ConceptBuildersInc.,v.NLRCandMarabeet.al., G.R. No. 108734 May 29, 1996 HERMOSISIMA, JR.,J.

Facts: Petitioner Concept Builders, Inc., a domestic corporation, engaged in the constructionbusiness employed
Private respondents as laborers, carpenters and riggers. After the project inwhichtheywerehiredhadbeencompleted,they
wereservedindividualwrittennoticesof termination of employment by petitioner stating that their contracts of employment
had expired. Publicrespondentfoundittobe,thefact,however,thatatthetimeoftheterminationofprivaterespondent'semployment,the
projectinwhichtheywerehiredhadnotyetbeenfinishedandcompleted. Petitioner had to engage the services of subcontractors whose workers performed thefunctions of private respondents. Aggrieved, private respondents
filed a complaint for illegal dismissal, unfair labor practice and non-paymentoftheirlegalholidaypay,overtime
payandthirteenth-monthpayagainstpetitioner. The Labor Arbiter rendered judgment ordering petitioner to reinstate private
respondents and to paythembackwagesequivalenttooneyearorthreehundredworkingdays.TheNationalLabor Relations
Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on theground that the
said decision had already become final and executory. The Labor Arbiter issued awrit of execution and was
partially satisfied through garnishment of sums from petitioner's debtor,theMetropolitanWaterworksandSewerageAuthority
withtheamountturnedovertothecashierof the NLRC. As to the balance of the award, two alias writs of execution were
issued but to no availsince the properties stated were alleged to be owned by another corporation, of Hydro
PipesPhilippines,Inc.(HPPI). In the light of such circumstances, a "break-open order was issued inspite of a third-party
claim filedDennis Cuyegkeng in behalf of HPPI. It was alleged that HPPI and petitioner corporation wereowned by
the same incorporator/stockholders. They also alleged that petitioner temporarilysuspended its business
operations in order to evade its legal obligations to them and that privaterespondents were willing to post an
indemnity bond to answer for any damages which petitioner andHPPImaysufferbecauseoftheissuanceofthebreak-open
order.
Issue: Whether the National Labor Relations Commission committed grave abuse of discretionwhen it issued a
"break-open order" to the sheriff to be enforced against personal property found inthe premises of petitioner's sister
company.
Held: Yes. The sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the
corporation may not be heard to say that it has a personality separate and distinctfrom the other corporation. The
piercing of the corporate veil comes into play. 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 conduitof petitioner corporation and its emergence was skillfully orchestrated to avoid the
financial liabilitythat already attached to petitioner 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, butcertainly, there are some probative factors of identity that will justify the application of the
doctrine .

Luxuria homes vs CA
302 SCRA 315 Business Organization Corporation Law Piercing the Veil of Corporate
Fiction
Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In 1989, she entered
into an agreement with Jaime Bravo for the latter to draft a development and architectural
design for the said property. The contract price was P450,000.00. Posadas gave a down
payment of P25,000.00. Later, Posadas assigned her property to Luxuria Homes, Inc. One of
the witnesses to the deed of assignment and articles of incorporation was Jaime Bravo.
In 1992, Bravo finished the architectural design so he proposed that he and his company
manage the development of the property. But Posadas turned down the proposal and thereafter
the business relationship between the two went sour. Bravo then demanded Posadas to pay
them the balance of their agreement as regards the architectural design (P425k). Bravo also
demanded payment for some other expenses and fees he incurred i.e., negotiating and
relocating the informal settlers then occupying the land of Posadas. Posadas refused to make
payment. Bravo then filed a complaint for specific performance against Posadas but he included
Luxuria Homes as a co-defendant as he alleged that Luxuria Homes was a mere conduit of
Posadas; that the said corporation was created in order to defraud Bravo and avoid the
payment of debt.
ISSUE: Whether or not Luxuria Homes should be impleaded.
HELD: No. It was Posadas who entered into a contract with Bravo in her personal capacity.
Bravo was not able to prove that Luxuria Homes was a mere conduit of Posadas. Posadas
owns just 33% of Luxuria Homes. Further, when Luxuria Homes was created, Bravo was there
as a witness. So how can he claim that the creation of said corporation was to defraud him. The
eventual transfer of Posadas property to Luxuria was with the full knowledge of Bravo. The
agreement between Posadas and Bravo was entered into even before Luxuria existed hence
Luxuria was never a party thereto. Whatever liability Posadas incurred arising from said
agreement must be borne by her solely and not in solidum with Luxuria. To disregard the
separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.

Consolidated Bank and Trust Corp. v. CA + L.C. Diaz and Company (2003) / Carpio
Facts
LC Diaz [professional partnership engaged in accounting] opened a savings account with
Solidbank. LC Diaz's cashier, Macaraya, filled up two savings deposit slips, and she gave them
+ passbook to messenger Calapre and instructed him to deposit the money with Solidbank.
Calapre presented the deposit slips and passbook to the teller. He left the passbook with
Solidbank first as he had to make another deposit at Allied Bank, but when he returned, he was
informed that somebody got the passbook. Calapre reported this to Macaraya. Macaraya +
Calapre went back to Solidbank with a deposit slip [P200k check]. When Macaraya asked about
the passbook, the teller said that someone shorter than Calapre got it. Macaraya reported this
matter.
The following day, CEO Diaz called Solidbank to stop any transaction using the passbook
until the company could open a new account. It was found out that learned that P300k was
withdrawn from the account the previous day. The withdrawal slip bore the signatures of two
authorized signatories of LC Diaz but they denied signing it. Noel Tamayo received this sum of
money.
An information for Estafa through Falsification of Commercial Document was filed against
one of their messengers (Ilagan) and one Roscoe Verdazola (first time they appeared in the
case discussion), but the RTC dismissed the criminal case. LC Diaz demanded the return of
their money from Solidbank, but the latter refused and a complaint for recovery of a sum
of money was filed against them. However, Solidbank was absolved.
RTC applied rules on savings account written on the passbook ["Possession of this book shall
raise the presumption of ownership and any payment or payments made by the bank upon
the production of the said book and entry therein of the withdrawal shall have the same effect as
if made to the depositor personally."] RTC said that the burden of proof shifted to LC Diaz to
prove that the signatures are not forged. Also, they applied the rule that the holder of the
passport is presumed to be the owner. It was also held that Solidbank did not have
any participation in the custody and care of the passbook and as such, their act of allowing the
withdrawal was not the proximate cause of the loss. The proximate cause was LC Diaz
negligence. As regards the contention that LC Diaz and Solidbank had precautionary
procedures (like a secret handshake of sorts) whenever the former withdrew a large sum, RTC
pointed out that LC Diaz disregarded this in the past withdrawal.
CA, on the other hand, said that the proximate cause of the unauthorized withdrawal is
Solidbank's negligence, applying NCC 2176. CA said the 3 elements of QD are present
[damages; fault or negligence; connection of cause and effect]. The teller could have called up
LC Diaz since the amount being drawn was significant. Proximate cause is teller's failure to call
LC Diaz. CA ruled that while LC Diaz was negligent in entrusting its deposits to its messenger
and its messenger in leaving the passbook with the teller, Solidbank could not escape liability

because of the doctrine of last clear chance. Solidbank could have averted the injury had it
called up LC Diaz to verify the withdrawal.
RATIO
On Solidbank's fiduciary duty under the law
SC says that Solidbank is liable for breach of K due to negligence [culpa contractual]. K [savings
deposit agreement] between bank and depositor governed by provisions on simple loan; bank is
the debtor and depositor is the creditor. Banks are under obligation to treat accounts of
depositors with meticulous care [higher than diligence of a good father of a family standard],
bearing in mind the fiduciary nature of their relationship. The bank's obligation to observe high
standards of integrity and performance is deemed written in every deposit agreement. However,
this nature does not convert K from a simple loan to a trust agreement (failure by bank to pay
depositor is failure to pay a simple loan only).
Solidbank's breach of K-tual obligation
For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank
is liable to its depositor. When the passbook is in the possession of Solidbanks tellers during
withdrawals, the law imposes an even higher degree of diligence. Likewise, tellers must
exercise a high degree of diligence in insuring that they return the passbook only to the
depositor or authorized representative.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption
that the defendant was at fault or negligent. The burden is on the defendant to prove that he
was not at fault or negligent. In culpa aquiliana, the plaintiff has the burden of proof. Solidbank
failed to discharge this burden, after LC Diaz establishing the breach of K-tual obligation.
Hence, Solidbank is bound by the negligence of its employees. The defense of exercising
required diligence in selecting, supervising employees is NOT a complete defense in culpa
contractual, unlike in culpa aquiliana.
Proximate cause of unauthorized withdrawal
Solidbanks negligence in not returning the passbook to Calapre was the proximate
cause. [Definition: cause which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which the result would not have occurred.]
RTC said that LC Diaz negligence was the proximate cause. However, SC says LC Diaz
was not at fault that the passbook landed in the hands of the impostor. In fact, it was in the
possession of the bank while the deposit was being processed. CA said that teller's failure to
call LC Diaz was the proximate cause. SC says the bank did not have the duty to call LC Diaz to
confirm withdrawal.
Doctrine of last clear chance
"Where both parties are negligent but the negligent act of one is appreciably later than that of
the other, or where it is impossible to determine whose fault or negligence caused the loss, the
one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with
the loss."

SC DOES NOT APPLY IT HERE. Solidbank is liable for breach of contract due to negligence
in the performance of its contractual obligation to LC Diaz. This is a case of culpa contractual,
where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the
loss, would exonerate the defendant from liability. Since LC Diaz was guilty of contributory
negligence, Solidbank's liability should be reduced.
FIRST PHIL INTL BANK VS CA
252 SCRA 259 Legal Ethics Forum Shopping
Civil Law Contract of Sale Parties to a Sales Contract
Producers Bank (now called First Philippine International Bank), which has been under
conservatorship since 1984, is the owner of 6 parcels of land. The Bank had an agreement with
Demetrio Demetria and Jose Janolo for the two to purchase the parcels of land for a purchase
price of P5.5 million pesos. The said agreement was made by Demetria and Janolo with the
Banks manager, Mercurio Rivera. Later however, the Bank, through its conservator, Leonida
Encarnacion, sought the repudiation of the agreement as it alleged that Rivera was not
authorized to enter into such an agreement, hence there was no valid contract of sale.
Subsequently, Demetria and Janolo sued Producers Bank. The regional trial court ruled in favor
of Demetria et al. The Bank filed an appeal with the Court of Appeals.
Meanwhile, Henry Co, who holds 80% shares of stocks with the said Bank, filed a motion for
intervention with the trial court. The trial court denied the motion since the trial has been
concluded already and the case is now pending appeal. Subsequently, Co, assisted by ACCRA
law office, filed a separate civil case against Demetria and Janolo seeking to have the purported
contract of sale be declared unenforceable against the Bank. Demetria et al argued that the
second case constitutes forum shopping.
ISSUES:
1. Whether or not there is forum shopping.
2. Whether or not there is a perfected contract of sale.
HELD:
1.
Yes. There is forum shopping because there is identity of interest and parties between
the first case and the second case. There is identity of interest because both cases sought to
have the agreement, which involves the same property, be declared unenforceable as against
the Bank. There is identity of parties even though the first case is in the name of the bank as
defendant, and the second case is in the name of Henry Co as plaintiff. There is still forum
shopping here because Henry Co essentially represents the bank. Both cases aim to have the
bank escape liability from the agreement it entered into with Demetria et al. The Supreme Court
did not lay down any disciplinary action against the ACCRA lawyers but they were warned that
a repetition will be dealt with more severely.
2.
Yes. There is a perfected contract of sale because the bank manager, Rivera, entered
into the agreement with apparent authority. This apparent authority has been duly proved by the
evidence presented which showed that in all the dealings and transactions, Rivera participated
actively without the opposition of the conservator. In fact, in the advertisements and

announcements of the bank, Rivera was designated as the go-to guy in relation to the
disposition of the Banks assets.

Palay Inc v Clave

.
Palay Inc. through its President Onstott executedifo Dumpit a contract to sell a parcel of
land in Crestview HeightsSubd in Antipolo for P23300, with 9% interest, payable with
adownpayment and monthly installments. The contract contains aprovision that should
Dumpit default in payment of any monthlyinstallment after the lapse of 90 days from the
expiration of the 1month grace period, Palay Inc will automatically rescind the
contractwithout need of notice and will forfeit all payments made. Dumpitpaid the
downpayment and made several payments, but soondefaulted. 6 years after the last
payment, Dumpit wanted to updateall his overdue accounts, but was told by Palay Inc
that the contracthad already been rescinded in accordance with the contract and
theland had already been sold. Dumpit filed a complaint with the NHAwhich held the
contract void for absence of judicial or notarialdemand and instructed Palay Inc and
Onstott to return to Dumpit allhe has paid plus 12% interest from filing of complaint.
Palayappealed to OP which affirmed the NHA resolution.I: W/N Onstott should be
held solidarily liable with Palay IncH: No. GRa corporation may not be made to
answer for acts andliabilities of its stockholders or those of the legal entities to which
itmay be connected and vise-versa. Exceptionthe veil of corporatefiction may be
pierced when:1.it is used as a shield to further an end subversive of
justice2.it is used for purposes not intended by the law that created it3.it is
used to defeat public convenience, or: 4 . j u s t i f y
a w r o n g 5 . p r o t e c t f r a u d 6 . d e f e n d c r i m e 7.perpetuate frad or
confuse legitimate issues8.circumvent the law or perpetuate deception9.use
as an alter-ego, adjunct or business conduit for the sole benefit of the
stockholders
the SC did not find any badges of fraud on the part of Palay andOnstott. They had
literally and mistakenly relied on paragraph 6 of the contract when it rescinded the
same, and which was held to bevoid by the NHA and OP. Onstott was made liable
because he wasthen the President and appeared to be the controlling stockholder
of Palay Inc. No proof was found that Onstott used the corporation todefraud Dumpit.
Unless sufficient proof appears on record that anofficer has used the corporation to
defraud a third party, he cannotbe made personally liable just because he appeared to
be the majorstockholder. Mere ownership by a single stockholder or by
anothercorporation of all or nearly all of the capital stock of a corporation isnot of itself
sufficient ground for disregarding the separate corporatepersonality

Liddel v CIR (
corporate entity was used to evade the payment of higher taxes)
.
Liddell & Co was engaged in importing and retailing carsand trucks. Frank Liddell owned 98% of the
stocks. LaterLiddell Motors Inc was organized to do retailing for Liddell &Co. Franks wife owned almost
all of that corporations stocks.Since then, Liddell & Co paid sales tax on the basis of its salesto Liddell
Motors. But the CIR considered the sales by LiddellMotors to the public as the basis for the original sales
tax.H: The Court, agreeing with the CIR, held that Frank Liddellowned both corporations as his wife
could not have had themoney to pay her subscriptions. Such fact alone though notsufficient to warrant
piercing, but under the proven factsalone, Liddel Motors was the medium created by Liddel & Coto
reduce its tax liability. A taxpayer has the legal right todecrease, by means which the law permits, the
amount of what otherwise would be his taxes or altogether avoid them;but a dummy corporation serving
no business purposes otherthan as a blind, will be disregarded. A taxpayer may gainadvantage of doing
business thru a corporation if he pleases,but the revenue officers in the proper cases may disregard
theseparate corporate entity where it serves but as a shield fortax evasion and treat the person who
actually may take thebenefits of the transaction as the person accordingly taxable.Mere ownership by a
single stockholder or by anothercorporation of all or nearly all capital stocks of the corporationis not by
itself a sufficient ground for disregarding theseparate corporate personality. Substantial ownership in
thecapital stock of a corporation entitling the shareholder asignificant vote in the corporate affairs allows
them nostanding or claims pertaining to corporate affairs.
Where acorporation is a dummy and serves no business purpose and isintended only as a blind, the
corporate fiction may be ignored
Substantial ownership in the capital stock of a corporation entitling the SH toa significant
vote in corporate affairs allows then no standing or claimspertaining to corporate affairs.
Mere ownership by a single SH or by anothercorporation of all or nearly all capital stock
of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality

PNB VS RITTRATO GROUP

FACTS:

May 29, 1996: PNB International Finance Ltd. (PNB-IFL) a subsidiary

company of PNB, organized and doing business in Hong Kong, extended
a letter of credit in favor of the Ritratto Group, Inc. (Ritartto) in the
amount of US$300K secured by real estate mortgages constituted over 4
parcels of land in Makati City

September 1996: increased successively to US$1,140,000.00

November 1996: to US$1,290,000.00

February 1997: US$1,425,000.00

April 1998: decreased to US$1,421,316.18

Ritratto Group, Inc. made repayments of the loan incurred by remitting

those amounts to their loan account with PNB-IFL in Hong Kong.

April 30, 1998: outstanding amounted to US$1,497,274.70

PNB-IFL, through its attorney-in-fact PNB, notified them of the
foreclosure of all the real estate mortgages and that the properties
subjected

May 25, 1999: Ritratto Group, Inc filed a complaint for injunction with
prayer for the issuance of a writ of preliminary injunction and/or temporary
restraining order before the RTC. -granted 72-hour TRO

RTC and CA: dismissed motion to dismiss

PNB-IFL, is a wholly owned subsidiary of defendant Philippine
National Bank, the suit against the defendant PNB is a suit against PNB-IFL

Rittratto: entire credit facility is void as it contains

stipulations in violation of the principle of mutuality of contracts

ISSUE: W/N PNB is an alter ego of PNB-IFL

HELD: NO. Petition is granted

PNB is an agent with limited authority and specific duties under a special
power of attorney incorporated in the real estate mortgage.

not privy to the loan contracts entered into by PNB-IFL.

mere fact that a corporation owns all of the stocks of another corporation,
taken alone is not sufficient to justify their being treated as one entity.

If used to perform legitimate functions, a subsidiary's separate existence

may be respected, and the liability of the parent corporation as well as the
subsidiary will be confined to those arising in their respective business.

general rule the stock ownership alone by one corporation of the stock of
another does not thereby render the dominant corporation liable for the
torts of the subsidiary unless the separate corporate existence of the
subsidiary is a mere sham, or unless the control of the subsidiary is such
that it is but an instrumentality or adjunct of the dominant corporation.

The Circumstance rendering the subsidiary an

instrumentality (common circumstances)

(a) The parent corporation owns all or most of the capital stock of the
subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the
subsidiary.
(g) The subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers,
the subsidiary is described as a department or division of the parent
corporation, or its business or financial responsibility is referred to as the parent
corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the
interest of the subsidiary but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.