Magsaysay-Labrador vs CA Case DigestMagsaysay-Labrador, et. al. vs. Court of Appeals[GR 58168, 19 December 1989]

Facts:On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulment of the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of which TCT 3258 was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the Deed of Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the amount of P 2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the latter to issue a new title in her favor. On 7 March 1979, Concepcion Magsaysay-Labrador, Soledad Magsaysay-Cabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late senator, filed a motion for intervention on the ground that on 20 June 1978, their brother conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC. On 26 July 1979, the trial court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders.

On appeal, the Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The appellate court further stated that whatever claims the Magsaysay sisters have against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding. The motion for reconsideration of the Magsaysay sisters was denied. Hence, the petition for review on certiorari.

Issue:Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested parties in a case where corporate properties are in dispute.

Held:Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay sisters have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings. To be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof . Here, the interest, if it exists at all, of the Magsaysay sisters is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person.

Booc vs BantuasAn affidavit-complaint dated August 31, 1999 was filed before the Office of the Court Administrator (OCA) by Salvador Booc charging Malayo B. Bantuas, Sheriff IV of the Regional Trial Court (RTC), Branch 3, Iligan City with Gross Ignorance of the Law and Grave Abuse of Authority relative to Civil Case No. 1718 entitled, Felipe G. Javier, Jr. vs. Rufino Booc.Complainant is the President of five Star Marketing Corporation.On August 22, 1994 herein respondent Sheriff Malayo B. Bantuas, pursuant to a Writ of Execution issued in Civil Case No. 1718 filed a Notice of Levy with the Register of Deeds, Iligan City over a parcel of land covered by TCT No. T-19209 and owned by Five Star Marketing Corporation.Complainant alleged that respondent sheriff, at the instance of plaintiff, former Judge Felipe Javier, proceeded to file the Notice of Levy despite respondent sheriffs knowledge that the property is owned by the corporation which was not a party to the civil case.On July 31, 1995, the corporation through the complainant reiterated to respondent sheriff that it was the owner of the property and Rufino Booc had no share or interest in the corporation.Hence, the corporation demanded that respondent sheriff cancel the notice of levy, otherwise the corporation would take the appropriate legal steps to protect its interest.Respondent sheriff, however, did not heed the corporations demand inasmuch as on August 20, 1999 the corporation received a Notice of Sale on Execution of Real Property, dated August 11, 1999, covering the subject property.Respondent sheriff scheduled the public auction on August 31, 1999.Consequently, the corporation, to protect its rights and interests, was compelled to file an action for Quieting of Title with the RTC, Branch 4 of Iligan City.Respondent sheriff, in his answer to the complaint filed against him before the OCA, said that he filed a Notice of Levy with the Register of Deeds of Iligan City on the share, rights, interest and participation of Rufino Booc in the parcel of land owned by Five Star Marketing Corporation.Respondent sheriff claimed that Rufino Booc is the owner of around 200 shares of stock in said corporation according to a document issued by the Securities and Exchange Commission.Respondent sheriff stressed that the levy was made on the share, rights and/or interest and participation which Rufino Booc, as president and stockholder, may have in the parcel of land owned by Five Star Marketing Corporation.Claiming that he was only acting pursuant to his duties as sheriff, respondent cited Section 15, Rule 39 of the Rules of Court which states thatx x x The officer must enforce an execution of a money judgment by levying on all the property, real and personal of every name and nature whatsoever, and which may be disposed of for value of the judgment debtor not exempt from execution.Real property stocks, shares, debts, credits, and other personal property, or any interest in either real or personal property, may be levied upon in like manner and with like effect as under a writ of execution.Respondent sheriff said that while complainant Salvador Booc made a demand for the cancellation of levy made, the former deemed it wise to have the judgment satisfied in accordance with Section 39 of the Rules of Court.Respondent sheriff added that the trial court where the case for Quieting of Title filed by the corporation was pending ordered the auction sale of the shares of stock of Rufino Booc.The corporation allegedly never questioned said order of the RTC.Finally, respondent sheriff averred that the corporation is merely a dummy of Rufino Booc and his brother Sheikding Booc.Respondnet sheriff submitted as an exhibit an affidavit executed by Sheikding Booc wherein the latter admitted that when Judge Felipe Javier won in the civil case against Rufino Booc, the latter simulated a transfer of his shares of stock in Five Star Marketing Corporation so that the property may not be levied upon.[1]Complainant, in his reply to respondent sheriffs comment belied the latters allegation that the corporation never questioned the auction sale.Complainant averred that contrary to the respondent sheriffs assertion, the trial court in fact issued a restraining order which was withdrawn after plaintiffs counsel manifested that the respondent sheriff would only auction Rufino Boocs shares of stock in the corporation and not the subject property.The OCA found respondent sheriff liable for the charges filed against him, stating that respondent sheriff acted in bad faith when he auctioned the subject property inasmuch as Judge Mangotara had already warned him that the public auction should pertain only to shares of stock owned by Rufino Booc in Five Star Marketing Corporation.Respondent sheriff, however, in violation of the order issued by Judge Mangotara and in disregard of the manifestation filed by plaintiffs counsel that the sale should involve only the shares of stock, proceeded to auction the subject property.The OCA, thus, made the recommendation that:1)The instant case be RE-DOCKETED as a regular administrative matter; and2)Respondent Sheriff Malayo B. Bantuas be FINED in the amount of Ten Thousand Pesos (P10,000.00) for conducting the auction sale in violation of the terms of the order issued by Acting Presiding Judge Mamindiara P. Mangotara with a STERN WARNING that a commission of the same or similar acts in the future shall be dealt with more severely.A careful scrutiny of the records shows that respondent sheriff, in filing a notice of levy on the subject property as well as in the certificate of sale, did not fail to mention that what was being levied upon and sold was whatever shares, rights, interests and participation Rufino Booc, as president and stockholder in Five Star Marketing Corporation may have on subject property.Respondent sheriff, however, overstepped his authority when he disregarded the distinct and separate personality of the corporation from that of Rufino Booc as stockholder of the corporation by levying on the property of the corporation.Respondent sheriff should not have made the levy based on mere conjecture that since Rufino Booc is a stockholder and officer of the corporation, then he might have an interest or share in the subject property.It is settled that a corporation is clothed with a personality separate and distinct from that of its stockholders.It may not be held liable for the personal indebtedness of its stockholders.In the case ofDel Rosario vs. Bascar, Jr.,[2]we imposed the fine of P5,000.00 on respondent sheriff Bascar for allocating unto himself the power of the court to pierce the veil of corporate entity and improvidently assuming that since complainant Esperanza del Rosario is the treasurer of Miradel Development Corporation, they are one and the same. In the said case we reiterated the principle that the mere fact that one is a president of the corporation does not render the property he owns or possesses the property of the corporation since the president, as an individual, and the corporation are separate entities.Based on the foregoing, respondent Sheriff Bantuas has clearly acted beyond his authority when he levied the property of Five Star Marketing Corporation.The fact, however, that respondent sheriff, in levying said property, had stated in the notice of levy as well as in the certificate of sale that what was being levied upon and sold was whatever rights, shares interest and/or participation Rufino Booc, as stockholder and president in the corporation, may have on the subject property, shows that respondent sheriffs conduct was impelled partly by ignorance of Corporation Law and partly by mere overzealousness to comply with his duties and not by bad faith or blatant disregard of the trial courts order.Hence, we deem that the penalty of a fine of Five Thousand Pesos (P5,000.00) to be imposed on respondent sheriff would suffice.WHEREFORE, respondent Malayo B. Bantuas, Sheriff IV of the RTC of Iligan City , Branch 3, is hereby FINED in the sum of Five Thousand Pesos (P5,000.00) with the STERN WARNING that a repetition of the same or similar acts in the future will be dealt with more severely.SO ORDERED.

Jardine Davies vs JRB realtyJRB Realty ordered the installation of two aircons from Aircon and Refrigeration Industries, Inc. The aircons were delivered and installed but they could not deliver the desired temperature. The aircon company undertook to replace the aircons but it did not specify a date when.- JRB later learned that there was a new company that was licensed to manufacture, distribute and install the same brand of aircons that were installed in their building. The name of the coporation was Maxim Industrial and Merchandising Corp. The president of JRB requested Maxim to honor the obligation as regards the aircon but Maxim refused. Subsequently, Maxim was impleaded as a subsidiary of the first aircon company, which had ceased operations.- RTC and CA decided in favor of JRB. - SC said: It is an elementary and fundamental principle of corporation law that a corporation is an artificial being invested by law with a personality separate and distinct from its stockholders and from other corporations to which it may be connected. While a corporation is allowed to exist solely for a lawful purpose, the law will regard it as an association of persons or in case of two corporations, merge them into one, when this corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporatefiction which applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. The rationale behind piercing a corporations identity is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities.- While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that Aircons corporate legal existence can just be disregarded. InVelarde v. Lopez, Inc.,the Court categorically held that a subsidiary has an independent and separate juridical personality, distinct from that of its parent company; hence, any claim or suit against the latter does not bind the former, andvice versa. - In applying the doctrine, the following requisites must be established: (1) control, not merely majority or complete stock control; (2) such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in contravention of plaintiffs legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.- The records bear out that Aircon is a subsidiary of the petitioner only because the latter acquired Aircons majority of capital stock. It, however, does not exercise complete control over Aircon; nowhere can it be gathered that the petitioner manages the business affairs of Aircon. Indeed, no management agreement exists between the petitioner and Aircon, and the latter is an entirely different entity from the petitioner. General Credit Corp v. Alsons Dev. and Investment Corp FACTS: Petitioner General Credit Corporation (GCC), then known as Commercial Credit Corporation (CCC), established CCC franchise companies in different urban centers of the country. In furtherance of its business, GCC was able to secure license from Central Bank (CB) and SEC to engage also in quasi-banking activities. On the other hand, respondent CCC Equity Corporation (EQUITY) was organized in by GCC for the purpose of, among other things, taking over the operations and management of the various franchise companies. At a time material hereto, respondent Alsons Development and Investment Corporation (ALSONS) and the Alcantara family, each owned, just like GCC, shares in the aforesaid GCC franchise companies, e.g., CCC Davao and CCC Cebu.

ALSONS and the Alcantara family, for a consideration of P2M, sold their shareholdings (101,953 shares), in the CCC franchise companies to EQUITY. EQUITY issued ALSONS et al., a "bearer" promissory note for P2M with a one-year maturity date.4 years later, the Alcantara family assigned its rights and interests over the bearer note to ALSONS which became the holder thereof. But even before the execution of the assignment deal aforestated, letters of demand for interest payment were already sent to EQUITY. EQUITY no longer then having assets or property to settle its obligation nor being extended financial support by GCC, pleaded inability to pay.ALSONS, having failed to collect on the bearer note aforementioned, filed a complaint for a sum of money8 against EQUITY and GCC. GCC is being impleaded as party-defendant for any judgment ALSONS might secure against EQUITY and, under the doctrine of piercing the veil of corporate fiction, against GCC, EQUITY having been organized as a tool and mere conduit of GCC. According to EQUITY (cross-claim against GCC): it acted merely as intermediary or bridge for loan transactions and other dealings of GCC to its franchises and the investing public; and is solely dependent upon GCC for its funding requirements. Hence, GCC is solely and directly liable to ALSONS, the former having failed to provide EQUITY the necessary funds to meet its obligations to ALSONS.GCC filed its ANSWER to Cross-claim, stressing that it is a distinct and separate entity from EQUITY.RTC, finding that EQUITY was but an instrumentality or adjunct of GCC and considering the legal consequences and implications of such relationship, rendered judgment for Alson. CA affirmed.ISSUE: WON the doctrine of "Piercing the Veil of Corporate Fiction" should be applied in the case at bar.HELD: YES.The notion of separate personality, however, may be disregarded under the doctrine "piercing the veil of corporate fiction" as in fact the court will often look 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 (2) 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 one and the same.Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the law covers and isolates the corporation from any other legal entity to which it may be related, is allowed. These are: 1) defeat of public convenience, as when the corporate fiction is used as vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. The Court agrees with the disposition of the CA on the application of the piercing doctrine to the transaction subject of this case. Per the Courts count, the trial court enumerated no less than 20 documented circumstances and transactions, which, taken as a package, indeed strongly supported the conclusion that respondent EQUITY was but an adjunct, an instrumentality or business conduit of petitioner GCC. This relation, in turn, provides a justifying ground to pierce petitioners corporate existence as to ALSONS claim in question. Foremost of what the trial court referred to as "certain circumstances" are the commonality of directors, officers and stockholders and even sharing of office between petitioner GCC and respondent EQUITY; certain financing and management arrangements between the two, allowing the petitioner to handle the funds of the latter; the virtual domination if not control wielded by the petitioner over the finances, business policies and practices of respondent EQUITY; and the establishment of respondent EQUITY by the petitioner to circumvent CB rules.Verily, indeed, as the relationships binding herein [respondent EQUITY and petitioner GCC] have been that of "parent-subsidiary corporations" the foregoing principles and doctrines find suitable applicability in the case at bar; and, it having been satisfactorily and indubitably shown that the said relationships had been used to perform certain functions not characterized with legitimacy, this Court feels amply justified to "pierce the veil of corporate entity" and disregard the separate existence of the parent and subsidiary the latter having been so controlled by the parent that its separate identity is hardly discernible thus becoming a mere instrumentality or alter ego of the former.

KUKAN INTERNATIONAL CORPORATION vs. REYESG.R. No. 182729 September 29, 2010FACTS: Sometime in March 1998, Kukan, Inc. conducted bidding for the supply and installation of signages in a building being constructed in Makati City. Romeo Morales tendered the winning bid and was awarded the PhP 5 million contract. Short changed, Morales filed a Complaintwith the RTC against Kukan, Inc. for a sum of money. The RTC rendered a Decision in favor of Morales and against Kukan, Inc. After the 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 of Kukan International Corporation (KIC). KIC then filed an Affidavit of Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in Civil Case. In reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30, 2003. In it, Morales prayed, applying the principle of piercing the veil of corporate fiction, that an order be issued for the satisfaction of the judgment debt of Kukan, Inc. with the properties under the name or in the possession of KIC, it being alleged that both corporations are but one and the same entity. By Order of May 29, 2003 as reiterated in a subsequent order, the court denied the omnibus motion. In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true relationship between the two, Morales filed a Motion for Examination of Judgment Debtors dated May 4, 2005. In this motion Morales sought that subpoena be issued against the primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the trial court in an Order dated May 24, 2005. Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually granted the motion. The case was re-raffled to Branch 21, presided by public respondent Judge Amor Reyes. 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. KIC moved but was denied reconsideration in another Order dated June 7, 2007. On petition for certiorari before CA, the same was denied. The CA later denied KICs motion for reconsideration in the assailed resolution. Hence, the instant petition for review.ISSUE: Whether the trial and appellate courts correctly applied, under the premises, the principle of piercing the veil of corporate fiction.RULING: Piercing the veil of corporate entity apllies only: (1) the court must first acquire jurisdiction over the corporation or corporations involved before its or their separate personalities are disregarded; and (2) the doctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a cause of action duly commenced involving parties duly brought under the authority of the court by way of service of summons or what passes as such service.Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a corporation does not, standing alone, provide sufficient justification for disregarding the separate corporate personality.For this ground to hold sway in this case, there must be proof that Chan had control or complete dominion of Kukan and KICs finances, policies, and business practices; he used such control to commit fraud; and the control was the proximate cause of the financial loss complained of by Morales. The absence of any of the elements prevents the piercing of the corporate veil.And indeed, the records do not show the presence of these elements.In fine, there is no showing that the incorporation, and the separate and distinct personality, of KIC was used to defeat Morales right to recover from Kukan, Inc. Judging from the records, no serious attempt was made to levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that Kukan, Inc. tried to avoid liability or had no property against which to proceed.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.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.Secosa vs Heirs of Erwin suarez Fransisco

Facts:Francisco, an18 year old3rd year physical therapy student was ridinga motorcycle. Asand and graveltruck was traveling behind the motorcycle, which in turn was being tailed by the Isuzu truck driven by Secosa. The Isuzu cargo truck was owned by Dassad Warehousing and Port Services, Inc.. The three vehicles were traversing the southbound lane at a fairly high speed. When Secosa overtook thesand and graveltruck, he bumped the motorcycle causing Francisco to fall. The rear wheels of the Isuzu truck then ran over Francisco, which resulted in his instantaneous death. Secosa left his truck and fled the scene of the collision.

The parents of Francisco, respondents herein, filed an action fordamagesagainst Secosa, Dassad Warehousing and Port Services, Inc. and Dassads president, El Buenasucenso Sy.

The court a quo rendered a decision in favor of herein respondents; thus petitioners appealedthe decisionto the Court of Appeals, which unfortunately affirmed the appealed decision in toto. Hence, the present petition.

Issues:(1) Whether or not Dassad Warehousing and Port Services, Inc. exercised the diligence of a good father of afamily inthe selection and supervision of its employees; hence it cannot be held solidary liable with the negligence of its employee.

(2) Whether or not Dassads president, El Buenasucenso Sy, can be held solidary liable with co-petitioners.

Held:(1) No. Dassad Warehousing and Port Services, Inc. did not exercise the required diligence of a good father of afamily inthe selection and supervision of its employees. Hence, it cannot be held solidary liable with the negligence of its employee.

Article 2176 of the Civil Code provides:

Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

On the other hand, Article 2180, in pertinent part, states:

The obligation imposed by article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is responsible x x x.

Employers shall be liable for thedamagescaused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry x x x.

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.

Based on the foregoing provisions, when an injury is caused by the negligence of an employee, there instantly arises a presumption that there was negligence on the part of the employer, which however, may be rebutted by a clear evidence showing on the part of the employer that it exercised the care and diligence of a good father of afamily inthe selection and supervision of his employee.

In the selection of prospective employees, employers are required to examine them as to their qualifications, experience, and service records. On the other hand, with respect to the supervision of employees, employers should formulatestandard operating procedures, monitor their implementation, and impose disciplinary measures for breaches thereof. To establish these factors in a trial involving the issue of explicit liability, employers must submit concrete proof, including documentary evidence. The reasonfor thisis to obviate the biased nature of the employers testimony or that of his witnesses.

In the case at bar, Dassad Warehousing and Port Services, Inc. failed to conclusively prove that it had exercised the requisite diligence of a good father of afamily inthe selection and supervision of its employees. Dassad Warehousing and Port Services, Inc. failed to support the testimony of its lone witness, Edilberto Duerme, with documentary evidence which would have strengthened its claim of due diligence in the selection and supervision of its employees. Such an omission is fatal on account of which, Dassad can be rightfully held solidarily liable with its co-petitioner Secosa for thedamagessuffered by theheirs ofFrancisco.(2) No. Sy cannot be held solidarily liable with his co-petitioners. While it may be true that Sy is the president of Dassad Warehousing and Port Services, Inc., such fact is not by itself sufficient to hold him solidarily liable for the liabilities adjudged against his co-petitioners.A corporation has a personality separate from that of its stockholders or members. The doctrine of veil of corporation treats as separate and distinct the affairs of a corporation and its officers and stockholders. As a rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud that may work inequities among members of the corporation internally, involving no rights of the public or third persons. In both instances, there must have been fraud and proof of it.The records of the case does not point toward the presence of any grounds enumerated above that will justify the piercing of the veil of corporate entity such as to hold Sy, the president of Dassad Warehousing and Port Services, Inc., solidarily liable with it.Furthermore, the Isuzu cargo truck which ran over Francisco was registered in the name of Dassad and not in the name of Sy. Secosa is an employee of Dassad and not of Sy. These facts showed Sys exclusion from liability fordamagesarising from the death of Francisco.

PNB vs RitrattoLessonsApplicable:Dealings with Corp. and Stockholders (Corporate Law)

FACTS: May 29, 1996: PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doingbusiness inHong Kong, extended a letter ofcredit infavor of the Ritratto Group, Inc. (Ritartto) in the amount of US$300K secured by real estate mortgages constituted over 4 parcels of land in Makati City

September 1996:increased successively to US$1,140,000.00

November 1996:to US$1,290,000.00

February 1997:US$1,425,000.00

April 1998: decreased toUS$1,421,316.18

Ritratto Group, Inc.made repayments of the loan incurred by remitting thoseamounts totheir loan account with PNB-IFL in Hong Kong.

April 30, 1998: outstanding amounted to US$1,497,274.70

PNB-IFL, through its attorney-in-fact PNB, notified them of the foreclosure of all the real estate mortgages and thatthe propertiessubjected

May 25, 1999: Ritratto Group, Inc filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order before the RTC. -granted 72-hour TRO

RTC and CA: dismissed motion to dismiss

PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL

. Rittratto: entire credit facility is void as it contains stipulations in violation of the principle of mutuality of contracts

ISSUE: W/N PNB is an alter ego of PNB-IFL

HELD: NO. Petition is grantedPNB is an agent with limited authority and specific duties under a specialpower of attorneyincorporated in the real estate mortgage.

not privy to the loan contracts entered into by PNB-IFL.

mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity.

If used to perform legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business.

generalrule the stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation.

The Circumstance rendering the subsidiary an instrumentality(common circumstances)

(a) The parent corporation owns all or most of the capital stock of the subsidiary.(b) The parent and subsidiary corporations have common directors or officers.(c) The parent corporation finances the subsidiary.(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.(e) The subsidiary has grossly inadequate capital.(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.(g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation.(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own.(i) The parent corporation uses the property of the subsidiary as its own.(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation.(k) The formal legal requirements of the subsidiary are not observed.CONCEPT BUILDERS, INC vs. NLRCG.R. No. 108734 May 29, 1996FACTS: Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers. On November 1981, private respondents were served individual written notices of termination of employment by petitioner. It was stated in the individual notices that their contracts of employment had expired and the project in which they were hired had been completed. It was found, however, that at the time of the termination of private respondent's employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors whose workers performed the functions of private respondents. Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner. On December 19, 1984, the Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year or three hundred working days. On Motion for reconsideration, the same was denied by NLRC on the ground that the said decision had already become final and executory. When the writ of execution was issued, it was however partially satisfied thru garnishment of sums from petitioners debtor, Metropolitan Waterworks and Sewerage Authority. On February 1, 1989, anAliasWrit of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the balance due of the judgment award and to reinstate private respondents to their former positions. When the Alias Writ of Execution was served, it was found that the petitioner no longer occupied the premises. A second Alias Writ of Execution then was issued upon motion of private respondents. On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. of which he is the Vice-President. On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and petitioner corporation were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order. HPPI filed an Opposition to private respondents' motion for issuance of a break-open order, contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of businesses,i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction. The Labor Arbiter issued an Order which denied private respondents' motion for break-open order. On appeal to NLRC, applying the doctrine of piercing the corporate veil, it set aside the order of the Labor Arbiter and issued a break-open order. Motion for reconsideration was denied. Hence this petition.ISSUE: Whether or not the veil of corporate fiction must be pierced to hold petitioner liable.RULING: The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and3. 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.Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper Corporation, a sham or a subterfuge is purely one of fact.In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.Furthermore, the NLRC stated that:Both information sheets were filed by thesameVirgilio O. Casio as the corporate secretary of both corporations. It would also not be amiss to note that both corporations had thesamepresident, the sameboard of directors, thesamecorporate officers, and substantially thesamesubscribers.From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant shared thesameaddress and/or premises. Under this circumstances, it cannot be said that the property levied upon by the sheriff were not of respondents.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 skilfully orchestrated to avoid the financial liability that already attached to Petitioner Corporation.

Koppel vs YatcoFacts:Koppel Philippines Inc. (KPI) has a capital stock divided into thousand (1,000) shares of P100 each.The Koppel Industrial Car and Equipment Company (KICEC) owns 995 shares of the total capital stock. KICEC is organized under US laws and not licensed to do business in the Philippines. The remaining five (5) shares only were and are owned one each by officers of the KPI.They have the following business process:o(1) "When a local buyer was interested in the purchase of railway materials, machinery, and supplies, it asked for price quotations from KPI";o(2) "KPI then cabled for the quotation desired from Koppel Industrial Car and Equipment Company";o(3) "KPI, however, quoted to the purchaser a selling price above the figures quoted by Koppel Industrial Car and Equipment Company";o(4) "On the basis of these quotations, orders were placed by the local purchasersKPI paid under protest the P64,122.51 demanded by the CIR.Total profitPhp 3,772,403,82

KPI SharePhp 132,201.30

KPI paid commercial brokers tax (4% of KPI Share)Php 5,288.05

CIR demanded (1% of Total Profit) + 25% surcharge for late payment Paid taxPhp 64,122.51

It appears that KICEC is the only foreign principal of KPI.The KPI corporation bore alone incidental expenses - as, for instance, cable expenses-not only those of its own cables but also those of its "principal" .The KPI's "share in the profits" realized from the transactions in which it intervened was left virtually in the hands of KICECWhere drafts were not paid by the purchasers, the local banks were instructed not to protest them but to refer them to KPI which was fully empowered by KICEC to instruct the banks with regards to disposition of the drafts and documentsWhere the goods were European origin, consular invoices, bill of lading, and, in general, the documents necessary for clearance were sent directly to KPIIf the KPI had in stock the merchandise desired by local buyers, itimmediately filled the orders of such local buyersand made delivery in the Philippineswithout the necessity of cabling its principalin America either for price quotations or confirmation or rejection of that agreed upon between it and the buyerWhenever the deliveries made by KICEC were incomplete or insufficient to fill the local buyer's orders, KPI used to make good the deficiencies by deliveries from its own local stock, but in such cases it charged its principalonly the actual cost of the merchandise thus delivered by it from its stock and in such transactionsKPI did not realize any profit#fluffypeachesCFI:oKPI is a mere dummy or branch ("hechura") of KICEC.odid not deny legal personality to Koppel (Philippines), Inc. for any and all purposes, but in effect its conclusion was that, in the transactions involved herein,the public interest and convenience would be defeated and what would amount to a tax evasion perpetrated, unless resort is had to the doctrine of "disregard of the corporate fiction."Issues/Ruling:1. WON KPI is a domestic corporation distinct and separate from, and not a mere branch of KICEC

KPI:Its corporate existence as cannot be collaterally attacked and that the Government is estopped from so doing.SC:Koppel (Philippines), Inc. was a mere branch or agency or dummy ("hechura") of Koppel Industrial Car and Equipment Co. The lower court did not hold that the corporate personality of KPI would also be disregarded in other cases or for other purposes. It would have had no power to so hold. The courts' action in this regard must be confined to the transactions involved in the case at bar "for the purpose of adjudging the rights and liabilities of the parties in the case. They have no jurisdiction to do more."