MERCANTILE LAW REVIEW || Corporation Law
Cases 1-16 (Except: 10 &14)
GRANDFATHER RULE
1.
NARRA NICKEL MINING AND DEVELOPMENT CORP. vs.
REDMONT CONSOLIDATED MINES CORPORATION
GR NO. 195580 April 21, 2014 J. VELASCO, JR.
Under the Strict Rule or Grandfather Rule Proper, the
combined totals in the Investing Corporation and the Investee
Corporation must be traced to determine the total percentage
of Filipino ownership. Where the 60-40 Filipino- foreign equity
ownership is not in doubt, the Grandfather Rule will not apply
FACTS:
Redmont, a domestic corporation took interest in
mining and exploring certain areas in Palawan. Upon inquiry
with the DENR, it learned that the areas where it wanted to
undertake such were already covered by Mineral Production
Sharing Agreement applications of Narra, Tesoro and
McArthur. McArthur’s MPSA stems from the application of its
predecessor-in-interest SMMI where SMMI was issued a
MPSA covering an area of over 1,782 hectares of land in Brgy.
Sumbling , Bataraza, Palawan and an area of 3,720 hectares
of land in Brgy. Malataao, Bataraza, Palawan. These were
later on transferred to MMC which eventually came into the
hands of McArthur. Narra acquired its MPSA from PLMDC
which covers 3,277 hectares of land in Calategas and San
Isidro, Narra, Palawan. Tesoro acquired its MPSA from SMMI
which covered 3,402 hectares of land in Brgys. Malinao and
Urduja, Narra, Palawan. Redmont later on filed arbitration
proceedings to deny the applications for MPSA designated for
the three companies on the ground that the capital stock of the
three companies are owned by MBMI Resources Inc., a 100%
Canadian Corporation. Redmont claims that MBMI was the
1
driving force behind the three companies’ filing of MPSA as it
knows it can only participate in mining activities through
corporations which are Domestic in nature. The Panel of
Arbitrators denied the applications of the three companies
which prompted them to elevate the case to the RTC. The
RTC of Quezon City denied their petition, upholding the ruling
that they were not Domestic Corporations fit to engage in a
nationalized industry which was upheld by the CA.
ISSUE:
Whether or not McArthur, Narra and Tesoro may be
issued a MPSA.
HELD:
NO. McArthur, Narra and Tesoro may not be issued a
MPSA.
Under paragraph 7, DOJ Opinion No. 020, Series of
2005 provides:
The above-quoted SEC Rules provide for the
manner of calculating the Filipino interest in a
corporation for purposes, among others, of determining
compliance with nationality requirements (the ‘Investee
Corporation’). Such manner of computation is
necessary since the shares in the Investee Corporation
may be owned both by individual stockholders
(‘Investing Individuals’) and by corporations and
partnerships (‘Investing Corporation’). The said rules
thus provide for the determination of nationality
depending on the ownership of the Investee
Corporation and, in certain instances, the Investing
Corporation.
MERCANTILE LAW REVIEW || Corporation Law
Cases 1-16 (Except: 10 &14)
Under the above-quoted SEC Rules, there are two
cases in determining the nationality of the Investee
Corporation. The first case is the ‘liberal rule’, later coined by
the SEC as the Control Test in its 30 May 1990 Opinion, and
pertains to the portion in said Paragraph 7 of the 1967 SEC
Rules which states, ‘(s)hares belonging to corporations or
partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine
nationality.’ Under the liberal Control Test, there is no need to
further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation
which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather
Rule Proper and pertains to the portion in said Paragraph 7 of
the 1967 SEC Rules which states, "but if the percentage of
Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality."
Under the Strict Rule or Grandfather Rule Proper, the
combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., "grandfathered") to determine
the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares
must first be traced to the level of the Investing Corporation
and added to the shares directly owned in the Investee
Corporation x x x.
xxxx
In other words, based on the said SEC Rule and DOJ
Opinion, the Grandfather Rule or the second part of the SEC
Rule applies only when the 60-40 Filipino-foreign equity
2
ownership is in doubt (i.e., in cases where the joint venture
corporation with Filipino and foreign stockholders with less
than 60% Filipino stockholdings [or 59%] invests in other joint
venture corporation which is either 60-40% Filipino-alien or the
59% less Filipino). Stated differently, where the 60-40 Filipino-
foreign equity ownership is not in doubt, the Grandfather Rule
will not apply. (emphasis supplied)
After a scrutiny of the evidence extant on record, the
Court finds that this case calls for the application of the
grandfather rule since, as ruled by the POA and affirmed by
the OP, doubt prevails and persists in the corporate ownership
of petitioners. Also, as found by the CA, doubt is present in the
60-40 Filipino equity ownership of petitioners Narra, McArthur
and Tesoro, since their common investor, the 100% Canadian
corporation––MBMI, funded them. However, petitioners also
claim that there is "doubt" only when the stockholdings of
Filipinos are less than 60%.
The assertion of petitioners that "doubt" only exists
when the stockholdings are less than 60% fails to convince this
Court. DOJ Opinion No. 20, which petitioners quoted in their
petition, only made an example of an instance where "doubt"
as to the ownership of the corporation exists. It would be
ludicrous to limit the application of the said word only to the
instances where the stockholdings of non-Filipino stockholders
are more than 40% of the total stockholdings in a corporation.
The corporations interested in circumventing our laws would
clearly strive to have "60% Filipino Ownership" at face value. It
would be senseless for these applying corporations to state in
their respective articles of incorporation that they have less
than 60% Filipino stockholders since the applications will be
denied instantly. Thus, various corporate schemes and
layerings are utilized to circumvent the application of the
Constitution.
MERCANTILE LAW REVIEW || Corporation Law 3
Cases 1-16 (Except: 10 &14)

SEPARATE PERSONALITY/PIERCING THE VEIL

2.
SHRIMP SPECIALISTS, INC. VS FUJI TRIUMPH AGRI-
INDUSTRIAL CORPORATION
GR NO. 168756 DECEMBER 7, 2009 J. CARPIO

A corporation is vested by law with a personality separate and

distinct from the people comprising it. Ownership by a single or
small group of stockholders of nearly all of the capital stock of
the corporation is not by itself a sufficient ground to disregard
the separate corporate personality.

FACTS:

SSI and Fuji entered into a Distributorship Agreement,

under which Fuji agreed to supply prawn feeds to SSI. As
payment, SSI issued postdated checks to Fuji but thereafter
issued a stop payment order because it discovered that earlier
deliveries were contaminated with aflatoxin. Fuji’s Vice
President and SSI’s Finance Officer met and agreed that SSI
would issue another set of checks to cover the ones earlier
issued and that Fuji would replace the feeds. Upon
presentment of the replacement checks, however, they were
again dishonored due to another stop payment order issued by
SSI.

SSI contends that it was constrained to issue such

order for failure of Fuji to replace the defective feeds. Criminal
charges were filed against the SSI officers who signed the
checks. The RTC found the officers solidarily liable and the CA
modified, absolving SSI’s President from liability.

ISSUE:
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Cases 1-16 (Except: 10 &14)

Whether or not the President of SSI may be held 4. When a director, trustee or officer is made, by specific
solidarily liable in the present case. provision of law, personally liable for his corporate
action.
HELD:
In this case, none of these exceptional circumstances is
NO. A corporation vested by law with a personality present.
separate and distinct from the people comprising it. Ownership
by single or small group of stockholders of nearly all of the
capital stock of the corporation is not by itself a sufficient
ground to disregard the separate corporate personality.

The general rule is that obligations incurred by the

corporation, acting through its directors, officers, and
employees, are its sole liabilities. However, solidary liability
may be incurred under the following exceptional
circumstances:

1. When directors and trustees or, in appropriate cases,

the officers of a corporation:
a) vote for or assent to patently unlawful acts of
the corporation
b) act in bad faith or with gross negligence in
directing the corporate affairs or
c) are guilty of conflict of interest to the prejudice
of the corporation, its stockholders or members,
and other persons;
2. When a director or officer has consented to the
issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate
secretary his written objection thereto;
3. When a director, trustee or officer has contractually
agreed or stipulated to hold himself personally and
solidarily liable with the corporation; or
MERCANTILE LAW REVIEW || Corporation Law
Cases 1-16 (Except: 10 &14)
3.
EDSA SHANGRI-LA HOTEL AND RESORT, INC. vs. BF
CORP.
G.R. No. 145842 June 27, 2008 J. VELASCO, JR.
Solidary liability on the part of the corporate officers may at
times attach, but only under exceptional circumstances, such
as when they act with malice or bad faith.
FACTS:
A construction contract denominated as Agreement for
the Execution of Builder’s Work for the EDSA Shangri-La Hotel
Project was entered into between EDSA Shangri-La Hotel and
Resort, Inc. (ESHRI) and BF Corporation (BF) which begins on
May 1, 1991. The contract stipulated the payment of the
contract price on the basis of the work accomplished as
described in the monthly progress billings to be submitted by
BF to ESHRI which would then remeasure the work
accomplished and prepare a Progress Payment Certificate for
the month’s progress billing.
From May 1, 1991 to June 30, 1992, BF submitted 19
progress billings under which Progress Billing Nos. 1 to 13 was
paid to BF totaling Php 86,501,834.05. Under Progress Billing
Nos. 14 to 19, BF alleges that ESHRI did not remeasure the
work done, prepare the Progress Payment Certificates and
remit the payment for the periods covered. Thus, BF instituted
a suit for a sum of money and damages before the RTC. To
ESHRI defense, it claimed to having overpaid BF for Progress
Billing Nos. 1 to 13 and alleges delay and inferior work on the
latter.
5
The RTC denied the petition. It ordered the payment of
BF’s claim covered by Progress Billing Nos. 14 to 19 and the
retention of money corresponding to Billing Nos. 1 to 11 with
interest on both instances. Upon appeal to the CA, it ruled in
favor of BF. It denied the ESHRI’s application for restitution or
reparation arising from the execution of the RTC Decision
pending appeal for lack of merit.
Roxas del Castillo, a member of the Board of Directors
of ESHRI, was ordered jointly and solidarily liable with ESHRI
for the judgment award. She contends otherwise being the
former director of ESHRI.
ISSUE:
Whether or not Roxas-del Castillo can be personally
liable for any alleged breach of contract entered into by ESHRI
as its former director.
HELD:
NO. Roxas-del Castillo, being the former director of
ESHRI, cannot be held personally liable for any alleged breach
of contract entered into by the company. Under Section 31 of
the Corporation Code, which reads:
Sec. 31. Directors or trustees who willfully or
knowingly vote or assent to patently unlawful acts
of the corporation or acquire any 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. (Emphasis supplied).
MERCANTILE LAW REVIEW || Corporation Law
Cases 1-16 (Except: 10 &14)
There is no indication in the testimony of Crispin
Balingit that Roxas-del Castillo made any misrepresentation
respecting the payment of the bills in question for, in fact, said
unpaid billings were still being evaluated.
Moreover, the controversy between the principal
parties started in July 1992 when Roxas-del Castillo no longer
sat in the ESHRI Board, a reality BF does not appear to
dispute. Thus, she could not plausibly held liable for breaches
of contract committed by ESHRI nor for the alleged
wrongdoings of its governing board or corporate officers
occurring after she severed official ties with the hotel
management.
As a general rule, a corporation, upon coming to
existence, is invested by law with a personality separate and
distinct from those of the persons composing it. 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. It is only in appropriate
circumstances that the veil of corporate fiction shall be
disregarded when the separate juridical personality of the
corporation is abused or used to commit fraud and perpetrate
social injustice, or used as a vehicle to evade obligations. In
this case, no act of malice or like dishonest purpose is
ascribed on petitioner Roxas-del Castillo as to warrant the
lifting of the corporate veil.
6
4.
PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO)
and PANTRANCO RETRENCHED EMPLOYEES
ASSOCIATION (PANREA) vs. NATIONAL LABOR
RELATIONS COMMISSION (NLRC), ET AL.
G.R. No. 170705, March 17, 2009, J. NACHURA
Under the doctrine of piercing the veil of corporate fiction, 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.
FACTS:
Ginzalez, owner of PNEI, that was standing in Pantraco
property, and Macris incurred financial losses the led the both
companies under the management AND OWNERSHIP one of
the creditors, tHe NDIC, a subsidiary of PNB. Macris was later
renamed to Nadareco and merged with Nawaco forming new
PNB subsidiary, while PNEI was sold to NETI which was
placed under sequestration by PCGG. PCGG lifted the
sequestration and sought to sell PNEI through APT. The
committee managing PNEI recommended the retrenchment of
employees of PNEI for cost-saving measures. Hence, various
labor claims were commenced bu employees of PNEI, which
obtained favorable decisions. Labor arbiter issued a writ of
execution to levy the properties of PNEI, so as to proceed
against PNB, PNB-MADECOR, and Mega Prime. PNB sought
to nullify the writ contending that it was not a party to the labor
case. Subsequently, the LA declared that the pantranco
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Cases 1-16 (Except: 10 &14)

properties were owned by PNB-Madecor and such cannot jointly and severally with the company. Hence, it is not enough
answer for the liabilities of PNEI but ordered the former to that the pnb was the owner of pnei. There must facts that will
satisfy the judgement by virtue promissory note executed by warrant the application of the said doctrine.
PNB-Madecor in favor to PNEI. On appel, NLRC affirmed the
LA. CA ruled that the respective corporation have separate
and distinct personalities from another and there being no
cogent reason to pierce the veil of corporate fiction. Hence this
petition.

ISSUES:
1.won pnb, pnb-madecor, and mega prime have separate
personality from PNEI?
2. Won piercing the veil of corporate fiction between these
corporation is warranted?

HELD:

1. NO. PNB, PNB-madecor and mega prime are corporations

with personalities separate and distinct from PNEI. The
general rule is that a corporation has a personality separate
and distinct from its stockholders and other corporations to
which it may be connected. This fiction is created by law for
convenience and to prevent injustice. Moreover, these
corporations were registered as separate entities, and absent
any valid reason, their separate identities must be maintained
and cannot treat them as one.

2. NO. Under the doctrine of piercing the veil of corporate

fiction, the courts look at the corporation as a mere collection
of individual of aggregation of persons undertaking business
as a group. Whether the separate personality should be
pierced hinges on obtaining facts appropriately pleaded or
proven. As between the PNB and PNEI, the latter has already
ceased operations and there is no other way by which the
judgement can be satisfied, officers can only be made liable
MERCANTILE LAW REVIEW || Corporation Law
Cases 1-16 (Except: 10 &14)
5.
MANUEL C. ESPIRITU, JR., et al. vs PETRON CORP.
G.R. No. 170891, Nov. 24, 2009 J. Abad
Bicol Gas is a corporation. As such, it is an entity separate and
distinct from the persons of its officers, directors, and
stockholders. It has been held, however, that corporate
officers or employees, through whose act, default or omission
the corporation commits a crime, may themselves be
individually held answerable for the crime.; The owners of a
corporate organization are its stockholders and they are to be
distinguished from its directors and officers. Stockholders are
basically investors in a corporation. They do not have a hand
in running the day-to-day business operations of the
corporation unless they are at the same time directors or
officers of the corporation.
FACTS:
Respondent Petron Corporation (Petron) sold and
distributed liquefied petroleum gas (LPG) in cylinder tanks that
carried its trademark Gasul. Respondent Carmen J. Doloiras
owned and operated Kristina Patricia Enterprises (KPE), the
exclusive distributor of Gasul LPGs in the whole of Sorsogon.
Nelson Doloiras (Jose) served as KPEs manager.
Bicol Gas Refilling Plant Corporation (Bicol Gas) was
also in the business of selling and distributing LPGs in
Sorsogon but theirs carried the trademark Bicol Savers
Gas. Petitioner Audie Llona managed Bicol Gas.
In the course of trade and competition, any given
distributor of LPGs at times acquired possession of LPG
cylinder tanks belonging to other distributors operating in the
same area. According to Jose, KPEs manager, in April 2001
8
Bicol Gas agreed with KPE for the swapping of captured
cylinders since one distributor could not refill captured
cylinders with its own brand of LPG. At one time, in the course
of implementing this arrangement, KPEs Jose visited the Bicol
Gas refilling plant. While there, he noticed several Gasul tanks
in Bicol Gas possession. KPEs Jose noticed, however, that
Bicol Gas still had a number of Gasul tanks in its yard. He
offered to make a swap for these but Llona declined, saying
the Bicol Gas owners wanted to send those tanks to
Batangas.
On August 4, 2001 KPEs Jose saw a particular Bicol
Gas truck on the Maharlika Highway. While the truck carried
mostly Bicol Savers LPG tanks, it had on it one unsealed 50-kg
Gasul tank and one 50-kg Shellane tank. Jose followed the
truck. The driver and the conductor of the truck Misal and
Leorena then admitted that the Gasul and Shellane tanks on
their truck belonged to a customer who had them filled up by
Bicol Gas. Misal then mentioned that his manager was a
certain Rolly Mirabena.
Because of the above incident, KPE filed a complaint.
The complaint charged the following: Jerome Misal, Jun
Leorena, Rolly Mirabena, Audie Llona, and several John and
Jane Does, described as the directors, officers, and
stockholders of Bicol Gas. These directors, officers, and
stockholders were eventually identified during the preliminary
investigation.
Since the Bicol Gas employees presumably acted
under the direct order and control of its owners, the Court of
Appeals also ordered the inclusion of the stockholders of Bicol
Gas in the various charges, bringing to 16 the number of
persons to be charged, now including petitioners Manuel C.
Espiritu, Jr., Freida F. Espiritu, Carlo F. Espiritu, Rafael F.
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Cases 1-16 (Except: 10 &14)

Espiritu, Rolando M. Mirabuna, Hermilyn A. Mirabuna, Kim
Roland A. Mirabuna, Kaye Ann A. Mirabuna, Ken Ryan A.
Mirabuna, Juanito P. de Castro, Geronima A. Almonite, and
Manuel C. Dee (together with Audie Llona), collectively,
petitioners Espiritu, et al.
stockholder may be held criminally liable for acts committed by
the corporation, therefore, it must be shown that he had
knowledge of the criminal act committed in the name of the
corporation and that he took part in the same or gave his
consent to its commission, whether by action or inaction.

ISSUE:

Whether or not the stockholders should be held liable

for the charges?

RULING:

The Court of Appeals ruled that they should be charged

along with the Bicol Gas employees who were pointed to as
directly involve in overt acts constituting the offense.

Bicol Gas is a corporation. As such, it is an entity

separate and distinct from the persons of its officers, directors,
and stockholders. It has been held, however, that corporate
officers or employees, through whose act, default or omission
the corporation commits a crime, may themselves be
individually held answerable for the crime.

The owners of a corporate organization are its

stockholders and they are to be distinguished from its directors
and officers. The petitioners here, with the exception of Audie
Llona, are being charged in their capacities as stockholders of
Bicol Gas. But the Court of Appeals forgets that in a
corporation, the management of its business is generally
vested in its board of directors, not its
stockholders. Stockholders are basically investors in a
corporation. They do not have a hand in running the day-to-
day business operations of the corporation unless they are at
the same time directors or officers of the corporation. Before a
MERCANTILE LAW REVIEW || Corporation Law
Cases 1-16 (Except: 10 &14)
6.
QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO Y.
LAU, and CHARLIE COLLADO vs. THOMAS GEORGE
G.R. No. 172727, September 8, 2010, J. NACHURA
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.
FACTS:
QTCI is a duly licensed broker engaged in the trading
of commodity futures. Mendoza and Lontoc of QTCI met with
respondent Thomas George encouraging the latter to invest
with QTCI. Upon Mendoza’s prodding, respondent finally
invested with QTCI. On the same day, Collado, in behalf of
QTCI, and respondent signed the Customers Agreement.
Forming part of the agreement was the Special Power of
Attorney executed by respondent, appointing Mendoza as his
attorney-in-fact with full authority to trade and manage his
account.
The Securities and Exchange Commission (SEC)
issued a Cease-and-Desist Order (CDO) against QTCI.
Alarmed by the event, respondent demanded the return of his
investment, but was not heeded. He later on discovered that
Mendoza and Lontoc were not licensed commodity future
salesman.
Respondent then filed a Complaint for Recovery of
Investment with Damages against QTCI, Lau, Collado
(petitioners) and against Mendoza and Lontoc. Only
petitioners answered the Complaint as Mendoza and Lontoc
10
vanished into thin air. Petitioners denied all the material
allegations in the Complaint and alleged that they only
assigned duly qualified persons to handle accounts of their
clients and that they were not aware of such arrangement
between QTCI and Lontoc and Mendoza.
After due proceedings, the SEC Hearing Officer
rendered a decision in favor of respondent. Petitioners
appealed to the Commission en banc, but the appeal was
dismissed. Petitioners then went to the CA via a petition for
review under Rule 43, faulting the Commission en banc for
dismissing their appeal on purely technical ground. They
insisted that they did not violate the rules on commodity
futures trading. The CA also upheld the nullification of
the Customers Agreement, and the award of moral and
exemplary damages, as well attorneys fees, in favor of
respondent. They filed a MR but was denied, hence, the
instant petition before the SC.
ISSUE:
WON the Petitioners are solidarily liable for the
damages and awards due to the Respondent.
HELD:
YES. The SC sustained the finding of the SEC Hearing
Officer and the CA that petitioners allowed unlicensed
individuals to engage in, solicit or accept orders in futures
contracts, and thus, transgressed the Revised Rules and
Regulations on Commodity Futures Trading.
The SC was not persuaded by petitioners assertion
that they had no hand in Mendozas designation as
respondents attorney-in-fact. As pointed out by the CA,
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Cases 1-16 (Except: 10 &14)

the Special Power of Attorney formed part of respondents
agreement with QTCI, and under the Customers Agreement,
only a licensed or registered dealer or investment consultant
may be appointed as attorney-in-fact.
Inexplicably, petitioners did not object to, and in fact
recognized, Mendozas appointment as respondents attorney-
in-fact. Collado, in behalf of QTCI, concluded the Customers
Agreement despite the fact that the appointed attorney-in-fact
was not a licensed dealer. Worse, petitioners
permitted Mendoza to handle respondents account.
(4) he is made by a specific provision of law personally
answerable for his corporate action.
In all, it having been established by substantial
evidence that [petitioner] Collado assented to the unlawful act
of QTCI, and that [petitioner] Lau is grossly negligent in
directing the affairs of QTCI, and pursuant to Section 31 of the
Corporation Code, they are therefore, jointly and severally
liable with QTCI for all the damages and awards due to the
respondent.

Indubitably, petitioners violated the Revised Rules and

Regulations on Commodity Futures Trading prohibiting any
unlicensed person to engage in, solicit or accept orders in
futures contract. Consequently, the SEC Hearing Officer and
the CA cannot be faulted for declaring the contract between
QTCI and respondent void.

Doctrine dictates 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 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
MERCANTILE LAW REVIEW || Corporation Law
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7.
ERIC GODFREY STANLEY LIVESEY vs. BINSWANGER
PHILS., INC., ET AL.
G.R. No. 177493 March 19, 2014 J. BRION
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, in which case, the fiction will be
disregarded and the individuals composing it and the two
corporations will be treated as identical.
FACTS:
Petitioner Eric Godfrey Stanley Livesey filed a
complaint for illegal dismissal with money claims against CBB
Philippines Strategic Property Services, Inc. (CBB). CBB was
a domestic corporation engaged in real estate brokerage.
Livesey alleged that 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. Later 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.
12
Before a Labor Arbiter, it was ruled that Livesey was
illegally dismissed. A compromise agreement was reached
and approved in which Livesey was to receive US$31,000.00 in
full satisfaction of claims, 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 was only able to satisfy the first obligation but
not the next two installments as the company ceased
operations. In reaction, Livesey moved for the issuance of a
writ of execution. Livesey then filed a motion for the issuance
of an alias writ of execution, 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." 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 former President, and now Binswanger’s President and
Chief Executive Officer (CEO).
ISSUE:
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Is respondent company liable to Livesey under the
piercing of the veil of corporate fiction?
HELD:
YES. Respondent company is liable.
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. 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."
Under the doctrine of piercing the veil of corporate
fiction, 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, in which
case, the fiction will be disregarded and the individuals
composing it and the two corporations will be treated as
identical.
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
13
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.
What happened to CBB, we believe, supports Livesey's
assertion that De Guzman, CBB's former Associate Director,
informed him that at one time Elliot told her of CBB 's plan to
close the corporation and organize another for the purpose of
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Cases 1-16 (Except: 10 &14)
evading CBB 's liabilities to Livesey and its other financial
liabilities. This wrongful intent we cannot and must not
condone, for it will give a premium to an iniquitous business
strategy where a corporation is formed or used for a non-
legitimate purpose, such as to evade a just and due
obligation. We, therefore, find Elliot as liable as Binswanger for
CBB 's unfulfilled obligation to Livesey.
14
8.
GERARDO LANUZA JR., ET. AL. vs. BF CORPORATION
G.R. No. 174938 October 1, 2014 J. LEONEN
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. The
issue of whether the corporation acts in violation of a
complainant’s rights and the incidental issue of whether
piercing of the corporate veil is warranted, should be
determined in a single proceeding. Such finding would
determine if the corporation is merely an aggregation of
persons whose liabilities must be treated as one with the
corporation.
FACTS:
Gerardo Lanuza, Jr. (Lanuza) and Antonio Olbes
(Olbes) are members of the Board of Directors of Shangri-La
Properties Inc. (Shangri-La). BF Corporation (BF) alleged that
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 in accordance with its progress billing
statements. However, Shangri-La started defaulting in
payment. BF filed a complaint against Shangri-La and its
Board of Directors. BF alleged that Shangri-La misrepresented
it had funds to pay and that it was simply a matter of delayed
processing of BF’s progress billing statements. Construction
eventually was completed but despite demands, Shangri-La
refused to pay the balance. BF also alleged that Shangri-La’s
directors were in bad faith so they should be held jointly and
severally liable with Shangri-La. BF and Shangri-La, et. al.
were ordered by the Court to submit to arbitration proceedings
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pursuant to an arbitration clause in their contract. During the
course of the proceedings, however, Lanuza and Olbes
resigned from the Board of Directors. In the present case, they
alleged that they should not be ordered to submit to arbitration
proceedings because the corporation has a separate
personality.
ISSUE:
Should petitioners be made parties to the arbitration
proceedings, pursuant to the arbitration clause provided in the
contract between BF Corporation and Shangri-La Properties
Inc.?
HELD:
YES. Petitioners should be made parties to the
arbitration proceedings.
Petitioners point out, their personalities as directors of
Shangri-La are separate and distinct from Shangri-La.
Because a corporation's existence is only by fiction of law, it
can only exercise its rights and powers through its directors,
officers, or agents, who are all natural persons. A corporation
cannot sue or enter into contracts without them. A
consequence of a corporation's separate personality is that
consent by a corporation through its representatives is not
consent of the representative, personally. Its obligations,
incurred through official acts of its representatives, are its own.
A stockholder, director, or representative does not become a
party to a contract. However, when there are allegations of
bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to
determine if these persons and the corporation should be
treated as one. Section 31 of the Corporation Code provides
15
the instances when directors, trustees, or officers may become
solidarily liable for corporate acts:
a) The director or trustee willfully and knowingly voted
for or assented to a patently unlawful corporate act;
b) The director or trustee was guilty of gross
negligence or bad faith in directing corporate affairs;
and
c) The director or trustee acquired personal or
pecuniary interest in conflict with his or her duties as
director or trustee.
When the courts disregard the corporation’s distinct
and separate personality from its directors or officers, the
courts do not say that the corporation, in all instances and for
all purposes, is the same as its directors, stockholders, officers,
and agents. It does not result in an absolute confusion of
personalities of the corporation and the persons composing or
representing it. Courts merely discount the distinction and treat
them as one, in relation to a specific act, in order to extend the
terms of the contract and the liabilities for all damages to
erring corporate officials who participated in the corporation’s
illegal acts. This is done so that the legal fiction cannot be
used to perpetrate illegalities and injustices.
Thus, in cases alleging solidary liability with the
corporation or praying for the piercing of the corporate veil,
parties who are normally treated as distinct individuals should
be made to participate in the arbitration proceedings in order
to determine if such distinction should indeed be disregarded
and, if so, to determine the extent of their liabilities
Hence, the issue of whether the corporation's acts in
violation of complainant's rights, and the incidental issue of
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Cases 1-16 (Except: 10 &14)

whether piercing of the corporate veil is warranted, should be 9.

determined in a single proceeding. IRENE MARTEL FRANCISCO vs. NUMERIANO MALLEN,
JR.
GR NO. 173169 September 22, 2010, J. CARPIO

A corporation is a juridical entity with legal personality

separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities.
To disregard the separate juridical personality of a
corporation, the wrongdoing must be established clearly and
convincingly. It cannot be presumed.

FACTS:

On 5 April 1994, respondent Numeriano Mallen, Jr. was

hired as a waiter for VIPS Coffee Shop and Restaurant, a fine
dining restaurant which used to operate at the Harrison Plaza
Commercial Complex in Manila. On 30 January 1998 to 1
February 1998, respondent took an approved sick leave. On 15
February 1998, respondent took a vacation leave. Thereafter,
he availed of his paternity leave. On 18 April 1998, respondent
suffered from tonsillitis, forcing him to take a three-day sick
leave from 18 April 1998 to 20 April 1998. However, instead of
his applied three-day sick leave, respondent was given three
months leave.

On 5 May 1998, respondent filed before the Department

of Labor and Employment-National Capital Region (DOLE-
NCR) a complaint for underpayment of wages and non-
payment of holiday pay. Sometime in June 1998, respondent
reported back to work with a medical certificate stating he was
fit to work but he was refused work.
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On 22 June 1998, the DOLE-NCR endorsed
respondent’s complaint to the NLRC when it determined that
the issue of constructive dismissal was involved. On 23 July
1998, respondent filed a complaint for illegal dismissal before
the NLRC-NCR. On 3 August 1998, respondent again
attempted to return to work but was refused again.
The Labor Arbiter found that "complainant’s dismissal
was the price of his having filed a case with DOLE-NCR
against the respondents, plus his perennial absences, which
nevertheless is not a just cause. We likewise agree that the
gesture of respondents to reinstate or re-employ complainant
unconditionally during the proceedings did not cure the
illegality of complainant’s dismissal."
The NLRC found respondent’s filing of a complaint for
illegal dismissal premature. When he filed his complaint on
May 5, 1998, his cause of action based on illegal dismissal has
not yet accrued." Nevertheless, the NLRC noted, "a
supervening event occurred during the pendency of the instant
case which is the closure of VIPS Coffee Shop and Restaurant
effective 26 August 1999. This being the case, and in the spirit
of compassion, respondents are directed to pay complainant
his separation pay equivalent to one half month pay for every
year of service x."
The Court of Appeals found respondent constructively
dismissed for having been granted an increased three months
leave instead of the three days leave he applied for.
ISSUE:
Whether or not petitioner is personally liable for the
monetary awards granted in favor of respondent arising from
his alleged illegal termination.
17
HELD:
NO. Petitioner Irene Martel Francisco not liable for the
monetary awards specified in the reinstated Labor Arbiter’s
Decision.
To hold a director or officer personally liable for
corporate obligations, two requisites must concur:
(1) complainant must allege 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) complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.
A corporation is 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.
While a corporation may exist for any lawful purpose,
the law will regard it as an association of persons or, in case of
two corporations, merge them into one, when its corporate
legal entity is used as a cloak for fraud or illegality. This is the
doctrine of piercing the veil of corporate fiction. The doctrine
applies only when such corporate fiction is used to defeat
public convenience, justify wrong, protect fraud, or defend
crime, or when it is made as a shield to confuse the legitimate
issues, or where a corporation is the mere alter ego or
business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct
of another corporation.
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Cases 1-16 (Except: 10 &14)

10. 11.
PACIFIC REHOUSE CORP. vs. CA HEIRS OF FE TAN UY (Represented by her heir, Mauling
G.R. No. 199687 March 24, 2014 J. REYES Uy Lim) vs. INTERNATIONAL EXCHANGE BANK
G.R. No. 166282 FEBURUARY 13, 2013 J. MENDOZA

A corporation is a juridical entity which is vested with a legal

personality separate and distinct from those acting for and in
its behalf and, in general, from the people comprising it.
Following this principle, obligations incurred by the corporation,
acting through its directors, officers and employees, are its
sole liabilities. A director, officer or employee of a corporation
is generally not held personally liable for obligations incurred
by the corporation. Nevertheless, this legal fiction may be
disregarded if it 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.

FACTS:

International Exchange Bank (iBank), granted loans to

Hammer Garments Corporation (Hammer), covered by
promissory notes and deeds of assignment. The loans were
likewise secured by a P 9 Million-Peso Real Estate Mortgage
executed by Goldkey Development Corporation (Goldkey)
over several of its properties and a P 25 Million-Peso Surety
Agreement signed by Chua and his wife, Fe Tan Uy (Uy).

However, Hammer fail to pay its loans, prompting

iBank to foreclose on Goldkey’s third-party Real Estate
Mortgage. The mortgaged properties were sold for P 12 million
during the foreclosure sale, leaving an unpaid balance of P
13,420,177.62. For failure of Hammer to pay the deficiency,
iBank filed a Complaint for sum of money on December 16,
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Cases 1-16 (Except: 10 &14)
1997 against Hammer, Chua, Uy, and Goldkey before the
Regional Trial Court, Makati City (RTC).
Hammer failed to answer, thus it was held in default.
On the other hand, Uy claimed that she was not liable to iBank
because she never executed a surety agreement in favor of
iBank. Goldkey also denies liability, averring that it acted only
as a third-party mortgagor and that it was a corporation
separate and distinct from Hammer.
ISSUE:
Whether or not it is proper to pierce the veil of
corporate fiction.
HELD:
NO. The doctrine of piercing the corporate veil shall not
apply.
Basic is the rule in corporation law that a corporation is
a juridical entity which is vested with a legal personality
separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it. Following this
principle, obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole
liabilities. A director, officer or employee of a corporation is
generally not held personally liable for obligations incurred by
the corporation.
Nevertheless, this legal fiction may be disregarded if it
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.
19
In this case, petitioners are correct to argue that it was
not alleged, much less proven, that Uy committed an act as an
officer of Hammer that would permit the piercing of the
corporate veil. A reading of the complaint reveals that with
regard to Uy, iBank did not demand that she be held liable for
the obligations of Hammer because she was a corporate
officer who committed bad faith or gross negligence in the
performance of her duties such that the lifting of the corporate
mask would be merited. What the complaint simply stated is
that she, together with her errant husband Chua, acted as
surety of Hammer, as evidenced by her signature on the
Surety Agreement which was later found by the RTC to have
been forged.
The Court emphasized that the 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.
However, the Court finds Goldkey liable for it is a mere
alter ego of Hammer.
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12.
PHILIPPINE NATIONAL BANK vs. HYDRO RESOURCES
CONTRACTORS CORPORATION
G.R. No. 167530 March 13, 2013 LEONARDO-DE CASTRO, J.
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.
FACTS:
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. DBP and PNB owned 57% and 43% of the
shares of NMIC, respectively. 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 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, and when these were
not heeded, a complaint for sum of money was filed in the
20
RTC of Makati, Branch 136 seeking to hold petitioners NMIC,
DBP, and PNB solidarily liable for the amount owing Hercon,
Inc.
All petitioners assert that NMIC is a corporate entity
with a juridical personality separate and distinct from both PNB
and DBP. They insist that the majority ownership by DBP and
PNB of NMIC is not a sufficient ground for disregarding the
separate corporate personality of NMIC because NMIC was
not a mere adjunct, business conduit or alter ego of DBP and
PNB.
Subsequent to the filing of the complaint, Hercon, Inc.
was acquired by HRCC in a merger.
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. There is no sufficient ground to pierce the veil of
corporate fiction of NMIC.
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
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Cases 1-16 (Except: 10 &14)
make it merely an instrumentality, agency, conduit or adjunct
of another corporation.
In this connection, case law lays down 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."
21
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 and improper
use of the corporate form and, thereby, suffer damages.
The absence of any of these elements prevents
piercing the corporate veil.
This Court finds that none of the tests has been
satisfactorily met in this case.
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13.
KUKAN INTERNATIONAL CORP. vs. HON. AMOR REYES,
ET AL.
G.R. No. 182729, Sept. 29, 2010 J. VELASCO, JR.
It bears reiterating that piercing the veil of corporate fiction is
frowned upon. Accordingly, those who seek to pierce the veil
must clearly establish that the separate and distinct
personalities of the corporations are set up to justify a wrong,
protect fraud, or perpetrate a deception.
FACTS:
Sometime in March 1998, Kukan, Inc. conducted a
bidding for the supply and installation of signages in a building
being constructed in Makati City. Morales tendered the
winning bid and was awarded the PhP 5 million contract.
Some of the items in the project award were later excluded
resulting in the corresponding reduction of the contract price to
PhP 3,388,502. Despite his compliance with his contractual
undertakings, Morales was only paid the amount of PhP
1,976,371.07, leaving a balance of PhP 1,412,130.93, which
Kukan, Inc. refused to pay despite demands.
Morales filed a Complaint with the RTC against Kukan,
Inc. for a sum of money. The RTC rendered a Decision finding
for Morales and against Kukan, Inc. After the above decision
became final and executory, Morales moved for and secured a
writ of execution against Kukan, Inc. The sheriff then levied
upon various personal properties found at what was supposed
to be Kukan, Inc.’s office at Unit 2205, 88 Corporate Center,
Salcedo Village, Makati City. Alleging that it owned the
properties thus levied and that it was a different corporation
from Kukan, Inc., Kukan International Corporation (KIC) filed
an Affidavit of Third-Party Claim. Notably, KIC was
22
incorporated in August 2000, or shortly after Kukan, Inc. had
stopped participating in Civil Case No. 99-93173.
Before the Manila RTC, Branch 21, Morales filed a
Motion to Pierce the Veil of Corporate Fiction to declare KIC
as having no existence separate from Kukan, Inc. This time
around, the RTC, by Order dated March 12, 2007, granted the
motion. From the above order, KIC moved but was denied
reconsideration in another Order dated June 7, 2007.
ISSUE:
Whether or not the trial and appellate courts correctly
applied the principle of piercing the veil of corporate fiction.
HELD:
No, Morales failed to prove that Kukan, Inc. was
collapsed and thereafter KIC purposely formed and operated
to defraud him.
The suggestion that KIC is but a continuation and
successor of Kukan, Inc., owned and controlled as they are by
the same stockholders, stands without factual basis. It is true
that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the
outstanding capital stock of both corporations. But such
circumstance, standing alone, is insufficient to establish
identity. There must be at least a substantial identity of
stockholders for both corporations in order to consider this
factor to be constitutive of corporate identity.
It would not avail Morales any to rely on General Credit
Corporation v. Alsons Development and Investment
Corporation. General Credit Corporation is factually not on all
fours with the instant case. There, the common stockholders of
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Cases 1-16 (Except: 10 &14)

the corporations represented 90% of the outstanding capital 14.

stock of the companies, unlike here where Michael Chan TIMOTEO SARONA vs. NLRC
merely represents 40% of the outstanding capital stock of both G.R. No. 182729 September 29, 2010 J. REYES
KIC and Kukan, Inc., not even a majority of it. In that case,
moreover, evidence was adduced to support the finding that
the funds of the second corporation came from the first. Finally,
there was proof in General Credit Corporation of complete
control, such that one corporation was a mere dummy or alter
ego of the other, which is absent in the instant case.

Evidently, the aforementioned case relied upon by

Morales cannot justify the application of the principle of
piercing the veil of corporate fiction to the instant case. As
shown by the records, the name Michael Chan, the similarity
of business activities engaged in, and incidentally the word
"Kukan" appearing in the corporate names provide the nexus
between Kukan, Inc. and KIC. As illustrated, these
circumstances are insufficient to establish the identity of KIC
as the alter ego or successor of Kukan, Inc.
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15.
VIVIAN T. RAMIREZ, et.al, vs. MAR FISHING CO., INC.,
MIRAMAR FISHING CO., INC., ROBERT BUEHS AND
JEROME SPITZ
G.R. No. 168208 June 13, 2012 J. SERENO
Piercing the veil of corporate fiction is frowned upon, those
who seek to pierce the veil must clearly establish that the
separate and distinct personalities of the corporations are set
up to justify a wrong, protect a fraud, or perpetrate a deception.
FACTS:
On 28 June 2001, respondent Mar Fishing Co., Inc.
(Mar Fishing), engaged in the business of fishing and canning
of tuna, sold its principal assets to co-respondent Miramar
Fishing Co., Inc. (Miramar) through public bidding. The
proceeds of the sale were paid to the Trade and Investment
Corporation of the Philippines (TIDCORP) to cover Mar
Fishing’s outstanding obligation in the amount of ₱
897,560,041.26. In view of that transfer, Mar Fishing issued a
Memorandum dated 23 October 2001 informing all its workers
that the company would cease to operate by the end of the
month. On 29 October 2001 or merely two days prior to the
month’s end, it notified the Department of Labor and
Employment (DOLE) of the closure of its business operations.
Mar Fishing’s labor union, Mar Fishing Workers
Union – NFL – and Miramar entered into a Memorandum of
Agreement which provided that the acquiring company,
Miramar, shall absorb Mar Fishing’s regular rank and file
employees whose performance was satisfactory, without loss
of seniority rights and privileges previously enjoyed.
24
However, petitioners were not hired or given separation
pay by Miramar.
Labor Arbiter (LA) found that Mar Fishing had
necessarily closed its operations, considering that Miramar
had already bought the tuna canning plant. By reason of the
closure, petitioners were legally dismissed for authorized
cause.
On the other hand, the NLRC pierced the veil of
corporate fiction and ruled that Mar Fishing and Miramar were
one and the same entity, since their officers were the same.
ISSUE:
Whether or not Miramar Fishing Co., Inc., is a mere
alter ego of Mar Fishing Co., Inc.
RULING:
NO. Miramar Fishing Co., and Mar Fishing Co., Inc.,
are separate and distinct entities.
Miramar and Mar Fishing are separate and distinct
entities, based on the marked differences in their stock
ownership. Also, the fact that Mar Fishing’s officers remained
as such in Miramar does not by itself warrant a conclusion that
the two companies are one and the same. As this Court held
in Sesbreño v. Court of Appeals, the mere showing that the
corporations had a common director sitting in all the boards
without more does not authorize disregarding their separate
juridical personalities.
Neither can the veil of corporate fiction between the
two companies be pierced by the rest of petitioners’
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Cases 1-16 (Except: 10 &14)
submissions, namely, the alleged take-over by Miramar of Mar
Fishing’s operations and the evident similarity of their
businesses. At this point, it bears emphasizing that since
piercing the veil of corporate fiction is frowned upon, those
who seek to pierce the veil must clearly establish that the
separate and distinct personalities of the corporations are set
up to justify a wrong, protect a fraud, or perpetrate a deception.
In Indophil Textile Mill Workers Union vs. Calica:
The fact that the businesses of private respondent and
Acrylic are related, that some of the employees of the private
respondent are the same persons manning and providing for
auxiliary services to the units of Acrylic, and that the physical
plants, offices and facilities are situated in the same compound,
it is our considered opinion that these facts are not sufficient to
justify the piercing of the corporate veil of Acrylic.
25
16.
CHINA BANKING CORPORATION vs. DYNE-SEM
ELECTRONICS CORP.
G.R. No. 149237 June 11, 2006 CJ CORONA
The mere fact 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.
FACTS :
Dynetics, Inc. And Elpidio O. Lim borrowed a total of
P8,939,000.00 from petitioner China Banking Corporation. The
loan was evidenced by six promissory notes. The borrowers
failed to pay when the obligations became due. Petitioner
consequently instituted a complaint for sum of money against
them. Summons was not served on Dynetics, however,
because it had already closed down. Lim on the other hand,
filed his answer denying “he promised to pay (the obligations)”
jointly and severally to petitioner. The case was scheduled for
pre-trial with respect to Lim while the case against Dynetics
was archived.
An amended complaint was filed by petitioner impleading
Dyne-Sem Electronics Corporation and its stockholders
Vicente Chuidian, Antonio Garcia and Jacob Ratinoff.
Petitioner contends that respondent was formed and
organized to be Dynetics’ alterego as established by the
following circumstances:
• Dynetics and respondent are both engaged in the
same line of business (manufacturing, producing,
assembling, processing, importing, exporting, buying,
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Cases 1-16 (Except: 10 &14)
distributing, marketing and testing integrated circuits
and semi-conductor services);
• The principal office and factory site of Dynetics located
in Taguig, Metro Manila, were used by respondent as
its principal office and factory site;
• Respondent acquired some of the machineries and
equipment of Dynetics from banks which acquired the
same through foreclosure;
• Respondent retained some of the officers of Dynetics.
Respondent for its part filed its answer, alleging that:
• The incorporators and the present stockholders of
respondent are totally different from those of Dynetics,
and not one of them has ever been a stockholder of
officer of the latter;
• Not one of the directors of respondent is, or has ever
been, a director, officer of stockholder of Dynetics;
• The various facilities, machineries and equipment
being used by respondent were legitimately and validly
acquired from various corporations as absolute owners
thereof at the time of said transactions, some of which
were acquired as second-hand items to keep costs
down;
• The present plant site is under lease from Food
Terminal, Inc. (FTI) where a number of other firms
engaged in the same or similar business have likewise
established their factories for practical convenience.
The Trial Court ordered the archiving of the case as to
Chuidian, Garcia and Ratinoff since summons had remained
unserved, holding that Dyne-Sem is not an alter ego of
Dynetics, thus not liable under the promissory notes. The court
ordered Dynetics and Elpidio O. Lim, jointly and severally, to
26
pay plaintiff. The Court of Appeals affiremed the decision of
the Trial Court.
ISSUE:
Whether or not respondent (Dyne-Sem Electronics
Corp.) is an alter ego of Dynetics and that the Doctrine of
Piercing the Veil of Corporate Fiction is applicable in the case
at bar.
HELD:
NO. The Court ruled that, to disregard the separate
juridical personality of a corporation, the wrong doing must be
proven clearly and convincingly. In this case, petitioner failed
to prove that Dyne-Sem was organized and controlled, and its
affairs conducted, in a manner that made it merely an
instrumentality, agency, conduit or adjunct of Dynetics, or that
it was established to defraud Dynetics’ creditors, including
petitioner.
The Court reiterated that, the mere fact that the
business 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.
Likewise, respondents acquisition of some of the
machineries and equipments of Dynetics was not proof that
respondent was formed to defraud petitioner. As the CA found,
no merger took place between Dynetics and respondent Dyne-
Sem. What took place was a sale of the assets of the former to
the latter.
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Cases 1-16 (Except: 10 &14)

Finally, it may be true that respondent later hired

Dynetic’s Vice-President and Assistant Corporate counsel.
The Court cannot conclude that respondent was an alter ego
of Dynetics. In fact, event the overlapping of incorporators and
stockholders of two or more corporations will not necessarily
lead to suc inference and justify the piercing of the veil of
corporate fiction. No legal basis exist to hold respondent Dyne-
Sem liable for the obligations of Dynetics to petitioner.