PIERCING OF CORPORATE FICTION

A.C. RANSOM LABOR UNION-CCLU, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION,
First Division A.C. RANSOM (PHIIS.) CORPORATION RUBEN HERNANDEZ, MAXIMO C.
HERNANDEZ, SR., PORFIRIO R. VALENCIA, LAURA H. CORNEJO, FRANCISCO HERNANDEZ,
CELESTINO C. HERNANDEZ and MA. ROSARIO HERNANDEZ, respondents. G.R. No. L-69494 May
29, 1987

The backwages due the 22 employees having been computed at P 199,276.00

by the (CIR) Examiner, successive Motions for Execution were filed by the UNION.
On January 21, 1974, the UNION filed another Motion for Execution alleging that
although RANSOM had assumed a posture of suffering from business reverse, its
officers and principal stockholders had organized a new corporation, the Rosario
Industrial Corporation (thereinafter called ROSARIO), using the same equipment,
personnel, business stocks and the same place of business.
For its part, RANSOM declared that ROSARIO is a distinct and separate
corporation, which was organized long before these instant cases were decided
adversely against RANSOM.
It appears that sometime in 1969, ROSARIO, a closed corporation, was, in fact,
established. It was engaged in the same line of business as RANSOM with the
same Hernandez family as the owners, the same officers, the same President,
the same counsel and the same address. The compound, building, plant,
equipment, machinery, laboratory and bodega were the same as those occupied
and used by RANSOM. The UNION claims that ROSARIO thrives to this day.
Writs of execution were issued successively against RANSOM on June 23, 1976,
and February 17, 1977, to no avail.
The UNION again filed an ex-parte Motion for Writ of Execution and Garnishment
praying that the Writ issue against the Officers/Agents of RANSOM personally
and or their estates, as the case may be, considering their success in hiding or
shielding the assets of said company. RANSOM countered that the CIR Decision,
dated August 19, 1972, could no longer be enforced by mere Motion because
more than five (5) years had already lapsed.
Acting on the Motion, Labor Arbiter issued an Order held the respondent
corporation's officers and agents liable.
The NLRC, on appeal, modified the Decision by relieving the officers and agents
of liability.
Reconsideration sought by the UNION from the NLRC was denied, hence this
special civil action of Certiorari.

SC RULING:
This Court promulgated its Decision, the dispositive portion of which decrees:
Decision of the National Labor Relations Commission is SET ASIDE, and the Order of
the Labor Arbiter is reinstated with the modification that personal liability shall be
limited to Ruben Hernandez, who was President of RANSOM in 1974, jointly and
severally with other Presidents of the same corporation who had been elected as
such after 1972 or up to the time the corporate life was terminated.
The UNION on the other hand, in its own Motion for Reconsideration, prays that the
veil of corporate fiction be pierced and that the Decision be modified, in that all the

individual private respondents and not only the President, should be held jointly and
severally liable with RANSOM.
The foregoing, however, limits the scope of liability and deviates from the CIR
Decision, affirmed by this Court in 1973, holding the officers and agents of RANSOM
liable. In other words, the officers and agents listed in the Genilo Order except for
those who have since passed away, should, as affirmed by this Court, be held jointly
and severally liable for the payment of backwages to the 22 strikers.
This finding does not ignore the legal fiction that a corporation has a
personality separate and distinct from its stockholders and members, for,
as this Court had held "where the incorporators and directors belong to a
single family, the corporation and its members can be considered as one in
order to avoid its being used as an instrument to commit injustice," or to
further an end subversive of justice. In the case of Claparols vs. CIR 12
involving almost similar facts as in this case, it was also held that the shield of
corporate fiction should be pierced when it is deliberately and maliciously
designed to evade financial obligations to employees.
When the notion of legal entity is used as a means to perpetrate fraud or
an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, and or confuse legitimate issues the veil which
protects the corporation will be lifted.
The alleged bankruptcy of RANSOM furnishes no justification for non-payment of
backwages to the employees concerned taking into consideration Article 110 of the
Labor Code, which provides:
ART. 110. Worker preference in case of bankruptcy. - In the event of bankruptcy or
liquidation of an employer's business, his workers shall enjoy first preference as
regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the contrary notwithstanding.
Unpaid wages shag be paid in full before other creditors may establish any claim to
a share in the assets of the employer.
The worker preference applies even if the employer's properties are encumbered by
means of a mortgage contract, as in this case. So that, when machinery and
equipment of RANSOM were sold to Revelations Manufacturing Corporation for P 2M
in 1975, the right of the 22 laborers to be paid from the proceeds should have been
recognized, even though it is claimed that those proceeds were turned over to the
Commercial Bank and Trust Company (Comtrust) in payment of RANSOM
obligations, since the workers' preference is over and above the claim of other
creditors.
The contention, therefore, of the heirs of the late Maximo C. Hernandez,
Sr. that since they paid from their own personal funds the balance of the
amount owing by RANSOM to Comtrust they are the "preferential
creditors" of RANSOM, is clearly without merit. Workers are to be paid in
full before other creditors may establish any claim to a share in the assets
of the employer.

Aggravating RANSOM's clear evasion of payment of its financial obligations is the

organization of a "run-away corporation," ROSARIO, in 1969 at the time the unfair
labor practice case was pending before the CIR by the same persons who were the
officers and stockholders of RANSOM, engaged in the same line of business as
RANSOM, producing the same line of products, occupying the same compound,
using the same machineries, buildings, laboratory, bodega and sales and accounts
departments used by RANSOM, and which is still in existence. Both corporations
were closed corporations owned and managed by members of the same family. Its
organization proved to be a convenient instrument to avoid payment of
backwages and the reinstatement of the 22 workers. This is another
instance where the fiction of separate and distinct corporate entities
should be disregarded.
It is very obvious that the second corporation seeks the protective shield
of a corporate fiction whose veil in the present case could, and should, be
pierced as it was deliberately and maliciously designed to evade its
financial obligation to its employees.
... When a 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 or persons, or, in the case of two
corporations, will merge them into one.
WHEREFORE, the questioned Decision of the National Labor Relations Commission is
SET ASIDE, and the Order of Labor Arbiter Tito F. Genilo of March 11, 1980 is
reinstated with the modification that Rosario Industrial Corporation and its officers
and agents are hereby held jointly and severally liable with the surviving private
respondents for the payment of the backwages due the 22 union members.

CORPORATE ENTITY

ADELIO C. CRUZ, complainant, vs. QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila,
respondents. Adm. Matter No. R-181-P July 31, 1987

Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff of Manila, with
"malfeasance in office, corrupt practices and serious irregularities" allegedly
committed.

Respondent Dalisay explained that when he garnished complainant's cash

deposit at the Philtrust bank, he was merely performing a ministerial duty. While
it is true that said writ was addressed to Qualitrans Limousine Service, Inc., yet it
is also a fact that complainant had executed an affidavit before the Pasay City
assistant fiscal stating that he is the owner/president of said corporation and,
because of that declaration, the counsel for the plaintiff in the labor case advised
him to serve notice of garnishment on the Philtrust bank.
This case was referred to the Executive Judge of the Regional Trial Court of
Manila for investigation, report and recommendation.

Prior to the termination of the proceedings, however, upon respondent's motion,

the Executive Judge issued an order recommending the dismissal of the case.

It has been held that the desistance of complainant does not preclude the taking
of disciplinary action against respondent. Neither does it dissuade the Court from
imposing the appropriate corrective sanction. One who holds a public position,
especially an office directly connected with the administration of justice and the
execution of judgments, must at all times be free from the appearance of
impropriety.

SC RULING:
We hold that respondent's actuation in enforcing a judgment against
complainant who is not the judgment debtor in the case calls for disciplinary
action. Considering the ministerial nature of his duty in enforcing writs of
execution, what is incumbent upon him is to ensure that only that portion of a
decision ordained or decreed in the dispositive part should be the subject of
execution. No more, no less. That the title of the case specifically names
complainant as one of the respondents is of no moment as execution must
conform to that directed in the dispositive portion and not in the title of the case.

The tenor of the NLRC judgment and the implementing writ is clear enough. It
directed Qualitrans Limousine Service, Inc. to reinstate the discharged
employees and pay them full backwages. Respondent, however, chose to "pierce
the veil of corporate entity" usurping a power belonging to the court and
assumed improvidently that since the complainant is the owner/president of
Qualitrans Limousine Service, Inc., they are one and the same. It is a wellsettled doctrine both in law and in equity that as a legal entity, a
corporation has a personality distinct and separate from its individual
stockholders or members. The mere fact that one is president of a
corporation does not render the property he owns or possesses the
property of the corporation, since the president, as individual, and the
corporation are separate entities.

We find Respondent Deputy Sheriff Quiterio L. Dalisay NEGLIGENT in the

enforcement of the writ of execution in NLRC Case-No. 8-12389-91, and a fine
equivalent to three [3] months salary is hereby imposed with a stern warning
that the commission of the same or similar offense in the future will merit a
heavier penalty. Let a copy of this Resolution be filed in the personal record of
the respondent.

DEFINITION OF CORPORATION

ALBERTO S. SUNIO and ILOCOS COMMERCIAL CORPORATION, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION, et al. G.R. No. L-57767 January 31, 1984

EMRACO-CIPI sold the plant to RDFC, CIPI had terminated the services of its
employees, including herein private respondents, giving them their separation
pay which they had accepted.

When RDFC took over ownership and management, therefore, it hired its own
employees, not the private respondents, who were no longer there.
RDFC subsequently sold the property to petitioners ICC & Sunio. But by reason of
their failure to pay the balance of the purchase price, EMRACO-CIPI foreclosed on
the mortgage over the ice plant;
The property was sold at public auction to EMRACO-CIPI as the highest bidders,
and they eventually re-possessed the plant.
During all the period that RDFC and petitioners were operating the plant from
July 30, 1973 to August 30, 1974, they had their own employees.
CIPI-EMRACO then sold the plant, also on August 30, 1974, to Nilo Villanueva,
subject to RDFC's right of redemption. Nilo Villanueva then rehired private
respondents as employees of the plant, also in 1974.
In 1975, RDFC redeemed the property and demanded possession but EMRACOCIPI and Nilo Villanueva resisted so that petitioners were compelled to sue for
recovery of possession, obtaining it, however, only in 1978.
Petitioners eventually acquired possession by virtue of the exercise of their right
of redemption and of a Mandatory Injunction in their favor which ordered Nilo
Villanueva and "any person found in the premises" to vacate.
Private respondents filed complaints against petitioners for illegal dismissal with
the Regional Office, Ministry of Labor & Employment.
The Assistant Regional Director rendered a decision to reinstate the
complainants to their former positions without loss of seniority privileges and to
pay their backwages.
NLRC, which affirmed the Regional Director's decision.
Petitioners are now before us assailing the Asst. Regional Director's Decision, ,
the Resolution of the NLRC, Second Division, , as well as the Writ of Execution
issued for backwages.

SC RULING:
Insofar as petitioners are concerned therefore, there was no tenurial security to
speak of that would entitle private respondents to reinstatement and backwages.
We come now to the personal liability of petitioner, Sunio, who was made jointly and
severally responsible with petitioner company and CIPI for the payment of the
backwages of private respondents. This is reversible error. The Assistant Regional
Director's Decision failed to disclose the reason why he was made personally liable.
Respondents, however, alleged as grounds thereof, his being the owner of one-half
(1/2) interest of said corporation, and his alleged arbitrary dismissal of private
respondents. Petitioner Sunio was impleaded in the Complaint his capacity as
General Manager of petitioner corporation. where appears to be no evidence on
record that he acted maliciously or in bad faith in terminating the services of private
respondents. His act, therefore, was within the scope of his authority and was a
corporate act.
It is basic that a corporation is invested by law with a personality separate
and distinct from those of the persons composing it as well as from that of
any other legal entity to which it may be related. Mere ownership by a
single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for

disregarding the separate corporate personality. Petitioner Sunio, therefore,

should not have been made personally answerable for the payment of private
respondents' back salaries.
The assailed Decision and Resolution and the consequent Writ of Execution are
hereby SET ASIDE. Public respondents are hereby ordered to return to petitioners
the latter's levied properties in their possession.
Piercing the veil of corporate fiction (when not applicable)

BUENAFLOR C. UMALI, et al. petitioners, vs. COURT OF APPEALS, BORMAHECO, INC. and
PHILIPPINE MACHINERY PARTS MANUFACTURING CO., INC., respondents. G.R. No. 89561
September 13, 1990

The Castillo family are the owners of a parcel of land located in Lucena City
which was given as security for a loan from the Development Bank of the
Philippines. For their failure to pay the amortization, foreclosure of the said
property was about to be initiated.
A Memorandum of Agreement was executed by and between Slobec Realty and
Development, Inc., represented by its President Santiago Rivera and the Castillo
family to convert the property into subdivision.
Rivera, armed with the agreement proposed to purchase from Bormaheco two
(2) tractors Model D-7 and D-8 Subsequently, a Sales Agreement.
Slobec, through Rivera, executed in favor of Bormaheco a Chattel Mortgage over
the said equipment as security for the payment of the aforesaid balance of
P180,000.00.
As further security of the aforementioned unpaid balance, Slobec obtained from
Insurance Corporation of the Phil. a Surety Bond, with ICP (Insurance Corporation
of the Phil.) as surety and Slobec as principal, in favor of Bormaheco.
The aforesaid surety bond was in turn secured by an Agreement of CounterGuaranty with Real Estate Mortgage executed by Rivera as president of Slobec
and Castillo family, as mortgagors and Insurance Corporation of the Philippines
(ICP) as mortgagee.
In giving the bond, ICP required that the Castillos mortgage to them the
properties in question, namely, four parcels of land.
Meanwhile, for violation of the terms and conditions of the Counter-Guaranty
Agreement, the properties of the Castillos were foreclosed by ICP As the highest
bidder, a Certificate of Sale was issued and TCT over the subject parcels of land
were issued. The mortgagors had one (1) year from the date of the registration
of the certificate of sale, that is, to redeem the property, but they failed to do so.
After consolidation, ICP sold to PM Parts the four (4) parcels of land and by virtue
of said conveyance, PM Parts transferred unto itself the titles over the lots in
dispute.
Thereafter, PM Parts, requesting the Castillos to vacate the subject property,
who (Mrs. Castillo) in turn sent her reply expressing her refusal to comply with
his demands.
The heirs of the late Felipe Castillo filed an action for annulment of title before
the then Court of First Instance. Thereafter, they filed an Amended Complaint

thereafter their Second Amended Complaint, impleading Santiago M. Rivera as a

party plaintiff.
RTC judgment in favor of the plaintiffs and against the defendants, declaring the
agreements null and void for being fictitious, spurious and without consideration.
Consequently, Transfer Certificates of Titles issued in the name of Insurance
Corporation of the Philippines, are likewise null and void.
Respondent court (CA) reversed the aforequoted decision of the trial court.

SC RULING:
II. Under the doctrine of piercing the veil of corporate entity, when valid grounds
therefore exist, the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or stockholders may be
disregarded. In such cases, the corporation will be considered as a mere association
of persons. The members or stockholders of the corporation will be considered as
the corporation, that is, liability will attach directly to the officers and stockholders.
The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is
made as a shield to confuse the legitimate issues or where a corporation
is the mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.
In the case at bar, petitioners seek to pierce the Veil Of corporate entity of
Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in
causing the foreclosure and subsequent sale of the real properties belonging to
petitioners While we do not discount the possibility of the existence of fraud in the
foreclosure proceeding, neither are we inclined to apply the doctrine invoked by
petitioners in granting the relief sought. It is our considered opinion that
piercing the veil of corporate entity is not the proper remedy in order that
the foreclosure proceeding may be declared a nullity under the
circumstances obtaining in the legal case at bar.
In the first place, the legal corporate entity is disregarded only if it is
sought to hold the officers and stockholders directly liable for a corporate
debt or obligation. In the instant case, petitioners do not seek to impose a claim
against the individual members of the three corporations involved; on the contrary,
it is these corporations which desire to enforce an alleged right against petitioners.
Assuming that petitioners were indeed defrauded by private respondents in the
foreclosure of the mortgaged properties, this fact alone is not, under the
circumstances, sufficient to justify the piercing of the corporate fiction, since
petitioners do not intend to hold the officers and/or members of respondent
corporations personally liable therefor. Petitioners are merely seeking the
declaration of the nullity of the foreclosure sale, which relief may be obtained
without having to disregard the aforesaid corporate fiction attaching to respondent
corporations. Secondly, petitioners failed to establish by clear and convincing
evidence that private respondents were purposely formed and operated, and
thereafter transacted with petitioners, with the sole intention of defrauding the
latter.

The mere fact, therefore, that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate personalities, absent
sufficient showing that the corporate entity was purposely used as a shield to
defraud creditors and third persons of their rights.
IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore,
it acquired a valid title over the subject properties. The submission is without merit
and the conclusion is specious
We have stated earlier that the doctrine of piercing the veil of corporate fiction is
not applicable in this case. However, its inapplicability has no bearing on the good
faith or bad faith of private respondent PM Parts. It must be noted that Modesto N.
Cervantes served as Vice-President of Bormaheco and, later, as President of PM
Parts. On this fact alone, it cannot be said that PM Parts had no knowledge of the
aforesaid several transactions executed between Bormaheco and petitioners. In
addition, Atty. Martin de Guzman, who is the Executive Vice-President of Bormaheco,
was also the legal counsel of ICP and PM Parts. These facts were admitted without
qualification in the stipulation of facts submitted by the parties before the trial
court. Hence, the defense of good faith may not be resorted to by private
respondent PM Parts which is charged with knowledge of the true relations existing
between Bormaheco, ICP and herein petitioners. Accordingly, the transfer
certificates of title issued in its name, as well as the certificate of sale, must be
declared null and void since they cannot be considered altogether free of the taint
of bad faith.
WHEREFORE, the decision of respondent Court of Appeals is hereby REVERSED and
SET ASIDE, and without prejudice to such other and proper legal remedies as may
be available to respondent Bormaheco, Inc. against herein petitioners.

a. Corporation- General Concept

b. Transfer of shares must be registered in corporate books to affect third
persons.

Concepcion Magsaysay-Labrador vs. CA and Adelaida Rodriguez-Magsaysay, G.R. No. 58168,

December 19, 1989

Adelaida Rodriguez-Magsaysay filed an action against Artemio Panganiban,

SUBIC, FILMANBANK and the Register of Deeds of Zambales. She alleged that
she discovered an annotation at the back of TCT No. 3258, that the land,
(known as "Pequena Island) was acquired by her husband from his separate
capital;" [b] the registration of a Deed of Assignment executed by the late
Senator in favor of SUBIC, as a result of which TCT No. 3258 was cancelled and
TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of
Mortgage executed by SUBIC in favor of FILMANBANK; that the foregoing acts
were void and done in an attempt to defraud the conjugal partnership
considering that the land is conjugal, her marital consent to the annotation on
TCT No. 3258 was not obtained.

She prayed that the Deed of Assignment and the Deed of Mortgage be annulled
and that the Register of Deeds be ordered to cancel TCT No. 22431 and to issue
a new title in her favor.
Petitioners, sisters of the late senator, filed a motion for intervention on the
ground that their brother conveyed to them one-half (1/2 ) of his shareholdings
in SUBIC 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.
The 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, respondent Court of Appeals found no factual or legal justification to
disturb the findings of the lower court.

SC RULING:
The words "an interest in the subject" mean a direct interest in the cause of action
as pleaded, and which would put the intervenor in a legal position to litigate a fact
alleged in the complaint, without the establishment of which plaintiff could not
recover.
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent,
remote, conjectural, consequential and collateral. At the very least, their interest is
purely inchoate, or in sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the properties and assets
thereof on dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property
of the corporation, it does not vest the owner thereof with any legal right or title to
any of the property, his interest in the corporate property being equitable or
beneficial in nature. Shareholders are in no legal sense the owners of
corporate property, which is owned by the corporation as a distinct legal
person.
Petitioners further contend that the availability of other remedies, as declared by
the Court of appeals, is totally immaterial to the availability of the remedy of
intervention.
We cannot give credit to such averment. As earlier stated, that the movant's
interest may be protected in a separate proceeding is a factor to be considered in
allowing or disallowing a motion for intervention.
Neither do we lend credence to petitioners' argument that they are more interested
in the outcome of the case than the corporation-assignee, owing to the fact that the
latter is willing to compromise with widow-respondent and since a compromise
involves the giving of reciprocal concessions, the only conceivable concession the
corporation may give is a total or partial relinquishment of the corporate assets.

Such claim all the more bolsters the contingent nature of petitioners' interest in the
subject of litigation.
The factual findings of the trial court are clear on this point. The petitioners cannot
claim the right to intervene on the strength of the transfer of shares allegedly
executed by the late Senator. The corporation did not keep books and records.
Perforce, no transfer was ever recorded, much less effected as to prejudice third
parties. The transfer must be registered in the books of the corporation to
affect third persons. The law on corporations is explicit. Section 63 of the
Corporation Code provides, thus: "No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books
of the corporation showing the names of the parties to the transaction,
the date of the transfer, the number of the certificate or certificates and
the number of shares transferred."
And even assuming arguendo that there was a valid transfer, petitioners are
nonetheless barred from intervening inasmuch as their rights can be ventilated and
amply protected in another proceeding.

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION G.R.
No. 108734 May 29, 1996

Petitioner Concept Builders, Inc., a domestic corporation, is engaged in the

construction business.
Private respondents were employed by said company, who were served
individual written notices of termination of employment. It was stated in the
individual notices that their contracts of employment had expired and the project
for which they were hired had been completed. Having found out that said
project had not yet been finished and that petitioner had to engage the services
of sub-contractors, private respondents filed a complaint for illegal dismissal
against petitioner.
The Labor Arbiter rendered judgment ordering petitioner to reinstate private
respondents and to pay them back wages equivalent to one year. The award was
partially satisfied through garnishment of sums from petitioner's debtor MWSS.
To collect the balance of the judgment award, the Labor Arbiter issued an Alias
Writ of Execution. However, said writ had not been enforced because security
guards with high-powered guns prevented the sheriff from removing the
properties he had levied upon. To enable him to enter petitioner's premises, the
sheriff recommended that a break-open order be issued.
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. (HPPI) of which he is the Vice-President.
Petitioners prayer: That the motion for break-open order be denied because
HPPI is a corporation separate and distinct from petitioner as evidenced by the
different kinds of business they are engaged in, i.e., HPPI is a manufacturing firm
while petitioner was then engaged in construction

Private respondents prayer: That a break-open order be issued on the ground

that HPPI was created to evade Concept Builders liability to private respondents
NLRCs ruling: That a break-open order be enforced against personal property
found in the premises of petitioners sister company because the two
corporations are one and the same, sharing the same premises, the same
President and the same set of officers and subscribers

SC RULING:
It is a fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded or
the veil of corporate fiction pierced. This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.
Some probative factors of identity that will justify the application of the doctrine of
piercing the corporate veil, to wit:
1.
2.
3.
4.

Stock ownership by one or common ownership of both corporations.

Identity of directors and officers.
The manner of keeping corporate books and records.
Methods of conducting the business.

The SEC en banc explained the "instrumentality rule" which the courts have applied
in disregarding the separate juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted
so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the
corporate entity of the "instrumentality" may be disregarded. The control necessary
to invoke the rule is not majority or even complete stock control but such
domination of instances, policies and practices that the controlled corporation has,
so to speak, no separate mind, will or existence of its own, and is but a conduit for
its principal. It must be kept in mind that the control must be shown to have been
exercised at the time the acts complained of took place. Moreover, the control and
breach of duty must proximately cause the injury or unjust loss for which the
complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows:
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; and
3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the individual
defendant's relationship to that operation.
It is very obvious that the second corporation seeks the protective shield of a
corporate fiction whose veil in the present case could, and should, be pierced as it
was deliberately and maliciously designed to evade its financial obligation to its
employees.

FAR CORPORATION and ROSA O. DE CARAM, petitioners, vs. HON. RICARDO J. FRANCISCO, Presiding
Judge of Branch VI, CFI of Rizal at Pasig, Metro Manila, and ELIZABETH P. NICOLAS, respondents. G.R. No.
L-57218 December 12, 1986

Private respondent Elizabeth P. Nicolas is the lessee of apartment who allegedly

received a notice from petitioner Corporation signed by its manager and owner
Caram that the contract of lease was being terminated as of February 15, 1981.
Private respondent allegedly requested that the lease be terminated instead on
March 15, 1981 to enable her to look for another place.
However, petitioners, allegedly refused to accept private respondent's tender of
payment of rental for the period covering January 16, 1981 to February 15, 1981
but padlocked instead, the apartment unit occupied by private respondent.
Private respondent filed a complaint for damages.
The deputy sheriff of Rizal served the summonses and copies of the complaint
for both defendants-petitioners, first upon Atty. Melquiades Parades, the
corporation's retained counsel, holding office at the same address, who however,
declined to accept said process claiming that he is neither an agent nor officer of
the corporation and suggested instead that the Sheriff find out if Mr. Enrique
Dizon was the cashier of said corporation, and if so, to serve the summons on
him for the defendant corporation. The summonses were finally served on Mr.
Enrique Dizon who turned out to be not the cashier but the Finance and
Administrative Manager of the Corporation.
Both petitioners filed motions to dismiss on the ground that the lower court did
not acquire jurisdiction over their persons.

SC RULING:
The only issue in this case is whether or not there was valid service of summons on
both petitioners by which the lower court acquired jurisdiction over their persons.

Petitioners opposed the service of summons (1) for the corporation, on Enrique
Dizon, the head of the Finance and Administrative Section of Far Corporation's
branch office who allegedly is not one of those authorized to receive the same
under Section 13, Rule 14 of the Rules of Court and (2) for the owner and manager
of said Corporation Rosa O. de Caram who could not be served personally because
she was absent from the office, also on Enrique Dizon in a substituted service.
Be that as it may, the issue before the Court is the validity of the summons received
by the Chief of Finance and Administrative Section who is not the cashier of said
corporation. In Villa Rey Transit Inc. v. Far East Motor Corporation (81 SCRA 303
[1978]) the Court held that "According to jurisprudence, the rationale of all rules for
service of process on corporation is that service must be made on a representative
so integrated with the corporation sued as to make it a priori supposable that he will
realize his responsibilities and know what he should do with any legal papers served
on him." This case was cited in a recent decision Summit Trading and Development
Corp. v. Avendao where it was ruled that the secretary of the president of
the corporation in that case, is an agent of the corporation under Section
13, Rule 14 of the Rules of Court.
In the case at bar, Mr. Dizon as Administrative Chief is responsible for the
management of the corporation which places him on the level of a manager
contemplated by the Rules. As Chief of Finance, he is conferred with vital and
sensitive functions and responsibilities. Under corporate and management
organizational structure, a finance officer even holds a higher position
than that of a cashier. Otherwise stated, Mr. Dizon is not one of the lesser
officers of the corporation who would not have been able to appreciate the
importance of the papers delivered to him. On the contrary, he falls
squarely under the term Agent who is authorized by law to receive the
processes of the Court for the corporation.
In the same manner, the Sheriff could not be faulted in resorting to substituted
service where prompt personal service is not possible. As stated by the Court in
Ablaza vs. C.I.R. "The purpose of summons is to give notice to the defendant or
respondent that an action has been commenced against him. The defendant or
respondent is thus put on guard as to the demands of the plaintiffs or petitioners."
In the case at bar, no less than petitioners' counsel himself is aware of the
processes being served on his clients so that the element of surprise is the least
that can be invoked by petitioners in this case; much less can it be said that
respondent Judge erred in holding that the reasons advanced against the validity of
the service of summons for Rosa O. de Caram border on mere technicality.