I.SHORT TITLE: PARK HOTEL V.

SORIANO

II.FULL TITLE: PARK HOTEL, J's PLAYHOUSE BURGOS CORP., INC., and/or GREGG
HARBUTT, General Manager, ATTY. ROBERTO ENRIQUEZ, President, and BILL PERCY,
vs.
MANOLO SORIANO, LESTER GONZALES, and YOLANDA BADILLA

III.TOPIC: CORPORATION LAW-PIERCING THE VEIL OF CORPORATE FICTION

IV.STATEMENT OF FACTS: Park Hotel3 is a corporation engaged in the hotel business. Petitioners
4
(Harbutt) and 5 (Percy) are the General Manager and owner, respectively. Percy, Harbutt and Atty. Roberto
Enriquez are also the officers and stockholders of Burgos Corporation (Burgos),6 a sister company of Park
Hotel. Respondent (Soriano) was hired by Park Hotel as Maintenance Electrician, and then transferred to
Burgos. Respondent (Gonzales) was employed by Burgos as Doorman, and later promoted as Supervisor.
Respondent (Badilla) was a bartender of J's Playhouse operated by Burgos.

Soriano, Gonzales and Badilla7 were dismissed from work for allegedly stealing company properties. As a
result, respondents filed complaints for illegal dismissal, unfair labor practice, and payment of moral and
exemplary damages and attorney's fees, before the Labor Arbiter (LA). In their complaints, respondents
alleged that the real reason for their dismissal was that they were organizing a union for the company's
employees. Petitioners alleged that aside from the charge of theft, Soriano and Gonzales have violated
various company rules and regulations8 contained in several memoranda issued to them.

The three respondents averred that they never received the memoranda containing their alleged violation
of company rules and they argued that these memoranda were fabricated to give a semblance of cause to
their termination. Soriano and Gonzales further claimed that the complaint filed against them was only an
afterthought as the same was filed after petitioners learned that a complaint for illegal dismissal was already
instituted against them.

V.STATEMENT OF THE CASE: LA Decision11 finding respondents illegally dismissed because the
alleged violations they were charged with were not reduced in writing and were not made known to them,
thus, denying them due process.

NLRC, rendered a Decision13 remanding the case to the arbitration branch of origin for further
proceedings.14

LA rendered a new Decision, petitioners herein are hereby ORDERED, jointly and severally: to reinstate
within ten (10) days herein three (3) complainants to their former positions without loss of seniority rights
with full backwages from actual dismissal to actual reinstatement.

NLRC affirmed the LA's decision and dismissed the appeal for lack of merit.17

Undaunted, Park Hotel, Percy, and Harbutt filed a petition for certiorari with the CA ascribing grave abuse
of discretion amounting to lack or excess of jurisdiction on the part of the NLRC in holding Park Hotel,
Harbutt and Percy jointly and severally liable to respondents.

CA affirmed the ruling of the NLRC. The CA ruled that petitioners failed to observe the mandatory
requirements provided by law in the conduct of terminating respondents. The CA also found that petitioners'
primary objective in terminating respondents' employment was to suppress their right to self-organization.

VI.ISSUE: Whether or not pursuant to the doctrine of piercing the veil of corporate fiction, Park Hotel,
Percy and Harbutt are jointly and severally liable with Burgos for the dismissal of respondents.

VII.RULING: NO, Court rules that before a corporation can be held accountable for the corporate
liabilities of another, the veil of corporate fiction must first be pierced. 33 Thus, before Park Hotel can be
held answerable for the obligations of Burgos to its employees, it must be sufficiently established that the
two companies are actually a single corporate entity, such that the liability of one is the liability of the
other.34

35
While a corporation may exist for any lawful purpose, the law will regard it as an association of persons
or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for
fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only
when such 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.36 To disregard the separate juridical personality of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot be presumed.37

In the case at bar, respondents utterly failed to prove by competent evidence that Park Hotel was a mere
instrumentality, agency, conduit or adjunct of Burgos, or that its separate corporate veil had been used to
cover any fraud or illegality committed by Burgos against the respondents. Accordingly, Park Hotel and
Burgos cannot be considered as one and the same entity, and Park Hotel cannot be held solidary liable with
Burgos.

Nonetheless, although the corporate veil between Park Hotel and Burgos cannot be pierced, it does not
necessarily mean that Percy and Harbutt are exempt from liability towards respondents. Verily, a
corporation, being a juridical entity, may act only through its directors, officers and employees. Obligations
incurred by them, while acting as corporate agents, are not their personal liability but the direct
accountability of the corporation they represent.38 However, corporate officers may be deemed solidarily
liable with the corporation for the termination of employees if they acted with malice or bad faith. 39 In the
present case, the lower tribunals unanimously found that Percy and Harbutt, in their capacity as corporate
officers of Burgos, acted maliciously in terminating the services of respondents without any valid ground
and in order to suppress their right to self-organization.

Section 3140 of the Corporation Code makes a director personally liable for corporate debts if he willfully
and knowingly votes for or assents to patently unlawful acts of the corporation. It also makes a director
personally liable if he is guilty of gross negligence or bad faith in directing the affairs of the
corporation.1âwphi1 Thus, Percy and Harbutt, having acted in bad faith in directing the affairs of Burgos,
are jointly and severally liable with the latter for respondents' dismissal.

In the case at bar, the Court finds that it would be best to award separation pay instead of reinstatement,42 the
Court held that if reinstatement proves impracticable, and hardly in the best interest of the parties, due to
the lapse of time since the employee's dismissal, the latter should be awarded separation pay in lieu of
reinstatement.

VIII.DISPOSITIVE PORTION: WHEREFORE, the Decision and Resolution of the Court of Appeals
in CA-G.R. SP No. 67766, dated January 24, 2005 and January 13, 2006, respectively,
are AFFIRMED with the following MODIFICATIONS: (a) Petitioner Park Hotel is exonerated from any
liability to respondents; and (b) The award of reinstatement is deleted, and in lieu thereof, respondents are
awarded separation pay.

The case is REMANDED to the Labor Arbiter for the purpose of computing respondents' full backwages,
inclusive of allowances, and other benefits or their monetary equivalent, computed from the date of their
dismissal up to the finality of the decision, and separation pay in lieu of reinstatement equivalent to one
month salary for every year of service, computed from the time of their engagement up to the finality of
this Decision.
I.SHORT TITLE: HEIRS OF UY V. INTERNATIONAL ECHANGE BANK

II.FULL TITLE: Heirs of Fe Tan Uy vs. International Exchange Bank

III.TOPIC: CORPORATION LAW- Piercing the veil of corporate fiction.

IV.STATEMENT OF FACTS: On several occasions, International Exchange Bank (iBank), granted loans
to Hammer Garments Corporation (Hammer), covered by promissory notes and deeds of assignment. These
were made pursuant to the Letter-Agreement between iBank and Hammer, represented by its President and
General Manager, (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a P 25 Million-Peso
Omnibus Line.5 The loans were secured by a P 9 Million-Peso Real Estate Mortgage executed by Goldkey
Development Corporation (Goldkey) over several of its properties and a P 25 Million-Peso Surety
Agreement7 signed by Chua and his wife, Fe Tan Uy (Uy),

Hammer had an outstanding obligation of ₱25,420,177.62 to iBank.8 Hammer defaulted in the payment of
its loans, prompting iBank to foreclose on Goldkey’s third-party Real Estate Mortgage. The mortgaged
properties were sold for P 12 million during the foreclosure sale, leaving an unpaid balance of P
13,420,177.62.9 For failure of Hammer to pay the deficiency, iBank filed a Complaint10 for sum of money
against Hammer, Chua, Uy, and Goldkey before the Regional Trial Court, Makati City

Despite service of summons, Chua and Hammer did not file their respective answers and were declared in
default. In her separate answer, 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.

V. STATEMNT OF THE CASE: Meanwhile, iBank applied for the issuance of a writ of preliminary
attachment which was granted by the RTC. The Notice of Levy on Attachment of Real Properties covering
the properties under the name of Goldkey, was sent by the sheriff to the Registry of Deeds of Quezon City.14

The RTC, ruled in favor of iBank. It came to the conclusion, however, that Goldkey and Hammer were one
and the same entity for the following reasons: (1) both were family corporations of Chua and Uy, with Chua
as the President and Chief Operating Officer; (2) both corporations shared the same office and transacted
business from the same place, (3) the assets of Hammer and Goldkey were co-mingled; and (4) when Chua
absconded, both Hammer and Goldkey ceased to operate. As such, the piercing of the veil of corporate
fiction was warranted. Uy, as an officer and stockholder of Hammer and Goldkey, was found liable to iBank
together with Chua, Hammer and Goldkey for the deficiency of ₱13,420,177.62.

Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA. CA promulgated its
decision affirming the findings of the RTC. The CA found that iBank was not negligent in evaluating the
financial stability of Hammer. According to the appellate court, iBank was induced to grant the loan because
petitioners, with intent to defraud the bank, submitted a falsified Financial Report for 1996 which
incorrectly declared the assets and cashflow of Hammer.16 Because petitioners acted maliciously and in bad
faith and used the corporate fiction to defraud iBank, they should be treated as one and the same as Hammer.

I. ISSUES:

(1) Whether or not Uy can be held liable to iBank for the loan obligation of Hammer as an officer and
stockholder of the said corporation; and

(2) Whether or not Goldkey can be held liable for the obligation of Hammer for being a mere alter ego of
the latter.

VII. RULING: The petitions are partly meritorious.

(1)Uy is not liable; The piercing of the veil of corporate fiction is not justified.

Before a director or officer of a corporation can be held personally liable for corporate obligations, however,
the following requisites must concur: (1) the 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) the complainant must clearly and convincingly prove such unlawful acts,
negligence or bad faith.27

In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy committed an
act as an officer of Hammer that would permit the piercing of the corporate veil. A reading of the complaint
reveals that with regard to Uy, iBank did not demand that she be held liable for the obligations of Hammer
because she was a corporate officer who committed bad faith or gross negligence in the performance of her
duties such that the lifting of the corporate mask would be merited. What the complaint simply stated is
that she, together with her errant husband Chua, acted as surety of Hammer, as evidenced by her signature
on the Surety Agreement which was later found by the RTC to have been forged.

Considering that the only basis for holding Uy liable for the payment of the loan was proven to be a falsified
document, there was no sufficient justification for the RTC to have ruled that Uy should be held jointly and
severally liable to iBank for the unpaid loan of Hammer. The Court cannot give credence to the simplistic
declaration of the RTC that liability would attach directly to Uy for the sole reason that she was an officer
and stockholder of Hammer.

At most, Uy could have been charged with negligence in the performance of her duties as treasurer of
Hammer by allowing the company to contract a loan despite its precarious financial position. Furthermore,
if it was true, as petitioners claim, that she no longer performed the functions of a treasurer, then she should
have formally resigned as treasurer to isolate herself from any liability that could result from her being an
officer of the corporation. Nonetheless, these shortcomings of Uy are not sufficient to justify the piercing
of the corporate veil which requires that the negligence of the officer must be so gross that it could amount
to bad faith and must be established by clear and convincing evidence.

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court
should be mindful of the milieu where it is to be applied. The wrongdoing must be clearly and convincingly
established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an
erroneous application.33

(2) Goldkey is a mere alter ego of Hammer

To the Court’s mind, Goldkey’s argument, that iBank is barred from pursuing Goldkey for the satisfaction
of the unpaid obligation of Hammer because it had already limited its liability to the real estate mortgage,
is completely absurd. Goldkey needs to be reminded that it is being sued not as a consequence of the real
estate mortgage, but rather, because it acted as an alter ego of Hammer. Accordingly, they must be treated
as one and the same entity, making Goldkey accountable for the debts 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.39

These factors are unquestionably present in the case of Goldkey and Hammer:
(1)Stock ownership by one or common ownership of both corporations;
- Both corporations are family corporations of defendants Manuel Chua and his wife Fe Tan Uy.
(2) Identity of directors and officers;
- Hammer Garments and Goldkey share the same office and practically transact their business
from the same place.
(3) The manner of keeping corporate books and records,
- Defendant 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) Methods of conducting the business
- The assets of Goldkey 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", the defendant 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 set back.42

Goldkey was merely an adjunct of Hammer and, as such, the legal fiction that it has a separate personality
from that of Hammer should be brushed aside as they are, undeniably, one and the same.

VII.DISPOSITIVE PORTION:

WHEREFORE, the petition are PARTLY GRANTED. The August 16, 2004 Decision and the December
2, 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 69817, are hereby MODIFIED. Fe Tan Uy
is released from any liability arising from the debts incurred by Hammer from iBank. Hammer Garments
Corporation, Manuel Chua Uy Po Tiong and Goldkey Development Corporation are jointly and severally
liable to pay International Exchange Bank the sum of ₱13,420,177.62 representing the unpaid loan
obligation of Hammer as of December 12, 1997 plus interest. No costs.
I.SHORT TITLE: DE ROXAS V. OUR LADY’S FOUNDATION INC

II.FULL TITLE: MERCY VDA. DE ROXAS, represented by ARLENE C. ROXAS-CRUZ, in her

capacity as substitute appellant-petitioner, vs. OUR LADY'S FOUNDATION, INC

III.TOPIC: CORPORATION LAW- Piercing the veil of corporate fiction

IV.STATEMENT OF FACTS: Salve Dealca Latosa filed before the RTC a Complaint for the recovery
of ownership of a portion of her residential land located at Our Lady’s Village, Sorsogon. According to
her, Atty. (Roxas), represented by petitioner herein, encroached on a quarter of her property by arbitrarily
extending his concrete fence beyond the correct limits.

In his Answer, Roxas imputed the blame to respondent Our Lady’s Village Foundation, Inc., now Our
Lady’s Foundation, Inc. (OLFI). He then filed a Third-Party Complaint against respondent and
claimed that he only occupied the adjoining portion in order to get the equivalent area of what he
had lost when OLFI trimmed his property for the subdivision road. The RTC admitted the Third-Party
Complaint and proceeded to trial on the merits.

Trial court held that Latosa had established her claim of encroachment by a preponderance of evidence. It
found that Roxas occupied a total of 112 square meters of Latosa’s lots, and that, in turn, OLFI trimmed
his property by 92 square meters. Since the Decision had become final, the RTC issued a Writ of
Execution6 to implement the ruling ordering OLFI to reimburse Roxas for the value of the 92-square-meter
property plus legal interest to be reckoned from the time the amount was paid to the third-party defendant.
The trial court then approved the Sheriff’s Bill,7 which valued the subject property at ₱2,500 per square
meter or a total of ₱230,000.

V. STATEMENT OF THE CASE: Opposing the valuation of the subject property, OLFI filed a Motion
to Quash the Sheriff’s Bill and a Motion for Inhibition of the RTC judge. It insisted that it should
reimburse Roxas only at the rate of ₱40 per square meter, the same rate that Roxas paid when the latter first
purchased the property.

Eventually, the RTC denied both the Motion for Inhibition and the Motion to Quash the Sheriff’s Bill. To
collect the aforementioned amount, Notices of Garnishment10 were then issued by the sheriff to the
managers of the Development Bank of the Philippines and the United Coconut Planters Bank for them to
garnish the account of Bishop (Arcilla-Maullon), OLFI’s general manager.

CA nullified the Notices of Garnishment issued against the bank accounts of Arcilla-Maullon. It noted that
since the general manager of OLFI was not impleaded in the proceedings, he could not be held personally
liable for the obligation of the corporation.

VI. ISSUES: Whether or not the issuing of the Notices of Garnishment against the bank accounts of Arcilla-
Maullon as OLFI’s general manager is proper.

VII. RULING: NO, Court holds that since OLFI’s general manager was not a party to the case, the
CA correctly ruled that Arcilla-Maullon cannot be held personally liable for the obligation of the
corporation.

To hold the general manager of OLFI liable, petitioner claims that it is a mere business conduit of Arcilla-
Maullon, hence, the corporation does not maintain a bank account separate and distinct from the bank
accounts of its members. In support of this claim, petitioner submits that because OLFI did not rebut the
attack on its legal personality, as alleged in petitioner’s Opposition and Comments on the Motion to
Quash Notice/Writ of Garnishment dated 15 March 2005,24 respondent effectively admitted by its
silence that it was a mere dummy corporation.

This argument does not persuade us, for any piercing of the corporate veil has to be done with
caution.25 Save for its rhetoric, petitioner fails to adduce any evidence that would prove OLFI's status as a
dummy corporation. In this regard, we recently explained in Sarona v. NLRC26 as follows:

A court should be mindful of the milieu where it is to be applied.1âwphi1 It must be certain that the
corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against
another, in disregard of rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.
(Citation omitted)

In any event, in order for us to hold Arcilla-Maullon personally liable alone for the debts of the corporation
and thus pierce the veil of corporate fiction, we have required that the bad faith of the officer must first be
established clearly and convincingly.27 Petitioner, however, has failed to include any submission pertaining
to any wrongdoing of the general manager. Necessarily, it would be unjust to hold the latter personally
liable.

Therefore, we refuse to allow the execution of a corporate judgment debt against the general manager of
the corporation, since in no legal sense is he the owner of the corporate property.28 Consequently, this Court
sustains the CA in nullifying the Notices of Garnishment against his bank accounts.

VII.DISPOSITIVE PORTION:

IN VIEW THEREOF, the 25 September 2007 Decision and 11 March 2008 Resolution of the Court of
Appeals in CA-GR SP No. 88622 are AFFIRMED with MODIFICATION in that the value of the 92-
square-meter property for which respondent should reimburse petitioner, as determined by the 2 December
2004 Order of the Regional Trial Court in Civil Case No. 5403, is hereby reinstated at ₱1,800 per square
meter.