REQUISITES TO PIERCE THE VEIL OF CORPORATE FICTION:

To hold a director or officer personally liable for corporate obligations, two requisites
must concur:
(1) complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and
(2) complainant must clearly and convincingly prove such unlawful acts, negligence
or bad faith. To hold a director personally liable for debts of the corporation, and thus
pierce the veil of corporate fiction, the bad faith or wrongdoing of the director must
be established clearly and convincingly.

DIGEST

G.R. No. 206806 June 25, 2014

ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, Petitioners,
vs.
DAN T. LIM, doing business under the name and style of QUALITY PAPERS &
PLASTIC PRODUCTS ENTERPRISES, Respondent.

Facts:

- Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw
materials, under the name Quality Paper and Plastic Products, Enterprises, to factories
engaged in the paper mill business. Lim delivered scrap papers worth P7,220,968.31 to
Arco Pulp and Paper Company, Inc. through its Chief Executive Officer and President,
Candida A. Santos.

- Dan T. Lim sent a letter to Arco Pulp and Paper demanding payment of the amount of
P7,220,968.31, but no payment was made to him. He then filed a complaint for
collection of sum of money with prayer for attachment with the Regional Trial Court,
Branch 171, Valenzuela City.

- Arco Pulp and Paper filed its answer but failed to have its representatives attend the
pre-trial hearing. Hence, the trial court allowed Dan T. Lim to present his evidence ex
parte.

- Petitioners argue that there is no legal basis to hold petitioner Candida A. Santos
personally liable for the transaction that petitioner corporation entered into with
respondent.

- Court of Appeals ruled that in petitioners are solidarily liable since petitioner Candida
A. Santos was "the prime mover for such outstanding corporate liability.”

Issue:
 1. Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper Co.,
Inc.

Ruling:
- In the present case, the court finds bad faith on the part of the petitioners when
they unjustifiably refused to honor their undertaking in favor of the respondent.
After the check in the amount of P1,487,766.68 issued by Santos was
dishonored for being drawn against a closed account, the petitioner corporation
denied any privity with respondent. These acts prompted the respondent to avail
of the remedies provided by law in order to protect his rights.

- Petitioner Candida A. Santos is solidarily liable with petitioner corporation

and the corporate veil may be pierced.
o This case is an exception to Section 31 of the Corporation Code1 because
it is used as a means to perpetrate fraud or an illegal act, or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, or
to confuse legitimate issues.
- Before a director or officer of a corporation can be held personally liable
for corporate obligations, however, the following requisites must concur:
o (1) the complainant must allege in the complaint that the director or
officer assented to patently unlawful acts of the corporation, or that
the officer was guilty of gross negligence or bad faith; and
o (2) the complainant must clearly and convincingly prove such
unlawful acts, negligence or bad faith.

- Piercing the veil of corporate fiction is an equitable doctrine developed to address

situations where the separate corporate personality of a corporation is abused or
used for wrongful purposes.
o Under the doctrine, the corporate existence may be disregarded where the
entity is formed or used for non-legitimate purposes, such as to evade a
just and due obligation, or to justify a wrong, to shield or perpetrate fraud
or to carry out similar or inequitable considerations, other unjustifiable
aims or intentions, in which case, the fiction will be disregarded and the
individuals composing it and the two corporations will be treated as
identical

1
Directors or trustees who wilfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the affairs of
the corporation or acquire any personal or pecuniary interest in conflict with their duty as such
directors or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons.
Livesey vs Binswanger Philippines Inc.
G.R. No. 177493 March 19, 2014

Facts:

- In December 2001, petitioner Eric Godfrey Stanley Livesey filed a complaint for
illegal dismissal with money claims against CBB Philippines Strategic Property
Services, Inc. (CBB), a domestic corporation engaged in real estate brokerage
and Paul Dwyer, CBB’s president.
- Thereafter, the parties entered into a compromise agreement which LA Reyno
approved, that stated that Livesey was to receive US$31,000.00 broken down
into US$13,000.00 to be paid by CBB to Livesey or his authorized representative
upon the signing of the agreement.
- The agreement further provided that unless and until the agreement is fully
satisfied, CBB shall not:
o (1) sell, alienate, or otherwise dispose of all or substantially all of its assets
or business;
o (2) suspend, discontinue, or cease its entire, or a substantial portion of its
business operations;
o (3) substantially change the nature of its business; and
o (4) declare bankruptcy or insolvency.
- CBB paid Livesey the initial amount of US$13,000.00, but not the next two
installments as the company ceased operations.
- In reaction, Livesey moved for the issuance of a writ of execution which LA
Eduardo G. Magno granted but was not enforced. Livesey then filed a motion for
the issuance of an alias writ of execution, alleging that in the process of serving
respondents the writ.
- He learned “that respondents, in a clear and willful attempt to avoid their liabilities
to complainant . . . have organized another corporation, [Binswanger] Philippines,
Inc.” and that there was evidence showing that CBB and Binswanger Philippines,
Inc. (Binswanger) are one and the same corporation, pointing out that CBB
stands for Chesterton Blumenauer Binswanger. Invoking the doctrine of piercing
the veil of corporate fiction, Livesey prayed that an alias writ of execution be
issued against respondents Binswanger and Keith Elliot, CBB’s former President,
and now Binswanger’s President and Chief Executive Officer (CEO)

Issue:

1. Whether or not the doctrine of piercing the corporate veil may be applied.

Ruling:
- A corporation, by legal fiction and convenience, is an entity shielded by a
protective mantle but the shield is not at all times impenetrable and cannot be
extended to a point beyond its reason and policy. Circumstances might deny a
claim for corporate personality, under the “doctrine of piercing the veil of
corporate fiction.”
 - In the present case, we see an indubitable link between CBB’s closure and
Binswanger’s incorporation.
- CBB ceased to exist only in name; it re-emerged in the person of Binswanger for
an urgent purpose which was to avoid payment by CBB of the last two
installments of its monetary obligation to Livesey, as well as its other financial
liabilities. F
- Freed of CBB’s liabilities, especially that owing to Livesey, Binswanger can
continue, as it did continue, CBB’s real estate brokerage business
- The Court therefore finds Elliot as liable as Binswanger for CBB 's unfulfilled
obligation to Livesey.

G.R. No. 182398 July 20, 2010

BENNY Y. HUNG, Petitioner,

vs.
BPI CARD FINANCE CORP. Respondent.

Facts:

- Guess Footwear and BPI Express Card Corporation entered into two merchant
agreements. Guess Footwear agreed to honor validly issued BPI Express Credit
Cards presented by cardholders in the purchase of its goods and services.
- In the first agreement, petitioner Benny Hung signed as owner and manager of
Guess Footwear. He signed the second agreement as president of Guess
Footwear which he also referred to as B & R Sportswear Enterprises.
- This instant petition for review by certiorari assails the Decision of the Court of
Appeals finding petitioner Benny Hung liable to respondent BPI Card Finance
Corporation for the satisfaction of the RTC decision against B & R Sportswear
Distributor, Inc.
- From May 1997 to January 1999, respondent BPI mistakenly credited, through
three hundred fifty-two (352) checks, Three Million Four Hundred Eighty Thousand
Four Hundred TwentySeven Pesos and 23/100 (P3,480,427.23) to the account of
Guess Footwear.
- When informed of the overpayments, petitioner Benny Hung transferred
P963,604.03 from the bank account of B & R Sportswear Enterprises to BPIs
account as partial payment. · In a letter dated 27 September 1999, BPI demanded
the balance payment amounting P2,516,826.68 but Guess Footwear failed to pay.
- BPI filed a collection suit before the RTC of Makati City naming as defendant B &
R Sportswear Distributor, Inc. Although the case was against B & R Sportswear
Distributor, Inc., it was B & R Footwear Distributors, Inc., that filed an answer,
appeared and participated in the trial.
- RTC rendered a decision ordering defendant B & R Sportswear Distributor, Inc.,
to pay the plaintiff (BPI) P2,516,826.68 with 6% interest from 4 October 1999. The
RTC ruled that the overpayment of P3,480,427.43 was proven by checks credited
 to the account of Guess Footwear and the P963,604.03 partial payment proved
that defendant ought to pay P2,516,826.68 more.
- During the execution of judgment, it was discovered that B & R Sportswear
Distributor, Inc., is a nonexisting entity. Thus, the trial court failed to execute the
judgment. Consequently, respondent filed a Motion to pierce the corporate veil of
B & R Footwear Distributors, Inc. to hold its stockholders and officers, including
petitioner Benny Hung, personally liable.

Issue:

- Whether or not the veil of corporate fiction may be pierced

Ruling:
- Yes, the petitioner is liable
- In any event, we have said that whether the separate personality of a corporation
should be pierced hinges on facts pleaded and proved. In seeking to pierce the
corporate veil of B & R Footwear Distributors, Inc., respondent complained of
deceit, bad faith and illegal scheme/maneuver. As stated earlier, respondent has
abandoned such accusation.
- To hold an officer personally liable for the debts of the corporation, and thus
pierce the veil of corporate fiction, it is necessary to clearly and convincingly
establish the bad faith or wrongdoing of such officer, since bad faith is never
presumed.

G. R. No. 164317 February 6, 2006

ALFREDO CHING, Petitioner,

vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-
VILLAVERT, JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila,
Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE
PHILIPPINES, Respondents.

Facts:
- On Sept-Oct 1980: PBMI, through Ching, Senior VP of Philippine Blooming Mills,
Inc. (PBMI), applied with the Rizal Commercial Banking Corporation (RCBC) for
the issuance of commercial letters of credit to finance its importation of assorted
goods.
- RCBC approved the application, and irrevocable letters of credit were issued in
favor of Ching. The goods were purchased and delivered in trust to PBMI.
- Ching signed 13 trust receipts as surety, acknowledging delivery of the goods
Under the receipts, Ching agreed to hold the goods in trust for RCBC, with
authority to sell but not by way of conditional sale, pledge or otherwise In case
such goods were sold, to turn over the proceeds thereof as soon as received, to
 apply against the relative acceptances and payment of other indebtedness to
respondent bank.
- In case the goods remained unsold within the specified period, the goods were to
be returned to RCBC without any need of demand. goods, manufactured
products or proceeds thereof, whether in the form of money or bills, receivables,
or accounts separate and capable of identification - RCBC’s property When the
trust receipts matured, Ching failed to return the goods to RCBC, or to return
their value amounting toP6,940,280.66 despite demands.

Issue:
- W/N Ching should be held criminally liable.

Ruling:
- Ching’s being a Senior Vice-President of the Philippine Blooming Mills does not
exculpate him from any liability.
- There is no dispute that it was the Ching executed the 13 trust receipts. The law
points to him as the official responsible for the offense. Since a corporation
CANNOT be proceeded against criminally because it CANNOT commit crime in
which personal violence or malicious intent is required, criminal action is limited
to the corporate agents guilty of an act amounting to a crime and never against
the corporation itself.
- The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa
under paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with
abuse of confidence. It may be committed by a corporation or other juridical
entity or by natural persons. However, the penalty for the crime is imprisonment
for the periods provided in said Article 315
o If the crime is committed by a corporation or other juridical entity, the
directors, officers, employees or other officers thereof responsible for the
offense shall be charged and penalized for the crime, precisely because of
the nature of the crime and the penalty therefor.
o law specifically makes the officers, employees or other officers or persons
responsible for the offense, without prejudice to the civil liabilities of such
corporation and/or board of directors, officers, or other officials or
employees responsible for the offense

G.R. No. 174938 October 1, 2014

GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,

vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS,
RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C.
RAMOS, Respondents.
Facts
- BF Corporation filed a collection complaint with the RTC against Shangri-La and
the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco,
Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C.
Ramos.
- In its complaint, BF Corp alleged that on December 11, 1989 and May 30, 1991,
it entered into agreements with Shangri-La wherein it undertook to construct for
Shangri-La a mall and a multilevel parking structure along EDSA. Shangri-La had
been consistent in paying BF Corporation in accordance with its progress billing
statements. However, by October 1991, Shangri-La started defaulting in
payment.
- BF Corporation eventually completed the construction of the buildings. Shangri-
La allegedly took possession of the buildings while still owing BF Corporation an
outstanding balance.
- Shangri-La’s directors were in bad faith in directing Shangri-La’s affairs.
Therefore, they should be held jointly and severally liable with Shangri-La for its
obligations as well as for the damages that BF Corporation incurred as a result of
Shangri-La’s default.
-
- Corporate representatives may be compelled to submit to arbitration proceedings
pursuant to a contract entered into by the corporation they represent if there are
allegations of bad faith or malice in their acts representing the corporation.
- The Court of Appeals affirmed the trial court's decision holding that petitioners, as
director, should submit themselves as parties tothe arbitration proceedings
between BF Corporation and Shangri-La Properties, Inc.

Issue

- Whether or not the veil of corporate fiction may be pierced

Ruling

- Piercing the corporate veil is warranted when "[the separate personality of a

corporation] is used as a means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, or
to confuse legitimate issues." It is also warranted in alter ego cases "where a
corporation is merely a farce since it 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."
- Hence, when the directors, as in this case, are impleaded in a case against a
corporation, alleging malice or bad faith on their part in directing the affairs of the
corporation, complainants are effectively alleging that the directors and the
corporation are not acting as separate entities.
 - Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when —

1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad
faith or gross negligence in directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its stockholders or other persons;

o The first exception comes from Section 31 of the Corporation Code2

2. He consents to the issuance of watered stocks or who, having knowledge

thereof, does not forthwith file with the corporate secretary his written
objection thereto;

3. He agrees to hold himself personally and solidarily liable with the

corporation; or

4. He is made, by a specific provision of law, to personally answer for his

corporate action.

- Because BF Corporation failed to prove the existence of circumstances that

render petitioners and the other directors solidarily liable. It ruled that petitioners
and Shangri-La’s other directors were not liable for the contractual obligations of
Shangri-La to BF Corporation.

2
Directors or trustees who wilfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the affairs of
the corporation or acquire any personal or pecuniary interest in conflict with their duty as such
directors or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons.