Friday, April 22, 2016


 Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)


The Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation (Macris). PNEI provided transportation services to the public, and had its bus terminal at the corner of Quezon and Roosevelt Avenues in Quezon City. The terminal stood on four valuable pieces of real estate (known as Pantranco properties) registered under the name of Macris.  The Gonzales family later incurred huge financial losses despite attempts of rehabilitation and loan infusion. In March 1975, their creditors took over the management of PNEI and Macris. By 1978, full ownership was transferred to one of their creditors, the National Investment Development Corporation (NIDC), a subsidiary of the PNB.

In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by Gregorio Araneta III. In 1986, PNEI was among the several companies placed under sequestration by the Presidential Commission on Good Government (PCGG) shortly after the historic events in EDSA. In January 1988, PCGG lifted the sequestration order to pave the way for the sale of PNEI back to the private sector through the Asset Privatization Trust (APT). APT thus took over the management of PNEI.

In 1992, PNEI applied with the Securities and Exchange Commission (SEC) for suspension of payments. A management committee was thereafter created which recommended to the SEC the sale of the company through privatization. As a cost-saving measure, the committee likewise suggested the retrenchment of several PNEI employees. Eventually, PNEI ceased its operation. Along with the cessation of business came the various labor claims commenced by the former employees of PNEI where the latter obtained favorable decisions.


Whether or not PNEI employees can attach the properties (specifically the Pantranco properties) of PNB, PNB-Madecor and Mega Prime to satisfy their unpaid labor claims against PNEI?



First, the subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the records was it shown that PNEI owned the Pantranco properties.

the settled rule that the power of the court in executing judgments extends only to properties unquestionably belonging to the judgment debtor alone.  To be sure, one mans goods shall not be sold for another mans debts.  A sheriff is not authorized to attach or levy on property not belonging to the judgment debtor, and even incurs liability if he wrongfully levies upon the property of a third person.

Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from that of PNEI. PNB is sought to be held liable because it acquired PNEI through NIDC at the time when PNEI was suffering financial reverses. PNB-Madecor is being made to answer for petitioners labor claims as the owner of the subject Pantranco properties and as a subsidiary of PNB. Mega Prime is also included for having acquired PNBs shares over PNB-Madecor.

The general rule is that a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected.  This is a fiction created by law for convenience and to prevent injustice.  Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI are corporations with their own personalities.

Neither can we merge the personality of PNEI with PNB simply because the latter acquired the former. Settled is the rule that 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. 

Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to warrant the piercing of the corporate veil,   none applies in the present case whether between PNB and PNEI; or PNB and PNB-Madecor.

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