Reynoso IV v. CA & General Credit Corporation [345 SCRA 335 (Nov.

22, 2000)] Separate Juridical Entity Sufficiency of Proof to Pierce the Veil of Corporate Fiction Facts: Commercial Credit Corporation (CCC), a financing & investment firm, decided to organize franchise companies in different parts of the country, wherein it shall hold 30% equity. Employees of CCC were designated as resident managers of the franchise companies Bibiano Reynoso IV was resident manager in CCC-QC. Due to the DOSRI Rule prohibiting lending of funds by a corporation to its directors, officers, Share Holders & other persons with related interests therein, CCC decided to form CCC Equity Corporation, a wholly-owned subsidiary to which CCC transferred its 30% equity in CCC-QC together with 2 seats on the BoD. In the new set-up, several employees of CCC became employees of CCC-Equity. A complaint for a sum of money was later field by CCC-QC against Reynoso, who in the meantime was dismissed from CCC-Equity, & wife for embezzlement of funds which were used to buy a house in Valle Verde. Reynoso claims the money he used represented his money placements in CCC-QC shown by 23 checks he issued to CCC-QC. RTC dismissed the case against Reynoso and found his counterclaim for damages to be meritorious hence granted it. For failing to pay the docket fees, CCC-QCs appeal to the IAC was dismissed hence the RTC decision became final & executory. However, the judgment became remained unsatisfied prompting Reynoso to file a Motion for Alias Writ of Execution. CCC-QC opposed saying that its premises & records had been taken over by CCC. CCC meanwhile became known as General Credit Corporation. So, when the RTC ordered GCC to file its comment on the petition of Reynoso, it claimed that it was not a party to the case & Reynoso should direct his claim against CCC-QC. Reynoso replied saying that CCC-QC is in adjunct instrumentality, conduit & agency of CCC & invoked the ruling in Ramoso v. GCC where the SC declared that GCC, CCCEquity & other franchised companies including CCC-QC were declared as 1 corp. Reynoso claimed that GCC is just the new name of CCC hence both should be treated as 1 entity. Cases were filed in the RTC of Pasig & QC to levy on the properties of GCC. CA on the other hand enjoins the auction sale of the properties. Issue: (1) WON the piercing the veil of corporate fiction was proper. Held: CA decision reversed and set aside. Injunction against levying on properties of GCC & their auction sale lifted. The use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly identify it as a component of the CCC group of companies engaged in one & the same business: investment & financing. When the mother corporation & its subsidiary corporations cease to act in good faith and honest business judgment, when the corporate fiction is used to perpetuate fraud or promote injustice, the law steps in to remedy the injustice. The corporate character is not necessarily abrogated. It continues for legitimate objectives; however pierced, to remedy injustices. A court judgment becomes useless & ineffective if the employer, in this case CCC as a mother corporation, is placed beyond the legal reach of the judgment creditor who after protracted litigation,

has been found entitled to positive relief. Courts have been organized to put an end to controversy. This should not be negated by an inapplicable and wrong use of the fiction of the corporate veil. The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. But even when there us dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when used to defeat public convenience, justify wrong, protect fraud, or defend crime. Factually & legally, CCC had dominant control of the business operations of CCC-QC: a. the exclusive management contract insured that CCC-QC would be managed & controlled by CCC & not deviate from the commands of the mother corp b. CCC appointed its own employee as the resident manager of CCC-QC c. Salaries, pensions, benefits, etc were from CCC, which later became GCC d. Unity of interest, management, control, intensive auditing function of CCC over CCC-QC, sharing of office space e. Lawyers of the CCC-QC case were all in-house counsels of CCC

Arnold vs. Willits and Patterson 1916. The Firm Willits & Patterson in San Francisco entered into a contract with Arnold whereby Arnold was to be employed for a period of five years as the agent of the firm here in the PI to operate an oil mill for which he was to receive a minimum salary of $200/mth, a 1% brokerage fee from all purchases and sales of merchandise, and half of the profits of the oil business and other businesses. provided if the business was at a loss, Arnold would receive $400/mth. Later, Patterson retired and Willits acquired all interests of the business. Willits organized a new Corp in San Francisco which took over and acquired all assets of the Firm Willits & Patterson. Willits was the owner of all the capital stock. New corp had the same name. After, Willits, organized a new Corporation here in the PI to take over all the business and assets of the firm here in the PI. Willits was the owner of all the capital stock. Later, there was dispute with regard to the construction of the contract as a result, a new contract in the form of a letter was entered into. Willits signed this. The statements of account showed that 106K was due and owing to Arnold. W&P Corp was in financial trouble and all assets were turned over to a creditors committee. 1922. Arnold filed this complaint to recover 106K from W&P. W&P argues that the 2
nd

contract was signed without authority. And as counterclaim alleged that Arnold took

30K from the Corp but only 19.1K was due to him thus he owed 10.1K to W&P. CFI ordered Arnold to return the 10.1K. SC reverses. Arnold entitled to 68K plus half of 75K, representing PNs.

Both Corps organized by Willits were a One Man Corporation. After the 2

nd

contract was signed it was

recognized by Willits that Arnolds services were to be performed by its terms and the re never was any dispute between Arnold and Willits. Although a new corp was created, the new corp dealt with and treated Arnold as its agent in the same manner as the previous corp had, thus the new corp is bound by the contract which the old firm made. In fact, the 2
nd

contract protected Willits from a larger claim, which the accountant said, would be over 160K.

Where a stock of a corporation is owned by one person whereby the corp functions only for the benefit of such individual owner, the corp and the individual should be deemed to be the same. Thus the corp is bound by the contract.

Presidential Commission on Good Government v. The Hon. Sandiganbayan February 23, 2000 Piercing Veil of Corporate Fiction to recover Ill-Gotten Wealth Facts: World Universal Trading & Investment Co., S.A. *WUTIC( was a sociedad anonima registered in Panama but not licensed to do business in the Philippines. Construction Development Corporation of the Philippines, now known as Philippine National Construction Corporation (CDCP/PNCC) is duly organized and existing under the laws of the Philippines. PCGG ordered the sequestration and provisional takeovers against assets and records of Rodolfo Cuenca, Universal Holdings, Cuenca Investment, PNCC and San Mariano Milling Corporation. In 1987 PCGG filed with the Sandiganbayan a complaint against Cuenca for illegally acquiring assets in the Cuenca owned corporations of CDCP/PNCC, Asia International Hardwood Limited (AHL), a Hongkong based company and Construction Development Corporation International Limited, Hongkong, a wholly owned subsidiary or alter ego of CDCP/PNCC. In 1991, claiming to be an assignee of AHL, WUTIC filed with the RTC against CDCP/PNCC to enforce a foreign judgement which WUTIC had obtained in Hongkong against CDCPI, which is wholly owned by CDCP/PNCC. After trial, the RTC found in favor of WUTIC, it considered CDCP/PNCC and CDCPI as one corporate entity and liable to pay WUTIC. CDCP/PNCC appealed, the CA affirmed the decision of the RTC and the Supreme Court denied it on petition for review. Upon motion of WUTIC, the RTC issued a writ of execution and Sheriff Harina issued notices of garnishment against the accounts, shares of stocks and income of CDCP/PNCC with various banks and corporations. In October 197, PCGG Commissioner Mendoza attended the PNCC board meeting and discovered the writ and notices of garnishment. After realizing that WUTIC/AHLs claim could be Cuencas in disguise, PCGG enjoined ONCC and/or any person acting in its behalf from taking any action which would dissipate or affect the assets of CDCP/PNCC. PCGG filed for certiorari with the Sandiganbayan to annul the RTC decision, writ and garnishment. The Sandiganbayan dismissed the petition ruling that it had not jurisdiction to annul the judgement of the RTC. It claimed to have only appellate jurisdiction over decisions of the RTC in criminal cases involving offenses relating to public office. Issue: Whether or not the Sandiganbayan committed grave abuse of discretion in summarily dismissing the petition for certiorari despite the possibility that WUTIC is a dummy corporation or an alter ego of Rodolfo Cuenca. Held: The 3 corporations involved in this petition, PNCC/CDCP, AHL and CDCPI, Hongkong are under sequestration are defendants in the sequestration case pending before the Sandiganbayan. AHL had claims against CDCPI and assigned the same to WUTIC. Eventually WUTIC obtained a favorable judgement in a Hongkong court. Due to the closure of CDCPI in Hongkong, WUTIC filed a case with RTC against PNCC/CDCP to enforce a foreign judgement obtained against CDCPI. Both corporations are Cuenca-owned and under sequestration. Hence there is valid ground for PCGG to evaluate the validity of WUTICs claim as a legitimate assignee or mer ely a dummy

corporation set up to circumvent the sequestration case. As per the Court, it should be noted that despite the initial sequestration orders and the case filed with the Sandiganbayan against stockholdings of Rodolfo Cuenca and th socalled Cuenca-owned corporations, AHL, ONCC/CDCP and CDCPI, the PCGG was not made a party in the civil case in Hongkong and the case to enforce the foreign judgement filled with the trial court. Considering the interconnections between the participating corporations in the said transactions and the existence of the sequestration case, the PCGG should have been informed of the above cases to question and verify the veracity of the claim. The Court stated that it is aware of various schemes employed to circumvent sequestration orders, dissipate sequestered assets and thwart PCGGs efforts to recover ill -gotten wealth. That there is a possibility that WUTIC is a dummy corporation formed by Rodolfo Cuenca, or his alter ego, the reach the sequestered assets, there is a need to vigorously guard these assets and preserve them pending resolution of the sequestration case before the Sandiganbayan.

ASIONICS PHILIPPINES VS. NLRC 290 SCRA 164 VITUG, J. FACTS 1. API is a domestic corporation engaged in the business of assembling semiconductor chips and other electronic products mainly for export. 2. Yolanda Boaquina and Juana Gayola started working for API in 1979 and 1988, respectively, as material control clerk and as production operator. 3. During the third quarter of 1992, API commenced negotiations with the duly recognized bargaining agent of its employees, the Federation of Free Workers ("FFW"), for a Collective Bargaining Agreement ("CBA"). 4. A deadlock, however, ensued and the union decided to file a notice of strike. This event prompted the two customers of API, Indala and CP Clare Theta J, to thereupon refrain from sending to API additional kits or materials for assembly. 5. API, given the circumstance that its assembly line had to thereby grind to a halt, was forced to suspend operations pursuant to Article 286 of the Labor Code. Private respondents Boaquina and Gayola were among the employees asked to take a leave from work. 6. Upon the resolution of the bargaining deadlock in October of 1992, a CBA was concluded between API and FFW. 7. Subsequently, and inasmuch as its business activity remained critical, API was constrained to implement a company-wide retrenchment affecting one hundred five (105) employees from a work force that otherwise totalled three hundred four (304). 8. Boaquina and Gayola were ordered by API to take an indefinite leave of absence. They were not recalled since then. 9. Private respondents joined the Lakas ng Manggagawa sa Pilipinas Labor Union (Lakas Union) and, through the latter union, filed a notice of strike against API on the ground of unfair labor practice. The Labor Arbiter declared the strike as illegal. 10. Meanwhile, at the instance of several employees which included private respondents Boaquina and Gayola, a complaint for illegal dismissal, violation of labor standards and separation pay, as well as for recovery of moral and exemplary damages, was

filed against API and/or Frank Yih (API's President) before the NLRC National Capital Region Arbitration Branch. 11. The Labor Arbiter declared the private respondent's dismissal as illegal. On appeal, NLRC modified the Labor Arbiter's decision declaring that private respondents were not illegally dismissed but were validly terminated due to the retrenchment policy implemented by API. ISSUE 1. Whether or not private respondents who are officers of Lakas Union are still entitled to separation pay and indemnity despite having participated in a strike that has been declared illegal. 2. Whether or not a stockholder/director/officer of a corporation can be held liable for the obligation of the corporation absent any proof and finding of bad faith. HELD Anent the first issue, we must rule in the negative. It is quite evident that the termination of employment of privaterespondents was due to the retrenchment policy adopted by API and not because of the former's union activities. The decision of Labor Arbiter, declaring private respondents to have lost their employment status due to their participation in an illegal strike is of no really significance to petitioners. It should suffice to say, as so aptly observed by the NLRC, that the retrenchment of private respondents has, in fact, preceded the declaration of strike. It is, instead, on the issue of joint and solidary liability of petitioner Frank Yih with API that the Court has decided to give due course to the instant petition. The court cannot agree with the Solicitor-General in suggesting that even if Frank Yih had no direct hand in the dismissal of the respondents he should be personally liable therefor on account alone of his being the President and majority stockholder of the company. In Sunio vs. NLRC, petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. We ruled therein that "there appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act." Thus he was not jointly and severally liable. In the instant case, Nothing on record is shown to indicate that Frank Yih has acted in bad faith or with malice in carrying out the retrenchment program of the company. His having been held by the NLRC to be solidarily and personally liable with API is thus legally unjustified.

CEBU FILVENEER CORPORATION V NLRC (VILLAFLOR) 286 SCRA 556 PUNO; February 24, 1998 FACTS - Villaflor was the chief accountant of CFC. The top execs were Italians: Cordaro (president), Kun (GM), Marinoni (Production manager). Guillermo was the accounting clerk of Villaflor. - Kun resigned from the company and asked for the liquidation of his investment: P125k. Two weeks later, he asked Guillermo for a blank check and a blank check voucher. Guillermo gave him. Three days later, Villlaflor noticed that a check voucher

was missing. She asked Guillermo, who said that Mr. Kun has it. - Villaflor immediately informed Mr. Cordaro of what happened. She also wrote to the bank demanding the return of the encashed check. - Marinoni charged Villaflor of complicity in Kuns irregular disbursement of company funds. Two days later, she was prevented entry to the office by the security guards. Her office drawer and safe were also forcibly opened upon order of Marinoni. Villaflor reported the incident to the PNP. - Marinoni suspended her for 30 days without pay for failure to come to work for half a day (the day she was prevented entry). The next day she was preventively suspended for 30 days pending investigation of her involvement in Kuns booboo. The company also printed a newspaper ad for an accountant. - Villaflor filed for illegal dismissal with the LA. LA decided in her favor. NLRC affirmed. ISSUE WON Villaflor was illegally dismissed HELD YES - Due to its far reaching implications, our Labor Code decrees that an employee cannot be dismissed, except for the most serious causes. Article 282 enumerates the causes for which the employer may terminate an employee. - Company says its loss of trust. The SC said that Villaflors omission cannot be described as willful to justify dismissal. A breach is willful if it is done intentionally, knowingly and purposely. Petitioners merely proved the omission of the private respondent but there is no evidence whatsoever that it was done intentionally. - Company says shes grossly or habitually negligent in the performance of her duties. The SC said that since she has not been remiss in the performance of her duties in the past, she cant be charged with habitual negligence. Neither is her negligence gross in character. Gross negligence implies a want or absence of or failure to exercise slight care or diligence or the entire absence of care. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them. She had not the slightest reason to distrust Kun because he was the GM and appears to have conducted himself well in the performance of his duties in the past. At most, its error of judgment, not gross negligence. Disposition NLRC decision affirmed.

Simex International Inc. vs. CA [G.R. No. 88013 March 19, 1990]

Post under case digests, Commercial Law at Monday, February 27, 2012 Posted by Schizophrenic Mind Facts: Simex International is a private corporation engaged in the exportation of food products. It buys these products from various local suppliers and then sells them abroad, particularly in the United States, Canada and the Middle East. Most of its exports are purchased by the petitioner on credit. Simex is a depositor of TRB and maintained a checking account in its Cubao branch. Simex maintained an account in the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74. Subsequently, the petitioner issued several (8) checks against its deposit but was surprised to learn later that they had been dishonored for insufficient funds. As a consequence, actions on the pending orders of SIMEX with the other suppliers (California Manufacturing Comp., Malabon Longlife Trading Corp., etc.) whose checks were dishonored was deferred. And thus made these companies send demand letters to SIMEX threatening prosecution if the checks were not made good. SIMEX complained to TRB and found out that the sum of P100,000.00 deposited had not been credited. The error was rectified on June 17, 1981, and the dishonored checks were paid after they were redeposited. SIMEX sent demand letter for reparation against TRB, which was not met, thus a complaint was filed in CFI Rizal by SIMEX. The court denied the moral & exemplary damages but upheld and ordered TRB to pay for nominal damages in the amount of P20,000.00 plus attys fees & costs, which was then affirmed by the CA. The CA found with the trial court that the private respondent was guilty of negligence but agreed that the petitioner was nevertheless not entitled to moral damages. It said: The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of P100,000.00 on May 25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less than a month. The dishonored checks were eventually paid. These circumstances negate any imputation or insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-appellant. It is this ruling that is faulted in the petition now before us. Issue: Whether or not TRB is guilty of negligence which warrants SIMEX reparation for damages. Held: YES. Award SIMEX with moral damages (P20,000) and exemplary damages (P50,000). The initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner. There was also prejudice suffered by SIMEX in the fact that the petitioner's credit line was canceled and its orders were not acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner.

We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its discovery. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages.