Gallagher v Germania Brewing Co.
Facts: Caram was ordered by the CA to jointly and
Facts: Plaintiff, as assignee of Westphal, brought
this action to recover goods sold and delivered by his
assignor (Westphal), to the defendant corporation.
However, Barge and Vander Horck intervened, and
stated that they could intervene because they owned
all the capital stock of the defendant, and that no
other person but themselves had an interest in the
stock and property of Germania Brewing Co. They
also contended that they had a COA against
Westphal which accrued before the assignment to
the plaintiff, and that Westphal was utterly insolvent.
The relief they were seeking was that to equitably
set-off their claims against Westphal from those that
Gallagher (as Westphal’s assignee) has against the
defendant corp. Gallagher states that Barge and
Vander had no such interest in the litigation as to
entitle them to intervene and that their claims cannot
be set off against a claim against the corporation,
since a corporation is a legal entity, entirely distinct
from its stockholders
Issue: WON the claims of Barge and Vander
Horck can be equitable set-off against the
claims of Gallagher as against Germania
Brewin Corp.
Held: No. Their claims against Westphal
(Gallagher’s assignor) are not subjects of
equitable set-off to a claim against the
defendant corporation.
To allow the set-off in the case at bat, it will be
tantamount to totally ignoring the legal doctrine, or
fiction, that a corporation is an entity separate and
distinct from the body of its stockholders. It has been
absolutely essential, for the administration of justice,
to treat a corporation as a collective entity, without
regard to its individual shareholders. If the rights or
liabilities of a corporation could be affected by the
acts of the stockholders, except when acting in the
corporate name, it can easily be seen into what
confusion and chaos corporate affairs would
inevitably fall. In as much as the 2 intervenors own
all the stock of this corporation (Germania), the facts
of this case seem comparatively free from
embarrassments, and the contention of the
respondent quite plausible. But suppose there were
50 other stock holders, what would be the result?
Could interveners then interpose their claims as set-
offs, and if so, could they do so to the full amount of
their claims? No. Illustration might be multiplied
indefinitely to show that to recognize any such right
would result in the worst sort of complications, and
that the only safe or sound rule is to adhere strictly
to the doctrine of a corporate entity distinct from the
individual stockholders.
Caram vs CA
severally pay the plaintiff the amount of P50,000.00
for the preparation of the project study and his
technical services that led to the organization of the
corporation. Their position is that as mere
subsequent investors in the corporation that was
later created, they should not be held solidarily liable
with the Filipinas Orient Airways, a separate juridical
entity, and with Barretto and Garcia, their co-
defendants in the lower court, who were the ones
who requested the said services from them.
Issue: WON the Carams are also and personally
liable for such expenses.
Held: No. The petitioners are not liable at all, jointly
or jointly and severally. The petitioners were not
really involved in the initial steps that finally led to
the incorporation of the Filipinas Orient Airways.
Barreto was also described as the “moving spirit”.
The project study was undertaken by the private
respondent at the request of Barretto and Garcia
who, upon its completion, presented it to the
petitioners to induce them to invest in the proposed
airline. The airline was eventually organized on the
basis of the project study with the petitioners as
major stockholders and, together with Barretto and
Garcia, as principal officers. Caram was properly
compensated not only for having actively
participated in the preparation of the project study
for several months and its subsequent revision but
also in his having been involved in the pre-
organization of the defendant corporation, in the
preparation of the franchise, in inviting the interest of
the financiers and in the training and screening of
personnel.
The above finding bolsters the conclusion that the
petitioners were not involved in the initial stages of
the organization of the airline, which were being
directed by Barretto as the main promoter. It was he
who was putting all the pieces together, so to speak.
The petitioners were merely among the financiers
whose interest was to be invited and who were in
fact persuaded, on the strength of the project study,
to invest in the proposed airline.
There was no showing that the Filipinas Orient
Airways was a fictitious corporation and did not have
a separate juridical personality, to justify making the
petitioners, as principal stockholders thereof,
responsible for its obligations. As a bona fide
corporation, the Filipinas Orient Airways should alone
be liable for its corporate acts as duly authorized by
its officers and directors.
The petitioners cannot be held personally liable for
the compensation claimed by the private respondent
for the services performed by him in the organization
of the corporation. To repeat, the petitioners did not
contract such services. It was only the results of such
services that Barretto and Garcia presented to them
and which persuaded them to invest in the proposed
airline. The most that can be said is that they
benefited from such services, but that surely is no
justification to hold them personally liable therefor.
Otherwise, all the other stockholders of the
corporation, including those who came in later, and
regardless of the amount of their share holdings,
would be equally and personally liable also with the
petitioners for the claims of the private respondent.
PALAY, INC. and ALBERT ONSTOTT
vs.
JACOBO C. CLAVE, Presidential Executive
Assistant NATIONAL HOUSING AUTHORITY and
NAZARIO DUMPIT respondents.
Facts: Palay, Inc., through its President, Albert
Onstott executed in favor of Nazario Dumpit, a
Contract to Sell a parcel of Land of the Crestview
Heights Subdivision in Antipolo, Rizal, owned by said
corporation. The sale price was P23,300.00 with 9%
interest per annum, payable with a downpayment of
P4,660.00 and monthly installments of P246.42 until
fully paid. Paragraph 6 of the contract provided for
automatic extrajudicial rescission upon default in
payment of any monthly installment after the lapse
of 90 days from the expiration of the grace period of
one month, without need of notice and with forfeiture
of all installments paid.
Dumpit paid the downpayment and several
installments amounting to P13,722.50. The last
payment was made on December 5, 1967 for
installments up to September 1967.
Almost 6 years later, Dumpit wrote petitioner offering
to update all his overdue accounts with interest, and
seeking its written consent to the assignment of his
rights to a certain Lourdes Dizon. Replying
petitioners informed respondent that his Contract to
Sell had long been rescinded pursuant to paragraph
6 of the contract, and that the lot had already been
resold. Dumpit questioned the validity of the
rescission of the contract with the NHA. NHA found
the rescission void in the absence of either judicial or
notarial demand, ordered Palay, Inc. and Alberto
Onstott in his capacity as President of the
corporation, jointly and severally, to refund
immediately to Nazario Dumpit the amount of
P13,722.50 .
Issue: WON Onstott, as the President, should
be solidarily liable with Palay Inc to refund the
amount
Held: No. Only Palay Inc should refund the
payment made by Dumpit
It is important to note that even though there has
been a stipulation of automatic rescission of the
contract in case of default of payment of
installments, still, a notice should be given. This was
not done in the case at bar.
It is basic that a corporation is invested by law with a
personality separate and distinct from those of the
persons composing it as when as from that of any
other legal entity to which it may be related. As a
general rule, a corporation may not be made to
answer for acts or liabilities of its stockholders or
those of the legal entities to which it may be
connected and vice versa. However, the veil of
corporate fiction may be pierced when it is used as a
shield to further an end subversive of justice; or for
purposes that could not have been intended by the
law that created it; or to defeat public convenience,
justify wrong, protect fraud, or defend crime or to
perpetuate fraud or confuse legitimate issues; or to
circumvent the law or perpetuate deception; or as an
alter ego, adjunct or business conduit for the sole
benefit of the stockholders.
We find no badges of fraud on petitioners' part. They
had literally relied, albeit mistakenly, on paragraph 6
of its contract with private respondent when it
rescinded the contract to sell extrajudicially and had
sold it to a third person.
In this case, petitioner Onstott was made liable
because he was then the President of the corporation
and he was the controlling stockholder. No sufficient
proof exists on record that said petitioner used the
corporation to defraud private respondent. He
cannot, therefore, be made personally liable just
because he "appears to be the controlling
stockholder". Mere ownership by a single stockholder
or by another corporation is not of itself sufficient
ground for disregarding the separate corporate
personality.
Dulay Enterprises v. CA
In this case the Dulay Enterprises is a Closed
Corporation with Manuel Dulay owning more than
98% of the shares of the corporation, being the
managing director and president. There is no doubt
that despite Dulay Enterprises being a family
corporation the majority of the power rests upon
Manuel Dulay.
Dulay Enterprises owns an apartment in the Pasay
area. Dulay Enterprises later undertook to build a
Hotel and due to lack of funds had to obtain several
loans. Later Dulay Enterprises/Manuel Dulay (he was
empowered by a board resolution) sold the
apartment to spouses Veloso for 300k with the right
of repurchase for 2 years, however such right to
repurchase was not annotated in the TCT issued in
favor of the spouses Veloso. Before the 2 years was
finished one of the spouses Veloso subsequently
mortgaged the apartment to Mr. Torres, this
mortgage was not known to Manuel Dulay/Dulay
Enterprises. Due to failure to pay, the apartment was
foreclosed and Mr. Torres being the only bidder was
sold the property, after this the Velosos transferred
their right to redeem to Manuel Dulay. A year has
passed and the property was not redeemed, Mr.
Torres became the owner of the apartment.
Torres moved to eject some of the tenants of the
apartment including the lawyer of the corporation.
The corporation intervened in favor of the tenants.
Ultimately the metropolitan trial court granted the
action for ejectment and ordered the said tenants to
vacate. The corporation through its lawyer appealed
to the RTC to annul the decision, RTC refused. So did
the CA. upon bringing the matter to the SC they
questioned the validity of the sale of the apartment
by Manuel Dulay to the Veloso Spouses.
In light of these the corporation attempted to use the
courts to render void the board resolution to sell the
said apartment by saying that such board resolution
was void. They allege that the board resolution to sell
the apartment did not have the approval of all its
members. To this the court replied:
In the instant case, petitioner
corporation is classified as a close
corporation and consequently a
board resolution authorizing the sale
or mortgage of the subject property
is not necessary to bind the
corporation for the action of its
president. At any rate, corporate
action taken at a board meeting
without proper call or notice in a
close corporation is deemed ratified
by the absent director unless the
latter promptly files his written
objection with the secretary of the
corporation after having knowledge
of the meeting which, in his case,
petitioner Virgilio Dulay failed to do.
It is relevant to note that although a
corporation is an entity which has a
personality distinct and separate
from its individual stockholders or
members, the veil of corporate fiction
may be pierced when it is used to
defeat public convenience justify
wrong, protect fraud or defend crime.
The privilege of being treated as an
entity distinct and separate from its
stockholder or members is therefore
confined to its legitimate uses and is
subject to certain limitations to
prevent the commission of fraud or
other illegal or unfair act. When the
corporation is used merely as an alter
ego or business conduit of a person,
the law will regard the corporation as
the act of that person. The Supreme
Court had repeatedly disregarded the
separate personality of the
corporation where the corporate
entity was used to annul a valid
contract executed by one of its
members.
Ultimately the Supreme Court denied the petition to
annul the decision of the MTC and upheld the
decision of the MTC. Here while the Dulay Enterprises
has a separate entity from Manuel Dulay, the court
cannot acquiesce to the corporation’s allegation that
Manuel Dulay acted without the knowledge of other
directors. Manuel Dulay cannot hide behind the
corporation and allege that his sale of the apartment
as void due to some technicality with the board
resolution.
San Juan Structural v. CA
Summarily stated the secretary of the corporation
came into contract with another company (san Juan)
to sell a parcel of land. The other company
eventually asked that the supposedly perfected
contract of sale be executed. Motorich however did
not honor the contract of sale made by its treasurer
since such sale was not authorized by a board
resolution. San Juan corporation then went to the
courts to enforce the contract of sale. The courts
declined to enforce such sale. The RTC dismissed the
case altogether; the CA merely ordered that the
down payment received by the treasurer be
returned. The Supreme Court further elaborates on
the action of the lower courts.
Primarily the question raised was if the acts of the
treasurer (here treasurer and her husband owns 98+
% of the stocks of the corporation) would bind the
corporation. The Supreme Court said no. first a
corporation need to act through agents but such
agents must be empowered by the corporation itself
through a board resolution. The court states that:
A corporation is a juridical person
separate and distinct from its
stockholders or members.
Accordingly, the property of the
corporation is not the property of its
stockholders or members and may
not be sold by the stockholders or
members without express
authorization from the corporation's
board of directors. Section 23 of BP
68, otherwise known as the
Corporation Code of the Philippines,
provides;
Sec. 23. The Board of Directors or
Trustees. — Unless otherwise
provided in this Code, the corporate
powers of all corporations formed
under this Code shall be exercised,
all business conducted and all
property of such corporations
controlled and held by the board of
directors or trustees to be elected
from among the holders of stocks, or
where there is no stock, from among
the members of the corporation, who
shall hold office for one (1) year and
until their successors are elected and
qualified.
Indubitably, a corporation may act
only through its board of directors or,
when authorized either by its bylaws
or by its board resolution, through its
officers or agents in the normal
course of business. The general
principles of agency govern the
relation between the corporation and
its officers or agents, subject to the
articles of incorporation, bylaws, or
relevant provisions of law. Thus, this
Court has held that "a corporate
officer or agent may represent and
bind the corporation in transactions
with third persons to the extent that
the authority to do so has been
conferred upon him, and this includes
powers which have been intentionally
conferred, and also such powers as,
 in the usual course of the particular
business, are incidental to, or may be
implied from, the powers
intentionally conferred, powers
added by custom and usage, as
usually pertaining to the particular
officer or agent, and such apparent
powers as the corporation has
caused persons dealing with the
officer or agent to believe that it has
conferred."
Second citing the previous case of Dulay v. CA, the
decision in that case is not applicable here given that
Motorich is not a closed corporation. The court
adamantly posited that under no stretching of the
imagination can the treasurer sell the subject lot,
even if she and her husband own 98% of the stock of
the corporation. A board resolution to the effect that
the corporation intends to sell the subject lot is
needed for such sale to be possible. The mere fact
that the corporation refuses to ratify the acts of the
treasurer shows that such act of its officer is not
according to the will of the corporation. Finally the
court chastises the petitioner corporation (san juan)
and its president for falling to such machination
being in the business for 10 years, they should have
known that corporate treasurers are not empowered
to sell corporate property
Tramat Mercantile v. CA
Dela Cuesta sold a tractor to Tramat corporation.
David Ong (president of Tramat) paid dela Cuesta via
a check. Tramat modified the tractor and made it into
a lawn mower and subsequently sold the same to
NAWASA. NAWASA refused to pay Tramat for the
tractor saying that it had defects and that the tractor
engine is reconditioned. Tramat through David ong
subsequently caused a stop payment of the check
paid to Dela Cuesta (lesson, take cash or cash in
ASAP).
Dela Cuesta ofcourse sued Tramat for non-payment
and asked that Tramat and David Ong be solidarily
held liable. The RTC granted this and asked the
above mentioned to pay jointly and severally (aka
solidarily). The CA said the same.
The Supreme Court generally agreed that Tramat
should pay however in the case of David Ong being
merely the President of the company corporation, he
should not be held personally liable for transactions
carried in the name of the corporation. It must be
remembered that the corporation has a separate and
distinct personality from its officers (even its
president) and the liability incurred by the
corporation is to be born by the corporation. The
court said essentially the same:
Ong had there so acted, not in his
personal capacity, but as an officer of
a corporation, TRAMAT, with a
distinct and separate personality. As
such, it should only be the
corporation, not the person acting for
and on its behalf, that properly could
be made liable thereon.
The case however said that the above is not
a hard and fast rule. In certain circumstance
the corporate officers may be held liable in
cases of:
1. He assents (a) to a patently
unlawful act of the corporation, or
(b) for bad faith, or gross negligence
in directing its affairs, or (c) for
conflict of interest, resulting in
damages to the corporation, its
stockholders or other persons; 4
2. He consents to the issuance of
watered stocks or who, having
knowledge thereof, does not
forthwith file with the corporate
secretary his written objection
thereto; 5
3. He agrees to hold himself
personally and solidarily liable with
the corporation; 6 or
4. He is made, by a specific provision
of law, to personally answer for his
corporate action.
Clearly Ong has not committed any of the
above mentioned and shouldn’t be held
personally liable.
Marvel Building Corporation et al. v David
Facts: Plaintiffs, as stockholders of Marvel Building
Corp (corp) wants to enjoin from selling at public
auction properties in the complaint that included 3
parcels of land, namely the Aguinaldo Building, Wise
Building, and Dewey Boulevard-Padre Faura Mansion,
all registered in the name of the corp. Said properties
were seized to collect war profit taxes against
plaintiff Maria Castro. Plaintiffs allege that the 3
properties belong to the Corp and not to Maria Castro
while defendant claims that Castro is the true and
exclusive owner of the said properties. In the Articles
of Incorporation (AI) of the corp, the capital stock was
at P2M but what was only subscribed and paid was
P1.025M by 11 stockholders. Maria Castro was the
president of the corp. Of the 11 stockholders, it
appears that Castro was related to almost all of them
(half brothers, half sisters, brother-in-law, husband of
Maria CAstro). The stockholders never held any
business meetings, the by-laws of the corp was never
presented, and no reports of the affairs of the
corporation has been made, either of its transactions
or its accounts. From the books, advances were
made by Maria Castro to the corp 3 times amounting
to almost P400K.
Issue: WON Maria Castro is the sole and
exlclusive owner of all the shares of stock of
Marvel Building Corp and that the other
partners are her mere dummies
Held: Yes.
1. Maria Castro had endorsements in blank of
the shares of stock issued in the name of the
other incorporators, and she has possession
of them. She signed 25 stock certificates but
only 11 were issued.
2. The stockholders did not have that much
income to pay the amounts corresponding to
their shares. It was found that Castro profited
a lot in her business. This shows that Castro
furnished all the money that the Corp had.
3. It is also significant that the plaintiffs, the
supposed subscribers, should have come to
court to assert that they actually paid for
their subscriptions and that they are not
mere dummies. They never did. They could
have rebutted the charges, but they kept
slent.
4. Stockholders never met to discuss business
matters.
5. The books of account were kept as if they
belonged to Castro alone.
6. Castro advanced a big amount of money for
the corporation.
All these show that Castro was the sole and exclusive
owner of the shares and that the subscribers were
her mere dummies.
Cease vs. Court of Appeals
G.R. No. L-33172 October 18, 1979
FACTS:
Forrest Cease and five (5) other American
citizens formed Tiaong Milling and Plantation
Company. Eventually, the shares of the other original
incorporators were bought out by Cease with his
children. The company’s charter lapsed in June 1958.
Forrest Cease died in August 1959. There was no
mention whether there were steps to liquidate the
company. Some of his children wanted an actual
division while others wanted a reincorporation. Two
of his children, Benjamin and Florence, initiated
Special Proceeding No. 3893 with CFI Tayabas asking
that the Tiaong Milling and Plantation Corporation be
declared identical to Forrest Cease and that its
properties be divided among his children as intestate
heirs. Defendants opposed the same but the CFI
ruled in favor of the plaintiffs. Defendants filed a
notice of appeal from the CFI’s decision but the same
was dismissed for being premature. The case was
elevated to the SC which remanded it to the Court of
Appeals. The CA dismissed the petition.
ISSUE: Whether or not the Court of Appeals erred in
affirming the lower court’s decision that the subject
properties owned by the corporation are also
properties of the estate of Forrest Cease
HELD: NO. The trial court indeed found strong
support, one that is based on a well-entrenched
principle of law which is the theory of "merger of
Forrest L. Cease and The Tiaong Milling as one
personality", or that "the company is only the
business conduit and alter ego of the deceased
Forrest L. Cease and the registered properties of
Tiaong Milling are actually properties of Forrest L.
Cease and should be divided equally, share and
share alike among his six children, ... ", the trial court
aptly applied the familiar exception to the general
rule by disregarding the legal fiction of distinct and
separate corporate personality and regarding the
corporation and the individual member one and the
same. In shredding the fictitious corporate veil, the
trial judge narrated the undisputed factual premise,
thus:
While the records showed that
originally its incorporators were
aliens, friends or third-parties in
relation to another, in the course of
its existence, it developed into a
close family corporation. The Board
of Directors and stockholders belong
to one family the head of which
Forrest L. Cease always retained the
majority stocks and hence the control
and management of its affairs. It
must be noted that as his children
increase or become of age, he
continued distributing his shares
among them adding Florence, Teresa
and Marion until at the time of his
death only 190 were left to his name.
Definitely, only the members of his
family benefited from the
Corporation.
The corporation 'never' had any
account with any banking institution
or if any account was carried in a
bank on its behalf, it was in the name
of Mr. Forrest L. Cease. There is truth
in plaintiff's allegation that the
corporation is only a business conduit
of his father and an extension of his
personality, they are one and the
same thing. Thus, the assets of the
corporation are also the estate of
Forrest L. Cease, the father of the
parties herein who are all legitimate
children of full blood.
A rich store of jurisprudence has established the rule
known as the doctrine of disregarding or piercing the
veil of corporate fiction.
GENERAL RULE: a corporation is vested by law with a
personality separate and distinct from the persons
composing it as well as any other legal entity to
which it may be related. By virtue of this attribute, a
corporation may not, generally, be made to answer
for acts or liabilities of its stockholders or those of the
legal entities to which it may be connected, and vice
versa. This separate and distinct personality is,
however, merely a fiction created by law for
convenience and to promote the ends of justice
EXCEPTIONS: Such rule may not be used or invoked
for ends subversive of the policy and purpose behind
its creation or which could not have been intended by
law to which it owes its being. This is particularly true
where the fiction is used to defeat public
convenience, justify wrong, protect fraud, defend
crime, confuse legitimate legal or judicial issues,
perpetrate deception or otherwise circumvent the
law
This is likewise true where the corporate entity is
being used as an alter ego, adjunct, or business
conduit for the sole benefit of the stockholders or of
another corporate. In any of these cases, the
notion of corporate entity will be pierced or
disregarded, and the corporation will be treated
merely as an association of persons or, where there
are two corporations, they will be merged as one, the
one being merely regarded as part or the
instrumentality of the other.
An indubitable deduction from the findings of the trial
court cannot but lead to the conclusion that the
business of the corporation is largely, if not wholly,
the personal venture of Forrest L. Cease. There is not
even a shadow of a showing that his children were
subscribers or purchasers of the stocks they own.
Their participation as nominal shareholders
emanated solely from Forrest L. Cease's gratuitous
dole out of his own shares to the benefit of his
children and ultimately his family.
If the Court sustained the theory of petitioners that
the trial court acted in excess of jurisdiction or abuse
of discretion amounting to lack of jurisdiction in
deciding the civil case as a case for partition, Tiaong
Milling and Plantation Company would have been
able to extend its corporate existence beyond the
period of its charter which lapsed in June, 1958 under
the guise and cover of F. L, Cease Plantation
Company, Inc. as Trustee which would be against the
law, and as Trustee shall have been able to use the
assets and properties for the benefit of the
petitioners, to the great prejudice and defraudation.
of private respondents. Hence, it becomes necessary
and imperative to pierce that corporate veil.
The judgment appealed from is AFFIRMED.
PAMPLONA PLANTATION COMPANY, INC. and/or
JOSE LUIS BONDOC, Petitioners, vs.
RODEL TINGHIL, MARYGLENN SABIHON,
ESTANISLAO BOBON, CARLITO TINGHIL,
BONIFACIO TINGHIL, NOLI TINGHIL,
EDGAR TINGHIL, ERNESTO ESTOMANTE,
SALLY TOROY, BENIGNO TINGHIL JR.,
ROSE ANN NAPAO, DIOSDADO TINGHIL,
ALBERTO TINGHIL, ANALIE TINGHIL, and
ANTONIO ESTOMANTE, Respondents.
FACTS:
Pamplona Plantations Company, Inc. was
organized for the purpose of taking over the
operations of the coconut and sugar plantation of
Hacienda Pamplona located in Pamplona, Negros
Oriental. It appears that Hacienda Pamplona was
formerly owned by a certain Mr. Bower who had in
his employ several agricultural workers. When the
company took over the operation of Hacienda
Pamplona in 1993, it did not absorb all the workers of
Hacienda Pamplona. Some, however, were hired by
the company as seasonal workers. Pamplona
Plantation Leisure Corporation was then established
for the purpose of engaging in the business of
operating the golf course constructed on one part of
the plantation, and other leisure activities. Pamplona
Plantation Labor Independent Union conducted an
organizational meeting wherein several who are
either union members or officers participated in said
meeting. Upon learning that some of the respondents
attended the said meeting, Petitioner Jose Luis
Bondoc, manager of the company, did not allow
respondents to work anymore in the plantation.
Thereafter, on various dates, respondent filed their
respective complaints with the NLRC, for illegal
dismissal.
Respondent Carlito Tinghil amended his
complaint to implead Pamplona Plantation Leisure
Corporation. Labor Arbiter Jose G. Gutierrez rendered
a decision finding respondents, except Rufino
Bacubac, Antonio Caolas and Felix Torres who were
complainants in another case, to be entitled to
separation pay.
On appeal to NLRC, the same reversed the
ruling of the LA and ruled that petitioners except
Carlito Tinghil, failed to implead Pamplona Plantation
Leisure Corporation, an indispensable party and that
'there exist no employer-employee relation between
the parties.
CA reversed the ruling of the NLRC.
ISSUE: Whether the case should be dismissed for the
non-joinder of the Pamplona Plantation Leisure
Corporation.
HELD: No.
Piercing the Corporate Veil
For both the coconut plantation and the golf course,
there is only one management which the laborers
deal with regarding their work. The weekly payrolls
issued by petitioner-company bore the name
'Pamplona Plantation Co., Inc. It is also a fact that
respondents all received their pay from the same
person, Petitioner Bondoc -- the managing director of
the company. Since the workers were working for a
firm known as Pamplona Plantation Co., Inc., the
reason they sued their employer through that name
was natural and understandable.
True, the Petitioner Pamplona Plantation Co., Inc.,
and the Pamplona Plantation Leisure Corporation
appear to be separate corporate entities. But it is
settled that this fiction of law cannot be invoked to
further an end subversive of justice.
The principle requiring the piercing of the corporate
veil mandates courts to see through the protective
shroud that distinguishes one corporation from a
seemingly separate one. The corporate mask may be
removed and the corporate veil pierced when a
corporation is the mere alter ego of another. Where
badges of fraud exist, where public convenience is
defeated, where a wrong is sought to be justified
thereby, or where a separate corporate identity is
used to evade financial obligations to employees or
to third parties, the notion of separate legal entity
should be set aside and the factual truth upheld.
When that happens, the corporate character is not
necessarily abrogated.[27] It continues for other
legitimate objectives. However, it may be pierced in
any of the instances cited in order to promote
substantial justice.
In the present case, the corporations have basically
the same incorporators and directors and are headed
by the same official. Both use only one office and one
payroll and are under one management.
Respondents allege that they worked under the
supervision and control of Petitioner Bondoc -- the
common managing director of both the petitioner-
company and the leisure corporation
BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and
JADE MOUNTAIN PRODUCTS COMPANY LIMITED,
WILLY CO, RHODORA D. BENDAL, LEA BENDAL,
CHIU SHIAN JENG and CHEN HO-FU, respondents.
FACTS: Benjamin Yu was formerly the Assistant
General Manager of the marble quarrying and export
business operated by a registered partnership with
the firm name of "Jade Mountain Products Company
Limited" ("Jade Mountain"). He had a monthly salary
of P4,000. However, he only received half of his
monthly salary since he had accepted the promise of
the partners that the balance would be paid when
the firm shall have secured additional operating
funds from abroad. Sometime in 1988, without the
knowledge the rest of the partners sold and
transferred their interests in the partnership to
private respondents Willy Co and Emmanuel
Zapanta. The partnership now constituted solely by
Willy Co and Emmanuel Zapanta continued to use
the old firm name of Jade Mountain, though they
moved the firm's main office from Makati to
Mandaluyong, Metropolitan Manila. The actual
operations of the business enterprise continued as
before. All the employees of the partnership
continued working in the business, except for
Benjamin Yu. Having learned of the transfer of the
firm's main office from Makati to Mandaluyong,
petitioner Benjamin Yu reported to the Mandaluyong
office for work and there met private respondent
Willy Co for the first time. Petitioner was informed by
Willy Co that the latter had bought the business from
the original partners and that it was for him to decide
whether or not he was responsible for the obligations
of the old partnership, including petitioner's unpaid
salaries. Petitioner was in fact not allowed to work
anymore in the Jade Mountain business enterprise.
His unpaid salaries remained unpaid.
Benjamin Yu filed a complaint for illegal
dismissal and recovery of unpaid salaries accruing
from November 1984 to October 1988, moral and
exemplary damages and attorney's fees, against Jade
Mountain, Mr. Willy Co and the other private
respondents. The partnership and Willy Co denied
petitioner's charges, contending in the main that
Benjamin Yu was never hired as an employee by the
present or new partnership.
LA: Illegal Dismissal
NLRC: Reversed.
ISSUES: 1. Whether the partnership which had
hired petitioner Yu as Assistant General Manager had
been extinguished and replaced by a new
partnerships composed of Willy Co and Emmanuel
Zapanta;
2. Whether petitioner Yu could nonetheless
assert his rights under his employment contract as
against the new partnership.
1. In the case at bar, just about all of the partners
had sold their partnership interests (amounting to
82% of the total partnership interest) to Mr. Willy Co
and Emmanuel Zapanta. The record does not show
what happened to the remaining 18% of the original
partnership interest. The acquisition of 82% of the
partnership interest by new partners, coupled with
the retirement or withdrawal of the partners who had
originally owned such 82% interest, was enough to
constitute a new partnership.
The occurrence of events which precipitate the legal
consequence of dissolution of a partnership do not,
however, automatically result in the termination of
the legal personality of the old partnership. Article
1829 of the Civil Code states that:
[o]n dissolution the partnership is not
terminated, but continues until the
winding up of partnership affairs is
completed.
In the ordinary course of events, the legal personality
of the expiring partnership persists for the limited
purpose of winding up and closing of the affairs of
the partnership. In the case at bar, it is important to
underscore the fact that the business of the old
partnership was simply continued by the new
partners, without the old partnership undergoing the
procedures relating to dissolution and winding up of
its business affairs. In other words, the new
partnership simply took over the business enterprise
owned by the preceding partnership, and continued
using the old name of Jade Mountain Products
Company Limited, without winding up the business
affairs of the old partnership, paying off its debts,
liquidating and distributing its net assets, and then
re-assembling the said assets or most of them and
opening a new business enterprise.
Under Article 1840 creditors of the old Jade Mountain
are also creditors of the new Jade Mountain which
continued the business of the old one without
liquidation of the partnership affairs. Indeed, a
creditor of the old Jade Mountain, like petitioner
Benjamin Yu in respect of his claim for unpaid wages,
is entitled to priority vis-a-vis any claim of any retired
or previous partner insofar as such retired partner's
interest in the dissolved partnership is concerned.
2. As regards Yu’s assertion of his right to the
employment contract, he cannot be maintained as a
managing partner due to redundancy, the position
has already been assumed by Willy Co.
INDOPHIL TEXTILE MILL WORKERS UNION-
PTGWO, petitioner,
vs.
VOLUNTARY ARBITRATOR TEODORICO P.
CALICA and INDOPHIL TEXTILE MILLS,
INC., respondents.
FACTS: In 1987, Petitioner Indophil Textile Mill
Workers Union-PTGWO and private respondent
Indophil Textile Mills, Inc. executed a collective
bargaining agreement effective from April 1, 1987 to
March 31, 1990.
Meanwhile, Indophil Acrylic Manufacturing
Corporation was formed and registered with the
Securities and Exchange Commission.
In 1988, Acrylic became operational and hired
workers according to its own criteria and standards.
Sometime in July, 1989, the workers of Acrylic
unionized and a duly certified collective bargaining
agreement was executed.
In 1990 or a year after the workers of Acrylic have
been unionized and a CBA executed, the petitioner
union claimed that the plant facilities built and set up
by Acrylic should be considered as an extension or
expansion of the facilities of private respondent
Company pursuant the CBA. In other words, it is the
petitioner's contention that Acrylic is part of the
Indophil bargaining unit.
The petitioner's contention was opposed by private
respondent which submits that it is a juridical entity
separate and distinct from Acrylic.
Voluntary Arbitrator ruled in favour of Indophil.
ISSUE: WHETHER OR NOT INDOPHIL ACRYLIC IS A
SEPARATE AND DISTINCT ENTITY FROM RESPONDENT
COMPANY FOR PURPOSES OF UNION
REPRESENTATION.
Under the doctrine of piercing the veil of
corporate entity, when valid grounds therefore exist,
the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its
members or stockholders may be disregarded. In
such cases, the corporation will be considered as a
mere association of persons. The members or
stockholders of the corporation will be considered as
the corporation, that is liability will attach directly to
the officers and stockholders. The doctrine applies
when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend
crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the mere
alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of
another corporation.
In the case at bar, petitioner seeks to pierce
the veil of corporate entity of Acrylic, alleging that
the creation of the corporation is a devise to evade
the application of the CBA between petitioner Union
and private respondent Company. While we do not
discount the possibility of the similarities of the
businesses of private respondent and Acrylic, neither
are we inclined to apply the doctrine invoked by
petitioner in granting the relief sought. The fact that
the businesses of private respondent and Acrylic are
related, that some of the employees of the private
respondent are the same persons manning and
providing for auxilliary services to the units of Acrylic,
and that the physical plants, offices and facilities are
situated in the same compound, it is our considered
opinion that these facts are not sufficient to justify
the piercing of the corporate veil of Acrylic.
In the same case of Umali, et al. v. Court of
Appeals (supra), We already emphasized that "the
legal corporate entity is disregarded only if it is
sought to hold the officers and stockholders directly
liable for a corporate debt or obligation." In the
instant case, petitioner does not seek to impose a
claim against the members of the Acrylic.
Furthermore, We already ruled in the case
of Diatagon Labor Federation Local 110 of the
ULGWP v. Ople (supra) that it is grave abuse of
discretion to treat two companies as a single
bargaining unit when these companies are
indubitably distinct entities with separate juridical
personalities.
Hence, the Acrylic not being an extension or
expansion of private respondent, the rank-and-file
employees working at Acrylic should not be
recognized as part of, and/or within the scope of the
petitioner, as the bargaining representative of private
respondent.
Pantranco vs. NLRC
G.R. No. 170689 March 17, 2009
Facts: The Gonzales family owned owned two
corporations, namely, the Pantranco North Express,
Inc. (PNEI) and Macris Realty Corporation (Macris).
PNEI provided transportation services to the public,
and had its bus terminal stood on four valuable
pieces of real estate (known as Pantranco properties)
registered under the name of Macris. The Gonzaleses
incurred financial loss and debts. One of their
creditors took over the management of PNEI and
Macris. By 1978, full ownership was transferred to
one of their creditors, the National Investment
Development Corporation (NIDC), a subsidiary of the
PNB.
Macris was later renamed as the National
Realty Development Corporation (Naredeco) and
eventually merged with the National Warehousing
Corporation (Nawaco) to form the new PNB
subsidiary, the PNB-Madecor.
NIDC sold PNEI to North Express Transport,
Inc. (NETI), a company owned by Gregorio Araneta III.
In 1986, PNEI was among the several companies
placed under sequestration by the Presidential
Commission on Good Government (PCGG) shortly
after the historic events in EDSA. In January 1988,
PCGG lifted the sequestration order to pave the way
for the sale of PNEI back to the private sector
through the Asset Privatization Trust (APT). APT thus
took over the management of PNEI.
PNEI applied with the SEC for suspension of
payments. A management committee was then made
which recommended that PNEI should be sold
through privatization and suggested the
retrenchment of some of the PNEI employees. PNEI
ceased operation. Labor claims were made by former
PNEI employees.
Labor Arbiter issued Writ of Executions
commanding the Sheriffs to levy the assets of the
PNEI to satisfy the claims of the unpaid laborers. The
Pantranco properties which were registered under
the name of PNB-Medecor were included in the said
levy.
Issue: whether the properties (specifically the
Pantranco properties) of PNB, PNB-Madecor and
Mega Prime can be attached to satisfy the unpaid
labor claims against PNEI.
Held: No. The subject property is not owned by the
judgment debtor, that is, PNEI. Nowhere in the
records was it shown that PNEI owned the Pantranco
properties. Petitioners, in fact, never alleged in any of
their pleadings the fact of such ownership. What was
established, instead, in PNB MADECOR v. Uy and PNB
v. Mega Prime Realty and Holdings Corporation/Mega
Prime Realty and Holdings Corporation v. PNB was
that the properties were owned by Macris, the
predecessor of PNB-Madecor. Hence, they cannot be
pursued against by the creditors of PNEI.
Assuming, for the sake of argument, that PNB
may be held liable for the debts of PNEI, petitioners
still cannot proceed against the Pantranco properties,
the same being owned by PNB-Madecor,
notwithstanding the fact that PNB-Madecor was a
subsidiary of PNB. The general rule remains that PNB-
Madecor has a personality separate and distinct from
PNB. The mere fact that a corporation owns all of the
stocks of another corporation, taken alone, is not
sufficient to justify their being treated as one entity.
If used to perform legitimate functions, a subsidiary’s
separate existence shall be respected, and the
liability of the parent corporation as well as the
subsidiary will be confined to those arising in their
respective businesses.
In PNB v. Ritratto Group, Inc. we outlined the
circumstances which are useful in the determination
of whether a subsidiary is but a mere instrumentality
of the parent-corporation, to wit:
1. The parent corporation owns all or most of
the capital stock of the subsidiary;
2. The parent and subsidiary corporations
have common directors or officers;
3. The parent corporation finances the
subsidiary;
4. The parent corporation subscribes to all
the capital stock of the subsidiary or
otherwise causes its incorporation;
5. The subsidiary has grossly inadequate
capital;
6. The parent corporation pays the salaries
and other expenses or losses of the
subsidiary;
7. The subsidiary has substantially no
business except with the parent corporation
or no assets except those conveyed to or by
the parent corporation;
8. In the papers of the parent corporation or
in the statements of its officers, the
subsidiary is described as a department or
division of the parent corporation, or its
business or financial responsibility is referred
to as the parent corporation’s own;
9. The parent corporation uses the property
of the subsidiary as its own;
10. The directors or executives of the
subsidiary do not act independently in the
interest of the subsidiary, but take their
orders from the parent corporation;
11. The formal legal requirements of the
subsidiary are not observed.
None of the foregoing circumstances is present in the
instant case. Thus, piercing of PNB-Madecor’s
corporate veil is not warranted. Being a mere
successor-in-interest of PNB-Madecor, with more
reason should no liability attach to Mega Prime.