Jonathan D.
Pagaduan
G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO
MINING AND DEVELOPMENT, INC., and MCARTHUR MINING,
INC. vs. REDMONT CONSOLIDATED MINES CORP.
Principle: The "control test" is still the prevailing mode of
determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. XII of the 1987
Constitution, entitled to undertake the exploration, development
and utilization of the natural resources of the Philippines. When
in the mind of the Court, there is doubt in the 60-40 Filipino equity
ownership in the corporation, then it may apply the "grandfather
rule".
Facts:
Redmont is a domestic corporation interested in the mining and
exploration of some areas in Palawan. Upon learning that those
areas were covered by MPSA applications of other three
(allegedly Filipino) corporations – Narra, Tesoro, and MacArthur,
it filed a petition before the Panel of Arbitrators of DENR seeking
to deny their permits on the ground that these corporations are
in reality foreign-owned. MBMI, a 100% Canadian corporation,
owns 40% of the shares of PLMC (which owns 5,997 shares of
Narra), 40% of the shares of MMC (which owns 5,997 shares of
McArthur) and 40% of the shares of SLMC (which, in turn, owns
5,997 shares of Tesoro).
Aside from the MPSA, the three corporations also applied for
FTAA with the Office of the President. In their answer, they
countered that (1) the liberal Control Test must be used in
determining the nationality of a corporation as based on Sec 3 of
the Foreign Investment Act – which as they claimed admits of
corporate layering schemes, and that (2) the nationality question
is no longer material because of their subsequent application for
FTAA.
Issue: Whether or not the Grandfather Rule should be applied
in determining the nationality of petitioner corporations.
Held: Yes.
Rationale: The "control test" is still the prevailing mode of
determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. XII of the 1987
Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the
Philippines. When in the mind of the Court, there is doubt in the
60-40 Filipino equity ownership in the corporation, then it may
apply the "grandfather rule".
The SC citing the SEC Ruling vis:
The SEC en banc applied the Grandfather Rule despite
the fact that the subject corporations ostensibly have
satisfied the 60-40 Filipino equity requirement. The SEC
en banc held that to attain the Constitutional objective
of reserving to Filipinos the utilization of natural
resources, one should not stop where the percentage of
the capital stock is 60%.Thus:
Doubt, we believe, exists in the instant case because the
foreign investor, MBMI, provided practically all the
funds of the remaining appellee-corporations.
Applying the "Grandfather Rule" in the instant case, the result is
as follows: x x x the total foreign equity in the investing
corporation is 58% while the Filipino equity is only 42%, in the
investing corporation Hence does not meet the 60%-40%
Filipino-Foreign equity requirement under the Constitution.
Good to Know:
 The Control Test can be, as it has been, applied jointly
with the Grandfather Rule to determine the observance
of foreign ownership restriction in nationalized
economic activities.
 The Grandfather Rule, standing alone, should not be
used to determine the Filipino ownership and control in
a corporation, as it could result in an otherwise foreign
corporation rendered qualified to perform nationalized
or partly nationalized activities.
 Hence, it is only when the Control Test is first complied
with that the Grandfather Rule may be applied.
 A corporation that complies with the 60-40 Filipino to
foreign equity requirement can be considered a
Filipino corporation if there is no doubt as to who has
the "beneficial ownership" and "control" of the
corporation. In that instance, there is no need for a
dissection or further inquiry on the ownership of the
corporate shareholders in both the investing and
investee Corporation or the application of the
Grandfather Rule.
 "significant indicators of the dummy status"
o 1. That the foreign investors provide practically
all the funds for the joint investment
undertaken by these Filipino businessmen and
their foreign partner;
o 2. That the foreign investors undertake to
provide practically all the technological
support for the joint venture;
o 3. That the foreign investors, while being
minority stockholders, manage the company
and prepare all economic viability studies.
D. CORPORATE JURIDICAL PERSONALITY
G.R. No. 194964-65
UNIVERSITY OF MINDANAO, INC. vs. BANGKO SENTRAL NG
PILIPINAS, ET AL.
Corporate Juridical Personality
Principle: A corporation may exercise its powers only
within the express provisions of their Articles of Incorporations or
by-laws. The only exception to this rule is when acts are necessary
and incidental to carry out a corporation’s purposes, and to the

exercise of powers conferred by the Corporation Code and under
a corporation’s articles of incorporation.
FACTS: University of Mindanao is an educational institution. Its
Board of trustees was chaired by Guillermo B. Torres. His wife,
Dolores P. Torres, sat as University of Mindanao’s Assistant
Treasurer. The spouses Torres incorporated and operated two (2)
thrift banks: (1) First Iligan Savings & Loan Association, Inc.
(FISLAI); and (2) Davao Savings and Loan Association, Inc.
(DSLAI). Mr. Torres requested respondent BSP to issue a P1.9M
standby emergency credit to FISLAI. This was secured by a deed
of real estate mortgage over Petitioner UM’s property in CDO.
BSP subsequently granted an additional loan in favor of Mr.
Torres and was secured with another real estate mortgage over
UM’s two properties in iligan City.
FISLAI, DSLAI, and Land Bank of the Philippines entered into a
Memorandum of Agreement intended to rehabilitate the thrift
banks, which had been suffering from their depositors’ heavy
withdrawals. Among the terms of the agreement was the merger
of FISLAI and DSLAI, with DSLAI as the surviving corporation.
DSLAI later became known as Mindanao Savings and Loan
Association, Inc. (MSLAI). MSLAI failed to recover from its losses
and was liquidated.
Respondent BSP sent a letter to petitioner University of
Mindanao, informing it that the bank would foreclose its
properties if MSLAI’s total outstanding obligation of
P12,534,907.73 remained unpaid.24
In its reply to Bangko Sentral ng Pilipinas, University of Mindanao
denied that University of Mindanao’s properties were
mortgaged. It also denied having received any loan proceeds
from Bangko Sentral ng Pilipinas. Moreover, as an educational
institution, it cannot mortgage its properties to secure another
person’s debts.
ISSUE: Whether or not petitioner University of Mindanao is
bound by the real estate mortgage contracts executed in favor of
respondent BSP.
HELD: NO. Rationale: Corporations are artificial entities granted
legal personalities upon their creation by their incorporators in
accordance with law. Unlike natural persons, they have no
inherent powers. Third persons dealing with corporations cannot
assume that corporations have powers. It is up to those persons
dealing with corporations to determine their competence as
expressly defined by the law and their articles of incorporation.
A corporation may exercise its powers only within those
definitions. Corporate acts that are outside those express
definitions under the law or articles of incorporation or those
"committed outside the object for which a corporation is
created"76 are ultra vires.
The only exception to this rule is when acts are necessary and
incidental to carry out a corporation’s purposes, and to the
Jonathan D. Pagaduan
exercise of powers conferred by the Corporation Code and under
a corporation’s articles of incorporation.
Petitioner does not have the power to mortgage its properties in
order to secure loans of other persons. As an educational
institution, it is limited to developing human capital through
formal instruction. It is not a corporation engaged in the business
of securing loans of others. Securing loans is not an adjunct of the
educational institution’s conduct of business. Petitioner has no
business in securing FISLAI, DSLAI, or MSLAI’s loans. This activity
is not compatible with its business of providing quality
instruction to its constituents.
Good to know:
 The separate personality of corporations means that
they are "vest[ed] [with] rights, powers, and attributes
[of their own] as if they were natural persons
[.]"106 Their assets and liabilities are their own and not
their officers’, shareholders’, or another corporation’s.
In the same vein, the assets and liabilities of their
officers and shareholders are not the corporations’.
Obligations incurred by corporations are not obligations
of their officers and shareholders. Obligations of officers
and shareholders are not obligations of
corporations.107 In other words, corporate interests are
separate from the personal interests of the natural
persons that comprise corporations.
 Acts of an officer that are not authorized by the board
of directors/trustees do not bind the corporation unless
the corporation ratifies the acts or holds the officer out
as a person with authority to transact on its behalf.
 Corporate acts that are outside those express
definitions under the law or articles of incorporation or
those "committed outside the object for which a
corporation is created" are ultra vires.
3. GR No. 205061, Jun 08, 2016
EMERTIA G. MALIXI v. MEXICALI PHILIPPINES
Corporate Juridical Personality
Principle: A corporation is an artificial being invested with a
personality separate and distinct from those of the stockholders
and from other corporations to which it may be connected or
related.
Facts: Petitioner alleged that she was hired by respondents as
a team leader assigned at the delivery service, receiving a daily
wage of Three Hundred Eighty Two Pesos (P382.00) sans
employment contract and identification card (ID). Mexicali's
training officer, Jay Teves (Teves), informed her of the
management's intention to transfer and appoint her as store
manager at a newly opened branch in Alabang Town Center,
which is a joint venture between Mexicali and Calexico Food

Corporation (Calexico), due to her satisfactory performance. She
was apprised that her monthly salary as the new store manager
would be Fifteen Thousand Pesos (P15,000,00) with service
charge, free meal and side tip. She then subsequently submitted
a resignation letter. She started working as the store manager of
Mexicali in Alabang Town Center although, again, no
employment contract and ID were issued to her. However, she
was compelled by Teves to sign an end-of-contract letter by
reason of a criminal complaint for sexual harassment she filed
against Mexicali's operations manager, John Pontero (Pontero),
for the sexual advances made against her during Pontero's visits
at Alabang branch. She refused to sign the said contract and upon
her vehement refusal to sign, she was informed by Luna that it
was her last day of work.
Respondents, however, denied responsibility over
petitioner's alleged dismissal. They averred that petitioner has
resigned from Mexicali and hence, was no longer Mexicali's
employee at the time of her dismissal but rather an employee of
Calexico, a franchisee of Mexicali located in Alabang Town Center
which is a separate and distinct corporation.
LA – Petitioner was illegally dismissed. By piercing the veil of
corporate fiction, the Labor Arbiter ruled that Mexicali and
Calexico are one and the same with interlocking board of
directors.
NLRC - Sustained respondents' contention that Mexicali and
Calexico are separate and distinct entities, Calexico being the
true employer of petitioner at the time of her dismissal.
Petitioner voluntarily resigned from Mexicali to transfer to
Calexico in consideration of a higher pay and upon doing so
severed her employment ties with Mexicali.
CA – affirmed the NLRC Decision.
Issue: Whether or not piercing of the veil of corporate fiction was
properly applied upon the alleged one and the same
corporations, Mexicali and Calexico.
Held: No.
Rationale: We rule otherwise. The Labor Arbiter's finding that the
two corporations are one and the same with interlocking board
of directors has no factual basis. It is basic that "a corporation is
an artificial being invested with a personality separate and
distinct from those of the stockholders and from other
corporations to which it may be connected or related." Clear
and convincing evidence is needed to warrant the application of
the doctrine of piercing the veil of corporate fiction, In our view,
the Labor Arbiter failed to provide a clear justification for the
application of the doctrine. The Articles of Incorporation and By-
Laws of both corporations show that they have distinct business
locations and distinct business purposes. It can also be gleaned
therein that they have a different set of incorporators or
directors since only two out of the five directors of Mexicali are
also directors of Calexico. At any rate, the Court has ruled that
the existence of interlocking directors, corporate officers and
shareholders is not enough justification to disregard the
Jonathan D. Pagaduan
separate corporate personalities. To pierce the veil of corporate
fiction, there should be clear and convincing proof that fraud,
illegality or inequity has been committed against third
persons. For while respondents' act of not issuing employment
contract and ID may be an indication of the proof required,
however, this, by itself, is not sufficient evidence to pierce the
corporate veil between Mexicali and Calexico.
Good to know:
There was no existing employer-employee relationship
between petitioner and Mexicali. To prove petitioner's claim of
an employer-employee relationship, the following should be
established by competent evidence: "(1) the selection and
engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power of control over the
employee's conduct." "Although no particular form of evidence
is required to prove the existence of the relationship, and any
competent and relevant evidence to prove the relationship may
be admitted, a finding mat the relationship exists must
nonetheless rest on substantial evidence, which is that amount
of relevant evidence that a reasonable mind might accept as
adequate to justify a conclusion."
5. CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE
CASTRO, petitioners, vs. COURT OF APPEALS and FRANCISCO
ARTIGO, respondents.
[G.R. No. 115838. July 18, 2002]
Facts:
De castro were co-owners of four (4) lots. In a letter, Artigo was
authorized by appellants to act as real estate broker in the sale
of these properties and five percent (5%) of which will be given
to the agent as commission. It was appellee who first found
Times Transit Corporation, who bought 2 lots. Artigo felt short of
his commission. Hence, he sued below to collect the balance. De
Castro’s then moved for the dismissal for failure to implead other
co-owners as indispensable parties. The De Castros claim that
Artigo always knew that the two lots were co-owned with their
other siblings and failure to implead such indispensable parties is
fatal to the complaint since Artigo, as agent of all the four co-
owners, would be paid with funds co-owned by the four co-
owners.
Issue: WON the complaint merits dismissal for failure to implead
other co-owners as indispensable parties
Ruling: Devoid of merit.
Art. 1915. If two or more persons have appointed an agent for a
common transaction or undertaking, they shall be solidarily liable
to the agent for all the consequences of the agency.

The rule in this article applies even when the appointments were
made by the principals in separate acts, provided that they are
for the same transaction. The solidarity arises from the common
interest of the principals, and not from the act of constituting the
agency. By virtue of this solidarity, the agent can recover from
any principal the whole compensation and indemnity owing to
him by the others. The parties, however, may, by express
agreement, negate this solidary responsibility. The solidarity
does not disappear by the mere partition effected by the
principals after the accomplishment of the agency.
When the law expressly provides for solidarity of the obligation,
as in the liability of co-principals in a contract of agency, each
obligor may be compelled to pay the entire obligation. The agent
may recover the whole compensation from any one of the co-
principals, as in this case.
REPUBLIC VS. MEGA PACIFIC eSOLUTIONS INC.
FACTS:
Republic Act No. 8436 authorized the COMELEC to use
an automated election system for the May 1998 elections.
However, the automated system failed to materialize and votes
were canvassed manually during the 1998 and the 2001
elections. For the 2004 elections, the COMELEC again attempted
to implement the automated election system. For this purpose,
it invited bidders to apply for the procurement of supplies,
equipment, and services. Respondent MPEI, as lead company,
purportedly formed a joint venture - known as the Mega Pacific
Consortium (MPC) - together with We Solv, SK C & C, ePLDT,
Election.com and Oracle. Subsequently, MPEI, on behalf of MPC,
submitted its bid proposal to COMELEC. After due assessment,
the Bids and Awards Committee (BAC) recommended that the
project be awarded to MPC. The COMELEC favorably acted on
the recommendation and issued Resolution No. 6074, which
awarded the automation project to MPC. Despite the award to
MPC, the COMELEC and MPEI executed on 2 June 2003 the
Automated Counting and Canvassing Project Contract
(automation contract)5 for the aggregate amount of
P1,248,949,088. MPEI agreed to supply and deliver 1,991 units of
ACMs and such other equipment and materials necessary for the
computerized electoral system in the 2004 elections. Pursuant to
the automation contract, MPEI delivered 1,991 ACMs to the
COMELEC. The latter, for its part, made partial payments to MPEI
in the aggregate amount of P1.05 billion. This Court in its 2004
Decision declared the contract null and void.6 We held that the
COMELEC committed a clear violation of law and jurisprudence,
as well as a reckless disregard of its own bidding rules and
procedure. All in all, Comelec subverted the essence of public
bidding: to give the public an opportunity for fair competition
and a clear basis for a precise comparison of bids. Complaint for
Jonathan D. Pagaduan
Damages filed by respondents with the RTC Makati and
petitioner's Answer with Counterclaim, with an application for a
writ of preliminary attachment, from which the instant case
arose Upon the finality of the declaration of nullity of the
automation contract, respondent MPEI filed a Complaint for
Damages before the RTC Makati, arguing that, notwithstanding
the nullification of the automation contract, the COMELEC was
still bound to pay the amount of P200,165,681.89. This amount
represented the difference between the value of the ACMs and
the support services delivered on one hand, and on the other,
the payment previously made by the COMELEC. By way of a
counterclaim, petitioner demanded from respondents the return
of the payments made pursuant to the automationcontract.26 It
argued that individual respondents, being the incorporators of
MPEI, likewise ought to be impleaded and held accountable for
MPEI's liabilities. The creation of MPC was, after all, merely an
ingenious scheme to feign eligibility to bid. Pursuant to Section
1(d) of Rule 57 of the Rules of Court, petitioner prayed for the
issuance of a writ of preliminary attachment against the
properties of MPEI and individual respondents. The application
was grounded upon the fraudulent misrepresentation of
respondents as to their eligibility to participate in the bidding for
the COMELEC automation project and the failure of the ACMs to
comply with mandatory technical requirements.
The trial court denied the prayer for the issuance of a writ of
preliminary attachment,29 ruling that there was an absence of
factual allegations as to how the fraud was actually committed.
The trial court further ruled that the allegations of fraud on the
part of MPEI were not supported by the COMELEC, the office in
charge of conducting the bidding for the election automation
contract. It was likewise held that there was no evidence that
respondents harbored a preconceived plan not to comply with
the obligation; neither was there any evidence that MPEI's
corporate fiction was used to perpetrate fraud. Thus, it found no
sufficient basis to pierce the veil of corporate fiction or to cause
the attachment of the properties owned by individual
respondents.
Petitioner moved to set aside the trial court's Order denying the
writ of attachment,30 but its motion was denied.
Aggrieved, petitioner filed an appeal with the CA.
The CA in its First Decision32 reversed and set aside the trial
court's Orders and ruled that there was sufficient basis for the
issuance of a writ of attachment in favor of petitioner.
The appellate court explained that the averments of petitioner in
support of the latter's application actually reflected pertinent
conclusions reached by this Court in its 2004 Decision. It held that
the trial court erred in disregarding the following findings of fact,
which remained unaltered and unreversed: (1) COMELEC bidding
rules provided that the eligibility and capacity of a bidder may be
proved through financial documents including, among others,

audited financial statements for the last three years; (2)MPEI was
incorporated only on 27 February 2003, or 11 days prior to the
bidding itself; (3) in an attempt to disguise its ineligibility, MPEI
participated in the bidding as lead company of MPC, a putative
consortium, and submitted the incorporation papers and
financial statements of the members of the consortium; and (4)
no proof of the joint venture agreement, consortium agreement,
memorandum of agreement, or business plan executed among
the members of the purported consortium was ever submitted
to the COMELEC.
According to the CA, the foregoing were glaring indicia or badges
of fraud, which entitled petitioner to the issuance of the writ.
Respondents moved for reconsideration36 of the First Decision
of the CA.
The CA reconsidered its First Decision37 and directed the remand
of the case to the RTC Makati for the reception of evidence of
allegations of fraud and to determine whether attachment
should necessarily issue.
ISSUE(S)
WON a writ of preliminary attachment may be issued
against the properties of individual respondents, considering
that they were not parties to the 2004 case.
HELD: Yes, petition is meritorious. A writ of preliminary
attachment should issue in favor of petitioner over the
properties of respondents MPEI, Willy Yu (Willy) and the
remaining individual respondents, namely: Bonnie S. Yu (Bonnie),
Enrique T. Tansipek (Enrique), Rosita Y. Tansipek (Rosita),Pedro
O. Tan (Pedro), Johnson W. Fong (Johnson), Bernard I. Fong
(Bernard), and Lauriano Barrios (Lauriano). The bases for the writ
are the following: Fraud on the part of respondent MPEI was
sufficiently established by the factual findings of this Court in its
2004 Decision and subsequent pronouncements.
A writ of preliminary attachment may issue over the properties
of the individual respondents using the doctrine of piercing the
corporate veil.
The factual findings of this Court that have become final cannot
be modified or altered, much less reversed, and are controlling
in the instant case. The delivery of 1,991 units of ACMs does not
negate fraud on the part of respondents MPEI and Willy. Estoppel
does not lie against the state when it acts to rectify mistakes,
errors or illegal acts of its officials and agents.
The findings of the Ombudsman are not controlling in the instant
case.
A writ of preliminary attachment is a provisional remedy issued
upon the order of the court where an action is pending. Through
the writ, the property or properties of the defendant may be
Jonathan D. Pagaduan
levied upon and held thereafter by the sheriff as security for the
satisfaction of whatever judgment might be secured by the
attaching creditor against the defendant.61 The provisional
remedy of attachment is available in order that the defendant
may not dispose of the property attached, and thus prevent the
satisfaction of any judgment that may be secured by the plaintiff
from the former.
The purpose and function of an attachment or garnishment is
twofold. First, it seizes upon property of an alleged debtor in
advance of final judgment and holds it subject to appropriation,
thereby preventing the loss or dissipation of the property
through fraud or other means. Second, it subjects the property
of the debtor to the payment of a creditor's claim, in those cases
in which personal service upon the debtor cannot be obtained.63
This remedy is meant to secure a contingent lien on the
defendant's property until the plaintiff can, by appropriate
proceedings, obtain a judgment and have the property applied to
its satisfaction, or to make some provision for unsecured debts
in cases in which the means of satisfaction thereof are liable to
be removed beyond the jurisdiction, or improperly disposed of
or concealed, or otherwise placed beyond the reach of creditors.
Section 1(d), Rule 57 of the Rules of Court
Section 1. Grounds upon which attachment may issue. At the
commencement of the action or at any time before entry of
judgment, a plaintiff or any proper party may have the property
of the adverse party attached as security for the satisfaction of
any judgment that may be recovered in the following cases:
xxxx(d) In an action against a party who has been guilty of a fraud
in contracting the debt or incurring the obligation upon which the
action is brought, or in the performance thereof. (Emphasis
supplied)
For a writ of preliminary attachment to issue under the above-
quoted rule, the applicant must sufficiently show the factual
circumstances of the alleged fraud.
Metro, Inc. v. Lara's Gift and Decors, Inc., To sustain an
attachment on this ground, it must be shown that the debtor in
contracting the debt or incurring the obligation intended to
defraud the creditor. The fraud must relate to the execution of
the agreement and must have been the reason which induced
the other party into giving consent which he would not have
otherwise given. To constitute a ground for attachment in
Section 1(d), Rule 57 of the Rules of Court, fraud should be
committed upon contracting the obligation sued upon. A debt is
fraudulently contracted if at the time of contracting it the debtor
has a preconceived plan or intention not to pay, as it is in this
case. x xx.
The applicant for a writ of preliminary attachment must
sufficiently show the factual circumstances of the alleged fraud
because fraudulent intent cannot be inferred from the debtor's

mere non-payment of the debt or failure to comply with his
obligation.(Emphasis supplied)
An amendment to the Rules of Court added the phrase "in the
performance thereof" to include within the scope of the grounds
for issuance of a writ of preliminary attachment those instances
relating to fraud in the performance of the obligation.
In the case at bar, petitioner has sufficiently discharged the
burden of demonstrating the commission of fraud by respondent
MPEI in the execution of the automation contract in the two
ways:
Respondent MPEI had perpetrated a scheme against petitioner
to secure the automation contract by using MPC as supposed
bidder and eventually succeeding in signing the automation
contract as MPEI alone, an entity which was ineligible to bid in
the first place.
Fraud on the part of respondent MPEI was further shown by the
fact that despite the failure of its ACMs to pass the tests
conducted by the DOST, respondent still acceded to being
awarded the automation contract.
14. ERIC GODFREY STANLEY LIVESEY, v. BINSWANGER
PHILIPPINES, INC. AND KEITH ELLIOT
[G.R. No. 177493, March 19, 2014]
Doctrine: Piercing the veil of corporate fiction is an equitable
doctrine developed to address situations where the separate
corporate personality of a corporation is abused or used for
wrongful purposes. Under the doctrine, the corporate existence
may be disregarded where the entity is formed or used for non–
legitimate purposes, such as to evade a just and due obligation,
or to justify a wrong, to shield or perpetrate fraud or to carry out
similar or inequitable considerations, other unjustifiable aims or
intentions, in which case, the fiction will be disregarded and the
individuals composing it and the two corporations will be treated
as identical.
FACTS: Petitioner Livesey filed a complaint for illegal dismissal
with money claims against Chesterton Blumenauer Binswanger
Philippines Strategic Property Services, Inc. (CBB) and Keith Elliot.
CBB was a domestic corporation engaged in real estate
brokerage and Keith Elliot was its President. Livesey alleged that
CBB failed to pay him a significant portion of his salary. For this
reason, he was compelled to resign. He claimed CBB owed him
unpaid salaries.CBB denied liability. It alleged that it engaged
Livesey as a corporate officer. It claimed that Livesey was later
designated as Managing Director when it became an extension
office of its principal in Hongkong. CBB posited that the labor
arbiter (LA) had no jurisdiction as the complaint involved an
Jonathan D. Pagaduan
intra–corporate dispute. LA ordered CBB to reinstate Livesey to
his former position as Managing Director and to pay him
US$23,000.00 in accrued salaries.
The parties entered into a compromise agreement. Under the
agreement, Livesey was to receive US$31,000.00. Further, the
agreement provided that unless and until the agreement is fully
satisfied, CBB shall not sell, alienate, or otherwise dispose of all
or substantially all of its assets or business; suspend its business
operations; substantially change the nature of its business; and
declare bankruptcy or insolvency.
CBB made an initial payment to Livesey but not the next two
installments as the company ceased operations. Livesey moved
for the issuance of a writ of execution. He learned that CBB, in a
clear and willful attempt to avoid their liabilities to complainant
x x x have organized another corporation, [Binswanger]
Philippines. He claimed that there was evidence showing that
CBB and Binswanger Philippines, Inc. (Binswanger) are one and
the same corporation. Invoking the doctrine of piercing the veil
of corporate fiction, Livesey prayed that an alias writ of execution
be issued against respondents Binswanger and Keith Elliot, CBB’s
former President. LA denied Livesey’s motion for an alias writ of
execution. He explained that the stockholders of the two
corporations were not the same. Livesey filed an appeal which
the NLRC granted, reversing the LA Laderas’ order. The
Binswanger and Elliot moved for reconsideration. The NLRC
denied the motion. They then sought relief from the CA through
a petition for certiorari. The CA granted the petition and reversed
the NLRC decision. Livesey moved for reconsideration, but the CA
denied the motion.
Livesey prays for a reversal of the CA rulings on the basis of the
following arguments: The CA erred in not applying the doctrine
of piercing the veil of corporate fiction to the case. He insists that
CBB and Binswanger are one and the same corporation as shown
by the “overwhelming evidence” (a) CBB stands for “Chesterton
Blumenauer Binswanger, (b) After executing the compromise
agreement with him, through Elliot, CBB ceased operations
following a transaction where a substantial amount of CBB shares
changed hands (c) Summons served on Binswanger in an earlier
labor case was received by Binswanger using CBB’s receiving
stamp (d) In a letter dated, Elliot noted a Binswanger bid
solicitation for a project with the Philippine National Bank (PNB)
which was actually a CBB project as shown by a CBB draft (e)
Hazel de Guzman who also filed an illegal dismissal case against
the company, attested that Elliot told her of CBB’s plan to close
the corporation and to organize another for the purpose of
evading CBB’s liabilities. Livesey posits that the closure of CBB
and its immediate replacement by Binswanger could not have
been possible without Elliot’s guiding hand, such that when CBB
ceased operations, Elliot (CBB’s President and CEO) moved to
Binswanger in the same position.
ISSUES: Whether the doctrine of piercing the veil of corporate
fiction is applicable
RULING: Petition GRANTED.

Based on the facts of the case, the Court finds this issue to have
been rendered academic by the compromise agreement
between Livesey and CBB and approved by LA Reyno. That CBB
reneged in the fulfillment of its obligation under the agreement
is no reason to revive the issue and further frustrate the full
settlement of the obligation as agreed upon.
Shortly after Elliot forged the compromise agreement with
Livesey, CBB ceased operations, a corporate event that was not
disputed by the Binswanger and Elliot. Then Binswanger
suddenly appeared. It was established almost simultaneously
with CBB’s closure, with no less than Elliot as its President and
CEO. A reasonable mind would arrive at the conclusion that
Binswanger is CBB’s alter ego or that CBB and Binswanger are
one and the same corporation. There are also indications of
badges of fraud in Binswanger’s incorporation. It was a business
strategy to evade CBB’s financial liabilities, including its
outstanding obligation to Livesey. Piercing the veil of corporate
fiction is an equitable doctrine developed to address situations
where the separate corporate personality of a corporation is
abused or used for wrongful purposes.
In the present case, the Court sees an indubitable link between
CBB’s closure and Binswanger’s incorporation. CBB ceased to
exist only in name; it re–emerged in the person of Binswanger
for an urgent purpose — to avoid payment by CBB of the last
two installments of its monetary obligation to Livesey, as well
as its other financial liabilities. Xxx It was not just coincidence
that Binswanger is engaged in the same line of business CBB
embarked on: (1) it even holds office in the very same building
and on the very same floor where CBB once stood; (2) CBB’s key
officers, Elliot, no less, and Catral moved over to Binswanger (3)
the use of Binswanger of CBB’s paraphernalia (receiving stamp)
(4) Binswanger’s takeover of CBB’s project with the PNB.
While the ostensible reason for Binswanger’s establishment is to
continue CBB’s business operations in the Philippines, which by
itself is not illegal, the close proximity between CBB’s
disestablishment and Binswanger’s coming into existence was to
evade CBB’s unfulfilled financial obligation to Livesey under the
compromise agreement.
This underhanded objective, it must be stressed, can only be
attributed to Elliot as it was apparent that Binswanger’s
stockholders had nothing to do with Binswanger’s operations as
noted by the NLRC and which the respondents did not deny. Elliot
was well aware of the compromise agreement that the last two
installments of CBB’s obligation to Livesey were due. These
installments were not met and the reason is that after the alleged
sale of the majority of CBB’s shares of stock, it closed down. The
Court, therefore, finds Elliot as liable as Binswanger for CBB’s
unfulfilled obligation to Livesey.
Pacific Rehouse Corporation v. Court of Appeals and Export
Industry Bank, Inc
G.R. Nos. 199687 & 201537, 24 March 2014 (Reyes, J.)
Jonathan D. Pagaduan
FACTS: The case has its roots on the complaint against EIB
Securities Inc. (E-Securities) for unauthorized sale of 32,180,000
DMCI shares of private respondents Pacific Rehouse Corporation,
Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum
Holdings Corporation, and East Asia Oil Company (Pacific
Rehouse et al.).
RTC Ruling: Directed the defendant [E-Securities] to return to
Pacific Rehouse et al. the DMCI shares. On the other hand, Pacific
Rehouse at al. are directed to reimburse E-Securities the amount
of [P]10,942,200.00, representing the buy back price of the
60,790,000 KPP shares of stocks at [P]0.18 per share. Thi was
affirmed by the Supreme Court.
The Writ of Execution was returned unsatisfied. Pacific Rehouse
et al. then moved for the issuance of an alias writ of execution to
hold Export and Industry Bank, Inc. liable for the judgment
obligation as ESecurities is “a wholly-owned controlled and
dominated subsidiary of Export and Industry Bank, Inc., (Export
Bank)and is thus a mere alter ego and business conduit of the
latter. RTC concluded that E-Securities is a mere business conduit
or alter ego of petitioner, the dominant parent corporation,
which justifies piercing of the veil of corporate fiction. It
ratiocinated that being one and the same entity in the eyes of the
law, the service of summons upon EIB Securities, Inc. (E-
Securities) has bestowed jurisdiction over both the parent and
wholly-owned subsidiary. in such amount as may be sufficient to
acquire 32,180,000 DMCI shares of stock to the Philippine Stock
or the total amount of PhP1,465,799,000.00.
Export Bank filed before the CA a petition for certiorari with
prayer for the issuance of a temporary restraining order (TRO) CA
granted Export Bank’s application for the issuance of a writ of
preliminary injunction.
CA Ruling: It explained that the alter ego theory cannot be
sustained because ownership of a subsidiary by the parent
company is not enough justification to pierce the veil of
corporate fiction. There must be proof, apart from mere
ownership, that Export Bank exploited or misused the corporate
fiction of E-Securities. The records also do not show that Export
Bank has complete control over the business policies, affairs
and/or transactions of E-Securities. It was solely E-Securities that
contracted the obligation in furtherance of its legitimate
corporate purpose. Hence, Petition.
ISSUE: Whether Export Bank may be held liable for final and
executory judgment againt E-Securities in an alias writ by piercing
the veil of corporate fiction by declaring the latter being a mere
alter ego of the former.
RULING: Petitions DENIED. CA decision affirmed.
In Kukan International Corporation v. Reyes it was held that a
corporation not impleaded in a suit cannot be subject to the
court’s process of piercing the veil of its corporate fiction. In

that situation, the court has not acquired jurisdiction over the
corporation and, hence, any proceedings taken against that
corporation and its property would infringe on its right to due
process. Aguedo Agbayani, a recognized authority on
Commercial Law, stated as much: “Piercing the veil of corporate
entity applies to determination of liability not of jurisdiction. x x
x This is so because the doctrine of piercing the veil of corporate
fiction comes to play only during the trial of the case after the
court has already acquired jurisdiction over the corporation.” If
the court has no jurisdiction over the corporation, it follows
that the court has no business in piercing its veil of corporate
fiction because such action offends the corporation’s right to
due process. “Jurisdiction over the defendant is acquired either
upon a valid service of summons or the defendant’s voluntary
appearance in court. When the defendant does not voluntarily
submit to the court’s jurisdiction or when there is no valid
service of summons, ‘any judgment of the court which has no
jurisdiction over the person of the defendant is null and void.”
As Export Bank was neither served with summons, nor has it
voluntarily appeared before the court, the judgment sought to
be enforced against E-Securities cannot be made against its
parent company, Export Bank. Export Bank has consistently
disputed the RTC jurisdiction by commencing from its filing of an
Omnibus by way of special appearance during the execution
stage until the filing of its Comment before the Court wherein it
was pleaded that RTC Makati never acquired jurisdiction over
Export [B]ank.
“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 finances, 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.
RTC maintained that the subsequently enumerated factors
betray the true nature of E-Securities as a mere alter ego of
Export Bank: 1. Defendant EIB Securities, a subsidiary
corporation 100% totally owned by Export and Industry Bank,
Inc., was only re-activated by the latter in 2002-2003 and the
continuance of its operations was geared for no other reason
tha[n] to serve as the securities brokerage arm of said parent
corporation bank; 2. It was the parent corporation bank that
provided and infused the fresh working cash capital needed by
defendant EIB Securities which prior thereto was non-operating
and severely cash-strapped; 3. defendant EIB Securities and its
operating office and staff are all housed in the same building; 4.
As shown in the General Information Sheets annually filed with
the S.E.C. from 2002 to 2011, both defendant EIB Securities and
the bank parent corporation share common key Directors and
Jonathan D. Pagaduan
corporate officers. Three of the 5-man Board of Directors of
defendant EIB Securities are Directors of the bank parent
corporation; 5. As admitted by the bank parent corporation in its
consolidated audited financial statements[,] EIB Securities is a
CONTROLLED SUBSIDIARY, and for which reason its financial
condition and results of operations are included and integrated
as part of the group’s consolidated financial statements,
examined and audited by the same auditing firm; 6. The lawyers
handling the suits and legal matters of defendant EIB Securities
are the same lawyers in the Legal Department of the bank parent
corporation. Being then under the direction and control of the
bank parent corporation, the unauthorized disposal of those
shares by defendant EIB Securities is attributable to, and the
responsibility of the former.
Albeit the RTC bore emphasis on the alleged control exercised by
Export Bank upon its subsidiary E-Securities, “[c]ontrol, by itself,
does not mean that the controlled corporation is a mere
instrumentality or a business conduit of the mother company.
Even control over the financial and operational concerns of a
subsidiary company does not by itself call for disregarding its
corporate fiction. There must be a perpetuation of fraud behind
the control or at least a fraudulent or illegal purpose behind the
control in order to justify piercing the veil of corporate fiction.
Such fraudulent intent is lacking in this case.” Moreover, there
was nothing on record demonstrative of Export Bank’s wrongful
intent in setting up a subsidiary, E-Securities. 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 business. To justify treating the sole stockholder or
holding company as responsible, it is not enough that the
subsidiary is so organized and controlled as to make it “merely
an instrumentality, conduit or adjunct” of its stockholders. It
must further appear that to recognize their separate entities
would aid in the consummation of a wrong.
As established in the main case and reiterated by the CA, the
subject 32,180,000 DMCI shares which E-Securities is obliged to
return to the petitioners were originally bought at an average
price of P0.38 per share and were sold for an average price of
P0.24 per share. The proceeds were then used to buy back
61,100,000 KPP shares earlier sold by E-Securities. Quite
unexpectedly however, the total amount of these DMCI shares
ballooned to P1,465,799,000.00. It must be taken into account
that this unexpected turnabout did not inure to the benefit of
E-Securities, much less Export Bank. Furthermore, ownership by
Export Bank of a great majority or all of stocks of E-Securities
and the existence of interlocking directorates may serve as
badges of control, but ownership of another corporation, per
se, without proof of actuality of the other conditions are
insufficient to establish an alter ego relationship or connection
between the two corporations, which will justify the setting
aside of the cover of corporate fiction. The Court has declared

that “mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the
separate corporate personality.” The 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.” TOC
G.R. No. 182770, September 17, 2014
WPM Int’l Trading Inc. & Warlito Manlapaz vs. Fe Corazon
Labayen
Corporate Juridical Personality
Facts: The respondent, Fe Corazon Labayen, is the owner of
H.B.O. Systems Consultants, a management and consultant firm.
The petitioner, WPM International Trading, Inc. (WPM), is a
domestic corporation engaged in the restaurant business, while
Warlito P. Manlapaz (Manlapaz) is its president.
WPM entered into a management agreement with the
respondent, by virtue of which the respondent was authorized to
operate, manage and rehabilitate Quickbite, a restaurant owned
and operated by WPM. As part of her tasks, the respondent
looked for a contractor who would renovate the two existing
Quickbite outlets in Divisoria, Manila and Lepanto St., University
Belt, Manila. Pursuant to the agreement, the respondent
engaged the services of CLN Engineering Services (CLN) to
renovate Quickbite-Divisoria at the cost of P432,876.02.
Quickbite-Divisoria's renovation was finally completed,
and its possession was delivered to the respondent. However,
out of the P432,876.02 renovation cost, only the amount of
P320,000.00 was paid to CLN, leaving a balance of P112,876.02.
A complaint for collection of sum of money and for
damages were filed against WPM and Manlapaz.
In his defense, Manlapaz claims that it was his fellow
incorporator/director Edgar Alcansaje who was in-charge with
the daily operations of the Quickbite outlets; that when Alcansaje
left WPM, the remaining directors were compelled to hire the
respondent as manager; that the respondent had entered into
the renovation agreement with CLN in her own personal
capacity; that when he found the amount quoted by CLN too
high, he instructed the respondent to either renegotiate for a
lower price or to look for another contractor; that since the
respondent had exceeded her authority as agent of WPM, the
renovation agreement should only bind her; and that since WPM
has a separate and distinct personality, Manlapaz cannot be
made liable for the respondent's claim.
RTC – Respondent is entitled to indemnity from Manlapaz.
CA - WPM and Manlapaz are one and the same being that: (1)
Manlapaz is the principal stockholder of WPM; (2) Manlapaz had
Jonathan D. Pagaduan
complete control over WPM because he concurrently held the
positions of president, chairman of the board and treasurer, in
violation of the Corporation Code; (3) two of the four other
stockholders of WPM are employed by Manlapaz either directly
or indirectly; (4) Manlapaz's residence is the registered principal
office of WPM; and (5) the acronym "WPM" was derived from
Manlapaz's initials. The CA applied the principle of piercing the
veil of corporate fiction and agreed with the RTC that Manlapaz
cannot evade his liability by simply invoking WPM's separate and
distinct personality.
Issue: 1) Whether WPM is a mere instrumentality, alter-ego, and
business conduit of Manlapaz; (2) Whether Manlapaz is jointly
and severally liable with WPM to the respondent for
reimbursement, damages and interest.
Held: 1) No.
Rationale: The application of the principle of piercing the
veil of corporate fiction is unwarranted in the present case.
Application of the Principle of Piercing the Veil of Corporate
Fiction: The rule is settled that a corporation has a personality
separate and distinct from the persons acting for and in its behalf
and, in general, from the people comprising it. Following this
principle, the obligations incurred by the corporate officers, or
other persons acting as corporate agents, are the direct
accountabilities of the corporation they represent, and not
theirs. Thus, a director, officer or employee of a corporation is
generally not held personally liable for obligations incurred by
the corporation; it is only in exceptional circumstances that
solidary liability will attach to them.
The doctrine of piercing the corporate veil applies only
in three (3) basic instances, namely: a) when the separate and
distinct corporate personality defeats public convenience, as
when the corporate fiction is used as a vehicle for the evasion of
an existing obligation; b) in fraud cases, or when the corporate
entity is used to justify a wrong, protect a fraud, or defend a
crime; or c) is used in alter ego cases, i.e., where a corporation is
essentially 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 so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another
corporation.
In the present case, the attendant circumstances do not
establish that WPM is a mere alter ego of Manlapaz. Aside from
the fact that Manlapaz was the principal stockholder of WPM,
records do not show that WPM was organized and controlled,
and its affairs conducted in a manner that made it merely an
instrumentality, agency, conduit or adjunct of Manlapaz. That
Manlapaz concurrently held the positions of president, chairman
and treasurer, or that the Manlapaz's residence is the registered
principal office of WPM, are insufficient considerations to prove
that he had exercised absolute control over WPM.
The control necessary to invoke the instrumentality or
alter ego rule is not majority or even complete stock control but

such domination of finances, 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.
The respondent failed to prove that Manlapaz, acting as
president, had absolute control over WPM. Even in view of his
position as president, chairman and treasurer of the corporation,
such control does not necessarily warrant piercing the veil of
corporate fiction since there was not a single proof that WPM
was formed to defraud CLN or the respondent, or that Manlapaz
was guilty of bad faith or fraud.
2) No. Only WPM is liable.
Rationale: This Court also observed that the CA failed to
demonstrate how the separate and distinct personality of WPM
was used by Manlapaz to defeat the respondent's right for
reimbursement. Neither was there any showing that WPM
attempted to avoid liability or had no property against which to
proceed.
Since no harm could be said to have been proximately
caused by Manlapaz for which the latter could be held solidarily
liable with WPM, and considering that there was no proof that
WPM had insufficient funds, there was no sufficient justification
for the RTC and the CA to have ruled that Manlapaz should be
held jointly and severally liable to the respondent for the amount
she paid to CLN. Hence, only WPM is liable to indemnify the
respondent.
Good to know: As held in Martinez v. Court of Appeals, the mere
ownership by a single stockholder of even all or nearly all of the
capital stocks of a corporation is not by itself a sufficient ground
to disregard the separate corporate personality. To disregard the
separate juridical personality of a corporation, the wrongdoing
must be clearly and convincingly established.
23. PHILIPPINE NATIONAL BANK v. HYDRO RESOURCES
CONTRACTORS CORPORATION
G.R. No. 167530, March 13, 2013
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)
FACTS: Sometime in 1984, petitioners DBP and PNB foreclosed
on certain mortgages made on the properties of Marinduque
Mining and Industrial Corporation (MMIC). As a result of the
foreclosure, DBP and PNB acquired substantially all the assets of
MMIC and resumed the business operations of the defunct
MMIC by organizing NMIC.7 DBP and PNB owned 57% and 43%
of the shares of NMIC, respectively, except for five qualifying
shares. As of September 1984, the members of the Board of
Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa, Ruben
Ancheta, Geraldo Agulto, and Faustino Agbada, were either from
DBP or PNB.
Jonathan D. Pagaduan
Subsequently, NMIC engaged the services of Hercon, Inc., for
NMIC’s Mine Stripping and Road Construction Program in 1985
for a total contract price of P35,770,120. After computing the
payments already made by NMIC under the program and
crediting the NMIC’s receivables from
Hercon, Inc., the latter found that NMIC still has an unpaid
balance of P8,370,934.74.10 Hercon, Inc. made several demands
on NMIC, including a letter of final demand dated August 12,
1986, and when these were not heeded, a complaint for sum of
money was filed in the RTC of Makati, Branch 136 seeking to hold
petitioners NMIC, DBP, and PNB solidarily liable for the amount
owing Hercon, Inc.
Subsequent to the filing of the complaint, Hercon, Inc. was
acquired by HRCC in a merger.
Thereafter, on December 8, 1986, then President Corazon C.
Aquino issued Proclamation No. 50 creating the APT for the
expeditious disposition and privatization of certain government
corporations and/or the assets thereof. Pursuant to the said
Proclamation, on February 27, 1987, DBP and PNB executed their
respective deeds of transfer in favor of the National Government
assigning, transferring and conveying certain assets and
liabilities, including their respective stakes in NMIC. In turn and
on even date, the National Government transferred the said
assets and liabilities to the APT as trustee under a Trust
Agreement.
ISSUE: Whether or not there is sufficient ground to pierce the
veil of corporate fiction of NMIC and held DBP and PNB solidarily
liable with NMIC?
RULING: No.
From all indications, it appears that NMIC is a mere adjunct,
business conduit or alter ego of both DBP and PNB. Thus, the DBP
and PNB are jointly and severally liable with NMIC for the latter’s
unpaid obligations to plaintiff.
Then concluded that, "in keeping with the concept of justice and
fair play," the corporate veil of NMIC should be pierced.
For to treat NMIC as a separate legal entity from DBP and PNB
for the purpose of securing beneficial contracts, and then using
such separate entity to evade the payment of a just debt, would
be the height of injustice and iniquity. Surely that could not have
been the intendment of the law with respect to corporations.
The doctrine of 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.

2. SPECIFIC POWERS: THEORY OF SPECIFIC CAPACITY
ix. Ultra Vires Acts
UNIVERSITY OF MINDANAO VS. BSP, 778 SCRA 458
GR No. 194964, January 11, 2016
Nature of Action: An action for the nullification and cancellation
of mortgage on the ground that the person who entered into
contract has no authority to execute such contract.
FACTS: Guillermo B. Torres and Dolores P. Torres incorporated
and operated two (2) thrift banks: (1) First Iligan Savings & Loan
Association, Inc. (FISLAI); and (2) Davao Savings and Loan
Association, Inc. (DSLAI). Guillermo B. Torres chaired both thrift
banks. He acted as FISLAI's President, while his wife, Dolores P.
Torres, acted as DSLAI's President and FISLAI's Treasurer. Upon
Guillermo B. Torres' request, Bangko Sentral ng Pilipinas issued a
P1.9 million standby emergency credit to FISLAI. On May 25,
1982, University of Mindanao's Vice President for Finance,
Saturnino Petalcorin, executed a deed of real estate mortgage
over University of Mindanao's property in Cagayan de Oro City in
favor of Bangko Sentral ng Pilipinas. "The mortgage served as
security for FISLAI's PI.9 Million loan" It was allegedly executed
on University of Mindanao's behalf. As proof of his authority to
execute a real estate mortgage for University of Mindanao,
Saturnino Petalcorin showed a Secretary's Certificate signed by
University of Mindanao's Corporate Secretary, Aurora de Leon.
The Secretary’s certificate states among others the authorizing of
the chairman to appoint Satunino Pactolerin to represent the
University of Mindanao to transact, transfer, convey, lease,
mortgage, or otherwise hypothecate the subject properties.
Saturnino Petalcorin executed another deed of real estate
mortgage, allegedly on behalf of University of Mindanao, over its
two properties in Iligan City. This mortgage served as additional
security for FISLAI's loans. FISLAI and DSLAI eventually merged
with DSLAI as the surviving corporation in an effort to rehabilitate
the thrift banks due to the heavy withdrawals of depositors.
DSLAI later became known as Mindanao Savings and Loan
Association, Inc. (MSLAI). MSLAI failed to recover from its losses.
Bangko Sentral ng Pilipinas later on foreclosed the mortgaged
properties. University of Mindanao filed two Complaints for
nullification and cancellation of mortgage. One Complaint was
filed before the Regional Trial Court of Cagayan de Oro City, and
the other Complaint was filed before the Regional Trial Court of
Iligan City. University of Mindanao alleged that it did not obtain
any loan from Bangko Sentral ng Pilipinas and that Aurora De
Leon’s certification was anomalous. That it never authorized
Saturnino Petalcorin to execute real estate mortgage contracts
involving its properties to secure FISLAI's debts and it never
ratified the execution of the mortgage contracts. The Regional
Jonathan D. Pagaduan
Trial Courts ruled in favor of University of Mindanao. The Court
of Appeals however ruled that "although BSP failed to prove that
the UM Board of Trustees actually passed a Board Resolution
authorizing Petalcorin to mortgage the subject real
properties, Aurora de Leon's Secretary's Certificate" clothed
Petalcorin with apparent and ostensible authority to execute the
mortgage deed on its behalf. Bangko Sentral ng Pilipinas merely
relied in good faith on the Secretary's Certificate. University of
Mindanao is estopped from denying Saturnino Petalcorin's
authority.
ISSUE: Whether petitioner University of Mindanao is bound by
the real estate mortgage contracts executed by Saturnino
Petalcorin.
RULING: No. Acts of an officer that are not authorized by the
board of directors/trustees do not bind the corporation unless
the corporation ratifies the acts or holds the officer out as a
person with authority to transact on its behalf.
Petitioner argues that it did not authorize Saturnino
Petalcorin to mortgage its properties on its behalf. There was no
board resolution to that effect. Thus, the mortgages executed by
Saturnino Petalcorin were unenforceable. The mortgage
contracts executed in favor of respondent do not bind petitioner.
They were executed without authority from petitioner. Being a
juridical person, petitioner cannot conduct its business, make
decisions, or act in any manner without action from its Board of
Trustees. The Board of Trustees must act as a body in order to
exercise corporate powers. Individual trustees are not clothed
with corporate powers just by being a trustee. Hence, the
individual trustee cannot bind the corporation by himself or
herself. The corporation may, however, delegate through a
board resolution its corporate powers or functions to a
representative, subject to limitations under the law and the
corporation's articles of incorporation. The relationship between
a corporation and its representatives is governed by the general
principles of agency. Article 1317 of the Civil Code provides that
there must be authority from the principal before anyone can act
in his or her name:
ART. 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has
by law a right to represent him.
Hence, without delegation by the board of directors or
trustees, acts of a person - including those of the corporation's
directors, trustees, shareholders, or officers—executed on behalf
of the corporation are generally not binding on the corporation.
The unenforceable status of contracts entered into by an
unauthorized person on behalf of another is based on the basic
principle that contracts must be consented to by both parties.
There is no contract without meeting of the minds as to the
subject matter and cause of the obligations created under the
contract. Consent of a person cannot be presumed from
representations of another, especially if obligations will be
incurred as a result. Thus, authority is required to make actions
made on his or her behalf binding on a person. Contracts entered
into by persons without authority from the corporation shall

generally be considered ultra vires and unenforceable against
the corporation.
F. CORPORATE POWERS
1. GENERAL POWERS: THEORY OF GENERAL
CAPACITY
G.R. No. 211485, May 30, 2016
MAGALLANES WATERCRAFT ASSOCIATION, INC., AS
REPRESENTED BY ITS BOARD OF TRUSTEES, NAMELY:
EDILBERTO M. BAJAO, GERARDO O. PLAZA, ISABELITA
MULIG, EDNA ABEJAY, MARCELO DONAN, NENITA O.
VARQUEZ, MERLYN ALVAREZ, EDNA EXCLAMADOR, AND
CESAR MONSON, Petitioner, v. MARGARITO C. AUGUIS
AND DIOSCORO C. BASNIG, Respondents.
Facts:
Petitioner Magallanes Watercraft Association, Inc. (MWAI)
is a local association of motorized banca owners and
operators ferrying cargoes and passengers from
Magallanes, Agusan del Norte, to Butuan City and back.
Respondents Margarito C. Auguis (Auguis) and Dioscoro C.
Basnig (Basnig) were members and officers of MWAI -
vice-president and secretary, respectively.3
The Board of Trustees (Board) of MWAI passed Resolution
No. 1, Series of 2003, and thereafter issued Memorandum
No. 001 suspending the rights and privileges of Auguis and
Basnig as members of the association for thirty (30) days
for their refusal to pay their membership dues and
berthing fees because of their pending oral complaint and
demand for financial audit of the association funds.4
In spite of the suspension of their privileges as members,
Auguis and Basnig still failed to settle their obligations
with MWAI. For said reason, the latter issued
Memorandum No. 002, Series of 2004, suspending their
rights and privileges for another thirty (30) days.5
Respondents filed an action for damages and attorney's
fees with a prayer for the issuance of a writ of preliminary
injunction before the RTC. The trial court ordered Auguis
and Basnig to pay their unpaid accounts. It, nonetheless,
required MWAI to pay them actual damages and
attorney's fees.6
Jonathan D. Pagaduan
Aggrieved, MWAI appealed before the CA. The CA
affirmed the decision of the RTC.According to the
appellate court, the RTC correctly held that MWAI was
guilty of an ultra vires act.� The CA noted that neither
MWAI's Articles of Incorporation nor its By-Laws7
contained any provision that expressly and/or impliedly
vested power or authority upon its Board to recommend
the imposition of disciplinary sanctions on its delinquent
officers and/or members. It further noted that MWAI
lacked the authority to suspend the right of the
respondents to operate their bancas, which was granted
through a Certificate of Public Convenience. Hence, the
CA concluded that MWAI acted beyond the scope of its
powers when it suspended the rights of Auguis and Basnig
as members of MWAI to berth on the seaport of
Magallanes and operate their bancas.
Issue: Whether or not petitioner was guilty of an ultra
vires act when it suspended respondents' berthing rights
because its by-laws obliged Auguis and Basnig as
members to: (1) obey and comply with the by�laws,
rules and regulations that may be promulgated by the
association from time to time; and (2) to pay its
membership dues and other assessments.
Ruling:
The petition is meritorious.
Corporate powers include implied and incidental powers
If the suspension of rights and privileges of members is
not among the corporate powers granted to MWAI, then
the same is an ultra vires act which exposes MWAI to
possible liability.
Section 45 of the Corporation Code provides for the
powers possessed by a corporation, to
wit:chanRoblesvirtualLawlibrary
Sec. 45. Ultra vires acts of corporations. - No corporation
under this Code shall possess or exercise any corporate
powers except those conferred by this Code or by its
articles of incorporation and except such as are necessary
or incidental to the exercise of the powers so conferred.c
ralawred
From a reading of the said provision, it is clear that a
corporation has: (1) express powers, which are bestowed
upon by law or its articles of incorporation; and (2)
necessary or incidental powers to the exercise of those

expressly conferred. An act which cannot fall under a
corporation's express or necessary or incidental powers is
an ultra vires act.
A corporation may exercise its powers only within those
definitions. Corporate acts that are outside those
express definitions under the law or articles of
incorporation or those "committed outside the object
for which a corporation is created" are ultra vires.
The CA concluded that the suspension by MWAI of
respondents' rights as members for their failure to settle
membership dues was an ultra vires act as MWAFs articles
of incorporation and by-laws were bereft of any provision
that expressly and impliedly vested power or authority
upon its Board to recommend the imposition of
disciplinary actions on its delinquent officers and/or
members.
The Court disagrees.
Under Section 3(a) and Section 3(c) Article V of MWAI's
By-Laws, its members are bound "[t]o obey and comply
with the by-laws, rules and regulations that may be
promulgated by the association from time to time" and
"[t]o pay membership dues and other assessments of the
association."13 Thus, the respondents were obligated to
pay the membership dues of which they were delinquent.
MWAI could not be faulted in suspending the rights and
privileges of its delinquent members.
The fact alone that neither the articles of incorporation
nor the by laws of MWAI granted its Board the authority
to discipline members does not make the suspension of
the rights and privileges of the respondents ultra vires.
The only exception to this rule is when acts are
necessary and incidental to carry out a corporation's
purposes, and to the exercise of powers conferred by the
Corporation Code and under a corporation's articles of
incorporation. xxx
Based on the foregoing, MWAI can properly impose
sanctions on Auguis and Basnig for being delinquent
members considering that the payment of membership
dues enables MWAI to discharge its duties and functions
enumerated under its charter. Moreover, respondents
were obligated by the by-laws of the association to pay
said dues. The suspension of their rights and privileges is
not an ultra vires act as it is reasonably necessary or
proper in order to further the interest and welfare of
Jonathan D. Pagaduan
MWAI.
F. CORPORATE POWERS
1. GENERAL POWERS
LIGAYA ESGUERRA, ET. AL. v. HOLCIM PHILIPPINES, INC.
G.R. No. 182571, September 2, 2013, REYES, J.
DOCTRINE: The power of a corporation to sue is
vested in the Board of Directors.
FACTS:
Respondent Esguerra filed on December 12, 1989 with
the RTC, Malolos, Bulacan, an action to annul the Free Patent in
the name of de Guzman. Esguerra claimed that he was the owner
of the subject land with an approximate area of 47,000 square
meters. Esguerra learned that the said parcel of land was being
offered for sale by de Guzman to Hi-Cement Corporation (now
HOLCIM Philippines, Inc.). He later amended his complaint to
impleaded Hi-Cement as a co-defendant since the latter was
hauling marble from the subject land. The RTC dismissed
Esguerra’s complaint but on appeal, the CA reversed. The
Supreme Court in its Decision dated December 27, 2002 affirmed
the CA’s decision. After attaining finality, the case was remanded
to the RTC for execution.
Now, herein petitioners (heirs of Esguerra), filed an
Omnibus Motion with the RTC, manifesting that the Court’s
December 27, 2002 decision has yet to be executed. HOLCIM
filed a motion for reconsideration alleging that it did not owe any
amount of royalty to the petitioners for the extracted limestone
from the subject land. It also filed a Manifestation and Motion
for Ocular Inspection to prove that it did not extract limestone
from the subject land. Despite all of this, an alias writ of
execution and notices of garnishment on several banks against
HOLCIM have been issued by the RTC to cover the payment of
royalties to petitioner for the former's extraction of limestone,
etc. HOLCIM filed a Petition for Certiorari with Urgent
Applications for Temporary Restraining Order and/or Writ of
Preliminary Injunction with the CA. The CA granted the motion.
ISSUE:
Whether or not the CA gravely erred in not dismissing
HOLCIM's petition for certiorari on the ground of lack of Board
Resolution authorizing the filing of petition.
HELD:

The general rule is that a corporation can only exercise
its powers and transact its business through its board of directors
and through its officers and agents when authorized by a board
resolution or its bylaws. The power of a corporation to sue and
be sued is exercised by the board of directors. The physical acts
of the corporation, like the signing of documents, can be
performed only by natural persons duly authorized for the
purpose by corporate bylaws or by a specific act of the board.
Absent the said board resolution, a petition may not be given due
course.
In the case at bar, HOLCIM attached to its Petition for
Certiorari before the CA a Secretary’s Certificate authorizing Mr.
Paul M. O’Callaghan (O’Callaghan), its Chief Operating Officer, to
nominate, designate and appoint the corporation’s authorized
representative in court hearings and conferences and the signing
of court pleadings. It also attached the Special Power of Attorney
dated June 9, 2006, signed by O’Callaghan, appointing Sycip
Salazar Hernandez & Gatmaitan and/or any of its lawyers to
represent HOLCIM; and consequently, the Verification and
Certification of Non Forum Shopping signed by the authorized
representative. To be sure, HOLCIM, in its Reply filed in the CA,
attached another Secretary’s Certificate, designating and
confirming O’Callaghan’s power to authorize Sycip Salazar
Hernandez & Gatmaitan and/or any of its lawyers to file for and
on behalf of HOLCIM, the pertinent civil and/or criminal actions
pending before the RTC.
The foregoing convinces the Court that the CA did not
err in admitting HOLCIM’s petition before it. HOLCIM attached
all the necessary documents for the filing of a petition for
certiorari before the CA. Indeed, there was no complete failure
to attach a Certificate of Non-Forum Shopping. In fact, there was
such a certificate. While the board resolution may not have been
attached, HOLCIM complied just the same when it attached the
Secretary’s Certificate dated July 17, 2006, thus proving that
O’Callaghan had the authority from the board of directors to
appoint the counsel to represent them. The Court recognizes the
compliance made by HOLCIM in good faith since after the
petitioners pointed out the said defect, HOLCIM submitted the
Secretary’s Certificate dated July 17, 2006, confirming the earlier
Secretary’s Certificate dated June 9, 2006.
G. Board of Directors and Trustees
Rodolfo Laborte, et al. v. Pagsanjan Tourism Consumers’
Coop., et al.,
G.R. No. 183860, Jan. 15, 2014
DOCTRINE: As a general rule the officer cannot be held personally
liable with the corporation, whether civilly or otherwise, for the
Jonathan D. Pagaduan
consequences of his acts, if acted for and in behalf of the
corporation, within the scope of his authority and in good faith.
Furthermore, the Court also notes that the charges against
petitioners Laborte and the PTA for grave coercion and for the
violation of R.A. 6713 have all been dismissed. Thus, the Court
finds no basis to hold petitioner Laborte liable.
FACTS:
Petitioner Philippine Tourism Authority (PTA) is a government-
owned and controlled corporation that administers tourism
zones.
Respondent Pagsanjan Tourism Consumers’ Cooperative (PTCC)
is a cooperative organized since 1988 under Republic Act No.
6938, or the "Cooperative Code of the Philippines." The other
individual respondents are PTCC employees, consisting of
restaurant staff and boatmen at the PTA Complex.
In 1989, in order to help the PTCC as a cooperative, the PTA
allowed it to operate a restaurant business located at the main
building of the PTA Complex and the boat ride services to ferry
guests and tourists to and from the Pagsanjan Falls, paying a
certain percentage of its earnings to the PTA.
In 1993, the PTA implemented a reorganization and reshuffling
in its top level management. Herein petitioner Rodolfo Laborte
(Laborte) was designated as Area Manager, CALABARZON area
with direct supervision over the PTA Complex and other entities
at the Southern Luzon. Eventually, Laborte served a written
notice upon the respondents to cease the operations of the
latter’s restaurant business and boat ride services in view of the
rehabilitation, facelifting and upgrading project of the PTA
Complex.
The PTCC filed with the RTC a complaint of Preliminary
Injunction. On December 7, 1993, the PTCC filed with the trial
court a Petition for Contempt with Motion for Early Resolution.
It alleged that Laborte and his lawyers defied the TRO and
proceeded to close the restaurant on December 2, 1993.
ISSUE:
1. Should the injunction should be granted
2. Can Laborte, the area manager, can be held liable
RATIO:
1. NO. The PTA is a government owned and controlled
corporation which was mandated to administer tourism zones.
Based on this mandate, it was the PTA’s obligation to adopt a
comprehensive program and project to rehabilitate and upgrade
the facilities of the PTA Complex as shown in Annexes "H-2" to
"H-4" of the petition. The Court finds that there was indeed a
renovation of the Pagsanjan Administration Complex which was

sanctioned by the PTA main office; and such renovation was
done in good faith in performance of its mandated duties as
tourism administrator. In the exercise of its management
prerogative to determine what is best for the said agency, the
PTA had the right to terminate at any moment the PTCC’s
operations of the restaurant and the boat ride services since the
PTCC has no contract, concession or franchise from the PTA to
operate the above-mentioned businesses. As shown by the
records, the operation of the restaurant and the boat ride
services was merely tolerated, in order to extend financial
assistance to its PTA employee-members who are members of
the then fledging PTCC.
While the PTCC has been operating the restaurant and boat ride
services for almost ten (10) years until its closure, the same was
by mere tolerance of the PTA. In the consolidated case of Phil.
Ports Authority v. Pier 8 Arrastre & Stevedoring Services, Inc., the
Court upheld the authority of government agencies to terminate
at any time hold-over permits. Thus, considering that the PTCC’s
operation of the restaurant and the boat ride services was by
mere tolerance, the PTA can, at any time, terminate such
operation
2. NO. With respect to Laborte's liability in his official
and personal capacity, the Court finds that Laborte was simply
implementing the lawful order of the PTA Management. As a
general rule the officer cannot be held personally liable with the
corporation, whether civilly or otherwise, for the consequences
of his acts, if acted for and in behalf of the corporation, within
the scope of his authority and in good faith. Furthermore, the
Court also notes that the charges against petitioners Laborte and
the PTA for grave coercion and for the violation of R.A. 6713 have
all been dismissed. Thus, the Court finds no basis to hold
petitioner Laborte liable.
POLYMER RUBBER CORPORATION and JOSEPH ANG, v.
BAYOLO SALAMUDING
G.R. No. 185160 July 24, 2013,( REYES, J.)
FACTS: Salamuding (Salamuding), Mariano Gulanan and Rodolfo
Raif were employees of petitioner Polymer Rubber Corporation
who were dismissed after allegedly committing certain
irregularities against Polymer. The 3 employees filed a complaint
against Polymer and Ang for unfair labor practice, illegal
dismissal, non-payment of overtime services, violation of P.D.
851with prayer for reinstatement and payment of back wages,
atty’s fees, moral and exemplary damages.
Labor Arbiter dismissed the complaint for unfair labor practice
and directed Polymer to reinstate the Salamuding et. al. with full
Jonathan D. Pagaduan
back wages. A writ of execution was subsequently issued to
implement said judgment.
Upon appeal of Polymer with the NLRC, the decision was
affirmed but deleted only the award of moral and exemplary
damages. The case was elevated to SC deleting the award of
overtime pay and then later on Sept. 30, 1993 Polymer ceased its
operations.
Upon motion, the Labor arbiter a quo issued a writ of execution
but the same was returned unsatisfied and un the latter part of
2004, Polymer was gutted by fire.
Labor arbiter issued a 5th alias writ of execution so that in its
implementation, the shares of stocks of Ang and USA Resources
Corp. were levied.
Polymer and Ang moved to quash said 5th alias writ of execution
and to lift notice of garnishment. They alleged that Ang should
not be held jointly and severally liable with Polymer since it was
only the latter which was held liable in the decision of the LA,
NLRC and the Supreme Court. LA granted the motion and the
same was affirmed by the NLRC. Salamuding firle a petition for
certiorari with CA.
CA stated that there has to be a responsible person or persons
working in the interest of Polymer who may also be considered
as the employer. Since Ang as the director of Polymer was
considered the highest ranking officer of Polymer, he was
therefore properly impleaded and may be held jointly and
severally liable for the obligations of Polymer to its dismissed
employees.
ISSUE: Whether or not Ang as Officer of the Corporation cannot
be personally held liable and be made to pay the liability of the
corporation.
RULING: Yes. Petition is GRANTED
"A corporation, as a juridical entity, may act only through its
directors, officers and employees. Obligations incurred as a
result of the directors’ and officers’ acts as corporate agents, are
not their personal liability but the direct responsibility of the
corporation they represent. As a rule, they are only solidarily
liable with the corporation for the illegal termination of services
of employees if they acted with malice or bad faith."
To hold a director or officer personally liable for corporate
obligations:
1. It must be alleged in the complaint that the director or officer
assented to patently unlawful acts of the corporation or that the
officer was guilty of gross negligence or bad faith;
2. There must be proof that the officer acted in bad faith.
In the instant case, the CA imputed bad faith on the part of the
petitioners when Polymer ceased its operations the day after the
promulgation of the SC resolution in 1993 which was allegedly
meant to evade liability. It necessary to pierce the corporate
fiction and pointed at Ang as the responsible person to pay for

Salamuding’s money claims. Nothing in the records shows that
Ang was responsible for the acts complained of. We find that it
will require a great stretch of imagination to conclude that a
corporation would cease its operations if only to evade the
payment of the adjudged monetary awards in favor of three (3)
of its employees.
Ang is merely one of the incorporators of Polymer and to single
him out and require him to personally answer for the liabilities of
Polymer is without basis. In the absence of a finding that he acted
with malice or bad faith, it was error for the CA to hold him
responsible.
In labor cases, for instance, the Court has held corporate
directors and officers solidarily liable with the corporation for the
termination of employment of employees done with malice or in
bad faith."
To hold Ang personally liable at this stage is quite unfair. The
judgment of the LA, as affirmed by the NLRC and later by the SC
had already long become final and executory.
15. Pacific Rehouse Corporation v. Court of Appeals and
Export Industry Bank, Inc
G.R. Nos. 199687 & 201537, 24 March 2014
FACTS: The case has its roots on the complaint against EIB
Securities Inc. (E-Securities) for unauthorized sale of 32,180,000
DMCI shares of private respondents Pacific Rehouse Corporation,
Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum
Holdings Corporation, and East Asia Oil Company (Pacific
Rehouse et al.).
RTC Ruling: Directed the defendant [E-Securities] to return to
Pacific Rehouse et al. the DMCI shares. On the other hand, Pacific
Rehouse at al. are directed to reimburse E-Securities the amount
of [P]10,942,200.00, representing the buy back price of the
60,790,000 KPP shares of stocks at [P]0.18 per share. This was
affirmed by the Supreme Court.
The Writ of Execution was returned unsatisfied. Pacific Rehouse
et al. then moved for the issuance of an alias writ of execution to
hold Export and Industry Bank, Inc. liable for the judgment
obligation as ESecurities is “a wholly-owned controlled and
dominated subsidiary of Export and Industry Bank, Inc., (Export
Bank)and is thus a mere alter ego and business conduit of the
latter. RTC concluded that E-Securities is a mere business conduit
or alter ego of petitioner, the dominant parent corporation,
which justifies piercing of the veil of corporate fiction. It
ratiocinated that being one and the same entity in the eyes of the
law, the service of summons upon EIB Securities, Inc. (E-
Securities) has bestowed jurisdiction over both the parent and
wholly-owned subsidiary. in such amount as may be sufficient to
Jonathan D. Pagaduan
acquire 32,180,000 DMCI shares of stock to the Philippine Stock
or the total amount of PhP1,465,799,000.00.
Export Bank filed before the CA a petition for certiorari with
prayer for the issuance of a temporary restraining order (TRO) CA
granted Export Bank’s application for the issuance of a writ of
preliminary injunction.
CA Ruling: It explained that the alter ego theory cannot be
sustained because ownership of a subsidiary by the parent
company is not enough justification to pierce the veil of
corporate fiction. There must be proof, apart from mere
ownership, that Export Bank exploited or misused the corporate
fiction of E-Securities. The records also do not show that Export
Bank has complete control over the business policies, affairs
and/or transactions of E-Securities. It was solely E-Securities that
contracted the obligation in furtherance of its legitimate
corporate purpose. Hence, Petition.
ISSUE: Whether Export Bank may be held liable for final and
executory judgment againt E-Securities in an alias writ by piercing
the veil of corporate fiction by declaring the latter being a mere
alter ego of the former.
RULING: Petitions DENIED. CA decision affirmed.
In Kukan International Corporation v. Reyes it was held that a
corporation not impleaded in a suit cannot be subject to the
court’s process of piercing the veil of its corporate fiction. In
that situation, the court has not acquired jurisdiction over the
corporation and, hence, any proceedings taken against that
corporation and its property would infringe on its right to due
process. Aguedo Agbayani, a recognized authority on
Commercial Law, stated as much: “Piercing the veil of corporate
entity applies to determination of liability not of jurisdiction. x x
x This is so because the doctrine of piercing the veil of corporate
fiction comes to play only during the trial of the case after the
court has already acquired jurisdiction over the corporation.” If
the court has no jurisdiction over the corporation, it follows
that the court has no business in piercing its veil of corporate
fiction because such action offends the corporation’s right to
due process. “Jurisdiction over the defendant is acquired either
upon a valid service of summons or the defendant’s voluntary
appearance in court. When the defendant does not voluntarily
submit to the court’s jurisdiction or when there is no valid
service of summons, ‘any judgment of the court which has no
jurisdiction over the person of the defendant is null and void.”
As Export Bank was neither served with summons, nor has it
voluntarily appeared before the court, the judgment sought to
be enforced against E-Securities cannot be made against its
parent company, Export Bank. Export Bank has consistently
disputed the RTC jurisdiction by commencing from its filing of an
Omnibus by way of special appearance during the execution
stage until the filing of its Comment before the Court wherein it
was pleaded that RTC Makati never acquired jurisdiction over
Export [B]ank.
“Where one corporation is so organized and controlled and its
affairs are conducted so that it is, in fact, a mere instrumentality
 Jonathan D. Pagaduan
or adjunct of the other, the fiction of the corporate entity of the As established in the main case and reiterated by the CA, the
“instrumentality” may be disregarded. The control necessary to subject 32,180,000 DMCI shares which E-Securities is obliged to
invoke the rule is not majority or even complete stock control return to the petitioners were originally bought at an average
but such domination of finances, policies and practices that the price of P0.38 per share and were sold for an average price of
controlled corporation has, so to speak, no separate mind, will P0.24 per share. The proceeds were then used to buy back
or existence of its own, and is but a conduit for its principal. It 61,100,000 KPP shares earlier sold by E-Securities. Quite
must be kept in mind that the control must be shown to have unexpectedly however, the total amount of these DMCI shares
been exercised at the time the acts complained of took place. ballooned to P1,465,799,000.00. It must be taken into account
RTC maintained that the subsequently enumerated factors that this unexpected turnabout did not inure to the benefit of
betray the true nature of E-Securities as a mere alter ego of E-Securities, much less Export Bank. Furthermore, ownership by
Export Bank: 1. Defendant EIB Securities, a subsidiary Export Bank of a great majority or all of stocks of E-Securities
corporation 100% totally owned by Export and Industry Bank, and the existence of interlocking directorates may serve as
Inc., was only re-activated by the latter in 2002-2003 and the badges of control, but ownership of another corporation, per
continuance of its operations was geared for no other reason se, without proof of actuality of the other conditions are
tha[n] to serve as the securities brokerage arm of said parent insufficient to establish an alter ego relationship or connection
corporation bank; 2. It was the parent corporation bank that between the two corporations, which will justify the setting
provided and infused the fresh working cash capital needed by aside of the cover of corporate fiction. The Court has declared
defendant EIB Securities which prior thereto was non-operating that “mere ownership by a single stockholder or by another
and severely cash-strapped; 3. defendant EIB Securities and its corporation of all or nearly all of the capital stock of a
operating office and staff are all housed in the same building; 4. corporation is not of itself sufficient ground for disregarding the
As shown in the General Information Sheets annually filed with separate corporate personality.” The Court has likewise ruled
the S.E.C. from 2002 to 2011, both defendant EIB Securities and that the “existence of interlocking directors, corporate officers
the bank parent corporation share common key Directors and and shareholders is not enough justification to pierce the veil of
corporate officers. Three of the 5-man Board of Directors of corporate fiction in the absence of fraud or other public policy
defendant EIB Securities are Directors of the bank parent considerations.”
corporation; 5. As admitted by the bank parent corporation in its
consolidated audited financial statements[,] EIB Securities is a
CONTROLLED SUBSIDIARY, and for which reason its financial
condition and results of operations are included and integrated
as part of the group’s consolidated financial statements,
examined and audited by the same auditing firm; 6. The lawyers
handling the suits and legal matters of defendant EIB Securities
are the same lawyers in the Legal Department of the bank parent
corporation. Being then under the direction and control of the
bank parent corporation, the unauthorized disposal of those
shares by defendant EIB Securities is attributable to, and the
responsibility of the former.
Albeit the RTC bore emphasis on the alleged control exercised by
Export Bank upon its subsidiary E-Securities, “[c]ontrol, by itself,
does not mean that the controlled corporation is a mere
instrumentality or a business conduit of the mother company.
Even control over the financial and operational concerns of a
subsidiary company does not by itself call for disregarding its
corporate fiction. There must be a perpetuation of fraud behind
the control or at least a fraudulent or illegal purpose behind the
control in order to justify piercing the veil of corporate fiction.
Such fraudulent intent is lacking in this case.” Moreover, there
was nothing on record demonstrative of Export Bank’s wrongful
intent in setting up a subsidiary, E-Securities. 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 business. To justify treating the sole stockholder or
holding company as responsible, it is not enough that the
subsidiary is so organized and controlled as to make it “merely
an instrumentality, conduit or adjunct” of its stockholders. It
must further appear that to recognize their separate entities
would aid in the consummation of a wrong.