CORPORATION LAW Case Digest

1. Palay, Inc. vs. Clave Facts: - Albert Onstott as President of Palay, Inc., executed a contract to sell a parcel of land located in Crestview Heights Subdivision in Antipolo, Rizal in favor of Nazario Dumpit. - 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 forfeiture of installments paid. - Nazario Dumpit paid the downpayment and several installments but defaulted later however. - Almost 6 years later, Dumpit wrote the 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. - Petitioner replied informing Dumpit that his contract to sell had long been rescinded pursuant to the automatic extrajudicial rescission provision of the contract and that the lot had already been resold. - Thereafter, Dumpit filed a complaint with the national Housing Authority questioning the validity of the rescission and for reconveyance. - National Housing Authority found the rescission void in the absence of either judicial or notarial demand and ordered petitioner and Albert Onstott, in his capacity as the President of corporation to jointly and severally be liable for refund. - On appeal to the Office of the President, Presidential Executive Assistant Jacobo Clave, respondent, affirmed the resolution of NHA. - Hence, this petititon. ISSUE: 1. Whether or not the contract was validly rescinded? NO. 2. Whether or not the president of the corporation can be made jointly and severally liable with the corporation? No. HELD: When a real estate corporation extrajudicially rescinded a contract to sell but failed to fulfill its obligation under the same contract to deliver a substitute lot or refund the purchase price, the president of the corporation cannot be held liable even where he appears to be the controlling stockholder absent sufficient proof that he used the corporation to defraud defaulting lot buyer. Mere ownership by a single stockholder or by another corporation of all or nearly all capital stock of corporation not sufficient ground for disregarding corporate personality. Although it is true that judicial action for rescission of contract to sell is not necessary where contract provides for its revocation and cancellation for violation of any of its terms and conditions, it shall be with a written notice sent to defaulter informing hi, of the rescission. - No notice was sent to Dumpit. No badges of Fraud was found on the part of Albert Onstott. - He did not use the corporation to defraud private respondent.

2. Cruz vs. Dalisay Facts: - A case was filed in NLRC against Qualitrans Limousine Service, Inc. - Judgment was rendered and an implementing was issued, NLRC directing Qualitrans to reinstate the discharged employees and pay them full backwages. - Upon advice from the counsel for the discharged employees, Quiterio L. Dalisay, the Senior Deputy Sheriff of Manila implementing the writ, attached and/or levied the money deposited at the Philtrust Bank, which belonged to Adelio Cruz, the President of Qualitrans. - Because Cruz was not himself the judgment debtor in the judgment of NLRC and despite that, the writ was enforced against him, he charged Dalisay administratively with malfeasance in office, corrupt practices and serious irregularitites. - Prior to termination of proceedings, Cruz desisted stating that he is no longer interested in prosecuting the cas, there being only a “misunderstanding”. Issue: Whether or not the corporate veil can be pierced? No. Held: It is a well-settled doctrine both in law and in equity that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members. The mere fact that one is a president of a corporation does not render the property he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate entities. A sheriff who enforced a judgment against the president of corporation when it is directed against the corporation is liable administratively. By choosing to “pierce the veil” of corporate entity, the sheriff usurped a power that belongs to the court and assumed improvidently that since the complainant is owner and president of the judgment creditor, they are one and the same. Cruz, president of Qualitrans has distinct personality from the corporation. Desistance of complainant does not preclude the taking of disciplinary action against Sheriff. - Being a public officer must at all times be free from appearance of impropriety. - Must be imposed appropriate corrective sanction.

6. INDOPHIL TExTILE MILL WORKERS UNION-PTGWO, petitioner, vs. CALICA

Facts: - Petitioner Indophil Textile Mill Workers Union-PTGWO is a legitimate labor organization duly registered with the Department of Labor and Employment and the exclusive bargaining agent of all the rank-and-file employees of Indophil Textile Mills, Incorporated. - Respondent Teodorico P. Calica is impleaded in his official capacity as the Voluntary Arbitrator of the National Conciliation and Mediation Board of the Department of Labor and Employment, while private respondent Indophil Textile Mills, Inc. is a corporation engaged in the manufacture, sale and export of yarns of various counts and kinds and of materials of kindred character and has its plants at Barrio Lambakin, Marilao, Bulacan. - Petitioner Indophil and private respondent Indophil Textile Mills, Inc. executed a collective bargaining agreement effective from April 1, 1987 to March 31, 1990. - On November 3, 1987, Indophil Acrylic Manufacturing Corporation was formed and registered with the Securities and Exchange Commission. - Subsequently, Acrylic applied for registration with the Board of Investments for incentives under the 1987 Omnibus Investments Code. The application was approved on a preferred non-pioneer status. - 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 to Section 1(c), Article I of 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. - The existing impasse led the petitioner and private respondent to enter into a submission agreement on September 6, 1990. The parties jointly requested the public respondent to act as voluntary arbitrator in the resolution of the pending labor dispute pertaining to the proper interpretation of the CBA provision. - After the parties submitted their respective position papers and replies, the public respondent Voluntary Arbitrator rendered its award which provides that the proper interpretation and application of Sec. 1, (c), Art. I of the 1987 CBA do (sic) not extend to the employees of Acrylic as an extension or expansion of Indophil Textile Mills, Inc. - Hence, this petition. ISSUE: WHETHER OR NOT THE RESPONDENT ARBITRATOR ERRED IN INTERPRETING SECTION 1 (c), ART I OF THE CBA BETWEEN PETITIONER UNION AND RESPONDENT COMPANY. HELD: We find the petition devoid of merit. Time and again, We stress that the decisions of voluntary arbitrators are to be given the highest respect and a certain measure of finality, but this is not a hard and fast rule, it does not preclude

judicial review thereof where want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice, or erroneous interpretation of the law were brought to our attention. It should be emphasized that in rendering the subject arbitral award, the voluntary arbitrator Teodorico Calica, a professor of the U.P. Asian Labor Education Center, now the Institute for Industrial Relations, found that the existing law and jurisprudence on the matter, supported the private respondent's contentions. Contrary to petitioner's assertion, public respondent cited facts and the law upon which he based the award. Hence, public respondent did not abuse his discretion. 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 auxiliary 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. 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.

7. EPG Construction Company vs. CA Facts: - Petitioner EPG Construction Co., Inc. and the University of the Philippines, herein private respondent, entered into a contract for the construction of the UP Law Library Building for the stipulated price of P7,545,000.00. The agreement included a provision on guarantee. - Upon its completion, the building was formally turned over by EPG to the private respondent UP issued a certification of acceptance. - Sometime in July, 1983, the private respondent complained to the petitioner that 6 airconditioning units on the third floor of the building were not cooling properly. After inspection of the equipment. EPG agreed to shoulder the expenses for their repair, including labor and materials. in the amount of P38,000.00. - For whatever reason, the repair was never undertaken. - UP repeated its complaints to EPG. which again sent its representatives to assess the defects. Finally, it made UP a written offer to repair the system for P194,000.00. - UP insisted that EPG was obligated to repair the defects at its own expense under the guarantee provision in their, contract, EPG demurred. - UP then contracted with another company, which repaired the defects for P190,000.00.

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The private respondent subsequently demanded from EPG reimbursement of the said amount plus an equal sum as liquidated damages. When the demand was rejected, UP sued EPG and its president, Emmanuel P. de Guzman, in the Regional Trial Court of Quezon City. De Guzman moved to dismiss the complaint as to him for lack of a cause of action, but the motion was denied. TC and CA favored UP.

Held: The president of a corporation cannot be held solidarily liable with the corporation for a breach of contract in the construction of a library absent evidence of malicious acts by the former since a corporation has a personality separate and distinct from its officers and stockholders. The same conclusion cannot be altered even though the president is the controlling stockholder because mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient ground for disregarding the separate corporate personality. The fact that the president resisted the claims of the client does not demonstrate malice or bad faith to make him personally liable. After trial, judgment was rendered by Judge Antonio P. Solano requiring both defendants jointly and severally to pay the plaintiff P190,000.00 as actual damages. P50,000.00 as liquidated damages, P10,000.00 as attorney's fees, and costs. The petitioners appealed to the Court of Appeals, which sustained the trial court. 1 They then came to this Court to fault the respondent court for not holding that: 1) UP was estopped by its certificate of acceptance from imputing liability to EPG for the defects; 2) the defects were due to force majeure or fortuitous event; and 3) Emmanuel de Guzman has a separate personality from that of EPG Construction Co., Inc. The petitioners argue that by issuing the certificate of acceptance, UP waived the guarantee provision and is now estopped from invoking it. This argument is absurd. All UP certified to was that the building was in good condition at the time it was turned over to it on January 13, 1983. It did not thereby relieve the petitioners of liability for any defect that might arise or be discovered later during the one-year period of the guarantee. Any other interpretation would make the guarantee provision useless to begin with as it would have automatically become functus officio with the turn-over of the construction. The petitioners bolster their argument by quoting Article 1719 of the Civil Code thus, "Acceptance of the work by the employer relieves the contractor of liability . . ." and stopping there. The Article reads in full as follows: Art. 1719. Acceptance of the work by the employer relieves the contractor of liability for any defect in the work, unless: (1) The defect is hidden and the employer is not, by his special knowledge, expected to recognize the same; or

(2) The employer expressly reserves his rights against the contractor by reason of the defect. The exceptions were omitted by the petitioners for obvious reasons. The defects complained against were hidden and the employer was not expected to recognize them at the time the work was accepted. Moreover, there was an express reservation by UP of its right to hold the contractor liable for the defects during a period of one year. The petitioners' contention that the defects were caused by force majeure or fortuitous event as a result of the frequent brown-outs in Metro Manila is not meritorious. The Court is not prepared to accept that the recurrent power cut-offs can be classified as force majeure or a fortuitous event. We agree that the real cause of the problem, according to the petitioners' own subcontractor, was poor workmanship, as discovered upon inspection of the cooling system. Among the defects noted were improper interlocking of the entire electrical system in all the six units; wrong specification of the time delay relay, also in all the six units; incorrect wiring connections on the oil pressure switches; improper setting of the Hi and Lo pressure switches; and many missing parts like bolts and screws of panels, and the compressor terminal insulation, and the terminal screws of a circuit breaker. 2 Curiously, it has not been shown that the cooling system in buildings within the same area have been similarly damaged by the power cut-offs. The brown-outs have become an intolerable annoyance, but they cannot excuse all contractual irregularities, including the petitioners' shortcomings. The petitioners also claim that the breakdown of the cooling system was caused by the failure of UP to do maintenance work thereon. We do not see how mere maintenance work could have corrected the above-mentioned defects. At any rate, whether the repairs in the air-conditioning system can be considered mere maintenance work is a factual issue. The resolution thereof by the lower. courts is binding upon this Court in the absence of a clear showing that it comes under the accepted exceptions to the rule. There is no such showing here. The final point of the petition is that Emmanuel P. de Guzman has a separate legal personality from EPG Construction Co., Inc. and should not be held solidarily liable with it. He stresses that the acts of the company are its own responsibility and there is no reason why any liability arising from such acts should be ascribed to him. Thus: It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. 3 The trial court did not explain why Emmanuel de Guzman was held solidarily liable with EPG Construction Co., Inc., and neither did the respondent court when it affirmed the appealed decision. In its Comment on the present petition, UP also did not refute the petitioners' argument and simply passed upon it sub silentio although the matter was squarely raised and discussed in the petition.

Notably, when Manuel de Guzman moved to dismiss the complaint as to him, UP said in its opposition to the motion that it was suing him "in his official capacity and not in his personal capacity." His inclusion as President of the company was therefore superfluous, as De Guzman correctly contended, because his acts as such were corporate acts imputable to EPG itself as his principal. It is settled that: A corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other entity to which it may be related. 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 general manager of a corporation therefore should not be made personally answerable for the payment of the employee's backwages unless he had acted maliciously or in bad faith in terminating the services of the employee. 4 The exception noted is where the official "had acted maliciously or in bad faith," in which event he may be made personally liable for his own act. That exception is not applicable in the case at bar, because it has not been proved that De Guzman acted maliciously or in bad faith when, as President of EPG, he sought to protect its interests and resisted UP's claims. Whatever damage was caused to UP as a result of his acts is the sole responsibility of EPG even though De Guzman was its principal officer and controlling stockholder. In sum, we hold that the lower court did not err in holding EPG liable for the repair of the airconditioning system at its expense pursuant to the guarantee provision in the construction contract with UP. However. Emmanuel de Guzman is not solidarily liable with it, having acted on its behalf within the scope of his authority and without any demonstrated malice or bad faith. WHEREFORE, the appealed decision is AFFIRMED but with the modification that EPG Construction Co., Inc. shall be solely liable for the damages awarded in favor of the University of the Philippines. It is so ordered.

8. Boyer-Roxas vs. Court of Appeals Facts: - Eugenia Roxas originally owned the questioned properties in this case which include among others cottages, houses, buildings, swimming pools, tennis court, restaurants, open pavilions inside the Hidden Valley Springs Resort in Laguna. - When Eugenia died, her heirs among whom were Rebecca Boyer-Roxas and Guillermo Roxas decided to form the corporation, Heirs of Eugenia V. Roxas, Inc. with the inherited properties as capital of the corporation. - This was incorporated with the primary purpose of engaging in agriculture to develop the inherited properties.

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The Articles of Incorporation however was amended to allow it to engage in the resort business. Accordingly, the corporation put up a resort known as Hidden Valley Spring Resort where the questioned properties were located. Eufrocino Roxas, (husband of Eugenia) during his lifetime together with Eribito Roxas ( husband of Rebecca and father of Guillermo) managed the corporation. Eriberto and Rebecca occupied the staff house as their residence and converted the recreation hall into a residential house with the blessings of Eufrocino, who was then the majority stockholder of the corporation. The Board of directors did not object to the actions of Eufrocino. Rebecca and Guillermo were allowed to stay within the questioned properties until the Board of Directors approved a resolution ejecting them. Despite demand however, they refused to vacate. Hence, two separate complaints for recovery of possession was filed. TC affirmed by CA, ordered Rebecca and all persons claiming under her to vacate the premises. Hence, this petition.

Issue: Whether or not the petitioner could be ejected? Yes. Held: Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its own. A share of stock only typifies an aliquot part of the corporation’s property or the right to share in its proceeds to that extent when distributed according to law and equity but its holder is not the owner of any part of the capital of the corporation. Nor is he entitled to the possession of any definite portion of its property or assets. The stockholder is not a co-owner or tenant in common of the corporate property. A corporation can therefore sue to recover real property being occupied by its former president (who was also a significant stockholder) for it has a juridical personality separate and distinct from its stockholders even though in the past the corporation allowed the president to enjoy the possession of the property. There is nothing irregular in the adoption of the Resolution by the BOD ejecting petitioners for Corporation’s expansion and improvement program. - Petitioner’s stay within the questioned properties was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino Roxas. - Eufrocino’s action can not bound the corporation forever. The Corrporation may elect to eject petitioners at any time it wishes for the benefit and interest of the respondent corporation.

17. Asionics Philippines, Inc. vs. NLRC

Facts: - Petitioner Asionics was negaged in the business of assembling semi-conductor chips and other electronic product mainly for export. - During negotiations with the duly recognized bargaining agent of its employees, a deadlock ensued and the union decided to file a notice of strike. - Prompted by it, two customers of API-INDALA and CP CLARE THETA to thereupon refrain from sending additional kits or materials for assembly. - As a result, API was forced to suspend operations pursuant to the Labor Code. - Yolanda Boaquina, material control clerk and Juana Gayola, production operator were among the employees asked to take a leave from work. - When the deadlock was resolved, Indala promptly resumed its business with API. - Boaquina was directed to report back since her work pertained to items being ordered by Indala. - Gayola however, had not been recalled. - Inasmuch as its business activity remained critical, API was constrained to implement a company-wide retrenchment based on productivity or performance standards pursuant to the CBA. - Boaquina and Gayola joined Lakas ng Manggagawa sa Pilipinas Labor Union which staged a strike despite pendency of conciliation meetings. - Boaquina and Gayola filed a complaint for illegal dismissal against API and or Frank Yih. - Labor arbiter held API and Yih guilty of illegal dismissal. - NLRC modified this decision by declaring that the two were not guilty of illegal dismissal but Yih was held solidarily and personally liable with API, being its president and majority stockholder to pay Boaquina and Gayola their separation pays. - Hence, this special civil action Issue: Whether or not frank Yih can be held solidarily and personally liable with the corporation? No. Held: Where there is nothing on record to indicate that the president and majority stockholder of a corporation had acted in bad faith or with malice in carrying out the retrenchment program of the company, the president of can not be held solidarily and personally liable with the corporation Frank Yih can not be held personally liable on account done of his being the President and majority stockholder of the company.

18. Francisco Motors Corporation vs. court of Appeals Facts:

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Gregorio Manuel used to be employed as the Assistant Legal Officer of Francisco Motors Corporation. His services was solicited by the incorporators, directors and members of petitioner to represent them in the intestate estate proceedings of the late Benita Trinidad. After the termination of the proceedings however, his services were not paid. Thereafter, Gregorio and Librada Manuel purchased a jeep body from petitioner. Petitioner later filed a complaint against the Manuels for failure to pay the balance of the purchase price and cost of the repair of the vehicle. On the other hand, the Manuels in their answer interposed a counterclaim for unpaid legal services rendered by Gregorio which were not paid by the incorporators, directors and officers of petitioner corporation. The Trial Court affirmed by CA, ruled in favor of FMC in regard to its claim for money but also allowed the counterclaim of the Manuel’s. Hence, this petition.

Issue: Whether or not FMC is liable? No. Held: The lawyer of the stockholder of a corporation in an estate case cannot sue the corporation for payment of his attorney’s fee, since it is has a separate juridical personality. Doctrine of piercing the corporate veil has no application. Doctrine has been turned upside down in this case. - It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individuals, directors, officers and incorporation concerned. - That is an erroneous invocation. o Greg Manuel sought to collect legal fees from the corporation. Considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the corporation had incurred, it was incurred in their personal capacity. Claim for legal fees against concerned individuals could not properly be directed against the corporation without violating basic principles governing the corporation. Supreme Court reversed the decision insofar as it only held FMC liable for the legal obligation owing to Gregorio Manuel.

19. Complex Electronics Employees Association vs. NLRC Facts:

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Petitioner corporation, engaged in the manufacture of electronic products subcontracts electronic products by accepting job orders from its customers, who send their own materials and condign their equipment to it. These customers were foreign based companies with different product lines and specifications requiring the employment of workers with specific skills for each product line. Petitioner corporation’s rank and file workers were organized into a union known as the COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION. One of petitioner’s customers, LITE-ON PHILS. ELECTRONICS, CO., require it to lower its price by 10%, to which COMPLEX did not comply as it was not feasible since they were already incurring losses at the present prices of their products. Left with no alternative but to close down the operations of LITE-ON, petitioner informed the employees of retrenchment. The employees however, demanded for a higher separation pay which COMPLEX refused to give. Petitioner filed a notice of closure but the employees filed a notice of strike. The laborers vandalized the equipment, went on picketing and threats to lock-out which prompted Lawrence Qua, the President of COMPLEX to direct the pull-out of machinery, equipment and materials and transfer to the premises of IONIC CIRCUIT INC., effected during nighttime and made pursuant to the demands of the customers who were greatly alarmed. The company totally closed the following day. A complaint was filed with the Labor Arbiter where IONICS and Lawrence Qua were impleaded. The Labor arbiter held them jointly and solidarily liable. NLRC excluded IONICS and Qua. Hence, this petitions.

Issue: Whether or not the corporate veil can be pierced? No. Held: When the business operations of the corporation ceased because of losses, labor dispute and its customers transferred their orders for delivery of electronic products to another corporation engaged in the same line of business, the displaced workers of the first corporation cannot apply the doctrine of piercing the corporate veil to enforce their monetary claims against the second corporation simply because the two corporations have the same controlling stockholders, common president, engaged in the same line of business and the latter hired some of the displaced workers ssince it is established that the second corporation was an independent company organized even prior to the labor dispute in the first corporation. The union failed to show that the primary reason for the closure of the establishment was due to the union activities of the employees. There was no lockout. The closure was motivated by the Union’s acts or employees but rather by necessity since it can no longer engage in production without the much needed materials, equipment and machinery.

Lawrence Qua, as president, cannot be held personally liable. - he manifested no malice or bad faith. - He does’nt have the intention to defraud the employee’s and the union by transferring them. o Compelled to act upon the instructions of customers who were real owners of the machinery, equipment and materials. The main reason for the cessation was the pulling out of the materials. 20. Lim vs. Court of Appeals Facts: - Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing, Inc., Active Distributing, Inc. and Action Company are corporations formed, organized and existing under Philippine laws and which owned real properties covered under the Torrens system. - Pastor Lim owned and controlled these corporations during his lifetime. - When Pastor died intestate, hiss surviving spouse, Rufina Lim, duly represented by her nephew George Luy, filed a joint petition for the administration of the estate of Pastor Y. Lim before the RTC of Quezon City. - The real properties owned by the corporations were included in the inventory. - The corporations filed a motion for the lifting of the les pendens and motion for the exclusion of said properties from the estate of the decedent which RTC both granted. - Rufina filed a verified amended petition alleging that not only the properties in the possession and registered in the names of the corporations but also the corporations themselves are properly part of the the decedent’s estate because during his lifetime, pastor organized and wholly owned the five corporations. - The probate court denied the motion for exclusion. - CA set aside the order of RTC. - Hence, this petition. Issue: Whether or not the questioned properties should be included? No. Held: In as much as the real properties included in the inventory of the estate of the late Pastor Y. Lim are in the possession of and are registered in the name of private respondent corporations, which under the law possess a personality separate and distinct from their stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed. Thus, the inclusion in the estate of the deceased stockholder properties ender the name of various corporations was erroneous even though the corporations were owned and controlled by the deceased stockholder during his lifetime.

The presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed.

22. Land Bank of the Philippines vs. CA Facts: - Petitioner LBP extended a series of credit accommodations to ECO management Corporation on various dates. - However, ECO failed to pay the same on the respective maturity dates a nd instead proposed and submitted to LBP a “Plan of Payment” wherby it would set up a financing company which would absorb the loan obligations. - LBP rejected it and filed a complaint for sum of money against ECO and Emmanuel C. Onate. - TC affirmed by CA rendered judgment in favor of LBP but dismissed the case with regard to Onate. - Petitioner LBP contends that the personalities of Onate and of ECO should be treated as one since Onate owns the majority of the interest holdings in ECO, the acronym of ECO stands for the initials of Emmanuel C. Onate, Onate controlled ECO by holding two corporate positions (chairman and treasurer) beginning from time of incorporation and continuously thereafter without benefit of election, etc. Issue: 1. Whether or not corporate veil of ECO should be pierced? No. 2. Whether or not Onate should be held jointly and severally liable of ECO for loans incurred from LBP? No. Held: A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it as well as from any other legal entity to which it may be related. By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities of the said corporation, 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. For this reason, it may not be used or invoked for ends subversive to the policy and purpose behind its creation or which could not have been intended by law to which it owes its being. In order to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. The mere fact that Oñate owned the majority of the shares of ECO is not a ground to conclude that Oñate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate personalities. Neither is the fact that the name “ECO” represents the first three letters of Oñate’s name sufficient reason to pierce the veil. Even if it did, it does not mean that the said corporation is merely a dummy of Oñate. A corporation may

assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders. The burden is on petitioner LBP to prove that the corporation and its shareholders are in fact using the personality of corporation as a means to perpetuate fraud and or escape a liability and responsibility demanded by law. - The evidence presented by petitioner does not suffice to hold respondent Onate personally liable for debt of ECO.

23. PNB vs. Ritratto Group, Inc. Facts: - PNB-International Finance Ltd., a subsidiary ccompany of PNB, organized and doing business in Hongkong, extended a letter of credit in favor of Ritratto Group Inc., Ritratto Int’l Inc. and Dadasan General Merchandise, secured by real estate mortgages constituted over four parcels of land. - The outstanding obligations were not paid. - PNB, as attorney-in-facts of PNB-IFL with full power and authority to foreclose on the properties mortgaged, notified the 3 corporations of the foreclosure pursuant to the terms of the real estate mortgages. - The three corporations filed a complaint for injunction and prayed that PNB be ordered to recomputed the rescheduling of interest to be paid. - TC judge issued an order for the issuance of a writ of preliminary injunction and subsequently ruled that since PNB-IFL is wholly owned subsidiary of PNB, then the suit against PNB suffices. Issue: Whether or not the trial court is correct? No. Held: 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 may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity. Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere instrumentality of the parent company. The parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-

in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a suit against the principal. Respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith, must be lifted. 26. CHINA BANKING CORPORATION, vs DYNE-SEM ELECTRONICS CORPORATION Facts: - On June 19 and 26, 1985, Dynetics, Inc. and Elpidio O. Lim borrowed a total of P8,939,000 from petitioner China Banking Corporation. - The loan was evidenced by six promissory notes. - The borrowers failed to pay when the obligations became due. - Petitioner consequently instituted a complaint for sum of money on June 25, 1987 against them. - Summons was not served on Dynetics, however, because it had already closed down. - Lim, on the other hand, filed his answer on December 15, 1987 denying that “he promised to pay [the obligations] jointly and severally to [petitioner].” - On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The case against Dynetics was archived. - On September 23, 1988, an amended complaint was filed by petitioner impleading respondent Dyne-Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, Antonio Garcia and Jacob Ratinoff. - According to petitioner, respondent was formed and organized to be Dynetics’ as its alter ego. - The trial court favored Dyne Sem. - Petitioner appealed to CA. Issue: Whether or not TC was correct? Yes. Held: A corporation could not be made a party defendant to a collection case simply because summons could not be served on the debtor corporation on the mere grounds that the businesses of the two corporations are interrelated and they have common directors absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights. Likewise, respondent’s acquisition of some of the machineries and equipment of Dynetics was not proof that respondent was formed to defraud petitioner. As the Court of Appeals found, no merger took place between Dynetics and respondent Dyne-Sem. What took place was a sale of the assets of the former to the latter. Merger is legally distinct from a sale of assets. Thus, where

one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor. 29. RYUICHI YAMAMOTO, vs. NISHINO LEATHER INDUSTRIES, INC. Facts: -

Petitioner, Ryuichi Yamamoto, a Japanese national, organized under Philippine laws Wako Enterprises Manila, Incorporated (WAKO), a corporation engaged principally in leather tanning, now known as Nishino Leather Industries, Inc. (NLII), one of herein respondents.

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Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a Japanese national, forged a Memorandum of Agreement under which they agreed to enter into a joint venture wherein Nishino would acquire such number of shares of stock equivalent to 70% of the authorized capital stock of WAKO.

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Eventually, Nishino and his brother Yoshinobu Nishino (Yoshinobu) acquired more than 70% of the authorized capital stock of WAKO, reducing Yamamoto’s investment therein to, by his claim, 10%, less than 10% according to Nishino.

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The corporate name of WAKO was later changed to, as reflected earlier, its current name NLII.

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Negotiations subsequently ensued in light of a planned takeover of NLII by Nishino who would buy-out the shares of stock of Yamamoto.

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In the course of the negotiations, Yoshinobu and Nishino’s counsel Atty. Emmanuel G. Doce (Atty. Doce) advised Yamamoto by letter that he could obtain possession of certain corporate properties by way of return for his equity investment.

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On the basis of such letter, Yamamoto attempted to recover the machineries and equipment which were, by Yamamoto’s admission, part of his investment in the corporation, but he was frustrated by respondents, drawing Yamamoto to file on January 15, 1992 before the Regional Trial Court (RTC) of Makati a complaint against them for replevin.

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RTC favored Yamamoto which was reversed by CA.

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Hence, this petition.

Held: Where the lawyer of the controlling stockholder of the corporation advised another stockholder that he could obtain possession of certain corporate properties by way of return for his equity investment but the lawyer acted without board approval, the advice is not binding on the

corporation even though it had the approval of the controlling stockholder. The doctrine of piercing the corporate veil can not be invoked on the sole ground that the presence of other stockholders in the corporation was only for the purpose of complying with the statutory minimum requirements on number of directors. 30. Delima vs. Gois FACTS: - Petitioner Virgilio Delima filed a case for dismissal against Golden Union aquamarine Corp., Prospero Gois and herein respondent Susan Mercaida Gois before the NLRC. - Labor Arbiter favored him. - Golden failed to appeal and so the decision became final and executory. Likewise, a writ of execution was issued and an Isuzu Jeep was attached, which vehicle was registered in Susan Gois’ name. - For this reason, Gois filed a third party claim claiming that the attachment was irregular, the vehicle not belonging to Golden but was denied by the Labor arbiter. - She filed an appeal with NLRC and at the same time filed a motion to release the motor vehicle after substituting the same with a cash bond before the NLRC. - L.A. ordered the release of the vehicle but NLRC denied appeal. - MR was also denied and an Entry of Judgment was issued. - She filed a petition for certiorari before CA invoking corporate fiction and was granted. - Hence, this petition by petitioner. ISSUE: w/N Susan Gois is liable? HELD: NO! The rule is that obligations incurred by the corporation, acting through its officers and employees are its sole liabilities. Unless they have exceeded their authority, corporate officers are as a general rule, not personally liable for their official acts because a corporation has a personality separate and distinct from its officers, stockholders and members. Thus, property belonging to a corporation cannot be attached to satisfy the debt of a stockholder and vice versa, the latter having only an indirect interest in the assets and business of the former.16 Since the Decision of the Labor Arbiter dated April 29, 2005 directed only Golden to pay the petitioner the sum of P115,561.05 and the same was not joint and solidary obligation with Gois, then the latter could not be held personally liable since Golden has a separate and distinct personality of its own. It remains undisputed that the subject vehicle was owned by Gois, hence it should not be attached to answer for the liabilities of the corporation. Unless they have exceeded their authority, corporate officers are, as a general rule, not personally liable for their official acts, because a corporation, by legal fiction, has a personality separate and distinct from

its officers, stockholders and members. No evidence was presented to show that the termination of the petitioner was done with malice or in bad faith for it to hold the corporate officers, such as Gois, solidarily liable with the corporation.

32. EXCELLENT QUALITY APPAREL, INC., vs. WIN MULTI RICH BUILDERS, INC. Facts: -

Petitioner Excellent Quality Apparel, Inc. then represented by Max L.F. Ying, VicePresident for Productions, and Alfiero R. Orden, Treasurer, entered into a contract with Multi-Rich Builders (Multi-Rich) represented by Wilson G. Chua (Chua), its President and General Manager, for the construction of a garment factory within the Cavite Philippine Economic Zone Authority (CPEZ).

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The duration of the project was for a maximum period of five (5) months or 150 consecutive calendar days. Included in the contract is an arbitration clause.

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Respondent Win Multi-Rich Builders, Inc. (Win) was incorporated with the Securities and Exchange Commission (SEC) on 20 February 1997 with Chua as its President and General Manager.

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On 26 January 2004, Win filed a complaint for a sum of money against petitioner and Mr. Ying amounting to P8,634,448.20.

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Petitioner filed an Omnibus Motion claiming that it was neither about to close. It also denied owing anything to Win, as it had already paid all its obligations to it.

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Petitioner pointed to the presence of the Arbitration Clause and it asserted that the case should be referred to the Construction Industry Arbitration Commission (CIAC) pursuant to Executive Order (E.O.) No. 1008.

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In the hearing held, the counsel of Win moved that its name in the case be changed from "Win Multi-Rich Builders, Inc." to "Multi-Rich Builders, Inc."

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It was only then that petitioner apparently became aware of the variance in the name of the plaintiff.

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In the Reply filed by petitioner, it moved to dismiss the case since Win was not the contractor and neither a party to the contract, thus it cannot institute the case.

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Petitioner obtained a Certificate of Non-Registration of Corporation/Partnership from the SEC which certified that the latter did not have any records of a "Multi-Rich Builders, Inc."

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Moreover, Win in its Rejoinder did not oppose the allegations in the Reply. Win admitted that it was only incorporated on 20 February 1997 while the construction contract was executed on 26 March 1996. Likewise, it admitted that at the time of execution of the contract, Multi-Rich was a registered sole proprietorship and was issued a business permit by the Office of the Mayor of Manila.

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RTC denied the motion but was reversed by CA.

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Hence, this petition.

Issues: 1. does Win have a legal personality to institute the present case; 2. does the RTC have jurisdiction over the case notwithstanding the presence of the arbitration clause; Held: A suit seeking to enforce the contractual rights of a single proprietorship, that is, collection of receivables arising from a construction agreement must be brought in the name of the proprietor himself. Such suit cannot be brought either in the name of a corporation organized by the proprietor in view of the separate personality of a corporation there being no showing that the proprietor assigned the receivables to the corporation, or even in the registered name of the single proprietorship as a sole proprietorship is not vested with any juridical personality to file or defend an action. 33. PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) vs. NLRC FACTS: -

These are two consolidated petitions by PEA-PTGWO against NLRC and PNB vs PEAPTGWO.

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Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation (Macris). o PNEI provided transportation services to the public, and had its bus terminal in Quezon City standing on four valuable pieces of real estate (known as Pantranco properties) registered under the name of Macris.

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The Gonzales family later incurred huge financial losses and so their creditors took over the management of PNEI and Macris.

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Few years after, full ownership was transferred to one of their creditors, the National Investment Development Corporation (NIDC), a subsidiary of the PNB.

o 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.

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In 1986, PNEI was among the several companies placed under sequestration by the PCGG.

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In 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.

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PNEI applied with the Securities and Exchange Commission (SEC) for suspension of payments. o A management committee was thereafter created which recommended to the SEC the sale of the company through privatization. o As a cost-saving measure, the committee likewise suggested the retrenchment of several PNEI employees.

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Eventually, PNEI ceased its operation.

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Along with the cessation of business came the various labor claims commenced by the former employees of PNEI where the latter obtained favorable decisions.

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Labor Arbiter: o issued the Sixth Alias Writ of Execution commanding the NLRC Sheriffs to levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its former employees, as full and final satisfaction of the judgment awards in the labor cases. o The sheriffs were likewise instructed to proceed against PNB, PNB-Madecor and Mega Prime. o In implementing the writ, the sheriffs levied upon the four valuable pieces of real estate on which the former Pantranco Bus Terminal stood which were registered under the name of PNB-Madecor.

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Subsequently, Notice of Sale of the foregoing real properties was published in the newspaper and the sale was set.

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Having been notified of the auction sale, motions to quash the writ were separately filed by PNB-Madecor and Mega Prime, and PNB and likewise filed their Third-Party Claims.

o PNB-Madecor anchored its motion on its right as the registered owner of the Pantranco properties, and o Mega Prime as the successor-in-interest. o For its part, PNB sought the nullification of the writ on the ground that it was not a party to the labor case.  -

In its Third-Party Claim, PNB alleged that PNB-Madecor was indebted to the former and that the Pantranco properties would answer for such debt.

Labor Arbiter declared: 1.

that the subject Pantranco properties were owned by PNB-Madecor. a. It being a corporation with a distinct and separate personality, its assets could not answer for the liabilities of PNEI. b. Considering, however, that PNB-Madecor executed a promissory note in favor of PNEI for P7,884,000.00, the writ of execution to the extent of the said amount was concerned was considered valid.

2. PNB’s third-party claim – to nullify the writ on the ground that it has an interest in the Pantranco properties being a creditor of PNB-Madecor, – on the other hand, was denied because it only had an inchoate interest in the properties. -

On appeal, NLRC affirmed Labor Arbiter’s disposition and CA affirming NLRC.

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Hence, this separate petitions by PNB and the former PNEI employees. o Contentions of petitioners:

ISSUES:



PEA-PTGWO - that PNB, through PNB-Madecor, directly benefited from the operation of PNEI and had complete control over the funds of PNEI. Hence, they are solidarily answerable with PNEI for the unpaid money claims of the employees.



PNB insists that the Pantranco properties could no longer be levied upon because the promissory note for which the Labor Arbiter held PNBMadecor liable to PNEI, and in turn to the latter’s former employees, had already been satisfied in favor of Gerardo C. Uy. It added that the properties were in fact awarded to the highest bidder. Besides, says PNB, the subject properties were not owned by PNEI, hence, the execution sale thereof was not validly effected.

1. w/N PNEI employees can attach the Pantranco properties of PNB, PNB-Madecor and Mega Prime to satisfy their unpaid labor claims against PNEI? NO! HELD: Both petitions must fail. First, the subject property is not owned by the judgment debtor, that is, PNEI -

the properties were owned by Macris, the predecessor of PNB-Madecor. Hence, they cannot be pursued against by the creditors of PNEI.

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the power of the court in executing judgments extends only to properties unquestionably belonging to the judgment debtor alone.

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To be sure, one man’s goods shall not be sold for another man’s debts.

Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from that of PNEI. -

PNB, PNB-Madecor, Mega Prime, and PNEI are corporations with their own personalities. o PNB was only a stockholder of PNB-Madecor which later sold its shares to Mega Prime; o and that PNB-Madecor was the owner of the Pantranco properties.

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these corporations are registered as separate entities and, absent any valid reason, we maintain their separate identities and we cannot treat them as one.

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Neither can we merge the personality of PNEI with PNB simply because the latter acquired the former. Settled is the rule that where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor.

Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to warrant the piercing of the corporate veil, none applies in the present case whether between PNB and PNEI; or PNB and PNB-Madecor. A.C. Ransom Labor Union-CCLU v. NLRC: - This reliance fails to persuade. We find the aforesaid decisions inapplicable to the instant case. - For one, in the said cases, the persons made liable after the company’s cessation of operations were the officers and agents of the corporation. The rationale is that, since the corporation is an

artificial person, it must have an officer who can be presumed to be the employer, being the person acting in the interest of the employer. The corporation, only in the technical sense, is the employer. -

In the instant case, what is being made liable is another corporation (PNB) which acquired the debtor corporation (PNEI). Applying the foregoing doctrine to the instant case, we quote with approval the CA disposition in this wise: The burden undoubtedly falls on the petitioners to prove their affirmative allegations. They failed to show that PNB was using PNEI as a mere adjunct or instrumentality or has exploited or misused the corporate privilege of PNEI. 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.

The Pantranco properties which were the subject of execution sale were owned by Macris and later, the PNB-Madecor. - They were never owned by PNEI or PNB.Following our earlier discussion on the separate personalities of the different corporations involved in the instant case, the only entity which has the right and interest to question the execution sale and the eventual right to annul the same, if any, is PNB-Madecor or its successor-in-interest. Settled is the rule that proceedings in court must be instituted by the real party in interest. PNB only has an inchoate right to the properties of Mega Prime in case the latter would not be able to pay its indebtedness. This is especially true in the instant case, as the debt being claimed by PNB is secured by the accessory contract of pledge of the entire stockholdings of Mega Prime to PNB-Madecor The Court further notes that the Pantranco properties (or a portion thereof ) were sold on execution to satisfy the unpaid obligation of PNB-Madecor to PNEI. PNB-Madecor was thus made liable to the former PNEI employees as the judgment debtor of PNEI. It has long been established in PNB-Madecor v. Uy and other similar cases that PNB-Madecor had an unpaid obligation to PNEI amounting to more or less P7 million which could be validly pursued by the creditors of the latter. Again, this strengthens the proper parties’ right to question the validity of the execution sale, definitely not PNB.