G.R. No. 124715, January 24, 2000 FACTS:
Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose estate is the subject of probate proceedings. The respondent herein is the owner of the properties subject of this. Said properties were included in the inventory of estate late Pastor Lim. Thus he respondents moved for the exclusion of said properties which was denied by the trial court. Petitioner contended upon filing an amended petition that the properties were actually owned by Pastor Lim and the same were registered under his name, hence they should be included in the inventory of his estate, and that during his lifetime, he organized and wholly-owned the five corporations, which are the private respondents in the instant case.
ISSUE:
Whether or not the doctrine of piercing the corporate veil is applicable.
RULING:
NO.
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 and unjust act in contravention of plaintiffs legal right; 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 this case there is no showing that the elements are present. Furthermore, it was proven that said properties were registered in the name of the corporation, hence the same were owned by the corporation despite the fact that, assuming true, it was Pastor Lim who organized the corporation.
90 | P a g e MATUGUINA INTEGRATED WOOD PRODUCTS, INC.
vs.
The HON. COURT OF APPEALS, DAVAO ENTERPRISES CORPORATION, The HON.
MINISTER, (NOW SECRETARY) of NATURAL RESOURCES AND PHILLIP CO.
G.R. No. 98310. October 24, 1996 FACTS:
On June 28, 1973, the Acting Director of the Bureau of Forest Development issued Provisional Timber License (PTL) No. 30, covering an area of 5,400 hectares to Ms. Milagros Matuguina who was then doing business under the name of MLE, a sole proprietorship venture. A portion, covering 1,900 hectares, of the said area was located within the territorial boundary of Gov. Generoso in Mati, Davao Oriental, and adjoined the timber concession of Davao Enterprises Corporation (DAVENCOR), the private respondent.
On July 17, 1975, Milagros Matuguina and petitioner MIWPI executed a Deed of Transfer 5 transferring all of the former's rights, interests, ownership and participation in Provincial Timber License No. 30 to the latter for and in consideration of 148,000 shares of stocks in MIWPI.
On July 28, 1975, pending approval of the request to transfer the PTL to MIWPI, DAVENCOR, through its Assistant General Manager, complained to the District Forester at Mati, Davao Oriental that Milagros Matuguina/MLE had encroached into and was conducting logging operations in DAVENCOR's timber concession.
ISSUE:
Whether or not MLE and MIWPI are separate and distinct corporations.
RULING:
YES.
It is settled that a corporation is clothed with personality separate and distinct from that of the persons composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for the personal indebtedness of its stockholders or those of the entities connected with it. Conversely, a stockholder cannot be made to answer for any of its financial obligations even if he should be its president. But when the juridical personality of the corporation is used to defeat public convenience, justify wrong, protect fraud or defend crime, the corporation shall be considered as a mere association of persons, and its responsible officers and/or stockholders shall be individually. For the same reasons, a corporation shall be liable for the obligations of a stockholder, or a corporation and its successor-in-interest shall be considered as one and the liability of the former shall attach to the latter.
But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed.
In the case at bar, there is, insufficient basis for the appellate court's ruling that MIWPI is the same as Matuguina. The alleged control of Plaintiff Corporation was not evident in any particular corporate acts of Plaintiff Corporation, wherein Maria Milagros Matuguina Logging Enterprises is using Plaintiff Corporation, executed acts or powers directly involving Plaintiff Corporation. Also, mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of the corporation, is not itself a sufficient warrant for disregarding the fiction of separate personality.
91 | P a g e THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD.
vs.
NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J. DIOSANA AND MARCELO G. SANTOS
G.R. No. 120077. October 13, 2000 FACTS:
MHICL is a corporation duly organized and existing under the laws of Hong Kong. MHC is an ―incorporator‖ of MHICL, owning 50% of its capital stock. By virtue of a ―management agreement‖ with the Palace Hotel (Wang Fu Company Limited), MHICL trained the personnel and staff of the Palace Hotel at Beijing, China.
Respondent Santos accepted an employment offer from Palace Hotel. On November 5, 1988, respondent Santos left for Beijing, China. He started to work at the Palace Hotel. A year later he received a letter stating that his employment is being terminated due to business reverses brought about by the political upheaval in China.
On February 20, 1990, respondent Santos filed a complaint for illegal dismissal.
ISSUE:
Whether or not the doctrine of piercing the corporate veil is available to make MHC liable for damages.
RULING:
NO.
MHC, as a separate and distinct juridical entity cannot be held liable. True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock.
However, this is not enough to pierce the veil of corporate fiction between MHICL and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend a crime. It is done only when a corporation is a mere alter ego or business conduit of a person or another corporation.
In Traders Royal Bank v. Court of Appeals, the court held that ―the 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 reason for disregarding the fiction of separate corporate personalities.‖
The tests in determining whether the corporate veil may be pierced are: First, the defendant must have control or complete domination of the other corporation‘s finances, policy and business practices with regard to the transaction attacked. There must be proof that the other corporation had no separate mind, will or existence with respect the act complained of. Second, control must be used by the defendant to commit fraud or wrong. Third, the aforesaid control or breach of duty must be the proximate cause of the injury or loss complained of. The absence of any of the elements prevents the piercing of the corporate veil.
It is basic that a corporation has a personality separate and distinct from those composing it as well as from that of any other legal entity to which it may be related.
Clear and convincing evidence is needed to pierce the veil of corporate fiction. In this case, the court found no evidence to show that MHICL and MHC are one and the same entity.
92 | P a g e SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.
vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT
CORP.
G.R. No. 129459. September 29, 1998 FACTS:
A parcel of land was sold by Nenita Lee Gruenberg, the corporate treasurer of defendant corporation Motorich Sale in favor of San Juan Structural and Steel Fabricators, Inc. However, the latter failed to execute the necessary Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant. Hence a case for damages was filed. The defendant corporation questions the validity of the contract entered by its treasurer in its behalf without authorization from the corporation‘s Board.
ISSUE:
Whether or not the doctrine of piercing the veil of corporate fiction be applied to Motorich.
RULING:
NO.
The contract cannot bind Motorich, because it never authorized or ratified such sale. 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. The 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.
As to the piercing of the corporate veil, the same is not applicable. In the present case, the Court finds no reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third persons, like petitioner.
93 | P a g e TAN BOON BEE & CO., INC.
vs.
THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCH XVIII of the Court of First Instance of Manila, GRAPHIC PUBLISHING, INC., and
PHILIPPINE AMERICAN CAN DRUG COMPANY G.R. No. L-41337. June 30, 1988
FACTS:
Petitioner herein, doing business under the name and style of Anchor Supply Co., sold on credit to herein private respondent Graphic Publishing, Inc. (GRAPHIC) paper products amounting to P55,214.73. On December 20, 1972, GRAPHIC made partial payment by check to petitioner in the total amount of P24,848.74; and on December 21, 1972, a promissory note was executed to cover the balance of P30,365.99. In the said promissory note, it was stipulated that the amount will be paid on monthly installments and that failure to pay any installment would make the amount immediately demandable with an interest of 12% per annum. On September 6, 1973, for failure of GRAPHIC to pay any installment, petitioner filed a complaint for collection of Sum of Money.
A decision was rendered and became final and executory, where one (1) unit printing machine identified as "Original Heidelberg Cylinder Press" Type H 222, NR 78048, found in the premises of GRAPHIC was levied. However, a third party claim was filed by Philippine American Drug Company (PADCO), hence after trial the levy was rendered to be without force.
ISSUE:
Whether or not the properties of PADCO could be levied due to the allegation that it is mere an adjunct or conduit of Graphic.
RULING:
YES.
In the instant case, petitioner's evidence established that PADCO was never engaged in the printing business; that the board of directors and the officers of GRAPHIC and PADCO were the same; and that PADCO holds 50% share of stock of GRAPHIC. Petitioner likewise stressed that PADCO's own evidence shows that the printing machine in question had been in the premises of GRAPHIC since May, 1965, long before PADCO even acquired its alleged title on July 11, 1966 from Capitol Publishing. That the said machine was allegedly leased by PADCO to GRAPHIC on January 24, 1966, even before PADCO purchased it from Capital Publishing on July 11, 1966, only serves to show that PADCO's claim of ownership over the printing machine is not only farce and sham but also unbelievable.
Considering the aforestated principles and the circumstances established in this case, respondent judge should have pierced PADCO's veil of corporate identity.
94 | P a g e TELEPHONE ENGINEERING & SERVICE COMPANY, INC.
vs.
WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF RIZAL