CORP CASE DIGEST FOR June 26, 2014

G.R. No. 157549 May 30, 2011

DONNINA C. HALLEY, Petitioner, vs. PRINTWELL, INC., Respondent.
BY: Athena Santos
FACTS:
BMPI (Business Media Philippines Inc.) is a corporation under the control of its
stockholders, including Donnina Halley. In the course of its business, BMPI commissioned
PRINTWELL to print Philippines, Inc. (a magazine published and distributed by BMPI).
PRINTWELL extended 30-day credit accommodation in favor of BMPI and in a period of 9 mos.
BMPI placed several orders amounting to 316,000.
However, only 25,000 was paid hence a balance of 291,000. PRINTWELL sued BMPI for collection of
the unpaid balance and later on impleaded BMPIs original stockholders and incorporators to
recover on their unpaid subscriptions.

It appears that BMPI has an authorized capital stock of 3M divided into 300,000
shares with P10 par value. Only 75,000 shares worth P750,000 were originally subscribed of which
P187,500 were paid up capital. Halley subscribed to 35,000 shares worth P350,000 but only paid
P87,500.

Halley contends that:
1. They all had already paid their subscriptions in full
2. BMPI had a separate and distinct personality
3. BOD and SH had resolved to dissolve BMPI

RTC and CA:
Defendant merely used the corporate fiction as a cloak/cover to create an injustice (against
PRINTWELL). Rejected allegations of full payment in view of irregularity in the issuance of ORs
Payment made on a later date was covered by an OR with a lower serial number than payment
made on an earlier date).

Doctrine of Limited Liability (b. Cases)

ISSUE: Whether or not petitioner Donnina Halley is personally liable though she submits she had no
participation in the transaction between BMPI and Printwell and that BMPI acted on its own.

HELD:
Yes. Although a corporation has a personality separate and distinct from those of its
stockholders, directors, or officers,

such separate and distinct personality is merely a fiction created
by law for the sake of convenience and to promote the ends of justice.

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. As
a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to the
contrary appears. Thus, the courts always presume good faith, and for that reason accord prime
importance to the separate personality of the corporation, disregarding the corporate personality
only after the wrongdoing is first clearly and convincingly established.

It thus behooves the courts
to be careful in assessing the milieu where the piercing of the corporate veil shall be done.
Although nowhere in Printwells amended complaint or in the testimonies Printwell offered
can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege
on its obligation to pay; or that she induced Printwell to extend the credit accommodation by
misrepresenting the solvency of BMPI to Printwell, her personal liability, together with that of her
co-defendants, remained because the CA found her and the other defendant stockholders to be in
charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred.

In the case at bench, it is undisputed that BMPI made several orders on credit from appellee
PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the
total amount of P291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by
appellants stockholders that they owe(d) appellee the amount of P291,342.76. The said goods
were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well
as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time
that appellants stockholders were in charge of the operation of BMPI despite the fact that they were
not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In
view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order
to protect its right can collect from the appellants stockholders regarding their unpaid
subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on
where to assert their right to collect from BMPI since the stockholders who are appellants herein
are availing the defense of corporate fiction to evade payment of its obligations.

Both the RTC and the CA applied the trust fund doctrine against the defendant stockholders,
including the petitioner. The trust fund doctrine enunciates a
xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such
property can be called a trust fund only by way of analogy or metaphor. As between the
corporation itself and its creditors it is a simple debtor, and as between its creditors and
stockholders its assets are in equity a fund for the payment of its debts.

SC clarified that the trust fund doctrine is not limited to reaching the stockholders unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only
the capital stock, but also other property and assets generally regarded in equity as a trust fund for
the payment of corporate debts.

All assets and property belonging to the corporation held in trust
for the benefit of creditors that were distributed or in the possession of the stockholders, regardless
of full payment of their subscriptions, may be reached by the creditor in satisfaction of its claim.

Also, under the trust fund doctrine, a corporation has no legal capacity to release an original
subscriber to its capital stock from the obligation of paying for his shares, in whole or in part,
without a valuable consideration, or fraudulently, to the prejudice of creditors.

The creditor is
allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of
the corporation for the satisfaction of its debt.

To make out a prima facie case in a suit against
stockholders of an insolvent corporation to compel them to contribute to the payment of its debts
by making good unpaid balances upon their subscriptions, it is only necessary to establish that the
stockholders have not in good faith paid the par value of the stocks of the corporation.

Doctrine of Piercing the Veil of Corporate Fiction

ISSUE: Whether or not the CA erred in affirming the decision of the RTC which essentially allowed
the piercing of the Veil of Corporate Fiction.

HELD:
No. Settled is the rule that when the veil of corporate fiction is used as a means of
perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievements or perfection of monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and isolates the corporation
from the members or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals (First Philippine International Bank vs. Court of Appeals,
252 SCRA 259). Moreover, under this 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 obligations
or to justify wrong (Claparols vs. CIR, 65 SCRA 613).

Although a corporation has a personality separate and distinct from those of its
stockholders, directors, or officers,

such separate and distinct personality is merely a fiction created
by law for the sake of convenience and to promote the ends of justice.

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. As
a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to the
contrary appears. Thus, the courts always presume good faith, and for that reason accord prime
importance to the separate personality of the corporation, disregarding the corporate personality
only after the wrongdoing is first clearly and convincingly established.

It thus behooves the courts
to be careful in assessing the milieu where the piercing of the corporate veil shall be done.
Although nowhere in Printwells amended complaint or in the testimonies Printwell offered
can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege
on its obligation to pay; or that she induced Printwell to extend the credit accommodation by
misrepresenting the solvency of BMPI to Printwell, her personal liability, together with that of her
co-defendants, remained because the CA found her and the other defendant stockholders to be in
charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred, to
wit:

In the case at bench, it is undisputed that BMPI made several orders on credit from appellee
PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the
total amount of P291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by
appellants stockholders that they owe(d) appellee the amount of P291,342.76. The said goods
were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well
as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time
that appellants stockholders were in charge of the operation of BMPI despite the fact that they were
not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In
view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order
to protect its right can collect from the appellants stockholders regarding their unpaid
subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on
where to assert their right to collect from BMPI since the stockholders who are appellants herein
are availing the defense of corporate fiction to evade payment of its obligations.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification
the decision promulgated on August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the
sum of P262,500.00, plus interest of 12% per annum to be computed from February 8, 1990 until
full payment.
Gold Line Tours Inc. vs. Heirs of Maria Concepcion Lacsa
By: Mitzi Hizon
Facts: Ma. Concepcion Lacsa and Miriam Lacsa boarded a Goldline Passenger Bus. It was owned and
operated by Travel and Tours Advisers Inc. They were in route from Sorsogon to Cubao, Quezon City.
The Goldline busd, driven by Abania, collided with a Jeepney driven by Belbis. As a result, a metal part of
the jeepney was detached and struck Concepcion in the chest causing her instant death. Concepcionss
heirs, represented by Teodoro Lacsa, instituted in RTC a suit against Travel and Tours Advisers Inc. and
Abania to recover damages from breach of contract of carriage.
RTC ruled that plaintiffs are entitled to damages and ordered Travel and Tours to pay plaintiffs expenses.
The trial court found that there was a contract of carriage forged between Concepcion and Travel and
Tours Advisers Inc. TTAI had been negligent in performance of its obligation.
CA dismissed the appeal for failure of defendants to pay docket and other lawful fees. Plaintiffs moved
for the writ of execution. Travel and Tours Advisers bus was levied pursuant to the writ of execution.
Petitioner, Gold line Tours Inc., submitted a verified third party claiming that the bus be returned
because it was the owner.
RTC dismissed 3
rd
party claim claiming that Goldline and Travel and Tours Advisers Inc. are the same
company.
Issue: Whether or not RTC acted without jurisdiction or committed grave abuse of discretion amounting
to lack of jurisdiction in dismissing third party claim.
Held: SC held that two companies are one and the same, hence the levy of the bus in question was
proper. The RTC thus rightly ruled that petitioner might not be shielded from liability under the final
judgement through the use of the doctrine of separate corporate identity. Thus, the contention of the
third party claimant that Travel and Tours Advises Inc and Goldline are two separate corporation with
separate juridical personalities cannot prosper.
SIAIN ENTERPRESIS VS CUPERTINO REALTY CORP AND EDWIN R CATACUTAN
By: Dianne Cruz
Facts:
- Petitioner (Siain) executed 2 PNs and REMs in favor of respondent (Cupertino). All were
signed by their respective presidents Cua Le Leng for Siain and Wilfredo Lua for
Cupertino.
- The first set of PN and REM were dated April 10, 1995 wherein the PN authorizes
Cupertino to place in escrow loan proceeds of P37million with MBTC to pay off
petitioners obligation to DBP. This was secured by the REM. 2 days later the PN was
amended to include the interest of 17% p.a.
- The second set of PN and REM (amended from the first REM) was dated Aug. 16, 1995
for the amount of P160million, on this second PN the Cua Le Leng signed as a co-maker.
The amended REM reflected the updated total obligation of P197million of Siain to
Cupertino.
- However, on Mar. 11, 1996 petitioner demanded from Cupertino the release of the loan
proceeds of P160million. Cupertino denied this and maintained that the proceeds had
long been obtained by petitioner.
- Cupertino instituted an extra judicial foreclosure over the properties subject of the
amended REM; auction sale was scheduled on Oct. 11, 1996 with respondent Notary
Public Edwin Catacutan. Petitioner filed a complaint with TRO to enjoin Notary Public
Edwin Catacutan from proceeding with the public auction. RTC initially declared the
auction sale as null and void.
- Subsequently after Cupertino filed its answer the RTC recalled and set aside the order of
declaring the auction sale as null and void and ruled in favor of the respondent; which
was affirmed by the CA.
- Records show that various debit memos, checks, pledges of jewelries, condominium
units, trucks and other components were issued to petitioner and its affiliate
corporations as well to its president Cua Le Leng and her common law spouse Alberto
Lim by respondent and its president Wilfredo Lua and his wife Vicky Lua.
- Thus the lower courts applied the doctrine of piercing the veil of the corporate entity
in ruling in favor of the respondents.
Issue:
WON the RTC and CA erred in applying the doctrine of piercing the veil of corporate entity

Held:
No.
While it is true that the stockholders have a distinct and separate personality as to that of the
corporation; this is not an absolute rule. The distinct personality of the corporation may be disregarded
and the veil of corporate fiction pierced when the notion of legal entity is used to defeat public
convience, justify wrong, protect fraud, or defend crime.
Cupertino presented overwhelming evidence that petitioner and its affiliate corporations had
received the proceeds of the P160million loan.
Checks, debit memos, pledges of jewelries, condo units and trucks were constituted not
exclusively in the name Siain but also either in the name of Yuyek Manufacturing Corporation, Siain
Transport Inc., Cua Le Leng and Alberto Lim is of no moment. The fact remains that these companies are
alter ego of its president Cua Le Leng, it is established in the court that:
- Siain and Yuyek have a common set of incorporators
- Have the same internal bookkeeper and accountant
- Same office address
- Same majority stockholder and president (in the person of Cua Le Leng)
- In Siain Transport, Cua Le Leng has the unlimited authority by and on herself, without
authority from the Board of Directors, to use the fund
- In the case of Alberto Lim as Cua Le Lengs common law spouse all the debit memos and
check issued in his name were was actually for the account of Cua Le Leng.

If the general rule of the corporation has a distinct and separate personality from its stockholders
were applied to this case it will result to injustice and evasion of a valid obligation. The obligation
incurred and/or the transactions entered into either by Yuyek, or by Siain Trucking, or by Cua Le Leng or
by Alberto Lim with Cupertino are deemed to be that of the petitioner itself.
The same principle applies to Cupertino, while it can be seen that the debit memos and checks were
issued on the same date as the incorporation of Cupertino. It does not affect the validity of the subject
transactions entered into by Cupertino Realty Corporation, it being a mere alter ego of its president
Wilfredo Lua, are deemed to be the latters personal transaction and vice versa.
G.R. No. 166282 February 13, 2013
HEIRS OF FE TAN UY (Represented by her heir, Mauling Uy Lim)
vs.
INTERNATIONAL EXCHANGE BANK
x - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 166283
GOLDKEYDEVELOPMENT CORPORATION
vs.
INTERNATIONAL EXCHANGE BANK

By: Kenneth David

FACTS:

From June 23, 1997 to September 3, 1997, respondent International Exchange Bank (iBank), granted loans
to Hammer Garments Corporation (Hammer), covered by promissory notes and deeds of assignment,
amounting to P24,938,898.08
On March 23, 1996, 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 P 9 Million-Peso Real Estate Mortgage executed on July 1, 1997 by Goldkey
Development Corporation (Goldkey) over several of its properties and a P 25 Million-Peso Surety
Agreement signed by Chua and his wife, Fe Tan Uy (Uy), on April 15, 1996.
As of October 28, 1997, Hammer had an outstanding obligation of P25,420,177.62 to iBank.
Hammer defaulted on its loans with iBank, which prompted the latter to foreclose on Goldkeys third-party
REM.
The mortgaged properties were sold for P12,000,000.00, which left a balance of P13,420,177.62.
On December 16, 1997, iBank filed a complaint for collection for sum of money against Hammer, Chua, Uy,
and Goldkey before the RTC Makati.
Chua and Hammer were in default for not filing an answer.
Uy on the other had claimed the defense that she was not liable to iBank since she never executed a surety
agreement in favor of iBank.
Goldkey, denied liability also on the ground that it acted as a third-party mortgagor and that its corporation
was separate and distinct from Hammer.
iBank filed for a Writ of Preliminary Attachment, which was latter granted.
The RTC ruled in favor of iBank, but pronounced that the signature of Uy was forged. However, the lower
court also held that Hammer and Goldkey were one and the same entity. Hence, the piercing of the veil of
corporate fiction was granted.
The CA affirmed the ruling of the RTC

ISSUES:

1. Whether or not Uy can be held liable to iBank for the loan obligation of Hammer as an officer and
stockholder of the said corporation.
2. Whether or not Goldkey can be held liable for the obligation of Hammer for being a mere alter ego of the
latter.


RULING:
The petitions are partly meritorious.

First Issue

No, Uy is not personally liable to iBank as an officer and stockholder of Hammer. The court found that her
signature on the said surety agreement was forged. Basic is the rule in corporation law that a corporation is a juridical
entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and, in
general, from the people comprising it. Following this principle, obligations incurred by the corporation, acting through
its directors, officers and employees, are its sole liabilities. A director, officer or employee of a corporation is generally
not held personally liable for obligations incurred by the corporation. Nevertheless, this legal fiction may be
disregarded if 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: (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 (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.
Sec. 31. Liability of directors, trustees or officers. 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.

Considering that the only basis for holding Uy liable for the payment of the loan was proven to be a falsified
document, there was no sufficient justification for the RTC to have ruled that Uy should be held jointly and severally
liable to iBank for the unpaid loan of Hammer. Neither did the CA explain its affirmation of the RTCs ruling against
Uy. The Court cannot give credence to the simplistic declaration of the RTC that liability would attach directly to Uy
for the sole reason that she was an officer and stockholder of Hammer.

Indeed, there is no showing that Uy committed gross negligence. And in the absence of any of the
aforementioned requisites for making a corporate officer, director or stockholder personally liable for the obligations of
a corporation, Uy, as a treasurer and stockholder of Hammer, cannot be made to answer for the unpaid debts of the
corporation.


SECOND ISSUE

Yes, Goldkey was a mere alter ego of Hammer. Goldkey must be treated as one and the same entity with
Hammer. The records clearly show that it was Hammer, of which Chua was the president and a stockholder, which
contracted a loan from iBank.

Under a variation of the doctrine of piercing the veil of corporate fiction, when two business enterprises
are owned, conducted and controlled by the same parties, both law and equity will, when necessary to
protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and
treat them as identical or one and the same.

The two companies were proved to be one and the same by the following:

1. Both corporations are family corporations of defendants Manuel Chua and his wife Fe Tan Uy. The other
incorporators and shareholders of the two corporations are the brother and sister of Manuel Chua (Benito
Ng Po Hing and Nenita Chua Tan) and the sister of Fe Tan Uy, Milagros Revilla. The other
incorporator/share holder is Manling Uy, the daughter of Manuel Chua Uy Po Tiong and Fe Tan Uy.
2. Hammer Garments and Goldkey share the same office and practically transact their business from the same
place.
3. Defendant Manuel Chua is the President and Chief Operating Officer of both corporations. All business
transactions of Goldkey and Hammer are done at the instance of defendant Manuel Chua who is authorized
to do so by the corporations.
4. The promissory notes subject of this complaint are signed by him as Hammers President and General
Manager. The third-party real estate mortgage of defendant Goldkey is signed by him for Goldkey to secure
the loan obligation of Hammer Garments with plaintiff "iBank". The other third-party real estate mortgages
which Goldkey executed in favor of the other creditor banks of Hammer are also assigned by Manuel Chua.
5. The assets of Goldkey and Hammer are co-mingled. The real properties of Goldkey are mortgaged to
secure Hammers obligation with creditor banks.