Maricalum Mining Corp. vs.
Florentino  Complainants and CeMPC (one of the cooperatives) Chairman Sitchon filed his complaint
Doctrine of Piercing the Corp. Veil | Date | GESMUNDO, J
Nature of Case: Consolidated cases for Appeal by Certiorari
Digest maker: GDA (sorry guys really long case with a lot of lists)
SUMMARY: This is a consolidated case assailing the propriety of a CA decision. G
Holdings acquired certain shares and property of Maricalum Mining as well as taking
control of latter’s management and operations. The issue in this case stems from an issue
wherein EEs of Maricalum were forced to form cooperatives and were later on illegally
terminated. Complainants argue that the cooperatives they were forced to form were mere
alter egos of G Holdings and that the latter is liable to them for damages for illegal
termination. G Holdings argue that they are not liable but rather Maricalum should be
impleaded. LA ruled G Holdings is liable but NLRC modified saying it was Maricalum, the
latter decision being affirmed by CA. SC ruled that CA erred in piercing the corporate veil.
They laid down several tests but ultimately said that it failed 2/3 tests laid down to be able
to pierce the corp. veil (it only passed Control test, not Fraud and Harm). Thus,
complainants cannot bring an action against G Holdings (the parent company) for the
liability of Maricalum (the subsidiary)
DOCTRINE: A subsidiary company's separate corporate personality may be disregarded
only when the evidence shows that such separate personality was being used by its parent
or holding corporation to perpetrate a fraud or evade an existing obligation. Concomitantly,
employees of a corporation have no cause of action for labor-related claims against another
unaffiliated corporation, which does not exercise control over them.
FACTS:
 The dispute traces its roots back to when the Philippine National Bank (PNB, a former
government-owned-and-controlled corporation) and the Development Bank of the
Philippines (DBP) transferred its ownership of Maricalum Mining to the National
Government for disposition or privatization because it had become a non-performing
asset.
 National Government thru the Asset Privatization Trust (APT) executed a Purchase and
Sale Agreement (PSA) with G Holdings
o G Holding bought 90% of Maricalum Mining's shares and financial claims in
the form of company notes.
o Concomitantly, G Holdings also assumed Maricalum Mining's liabilities in the
ISSUE/S & RATIO:
form of company notes.
1. WON CA erred in allowing the piercing of the corporate veil against PET – YES
 Upon the signing of the PSA and paying the stipulated down payment, G Holdings
immediately took physical possession of Maricalum’s Sipalay Mining Complex, as well
as its facilities, and took full control of the latter's management and operations.
 Subsequently, the Sipalay General Hospital, Inc. (Sipalay Hospital) was duly incorporated
to provide medical services and facilities to the general public.
o Afterwards, some of Maricalum Mining's employees retired and formed several
manpower cooperatives (there were 5 in total)
 Each of the cooperatives executed identical Memorandum of Agreements with Maricalum
wherein they will provide the latter with a steady supply of workers, machinery and
equipment for a monthly fee.
 Maricalum informed the cooperatives that it decided to stop its mining and milling
operations in order to avert continuing losses brought about by the low metal prices and
high cost of production.
 The properties of Maricalum, which had been mortgaged to secure the PNs, were
extrajudicially foreclosed and eventually sold to G Holdings as the highest bidder
 Some of Maricalum’s workers, including complainants, and some of Sipalay General
Hospital's employees jointly filed a Complaint with the LA against G Holdings for illegal
dismissal and other labor-related claims (Case 1)
for illegal dismissal and corresponding monetary claims with the LA against G Holdings,
its officer-in-charge and CeMP. Thereafter, the complaints were consolidated by the LA.
(Case 2)
 Complainants: Claimed that G holdings had full control over them and their services were
terminated by Maricalum as part of its retrenchment program.
o They claimed that they were forced to form a cooperative and they were
"rehired" only after their respective manpower cooperative services were
formed.
o The manpower cooperatives were mere alter egos of G Holdings organized
 G Holdings, being the parent company) argued (among others) that:
o They had no control because No EE-ER
o Maricalum should have been impleaded because it is supposed to be the
indispensable party in the present suit;
o Maricalum as well as the manpower cooperatives, each have distinct legal
personalities and that their individual corporate liabilities cannot be imposed
upon each other;
 LA ruled in favor of complainants: complainants effectively became the employees of G
Holdings because their work had changed from assisting in the mining operations to
safeguarding the properties in the Sipalay Mining Complex, which had already been
acquired by G Holding.
o G Holdings connived with Marcalum Mining in orchestrating the formation of
manpower cooperatives to circumvent complainants' labor standards rights
 NLRC: Modified LA. Imposed liability of paying the monetary awards against the
corporation Maricalum, not G Holdings: (Important)
o It was Maricalum-not G Holdings- who entered into service contracts by way of
a MOA with each of the manpower cooperatives;
o complainants continued rendering their services at the insistence of Maricalum
through their cooperatives;
o Maricalum never relinquished possession over the Sipalay Mining Complex;
o Maricalum continuously availed of the services of complainants through their
respective manpower cooperatives;
o in a previous case, the Court already held that G Holdings and Maricalum
Mining have separate and distinct corporate personalities.
 CA: Affirmed decision of NLRC
a. The doctrine of piercing the corporate veil applies only in three (3) basic areas:
Defeat of public convenience as when the corporate fiction is used as a vehicle
for the evasion of an existing obligation, Fraud cases, Alter ego cases
b. Complainants mainly harp their cause on the alter ego theory. Under this
theory, piercing the veil of corporate fiction may be allowed only if the
following elements concur:
i. Control-not mere stock control, but complete domination-not only of
finances, but of policy and business practice in respect to the
transaction attacked, must have been such that the corporate entity as
to this transaction had at the time no separate mind, will or existence
of its own;
ii. Such control must have been used by the defendant to commit a fraud
or a wrong, to perpetuate the violation of a statutory or other positive
legal duty, or a dishonest and an unjust act in contravention of
plaintiffs legal right; and
iii. the said control and breach of duty must have proximately caused the
injury or unjust loss complained of.
 c. In relation to the elements above, SC laid down the jurisprudential tests for
piercing, to wit – (check notes for further discussion)
i. Control Test
 There is no doubt that G Holdings — being the majority and
controlling stockholder — had been exercising signifcant
control over Maricalum Mining. This is because this Court
had already upheld the validity and enforceability of the
PSA between the APT and G Holdings
ii. Fraud Test
 No clear and convincing evidence was presented by the
complainants to conclusively prove the presence of fraud on
the part of G Holdings.
iii. Harm Test
 In the case at bench, complainants have not yet even
suffered any monetary injury. They have yet to enforce
their claims against Maricalum.
d. Hence, in order for a parent corporation to be held liable for the obligations or
liabilities of its subsidiary, all three (3) tests must be satisfied. "Piercing of the
corporate veil" cannot be done when only one or two of the said tests have been
satisfied.
e. Only one of the three (3) tests was met (particularly, control). The complainants
therein (who claimed to be employees of the subsidiary) failed to prove that the
parent purposely used the separate corporate fiction of its subsidiary to defraud
them; neither were complainants able to show any harm inflicted upon them,
which was proximately caused by the control of the parent over the subsidiary.
f. In other words, while control was undoubtedly present in this case, there was
neither fraud done nor harm inflicted.
i. Hence, the complainants were held unable to proceed against the
parent corporation for supposed liabilities of its subsidiary, in
keeping with the principle of separate and distinct juridical
personalities of corporations
ii. See doctrine
RULING: Wherefore, CA Affirmed.
Leonen Dissent:
DISSENT as to the ruling that the corporate veil should not be pierced. I maintain that the doctrine of
piercing the corporate veil properly applies and that G Holdings, Inc. should be held liable with Maricalum
Mining Corporation
G Holdings did not merely own Maricalum Mining sa holding company. It had a say in its processes and
procedures. Thus, it cannot claim to be innocent. It cannot participate in the illegal disn;issal of employees
and thereafter hide behind its separate corporate personality to avoid the liability arising from it. The
elements of control, bad faith, and injury are present in the case at bar.
Moreover, assuming that the case does not fall within the purview of fraud or alter-ego cases, the doctrine
of piercing the corporate veil still applies when the separate personality of the corporation is being used to
"defeat public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation. It is established that the relations between capital and labor are impressed with public interest,
with the working class usually at a disadvantage. Thus, in case of doubt, courts rule in favor of labor.
NOTE:
1. Control or Instrumentality Test - it must be shown that the parent corporation sought to be held
liable has complete domination over its subsidiary, such that the latter essentially has no
separate "will" or existence of its own. This contol, to be clear, is not mere stock control or control
of finances, but also of policy and business practice, among others;
2. Fraud Test - the control by the parent of its subsidiary must be used to commit a fraud or a
wrong, or to perpetuate the violation of a statutory or other positive legal duty, or a dishonest
and an unjust act in contravention of the complainant's legal right. In other words, it must be
shown that the corporate vehicle is being used by the parent corporation to defraud the public or
to commit a wrong;
To aid in the determination of the presence or absence of fraud, the following factors in the
"Totality of Circumstances Test" may be considered,
a. Commingling of funds and other assets of the corporation with those of the
individual shareholders;
b. Diversion of the corporation's funds or assets to non-corporate uses (to the personal
uses of the corporation's shareholders);
c. Failure to maintain the corporate formalities necessary for the issuance of or
subscription to the corporation's stock, such as formal approval of the stock issue by
the board of directors;
d. An individual shareholder representing to persons outside the corporation that he or
she is personally liable for the debts or other obligations of the corporation;
e. Failure to maintain corporate minutes or adequate corporate records;
f. Identical equitable ownership in two entities;
g. Identity of the directors and officers of two entities who are responsible for
supervision and management (a partnership or sole proprietorship and a corporation
owned and managed by the same parties);
h. Failure to adequately capitalize a corporation for the reasonable risks of the corporate
undertaking; SDAaTC
i. Absence of separately held corporate assets;
j. Use of a corporation as a mere shell or conduit to operate a single venture or some
particular aspect of the business of an individual or another corporation;
k. Sole ownership of all the stock by one individual or members of a single family;
l. Use of the same office or business location by the corporation and its individual
shareholder(s);
m. Employment of the same employees or attorney by the corporation and its
shareholder(s);
n. Concealment or misrepresentation of the identity of the ownership, management or
Financial interests in the corporation, and concealment of personal business activities
of the shareholders (sole shareholders do not reveal the association with a
corporation, which makes loans to them without adequate security);
o. Disregard of legal formalities and failure to maintain proper arm's length
relationships among related entities;
p. Use of a corporate entity as a conduit to procure labor, services or merchandise for
another person or entity;
q. Diversion of corporate assets from the corporation by or to a stockholder or other
person or entity to the detriment of creditors, or the manipulation of assets and
liabilities between entities to concentrate the assets in one and the liabilities in
another;
r. Contracting by the corporation with another person with the
s. intent to avoid the risk of nonperformance by use of the corporate entity; or the use
of a corporation as a subterfuge for illegal transactions; and
The formation and use of the corporation to assume the existing liabilities of another person or
entity
3. Harm Test - the control and breach of duty must be the proximate cause of the injury or loss
complained of