separation benefits and rehired by the new management. Accordingly, the labor arbiter decided the case against
Agustin and De Guzman, but dismissed the Complaint against the Samson Group. Thus ordering Agustin and De
Guzman to pay separation pay to the employees.
Respondent employees, Agustin and De Guzman brought separate appeals to the NLRC. Respondent employees
questioned the labor arbiters failure to award backwages, while Agustin and De Guzman contended that they should
not be held liable for the payment of the employees claims. The NLRC found that there was only a mere transfer of
shares and therefore, a mere change of management from Agustin and De Guzman to the Samson Group. As the
change of management was not a valid ground to terminate respondent bank employees, the NLRC ruled that they
had indeed been illegally dismissed. It further ruled that Agustin, De Guzman and the Samson Group should be held
jointly and severally liable for the employees separation pay and backwages, CA affirming NLRC decision. Hence this
appeal.
ISSUE: WON respondent employees were illegally dismissed and, if so, which of the parties are liable for the claims of the
employees and the extent of the reliefs that may be awarded to these employees.?
HELD: Petition was partially granted.
Petitioner bank also argues that, there being a transfer of the business establishment, the innocent transferees no
longer have any obligation to continue employing respondent employees,56 and that the most that they can do is to
give preference to the qualified separated employees; hence, the employees were validly dismissed. The argument is
misleading and unmeritorious. Contrary to petitioner banks argument, there was no transfer of the business
establishment to speak of, but merely a change in the new majority shareholders of the corporation.
There are two types of corporate acquisitions: asset sales and stock sales. In asset sales, the corporate entity sells
all or substantially all of its assets to another entity. In stock sales, the individual or corporate shareholders sell a
controlling block of stock to new or existing shareholders.
In asset sales, the rule is that the seller in good faith is authorized to dismiss the affected employees, but is liable for
the payment of separation pay under the law.The buyer in good faith, on the other hand, is not obliged to absorb the
employees affected by the sale, nor is it liable for the payment of their claims. The most that it may do, for reasons of
public policy and social justice, is to give preference to the qualified separated personnel of the selling firm.
In contrast with asset sales, in which the assets of the selling corporation are transferred to another entity, the
transaction in stock sales takes place at the shareholder level. Because the corporation possesses a personality
separate and distinct from that of its shareholders, a shift in the composition of its shareholders will not affect its
existence and continuity. Thus, notwithstanding the stock sale, the corporation continues to be the
employer of its people and continues to be liable for the payment of their just claims. Furthermore, the
corporation or its new majority shareholders are not entitled to lawfully dismiss corporate employees absent a just or
authorized cause.
In the case at bar, the Letter Agreements show that their main object is the acquisition by the Samson
Group of 86.365% of the shares of stock of SME Bank.66 Hence, this case involves a stock sale,
whereby the transferee acquires the controlling shares of stock of the corporation. Thus, following
the rule in stock sales, respondent employees may not be dismissed except for just or authorized
causes under the Labor Code.
The rule should be different in Manlimos, as this case involves a stock sale. It is error to even discuss
transfer of ownership of the business, as the business did not actually change hands. The transfer
only involved a change in the equity composition of the corporation. To reiterate, the employees are
not transferred to a new employer, but remain with the original corporate employer, notwithstanding
an equity shift in its majority shareholders. This being so, the employment status of the employees
should not have been affected by the stock sale. A change in the equity composition of the corporate
shareholders should not result in the automatic termination of the employment of the corporations
employees. Neither should it give the new majority shareholders the right to legally dismiss the
corporations employees, absent a just or authorized cause.
The right to security of tenure guarantees the right of employees to continue in their employment absent a just or
authorized cause for termination. This guarantee proscribes a situation in which the corporation procures the
severance of the employment of its employees who patently still desire to work for the corporation only because
new majority stockholders and a new management have come into the picture. This situation is a clear circumvention
of the employees constitutionally guaranteed right to security of tenure, an act that cannot be countenanced by this
Court.\
We therefore see it fit to expressly reverse our ruling in Manlimos insofar as it upheld that, in a stock sale, the buyer in
good faith has no obligation to retain the employees of the selling corporation; and that the dismissal of the affected
employees is lawful, even absent a just or authorized cause.
4. PNB vs Aznar
Doctrine:
Facts:
RISCO ceased operation due to business reverses. InAznars desire to rehabilitate RISCO, they contributed a
totalamount of P212,720.00 which was used in the purchase of the three(3) parcels of land.Titles were issued in thename
of RISCO. The amount contributed by Aznar constitutedas liens and encumbrances on the properties. Various subsequent
annotations were made on thesame titles, including the Notice of Attachment and Writ of
Execution. As a result, a Certificate of Sale was issued in favor of PhilippineNational Bank, being the lone and highest
bidder of the three (3)parcels of land.
Aznar et al. filed an instant complaintseeking the quieting of their supposed title to the subject
properties,declaratory relief, cancellation of TCT and reconveyance withtemporary restraining order and preliminary
injunction. He contended that the subsequent writs and processesannotated on the titles are all null and void for want of
valid serviceupon RISCO and on them, as stockholders. However, PNB asserted that Aznar et al , as mere stockholders of
RISCO do not have any legal or equitable right over the properties of the corporation.
Court of Appeals opined that the monetary contributions made by Aznar, et al., to RISCO can only be
characterized as a loan secured by a lien on the subject lots, rather than an express trust. Thus, it directed PNB to pay
Aznar, et al., the amount of their contributions plus legal interest from the time of acquisition of the property until finality
of judgment.
Issue: Whether there was an express trust in this case.
Held: Petition was denied.
Ruling: No. The Court held that Express trusts, sometimes referred to as direct trusts, are intentionally
created by the direct and positive acts of the settlor or the trustorby some writing, deed, or will or oral
declaration. It is created not necessarily by some written words, but by the direct and positive acts of the
parties. This is in consonance with Article 1444 of the Civil Code, which states that no particular words are
required for the creation of an express trust, it being sufficient that a trust is clearly intended.
5. Stronghold Insurance Co., Inc. vs Cuenca
Facts:
Maraon filed a complaint against the cuencas and tayactac for the collection of sum of money
and damages, his complaint included an application for the issuance of writ of preliminary
attachment which granted by the RTC on the conditioned upon posting bond of 1m. Maraon
posted a Stronghold Insurance Bond in the amount of 1M issued by the Stronghold Insurance.
After serving of the summons the writ was enforced, the sheriff levied upon the equipment,
supplies, material and various other personal belonging to Arc Cuisine, Inc. upon appeal the CA
annulled and set aside and hereby dismissing the complaint of in Civil case of the RTC for lack of
jurisdiction. The CA remanded to the RTC for hearing and resolution of the Cuencas and
Tayactacs claim for the damages sustained from the enforcement of the writ of preliminary
attachment. After trial, the RTC rendered its judgment, holding Maraon and Stronghold
Insurance jointly and solidarily liable for damages to the Cuencas and Tayactac.
Issue:
WON Respondent Cuenca et al, are the proper parties to claim any damages even there are not
the owner of the properties attached.
Ruling:
There is no dispute that the properties subject to the levy on attachment belonged to Arc
Cuisine, Inc. alone, not to the Cuencas and Tayactac in their own right. They were only
stockholders of Arc Cuisine, Inc., which had a personality distinct and separate from that of any
or all of them. The damages occasioned to the properties by the levy on attachment, wrongful or
not, prejudice Arc Cuisine, Inc., not them. As such, only Arc Cuisine, Inc. had the right under the
substantive law to claim and recover such damages.
4 | Corporation Law (Alyssa Limboc)
6. Halley vs Printwell
Doctrine:
Facts:
Halley was an incorporator of Business Media Philippines, Inc. (BMPI) which had an authorized capital stock of
P3M, of which P75,000 were initially subscribed. Printwell was commissioned by BMPI to print the magazine Philippines,
Inc. Printwell extended 30-day credit accommodations to BMPI.
Printwell sued BMPI because it was unable to pay P291,342.76. The defendants included all the original
stockholders and incorporators who averred that they had all fully paid their subscriptions and that BMPI had a separate
personality, as well as BMPI was already dissolved. Defendants provided their ORs as proof of payment.
Issue:
Whether Halley is liable for to pay Printwell?
Held: Yes. Petition for review denied and petitioner to pay P262,500 plus interest of 12% per annum.
Ruling:
The corporate personality may be disregarded, and the individuals composing the corporation will be treated as
individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong; as
an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders. A stockholder is personally liable for
the financial obligations of the corporation to the extent of his unpaid subscription.
The trust fund doctrine states that the property of a corporation is a trust fund for the payment of creditors. It is
not limited to unpaid subscriptions but includes property and assets belonging to the corporation that were distributed or
in the possession of the stockholders regardless of full payment of their subscriptions. Also, a corporation cannot release
an original subscriber to its original stock from paying for his shares without valuable consideration or fraudulently to the
prejudice of its creditors.
Although Halley presented her OR it showed that she paid with a check which she failed to show that it was
cleared and paid to BMPI. Neither did she present the stock and transfer book of BMPI which could show records of her
payment. Nor did she present any certificate of stock. Since under Section 65 of the Corporation Code a certificate of stock
is issued only upon full payment.
Issue: Whether or not the alias writ of execution can be issued against the
sister company of the petitioners, HPPI.
Held: Yes. 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. But, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience
and to promote justice. So, when the notion of separate juridical personality is
used to defeat public convenience, justify wrong, protect fraud, or defend
crime, or is used as a device to defeat labor laws, this separate personality of
the corporation may be disregarded or the veil of corporate fiction pierced.
This is true likewise when the corporation is merely an adjunct, a business
conduit or an alter ego of another corporation.
The conditions under which the juridical entity may be disregarded vary
according to the peculiar facts and in circumstances 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 names of keeping corporate books and records
4. Methods of conducting the business.
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 instances, 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 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 on exercise 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.
3. The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.
6 | Corporation Law (Alyssa Limboc)
The absence of any of these elements prevents piercing the corporate veil of
the corporation. 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.
8. Halley vs Printwell (Supra)
9. Siain Enterprises vs Cupertino Realty Corp.
Doctrine:
Facts:
Issue:
Held:
Ruling:
10. Kukan International Corp. vs Hon. Reyes
Doctrine:
Facts:
Issue:
Held:
Ruling:
11. Heirs of Uy vs International Exchange Bank
Facts:
On several occasions, International Exchange Bank (iBank), granted loans to Hammer Garments Corporation
(Hammer), covered by promissory notes and deeds of assignment. These were made pursuant to the LetterAgreement,between iBank and Hammer, represented by its President and General Manager, Manuel Chua (Chua) a.k.a.
Manuel Chua Uy Po Tiong, granting Hammer a P 25 Million-Peso Omnibus Line.
The
loans
were
secured
by
a
P9
Million-Peso
Real
Estate
Mortgage
executed by Goldkey Development Corporation (Goldkey) over several of its properties and a P25 Million-Peso Surety
Agreementsigned by Chua and his wife, Fe Tan Uy (Uy).
Hammer defaulted in the payment of its loans, prompting iBank to foreclose on Goldkeys third-party Real Estate
Mortgage. The mortgaged properties were sold for P12 million during the foreclosure sale, leaving an unpaid balance of P
13,420,177.62. iBank filed a Complaintfor sum of money on against Hammer, Chua, Uy, and Goldkey.
Uy claimed that she was not liable to iBank because she never executed a surety agreement in favor of iBank.
Goldkey, on the other hand, also denies liability, averring that it acted only as a third-party mortgagor and that it was a
corporation separate and distinct from Hammer.
Issue:
1.
Whether Uy can be held liable to iBank for the loan obligation of Hammer as an officer and stockholder of the said
corporation; and
2. Whether Goldkey can be held liable for the obligation of Hammer for being a mere alter ego of the latter.
Held:
Petitions were partly granted. Fe Tan Uy is released from any liability arising from the debts incurred by Hammer
from iBank. Hammer Garments Corporation, Manuel Chua Uy Po Tiong and Goldkey Development Corporation are
jointly and severally liable to pay International Exchange Bank the sum of representing the unpaid loan obligation of
Hammer as of December 12, 1997 plus interest.
1. No. Uy is note liable. The piercing of the veil of corporate fiction is not justified
2. Yes.
Ruling:
1.
There is noshowing that Uy committed gross negligence. Uy, as a treasurer and stockholder of Hammer, cannotbe
made to answer for the unpaid debts of the corporation due to the absence ofany of the requisites for making a
corporate officer,director or stockholder personally liable for the obligations of acorporation. Before a director or
officer of a corporation can beheld personally liable for corporate obligations, thefollowing requisites must concur:
(1) the complainant must allege inthe complaint that the director or officer assented to patentlyunlawful acts of
the corporation, or that the officer was guilty ofgross negligence or bad faith; and (2) the complainant must
clearlyand convincingly prove such unlawful acts, negligence or bad faith.
Basic is the rule in corporation law that a corporationis a juridical entity which is vested with a legal personality
separateand distinct from those acting for and in its behalf and, in general,from the people comprising it.
Following this principle, obligationsincurred by the corporation, acting through its directors, officersand
employees, are its sole liabilities. A director, officer or employeeof a corporation is generally not held personally
liable forobligations incurred by the corporation. Nevertheless, this legalfiction may be disregarded if it is used as
a means to perpetratefraud or an illegal act, or as a vehicle for the evasion of an existingobligation, the
circumvention of statutes, or to confuse legitimateissues.
The Court held that the piercing of the veil of corporate fiction isfrowned upon and can only be done if it has been
clearly establishedthat the separate and distinct personality of the corporation is usedto justify a wrong, protect
fraud, or perpetrate a deception. Thewrongdoing must be clearly and convincingly established; it cannotbe
presumed.
The following are some probative factor of identity that will justify the application of piercing the corporate veil
doctrine: (1) Stock ownership by one or common ownershipof both corporations; (2) Identity of directors and
officers; (3) The manner ofkeeping corporate books and records, and (4) Methods of conductingthe business.
2. It was apparent that Goldkey was merely an adjunct of Hammer and, as such, the legal fiction that it has a
separate personality from that of Hammer should be brushed aside as they are, undeniably, one and the same
12. Pacific Rehouse Corp. vs CA
Doctrine:
Facts:
Issue:
Held:
Ruling: