SECOND DIVISION

[G.R. No. 100812. June 25, 1999]

FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF

APPEALS and SPOUSES GREGORIO and LIBRADA
MANUEL, respondents.

DECISION
QUISUMBING, J.:

This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the
decision[1] of the Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by
Branch 135, Regional Trial Court of Makati, Metro Manila. The procedural antecedents of this
petition are as follows:
On January 23, 1985, petitioner filed a complaint[2] against private respondents to recover
three thousand four hundred twelve and six centavos (P3,412.06), representing the balance of the
jeep body purchased by the Manuels from petitioner; an additional sum of twenty thousand four
hundred fifty-four and eighty centavos (P20,454.80) representing the unpaid balance on the cost
of repair of the vehicle; and six thousand pesos (P6,000.00) for cost of suit and attorneys fees.[3] To
the original balance on the price of jeep body were added the costs of repair.[4] In their answer,
private respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel in the
amount of fifty thousand pesos (P50,000) which was not paid by the incorporators, directors and
officers of the petitioner. The trial court decided the case on June 26, 1985, in favor of petitioner
in regard to the petitioners claim for money, but also allowed the counter-claim of private
respondents. Both parties appealed. On April 15, 1991, the Court of Appeals sustained the trial
courts decision.[5] Hence, the present petition.
For our review in particular is the propriety of the permissive counterclaim which private
respondents filed together with their answer to petitioners complaint for a sum of money. Private
respondent Gregorio Manuel alleged as an affirmative defense that, while he was petitioners
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 petitioner. Hence to counter petitioners collection suit, he filed a permissive
counterclaim for the unpaid attorneys fees.[6]
For failure of petitioner to answer the counterclaim, the trial court declared petitioner in
default on this score, and evidence ex-parte was presented on the counterclaim. The trial court
ruled in favor of private respondents and found that Gregorio Manuel indeed rendered legal
services to the Francisco family in Special Proceedings Number 7803- In the Matter of Intestate
Estate of Benita Trinidad. Said court also found that his legal services were not compensated
despite repeated demands, and thus ordered petitioner to pay him the amount of fifty thousand
(P50,000.00) pesos.[7]
Dissatisfied with the trial courts order, petitioner elevated the matter to the Court of Appeals,
posing the following issues:
I.

WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS

NULL AND VOID AS IT NEVER ACQUIRED JURISDICTION OVER THE
PERSON OF THE DEFENDANT.
II.

WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN

THE ALLEGED PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE
TO THE CLAIM OF DEFENDANT-APPELLEES.
III.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-

APPELLANT TO ANSWER THE ALLEGED PERMISSIVE COUNTERCLAIM.[8]

Petitioner contended that the trial court did not acquire jurisdiction over it because no
summons was validly served on it together with the copy of the answer containing the permissive
counterclaim. Further, petitioner questions the propriety of its being made party to the case because
it was not the real party in interest but the individual members of the Francisco family concerned
with the intestate case.
In its assailed decision now before us for review, respondent Court of Appeals held that a
counterclaim must be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of
Court; and nowhere does it state in the Rules that a party still needed to be summoned anew if a
counterclaim was set up against him. Failure to serve summons, said respondent court, did not
effectively negate trial courts jurisdiction over petitioner in the matter of the counterclaim. It
likewise pointed out that there was no reason for petitioner to be excused from answering the
counterclaim. Court records showed that its former counsel, Nicanor G. Alvarez, received the copy
of the answer with counterclaim two (2) days prior to his withdrawal as counsel for
petitioner. Moreover when petitioners new counsel, Jose N. Aquino, entered his appearance, three
(3) days still remained within the period to file an answer to the counterclaim. Having failed to
answer, petitioner was correctly considered in default by the trial court.[9] Even assuming that the
trial court acquired no jurisdiction over petitioner, respondent court also said, but having filed a
motion for reconsideration seeking relief from the said order of default, petitioner
was estopped from further questioning the trial courts jurisdiction.[10]
On the question of its liability for attorneys fees owing to private respondent Gregorio Manuel,
petitioner argued that being a corporation, it should not be held liable therefor because these fees
were owed by the incorporators, directors and officers of the corporation in their personal capacity
as heirs of Benita Trinidad. Petitioner stressed that the personality of the corporation, vis--vis the
individual persons who hired the services of private respondent, is separate and distinct,[11] hence,
the liability of said individuals did not become an obligation chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:

However, this distinct and separate personality is merely a fiction created by law for
convenience and to promote justice. Accordingly, this separate personality of the
corporation may be disregarded, or the veil of corporate fiction pierced, in cases
where it is used as a cloak or cover for found (sic) illegality, or to work an injustice, or
where necessary to achieve equity or when necessary for the protection of
creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are
composed of natural persons and the legal fiction of a separate corporate personality is
not a shield for the commission of injustice and inequity. (Chemplex Philippines, Inc.
vs. Pamatian, 57 SCRA 408)

In the instant case, evidence shows that the plaintiff-appellant Francisco Motors
Corporation is composed of the heirs of the late Benita Trinidad as directors and
incorporators for whom defendant Gregorio Manuel rendered legal services in the
intestate estate case of their deceased mother. Considering the aforestated principles
and circumstances established in this case, equity and justice demands plaintiff-
appellants veil of corporate identity should be pierced and the defendant be
compensated for legal services rendered to the heirs, who are directors of the plaintiff-
appellant corporation.[12]

Now before us, petitioner assigns the following errors:

I.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF

PIERCING THE VEIL OF CORPORATE ENTITY.
II.

THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS

JURISDICTION OVER PETITIONER WITH RESPECT TO THE
COUNTERCLAIM.[13]

Petitioner submits that respondent court should not have resorted to piercing the veil of
corporate fiction because the transaction concerned only respondent Gregorio Manuel and the heirs
of the late Benita Trinidad. According to petitioner, there was no cause of action by said respondent
against petitioner; personal concerns of the heirs should be distinguished from those involving
corporate affairs. Petitioner further contends that the present case does not fall among the instances
wherein the courts may look beyond the distinct personality of a corporation. According to
petitioner, the services for which respondent Gregorio Manuel seeks to collect fees from petitioner
are personal in nature.Hence, it avers the heirs should have been sued in their personal capacity,
and not involve the corporation.[14]
With regard to the permissive counterclaim, petitioner also insists that there was no proper
service of the answer containing the permissive counterclaim. It claims that the counterclaim is a
separate case which can only be properly served upon the opposing party through
summons. Further petitioner states that by nature, a permissive counterclaim is one which does not
arise out of nor is necessarily connected with the subject of the opposing partys claim.Petitioner
avers that since there was no service of summons upon it with regard to the counterclaim, then the
court did not acquire jurisdiction over petitioner. Since a counterclaim is considered an action
independent from the answer, according to petitioner, then in effect there should be two
simultaneous actions between the same parties: each party is at the same time both plaintiff and
defendant with respect to the other,[15] requiring in each case separate summonses.
In their Comment, private respondents focus on the two questions raised by petitioner. They
defend the propriety of piercing the veil of corporate fiction, but deny the necessity of serving
separate summonses on petitioner in regard to their permissive counterclaim contained in the
answer.
Private respondents maintain both trial and appellate courts found that respondent Gregorio
Manuel was employed as assistant legal officer of petitioner corporation, and that his services were
solicited by the incorporators, directors and members to handle and represent them in Special
Proceedings No. 7803, concerning the Intestate Estate of the late Benita Trinidad. They assert that
the members of petitioner corporation took advantage of their positions by not compensating
respondent Gregorio Manuel after the termination of the estate proceedings despite his repeated
demands for payment of his services. They cite findings of the appellate court that support piercing
the veil of corporate identity in this particular case. They assert that the corporate veil may be
disregarded when it is used to defeat public convenience, justify wrong, protect fraud, and defend
crime. It may also be pierced, according to them, 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 entity. In these instances, they aver, the corporation should be treated merely as an
association of individual persons.[16]
Private respondents dispute petitioners claim that its right to due process was violated when
respondents counterclaim was granted due course, although no summons was served upon it. They
claim that no provision in the Rules of Court requires service of summons upon a defendant in a
counterclaim. Private respondents argue that when the petitioner filed its complaint before the trial
court it voluntarily submitted itself to the jurisdiction of the court. As a consequence, the issuance
of summons on it was no longer necessary. Private respondents say they served a copy of their
answer with affirmative defenses and counterclaim on petitioners former counsel, Nicanor G.
Alvarez. While petitioner would have the Court believe that respondents served said copy upon
Alvarez after he had withdrawn his appearance as counsel for the petitioner, private respondents
assert that this contention is utterly baseless. Records disclose that the answer was received two
(2) days before the former counsel for petitioner withdrew his appearance, according to private
respondents. They maintain that the present petition is but a form of dilatory appeal, to set off
petitioners obligations to the respondents by running up more interest it could recover from
them. Private respondents therefore claim damages against petitioner.[17]
 To resolve the issues in this case, we must first determine the propriety of piercing the veil of
corporate fiction.
Basic in corporation law is the principle that a corporation has a separate personality distinct
from its stockholders and from other corporations to which it may be connected.[18] However, under
the doctrine of piercing the veil of corporate entity, the corporations separate juridical personality
may be disregarded, for example, when the corporate identity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime. Also, where the corporation is a 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, then its distinct personality may be ignored.[19] In these circumstances, the courts will
treat the corporation as a mere aggrupation of persons and the liability will directly attach to
them. The legal fiction of a separate corporate personality in those cited instances, for reasons of
public policy and in the interest of justice, will be justifiably set aside.
In our view, however, given the facts and circumstances of this case, the doctrine of piercing
the corporate veil has no relevant application here. Respondent court erred in permitting the trial
courts resort to this doctrine. The rationale behind piercing a corporations 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 Trinidads 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 corporation 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 Francisco
Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body could
only result from an obvious misapprehension that petitioners 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 inequitous to petitioner.
Furthermore, 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
are 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 doctrine
of piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may
result from its erroneous application.
 The personality of the corporation and those of its incorporators, directors and officers in their
personal capacities ought to be kept separate in this case. The claim for legal fees against the
concerned individual incorporators, officers and directors could not be properly directed against
the corporation without violating basic principles governing corporations. Moreover, every action
including a counterclaim must be prosecuted or defended in the name of the real party in
interest.[20] It is plainly an error to lay the claim for legal fees of private respondent Gregorio
Manuel at the door of petitioner (FMC) rather than individual members of the Francisco family.
However, with regard to the procedural issue raised by petitioners allegation, that it needed to
be summoned anew in order for the court to acquire jurisdiction over it, we agree with respondent
courts view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a counterclaim
or cross-claim must be answered within ten (10) days from service. Nothing in the Rules of Court
says that summons should first be served on the defendant before an answer to counterclaim must
be made. The purpose of a summons is to enable the court to acquire jurisdiction over the person
of the defendant. Although a counterclaim is treated as an entirely distinct and independent action,
the defendant in the counterclaim, being the plaintiff in the original complaint, has already
submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of Civil
Procedure,[21] if a defendant (herein petitioner) fails to answer the counterclaim, then upon motion
of plaintiff, the defendant may be declared in default. This is what happened to petitioner in this
case, and this Court finds no procedural error in the disposition of the appellate court on this
particular issue. Moreover, as noted by the respondent court, when petitioner filed its motion
seeking to set aside the order of default, in effect it submitted itself to the jurisdiction of the
court. As well said by respondent court:

Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show

that upon its request, plaintiff-appellant was granted time to file a motion for
reconsideration of the disputed decision. Plaintiff-appellant did file its motion for
reconsideration to set aside the order of default and the judgment rendered on the
counterclaim.

Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the

counterclaim, as it vigorously insists, plaintiff-appellant is considered to have
submitted to the courts jurisdiction when it filed the motion for reconsideration
seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped
from assailing the jurisdiction of a court after voluntarily submitting himself to its
jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar against any
claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37).[22]

WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby
REVERSED insofar only as it held Francisco Motors Corporation liable for the legal obligation
owing to private respondent Gregorio Manuel; but this decision is without prejudice to his filing
the proper suit against the concerned members of the Francisco family in their personal
capacity. No pronouncement as to costs.
SO ORDERED.
 Bellosillo, (Chairman), Puno, Mendoza, and Buena, JJ., concur.

[1]
Dated April 15, 1991. Rollo, pp. 31 - 35. Reconsideration thereof was denied on July 1, 1991. Rollo, pp. 28-29.
[2]
Civil Case No. 9542. Records, RTC, pp. 1-3.
[3]
Rollo, p. 31.
[4]
Id. at 9.
[5]
Id. at 11.
[6]
Supra, note 4.
[7]
Supra note 5.
[8]
Rollo, pp. 32-33.
[9]
Id. at 32.
[10]
Id. at 34.
[11]
Ibid.
[12]
Rollo, pp. 34-35.
[13]
Id. at 12.
[14]
Id. at 12 - 16.
[15]
Id. at 18 - 21; See also Golden Ribbon Lumber Co., Inc. vs. Salvador S. Santos and Rafaela M. Santos, C.A. - G.
R. No. 12935 November 15, 1955.
[16]
Id. at 47 - 51.
[17]
Id. at 52- 60.
[18]
Concept Builderss Inc. vs. NLRC 257 SCRA 149, 157 (1996); See also Emilio Cano Enterprises, Inc. vs. CIR, 13
SCRA 290 (1965) and Yutivo Sons Hardware Co. vs. CTA, 1 SCRA 160 (1961).
[19]
Indophil Textile Mill Workers Union vs. Calica, 205 SCRA 697, 704 (1992); See also Umali et al vs. C C.A, 189
SCRA 529,542 (1990).
[20]
Section 2, Rule 3 of the RULES OF COURT; See also, De Leon vs. Court of Appeals, 277 SCRA 478, 486 (1997).
[21]
In the Court of Appeals Decision, Section 3 of Rule 9 was still under Section 1 of Rule 18 of the Rules of Court.
[22]
Rollo, p. 34.
 Republic of the Philippines
Supreme Court
Manila
FIRST DIVISION

GOLD LINE TOURS, INC., G.R. No. 159108

Petitioner,
Present:

LEONARDO-DE CASTRO,
Acting Chairperson,
-versus- BERSAMIN,
DEL CASTILLO,
VILLARAMA, JR., and
PERLAS-BERNABE, JJ.
Promulgated:
HEIRS OF MARIA
CONCEPCION LACSA, June 18, 2012
Respondents.
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:

The veil of corporate existence of a corporation is a fiction of law that should

not defeat the ends of justice.
Petitioner seeks to reverse the decision promulgated on October 30,
2002[1] and the resolution promulgated on June 25, 2003,[2] whereby the Court of
Appeals (CA) upheld the orders issued on August 2, 2001[3] and October 22,
2001[4] by the Regional Trial Court (RTC), Branch 51, in Sorsogon in Civil Case No.
93-5917 entitled Heirs of Concepcion Lacsa, represented by Teodoro Lacsa v.
Travel & Tours Advisers, Inc., et al. authorizing the implementation of the writ of
execution against petitioner despite its protestation of being a separate and different
corporate personality from Travel & Tours Advisers, Inc. (defendant in Civil Case
No. 93-5917).
 In the orders assailed in the CA, the RTC declared petitioner and Travel &
Tours Advisers, Inc. to be one and the same entity, and ruled that the levy of
petitioners property to satisfy the final and executory decision rendered on June 30,
1997 against Travel & Tours Advisers, Inc. in Civil Case No. 93-5917[5] was valid
even if petitioner had not been impleaded as a party.

Antecedents

On August 2, 1993, Ma. Concepcion Lacsa (Concepcion) and her sister, Miriam
Lacsa (Miriam), boarded a Goldline passenger bus with Plate No. NXM-105 owned
and operated by Travel &Tours Advisers, Inc. They were enroute from Sorsogon to
Cubao, Quezon City.[6] At the time, Concepcion, having just obtained her degree of
Bachelor of Science in Nursing at the Ago Medical and Educational Center, was
proceeding to Manila to take the nursing licensure board examination.[7] Upon
reaching the highway at Barangay San Agustin in Pili, Camarines Sur, the Goldline
bus, driven by Rene Abania (Abania), collided with a passenger jeepney with Plate
No. EAV-313 coming from the opposite direction and driven by Alejandro
Belbis.[8] As a result, a metal part of the jeepney was detached and struck Concepcion
in the chest, causing her instant death.[9]

On August 23, 1993, Concepcions heirs, represented by Teodoro Lacsa, instituted

in the RTC a suit against Travel & Tours Advisers Inc. and Abania to recover
damages arising from breach of contract of carriage.[10] The complaint, docketed as
Civil Case No. 93-5917 and entitled Heirs of Concepcion Lacsa, represented by
Teodoro Lacsa v. Travel & Tours Advisers, Inc. (Goldline) and Rene Abania, alleged
that the collision was due to the reckless and imprudent manner by which Abania
had driven the Goldline bus.[11]

In support of the complaint, Miriam testified that Abania had been

occasionally looking up at the video monitor installed in the front portion of the
Goldline bus despite driving his bus at a fast speed;[12] that in Barangay San Agustin,
the Goldline bus had collided with a service jeepney coming from the opposite
direction while in the process of overtaking another bus;[13] that the impact had
caused the angle bar of the jeepney to detach and to go through the windshield of the
bus directly into the chest of Concepcion who had then been seated behind the
drivers seat;[14] that concerned bystanders had hailed another bus to rush Concepcion
to the Ago Foundation Hospital in Naga City because the Goldline bus employees
and her co-passengers had ignored Miriams cries for help;[15]and that Concepcion
was pronounced dead upon arrival at the hospital.[16]

To refute the plaintiffs allegations, the defendants presented SPO1 Pedro Corporal
of the Philippine National Police Station in Pili, Camarines Sur, and William Cheng,
the operator of the Goldline bus.[17] SPO1 Corporal opined that based on his
investigation report, the driver of the jeepney had been at fault for failing to observe
precautionary measures to avoid the collision;[18] and suggested that criminal and
civil charges should be brought against the operator and driver of the jeepney.[19] On
his part, Cheng attested that he had exercised the required diligence in the selection
and supervision of his employees; and that he had been engaged in the transportation
business since 1980 with the use of a total of 60 units of Goldline buses, employing
about 100 employees (including drivers, conductors, maintenance personnel, and
mechanics);[20] that as a condition for regular employment, applicant drivers had
undergone a one-month training period and a six-month probationary period during
which they had gotten acquainted with Goldlines driving practices and
demeanor;[21] that the employees had come under constant supervision, rendering
improbable the claim that Abania, who was a regular employee, had been glancing
at the video monitor while driving the bus;[22] that the incident causing Concepcions
death was the first serious incident his (Cheng) transportation business had
encountered, because the rest had been only minor traffic accidents; [23] and that
immediately upon being informed of the accident, he had instructed his personnel to
contact the family of Concepcion.[24]

The defendants blamed the death of Concepcion to the recklessness of Bilbes as the
driver of the jeepney, and of its operator, Salvador Romano;[25] and that they had
consequently brought a third-party complaint against the latter.[26]

After trial, the RTC rendered its decision dated June 30, 1997, disposing:

ACCORDINGLY, judgment is hereby rendered:

(1) Finding the plaintiffs entitled to damages for the death of Ma. Concepcion
Lacsa in violation of the contract of carriage;
 (2) Ordering defendant Travel & Tours Advisers, Inc. (Goldline) to pay
plaintiffs:

a. P30,000.00 expenses for the wake;

b. P 6,000.00 funeral expenses;

c. P50,000.00 for the death of Ma. Concepcion Lacsa;

d. P150,000.00 for moral damages;

e. P20,000.00 for exemplary damages;

f. P8,000.00 for attorneys fees;

g. P2,000.00 for litigation expenses;

h. Costs of suit.

(3) Ordering the dismissal of the case against Rene Abania;

(4) Ordering the dismissal of the third-party complaint.

SO ORDERED.[27]

The RTC found that a contract of carriage had been forged between Travel &
Tours Advisers, Inc. and Concepcion as soon as she had boarded the Goldline bus
as a paying passenger; that Travel & Tours Advisers, Inc. had then become duty-
bound to safely transport her as its passenger to her destination; that due to Travel
& Tours Advisers, Inc.s inability to perform its duty, Article 1786 of the Civil
Code created against it the disputable presumption that it had been at fault or had
been negligent in the performance of its obligations towards the passenger; that
Travel & Tours Advisers, Inc. failed to disprove the presumption of negligence; and
that a rigid selection of employees was not sufficient to exempt Travel & Tours
Advisers, Inc. from the obligation of exercising extraordinary diligence to ensure
that its passenger was carried safely to her destination.

Aggrieved, the defendants appealed to the CA.

On June 11, 1998,[28] the CA dismissed the appeal for failure of the defendants
to pay the docket and other lawful fees within the required period as provided in
Rule 41, Section 4 of the Rules of Court (1997). The dismissal became final, and
entry of judgment was made on July 17, 1998.[29]

Thereafter, the plaintiffs moved for the issuance of a writ of execution to

implement the decision dated June 30, 1997.[30] The RTC granted their motion on
January 31, 2000,[31] and issued the writ of execution on February 24, 2000.[32]

On May 10, 2000, the sheriff implementing the writ of execution rendered a
Sheriffs Partial Return,[33] certifying that the writ of execution had been personally
served and a copy of it had been duly tendered to Travel & Tours Advisers, Inc. or
William Cheng, through his secretary, Grace Miranda, and that Cheng had failed to
settle the judgment amount despite promising to do so. Accordingly, a tourist bus
bearing Plate No. NWW-883 was levied pursuant to the writ of execution.

The plaintiffs moved to cite Cheng in contempt of court for failure to obey a
lawful writ of the RTC.[34] Cheng filed his opposition.[35] Acting on the motion to cite
Cheng in contempt of court, the RTC directed the plaintiffs to file a verified petition
for indirect contempt on February 19, 2001.[36]

On April 20, 2001, petitioner submitted a so-called verified third party

[37]
claim, claiming that the tourist bus bearing Plate No. NWW-883 be returned to
petitioner because it was the owner; that petitioner had not been made a party to
Civil Case No. 93-5917; and that petitioner was a corporation entirely different from
Travel & Tours Advisers, Inc., the defendant in Civil Case No. 93-5917.

It is notable that petitioners Articles of Incorporation was amended on

November 8, 1993,[38] shortly after the filing of Civil Case No. 93-5917 against
Travel & Tours Advisers, Inc.

Respondents opposed petitioners verified third-party claim on the following

grounds, namely: (a) the third-party claim did not comply with the required notice
of hearing as required by Rule 15, Sections 4 and 5 of the Rules of Court; (b) Travel
& Tours Advisers, Inc. and petitioner were identical entities and were both operated
and managed by the same person, William Cheng; and (c) petitioner was attempting
to defraud its creditors respondents herein hence, the doctrine of piercing the veil of
corporate entity was squarely applicable.[39]
 On August 2, 2001, the RTC dismissed petitioners verified third-party claim,
observing that the identity of Travel & Tours Adivsers, Inc. could not be divorced
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 Sorsogon as Goldline.[40]

Petitioner moved for reconsideration,[41] but the RTC denied the motion on October
22, 2001.[42]

Thence, petitioner initiated a special civil action for certiorari in the

CA,[43] asserting:

THE RESPONDENT HONORABLE RTC JUDGE HAD ACTED WITHOUT

JURISDICTION OR COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION IN ISSUING THE: (A) ORDER
DATED 2 AUGUST 2001, COPY OF WHICH IS HERETO ATTACHED AS
ANNEX A, DISMISSING HEREIN PETITIONERS THIRD PARTY CLAIM;
AND (B) ORDER DATED 22 OCTOBER 2001, COPY OF WHICH IS HERETO
ATTACHED AS ANNEX B DENYING SAID PETITIONERS MOTION FOR
RECONSIDERATION; AND THAT THERE IS NO APPEAL, OR ANY PLAIN,
SPEEDY AND ADEQUATE REMEDY AVAILABLE TO SAID PETITIONER.

On October 30, 2002, the CA promulgated its decision dismissing the petition
for certiorari,[44] holding as follows:

The petition lacks merit.

As stated in the decision supra, William Ching disclosed during the trial of
the case that defendant Travel & Tours Advisers, Inc. (Goldline), of which he is an
officer, is operating sixty (60) units of Goldline buses. That the Goldline buses are
used in the operations of defendant company is obvious from Mr. Chengs
admission. The Amended Articles of Incorporation of Gold Line Tours, Inc.
disclose that the following persons are the original incorporators thereof: Antonio
O. Ching, Maribel Lim Ching, witness William Ching, Anita Dy Ching and Zosimo
Ching. (Rollo, pp. 105-106) We see no reason why defendant company would be
using Goldline buses in its operations unless the two companies are actually one
and the same.
 Moreover, the name Goldline was added to defendants name in the
Complaint. There was no objection from William Ching who could have raised the
defense that Gold Line Tours, Inc. was in no way liable or involved. Indeed, it
appears to this Court that rather than Travel & Tours Advisers, Inc., it is Gold Line
Tours, Inc., which should have been named party defendant.

Be that as it may, We concur in the trial courts finding that the two companies
are actually one and the same, hence the levy of the bus in question was proper.

WHEREFORE, for lack of merit, the petition is DISMISSED and the assailed
Orders are AFFIRMED.

SO ORDERED.

Petitioner filed a motion for reconsideration,[45] which the CA denied on June

25, 2003.[46]

Hence, this appeal, in which petitioner faults the CA for holding that the RTC did
not act without jurisdiction or grave abuse of discretion in finding that petitioner and
Travel & Tours Advisers, Inc., the defendant in Civil Case No. 5917, were one and
same entity, and for sustaining the propriety of the levy of the tourist bus with Plate
No. NWW-883 in satisfaction of the writ of execution. [47]
In the meantime, respondents filed in the RTC a motion to direct the sheriff to
implement the writ of execution in view of the non-issuance of any restraining order
either by this Court or the CA.[48] On February 23, 2007, the RTC granted the motion
and directed the sheriff to sell the Goldline tourist bus with Plate No. NWW-883
through a public auction.[49]

Issue

Did the CA rightly find and conclude that the RTC did not gravely abuse its
discretion in denying petitioners verified third-party claim?

Ruling

We find no reason to reverse the assailed CA decision.

 In the order dated August 2, 2001, the RTC rendered its justification for
rejecting the third-party claim of petitioner in the following manner:

xxx
The main contention of Third Party Claimant is that it is the owner of the Bus
and therefore, it should not be seized by the sheriff because the same does not
belong to the defendant Travel & Tours Advises, Inc. (GOLDLINE) as the third
party claimant and defendant are two separate corporation with separate juridical
personalities. Upon the other hand, this Court had scrutinized the documents
submitted by the Third party Claimant and found out that William Ching who
claimed to be the operator of the Travel & Tours Advisers, Inc. (GOLDLINE) is
also the President/Manager and incorporator of the Third Party Claimant Goldline
Tours Inc. and he is joined by his co-incorporators who are Ching and Dy thereby
this Court could only say that these two corporations are one and the same
corporations. This is of judicial knowledge that since Travel & Tours Advisers, Inc.
came to Sorsogon it has been known as GOLDLINE.

This Court is 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.

Apposite to the case at bar is the case of Palacio vs. Fely Transportation Co.,
L-15121, May 31, 1962, 5 SCRA 1011 where the Supreme Court held:

Where the main purpose in forming the corporation was to evade ones
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). The Supreme Court can even substitute
the real party in interest in place of the defendant corporation in order to
avoid multiplicity of suits and thereby save the parties unnecessary
expenses and delay. (Alfonso vs. Villamor, 16 Phil. 315).

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.[50]
 As we see it, the RTC had sufficient factual basis to find that petitioner and
Travel and Tours Advisers, Inc. were one and the same entity, specifically: (a)
documents submitted by petitioner in the RTC showing that William Cheng, who
claimed to be the operator of Travel and Tours Advisers, Inc., was also the
President/Manager and an incorporator of the petitioner; and (b) Travel and Tours
Advisers, Inc. had been known in Sorsogon as Goldline. On its part, the CA cogently
observed:

As stated in the (RTC) decision supra, William Ching disclosed during the trial of
the case that defendant Travel & Tours Advisers, Inc. (Goldline), of which he is an
officer, is operating sixty (60) units of Goldline
buses. That the Goldline buses are used in the operations of
defendant company is obvious from Mr. Chengs admission. The Amended Articles
of Incorporation of Gold Line Tours, Inc. disclose that the following persons are
the original incorporators thereof: Antonio O. Ching, Maribel Lim Ching, witness
William Ching, Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-108) We see
no reason why defendant company would be using Goldline buses in its operations
unless the two companies are actually one and the same.

Moreover, the name Goldline was added to defendants name in the

Complaint. There was no objection from William Ching who could have raised the
defense that Gold Line Tours, Inc. was in no way liable or involved.Indeed it
appears to this Court that rather than Travel & Tours Advisers, Inc. it is Gold Line
Tours, Inc., which should have been named party defendant.

Be that as it may, We concur in the trial courts finding that the two companies are
actually one and the same, hence the levy of the bus in question was proper.[51]
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.

But petitioner continues to challenge the RTC orders by insisting that the
evidence to establish its identity with Travel and Tours Advisers, Inc. was
insufficient.

We cannot agree with petitioner. As already stated, there was sufficient

evidence that petitioner and Travel and Tours Advisers, Inc. were one and the same
entity. Moreover, we remind that apetition for the writ of certiorari neither deals
with errors of judgment nor extends to a mistake in the appreciation of the
contending parties evidence or in the evaluation of their relative weight.[52] It
is timely to remind that the petitioner in a special civil action
for certiorari commenced against a trial court that has jurisdiction over the
proceedings bears the burden to demonstrate not merely reversible error, but grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of the
respondent trial court in issuing the impugned order.[53] The term grave abuse of
discretion is defined as a capricious and whimsical exercise of judgment so patent
and gross as to amount to an evasion of a positive duty or a virtual refusal to perform
a duty enjoined by law, as where the power is exercised in an arbitrary and despotic
manner because of passion or hostility.[54] Mere abuse of discretion is not enough; it
must be grave.[55] Yet, here, petitioner did not discharge its burden because itfailed
to demonstrate that the CA erred in holding that the RTC had not committed grave
abuse of discretion. A review of the records shows, indeed, that the RTC correctly
rejected petitioners third-party claim. Hence, the rejection did not come within the
domain of the writ of certioraris limiting requirement of excess or lack of
jurisdiction.[56]

WHEREFORE, the Court DENIES the petition for review on certiorari,

and AFFIRMS the decision promulgated by the Court of Appeals on October 30,
2002. Costs of suit to be paid by petitioner.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice
WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Acting Chairperson, First Division

MARIANO C. DEL CASTILLO MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice
 ESTELA PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Acting Chairperson, First Division

CERTIFICATION

Pursuant to Section 13, Article VII of the Constitution and the Division Acting
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.

ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. 296,
The Judiciary Act of 1948, as amended)
[1]
Rollo, pp. 23-26; penned by Associate Justice Portia Alio-Hormachuelos (retired) and concurred in by Associate
Justice Eliezer R. Delos Santos (deceased) and Associate Justice Amelita G. Tolentino.
[2]
Id., pp. 27-28.
[3]
Id., pp. 53-54.
[4]
Id., p. 55.
[5]
Id., pp. 38-43.
[6]
Records, pp. 1-2.
[7]
Id., p. 2.
[8]
Id.
[9]
Id.
[10]
Id., pp. 1-4.
[11]
Id., p. 2.
[12]
Id., p. 168
[13]
Id.
[14]
Id.
[15]
Id.
[16]
Id.
[17]
Id., pp. 168-169.
[18]
Id., p. 169.
[19]
Id.
[20]
Id.
[21]
Id.
[22]
Id.
[23]
Id.
[24]
Id., p. 170.
[25]
Id., pp. 21-22.
[26]
Id., pp. 31-34.
[27]
Rollo, pp. 42-43.
[28]
Records, p. 177.
[29]
Id., p. 178.
[30]
Id., p. 182.
[31]
Id., p. 184.
[32]
Id., pp. 185-186.
[33]
Id., p. 189.
[34]
Id., pp. 190-191.
[35]
Id., pp. 192-194.
[36]
Id., p. 204.
[37]
Id., pp. 205-207.
[38]
Id., pp. 214-217.
[39]
Id., pp. 218-220.
[40]
Id., pp. 254-255.
[41]
Id., pp. 256-258.
[42]
Id., p. 261.
[43]
Rollo, p. 14.
[44]
Id., pp. 23-26.
[45]
Id., pp. 56-61.
[46]
Id., pp. 27-28.
[47]
Id., p. 25.
[48]
Records, pp. 266-268.
[49]
Id., p. 271.
[50]
Id., pp. 53-54.
[51]
Rollo, pp. 25-26.
[52]
Romys Freight Service v. Castro, G.R. No. 141637, June 8, 2006, 490 SCRA 160, 166; Cruz v. People, G.R. No.
134090, July 2, 1999, 309 SCRA 714.
[53]
Tan v. Antazo, G.R. No. 187208, February 23, 2011, 644 SCRA 337, 342.
[54]
Office of the Ombudsman v. Magno, G.R. No. 178923, November 27, 2008, 572 SCRA 272, 287 citing Microsoft
Corporation v. Best Deal Computer Center Corporation, G.R. No. 148029, September 24, 2002, 389 SCRA 615, 619-
620; Suliguin v. Commission on Elections, G.R. No. 166046, March 23, 2006, 485 SCRA 219, 233; Natalia Realty,
Inc. v. Court of Appeals, G.R. No. 126462, November 12, 2002, 370 SCRA 371, 384; Philippine Rabbit Bus Lines,
Inc. v. Goimco, Sr., G.R. No. 135507, November 29, 2005, 476 SCRA 361, 366 citing Land Bank of the Philippines
v. Court of Appeals, 456 Phil. 755, 786 (2003); Duero v. Court of Appeals, G.R. No. 131282, January 4, 2002, 373
SCRA 11, 17 citing Cuison v. Court of Appeals, G.R. No. 128540, 15 April 1998, 289 SCRA 159, 171.
[55]
Tan v. Antazo. supra, note 53.
[56]
De Vera v. De Vera, G.R. No. 172832, April 7, 2009, 584 SCRA 506, 515.
 SECOND DIVISION
CHINA BANKING CORPORATION, G.R. No. 149237
Petitioner,

Present:

PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

DYNE-SEM ELECTRONICS
CORPORATION,
Respondent. Promulgated:

June 11, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION
CORONA, J.:

On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O.

Lim borrowed a total of P8,939,000 from petitioner China Banking
Corporation. The loan was evidenced by six promissory notes.[1]

The borrowers failed to pay when the obligations became

due. Petitioner consequently instituted a complaint for sum of
money[2] on June 25, 1987 against them.The complaint sought
payment of the unpaid promissory notes plus interest and penalties.
Summons was not served on Dynetics, however, because it had
already closed down. Lim, on the other hand, filed his answer on
December 15, 1987 denying that he promised to pay [the obligations]
jointly and severally to [petitioner].[3]

On January 7, 1988, the case was scheduled for pre-trial with respect
to Lim. The case against Dynetics was archived.

On September 23, 1988, an amended complaint[4] was filed by

petitioner impleading respondent Dyne-Sem Electronics Corporation
(Dyne-Sem) and its stockholders Vicente Chuidian, Antonio Garcia
and Jacob Ratinoff. According to petitioner, respondent was formed
and organized to be Dynetics alter ego as established by the following
circumstances:

Dynetics, Inc. and respondent are both engaged in the same line of
business of manufacturing, producing, assembling, processing,
importing, exporting, buying, distributing, marketing and testing
integrated circuits and semiconductor devices;
[t]he principal office and factory site of Dynetics, Inc. located at Avocado
Road, FTI Complex, Taguig, Metro Manila, were used by respondent
as its principal office and factory site;
[r]espondent acquired some of the machineries and equipment
of Dynetics, Inc. from banks which acquired the same through
foreclosure;
[r]espondent retained some of the officers of Dynetics, Inc.[5]

xxx xxx xxx

On December 28, 1988, respondent filed its answer, alleging that:

5.1 [t]he incorporators as well as present stockholders of [respondent] are

totally different from those of Dynetics, Inc., and not one of them has
ever been a stockholder or officer of the latter;
 5.2 [n]ot one of the directors of [respondent] is, or has ever been, a director,
officer, or stockholder of Dynetics, Inc.;

5.3 [t]he various facilities, machineries and equipment being used by

[respondent] in its business operations were legitimately and validly
acquired, under arms-length transactions, from various corporations
which had become absolute owners thereof at the time of said
transactions; these were not just taken over nor acquired
from Dynetics by [respondent], contrary to what plaintiff falsely and
maliciously alleges;

5.4 [respondent] acquired most of its present machineries and equipment

as second-hand items to keep costs down;

5.5 [t]he present plant site is under lease from Food Terminal, Inc., a
government-controlled corporation, and is located inside the FTI
Complex in Taguig, Metro Manila, where a number of other firms
organized in 1986 and also engaged in the same or similar business
have likewise established their factories; practical convenience, and
nothing else, was behind [respondents] choice of plant site;

5.6 [respondent] operates its own bonded warehouse under authority from
the Bureau of Customs which has the sole and absolute prerogative to
authorize and assign customs bonded warehouses; again, practical
convenience played its role here since the warehouse in question was
virtually lying idle and unused when said Bureau decided to assign it to
[respondent] in June 1986.[6]

On February 28, 1989, the trial court issued an order archiving

the case as to Chuidian, Garcia and Ratinoff since summons had
remained unserved.

After hearing, the court a quo rendered a decision on December

27, 1991 which read:

xxx [T]he Court rules that Dyne-Sem Electronics Corporation is not

an alter ego of Dynetics, Inc. Thus, Dyne-Sem Electronics
Corporation is not liable under the promissory notes.

xxx xxx xxx

 WHEREFORE, judgment is hereby rendered ordering Dynetics, Inc.
and Elpidio O. Lim, jointly and severally, to pay plaintiff.

xxx xxx xxx

Anent the complaint against Dyne-Sem and the latters counterclaim,

both are hereby dismissed, without costs.

SO ORDERED.[7]

From this adverse decision, petitioner appealed to the Court of

Appeals[8] but the appellate court dismissed the appeal and affirmed
the trial courts decision.[9] It found that respondent was indeed not
an alter ego of Dynetics. The two corporations had different articles
of incorporation. Contrary to petitioners claim, no merger or
absorption took place between the two. What transpired was a mere
sale of the assets of Dynetics to respondent. The appellate court
denied petitioners motion for reconsideration.[10]

Hence, this petition for review[11] with the following assigned

errors:
VI.
Issues

What is the quantum of evidence needed for the trial court to determine if
the veil of corporat[e] fiction should be pierced?

[W]hether or not the Regional Trial Court of Manila Branch 15 in its

Decision dated December 27, 1991 and the Court of Appeals in its
Decision dated February 28, 2001 and Resolution dated July 27, 2001,
which affirmed en toto [Branch 15, Manila Regional Trial Courts decision,]
have ruled in accordance with law and/or applicable [jurisprudence] to the
extent that the Doctrine of Piercing the Veil of Corporat[e] Fiction is not
applicable in the case at bar?[12]
 We find no merit in the petition.
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 respondents corporate entity. This Court is not
a trier of facts. Findings of fact of the Court of Appeals, affirming
those of the trial court, are final and conclusive. The jurisdiction of
this Court in a petition for review on certiorari is limited to reviewing
only errors of law, not of fact, unless it is shown, inter alia, that: (a)
the conclusion is grounded entirely on speculations, surmises and
conjectures; (b) the inference is manifestly mistaken, absurd and
impossible; (c) there is grave abuse of discretion; (d) the judgment is
based on a misapplication of facts; (e) the findings of fact of the trial
court and the appellate court are contradicted by the evidence on
record and (f) the Court of Appeals went beyond the issues of the
case and its findings are contrary to the admissions of both
parties.[13]

We have reviewed the records and found that the factual

findings of the trial and appellate courts and consequently their
conclusions were supported by the evidence on record.

The general rule is that a corporation has a personality separate

and distinct from that of its stockholders and other corporations to
which it may be connected.[14] This is a fiction created by law for
convenience and to prevent injustice.[15]
 Nevertheless, being a mere fiction of law, peculiar situations or
valid grounds may exist to warrant the disregard of its independent
being and the piercing of the corporate veil.[16] In Martinez v. Court of
Appeals,[17] we held:

The veil of separate corporate personality may be lifted when such

personality is used to defeat public convenience, justify wrong, protect
fraud or defend crime; or used as a shield to confuse the legitimate issues;
or when the corporation is merely an adjunct, a business conduit or an alter
ego of another corporation 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; or when
the corporation is used as a cloak or cover for fraud or illegality, or to work
injustice, or where necessary to achieve equity or for the protection of the
creditors. In such cases, the corporation will be considered as a mere
association of persons. The liability will directly attach to the stockholders
or to the other corporation.

To disregard the separate juridical personality of a corporation,

the wrongdoing must be proven clearly and convincingly.[18]

In this case, 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 that 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. As we held in Umali v. Court of Appeals,[19] the mere fact
that the businesses of two or more corporations are interrelated is
not a justification for disregarding their separate personalities,
absent sufficient showing that the corporate entity was purposely
used as a shield to defraud creditors and third persons of their rights.
Likewise, respondents acquisition of some of the machineries
and equipment of Dynetics was not proof that respondent was
formed to defraud petitioner. As the Court of Appeals found, no
merger[20] took place between Dynetics and respondent Dyne-
Sem. What took place was a sale of the assets[21] of the former to the
latter. Merger is legally distinct from a sale of assets.[22] Thus, where
one corporation sells or otherwise transfers all its assets to another
corporation for value, the latter is not, by that fact alone, liable for
the debts and liabilities of the transferor.

Petitioner itself admits that respondent acquired the

machineries and equipment not directly from Dynetics but from the
various corporations which successfully bidded for them in an
auction sale. The contracts of sale executed between the winning
bidders and respondent showed that the assets were sold for
considerable amounts.[23] The Court of Appeals thus correctly ruled
that the assets were not diverted to respondent as an alter ego
of Dynetics.[24] The machineries and equipment were transferred and
disposed of by the winning bidders in their capacity as owners. The
sales were therefore valid and the transfers of the properties to
respondent legal and not in any way in contravention of petitioners
rights as Dynetics creditor.
Finally, it may be true that respondent later
hired Dynetics former Vice-President Luvinia Maglaya and Assistant
Corporate Counsel Virgilio Gesmundo. From this, however, we
cannot conclude that respondent was an alter ego of Dynetics. In
fact, even the overlapping of incorporators and stockholders of two or
more corporations will not necessarily lead to such inference and
justify the piercing of the veil of corporate fiction.[25] Much more has
to be proven.

Premises considered, no factual and legal basis exists to hold

respondent Dyne-Sem liable for the obligations of Dynetics to
petitioner.

WHEREFORE, the petition is hereby DENIED. The assailed

Court of Appeals decision and resolution in CA-G.R. CV No. 40672
are hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.

RENATO C. CORONA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Associate Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA
Associate Justice Associate Justice

CANCIO C. GARCIA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been

reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.

REYNATO S. PUNO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the

Division Chairpersons Attestation, I certify that the conclusions in
the above decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

ARTEMIO V. PANGANIBAN
 Chief Justice

[1]
The promissory notes and their corresponding amounts were as follows: (1) PN No. BD-77698 for P39,000; (2) PN
No. T-77701 for P900,000; (3) PN No. T-77702 for P900,000; (4)PN No. T-77703 for P1,000,000; (5) PN
No. T-77834 for P4,100,000 and (6) PN No. T-77835 for P2,000,000; rollo, pp. 72-77.
[2]
Id., pp. 64-71.
[3]
Id., pp. 78-85.
[4]
Id., pp. 86-95.
[5]
Id., pp. 19-20.
[6]
Id., pp. 104-109.
[7]
Penned by Judge Benjamin P. Martinez of Branch 15, Regional Trial Court, Manila; id., pp. 48-63.
[8]
Docketed as CA-G.R. CV No. 40672; id., pp. 110-111.
[9]
Penned by Associate Justice Andres B. Reyes, Jr. and concurred in by Associate Justices B.A. Adefuin-de la Cruz
and Rebecca de Guia-Salvador of the 16th Division of the Court of Appeals; February 28, 2001; id., pp. 29-
44.
[10]
July 27, 2001; id., p. 46.
[11]
Under Rule 45 of the RULES OF COURT; id., pp. 15-27.
[12]
Id., p. 20.
[13]
Ladanga v. Aseneta, G.R. No. 145874, 30 September 2005.
[14]
Francisco Motors Corporation v. Court of Appeals, 368 Phil. 374 (1999).
[15]
Concept Builders, Inc. v. NLRC, G.R. No. 108734, 29 May 1996, 257 SCRA 149.
[16]
Santos v. NLRC, G.R. No. 101699, 13 March 1996, 254 SCRA 673.
[17]
G.R. No. 131673, 10 September 2004, 438 SCRA 130.
[18]
Complex Electronics Employees Association v. NLRC, G.R. Nos. 121315 and 122136, 19 July 1999, 310 SCRA
403.
[19]
G.R. No. 89561, 13 September 1990, 189 SCRA 529.
[20]
Merger is a union whereby one or more existing corporations are absorbed by another corporation which survives
and continues the combined business. (Villanueva, PHILIPPINE CORPORATE LAW, 1998 Edition, p.
464.)
[21]
In sale of assets, the purchaser is only interested in the raw assets of the selling corporation perhaps to be used to
establish his own business enterprise or as an addition to his on-going business enterprise. (Id., at p. 444.)
[22]
The Court of Appeals differentiated merger from sale of assets in this wise: (1) In merger, a sale of assets is always
involved, while in the latter, the former is not always involved; (2) In the former, there is automatic
assumption by the surviving corporation of the liabilities of the constituent corporations, while in the latter,
the purchasing corporation is not generally liable for the debts and liabilities of the selling corporation; (3)
In the former, there is a continuance of the enterprise and of the stockholders therein though in the altered
form, while in the latter, the selling corporation ordinarily contemplates liquidation of the enterprise; (4) In
the former, the title to the assets of the constituent corporations is by operation of law transferred to the new
corporation, while in the latter, the transfer of title is by virtue of contract; and (5) In the former, the
constituent corporations are automatically dissolved, while in the latter, the selling corporation is not
dissolved by the mere transfer of all its property. (citing de Leon, THE CORPORATION CODE OF THE
PHILIPPINES ANNOTATED, 1989 Edition, pp. 509-510.)
[23]
The total purchases made by respondent from Elders Pica Limited was for the amount of US$1,158,977.77;
from Piso Development Bank, P19,950,000 plus the peso equivalent of US$280,000 and from Private
Development Corporation of the Philippines, P11,956,134.44 plus the peso equivalent of
US$1,616,324.17; rollo, p. 132.
[24]
Id., pp. 43-44.
[25]
Supra at note 19.
 FIRST DIVISION

[G.R. No. 108734. May 29, 1996]

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR

RELATIONS COMMISSION, (First Division); and Norberto Marabe,
Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio
Giducos, Pedro Aboigar, Norberto Comendador, Rogello Salut,
Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera,
Paquito Salut, Domingo Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares,
Ferdinand Torres, Felipe Basilan, and Ruben
Robalos, respondents.

DECISION
HERMOSISIMA, JR., J.:

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 corporations
subsidiary liability for damages, the corporation may not be heard to say that it has a
personality separate and distinct from the other corporation. The piercing of the corporate
veil comes into play.
This special civil action ostensibly raises the question of whether the National Labor
Relations Commission committed grave abuse of discretion when it issued a break-open
order to the sheriff to be enforced against personal property found in the premises of
petitioners sister company.
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 it to be, the fact, however, that at the time of the termination
of private respondents employment, the project in which they were hired had not yet been
finished and completed. Petitioner had to engage the services of sub-contractors 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.
On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to
reinstate private respondents and to pay them back wages equivalent to one year or three
hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC)
dismissed the motion for reconsideration filed by petitioner on the ground that the said
decision had already become final and executory.2
On October 16, 1986, the NLRC Research and Information Department made the
finding that private respondents backwages amounted to P199,800.00. 3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff
to execute the Decision, dated December 19, 1984. The writ was partially satisfied
through garnishment of sums from petitioners debtor, the Metropolitan Waterworks and
Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the
cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter
directing the sheriff to collect from herein petitioner the sum of P117,414.76, representing
the balance of the judgment award, and to reinstate private respondents to their former
positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias
writ of execution on petitioner through the security guard on duty but the service was
refused on the ground that petitioner no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter
issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated in his
progress report, dated November 2, 1989:

1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela,
Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc.
(HPPI) and not by respondent;

2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the
properties he had levied upon.4
 The said special sheriff recommended that a break-open order be issued to enable
him to enter petitioners premises so that he could proceed with the public auction sale of
the aforesaid personal properties on November 7, 1989.
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
incorporator! stockholders. They also alleged that petitioner temporarily suspended its
business operations in order to evade its legal obligations 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 Informations 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 petitioner1 revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

HPPI P6,999,500.00

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

Elisa C. Lim 100,000.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member

Elisa C. Lim Member

Teodulo R. Dino Member

Virgilio O. Casino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa 0. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road

Valenzuela, Metro Manila.5

On the other hand, the General Information Sheet of HPPI revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

Antonio W. Lim P400,000.00

Elisa C. Lim 57,700.00

AWL Trading 455,000.00

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Elisa C. Lim Member

Dennis S. Cuyegkeng Member

Virgilio O. Casino Member

Teodulo R. Dino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road, Valenzuela, Metro Manila.6

On February 1, 1990, 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 firm while petitioner was
then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private
respondents motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set
aside the order of the Labor Arbiter, 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 dismissed 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.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered
the execution of its decision despite a third-party claim on the levied property. Petitioner
further contends, 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. It also contends that HPPI is engaged in the
manufacture and sale of steel, concrete and iron pipes, a business which is distinct and
separate from petitioners 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.7
 We find petitioners contention to be unmeritorious.
It is a 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.8 But, this separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice.9 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, 10 this separate personality
of the corporation may be disregarded or the veil of corporate fiction pierced. 11 This is true
likewise when the corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.12
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.

4. Methods of conducting the business.13

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 domination 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 and
unjust act in contravention of plaintiffs 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 one 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 defendants
relationship to that operation. 14

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.15
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,
submitted 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 samecorporate
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.16

Clearly, petitioner ceased its business operations in order to evade the payment to
private respondents of backwages 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.
The facts in this case are analogous to Claparols v. Court of Industrial
Relations17 where we had the occasion to rule:

Respondent courts findings that indeed the Claparols Steel and Nail Plant, which
ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel
Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the
latter finally ceased to operate, were not disputed by petitioner. it is very clear that
the latter corporation was a continuation and successor of the first entity x x x. Both
predecessors and successor were owned and controlled by petitioner Eduardo
Claparols and there was no break in the succession and continuity of the same
business. This avoiding-the-liability scheme is very patent, considering that 90% of
the subscribed shares of stock of the Claparols Steel Corporation (the second
corporation) was owned by respondent x x x Claparols himself, and all the assets of
the dissolved Claparols Steel and Nail Plant were turned over to the emerging
Claparols Steel Corporation.

It is very obvious that the second corporation seeks the protective shield of a
corporate fiction whose veil in the present case could, and should, be pierced as it was
deliberately and maliciously designed to evade its financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property
subject of the execution, private respondents had no other recourse but to apply for a
break-open order after the third-party claim of HPPI was dismissed for lack of merit by
the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of
Execution of Judgment which provides that:

Should the losing party, his agent or representative, refuse or prohibit the Sheriff or
his representative entry to the place where the property subject of execution is located
or kept, the judgment creditor may apply to the Commission or Labor Arbiter
concerned for a break-open order.

Furthermore, our perusal of the records shows that the twin requirements of due
notice and hearing were complied with. Petitioner and the third-party claimant were given
the opportunity to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the
break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-
judicial agencies supported by substantial evidence are binding on this Court and are
entitled to great respect, in the absence of showing of grave abuse of a discretion. 18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC,
dated April 23, 1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

1 Rollo, pp. 11-12.

2
Id., at 12.
3 Ibid.
4 Rollo, p. 14.
5 Rollo, pp. 16-17.
6 Id., at 17-18.
7 Rollo, pp. 7-8.
8Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 (1965); Yutivo Sons Hardware
Company v. Court of Tax Appeals, 1 SCRA 160(1961).
9 Laguna Transportation Company, Inc. v. Social Security System, 107 SCRA 833 (1960).
10La Campana Coffee Factory, Inc. vs. Kaisahan Ng Mga Manggagawa sa La Campana (KMM), 93 Phil.
160 (1953).
11 Sulo ng Bayan, Inc. v. Araneta, 72 SCRA 347 (1976).
12 Tan Boon Bee and Co. v. Jarencio, 163 SCRA 205 (1988).
134 Minn L. Rev, pp. 2 19-227; cited in R. Lopez, The Corporation Code of the Philippines, Annotated p. 19
(1994).
141 Fletcher Cyc. Corp., p. 490; Avelina G. Ramoso et al. v. General Credit Corporation et al., SEC AC No.
295, October 6, 1992.
15 Phoenix Safety Inc. Co. v. James, 28 Ariz 514, 237, p. 958.
16 Rollo, pp. 19-20.
17 65 SCRA 613 (1975).
18Maya Farms Employees Organization v. National Labor Relations Commission, 239 SCRA 508 (1994);
Capitol Industrial Construction Groups v. National Labor Relations Commission, 221 SCRA 469 (1993);
Sunset View Condominium Corporation v. National Labor Relations Commission, 228 SCRA 466 (1993).