LUXURIA HOMES INC VS CA (1999)

FACTS:
Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In 1989, she
entered into an agreement with Jaime Bravo for the latter to draft a development and
architectural design for the said property. The contract price was P450,000.00. Posadas
gave a down payment of P25,000.00. Later, Posadas assigned her property to Luxuria
Homes, Inc. One of the witnesses to the deed of assignment and articles of incorporation
was Jaime Bravo.
In 1992, Bravo finished the architectural design so he proposed that he and his company
manage the development of the property. But Posadas turned down the proposal and
thereafter the business relationship between the two went sour. Bravo then demanded
Posadas to pay them the balance of their agreement as regards the architectural design
(P425k). Bravo also demanded payment for some other expenses and fees he incurred i.e.,
negotiating and relocating the informal settlers then occupying the land of Posadas.
Posadas refused to make payment. Bravo then filed a complaint for specific performance
against Posadas but he included Luxuria Homes as a co-defendant as he alleged that
Luxuria Homes was a mere conduit of Posadas; that the said corporation was created in
order to defraud Bravo and avoid the payment of debt.
ISSUE: Whether or not Luxuria Homes should be impleaded.
HELD: No. It was Posadas who entered into a contract with Bravo in her personal capacity.
Bravo was not able to prove that Luxuria Homes was a mere conduit of Posadas. Posadas
owns just 33% of Luxuria Homes. Further, when Luxuria Homes was created, Bravo was
there as a witness. So how can he claim that the creation of said corporation was to
defraud him. The eventual transfer of Posadas’ property to Luxuria was with the full
knowledge of Bravo. The agreement between Posadas and Bravo was entered into even
before Luxuria existed hence Luxuria was never a party thereto. Whatever liability Posadas
incurred arising from said agreement must be borne by her solely and not in solidum with
Luxuria. To disregard the separate juridical personality of a corporation, the wrongdoing
must be clearly and convincingly established. It cannot be presumed.

MARUBENI CORPORATION, RYOICHI TANAKA, RYOHEI KIMURA and SHOICHI

ONE, petitioners, vs. FELIX LIRAG, respondent.

Facts:

Ø Petitioner Marubeni Corporation (hereafter, Marubeni) is a foreign corporation

organized and existing under the laws of Japan, doing business in the Philippines
through its duly licensed, wholly owned subsidiary, Marubeni Philippines
Corporation. Petitioners Ryoichi Tanaka, Ryohei Kimura and Shoichi One were
officers of Marubeni assigned to its Philippine branch.2
Ø January 27, 1989: Felix Lirag filed with the Regional Trial Court, Makati a
complaint3 for specific performance and damages claiming that petitioners owed him
the sum of P6,000,000.00 representing commission pursuant to an oral consultancy
agreement with Marubeni.
Ø Lirag claimed that Kimura hired his consultancy group for the purpose of obtaining
government contracts of various projects. Petitioners promised to pay him six
percent (6%) consultancy fee based on the total costs of the projects obtained.
Ø The consultancy agreement was not reduced into writing because of the mutual
trust between Marubeni and the Lirag family.
Ø In compliance with the agreement, respondent Lirag made several projects with
the government
Ø One of the projects handled by respondent Lirag, the Bureau of Post project,
amounting to P100,000,000.00 was awarded to the "Marubeni-Sanritsu
tandem."8 Despite respondent's repeated formal verbal demands for payment of the
agreed consultancy fee, petitioners did not pay.
Ø Petitioners denied the consultancy agreement. Petitioner Kimura did not have the
 authority to enter into such agreement in behalf of Marubeni. Only Mr. Morihiko
Maruyama, the general manager, upon issuance of a special power of attorney by
the principal office in Tokyo, Japan, could enter into any contract in behalf of the
corporation.

Ø Mr. Maruyama did not discuss with respondent Lirag any of the matters alleged in
the complaint, nor agreed to the payment of commission. Moreover, Marubeni did
not participate in the bidding for the Bureau of Post project, nor benefited from the
supposed project. Thus, petitioners moved for the dismissal of the complaint.

On April 29, 1993, the trial court promulgated a decision and ruled that respondent is
entitled to a commission. Respondent was led to believe that there existed an oral
consultancy agreement. Hence, he performed his part of the agreement and helped
petitioners get the project.

On May 26, 1993, petitioners interposed an appeal from the decision to the Court of
Appeals.10

After due proceedings, on October 9, 1997, the Court of Appeals promulgated a decision
affirming the decision of the trial court. The Court of Appeals ruled that preponderance of
evidence favored the existence of a consultancy agreement between the parties.

The Court of Appeals relied on the doctrine of admission by silence12 in upholding the
existence of a consultancy agreement, noting that petitioner Tanaka's reaction to
respondent's September 26, 1988 demand letter was not consistent with their claim that
there was no consultancy agreement. On the contrary, it lent credence to respondent's
claim that they had an existing consultancy agreement.

ISSUE: WHETHER OR NOT THE TWO CORPORATIONS THE SEPARATE PERSONALITY OF

THE CORPORATION CAN BE DISREGARDED.

RULING:

Assuming for the sake of argument that an oral consultancy agreement has been perfected
between the parties, respondent Lirag could not still claim fees on the project that has not
been awarded to Marubeni.

Respondent tried to justify his commission of roughly about P6,000,000.00 in the guise
that Marubeni and Sanritsu are sister corporations, thereby implying the need to pierce the
veil of corporate fiction. Respondent claimed that Marubeni as the supplier and real
contractor of the project hired and sub-contracted the project to Sanritsu.

We believe that this line of reasoning is too far-fetched. Not because two foreign
companies came from the same country and closely worked together on certain projects
would the conclusion arise that one was the conduit of the other, thus piercing the veil of
corporate fiction.

To disregard the separate juridical personality of a corporation, the wrongdoing must be

clearly and convincingly established. It cannot be presumed. The separate personality of
the corporation may be disregarded only when the To disregard the separate juridical
personality of a corporation, the wrongdoing must be clearly and convincingly established.
It cannot be presumed. corporation is used as a cloak or cover for fraud or illegality, or to
work injustice, or where necessary for the protection of creditors.30 We could not just rely
on respondent's testimony regarding the existence of the "Marubeni-Sanritsu tandem" to
justify his claim for payment of commission. This conclusion is too conjectural to be
believed.
Aside from the self-serving testimony of respondent regarding the existence of a close
working relationship between Marubeni and Sanritsu, there was nothing that would support
the conclusion that Sanritsu was an agent of Marubeni.

Contrary to the trial court's finding that petitioners led respondent to believe that they
hired respondent's services as consultant, the evidence proved otherwise. Petitioner
Shoichi One, one of the officers of Marubeni Phils., testified that at the onset, Marubeni
Phils. informed respondent that it had no authority to commit to anything, as it all
depended on the decision of the principal headquarters in Tokyo, Japan. However,
respondent Lirag insisted on providing assistance to Marubeni to get coveted government
contracts because Marubeni might encounter difficulties due to discrimination from the
government.32 Despite such knowledge, respondent said that "it's alright" with him as he
"believes Marubeni was an old time friend so he wanted to work for those
projects."33 Hence, how could petitioners be guilty of misleading respondent on the
acceptance of the latter's offer of consultancy service?

BOYER – ROXAS VS. COURT OF APPEALS

FACTS OF THE CASE

When Eugenia V. Roxas died, her heirs formed a corporation under the name and style of
Heirs of Eugenia V. Roxas, Inc. using her estate as the capital of the corporation, the
private respondent herein. It was primarily engaged in agriculture business, however it
amended its purpose to enable it to engage in resort and restaurant business. Petitioners
are stockholders of the corporation and two of the heirs of Eugenia. By tolerance, they
were allowed to occupy some of the properties of the corporation as their residence.
However, the board of directors of the corporation passed a resolution evicting the
petitioners from the property of the corporation because the same will be needed for
expansion.
At the RTC, private respondent presented its evidence averring that the subject premises
are owned by the corporation. Petitioners failed to present their evidence due to alleged
negligence of their counsel. RTC handed a decision in favor of private respondent.
Petitioners appealed to the Court of Appeals but the latter denied the petition and affirmed
the ruling of the RTC. Hence, they appealed to the Supreme Court. In their appeal,
petitioners argues that the CA made a mistake in upholding the decision of the RTC, and
that their occupancy of the subject premises should be respected because they own an
aliquot part of the corporation as stockholders, and that the veil of corporate fiction must
be pierced by virtue thereof.

ISSUE
1. Whether petitioner’s contention were correct as regards the piercing of the corporate
veil.
2. Whether petitioners were correct in their contention that they should be respected as
regards their occupancy since they own an aliquot part of the corporation.

RULING
1.Petitioner’s contention to pierce the veil of corporate fiction is untenable. As aptly held by
the court: “..The separate personality of a corporation may ONLY be disregarded when the
corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or when
necessary to achieve equity or when necessary for the protection of creditors.”
2. As regards petitioners contention that they should be respected on their occupancy by
virtue of an aliquot part they own on the corporation as stockholders, it also fails to hold
water. The court held that “ properties owned by a corporation are owned by it as an entity
separate and distinct from its members. While shares of stocks are personal property, they
do not represent property of the corporation. A share of stock only typifies an aliquot part
of the corporation’s property, or the right to share in its proceeds to that extent when
distributed according to law and equity, but its holder is not the owner of any part of the
capital of the corporation. Nor is he entitled to the possession of any definite portion of its
property or assets. The holder is not a co-owner or a tenant in common of the corporate
property.”

UNION BANK OF THE PHILIPPINES vs. COURT OF APPEALS,

FACTS:
Private respondents bid to salvage their collapsing business by seeking suspension of
payments a statutory device allowing distressed debtors to defer payment of their debts
now faces a major hindrance as petitioner challenges their recourse to said remedy.

Ø September 16, 1997: Private respondents EYCO Group of Companies

(EYCO),[1] Eulogio O. Yutingco, Caroline Yutingco-Yao, and Theresa T. Lao (the
Yutingcos), all of whom are controlling stockholders of the aforementioned
corporations, jointly filed with the SEC a Petition for the Declaration of Suspension
of Payment[s], Formation and Appointment of Rehabilitation Receiver/Committee,
Approval of Rehabilitation Plan with Alternative Prayer for Liquidation and
Dissolution of Corporations[2] alleging, that, the present combined financial condition
of the petitioners clearly indicates that their assets are more than enough to pay off
the credits but that due to factors beyond control and anticipation of the
management xxx the inability of the EYCO Group of Companies to meet the
obligations as they fall due on the schedule agreed with the [creditors] has now
become a stark reality.[3]
Ø Yutingcos justified their inclusion as co-petitioners before the SEC on the ground
that they had personally bound themselves to EYCOs creditor under a J.S.S. Clause
(Joint Several Solidary Guaranty).
Ø the SEC Hearing Panel directed the suspension of all actions, claims and
proceedings against private respondents pending before any court, tribunal, office,
board and/or commission.
Ø Meanwhile, some of private respondents creditor, composed mainly of twenty-two
(22) domestic banks (the consortium)[6] including herein petitioner Union Bank of
the Philippines,[7] also convened on September 19, 1997 for the purpose of deciding
their options in the event that private respondents invoke the provisions of
Presidential Decree No. 902-A, as amended.
Ø Without notifying the members of the consortium, petitioner,decided to break away
from the group by suing private respondents in the regular courts.
Ø Aside from commencing suits in the regular courts, petitioner also vehemently
opposed private respondents petition for suspension of payments in the SEC by
filing a Motion to Dismiss. It contended that the SEC was bereft of jurisdiction over
 such petition on the ground that the inclusion of the Yutingcos in the petition cannot
be allowed since the authority and power of the Commission under the (sic) virtue
of [the] law applies only to corporations, partnership[s] and other forms of
associations, and not to individual petitioners who are not clearly covered by P.D.
902-A as amended. According to petitioner, what should have been applied instead
was the provision on suspension of payments under Act No. 1956, otherwise known
as the Insolvency Law, which mandated the filing of the petition in the Regional
Trial Court and not in the SEC.

Issue:

Whether the SEC can validly acquire jurisdiction over a petition for suspension of
payments filed pursuant to Section 5(d) of P.D. No. 902 A, as amended, when such
petition joins as co-petitioners the petitioning corporate entities AND individual
stockholders thereof; and

Ruling:
As state earlier, it is precisely on the basis of above provision that petitioner now avers
that the SEC cannot validly entertain private respondents petition for suspension of
payments. Its reason is that the law vesting jurisdiction upon the SEC to hear petitions of
this kind limits itself to petitions filed only by corporations, partnerships or
associations. Petitioner thus asserts that the petition filed by private respondents with the
SEC should have been dismissed because it was not such a kind of petition filed solely by
corporations when it impleaded as co-petitioners the Yutingcos who are individual persons
upon whom said body cannot acquire jurisdiction.
We fully agree with petitioner in contending that the SECs jurisdiction on matters of
suspension of payments is confined only to those initiated by corporations, partnerships or
associations.
Very recently, we reiterated said pronouncements in Modern Paper Products, Inc. et
al., v. Court of Appeals, et al.,[33] viz.:

The Court of Appeal was correct in concluding that the SEC lacked or exceeded its
jurisdiction when it included the Co spouses under a state of suspension of payments
together with MPPI. x x x

It is axiomatic that jurisdiction is conferred by the Constitution or by law. It is indubitably

clear from the aforequoted Section 5 (d) that only corporations, partnerships, and
associations --- NOT private individuals --- can file with the SEC petitions to be declared in
a state of suspension of payments. It logically follows that the SEC does not have
jurisdiction to entertain petitions for suspension of payments filed by parties other than
corporations, partnerships or associations. x x x [Underscoring supplied].

Notwithstanding the foregoing conclusions, this Court, however, does not subscribe to the
theory espoused by petitioner that the case filed by private respondents should be
dismissed outright in its entirety. The reason is that while it is true that the SEC cannot
acquire jurisdiction over an individual filing a petition for suspension of payments together
with a corporate entity, a closer scrutiny of Chung Ka Bio and MPPI does not in any
manner suggest, even tangentially, that a petition as the one at bar must be dismissed
likewise with respect to the corporate co-petitioner. What Chung Ka Bio and MPPI
respectively declared was that Alfredo Ching, as a mere individual, cannot be allowed as a
co-petitioner in SEC Case No. 2250 and respondent Court of Appeals was correct in
ordering the dismissal of the petition for suspension of payments insofar as the Co spouses
were concerned. [Underscoring supplied]

That the Court never dismissed a petition for suspension of payments as the cases
involved in Chung Ka Bio and MPPI is not without legal basis.
We are, of course, aware of the argument advanced by petitioner that the petition
should be entirely dismissed and taken out of the SECs jurisdiction on account of the
alleged insolvency of private respondents. In this regard, petitioner theorizes that private
respondents have already become insolvent when they allegedly disposed of a substantial
portion of their properties in fraud of creditors, hence, suspension of payments with the
SEC is not the proper remedy.
The doctrine of piercing the veil of corporate fiction heavily relied upon by the
petitioner is entirely misplaced, as said doctrine only applies when such corporate fiction is
used to defeat public convenience, justify wrong, protect fraud or defend crime.[38]

GREGORIO ARANETA, INC., vs. PAZ TUASON DE PATERNO and JOSE VIDAL

Facts:

Paz Tuason de Paterno is the registered owner of the aforesaid land, which was subdivided
into city lots. Most of these lots were occupied by lessees who had contracts of lease and
carried a stipulation that in the event the owner and lessor should decide to sell the
property the lessees were to be given priority over other buyers if they should desire to
buy their leaseholds. Smaller lots were occupied by tenants without formal contract.

In 1940 and 1941 Paz Tuason obtained from Jose Vidal several loans and constituted a
first mortgage on the aforesaid property to secure the debt.

There was, besides, a separate written agreement entitled "Penalidad del Documento de
Novacion de Esta Fecha" which, unlike the principal contracts, was not registered. The
tenor of this separate agreement, all copies, of which were alleged to have been destroyed
or lost, was in dispute and became the subject of conflicting evidence.

In 1943 Paz Tuason decided to sell the entire property and entered into negotiations with
Gregorio Araneta, Inc. for this purpose. The result of the negotiations was the execution of
a contract called "Promesa de Compra y Venta". This contract provided that subject to the
preferred right of the lessees and that of Jose Vidal as mortgagee, Paz Tuason would sell
to Gregorio Araneta, Inc. and the latter would buy the entire estate under these terms.

In furtherance of this promise to buy and sell, letters were sent to the lessees, an option to
buy the lots. Most of the tenants who held contracts of lease took advantage of the
opportunity. These sales have been respected by the seller.

With the elimination of the lots sold or be sold to the tenants there remained
unencumbered, except for the mortgage to Jose Vidal, Paz Tuason and Gregorio Araneta,
Inc. executed with regard to these lots an absolute deed of sale.

Before the execution of the deed, Paz Tuason had offered to Vidal the check in full
settlement of her mortgage obligation, but the mortgagee had refused to receive that
check or to cancel the mortgage, contending that by the separate agreement before
mentioned payment of the mortgage was not to be effected totally or partially before the
end of four years from April, 1943.

This failure of the suit for the cancellation of Vidal's mortgage, coupled with the destruction
of the checks tendered to the mortgagee, the nullification of the bank deposit on which
those checks had been drawn, and the tremendous rise of real estate value following the
termination of the war, gave occasion to the breaking off the schemes outlined; Paz
Tuason after liberation repudiated them for the reasons to be hereafter set forth. The
instant action was the offshoot, begun by Gregorio Araneta, Inc. to compel Paz Tuason to
deliver to the plaintiff a clear title to the lots free from all liens and encumbrances, and a
deed of cancellation of the mortgage to Vidal.

Ruling:
However, the trial court hypothetically admitting the existence of the relation of principal
and agent between Paz Tuason and Jose Araneta, pointed out that not Jose Araneta but
Gregorio Araneta, Inc. was the purchaser, and cited the well-known distinction between
the corporation and its stockholders. In other words, the court opined that the sale to
Gregorio Araneta, Inc. was not a sale to Jose Araneta the agent or broker.

The defendant would have the court ignore this distinction and apply to this case the other
well-known principle which is thus stated in 18 C.J.S. 380: "The courts, at law and in
equity, will disregard the fiction of corporate entity apart from the members of the
corporation when it is attempted to be used as a means of accomplishing a fraud or an
illegal act.".

It will at once be noted that this principle does not fit in with the facts of the case at bar.
Gregorio Araneta, Inc. had long been organized and engaged in real estate business. The
corporate entity was not used to circumvent the law or perpetrate deception. There is no
denying that Gregorio Araneta, Inc. entered into the contract for itself and for its benefit as
a corporation. The contract and the roles of the parties who participated therein were
exactly as they purported to be and were fully revealed to the seller. There is no pretense,
nor is there reason to suppose, that if Paz Tuason had known Jose Araneta to Gregorio
Araneta, Inc's president, which she knew, she would not have gone ahead with the deal.
From her point of view and from the point of view of public interest, it would have made no
difference, except for the brokerage fee, whether Gregorio Araneta, Inc. or Jose Araneta
was the purchaser. Under these circumstances the result of the suggested disregard of a
technicality would be, not to stop the commission of deceit by the purchaser but to pave
the way for the evasion of a legitimate and binding commitment buy the seller. The
principle invoked by the defendant is resorted to by the courts as a measure or protection
against deceit and not to open the door to deceit. "The courts," it has been said, "will not
ignore the corporate entity in order to further the perpetration of a fraud." (18 C.J.S. 381.)

The corporate theory aside, and granting for the nonce that Jose Araneta and Gregorio
Araneta, Inc. were identical and that the acts of one where the acts of the other, the
relation between the defendant and Jose Araneta did not fall within the purview of article
1459 of the Spanish Civil Code.1