1. CHINA BANKING CORPORATION, vs.

DYNE-SEM ELECTRONICS
CORPORATION,

Facts: On 1985, Dynetics, Inc. and Elipidio Lim borrowed an amount of P 8,939,000 from
petitioner China Banking Corporation which was evidenced by six promissory notes. When
the borrowers failed to pay the obligations when they became due, these instances prompted
China Bank to file a complaint for sum of money. However, summons were not served on
Dynetics because it had already closed down. On the other hand, Lim also denied the fact
that he promised to pay the obligation jointly and severally with Dynetics.

Furthermore, an amended complaint was filed impleading Dyne Sem and its
stockholders, Vicente Chuidian, Antonio Garcia and Jacob Ratinoff, on the ground that Dyne
Sem was allegedly formed to be Dynetics’s alter ego. The argument was supported by the
fact that they are both engaged in the same line of business, they both have the same
principal office and factory site and lastly, by the acquisition of some of the machineries of
Dynetics by Dyne Sem.

Issues:
1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the case
2. Whether or not the acquisition of Dyne-Sem of some machineries and equipment of Dynetics
was to defraud the creditor

Ruling
1. No. The doctrine of piercing the veil of corporate fiction is not applicable because it may
only be lifted when such personality is merely a business conduit or an alter ego of another
corporation 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; or when the corporation is used as a cloak or cover for fraud or illegality, or to
work injustice, or where necessary to achieve equity or for the protection of the creditors.

It was not proven that Dyne-Sem was organized and controlled, and its affairs conducted, in
a manner that made it merely an instrumentality, agency, conduit or adjunct of Dynetics, or
that it was established to defraud Dynetics’ creditors, including China Bank. Furthermore,
the similarity of business of Dyne-Sem and Dynetics does not certify that the former was an
agent of the latter. All facts must be proven clearly and convincingly to disregard the
separate juridical personality of a corporation.

2. No. Dyne-Sem’s acquisition of some of the machineries and equipment of Dynetics was not a
proof that the former was formed to defraud the creditor, China Bank. There was no merger
that took place between Dyne-Sem and Dynetics, and the transaction was merely a sale of the
assets of the former to the latter. When one corporation sells or otherwise transfers all its
assets to another corporation for value, the latter is not, by the fact alone, liable for the debts
and liabilities of the transferor.

Dyne-Sem admitted that it had acquired machineries and equipment indirectly rom Dynetics
through an auction sale of various corporations. The machineries and equipment were
transferred and disposed of by the winning bidders in their capacity as owners. The sales
were therefore valid and the transfers of the properties to respondent legal and not in any
way in contravention of petitioner’s rights as Dynetics’ creditor.
2. Yutivo Sons Hardware Co vs CTA
Facts: Yutivo is a domestic corporation engaged in importation and sale of hardware
supplies and equipment. After the liberation in 1946, resumed its business and until 1946
bout a number of cars and trucks from General Motors (GM), an American corporation doing
business in the Philippines. As importer, GM paid sales tax prescribed by the Tax Code on
the basis of its selling price to Yutivo. Yutivo paid no further sales tax on its sales to the
public.
In June 1946, Southern Motors (SM) organized to engage in the business of selling cars,
trucks and spare parts. One of its major subscribers is Yu Tiong Yee, a founder of Yutivo.
After the incorporation of SM and until the withdrawal of GM from Phil, the cars and trucks
were purchased by Yutivo from GM then sold by Yutivo to Sm and then SM sold these to the
public.
The same way that GM used to pay taxes on the basis of its sales to Yutivo, Yutivo paid
taxes on the basis of its sales to SM. SM paid no taxes on its sales to the public.
CIR made an assessment and charged Yutivo 1.8M as deficiency tax plus surcharge.
Petitioner contested before CTA. CTA ruled that SM is a mere subsidiary or instrumentality of
Yutivo, hence, its separate corporate existence must be disregarded.
Issue: WON Yutivo and SM are two separate entities.
Held: Yes.
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 corporation petitions 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 the case of two corporations merge them into one.
Another rule is that, when the corporation is the "mere alter ego or business conduit of a
person, it may be disregarded.
However, the Court here held that they are inclined to rule that the Court of Tax Appeals was
not justified in finding that SM was organized for no other purpose than to defraud the
Government of its lawful revenues. In the first place, this corporation was organized in June,
1946 when it could not have caused Yutivo any tax savings. From that date up to June 30,
1947, or a period of more than one year, GM was the importer of the cars and trucks sold to
Yutivo, which, in turn resold them to SM. During that period, it is not disputed that GM as
importer, was the one solely liable for sales taxes. Neither Yutivo or SM was subject to the
sales taxes on their sales of cars and trucks. The sales tax liability of Yutivo did not arise until
July 1, 1947 when it became the importer and simply continued its practice of selling to SM.
The decision, therefore, of the Tax Court that SM was organized purposely as a tax evasion
device runs counter to the fact that there was no tax to evade.
3. MARUBENI CORPORATION VS. LIRAG, 362 SCRA 620 (2001)
G.R.NO. 130998

FACTS OF THE CASE

Petitioner Marubeni Corporation is a foreign corporation organized and existing under the laws of
Japan. It was doing business in the Philippines through its duly licensed, wholly owned subsidiary
companies.
On January 27, 1989, respondent Felix Lirag filed with the Regional Trial Court, Makati a complaint for
specific performance and damages claiming that petitioners owed him the sum of P6, 000,000.00
representing commission pursuant to an oral consultancy agreement with Marubeni.
The consultancy agreement was not reduced into writing because of the mutual trust between
Marubeni and the Lirag family. Their close business and personal relationship dates back to 1960,
when respondent’s family was engaged in the textile fabric manufacturing business, in which
Marubeni supplied the needed machinery, equipment, spare parts and raw materials.
In compliance with the agreement, respondent Lirag made representations with various government
officials, arranged for meetings and conferences, relayed pertinent information as well as submitted
feasibility studies and project proposals, including pertinent documents required by petitioners. As
petitioners had been impressed with respondent’s performance, six (6) additional projects were given
to his group under the same undertaking.
One of the projects handled by respondent Lirag, the Bureau of Post project, amounting to P100,
000,000.00 was awarded to the “Marubeni-Sanritsu tandem.” Despite respondent’s repeated formal
verbal demands for payment of the agreed consultancy fee, petitioners did not pay. In response to
the first demand letter, petitioners promised to reply within fifteen (15) days, but they did not do so.
On April 29, 1993, the trial court promulgated a decision and ruled that respondent is entitled to a
commission. Respondent was led to believe that there existed an oral consultancy
agreement. Hence, he performed his part of the agreement and helped petitioners get the project.
The Court of Appeals relied on the doctrine of admission by silence in upholding the existence of a
consultancy agreement, noting that petitioner Tanaka’s reaction to respondent’s September 26, 1988
demand letter was not consistent with their claim that there was no consultancy agreement. On the
contrary, it lent credence to respondent’s claim that they had an existing consultancy agreement.
The Court of Appeals observed that if indeed there were no consultancy agreement, it would have
been easy for petitioners to simply deny respondent’s claim. Yet, they did not do so. The
conglomeration of these circumstances bolstered the existence of the oral consultancy agreement.

ISSUE
In this appeal, petitioners raise the following issues: (1) whether or not there was a consultancy
agreement between petitioners and respondent; and corollary to this, (2) whether or not respondent is
entitled to receive a commission if there was, in fact, a consultancy agreement

RULING
Wherefore, the petition is granted. The decision of the court of appeals is hereby set aside. Civil
Case No. 89-3037 filed before the Regional Trial Court, Branch 143, Makati City is hereby dismissed.
No costs. An assiduous scrutiny of the testimonial and documentary evidence extant leads us to the
conclusion that the evidence could not support a solid conclusion that a consultancy agreement, oral
or written, was agreed between petitioners and respondent. Respondent attempted to fortify his own
testimony by presenting several corroborative witnesses. However, what was apparent in the
testimonies of these witnesses was the fact that they learned about the existence of the consultancy
agreement only because that was what respondent told them. In civil cases, he who alleges a fact has
the burden of proving it; a mere allegation is not evidence. He must establish his cause by a
preponderance of evidence, which respondent failed to establish in the instant case. Any agreement
entered into because of the actual or supposed influence which the party has, engaging him to
influence executive officials in the discharge of their duties, which contemplates the use of personal
influence and solicitation rather than an appeal to the judgment of the official on the merits of the
object sought is contrary to public policy. Consequently, the agreement, assuming that the parties
agreed to the consultancy, is null and void as against public policy. Therefore, it is unenforceable
before a court of justice. In light of the foregoing, we rule that the preponderance of evidence
established no consultancy agreement between petitioners and respondent from which the latter
could anchor his claim for a six percent (6%) consultancy fee on a project that was not awarded to
petitioners.
4. Lim vs Court of Appeals
323 SCRA 102 [GR No. 124715 January 24, 2000]

Facts: Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose estate is the subject of
probate proceedings in special proceedings Q-95-23334 entitled, “In re: Intestate Estate Of Pastor Y. Lim
Rufina Luy Lim, represented by George Luy, petitioner.” Private respondents auto truck corporation, alliance
marketing corporation, speed distributing inc, active distributing inc, and action company are corporations
formed, organized and existing under Philippine laws and which owned real properties covered under the
Torrens system. On June 11, 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly
represented by her nephew, George Luy filed on March 17, 1995, a joint petition for the administration of the
estate of Pastor Y. Lim before the Regional Trial Court of Quezon City. Private respondents corporations whose
properties were included in the inventory of the estate of Pastor Y. Lim, then filed a motion for the lifting of his
pendens an motion for exclusion of certain properties fromthe estate of the decedent.

Issue: Whether or not the doctrine of piercing the veil of corporate entity is applicable to be able to include in
the probate proceedings the company formed by deceased Pastor Y. Lim.

Held: No. It is settled that a corporation is clothed with personality separate and distinct from that of the
persons composing it. It may not generally be held liable for that of the persons composing it. It may not be held
liable for the personal indebtedness of its stockholders or those of the entities connected with it.

Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its
stockholders or members. In the same vein, a corporation by legal fiction and convenience is an entity shielded
by protective mantle and imbued with by law with a character alien to the persons comprising it.

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 subject to, or distinguishes one corporation from a
seemingly separate one, were it not for the existing corporate fiction.

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter
ego of a person or of another corporation. Where badges of fraud exist, where public convenience is defeated;
where a wrong is sought to be justified thereby, the corporate fiction or the notion of the legal entity should
come to naught.

Further, the test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows: 1.) Control, not merely the majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as
to this transaction had at the time so separate mind, will or existence of its own; 2.) Such control must have been
used by the defendant to commit fraud on wrong to perpetuate the violation of a statutory or other positive legal
duty, on dishonest and unjust act in contravention of plaintiffs legal right; and 3.) The aforesaid control and
breach of duty must proximately cause the injury or unjust loss complained of. The absence of any of these
elements prevent “piercing the corporate veil.”

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 a sufficient reason for disregarding the fiction of separate personalities.

Moreover, to disregard the separate juridical personality of a corporation, the wrong doing must be clearly and
convincingly established, it cannot be presumed.

5. Del Rosario vs National Labor Relations Commission

187 SCRA 777 [GR No. 85416 July 24, 1990]

Facts: In POEA case no. 85-06-0394, the Philippine Overseas Employment Administration (POEA)
promulgated a decision on February 4,1986 dismissing the complaint for money claims for lack of
merit. The decision was appealed to the NLRC, which on April 30, 1987 reversed the POEA decision
and ordered Philsa Construction and Trading Co.Ind and Ariel Enterprises (the foreign employer) to
jointly and severally pay private respondent the peso equivalent of $16,039,000 salary differentials and
$2,420.03 as vacation leave benefits. A writ of execution was issued by the POEA but it was returned
unsatisfied incapable of satisfying the judgement. Private respondent moved for the issuance of an
alias writ against the officers of Philsa. This motion was opposed by the officers led by petitioners, the
president and general manager of the corporation. However, POEA issued a resolution ordering the
sheriff to execute against the properties of the petitioner and if insufficient, against the cash and/or
surety bond of bonding company concerned for the full satisfaction of the judgement awarded.

Issue: Whether or not the POEA resolution is proper.

Held: No. Under the law, a corporation is bestowed juridical personality, separate and distinct from its
stockholders. But when the juridical personality of the corporation is used to defeat public
convenience, justify wrong, protect or defend crime, the corporation shall be considered as a mere
association of persons and its responsible officers and/or stockholders shall be individually liable. For
the same reasons, a corporation shall be liable for obligations of a stockholder or a corporation and its
successor-in-interest shall be considered as one and the liability of the former shall attach to the latter.

But for the separate juridical personality of a corporation to be disregarded, the wrong doing must be
clearly and convincingly established. It cannot be presumed.

Thus, at the time Philsa allowed its license to lapse in 1985 and even at the time it was delivered in
1986, there was yet no judgement in favor of private respondent. An intent to evade payment of his
claims cannot therefore be implied from the expiration of Phila’s license and its delisting.

Neither will the organization of Philsa International Placement and Services Corp. and its registration
with the POEA as a private employment agency imply fraud since it was organized and registered in
1981, several years before private respondent filed his complaint with the POEA in 1985. The creation
of the second anticipation of private respondent’s money claims and the consequent adverse judgement
against Philsa.

Likewise, substantially identity of the incorporators of the two corporations does not necessarily imply
fraud.
6. Manuel R. Dulay Enterprises vs. Court of Appeals
225 SCRA 678 27 August 1993

FACTS:
Manuel R.Dulay Enterprises, Inc., a domestic corporation with the following as members of
its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president,
treasurer and general manager; Atty. Virgilio E. Dulay with 10 shares and designated as vice-
president; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty.
Plaridel C. Jose with 10 shares and designated as secretary, owned a property known as
Dulay Apartment consisting of 16 apartment units in Pasay City.

Manuel Dulay by virtue of Board Resolution 18 of the corporation sold the subject property to
spouses Maria Theresa and Castrense Veloso. Subsequently, Manuel Dulay and the
spouses Veloso executed a Memorandum to the Deed of Absolute Sale giving Manuel Dulay
within 2 years to repurchase the subject property which was, however, not annotated.
Thereafter, Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject
property to Manuel A. Torres which was duly annotated. Upon the failure of Maria Veloso to
pay Torres, the subject property was sold to Torres as the highest bidder in an extrajudicial
foreclosure sale.

Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in favor of
Manuel Dulay assigning her right to repurchase the subject property from Torres. Neither
Veloso nor her assignee Dulay was able to redeem the subject property within the one year
statutory period for redemption. Torres then filed a petition for the issuance of a writ of
possession against spouses Veloso and Manuel Dulay. However, when Virgilio Dulay
appeared in court to intervene in said case alleging that Manuel Dulay was never authorized
by the corporation to sell or mortgage the subject property, the trial court ordered Torres to
implead the corporation as an indispensable. Torres and Edgardo Pabalan, real estate
administrator of Torres, filed an action against the corporation, Virgilio Dulay and
Nepomuceno Redovan, a tenant of Dulay Apartment for the recovery of possession, sum of
money and damages with preliminary injunction.

ISSUE:
Whether the sale of the subject property between spouses Veloso and Manuel Dulay has no
binding effect on the corporation as Board Resolution 18 which authorized the sale of the
subject property was resolved without the approval of all the members of the board of
directors and said Board Resolution was prepared by a person not designated by the
corporation to be its secretary.

HELD:
The corporation's claim that the sale of the subject property by its president, Manuel Dulay, to
spouses Veloso is null and void as the alleged Board Resolution 18 was passed without the
knowledge and consent of the other members of the board of directors cannot be sustained.

Section 101 of the Corporation Code of the Philippines provides that "When board meeting is
unnecessary or improperly held. Unless the by-laws provide otherwise, any action by the
directors of a close corporation without a meeting shall nevertheless be deemed valid if: (1)
Before or after such action is taken, written consent thereto is signed by all the directors; or
(2) All the stockholders have actual or implied knowledge of the action and make no prompt
objection thereto in writing; or (3) The directors are accustomed to take informal action with
the express or implied acquiesce of all the stockholders; or (4) All the directors have express
or implied knowledge of the action in question and none of them makes prompt objection
thereto in writing. If a directors' meeting is held without proper call or notice, an action taken
therein within the corporate powers is deemed ratified by a director who failed to attend,
unless he promptly files his written objection with the secretary of the corporation after having
knowledge thereof."

Herein, the corporation is classified as a close corporation and consequently a board

resolution authorizing the sale or mortgage of the subject property is not necessary to bind
the corporation for the action of its president. At any rate, a corporate action taken at a board
meeting without proper call or notice in a close corporation is deemed ratified by the absent
director unless the latter promptly files his written objection with the secretary of the
corporation after having knowledge of the meeting which, in this case, Virgilio Dulay failed to
do.

In ordinary parlance, the said entity is loosely referred to as a "family corporation." The
nomenclature, if imprecise, however, fairly reflects the cohesiveness of a group and the
parochial instincts of the individual members of such an aggrupation of which Manuel R.
Dulay Enterprises, Inc. is typical: four-fifths of its incorporators being close relatives namely,
3 children and their father whose name identifies their corporation. Besides, the fact that
Virgilio Dulay executed an affidavit that he was a signatory witness to the execution of the
post-dated Deed of Absolute Sale of the subject property in favor of Torres indicates that he
was aware of the transaction executed between his father and Torres and had, therefore,
adequate knowledge about the sale of the subject property to Torres. Consequently, the
corporation is liable for the act of Manuel Dulay and the sale of the subject property to Torres
by Manuel Dulay is valid and binding.
 7. Manila Hotel Corporation vs National Labor Relations Commission

In May 1988, Marcelo Santos was an overseas worker in Oman. In June 1988, he was
recruited by Palace Hotel in Beijing, China. Due to higher pay and benefits, Santos agreed to
the hotel’s job offer and so he started working there in November 1988. The employment
contract between him and Palace Hotel was however without the intervention of the
Philippine Overseas Employment Administration (POEA). In August 1989, Palace Hotel
notified Santos that he will be laid off due to business reverses. In September 1989, he was
officially terminated.
In February 1990, Santos filed a complaint for illegal dismissal against Manila Hotel
Corporation (MHC) and Manila Hotel International, Ltd. (MHIL). The Palace Hotel was
impleaded but no summons were served upon it. MHC is a government owned and controlled
corporation. It owns 50% of MHIL, a foreign corporation (Hong Kong). MHIL manages the
affair of the Palace Hotel. The labor arbiter who handled the case ruled in favor of Santos.
The National Labor Relations Commission (NLRC) affirmed the labor arbiter.
ISSUE: Whether or not the NLRC has jurisdiction over the case.
HELD: No. The NLRC is a very inconvenient forum for the following reasons:
1. The only link that the Philippines has in this case is the fact that Santos is a Filipino;
2. However, the Palace Hotel and MHIL are foreign corporations – MHC cannot be held liable
because it merely owns 50% of MHIL, it has no direct business in the affairs of the Palace
Hotel. The veil of corporate fiction can’t be pierced because it was not shown that MHC is
directly managing the affairs of MHIL. Hence, they are separate entities.
3. Santos’ contract with the Palace Hotel was not entered into in the Philippines;
4. Santos’ contract was entered into without the intervention of the POEA (had POEA
intervened, NLRC still does not have jurisdiction because it will be the POEA which will hear
the case);
5. MHIL and the Palace Hotel are not doing business in the Philippines; their agents/officers
are not residents of the Philippines;
Due to the foregoing, the NLRC cannot possibly determine all the relevant facts pertaining to
the case. It is not competent to determine the facts because the acts complained of
happened outside our jurisdiction. It cannot determine which law is applicable. And in case a
judgment is rendered, it cannot be enforced against the Palace Hotel (in the first place, it was
not served any summons).
The Supreme Court emphasized that under the rule of forum non conveniens, a Philippine
court or agency may assume jurisdiction over the case if it chooses to do so provided:
(1) that the Philippine court is one to which the parties may conveniently resort to;
(2) that the Philippine court is in a position to make an intelligent decision as to the law and
the facts; and
(3) that the Philippine court has or is likely to have power to enforce its decision.
None of the above conditions are apparent in the case at bar.
8. PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK (now BANCO DE
ORO-EPCI, INC.) v. DENNIS CUSTODIO, et al. 545 SCRA 367 (2008)

A corporation has personality separate and district from those who compose it.

FACTS:

Rolando Francisco (Francisco) and his wife, on behalf of Traders Group Corporation (ROL-
ED), entered into a Foreign Bills Purchase Line Agreement (FBPLA) with the PCIB-Greenhills
bank to which Spouses Francisco deposited four dollar checks. The checks were cleared and
paid by Chase Manhattan Bank but they were subsequently dishonored
for insufficient funds. Chase Manhattan Bank thus debited the amount of the dishonored
checks from the account of PCIB-Greenhills which it maintained with it. Having received
notice of the debiting from its account, PCIB-Greenhills in turn debited from Francisco’s joint
account the partial payment of the dishonored checks. In the meantime, Wilfredo Gliane
remitted US$42,300 to the above-said joint account of Francisco at the PCIB-Greenhills but
it was no longer feasible as the amount had already been applied as partial payment of
Francisco’s outstanding obligation with PCIB-Greenhills. A complaint against PCIB and
Francisco for specific performance and damages was subsequently filed before the Regional
Trial Court (RTC) of Makati to recover the remittance. The RTC held PCIB solely liable to pay
the sum of US$42,300 and decreed that PCIB had the right of reimbursement of the amount
from Francisco. On appeal, the Court of Appeals freed PCIB from liability and ruled that
Francisco is solely liable thereof. Hence, this petition. Francisco contends that he has a
separate personality from ROL-ED.

ISSUE:

Whether or not the separate and distinct legal personality of Francisco from ROL-ED be
considered in determining his liability.

HELD:

While Francisco claims that the loan in question was that of ROL-ED and not his, he,
as earlier stated, deposited the US$651,000 checks in his joint account with Erlinda and not
in the account of ROL-ED. At all events, while a corporation is clothed with a personality
separate and distinct from the persons composing it, the veil of separate corporate
personality may be lifted when it is used as a shield to confuse legitimate issues, or where
lifting the veil is necessary to achieve equity or for the protection of the creditors. In the case
at bar, there can be no mistake that Francisco belatedly invoked the separate identity of ROL-
ED to evade his liability to PCIB.
9. TAN BOON BEE & CO., INC.,
vs.
THE HONORABLE HILARION U. JARENCIO, GRAPHIC PUBLISHING, INC., and
PHILIPPINE AMERICAN CAN DRUG COMPANY,

FACTS: Petitioner herein, doing business under the name and style of Anchor Supply Co.,
sold on credit to herein private respondent Graphic Publishing, Inc. (GRAPHIC for short)
paper products. For failure of GRAPHIC to pay any installment, as agreed on the contract of
sale, petitioner filed with the then Court of First Instance of Manila for sum of Money. The trial
court ordered GRAPHIC to pay the petitioner. On motion of petitioner, a writ of execution was
issued and the executing sheriff levied upon one (1) unit printing machine Identified as
"Original Heidelberg Cylinder Press" Type H 222, NR 78048, found in the premises of
GRAPHIC but herein private respondent, Philippine American Drug Company (PADCO for
short) had informed the sheriff that the printing machine is its property and not that of
GRAPHIC however the sheriff proceeded with the scheduled auction sale, sold the property
to the petitioner. PADCO filed an "Affidavit of Third Party Claim" with the Office of the City
Sheriff. Thereafter, PADCO filed with the Court of First Instance of Manila, a Motion to Nullify
Sale on Execution (With Injunction) which was opposed by the petitioner. Respondent judge
ruled in favor of PADCO hence the instant petition. Plaintiff contends that the controlling
stockholders of the Philippine American Drug Co. are also the same controlling stockholders
of the Graphic Publishing, Inc. and, therefore, the levy upon the said machinery which was
found in the premises occupied by the Graphic Publishing, Inc. should be upheld.

ISSUE: Whether or not there is need to pierce the corporate veil.

HELD: It is true that a corporation, upon coming into being, is invested by law with a
personality separate and distinct from that of the persons composing it as well as from any
other legal entity to which it may be related. As a matter of fact, the doctrine that a
corporation is a legal entity distinct and separate from the members and stockholders who
compose it is recognized and respected in all cases which are within reason and the law.
However, this separate and distinct personality is merely a fiction created by law for
convenience and to promote justice. Accordingly, 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 or when necessary for the protection of creditors. Likewise, this is true when the
corporation is merely an adjunct, business conduit or alter ego of another corporation. In
such case, the fiction of separate and distinct corporation entities should be disregarded.

In the instant case, petitioner's evidence established that PADCO was never engaged in the
printing business; that the board of directors and the officers of GRAPHIC and PADCO were
the same; and that PADCO holds 50% share of stock of GRAPHIC. Petitioner likewise
stressed that PADCO's own evidence shows that the printing machine in question had been
in the premises of GRAPHIC since May, 1965, long before PADCO even acquired its alleged
title on July 11, 1966 from Capitol Publishing. That the said machine was allegedly leased by
PADCO to GRAPHIC on January 24, 1966, even before PADCO purchased it from Capital
Publishing on July 11, 1966, only serves to show that PADCO's claim of ownership over the
printing machine is not only farce and sham but also unbelievable.

Considering the principles and circumstances mentioned, respondent judge should have
pierced PADCO's veil of corporate Identity.
10. Lao vs NLRC

Facts:
Private respondents were filed complaints for illegal dismissal against petitioners with NLRC.
Respondents were hired for various periods as construction workers in different capacities
they described in the terms. They alternately worked for Tomas Lao Corp., Tomas and
James Developer, LVM Construction, altogether as Lao Group of Companies. They engaged
in construction of public roads and bridges. Each one would also allow the utilization of the
employees. With the arrangement workers were transferred whenever necessary to on-going
projects of the same company or rehired after the completion of the project or project phase
which they were assigned. In 1989 issued memorandum requiring all workers and company
personnel to sign employment contracts forms and clearances.

To ensure compliance with the directive, the company ordered the withholding of the salary
of any employee who refused to sign. All respondents refused to sign contending that this
scheme was designed by their employer to downgrade their status from their regular
employees to mere project employees. Their salaries were withheld. Since the workers
stood firm in their refusal to comply with the directives their services were terminated.

The NLRC dismissed the complaint finding that respondents were project employees whose
employees could be terminated upon the completion of the project. However the decision of
LA was reversed on appeal finding that respondents were regular employees who were
dismissed without just cause and denied due process. The petitioners expostulation is that
respondents have no valid cause to complain about their employment contracts since
documents formalized their status as project employees. They cite Policy Instruction No. 20
of DOLE which defines project employees as those employed in connection with particular
construction project.

ISSUE: W/N dismissal of private respondents were illegal

RULING: The court ruled that, the principal test in determining whether particular employees
are project employees distinguished from regular employees is whether the project
employees are assigned to carry out specific project or undertaking, the duration of which are
specified at the time of the employees are engaged for the project. Project in the realm of
industry and business refers to a particular job or undertaking that it is within the regular or
usual business of employer, but which is distinct and separate and identifiable as such from
the undertakings of the company. They allowed to workers hired for specific projects and
hence can be classified as project employees, the repeated re-hiring and the continuing need
for the services over a long span of time have undeniably made them regular employees.
Length of time may not be a controlling test for project employment, it can be a strong factor
in determining whether the employee was hired for a specific undertaking or in fact tasked to
perform functions which are vital, necessary and indispensable to the usual business or trade
of the employer. In the case at bar, private respondents had already gone through the status
of project employees. But their employments became non-coterminous with specific projects
when they started to be continuously re-hired due to demands of petitioners business and
were re-engaged for many more projects without interruption.

The denial by petitioners of the existence of a work pool in the company because their
projects were not continuous. A work pool may exist although the workers in the pool do not
receive salaries and are free to seek other employment during temporary breaks in the
business, provided that the worker shall be available when called to report for a project. The
court finds that the continuous re- hiring of of the same set of employees within the
framework is strongly indicative that private respondents were an integral part of a work pool
in which petitioners drew its workers for its various projects.

The court finally finds that the NLRC was correct in finding the workers were illegally
dismissed. Private respondents were dismissed because of insubordination or blatant refusal
to comply with lawful directive of their employer. But willful disobedience envisages the
concurrence of at least 2 requisites 1.) the employee’s assailed conduct must have been
willful or intentional b.) the order violated must have been reasonable, lawful .

The allegation of petioners that private respondents are guilty of abandonment of duty is
without merit. The elements of abandonment are a.) failure to report for work or absence
without valid or justifiable reason, b.) clear intention to sever the employer-employee
relationships. Private respondents did not intend to sever ties with petitioner and permanently
abandon their jobs.

The burden of proving that an employee has been lawfully dismissed lies with the employer.
In the case at bar, the assertions were self-serving and insufficient to substantiate their claim
of proximate project completion. The services of employees were terminated not because of
contract expiration but as sanction for their refusal to sign the project employment forms and
quitclaims.

The dismissal is without just cause, we find it unnecessary to dwell on the non-observance of
procedural due process.

Petition is denied and petitioners ordered to reinstate private respondents to their former
positions without loss of seniority rights and other privileges with full back wages, inclusive of
allowances, computed from the time compensation was withheld up to the time of actual
reinstatement.