REPUBLIC OF THE PHILIPPINES VS. CITY OF PARANAQUE (G.R No. 191109, July 1 , !01!".

F#$%&' The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential Decree (P.D.) No. 108 ! it "as thereafter transformed into P#A by President $loria %acapagal Arroyo entrusting the same "ith the performance of all the po"ers and functions of the PEA relating to reclamation activities. &y virtue of its mandate! P#A reclaimed several portions of the foreshore and offshore areas of %anila &ay! including those located in Para'a(ue )ity! and "as issued *riginal )ertificates of Title +*)T Nos. 180! ,0,! ,0-! ,0.! ,8/! 00.! and 00/1 and Transfer )ertificates of Title +T)T Nos. 10 -,8! .21,! .20/! .211! /-80! and /-8-1 over the reclaimed lands. *n 3ebruary 1/! ,002! then Para'a(ue )ity Treasurer 4iberato %. )arabeo (Carabeo)issued 5arrants of 4evy on P#A6s reclaimed properties +)entral &usiness Par7 andBarangay 8an Dionisio1 located in Para'a(ue )ity based on the assessment for delin(uent real property ta9es made by then Para'a(ue )ity Assessor 8oledad %edina )ue for ta9 years ,001 and ,00,. P#A asserts that it is not a $*)) under 8ection ,+121 of the :ntroductory Provisions of the Administrative )ode. Neither is it a $*)) under 8ection 1-! Article ;:: of the 1/8. )onstitution because it is not re(uired to meet the test of economic viability. :nstead! P#A is a government instrumentality vested "ith corporate po"ers and performing an essential public service pursuant to 8ection ,+101 of the :ntroductory Provisions of the Administrative )ode. Although it has a capital stoc7 divided into shares! it is not authori<ed to distribute dividends and allotment of surplus and profits to its stoc7holders. Therefore! it may not be classified as a stoc7 corporation because it lac7s the second re(uisite of a stoc7 corporation "hich is the distribution of dividends and allotment of surplus and profits to the stoc7holders. :t insists that it may not be classified as a non=stoc7 corporation because it has no members and it is not organi<ed for charitable! religious! educational! professional! cultural! recreational! fraternal! literary! scientific! social! civil service! or similar purposes! li7e trade! industry! agriculture and li7e chambers as provided in 8ection 88 of the )orporation )ode. I&&u(' 5hether or not P#A is a $*)). H(l)' No! the P#A is not a $*)). 3rom >8ections ,+101 and ,+121 of the :ntroductory Provisions of the Administrative )ode of 1/8. +E9ecutive *rder No. ,/,1?! it is clear that a $*)) must be @organi<ed as a stoc7 or non=stoc7 corporationA "hile an instrumentality is vested by la" "ith corporate po"ers. 4i7e"ise! "hen the la" ma7es a government instrumentality operationally autonomous! the instrumentality remains part of the National $overnment machinery although not integrated "ith the department frame"or7. 5hen the la" vests in a government instrumentality corporate po"ers! the instrumentality does not necessarily become a corporation. Bnless the government

instrumentality is organi<ed as a stoc7 or non=stoc7 corporation! it remains a government instrumentality e9ercising not only governmental but also corporate po"ers. %any government instrumentalities are vested "ith corporate po"ers but they do not become stoc7 or non=stoc7 corporations! "hich is a necessary condition before an agency or instrumentality is deemed a $*)). E9amples are the %actan :nternational Airport Authority! the Philippine Ports Authority! the Bniversity of the Philippines! and Bangko Sentral ng Pilipinas. All these government instrumentalities e9ercise corporate po"ers but they are not organi<ed as stoc7 or non=stoc7 corporations as re(uired by 8ection ,+121 of the :ntroductory Provisions of the Administrative )ode. These government instrumentalities are sometimes loosely called government corporate entities. They are not! ho"ever! $*))s in the strict sense as understood under the Administrative )ode! "hich is the governing la" defining the legal relationship and status of government entities.

CONCEPTS AN* ATTRIBUTES OF A CORPORATION F(l+$+#,o -&. Co..+&&+o, o, Au)+% >$# 1 . 0,! 1 Canuary ,00 ?En &anc! )arpio +C1D 12 concur Facts: A 8pecial Audit Team from )ommission on Audit +)*A1 #egional *ffice No. E::: audited the accounts of the 4eyte %etropolitan 5ater District +4%5D1. 8ubse(uently! 4%5D received a letter from )*A dated 1/ Culy 1/// re(uesting payment of auditing fees. As $eneral %anager of 4%5D! Engr. #anulfo ). 3eliciano sent a reply dated 1, *ctober 1/// informing )*A6s #egional Director that the "ater district could not pay the auditing fees. 3eliciano cited as basis for his action 8ections - and ,0 of PD 1/8! as "ell as 8ection 18 of #A -.08. The #egional Director referred 3eliciano6s reply to the )*A )hairman on 18 *ctober 1///. *n 1/ *ctober 1///! 3eliciano "rote )*A through the #egional Director as7ing for refund of all auditing fees 4%5D previously paid to )*A. *n 1- %arch ,000! 3eliciano received )*A )hairman )elsoD. $anganFs #esolution dated 2 Canuary ,000 denying 3elicianoFs re(uest for )*A to cease all audit services! and to stop charging auditing fees! to 4%5D. The )*A also denied 3elicianoFs re(uest for )*A to refund all auditing fees previously paid by 4%5D. 3eliciano filed a motion for reconsideration on 21 %arch ,000! "hich )*A denied on 20 Canuary ,001. *n 12 %arch ,001! 3elicaino filed the petition for certiorari. Issue: 5hether a 4ocal 5ater District +G45DH1 is a government=o"ned or controlled corporation. Held: The )onstitution recogni<es t"o classes of corporations. The first refers to private corporations created under a general la". The second refers to government=o"ned or controlled corporations created by special charters. The )onstitution emphatically prohibits the creation of private corporations e9cept by a general la" applicable to all citi<ens. The purpose of this constitutional provision is to ban private corporations created by special charters! "hich historically gave certain individuals! families or groups special privileges denied together citi<ens. :n short! )ongress cannot enact a la" creating a private corporation "ith a special charter. 8uch legislation "ould be unconstitutional. Private corporations may e9ist only under a general la". :f the corporation is private! it must necessarily e9ist under a general la". 8tated differently! only corporations created under a general la" can (ualify as private corporations. Bnder e9isting la"s! that general la" is the )orporation )ode! e9cept that the )ooperative )ode governs the incorporation of cooperatives. The )onstitution authori<es )ongress to create government=o"ned or controlled corporations through special charters. 8ince private corporations cannot have special charters! it follo"s that )ongress can create corporations "ith special charters only if such corporations are government=o"ned or controlled. *bviously! 45Ds are not private corporations because they are not created under the )orporation )ode. 45Ds are not registered "ith the 8ecurities and E9change )ommission. 8ection 1 of the )orporation )ode states that >A?ll corporations organi<ed under this code shall file "ith the 8ecurities and E9change )ommission articles of incorporation 9 9 9.H 45Ds have no articles of incorporation! no incorporators and no stoc7holders or members. There are no stoc7holders or members to elect the board directors of 45Ds as in the case of all

corporations registered "ith the 8ecurities and E9change )ommission. The local mayor or the provincial governor appoints the directors of 45Ds for a fi9ed term of office. 45Ds e9ist by virtue of PD 1/8! "hich constitutes their special charter. 8ince under the )onstitution only government=o"ned or controlled corporations may have special charters! 45Ds can validly e9ist only if they are government=o"ned or controlled. To claim that 45Ds are private corporations "ith a special charter is to admit that their e9istenceis constitutionally infirm. Bnli7e private corporations! "hich derive their legal e9istence and po"er from the )orporation )ode! 45Ds derive their legal e9istence and po"er from PD 1/8

/AGSAYSAY0LABRA*OR VS. CA #,) A)(l#+)# Ro)1+2u(30/#2&#y&#y FACTS' Adelaida #odrigue<=%agsaysay! "ido" and special administrati9 of the estate of the late 8enator %agsaysay! brought before the then )3: of *longapo an action against Artemio Panganiban! 8ubic 4and )orporation +8B&:)1! 3ilipinas %anufacturerIs &an7 +3:4%AN&ANJ1 and the #egister of Deeds of Kambales! to annul the deed of assignment and deed of mortgage e9ecuted in favor of the petitioners by her late husband. Private respondent alleged that the parcel of land "ith improvements! 7no"n as LPe(uena :slandL! covered by T)T No. 2,08 "as ac(uired through conMugal funds. 8ince her consent to the disposition of the same "as not obtained! she claimed that the acts of assignment and mortgage "ere done to defraud the conMugal partnership. 8he further contended that the same "ere done "ithout consideration and hence null and void. petitioners! sisters of the late senator! filed a motion for intervention on the ground that on Cune ,0! 1/.8! their brother conveyed to them one=half +1N, 1 of his shareholdings in 8B&:) or a total of 1-!0--.- shares and as assignees of around 1 O of the total outstanding shares of such stoc7s of 8B&:)! they have a substantial and legal interest in the subMect matter of litigation and that they have a legal interest in the success of the suit "ith respect to 8B&:). Petitioners! sisters of the deceased husband of the private respondent! filed a motion for intervention on the ground that their brother conveyed to them P of his shareholdings in 8B&:)! "ith a total of 1-!0--.- shares or about 1O. they have a substantial and legal interest in the subMect matter of litigation and that they have a legal interest in the success of the suit "ith respect to 8B&:). the court denied the motion for intervention! and ruled that petitioners have no legal interest "hatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in 8B&:) cannot legally entitle them to intervene because 8B&:) has a personality separate and distinct from its stoc7holders. The )A confirmed the denial on appeal and further stated that "hatever claims the petitioners have against the late 8enator or against 8B&:) for that matter can be ventilated in a separate proceeding! Thus! this petition. ISSUE' 5hether or not the petitioners! as stoc7holders of 8B&:)! have a legal interest in the action for annulment of the deed of assignment and deed of mortgage in favor of the corporationQ and 5hether or not respondent )ourt of Appeals correctly denied the motion for intervention. HEL*' N*. Petitioners anchor their right to intervene on the purported assignment made by the late 8enator of a certain portion of his shareholdings to them as evidenced by a Deed of 8ale. The 8upreme )ourt ruled that to allo" intervention! the interest "hich entitles

person to intervene in a suit bet"een other parties must be in the matter in litigation and of such direct and immediate character that the intervenor "ill either gain or lose by the direct legal operation and effect of the Mudgment. The "ords Lan interest in the subMectL mean a direct interest in the cause of action as pleaded! and "hich "ould put the intervenor in a legal position to litigate a fact alleged in the complaint! "ithout the establishment of "hich plaintiff could not recover. :n the case at bar! the stoc7holders! at the very least! their interest is purely inchoate! or in sheer e9pectancy 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. 5hile a share of stoc7 represents a proportionate or ali(uot interest in the property of the corporation! it does not vest the o"ner thereof "ith any legal right or title to any of the property! his interest in the corporate property being e(uitable or beneficial in nature. 8hareholders are in no legal sense the o"ners of corporate property! "hich is o"ned by the corporation as a distinct legal person. Petition DEN:ED.

/ANILA INTERNATIONAL AIRPORT AUTHORITY VS. COURT OF APPEALS AN* CITY OR PARANAQUE FACTS' Petitioner %anila :nternational Airport Authority +%:AA1 operates the Ninoy A(uino :nternational Airport +NA:A1 )omple9 in Para'a(ue )ity. As operator of the international airport! %:AA administers the land! improvements and e(uipment "ithin the NA:A )omple9. The %:AA )harter transferred to %:AA appro9imately -00 hectares of land! including the run"ays and buildings +LAirport 4ands and &uildingsL1. *n ,8 Cune ,001! %:AA received 3inal Notices of #eal Estate Ta9 Delin(uency from the )ity of Para'a(ue for the ta9able years 1//, to ,001 "ith a total of P -, !00-!.,0. ,. The )ity of Para'a(ue! through its )ity Treasurer! issued notices of levy and "arrants of levy on the Airport 4ands and &uildings. The %ayor of the )ity of Para'a(ue threatened to sell at public auction the Airport 4ands and &uildings should %:AA fail to pay the real estate ta9 delin(uency. %:AA filed "ith the )ourt of Appeals an original petition for prohibition and inMunction! "ith prayer for preliminary inMunction or temporary restraining order. The petition sought to restrain the )ity of Para'a(ue from imposing real estate ta9 on! levying against! and auctioning for public sale the Airport 4ands and &uildings. the )A dismissed the petition because %:AA filed it beyond the -0=day reglementary period. Petitioner6s contentionD %:AA points out that it cannot claim o"nership over these properties since the real o"ner of the Airport 4ands and &uildings is the #epublic of the Philippines. The %:AA )harter mandates %:AA to devote the Airport 4ands and &uildings for the benefit of the general public. 8ince the Airport 4ands and &uildings are devoted to public use and public service! the o"nership of these properties remains "ith the 8tate. :t also points out that 8ection ,1 of the %:AA )harter specifically e9empts %:AA from the payment of real estate ta9. #espondent6s )ontentionD #espondents invo7e 8ection 1/2 of the 4ocal $overnment )ode! "hich e9pressly "ithdre" the ta9 e9emption privileges of Lgovernment=o"ned and=controlled corporationsL upon the effectivity of the 4ocal $overnment )ode. ISSUE' 5hether or not %:AA is a $*)) and is therefore not e9empt from the payment of real estate ta9 imposed by the local government. HEL*' N*. 3irst! %:AA is not a government=o"ned or controlled corporation but an instrumentality of the National $overnment and thus e9empt from local ta9ation. 8econd! the real properties of %:AA are o"ned by the #epublic of the Philippines and thus e9empt from real estate ta9.

8ection ,+121 of the Administrative )ode defines a government=o"ned or controlled corporation as @any agency organi<ed as a stoc7 or non=stoc7 corporation! vested "ith functions relating to public needs "hether governmental or proprietary in nature! and o"ned by the $overnment directly or through its instrumentalities either "holly! or! "here applicable as in the case of stoc7 corporations! to the e9tent of at least fifty=one +011 percent of its capital stoc7D 9 9 9.A Thus! a government=o"ned or controlled corporation must be Lorgani<ed as a stoc7 or non=stoc7 corporation.L %:AA is not organi<ed as a stoc7 or non=stoc7 corporation. %:AA is not a stoc7 corporation because it has no capital stoc7 divided into shares. %:AA has no stoc7holders or voting shares. %:AA is also not a non=stoc7 corporation because it has no members. 8ection 8. of the )orporation )ode defines a non=stoc7 corporation as Lone "here no part of its income is distributable as dividends to its members! trustees or officers.L A non=stoc7 corporation must have members. Even if "e assume that the $overnment is considered as the sole member of %:AA! this "ill not ma7e %:AA a non=stoc7 corporation. Non=stoc7 corporations cannot distribute any part of their income to their members. 8ection 11 of the %:AA )harter mandates %:AA to remit ,0O of its annual gross operating income to the National Treasury. This prevents %:AA from (ualifying as a non=stoc7 corporation. %:AA therefore is a government instrumentality vested "ith corporate po"ers to perform efficiently its governmental functions. %:AA is li7e any other government instrumentality! the only difference is that %:AA is vested "ith corporate po"ers. 5hen the la" vests in a government instrumentality corporate po"ers! the instrumentality does not become a corporation. Bnless the government instrumentality is organi<ed as a stoc7 or non=stoc7 corporation! it remains a government instrumentality e9ercising not only governmental but also corporate po"ers. Thus! %:AA e9ercises the governmental po"ers of eminent domain! police authority and the levying of fees and charges. At the same time! %:AA e9ercises Lall the po"ers of a corporation under the )orporation 4a". Petition $#ANTED.

CONCEPT BUIL*ERS, INC., petitioner, vs. RELATIONS CO//ISSION, FACTS'

THE

NATIONAL

LABOR

Petitioner )oncept &uilders! :nc.! a domestic corporation engaged in the construction business. Private respondents "ere employed by said company as laborers! carpenters and riggers. Private respondents "ere served individual "ritten notices of termination of employment by petitioner. :t "as stated in the individual notices that their contracts of employment had e9pired and the proMect in "hich they "ere hired had been completed. Public respondent found it to be in the opposite. Petitioner had to engage the services of sub=contractors "hose "or7ers 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. The 4abor Arbiter rendered Mudgment ordering petitioner to reinstate private respondents and to pay them bac7 "ages e(uivalent to one year or three hundred "or7ing days. N4#) dismissed the %#. The 4abor Arbiter issued a "rit of e9ecution directing the sheriff to e9ecute the Decision. The said "rit had not been enforced by the special sheriff because all the employees inside petitioner6s premises claimed that they "ere employees of Rydro Pipes Philippines! :nc. +RPP:1. The said special sheriff recommended that a @brea7=open orderA be issued to enable him to enter petitioner6s premises so that he could proceed "ith the public auction sale of the aforesaid personal properties. A certain Dennis )uyeg7eng filed a third=party claim "ith the 4abor Arbiter alleging that the properties sought to be levied upon by the sheriff "ere o"ned by Rydro +Phils.1! :nc. +RPP:1 of "hich he is the Eice=President. The private respondents filed a @%otion for :ssuance of a &rea7=*pen *rder!A alleging that RPP: and petitioner corporation "ere o"ned by the same incorporatorS stoc7holders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents "ere "illing to post an indemnity bond to ans"er for any damages "hich petitioner and RPP: may suffer because of the issuance of the brea7=open order. RPP: filed an *pposition to private respondents6 motion for issuance of a brea7= open order! contending that RPP: is a corporation "hich is separate and distinct from petitioner. RPP: also alleged that the t"o corporations are engaged in t"o different 7inds of businesses! i.e.! RPP: is a manufacturing firm "hile petitioner "as then engaged in construction.

P(%+%+o,(1 #ll(2(& %4#% %4( NLRC $o..+%%() 21#-( #5u&( o6 )+&$1(%+o, 74(, +% o1)(1() %4( (8($u%+o, o6 +%& )($+&+o, )(&9+%( # %4+1)09#1%y $l#+. o, %4( l(-+() 91o9(1%y. P(%+%+o,(1 6u1%4(1 $o,%(,)&, %4#% %4( )o$%1+,( o6 9+(1$+,2 %4( $o19o1#%( -(+l &4oul) ,o% 4#-( 5((, #99l+(), +, %4+& $#&(, +, %4( #5&(,$( o6 #,y &4o7+,2 %4#% +% $1(#%() HPPI +, o1)(1 %o (-#)( +%& l+#5+l+%y %o 91+-#%( 1(&9o,)(,%&. I% #l&o $o,%(,)& %4#% HPPI +& (,2#2() +, %4( .#,u6#$%u1( #,) &#l( o6 &%((l, $o,$1(%( #,) +1o, 9+9(&, # 5u&+,(&& 74+$4 +& )+&%+,$% #,) &(9#1#%( 61o. 9(%+%+o,(1:& $o,&%1u$%+o, 5u&+,(&&. H(,$(, +% +& o6 ,o $o,&(;u(,$( %4#% 9(%+%+o,(1 #,) HPPI &4#1() %4( &#.( 91(.+&(&, %4( &#.( P1(&+)(,% #,) %4( &#.( &(% o6 o66+$(1& #,) &u5&$1+5(1&. ISSUE' 5hether or not! the National 4abor #elations )ommission committed grave abuse of discretion "hen it issued a @brea7=open orderA to the sheriff to be enforced against personal property found in the premises of petitioner6s sister company. 5hether or not the Doctrine of Piercing the )orporate Eeil be applied. #ulingD The N4#) did not commit any grave abuse of discretion "hen it affirmed the brea7=open order issued by the 4abor Arbiter. 5e A48* find petitioner6s contention to be unmeritorious. :t is a fundamental principle of corporation la" that a corporation is an entity separate and distinct from its stoc7holders and from other corporations to "hich it may be connected. &ut! this separate and distinct personality of a corporation is merely a fiction created by la" for convenience and to promote Mustice. 8o! "hen the notion of separate Muridical personality is used to defeat public convenience! Mustify "rong! protect fraud or defend crime! or is used as a device to defeat the labor la"s!this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced.This is true li7e"ise "hen the corporation is merely an adMunct! a business conduit or an alter ego of another corporation. The conditions under "hich the Muridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid do"n! but certainly! there are some probative factors of identity that "ill Mustify the application of the doctrine of piercing the corporate veil! to "itD @1. 8toc7 o"nership by one or common o"nership of both corporations. ,. :dentity of directors and officers. 2. The manner of 7eeping corporate boo7s and records. . %ethods of conducting the business.A The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follo"sD 1. Control, not mere majority or complete stock control, b t complete !omination, not only o" "inances b t o" policy an! b siness practice in respect to t#e transaction attacke! so t#at t#e corporate entity as to t#is transaction #a! at t#e time no separate min!, $ill or e%istence o" its o$n&

'. S c# control m st #a(e been se! by t#e !e"en!ant to commit "ra ! or $rong, to perpet ate t#e (iolation o" a stat tory or ot#er positi(e legal ! ty, or !is#onest an! nj st act in contra(ention o" plainti"")s legal rig#ts& an! *. +#e a"oresai! control an! breac# o" ! ty m st pro%imately ca se t#e inj ry or nj st loss complaine! o". +#e absence o" any one o" t#ese elements pre(ents ,piercing t#e corporate (eil. , in applying t#e ,instr mentality) or ,alter ego) !octrine, t#e co rts are concerne! $it# reality an! not "orm, $it# #o$ t#e corporation operate! an! t#e in!i(i! al !e"en!ant)s relations#ip to t#at operation.

V+ll# R(y T1#,&+% -&. F(11(1 >$# 4=,28/2! ,/ *ctober 1/-8?En &anc! Angeles +C1D - concur! , too7 no part! 1 on leave Facts: >preceding case? Prior to 1/0/! Cose %. Eillarama "as an operator of a bus transportation! under thebusiness name of Eilla #ey Transit! pursuant to certificates of public convenience granted him by the Public8ervice )ommission +P8)1 in )ases ,12 and 10 -01! "hich authori<ed him to operate a total of 2, units onvarious routes or lines from Pangasinan to %anila! and vice=versa. *n 8 Canuary 1/0/! he sold the t"ocertificates of public convenience to the Pangasinan Transportation )ompany! :nc. +Pantranco1! for P200!000.00 "ith the condition! among others! that the seller +Eillarama1 Lshall not for a period of 10 yearsfrom the date of this sale! apply for any TPB service identical or competing "ith the buyer.L &arely 2 monthsthereafter! or on - %arch 1/0/D a corporation called Eilla #ey Transit! :nc. +the )orporation1 "as organi<ed"ith a capital stoc7 of P000!000.00 divided into 0!000 shares of the par value of P100.00 eachQ P,00!000.00"as the subscribed stoc7Q Natividad #. Eillarama +"ife of Cose %. Eillarama1 "as one of the incorporators!and she subscribed for P1!000.00Q the balance of P1//!000.00 "as subscribed by the brother and sister=in=la"of Cose %. EillaramaQ of the subscribed capital stoc7! P100!000.00 "as paid to the treasurer of thecorporation! "ho "as Natividad #. Eillarama. :n less than a month after its registration "ith the 8ecurities andE9change )ommission +10 %arch 1/0/1! the )orporation! on . April 1/0/! bought 0 certificates of publicconvenience! / buses! tools and e(uipment from one Ealentin 3ernando! for the sum of P, /!000.00! of "hich P100!000.00 "as paid upon the signing of the contractQ P00!000.00 "as payable upon the final approvalof the sale by the P8)Q P /!000.00 one year after the final approval of the saleQ and the balance of P00!000.00Lshall be paid by the &BTE# to the different suppliers of the 8E44E#.L The very same day that the contractof sale "as e9ecuted! the parties thereto immediately applied "ith the P8) for its approval! "ith a prayer for the issuance of a provisional authority in favor of the vendee )orporation to operate the service thereininvolved. *n 1/ %ay 1/0/! the P8) granted the provisional permit prayed for! upon the condition that Lit maybe modified or revo7ed by the )ommission at any time! shall be subMect to "hatever action that may be ta7enon the basic application and shall be valid only during the pendency of said application.L &efore the P8)could ta7e final action on said application for approval of sale! ho"ever! the 8heriff of %anila! on . Culy1/0/! levied on , of the five certificates of public convenience involved therein! namely! those issued under P8) cases 0/ / and -2.80! pursuant to a "rit of e9ecution issued by the )ourt of 3irst :nstance of Pangasinan in )ivil )ase 12./8! in favor of Eusebio E. 3errer against Ealentin 3ernando. The 8heriff madeand entered the levy in the records of the P8). *n 1- Culy 1/0/! a public sale "as conducted by the 8heriff of the said t"o certificates of public convenience. 3errer "as the highest bidder! and a certificate of sale "asissued in his name. Thereafter! 3errer sold the t"o certificates of public convenience to Pantranco! and Mointlysubmitted for approval their corresponding contract of sale to the P8). Pantranco therein prayed that it beauthori<ed provisionally to operate the service involved in the said t"o certificates. The applications for approval of sale! filed before the P8)! by 3ernando and the )orporation! )ase 1, 00.! and that of 3errer andPantranco! )ase 1,-,.8! "ere scheduled for a Moint hearing. :n the meantime! to "it!

on ,, Culy 1/0/! theP8) issued an order disposing that during the pendency of the cases and before a final resolution on theaforesaid applications! the Pantranco shall be the one to operate provisionally the service under the t"ocertificates embraced in the contract bet"een 3errer and Pantranco. The )orporation too7 issue "ith thisparticular ruling of the P8) and elevated the matter to the 8upreme )ourt! "hich decreed! after deliberation!that until the issue on the o"nership of the disputed certificates shall have been finally settled by the proper court! the )orporation should be the one to operate the lines provisionally.>present case? *n November 1/0/! the )orporation filed in the )ourt of 3irst :nstance of %anila! acomplaint for the annulment of the sheriffIs sale of the aforesaid t"o certificates of public convenience +P8))ases 0/ / and -2.801 in favor of 3errer! and the subse(uent sale thereof by the latter to Pantranco! against3errer! Pantranco and the P8). The )orporation prayed therein that all the orders of the P8) relative to thepartiesI dispute over the said certificates be annulled. The )3: of %anila declared the sheriffIs sale of t"ocertificates of public convenience in favor of 3errer and the subse(uent sale thereof by the latter to Pantranconull and voidQ declared the )orporation to be the la"ful o"ner of the said certificates of public convenienceQand ordered 3errer and Pantranco! Mointly and severally! to pay the )orporation! the sum of P0!000.00 as andfor attorneyIs fees. The case against the P8) "as dismissed. All parties appealed.

Issue: 5hether the stipulation! L8RA44 N*T 3*# A PE#:*D *3 10 TEA#8 3#*% TRE DATE *3 TR:88A4E! APP4T 3*# ANT TPB 8E#E:)E :DENT:)A4 *# )*%PET:N$ 5:TR TRE &BTE#L in thecontract bet"een Eillarama and Pantranco! binds the )orporation +the Eilla #ey Transit! :nc.1. Held: Eillarama supplied the organi<ation e9penses and the assets of the )orporation! such as truc7s ande(uipmentQ there "as no actual payment by the original subscribers of the amounts of P/0!000.00 andP100!000.00 as appearing in the boo7sQ Eillarama made use of the money of the )orporation and depositedthem to his private accountsQ and the )orporation paid his personal accounts. Eillarama himself admitted thathe mingled the corporate funds "ith his o"n money. These circumstances are strong persuasive evidencesho"ing that Eillarama has been too much involved in the affairs of the )orporation to altogether negative theclaim that he "as only a part=time general manager. They sho" beyond doubt that the )orporation is his alter ego. The interference of Eillarama in the comple9 affairs of the corporation! and particularly its finances! aremuch too inconsistent "ith the ends and purposes of the )orporation la"! "hich! precisely! see7s to separatepersonal responsibilities from corporate underta7ings. :t is the very essence of incorporation that the acts andconduct of the corporation be carried out in its o"n corporate name because it has its o"n personality. Thedoctrine that a corporation is a legal entity distinct and separate from the members and stoc7holders "hocompose it is recogni<ed and respected in all cases "hich are "ithin reason and the la". 5hen the fiction isurged as a means of perpetrating a fraud or an illegal act or as a vehicle for the

evasion of an e9istingobligation! the circumvention of statutes! the achievement or perfection of a monopoly or generally theperpetration of 7navery or crime! the veil "ith "hich the la" covers and isolates the corporation from themembers or stoc7holders "ho compose it "ill be lifted to allo" for its consideration merely as an aggregationof individuals. Rence! the Eilla #ey Transit! :nc. is an alter ego of Cose %. Eillarama! and that the restrictiveclause in the contract entered into by the latter and Pantranco is also enforceable and binding against the said)orporation. 3or the rule is that a seller or promisor may not ma7e use of a corporate entity as a means of evading the obligation of his covenant. 5here the )orporation is substantially the alter ego of the covenantor to the restrictive agreement! it can be enMoined from competing "ith the covenantee

F1#,$+&$o /o%o1& Co19o1#%+o, -&. Cou1% o6 A99(#l& >$# 10081,! ,0 Cune 1///?8econd Division! Uuisumbing +C1D concur Facts: *n ,2 Canuary 1/80! 3rancisco %otors )orp. filed a complaint against 8pouses $regorio and 4ibrada%anuel to recover P2! 1,.0-! representing the balance of the Meep body purchased by the %anuels from3rancisco %otorsQ an additional sum of P,0! 0 .80 representing the unpaid balance on the cost of repair of the vehicleQ and P-!000.00 for cost of suit and attorneyIs fees. To the original balance on the price of Meepbody "ere added the costs of repair. :n their ans"er! the %anuel spouses interposed a counterclaim for unpaidlegal services by $regorio %anuel in the amount of P00!000 "hich "as not paid by the incorporators!directors and officers of 3rancisco %otors. The trial court decided the case on ,- Cune 1/80! in favor of 3rancisco %otors in regard to its claim for money! but also allo"ed the counter=claim of the %anuel spouses.&oth parties appealed. *n 10 April 1//1! the )ourt of Appeals sustained the trial courtIs decision. Rence! thepresent petition for revie" on certiorari. Issue: 5hether the 3rancisco %otors )orporation should be liable for the legal services of $regorio %anuelrendered in the intestate proceedings over &enita TrinidadFs estate +of the 3rancisco family1. Held: &asic in corporation la" is the principle that a corporation has a separate personality distinct from itsstoc7holders and from other corporations to "hich it may be connected. Ro"ever! under the doctrine of piercing the veil of corporate entity! the corporationIs separate Muridical personality may be disregarded! for e9ample! "hen the corporate identity is used to defeat public convenience! Mustify "rong! protect fraud! or defend crime. Also! "here the corporation is a mere alter ego or business conduit of a person! or "here thecorporation is so organi<ed and controlled and its affairs are so conducted as to ma7e it merely aninstrumentality! agency! conduit or adMunct of another corporation! then its distinct personality may beignored. :n these circumstances! the courts "ill treat the corporation as a mere aggrupation of persons and theliability "ill directly attach to them. The legal fiction of a separate corporate personality in those citedinstances! for reasons of public policy and in the interest of Mustice! "ill be Mustifiably set aside. Rerein!ho"ever! given the facts and circumstances of this case! the doctrine of piercing the corporate veil has norelevant application. The rationale behind piercing a corporationIs identity in a given case is to remove thebarrier bet"een the corporation from the persons comprising it to th"art the fraudulent and illegal schemes of those "ho use the corporate personality as a shield for underta7ing certain proscribed activities. :n the presentcase! instead of holding certain individuals or persons responsible for an alleged corporate act! the situationhas been reversed. :t is the 3rancisco %otors )orporation +3%)1 as a corporation "hich is being ordered toans"er for the personal liability of certain individual directors! officers and incorporators concerned. Rence!the doctrine has been turned upside do"n because of its erroneous invocation. :n fact! the services of $regorio%anuel "ere solicited as counsel for members of the 3rancisco family to represent them in the intestateproceedings over &enita TrinidadIs estate. These estate proceedings did not involve any business of 3%).%anuelIs move to recover unpaid legal fees through a counterclaim against 3%)! to offset the unpaid balanceof the purchase and

repair of a Meep body could only result from an obvious misapprehension that 3%)Iscorporate assets could be used to ans"er for the liabilities of its individual directors! officers! andincorporators. 8uch result if permitted could easily preMudice the corporation! its o"n creditors! and even other stoc7holdersQ hence! clearly ine(uitous to 3%). 3urthermore! considering the nature of the legal servicesinvolved! "hatever obligation said incorporators! directors and officers of the corporation had incurred! it "asincurred in their personal capacity. 5hen directors and officers of a corporation are unable to compensate aparty for a personal obligation! it is far=fetched to allege that the corporation is perpetuating fraud or promoting inMustice! and be thereby held liable therefor by piercing its corporate veil. 5hile there are no hardand fast rules on disregarding separate corporate identity! "e must al"ays be mindful of its function andpurpose. A court should be careful in assessing the milieu "here the doctrine of piercing the corporate veilmay be applied. *ther"ise an inMustice! although unintended! may result from its erroneous application. Thepersonality of the corporation and those of its incorporators! directors and officers in their personal capacitiesought to be 7ept separate in this case. The claim for legal fees against the concerned individual incorporators!officers and directors could not be properly directed against the corporation "ithout violating basic principlesgoverning corporations. %oreover! every action V including a counterclaim V must be prosecuted or defended in the name of the real party in interest. :t is plainly an error to lay the claim for legal fees of privaterespondent $regorio %anuel at the door of 3%) rather than individual members of the 3rancisco family.

L+9#% -&. P#$+6+$ B#,<+,2 Co19o1#%+o, >$# 1 , 20! 20 April ,002?8econd Division! Uuisumbing +C1D 2 concur Facts: The spouses Alfredo 4ipat and Estelita &urgos 4ipat! o"ned L&elaIs E9port TradingL +&ET1! a singleproprietorship "ith principal office at No. 81 Aurora &oulevard! )ubao! Uue<on )ity. &ET "as engaged inthe manufacture of garments for domestic and foreign consumption. The 4ipats also o"ned the L%ystical3ashionsL in the Bnited 8tates! "hich sells goods imported from the Philippines through &ET. %rs. 4ipatdesignated her daughter! Teresita &. 4ipat! to manage &ET in the Philippines "hile she "as managingL%ystical 3ashionsL in the Bnited 8tates. :n order to facilitate the convenient operation of &ET! Estelita 4ipate9ecuted on 1 December 1/.8! a special po"er of attorney appointing Teresita 4ipat as her attorney=in=factto obtain loans and other credit accommodations from Pacific &an7ing )orporation +Pacific &an71. 8heli7e"ise authori<ed Teresita to e9ecute mortgage contracts on properties o"ned or co=o"ned by her assecurity for the obligations to be e9tended by Pacific &an7 including any e9tension or rene"al thereof.8ometime in April 1/./! Teresita! by virtue of the special po"er of attorney! "as able to secure for and inbehalf of her mother! %rs. 4ipat and &ET! a loan from Pacific &an7 amounting to P082!80 .00 to buy fabricsto be manufactured by &ET and e9ported to L%ystical 3ashionsL in the Bnited 8tates. As security therefor! the4ipat spouses! as represented by Teresita! e9ecuted a #eal Estate %ortgage over their property located at No.81 Aurora &lvd.! )ubao! Uue<on )ity. 8aid property "as li7e"ise made to secure other additional or ne"loans! etc. *n 0 8eptember 1/./! &ET "as incorporated into a family corporation named &elaIs E9port)orporation +&E)1 in order to facilitate the management of the business. &E) "as engaged in the business of manufacturing and e9portation of all 7inds of garments of "hatever 7ind and description and utili<ed the samemachineries and e(uipment previously used by &ET. :ts incorporators and directors included the 4ipatspouses "ho o"ned a combined 200 shares out of the ,0 shares subscribed! Teresita 4ipat "ho o"ned ,0shares! and other close relatives and friends of the 4ipats. Estelita 4ipat "as named president of &E)! "hileTeresita became the vice= president and general manager. Eventually! the loan "as later restructured in thename of &E) and subse(uent loans "ere obtained by &E) "ith the corresponding promissory notes dulye9ecuted by Teresita on behalf of the corporation. A letter of credit "as also opened by Pacific &an7 in favor of A. *. Jnitting %anufacturing )o.! :nc.! upon the re(uest of &E) after &E) e9ecuted the correspondingtrust receipt therefor. E9port bills "ere also e9ecuted in favor of Pacific &an7 for additional finances. Thesetransactions "ere all secured by the real estate mortgage over the 4ipatsI property. The promissory notes!e9port bills! and trust receipt eventually became due and demandable. Bnfortunately! &E) defaulted in itspayments. After receipt of Pacific &an7Is demand letters! Estelita 4ipat "ent to the office of the ban7Isli(uidator and as7ed for additional time to enable her to personally settle &E)Is obligations. The ban7 accededto her re(uest but Estelita failed to fulfill her promise. )onse(uently! the real estate mortgage "as foreclosedand after compliance "ith the re(uirements of the la" the mortgaged property "as sold at public auction. *n21 Canuary 1/8/! a certificate of sale "as issued to respondent Eugenio D. Trinidad as the highest bidder. *n,8 November 1/8/! the spouses 4ipat filed before the Uue<on )ity #T) a complaint for annulment of the realestate

mortgage! e9traMudicial foreclosure and the certificate of sale issued over the property against Pacific&an7 and Eugenio D. Trinidad. The complaint alleged! among others! that the promissory notes! trust receipt!and e9port bills "ere all ultra vires acts of Teresita as they "ere e9ecuted "ithout the re(uisite boardresolution of the &oard of Directors of &E). The 4ipats also averred that assuming said acts "ere valid andbinding on &E)! the same "ere the corporationIs sole obligation! it having a personality distinct and separatefrom spouses 4ipat. :t "as li7e"ise pointed out that TeresitaIs authority to secure a loan from Pacific &an7 "as specifically limited to %rs. 4ipatIs sole use and benefit and that the real estate mortgage "as e9ecuted tosecure the 4ipatsI and &ETIs P082!80 .00 loan only. :n their respective ans"ers! Pacific &an7 and Trinidadalleged in common that petitioners 4ipat cannot evade payments of the value of the promissory notes! trustreceipt! and e9port bills "ith their property because they and the &E) are one and the same! the latter being afamily corporation. Trinidad further claimed that he "as a buyer in good faith and for value and that the 4ipatspouses are estopped from denying &E)Is e9istence after holding themselves out as a corporation. After trialon the merits! the #T) dismissed the complaint. The 4ipats timely appealed the #T) decision to the )ourt of Appeals in )A=$.#. )E 102-. 8aid appeal! ho"ever! "as dismissed by the appellate court for lac7 of merit.The 4ipats then moved for reconsideration! but this "as denied by the appellate court in its #esolution of ,23ebruary ,000. The 4ipat spouses filed the petition for revie" on certiorari. Issue: 5hether &E) and &ET are separate business entities! and thus the 4ipt spouses can isolate themselvesbehind the corporate personality of &E). Held: 5hen the corporation is the mere alter ego or business conduit of a person! the separate personality of the corporation may be disregarded. This is commonly referred to as the Linstrumentality ruleL or the alter ego doctrine! "hich the courts have applied in disregarding the separate Muridical personality of corporations. Asheld in one case! "here one corporation is so organi<ed and controlled and its affairs are conducted so that itis! in fact! a mere instrumentality or adMunct of the other! the fiction of the corporate entity of theIinstrumentalityI may be disregarded. The control necessary to invo7e the rule is not maMority or even completestoc7 control but such domination of finances! policies and practices that the controlled corporation has! so tospea7! no separate mind! "ill or e9istence of its o"n! and is but a conduit for its principal. The evidence onrecord sho"s &ET and &E) are not separate business entities. +11 Estelita and Alfredo 4ipat are the o"nersand maMority shareholders of &ET and &E)! respectivelyQ +,1 both firms "ere managed by their daughter!TeresitaQ 1/ +21 both firms "ere engaged in the garment business! supplying products to L%ystical 3ashion!L aB.8. firm established by Estelita 4ipatQ + 1 both firms held office in the same building o"ned by the 4ipatsQ+01 &E) is a family corporation "ith the 4ipats as its maMority stoc7holdersQ +-1 the business operations of the&E) "ere so merged "ith those of %rs. 4ipat such that they "ere practically indistinguishableQ +.1 thecorporate funds "ere held by Estelita 4ipat and the corporation itself had no visible assetsQ +81 the board of directors of &E) "as composed of the &urgos and 4ipat family membersQ +/1 Estelita had full control over theactivities of and decided business matters of the corporationQ and that +101 Estelita 4ipat had benefited fromthe loans secured from Pacific &an7 to finance her business

abroad and from the e9port bills secured by &E)for the account of L%ystical 3ashion.L :t could not have been coincidental that &ET and &E) are sointert"ined "ith each other in terms of o"nership! business purpose! and management. Apparently! &ET and&E) are one and the same and the latter is a conduit of and merely succeeded the former. The spousesIattempt to isolate themselves from and hide behind the corporate personality of &E) so as to evade their liabilities to Pacific &an7 is precisely "hat the classical doctrine of piercing the veil of corporate entity see7sto prevent and remedy. &E) is a mere continuation and successor of &ET! and the 4ipat spouses cannot evadetheir obligations in the mortgage contract secured under the name of &E) on the prete9t that it "as signed for the benefit and under the name of &ET.

T+.(& T1#,&9o1%#%+o, Co.9#,y I,$ -&. So%(lo GR 1=>? =@ F(51u#1y 1=, !00A F#$%&' The petitioner +Times1 herein is a corporation engaged in the business of land transportation. Prior to its closure on 1//.! Times Employees Bnion +TEB1 "as formed and issued a certificate of union registration. The company filed a petition for the cancellation of its union registration. :n response to Times6 alleged attempt to form a rival union and its dismissal of the employees identified to be active union members! TEB held a stri7e. Bpon the assumption of Murisdiction of the 4abor Arbiter over the case! the matter "as referred to the N4#) for compulsory arbitration and a return to "or7 order "as li7e"ise issued. Culy 1//.! TEB "as certified as the sole and e9clusive bargaining agent of Times. The TEB president "rote the management and re(uested for collective bargaining but the Times refused to do so in the ground that the decision of the %ed=Arbiter upholding the validity of the certification election "as not yet final and e9ecutory. TEB filed a Notice of 8tri7e on August 1//.. 5hile another conciliationNmediation proceeding "as conducted! Times management implemented a retrenchment program and notices of retrenchment "ere sent to some of its employees! including the respondents! informing them of their retrenchment effective 20 days thereafter. TEB held a stri7e on *ctober 1//. on the ground of unfair labor practice on the part of the management. 3or alleged participation in "hat it deemed "as an illegal stri7e! Times terminated all the 1,2 stri7ing employees. *n November 1//.! D*4E 8ecretary Uuisumbing issued the second return to "or7 order certifying the dispute to the N4#). 5hile the stri7e "as ended! the employees "ere no longer admitted bac7 to "or7. December 1//.! %encorp Transport 8ystems :nc +%encorp1 had ac(uired o"nership over Time6s )ertificate of Public )onvenience and a number of its bus units by virtue of several deeds of sale6. %encorp is controlled and operated by %rs. Eirginia %endo<a! daughter of 8antiago #ondaris! the maMority stoc7holder of Times. The N4#) rendered decision certified to it by the D*4E on %ay 1//8! declaring that the first stri7e legal but the second stri7e held "as illegal! ma7ing those ,2 persons "ho participated in the illegal stri7e to have lost their employment status and "ere therefore validly dismissed from employment. The )A affirmed to this decision. Times and TEB both appealed to the decision of the N4#). :n 1//8! and after the closure of Times! the retrenched employees! the respondents herein! filed cases for illegal dismissal! money claims and unfair labor practices against Times. Times filed a %otion to Dismiss but on *ctober 1//8! the arbitration branch order the archiving of the case.

The dismissed employees did not interpose an appealQ instead! they "ithdre" their complaints "ith leave of court and filed a ne" set of cases and impleaded %encorp and the 8pouses #eynaldo and Eirginia %endo<a. Canuary ,00,! the 4abor Arbiter rendered a decision finding that the dismissal of the employees! the respondents herein "ere illegal and the sale of the said respondent company to respondents %encorp Transport 8ystem )ompany "as simulated andNor effected in bad faith. The monetary a"ard amounted to 2! 2 .! 2 1.-/. *n %arch ,00 ! Times! %encorp and the 8pouses %endo<a submitted their respective memorandum of appeal to the N4#) "ith motions to reduce the bond! but denied by the court. The respondents appealed to the )ourt of Appeals! alleging that the N4#) committed grave abuse of discretion "hen the re(uired bond almost amounted to 10million. The )A ruled that the N4#) ruling be hereby set aside and reinstated the N4#) decision. Times filed a motion for reconsideration. I&&u(' 5hether or not the court erred on the decision held that the %encorp! the 8pouses %endo<a and #ondaris "ere liable for the fictitious sale of Times6 assets in their favorW H(l)' The petition lac7s merit. *n the propriety of the piercing the corporate evil! the court believes that Times and %encorp failed to adduce evidence to refute the allegations of collusions bet"een them. Also! piercing the corporate evil is "arranted only in case "hen the separate legal entity is used to defeat public convenience! Mustify "rong! protect fraud! or defend crime! such that in case of t"o corporations! the "ill regard the corporations as merged into one. :t may be allo"ed only if the follo"ing elements concurD = controlXnot a mere stoc7 control but complete domination! not only of finances but policy and business practice in respect to the transaction attac7ed = such control must have been used to commit fraud or a "rong to perpetuate the violation of statutory or other positive legal duty = the said control and breach of duty must have pro9imately caused the inMury or unMust loss complained of. The sale of Times6 franchise as "ell as most of its bus units to a company o"ned by #ondaris6 daughter and family members! right in the middle labor dispute! is highly suspicious. :t is evident that the transaction "as made in order to remove Times6 remaining assets from the reach of any Mudgment that may be rendered in the unfair labor practice cases filed against it.

/#1-(l Bu+l)+,2 Co19o1#%+o, (% #l -&. *#-+) GR L0A0 1@ F(51u#1y !B, 19AB 3actsD Plaintiffs! as stoc7holders of %arvel &uilding )orp +corp1 "ants to enMoin from selling at public auction properties in the complaint that included 2parcels of land! namely the Aguinaldo &uilding! 5ise &uilding! and De"ey &oulevard= Padre 3aura %ansion!all registered in the name of the corp.8aid properties "ere sei<ed to collect "ar profit ta9es against plaintiff %aria )astro. Plaintiffs allege that the 2properties belong to the )orp and not to %aria )astro "hile defendant claims that )astro is the true and e9clusive o"ner of the said properties. :n the Articles of :ncorporation +A:1 of the corp! the capital stoc7 "as at P,% but "hat "as only subscribed and paid "asP1.0,0% by 11 stoc7holders. %aria )astro "as the president of the corp. *f the 11 stoc7holders! it appears that )astro "as related to almost all of them +half brothers! half sisters! brother=in=la"! husband of %aria )astro1. The stoc7holders never held any business meetings! the by= la"s of the corp "ere never presented! and no reports of the affairs of the corporation has been made! either of its transactions or its accounts. 3rom the boo7s! advances "ere made by %aria )astro to the corp 2 times amounting to almost P 00J. I&&u(' :s %aria &. )astro the o"ner of all the shares of stoc7 of the %arvel &uilding )orporation and the other stoc7holders mere dummies of hersW H(l)' Tes. %aria )astro had endorsements in blan7 of the shares of stoc7 issued in the name of the other incorporators! and she has possession of them. 8he signed ,0 stoc7 certificates but only 11 "ere issued. The stoc7holders did not have that much income to pay the amounts corresponding to their shares. :t "as found that )astro profited a lot in her business. This sho"s that )astro furnished all the money that the )orp had. :t is also significant that the plaintiffs! the supposed subscribers! should have come to court to assert that they actually paid for their subscriptions and that they are not mere dummies. They never did. They could have rebutted the charges! but they 7ept slent.. 8toc7holders never met to discuss business matters. The boo7s of account "ere 7ept as if they belonged to )astro alone. )astro advanced a big amount of money for the corporation. All these sho" that )astro "as the sole and e9clusive o"ner of the shares and that the subscribers "ere her mere dummies.

Cl#9#1ol& -&. CIR GR L0>0 !!@ July >1, 19?A F#$%&D ):# ordered the petitioners )laparols et al to pay bac7 "ages and bonuses to private respondents for its unfair labor practices "hich "ere filed by Allied 5or7ers Association because of the dismissal from the )laparols 8teel and Nail Plant. ):# found %r. )laparols guilty of union busting and of having dismissed the complainants because of their union activities. #ecords sho" that the )laparols 8teel )orporation "as established on Culy 1! 1/0. succeeding the )laparols 8teel and Nail Plant "hich ceased operations on Cune 20!1/0. and that the )laparols 8teel )orp stopped operations on Dec. .! 1/-,. )orp cannot reinstate the "or7ers and that if they are entitled to bac7 "ages! only limited to 2 months based on 8ta )ecilia 8a"mills vs ):# and since )laparols stopped operations in 1/-,! reemployment cannot go beyond that date. I&&u(' 5hether or not the )laparols 8teel and Nail Plant "ere 8B))EEDED by the )laparols 8teel)orporationW H(l)' :t is very clear that the latter corporation "as a continuation and successor of the first entity! and its emergence "as s7illfully timed to avoid the financial liability that already attached to its predecessor! the )8NP. &oth predecessor and successor "ere o"ned and controlled by Eduardo )laparols and there "as no brea7 in the succession.AE*:D=TRE=4:A&:4:TT schemeD very patent. /0O of the subscribed shares of stoc7s of the , nd corp "as o"ned by the )laparols himself and A44 assets of the dissolved )laparols 8teel and Nail Plant "ere turned over to the emerging )8). Pierce the veil of corporation. AdMunt! business conduit or alter ego! fiction of separate and distinct corporate entities should be disregarded.

G.R. NO. 1>=BB NOVE/BER >, 1999 LI/ TONG LI/ vs.PHILIPPINE FISHING GEAR IN*USTRIES, INC FACTS' *n behalf of *cean Uuest 3ishing )orporation! Antonio )hua and Peter Tao entered into a contract for the purchase of fishing nets of various si<es from the Philippine 3ishing $ear :ndustries! :nc. They claimed that they engaged in a business venture "ith petitioner 4im Tong 4im "ho! ho"ever! "as not a signatory to the agreement. 3our hundred pieces of floats "ere also sold to the corporation. The buyers! ho"ever! failed to pay for the fishing nets and the floats. Rence! private respondent filed a collection suit against )hua! Tao! and 4im "ith a prayer for a "rit of preliminary attachment. The suit "as brought against the three in their capacities as general partners! on the allegation that *cean Uuest "as a non=e9istent corporation as sho"n from the certification from the 8E). The #T) issued a "rit of preliminary attachment "hich "as enforced by the sheriff by attaching the fishing nets on board 3N& 4ourdes "hich "as then doc7ed at the 3isheries Port. After trial! the court ruled that Philippine 3ishing $ear "as entitled to the "rit of attachment and that )hua! Tao and 4im! as general partners! "ere Mointly liable to pay respondent. *n appeal! the )ourt of Appeals affirmed. Rence! this petition. ISSUES' 1. D*E8 A PA#TNE#8R:P E;:8T &ET5EEN )RBA! TA* AND 4:%W ,. :8 TRE#E A )*#P*#AT:*N &T E8T*PPE4 :N TR:8 )A8EW 2. )AN 4:A&:4:TT )AN &E :%PBTED *N 4:% BNDE# TRE D*)T#:NE *3 )*#P*#AT:*N &T E8T*PPE4W HEL*' 1. TE8. 3rom the actual findings of both lo"er courts! it is clear that )hua! Tao and 4im had decided to engage in a fishing business! "hich they started by securing boats "orth P 2.20 million! financed by a loan secured from Cesus 4im "ho "as petitioner6s brother. :n their )ompromise Agreement! they subse(uently revealed their intention to pay the loan "ith the proceeds of the sale of the boats! and to divide e(ually among them the e9cess of loss. These boats! the purchase and the repair of "hich "ere financed "ith borro"ed money! fell under the term @common fundA under Article 1.-.. The contribution to such fund need no be case of fi9ed assetsQ it could be an intangible li7e credit or industry. That the parties agreed that any loss or profits from the sale and operation of the boats "ould be divided early among them also sho"s that they had indeed formed a partnership. ,. TE8. Even if the ostensible corporate entity is proven to be legally non=e9istent! a party may be estopped from denying its corporate e9istence. @The reason behind this doctrine is obvious Y an unincorporated association has no personality and "ould be incompetent to act and appropriate for itself the po"er and attributes of a corporation as

provided by la"Q it cannot create agents or confer authority on another to act in its behalfQ thus! those "ho act or purport to act as its representatives or agents do so "ithout authority and at their o"n ris7. And as it is an elementary principle of la" that a person "ho acts as an agent "ithout authority oar "ithout a principal is himself regarded as the principal! possessed of all the rights and subMect to all the liabilities of a principal! a person acting or purporting to act on behalf of a corporation "hich has no valid e9istence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent. 2. The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. An unincorporated association! "hich represented itself to be a corporation! "ill be estopped from denying its corporate capacity in a suit against it by a third person "ho relied in good faith on such representation. :t cannot allege lac7 of personality to be sued to evade its responsibility for a contact it entered into and by virtue of "hich it received advantages and benefits. A third party "ho! 7no"ing an association to be unincorporated nonetheless treated it as a corporation and received benefits from it! may be barred from denying its corporate e9istence in a suit brought against the alleged corporation. :n such case! all those "ho benefited from the transaction made the ostensible corporation! despite 7no"ledge of its legal defects! may be held liable for contracts they impliedly assented to or too7 advantage of. Bn(uestionably! petitioner benefited from the nets found in 3N& 4ourdes! the boat "hich has earlier been proven to be an asset of the partnership. Re in fact (uestions the attachment of the nets! because the 5rit has effectively stopped his use of the fishing vessel. Technically! it is true that petitioner did not directly act on behalf of the corporation. Ro"ever! having reaped the benefits of the contract entered into by person "ith "hom he previously had an e9isting relationship! he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel.

G.R. NO. 1190!0 19 OCTOBER !000 INTERNATIONAL ECPRESS TRAVEL D TOUR SERVICES, INC. VS. CA FACTS' Philippine 3ootball 3ederation got tic7ets from petitioner travel agency for the 8EA games and trips to )hina and &risbane. T"o partial payments "ere made. Petitioners "rote to Jahn +president of the federation1 demanding the completion of the payment. 3ederation! through ProMect $intong Alay paid the amount of P 21!000. Then Jahn issued a personal chec7 for P 00!000. After that! no further payments "ere made. Petitioner then sued Jahn in his personal capacity and as president of the federation for the unpaid balance for the purchased tic7ets as Jahn allegedly guaranteed the said obligation. Jahn maintained that he did not guarantee the payment but merely acted as an agent of the 3ederation "hich has a separate and distinct Muridical personality. #T) held that Jahn is personally liable because neither the travel agency nor Jahn adduce any evidence proving the corporate e9istence of the federation. &eing the president! its corporate e9istence is "ithin the 7no"ledge of Jahn and could have easily denied specifically the assertions of petitioner that it is a mere sports association. Eoluntary unincorporated associations have no po"er to enter into! or to ratify! a contract. The contract entered into by its officers or agents in behalf of the association is not binding or enforceable against it. Agents and officers personally liable. )A reversed. ISSUES' 1. 5*N TRE 3EDE#AT:*N A)UB:#ED CB#:D:)A4 PE#8*NA4:TT :N TRE )A8E AT &A#. ,. 5*N JARN 8R*B4D &E %ADE PE#8*NA44T 4:A&4E 3*# TRE BNPA:D *&4:$AT:*N8 *3 TRE PR:4:PP:NE 3**T&A44 3EDE#AT:*N. 2. 5*N TRE D*)T#:NE *3 )*#P*#AT:*N &T E8T*PPE48 5A8 )*##E)T4T APP4:ED :N TRE )A8E AT &A#. RULING' 1. :n ruling in the negative! the 8upreme )ourt held that both #A 2120 +the #evised )harter of the Philippine Amateur Athletic 3ederation1 and PD -0 recogni<ed the Muridical e9istence of national sports associations. This may be gleaned from the po"ers and functions granted to these associations +8ee 8ection 1 of #A 2120 and 8ection 8 of PD -0 1. The po"ers and functions granted to national sports associations indicate that these entities may ac(uire a Muridical personality. The po"er to purchase! sell! lease and encumber property are acts "hich may only be done by persons! "hether natural or artificial! "ith Muridical capacity. Ro"ever! "hile national sports associations may be accorded corporate status! such does not automatically ta7e place by the mere passage of these la"s. :t is a basic postulate that before a corporation may ac(uire Muridical personality! the 8tate must give its consent either in the form of a special la" or a general enabling act. The Philippine 3ootball 3ederation did not come into e9istence upon the

passage of these la"s. No"here can it be found in #A 2120 or PD -0 any provision creating the Philippine 3ootball 3ederation. These la"s merely recogni<ed the e9istence of national sports associations and provided the manner by "hich these entities may ac(uire Muridical personality. 8ection 11 of #A 2120 and 8ection 8 of PD -0 re(uire that before an entity may be considered as a national sports association! such entity must be recogni<ed by the accrediting organi<ation! the Philippine! Amateur Athletic 3ederation under #A 2120! and the Department of Touth and 8ports Development under PD -0 . This fact of recognition! ho"ever! Renri Jahn failed to substantiate. A copy of the constitution and by=la"s of the Philippine 3ootball 3ederation does not prove that said 3ederation has indeed been recogni<ed and accredited by either the Philippine Amateur Athletic 3ederation or the Department of Touth and 8ports Development. Accordingly! the Philippine 3ootball 3ederation is not a national sports association "ithin the purvie" of the aforementioned la"s and does not have corporate e9istence of its o"n. ,. Anent the second issue! the )ourt ruled in the negative! holding that Renry Jahn should be held liable for the unpaid obligations of the unincorporated Philippine 3ootball 3ederation. :t is a settled principal in corporation la" that any person acting or purporting to act on behalf of a corporation "hich has no valid e9istence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. As president of the 3ederation! Renri Jahn is presumed to have 7no"n about the corporate e9istence or non=e9istence of the 3ederation. 2. As to the final issue! the )ourt ruled in the negative! holding that it cannot subscribe to the position ta7en by the appellate court that even assuming that the 3ederation "as defectively incorporated! :ETT8: cannot deny the corporate e9istence of the 3ederation because it had contracted and dealt "ith the 3ederation in such a manner as to recogni<e and in effect admit its e9istence. The doctrine of corporation by estoppel is mista7enly applied by the appellate court to :ETT8:. The application of the doctrine applies to a third party only "hen he tries to escape liabilities on a contract from "hich he has benefited on the irrelevant ground of defective incorporation. Rerein! :ETT8: is not trying to escape liability from the contract but rather is the one claiming from the contract.

G.R. NO. 1B199B JANUARY 1?, !00A FILIPINAS BROA*CASTING NETEORF, INC. vs. AGO /E*ICAL AN* E*UCATIONAL CENTER0BICOL CHRISTIAN COLLEGE OF /E*ICINE, (A/EC0BCC/" #,) ANGELITA F. AGO FACTS' E9poseA is a radio documentary program hosted by )armelo #ima and Rermogenes Alegre. The documentary is aired over DK#)=A% "hich is o"ned by the 3ilipino &roadcasting Net"or7! :nc. :n the morning of 1 and 10 December 1/8/! #ima and Alegre e9posed various alleged complaints from students! teachers and parents against Ago=%edical and Educational )enter=&icol )hrsitian )ollege of %edicine and its administrators. )laiming that the broadcasts "ere defamatory! A%E) and Angelito Ago! as Dean of A%E)6s )ollege of %edicine! filed a complaint for damages against 3&N:! #ima and Alegre. 3&N: filed a separate Ans"er claiming that it e9ercised due diligence in the selection and supervision of #ima and Alegre. an apprenticeship and training program after passing the intervie". The trial court rendered a decision finding 3&N: and Alegre liable for libel e9cept #ima. The )ourt of Appeals affirmed the trial courts Mudgment "ith modification. The appellate court made #ima solidarily liable "ith 3&N: and Alegre. ISSUES' 1. 5RETRE# TRE &#*AD)A8T8 A#E 4:&E4*B8Q ,. 5RETRE# A%E) :8 ENT:T4ED T* %*#A4 DA%A$E8Q 2. 5RETRE# 3&N: :8 8*4:DA#:4T 4:A&4E 5:TR #:%A AND A4E$#E 3*# PAT%ENT *3 %*#A4 DA%A$E8! ATT*#NET68 3EE8 AND )*8T8 *3 8B:T. HEL*' 1. TE8. Every defamatory imputation is presumed malicious. 3&N: contends that the broadcasts are not malicious. 3&N: claims that #ima and Alegre "ere plainly impelled by their civic duty to air the students6 gripes. 3&N: alleges that there is no evidence that ill "ill or spite motivated #ima and Alegre in ma7ing the broadcasts.#ima and Alegre failed to sho" ade(uately their good intention and Mustifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program! #ima and Alegre should have presented the public issues Lfree from inacc rate and misleading information.L Rearing the students6 alleged complaints a month before the e9posZ! they had sufficient time to verify their sources and information. ,. TE8. A Muridical person is generally not entitled to moral damages because! unli7e a natural person! it cannot e9perience physical suffering or such sentiments as "ounded feelings! serious an9iety! mental anguish or moral shoc7. The )ourt of Appeals cites %ambulao 4umber )o. v. PN&! et al. to Mustify the a"ard of moral damages. Ro"ever! the )ourt6s statement in %ambulao that @a corporation may have a good reputation "hich! if besmirched! may also be a ground for the a"ard of moral damagesA is an obiter

dictum. Nevertheless! A%E)6s claim for moral damages falls under item . of Article ,,1/ of the )ivil )ode. This provision e9pressly authori<es the recovery of moral damages in cases of libel! slander or any other form of defamation. Article ,,1/+.1 does not (ualify "hether the plaintiff is a natural or Muridical person. Therefore! a Muridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. %oreover! "here the broadcast is libelous per se! the la" implies damages. :n such a case! evidence of an honest mista7e or the "ant of character or reputation of the party libeled goes only in mitigation of damages. Neither in such a case is the plaintiff re(uired to introduce evidence of actual damages as a condition precedent to the recovery of some damages. :n this case! the broadcasts are libelous per se. Thus! A%E) is entitled to moral damages. Ro"ever! the )ourt found the a"ard of P200!000 moral damages unreasonable. The record sho"s that even though the broadcasts "ere libelous per se! A%E) has not suffered any substantial or material damage to its reputation. Therefore! the )ourt reduced the a"ard of moral damages from P200!000 to P100!000. 2. TE8. The contention of 3&N: that it is not solidarily liable "ith #ima and Alegre for the payment of damages and attorney6s fees because it e9ercised due diligence in the selection and supervision of its employees! particularly #ima and Alegre! is untenable. The basis of the present action is a tort. Coint tort feasors are Mointly and severally liable for the tort "hich they commit. Coint tort feasors are all the persons "ho command! instigate! promote! encourage! advise! countenance! cooperate in! aid or abet the commission of a tort! or "ho approve of it after it is done! if done for their benefit. Thus! as operator of DK#)=A% and employer of #ima and Alegre! 3&N: is solidarily liable to pay for damages arising from the libelous broadcasts. As stated by the )ourt of Appeals! Lrecovery for defamatory statements published by radio or television may be had from the o7,(1 o6 %4( &%#%+o,! a licensee! %4( o9(1#%o1 o6 %4( &%#%+o,! or a person "ho procures! or participates in! the ma7ing of the defamatory statements.L An employer and employee are solidarily liable for a defamatory statement by the employee "ithin the course and scope of his or her employment! at least "hen the employer authori<es or ratifies the defamation. :n this case! #ima and Alegre "ere clearly performing their official duties as hosts of 3&N:6s radio program E9posZ "hen they aired the broadcasts. 3&N: neither alleged nor proved that #ima and Alegre "ent beyond the scope of their "or7 at that time. There "as li7e"ise no sho"ing that 3&N: did not authori<e and ratify the defamatory broadcasts.

G.R. NO. 11 =9! JULY ! , !00= COASTAL PACIFIC TRA*ING -&. SOUTHERN ROLLING /ILLS, INC. FACTS' 8outhern #olling %ills "as renamed into Eisayan :ntegrated 8teel )orp +E:8)*1. *n Dec. 11! 1/-1=E:8)* obtained a loan from D&P amounting to P82-!000. :t "as secured by a #eal Estate %ortgage covering E:8)*Is 2 parcels of land including the machinery and e(uipments therein. 8econd 4oanD E:8)* entered a 4oan Agreement "ith respondent ban7s + referred as L)onsortiumL1 to finance its importation for various ra" materials. E:8)* e9ecuted a second mortgage over the previous properties mentioned! ho"ever they "ere unrecorded E:8)* "as unable to pay its second mortgage "ith the consortium! "hich resulted in the latter ac(uiring /0O of the e(uity of E:8)* giving the )onsortium the control and management of E:8)*. Despite the ac(uisition! E:8)* still remained indebted to the )onsortium. Transaction to )oastalD &et"een 1/- to 1/-0! E:8)* entered a processing agreement "ith )oastal "herein )oastal delivered 2!000 metric tons of hot rolled steel coils "hich E:8)* "ould process into bloc7 iron sheets. Ro"ever! E:8)* "as only able to return 1!-00 metric tons of those sheets. *n the loan to D&PD To pay its first mortgage "ith D&P! E:8)* sold , of its generators to 3:4%A$ Phils! :nc. D&P e9ecuted a Deed of Assignment of the mortgage in favor of the consortium. The )onsortium foreclosed the mortgage and "as the highest bidder in an auction sale of E:8)*Is properties. The )onsortium later sold the properties in favor of National 8teel )orporation. )oastal files a civil action for Annulment or #escission of 8ale! Damages "ith Preliminary :nMunction. )oastal imputes bad faith on the action of the )onsortium! the latter being able to sell the properties of E:8)* despite the attachment of the properties! placing them beyond the reach of E:8)*Is other creditors. The lo"er court ruled in favor of E:8)*! declaring the sale valid and legal. The )A affirmed this. ISSUES' 1. 5*N TRE )*N8*#T:B% D:8P*8ED E:8)*I8 A88ET8 :N 3#ABD *3 )#ED:T*#8. ,. 5*N PET:T:*NE# :8 ENT:T4ED T* %*#A4 DA%A$E. HEL*' 1. TE8. 5hat the consortium did "as to pay to them the proceeds from the sale of the generator sets "hich in turn they used to pay D&P. Due to the Deed of Assignment issued by D&P! the respondent ban7s recovered "hat they remitted to D&P [ it allo"ed the

)onsortium to ac(uire D&PIs primary lien on the mortgaged properties. Allo"ing them as unsecured creditors +as the mortgage "as unrecorded1 to foreclose on the assets of the corporation "ithout regard to inferior claims. ,. No. As a rule! a corporation is not entitled to moral damages because! not being a natural person! it cannot e9perience physical suffering or sentiments li7e "ounded feelings! serious an9iety! mental anguish and moral shoc7. The only e9ception to this rule is "hen the corporation has a good reputation that is debased! resulting in its humiliation in the business realm. :n the present case! the records do not sho" any evidence that the name or reputation of petitioner has been sullied as a result of the )onsortiumIs fraudulent acts. Accordingly! moral damages are not "arranted. Ro"ever! on the basis the finding of fraud! the a"ard of e9emplary damages is in order! to serve as a "arning to other creditors not to abuse their rights. Bnder Article ,,,/ of the )ivil )ode! e9emplary or corrective damages are imposed by "ay of e9ample or correction for the public good. &y their nature! e9emplary damages should be imposed in an amount sufficient and effective to deter possible future similar acts by respondent ban7s. The court finds the amount of P,00!000 sufficient in the instant case.