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