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GOOD EARTH EMPORIUM V. CA

154 SCRA 594

FACTS:

A lease contract, dated October 16, 1981, was entered into by and between Roces-Reyes Realty Inc. as
lessor, and Good Earth Emporium Inc. (GEE) as lessee for a term of three years beginning November 1,
1981 and ending October 31, 1984 at a monthly rental of Php65,000. The building which was the subject
of the contract of lease is a five story building located at the corner of Rizal Avenue and Bustos Street in
Sta. Cruz, Manila. From March 1983 up to the complaint was filed, the lessee had defaulted in the payment
of rentals, as a consequence of which, private respondent Roces-Reyes Realty Inc. filed on October 14,
1984 an ejectment case against herein petitioners, Good Earth Emporium Inc. and Lim Ka Ring. After the
latter had tendered their responsive pleading, the lower court on motion of Roces rendered judgement
on the pleadings dated April 17, 1984 to which petitioners were ordered to vacate the premises and
surrender the same to the plaintiffs. On May 16, 1984, Roces filed a motion for execution which was
opposed by petitioners on May 28, 1984 simultaneous with the latter’s filing of a notice of appeal.
However, on August 15, 1984, GEE thru counsel filed a motion to withdraw said appeal citing as reason
that they are satisfied with the decision of the lower court.

ISSUE:

w/n the payment made by GEE o the Roces brothers constitute payment to private respondent
corporation which would result to the extinguishment of the obligation.

HELD:

No. Under article 1240 of the civil code of the Philippines – Payment shall be made to the person in whose
favor the obligation has been constituted, on his successor in interest or any person authorized to receive
it.

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

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

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CRUZ V. DALISAY

152 SCRA 482

FACTS:

In 1984, the National Labor Relations Commission issued an order against Qualitrans Limousine Service,
Inc. (QLSI) ordering the latter to reinstate the employees it terminated and to pay them backwages.
Quiterio Dalisay, Deputy Sheriff of the court, to satisfy the backwages, then garnished the bank account
of Adelio Cruz. Dalisay justified his act by averring that Cruz was the owner and president of QLSI. Further,
he claimed that the counsel for the discharged employees advised him to garnish the account of Cruz.

ISSUE:

w/n the action of Dalisay is correct.

HELD:

No. What Dalisay did is tantamount to piercing the veil of corporate fiction. He actually usurped the power
of the court. He also overstepped his duty as a deputy sheriff. His duty is merely ministerial and it is
incumbent upon him to execute the decision of the court according to its tenor and only against the
persons obliged to comply. In this case, the person judicially named to comply was QLSI and not Cruz. It is
a well-settled doctrine both in law and in equity that as a legal entity, a corporation has a personality
distinct and separate from its individual stockholders or members. The mere fact that one is president of
a corporation does not render the property he owns or possesses the property of the corporation, since
the president, as individual, and the corporation are separate entities.

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BANK OF AMERICA V. CA

GR NO.120135

FACTS:

Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas) were engaged in the shipping business owning
2 vessels: Don Aurelio and El Champion. Because their business where doing well, Bank of America (BA)
offered them to take a loan for them to increase their ships. BA acquired through them as borrowers four
more ships: (a) El Carrier; (b) El General; (c) El Challenger; and (d) El Conqueror. The registration,
operation, income, funds, possession of the vessel belonged to the corporation. May 10, 1993: Litonjuas
filed a complaint to the RTC Pasig claming that during its operations and the foreclosure sale, BA as trutees
failed to fully render an account of the income. They lost all their 6 vessels and 10% of their personal
funds and they still have an unpaid balance of their loans. BA NT&SA, and BA international filed a Motion
to Dismiss on grounds of forum non conveniens and lack of cause of action against them RTC and CA:
Dismissed

ISSUE:

w/n petitioner has any obligation to the private respondent as they are mere stockholders of the corp.

HELD:

NO. Petitioner do not have any obligation to the private respondents as they are mere stockholders of the
corporation; that the corporate entities have juridical personalities separate and distinct from those of
the private respondents. Private respondents maintain that the corporations are wholly owned by them
and prior to the incorporation of such entities, they were clients of petitioners which induced them to
acquire loans from said petitioners to invest on the additional ships.

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

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AVONDALE GARMENTS INC V. CA

246SCRA 733

FACTS:

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

ISSUE:

w/n petitioner is a separate and distinct entity and therefore not liable for private respondents' separation
pay from Avon Dale Shirt Factory

HELD:

No. The two entities cannot be deemed as separate and distinct where there is a showing that one is
merely the continuation of the other. In fact, even a change in the corporate name does not make a new
corporation, whether effected by a special act or under a general law, it has no effect on the identity of
the corporation, or on its property, rights, or liabilities. The mere filing of the Articles of Dissolution with
the Securities and Exchange Commission, without more, is not enough to support the conclusion that
actual dissolution of an entity in fact took place. On the contrary, the prevailing circumstances in this case
indicated that petitioner is not distinct from its predecessor Avon Dale Shirt Factory, but in fact merely
continued the operations of the latter under the same owners, the same business venture, at same
address, and even continued to hire the same employees (herein private respondents)

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CONCEPT BUILDERS INC V. NLRC

257SCRA 149

FACTS:

Petitioner Concept Builders, Inc., a domestic corporation engaged in the construction business. Private
respondents were employed by said company as laborers, carpenters and riggers. However, they were
illegally dismissed. Aggrieved, private respondents filed a complaint for illegal dismissal. The Labor Arbiter
rendered judgment ordering petitioner to reinstate private respondents and to pay them back wages. It
became final and executory. The alias Writ of Execution cannot be enforced by the sheriff because all the
employees inside petitioner’s premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they
were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by petitioner. Thus, NLRC issued a break-
open order against Concept Builders and HPPI.

ISSUE:

w/n piercing the veil of corporate entity is proper

HELD:

YES. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. But, this separate and
distinct personality of a corporation is merely a fiction created by law for convenience and to promote
justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true
likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another
corporation.

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

Stock ownership by one or common ownership of both corporations.

1. Identity of directors and officers.

The SEC en banc explained the “instrumentality rule” which the courts have applied in disregarding the
separate juridical personality of corporations as follows:

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 fiction of the corporate entity of the “instrumentality”
may be disregarded. The control necessary to invoke the rule is not majority or even complete stock
control but such domination of instances, 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. It must be kept
in mind that the control must be shown to have been exercised at the time the acts complained of took

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place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which
the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows:

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
rights; and

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

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

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents
of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business
conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial
liability that already attached to petitioner corporation.

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FIRST PHIL INTL BANK V. CA

309 SCRA 72

FACTS:

In the course of its banking operations, the defendant Producer Bank of the Philippines acquired 6 parcels
of land with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna and covered by TCT No. T-
106932 to T-106937. The property used to be owned by BYME Investment and Development Corporation
which hd them mortgaged with the bank as collateral for a loan. The plaintiff originals, Demetrio Demetria
and Jose Janolo wanted to purchase the property and thus initiated negotiations for that purpose. In the
early part of August 1987 said plaintiffs, upon the suggestion of BYME investment’s legal counsel, Fajardo
met with defendant Mercurio Rivera, manager of the property management department of the defendant
bank. The meeting was held in pursuant to plaintiffs’ plan to buy the property. After the meeting, plaintiff
Janolo, following the advice of defendant Rivera made a formal purchase offer to the Bank through a letter
dated August 30,1987. Negotiations took place and an offer price was fixed at P5.5million. During the
course of the negotiations, the defendant bank was placed under conservatorship and a new conservator
was appointed to which the name has been refused to recognize. A derivative suit has been filed against
Rivera for the damages suffered from the alleged perfect contract of sale involving the 6 parcels of land.

ISSUE:

w/n derivative suit may lie involving the bank and its stockholders

HELD:

NO. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation
wherein he hold stock in order to protect or vindicate corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones, to be sued or hold the control of the corporation. In such
actions, the suing stockholder is regarded as a nominal party with the corporation as the real party in
interest.

In the face of the damaging admissions taken from the complaint in the second case, petitioners, quite
strangely, sought to deny that the second case was a derivative suit, reasoning that it was brought not by
the minority shareholders, but by Henry Co. etal. who not only hold or control over 80% of the outstanding
capital stock, but also constitute the majority in the board of directors of petitioners bank. That being so,
then they really represent the bank, so whether they sued derivatively or directly, there is undeniably an
identity of interest/entity represented.

In addition to the many cases, where the corporate fiction has been regarded, we now add the instant
case, and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation
of the prohibition against forum shopping. Shareholders, whether suing as the majority in direct actions
or as the minority in a derivative suit, cannot be allowed to trifle with court processes particularly where,
as in this case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate
causes and in using and applying remedies available to it. To rule otherwise would be to encourage
corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum
shopping.

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FRANCISCO MOTORS CORP V. CA

309 SCRA 72

FACTS:

In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio Manuel to recover from a him a sum of
money in the amount of P23,000.00+. Said amount was allegedly owed to them by Manuel for the
purchase of a jeep body plus repairs thereto. Manuel filed a counterclaim in the amount of P50,000.00.
In his counterclaim, Manuel alleged that he was the Assistant Legal Officer for FMC; that the Francisco
Family, owners of FMC, engaged his services for the intestate estate proceedings of one Benita Trinidad;
that he was not paid for his legal services; that he is filing the counterclaim against FMC because said
corporation was merely a conduit of the Francisco Family. The trial court as well as the Court of Appeals
granted Manuel’s counterclaim on the ground that the legal fees were owed by the incorporators of FMC
(an application of the doctrine of piercing the veil of corporation fiction in a reversed manner).

ISSUE:

w/n the doctrine of piercing the veil of corporate fiction was properly used by the Court of Appeals.

HELD:

No. In the first place, the doctrine is to be used in disregarding corporate fiction and making the
incorporators liable in appropriate circumstances. In the case at bar, the doctrine is applied upside down
where the corporation is held liable for the personal obligations of the incorporators – such was uncalled
for and erroneous. It must be noted that that Atty. Manuel’s legal services were secured by the Francisco
Family to represent them in the intestate proceedings over Benita Trinidad’s estate. The indebtedness
was incurred by the Francisco Family in their separate and personal capacity. These estate proceedings
did not involve any business of FMC. The proper remedy is for Manuel to sue the concerned members of
the Francisco Family in their individual capacity.

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BIBIANO REYNOSO [Link]

345 SCRA 355

FACTS:

Reynoso was the branch manager of Commercial Credit Corporation – Quezon City (CCC-QC), a branch of
Commercial Credit Corporation (CCC). It was alleged that Reynoso was opposed to certain questionable
commercial practices being facilitated by CCC which caused its branches, like CCC-QC, to rack up debts.
Eventually, Reynoso withdrew his own funds from CCC-QC. This prompted CCC-QC to file criminal cases
for estafa and qualified theft against Reynoso. The criminal cases were dismissed and Reynoso was
exonerated and at the same time CCC-QC was ordered to pay Reynoso’s counterclaims which amounted
to millions. A writ of execution was issued against CCC-QC. The writ was opposed by CCC-QC as it now
claims that it has already closed and that its assets were taken over by the mother company, CCC.
Meanwhile, CCC changed its name to General Credit Corporation (GCC). Reynoso then filed a petition for
an alias writ of execution. GCC opposed the writ as it argued that it is a separate and distinct corporation
from CCC and CCC-QC, in short, it raises the defense of corporate fiction.

ISSUE:

w/n GCC is correct.

HELD:

No. The veil of corporate fiction must be pierced. It is obvious that CCC’s change of name to GCC was
made in order to avoid liability. CCC-QC willingly closed down and transferred its assets to CCC and
thereafter changed its name to GCC in order to avoid its responsibilities from its creditors. GCC and CCC
are one and the same; they are engaged in the same line of business and single transaction process, i.e.
finance and investment. When the mother corporation and its subsidiary cease to act in good faith and
honest business judgment, when the corporate device is used by the parent to avoid its liability for
legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or
promote injustice, the law steps in to remedy the problem. When that happens, the corporate character
is not necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to
remedy injustice, such as that inflicted in this case.

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SIMEON DE LEON V. NLRC

358 SCRA 274

FACTS:

Petitioners are security guards assigned in the premises of Fortune Tobacco Services, Inc. (FTC) pursuant
to a contract for security services with Fortune Integrated Services Inc. (FISI). Sometime after, FISI
stockholders executed a “Deed of Sale of Shares of Stock” in favor of a group of new stockholders, it also
amended its Articles of Incorporation changing its name to Magnum Integrated Services, Inc. (MISI). FTC
terminated the contract with FISI which resulted in the displacement of some 582 security guards assigned
to FTC, including petitioners herein. FTC Labor Union which is an affiliate of NAFLU, sent a Notice of Strike
which resulted in the picketing of the premises of FTC, however, RTC of Pasig, issued a writ of injunction
to enjoin the picket. Petitioners then filed the instant case to the Arbitration branch of the NLRC.
Petitioners that they were regular employees of FTC which was also using the corporate names FISI and
MISI, averring that they work under the control and supervision of FTC’s security supervisors, and that,
they were dismissed without just cause and due process. They also claimed that their dismissal was the
design of their employer to bust their newly organized union. Respondent FTC, on the other hand,
maintained that there was no EE-ER relationship, that petitioners were employee of MISI a separate and
distinct corporation from FTC. LA ruled for respondents. NLRC reversed.

ISSUE:

w/n doctrine of piercing the veil of corporate fiction was properly used

HELD:

NO. 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. 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.

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PNB V. ANDRADA ELECTRIC & ENGR. CO.

381 SCRA 244

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 services werepartially 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 DevelopmentCorporation),
under LOI No. 311 to take ownership and possession of the assetsand ultimately, to nationalize and
consolidate its interest in other PNB controlledsugar mills. NASUDECO is a semi-government corporation
and the sugar arm of the [Link] Electric alleges that PNB and NASUDECO should be liable for
PASUMIL’s unpaid obligation amounting to 500K php, damages, and attorney’sfees, having owned and
possessed the assets of PASUMIL

ISSUE:

w/n PNB and NASUDECO may be held liable for PASUMIL’s liability to Andrada Electric and Engineering
Company

HELD:

NO. Basic is the rule that a corporation has a legal personality distinct and separate from thepersons and
entities owning it. The corporate veil may be lifted only if it has been usedto shield fraud, defend crime,
justify a wrong, defeat public convenience, insulate badfaith 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 Bankof the Philippines (DBP), will not make PNB liable for the PASUMIL's
contractualdebts 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 domination — not only of finances, but of policy and business
practice in respect to the transaction attacked, must have been such that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own; (2) such control must have been
used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other
positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal right; and (3) the
said control and breach of duty must have proximately caused the injury or unjust loss complained of. The
absence of the foregoing elements in the present case precludes the piercing of the corporate veil.

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ESTELITA BURGOS LIPAT V. PACIFIC BANKING CORP

402 SCRA 339

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:

w/n doctrine of corporate veil may apply

HELD:

YES. The evidence on record shows BET and BEC are not separate business entities. (1) Estelita and Alfredo
Lipat are the owners and majority shareholders of BET and BEC, respectively; (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; (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; (9) Estelita had full control over the activities of and decided business matters of the
corporation; and that (10) Estelita Lipat had benefited from the loans secured from Pacific Bank to finance
her business abroad and from the export bills secured by BEC for the account of "Mystical Fashion." 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. The spouses 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. BEC is a
mere continuation and successor of BET, and the Lipats pouses 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,

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