Bank of Commerce vs. Marilyn Nite, G.R. No. 211535, July 22, 2015
14chanrobleslaw
CORPO
REQUISITES TO PIERCE THE VEIL OF CORPORATE FICTION: To
hold a director or officer personally liable for corporate obligations,
two requisites must concur: (1) complainant must allege in the
complaint that the director or officer assented to patently unlawful acts
of the corporation, or that the officer was guilty of gross negligence
or bad faith; and (2) complainant must clearly and convincingly
prove such unlawful acts, negligence or bad faith. To hold a director
personally liable for debts of the corporation, and thus pierce the veil of
corporate fiction, the bad faith or wrongdoing of the director must
be established clearly and convincingly. It is settled that the
transaction between Bancom and Bancap is an ordinary sale.
ULTRAVIRES ACTS ARE NOT ALWAYS UNLAWFUL: In addition, we
consider the testimony of Lagrimas Nuqui, the Legal Officer in Charge
of the Government Securities Department of the Bangko Sentral ng
Pilipinas from 1994 to 1998, who explained that primary issues of
treasury bills are supposed to be issued only to accredited dealers but
these accredited banks can sell to anyone who need not be
accredited, and such buyers, who may be corporations or individuals,
are classified as the secondary market. The trial court and the Court of
Appeals found that Bancap sold the treasury bills as a secondary
dealer. As such, Bancap's act of selling securities to Bancom is at
most ultra vires and not patently unlawful.
FACTS:
Respondent was charged, together with one Bradley and Escalambre,
with violation of Section 19 of Batas Pambansa Bilang 178. Nite was
also charged, together with Bradley, Escalambre, and Yang, with
Estafa. The two cases were tried jointly.
The prosecution's argument was that Nite, as President of Bancapital
Development Corporation (Bancap), violated Section 19 of BP Blg. 178
when Bancap sold P250 million worth of treasury bills to Bank of
Commerce (Bancom) without being registered as broker, dealer, or
salesman of securities. The prosecution also alleged that Nite
defrauded Bancom by falsely pretending to possess and own P250
million worth of treasury bills that Bancap supposedly sold to Bancom
when none of the treasury bills described in the Confirmation of Sale
and Letter of Undertaking issued by Bancap were ever delivered to
Bancom. On Trial, the court ruled that the prosecution was not able to
establish that Bancap acted as a primary dealer that needed to be
accredited. According to the trial court, Bancap acted as a secondary
dealer and did not buy the treasury bills directly from the Central Bank.
The trial court ruled that the element of deceit was non-existent and
that at the time of the transaction, Bancom was aware that Bancap
was not in physical possession of the treasury bills subject of the sale.
Hence, Nite was ACQUITTED of both charges made. However, she
was ordered to pay BANK OF COMMERCE representing the civil
obligation of BANCAPITAL. Nite filed a partial motion for
reconsideration which was later granted.
When it was the prosecution's turn to file a motion for reconsideration,
it alleges that the trial court erred in absolving Nite of her civil liability to
Bancom. The prosecution alleged that the trial court erred in not
piercing the corporate veil of Bancap when it was adequately shown
that Nite used the company to perpetuate fraud and to evade an
existing obligation. Nevertheless, the said motion was denied for lack
of merit.
On Appeal, it affirmed the TCs Decision. Hence, Bancom filed a
petition for review before this Court.
ISSUE: W/N the Court of Appeals erred in not piercing the corporate
veil of Bancap even though the same was being used to perpetuate
fraud.
RULING:
We deny the petition.
The general rule is that a corporation is invested by law with a
personality separate and distinct from that of the persons composing it,
or from any other legal entity that it may be related to. 12 The obligations
of a corporation, acting through its directors, officers, and employees,
are its own sole liabilities.13 Therefore, the corporation's directors,
officers, or employees are generally not personally liable for the
obligations of the corporation.
To hold a director or officer personally liable for corporate obligations,
two requisites must concur: (1) complainant must allege in the
complaint that the director or officer assented to patently unlawful acts
of the corporation, or that the officer was guilty of gross negligence or
bad faith; and (2) complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.15 To hold a director
personally liable for debts of the corporation, and thus pierce the veil of
corporate fiction, the bad faith or wrongdoing of the director must be
established clearly and convincingly.16chanrobleslaw
The court considered the testimony of Lagrimas Nuqui, the Legal
Officer in Charge of the Government Securities Department of the
Bangko Sentral ng Pilipinas from 1994 to 1998, who explained that
primary issues of treasury bills are supposed to be issued only to
accredited dealers but these accredited banks can sell to anyone who
need not be accredited, and such buyers, who may be corporations or
individuals, are classified as the secondary market. The trial court and
the Court of Appeals found that Bancap sold the treasury bills as a
secondary dealer.17 As such, Bancap's act of selling securities to
Bancom is at most ultra vires and not patently unlawful.
Based on the foregoing, we cannot hold Nite personally liable for
Bancap's corporate liability.
WHEREFORE, we DENY the petition.
JAMES YU and WILSON YOUNG, petitioners, vs THE NATIONAL
LABOR RELATIONS COMMISSION, LABOR ARBITER DANIEL C.
CUETO, TANDUAY DISTILLERY INC., FERNANDO DURAN,
EDUARDO PALIWAN, ROQUE ESTOCE AND RODRIGO SANTOS,
respondents.
G.R. Nos. 111810-11 June 16, 1995
FACTS: Private respondents-employees Fernando Duran, Eduardo
Paliwan, Roque Estoce, and Rodrigo Santos were employees of
respondent corporation Tanduay Distillery, Inc, (TDI) who were among
the 22 employees who received a memorandum from TDI terminating
their services. for reasons of retrenchment, effective 30 days from
receipt thereof or not later than the close of business hours on April 28,
1988.
The 22 employees filed a TRO however, due to the 20-day lifetime of
the temporary restraining order, and because of the on-going
negotiations for the sale of TDI the retrenchment pushed through. Out
of the 22 employees who were retrenched, the instant petition involves
only the 4 individual respondents herein.
On June 1, 1988, or after respondents-employees had ceased as such
employees, a new buyer of TDI's assets, Twin Ace Holdings, Inc. took
over the business. Twin Ace assumed the business name Tanduay
Distillers.
.On August 8, 1988, the employees filed a motion to implead herein
petitioners James Yu and Wilson Young, doing business under the
name and style of Tanduay Distillers, as party respondents in said
cases. Petitioners filed an opposition thereto, asserting that they are
representatives of Tanduay Distillers an entity distinct and separate
from TDI, the previous owner, and that there is no employer-employee
relationship between Tanduay Distillers and private respondents.
Respondents-employees filed a reply to the opposition stating that
petitioner James Yu as officer-in-charge of Tanduay Distillers had
informed the president of TDI labor union of Tanduay Distillers'
decision to hire everybody with a clean slate on a probation basis.
On May 24, 1989, the Labor arbiter rendered a decision declaring
the retrenchment illegal and ordering the respondent Tanduay
Distillery, Inc., to reinstate the complainants to their former
position wth backwages up to the time of change of ownership, if
one has taken place. And 'That in the event of change in
management it (Tanduay Distillery, Inc.,) is hereby ordered to pay
the complainants their respective separation benefits computed
at the rate of one (1) month for every year of service. This is
without prejudice to the letter of Mr. James Yu as officer-in-charge
of Tanduay Distillers dated June 17, 1988 to the President of the
Tanduay Distillery, Inc., Labor Union.'
Thereupon, private respondents-employees on September 16, 1991
filed a motion for execution praying that NLRC through the labor
arbiter, "[i]ssue the necessary writ for the execution of the entire
decision dated May 24, 1989, including the actual reinstatement of the
complainants to their former position without loss of seniority and
benefits against Tanduay Distillery, Inc., and/or Tanduay Distillers,
James Yu and Wilson Young." This was opposed by the petitioners on
the ground that "the Motion for Execution is without any basis in
so far as it prays for the issuance of a writ of execution against
respondent Tanduay Distillers, which is an entity separate and
distinct from respondent Tanduay Distillery, Inc., and respondents
James Yu and Wilson Young."
ISSUE: Whether or not the respondent NLRC committed grave abuse
of discretion in holding petitioners Yu and Young liable under the
decision dated May 24, 1989.
HELD: Yes. Petitioners, for a number of reasons which we shall
discuss below, may not be held answerable and liable under the
final judgment of Labor Arbiter Cauton-Barcelona.
1. An examination of the aforequoted dispositive portion of the
decision shows that the same does not in any manner obligate
Tanduay Distillers, or even petitioners Yu and Young for that
matter, to reinstate respondents. Only TDI was held liable to
reinstate respondents up to the time of change of ownership, and
for separation benefits.
However, Labor Arbiter Cueto went beyond what was disposed by the
decision and issued an order dated November 17, 1992 which
required". . . Tanduay Distillers, Inc., Wilson Young and James Yu to
immediately reinstate complainants Fernando Duran, Rodrigo Santos,
Roque Estoce and Eduardo Daliwan to heir respective positions." The
order of execution dated November 17, 1992 in effect amended the
decision dated May 24, 1989 for the former orders petitioners and
Tanduay Distillers to reinstate private respondents employees whereas
the decision dated May 24, 1989, as we have discussed above, does
not so decree, This cannot be done. It is beyond the power and
competence of Labor Arbiter Cueto to amend a final decision, The writ
of execution must not go beyond the scope of the judgment.
2. Neither may be said that petitioners and Tanduay Distillers are
one and the same as TDI, as seems to be the impression of
respondents when they impleaded petitioners as party
respondents in their compliant for unfair labor practice, illegal lay
off, and separation benefits.
Such a stance is not supported by the facts. The name of the company
for whom the petitioners are working is Twin Ace Holdings Corporation,
As stated by the Solicitor General, Twin Ace is part of the Allied Bank
Group although it conducts the rum business under the name of
Tanduay Distillers. The use of a similar sounding or almost identical
name is an obvious device to capitalize on the goodwill which Tanduay
Rum has built over the years. Twin Ace or Tanduay Distillers, on one
hand, and Tanduay Distillery Inc. (TDI), on the other, are distinct and
separate corporations. There is nothing to suggest that the owners of
TDI, have any common relationship as to identify it with Allied Bank
Group which runs Tanduay Distillers.
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 (Palay, Inc.
et al. vs. Clave, et al., 124 SCRA 641 [1983]).
The genuine nature of the sale to Twin Ace is evidenced by the fact
that Twin Ace was only a subsequent interested buyer. At the time
when termination notices were sent to its employees, TDI was
negotiating with the First Pacific Metro Corporation for the sale of its
assets. Only after First Pacific gave up its efforts to acquire the assets
did Twin Ace or Tanduay Distillers come into the picture. Respondents-
employees have not presented any proof as to communality of
ownership and management to support their contention that the two
companies are one firm or closely related. The doctrine of piercing the
veil of corporate entity applies when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud, or defend crime
or where a corporation is the mere alter ego or business conduit of a
person (Indophil Textile Mill Workers Union vs. Calica, 205 SCRA 697,
703 (1992]). To disregard the separate juridical personality of a
corporation, the wrong-doing must be clearly and convincingly
established. It cannot be presumed (Del Rosario vs. NLRC, 187 SCRA
777, 7809 [1990]).
Another factor to consider is that TDI as a corporation or its shares
of stock were not purchased by Twin Ace. The buyer limited itself to
purchasing most of the assets, equipment, and machinery of TDI.
Thus, Twin Ace or Tanduay Distillers did not take over the corporate
personality of DTI although they manufacture the same product at the
same plant with the same equipment and machinery. Obviously, the
trade name "Tanduay" went with the sale because the new firm does
business as Tanduay Distillers and its main product of rum is sold as
Tanduay Rum. There is no showing, however, that TDI itself was
absorbed by Twin Ace or that it ceased to exist as a separate
corporation, In point of fact TDI is now herein a party respondent
represented by its own counsel.
- the fiction of separate and distinct corporate entities cannot, in the
instant case, be disregarded and brushed aside, there being not the
least indication that the second corporation is a dummy or serves as a
client of the first corporate entity.
3. Nor could the order and writ to reinstate be anchored on the
vague and seemingly uncalled for alternative disposition in the
Barcelona decision that
". . . This is without prejudice to the letter of Mr. James Yu as officer-in-
charge of Tanduay Distillers dated June 16, 1988 to the President of
the Tanduay Distillery, Inc. labor Union."
The letter of James Yu does not mention any reinstatement. It assures
the president of the labor union that Tanduay Distillers stood firm on its
decision to hire employees with a clean slate on a probationary basis.
The fact that the employees of the former employer (TDI) would be
hired on a probationary basis shows that there was no employer-
employee relationship between individual respondents and Twin Ace.
Anyone who joins the buyer corporation comes in as an outsider who
is newly hired and who starts on a probationary basis until he proves
he deserves to be on a permanent status. His application can be
rejected in the exercise of the hiring authority's discretion.
4. . Another factor which militates against the claim for
reinstatement of the individual respondents is their having
received separation pay as part of a compromise agreement in
the course of their litigation with TDI. PAMATIAN
CEASE VS CA
FACTS:
Forrest Cease and five (5) other American citizens formed Tiaong
Milling and Plantation Company. Eventually, the shares of the other
original incorporators were bought out by Cease with his children. The
companys charter lapsed in June 1958. Forrest Cease died in
August 1959. There was no mention whether there were steps to
liquidate the company. Some of his children wanted an actual division
while others wanted a reincorporation. Two of his children, Benjamin
and Florence, initiated Special Proceeding No. 3893 with CFI Tayabas
asking that the Tiaong Milling and Plantation Corporation be
declared identical to Forrest Cease and that its properties be
divided among his children as intestate heirs. Defendants opposed
the same but the CFI ruled in favor of the plaintiffs. Defendants filed a
notice of appeal from the CFIs decision but the same was dismissed
for being premature. The case was elevated to the SC which
remanded it to the Court of Appeals. The CA dismissed the petition.
ISSUE: Whether or not the Court of Appeals erred in affirming the
lower courts decision that the subject properties owned by the
corporation are also properties of the estate of Forrest Cease
HELD: NO. The trial court indeed found strong support, one that is
based on a well-entrenched principle of law which is the theory of
"merger of Forrest L. Cease and The Tiaong Milling as one
personality", or that "the company is only the business conduit and
alter ego of the deceased Forrest L. Cease and the registered
properties of Tiaong Milling are actually properties of Forrest L. Cease
and should be divided equally, share and share alike among his six
children, ... ", the trial court aptly applied the familiar exception to the
general rule by disregarding the legal fiction of distinct and separate
corporate personality and regarding the corporation and the individual
member one and the same. In shredding the fictitious corporate veil,
the trial judge narrated the undisputed factual premise, thus:
While the records showed that originally its incorporators were aliens,
friends or third-parties in relation to another, in the course of its
existence, it developed into a close family corporation. The Board of
Directors and stockholders belong to one family the head of which
Forrest L. Cease always retained the majority stocks and hence the
control and management of its affairs. It must be noted that as his
children increase or become of age, he continued distributing his
shares among them adding Florence, Teresa and Marion until at the
time of his death only 190 were left to his name. Definitely, only the
members of his family benefited from the Corporation.
The corporation 'never' had any account with any banking institution or
if any account was carried in a bank on its behalf, it was in the name of
Mr. Forrest L. Cease. There is truth in plaintiff's allegation that the
corporation is only a business conduit of his father and an extension of
his personality, they are one and the same thing. Thus, the assets of
the corporation are also the estate of Forrest L. Cease, the father of
the parties herein who are all legitimate children of full blood.
A rich store of jurisprudence has established the rule known as the
doctrine of disregarding or piercing the veil of corporate fiction.
GENERAL RULE: a corporation is vested by law with a personality
separate and distinct from the persons composing it as well as any
other legal entity to which it may be related. By virtue of this attribute, a
corporation may not, generally, be made to answer for acts or liabilities
of its stockholders or those of the legal entities to which it may be
connected, and vice versa. This separate and distinct personality is,
however, merely a fiction created by law for convenience and to
promote the ends of justice
EXCEPTIONS: Such rule may not be used or invoked for ends
subversive of the policy and purpose behind its creation or which could
not have been intended by law to which it owes its being. This is
particularly true where the fiction is used to defeat public convenience,
justify wrong, protect fraud, defend crime, confuse legitimate legal or
judicial issues, perpetrate deception or otherwise circumvent the law
This is likewise true where the corporate entity is being used as an
alter ego, adjunct, or business conduit for the sole benefit of the
stockholders or of another corporate. In any of these cases, the notion
of corporate entity will be pierced or disregarded, and the corporation
will be treated merely as an association of persons or, where there are
two corporations, they will be merged as one, the one being merely
regarded as part or the instrumentality of the other.
An indubitable deduction from the findings of the trial court cannot but
lead to the conclusion that the business of the corporation is largely, if
not wholly, the personal venture of Forrest L. Cease. There is not even
a shadow of a showing that his children were subscribers or
purchasers of the stocks they own. Their participation as nominal
shareholders emanated solely from Forrest L. Cease's gratuitous dole
out of his own shares to the benefit of his children and ultimately his
family.
If the Court sustained the theory of petitioners that the trial court acted
in excess of jurisdiction or abuse of discretion amounting to lack of
jurisdiction in deciding the civil case as a case for partition, Tiaong
Milling and Plantation Company would have been able to extend its
corporate existence beyond the period of its charter which lapsed in
June, 1958 under the guise and cover of F. L, Cease Plantation
Company, Inc. as Trustee which would be against the law, and as
Trustee shall have been able to use the assets and properties for the
benefit of the petitioners, to the great prejudice and defraudation. of
private respondents. Hence, it becomes necessary and imperative to
pierce that corporate veil.
The judgment appealed from is AFFIRMED.
DELPHER TRADES CORPORATION VS. IAC
The legal right of a taxpayer to decrease the amount of what
otherwise could be his taxes or altogether avoid them, by
means which the law permits, cannot be doubted.
Delfin Pacheco and sister Pelagia were the owners of a parcel of land
in Polo (now Valenzuela). Subsequently, they leased to Construction
Components International Inc. the property and providing for a right of
first refusal should it decide to sell the said property.
Construction Components International, Inc. assigned its rights and
obligations under the contract of lease in favor of Hydro Pipes
Philippines, Inc. with the signed conformity and consent of Delfin and
Pelagia. In 1976, a deed of exchange was executed between lessors
Delfin and Pelagia Pacheco and defendant Delpher Trades
Corporation whereby the Pachecos conveyed to the latter the leased
property together with another parcel of land also located.
On the ground that it was not given the first option to buy the leased
property pursuant to the lease agreement, respondent Hydro Pipes
Philippines filed an amended complaint for reconveyance of the lot
under the conditions similar to those of Delpher. The court ruled in
favor of Hydro declaring the existence of its preferential right to acquire
the subject property. IAC affirmed.
Petitioner Delpher contend that there was actually no transfer of
ownership, the Pachecos having remained in control of the property.
They alleged that petitioner Delpher is a family corporation , organized
by the children of Pelagia, who owned the parcel of land leased to
private respondent Hydro to perpetuate their control over the property
through the corporation and to avoid taxes. It also alleged that to
accomplish this, the leased property was transferred to petitioner
Delpher by virtue of a deed of exchange, and in exchange for the
properties they acquired majority shares of petitioner Delpher
corporation. In short, petitioners contend that the Pachecos did not sell
the leased property since they exchanged the land for shares in their
own corporation. Private respondent, however, contend that petitioner
Delher Trades is a corporation separate and distinct from the
Pachecos.
Issue: Whether or not the "Deed of Exchange" of the properties
executed by the Pachecos on the one hand and the Delpher Trades
Corporation on the other was meant to be a contract of sale which, in
effect, prejudiced the private respondent's right of first refusal over the
leased property included in the deed of exchange
Ruling:
The Court ruled in favor of the petitioner. The "Deed of Exchange" of
property between the Pachecos and Delpher Trades Corporation
cannot be considered a contract of sale. There was no transfer of
actual ownership interests by the Pachecos to a third party. The
Pacheco family merely changed their ownership from one form to
another. The ownership remained in the same hands. Hence, the
private respondent has no basis for its claim of a light of first refusal
under the lease contract.
By their ownership of a capital equal to 55% of the shares, the
Pachecos have the control of the petitioner corporation. In effect, the
petitioner corporation is a business conduit of the Pachecos. What they
really did was to invest their properties and change the nature of their
ownership from unincorporated to incorporated form by organizing
Delpher Trades Corporation to take control of their properties and at
the same time save on inheritance taxes
The execution of the deed of exchange on the properties for no par
value shares, the Pachecos were able to provide for a tax free
exchange of property, such that they were able to execute the deed of
exchange free from income tax and acquire a corporation. Sec. 35 of
the NIRC provides that No gain or loss shall also be recognized if a
person exchanges his property for stock in a corporation of which as a
result of such exchange said person alone or together with others not
exceeding four persons gains control of said corporation."
The Court believes that there is nothing wring about the estate
planning scheme resorted to by the Pachecos. The legal right of a
taxpayer to decrease the amount of what otherwise could be his
taxes or altogether avoid them, by means which the law permits,
cannot be doubted.
KOPPEL PHILIPPINES, INC. VS ALFREDO YATCO (COLLECTOR
OF INTERNAL REVENUE)
GR L47673, 77 Phil 496, October 10, 1946
FACTS:
Koppel Industrial Car and Equipment company (KICE), a foreign
company not doing business in the Philippines, owned 995 shares out
of the 1000 shares that comprise the capital stock of KPI, a domestic
corporation licensed as commercial broker in the Philippines. The
remaining 5 shares were owned by each of the officers of KPI. KICE is
in the business of selling railway materials, machineries and supplies.
Buyers in the Philippines, when interested, asked for price quotations
from KPI, and KPI then cabled for the quotation desired from KICE.
However, KPI quoted to the purchaser a selling price above the figures
quoted by KICE. On the basis of these quotations, orders were placed
by the local buyers. Between KICE and KPI, the arrangement
nonetheless was that KICE controls how much share of the profits
goes to KPI. For these transactions, the BIR treated KPI as a
subsidiary of KICE and collected from KPI the merchants sales tax,
which was a revenue law in force at the time the sales took place.
KPI paid the taxes under protest, demanded for refund and contended
that KPI could not be liable for merchants sales tax because it was
only acting as broker between KICE and the local buyers. The lower
court dismissed the complaint and ruled in favor of the government.
Issue 1: W/N KPI did business with the local buyers as an agent
of KICE and not as broker
Held:
Yes. The facts that KICE unilaterally controls the amount of so-called
share in the profits of KPI and that KICE owns an overwhelming
majority (99.5%) of the capital stock of the KPI are sufficient to
conclude that the latter is a mere dummy, agent or wholly-owned
subsidiary of KICE. Such conclusion is based on the doctrine that
courts may pierce the corporate veil to uncover the true intents of
these corporations.
Issue 2: W/N the application of piercing the corporate veil
doctrine is proper
Held:
Yes. With regards only to the transactions involved, KPI and KICE
were treated as one and the same so that taxes could be rightly
collected. The court has to disregard this corporate fiction to prevent
KICE / KPI from evading its taxes by contravening the local internal
revenue laws.
The court did not deny legal personality to KPI; in fact, it had no power
to hold so. The doctrine was used only to adjudge the rights and
liabilities of each parties in these kind of transactions. ##
LIDELL CO. V. COLLECTOR OF INTERNAL REVENUE
Facts: The case is an appeal from the decision of the Court of Tax
Appeals imposing a tax deficiency liability of P1,317,629.61 on Liddell
& Co., Inc.
The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic
corporation establish in the Philippines on February 1, 1946. From
1946 until November 22, 1948 when the purpose clause of the Articles
of Incorporation of Liddell & Co. Inc., was amended so as to limit its
business activities to importations of automobiles and trucks, Liddell &
Co. was engaged in business as an importer and at the same time
retailer of Oldsmobile and Chevrolet passenger cars and GMC and
Chevrolet trucks.
On December 20, 1948, the Liddell Motors, Inc. was organized and
registered with the Securities and Exchange Commission with an
authorized capital stock of P100,000 of which P20,000 was subscribed
and paid for as follows: Irene Liddell wife of Frank Liddell 19,996
shares and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del
Rosario and Esmenia Silva, 1 share each.
Beginning January, 1949, Liddell & Co. stopped retailing cars and
trucks; it conveyed them instead to Liddell Motors, Inc. which in turn
sold the vehicles to the public with a steep mark-up. Since then, Liddell
& Co. paid sales taxes on the basis of its sales to Liddell Motors Inc.
considering said sales as its original sales.
The Collector of Internal Revenue argued that the Lidell Motors, Inc.
was but an alter ego of Liddell & Co. and concluded that for sales tax
purposes, those sales made by Liddell Motors, Inc. to the public were
considered as the original sales of Liddell & Co. hence the imposition
of tax deficiency.
Issue: Whether or not Lidell Motors, Inc. is an alter ego of Lidell & Co.
making it liable for the said tax deficiency?
Held: The Court held that Lidell Motors, Inc. is an alter ego of Lidell &
Co. hence makin it liable for tax deficiency based on the principle that
to allow a taxpayer to deny tax liability on the ground that the sales
were made through an other and distinct corporation when it is proved
that the latter is virtually owned by the former or that they are
practically one and the same is to sanction a circumvention of our tax
laws which is consistent with the view of the US Supreme Court stating
in one case that "a taxpayer may gain advantage of doing business
thru a corporation if he pleases, but the revenue officers in proper
cases, may disregard the separate corporate entity where it serves but
as a shield for tax evasion and treat the person who actually may take
the benefits of the transactions as the person accordingly taxable."
The bulk of the business of Liddell & Co. was channeled through
Liddell Motors, Inc. On the other hand, Liddell Motors, Inc. pursued no
activities except to secure cars, trucks, and spare parts from Liddell &
Co. Inc. and then sell them to the general public. These sales of
vehicles by Liddell & Co. to Liddell Motors, Inc. for the most part were
shown to have taken place on the same day that Liddell Motors, Inc.
sold such vehicles to the public. We may even say that the cars and
trucks merely touched the hands of Liddell Motors, Inc. as a matter of
formality.
The mere fact that Liddell & Co. and Liddell Motors, Inc. are
corporations owned and controlled by Frank Liddell directly or indirectly
is not by itself sufficient to justify the disregard of the separate
corporate identity of one from the other. There is, however, in this
instant case, a peculiar consequence of the organization and activities
of Liddell Motors, Inc.
Under the law in force at the time of its incorporation the sales tax on
original sales of cars (sections 184, 185 and 186 of the National
Internal Revenue Code), was progressive, i.e. 10% of the selling price
of the car if it did not exceed P5000, and 15% of the price if more than
P5000 but not more than P7000, etc. This progressive rate of the sales
tax naturally would tempt the taxpayer to employ a way of reducing the
price of the first sale. And Liddell Motors, Inc. was the medium created
by Liddell & Co. to reduce the price and the tax liability.
In Lidell & Co.:
(1) Frank Liddell had the authority to designate in the future the
employee who could receive earnings of the corporation; to apportion
among the stock holders the share in the profits;
(2) that all certificates of stock in the names of the employees should
be deposited with Frank Liddell duly indorsed in blank by the
employees concerned;
(3) that each employee was required to sign an agreement with the
corporation to the effect that, upon his death or upon his retirement or
separation for any cause whatsoever from the corporation, the said
corporation should, within a period of sixty days therefor, have the
absolute and exclusive option to purchase and acquire the whole of the
stock interest of the employees so dying, resigning, retiring or
separating.
As to Liddell Motors, Inc Frank Lidell also owned it.
He supplied the original capital funds. It is not proven that his wife
Irene, ostensibly the sole incorporator of Liddell Motors, Inc. had
money of her own to pay for her P20,000 initial subscription. Her
income in the United States in the years 1943 and 1944 and the
savings therefrom could not be enough to cover the amount of
subscription, much less to operate an expensive trade like the retail of
motor vehicles. The alleged sale of her property in Oregon might have
been true, but the money received therefrom was never shown to have
been saved or deposited so as to be still available at the time of the
organization of the Liddell Motors, Inc.
The evidence at hand also shows that Irene Liddell had scant
participation in the affairs of Liddell Motors, Inc. She could hardly be
said to possess business experience. The income tax forms record no
independent income of her own. As a matter of fact, the checks that
represented her salary and bonus from Liddell Motors, Inc. found their
way into the personal account of Frank Liddell. Her frequent absences
from the country negate any active participation in the affairs of the
Motors company.
LA CAMPANA COFFEE FACTORY v KAISAHAN NG MANGGAGAWA
G.R. L-5677, May 25, 1953
Facts: Tan Tong since 1932 has been engaged in the buying and
selling gawgaw under the trade name La Campana Gawgaw Packing.
In 1950, Tan Tong and members of his family organized the family
corporation. La Campana Coffee Factory with its principal office
located in Gawgaw Packing. Prior to said information, Tan Tong
entered into a CBA with the labor union of La Campana Gawgaw. Later
on, his employees formed Kaisahan ng mga Manggagawa ng La
Campana with an authorization from the DOLE to become an affiliate
of the larger union.
Kaisahan with 66 members presented a demand for higher wages and
more privileges to La Campana Starch and Coffee Factory. The
demand was not granted and the DOLE certified the issue to the CIR.
La Campana filed a motion to dismiss alleging that the action was
directed against two different entities with distinct personalities. This
was denied, hence this petition.
Issue: W/N the CIR has jurisdiction over the case.
Held: YES. La Compana Gawgaw and La Campana Factory are
operating under one single management or as one business though
with two trade names. The coffee factory is a corporation and by legal
fiction, an entity separate and apart from the persons composing it
namely, Tan Tong and his family.
However, the concept of separate corporate personality cannot be
extended to a point beyond reason and policy when invoked in support
of an end subversive of this policy and will be disregarded by the
courts.
A subsidiary company which is created merely as an agent for the
latter may sometimes be regarded as identical with the parent
corporation especially if the stockholders or officers of the two
corporations are substantially the same or their systems of operation
unified. The facts showed that they had one management, one payroll
prepared by the same person, laborers were interchangeable, there is
only one entity as shown by the signboard ad in trucks, packages and
delivery forms and the same place of business.
The attempt to make the two factories appear as two separate
businesses when in reality they are but one, is but a device to defeat
the ends of the law and should not be permitted to prevail.
WHY PIERCE? So that La Campana cannot evade the jurisdiction of
CIR since La Campana Gawgaw has only 14 employees and only 5
are members of Kaisahan.
Lanuza Jr. vs BF Corporation
G.R. No. 174938 October 1, 2014
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 December 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 October 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. According to BF Corporation,
Shangri-La misrepresented that it had funds to pay for its obligations
with BF Corporation, and the delay in payment was simply a matter of
delayed processing of BF Corporations progress billing statements.
BF Corporation eventually completed the construction of the buildings.
Shangri-La allegedly took possession of the buildings while still owing
BF Corporation an outstanding balance. BF Corporation 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 August 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 towarrant
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 sameas 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. 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. Section 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 ofincorporation; 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.
Guillermo v. Uson (March 7, 2016)
Undisputed Facts and Material Dates
Royal Class Ventures employed Crisanto P. Uson as an accounting
clerk since March 11, 1996. He was promoted to the position of
accounting supervisor until he was allegedly dismissed on December
20, 2000.
On March 2, 2001, Uson filed with the Sub-Regional Arbitration Branch
No. 1, Dagupan City, of the NLRC a Complaint for Illegal Dismissal.
Guillermo did not appear in the case despite being summoned by the
court.
The LA ruled in favor of Uson and ordered Royal Class to reinstate him
with payment of backwages and 13th month pay. Despite orders of the
Court, however, Royal Class never complied. Thus, Uson filed a
Motion to hold directors and officers of Royal Class liable for the
satisfaction of the LAs decision.
Labor Arbiters Ruling
The LA granted Usons motion. The LA held Royal Class
president/general manager, Emmanuel P. Guillermo, liable for the
enforcement of the claims of Uson. This order of holding officers liable
for the obligations of the corporation is called piercing the veil of
corporate fiction. Guillermo filed a Motion for Reconsideration, but the
LA denied the same and even castigated Guillermo for his unexplained
absence in the prior proceedings.
The NLRCs Ruling on the Appeal and on the MR
Guillermo elevated the matter to the NLRC, but the court denied his
appeal.
Court of Appeal's Ruling on the Appeal and on the MR
The CA agreed with the LA and NLRC, which held Guillermo
personally liable for the obligations of Royal Class to Uson.
Guillermos Allegation and Position
Guillermo contends that the so-called piercing the veil of corporate
fiction discriminated against him since he alone was held liable despite
the existence of other directors and officers of Royal Class.
Substantive Law Issue
WON the doctrine of piercing of the veil of corporate fiction apply in
labor cases - YES
Factual and Evidentiary Issue
May Guillermo be held personally liable for the obligation of Royal
Class to Uson - YES
Supreme Court's Ratio Decidendi
Doctrine of piercing the corporate veil apply in labor cases
The Court rules that in labor cases, officers may indeed be ordered to
answer for the companys obligations to employees, but only when
there is a presence of fraud, malice or bad faith on the part of the
officers. The Court thus explains:
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. (Emphasis
supplied.)
The court adds that there is no hard and fast rule in applying the
doctrine, and a case must be evaluated according to its peculiar
circumstances.
Guillermo exhibited bad faith; hence he is personally liable
The Court enumerates three reasons for finding bad faith on the part of
Guillermo:
First, Guillermo was personally responsible for the malicious and illegal
dismissal of Uson. This was clearly alleged in Usons position paper,
wherein he explained that Guillermo terminated his employment when
Uson exposed Guillermos practice of dictating and undervaluing the
shares of stock of the corporation. Since Guillermo was unjustifiably
absent in lower court proceedings, this allegation by Uson is now
treated by the Court as a fact of the case. It now functions as a clear
evidence of bad faith on the part of Guillermo, that his anger at Usons
reporting of unlawful activities motivated Usons dismissal.
Second, he exhibited bad faith in failing to participate in the
proceedings. Guillermo himself received and refused to follow the
notices and orders of the Labor Arbiter. His knowledge of the case and
his unexplained non-compliance are an indication of his bad faith to
evade the judgment of the labor tribunals.
Third, Guillermo dissolved Royal Class Venture and helped incorporate
a new firm, Joel and Sons Corporation, in which he is again a
stockholder. The Court interpreted this as a malicious scheme to evade
the fulfillment of Royal Class obligation to Uson.
Finally, Guillermo pretended to be another person and introduced
himself as Joey when the Sheriff gave him the order to execute the
judgment of the LA.
Adelio Cruz vs Quiterio Dalisay
152 SCRA 482 Business Organization Corporation Law Piercing
the Veil of Corporate Fiction Exercised by the Wrong Person
In 1984, the National Labor Relations Commission issued an order
against Qualitrans Limousine Service, Inc. (QLSI) ordering the latter to
reinstate the employees it terminated and to pay them backwages.
Quiterio Dalisay, Deputy Sheriff of the court, to satisfy the backwages,
then garnished the bank account of Adelio Cruz. Dalisay justified his
act by averring that Cruz was the owner and president of QLSI.
Further, he claimed that the counsel for the discharged employees
advised him to garnish the account of Cruz.
ISSUE: Whether or not the action of Dalisay is correct.
HELD: No. What Dalisay did is tantamount to piercing the veil of
corporate fiction. He actually usurped the power of the court. He also
overstepped his duty as a deputy sheriff. His duty is merely ministerial
and it is incumbent upon him to execute the decision of the court
according to its tenor and only against the persons obliged to comply.
In this case, the person judicially named to comply was QLSI and not
Cruz. It is a well-settled doctrine both in law and in equity that as a
legal entity, a corporation has a personality distinct and separate from
its individual stockholders or members. The mere fact that one is
president of a corporation does not render the property he owns or
possesses the property of the corporation, since the president, as
individual, and the corporation are separate entities.
NASECO GUARDS ASSOCIATION-PEMA (NAGA-PEMA), Petitioner
vs NATIONAL SERVICE CORPORATION (NASECO), Respondent.
G.R. No. 165442; August 25, 2010
FACTS:
Respondent National Service Corporation (NASECO) is a wholly-
owned subsidiary of the PNB organized under the Corporation Code in
1975. It supplies security and manpower services to different clients
such as the SEC, PDIC, Food Terminal Incorporated, Forex
Corporation and PNB. Petitioner NASECO Guards Association-PEMA
(NAGA-PEMA) is the collective bargaining representative of the regular
rank and file security guards of respondent. NASECO Employees
Union-PEMA (NEMU-PEMA) is the collective bargaining representative
of the regular rank and file (non-security) employees of respondent
such as messengers, janitors, typists, clerks and radio-telephone
operators.
On June 8, 1995, petitioner and respondent agreed to sign a CBA on
non-economic terms. On September 24, 1996, petitioner filed a notice
of strike because of respondents refusal to bargain for economic
benefits in the CBA. Following conciliation hearings, the parties again
commenced CBA negotiations and started to resolve the issues on
wage increase, productivity bonus, incentive bonus, allowances, and
other benefits but failed to reach an agreement.
Meanwhile, respondent and NEMU-PEMA entered into a CBA on non-
economic terms. Unfortunately, a dispute among the leaders of
NEMU-PEMA arose and at a certain point, leadership of the
organization was unclear. Hence, the negotiations concerning the
economic terms of the CBA were put on hold until the internal dispute
could be resolved.
On April 29, 1997, petitioner filed a notice of strike before the NCMB
against respondent and PNB due to a bargaining deadlock. The
following day, NEMU-PEMA likewise filed a notice of strike against
respondent and PNB on the ground of ULP. Efforts by the NCMB to
conciliate failed. DOLE Secretary assumed jurisdiction over the strike
notices. DOLE Secretary issued a Resolution directing petitioner and
respondent to execute a new CBA incorporating therein his
dispositions regarding benefits of the employees. The charge of ULP
against respondent and PNB was dismissed.
Respondent filed a petition for certiorari before the CA questioning the
DOLE Secretarys order. CA partly granted the petition and ruled that a
recomputation and reevaluation of the benefits awarded was in order.
Petitioner was not in favor with the result of the recomputation. Hence
this petition.
ISSUE:
WON PNB, being the undisputed owner of and exercising control over
respondent, should be made liable to pay the CBA benefits awarded to
the petitioner.
RULING:
1. Petitioner argues that the CA erred in stating that respondent
was a company operating at a loss and therefore cannot be
expected to act generously and confer upon its employees
additional benefits exceeding what is mandated by law. It is
the petitioners position that based on the no loss, no profit
policy of respondent with PNB, respondent in truth has no
pocket of its own and is, in effect, 1 and the same with PNB
with regard to financial gains and/or liabilities. Thus,
petitioners contend that the CBA benefits should be
shouldered by PNB considering the poor financial condition
of respondent.
What the petitioner is asking this Court to do is to pierce the veil of
corporate fiction of respondent and hold PNB (being the mother
company) liable for the CBA benefits. In Concept Builders, Inc. v.
NLRC, we explained the doctrine of piercing the corporate veil, as
follows:
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.
Also in Pantranco Employees Association (PEA-PTGWO) v.
NLRC, this Court ruled:
Whether the separate personality of the corporation should be
pierced hinges on obtaining facts appropriately pleaded or proved.
However, any piercing of the corporate veil has to be done with
caution, albeit the Court will not hesitate to disregard the corporate veil
when it is misused or when necessary in the interest of justice. After
all, the concept of corporate entity was not meant to promote unfair
objectives.
Applying the doctrine to the case at bar, we find no reason to pierce
the corporate veil of respondent and go beyond its legal
personality. Control, 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.
There is no showing that such no loss, no profit scheme between
respondent and PNB was implemented to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to
defeat the labor laws, nor does the scheme show that respondent is a
mere business conduit or alter ego of PNB. Absent proof of these
circumstances, respondents corporate personality cannot be pierced.
It is apparent that petitioner wants the Court to disregard the corporate
personality of respondent and directly go after PNB in order for it to
collect the CBA benefits. On the same breath, however, petitioner
argues that ultimately it is PNB, by virtue of the no loss, no profit
scheme, which shoulders and provides the funds for financial liabilities
of respondent including wages and benefits of employees. If such
scheme was indeed true as the petitioner presents it, then there was
absolutely no need to pierce the veil of corporate fiction of
respondent.
WHEREFORE, the petition is PARTLY GRANTED.
Pacific v CA G.R. No. L-41014 November 28, 1988
J. Paras
Facts:
An open fire insurance policy, was issued to Paramount Shirt
Manufacturing by Oriental Assurance Corporation to indemnify
P61,000.00, caused by fire to the factorys stocks, materials and
supplies.
The insured was a debtor of Pacific Banking in the amount of
(P800,000.00) and the goods described in the policy were held in trust
by the insured for Pacific Banking under trust receipts.
The policy was endorsed to Pacific Banking as mortgagee/ trustor of
the properties insured, with the knowledge and consent of private
respondent to the effect that "loss if any under this policy is payable to
the Pacific Banking Corporation".
A fire broke out on the premises destroying the goods contained in the
building.
The bank sent a letter of demand to Oriental for indemnity.
The company wasnt ready to give since it was awaiting the adjusters
report.
The company then made an excuse that the insured had not filed any
claim with it, nor submitted proof of loss which is a clear violation of
Policy Condition No.11, as a result, determination of the liability of
private respondent could not be made.
Pacific Banking filed in the trial court an action for a sum of money for
P61,000.00 against Oriental Assurance.
At the trial, petitioner presented communications of the insurance
adjuster to Asian Surety revealing undeclared co-insurances with the
following: P30,000 with Wellington Insurance; P25,000 with Empire
Surety and P250,000 with Asian Surety undertaken by insured
Paramount on the same property covered by its policy with Oriental
whereas the only co-insurances declared in the subject policy are
those of P30,000.00 with Malayan P50,000.00 with South Sea and
P25.000.00 with Victory.
The defense of fraud, in the form of non-declaration of co-insurances
which was not pleaded in the answer, was also not pleaded in the
Motion to Dismiss.
The trial court denied the respondents motion. Oriental filed another
motion to include additional evidence of the co-insurance which could
amount to fraud.
The trial court still made Oriental liable for P 61,000. The CA reversed
the trial court decision. Pacific Banking filed a motion for
reconsideration of the said decision of the respondent Court of
Appeals, but this was denied for lack of merit.
Issues:
1. WON unrevealed co-insurances Violated policy conditions No. 3
2. WON the insured failed to file the required proof of loss prior to court
action.
Held: Yes. Petition dismissed.
Ratio:
1. Policy Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of any insurance
already effected, or which may subsequently be effected, covering any
of the property hereby insured, and unless such notice be given and
the particulars of such insurance or insurances be stated in or
endorsed on this Policy by or on behalf of the Company before the
occurrence of any loss or damage, all benefit under this policy shall be
forfeited.
The insured failed to reveal before the loss three other insurances.
Had the insurer known that there were many co-insurances, it could
have hesitated or plainly desisted from entering into such contract.
Hence, the insured was guilty of clear fraud.
Concrete evidence of fraud or false declaration by the insured was
furnished by the petitioner itself when the facts alleged in the policy
under clauses "Co-Insurances Declared" and "Other Insurance Clause"
are materially different from the actual number of co-insurances taken
over the subject property.
As the insurance policy against fire expressly required that notice
should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy.
Petitioner points out that Condition No. 3 in the policy in relation to the
"other insurance clause" supposedly to have been violated, cannot
certainly defeat the right of the petitioner to recover the insurance as
mortgagee/assignee. Hence, they claimed that the purpose for which
the endorsement or assignment was made was to protect the
mortgagee/assignee against any untoward act or omission of the
insured. It would be absurd to hold that petitioner is barred from
recovering the insurance on account of the alleged violation committed
by the insured.
It is obvious that petitioner has missed all together the import of subject
mortgage clause which specifically provides:
Loss, if any, under this policy, shall be payable to the PACIFIC
BANKING CORPORATION Manila mortgagee/trustor as its interest
may appear, it being hereby understood and agreed that this insurance
as to the interest of the mortgagee/trustor only herein, shall not be
invalidated by any act or neglectexcept fraud or misrepresentation,
or arsonof the mortgagor or owner/trustee of the property insured;
provided, that in case the mortgagor or owner/ trustee neglects or
refuses to pay any premium, the mortgagee/ trustor shall, on demand
pay the same.
The paragraph clearly states the exceptions to the general rule that
insurance as to the interest of the mortgagee, cannot be invalidated;
namely: fraud, or misrepresentation or arson. Concealment of the
aforecited co-insurances can easily be fraud, or in the very least,
misrepresentation.
Undoubtedly, it is but fair and just that where the insured who is
primarily entitled to receive the proceeds of the policy has by its fraud
and/or misrepresentation, forfeited said right.
Petitioner further stressed that fraud which was not pleaded as a
defense in private respondent's answer or motion to dismiss, should be
deemed to have been waived. It will be noted that the fact of fraud was
tried by express or at least implied consent of the parties. Petitioner did
not only object to the introduction of evidence but on the contrary,
presented the very evidence that proved its existence.
2. Generally, the cause of action on the policy accrues when the loss
occurs, But when the policy provides that no action shall be brought
unless the claim is first presented extrajudicially in the manner
provided in the policy, the cause of action will accrue from the time the
insurer finally rejects the claim for payment
In the case at bar, policy condition No. 11 specifically provides that the
insured shall on the happening of any loss or damage give notice to
the company and shall within fifteen (15) days after such loss or
damage deliver to the private respondent (a) a claim in writing giving
particular account as to the articles or goods destroyed and the
amount of the loss or damage and (b) particulars of all other
insurances, if any.
Twenty-four days after the fire did petitioner merely wrote letters to
private respondent to serve as a notice of loss. It didnt even furnish
other documents. Instead, petitioner shifted upon private respondent
the burden of fishing out the necessary information to ascertain the
particular account of the articles destroyed by fire as well as the
amount of loss. Since the required claim by insured, together with the
preliminary submittal of relevant documents had not been complied
with, it follows that private respondent could not be deemed to have
finally rejected petitioner's claim and therefore there was no cause of
action.
It appearing that insured has violated or failed to perform the
conditions under No. 3 and 11 of the contract, and such violation or
want of performance has not been waived by the insurer, the insured
cannot recover, much less the herein petitioner.
KUKAN INTERNATIONAL CORPORATION VS. HON. AMOR REYES
G.R. NO. 182729, SEPTEMBER 29, 2010
FACTS:
Private respondent Romeo M. Morales doing business under
the name RM Morales Trophies and Plaques was awarded a P5 million
contract for the supply and installation of signages in a building
constructed in Makati sometime in March 1998. The contract price was
later reduced to P3,388,502 because some items were deleted from
the contract. Morales complied with his contractual obligations but he
was paid only the amount of P1,976,371.07 leaving a balance of
P1,412,130.93. He filed a case against Kukan, Inc., for sum of money
with the RTC of Manila docketed as Civil Case No. 99-93173. Kukan
Inc., stopped participating in the proceedings in November 2000,
hence, it was declared in default and Morales presented his evidence
ex-parte against petitioner.
On November 28, 2002, the RTC rendered a decision in
favor of Morales and against Kunkan, Inc. ordering the latter to pay the
sum of P1,201,724.00 with legal interest of 12% per annum until fully
paid; P50,000.00 as moral damages,P20,000.00 as attorney's fees and
P7,960.06 as litigation expenses. The counterclaimfiled by Kunkan,
Inc. was dismissed. The decision became final and executory During
the execution, the sheriff levied the personal properties found at the
office of Kukan, Inc.. Claiming it owned the properties levied, Kukan
International Corporation (KIC) fied an Affidavit of Third Party Claim.
Morales filed an Omnibus Motion praying to apply the principle of
piercing the veil of corporate entity. He alleged that Kankun, Inc. and
KIC are one and the same corporation His Motion was denied. On
Motion of Morales the presiding Judge of Branch 17 of RTC Manila
inhibited himself from hearing the case. It was raffled to Branch 21
which granted the Motion filed by Morales on March 12, 2007 and
decreed that Kukan, Inc. and Kukan International Inc., as one and
the same corporation; that the levy made on the properties of KIC is
valid; and ordering Kunkan International Corp. and Michael Chan as
jointly and severally liable to pay the award pursuant to the Decision
dated November 28, 2002. KIC filed a Motion for Reconsideration
which was denied.KIC brought the case to the Court of Appeals which
rendered the Decision n January 23, 2008 denying KIC's petition. The
CA also denied its Motion for Reconsideration in the Resolution dated
June 7, 2007.
Hence, this case.
ISSUE/S: One of the issues raised is whether or not the trial court
and the appellate court correctly applied the principle of piercing the
veil of corporate entity.
HELD: The Supreme Court ruled that the doctrine of piercing the veil
of corporate entity finds no application in this case.
According to the Supreme Court, the principle of piercing the
veil of corporate entity and the resulting treatment of two related
corporation as one and the same juridical person applies only to
established liability and not to confer jurisdiction. In this case, the
Supreme Court ruled that KIC was not made a party defendant in Civil
Case No. 99-93173. It entered a special but not a voluntary
appearance in the trial court to assert that it was a separate entity and
has a separate legal personality from Kunkan, Inc. KIC was not
impleaded nor served with summons. Hence, it could only assert its
claim through the affidavits, comments and motions filed by special
apperance before the RTC that it is a separate juridical entity.
The Supreme stated that the doctrine of piercing the veil of
corporate entity comes to play during the trial of the case after the
court has already acquired jurisdiction over the corporation.
To justify the piercing of the veil of corporate fiction, it must
be shown by clear and convincing proof that the separate and distinct
personality of the corporation was purposely employed to evade a
legitimate and binding comittment and perpetuate a fraud or like a
wrongdoings.
In those instances when the Court pierced the veil of
corporate fiction of two corporations, there was a confluence of the
following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is transferred to a second
corporation to avoid a financial liability of the first corporation; and
3. Both corporations are owned and controlled by the same
persons such that the second corporation should be considered as a
continuation and successor of the first corporation.
In this case, the second and third factors are conspicuously
absent. There is, therefore, no compelling justification for disregarding
the fiction of corporate entity separating Kukan, Inc. from KIC. In
applying the principle, both the RTC and the CA miserably failed to
identify the presence of the abovementioned factors.
The High Court stated that neither should the level of paid-
up capital of Kukan, Inc. upon its incorporation be viewed as a badge
of fraud, for it is in compliance with Sec. 13 of the Corporation Code,
which only requires a minimum paid-up capital of PhP 5,000.
The suggestion that KIC is but a continuation and successor
of Kukan, Inc., owned and controlled as they are by the same
stockholders, stands without factual basis. The fact that Michael Chan,
a.k.a. Chan Kai Kit, owns 40% of the outstanding capital stock of both
corporations standing alone, is insufficient to establish identity. There
must be at least a substantial identity of stockholders for both
corporations in order to consider this factor to be constitutive of
corporate identity.
Petition granted.
PHILIPPINE NATIONAL BANK v. HYDRO RESOURCES
CONTRACTORS CORPORATION
G.R. No. 167530, March 13, 2013
Corporation Law Case Digest by John Paul C. Ladiao (15 March
2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)
FACTS:
Sometime in 1984, petitioners DBP and PNB foreclosed on certain
mortgages made on the properties of Marinduque Mining and Industrial
Corporation (MMIC). As a result of the foreclosure, DBP and PNB
acquired substantially all the assets of MMIC and resumed the
business operations of the defunct MMIC by organizing NMIC.7 DBP
and PNB owned 57% and 43% of the shares of NMIC, respectively,
except for five qualifying shares. As of September 1984, the members
of the Board of Directors of NMIC, namely, Jose Tengco, Jr., Rolando
Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino Agbada, were
either from DBP or PNB.
Subsequently, NMIC engaged the services of Hercon, Inc., for NMICs
Mine Stripping and Road Construction Program in 1985 for a total
contract price of P35,770,120. After computing the payments already
made by NMIC under the program and crediting the NMICs
receivables from
Hercon, Inc., the latter found that NMIC still has an unpaid balance of
P8,370,934.74.10 Hercon, Inc. made several demands on NMIC,
including a letter of final demand dated August 12, 1986, and when
these were not heeded, a complaint for sum of money was filed in the
RTC of Makati, Branch 136 seeking to hold petitioners NMIC, DBP, and
PNB solidarily liable for the amount owing Hercon, Inc.
Subsequent to the filing of the complaint, Hercon, Inc. was acquired by
HRCC in a merger.
Thereafter, on December 8, 1986, then President Corazon C. Aquino
issued Proclamation No. 50 creating the APT for the expeditious
disposition and privatization of certain government corporations and/or
the assets thereof. Pursuant to the said Proclamation, on February 27,
1987, DBP and PNB executed their respective deeds of transfer in
favor of the National Government assigning, transferring and
conveying certain assets and liabilities, including their respective
stakes in NMIC. In turn and on even date, the National Government
transferred the said assets and liabilities to the APT as trustee under a
Trust Agreement.
ISSUE:
Whether or not there is sufficient ground to pierce the veil of corporate
fiction of NMIC and held DBP and PNB solidarily liable with NMIC?
RULING:
No.
From all indications, it appears that NMIC is a mere adjunct, business
conduit or alter ego of both DBP and PNB. Thus, the DBP and PNB
are jointly and severally liable with NMIC for the latters unpaid
obligations to plaintiff.
Then concluded that, "in keeping with the concept of justice and fair
play," the corporate veil of NMIC should be pierced.
For to treat NMIC as a separate legal entity from DBP and PNB for the
purpose of securing beneficial contracts, and then using such separate
entity to evade the payment of a just debt, would be the height of
injustice and iniquity. Surely that could not have been the intendment
of the law with respect to corporations.
The doctrine of piercing the corporate veil applies 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.
Macasaet etal vs Co
G.R. No. 156759 June 5, 2013
Facts: On July 3, 2000, respondent, a retired police officer assigned at
the Western Police District in Manila, sued Abante Tonite, a daily
tabloid of general circulation; its Publisher Allen A. Macasaet; its
Managing Director Nicolas V. Quijano; its Circulation Manager Isaias
Albano; its Editors Janet Bay, Jesus R. Galang and Randy Hagos; and
its Columnist/Reporter Lily Reyes (petitioners), claiming damages
because of an allegedly libelous article petitioners published in the
June 6, 2000 issue of Abante Tonite. The suit, docketed as Civil Case
No. 0097907, was raffled to Branch 51 of the RTC, which in due
course issued summons to be served on each defendant, including
Abante Tonite, at their business address at Monica Publishing
Corporation, 301-305 3rd Floor, BF Condominium Building, Solana
Street corner A. Soriano Street, Intramuros, Manila. In the morning of
September 18, 2000, RTC Sheriff Raul Medina proceeded to the stated
address to effect the personal service of the summons on the
defendants. But his efforts to personally serve each defendant in the
address were futile because the defendants were then out of the office
and unavailable. He returned in the afternoon of that day to make a
second attempt at serving the summons, but he was informed that
petitioners were still out of the office. He decided to resort to
substituted service of the summons, and explained why in his sheriffs
return dated September 22, 2005.
Issue: Whether or not jurisdiction over the petitioners have been
acquired.
Held: Yes. Jurisdiction over the person, or jurisdiction in personam
the power of the court to render a personal judgment or to subject the
parties in a particular action to the judgment and other rulings rendered
in the action is an element of due process that is essential in all
actions, civil as well as criminal, except in actions in rem or quasi in
rem. Jurisdiction over the defendant in an action in rem or quasi in rem
is not required, and the court acquires jurisdiction over an action as
long as it acquires jurisdiction over the res that is the subject matter of
the action. The purpose of summons in such action is not the
acquisition of jurisdiction over the defendant but mainly to satisfy the
constitutional requirement of due process.
The distinctions that need to be perceived between an action in
personam, on the one hand, and an action in rem or quasi in rem, on
the other hand, are aptly delineated in Domagas v. Jensen, thusly:
The settled rule is that the aim and object of an action determine its
character. Whether a proceeding is in rem, or in personam, or quasi in
rem for that matter, is determined by its nature and purpose, and by
these only. A proceeding in personam is a proceeding to enforce
personal rights and obligations brought against the person and is
based on the jurisdiction of the person, although it may involve his right
to, or the exercise of ownership of, specific property, or seek to compel
him to control or dispose of it in accordance with the mandate of the
court. The purpose of a proceeding in personam is to impose, through
the judgment of a court, some responsibility or liability directly upon the
person of the defendant. Of this character are suits to compel a
defendant to specifically perform some act or actions to fasten a
pecuniary liability on him. An action in personam is said to be one
which has for its object a judgment against the person, as
distinguished from a judgment against the property to determine its
state. It has been held that an action in personam is a proceeding to
enforce personal rights or obligations; such action is brought against
the person. As far as suits for injunctive relief are concerned, it is well-
settled that it is an injunctive act in personam. In Combs v. Combs, the
appellate court held that proceedings to enforce personal rights and
obligations and in which personal judgments are rendered adjusting
the rights and obligations between the affected parties is in personam.
Actions for recovery of real property are in personam.
On the other hand, a proceeding quasi in rem is one brought against
persons seeking to subject the property of such persons to the
discharge of the claims assailed. In an action quasi in rem, an
individual is named as defendant and the purpose of the proceeding is
to subject his interests therein to the obligation or loan burdening the
property. Actions quasi in rem deal with the status, ownership or
liability of a particular property but which are intended to operate on
these questions only as between the particular parties to the
proceedings and not to ascertain or cut off the rights or interests of all
possible claimants. The judgments therein are binding only upon the
parties who joined in the action.
As a rule, Philippine courts cannot try any case against a defendant
who does not reside and is not found in the Philippines because of the
impossibility of acquiring jurisdiction over his person unless he
voluntarily appears in court; but when the case is an action in rem or
quasi in rem enumerated in Section 15, Rule 14 of the Rules of Court,
Philippine courts have jurisdiction to hear and decide the case because
they have jurisdiction over the res, and jurisdiction over the person of
the non-resident defendant is not essential. In the latter instance,
extraterritorial service of summons can be made upon the defendant,
and such extraterritorial service of summons is not for the purpose of
vesting the court with jurisdiction, but for the purpose of complying with
the requirements of fair play or due process, so that the defendant will
be informed of the pendency of the action against him and the
possibility that property in the Philippines belonging to him or in which
he has an interest may be subjected to a judgment in favor of the
plaintiff, and he can thereby take steps to protect his interest if he is so
minded. On the other hand, when the defendant in an action in
personam does not reside and is not found in the Philippines, our
courts cannot try the case against him because of the impossibility of
acquiring jurisdiction over his person unless he voluntarily appears in
court.
As the initiating party, the plaintiff in a civil action voluntarily submits
himself to the jurisdiction of the court by the act of filing the initiatory
pleading. As to the defendant, the court acquires jurisdiction over his
person either by the proper service of the summons, or by a voluntary
appearance in the action.
The significance of the proper service of the summons on the
defendant in an action in personam cannot be overemphasized. The
service of the summons fulfills two fundamental objectives, namely: (a)
to vest in the court jurisdiction over the person of the defendant; and
(b) to afford to the defendant the opportunity to be heard on the claim
brought against him. As to the former, when jurisdiction in personam is
not acquired in a civil action through the proper service of the
summons or upon a valid waiver of such proper service, the ensuing
trial and judgment are void. If the defendant knowingly does an act
inconsistent with the right to object to the lack of personal jurisdiction
as to him, like voluntarily appearing in the action, he is deemed to have
submitted himself to the jurisdiction of the court. As to the latter, the
essence of due process lies in the reasonable opportunity to be heard
and to submit any evidence the defendant may have in support of his
defense. With the proper service of the summons being intended to
afford to him the opportunity to be heard on the claim against him, he
may also waive the process. In other words, compliance with the rules
regarding the service of the summons is as much an issue of due
process as it is of jurisdiction.
Under the Rules of Court, the service of the summons should firstly be
effected on the defendant himself whenever practicable. Such personal
service consists either in handing a copy of the summons to the
defendant in person, or, if the defendant refuses to receive and sign for
it, in tendering it to him. The rule on personal service is to be rigidly
enforced in order to ensure the realization of the two fundamental
objectives earlier mentioned. If, for justifiable reasons, the defendant
cannot be served in person within a reasonable time, the service of the
summons may then be effected either (a) by leaving a copy of the
summons at his residence with some person of suitable age and
discretion then residing therein, or (b) by leaving the copy at his office
or regular place of business with some competent person in charge
thereof. The latter mode of service is known as substituted service
because the service of the summons on the defendant is made
through his substitute.
There is no question that Sheriff Medina twice attempted to serve the
summons upon each of petitioners in person at their office address, the
first in the morning of September 18, 2000 and the second in the
afternoon of the same date. Each attempt failed because Macasaet
and Quijano were always out and not available and the other
petitioners were always roving outside and gathering news. After
Medina learned from those present in the office address on his second
attempt that there was no likelihood of any of petitioners going to the
office during the business hours of that or any other day, he concluded
that further attempts to serve them in person within a reasonable time
would be futile. The circumstances fully warranted his conclusion. He
was not expected or required as the serving officer to effect personal
service by all means and at all times, considering that he was
expressly authorized to resort to substituted service should he be
unable to effect the personal service within a reasonable time. In that
regard, what was a reasonable time was dependent on the
circumstances obtaining. While we are strict in insisting on personal
service on the defendant, we do not cling to such strictness should the
circumstances already justify substituted service instead. It is the spirit
of the procedural rules, not their letter, that governs.
National Bank (PNB) which was actually a CBB project as shown by a
CBB draft (e) Hazel de Guzman who also filed an illegal dismissal case
against the company, attested that Elliot told her of CBBs plan to close
the corporation and to organize another for the purpose of evading
CBBs liabilities. Livesey posits that the closure of CBB and its
immediate replacement by Binswanger could not have been possible
without Elliots guiding hand, such that when CBB ceased operations,
Elliot (CBBs President and CEO) moved to Binswanger in the same
position.
ISSUES: Whether the doctrine of piercing the veil of corporate fiction is
applicable
RULING: Petition GRANTED.
Based on the facts of the case, the Court finds this issue to have been
rendered academic by the compromise agreement between Livesey
and CBB and approved by LA Reyno. That CBB reneged in the
fulfillment of its obligation under the agreement is no reason to revive
the issue and further frustrate the full settlement of the obligation as
agreed upon.

Eric Godfrey Stanley Livesey v. Binswanger Philippines, Inc. and Shortly after Elliot forged the compromise agreement with Livesey,
Keith Elliot CBB ceased operations, a corporate event that was not disputed by
G.R. No. 177493, 19 March 2014 (Brion, J) the Binswanger and Elliot. Then Binswanger suddenly appeared. It
was established almost simultaneously with CBBs closure, with no
FACTS: Petitioner Livesey filed a complaint for illegal dismissal with
less than Elliot as its President and CEO. A reasonable mind would
money claims against Chesterton Blumenauer Binswanger Philippines
arrive at the conclusion that Binswanger is CBBs alter ego or that CBB
Strategic Property Services, Inc. (CBB) and Keith Elliot. CBB was a
and Binswanger are one and the same corporation. There are also
domestic corporation engaged in real estate brokerage and Keith Elliot
indications of badges of fraud in Binswangers incorporation. It was a
was its President. Livesey alleged that CBB failed to pay him a
business strategy to evade CBBs financial liabilities, including its
significant portion of his salary. For this reason, he was compelled to
outstanding obligation to Livesey. Piercing the veil of corporate fiction
resign. He claimed CBB owed him unpaid salaries.CBB denied liability.
is an equitable doctrine developed to address situations where the
It alleged that it engaged Livesey as a corporate officer. It claimed that
separate corporate personality of a corporation is abused or used for
Livesey was later designated as Managing Director when it became an
wrongful purposes.
extension office of its principal in Hongkong. CBB posited that the labor
arbiter (LA) had no jurisdiction as the complaint involved an intra
In the present case, the Court sees an indubitable link between
corporate dispute. LA ordered CBB to reinstate Livesey to his former
CBBs closure and Binswangers incorporation. CBB ceased to
position as Managing Director and to pay him US$23,000.00 in
exist only in name; it reemerged in the person of Binswanger for
accrued salaries.
an urgent purpose to avoid payment by CBB of the last two
installments of its monetary obligation to Livesey, as well as its
The parties entered into a compromise agreement. Under the
other financial liabilities. Xxx It was not just coincidence that
agreement, Livesey was to receive US$31,000.00. Further, the
Binswanger is engaged in the same line of business CBB embarked
agreement provided that unless and until the agreement is fully
on: (1) it even holds office in the very same building and on the very
satisfied, CBB shall not sell, alienate, or otherwise dispose of all or
same floor where CBB once stood; (2) CBBs key officers, Elliot, no
substantially all of its assets or business; suspend its business
less, and Catral moved over to Binswanger (3) the use of Binswanger
operations; substantially change the nature of its business; and declare
of CBBs paraphernalia (receiving stamp) (4) Binswangers takeover of
bankruptcy or insolvency.
CBBs project with the PNB.
While the ostensible reason for Binswangers establishment is to
CBB made an initial payment to Livesey but not the next two
continue CBBs business operations in the Philippines, which by itself
installments as the company ceased operations. Livesey moved for the
is not illegal, the close proximity between CBBs disestablishment and
issuance of a writ of execution. He learned that CBB, in a clear and
Binswangers coming into existence was to evade CBBs unfulfilled
willful attempt to avoid their liabilities to complainant x x x have
financial obligation to Livesey under the compromise agreement.
organized another corporation, [Binswanger] Philippines. He claimed
This underhanded objective, it must be stressed, can only be attributed
that there was evidence showing that CBB and Binswanger
to Elliot as it was apparent that Binswangers stockholders had nothing
Philippines, Inc. (Binswanger) are one and the same corporation.
to do with Binswangers operations as noted by the NLRC and which
Invoking the doctrine of piercing the veil of corporate fiction, Livesey
the respondents did not deny. Elliot was well aware of the compromise
prayed that an alias writ of execution be issued against respondents
agreement that the last two installments of CBBs obligation to Livesey
Binswanger and Keith Elliot, CBBs former President. LA denied
were due. These installments were not met and the reason is that after
Liveseys motion for an alias writ of execution. He explained that the
the alleged sale of the majority of CBBs shares of stock, it closed
stockholders of the two corporations were not the same. Livesey filed
down. The Court, therefore, finds Elliot as liable as Binswanger for
an appeal which the NLRC granted, reversing the LA Laderas order.
CBBs unfulfilled obligation to Livesey.
The Binswanger and Elliot moved for reconsideration. The NLRC
denied the motion. They then sought relief from the CA through a
HEIRS OF TAN UY REPRESENTED BY LIM V. INTERNATIONAL
petition for certiorari. The CA granted the petition and reversed the
EXCHANGE BANK
NLRC decision. Livesey moved for reconsideration, but the CA denied
the motion.
FACTS: International Exchange Bank, on several occasions, granted
loans to Hammer Garments Corporation covered by promissory notes
Livesey prays for a reversal of the CA rulings on the basis of the
and deeds of assignment. These were made pursuant to the Letter-
following arguments: The CA erred in not applying the doctrine of
Agreement between iBank and Hammer, represented by its President
piercing the veil of corporate fiction to the case. He insists that CBB
and General Manager, Manuel Chua, granting Hammer a P 25 Million-
and Binswanger are one and the same corporation as shown by the
Peso Omnibus Line. The loans were secured by a Real Estate
overwhelming evidence (a) CBB stands for Chesterton Blumenauer
Mortgage executed by Goldkey Development Corporation over several
Binswanger, (b) After executing the compromise agreement with him,
of its properties and a Surety Agreement signed by Chua and his wife,
through Elliot, CBB ceased operations following a transaction where a
Fe Tan Uy. Hammer defaulted in the payment of its loans, prompting
substantial amount of CBB shares changed hands (c) Summons
iBank to foreclose on Goldkeys third-party Real Estate Mortgage. For
served on Binswanger in an earlier labor case was received by
failure Of Hammer to pay the deficiency, iBank filed a Complaint for
Binswanger using CBBs receiving stamp (d) In a letter dated, Elliot
sum of moneyagainst Hammer, Chua, Uy, and Goldkey before the
noted a Binswanger bid solicitation for a project with the Philippine
RTC. Uy claimed that she was not liable to iBank because she never
executed a surety agreement in favor of iBank. Goldkey, on the other
hand, also denies liability, averring that it acted only as a third-party
mortgagor and that it was a corporation separate and distinct from
Hammer. The RTC, in its Decision ruled in favor of iBank. It came to
the conclusion, however, that Goldkey and Hammer were one and the
same entity. On appeal, the CA affirmed the RTC decision.
ISSUE: Whether Goldkey can be held liable for the obligation of
Hammer for being a mere alter ego of the latter
RULING: Goldkey is a mere alter ego of Hammer. Under a variation of
the doctrine of piercing the veil of corporate fiction, when two business
enterprises are owned, conducted and controlled by the same parties,
both law and equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are distinct
entities and treat them as identical or one and the same. While the
conditions for the disregard of the juridical entity may vary, the
following are some probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, as laid down in
Concept Builders, Inc. v NLRC: (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, and (4) Methods of
conducting the business.
These factors are unquestionably present in the case of Goldkey and
Hammer, as observed by the RTC, as follows:
1. Both corporations are family corporations of defendants Manuel
Chua and his wife Fe Tan Uy. The other incorporators and
shareholders of the two corporations are the brother and sister of
Manuel Chua and the sister of Fe Tan Uy, Milagros Revilla.
2. Hammer Garments and Goldkey share the same office and
practically transact their business from the same place.
3. Manuel Chua is the President and Chief Operating Officer of both
corporations. All business transactions of Goldkey and Hammer are
done at the instance of defendant Manuel Chua who is authorized to
do so by the corporations.
4. The assets of Gold key and Hammer are co-mingled. The real
properties of Goldkey are mortgaged to secure Hammer's obligation
with creditor banks.
5. When defendant Manuel Chua "disappeared", Goldkey ceased to
operate despite the claim that the other officers and stockholders are
still around and may be able to continue the business of Goldkey, if it
were different or distinct from Hammer which suffered financial
setback.
HEIRS OF GAMBOA V. TEVES, ET AL., G.R. NO. 176579, 09
OCTOBER 2012
18 Apr
[CARPIO, J.]
FACTS
Movants Philippine Stock Exchanges (PSE) President, Manuel V.
Pangilinan, Napoleon L. Nazareno, and the Securities and Exchange
Commission (SEC) contend that the term capital in Section 11, Article
XII of the Constitution has long been settled and defined to refer to the
total outstanding shares of stock, whether voting or non-voting. In fact,
movants claim that the SEC, which is the administrative agency tasked
to enforce the 60-40 ownership requirement in favor of Filipino citizens
in the Constitution and various statutes, has consistently adopted this
particular definition in its numerous opinions. Movants point out that
with the 28 June 2011 Decision, the Court in effect introduced a new
definition or midstream redefinition of the term capital in Section 11,
Article XII of the Constitution.
ISSUE
Whether the term capital includes both voting and non-voting shares.
RULING
NO.
The Constitution expressly declares as State policy the development of
an economy effectively controlled by Filipinos. Consistent with such
State policy, the Constitution explicitly reserves the ownership and
operation of public utilities to Philippine nationals, who are defined in
the Foreign Investments Act of 1991 as Filipino citizens, or
corporations or associations at least 60 percent of whose capital with
voting rights belongs to Filipinos. The FIAs implementing rules
explain that [f]or stocks to be deemed owned and held by Philippine
citizens or Philippine nationals, mere legal title is not enough to meet
the required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential. In effect, the
FIA clarifies, reiterates and confirms the interpretation that the term
capital in Section 11, Article XII of the 1987 Constitution refers
to shares with voting rights, as well as with full beneficial
ownership. This is precisely because the right to vote in the election of
directors, coupled with full beneficial ownership of stocks, translates to
effective control of a corporation.
Narra Nickel Mining and Development Corp. vs Redmont
Consolidated Mines Corporation
G.R. No. 195580 April 21, 2014
Facts: Sometime in December 2006, respondent Redmont
Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in mining
and exploring certain areas of the province of Palawan. After inquiring
with the Department of Environment and Natural Resources (DENR), it
learned that the areas where it wanted to undertake exploration and
mining activities where already covered by Mineral Production Sharing
Agreement (MPSA) applications of petitioners Narra, Tesoro and
McArthur. Petitioner McArthur, through its predecessor-in-interest Sara
Marie Mining, Inc. (SMMI), filed an application for an MPSA and
Exploration Permit (EP) with the Mines and Geo-Sciences Bureau
(MGB), Region IV-B, Office of the Department of Environment and
Natural Resources (DENR). Subsequently, SMMI was issued MPSA-
AMA-IVB-153 covering an area of over 1,782 hectares in Barangay
Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-
IVB-44 which includes an area of 3,720 hectares in Barangay
Malatagao, Bataraza, Palawan. The MPSA and EP were then
transferred to Madridejos Mining Corporation (MMC) and, on
November 6, 2006, assigned to petitioner McArthur. Petitioner Narra
acquired its MPSA from Alpha Resources and Development
Corporation and Patricia Louise Mining & Development Corporation
(PLMDC) which previously filed an application for an MPSA with the
MGB, Region IV-B, DENR on January 6, 1992. Through the said
application, the DENR issued MPSA-IV-1-12 covering an area of 3.277
hectares in barangays Calategas and San Isidro, Municipality of Narra,
Palawan. Subsequently, PLMDC conveyed, transferred and/or
assigned its rights and interests over the MPSA application in favor of
Narra. Another MPSA application of SMMI was filed with the DENR
Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47)
over 3,402 hectares in Barangays Malinao and Princesa Urduja,
Municipality of Narra, Province of Palawan. SMMI subsequently
conveyed, transferred and assigned its rights and interest over the said
MPSA application to Tesoro. On January 2, 2007, Redmont filed before
the Panel of Arbitrators (POA) of the DENR three (3) separate petitions
for the denial of petitioners applications for MPSA designated as AMA-
IVB-153, AMA-IVB-154 and MPSA IV-1-12. In the petitions, Redmont
alleged that at least 60% of the capital stock of McArthur, Tesoro and
Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a
100% Canadian corporation. Redmont reasoned that since MBMI is a
considerable stockholder of petitioners, it was the driving force behind
petitioners filing of the MPSAs over the areas covered by applications
since it knows that it can only participate in mining activities through
corporations which are deemed Filipino citizens. Redmont argued that
given that petitioners capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through
MPSAs, which are reserved only for Filipino citizens.
Issue: Whether or not the petitioner corporations are Filipino and can
validly be issued MPSA and EP.
Held: No. The SEC Rules provide for the manner of calculating the
Filipino interest in a corporation for purposes, among others, of
determining compliance with nationality requirements (the Investee
Corporation). Such manner of computation is necessary since the
shares in the Investee Corporation may be owned both by individual
stockholders (Investing Individuals) and by corporations and
partnerships (Investing Corporation). The said rules thus provide for
the determination of nationality depending on the ownership of the
Investee Corporation and, in certain instances, the Investing
Corporation.
Under the SEC Rules, there are two cases in determining the
nationality of the Investee Corporation. The first case is the liberal
rule, later coined by the SEC as the Control Test in its 30 May 1990
Opinion, and pertains to the portion in said Paragraph 7 of the 1967
SEC Rules which states, (s)hares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality. Under the
liberal Control Test, there is no need to further trace the ownership of
the 60% (or more) Filipino stockholdings of the Investing Corporation
since a corporation which is at least 60% Filipino-owned is considered
as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and
pertains to the portion in said Paragraph 7 of the 1967 SEC Rules
which states, but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine
nationality. Under the Strict Rule or Grandfather Rule Proper, the
combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., grandfathered) to determine the
total percentage of Filipino ownership. Moreover, the ultimate Filipino
ownership of the shares must first be traced to the level of the
Investing Corporation and added to the shares directly owned in the
Investee Corporation.
In other words, based on the said SEC Rule and DOJ Opinion, the
Grandfather Rule or the second part of the SEC Rule applies only
when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in
cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%] invests
in other joint venture corporation which is either 60-40% Filipino-alien
or the 59% less Filipino). Stated differently, where the 60-40 Filipino-
foreign equity ownership is not in doubt, the Grandfather Rule will not
apply.
Narra Nickel Mining vs Redmont
Case Digest GR 185590, Apr 21 2014
Facts:
Redmont is a domestic corporation interested in the mining and
exploration of some areas in Palawan. Upon learning that those areas
were covered by MPSA applications of other three (allegedly Filipino)
corporations Narra, Tesoro, and MacArthur, it filed a petition before
the Panel of Arbitrators of DENR seeking to deny their permits on the
ground that these corporations are in reality foreign-owned. MBMI, a
100% Canadian corporation, owns 40% of the shares of PLMC (which
owns 5,997 shares of Narra), 40% of the shares of MMC (which owns
5,997 shares of McArthur) and 40% of the shares of SLMC (which, in
turn, owns 5,997 shares of Tesoro).
Aside from the MPSA, the three corporations also applied for FTAA
with the Office of the President. In their answer, they countered that
(1) the liberal Control Test must be used in determining the nationality
of a corporation as based on Sec 3 of the Foreign Investment Act
which as they claimed admits of corporate layering schemes, and that
(2) the nationality question is no longer material because of their
subsequent application for FTAA.
Commercial / Political Law
Issue 1: W/N the Grandfather Rule must be applied in this case
Yes. It is the intention of the framers of the Constitution to apply the
Grandfather Rule in cases where corporate layering is present.
First, as a rule in statutory construction, when there is conflict between
the Constitution and a statute, the Constitution will prevail. In this
instance, specifically pertaining to the provisions under Art. XII of the
Constitution on National Economy and Patrimony, Sec. 3 of the FIA will
have no place of application. Corporate layering is admittedly allowed
by the FIA, but if it is used to circumvent the Constitution and other
pertinent laws, then it becomes illegal.
Second, under the SEC Rule1 and DOJ Opinion2 , the Grandfather Rule
must be applied when the 60-40 Filipino-foreign equity ownership is in
doubt. Doubt is present in the Filipino equity ownership of Narra,
Tesoro, and MacArthur since their common investor, the 100%
Canadian-owned corporation MBMI, funded them.
Under the Grandfather Rule, it is not enough that the corporation does
have the required 60% Filipino stockholdings at face value. To
determine the percentage of the ultimate Filipino ownership, it must
first be traced to the level of the investing corporation and added to the
shares directly owned in the investee corporation. Applying this rule, it
turns out that the Canadian corporation owns more than 60% of the
equity interests of Narra, Tesoro and MacArthur. Hence, the latter are
disqualified to participate in the exploration, development and
utilization of the Philippines natural resources.
1 DOJ Opinion No. 020 Series of 2005 (paragraph 7)
2 SEC Opinion May 13, 1990
Remedial Law
Issue 2: W/N the case has become moot as a result of the MPSA
conversion to FTAA
No. There are certain exceptions to mootness principle and the mere
raising of an issue of mootness will not deter the courts from trying a
case when there is a valid reason to do so.
The SC noted that a grave violation of the Constitution is being
committed by a foreign corporation through a myriad of corporate
layering under different, allegedly, Filipino corporations. The intricate
corporate layering utilized by the Canadian company, MBMI, is of
exceptional character and involves paramount public interest since it
undeniably affects the exploitation of our Countrys natural resources.
The corresponding actions of petitioners during the lifetime and
existence of the instant case raise questions as what principle is to be
applied to cases with similar issues. No definite ruling on such
principle has been pronounced by the Court; hence, the disposition of
the issues or errors in the instant case will serve as a guide to the
bench, the bar and the public. Finally, the instant case is capable of
repetition yet evading review, since the Canadian company, MBMI, can
keep on utilizing dummy Filipino corporations through various schemes
of corporate layering and conversion of applications to skirt the
constitutional prohibition against foreign mining in Philippine soil.
Narra Nickel Mining vs Redmont
G.R. No. 195580, January 28, 2015
Facts:
Narra and its co-petitioner corporations Tesoro and MacArthur, filed a
motion before the SC to reconsider its April 21, 2014 Decision which
upheld the denial of their MPSA applications. The SC affirmed the CA
ruling that there is a doubt to their nationality, and that in applying the
Grandfather Rule, the finding is that MBMI, a 100% Canadian-owned
corporation, effectively owns 60% of the common stocks of petitioners
by owning equity interests of the petitioners other majority corporate
shareholders. Narra, Tesoro and MacArthur argued that the
application of the Grandfather Rule to determine their nationality is
erroneous and allegedly without basis in the Constitution, the FIA, the
Philippine Mining Act, and the Rules issued by the SEC. These laws
and rules supposedly espouse the application of the Control Test in
verifying the Philippine nationality of corporate entities for purposes of
determining compliance with Sec. 2, Art. XII of the Constitution that
only corporations or associations at least 60% of whose capital is
owned by such Filipino citizens may enjoy certain rights and privileges,
like the exploration and development of natural resources.
Issue: W/N the application by the SC of the grandfather resulted
to the abandonment of the control test
Held:
No. The control test can be applied jointly with the Grandfather Rule
to determine the observance of foreign ownership restriction in
nationalized economic activities. The Control Test and the Grandfather
Rule are not incompatible ownership-determinant methods that can
only be applied alternative to each other. Rather, these methods can,
if appropriate, be used cumulatively in the determination of the
ownership and control of corporations engaged in fully or partly
nationalized activities, as the mining operation involved in this case or
the operation of public utilities.
The Grandfather Rule, standing alone, should not be used to
determine the Filipino ownership and control in a corporation, as it
could result in an otherwise foreign corporation rendered qualified to
perform nationalized or partly nationalized activities. Hence, it is only
when the Control Test is first complied with that the Grandfather Rule
may be applied. Put in another manner, if the subject corporations
Filipino equity falls below the threshold 60%, the corporation is
immediately considered foreign-owned, in which case, the need to
resort to the Grandfather Rule disappears.
In this case, using the control test, Narra, Tesoro and MacArthur
appear to have satisfied the 60-40 equity requirement. But the
nationality of these corporations and the foreign-owned common
investor that funds them was in doubt, hence, the need to apply the
Grandfather Rule.
G.R. No. 207246, November 22, 2016
JOSE M. ROY III, Petitioner, v. CHAIRPERSON TERESITA
HERBOSA, THE SECURITIES AND EXCHANGE COMMISSION,
AND PHILILIPPINE LONG DISTANCE TELEPHONE COMPANY,
Respondents.
FACTS OF THE CASE:
This is a case of special civil action for certiorari under Rule
65 of the Rules of Court seeking to annul Memorandum Circular No. 8,
Series of 2013 (SEC-MC No. 8)issued by the SEC for allegedly being
in violation of the Court's Decision ("Gamboa Decision") and
Resolution ("Gamboa Resolution") in Gamboa v. Finance Secretary
Teves, G.R. No. 176579 which jurisprudentially established the proper
interpretation of Section 11, Article XII of the Constitution.
On June 28, 2011, the Court issued the Gamboa Decision,
the dispositive portion of which reads:
WHEREFORE, we PARTLY GRANT the petition
and rule that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers only to
shares of stock entitled to vote in the election of
directors, and thus in the present case only to
common shares, and not to the total outstanding
capital stock (common and non-voting preferred
shares). Respondent Chairperson of the
Securities and Exchange Commission is
DIRECTED to apply this definition of the term
"capital" in determining the extent of allowable
foreign ownership in respondent Philippine Long
Distance Telephone Company, and if there is a
violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions
under the law.
On May 20, 2013, the SEC, through Chairperson Herbosa,
issued SEC-MC No. 8 entitled "Guidelines on Compliance with the
Filipino-Foreign Ownership Requirements Prescribed in the
Constitution and/or Existing Laws by Corporations Engaged in
Nationalized and Partly Nationalized Activities." Section 2 of SEC-MC
No. 8 provides:
Section 2. All covered corporations shall, at all
times, observe the constitutional or statutory
ownership requirement. For purposes of
determining compliance therewith, the required
percentage of Filipino ownership shall be applied
to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of
directors; AND (b) the total number of outstanding
shares of stock, whether or not entitled to vote in
the election of directors.
On June 10, 2013, Roy, as a lawyer and taxpayer, filed the
Petition, assailing the validity of SEC-MC No. 8 for not conforming to
the letter and spirit of the Gamboa Decision and Resolution and for
having been issued by the SEC with grave abuse of discretion.
Petitioner Roy also questions the ruling of the SEC that respondent
Philippine Long Distance Telephone Company ("PLDT") is compliant
with the constitutional rule on foreign ownership. He prays that the
Court declare SEC-MC No. 8 unconstitutional and direct the SEC to
issue new guidelines regarding the determination of compliance with
Section 11, Article XII of the Constitution in accordance with Gamboa.
ISSUE: Whether the petitioner has standing to question the validity of
the subject act or issuance, i.e., he has a personal and substantial
interest in the case that he has sustained, or will sustain, direct injury
as a result of the enforcement of the act or issuance
RULING:
Petitioners have no legal standing to question the
constitutionality of SEC-MC No. 8. The personal and substantial
interest that enables a party to have legal standing is one that is both
material, an interest in issue and to be affected by the government
action, as distinguished from mere interest in the issue involved, or a
mere incidental interest, and real, which means a present substantial
interest, as distinguished from a mere expectancy or a future,
contingent, subordinate, or consequential interest.
As to injury, the party must show that (1) he will personally
suffer some actual or threatened injury because of the allegedly illegal
conduct of the government; (2) the injury is fairly traceable to the
challenged action; and (3) the injury is likely to be redressed by a
favorable action.
To establish his standing, petitioner Roy merely claimed that
he has standing to question SEC-MC No. 8 "as a concerned citizen, an
officer of the Court and as a taxpayer" as well as "the senior law
partner of his own law firm[, which] x x x is a subscriber of PLDT."
The Court has previously emphasized that the locus standi
requisite is not met by the expedient invocation of one's citizenship or
membership in the bar who has an interest in ensuring that laws and
orders of the Philippine government are legally and validly issued as
these supposed interests are too general, which are shared by other
groups and by the whole citizenry. Per their allegations, the personal
interest invoked by petitioners as citizens and members of the bar in
the validity or invalidity of SEC-MC No. 8 is at best equivocal, and
totally insufficient.
Petitioners' status as taxpayers is also of no moment. As
often reiterated by the Court, a taxpayer's suit is allowed only when the
petitioner has demonstrated the direct correlation of the act
complained of and the disbursement of public funds in contravention of
law or the Constitution, or has shown that the case involves the
exercise of the spending or taxing power of Congress. SEC-MC No. 8
does not involve an additional expenditure of public funds and the
taxing or spending power of Congress.
The allegation that petitioner Roy's law firm is a "subscriber
of PLDT" is ambiguous. It is unclear whether his law firm is a
"subscriber" of PLDT's shares of stock or of its various
telecommunication services. Petitioner Roy has not identified the
specific direct and substantial injury he or his law firm stands to suffer
as "subscriber of PLDT" as a result of the issuance of SEC-MC No. 8
and its enforcement. Moreover, in the most practical sense, a PLDT
subscriber loses or gains nothing in the event that SEC-MC No. 8 is
either sustained or struck down by [the Court].
JG Summit Holdings Inc. vs. CA G.R. No. 124293, November 20,
2000
JG Summit Holdings Inc. vs. CA
G.R. No. 124293, November 20, 2000
FACTS:
The National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA)
with Kawasaki Heavy Industries, Ltd. for the construction, operation
and management of the Subic National Shipyard, Inc., later became
the Philippine Shipyard and Engineering Corporation (PHILSECO).
Under the JVA, NIDC and Kawasaki would maintain a shareholding
proportion of 60%-40% and that the parties have the right of first
refusal in case of a sale.

Through a series of transfers, NIDCs rights, title and interest in

PHILSECO eventually went to the National Government. In the interest
of national economy, it was decided that PHILSECO should be
privatized by selling 87.67% of its total outstanding capital stock to
private entities. After negotiations, it was agreed that Kawasakis right
of first refusal under the JVA be exchanged for the right to top by five
percent the highest bid for said shares. Kawasaki that Philyards
Holdings, Inc. (PHI), in which it was a stockholder, would exercise this
right in its stead.

During bidding, Kawasaki/PHI Consortium is the losing bidder. Even

so, because of the right to top by 5% percent the highest bid, it was
able to top JG Summits bid. JG Summit protested, contending that
PHILSECO, as a shipyard is a public utility and, hence, must observe
the 60%-40% Filipino-foreign capitalization. By buying 87.67% of
PHILSECOs capital stock at bidding, Kawasaki/PHI in effect now owns
more than 40% of the stock.

ISSUE:

* Whether or not PHILSECO is a public utility

* Whether or not Kawasaki/PHI can purchase beyond 40% of
PHILSECOs stocks

HELD:

In arguing that PHILSECO, as a shipyard, was a public utility, JG

Summit relied on sec. 13, CA No. 146. On the other hand,
Kawasaki/PHI argued that PD No. 666 explicitly stated that a
shipyard was not a public utility. But the SC stated that sec. 1 of PD
No. 666 was expressly repealed by sec. 20, BP Blg. 391 and when BP
Blg. 391 was subsequently repealed by EO 226, the latter law did not
revive sec. 1 of PD No. 666. Therefore, the law that states that a
shipyard is a public utility still stands.

A shipyard such as PHILSECO being a public utility as provided by law

is therefore required to comply with the 60%-40% capitalization under
the Constitution. Likewise, the JVA between NIDC and Kawasaki
manifests an intention of the parties to abide by this constitutional
mandate. Thus, under the JVA, should the NIDC opt to sell its shares
of stock to a third party, Kawasaki could only exercise its right of first
refusal to the extent that its total shares of stock would not exceed
40% of the entire shares of stock. The NIDC, on the other hand, may
purchase even beyond 60% of the total shares. As a government
corporation and necessarily a 100% Filipino-owned corporation, there
is nothing to prevent its purchase of stocks even beyond 60% of the
capitalization as the Constitution clearly limits only foreign
capitalization.

Kawasaki was bound by its contractual obligation under the JVA that
limits its right of first refusal to 40% of the total capitalization of
PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the
capitalization of the joint venture on account of both constitutional and
contractual proscriptions.