REPUBLIC OF THE PHILIPPNES

SUPREME COURT
MANILA CITY

CONCEPT BUILDERS,
Petitioner,

-versus- G.R. No. 108734. May 29, 1996

National Labor Relations Commission et al,

Respondents.

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DOCTRINE

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is
just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public
convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the
notion of legal entity should come to naught. The law in these instances will regard the corporation as a
mere association of persons and, in case of two corporations, merge them into one.

Thus, where a sister corporation is used as a shield to evade a corporation’s subsidiary liability
for damages, the corporation may not be heard to say that it has a personality separate and distinct
form the other corporation.

FACTS OF THE CASE

Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan
Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were
employed by said company as laborers, carpenters and riggers.
On November, 1981, private respondents were served individual written notices of termination
of employment by petitioner, effective on November 30, 1981. It was stated in the individual notices
that their contracts of employment had expired and the project in which they were hired had been
completed. Public respondent found, however, that at the time of the termination of private
respondent’s employment, the project in which they were hired had not yet been finished and
completed. Petitioner had to engage the services of subcontractors whose workers performed the
functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and
non- payment of their legal holiday pay, overtime pay and thirteenth- month pay against petitioner. The
Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to pay them
back wages equivalent to one year or three hundred working days. The National Labor Relations
Commission (NLRC) affirmed said decision.
A writ of execution directing the sheriff to execute the Decision was issued. The writ was
partially satisfied through garnishment of sums from petitioner’s debtor. Said amount was turned over
to the cashier of the NLRC. To achieve complete satisfaction of the judgment, two (2) alias writs were
issued but the sheriff failed to enforce them due to the following:

1.) All the employees inside petitioner’s premises at 355 Maysan Road, Valenzuela, Metro
Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by
respondent Concept Builders,Inc. (CBI)
2.) Security guards with high-powered guns prevented him from removing the properties he
had levied upon.

On November 6, 1989, a certain Dennis Cuyegkeng filed a third party claim with the Labor
Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.),
Inc. (HPPI) of which he is the Vice- President.
On November 23, 1989, private respondents filed a “Motion for Issuance of a Break- Open
Order.” Alleging that HPPI and petitioner corporation were owned by the same
incorporation/stockholders. They also alleged that petitioner temporarily suspended its business
operation in order to evade its legal obligation to them and that private respondents were willing to
post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the
issuance of the break-open order. In support of their claim against HPPI, private respondents presented
duly certified copies of the General Information Sheet, dated May 15, 1987, submitted by petitioner to
the Securities and Exchange Commission (SEC) and the General Information Sheet, dated May 15, 1987,
submitted by HPPI to the Securities and Exchange Commission.

The General Information Sheet submitted by the entities revealed the following:

Concept Builders, Inc. (CBI) Hydro (Phils.), Inc. (HPPI)

1. Breakdown of Subscribed Capital 1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed Name of Stockholder Amount Subscribed

HPPI P6,999,500.00 Antonio W. Lim P400,000.00

Antonio W. Lim 2,900,000.00 Elisa C. Lim 57,700.00
Dennis S. Cuyegkeng 300.00 AWL Trading 455,000.00
Elisa C. Lim 100,000.00 Dennis S. Cuyegkeng 40,100.00
Teodulo R. Dino 100.00 Teodulo R. Dino 100.00
Virgilio O. Casino 100.00 Virgilio O. Casino 100.00
 2. Board of Directors 2. Board of Directors

Antonio W. Lim Chairman Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member Dennis S. Cuyegkeng Member
Elisa R. Lim Member Elisa R. Lim Member
Teodulo R. Dino Member Teodulo R. Dino Member
Virgilio O. Casino Member Virgilio O. Casino Member

3. Corporate Officers 3. Corporate Officers

Antonio W. Lim President Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary Virgilio O. Casino Corporate Secretary

4. Principal Office 4. Principal Office

355 ysan Road Valenzuela, Metro Manila 355 Maysan Road Valenzuela, Metro Manila

HPPI filed an Opposition to private respondents’ motion for issuance of a break-open order,
contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged
that the two corporations are engaged in two different kinds of businesses. i.e., HPPI is a manufacturing
fir while petitioner (CBI) was then engaged in construction.
The NLRC issued a break- open order and directed private respondents to file a bond.
Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied upon.
It dismisses the third- party claim for lack of merit. Petitioner moved for reconsideration but the motion
was denied by the NLRC in a Resolution, dated December 3, 1992. Hence, the resort to the present
petition.

ISSUES

Whether or not the following contentions of petitioner are tenable:

a.) That the doctrine of piercing the corporate veil should not have been applied, in this case, in
the absence of any showing that it created HPPI in order to evade its liability to private
respondents; and,
b.) That HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a
business which is distinct and separate from petitioner’s construction business. Hence, it is
of no consequence that petitioner and HPPI shared the same premises, the same President
and the same set of officers and subscribers.

HELD/DISCUSSION:
 The Supreme Court resolved the above issues in the negative and ruled that petitioner’s
contentions to be unmeritorious.
It is fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it may be connected. But, this
separate and distinct personality of a corporation is merely a fiction created by law for convenience and
to promote justice. So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded of the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter
ego of another corporation.
The conditions under which the juridical entity may be disregarded vary according to the
peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will justify the application of the doctrine of
piercing the corporate veil, to wit:

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

2. Identity of directors and officers;
3. The manner of keeping corporate books and records; and,
4. Methods of conducting the businesses

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

“Where one corporation is so organized and controlled and its affairs are conducted so
that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate
entity of the instrumentality may be disregarded. The control necessary to invoke the rule is not
majority or even complete stock control but such dominion 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. Moreover, the control and
breach of duty must proximately cause the injury or unjust loss for which the complaint is made.

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

1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest or unjust
act in contravention of plaintiff’s legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of;
 “The absence of any of these elements prevents “piercing the corporate veil”. In applying
the instrumentality or alter ego doctrine, the courts are concerned with reality and not
form, with how the corporation operated and the individual defendant’s relationship to that
operation.”

Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper
corporation, a sham or a subterfuge is purely one of fact.
In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations
on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on May 15,
1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other
hand, HPPI, the third- party claimant, admitted on the same day, a similar information sheet stating that
its office address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that: “Both information sheets were filed by the same Virgilio O.
Casino as the corporate secretary of both corporations. It would also not be amiss to note that both
corporations had the same President, the same board of directors, the same corporate officers and
substantially the same subscribers.

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

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

WHEREFORE, the petition was dismissed and the assailed resolutions of the NLRC, dated April
23, 1992 and December 3, 1992, were affirmed.
 REPUBLIC OF THE PHILIPPINES
SUPREME COURT
MANILA

FRANCISCO MOTORS CORPORATION,

Petitioner,

-versus- G.R. No. 100812 June 25, 1999

COURT OF APPEALS and

Spouses Greogorio and Librada Manuel,
Respondents.

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DOCTRINE

The rationale behind piercing a corporation’s identity is to remove the barrier between the corporation
from persons comprising it to thwart the illegal schemes of those who use the corporate personality as a
shield for undertaking certain proscribed activities and is not applicable when the corporation which is
being ordered to answer for personal liability of certain individual directors, officers and incorporators
concerned.

FACTS OF THE CASE

Petitioner filed a complaint against private respondents (Manuel spouses) to recover P3,412.06,
representing the balance of the jeep body purchase by the Manuels from petitioner. In their answer,
Manuels interposed a counterclaim for unpaid legal services by Gregorio Manuel (P50,000) which was
not paid by the incorporators, directors and officers of the petitioner. The trial court decided in favor of
petitioner in regard to petitioner’s claim for money, but also allowed the counterclaim of Manuels. CA
sustained the trial court’s decision. Gregorio Manuel alleged as an affirmative defense that, while he
was petitioner’s Assistant Legal Officer, he represented members of the Francisco family in the intestate
estate proceedings of the late Benita Trinidad. However, even after the termination of the proceedings,
his services were not paid. Said family members, he said, were also incorporators, directors and officers
of the petitioner. Hence to counter petitioner’s collection suit, he filed a permissive for the unpaid
attorney’s fees.
 ISSUE
Whether or not petitioner corporation should be held liable for the counterclaim of Gregorio
Manuel.

HELD/DISCUSSION:

The doctrine of piercing the corporate veil has no relevant application here. Respondent court
erred in permitting the trial’s court resort to this doctrine. The rationale behind piercing a corporation’s
identity in a given case is to remove the barrier between the corporation from the persons comprising it
to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for
undertaking certain proscribed activities. However, in the case at bar, instead of holding certain
individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the
petitioner as a corporation which is being ordered to answer for the personal liability of certain
individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has
been turned upside down because of its erroneous invocation. Note that according to private
respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco family
to represent them in the intestate proceedings over Benita Trinidad’s estate. These estate proceedings
did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family members but
also from petitioner on the claims that its management had requested his services and he acceded
thereto as an employee of petitioner from whom it could be deduced he was also receiving a salary. His
move to recover unpaid legal fees through a counterclaim against petitioner, to offset the unpaid
balance of the purchase and repair of a jeep body could only result from an obvious misapprehension
that petitioner’s corporate assets could be used to answer for the liabilities of its individual directors,
officers and incorporators. Such result if permitted could easily prejudice the corporation, its own
creditors, and even other stockholders; hence, clearly iniquitous petitioner.
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. When
directors and officers of a corporation are unable to compensate a party for a personal obligation, it is
far- fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby
held liable therefor by piercing its corporate veil. While there is no hard-and-fast rules on disregarding
separate corporate identity, we must always be mindful of its function and purpose. A court should be
careful in assessing the milieu where the doctor of piercing the corporate veil may be applied. Otherwise
an injustice, although unintended, may result from its erroneous application.
 REPUBLIC OF THE PHILIPPINES
SUPREME COURT
MANILA CITY

Goldline Tours,
Petitioner,

-versus- G.R. No. 159108 JUNE 18, 2012

Heirs of Ma. Concepcion Lacsa,

Respondents.

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DOCTRINE:

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

FACTS OF THE CASE

MA. Concepcion Lacsa, one who boarded Goldline passenger bus owned and operated by Travel
& Tours Advisers, Inc. Before they have reached their destination, the Goldline bus collided with
passenger jeepney and as a result, a metal part of the jeepney was detached and struck Ma. Concepcion
in the chest causing her instant death. The Ma. Concepcion’s heirs represented by Teodoro Lacsa,
instituted in the Regional Trial Court a suit against JAL Travel & Tours Inc., to recover damages arising
from the breach of contract of carriage. The Regional Trial Court ruled in favor of the heirs of Ma.
Concepcion and thereafter, Goldline appealed the decision to the Court of Appeals but the Court of
Appeals dismissed the appeal for failure of the defendants to pay the docket and other lawful fees
within the required period as provided in the Rules of Court. The dismissal then became final.
Subsequently, the heirs of Ma. Concepcion moved for the issuance of a writ of execution to implement
the decision and Regional Trial granted their motion. Petitioner then submitted a verified third party
claim, claiming that the tourist bus be returned to Petitioner because it was theirs and that petitioner
was a corporation entirely different from Travel & Tours Advisers, Inc., then the Regional Trial Court
dismissed petitioner’s verified third- party claim, observing that the identity of Travel & Tours Advisers,
Inc., could not be divorced from that of petitioner from that of petitioner considering that Cheng had
claimed to be the operator as well as the President/Manager/Incorporator of both entities; and that
Travel & Tours Advisers, Inc. had been known in Legaspi as Goldline. Goldline appealed the decision of
Court of Appeals but Court of Appeals dismissed their petition and affirmed the decision of Regional
Trial Court. Hence, this appeal to the Supreme Court where petitioner seeks to reverse the decision of
Court of Appeals.

ISSUE

Whether or not the proposition of the third party claimant by the petitioner where Travel &
Tours Advises, Inc. has an existence separate and/or distinct from Gold Line Tours, Inc.

HELD/DISCUSSION:

The Supreme Court the DENIED the petition for review on certiorari, and AFFIRMED the decision
promulgated by the Court of Appeals. The two corporations are liable to the death of Ma. Concepcion
Lacsa. The Court was not persuaded by the proposition of the third party claimant that a corporation has
an existence separate and/or distinct from its members insofar as this case at bar is concerned, for the
reason that whenever necessary for the interest of the public or for the protection of enforcement of
their rights, the notion of legal entity should not and is not to be used to defeat public convenience,
justify wrong, protect fraud or defend crime.

In the case of Palacio vs. Fely Transportation Co., the Supreme Court held that:

"Where the main purpose in forming the corporation was to evade one’s subsidiary liability for damages
in a criminal case, the corporation may not be heard to say that it has a personality separate and distinct
from its members, because to allow it to do so would be to sanction the use of fiction of corporate
entity as a shield to further an end subversive of justice (La Campana Coffee Factory, et al.v. Kaisahan ng
mga Manggagawa, etc., et al., L-5677, May 25, 1953).This is what the third party claimant wants to do
including the defendant in this case, to use the separate and distinct personality of the two corporation
as a shield to further an end subversive of justice by avoiding the execution of a final judgment of the
court.

The RTC thus rightly ruled that petitioner might not be shielded from liability under the final judgment
through the use of the doctrine of separate corporate identity. Truly, this fiction of law could not be
employed to defeat the ends of justice.
 REPUBLIC OF THE PHILIPPINES
SUPREME COURT
MANILA CITY

CHINA BANKING CORPORATION,

Petitioner,

-versus- G.R. No. 149237

DYNE- SEM ELECTRONICS CORPORATION,

Respondent.

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DOCTRINE

The question of whether one corporation is merely an alter ego of another is purely one of fact.
So is the question of whether a corporation is a paper company, a sham or subterfuge or whether
petitioner adduced the requisite quantum of evidence warranting the piercing of the veil of respondent’s
corporate entity.

FACTS OF THE CASE

Dynetics and Elpidio Ong (solidary liable) obtained P8, 939,000 loan from petitioner China
Bnaking Corporation as evidenced by promissory notes. The borrowers failed to pay the obligation.
Dynetics has closed its operations and left Ong as the sole responsible for the loan. Petitioner bank
impleaded respondent Dyne- sem Electronic Corporation as according to petitioner bank, Dyne- sem is
an alter ego of Dynetics. The basis of the petitioner are as follows:

1.) Dynetics and Dyne-sem are both engaged in the business of integrated circuits and semi-
conductor devices;
2.) The factory of Dynetics was used by Dyne-sem was used by Dyne-sem as its main office;
3.) Dyne-sem acquired machineries from Dynetics; and
4.) Dyne-sem retained some of the officers of Dynetics. RTC ruled in favor of respondent to which
the Courth of Appeals affirmed. Hence, this petition.

ISSUE
 Whether or not Dyne- sem is an alter ego of Dynetics that would allow the court to pierce the
former’s corporate veil.

RULING/DISCUSSION

Dyne-sem is not an alter-ego of Dynetics, and therefore, cannot be held liable for the loan
obtained by Dynetics. Petitioner failed to prove that Dyne-sem was organized and controlled, and its
affairs conducted, in a manner that made it merely an instrumentality, agency, conduit or adjunct of
Dynetics, or it was established to defraud Dynetics’ creditors, including petitioner. The similarity of
business of the two corporations did not warrant a conclusion that respondent was but a conduit of
Dynetics. The acquisition of assets of Dyne- sem was through a public bidding. What took place was a
sale of the assets of the former to the latter. Merger is legally distinct from a sale of 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 the fact alone,
liable for the debts and liabilities of the transferor. Even the overlapping of incorporators and
stockholders of two or more corporations will not necessarily lead to such inference and justify the
piecing of the veil of corporate fiction.
 REPUBLIC OF THE PHILIPPINES
SUPREME COURT
MANILA CITY

JARDINE DAVIES, INC.,

Petitioner,

-versus- G.R. No. 151438 July 15, 2005

JRB REALTY, INC.,

Respondent
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DOCTRINE:

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is
as follows: 1.) Control or complete denomination; 2.) Control used by the defendant to commit fraud or
wrong, or to perpetuate the violation of a statutory or other positive legal duty or dishonest acts in
contravention of plaintiff’s legal rights,; and 3.) Control and breach of duty must approximately cause
the injury or unjust loss complained of.

FACTS:

Respondent JRB Realty built Blanco Center and contracted with Aircon and Refrigeration
industries for the installation of aircon units with Fedder’s Air Conditions USA compressors. Due to
problems encountered after installation, the two parties agreed to replace the units. Thereafter the
respondent learned that Maxim Industrial is the new and exclusive licensed distributor of Fedders
compressor. When Maxim refused to honor the obligation of Aircon to replace the units, JRB Realty filed
an action for specific performance with damages against Aircon. Considering that Aircon was its
subsidiary, Jardine Davies was also impleaded. The Regional Trial Court rendered its decision holding
Jardine Davies, Fedders USA and Maxim jointly and severally liable for the grievances of JRB. Jardine
Davies contends that it was not a party to the contract between JRB and Aircon and that it had a
personality separate from that of Aircon.
However, the Court of Appeals affirmed the ruling of the Regional Trial Court. Thus, this petition.

ISSUE

Whether Jardine Davies should be held liable for the alleged contractual breach of Aircon solely
because the latter was formerly Jardine Davies’ subsidiary.

RULING/ DISCUSSION:

A corporation is an artificial being with a personality separate and distinct form its stockholders
and distinct from its stockholders and from any other corporations to which it may be connected. While
a corporation may be allowed to exist solely for a lawful purpose, the law will regard it as and
association of persons or in case of two persons to merge it as one when this corporate legal entity is
used as a cloak for fraud or illegality. This is otherwise known as the doctrine of piercing the corporate
veil of a corporate fiction. A subsidiary has an independent and separate juridical personality from that
of its parent company. Hence any claim against the latter does not bind the former and vice versa. In
applying this doctrine of piercing the corporate fiction the following requisites must be established: 1.)
Control, not merely majority or complete stock control; 2.) such control must have been used by the
defendant to commit fraud or wrong, or to perpetuate the violation of a statutory or other positive legal
duty or dishonest acts in contravention of plaintiff’s legal rights; and 3.) the aforesaid control and breach
of duty is the approximate cause of injury or unjust loss complained of. In this case, Aircon is a subsidiary
of Jardine Davies only because the latter acquired Aircon’s majority of capital stock. However, it does
not exercise complete control over Aircon. No management agreement exixts between Jardine and
Aircon. Thus, Jardine Davies should not be held liable being a separate and legal identity from that of
Aircon.