1

RIGHT OF SUCCESSION NOTE: There are 2 types of corporate acquisitions:

Asset sales, the corporate entity sells all or substantially all of its assets
3. SME Bank v. De Guzman to another entity.

FACTS: Stock sales, the individual or corporate shareholders sell a controlling

Resp Ees Gaspar and 5 others.
Ees --- SME Bank
Principal Shareholders of SME Bank
(Augustine & De Guzman)
SME Bank financial difficulty sell share of stock to Samson Group pay under the law. The buyer in good faith, on the other hand, is not
Condition of Sale : All retirement benefits are waived upon
consummation of sale
Gen. Manager of SME Bank persuaded Gaspar et.al to resign &
promises to rehire them upon reapplication. | Gaspar et.al resigned
When Sps. Samson became shareholders of SME Bank, Resp Ees were
not rehired.
Resp. Ees demanded the payment of separation but was denied
LA: Buyer not bound to absorb its Ee. But found Resp Ees
were illegally dismissed.
NLRC: There was only a mere transfer of shares. Resp Ees were illegally
dismissed. Agustin, De Guzman, & Samson Group jointly & severally liable
for the employees separation pay.
CA: Affirmed NLRC
PETITIONER BANK: Argues that, there being a transfer of the business
establishment, the innocent transferees no longer have any obligation to
continue employing Resp Ees.
ISSUE: Was there a transfer of the business establishment?
RULING: No. There was no transfer of the business establishment to speak
of, but merely a change in the new majority shareholders of the
corporation.
block of stock to new or existing shareholders.
In asset sales, the rule is that the seller in good faith is authorized to
dismiss the affected employees, but is liable for the payment of separation
obliged to absorb the employees affected by the sale, nor is it liable for the
payment of their claims. The most that it may do, for reasons of public
policy and social justice, is to give preference to the qualified separated
personnel of the selling firm.
In stock sales takes place at the shareholder level.
Because the corporation possesses a personality separate and
distinct from that of its shareholders, a shift in the composition of its
shareholders will not affect its existence and continuity.
Thus, notwithstanding the stock sale, the corporation continues to be
the employer of its people and continues to be liable for the payment
of their just claims.
Furthermore, the corporation or its new majority share holders are
not entitled to lawfully dismiss corporate employees absent a just or
authorized cause.
In the case at bar, the Letter Agreements show that their main object is
the acquisition by the Samson Group of 86.365% of the shares of stock of
SME Bank.
Hence, this case involves a stock sale, whereby the transferee acquires the
controlling shares of stock of the corporation. Thus, following the rule in
stock sales, respondent employees may not be dismissed except for just
or authorized causes under the Labor Code.

DOCTRINE OF SEPARATE PERSONALITY
DOCTRINE OF LIMITED LIABILITY
A stockholder is personally liable for the financial obligations of the
Corporation to the extent of his unpaid subscription.
4. Donina C. Halley v. Printwell, Inc.
FACTS:
Printwell engaged in commercial and industrial printing.
BMPI commissioned Printwell for the printing of the magazine
Philippines, Inc. (together with wrappers and subscription cards) that
BMPI published and sold. For that purpose, Printwell extended 30-day
credit accommodations to BMPI.
Bill P316,342.76. BMPI paid only P25k , Printwell sued BMPI on
January 26, 1990 for the collection of the unpaid balance of
P291,342.76 in the RTC.
Printwell amended the complaint to implead as defendants all the
original stockholders and incorporators to recover on their unpaid
subscriptions.
The defendants filed a consolidated answer, averring that they all had
paid their subscriptions in full; that BMPI had a separate personality
from those of its stockholders.
To prove payment of their subscriptions, the defendant stockholders
submitted in evidence BMPI official receipt (OR) no. 217, OR no. 218,
OR no. 220, OR no. 221, OR no. 222, OR no. 223, and OR no. 227, [7]
RTC: In favor of Printwell, rejecting the allegation of payment in full of the
subscriptions in view of an irregularity in the issuance of the ORs and
observing that the defendants had used BMPIs corporate personality to evade
payment and create injustice. | Receipts were belatedly issued.
NOTE: Trust Fund Doctrine The capital stock, properties and other assets of
the corporation are regarded as equity in trust for the payment of Corporate
Creditors.
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Also, under the trust fund doctrine,a corporation has no legal capacity to
release an original subscriber to its capital stock from the obligation of
paying for his shares, in whole or in part, without a valuable
consideration, or fraudulently, to the prejudice of creditors.
Creditor is allowed to maintain an action upon any unpaid subscriptions
and thereby steps into the shoes of the corporation for the satisfaction of
its debt.
To make out a prima facie case in a suit against stockholders of an
insolvent corporation to compel them to contribute to the payment of its
debts by making good unpaid balances upon their subscriptions, it is only
necessary to establish that the stockholders have not in good faith paid
the par value of the stocks of the corporation.
CA: Affirmed RTC | The
CA declared that the inconsistency in the issuance of the ORs
rendered the claim of full payment of the subscriptions to the capital
stock unworthy of consideration; and held that the veil of corporate
fiction could be pierced when it was used as a shield to perpetrate a
fraud or to confuse legitimate issues.
Only Donnina Halley has come to the Court to seek a further review.
ISSUE: May unpaid creditor satisfy its claim from unpaid subscriptions?
RULING: YES. Unpaid creditor may satisfy its claim from unpaid
subscriptions; stockholders must prove full payment of their
subscriptions.
Both the RTC and the CA applied the trust fund doctrine against the
defendant stockholders, including the petitioner.
xxx rule that the property of a corporation is a trust fund for the payment of
creditors, but such property can be called a trust fund only by way of analogy
or metaphor. As between the corporation itself and its creditors it is a simple
debtor, and as between its creditors and stockholders its assets are in equity
a fund for the payment of its debts.

A receipt is the written acknowledgment of the fact of payment in money
or other settlement between the seller and the buyer of goods, the debtor
or the creditor, or the person rendering services, and the client or the
customer.
Although a receipt is the best evidence of the fact of payment, it is not
conclusive, but merely presumptive; nor is it exclusive evidence,
considering that parole evidence may also establish the fact of payment.
The petitioners OR No. 227, presented to prove the payment of the
balance of her subscription, indicated that her supposed payment had
been made by means of a check. Thus, to discharge the burden to prove
payment of her subscription, she had to adduce evidence satisfactorily
proving that her payment by check was regarded as payment under the
law.
Payment is defined as the delivery of money. Yet, because a check is not
money and only substitutes for money, the delivery of a check does not
operate as payment and does not discharge the obligation under a
judgment. The delivery of a bill of exchange only produces the fact of
payment when the bill has been encashed. .
It is notable, too, that the petitioner and her co-stockholders did not
support their allegation of complete payment of their respective
subscriptions with the stock and transfer book of BMPI.
Specifically, a stock and transfer book is necessary as a measure of
precaution, expediency, and convenience because it provides the only
certain and accurate method of establishing the various corporate acts
and transactions and of showing the ownership of stock and like matters.
That she tendered no explanation why the stock and transfer book was
not presented warrants the inference that the book did not reflect the
actual payment of her subscription.
Nor did the petitioner present any certificate of stock issued by BMPI to
her. Such a certificate covering her subscription might have been a
reliable evidence of full payment of the subscriptions, considering that
under Section 65 of the Corporation Code a certificate of stock issues only
to a subscriber who has fully paid his subscription. The lack of any
explanation for the absence of a stock certificate in her favor likewise
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warrants an unfavorable inference on the issue of payment.
Lastly, the petitioner maintains that both lower courts erred in relying on
the articles of incorporation as proof of the liabilities of the stockholders
subscribing to BMPIs stocks, averring that the articles of incorporation did
not reflect the latest subscription status of BMPI.
Although the articles of incorporation may possibly reflect only the pre-
incorporation status of a corporation, the lower courts reliance on that
document to determine whether the original subscribers already fully
paid their subscriptions or not was neither unwarranted nor erroneous.
As earlier explained, the burden of establishing the fact of full payment
belonged not to Printwell even if it was the plaintiff, but to the
stockholders like the petitioner who, as the defendants, averred full
payment of their subscriptions as a defense. Their failure to substantiate
their averment of full payment, as well as their failure to counter the
reliance on the recitals found in the articles of incorporation simply meant
their failure or inability to satisfactorily prove their defense of full
payment of the subscriptions.
To reiterate, the petitioner was liable pursuant to the trust fund doctrine
for the corporate obligation of BMPI by virtue of her subscription being
still unpaid. Printwell, as BMPIs creditor, had a right to reach her unpaid
subscription in satisfaction of its claim.
Liability of stockholders for corporate debts is up to the
extent of their unpaid subscription
The RTC declared the stockholders pro rata liable for the debt(based on
the proportion to their shares in the capital stock of BMPI); and held the
petitioner personally liable only in the amount of P149,955.65.
We do not agree. The RTC lacked the legal and factual support for its
prorating the liability. Hence, we need to modify the extent of the
petitioners personal liability to Printwell. The prevailing rule is that a
stockholder is personally liable for the financial obligations of the
corporation to the extent of his unpaid subscription. view of the petitioners
unpaid subscription being worth P262,500.00, she was liable up to that
amount.

Interest is also imposable on the unpaid obligation. Absent any
stipulation, interest is fixed at 12% per annum from the date the amended
complaint was filed on February 8, 1990 until the obligation (i.e., to the
extent of the petitioners personal liability of P262,500.00) is fully paid.
Lastly, we find no basis to grant attorneys fees, the award for which must
be supported by findings of fact and of law as provided under Article 2208
of the Civil Code incorporated in the body of decision of the trial court. The
absence of the requisite findings from the RTC decision warrants the
deletion of the attorneys fees.
ACCORDINGLY, we deny the petition for review on certiorari; and affirm
with modification the decision promulgated on August 14, 2002by
ordering the petitioner to pay to Printwell, Inc. the sum of P262,500.00,
plus interest of 12% per annum to be computed from February 8, 1990
until full payment.
DOCTRINE OF PIERCING THE CORPORATE VEIL
5. Concept Builders v. NLRC
FACTS:
Pet. Concept Builders, Inc., a domestic corp, is engaged in the construction
biz.
Private resps were employed by said company as laborers, carpenters and
riggers.
On Nov, 1981, private resps - served individual written notices of
termination of employment by petitioner, effective on Nov 30, 1981.
- their contracts of employment had expired and the project in
which they were hired had been completed.
Public resp found it to be, the fact, however, that at the time of the
termination of private resps employment, the project in which they were
hired had not yet been finished and completed.
Pet. had to engage the services of sub-contractors whose workers
performed the functions of private respondents.
4
Aggrieved, private resps filed a complaint for illegal dismissal, unfair labor
practice and non-payment of their legal holiday pay, overtime pay and
13th -month pay against petitioner.
LA: rendered judgment ordering pet. to reinstate private resps and to pay
them back wages equivalent to one year or three hundred working days.
NLRC: On Nov 27, 1985 dismissed the motion for reconsideration filed by
pet. on the ground that the said decision had already become final and
executory.
On Oct 29, 1986, the Labor Arbiter issued a writ of execution directing the
sheriff to execute the Decision, dated Dec 19, 1984.
The writ was partially satisfied through garnishment of sums from
petitioners debtor, the Metropolitan Waterworks and Sewerage
Authority, in the amount of P81k. Said amount was turned over to the
cashier of the NLRC.
On Feb 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter
directing the sheriff to collect from herein petitioner the sum of P117k
representing the balance of the judgment award, and to reinstate private
respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve
the alias writ of execution on petitioner through the security guard on
duty but the service was refused on the ground that petitioner no longer
occupied the premises.
On Sept 26, 1986, upon motion of private respondents, the Labor Arbiter
issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated in
his progress report, dated Nov 2, 1989:
1. All the employees inside petitioners premises at 355 Maysan Road,
Valenzuela, Metro Manila, claimed that they were employees of Hydro
Pipes Philippines, Inc. (HPPI) and not by respondent;

On Feb 1, 1990, HPPI filed an Opposition to private resps motion for
issuance of a break-open order, contending that HPPI is a corporation
which is separate and distinct from petitioner.
HPPI also alleged that the 2 corporations are engaged in two different
kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was
then engaged in construction.
Hence, the resort to the present petition.
Pet further contends, that the doctrine of piercing the corporate veil
should not have been applied, in this case, in the absence of any showing
that it created HPPI in order to evade its liability to private resps. It also
contends that HPPI is engaged in the manufacture and sale of steel,
concrete and iron pipes, a business which is distinct and separate from
petitioners construction business.
Hence, it is of no consequence that petitioner and HPPI shared the same
premises, the same President and the same set of officers and subscribers.
RULING: We find petitioners contention to be unmeritorious.
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.
NOTE: No hard and fast rule can be accurately laid down, but certainly, there are
some probative factors of identity that will justify the application of the doctrine
of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
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4. 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 finances, 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 plaintiffs 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 defendants relationship to that operation.
Thus, the question of whether a corporation is a mere alter ego, a mere
sheet or paper corporation, a sham or a subterfuge is purely one of fact.

In this case, the NLRC noted that, while petitioner claimed that it ceased
its business operations on April 29, 1986, it filed an Information Sheet
with the Securities and Exchange Commission on May 15, 1987, stating
that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.
On the other hand, HPPI, the third-party claimant, submitted on the same
day, a similar information sheet stating that its office address is at 355
Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casino as the
corporate secretary of both corporations.
It would also not be amiss to note that both corporations had the same
president, the same board of directors, the same corporate officers, and
substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent
(herein pet) and the 3rd-party claimant shared the same address and/or
premises. Under this circumstances, (sic) it cannot be said that the property
levied upon by the sheriff were not of respondents.
Clearly, pet. ceased its bis op to evade the payment to private resps of
backwages & to bar their reinstatement to their former positions. HPPI is
obviously a biz conduit of pet. corp and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to
petitioner corporation.
It is very obvious that the 2nd corp 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.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon
the property subject of the execution, private resps had no other recourse
but to apply for a break-open order after the 3rd-party claim of HPPI was
dismissed for lack of merit by the NLRC.
This is in consonance with Sec 3, Rule VII of the NLRC Manual of Execution
of Judgment which provides that:
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Should the losing party, his agent or representative, refuse or prohibit the
Sheriff or his representative entry to the place where the property subject of
execution is located or kept, the judgment creditor may apply to the
Commission or Labor Arbiter concerned for a break-open order.
Furthermore, our perusal of the records shows that the twin
requirements of due notice and hearing were complied with. Petitioner
and the third-party claimant were given the opportunity to submit
evidence in support of their claim.
WHEREFORE, the petition is DISMISSED and the assailed
resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are
AFFIRMED.
SO ORDERED.
8. Pacific Rehouse Corporation v. Court of Appeals, G.R. No.
199687, March 24, 2014.
[REYES, J.]
FACTS
A complaint was instituted with the Makati City RTC, against EIB
Securities Inc. (ESecurities) for unauthorized sale of 32,180,000 DMCI
shares of Pacific Rehouse Corporation, Pacific Concorde Corporation,
Mizpah Holdings, Inc., Forum Holdings Corporation, and East Asia Oil
Company, Inc.
RTC: In its Oct 18, 2005 Resolution, rendered judgment on the pleadings,
directing the ESecurities to return to the pets. 32,180,000 DMCI shares,
as of judicial demand.
On the other hand, petitioners are directed to reimburse the defendant
the amount of [P]10,942,200.00, representing the buy back price of the
60,790,000 KPP shares of stocks at [P]0.18 per share. The Resolution was
ultimately affirmed by the Supreme Court and attained finality.
When the Writ of Execution was returned unsatisfied, petitioners moved
for the issuance of an alias writ of execution to hold Export and Industry
Bank, Inc. liable for the judgment obligation as ESecurities is a wholly
owned controlled and dominated subsidiary of Export and Industry Bank,

Inc., and is[,] thus[,] a mere alter ego and business conduit of the latter. E
Securities opposed the motion[,] arguing that it has a corporate
personality that is separate and distinct from the respondent.
The RTC eventually concluded that ESecurities is a mere business
conduit or alter ego of petitioner, the dominant parent corporation, which
justifies piercing of the veil of corporate fiction, and issued an alias writ of
summons directing defendant EIB Securities, Inc., and/or Export and
Industry Bank, Inc., to fully comply therewith.
It ratiocinated that being one and the same entity in the eyes of the law,
the service of summons upon EIB Securities, Inc. (ESecurities) has
bestowed jurisdiction over both the parent and whollyowned subsidiary.
Export and Industry Bank, Inc. (Export Bank) filed before the Court of
Appeals a petition for certiorari with prayer for the issuance of a
temporary restraining order (TRO) seeking the nullification of the RTC
Order.
The CA reversed the RTC Order and explained that the alter ego theory
cannot be sustained because ownership of a subsidiary by the parent
company is not enough justification to pierce the veil of corporate fiction.
There must be proof, apart from mere ownership, that Export Bank
exploited or misused the corporate fiction of ESecurities. The existence
of interlocking incorporators, directors and officers between the two
corporations is not a conclusive indication that they are one and the
same. The records also do not show that Export Bank has complete
control over the business policies, affairs and/or transactions of E
Securities. It was solely ESecurities that contracted the obligation in
furtherance of its legitimate corporate purpose; thus, any fall out must be
confined within its limited liability.
ISSUE Whether or not E-Securities is merely an alter ego of Export Bank
so that piercing the veil of corporate fiction is proper.
RULING
NO. An alter ego exists 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 control necessary to invoke
the alter ego doctrine is not majority or even complete stock control but
7
such domination of finances, 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.
The Court has laid down a threepronged control test to establish when
the alter ego doctrine should be operative:
Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate
mind, will or existence of its own;
Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory
or other positive legal duty, or dishonest and unjust act in
contravention of plaintiffs legal right; and
The aforesaid control and breach of duty must [have]
proximately caused 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 defendants relationship to that operation.
Hence, all 3 elements should concur for the alter ego doctrine to be
applicable.
In this case, the alleged control exercised by Export Bank upon its
subsidiary ESecurities, by itself, does not mean that the controlled
corporation is a mere instrumentality or a business conduit of the mother
company.
Even control over the financial and operational concerns of a subsidiary
company does not by itself call for disregarding its corporate fiction.
There must be a perpetuation of fraud behind the control or at least a
fraudulent or illegal purpose behind the control in order to justify piercing
the veil of corporate fiction. Such fraudulent intent is lacking in this case.

While the courts have been granted the colossal authority to wield the
sword which pierces through the veil of corporate fiction, concomitant to
the exercise of this power, is the responsibility to uphold the doctrine of
separate entity, when rightly so; as it has for so long encouraged
businessmen to enter into economic endeavors fraught with risks and
where only a few dared to venture.
The decision of the Court of Appeals in favor of Export Bank (reversing
the RTC Order) is affirmed.
Advertisements
10. G.R. No. 174938 October 1, 2014
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,
v. BF CORPORATION, SHANGRI-LA PROPERTIES, INC.,
ALFREDO C. RAMOS, RUFO B. COLAYCO, MAXIMO G. LICAUCO
III, AND BENJAMIN C. RAMOS, Respondents.
LEONEN, J.:
NOTE: Corporate representatives may be compelled to submit to
arbitration proceedings pursuant to a contract entered into by the
corporation they represent if there are allegations of bad faith or malice
in their acts representing the corporation.
Facts: In 1993, BF Corporation filed a collection complaint with the
Regional Trial Court against Shangri-La and the members of its board of
directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo
Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos.
BF Corporation alleged in its complaint that on Dec 11, 1989 and May 30,
1991, it entered into agreements with Shangri-La wherein it undertook to
construct for Shangri-La a mall and a multilevel parking structure along
EDSA.Shangri-La had been consistent in paying BF Corporation in
accordance with its progress billing statements.
However, by Oct 1991, Shangri-La started defaulting in payment.
BF Corporation alleged that Shangri-La induced BF Corporation to
continue with the construction of the buildings using its own funds and
credit despite Shangri-Las default.
8
According to BF Corp, Shangri-La misrepresented that it had funds to pay
for its obligations with BF Corp, and the delay in payment was simply a
matter of delayed processing of BF Corps progress billing statements.
BF Corp eventually completed the construction of the buildings. Shangri-
La allegedly took possession of the buildings while still owing BF Corp an
outstanding balance.
BF Corpo alleged that despite repeated demands, Shangri-La refused to
pay the balance owed to it.It also alleged that the Shangri-Las directors
were in bad faith in directing Shangri-Las affairs. Therefore, they should
be held jointly and severally liable with Shangri-La for its obligations as
well as for the damages that BF Corporation incurred as a result of
Shangri-Las default.
On Aug 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G.
Licauco III, and Benjamin C. Ramos filed a motion to suspend the
proceedings in view of BF Corporations failure to submit its dispute to
arbitration, in accordance with the arbitration clause provided in its
contract.
Petitioners filed their comment on Shangri-Las and BF Corporations
motions, praying that they be excluded from the arbitration proceedings
for being non-parties to Shangri-Las and BF Corporations agreement.
Issue: Whether or not petitioners as directors of Shangri-La is personally
liable for the contractual obligations entered into by the corporation.
Held: No. Because a corporations existence is only by fiction of law, it can
only exercise its rights and powers through its directors, officers, or
agents, who are all natural persons. A corporation cannot sue or enter into
contracts without them.
A consequence of a corporations separate personality is that consent by
a corporation through its representatives is not consent of the
representative, personally. Its obligations, incurred through official acts
of its representatives, are its own.

A stockholder, director, or representative does not become a party to a
contract just because a corporation executed a contract through that
stockholder, director or representative.
Hence, a corporations representatives are generally not bound by the
terms of the contract executed by the corporation. They are not personally
liable for obligations and liabilities incurred on or in behalf of the
corporation.
A submission to arbitration is a contract. As such, the Agreement,
containing the stipulation on arbitration, binds the parties thereto, as well
as their assigns and heirs.
When there are allegations of bad faith or malice against corporate
directors or representatives, it becomes the duty of courts or tribunals to
determine if these persons and the corporation should be treated as one.
Without a trial, courts and tribunals have no basis for determining
whether the veil of corporate fiction should be pierced. Courts or tribunals
do not have such prior knowledge.
Thus, the courts or tribunals must first determine whether circumstances
exist to warrant the courts or tribunals to disregard the distinction
between the corporation and the persons representing it.
The determination of these circumstances must be made by one tribunal
or court in a proceeding participated in by all parties involved, including
current representatives of the corporation, and those persons whose
personalities are impliedly the same as the corporation.
This is because when the court or tribunal finds that circumstances exist
warranting the piercing of the corporate veil, the corporate
representatives are treated as the corporation itself and should be held
liable for corporate acts.
The corporations distinct personality is disregarded, and the corporation
is seen as a mere aggregation of persons undertaking a business under the
collective name of the corporation.
A corporation is an artificial entity created by fiction of law.
9
This means that while it is not a person, naturally, the law gives it a
distinct personality and treats it as such.
A corporation, in the legal sense, is an individual with a personality that is
distinct and separate from other persons including its stockholders,
officers, directors, representatives, and other juridical entities.
The law vests in corporations rights, powers, and attributes as if they
were natural persons with physical existence and capabilities to act on
their own.
For instance, they have the power to sue and enter into transactions or
contracts. Sec 36 of the Corporation Code enumerates some of a
corporations powers, thus:
Section 36. Corporate powers and capacity. Every corporation
incorporated under this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated
in the articles of incorporation and the certificate of
incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the
provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy,
and to amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers
and to sell treasury stocks in accordance with the provisions of
this Code; and to admit members to the corporation if it be a non-
stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations,
as the transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;

8. To enter into merger or consolidation with other corporations as
provided in this Code;
9. To make reasonable donations, including those for the public
welfare or for hospital, charitable, cultural, scientific, civic, or
similar purposes: Provided, That no corporation, domestic or
foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit
of its directors, trustees, officers and employees; and
11. To exercise such other powers as may be essential or necessary
to carry out its purpose or purposes as stated in its articles of
incorporation.
11. G.R. No. 198967, March 07, 2016
JOSE EMMANUEL P. GUILLERMO, Petitioner, v. CRISANTO P.
USON, Respondent.
PERALTA, J.:
FACTS:
On March 11, 1996, respondent Uson began his employment with Royal
Class Venture as an accounting clerk.
Eventually, was promoted to - accounting supervisor, with a
salary of Php13k a month, until he was allegedly dismissed from
employment on Dec 20, 2000.
On March 2, 2001, Uson filed with the Sub-Regional Arbitration of the
NLRC a Complaint for Illegal Dismissal, with prayers for backwages,
reinstatement, salaries and 13th month pay, moral and exemplary
damages and attorney's fees against Royal Class Venture.
Royal Class Venture did not make an appearance in the case despite its
receipt of summons.
On May 15, 2001, Uson filed his Position Paper as complainant.
LA: in favor of the complainant Uson and ordering therein resp Royal
10
Class Venture to reinstate him to his former position and pay his
backwages, 13th month pay as well as moral and exemplary damages and
attorney's fees.
Royal Class Venture, did not file an appeal of the decision.
Consequently, upon Uson's motion, a Writ of Execution10 dated February
15, 2002 was issued to implement the Labor Arbiter's decision.
On May 17, 2002, an Alias Writ of Execution was issued. But with the
judgment still unsatisfied, a 2nd Alias Writ of Execution was issued on Sept
11, 2002.
Again, it was reported in the Sheriff's Return that the 2nd Alias Writ of
Execution dated Sept 11, 2002 remained "unsatisfied."
Thus, on Nov 14, 2002, Uson filed a Motion for Alias Writ of Execution and
to Hold Directors and Officers of Respondent Liable for Satisfaction of the
Decision. The motion quoted from a portion of the Sheriffs Return, which
states:
On Sept 12, 2002, the undersigned proceeded at the stated
present biz office add of the resp which is at Sta. Barbara,
Pangasinan to serve the writ of execution. Upon arrival, I found
out that the establishment erected thereat is not [in] the resp's
name but JOEL and SONS CORPORATION, a family corp owned by
the Guillermos of which, Jose Emmanuel F. Guillermo the General
Manager of the resp, is one of the stockholders who received the
writ using his nickname "Joey," [and who] concealed his real
identity and pretended that he [was] the brother of Jose, which
[was] contrary to the statement of the guard-on-duty that Jose and
Joey [were] one and the same person. The former also informed
the undersigned that the respondent's (sic) corporation has been
dissolved.
On the succeeding day, as per [advice] by the [complainant's] counsel that
the resp has an account at the Bank of Philippine Islands Magsaysay
Branch, A.B. Fernandez Ave., Dagupan City, the undersigned immediately
served a notice of garnishment, thus, the bank replied on the same day
stating that the respondent [does] not have an account with the branch.e

LA: On Dec 26, 2002, Labor Arbiter issued an Order granting the motion
filed by Uson. The order held that officers of a corporation are jointly and
severally liable for the obligations of the corporation to the employees.
Thus, the Labor Arbiter pierced the veil of corporate fiction of Royal Class
Venture and held herein petitioner Jose Emmanuel Guillermo (Guillermo),
in his personal capacity, jointly and severally liable with the corporation
for the enforcement of the claims of Uson.
On Jan 5, 2004, Guillermo filed a Motion for Reconsideration of the above
Order,20 but the same was promptly denied by the Labor Arbiter in an
Order dated January 7, 2004.
On Jan 26, 2004, Uson filed a Motion for Alias Writ of Execution, to which
Guillermo filed a Comment and Opposition on April 2, 2004.
On May 18, 2004, the Labor Arbiter issued an Order granting Uson's
Motion for the Issuance of an Alias Writ of Execution and rejecting
Guillermo's arguments posed in his Comment and Opposition.
Guillermo elevated the matter to the NLRC by filing a Memorandum of
Appeal with Prayer for a (Writ of) Preliminary Injunction dated June 10,
2004.25cralawred
NLRC: dismissed Guillermo's appeal and denied his prayers for
injunction.
CA: Upheld all the findings of the NLRC.
The CA found that summons was in fact served on Guillermo as President
and General Manager of Royal Class Venture, which was how the Labor
Arbiter acquired jurisdiction over the company.
But Guillermo subsequently refused to receive all notices of hearings and
conferences as well as the order to file Royal Class Venture's position
paper.
Then, it was learned during execution that Royal Class Venture had been
dissolved.
11
It also noted that the motion to hold officers and directors like Guillermo
personally liable, as well as the notices to hear the same, was sent to them
by registered mail, but no pleadings were submitted and no appearances
were made by anyone of them during the said motion's pendency.
Thus, the court held Guillermo liable, citing jurisprudence that hold the
president of the corporation liable for the latter's obligation to illegally
dismissed employees.
Finally, the court dismissed Guillermo's allegation that the case is an intra-
corporate controversy, stating that jurisdiction is determined by the
allegations in the complaint and the character of the relief sought.
Guillermo filed a Motion for Reconsideration but the same was again
denied by the said court.
Hence, the instant petition.
Guillermo assails the so-called "piercing the veil" of corporate fiction
which allegedly discriminated against him when he alone was belatedly
impleaded despite the existence of other directors and officers in Royal
Class Venture.
He also claims that the Labor Arbiter has no jurisdiction because the case
is one of an intra-corporate controversy, with the complainant Uson also
claiming to be a stockholder and director of Royal Class Venture.
In his Comment,42 Uson did not introduce any new arguments but merely
cited verbatim the disquisitions of the Court of Appeals to counter
Guillermo's assertions in his petition.
ISSUE:
1. May an officer of a corporation be included as judgment obligor in
a labor case for the first time only after the decision of the Labor
Arbiter had become final and executory? YES
2. May the twin doctrines of "piercing the veil of corporate fiction"
and personal liability of company officers in labor cases apply?
YES

RULING:
The petition is denied.
In the earlier labor cases of Claparols v. Court of Industrial Relations and
A.C. Ransom Labor Union-CCLU v. NLRC, persons who were not originally
impleaded in the case were, even during execution, held to be solidarity
liable with the employer corporation for the latter's unpaid obligations to
complainant-employees.
These included a newly-formed corporation which was considered a mere
conduit or alter ego of the originally impleaded corporation, and/or the
officers or stockholders of the latter corporation.
Liability attached, especially to the responsible officers, even after final
judgment and during execution, when there was a failure to collect from
the employer corporation the judgment debt awarded to its workers.
In Naguiat v. NLRC,47 the president of the corporation was found, for the
first time on appeal, to be solidarily liable to the dismissed employees.
Then, in Reynoso v. CA, the veil of corporate fiction was pierced at the stage
of execution, against a corporation not previously impleaded, when it was
established that such corporation had dominant control of the original
party corporation, which was a smaller company, in such a manner that
the latter's closure was done by the former in order to defraud its
creditors, including a former worker.
The subsequent cases of McLeod v. NLRC, Spouses Santos v. NLRC and
Carag v. NLRC,51 have all established, save for certain exceptions, the
primacy of Sec 31 of the Corporation Code in the matter of assigning such
liability for a corporation's debts, including judgment obligations in labor
cases.
According to these cases, a corporation is still an artificial being invested
by law with a personality separate and distinct from that of its
stockholders and from that of other corporations to which it may be
connected.
It is not in every instance of inability to collect from a corporation that the
veil of corporate fiction is pierced, and the responsible officials are made
12
liable.
Personal liability attaches only when, as enumerated by the said Section
31 of the Corp Code, there is a willful and knowing assent to patently
unlawful acts of the corporation, there is gross negligence or bad faith in
directing the affairs of the corporation, or there is a conflict of interest
resulting in damages to the corporation.
Further, in another labor case, Pantranco Employees Association (PEA-
PTGWO), et al. v. NLRC, et al.,55 the doctrine of piercing the corporate veil
is held to apply only in three (3) basic areas, namely:
( 1) defeat of public convenience as when the corporate fiction is used
as a vehicle for the evasion of an existing obligation;
(2) fraud cases or when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; or
(3) alter ego cases, where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation. In the absence of malice, bad faith,
or a specific provision of law making a corporate officer liable, such
corporate officer cannot be made personally liable for corporate
liabilities.
It also bears emphasis that in cases where personal liability attaches, not
even all officers are made accountable.
Rather, only the "responsible officer," i.e., the person directly responsible
for and who "acted in bad faith" in committing the illegal dismissal or any
act violative of the Labor Code, is held solidarily liable, in cases wherein
the corporate veil is pierced.
In other instances, such as cases of so-called corporate tort of a close
corporation, it is the person "actively engaged" in the management of the
corporation who is held liable. In the absence of a clearly identifiable
officer(s) directly responsible for the legal infraction, the Court considers
the president of the corporation as such officer.
The common thread running among the aforementioned cases, however,
is that the veil of corporate fiction can be pierced, and responsible
corporate directors and officers or even a separate but related

corporation, may be impleaded and held answerable solidarily in a labor
case, even after final judgment and on execution, so long as it is
established that such persons have deliberately used the corporate
vehicle to unjustly evade the judgment obligation, or have resorted to
fraud, bad faith or malice in doing so.
When the shield of a separate corporate identity is used to commit
wrongdoing and opprobriously elude responsibility, the courts and the
legal authorities in a labor case have not hesitated to step in and shatter
the said shield and deny the usual protections to the offending party, even
after final judgment. The key element is the presence of fraud, malice or
bad faith. Bad faith, in this instance, does not connote bad judgment or
negligence but imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty through some
motive or interest or ill will; it partakes of the nature of fraud.
As the foregoing implies, there is no hard and fast rule on when corporate
fiction may be disregarded; instead, each case must be evaluated
according to its peculiar circumstances.
IN THE CASE AT BAR:
For the case at bar, applying the above criteria, a finding of personal and
solidary liability against a corporate officer like Guillermo must be rooted
on a satisfactory showing of fraud, bad faith or malice, or the presence of
any of the justifications for disregarding the corporate fiction. As stated in
McLeod, bad faith is a question of fact and is evidentiary, so that the
records must first bear evidence of malice before a finding of such may be
made.
Part of the evidence on record is the second page of the verified Position
Paper of complainant (herein respondent) Crisanto P. Uson, where it was
clearly alleged that Uson was "illegally dismissed by the
President/General Manager of respondent corporation (herein
petitioner) Jose Emmanuel P. Guillermo when Uson exposed the practice
of the said President/General Manager of dictating and undervaluing the
shares of stock of the corporation."
The statement is proof that Guillermo was the responsible officer in
charge of running the company as well as the one who dismissed Uson
from employment.
13
As this sworn allegation is uncontroverted - as neither the company nor
Guillermo appeared before the Labor Arbiter despite the service of
summons and notices - such stands as a fact of the case, and now functions
as clear evidence of Guillermo's bad faith in his dismissal of Uson from
employment, with the motive apparently being anger at the latter's
reporting of unlawful activities.
Then, it is also clearly reflected in the records that it was Guillermo
himself, as Pres and General Manager of the company, who received the
summons to the case, and who also subsequently and without justifiable
cause refused to receive all notices and orders of the Labor Arbiter that
followed.
This makes Guillermo responsible for his and his company's failure to
participate in the entire proceedings before the said office.
The fact is clearly narrated in the Decision and Orders of the Labor
Arbiter, Uson's Motions for the Issuance of Alias Writs of Execution, as
well as in the Decision of the NLRC and the assailed Decision of the Court
of Appeals, which Guillermo did not dispute in any of his belated motions
or pleadings, including in his petition for certiorari before the Court of
Appeals and even in the petition currently before this Court.
Thus, again, the same now stands as a finding of fact of the said lower
tribunals which binds this Court and which it has no power to alter or
revisit.
Guillermo's knowledge of the case's filing and existence and his
unexplained refusal to participate in it as the responsible official of his
company, again is an indicia of his bad faith and malicious intent to evade
the judgment of the labor tribunals.
Finally, the records likewise bear that Guillermo dissolved Royal Class
Venture and helped incorporate a new firm, located in the same address
as the former, wherein he is again a stockholder.
This is borne by the Sherifs Return which reported: that at Royal
Class Venture's business address at Minien East, Sta. Barbara,
Pangasinan, there is a new establishment named "Joel and Sons
Corporation," a family corporation owned by the Guillermos in

which Jose Emmanuel F. Guillermo is again one of the
stockholders; that Guillermo received the writ of execution but
used the nickname "Joey" and denied being Jose Emmanuel F.
Guillermo and, instead, pretended to be Jose's brother; that the
guard on duty confirmed that Jose and Joey are one and the same
person; and that the respondent corporation Royal Class Venture
had been dissolved.
Again, the facts contained in the Sheriffs Return were not disputed nor
controverted by Guillermo, either in the hearings of Uson's Motions for
Issuance of Alias Writs of Execution, in subsequent motions or pleadings,
or even in the petition before this Court. Essentially, then, the facts form
part of the records and now stand as further proof of Guillermo's bad faith
and malicious intent to evade the judgment obligation.
The foregoing clearly indicate a pattern or scheme to avoid the obligations
to Uson and frustrate the execution of the judgment award, which this
Court, in the interest of justice, will not countenance.
As for Guillermo's assertion that the case is an intra-corporate
controversy, the Court sustains the finding of the appellate court that the
nature of an action and the jurisdiction of a tribunal are determined by
the allegations of the complaint at the time of its filing, irrespective of
whether or not the plaintiff is entitled to recover upon all or some of the
claims asserted therein.
Although Uson is also a stockholder and director of Royal Class Venture,
it is settled in jurisprudence that not all conflicts between a stockholder
and the corporation are intra-corporate; an examination of the complaint
must be made on whether the complainant is involved in his capacity as a
stockholder or director, or as an employee.
If the latter is found and the dispute does not meet the test of what
qualities as an intra--corporate controversy, then the case is a labor case
cognizable by the NLRC and is not within the jurisdiction of any other
tribunal.
In the case at bar, Uson's allegation was that he was maliciously and
illegally dismissed as an Accounting Supervisor by Guillermo, the Co Pres
and General Manager,
14
an allegation that was not even disputed by the latter nor by Royal Class
Venture.
It raised no intra-corporate relationship issues between him and the
corporation or Guillermo; neither did it raise any issue regarding the
regulation of the corporation. As correctly found by the appellate court,
Uson's complaint and redress sought were centered alone on his dismissal
as an employee, and not upon any other relationship he had with the
company or with Guillermo.
Thus, the matter is clearly a labor dispute cognizable by the labor
tribunals.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision
dated June 8, 2011 and Resolution dated October 7, 2011 in CA- G.R. SP
No. 115485 are AFFIRMED.
SO ORDERED.
12. G.R. No. L-18287 March 30, 1963
TRINIDAD J. FRANCISCO, plaintiff-appellee,
v.
GOVT SERVICE INSURANCE SYSTEM, defendant-appellant.
-----------------------------
G.R. No. L-18155 March 30, 1963
TRINIDAD J. FRANCISCO, plaintiff-appellant,
vs.
GOVT SERVICE INSURANCE SYSTEM, defendant-appellee.
REYES, J.B.L., J.:
7 SCRA 577 Business Organization Corporation Law Corporate
Liability
In 1956, Trinidad Francisco obtained a P400k loan from the Government
Service Insurance System (GSIS).
She secured the loan with a parcel of land. In 1959 however, due to some
difficulties, Trinidad incurred huge arrears.
This prompted GSIS to foreclose the property. But then, Trinidads father,

Atty. Vicente Francisco, wrote a letter to GSIS offering that he pay P30k off
the loan and then allow GSIS to administer the mortgaged property
instead of foreclosing it; that thereafter, GSIS shall receive rents from the
tenants of the land until the arrears are paid and the account is made
current or up to date (bec the total of the monthly rents is bigger than the
monthly loan payments supposed to be paid by Trinidad to GSIS).
GSIS, through its general manager Rodolfo Andal, responded with a letter
which states that the GSIS Board had accepted Vicentes offer.
15
out to the public as possessing power to do those acts, the corporation
will, as against anyone who has in good faith dealt with the corporation
through such agent, be estopped from denying his authority; and where it
is said if the corporation permits this means the same as if the thing is
permitted by the directing power of the corporation.
GSIS cannot also deny that it has knowledge of the acceptance.
A corporation cannot see, or know, anything except through its officers.

But GSIS for some reason did not take over the property. Nevertheless, the
Franciscos collected rents and turned them over to GSIS.
Then in 1960, GSIS demanded Francisco to pay off the loan. Vicente then
reminded GSIS that the agreement in 1959 which is actually a
compromise is binding upon GSIS. GSIS then averred that the letter sent
to Vicente in response to his offer was not sent in error because Andals
secretary sent the poorly worded response without Andals knowledge.
Knowledge of facts acquired or possessed by an officer or agent of a
corporation in the course of his employment, and in relation to matters
within the scope of his authority, is notice to the corporation, whether he
communicates such knowledge or not.
Andal is presumed to have knowledge of the acceptance because it was
his office which sent it to Vicente. Knowledge of Andal, an officer of GSIS,
is deemed knowledge of GSIS.

ISSUE: Whether or not a corp like GSIS is bound by the acts of its officers At any rate, even if the compromise agreement is void because of the
acting in their apparent authority. unauthorized telegram, GSISs silence and acceptance of the subsequent
remittances of the Franciscos ratified the compromise agreement.
RULING: Yes. A third party transacting with a corporation cannot be
expected to know what occurs within a corporation, its meetings, without
any external manifestations from the corporation.

In the case at bar, the response by GSIS to Vicente by way of a telegram, is

within the apparent authority of Andal.

If there are any irregularities in the telegraph i.e., the sending of the
secretary without the authority of Andal, Vicente is not expected to know
it because the telegram on its face is clear as to the acceptance.

Vicente cannot therefore be faulted for relying on the telegram; that GSIS
accepted his offer.

Hence, GSIS cannot now ask Francisco to suddenly pay off the debt.

If a corporation knowingly permits one of its officers, or any other agent,

to do acts within the scope of an apparent authority, and thus holds him