recognized a distinction between
these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it
may however engage in a joint venture with others. "
Moreover the right of each group to cumulative voting
shall be primarily governed by their Agreement which
denies ASI the right to do so. SEC decision affirmed.
3. MENDEZ vs PEOPLE
G.R. No. 179962 June 11, 2014DR. JOEL C. MENDEZ,
Petitioner, vs. PEOPLE OF THE PHILIPPINES,
Respondents.
FACTS: The BIR alleged that petitioner failed to file his
income tax returns for taxable years 2001 to 2003 and,
consequently evaded his obligation to pay the correct
amount of taxes due the government.
In his defense, the petitioner admitted that he has been
operating as a single proprietor under these trade
names in Quezon City, Makati, Dagupan and San
Fernando. However, he countered that he did not file
his income tax returns in these places because his
business establishments were registered only in 2003 at
the earliest; thus, these business establishments were
not yet in existence at the time of his alleged failure to
file his income tax return.
The accused was arraigned and pleaded not guilty. After
arraignment, prosecution filed a "Motion to Amend
Information with Leave of Court. Among the changes
was the change in the name of his business to include
the phrase "Mendez Medical Group".
The petitioner adds that the change of name to
"Mendez Medical Group" deprived him of the right,
during the preliminary investigation, to present
evidence against the alleged operation and or existence
of this entity.
ISSUE: Whether or not Mendez Medical Group has a
distinct entity.
CORPORATION LAW CASE DIGESTS | 1 2
HELD: No. The Court reject for lack of merit petitioner's
claim that the inclusion of the phrase "doing business
under the name and style of Mendez Medical Group"
after his preliminary investigation and arraignment
deprives him of the right to question the existence of
this "entity."
The petitioner however has not drawn our attention to
any of his related operations that actually possesses its
own juridical personality. In the original information,
petitioner is described as "sole proprietor of Weigh Less
Center." A sole proprietorship is a form of business
organization conducted for profit by a single individual,
and requires the proprietor or owner thereof, like the
petitioner-accused, to secure licenses and permits,
register the business name, and pay taxes to the
national government without acquiring juridical or legal
personality of its own.
B. CLASSES OF CORPORATIONS
1. GR 147402, 14 January 2004
Feliciano vs. Commission on Audit
FACTS: A Special Audit Team from Commission on Audit
(COA) Regional Office No. VIII audited the accounts of
the Leyte Metropolitan Water District (LMWD).
Subsequently, LMWD received a letter from COA dated
19 July 1999 requesting payment of auditing fees. As
General Manager of LMWD, Engr. Ranulfo C. Feliciano
sent a reply dated 12 October 1999 informing COA’s
Regional Director that the water district could not pay
the auditing fees. Feliciano cited as basis for his action
Sections 6 and 20 of PD 198, as well as Section 18 of RA
6758. The Regional Director referred Feliciano’s reply to
the COA Chairman on 18 October 1999. On 19 October
1999, Feliciano wrote COA through the Regional
Director asking for refund of all auditing fees LMWD
previously paid to COA. On 16 March 2000, Feliciano
received COA Chairman Celso D. Gangan’s Resolution
dated 3 January 2000 denying Feliciano’s request for
COA to cease all audit services, and to stop charging
auditing fees, to LMWD. The COA also denied Feliciano’s
request for COA to refund all auditing fees previously
paid by LMWD. Feliciano filed a motion for
reconsideration on 31 March 2000, which COA denied
on 30 January 2001. On 13 March 2001, Felicaino filed
the petition for certiorari.
ISSUE: Whether a Local Water District (“LWD”) is a
government-owned or controlled corporation.
HELD: The Constitution recognizes two classes of
corporations. The first refers to private corporations
created under a general law. The second refers to
government-owned or controlled corporations created
by special charters. The Constitution emphatically
prohibits the creation of private corporations except by
a general law applicable to all citizens. The purpose of
this constitutional provision is to ban private
corporations created by special charters, which
historically gave certain individuals, families or groups
special privileges denied to other citizens. In short,

Congress cannot enact a law creating a private
corporation with a special charter. Such legislation
would be unconstitutional. Private corporations may
exist only under a general law. If the corporation is
private, it must necessarily exist under a general law.
Stated differently, only corporations created under a
general law can qualify as private corporations. Under
existing laws, that general law is the Corporation Code,
except that the Cooperative Code governs the
incorporation of cooperatives. The Constitution
authorizes Congress to create government-owned or
controlled corporations through special charters. Since
private corporations cannot have special charters, it
follows that Congress can create corporations with
special charters only if such corporations are
government-owned or controlled. Obviously, LWDs are
not private corporations because they are not created
under the Corporation Code. LWDs are not registered
with the Securities and Exchange Commission.
Section 14 of the Corporation Code states that “*A+ll
corporations organized under this code shall file with
the Securities and Exchange Commission articles of
incorporation x x x.” LWDs have no articles of
incorporation, no incorporators and no stockholders or
members. There are no stockholders or members to
elect the board directors of LWDs as in the case of all
corporations registered with the Securities and
Exchange Commission. The local mayor or the provincial
governor appoints the directors of LWDs for a fixed
term of office. LWDs exist by virtue of PD 198, which
constitutes their special charter. Since under the
Constitution only government-owned or controlled
corporations may have special charters, LWDs can
validly exist only if they are government-owned or
controlled. To claim that LWDs are private corporations
with a special charter is to admit that their existence is
constitutionally infirm. Unlike private corporations,
which derive their legal existence and power from the
Corporation Code, LWDs derive their legal existence and
power from PD 198.
C. NATIONALITY OF CORPORATIONS
1. NARRA NICKEL MINING AND DEVELOPMENT CORP.
vs. REDMONT CONSOLIDATED MINES CORP.
722 SCRA 382
FACTS: Redmont, a domestic corporation organized and
existing under Philippine laws, took interest in mining
and exploring certain areas of the province of Palawan.
However, the areas it sought to explore were already
covered by the Mineral Production Sharing Agreement
(MPSA) applications of Narra, Tesoro and McArthur
companies.
Redmont opposed their applications on the ground that
at least 60% of the capital stock of McArthur, Tesoro
and Narra are owned and controlled by a common
shareholder, MBMI Resources Inc., a 100% Canadian
corporation.
Since MBMI was alleged to be the ultimate driving force
CORPORATION LAW CASE DIGESTS | 1 3
behind Narra, Tesoro and McArthur, Redmont argued
that they should not be qualified to engage in mining
activities, which is a partly nationalized activity.
Narra, Tesoro and McArthur argued that, applying the
control test, they should be considered Philippine
corporations since on paper, it clearly appears that at
least 60% of their capital is owned by Filipinos.
But Redmont argued that given the circumstances, it is
the grandfather rule which should be applied.
ISSUE: Whether or not Narra Nickel Mining and Devt
Corp is a foreign corporation.
HELD: YES. In finally applying the grandfather rule and
declaring that the corporations are indeed not qualified
to engage in mining activities in the Philippines, the
Supreme Court found that the corporation crafted a
“web of corporate layering,” whereby at face value, it
appears that the corporations satisfy the Filipino equity
requirement, but in truth the ultimate controlling
shareholders are foreigners.
Though the Supreme Court recognized that corporate
layering is allowed by law, it drew the line in cases when
it is used to skirt around the Constitution and pertinent
laws.
Thus, the Supreme Court did away with the control test
and applied the grandfather rule because it found the
nationalities of the corporations to be “in doubt,” as
shown by the following indicia:
• The corporations have a common major investor,
MBMI, a 100% foreign corporation;
• Their corporate structures and nominal shareholders
are the same;
• During the pendency of the cases, the corporations
moved to convert their MPSA applications to financial
or technical assistance agreements instead;
• The corporate documents of MBMI show that its
operations are only through its local counterparts;
• In the course of the proceedings, MBMI suddenly
divested its interest to another company and
subsequently claimed that the cases are now moot. The
Supreme Court agreed with the ruling of the Court of
Appeals who found these actions highly suspicious.
These clearly show the pitfall of the control test -- it is
as easy and more convenient to circumvent as it is easy
and more convenient to use and apply in determining
the nationality of a corporation.
Through the application of the grandfather rule, the SC
held that the petitioners Narra Nickel, Tesoro, and
MacArthur Mining are not considered Philippine
nationals since MBMI, a 100% Canadian corporation,
owns 60% or more of their equity shares interests.

Hence, as non-Philippine nationals, they are disqualified
to participate in the exploration, utilization and
development of the Philippine natural resources.
2. ALILIN vs. PETRON CORPORATION
725 SCRA 342
FACTS: Petron is a domestic corporation engaged in the
oil business. In 1968, Romualdo D. Gindang Contractor,
owned and operated by Romualdo D. Gindang, started
recruiting laborers for fielding to Petron’s Mandaue
Bulk Plant. When Romualdo died in 1989, his son
Romeo, through Romeo D. Gindang Services (RDG), took
over and continued to provide manpower services to
Petron. Petron and RDG entered into a Contract for
Services from June 1, 2000 to May 31, 2002, to provide
Petron with janitorial, maintenance, tanker receiving,
packaging and other utility services. This was extended
until Sept 30, 2002. Upon expiration, no renewal was
done and workers were dismissed. Petitioners filed an
illegal dismissal complaint against Petron alleging that
they were barred from continuing their services on Oct
16, 2002. Petitioners claim that although it was RDG
who hired them and paid their salaries, RDG is a labor-
only contractor, acting as an agent of Petron, their true
employer. Claiming to be regular employees, petitioners
asserted that their dismissal allegedly in view of the
expiration of the service contract between Petron and
RDG is illegal. RDG denied liability over petitioners’
claim of illegal dismissal while also corroborating
petitioners’ claim that they are regular employees of
Petron. Petron, on the other hand, maintained that RDG
is an independent contractor and the real employer of
the petitioners. It was RDG, which hired and selected
petitioners, paid their salaries and wages, and directly
supervised their work.
Both Labor Arbiter and NLRC ruled that petitioners are
Petron’s regular employees. CA however ruled
otherwise stating that there is no employer-employee
relationship, and that RDG is in fact an independent
labor contractor with sufficient capitalization and
investment. The Motion for Reconsideration by
Petitioners was dismissed, hence this petition.
ISSUE: Whether or not Petron is liable for petitioners’
dismissal.
HELD: YES. Petitioners were hired by Romeo or his
father and that their salaries were paid by them do not
detract from the conclusion that there exists an
employer-employee relationship between the parties
due to Petron's power of control over the petitioners.
Petitioners were given various work assignments such
as tanker receiving, barge loading, sounding, gauging,
warehousing, mixing, painting, carpentry, driving, gasul
filling and other utility works. Petron refers to these
work assignments as menial works which could be
performed by any able-bodied individual. The Court
finds, however, that while the jobs performed by
petitioners may be menial and mechanical, they are
CORPORATION LAW CASE DIGESTS | 1 4
nevertheless necessary and related to Petron's business
operations. If not for these tasks, Petron's products will
not reach the consumers in their proper state. Indeed,
petitioners' roles were vital inasmuch as they involve
the preparation of the products that Petron will
distribute to its consumers.
In sum, the Court finds that RDG is a labor-only
contractor. As such, it is considered merely as an agent
of Petron. Consequently, the employer-employee
relationship which the Court finds to exist in this case is
between petitioners as employees and Petron as their
employer. Petron therefore, being the principal
employer and RDG, being the labor-only contractor, are
solidarily liable for petitioners' illegal dismissal and
monetary claims.
In sum, the Court finds that RDG is a labor-only
contractor. As such, it is considered merely as an agent
of Petron. Consequently, the employer-employee
relationship which the Court finds to exist in this case is
between petitioners as employees and Petron as their
employer. Petron therefore, being the principal
employer and RDG, being the labor-only contractor, are
solidarily liable for petitioners' illegal dismissal and
monetary claims.
3. G.R. No. L-3869, January 31, 1952
S. David Winship vs Philippine Trust Company
FACTS: Prior to December 1941, the Eastern Isles Import
Corporation, which is mainly owned by American
citizens, had a current account deposit with the Phil
Trust Company. Then later, the Japanese administration
issued an order requiring all deposit accounts of the
hostile people to be transferred to the bank of Taiwan.
In compliance, Phil. Trust transferred and paid the
credit balances of the current account deposits of the
corporation to the bank of Taiwan.
The pre-war current deposit accounts of the Eastern
Isles Import Corporation and of the Eastern Isles, Inc.
were subsequently transferred to S. Davis Winship who,
on August 12, 1947, presented to the Philippine Trust
Company checks Nos. A-79212 and H-579401 covering
the aforesaid deposits. The Philippine Trust Company,
however, refused to pay said checks, whereupon, on
September 6, 1947, S. Davis Winship instituted the
present action against the Philippine Trust Company in
the Court of First Instance of Manila, to recover upon
the first cause of action the sum of P51,410.91 and
under the second cause of action the sum of
P34,827.74.
In its answer, the defendant Philippine trust Company
invoked the order of the Japanese Military
Administration by virtue of which it transferred the
current deposit accounts in question to the Bank of
Taiwan as the depository of the Bureau of Enemy
Property Custody of the Japanese Military
Administration.

After trial, the Court of First Instance of Manila
rendered a decision upholding the contention of the
defendant and accordingly dismissing the complaint.
ISSUE: Whether or not Eastern Isles Import Corporation
and Eastern Isles, Inc. are foreign corporations.
RULING: YES. The SC affirm the appealed judgment. As
it has been stipulated by the parties that the defendant
transferred the deposits in question to the Bank of
Taiwan in compliance with the order of the Japanese
Military Administration, the defendant was released
from any obligation to the depositors or their
transferee. Appellant's contention that there is no
positive showing that the transfer was made by the
Philippine Trust Company in compliance with the order
of the Japanese Military Administration, and its logical
effect is to make such act binding on said company. At
any rate, the defendant corporation has not impugned
its validity.
In the case of Filipinas Compañia de Seguros vs.
Christern Henefeld and Co., Inc., Phil., 54, we held that
the nationality of a private corporation is determined by
the character or citizenship of its controlling
stockholders; and this pronouncement is of course
decisive as to the hostile character of the Eastern Isles,
Inc., as far as the Japanese Military Administration was
concerned, it being conceded that the controlling
stockholders of said corporations were American
citizens.
Wherefore, the appealed judgment is affirmed, with
costs against the appellant.
4. FILIPINAS COMPANIA DE SEGUROS vs. CHRISTERN
HUENEFELD and CO., INC. 89 Phil 54
DECEMBER 21, 2016
FACTS: On October 1, 1941, the respondent
corporation, Christern Huenefeld and Co., Inc., after
payment of corresponding premium, obtained from the
petitioner, Filipinas Cia de Seguros fire policy covering
merchandise contained in a building located at Binondo,
Manila. On February 27, 1942 or during the Japanese
military occupation, the building and insured
merchandise were burned. In due time, the respondent
submitted to the petitioner its claim under the policy.
The petitioner refused to pay the claim on the ground
that the policy in favor of the respondent that ceased to
be a force on the date the United States declared war
against Germany, the respondent corporation (through
organized under and by virtue of the laws of Philippines)
being controlled by German subjects and the petitioner
being a company under American jurisdiction when said
policy was issued on October 1, 1941. The theory of the
petitioner is that the insured merchandise was burned
after the policy issued in 1941 had ceased to be
effective because the outbreak of the war between
United States and Germany on December 10, 1941, and
that the payment made by the petitioner to the
respondent corporation during the Japanese military
occupation was under pressure.
CORPORATION LAW CASE DIGESTS | 1 5
ISSUE: Whether or not the respondent corporation is a
corporation of public enemy.
RULING: Since the majority of stockholders of the
respondent corporation were German subjects, the
respondent became an enemy of the state upon the
outbreak of the war between US and Germany. The
English and American cases relied upon by the Court of
Appeals lost in force upon the latest decision of the
Supreme Court of US in which the control test has
adopted.
Since World War I, the determination of enemy
nationality of corporations has been discussed in many
countries, belligerent and neutral. A corporation was
subject to enemy legislation when it was controlled by
enemies, namely managed under the influence of
individuals or corporations themselves considered as
enemies…
The Philippine Insurance Law (Act No 2427, as
amended), in Section 8, provides that “anyone except a
public enemy may be insured”. It stands to reason that
an insurance policy ceases to be allowable as soon as an
insured becomes a public enemy.
The respondent having an enemy corporation on
December 10, 1941, the insurance policy issued in its
favor on October 1, 1941, by the petitioner had ceased
to be valid and enforceable, and since the insured good
were burned during the war, the respondent was not
entitled to any indemnity under said policy from the
petitioner. However, elementary rule of justice (in the
absence of specific provisions in the Insurance Law)
require that the premium paid by the respondent for
the period covered by its policy from December 11,
1941, should be returned by the petitioner.
D. CORPORATE JURIDICAL PERSONALITY
1. G.R. Nos. 194964-65. January 11, 2016
UNIVERSITY OF MINDANAO, INC.,
petitioner, vs. BANGKO SENTRAL NG PILIPINAS, ET
AL., respondents.
Acts of an officer that are not authorized by the board
of directors/trustees do not bind the corporation
unless the corporation ratifies the acts or holds the
officer out as a person with authority to transact on its
behalf.
Facts: University of Mindanao is an educational
institution. For the year 1982, its Board of Trustees was
chaired by Guillermo B. Torres. His wife, Dolores P.
Torres, sat as University of Mindanao's Assistant
Treasurer.
Before 1982, Guillermo B. Torres and Dolores
P. Torres incorporated and operated two (2) thrift
banks: (1) First Iligan Savings & Loan Association, Inc.
(FISLAI); and (2) Davao Savings and Loan Association,
Inc. (DSLAI). Guillermo B. Torres chaired both thrift

banks. He acted as FISLAI's President, while his wife,
Dolores P. Torres, acted as DSLAI's President and
FISLAI's Treasurer. 6
Upon Guillermo B. Torres' request, Bangko
Sentral ng Pilipinas issued a P1.9 million standby
emergency credit to FISLAI. The release of standby
emergency credit was evidenced by three (3)
promissory notes which were all signed by Guillermo
B. Torres, and were co-signed by either his wife,
Dolores P. Torres, or FISLAI's Special Assistant to the
President, Edmundo G. Ramos, Jr. 7
On May 25, 1982, University of Mindanao's
Vice President for Finance, Saturnino Petalcorin,
executed a deed of real estate mortgage over
University of Mindanao's property in CDO in favor of
BSP. TE
As proof of his authority thereof, Petalcorin
showed a Secretary's Certificate signed by University
of Mindanao's Corporate Secretary, Aurora de Leon.
An additional loan of P620,700.00 was
granted by BSP to FISLAI.
Saturnino Petalcorin executed another deed
of real estate mortgage, allegedly on behalf of
University of Mindanao, over its two properties in
Iligan City as additional security for FISLAI's loans.
On January 11, 1985, FISLAI, DSLAI, and Land
Bank of the Philippines entered into a Memorandum
of Agreement intended to rehabilitate the thrift
banks. Among the terms of the agreement was the
merger of FISLAI and DSLAI, with DSLAI as the
surviving corporation. DSLAI later became known as
Mindanao Savings and Loan Association, Inc.
(MSLAI). 21
MSLAI failed to recover from its losses and
was liquidated. 23
On June 18, 1999, Bangko Sentral ng Pilipinas
sent a letter to University of Mindanao, informing it
that the bank would foreclose its properties if
MSLAI's total outstanding obligation of
P12,534,907.73 remained unpaid. 24
In its reply, University of Mindanao, through
its Vice President for Accounting, Gloria E. Detoya,
denied that University of Mindanao's properties
were mortgaged. It also denied having received any
loan proceeds from Bangko Sentral ng
Pilipinas. 25 DETACa
On July 16, 1999, UM filed two Complaints
for nullification and cancellation of mortgage.
University of Mindanao also alleged that
Aurora de Leon's certification was anomalous. That,
it never authorized Saturnino Petalcorin to execute
real estate mortgage contracts involving its
CORPORATION LAW CASE DIGESTS | 1 6
properties to secure FISLAI's debts. That it never
ratified the execution of the mortgage contracts.
Moreover, as an educational institution, it cannot
mortgage its properties to secure another person's
debts. 28
RTC CDO- in favor of UM
RTC Iligan- in favor of UM
CA- in favor of BSP
Issue:
WON University of Mindanao is bound by the real
estate mortgage contracts executed by Saturnino
Petalcorin?
Ruling: NO.
The mortgage contracts executed in favor of
respondent do not bind petitioner. They were
executed without authority from petitioner.
Petitioner must exercise its powers and
conduct its business through its Board of Trustees.
Section 23 of the Corporation Code provides:
SEC. 23. The board of directors or trustees. —
Unless otherwise provided in this Code, the
corporate powers of all corporations formed
under this Code shall be exercised, all
business conducted and all property of such
corporations controlled and held by the
board of directors or trustees to be elected
from among the holders of stocks, or where
there is no stock, from among the members
of the corporation, who shall hold office for
one (1) year and until their successors are
elected and qualified.
Being a juridical person, petitioner cannot
conduct its business, make decisions, or act in any
manner without action from its Board of Trustees.
The Board of Trustees must act as a body in order to
exercise corporate powers. Individual trustees are
not clothed with corporate powers just by being a
trustee. Hence, the individual trustee cannot bind
the corporation by himself or herself.
The corporation may, however, delegate
through a board resolution its corporate powers or
functions to a representative, subject to limitations
under the law and the corporation's articles of
incorporation. 112
The relationship between a corporation and
its representatives is governed by the general
principles of agency. 113 Article 1317 of the Civil
Code provides that there must be authority from the
principal before anyone can act in his or her name:
ART. 1317. No one may contract in the name
of another without being authorized by the
latter, or unless he has by law a right to
represent him.
Hence, without delegation by the board of
directors or trustees, acts of a person — including
those of the corporation's directors, trustees,

shareholders, or officers — executed on behalf of the
corporation are generally not binding on the
corporation. 114
Contracts entered into in another's name
without authority or valid legal representation are
generally unenforceable.
The unenforceable status of contracts
entered into by an unauthorized person on behalf of
another is based on the basic principle that contracts
must be consented to by both parties. 115 There is
no contract without meeting of the minds as to the
subject matter and cause of the obligations created
under the contract.116
Consent of a person cannot be presumed
from representations of another, especially if
obligations will be incurred as a result. Thus,
authority is required to make actions made on his or
her behalf binding on a person. Contracts entered
into by persons without authority from the
corporation shall generally be considered ultra
vires and unenforceable 117 against the corporation.
However, personal liabilities may be incurred
by directors who assented to such unauthorized
act 121 and by the person who contracted in excess
of the limits of his or her authority without the
corporation's knowledge. 122
2. NISSAN CAR LEASE PHILS., INC., petitioner, vs. LICA
MANAGEMENT, INC. and PROTON PILIPINAS,
INC., respondents. [G.R. No. 176986. January 13, 2016.]
Facts: LMI is the absolute owner of a property
located at 2326 Pasong Tamo Extension, Makati City
with a total area of approximately 2,860 square
meters. 5 On June 24, 1994, it entered into a contract
with NCLPI for the latter to lease the property for a
term of ten (10) years (or from July 1, 1994 to June 30,
2004) with a monthly rental of P308,000.00 and an
annual escalation rate of ten percent (10%).
Subsequently, NCLPI became delinquent in
paying the monthly rent, such that its total rental
arrearages 8 amounted to P1,741,520.85. 9 In May
1996, Nissan and Lica verbally agreed to convert the
arrearages into a debt to be covered by a promissory
note and twelve (12) postdated checks, each
amounting to P162,541.95 as monthly payments
starting June 1996 until May 1997. 10
While NCLPI was able to deliver the
postdated checks per its verbal agreement with LMI,
it failed to sign the promissory note and pay the
checks for June to October 1996. Thus, in a letter
dated October 16, 1996, which was sent on October
18, 1996 by registered mail, LMI informed NCLPI that
it was terminating their Contract of Lease due to
arrears in the payment of rentals. It also demanded
that NCLPI (1) pay the amount of P2,651,570.39 for
CORPORATION LAW CASE DIGESTS | 1 7
unpaid rentals 11 and (2) vacate the premises within
five (5) days from receipt of the notice. 12 CAIHTE
In the meantime, Proton sent NCLPI an
undated request to use the premises as a temporary
display center for "Audi" brand cars for a period of
ten (10) days. In the same letter, Proton undertook
"not to disturb [NCLPI and LMI's] lease agreement
and ensure that [NCLPI] will not breach the same [by]
lending the premises . . . without any
consideration." 13 NCLPI acceded to this request. 14
On October 11, 1996, NCLPI entered into a
Memorandum of Agreement with Proton whereby
the former agreed to allow Proton "to immediately
commence renovation work even prior to the
execution of the Contract of Sublease . . . ." 15 In
consideration, Proton agreed to transmit to NCLPI a
check representing three (3) months of rental
payments, to be deposited only upon the due
execution of their Contract of Sublease. 16
LMI, on November 8, 1996, entered into a
Contract of Lease with Proton over the subject
premises. 18
On November 12, 1996, LMI filed a
Complaint 19 for sum of money with damages
seeking to recover from NCLPI the amount of
P2,696,639.97.
NCLPI demanded Proton to vacate the leased
premises. 21 However, Proton replied that it was
occupying the property based on a lease contract
with LMI. 22
NCLPI filed its Answer 25 and Third-Party
Complaint 26 against Proton.
The trial court admitted 29 the third-party
complaint over LMI's opposition.
Eventually, the case reached the SC in a
Petition for Review on Certiorari.
Issue:
WON Banson, the person who caused the preparation
of the petition was authorized to do so?
Ruling: YES.
According to LMI, NCLPI's petition must be
denied outright on the ground that Luis Manuel T.
Banson (Banson), who caused the preparation of the
petition and signed the Verification and Certification
against Forum Shopping, was not duly authorized to
do so. His apparent authority was based, not by
virtue of any NCLPI Board Resolution, but on a
Special Power of Attorney (SPA) signed only by
NCLPI's Corporate Secretary Robel C. Lomibao. 53
As a rule, a corporation has a separate and
distinct personality from its directors and officers
and can only exercise its corporate powers through

its board of directors. Following this rule, a
verification and certification signed by an individual
corporate officer is defective if done without
authority from the corporation's board of
directors. 54
The requirement of verification being a
condition affecting only the form of the
pleading, 55 this Court has, in a number of cases,
held that:
[T]he Following officials or employees of the
company can sign the verification and
certification without need of a board
resolution: (1) the Chairperson of the Board
of Directors, (2) the President of a
corporation, (3) the General Manager or
Acting General Manager, (4) Personnel
Officer, and (5) an Employment Specialist in a
labor case. aDSIHc
. . . [T]he determination of the sufficiency of
the authority was done on a case to case
basis. The rationale applied in the foregoing
cases is to justify the authority of corporate
officers or representatives of the
corporation to sign . . ., being "in a position
to verify the truthfulness and correctness of
the allegations in the
petition." 56 (Emphasis and underscoring
supplied)
In this case, Banson was President of NCLPI
at the time of the filing of the petition. 57 Thus, and
applying the foregoing ruling, he can sign the
verification and certification against forum shopping
in the petition without the need of a board
resolution.
3. EMERITA G. MALIXI, petitioner, vs. MEXICALI
PHILIPPINES and/or FRANCESCA
MABANTA, respondents. [G.R. No. 205061. June 8,
2016.]
Facts:
This case arose from an Amended
Complaint 6 for illegal dismissal and non-payment of
service charges, moral and exemplary damages and
attorney's fees filed by petitioner against
respondents Mexicali and its General Manager,
Francesca Mabanta, on February 4, 2009 before the
Labor Arbiter.
Petitioner alleged that on August 12, 2008,
she was hired by respondents as a team leader
assigned at the delivery service, receiving a daily
wage of Three Hundred Eighty Two Pesos (P382.00)
sans employment contract and identification card
(ID). In October 2008, Mexicali's training officer, Jay
Teves (Teves), informed her of the management's
intention to transfer and appoint her as store
manager at a newly opened branch in Alabang Town
Center, which is a joint venture between Mexicali
and Calexico Food Corporation (Calexico), due to her
satisfactory performance. She was apprised that her
CORPORATION LAW CASE DIGESTS | 1 8
monthly salary as the new store manager would be
Fifteen Thousand Pesos (P15,000.00) with service
charge, free meal and side tip. She then
subsequently submitted a resignation letter 7 dated
October 15, 2008, as advised by Teves. On October
17, 2008, she started working as the store manager
of Mexicali in Alabang Town Center although, again,
no employment contract and ID were issued to her.
However, in December 2008, she was compelled by
Teves to sign an end-of-contract letter by reason of a
criminal complaint for sexual harassment she filed on
December 3, 2008 against Mexicali's operations
manager, John Pontero (Pontero), for the sexual
advances made against her during Pontero's visits at
Alabang branch. 8 When she refused to sign the end-
of-contract letter, Mexicali's administrative officer,
Ding Luna (Luna), on December 15, 2008, personally
went to the branch and caused the signing of the
same. Upon her vehement refusal to sign, she was
informed by Luna that it was her last day of work.
Respondents, however, denied responsibility
over petitioner's alleged dismissal. They averred that
petitioner has resigned from Mexicali in October
2008 and hence, was no longer Mexicali's employee
at the time of her dismissal but rather an employee
of Calexico, a franchisee of Mexicali located in
Alabang Town Center which is a separate and distinct
corporation. CAIHTE
In her reply, petitioner admitted having
resigned from Mexicali but averred that her
resignation was a condition for her promotion as
store manager at Mexicali's Alabang Town Center
branch. She asserted that despite her resignation,
she remained to be an employee of Mexicali because
Mexicali was the one who engaged her, dismissed
her and controlled the performance of her work as
store manager in the newly opened branch.
Labor Arbiter- declared petitioner to have been
illegally dismissed by respondents. By piercing the
veil of corporate fiction, the Labor Arbiter ruled that
Mexicali and Calexico are one and the same with
interlocking board of directors. The Labor Arbiter
sustained petitioner's claim that she is an employee
of Mexicali as she was hired at Calexico by Mexicali's
corporate officers and also dismissed by them and
hence, held Mexicali responsible for petitioner's
dismissal.
National Labor Relations Commission-
Mexicali and Calexico are separate and
distinct entities, Calexico being the true employer of
petitioner at the time of her dismissal. Contrary to
the findings of the Labor Arbiter, petitioner
voluntarily resigned from Mexicali to transfer to
Calexico in consideration of a higher pay and upon
doing so severed her employment ties with Mexicali.
The NLRC, nevertheless, ordered Mexicali, being the
employer of Teves and Luna who caused petitioner's
termination from her employment with Calexico, to

reinstate petitioner to her job at Calexico but
without paying her any backwages.
Court of Appeals- affirmed NLRC
Issue:
WON Mexicali and Calexico are separate and distinct
entities?
Ruling: YES.
The Labor Arbiter's finding that the two
corporations are one and the same with interlocking
board of directors has no factual basis. It is basic that
"a corporation is an artificial being invested with a
personality separate and distinct from those of the
stockholders and from other corporations to which it
may be connected or related." 32 Clear and
convincing evidence is needed to warrant the
application of the doctrine of piercing the veil of
corporate fiction. 33 In our view, the Labor Arbiter
failed to provide a clear justification for the
application of the doctrine. The Articles of
Incorporation and By-Laws of both corporations
show that they have distinct business locations and
distinct business purposes. It can also be gleaned
therein that they have a different set of
incorporators or directors since only two out of the
five directors of Mexicali are also directors of
Calexico. At any rate, the Court has ruled that the
existence of interlocking directors, corporate officers
and shareholders is not enough justification to
disregard the separate corporate personalities. 34 To
pierce the veil of corporate fiction, there should be
clear and convincing proof that fraud, illegality or
inequity has been committed against third
persons. 35 For while respondents' act of not issuing
employment contract and ID may be an indication of
the proof required, however, this, by itself, is not
sufficient evidence to pierce the corporate veil
between Mexicali and Calexico.
Side issue on er-ee rel.
WON there was er-ee rel? NO.
There was no existing employer-employee
relationship between petitioner and Mexicali. To
prove petitioner's claim of an employer-employee
relationship, the following should be established by
competent evidence: "(1) the selection and
engagement of the employee; (2) the payment of
wages; (3) the power of dismissal; and (4) the power
of control over the employee's
conduct." 36 "Although no particular form of
evidence is required to prove the existence of the
relationship, and any competent and relevant
evidence to prove the relationship may be admitted,
a finding that the relationship exists must
nonetheless rest on substantial evidence, which is
that amount of relevant evidence that a reasonable
mind might accept as adequate to justify a
conclusion." 37 We find that petitioner failed to
establish her claim based on the aforementioned
criteria. As to petitioner's allegation that it was Teves
who selected and hired her as store manager of
CORPORATION LAW CASE DIGESTS | 1 9
Calexico and likewise, together with Luna, initiated
her dismissal, suffice it to state that bare allegations,
unsubstantiated by evidence, are not equivalent to
proof. 38Nevertheless, Teves merely informed
petitioner of the management's intention to transfer
her and thereafter advised her to execute a
resignation letter, to which she complied. Nowhere
was there any allegation or proof that Teves was the
one who directly hired her as store manager of
Calexico. Also, Teves and Luna merely initiated
petitioner's dismissal. The end-of-contract
purportedly signed by Luna to effectuate her
termination was not presented. Again, mere
allegation is not synonymous with proof. No
substantial evidence was adduced to show that
respondents had the power to wield petitioner's
termination from employment. Anent the element of
control, petitioner failed to cite a single instance to
prove that she was subject to the control of
respondents insofar as the manner in which she
should perform her work as store manager. The bare
assertion that she was required to work from Friday
through Wednesday is not enough indication that
the performance of her job was subject to the
control of respondents. On the other hand, the
payslips 39 presented by petitioner reveal that she
received her salary from Calexico and no longer from
Mexicali starting the month of October 2008. TIADCc
4. [G.R. No. 168134. October 5, 2016.] FERRO
CHEMICALS, INC., petitioner, vs. ANTONIO M.
GARCIA, ROLANDO NAVARRO, JAIME Y. GONZALES
and CHEMICAL INDUSTRIES OF THE PHILIPPINES,
INC., respondents.
[G.R. No. 168183. October 5, 2016.] JAIME Y.
GONZALES, petitioner, vs. HON. COURT OF APPEALS
and FERRO CHEMICALS, INC., respondents.
[G.R. No. 168196. October 5, 2016.] ANTONIO M.
GARCIA, petitioner, vs. FERRO CHEMICALS,
INC., respondent.
Facts:
Ferro Chemicals Incorporated (Ferro
Chemicals), is a domestic corporation represented in
this action by its President, Ramon M. Garcia.
Chemical Industries of the Philippines, Inc.
(Chemical Industries), on the other hand, is also a
domestic corporation. Antonio Garcia is the
Chairman of the Board of Directors (BOD) of
Chemical Industries and a brother of Ferro
Chemical's President, Ramon Garcia. Rolando
Navarro is the Corporate Secretary of Chemical
Industries while Jaime Gonzales is a close financial
advisor of Antonio Garcia. CAIHTE
The Deed of Absolute Sale and Purchase of Shares of
Stock
On 15 July 1988, Antonio Garcia and Ferro
Chemicals entered into a Deed of Absolute Sale and
Purchase of Shares of Stock 5 over 1,717,678 shares
of capital stock of Chemical Industries registered

under the name of Antonio Garcia which included
371,697 shares of stocks in Vision Insurance
Consultants, Inc., (VIC) and his proprietary
membership in Alabang Country Club and Manila
Polo Club.
Pursuant thereto, Ferro Chemicals remitted
the amount of P35,462,869.92 to Security Bank and
Trust Co. (SBTC) in the form of a check drawn against
its account with Bank of America. However, since the
amount was insufficient, the same was not accepted
by Security Bank. Hence, the obligor consigned it
with the court which adjudicated his liability with
finality.(Security Bank Case)
The Compromise Agreement
On 17 January 1989, Antonio Garcia entered
into a Compromise Agreement 6 with Philippine
Investments System Organization (PISO), Bank of the
Philippine Islands (BPI), Philippine Commercial
International Bank (PCIB), Rizal Commercial Banking
Corporation (RCBC) and Land Bank of the Philippines
(LBP) (collectively known as Consortium Banks) in
connection with the Surety Agreements previously
contracted by Antonio Garcia and Dynetics
Corporation with the Consortium Banks.
The First Consortium Case
The said Compromise Agreement sprang
from Civil Case No. 8527, filed by Antonio Garcia and
Dynetics, Inc. before the RTC of Makati City, seeking
to enjoin the Consortium Banks from collecting the
amount of P117,800,000.00.
The RTC issued a Notice of Garnishment over
the 1,717,678 shares of stocks of Antonio Garcia in
Chemical Industries to secure any contingent claims
that may be awarded in favor of the banks. On the
ground that only absolute transfers of shares are
required to be on the corporation's stock and
transfer books, the Corporate Secretary did not
annotate the banks' claims on Chemical Industries'
books.
Subsequently, the RTC issued Orders
dismissing Civil Case No. 8527.
The Consortium Banks assailed the
dismissal before the appellate court. During the
pendency of the same, the parties agreed to
amicably settle the case, and thus, the creditors
accepted the offer of the debtors to immediately pay
the obligation in exchange for the waiver of
interests, penalties and attorney's fees. The
compromise agreement, which required Antonio
Garcia and Dynetics to pay the Consortium Banks the
amount of P145,000,000.00, was consequently
approved by the CA in a Judgment dated 22 May
1989. HEITAD
The Deed of Right to Repurchase
After the parties in the First Consortium
Case forged a Compromise Agreement, Antonio
CORPORATION LAW CASE DIGESTS | 1 10
Garcia and Ferro Chemicals entered into a Deed of
Right to Repurchase. Under the contract, Ferro
Chemicals stipulated to sell back the subject shares
to Antonio Garcia within 180 days from its execution
or until 30 August 1989.
Ferro Chemicals however refused to sell back
the shares to him for insufficient consideration.
Instead, Ferro Chemicals opted to cede its rights over
the subject shares to Chemphil Export and Import
Corporation (Chemphil Export).
First and Second Repurchase Cases
On 21 August 1989, Antonio Garcia initiated
an action for Specific Performance before the RTC
Makati however RTC dismissed the same.
Undeterred, Antonio Garcia filed a Second
Repurchase Case before the SEC.
Enforcement of the First Consortium Case
With Antonio Garcia and Dynetics' failure to
comply with the compromise agreement, the
Consortium Banks filed a Motion for Execution. The
sheriff levied the 1,717,678 shares of capital stocks in
Chemical Industries that were previously attached.
The Consortium Banks were declared as the highest
bidders. 13
The RTC thereafter directed the Corporate
Secretary of Chemical Industries to enter the sheriff's
certificate of sale in the company's stock and transfer
books. In effect, the corporate secretary was
enjoined to cancel the certificates of shares of stocks
under the name of Antonio Garcia and all those
claiming rights under him and issue new ones in
favor of the Consortium Banks.
The Second Consortium Case
Before the corporate secretary could carry
out the foregoing directive, Chemphil Export filed an
Urgent Motion 15 opposing the 4 September 1989
RTC Order.
RTC allowed the intervention.
In a Decision, the Court ruled in favor of the
Consortium Banks and declared that the attachment
lien they previously acquired is valid and effective
even though it was not annotated in the
corporation's stock and transfer books.
The Ferro Chemicals Case
Ferro Chemicals initiated several civil and
criminal cases against Chemical Industries, Antonio
Garcia, Rolando Navarro, Jaime Gonzales and a
certain Atty. Virgilio Gesmundo before different
courts and judicial bodies.
On 3 December 1996, Ferro Chemicals filed
an action for damages before the RTC of Makati,
seeking for the recovery of the amount of the shares

that was lost by Chemphil Export to the Consortium
Banks in the Second Consortium Case.
RTC- in favor of Ferro Chemicals and found Chemical
Industries, Antonio Garcia, Jaime Gonzales and
Rolando Navarro solidarily liable for the total amount
of P269,355,537.41. RTC also made the corporation
accountable for the acts of its Corporate Secretary,
Rolando Navarro, which were carried out to the
damage and prejudice of Ferro Chemicals.
CA- affirmed with modifications; being a corporation
with a personality separate and distinct from its
officers and members, Chemical Industries could not
be held liable for the acts of the latter.
Issue:
WON the corporation can be held liable for the fraud
and breach of contract perpetrated by Garcia?
Ruling: NO.
A corporation, upon coming to existence, is
invested by law with a personality separate and
distinct from those of the persons composing it.
Ownership by a single or a small group of
stockholders of nearly all of the capital stock of the
corporation is not, without more, sufficient to
disregard the fiction of separate corporate
personality. Thus, obligations incurred by corporate
officers, acting as corporate agents, are not theirs,
but direct accountabilities of the corporation they
represent. Solidary liability on the part of corporate
officers may at times attach, but only under
exceptional circumstances, such as when they act
with malice or in bad faith. Also, in appropriate
cases, the veil of corporate fiction shall be
disregarded when the separate juridical personality
of a corporation is abused or used to commit fraud
and perpetrate a social injustice, or used as a vehicle
to evade obligations. 62
It must be stressed at the onset that the sale
contract was entered by Antonio Garcia in his
personal capacity and not as the President of
Chemical Industries. As aptly found by the CA:
". . . . As can be gleaned from the
Deed of Sale, [Antonio Garcia] sold the
disputed shares in his private capacity as
owner thereof and not as responsible officer
or representative of [Chemical Industries].
Moreover, the disputed shares constitute
merely 20% of [Chemical Industries']
outstanding capital stocks. As such, the
corporation's consent in the disposition is
not required. Neither does its conveyance
require any action on the part of the
corporation, except the ministerial duty of
recording the same in its stock and transfer
book.
Considering the nature of the
transaction involved, whatever obligation
[Antonio Garcia] incurred, it was incurred in
his personal capacity. . . ." 63
CORPORATION LAW CASE DIGESTS | 1 11
Even if Antonio Garcia was selling his shares
of stocks in the Chemical Industries, the corporation
was neither made a party to the contract nor did the
sale redound to its benefit. As a matter of fact, the
subject of the purchase agreement was not limited
to Antonio Garcia's shares in Chemical Industries, but
likewise included his shares in Vision Insurance
Consultants, Inc., Alabang Country Club, Inc. and
Manila Polo Club, Inc. 64 His shares of capital stocks
with Chemical Industries became the subject of
controversy because of the allegation that he
intentionally withheld the information from Ferro
Chemicals that these shares were subject of the
Consortium Banks' claim. Notably, the purported
misrepresentation was not alleged to have been
authorized or abetted by the corporation. It was a
purely personal act of the seller desirous to dispose
conveniently his shares in the corporation. It bears
underscoring that a corporation has a personality
separate and distinct from that of each stockholder.
It has the right of continuity or perpetual
succession, 65 that is, its existence is not
extinguished by the transfer of ownership of its
shares of capital stock from one shareholder to
another. ISHCcT
Needless to say, the imputation of liability
Chemical Industries for the acts of its corporate
officer and the consequent shedding of corporate
shroud cannot rest on flimsy grounds. The
application of the doctrine of piercing the veil of
corporate fiction is frowned upon. 66 It can only be
done if it has been clearly established that the
separate and distinct personality of the corporation
is used to justify a wrong, protect fraud, or
perpetrate a deception. 67 As explained by the Court
inPhilippine National Bank v. Andrada Electric &
Engineering Company: 68
"Hence, any application of the
doctrine of piercing the corporate veil should
be done with caution. A court should be
mindful of the milieu where it is to be
applied. It must be certain that the corporate
fiction was misused to such an extent that
injustice, fraud, or crime was committed
against another, in disregard of its rights. The
wrongdoing must be clearly and convincingly
established; it cannot be presumed.
Otherwise, an injustice that was never
unintended may result from an erroneous
application."
In the case at bar, Ferro Chemicals failed to
adduce satisfactory evidence to prove that Chemical
Industries' separate corporate personality was being
used by Antonio Garcia to protect fraud or
perpetrate deception warranting the shedding of its
veil and the consequent imposition of solidary
liability upon it.
5. EDWARD C. DE CASTRO AND MA. GIRLIE F.
PLATON, Petitioners, v. COURT OF APPEALS,

NATIONAL LABOR RELATIONS COMMISSION,
SILVERICON, INC., AND/OR NUVOLAND PHILS., INC.,
AND/OR RAUL MARTINEZ, RAMON BIENVENIDA, AND
THE BOARD OF DIRECTORS OF
NUVOLAND, Respondents.
G.R.No. 204261, October 05, 2016
FACTS:
Nuvoland, a corporation formed primarily "to own,
use, improve, develop, subdivide, sell, exchange, lease
and hold for investment or otherwise, real estate of all
kinds, including buildings, houses, apartments and
other structures," was registered with the Securities
and Exchange Commission (SEC) on August 9,
2006. Respondent Ramon Bienvenida (Bienvenida) was
the principal stockholder and member of the Board of
Directors while Raul Martinez (Martinez) was its
President.
Silvericon, on the other hand, was registered with the
SEC on December 19, 2006. Its Articles: of
Incorporation described it as a "corporation organized
'to own, use, improve, develop, subdivide, sell,
exchange, lease and hold for investment or otherwise,
real estate of all kinds, including buildings, houses,
apartments and other structures.”
Sometime in 2007, Martinez recruited petitioner
Edward de Castro (De Castro), a sales and marketing
professional in the field of real estate, to handle its
sales and marketing operations, including the hiring
and supervision of the sales and marketing personnel.
De Castro was made to sign a Memorandum of
Agreement (MOA), denominated as Shareholders
Agreement, wherein Martinez proposed to create a
new corporation, through which the latter's
compensation, benefits and commissions, including
those of other sales personnel, would be coursed. It
was stipulated in the said MOA that the new
corporation would have an authorized capital stock of
P4,000,000.00, of which P1,000,000.00 was subscribed
and paid equally by the Martinez Group and the De
Castro Group.
As it turned out, the supposedly new corporation
contemplated was Silvericon. De Castro was appointed
the President and majority stockholder of Silvericon
while Bienvenida and Martinez were named as
stockholders and incorporators thereof, each owning
one (1) share of subscribed capital stock.
Martinez was designated as Chairman of the new
corporation to whom De Castro, as President and Chief
Operating Officer, would directly report. De Castro was
tasked to manage the day to day operations of the new
corporation based on policies, procedures and
strategies set by Martinez.
During De Castro's tenure as Chief Operating Officer of
the newly created Silvericon, he recruited forty (40)
sales and marketing personnel. One of them was
petitioner Ma. Girlie F. Platon (Platon) who occupied
the position of Executive Property Consultant.
CORPORATION LAW CASE DIGESTS | 1 12
Thereafter, the Sales and Marketing Agreement
(SMA), dated February 26, 2008, was purportedly
executed by Nuvoland and Silvericon, stipulating that
all payments made for the condominium projects of
Nuvoland were to be given directly to it. Clients
secured by the sales and marketing personnel would
issue checks payable to Nuvoland while the cash
payments, as the case may be, were deposited to
Nuvoland's account. Meanwhile, the corresponding
sales commission of the sales personnel were issued to
them by Nuvoland, with Martinez signing on behalf of
the said company.
In a Letter, dated December 12, 2008 and signed by
Bienvenida, Nuvoland terminated the SMA on the
ground that Silvericon personnel committed an
unauthorized walkout and abandonment of the Nuvo
City Showroom for two (2) days. In the same letter,
Nuvoland demanded that Silvericon make a full
accounting of all its uses of the marketing advances
from Nuvoland. It, however, assured that all sales
commissions earned by Silvericon personnel would be
released as per existing policy.
After the issuance of the said termination letter, De
Castro and all the sales and marketing personnel of
Silvericon were barred from entering the office
premises. Nuvoland, eventually, was able to secure the
settlement of all sales and marketing personnel's
commissions and wages with the exception of those of
De Castro and Platon.
Aggrieved, De Castro and Platon filed a complaint for
illegal dismissal before the LA, demanding the payment
of their unpaid wages, commissions and other benefits
with prayer for the payment of moral and exemplary
damages and attorney's fees against Silvericon,
Nuvoland, Martinez, Bienvenida, and the Board of
Directors of Nuvoland.
Nuvoland and its directors and officers denied a direct
contractual relationship with De Castro and Platon, and
contended that if there was any dispute at all, it was
merely between the complainants and Silvericon.
Silvericon admitted that it had employed De Castro as
President and COO. It, however, asserted the
application of Presidential Decree (P.D.) No. 902-A to
the case, arguing that the claims come within the
purview of corporate affairs and management, thus,
falling within the jurisdiction of the regular courts.
Ruling of the Labor Arbiter
The LA handed down his decision in favor of De Castro
and Platon. He concluded that Silvericon was a mere
labor-only contractor and, therefore, a mere agent of
Nuvoland.
Nuvoland was adjudged as the direct employer of De
Castro and Platon and, thus, liable to pay their money
claims as a consequence of their illegal dismissal.
According to the LA, the ground relied upon for the
termination of the employment of De Castro and

Platon - abandonment of the Nuvo City Showroom -
was not at all proven. Mere suspicion that De Castro
instigated the walkout did not discharge the burden of
proof which heavily rested on the employer. Without
an unequivocal showing that an employee deliberately
and unjustifiably refused his employment sans any
intention to return to work, abandonment as a cause
for dismissal could not stand. Worse, procedural due
process could not be said to have been observed
through the expediency of a letter in contravention to
Article 277, paragraph 2 of the Labor Code.
Nuvoland, Bienvenida and Martinez interposed an
appeal before the NLRC, arguing that the LA gravely
abused his discretion.
Ruling of the NLRC
The NLRC reversed the LA decision, finding that
Silvericon was an independent contractor, thus, the
direct employer of De Castro and Platon. This being
the case, the NLRC ruled that no employer-employee
relationship existed between Nuvoland, on one hand,
and De Castro and Platon, on the other. There was no
evidence showing that Nuvoland hired, paid wages,
dismissed or controlled De Castro and Platon, or
anyone of Silvericon's employees. Resultantly,
Martinez and Bienvenida could not be held liable for
they merely acted as officers of Nuvoland.
De Castro and Platon assailed the decision of the NLRC
via a petition for certiorari under Rule 65 with the CA.
Ruling of the CA
The CA affirmed the findings of the NLRC, pointing out
that what was terminated was the SMA. As such, the
employment of the forty (40) personnel hired by
Silvericon, as well as the petitioners' employment, was
not affected. Considering that there was no employer-
employee relationship between the petitioners and
Nuvoland, the CA deemed that the latter could not be
held liable for the claim of illegal dismissal.
The petitioners filed the petition.
Issue: Whether or not Silvericon was engaged in
independent contracting.
Held: No. The Court is hounded by nagging doubts in
its review of the assailed decision. Several factors
showing that Silvericon was not an independent
contractor.
The conclusion that Silvericon was a mere labor-only
contractor and a business conduit of Nuvoland
warrants the piercing of its corporate veil. At this point,
it is apt to restate the Court's ruling in Sarona v.
National Labor Relations Commission:
The doctrine of piercing the corporate veil applies only
in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; 2)
fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or 3)
alter ego cases, where a corporation merely a farce
CORPORATION LAW CASE DIGESTS | 1 13
since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct
of another corporation.
As ruled in Prince Transport, Inc. v. Garcia, it is the act
of hiding behind the separate and distinct personalities
of juridical entities to perpetuate fraud, commit illegal
acts and evade one's obligations, that the equitable
piercing doctrine was formulated to address and
prevent: Thus:
x x x A settled formulation of the doctrine of piercing
the corporate veil is that when two business
enterprises are owned, conducted and controlled by
the same parties, both law and equity will, when
necessary to protect the rights of third parties,
disregard the legal fiction that these two entities are
distinct and treat them as identical or as one and the
same, xxx However, petitioners' attempt to isolate
themselves from and hide behind the supposed
separate and distinct personality of Lubas so as to
evade their liabilities is precisely what the classical
doctrine of piercing the veil of corporate entity seeks
to prevent and remedy.
Consequently, the piercing of the corporate veil
disregards the seemingly separate and distinct
personalities of Nuvoland and Silvericon with the aim
of preventing the anomalous situation abhorred by
prevailing labor laws. That Silvericon was independent
from Nuvoland's personality could not be given legal
imprimatur as the same would pave the way for
Nuvoland's complete exoneration from liability after a
circumvention of the law. Besides, a contrary
proposition would leave the petitioners without any
recourse notwithstanding the unquestioned fact that
Nuvoland eventually assented to the settlement of all
the sales and marketing personnel's commissions and
wages before the LA, except the petitioners. The
respondents in their comment were strikingly silent on
this point.
In the interest of justice and equity, that veil of
corporate fiction must be pierced, and Nuvoland and
Silvericon be regarded as one and the same entity to
prevent a denial of what the petitioners are entitled to.
In a situation like this, an employer-employee
relationship between the principal and the dismissed
employees arises by operation of law. Silvericon being
merely an agent, its employees were in fact those of
Nuvoland. Stated differently, Nuvoland was the
principal employer of the petitioners.
6. JOSE EMMANUEL GUILLERMO, P. PETITIONER, VS.
CRISANTO P. USON,RESPONDENT.
[ G.R. No. 198967, March 07, 2016 ]
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:
Whether the twin doctrines of “piercing the veil of
corporate fiction” and personal liability of company
officers in a labor cases apply.
Ruling:
The Petition is denied.
The rulings of this Court in A.C. Ransom,
Naguiat, and Reynoso, however, have since been
tempered, at least in the aspects of the lifting of the
CORPORATION LAW CASE DIGESTS | 1 14
corporate veil and the assignment of personal liability
to directors, trustees and officers in labor cases. The
subsequent cases of McLeod v. NLRC, Spouses Santos v.
NLRC and Carag v. NLRC, have all established, save for
certain exceptions, the primacy of Section 31 of the
Corporation Code in the matter of assigning such
liability for a corporation's debts, including judgment
obligations in labor cases. According to these cases, a
corporation is still an artificial being invested by law
with a personality separate and distinct from that of its
stockholders and from that of other corporations to
which it may be connected. It is not in every instance
of inability to collect from a corporation that the veil of
corporate fiction is pierced, and the responsible
officials are made liable. 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. Further, in
another labor case, Pantranco Employees Association
(PEA-PTGWO), et al. v. NLRC, et al., the doctrine of
piercing the corporate veil is held to apply only in three
(3) basic areas, namely: ( 1) defeat of public
convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; (2)
fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or
(3) alter ego cases, where a corporation is merely a
farce since it is a mere alter ego or business conduit of
a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct
of another corporation. In the absence of malice, bad
faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made
personally liable for corporate liabilities. Indeed,
in Reahs Corporation v. NLRC, 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. In other instances, such as cases of so-called
corporate tort of a close corporation, it is the person
"actively engaged" in the management of the
corporation who is held liable. In the absence of a
clearly identifiable officer(s) directly responsible for the
legal infraction, the Court considers the president of
the corporation as such officer.
7. Republic Of The Philippines, Petitioner, V. Mega
Pacific Esolutions, Inc., Willy U. Yu, Bonnie S. Yu,
Enrique T. Tansipek, Rosita Y. Tansipek, Pedro O. Tan,
Johnson W. Fong, Bernard I. Fong, And *Lauriano A.
Barrios, Respondents.

June 27, 2016 G.R. No. 184666
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
CORPORATION LAW CASE DIGESTS | 1 15
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:
WON the application of the piercing doctrine justifies
the issuance of a writ of preliminary attachment over
the properties of the individual respondents.
HELD: Yes. They cannot argue violation of due process,
as respondent MPEI, of which they are
incorporators/stockholders, remains vulnerable to the
piercing of its corporate veil.
There are red flags indicating that MPEI was used to
perpetrate the fraud against petitioner, thus allowing
the piercing of its corporate veil.
Petitioner seeks the issuance of a writ of preliminary
attachment over the personal assets of the individual
respondents, notwithstanding the doctrine of separate
juridical personality. It invokes the use of the doctrine
of piercing the corporate veil, to which the canon of
separate juridical personality is vulnerable, as a way to
reach the personal properties of the individual
respondents. Petitioner paints a picture of a sham
corporation set up by all the individual respondents for
the purpose of securing the automation contract.
Veil-piercing in fraud cases requires that the legal
fiction of separate juridical personality is used for
fraudulent or wrongful ends. For reasons discussed
below, We see red flags of fraudulent schemes in
public procurement, all of which were established in
the 2004 Decision, the totality of which strongly
CORPORATION LAW CASE DIGESTS | 1 16
indicate that MPEI was a sham corporation
formed merely for the purpose of perpetrating a
fraudulent scheme.
The red flags are as follows: (1) overly narrow
specifications; (2) unjustified recommendations and
unjustified winning bidders; (3) failure to meet the
terms of the contract; and (4) shell or fictitious
company.
Overly Narrow Specifications
Scheme: Rigged specifications. In a competitive
market for goods and services, any specifications that
seem to be drafted in a way that favors a particular
company deserve closer scrutiny. For
example, specifications that are too narrow can be
used to exclude other qualified bidders or justify
improper sole source awards. Unduly vague or broad
specifications can allow an unqualified bidder to
compete or justify fraudulent change orders after the
contract is awarded. Sometimes, project officials will
go so far as to allow the favored bidder to draft the
specifications.
Unjustified Recommendations and Unjustified
Winning Bidders
Questionable evaluation and unusual bid patterns
may emerge in the BER. After the completion of the
evaluation process, the Bid Evaluation Committee
should present to the implementing agency its BER,
which describes the results and the process by which
the BEC has evaluated the bids received. The BER may
include a number of indicators of bid rigging, e.g.,
questionable disqualifications, and unusual bid
patterns.
Failure to Meet Contract Terms
Scheme: Failure to meet contract terms. Firms may
deliberately fail to comply with contract requirements.
The contractor will attempt to conceal such actions
often by falsifying or forging supporting documentation
and bill for the work as if it were done in accordance
with specifications. In many cases, the contractors
must bribe inspection or project personnel to accept
the substandard goods or works, or supervision agents
are coerced to approve substandard work.
Shell or fictitious company
Fictitious companies are by definition fraudulent and
may also serve as fronts for government officials. The
typical scheme involves corrupt government officials
creating a fictitious company that will serve as a
"vehicle" to secure contract awards. Often, the
fictitious—or ghost— company will subcontract work
to lower cost and sometimes unqualified firms. The
fictitious company may also utilize designated losers as
subcontractors to deliver the work, thus indicating
collusion.
Shell companies have no significant assets, staff or
operational capacity. They pose a serious red flag as a
bidder on public contracts, because they often hide the
interests of project or government officials, concealing

a conflict of interest and opportunities for money
laundering. Also, by definition, they have no
experience.
8. LEO'S RESTAURANT AND BAR CAFÉ
MOUNTAIN SUITE BUSINESS APARTELLE,LEO Y. LUA
AND AMELIA LUA, Petitioners, v. LAARNE1 C.
BENSING, Respondent.
G.R. No. 208535, October 19, 2016
Facts: On January 2, 2002, Kimwa Construction &
Development Corporation (Kimwa) employed
7
respondent as liaison officer. Allegedly, Kimwa also
operated Leo's Restaurant and Bar Cafe (Restobar),
and the Mountain Suite Business Apartelle (Apartelle).
Thereafter, Leo Y. Lua (Leo), the Manager of the
Restobar and the Apartelle, issued upon respondent a
Memorandum requesting her to temporarily report at
Kimwa's Main Office starting December 30, 2005. On
the same date, Leo required respondent through
another memorandum to explain the signing of
contract without the former’s authority and the
benefits arising from the contract. In her
11
Explanation, respondent stated that on October 24,
2005, in the presence of Jovenal12 Ablanque
(Ablanque), Sales Manager of Pepsi, Leo verbally
authorized her to sign the contract with Pepsi on
behalf of the Restobar.
Later, in a Memorandum15 dated January 3, 2006,
respondent was required to answer these charges: 1)
she committed dishonesty when she charged to the
Restobar's account 50% of the food she ordered
therefrom without approval of its Owner or Manager;
2) she violated her duties when she did not inform Leo
of the signing of the Pepsi contract; and, 3) she failed
to account for 47 soft drinks cases that Pepsi gave the
Restobar. In her Explanation,16 respondent asserted
that the charges of dishonesty was not related to the
Pepsi Qonteact such that she opted not to answer said
accusation. With regard to the alleged missing Pepsi
drinks, she affirmed that Pepsi clarified the matter
already, particularly to where these soft drinks were
placed or given.
However, on January 12, 2006, on the ground of loss of
trust and confidence, Leo terminated respondent
effective January 15, 2006. Respondent thus filed an
Amended Complaint for illegal dismissal.
Ruling of the Executive Labor Arbiter
The LA decreed that petitioners and Kimwa validly
dismissed respondent on the ground of loss of trust
and confidence. He pointed out that employers cannot
be compelled to retain the services of their employees
who were guilty of acts inimical to the interests of the
employer; and, the dismissal of an erring employee
was a measure of self-protection. Respondent
appealed the LA Decision.
Ruling of the National Labor Relations Commission
On November 28, 2008, the NLRC issued its
Resolution23 finding respondent's dismissal illegal.
CORPORATION LAW CASE DIGESTS | 1 17
According to the NLRC, respondent's claim that she
had the authority to enter the contract with Pepsi was
supported by evidence, which included the Sworn
Statement of the Sales Manager of-Pepsi, and a
Certification from concerned Pepsi Managers that
Pepsi donated only 10 cases of softdrinks and
additional 20 cases of Pepsi 12 oz. to the Restobar.
Petitioners and Kimwa moved for a reconsideration of
the November 28, 2008 NLRC Resolution.
On June 4,2009, the NLRC granted the Motion for
Reconsideration. In reversing itself, the NLRC held that
respondent's functions did not include any authority to
sign or execute contracts for and in behalf of the
Restobar. It added that even assuming that Leo
verbally authorized her to sign the Pepsi agreement,
respondent signed the same in her name, as if she was
the Restobar's owner. Hence, appeal.
Ruling of the Court of Appeals
On November 27, 2012s the CA, reinstated the
November 28, 2008 NLRC Resolution.
According to the CA, respondent even acted in good
faith when she signed the contract with Pepsi on the
impression that sit was part of her duties and
responsibilities. It also quoted with approval the
November 28, 2003 NLRC Resolution declaring that
there was no evidence that respondent abused her
representation privilege. Respondent, on her end,
counters that although she held a position of trust and
confidence, there is no showing that she committed
willful breach of trust against her employer. She
argued that she acted in good faith when she signed
the exclusivity contract with Pepsi such that there is no
reason to hold that she committed any dishonest
conduct that would warrant her employer's loss of
trust in her.
Issue: Whether or not respondent was validly
dismissed on the ground of loss of trust and
confidence.
Held: The Court denies the Petition.
An employer has the right to dismiss an employee for
just causes, which include willful breach of trust and
confidence reposed on him or her by the employer. To
temper such right to dismiss, and to reconcile it with
the employee's security of tenure, it is the employer
who has the burden to show that the dismissal of the
employee is for a just cause. Such determination of just
cause must also be made with fairness, in good faith,
and only after observance of due process of law.
Moreover, to dismiss an employee on the ground of
loss of trust and confidence, two requisites must
concur: (a) the concerned employee must be holding a
position of trust; and, (b) the loss of trust must be
based on willful breach of trust based on clearly
established facts.
Loss of trust and confidence as a ground for dismissal is
never intended for abuse by reason of its subjective

nature. It must be pursuant to a breach done willfully,
knowingly and purposely without any valid excuse. It
must rest on substantial grounds and not on mere
suspicion, whims, or caprices of the employer.
In fine, "loss of confidence should not be simulated. It
should not be used as a subterfuge for causes which
are improper, illegal, or unjustified. Loss of confidence
may not be arbitrarily asserted in the face of
overwhelming evidence to the contrary. It must be
genuine, not a mere afterthought to justify earlier
action taken in bad faith."
Indeed, there was no malice or any fraudulent intent
on the part of respondent when she sighed the Pepsi
contract. There is likewise no evidence that she
personally benefited therefrom. In fact, the Restobar
itself received the items donated by Pepsi, and the
Restobar did not suffer any damage arising from the
Pepsi contract.
Loss of trust and confidence must stem from
dishonest, deceitful or fraudulent acts. In the absence
of such malicious intent or fraud on the part of
respondent, she committed no willful breach of trust
against her employer.
9. Lee vs. Samahang manggagawa ng Super Laminatins
G.R. No. 193816
ERSON ANG LEE DOING BUSINESS as "SUPER
LAMINATION SERVICES," Petitioner
vs. SAMAHANG MANGGAGAWA NG SUPER
LAMINATION (SMSLS-NAFLU-KMU), Respondent
FACTS:
Petitioner Erson Ang Lee (petitioner), through Super
Lamination, is a duly registered entity principally
engaged in the business of providing lamination services
to the general public.
Respondent Samahan ng mga Manggagawa ng Super
Lamination Services (Union A) is a legitimate labor
organization, which is also a local chapter affiliate of the
National Federation of Labor Unions - Kilusang Mayo
Uno. It appears that Super Lamination is a sole
proprietorship under petitioner's name,5 while Express
Lamination and Express Coat are duly incorporated
entities separately registered with the Securities and
Exchange Commission (SEC). On 7 March 2008, Union A
filed a Petition for Certification Election to represent all
the rank-and-file employees of Super Lamination.
Notably, on the same date, Express Lamination
Workers' Union (Union B) also filed a Petition for
Certification Election to represent all the rank-and-file
employees of Express Lamination. Also on the same
date, the Samahan ng mga Manggagawa ng Express
Coat Enterprises, Inc. (Union C) filed a Petition for
Certification Election to represent the rank-and-file
employees of Express Coat.
CORPORATION LAW CASE DIGESTS | 1 18
Super Lamination, Express Lamination, and Express
Coat, all represented by one counsel, separately
claimed in their Comments and Motions to Dismiss that
the petitions must be dismissed on the same ground -
lack of employer-employee relationship between these
establishments and the bargaining units that Unions A,
B, and C seek to represent as well as these unions'
respective members.
All three Petitions for Certification Election of the
Unions were denied.
On 21 May 2008, an Order was issued by DOLE National
Capital Region (NCR) Med-Arbiter Michael Angelo
Parado denying the respective petitions of Unions B and
C on the ground that there was no existing employer-
employee relationship between the members of the
unions and the companies concerned. On 23 May 2008,
DOLE NCR Med-Arbiter Alma Magdaraog-Alba also
denied the petition of respondent Union A on the same
ground.
The three unions filed their respective appeals before
the Office of the DOLE Secretary, which consolidated
the appeal. The unions argued that their petitions
should have been allowed considering that the
companies involved were unorganized, and that the
employers had no concomitant right to oppose the
petitions. They also claimed that while the questioned
employees might have been assigned to perform work
at the other companies, they were all under one
management's direct control and supervision.
DOLE, through Undersecretary Romeo C. Lagman,
rendered the assailed Decision. DOLE found that Super
Lamination, Express Lamination, and Express Coat
were sister companies that had a common human
resource department responsible for hiring and
disciplining the employees of the three companies. The
same department was found to have also given them
daily instructions on how to go about their work and
where to report for work. It also found that the three
companies involved constantly rotated their workers,
and that the latter's identification cards had only one
signatory.
To DOLE, these circumstances showed that the
companies were engaged in a work-pooling scheme, in
light of which they might be considered as one and the
same entity for the purpose of determining the
appropriate bargaining unit in a certification election.
ISSUE: Whether the application of the doctrine of
piercing the corporate veil is warranted.
RULING:
An application of the doctrine of piercing the corporate
veil is warranted.
Petitioner argues that separate corporations cannot be
treated as a single bargaining unit even if their
businesses are related,23 as these companies are

indubitably distinct entities with separate juridical
personalities.24 Hence, the employees of one
corporation cannot be allowed to vote in the
certification election of another corporation, lest the
abovementioned rule be violated.25
Petitioner's argument, while correct, is a general rule.
This Court has time and again disregarded separate
juridical personalities under the doctrine of piercing the
corporate veil. It has done so in cases where a separate
legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, among other
grounds.26 In any of these situations, the law will regard
it as an association of persons or, in case of two
corporations, merge them into one.
A settled formulation of the doctrine of piercing the
corporate veil is that when two business enterprises are
owned, conducted, and controlled by the same parties,
both law and equity will, when necessary to protect the
rights of third parties, disregard the legal fiction that
these two entities are distinct and treat them as
identical or as one and the same.
This formulation has been applied by this Court to cases
in which the laborer has been put in a disadvantageous
position as a result of the separate juridical
personalities of the employers involved. Pursuant to
veil-piercing, we have held two corporations jointly
and severally liable for an employee's back wages. We
also considered a corporation and its separately-
incorporated branches as one and the same for
purposes of finding the corporation guilty of illegal
dismissal. These rulings were made pursuant to the
fundamental doctrine that the corporate fiction should
not be used as a subterfuge to commit injustice and
circumvent labor laws.32
Here, a certification election was ordered to be held for
all the rank-and- file employees of Super Lamination,
Express Lamination, and Express Coat.1âwphi1 The
three companies were supposedly distinct entities
based on the fact that Super Lamination is a sole
proprietorship while Express Lamination and Express
Coat were separately registered with the SEC.33 The
directive was therefore, in effect, a piercing of the
separate juridical personalities of the corporations
involved. We find the piercing to be proper and in
accordance with the law as will be discussed below.
The following established facts show that Super
Lamination, Express Lamination, and Express Coat are
under the control and management of the same party -
petitioner Ang Lee. In effect, the employees of these
three companies have petitioner as their common
employer, as shown by the following facts:
1. Super Lamination, Express Lamination, and
Express Coat were engaged in the same
business of providing lamination services to the
public as admitted by petitioner in his petition.34
CORPORATION LAW CASE DIGESTS | 1 19
2. The three establishments operated and hired
employees through a common human resource
department as found by DOLE in a clarificatory
hearing.
3. The workers of all three companies were
constantly rotated and periodically assigned to
Super Lamination or Express Lamination or
Express Coat to perform the same or similar
tasks.
4. DOLE found and the CA affirmed that the
common human resource department imposed
disciplinary sanctions and directed the daily
performance of all the members of Unions A,
B, and C.
5. Super Lamination included in its payroll and
SSS registration not just its own employees,
but also the supposed employees of Express
Lamination and Express Coat.
6. Petitioner admitted that Super Lamination
had issued and signed the identification cards of
employees who were actually working for
Express Lamination and Express Coat.
7. Super Lamination, Express Lamination, and
Express Coat were represented by the same
counsel who interposed the same arguments
in their motions before the Med-Arbiters and
DOLE.
Further, we discern from the synchronized movements
of petitioner and the two other companies an attempt
to frustrate or defeat the workers' right to collectively
bargain through the shield of the corporations' separate
juridical personalities. We make this finding on the basis
of the motions to dismiss filed by the three companies.
While similarly alleging the absence of an employer-
employee relationship, they alternately referred to one
another as the employer of the members of the
bargaining units sought to be represented respectively
by the unions. This fact was affirmed by the Med-
Arbiters' Orders finding that indeed, the supposed
employees of each establishment were found to be
alternately the employees of either of the two other
companies as well. This was precisely the reason why
DOLE consolidated the appeals filed by Unions A, B, and
C.
We hold that if we allow petitioner and the two other
companies to continue obstructing the holding of the
election in this manner, their employees and their
respective unions will never have a chance to choose
their bargaining representative. We take note that all
three establishments were unorganized. That is, no
union therein was ever duly recognized or certified as a
bargaining representative.46
Therefore, it is only proper that, in order to safeguard
the right of the workers and Unions A, B, and C to
engage in collective bargaining, the corporate veil of

Express Lamination and Express Coat must be pierced.
The separate existence of Super Lamination, Express
Lamination, and Express Coat must be disregarded. In
effect, we affirm the lower tribunals in ruling that these
companies must be treated as one and the same unit
for purposes of holding a certification election.
10. Mayor vs. Tiu
G.R. No. 203770
MANUELA AZUCENA MAYOR, Petitioner
vs. EDWIN TIU and DAMIANA CHARITO MARTY,
Respondents
FACTS:
On May 25, 2008, Rosario Guy-
JucoVillasinCasilan (Rosario), the widow of the late
Primo Villasin (Primo), passed away and left a
holographic Last Will and Testament, wherein she
named her sister, Remedios Tiu (Remedios), and her
niece, Manuela Azucena Mayor (Manuela), as
executors. Immediately thereafter, Remedios and
Manuela filed a petition for the probate of Rosario's
holographic will with prayer for the issuance of letters
testamentary (probate proceedings).
On May 29, 2008, respondent Damiana Charito
Marty (Marty) claiming to be the adopted daughter of
Rosario, filed a petition for letters of administration
before the RTC, but it was not given due course because
of the probate proceedings.
On June 12, 2008, in its Order,8 the RTC-Br. 9 found the
petition for probate of will filed by Remedios and
Manuela as sufficient in form and substance and set the
case for hearing.
Consequently, Marty filed her Verified Urgent
Manifestation and Motion. Marty averred that until the
alleged will of the decedent could be probated and
admitted, Remedios and her ten (10) children had no
standing to either possess or control the properties
comprising the estate of the Villasins. She prayed for
the probate court to:
1) order an immediate inventory of all the
properties subject of the proceedings;
2) direct the tenants of the estate, namely,
Mercury Drug and Chowking, located at
Primrose Hotel, to deposit their rentals with the
court;
3) direct Metro bank, P. Burgos Branch, to
freeze the accounts in the name of Rosario,
Primrose Development
Corporation (Primrose) or Remedios; and
CORPORATION LAW CASE DIGESTS | 1 20
4) lock up the Primrose Hotel in order to
preserve the property until final disposition by the
court.
On July 8, 2008, Remedios and Manuela filed their
Comment/Opposition10 to the urgent manifestation
averring that Marty was not an adopted child of the
Villasins based on a certification issued by the Office of
the Clerk of Court of Tacloban City, attesting that no
record of any adoption proceedings involving Marty
existed in their records.
In her Reply,11 dated July 15, 2008, Marty cited an order
of the Court of First Instance of Leyte (CF! Leyte) in SP
No. 1239,12 claiming that as early as March 3, 1981, the
veil of corporate entity of Primrose was pierced on the
ground that it was a closed family corporation
controlled by Rosario after Primo's death. Thus, Marty
alleged that "piercing" was proper in the case of
Rosario's estate because the incorporation of Primrose
was founded on a fraudulent consideration, having
been done in contemplation of Primo's death.
In its January 14, 2009 Order,15 the RTC-Br. 9 granted
the motion of Marty and appointed the OIC Clerk of
Court as special administrator of the Estate. The
Probate Court also ordered Mercury Drug and Chowking
to deposit the rental income to the court and
Metrobank to freeze the bank accounts mentioned in
the motion of Marty. The doctrine of piercing the
corporate veil was applied in the case considering that
Rosario had no other properties that comprised her
estate other than Primrose.
On January 22, 2009, Remedios and Manuela filed their
Motion for Inhibition16 on the ground of their loss of
trust and confidence in RTC-Br. 9 Presiding Judge
Rogelio C. Sescon (Judge Sescon) to dispense justice.
Later, they also filed their Motion for
17
Reconsideration Ad Cautelam, dated February 3, 2009,
arguing that Rosario's estate consisted only of shares
of stock in Primrose and not the corporation itself.
Thus, the probate court could not order the lessees of
the corporation to remit the rentals to the Estate's
administrator.
In its October 16, 2009 Decision,20 the CA reversed the
assailed orders of the RTC Br. 9, except as to the
appointment of a special administrator insofar as this
relates to properties specifically belonging to the
"Estate." It held that Primrose had a personality
separate and distinct from the estate of the decedent
and that the probate court had no jurisdiction to apply
the doctrine of piercing the corporate veil.
ISSUE: Whether the doctrine of piercing the corporate
veil applies in the case at bar.
RULING:
The doctrine of piercing the corporate veil has no
relevant application in this case.

Under this doctrine, the court looks at the corporation
as a mere collection of individuals or an aggregation of
persons undertaking business as a group, disregarding
the separate juridical personality of the corporation
unifying the group. Another formulation of this doctrine
is that when two business enterprises are owned,
conducted and controlled by the same parties, both law
and equity will, when necessary to protect the rights of
third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as
identical or as one and the same.47 The purpose behind
piercing a corporation's identity is to remove the
barrier between the corporation and 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.
Here, instead of holding the decedent's interest in the
corporation separately as a stockholder, the situation
was reversed. Instead, the probate court ordered the
lessees of the corporation to remit rentals to the
estate's administrator without taking note of the fact
that the decedent was not the absolute owner of
Primrose but only an owner of shares thereof. Mere
ownership by a single stockholder or by another
corporation of all or nearly all of the capital stocks of a
corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate
personalities. Moreover, to disregard the separate
juridical personality of a corporation, the wrongdoing
cannot be presumed, but must be clearly and
convincingly established.
Moreover, the probate court in this case has not
acquired jurisdiction over Primrose and its properties.
Piercing the veil of corporate entity applies to
determination of liability not of jurisdiction; it is
basically applied only to determine established liability.
It is not available to confer on the court a jurisdiction it
has not acquired, in the first place, over a party not
impleaded in a case.59 This is so because the doctrine of
piercing the veil of corporate fiction comes to play only
during the trial of the case after the court has already
acquired jurisdiction over the corporation. Hence,
before this doctrine can be even applied, based on the
evidence presented, it is imperative that the court must
first have jurisdiction over the corporation.60
Hence, a corporation not impleaded in a suit cannot be
subject to the court's process of piercing the veil of its
corporate fiction. Resultantly, any proceedings taken
against the corporation and its properties would
infringe on its right to due process.
In the case at bench, the probate court applied the
doctrine of piercing the corporate veil ratiocinating that
Rosario had no other properties that comprise her
estate other than her shares in Primrose. Although the
probate court's intention to protect the decedent's
shares of stock in Primrose from dissipation is laudable,
it is still an error to order the corporation's tenants to
remit their rental payments to the estate of Rosario.
CORPORATION LAW CASE DIGESTS | 1 21
11. Reyno C. Dimson vs. Gerry T. Chua
G.R. No. 192318
December 5, 2016
FACTS:
The instant case filed by the petitioner, representing the
other 14 complainants, against the respondent, is an
offshoot of the labor case entitled "Reyno Dimson, et al.
v. SEASUMCO, MAC, United Coconut Planters Bank
(UPCB), and Cotabato Sugar Central Co., Inc.
(COSUCECO)."
On September 22, 2003, the said labor case for illegal
dismissal with monetary claims was decided in favor of
the complainants. Hence, South East Asia Sugar Mill
Corporation (SEASUMCO) and Mindanao Azucarera
Corporation (MAC), as well as the members of their
board of directors, were ordered to pay jointly and
severally the sum of Three Million Eight Hundred
Twenty-Seven Thousand Four Hundred Seventy Pesos
and Fifty-One Centavos (P3,827,470.51).
The LA's decision became final and executory but the
judgment remained unsatisfied. Consequently, the
petitioner filed an Ex-parte Motion for the issuance of
an amended alias writ of execution asking for the
inclusion of the board of directors arid corporate
officers of SEASUMCO and MAC to hold them liable for
satisfaction of the said decision. In an Order dated
August 16, 2007, the LA granted the motion; hence, an
amended alias writ of execution was issued which now
included the respondent. Aggrieved, the respondent
elevated the matter to the NLRC by filing a
Memorandum of Appeal arguing that he was denied
due process.
In a Resolution dated January 11, 2008, the NLRC
dismissed the appeal for lack of merit and sustained the
findings of the LA.
ISSUE:
Whether the respondent can be held solidarily liable
with the corporation, of which he was an officer and a
stockholder, when he was not served with summons
and was never impleaded as a party to the case.
RULING:
No, respondent, as one of SEASUMCO's corporate
officer and stockholder, should not be held solidarily
liable with the corporation for its monetary liabilities
with the petitioner.
Here, the LA pierced the veil of corporate fiction of
SEASUMCO and held the respondent, in his personal
capacity, jointly and severally liable with the
corporation for the enforcement of the monetary
awards to the petitioner. Even assuming that the labor
tribunals had jurisdiction over the respondent, it was
still improper to hold him liable for SEASUMCO's
obligations to its employees.

"A corporation is a juridical entity with a legal
personality separate and distinct from those acting for
and in its behalf and, in general, from the people
comprising it. Thus, as a general rule, an officer may not
be held liable for the corporation's labor obligations
unless he acted with evident malice and/or bad faith in
dismissing an employee." Section 31 of the Corporation
Code is the governing law on personal liability of
officers for the debts of the corporation. To hold a
director or officer personally liable for corporate
obligations, two requisites must concur:
( 1) it must be alleged in the complaint that the director
or officer assented to patently unlawful acts of the
corporation or that the officer was guilty of gross
negligence or bad faith; and
(2) there must be proof that the officer acted in bad
faith.
Based on the records, the petitioner and the private
respondents in the NLRC case failed to specifically allege
either in their complaint or position paper that the
respondent, as an officer of SEASUMCO, willfully and
knowingly assented to the corporations' patently
unlawful act of closing the corporation, or that the
respondent had been guilty of gross negligence or bad
faith in directing the affairs of the corporation. In fact,
there was no evidence at all to show the respondent's
participation in the petitioner's illegal dismissal. Clearly,
the twin requisites of allegation and proof of bad faith,
necessary to hold the respondent personally liable for
the monetary awards to the petitioner, are lacking.
The respondent is merely one of the officers of
SEASUMCO and to single him out and require him to
personally answer for the liabilities of SEASUMCO are
without basis. In the absence of a finding that he acted
with malice or bad faith, it was error for the labor
tribunals to hold him responsible.
The Court had repeatedly emphasized that the piercing
of the veil of corporate fiction is frowned upon and can
only be done if it has been clearly established that the
separate and distinct personality of the corporation is
used to justify a wrong, protect fraud, or perpetrate a
deception. To disregard the separate juridical
personality of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot be
presumed.
12. People's Security, Inc. and Nestor Racho vs. Julius
S. Flores and Esteban S. Tapiru
G.R. No. 211312.
December 5, 2016
FACTS:
Julius S. Flores and Esteban S. Tapiru (respondents)
were security guards previously employed by People's
Security, Inc. (PSI). The respondents were assigned at
the various facilities of Philippine Long Distance
CORPORATION LAW CASE DIGESTS | 1 22
Telephone Company (PLDT) pursuant to a security
services agreement between PSI and PLDT.
On October 1, 2001, however, PSI's security services
agreement with PLDT was terminated and, accordingly,
PSI recalled its security guards assigned to PLDT
including the respondents.
On October 8, 2001, the respondents, together with
several other security guards employed by PSI, filed a
complaint for illegal dismissal with the National Labor
Relations Commission (NLRC) against PLDT and PSI,
claiming that they are PLDT employees.
Thereafter, PSI assigned the respondents to the facilities
of its other clients such as the warehouse of a certain
Marivic Yulo in Sta. Ana, Manila and Trinity College's
Elementary Department in Quezon City.
Meanwhile, on January 13, 2003, the respondents were
relieved from their respective assignments pursuant to
Special Order No. 200310108 dated January 10, 2003
issued by Col. Leonardo L. Aquino, the Operations
Manager of PSI. Accordingly, Flores and Tapiru, on
September 6 and 27, 2005, respectively, filed with the
Regional Arbitration Branch of the NLRC in Quezon City
a complaint for illegal dismissal and non-payment of
service incentive leave pay and cash bond, with prayer
for separation pay, against PSI and its President Nestor
Racho (Racho) (collectively, the petitioners).
In their position paper, the respondents claimed that,
after they were relieved from their assignment in the
warehouse in Sta. Ana, Manila on January 13, 2003,
they repeatedly reported to PSI's office for possible
assignment, but the latter refused to give them any
assignment. On the other hand, the petitioners, in their
position paper, claimed that the respondents were
merely relieved from their assignment in the warehouse
in Sta. Ana, Manila and that the same was on account of
their performance evaluation, which indicated that they
were ill-suited for the said assignment.
On January 30, 2009, the LA rendered a Decision finding
that the respondents were illegally from their
employment and, thus, directing the petitioners jointly
and severally liable to pay the former separation pay
and backwages.
ISSUE: Whether Racho is jointly and solidarily liable
with PSI for the payment of the monetary awards to the
respondents.
RULING:
No. A corporation has a personality separate and
distinct from its directors, officers, or owners.
Nevertheless, in exceptional cases, courts find it proper
to breach this corporate personality in order to make
directors, officers, or owners solidarily liable for the
companies' acts. Thus, under Section 31 of the
Corporation Code of the Philippines, "[d]irectors or
trustees who willfully and knowingly vote for or assent

to patently unlawful acts of the corporation or who are
guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such
directors, or trustees, shall be liable jointly and severally
for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other
persons."
The doctrine of piercing the corporate veil applies only
when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend
crime. In the absence of malice, bad faith, or a specific
provision of law making a corporate officer liable, such
corporate officer cannot be made personally liable for
corporate liabilities.
The respondents failed to adduce any evidence to prove
that Racho, as President and General Manager of PSI, is
hiding behind the veil of corporate fiction to defeat
public convenience, justify wrong, protect fraud, or
defend crime. Thus, it is only PSI who is responsible for
the respondents' illegal dismissal.
13. Olonggapo City vs. Subic Water and Sewerage Co.,
Inc.
G.R. No. 171626, August 6, 2014
OLONGAPO CITY, Petitioner, vs.
SUBIC WATER AND SEWERAGE CO., INC., Respondent.
FACTS: Pursuant to PD 198, petitioner Olongapo City
(petitioner) passed Resolution No. 161, which
transferred all its existing water facilities and assets
under the Olongapo City Public Utilities Department
Waterworks Division, to the jurisdiction and ownership
of the Olongapo City Water District (OCWD).
PD 198, as amended, allows local water districts
(LWDs)which have acquired an existing water system of
a local government unit (LGU) to enter into a contract
to pay the concerned LGU. In lieu of the LGU’s share in
the acquired water utility plant, it shall be paid by the
LWD an amount not exceeding three percent (3%) of
the LWD’s gross receipts from water sales in any year.12
On October 24, 1990, petitioner filed a complaint for
sum of money and damages against OCWD. Among
others, petitioner alleged that OCWD failed to pay its
electricity bills to petitioner and remit its payment
under the contract to pay, pursuant to OCWD’s
acquisition of petitioner’s water system. In its
complaint, petitioner prayed for the following reliefs:
In the interim, OCWD entered into a Joint Venture
Agreement16 (JVA) with Subic Bay Metropolitan
Authority (SBMA), Biwater International Limited
(Biwater), and D.M. Consunji, Inc. (DMCI) on November
24, 1996. Pursuant to this agreement, Subic Water– a
new corporate entity – was incorporated, withthe
following equity participation from its shareholders:
CORPORATION LAW CASE DIGESTS | 1 23
SBMA 19.99% or 20%
OCWD 9.99% or 10%
Biwater 29.99% or 30%
DMCI 39.99% or 40%17
On November 24, 1996, Subic Water was granted the
franchise to operate and to carry on the business of
providing water and sewerage services in the Subic
BayFree Port Zone, as well as in Olongapo City. Hence,
Subic Water took over OCWD’s water operations in
Olongapo City.19
To finally settle their money claims against each other,
petitioner and OCWD entered into a compromise
agreement on June 4, 1997. In this agreement,
petitioner and OCWD offset their respective claims and
counterclaims. The compromise agreement also
contained a provision regarding the parties’ request
that Subic Water, Philippines, which took over the
operations of the defendant Olongapo City Water
District be made the co-maker for OCWD’s obligations.
On December 15,1998, OCWD was judicially dissolved.
Almost four years later, on May 30, 2003, the
petitioner, through its new counsel, filed a notice of
appearance with urgent motion/manifestation and
prayed again for the issuance of a writ of execution
against OCWD. A certain Atty. Segundo Mangohig,
claiming to be OCWD’s former counsel, filed a
manifestation alleging that OCWD had already been
dissolved and that Subic Water is now the former
OCWD.
Because of this assertion, Subic Water also filed a
manifestation informing the trial court that as borne out
by the articles of incorporation and general information
sheet of Subic Water x x x defendant OCWD is not Subic
Water. The manifestation also indicated that OCWD was
only a ten percent (10%) shareholder of Subic Water;
and that its 10% share was already in the process of
being transferred to petitioner pursuant to the Deed of
Assignment dated November 24, 1997.
ISSUE: Whether Subic Water should be held liable for
OCWD’s corporate obligations.
RULING:
NO. Subic Water is a corporation. A corporation, as a
juridical entity, primarily acts through its board of
directors, which exercises its corporate powers. In this
capacity, the general rule is that, in the absence of
authority from the board of directors, no person, not
even its officers, can validly bind a corporation. Section
23 of the Corporation Code provides:
The board of directors or trustees.– Unless otherwise
provided in this Code, the corporate powers of all

corporations formed under this Code shall be exercised,
all business conducted and all property of such
corporations controlled and held by Section 23. the
board of directors or trustees to be elected from
among the holders of stocks, or where there is no
stock, from among the members of the corporation,
who shall hold office for one (1) year until their
successors are elected and qualified. (28a)
In People’s Aircargo and Warehousing Co., Inc. v. Court
of Appeals, we held that under Section 23 of the
Corporation Code, the power and responsibility to
decide whether a corporation can enter into a binding
contract is lodged with the board of directors, subject to
the articles of incorporation, by-laws, or relevant
provisions of law. As we have clearly explained in
another case:
A corporate officer or agent may represent and
bind the corporation in transactions with third
persons to the extent that [the] authority to do
so has been conferred upon him, and this
includes powers which have been intentionally
conferred, and also such powers as, in the usual
course of the particular business, are incidental
to, or may be implied from, the powers
intentionally conferred, powers added
bycustom and usage, as usually pertaining to
the particular officer or agent,and such
apparent powers as the corporation has caused
persons dealing with the officer oragent to
believe that ithas conferred.
Mr. Noli Aldip signed the compromise agreement
purely in his own capacity. Moreover, the compromise
agreement did not expressly provide that Subic Water
consented to become OCWD’s co-maker. As worded,
the compromise agreement merely provided that both
parties [also]requestSubic Water, Philippines, which
took over the operations of Olongapo City Water
District be made asco-maker [for the obligations above-
cited].This request was never forwarded to Subic
Water’s board of directors. Even if due notification had
been made (which does not appearin the records),
Subic Water’s board does not appear to have given any
approval tosuch request. Nodocument such as the
minutes of Subic Water’s board of directors’ meeting or
a secretary’s certificate, purporting to be an
authorization to Mr. Aldip to conform to the
compromise agreement, was everpresented. In effect,
Mr. Aldip’s act of signing the compromise agreement
was outside of his authority to undertake.
Since Mr. Aldip was never authorized and there was no
showing that Subic Water’s articles of incorporation or
by-laws granted him such authority, then the
compromise agreement he signed cannot bind Subic
Water. Subic Water cannot likewise be made a surety or
even a guarantor for OCWD’s obligations. OCWD’s debts
under the compromise agreement are its own corporate
obligations to petitioner.
CORPORATION LAW CASE DIGESTS | 1 24
OCWD and Subic Water are two separate and different
entities.
Petitioner practically suggests that since Subic Water
took over OCWD’s water operations in Olongapo City, it
also acquired OCWD’s juridical personality, making the
two entities one and the same.
This is an interpretation that we cannot make or adopt
under the facts and the evidence of this case. Subic
Water clearly demonstrated that it was a separate
corporate entity from OCWD. OCWD is just a ten
percent (10%) shareholder of Subic Water. As a mere
shareholder, OCWD’s juridical personality cannot be
equated nor confused with that ofSubic Water. It is
basic in corporation law that a corporation is a juridical
entity vested with a legal personality separate and
distinct from those acting for and in its behalf and, in
general, from the people comprising it. 65 Under this
corporate reality, Subic Water cannot be held liable for
OCWD’s corporate obligations in the same manner that
OCWD cannot be held liable for the obligations incurred
by Subic Water as a separate entity. The corporate veil
should not and cannot be pierced unless it is clearly
established that the separate and distinct personality of
the corporation was used to justify a wrong, protect
fraud, or perpetrate a deception.
In Concept Builders, Inc. v. NLRC,67 the Court
enumerated the possible probative factors of identity
which could justify the application of the doctrine of
piercing the corporate veil. These are:
(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; and
(4) Methods of conducting the business.68
The burden of proving the presence of any of these
probative factors lies with the one alleging it.
Unfortunately, petitioner simply claimed that Subic
Water took over OCWD's water operations in Olongapo
City. Apart from this allegation, petitioner failed to
demonstrate any link to justify the construction that
Subic Water and OCWD are one and the same.
14. Livesey vs. Binswanger Philippines, Inc.
G.R. No. 177493, ERIC GODFREY STANLEY
LIVESEY, Petitioner, vs. BINSWANGER PHILIPPINES, INC.
and KEITH ELLIOT, Respondent.
FACTS: In December 2001, petitioner Eric Godfrey
Stanley Livesey filed a complaint for illegal dismissal
with money claims4against CBB Philippines Strategic
Property Services, Inc. (CBB) and Paul Dwyer. CBB was a

domestic corporation engaged in real estate brokerage
and Dwyer was its President.
Livesey alleged that on April 12, 2001, CBB hired him as
Director and Head of Business Space Development, with
a monthly salary of US$5,000.00; shareholdings in CBB’s
offshore parent company; and other benefits. In August
2001, he was appointed as Managing Director and his
salary was increased to US$16,000.00 a month.
Allegedly, despite the several deals for CBB he drew up,
CBB failed to pay him a significant portion of his salary.
For this reason, he was compelled to resign on
December 18, 2001. He claimed CBB owed him
US$23,000.00 in unpaid salaries.
CBB denied liability. It alleged that it engaged Livesey as
a corporate officer in April 2001: he was elected Vice-
President (with a salary of P75,000.00/month), and
thereafter, he became President (at
P1,200,000.00/year). It claimed that Livesey was later
designated as Managing Director when it became an
extension office of its principal in Hongkong.
In his decision dated September 20, 2002, LA Jaime M.
Reyno found that Livesey had been illegally dismissed.
LA Reyno ordered CBB to reinstate Livesey to his former
position as Managing Director .
Thereafter, the parties entered into a compromise
agreement7 which LA Reyno approved in an order dated
November 6, 2002.8 Under the agreement, Livesey was
to receive US$31,000.00 in full satisfaction of LA
Reyno’s decision, broken down into US$13,000.00 to be
paid by CBB to Livesey or his authorized representative
upon the signing of the agreement; US$9,000.00 on or
before June 30, 2003; and US$9,000.00 on or before
September 30, 2003. Further, the agreement provided
that unless and until the agreement is fully satisfied,
CBB shall not: (1) sell, alienate, or otherwise dispose of
all or substantially all of its assets or business; (2)
suspend, discontinue, or cease its entire, or a
substantial portion of its business operations; (3)
substantially change the nature of its business; and (4)
declare bankruptcy or insolvency.
CBB paid Livesey the initial amount of US$13,000.00,
but not the next two installments as the company
ceased operations. In reaction, Livesey moved for the
issuance of a writ of execution. LA Eduardo G. Magno
granted the writ,9 but it was not enforced. Livesey then
filed a motion for the issuance of an alias writ of
execution,10 alleging that in the process of serving
respondents the writ, he learned "that respondents, in
a clear and willful attempt to avoid their liabilities to
complainant x x x have organized another corporation,
[Binswanger] Philippines, Inc."11 He claimed that there
was evidence showing that CBB and Binswanger
Philippines, Inc. (Binswanger) are one and the same
corporation, pointing out that CBB stands for
Chesterton Blumenauer Binswanger. Invoking the
doctrine of piercing the veil of corporate fiction,
Livesey prayed that an alias writ of execution be issued
against respondents Binswanger and Keith Elliot, CBB’s
CORPORATION LAW CASE DIGESTS | 1 25
former President, and now Binswanger’s President and
Chief Executive Officer (CEO).
ISSUE: Whether CBB and Binswanger Philippines, Inc.
(Binswanger) are one and the same corporation.
RULING: YES, there is an indubitable link between CBB’s
closure and Binswanger’s incorporation. CBB ceased to
exist only in name
It has long been settled that the law vests a corporation
with a personality distinct and separate from its
stockholders or members. In the same vein, a
corporation, by legal fiction and convenience, is an
entity shielded by a protective mantle and imbued by
law with a character alien to the persons comprising
it.43 Nonetheless, the shield is not at all times
impenetrable and cannot be extended to a point
beyond its reason and policy. Circumstances might deny
a claim for corporate personality, under the "doctrine
of piercing the veil of corporate fiction."
Piercing the veil of corporate fiction is an equitable
doctrine developed to address situations where the
separate corporate personality of a corporation is
abused or used for wrongful purposes. Under the
doctrine, the corporate existence may be disregarded
where the entity is formed or used for non-legitimate
purposes, such as to evade a just and due obligation, or
to justify a wrong, to shield or perpetrate fraud or to
carry out similar or inequitable considerations, other
unjustifiable aims or intentions,45 in which case, the
fiction will be disregarded and the individuals
composing it and the two corporations will be treated
as identical46
In the present case, we see an indubitable link between
CBB’s closure and Binswanger’s incorporation. CBB
ceased to exist only in name; it re-emerged in the
person of Binswanger for an urgent purpose
— to avoid payment by CBB of the last two
installments of its monetary obligation to
Livesey, as well as its other financial liabilities.
Freed of CBB’s liabilities, especially that owing
to Livesey, Binswanger can continue, as it did
continue, CBB’s real estate brokerage business.
Livesey’s evidence, whose existence the respondents
never denied, converged to show this continuity of
business operations from CBB to Binswanger. It was not
just coincidence that Binswanger is engaged in the same
line of business CBB embarked on:
(1) it even holds office in the very same building
and on the very same floor where CBB once stood;
(2) CBB’s key officers, Elliot, no less, and Catral
moved over to Binswanger, performing the
tasks they were doing at CBB;

(3) notwithstanding CBB’s closure, Binswanger’s
Web Editor (Young), in an e-mail
correspondence, supplied the information that
Binswanger is "now known" as either CBB
(Chesterton Blumenauer Binswanger or as
Chesterton Petty, Ltd., in the Philippines;
(4) the use of Binswanger of CBB’s
paraphernalia (receiving stamp) in connection
with a labor case where Binswanger was
summoned by the authorities, although Elliot
claimed that he bought the item with his own
money; and
(5) Binswanger’s takeover of CBB’s project with
the PNB.
While the ostensible reason for Binswanger’s
establishment is to continue CBB’s business operations
in the Philippines, which by itself is not illegal, the close
proximity between CBB’s disestablishment and
Binswanger’s coming into existence points to an
unstated but urgent consideration which, as we earlier
noted, was to evade CBB’s unfulfilled financial
obligation to Livesey under the compromise agreement.
15. Pacific Rehouse Corporation vs. CA
G.R. No. 199687
PACIFIC REHOUSE CORPORATION, Petitioners,
vs.
COURT OF APPEALS and EXPORT AND INDUSTRY
BANK, INC., Respondents.
x-----------------------x
G.R. No. 201537
PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE
CORPORATION, MIZPAH HOLDINGS, INC., FORUM
HOLDINGS CORPORATION and EAST ASIA OIL
COMPANY, INC., Petitioners,
vs.
EXPORT AND INDUSTRY BANK, INC., Respondent.
FACTS:
A complaint was instituted with the Makati City
Regional Trial Court (RTC), Branch 66, against EIB
Securities Inc. (E–Securities) for unauthorized sale of
32,180,000 DMCI shares of Pacific Rehouse Corporation,
Pacific Concorde Corporation, Mizpah Holdings, Inc.,
Forum Holdings Corporation, and East Asia Oil
Company, Inc.
In its October 18, 2005 Resolution, the RTC rendered
judgment on the pleadings, directing the E–Securities to
return to the petitioners 32,180,000 DMCI shares, as of
judicial demand.
CORPORATION LAW CASE DIGESTS | 1 26
On the other hand, petitioners are directed to
reimburse the defendant the amount of
[P]10,942,200.00, representing the buy back price of the
60,790,000 KPP shares of stocks at [P]0.18 per share.
The Resolution was ultimately affirmed by the Supreme
Court and attained finality.
When the Writ of Execution was returned unsatisfied,
petitioners moved for the issuance of an alias writ of
execution to hold Export and Industry Bank, Inc. liable
for the judgment obligation as E–Securities is “a wholly–
owned controlled and dominated subsidiary of Export
and Industry Bank, Inc., and is[,] thus[,] a mere alter ego
and business conduit of the latter. E–Securities opposed
the motion[,] arguing that it has a corporate personality
that is separate and distinct from the respondent.
The RTC eventually concluded that E–Securities is a
mere business conduit or alter ego of petitioner, the
dominant parent corporation, which justifies piercing of
the veil of corporate fiction, and issued an alias writ of
summons directing defendant EIB Securities, Inc.,
and/or Export and Industry Bank, Inc., to fully comply
therewith. It ratiocinated that being one and the same
entity in the eyes of the law, the service of summons
upon EIB Securities, Inc. (E–Securities) has bestowed
jurisdiction over both the parent and wholly–owned
subsidiary.
Export and Industry Bank, Inc. (Export Bank) filed before
the Court of Appeals a petition for certiorari with prayer
for the issuance of a temporary restraining order
(TRO) seeking the nullification of the RTC Order.
The Court of Appeals reversed the RTC Order and
explained that the alter ego theory cannot be sustained
because ownership of a subsidiary by the parent
company is not enough justification to pierce the veil of
corporate fiction. There must be proof, apart from mere
ownership, that Export Bank exploited or misused the
corporate fiction of E–Securities. The existence of
interlocking incorporators, directors and officers
between the two corporations is not a conclusive
indication that they are one and the same. The records
also do not show that Export Bank has complete control
over the business policies, affairs and/or transactions of
E–Securities. It was solely E–Securities that contracted
the obligation in furtherance of its legitimate corporate
purpose; thus, any fall out must be confined within its
limited liability.
ISSUE: Whether E–Securities is a mere business conduit
or alter ego of petitioner, the dominant parent
corporation, which justifies piercing of the veil of
corporate fiction.

RULING:
NO. The Alter Ego Doctrine is not applicable.
An alter ego exists where one corporation is so
organized and controlled and its affairs are conducted
so that it is, in fact, a mere instrumentality or adjunct of
the other. The control necessary to invoke the alter ego
doctrine is not majority or even complete stock control
but such domination of finances, policies and practices
that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a
conduit for its principal.
The Court has laid down a three–pronged control test
to establish when the alter ego doctrine should be
operative:
 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;
 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 right; and
 The aforesaid control and breach of duty must
[have] proximately caused 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. Hence, all three elements
should concur for the alter ego doctrine to be
applicable.
In this case, the alleged control exercised by Export
Bank upon its subsidiary E–Securities, by itself, does not
mean that the controlled corporation is a mere
instrumentality or a business conduit of the mother
company. Even control over the financial and
operational concerns of a subsidiary company does not
by itself call for disregarding its corporate fiction. There
must be a perpetuation of fraud behind the control or
at least a fraudulent or illegal purpose behind the
control in order to justify piercing the veil of corporate
fiction. Such fraudulent intent is lacking in this case.
CORPORATION LAW CASE DIGESTS | 1 27
Ownership by Export Bank of a great majority or all of
stocks of E-Securities and the existence of interlocking
directorates may serve as badges of control, but
ownership of another corporation, per se, without proof
of actuality of the other conditions are insufficient to
establish an alter ego relationship or connection
between the two corporations, which will justify the
setting aside of the cover of corporate fiction. The Court
has declared that "mere ownership by a single
stockholder or by another corporation of all or nearly
all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate
corporate personality." The Court has likewise ruled
that the "existence of interlocking directors, corporate
officers and shareholders is not enough justification to
pierce the veil of corporate fiction in the absence of
fraud or other public policy considerations."
While the courts have been granted the colossal
authority to wield the sword which pierces through the
veil of corporate fiction, concomitant to the exercise of
this power, is the responsibility to uphold the doctrine
of separate entity, when rightly so; as it has for so long
encouraged businessmen to enter into economic
endeavors fraught with risks and where only a few
dared to venture.
Hence, any application of the doctrine of piercing the
corporate veil should be done with caution. A court
should be mindful of the milieu where it is to be
applied. It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud, or
crime was committed against another, in disregard of its
rights. The wrongdoing must be clearly and convincingly
established; it cannot be presumed. Otherwise, an
injustice that was never unintended may result from an
erroneous application.
ISSUE: May the RTC enforce the alias writ of execution
against Export Bank?
RULING:
The question posed before us is not novel.
The Court already ruled in Kukan International
Corporation v. Reyes that compliance with the
recognized modes of acquisition of jurisdiction cannot
be dispensed with even in piercing the veil of corporate
fiction, to wit:
The principle of piercing the veil of corporate fiction,
and the resulting treatment of two related corporations
as one and the same juridical person with respect to a
given transaction, is basically applied only to determine
established liability; it is not available to confer on the
court a jurisdiction it has not acquired, in the first place,
over a party not impleaded in a case. Elsewise put, a
corporation not impleaded in a suit cannot be subject
to the court’s process of piercing the veil of its

corporate fiction. In that situation, the court has not
acquired jurisdiction over the corporation and, hence,
any proceedings taken against that corporation and its
property would infringe on its right to due process.
Aguedo Agbayani, a recognized authority on
Commercial Law, stated as much:
"23. Piercing the veil of corporate entity applies to
determination of liability not of jurisdiction. x x x
This is so because the doctrine of piercing the veil of
corporate fiction comes to play only during the trial of
the case after the court has already acquired
jurisdiction over the corporation. Hence, before this
doctrine can be applied, based on the evidence
presented, it is imperative that the court must first have
jurisdiction over the corporation. x x x"50 (Citations
omitted)
From the preceding, it is therefore correct to say that
the court must first and foremost acquire jurisdiction
over the parties; and only then would the parties be
allowed to present evidence for and/or against piercing
the veil of corporate fiction. If the court has no
jurisdiction over the corporation, it follows that the
court has no business in piercing its veil of corporate
fiction because such action offends the corporation’s
right to due process.
"Jurisdiction over the defendant is acquired either upon
a valid service of summons or the defendant’s voluntary
appearance in court. When the defendant does not
voluntarily submit to the court’s jurisdiction or when
there is no valid service of summons, ‘any judgment of
the court which has no jurisdiction over the person of
the defendant is null and void.’"51 "The defendant must
be properly apprised of a pending action against him
and assured of the opportunity to present his defenses
to the suit. Proper service of summons is used to
protect one’s right to due process."
16. WPM International Trading, Inc. vs. Labayen
G.R. No. 182770 September 17, 2014
WPM INTERNATIONAL TRADING, INC. and WARLITO P.
MANLAPAZ, Petitioners, vs. FE CORAZON
LABAYEN, Respondent.
FACTS: The respondent, Fe Corazon Labayen, is the
owner of H.B.O. Systems Consultants, a management
and consultant firm.
The petitioner, WPM International Trading, Inc. (WPM),
is a domestic corporation engaged in the restaurant
business, while Warlito P. Manlapaz (Manlapaz) is its
president.
WPM entered into a management agreement with the
respondent, by virtue of which the respondent was
authorized to operate, manage and rehabilitate
Quickbite, a restaurant owned and operated by WPM.
CORPORATION LAW CASE DIGESTS | 1 28
As part of her tasks, the respondent looked for a
contractor who would renovate the two existing
Quickbite outlets in Divisoria, Manila and Lepanto St.,
University Belt, Manila.
Pursuant to the agreement, the respondent engaged
the services of CLN Engineering Services (CLN) to
renovate Quickbite-Divisoria at the cost of ₱432,876.02.
On June 13, 1990, Quickbite-Divisoria’s renovation was
finally completed, and its possession was delivered to
the respondent. However, out of the ₱432,876.02
renovation cost, only the amount of ₱320,000.00 was
paid to CLN, leaving a balance of ₱112,876.02.
Complaint for Sum of Money (Civil Case No. Q-90-
7013)
CLN filed a complaint for sum of money and damages
before the RTC against the respondent and Manlapaz,
which was docketed as Civil Case No. Q-90-7013. CLN
later amended the complaint to exclude Manlapaz as
defendant. The respondent was declared in default for
her failure to file a responsive pleading.
The RTC, in its January 28, 1991 decision, found the
respondent liable to pay CLN actual damages inthe
amount of ₱112,876.02 with 12% interest per annum
from June 18,1990 (the date of first demand) and 20%
of the amount recoverable as attorney’s fees.
Complaint for Damages (Civil Case No. Q-92-13446)
Thereafter, the respondent instituted a complaint for
damages against the petitioners, WPM and Manlapaz.
The respondent alleged that in Civil Case No. Q-90-
7013, she was adjudged liable for a contract that she
entered into for and in behalf of the petitioners, to
which she should be entitled to reimbursement; that
her participation in the management agreement was
limited only to introducing Manlapaz to Engineer
Carmelo Neri (Neri), CLN’s general manager; that it was
actually Manlapaz and Neri who agreed on the terms
and conditions of the agreement; that when the
complaint for damages was filed against her, she was
abroad; and that she did not know of the case until she
returned to the Philippines and received a copy of the
decision of the RTC.
RTC held that the respondent is entitled to indemnity
from Manlapaz. The RTC found that based on the
records, there is a clear indication that WPM is a mere
instrumentality or business conduit of Manlapaz and as
such, WPM and Manlapaz are considered one and the
same. The RTC also found that Manlapaz had complete
control over WPM considering that he is its chairman,
president and treasurer at the same time.
The CA applied the principle of piercing the veil of
corporate fiction and agreed with the RTC that
Manlapaz cannot evade his liability by simply invoking
WPM’s separate and distinct personality.

ISSUES:
(1) Whether WPM is a mere instrumentality, alter-ego,
and business conduit of Manlapaz; (attendant
circumstances do not establish that WPM is a mere
alter ego of Manlapaz ) and
(2) Whether Manlapaz is jointly and severally liable with
WPM to the respondent for reimbursement, damages
and interest. (only WPM is liable to indemnify the
respondent.)
RULING:
We note, at the outset, that the question of whether a
corporation is a mere instrumentality or alter-ego of
another is purely one of fact.5 This is also true with
respect to the question of whether the totality of the
evidence adduced by the respondent warrants the
application of the piercing the veil of corporate fiction
doctrine.6
The application of the principle of piercing the veil of
corporate fiction is unwarranted in the present case.
The rule is settled that a corporation has a personality
separate and distinct from the persons acting for and in
its behalf and, in general, from the people comprising
it.9 Following this principle, the obligations incurred by
the corporate officers, or other persons acting as
corporate agents, are the direct accountabilities ofthe
corporation they represent, and not theirs. Thus, a
director, officer or employee of a corporation is
generally not held personally liable for obligations
incurred by the corporation;10 it is only in exceptional
circumstances that solidary liability will attach to them.
Incidentally, the doctrine of piercing the corporate veil
applies only in three (3) basic instances, namely:
a) when the separate and distinct corporate
personality defeats public convenience, as when
the corporate fiction is used as a vehicle for the
evasion of an existing obligation;
b) in fraud cases, or when the corporate entity
is used to justify a wrong, protect a fraud, or defend a
crime; or
c) is used in alter ego cases, i.e., where a
corporation is essentially a farce, since it is a
mere alter ego or business conduit of a person,
or where the corporation is so organized and
controlled and its affairs so conducted as to
make it merely aninstrumentality, agency,
conduit or adjunct of another corporation.
Piercing the corporate veil based on the alter ego
theory requires the concurrence of three elements,
namely:
CORPORATION LAW CASE DIGESTS | 1 29
(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 beenused 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 right; and
(3) The aforesaid control and breach of duty
must have proximately caused the injury or
unjust loss complained of.
The absence of any ofthese elements prevents piercing
the corporate veil.
In the present case, the attendant circumstances do not
establish that WPM is a mere alter ego of Manlapaz.
Aside from the fact that Manlapaz was the principal
stockholder of WPM, records do not show that WPM
was organized and controlled, and its affairs conducted
in a manner that made it merely an instrumentality,
agency, conduit or adjunct ofManlapaz. As held in
Martinez v. Court of Appeals, the mere ownership by a
singlestockholder of even all or nearly all of the capital
stocks ofa corporation is not by itself a sufficient ground
to disregard the separate corporate personality. To
disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and
convincingly established.
Likewise, the records of the case do not support the
lower courts’ finding that Manlapaz had control or
domination over WPM or its finances. That Manlapaz
concurrently held the positions of president, chairman
and treasurer, or that the Manlapaz’s residence is the
registered principal office of WPM, are insufficient
considerations to prove that he had exercised
absolutecontrol over WPM.
In this connection, we stress that the control necessary
to invoke the instrumentality or alter ego rule is not
majority or even complete stock control but such
domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate
mind, will or existence of its own, and is but a conduit
for its principal. The control must be shown to have
been exercised at the time the acts complained of took
place. Moreover, the control and breach of duty must
proximately cause the injury or unjust loss for which the
complaint is made.
Here, the respondent failed to prove that Manlapaz,
acting as president, had absolute control over
WPM. Even granting that he exercised a certain degree
of control over the finances, policies and practices of
WPM, in view of his position as president, chairman and

treasurer of the corporation, such control does not
necessarily warrant piercing the veil of corporate fiction
since there was not a single proof that WPM was
formed to defraud CLN or the respondent, or that
Manlapaz was guilty of bad faith or fraud.
On the contrary, the evidence establishes that CLN and
the respondent knew and acted on the knowledge that
they were dealing with WPM for the renovation of the
latter’s restaurant, and not with Manlapaz. That WPM
later reneged on its monetary obligation to CLN,
resulting to the filing of a civil case for sum of money
against the respondent, does not automatically indicate
fraud, in the absence of any proof to support it.
This Court also observed that the CA failed to
demonstrate how the separate and distinct personality
of WPM was used by Manlapaz to defeat the
respondent’s right for reimbursement. Neither was
there any showing that WPM attempted to avoid
liability or had no property against which to proceed.
Since no harm could be said to have been proximately
caused by Manlapaz for which the latter could be held
solidarily liable with WPM, and considering that there
was no proof that WPM had insufficient funds, there
was no sufficient justification for the RTC and the CA to
have ruled that Manlapaz should be held jointly and
severally liable to the respondent for the amount she
paid to CLN. Hence, only WPM is liable to indemnify the
respondent.
Finally, we emphasize that the piercing of the veil of
corporate fiction is frowned upon and thus, must be
done with caution. It can only be done if it has been
clearly established that the separate and distinct
personality of the corporation is used to justify a wrong,
protect fraud, or perpetrate a deception. The court
must be certain that the corporate fiction was misused
to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights; it
cannot be presumed.
17. MIRANT (PHILIPPINES) CORPORATION VS. CARO,
723 SCRA 465
FACTS: Respondent filed a complaint for illegal dismissal
and money claims for 13 and 14 month pay, bonuses
and other benefits, as well as the payment of moral and
exemplary damages and attorney's fees. On January 3,
1994, respondent was hired by petitioner corporation
as its Logistics Officer and was assigned at petitioner
corporation's corporate office in Pasay City. At the time
of the filing of the complaint, respondent was already a
Supervisor at the Logistics and Purchasing Department
with a monthly salary of P39,815.00.
On November 3, 2004, petitioner corporation
conducted a random drug test where respondent was
randomly chosen among its employees who would be
tested for illegal drug use through an Intracompany
CORPORATION LAW CASE DIGESTS | 1 30
Correspondence. Respondent was duly notified that he
was scheduled to be tested after lunch on that day. His
receipt of the notice was evidenced by his signature on
the correspondence. Respondent avers that at around
11:30 a.m. of the same day, he received a phone call
from his wife's colleague who informed him that a
bombing incident occurred near his wife's work station
in Tel Aviv, Israel where his wife was then working as a
caregiver. Respondent attached to his Position Paper a
Press Release of the Department of Foreign Affairs
(DFA) in Manila to prove the occurrence of the bombing
incident and a letter from the colleague of his wife who
allegedly gave him a phone call from Tel Aviv.
Respondent claims that after the said phone call, he
proceeded to the Israeli Embassy to confirm the news
on the alleged bombing incident. Respondent further
claims that before he left the office on the day of the
random drug test, he first informed the secretary of his
Department, Irene Torres (Torres), at around 12:30 p.m.
that he will give preferential attention to the emergency
phone call that he just received. He also told Torres that
he would be back at the office as soon as he has
resolved his predicament. Respondent recounts that he
tried to contact his wife by phone but he could not
reach her. He then had to go to the Israeli Embassy to
confirm the bombing incident. However, he was told by
Eveth Salvador (Salvador), a lobby attendant at the
Israeli Embassy, that he could not be allowed entry due
to security reasons.
On that same day, at around 6:15 p.m., respondent
returned to petitioner corporation's office. When he
was finally able to charge his cellphone at the office, he
received a text message from Tina Cecilia (Cecilia), a
member of the Drug Watch Committee that conducted
the drug test, informing him to participate in the said
drug test. He immediately called up Cecilia to explain
the reasons for his failure to submit himself to the
random drug test that day. He also proposed that he
would submit to a drug test the following day at his own
expense. Respondent never heard from Cecilia again.
On November 8, 2004, respondent received a Show
Cause Notice from petitioner corporation through Jaime
Dulot (Dulot), his immediate supervisor, requiring him
to explain in writing why he should not be charged with
"unjustified refusal to submit to random drug
testing." Respondent submitted his written explanation
on November 11, 2004.
On January 13, 2005, petitioner corporation's
Investigating Panel issued an Investigating Report
finding respondent guilty of "unjustified refusal to
submit to random drug testing" and recommended a
penalty of four working weeks suspension without pay,

instead of termination, due to the presence of
mitigating circumstances. In the same Report, the
Investigating Panel also recommended that petitioner
corporation should review its policy on random drug
testing, especially of the ambiguities cast by the term
"unjustified refusal." On January 19, 2005, petitioner
corporation's Asst. Vice President for Material
Management Department, George K. Lamela, Jr.
(Lamela), recommended that respondent be
terminated from employment instead of merely being
suspended. Lamela argued that even if respondent did
not outrightly refuse to take the random drug test, he
avoided the same. Lamela averred that "avoidance" was
synonymous with "refusal."
ISSUE: Is Bautista (president of the corporation) also
held personally liable along with the petitioner
(corporation) as duly alleged by the respondent?
RULING: No. A corporation has a personality separate
and distinct from its officers and board of directors who
may only be held personally liable for damages if it is
proven that they acted with malice or bad faith in the
dismissal of an employee. Absent any evidence on
record that petitioner Bautista acted maliciously or in
bad faith in effecting the termination of respondent,
plus the apparent lack of allegation in the pleadings of
respondent that petitioner Bautista acted in such
manner, the doctrine of corporate fiction dictates that
only petitioner corporation should be held liable for the
illegal dismissal of respondent.
RE: Drug test issue
There was illegal dismissal in the case at bar. While the
adoption and enforcement by petitioner corporation of
its Anti-Drugs Policy is recognized as a valid exercise of
its management prerogative as an employer, such
exercise is not absolute and unbridled. Managerial
prerogatives are subject to limitations provided by law,
collective bargaining agreements, and the general
principles of fair play and justice. In the exercise of its
management prerogative, an employer must therefore
ensure that the policies, rules and regulations on work-
related activities of the employees must always be fair
and reasonable and the corresponding penalties, when
prescribed, commensurate to the offense involved and
to the degree of the infraction. The Anti-Drugs Policy of
Mirant fell short of these requirements.
The policy of random drug testing was not clear on
what constitutes “unjustified refusal” when the
subject drug policy prescribed that an employee’s
“unjustified refusal” to submit to a random drug test
shall be punishable by the penalty of termination for
the first offense. Lastly, the penalty of termination
imposed by petitioner corporation upon respondent
CORPORATION LAW CASE DIGESTS | 1 31
fell short of being reasonable as company policies and
regulations are generally valid and binding between
the employer and the employee unless shown to be
grossly oppressive or contrary to law as in the case at
bar.
As to the other issue relentlessly being raised by
petitioner corporation that respondent’s petition for
certiorari before the CA should have been considered
moot as respondent had already previously executed a
quitclaim discharging petitioner corporation from all his
monetary claims is not meritorious. Quitclaims executed
by laborers are ineffective to bar claims for the full
measure of their legal rights, especially in this case
where the evidence on record shows that the amount
stated in the quitclaim exactly corresponds to the
amount claimed as unpaid wages by respondent under
Annex A of his Reply filed with the Labor Arbiter. Prima
facie, this creates a false impression that respondent’s
claims have already been settled by petitioner
corporation – discharging the latter from all of
respondent’s monetary claims. In truth and in fact,
however, the amount paid under the subject quitclaim
represented the salaries of respondent that remained
unpaid at the time of his termination – not the amounts
being claimed in the case at bar.
18. COMMISSIONER OF CUSTOMS VS. OILING
INTERNATIONAL CORPORATION, 728 SCRA 469
On September 15, 1966, Union Refinery Corporation
(URC) was established under the Corporation Code of
the Philippines. In the course of its business
undertakings, particularly in the period from 1991 to
1994, URC imported oil products into the country.
On January 11, 1996, Oilink was incorporated for the
primary purpose of manufacturing, importing,
exporting, buying, selling or dealing in oil and gas, and
their refinements and by-products at wholesale and
retail of petroleum. URC and Oilink had interlocking
directors when Oilink started its business. In applying
for and in expediting the transfer of the operator's
name for the Customs Bonded Warehouse then
operated by URC, Esther Magleo, the Vice-President and
General Manager of URC, sent a letter dated January 15,
1996 to manifest that URC and Oilink had the same
Board of Directors and that Oilink was 100% owned by
URC.
On March 4, 1998, Oscar Brillo, the District Collector of
the Port of Manila, formally demanded that URC pay
the taxes and duties on its oil imports that had arrived
between January 6, 1991 and November 7, 1995 at the
Port of Lucanin in Mariveles, Bataan. On April 16, 1998,
Brillo made another demand letter to URC for the
payment of the reduced sum of P289,287,486.60 for the
Value-Added Taxes (VAT), special duties and excise
taxes for the years 1991-1995. On April 23, 1998, URC,

through its counsel, responded to the demands by
seeking the landed computations of the assessments,
and challenged the inconsistencies of the demands.
On November 25, 1998, then Customs Commissioner
Pedro C. Mendoza formally directed that URC pay the
amount of P119,223,541.71 representing URC's special
duties, VAT, and Excise Taxes that it had failed to pay at
the time of the release of its 17 oil shipments that had
arrived in the Sub-port of Mariveles from January 1,
1991 to September 7, 1995. On December 21, 1998,
Commissioner Mendoza wrote again to require URC to
pay deficiency taxes but in the reduced sum of
P99,216,580.10. On December 23, 1998, upon his
assumption of office, Customs Commissioner Nelson
Tan transmitted another demand letter to URC
affirming the assessment of P99,216,580.10 by
Commissioner Mendoza.
On January 18, 1999, Magleo, in behalf of URC, replied
by letter to Commissioner Tan's affirmance by denying
liability, insisting instead that only P28,933,079.20
should be paid by way of compromise. On March 26,
1999, Commissioner Tan responded by rejecting
Magleo's proposal, and directed URC to pay
P99,216,580.10. On May 24, 1999, Manuel Co, URC's
President, conveyed to Commissioner Tan URC's
willingness to pay only P94,216,580.10, of which the
initial amount of P28,264,974.00 would be taken from
the collectibles of Oilink from the National Power
Corporation, and the balance to be paid in monthly
installments over a period of three years to be secured
with corresponding post-dated checks and its future
available tax credits. On July 2, 1999, Commissioner Tan
made a final demand for the total liability of
P138,060,200.49 upon URC and Oilink.
On July 8, 1999, Co requested from Commissioner Tan a
complete finding of the facts and law in support of the
assessment made in the latter's July 2, 1999 final
demand. Also on July 8, 1999, Oilink formally protested
the assessment on the ground that it was not the party
liable for the assessed deficiency taxes.
On July 12, 1999, after receiving the July 8, 1999 letter
from Co, Commissioner Tan communicated in writing
the detailed computation of the tax liability, stressing
that the Bureau of Customs (BoC) would not issue any
clearance to Oilink unless the amount of
P138,060,200.49 demanded as Oilink's tax liability be
first paid, and a performance bond be posted by
URC/Oilink to secure the payment of any adjustments
that would result from the BIR's review of the liabilities
for VAT, excise tax, special duties, penalties, etc. Thus,
on July 30, 1999, Oilink appealed to the CTA, seeking
CORPORATION LAW CASE DIGESTS | 1 32
the nullification of the assessment for having been
issued without authority and with grave abuse of
discretion tantamount to lack of jurisdiction because
the Government was thereby shifting the imposition
from URC to Oilink.
ISSUE: WHETHER OR NOT THERE WAS A VALID GROUND
OF PIERCING THE VEIL OF CORPORATE FICTION.
RULING: NO. A corporation, upon coming into
existence, is invested by law with a personality separate
and distinct from those of the persons composing it as
well as from any other legal entity to which it may be
related. For this reason, a stockholder is generally not
made to answer for the acts or liabilities of the
corporation, and vice versa. The separate and distinct
personality of the corporation is, however, a mere
fiction established by law for convenience and to
promote the ends of justice. It may not be used or
invoked for ends that subvert the policy and purpose
behind its establishment, or intended by law to which
the corporation owes its being. This is true particularly
when the fiction is used to defeat public convenience,
to justify wrong, to protect fraud, to defend crime, to
confuse legitimate legal or judicial issues, to perpetrate
deception or otherwise to circumvent the law. This is
likewise true where the corporate entity is being used
as an alter ego, adjunct, or business conduit for the sole
benefit of the stockholders or of another corporate
entity. In such instances, the veil of corporate entity will
be pierced or disregarded with reference to the
particular transaction involved.
In Philippine National Bank v. Ritratto Group, Inc., the
Court has outlined the following circumstances that are
useful in the determination of whether a subsidiary is a
mere instrumentality of the parent-corporation, viz:
1. Control, not mere majority or complete
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
perpetrate 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.
In applying the "instrumentality" or "alter ego" doctrine,

the courts are concerned with reality, not form, and
with how the corporation operated and the individual
defendant's relationship to the
operation. Consequently, the absence of any one of the
foregoing elements disauthorizes the piercing of the
corporate veil.
Indeed, the doctrine of piercing the corporate veil has
no application here because the Commissioner of
Customs did not establish that Oilink had been set up to
avoid the payment of taxes or duties, or for purposes
that would defeat public convenience, justify wrong,
protect fraud, defend crime, confuse legitimate legal or
judicial issues, perpetrate deception or otherwise
circumvent the law. It is also noteworthy that from the
outset the Commissioner of Customs sought to collect
the deficiency taxes and duties from URC, and that it
was only on July 2, 1999 when the Commissioner of
Customs sent the demand letter to both URC and Oilink.
That was revealing, because the failure of the
Commissioner of Customs to pursue the remedies
against Oilink from the outset manifested that its
belated pursuit of Oilink was only an afterthought.
19. ABOITIZ EQUITY VENTURES VS. CHIONGBIAN, 729
SCRA 580
FACTS:
ASC, CAGLI, and WLI entered into an Agreement. a. ASC
and CAGLI would transfer their shipping assets to WLI in
exchange for WLI’s shares of capital stock. WLI would
run their merged shipping businesses, to be known as
WG&A, Inc. It was stipulated that that all disputes in
connection with the Agreement be settled by
arbitration pursuant to the Arbitration Law (RA 876). An
arbitration tribunal shall be formed composed of four
arbitrators. Each party shall appoint one arbitrator. The
three appointees shall appoint the fourth arbitrator and
the latter shall act as Chairman. The award of the
tribunal shall be binding on the parties and shall be
enforced by Cebu or Metro Manila courts. Attached to
the Agreement was Annex SL-V, a letter from WLI
President to CAGLI. Confirmed WLI’s commitment to
acquire certain spare parts and material inventories of
CAGLI, totaling an amount of P400M at most, pursuant
to the Agreement. Pursuant to Annex SL-V, inventories
were transferred from CAGLI to WLI, now WG&A.
Assessed to have value of P514M, later adjusted to
P558.89M, CAGLI was paid the amount of P400M and
WG&A shares worth P38.5M were also transferred to
CAGLI. There was still a balance so CAGLI sent WG&A
demand letters for the payment or return of excess
inventories.
The Chiongbians and the Gothongs decided to
leave WG&A and sell their interest to the Aboitiz family
CORPORATION LAW CASE DIGESTS | 1 33
so a Share Purchase Agreement (SPA) was entered into.
Aboitiz Equity Ventures (AEV) agreed to purchase the
shares of the Chiongbian and Gothong groups. The SPA
provided for arbitration in Cebu Sity as the mode of
settling disputes arising from the SPA pursuant to the
Arbitration Law. The SPA also provided that the
Agreement shall be deemed terminated except Annex
SL-V. The parties also entered into an Escrow
Agreement as part of the SPA where ING Bank was to
take custody of the shares subject of the SPA and that
disputes arising from it would be settled through
arbitration. AEV became stockholder of WG&A, which
was renamed Aboitiz Transport Shipping Corp. CAGLI
made demands to ATSC (the corporation) for the return
or payment of the excess inventories. AEV alleged that
inventories worth P120.04M were returned evidenced
by delivery receipts. CAGLI continued demanding and
eventually addressed its demand letters directly to AEV
(the stockholder). AEV rebuffed the demands alleging
that CAGLI already received the excess inventories, it
was not a party to CAGLI’s claim because it had a
personality distinct from WLI/WG&A/ATSC and CAGLI’s
claim was barred by prescription. In a reply-letter, CAGLI
claimed that it was unaware of the return of the excess
inventories and asked for copies of the delivery
receipts.
In letters written for AEV by its counsels, it was noted
that the excess inventories were delivered to GT Ferry
Warehouse. Attached were delivery receipts of the
return, the supposed unreturned inventories were only
P119.89M but P120.04M was returned so CAGLI was
actually the one liable to return the difference. Not
satisfied, CAGLI filed two applications for arbitration
before RTC-Cebu.
ISSUE: WHETHER OR NOT AEV as ATSC’s stockholder
subject to the obligation of the latter.
RULING: NO. The Aboitiz group (via ASC) and the
Gothong group (via CAGLI) became stockholders of
WLI/WG&A, along with the Chiongbian group (which
initially controlled WLI). This continued until, pursuant
to the SPA, the Gothong group and the Chiongbian
group transferred their shares to AEV. With the SPA,
AEV became a stockholder of WLI/WG&A, which was
subsequently renamed ATSC. Nonetheless, AEV's status
as ATSC's stockholder does not subject it to ATSC's
obligations.
It is basic that a corporation has a personality separate
and distinct from that of its individual stockholders.
Thus, a stockholder does not automatically assume the
liabilities of the corporation of which he is a
stockholder.

AEV's status as ATSC's stockholder is, in and of itself,
insufficient to make AEV liable for ATSC's obligations.
Moreover, the SPA does not contain any stipulation
which makes AEV assume ATSC's obligations. It is true
that Section 6.8 of the SPA stipulates that the rights and
obligations arising from Annex SL-V are not terminated.
But all that Section 6.8 does is recognize that the
obligations under Annex SL-V subsist despite the
termination of the January 8, 1996 Agreement. At no
point does the text of Section 6.8 support the position
that AEV steps into the shoes of the obligor under
Annex SL-V and assumes its obligations.
Neither does Section 6.5 of the SPA suffice to compel
AEV to submit itself to arbitration. While it is true that
Section 6.5 mandates arbitration as the mode for
settling disputes between the parties to the SPA,
Section 6.5 does not indiscriminately cover any and all
disputes which may arise between the parties to the
SPA. Rather, Section 6.5 is limited to "dispute[s] arising
between the parties relating to this Agreement [i.e., the
SPA]." To belabor the point, the obligation which is
subject of the present dispute pertains to Annex SL-V,
not to the SPA. That the SPA, in Section 6.8, recognizes
the subsistence of Annex SL-V is merely a factual
recognition. It does not create new obligations and does
not alter or modify the obligations spelled out in Annex
SL-V.
AEV was drawn into the present controversy on account
of its having entered into the SPA. This SPA made AEV a
stockholder of WLI/WG&A/ATSC. Even then, AEV
retained a personality separate and distinct from
WLI/WG&A/ATSC. The SPA did not render AEV
personally liable for the obligations of the corporation
whose stocks it held.
The obligation animating CAGLI's desire to arbitrate is
rooted in Annex SL-V. Annex SL-V is a contract entirely
different from the SPA. It created distinct obligations for
distinct parties. AEV was never a party to Annex SL-V.
Rather than pertaining to AEV, Annex SL-V pertained to
a different entity: WLI (renamed WG&A then renamed
ATSC). AEV is, thus, not bound by Annex SL-V.
On one hand, Annex SL-V does not stipulate that
disputes arising from it are to be settled via arbitration.
On the other hand, the SPA requires arbitration as the
mode for settling disputes relating to it and recognizes
the subsistence of the obligations under Annex SL-V.
But as a separate contract, the mere mention of Annex
SL-V in the SPA does not suffice to place Annex SL-V
under the ambit of the SPA or to render it subject to the
SPA's terms, such as the requirement to arbitrate.
20. PALM AVENUE HOLDING VS SANDIGANBAYAN 5TH
DIVISION, 732 SCRA 156
FACTS: Through a writ of sequestration dated October
27, 1986, the Presidential Commission on Good
Government (PCGG) sequestered all the assets,
properties, records, and documents of the Palm
Companies. Said sequestered assets included
CORPORATION LAW CASE DIGESTS | 1 34
16,237,339 Benguet Corporation shares of stock,
registered in the name of the Palm Companies. The
PCGG had relied on a letter from the Palm Companies’
Attorney-in-Fact, Jose S. Sandejas, specifically
identifying Benjamin “Kokoy” Romualdez, a known
crony of former President Ferdinand E. Marcos, as the
beneficial owner of the Benguet Corporation shares in
the Palm Companies’ name.
The Republic, represented by the PCGG, filed a
complaint with the Sandiganbayan but did not initially
implead the Palm Companies as defendants. However,
the Sandiganbayan issued a Resolution dated June 16,
1989 where it ordered said companies to be impleaded.
The Court subsequently affirmed this order to implead
in G.R. No. 906675 on November 5, 1991. On
September 22, 2006, the Palm Companies filed a
Motion to Release Sequestered Funds with the
Sandiganbayan. In a Resolution dated January 18, 2007,
the Sandiganbayan granted said motion and ordered
the release of the sequestered funds for the purchase of
additional shares in Benguet Corporation, and
appointed a comptroller for this purpose.
ISSUE: Whether or not writ of sequestration issued by
the government against the assets and properties of
Palm Avenue Holding Co., Inc. and Palm Avenue Realty
and Development Corporation valid.
RULING: The aforesaid provision mandates the Republic
to file the corresponding judicial action or proceedings
within a six-month period (from its ratification on
February 2, 1987) in order to maintain sequestration,
non-compliance with which would result in the
automatic lifting of the sequestration order. The
Court's ruling in Presidential Commission on Good
Government v. Sandiganbayan, which remains good
law, reiterates the necessity of the Republic to actually
implead corporations as defendants in the complaint,
out of recognition for their distinct and separate
personalities, failure to do so would necessarily be
denying such entities their right to due process.
Here, the writ of sequestration issued against the assets
of the Palm Companies is not valid because the suit in
Civil Case No. 0035 against Benjamin Romualdez as
shareholder in the Palm Companies is not a suit against
the latter. The Court has held, contrary to the assailed
Sandiganbayan Resolution in G.R. No. 173082, that
failure to implead these corporations as defendants and
merely annexing a list of such corporations to the
complaints is a violation of their right to due process for
it would be, in effect, disregarding their distinct and
separate personality without a hearing. Here, the Palm
Companies were merely mentioned as Item Nos. 47 and
48, Annex A of the Complaint, as among the
corporations where defendant Romualdez owns shares
of stocks. Furthermore, while the writ of sequestration
was issued on October 27, 1986, the Palm Companies
were impleaded in the case only in 1997, or already a
decade from the ratification of the Constitution in 1987,
way beyond the prescribed period.

The Republic in the case at bar failed to file a proper bill
of particulars which would completely clarify and
amplify the charges against the Palm Companies. For
said failure to comply with the graft court's order to file
the required bill of particulars that would completely
and fully inform the Palm Companies of the charges
against them, the amended complaint impleading said
companies necessarily failed to state a cause of action,
warranting the dismissal of the case as to them. By the
dismissal of the case as against the Palm Companies,
there is ipso facto no more writ of sequestration to
speak of.
The Republic cannot simply rely on the presumption
that the PCGG has acted pursuant to law and based
on prima facie evidence, for the same will undermine
the basic constitutional principle that public officers and
employees must at all times be accountable to the
people. Indeed, sequestration is an extraordinary and
harsh remedy. As such, it should be confined to its
lawful parameters and exercised with due regard to the
requirements of fairness, due process, and justice.
While the Court acknowledges the Government's
admirable efforts to recover ill-gotten wealth allegedly
taken by the corporations, it cannot, however, choose
to turn a blind eye to the demands of the law, justice,
and fairness.
Section 26, Article XVIII of the 1987 Constitution
provides: x x x x A sequestration or freeze order shall be
issued only upon showing of a prima facie case. The
order and the list of the sequestered or frozen properties
shall forthwith be registered with the proper court. For
orders issued before the ratification of this
Constitution, the corresponding judicial action or
proceeding shall be filed within six months from its
ratification.For those issued after such ratification, the
judicial action or proceeding shall be commenced within
six months from the issuance thereof.
The sequestration or freeze order is deemed
automatically lifted if no judicial action or proceeding is
commenced as herein provided.
21. WPM INTERNATIONAL TRADING, INC. VS LABAYEN,
735 SCRA 297
See. Case #16 of D. Corporate Juridical Personality
22. HERMANO OIL MANUFACTURING & SUGAR
CORPORATION VS. TOLL REGULATORY BOARD, 743
SCRA 395
FACTS: The petitioner owned a parcel of land located at
the right side of the Sta. Rita Exit of the NLEX. The
parcel of land was bounded by an access fence along
the NLEX. In its letter, the petitioner requested that
respondent Toll Regulatory Board (TRB) grant an
easement of right of way, contending that it had been
totally deprived of the enjoyment and possession of its
property by the access fence that had barred its entry
into and exit from the NLEX. However, the TRB denied
the petitioner’s request.
CORPORATION LAW CASE DIGESTS | 1 35
ISSUE: Whether or not PNCC is immune from suit?
RULING: NO. An unincorporated government agency
without any separate juridical personality of its own
enjoys immunity from suit because it is invested with an
inherent power of sovereignty. Accordingly, a claim for
damages against the agency cannot prosper; otherwise,
the doctrine of sovereign immunity is violated.
However, the need to distinguish between an
unincorporated government agency performing
governmental function and one performing proprietary
functions has arisen. The immunity has been upheld in
favor of the former because its function is governmental
or incidental to such function; it has not been upheld in
favor of the latter whose function was not in pursuit of
a necessary function of government but was essentially
a business. However, the doctrine of sovereign
immunity had no application to the PNCC. The
petitioner properly argued that the PNCC, being a
private business entity, was not immune from suit. The
PNCC was incorporated in 1966 under its original name
of Construction Development Corporation of the
Philippines (CDCP) for a term of fifty years pursuant to
the Corporation Code. In 1983, the CDCP changed its
corporate name to the PNCC to reflect the extent of the
Government's equity investment in the company, a
situation that came about after the government
financial institutions converted their loans into equity
following the CDCP's inability to pay the loans. Hence,
the Government owned 90.3% of the equity of the
PNCC, and only 9.70% of the PNCC's voting equity
remained under private ownership. Although the
majority or controlling shares of the PNCC belonged to
the Government, the PNCC was essentially a private
corporation due to its having been created in
accordance with the Corporation Code, the general
corporation statute. More specifically, the PNCC was an
acquired asset corporation under Administrative Order
No. 59, and was subject to the regulation and
jurisdiction of the Securities and Exchange Commission.
RE: On the issue of whether the petitioner has the right
to demand access to the North Luzon Expressway
(NLEX) by way of an easement of right of way; and as to
the limited access imposed on the petitioner’s property
may be considered as a compensable taking due to the
exercise of the power of eminent domain.
The putting up of the access fence on the petitioner’s
property was in the valid exercise of police power,
assailable only upon proof that such putting up unduly
violated constitutional limitations like due process and
equal protection of the law. In Mirasol v. Department of
Public Works and Highways, the Court has further noted
that: A toll way is not an ordinary road. As a facility
designed to promote the fastest access to certain
destinations, its use, operation, and maintenance
require close regulation. Public interest and safety
require the imposition of certain restrictions on toll
ways that do not apply to ordinary roads. As a special
kind of road, it is but reasonable that not all forms of
transport could use it.

Clearly, therefore, the access fence was a reasonable
restriction on the petitioner’s property given the
location thereof at the right side of Sta. Rita Exit of the
NLEX. Although some adjacent properties were
accorded unrestricted access to the expressway, there
was a valid and reasonable classification for doing so
because their owners provided ancillary services to
motorists using the NLEX, like gasoline service stations
and food stores. A classification based on practical
convenience and common knowledge is not
unconstitutional simply because it may lack purely
theoretical or scientific uniformity.
The limited access imposed on the petitioner’s property
did not partake of a compensable taking due to the
exercise of the power of eminent domain. There is no
question that the property was not taken and devoted
for public use. Instead, the property was subjected to a
certain restraint, i.e. the access fence, in order to secure
the general safety and welfare of the motorists using
the NLEX. There being a clear and valid exercise of
police power, the petitioner was certainly not entitled
to any just compensation.
23 & 24. PHILIPPINE NATIONAL BANK vs. HYDRO
RESOURCES CONTRACTORS CORPORATION, 693 SCRA
294
FACTS: Around the year 1984, petitioners DBP and PNB
foreclosed on certain mortgages made on the
properties of Marinduque Mining and Industrial
Corporation (MMIC). As a result of the foreclosure, DBP
and PNB acquired substantially all the assets of MMIC
and resumed the business operations of the defunct
MMIC by organizing NMIC.7 DBP and PNB owned 57%
and 43% of the shares of NMIC, respectively, except for
five qualifying shares. As of September 1984, the
members of the Board of Directors of NMIC, namely,
Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo
Agulto, and Faustino Agbada, were either from DBP or
PNB.
Subsequently, NMIC engaged the services of Hercon,
Inc., for NMIC’s Mine Stripping and Road Construction
Program in 1985 for a total contract price of
P35,770,120. After computing the payments already
made by NMIC under the program and crediting the
NMIC’s receivables from Hercon, Inc., the latter found
that NMIC still has an unpaid balance of
P8,370,934.74.10. Hercon, Inc. made several demands
on NMIC, including a letter of final demand dated
August 12, 1986, and when these were not heeded, a
complaint for sum of money was filed in the RTC of
Makati, Branch 136 seeking to hold petitioners NMIC,
DBP, and PNB solidarily liable for the amount owing
Hercon, Inc.
Subsequent to the filing of the complaint, Hercon, Inc.
was acquired by HRCC in a merger. Thereafter, on
December 8, 1986, then President Corazon C. Aquino
issued Proclamation No. 50 creating the APT for the
expeditious disposition and privatization of certain
government corporations and/or the assets thereof.
CORPORATION LAW CASE DIGESTS | 1 36
Pursuant to the said Proclamation, on February 27,
1987, DBP and PNB executed their respective deeds of
transfer in favor of the National Government assigning,
transferring and conveying certain assets and liabilities,
including their respective stakes in NMIC. In turn and on
even date, the National Government transferred the
said assets and liabilities to the APT as trustee under a
Trust Agreement.
ISSUE: Whether or not there is sufficient ground to
pierce the veil of corporate fiction of NMIC and held
DBP and PNB solidarily liable with NMIC?
RULING: NO. From all indications, it appears that NMIC
is a mere adjunct, business conduit or alter ego of both
DBP and PNB. Thus, the DBP and PNB are jointly and
severally liable with NMIC for the latter’s unpaid
obligations to plaintiff. Then concluded that, "in keeping
with the concept of justice and fair play," the corporate
veil of NMIC should be pierced. For to treat NMIC as a
separate legal entity from DBP and PNB for the purpose
of securing beneficial contracts, and then using such
separate entity to evade the payment of a just debt,
would be the height of injustice and iniquity. Surely that
could not have been the intendment of the law with
respect to corporations.
The doctrine of piercing the corporate veil applies only
in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; 2) fraud
cases or when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; or 3) alter ego
cases, where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or
where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another
corporation.
To disregard the separate juridical personality of a
corporation, the wrongdoing or unjust act in
contravention of a plaintiff's legal rights must be clearly
and convincingly established; it cannot be
presumed. Without a demonstration that any of the
evils sought to be prevented by the doctrine is present,
it does not apply.
Nothing in the records shows that the corporate
finances, policies and practices of NMIC were
dominated by DBP and PNB in such a way that NMIC
could be considered to have no separate mind, will or
existence of its own but a mere conduit for DBP and
PNB. On the contrary, the evidence establishes that
HRCC knew and acted on the knowledge that it was
dealing with NMIC, not with NMIC's stockholders. The
letter proposal of Hercon, Inc., HRCC's predecessor-in-
interest, regarding the contract for NMIC's mine
stripping and road construction program was addressed
to and accepted by NMIC.[71] The various billing
reports, progress reports, statements of accounts and
communications of Hercon, Inc./HRCC regarding NMIC's
mine stripping and road construction program in 1985

concerned NMIC and NMIC's officers, without any
indication of or reference to the control exercised by
DBP and/or PNB over NMIC's affairs, policies and
practices.
RE: Piercing the veil of corporate fiction
A three-pronged test to determine the application of
the alter ego theory, which is also known as the
instrumentality theory, namely:
(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 right; and
(3) The aforesaid control and breach of duty must
have proximately caused the injury or unjust loss
complained of.
The first prong is the "instrumentality" or "control"
test. This test requires that the subsidiary be
completely under the control and domination of the
parent. It examines the parent corporation's
relationship with the subsidiary. It inquires whether a
subsidiary corporation is so organized and controlled
and its affairs are so conducted as to make it a mere
instrumentality or agent of the parent corporation such
that its separate existence as a distinct corporate entity
will be ignored. It seeks to establish whether the
subsidiary corporation has no autonomy and the parent
corporation, though acting through the subsidiary in
form and appearance, "is operating the business
directly for itself."
The second prong is the "fraud" test. This test requires
that the parent corporation's conduct in using the
subsidiary corporation be unjust, fraudulent or
wrongful. It examines the relationship of the plaintiff to
the corporation. It recognizes that piercing is
appropriate only if the parent corporation uses the
subsidiary in a way that harms the plaintiff creditor. As
such, it requires a showing of "an element of injustice or
fundamental unfairness."
The third prong is the "harm" test. This test requires
the plaintiff to show that the defendant's control,
exerted in a fraudulent, illegal or otherwise unfair
manner toward it, caused the harm suffered. A causal
connection between the fraudulent conduct committed
through the instrumentality of the subsidiary and the
injury suffered or the damage incurred by the plaintiff
should be established. The plaintiff must prove that,
unless the corporate veil is pierced, it will have been
treated unjustly by the defendant's exercise of control
CORPORATION LAW CASE DIGESTS | 1 37
and improper use of the corporate form and, thereby,
suffer damages.
To summarize, piercing the corporate veil based on
the alter ego theory requires the concurrence of three
elements: control of the corporation by the stockholder
or parent corporation, fraud or fundamental unfairness
imposed on the plaintiff, and harm or damage caused to
the plaintiff by the fraudulent or unfair act of the
corporation. The absence of any of these elements
prevents piercing the corporate veil.
The Court finds that none of the tests has been
satisfactorily met in this case.
The complaint against Development Bank of the
Philippines, the Philippine National Bank, and the Asset
Privatization Trust, now the Privatization and
Management Office, is DISMISSED.
25. G.R. No. 194578, February 13, 2013
FORTUN vs. QUINSAYAS
FACTS: Before the Court is a petition for Contempt filed
by Atty. Philip Sigfrid A. Fortun (petitioner) against Atty.
Prima Jesusa B. Quinsayas (Atty. Quinsayas) et al.
At the height of the gruesome killings known as the
Maguindanao Massacre, Atty. Quinsayas, et al. filed a
disbarment complaint against petitioner Atty. Fortun.
Petitioner alleged that GMA News TV internet website
posted an article, written by Dedace, and Inquirer.net,
the website of PDI, published articles stating the details
of the disbarment case.
Petitioner further alleged that PhilStar published an
article which also gave details of the disbarment
allegations, and that Channel 23 aired national
television a program where Drilon, the program’s host,
asked questions and allowed Atty. Quinsayas to discuss
the disbarment case against petitioner, including its
principal points.
Petitioner alleged that Atty. Quinsayas, et al. actively
disseminated the details of the disbarment complaint
against him in violation of Rule 139-B of the Rules of
Court on the confidential nature of disbarment
proceedings. He alleged that the purpose of
respondents in publishing the disbarment complaint
was to malign his personal and professional reputation.
In its Comment, GMA Network alleged that it has no
newspaper or any publication where it could have
printed the article. It alleged that it did not broadcast
the disbarment complaint on its television station. GMA
Network alleged that the publication had already been
done and completed when Atty. Quinsayas distributed
copies of the disbarment complaint and thus, did not
violate the confidentiality rule.
In her Comment, Dedace clarified that she is a field
news reporter of GMA Network and not a writer of the

GMA News TV website. Her beat includes the Supreme
Court, the Court of Appeals, and the Department of
Justice. She alleged that she acted in good faith and
without malice in forwarding her news story to the
news desk and that she had no intention to, and could
not, influence or interfere in the proceedings of the
disbarment case.
PDI alleged in its Comment that it shares content with
the Inquirer.net website through a syndication but the
latter has its own editors and publish materials that are
not found on the broadsheet. It alleged that Philippine
Daily Inquirer, Inc. and Inquirer Interactive, Inc. are two
different corporations, with separate legal personalities,
and one may not be held responsible for the acts of the
other.
In her Comment, Ressa alleged that she was the former
head of ABS-CBN’s News and Current Affairs Group and
the former Managing Director of ANC. However, she
was on terminal leave. Ressa alleged that she had no
participation in the production and showing of the
broadcast.
ABS-CBN and Drilon filed a joint Comment. ABS-CBN
alleged that ABS-CBN News Channel, commonly known
as ANC, is maintained and operated by Sarimanok
Network News (SNN) and not by ABS-CBN. SNN, which
produced the program "ANC Presents: Crying for
Justice: the Maguindanao Massacre," is a subsidiary of
ABS-CBN but it has its own juridical personality although
SNN and ABS-CBN have interlocking directors. ABS-CBN
and Drilon alleged that the presentation and hosting of
the program were not malicious as there was no
criminal intent to violate the confidentiality rule in
disbarment proceedings. They alleged that the program
was a commemoration of the Maguindanao Massacre
and was not a report solely on the disbarment
complaint against petitioner.
ISSUES:
1. Whether or not Philippine Daily Inquirer, Inc. and
Inquirer Interactive, Inc. are two different
corporations with separate legal personalities – No
2. Whether or not SNN, a subsidiary, has an
independent and separate juridical personality
distinct from its parent company ABS-CBN. - Yes
RULING:
GMA Network, Inc.
GMA Network’s defense is that it has no newspaper or
any publication where the article could be printed; it did
not broadcast the disbarment complaint in its television
station; and that the publication was already completed
when Atty. Quinsayas distributed copies of the
disbarment complaint to the media.
GMA Network did not deny that it posted the details of
the disbarment complaint on its website. It merely said
that it has no publication where the article could be
printed and that the news was not televised. Online
posting, however, is already publication considering
CORPORATION LAW CASE DIGESTS | 1 38
that it was done on GMA Network’s online news
website.
Philippine Daily Inquirer, Inc.
PDI averred that it only shares its contents with
Inquirer.net through a syndication. PDI attached a
photocopy of the syndication page stating that "due to
syndication agreements between PDI and Inquirer.net,
some articles published in PDI may not appear in
Inquirer.net."
A visit to the website describes Inquirer.net as "the
official news website of the Philippine Daily Inquirer,
the Philippines’ most widely circulated broadsheet, and
a member of the Inquirer Group of Companies." PDI
was not able to fully establish that it has a separate
personality from Inquirer.net.
ABS-CBN Corporation
ABS-CBN alleged that SNN is its subsidiary and although
they have interlocking directors, SNN has its own
juridical personality separate from its parent company.
ABS-CBN alleged that SNN controls the line-up of shows
of ANC.
We agree with ABS-CBN on this issue. We have ruled
that a subsidiary has an independent and separate
juridical personality distinct from that of its parent
company and that any suit against the the latter does
not bind the former and vice-versa. A corporation is an
artificial being invested by law with a personality
separate and distinct from that of other corporations to
which it may be connected. Hence, SNN, not ABS-CBN,
should have been made respondent in this case.
Maria Ressa
Respondent Ressa alleged that she was on terminal
leave when the program about the Maguindanao
Massacre was aired on ANC and that she had no hand in
its production. Ressa’s defense was supported by a
certification from the Human Resource Account Head of
ABS-CBN, stating that Ressa went on terminal leave
beginning 30 October 2010. This was not disputed by
petitioner.
26. G.R. No. 154366, November 17, 2010
CEBU BIONIC BUILDERS SUPPLY, INC vs. DBP
FACTS: Spouses Robles entered into a mortgage
contract with DBP in order to secure a loan from the
said bank in the amount of ₱500,000.00. The properties
mortgaged were a parcel of land situated in Cebu. Upon
completion, the commercial building was named the
State Theatre Building.
Rudy Robles executed a contract of lease in favor of
petitioner Cebu Bionic Builders Supply, Inc. (Cebu
Bionic), a domestic corporation engaged in the
construction business, as well as the sale of hardware
materials.
Thereafter a Certificate of Time Deposit for ₱11,395.64
was issued in the name of Bonifacio Sia (from Cebu

Bionic) and the same was allegedly remitted to DBP as
advance rental deposit.
For reasons unclear, however, no written contract of
lease was executed between DBP and Cebu Bionic.
In the meantime, subsequent to the acquisition of the
subject properties, DBP offered the same for sale along
with its other assets. Pursuant thereto, DBP published a
series of invitations to bid on such properties.
On the last day for the acceptance of negotiated offers,
petitioners submitted through their representative,
Judy Garces, a letter-offer form, offering to purchase
the subject properties for ₱1,840,000.00. Attached to
the letter-offer was a copy of the Negotiated Sale Rules
and Procedures issued by DBP and a manager’s check
for the amount of ₱184,000.00, representing 10% of the
offered purchase price. This offer of petitioners was not
accepted by DBP, however, as the corresponding
deposit therefor was allegedly insufficient.
After the lapse of the above-mentioned 15-day
acceptance period, petitioners did not submit any other
offer/proposal to purchase the subject properties.
On December 17, 1990, respondents To Chip, Yap and
Balila presented their letter-offer to purchase the
subject properties on a cash basis for ₱1,838,100.00.
Said offer was accompanied by a downpayment of 10%
of the offered purchase price, amounting to
₱183,810.00. On even date, DBP acknowledged the
receipt of and accepted their offer. On December 28,
1990, respondents To Chip, Yap and Balila paid the
balance of the purchase price and DBP issued a Deed of
Sale over the subject properties in their favor.
On January 11, 1991, the counsel of respondents To
Chip, Yap and Balila sent a letter addressed to the
proprietor of Cebu Bionic, informing the latter of the
transfer of ownership of the subject properties. Cebu
Bionic was ordered to vacate the premises within thirty
(30) days from receipt of the letter and directed to pay
the rentals from January 1, 1991 until the end of the
said 30-day period.
Shortly thereafter, the counsel of respondents To Chip,
Yap and Balila sent its final demand letter to Cebu
Bionic, warning the latter to vacate the subject
properties within seven (7) days from receipt of the
letter, otherwise, a case for ejectment with damages
will be filed against it.
Despite the foregoing notice, Cebu Bionic still paid to
DBP, on March 22, 1991, the amount of ₱5,000.00 as
monthly rentals on the unit of the State Theatre
Building it was occupying for period of November 1990
to March 1991.
Petitioners filed against respondents DBP, To Chip, Yap
and Balila a complaint for specific performance,
cancellation of deed of sale with damages, injunction
CORPORATION LAW CASE DIGESTS | 1 39
with a prayer for the issuance of a writ of preliminary
injunction.
Respondents argue that the instant petition should be
dismissed outright as the verification and certification of
non-forum shopping was executed only by petitioner
Lydia Sia in her personal capacity, without the
participation of Cebu Bionic.
ISSUES: Whether or not the verification (and
certification of non-forum shopping) in the instant
petition was proper and valid despite its being signed by
only one of the two petitioners.
RULING: Yes. Except for the powers which are expressly
conferred on it by the Corporation Code and those that
are implied by or are incidental to its existence, a
corporation has no powers. It exercises its powers
through its board of directors and/or its duly authorized
officers and agents.
Thus, its power to sue and be sued in any court is
lodged with the board of directors that exercises its
corporate powers. Physical acts, like the signing of
documents, can be performed only by natural persons
duly authorized for the purpose by corporate by-laws or
by a specific act of the board of directors.
In this case, respondents To Chip, Yap and Balila
obviously overlooked the Secretary’s Certificate
attached to the instant petition, which was executed by
the Corporate Secretary of Cebu Bionic. Unequivocally
stated therein was the fact that the Board of Directors
of Cebu Bionic held a special meeting and they thereby
approved a Resolution authorizing Lydia Sia to elevate
the present case to this Court in behalf of Cebu Bionic.
27. G.R. No. 178352, June 17, 2008
DELIMA vs. SUSAN MERCAIDA GOIS
FACTS: A case for illegal dismissal was filed by petitioner
Virgilio S. Delima against Golden Union Aquamarine
Corporation (Golden), Prospero Gois and herein
respondent Susan Mercaida Gois before the NLRC.
Labor Arbiter Philip B. Montaces rendered a decision
finding illegality in the dismissal of complainant Virgilio
Delima from his employment and rdering
respondent Golden Union Aquamarine Corporation to
pay complainant backwages and other pays.
Golden failed to appeal the aforesaid decision; hence, it
became final and executory. A writ of execution was
issued and an Isuzu Jeep was attached.
Thereafter, respondent Gois filed an Affidavit of Third
Party Claim claiming that the attachment of the vehicle
was irregular because said vehicle was registered in her
name and not Golden’s; and that she was not a party to
the illegal dismissal case filed by Delima against Golden.
The Labor Arbiter denied respondent’s third-party claim
on grounds that respondent was named in the

complaint as one of the respondents, and that
respondent is one of the incorporators/officers of the
corporation.
Gois filed an appeal before the NLRC. At the same time,
she filed a motion before the Labor Arbiter to release
the motor vehicle after substituting the same with a
cash bond.
Meanwhile, the NLRC issued a Resolution which
dismissed respondent’s appeal for lack of merit. Gois
filed a petition for certiorari before the CA.
Gois alleged that by denying her third-party claim, she
was in effect condemned to pay a judgment debt issued
against a corporation of which she is neither a president
nor a majority owner but merely a stockholder. She
further argued that her personality is separate and
distinct from that of Golden; thus, the judgment
ordering the corporation to pay the petitioner could not
be satisfied out of her personal assets.
The appellate court rendered a Decision in favor of
respondent, hence, the present petition.
ISSUE: Whether or not Gois’ personality is separate and
distinct from that of Golden, thus, the vehicle principally
used in the business operations of the corporation,
which was registered under the name of private
respondent who was also the corporation president,
cannot be subject of garnishment.
RULING: Yes. A corporation has a personality distinct
and separate from its individual stockholders or
members and from that of its officers who manage and
run its affairs. The rule is that obligations incurred by
the corporation, acting through its directors, officers
and employees, are its sole liabilities. Thus, property
belonging to a corporation cannot be attached to satisfy
the debt of a stockholder and vice versa, the latter
having only an indirect interest in the assets and
business of the former.
Since the Decision of the Labor Arbiter directed only
Golden to pay the petitioner the sum of P115,561.05
and the same was not joint and solidary obligation with
Gois, then the latter could not be held personally liable
since Golden has a separate and distinct personality of
its own.
It remains undisputed that the subject vehicle was
owned by Gois, hence it should not be attached to
answer for the liabilities of the corporation. Unless they
have exceeded their authority, corporate officers are, as
a general rule, not personally liable for their official acts,
because a corporation, by legal fiction, has a personality
separate and distinct from its officers, stockholders and
members. No evidence was presented to show that the
termination of the petitioner was done with malice or in
bad faith for it to hold the corporate officers, such as
Gois, solidarily liable with the corporation.
28. A.M. No. P-01-1464, March 13, 2001
CORPORATION LAW CASE DIGESTS | 1 40
BOOC vs. BANTUAS
FACTS: Complainant (Salvador Booc) is the President of
five Star Marketing Corporation. Herein respondent
Sheriff Bantuas, pursuant to a Writ of Execution in a civil
case, filed a Notice of Levy with the Register of Deeds,
Iligan City over a parcel of land and owned by Five Star
Marketing Corporation. Complainant alleged that
respondent sheriff proceeded to file the Notice of Levy
despite respondent sheriff’s knowledge that the
property is owned by the corporation which was not a
party to the civil case.
The corporation through the complainant reiterated to
respondent sheriff that it was the owner of the property
and Rufino Booc had no share or interest in the
corporation. Hence, the corporation demanded that
respondent sheriff cancel the notice of levy, otherwise
the corporation would take the appropriate legal steps
to protect its interest.
Respondent sheriff, however, did not heed the
corporations demand and scheduled the public auction.
Consequently, the corporation was compelled to file an
action for Quieting of Title with the RTC.
Respondent sheriff, in his answer, said that he filed a
Notice of Levy with the Register of Deeds of Iligan City
on the share, rights, interest and participation of Rufino
Booc in the parcel of land owned by Five Star Marketing
Corporation. Respondent sheriff claimed that Rufino
Booc is the owner of around 200 shares of stock in said
corporation according to a document issued by the
Securities and Exchange Commission.
Respondent sheriff stressed that the levy was made on
the share, rights and/or interest and participation which
Rufino Booc, as president and stockholder, may have in
the parcel of land owned by Five Star Marketing
Corporation.
Finally, respondent sheriff averred that the corporation
is merely a dummy of Rufino Booc and his brother
Sheikding Booc. Respondent sheriff submitted as an
exhibit an affidavit executed by Sheikding Booc wherein
the latter admitted that when Judge Felipe Javier won in
the civil case against Rufino Booc, the latter simulated a
transfer of his shares of stock in Five Star Marketing
Corporation so that the property may not be levied
upon.
ISSUE: Whether or not the company has a distinct and
separate personality from that of Rufino Booc as
stockholder of the corporation, and that the respondent
erred by levying on the property of the corporation.
RULING: Yes. A careful scrutiny of the records shows
that respondent sheriff, in filing a notice of levy on the
subject property as well as in the certificate of sale, did
not fail to mention that what was being levied upon and
sold was whatever shares, rights, interests and
participation Rufino Booc, as president and stockholder

in Five Star Marketing Corporation may have on subject
property.
Respondent sheriff, however, overstepped his authority
when he disregarded the distinct and separate
personality of the corporation from that of Rufino Booc
as stockholder of the corporation by levying on the
property of the corporation. Respondent sheriff should
not have made the levy based on mere conjecture that
since Rufino Booc is a stockholder and officer of the
corporation, then he might have an interest or share in
the subject property.
It is settled that a corporation is clothed with a
personality separate and distinct from that of its
stockholders. It may not be held liable for the personal
indebtedness of its stockholders.
In the case of Del Rosario vs. Bascar, Jr., we imposed the
fine of P5,000.00 on respondent sheriff Bascar for
allocating unto himself the power of the court to pierce
the veil of corporate entity and improvidently assuming
that since complainant Esperanza del Rosario is the
treasurer of Miradel Development Corporation, they are
one and the same. In the said case we reiterated the
principle that the mere fact that one is a president of
the corporation does not render the property he owns
or possesses the property of the corporation since the
president, as an individual, and the corporation are
separate entities.
Based on the foregoing, respondent Sheriff Bantuas has
clearly acted beyond his authority when he levied the
property of Five Star Marketing Corporation. The fact,
however, that respondent sheriff, in levying said
property, had stated in the notice of levy as well as in
the certificate of sale that what was being levied upon
and sold was whatever rights, shares interest and/or
participation Rufino Booc, as stockholder and president
in the corporation, may have on the subject property,
shows that respondent sheriffs conduct was impelled
partly by ignorance of Corporation Law and partly by
mere overzealousness to comply with his duties and not
by bad faith or blatant disregard of the trial courts
order. Hence, we deem that the penalty of a fine of Five
Thousand Pesos (P5,000.00) to be imposed on
respondent sheriff would suffice.
29. G.R. No. 166405, August 6, 2008
BAUTISTA vs. AUTO PLUS TRADERS, INC.
FACTS: Petitioner Claude P. Bautista, in his capacity as
President and Presiding Officer of Cruiser Bus Lines and
Transport Corporation, purchased various spare parts
from private respondent Auto Plus Traders, Inc. and
issued two postdated checks to cover his purchases. The
checks were subsequently dishonoured, thus, private
respondent filed two cases for violation of BP Blg. 22.
Petitioner now comes before us, raising the sole issue of
whether the Court of Appeals erred in upholding the
RTC's ruling that petitioner, as an officer of the
CORPORATION LAW CASE DIGESTS | 1 41
corporation, is personally and civilly liable to the private
respondent for the value of the two checks.
Petitioner asserts that BP Blg. 22 merely pertains to the
criminal liability of the accused and that the
corporation, which has a separate personality from its
officers, is solely liable for the value of the two checks.
Private respondent counters that petitioner should be
held personally liable for both checks. Private
respondent alleged that petitioner issued two
postdated checks: a personal check in his name for the
amount of P151,200 and a corporation check under the
account of Cruiser Bus Lines and Transport Corporation
for the amount of P97,500.
According to private respondent, petitioner, by issuing
his check to cover the obligation of the corporation,
became an accommodation party. Under Section 29 of
the Negotiable Instruments Law, an accommodation
party is liable on the instrument to a holder for value.
Private respondent adds that petitioner should also be
liable for the value of the corporation check because
instituting another civil action against the corporation
would result in multiplicity of suits and delay.
ISSUE: Whether or not Bautista, in his capacity as
President and Presiding Officer of Cruiser Bus Lines, may
be held liable for the checks.
RULING: No. A perusal of the two check return slips in
conjunction with the Current Account Statements
would show that the check for P151,200 was drawn
against the current account of Claude Bautista while the
check for P97,500 was drawn against the current
account of Cruiser Bus Lines and Transport Corporation.
Nonetheless, we find the appellate court in error for
affirming the decision of the RTC holding petitioner
liable for the value of the checks considering that
petitioner was acquitted of the crime charged and that
the debts are clearly corporate debts for which only
Cruiser Bus Lines and Transport Corporation should be
held liable.
Juridical entities have personalities separate and
distinct from its officers and the persons composing it.
Generally, the stockholders and officers are not
personally liable for the obligations of the corporation
except only when the veil of corporate fiction is being
used as a cloak or cover for fraud or illegality, or to work
injustice.
These situations, however, do not exist in this case. The
evidence shows that it is Cruiser Bus Lines and
Transport Corporation that has obligations to Auto Plus
Traders, Inc. for tires. There is no agreement that
petitioner shall be held liable for the corporation's
obligations in his personal capacity. Hence, he cannot
be held liable for the value of the two checks issued in
payment for the corporation's obligation in the total
amount of P248,700.

Moreover, there is no showing of when petitioner
issued the check and in what capacity. In the absence of
concrete evidence it cannot just be assumed that
petitioner intended to lend his name to the corporation.
Hence, petitioner cannot be considered as an
accommodation party. Cruiser Bus Lines and Transport
Corporation, however, remains liable for the checks
especially since there is no evidence that the debts
covered by the subject checks have been paid.
30. G.R. No. 100866, July 14, 1992
REBECCA BOYER-ROXAS and GUILLERMO ROXAS vs.
CA
FACTS: In two (2) separate complaints for recovery of
possession filed with the RTC against petitioners
Rebecca Boyer-Roxas and Guillermo Roxas respectively,
respondent corporation (Heirs of Eugenia V. Roxas, Inc.)
prayed for the ejectment of the petitioners from
buildings inside the Hidden Valley Springs Resort
located at Laguna allegedly owned by the respondent
corporation.
In the civil case against Rebecca, the respondent
corporation alleged that Rebecca is in possession of two
(2) houses, one of which is still under construction, built
at the expense of the respondent corporation; and that
her occupancy on the two (2) houses was only upon the
tolerance of the respondent corporation.
In the civil case against petitioner Guillermo Roxas, the
respondent corporation alleged that Guillermo occupies
a house which was built at the expense of the former
during the time when Guillermo's father, Eriberto
Roxas, was still living and was the general manager of
the respondent corporation; that the house was
originally intended as a recreation hall but was
converted for the residential use of Guillermo; and that
Guillermo's possession over the house and lot was only
upon the tolerance of the respondent corporation.
In both cases, the respondent corporation alleged that
the petitioners never paid rentals for the use of the
buildings and the lots and that they ignored the demand
letters for them to vacate the buildings.
In their separate answers, the petitioners alleged they
are heirs of Eugenia V. Roxas and therefore, co-owners
of the Hidden Valley Springs Resort; and as co-owners
of the property, they have the right to stay within its
premises.
Petitioners maintain that their possession of the
questioned properties must be respected in view of
their ownership of an aliquot portion of all the
properties of the respondent corporation being
stockholders thereof. They propose that the veil of
corporate fiction be pierced, considering the
circumstances under which the respondent corporation
was formed.
CORPORATION LAW CASE DIGESTS | 1 42
ISSUE: Whether or not petitioner’s occupancy should be
respected as they own an aliquot part of the
corporation.
RULING: No. Originally, the questioned properties
belonged to Eugenia V. Roxas. After her death, the heirs
of Eugenia V. Roxas, among them the petitioners herein,
decided to form a corporation — Heirs of Eugenia V.
Roxas, Incorporated (private respondent herein) with
the inherited properties as capital of the corporation.
The respondent is a bona fide corporation. As such, it
has a juridical personality of its own separate from the
members composing it. There is no dispute that title
over the questioned land where the Hidden Valley
Springs Resort is located is registered in the name of the
corporation. The records also show that the staff house
being occupied by petitioner Rebecca Boyer-Roxas and
the recreation hall which was later on converted into a
residential house occupied by petitioner Guillermo
Roxas are owned by the respondent corporation.
Regarding properties owned by a corporation, we
stated in the case of Stockholders of F. Guanzon and
Sons, Inc. v. Register of Deeds of Manila:
Properties registered in the name of the
corporation are owned by it as an entity
separate and distinct from its members. While
shares of stock constitute personal property,
they do not represent property of the
corporation. The corporation has property of its
own which consists chiefly of real estate. A
share of stock only typifies an aliquot part of
the corporation's property, or the right to share
in its proceeds to that extent when distributed
according to law and equity, but its holder is not
the owner of any part of the capital of the
corporation. Nor is he entitled to the possession
of any definite portion of its property or assets.
The stockholder is not a co-owner or tenant in
common of the corporate property.
The petitioners point out that their occupancy of the
staff house which was later used as the residence of
Eriberto Roxas, husband of petitioner Rebecca Boyer-
Roxas and the recreation hall which was converted into
a residential house were with the blessings of Eufrocino
Roxas, the deceased husband of Eugenia V. Roxas, who
was the majority and controlling stockholder of the
corporation.
In his lifetime, Eufrocino Roxas together with Eriberto
Roxas, the husband of petitioner Rebecca Boyer-Roxas,
and the father of petitioner Guillermo Roxas managed
the corporation. The Board of Directors did not object
to such an arrangement.
The petitioners argue that the authority thus given by
Eufrocino Roxas for the conversion of the recreation hall
into a residential house can no longer be questioned by
the stockholders of the private respondent and/or its
board of directors for they impliedly but no leas

explicitly delegated such authority to said Eufrocino
Roxas.
Again, we must emphasize that the respondent
corporation has a distinct personality separate from its
members. The corporation transacts its business only
through its officers or agents. (Western Agro Industrial
Corporation v. Court of Appeals, supra). Whatever
authority these officers or agents may have is derived
from the board of directors or other governing body
unless conferred by the charter of the corporation.
An officer's power as an agent of the corporation must
be sought from the statute, charter, the by-laws or in a
delegation of authority to such officer, from the acts of
the board of directors, formally expressed or implied
from a habit or custom of doing business.
In the present case, the record shows that Eufrocino V.
Roxas who then controlled the management of the
corporation, being the majority stockholder, consented
to the petitioners' stay within the questioned
properties. Specifically, Eufrocino Roxas gave his
consent to the conversion of the recreation hall to a
residential house, now occupied by petitioner Guillermo
Roxas. The Board of Directors did not object to the
actions of Eufrocino Roxas. The petitioners were
allowed to stay within the questioned properties until
August 27, 1983, when the Board of Directors approved
a Resolution ejecting the petitioners.
We find nothing irregular in the adoption of the
Resolution by the Board of Directors. The petitioners'
stay within the questioned properties was merely by
tolerance of the respondent corporation in deference to
the wishes of Eufrocino Roxas, who during his lifetime,
controlled and managed the corporation. Eufrocino
Roxas' actions could not have bound the corporation
forever. We rule that in the absence of any existing
contract between the petitioners and the respondent
corporation, the corporation may elect to eject the
petitioners at any time it wishes for the benefit and
interest of the respondent corporation.
The petitioners' suggestion that the veil of the
corporate fiction should be pierced is untenable. The
separate personality of the corporation may be
disregarded only when the corporation is used "as a
cloak or cover for fraud or illegality, or to work injustice,
or where necessary to achieve equity or when
necessary for the protection of the creditors." The
circumstances in the present cases do not fall under any
of the enumerated categories.
31. G.R. No. 90580, April 8, 1991
SAW vs. CA
FACTS: A collection suit with preliminary attachment
was filed by Equitable Banking Corporation against
Freeman, Inc. and Saw Chiao Lian, its President and
General Manager.
The petitioners moved to intervene, alleging that:
CORPORATION LAW CASE DIGESTS | 1 43
1. The loan transactions between Saw Chiao Lian
and Equitable Banking Corp. were not approved
by the stockholders representing at least 2/3 of
corporate capital;
2. Saw Chiao Lian had no authority to contract
such loans; and
3. There was collusion between the officials of
Freeman, Inc. and Equitable Banking Corp. in
securing the loans. The motion to intervene was
denied, and the petitioners appealed to the
Court of Appeals.
Meanwhile, Equitable and Saw Chiao Lian entered into a
compromise agreement which they submitted to and
was approved by the lower court. But because it was
not complied with, Equitable secured a writ of
execution, and two lots owned by Freeman, Inc. were
levied upon and sold at public auction to Freeman
Management and Development Corp.
The CA sustained the denial of the petitioners' motion
for intervention, holding that "the compromise
agreement between Freeman, Inc., through its
President, and Equitable Banking Corp. will not
necessarily prejudice petitioners whose rights to
corporate assets are at most inchoate, prior to the
dissolution of Freeman, Inc. . . . And intervention under
Sec. 2, Rule 12 of the Revised Rules of Court is proper
only when one's right is actual, material, direct and
immediate and not simply contingent or expectant."
The petitioners are now before this Court, contending
that the CA erred in holding that the petitioners cannot
intervene in Civil Case because their rights as
stockholders of Freeman are merely inchoate and not
actual, material, direct and immediate prior to the
dissolution of the corporation
The petitioners base their right to intervene for the
protection of their interests as stockholders on Everett
v. Asia Banking Corp. where it was held:
The well-known rule that shareholders cannot
ordinarily sue in equity to redress wrongs done
to the corporation, but that the action must be
brought by the Board of Directors, . . . has its
exceptions. (If the corporation [were] under the
complete control of the principal defendants, ..
it is obvious that a demand upon the Board of
Directors to institute action and prosecute the
same effectively would have been useless, and
the law does not require litigants to perform
useless acts.
Equitable contended that the collection suit against
Freeman, Inc, and Saw Chiao Lian is essentially in
personam and, as an action against defendants in their
personal capacities, will not prejudice the petitioners as
stockholders of the corporation. The Everett case is not
applicable because it involved an action filed by the
minority stockholders where the board of directors
refused to bring an action in behalf of the corporation.
In the case at bar, it was Freeman, Inc. that was being
sued by the creditor bank.

Equitable also argues that the subject matter of the
intervention falls properly within the original and
exclusive jurisdiction of the Securities and Exchange
Commission under P.D. No. 902-A.
ISSUE: Whether or not petitioners as stockholders may
intervene in the civil case.
RULING: No. The Court finds that the respondent court
committed no reversible error in sustaining the denial
by the trial court of the petitioners' motion for
intervention.
In the case of Magsaysay-Labrador v. Court of
Appeals, we ruled as follows:
Viewed in the light of Section 2, Rule 12 of the
Revised Rules of Court, this Court affirms the
respondent court's holding that petitioners
herein have no legal interest in the subject
matter in litigation so as to entitle them to
intervene in the proceedings below. As clearly
stated in Section 2 of Rule 12 of the Rules of
Court, to be permitted to intervene in a pending
action, the party must have a legal interest in
the matter in litigation, or in the success of
either of the parties or an interest against both,
or he must be so situated as to be adversely
affected by a distribution or other disposition of
the property in the custody of the court or an
officer thereof."
The interest which entitles a person to
intervene in a suit between other parties must
be in the matter in litigation and of such direct
and immediate character that the intervenor
will either gain or lose by the direct legal
operation and effect of the judgment.
Otherwise, if persons not parties of the action
could be allowed to intervene, proceedings will
become unnecessarily complicated, expensive
and interminable. And this is not the policy of
the law.
Here, the interest, if it exists at all, of
petitioners-movants is indirect, contingent,
remote, conjectural, consequential and
collateral. At the very least, their interest is
purely inchoate, or in sheer expectancy of a
right in the management of the corporation and
to share in the profits thereof and in the
properties and assets thereof on dissolution,
after payment of the corporate debts and
obligations.
While a share of stock represents a
proportionate or aliquot interest in the property
of the corporation, it does not vest the owner
thereof with any legal right or title to any of the
property, his interest in the corporate property
being equitable or beneficial in nature.
Shareholders are in no legal sense the owners
CORPORATION LAW CASE DIGESTS | 1 44
of corporate property, which is owned by the
corporation as a distinct legal person.
32. G.R. No. 150197, July 28, 2005
PRUDENTIAL BANK vs. DON A. ALVIAR and GEORGIA B.
ALVIAR
FACTS: Respondents, spouses Don A. Alviar and Georgia
B. Alviar, are the registered owners of a parcel of land in
San Juan, Metro Manila. They executed a deed of real
estate mortgage in favor of petitioner Prudential Bank
to secure the payment of a loan worth ₱250,000.00.
Respondents executed a promissory note PN BD#75/C-
252 covering the said loan.
Don Alviar executed another promissory note, PN
BD#76/C-345 for ₱2,640,000.00, secured by D/A SFDX
#129, signifying that the loan was secured by a "hold-
out" on the mortgagor’s foreign currency savings
account with the bank under Account No. 129, and that
the mortgagor’s passbook is to be surrendered to the
bank until the amount secured by the "hold-out" is
settled.
Subsequently, respondent spouses executed for
Donalco Trading, Inc., of which the husband and wife
were President and Chairman of the Board and Vice
President, respectively, PN BD#76/C-430 covering
₱545,000.000. As provided in the note, the loan is
secured by "Clean-Phase out TOD CA 3923," which
means that the temporary overdraft incurred by
Donalco Trading, Inc. with petitioner is to be converted
into an ordinary loan in compliance with a Central Bank
circular directing the discontinuance of overdrafts.
On 16 March 1977, petitioner wrote Donalco Trading,
Inc., informing the latter of its approval of a straight
loan of ₱545,000.00, the proceeds of which shall be
used to liquidate the outstanding loan of ₱545,000.00
TOD. The letter likewise mentioned that the securities
for the loan were the deed of assignment on two
promissory notes executed by Bancom Realty
Corporation with Deed of Guarantee in favor of A.U.
Valencia and Co. and the chattel mortgage on various
heavy and transportation equipment.
On 06 March 1979, respondents paid petitioner
₱2,000,000.00, to be applied to the obligations of G.B.
Alviar Realty and Development, Inc. and for the release
of the real estate mortgage for the ₱450,000.00 loan
covering the two (2) lots located at Vam Buren and
Madison Streets, North Greenhills, San Juan, Metro
Manila. The payment was acknowledged by petitioner
who accordingly released the mortgage over the two
properties.
On 15 January 1980, petitioner moved for the
extrajudicial foreclosure of the mortgage on the
property covered by TCT No. 438157. Per petitioner’s
computation, respondents had the total obligation of
₱1,608,256.68, covering the three (3) promissory notes,
to wit: PN BD#75/C-252 for ₱250,000.00, PN BD#76/C-

345 for ₱382,680.83, and PN BD#76/C-340 for
₱545,000.00, plus assessed past due interests and
penalty charges. The public auction sale of the
mortgaged property was set on 15 January 1980.
Respondents filed a complaint for damages with a
prayer for the issuance of a writ of preliminary
injunction with the RTC of Pasig, claiming that they have
paid their principal loan secured by the mortgaged
property, and thus the mortgage should not be
foreclosed. For its part, petitioner averred that the
payment of ₱2,000,000.00 made on 6 March 1979 was
not a payment made by respondents, but by G.B. Alviar
Realty and Development Inc., which has a separate loan
with the bank secured by a separate mortgage.
The RTC dismissed the petition. The Court of Appeals,
however, found that respondents have not yet paid the
₱250,000.00 since the payment of ₱2,000,000.00
adverted to by respondents was issued for the
obligations of G.B. Alviar Realty and Development, Inc.
Aggrieved, petitioner filed the instant petition,
reiterating the assignment of errors raised in the Court
of Appeals as grounds herein.
Petitioner insists that respondents attempt to evade
foreclosure by the expediency of stating that the
promissory notes were executed by them not in their
personal capacity but as corporate officers. It claims
that PN BD#76/C-430 was in fact for home construction
and personal consumption of respondents. Thus, it
states that there is a need to pierce the veil of corporate
fiction.
ISSUE: Whether or not the respondent spouses, of
President and Vice President of Donalco Trading, Inc.,
are liable for the promissory note.
RULING: No. At this point, it is important to note that
one of the loans sought to be included in the "blanket
mortgage clause" was obtained by respondents for
Donalco Trading, Inc. Indeed, PN BD#76/C-430 was
executed by respondents on behalf of Donalco Trading,
Inc. and not in their personal capacity.
Petitioner asks the Court to pierce the veil of corporate
fiction and hold respondents liable even for obligations
they incurred for the corporation. The mortgage
contract states that the mortgage covers "as well as
those that the Mortgagee may extend to the Mortgagor
and/or DEBTOR, including interest and expenses or any
other obligation owing to the Mortgagee, whether
direct or indirect, principal or secondary."
Well-settled is the rule that a corporation has a
personality separate and distinct from that of its officers
and stockholders. Officers of a corporation are not
personally liable for their acts as such officers unless it is
shown that they have exceeded their authority.
However, the legal fiction that a corporation has a
personality separate and distinct from stockholders and
CORPORATION LAW CASE DIGESTS | 1 45
members may be disregarded if it is used as a means to
perpetuate fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues.
PN BD#76/C-430, being an obligation of Donalco
Trading, Inc., and not of the respondents, is not within
the contemplation of the "blanket mortgage clause."
Moreover, petitioner is unable to show that
respondents are hiding behind the corporate structure
to evade payment of their obligations. Save for the
notation in the promissory note that the loan was for
house construction and personal consumption, there is
no proof showing that the loan was indeed for
respondents’ personal consumption. Besides, petitioner
agreed to the terms of the promissory note.
If respondents were indeed the real parties to the loan,
petitioner, a big, well-established institution of long
standing that it is, should have insisted that the note be
made in the name of respondents themselves, and not
to Donalco Trading Inc., and that they sign the note in
their personal capacity and not as officers of the
corporation.
33. Lanuza Jr. vs BF Corporation
G.R. No. 174938 October 1, 2014
Doctrine: Corporate representatives may be compelled
to submit to arbitration proceedings pursuant to a
contract entered into by the corporation they represent
if there are allegations of bad faith or malice in their
acts representing the corporation.
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.
35. Arbitration
(1) Provided always that in case any dispute or
difference shall arise between the Owner or the Project
Manager on his behalf and the Contractor, either during
the progress or after the completion or abandonment of
the Works as to the construction of this Contractor as to
any matter or thing of whatsoever nature arising
thereunder or in connection therewith xxx.
the owner and the Contractor hereby agree to exert all
efforts to settle their differences or dispute amicably.
Failing these efforts then such dispute or difference
shall be referred to arbitration in accordance with the
rules and procedures of the Philippine Arbitration Law.
xxx xxx xxx
(6) The award of such Arbitrators shall be final and
binding on the parties. The decision of the Arbitrators
shall be a condition precedent to any right of legal
action that either party may have against the other. .
On December 8, 1993, petitioners Lanuza and Olbes
filed an answer to BF Corporation's complaint, with
compulsory counterclaim against BF Corporation and
cross-claim against Shangri-La. They alleged that they
had resigned as members of Shangri-La's board of
directors as of July 15, 1991 and praying that they be
excluded from the arbitration proceedings for being
non-parties to Shangri-La's and BF Corporation's
agreement.
Petitioner further reiterated that they cannot be parties
to Arbitration proceedings alleging that:
1. The corporation is a separate being,
2. Based on our arbitration laws, parties who are
strangers to an agreement cannot be compelled to
arbitrate.
CORPORATION LAW CASE DIGESTS | 1 46
3. That our arbitration laws were enacted to promote
the autonomy of parties in resolving their disputes.
Compelling them to submit to arbitration is against this
purpose and may be tantamount to stipulating for the
parties.
4. That Since the contract was executed only by BF
Corporation and Shangri-La, only they should be
affected by the contract's stipulation.
In Contrast, BF Corporation argued that while
petitioners were not parties to the agreement, they
were still impleaded under Section 31 of the
Corporation Code. Section 31 makes directors’
solidarity liable for fraud, gross negligence, and bad
faith and that Petitioners are not really third parties to
the agreement because they are being sued as Shangri-
La's representatives, under Section 31 of the
Corporation Code.
ISSUE:
Whether or not a corporation’s representatives should
be made parties to the arbitration proceedings,
pursuant to the arbitration clause provided in the
contract between BF Corporation and Shangri-La.
RULING: YES
A corporation's representatives are generally not bound
by the terms of the contract executed by the
corporation. They are not personally liable for
obligations and liabilities incurred on or in behalf of the
corporation.
Petitioners are also correct that arbitration promotes
the parties' autonomy in resolving their disputes. This
court recognized in Heirs of Augusto Salas, Jr. v. Laperal
Realty Corporation that an arbitration clause shall not
apply to persons who were neither parties to the
contract nor assignees of previous parties, thus:
A submission to arbitration is a contract. As such, the
Agreement, containing the stipulation on arbitration,
binds the parties thereto, as well as their assigns and
heirs. But only they. (Citations omitted)
As a general rule, therefore, a corporation's
representative who did not personally bind himself or
herself to an arbitration agreement cannot be forced to
participate in arbitration proceedings made pursuant to
an agreement entered into by the corporation. He or
she is generally not considered a party to that
agreement.
However, there are instances when the distinction
between personalities of directors, officers, and
representatives, and of the corporation, are
disregarded. We call this piercing the veil of corporate
fiction.

Piercing the corporate veil is warranted when "[the
separate personality of a corporation] is used as a
means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate
issues." It is also warranted in alter ego cases "where a
corporation is merely a farce since it is a mere alter ego
or business conduit of a person, or where the
corporation is so organized and controlled and its affairs
are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another
corporation."
Hence, when the directors, as in this case, are
impleaded in a case against a corporation, alleging
malice or bad faith on their part in directing the affairs
of the corporation, complainants are effectively alleging
that the directors and the corporation are not acting as
separate entities. They are alleging that contracts
executed by the corporation are contracts executed by
the directors. Complainants effectively pray that the
corporate veil be pierced because the cause of action
between the corporation and the directors is the same.
In that case, complainants have no choice but to
institute only one proceeding against the parties. Under
the Rules of Court, filing of multiple suits for a single
cause of action is prohibited. It is because the
personalities of petitioners and the corporation may
later be found to be indistinct that we rule that
petitioners may be compelled to submit to arbitration.
However, in ruling that petitioners may be compelled to
submit to the arbitration proceedings, we are not
overturning Heirs of Angus to Salas wherein this court
affirmed the basic arbitration principle that only parties
to an arbitration agreement may be compelled to
submit to arbitration.
In that case, this court recognized that persons other
than the main party may be compelled to submit to
arbitration, e.g., assignees and heirs. Assignees and
heirs may be considered parties to an arbitration
agreement entered into by their assignor because the
assignor's rights and obligations are transferred to them
upon assignment. In other words, the assignor's rights
and obligations become their own rights and
obligations. In the same way, the corporation's
obligations are treated as the representative's
obligations when the corporate veil is pierced.
In this case, the Arbitral Tribunal rendered a decision,
finding that BF Corporation failed to prove the existence
of circumstances that render petitioners and the other
directors solidarity liable. It ruled that petitioners and
Shangri-La's other directors were not liable for the
contractual obligations of Shangri-La to BF
Corporation. The Arbitral Tribunal's decision was made
with the participation of petitioners, albeit with their
continuing objection. In view of our discussion above,
we rule that petitioners are bound by such decision.
34. G.R. No. 126601. February 24, 1998
CORPORATION LAW CASE DIGESTS | 1 47
CEBU FILVENEER CORPORATION and/or CARLO
CORDARO vs. NATIONAL LABOR RELATIONS
COMMISSION (Fourth Division) and JESSIELYN
VILLAFLOR
***LABOR CASE***
Doctrine: Doctrine of Separate Juridical Personality –
that a corporation has a juridical personality separate
and distinct from the stockholders or members who
compose it or other corporations to which it is
associated”
FACTS:
Jessielyn Villaflor was hired as chief accountant of
petitioner Cebu Filveneer Corporation. Ms. Rhodora M.
Guillermo served as her accounting clerk. The top
executives of petitioner corporation were Italians: Mr.
Carlo Cordaro, President; Mr. John Chapman Kun,
General Manager; and, Mr. Renato Marinoni,
Production Manager. Mr. Kun informed Mr. Cordaro of
his desire to resign as general manager effective March
1, 1992. He requested for the liquidation of his
investment in the company in the sum of P125,000.00.
Mr. Kun secured one blank check and blank check
voucher from Ms. Guillermo. Ms. Guillermo failed to
immediately inform the private respondent of the blank
check and voucher taken by Mr. Kun. Private
respondent, however, noticed the missing check
voucher. She asked Ms. Guillermo about the check
voucher and was told that it was with Mr. Kun. Mr. Kun
was able to prepare the check in the amount of
P125,000.00, had it signed by Mr. Marinoni and
encashed.
Private respondent learned of Mr. Kun's act and
forthwith informed Mr. Cordaro who was then in Italy.
Mr. Cordaro suspended Mr. Kun and designated Mr.
Marinoni and the private complainant as responsible
persons for the company funds. He also directed the
private complainant to assist the company lawyer in
filing a criminal case against Mr. Kun. On her part, the
private complainant wrote to the PNB MEPZ Branch
demanding the return of the encashed check.
Mr. Marinoni confronted the private respondent and
charged her with complicity in Mr. Kun's irregular
disbursement of company funds. On February 17, 1992,
the private respondent reported for work late and was
prevented entry by the security guards. A Restriction
Order has been issued against her by Mr. Marinoni
upon authority of Mr. Cordaro. Mr. Marinoni also
caused the forcible opening of private respondent's
table and the vault inside her office.
Private respondent complained to the MEPZ Labor
Relations Officer. The next day, Mr. Marinoni issued a
memorandum suspending the private respondent for
thirty (30) days without pay effective February 17, 1992
for failure to report to office for half a day. On February
19, 1992, the private respondent filed a case against the
petitioners for illegal dismissal. On February 20, 1992,
Mr. Marinoni issued another memorandum

preventively suspending her for thirty (30) days
effective the next day pending investigation on her
involvement in the unauthorized encashment by Mr.
Kun of company funds.
ISSUES:
Whether private respondent Villaflor was illegally
dismissed? Whether the amount earned of an
employee during the termination should be deducted
from the amount awarded to the employee? Whether
the award for moral damages is warranted to the
employee?
RELEVANT ISSUE: Whether the President, Mr. Cordaro,
should be solidarily liable with the corporation for the
payment to the employee?
RULING:
In labor-management relations, there can be no higher
penalty than dismissal from employment. Dismissal
severs employment ties and could well be the economic
death sentence of an employee. Dismissal prejudices
the socio-economic wellbeing of the employee's family
and threatens the industrial peace. Due to its far
reaching implications, our Labor Code decrees that an
employee cannot be dismissed, except for the most
serious causes. The overly concern of our laws for the
welfare of employees is in accord with the social justice
philosophy of our Constitution.
Prescinding from these premises, petitioners' insistence
that they legally dismissed the private respondent for
loss of trust stands on quicksand. At the very most,
petitioners were only able to prove that private
respondent failed to inform immediately her superiors
of the act of Mr. Kun in getting a blank check and blank
voucher from Ms. Guillermo. The omission of the
private respondent can hardly be described as "willful"
to justify her dismissal. For one, the omission did not
last for long. For another, the subsequent actions of the
private respondent upon learning of the encashment of
the unauthorized check by Mr. Kun negate any
implication that she willfully or intentionally defaulted
in reporting to prejudice petitioners. Indeed, she
reported the matter to petitioner Cordaro and wrote to
the PNB MEPZ Branch to retrieve the encashed check. A
breach is willful if it is done intentionally, knowingly and
purposely. Petitioners merely proved the omission of
the private respondent but there is no evidence
whatsoever that it was done intentionally.
Petitioners' demand that the backwages should he
reduced in view of the time she spent in the United
States deserves scant attention. On 21 March 1989,
Republic Act No. 6715 took effect, amending the Labor
Code. Article 279 thereof states in part:
Art. 279. Security of Tenure. — An employee who is
unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other
privileges and to his full backwages, inclusive of
allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation is
CORPORATION LAW CASE DIGESTS | 1 48
withheld from him up to the time of his actual
reinstatement.
Backwages to be awarded to an illegally dismissed
employee, should not, as a general rule, be diminished
or reduced by the earnings derived by him elsewhere
during the period of his illegal dismissal. The underlying
reason for this ruling is that the employee, while
litigating the legality (illegality) of his dismissal, must
still earn a living to support himself and family, while full
backwages have to be paid by the employer as part of
the price or penalty he has to pay for illegally dismissing
his employee.
We hold that public respondent should not have
awarded moral damages and attorney's fees in favor of
the private respondent. To be sure, the private
respondent was negligent when she did not
immediately inform her superior about the blank check
and voucher taken by Mr. Kun, although, as
aforediscussed, it is not the specie of negligence that
will justify dismissal. Thus, petitioners should not and
cannot be made to pay moral damages and attorney's
fees for their dismissal of the private respondent was
not motivated by bad faith or malice.
Finally, we hold that Mr. Cordaro cannot be made
solidarily liable with petitioner corporation for the
illegal dismissal of the private respondent. In
dismissing the private respondent, he acted as
President of petitioner corporation and he did so in
good faith. His act as an officer of the corporation
cannot result in his private liability. This is too
fundamental. A rule to deserve further discussion.
34 – A. G.R. No. L-57767 January 31, 1984
ALBERTO S. SUNIO and ILOCOS COMMERCIAL
CORPORATION, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION, NEMESIO VALENTON,
SANTOS DEL ROSARIO, VICENTE TAPUCOL, ANDRES
SOLIS, CRESCENCIO SOLLER, CECILIO LABUNI, SOTERO
L. TUMANG, in his capacity as Asst. Regional Director
for Arbitration, Regional Office No. 1, Ministry of Labor
& Employment, and AMBROSIO B. SISON, in his
capacity as Acting Regional Sheriff, Regional Office No.
1, Ministry of Labor & Employment, respondents.
***LABOR CASE***
Doctrine: A corporation is 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. Mere ownership
by a single stockholder or by anotehr coporation of all
or nearly all of the capital stock of a corporation is not
tiself sufficient ground for disregarding the separate
corporate personality.
FACTS:
EM Ramos & Co., Inc (EMRACO) and Cabugao Ice Plant,
Inc. (CIPI), sister corporations, sold an ice plant to Rizal
Development and Finance, Corp. (RDFC). To secure
RDFC’s payment of the purchase price, the ice plant was

mortgaged to EMRACO-CIPI. Because of the sale,
EMRACO-CIPI terminated all of theire employees,
including private respondents.
Later, RDFC sold the ice plant, subject to the mortgage
in favor of EMRACO-CIPI, to petitioner Ilocos
Commercial Corp. (ICC).
When RDFC and ICC defaulted on the payment of the
balance of the purchase price, EMRACO-CIPI
extrajudicially foreclosed the ice plant. It then sold it to
Nilo Villanueva, subject to RDFC’s right of redemption.
Nilo Villanueva rehired private respondents.
When RDFC redeemend the ice plant, private
respondents were again dismissed. Thus, the latter filed
complaints against the petitioner corporation, and its
President and General manager, Alberto Sunio, for
illegal dismissal.
The Assistance Regional Director of the Ministry of
Labor and Employment ordered petitioners to reinstate
private respondents. NLRC affirmed. Petitioner Sunio,
who owned ½ of ICC, was made jointly and severally
liable with ICC and CIPI for the payment of backwages.
ISSUE:
Whether or not Sunio is personally liable, made jointly
and severally responsible with petitioner company and
CIPI for the payment of the backwages of private
respondents
RULING:
This is reversible error. The Assistant Regional Director's
Decision failed to disclose the reason why he was made
personally liable. Respondents, however, alleged as
grounds thereof, his being the owner of one-half (1/2)
interest of said corporation, and his alleged arbitrary
dismissal of private respondents. Petitioner Sunio was
impleaded in the Complaint his capacity as General
Manager of petitioner corporation. Where appears to
be no evidence on record that he acted maliciously or in
bad faith in terminating the services of private
respondents. His act, therefore, was within the scope of
his authority and was a corporate act.
It is basic that a corporation is 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. Mere ownership
by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not
of itself sufficient ground for disregarding the separate
corporate personality. Sunio, therefore, should not have
been made personally answerable for the payment of
private respondents' back salaries.
35. Consolidated Bank and Trust Corporation vs CA 356
SCRA 67
Doctrine: Corporate personality is a shield against
personal liability of its officers.
FACTS:
CORPORATION LAW CASE DIGESTS | 1 49
Continental Cement Corporation (Corporation) and
Gregory T. Lim obtained, from Consolidated Bank and
Trust Corporation, Letter of Credit No. DOM-23277 in
the amount of P 1,068,150.00. The letter of credit was
used to purchase around five hundred thousand liters of
bunker fuel oil from Petrophil Corporation, which the
latter delivered directly to respondent Corporation in its
Bulacan plant. In relation to the same transaction, a
trust receipt for the amount of P 1,001,520.93 was
executed by respondent Corporation, with respondent
Lim as signatory.
Claiming that respondents failed to turn over the goods
covered by the trust receipt or the proceeds thereof,
petitioner filed a complaint for sum of money with
application for preliminary attachment. In answer to the
complaint, respondents averred that the transaction
between them was a simple loan and not a trust receipt
transaction, and that the amount claimed by petitioner
did not take into account payments already made by
them. Respondent Lim also denied any personal liability
in the subject transactions.
The trial court dismissed the Complaint. Both parties
appealed to the Court of Appeals, which partially
modified the Decision by deleting the award of
attorney's fees in favor of respondents and, instead,
ordering respondent Corporation to pay petitioner
P37,469.22 as and for attorney's fees and litigation
expenses.
ISSUE: WON the transaction was a trust receipt
transaction?
RULING: NO.
The Supreme Court held that petitioner failed to
convince them that the transaction is really a trust
receipt transaction instead of merely a simple loan, as
found by the lower court and the CA.
Inasmuch as the debtor received the goods subject of
the trust receipt before the trust receipt itself was
entered into, the transaction in question was a simple
loan and not a trust receipt agreement. Prior to the date
of execution of the trust receipt, ownership over the
goods was already transferred to the debtor. This
situation is inconsistent with what normally obtains in a
pure trust receipt transaction, wherein the goods
belong in ownership to the bank and are only released
to the importer in trust after the loan is granted.
The delivery to respondent Corporation of the goods
subject of the trust receipt occurred long before the
trust receipt itself was executed. More specifically,
delivery of the bunker fuel oil to respondent
Corporation's Bulacan plant commenced on July 7, 1982
and was completed by July 19, 1982.13 Further, the oil
was used up by respondent Corporation in its normal
operations by August, 1982.14 On the other hand, the
subject trust receipt was only executed nearly two
months after full delivery of the oil was made to
respondent Corporation, or on September 2, 1982.

Trust Receipts Law does not seek to enforce payment of
the loan, rather it punishes the dishonesty and abuse of
confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is
the owner. The practice of banks of making borrowers
sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution
should they be unable to pay it may be unjust and
inequitable, if not reprehensible. Such agreements are
contracts of adhesion which borrowers have no option
but to sign lest their loan be disapproved. The resort to
this scheme leaves poor and hapless borrowers at the
mercy of banks, and is prone to misinterpretation.
Similarly, respondent Corporation cannot be said to
have been dishonest in its dealings with petitioner.
Neither has it been shown that it has evaded payment
of its obligations, as shown by the various receipts
issued by petitioner acknowledging payment on the
loan. Certainly, the payment of the sum of
P1,832,158.38 on a loan with a principal amount of only
P681,075.93 negates any badge of dishonesty , abuse of
confidence or mishandling of funds on the part of
respondent Corporation, which are the gravamen of a
trust receipt violation.
RELEVANT ISSUE: WHETHER OR NOT THE RESPONDENT
APPELLATE COURT GRIEVOUSLY ERRED IN NOT
HOLDING PRIVATE RESPONDENT SPOUSES LIABLE
UNDER THE TRUST RECEIPT TRANSACTION.
RULING:
The Supreme Court is not convinced that respondent
Gregory T. Lim and his spouse should be personally
liable under the subject trust receipt.
Petitioners argument that respondent Corporation and
respondent Lim and his spouse are one and the same
cannot be sustained.
The transactions sued upon were clearly entered into by
respondent Lim in his capacity as Executive Vice
President of respondent Corporation.
The Supreme Court stress the hornbook law that
corporate personality is a shield against personal
liability of its officers. Thus, the court agrees that
respondents Gregory T. Lim and his spouse cannot be
made personally liable since respondent Lim entered
into and signed the contract clearly in his official
capacity as Executive Vice President. The personality of
the corporation is separate and distinct from the
persons composing it.
36. Secosa vs Heirs of Erwin Suarez Francisco, 433
SCRA 263
Doctrine: A corporation has a personality separate
from that of its stockholders or members. The doctrine
of ‘veil of corporation’ treats as separate and distinct
the affairs of a corporation and its officers and
stockholders. As a rule, a corporation will be looked
upon as a legal entity, unless and until sufficient reason
to the contrary appears. When the notion of legal entity
CORPORATION LAW CASE DIGESTS | 1 50
is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, the law will regard the
corporation as an association of persons. Also, the
corporate entity may be disregarded in the interest of
justice in such cases as fraud that may work inequities
among members of the corporation internally, involving
no rights of the public or third persons. In both
instances, there must have been fraud and proof of it
FACTS:
Francisco, an 18 year old 3rd year physical therapy
student was riding a motorcycle. A sand and gravel
truck was traveling behind the motorcycle, which in
turn was being tailed by the Isuzu truck driven by
Secosa. The Isuzu cargo truck was owned by Dassad
Warehousing and Port Services, Inc. The three vehicles
were traversing the southbound lane at a fairly high
speed. When Secosa overtook the sand and gravel
truck, he bumped the motorcycle causing Francisco to
fall. The rear wheels of the Isuzu truck then ran over
Francisco, which resulted in his instantaneous death.
Secosa left his truck and fled the scene of the collision.
The parents of Francisco, respondents herein, filed an
action for damages against Secosa, Dassad Warehousing
and Port Services, Inc. and Dassad’s president, El
Buenasucenso Sy.
The court a quo rendered a decision in favor of herein
respondents; thus petitioners appealed the decision to
the Court of Appeals, which unfortunately affirmed the
appealed decision in toto. Hence, the present petition.
ISSUE:
Whether or not Dassad’s president, El Buenasucenso
Sy, can be held solidary liable with co-petitioners.
RULING:
No. Sy cannot be held solidarily liable with his co-
petitioners. While it may be true that Sy is the president
of Dassad Warehousing and Port Services, Inc., such fact
is not by itself sufficient to hold him solidarily liable for
the liabilities adjudged against his co-petitioners.
A corporation has a personality separate from that of its
stockholders or members. The doctrine of ‘veil of
corporation’ treats as separate and distinct the affairs of
a corporation and its officers and stockholders. As a
rule, a corporation will be looked upon as a legal entity,
unless and until sufficient reason to the contrary
appears. When the notion of 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. Also, the corporate entity
may be disregarded in the interest of justice in such
cases as fraud that may work inequities among
members of the corporation internally, involving no
rights of the public or third persons. In both instances,
there must have been fraud and proof of it.
The records of the case does not point toward the
presence of any grounds enumerated above that will

justify the piercing of the veil of corporate entity such as
to hold Sy, the president of Dassad Warehousing and
Port Services, Inc., solidarily liable with it.
Furthermore, the Isuzu cargo truck which ran over
Francisco was registered in the name of Dassad and not
in the name of Sy. Secosa is an employee of Dassad and
not of Sy. These facts showed Sy’s exclusion from
liability for damages arising from the death of Francisco.
37. Powton Conglomerate Inc. vs Agcolicol 400 SCAR
523
FACTS:
Sometime in November 1990, Johnny Agcolicol,
proprietor of Japerson Engineering, entered into an
"Electrical Installation Contract" with Powton
Conglomerate, Inc. (Powton), thru its President and
Chairman of the Board, Philip C. Chien. For a contract
price of P5,300,000.00, Agcolicol undertook to provide
electrical works as well as the necessary labor and
materials for the installation of electrical facilities at the
Ciano Plaza Building owned by Powton, located along
M. Reyes Street, corner G. Mascardo Street, Bangkal,
Makati, Metro Manila.
In August 1992, the City Engineer's Office of Makati
inspected the electrical installations at the Ciano Plaza
Building and certified that the same were in good
condition. Hence, it issued the corresponding certificate
of electrical inspection.
On 16 December 1994, Agcolicol filed with the Regional
Trial Court of Pasay City, Branch 115, the complaint for
sum of money against Powton and Chien. He alleged
that despite the completion of the electrical works at
Ciano Plaza Building, the latter only paid the amount of
P5,031,860.40, which is equivalent to more than 95% of
the total contract price, thereby leaving a balance of
P268,139.80. Agcolicol likewise claimed the amount of
P722,730.38 as additional electrical works which were
necessitated by the alleged revisions in the structural
design of the building.
In their answer, petitioners contended that they cannot
be obliged to pay the balance of the contract price
because the electrical installations were defective and
were completed beyond the agreed period.
During the trial, Chien testified that they should not be
held liable for the additional electrical works allegedly
performed by Powton because they never authorized
the same. At the pre-trial conference, the parties
stipulated, inter alia, that the unpaid balance claimed by
the respondent is P268,139.60 and the cost of
additional work is P722,730.38. On 16 August 1999, a
decision was rendered awarding Agcolicol the total
award of P990,867.38 representing the unpaid balance
and the costs of additional works.
Aggrieved, Powton and Chien appealed to the Court of
Appeals which, on 3 September 2001 however, affirmed
the decision of the trial court. The motion for
reconsideration was likewise denied on 5 December
CORPORATION LAW CASE DIGESTS | 1 51
2001. Powton and Chien filed the petition for review on
certiorari.
ISSUE: Whether Chien, as president, can be made
solidarily liable with Powton
RULING: NO
The settled rule is that, a corporation is invested by law
with a personality separate and distinct from those of
the persons composing it, such that, save for certain
exceptions, corporate officers who entered into
contracts in behalf of the corporation cannot be held
personally liable for the liabilities of the latter.
Personal liability of a corporate director, trustee or
officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when
(1) he assents to a patently unlawful act of the
corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a
conflict of interest resulting in damages to the
corporation, its stockholders or other persons; (2) he
consents to the issuance of watered down stocks or
who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection
thereto; (3) he agrees to hold himself personally and
solidarily liable with the corporation; or (4) he is made
by a specific provision of law personally answerable for
his corporate action.
Considering that none of the foregoing exceptions was
established in the present case, Chien, who entered into
a contract with Agcolicol in his capacity as President and
Chairman of the Board of Powton, cannot be held
solidarily liable with the latter.
38. Luxuria Homes, Inc. vs. CA 302 SCRA 315
Doctrine: PIERCING THE VEIL OF CORPORATE
ENTITY; WHEN ALLOWED. To disregard the separate
juridical personality of a corporation, the wrongdoing
must be clearly and convincingly established. It cannot
be presumed. This is elementary. Thus in Bayer-Roxas
v. Court of Appeals, we said that the separate
personality of the corporation may be disregarded only
when the corporation is used as a cloak or cover for
fraud or illegality, or to work injustice, or where
necessary for the protection of the creditors.
Obviously in the instant case, private respondents failed
to show proof that petitioner Posadas acted in bad
faith. Consequently, since private respondents failed to
show that petitioner Luxuria Homes, Inc., was a party to
any of the supposed transactions, not even to the
agreement to negotiate with and relocate the squatters,
it cannot be held liable, nay jointly and in solidum, to
pay private respondents. In this case since it was
petitioner Aida M. Posadas who contracted respondent
Bravo to render the subject services, only she is liable to
pay the amounts adjudged herein.
FACTS:

Aida M. Posadas and her two (2) minor children co-
owned a 1.6 hectare property in Sucat, Muntinlupa,
which was occupied by squatters. Posadas entered into
negotiations with Jaime T. Bravo regarding the
development of the said property into a residential
subdivision.
On 3 May 1989, she authorized Bravo to negotiate with
the squatters to leave the said property. With a written
authorization, Bravo buckled down to work and started
negotiations with the squatters.
Meanwhile, some 7 months later, on 11 December
1989, Posadas and her children, through a Deed of
Assignment, assigned the said property to Luxuria
Homes, Inc., purportedly for organizational and tax
avoidance purposes. Bravo signed as one of the
witnesses to the execution of the Deed of Assignment
and the Articles of Incorporation of Luxuria Homes, Inc.
Then sometime in 1992, the harmonious and congenial
relationship of Posadas and Bravo turned sour when the
former supposedly could not accept the management
contracts to develop the 1.6 hectare property into a
residential subdivision, the latter was proposing.
In retaliation, Bravo demanded payment for services
rendered in connection with the development of the
land. In his statement of account dated 21 August 1991,
Bravo demanded the payment of P1,708,489.00 for
various services rendered, i.e., relocation of squatters,
preparation of the architectural design and site
development plan, survey and fencing. Posadas refused
to pay the amount demanded.
Thus, in September 1992, James Builder Construction
and Jaime T. Bravo instituted a complaint for specific
performance before the trial court against Posadas and
Luxuria Homes, Inc.
On 27 September 1993, the trial court declared Posadas
in default and allowed James Builder Construction and
Bravo to present their evidence ex-parte.
On 8 March 1994, it ordered Posadas, jointly and in
solidum with Luxuria Homes, Inc., to pay Bravo, et. al.
the balance of the payment for the various services
performed by them in the total amount of
P1,708,489.00; actual damages incurred for the
construction of the warehouse/bunks, and for the
material used in the total sum of P1,500.000.00; moral
and exemplary damages of P500.000.00; Attorney's fee
of P50,000.00; and cost of this proceedings. The court
also directed Posadas as the Representative of the
Corporation Luxuria Homes, Incorporated, to execute
the management contract she committed to do, also in
consideration of the various undertakings that Bravo
rendered for her.
Luxuria Homes and Posadas appealed to the Court of
Appeals. The appellate court affirmed with modification
the decision of the trial court. The appellate court
deleted the award of moral damages on the ground that
James Builder Construction is a corporation and hence
could not experience physical suffering and mental
CORPORATION LAW CASE DIGESTS | 1 52
anguish. It also reduced the award of exemplary
damages. Luxuria Homes' and Posadas' motion for
reconsideration, prompting them to file the petition for
review before the Supreme Court.
ISSUE: Whether Luxuria Homes, Inc., was a party to the
transactions entered into by Posadas with Bravo and
James Builder Construction and thus could be held
jointly and severally with Posadas.
RULING:
It cannot be said then that the incorporation of Luxuria
Homes and the eventual transfer of the subject
property to it were in fraud of Bravo and James Builder
Construction as such were done with the full knowledge
of Bravo himself, as evidenced by the Deed of
Assignment dated 11 December 1989 and the Articles of
Incorporation of Luxuria Homes, Inc., issued 26 January
1990 were both signed by Bravo himself as witness.
Further, Posadas is not the majority stockholder of
Luxuria Homes, Inc. The Articles of Incorporation of
Luxuria Homes, Inc., clearly show that Posadas owns
approximately 33% only of the capital stock. Hence,
Posadas cannot be considered as an alter ego of Luxuria
Homes, Inc.
To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and
convincingly established. It cannot be presumed. Bravo,
et. al. failed to show proof that Posadas acted in bad
faith, and consequently that Luxuria Homes, Inc., was a
party to any of the supposed transactions, not even to
the agreement to negotiate with and relocate the
squatters, it cannot be held liable, nay jointly and in
solidum, to pay Bravo, et. al. Hence, since it was
Posadas who contracted Bravo to render the subject
services, only she is liable to pay the amounts adjudged
by the Court.
39. Vicmar Development Corporation vs Elacosa, 777
SCRA 239 (December 2015)
***LABOR CASE***
FACTS:
This case stemmed from a Complaint for illegal dismissal
and money claims filed by Ruben Panes, Ruel Cabanday
and Jonard Abugho (respondents) against Vicmar
Development Corporation (Vicmar) and/or Robert Kua
(Kua), its owner and Juanito Pagcaliwagan
(Pagcaliwagan), its manager, and consolidated
Complaints for illegal dismissal and money claims filed
by Camilo Elarcosa, et al.
Respondents alleged that Vicmar, a domestic
corporation engaged in manufacturing of plywood for
export and for local sale, employed them in various
capacities - as boiler tenders, block board receivers,
waste feeders, plywood checkers, plywood sander,
conveyor operator, ripsaw operator, lumber grader,
pallet repair, glue mixer, boiler fireman, steel strap

repair, debarker operator, plywood repair and
reprocessor, civil workers and plant maintenance. They
averred that Vicmar has two branches, Top Forest
Developers, Incorporated (TFDI) and Greenwood
International Industries, Incorporated (GUI) located in
the same compound where Vicmar operated.
Respondents declared that Vicmar paid them minimum
wage and a small amount for overtime but it did not
give them benefits as required by law, such as
Philhealth, Social Security System, 13th month pay,
holiday pay, rest day and night shift differential.They
added that Vicmar employed more than 200 regular
employees and more than 400 "extra" workers.
Sometime in 2004, Vicmar allegedly informed
respondents that they would be handled by contractors.
Respondents stated that these contractors were former
employees of Vicmar and had no equipment and
facilities of their own. Respondents averred that as a
result thereof, the wages of a number of them who
were reduced. Respondents protested said wage
decrease but to no avail. Thus, they filed a Complaint
with the DOLE for violations of labor standards for
which appropriate compliance orders were issued
against Vicmar.
Respondents claimed that they were illegally dismissed
after Vicmar learned that they instituted the subject
Complaint through the simple expedience of not being
scheduled for work. Even those persons associated with
them were dismissed. They also asserted that Vicmar
did not comply with the twin notice requirement in
dismissing employees.29
Furthermore, respondents contended that while
Vicmar, TFDI and Gin were separately registered with
the SEC, they were involved in the same business,
located in the same compound, owned by one person,
had one resident manager, and one and the same
administrative department, personnel and finance
sections. They claimed that the employees of these
companies were identified as employees of Vicmar
even if they were assigned in TFDI or GIII.
On the other hand, petitioners stated that respondents
Allan Baguio, Romel Patoy, Rexy Dofeliz, Marlon Banda,
Gulben Rhyan Ramos, Julieto Simon and Agapito Canas,
Jr. were "extra" workers of TFDI, not Vicmar. They
likewise alleged that a number of respondents were
engaged to assist regular employees in the company,
and the others were hired to repair used steel straps
and retrieve useable veneer materials, or to perform
janitorial services.
Petitioners further asseverated that sometime in August
2004, they decided to engage the services of legitimate
independent contractors, namely, E.A. Rosales
Contracting Services and Candole Contracting Services,
to provide additional workforce. Petitioners claimed
that they were unaware that respondents were
dissatisfied with this decision leading to the DOLE case.
CORPORATION LAW CASE DIGESTS | 1 53
They insisted that hiring said contractors was a cost-
saving measure, which was part of Vicmar's
management prerogative.
Ruling of the Executive Labor Arbiters
On May 25, 2006, ELA Pelaez dismissed the complaints.
On May 29, 2006, ELA Magbanua dismissed the
complaint.
Both ELAs Pelaez and Magbanua held that respondents
were seasonal employees of Vicmar, whose work was
"co-terminus or dependent upon the extraordinary
demands for plywood products and also on the
availability of logs or timber to be processed into
plywood."45 They noted that Vicmar could adopt cost-
saving measures as part of its management prerogative,
including engagement of legitimate independent
contractors.46
Ruling of the National Labor Relations Commission
On February 2, 2007, the NLRC affirmed the Decisions of
ELAs Pelaez and Magbanua.49 On April 30, 2007, it
denied respondents' motion for reconsideration.50
Ruling of the Court of Appeals
The CA held that a number of respondents were
assigned to the boiler section where plywood was dried
and cooked to perfection; and while the other
respondents were said to have been assigned at the
general service section, they were "cleaners on an
industrial level handling industrial refuse."
As such, according to the CA, respondents performed
activities necessary and desirable in the usual business
of Vicmar, as they were assigned to departments vital to
its operations. It also noted that the repeated hiring of
respondents proved the importance of their work to
Vicmar's business. It maintained that the contractors
were engaged by Vicmar only for the convenience of
Vicmar.
In sum, the CA declared that respondents were illegally
dismissed since there was no showing of just cause for
their termination and of compliance by Vicmar to due
process of law.
ISSUE:
Whether or not the employees were illegally
dismissed. YES.
Respondents provided hiring dates, sections hired to,
and dates of termination to establish that they were
regular employees, while Vicmar did not submit any
corresponding documents to refute those of the
respondents, giving rise to the presumption that their
presentation would be prejudicial to Vicmar's cause.
Respondents were also able to show that their activities
were necessary to the usual business of Vicmar, which

made them fall under “regular employees” as defined in
the Labor Code.
RELEVANT ISSUE: Whether or not the doctrine of
piercing the veil of corporate fiction is applicable in
making Vicmar liable for illegal dismissal, despite some
of the employees being under TFDI. YES.
RULING:
The Court also gives merit to the finding of the CA that
Vicmar is the employer of respondents despite the
allegations that a number of them were assigned to the
branches of Vicmar. Petitioners failed to refute the
contention that Vicmar and its branches have the same
owner and management - which included one resident
manager, one administrative department, one and the
same personnel and finance sections. Notably, all
respondents were employed by the same plant
manager, who signed their identification cards some of
whom were under Vicmar, and the others under TFDI.
Where it appears that business enterprises are owned,
conducted and controlled by the same parties, law and
equity will disregard the legal fiction that these
corporations are distinct entities and shall treat them as
one. This is in order to protect the rights of third
persons, as in this case, to safeguard the rights of
respondents.78
Considering that respondents were regular employees
and their termination without valid cause amounts to
illegal dismissal, then for its contrary ruling unsupported
by substantial evidence, the NLRC gravely abused its
discretion in dismissing the complaints for illegal
dismissal. Therefore, the CA Decision setting aside that
of the NLRC is in order and must be sustained.
40. G.R. No. 142936. April 17, 2002
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR
DEVELOPMENT CORPORATION, petitioners, vs.
ANDRADA ELECTRIC & ENGINEERING
COMPANY, respondent.
Doctrine: Basic is the rule that a corporation has a legal
personality distinct and separate from the persons and
entities owning it. The corporate veil may be lifted only
if it has been used to shield fraud, defend crime, justify
a wrong, defeat public convenience, insulate bad faith
or perpetuate injustice. Thus, the mere fact that the
Philippine National Bank (PNB) acquired ownership or
management of some assets of the Pampanga Sugar
Mill (PASUMIL), which had earlier been foreclosed and
purchased at the resulting public auction by the
Development Bank of the Philippines (DBP), will not
make PNB liable for the PASUMIL’s contractual debts to
respondent.
FACTS:
PASUMIL (Pampanga Sugar Mills) engaged the services
of Andrada Electric for electrical rewinding, repair, the
construction of a power house building, installation of
turbines, transformers, among others. Most of the
CORPORATION LAW CASE DIGESTS | 1 54
services were partially paid by PASUMIL, leaving several
unpaid accounts.
On August 1975, PNB, a semi-government corporation,
acquired the assets of PASUMIL—assets that were
earlier foreclosed by the DBP.
On September 1975, PNB organized NASUDECO
(National Sugar Development Corporation), under LOI
No. 311 to take ownership and possession of the assets
and ultimately, to nationalize and consolidate its
interest in other PNB controlled sugar mills. NASUDECO
is a semi-government corporation and the sugar arm of
the PNB.
Andrada Electric alleges that PNB and NASUDECO
should be liable for PASUMIL’s unpaid obligation
amounting to 500K php, damages, and attorney’s fees,
having owned and possessed the assets of PASUMIL.
ISSUE:
Whether PNB and NASUDECO may be held liable for
PASUMIL’s liability to Andrada Electric and Engineering
Company.
RULING:
NO.
Basic is the rule that a corporation has a legal
personality distinct and separate from the persons and
entities owning it. The corporate veil may be lifted only
if it has been used to shield fraud, defend crime, justify
a wrong, defeat public convenience, insulate bad faith
or perpetuate injustice.
Thus, the mere fact that the Philippine National Bank
(PNB) acquired ownership or management of some
assets of the Pampanga Sugar Mill (PASUMIL), which
had earlier been foreclosed and purchased at the
resulting public auction by the Development Bank of the
Philippines (DBP), will not make PNB liable for the
PASUMIL's contractual debts to Andrada Electric &
Engineering Company (AEEC).
Piercing the veil of corporate fiction may be allowed
only if the following elements concur: (1) control not
mere stock control, but complete domination² 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 PNB and NASUDECO
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 entityor person.
Third, AEEC was not defrauded or injured when PNB
and NASUDECO acquired the assets of PASUMIL. Hence,
although the assets of NASUDECO can be easily traced
to PASUMIL, the transfer of the latter's assets to PNB
and NASUDECO was not fraudulently entered into in
order to escape liability for its debt to AEEC.
There was NO merger or consolidation with respect to
PASUMIL and PNB.
Respondent further claims that petitioners should be
held liable for the unpaid obligations of PASUMIL by
virtue of LOI Nos. 189-A and 311, which expressly
authorized PASUMIL and PNB to merge or consolidate
(allegedly).
On the other hand, petitioners contend that their
takeover of the operations of PASUMIL did not involve
any corporate merger or consolidation, because the
latter had never lost its separate identity as a
corporation.
A consolidation is the union of two or more existing
entities to form a new entity called the consolidated
corporation. A merger, on the other hand, is a union
whereby one or more existing corporations are
absorbed by another corporation that survives and
continues the combined business.
The merger, however, does not become effective upon
the mere agreement of the constituent corporations.
Since a merger or consolidation involves fundamental
changes in the corporation, as well as in the rights of
stockholders and creditors, there must be an express
provision of law authorizing them.
For a valid merger or consolidation, the approval by the
SEC of the articles of merger or consolidation is
required. These articles must likewise be duly approved
by a majority of the respective stockholders of the
constituent corporations.
In the case at bar, there is no merger or consolidation
with respect to PASUMIL and PNB. The procedure
prescribed under Title IX of the Corporation Code was
not followed.
In fact, PASUMIL’s corporate existence, as correctly
found by the CA, 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 in
the amount of P777,263.80. As of June 27, 1973,
PASUMIL had paid P250,000 to respondent and, from
January 5, 1974 to May 23, 1974, another P14,000.
CORPORATION LAW CASE DIGESTS | 1 55
Neither did petitioner expressly or impliedly agree to
assume the debt of PASUMIL to respondent. LOI No. 11
explicitly provides that 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.
41. G.R. No. 153535. July 28, 2005
SOLIDBANK CORPORATION, Petitioners, vs.
MINDANAO FERROALLOY CORPORATION, Spouses
JONG-WON HONG and SOO-OK KIM HONG,*TERESITA
CU, and RICARDO P. GUEVARA and
Spouse,** respondents.
FACTS:
"The Maria Cristina Chemical Industries (MCCI) and
three (3) Korean corporations, namely, the Ssangyong
Corporation, the Pohang Iron and Steel Company and
the Dongil Industries Company, Ltd., decided to forge a
joint venture and establish a corporation, under the
name of the Mindanao Ferroalloy Corporation
(Corporation for brevity) with principal offices in Iligan
City. Ricardo P. Guevara was the President and
Chairman of the Board of Directors of the Corporation.
On November 26, 1990, the Board of Directors of the
Corporation approved a ‘Resolution’ authorizing its
President and Chairman of the Board of Directors or
Teresita R. Cu, acting together with Jong-Won Hong, to
secure an omnibus line in the aggregate amount of
₱30,000,000.00 from the Solidbank. "In the meantime,
the Corporation started its operations sometime in
April, 1991. Its indebtedness ballooned to
₱200,453,686.69 compared to its assets of only
₱65,476,000.00. On May 21, 1991, the Corporation
secured an ordinary time loan from the Solidbank in the
amount of ₱3,200,000.00. Another ordinary time loan
was granted by the Bank to the Corporation on May 28,
1991, in the amount of ₱1,800,000.00 or in the total
amount of ₱5,000,000.00, due on July 15 and 26, 1991,
respectively. The Corporation executed ‘Promissory
Note No. 96-91-00865-6’ in favor of the Bank evidencing
its loan in the amount of ₱5,160,000.00, payable on
September 20, 1991. Teresita Cu and Jong-Won Hong
affixed their signatures on the note. To secure the
payment of the said loan, the Corporation, through
Jong-Won Hong and Teresita Cu, executed a ‘Deed of
Assignment’ in favor of the Bank covering its rights, title
and interest. The Corporation likewise executed a
‘Quedan’, by way of additional security, under which
the Corporation bound and obliged to keep and hold, in
trust for the Bank or its Order, ‘Ferrosilicon for
US$197,679.00’. Jong-Won Hong and Teresita Cu affixed
their signatures thereon for the Corporation. The
Corporation, also, through Jong-Won Hong and Teresita
Cu, executed a ‘Trust Receipt Agreement’, by way of
additional security for said loan, the Corporation
undertaking to hold in trust, for the Bank, as its
property. "However, shortly after the execution of the
said deeds, the Corporation stopped its operations. The
Corporation failed to pay its loan availments from the

Bank inclusive of accrued interest. On February 11,
1992, the Bank sent a letter to the Corporation
demanding payment of its loan availments inclusive of
interests due. The Corporation failed to comply with the
demand of the Bank.
On December 10, 1999, the Court rendered a Decision
dismissing the complaint for lack of cause of action of
[petitioner] against the Spouses Jong-Won Hong,
Teresita Cu and the Spouses Ricardo Guevara.
ISSUE:
Whether or not there is ample evidence on record to
support the joint and solidary liability of individual
respondents with Mindanao Ferroalloy Corporation.
RULING:
NO. No Personal Liability for Corporate Deeds
Basic is the principle that a corporation is vested by law
with a personality separate and distinct from that of
each person composing9 or representing it.10 Equally
fundamental is the general rule that corporate officers
cannot be held personally liable for the consequences
of their acts, for as long as these are for and on behalf
of the corporation, within the scope of their authority
and in good faith.11 The separate corporate personality
is a shield against the personal liability of corporate
officers, whose acts are properly attributed to the
corporation.12
Tramat Mercantile v. Court of Appeals13 held thus:
"Personal liability of a corporate director, trustee or
officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when
—
‘1. He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith or gross negligence in
directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its stockholders
or other persons;
‘2. He consents to the issuance of watered stocks or
who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection
thereto;
‘3. He agrees to hold himself personally and solidarily
liable with the corporation; or
‘4. He is made, by a specific provision of law, to
personally answer for his corporate action.’"
Consistent with the foregoing principles, we sustain the
CA’s ruling that Respondent Guevara was not personally
liable for the contracts. First, it is beyond cavil that he
was duly authorized to act on behalf of the corporation;
and that in negotiating the loans with petitioner, he did
so in his official capacity. Second, no sufficient and
specific evidence was presented to show that he had
acted in bad faith or gross negligence in that
negotiation. Third, he did not hold himself personally
and solidarily liable with the corporation. Neither is
there any specific provision of law making him
personally answerable for the subject corporate acts.
CORPORATION LAW CASE DIGESTS | 1 56
On the other hand, Respondents Cu and Hong signed
the Promissory Note without the word "by" preceding
their signatures, atop the designation
"Maker/Borrower" and the printed name of the
corporation, as follows:
__(Sgd) Cu/Hong__
(Maker/Borrower)
MINDANAO FERROALLOY
While their signatures appear without qualification, the
inference that they signed in their individual capacities
is negated by the following facts: 1) the name and the
address of the corporation appeared on the space
provided for "Maker/Borrower"; 2) Respondents Cu and
Hong had only one set of signatures on the instrument,
when there should have been two, if indeed they had
intended to be bound solidarily -- the first as
representatives of the corporation, and the second as
themselves in their individual capacities; 3) they did not
sign under the spaces provided for "Co-maker," and
neither were their addresses reflected there; and 4) at
the back of the Promissory Note, they signed above the
words "Authorized Representative."
Solidary Liability Not Lightly Inferred
Moreover, it is axiomatic that solidary liability cannot be
lightly inferred.14 Under Article 1207 of the Civil Code,
"there is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the
obligation requires solidarity." Since solidary liability is
not clearly expressed in the Promissory Note and is not
required by law or the nature of the obligation in this
case, no conclusion of solidary liability can be made.
No Reason to Pierce the Corporate Veil
Under certain circumstances, courts may treat a
corporation as a mere aggroupment of persons, to
whom liability will directly attach. The distinct and
separate corporate personality may be
disregarded, inter alia, when the corporate identity is
used to defeat public convenience, justify a wrong,
protect a fraud, or defend a crime. Likewise, the
corporate veil may be pierced when the corporation
acts as a mere alter ego or business conduit of a person,
or when it is so organized and controlled and its affairs
so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.20 But
to disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and
convincingly established; it cannot be presumed.21
Unfortunately, petitioner was unable to establish clearly
and precisely how the alleged fraud was committed. It
failed to establish that it was deceived into granting the
loans because of respondents’ misrepresentations
and/or insidious actions. Quite the contrary,
circumstances indicate the weakness of its submission.
First, petitioner does not deny that the ₱5 million loan
represented the consolidation of two loans,31 granted
long before the bank required the individual
respondents to execute the Promissory Note, Trust
Receipt Agreement, Quedan or Deed of Assignment.
Hence, no words, acts or machinations arising from any
of those instruments could have been used by them

prior to or simultaneous with the execution of the
contract, or even as some accident or particular of the
obligation.
Second, petitioner bank was in a position to verify for
itself the solvency and trustworthiness of respondent
corporation. In fact, ordinary business prudence
required it to do so before granting the multimillion
loans. It is of common knowledge that, as a matter of
practice, banks conduct exhaustive investigations of the
financial standing of an applicant debtor, as well as
appraisals of collaterals offered as securities for loans to
ensure their prompt and satisfactory payment. To
uphold petitioner’s cry of fraud when it failed to verify
the existence of the goods covered by the Trust Receipt
Agreement and the Quedan is to condone its
negligence.
42. G.R. No. 156819 December 11, 2003
ALICIA E. GALA, GUIA G. DOMINGO and RITA G.
BENSON, petitioners,
vs.
ELLICE AGRO-INDUSTRIAL CORPORATION, MARGO
MANAGEMENT AND DEVELOPMENT CORPORATION,
RAUL E. GALA, VITALIANO N. AGUIRRE II, ADNAN V.
ALONTO, ELIAS N. CRESENCIO, MOISES S. MANIEGO,
RODOLFO
FACTS:
On March 28, 1979, the spouses Manuel and Alicia Gala,
their children Guia Domingo, Ofelia Gala, Raul Gala, and
Rita Benson, and their encargados Virgilio Galeon and
Julian Jader formed and organized the Ellice Agro-
Industrial Corporation. Subsequently, on September 16,
1982, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio
Galeon and Julian Jader incorporated the Margo
Management and Development Corporation
(Margo). 8 The total subscribed capital stock of Margo.
On November 10, 1982, Manuel Gala sold 13,314 of his
shares in Ellice to Margo. 10
Alicia Gala transferred 1,000 of her shares in Ellice to a
certain Victor de Villa on March 2, 1983. That same day,
de Villa transferred said shares to Margo. 11 A few
months later, on August 28, 1983, Alicia Gala
transferred 854.3 of her shares to Ofelia Gala, 500 to
Guia Domingo and 500 to Raul Gala. Years later, on
February 8, 1988, Manuel Gala transferred all of his
remaining holdings in Ellice, amounting to 2,164 shares,
to Raul Gala. 13
On July 20, 1988, Alicia Gala transferred 10,000 of her
shares to Margo. On June 23, 1990, a special
stockholders’ meeting of Margo was held, where a new
board of directors was elected. 15 That same day, the
newly-elected board elected a new set of officers. Raul
Gala was elected as chairman, president and general
manager. During the meeting, the board approved
several actions, including the commencement of
proceedings to annul certain dispositions of Margo’s
property made by Alicia Gala. The board also resolved
to change the name of the corporation to MRG
Management and Development Corporation. Similarly,
CORPORATION LAW CASE DIGESTS | 1 57
a special stockholders’ meeting of Ellice was held on
August 24, 1990 to elect a new board of directors. In the
ensuing organizational meeting later that day, a new set
of corporate officers was elected. Likewise, Raul Gala
was elected as chairman, president and general
manager. On March 27, 1990, respondents filed against
petitioners with the Securities and Exchange
Commission (SEC) a petition for the appointment of a
management committee or receiver, accounting and
restitution by the directors and officers, and the
dissolution of Ellice Agro-Industrial Corporation for
alleged mismanagement, diversion of funds, financial
losses and the dissipation of assets, docketed as SEC
Case No. 3747.
SEC rendered a Joint Decision in SEC Cases Nos. 3747
and 4027, the dispositive portion of which states:
1. Dismissing the petition in SEC Case No. 3747,
Accordingly, appellees Alicia Gala and Guia G. Domingo
are ordered as follows:
(1) jointly and solidarily pay ELLICE and/or MARGO the
amount of P700,000.00 representing the consideration
for the unauthorized sale of a parcel of land to Lucky
Homes and Development Corporation (Exhs. "N" and
"CCC");
(2) jointly and severally pay ELLICE and MARGO the
proceeds of sales of agricultural products averaging
P120,000.00 per month from February 17, 1988;
(3) jointly and severally indemnify the appellants
P90,000.00 as attorney’s fees;
(4) jointly and solidarily pay the costs of suit;
ISSUE:
WHETHER OR NOT THE LOWER COURT ERRED IN NOT
PIERCING THE VEILS OF CORPORATE FICTION OF
RESPONDENTS CORPORATIONS ELLICE AND MARGO
RULING:
NO. The petitioners’ first contention in support of this
theory is that the purposes for which Ellice and Margo
were organized should be declared as illegal and
contrary to public policy. They claim that the
respondents never pursued exemption from land
reform coverage in good faith and instead merely used
the corporations as tools to circumvent land reform
laws and to avoid estate taxes. Specifically, they point
out that respondents have not shown that the transfers
of the land in favor of Ellice were executed in
compliance with the requirements of Section 13 of R.A.
3844.26 Furthermore, they alleged that respondent
corporations were run without any of the conventional
corporate formalities. 27
At the outset, the Court holds that petitioners’
contentions impugning the legality of the purposes for
which Ellice and Margo were organized, amount to
collateral attacks which are prohibited in this
jurisdiction. 28
The best proof of the purpose of a corporation is its
articles of incorporation and by-laws. The articles of
incorporation must state the primary and secondary

purposes of the corporation, while the by-laws outline
the administrative organization of the corporation,
which, in turn, is supposed to insure or facilitate the
accomplishment of said purpose. 29
In the case at bar, a perusal of the Articles of
Incorporation of Ellice and Margo shows no sign of the
allegedly illegal purposes that petitioners are
complaining of. It is well to note that, if a corporation’s
purpose, as stated in the Articles of Incorporation, is
lawful, then the SEC has no authority to inquire whether
the corporation has purposes other than those stated,
and mandamus will lie to compel it to issue the
certificate of incorporation.
Thus, even if Ellice and Margo were organized for the
purpose of exempting the properties of the Gala
spouses from the coverage of land reform legislation
and avoiding estate taxes, we cannot disregard their
separate juridical personalities.
Finally, the petitioners pray that the veil of corporate
fiction that shroud both Ellice and Margo be pierced,
consistent with their earlier allegation that both
corporations were formed for purposes contrary to law
and public policy. In sum, they submit that the
respondent corporations are mere business conduits of
the deceased Manuel Gala and thus may be disregarded
to prevent injustice, the distortion or hiding of the truth
or the "letting in" of a just defense. 46
However, to warrant resort to the extraordinary remedy
of piercing the veil of corporate fiction, there must be
proof that the corporation is being used as a cloak or
cover for fraud or illegality, or to work injustice, 47 and
the petitioners have failed to prove that Ellice and
Margo were being used thus. They have not presented
any evidence to show how the separate juridical entities
of Ellice and Margo were used by the respondents to
commit fraudulent, illegal or unjust acts. Hence, this
contention, too, must fail.
43. G.R. No. 125986 January 28, 1999
LUXURIA HOMES, INC., and/or AIDA M.
POSADAS, petitioners, vs.
HONORABLE COURT OF APPEALS, JAMES BUILDER
CONSTRUCTION and/or JAIME T. BRAVO, respondents.
FACTS:
Petitioner Aida M. Posadas and her two (2) minor
children co-owned a 1.6 hectare property in Sucat,
Muntinlupa, which was occupied by squatters.
Petitioner Posadas entered into negotiations with
private respondent Jaime T. Bravo regarding the
development of the said property into a residential
subdivision. On May 3, 1989, she authorized private
respondent to negotiate with the squatters to leave the
said property. With a written authorization, respondent
Bravo buckled down to work and started negotiations
with the squatters.
Meanwhile, some seven (7) months later, on December
11, 1989, petitioner Posadas and her two (2) children,
through a Deed of Assignment, assigned the said
property to petitioner Luxuria Homes, Inc., purportedly
CORPORATION LAW CASE DIGESTS | 1 58
for organizational and tax avoidance purposes.
Respondent Bravo signed as one of the witnesses to the
execution of the Deed of Assignment and the Articles of
Incorporation of petitioner Luxuria Homes, Inc.
Then sometime in 1992, the harmonious and congenial
relationship of petitioner Posadas and respondent
Bravo turned sour when the former supposedly could
not accept the management contracts to develop the
1.6 hectare property into a residential subdivision, the
latter was proposing. In retaliation, respondent Bravo
demanded payment for services rendered in connection
with the development of the land.
The trial court declared petitioner Posadas in default
and allowed the private respondents to present their
evidence ex-parte. On March 8, 1994, it ordered
petitioner Posadas, jointly and in solidum with
petitioner Luxuria Homes, Inc.
ISSUE:
Can petitioner Luxuria Homes, Inc., be held liable to
private respondents for the transactions supposedly
entered into between petitioner Posadas and private
respondents?
RULING:
NO. The Court hold that respondent Court of Appeals
committed a reversible error when it upheld the factual
finding of the trial court that petitioners' liability was
aggravated by the fact that Luxuria Homes, Inc., was
formed by petitioner Posadas after demand for
payment had been made, evidently for her to evade
payment of her obligation, thereby showing that the
transfer of her property to Luxuria Homes, Inc., was in
fraud of creditors.
We easily glean from the record that private
respondents sent demand letters on 21 August 1991
and 14 September 1991, or more than a year and a half
after the execution of the Deed of Assignment on 11
December 1989, and the issuance of the Articles of
Incorporation of petitioner Luxuria Homes on 26
January 1990. And, the transfer was made at the time
the relationship between petitioner Posadas and private
respondents was supposedly very pleasant. In fact the
Deed of Assignment dated 11 December 1989 and the
Articles of Incorporation of Luxuria Homes, Inc., issued
26 January 1990 were both signed by respondent Bravo
himself as witness. It cannot be said then that the
incorporation of petitioner Luxuria Homes and the
eventual transfer of the subject property to it were in
fraud of private respondents as such were done with
the full knowledge of respondent Bravo himself.
Besides petitioner Posadas is not the majority
stockholder of petitioner Luxuria Homes, Inc., as
erroneously stated by the lower court. The Articles of
Incorporation of petitioner Luxuria Homes, Inc., clearly
show that petitioner Posadas owns approximately 33%
only of the capital stock. Hence petitioner Posadas
cannot be considered as an alter ego of petitioner
Luxuria Homes, Inc.

To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and
convincingly established. It cannot be presumed. This is
elementary. Thus in Bayer-Roxas v. Court of
Appeals,17 we said that the separate personality of the
corporation may be disregarded only when the
corporation is used as a cloak or cover for fraud or
illegality, or to work injustice, or where necessary for
the protection of the creditors. Accordingly in Del
Roscrrio v. NLRC,18 where the Philsa International
Placement and Services Corp. was organized and
registered with the POEA in 1981, several years before
the complainant was filed a case in 1985, we held that
this cannot imply fraud.
Obviously in the instant case, private respondents failed
to show proof that petitioner Posadas acted in bad
faith. Consequently since private respondents failed to
show that petitioner Luxuria Homes, Inc., was a party to
any of the supposed transactions, not even to the
agreement to negotiate with and relocate the squatters,
it cannot be held liable, nay jointly and in solidum, to
pay private respondents. In this case since it was
petitioner Aida M. Posadas who contracted respondent
Bravo to render the subject services, only she is liable to
pay the amounts adjudged herein.
44. G.R. No. 89879 April 20, 1990
JAIME PABALAN AND EDUARDO
LAGDAMEO, petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR
ARBITER AMBROSIO B. SISON, ELIZABETH RODEROS,
ET AL., and THE SHERIFF OF THE NATIONAL LABOR
RELATIONS COMMISSION, respondents.
FACTS:
other benefits under existing laws and/or separation
pay.
On October 21, 1987, PIF, through its General Manager,
was notified about the complaint and summons for the
hearing set for November 6, 1987. The hearing was re-
set for November 27, 1987 for failure of respondents to
appear. On November 30, 1987 respondents
(petitioners herein) moved for the cancellation of the
hearing scheduled on November 6, 1987 so that they
could engage a counsel to properly represent them
preferably on November 17, 1987.
Decision was rendered by the labor arbiter the
dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATION,
respondent Philippine Inter-Fashion and its
officers Mr. Jaime Pabalan and Mr. Eduardo
Lagdameo are hereby ordered to:
1. reinstate the sixty two (62) complainants to
their former or equivalent position without loss
of seniority rights and privileges;
2. to pay, jointly and severally, their backwages
and other benefits from the time they were
dismissed up to the time they are actually
reinstated, the computation to be based from
the latest minimum wage law at the time of
CORPORATION LAW CASE DIGESTS | 1 59
their dismissal. (See attached Annex "A" of
complainants' position paper.)
ISSUE:
Whether arbiter and the nlrc committed a grave abuse
of discretion in adjudging petitioners herein as jointly
and severally liable with Philippine inter-fashion, Inc. to
pay the judgment debt.
RULING:
YES. The settled rule is that the corporation is vested by
law with a personality separate and distinct from the
persons composing it, including its officers as well as
from that of any other legal entity to which it may be
related. Thus, a company manager acting in good faith
within the scope of his authority in terminating the
services of certain employees cannot be held personally
liable for damages. 2 Mere ownership by a single
stockholder or by another corporation of all or nearly all
capital stocks of the corporation is not by itself
sufficient ground for disregarding the separate
corporate personality. 3
As a general rule, officers of a corporation are not
personally liable for their official acts unless it is shown
that they have exceeded their authority. 4 However, the
legal fiction that a corporation has a personality
separate and distinct from stockholders and members.
In this particular case complainants did not allege or
show that petitioners, as officers of the corporation
deliberately and maliciously designed to evade the
financial obligation of the corporation to its employees,
or used the transfer of the employees as a means to
perpetrate an illegal act or as a vehicle for the evasion
of existing obligations, the circumvention of statutes, or
to confuse the legitimate issues.
In this particular case complainants did not allege or
show that petitioners, as officers of the corporation
deliberately and maliciously designed to evade the
financial obligation of the corporation to its employees,
or used the transfer of the employees as a means to
perpetrate an illegal act or as a vehicle for the evasion
of existing obligations, the circumvention of statutes, or
to confuse the legitimate issues.
45. G.R. No. 117963 February 11, 1999
AZCOR MANUFACTURING INC., FILIPINAS PASO and/or
ARTURO ZULUAGA/Owner, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC)
AND CANDIDO CAPULSO, respondents.
FACTS:
Candido Capuslo file with the Labor Arbiter a complaint
for constructive illegal dismissal and illegal deduction of
P50.00 per day for the period April to September 1989.
Petitioners Azcor Manufacturing, Inc. (AZCOR) and
Arturo Zuluaga who were respondents before the Labor
Arbiter (Filipinas Paso was not yet a party then in that
case) moved to dismiss the complaint on the ground

that there was no employer-employee relationship
between AZCOR and herein respondent Capulso; .that
the latter became an employee of Filipinas Paso
effective 1 March 1996 but voluntarily resigned there
from a year after, Capulso later amended his complaint
by impleading Filipinas Paso as additional respondent
before the Labor Arbiter.
On 29 December 1992 the Labor Arbiter rendered a
decision dismissing the complaint for illegal dismissal for
lack of merit, but ordered AZCOR and/or Arturo Zuluaga
to refund to Capulso the sum of P200.00 representing
the amount illegally deducted from his salary.
On appeal by Capulso, docketed as NLRC CA No.
004476-93 (NLRC NCR 00-09-05271-91), "Capulso v.
Azcor Manufacturing Inc., Filipinas Paso and/or Arturo
Zuluaga/owner," the NLRC modified the Labor Arbiter's
decision by: (a) declaring the dismissal of Capulso as
illegal for lack of just and valid cause; (b) ordering
petitioners to reinstate Capulso to his former or
equivalent position without loss of Seniority rights and
without diminution of benefits, and, (c) ordering
petitioners to jointly and solidarily pay Capulso his
backwages computed from the time of his dismissal up
to the date of his actual reinstatement.
ISSUE:
Whether the NLRC committed grave abuse of discretion
in holding that petitioners jointly and solidarily liable to
Capulso for back wages.
RULING:
NO. The doctrine that a corporation is a legal entity or a
person in law distinct from the persons composing it is
merely a legal fiction for purposes of convenience and
to subserve the ends of justice. This fiction cannot be
extended to a point beyond its reason and
policy. 20 Where, as in this case, the corporate fiction
was used as a means to perpetrate a social injustice or
as a vehicle to evade obligations or confuse the
legitimate issues, it would be discarded and the two (2)
corporations would be merged as one, the first being
merely considered as the instrumentality, agency,
conduit or adjunct of the other. 21
In this particular case, there was much confusion as to
the identity of Capulso's employer - whether it was
AZCOR or Filipinas Paso; but, for sure, it was petitioners'
own making, as shown by the following: First, Capulso
had no knowledge that he was already working under
petitioner Filipinas Paso since he contained to retain his
AZCOR Identification card; Second, his payslips
contained the name of AZCOR giving the impression
that AZCOR was paying his salary; Third, he was paid the
same salary and he performed the same kind of job, in
the same work area, in the same location, using the
same tools and under the same supervisor; Fourth,
there was no gap in his employment as he continued to
work from the time he was hired up to the last day of
his work; Fifth, the casting department of AZCOR where
Capulso was working was abolished when he, together
with six (6) others, transferred to Filipinas Paso;
CORPORATION LAW CASE DIGESTS | 1 60
and Sixth, the employment contract was signed by an
AZCOR personnel officer, which showed that Capulso
was being hired from 1 March 1990 to 31 August 1990
by AZCOR to do jobs for Filipinas Paso. The employment
contract provided in part:
The contract is for a specific job contract only and
shall be effective for the period covered, unless
sooner terminated when the job contract is
completed earlier or withdrawn by client, or when
the employee is dismissed for just and lawful causes
provided by law and the company's rules and
regulations, in which case the employment contract
will automatically terminate.
As correctly observed by the NLRC, the contract was
only for six (6) months, which could pass either as a
probationary period or a job contracting, the
completion of which automatically terminated the
employment. Observe further, however, that
respondent continued working even after the lapse of
the period in the contract - for whom it was not clear. It
may be asked: Was the six (6)-month period
probationary in nature, in which case, after the lapse of
the period he became a regular employee of Filipinas
Paso? Or was the period job-contracting in character, in
which case, after the period he was deemed to have
come back to AZCOR?
Interestingly, petitioners likewise argue that it was
grave abuse of discretion for the NLRC to hold them
solidarily, liable to Capulso when the latter himself
testified that he was not even an employee of Filipinas
Paso. 22 After causing much confusion, petitioners have
the temerity to use as evidence the ignorance of
Capulso in identifying his true employer. It is evident
from the foregoing discussion that Capulso was led into
believing that while he was working with Filipinas Paso,
his real employer was AZCOR. Petitioners never dealt
with him openly and in good faith, nor was he informed
of the developments within the company, i.e., his
alleged transfer to Filipinas Paso and the closure of
AZCOR's manufacturing operations beginning 1 March
1990. 23 Understandably, he sued AZCOR alone and was
constrained to implead Filipinas Paso as additional
respondent only when it became apparent that the
latter also appeared to be his employer.
46. G.R. No. 167291 January 12, 2011
PRINCE TRANSPORT, Inc. and Mr. RENATO
CLAROS, Petitioners,
vs.
DIOSDADO GARCIA, et al.
FACTS:
The present petition arose from various complaints filed
by herein respondents charging petitioners with illegal
dismissal, unfair labor practice and illegal deductions
and praying for the award of premium pay for holiday
and rest day, holiday pay, service leave pay, 13th month
pay, moral and exemplary damages and attorney's fees.
Respondents alleged in their respective position papers
and other related pleadings that they were employees

of Prince Transport, Inc. (PTI), a company engaged in
the business of transporting passengers by land;
respondents were hired either as drivers, conductors,
mechanics or inspectors, except for respondent
Diosdado Garcia (Garcia), who was assigned as
Operations Manager; in addition to their regular
monthly income, respondents also received
commissions equivalent to 8 to 10% of their wages;
sometime in October 1997, the said commissions were
reduced to 7 to 9%; this led respondents and other
employees of PTI to hold a series of meetings to discuss
the protection of their interests as employees. PTI
caused the transfer of all union members and
sympathizers to one of its sub-companies, Lubas
Transport (Lubas); despite such transfer, the schedule of
drivers and conductors, as well as their company
identification cards, were issued by PTI; the daily time
records, tickets and reports of the respondents were
also filed at the PTI office; and, all claims for salaries
were transacted at the same office; later, the business
of Lubas deteriorated because of the refusal of PTI to
maintain and repair the units being used therein, which
resulted in the virtual stoppage of its operations and
respondents' loss of employment.
The Labor Arbiter ruled that petitioners are not guilty of
unfair labor practice in the absence of evidence to show
that they violated respondents’ right to self-
organization. The Labor Arbiter also held that Lubas is
the respondents’ employer and that it (Lubas) is an
entity which is separate, distinct and independent from
PTI. Nonetheless, the Labor Arbiter found that Lubas is
guilty of illegally dismissing respondents from their
employment
ISSUE:
Whether the court of appeals seriously erred in
declaring that petitioners prince transport, Inc. and Mr.
Renato Claros and Lubas transport are one and the
same corporation and thus, liable in solidum to
respondents.
RULING:
NO. The Court agrees with the CA that Lubas is a mere
agent, conduit or adjunct of PTI. A settled formulation
of the doctrine of piercing the corporate veil is that
when two business enterprises are owned, conducted
and controlled by the same parties, both law and equity
will, when necessary to protect the rights of third
parties, disregard the legal fiction that these two
entities are distinct and treat them as identical or as
one and the same.26 In the present case, it may be true
that Lubas is a single proprietorship and not a
corporation. However, petitioners’ attempt to isolate
themselves from and hide behind the supposed
separate and distinct personality of Lubas so as to evade
their liabilities is precisely what the classical doctrine of
piercing the veil of corporate entity seeks to prevent
and remedy.
Thus, the Court agrees with the observations of the CA,
to wit:
CORPORATION LAW CASE DIGESTS | 1 61
As correctly pointed out by petitioners, if Lubas were
truly a separate entity, how come that it was Prince
Transport who made the decision to transfer its
employees to the former? Besides, Prince Transport
never regarded Lubas Transport as a separate entity. In
the aforesaid letter, it referred to said entity as "Lubas
operations." Moreover, in said letter, it did not transfer
the employees; it "assigned" them. Lastly, the existing
funds and 201 file of the employees were turned over
not to a new company but a "new management."27
The Court also agrees with respondents that if Lubas is
indeed an entity separate and independent from PTI
why is it that the latter decides which employees shall
work in the former?
What is telling is the fact that in a memorandum issued
by PTI, dated January 22, 1998, Petitioner Company
admitted that Lubas is one of its sub-companies.28 In
addition, PTI, in its letters to its employees who were
transferred to Lubas, referred to the latter as its "New
City Operations Bus."29
Moreover, petitioners failed to refute the contention of
respondents that despite the latter’s transfer to Lubas
of their daily time records, reports, daily income
remittances of conductors, schedule of drivers and
conductors were all made, performed, filed and kept at
the office of PTI. In fact, respondents’ identification
cards bear the name of PTI.
It may not be amiss to point out at this juncture that in
two separate illegal dismissal cases involving different
groups of employees transferred by PTI to other
companies, the Labor Arbiter handling the cases found
that these companies and PTI are one and the same
entity; thus, making them solidarily liable for the
payment of backwages and other money claims
awarded to the complainants therein.
47. G.R. No. 177493
ERIC GODFREY STANLEY LIVESEY, Petitioner, vs.
BINSWANGER PHILIPPINES, INC. and KEITH
ELLIOT, Respondent.
FACTS:
In December 2001, petitioner Eric Godfrey Stanley
Livesey filed a complaint for illegal dismissal with money
claims4against CBB Philippines Strategic Property
Services, Inc. (CBB) and Paul Dwyer. CBB was a domestic
corporation engaged in real estate brokerage and
Dwyer was its President.
Livesey alleged that on April 12, 2001, CBB hired him as
Director and Head of Business Space Development, with
a monthly salary of US$5,000.00; shareholdings in CBB’s
offshore parent company; and other benefits. In August
2001, he was appointed as Managing Director and his
salary was increased to US$16,000.00 a month.
Allegedly, despite the several deals for CBB he drew up,
CBB failed to pay him a significant portion of his salary.
For this reason, he was compelled to resign on
December 18, 2001. He claimed CBB owed him
US$23,000.00 in unpaid salaries.

Thereafter, the parties entered into a compromise
agreement7 which LA Reyno approved in an order dated
November 6, 2002.8 Under the agreement, Livesey was
to receive US$31,000.00 in full satisfaction of LA
Reyno’s decision, broken down into US$13,000.00 to be
paid by CBB to Livesey or his authorized representative
upon the signing of the agreement; US$9,000.00 on or
before June 30, 2003; and US$9,000.00 on or before
September 30, 2003. Further, the agreement provided
that unless and until the agreement is fully satisfied,
CBB shall not: (1) sell, alienate, or otherwise dispose of
all or substantially all of its assets or business; (2)
suspend, discontinue, or cease its entire, or a
substantial portion of its business operations; (3)
substantially change the nature of its business; and (4)
declare bankruptcy or insolvency. Livesey then filed a
motion for the issuance of an alias writ of
execution,10 alleging that in the process of serving
respondents the writ, he learned "that respondents, in a
clear and willful attempt to avoid their liabilities to
complainant x x x have organized another corporation,
[Binswanger] Philippines, Inc."11 He claimed that there
was evidence showing that CBB and Binswanger
Philippines, Inc. (Binswanger) are one and the same
corporation, pointing out that CBB stands for
Chesterton Blumenauer Binswanger.12 Invoking the
doctrine of piercing the veil of corporate fiction, Livesey
prayed that an alias writ of execution be issued against
respondents Binswanger and Keith Elliot, CBB’s former
President, and now Binswanger’s President and Chief
Executive Officer (CEO).
Livesey filed an appeal which the National Labor
Relations Commission (NLRC) granted in its
decision14 dated September 7, 2005. It reversed LA
Laderas’ March 22, 2004 order and declared the
respondents jointly and severally liable with CBB for LA
Reyno’s decision15 of September 20, 2002 in favor of
Livesey.
CA disagreed with the NLRC finding that the
respondents are jointly and severally liable with CBB in
the case.
ISSUE:
Whether the CA erred in not applying the doctrine of
piercing the veil of corporate fiction to the case.
RULING:
YES. It has long been settled that the law vests a
corporation with a personality distinct and separate
from its stockholders or members. In the same vein, a
corporation, by legal fiction and convenience, is an
entity shielded by a protective mantle and imbued by
law with a character alien to the persons comprising
it.43 Nonetheless, the shield is not at all times
impenetrable and cannot be extended to a point
beyond its reason and policy. Circumstances might deny
a claim for corporate personality, under the "doctrine of
piercing the veil of corporate fiction."
Piercing the veil of corporate fiction is an equitable
doctrine developed to address situations where the
CORPORATION LAW CASE DIGESTS | 1 62
separate corporate personality of a corporation is
abused or used for wrongful purposes.44 Under the
doctrine, the corporate existence may be disregarded
where the entity is formed or used for non-legitimate
purposes, such as to evade a just and due obligation, or
to justify a wrong, to shield or perpetrate fraud or to
carry out similar or inequitable considerations, other
unjustifiable aims or intentions,45 in which case, the
fiction will be disregarded and the individuals
composing it and the two corporations will be treated
as identical.46
In the present case, we see an indubitable link between
CBB’s closure and Binswanger’s incorporation. CBB
ceased to exist only in name; it re-emerged in the
person of Binswanger for an urgent purpose
— to avoid payment by CBB of the last two installments
of its monetary obligation to Livesey, as well as its other
financial liabilities. Freed of CBB’s liabilities, especially
that owing to Livesey, Binswanger can continue, as it did
continue, CBB’s real estate brokerage business.
Livesey’s evidence, whose existence the respondents
never denied, converged to show this continuity of
business operations from CBB to Binswanger.1âwphi1 It
was not just coincidence that Binswanger is engaged in
the same line of business CBB embarked on: (1) it even
holds office in the very same building and on the very
same floor where CBB once stood; (2) CBB’s key
officers, Elliot, no less, and Catral moved over to
Binswanger, performing the tasks they were doing at
CBB; (3) notwithstanding CBB’s closure, Binswanger’s
Web Editor (Young), in an e-mail correspondence,
supplied the information that Binswanger is "now
known" as either CBB (Chesterton Blumenauer
Binswanger or as Chesterton Petty, Ltd., in the
Philippines; (4) the use of Binswanger of CBB’s
paraphernalia (receiving stamp) in connection with a
labor case where Binswanger was summoned by the
authorities, although Elliot claimed that he bought the
item with his own money; and (5) Binswanger’s
takeover of CBB’s project with the PNB.
While the ostensible reason for Binswanger’s
establishment is to continue CBB’s business operations
in the Philippines, which by itself is not illegal, the close
proximity between CBB’s disestablishment and
Binswanger’s coming into existence points to an
unstated but urgent consideration which, as we earlier
noted, was to evade CBB’s unfulfilled financial
obligation to Livesey under the compromise
agreement.47
This underhanded objective, it must be stressed, can
only be attributed to Elliot as it was apparent that
Binswanger’s stockholders had nothing to do with
Binswanger’s operations as noted by the NLRC and
which the respondents did not deny.48 Elliot was well
aware of the compromise agreement between Livesey
and CBB, as he "agreed and accepted" the terms of the
agreement49 for CBB. He was also well aware that the
last two installments of CBB’s obligation to Livesey were
due on June 30, 2003 and September 30, 2003. These
installments were not met and the reason is that after
the alleged sale of the majority of CBB’s shares of stock,
it closed down.

48. G.R. No. 142435 April 30, 2003
ESTELITA BURGOS LIPAT and ALFREDO
LIPAT, petitioners,
vs.
PACIFIC BANKING CORPORATION, REGISTER OF DEEDS,
RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the
Heirs of EUGENIO D. TRINIDAD, respondents.
FACTS:
Petitioners, the spouses Alfredo Lipat and Estelita
Burgos Lipat, owned "Bela's Export Trading" (BET), a
single proprietorship with principal office at No. 814
Aurora Boulevard, Cubao, Quezon City. BET was
engaged in the manufacture of garments for domestic
and foreign consumption. The Lipats also owned the
"Mystical Fashions" in the United States, which sells
goods imported from the Philippines through BET. Mrs.
Lipat designated her daughter, Teresita B. Lipat, to
manage BET in the Philippines while she was managing
"Mystical Fashions" in the United States.
In order to facilitate the convenient operation of BET,
Estelita Lipat executed on December 14, 1978, a special
power of attorney appointing Teresita Lipat as her
attorney-in-fact to obtain loans and other credit
accommodations from respondent Pacific Banking
Corporation (Pacific Bank). She likewise authorized
Teresita to execute mortgage contracts on properties
owned or co-owned by her as security for the
obligations to be extended by Pacific Bank including any
extension or renewal thereof.
On September 5, 1979, BET was incorporated into a
family corporation named Bela's Export Corporation
(BEC) in order to facilitate the management of the
business. BEC was engaged in the business of
manufacturing and exportation of all kinds of garments
of whatever kind and description5 and utilized the same
machineries and equipment previously used by BET. Its
incorporators and directors included the Lipat spouses
who owned a combined 300 shares out of the 420
shares subscribed, Teresita Lipat who owned 20 shares,
and other close relatives and friends of the
Lipats.6 Estelita Lipat was named president of BEC, while
Teresita became the vice-president and general
manager.
The promissory notes, export bills, and trust receipt
eventually became due and demandable.
Unfortunately, BEC defaulted in its payments.
ISSUE:
Whether the lower court erred in holding that the
doctrine of piercing the veil of corporate fiction applies
in this case.
RULING:
NO. The Court finds that the evidence on record
demolishes, rather than buttresses, petitioners'
contention that BET and BEC are separate business
entities. Note that Estelita Lipat admitted that she and
CORPORATION LAW CASE DIGESTS | 1 63
her husband, Alfredo, were the owners of BET14 and
were two of the incorporators and majority
stockholders of BEC.15 It is also undisputed that Estelita
Lipat executed a special power of attorney in favor of
her daughter, Teresita, to obtain loans and credit lines
from Pacific Bank on her behalf.16 Incidentally, Teresita
was designated as executive-vice president and general
manager of both BET and BEC, respectively. 17 We note
further that: (1) Estelita and Alfredo Lipat are the
owners and majority shareholders of BET and BEC,
respectively;18 (2) both firms were managed by their
daughter, Teresita;19 (3) both firms were engaged in the
garment business, supplying products to "Mystical
Fashion," a U.S. firm established by Estelita Lipat; (4)
both firms held office in the same building owned by
the Lipats;20 (5) BEC is a family corporation with the
Lipats as its majority stockholders; (6) the business
operations of the BEC were so merged with those of
Mrs. Lipat such that they were practically
indistinguishable; (7) the corporate funds were held by
Estelita Lipat and the corporation itself had no visible
assets; (8) the board of directors of BEC was composed
of the Burgos and Lipat family members;21 (9) Estelita
had full control over the activities of and decided
business matters of the corporation;22 and that (10)
Estelita Lipat had benefited from the loans secured from
Pacific Bank to finance her business abroad23 and from
the export bills secured by BEC for the account of
"Mystical Fashion."24 It could not have been
coincidental that BET and BEC are so intertwined with
each other in terms of ownership, business purpose,
and management. Apparently, 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 Court of Appeals did not err
when it applied the instrumentality doctrine in piercing
the corporate veil of BEC.
On the second issue, petitioners contend that their
mortgaged property should not be made liable for the
subsequent credit lines and loans incurred by BEC
because, first, it was not covered by the mortgage
contract of BET which only covered the loan of
P583,854.00 and which allegedly had already been paid;
and, second, it was secured by Teresita Lipat without
any authorization or board resolution of BEC.
49. R&E Transport, Inc. & Honorio Enriquez vs. Avelina
Latag, G.R. No. 155214, February 13, 2004
Facts: Pedro Latag was a regular employee of La
Mallorca Taxi since March 1, 1961. When La Mallorca
ceased from business operations, Latag transferred to R
& E Transport, Inc. He was receiving an average daily

salary of five hundred pesos (P500.00) as a taxi driver.
Latag got sick in January 1995 and was forced to apply
for partial disability with the SSS, which was granted.
When he recovered, he reported for work in September
1998 but was no longer allowed to continue working on
account of his old age. Latag thus asked Felix Fabros,
the administrative officer of [petitioners], for his
retirement pay pursuant to Republic Act 7641 but he
was ignored.
Thus, on December 21, 1998, Latag filed a case for
payment of his retirement pay before the NLRC. Latag
however died on April 30, 1999. Subsequently, his wife,
Avelina Latag, substituted him. On January 10, 2000, the
Labor Arbiter rendered a decision in favor of Latag.
Petitioners do not dispute the fact that the late Pedro
M. Latag is entitled to retirement benefits. Rather, the
bone of contention is the number of years that he
should be credited with in computing those benefits. On
the one hand, we have the findings of the labor
arbiter, which the CA affirmed. According to those
findings, the 23 years of employment of Pedro with La
Mallorca Taxi must be added to his 14 years with R & E
Transport, Inc., for a total of 37 years.
On the other, we also have the findings of the NLRC that
Pedro must be credited only with his service to R & E
Transport, Inc., because the evidence shows that the
aforementioned companies are two different entities.
Issue: Whether Pedro must be credited only with his
service to R & E Transport, Inc.
Ruling: Yes. After a careful and painstaking review of
the evidence on record, we support the NLRCs findings.
The labor arbiters conclusion -- that Mallorca Taxi and R
& E Transport, Inc., are one and the same entity -- is
negated by the documentary evidence presented by
petitioners. Their evidence sufficiently shows the
following facts: 1) R & E Transport, Inc., was established
only in 1978; 2) Honorio Enriquez, its president, was not
a stockholder of La Mallorca Taxi; and 3) none of the
stockholders of the latter company hold stocks in the
former.
Furthermore, basic is the rule that the corporate veil
may be pierced only if it becomes a shield for fraud,
illegality or inequity committed against a third
person.We have thus cautioned against the inordinate
application of this doctrine. In Philippine National Bank
v. Andrada Electric & Engineering Company,[25] we said:
x x x [A]ny application of the doctrine of piercing the
corporate veil should be done with caution. A court
should be mindful of the milieu where it is to be
applied. It must be certain that the corporate fiction
CORPORATION LAW CASE DIGESTS | 1 64
was misused to such an extent that injustice, fraud, or
crime was committed against another, in disregard of its
rights. The wrongdoing must be clearly and convincingly
established; it cannot be presumed. Otherwise, an
injustice that was never unintended may result from an
erroneous application.
xxxxxxxxx
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:
(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 plaintiffs legal right; and (3) the said
control and breach of duty must have proximately
caused the injury or unjust loss complained of.
Respondent has not shown by competent evidence that
one taxi company had stock control and complete
domination over the other or vice versa. In fact, no
evidence was presented to show the alleged renaming
of La Mallorca Taxi to R & E Transport, Inc. The seven-
year gap between the time the former closed shop and
the date when the latter came into being also casts
doubt on any alleged intention of petitioners to commit
a wrong or to violate a statutory duty. This lacuna in the
evidence compels us to reverse the Decision of the CA
affirming the labor arbiters finding of fact that the basis
for computing Pedros retirement pay should be 37
years, instead of only 14 years.
50. Heirs of Durano Sr. vs Spouses Uy
344 SCRA 238 [GR No. 136456 October 24, 2000]
Facts: As far back as August 1970, a 128 hectare of land
located in the barrios of Dunga and Cahumayhumayan,
Danao City. On December 27, 1973, the late
Congressman Ramon Durano Sr. together with his son
Ramon Durano III, and the latter’s wide Elizabeth
Hotchkins-Durano, instituted an action for damages
against spouses Angeles Sepulveda Uy et al. before
branch XVII of the then Court of First Instance of Cebu,
Danao City.. Herein respondents are the possessors of
the subject parcel of land which they are cultivating, it
was used to be owned by CEPCO who later sold the
same to Durano & Co. On September 15, 1990, Durano
& Co sold the disputed property to petitioner Ramon
Durano III, who procured the registration of these lands
in his name under TCT no. T-103 and T-104. The

different parts of the entire land was bulldozed by the
petitioner’s company resulting to the destruction of
plants and other products that were placed by the
respondents. Hence, a claim for damages was lodged
against herein petitioner. The respondents presented
tax declaration covering the different areas of the
parcel of land that is titled in each of them as proof that
they are entitled for the said damages.
Issue: Whether or not the doctrine of piercing the veil
of corporate entity can be applied in order to make
Durano & Co liable for damages.
Held: Yes. The court of appeals applied the well-
recognized principle of piercing the corporate veil, i.e.
the law will regard the act of the corporation as the act
of its individual stockholders, when it is shown that the
corporation was used merely as an alter ego by those
persons in the commission of fraud or other illegal acts.
That 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
perpetrate the violation of statutory or other
positive legal duty, on dishonest and unjust acts
in contravention of plaintiff’s legal right; 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 the
piercing the corporate veil. In applying the
instrumentality or alter ego doctrine, the courts are
concerned with reality not form, with how the
corporation operated and the individual defendants
relationship to that operation.
The question of whether a corporation is a mere alter
ego is purely one of fact. The Court sees no reason to
reverse the finding of the Court of Appeals. In this case,
the facts show that shortly after the purported sale by
Cepco to Durano & Co., the latter sold the property to
petitioner Ramon Durano III, who immediately procured
the registration of the property in his name. Obviously,
Durano & Co. was used by petitioners merely as an
CORPORATION LAW CASE DIGESTS | 1 65
instrumentality to appropriate the disputed property for
themselves.
51. Pamplona Plantation vs Tinghil
G.R. No. 159121. February 3, 2005
Employer-Employee Relation
Prefatory Statement:
To protect the rights of labor, two corporations with
identical directors, management, office and payroll
should be treated as one entity only. A suit by the
employees against one corporation should be deemed
as a suit against the other. Also, the rights and claims of
workers should not be prejudiced by the acts of the
employer that tend to confuse them about its corporate
identity. The corporate fiction must yield to truth and
justice.
Facts:
Sometime in 1993, [Petitioner] Pamplona Plantations
Company, Inc. (company for brevity) was organized for
the purpose of taking over the operations of the
coconut and sugar plantation of Hacienda Pamplona
located in Pamplona, Negros Oriental. It appears that
Hacienda Pamplona was formerly owned by a certain
Mr. Bower who had in his employ several agricultural
workers.
When the company took over the operation of
Hacienda Pamplona in 1993, it did not absorb all the
workers of Hacienda Pamplona. Some, however, were
hired by the company during harvest season as coconut
hookers or sakador, coconut filers, coconut haulers,
coconut scoopers or lugiteros, and charcoal makers.
Sometime in 1995, Pamplona Plantation Leisure
Corporation was established for the purpose of
engaging in the business of operating tourist resorts,
hotels, and inns, with complementary facilities, such as
restaurants, bars, boutiques, service shops,
entertainment, golf courses, tennis courts, and other
land and aquatic sports and leisure facilities.
On 15 December 1996, the Pamplona Plantation Labor
Independent Union (PAPLIU) conducted an
organizational meeting wherein several [respondents]
who are either union members or officers participated
in said meeting.
Upon learning that some of the [respondents] attended
the said meeting, [Petitioner] Jose Luis Bondoc,
manager of the company, did not allow [respondents]
to work anymore in the plantation.

Thereafter, on various dates, [respondents] filed their
respective complaints with the NLRC, Sub-Regional
Arbitration Branch No. VII, Dumaguete City against
[petitioners] for unfair labor practice, illegal dismissal,
underpayment, overtime pay, premium pay for rest day
and holidays, service incentive leave pay, damages,
attorneys fees and 13th month pay.
On 09 October 1997, [respondent] Carlito Tinghil
amended his complaint to implead Pamplona Plantation
Leisure Corporation.
Petitioners contend that the CA should have dismissed
the case for the failure of respondents (except Carlito
Tinghil) to implead the Pamplona Plantation Leisure
Corporation, an indispensable party, for being the true
and real employer. Allegedly, respondents admitted in
their Affidavits dated February 3, 1998,[19] that they had
been employed by the leisure corporation and/or
engaged to perform activities that pertained to its
business.
Further, as the NLRC allegedly noted in their individual
Complaints, respondents specifically averred that they
had worked in the golf course and performed related
jobs in the recreational facilities of the leisure
corporation. Hence, petitioners claim that, as a sugar
and coconut plantation company separate and distinct
from the Pamplona Plantation Leisure Corporation, the
petitioner-company is not the real party in interest.
ISSUE: there is only one management which the
laborers deal with regarding their work.
Ruling: YES. An examination of the facts reveals that, for
both the coconut plantation and the golf course, there
is only one management which the laborers deal with
regarding their work.[20] A portion of the plantation (also
called Hacienda Pamplona) had actually been converted
into a golf course and other recreational facilities. The
weekly payrolls issued by petitioner-company bore the
name Pamplona Plantation Co., Inc.[21] It is also a fact
that respondents all received their pay from the same
person, Petitioner Bondoc -- the managing director of
the company. Since the workers were working for a firm
known as Pamplona Plantation Co., Inc., the reason they
sued their employer through that name was natural and
understandable.
True, the Petitioner Pamplona Plantation Co., Inc., and
the Pamplona Plantation Leisure Corporation appear to
be separate corporate entities. But it is settled that this
fiction of law cannot be invoked to further an end
subversive of justice.[22]
The principle requiring the piercing of the corporate veil
mandates courts to see through the protective shroud
CORPORATION LAW CASE DIGESTS | 1 66
that distinguishes one corporation from a seemingly
separate one.[23] The corporate mask may be removed
and the corporate veil pierced when a corporation is the
mere alter ego of another.[24] Where badges of fraud
exist, where public convenience is defeated, where a
wrong is sought to be justified thereby, or where a
separate corporate identity is used to evade financial
obligations to employees or to third parties, [25] the
notion of separate legal entity should be set
aside[26] and the factual truth upheld. When that
happens, the corporate character is not necessarily
abrogated.[27] It continues for other legitimate
objectives. However, it may be pierced in any of the
instances cited in order to promote substantial justice.
In the present case, the corporations have basically the
same incorporators and directors and are headed by the
same official. Both use only one office and one payroll
and are under one management. In their individual
Affidavits, respondents allege that they worked under
the supervision and control of Petitioner Bondoc -- the
common managing director of both the petitioner-
company and the leisure corporation. Some of the
laborers of the plantation also work in the golf
course.[28] Thus, the attempt to make the two
corporations appear as two separate entities, insofar as
the workers are concerned, should be viewed as a
devious but obvious means to defeat the ends of the
law. Such a ploy should not be permitted to cloud the
truth and perpetrate an injustice.
We note that this defense of separate corporate
identity was not raised during the proceedings before
the labor arbiter. The main argument therein raised by
petitioners was their alleged lack of employer-employee
relationship with, and power of control over, the means
and methods of work of respondents because of the
seasonal nature of the latters work.[29]
Neither was the issue of non-joinder of indispensable
parties raised in petitioners appeal before the
NLRC.[30] Nevertheless, in its Decision[31] dated July 19,
2000, the Commission concluded that the plantation
company and the leisure corporation were two separate
and distinct corporations, and that the latter was an
indispensable party that should have been impleaded.
Indeed, it was only after this NLRC Decision was issued
that the petitioners harped on the separate personality
of the Pamplona Plantation Co., Inc., vis--vis the
Pamplona Plantation Leisure Corporation.
The NLRC dismissed the Complaints because of the
alleged admission of respondents in their Affidavits that
they had been working at the golf course. However, it
failed to appreciate the rest of their averments. Just
because they worked at the golf course did not

necessarily mean that they were not employed to do
other tasks, especially since the golf course was merely
a portion of the coconut plantation. Even petitioners
admitted that respondents had been hired as coconut
filers, coconut scoopers or charcoal makers.
Consequently, NLRCs conclusion derived from the
Affidavits of respondents stating that they were
employees of the Pamplona Plantation Leisure
Corporation alone was the result of an improper
selective appreciation of the entire evidence.
Furthermore, we note that, contrary to the NLRCs
findings, some respondents indicated that their
employer was the Pamplona Plantation Leisure
Corporation, while others said that it was the Pamplona
Plantation Co., Inc. But in all these Affidavits, both the
leisure corporation and petitioner-company were
identified or described as entities engaged in the
development and operation of sugar and coconut
plantations, as well as recreational facilities such as a
golf course. These allegations reveal that petitioner
successfully confused the workers as to who their true
and real employer was. All things considered, their
faulty belief that the plantation company and the
leisure corporation were one and the same can be
attributed solely to petitioners. It would certainly be
unjust to prejudice the claims of the workers because of
the misleading actions of their employer.
52. SPS. LIPAT V. PACIFIC BANKING CORPORATION
(G.R. NO. 142435)
Facts: Petitioner spouses Lipat owned Bela’s Export
Trading (BET) a single proprietorship engaged in the
manufacture of garments for domestic and foreign
consumption. The spouses by virtue of an SPA
appointed and authorized their daughter to obtain loan
from respondent Pacific Bank. A loan was secured and
as security therefore a REM was executed over the
property of the spouses. Sometime after, BET was
incorporated into a family corporation named Bela’s
Export Corporation (BEC) and the loan was restructured
in its name. Subsequent loans were obtained in behalf
of BEC all secured by the previous REM. BEC defaulted
in its payments which led to the foreclosure and sale of
the mortgaged property. The spouses moved to annul
the sale alleging that BEC is a distinct and separate
personality from them and that the REM was executed
only to secure BET’s loan. Both trial court and CA ruled
to pierce the corporate veil to hold petitioner spouses
liable for BEC’s obligations.
Issue: Whether or not the doctrine of piercing the veil
of corporate fiction is applicable in this case.
Ruling: YES. We find that the evidence on record
demolishes, rather than buttresses, petitioners’
CORPORATION LAW CASE DIGESTS | 1 67
contention that BET and BEC are separate business
entities. Note that Estelita Lipat admitted that she and
her husband, Alfredo, were the owners of BET and were
two of the incorporators and majority stockholders of
BEC. It is also undisputed that Estelita Lipat executed a
special power of attorney in favor of her daughter,
Teresita, to obtain loans and credit lines from Pacific
Bank on her behalf. Incidentally, Teresita was
designated as executive-vice president and general
manager of both BET and BEC, respectively.
It could not have been coincidental that BET and BEC
are so intertwined with each other in terms of
ownership, business purpose, and management.
Apparently, 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.
The court ruled that 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 Court of Appeals did not err
when it applied the instrumentality doctrine in piercing
the corporate veil of BEC.
53. De Leon v NLRC, 358 SCRA 275
Facts: On August 23, 1980, 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.
On February 1, 1991, 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 on June 4, 1993.
On October 15, 1991, 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, whose security guards were posted on
October 15, 1991 to replace FISI's security guards.

Sometime in October 1991, 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. On November 14, 1991, 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.
On November 29, 1991, Simeon de Leon, together with
sixteen (16) other complainants instituted the instant
case before the Arbitration Branch of the NLRC. The
complaint was later amended to allow the inclusion of
other complainants.
Petitioners alleged that they were regular employees of
FTC which was also using the corporate names Fortune
Integrated Services, Inc. and Magnum Integrated
Services, Inc. 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. Their services,
however, were severed in October 1991 without valid
cause and without due process. Petitioners claimed that
their dismissal was part of respondents' design to bust
their newly-organized union which sought to enforce
their rights under the Labor Standards law.[1]
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.Hence, petitioners had no cause
of action against FTC.[2]
Respondent FISI, meanwhile, denied the charge of
illegal dismissal and unfair labor practice. It argued that
petitioners were not dismissed from service but were
merely placed on floating status pending re-assignment
to other posts. It alleged that the temporary
displacement of petitioners was not due to its fault but
was the result of the pretermination by FTC of the
contract for security services.
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. He observed that the
two corporations have common stockholders and they
share the same business address. In addition, FISI had
no client other than FTC and other corporations
belonging to the group of companies owned by Lucio
Tan. The Labor Arbiter thus found respondents guilty of
union busting and illegal dismissal. He observed that not
long after the stockholders of FISI sold all their stocks to
a new set of stockholders, FTC terminated the contract
of security services and engaged the services of two
other security agencies. FTC did not give any reason for
the termination of the contract. The Labor Arbiter gave
credence to petitioners' theory that respondents'
precipitate termination of their employment was
CORPORATION LAW CASE DIGESTS | 1 68
intended to bust their union.Consequently, the Labor
Arbiter ordered respondents to pay petitioners their
backwages and separation pay, to refund their cash
bond deposit, and to pay attorney's fees.
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
on October 15, 1991, FISI 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. It further ruled that the proximate cause
for the displacement of petitioners was the termination
of the contract for security services by FTC on October
15, 1991.
ISSUE: Whether the Labor Arbiter correctly applied the
doctrine of piercing the corporate veil
Ruling: Yes. The Supreme Court is not persuaded by the
argument of respondent FTC denying the presence of an
employer-employee relationship. It ruled 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.[12] In the case at bar, it was shown that
FISI was a mere adjunct of FTC. FISI, by virtue of a
contract for security services, provided FTC with
security guards to safeguard its premises. However,
records show that FISI and FTC have the same owners
and business address, and FISI provided security
services only to FTC and other companies belonging to
the Lucio Tan group of companies. 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. Under these circumstances,

the Court cannot allow FTC to use its separate corporate
personality to shield itself from liability for illegal acts
committed against its employees.
Thus, we find that the termination of petitioners'
services was without basis and therefore illegal. Under
Article 279 of the Labor Code, an employee who is
unjustly dismissed from work is entitled to
reinstatement without loss of seniority rights and other
privileges, and to his full backwages, inclusive of
allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation
was witheld from him up to the time of his actual
reinstatement. However, if reinstatement is no longer
possible, the employer has the alternative of paying the
employee his separation pay in lieu of reinstatement.[13]
54. ROVELS ENTERPRISE, Inc. vs OCAMPO 391 SCRA
176, October 17,2002
FACTS: Rovels is a domestic corporation engaged in
construction work wherein Tagaytay Taal Tourist
Development Corporation (TTTDC) was among its client.
In payment for the services rendered by Rovels, the
Board of Directors of TTTDC passed a Resolution on
December 29, 1975 providing as follows:
RESOLVED, as it is hereby resolved that payment for
professional fees and services rendered by x x x Rovels
Enterprises x x x be made in cash if funds are available,
or its equivalent number of shares of stock of the
corporation at par value, and should said creditors elect
the latter mode of payment, it is further resolved that
the President and/or his Secretary be authorized as they
are hereby authorized, to issue the corresponding
unissued shares of stock of the corporation.
Resolution was signed by three of TTTDCs directors, but
the signatures of the other two (2) TTTDC directors Jose
Silva, Jr. and Emmanuel Ocampo do not appear in the
subject Resolution despite their presence in the
December 29, 1975 Board meeting.
On March 1, 1976, the TTTDC Board of Directors passed
another Resolution repealing its Resolution of
December 29, 1975, thus:
RESOLVED, as it is hereby resolved, that the Resolution
of December 29, 1975 authorizing the payment of
creditors with unissued shares of the corporation be as it
is hereby repealed: Resolved further that the matter as
well as the amount of the creditors claims be given
adequate study and consideration by the Board.
In view of the December 29, 1975 TTTDC Board
Resolution transferring to Rovels the said shares of
stock as construction fee, TTTDC Directors Jose Silva, Jr.
CORPORATION LAW CASE DIGESTS | 1 69
and Emmanuel Ocampo filed a complaint with the SEC
against Roberto Roxas, TTTDC President, and Eduardo
Santos, Rovels President allegeing that there was no
meeting of the TTTDCs Board of Directors on December
29, 1975; that they did not authorize the transfer of
TTTDCs shares of stock to Rovels; that they never signed
the alleged minutes of the meeting; and that the
signatures of the other two (2) Directors, Victoriano
Leviste and Bienvenido Cruz, Jr., as well as that of
TTTDCs Secretary Francisco Carreon, Jr., were obtained
through fraud and misrepresentation. They also alleged
that the TTTDC Board Resolution dated December 29,
1975 was repealed by the March 1, 1976 Resolution.
They thus prayed that the transfer of TTTDCs shares of
stock to Rovels pursuant to Resolution dated December
29, 1975 be annulled.
Commission finds and so holds that the purported
board resolution of December 29, 1975, not having
been properly passed upon at a duly constituted board
meeting, cannot be recognized as valid and hence,
without legal force and effect. Consequently, the
issuance of shares of stock to corporate creditors of the
Tagaytay Taal Tourist Development Corporation is null
and void.
Subsequently, TTTDC, Jose Silva, Emmanuel Ocampo,
et. al., and another stockholder of TTTDC, (the SILVA
GROUP, now respondents), filed with the SEC a petition
against the SANTOS GROUP who were nominees of
Rovels by virtue of the shares of stock issued pursuant
to the December 29, 1975 Resolution, proceeded to act
as directors and officers of TTTDC. In their petition, the
SILVA GROUP prayed that they be declared the true and
lawful stockholders and incumbent directors and
officers of TTTDC.
SEC Hearing Officer rendered a Decision in favor of the
SILVA GROUP and the decision became final and
executory as no appeal was interposed by either the
SILVA GROUP or the SANTOS GROUP.
However, Rovels, to whom the TTTDC shares of stock
(worth P108,000.00) were transferred, claimed that it
be declared the majority stockholder of TTTDC as
against SILVA GROUP.
ISSUE: Whether or not ROVELS (corporation) can be
bound by the decision of SEC and the court represented
by its corporate officers?
RULING: YES. The petition shows that Rovels prayer to
be declared the majority stockholder of TTTDC is
anchored on the December 29, 1975 TTTDC Board
Resolution transferring its shares of stock to Rovels as
construction fee. This Resolution could have vested in
Rovels a right to be declared a stockholder of TTTDC.

However, the same petition concedes that the
December 29, 1975 Resolution was repealed by the
March 1, 1976 Resolution. The petition likewise alleges
that there were prior interrelated cases filed with the
SEC between the SILVA and SANTOS GROUPS, namely:
(1) SEC Case No. 1322 (wherein the SEC en banc in its
Decision dated September 2, 1982 nullified the TTTDC
Board Resolution dated December 29, 1975, which
Decision was affirmed with finality by this Court in G.R.
No. 61863) and (2) SEC Case No. 3806 (wherein the SEC
declared the SILVA GROUP as the legitimate
stockholders of TTTDC, not Rovels nominees [the
SANTOS GROUP]).
Clearly, on the face of its petition, Rovels cannot claim
to be the majority stockholder of TTTDC.
Relative to the second assigned error, Rovels contends
that it is not bound by the SEC Decision in SEC Case Nos.
1322 and 3806 and in G.R. No. 61863 as it was never a
party in any of these cases.
Contrary to its claim, Rovels is bound by the previous
SEC Decisions. It must be noted that Eduardo Santos,
President of Rovels, was one of the respondents in both
SEC Case Nos. 1322 and 3806. Clearly, Rovels and
Eduardo Santos, being its President, share an identity of
interests sufficient to make them privies-in-law, as
correctly found by the Court of Appeals in its assailed
Decision.
In the case at bench, there can be no question that the
rights claimed by petitioner and its
stockholders/directors/officers who were parties in
SEC Case Nos. 1322 and 3806 are identical in that they
are both based on the December 29, 1975 Resolution.
Stated differently, they shared an identity of interest
from which flowed an identity of relief sought, namely,
to be declared owners of the stocks of TTTDC,
premised on the same December 29, 1975 Resolution.
This identity of interest is sufficient to make them
privies-in-law, one to the other, and meets the requisite
of substantial identity of parties.
Rovels cannot take refuge in the argument that, as a
corporation, it is imbued with personality separate and
distinct from that of the respondents in SEC Case Nos.
1322 and 3806. The legal fiction of separate corporate
existence is not at all times invincible and the same may
be pierced when employed as a means to perpetrate a
fraud, confuse legitimate issues, or used as a vehicle to
promote unfair objectives or to shield an otherwise
blatant violation of the prohibition against forum-
shopping. While it is settled that the piercing of the
corporate veil has to be done with caution, this
CORPORATION LAW CASE DIGESTS | 1 70
corporate fiction may be disregarded when necessary in
the interest of justice.
55. Mendoza v. Banco Real Development Bank, 470
SCRA 86 September 16, 2005
Facts: The petition alleges that on August 7, 1985, the
Board of Directors of Technical Video, Inc. (TVI) passed a
Resolution authorizing its President, Eduardo A. Yotoko,
petitioner, or its General Manager-Secretary-Treasurer,
Manuel M. Mendoza, also a petitioner, to apply for and
secure a loan from the Pasay City Banco Real
Development Bank (now LBC Development Bank),
herein respondent.
On September 11, 1985, respondent bank extended a
loan of P500,000.00 to TVI. In his capacity as General
Manager, petitioner Mendoza executed a promissory
note and chattel mortgage over 195 units of Beta video
machines and their equipment and accessories
belonging to TVI in favor of respondent bank.
On October 3, 1986, TVI and two other video firms, Fox
Video and Galactica Video, organized a new corporation
named FGT Video Network Inc. (FGT). It was registered
with the Securities and Exchange
[3]
Commission. Petitioner Mendoza was the concurrent
President of FGT and Operating General Manager of
TVI. Thus, the office of TVI had to be transferred to the
building of FGT for easier monitoring of the distribution
and marketing aspects of the business.
For TVIs failure to pay its loan upon maturity,
respondent bank, on January 26, 1987, filed with the
Office of the Clerk of Court of the Regional Trial Court
(RTC), Pasay City, a petition for Extra Judicial
Foreclosure and Sale of Chattel Mortgage.
However, the Sheriffs Report/Return[4] dated January
27, 1987 shows that TVI is no longer doing business at
its given address; that its General Manager, Mr. Manuel
M. Mendoza, is presently employed at FGT Video
Network with offices at the Philcemcor Bldg., No. 4 Edsa
cor. Connecticut St., Greenhills, San Juan, Metro Manila;
that when asked about the whereabouts of the video
machines, in the presence of the representative of
respondent bank and its counsel, Mr. Mendoza denied
any knowledge of their whereabouts; and that action on
respondents petition is indefinitely postponed until
further notice from the bank.
Respondent then wrote TVI demanding the surrender of
the video machines. In his letter dated February 19,
1987, petitioner Mendoza requested the bank to give
him additional time to enable us to pay our total
obligations and proposed a repayment scheme to start
not later than March 10, 1987.[5] Still, no payment was
received by the bank. TVI simply refused and ignored
the demand and kept silent as to the whereabouts of
the video machines.
Meanwhile, in a case entitled Republic of the
Philippines, plaintiff vs. FGT Video Network Inc., Manuel
Mendoza, Alfredo C. Ongyangco, Eric Apolonio, Susan
Yang ang Eduardo A. Yotoko, defendants, the RTC,
Branch 167, Pasig City issued a search warrant. The

agents of the National Bureau of Investigation (NBI)
confiscated at the offices of FGT 638 machines and
equipment including the 195 Beta machines mortgaged
with respondent bank.
On May 29, 1987, upon motion of FGT and herein
petitioners, the same court issued another Order
directing the NBI to release and return the said
machines to them.
However, Columbia Pictures Inc., Orion Pictures Corp.,
Paramount Pictures Corp., Universal City Studios Inc.,
The Walt Disney Company and Warner Bros. filed with
this Court a petition for certiorari[6] assailing the Order
of the lower court.
On June 18, 1987, this Court issued a temporary
restraining order enjoining the RTC from enforcing its
assailed order. The machines and equipment were left
in the custody of the NBI until the petition
for certiorari shall have been resolved with finality.
On July 13, 1990, respondent bank filed with the
RTC, Branch 110, Pasig City,[7] a complaint for collection
of a sum of money[8] against TVI, FGT and petitioners.
Only petitioners filed their joint answer to the
complaint.
In their joint answer, petitioners specifically denied the
allegations in the complaint, raising the defense that the
loan is purely a corporate indebtedness of TVI. The Trial
Court finds that TVI was the mere alter ego or business
conduit of Yotoko and Mendoza, and additionally
considering 1) that Mendoza disclaimed knowledge of
the whereabouts of the TVI mortgaged property at the
time plaintiffs petition for extrajudicial foreclosure was
being effected, and 2) that Mendoza and Yotoko
transferred the mortgaged property to FGT without first
securing plaintiffs consent despite their awareness that
under the chattel mortgage, such consent was
necessary, the doctrine of corporate entity must be
pierced and the two must be held personally liable for
TVIs obligation to plaintiff for said doctrine cannot be
used to defeat public convenience, justify wrong,
protect fraud or avoid a legal obligation.
The same was affirmed in toto bby the CA.
Issue: Whether herein petitioners are personally liable
for TVIs indebtedness of P500,000.00 with respondent
bank.
Ruling: Yes. Both the trial court and the Appellate Court
found that the petitioners transferred the Beta video
machines from TVI to FGT without the consent of
respondent bank. Also, upon inquiry of the sheriff,
petitioner Mendoza declined knowledge of the
whereabouts of the mortgaged video machines.
Moreover, the fact that the NBI seized the video
machines from FGT glaringly shows that petitioners
transferred the same from TVI. More importantly, a
comparison of the list of video machines in the Chattel
Mortgage Contract and the list of video machines seized
by the NBI from FGT shows that they have the same
serial numbers.
CORPORATION LAW CASE DIGESTS | 1 71
The courts below also found that TVI is petitioners mere
alter ego or business conduit. They control the affairs of
TVI. Among its stockholders or directors, they were the
only ones who became incorporators of FGT. They
transferred the assets of TVI to FGT.
The general rule is that obligations incurred by a
corporation, acting through its directors, officers or
employees, are its sole liabilities. However, the veil with
which the law covers and isolates the corporation from
its directors, officers or employees will be lifted when
the corporation is used by any of them as a cloak or
cover for fraud or illegality or injustice.[9] Here, the fraud
was committed by petitioners to the prejudice of
respondent bank. It bears emphasis that as reported by
the sheriff, TVI is no longer doing business at its given
address and its whereabouts cannot be established as
yet.
Both the trial court and the Court of Appeals thus
concluded that petitioners succeeded to hide the
chattels, preventing the sheriff to foreclose the
mortgage. Obviously, they acted in bad faith to defraud
respondent bank.
The SC held that the Appellate Court, in affirming the
Decision of the trial court, correctly ruled that
petitioners, not TVI, are the ones personally liable to
respondent bank for the payment of the loan.
56. Reynoso vs Court of Appeals
345 SCRA 335 [GR No. 116124-25 November 23, 2000]
Facts: Sometime in early 1960s, the Commercial Credit
Corporation (CCC), a financing company and investment
firm, decided to organize franchise companies
indifferent parts of the country, wherein it shall hold
30% equity. Employees of the CCC were designated as
resident managers of the franchise companies.
Petitioner Bibiano O. Reynoso IV was designated as the
resident manager of the franchise in Quezon City,
known as the Commercial Credit Corporation of Quezon
City. CCC-QC entered into an exclusive agreement
management contract with CCC whereby the latter was
granted the management and full control of the
business activities of the former. Under the contract,
CCC-QC shall sell, discount and/or assign its receivables
to CCC. Subsequently, however, this discounting
arrangement was discontinued pursuant to the so called
DOSRI rule, prohibiting the lending of funds by
corporations to its directors, officers, stockholders and
other persons with related interest therein. On account
of the new restrictions imposed by the Central Bank
policy by virtue of the DOSRI rule, CCC decided to form
CCC Equity Corporation, a wholly-owned subsidiary, to
which CCC transferred its 30% equity in CCC-QC,
together with 2 seats in the latter’s Board of Directors.
A complaint for sum of money with preliminary
attachment was filed by CCC-equity against petitioner
and the latter was also dismissed from employment to
which the lower court’s decision was rendered in favor
of the petitioner and the same has become final and
executory. CCC changed its name to General Credit
Corporation (GCC).

Issue: Whether or not the judgement in favor of the
petitioner may be executed against respondent GCC.
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. It also has the advantage of non-
dependence on the lives of those who compose it even
as it enjoys certain rights and conducts activities of
natural persons.
Any piercing of the corporate veil has to be done with
caution. However, the court will not hesitate to use its
supervisory and adjudicative powers where the
corporate fiction is used as an unfair device to achieve
an inequitable result defraud creditors, evade contracts
and obligations, or to shield it from the effects of a
court decision. The corporate fiction has to be
disregarded when necessary in the interest of justice.
The defense of separateness will be disregarded when
the business affairs of a subsidiary corporation are so
controlled by the mother corporation to the extent that
it becomes an instrument or agent of its parent. But
even when there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate
fiction applies only when such fiction is used to defeat
public convenience, justify wrong, protect fraud or
defend crime.
The organization of subsidiary corporations as what was
done here is usually resorted to for aggrupation of
capital the ability to cover more territory and
population, the decentralization of activities best
decentralized, and the securing of other legitimate
advantages. But when the mother corporation and its
subsidiary cease to act in good faith and honest
business judgement, 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 continuous for legitimate objectives.
However, it is pursued in order to remedy injustice,
such as that inflicted in this case.
57. Ramoso vs CA
Facts: Avelina Ramoso and several others are investors
and majority stock holders of the franchise branches of
Commercial Credit Corporation (CCC).
CCC is a lending and investment firm. CCC contracted
with its franchise branches for the latter to assign its
receivables to CCC. But this practice was discontinued
CORPORATION LAW CASE DIGESTS | 1 72
due to a prohibition (DOSRI rule) issued by the Central
Bank where corporations are prohibited from lending
funds to persons with related interests, among others.
To circumvent this, CCC incorporated CCC Equity, a
wholly owned subsidiary to manage the franchise
branches. CCC later changed its name to General Credit
Corporation (GCC).
In 1981, Ramoso et al alleged that they discovered
several bad business practices being conducted by GCC;
that such questionable practices divested GCC of its
assets thereby placing the franchise branches at a
disadvantage; that GCC, through CCC Equity
mismanaged the franchise branches thereby causing
imminent losses to the investors.
Ramoso et al then sued GCC before the Securities and
Exchange Commission. The hearing officer ruled in favor
of Ramoso et al. He pierced the veil of corporate fiction
and he declared that the franchise branches, GCC, and
CCC equity are one and the same corporation; that as
such, the franchise branches, in whom Ramoso et al
invested, are not liable to the obligations incurred by
GCC. The SEC en banc however reversed the ruling of
the hearing officer. The Court of Appeals affirmed the
SEC en banc.
ISSUE: Whether or not the veil of corporate fiction
should be pierced? - NO
HELD: No. Ramoso et al did not properly plead their
cause. They merely alleged that CCC Equity is a conduit
of GCC. As found by the SEC en banc, Ramoso et al
were not able to prove that CCC Equity was
incorporated in order to perpetrate fraud against them.
Whether the existence of the corporation should be
pierced depends on questions of facts, appropriately
pleaded. Mere allegation that a corporation is the alter
ego of the individual stockholders is insufficient. The
presumption is that the stockholders or officers and the
corporation are distinct entities. The burden of proving
otherwise is on the party seeking to have the court
pierce the veil of the corporate entity. It was not shown
that the debts incurred by GCC were actually incurred in
bad faith. Further, there is a pending case relating to the
liability of Ramoso et al as guarantors – that will be the
proper forum to raise their respective liability as regards
said debts.
58. Secosa vs. Heirs of Erwin Suarez Francisco
FACTS: Erwin Suarez Francisco was riding a motorcycle
along the City of Manila and traveling behind him was a
sand and gravel truck, which in turn was being tailed by
an Isuzu truck driven by Raymundo Secosa. When
Secosa overtook the sand and gravel truck, he bumped
the motorcycle being driven by Francisco, causing the
latter to fall and get run over by real wheels of the Isuzu
truck which resulted to his instantaneous death.
The parents of Erwin Francisco filed an action for
damages against Secosa, Dassad Warehousing and Port
Services (The company which employed Secosa), and El

Buenasucenso Sy (the president of Dassad). The trial
court ruled in favor of the parents and ordered the
defendants to pay the plaintiffs jointly and severally.
The RTC decision was affirmed by the CA.
Hence this petition, wherein the petitioners contended
that the CA erred in affirming the decision of the RTC in
holding Sy solidarily liable with Dassad and Secosa in
violation of the Corporation Code and related
jurisprudence.
ISSUE: Whether or not the doctrine of piercing the veil
of the corporate fiction shall be applied? – NO
HELD: Petitioner El Buenasenso Sy cannot be held
solidarily liable with his co-petitioners. While it may be
true that Sy is the president of petitioner Dassad
Warehousing and Port Services, Inc., such fact is not by
itself sufficient to hold him solidarily liable for the
liabilities adjudged against his co-petitioners.
It is a settled precept in this jurisdiction that a
corporation is invested by law with a personality
separate from that of its stockholders or members. It
has a personality separate and distinct from those of
the persons composing it as well as from that of any
other entity to which it may be related. Mere ownership
by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not
in itself sufficient ground for disregarding the separate
corporate personality. A corporations authority to act
and its liability for its actions are separate and apart
from the individuals who own it.
The so-called veil of corporation fiction treats as
separate and distinct the affairs of a corporation and its
officers and stockholders. As a general rule, a
corporation will be looked upon as a legal entity, unless
and until sufficient reason to the contrary appears.
When the notion of 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. Also, the corporate entity may
be disregarded in the interest of justice in such cases as
fraud that may work inequities among members of the
corporation internally, involving no rights of the public
or third persons. In both instances, there must have
been fraud and proof of it. For the separate juridical
personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly
established. It cannot be presumed.
The records of this case are bereft of any evidence
tending to show the presence of any grounds
enumerated above that will justify the piercing of the
veil of corporate fiction such as to hold the president of
Dassad Warehousing and Port Services, Inc. solidarily
liable with it.
59. Rosales vs New A.N.J.H. Enterprise
FACTS: Respondent New ANJH Enterprises is a sole
proprietorship owned by respondent Noel Awayan.
CORPORATION LAW CASE DIGESTS | 1 73
Petitioners are its former employees who worked as
machine operators, drivers, helpers, lead and boiler
man.
New ANJH Enterprises ceased its operations due to
dwindling capital and sold its assets to a corporation.
Before the cessation, the company also gave notices to
its employees, including the petitioners herein,
informing them of its plan to cease operations as well as
offering them their respective separation pays.
The sale was consummated and the employees received
their separation pay thereafter the petitioners filed a
complaint for illegal dismissal because according to
them New ANJH Enterprises resumed its operations as
NH Oil using the same machineries and with the same
owners and management. Petitioners claim that the
sale of the assets of New ANJH to NH Oil was a
circumvention of their security of tenure.
The Executive Labor Arbiter Santos ruled that the
petitioners were illegally dismissed and ordered their
reinstatement and payment of backwages. In ruling for
the petitioners, ELA Santos ratiocinated that the buyer
is practically the same as the seller hence it was
extremely difficult to conclude that the sale was
genuine and can validly justify the termination of the
petitioners. The NLRC reversed the decision and ruled
that the sale of the assets to NH Oil Mill was in the
exercise of sound management prerogative and there
was no proof that it was made to defeat petitioner’s
security of tenure. The CA affirmed the NLRC. Hence
this petition.
ISSUE: Whether applying the doctrine of piercing the
veil of corporate existence is justified in the present
case? – YES
HELD: The Court held that the application of the
doctrine of piercing the veil of corporate fiction is
frowned upon. However, it will not hesitate to disregard
the corporate fiction if it is used to such an extent that
injustice, fraud, or crime is committed against another
in disregard of his rights.
In this case, petitioners advance the application of the
doctrine because they were terminated from
employment on the pretext that there will be an
impending permanent closure of the business as a
result of an intended sale of its assets to an undisclosed
corporation, and that there will be a change in the
management.
Subsequent events, however, revealed that the buyer of
the assets of their employer was a corporation owned
by the same employer and members of his family.

Furthermore, the business re-opened in less than a
month under the same management.
Admittedly, mere ownership by a single stockholder of
all or nearly all of the capital stock of the corporation
does not by itself justify piercing the corporate veil.
Nonetheless, in this case, other circumstances show
that the buyer of the assets of petitioners' employer is
none other than his alter ego. Clearly, the milieu of the
present case compels this Court to remove NH Oil's
corporate mask as it had become, and was used as, a
shield for fraud, illegality and inequity against the
petitioners.
60. Martinez vs CA
FACTS: Cintas Largas, Ltd. (CLL) is a foreign corporation
doing business with Mar Tierra Corporation mainly for
the importation of molasses. CLL and Mar Tierra are
both run by Martinez and Gonzales who are the
President and Vice President of the latter respectively.
BPI International Finance granted CLL a letter of credit
and by virtue of the said letter of credit the former
deposited an amount of USD 340,000 to the account of
Mar Tierra Corp. The debt of CLL remained unpaid thus
BPI initiated an action for collection of the principal
amount with a writ of preliminary attachment against
CLL, as well as the officers of Mar Tierra Corp alleging
that CLL is a paper company which is being used as a
mere alter ego or a business conduit for the foregoing
defendants, it has no corporate personality distinct and
separate from that of its beneficial shareholders and,
likewise, has no substantial assets in its own name.
Hence, any and all obligations of defendant CINTAS are
the obligations of its beneficial shareholders since the
former is being used by the latter as an alter ego or
business conduit for their sole benefit and/or to defeat
public convenience.
ISSUE: Whether the application of the doctrine of
piercing the corporate veil is proper in this case? - NO
HELD: The general rule is that a corporation is clothed
with a personality separate and distinct from the
persons composing it. Such corporation may not be held
liable for the obligation of the persons composing it;
and neither can its stockholders be held liable for such
obligation. A corporation has a separate personality
distinct from its stockholders and from other
corporation to which it may be connected. This separate
and distinct personality of a corporation is a fiction
created by law for convenience and to prevent injustice.
Nevertheless, being a mere fiction of law, peculiar
situations or valid grounds can exist to warrant, albeit
CORPORATION LAW CASE DIGESTS | 1 74
sparingly, the disregard of its independent being and
the piercing of the corporate veil. Thus, the veil of
separate corporate personality may be lifted when such
personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime; or used as a
shield to confuse the legitimate issues; or when the
corporation is merely an adjunct, a business conduit or
an alter ego of another corporation or where the
corporation is so organized and controlled and its affairs
are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another
corporation; or when the corporation is used as a cloak
or cover for fraud or illegality, or to work injustice, or
where necessary to achieve equity or for the protection
of the creditors. In such cases where valid grounds exist
for piercing the veil of corporate entity, the corporation
will be considered as a mere association of persons. The
liability will directly attach to them.
However, mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital
stocks of a corporation is not by itself a sufficient
ground to disregard the separate corporate personality.
The substantial identity of the incorporators of two or
more corporations does not warrantly imply that there
was fraud so as to justify the piercing of the writ of
corporate fiction. To disregard the said separate
juridical personality of a corporation, the wrongdoing
must be proven clearly and convincingly.
The test in determining the application of the
instrumentality or alter ego doctrine is as follows:
1. Control, not mere majority or complete stock control,
but complete domination, not only of finances but of
policy and business practice in respect to the
transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will
or existence of its own;
2. Such control must have been used by the defendant
to commit fraud or wrong, to perpetuate the violation
of a statutory or other positive legal duty, or dishonest
and unjust act in contravention of plaintiffs legal rights;
and
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained
of.
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 defendants
relationship to that operation.
In this case, the respondent failed to adduce the
quantum of evidence necessary to prove any valid
ground for the piercing of the veil of corporate entity of
Mar Tierra Corporation, or of RJL for that matter, and
render the petitioner liable for the respondents claim,
jointly and severally, with Wilfrido Martinez and Lacson.

The mere fact that the majority stockholder of Mar
Tierra Corporation is the RJL, and that the petitioner,
along with Jose and Luis Martinez, owned about 42% of
the capital stock of RJL, do not constitute sufficient
evidence that the latter corporation, and/or the
petitioner and his brothers, had complete domination
of Mar Tierra Corporation. It does not automatically
follow that the said corporation was used by the
petitioner for the purpose of committing fraud or
wrong, or to perpetrate an injustice on the respondent.
There is no evidence on record that the petitioner had
any involvement in the purchases of molasses by
Wilfrido Martinez, Gonzales and Lacson, and the
subsequent sale thereof to the CLL, through Mar Tierra
Corporation. On the contrary, the evidence on record
shows that the CLL purchased molasses from Mar Tierra
Corporation and paid for the same through the credit
facility granted by the respondent to the CLL. The CLL,
thereafter, made remittances to Mar Tierra Corporation
from its deposit account and MMP Nos. 063 and 084
with the respondent. The close business relationship of
the two corporations does not warrant a finding that
Mar Tierra Corporation was but a conduit of the CLL.
Likewise, the respondent failed to adduce preponderant
evidence to prove that the Mar Tierra Corporation and
the RJL were so organized and controlled, its affairs so
conducted as to make the latter corporation merely an
instrumentality, agency, conduit or adjunct of the
former or of Wilfrido Martinez, Gonzales, and Lacson
for that matter, or that such corporations were
organized to defraud their creditors, including the
respondent. The mere fact, therefore, that the
businesses of two or more corporations are interrelated
is not a justification for disregarding their separate
personalities, absent sufficient showing that the
corporate entity was purposely used as a shield to
defraud creditors and third persons of their rights.
61. EPG Construction Co. vs CA
FACTS: EPG contracted with UP for the construction of
the UP Law Library. EPG did the work with a guarantee
that it will be liable for all the defects of the
construction within 1 year after turning it over to UP.
After the turnover to UP, various defects were reported
to EPG regarding the cooling system. EPG repaired it at
first, but refused when asked to do so again. UP went to
another contractor to have the defects fixed and sued
EPGs and its President De Guzman for damages. The
RTC and CA ruled for UP, holding that EPG and its
President are solidarily liable for the damages.
ISSUE: WON the President of EPG is solidarily liable with
EPG. –NO
HELD: The SC held that there is no reason to hold the
President of EPG solidarily liable with EPG. It is an
established doctrine that a corporation is a distinct legal
entity to be considered as separate and apart from the
individual stockholders or members who compose it,
CORPORATION LAW CASE DIGESTS | 1 75
and is not affected by the personal rights, obligations
and transactions of its stockholders or members.
Without valid reason to hold its president liable, only
the corporation will shoulder the damages. A
corporation is invested by law with a personality
separate and distinct from those of the persons
composing it as well as from that of any other entity to
which it may be related. Mere ownership by a single
stockholder or by another corporation of all or nearly all
of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate
corporate personality. The general manager of a
corporation therefore should not be made personally
answerable for the payment of the employee's
backwages unless he had acted maliciously or in bad
faith in terminating the services of the employee.
The exception noted is where the official "had acted
maliciously or in bad faith," in which event he may be
made personally liable for his own act. That exception is
not applicable in the case at bar, because it has not
been proved that De Guzman acted maliciously or in
bad faith when, as President of EPG, he sought to
protect its interests and resisted UP's claims. Whatever
damage was caused to UP as a result of his acts is the
sole responsibility of EPG even though De Guzman was
its principal officer and controlling stockholder.
62. Jardine Davies vs JRB Realty
FACTS: In 1979-1980, respondent JRB Realty, Inc. built a
nine-storey building, named Blanco Center, on its parcel
of land located Makati City. An air conditioning system
was needed for the Blanco Law Firm housed at the
second floor of the building.
On March 13, 1980, the respondent s Executive Vice-
President, Jose R. Blanco, accepted the contract
quotation of Mr. A.G. Morrison, President of Aircon and
Refrigeration Industries,Inc. (Aircon), for two (2) sets of
Fedders Adaptomatic air conditioning equipment.
Thereafter, two (2) brand new packaged air
conditioners were installed by Aircon but they could not
deliver the desired cooling temperature. With this, the
parties agreed to replace the units.
In a Letter, Aircon stated that it would be replacing the
units currently installed with new ones using rotary
compressors, at the earliest possible time. Regrettably,
however, it could not specify a date when delivery could
be effected. TempControl Systems, Inc. (a subsidiary of
Aircon until1987) undertook the maintenance of the
units, inclusive of parts and services.
In October 1987, the respondent learned, through
newspaper ads, that Maxim Industrial and
Merchandising Corporation (Maxim, for short) was the
new and exclusive licensee of Fedders Air Conditioning
USA in the Philippines for the manufacture, distribution,

sale, installation and maintenance of Fedders air
conditioners.
The respondent requested that Maxim honor the
obligation of Aircon, but the latter refused. Hence, the
respondent then instituted an action for specific
performance with damages against Aircon, Fedders Air
Conditioning USA, Inc., Maxim and petitioner Jardine
Davies, Inc. Petitioner Jardine Davies, Inc. was
impleaded as defendant, considering that Aircon was a
subsidiary of the petitioner.
Petitioner contends that was not a party to the contract
between JRB Realty, Inc.and Aircon, and that it had
a personality separate and distinct fromthat of Aircon.
RTC ordered defendants Jardine Davies, Inc., Fedders
Air Conditioning USA, Inc. and Maxim Industrial and
Merchandising Corporation, jointly and severally liable
which was affirmed by the CA.
ISSUE: Whether Jardine may be held solidarily liable
because Aircon was formely Jardine’s Instrumentality or
Alter Ego? – NO
HELD: It is an elementary and fundamental principle of
corporation law that a corporation is an artificial being
invested by law with a personality separate and distinct
from its stockholders and from other corporations to
which it may be connected. While a corporation is
allowed to exist solely for a lawful purpose, the law will
regard it as an association of persons or in case of two
corporations, merge them into one, when this
corporate legal entity is used as a cloak for fraud or
illegality. This is the doctrine of piercing the veil of
corporate fiction which applies only when such
corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime. The
rationale behind piercing a corporation's identity 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.
While it is true that Aircon is a subsidiary of the
petitioner, it does not necessarily follow that Aircon's
corporate legal existence can just be disregarded. In
Velarde v. Lopez, Inc., the Court categorically held that a
subsidiary has an independent and separate juridical
personality, distinct from that of its parent company;
hence, any claim or suit against the latter does not bind
the former, and vice versa. In applying the doctrine, the
following requisites must be established: (1) control,
not merely majority or complete stock control; (2) such
control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a
CORPORATION LAW CASE DIGESTS | 1 76
statutory or other positive legal duty, or dishonest acts
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 records bear out that Aircon is a subsidiary of the
petitioner only because the latter acquired Aircon's
majority of capital stock. It, however, does not exercise
complete control over Aircon; nowhere can it be
gathered that the petitioner manages the business
affairs of Aircon. Indeed, no management agreement
exists between the petitioner and Aircon, and the latter
is an entirely different entity from the petitioner.
The existence of interlocking directors, corporate
officers and shareholders, which the respondent court
considered, is not enough justification to pierce the veil
of corporate fiction, in the absence of fraud or other
public policy considerations. But even when there is
dominance over the affairs of the subsidiary, the
doctrine of piercing the veil of corporate fiction applies
only when such fiction is used to defeat public
convenience, justify wrong, protect fraud or defend
crime. To warrant resort to this extraordinary remedy,
there must be proof that the corporation is being used
as a cloak or cover for fraud or illegality, or to work
injustice. Any piercing of the corporate veil has to be
done with caution. The wrongdoing must be clearly and
convincingly established. It cannot just be presumed.
In the instant case, there is no evidence that Aircon was
formed or utilized with the intention of defrauding its
creditors or evading its contracts and obligations. There
was nothing fraudulent in the acts of Aircon in this case.
63.
64. PNB vs Ritratto
FACTS: PNB-IFL, a subsidiary company of PNB extended
credit to Ritratto and secured by the real estate
mortgages on four parcels of land. Since there was
default, PNB-IFL thru PNB, foreclosed the property and
were subject to public auction. Ritratto Group filed a
complaint for injunction. PNB filed a motion to dismiss
on the grounds of failure to state a cause of action and
the absence of any privity between respondents and
petitioner.
ISSUE: Whether PNB privy to the loan contracts entered
into by respondent & PNB-IFL being that PNB-IFL is
owned by PNB? – NO
HELD: No. The contract questioned is one entered into
between Ritratto and PNB-IFL. PNB was admittedly an
agent of the latter who acted as an agent with limited

authority and specific duties under a special power of
attorney incorporated in the real estate mortgage.
The mere fact that a corporation owns all of the 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 may be respected, and the liability of the
parent corporation as well as the subsidiary will be
confined to those arising in their respective business.
The courts may, in the exercise of judicial discretion,
step in to prevent the abuses of separate entity
privilege and pierce the veil of corporate entity.
65. MARUBENI CORPORATION v. FELIX LIRAG, GR No.
130998, 2001-08-10
Facts:
Petitioner Marubeni is a foreign corporation organized
and existing under the laws of Japan. It was doing
business in the Philippines through its duly licensed,
wholly owned subsidiary, Marubeni Philippines
Corporation. Petitioners Ryoichi Tanaka, Ryohei Kimura
and Shoichi One were officers of Marubeni assigned to
its Philippine branch.
On January 27, 1989, respondent Lirag filed with the
Regional Trial Court a complaint for specific
performance and damages claiming that petitioners
owed him the sum of P6,000,000.00 representing
commission pursuant to an oral consultancy...
agreement with Marubeni.
Lirag claimed that on February 2, 1987, petitioner
Ryohei Kimura hired his consultancy group for the
purpose of obtaining government contracts of various
projects.
Petitioners promised to pay him six percent (6%)
consultancy fee based on the total costs of the projects
obtained.
The consultancy agreement was not reduced into
writing because of the mutual trust between Marubeni
and the Lirag family.
Their close business and personal relationship dates
back to 1960, when respondent's family was engaged in
the textile fabric manufacturing business, in which
Marubeni supplied the needed machinery, equipment,
spare parts and raw materials.
In compliance with the agreement, respondent Lirag
made representations with various government
officials, arranged for meetings and conferences,
relayed pertinent information as well as submitted
feasibility studies and project proposals, including
pertinent documents required by petitioners.
CORPORATION LAW CASE DIGESTS | 1 77
One of the projects handled by respondent Lirag, the
Bureau of Post project, amounting to P100,000,000.00
was awarded to the "Marubeni-Sanritsu tandem."
Despite respondent's repeated formal verbal demands
for payment of the agreed consultancy fee petitioners
did not pay. In response to the first demand letter,
petitioners promised to reply within fifteen (15) days,
but they did not do so.
Pursuant to the consultancy agreement, respondent
claimed a commission of six percent (6%) of the total
contract price, or a total of P6,000,000.00, or in the
alternative, that he be paid the same amount by way of
damages or as the reasonable value of the services he
rendered to petitioners, and further claimed twenty
percent (20%) of the amount recoverable as attorney's
fees and the costs of suit. Petitioners denied the
consultancy agreement.
Petitioner Ryohei Kimura did not have the authority to
enter into such agreement in behalf of Marubeni. Only
Mr. Morihiko Maruyama, the general manager, upon
issuance of a special power of attorney by the
principal... office in Tokyo, Japan, could enter into any
contract in behalf of the corporation. Mr. Maruyama did
not discuss with respondent Lirag any of the matters
alleged in the complaint, nor agreed to the payment of
commission.
Thus, petitioners moved for the dismissal of the
complaint.
During the pre-trial conferences held on September 18
and October 16, 1989 and on January 24, March 15 and
May 17, 1990, no amicable settlement was reached.
Trial on the merits ensued.
On April 29, 1993, the trial court promulgated a decision
and ruled that respondent is entitled to a commission.
Respondent was led to believe that there existed an oral
consultancy agreement. Hence, he performed his part
of the agreement and helped petitioners get the
project.
On May 26, 1993, petitioners interposed an appeal from
the decision to the Court of Appeals.
After due proceedings, on October 9, 1997, the Court of
Appeals promulgated a decision affirming the decision
of the trial court. The Court of Appeals ruled that
preponderance of evidence favored the existence of a
consultancy agreement between the parties. It upheld
the factual... findings of the trial court
Issues: WON respondent is entitled to receive a
commission if there was, in fact, a consultancy...
agreement

Ruling: We find the appeal meritorious.
An assiduous scrutiny of the testimonial and
documentary evidence extant leads us to the conclusion
that the evidence could not support a solid conclusion
that a consultancy agreement, oral or written, was
agreed between petitioners and respondent.
In civil cases, he who alleges a fact has the burden of
proving it; a mere allegation is not evidence.
He must establish his cause by a preponderance of
evidence which respondent failed to establish in the
instant case.
Assuming for the sake of argument that an oral
consultancy agreement has been perfected between
the parties, respondent Lirag could not still claim fees
on the project that has not been awarded to Marubeni.
Respondent tried to justify his commission of roughly
about P6,000,000.00 in the guise that Marubeni and
Sanritsu are sister corporations, thereby implying the
need to pierce the veil of corporate fiction. Respondent
claimed that Marubeni as the supplier and real
contractor of the project hired and sub-contracted the
project to Sanritsu.
To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and
convincingly established. It cannot be presumed. The
separate personality of the corporation may be
disregarded only when the corporation is used as a
cloak or cover for fraud or illegality, or to work injustice,
or where necessary for the protection of creditors.
Any agreement entered into because of the actual or
supposed influence which the party has, engaging him
to influence executive officials in the discharge of their
duties, which contemplates the use of personal
influence and solicitation rather than an appeal to the
judgment of... the official on the merits of the object
sought is contrary to public policy.
Consequently, the agreement, assuming that the parties
agreed to the consultancy, is null and void as against
public policy.
Therefore, it is unenforceable before a court of justice.
66. BORROMEO VS CA
FACTS: Respondent Equitable Savings Bank is a
domestic savings bank corporation with principal office
and place of business at EPCIB Tower in Makati City. At
the time the dispute began, it was a subsidiary of
Equitable PCI Bank (EPCIB), a domestic universal
banking corporation with principal office
in Makati City. After the merger of EPCIB
CORPORATION LAW CASE DIGESTS | 1 78
and Banco De Oro (BDO), they have adopted the
corporate name Banco De Oro.
Petitioners were client-depositors of EPCIB for more
than 12 years. Petitioners alleged that sometime in mid-
1999, the branch manager of EPCIB offered a loan to
the petitioners under its Own-a-Home Loan
Program. Petitioners applied for a loan of P4,000,000.00
and were informed of the approval of the same.
To secure the payment of the loan, petitioners
executed an REM over their land
in Quezon City. Petitioners asserted that even if the loan
documents were signed in blank, it was understood that
they executed the REM in favor of EPCIB.
Respondent Bank then released a total amount
of P3,600,000.00 in four installments, while the balance
of P400,000.00 was not drawn by petitioners . On the
other hand, petitioners started to pay their monthly
amortizations.
Petitioners made repeated requests to EPCIB to furnish
them their copies of the loan documents which were
made verbally and also evidenced by letters from the
petitioner requesting their copies of the loan
documents. They further claimed that they purposely
did not draw the remaining balance of the loan in the
amount of P400,000.00 and stopped paying their loan
amortizations to protest EPCIBs continued failure to
provide them copies of the loan documents and its
imposition of an interest rate higher than that agreed
upon.
In reply to the petitioners letter, the VP of EPCIB, Gary
Vargas explained that as a matter of practice, their
clients were given original copies of the loan documents
only upon full release of the amount loaned. EPCIB
clarified that since petitioners loan had not been fully
released, the original documents were not yet sent to
them.
In the meantime, respondent, through counsel, also
sent a letter to the petitioners demanding payment for
their obligation amounting to P4,097,261.04, inclusive
of interest and other charges.
Finally, petitioners received copies of the loan
documents which they had earlier signed in
blank. According to petitioners, they were surprised to
find out that the Loan Agreement and REM designated
respondent ESB as lender and mortgagor, instead of
EPCIB with whom they allegedly entered into the
agreement.
When the petitioners failed to pay for the loan in full
by 30 September 2003, respondent sought to extra-
judicially foreclose the REM. However, petitioners filed

with the RTC a Complaint for Injunction, Annulment of
Mortgage with Damages and with Prayer for Temporary
Restraining Order and Preliminary and Mandatory
Injunction against EPCIB and respondent. The
petitioners alleged that the loan documents failed to
reflect the true agreement between the parties. Firstly,
the agreement was between the petitioners and EPCIB
and, consequently, respondent had no interest in the
REM.
ISSUE: WHETHER OR NOT THE PRIVATE RESPONDENT
SAVINGS BANK IS THE REAL PARTY-IN-INTEREST.
RULING: The petition is meritorious.
In this case, petitioners rights to their property is
restricted by the REM they executed over it. Upon their
default on the mortgage debt, the right to foreclose the
property would be vested upon the creditor-
mortgagee. Nevertheless, the right of foreclosure
cannot be exercised against the petitioners by any
person other than the creditor-mortgagee or its
assigns. According to the pertinent provisions of the
Civil Code:
Art. 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where the
rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value
of the property he received from the decedent.
If a contract should contain some stipulation in favor of
a third person, he may demand its fulfillment provided
he communicated his acceptance to the obligor before
its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a
third person. (Emphasis ours.)
An extrajudicial foreclosure instituted by a third party to
the Loan Agreement and the REM would, therefore, be
a violation of petitioners rights over their property.
In the instant case, petitioners assert that their creditor-
mortgagee is EPCIB and not respondent. While ESB
claims that petitioners have had transactions with it,
particularly the five check payments made in the name
of ESB, it fails to categorically state that ESB and not
EPCIB is the real creditor-mortgagor in this loan and
mortgage transaction. This Court finds the position
taken by the petitioners to be more credible. The four
Promissory Notes designate EPCIB as the lender.[39] In a
letter dated 19 December 2002, addressed to Home
Guaranty Corporation, EPCIB Vice President Gary Vargas
even specified petitioners loan as one of its housing
loans for which it sought insurance coverage. [40] Records
CORPORATION LAW CASE DIGESTS | 1 79
also show that petitioners repeatedly dealt with EPCIB.
When the petitioners complained of not receiving the
loan documents and the allegedly excessive interest
charges, they addressed their letter dated 3 August
2003 to the president of EPCIB.[41] The response, which
explained the loan transactions in detail in a letter
dated 27 August 2003, was written by Gary Vargas,
EPCIB Vice President.[42] Of almost three years
amortizations, the checks were issued by petitioners in
the name of EPCIB, except only for five checks which
were issued in respondents name.[43]
Respondent, although a wholly-owned subsidiary of
EPCIB, has an independent and separate juridical
personality from its parent company. The fact that a
corporation owns all of the stocks of another
corporation, taken alone, is not sufficient to justify
their being treated as one entity. If used to perform
legitimate functions, a subsidiarys separate existence
shall be respected, and the liability of the parent
corporation, as well as the subsidiary, shall be
confined to those arising from their respective
businesses. A corporation has a separate personality
distinct from its stockholders and other corporations
to which it may be conducted. [44] Any claim or suit of
the parent corporation cannot be pursued by the
subsidiary based solely on the reason that the former
owns the majority or even the entire stock of the
latter.
From a perusal of the records, petitioners did not enter
into a Loan Agreement and REM with
respondent. Respondent, therefore, has no right to
foreclose the subject property even after default, since
this right can only be claimed by the creditor-
mortgagor, EPCIB; and, consequently, the extrajudicial
foreclosure of the REM by respondent would be in
violation of petitioners property rights.
DOCTRINE OF SEPARATE JURIDICAL PERSONALITY
II. RECOVERY OF MORAL DAMAGES
1. MAMBULAO LUMBER COMPANY V. PNB (G.R. NO. L-
22973)
Facts: Petitioner Mambulao Lumber applied for an
industrial loan with herein respondent PNB and was
approved with its real estate, machinery and
equipments as collateral. PNB released the approved
loan but petitioner failed to pay and was later
discovered to have already stopped in its operation.
PNB then moved for the foreclosure and sale of the
mortgaged properties. The properties were sold and
petitioner sent a bank draft to PNB to settle the balance
of the obligation. PNB however alleges that a remaining
balance stands and a foreclosure sale would still be held

unless petitioner remits said amount. The foreclosure
sale proceeded and petitioner’s properties were taken
out of its compound. Petitioner filed actions before the
court and claims among others, moral damages.
Issue: Whether or not petitioner corporation, who has
already ceased its operation, may claim for moral
damages.
Ruling: NO.
Herein appellant’s claim for moral damages, however,
seems to have no legal or factual basis. Obviously, an
artificial person like herein appellant corporation cannot
experience physical sufferings, mental anguish, fright,
serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. A
corporation may have a good reputation which, if
besmirched, may also be a ground for the award of
moral damages. The same cannot be considered under
the facts of this case, however, not only because it is
admitted that herein appellant had already ceased in its
business operation at the time of the foreclosure sale of
the chattels, but also for the reason that whatever
adverse effects of the foreclosure sale of the chattels
could have upon its reputation or business standing
would undoubtedly be the same whether the sale was
conducted at Jose Panganiban, Camarines Norte, or in
Manila which is the place agreed upon by the parties in
the mortgage contract.
2. REN TRANSPORT CORP vs. NLRC
FACTS: Samahan ng Manggagawa sa Ren Transport
(SMART) is a registered union, which had a five-year
collective bargaining agreement (CBA) with Ren
Transport Corp. (Ren Transport). The 60-day freedom
period of the CBA passed without a challenge to
SMART'S majority status as bargaining agent. SMART
thereafter conveyed its willingness to bargain with Ren
Transport, to which it sent bargaining proposals. Ren
Transport, however, failed to reply to the demand.
Subsequently, two members of SMART wrote to the
Department of Labor and Employment - National
Capital Region (DOLE-NCR). The office was informed
that a majority of the members of SMART had decided
to disaffiliate from their mother federation to form
another union, Ren Transport Employees Association
(RTEA). SMART contested the alleged disaffiliation
through a letter dated 4 April 2005.
During the pendency of the disaffiliation dispute at the
DOLE-NCR, Ren Transport stopped the remittance to
SMART of the union dues that had been checked off
from the salaries of union workers as provided under
the CBA. Further, on 19 April 2005, Ren Transport
voluntarily recognized RTEA as the sole and exclusive
bargaining agent of the rank-and-file employees of their
company.
CORPORATION LAW CASE DIGESTS | 1 80
On 6 July 2005, SMART filed with the labor arbiter a
complaint for unfair labor practice against Ren
Transport.
LA RULING: Ren Transport is guilty of acts of unfair
labor practice.
NLRC RULING: affirmed the labor arbiter's finding of
unfair labor practice on the part of Ren Transport.
Union dues were ordered remitted to SMART.
The NLRC also awarded moral damages to SMART,
saying that Ren transport's refusal to bargain was
inspired by malice or bad faith. The precipitate
recognition of RTEA evidenced such bad faith,
considering that it was done despite the pendency of
the disaffiliation dispute at the DOLE-NCR.
CA RULING: deleted the award of moral damages to
SMART, but affirmed the NLRC decision on all other
matters. The CA ruled that SMART, as a corporation,
was not entitled to moral damages.
ISSUE: WON SMART is entitled to moral damages.
RULING: SMART is not entitled to an award of moral
damages.
Indeed, a corporation is not, as a general rule, entitled
to moral damages. Being a mere artificial being, it is
incapable of experiencing physical suffering or
sentiments like wounded feelings, serious anxiety,
mental anguish or moral shock.
Although this Court has allowed the grant of moral
damages to corporations in certain situations, it must
be remembered that the grant is not automatic. The
claimant must still prove the factual basis of the damage
and the causal relation to the defendant's acts. [37] In this
case, while there is a showing of bad faith on the part of
the employer in the commission of acts of unfair labor
practice, there is no evidence establishing the factual
basis of the damage on the part of SMART.
3. Bache & Co Inc vs. Ruiz GR L-32409, 27 February
1971
Facts: On 24 February 1970, Misael P. Vera,
Commissioner of Internal Revenue, wrote a letter
addressed to Judge Vivencio M. Ruiz requesting the
issuance of a search warrant against Bache & Co. (Phil.),
Inc. and Frederick E. Seggerman for violation of Section
46(a) of the National Internal Revenue Code (NIRC), in
relation to all other pertinent provisions thereof,
particularly Sections 53, 72, 73, 208 and 209, and
authorizing Revenue Examiner Rodolfo de Leon to make
and file the application for search warrant which was
attached to the letter.
In the afternoon of the following day, De Leon and his
witness, Arturo Logronio, went to the Court of First
Instance (CFI) of Rizal. They brought with them the
following papers: Vera’s letter-request; an application
for search warrant already filled up but still unsigned by
De Leon; an affidavit of Logronio subscribed before De

Leon; a deposition in printed form of Logronio already
accomplished and signed by him but not yet subscribed;
and a search warrant already accomplished but still
unsigned by Judge. At that time the Judge was hearing a
certain case; so, by means of a note, he instructed his
Deputy Clerk of Court to take the depositions of De
Leon and Logronio.
After the session had adjourned, the Judge was
informed that the depositions had already been taken.
The stenographer, upon request of the Judge, read to
him her stenographic notes; and thereafter, the Judge
asked Logronio to take the oath and warned him that if
his deposition was found to be false and without legal
basis, he could be charged for perjury.
The Judge signed de Leon’s application for search
warrant and Logronio’s deposition. Search Warrant 2-
M-70 was then signed by Judge and accordingly issued.
3 days later (a Saturday), the BIR agents served the
search warrant to the corporation and Seggerman at
the offices of the corporation on Ayala Avenue, Makati,
Rizal.
The corporation’s lawyers protested the search on the
ground that no formal complaint or transcript of
testimony was attached to the warrant. The agents
nevertheless proceeded with their search which yielded
6 boxes of documents.
On 3 March 1970, the corporation and Seggerman filed
a petition with the Court of First Instance (CFI) of Rizal
praying that the search warrant be quashed, dissolved
or recalled, that preliminary prohibitory and mandatory
writs of injunction be issued, that the search warrant be
declared null and void, and that Vera, Logronio, de
Leon, et. al., be ordered to pay the corporation and
Seggerman, jointly and severally, damages and
attorney’s fees.
After hearing and on 29 July 1970, the court issued an
order dismissing the petition for dissolution of the
search warrant. In the meantime, or on 16 April 1970,
the Bureau of Internal Revenue made tax assessments
on the corporation in the total sum of P2,594,729.97,
partly, if not entirely, based on the documents thus
seized.
The corporation and Seggerman filed an action for
certiorari, prohibition, and mandamus.
Issue: Whether the corporation has the right to contest
the legality of the seizure of documents from its office.
Held: The legality of a seizure can be contested only by
the party whose rights have been impaired thereby, and
that the objection to an unlawful search and seizure is
purely personal and cannot be availed of by third
parties. In Stonehill, et al. vs. Diokno, et al. (GR L-19550,
19 June 1967; 20 SCRA 383) the Supreme Court
impliedly recognized the right of a corporation to object
against unreasonable searches and seizures; holding
that the corporations have their respective
personalities, separate and distinct from the personality
of the corporate officers, regardless of the amount of
CORPORATION LAW CASE DIGESTS | 1 81
shares of stock or the interest of each of them in said
corporations, whatever, the offices they hold therein
may be; and that the corporate officers therefore may
not validly object to the use in evidence against them of
the documents, papers and things seized from the
offices and premises of the corporations, since the right
to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the
seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their
individual capacity.
The distinction between the Stonehill case and the
present case is that: in the former case, only the officers
of the various corporations in whose offices documents,
papers and effects were searched and seized were the
petitioners; while in the latter, the corporation to whom
the seized documents belong, and whose rights have
thereby been impaired, is itself a petitioner.
On that score, the corporation herein stands on a
different footing from the corporations in Stonehill.
Moreover, herein, the search warrant was void
inasmuch as First, there was no personal examination
conducted by the Judge of the complainant (De Leon)
and his witness (Logronio).
The Judge did not ask either of the two any question the
answer to which could possibly be the basis for
determining whether or not there was probable cause
against Bache & Co. and Seggerman. The participation
of the Judge in the proceedings which led to the
issuance of Search Warrant 2-M-70 was thus limited to
listening to the stenographer’s readings of her notes, to
a few words of warning against the commission of
perjury, and to administering the oath to the
complainant and his witness. This cannot be consider a
personal examination.
Second, the search warrant was issued for more than
one specific offense. The search warrant was issued for
at least 4 distinct offenses under the Tax Code. The first
is the violation of Section 46(a), Section 72 and Section
73 (the filing of income tax returns), which are
interrelated. The second is the violation of Section 53
(withholding of income taxes at source).
The third is the violation of Section 208 (unlawful
pursuit of business or occupation); and the fourth is the
violation of Section 209 (failure to make a return of
receipts, sales, business or gross value of output
actually removed or to pay the tax due thereon). Even in
their classification the 6 provisions are embraced in 2
different titles: Sections 46(a), 53, 72 and 73 are under
Title II (Income Tax); while Sections 208 and 209 are
under Title V (Privilege Tax on Business and
Occupation).
Lastly, the search warrant does not particularly describe
the things to be seized. Search Warrant No. 2-M-70
tends to defeat the major objective of the Bill of Rights,
i.e., the elimination of general warrants, for the
language used therein is so all-embracing as to include
all conceivable records of the corporation, which, if
 CORPORATION LAW CASE DIGESTS | 1 82

seized, could possibly render its business inoperative.
Thus, Search Warrant 2-M-70 is null and void.
4. Bataan Shipyard VS. PCGG
GR NO. 75885, MAY 27, 1987
Facts: BASECO describes itself in its petition as "a ship
repair and ship building company incorporated as a
domestic private corporation on Aug. 30, 1972 by a
consortium of Filipino ship owners and shipping
executives. Its main office is at Engineer Island, Port
Area, Manila, where its Engineer Island Shipyard is
housed, and its main shipyard is located at Mariveles
Bataan."
until such time that the Office of the President through
the Commission on Good Government should decide
otherwise.
3. To report to the Commission on Good Government
periodically.
Further, you are authorized to request for
Military/Security Support from the
Military/Police authorities, and such other acts essential
to the achievement of this sequestration order.
Thereafter, the corporation was ordered by the PCGG to
produce certain documents such as:

Its Articles of Incorporation disclose that its authorized 1. Stock Transfer Book
capital stock is Php60,000,000.00 divided into 60,000
2. Legal documents, such as:
shares, of which 12,000 shares with a value of
Php12,000,000.00 have been subscribed, and on said 2.1. Articles of Incorporation
subscription, the aggregate sum of Php3,035,000.00 has
been paid by the incorporators. 2.2. By-Laws

The same articles identify the incorporators, numbering
fifteen. By 1986, however, of these fifteen
incorporators, six had ceased to be stockholders. As of
1986, there were twenty stockholders listed in
BASECO's Stock and Transfer Book.
2.3. Minutes of the Annual Stockholders Meeting from
1973 to 1986
2.4. Minutes of the Regular and Special Meetings of the
Board of Directors from

When EO 1 & 2 was promulgated by Pres. 1973 to 1986

Corazon Aquino and respectively the sequestration,
2.5. Minutes of the Executive Committee Meetings from
takeover and other orders in relation to the EO done by
1973 to 1986
the PCGG to the alleged Marcos controlled corporation
which is BASECO. The problem arose when the 2.6. Existing contracts with
sequestration order was initiated. The sequestration suppliers/contractors/others.
order was directed to 3 commissioners of the PCGG
directing them to sequester the following: 3. Yearly list of stockholders with their corresponding
share/stockholdings from 1973 to 1986 duly certified by
1. Bataan Shipyard and Engineering Co., Inc. the Corporate Secretary.
(Engineering Island Shipyard and
4. Audited Financial Statements such as Balance Sheet,
Mariveles Shipyard) Profit & Loss and others from 1973 to December 31,
1985.
2. Baseco Quarry
5. Monthly Financial Statements for the current year up
3. Philippine Jai-Alai Corporation
to March 31, 1986.
4. Fidelity Management Co., Inc.
6. Consolidated Cash Position Reports from January to
5. Romson Realty, Inc. April 15, 1986.

6. Trident Management Co. 7. Inventory listings of assets up dated up to March 31,

1986.
7. New Trident Management
8. Updated schedule of Accounts Receivable and
8. Bay Transport Accounts Payable.

9. And all affiliate companies of Alfredo "Bejo" 9. Complete list of depository banks for all funds with
Romualdez the authorized signatories for withdrawals thereof.

And were ordered to do the following: 10. Schedule of company investments and placements.

1. To implement this sequestration order with a Petitioner now prays to the Court to:
minimum disruption of these companies' business
activities. 1) declare unconstitutional and void Executive Orders
Numbered 1 and 2;
2. To ensure the continuity of these companies as going
concerns, the care and maintenance of these assets

2) annul the sequestration order dated April- 14, 1986,
and all other orders subsequently issued and acts done
on the basis thereof, inclusive of the takeover order of
July 14, 1986 and the termination of the services of the
BASECO executives.
3) the production of certain document infringed the
right against self-incrimination
4) and that PCGG unduly interfered with its
management and affairs and right of dominion.
Argument of BASECO: First, no notice and hearing was
accorded to it before its properties and business were
taken over; Second, the PCGG is not a court, but a
purely investigative agency and therefore not
competent to act as prosecutor and judge in the same
cause; Third, there is nothing in the issuances which
envisions any proceeding, process or remedy by which
petitioner may expeditiously challenge the validity of
the takeover after the same has been effected; and
Fourthly, being directed against specified persons, and
in disregard of the constitutional presumption of
innocence and general rules and procedures, they
constitute a Bill of Attainder."
Issues:
1. Whether or not the order of production of
documents would be self-incriminating to BASECO
2. Whether or not a corporation can avail the right
against self-incrimination
Held: ISSUES 1 & 2:
The Court held that the right against self-incrimination
has no application to corporations. Every corporation is
a direct creature of the law and receives an individual
franchise from the State. But a partnership, although is
deemed to be a juridical person by grant of the State,
becomes a juridical person through a private contract of
partnership between and among the partners, without
needing to register its existence with the State or any of
its organs. More importantly, the partnership “person”
is a fiction of law given more for the convenience of the
partners, and thus can be dissolved by the will of the
partners or by the happening of an event that would
constitute the termination of the contractual
relationship, whereas, no corporation can be dissolved
without the consent of the State, and only after due
notice and hearing. Likewise, the other features of the
partnership, mainly mutual agency, delectus personae
and unlimited liability on the part of the partners, that
places a close identity between the persons of the
partners and that of the partnership. This is unlike in
corporate setting, where the stockholders do not own
corporate properties, have no participation in
management of corporate affairs, and enjoy personal
immunity from the debts and liabilities of the
corporation, and where basically the corporation “is its
own person,” and acts through a professional group of
managers and agents called the Board of Directors.
CORPORATION LAW CASE DIGESTS | 1 83
While therefore it is understandable that a corporation,
that has no heart, feels pain, and has no soul that can
be damned, cannot be expected to be entitled to the
constitutional right against self-incrimination, it is quite
different in the case of the partnership, since its person
is merely an extension of the group of partners, who
having come together in business, and acting still for
such business enterprise, could not be presumed to
have waived their individual rights against self-
incrimination.
5. PNB vs CA
Facts: Rita Tapnio owes PNB an amount of P2,000.00.
The amount is secured by her sugar crops about to be
harvested including her export quota allocation worth
1,000 piculs. The said export quota was later dealt by
Tapnio to a certain Jacobo Tuazon at P2.50 per picul or
a total of P2,500. Since the subject of the deal is
mortgaged with PNB, the latter has to approve it. The
branch manager of PNB recommended that the price
should be at P2.80 per picul which was the prevailing
minimum amount allowable. Tapnio and Tuazon agreed
to the said amount. And so the bank manager
recommended the agreement to the vice president of
PNB. The vice president in turn recommended it to the
board of directors of PNB.
However, the Board of Directors wanted to raise the
price to P3.00 per picul. This Tuazon does not want
hence he backed out from the agreement. This resulted
to Tapnio not being able to realize profit and at the
same time rendered her unable to pay her P2,000.00
crop loan which would have been covered by her
agreement with Tuazon.
Eventually, Tapnio was sued by her other creditors and
Tapnio filed a third party complaint against PNB where
she alleged that her failure to pay her debts was
because of PNB’s negligence and unreasonableness.
ISSUE: Whether or not Tapnio is correct.
HELD: Yes. In this type of transaction, time is of the
essence considering that Tapnio’s sugar quota for said
year needs to be utilized ASAP otherwise her allotment
may be assigned to someone else, and if she can’t use
it, she won’t be able to export her crops. It is
unreasonable for PNB’s board of directors to disallow
the agreement between Tapnio and Tuazon because of
the mere difference of 0.20 in the agreed price rate.
What makes it more unreasonable is the fact that the
P2.80 was recommended both by the bank manager
and PNB’s VP yet it was disapproved by the board.
Further, the P2.80 per picul rate is the minimum
allowable rate pursuant to prevailing market trends that
time. This unreasonable stand reflects PNB’s lack of the
reasonable degree of care and vigilance in attending to
the matter. PNB is therefore negligent.
In failing to observe the reasonable degree of care and
vigilance which the surrounding circumstances
reasonably impose, petitioner is consequently liable for
the damages caused on private respondents. Under
Article 21 of the New Civil Code, “any person who

wilfully causes loss or injury to another in a manner that
is contrary to morals, good customs or public policy
shall compensate the latter for the damage.” The afore-
cited provisions on human relations were intended to
expand the concept of torts in this jurisdiction by
granting adequate legal remedy for the untold number
of moral wrongs which is impossible for human
foresight to specifically provide in the statutes.
A corporation is civilly liable in the same manner as
natural persons for torts, because “generally speaking,
the rules governing the liability of a principal or master
for a tort committed by an agent or servant are the
same whether the principal or master be a natural
person or a corporation, and whether the servant or
agent be a natural or artificial person. All of the
authorities agree that a principal or master is liable for
every tort which it expressly directs or authorizes, and
this is just as true of a corporation as of a natural
person, a corporation is liable, therefore, whenever a
tortious act is committed by an officer or agent under
express direction or authority from the stockholders or
members acting as a body, or, generally, from the
directors as the governing body.”
6. Time Inc. vs. Judge Reyes
Facts: In Time’s Asian Edition Magazine, Manila Mayor
Antonio Villegas was accused of having coffers
containing “far more pesos than seemed reasonable in
the light of his income.” Juan Ponce Enrile was dragged
onto the article because he allegedly lent Villegas
30,000 pesos as he was his compadre and at that time,
Enrile was the Secretary of Finance.
Villegas and Enrile sought to recover damages from
Time Magazine, an American Corporation, so they filed
a complaint in the CFI of Rizal.
Petitioner received the summons and a copy of the
complaint at its offices in New York on 13 December
1967 and, on 27 December 1967, it filed a motion to
dismiss the complaint for lack of jurisdiction and
improper venue, relying upon the provisions of Republic
Act 4363.
The judge deferred the proceedings for the reason that
"the rule laid down under Republic Act. No. 4363,
amending Article 360 of the Revised Penal Code, is not
applicable to actions against non-resident defendants,
and because questions involving harassment and
inconvenience, as well as disruption of public service do
not appear indubitable.
Issue/s: 1. WON under the provisions of Republic Act
No. 4363 the respondent Court of First Instance of Rizal
has jurisdiction to take cognizance of the civil suit for
damages arising from an allegedly libelous publication,
considering that the action was instituted by public
officers whose offices were in the City of Manila at the
time of the publication; if it has no jurisdiction, whether
or not its erroneous assumption of jurisdiction may be
challenged by a foreign corporation by writ of certiorari
or prohibition. – NO and YES
CORPORATION LAW CASE DIGESTS | 1 84
2. WON Republic Act 4363 is applicable to action against
a foreign corporation or non-resident defendant – NO
Ruling: GRANTED.
Ratio:
1. Art 360, RA 4363 reads in part: The criminal and civil
action for damages in cases of written defamations as
provided for in this chapter, shall be filed
simultaneously or separately with the court of first
instance of the province or city where the libelous
article is printed and first published or where any of the
offended parties actually resides at the time of the
commission of the offense;
Provided, however, That where one of the offended
parties is a public officer whose office is in the City of
Manila at the time of the commission of the offense,
the action shall be filed in the Court of First Instance of
the City of Manila or of the city or province where the
libelous article is printed and first published, and in case
such public officer does not hold office in the City of
Manila, the action shall be filed in the Court of First
Instance of the province or city where he held office at
the time of the commission of the offense or where the
libelous article is printed and first published and in case
one of the offended parties is a private individual, the
action shall be filed in the Court of First Instance of the
province or city where he actually resides at the time of
the commission of the offense or where the libelous
matter is printed and first published;
Provided,further, That the civil action shall be filed in
the same court where the criminal action is filed and
vice versa;
Provided, furthermore, That the court where the
criminal action or civil action for damages is first filed,
shall acquire jurisdiction to the exclusion of other
courts; And provided finally, That this amendment shall
not apply to cases of written defamations, the civil
and/or criminal actions which have been filed in court at
the time of the effectivity of the law…
2. The complaint lodged in the court of Rizal by
respondents does not allege that the libelous article
was printed and first published in the province of Rizal
and, since the respondents-plaintiffs are public officers
with offices in Manila at the time of the commission of
the alleged offense, it is clear that the only place left for
them wherein to file their action, is the Court of First
Instance of Manila.
3. The intent, of the law is clear: a libeled public official
might sue in the court of the locality where he holds
office, in order that the prosecution of the action should
interfere as little as possible with the discharge of his
official duties and labors. The only alternative allowed
him by law is to prosecute those responsible for the
libel in the place where the offending article was
printed and first published. Here, the law tolerates the
interference with the libeled officer's duties only for the
sake of avoiding unnecessary harassment of the
accused. Since the offending publication was not

printed in the Philippines, the alternative venue was not
open to respondent Mayor Villegas of Manila and
Undersecretary of Finance Enrile, who were the
offended parties.
4. That respondents-plaintiffs could not file a criminal
case for libel against a non-resident defendant does not
make Republic Act No. 4363 incongruous of absurd, for
such inability to file a criminal case against a non-
resident natural person equally exists in crimes other
than libel. It is a fundamental rule of international
jurisdiction that no state can by its laws, and no court
which is only a creature of the state, can by its
judgments or decrees, directly bind or affect property or
persons beyond the limits of the state. Not only this, but
if the accused is a corporation, no criminal action can lie
against it, whether such corporation or resident or non-
resident. At any rate, the case filed by respondents-
plaintiffs is case for damages.
5. 50 Am. Jur. 2d 659 differentiates the "multiple
publication" and "single publication" rules (invoked by
private respondents) to be as follows: The common law
rule as to causes of action for tort arising out of a single
publication was to the effect that each communication
of written or printed matter was a distinct and separate
publication of a libel contained therein, giving rise to a
separate cause of action. This rule ('multiple
publication' rule) is still followed in several American
jurisdictions, and seems to be favored by the American
Law Institute. Other jurisdictions have adopted the
'single publication' rule which originated in New York,
under which any single integrated publication, such as
one edition of a newspaper, book, or magazine, or one
broadcast, is treated as a unit, giving rise to only one
cause of action, regardless of the number of times it is
exposed to different people.
6. These rules are not pertinent in the present scheme
because the number of causes of action that may be
available to the respondents-plaintiffs is not here in
issue. The court is confronted by a specific venue
statute, conferring jurisdiction in cases of libel against
Public officials to specified courts, and no other. The
rule is that where a statute creates a right and provides
a remedy for its enforcement, the remedy is exclusive;
and where it confers jurisdiction upon a particular
court, that jurisdiction is likewise exclusive, unless
otherwise provided. Hence, the venue provisions of
Republic Act No. 4363 should be deemed mandatory for
the party bringing the action, unless the question of
venue should be waived by the defendant, which was
not the case here. Only thus can the policy of the Act be
upheld and maintained. Nor is there any reason why the
inapplicability of one alternative venue should result in
rendering the other alternative, also inapplicable.
7. Petitioner's failure to aver its legal capacity to
institute the present petition is not fatal, for A foreign
corporation may, by writ of prohibition, seek relief
against the wrongful assumption of jurisdiction. And a
foreign corporation seeking a writ of prohibition against
further maintenance of a suit, on the ground of want of
jurisdiction in which jurisdiction is not bound by the
CORPORATION LAW CASE DIGESTS | 1 85
ruling of the court in which the suit was brought, on a
motion to quash service of summons, that it has
jurisdiction.
8. It is also advanced that the present petition is
premature, since respondent court has not definitely
ruled on the motion to dismiss, nor held that it has
jurisdiction, but only argument is untenable. The motion
to dismiss was predicated on the respondent court's
lack of jurisdiction to entertain the action; and the
rulings of this Court are that writs of certiorari or
prohibition, or both, may issue in case of a denial or
deferment of action on such a motion to dismiss for lack
of jurisdiction.
E. INCORPORATION AND ORGANIZATION
1. SAMAHAN NG OPTOMETRISTS VS. ACEBEDO
INTERNATIONAL CORPORATION
G.R. NO. 117097
FACTS:
On February 22, 1991, Acebedo filed an application with
the Office of the Mayor of Candon, Ilocos Sur, for the
issuance of a permit for the opening and operation of a
branch of the Acebedo Optical in that municipality.
The application was opposed by the Samahan ng
Optometrists sa Pilipinas (SOP) which contended that
Acebedo is a juridical entity not qualified to practice
optometry.
On March 6, 1991, Acebedo filed its answer, arguing it is
not the corporation, but the optometrists employed by
it, who would be practicing optometry.
On April 17, 1991, the Mayor of Candon created a
committee, composed of "public respondents Eduardo
Ma. Guirnalda, Dante G. Pacquing and Octavio de
Peralta, to pass on Acebedo’s application.
On September 26, 1991 the committee rendered a
decision denying Acebedo application for a mayor's
permit to operate a branch in Candon and ordering
Acebedo to close its establishment within fifteen (15)
days from receipt of the decision. Acebedo moved for
reconsideration but its motion was denied on
November 14, 1991. Acebedo was ordered to close its
establishment within ten (10) days from receipt of the
order.
On December 9, 1991, Acebedo filed with the Court of
Appeals a petition for certiorari (CA G.R SP No. 26782),
questioning the decision of respondent committee. Its
petition, however, was referred to the court a quo,
which on December 16, 1992, dismissed Acebedo's
petition. Hence, the appeal.
ISSUES:
WON Acebedo as a Corporation is qualified to practice
optometry.
HELD:

No. Private respondent does not deny that it
employs optometrists whose role in the operations of
its optical shops is to administer the proper eye
examination in order to determine the correct type and
grade of lenses to prescribe to persons purchasing the
same from private respondent's optical shops.
Petitioners vehemently insist that in so employing said
optometrists, private respondent is in effect itself
practicing optometry. Such practice, petitioners
conclude, is in violation of RA. No. 1998, which, it must
be noted at this juncture, has been repealed and
superseded by RA. 8050.
Petitioners' contentions are, however, untenable.
The fact that private respondent hires optometrists who
practice their profession in the course of their
employment in private respondent's optical shops, does
not translate into a practice of optometry by private
respondent itself. Private respondent is a corporation
created and organized for the purpose of conducting
the business of selling optical lenses or eyeglasses,
among others. The clientele of private respondent
understably, would largely be composed of persons
with defective vision and thus need the proper lenses to
correct the same and enable them to gain normal
vision. The determination of the proper lenses to sell to
private respondent's clientele entails the employment
of optometrists who have been precisely trained for
that purpose. Private respondent's business is not the
determination itself of the proper lenses needed by
persons with defective vision. Private respondent's
business, rather, is the buying and importing of
eyeglasses and lenses and other similar or allied
instruments from suppliers thereof and selling the same
to consumers.
For petitioners' argument to hold water, there
need be clear showing that RA. No. 1998 prohibits a
corporation from hiring optometrists, for only then
would it be undeniably evident that the intention of the
legislature is to preclude the formation of the so-called
optometry corporations because such is tantamount to
the practice of the profession of optometry which is
legally exercisable only by natural persons and
professional partnerships. We have carefully reviewed
RA. No. 1998 however, and we find nothing therein that
supports petitioner's insistent claims.
All told, there is no law that prohibits the hiring by
corporations of optometrists or considers the hiring by
corporations of optometrists as a practice by the
corporation itself of the profession of optometry.
Wherefore, the instant petition is hereby
dismissed. Costs against the petitioners.
3. Corporate name; LIMITATION ON USE OF
CORPORATION NAME
CORPORATION LAW CASE DIGESTS | 1 86
1) INDIAN CHAMBER OF COMMERCE PHILS., INC.
v. FILIPINO INDIAN CHAMBER OF COMMERCE IN THE
PHILIPPINES, INC.
FACTS:
Filipino-Indian Chamber of Commerce of the
Philippines, Inc. (defunct FICCPI) was originally
registered with the SEC as Indian Chamber of
Commerce of Manila, Inc. on November 24, 1951, with
SEC Registration Number 6465 On October 7, 1959, it
amended its corporate name into Indian Chamber of
Commerce of the Philippines, Inc., and further amended
it into Filipino-Indian Chamber of Commerce of the
Philippines, Inc. on
March 4, 1977,. Pursuant to its Articles of Incorporation,
and without applying for an extension of its corporate
term, the defunct FICCPI's term of existence expired on
November 24, 2001.
SEC Case No. 05-008
On January 20, 2005, Mr. Naresh Mansukhani
(Mansukhani) reserved
the corporate name "Filipino Indian Chamber of
Commerce in the Philippines, Inc." (FICCPI), for the
period from January 20, 2005 to April 20, 2005, with the
Company Registration and Monitoring Department
(CRMD) of the SEC.8In an opposition letter dated April 1,
2005, Ram Sitaldas (Sitaldas), claiming to be a
representative of the defunct FICCPI, alleged that the
corporate name has been used by the defunct FICCPI
since 1951, and that the reservation by another person
who is not its member or representative is illegal.
The CRMD called the parties for a conference and
required them to submit their position papers.
Subsequently, on May 27, 2005, the CRMD rendered a
decision granting Mansukhani's reservation, holding
that he possesses the better right over the corporate
name. The CRMD ruled that the defunct FICCPI has no
legal personality to oppose the reservation of the
corporate name by Mansukhani. After the expiration of
the defunct FICCPFs corporate existence, without any
act on its part to extend its term, its right over the name
ended. Thus, the name "Filipino Indian Chamber of
Commerce in the Philippines, Inc." is free for
appropriation by any party.
On September 27, 2006, the CA affirmed the decision of
the SEC En Banc. It ruled that Mansukhani, reserving the
name 'Filipino Indian Chamber of Commerce in the
Philippines, Inc.," has the of the better right over the
corporate name. It ruled that with the expiration
corporate life of the defunct FICCPI, without an
extension having been filed and granted, it lost its legal

personality as a corporation. Thus, the CA affirmed the
SEC En Banc ruling that after the expiration of its term,
the defunct FICCPI's rights over the name also
ended. The CA also cited SEC Memorandum Circular No.
14-200018 which gives protection to corporate names
for a period of three years after the approval of the
dissolution of the corporation. It noted that the
reservation for the use of the corporate name "Filipino
Indian Chamber of Commerce in the Philippines, Inc.,"
and the opposition were filed only in January 2005, way
beyond this three-year period.
SEC Case No. 06-014
On December 8, 2005, Mr. Pracash Dayacanl, who
allegedly represented the defunct FICCPI, filed an
application with the CRMD for the reservation of the
corporate name "Indian Chamber of Commerce Phils.,
Inc." (ICCPI). Upon knowledge, Mansukhani, in a letter
dated February 14, 2006, formally opposed the
application. Mansukhani cited the SEC En Banc decision
in SEC Case No. 05-008 recognizing him as the one
possessing the better right over the corporate name
"Filipino Chamber of Commerce in the Philippines, Inc.
In a letter dated April 5, 2006 the CRMD denied
Mansukhani's opposition. It stated that the name
"Indian Chamber of Commerce Phils., Inc." is not
deceptively or confusingly similar to "Filipino Indian
Chamber of Commerce in the Philippines, Inc." On the
same date, the CRMD approved and issued the
Certificate of Incorporation of petitioner ICCPI.
the SEC En Bane granted the appeal filed by FICCPI, and
reversed the CRMD's decision. Citing Section 18 of the
Corporation Code,the SEC En Bane made a finding that
"both from the standpoint of their [ICCPI and FICCPI]
corporate names and the purposes for which they were
established, there exist[s] a similarity that could
inevitably lead to confusion." It also ruled that
"oppositor [FICCPI] has the prior right to use its
corporate name to the exclusion of the others. It was
registered with the Commission on March 14, 2006
while respondent [ICCPI] was registered on April 05,
2006. By virtue of oppositor's [FICCPI] prior
appropriation and use of its name, it is entitled to
protection against the use of identical or similar name
of another corporation.
ISSUE:
1. WoN FICCPI acquired a prior right over
the use of the corporate name.
2. WoN ICCPI's name is identical and
deceptively or confusingly similar to
that of FICCPI.
CORPORATION LAW CASE DIGESTS | 1 87
HELD:
1. In this case, FICCPI was incorporated on March 14,
2006. On the other hand, ICCPI was incorporated only
on April 5, 2006, or a month after FICCPI registered its
corporate name. Thus, applying the principle in
the Refractories case (priority of adoption rule), we
hold that FICCPI, which was incorporated earlier,
acquired a prior right over the use of the corporate
name.
ICCPI cannot argue that it first incorporated and held
the "Filipino Indian Chamber of Commerce," in 1977;
and that it established the name's goodwill until it failed
to renew its name due to oversight.49 It is settled that a
corporation is ipso facto dissolved as soon as its term of
existence expires.50 SEC Memorandum Circular No. 14-
2000 likewise provides for the use of corporate names
of dissolved corporations:
14. The name of a dissolved firm shall not be allowed to
be used by other firms within three (3) years after the
approval of the dissolution of the corporation by the
Commission, unless allowed by the last stockholders
representing at least majority of the outstanding capital
stock of the dissolved firm.
When the term of existence of the defunct FICCPI
expired on November 24, 2001, its corporate name
cannot be used by other corporations within three years
from that date, until November 24, 2004. FICCPI
reserved the name "Filipino Indian Chamber of
Commerce in the Philippines, Inc." on January 20, 2005,
or beyond the three-year period. Thus, the SEC was
correct when it allowed FICCPI to use the reserved
corporate name.
2. ICCPFs arguments are without merit. These words do
not effectively distinguish the corporate names. On the
one hand, the word "Filipino" is merely a description,
referring to a Filipino citizen or one living in the
Philippines, to describe the corporation's members. On
the other, the words "in the Philippines" and "Phils.,
Inc." are simply geographical locations of the
corporations which, even if appended to both the
corporate names, will not make one distinct from the
other. Under the facts of this case, these words cannot
be separated from each other such that each word can
be considered to add distinction to the corporate
names. Taken together, the words in the phrase "in the
Philippines" and in the phrase "Phils. Inc." are
synonymous—they both mean the location of the
corporation.
Petitioner cannot argue that the combination of words
in respondent's corporate name is merely descriptive

and generic, and consequently cannot be appropriated
as a corporate name to the exclusion of the
others.57 Save for the words "Filipino," "in the," and
"Inc.," the corporate names of petitioner and
respondent are identical in all other respects.
On the second point, ICCPI's corporate name is
deceptively or confusingly similar to that of FICCPI. It is
settled that to determire the existence of confusing
similarity in corporate names, the test is whether the
similarity is such as to mislead a person, using ordinary
care and discrimination. In so doing, the court must
examine the record as well as the names
themselves.59 Proof of actual confusion need not be
shown. It suffices that confusion is probably or likely to
occur.60chanrobleslaw
In this case, the overriding consideration in determining
wheiher a person, using ordinary care and
discrimination, might be misled is the circumstance that
both ICCPI and FICCPI have a common primary purpose,
that is, the promotion of Filipino-Indian business in the
Philippines.
2) Philips Export B.V. vs. CA
FACTS:
Philips Export B.V. (PEBV) filed with the SEC for the
cancellation of the word “Philips” the corporate name
of Standard Philips Corporation in view of its prior
registration with the Bureau of Patents and the SEC.
However, Standard Philips refused to amend its Articles
of Incorporation so PEBV filed with the SEC a petition
for the issuance of a Writ of Preliminary Injunction,
however this was denied ruling that it can only be done
when the corporate names are identical and they have
at least 2 words different. This was affirmed by the SEC
en banc and the Court of Appeals thus the case at bar.
ISSUE:
Whether or not Standard Philips can be enjoined from
using Philips in its corporate name.
RULING: YES
A corporation’s right to use its corporate and trade
name is a property right, a right in rem, which it may
assert and protect against the whole world. According
to Sec. 18 of the Corporation Code, no corporate name
may be allowed if the proposed name is identical or
deceptively confusingly similar to that of any existing
corporation or to any other name already protected by
law or is patently deceptive, confusing or contrary to
existing law.
CORPORATION LAW CASE DIGESTS | 1 88
For the prohibition to apply, 2 requisites must be
present:
(1) the complainant corporation must have acquired a
prior right over the use of such corporate name and
(2) the proposed name is either identical or deceptively
or confusingly similar to that of any existing corporation
or to any other name already protected by law or
patently deceptive, confusing or contrary to existing
law.
With regard to the 1st requisite, PEBV adopted the
name “Philips” part of its name 26 years before
Standard Philips. As regards the 2nd, the test for the
existence of confusing similarity is whether the
similarity is such as to mislead a person using ordinary
care and discrimination. Standard Philips only contains
one word, “Standard”, different from that of PEBV. The
2 companies’ products are also the same, or cover the
same line of products. Although PEBV primarily deals
with electrical products, it has also shipped to its
subsidiaries machines and parts which fall under the
classification of “chains, rollers, belts, bearings and
cutting saw”, the goods which Standard Philips also
produce. Also, among Standard Philips’ primary
purposes are to buy, sell trade x x x electrical wiring
devices, electrical component, electrical supplies. Given
these, there is nothing to prevent Standard Philips from
dealing in the same line of business of electrical devices.
The use of “Philips” by Standard Philips tends to show
its intention to ride on the popularity and established
goodwill of PEBV.
3) Universal Mills Corporation vs Universal Textile
Mills, Inc.
FACTS:
In 1953, Universal Textile Mills, Inc. (UTMI) was
organized. In 1954, Universal Hosiery Mills Corporation
(UHMC) was also organized. Both are actually distinct
corporations but they engage in the same business
(fabrics). In 1963, UHMC petitioned to change its name
to Universal Mills Corporation (UMC). The Securities
and Exchange Commission (SEC) granted the petition.
Subsequently, a warehouse owned by UMC was gutted
by fire. News about the fire spread and investors of
UTMI thought that it was UTMI’s warehouse that was
destroyed. UTMI had to make clarifications that it was
UMC’s warehouse that got burned. Eventually, UTMI
petitioned that UMC should be enjoined from using its
name because of the confusion it brought. The SEC
granted UTMI’s petition. UMC however assailed the
order of the SEC as it averred that their tradename is

not deceptive; that UTMI’s tradename is qualified by
the word “Textile”, hence, there can be no confusion.
ISSUE: Whether or not the decision of the SEC is correct.
HELD: Yes. There is definitely confusion as it was
evident from the facts where the investors of UTMI
mistakenly believed that it was UTMI’s warehouse that
was destroyed. Although the corporate names are not
really identical, they are indisputably so similar that it
can cause, as it already did, confusion. The SEC did not
act in abuse of its discretion when it order UMC to drop
its name because there was a factual evidence
presented as to the confusion. Further, when UMC filed
its petition for change of corporate name, it made an
undertaking that it shall change its name in the event
that there is another person, firm or entity who has
obtained a prior right to the use of such name or one
similar to it. That promise is still binding upon the
corporation and its responsible officers.
4.) INDUSTRIAL REFRACTORIES CORPORATION OF THE
PHILIPPINES, petitioner, v. COURT OF APPEALS,
SECURITIES AND EXCHANGE COMMISSION and
REFRACTORIES CORPORATION OF THE PHILIPPINES,
respondents , G.R. 122174 (2002)
FACTS: Respondent Refractories Corporation of the
Philippines (Refractories Corp) is a corporation duly
organized on 1976 engaged in the business of
manufacturing, producing, selling, exporting and
otherwise dealing in any and all refractory bricks, its by-
products and derivatives.
Petitioner Industrial Refractories Corporation (Industrial
Refractories) on the other hand, was incorporated in
1979 originally under the name Synclaire Manufacturing
Corporation. Its amended Articles of Incorporation
changed its corporate name. It is engaged in the
business of manufacture of all kinds of ceramics and
other products.
Both companies are local suppliers of monolithic
gunning mix.
When respondent Refractories Corp discovered that
petitioner was using such corporate name, they filed
before the Securities and Exchange Commission a
petition to compel petitioner to change its corporate
name on the ground that it is confusingly similar with
that of petitioners such that the public may be confused
or deceived into believing that they are one and the
same corporation.
On appeal, petitioner Industrial Refractories
contended that there is no confusing similarity
between their corporate names, hence, the said
complaint must be denied.
CORPORATION LAW CASE DIGESTS | 1 89
ISSUE: 1.) Whether or not there is a need for petitioner
Industrial Refractories to change its corporate name on
the ground of confusing similarity with that of the
respondent’s. –YES
2.) Whether SEC has jurisdiction over the case. -YES
RULING: 1.) Petitioner must change its corporate name.
Confusing and deceptive similarity of corporate names
is prohibited under Section 18 of the Corporation Code.
The policy behind the prohibition is to avoid fraud upon
the public that will have the occasion to deal with the
entity concerned, the evasion of legal obligations
and duties, and the reduction of difficulties of
administration and supervision over the corporation.
Pursuant to the said law, the Revised Guidelines in
the Approval of Corporate and Partnership Names
specifically requires that: (1) corporate name shall not
be identical, misleading or confusingly similar to one
already registered by another corporation with the
Commission, and (2) if the proposed name is similar to
the name of a registered firm, the proposed name must
contain at least one distinctive word different from the
name of the company already registered.
Further, as held in Philips Export B.V. v. Court of
Appeals, to fall within the prohibition of the law, two
requisites must be proven, to wit: (1) that the
complainant corporation acquired a prior right over the
use of such corporate name, and (2) the proposed name
is either identical, deceptively or confusingly similar to
that of any existing corporation or to any other name
protected by law, or patently deceptive, confusing or
contrary to existing law.
Moreover, as to the first requisite or the Priority of
Adoption rule, the Court says that the right to the
exclusive use of a corporate name with the freedom
from infringement by similarity is determined by priority
of adoption. In this case, respondent Refractories Corp
was incorporated in 1976 while petitioner Industrial
Refractories, incorporated in 1979, only started using its
name when it amended its Articles of Incorporation
in1985. Hence, being the prior registrant, Refractories
Corp has acquired the right to use ‘Refractories’ as part
of its corporate name.
Lastly, with respect to the second requisite, in
determining the existence of confusing similarity in
corporate names, the test is whether the similarity is
such as to mislead a person using ordinary care and
discrimination and the Court must look to the record as
well as the names themselves. The Court stressed the
fact that petitioner’s corporate name is “Industrial
Refractories Corporation of the Philippines”, while

respondent is “Refractories Corporation of the
Philippines”. Obviously, both names contain the words:
‘refractories’, ‘corporation’ and ‘Philippines’. The only
word that distinguishes the former from the latter is the
word ‘Industrial’, which merely identifies a
corporation’s general field of activities or operation. We
need not linger on these two corporate names to
conclude that they are patently similar that even with
reasonable care and observation, confusion might
arise. It must be noted that both cater to the same
clientele, i.e. the steel industry. In fact, the SEC found
that there were instances when different steel
companies were actually confused between the two,
especially since they also have similar product
packaging. Such findings are accorded not only great
respect but even finality, and are binding upon this
Court, unless it is shown that it had arbitrarily
disregarded or misapprehended evidence before it to
such an extent as to compel a contrary conclusion had
such evidence been properly appreciated. And even
without such proof of actual confusion between the two
corporate names, it suffices that confusion is probable
or likely to occur.
Refractory materials are described as follows:
Refractories are structural materials used at high
temperatures to [sic] industrial furnaces. They are
supplied mainly in the form of brick of standard sizes
and of special shapes. Refractories also include
refractory cements, bonding mortars, plastic firebrick,
castables, ramming mixtures, and other bulk materials
such as dead-burned grain magneside, chrome or
ground ganister and special clay.
While the word refractories is a generic term, its usage
is not widespread and is limited merely to the
industry/trade in which it is used, and its continuous use
by respondent RCP for a considerable period has made
the term so closely identified with it. Moreover, as held
in the case of Ang Kaanib sa Iglesia ng Dios kay Kristo
Hesus, H.S.K. sa Bansang Pilipinas, Inc. vs. Iglesia ng
Dios kay Cristo Jesus, Haligi at Suhay ng
Katotohanan, petitioners appropriation of respondent's
corporate name cannot find justification under the
generic word rule. A contrary ruling would encourage
other corporations to adopt verbatim and register an
existing and protected corporate name, to the
detriment of the public.
2.) The jurisdiction of the SEC is not merely confined to
the adjudicative functions provided in Section 5 of P.D.
902-A, as amended. By express mandate, it has absolute
jurisdiction, supervision and control over all
corporations. It also exercises regulatory and
administrative powers to implement and enforce the
CORPORATION LAW CASE DIGESTS | 1 90
Corporation Code, one of which is Section 18, which
provides:
SEC. 18. Corporate name. -- No corporate name may be
allowed by the Securities and Exchange Commission if
the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or
to any other name already protected by law or is
patently deceptive, confusing or contrary to existing
laws. When a change in the corporate name is
approved, the Commission shall issue an amended
certificate of incorporation under the amended name.
It is the SECs duty to prevent confusion in the use of
corporate names not only for the protection of the
corporations involved but more so for the protection of
the public, and it has authority to de-register at all times
and under all circumstances corporate names which in
its estimation are likely to generate confusion. Clearly
therefore, the present case falls within the ambit of the
SECs regulatory powers.
5) GSIS FAMILY BANK - THRIFT BANK [Formerly Inc.],
vs.
BPI FAMILY BANK,
FACTS:
Petitioner was originally organized as Royal Savings
Bank and started operations in 1971. Beginning 1983
and 1984, petitioner encountered liquidity problems.
On July 9, 1984, it was placed under receivership and
later temporarily closed by the Central Bank of the
Philippines. Two (2) months after its closure, petitioner
reopened and was renamed Comsavings Bank, Inc.
under the management of the Commercial Bank of
Manila.
In 1987, the Government Service Insurance System
(GSIS) acquired petitioner from the Commercial Bank of
Manila. Petitioner's management and control was thus
transferred to GSIS. To improve its marketability to the
public, especially to the members of the GSIS, petitioner
sought SEC's approval to change its corporate name to
"GSIS Family Bank, a Thrift Bank."
Petitioner likewise applied with the Department of
Trade and Industry (DTI) and Bangko Sentral ng Pilpinas
(BSP) for authority to use "GSIS Family Bank, a Thrift
Bank" as its business name. The DTI and the BSP
approved the applications. Thus, petitioner operates
under the corporate name "GSIS Family Bank – a Thrift
Bank," pursuant to the DTI Certificate of Registration
No. 741375 and the Monetary Board Circular approval.

Respondent BPI Family Bank was a product of the
merger between the Family Bank and Trust Company
(FBTC) and the Bank of the Philippine Islands (BPI). On
June 27, 1969, the Gotianum family registered with the
SEC the corporate name "Family First Savings Bank,"
which was amended to "Family Savings Bank," and then
later to "Family Bank and Trust Company." Since its
incorporation, the bank has been commonly known as
"Family Bank." In 1985, Family Bank merged with BPI,
and the latter acquired all the rights, privileges,
properties, and interests of Family Bank, including the
right to use names, such as "Family First Savings Bank,"
"Family Bank," and "Family Bank and Trust Company."
BPI Family Savings Bank was registered with the SEC as
a wholly-owned subsidiary of BPI. BPI Family Savings
Bank then registered with the Bureau of Domestic Trade
the trade or business name "BPI Family Bank," and
acquired a reputation and goodwill under the name.
Proceedings before the SEC
Eventually, it reached respondent’s attention that
petitioner is using or attempting to use the name
"Family Bank." Thus, on March 8, 2002, respondent
petitioned the SEC Company Registration and
Monitoring Department (SEC CRMD) to disallow or
prevent the registration of the name "GSIS Family Bank"
or any other corporate name with the words "Family
Bank" in it.
Respondent claimed exclusive ownership to the name
"Family Bank," having acquired the name since its
purchase and merger with Family Bank and Trust
Company way back 1985. Respondent also alleged that
through the years, it has been known as "BPI Family
Bank" or simply "Family Bank" both locally and
internationally. As such, it has acquired a reputation
and goodwill under the name, not only with clients here
and abroad, but also with correspondent and
competitor banks, and the public in general.
Respondent prayed the SEC CRMD to disallow or
prevent the registration of the name "GSIS Family Bank"
or any other corporate name with the words "Family
Bank" should the same be presented for registration.
Respondent likewise prayed the SEC CRMD to issue an
order directing petitioner or any other corporation to
change its corporate name if the names have already
been registered with the SEC.
The SEC CRMD was thus confronted with the issue of
whether the names BPI Family Bank and GSIS Family
Bank are confusingly similar as to require the
amendment of the name of the latter corporation.
CORPORATION LAW CASE DIGESTS | 1 91
The SEC CRMD declared that upon the merger of FBTC
with the BPI in 1985, the latter acquired the right to the
use of the name of the absorbed corporation. Thus, BPI
Family Bank has a prior right to the use of the name
Family Bank in the banking industry, arising from its
long and extensive nationwide use, coupled with its
registration with the Intellectual Property Office (IPO) of
the name "Family Bank" as its trade name. Applying the
rule of "priority in registration" based on the legal
maxim first in time, first in right, the SEC CRMD
concluded that BPI has the preferential right to the use
of the name "Family Bank." More, GSIS and Comsavings
Bank were then fully aware of the existence and use of
the name "Family Bank" by FBTC prior to the latter's
merger with BPI.
The SEC CRMD also held that there exists a confusing
similarity between the corporate names BPI Family Bank
and GSIS Family Bank. It explained that although not
identical, the corporate names are indisputably similar,
as to cause confusion in the public mind, even with the
exercise of reasonable care and observation, especially
so since both corporations are engaged in the banking
business.
In a decision, the SEC CRMD said, PREMISES
CONSIDERED respondent GSIS FAMILY BANK is hereby
directed to refrain from using the word "Family" as part
of its name and make good its commitment to change
its name by deleting or dropping the subject word from
its corporate name within [thirty (30) days] from the
date of actual receipt hereof.
Petitioner appealed the decision to the SEC En Banc,
which denied the appeal, and upheld the SEC CRMD in
the SEC En Banc Decision. Petitioner elevated the SEC
En Banc Decision to the Court of Appeals.
Court of Appeals:
The Court of Appeals ruled that the approvals by the
BSP and by the DTI of petitioner’s application to use the
name "GSIS Family Bank" do not constitute authority for
its lawful and valid use. It said that the SEC has absolute
jurisdiction, supervision and control over all
corporations.
Further, te Court of Appeals held that respondent was
entitled to the exclusive use of the corporate name
because of its prior adoption of the name "Family Bank"
since 1969. There is confusing similarity in the corporate
names because "[c]onfusion as to the possible
association with GSIS might arise if we were to allow
Comsavings Bank to add its parent company’s acronym,
‘GSIS’ to ‘Family Bank.’ This is true especially
considering both companies belong to the banking

industry. Proof of actual confusion need not be shown.
It suffices that confusion is probably or likely to occur."
After its Motion for Reconsideration was denied,
petitioner brought the decision to this Court via a
Petition for Review on Certiorari.
ISSUES:
1. Whether or not the Court of Appeals gravely
erred in affirming the SEC Resolution finding the
word "Family" not generic despite its
unregistered status with the IPO of the Bureau
of Patents and the use by GSIS-Family Bank in
its corporate name of the words "[F]amily
[B]ank" as deceptive and [confusingly similar] to
the name BPI Family Bank.
2. Whether or Not Court of Appeals gravely erred
when it completely disregarded the opinion of
the Banko Sentral ng Pilipinas that the use by
the herein petitioner of the trade name GSIS
Family Bank – Thrift Bank is not similar or does
not deceive or likely cause any deception to the
public.
RULING:
We uphold the decision of the Court of Appeals.
Section 18 of the Corporation Code provides,
Section 18. Corporate name. – No corporate name may
be allowed by the Securities and Exchange Commission
if the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or
to any other name already protected by law or is
patently deceptive, confusing or contrary to existing
laws. When a change in the corporate name is
approved, the Commission shall issue an amended
certificate of incorporation under the amended name.
In Philips Export B.V. v. Court of Appeals, this Court
ruled that to fall within the prohibition of the law on the
right to the exclusive use of a corporate name, two
requisites must be proven, namely:
(1) that the complainant corporation acquired a prior
right over the use of such corporate name; and
(2) the proposed name is either
(a) identical or
(b) deceptive or confusingly similar to that of any
existing corporation or to any other name already
protected by law; or
(c) patently deceptive, confusing or contrary to existing
law.
CORPORATION LAW CASE DIGESTS | 1 92
These two requisites are present in this case. On the
first requisite of a prior right, Industrial Refractories
Corporation of the Philippines v. Court of Appeals (IRCP
case) is instructive. In that case, Refractories
Corporation of the Philippines (RCP) filed before the SEC
a petition to compel Industrial Refractories Corporation
of the Philippines (IRCP) to change its corporate name
on the ground that its corporate name is confusingly
similar with that of RCP’s such that the public may be
confused into believing that they are one and the same
corporation. The SEC and the Court of Appeals found for
petitioner, and ordered IRCP to delete or drop from its
corporate name the word "Refractories." Upon appeal
of IRCP, this Court upheld the decision of the CA.
Applying the priority of adoption rule to determine prior
right, this Court said that RCP has acquired the right to
use the word "Refractories" as part of its corporate
name, being its prior registrant. In arriving at this
conclusion, the Court considered that RCP was
incorporated on October 13, 1976 and since then
continuously used the corporate name "Refractories
Corp. of the Philippines." Meanwhile, IRCP only started
using its corporate name "Industrial Refractories Corp.
of the Philippines" when it amended its Articles of
Incorporation on August 23, 1985.
In this case, respondent was incorporated in 1969 as
Family Savings Bank and in 1985 as BPI Family Bank.
Petitioner, on the other hand, was incorporated as GSIS
Family – Thrift Bank only in 2002, or at least seventeen
(17) years after respondent started using its name.
Following the precedent in the IRCP case, we rule that
respondent has the prior right over the use of the
corporate name.
The second requisite in the Philips Export case likewise
obtains on two points: the proposed name is (a)
identical or (b) deceptive or confusingly similar to that
of any existing corporation or to any other name
already protected by law.
On the first point (a), the words "Family Bank" present
in both petitioner and respondent's corporate name
satisfy the requirement that there be identical names in
the existing corporate name and the proposed one.
Respondent cannot justify its claim under Section 3 of
the Revised Guidelines in the Approval of Corporate and
Partnership Names, to wit:
3. The name shall not be identical, misleading or
confusingly similar to one already registered by another
corporation or partnership with the Commission or a
sole proprietorship registered with the Department of
Trade and Industry.

If the proposed name is similar to the name of a
registered firm, the proposed name must contain at
least one distinctive word different from the name of
the company already registered.
Section 3 states that if there be identical, misleading or
confusingly similar name to one already registered by
another corporation or partnership with the SEC, the
proposed name must contain at least one distinctive
word different from the name of the company already
registered. To show contrast with respondent's
corporate name, petitioner used the words "GSIS" and
"thrift." But these are not sufficiently distinct words that
differentiate petitioner's corporate name from
respondent's. While "GSIS" is merely an acronym of the
proper name by which petitioner is identified, the word
"thrift" is simply a classification of the type of bank that
petitioner is. Even if the classification of the bank as
"thrift" is appended to petitioner's proposed corporate
name, it will not make the said corporate name distinct
from respondent's because the latter is likewise
engaged in the banking business.
This Court used the same analysis in Ang mga Kaanib sa
Iglesia ng Dios Kay Kristo Hesus, H.S.K. sa Bansang
Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo Jesus, Haligi at
Suhay ng Katotohanan. In that case, Iglesia ng Dios Kay
Cristo Jesus filed a case before the SEC to compel Ang
mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus to
change its corporate name, and to prevent it from using
the same or similar name on the ground that the same
causes confusion among their members as well as the
public. Ang mga Kaanib sa Iglesia ng Dios Kay Kristo
Hesus claimed that it complied with SEC Memorandum
Circular No. 14-2000 by adding not only two, but eight
words to their registered name, to wit: "Ang Mga
Kaanib" and "Sa Bansang Pilipinas, Inc.," which
effectively distinguished it from Iglesia ng Dios Kay
Cristo Jesus. This Court rejected the argument, thus:
The additional words "Ang Mga Kaanib" and "Sa
Bansang Pilipinas, Inc." in petitioner's name are, as
correctly observed by the SEC, merely descriptive of and
also referring to the members, or kaanib, of respondent
who are likewise residing in the Philippines. These
words can hardly serve as an effective differentiating
medium necessary to avoid confusion or difficulty in
distinguishing petitioner from respondent. This is
especially so, since both petitioner and respondent
corporations are using the same acronym – H.S.K.; not
to mention the fact that both are espousing religious
beliefs and operating in the same place. Xxx
On the second point (b), there is a deceptive and
confusing similarity between petitioner's proposed
name and respondent's corporate name, as found by
CORPORATION LAW CASE DIGESTS | 1 93
the SEC. In determining the existence of confusing
similarity in corporate names, the test is whether the
similarity is such as to mislead a person using ordinary
care and discrimination. And even without such proof of
actual confusion between the two corporate names, it
suffices that confusion is probable or likely to occur.
Petitioner's corporate name is "GSIS Family Bank—A
Thrift Bank" and respondent's corporate name is "BPI
Family Bank." The only words that distinguish the two
are "BPI," "GSIS," and "Thrift." The first two words are
merely the acronyms of the proper names by which the
two corporations identify themselves; and the third
word simply describes the classification of the bank. The
overriding consideration in determining whether a
person, using ordinary care and discrimination, might be
misled is the circumstance that both petitioner and
respondent are engaged in the same business of
banking. "The likelihood of confusion is accentuated in
cases where the goods or business of one corporation
are the same or substantially the same to that of
another corporation."
Findings of fact of quasi-judicial agencies, like the SEC,
are generally accorded respect and even finality by this
Court, if supported by substantial evidence, in
recognition of their expertise on the specific matters
under their consideration, more so if the same has been
upheld by the appellate court, as in this case.
Petitioner cannot argue that the word "family" is a
generic or descriptive name, which cannot be
appropriated exclusively by respondent. "Family," as
used in respondent's corporate name, is not generic.
Generic marks are commonly used as the name or
description of a kind of goods, such as "Lite" for beer or
"Chocolate Fudge" for chocolate soda drink. Descriptive
marks, on the other hand, convey the characteristics,
function, qualities or ingredients of a product to one
who has never seen it or does not know it exists, such as
"Arthriticare" for arthritis medication.
Under the facts of this case, the word "family" cannot
be separated from the word "bank." In asserting their
claims before the SEC up to the Court of Appeals, both
petitioner and respondent refer to the phrase "Family
Bank" in their submissions. This coined phrase, neither
being generic nor descriptive, is merely suggestive and
may properly be regarded as arbitrary. Arbitrary marks
are "words or phrases used as a mark that appear to be
random in the context of its use. They are generally
considered to be easily remembered because of their
arbitrariness. They are original and unexpected in
relation to the products they endorse, thus, becoming
themselves distinctive." Suggestive marks, on the other
hand, "are marks which merely suggest some quality or

ingredient of goods. xxx The strength of the suggestive
marks lies on how the public perceives the word in
relation to the product or service."
In Ang v. Teodoro, this Court ruled that the words "Ang
Tibay" is not a descriptive term within the meaning of
the Trademark Law but rather a fanciful or coined
phrase. In so ruling, this Court considered the
etymology and meaning of the Tagalog words, "Ang
Tibay" to determine whether they relate to the quality
or description of the merchandise to which respondent
therein applied them as trademark, thus:
We find it necessary to go into the etymology and
meaning of the Tagalog words "Ang Tibay" to determine
whether they are a descriptive term, i.e., whether they
relate to the quality or description of the merchandise
to which respondent has applied them as a trade-mark.
The word "ang" is a definite article meaning "the" in
English. It is also used as an adverb, a contraction of the
word "anong" (what or how). For instance, instead of
saying, "Anong ganda!" ("How beautiful!"), we
ordinarily say, "Ang ganda!" Tibay is a root word from
which are derived the verb magpatibay (to strengthen);
the nouns pagkamatibay (strength, durability),
katibayan (proof, support, strength), katibaytibayan
(superior strength); and the adjectives matibay (strong,
durable, lasting), napakatibay (very strong), kasintibay
or magkasintibay (as strong as, or of equal strength).
The phrase "Ang Tibay" is an exclamation denoting
admiration of strength or durability. For instance, one
who tries hard but fails to break an object exclaims,
"Ang tibay!" ("How strong!") It may also be used in a
sentence thus, "Ang tibay ng sapatos mo!" ("How
durable your shoes are!") The phrase "ang tibay" is
never used adjectively to define or describe an object.
One does not say, "ang tibay sapatos" or "sapatos ang
tibay" to mean "durable shoes," but "matibay na
sapatos" or "sapatos na matibay."
From all of this we deduce that "Ang Tibay" is not a
descriptive term within the meaning of the Trade-Mark
Law but rather a fanciful or coined phrase which may
properly and legally be appropriated as a trade-mark or
trade-name. Xxx (Underscoring supplied).
The word "family" is defined as "a group consisting of
parents and children living together in a household" or
"a group of people related to one another by blood or
marriage." Bank, on the other hand, is defined as "a
financial establishment that invests money deposited by
customers, pays it out when requested, makes loans at
interest, and exchanges currency."
By definition, there can be no expected relation
between the word "family" and the banking business of
respondent. Rather, the words suggest that
CORPORATION LAW CASE DIGESTS | 1 94
respondent’s bank is where family savings should be
deposited. More, as in the Ang case, the phrase "family
bank" cannot be used to define an object.
Petitioner’s argument that the opinion of the BSP and
the certificate of registration granted to it by the DTI
constitute authority for it to use "GSIS Family Bank" as
corporate name is also untenable.
The enforcement of the protection accorded by Section
18 of the Corporation Code to corporate names is
lodged exclusively in the SEC. The jurisdiction of the SEC
is not merely confined to the adjudicative functions
provided in Section 5 of the SEC Reorganization Act, as
amended. By express mandate, the SEC has absolute
jurisdiction, supervision and control over all
corporations. It is the SEC’s duty to prevent confusion in
the use of corporate names not only for the protection
of the corporations involved, but more so for the
protection of the public. It has authority to de-register
at all times, and under all circumstances corporate
names which in its estimation are likely to generate
confusion.
The SEC correctly applied Section 18 of the Corporation
Code, and Section 15 of SEC Memorandum Circular No.
14-2000, pertinent portions of which provide:
In implementing Section 18 of the Corporation Code of
the Philippines (BP 69), the following revised guidelines
in the approval of corporate and partnership names are
hereby adopted for the information and guidance of all
concerned:
15. Registrant corporations or partnership shall submit a
letter undertaking to change their corporate or
partnership name in case another person or firm has
acquired a prior right to the use of the said firm name
or the same is deceptively or confusingly similar to one
already registered unless this undertaking is already
included as one of the provisions of the articles of
incorporation or partnership of the registrant.
The SEC, after finding merit in respondent's claims, can
compel petitioner to abide by its commitment "to
change its corporate name in the event that another
person, firm or entity has acquired a prior right to use of
said name or one similar to it."
Clearly, the only determination relevant to this case is
that one made by the SEC in the exercise of its express
mandate under the law. The BSP opinion invoked by
petitioner even acknowledges that "the issue on
whether a proposed name is identical or deceptively
similar to that of any of existing corporation is matter
within the official jurisdiction and competence of the
SEC."

Judicial notice may also be taken of the action of the
IPO in approving respondent’s registration of the
trademark "BPI Family Bank" and its logo on October
17, 2008. The certificate of registration of a mark shall
be prima facie evidence of the validity of the
registration, the registrant’s ownership of the mark, and
of the registrant’s exclusive right to use the same in
connection with the goods or services and those that
are related thereto specified in the certificate.
6) LYCEUM OF THE PHILIPPINES vs
LYCEUM OF APARRI ET AL.
FACTS:
Petitioner is an educational institution duly registered
with the Securities and Exchange Commission ("SEC").
When it first registered with the SEC on 21 September
1950, it used the corporate name Lyceum of the
Philippines, Inc. and has used that name ever since.
On 24 February 1984, petitioner instituted proceedings
before the SEC to compel the private respondents
(educational institutions) to delete the word "Lyceum"
from their corporate names and permanently to enjoin
them from using "Lyceum" as part of their respective
names.
Some of the private respondents actively participated in
the proceedings before the SEC. These are the
following, the dates of their original SEC registration
being set out below opposite their respective names:
Western Pangasinan Lyceum — 27 October 1950
Lyceum of Cabagan — 31 October 1962
Lyceum of Lallo, Inc. — 26 March 1972
Lyceum of Aparri — 28 March 1972
Lyceum of Tuao, Inc. — 28 March 1972
Lyceum of Camalaniugan — 28 March 1972
The following private respondents were declared in
default for failure to file an answer despite service of
summons:
Buhi Lyceum;
Central Lyceum of Catanduanes;
Lyceum of Eastern Mindanao, Inc.; and
Lyceum of Southern Philippines
CORPORATION LAW CASE DIGESTS | 1 95
Petitioner's original complaint before the SEC had
included three (3) other entities:
1. The Lyceum of Malacanay;
2. The Lyceum of Marbel; and
3. The Lyceum of Araullo
The complaint was later withdrawn insofar as
concerned the Lyceum of Malacanay and the Lyceum of
Marbel, for failure to serve summons upon these two
(2) entities. The case against the Liceum of Araullo was
dismissed when that school motu proprio change its
corporate name to "Pamantasan ng Araullo."
Petitioner had sometime before commenced in the SEC
a proceeding (SEC-Case No. 1241) against the Lyceum of
Baguio, Inc. to require it to change its corporate name
and to adopt another name not "similar [to] or
identical" with that of petitioner. In an Order dated 20
April 1977, Associate Commissioner Julio Sulit held that
the corporate name of petitioner and that of the
Lyceum of Baguio, Inc. were substantially identical
because of the presence of a "dominant" word, i.e.,
"Lyceum," the name of the geographical location of the
campus being the only word which distinguished one
from the other corporate name. The SEC also noted that
petitioner had registered as a corporation ahead of the
Lyceum of Baguio, Inc. in point of time, 1 and ordered
the latter to change its name to another name "not
similar or identical [with]" the names of previously
registered entities.
The Lyceum of Baguio, Inc. assailed the Order of the SEC
before the Supreme Court. In a Minute Resolution
dated 14 September 1977, the Court denied the Petition
for Review for lack of merit. Entry of judgment in that
case was made on 21 October 1977.
Petitioner then wrote all the educational institutions it
could find using the word "Lyceum" as part of their
corporate name, and advised them to discontinue such
use of "Lyceum." When, with the passage of time, it
became clear that this recourse had failed, petitioner
instituted before the SEC SEC-Case No. 2579 to enforce
what petitioner claims as its proprietary right to the
word "Lyceum." The SEC hearing officer rendered a
decision sustaining petitioner's claim to an exclusive
right to use the word "Lyceum." The hearing officer
relied upon the SEC ruling in the Lyceum of Baguio, Inc.
case (SEC-Case No. 1241) and held that the word
"Lyceum" was capable of appropriation and that
petitioner had acquired an enforceable exclusive right
to the use of that word.
On appeal, the decision of the hearing officer was
reversed and set aside. The SEC En Banc did not

consider the word "Lyceum" to have become so
identified with petitioner as to render use thereof by
other institutions as productive of confusion about the
identity of the schools concerned in the mind of the
general public. Unlike its hearing officer, the SEC En
Banc held that the attaching of geographical names to
the word "Lyceum" served sufficiently to distinguish the
schools from one another, especially in view of the fact
that the campuses of petitioner and those of the private
respondents were physically quite remote from each
other.
Petitioner then went on appeal to the Court of Appeals.
However, the Court of Appeals affirmed the questioned
Orders of the SEC En Banc. Petitioner filed a motion for
reconsideration, without success.
ISSUES:
1. WON the Court of Appeals erred in holding that
respondent Western Pangasinan Lyceum, Inc. was
incorporated earlier than petitioner.
2. WON he Court of Appeals erred in holding that the
word Lyceum has not acquired a secondary meaning in
favor of petitioner.
3. WON the Court of Appeals erred in holding that
Lyceum as a generic word cannot be appropriated by
the petitioner to the exclusion of others.
RULING:
The Articles of Incorporation of a corporation must,
among other things, set out the name of the
corporation. Section 18 of the Corporation Code
establishes a restrictive rule insofar as corporate names
are concerned:
"SECTION 18. Corporate name. — No corporate name
may be allowed by the Securities an Exchange
Commission if the proposed name is identical or
deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by
law or is patently deceptive, confusing or contrary to
existing laws. When a change in the corporate name is
approved, the Commission shall issue an amended
certificate of incorporation under the amended name."
(Emphasis supplied)
The policy underlying the prohibition in Section 18
against the registration of a corporate name which is
"identical or deceptively or confusingly similar" to that
of any existing corporation or which is "patently
deceptive" or "patently confusing" or "contrary to
existing laws," is the avoidance of fraud upon the public
which would have occasion to deal with the entity
concerned, the evasion of legal obligations and duties,
CORPORATION LAW CASE DIGESTS | 1 96
and the reduction of difficulties of administration and
supervision over corporations.
We do not consider that the corporate names of private
respondent institutions are "identical with, or
deceptively or confusingly similar" to that of the
petitioner institution. True enough, the corporate
names of private respondent entities all carry the word
"Lyceum" but confusion and deception are effectively
precluded by the appending of geographic names to the
word "Lyceum." Thus, we do not believe that the
"Lyceum of Aparri" can be mistaken by the general
public for the Lyceum of the Philippines, or that the
"Lyceum of Camalaniugan" would be confused with the
Lyceum of the Philippines.
Etymologically, the word "Lyceum" is the Latin word for
the Greek lykeion which in turn referred to a locality on
the river Ilissius in ancient Athens "comprising an
enclosure dedicated to Apollo and adorned with
fountains and buildings erected by Pisistratus, Pericles
and Lycurgus frequented by the youth for exercise and
by the philosopher Aristotle and his followers for
teaching." In time, the word "Lyceum" became
associated with schools and other institutions providing
public lectures and concerts and public discussions.
Thus today, the word "Lyceum" generally refers to a
school or an institution of learning. While the Latin
word "lyceum" has been incorporated into the English
language, the word is also found in Spanish (liceo) and
in French (lycee).
As the Court of Appeals noted in its Decision, Roman
Catholic schools frequently use the term; e.g., "Liceo de
Manila," "Liceo de Baleno" (in Baleno, Masbate), "Liceo
de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as
generic in character as the word "university." In the
name of the petitioner, "Lyceum" appears to be a
substitute for "university;" in other places, however,
"Lyceum," or "Liceo" or "Lycee" frequently denotes a
secondary school or a college. It may be (though this is a
question of fact which we need not resolve) that the
use of the word "Lyceum" may not yet be as widespread
as the use of "university," but it is clear that a not
inconsiderable number of educational institutions have
adopted "Lyceum" or "Liceo" as part of their corporate
names. Since "Lyceum" or "Liceo" denotes a school or
institution of learning, it is not unnatural to use this
word to designate an entity which is organized and
operating as an educational institution.
It is claimed, however, by petitioner that the word
"Lyceum" has acquired a secondary meaning in relation
to petitioner with the result that that word, although
originally a generic, has become appropriable by

petitioner to the exclusion of other institutions like
private respondents herein.
The doctrine of secondary meaning originated in the
field of trademark law. Its application has, however,
been extended to corporate names sine the right to use
a corporate name to the exclusion of others is based
upon the same principle which underlies the right to use
a particular trademark or tradename. In Philippine Nut
Industry, Inc. v. Standard Brands, Inc., the doctrine of
secondary meaning was elaborated in the following
terms:
" . . . a word or phrase originally incapable of exclusive
appropriation with reference to an article on the
market, because geographically or otherwise
descriptive, might nevertheless have been used so long
and so exclusively by one producer with reference to his
article that, in that trade and to that branch of the
purchasing public, the word or phrase has come to
mean that the article was his product."
"Under the doctrine of secondary meaning, a word or
phrase originally incapable of exclusive appropriation
with reference to an article in the market, because
geographical or otherwise descriptive might
nevertheless have been used so long and so exclusively
by one producer with reference to this article that, in
that trade and to that group of the purchasing public,
the word or phrase has come to mean that the article
was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil.
56). This circumstance has been referred to as the
distinctiveness into which the name or phrase has
evolved through the substantial and exclusive use of the
same for a considerable period of time. Consequently,
the same doctrine or principle cannot be made to apply
where the evidence did not prove that the business (of
the plaintiff) has continued for so long a time that it has
become of consequence and acquired a good will of
considerable value such that its articles and produce
have acquired a well-known reputation, and confusion
will result by the use of the disputed name (by the
defendant) (Ang Si Heng vs. Wellington Department
Store, Inc., 92 Phil. 448).
With the foregoing as a yardstick, [we] believe the
appellant failed to satisfy the aforementioned
requisites. No evidence was ever presented in the
hearing before the Commission which sufficiently
proved that the word 'Lyceum' has indeed acquired
secondary meaning in favor of the appellant. If there
was any of this kind, the same tend to prove only that
the appellant had been using the disputed word for a
long period of time. Nevertheless, its (appellant)
exclusive use of the word (Lyceum) was never
established or proven as in fact the evidence tend to
CORPORATION LAW CASE DIGESTS | 1 97
convey that the cross-claimant was already using the
word 'Lyceum' seventeen (17) years prior to the date
the appellant started using the same word in its
corporate name. Furthermore, educational institutions
of the Roman Catholic Church had been using the same
or similar word like 'Liceo de Manila,' 'Liceo de Baleno'
(in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de
Albay' long before appellant started using the word
'Lyceum'. The appellant also failed to prove that the
word 'Lyceum' has become so identified with its
educational institution that confusion will surely arise in
the minds of the public if the same word were to be
used by other educational institutions.
In other words, while the appellant may have proved
that it had been using the word 'Lyceum' for a long
period of time, this fact alone did not amount to mean
that the said word had acquired secondary meaning in
its favor because the appellant failed to prove that it
had been using the same word all by itself to the
exclusion of others. More so, there was no evidence
presented to prove that confusion will surely arise if the
same word were to be used by other educational
institutions. Consequently, the allegations of the
appellant in its first two assigned errors must
necessarily fail." 13 (Underscoring partly in the original
and partly supplied)
We agree with the Court of Appeals. The number alone
of the private respondents in the case at bar suggests
strongly that petitioner's use of the word "Lyceum" has
not been attended with the exclusivity essential for
applicability of the doctrine of secondary meaning. It
may be noted also that at least one of the private
respondents, i.e., the Western Pangasinan Lyceum, Inc.,
used the term "Lyceum" seventeen (17) years before
the petitioner registered its own corporate name with
the SEC and began using the word "Lyceum." It follows
that if any institution had acquired an exclusive right to
the word "Lyceum," that institution would have been
the Western Pangasinan Lyceum, Inc. rather than the
petitioner institution.
In this connection, petitioner argues that because the
Western Pangasinan Lyceum, Inc. failed to reconstruct
its records before the SEC in accordance with the
provisions of R.A. No. 62, which records had been
destroyed during World War II, Western Pangasinan
Lyceum should be deemed to have lost all rights it may
have acquired by virtue of its past registration. It might
be noted that the Western Pangasinan Lyceum, Inc.
registered with the SEC soon after petitioner had filed
its own registration on 21 September 1950. Whether or
not Western Pangasinan Lyceum, Inc. must be deemed
to have lost its rights under its original 1933
registration, appears to us to be quite secondary in

importance; we refer to this earlier registration simply
to underscore the fact that petitioner's use of the word
"Lyceum" was neither the first use of that term in the
Philippines nor an exclusive use thereof. Petitioner's use
of the word "Lyceum" was not exclusive but was in truth
shared with the Western Pangasinan Lyceum and a little
later with other private respondent institutions which
registered with the SEC using "Lyceum" as part of their
corporation names. There may well be other schools
using Lyceum or Liceo in their names, but not registered
with the SEC because they have not adopted the
corporate form of organization.
We conclude and so hold that petitioner institution is
not entitled to a legally enforceable exclusive right to
use the word "Lyceum" in its corporate name and that
other institutions may use "Lyceum" as part of their
corporate names. To determine whether a given
corporate name is "identical" or "confusingly or
deceptively similar" with another entity's corporate
name, it is not enough to ascertain the presence of
"Lyceum" or "Liceo" in both names. One must evaluate
corporate names in their entirety and when the name of
petitioner is juxtaposed with the names of private
respondents, they are not reasonably regarded as
"identical" or "confusingly or deceptively similar" with
each other.
7) ANG MGA KAANIB SA IGLESIA NG DIOS vs
IGLESIA NG DIOS
FACTS:
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at
Suhay ng Katotohanan (Church of God in Christ Jesus,
the Pillar and Ground of Truth), is a non-stock religious
society or corporation registered in 1936. Sometime in
1976, one Eliseo Soriano and several other members of
respondent corporation disassociated themselves from
the latter and succeeded in registering on March 30,
1977 a new non-stock religious society or corporation,
named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan
ng Katotohanan.
On July 16, 1979, respondent corporation filed with the
SEC a petition to compel the Iglesia ng Dios Kay Kristo
Hesus, Haligi at Saligan ng Katotohanan to change its
corporate name. On May 4, 1988, the SEC rendered
judgment in favor of respondent, ordering the Iglesia ng
Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan
to change its corporate name to another name that is
not similar or identical to any name already used by a
corporation, partnership or association registered with
the Commission. No appeal was taken from said
decision.
CORPORATION LAW CASE DIGESTS | 1 98
It appears that during the pendency of the case,
Soriano, et al., caused the registration on April 25, 1980
of petitioner corporation, Ang Mga Kaanib sa Iglesia ng
Dios Kay Kristo Hesus, H.S.K., sa Bansang Pilipinas. The
acronym H.S.K. stands for Haligi at Saligan ng
Katotohanan.
On March 2, 1994, respondent corporation filed before
the SEC a petition(SEC Case No. 03-94-4704), praying
that petitioner be compelled to change its corporate
name and be barred from using the same or similar
name on the ground that the same causes confusion
among their members as well as the public.
Petitioner filed a motion to dismiss on the ground of
lack of cause of action. The motion to dismiss was
denied. Petitioner failed to file an answer was declared
in default and respondent was allowed to present its
evidence ex parte.
On November 20, 1995, the SEC rendered a decision
stating that Respondent Mga Kaanib sa Iglesia ng Dios
Kay Kristo Jesus (sic), H.S.K. sa Bansang Pilipinas
(petitioner herein) is hereby MANDATED to change its
corporate name to another not deceptively similar or
identical to the same already used by the Petitioner,
any corporation, association, and/or partnership
presently registered with the Commission.
Petitioner appealed to the SEC En Banc, where its
appeal was docketed as SEC-AC No. 539. In a decision
dated March 4, 1996, the SEC En Banc affirmed the
above decision, upon a finding that petitioner's
corporate name was identical or confusingly or
deceptively similar to that of respondents corporate
name.
Petitioner filed a petition for review with the Court of
Appeals. The Court of Appeals rendered the assailed
decision affirming the decision of the SEC En Banc.
Petitioners motion for reconsideration was denied by
the Court of Appeals. Hence, the instant petition for
review.
ISSUE:
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS FAILED TO CONSIDER AND PROPERLY APPLY
THE EXCEPTIONS ESTABLISHED BY JURISPRUDENCE IN
THE APPLICATION OF SECTION 18 OF THE
CORPORATION CODE TO THE INSTANT CASE
RULING:
Section 18 of the Corporation Code provides:
Corporate Name. --- No corporate name may be allowed
by the Securities and Exchange Commission if the

proposed name is identical or deceptively or confusingly
similar to that of any existing corporation or to any
other name already protected by law or is patently
deceptive, confusing or is contrary to existing laws.
When a change in the corporate name is approved, the
Commission shall issue an amended certificate of
incorporation under the amended name.
Corollary thereto, the pertinent portion of the SEC
Guidelines on Corporate Names states:
(d) If the proposed name contains a word similar to a
word already used as part of the firm name or style of a
registered company, the proposed name must contain
two other words different from the name of the
company already registered;
Parties organizing a corporation must choose a name at
their peril; and the use of a name similar to one
adopted by another corporation, whether a business or
a nonprofit organization, if misleading or likely to injure
in the exercise of its corporate functions, regardless of
intent, may be prevented by the corporation having a
prior right, by a suit for injunction against the new
corporation to prevent the use of the name.
Petitioner claims that it complied with the aforecited
SEC guideline by adding not only two but eight words to
their registered name, to wit: Ang Mga Kaanib" and "Sa
Bansang Pilipinas, Inc., which, petitioner argues,
effectively distinguished it from respondent
corporation.
The additional words Ang Mga Kaanib and Sa Bansang
Pilipinas, Inc. in petitioners name are, as correctly
observed by the SEC, merely descriptive of and also
referring to the members, or kaanib, of respondent who
are likewise residing in the Philippines. These words can
hardly serve as an effective differentiating medium
necessary to avoid confusion or difficulty in
distinguishing petitioner from respondent. This is
especially so, since both petitioner and respondent
corporations are using the same acronym --- H.S.K.; not
to mention the fact that both are espousing religious
beliefs and operating in the same place. Parenthetically,
it is well to mention that the acronym H.S.K. used by
petitioner stands for Haligi at Saligan ng Katotohanan.
Then, too, the records reveal that in holding out their
corporate name to the public, petitioner highlights the
dominant words IGLESIA NG DIOS KAY KRISTO HESUS,
HALIGI AT SALIGAN NG KATOTOHANAN, which is
strikingly similar to respondent's corporate name, thus
making it even more evident that the additional words
Ang Mga Kaanib and Sa Bansang Pilipinas, Inc., are
merely descriptive of and pertaining to the members of
respondent corporation.
CORPORATION LAW CASE DIGESTS | 1 99
Significantly, the only difference between the corporate
names of petitioner and respondent are the words
SALIGAN and SUHAY. These words are synonymous ---
both mean ground, foundation or support. Hence, this
case is on all fours with Universal Mills Corporation v.
Universal Textile Mills, Inc., where the Court ruled that
the corporate names Universal Mills Corporation and
Universal Textile Mills, Inc., are undisputably so similar
that even under the test of reasonable care and
observation confusion may arise.
Furthermore, the wholesale appropriation by petitioner
of respondent's corporate name cannot find
justification under the generic word rule. We agree with
the Court of Appeals conclusion that a contrary ruling
would encourage other corporations to adopt verbatim
and register an existing and protected corporate name,
to the detriment of the public.
The fact that there are other non-stock religious
societies or corporations using the names Church of the
Living God, Inc., Church of God Jesus Christ the Son of
God the Head, Church of God in Christ & By the Holy
Spirit, and other similar names, is of no consequence. It
does not authorize the use by petitioner of the essential
and distinguishing feature of respondent's registered
and protected corporate name.
(Religios Freedom Issue) Certainly, ordering petitioner
to change its corporate name is not a violation of its
constitutionally guaranteed right to religious freedom.
In so doing, the SEC merely compelled petitioner to
abide by one of the SEC guidelines in the approval of
partnership and corporate names, namely its
undertaking to manifest its willingness to change its
corporate name in the event another person, firm, or
entity has acquired a prior right to the use of the said
firm name or one deceptively or confusingly similar to
it.

8.) REPUBLIC PLANTERS BANK vs COURT OF APPEALS
FACTS
Defendant Shozo Yamaguchi and private respondent
Fermin Canlas were President/Chief Operating Officer
and Treasurer respectively, of Worldwide Garment
Manufacturing, Inc.. By virtue of Board Resolution No.1
dated August 1, 1979, defendant Shozo Yamaguchi and
private respondent Fermin Canlas were authorized to
apply for credit facilities with the petitioner Republic
Planters Bank in the forms of export advances and
letters of credit/trust receipts accommodations.
Petitioner bank issued nine promissory notes, marked as
Exhibits A to I inclusive, each of which were uniformly
worded in the following manner:
___________, after date, for value received, I/we,
jointly and severaIly promise to pay to the ORDER of
the REPUBLIC PLANTERS BANK, at its office in
Manila, Philippines, the sum of ___________
PESOS(....) Philippine Currency...
On the right bottom margin of the promissory notes
appeared the signatures of Shozo Yamaguchi and
Fermin Canlas above their printed names with the
phrase "and (in) his personal capacity" typewritten
below. At the bottom of the promissory notes
appeared: "Please credit proceeds of this note to:
________ Savings Account ______XX Current
Account
No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
In the promissory notes marked as Exhibits C, D and F,
the name Worldwide Garment Manufacturing, Inc. was
apparently rubber stamped above the signatures of
defendant and private respondent.
On December 20, 1982, Worldwide Garment
Manufacturing, Inc. noted to change its corporate name
to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint
for the recovery of sums of money covered among
others, by the nine promissory notes with interest
thereon, plus attorney's fees and penalty charges. The
complainant was originally brought against Worldwide
Garment Manufacturing, Inc. inter alia, but it was later
amended to drop Worldwide Manufacturing, Inc. as
defendant and substitute Pinch Manufacturing
Corporation it its place.
Defendants Pinch Manufacturing Corporation and Shozo
Yamaguchi did not file an Amended Answer and failed
to appear at the scheduled pre-trial conference despite
due notice. Only private respondent Fermin Canlas filed
an Amended Answer wherein he, denied having issued
the promissory notes in question since according to him,
he was not an officer of Pinch Manufacturing
Corporation, but instead of Worldwide Garment
Manufacturing, Inc., and that when he issued said
promissory notes in behalf of Worldwide Garment
CORPORATION LAW CASE DIGESTS | 1 100
Manufacturing, Inc., the same were in blank, the
typewritten entries not appearing therein prior to the
time he affixed his signature.
The Court of Appeals agreed with him. The CA also ruled
that the change of name of WGM to PMC extinguished
the personality of WGM and hence so is its liability.
ISSUE:
Whether or not the Court of Appeals is correct. NO
RULING:
The respondent Court made a grave error in holding
that an amendment in a corporation's Articles of
Incorporation effecting a change of corporate name, in
this case from Worldwide Garment manufacturing Inc to
Pinch Manufacturing Corporation extinguished the
personality of the original corporation.
The corporation, upon such change in its name, is in no
sense a new corporation, nor the successor of the
original corporation. It is the same corporation with a
different name, and its character is in no respect
changed.
A change in the corporate name does not make a new
corporation, and whether effected by special act or
under a general law, has no affect on the identity of the
corporation, or on its property, rights, or liabilities.
The corporation continues, as before, responsible in its
new name for all debts or other liabilities which it had
previously contracted or incurred.
As a general rule, officers or directors under the old
corporate name bear no personal liability for acts done
or contracts entered into by officers of the corporation,
if duly authorized. Inasmuch as such officers acted in
their capacity as agent of the old corporation and the
change of name meant only the continuation of the old
juridical entity, the corporation bearing the same name
is still bound by the acts of its agents if authorized by
the Board. Under the Negotiable Instruments Law, the
liability of a person signing as an agent is specifically
provided for as follows:
Sec. 20. Liability of a person signing as
agent and so forth. Where the
instrument contains or a person adds to
his signature words indicating that he
signs for or on behalf of a principal , or
in a representative capacity, he is not
liable on the instrument if he was duly
authorized; but the mere addition of
words describing him as an agent, or as
filling a representative character,
without disclosing his principal, does not
exempt him from personal liability.
Where the agent signs his name but nowhere in the
instrument has he disclosed the fact that he is acting in
a representative capacity or the name of the third party
for whom he might have acted as agent, the agent is
personally liable to take holder of the instrument and
cannot be permitted to prove that he was merely acting
as agent of another and parol or extrinsic evidence is
not admissible to avoid the agent's personal liability.

REGISTRATION AND ISSUANCE OF CERTIFICATE OF
INCORPORATION
DE FACTO CORPORATION: It is one which has not
complied with all the requirements necessary to be a de
jure corporation but has complied sufficiently to be
accorded corporate status as against third parties
although not against the State.
DE JURE CORPORATION: one created in strict or
substantial conformity with the mandatory statutory
requirements for incorporation and the right of which
to exist as a corporation cannot be successfully attacked
or questioned by any party even in a direct proceeding
for that purpose by the State.
7. REGISTRATION AND ISSUANCE OF CERTIFICATE OF
INCORPORATION
I. DE FACTO CORPORATION
1.) G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY
CORPORATION, petitioner, vs. THE HON. COURT OF
APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT,
INC., (BORMAHECO), CONSTANCIO M. MAGLANA and
JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner, vs. COURT OF APPEALS,
PIONEER INSURANCE AND SURETY CORPORATION,
BORDER MACHINERY and HEAVY EQUIPMENT CO.,
INC,, FRANCISCO and MODESTO CERVANTES and
CONSTANCIO MAGLANA, respondents.
FACTS: Jacob S. Lim was engaged in the airline business
as owner-operator of Southern Air Lines (SAL) a single
proprietorship. Japan Domestic Airlines (JDA) and Lim
entered into and executed a sales contract for the sale
and purchase of two (2) DC-3A Type aircrafts and one
(1) set of necessary spare parts for the total agreed
price of US $109,000.00 to be paid in installments.
Pioneer Insurance and Surety Corporation as surety
executed and issued its Surety Bond No. 6639 in favor of
JDA, in behalf of its principal, Lim, for the balance price
of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment
Company, Inc. (Bormaheco), Francisco and Modesto
Cervantes (Cervanteses) and Constancio Maglana
(respondents in both petitions) contributed some funds
amounting to Pl51,000.00 used in the purchase of the
above aircrafts and spare parts. The funds were
supposed to be their contributions to a new corporation
proposed by Lim to expand his airline business. They
CORPORATION LAW CASE DIGESTS | 1 101
executed two (2) separate indemnity agreements in
favor of Pioneer. The indemnity agreements stipulated
that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold
and save harmless Pioneer from and against any/all
damages, losses, costs, damages, taxes, penalties,
charges and expenses of whatever kind and nature
which Pioneer may incur in consequence of having
become surety upon the bond/note and to pay,
reimburse and make good to Pioneer, its successors and
assigns, all sums and amounts of money which it or its
representatives should or may pay or cause to be paid
or become liable to pay on them of whatever kind and
nature. Moreover, Lim doing business under the name
and style of SAL executed in favor of Pioneer as deed of
chattel mortgage as security for the latter's suretyship
in favor of the former. It was stipulated therein that Lim
transfer and convey to the surety the two aircrafts.
Lim defaulted on his subsequent installment payments
prompting JDA to request payments from the surety.
Pioneer paid a total sum of P298,626.12.
Pioneer filed an action for judicial foreclosure with an
application for a writ of preliminary attachment against
Lim and respondents, the Cervanteses, Bormaheco and
Maglana.
Maglana, Bormaheco and the Cervanteses filed cross-
claims against Lim alleging that they were not privies to
the contracts signed by Lim and, by way of
counterclaim, sought for damages for being exposed to
litigation and for recovery of the sums of money they
advanced to Lim for the purchase of the aircrafts in
question.
The RTC rendered a decision holding Lim liable to pay
Pioneer’s complaint but dismissed the latter’s complaint
against all other defendants.
The CA modified the RTC’s decision in that all the claim
of Pioneer against all the defendant was dismissed.
Hence this petition.
In G.R. No. 84197 Pioneer Insurance and Surety
Corporation averred that respondent Court of Appeals
grievously erred when it dismissed the appeal of
petitioner on the sole ground that petitioner had
already collected the proceeds of the reinsurance on its
bond in favor of the JDA and that it cannot represent a
reinsurer to recover the amount from herein private
respondents.
On the other hand, in G.R. No. 84157 petitioner Jacob S.
Lim averred that the appellate court erred in its findings
ordering him to reimburse certain amounts given by the
respondents to the petitioner as their contributions to
the intended corporation since according to him as a
result of their failure to incorporate, a de
facto partnership among them was created, and that as
a consequence of such relationship all must share in the
losses and/or gains of the venture in proportion to their
contribution.

ISSUE: 1. Whether Pioneer has a cause of action against
respondents. NONE
2. Whether the failure of respondents and Lim
to incorporate automatically resulted to de facto
partnership. NO
RULING: 1.The real party in interest was the reinsurance
company who paid Pioneer the amount of P295,000.00
representing the obligation of respondents to Pioneer.
There was no indication in the complaint that Pioneer is
suing as attorney-in-fact of the reinsurers for any
amount. It is clear from the records that Pioneer sued in
its own name and not as an attorney-in-fact of the
reinsurer. Petitioner was not the real party in interest in
the complaint, and, therefore, has no cause of action
against the respondents. Pioneer has no right to
institute and maintain in its own name an action for the
benefit of the reinsurers. It is well-settled that an action
brought by an attorney-in-fact in his own name instead
of that of the principal will not prosper.
2. It is ordinarily held that persons who attempt, but
fail, to form a corporation and who carry on business
under the corporate name occupy the position of
partners inter se. Where persons associate themselves
together under articles to purchase property to carry on
a business, and their organization is so defective as to
come short of creating a corporation within the statute,
they become in legal effect partners inter se, and their
rights as members of the company to the property
acquired by the company will be recognized.
However, the abocementioned doctrine is not
applicable in this case since there was really no
intention to form a corporation.
It must be noted in the answer of Lim that he denied
having received any amount from respondents
Bormaheco, the Cervanteses and Maglana. The trial
court and the appellate court, however, found through
Exhibit 58, that the petitioner received the amount of
P151,000.00 representing the participation of
Bormaheco and Atty. Constancio B. Maglana in the
ownership of the subject airplanes and spare parts. The
record shows that defendant Maglana gave P75,000.00
to petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the
intention to form a corporation with the respondents
despite his representations to them. This gives credence
to the cross-claims of the respondents to the effect that
they were induced and lured by the petitioner to make
contributions to a proposed corporation which was
never formed because the petitioner reneged on their
agreement.
Applying therefore the principles of law earlier cited to
the facts of the case, necessarily, no de facto
partnership was created among the parties which would
entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The
record shows that the petitioner was acting on his own
CORPORATION LAW CASE DIGESTS | 1 102
and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
2.) Pioneer Insurance vs CA ( same as case# 1)
CORPORATION BY ESTOPPEL: one which in reality is not
a corporation, either de jure or de facto, because it is so
defectively formed, but is considered a corporation in
relation to those only who, by reason of their acts or
admissions, are precluded from asserting that it is not a
corporation.
II. CORPORATION BY ESTOPPEL
1.) G.R. No. 117010 April 18, 1997
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs.
ENGR. CARLOS GARCIA y PINEDA, PATRICIO BOTERO y
VALES, LUISA MIRAPLES (at large), accused, PATRICIO
BOTERO y VALES, accused-appellant.
FACTS: In an Information dated July 21, 1992, accused-
appellant Patricio Botero together with Carlos P. Garcia
and Luisa Miraples were charged with the crime of
illegal recruitment in large scale.
Six (6) out of the sixteen (16) complainants testified as
prosecution witnesses. These complainants testified
that on various dates in March 1992, they went to
Ricorn Philippine International Shipping Lines, Inc.
(Ricorn), an entity which recruits workers for overseas
employment. They applied as seamen, cook, waiter,
chambermaid or laundrywoman overseas. All the other
complainants coursed their application to accused
Garcia who represented himself as president of
Ricorn. Complainants were required to submit their NBI
and police clearance, birth certificate, passport,
seaman's book and Survival of Life at Sea (SOLAS). As
they did not have the last three (3) documents, they
were asked to pay five thousand pesos (P5,000.00) as
processing fee. They paid to Ricorn's treasurer, Luisa
Miraples. They were issued receipts signed by Miraples.
The receipts were under Ricorn's heading.
Complainants went back to Ricorn to check on their
applications. They discovered that Ricorn had
abandoned its office for non-payment of rentals. They
went back to the building several times to recover their
money. Their persistence was to no avail for Garcia and
Botero were nowhere to be found. They then went to
the Mandaluyong Police Station and filed their
complaints. They also checked with the Securities and
Exchange Commission (SEC) and discovered that Ricorn
was not yet incorporated. They also found that Ricorn
was not licensed by the Department of Labor and
Employment (DOLE) to engage in recruitment activities.
The RTC convicted Garcia and Botero for the crime of
illegal recruitment but the case against Miraples was
archived by the court since she has remained at large.

Only accused Botero, thru counsel, filed a Notice of
Appeal.
ISSUE: 1.) Whether respondents are liable for illegal
recruitment in large scale. - YES
2.) Whether respondents are liable as corporate officials
considering that Ricorn's incorporation was not
consummated. -YES
RULING:
1.) Beyond any reasonable doubt, appellant Botero
engaged in recruitment and placement activities in that
he, through Ricorn, promised the complainants
employment abroad. Under the Labor Code,
recruitment and placement refers to "any act of
canvassing, enlisting, contracting, transporting, utilizing,
hiring or procuring workers, and includes referrals,
contract services, promising or advertising for
employment, locally or abroad whether for profit or
not: Provided, That any person or entity which in any
manner, offers or promises for a fee employment to
two or more persons shall be deemed engaged in
recruitment, and placement."
All the essential elements of the crime of illegal
recruitment in large scale are present in this case, to
wit:
(1) the accused engages in the recruitment and
placement of workers, as defined under Article 13 (b) or
in any prohibited activities under Article 34 of the Labor
Code;
(2) accused has not complied with the guidelines issued
by the Secretary of Labor and Employment, particularly
with respect to the securing of a license or an authority
to recruit and deploy workers, either locally or overseas;
and
(3) accused commits the same against three (3) or more
persons, individually or as a group.
It is a fact that Ricorn had no license to recruit from
DOLE. In the office of Ricorn, a notice was posted
informing job applicants that its recruitment license is
still being processed. Yet, Ricorn already entertained
applicants and collected fees for processing their travel
documents.
2.) For engaging in recruitment of workers without
obtaining the necessary license from the POEA, Boteros
should suffer the consequences of Ricorn's illegal act for
"(i)f the offender is a corporation, partnership,
association or entity, the penalty shall be imposed upon
the officer or officers of the corporation, partnership,
association or entity responsible for violation; . . . "
The evidence shows that appellant Botero was one of
the incorporators of Ricorn. For reasons that cannot be
discerned from the records, Ricorn's incorporation was
CORPORATION LAW CASE DIGESTS | 1 103
not consummated. Even then, appellant cannot avoid
his liabilities to the public as an incorporator of Ricorn.
He and his co-accused Garcia held themselves out to
the public as officers of Ricorn. They received money
from applicants who availed of their services. They are
thus estopped from claiming that they are not liable as
corporate officials of Ricorn. Section 25 of the
Corporation Code provides that "(a)ll persons who
assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for
all the debts, liabilities and damages incurred or arising
as a result thereof: Provided, however, That when any
such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed
by it as such, it shall not be allowed to use as a defense
its lack of corporate personality."
Appellant Botero is guilty of the crime of illegal
recruitment in a large scale considering it was proven
that he, together with his cohorts, were able to defraud
the six complainant-witnesses in this case. Under Article
38 (b) of the Labor Code, illegal recruitment in large
scale is perpetrated if committed against three (3) or
more persons individually or as a group. And under
Article 39 (a) of the same Code, accused-appellant's
crime is punishable by life imprisonment and a fine of
one hundred thousand pesos (P100,000.00).
Finally, it is fruitless for appellant to deny he conspired
with his co-accused to commit the crime at bar. The fact
that all the accused were co-conspirators in defrauding
the complainants could be inferred from their acts. They
played different roles in defrauding complainants:
accused Garcia was the president, appellant Botero was
the vice-president and accused-at-large Miraples was
the treasurer of Ricorn. Each one played a part in the
recruitment of complainants. They were indispensable
to each other.
2.) G.R. No. L-84502 June 30, 1989
CHRISTIAN CHILDREN'S FUND, petitioner, vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR
ARBITER RlCARDO OLAIREZ, ELIZABETH SALAO, FELISA
MAMARIL, FELIPA PITOK, JOY GONSODEN and ELENA
ECLARINO, respondents.
CASE LAW/ DOCTRINE: When a third person has
entered into a contract with an association which
represented itself to be a corporation, the association
will be estopped from denying its corporate capacity in
a suit against it by such third person.
FACTS: Private Respondents Salao, Mamaril, et al
worked for the Cristo Regis Center, a charitable
organization. Cristo Regis was in turn supported by
Petitioner Christian Children’s Fund.
Petitioner Christian Children’s Fund was sued by private
Respondents for illegal dismissal when the Cristo Regis
Center closed down.

The NLRC ruled against the Petitioners.
The petitioner alleged that it is not the employer of the
private respondents, they being employees of the
separate entity Cristo Regis Center; that the Cristo Regis
Center is not an agent of the petitioner; and that the
private respondents were never illegally dismissed by
the petitioner, so it cannot be liable for their money
claims.
The contract between Christian Children’s Fund and the
Cristo Regis Center state the following:
“Christian Children's Fund, Inc. (hereafter called
CCF and Cristo Regis Center, FMP (hereafter called
the Project), desire to enter into an agreement
under which CCF will offer support to the project
as long as it is programmatically and financially
capable and as described and limited in this
Agreement. There is no formal legal relationship
between CCF and the Protect except the
agreement. The project is not an agent of CCF.
CCF and the Project are independent of one
another. The Project has no authority to, and can
not and will not enter into any agreement on
behalf of. CCF or bind CCF not pledge credit in any
way.”
The respondents argued that the Cristo Regis Center,
not being a duly organized corporation listed in the SEC,
cannot be liable for contracts entered into by it.
ISSUE(S): 1.) Whether or not the petitioner Christian
Children's Fund is the real employer of the private
respondents, and not the Cristo Regis Center, an
organization that is not incorporated. NO
2.) Can the Cristo Regis Center be held liable as a
corporation for contracts entered by it? YES
RULING: 1.) A close scrutiny of this contract shows that
the petitioner financially supports the charitable
program undertaken by the Cristo Regis Center; there is
no formal legal relationship between petitioner and the
Cristo Regis Center (Project); the Cristo Regis Center is
not an agent of the petitioner; the petitioner and the
Cristo Regis Center (Project) are independent of one
another; and the Cristo Regis Center (Project) has no
authority to, and cannot and will not enter into any
agreement on behalf of the petitioner or bind it or
pledge credit in any way.
These are eloquent indicators that the Cristo Regis
Center is not an agent of the petitioner. The contract
was good for five (5) years, and it was renewed three
times, before the Cristo Regis Center ceased to operate.
The contract is subject to termination when either the
petitioner or the Cristo Regis Center violates any of its
conditions.
The management of the Cristo Regis Center was
entrusted to the Benedictine Sisters. The Benedictine
Sisters eventually ceased management operations and
CORPORATION LAW CASE DIGESTS | 1 104
withdrew from said project of the Cristo Regis Center in
1984. Thus, the petitioner had no alternative but to
engage another organization aside from the Cristo Regis
Center, to pursue the program. Obviously, the
petitioner is not the employer of the private
respondents. The funds of petitioner are different and
distinct from the Cristo Regis Center. Each entity has its
own separate organizational set-up. They operate
independently of each other. The private respondents
were under the supervision and control of the Cristo
Regis Center, not the petitioner.
The closure of the project was not due to the
petitioner's fault. Indeed, it was because of many
complaints received about anomalies in the project.
Since the petitioner is not the employer of private
respondents, it logically follows that the Cristo Regis
Center, the entity that hired them, must be their
employer.
Private respondents were not illegally dismissed. The
closure of the Cristo Regis Center was inevitable. It is a
cogent basis for retrenchment or termination of its
employees.
2.) Cristo Regis Center, as an organization, was created
for a specific charitable objective. As an organization
lawfully created, the doctrine of corporation by
estoppel will apply. When a third person has entered
into a contract with an association which represented
itself to be a corporation, the association will be
estopped from denying its corporate capacity in a suit
against it by such third person. It cannot allege lack of
capacity to be sued to evade responsibility on a
contract it had entered into and by virtue of which it
received advantages and benefits.
III. CORPORATION BY PRESCRIPTION
CORPORATION BY PRESCRIPTION: or one which has
exercised corporate powers for an indefinite period
without interference on the part of the sovereign power
and which by fiction of law is given the status of a
corporation.
NOTE: Naulit na ang cases. Pero wala gyud namention
sa cases ang Corporation by Prescription.   
1.) PIONEER INSURANCE VS CA (Refer to DE FACTO
CORPORATION TOPIC)
2.) CHRISTIAN CHILDREN’S FUND VS NLRC (Refer to
Corporation by Estoppel case# 2)
3.) PIONEER INSURANCE VS CA (Refer to DE FACTO
CORPORATION TOPIC)
ADOPTION OF BY-LAWS
1. [G.R. No. 121466. August 15, 1997]

PMI COLLEGES, petitioner, vs. THE NATIONAL LABOR
RELATIONS COMMISSION and ALEJANDRO GALVAN,
respondents.
FACTS
On July 7, 1991, petitioner, an educational
institution offering courses on basic seamans training
and other marine-related courses, hired private
respondent as contractual instructor with an agreement
that the latter shall be paid at an hourly rate of P30.00
to P50.00, depending on the description of load subjects
and on the schedule for teaching the same. Pursuant to
this engagement, private respondent then organized
classes in marine engineering.
Initially, private respondent and other
instructors were compensated for services rendered
during the first three periods of the abovementioned
contract. However, for reasons unknown to private
respondent, he stopped receiving payment for the
succeeding rendition of services. Repeated demands
having likewise failed, private respondent was soon
constrained to file a complaint before the National
Capital Region Arbitration Branch on September 14,
1993 seeking payment for salaries earned from the
following: (1) basic seaman course Classes 41 and 42 for
the period covering October 1991 to September 1992;
(2) shipyard and plant visits and on-the-job training of
Classes 41 and 42 for the period covering October 1991
to September 1992 on board M/V Sweet Glory vessel;
and (3) as Acting Director of Seaman Training Course for
3-1/2 months.
Private respondents claims, as expected, were
resisted by petitioner. It alleged that classes in the
courses offered which complainant claimed to have
remained unpaid were not held or conducted in the
school premises of PMI Colleges. Furthermore, the
claims, according to petitioner, were all exaggerated
and that, at any rate, private respondent abandoned his
work at the time he should have commenced the same.
PMI manifested that Mr. Tomas G. Cloma, Jr., a
member of the petitioners Board of Trustees wrote a
letter to the Chairman of the Board on May 23, 1994,
clarifying the case of private respondent and stating
therein, inter alia, that under PMI’s by-laws only the
Chairman is authorized to sign any contract and that
private respondent, in any event, failed to submit
documents on the alleged shipyard and plant visits in
Cavite Naval Base. PMI reiterated, among others, that
the employment of Galvan is void because it did not
comply with its by-laws. Apparently, the by-laws
require that an employment contract must be signed
by the Chairman of the Board of PMI. PMI asserts that
Galvan’s employment contract was not signed by the
Chairman of the Board.
CORPORATION LAW CASE DIGESTS | 1 105
A decision was subsequently rendered by the
Labor Arbiter on December 7, 1994 finding for the
private respondent. On appeal, the NLRC affirmed the
same in toto in its decision of August 4, 1995.
ISSUE
Whether or not Galvan’s employment contract
is void.
RULING
NO.
Neither can we concede that such contract
would be invalid just because the signatory thereon was
not the Chairman of the Board which allegedly violated
petitioner’s by-laws. Since by-laws operate merely as
internal rules among the stockholders, they cannot
affect or prejudice third persons who deal with the
corporation, unless they have knowledge of the same.
No proof appears on record that private respondent
ever knew anything about the provisions of said by-
laws. In fact, petitioner itself merely asserts the same
without even bothering to attach a copy or excerpt
thereof to show that there is such a provision.
F. CORPORATE GENERAL POWERS
1. GENERAL POWERS: THEORY OF GENERAL CAPACITY
1. GR No. 194964, January 11, 2016
University of Mindanao (Petitioner) v Bangko Sentral
ng Pilipinas et al. (Respondents)
Second Division
Ponente: Leonen, J.
Nature of Action: An action for the nullification and
cancellation of mortgage on the ground that the person
who entered into contract has no authority to execute
such contract.
FACTS:
Guillermo B. Torres and Dolores P. Torres
incorporated and operated two (2) thrift banks: (1) First
Iligan Savings & Loan Association, Inc. (FISLAI); and (2)
Davao Savings and Loan Association, Inc. (DSLAI).
Guillermo B. Torres chaired both thrift banks. He acted
as FISLAI's President, while his wife, Dolores P. Torres,
acted as DSLAI's President and FISLAI's Treasurer. Upon
Guillermo B. Torres' request, Bangko Sentral ng Pilipinas
issued a P1.9 million standby emergency credit to
FISLAI.
On May 25, 1982, University of Mindanao's Vice
President for Finance, Saturnino Petalcorin, executed a

deed of real estate mortgage over University of
Mindanao's property in Cagayan de Oro City in favor of
BangkoSentral ng Pilipinas. "The mortgage served as
security for FISLAI's PI.9 Million loan" It was allegedly
executed on University of Mindanao's behalf. As proof
of his authority to execute a real estate mortgage for
University of Mindanao, Saturnino Petalcorin showed a
Secretary's Certificate signed by University of
Mindanao's Corporate Secretary, Aurora de Leon. The
Secretary’s certificate states among others the
authorizing of the chairman to appoint Satunino
Pactolerin to represent the University of Mindanao to
transact, transfer, convey, lease, mortgage, or
otherwise hypothecate the subject properties.
Saturnino Petalcorin executed another deed of real
estate mortgage, allegedly on behalf of University of
Mindanao, over its two properties in Iligan City. This
mortgage served as additional security for FISLAI's
loans. FISLAI and DSLAI eventually merged with DSLAI as
the surviving corporation in an effort to rehabilitate the
thrift banks due to the heavy withdrawals of depositors.
DSLAI later became known as Mindanao Savings and
Loan Association, Inc. (MSLAI). MSLAI failed to recover
from its losses. Bangko Sentral ng Pilipinas later on
foreclosed the mortgaged properties. University of
Mindanao filed two Complaints for nullification and
cancellation of mortgage. One Complaint was filed
before the Regional Trial Court of Cagayan de Oro City,
and the other Complaint was filed before the Regional
Trial Court of Iligan City. University of Mindanao alleged
that it did not obtain any loan from Bangko Sentral ng
Pilipinas and that Aurora De Leon’s certification was
anomalous. That it never authorized Saturnino
Petalcorin to execute real estate mortgage contracts
involving its properties to secure FISLAI's debts and it
never ratified the execution of the mortgage contracts.
The Regional Trial Courts ruled in favor of University of
Mindanao. The Court of Appeals however ruled that
"although BSP failed to prove that the UM Board of
Trustees actually passed a Board Resolution authorizing
Petalcorin to mortgage the subject real
properties, Aurora de Leon's Secretary's Certificate"
clothed Petalcorin with apparent and ostensible
authority to execute the mortgage deed on its
behalf. Bangko Sentral ng Pilipinas merely relied in good
faith on the Secretary's Certificate. University of
Mindanao is estopped from denying Saturnino
Petalcorin's authority.
ISSUE:
Whether petitionerUniversity of Mindanao is
bound by the real estate mortgage contracts executed
by SaturninoPetalcorin.
RULING:
CORPORATION LAW CASE DIGESTS | 1 106
No. Acts of an officer that are not authorized by
the board of directors/trustees do not bind the
corporation unless the corporation ratifies the acts or
holds the officer out as a person with authority to
transact on its behalf.
Petitioner argues that it did not authorize
SaturninoPetalcorin to mortgage its properties on its
behalf. There was no board resolution to that effect.
Thus, the mortgages executed by SaturninoPetalcorin
were unenforceable. The mortgage contracts executed
in favor of respondent do not bind petitioner. They
were executed without authority from petitioner. Being
a juridical person, petitioner cannot conduct its
business, make decisions, or act in any manner without
action from its Board of Trustees. The Board of Trustees
must act as a body in order to exercise corporate
powers. Individual trustees are not clothed with
corporate powers just by being a trustee. Hence, the
individual trustee cannot bind the corporation by
himself or herself. The corporation may, however,
delegate through a board resolution its corporate
powers or functions to a representative, subject to
limitations under the law and the corporation's articles
of incorporation. The relationship between a
corporation and its representatives is governed by the
general principles of agency. Article 1317 of the Civil
Code provides that there must be authority from the
principal before anyone can act in his or her name:
ART. 1317. No one may contract in the name of
another without being authorized by the latter,
or unless he has by law a right to represent him.
Hence, without delegation by the board of
directors or trustees, acts of a person - including those
of the corporation's directors, trustees, shareholders, or
officers—executed on behalf of the corporation are
generally not binding on the corporation. The
unenforceable status of contracts entered into by an
unauthorized person on behalf of another is based on
the basic principle that contracts must be consented to
by both parties. There is no contract without meeting of
the minds as to the subject matter and cause of the
obligations created under the contract. Consent of a
person cannot be presumed from representations of
another, especially if obligations will be incurred as a
result. Thus, authority is required to make actions made
on his or her behalf binding on a person. Contracts
entered into by persons without authority from the
corporation shall generally be considered ultra vires and
unenforceable against the corporation.
2. MAGALLANES WATERCRAFT ASSOCIATION, INC., AS
REPRESENTED BY ITS BOARD OF TRUSTEES, NAMELY:

EDILBERTO M. BAJAO, GERARDO O. PLAZA, ISABELITA
MULIG, EDNA ABEJAY, MARCELO DONAN, NENITA O.
VARQUEZ, MERLYN ALVAREZ, EDNA EXCLAMADOR,
AND CESAR MONSON, Petitioner, v. MARGARITO C.
AUGUIS AND DIOSCORO C. BASNIG, Respondents.
G.R. No. 211485, May 30, 2016
FACTS
Magallanes Watercraft Association, Inc. (MWAI)
is a local association of motorized banca owners and
operators ferrying cargoes and passengers from
Magallanes, Agusan del Norte, to Butuan City and back.
Respondents Margarito C. Auguis (Auguis) and Dioscoro
C. Basnig (Basnig) were members and officers of MWAI
- vice-president and secretary, respectively.
On December 5, 2003, the Board of Trustees
(Board) of MWAI passed Resolution No. 1, Series of
2003, and thereafter issued Memorandum No. 001
suspending the rights and privileges of Auguis and
Basnig as members of the association for thirty (30)
days for their refusal to pay their membership dues and
berthing fees because of their pending oral complaint
and demand for financial audit of the association funds.
Auguis had an accumulated unpaid obligation of
P4,059.00 while Basnig had P7,552.00.
In spite of the suspension of their privileges as
members, Auguis and Basnig still failed to settle their
obligations with MWAI. For said reason, the latter
issued Memorandum No. 002, Series of 2004, dated
January 8, 2004, suspending their rights and privileges
for another thirty (30) days.
On February 6, 2004 respondents filed an action
for damages and attorney's fees with a prayer for the
issuance of a writ of preliminary injunction before the
RTC. In its January 11, 2007 decision, the trial court
ordered Auguis and Basnig to pay their unpaid
accounts. It, nonetheless, required MWAI to pay them
actual damages and attorney's fees.
Aggrieved, MWAI appealed before the CA.
The CA Ruling
The CA affirmed with modification the RTC
decision. According to the appellate court, the RTC
correctly held that MWAI was guilty of an ultra
vires act. The CA noted that neither MWAI's Articles of
Incorporation nor its By-Laws contained any provision
that expressly and/or impliedly vested power or
authority upon its Board to recommend the imposition
of disciplinary sanctions on its delinquent officers
and/or members.
CORPORATION LAW CASE DIGESTS | 1 107
The CA explained that the suspension of their
berthing privileges resulted in the failure of the
respondents to operate their bancas—contrary to the
express reminder of the MARINA. Hence, the CA
concluded that MWAI acted beyond the scope of its
powers when it suspended the rights of Auguis and
Basnig as members of MWAI to berth on the seaport of
Magallanes and operate their bancas.
The CA concluded that the suspension by
MWAI of respondents' rights as members for their
failure to settle membership dues was an ultra
vires act as MWAFs articles of incorporation and by-
laws were bereft of any provision that expressly and
impliedly vested power or authority upon its Board to
recommend the imposition of disciplinary actions on
its delinquent officers and/or members.
Hence, this petition.
ISSUE
WON the suspension by MWAI of respondents' rights as
members for their failure to settle membership dues
was an ultra vires act
RULING
NO.
Under Section 3(a) and Section 3(c) Article V of
MWAI's By-Laws, its members are bound "[t]o obey and
comply with the by-laws, rules and regulations that may
be promulgated by the association from time to time"
and "[t]o pay membership dues and other assessments
of the association." Thus, the respondents were
obligated to pay the membership dues of which they
were delinquent. MWAI could not be faulted in
suspending the rights and privileges of its delinquent
members.
MWAI can properly impose sanctions on Auguis
and Basnig for being delinquent members considering
that the payment of membership dues enables MWAI
to discharge its duties and functions enumerated under
its charter. Moreover, respondents were obligated by
the by-laws of the association to pay said dues. The
suspension of their rights and privileges is not an ultra
vires act as it is reasonably necessary or proper in
order to further the interest and welfare of MWAI.
Also, the imposition of the temporary ban on the use of
MWAI's berthing facilities until Auguis and Basnig have
paid their outstanding obligations was a reasonable
measure that the former could undertake to ensure the
prompt payment of its membership dues.1

3. AGDAO LANDLESS RESIDENTS INC. VS MARAMION
FACTS
Dakudao & Sons, Inc. (Dakudao) executed six Deeds of
Donation in favor of ALRAI covering 46 titled lots
(donated lots). One Deed of Donation prohibits ALRAI,
as donee, from partitioning or distributing individual
certificates of title of the donated lots to its members,
within a period of five years from execution, unless a
written authority is secured from Dakudao. A violation
of the prohibition will render the donation void, and
title to and possession of the donated lot will revert to
Dakudao. The other five Deeds of Donation do not
provide for the five-year restriction.
In the board of directors and stockholders meetings
held on January 5, 2000 and January 9, 2000,
respectively, members of ALRAI resolved to directly
transfer 10 of the donated lots to individual members
and non members of ALRAI. Transfer Certificate of Title
(TCT) Nos. T-62124 (now T-322968), T-297811 (now TCT
No. T-322966), T-297813 (now TCT No. T-322967) and T-
62126 (now TCT No. T-322969) were transferred to
Romeo Dela Cruz (Dela Cruz). TCT Nos. T-41374 (now
TCT No. T-322963) and T-41361 (now TCT No. T-322962)
were transferred to petitioner Javonillo, the president
of ALRAI. TCT Nos. T-41365 (now TCT No. T-322964) and
T-41370 (now TCT No. T-322964) were transferred to
petitioner Armentano, the secretary of ALRAI. TCT Nos.
T-41367 (now TCT No. T-322971) and T-41366 were
transferred to petitioner Alcantara, the widow of the
former legal counsel of ALRAI. The donated lot covered
by TCT No. T-41366 (replaced by TCT No. T-322970) was
sold to Lily Loy (Loy) and now covered by TCT No. T-
338403.
Respondents filed a Complaint against petitioners.
Respondents alleged that petitioners expelled them as
members of ALRAI, and that petitioners are abusing
their powers as officers. Respondents further alleged
that petitioners were engaged in the following
anomalous and illegal acts: (1) requiring ALRAI's
members to pay exorbitant arrear fees when ALRAI's
By-Laws only set membership dues at P1.00 per
month; (2) partially distributing the lands donated by
Dakudao to some officers of ALRAI and to some non-
members in violation of the Deeds of Donation; (3)
illegally expelling them as members of ALRAI without
due process; and (4) being unable to show the books of
accounts of ALRAI. They also alleged that Loy (who
bought one of the donated lots from Alcantara) was a
buyer in bad faith, having been aware of the status of
the land when she bought it.
CORPORATION LAW CASE DIGESTS | 1 108
Thus, respondents prayed for: (1) the restoration of
their membership to ALRAI; (2) petitioners to stop
selling the donated lands and to annul the titles
transferred to Javonillo, Armentano, Dela Cruz,
Alcantara and Loy; (3) the production of the accounting
books of ALRAI and receipts of payments from ALRAI's
members; (4) the accounting of the fees paid by ALRAI's
members; and (5) damages.
The Ruling of the RTC
The RTC ruled in favor of the respondents. It
found respondents to be bona fidemembers of
ALRAI. Being bona fide members, they are entitled to
notices of meetings held for the purpose of suspending
or expelling them from ALRAI. The court a quo however
found that respondents were expelled without due
process. It also annulled all transfers of the donated lots
because these violated the five-year prohibition under
the Deeds of Donation. It also found Loy a purchaser in
bad faith.
The Ruling of the Court of Appeals :
AFFIRMED with MODIFICATION.
The following Transfer Certificates of Title are
declared VALID:
1. TCT Nos. T-322966, T-322967, T-322968 and T-
322969 in the name of petitioner Romeo C.
DelaCruz; and
2. TCT No. T-338403 in the name of petitioner Lily
Loy.
The following Transfer Certificates of Title are declared
VOID:
1. TCT Nos. T-322963 and T-322962 in the name of
Petitioner Armando Javonillo;
2. TCT Nos. T-322964 and T-322965 in the name of
petitioner Ma. Acelita Armentano; and
3. TCT No. T-322971 in the name of petitioner
Asuncion A. Alcantara.
ISSUE
Whether OR NOT the transfers of the donated lots are
valid.
RULING
irtualLawlibraryThe following Transfer Certificates of
Title are VOID:ChanRoblesVirtualawlibrary
(1) TCT Nos. T-322962 and T-322963 in
the name of Armando Javonillo;
(2) TCT Nos. T-322964 and T-322965 in

the name of Ma. Acelita Armentano;
(3) TCT Nos. T-322966, T-322967, T-
322968, and T-322969 in the name of
Romeo Dela Cruz;
(4) TCT No. T-338403 in the name of Lily
Loy; and
(5) TCT No. T-322971 in the name of
Asuncion Alcantara.
One of the primary purposes of ALRAI is the
giving of assistance in uplifting and promoting better
living conditions to all members in particular and the
public in general. One of its objectives includes "to uplift
and promote better living condition, education, health
and general welfare of all members in particular and the
public in general by providing its members humble
shelter and decent housing."Respondents maintain that
it is pursuant to this purpose and objective that the
properties subject of this case were donated to ALRAI.
Section 36, paragraphs 7 and 11 of the
Corporation Code provide:
Sec. 36. Corporate powers and capacity. - Every
corporation incorporated under this Code has the
power and capacity:
xxx
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.
xxx
11. To exercise such other powers as may be
essential or necessary to carry out its purpose or
purposes as stated in the articles of incorporation.
The Corporation Code therefore tells us that the
power of a corporation to validly grant or convey any of
its real or personal properties is circumscribed by its
primary purpose. It is therefore important to determine
whether the grant or conveyance is pursuant to a
legitimate corporate purpose, or is at least reasonable
and necessary to further its purpose.
Based on the records of this case, the SC find
that the transfers of the corporate properties to
Javonillo, Armentano, Dela Cruz, Alcantara and Loy are
CORPORATION LAW CASE DIGESTS | 1 109
bereft of any legitimate corporate purpose, nor were
they shown to be reasonably necessary to further
ALRAI's purposes. This is principally because, as
respondents argue, petitioners "personally benefitted
themselves by allocating among themselves vast track
of lands at the dire expense of the landless general
membership of the Association."
4. BANK OF COMMERCEvs.RADIO PHILIPPINES
NETWORK, INC., INTERCONTINENTAL BROADCASTING
CORPORATION, and BANAHA W BROADCASTING
CORPORATION, THRU BOARD OF ADMINISTRATOR,
and SHERIFF BIENVENIDO S. REYES, JR., Sheriff,
Regional Trial Court of Quezon City, Branch 98
[G.R. No. 195615April 21, 2014]
FACTS:
In late 2001 the Traders Royal Bank (TRB)
proposed to sell to petitioner Bank of Commerce for
₱10.4 billion its banking business consisting of specified
assets and liabilities. Bank of Commerce agreed subject
to prior BSP's approval of their Purchase and
Assumption (P & A) Agreement. On November 8, 2001
the BSP approved that agreement subject to the
condition that Bank of Commerce and TRB would set up
an escrow fund of PSO million with another bank to
cover TRB liabilities for contingent claims that may
subsequently be adjudged against it, which liabilities
were excluded from the purchase.
To comply with the BSP mandate, on December
6, 2001 TRB placed ₱50 million in escrow with
Metrobank to answer for those claims and liabilities
that were excluded from the P & A Agreement and
remained with TRB. Accordingly, the BSP finally
approved such agreement on July 3, 2002.
On October 10, 2002, acting in G.R. 138510, TRB
v. RPN Inc., this Court ordered TRB to pay RPN actual
damages of ₱10 million plus 12% legal interest and
some amounts. Rather than pursue a levy in execution
of the corresponding amounts on escrow with
Metrobank, RPN filed a Supplemental Motion for
Execution where they described TRB as "now Bank of
Commerce" based on the assumption that TRB had been
merged into Bancommerce.
Bancommerce filed its Special Appearance with
Opposition to the same questioning the jurisdiction of
the RTC over Bancommerce and denying that there was
a merger between TRB and Bancommerce. The RTC
issued an Order granting and issuing the writ of
execution to cover any and all assets of TRB, including
those subject of the merger/consolidation in the guise of
a Purchase and Sale Agreement with Bank of
Commerce, and/or against the Escrow Fund established

by TRB and Bank of Commerce with the Metrobank.
Bancommerce filed a petition for certiorari with
the CA assailing the RTC’s Order, but was denied. The
CA pointed out that the Decision of the RTC was clear in
that Bancommerce was not being made to answer for
the liabilities of TRB, but rather the assets or properties
of TRB under its possession and custody. In the same
Decision, the CA modified the Decision of the RTC by
deleting the phrase that the P & A Agreement is a farce
or "a mere tool to effectuate a merger and/or
consolidation between TRB and BANCOM.”
RPN then filed with the RTC a motion to cause
the issuance of an alias writ of execution against
Bancommerce based on the CA Decision. The RTC
granted the motion on February 19, 2010 on the
premise that the CA Decision allowed it to execute on
the assets that Bancommerce acquired from TRB under
their P & A Agreement.
Bancommerce sought reconsideration of the
RTC Order considering that the December 2009 CA
Decision actually declared that no merger existed
between TRB and Bancommerce. But, since the RTC had
already issued the alias writ, Bancommerce filed a
motion to quash the same, followed by supplemental
Motion.
The RTC then issued the assailed Order denying
Bancommerce pleas and, among others, directing the
release to the Sheriff of Bancommerce’s "garnished
monies and shares of stock or their monetary
equivalent.” Aggrieved, Bancommerce appealed to the
CA. However, the CA dismissed the petition outright for
the supposed failure of Bancommerce to file a motion
for reconsideration of the assailed order.
ISSUE:
W/N TRB and Bancommerce were validly merged.
RULING: NO
(1)
▪ Merger is a re-organization of two or more
corporations that results in their consolidating into
a single corporation, which is one of the constituent
corporations, one disappearing or dissolving and
the other surviving. To put it another way, merger is
the absorption of one or more corporations by
another existing corporation, which retains its
identity and takes over the rights, privileges,
franchises, properties, claims, liabilities and
obligations of the absorbed corporation(s). The
absorbing corporation continues its existence while
the life or lives of the other corporation(s) is or are
terminated.
▪ Indubitably, it is clear that no merger took place
between Bancommerce and TRB as the
requirements and procedures for a merger were
CORPORATION LAW CASE DIGESTS | 1 110
absent. A merger does not become effective upon
the mere agreement of the constituent
corporations. All the requirements specified in the
law must be complied with in order for merger to
take effect. Section 79 of the Corporation Code
further provides that the merger shall be effective
only upon the issuance by the SEC of a certificate of
merger.
▪ Here, Bancommerce and TRB remained separate
corporations with distinct corporate personalities.
What happened is that TRB sold and Bancommerce
purchased identified recorded assets of TRB in
consideration of Bancommerce’s assumption of
identified recorded liabilities of TRB including
booked contingent accounts. There is no law that
prohibits this kind of transaction especially when it
is done openly and with appropriate government
approval. No merger or consolidation took place as
the records do not show any plan or articles of
merger or consolidation. More importantly, the SEC
did not issue any certificate of merger or
consolidation.
▪ In his book, Dean Cesar Villanueva explained that
under the Corporation Code, "a de facto merger can
be pursued by one corporation acquiring all or
substantially all of the properties of another
corporation in exchange of shares of stock of the
acquiring corporation. The acquiring corporation
would end up with the business enterprise of the
target corporation; whereas, the target corporation
would end up with basically its only remaining
assets being the shares of stock of the acquiring
corporation."
▪ No de facto merger took place in the present case
simply because the TRB owners did not get in
exchange for the bank’s assets and liabilities an
equivalent value in Bancommerce shares of stock.
Bancommerce and TRB agreed with BSP approval to
exclude from the sale the TRB’s contingent judicial
liabilities, including those owing to RPN.
5. LIGAYA ESGUERRA, ET. AL. v. HOLCIM PHILIPPINES,
INC.
G.R. No. 182571, September 2, 2013, REYES, J.
FACTS:
Respondent Esguerra filed on December 12,
1989 with the RTC, Malolos, Bulacan, an action to annul
the Free Patent in the name of de Guzman. Esguerra
claimed that he was the owner of the subject land with
an approximate area of 47,000 square meters. Esguerra
learned that the said parcel of land was being offered
for sale by de Guzman to Hi-Cement Corporation (now
HOLCIM Philippines, Inc.). He later amended his
complaint to impleaded Hi-Cement as a co-defendant
since the latter was hauling marble from the subject

land. The RTC dismissed Esguerra’s complaint but on
appeal, the CA reversed. The Supreme Court in its
Decision dated December 27, 2002 affirmed the CA’s
decision. After attaining finality, the case was
remanded to the RTC for execution.
Now, herein petitioners (heirs of Esguerra), filed
an Omnibus Motion with the RTC, manifesting that the
Court’s December 27, 2002 decision has yet to be
executed. HOLCIM filed a motion for reconsideration
alleging that it did not owe any amount of royalty to the
petitioners for the extracted limestone from the subject
land. It also filed a Manifestation and Motion for Ocular
Inspection to prove that it did not extract limestone
from the subject land. Despite all of this, an alias writ of
execution and notices of garnishment on several banks
against HOLCIM have been issued by the RTC to cover
the payment of royalties to petitioner for the former's
extraction of limestone, etc. HOLCIM filed a Petition for
Certiorari with Urgent Applications for Temporary
Restraining Order and/or Writ of Preliminary Injunction
with the CA. The CA granted the motion.
ISSUE:
Whether or not the CA gravely erred in not
dismissing HOLCIM's petition for certiorari on the
ground of lack of Board Resolution authorizing the filing
of petition.
HELD:
The general rule is that a corporation can only
exercise its powers and transact its business through its
board of directors and through its officers and agents
when authorized by a board resolution or its bylaws.
The power of a corporation to sue and be sued is
exercised by the board of directors. The physical acts of
the corporation, like the signing of documents, can be
performed only by natural persons duly authorized for
the purpose by corporate bylaws or by a specific act of
the board. Absent the said board resolution, a petition
may not be given due course.
In the case at bar, HOLCIM attached to its
Petition for Certiorari before the CA a Secretary’s
Certificate authorizing Mr. Paul M. O’Callaghan
(O’Callaghan), its Chief Operating Officer, to nominate,
designate and appoint the corporation’s authorized
representative in court hearings and conferences and
the signing of court pleadings. It also attached the
Special Power of Attorney dated June 9, 2006, signed by
O’Callaghan, appointing Sycip Salazar Hernandez &
Gatmaitan and/or any of its lawyers to represent
HOLCIM; and consequently, the Verification and
Certification of Non Forum Shopping signed by the
authorized representative. To be sure, HOLCIM, in its
Reply filed in the CA, attached another Secretary’s
Certificate, designating and confirming O’Callaghan’s
power to authorize Sycip Salazar Hernandez &
Gatmaitan and/or any of its lawyers to file for and on
behalf of HOLCIM, the pertinent civil and/or criminal
actions pending before the RTC.
The foregoing convinces the Court that the CA
did not err in admitting HOLCIM’s petition before it.
CORPORATION LAW CASE DIGESTS | 1 111
HOLCIM attached all the necessary documents for the
filing of a petition for certiorari before the CA. Indeed,
there was no complete failure to attach a Certificate of
Non-Forum Shopping. In fact, there was such a
certificate. While the board resolution may not have
been attached, HOLCIM complied just the same when it
attached the Secretary’s Certificate dated July 17, 2006,
thus proving that O’Callaghan had the authority from
the board of directors to appoint the counsel to
represent them. The Court recognizes the compliance
made by HOLCIM in good faith since after the
petitioners pointed out the said defect, HOLCIM
submitted the Secretary’s Certificate dated July 17,
2006, confirming the earlier Secretary’s Certificate
dated June 9, 2006.
6. G.R. No. 181277, July 03, 2013
SWEDISH MATCH PHILIPPINES, INC., Petitioner, v. THE
TREASURER OF THE CITY OF MANILA,Respondent.
THE
On 20 October 2001, Swedish Match Phils. Inc. paid business taxe
The assessed amount was based on Sections 14 and 21 of Ord
Manila Revenue Code, as amended by Ordinance Nos. 7988 an
corresponded to the payment
Assenting that it was not liable to pay taxes under Section 21, pe
2003 to herein respondent claiming a refund of business taxes
provision. Petitioner argued that payment under Section 21
payment under
On 17 October 2003, for the alleged failure of respondent to ac
Petition for Refund of Taxes with the RTC of Manila in accordanc
Code of 1991. The Petition was docketed
On 14 June 2004, the Regional Trial Court (RTC), Branch 21 of M
03-108163 dismissing the Petition for the failure of petitioner t
state the authority of Tiarra T. Batilaran-Beleno (the company’s F
Verification and Certification of
In denying petitioner’s Motion for Reconsideration, the RTC
pertained to taxes of a different nature and, thus, the elements o
On appeal, the CTA Second Division affirmed the RTC’s dismissa
ground that petitioner had failed to state the authority of Ms. Be
ISSUE
Whether Ms. Beleno was authorized to file the Petition
for Refund of Taxes with the RTC
RULING
YES.

The power of a corporation to sue and be sued is lodged
in the board of directors, which exercises its corporate
powers. It necessarily follows that “an individual
corporate officer cannot solely exercise any corporate
power pertaining to the corporation without authority
from the board of directors.” Thus, physical acts of the
corporation, like the signing of documents, can be
performed only by natural persons duly authorized for
the purpose by corporate by-laws or by a specific act of
the board of directors.
Consequently, a verification signed without an authority
from the board of directors is defective. However, the
requirement of verification is simply a condition
affecting the form of the pleading and non-compliance
does not necessarily render the
pleading fatally defective. The court may in fact order
the correction of the pleading if verification is lacking or,
it may act on the pleading although it may not have
been verified, where it is made evident that strict
compliance with the rules may be dispensed with so
that the ends of justice may be served.
In this case, it is undisputed that the Petition filed with
the RTC was accompanied by a Verification and
Certification of Non-Forum Shopping signed by Ms.
Beleno, although without proof of authority from the
board. However, this Court finds that the belated
submission of the Secretary’s Certificate constitutes
substantial compliance with Sections 4 and 5, Rule 7 of
the 1997 Revised Rules on Civil Procedure.
A perusal of the Secretary’s Certificate signed by
petitioner’s Corporate Secretary Rafael Khan and
submitted to the RTC shows that not only did the
corporation authorize Ms. Beleno to execute the
required Verifications and/or Certifications of Non-
Forum Shopping, but it likewise ratified her act of filing
the Petition with the RTC.
2. SPECIFIC POWERS: THEORY OF SPECIFIC CAPACITY
1. G.R. No. L-23606 July 29, 1968
ALHAMBRA CIGAR & CIGARETTE MANUFACTURING
COMPANY, INC., petitioner,
vs.
SECURITIES & EXCHANGE COMMISSION
FACTS
Alhambra Cigar and Cigarette Manufacturing Company,
Inc. (hereinafter referred to simply as Alhambra) was
duly incorporated under Philippine laws on January 15,
1912. By its corporate articles it was to exist for fifty
(50) years from incorporation. Its term of existence
CORPORATION LAW CASE DIGESTS | 1 112
expired on January 15, 1962. On that date, it ceased
transacting business, entered into a state of liquidation.
Thereafter, a new corporation. — Alhambra Industries,
Inc. — was formed to carry on the business of
Alhambra.
On May 1, 1962, Alhambra's stockholders, by resolution
named Angel S. Gamboa trustee to take charge of its
liquidation.
On June 20, 1963 — within Alhambra's three-year
statutory period for liquidation - Republic Act 3531 was
enacted into law. It amended Section 18 of the
Corporation Law; it empowered domestic private
corporations to extend their corporate life beyond the
period fixed by the articles of incorporation for a term
not to exceed fifty years in any one instance. Previous
to Republic Act 3531, the maximum non-extendible
term of such corporations was fifty years.
On July 15, 1963, at a special meeting, Alhambra's
board of directors resolved to amend paragraph
"Fourth" of its articles of incorporation to extend its
corporate life for an additional fifty years, or a total of
100 years from its incorporation.
On October 28, 1963, Alhambra's articles of
incorporation as so amended certified correct by its
president and secretary and a majority of its board of
directors, were filed with respondent Securities and
Exchange Commission (SEC).
On November 18, 1963, SEC, however, returned said
amended articles of incorporation to Alhambra's
counsel with the ruling that Republic Act 3531 "which
took effect only on June 20, 1963, cannot be availed of
by the said corporation, for the reason that its term of
existence had already expired when the said law took
effect in short, said law has no retroactive effect."
On December 3, 1963, Alhambra's counsel sought
reconsideration of SEC's ruling aforesaid, refiled the
amended articles of incorporation.
On September 8, 1964, SEC, after a conference hearing,
issued an order denying the reconsideration sought.
ISSUE: Whether or not a corporation under liquidation
may still amend its articles of incorporation to extend its
lifespan.
RULING
No. Alhambra cannot avail of the new law because it
has already expired at the time of its passage.
For implicit in Section 77 heretofore quoted is that the
privilege given to prolong corporate life under the
amendment must be exercised before the expiry of the
term fixed in the articles of incorporation.
 CORPORATION LAW CASE DIGESTS | 1 113

As we look in retrospect at the facts, we find these:

From July 15 to October 28, 1963, when Alhambra
made its attempt to extend its corporate existence, its
original term of fifty years had already expired (January
15, 1962); it was in the midst of the three-year grace
period statutorily fixed in Section 77 of the Corporation
Law, thus: .
SEC. 77. Every corporation whose charter
expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in
any other manner, shall nevertheless be
continued as a body corporate for three years
after the time when it would have been so
dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling
it gradually to settle and close its affairs, to
dispose of and convey its property and to divide
its capital stock, but not for the purpose of
continuing the business for which it was
established.

When a corporation is liquidating pursuant to

the statutory period of three years to liquidate, it is
only allowed to continue for the purpose of final
closure of its business and no other purposes. In fact,
within that period, the corporation is enjoined from
“continuing the business for which it was established”.
Hence, Alhambra’s board cannot validly amend its
articles of incorporation to extend its lifespan.
Alhambra’s stance does not induce assent. Expansive
construction is possible only when there is something to
expand. At the time of the passage of Republic Act
3531, Alhambra’s corporate life had already expired. It
had overstepped the limits of its limited existence. No
life there is to prolong.

Besides, a new corporation — Alhambra Industries, Inc.,

with but slight change in stockholdings 15 — has already
been established. Its purpose is to carry on, and it
actually does carry on,16 the business of the dissolved
entity. The beneficial-effects argument is off the mark.

The way the whole case shapes up then, the only

possible drawbacks of Alhambra might be that, instead
of the new corporation (Alhambra Industries, Inc.) being
written off, the old one (Alhambra Cigar & Cigarette
Manufacturing Company, Inc.) has to be wound up; and
that the old corporate name cannot be retained fully in
its exact form.17 What is important though is that the
word Alhambra, the name that counts [it has goodwill],
remains.

FOR THE REASONS GIVEN, the ruling of the Securities

and Exchange Commission of November 18, 1963, and
its order of September 8, 1964, both here under review,
are hereby affirmed.