again barred from entering the premises, hence he filed the instant

complaint[4] for constructive

RUPERTO SULDAO, G.R. No. 171392 dismissal.[5]
CIMECH SYSTEM CONSTRUCTION, Respondent alleged that due to lack of available work in the machine shop,
INC. and ENGR. RODOLFO S. Promulgated: petitioner
LABUCAY, was temporarily transferred to its fabrication department sometime in
Respondents. October 30, 2006 November
x ---------------------------------------------------------------------------------------- x 2002. Petitioner refused to accept the transfer and insisted to work as a
DECISION machinist. Because of
YNARES-SANTIAGO, J.: petitioners arrogant and unruly behavior, he was led away by a guard. When
This petition for review on certiorari assails the Decision[1] dated June 23, petitioner returned
2005 of the for work, he purportedly demanded a salary increase and wages for the days
Court of Appeals in CA-G.R. SP No. 83963, which reversed and set aside the that he did not
February 27, work. Respondent considered the actuations of petit
2004 Resolution[2] of the National Labor Relations Commission (NLRC) in backwages which has accumulated as of July 17, 2003 in the sum of
NLRC CA No. P62,400.00
036963-03 and the August 5, 2003 Decision of the Labor Arbiter finding plus his one month separation pay of P7,800.00.
petitioner to have been SO ORDERED.[7]
constructively dismissed. Also assailed is the January 10, 2006 Resolution[3] The NLRC concurred with the findings of the Labor Arbiter that petitioner was
denying petitioners constructively
motion for reconsideration. dismissed.
The facts are as follows: Hence, respondent filed a petition for certiorari[8] which was granted by the
Respondent Cimech Systems Construction, Inc. employed the services of Court of Appeals. In
petitioner its assailed June 23, 2005 decision, the Court of Appeals reversed the NLRC
Ruperto Suldao on August 31, 2001 as a machinist with a daily wage of by declaring:
P300.00 on a WHEREFORE, premises considered, the Petition is hereby given DUE
contractual status for a period of five months. After January 31, 2002, COURSE, and the February 27, 2004 Decision of the NLRC is hereby
respondent continued to REVERSED and SET ASIDE. The December 20, 2002 Complaint is hereby
engage the services of petitioner as a machinist until he became a permanent DISMISSED.
employee. SO ORDERED.[9]
Petitioner alleged that owing to a dearth in projects being handled by the Hence, this petition raising the sole issue of:
respondent, he WHETHER THE COURT OF APPEALS COMMITED GRAVE ABUSE OF
was ordered by Ms. Elsa Labocay to take a leave of absence from November DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
1 to 6, 2002. He REVERSING THE DECISION OF THE LABOR ARBITER AND THE NLRC
reported for work on November 7, 2002 but was again ordered to take a leave THAT THE PETITIONER WAS CONSTRUCTIVELY DISMISSED.
of absence As a general rule, a petition for review on certiorari under Rule 45 of the Rules
from November 7 to 14, 2002. On November 15, 2002, he was purportedly of Court
ordered to make a is limited to questions of law. However, this rule admits of exceptions,[10] such
letter-request for field work transfer which he complied. The following day, he as in this case
failed to report where the findings of the Labor Arbiter and the NLRC vary from the findings
back for work because he was sick. On November 17, 2002, he reported for of the Court of
work but was Appeals.
allegedly barred from entering by the security guard on duty. On November The petition is impressed with merit.
21, 2002, he was After a painstaking review of the records, we uphold the findings of the Labor
Arbiter and

72
of the NLRC that petitioner was constructively dismissed. Constructive
dismissal or a
constructive discharge has been defined as quitting because continued
employment is rendered
impossible, unreasonable or unlikely, as an offer involving a demotion in rank
and a diminution
in pay.[11] In the instant case, there is constructive dismissal because the
continued employment
of petitioner is rendered impossible so as to foreclose any choice on his part
except to resign
from such employment.[12]
In cases of constructive dismissal, the burden of proof is on the employer to
show that
the employee was dismissed for a valid and a just cause.[13] In the instant
case, respondent
failed to discharge this burden. As aptly observed by the NLRC:
In essence, respondents would have it that they have not dismissed
complainant, rather it was he who did not return to his job after 13 January
2003.
To begin with, the issues raised undoubtedly was factual, the
determination of which lies within the competence of the Labor
Arbiters jurisdiction, over which this Commission will interfere only when grave
abuse or serious errors were committed by him in the interpretation of the
evidence on records.
In this case however, respondents failed to show by substantial proof the
veracity of their assertion. For one, while claiming that complainant was placed
on a six (6) days suspension for an alleged infraction, they failed nonetheless
to
adduce evidence showing that indeed complainant committed the offense and
was placed as such as disciplinary measure.
Relevant on this score is the observation and findings of the Labor
Arbiter, to wit:
Respondents averment that complainant was arrogant,
and did not want to be transferred to another position or
department is belied by complainants letter datedNovember 28,
2002.
Excerpts from complainants letter reads:
Na tinatanggap ko na utos ng kumpanyang ito na umako
ng ibang gawain para sa kabutihan ng lahat. Na ang pagtanggap
ko ng ibang trabaho ay pansamantala lang habang walang gawain
sa dati ko puwesto or gawain trabaho sa kompanya.
Nang ang sulat salaysay kong ito ay aking isinagawa
bilang pagtalima sa kautusan ng atin kumpanya.
xxxx
Complainants claim that he was required to go on a leave
of absence due to a dearth of work is consistent with respondents
claim that there was scarcity of work because of the economic
crisis.
By all appearances, complainant does not have a high
educational attainment and his skill is limited to being a machinist.
As such, all he can do is to obey the biddings of his superior. So
when required to go on leave, he meekly obeys.
Even his claim that he failed to report for work due to
indisposition is supported by a medical certificate. As between the
conflicting claims of the parties, this Arbitration Branch has to
accord more weight to complainants claim that he was no longer
allowed to work because he was barred by the security guard of
the company to enter the premises for reasons only known to
respondents.
Had there been truth to respondents claim that
complainant abandoned his work because he did not want the job
in the fabrication department, complainant would not have made a
letter of conformity to do the bidding of the company. Moreover,
complainant would not have taken steps to protect his rights like
the institution of the present labor suit if he had abandoned his
work because rather than spend time, effort and a little money in
attending to the hearings of this case, he would have concentrated
in his new job or in finding one in order to feed his family.[14]
While the decision to transfer employees to other areas of its operations forms
part of the well
recognized prerogatives of management, it must be stressed, however, that
the managerial
prerogative to transfer personnel must not be exercised with grave abuse of
discretion, bearing
in mind the basic elements of justice and fair play. Having the right should not
be confused with
the manner in which that right is exercised. Thus it cannot be used as a
subterfuge by the
employer to rid himself of an undesirable worker.[15]
In the instant case, while petitioners transfer was valid, the manner by which
respondent
unjustifiably prevented him from returning to work on several occasions runs
counter to the
claim of good faith on the part of respondent corporation. By reporting for work,
petitioner
manifested his willingness to comply with the regulations of the corporation
and his desire to
continue working for the latter. However, he was barred from entering the
premises without any
73
explanation. This is a clear manifestation of disdain and insensibility on the
part of an employer
towards a particular employee and a veritable hallmark of constructive
dismissal.
We cannot sustain the theory of respondent that since petitioner was allowed
to join its 2002
Christmas Party, there can be no constructive dismissal. Petitioners joining
the Christmas party
does not negate his illegal dismissal. Neither does it detract us from the fact
that petitioner was
prevented from entering the premises of the respondent corporation on
previous occasions.
While the liability of the respondent corporation for the constructive dismissal
of the
petitioner has been clearly established, the same does not hold true with the
other respondent,
Engr. Rodolfo S. Labucay, President and General Manager of the respondent
corporation.[16] In
finding Labucay also liable, the Labor Arbiter declared that:
The foregoing circumstances support the view that complainant was
constructively dismissed in an illegal manner. Consequently, respondents, in
solidum, are ordered to reinstate the complainant to his former position and
pay
complainant his backwages x x x.
A corporation is invested by law with a personality separate from that of its
stockholders
or members. It has a personality separate and distinct from those of the
persons composing it
as well as from that of any other entity to which it may be related. Mere
ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of
a corporation is
not in itself sufficient ground for disregarding the separate corporate
personality. A corporations
authority to act and its liability for its actions are separate and apart from the
individuals who
own it.
The veil of corporate fiction treats as separate and distinct the affairs of a
corporation
and its officers and stockholders. As a general rule, a corporation will be
looked upon as a legal
entity, unless and until sufficient reason to the contrary appears. When the
notion of legal entity
is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, the law will
regard the corporation as an association of persons. Also, the corporate entity
may be
disregarded in the interest of justice in such cases as fraud that may work
inequities among
members of the corporation internally, involving no rights of the public or third
persons. In both
instances, there must have been fraud and proof of it.For the separate juridical
personality of a
corporation to be disregarded, the wrongdoing must be clearly and
convincingly established. It
cannot be presumed.[17]
In the instant case, no reason exists that will justify the piercing of the veil of
corporate
fiction such as to hold Labucay, as the president and general manager of the
respondent
corporation, solidarily liable with it. Thus, the liability for the constructive
dismissal of the
petitioner solely devolves upon the respondent corporation. Consequently, the
decision of the
Labor Arbiter and of the NLRC should be modified in that only the respondent
corporation
should be held liable.
ROVELS ENTERPRISE, Inc. vs OCAMPO
FACTS:
> Rovels is a domestic corporation engaged in construction work wherein
Tagaytay Taal Tourist Development Corporation (TTTDC) was among its
client.
> In payment for the services rendered by Rovels, the Board of Directors of
TTTDC passed a Resolution on December 29, 1975 providing as follows:
RESOLVED, as it is hereby resolved that payment for professional fees and
services rendered by x x x Rovels Enterprises x x x be made in cash if funds
are available, or its equivalent number of shares of stock of the corporation at
par value, and should said creditors elect the latter mode of payment, it is
further resolved that the President and/or his Secretary be authorized as they
are hereby authorized, to issue the corresponding unissued shares of stock of
the corporation.
> Resolution was signed by three of TTTDCs directors, but the signatures of
the other two (2) TTTDC directors Jose Silva, Jr. and Emmanuel Ocampo do
not appear in the subject Resolution despite their presence in the December
29, 1975 Board meeting.
74
> On March 1, 1976, the TTTDC Board of Directors passed another
Resolution repealing its Resolution of December 29, 1975, thus:
RESOLVED, as it is hereby resolved, that the Resolution of December 29,
1975 authorizing the payment of creditors with unissued shares of the
corporation be as it is hereby repealed: Resolved further that the matter as
well as the amount of the creditors claims be given adequate study and
consideration by the Board.
> In view of the December 29, 1975 TTTDC Board Resolution transferring to
Rovels the said shares of stock as construction fee, TTTDC Directors Jose
Silva, Jr. and Emmanuel Ocampo filed a complaint with the SEC against
Roberto Roxas, TTTDC President, and Eduardo Santos, Rovels President
allegeing that there was no meeting of the TTTDCs Board of Directors on
December 29, 1975; that they did not authorize the transfer of TTTDCs shares
of stock to Rovels; that they never signed the alleged minutes of the meeting;
and that the signatures of the other two (2) Directors, Victoriano Leviste and
Bienvenido Cruz, Jr., as well as that of TTTDCs Secretary Francisco Carreon,
Jr., were obtained through fraud and misrepresentation. They also alleged that
the TTTDC Board Resolution dated December 29, 1975 was repealed by the
March 1, 1976 Resolution. They thus prayed that the transfer of TTTDCs
shares of stock to Rovels pursuant to Resolution dated December 29, 1975
be annulled.
> Commission finds and so holds that the purported board resolution of
December 29, 1975, not having been properly passed upon at a duly
constituted board meeting, cannot be recognized as valid and hence, without
legal force and effect. Consequently, the issuance of shares of stock to
corporate creditors of the Tagaytay Taal Tourist Development Corporation is
null and void.
> Subsequently, TTTDC, Jose Silva, Emmanuel Ocampo, et. al., and another
stockholder of TTTDC, (the SILVA GROUP, now respondents), filed with the
SEC a petition against the SANTOS GROUP who were nominees of Rovels
by virtue of the shares of stock issued pursuant to the December 29, 1975
Resolution, proceeded to act as directors and officers of TTTDC. In their
petition, the SILVA GROUP prayed that they be declared the true and lawful
stockholders and incumbent directors and officers of TTTDC.
> SEC Hearing Officer rendered a Decision in favor of the SILVA GROUP and
the decision became final and executory as no appeal was interposed by
either the SILVA GROUP or the SANTOS GROUP.
> However, Rovels, to whom the TTTDC shares of stock (worth P108,000.00)
were transferred, claimed that it be declared the majority stockholder of
TTTDC as against SILVA GROUP.
ISSUE:
Whether or not ROVELS (corporation) can be bound by the decision
of SEC and the court represented by its corporate officers?
RULING:
YES. A reading of the above petition shows that Rovels prayer to be declared
the majority stockholder of TTTDC is anchored on the December 29, 1975
TTTDC Board Resolution transferring its shares of stock to Rovels as
construction fee. This Resolution could have vested in Rovels a right to be
declared a stockholder of TTTDC. However, the same petition concedes that
the December 29, 1975 Resolution was repealed by the March 1, 1976
Resolution. The petition likewise alleges that there were prior interrelated
cases filed with the SEC between the SILVA and SANTOS GROUPS, namely:
(1) SEC Case No. 1322 (wherein the SEC en banc in its Decision dated
September 2, 1982 nullified the TTTDC Board Resolution dated December
29, 1975, which Decision was affirmed with finality by this Court in G.R. No.
61863) and (2) SEC Case No. 3806 (wherein the SEC declared the SILVA
GROUP as the legitimate stockholders of TTTDC, not Rovels nominees [the
SANTOS GROUP]). Clearly, on the face of its petition, Rovels cannot claim to
be the majority stockholder of TTTDC.
Relative to the second assigned error, Rovels contends that it is not bound by
the SEC Decision in SEC Case Nos. 1322 and 3806 and in G.R. No. 61863
as it was never a party in any of these cases.
Contrary to its claim, Rovels is bound by the previous SEC Decisions. It must
be noted that Eduardo Santos, President of Rovels, was one of the
respondents in both SEC Case Nos. 1322 and 3806. Clearly, Rovels and
Eduardo Santos, being its President, share an identity of interests sufficient to
make them privies-in-law, as correctly found by the Court of Appeals in its
assailed Decision.
In the case at bench, there can be no question that the rights claimed by
petitioner and its stockholders/directors/officers who were parties in SEC
Case Nos. 1322 and 3806 are identical in that they are both based on the
December 29, 1975 Resolution. Stated differently, they shared an identity of
interest from which flowed an identity of relief sought, namely, to be declared
owners of the stocks of TTTDC, premised on the same December 29, 1975
Resolution. x x x. This identity of interest is sufficient to make them privies-in-
law, one to the other, and meets the requisite of substantial identity of parties.
Rovels cannot take refuge in the argument that, as a corporation, it is imbued
with personality separate and distinct from that of the respondents in SEC
Case Nos. 1322 and 3806. The legal fiction of separate corporate existence
is not at all times invincible and the same may be pierced when employed as
a means to perpetrate a fraud, confuse legitimate issues, or used as a vehicle
to promote unfair objectives or to shield an otherwise blatant violation of the
75
prohibition against forum-shopping. While it is settled that the piercing of the
corporate veil has to be done with caution, this corporate fiction may be
disregarded when necessary in the interest of justice.
FRANCISCO MOTORS CORPORATION vs CA
FACTS:
> Petitioner filed a complaint against private respondents to recover sum of
money representing the balance of the jeep body purchased by the Manuels
from petitioner.
> In their answer, private respondents interposed a counterclaim for unpaid
legal services by Gregorio Manuel which was not paid by the incorporators,
directors and officers of the petitioner.
> The trial court decided the case in favor of petitioner in regard to the
petitioners claim for money, but also allowed the counter-claim of private
respondents.
> CA ruled that evidence shows that the plaintiff-appellant Francisco Motors
Corporation is composed of the heirs of the late Benita Trinidad as directors
and incorporators for whom defendant Gregorio Manuel rendered legal
services in the intestate estate case of their deceased mother. Equity and
justice demands plaintiff-appellants veil of corporate identity should be pierced
and the defendant be compensated for legal services rendered to the heirs,
who are directors of the plaintiff-appellant corporation.
ISSUE:
Whether or not CA erred in piercing the corporate veil?
RULING:
NO. Petitioner submits that respondent court should not have resorted to
piercing the veil of corporate fiction because the transaction concerned only
respondent Gregorio Manuel and the heirs of the late Benita Trinidad.
According to petitioner, there was no cause of action by said respondent
against petitioner; personal concerns of the heirs should be distinguished from
those involving corporate affairs. Petitioner further contends that the present
case does not fall among the instances wherein the courts may look beyond
the distinct personality of a corporation. According to petitioner, the services
for which respondent Gregorio Manuel seeks to collect fees from petitioner
are personal in nature. Hence, it avers the heirs should have been sued in
their personal capacity, and not involve the corporation.
Basic in corporation law is the principle that a corporation has a separate
personality distinct from its stockholders and from other corporations to which
it may be connected. However, under the doctrine of piercing the veil of
corporate entity, the corporations separate juridical personality may be
disregarded, for example, when the corporate identity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime. Also, where the
corporation 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, then its distinct personality may be ignored. In these
circumstances, the courts will treat the corporation as a mere aggrupation of
persons and the liability will directly attach to them. The legal fiction of a
separate corporate personality in those cited instances, for reasons of public
policy and in the interest of justice, will be justifiably set aside.
In our view, however, given the facts and circumstances of this case, the
doctrine of piercing the corporate veil has no relevant application here.
Respondent court erred in permitting the trial courts resort to this doctrine. The
rationale behind piercing a corporation’s identity in a given case is to remove
the barrier between the corporation from the persons comprising it to thwart
the fraudulent and illegal schemes of those who use the corporate personality
as a shield for undertaking certain proscribed activities. However, in the case
at bar, instead of holding certain individuals or persons responsible for an
alleged corporate act, the situation has been reversed. It is the petitioner as a
corporation which is being ordered to answer for the personal liability of certain
individual directors, officers and incorporators concerned. Hence, it appears
to us that the doctrine has been turned upside down because of its erroneous
invocation. Note that according to private respondent Gregorio Manuel his
services were solicited as counsel for members of the Francisco family to
represent them in the intestate proceedings over Benita Trinidads estate.
These estate proceedings did not involve any business of petitioner.
The personality of the corporation and those of its incorporators, directors and
officers in their personal capacities ought to be kept separate in this case. The
claim for legal fees against the concerned individual incorporators, officers
and directors could not be properly directed against the corporation without
violating basic principles governing corporations.
76
Title: GENERAL CREDIT CORPORATION (now PENTACAPITAL
FINANCE CORPORATION), petitioner, vs.ALSONS DEVELOPMENT and
INVESTMENTCORPORATION and CCC EQUITY
CORPORATION,respondents.Docket Number: G.R. No. 154975Date:
January 29, 2007Ponente: Garcia, J.Facts:Petitioner General Credit
Corporation (GCC), formerly known asCommercial Credit Corporation
(CCC), established CCC franchise companies inurban areas around the
country. To further its business, it secured a license beforethe Central Bank
(CB) and the Securities and Exchange Commission (SEC) to alsoengage in
quasi-banking activities.On the other hand, respondent CCC Equity
Corporation (Equity) wasestablished by GCC to take over the operations of
their franchises.Meanwhile, respondent Alsons Development (Alsons) and
the Alcantarafamily owned a total of 101,953 shares of GCC franchises. The
Alcantara familyassigned its rights and interests of its shares to Alsons,
making the latter the soleowner of the total shares.Eventually, Alsons decided
to sell these shares to Equity, which the latterpromised to pay.Because of
Equity’s failure to pay, Alsons then filed a complaint for sums ofmoney against
Equity and GCC.Equity claims that GCC should be liable for the payment of
shares since ithas always been dependent on GCC on its business
operations. However, GCCclaims that it has no liability on the payment of
stocks, being a separate entity fromEquity. Issue:The issue in this case is
whether or not the doctrine of piercing the veil ofcorporate fiction be applied
to Equity Corporation? Or in other words, whetherEquity and GCC should both
be regarded merely as an aggregate of persons doingbusiness
enterprise?Court Ruling:The Court held that the corporate veil of Equity
Corporation be pierced.The Court cites three basic areas where piercing the
veil of corporate fictionis allowed. First, when it is used to defeat public
convenience to evade existingoperations or “equity piercing”; second, in fraud
cases where it is used to justify awrong or “fraud piercing” and third, in alter
ego cases where the corporation isorganized as to make it merely an
instrumentality agency.In this case, the Court has the right to pierce GCC’s
corporate veil becauseevidence point to the following facts: first, Equity is but
an instrumentality of GCCand has always been dependent on the latter
for its operations, second, thecommonality of directors, stockholders and
sharing of office between the twocompanies shows that they should clearly
be regarded merely as an aggregate ofpersons in a business enterprise; third,
the establishment of Equity is primarily forGCC to circumvent Central Bank
rules specifically the Anti-Usury Law, using it asa conduit to its non-quasi bank
affiliates; and lastly, the funds invested by Equityto GCC franchises are from
GCC funds as well.Applying the three basic areas of corporate veil
piercing, GCC clearlydefeated public convenience when it established
Equity to extend credit to itsinvestors which in turn is not allowed by
the law; it justified a wrong byfraudulently evading the Anti-Usury Law
established by the Central Bank toquasi-banking businesses, and lastly,
Equity was but a mere instrumentality ofGCC for it to get away with its
obligations.
INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO vs CALICA
FACTS:
> Petitioner Indophil Textile Mill Workers Union-PTGWO is a legitimate labor
organization duly registered with the Department of Labor and Employment
and the exclusive bargaining agent of all the rank-and-file employees of
Indophil Textile Mills, Incorporated.
> Respondent Teodorico P. Calica is impleaded in his official capacity as the
Voluntary Arbitrator.
> Private respondent Indophil Textile Mills, Inc. is a corporation engaged in
the manufacture, sale and export of yarns of various counts and kinds and of
materials of kindred character.
> Petitioner Indophil Textile Mill Workers Union-PTGWO and private
respondent Indophil Textile Mills, Inc. executed a collective bargaining
agreement.
> Indophil Acrylic Manufacturing Corporation was formed and registered with
the SEC, became operational and hired workers according to its own criteria
and standards. The workers of Acrylic unionized and a duly certified collective
bargaining agreement was executed.
> A year after the workers of Acrylic have been unionized and a CBA
executed, the petitioner union claimed that the plant facilities built and set up
by Acrylic should be considered as an extension or expansion of the facilities
of private respondent Company.
> Calica (VA) ruled that CBA do not extend to the employees of Acrylic as an
extension or expansion of Indophil Textile Mills, Inc.
> Petitioner stresses that the articles of incorporation of the two corporations
establish that the two entities are engaged in the same kind of business, which
is the manufacture and sale of yarns of various counts and kinds and of other
materials of kindred character or nature.
ISSUE:
Whether or not Acrylic is a separate and distinct entity from Indophil
for purposes of union representation? WON the operations in Acrylic are an
extension or expansion of Indophil?
77

RULING:
NO. Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exist, the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its members or stockholders
may be disregarded. In such cases, the corporation will be considered as a
mere association of persons. The members or stockholders of the corporation
will be considered as the corporation, that is liability will attach directly to the
officers and stockholders. The doctrine applies when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud, or defend
crime, or when it is made as a shield to confuse the legitimate issues, or where
a corporation is the mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.
In the case at bar, petitioner seeks to pierce the veil of corporate entity of
Acrylic, alleging that the creation of the corporation is a devise to evade the
application of the CBA between petitioner Union and private respondent
Company. While we do not discount the possibility of the similarities of the
businesses of private respondent and Acrylic, neither are we inclined to apply
the doctrine invoked by petitioner in granting the relief sought. The fact that
the businesses of private respondent and Acrylic are related, that some of the
employees of the private respondent are the same persons manning and
providing for auxiliary services to the units of Acrylic, and that the physical
plants, offices and facilities are situated in the same compound, it is our
considered opinion that these facts are not sufficient to justify the piercing of
the corporate veil of Acrylic.
In the same case of Umali, et al. v. Court of Appeals, We already emphasized
that "the legal corporate entity is disregarded only if it is sought to hold the
officers and stockholders directly liable for a corporate debt or obligation." In
the instant case, petitioner does not seek to impose a claim against the
members of the Acrylic.
GOCHAN et al vs Young (Celicia Gochan Uy, Mike Uy, et al)Nature: Petition
for Review on Certiorari assailing the Decision of theCourt of
AppealsFACTS:Felix Gochan & Sons Realty Corporation (Gochan
Realty) isregistered in SEC with Felix Gochan Sr. & 5 others as
incorporators.The daughter of Felix Gochan Sr. (& the mother of
respondents),Alice, inherited 50 shares of stock in Gochan Realty. When
Alicedied, she left the 50 shares to her husband John Young, Sr.The RTC
adjudicated 6/14 of these shares to the children of Alice.Having earned
dividends, these stocks numbered 179. John Young Sr. requested Gochan
Realty to partition the shares ofhis late wife by cancelling the stock
certificates in his name andissuing new stock certificates in the names of
the children. Petitioner Gochan Realty refused, citing as reason, the right of
firstrefusal granted to the remaining stockholders by the Articles
ofIncorporation.John Young, Sr. died and left the shares to the
respondents.*SEC: Respondents Cecilia Gochan Uy and Miguel Uy
filed acomplaint for issuance of shares of stock to the rightful
owners,nullification of shares of stock, reconveyance of property
impressedwith trust, accounting, removal of officers and directors and
damagesagainst Petitioner Gochan Realty. Petitioners Gochan et al filed a
motion to dismiss the complaintalleging that: (1) the SEC has no jurisdiction
over the nature of theaction; (2) the respondents were not the real parties-in-
interest andhad no capacity to sue; and (3) respondents’ causes of action
werebarred by the Statute of Limitations. SEC Hearing Officer granted the
motion to dismissAccording to the SEC Order: (1) It has been shown that the
complainant heirs of Alice and John,suing in THEIR OWN RIGHT to
the stocks, had never beenstockholders of record of Gochan Realty to
confer them with thelegal capacity to bring and maintain their action. Even
though theheirs succeeded the estate, they did not become automatically
thestockholders of the corporation. Since they are not yet stockholders,the
case cannot be considered as an intra-corporate controversy.(outside
the jurisdiction of SEC).(2) Due to the alleged wrongful acts of the
corporation and itsdirectors constitute fraudulent devices or schemes
which may bedetrimental to the stockholders, the complainants
brought thisaction as a DERIVATIVE SUIT on their behalf and on behalf
ofGochan Realty . ‘Section 5. Derivative Suit - No action shall be brought by
stockholderin the right of a corporation unless the complainant was
astockholder at the time the questioned transaction occurred as wellas at the
time the action was filed and remains a stockholder duringthe pendency of the
action. x x x.’According to jurisprudence, a stockholder bringing a derivative
actionmust have been so (a stockholder) at the time the transaction or
actcomplained of took place. The failure to comply with
thejurisdictional requirement on derivative action must result in
thedismissal of the instant complaint.-------------end of SEC order---------------
Respondents filed a motion for a reconsideration but it was deniedfor being
pro-forma.Respondents appealed to the SEC en banc, contending that
theSEC has jurisdiction.Petitioners contend that the appeal was 97 days late
and beyondthe 30-day period for appeals The SEC en banc ruled for the
petitioners and holding that therespondents’ motion for reconsideration did
not interrupt the 30-dayperiod for appeal because said motion was pro-
forma.*CA: Respondents filed a Petition for Review with the Court
ofAppeals.CA ruled that the SEC had no jurisdiction as far as the heirs of
AliceGochan were concerned, because they were not yetstockholders.
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BUT it upheld the capacity of Respondents CeciliaGochan Uy and
Miguel Uy. It also upheld that the intestate Estate ofJohn Young Sr. was an
indispensable party. Moreover, it declared that respondents' Motion for
Reconsiderationbefore the SEC was not pro forma; thus, its filing tolled the
appealperiod.1. Sub-Issue: W/N the Spouses Uy have the personality to file
anaction before the SEC against Gochan Realty Corporation. – YES!Held:
Petitioners argue that Spouses Cecilia and Miguel had nocapacity
to bring the suit since they were no longer stockholders atthe time. Allegedly,
the corporation had already purchased theirstocks. Cecilia averred that
the purchase contract of her stocks wasnull and void which the court admitted.
Thus, Cecilia remains to be astockholder of the corporation. Although
she was no longerregistered as a stockholder in the corporate records as
of the filing ofthe case before the SEC, the admitted allegations in the
Complaintmade her still a bona fide stockholder of Gochan Realty, as
betweensaid parties.However, petitioners contend that the statute of
limitations alreadybars the spouses' action being voidable. However, the sale
of thestock was not voidable, but was void ab initio. The contention thatthe
action has prescribed cannot be sustained. Prescription cannotbe invoked as
a ground if the contract is alleged to be void ab initio.2. Main Issue: W/N the
Spouses Uy could bring a derivative suit inthe name of Gochan Realty to
redress wrongs allegedly committedagainst it for which the directors refused
to sue – YES!Held: Petitioners contend that the action filed by the Spouses
wasnot a derivative suit, because the spouses and not the corporationwere
the injured parties. The Court is not convinced!The Complaint shows
allegations of injury to the corporation itself: (1) There was conspiracy and
fraud in depressing the value of thestock of the Corporation and to induce the
minority stockholders tosell their shares of stock for an inadequate
consideration. PetitionerEsteban Gochan et al unlawfully and fraudulently
appropriated forthemselves the funds of the Corporation by drawing
excessiveamounts in the form of salaries and cash advances and
chargingtheir purely personal expenses to the Corporation.(2) The payment
of P1,200,000 by the Corporation to RespondentCecilia for her shares of
stock constituted an unlawful and partialliquidation and distribution of assets
to a stockholder, resulting in theimpairment of the capital of the Corporation
and prevented it fromotherwise utilizing said amount for its regular and lawful
business, tothe damage and prejudice of the Corporation, its creditors, and
ofcomplainants as minority stockholdersAs early as 1911, this Court has
recognized the right of a singlestockholder to file derivative suits. In its
words:Where corporate directors have committed a breach of trusteither by
their frauds, ultra vires acts, or negligence, and thecorporation is unable or
unwilling to institute suit to remedythe wrong, a single stockholder may
institute that suit, suingon behalf of himself and other stockholders
and for thebenefit of the corporation, to bring about a redress of thewrong
done directly to the corporation and indirectly to thestockholders.The
allegations of injury to the Spouses Uy can coexist with thosepertaining to
the corporation. The personal injury suffered by thespouses cannot
disqualify them from filing a derivative suit on behalfof the corporation.
Doctrine: The fact that certain persons are not registered
asstockholders in the books of the corporation will not bar them from filing a
derivative suit, if it is evident from the allegations in thecomplaint
that they are bona fide stockholders3. Sub-Issue W/N the intestate estate
of John Young Sr. is anindispensable party in the SEC case considering
that the individualheirs' shares are still in the decedent stockholder's
name.Held: Petitioners contend that the Intestate Estate of John D. YoungSr.
is not an indispensable party, as it not benefited or injured by anycourt
judgment.It would be useful to point out that one of the causes of action
statedin the Complaint filed with the SEC refers to the registration, in thename
of the other heirs of Alice Gochan Young, of 6/14th of theshares still
registered under the name of John D. Young Sr. Since allthe shares that
belonged to Alice are still in his name, no finaldetermination can
be had without his estate being impleaded in thesuit. His estate is thus an
indispensable party with respect to dealingwith the registration of the shares
in the names of the heirs of Alice.4. Sub-Issue Whether or not the cancellation
of notice of lis pendenswas justified considering that the suit did not involve
real propertiesowned by Gochan Realty. -- NOHeld: The Court found no
reason to disturb the ruling of the Court ofAppeals.There were allegations
of breach of trust and confidence andusurpation of business
opportunities in conflict with petitioners'fiduciary duties to the
corporation, resulting in damage to theCorporation. Under these causes
of action, respondents are askingfor the delivery to the Corporation of
possession of the parcels ofland and their corresponding certificates of
title. Hence, the suitnecessarily affects the title to or right of
possession of the realproperty sought to be reconveyed. The Rules
of Court allows theannotation of a notice of lis pendens in actions affecting
the title orright of possession of real property. Thus, the Court of Appeals
wascorrect in reversing the SEC Order for the cancellation of the noticeof lis
pendens.Effect of RA 8799: Intra-corporate controversies are now within
thejurisdiction of courts of general jurisdiction, no longer of
theSecurities and Exchange Commission.DISPOSITION: Petition DENIED!
UMALI vs CA
FACTS:
> Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de
Castillo. The Castillo family are the owners of a parcel of land was given as
security for a loan from the Development Bank of the Philippines.
> For their failure to pay the amortization, foreclosure of the said property was
about to be initiated. This problem was made known to Santiago Rivera, who
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proposed to them the conversion into subdivision of the four (4) parcels of land
adjacent to the mortgaged property to raise the necessary fund. The Idea was
accepted by the Castillo family and to carry out the project, a Memorandum of
Agreement was executed by and between Slobec Realty and Development,
Inc., represented by its President Santiago Rivera and the Castillo family.
> In this agreement, Santiago Rivera obliged himself to pay the Castillo family
the sum of P70,000.00 immediately after the execution of the agreement and
to pay the additional amount of P400,000.00 after the property has been
converted into a subdivision. Rivera, armed with the agreement, approached
Mr. Modesto Cervantes, President of defendant Bormaheco, and proposed to
purchase from Bormaheco two (2) tractors.
> Slobec, through Rivera, executed in favor of Bormaheco a Chattel Mortgage
over the said equipment as security for the payment of the aforesaid balance.
> As further security of the aforementioned unpaid balance, Slobec obtained
from Insurance Corporation of the Phil. a Surety Bond, with ICP (Insurance
Corporation of the Phil.) as surety and Slobec as principal, in favor of
Bormaheco.
> The aforesaid surety bond was in turn secured by an Agreement of Counter-
Guaranty with Real Estate Mortgage executed by Rivera as president of
Slobec and the Catillos.
> For violation of the terms and conditions of the Counter-Guaranty
Agreement, the properties of the Castillos were foreclosed by ICP As the
highest bidder.
> Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts
Manufacturing Co. (PM Parts) the four (4) parcels of land and by virtue of said
conveyance, PM Parts transferred unto itself the titles over the lots in dispute
so that said parcels of land.
> PM Parts, through its President, Mr. Modesto Cervantes, sent a letter
addressed to plaintiff Mrs. Mauricia Meer Castillo requesting her and her
children to vacate the subject property but the Castillo refused to comply with
the demands.
> The heirs of the late Felipe Castillo, particularly plaintiff Buenaflor M. Castillo
Umali as the appointed administratrix of the properties in question filed an
action for annulment of title for being void and entered into in fraud and without
the consent and approval.
> Judgment is hereby rendered in favor of the plaintiffs and against the
defendants, but was reversed by CA.
ISSUE:
Whether or not the veil of corporate entity must be pierced?
RULING:
NO. Neither will an allegation of fraud prosper in this case where petitioners
failed to show that they were induced to enter into a contract through the
insidious words and machinations of private respondents without which the
former would not have executed such contract. To set aside a document
solemnly executed and voluntarily delivered, the proof of fraud must be clear
and convincing. We are not persuaded that such quantum of proof exists in
the case at bar.
Under the doctrine of piercing the veil of corporate entity, when valid grounds
therefore exist, the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or stockholders may be
disregarded. In such cases, the corporation will be considered as a mere
association of persons. The members or stockholders of the corporation will
be considered as the corporation, that is, liability will attach directly to the
officers and stockholders. The doctrine applies when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud, or defend
crime, or when it is made as a shield to confuse the legitimate issues or where
a corporation is the mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.
In the case at bar, petitioners seek to pierce the V621 Of corporate entity of
Bormaheco, ICP and PM Parts, alleging that these corporations employed
fraud in causing the foreclosure and subsequent sale of the real properties
belonging to petitioners While we do not discount the possibility of the
existence of fraud in the foreclosure proceeding, neither are we inclined to
apply the doctrine invoked by petitioners in granting the relief sought. It is our
considered opinion that piercing the veil of corporate entity is not the proper
remedy in order that the foreclosure proceeding may be declared a nullity
under the circumstances obtaining in the legal case at bar.
In the first place, the legal corporate entity is disregarded only if it is sought to
hold the officers and stockholders directly liable for a corporate debt or
obligation. In the instant case, petitioners do not seek to impose a claim
against the individual members of the three corporations involved; on the
contrary, it is these corporations which desire to enforce an alleged right
against petitioners. Assuming that petitioners were indeed defrauded by
private respondents in the foreclosure of the mortgaged properties, this fact
alone is not, under the circumstances, sufficient to justify the piercing of the
corporate fiction, since petitioners do not intend to hold the officers and/or
members of respondent corporations personally liable therefor. Petitioners are
merely seeking the declaration of the nullity of the foreclosure sale, which relief
may be obtained without having to disregard the aforesaid corporate fiction
attaching to respondent corporations. Secondly, petitioners failed to establish
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by clear and convincing evidence that private respondents were purposely
formed and operated, and thereafter transacted with petitioners, with the sole
intention of defrauding the latter.

The mere fact, therefore, that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate personalities,
absent sufficient showing that the corporate entity was purposely used as a
shield to defraud creditors and third persons of their rights.

We have stated earlier that the doctrine of piercing the veil of corporate fiction
is not applicable in this case. However, its inapplicability has no bearing on
the good faith or bad faith of private respondent PM Parts. It must be noted
that Modesto N. Cervantes served as Vice-President of Bormaheco and, later,
as President of PM Parts. On this fact alone, it cannot be said that PM Parts
had no knowledge of the aforesaid several transactions executed between
Bormaheco and petitioners. In addition, Atty. Martin de Guzman, who is the
Executive Vice-President of Bormaheco, was also the legal counsel of ICP
and PM Parts. These facts were admitted without qualification in the
stipulation of facts submitted by the parties before the trial court. Hence, the
defense of good faith may not be resorted to by private respondent PM Parts
which is charged with knowledge of the true relations existing between
Bormaheco, ICP and herein petitioners. Accordingly, the transfer certificates
of title issued in its name, as well as the certificate of sale, must be declared
null and void since they cannot be considered altogether free of the taint of
bad faith.

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