Corporation Law Cases Part 1.

G.R. No. 82797 February 27, 1991

GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,

vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.

Facts: a lease contract was entered into between the respondent corporation, Roces-reyes realty
inc. and good earth emporium inc.. During the term of lease, petitioner good earth has failed to
make good of the rentals due from them, hence a case for unlawful detainer was filed against
the petitioner lessee.

The MTC manila has rendered a decision in favor of the respondets, which ordered the vacation
of the leased property and payment of the rental arrears; thus a writ of execution was filed by
the respondents and ruled in their favor.

Petitioner raised a motion for the quashal of the writ of alias execution, alleging among others
that they have already satisfied the judgement debt, which was ruled by RTC of manila in favor
of the petitioner.

However, on appeal to the respondent court, the Court of appeals ruled that there was no actual
satisfaction of debt and so, reversed the ruling .

Issue: WON the writ of execution shall be quashed.

Held: No, The Supreme Court ruled that there is no evidence that the judgement debt has been
fully satisfied for; it was ruled that payment shall be made in favor of whose obligation was
constituted, his successor in interest or any person authorized to receive it.

However, It appears in this case that the payment made by the petitioners was not in favor of
Roces Realty but to roces brothers, and there appears no evidence that it was received by them
as a payment to the judgement debt since the receipts was named after them, whereas the
supreme court ruled that it raised the presumption that the payment was made unto them and
not for the roces realty, as a payment of a loan extended by them to the petitioners. It is true
despite of being the president of the corporation at the time of the perfection of the contract of
lease, and in support the supreme court invoked the juridical personality of a corporation as it
states; A corporation has a personality distinct and separate from its individual
stockholders or members. Being an officer or stockholder of a corporation does not make
one's property also of the corporation, and vice-versa, for they are separate entities (Traders
Royal Bank v. CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482).
Shareowners are in no legal sense the owners of corporate property (or credits) which is
owned by the corporation as a distinct legal person (Concepcion Magsaysay-Labrador v.
CA-G.R. No. 58168, December 19, 1989). As a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of the
stockholder, nor is the stockholder's debt or credit that of the corporation (Prof. Jose
Nolledo's "The Corporation Code of the Philippines, p. 5, 1988 Edition, citing Professor
Ballantine).
In the absence of sufficient proof to the contrary, the Supreme Court ruled that there has been
no satisfaction of the judgement debt.

Adm. Matter No. R-181-P July 31, 1987

ADELIO C. CRUZ, complainant,

vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.

Facts: Cruz has filed an administrative case against dalisay for alleged “malfeasance, corrupt
practices and serious irregularities” for attaching his property to satisfy a judgement debt in a
labor case. On his defense, Dalisay said that he was merely performing a ministerial duty, hence
cannot be charged of such allegation. Respondent hinges on the claim that because of Dalisay’s
affidavit stating that he is the president /owner of the corporation involved in the labor case,
the plaintiff’s counsel advised him (dalisay) to go after Cruz’s accounts.

Issue: WON dalisay shall be responsible for piercing the corporate veil.

Held: yes, the supreme court ruled that he has exceeded his territorial jurisdiction and even
stated that, The tenor of the NLRC judgment and the implementing writ is clear enough. It
directed Qualitrans Limousine Service, Inc. to reinstate the discharged employees and pay
them full backwages. Respondent, however, chose to "pierce the veil of corporate entity"
usurping a power belonging to the court and assumed improvidently that since the
complainant is the owner/president of Qualitrans Limousine Service, Inc., they are one and
the same. It is a 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.
 [G.R. No. 120135. March 31, 2003]
BANK OF AMERICA NT&SA, BANK OF AMERICA
INTERNATIONAL, LTD., petitioners,
vs.
COURT OF APPEALS, HON. MANUEL PADOLINA, EDUARDO
LITONJUA, SR., and AURELIO K. LITONJUA, JR., respondents.
Facts: Litonjua-s filed a complaint against petitioner bank alleging that: they were engaged in
shipping business and owned two vessels through they wholly owned corporations, as their
business doing well, respondent bank induced them to obtain more vessels and so an additional
four was procured by them from the respondent bank, these vessels were put on the exclusive
control and disposition of the petitioners. The bank, being a trustee of the corporation claimed
that the petitioner bank did not fully render an account from the operations of the vessels as
well as the proceeds of the subsequent foreclosure sale; due to such the loans acquired for the
additional purchase of the four vessels has matured and not paid therefore been foreclosed and
sold for public auction to answer for obligations incurred for and in behalf of the operation of
the vessels.
The Litonjuas prayed for the accounting of the revenues derived in the operation of the six
vessels and of the proceeds of the sale thereof at the foreclosure proceedings instituted by
petitioners; damages for breach of trust; exemplary damages and attorneys fees.

As to the first assigned error: Petitioners argue that the borrowers and the registered owners of
the vessels are the foreign corporations and not private respondents Litonjuas who are mere
stockholders; and that the revenues derived from the operations of all the vessels are deposited
in the accounts of the corporations. Hence, petitioners maintain that these foreign corporations
are the legal entities that have the personalities to sue and not herein private respondents; that
private respondents, being mere shareholders, have no claim on the vessels as owners since
they merely have an inchoate right to whatever may remain upon the dissolution of the said
foreign corporations and after all creditors have been fully paid and satisfied;[19] and that while
private respondents may have allegedly spent amounts equal to 10% of the acquisition costs of
the vessels in question, their 10% however represents their investments as stockholders in the
foreign corporations

Petitioner argues that respondents has no legal personalities to sue for being a mere
stockholders of the foreign corporation, hence the case shall be dismissed.
Issue: WON the respondent court has committed grave abuse of discretion in refusing to
dismiss the case.

Held: No, Petitioners argument that private respondents, being mere stockholders of the foreign
corporations, have no personalities to sue, and therefore, the complaint should be dismissed, is
untenable. A case is dismissible for lack of personality to sue upon proof that the plaintiff is not
the real party-in-interest. Lack of personality to sue can be used as a ground for a Motion to
Dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of
action.[35] In San Lorenzo Village Association, Inc. vs. Court of Appeals, this Court clarified
that a complaint states a cause of action where it contains three essential elements of a cause of
action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in violation of said legal right. If
these elements are absent, the complaint becomes vulnerable to a motion to dismiss on the
ground of failure to state a cause of action. To emphasize, it is not the lack or absence of cause
of action that is a ground for dismissal of the complaint but rather the fact that the complaint
states no cause of action. Failure to state a cause of action refers to the insufficiency of allegation
in the pleading, unlike lack of cause of action which refers to the insufficiency of factual basis
for the action. Failure to state a cause of action may be raised at the earliest stages of an action
through a motion to dismiss the complaint, while lack of cause of action may be raised any time
after the questions of fact have been resolved on the basis of stipulations, admissions or
evidence presented.
In the case at bar, the complaint contains the three elements of a cause of action. It alleges that:
(1) plaintiffs, herein private respondents, have the right to demand for an accounting from
defendants (herein petitioners), as trustees by reason of the fiduciary relationship that was
created between the parties involving the vessels in question; (2) petitioners have the
obligation, as trustees, to render such an accounting; and (3) petitioners failed to do the same.

Petitioners insist that they do not have any obligation to the private respondents as they are
mere stockholders of the corporation; that the corporate entities have juridical personalities
separate and distinct from those of the private respondents. Private respondents maintain that
the corporations are wholly owned by them and prior to the incorporation of such entities,
they were clients of petitioners which induced them to acquire loans from said petitioners to
invest on the additional ships.

We agree with private respondents. As held in the San Lorenzo case,

xxx assuming that the allegation of facts constituting plaintiffs cause of action is not as clear and
categorical as would otherwise be desired, any uncertainty thereby arising should be so
resolved as to enable a full inquiry into the merits of the action.

As this Court has explained in the San Lorenzo case, such a course, would preclude multiplicity
of suits which the law abhors, and conduce to the definitive determination and termination of
the dispute. To do otherwise, that is, to abort the action on account of the alleged fatal flaws of
the complaint would obviously be indecisive and would not end the controversy, since the
institution of another action upon a revised complaint would not be foreclosed.
G.R. No. 117932 July 20, 1995

AVON DALE GARMENTS, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, LILIA DUMANTAY, ET
AL., respondents.

Facts: respondents were employees of petitioner avon dale garments and its predecessor in
interest avon dale shirt factory. Following a dispute brought about by the rotation of workers, a
compromise agreement was entered into between petitioner and private respondents wherein
the latter were terminated from service and given their corresponding separation pay.
However, petitioners refused to compute their separation pay while they were employed by
avond dale shirts amounting to deficiency in their separation pay.
On its defense, avon dale raised before the court that it has separate and distinct personality
from its predecessor-in-interest avon dale shirts.
Pending resolution of the instant petition, counsel for private respondents informed the court
that they’ve entered into an amicable settlement by virtue of which a waiver and a quitclaim
was executed, without however the knowledge and participation of NLRC.

Issue: WON avon dale garments is a separate and distinct entity from avon dale shirt factory.

Held: No, Petitioner failed to establish that Avon Dale Garments, Inc., is a separate and
distinct entity from Avon Dale Shirt Factory, absent any showing that there was indeed an
actual closure and cessation of the operations of the latter. The mere filing of the Articles of
Dissolution with the Securities and Exchange Commission, without more, is not enough to
support the conclusion that actual dissolution of an entity in fact took place.

On the contrary, the prevailing circumstances in this case indicated that petitioner company
is not distinct from its predecessor Avon Dale Shirt Factory, but in fact merely continued
the operations of the latter under the same owners, the same business venture, at same
address6, and even continued to hire the same employees (herein private respondents).

Thus, conformably with established jurisprudence, the two entities cannot be deemed as
separate and distinct where there is a showing that one is merely the continuation of the
other.7 In fact, even a change in the corporate name does not make a new corporation,
whether effected by a special act or under a general law, it has no effect on the identity of
the corporation, or on its property, rights, or liabilities.8 Respondent NLRC therefore, did
not commit any grave abuse of discretion in holding that petitioner should likewise include
private respondents' employment with Avon Dale Shirt Factory in computing private
respondents' separation pay as petitioner failed to substantiate its claim that it is a distinct
entity.
 [G.R. No. 108734. May 29, 1996]

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR

RELATIONS COMMISSION,
PONENCIA:
The corporate mask may be lifted and the corporate veil may be pierced when
a corporation is just but the alter ego of a person or of another corporation.
Where badges of fraud exist; where public convenience is defeated; where a
wrong is sought to be justified thereby, the corporate fiction or the notion of
legal entity should come to naught. The law in these instances will regard the
corporation as a mere association of persons and, in case of two corporations,
merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporations
subsidiary liability for damages, the corporation may not be heard to say that
it has a personality separate and distinct from the other corporation. The
piercing of the corporate veil comes into play.

Facts: Petitioner is a construction corporation while respondents were employee of the former
as carpenters and riggers.

On November 1981, respondents were served individual written notices of termination by

reason of expiration of their contract and the project they were hired was already completed.

Public respondent found it to be, the fact, however, that at the time of the termination of
private respondents employment, the project in which they were hired had not yet been
finished and completed. Petitioner had to engage the services of sub-contractors whose workers
performed the functions of private respondents.
Aggrieved, private respondents filed a labor case against the petitioner.
The case brought before the labor arbiter has favored the private respondents, and so a writ of
execution was sought by them to satisfy the judgement debt.

a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the
properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of
which he is the Vice-President.
private respondents filed a Motion for Issuance of a Break-Open Order, alleging that HPPI and
petitioner corporation were owned by the same incorporator! stockholders. They also alleged
that petitioner temporarily suspended its business operations in order to evade its legal
obligations to them and that private respondents were willing to post an indemnity bond to
answer for any damages which petitioner and HPPI may suffer because of the issuance of the
break-open order.

HPPI submitted its GIS and opposed the issuance of break-open order alleging that they
have separate and distinct personality from the petitioner.

Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the
execution of its decision despite a third-party claim on the levied property. Petitioner further
contends, that the doctrine of piercing the corporate veil should not have been applied, in this
case, in the absence of any showing that it created HPPI in order to evade its liability to private
respondents. It also contends that HPPI is engaged in the manufacture and sale of steel,
concrete and iron pipes, a business which is distinct and separate from petitioners construction
business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, the
same President and the same set of officers and subscribers.

ISSUE: WON HPPI and CONCEPT BUILDERS has a separate and distinct personality for being
two different corporations.

Held: No, 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.

The conditions under which the juridical entity may be disregarded vary according to the
peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid
down, but certainly, there are some probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business.

The test in determining the applicability of the doctrine of piercing the veil of corporate
fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;

2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust
act in contravention of plaintiffs legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.

The absence of any one of these elements prevents piercing the corporate veil. in applying
the instrumentality or alter ego doctrine, the courts are concerned with reality and not form,
with how the corporation operated and the individual defendants relationship to that
operation.

In the case at bar, it appears that, Both information sheets were filed by the same Virgilio O. Casino as
the corporate secretary of both corporations. It would also not be amiss to note that both corporations had
the same president, the same board of directors, the same corporate officers, and substantially
the same subscribers.

From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-
party claimant shared the same address and/or premises. Under this circumstances, (sic) it cannot be said
that the property levied upon by the sheriff were not of respondents.

Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of backwages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to petitioner corporation.
It is very obvious that the second corporation seeks the protective shield of a corporate fiction
whose veil in the present case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its employees.
 [G.R. No. 115849. January 24, 1996]

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank

of the Philippines) and MERCURIO RIVERA, petitioners, vs.
COURT OF APPEALS

Facts: The defendant Producer bank acquired six parcels of land formerly owned by BYME
investment and development corporation which had them mortgaged with the bank as
collateral form of loan. The original plaintiffs were interested in the property and thus initiated
negotiations for that purpose.

An exchange of letters as an offer were made for the proposed purchase of the subject
properties,

On their initial offer, they wasn’t able to meet the counter offer of the bank, but later on agreed
to purchase the same on the tenure of the bank’s proposal.

Comes now the question of fact is that whether or not there was a sale made by merely
exchanging of letters.

Now plaintiffs demanded for the execution of the sale after tendering the agreed purchase price
to which the bank declines and refused to received the same.

Thus, prompting plaintiffs to file a case for specific performance to enforce the sale, wherein
Henry Co, brother of Luis Co, filed a motion to intervene alleging that 80% of the bank’s
outstanding shares of stock, to where the court answered denying the motion ruling that trial
had already been concluded.

Issue: WON the sale has been perfected through the bank’s corporate officer Rivera?

Held: Yes, The Supreme Court Ruled in the case of The authority of a corporate officer in
dealing with third persons may be actual or apparent. The doctrine of apparent authority, with
special reference to banks, was laid out in Prudential Bank vs. Court of Appeals, where it was
held that:

Conformably, we have declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agents apparent representation yields to the principals true
representation and the contract is considered as entered into between the principal and the third
person (citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166).

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course
of dealings of the officers in their representative capacity but not for acts outside the scope of
their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy of
confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate
in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for
such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114).
Accordingly, a banking corporation is liable to innocent third persons where the representation
is made in the course of its business by an agent acting within the general scope of his authority
even though, in the particular case, the agent is secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other person, for his own ultimate benefit
(McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).

Application of these principles is especially necessary because banks have a fiduciary

relationship with the public and their stability depends on the confidence of the people in their
honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the
selection and supervision of its employees, resulting in prejudice to their depositors.

From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent
or implied authority to act for the Bank in the matter of selling its acquired assets. His acts for
receiving the letter, signing and making a counter offer to it and arranging meeting between the
buyer and Luis Co, as well as the newspaper advertisement confirming his authority and that
he is a manager of the bank and In fact, Rivera was the officer mentioned in the Banks
advertisements offering for sale the property in question.
We note that the Banks repudiation, through Conservator Encarnacion, of Riveras authority and
action, particularly the latters counter-offer of P5.5 million, as being unauthorized and illegal
came only on May 12, 1988 or more than seven (7) months after Janolos acceptance. Such delay,
and the absence of any circumstance which might have justifiably prevented the Bank from
acting earlier, clearly characterizes the repudiation as nothing more than a last-minute attempt
on the Banks part to get out of a binding contractual obligation.