G.R. No. 184819, 29 November 2017

FACTS:

Veteran’s Federation of the Philippines (VFP) is a national federation of associations of Filipino war veterans created in 1960. In 1967, through the government’s Proclamation No. 192, VFP was able to obtain control and possession of a vast parcel of land located in Taguig. VFP eventually developed said land into an industrial complex, which is now known as the VFP Industrial Area (VFPIA). VFP Management and Development Corporation (VMDC), on the other hand, is a private management company.

VFP entered into a management agreement with VMDC. Under the said agreement, VMDC was to assume exclusive management and operation of the VFPIA in exchange for forty percent (40%) of the lease rentals generated from the area. In managing and operating the VFPIA, VMDC hired its own personnel and employees. Among those hired by VMDC were respondents.

The management agreement between VFP and VMDC had a term of five (5) years and is renewable for another five (5) years. Subsequently, both parties acceded to extend the agreement.The agreement was again extended by VFP and VMDC albeit only on a month-to-month basis.

Then, in November 1999, the VFP board passed a resolution terminating the management agreement effective December 31, 1999. VMDC conceded to the termination and eventually agreed to turn over to VFP the possession of all buildings, equipment and other properties necessary to the operation of the VFPIA.

On January 3, 2000, the President of VMDC issued a memorandum informing the company’s employees of the termination of their services effective at the close of office hours on January 31, 2000 in view of the termination of the management agreement.On January 31, 2000, VMDC dismissed all of its employees and paid each his or her separation pay.

ISSUE:

Whether the doctrine of piercing the veil of corporate fiction applies to the case.

RULING:

No. The doctrine of piercing the veil of corporate fiction is a legal precept that allows a corporation’s separate personality to be disregarded under certain circumstances, so that a corporation and its stockholders or members, or a corporation and another related corporation could be treated as a single entity. The doctrine is an equitable principle, it being meant to apply only in situations where the separate corporate personality of a corporation is being abused or being used for wrongful purposes.

Piercing the veil of corporate entity is resorted to when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend a crime. It is done only when a corporation is a mere alter ego or business conduit of a person or another corporation.

Test to determine when it would be proper to apply the doctrine of piercing the veil of corporate fiction:

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 plaintiff’s 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.

*Case digest by Teonilo M. Bagalanon Jr., JD – 4, Andres Bonifacio College, SY 2019 – 2020