1. ROXAS v. COURT OF APPEALS AND EUGENIA V.

ROXAS

FACTS:
- Respondent corporation (Heirs of Eugenia v. Roxas Inc.) prayed for the ejectment of petitioners
Rebecca Boyer-Roxas and Guillermo Roxas from buildings inside the Hidden Valley Springs
Resort in Calauan, Laguna, owned by Respondent Corporation.
- The Heirs of Eugenia Roxas alleged that Rebecca possessed 2 houses (one still under
construction, built at the corporation’s expense) and that her occupancy of the houses was only
upon the tolerance of the corporation
- The heirs also alleged that Guillermo occupies a house built at the expense of the corporation
during the time the Guilermo’s father, Edilberto, was still living and was the general manager of
the respondent corporation; that the house was originally meant to be a recreation hall but was
converted for Guillermo’s residential use, and that his occupation was only upon the tolerance
of the respondent corp.
- Respondent Corp alleged in both cases that the petitioners (Rebecca and Guillermo) never
paid rent for using the buildings and lots, and that they ignored the demands to vacate the
buildings
- In turn, Rebecca and Guillermo contended that they are heirs of Eugenia Roxas; hence, they
are co-owners of the Hidden Valley Springs Resort and have the right to stay therein.
- The Petitioners appealed to the CA which upheld the lower court’s decision

ISSUE:
W/N the CA erred when it refused to pierce the veil of corporate fiction over the respondent corporation
and maintain the petitioners in their possession considering that they own an aliquot portion of the
Hidden Valley Resort (Besides, the respondent itself discarded the mantle of corporate fiction by acts
or ommissions of its BoD/stockholders)

Evidence of the Respondent corporation

- The Heirs of Eugenia Roxas Corp. was incorporated on Dec. 4, 1962 with the primary purpose
of engaging in agriculture to develop the properties inherited from Eugenia Roxas and Eufrocina
Roxas
- The articles of incorporation was amended to allow it to engage in the resort business
- The incorporators (original members of the board of directors) were all members of the same
family; Eufrocino has the biggest share
- The Heirs of Eugenia ROas put up a resort (Hidden Valley Springs) on a portion of its land
- The house near the Balugbugan pool was occupied by Rebecca (originally was a staf house)
but later used as residence of Eriberto ( the deceased husband of Rebecca and father of
Guillermo)
- THE HOUSE BEING OCCUPIED BY REBECCA WAS BUILT FROM CORPORATE FUNDS
AND THE BUILDING BEING OCCUPIED BY GUILLERMO WAS INTENDED AS A REC HALL
BUT LATER CONVERTED INTO A RESIDENTIAL HOUSE
- The conversion of the rec hall into a residential house was known by Eufrocino and was not
objected to by the board of directors
- Eriberto was the general managaer when Eufrocino was still alive and they were the ones
running the corporation; and after Eufrocino died, Eriberto continued as the general manager
- After Eriberto died, Rebecca and Guillermo committed acts impeding the expansion of the
corporation and the operationof the resort
- The BoD adopted a resolution authorizing the ejectment of Rebecca and Guillermo from the
premises. Demand letters were sent to them; the dispute between the parties was not settled

RULING: PETITION PARTLY GRANTED

 - The corporation was incorporated on December 4, 1962 with the primary purpose of engaging
in agriculture to develop the inherited properties. The Articles of Incorporation of the respondent
corporation were amended in 1971 to allow it to engage in the resort business. Accordingly, the
corporation put up a resort known as Hidden Valley Springs Resort where the questioned
properties are located. These facts, however, do not justify the position taken by the
petitioners.
- The respondent is a bona fide corporation. As such, it has a juridical personality of its
own separate from the members composing it.
- There is no dispute that title over the questioned land where the Hidden Valley Springs
Resort is located is registered in the name of the corporation. The records also show
that the staff house being occupied by petitioner Rebecca Boyer-Roxas and the
recreation hall which was later on converted into a residential house occupied by
petitioner Guillermo Roxas are owned by the respondent corporation
- Regarding properties of a corporation:
- . . . 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 (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1,
123 N.W. 743). 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 (Hall &
Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the owner of any
part of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to
the possession of any definite portion of its property or assets (Gottfried V. Miller, 104 U.S.,
521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common
of the corporate property (Harton v. Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376)
- 2ND CONTENTION: Petitioners argue that their occupancy of buildings were blessings of
Eufrocino Roxas (the husband of Rebecca) and that their occupancy could no longer be
questioned by the stockholders:
o Again, we must emphasize that the respondent corporation has a distinct personality
separate from its members. The corporation transacts its business only through its
officers or agents. Whatever authority these officers or agents may have is derived from
the board of directors or other governing body unless conferred by the charter of the
corporation. An officer's power as an agent of the corporation must be sought from the
statute, charter, the by-laws or in a delegation of authority to such officer, from the acts
of the board of directors, formally expressed or implied from a habit or custom of doing
business
- There is nothing irregular in the resolution of the BoD ejecting the petitioners from their
occupancy of the Hidden Valley Springs compound because their stay in the premises
were only tolerated by the respondent corporation in deference to Eufrocino’s wishes,
who controlled and managed the corporation during his lifetime.
- Eufrocino’s actions could not have bound the corporation forever. The petitioners did
not site any provision of the by-laws or resolution which authorized Eufrocino to allow
the petitioners to stay forever within the premises
- IN THE ABSENCE OF ANY EXISTING CONTRACT BETWEEN REBECCA/GUILLERMO
(PETITIONERS) AND THE RESPONDENT CORPORATION, THE CORPORATION MAY
EJECT THE PETITIONERS ANY TME IT WISHES

ARGUMENT REGARDING PIERCING THE CORPORATE VEIL

o THE PETITIONERS’ ARGUMENT IS UNTENABLE
o THE SEPARATE PERSONALITY OF THE CORPORATION CAN ONLY BE
DISREGARDED WHEN THE CORPORATION IS BEING USED AS “A CLOAK TO
 COVER FOR FRAUD OR ILLEGALITY/TO WORK INJUSTICE, OR WHERE
NECESSARY TO PROTECT THE CREDITORS
o THE CIRCUMSTANCES IN THE PRESENT CASE DO NOT FALL UNDER THESE
CATEGORIES

JARDINE DAVIES INC. V JRB REALTY INC

FACTS:
- RESPONDENT JRB Realty built a nine-storey building (Blanco Center) in Makati. It needed an
aircon ditioning system for the law firm on the 2 nd floor of the building
- Thus, on March 13, 1980, JRB’s vice president, Jose Blanco, accepted the quotation of Mr. AG
Morrison (president of Aircon and Refrigireation Industries Inc.)for two sets of Fedders Aircon.
However, when the compressors were installed, the could not deliver the desired colling temp.
Despite adjustments, the respondent cincended that the technology for rotary compressors for
big capacity Aircons have bot been perfected
- The parties agreed to replace the units. Aircon Industries said that it would replace tehe units
as the earliest time but could not specify an exact date for the delivery
- TempControl systems (a subsidiary of Aircon) undertook the maintenance. Later, JRB realty
learned that Maxim Indsustrial and Merchandising Corp (Maxim) was the new and exclusive
licensee of Fedders Airconditioning
- Thus, JRB requested that Maxim honor the obligation of Aircon and Refrigiration Industries but
Maxim refused
- JRB instituted an action for specific performance against Aircon and Refrigiration Industries,
Maxim Industrial, and petitioner Jardine Davies (Jardine Davies was impleaded because Aircon
and Refrigiration Industries was a subsidiary of Jardine Davies)
- JRB prayed that the defendants be ordered at their expense to deliver and install Deders air
conditioners and to reimburse JRB for unsaved electricity and repair costs of airconditioning,
and attorney’s fees and excemplary damages
- Only Jardine Davies filed its answer. Aircon and Refrigiration already ceased operations so the
court did not acquire jurisdiction over it. Fedders and Maxim were declared in default
- The RTC ruled in favor of JRB Realty
- Jardine Davies appealed to the CA, alleging that the RTC erred in holding it liable
because it was not a party to the contract between JRB Realty and Aircon and
Refrigeration Industries, and that JARDINE DAVIES HAD A SEPARATE AND DISTINCT
PERSONALITY FROM AIRCON AND REFRIGERATION INDUSTRIES
- CA affirmed the RTC ruling

ISSUES:
- W/N THE CA ERRED IN HOLDING JARDINE DAVIES LIABLE FOR THE ALLEGED
CONTRACTUAL BREACH OF AIRCON AND REFRIGERATION INDUSTRIES BECAUSE
THE LATTER WAS A FORMERLY JARDINE’S SUBSIDIARY

NO NEED TO RECITE THIS PART; ITO LANG YUNG EVIDENCE SHOWING THAT AIRCON IS A
SUBSIDIARY OF JARDINE
THE FOLLOWING CIRCUMSTANCES PROVIDE BASIS TO DISREGARD THE FICTION OF
CORPORATE ENTITY AND TREAT DEFENDANT AIRCON AS PART OF CO-DEFENDANT
JARDINE DAVIS
- Documentary evidence shows that at the time JRB Contracted with Aircon, it was a subsidiary
of Jardine. A phrase “a subsidiary of Jardine Davies” was printed on Aircon’s letterhead in its
March 13, 1980 contract with the plaintiff, as well as the letterhead of Jardine’s director and
 senior VP AG Morrison and Aircon’s president to his letter to JRB Realty. The newspaper ads
of Aircon also showed that Jardine publicly represented Aircon to be its subsidiary
- SEC also show that based on Jardine’s 1986 and 1985 statements that “the company acts as
the general manager of its subsidiaries”
- The consolidated balance sheet of Jardine as of Dec. 31 1970 also showed that Aircon was
listed as Jardine’s subsidiary by owning about 94% of Aircon. Aircon’s general info sheet as
also showed that Jardine owned the same percentage of Aircon
- Out of the 7 members of the board of directors of Aircon, 4 are of Jardine
- Jardine’s witness (Atty delos Santos-Quiaoit) said that Aircon is one of Jardine’s subsidiaries
and that Jardine nominated, elected, and appointed the controlling majority of the BoD and
highest officers of Aircon

Applying the doctrine of piercing the veil of corporate fiction, both the respondent and trial courts
conveniently held the petitioner liable for the alleged omissions of Aircon, considering that the latter
was its instrumentality or corporate alter ego.

RULING:

THE PETITION HAS MERIT; petition granted

- It t 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.14
- 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.15
- 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 proscribed activities. 16

- 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.
o 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.
o 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,
 no management agreement exists between Jardine and Aircon, and the latter is an entirely
different entity from the Jardine
- Jardine Davies is primarily a financial and trading company. The articles of incorporation
provide the following purposes:
o To carry the business of merchants, commission merchants, brokers, factors,
maufacturers and agents
o To act as agents of companies and underwriters doing and engaging in insurance
business

Aircon is a manufacturing firm (articles of incorporation states: To carry on the business of

manufacturers of commercial and household appliances and accessories of any form, particularly to
manufacture, purchase, sell or deal in air conditioning and refrigeration products of every class and
description as well as accessories and parts thereof, or other kindred articles; and to erect, or buy,
lease, manage, or otherwise acquire manufactories, warehouses, and depots for manufacturing,
assemblage, repair and storing, buying, selling, and dealing in the aforesaid appliances, accessories
and products. …)

- the existence of interlocking directors, corporate officers and shareholders, which the
respondent court considered, is not enough justification to pierce the veil of corporate fiction, in
the absence of fraud or other public policy considerations.24
- But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the
veil of corporate fiction applies only when such fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime.25
- To warrant resort to this extraordinary remedy, there must be proof that the corporation is being
used as a cloak or cover for fraud or illegality, or to work injustice.26 Any piercing of the
corporate veil has to be done with caution.27 The wrongdoing must be clearly and convincingly
established. It cannot just be presumed.28
- In the instant case, there is no evidence that Aircon was formed or utilized with the
intention of defrauding its creditors or evading its contracts and obligations.
- There was nothing fraudulent in the acts of Aircon in this case. Aircon, as a
manufacturing firm of air conditioners, complied with its obligation of providing two air
conditioning units for the second floor of the Blanco Center in good faith, pursuant to
its contract with the respondent. Unfortunately, the performance of the air conditioning
units did not satisfy the respondent despite several adjustments and corrective
measures.
- We sustain the petitioner’s separateness from that of Aircon in this case. It bears
stressing that the petitioner was never a party to the contract. Privity of contracts take
effect only between parties, their successors-in-interest, heirs and assigns.32 The
petitioner, which has a separate and distinct legal personality from that of Aircon,
cannot, therefore, be held liable.

SPS. RAMON and NATIVIDAD NISCE V. EQUITABLE PCIB

FACTS:
- Respondent Equitable PCIB as creditor mortgagee filed a petition for extrajudicial foreclosure,
seeking toforeclose the real estate mortgage contracts executed by petitioner spouse Ramon
and Natividad Nisce.
- Such contracts were executed by the spouses to secure their obligation under promissory
notes, including a suretyship agreement executed by Natividad
- The obligation of the Nisce spouses totaled ₱34,087,725.76 broken down as follows:
 Spouses Ramon & Natividad Nisce - - - - - ₱17,422,285.99

Natividad P. Nisce (surety) - - - - - - - - - - US$57,306.59

and - - - - - - - - - - - - ₱16,665,439.772

- Later, the shriff set the sale at a public auction

- The spouses then filed a complaint for the nullity of the suretyship agreement, damages, and
legal compensation with prayer for injunction against PCIB and the sheriff
- The spouses alleged that:
o they requested Equitable PCIB through their son (Atty. Rossano Nisce) t setoff the peso
equivalent of their obligation against their US dollar account with PCI Capital Asia, a
subsidiary of Equitable PCIB
o Equitable accepted their offer abd requested for an estimate of the blance of their
account
o The spouses complied with Equitable’s request and informed the bank that the balance
of their account was USD51k, And Nativida’s US dollar deposit with it amounted to at
least P9M
o They were surprised to receive a leter from Equitable demanding payment of their loan,
and later an extrajudicial foreclosure
- The spouse also alleged that since they and Equitable were creditors and ebtors of each otherm
their obligations should have been offset by legal compensation to the extent of their account
with Equitable
- To support their claim, the spouses Nisce alleged that the amount for which their property was
being sold at public auction (₱34,087,725.76) was grossly excessive; the US dollar deposit of
Natividad with PCI Capital Asia Ltd. (Hong Kong), and the obligation covered by the suretyship
agreement had not been deducted.
- Equitable PCIB alleged that the spouse had no cause of action for legal compensation since
PCI Capital was a different corporation with a separate and distinct personality; if at all,
offsetting may occur only with respect to the USD500 deposit account of the spouses

SPOUSES’ Contention:
- Natividad frequently traveled abroad and needed a facility to easily access foreign exchange.
She inquired with EP Nery, the bank manager of PCI Bank Paseo de Roxas about opening an
account and was assured that she could access it anywhere. They agreed that the balance of
the account remaining at maturity date would be rolled over until further instructions or until the
termination of the facility. A ssuch, Natividad deposited USD 20,500 k and was issued a
passbook. The amount was transferred to PCI Capital Asia upon her request
- Later, they secured a P20M loan from Equitable under a promissory note payable in mothly
installments. They made a partial patment on the principal of their loan and on the interests
- Later, PCI Capital issued a certificate of deposit as proof of the USD20k transferred to it by PCI
Bank Paseo de Roxas
- Natividad later requested a partial release of the dollar deposit to her sons as they were
stranded in HK., However, she was informed that no such dollar account existed.
- Equitable Banking Corporation and PCIB were merged under Equitable PCI Bank in 1994
- In 2000, Natividad confirmed to the Equitable PCIB her offer to settle their loan acc by offsetting
the peso equivalent of her dollar account with PCI Capital
- Their son, Atty. Rossano Nisce wrote the bank, declaring that the estimated balance of the US
dollar acc was 51k USD. A certain Rene told him that the offer to set off was accepted. Later,
 Atty Nisce said that there was no response to set off. Later, he was told that the bank accepted
the offer to set off.

BANK’S CONTENTION:
- As of Janaury 31, 2003 the balance of the spouses acc. Under the promissory notes was P30M
- The bank agreed to restructure their loans but the spouses still failed to pay despite repeated
demands
- According to the Bank, Natividad’s US$20,000.00 deposit with the PCIB Paseo de Roxas
branch was transferred to PCI Capital via cable order,40 and that it later issued Certificate of
Deposit No. 01612 (Non-transferrable).41 In a letter dated May 9, 2001, it informed Natividad
that it had acted merely as a conduit in facilitating the transfer of the funds, and that her deposit
was made with PCI Capital and not with PCIB. PCI Capital had a separate and distinct
personality from the PCIB, and a claim against the former cannot be made against the latter. It
was later advised that PCI Capital had already ceased operations.42
- RTC RULINGL GRANTED SOOUSES OLEA FOR PRELIM INJUNCTION

RULING;

It was the burden of petitioners, as plaintiffs below, to adduce preponderant evidence to prove their
claim that respondent bank was the debtor of petitioner Natividad Nisce relative to her dollar deposit
with PCIB, and later transferred to PCI Capital in Hong Kong, a subsidiary of respondent Bank.
Petitioners, however, failed to discharge their burden.

Under Article 1278 of the New Civil Code, compensation shall take place when two persons, in their
own right, are creditors and debtors of each other.

When petitioner Natividad Nisce deposited her US$20,500.00 with the PCIB on July 19, 1984, PCIB
became the debtor of petitioner. However, when upon petitioner’s request, the amount of
US$20,000.00 was transferred to PCI Capital (which forthwith issued Certificate of Deposit No.
01612), PCI Capital, in turn, became the debtor of Natividad Nisce.

Admittedly, PCI Capital is a subsidiary of respondent Bank. Even then, PCI Capital [PCI Express
Padala (HK) Ltd.] has an independent and separate juridical personality from that of the respondent
Bank, its parent company; hence, any claim against the subsidiary is not a claim against the parent
company and vice versa.74 The evidence on record shows that PCIB, which had been merged with
Equitable Bank, owns almost all of the stocks of PCI Capital. However, the 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 shall be
respected, and the liability of the parent corporation, as well as the subsidiary shall be confined to
those arising in their respective business.75 A corporation has a separate personality distinct from its
stockholders and from other corporations to which it may be conducted. This separate and distinct
personality of a corporation is a fiction created by law for convenience and to prevent injustice.

This Court, in Martinez v. Court of Appeals76 held that, being a mere fiction of law, peculiar situations
or valid grounds can exist to warrant, albeit sparingly, the disregard of its independent being and the
piercing of the corporate veil. The veil of separate corporate personality may be lifted when, inter alia,
the corporation is merely an adjunct, 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. In those cases where valid grounds exist for piercing the
veil of corporate entity, the corporation will be considered as a mere association of persons. The
liability will directly attach to them.77

The Court likewise declared in the same case that the test in determining the application of the
instrumentality or alter ego doctrine is as follows:

1. Control, not mere majority or complete stock control, but complete dominion, 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 plaintiff’s legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complaint of.

The Court emphasized that the absence of any one of these elements prevents "piercing the corporate
veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and
not form, with how the corporation operated and the individual defendant’s relationship to that
operation.78

Petitioners failed to adduce sufficient evidence to justify the piercing of the veil of corporate entity and
render respondent Bank liable for the US$20,000.00 deposit of petitioner Natividad Nisce as debtor.

PANTRANCO EMPLOYEES ASSOCIATION V. NLRC

FACTS:
- The Pantranco Employees Association and pantranco Retrenched employees association pray
that the PNB, PNB-Madecor, and Mega Prime be jointly and solidarily liable for around P700M
for the Pantranco North Express (PNEI) employees.
- Gonzales family owned the PNEI and Macris Realty Corporation and provided transpo services.
Their bus terminal stood at the Pantranco properties which were registered under Macris. The
family incurred financial losses and eventually their creditors took over the management of
PNEI and Macris
- Fully ownership was transferred to one of their creditors, National investment corporation, a
PNB subsidiary
- Macris was renamed National Realty Deevlopment and merged with the National Warehousing
Corp, later forming the PNB-Madecor subsidiary
- PNEI was then sold North Express Transport, a company owned by Gregorio Arenata III. PNEI
was then sequestered by the PCGG. The sequestration order was lifted later to sell PNEI back
to the private sector through the Asset Privitization Trust, which took over the managaement of
PNEI
- PNEI applied to the SEC and it was recommended the PNEI was privatized, and that several
of its employees be retrenched
- When PNEI closed down, labor claims was instituted by former PNEI employees
- Thus, the labor arbiter ordered that the assets of PNEI be levied to satisfy the P700M amount
to satisfy the employees’ claims
 - The sheriffs were also instructed to proceeed against PNB, PNB-Madecor, and Mega Prime.
Thus, the sheriffs levied upon the Pantranco real estate which was covered by a TCT under the
name of PNB-Madecor
- Because of this, PNB Madecor, Mega Prime, and PNB filed motions to quash the writ

PNB Madecor contention: has the right as the registered owner of Pantranco Porperties and
Mega Prime as successor in interest
PNB contention: it was not a party to the labor case, alleged that PNB-Madecor was indebted
to PNB and that the Pantranco properties would cover such debt

- The labor arbiter ruled that PNB Madecor owned the pantranco properties. Beinga corporation,
it had a separate and distinct personality so its assets could not answer for the liabilities of
PNEI.
- PNB third party claim- denied because it only had at inchoate interest ofn the properties

- NLRC upheld the LA ruling. The aggrieved parties elevated the matter to the CA

CA RULING: PNB, PNB Madecor and Mega Prme have separate and Distinct personalities from PNEI.
There is no sufficient need to pierce the veil of corporate fiction. Pantraco properties were not owned
by PNEI but were registered under PNB Madecor. So, if ONB and PNB Madecor cannot answer for
PNEI’s liabilities, Mega Prime could not be held liable for the same beung a mere successor in interest
of PNB mMadecor

ISSUE: W/N the properties (specifically the pantranco properties) of PNB, PNB Madecor, and Mega
Prime can be attached to answer for the labor claims against PNEI

RULING: NO!!!!!!!
1. Tge sybhect property is not owned by PNEI. Records do not show that PNEW owned the
pantranco properties. What was established was that Macris (PNB Madecor’s predecessor)
owned the properties. Hence, they cannot be pursued against by the creditors of PNEI. (One
man’s goods cannot be sold for another man’s debts)
2. PNB, PNBMadecor, and Mega Prime are corporations having separate and distinct
personalities from PNEI
- General rule: a corporation has a personakity separate and distinct from its stockholders
and other corporation to which it may be connected. – this is a fiction of law created to
prevent injustice
- PNB was only a stockholder of PNB Madecor which later sold its shares to MegaPrime,
and PNBmadevor was the registered owner of the Pantranco properties
- THESE CORPORATIONS ARE REGISTERED AS SEPARATE ENTITIES. ABSENT
ANY VALID REASON, WE MAINTAIN SUCH SEPARATE IDENTITIES AND CANNOT
TREAT THEM AS ONE
- THE PERSONALITY OF PNEI AND PNB CANNOT BE MERGED JUST BECAUSE PNB
ACQUIRED PNEI – WHERE ONE CORPORATION SELLS ITS ASSETS TO ANOTHER
CORP FOR VALUE, THE LATTER CORP BY THAT FACT ALONE, IS NOT LIABLE
FOR THE LIABILITES OF THE CORPORATION WHO MADE THE TRANSFER

3. WHILE WE RECOGNIE THAT THERE ARE PRECULIAR CIRCUMSTANCES OR VALID

GROUNDS THAT MAY EXIST TO JUSTIFY THE PIERCING OF THE CORPO VEIL, NOT
APPLIES IN THE CASE BETWEEN PNB/PNEI OR PNB/PNB MADECOR
 - Under the doctrine of piercing the veil: the court looks a corpo as a mere collection of
indivvuals undertaking biz as a group
- Another formulation of the doctrine is when two businesses are owned and controlled by
the same parties, the law and equity will disregard the legal fiction that the two business
entities are distinct in order to protect third parties
- Appropriate facts must be pleaded or prove in order to justify the piercing the veil of
corpo fiction
- QUOTING THE COURT OF APPEALS: apart from proving ownership, it is necessary to
show facts that will justify the piercing of corporate veil. The pettionerss must show that
PNB was using PNEI only as instrumentality/has exploited or misused the corporate
privilege of PNEI
- PNB MADEVOR HAS A SEPARATE AND DISTINCT PERSONALITY FROM PNB. THE
MERE FACT THAT A CORP OWNS ALL STOCKS OF ANOTHER CORP, TAKEN
ALONE, IS NOT ENOUGH TO JUSTIFY THAT THEY SHOULD BE TREATED AS ONE
ENTITY
- IF USED TO PERFORM LEGIT FUNCTIONS, A SUBSIDIARY’S SEPARTE
EXISTENCE WULL BE RESPECTED
- THE LIABILITY OF THE PARENT CORPORATION AND THE SUBSDIIARY WILL BE
CONFINED TO THOSE ARISING IN THEIR RESPECTIVE BUSINESSES

NOTES:
PIERCING THE CORPO VEIL ONLY APPLIES IN THREE AREAS:
1. Defeat of public convenience when the corpo fiction is used to escpae an existing obligation
2. Fraud cases or when the corporate entity is used to justify a wrongdoing/commit crime
3. Alter ego cases – when a corp is only a farce since it is only an alter ego or business conduit
of a person, or where the corp is controlled or organized in such a way as to make it merely an
instrumentality/conduit/ajunct of another corpo

IN THE ABSENCE OF BAD FAITH, MALICE, OR PROVISION OF LAW MAKING THE CORPO
OFFICER LIABLE, SUCH CORPORATE OFFICER CANNOT BE HELD PERSONALLY LIABLE FOR
CORPORATE LIABILITIES

Stronghold Ins. Co. vs. Tomas Cuenca, et. al.”, G.R. No. 173297,
Mar. 6, 2013

The personality of a corporation is distinct and separate from the personalities of its stockholders.
Hence, its stockholders are not themselves the real parties in interest to claim and recover
compensation for the damages arising from the wrongful attachment of its assets. Only the corporation
is the real party in interest for that purpose

FACTS:
- Stronghold Insurance assailed the CA decision for affirming the RTC in holding
Stronghold Insurance and respondent Manuel Maranon jointly and severally liable for
damages to respondents Cuencas and Bermie Tayctac upon the surety bond issued by
Stronghold for Maranon’s benefit

- Maranon filed a complaint against the Cuencas for the collection of some of money and
damages and a writ of prelim attachment. RTC granted the writ of prelim attachment
conditioned on the posting of the bond in favor of Cuencas. The complaint was amended
to impleaded Tayactac as defended
 - Enforcing the writ, the sheriff levied upon the equipment, supplies, and other personal
property belonging to Arc Cuisine Inc that were found in the leased corporate
office/commissary./kitchen of the corporation

- The Cuencas and Tayactac filed a motion to dismiss and to quash the writ of prelim
attachment on the ground that:

i. The action involved intracorp matters that were within the orig and exclusive
jurisdiction of the SEC
ii. There was aanother pending action in the SEC and a crim complaint in the office
of prosec in Paranaque city
- Maranon opposed the motion. RTC denied the motion to dismiss and motion to quash
the writ of prelim attachment on the ground that the action (sum for recover of sum of
money) was within the jurisdiction of the court
- Tayactac and the Cuencas moved for reconsideration but was denied
- They appelleed to the CA which granted their petition
- The CA remanded to the RTC the resolution for Cuencas and Tayactac’s claim for
damages
- On the scheduled delivery of the attached properties, Marcelina Cuenca and the
Cuenca’s counsel went to the warehouse where Maranon recommded the properties for
safekeeping.
- However, the warehouse was found to have a new tenant, with the attached properties
gone and missing
- The properties were allegedly seen at Conti’s bakeshop owned by Maranon in BF
Paranaque
- Thus, the Cuencas and Tayactacy filed a motion to require the sheriff to deliver the attach
properties and to set the case for hearing.
i. They prayed that Stronhold insurance be directed to pay them damages in
accordance with the undertaking under the surety bond for 1M
ii. That Maranon be held personally liable to them because the surety bond was
insufficient
- Maranon filed his oppoostion, arguing that because the attached properties belonged to
Arc Cuisine (50% stockholding of which he and his relatives owned), it should follow
that 50% of the value of the missing attached properties constituted liquidating dividends
that should remain with and belong to him. Accordingly, he prayed that he should be
required to return only ₱100,000.00 to the Cuencas and Tayactac.18
-

RTC RULING: ordered Maranon to surrender the attached properties and held Maranon and
Stronghold iNstuance jointly and seolidarily liable for damages to the Cuencas and Tayactac

CA RULING: AFFIRMED THE RTC RULING AND DENIED STRONGHOLD’S MOTION FOR
RECONSIDERATION

ISSUES:
W/N TAYACTAC AND THE CUENCAS HAVE LEGAL STANDING TO SUE MARANON

RULING: NO
- There is no dispute that the properties subject to the levy on attachment belonged to Arc
Cuisine, Inc. alone, not to the Cuencas and Tayactac in their own right.
 - They were only stockholders of Arc Cuisine, Inc., which had a personality distinct and
separate from that of any or all of them.42
- The damages occasioned to the properties by the levy on attachment, wrongful or not,
prejudiced Arc Cuisine, Inc., not them.
- As such, only Arc Cuisine, Inc. had the right under the substantive law to claim and
recover such damages. This right could not also be asserted by the Cuencas and
Tayactac unless they did so in the name of the corporation itself. But that did not happen
herein, because Arc Cuisine, Inc. was not even joined in the action either as an original
party or as an intervenor

The Cuencas and Tayactac were clearly not vested with any direct interest in the personal properties
coming under the levy on attachment by virtue alone of their being stockholders in Arc Cuisine, Inc.
Their stockholdings represented only their proportionate or aliquot interest in the properties of the
corporation, but did not vest in them any legal right or title to any specific properties of the corporation.
Without doubt, Arc Cuisine, Inc. remained the owner as a distinct legal person.43

Given the separate and distinct legal personality of Arc Cuisine, Inc., the Cuencas and Tayactac lacked
the legal personality to claim the damages sustained from the levy of the former’s properties.

In the present case, the plaintiff stockholders have brought the action not for the benefit of the
corporation but for their own benefit, since they ask that the defendant make good the losses
occasioned by his mismanagement and pay to them the value of their respective participation in the
corporate assets on the basis of their respective holdings. Clearly, this cannot be done until all
corporate debts, if there be any, are paid and the existence of the corporation terminated by the
limitation of its charter or by lawful dissolution in view of the provisions of section 16 of the Corporation
Law. (Emphasis ours)

It results that plaintiffs complaint shows no cause of action in their favor so that the lower court did not
err in dismissing the complaint on that ground.

That Marañon knew that Arc Cuisine, Inc. owned the properties levied on attachment but he still
excluded Arc Cuisine, Inc. from his complaint was of no consequence now. The Cuencas and
Tayactac still had no right of action even if the affected properties were then under their custody at the
time of the attachment, considering that their custody was only incidental to the operation of the
corporation.

It is true, too, that the Cuencas and Tayactac could bring in behalf of Arc Cuisine, Inc. a proper action
to recover damages resulting from the attachment. Such action would be one directly brought in the
name of the corporation. Yet, that was not true here, for, instead, the Cuencas and Tayactac presented
the claim in their own names.

In view of the outcome just reached, the Court deems it unnecessary to give any extensive
consideration to the remaining issues.

WHEREFORE, the Court GRANTS the petition for review; and REVERSES and SETS ASIDE the
decision of the Court of Appeals in CA-G.R. CV No. 79145 promulgated on January 31,2006.
G.R. No. 167603

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.

FACTS:
- Petitioners Devt Bank of the PH (DBP) and PNB foreclosed on certain mortgages made
on the properties of Marinduque Mining and Industrial Corporation (MMIC)
- As such, PNB and DBP acquired substiantially all the assets of MMIC and resumed its
operations by organizing the Nonoc Mining Industrial Corporatin (NMIC)
- DBP and PNB owned 57% snd 43%, respectively, of the shares of NMIC
- As of September 1984, the BoD of NMIC were either from DBP or PNB
- Later, NMIC engaged the services of Hercon Inc for NMIC’s mine stripping and road
construction program. After computing the payments already made by NMIC and
crediting the receivables form Hercon, the latter found that NMIC still had an unpaid
balance of P8M.
- Heron demanded NMIC to pay to no avail, thus, a complaint of sum of money was filed
by Hercon against NMIC, where Hercon prayed that NMIC, DBP and PNB be held
solidarily liable for the amount due to Hercon.
- President Acquino then issued a proclamation creating the Asset Privitization Trust.
Pursuant to this, DBP and PNB executed deeds of transfer in favor of the national gov’t,
conveying certain assets and liabilities including their stakes in NMIC.
- The NationalGovt then taransferred the said assets and liabilities to the APT as trustee
under the trust agreement

NMIC contention: HRCC had no cuase of action

DBP contention : HRCC had no cause of action against it because DBP was not privy to HRCC’s
contract with NMIC. NMIC’s juridical personality is separate from that of DBP
PNB: HRCC had no cause of action; PNB is separate from that juridical personality of NMIC
APT: lack of cause of action, no privity between Hercon and APT

RTC RULING: ruled in favor of HRCC, pierced the corpo veil of NMIC and held DBP and PNB liable
with NMIC. It appears that NMIC is only an adjunct/biz conduit/alter ego of both DBP and PNB. Thus,
the financial institutions are jointly and severally liable with NMIC for its obligations to the plaintiff.

- PNB AND DBP APPEALED TO THE CA, CONTENDING THAT IT WAS WRONG TO
PIERCE THE VEIL OF NMIC AND HOLD DBP AND PNB LIABLE WITH NMIC
-
CA RULING: AFFIRMED THE RTC

ISSUE: W/N NMIC’S VEIL OF CORPORATE FICTION SHOULD BE PIERCED AND PNB AND DBP
SHOULD BE HELD LIABLE WITH NMIC

CONTENTIONS OF PETITIONERS:
All three petitioners assert that NMIC is a corporate entity with a juridical personality separate and
distinct from both PNB and DBP. They insist that the majority ownership by DBP and PNB of NMIC is
not a sufficient ground for disregarding the separate corporate personality of NMIC because NMIC
was not a mere adjunct, business conduit or alter ego of DBP and PNB. According to them, the
application of the doctrine of piercing the corporate veil is unwarranted as nothing in the records would
show that the ownership and control of the shareholdings of NMIC by DBP and PNB were used to
commit fraud, illegality or injustice.

CONTENTION OF HRCC: THE COURTS WERE CORRECT IN APPLYING THE DOCTRINE OF

PIERCING OF THE VEIL, THE NMIC WAS THE ALTER EGO OF DBP AND PNB WHICH OWNED
AND CONTROLLED THE BIZ OF NMIC

RULING: PETTION IS IMPRESSED WITH MERIT

- A corporation is an artificial entity created by operation of law. It possesses the right of
succession and such powers, attributes, and properties expressly authorized by law or
incident to its existence.37
- It has a personality separate and distinct from that of its stockholders and from that of
other corporations to which it may be connected.38 As a consequence of its status as a
distinct legal entity and as a result of a conscious policy decision to promote capital
formation,39 a corporation incurs its own liabilities and is legally responsible for payment
of its obligations.40 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. 41 This
protection from liability for shareholders is the principle of limited liability. 42
- 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.43
- However, the rule is that a court should be careful in assessing the milieu where the
doctrine of the corporate veil may be applied. Otherwise an injustice, although
unintended, may result from its erroneous application.44 Thus, cutting through the
corporate cover requires an approach characterized by due care and caution:
- . It must be certain that the corporate fiction was misused to such an extent that injustice,
fraud, or crime was committed against another, in disregard of its rights. The wrongdoing
must be clearly and convincingly established; it cannot be presumed.
- Piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is used as a vehicle for the evasion of
an existing obligation; 2) fraud cases or when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is
merely a farce since it is a 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. (Citation
omitted.)

PROVIDE AS BACKGROUND:Case law lays down a three-pronged test to determine the application
of the alter ego theory, which is also known as the instrumentality theory, namely:

(1) Control, not mere 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 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 plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of

he first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be
completely under the control and domination of the parent.51 It examines the parent corporation’s
relationship with the subsidiary.52 It inquires whether a subsidiary corporation is so organized and
controlled and its affairs are so conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity will be ignored. 53 It seeks to
establish whether the subsidiary corporation has no autonomy and the parent corporation, though
acting through the subsidiary in form and appearance, "is operating the business directly for itself." 54

The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using
the subsidiary corporation be unjust, fraudulent or wrongful. 55 It examines the relationship of the
plaintiff to the corporation.56 It recognizes that piercing is appropriate only if the parent corporation
uses the subsidiary in a way that harms the plaintiff creditor. 57 As such, it requires a showing of "an
element of injustice or fundamental unfairness."58

The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control,
exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. 59 A
causal connection between the fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the plaintiff should be established

START HERE!!!

THIS COURT FINDS THAT NONE OF THE TESTS WERE MET IN THIS CASE

While ownership by one corporation of all or a great majority of stocks of another corporation
and their interlocking directorates may serve as indicia of control, by themselves and without
more, however, these circumstances are insufficient to establish an alter ego relationship or
connection between DBP and PNB on the one hand and NMIC on the other hand, that will justify
the puncturing of the latter’s corporate cover. Court has likewise ruled that the "existence of
interlocking directors, corporate officers and shareholders is not enough justification to pierce
the veil of corporate fiction in the absence of fraud or other public policy considerations."

In this case, nothing in the records shows that the corporate finances, policies and practices
of NMIC were dominated by DBP and PNB in such a way that NMIC could be considered to
have no separate mind, will or existence of its own but a mere conduit for DBP and PNB.

On the contrary, the evidence establishes that HRCC knew and acted on the knowledge that it
was dealing with NMIC, not with NMIC’s stockholders.

The letter proposal of Hercon, Inc., HRCC’s predecessor-in-interest, regarding the contract for
NMIC’s mine stripping and road construction program was addressed to and accepted by
NMIC.71 The various billing reports, progress reports, statements of accounts and
communications of Hercon, Inc./HRCC regarding NMIC’s mine stripping and road construction
program in 1985 concerned NMIC and NMIC’s officers, without any indication of or reference
to the control exercised by DBP and/or PNB over NMIC’s affairs, policies and practices.

HRCC has presented nothing to show that DBP and PNB had a hand in the act complained of,
the alleged undue disregard by NMIC of the demands of HRCC to satisfy the unpaid claims for
services rendered by HRCC

he overall picture painted by the evidence offered by HRCC is one where HRCC was dealing
with NMIC as a distinct juridical person acting through its own corporate officers.73

on the issue of whether there are interlocking directors

Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB were
interlocking has no basis. nothing in it supports a finding that NMIC, DBP, and PNB had
interlocking directors

of the five members of NMIC’s board of directors, four were nominees of either DBP or PNB and only
one was a nominee of both DBP and PNB.75 Only two members of the board of directors of NMIC,
Jose Tengco, Jr. and Rolando Zosa, were established to be members of the board of governors of
DBP and none was proved to be a member of the board of directors of PNB.76 No director of NMIC
was shown to be also sitting simultaneously in the board of governors/directors of both DBP and PNB.

ON THE ARGUMENT OF ALTER EGO RELATIONSHIP BETWEEN DBP/PNB/NMIC:

DBP and PNB maintain an address different from that of NMIC. 79 As already discussed, there was
insufficient proof of interlocking directorates. There was not even an allegation of similarity of corporate
officers. Instead of evidence that DBP and PNB assumed and controlled the management of NMIC,
HRCC’s evidence shows that NMIC operated as a distinct entity endowed with its own legal personality

ON WHETHER THERE WAS WRONGDOING TO JUSTIFY THE PIERCING OF CORPORATE VEIL:

the wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and
convincingly established; it cannot be presumed. Without a demonstration that any of the evils sought
to be prevented by the doctrine is present, it does not apply.80

even assuming that DBP and PNB exercised control over NMIC, there is no evidence that the juridical
personality of NMIC was used by DBP and PNB to commit a fraud or to do a wrong against HRCC.

There being a total absence of evidence pointing to a fraudulent, illegal or unfair act committed against
HRCC by DBP and PNB under the guise of NMIC, there is no basis to hold that NMIC was a mere
alter ego of DBP and PNB.

ON WHETHER FRAUD WAS BEING COMMITTED BY PNB AND DBP THROUGH NMIC:

in the absence of both control by DBP and PNB of NMIC and fraud or fundamental unfairness
perpetuated by DBP and PNB through the corporate cover of NMIC, no harm could be said to have
been proximately caused by DBP and PNB on HRCC for which HRCC could hold DBP and PNB
solidarily liable with NMIC.1âwphi1

WITH REGARD TO APT’S LIABILITY OR LACK THEREOF: SINCE NO LIABILITY ATTACHED TO

DBP AND PNB, NO LIABILITY CAN ATTACH TO APT BECAUSE THE LATTER IS ONLY THE
TRANSFEREE OF THE RIGHTS, TITLES AND INTERESTS OF PNB AND DBP – APT ONLY
STEPPED INTO THE SHOES OF DBP AND PNB WITH RESPECT TO THEIR OBLIGATIONS AND
RIGHTS
he liability of the APT as transferee of the rights, titles and interests of DBP and PNB in NMIC will
attach only if DBP and PNB are held liable, the APT incurs no liability for the judgment indebtedness
of NMIC. Even HRCC recognizes that "as assignee of DBP and PNB 's loan receivables," the APT
simply "stepped into the shoes of DBP and PNB with respect to the latter's rights and obligations" in
NMIC.83 As such assignee, therefore, the APT incurs no liability with respect to NMIC other than
whatever liabilities may be imputable to its assignors, DBP and PNB.

WHEREFORE, the petitions are hereby GRANTED.

The complaint as against Development Bank of the Philippines, the Philippine National Bank, and the
Asset Privatization Trust, now the Privatization and Management Office, is DISMISSED for lack of
merit. The Asset Privatization Trust, now the Privatization and Management Office, as trustee of Nonoc
Mining and Industrial Corporation, now the Philnico Processing Corporation, is DIRECTED to ensure
compliance by the Nonoc Mining and Industrial Corporation, now the Philnico Processing Corporation,
with this Decision.

G.R. No. 108734 May 29, 1996

CONCEPT BUILDERS, INC., petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe;
Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto
Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera,
Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino
Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.

where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages,
the corporation may not be heard to say that it has a personality separate and distinct from the other
corporation. The piercing of the corporate veil comes into play.

{TICKLER: W.N THE NLRC committed GAD when it issued a break-open order to the sheriff to be
enforced on the properties found on the premises of the petitioner’s sister company

FACTS:
- Petitioner Concept Builders Inc is engaged in the construction business. The private
respondents were employees of the petitioner as laborer’s, carpenters and riggers
- The private respondents received notices of termination which said that their contracts
of employment had expired and that the project the employees had been hired for had
been completed
- However, NLRC found that at the time the employment contracts were terminated, the
project still hasm’t been completed and Concept Builders only hired subcontractsors who
performed the work of the private respondents
- The PR filed a complaint for illegal dismissal, ULP and nonpayment of holiday pay, OT
pay, and 13 month pay
 - The LA ordered Concept Builders to reinstate the PR and pay them wages euquivalent
to 300 working days
- NLRC dismissed Concept Builder’s MR (decision was already final and exec)
- It was found that the backwages of the PR amounted to P199K
- As such, the LA issued a writ of execution. The writ ws satisfied by garnishing sums from
the debtor of Concept Builders (metropolitan waterworks and sewage authority)
- An alias writ of exec was issued by the LA for the collection from Concept Builders
P117K, which is the balance of the judgment award, and to reinstate the Private
respondents
- Sheriff tried to serve the writ but the security guard on duty refused because Concept
Builders no longer occupied the premises
- The Priv respondents moved for the issuance of a second alias writ but the sheriff did
not enforce it because the employees inside the premises were Hydro Pipes Employees
employees., that levy was made upon the personal property in the premises, and that
security guards had high powered guns preventing him from removing property
- The sheriff recommended the issuance of a break open order so that he could enter the
premises and carry out the public auction sale
- Later, Denis Cuyegkeng (VP of HydroPhils) filed a 3 rd party claim with the LA, saying
that the properties to be levied were owned by Hydro Phils
- PRIVATE RESPONDENTS FILED A MOTION FOR ISSUANCE OF BREAK OPEN
ORDER, ALLEGING THAT CONCEPT BUILDERS AND HYDROPHILS WERE
OWNED BY THE SOMAE STOCKHOLDERS
i. ALSO ARGUED THAT CONCEPT BUILDERS TEMPORARILY SUSPENDED
OPEARATIIONS TO AVOID THEIR LEGAL OBLIGATIONS

- HPPI OPPOSED THE PRIVATE REPOSNDENTS, CONTENDING THAT HPPI IS A

CORPOATION SEPARATE AND DISTINCT FROM CONCEPT BUILDERS AND THAT
THEY WERE ENGAGED TWO DIFFERENT KINDS OF BIZ (HPPI IS A
MANUFACTURING FIRM WHILE CONCEPT BUILDERS IS A CONSTRUCTION
COMPANY)

ISSUE: W/N THE DOCTRINE OF PIERCING THE VEIL OF CORP FICTION SHOULD BE APPLIED

RULING: YES
It is a 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. 8 But, this separate and
distinct personality of a corporation is merely a fiction created by law for convenience and to promote
justice

So, when the notion of separate juridical personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, 10 this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced.11 This is true
likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another
corporation.12

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts
and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly,
there are some probative factors of identity that will justify the application of the doctrine of piercing
the corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business.13

The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding
the separate juridical personality of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so
that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate
entity of the "instrumentality" may be disregarded. The control necessary to invoke the
rule is not majority or even complete stock control but such domination of instances,
policies and practices that the controlled corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for its principal. It must be kept in mind
that the control must be shown to have been exercised at the time the acts complained
of took place. Moreover, the control and breach of duty must proximately cause the injury
or unjust loss for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows:

1. Control, not mere 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 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 plaintiff's legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust
loss complained of.

The absence of any one of these elements prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality
and not form, with how the corporation operated and the individual defendant's
relationship to that operation.14

Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a
sham or a subterfuge is purely one of fact.15

In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations
on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission
on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro
Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar
information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro
Manila. (SAME YUNG ADDRESS NG CONCEPT BUILDERS AT HPPI!!!!)

Furthermore, the NLRC stated that:

Both information sheets were filed by the same Virgilio O. Casiño as the corporate
secretary of both corporations. It would also not be amiss to note that both
corporations had the same president, the same board of directors,
the same corporate officers, and substantially the same subscribers. (SAME
YUNG BOARD OF DIRECTRORS, SAME ANG OFFICERS, AND SAME ANG
SUBSCRIBERS!!!!)

From the foregoing, it appears that, among other things, the respondent (herein
petitioner) and the third-party claimant shared the same address and/or premises.
Under this circumstances, (sic) it cannot be said that the property levied upon by
the sheriff were not of respondents.16

Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of back wages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to petitioner corporation.

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23,
1992 and December 3, 1992, are AFFIRMED.

BIBIANO O. REYNOSO, IV, petitioner,

vs.
HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION, respondents.

FACTS:
- The Commercial Credit Corporation (CCC), a financing and investment company,
organized franchise companies wherein it shall hold 30% equity
- CCC Employees were tasked as resident managers of the franchises
- Petitioner Bibiano Reynoso was the resident manager of the franchise in Quezon City
(CCC-QC)
- CCCQC entered into an exclusive management contract with CCC. The latter was given
management and full control of the biz of CCCQC.
- Under the contract, CCCQC would sell, discount or assign receivables to CCC but such
arrangement was discontinued because of the DOSRI rule (cannot lend funds by
corporations to diretors, officers, stocholders, related interest)
- Thus, CCC formed CCC Equity Corporation, a wholly owned susbsidiary. CCC transferre
to it 30% equity in CCC-QC
- Several officials of CCC and Reynoso became employees of CCC Equity. Reynoso
received his slarary for CCC Equity. He and other CCCQC employees also became
members of the CCC Employees pension plan
- To boost CCC-QC’s biz activities, Reynoso deposited his personal funds in the company
and CCC QC issued to him interestbearing checks
- Later, CCC-QC filed a complaint for sum of money with prelim attachment against
Reynoso (who had been dismissed from the CCC-Equity), alleging that he embezzled
 the funds of CCC-QC amounting to P1M, out of which 630k was used to buy a house
and lot
- Reynoso denied that he unlawfully used CCC-QC funds and said that the 1M was his
money placements in the CCC-QC (as evidenced by checks he issued to the company)
- The RTC dismissed the complaint of CCC-QC and ordered it to pay Reynoso damages
- Both parties appealed but was dismissed (CCC) and Reynoso withdrew
- However, not satisfied with the judgment, Reynoso filed a motion for alias writ of
execeution. CCC QC opposed, alleging that the premises had been taken over by CCC

- CCC became General Credit Corporation and RTC issued an oder directing the
company to comment on te petitioner’s motion for alias writ of exec
- GCC SAID THAT IT WAS NOT A PARTY THE CASE AND THAT REYNOSO SHOULD
FILE HIS CLAIM AGAINST CCC-QC AND NOT GCC
- REYNOSO THEN ARGUED THAT CCC-QC IS AN ADJUNCT INSTRUMENTALITY OF
CCC
- RTC ORDERED THE ISSUANCE OF ALIAS WRIT OF EXEC. GCC FILED AN
OMNIBYUS MOTION, SAYING THAT THE LEVY ON THE PROPERITES WAS
INCORRECT
- REYNOSO OPPOSED THE MOTION! Argued that GCC is just a new name for CCC
and they should be treated as one

ISSUE: W/N THE JUDGMENT IN FAVOR OR REYNOSA CAN BE EXECUTED AGAINST

GENERAL CREDIT CORPORATION // WN THE DOCTRINE OF PIERCING THE VEIL OF
CORPO FICTION SHOULD BE APPLIED TO ANSWER FOR REYNOSO’S CLAIMS

RULING:

A corporation is an artificial being created by operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or incident to its existence. 17 It is an
artificial being 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. 18 It was evolved
to make possible the aggregation and assembling of huge amounts of capital upon which big business
depends. It also has the advantage of non-dependence on the lives of those who compose it even as
it enjoys certain rights and conducts activities of natural persons.

Precisely because the corporation is such a prevalent and dominating factor in the business life of the
country, the law has to look carefully into the exercise of powers by these artificial persons it has
created.

Any piercing of the corporate veil has to be done with caution. However, the Court will not
hesitate to use its supervisory and adjudicative powers where the corporate fiction is used as
an unfair device to achieve an inequitable result, defraud creditors, evade onligations, or shield
from a court decisions. CORPORATE FICTION HAS TO BE DISREGARD IN THE INTEREEST OF
JUSTOCE!

In the appealed judgment, the Court of Appeals sustained respondent’s arguments of separateness
and its character as a different corporation which is a non-party or stranger to this case.
The defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an
instrument or agent of its parent.

But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing
the veil of corporate fiction applies only when such fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime.2

It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was
intended to publicly identify it as a component of the CCC group of companies engaged in one
and the same business, i.e., investment and financing.

But when the mother corporation and its subsidiary cease to act in good faith and honest
business judgment, when the corporate device is used by the parent to avoid its liability for
legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate
fraud or promote injustice, the law steps in to remedy the problem. When that happens, the
corporate character is not necessarily abrogated. It continues for legitimate objectives.
However, it is pierced in order to remedy injustice, such as that inflicted in this case.

he CCC had dominant control of the business operations of CCC-QC. The exclusive management
contract insured that CCC-QC would be managed and controlled by CCC and would not deviate from
the commands of the mother corporation. In addition to the exclusive management contract, CCC
appointed its own employee, petitioner, as the resident manager of CCC-QC.

REYNOSO WAS ALSO DESIGNATED AS RESIDENT MANAGER AND CONTINUED TO REEVIVE

SALARIES FROM THE CCC AFTER HIS ASSIGNMENT, AND WAS A QUALIFIED MEMBER OF
THE CCC EMPLOYEES’ PENSION PLAN

he unity of interests, management, and control; the transfer of funds to suit their individual
corporate conveniences; and the dominance of policy and practice by the mother corporation
insure that CCC-QC was an instrumentality or agency of CCC.

s narrated above, the discounting agreements through which CCC controlled the finances of
its subordinates became unlawful when Central Bank adopted the DOSRI prohibitions. Under
this rule the directors, officers, and stockholders are prohibited from borrowing from their
company. Instead of adhering to the letter and spirit of the regulations by avoiding DOSRI loans
altogether, CCC used the corporate device to continue the prohibited practice. CCC organized
still another corporation, the CCC-Equity Corporation. However, as a wholly owned subsidiary,
CCC-Equity was in fact only another name for CCC. Key officials of CCC, including the resident
managers of subsidiary corporations, were appointed to positions in CCC-Equity.

Under the foregoing circumstances, the contention of respondent General Credit Corporation,
the new name of CCC, that the corporate fiction should be appreciated in its favor is without
merit.

If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt
and work an injustice.

A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother
corporation, is placed beyond the legal reach of the judgment creditor who, after protracted litigation,
has been found entitled to positive relief. Courts have been organized to put an end to controversy.
This purpose should not be negated by an inapplicable and wrong use of the fiction of the corporate
veil.

--
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and ASIDE. The injunction
against the holding of an auction sale for the execution of the decision in Civil Case No. Q-30583 of
properties of General Credit Corporation, and the levying upon and selling on execution of other
properties of General Credit Corporation, is LIFTED.

G.R. No. 154975 January 29, 2007

GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCE

CORPORATION), Petitioner,
vs.
ALSONS DEVELOPMENT and INVESTMENT CORPORATION and CCC EQUITY
CORPORATION,

FACTS:
- AFTER BEING INCORPORAED AS A finance and investment company, petitioner
General Credit Corp established franchise companies in the country to further their
business.
- It secured licsenses from Central Bank and the SEC to engage in quasi-banking
activities
- Respondent CCC Equity was then organized for the purpose of taking over operations
and magement of the franchises
- Respondent Alsons Development and Investment Corporations and the Alcantara family
owned shares of GCC franchise companies (CCC Davao and Cebu)
- Alsons and Alcantra sold their shares in the CCC franchise to EQUITY for P2M
- ON JAN. 2 1981, Equity issued alsons a bearer promissory note for 2M with a 1 year
maturity date at 18% interest per annum
- 4 years later the Alcantaras assigned their rights and interest over the bearer note to
Alsons, which became the holder thereof
- Evenbefore the execution of the assignment deal, demands for interest payment were
already snet to Equity (through Pres Wilfredo Labayen) who was unable to pay the
stipulated interest (Equity no longer had asseets to settle interest
- ALSONS then filed a complaint for sum of money and GCC was impleaded as party
defendant for thejudgment that ALSONS may secure against EQUITY, and, under the
doctrine of piercing the veil of corporate fiction, against GCC, EQUITY having been
organized as a tool and mere conduit of GCC.
- EQUITY ARGUED:
i. Equity was purposedly organized by GCC to avoid the rules on DOSRI and it
acted as a bridge for loan transactions/other dealings of GCC to its franchises
and the public
ii. Equity depends on GCC for funding to settle equity purchases made by investors
on the franchises, HENCE GCC IS SOLELY AND DIRECTLYLIABLE TO
ALSONS FOR FAILING TO PROVIDE THE NEED FUNDS TO MEET THE
OBLIGATIONS TO ALSONS
- GCC CONTENDED: IT IS SEPARATE AND DISTINCT FROM EQUITY
RTC RULING: EQUITY WAS AN INSTRUMENTALITY OR ADJUNCT OF GCC. DECISION WAS IN
FAVOR OF ALSONS

CA: AFFIRMED THE RTC DECISION. GCC’s motion for recon was denied

ISSUE: W/N THERE IS BASIS TO PIERCE THE VEIL OF CORPORATE FICTION

RULING: YES, PIERCING THE VEIL OF CORPO FICTION IS JUSTIFIED

• A corporation is an artificial being vested by law with a personality distinct and separate
from those of the persons composing it20 as well as from that of any other entity to which
it may be related.21

• The first consequence of the doctrine of legal entity of the separate personality of the
corporation is that a corporation may not be made to answer for acts and liabilities of its
stockholders or those of legal entities to which it may be connected or vice versa. 22

• he notion of separate personality, however, may be disregarded under the doctrine – "piercing
the veil of corporate fiction" – as in fact the court will often look at the corporation as a mere
collection of individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the group. Another
formulation of this doctrine is that when two (2) business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to protect the rights of
third parties, disregard the legal fiction that two corporations are distinct entities and treat them
as identical or one and the same.23

• Whether the separate personality of the corporation should be pierced hinges on obtaining
facts, appropriately pleaded or proved. However, any piercing of the corporate veil has to be
done with caution
• CA found valid grounds to pierce the corporate veil of petitioner GCC, there being
justifiable basis for such action. When the appellate court spoke of a justifying factor, the
reference was to what the trial court said in its decision, namely: the existence of "certain
circumstances [which], taken together, gave rise to the ineluctable conclusion that …
[respondent] EQUITY is but an instrumentality or adjunct of [petitioner] GCC
• This relation, in turn, provides a justifying ground to pierce petitioner’s corporate existence as
to ALSONS’ claim in question. Foremost of what the trial court referred to as "certain
circumstances" are the commonality of directors, officers and stockholders and even
sharing of office between petitioner GCC and respondent EQUITY; certain financing and
management arrangements between the two, allowing the petitioner to handle the funds
of the latter; the virtual domination if not control wielded by the petitioner over the
finances, business policies and practices of respondent EQUITY; and the establishment
of respondent EQUITY by the petitioner to circumvent CB rules.
• EQUITY AND GCC HAD COMMON DIRECTORS/OFFICERS AND SHAREHOLDERS
(TESTIMONY:90% OF EQUITY’S STOCKHOLDERS WERE ALSO GCC STOCKHOLDERS
• EQUITY’S PRESIDENT LABAYEN SOLD THE EQUITY SHAREHOLDINGS IN SAID
FRANCHISE COMPANIES (PRACTICALLY THE ENTIRE PROCEEDS WERE
SURENDDERED TO GCC AND NOT RECEVIED BY EQUITY
• PREPONDERANCE OF EVID SHOWED THAT GCC FIANCED EQUITY. EQUITY WAS
INDEBTED TO GCC BUT EQUITY WAS A WHOLLY OWNED SUBSIDIARY OF GCC – THE
FUNDS INGEESTED BY EQUIITY IN THE CCC FRANCHISES ACTUALLY CAME FROM
GCC
 • The evidence has also indubitably established that … EQUITY was organized by … GCC for
the purpose of circumventing [CB] rules and regulations and the Anti-Usury Law.
• “his Court … feels amply justified to "pierce the veil of corporate entity" and disregard
the separate existence of the percent (sic) and subsidiary the latter having been so
controlled by the parent that its separate identity is hardly discernible thus becoming a
mere instrumentality or alter ego of the former. Consequently, as the parent corporation,
[petitioner] GCC maybe (sic) held responsible for the acts and contracts of its subsidiary
– [respondent] EQUITY

GOLDLINE TOURS v. HEIRS OF MARIA CONCEPCION LACSA

The veil of corporate existence of a corporation is a fiction of law that should not defeat the ends of
justice.

FACTS:
- Concepcion Lacsa and her sister Miriam boarded a Goldline bus, owned and operated
by Travel and Tours Advisers, Inc, which was enroute from Sorsogon to Cubao QC.
Upon reaching the highway in Pili, Camarines Sur, the Goldline Bus (driven by Rene
Abania), collided with a jeep. A metal part of the jeep got detached and struck
concepcion in the chest, resulting in her instant death. Thus, the heirs of Concepcion,
represented by Teodoro Lacsa, filed a complaint for damages against Travel and Tours
Advisers, Inc.
- William Cheng, the owner and operator of Goldline bus, testified that he exercised the
required diligence in selecting and supervising his employees. Thus, the defendants
blamed Concepcion’s death on the recklessness of Bilbes (jeepney driver) and Salvador
Romano (jeep operator).
- The RTC ruled in favor of Lacsa’s heirs and ordered Travel and Tours Advisers Inc. to
pay damages.
- Travel and Tours appealed to the CA but was dismissed
- The heirs moved for the issuance of a writ of execution which the RTC granted
- In the rendered sheriff’s partial return, it was certified that the writ was personally served
and duly tendered to Travel and Tours Advisers and William Cheng (through Grace
Miranda, his secretary).
- Cheng failed to settle the judgment amount (for the damages); hence, a toursit bus of
Travel and Tours Advisers was levied.
- Later on, Goldline Tours submitted a third-party claim, claiming the following:
i. the levied tourist bus be returned because Goldline owned the same
ii. Goldline also argued that it was not made a party to the case
iii. Goldine was a corporation entirely different from Travel and Tours Advisers Inc.
- The Heirs of Lacsa opposed Goldlines’ claim on the following grounds:
i. that Travels and Tours and Goldine were identical identities which were both
operated and managed by the same person (William Cheng)
ii. Goldine was attempting to defraud the heirs of Lacsa; hence, the doctrine of
piercing the veil of corporate fiction can be applied
- The RTC dismissed Goldlines’ third party claim on the ground that the identity of
Goldlines and Travel and Tours Advisers could not be divorced, considering that William
Cheng operated both companies and acted as their president/manager/incorporator.
RTC also said that Travel and Tours Advisers was known in Sorsogon as Goldline
- Goldline moved for reconsideration but was denied. The CA also dismissed Godlines’
petition for certiorari
ISSUE:
1. Are Goldline Tours and Travel and Tours Advisers Inc., one and the same entity? (YES)
2. Can the officers of Goldline be held liable with the corporation? (YES)

RULING:
1. THERE WAS SUFFICIENT EVIDENCE THAT GOLDLINE AND TRAVEL AND TOURS
ADVISERS ARE THE SAME.
i. Cheng testified that TTA uses 60 units of goldline buses. There’s no reason for
TTA to use buses of Goldline if the latter was not owned by the former.
ii. he Amended Articles of Incorporation of Gold Line Tours, Inc. disclose that the
following persons are the original incorporators thereof: Antonio O. Ching, Maribel
Lim Ching, witness William Ching, Anita Dy Ching and Zosimo Ching
iii. Moreover, the name Goldline was added to defendant’s name in the Complaint.
There was no objection from William Ching who could have raised the defense
that Gold Line Tours, Inc. was in no way liable or involved.
iv. William Ching who claimed to be the operator of the Travel & Tours Advisers, Inc.
(GOLDLINE) is also the President/Manager and incorporator of the Third Party
Claimant Goldline Tours Inc. and he is joined by his co-incorporators who are
"Ching" and "Dy" thereby this Court could only say that these two corporations
are one and the same corporations.
v. There is judicial knowledge that since Travel & Tours Advisers, Inc. came to
Sorsogon it has been known as GOLDLINE.

2. This Court is not persuaded by the proposition of Goldline that a corporation has an existence
separate and/or distinct from its members insofar as this case at bar is concerned
i. whenever necessary for the interest of the public or for the protection of
enforcement of their rights, the notion of legal entity should not and is not
to be used to defeat public convenience, justify wrong, protect fraud or
defend crime.

b. Citing the case of Palacio v. Fely Transportation:

i. "Where the main purpose in forming the corporation was to evade one’s
subsidiary liability for damages in a criminal case, the corporation may not
be heard to say that it has a personality separate and distinct from its
members, because to allow it to do so would be to sanction the use of fiction
of corporate entity as a shield to further an end subversive of justice (La
Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., L-
5677, May 25, 1953). The Supreme Court can even substitute the real party in
interest in place of the defendant corporation in order to avoid multiplicity of suits
and thereby save the parties unnecessary expenses and delay. (Alfonso vs.
Villamor, 16 Phil. 315)."

GERARDO LANUZA and ANTONIO OBLES v. BF CORPORATION, SHANGRI-LA PROPERTIES,

ALFREDO RAMOS, RUFO COLAYCO, MAXIMO LICAUCO AND BENJAMIN RAMOS

GR 174983 OCTOBER 1, 2014

Corporate representatives may be compelled to submit ot arbitration proceedings pursuant to a

contract entered into by the corporation they represent if there are allegations of bad faith or malice in
their acts representing the corporation.
FACTS:
- BF Corporation filed a complaint with the RTC against Shangrila and the members of its
BoD (Ramos, Colayco, Olbes, Lanuza, Licauco, and Benjamin Ramos)
- BF alleged that it entered into an agreement with Shangri La to construct a mall and a
parking structure for the latter. Shangrila was consistent in paying in accordance with its
billing statements. Eventually, however, Shangria started defaulting in payment.
- Thus, BF alleged that Shangrila induced BF to continue with the construction despite
Shang’s default. Shangrila also misrepresented that it had funds.
- BF ultimately completed the contruction. Shang took possession of the buildings while
still owin outstanding balance to BF.
- Despite repeated demands from BF, Shang refused to pay the balance.
- BF aalso alleged that Shang’s directors acted in bad faith in directing the affairs of
Shang. Therefore, the directors should be held jointly and severally liable with Shang for
its obligations to BF.
- Shangri La, Alfredo and Benjamin Ramos, Colayco and Licauco filed a motion to
suspend proceedings due to BF’s failre to submit its dispute for arbitration in accordance
with their contract.
- BF opposed the motion to suspend and RTC denied the same.
- Later, the petitioner (lanuza and obles) filed an answer to B’s complaint, with compulsory
counterclaim against BF and Cross Claim Against Shang, claiming that they had already
resigned from Shang’s BoD. They also prayed to be excluded from the arbitration
proceedings for being nonparties to Shang and BF’s agreement.
- The RTC ordered that arbitration demands shall be served upon all defendants. Lanuza
and Obles filed certiorari for compelling them to submit to the arbitration despite being
third parties to the contract between Shang and BF.
- CA dismissed the certiorari and ruled that SHANG’S DIRECTORS WER NECESSARY
PARTIES FOR THE ARBITRATION PROCEEDINGS.
- The CA also ruled that excluding Lanuza and Obles would be contrary to the policy
against multiplicity of suits.
- Lanuza and Obles moved for reconsideration but was denied.

LANUZA AND OBLES’ CONTENTIONS:

- They cannot be held liable for corporate acts and obligation because the corp is a
separate being. They did not bind themselves to shoulder Shang’s obbligations
- They are third parties to the contract between Shang and BF. Based on our arbitration
laws, non-parties to an agreement cannot be compelled to litigate

BF CORP CONTENTION:
- Whie petitioners are not parties to the agreement, they were still impleaded under Sec.
31 of the Corpo Code. Sec. 31 makes directors solidariliy liable for fraud, gross
negligence, and bad faith
- Lanuza and Obles are not really third parties to the agreement because they are being
sued as Shang’s representatives under Sec. 31.

ISSUE: are the personalities of Lanuza and Obles separate from that of Shangrila? (YES)

RULING:
 Petitioners’ main argument arises from the separate personality given to juridical persons vis-à-vis
their directors, officers, stockholders, and agents. Since they did not sign the arbitration agreement in
any capacity, they cannot be forced to submit to the jurisdiction of the Arbitration Tribunal in
accordance with the arbitration agreement. Moreover, they had already resigned as directors of
Shangri-Laat the time of the alleged default.

Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and distinct
from Shangri-La.

A corporation is an artificial entity created by fiction of law.76 This means that while it is not a
person, naturally, the law gives it a distinct personality and treats it as such. A corporation, in
the legal sense, is an individual with a personality that is distinct and separate from other
persons including its stockholders, officers, directors, representatives, 77 and other juridical
entities.

The law vests in corporations rights,powers, and attributes as if they were natural persons with
physical existence and capabilities to act on their own.78 For instance, they have the power to sue and
enter into transactions or contracts. Section 36 of the Corporation Code enumerates some of a
corporation’s powers, thus:

Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code has the
power and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate ofincorporation;

3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the
same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks
in accordance with the provisions of this Code; and to admit members to the corporation if it be
a non-stock corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and the Constitution;

8. To enter into merger or consolidation with other corporations as provided in this Code;

9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic
 or foreign, shall give donations in aid of any political party or candidate or for purposes of
partisan political activity;

10. To establish pension, retirement, and other plans for the benefit of its directors, trustees,
officers and employees; and

11. To exercise such other powers asmay be essential or necessary to carry out its purpose or
purposes as stated in its articles of incorporation. (13a)

Because a corporation’s existence is only by fiction of law, it can only exercise its rights and powers
through itsdirectors, officers, or agents, who are all natural persons. A corporation cannot sue or enter
into contracts without them.

A consequence of a corporation’s separate personality is that consent by a corporation

through its representatives is not consent of the representative, personally. Its obligations,
incurred through official acts of its representatives, are its own. A stockholder, director, or
representative does not become a party to a contract just because a corporation executed a
contract through that stockholder, director or representative.

Hence, a corporation’s representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and liabilities
incurred on or in behalf of the corporation.

However, there are instances when the distinction between personalities of directors, officers,and
representatives, and of the corporation, are disregarded. We call this piercing the veil of corporate
fiction.

Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used as a
means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues." 85 It is also warranted in alter ego cases
"where a corporation is merely a farce since it is a 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."86

When corporate veil is pierced, the corporation and persons who are normally treated as distinct from
the corporation are treated as one person, such that when the corporation is adjudged liable, these
persons, too, become liable as if they were the corporation.

Among the persons who may be treatedas the corporation itself under certain circumstances are its
directors and officers. Section 31 of the Corporation Code provides the instances when directors,
trustees, or officers may become liable for corporate acts:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or
bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or members and other persons.

However, when the courts disregard the corporation’s distinct and separate personality from its
directors or officers, the courts do not say that the corporation, in all instances and for all purposes, is
the same as its directors, stockholders, officers, and agents. It does not result in an absolute confusion
of personalities of the corporation and the persons composing or representing it. Courts merely
discount the distinction and treat them as one, in relation to a specific act, in order to extend
the terms of the contract and the liabilities for all damages to erring corporate officials who
participated in the corporation’s illegal acts. This is done so that the legal fiction cannot be
used to perpetrate illegalities and injustices.

Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the
corporate veil, parties who are normally treated as distinct individuals should be made to
participate in the arbitration proceedings in order to determine if such distinction should
indeed be disregarded and, if so, to determine the extent of their liabilities.

In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to
prove the existence of circumstances that render petitioners and the other directors solidarily
liable. It ruled that petitioners and Shangri-La’s other directors were not liable for the
contractual obligations of Shangri-La to BF Corporation. The Arbitral Tribunal’s decision was
made with the participation of petitioners, albeit with their continuing objection. In view of our
discussion above, we rule that petitioners are bound by such decision.

JARDINE DAVIES v. CA AND FAR EAST MILLS SUPPLY CORPORATION/ PUREFOODS CORP
v. CA AND FAREAST MILLS

FACTS
- To prevent further losses due to power failures, petitioner Purefoods installed two generators
in its food processing plant in San Roque, Marikina.
- A bidding was held for the installation of generators. A bidding award was granted to
Purefoods through FEMSCO president Alfonso Po
- FEMSCO submitted the required 1.8 M bond and the contractor’s all-risk insurance policy
(6M). FEMSCO made the arrangements with its principal and started the project. Purefoods
returned FEMSCO’s bidder bond.
- L:ater, PUrefoods (thorugh VP Teodora dimayuga) unilaterally cancelled the award
(“significant factors were disconvered and brought to their attention, dictating the cancellation)
- However, before the matter could be resolved, PUREFOODS awarded the project to Jardine
Davies (Jardine Nell division) which was not one of the bidders
- FEMSCO wrote Purefoods to honor their contract and to JARDINE to cease and desist from
installing the generators.
- The demands were unheeded so FEMSCO sued both Purefoods and Jardine (purefoods for
reneging and Jardine for unwarranted interference and inducement)
- FEMSCO submitted evidence and ardine filed a demurrer to evid which was granted.
- The RTC ruled that there is no evidence that there was something underhanded going on
between Purefoods and Jardine.
- Purefoods was ordered to indemnify FEMSCO.
- CA affirmed the RTC decision
- Jardine was ordered to pay FEMSCO 2M in moral damages and 1M for exxempalary damages
- Purefoods and Jardine moved for reconsideration nut was denied
pUREFOODS CONTENTION:

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are
premised on a misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was
not an acceptance of the latter's bid proposal and award of the project but more of a qualified
acceptance constituting a counter-offer which required FEMSCO's express conforme. Since
PUREFOODS never received FEMSCO's conforme, PUREFOODS was very well within reason to
revoke its qualified acceptance or counter-offer. Hence, no contract was perfected between
PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in bad faith when it dealt
with FEMSCO. Hence moral and exemplary damages should not have been awarded.

JARDINE CONTGENTION:

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are
premised on a misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was
not an acceptance of the latter's bid proposal and award of the project but more of a qualified
acceptance constituting a counter-offer which required FEMSCO's express conforme. Since
PUREFOODS never received FEMSCO's conforme, PUREFOODS was very well within reason to
revoke its qualified acceptance or counter-offer. Hence, no contract was perfected between
PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in bad faith when it dealt
with FEMSCO. Hence moral and exemplary damages should not have been awarded.

Issues:
-w/n FEMSCO is entitled to moral damages (yes)
-w/n Jardine should be ordered to pay damages (no)

RULING:

This Court has awarded in the past moral damages to a corporation whose reputation has been
besmirched. 12 In the instant case, respondent FEMSCO has sufficiently shown that its reputation
was tarnished after it immediately ordered equipment from its suppliers on account of the urgency of
the project, only to be canceled later. We thus sustain respondent appellate court's award of moral
damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages
are never intended to enrich the recipient. Likewise, the award of exemplary damages by way of
example for the public good is excessive and should be reduced to P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it
to pay moral damages to respondent FEMSCO as it supposedly induced PUREFOODS to violate
the contract with FEMSCO. We agree. While it may seem that petitioners PUREFOODS and
JARDINE connived to deceive respondent FEMSCO, we find no specific evidence on record to
support such perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced
petitioner PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both
petitioner JARDINE and respondent FEMSCO, and the tender of a lower quotation by petitioner
JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS
to violate its contract with respondent FEMSCO.

FILIPINAS BROADCASTING NETWORK, INC., petitioner,

vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE,
(AMEC-BCCM) and ANGELITA F. AGO, respondents.

FACTS:

- Expose is a radio documentary hosted by Carmelo Rima and Jun Alegre and heirs every
morning on the Filipinas Broadcasting Network
- On Dec 14 and 15, 1989, Alegre and Lima exposed various complaints from students,
teachers and parents against Ago Medical and educ Center Bicol Christian College of
Medicine
- Because of the alleged defamatory statements, AMEC and Angelita Ago (dean of collge of
medicine) filed a complaint for damages against FBN, Rima and Alegre

Jun Alegre;

- SAID THAT students at AMEC will have to pass all subjects because they would be required
to repeat the entire year level
- Physical therapy students complained that the course is not revognized by the DECS but they
have to pay or the subject even if it does not have an instructor.
- AMEC accepts rejects/teachers that have been removed from Aquinas university
(“immorality”)/ dumpinhg ground for physically and morally misfit people\

- Because of such allegations, AMEC and Ago’s repuration was destroyed and argued that FBNI
failed to ecercise due diligence in supervising its employees

-FBNI, Allegre and Rima contended that the broadcasts were fair and true; that they had the public
duty to report what wsa going on in AMEC

- RTC found FBNI and Alegre liable except Rima

- the broadcasts were libelous; the reporters did not show that it had factual basis and they did not
verify their reports before airing to show good faith.

-FBNI failed to exercise diligence in selecting its employees and allowing Rima and Allegre to
nroadccast without accreditation

-Rima’s participation was that he agreed with Alegre’s ecpose. Rima’s statements were within the
bobds of freedom of speech of the press

-CA: affirmed the trial court

- Rima was solidarily liable with FBNI and Alegre
- denied Ago’s claim for damages because the broadcasts were made against AMEC, not her

ISSUES:
W/N Amec is entitled to moral damages’ (YES)

RULING
A juridical person is generally not entitled to moral damages because, unlike a natural person, it
cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock.40 The Court of Appeals cites Mambulao Lumber Co. v. PNB, et
al.41 to justify the award of moral damages. However, the Court’s statement in Mambulao that "a
corporation may have a good reputation which, if besmirched, may also be a ground for the award
of moral damages" is an obiter dictum.42

Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article 2219 43 of the Civil Code.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any
other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical
person. Therefore, a juridical person such as a corporation can validly complain for libel or any other
form of defamation and claim for moral damages.44

Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a case,
evidence of an honest mistake or the want of character or reputation of the party libeled goes only in
mitigation of damages.46 Neither in such a case is the plaintiff required to introduce evidence of actual
damages as a condition precedent to the recovery of some damages.47 In this case, the broadcasts
are libelous per se. Thus, AMEC is entitled to moral damages.

However, we find the award of ₱300,000 moral damages unreasonable. The record shows that even
though the broadcasts were libelous per se, AMEC has not suffered any substantial or material
damage to its reputation. Therefore, we reduce the award of moral damages from ₱300,000 to
₱150,000.

CA and TANIO v. PHILGEN INSURANCE

FACTS
- The plaintiff executed a bond with Rita Tapni as principal, in favor of PNB-San Fernando
Pampanga to guarantee the payment of Rita’s account with PNB
- To guarantee the payment of whatever amount the bonding company would pay to PNB, the
defendants executed an indemnity agreement (whatever amount the plaintiff would pay would
earn interest at 12% per annum plus attty’s fees)
- The original amount as 4k and reduced later to 2k

- Defendant Rita Tapnio was indebted to PNB for 2k plus interest which she failed to pay despite
demands

- PNB wrote a demand to Philgen and the latter paid the amount dew (around 2) for and on the
account of Rita’s obligation

- Philamgen made demands on plaintiffs (Tapnio)

- Tapnio admitted these facts but claimed that when demand was made upon her to pay, she
said that she was no indebted to PNB because she had an agreement with Jacobo Nazon (she
leased to him her unused export sugar quota for 1956-1967 agricultural year --- 1000 piculs for
P2.80 per picul, 2k total) – which was in excess of her obligation guaranteed by Philamgen

- She said that PNB knew about the lease agreement, but PNB placed obstacles which prevented
the consummation of the lease. Thus, these delays caused Nazon to rescind the lease contract
 - Because of this, Rita filed a thid-party complaint against PNB to recover money which would
be ajudged against her and in favor of Philamgen, plus moral damages and atty’s fees and
costs

- (quota was mortgaged to the PNB so the contract of lease had to be approved by PNB, which
recquired Nazon and Rita to raise the consideration of P2.80 per picul of P2,800) since the
minimum lease rental acceptable is such amount

- Mr Tauzon told the manager that he was agreeable to this and said that he was ready to pay
such amount as it was in his folder that he kept with the bank

- The branch manager recommended the approval of the lease contract at 2.80 per picul.
Howver, the board of directors required that the amount be raised to 13.00 per picul

- Tuazon was informed of the increase. He asked for a reconsideration but the board did not act
on the same, considerting that the prevailing price at that time was 3 pesos per picul

- Tuazon then wrote a letter informing PNB that he no longer wanted to contine the deal (the
lease of the sugar quota allotment in favor of Rita)

- Becauase of this, Rita lost 2,800 pesos which she would have received from Tuazon and which
she could have paid PNB for her indebtedness

Lower court findings;

- The failure of the negotiation for the lease of the sugar quota allocation of Rita to Tuazon was
due to the fault of the PNB directors. The bank’s refusal to approve the lease at P2.80 per picul
would have enabled Rita to realize P2,800 which was more than enough to pay off her
indebtedness with PNB.
- PNB’s insistence on the rental price of P3.00 per picul, which unneciessarily increased the
value by only P200, inevitably resulted in the recission of the lease contract to the damage and
prejudice of Rita
- PNB’s unreasonableness inrefusing to approve the 2.80 per picul rate was shown by the fact
that all of Rita’s accounts with PNB were secured by Chattel mortgage on standing crops,
assignment of leae hold rights, and interests on her properties and suretly bonds. She was also
offering to ececute a real estate mortgage in favor of the bank
- Rita had the means to pay her obligation because she had been granted several which
amounted to 80k for the agricultural years 19

ISSUE: W/N PNB is liable for damages to Rita for her failure to realize the amount that she could have
paid for her indebtedness

RULING:
- YES.
- As observed by the trial court, time is of the essence in the approval of the lease of sugar quota
allotments, since the same must be utilized during the milling season, because any allotment
which is not filled during such milling season may be reallocated by the Sugar Quota
Administration to other holders of allotments. 3 There was no proof that there was any other
person at that time willing to lease the sugar quota allotment of private respondents for a price
higher than P2.80 per picul.
- There was no reasonable basis for the Board of Directors of petitioner to have rejected the
lease agreement because of a measly sum of P200.00.
 - While petitioner had the ultimate authority of approving or disapproving the proposed lease
since the quota was mortgaged to the Bank, the latter certainly cannot escape its responsibility
of observing, for the protection of the interest of private respondents, that degree of care,
precaution and vigilance which the circumstances justly demand in approving or disapproving
the lease of said sugar quota.
- The law makes it imperative that every person "must in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and
good faith, 4 This petitioner failed to do.
- Certainly, it knew that the agricultural year was about to expire, that by its disapproval
of the lease private respondents would be unable to utilize the sugar quota in question.
In failing to observe the reasonable degree of care and vigilance which the surrounding
circumstances reasonably impose, petitioner is consequently liable for the damages
caused on private respondents

- ADDITIONAL NOTES:
A corporation is civilly liable in the same manner as natural persons for torts, because "generally
speaking, the rules governing the liability of a principal or master for a tort committed by an
agent or servant are the same whether the principal or master be a natural person or a
corporation, and whether the servant or agent be a natural or artificial person. All of the
authorities agree that a principal or master is liable for every tort which he expressly directs or
authorizes, and this is just as true of a corporation as of a natural person, A corporation is liable,
therefore, whenever a tortious act is committed by an officer or agent under express direction
or authority from the stockholders or members acting as a body, or, generally, from the directors
as the governing body." 6

- Under Article 21 of the New Civil Code, "any person who wilfully causes loss or injury to another
in a manner that is contrary to morals, good customs or public policy shall compensate the latter
for the damage."

SERGIO F. NAGUIAT, doing business under SERGIO F. NAGUIAT ENT. And CLARK FIELD TAXI
INC (CFTI) v. NLRC, NATIONAL ORGANIZATION OF WORKING MEN AND ITS MEMBERS
LEONARDO GALANG ET. ATL

FACTS:
- Petitioner CFTI held a concessionaire’s contract with Army Air Force Exchange Services
(AAFES) for the operation of taxi services within Clark Ari Base.
- Sergio Naguiat was CFTI’s president while Antolin Naguit was the VP
- Respondents were previously employed asCFTI taxi drivers. They worked three to four times a
week and earned not less than 15usd a day. In excess of such amount was deposited with the
company which the the y could withdraw after 15 days
- AAEFS was dissolved due to the phaseout of US military bases in the PH. As such, the
employment of the respondents was terminated
- AEEFS Taxi Drivers assoc andCFTI held nogiation and agree that 500php would for every year
of service would be given to the separated drivers as severance pay. However, the respondents
refused the payment
- The respondents joined the National Organization of Working men and filed a complaint against
Sergio F. Naguiat doing biz under Sergio F. Naguiat Enterprises and AAEFS for payment of
separation pay.
 -
RESPONDENTS’ COTENTIONS
- Respondents alleged that they were regular employees of Naguiat Enterprises although their
individual applications wer approved by CFI
- They also argued that Naguiat Enterprise managed, controlled, and supervised their
employment

PETITIONERS CONTENTIONS:
- The cessation of CFTI was due to financial losses from the phaseout of Clark Air base due to
the Mt. Pinatubo eruption and the ecpiration of the military bases agreement
- Cfti agreed with the drivers ubnion (through president Eduardo Castillo who claimed to have
blanket authority to negotiate in behalf of CFTI, to grant its tax drivers separation pay equal to
500/year of service)

LA: ruled in favor of the taxi drivers and ordered CFTO to pay the drivers 1,200 for every year of
service
- Rejected the claim that CFTI was closed because of financial losessince at the time of biz
closure, CFTI was profitably earning and the cessation of business was due to the closure of
Clark Airbase
- Awarded an amount for humanitarian consideratoion

NLRC: modified LA decision, granted separation pay to the private respondents

- Denied MR of petitioners

ISSUE:
- W/N Sergio F Naguiat Enterprises is jointly and severally liable with CFTI for damages
- W/N Sergio Naguiat ( the pres) and Antolin are liable for damages

RULING:
- NAGUIAT ENTERPRISE NOT LIABLE
a. The individual respondets were regular CFTI employees who were on a
boundary/commission basis
i. There is no susbstantial basis to hold that NE is an indirect employer much less
a labor-only contractor. NE submitted docs such as drivers’ employment
applications/social security remittances and payroll of NE, showing that none of
the respondents were its employees
ii. In their contract, CFTI agreed to purchase from AAFES a fleet of vehicles to be
kept on the road by CTFI, pursuant to their agreement – this indidactes that CFTI
became owners of the taxi which became the principal asset of the company
iii. PR did not susbstantiate their claim that NE managed and supervised them. They
were confused as to the personlaities of Sergio (the individual) and the Enterprise
(a spearte corporae entity with a spearte business
1. THEY PRESUMED THAT SERGIO, WHO WA A STOCKHOLDER OF
THE ENTERPRISE, WAS MANAGING AND CONTROLLING THE BIZ ON
BEHALF OF THE NAGUIAT ENTERPRISES
2. IN SUPREVISING THE TAXI BUSINESS, SERGIO WAS CARRYING
OUT HIS RESPONSIBILITIES AS CFTI PRESIDENT. HENCE,NAGUIAT
ENTERPRISES AS A SEPARTE COPRORATION IS NOT INVOVLED AT
ALL IN THE TAXI BUSINESS
3. HENCE, CTI WAS THE ACTUAL AND DIRECT EMPLOYER OF THE PRs
2. CFTI PRESIDENT SERGIO NAGUIAT IS LIABLE
- he cannot be exonerated from jpoint and several liability in the payment of separation pay
- he actively managed the business, he fals within the term of “employer” under the labor code, who
may be held jointly and severeally liable for the obligations of the corporation to its dismissed
employees

oreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family
corporations" 34 owned by the Naguiat family. Section 100, paragraph 5, (under Title XII on Close
Corporations) of the Corporation Code, states:

(5) To the extent that the stockholders are actively engage(d) in the management or
operation of the business and affairs of a close corporation, the stockholders shall be
held to strict fiduciary duties to each other and among themselves. Said stockholders
shall be personally liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance. (emphasis supplied)

Nothing in the records show whether CFTI obtained "reasonably adequate liability insurance;"
thus, what remains is to determine whether there was corporate tort.

Our jurisprudence is wanting as to the definite scope of "corporate tort." Essentially, "tort" consists in
the violation of a right given or the omission of a duty imposed by law. 35 Simply stated, tort is a breach
of a legal duty. 36 Article 283 of the Labor Code mandates the employer to grant separation pay to
employees in case of closure or cessation of operations of establishment or undertaking not due to
serious business losses or financial reverses, which is the condition obtaining at bar. CFTI failed to
comply with this law-imposed duty or obligation. Consequently, its stockholder who was actively
engaged in the management or operation of the business should be held personally liable.

4. ANTONLIN NAGUIAT NOT PERSONALLY LIABLE

Antolin T. Naguiat was the vice president of the CFTI. Although he carried the title of "general
manager" as well, it had not been shown that he had acted in such capacity. Furthermore, no evidence
on the extent of his participation in the management or operation of the business was preferred. In this
light, he cannot be held solidarily liable

GREGORIO SINGIAN JR. v SANDIGANBAYAN

FACTS:
- Atty. Orland Salvadaor was a PCGG consultant on detail with the presidential ad hoc committee
on behest loans. He also coordinated the technical working group of government financing
institutions to examine recommendations of The Asset Privitization Trust relating to loan
accounts in government financing institutions
- One of these accounts acted upon were the loans granted to Integrated Shoe (ISI) by the PNB
- ISI applied for a five-year deffered letter of credit amount to USD 2.5M to finance its purchase
of machineries and equipment. The LC was recommended to the PNB BoD by then SVP
Constantino Bautista
- PNB approved the loan subject to certain conditions, among which was:
a. that the LC was subject to the joint and several signatures of Francisco Teodoro, Letitcia
Teodoro, Marfina Sigina, Tomas Teodoro and gregorio Singian
 b. ISI which has a paid up capital amounting to 1, 098M as of January 1972 shall increase
its authorized capital to 5M
c. If the cash receipts do not come up to the projections/as required by PNB, ISI will
increase its capitalization and the present stockholders will subscribe to their present
holdings
- ISI was given more loan accomodations
- Later, the Committee found that these loans were behest loans for being obtained hastily and
not having been secured with enough collaterals
- Atty. Salvador filed with Ombudsman a complaint for violation of RA 3019 against former PNB
officials (President, SVP, BoD members) and ISI officials (president, vice pres,
o=incorporators, general manager, exec vice pres)
- The complaint was recommended to be dismissed for insufficiency of evidence (no evid to show
that the ofdicials entered into the contract in bad faith)
a. Respondents were not the ones who entered into the transactions with ISI but PNB board
of directors (may presumption of regularity in the performance of their duties)
- The recommendation for dismissal for disapproved by Ombusdsman Desierto.
- Later, it was found that there was probable cause to indict petitioner, among other respondents
- It was recommended that they be charged for violating RA 3019
- Hence, petitioner filed before the Sandigabnayan urgent consolidated motions for
reinvestigation on the ground that he was not notified of the proceedings
- The motion for reinvestigation was granted. The prosecutor recommended then that Domingo,
Ingco, Bautista, the Teodoros, and the SIngians be exonerated from criminal liability. However,
the ombusdsman disapproved the Ombudsman.
- Petitioner then filed a motiom for redetermination of existence of probable cuase but was
denied. Petitoner then filed an MR but was again denied

ISSUE:
W/N SINGIAN IS LIABLE FOR ISI’S FAILURE TO PUT UP ADDITIONAL CAPITALIZATION AND
COLLATERALS ALTHOUGH HE IS NOT A STOCKHOLDER /DIRECTOR OF THE CORPORATION

RULING:
Petitioner argues that he cannot be made criminally liable for ISI’s failure to put up the additional
capitalization and collaterals required by the undertaking because it is not his responsibility, but that
of the board of directors of ISI, to comply with the same. As an Executive Vice President of ISI, he has
no power to legally compel and cause it to comply with PNB’s conditions stipulated in the undertaking.

Tue, the powers to increase capitalization and to offer or give collateral to secure indebtedness are
lodged with the corporation’s board of directors. However, this does not mean that the officers of the
corporation other than the board of directors cannot be made criminally liable for their criminal acts if
it can be proven that they participated therein.23 In the instant case, there is evidence that petitioner
participated in the loan transactions when he signed the undertaking. As correctly pointed out by the
Sandiganbayan:24

[T]he Court finds that although it is true that accused Gregorio Singian, Jr. is not a stockholder or
director of Integrated Shoe, Inc. (ISI), the evidence on record, however, shows that aside from the fact
that he was the Executive Vice President of Integrated Shoe, Inc. (ISI) during the time material to this
case, he also executed a "Deed of Undertaking and Conformity to Bank Conditions" jointly with
Francisco J. Teodoro, President of Integrated Shoe, Inc. and other officers of the corporation namely:
Marfina T. Singian, Leticia T. Teodoro, Tomas T. Teodoro in connection with the application and
granting by the PNB of a five year confirmed irrevocable, deferred loan Letter of Credit for US
$2,500,000.00 (P16,287,500.00) in favor of the Integrated Shoe, Inc. (ISI), which loan remained
unpaid by ISI.

EDWARD C. ONG, Petitioner, v. THE COURT OF APPEALS AND THE PEOPLE OF THE
PHILIPPINES, Respondents.

FACTS:
- Prosecutor Dina Teves charged petitioner Edward Ong and Benito Ong with two counts of
estafa. In the informations filed against them, it was alleged that they represented ARMAGRI
International Corporation. They received in trust from SOLIDBANK Corporation 10,000 bags of
urea valued at around 2M (2,050,000) under a trust receipt and covered by a letter of credit in
favor of Fertphil Corporation.
- Under the agreement, the accused has the obligation to account for the goods to Solidbank,
and to remit the proceeds of the sale thereof within the specified period, or to return the goods
if not sold immediately or upon demand.
- However, the accused failed to comply witht their obligations to the prejudice of Solidbank
Corporation
- (second agreement was a trust receipt covered by LC in favor of Metropole Industrial Sales) –
same obligations as the first. The accused still di not comply despite repeated demands
- The Ongs pleaded not guilty. Petitoner appealed his conviction to the CA which affirmed the
RTC decision
- CA held that though petitioner is not a director/officer of ARMAGRI, he comes within the term
“employees or other persons resposbible for the offense” under Sec. 13 of the Trust Receipts
Law

ISSUE: W/N Ong, who acted as an agent and signed for the corporation, is responsible for the offense

RULING:
- We hold that petitioner is a person responsible for violation of the Trust Receipts Law. Petitioner
comes within Sec. 13 of the TRL –
a. If the violation is committed by a corporation, partnership, association or other juridical
entities, the penalty provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from the offense

- The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds
of the sale of the goods, or (2) return the goods covered by the trust receipts if the goods are
not sold. 18 The mere failure to account or return gives rise to the crime which is malum
prohibitum. 19 There is no requirement to prove intent to defraud.

- The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment
on a corporation. Hence, if the entrustee is a corporation, the law makes the officers or
employees or other persons responsible for the offense liable to suffer the penalty of
imprisonment. The reason is obvious: corporations, partnerships, associations and other
juridical entities cannot be put to jail. Hence, the criminal liability falls on the human agent
responsible for the violation of the Trust Receipts Law

- In the instant case, the Bank was the entruster while ARMAGRI was the entrustee. Being the
entrustee, ARMAGRI was the one responsible to account for the goods or its proceeds in case
 of sale. However, the criminal liability for violation of the Trust Receipts Law falls on the human
agent responsible for the violation. Petitioner, who admits being the agent of ARMAGRI, is the
person responsible for the offense for two reasons:

Petitioner is the signatory to the trust receipts, the loan applications and the letters of credit. Second,
despite being the signatory to the trust receipts and the other documents, petitioner did not explain or
show why he is not responsible for the failure to turn over the proceeds of the sale or account for the
goods covered by the trust receipts

True, petitioner acted on behalf of ARMAGRI. However, it is a well-settled rule that the law of agency
governing civil cases has no application in criminal cases. When a person participates in the
commission of a crime, he cannot escape punishment on the ground that he simply acted as an agent
of another party. 26 In the instant case, the Bank accepted the trust receipts signed by petitioner based
on petitioner’s representations. It is the fact of being the signatory to the two trust receipts, and thus a
direct participant to the crime, which makes petitioner a person responsible for the offense.

Petitioner could have raised the defense that he had nothing to do with the failure to account for the
proceeds or to return the goods. Petitioner could have shown that he had severed his relationship with
ARMAGRI prior to the loss of the proceeds or the disappearance of the goods. Petitioner, however,
waived his right to present any evidence, and thus failed to show that he is not responsible for the
violation of the Trust Receipts Law.

. The Informations expressly state that ARMAGRI, represented by petitioner, received the goods in
trust for the Bank under the express obligation to remit the proceeds of the sale or to return the goods
upon demand by the Bank. There is no need to allege in the Informations in what capacity petitioner
participated to hold him responsible for the offense. Under the Trust Receipts Law, it is sufficient to
allege and establish the failure of ARMAGRI, whom petitioner represented, to remit the proceeds or
to return the goods to the Bank.chanrob1es virtua1 1aw 1ibrary

When petitioner signed the trust receipts, he claimed he was representing ARMAGRI. The corporation
obviously acts only through its human agents and it is the conduct of such agents which the law must
deter. 29 The existence of the corporate entity does not shield from prosecution the agent who
knowingly and intentionally commits a crime at the

ALFREDO CHING v. SECRETARY OF JUSTICE

FACTS:
- Alfredo Ching was the SVP of Philippine Blooming Mills. PBMI, through petitioner, applied
respondent bank RCBC for the issuance of commercial letter of credit to finance the importation
of assorted goods
- RCBC approved the application and LoC was issued in favor of PBMI. The goods were
delivered in trust to PBMU and Ching signed 13 trust receiots as surety acknowledging the
delivery of various goods. (pipes, bricks, moulds, etc)
- Under the receipts, Ching agreed to hold the goods in trust for the said bank with authority to
sell but not by condutional sale
- If the goods were sold, ching had to turn over the proceeds to and to apply against the
acceptacens/payment of indebtedbess to RCBC. If the goods were unsold, they had to be
tertuned to RCBC
 - Upon maturity of the trust receipts, chingfailed to return the goods or their value amounting to
6M to RCBC
- Thus RCBC filed a complaint for estafa against Ching
- The prosecutor found probable cause and 13 infos were filed in the RTC against Ching. He
filled an appeal but it was disnssed. He filed an MR which was granted. Hence, the previous
resolution finding probable cause was reversed
- RCBC moved ro recosnideraton but was denied
- In the meantime, the court came out with its ruling in Allied Bank Corp v. Ordonez, holding that:
a. holding that the penal provision of P.D. No. 115 encompasses any act violative of an
obligation covered by the trust receipt; it is not limited to transactions involving goods
which are to be sold (retailed), reshipped, stored or processed as a component of a
product ultimately sold. The Court also ruled that "the non-payment of the amount
covered by a trust receipt is an act violative of the obligation of the entrustee to pay."12
- RCBC refiled a complaint against Ching
- Prosecutor ruled that there was no probable cause to charge Ching for violating PD 115 as his
liability was only civil not criminal (having signed the trust eceipts as surety)
- RCBC appealed the decision to the DOJ
- DOJ reversed the prosecutor’s findigns and ruled that Ching, as PBMI president, executed the
13 trust receipts and was the one responsible for the offense. The execution of such receipts
is enoiught to indict him for violation of PD 115
- Thus, the prosec filed informations against ching for vilating PD
- CA held that as SVP of PBMI and assignatory of the trust receipts, Ching was criminally liable

ISSUE: W/N Ching is criminally liable as SVP of PBMI for being the assignatory of the trust receipts

RULING:
Sec. 13 of PD 115 states:

- If the violation or offense is committed by a corporation, partnership, association or other judicial

entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense.’

- "There is no dispute that it was the respondent, who as senior vice-president of PBM, executed
the thirteen (13) trust receipts. As such, the law points to him as the official responsible for the
offense. Since a corporation cannot be proceeded against criminally because it cannot commit
crime in which personal violence or malicious intent is required, criminal action is limited to the
corporate agents guilty of an act amounting to a crime and never against the corporation itself
(West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus,
the execution by respondent of said receipts is enough to indict him as the official responsible
for violation of PD 115.

The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of
PBMI and had no physical possession of the goods, he cannot avoid prosecution for violation of P.D.
No. 115.
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers,
employees or other officers or persons responsible for the offense, without prejudice to the civil
liabilities of such corporation and/or board of directors, officers, or other officials or employees
responsible for the offense. The rationale is that such officers or employees are vested with the
authority and responsibility to devise means necessary to ensure compliance with the law and, if they
fail to do so, are held criminally accountable; thus, they have a responsible share in the violations of
the law.48

If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or
other officers thereof responsible for the offense shall be charged and penalized for the crime,
precisely because of the nature of the crime and the penalty therefor. A corporation cannot be arrested
and imprisoned; hence, cannot be penalized for a crime punishable by imprisonment.49 However, a
corporation may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the
statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if
found guilty, may be fined.50

In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of
the separate corporate personality of PBMI.

---

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the
goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods, documents or instruments if they
were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime
of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of
Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the
Revised Penal Code.1âwphi1 If the violation or offense is committed by a corporation, partnership,
association or other juridical entities, the penalty provided for in this Decree shall be imposed upon
the directors, officers, employees or other officials or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from the criminal offense.

G.R. No. 96161 February 21, 1992

PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL
DEVELOPMENT, INC., petitioners,
vs.
COURT OF APPEALS, SECURITIES & EXCHANGE COMMISSION and STANDARD PHILIPS
CORPORATION, respondents.

FACTS:
- Petitioner Phillips Export BV is a foreign corporation organized under the laws of Netherlands
and is the registered owner of the trademarks PHILIPS and PHILIPS SHIELD EMBLEM (but
no engaged in business in the PH), issued by the Philippine Patents Office
 - Philiips Electrical, Philips Industrial (authorized users of PHILIPS and PHILIPS SHIELD
EMBLEM) all belong to the PHILIPS Group of Companies were incorporated in 1956
- Respondents Standard Philips Corporation (Standard Philips Corporation) was issed a
Certificate of registration in 1982.
- Petitioners filed a complaint with the SCE, asking for the removal of the word PHILIPS from
Standard Philips corporate name in view of the prior registrations of the trademarks PHILIPS
and PHILIPS SHIELD EMBLEM in the name of the petitioner, and Philips electrical and Philips
Industrial.
- Standard Philps refused to amend its AOI. Thus, the Petitioners prayed for the issuance of a
Preliminary injunction, alleging the Standard Philips infringed on the petitioners’ exclusive right
to use the name, as both parties engage in the same business.
- Standard Philips contended that petitioner had no legal capacity to sue and the PR’s use of
PHILIPS was not similar to the petitioners’ trademark when considered in its entirety, and that
its products (chain rollers, belts, bearings, etc) are different from petitioners’ products.
- The SEC hearing officer ruled that it cannot order the removal of the word PHILIPS from PR’s
corporate name on the basis of evidence adopted, and because Section 18 of the corpo code
only apploes when the corporate names are identical. In this case, there is no confusing
similarity between the corporate names of the parties. The SEC en banc upheld the dismissal.
- CA upheld the SEC en banc ruling – PR’s products are unrelated and non-competing with
petitioner’s products

ISSUE: W/N the word “PHILIPS” should be removed from PR’s corporate name

RULING: there is basis for petitioners’ plea

A corporation acquires its name by choice and need not select a name identical with or similar to one
already appropriated by a senior corporation. A corporation can no more use a corporate name in
violation of the rights of others than an individual can use his name legally acquired so as to mislead
the public and injure another

Our own Corporation Code, in its Section 18, expressly provides that:

No corporate name may be allowed by the Securities and Exchange Commission if the
proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing law. Where a change in a corporate name is approved,
the commission shall issue an amended certificate of incorporation under the amended
name. (Emphasis supplied)

The statutory prohibition cannot be any clearer. To come within its scope, two requisites must be
proven, namely:

(1) that the complainant corporation acquired a prior right over the use of such corporate name; and

(2) the proposed name is either:

(a) identical; or

(b) deceptively or confusingly similar

to that of any existing corporation or to any other name already protected by law; or
(c) patently deceptive, confusing or contrary to existing law

In this regard, there is no doubt with respect to Petitioners' prior adoption of' the name ''PHILIPS" as
part of its corporate name. Petitioners Philips Electrical and Philips Industrial were incorporated on 29
August 1956 and 25 May 1956, respectively, while Respondent Standard Philips was issued a
Certificate of Registration on 12 April 1982, twenty-six (26) years later (Rollo, p. 16). Petitioner PEBV
has also used the trademark "PHILIPS" on electrical lamps of all types and their accessories since 30
September 1922, as evidenced by Certificate of Registration No. 1651.

The second requisite no less exists in this case. In determining the existence of confusing similarity in
corporate names, the test is whether the similarity is such as to mislead a person, using ordinary care
and discrimination. In so doing, the Court must look to the record as well as the names themselves
(Ohio Nat. Life Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d 298). While the corporate names of Petitioners
and Private Respondent are not identical, a reading of Petitioner's corporate names, to wit: PHILIPS
EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT,
INC., inevitably leads one to conclude that "PHILIPS" is, indeed, the dominant word in that all the
companies affiliated or associated with the principal corporation, PEBV, are known in the Philippines
and abroad as the PHILIPS Group of Companies.

It may be that Private Respondent's products also consist of chain rollers, belts, bearing and the like,
while petitioners deal principally with electrical products. It is significant to note, however, that even
the Director of Patents had denied Private Respondent's application for registration of the trademarks
"Standard Philips & Device" for chain, rollers, belts, bearings and cutting saw. That office held that
PEBV, "had shipped to its subsidiaries in the Philippines equipment, machines and their parts which
fall under international class where "chains, rollers, belts, bearings and cutting saw," the goods in
connection with which Respondent is seeking to register 'STANDARD PHILIPS' . . . also belong"

Furthermore, the records show that among Private Respondent's primary purposes in its Articles of
Incorporation (Annex D, Petition p. 37, Rollo) are the following:

To buy, sell, barter, trade, manufacture, import, export, or otherwise acquire, dispose of,
and deal in and deal with any kind of goods, wares, and merchandise such as but not
limited to plastics, carbon products, office stationery and supplies, hardware
parts, electrical wiring devices, electrical component parts, and/or complement
of industrial, agricultural or commercial machineries, constructive supplies, electrical
supplies and other merchandise which are or may become articles of commerce except
food, drugs and cosmetics and to carry on such business as manufacturer, distributor,
dealer, indentor, factor, manufacturer's representative capacity for domestic or foreign
companies. (emphasis ours)

For its part, Philips Electrical also includes, among its primary purposes, the following:

To develop manufacture and deal in electrical products, including electronic, mechanical

and other similar products . . . (p. 30, Record of SEC Case No. 2743)

Given Private Respondent's aforesaid underlined primary purpose, nothing could prevent it from
dealing in the same line of business of electrical devices, products or supplies which fall under its
primary purposes. Besides, there is showing that Private Respondent not only manufactured and sold
ballasts for fluorescent lamps with their corporate name printed thereon but also advertised the same
as, among others, Standard Philips

PHILIPS is a trademark or trade name which was registered as far back as 1922. Petitioners,
therefore, have the exclusive right to its use which must be free from any infringement by similarity. A
corporation has an exclusive right to the use of its name, which may be protected by injunction upon
a principle similar to that upon which persons are protected in the use of trademarks and tradenames
(18 C.J.S. 574). Such principle proceeds upon the theory that it is a fraud on the corporation which
has acquired a right to that name and perhaps carried on its business thereunder, that another should
attempt to use the same name, or the same name with a slight variation in such a way as to induce
persons to deal with it in the belief that they are dealing with the corporation which has given a
reputation to the name

LYCEUM of the PHILIPPINES v. CA, LYCEUM OF APPARI, CABAGAN, ETC.

Section 18. Corporate name. — No corporate name may be allowed by the Securities an Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently deceptive, confusing
or contrary to existing laws. When a change in the corporate name is approved, the Commission
shall issue an amended certificate of incorporation under the amended name." The policy underlying
the prohibition in Section 18 against the registration of a corporate name which is "identical or
deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive"
or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which
would have occasion to deal with the entity concerned, the evasion of legal obligations and duties,
and the reduction of difficulties of administration and supervision over corporations. We do not
consider that the corporate names of private respondent institutions are "identical with, or deceptively
or confusingly similar" to that of the petitioner institution.
word or phrase originally incapable of exclusive appropriation with
reference to an article on the market, because geographically or
otherwise descriptive, might nevertheless have been used so long and
FACTS: so exclusively by one producer with reference to his article that, in that
- Petitioner Lyceum of the Philippines trade and toSEC
registeredthe that branch of the purchasing
on September public,
21 1950. the word
Since or phrase
then,
has come to mean that the article was his product." T
the petitioner has been using such corporate name.
- In 1948, petitioner instated proceedings with the SEC to compel PRs to remove the word
“Lyceum” from their corporate names, and to permanently enjoin them from using such word
as part of their names (note: PRs are also educational institutions
- The SEC held that the word Lyceum was capable of appropriation, and LPU had an
enforceable exclusive right to use that word.
- SEC en banc reversed the SEC officer ruling and ruledthe that the word
word Lyceum
lyceum to have
has not become
become
so identified with LPU that it would cause confusion if so
theidentified
word was use dby other
with the LPU educational
institutions. The attaching of aGoegraphical names to the word Lyceum was enough to
distinguish the PRs from the petitioners
- CA affirmed SEC en banc decision. Petitioner’s MR was denied

ISSUE: W/N the word Lyceum should be removed from the corporate names of the PRs

RULING:

We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive right
to use the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of
their corporate names. To determine whether a given corporate name is "identical" or "confusingly or
deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of
"Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the
name of petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded
as "identical" or "confusingly or deceptively similar" with each other.

"SECTION 18. Corporate name. — No corporate name may be allowed by the Securities an Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to
existing laws. When a change in the corporate name is approved, the Commission shall issue an amended
certificate of incorporation under the amended name." (Emphasis supplied)

The policy underlying the prohibition in Section 18 against the registration of a corporate name which is
"identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently
deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the
public which would have occasion to deal with the entity concerned, the evasion of legal obligations and
duties, and the reduction of difficulties of administration and supervision over corporations. 7

We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively
or confusingly similar" to that of the petitioner institution. True enough, the corporate names of private respondent
entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of
geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by
the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused
with the Lyceum of the Philippines.

Lyceum" is in fact as generic in character as the word "university." In the name of the petitioner, "Lyceum"
appears to be a substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee" frequently
denotes a secondary school or a college. It may be (though this is a question of fact which we need not resolve)
that the use of the word "Lyceum" may not yet be as widespread as the use of "university," but it is clear that a not
inconsiderable number of educational institutions have adopted "Lyceum" or "Liceo" as part of their corporate
names. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this word to
designate an entity which is organized and operating as an educational institution.

while the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this fact
alone did not amount to mean that the said word had acquired secondary meaning in its favor because the
appellant failed to prove that it had been using the same word all by itself to the exclusion of others. More so,
there was no evidence presented to prove that confusion will surely arise if the same word were to be used by
other educational institutions

We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests
strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for
applicability of the doctrine of secondary meaning. It may be noted also that at least one of the private
respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum" seventeen (17) years before
the petitioner registered its own corporate name with the SEC and began using the word "Lyceum.

GSIS FAMILY BANK – THRIFT BANK v. BPI FAMILY BANK

FACTS
- Petutioner GSIS started operations in 1971 as Royal Savings Bank. After experiencing liquidity
problems, it was placed under receivership in 1984. It eventually reopened and was renamed
Comsavings bank under Commercial Bank of Manila.
- In 1987, GSIS acquired petitioner from Commercial Bank of Manila. Eventually, it sought SEC
approval to change its corporate name to GSIS Family Bank – Thirft Bank, and applied with
the DTI and BSP to use such name for business, Thus, the petitioner now operates under
GSIS Family Bank – a Thrift Bank
 - Respondent BPI Family Bank was a product of the merger between Family Bank and Trust
Company and BPI. The Gotianum registered the corporate name Family First Savings Bank,
which was amended to Family Savings Bank and eventually to Family Bank and Trust
Company. It merged with BPI which acquired the rights etc of Family Bank, including the right
to use names such as Family First Savings Bank
- Later, BPI Family Savings Bank was registered with theSEC as a wholly-owned subsidiary of
BPI.
- BPI Family Bank later petitioned the SEC to disallow GSIS to use “Family Bank” in its corporate
name, contending that BPI Familty Bank ha sbeen known as such locally and internationally,
and has acquired a reputation and good will under the name.
- The SEC ruled that BPI Family Bank has a prior right to use “Family Bank” in its corporate
name, coupled with its registration with the IPO of “Family Bank” as its trade name following
the principle of “priority in registration” – BPI had the preferential right to use “family Bank”.
The SEC also held that there was a confusing similarity between the parties. The corporate
names are indisputably similar and could cause confusion in the public mind since both entities
are engagaed in banking
- GSIS Family Bank appealed to SEC en banc but was denied
- The CA held that BPI had the right to exclusive use of the corporate name because of its prior
adoption of the name “Family Bank” since 1969. There is also a confusing similarity because
especially since both entities are engaged in banking (confusion is likely to occur)

ISSUE: W/N “family bank” causes confusion and should thus be removed from the corporate name
of petitioner GSIS

RULING: we uphold the CA decision

n Philips Export B.V. v. Court of Appeals,34 this Court ruled that to fall within the prohibition of the law on the right
to the exclusive use of a corporate name, two requisites must be proven, namely:

(1) that the complainant corporation acquired a prior right over the use of such corporate name; and

(2) the proposed name is either

(a) identical or

(b) deceptive or confusingly similar to that of any existing corporation or to any other name already
protected by law; or

(c) patently deceptive, confusing or contrary to existing law. 35

These two requisites are present in this case.

On the requisite of a prior right:

In this case, respondent was incorporated in 1969 as Family Savings Bank and in 1985 as BPI Family Bank.
Petitioner, on the other hand, was incorporated as GSIS Family – Thrift Bank only in 2002,38 or at least seventeen
(17) years after respondent started using its name. Following the precedent in the IRCP case, we rule that
respondent has the prior right over the use of the corporate name.

The second requisite in the Philips Export case likewise obtains on two points: the proposed name is (a) identical
or (b) deceptive or confusingly similar to that of any existing corporation or to any other name already protected
by law.
On the first point (a), the words "Family Bank" present in both petitioner and respondent's corporate name satisfy
the requirement that there be identical names in the existing corporate name and the proposed one

Section 3 states that if there be identical, misleading or confusingly similar name to one already registered by
another corporation or partnership with the SEC, the proposed name must contain at least one distinctive
word different from the name of the company already registered. To show contrast with respondent's
corporate name, petitioner used the words "GSIS" and "thrift." But these are not sufficiently distinct
words that differentiate petitioner's corporate name from respondent's. While "GSIS" is merely an
acronym of the proper name by which petitioner is identified, the word "thrift" is simply a classification of
the type of bank that petitioner is. Even if the classification of the bank as "thrift" is appended to
petitioner's proposed corporate name, it will not make the said corporate name distinct from
respondent's because the latter is likewise engaged in the banking business.

On the second point (b), there is a deceptive and confusing similarity between petitioner's proposed name and
respondent's corporate name, as found by the SEC.42 In determining the existence of confusing similarity in
corporate names, the test is whether the similarity is such as to mislead a person using ordinary care and
discrimination.43 And even without such proof of actual confusion between the two corporate names, it suffices
that confusion is probable or likely to occur.44

The SEC made a finding that "[i]t is not a remote possibility that the public may entertain the idea that a
relationship or arrangement indeed exists between BPI and GSIS due to the use of the term ‘Family Bank’ in their
"Family," as used in respondent's corporate name, is not generic. Under the facts of this case, the word "family"
corporate names."47 cannot be separated from the word "bank."50 In asserting their claims before the SEC up to the Court of Appeals,
both petitioner and respondent refer to the phrase "Family Bank" in their submissions. This coined phrase, neither
being generic nor descriptive, is merely suggestive and may properly be regarded as arbitrary. Arbitrary marks are "
words or phrases used as a mark that appear to be random in the context of its use

By definition, there can be no expected relation between the word "family" and the banking business of respondent.
Rather, the words suggest that respondent’s bank is where family savings should be deposited. More, as in the Ang
case, the phrase "family bank" cannot be used to define an object. COINED TERM WHICH CAN BE LEGALLY
APPROPRIATED AS A TRADEMARK OR TRADENAME

DE LA SALLE MONTESORRI INTERNATIONAL of MALOLOS v. DE LA SALLE BROTHERS INC.

ET AL

FACTS:
- Petitioner De La Salle MOntesori reserved with the SEC its corporate name from June 4 to
August 3, 2007, after which the SEC indorsed petitioner’s AOI and by laws to DepEd for
recommendation. DepEd returned the endorsement without objections and the SEC issued a
certificate of incorporation to petitioner.
- On January 29, 2010, respondents De La Salle Brothers, etc. filed a petition with the SEC
seeking to compel petitioner to change its corporate name. the respondents claim that
petitioner’s corporate name is misleading or confusingly similar to the corporate name of the
respondents which the latter have acquired a prior right to use.
a. According to respondents, the dominant phrases “La Salle” and de Lassale” gives an
erroneuous impression that petitioner is part of the La Salle Group, which violates Sec.
18 of the corpo code
- SEC ordered petitioner to change its corporate name, holding that the respondents acquired
the right of exclusive use the name “La Salle”. The SEC also ruled that such term is not
genereioc and does not refer to the basic natire of services that the respondents provide. Thus,
the use of respondnets of the name is arbitrary, fanciful and distinctive and is thus legally
protectable. Confusion was also likely to occur because of the similarity of the parties’ names
and also because of the fact that they are engaged in the same business
- Petitioner filed an appeal to the SEC En Banc which affirmed the SEC OGC.
a. The SEC en banc held that the Lyceum case does not apply to the case because the
word “lyceum” is a generic word pertaining to a category of educational institutions and
is widely used around the word
 - Petitioner filed a petiton for review with the CA which upheld the SEC OGC ruling in toto

ISSUE: W/N the ruling in the Lyceum of the PH case should be applied in the current case

RULING: NO
- t a corporation's right to use its corporate and trade name is a property right, a right in rem,
which it may assert and protect against the world in the same manner as it may protect its
tangible property, real or personal, against trespass or conversion.24 It is regarded, to a certain
extent, as a property right and one which cannot be impaired or defeated by subsequent
appropriation by another corporation in the same field.
- Thus, Section 18 thereof provides:

- Sec. 18. Corporate name. - No corporate name may be allowed by the Securities and
Exchange Commission if the proposed name is identical or deceptively or confusingly similar
to that of any existing corporation or to any other name already protected by law or is
patently deceptive, confusing or contrary to existing laws. When a change in the corporate
name is approved, the Commission shall issue an amended certificate of incorporation under
the amended name.
- The policy underlying the prohibition in Section 18 against the registration of a corporate name
which is "identical or deceptively or confusingly similar" to that of any existing corporation or
which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the
avoidance of fraud upon the public which would have occasion to deal with the entity
concerned, the evasion of legal obligations and duties, and the reduction of difficulties of
administration and supervision over corporations.29
-
- TO FALL UNDER THE PROHIBITION OF SEC. 18: two requisites must be proven, to wit:
a. 1) that the complainant corporation acquired a prior right over the use of such corporate
name; and
b. (2) the proposed name is either: (a) identical, or (b) deceptively or confusingly similar
to that of any existing corporation or to any other name already protected by law; or (c)
patently deceptive, confusing or contrary to existing law.32
-

For the first requisite:

this case, respondents' corporate names were registered on the following dates: (1) De La Salle
Brothers, Inc. on October 9, 1961 under SEC Registration No. 19569; (2) De La Salle University,
Inc. on December 19, 1975 under SEC Registration No. 65138; (3) La Salle Academy, Inc. on
January 26, 1960 under SEC Registration No. 16293; (4) De La SalleSantiago Zobel School, Inc. on
October 7, 1976 under SEC Registration No. 69997; and (5) De La Salle Canlubang, Inc. on August
5, 1998 under SEC Registration No. Al998-01021.34

On the other hand, petitioner was issued a Certificate of Registration only on July 5, 2007 under
Company Registration No. CN200710647.35 It being clear that respondents are the prior
registrants, they certainly have acquired the right to use the words "De La Salle" or "La Salle" as
part of their corporate names.

The second requisite is also satisfied since there is a confusing similarity between petitioner's and
respondents' corporate names. While these corporate names are not identical, it is evident that the
phrase "De La Salle" is the dominant phrase used.
 - Petioner argued that no confusion would arise because it used four distinctive words (De La
Salle Montessori International of Malolos) and these are not found in the namaes of the
respondents

In determining the existence of confusing similarity in corporate names, the test is whether the
similarity is such as to mislead a person using ordinary care and discrimination

As correctly held by the SEC OGC, all these words, when used with the name "De La Salle," can
reasonably mislead a person using ordinary care and discretion into thinking that petitioner is an
affiliate or a branch of, or is likewise founded by, any or all of the respondents, thereby causing
confusion.

e affirm that the phrase "De La Salle" is not merely a generic term. Respondents' use of the phrase
being suggestive and may properly be regarded as fanciful, arbitrary and whimsical, it is entitled to
legal protection.42 Petitioner's use of the phrase "De La Salle" in its corporate name is patently
similar to that of respondents that even with reasonable care and observation, confusion might
arise. The Court notes not only the similarity in the parties' names, but also the business they are
engaged in. They are all private educational institutions offering pre-elementary, elementary and
secondary courses.43 As aptly observed by the SEC En Banc, petitioner's name gives the
impression that it is a branch or affiliate of respondents. 44 It is settled that proof of actual
confusion need not be shown. It suffices that confusion is probable or likely to occur.45

the ruling in the lyceum case does not apply

The Court there held that the word "Lyceum" today generally refers to a school or institution of
learning. It is as generic in character as the word "university." Since "Lyceum" denotes a school or
institution of learning, it is not unnatural to use this word to designate an entity which is organized
and operating as an educational institution. Moreover, the Lyceum of the Philippines, Inc.'s use of
the word "Lyceum" for a long period of time did not amount to mean that the word had acquired
secondary meaning in its favor because it failed to prove that it had been using the word all by
itself to the exclusion of others

Here, the phrase "De La Salle" is not generic in relation to respondents. It is not descriptive of
respondent's business as institutes of learning, unlike the meaning ascribed to "Lyceum."
Moreover, respondent De La Salle Brothers, Inc. was registered in 1961 and the De La Salle group
had been using the name decades before petitioner's corporate registration.