SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC vs CA

May a corporate treasurer, by herself and without any authorization from the board of
directors, validly sell a parcel of land owned by the corporation? May the veil of
corporate fiction be pierced on the mere ground that almost all of the shares of stock of
the corporation are owned by said treasurer and her husband?

FACTS:

> Plaintiff-appellant entered into an agreement with defendant-appellee Motorich Sales

Corporation for the transfer to it of a parcel of land.

> Agreed to pay it in installments, but when they were supposed to meet in the office of
plaintiff-appellant for payment of the balance, defendant-appellees treasurer, Nenita
Lee Gruenberg, did not appear.

> Defendant-appellee Motorich Sales Corporation despite repeated demands and in

utter disregard of its commitments had refused to execute the Transfer of Rights/Deed
of Assignment which is necessary to transfer the certificate of title.

> Defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg

interposed as affirmative defense that the President and Chairman of Motorich did not
sign the agreement; that Mrs. Gruenbergs signature on the agreement is inadequate to
bind Motorich. The other signature, that of Mr. Reynaldo Gruenberg, President and
Chairman of Motorich, is required.

> The court dismissed the complaint of the plaintiff-appellants since no evidence to
show that defendant Nenita Lee Gruenberg was indeed authorized by defendant
corporation, Motorich Sales, to dispose of that property.

ISSUE:

Whether or not the doctrine of piercing the veil of corporate fiction be applied to
Motorich?

RULING:

NO. Petitioner also argues that the veil of corporate fiction of Motorich should be
pierced, because the latter is a close corporation. Since Spouses Reynaldo L.
Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be
accurate, of the subscribed capital stock of Motorich, petitioner argues that Gruenberg
needed no authorization from the board to enter into the subject contract. It adds that,
being solely owned by the Spouses Gruenberg, the company can be treated as a close
corporation which can be bound by the acts of its principal stockholder who needs no
specific authority. The Court is not persuaded.

True, one of the advantages of a corporate form of business organization is the

limitation of an investors liability to the amount of the investment. This feature flows
from the legal theory that a corporate entity is separate and distinct from its
stockholders. However, the statutorily granted privilege of a corporate veil may be used
only for legitimate purposes. On equitable considerations, the veil can be disregarded
when it is utilized as a shield to commit fraud, illegality or inequity; defeat public
convenience; confuse legitimate issues; or serve as a mere alter ego or business
conduit of a person or an instrumentality, agency or adjunct of another corporation.

Thus, the Court has consistently ruled that when the fiction is used as a means of
perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or perfection of a monopoly
or generally the perpetration of knavery or crime, the veil with which the law covers and
isolates the corporation from the members or stockholders who compose it will be lifted
to allow for its consideration merely as an aggregation of individuals.

The question of piercing the veil of corporate fiction is essentially, then, a matter of
proof. In the present case, however, the Court finds no reason to pierce the corporate
veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation
was formed, or that it is operated, for the purpose of shielding any alleged fraudulent or
illegal activities of its officers or stockholders; or that the said veil was used to conceal
fraud, illegality or inequity at the expense of third persons, like petitioner.

The mere ownership by a single stockholder or by another corporation of all or nearly

all of the capital stock of a corporation is not of itself sufficient ground for disregarding
the separate corporate personalities. So too, a narrow distribution of ownership does
not, by itself, make a close corporation.
 Land Bank of the Philippines vs Court of Appeals

FACTS: ​In 1980, ECO Management Corporation (ECO) obtained loans amounting to
about P26 million from Land Bank. ECO defaulted in its payment but in 1981, ECO
submitted a Payment Plan with the hope of restructuring its loan. The plan was
rejected and Land Bank sued ECO. It impleaded Emmanuel C. Oñate, the majority
stockholder of ECO who is serving as the Chairman and treasurer of ECO.
The trial court ruled in favor of Land Bank but Oñate was absolved from liabilities. The
Court of Appeals affirmed the decision of the trial court.
Land Bank appealed as it wanted Oñate to be personally liable on the following
grounds (among others): a) ECO stands for Emmanuel C. Oñate, b) Oñate is the
majority stockholder, c) ECO was formed ostensibly to allow Oñate to acquire loans
from Land Bank which he used for his personal advantage, d) Oñate holds two
positions in the corporation, and e) ECO never held any board meeting which just
shows only Oñate was in control of the corporation.
ISSUE: ​Whether or not Oñate should be held personally.
HELD: ​No. Land Bank was not able to produce sufficient evidence to prove its claim. A
corporation, upon coming into existence, is invested by law with a personality separate
and distinct from those persons composing it as well as from any other legal entity to
which it may be related. The corporate fiction is only disregarded when the fiction is
used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse
legitimate legal or judicial issues, perpetuate deception or otherwise circumvent the
law. This is likewise true where the corporate entity is being used as an alter ego,
adjunct, or business conduit for the sole benefit of the stockholders or of another
corporate entity. None of the foregoing was proved by Land Bank.
The mere fact that Oñate owned the majority of the shares of ECO is not a ground to
conclude that Oñate and ECO is one and the same. Mere ownership by a single
stockholder of all or nearly all of the capital stock of a corporation is not by itself
sufficient reason for disregarding the fiction of separate corporate personalities.
Anent the issue of the corporate name, the fact that Oñate’s initials coincide with the
corporate name ECO is not sufficient to disregard the corporate fiction. Even if ECO
does stand for “Emmanuel C. Oñate”, it does not mean that the said corporation is
merely a dummy of Oñate. A corporation may assume any name provided it is lawful.
There is nothing illegal in a corporation acquiring the name or as in this case, the
initials of one of its shareholders.
Secosa v. Heirs of Erwin Suarez Francisco, 433 SCRA 273 (2004)

Facts: ​Francisco, an 18 year old 3rd year physical therapy student was riding a
motorcycle. A sand and gravel truck was traveling behind the motorcycle, which in turn
was being tailed by the Isuzu truck driven by Secosa. The Isuzu cargo truck was
owned by Dassad Warehousing and Port Services, Inc..The three vehicles were
traversing the southbound lane at a fairly high speed. When Secosa overtook the sand
and gravel truck, he bumped the motorcycle causing Francisco to fall. The rear wheels
of the Isuzu truck then ran over Francisco, which resulted in his instantaneous death.
Secosa left his truck and fled the scene of the collision. The parents of Francisco,
respondents herein, filed an action for damages against Secosa, Dassad Warehousing
and Port Services, Inc. and Dassad’s president, El Buenasucenso Sy. The court a quo
rendered a decision in favor of herein respondents; thus petitioners appealed the
decision to the Court of Appeals, which unfortunately affirmed the appealed decision in
toto. Hence, the present petition.

Issue: ​Whether or not Dassad’s president, Sy, can be held solidary liable.

Held: ​No. Sy cannot be held solidarily liable with his co-petitioners. While it may be
true that Sy is the president of Dassad Warehousing and Port Services, Inc., such fact
is not by itself sufficient to hold him solidarily liable for the liabilities adjudged against
his co-petitioners. A corporation has a personality separate from that of its stockholders
or members. The doctrine of ‘veil of corporation’ treats as separate and distinct the
affairs of a corporation and its officers and stockholders. As a 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. The records of the case does not point toward the presence
of any grounds enumerated above that will justify the piercing of the veil of corporate
entity such as to hold Sy, the president of Dassad Warehousing and Port Services,
Inc., solidarily liable with it. Furthermore, the Isuzu cargo truck which ran over
Francisco was registered in the name of Dassad and not in the name of Sy. Secosa is
an employee of Dassad and not of Sy. These facts showed Sy’s exclusion from liability
for damages arising from the death of Francisco.
 JARDINE DAVIES, INC vs JRB REALTY
FACTS: ​JRB Realty ordered the installation of two aircons from Aircon and
Refrigeration Industries, Inc.The aircons were delivered and installed but they could not
deliver the desired temperature. The aircon company undertook to replace the aircons
but it did not specify a date when.
JRB later learned that there was a new company that was licensed to manufacture,
distribute and install the same brand of aircons that were installed in their building. The
name of the corporation was Maxim Industrial and Merchandising Corp. The president
of JRB requested Maxim to honor the obligation as regards the aircon but Maxim
refused.
Subsequently, Maxim was impleaded as a subsidiary of the first aircon company, which
had ceased operations.
RTC and CA decided in favor of JRB.

ISSUE: ​Whether or not Jardine Davis Inc. is a separate entity and therefore not part of
the contract?

HELD: It is an elementary and fundamental principle of corporation law that a

corporation is an artificial being invested by law with a personality separate and distinct
from its stockholders and from other corporations to which it may be connected. While
a corporation is allowed to exist solely for a lawful purpose, the law will regard it as an
association of persons or in case of two corporations, merge them into one, when this
corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of
piercing the veil of corporate fiction which applies only when such corporate fiction is
used to defeat public convenience, justify wrong, protect fraud or defend crime. The
rationale behind piercing a corporation’s identity 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
prescribed activities.
While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow
that Aircon’s corporate legal existence can just be disregarded. In Velarde v. Lopez,
Inc., the Court categorically held that a subsidiary has an independent and separate
juridical personality, distinct from that of its parent company; hence, any claim or suit
against the latter does not bind the former, and vice versa.- In applying the doctrine,
the following requisites must be established: (1) control, not merely majority or
complete stock control; (2) such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest acts in contravention of plaintiff’s legal rights; and (3) the aforesaid
control and breach of duty must proximately cause the injury or unjust loss complained
of.
The records bear out that Aircon is a subsidiary of the petitioner only because the latter
acquired Aircon’s majority of capital stock. It, however, does not exercise complete
control over Aircon; nowhere can it be gathered that the petitioner manages the
business affairs of Aircon. Indeed, nomanagement agreement exists between the
petitioner and Aircon, and the latter is an entirely different entity from the petitioner.

Hacienda Luisita Inc. v. Presidential Agrarian Reform Council, 660 SCRA 525 (2005)

(No digest Yet)

CONS & DEV CORP OF THE PHIL VS CUENCA

FACTS:

Ultra International Trading Corporation (UITC) applied for a surety bond from Malayan
Insurance Co., Inc. (MICI), to guarantee its credits, indebtedness, obligations and
liabilities of any kind to Goodyear Tire and Rubber Company of the Philippines
(Goodyear). MICI approved the application and issued MICO Bond No. 65734[2] for an
amount not exceeding P600,000.00. The surety bond was valid for 12 months, and
was renewed several times, the last time being on May 15, 1983.

To protect MICIs interests, UITC, Edilberto Cuenca, and Rodolfo Cuenca, herein
respondent, executed an Indemnity Agreement in favor of MICI. Edilberto was then the
President, while Rodolfo was a member of the Board of Directors of UITC. Edilberto
signed the indemnity agreement in his official and personal capacity, while Rodolfo
signed in his personal capacity only. In the said agreement, UITC, Edilberto and
Rodolfo bound themselves jointly and severally to indemnify MICI of any payment it
would make under the surety bond.

On February 18, 1983, Goodyear sent a letter to MICI informing it of UITCs default on
its obligation. In the said letter, Goodyear requested MICI to pay P600,000.00 under
the surety bond. MICI sent several demand letters to UITC, Edilberto and Rodolfo,
requiring them to immediately settle Goodyears claim. UITC, Edilberto and Rodolfo
failed to settle the account with Goodyear. Thus, on April 25, 1983, MICI paid
Goodyear P600,000.00.

On May 3, 1983, MICI sent a demand letter to UITC, Edilberto and Rodolfo for
reimbursement of the payment it made to Goodyear, plus legal interest. UITC replied
that Construction & Development Corporation of the Philippines (CDCP), now
Philippine National Construction Corporation (PNCC), had initiated a complete review
of UITCs financial plans to enable it to pay its creditors, like MICI. UITC was a
subsidiary of petitioner PNCC, with the latter owning around 78% of the formers shares
of stock. UITC requested MICI to delay the filing of any suit against it, to give it time to
work out an acceptable repayment plan. MICI agreed and gave UITC until May 20,
1983 to come up with an offer.

However, UITC, Edilberto and Rodolfo still failed to pay MICI. On July 1, 1983, MICI
filed a Complaint for sum of money against UITC, Edilberto and Rodolfo, praying for
indemnity of the amount it paid to Goodyear, plus interest per annum compounded
quarterly from April 25, 1983 until fully paid, and 20% of the amount involved as
attorneys fees and costs of the suit.

ISSUE:

Whether or not the petitioner is jointly and solidarily liable with UITC, a subsidiary
corporation, to respondent MICI under the indemnity agreement for reimbursement,
attorneys fees and costs.

RULING:

The petition is impressed with merit.

At the outset, we note that the petitioner became a party to this case only when
respondent Cuenca, as defendant, filed a third-party complaint against it on the
allegation that it had assumed his liability.

In Firestone Tire and Rubber Company of the Philippines v. Tempongko, we

emphasized the nature of a third-party complaint, particularly its independence from
the main case.

It follows then that the plaintiff in the main action may not be regarded as a party to the
third-party complaint nor may the third-party defendant be regarded as a party to the
main action. As for the defendant, he is party to both the main action and the
third-party complaint but in different capacities in the main action, he is the defendant;
in the third-party complaint, he is the plaintiff.

In the present case, the petitioner PNCC which was the third-party defendant appealed
before this Court from the decision of the CA. Case law is that if only the third-party
defendant files an appeal, the decision in the main case becomes final. Therefore, the
CAs decision in the main action, holding UITC liable to MICI and dismissing the case
as against the Cuencas, became final and executory when none of the said parties
filed an appeal with this Court.

We do not agree with the CA ruling that the petitioner is liable under the indemnity
agreement. On this point, the CA ratiocinated that the petitioner is liable, considering
that it is the majority stockholder of UITC and the materials from Goodyear were
purchased by UITC for and in its behalf.

This is clearly erroneous. The petitioner cannot be made directly liable to MICI under
the indemnity agreement on the ground that it is UITCs majority stockholder. It bears
stressing that the petitioner was not a party defendant in the main action. MICI did not
assert any claim against the petitioner, nor was the petitioner impleaded in the
third-party complaint on the ground of its direct liability to MICI. In the latter case, it
would be as if the third-party defendant was itself directly impleaded by the plaintiff as
a defendant. In the present case, petitioner PNCC was brought into the action by
respondent Cuenca simply for a remedy over. No cause of action was asserted by
MICI against it. The petitioners liability could only be based on its alleged assumption
of respondent Cuencas liability under the indemnity agreement.
 Silverio v. Filipino Business Consultants, Inc.

(G.R. No. 143312, Aug. 12, 2005)

Carpio, J.:

Facts:

Petitioner Silverio, Jr. is the President of two corporations namely Esses Devt. Corp.,
and Tristar Farms, Inc.

The above-mentioned corporations were in possession of the Calatagan Property and

registered in the names of Esses and Tristar.

On Sept. 22, 1995, Esses and Tristar executed a Deed of Sale with Assumption of
Mortgage in favor of Filipino Business Consultants, Inc. (FBCI). Esses and Tristar
failed to redeem the Calatagan Property.

On May 27, 1997, FBCI filed a Petition for Consolidation of Title of the Calatagan
Property with RTC-Balayan.

FBCI obtained a judgment by default. Subsequently, two land titles in the name of
Esses and Tristar were cancelled and new land title was issued in favor of FBCI.

On April 20, 1998, RTC-Balayan issued a writ of possession in FBCI’s favor. The latter
then entered the Calatagan Property.

When Silverio, Jr., Esses and Tristar learned of the judgment by default and writ of
possession, they filed a petition for relief from judgment and the recall of the writ of
possession. Silverio et. al. alleged that the judgment by default is void because the
RTC-Balayan did not acquire jurisdiction over them as a result of forged service of
summons on them.

On 28 December 1998, the RTC Balayan nullified and set aside the judgment by
default and the writ of possession. The RTC Balayan found that the summons and the
complaint were not served on Silverio, Jr., Esses and Tri-Star. The RTC Balayan
directed the service of summons anew on Silverio, Jr., Esses and Tri-Star.

On May 23, 2000, FBCI filed with RTC-Balayan an Urgent Ex-Parte Motion to Suspend
Enforcement of Writ of Possession. FBCI pointed out that it is now the new owner of
Esses and Tristar having purchased the “substantial and controlling shares of stocks”
of the two corporations.
Issue:

Whether FBCI’s acquisition of shares of stocks of Esses and Tristar representing a

controlling interest of the two corporations would also give FBCI a proprietary right over
the Calatagan Property owned by both Esses Corp. and Tristar.

Ruling:

No. FBCI’s alleged controlling shareholdings in Esses and Tristar merely represent a
proportionate interest in the properties of the two corporations. Such controlling
shareholdings do not vest FBCI with any legal right or title to any of Esses and Tristar’s
corporate properties.

A corporation is a juridical person distinct from the members composing it. Properties
registered in the name of the corporation are owned by it as an entity separate and
distinct from its members.

DBP VS NLRC

Facts:

Philippine Smelters Corporation (PSC), a corporation registered under Philippine law,

obtained a loan in 1983 from the Development Bank of the Philippines (DBP), a
government-owned financial institution created and operated in accordance with
Executive Order No. 81, to finance its iron smelting and steel manufacturing business.
To secure said loan, PSC mortgaged to DBP real properties with all the buildings and
improvements thereon and chattels, with its president, Jose T. Marcelo Jr. as
co-obligor. By virtue of the said loan agreement, DBP became the majority stockholder
of PSC, with stock holdings in the amount of Php31,000,000 of the total
Php80,226,000 subscribed and paid up capital stock. Subsequently, it took over the
management of PSC. When PSC failed to pay its obligations with DBP, which
amounted to Php75,752,445.83 as of March 31, 1986, DBP foreclosed and acquired
the mortgaged real properties and chattels of PSC in the auction sale held on February
25, 1987 and March 4, 1987. PSC’s employees filed a petition against herein petitioner
for the unpaid wages and other benefits to which the labor arbiter ordered DBP to pay.

Issue:
Whether or not DBP, as foreclosing creditor can be held liable for the unpaid wages,
13th month pay, incentive leave pay, and separation pay of the employees of PSC.

Held:

No. A preference of credit bestows upon the preferred creditor an advantage of having
his credit satisfied first ahead of other claims which may be established against the
debtor. Logically, it becomes material only when the properties and assets of the
debtors are insufficient to pay his debts in full; for if the debtor is amply able to pay his
various creditors, if full, how can the necessity exist to determine which of his creditors
shall be paid first or whether they shall be paid out of the proceeds of the sale of the
debtor’s specific property? Indubitably, the preferential right of credit attains
significance only after the properties of the debtor have been inventoried and
liquidated, and the claims held by his various creditors have been established.

A distinction should be made between a preference of credit and a lien. A preference

applies only to claims which do not attach to specific properties. A lien creates a
charge on a particular property. The right of first preference as regards unpaid wages
recognized by article 110 does not constitute a lien on the property of the insolvent
debtor in favor of workers. It is but a preference of credit in their favor, a preference in
application. It is a method adopted to determine and specify the order in which credits
should be paid in the final distribution of the proceeds of the insolvent’s assets. It is a
right to a preference in the discharge of funds of the judgement debtor.

Article 110 of the labor code does not purport to create a lien in favor of workers or on
employees for unpaid wages either upon all of the properties or upon any particular
property owned by their employer. Claims for unpaid wages do not therefore fall within
the category of specially preferred claims established under articles 2241 and 2242 of
the civil code, except to the extent that such claims for unpaid wages are already
covered by article 2241 number 6; claims for laborer’s wages, on the goods
manufactured or the work done; or by article 2242 number 3; claims of laborers and
other workers engaged in the construction, reconstruction or repair of buildings, canals
and other works, upon said buildings, canals or other works. To the extent that claims
for unpaid wages fall outside the scope of article 2241, number 6 and article 2242
number 3, they would come within the ambit of the category of ordinary preferred
credits under article 2244.
 Sunio v. NLRC , 127 SCRA 390 (1984)

Facts:

EM Ramos & Company, Inc. (EMRACO for brevity) and Cabugao Ice Plant, Inc.
(CIPI for short), sister corporations, sold an ice plant to Rizal Development and
Finance Corporation (RDFC) with a mortgage on the same properties constituted by
the latter in favor of the former to secure the payment of the balance of the purchase
price. By virtue of that sale, EMRACO-CIPI terminated the services of all their
employees including private respondents herein, and paid them their separation pay.
RDFC hired its own own employees and operated the plant.

RDFC sold the ice plant to petitioner Ilocos Commercial Corporation (ICC)
headed by its President and General Manager, petitioner Alberto S. Sunio. Petitioners
also hired their own employees as private respondents were no longer in the plant. The
sale was subject to the mortgage in favor of EMRACO-CIPI. Both RDFC-ICC failed to
pay the balance of the purchase price, as a consequence of which, EMRACO-CIPI
instituted extrajudicial foreclosure proceedings.

EMRACO-CIPI sold the ice plant to Nilo Villanueva, suspect to the right of
redemption of RDFC. Nilo Villanueva then re-hired private respondents. RDFC
redeemed the ice plant. Because of the gate to Nilo Villanueva, EMRACO-CIPI were
unable to turn over possession to RDFC and/or petitioners, prompting the latter to file a
complaint for recovery of possession against EMRACO-CIPI with the then Court of
First Instance of Ilocos Sur.

RDFC and petitioners finally obtains possession of the ice plant by virtue of the
Mandatory Injunction previously issued, which ordered defendant "particularly Nilo C.
Villanueva and his agents representatives, or any person found in the premises to
vacate and surrender the property in litigation." Petitioners did not re-employ private
respondents. Private respondents filed complaints against petitioners for illegal
dismissal with the Regional Office, Ministry of Labor & Employment, San Fernando, La
Union.

Issue:

Whether or not Petitioner is liable for the backwages of the respondent because
of the acquisition of the plant through succession
Held:

It is basic that a corporation is invested by law with a personality separate and

distinct from those of the persons composing it as well as from that of any other legal
entity to which it may be related. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality. Petitioner Sunio,
therefore, should not have been made personally answerable for the payment of
private respondents' back salaries.

It is true that the sale of a business of a going concern does not ipso facto
terminate the employer-employee relations insofar as the success or employer is
concerned, and that change of ownership or management of an establishment or
company is not one of the just causes provided by law for termination of employment.
The situation here, however, was not one of simple change of ownership.

Of note is the fact that when, on July 30, 1973, EMRACO-CIPI sold the plant to
RDFC, CIPI had terminated the services of its employees, including herein private
respondents, giving them their separation pay which they had accepted. When RDFC
took over ownership and management, therefore, it hired its own employees, not the
private respondents, who were no longer there. RDFC subsequently sold the property
to petitioners on November 28, 1973. But by reason of their failure to pay the balance
of the purchase price, EMRACO-CIPI foreclosed on the mortgage over the ice plant;
the property was sold at public auction to EMRACO-CIPI as the highest bidders, and
they eventually re-possessed the plant on August 30, 1974. During all the period that
RDFC and petitioners were operating the plant from July 30, 1973 to August 30, 1974,
they had their own employees. CIPI-EMRACO then sold the plant, also on August 30,
1974, to Nilo Villanueva, subject to RDFC's right of redemption. Nilo Villanueva then
rehired private respondents as employees of the plant, also in 1974. it cannot be
justifiably said that the plant together with its staff and personnel moved from one
ownership to another. No succession of employment rights and obligations can be said
to have taken place between EMRACO-CIPI-Nilo Villanueva, on the one hand, and
petitioners on the other
 ASIONICS PHILIPPINES, INC. vs NLRC

FACTS: ​API is a domestic corporation engaged in the business of assembling

semi-conductor chips and other electronic products mainly for export. Yolanda
Boaquina and Juana Gayola started working for API as material control clerk and as
production operator. API commenced negotiations with the duly recognized bargaining
agent of its employees, the Federation of Free Workers ("FFW"), for a Collective
Bargaining Agreement ("CBA"). A deadlock, however, ensued and the union decided to
file a notice of strike. Given the circumstance that its assembly line had to thereby grind
to a halt, was forced to suspend operations. Private respondents Boaquina and Gayola
were among the employees asked to take a leave from work.

CBA was concluded between API and FFW. Respondent Boaquina was directed to
report back.

Juana Gayola, among other employees, could not be recalled forthwith because the
CP Clare/Theta J account, where she was assigned as the production operator, had
yet to renew its production orders.

Inasmuch as its business activity remained critical, API was constrained to implement a
company-wide retrenchment . Boaquina was one of those affected by the
retrenchment.

Dissatisfied with their union (FFW), Boaquina and Gayola, together with some of other
co-employees, joined the Lakas ng Manggagawa sa Pilipinas Labor Union ("Lakas
Union"). Lakas Union filed a notice of strike against API on the ground of unfair labor
practice (ULP).

Judgment is hereby rendered declaring that the strike staged was ILLEGAL.

Respondents Boaquina and Gayola, a complaint for illegal dismissal, violation of labor
standards and separation pay, as well as for recovery of moral and exemplary
damages, was filed against API and/or Frank Yih before the NLRC.

Labor Arbiter Canizares rendered his decision holding petitioners guilty of illegal
dismissal; affirmed by NLRC.

ISSUE:

Whether or not a stockholder/officer of a corporation can be held liable for the

obligation of the corporation absent any proof of bad faith?
RULING:

NO. It is quite evident that the termination of employment of private respondents was
due to the retrenchment policy adopted by API and not because of the former's union
activities.

The fact is, complainant Boaquina was in fact part of the first batch of retrenchees. She
was duly notified of her retrenchment, as well as the proper labor authorities.

Complainant Gayola on the other hand was separated from service owing to the fact
that production totally ceased by virtue of the blockade caused by the strike and the
pull-out of Asionics last customer. In short, the strike aggravated a bad situation by
making it worse and eventually, the worst possible nightmare for any business
enterprise. There being no work whatsoever to do, complainant Gayola, like the other
employees, had to be terminated from work.

It is true, there were various cases when corporate officers were themselves held by
the Court to be personally accountable for the payment of wages and money claims to
its employees.

Nothing on record is shown to indicate that Frank Yih has acted in bad faith or with
malice in carrying out the retrenchment program of the company. His having been held
by the NLRC to be solidarily and personally liable with API is thus legally unjustified.

FRANCISCO VS MEJIA

FACTS:

Adalia Francisco was the Treasurer of Cardale Financing and Realty Corporation
(Cardale). Cardale, through Francisco, contracted with Andrea Gutierrez for the latter
to execute a deed of sale over certain parcels of land in favor of Cardale. It was agreed
that Gutierrez shall hand over the titles to Cardale but Cardale shall only give a
downpayment, and later on full payment in installment. As security, Gutierrez shall
retain a lien over the properties by way of mortgage. Nonetheless, Cardale defaulted in
its payment. Gutierrez then filed a petition with the trial court to have the Deed
rescinded.
While the case was pending, Gutierrez died, and Rita Mejia, being the executrix of the
will of Gutierrez took over the affairs of the estate.

The case dragged on for 14 years because Francisco lost interest in presenting
evidence. And while the case was pending, Cardale failed to pay real estate taxes over
the properties in litigation hence, the local government subjected said properties to an
auction sale to satisfy the tax arrears. The highest bidder in the auction sale was
Merryland Development Corporation (Merryland).

Apparently, Merryland is a corporation in which Francisco was the President and

majority stockholder. Mejia then sought to nullify the auction sale on the ground that
Francisco used the two corporations as dummies to defraud the estate of Gutierrez
especially so that these circumstances are present:

1. Francisco did not inform the lower court that the properties were delinquent in
taxes;

2. That there was notice for an auction sale and Francisco did not inform the
Gutierrez estate and as such, the estate was not able to perform appropriate acts to
remedy the same;

3. That without knowledge of the auction, the Gutierrez estate cannot exercise their
right of redemption;

4. That Francisco failed to inform the court that the highest bidder in the auction
sale was Merryland, her other company;

5. That thereafter, Cardale was dissolved and the subject properties were divided
and sold to other people.

ISSUE:

Whether or not Merryland and Francisco shall be held solidarily liable.

HELD:

No. Only Francisco shall be held liable to pay the indebtedness to the Gutierrez estate.
What was only proven was that Francisco defrauded the Gutierrez estate as clearly
shown by the dubious circumstances which caused the encumbered properties to be
auctioned. By not disclosing the tax delinquency, Francisco left Gutierrez in the dark.
She obviously acted in bad faith. Francisco’s elaborate act of defaulting payment,
disregarding the case, not paying realty taxes (since as treasurer of Cardale, she’s
responsible for paying the real estate taxes for Cardale), and failure to advise Gutierrez
of the tax delinquencies all constitute bad faith. The attendant fraud and bad faith on
the part of Francisco necessitates the piercing of the veil of corporate fiction in so far
as Cardale and Francisco are concerned. Cardale and Francisco cannot escape
liability now that Cardale has been dissolved. Francisco shall then pay Guttierez estate
the outstanding balance with interest (total of P4.3 + million).

As regards Merryland however, there was no proof that it is merely an alter ego or a
business conduit of Francisco. Merryland merely bought the properties from the
auction sale and such per se is not a wrongful act or a fraudulent act. Time and again it
has been reiterated that mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality. Hence, Merryland
can’t be held solidarily liable with Francisco.

SOL LAGUIO vs. NATIONAL LABOR RELATIONS COMMISSION

FACTS: April Toy Inc. is a domestic corporation engaged in the manufacturing,

exporting and dealing at wholesale and retail, in stuffed toys. After a year of operation,
April Toy ceased operations because of its dire financial condition. Hence the
petitioners filed a complaint for illegal shutdown, retrenchment, dismissal and unfair
labor practice. Thereafter they amended their complaint to implead Well World Toy Inc.
In their complaint, petitioners alleged that they were originally probationary employees
of Well World Toy Inc. but were later laid off for starting to organize themselves into a
union. They applied and were hired by April Toy. They won as the exclusive bargaining
agent for the workers and when they submitted their CBA proposal, April Toy rejected
in view of its cessation of operations. The closure, petitioners alleged, is April Toy's
clever ploy to defeat their right to self-organization. Petitioners further allege that the
incorporators and principal officers of April Toy are also the incorporators of Well World
Toy, thus both should be treated as one corporation liable for their claims. The Labor
Arbiter and NLRC both recognized said corporations as two distinct corporations and
the closure of April Toy valid. Thus this petition.

ISSUE: Whether April Toy and Well World Toy should be treated as one corporation
liable for the grievances of the petitioners
RULING: No. It is basic that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it as well as from that of
any other legal entity to which it may be related. Mere substantial identity of the
incorporators of the two corporations does not necessarily imply fraud nor warrant the
piercing of the veil of corporation fiction. In the absence of clear and convincing
evidence that April and Well World’s corporate personalities were used to perpetuate
fraud, or circumvent the law said corporations were rightly treated as distinct and
separate from each other. In this case, with the facts and circumstances showing that
the owners of April Toy are different from those of Well-World, the management of one
being different from the other, and the office of April Toy is situated more than ten
kilometers away from Well-World, plus the fact that the closure of April Toy was for
valid reasons, the Labor Arbiter likewise correctly opined that the two corporations are
separate and distinct from each other, and that there is no basis for piercing the veil of
corporate fiction. Thus April Toy and Well World Toy should not be treated as one
corporation liable for the grievances of the petitioners.

SITUS DEV BANK CORP. VS ASIATRUST BANK

FACTS:

In 1972, the Chua Family, headed by its patriarch, Cua Yong Hu, a.k.a. Tony Chua,
started a printing business and put up Color Lithographic Press, Inc. (COLOR). On
June 6, 1995, the Chua Family ventured into real estate development/leasing by
organizing Situs Development Corporation (SITUS) in order to build a shopping mall
complex, known as Metrolane Complex (COMPLEX) at 20th Avenue corner P. Tuazon,
Cubao, Quezon City. To finance the construction of the COMPLEX, SITUS, COLOR
and Tony Chua and his wife, Siok Lu Chua, obtained several loans ​from (1) ALLIED
secured by real estate mortgages over two lots covered by TCT Nos. RT-13620 and
RT-13621; (2) ASIATRUST secured by a real estate mortgage over a lot covered by
TCT No. 79915; and (3) Global Banking Corporation, now METROBANK, secured by a
real estate mortgage over a lot covered by TCT No. 79916. The COMPLEX was built
on said four (4) lots, all of which are registered in the names of Tony Chua and his
wife, Siok Lu Chua. On March 21, 1996, the Chua Family expanded into retail
merchandising and organized Daily Supermarket, Inc. (DAILY). All three (3)
corporations have interlocking directors and are all housed in the COMPLEX. The
Chua Family also resides in the COMPLEX, while the other units are being leased to
tenants. SITUS, COLOR and DAILY obtained additional loans from ALLIED,
ASIATRUST and METROBANK and their real estate mortgages were updated and/or
amended. Spouses Chua likewise executed five (5) Continuing
Guarantee/Comprehensive Surety in favor of ALLIED to guarantee the payment of the
loans of SITUS and DAILY. SITUS, COLOR, DAILY and the spouses Chua failed to
pay their obligations as they fell due, despite demands.

ISSUES:

WON the properties of the stockholders are considered corporate assets.

RULING:

We do not agree.

It is a fundamental principle in corporate law that a corporation is a juridical entity with

a legal personality separate and distinct from the people comprising it. Hence, the rule
is that assets of stockholders may not be considered as assets of the corporation, and
vice-versa. The mere fact that one is a majority stockholder of a corporation does not
make one s property that of the corporation, since the stockholder and the corporation
are separate entities.

In this case, the parcels of land mortgaged to respondent banks are owned not by
petitioners, but by spouses Chua. Applying the doctrine of separate juridical
personality, these properties cannot be considered as part of the corporate assets.
Even if spouses Chua are the majority stockholders in petitioner corporations, they own
these properties in their individual capacities. Thus, the parcels of land in question
cannot be included in the inventory of assets of petitioner corporations.

The fact that these properties were mortgaged to secure corporate debts is of no
moment. A mortgage is an accessory undertaking to secure the fulfillment of a principal
obligation. In a third-party mortgage, the mortgaged property stands as security for the
loan obtained by the principal debtor; but until the mortgaged property is foreclosed,
ownership thereof remains with the third-party mortgagor.

Here, the properties owned by spouses Chua were mortgaged as security for the debts
contracted by petitioner corporations. However, ownership of these properties
remained with the spouses notwithstanding the fact that these were mortgaged to
secure corporate debts. We have ruled that "when a debtor mortgages his property, he
merely subjects it to a lien but ownership thereof is not parted with." This leads to no
other conclusion than that, notwithstanding the mortgage, the real properties in
question belong to spouses Chua; hence, these properties should not be considered
as assets of petitioner corporations.

Since the real properties in question cannot be considered as corporate assets, the
trial court's pronouncement that petitioners were susceptible of rehabilitation was bereft
of any basis.

We take this opportunity to point out that rehabilitation contemplates a continuance of

corporate life and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and solvency. However, if the continued
existence of the corporation is no longer viable, rehabilitation can no longer be an
option. The purpose of rehabilitation proceedings is to enable the company to gain a
new lease on life, and not to prolong its inevitable demise.

STOCKHOLDERS OF F. GUANZON & SONS, INC. vs ROD MANILA

FACTS:

• 5 stockholders of the F. Guanzon and Sons, Inc. executed a certificate of

liquidation of the assets of the corporation reciting that by virtue of a resolution of the
stockholders adopted on dissolving the corporation, they have distributed among
themselves in proportion to their shareholdings, as liquidating dividends, the assets of
said corporation, including real properties located in Manila.

• The certificate of liquidation, when presented to ROD Manila, was denied

registration on 7 grounds, of which the following were disputed by the stockholders:

3. The number of parcels not certified to in the acknowledgment;

5. P430.50 Reg. fees need be paid;

6. P940.45 documentary stamps need be attached to the document;

7. The judgment of the Court approving the dissolution and directing the disposition of
the assets of the corporation need be presented (Rules of Court, Rule 104, Sec. 3).
• Commissioner of Land Registration overruled ground No. 7 and sustained
requirements Nos. 3, 5 and 6.

• The stockholders interposed the present appeal.

ISSUE:

Whether the certificate of liquidation (involves a distribution of the corporate’s assets)

represents a transfer of said assets from the corporation to the stockholders? In
substance, a transfer/conveyance

HELD:

As correctly stated by the Commissioner of Land Registration -> the propriety or

impropriety of the three grounds on which the denial of the registration of the certificate
of liquidation was predicated hinges on whether or not that certificate merely involves a
distribution of the corporation's assets or should be considered a transfer or
conveyance.

Appellants -> certificate of liquidation is not a conveyance or transfer but merely a

distribution of the assets of the corporation which has ceased to exist for having been
dissolved. This is apparent in the minutes for dissolution attached to the document. Not
being a conveyance, the certificate need not contain a statement of the number of
parcel of land involved in the distribution in the acknowledgment appearing therein.
Hence the amount of documentary stamps to be affixed thereon should only be P0.30
and not P940.45, as required by the register of deeds. Neither is it correct to require
appellants to pay the amount of P430.50 as registration fee.

Commissioner of Land Registration -> concurred w/ ROD -> the certificate of

liquidation, though it involves a distribution of the corporation's assets, represents a
transfer of said assets from the corporation to the stockholders. Hence, in substance it
is a transfer or conveyance.

SC -> agree with the opinion of these two officials (Comm of Land Reg & ROD).
A corporation is a juridical person distinct from the members composing it. Properties
registered in the name of the corporation are owned by it as an entity separate and
distinct from its members. While shares of stock constitute personal property they do
not represent property of the corporation. The corporation has property of its own
which consists chiefly of real estate. A share of stock only typifies an aliquot part of the
corporation's property, or the right to share in its proceeds to that extent when
distributed according to law and equity, but its holder is not the owner of any part of the
capital of the corporation. Nor is he entitled to the possession of any definite portion of
its property or assets. The stockholder is not a co-owner or tenant in common of the
corporate property.

The act of liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of
the latter's assets is not and cannot be considered a partition of community property,
but rather a transfer or conveyance of the title of its assets to the individual
stockholders. Since the purpose of the liquidation, as well as the distribution of the
assets of the corporation, is to transfer their title from the corporation to the
stockholders in proportion to their shareholdings, that transfer cannot be effected
without the corresponding deed of conveyance from the corporation to the
stockholders. It is fair and logical to consider the certificate of liquidation as one in the
nature of a transfer or conveyance.

Remo, Jr. v. IAC, 172 SCRA 405 (1989)

Facts:

Petitioners(Jose Remo, Jr., Ernesto Bañares, Feliciano Coprada, Jemina

Coprada, and Dario Punzalan with Lucia Lacaste as Secretary,) as the board of
directors of AKRON adopted a resolution authorizing the purchase of thirteen (13)
trucks for use in its business to be paid out of a loan the corporation may secure from
any lending institution.

Feliciano Coprada, as President and Chairman of Akron, purchased thirteen

trucks from private respondent (E.B. MARCHA TRANSPORT COMPANY, INC.)
evidence by a deed of sale and was further secured by a promissory note executed by
Coprada in favor of Akron. It is stated in the promissory note that the balance shall be
paid from the proceeds of a loan obtained from the Development Bank of the
Philippines (DBP) within sixty (60) days. Private respondent sent Coprada a letter of
demand dated May 10, 1978. 9 In his reply to the said letter, Coprada reiterated that he
was applying for a loan from the DBP from the proceeds of which payment of the
obligation shall be made.

Private respondent found out that there was no loan application filed with the
DBP. Coprada wrote 2 times to private respondent to beg for a grace period for the
payment of the obligation and still defaulted in paying which prompted respondent to
file a case for the payment of the debt and the return of the 13 trucks. In the
meanwhile, petitioner sold all his shares in Akron to Coprada. It also appears that
Akron amended its articles of incorporation thereby changing its name to Akron
Transport International, Inc. which assumed the liability of Akron to private respondent.

The trial court made a decision finding that Petitioners the board of directors was
made personally liable for the debts made by AKRON and this decision was affirmed
by the court of appeals.

Issue:

Whether or not the petitioners are personally liable for the transactions made as
board of directors.

Held:

There is no cogent basis to pierce the corporate veil of Akron and hold petitioner
personally liable for its obligation to private respondent. While it is true that in
December, 1977 petitioner was still a member of the board of directors of Akron and
that he participated in the adoption of a resolution authorizing the purchase of 13 trucks
for the use in the brokerage business of Akron to be paid out of a loan to be secured
from a lending institution, it does not appear that said resolution was intended to
defraud anyone and more particularly private respondent. It was Coprada, President
and Chairman of Akron, who negotiated with said respondent for the purchase of 13
cargo trucks on January 25, 1978. It was Coprada who signed a promissory note to
guarantee the payment of the unpaid balance of the purchase price out of the proceeds
of a loan he supposedly sought from the DBP. The word "WE' in the said promissory
note must refer to the corporation which Coprada represented in the execution of the
note and not its stockholders or directors. Petitioner did not sign the said promissory
note so he cannot be personally bound thereby.

Thus, if there was any fraud or misrepresentation that was foisted on private
respondent in that there was a forthcoming loan from the DBP when it fact there was
none, it is Coprada who should account for the same and not petitioner.

If the private respondent is the victim of fraud in this transaction, it has not been
clearly shown that petitioner had any part or participation in the perpetration of the
same. Fraud must be established by clear and convincing evidence. If at all, the
principal character on whom fault should be attributed is Feliciano Coprada, the
President of Akron, whom private respondent dealt with personally all throughout.
Fortunately, private respondent obtained a judgment against him from the trial court
and the said judgment has long been final and executory.

PNB v. Ritratto Group, Inc., 362 SCRA 216 (2001)

Facts:

Petitioner Philippine National Bank is a domestic corporation organized and

existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto
International, Inc. and Dadasan General Merchandise are domestic corporations,
likewise, organized and existing under Philippine law.

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
respondents, secured by real estate mortgages constituted over four (4) parcels of land
in Makati City. Respondents made repayments of the loan incurred by remitting those
amounts to their loan account with PNB-IFL in Hong Kong.

However, there still stood an outstanding balance and pursuant to the terms of
the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the
respondents of the foreclosure of all the real estate mortgages. Respondents filed a
complaint for injunction with prayer for the issuance of a writ of preliminary injunction
and/or temporary restraining order before the Regional Trial Court of Makati. The
Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary
restraining order.

Issue:

Whether or not PNB and PNB-IFL are separate entities

Held:

The general rule is that as a legal entity, a corporation has a personality distinct
and separate from its individual stockholders or members, and is not affected by the
personal rights, obligations and transactions of the latter. The 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. The courts may in the exercise of judicial discretion step in to prevent the
abuses of separate entity privilege and pierce the veil of corporate entity.

We find, however, that the ruling in Koppel finds no application in the case at bar.
In said case, this Court disregarded the separate existence of the parent and the
subsidiary on the ground that the latter was formed merely for the purpose of evading
the payment of higher taxes. In the case at bar, respondents fail to show any cogent
reason why the separate entities of the PNB and PNB-IFL should be disregarded.

The Circumstance rendering the subsidiary an instrumentality. It is manifestly

impossible to catalogue the infinite variations of fact that can arise but there are certain
common circumstances which are important and which, if present in the proper
combination, are controlling.

These are as follows:

(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.

In this jurisdiction, we have held that the doctrine of piercing the corporate veil is
an equitable doctrine developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful purposes. 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.

We have laid the test in determining the applicability of the doctrine of piercing
the veil of corporate fiction, to wit:

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

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

3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
 In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not
the significant legal relationship involved in this case since the petitioner was not sued
because it is the parent company of PNB-IFL. Rather, the petitioner was sued because
it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A
suit against an agent cannot without compelling reasons be considered a suit against
the principal. Under the Rules of Court, every action must be prosecuted or defended
in the name of the real party-in-interest, unless otherwise authorized by law or these
Rules. In mandatory terms, the Rules require that "parties-in-interest without whom no
final determination can be had, an action shall be joined either as plaintiffs or
defendants." In the case at bar, the injunction suit is directed only against the agent,
not the principal.

MANILA GAS CORPORATION vs THE COLLECTOR OF INTERNAL REVENUE

FACTS:

> The plaintiff is a corporation organized under the laws of the Philippine Islands -
operates a gas plant in the City of Manila and furnishes gas service to the people of the
metropolis and surrounding municipalities by virtue of a franchise granted to it by the
Philippine Government.

> Associated with the plaintiff are the Islands Gas and Electric Company domiciled in
New York, United States, and the General Finance Company domiciled in Zurich,
Switzerland. Neither of these last mentioned corporations is resident in the Philippines.

> Dividends paid to its stockholders, Islands Gas and Electric Company, being subject
to income tax.

> Petitioner argued because to impose a tax thereon would be to do so on the plaintiff
corporation, in violation of the terms of its franchise and would, moreover, be
oppressive and inequitable. This argument is predicated on the constitutional provision
that no law impairing the obligation of contracts shall be enacted.

ISSUE:

Whether or not such dividend is subject to income tax despite of the exemption
stated from the franchise of the corporation?
RULING:

YES. The particular portion of the franchise which is invoked provides:

“The grantee shall annually on the fifth day of January of each year pay to the City of
Manila and the municipalities in the Province of Rizal in which gas is sold, two and one
half per centum of the gross receipts within said city and municipalities, respectively,
during the preceding year. Said payment shall be in lieu of all taxes, Insular, provincial
and municipal, except taxes on the real estate, buildings, plant, machinery, and other
personal property belonging to the grantee.”

As there held and as now confirmed, a corporation has a personality distinct from that
of its stockholders, enabling the taxing power to reach the latter when they receive
dividends from the corporation. It must be considered as settled in this jurisdiction that
dividends of a domestic corporation, which are paid and delivered in cash to foreign
corporations as stockholders, are subject to the payment in the income tax, the
exemption clause in the charter of the corporation notwithstanding.

Good Earth Emporium Inc. vs Court of Appeals

Facts:

A lease contract, dated October 16, 1981, was entered into by and between
Roces-Reyes Realty Inc. as lessor, and Good Earth Emporium Inc. (GEE) as lessee
for a term of three years beginning November 1, 1981 and ending October 31, 1984 at
a monthly rental of Php65,000. The building which was the subject of the contract of
lease is a five story building located at the corner of Rizal Avenue and Bustos Street in
Sta. Cruz, Manila. From March 1983 up to the complaint was filed, the lessee had
defaulted in the payment of rentals, as a consequence of which, private respondent
Roces-Reyes Realty Inc. filed on October 14, 1984 an ejectment case against herein
petitioners, Good Earth Emporium Inc. and Lim Ka Ring. After the latter had tendered
their responsive pleading, the lower court on motion of Roces rendered judgement on
the pleadings dated April 17, 1984 to which petitioners were ordered to vacate the
premises and surrender the same to the plaintiffs. On May 16, 1984, Roces filed a
motion for execution which was opposed by petitioners on May 28, 1984 simultaneous
with the latter’s filing of a notice of appeal. However, on August 15, 1984, GEE thru
counsel filed a motion to withdraw said appeal citing as reason that they are satisfied
with the decision of the lower court.

Issue:

Whether or not the payment made by GEE to the Roces brothers constitute payment to
private respondent corporation which would result to the extinguishment of the
obligation.

Held:

No. Under article 1240 of the civil code of the Philippines – Payment shall be made to
the person in whose favor the obligation has been constituted, on his successor in
interest or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc.
or to its successors in interest nor is there positive evidence that payment was made to
a person authorized to receive it. No such proof was submitted but merely inferred by
the RTC from Marcos Roces having signed the lease contract as President which was
witnessed by Jesus Marcos Roces. The later, however, was no longer President or
even an officer of the Roces-Realty Inc at the time he received the money and signed
the sale with pacto de retro. He, in fact denied being in possession of authority to
receive payment for the respondent corporation nor does the receipt show that he
signed in the same capacity as he did in the lease contract at a time when he was
President for respondent corporation.

A corporation has a personality distinct and separate from its individual stockholders or
members. Being an officer or stockholder of a corporation does not make one’s
property also of the corporation, and vice-versa, for they are separate entities. Share
owners are in no legal sense the owners corporate property which is owned by the
corporation as a distinct legal person. As a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of the
stockholder, nor is the stockholder’s debt or credit that of the corporation.
 CRUZ vs DALISAY

• In 1984, the National Labor Relations Commission issued an order against

Qualitrans Limousine Service, Inc. (QLSI) ordering the latter to reinstate the employees
it terminated and to pay them backwages.

• Quiterio Dalisay, Deputy Sheriff of the court, to satisfy the backwages, then
garnished the bank account (Philtrust bank) of Adelio Cruz who was not the judgment
debtor. Rather, the judgment debtor in that case was the company QLSI .

Dalisay justified his act by arguing that:

a. Cruz was the owner and president of QLSI

b. The counsel for the discharged employees advised him to garnish the account of
Cruz

ISSUE:

Should the personal property of Cruz (president) of the corporation be levied?

HELD:

• No. Respondent sheriff Dalisay incorrectly chose to pierce the veil of corporate
entity and usurped a power belonging to the court.

• He wrongly assumed that since Cruz is the owner/president of the company, that
they are one and the same.

• As a legal entity, a corporation has a personality distinct and separate from its
individual stockholder/members.

• Just because that he is the president of the corporation does not mean that the
property he owns or possesses is also the property of the corporation.

• Since the president, as an individual, and the corporation are separate entities.

Notes:

• A corporation incurs its own liabilities and is legally responsible for payment of its
obligations. In other words, by virtue of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt or credit of the stockholder.
This protection from liability for shareholders is the principle of limited liability
• Equally well-settled is the principle that the corporate mask may be removed or
the corporate veil pierced when the corporation is just an alter ego of a person or of
another corporation. For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.

BOOC vs BANTUAS
FACTS: ​Booc filed a case of Gross Ignorance of the Law and Grave Abuse of
Authority against sheriff Bantuas in relation to a civil case.
- Booc is the President of Five Star Marketing Corporation. Sheriff Bantuas allegedly
proceeded to file the Notice of Levy despite the fact that the subject property was
owned by the corporation which was not a party to the case.
- The corporation alleged that the property was owned by the corporation and that
Booc had no share or interest in it, but Bantuas did not heed the corporation.-
Respondent alleged that according to the documents from the SEC, Booc was the
owner of 200shares of stock in said corporation, and that the levy was made on the
share, rights and/or interest and participation which Booc, as president and stockholder
of the company, may have inthe parcel of land.
ISSUE:

Whether Booc is liable being a corporate officer.

HELD: A careful scrutiny of the records shows that respondent sheriff did not fail to
mention that what was being levied upon and sold was whatever shares, rights,
interests and participation Rufino Booc, as president and stockholder in Five Star
Marketing Corporation may have on subject property. Respondent sheriff, however,
overstepped his authority when he disregarded the distinct and separate personality of
the corporation from that of Rufino Booc as stockholder of the corporation by levying
on the property of the corporation. Respondent sheriff should not have made the levy
based on mere conjecture that since Rufino Booc is a stockholder and officer of the
corporation, then he might have an interest or share in the subject property.
- It is settled that a corporation is clothed with a personality separate and distinct from
that of its stockholders. It may not be held liable for the personal indebtedness of its
stockholders.
 Intestate Estate of Alexander T. Ty v. Court of Appeals, 356 SCRA 61 (2001)

Facts:

Petitioner Sylvia S. Ty was married to Alexander T. Ty, son of private respondent

Alejandro B. Ty, on January 11, 1981. Alexander died of leukemia on May 19, 1988
and was survived by his wife, petitioner Sylvia, and only child, Krizia Katrina. In the
settlement of his estate, petitioner was appointed administratrix of her late husband’s
intestate estate.

On November 4, 1992, petitioner filed a motion for leave to sell or mortgage

properties(a parcel of land and shares of stock in different companies) of Alexander Ty
in order to generate funds for the payment of deficiency estate taxes in the sum of
P4,714,560.00.

Private respondent Alejandro Ty then filed two complaints for the recovery of the
properties mentioned. Private respondent claims that the subject properties are bought
through his money even if said properties are placed in the name of Alexander Ty.

Motions to dismiss were filed by petitioner. Claiming that An express trust between
private respondent Alejandro and his deceased son Alexander.

The motions to dismiss were denied. Petitioner then filed petitions for certiorari in the ,
which were also dismissed for lack of merit. Thus, the present petitions now before the
Court.

Petitioner contends that private respondent is attempting to enforce an unenforceable

express trust over the disputed real property. Petitioner is in error when she contends
that an express trust was created by private respondent when he transferred the
property to his son.

Issue/s:

Was an express trust created?

Held:

No.

Express trusts are those that are created by the direct and positive acts of the parties,
by some writing or deed or will or by words evidencing an intention to create a trust. On
the other hand, implied trusts are those which, without being expressed, are deducible
from the nature of the transaction by operation of law as matters of equity,
independently of the particular intention of the parties.

In the cases at hand, private respondent contends that the pieces of property were
transferred in the name of the deceased Alexander for the purpose of taking care of the
property for him and his siblings. Such transfer having been effected without cause of
consideration, a resulting trust was created.

A resulting trust arises in favor of one who pays the purchase money of an estate and
places the title in the name of another, because of the presumption that he who pays
for a thing intends a beneficial interest therein for himself. The trust is said to result in
law from the acts of the parties. Such a trust is implied in fact (Tolentino, Civil Code of
the Philippines, Vol. 4, p. 678).

If a trust was then created, it was an implied, not an express trust, which may be
proven by oral evidence (Article 1457, Civil Code), and it matters not whether property
is real or personal (Paras, Civil Code of the Philippines, Annotated, Vol. 4, p. 814).

WHEREFORE, the petition for certiorari in G.R. No. 112872 is DISMISSED, having
failed to show that grave abuse of discretion was committed in declaring that the
regional trial court had jurisdiction over the case. The petition for review on certiorari in
G.R. 114672 is DENIED, having found no reversible error was committed.

Traders Royal Bank v. Court of Appeals, 177 SCRA 789 (1989)

Facts:

On March 30,1982, the Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching jointly
submitted to the Securities and Exchange Commission a petition for suspension of
payments where Alfredo Ching was joined as co-petitioner because under the law, he
was allegedly entitled, as surety, to avail of the defenses of PBM and he was expected
to raise most of the stockholders' equity of Pl00 million being required under the plan
for the rehabilitation of PBM. Traders Royal Bank was included among PBM's creditors
named in Schedule A accompanying PBM's petition for suspension of payments.
On May 13, 1983, the petitioner bank filed a Civil Case in the Regional Trial Court in
Pasay City, against PBM and Alfredo Ching, to collect P22,227,794.05 exclusive of
interests, penalties and other bank charges representing PBM's outstanding obligation
to the bank. Alfredo Ching, a stockholder of PBM, was impleaded as co-defendant for
having signed as a surety for PBM's obligations to the extent of ten million pesos
(Pl0,000,000) under a Deed of Suretyship dated July 21, 1977.

In its en banc decision, the SEC declared that it had assumed jurisdiction over
petitioner Alfredo Ching pursuant to Section 6, Rule 3 of the new Rules of Procedure of
the SEC providing that "parties in interest without whom no final determination can be
had of an action shall be joined either as complainant, petitioner or respondent" to
prevent multiplicity of suits.

On July 9, 1982, the SEC issued an Order placing PBM's business, including its assets
and liabilities, under rehabilitation receivership, and ordered that "all actions for claims
listed in Schedule A of the petition pending before any court or tribunal are hereby
suspended in whatever stage the same may be, until further orders from the
Commission".

PBM and Ching jointly filed a motion to dismiss the Civil Case in the RTC, Pasay City,
invoking the pendency in the SEC of PBM's application for suspension of payments
(which Ching co-signed) and over which the SEC had already assumed jurisdiction.

Before the motion to dismiss could be resolved, the court dropped PBM from the
complaint, on motion of the plaintiff bank, for the reason that the SEC had already
placed PBM under rehabilitation receivership.

On August 15, 1983, the trial court denied Ching's motion to dismiss the complaint
against himself. The court pointed out that "P.D. 1758 is only concerned with the
activities of corporations, partnerships and associations. Never was it intended to
regulate and/or control activities of individuals"

Ching filed a petition for certiorari and prohibition in the Court of Appeals where the
Court of Appeals granted the writs prayed for. It nullified the questioned orders of
respondent Judge and prohibited him from further proceeding in the Civil Case, except
to enter an order dismissing the case.

Issue:
WON the CA erred in holding that jurisdiction over respondent Alfredo Ching because
he was a co-signer or surety of PBM and that the lower court may not assume
jurisdiction over him so as to avoid multiplicity of suits.

Held:

Although Ching was impleaded in the SEC Case, as a co-petitioner of PBM, the SEC
could not assume jurisdiction over his person and properties. The Securities and
Exchange Commission was empowered, as rehabilitation receiver, to take custody and
control of the assets and properties of PBM only, for the SEC has jurisdiction over
corporations only not over private individuals, except stockholders in an intra-corporate
dispute. Being a nominal party in the case, Ching's properties were not included in the
rehabilitation receivership that the SEC constituted to take custody of PBM's assets.
Therefore, the petitioner bank was not barred from filing a suit against Ching, as a
surety for PBM. An anomalous situation would arise if individual sureties for debtor
corporations may escape liability by simply co- filing with the corporation a petition for
suspension of payments in the SEC whose jurisdiction is limited only to corporations
and their corporate assets.

The term "parties-in-interest" in Section 6, Rule 3 of the SEC's New Rules of Procedure
contemplates only private individuals sued or suing as stockholders, directors, or
officers of a corporation.

Ching can be sued separately to enforce his liability as surety for PBM, as expressly
provided by Article 1216 of the New Civil Code:

ART. 1216. The creditor may proceed against any of the solidary debtors or all of them
simultaneously. The demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others, as long as the debt has
not been fully collected.

It is elementary that a corporation has a personality distinct and separate from its
individual stockholders or members. Being an officer or stockholder of a corporation
does not make one's property the property also of the corporation, for they are
separate entities.

Ching's act of joining as a co-petitioner with PBM in the SEC case did not vest in the
SEC jurisdiction over his person or property, for jurisdiction does not depend on the
consent or acts of the parties but upon express provision of law.
 Sulo ng Bayan v. Araneta, Inc., 72 SCRA 347 (1976)

Facts:

On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of
First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against Gregorio
Araneta Inc. (GAI), Paradise Farms Inc., National Waterworks & Sewerage Authority
(NAWASA), Hacienda Caretas Inc., and the Register of Deeds of Bulacan to recover
the ownership and possession of a large tract of land in San Jose del Monte, Bulacan,
containing an area of 27,982,250 sq. ms., more or less, registered under the Torrens
System in the name of GAI, et. al.'s predecessors-in-interest (who are members of the
corporation). On 2 September 1966, GAI filed a motion to dismiss the amended
complaint on the grounds that (1) the complaint states no cause of action; and (2) the
cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and
Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds. NAWASA
did not file any motion to dismiss. However, it pleaded in its answer as special and
affirmative defenses lack of cause of action by Sulo ng Bayan Inc. and the barring of
such action by prescription and laches. On 24 January 1967, the trial court issued an
Order dismissing the (amended) complaint. On 14 February 1967, Sulo ng Bayan filed
a motion to reconsider the Order of dismissal, arguing among others that the complaint
states a sufficient cause of action because the subject matter of the controversy in one
of common interest to the members of the corporation who are so numerous that the
present complaint should be treated as a class suit. The motion was denied by the trial
court in its Order dated 22 February 1967.

Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, the Court of
Appeals, upon finding that no question of fact was involved in the appeal but only
questions of law and jurisdiction, certified the case to the Supreme Court for resolution
of the legal issues involved in the controversy.

Issue:

Whether the corporation (non-stock) may institute an action in behalf of its individual
members for the recovery of certain parcels of land allegedly owned by said members,
among others.

Held:
It is a doctrine well-established and obtains both at law and in equity that a corporation
is a distinct legal entity to be considered as separate and apart from the individual
stockholders or members who compose it, and is not affected by the personal rights,
obligations and transactions of its stockholders or members. The property of the
corporation is its property and not that of the stockholders, as owners, although they
have equities in it. Properties registered in the name of the corporation are owned by it
as an entity separate and distinct from its members. Conversely, a corporation
ordinarily has no interest in the individual property of its stockholders unless transferred
to the corporation, "even in the case of a one-man corporation." The mere fact that one
is president of a corporation does not render the property which he owns or possesses
the property of the corporation, since the president, as individual, and the corporation
are separate similarities. Similarly, stockholders in a corporation engaged in buying
and dealing in real estate whose certificates of stock entitled the holder thereof to an
allotment in the distribution of the land of the corporation upon surrender of their stock
certificates were considered not to have such legal or equitable title or interest in the
land, as would support a suit for title, especially against parties other than the
corporation. It must be noted, however, that the juridical personality of the corporation,
as separate and distinct from the persons composing it, is but a legal fiction introduced
for the purpose of convenience and to subserve the ends of justice. This separate
personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work
-an injustice, or where necessary to achieve equity. It has not been claimed that the
members have assigned or transferred whatever rights they may have on the land in
question to the corporation. Absent any showing of interest, therefore, a corporation,
has no personality to bring an action for and in behalf of its stockholders or members
for the purpose of recovering property which belongs to said stockholders or members
in their personal capacities.
 Saw v. CA, 195 SCRA 740 (1991)

Facts:

A collection suit with preliminary attachment was filed by Equitable Banking

Corporation against Freeman, Inc. and Saw Chiao Lian, its President and General
Manager. The petitioners moved to intervene, alleging that (1) the loan transactions
between Saw Chiao Lian and Equitable Banking Corp. were not approved by the
stockholders representing at least 2/3 of corporate capital; (2) Saw Chiao Lian had no
authority to contract such loans; and (3) there was collusion between the officials of
Freeman, Inc. and Equitable Banking Corp. in securing the loans. The motion to
intervene was denied, and the petitioners appealed to the Court of Appeals.

Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement
which they submitted to and was approved by the lower court. But because it was not
complied with, Equitable secured a writ of execution, and two lots owned by Freeman,
Inc. were levied upon and sold at public auction to Freeman Management and
Development Corp.

The Court of Appeals sustained the denial of the petitioners' motion for intervention,
holding that "the compromise agreement between Freeman, Inc., through its President,
and Equitable Banking Corp. will not necessarily prejudice petitioners whose rights to
corporate assets are at most inchoate, prior to the dissolution of Freeman, Inc. . . . And
intervention under Sec. 2, Rule 12 of the Revised Rules of Court is proper only when
one's right is actual, material, direct and immediate and not simply contingent or
expectant."

Issue:

WON the Honorable Court of Appeals erred in holding that the petitioners cannot
intervene in Civil Case No. 88-44404 because their rights as stockholders of Freeman
are merely inchoate and not actual, material, direct and immediate prior to the
dissolution of the corporation;

Held:

The petitioners base their right to intervene for the protection of their interests as
stockholders on Everett v. Asia Banking Corp. where it was held:
The well-known rule that shareholders cannot ordinarily sue in equity to redress
wrongs done to the corporation, but that the action must be brought by the Board of
Directors, . . . has its exceptions. (If the corporation [were] under the complete control
of the principal defendants, . . . it is obvious that a demand upon the Board of Directors
to institute action and prosecute the same effectively would have been useless, and
the law does not require litigants to perform useless acts.

Equitable demurs, contending that the collection suit against Freeman, Inc, and Saw
Chiao Lian is essentially in personam and, as an action against defendants in their
personal capacities, will not prejudice the petitioners as stockholders of the
corporation. The Everett case is not applicable because it involved an action filed by
the minority stockholders where the board of directors refused to bring an action in
behalf of the corporation. In the case at bar, it was Freeman, Inc. that was being sued
by the creditor bank.

Equitable also argues that the subject matter of the intervention falls properly within the
original and exclusive jurisdiction of the Securities and Exchange Commission under
P.D. No. 902-A. In fact, at the time the motion for intervention was filed, there was
pending between Freeman, Inc. and the petitioners SEC Case No. 03577 entitled
"Dissolution, Accounting, Cancellation of Certificate of Registration with Restraining
Order or Preliminary Injunction and Appointment of Receiver." It also avers in its
Comment that the intervention of the petitioners could have only caused delay and
prejudice to the principal parties.

After examining the issues and arguments of the parties, the Court finds that the
respondent court committed no reversible error in sustaining the denial by the trial
court of the petitioners' motion for intervention.

In the case of Magsaysay-Labrador v. Court of Appeals, we ruled as follows:

Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court
affirms the respondent court's holding that petitioners herein have no legal interest in
the subject matter in litigation so as to entitle them to intervene in the proceedings
below. In the case of Batama Farmers' Cooperative Marketing Association, Inc. v.
Rosal, we held: "As clearly stated in Section 2 of Rule 12 of the Rules of Court, to be
permitted to intervene in a pending action, the party must have a legal interest in the
matter in litigation, or in the success of either of the parties or an interest against both,
or he must be so situated as to be adversely affected by a distribution or other
disposition of the property in the custody of the court or an officer thereof."

To allow intervention, [a] it must be shown that the movant has legal interest in the
matter in litigation, or otherwise qualified; and [b] consideration must be given as to
whether the adjudication of the rights of the original parties may be delayed or
prejudiced, or whether the intervenor's rights may be protected in a separate
proceeding or not. Both requirements must concur as the first is not more important
than the second.

The interest which entitles a person to intervene in a suit between other parties must
be in the matter in litigation and of such direct and immediate character that the
intervenor will either gain or lose by the direct legal operation and effect of the
judgment. Otherwise, if persons not parties of the action could be allowed to intervene,
proceedings will become unnecessarily complicated, expensive and interminable. And
this is not the policy of the law.

The words "an interest in the subject" mean a direct interest in the cause of action as
pleaded, and which would put the intervenor in a legal position to litigate a fact alleged
in the complaint, without the establishment of which plaintiff could not recover.

Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent,

remote, conjectural, consequential and collateral. At the very least, their interest is
purely inchoate, or in sheer expectancy of a right in the management of the corporation
and to share in the profits thereof and in the properties and assets thereof on
dissolution, after payment of the corporate debts and obligations.

While a share of stock represents a proportionate or aliquot interest in the property of

the corporation, it does not vest the owner thereof with any legal right or title to any of
the property, his interest in the corporate property being equitable or beneficial in
nature. Shareholders are in no legal sense the owners of corporate property, which is
owned by the corporation as a distinct legal person.

The Court observes that even with the denial of the petitioners' motion to intervene,
nothing is really lost to them.1âwphi1The denial did not necessarily prejudice them as
their rights are being litigated in the case now before the Securities and Exchange
Commission and may be fully asserted and protected in that separate proceeding.

WHEREFORE, the petition is DENIED.

 Industrial and Dev. Corp. v. Court of Appeals, 272 SCRA 333 (1997)

Facts:

CKH, a corporation established by the late Cheng Kim Heng, owns to parcels of land in
Valenzuela. After his death, Rubi Saw, his second wife, took over CKH.

Before second marriage, CKH was married to Hung Yuk Wah who lived in Hong Kong
with their children Chong Tak Kei, Chong Tak Choi and Chong Tak Yam.

After immigrating and marrying Rubi Saw, Cheng Kim Heng brings the first family into
Manila

On May 1988, Rubi and Lourdes Chong (wife of Chong Tak Kei, son of Cheng Kim
Heng) met and executed a Deed of Absolute Sale regarding the sale of the 2 subject
properties to Century Well, owned by Lourdes, Kei and Choi with the consideration of
Php 800,000.00 in the form of a cash to be delivered upon execution of deed of sale.

When the parties met, a manager’s check could not be produced since it was a
Sunday. Rubi however signed the deed, thinking that since Kim was an elderly
Chinese man whom she had no basis to mistrust, she acceded to the request.

However, he only had Php20,000.00 in hand but gave the assurance that the next day
the entire amount would be ready. Rubi again agreed.

In the next and succeeding days though, none of them could be reached for the
payment.

CHK and Rubi Saw filed a complaint against respondents claiming that consideration
was not paid despite several demands with a prayer for annulment/rescission of the
Deed of Absolute Sale.

Contention of Century Well: Consideration was paid by means of offsetting/legal

compensation in the amount of Php 700, 000.00 through alleged promissory notes
executed by Heng in favor of his sons Choi and Kei plus Payment of Php 100,000.00
cash.

Issue:

whether or not there was payment of the consideration for the sale of real property
subject of this case.
Held:

The contrasting submissions of the circumstances surrounding the execution of the

subject document have led to this stalemate of sorts. Still, the best test to establish the
true intent of the parties remains to be the Deed of Absolute Sale, whose genuineness
and due execution, are unchallenged.

Section 9 of Rule 130 of the Rules of Court states that when the terms of an agreement
have been reduced to writing, it is considered as containing all the terms agreed upon
and there can be, between the parties and their successors-in-interest, no evidence of
such terms other than the contents of the written agreement.

The so-called parol evidence rule forbids any addition to or contradiction of the terms of
a written instrument by testimony or other evidence purporting to show that, at or
before the execution of the parties written agreement, other or different terms were
agreed upon by the parties, varying the purport of the written contract. When an
agreement has been reduced to writing, the parties cannot be permitted to adduce
evidence to prove alleged practices which to all purposes would alter the terms of the
written agreement. Whatever is not found in the writing is understood to have been
waived and abandoned.

The rule is not without exceptions, however, as it is likewise provided that a party to an
action may present evidence to modify, explain, or add to the terms of the written
agreement if he puts in issue in his pleadings: (a) An intrinsic ambiguity, mistake or
imperfection in the written agreement; (b) The failure of the written agreement to
express the true intent and agreement of the parties thereto; (c) The validity of the
written agreement; or (d) The existence of other terms agreed to by the parties or their
successors in interest after the execution of the written agreement.

We reiterate the pertinent provisions of the deed:

That for and in consideration of the sum of EIGHT HUNDRED THOUSAND

(P800,000.00) PESOS, Philippine Currency, paid by VENDEE to VENDOR, receipt of
which is hereby acknowledged by the latter to its entire satisfaction, said VENDOR, by
these presents, has SOLD, CEDED, TRANSFERRED, and CONVEYED by way of
absolute sale unto said VENDEE, its successors and assigns, the two parcels of land
above described and any and all improvements therein;

The stipulation in the case is clear enough in manifesting the vendors admission of
receipt of the purchase price, thereby lending sufficient, though reluctant, credence to
the private respondents submission that payment had been made by off-setting
P700,000.00 of the purchase price with the obligation of Cheng Kim Heng to his sons
Choi and Kei. By signing the Deed of Absolute Sale, petitioner Rubi Saw has given her
imprimatur to the provisions of the deed, and she cannot now challenge its veracity.

However, the suitability of the said stipulations as benchmarks for the intention of the
contracting parties, does not come clothed with the cloak of validity. It must be
remembered that agreements affecting the civil relationship of the contracting parties
must come under the scrutiny of the provisions of law existing and effective at the time
of the execution of the contract.

We refer particularly to the provisions of the law on compensation as a mode of

extinguishment of obligations. Under Article 1231 of the Civil Code, an obligation may
be extinguished: (1) by payment or performance; (2) by the loss of the thing due, (3) by
the condonation or remission of the debt; (4) by the confusion or merger of the rights of
creditor and debtor, (5) by compensation; or (6) by novation. Other causes of
extinguishment of obligations include annulment, rescission, fulfillment of a resolutory
condition and prescription.

Compensation may take place by operation of law (legal compensation), when two
persons, in their own right, are creditors and debtors of each other. Article 1279 of the
Civil Code provides for the requisites of legal compensation:

Article 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.

Compensation may also be voluntary or conventional, that is, when the parties, who
are mutually creditors and debtors agree to compensate their respective obligations,
even though not all the requisites for legal compensation are present. Without the
confluence of the characters of mutual debtors and creditors, contracting parties
cannot stipulate to the compensation of their obligations, for then the legal tie that
binds contracting parties to their obligations would be absent. At least one party would
be binding himself under an authority he does not possess. As observed by a noted
author, the requirements of conventional compensation are (1) that each of the parties
can dispose of the credit he seeks to compensate, and (2) that they agree to the
mutual extinguishment of their credits.

In the instant case, there can be no valid compensation of the purchase price with the
obligations of Cheng Kim Heng reflected in the promissory notes, for the reason that
CKH and Century-Well the principal contracting parties, are not mutually bound as
creditors and debtors in their own name. A close scrutiny of the promissory notes does
not indicate the late Cheng, as then president of CKH, acknowledging any
indebtedness to Century-Well. As worded, the promissory notes reveal CKHs
indebtedness to Chong Tak Choi and Chong Tak Kei.

In fact, there is no indication at all, that such indebtedness was contracted by Cheng
from Choi and Kei as stockholders of Century-Well. Choi and Kei, in turn, are not
parties to the Deed of Absolute Sale. They are merely stockholders of Century-Well,
and as such, are not bound principally, not even in a representative capacity, in the
contract of sale.Thus, their interest in the promissory notes cannot be off-set against
the obligations between CKH and Century-Well arising out of the deed of absolute
sale, absent any allegation, much less, even a scintilla of substantiation, that Choi and
Keis interest in Century-Well are so considerable as to merit a declaration of unity of
their civil personalities. Under present law, corporations, such as Century-Well, have
personalities separate and distinct from their stockholders, except only when the law
sees it fit to pierce the veil of corporate identity, particularly when the corporate fiction
is shown to be used to defeat public convenience, justify wrong, protect fraud or defend
crime, or where a corporation the mere alter ego or business conduit of a person. The
Court cannot, in this instance make such a ruling absent a demonstration of the merit
of such a disposition.
APT vs CA

Facts:

MMIC is a domestic corporation engaged in mining with respondents Jesus S.

Cabarrus, Sr. as President and among its original stockholders who was given the right
to mine the surigao mines. On July 13, 1981, MMIC, PNB and DBP executed a
Mortgage Trust Agreement whereby MMIC, as mortgagor, agreed to constitute a
mortgage in favor of PNB and DBP as mortgagees, over all MMICs assets, subject of
real estate and chattel mortgage executed by the mortgagor, and additional assets
described and identified, including assets of whatever kind, nature or description, which
the mortgagor may acquire whether in substitution of, in replenishment, or in addition
thereto.

MMIC defaulted in the payment in the loans obtained from PNB and DBP. In order to
lessen the indebtedness of MMIC a financial restructuring plan (FRP) was designed
and was approved by the board of directors of MMIC. However, the proposed FRP had
never been formally adopted, approved or ratified by either PNB or DBP. Since there
was still no payment of the outstanding debts an extrajudicial foreclosure of the
mortgage was done by PNB and DBP.

The foreclosed assets were sold to PNB as the lone bidder and were assigned to three
newly formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and
Industrial Corporation, and Island Cement Corporation. In 1986, these assets were
transferred to the Asset Privatization Trust (APT).

Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a derivative
suit against DBP and PNB before the RTC of Makati, alleging thus: (1) annul the
foreclosure, restore the foreclosed assets to MMIC, and require the banks to account
for their use and operation in the interim; (2) direct the banks to honor and perform
their commitments under the alleged FRP;

Private respondents and petitioner APT, as successor of the DBP and PNBs interest in
MMIC, mutually agreed to submit the case to arbitration by entering into a Compromise
and Arbitration Agreement. A decision from the arbitration came which majorly states
that the foreclosure made by PNB and DBP were not made legally and thus make the
said foreclosures illegal and order the said companies who are now the one in holds
the assets of MMIC which is APT to return it but still reserves the right of APT to collect
the debts in which MMIC is still indebted to DBP and PNB. MMIC moved for the
confirmation of the arbitral award which was opposed by APT but the trial court still
confirms the arbitral reward hence this petition. APT argues thus the arbitral reward
must not be confirmed.

Issue:

(1)Whether or not the FRP was accepted by DBP and PNB through estoppel as a
corporation.

(2) whether or not the award of moral damages was proper

(3) Whether or not the derivative suit made was valid

Held:

Issue 1:

NO, a corporation exercises its powers, including the power to enter into contracts,
through its board of directors. While a corporation may appoint agents to enter into a
contract in its behalf, the agent, should not exceed his authority In the case at bar,
there was no showing that the representatives of PNB and DBP in MMIC even had the
requisite authority to enter into a debt-for-equity swap. And if they had such authority,
there was no showing that the banks, through their board of directors, had ratified the
FRP.

Issue 2:

No, Besides, it is not yet a well settled jurisprudence that corporations are entitled to
moral damages. While the Supreme Court may have awarded moral damages to a
corporation for besmirched reputation in Mambulao vs. PNB 22 SCRA 359, such ruling
cannot find application in this case. It must be pointed out that when the supposed
wrongful act of foreclosure was done, MMICs credit reputation was no longer a
desirable one. The company then was already suffering from serious financial crisis
which definitely projects an image not compatible with good and wholesome reputation.
So it could not be said that there was a reputation besmirches by the act of foreclosure.

Issue 3:

Settled is the doctrine that in a derivative suit, the corporation is the real party in
interest while the stockholder filing suit for the corporations behalf is only nominal
party. The corporation should be included as a party in the suit. An individual
stockholder is permitted to institute a derivative suit on behalf of the corporation
wherein he holds stock in order to protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue, or are the ones to be sued or hold the control
of the corporation. In such actions, the suing stockholder is regarded as a nominal
party, with the corporation as the real party in interest. It is a condition sine qua non
that the corporation be impleaded as a party because- Not only is the corporation an
indispensible party, but it is also the present rule that it must be served with process.
The reason given is that the judgment must be made binding upon the corporation and
in order that the corporation may get the benefit of the suit and may not bring a
subsequent suit against the same defendants for the same cause of action. In other
words the corporations must be joined as party because it is its cause of action that is
being litigated and because judgment must be a res ajudicata against it.

It was wrong that an award of damages was made in favor of the stockholders. It is a
basic postulate that corporation has a personality separate and distinct from its
stockholders. The properties foreclosed belonged to MMIC, not to its stockholders.
Hence, if wrong was committed in the foreclosure, it was done against the corporation.
Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for
himself that would result in the appropriation by, and the distribution to, him part of the
corporations assets before the dissolution of the corporation and the liquidation of its
debts and liabilities. The Arbitration Committee, therefore, passed upon matters not
submitted to it. Moreover, said cause of action had already been decided in a separate
case. It is thus quite patent that the arbitration committee exceeded the authority
granted to it by the parties Compromise and Arbitration Agreement by awarding moral
damages to Jesus S. Cabarrus, Sr.

DBP vs CA

Facts:

Marinduque Mining, a corporation engaged in the manufacture of obtained from PNB

various loan accommodations. Marinduque Mining executed in favor of PNB and the
Development Bank of the Philippines (DBP) a second Mortgage Trust Agreement. For
failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted
sometime on July and August 1984 extrajudicial foreclosure proceedings over the
mortgaged properties.
PNB and DBP thereafter thru a Deed of Transfers, purposely, in order to ensure the
continued operation of the Nickel refinery plant and to prevent the deterioration of the
assets foreclosed, assigned and transferred to Nonoc Mining and Industrial
Corporation all their rights, interest and participation over the foreclosed properties of
MMIC. PNB and DBP assigned and transferred in favor of Maricalum Mining Corp. all
its rights, interest and participation over the foreclosed properties of MMIC at Sipalay,
Negros Occidental and also to Asset Privatization Trust (APT) all its existing rights and
interest over the assets of MMIC, earlier assigned to Nonoc Mining and Industrial
Corporation, Maricalum Mining Corporation and Island Cement Corporation.

During the foreclosure proceedings Marinduque Mining purchased and caused to be

delivered construction materials and other merchandise from Remington Industrial
Sales Corporation (Remington), Remington filed a complaint for a sum of money and
damages against Marinduque Mining for the value of the unpaid construction materials
and other merchandise purchased by Marinduque Mining who failed to pay its
obligation.

Remingtons original complaint was amended to include PNB and DBP as

co-defendants in view of the foreclosure by the latter of the real and chattel mortgages
on the real and personal properties, chattels, mining claims, machinery, equipment and
other assets of Marinduque Mining and several other amendments were introduced to
include Nonoc Mining and Industrial Corporation (Nonoc Mining), Maricalum Mining
Corporation (Maricalum Mining) and Island Cement Corporation (Island Cement) and
lastly APT stating that they must be be treated in law as one and the same entity by
disregarding the veil of corporate fiction.

Trial court decided in Favor of Remington and ordered the stated parties to pay for the
obligations made by MMCI. A motion for reconsideration and upon denial of such
motion an appeal was made stating the same arguments that Remington has no cause
of actions against the Added parties, but in Remington’s defense it alleged that the
transfers made was made in fraud of creditors and piercing the viel was appropriate.

Issue:

Whether or not Piercing of the veil must be made.

Held:

It is an elementary and fundamental principle of corporation law that a corporation is an

entity separate and distinct from its stockholders and from other corporations to which
it may be connected. However, 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 or in case of two corporations, merge them
into one.

In accordance with the foregoing rule, this Court has disregarded the separate
personality of the corporation where the corporate entity was used to escape liability to
third parties.In this case, however, we do not find any fraud on the part of Marinduque
Mining and its transferees to warrant the piercing of the corporate veil.

It bears stressing that PNB and DBP are mandated to foreclose on the mortgage when
the past due account had incurred arrearages of more than 20% of the total
outstanding obligation. Thus, PNB and DBP did not only have a right, but the duty
under said law, to foreclose upon the subject properties. The banks had no choice but
to obey the statutory command.

The Court of Appeals made reference to two principles in corporation law. The first
pertains to transactions between corporations with interlocking directors resulting in the
prejudice to one of the corporations. This rule does not apply in this case, however,
since the corporation allegedly prejudiced (Remington) is a third party, not one of the
corporations with interlocking directors

The second principle invoked by respondent court involves directors who are creditors
which is also inapplicable herein. Here, the creditor of Marinduque Mining is DBP, not
the directors of Marinduque Mining.

Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining,
Maricalum and Island Cement. As Remington itself concedes, DBP is not authorized by
its charter to engage in the mining business. The creation of the three corporations was
necessary to manage and operate the assets acquired in the foreclosure sale lest they
deteriorate from non-use and lose their value. In the absence of any entity willing to
purchase these assets from the bank, what else would it do with these properties in the
meantime? Sound business practice required that they be utilized for the purposes for
which they were intended.

To reiterate, the doctrine of piercing the veil of corporate fiction applies only when such
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or
defend crime. To disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established. It cannot be presumed. In
this case, the Court finds that Remington failed to discharge its burden of proving bad
faith on the part of Marinduque Mining and its transferees in the mortgage and
foreclosure of the subject properties to justify the piercing of the corporate veil.

Traders Royal bank vs CA

Facts:

Filriters Guaranty Assurance Corporation (FGAC) is the owner of several Central Bank
Certificates of Indebtedness (CBCI). These certificates are actually proof that FGAC
has the required reserve investment with the Central Bank to operate as an insurer and
to protect third persons from whatever liabilities FGAC may incur. In 1979, FGAC
agreed to assign said CBCI to Philippine Underwriters Finance Corporation (PUFC).
Later, PUFC sold said CBCI to Traders Royal Bank (TRB). Said sale with TRB comes
with a right to repurchase on a date certain. However, when the day to repurchase
arrived, PUFC failed to repurchase said CBCI hence TRB requested the Central Bank
to have said CBCI be registered in TRB’s name. Central Bank refused as it alleged that
the CBCI are not negotiable; that as such, the transfer from FGAC to PUFC is not
valid; that since it was invalid, PUFC acquired no valid title over the CBCI; that the
subsequent transfer from PUFC to TRB is likewise invalid.

TRB then filed a petition for mandamus to compel the Central Bank to register said
CBCI in TRB’s name. TRB averred that PUFC is the alter ego of FGAC; that PUFC
owns 90% of FGAC; that the two corporations have identical sets of directors; that
payment of said CBCI to PUFC is like a payment to FGAC hence the sale between
PUFC and TRB is valid. In short, TRB avers that that the veil of corporate fiction,
between PUFC and FGAC, should be pierced because the two corporations allegedly
used their separate identity to defraud TRD into buying said CBCI.

Issue:

Whether or not Traders Royal Bank is correct.

Held:

No. Piercing the veil of corporate entity requires the court to see through the protective
shroud which exempts its stockholders from liabilities that ordinarily, they could be
subject to, or distinguished one corporation from a seemingly separate one, were it not
for the existing corporate fiction. But to do this, the court must be sure that the
corporate fiction was misused, to such an extent that injustice, fraud, or crime was
committed upon another, disregarding, thus, his, her, or its rights. It is the protection of
the interests of innocent third persons dealing with the corporate entity which the law
aims to protect by this doctrine.

Traders Royal Bank failed to show that the corporate fiction is used by the two
corporations to defeat public convenience, justify wrong, protect fraud or defend crime
or where a corporation is a mere alter ego or business conduit of a person. TRB merely
showed that PUFC owns 90% of FGAC and that their directors are the same. The
identity of PUFC can’t be maintained as that of FGAC because of this mere fact; there
is nothing else which could lead the court under the circumstance to disregard their
corporate personalities. Further, TRB can’t argue that it was defrauded into buying
those certificates. In the first place, TRB as a banking institution is not ignorant about
these types of transactions. It should know for a fact that a certificate of indebtedness
is not negotiable because the payee therein is inscribed specifically and that the
Central Bank is obliged to pay the named payee only and no one else.

PNB vs Rirratto 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.

Ritratto Group, Inc. made repayments of the loan incurred by remitting those amounts
to their loan account with PNB-IFL in Hong Kong. PNB-IFL, through its attorney-in-fact
PNB, notified them of the foreclosure of all the real estate mortgages and that the
properties subjected. 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:

Whether or Not 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 Circumstances rendering the subsidiary an instrumentality. It is manifestly

impossible to catalogue the infinite variations of fact that can arise but there are certain
common circumstances which are important and which, if present in the proper
combination, are controlling.

These are as follows:

(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.

Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate
veil is an equitable doctrine developed to address situations where the separate
corporate personality of a corporation is abused or used for wrongful purposes. 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.

The parent-subsidiary relationship between PNB and PNB-IFL is not the significant
legal relationship involved in this case since the petitioner was not sued because it is
the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as
an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against
an agent cannot without compelling reasons be considered a suit against the principal.

Gochan vs. Young

Facts:

Felix Gochan and Sons Realty Corporation (Gochan Realty) was registered with the
SEC on June 1951, with Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan,
Tomasa Gochan, Esteban Gochan and Crispo Gochan as its incorporators. Felix
Gochan Sr.'s daughter, Alice inherited 50 shares of stock in Gochan Realty from the
former. Alice died in 1955, leaving the 50 shares to her husband, John Young, Sr. In
1962, the Regional Trial Court of Cebu adjudicated 6/14 of these shares to her
children, Richard Young, David Young, Jane Young Llaban, John Young Jr., Mary
Young Hsu and Alexander Thomas Young (the Youngs). Having earned dividends,
these stocks numbered 179 by 20 September 1979. 5 days later (25 September), at
which time all the children had reached the age of majority, their father John Sr.,
requested Gochan Realty to partition the shares of his late wife by cancelling the stock
certificates in his name and issuing in lieu thereof, new stock certificates in the names
of the Youngs. On 17 October 1979, Gochan Realty refused, citing as reason, the right
of first refusal granted to the remaining stockholders by the Articles of Incorporation. In
1990, John, Sr. died, leaving the shares to the Youngs. On 8 February 1994, Cecilia
Gochan Uy and Miguel Uy filed a complaint with the SEC for issuance of shares of
stock to the rightful owners, nullification of shares of stock, reconveyance of property
impressed with trust, accounting, removal of officers and directors and damages
against Virginia Gochan, et. al. (Gochans) A Notice of Lis Pendens was annotated to
the real properties of the corporation.

On 16 March 1994, the Gochans moved to dismiss the complaint alleging that: (1) the
SEC had no jurisdiction over the nature of the action; (2) the the Youngs were not the
real parties-in-interest and had no capacity to sue; and (3) the Youngs' causes of
action were barred by the Statute of Limitations. The motion was opposed by the
Youngs. On 29 March 1994, the Gochans filed a Motion for cancellation of Notice of Lis
Pendens. The Youngs opposed the said motion. On 9 December 1994, the SEC,
through its Hearing Officer, granted the motion to dismiss and ordered the cancellation
of the notice of lis pendens annotated upon the titles of the corporate lands; holding
that the Youngs never been stockholders of record of FGSRC to confer them with the
legal capacity to bring and maintain their action, and thus, the case cannot be
considered as an intra-corporate controversy within the jurisdiction of the SEC; and
that on the allegation that the Youngs brought the action as a derivative suit on their
own behalf and on behalf of Gochan Realty, rhe failure to comply with the jurisdictional
requirement on derivative action necessarily result in the dismissal of the complaint.
The Youngs filed a Petition for Review with the Court of Appeals. On 28 February
1996, the Court of Appeals ruled that the SEC had no jurisdiction over the case as far
as the heirs of Alice Gochan were concerned, because they were not yet stockholders
of the corporation. On the other hand, it upheld the capacity of Cecilia Gochan Uy and
her spouse Miguel Uy. It also held that the Intestate Estate of John Young Sr. was an
indispensable party. The appellate court further ruled that the cancellation of the notice
of lis pendens on the titles of the corporate real estate was not justified. Moreover, it
declared that the Youngs' Motion for Reconsideration before the SEC was not pro
forma; thus, its filing tolled the appeal period. The Gochans moved for reconsideration
but were denied in a Resolution dated 18 December 1997. The Gochans filed the
Petition for Review on Certiorari.

Issue:

Whether or not the Spouses UY may file a derivative suit

Held:

Yes, it is a derivative suit. The allegations of injury to the Spouses Uy can coexist with
those pertaining to the corporation. The personal injury suffered by the spouses cannot
disqualify them from filing a derivative suit on behalf of the corporation. It merely gives
rise to an additional cause of action for damages against the erring directors. This
cause of action is also included in the Complaint filed before the SEC.

Where corporate directors have committed a breach of trust either by their frauds, ultra
vires acts, or negligence, and the corporation is unable or unwilling to institute suit to
remedy the wrong, a single stockholder may institute that suit, suing on behalf of
himself and other stockholders and for the benefit of the corporation, to bring about a
redress of the wrong done directly to the corporation and indirectly to the stockholders.

The Spouses Uy have the capacity to file a derivative suit in behalf of and for the
benefit of the corporation. The reason is that, as earlier discussed, the allegations of
the Complaint make them out as stockholders at the time the questioned transaction
occurred, as well as at the time the action was filed and during the pendency of the
action.

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.

> 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 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.