III.
SEPARATE JURIDICAL PERSONALITY AND THE DOCTRINE OF
PIERCING THE VEIL OF CORPORATE FICTION
Lanuza, Jr. v. BF Corp.
G.R. No. 174938 | October 1, 2014 | LEONEN, J.
Digest by: LAUIGAN
Petitioners: GERARDO LANUZA, JR. AND ANTONIO O. OLBES
Respondents: BF CORPORATION, SHANGRI-LA PROPERTIES, INC.,
ALFREDO C. RAMOS, RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND
BENJAMIN C. RAMOS
Doctrine:
A consequence of a corporation‘s separate personality is that consent by a
Issue/s:
corporation through its representatives is not consent of the representative,
personally. Its obligations, incurred through official acts of its representatives, are
its own. A stockholder, director, or representative does not become a party to a
contract just because a corporation executed a contract through that stockholder,
Ratio:
director or representative. Hence a corporation‘s representatives are generally not
ersonally bound by the terms of the contract executed in behalf of the corporation.
Facts:
● In 1993, BF Corporation filed a collection complaint with the Regional
Trial Court 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.
● BF Corporation alleged in its complaint 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 alleged that Shangri-La induced BF Corporation to
continue with the construction of the buildings using its own funds and
credit despite Shangri-La‘s default.
● According to BF Corporation, Shangri-La misrepresented that it had
funds to pay for its obligations with BF Corporation, and the delay in
payment was simply a matter of delayed processing of BF Corporation‘s
progress billing statements.
● 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.
● BF Corporation alleged that despite repeated demands, Shangri-La
refused to pay the balance owed to it.
● It also alleged that the 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.
● On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,
Maximo G. Licauco III, and Benjamin C. Ramos filed a motion to
suspend the proceedings in view of BF Corporation‘s failure to submit its
dispute to arbitration, in accordance with the arbitration clause provided
in its contract.
● Petitioners filed their comment on Shangri-La‘s and BF Corporation‘s
motions, praying that they be excluded from the arbitration proceedings
for being non-parties to Shangri-La‘s and BF Corporation‘s agreement.
● Whether or not petitioners as directors of Shangri-La is personally liable
for the contractual obligations entered into by the corporation. - NO
● Because a corporation‘s existence is only by fiction of law, it can only
exercise its rights and powers through its directors, officers, or agents,
who are all natural persons. A corporation cannot sue or enter into
contracts without them.
● A consequence of a corporation‘s separate personality is that consent by
a corporation through its representatives is not consent of the
representative, personally. Its obligations, incurred through official acts of
its representatives, are its own. A stockholder, director, or representative
does not become a party to a contract just because a corporation
executed a contract through that stockholder, director or representative.
● Hence, a corporation‘s representatives are generally not bound by the
terms of the contract executed by the corporation. They are not
personally liable for obligations and liabilities incurred on or in behalf of
the corporation.
● A submission to arbitration is a contract. As such, the Agreement,
containing the stipulation on arbitration, binds the parties thereto, as well
as their assigns and heirs.
● When there are allegations of bad faith or malice against corporate
directors or representatives, it becomes the duty of courts or tribunals to
determine if these persons and the corporation should be treated as one.
Without a trial, courts and tribunals have no basis for determining
whether the veil of corporate fiction should be pierced. Courts or tribunals
do not have such prior knowledge. Thus, the courts or tribunals must first
determine whether circumstances exist to warrant the courts or tribunals
to disregard the distinction between the corporation and the persons
representing it.
● The determination of these circumstances must be made by one tribunal
or court in a proceeding participated in by all parties involved, including
current representatives of the corporation, and those persons whose
personalities are impliedly the same as the corporation. This is because
CORP 2-D Digests | 1
 when the court or tribunal finds that circumstances exist warranting the Dispositive:
piercing of the corporate veil, the corporate representatives are treated WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11,
as the corporation itself and should be held liable for corporate acts. 2006 and resolution of October 5, 2006 are AFFIRMED.
● The corporation‘s distinct personality is disregarded, and the corporation
is seen as a mere aggregation of persons undertaking a business under
the collective name of the corporation.
● A corporation is an artificial entity created by fiction of law. This means
that while it is not a person, naturally, the law gives it a distinct
personality and treats it as such. A corporation, in the legal sense, is an
individual with a personality that is distinct and separate from other
persons including its stockholders, officers, directors, representatives,
and other juridical entities. The law vests in corporations rights,powers,
and attributes as if they were natural persons with physical existence and
capabilities to act on their own. For instance, they have the power to sue
and enter into transactions or contracts. Section 36 of the Corporation
Code enumerates some of a corporation‘s powers, thus:-
○ Section 36. Corporate powers and capacity.– Every
corporation incorporated under this Code has the power and
capacity: 1. To sue and be sued in its corporate name; 2. Of
succession by its corporate name for the period of time stated in
the articles of incorporation and the certificate ofincorporation;
3. To adopt and use a corporate seal; 4. To amend its articles of
incorporation in accordance with the provisions of this Code; 5.
To adopt by-laws, not contrary to law, morals, or public policy,
and to amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to
subscribers and to sell treasury stocks in accordance with the
provisions of this Code; and to admit members to the
corporation if it be a non-stock corporation; 7. To purchase,
receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations,
as the transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution; 8. To enter into merger
or consolidation with other corporations as provided in this
Code; 9. To make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural, scientific, civic,
or similar purposes: Provided, That no corporation, domestic or
foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity; 10. To
establish pension, retirement, and other plans for the benefit of
its directors, trustees, officers and employees; and 11. To
exercise such other powers as may be essential or necessary to
carry out its purpose or purposes as stated in its articles of
incorporation.

CORP 2-D Digests | 2

 Pacific Rehouse Corp. v. Court of Appeals
G.R. No.199687 | March 24, 2014
G.R. No. 201537| March 24, 2014
Ponente: REYES, J
Digest by: LIM
G.R. No.199687
Petitioners: PACIFIC REHOUSE CORPORATION
Respondents: CA, and EXPORT AND INDUSTRY BANK, INC
G.R. No. 201537
Petitioners: ACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE
CORPORATION, MIZPAH HOLDINGS, INC., FORUM HOLDINGS
CORPORATION and EAST ASIA OIL COMPANY, INC.
Respondents: EXPORT AND INDUSTRY BANK, INC
Doctrine:
Mere ownership by a single stockholder or by another corporation of all or nearly all
of the capital stocks of the corporation is not, by itself, sufficient ground for
disregarding the separate corporate personality. Other circumstances showing that
the corporation is being used to commit fraud or proof of existence of absolute
control over the corporation have to be proven. In short, before the corporate fiction
can be disregarded, alter-ego elements must be sufficiently established.
Facts:
- Pacific Rehouse Corporation, Pacific Concorde Corporation, Mizpah
Holdings, Inc., Forum Holdings Corporation, and East Asia Oil Company,
Inc. filed a case in the RTC of Makati against EIB securities Inc. (E-
securities) for the unauthorized sale of their 32,180,000 DMCI shares.
- The RTC held that E-securities should return the DMCI shares to the
respondents while respondents on the other hand should reimburse E-
securities the amount of Php 10, 942,000 as representing the buy back
shares. This decision attained finality and affirmed by the SC.
- The writ of execution for the shares was unsatisfied. Thus, respondents
moved for the issuance of an alias writ of execution to hold Export and
Industry bank Inc. (Export bank) liable for the obligation as E-securities is
a subsidiary of Export and Industry banks Inc.
- Respondents claim that E-securities is an alter ego and a business
conduit of Export and Industry bank Inc. This was supported by a
statement from Atty. Ramon Aviado, the corporate secretary of E-
securities and of Export and Industry bank Inc.
- The alias writ of execution was granted. Export bank filed an omnibus
motion questioning the writ because it was not impleaded in the case.
This was denied by the RTC and the garnishment of P1,465,799,000.00,
the total amount of the 32,180,000 DMCI shares at P45.55 per share,
against petitioner and/or E-Securities was ordered.
- The RTC explained that being one and the same entity in the law the
service of summons upon E-Securities has bestowed jurisdiction over
both the parent and wholly-owned subsidiary.
- Thus, Export bank filed for preliminary injunction to the CA. This was
granted and the RTC decision was nullified.
- The CA held that that the alter ego theory cannot be sustained because
ownership of a subsidiary by the parent company is not enough
justification to pierce the veil of corporate fiction. There must be proof,
apart from mere ownership, that Export Bank exploited or misused the
corporate fiction of E-Securities. The existence of interlocking
incorporators, directors and officers between the 2 corporations is not a
conclusive indication that they are the same. It is also not shown that
Export Bank has complete control over the business policies, affairs
and/or transactions of E- Securities. It was solely E-Securities that
contracted the obligation in furtherance of its legitimate corporate
purpose; thus, any fall out must be confined within its limited liability.
- A motion for reconsideration was filed in the SC.
Issue/s:
1. WON the corporate veil should be pierced?
2. WON the CA erred in not applying the alter ego doctrine? No
3. WON the absence of Justice Inting‘s signature in the CA resolution for
preliminary injunction renders it null and void?
Ratio:
1. No. Piercing of corporate veil cannot be done.
- The principle of piercing the veil of corporate fiction is basically applied
only to determine established liability; it is not available to confer on the
court a jurisdiction it has not acquired, in the first place, over a party not
impleaded in a case. Hence, any proceedings taken against that
corporation and its property would infringe on its right to due process.
- Jurisdiction over the person is acquired by a valid service of summons or
a voluntary appearance in court. Absent these, any judgment of the court
which has no jurisdiction over the person of the defendant is null and
void.
- In this case, Export Bank was neither served with summons, nor has it
voluntarily appeared before the court. Thus, the judgment sought to be
enforced against E-Securities cannot be made against them.
- The Arcilla and Violago case are not applicable to this case as in both
cases, the court has already acquired jurisdiction over the persons made
liable.
2. No. The court was correct in not applying the alter ego doctrine.
- It is a fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for
convenience and to promote justice. Thus, when this fiction is used to
defeat public convenience, justify wrong, protect fraud or defend crime,
or is used as a device to defeat the labor laws, this may be disregarded
or the veil of corporate fiction pierced. This is true likewise when the
CORP 2-D Digests | 3
 corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.
- The control necessary to invoke the rule is not majority or even complete Dispositive:
stock control but such domination of finances, policies and practices that WHEREFORE, the petition in G.R. No. 199687 is hereby DISMISSED for having
the controlled corporation has no separate mind, will or existence of its been rendered moot and academic. The petition in G.R. No. 201537, meanwhile,
own. Such control must be shown to have been exercised at the time the is
acts complained of took place. Moreover, the control and breach of duty hereby DENIED for lack of merit. Consequently, the Decision dated April 26, 2012
must proximately cause the injury or unjust loss for which the complaint of the Court of Appeals in CA-G.R. SP No. 120979 is AFFIRMED.
is made.
- The 3 pronged test to determine to establish when the alter ego doctrine
should be operative:
(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 right; and
(3) The aforesaid control and breach of duty must [have] proximately
caused
the injury or unjust loss complained of.
- Absence of one will prevent the piercing of the corporate veil as the
courts are concerned with reality and not form, with how the corporation
operated and the individual defendant's relationship to that operation.
- All the circumstances enumerated by the RTC to show the alleged
control of Export bank over e-securities were not proved in accordance
with the rules of court. Even if control was exercised by Export bank,
control, by itself, does not mean that the controlled corporation is a mere
instrumentality or a business conduit of the mother company. Even
control over the financial and operational concerns of a subsidiary
company does not by itself call for disregarding its corporate ficction.
There must be a perpetuation of fraud behind the control or at least a
fraudulent or illegal purpose behind the control in order to justify piercing
the veil of corporate fiction. Such fraudulent intent is lacking in this case.
- If the setting up of a subsidiary is for a legitimate purpose, its separate
personality should be respected and the liabilities of the parent and
subsidiary company should be confined to those arising from their
respective business.
3. No, the resolution is still valid.
- The respondents also assailed the CA resolution rendered by the Special
division of 5. However, the court considered the resolutions to be valid as
the CA had already adjudicated based on the merits of the case.
- The absence of CA Associate Justice De Leon‘s signature on the
signature page of the resolution of the special division of 5 was due to
inadvertence and was already explained by the CA. They were already
given the signed copy of the documents. Thus, it is already a non issue.
CORP 2-D Digests | 4
 U.S. v. Milwaukee Refrigerator Transit Co.
142 F. 247 | December 28, 1905
Digest by: LUMBRE
Petitioners: United States
Respondents: Pabst Brewing Company, Milwaukee Refrigerator Transit Co. et. al.
Doctrine:
A corporation will be looked upon as a legal entity as a general rule and until
sufficient reason to the contrary appears; but, when the notion of legal entity is
used to defeat public convenience, justify wrong, protect fraud, or defend crime, the
law will regard the cor poration as an association of persons.
Facts:
● The allegations in the suit stated: …
○ that defendant brewing company, which was a large shipper of
beer prior to the enactment of such statute, habitually received
rebates from carriers;
○ that shortly after such enactment, its officers, who were also its
controlling stockholders, organized a transit company
(defendant) and became its officers and the owners of
practically all of its stock, and on behalf of the brewing
company, contracted with it to make all the shipments for the
brewing company; that the transit company contracted for
shipments with such interstate carriers as would pay it from
one-tenth to one-eighth of the published rate for the
transportation, ostensibly as a commission for obtaining the
business, but in fact, as was well known to the' carrier
defendants, as a rebate for the benefit of the brewing company.
● [Simply put, the brewing company created a dummy transit corporation to
avail of rebates in freight costs. The circumvention goes like dzz -- The
brewing company will pay the carrier the total shipping cost, and to
disguise a rebate, the carrier will pay the transit corporation a
commission, as a soliciting agent, for bringing the brewing company’s
business to it.]
● Pabst Brewing Company is a Wisconsin Corporation operating a large
brewery. It sells and ships beer into all the states and territories and to
purchasers in foreign countries.
● It has a capital of $10,000,000 or 10,000 shares. Gustav Pabst and Fred
Pabst are brothers, owning 2,000 shares, and with their mother and
sisters over half of the stock. They vote and control a majority of the
stock, and have always directed and controlled the election of directors,
and their action; they have been and are its president, vice president,
and general managers, and have always controlled all its sales,
purchases, and shipments.
● Milwaukee Refrigerator Transit Co. was incorporated by procurement of
the attorneys of the brewing company, and at its instance and request,
with a capital of $150,000, having five directors, and with power to
acquire and operate refrigerator cars, and contract for the supply and
operation of refrigerator transportation by land and water.
1
● Upon the passage of the Elkins Act the brewing company was no longer
able to directly secure rebates. Thinking of a device to evade the statute,
the Pabsts, as such officers, and one Howe, as traffic manager, intending
to contrive and operate a device for such evasion, caused the transit
company to be formed. Of its 1,500 shares, 1,340 were issued to the two
Pabsts, 35 shares to Fred Pabst‘s wife, and the balance to dummy
directors, to give color to the claim that its stock was not owned by the
brewing company.
● All the defendant carriers well knew that the transit company was
organized in the interest of the brewing company, and for the purpose of
evading the law, paid such rebates with tire like purpose and intent.
● Many thousand tons of said freight have been hauled by defendant
carriers since the contract was made. On such shipments the brewing
company pays to the carriers the full tariff rate, and the carriers pay the
transit company for use of its refrigerator cars for mileage three- fourths
of a cent to a cent per mile, and in addition an eighth or tenth of the sums
paid them by the brewing company; and in every instance the property is
transported by defendant carriers at an eighth or tenth less than the
published tariff. Such rebates amount to many thousands of dollars, the
exact sum unknown to complainants.
● And so a demurrer was instituted by defendants, arguing that it appears
2
on the face of the bill that the alleged rebates were not paid back to the
shipper (the brewing company), but to the Refrigerator Transit Company,
and, in substance and effect, nothing more is shown than the payment to
a soliciting agent (the transit company) of a commission of an eighth or
1 Sec. 10. Common carriers, and the officers of such as are corporations, re-ceivers, agents, etc.,
of such corporations, are prohibited from giving rebates, preferences, and advantages, and
making unjust discrimina-tions, and are punishable by fine and imprisonment. Under this
sec-tion only the agents of corporate carriers, and not the carriers them-selves, were
punishable.-- United States v. Milwaukee Refrigerator Transit Co., 142 F. 247, 249 (1905)
2 petition/complaint/suit
CORP 2-D Digests | 5
 tenth of the published tariff rates, thus showing, in real effect, acts neither
unlawful, immoral, nor injurious.
● A motion to strike out certain allegations averring prior and disconnected
illegal acts on its part, said to be material in proof, to characterize the
acts of its principal officers and managers in organizing the transit
company was also raised.
● It is argued that the procurement of the shipments through the contract is
the mere soliciting of them for the carriers, for which they are lawfully
authorized to pay a part of the rate, in order to get the business; But this
theory of innocence is exploded (lol US court) by the fact, as alleged, that
the transit company is a mere separate name for the brewing company,
being in fact the same collection of persons and interests

Issue: WoN there the brewing company fully owns and controls the transit
company, as to amount to evasion of the Elkins prohibition - Yes Dispositive:

The demurrers are overruled, and the motion to strike out denied.

Ratio:
● That the transit company is controlled by the managing agents of the
brewing company is entirely clear. But is it controlled by the
shipper(brewer) corporation(the company‘s juridical personality)? The
solution of this question depends on whether the brewing corporation, in
a case like this, is an association of individuals, rather than a legal entity
apart from those who own and control it.

● No doubt the general rule that a corporation is a legal entity, an

institution, artificial, intangible, existing only by legal contemplation, and
separate and apart from its constituents, is firmly imbedded in the
common law of this country. It has been so laid down in hundreds of
cases.

● It is, however, most significant that the Supreme Court of the United
States was the first to break away from the notion that a corporation is
only a legal entity, when its literal application would operate with
injustice.

● Stated in another way, it is that a corporation will be looked upon as a

legal entity as a general rule, and until sufficient reason to the contrary
appears; but, when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons.

● Applying the rule here laid down to the circumstances shown to surround
the brewing company and transit company, it cannot be doubted that
there really is, in substance and effect, an identity of interest, or that the
brewing company, considered as an association of individuals,
really owns and fully controls the transit company.

● Moreover, it clearly appears that the shipper practically controls the

transit company, and this shows a sufficient identity of interest among the
shareholders of both in these repayments to make them rebates, if paid
and received with unlawful intent.
CORP 2-D Digests | 6
 General Credit Corp. v. Alsons Dev. and Investment Corp.
G.R. No.154975 | Jan. 29, 2007 | J. Garcia
Digest by: MANZANO
Petitioners: GENERAL CREDIT CORPORATION (now PENTA CAPITAL
FINANCE CORPORATION)
Respondents: ALSONS DEVELOPMENT and INVESTMENT CORPORATION
and CCC EQUITY CORPORATION
Doctrine: A corporation is invested by law with a personality separate and distinct
from those persons composing it, and from any legal entity to which it may be
related. Thus, it may not be made to answer for personal acts and liabilities of its
stockholders or those of legal entities to which it may be connected, or vice versa.
Facts:
● General Credit Corporation (GCC), a finance and investment company,
established its franchise companies in different urban centers of the country.
● GCC secured a license from the Central Bank and the Securities and
Exchange Commission (SEC) to engage also in quasi-banking activities.
● CCC Equity Corporation (EQUITY) was organized by GCC to take over the
operations and management of its various franchise companies.
● Alsons Development and Investment Corporation (ALSON) and the
Alcantara Family each owned shares in the aforesaid GCC franchise
companies,.
● ALSONS and the Alcantara family, for P2,000,000.00,, sold their
shareholdings (101,953 in total) to EQUITY.
● EQUITY issued to ALSONS et al., a bearer promissory note, with 18% per
annum; 4 years later, the Alcantara family assigned its rights and interests
over the bearer note to ALSONS.
● EQUITY received letters of demand from ALSONS; the former pleaded
inability to pay interest because it no longer had enough assets
● ALSONS filed a complaint for collection before RTC-Makati against EQUITY
and GCC
● GCC was impleaded by ALSONS because under the doctrine of piercing the
veil of corporate fiction, EQUITY was: (1) organized as a tool and mere
conduit of GCC; (2) it acted merely as intermediary or bridge for loan
transactions and other dealings of GCC to its franchises and the investing
public; and (3) EQUITY is solely dependent upon GCC for its funding
● For its defense, GCC claims that it is a distinct and separate entity from
EQUITY.
● RTC-Makati found that EQUITY was but an instrumentality or adjunct of
GCC and held that EQUITY and GCC are solidarily liable.
● On appeal, the CA affirmed the decision of the RTC.
Issue/s:
W/N GCC is solidarily liable – YES
Ratio:
● Generally, a corporation is vested by law with a personality distinct and
separate from those of the persons composing it as well as from that of any
other entity to which it may be related; Thus, a corporation may not be made
to answer for acts and liabilities of its stockholders or those of legal entities
to which it may be connected or vice versa.
● An exception would be the doctrine of piercing the veil of corporate fiction,
where the court will often look at the corporation as a mere collection of
individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the
group OR when two (2) business enterprises are owned, conducted and
controlled by the same parties
● There are 3 basic areas where piercing the veil is allowed:
1) Defeat of public convenience - if used as vehicle for the evasion of an
existing obligation;
2) Fraud cases - if used to justify a wrong, protect fraud, or defend a crime;
3) Alter ego cases - a corporation is merely a farce, 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.
● There are more or less 20 circumstances and transactions that show that
EQUITY was but an adjunct, an instrumentality or business conduit of
petitioner GCC.
● The Court takes note of the following:
1. Commonality of directors, officers and stockholders and even sharing of
office between GCC and EQUITY - more than 90% of the stockholders of
EQUITY were also stockholders of GCC;
2. Certain financing and management arrangements between the two,
allowing the GCC to handle the funds of the latter - funds invested by
EQUITY in the CCC franchise companies actually came from GCC
3. The virtual domination if not control wielded by GCC over the finances,
business policies and practices of respondent EQUITY - the sale of
Equity‘s shares were surrendered to GCC; EQUITY had grossly
inadequate capital for the pursuit of its line of business to the extent that
its business affairs were considered as GCCs own business endeavors;
EQUITY never acted independently but took their orders from GCC.
4. The establishment of EQUITY by GCC to circumvent CB rule and the Anti-
Usury Law
5. As the parent corporation, GCC shall be held responsible for the acts and
contracts of its subsidiary, for, after all, GCC was the entity which initiated
and benefited immensely from the fraudulent scheme perpetrated in
violation of the law.
Dispositive:WHEREFORE, the instant petition is DENIED and the appealed Decision and
Resolution of the Court of Appeals are accordingly AFFIRMED. Costs against the petitioner.
SO ORDERED.
NOTE: GCC also claimed that the PN was either altered or simulated, but the SC is not a
trier of facts and gave great weight to the factual determination by the trial court and the CA
CORP 2-D Digests | 7
 Concept Builders, Inc. v. NLRC
G.R. No.108734 | May 29, 1996 | J. Hermosisima, Jr.
Digest by: MEDEL
Petitioners: CONCEPT BUILDERS, INC.
Respondents: THE NATIONAL LABOR RELATIONS COMMISSION, (First
Division); and Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego,
Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogello Salut, Emilio
Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito Salut, Domingo
Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio,
Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos
Doctrine:
The corporate mask may be lifted and the corporate veil may be pierced when a
corporation is just but the alter ego of a person or of another corporation. Where
badges of fraud exist; where public convenience is defeated; where a wrong is
sought to be justified thereby, the corporate fiction or the notion of legal entity
should come to naught. The law in these instances will regard the corporation as a
mere association of persons and, in case of two corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporation‘s
subsidiary liability for damages, the corporation may not be heard to say that it has
a personality separate and distinct from the other corporation. The piercing of the
corporate veil comes into play.
Facts:
● Concept Builders, Inc. is engaged in the construction business. The
private respondents were employed by said company as laborers,
carpenters and riggers.
● The private respondents were served individual written notices of
termination of employment by Concept Builders.
○ It was stated in the individual notices that their contracts of
employment had expired and the project in which they were
hired had been completed.
○ However, the project had not yet, in fact, been finished and
completed. Concept Builders even had to engage the services
of sub-contractors.
● Aggrieved, private respondents filed a complaint for illegal dismissal,
unfair labor practice and non-payment of their legal holiday pay, overtime
pay and thirteenth-month pay against Concept Builders.
● LA: ordered Concept Builders to reinstate private respondents and to pay
them back wages equivalent to 1 year.
○ A writ of execution was served. The writ was partially satisfied
through garnishment of sums from Concept Builder‘s debtor, the
Metropolitan Waterworks and Sewerage Authority.
● An Alias Writ of Execution was issued, directing the sheriff to collect the
balance of the judgment award.
● Upon failure to enforce the alias writ of execution, the sheriff stated the
following in his progress report:
○ All the employees inside Concept Builders premises at 355
Maysan Road, Valenzuela, Metro Manila, claimed that they
were employees of Hydro Pipes Philippines, Inc. (HPPI)
○ Levy was made upon the personal properties he found in
the premises;
○ Security guards with high-powered guns prevented him from
removing the properties he had levied upon
● A certain Dennis Cuyegkeng filed a third-party claim alleging that
the properties sought to be levied upon by the sheriff were owned
by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.
● The NLRC issued a break-open order as to to enable the sheriff to enter
the premises and proceed with the public auction sale of the aforesaid
personal properties.
Issue: Whether the NLRC committed grave abuse of discretion when it issued a
break-open order to the sheriff to be enforced against personal property found in
the premises of Concept Builder‘s sister company. NO.
Ratio:
● It is a fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded or
the veil of corporate fiction pierced. This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego
of another corporation.
● The conditions under which the juridical entity may be disregarded vary
according to the peculiar facts and circumstances of each case. No hard
and fast rule can be accurately laid down, but certainly, there are some
probative factors of identity that will justify the application of the doctrine
of piercing the corporate veil, to wit:
○ Stock ownership by one or common ownership of both
corporations.
○ Identity of directors and officers.
○ The manner of keeping corporate books and records.
○ Methods of conducting the business.
● The SEC en banc explained the instrumentality rule which the courts
have applied in disregarding the separate juridical personality of
corporations as follows:
Where one corporation is so organized and
controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the
CORP 2-D Digests | 8
 other, the fiction of the corporate entity of the
instrumentality may be disregarded.
● The test in determining the applicability of the doctrine of piercing
the veil of corporate fiction is as follows:
○ 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;
○ 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 plaintiffs legal rights; and
○ 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. In applying the instrumentality or alter ego doctrine, the
courts are concerned with reality and not form, with how the corporation
operated and the individual defendants relationship to that operation.
● Thus, the question of whether a corporation is a mere alter ego, a mere
sheet or paper corporation, a sham or a subterfuge is purely one of fact.
○ In this case, the NLRC noted that, while Concept Builders
claimed that it ceased its business operations on April 29, 1986,
it filed an Information Sheet with the Securities and Exchange
Commission on May 15, 1987, stating that its office address is
at 355 Maysan Road, Valenzuela, Metro Manila.
○ On the other hand, HPPI, the third-party claimant, submitted on
the same day, a similar information sheet stating that its office
address is at 355 Maysan Road, Valenzuela, Metro Manila.
○ Both information sheets were filed by the same Virgilio O.
Casino as the corporate secretary of both corporations. It would
also not be amiss to note that both corporations had the same
president, the same board of directors, the same corporate
officers, and substantially the same subscribers.
● Clearly, Concept Builders ceased its business operations in order to
evade the payment to private respondents of backwages and to bar their
reinstatement to their former positions. HPPI is obviously a business
conduit of Concept Builders and its emergence was skillfully orchestrated
to avoid the financial liability that already attached to petitioner
corporation.
● It is very obvious that the second corporation seeks the protective shield
of a corporate fiction whose veil in the present case could, and should,
be pierced as it was deliberately and maliciously designed to evade its
financial obligation to its employees.

Dispositive: WHEREFORE, the petition is DISMISSED and the assailed

resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are
AFFIRMED.
CORP 2-D Digests | 9
 Traders Royal Bank v. Court of Appeals
G.R. No. 93397 | March 3, 1997 | TORRES, JR., J.
Digest by: NAVARRO
Petitioners: TRADERS ROYAL BANK
Respondents: COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE
CORPORATION and CENTRAL BANK of the PHILIPPINES
Doctrine:
Piercing the veil of corporate entity requires the court to see through the protective
shroud which exempts its stockholders from liabilities that ordinarily, they could be
subject to, or distinguished one corporation from a seemingly separate one, were it
not for the existing corporate fiction. But to do this, the court must be sure that the
corporate fiction was misused, to such an extent that injustice, fraud, or crime was
committed upon another, disregarding, thus, his, her, or its rights. It is the
protection of the interests of innocent third persons dealing with the corporate entity
which the law aims to protect by this doctrine.
The fact that Filfinance owns majority shares in Filriters is not by itself a ground to
disregard the independent corporate status of Filriters.
Facts:
● Filriters Guaranty Assurance Corporation (Filriters) executed a
"Detached Assignment" whereby, as registered owner, Filriters sold,
transferred, assigned and delivered unto Philippine Underwriters Finance
Corporation (Philfinance) all its rights and title to Central Bank
Certificates of Indebtedness (CBCI), having an aggregate value of
P3,500,000.00
● Traders Royal Bank (Traders) entered into a Repurchase Agreement
with PhilFinance whereby, for and in consideration of the sum of
P500,000, PhilFinance sold, transferred and delivered to Traders CBCI
4-year, 8th series, Serial No. D891 with a face value of P500,000
● Pursuant to the aforesaid Repurchase Agreement, Philfinance agreed to
repurchase CBCI Serial No. D891 at the stipulated price of P519,361.11
● PhilFinance failed to repurchase the CBCI on the agreed date of maturity
● Owing to the default of PhilFinance, it executed a Detached Assignment
in favor of Traders
○ By means of said Detachment, Philfinance transferred and
assigned all, its rights and title in the said CBCI to Traders
● Traders presented the CBCI together with the two aforementioned
Detached Assignments to the Securities Servicing Department of
Filriters, and requested the latter to effect the transfer of the CBCI on its
books and to issue a new certificate in the name of petitioner as absolute
owner thereof
● Filriters failed and refused to register the transfer as requested
● The express provisions governing the transfer of the CBCI were
substantially complied with Traders‘ request for registration and, without
a doubt, the Detached Assignments presented to respondent were
sufficient authorizations in writing executed by the registered owner,
Filriters, and its transferee, PhilFinance
● Traders prayed for the registration by the Central Bank of the subject
CBCI in its name
● Traders‘ position rests on the argument that Philfinance owns 90% of
Filriters equity and the two corporations have identical corporate officers,
thus demanding the application of the doctrine of piercing the veil of
corporate fiction, as to give validity to the transfer of the CBCI from
registered owner to Traders
● According to Traders, since Philfinance own about 90% of Filriters and
the two companies have the same corporate officers, if the principle of
piercing the veil of corporate entity were to be applied in this case, then
Traders‘ payment to Philfinance for the CBCI purchased by it could just
as well be considered a payment to Filriters, the registered owner of the
CBCI as to bar the latter from claiming, as it has, that it never received
any payment for that CBCI sold and that said CBCI was sold without its
authority
Issue/s:
1. W/N the doctrine of piercing the veil of corporate fiction applies in this
case – NO
2. W/N the sale from Filriters to Philfinance was fictitious, and therefore void
and inexistent -- YES
Ratio:
1. Piercing the veil of corporate entity requires the court to see through the
protective shroud which exempts its stockholders from liabilities that ordinarily,
they could be subject to, or distinguished one corporation from a seemingly
separate one, were it not for the existing corporate fiction. But to do this, the court
must be sure that the corporate fiction was misused, to such an extent that
injustice, fraud, or crime was committed upon another, disregarding, thus, his, her,
or its rights. It is the protection of the interests of innocent third persons dealing
with the corporate entity which the law aims to protect by this doctrine.
● The corporate separateness between Filriters and Philfinance remains,
despite the petitioners insistence on the contrary
○ Other than the allegation that Filriters is 90% owned by
Philfinance, and the identity of one shall be maintained as to the
other, there is nothing else which could lead the court under
circumstance to disregard their corporate personalities
● The fact that Filfinance owns majority shares in Filriters is not by itself a
ground to disregard the independent corporate status of Filriters
● In Liddel & Co., Inc. vs. Collector of Internal Revenue, the mere
ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate corporate personalities
● In the case at bar, there is sufficient showing that the petitioner was not
defrauded at all when it acquired the subject certificate of indebtedness
from Philfinance
CORP 2-D Digests | 10
2. On its face the subject certificates states that it is registered in the name of
Filriters. This should have put the petitioner on notice, and prompted it to inquire
from Filriters as to Philfinance's title over the same or its authority to assign the
certificate. As it is, there is no showing to the effect that petitioner had any
dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of
the certificate.
● The terms of the CBCI No. D891 contain a provision on its TRANSFER.
○ TRANSFER. This Certificate shall pass by delivery unless it is
registered in the owner's name at any office of the Bank or any
agency duly authorized by the Bank, and such registration is
noted hereon. After such registration no transfer thereof shall be
valid unless made at said office (where the Certificates has
been registered) by the registered owner hereof, in person, or
by his attorney, duly authorized in writing and similarly noted
hereon and upon payment of a nominal transfer fee which may
be required, a new Certificate shall be issued to the transferee
of the registered owner thereof.
● This is notice to petitioner to secure from Filriters a written authorization
for the transfer or to require Philfinance to submit such an authorization
from Filriters.
● Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of
1990
○ Sec. 3. Assignment of Registered Certificates. — Assignment of
registered certificates shall not be valid unless made at the
office where the same have been issued and registered or at
the Securities Servicing Department, Central Bank of the
Philippines, and by the registered owner thereof, in person or by
his representative, duly authorized in writing.
● The transfer made by Filriters to Philfinance did not conform to the said
Central Bank Circular, which for all intents, is considered part of the law.
● Alfredo O. Banaria, who had signed the deed of assignment from Filriters
to Philfinance, purportedly for and in favor of Filriters, did not have the
necessary written authorization from the Board of Directors of Filriters to
act for the latter.
● As it is, the sale from Filriters to Philfinance was fictitious, and therefore
void and inexistent, as there was no consideration for the same.

Dispositive:
ACCORDINGLY, the petition is DISMISSED and the decision appealed from
dated January 29, 1990 is hereby AFFIRMED.

CORP 2-D Digests | 11

 Indophil Textile Mill Workers Union-PTGWO v. Calica
G.R. No. 96490 | February 3, 1992 | MEDIALDEA, J.
Digest by: PEÑALOSA
Petitioners: INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO
Respondents: VOLUNTARY ARBITRATOR TEODORICO P. CALICA and
INDOPHIL TEXTILE MILLS, INC.
Doctrine:
Under the doctrine of piercing the veil of corporate entity, when valid grounds
therefore exist, the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or stockholders may be
disregarded. In such cases, the corporation will be considered as a mere
association of persons. The members or stockholders of the corporation will be
considered as the corporation, that is liability will attach directly to the officers and
stockholders.
Facts:
● In April, 1987, petitioner Indophil Textile Mill Workers Union-PTGWO
(Union) and private respondent Indophil Textile Mills, Inc. (Textile)
executed a collective bargaining agreement (CBA) effective from April 1,
1987 to March 31, 1990.
○ The Union is a labor organization and is the exclusive
bargaining agent of all rank-and-file employees of of Indophil
Textile Mills, Inc.
○ Textile is engaged in the business of manufacturing yarns of
various counts and kinds and textiles.
● Meanwhile, in 1967, Indophil Acrylic Manufacturing Corporation (Acrylic)
was formed and registered with the Securities and Exchange
Commission. The application was approved. Acrylic became operational.
○ Acrylic manufactures, buys, sells at wholesale basis, barters,
imports, exports and otherwise deals in yarns of various counts
and kinds.
● In 1989, workers of Acrylic unionized and a duly certified Collective
Bargaining Agreement was executed.
● In 1990, the Union claimed that the plant facilities built and set up by
Acrylic should be considered as an extension of the facilities of Textile,
as stipulated in their CBA:
c) This Agreement shall apply to the Company's plant facilities
and installations and to any extension and expansion
thereat.
● In other words, it is the petitioner's contention that Acrylic is part of the
Indophil bargaining unit.
● Textile opposed this claim and said that it (Textile) is separate and
distinct from Acrylic.
● This led the opposing parties to enter into a submission agreement. They
both requested Respondent Teodorico P. Calica (from DOLE) to be the
Voluntary Arbitrator for the proper interpretation of the disputed CBA
provision
● In his decision, the Voluntary Arbitrator ruled in favor of Textile. The
dispositive portion provides:
PREMISES CONSIDERED, it would be a strained interpretation
and application of the questioned CBA provision if we
would extend to the employees of Acrylic the coverage
clause of Indophil Textile Mills CBA. Wherefore, an award
is made to the effect that the proper interpretation and
application of Sec. l, (c), Art. I, of the 1987 CBA do (sic) not
extend to the employees of Acrylic as an extension or
expansion of Indophil Textile Mills, Inc.
● Hence, this petition by the Union.
○ It claimed that the Articles of Incorporation of the two companies
show that they are engaged in the same kind of business –
manufacture and sale of yarns – and that the two corporations
have practically the same incorporators, directors and officers.
○ The Union further argued that of the total stock subscription of
Acrylic, P1,749,970.00 which represents seventy percent (70%)
of the total subscription of P2,500,000.00 was subscribed to by
Textile.
○ The Union claimed that the Arbitrator failed to recognize that the
creation of Acrylic is but a devise of Textile to evade the
application of the CBA
○ Other arguments asserted by the Union are as follows:
1. the two corporations have their physical plants, offices
and facilities situated in the same compound, at Barrio
Lambakin, Marilao, Bulacan;
2. Many of Textile‗s own machineries, such as dyeing
machines, reeling, among others, were transferred to
and are now installed and being used in the Acrylic
plant;
3. The services of a number of units, departments or
sections of private respondent are provided to Acrylic;
and
4. The employees of Textile are the same persons
manning and servicing the units of Acrylic.
Issue/s:
Is Acrylic a mere extension or expansion of Textile? – NO.
W/N the Piercing Doctrine can be applied? – NO.
Ratio:
● The Court denies the position of the Union to pierce the veil of corporate
entity of Acrylic. The SC ruled that the two companies should be treated
as distinct and separate from one another.
CORP 2-D Digests | 12
 ● The Court said that the arguments presented by the Union are
insufficient to justify the piercing of the corporate veil of Acrylic
● Under the doctrine of piercing the veil of corporate entity, when
valid grounds therefore exist, the legal fiction that a corporation
is an entity with a juridical personality separate and distinct from
its members or stockholders may be disregarded. In such
cases, the corporation will be considered as a mere association
of persons. The members or stockholders of the corporation will
be considered as the corporation, that is liability will attach
directly to the officers and stockholders.
● The doctrine applies when the corporate fiction is used to defeat
public convenience, justify wrong, protect fraud, or defend
crime, or when it is made as a shield to confuse the legitimate
issues, or where a corporation is the 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.
● Furthermore, as held in Umali vs CA, the legal corporate entity is
disregarded only if it seeks to hold the officers and stockholders directly
liable for a corporate debt or obligation.
● In this case, the Union does not even seek to impose a claim against the
members of Acrylic.

Dispositive:
ACCORDINGLY, the petition is DENIED and the award of the respondent
Voluntary Arbitrator are hereby AFFIRMED.

CORP 2-D Digests | 13

 Francisco Motors Corp. v CA
G.R. No. 100812 | June 25, 1999 | QUISUMBING, J.
Digest by: REGADO ||UPSIDE DOWN
Petitioners: Francisco Motors Corporation
Respondents: Court of appeals and Sps. Gregorio and Librada Manuel
Doctrine:
● In the case at bar, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed.
It is the petitioner as a corporation which is being ordered to answer for
the personal liability of certain individual directors, officers and
incorporators concerned. Hence, it appears to us that the doctrine has
been turned upside down because of its erroneous invocation
● Furthermore, considering the nature of the legal services involved,
whatever obligation said incorporators, directors and officers of the
corporation had incurred, it was incurred in their personal capacity.
When directors and officers of a corporation are unable to compensate a
party for a personal obligation, it is far-fetched to allege that the
corporation is perpetuating fraud or promoting injustice, and be thereby
held liable therefore by piercing its corporate veil.
Facts:
● On January 23, 1985, petitioner filed a complaint against private
respondents to recover P3,412.06, representing the balance of the jeep
body purchased by the Manuels from petitioner; an additional sum of
P20,454.80 representing the unpaid balance on the cost of repair of the
vehicle; and six thousand pesos P6,000.00 for cost of suit and attorneys
fees
● Private respondents interposed a counterclaim for unpaid legal services
by Gregorio Manuel in the amount of P50,000 which was not paid by the
incorporators, directors and officers of the petitioner.
● TC in favor of petitioner in regard to the petitioners claim for money, but
also allowed the counter-claim of private respondents
● On the question of its liability for attorneys fees owing to private
respondent Gregorio Manuel, petitioner argued that being a
corporation, it should not be held liable therefor because these fees were
owed by the incorporators, directors and officers of the corporation in
their personal capacity as heirs of Benita Trinidad.
● Petitioner stressed that the personality of the corporation, vis--vis the
individual persons who hired the services of private respondent, is
separate and distinct, hence, the liability of said individuals did not
become an obligation chargeable against petitioner.
● Court of Appeals ruled:
However, this distinct and separate personality is merely a fiction created
by law for convenience and to promote justice. Accordingly, this separate
personality of the corporation may be disregarded, or the veil of
corporate fiction pierced, in cases where it is used as a cloak or cover for
found (sic) illegality, or to work an injustice, or where necessary to
achieve equity or when necessary for the protection of creditors. (Sulo ng
Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed
of natural persons and the legal fiction of a separate corporate
personality is not a shield for the commission of injustice and inequity.
(Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408) In the instant
case, evidence shows that the plaintiff-appellant Francisco Motors
Corporation is composed of the heirs of the late Benita Trinidad as
directors and incorporators for whom defendant Gregorio Manuel
rendered legal services in the intestate estate case of their deceased
mother.
ISSUE:WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL
PARTY IN THE ALLEGED PERMISSIVE COUNTERCLAIM SHOULD BE HELD
LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.
HELD:
To resolve the issues in this case, we must first determine the propriety of piercing
the veil of corporate fiction.
● Basic in corporation law is the principle that a corporation has a separate
personality distinct from its stockholders and from other corporations to
which it may be connected.
● However, under the doctrine of piercing the veil of corporate entity, the
corporations separate juridical personality may be disregarded, for
example, when the corporate identity is used to
❖ defeat public convenience,
❖ justify wrong,
❖ protect fraud,
❖ or defend crime.
❖ Also, where the corporation 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, then its distinct personality may be ignored.
● In these circumstances, the courts will treat the corporation as a mere
aggrupation of persons and the liability will directly attach to them.
The legal fiction of a separate corporate personality in those cited
instances, for reasons of public policy and in the interest of justice, will be
justifiably set aside.
CORP 2-D Digests | 14
● In our view, however, given the facts and circumstances of this case, the ● The claim for legal fees against the concerned individual incorporators,
doctrine of piercing the corporate veil has no relevant application here. officers and directors could not be properly directed against the
● The rationale behind piercing a corporations identity in a given case is to corporation without violating basic principles governing corporations.
remove the barrier between the corporation from the persons comprising Moreover, every action including a counterclaim must be prosecuted or
it to thwart the fraudulent and illegal schemes of those who use the defended in the name of the real party in interest. It is plainly an error to
corporate personality as a shield for undertaking certain proscribed lay the claim for legal fees of private respondent Gregorio Manuel at the
activities. door of petitioner (FMC) rather than individual members of the Francisco
● However, in the case at bar, instead of holding certain individuals or family.
persons responsible for an alleged corporate act, the situation has been
reversed. It is the petitioner as a corporation which is being ordered to ● WHEREFORE, the petition is hereby GRANTED and the assailed
answer for the personal liability of certain individual directors, officers and decision is hereby REVERSED insofar only as it held Francisco Motors
incorporators concerned. Corporation liable for the legal obligation owing to private respondent
● Hence, it appears to us that the doctrine has been turned upside Gregorio Manuel; but this decision is without prejudice to his filing the
down because of its erroneous invocation. Note that according to proper suit against the concerned members of the Francisco family in
private respondent Gregorio Manuel his services were solicited as their personal capacity. No pronouncement as to costs.
counsel for members of the Francisco family to represent them in the ● SO ORDERED.
intestate proceedings over Benita Trinidads estate. These estate
proceedings did not involve any business of petitioner.
● Note also that he sought to collect legal fees not just from certain
Francisco family members but also from petitioner corporation on the
claims that its management had requested his services and he acceded
thereto as an employee of petitioner from whom it could be deduced he
was also receiving a salary.
● His move to recover unpaid legal fees through a counterclaim against
Francisco Motors Corporation, to offset the unpaid balance of the
purchase and repair of a jeep body could only result from an obvious
misapprehension that petitioners corporate assets could be used to
answer for the liabilities of its individual directors, officers, and
incorporators.
● Such result if permitted could easily prejudice the corporation, its own
creditors, and even other stockholders; hence, clearly inequitous to
petitioner.
● Furthermore, considering the nature of the legal services involved,
whatever obligation said incorporators, directors and officers of the
corporation had incurred, it was incurred in their personal
capacity.When directors and officers of a corporation are unable to
compensate a party for a personal obligation, it is far-fetched to allege
that the corporation is perpetuating fraud or promoting injustice, and be
thereby held liable therefor by piercing its corporate veil.
● While there are no hard and fast rules on disregarding separate
corporate identity, we must always be mindful of its function and
purpose. A court should be careful in assessing the milieu where the
doctrine of piercing the corporate veil may be applied. Otherwise an
injustice, although unintended, may result from its erroneous application.

CORP 2-D Digests | 15

 La Campana Coffee Factory v. Kaisahan ng Manggagawa
G.R. No.L-5677 | May 25, 1953 | J. Reyes
Digest by: RELUCIO
Petitioners: La Campana Coffee Factory, Inc., and Tan Tong, doing business
under the trade name "La Campana Gaugau Packing"
Respondents: Kaisahan Ng Mga Manggagawa Sa La Campana (KKM) and The
Court of Industrial Relations
Doctrine:
The doctrine that a corporation is a legal entity existing separate and apart from the
persons composing it is a legal theory introduced for purposes of convenience and
to subserve the ends of justice. The concept cannot, therefore, be extended to a
point beyond its reason and policy, and when invoked in support of an end
subversive of this policy, will be disregarded by the courts. Thus, in an appropriate
case and in furtherance of the ends of justice, a corporation and the individual or
individuals owning all its stocks and assets will be treated as identical, the
corporate entity being disregarded where used as a cloak or cover for fraud or
illegality.
Facts:
● Tan Tong, has been engaged in the business of buying and selling
gaugau under the trade name La Campana Gaugau Packing. On July 6,
1950, Tan Tong, with himself and members of his family, organized a
family corporation known as La Campana Coffee Factory Co., Inc., with
its principal office located in the same place as that of La Campana
Gaugau Packing.
● Before the formation of the corporation, Tan Tong had entered into a
collective bargaining agreement (CBA) with the Philippine Legion of
Organized Workers (PLOW) to which the union of Tan Tong's employees
was then affiliated. Seceding, however, from the PLOW, Tan Tong's
employees later formed their own organization known as Kaisahan Ng
Mga Manggagawa Sa La Campana (Kaisahan).
● On July 19, 1951, Kaisahan with 66 members — workers all of them of
both La Campana Gaugau Packing and La Campana Coffee Factory
Co., Inc. demanded for higher wages and more privileges . As the
demand was not granted and an attempt at settlement failed, the Dept.
of Labor certified the dispute to the Court of Industrial Relations.
● La Campana filed a motion to dismiss on the following grounds; that the
action is directed against two different entities with distinct personalities,
with "La Campana Starch Factory" and the "La Campana Coffee Factory,
Inc.‖; that the workers of the "La Campana Coffee Factory, Inc." are less
than thirty-one.
● Ocular inspections were made, and on the basis of the evidence
gathered, the Court of Industrial Relations held that there is only one
management for the business of gau-gau and coffee with whom the
laborers are dealing regarding their work. Consequently, it denied the
motion to dismiss.
● Petitioners contend that the Industrial Court had no jurisdiction to take
cognizance of the case, because the petitioner La Campana Coffee
Factory, Inc. has only 14 employees, only 5 of whom are members of the
respondent union and therefore the absence of the jurisdictional number
(30) as provided by sections 1 and 4 of Commonwealth Act No. 103.
Issue/s:
W/N the Court of Industrial Relations was correct in ruling that La Campana
Gaugau Packing and La Campana Coffee Factory Co. Inc., are operating under
one single management, that is, as one business though with two trade names?
Yes, they are to be considered as one and there being more than 30 laborers
involved the court duly acquired jurisdiction over the case.
Ratio:
● True, the coffee factory is a corporation and, by legal fiction, an entity
existing separate and apart from the persons composing it, that is, Tan
Tong and his family. But it is settled that this fiction of law, which has
been introduced as a matter of convenience and to subserve the ends of
justice cannot be invoked to further an end subversive of that purpose.
● Disregarding Corporate Entity. — The doctrine that a corporation is a
legal entity existing separate and apart from the persons composing it is
a legal theory introduced for purposes of convenience and to subserve
the ends of justice. The concept cannot, therefore, be extended to a point
beyond its reason and policy, and when invoked in support of an end
subversive of this policy, will be disregarded by the courts. Thus, in an
appropriate case and in furtherance of the ends of justice, a corporation
and the individual or individuals owning all its stocks and assets will be
treated as identical, the corporate entity being disregarded where used
as a cloak or cover for fraud or illegality.
● In the present case Tan Tong appears to be the owner of the gaugau
factory. And the coffee factory, though an incorporated business, is in
reality owned exclusively by Tan Tong and his family.
● As found by the Court of Industrial Relations, the two factories have but
one office, one management and one payroll, except after July 17, the
day the case was certified to the Court of Industrial Relations, when the
person who was discharging the office of cashier for both branches of the
business began preparing separate payrolls for the two.
CORP 2-D Digests | 16
 ● Also, as found by the industrial court, the laborers of the gaugau factory
and the coffee factory were interchangeable, that is, the laborers from
the gaugau factory were sometimes transferred to the coffee factory and
vice-versa.

● In view of all these, the attempt to make the two factories appear as two
separate businesses, when in reality they are but one, is but a device to
defeat the ends of the law and should not be permitted to prevail.

Dispositive:
In view of the foregoing, the petition is denied, with costs against the petitioner.

(Note: Issue regarding the suspension of the union’s permit and its personality to
sue—it is to be noted that before the certification of the case to the Industrial
Court on July 17, 1951, the petitioner Kaisahan, had a separate permit from the
Dept of Labor. This permit was suspended only on September 30, 1951. The SC
declared that jurisdiction was not lost when the Dept of Labor suspended the
permit of the respondent as a Labor organization. For once jurisdiction is acquired
by the Court of Industrial Relations it is retained until the case is completely
decided)

CORP 2-D Digests | 17

 PNB v. Ritratto Group, Inc.
G.R. No. 142616 | July 31, 2001 | KAPUNAN, J.
Digest by: RIOFLORIDO
Petitioners: PHILIPPINE NATIONAL BANK
Respondents: RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and
DADASAN GENERAL MERCHANDISE
Doctrine:
Piercing the corporate veil is an equitable doctrine developed to address situations
where the separate corporate personality of a corporation is abused or used for
wrongful purposes.
Facts:
Petition for review on certiorari
● Petitioner PNB seeks to annul and set aside
○ CA Decision (March 27, 2000): affirmed the Order issuing a writ
of preliminary injuction (WPI) of the RTC of Makati (June 30,
1999)
○ CA Order (October 4, 1999): which denied petitioner PNB‘s
motion to dismiss
Parties:
● Petitioner Philippine National Bank — a domestic corporation organized
and existing under Philippine law
● Respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan
General Merchandise — domestic corporations, likewise, organized and
existing under Philippine law
Antecedents:
● May 29, 1996 — PNB International Finance Ltd. (PNB-IFL) a subsidiary
company of PNB, organized and doing business in Hong Kong, extended
a letter of credit in favor of the respondents
○ Amount of US$300,000.00
○ Secured by real estate mortgages constituted over 4 parcels of
land in Makati City
○ This credit facility was later increased successively to:
▪ US$1,140,000.00 in September 1996
▪ US$1,290,000.00 in November 1996
▪ US$1,425,000.00 in February 1997
▪ Decreased to US$1,421,316.18 in April 1998
○ Respondents made repayments of the loan incurred by
remitting those amounts to their loan account with PNB-IFL in
Hong Kong
● April 30, 1998 — however, as of this date, their outstanding obligations
stood at US$1,497,274.70
● Pursuant to the terms of the real estate mortgages, PNB-IFL, through its
attorney-in-fact petitioner PNB, notified the respondents of the
foreclosure of all the real estate mortgages and that the properties
subject thereof were to be sold at a public auction on May 27, 1999 at
the Makati City Hall
● May 25, 1999 — respondents filed a complaint for injunction with prayer
for the issuance of a WPI and/or TRO before the RTC of Makati
○ The Executive Judge of the RTC of Makati issued a 72-hour
TRO
● May 28, 1999 — the case was raffled to Branch 147 of the RTC of
Makati
○ The trial judge then set a hearing on June 8, 1999.
● June 8, 1999 — at the hearing of the application for preliminary
injunction, petitioner PNB was given a period of 7 days to file its written
opposition to the application
● June 15, 1999 — petitioner PNB filed an opposition to the application for
a WPI to which the respondents filed a reply
● June 25, 1999 — petitioner PNB filed a motion to dismiss; grounds:
○ Failure to state a cause of action
○ Absence of any privity between the petitioner PNB and
respondents
● June 30, 1999 — the RTC judge issued an Order for the issuance of a
WPI
● July 14, 1999 — WPI was issued
● October 4, 1999 — the motion to dismiss was denied by the trial court
judge for lack of merit
○ Petitioner PNB, thereafter, in a petition for certiorari and
prohibition assailed the issuance of the WPI before the CA.
○ In the impugned decision, the CA dismissed the petition. Hence,
this petition
Petitioner‘s contentions:
● The CA palpably erred in not dismissing the complaint a quo, considering
that by the allegations of the complaint, no cause of action exists against
petitioner PNB, which is not a real party in interest being a mere
attorney-in-fact authorized to enforce an ancillary contract.
● The CA palpably erred in allowing the RTC to issue in excess or lack of
jurisdiction a WPI over and beyond what was prayed for in the complaint
a quo contrary to chief of staff (AFP vs. Guadiz Jr.)
Respondents‘ contentions:
● Even assuming arguendo that petitioner PNB and PNB-IFL are 2
separate entities, petitioner PNB is still the party-in-interest in the
application for preliminary injunction because it is tasked to commit acts
of foreclosing respondents‘ properties.
● The entire credit facility is void as it contains stipulations in violation of
the principle of mutuality of contracts.
● In addition, respondents justified the act of the court a quo in
applying the doctrine of ―Piercing the Veil of Corporate Identity‖ by
CORP 2-D Digests | 18
 stating that petitioner PNB is merely an alter ego or a business
conduit of PNB-IFL.
Issue/s:
W/N PNB is privy to the loan contracts entered into by respondent & PNB-IFL
being that PNB-IFL is owned by PNB — NO
W/N PNB is an alter ego of PNB-IFL — NO
W/N WPI must issue — NO
Ratio:
Issue on the loan contract (need to understand this for context)
● Respondents sought to enjoin and restrain PNB from the foreclosure and
eventual sale of the property in order to protect their rights to said
property by reason of void credit facilities as bases for the real estate
mortgage over the said property.
○ The contract questioned is one entered into between
respondent and PNB-IFL, not PNB.
○ Respondents admit that petitioner PNB is a mere attorney-in-
fact for the PNB-IFL with full power and authority to, inter alia,
foreclose on the properties mortgaged to secure their loan
obligations with PNB-IFL.
○ Herein petitioner PNB is an agent with limited authority and
specific duties under a special power of attorney incorporated in
the real estate mortgage. It is not privy to the loan contracts
entered into by respondents and PNB-IFL.
● Clearly, petitioner PNB not being a part to the contract has no power to
re-compute the interest rates set forth in the contract. Respondents,
therefore, do not have any cause of action against petitioner PNB.
● However…
○ October 4, 1994 — The RTC in its Order ruled that since
PNB-IFL, is a wholly owned subsidiary of defendant PNB,
the suit against the defendant PNB is a suit against PNB-
IFL.
○ In justifying its ruling, the RTC, citing the case of Koppel
Phil. Inc. vs. Yatco, reasoned that the corporate entity may
be disregarded where a corporation is the 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.
NOW FOR THE CORP ISSUE (Super long explanation on doctrine of piercing
the veil of corporate fiction)
Corporation: Has a personality distinct and separate from its
stockholders/members
● GR: As a legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members, and is not affected
by the personal rights, obligations and transactions of the latter.
○ The mere fact that a corporation owns all of the stocks of
another corporation, taken alone is not sufficient to justify their
being treated as one entity.
○ If used to perform legitimate functions, a subsidiary‘s separate
existence may be respected, and the liability of the parent
corporation as well as the subsidiary will be confined to those
arising in their respective business.
○ The courts may in the exercise of judicial discretion step in to
prevent the abuses of separate entity privilege and pierce the
veil of corporate entity.
● Ruling in Koppel finds no application in the case at bar.
○ In said case, SC disregarded the separate existence of the
parent and the subsidiary on the ground that the latter was
formed merely for the purpose of evading the payment of higher
taxes.
○ In the case at bar, respondents fail to show any cogent reason
why the separate entities of the PNB and PNB-IFL should be
disregarded.
Doctrine of piercing the veil of corporate fiction; Circumstances rendering
subsidiary a mere instrumentality (US Jurisprudence)
● While there exists no definite test of general application in determining
when a subsidiary may be treated as a mere instrumentality of the parent
corporation, some factors have been identified that will justify the
application of the treatment of the doctrine of the piercing of the
corporate veil.
● Garrett vs. Southern Railway Co. (factual background)
○ A suit against the Southern Railway Company
○ Plaintiff was employed by Lenoir Car Works and alleged that he
sustained injuries while working for Lenoir. He, however, filed a
suit against Southern Railway Company on the ground that
Southern had acquired the entire capital stock of Lenoir Car
Works, hence, the latter corporation was but a mere
instrumentality of the former.
○ The Tennessee SC stated that as a GR the stock ownership
alone by one corporation of the stock of another does not
thereby render the dominant corporation liable for the torts of
the subsidiary unless the separate corporate existence of the
subsidiary is a mere sham, or unless the control of the
subsidiary is such that it is but an instrumentality or adjunct of
the dominant corporation.
● The Circumstances rendering the subsidiary an instrumentality (Garrett
vs. Southern Railway Co.)
○ (a) The parent corporation owns all or most of the capital
stock of the subsidiary.
CORP 2-D Digests | 19
 ○ (b) The parent and subsidiary corporations have common
directors or officers.
○ (c) The parent corporation finances the subsidiary.
○ (d) The parent corporation subscribes to all the capital
stock of the subsidiary or otherwise causes its
incorporation.
○ (e) The subsidiary has grossly inadequate capital.
○ (f) The parent corporation pays the salaries and other
expenses or losses of the subsidiary.
○ (g) The subsidiary has substantially no business except
with the parent corporation or no assets except those
conveyed to or by the parent corporation.
○ (h) In the papers of the parent corporation or in the
statements of its officers, the subsidiary is described as a
department or division of the parent corporation, or its
business or financial responsibility is referred to as the
parent corporation’s own.
○ (i) The parent corporation uses the property of the
subsidiary as its own.
○ (j) The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary but take
their orders from the parent corporation.
○ (k) The formal legal requirements of the subsidiary are not
observed.
● The Tennessee SC thus ruled: Only two of the eleven listed indicia
occur, namely, the ownership of most of the capital stock of Lenoir by
Southern, and possibly subscription to the capital stock of Lenoir. The
complaint must be dismissed.
Doctrine of piercing the veil of corporate fiction; When applicable
● PH jurisdiction: The doctrine of piercing the corporate veil is an
equitable doctrine developed to address situations where the
separate corporate personality of a corporation is abused or used
for wrongful purposes.
○ The doctrine applies when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or
defend crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the 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.
● The test in determining the applicability of the doctrine of piercing the veil
of corporate fiction (Concept Builders, Inc. v. NLRC)
○ Three elements:
■ 1. Control, not mere majority or complete 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 plaintiffs 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.‖
○ In applying the ―instrumentality‖ or ―alter ego‖ doctrine, the
courts are concerned with reality and not form, with how the
corporation operated and the individual defendant‘s relationship
to the operation.
Doctrine of piercing the veil of corporate fiction is NOT APPLICABLE TO CASE
AT BAR
● Aside from the fact that PNB-IFL is a wholly owned subsidiary of
petitioner PNB PNB, there is no showing of the indicative factors
that the former corporation is a mere instrumentality of the latter
are present. Neither is there a demonstration that any of the evils
sought to be prevented by the doctrine of piercing the corporate
veil exists.
● Inescapably, therefore, the doctrine of piercing the corporate veil based
on the alter ego or instrumentality doctrine finds no application in the
case at bar.
Agency issue: A suit against an agent, absent compelling reasons, is not a suit
against the principal (just in case it is asked)
● In any case, the parent-subsidiary relationship between PNB and PNB-
IFL is not the significant legal relationship involved in this case since the
petitioner PNB was not sued because it is the parent company of PNB-
IFL. Rather, the petitioner PNB was sued because it acted as an
attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings.
● A suit against an agent cannot without compelling reasons be considered
a suit against the principal. Under the Rules of Court, every action must
be prosecuted or defended in the name of the real party-in-interest,
unless otherwise authorized by law or these Rules. In mandatory terms,
the Rules require that ―parties-in-interest without whom no final
determination can be had, an action shall be joined either as plaintiffs or
defendants.‖
● In the case at bar, the injunction suit is directed only against the agent,
not the principal.
CORP 2-D Digests | 20
ProvRem issue: When an injunctive remedy may be granted (just in case it is
asked)
● An injunctive remedy may only be resorted to when there is a pressing
necessity to avoid injurious consequences which cannot be remedied
under any standard compensation.
● Clearly, respondents have failed to prove that they have a right protected
and that the acts against which the writ is to be directed are violative of
said right.

Dispositive:
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed
decision of the Court of Appeals is hereby REVERSED. The Orders dated June
30, 1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch 147 in
Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the
complaint in said case DISMISSED.

CORP 2-D Digests | 21

 Umali v. CA
G.R. No.89561 | September 13, 1990 | REGALADO, J.
Digest by: SAN DIEGO
Petitioners: BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO,
VICTORIA M. CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA
C. JALBUENA AND SANTIAGO M. RIVERA
Respondents: COURT OF APPEALS, BORMAHECO, INC. AND PHILIPPINE
MACHINERY PARTS MANUFACTURING CO., INC.
Doctrine:
● The doctrine of piercing the veil applies when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, or
when it is made as a shield to confuse the legitimate issues, or where a
corporation is the 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.
● The legal corporate entity is disregarded only if it is sought to hold the officers
and stockholders directly liable for a corporate debt or obligation.
● CLV Outline: Piercing the corporate veil is remedy of last resort and is not
available when other remedies are still available.
Facts:
● Umali et al. filed a complaint against Philippine Machinery Parts
Manufacturing Co., Inc. (PM Parts), Insurance Corporation of the Philippines
(ICP), Bormaheco, Inc., (Bormaheco)
● Felipe Castillo (deceased) owns 4 parcels of land which is now owned by his
heirs, Umali et al.
● The land was given as security for a loan contracted by Umali et al. from
DBP.
● For their failure to pay the amortization, foreclosure of the said property was
about to be initiated.
● Santiago Rivera, proposed to them the conversion into a subdivision of the
land to raise the necessary fund.
● Thus, Umali et al. executed an agreement with Slobec Realty and
Development, Inc., represented by its President Santiago Rivera
● In this agreement, Rivera obliged himself to pay Umali et al. P470,000.00.
● Meanwhile, Rivera approached Cervantes, President of Bormaheco, and
proposed to purchase from Bormaheco 2 tractors
● Slobec, through Rivera, executed in favor of Bormaheco a Chattel Mortgage
over the tractors as security for the sale
● As further security, Slobec obtained from ICP as surety and Slobec as
principal, in favor of Bormaheco
● The surety bond was in turn secured by an Agreement of Counter-Guaranty
with Real Estate Mortgage (using the 4 parcels of land) executed by Rivera
as president of Slobec and Umali et al. as mortgagors and ICP as mortgagee.
● Meanwhile, for violation of the terms and conditions of the Counter-Guaranty
Agreement, the land was foreclosed by ICP and were subsequently acquired
by it
● ICP sold the lots to PM Parts
● PM Parts, through its President, Cervantes, sent a letter to Mauricia Castillo
(Umali's relative) requesting her and her children to vacate the subject
property, but Mauricia refused.
● Umali as the appointed administratrix of the properties in question filed an
action for annulment of title
● According to them, all the transactions are void for being entered into in fraud
and without the consent and approval of the CFI before whom the
administration proceedings has been pending.
Issue/s:
W/N The doctrine of piercing the corporate veil is available for Umali et al. in
holding the ICP et al liable - NO.
Ratio:
● CA found that the documents are valid and binding-upon the parties, that
there was no fraud employed by ICP et al.
● Findings of fact of said appellate court are final and conclusive and, thus,
binding on this Court in the absence of sufficient and convincing proof, that
the former acted with grave abuse of discretion.
● An allegation of fraud will not prosper in this case where Umali et al. failed to
show that they were induced to enter into a contract through the insidious
words and machinations of ICP et al. without which the former would not have
executed such contract
● Umali et al. seek to pierce the veil of, corporate entity of Bormaheco, ICP and
PM Parts, alleging that these corporations employed fraud in causing the
foreclosure and subsequent sale of the real properties belonging to them
● Under the doctrine of piercing the veil of corporate entity, when valid grounds
therefor exist, the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or stockholders may be
disregarded. In such cases, the corporation will be considered as a mere
association of persons.
● The members or stockholders of the corporation will be considered as the
corporation, that is, liability will attach directly to the officers and stockholders.
● The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is made
as a shield to confuse the legitimate issues, or where a corporation is the
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.
● The legal corporate entity is disregarded only if it is sought to hold the officers
and stockholders directly liable for a corporate debt or obligation.
● In the instant case, Umali et al. do not seek to impose a claim against the
individual members of the three corporations involved; on the contrary, it is
CORP 2-D Digests | 22
 these corporations which desire to enforce an alleged right against Umali et
al.
● Assuming that they were indeed defrauded by ICP et al. in the foreclosure of
mortgaged properties, this fact alone is not, under the circumstances,
sufficient to justify the piercing of the corporate fiction, since Umali et al. do
not intend to hold the officers and/or members of respondent corporations
personally liable therefor.
● They are merely seeking the declaration of the nullity of the foreclosure sale,
which relief may be obtained without having to disregard the aforesaid
corporate fiction attaching to the corporations.
● The mere fact, therefore, that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate personalities,
absent sufficient showing that the corporate entity was purposely used as a
shield to defraud creditors and third persons of their rights.
● Thus, piercing the veil of corporate entity is not the proper remedy in order
that the foreclosure proceeding may be declared a nullity under the
circumstances obtaining in the case at bar.

Dispositive:
WHEREFORE, the decision of respondent Court of Appeals is hereby
REVERSED and SET ASIDE, and judgment is hereby rendered declaring the
following as null and void: (1) Certificate of Sale, dated September 28, 1973,
executed by the Provincial Sheriff of Quezon in favor of the Insurance Corporation
of the Philippines; (2) Transfer Certificates of Title Nos. T-23705, T-23706, T-
23707 and T-23708 issued in the name of the Insurance Corporation of the
Philippines; (3) the sale by Insurance Corporation of the Philippines in favor of
Philippine Machinery Parts Manufacturing Co., Inc. of the four (4) parcels of land
covered by the aforesaid certificates of title; and (4) Transfer Certificates of Title
Nos. T-24846, T-24847, T-24848 and T-24849 subsequently issued by virtue of
said sale in the name of the latter corporation.

The Register of Deeds of Lucena City is hereby directed to cancel Transfer

Certificates of Title Nos. T-24846, T-24847, T-24848 and T-24849 in the name of
Philippine Machinery Parts Manufacturing Co., Inc. and to issue in lieu thereof the
corresponding transfer certificates of title in the name of herein petitioners, except
Santiago Rivera.

The foregoing dispositions are without prejudice to such other and proper legal
remedies as may be available to respondent Bormaheco, Inc. against herein
petitioners.
SO ORDERED.

CORP 2-D Digests | 23

 Gregorio Araneta, Inc. v. Tuason de Paterno
G.R. No.L-2886 | Aug.22, 1952 | J. Tuason
Digest by: TORIO
Petitioners: GREGORIO ARANETA, INC.
Respondents: PAZ TUASON DE PATERNO and JOSE VIDAL
Doctrine: The principle of piercing the corporate veil is resorted to by the courts as
a measure or protection against deceit and not to open the door to deceit.
Facts:
1. Paz Tuason de Paterno is the registered owner of big block of residential land
in Santa Mesa
2. The lots were subdivided and were occupied by tenants who had lease
contracts with right of first refusal
3. In the years 1940-1943, Tuason obtained several loans from Jose Vidal (Vidal)
amounting to P140 098. The loans were secured by mortgages executed over the
property.
4. Tuason later decided to sell her property to plaintiff Gregorio Araneta, Inc.
(Araneta, Inc).
a. They executed an agreement to buy and sell. Some of the lessees exercised
their right of first refusal.
b. An absolute deed of sale was then executed over the remaining lots. The total
amount to be paid was P190k. The deed of sale contained a stipulation that
should the vendor lose the checks issued, the vendee shall not be held liable for
such loss.
5. The day after the consummation of the sale, Tuason tendered payment to Vidal
by offering the check drawn by Araneta, Inc. Vidal refused to accept the payment,
alleging that according to the Agreement, payment of the mortgage was not to be
effected totally or partially before the end of four years from April, 1943.
6. Tuason, with the help of Atty. Ponce Enrile, filed an action against Vidal to
compel the latter to accept payment. The checks were deposited with the clerk of
court. The action was never tried and all the records, including the checks, were
lost during the war.
7. After the war, the value of the property increased tremendously. Tuason is now
repudiating the agreement to buy and sell and the absolute deed of sale. Araneta,
Inc. filed the present action to compel Tuason to deliver clear title to the lots
subject of the sale free from all liens and encumbrances. It also seeks the
cancellation of the mortgage to Vidal. Vidal filed a cross-claim against Tuason to
foreclose the mortgage. Trial Court ruled in favor of Paterno.
Issue/s: Is the absolute deed of sale valid?-- YES
Ratio:
1. The trial court invalidated the sale on the ground that there's a variance
between terms of the agreement to buy and sell and the absolute deed of sale.
SC said that the trial court interpreted the agreement to buy and sell wrong. One
of the conditions in Exhibit 1 is that the deed of sale is to be executed only when
Tuason has already determined which lots she can validly dispose of. After the
lessees exercised their right to repurchase, she wa already in a position to sell the
remaining lots.
2. Tuason claims that the sale was effected through fraud because the document
was written in English, which she could not understand. The SC said the
argument is hard to believe because Tuason had an able attorney and a son who
was a "leading citizen and businessmen" who took part in the negotiations
3. Tuason also argued that the sale is invalid because Jose Araneta was both
Tuason's agent AND the president of Araneta, Inc
.
a. The trial court said there was no agency relationship. But assuming there was
principal- agent relationship between Tuason and Jose Araneta, the trial court
said that Araneta Inc was the purchaser (not Jose), citing the well-known
distinction between the corporation and its stockholders.
b. [IMPORTANT] Tuason argues before the SC that the court should ignore the
doctrine of separate juridical personality and apply to this case the other well-
known principle that "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." (ie the doctrine of
piercing the corporate veil)
The SC said that the principle of piercing the corporate veil does not apply in this
case. 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 was the president of Gregorio
Araneta, Inc., 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
CORP 2-D Digests | 24
commission of deceit by the purchaser but to pave the way for the evasion
of a legitimate and binding commitment by 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." Even assuming that there was agency relationship, the relation between
Tuason and Jose did not fall within the prohibition in Art. 1459 of the Civil Code.
Jose Araneta was nothing more than a middleman between Tuason and Araneta
Inc. He was not to sell and did not sell the property. He was not authorized to
enter into a contract on behalf of Tuason.
war obligation and the moratorium as to such obligations has been abrogated
unless the debtor has suffered war damages and has filed claim for them; there is
no allegation or proof that she has. In the second place, the debtor herself caused
her creditor to be brought into the case which resulted in the filing of the cross-
claim to foreclose the mortgage. In the third place, prompt settlement of the
mortgage is necessary to the settlement of the dispute and liquidation between
Gregorio Araneta, Inc. and Paz Tuason. If for no other reason, Paz Tuason would
do well to forego the benefits of the moratorium law.
There shall be no special judgments as to costs of either instance.

Dispositive:
To summarize, the following are our findings and decision: Note: There were two MRs filed. Both were dismissed and court did not change its
decision.
The contract of sale Exhibit A was valid and enforceable, but the loss of the
checks for P143,150 and P12,932.61 and invalidation of the corresponding
deposit is to be borne by the buyer. Gregorio Araneta, Inc. the value of these
checks as well as the several payments made by Paz Tuason to Gregorio
Araneta, Inc. shall be deducted from the sum of P190,000 which the buyer
advanced to the seller on the execution of Exhibit 1.

The buyer shall be entitled to the rents on the land which was the subject of the
sale, rents which may have been collected by Paz Tuason after the date of the
sale.

Paz Tuason shall pay Jose Vidal the amount of the mortgage and the stipulated
interest up to October 20,1943, plus the penalty of P30,000, provided that the
loans obtained during the Japanese occupation shall be reduced according to the
Ballantyne scale of payment, and provided that the date basis of the computation
as to the penalty is the date of the filing of the suit against Vidal.

Paz Tuason shall pay the amount that shall have been found due under the
contracts of mortgage within 90 days from the time the court's judgment upon the
liquidation shall have become final, otherwise the property mortgaged shall be
ordered sold provided by law.

Vidal's mortgage is superior to the purchaser's right under Exhibit A, which is

hereby declared subject to said mortgage. Should Gregorio Araneta, Inc. be
forced to pay the mortgage, it will be subrogated to the right of the mortgagee.

This case will be remanded to the court of origin with instruction to hold a
rehearing for the purpose of liquidation as herein provided. The court also shall
hear and decide all other controversies relative to the liquidation which may have
been overlooked at this decision, in a manner not inconsistent with the above
findings and judgment.

The mortgagor is not entitled to suspension of payment under the debt

moratorium law or orders. Among other reasons: the bulk of the debt was a pre-
CORP 2-D Digests | 25
 Boyer-Roxas v. CA
G.R. No.100866 | July 14, 1992. | Gonzales, Jr.
Digest by: YBAÑEZ
Petitioners: REBECCA BOYER-ROXAS and GUILLERMO ROXAS
Respondents: HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS,
INC.
Doctrine:
Piercing of the veil of corporate fiction cannot be resorted under a theory of co-
ownership to justify continued use and possession by stockholders of corporate
properties
Facts:
● Respondent (original plaintiff in this case) is a corporation. It was
incorporated with the primary purpose of engaging in agriculture to
develop the properties inherited from Eugenia V. Roxas and that of
Eufrocino Roxas; that the Articles of Incorporation of the plaintiff, in 1971,
was amended to allow it to engage in the resort business.
○ Incorporators were all members of the same family and became
members of the board.
○ Eufrocino Roxas has the biggest share, a majority stockholder.
○ Corporation put up a business called Hidden Valley Springs
Resort. The house near the Balubugan pool occupied by
Rebecca. It was intended to be a staff house but was converted
into her residence with husband Eriberto. The house was
allegedly built on corporate funds although the construction of
which was started by Rebecca.
○ Eriberto was the general manager when Eufrocino was still
alive. Eufrocino and Eriberto practically kept the corporation
running.
○ Rebecca‘s son, Guillermo, also has a house in the area that
3
was originally intended to be a recreation hall . It was also built
from corporate funds.
● After the death of Eufrocino, Rebecca and Guillermo impeded the normal
operation of the resort. It was said that the corporation could not use its
own pavilions, kitchens, etc.
● There were two (2) separate complaints for recovery of possession filed
with the RTC of Laguna against petitioners Rebecca Boyer-Roxas and
Guillermo Roxas.
○ Heirs of Eugenia Roxas Inc., prayed for the ejectment of the
petitioners from buildings inside the Hidden Valley Springs
Resort located at Limao, Calauan, Laguna allegedly owned by
respondent corporation.
3 This house was originally made from nipa but when they converted it into a house, they used
galvanized iron and other scraps from the set of Apocalypse Now, a film produced by Coppola. Coppola
left his art materials after making the film as payment for rent.
○ In the case of petitioner Rebecca, the respondent corporation
alleged that Rebecca is in possession of 2 houses, one of which
is still under construction, built at the expense of the respondent
corporation; and that her occupancy on the 2 houses was only
upon the tolerance of the respondent corporation.
○ In the case of petitioner Guillermo, the respondent corporation
alleged that Guillermo occupies a house which was built at the
expense of the former during the time when Guillermo's father,
Eriberto, was still living and was the general manager of the
respondent corporation; that the house was originally intended
as a recreation hall but was converted for the residential use of
Guillermo; and that Guillermo's possession over the house and
lot was only upon tolerance.
○ In both cases, the corporation alleged that the petitioners never
paid rentals for the use of the buildings and the lots and that
they ignored the demand letters for them to vacate the
buildings.
● RTC decided in favor of the corporation. CA affirmed.
● Petitioners now contend that the CA erred when it refused to pierce the
veil of corporate fiction considering that Rebecca and Guillermo are
owners of aliquot parts of the properties of the corporation.
Issue/s:
W/N the CA erred in refusing to pierce the veil of corporate fiction in this case
concerning alleged co-owners of the corporate property – NO
Ratio:
● The petitioners' suggestion that the veil of the corporate fiction should be
pierced is untenable. Piercing of the veil of corporate fiction cannot be
resorted under a theory of co-ownership to justify continued use and
possession by stockholders of corporate properties
○ The respondent is a bona fide corporation. As such, it has a
juridical personality of its own separate from the members
composing it. Therefore, The corporation transacts its business
only through its officers or agents.
○ The separate personality of the corporation may be disregarded
only when the corporation is used "as a cloak or cover for fraud
or illegality, or to work injustice, or where necessary to achieve
equity or when necessary for the protection of the creditors.‖
● Eufrocino, who then controlled the management of the corporation,,
consented to the petitioners' stay within the questioned properties.
Specifically,, Eufrocino Roxas gave his consent to the conversion of the
recreation hall to a residential house, occupied by petitioner Guillermo.
The Board of Directors did not object to the actions of Eufrocino. The
petitioners were allowed to stay within the questioned properties until a
Resolution was released by the Board approving the ejection of the
petitioners.
CORP 2-D Digests | 26
 ● Nothing is irregular in the Resolution of the board. Petitioners' stay within
the questioned properties was merely by tolerance of the respondent
corporation in deference to the wishes of Eufrocino, who during his
lifetime, controlled and managed the corporation. Eufrocino‘s actions
could not have bound the corporation forever.

Dispositive:
WHEREFORE, the present petition is partly GRANTED. The questioned decision
of the Court of Appeals affirming the decision of the Regional Trial Court of
Laguna, Branch 37, in RTC Civil Case No. 802-84-C is MODIFIED in that
subparagraphs (c) and (d) of Paragraph 1 of the dispositive portion of the decision
are deleted. In their stead, the petitioner Rebecca Boyer-Roxas and the
respondent corporation are ordered to follow the provisions of Article 448 of the
Civil Code as regard the questioned unfinished building in RTC Civil Case No.
802-84-C. The questioned decision is affirmed in all other respects.

CORP 2-D Digests | 27

 Siain Enterprises v. Cupertino Realty Corp.
G.R. No. 170782 | June 22, 2009 | Nachura, J
Digest by: ZABALA
Petitioners: SIAIN ENTERPRISES, INC
Respondents: CUPERTINO REALTY CORP. and EDWIN R. CATACUTAN
Doctrine:
Where clear evidence support the fact that a corporation‘s affiliates have received
large amounts which became the consideration for the company‘s execution of a
REM over its properties, the piercing doctrine shall be applied to support the fact
that the REM was valid and supported by proper consideration.
Facts:
Petitioner Siain Enterprises, Inc. obtained a loan of P37 Million from respondent
Cupertino Realty Corporation (Cupertino) covered by a promissory note signed by
both petitioners and Cupertinos respective presidents, Cua Le Leng and Wilfredo
Lua.
● To secure the loan, petitioner, on the same date, executed a real estate
mortgage over two (2) parcels of land and other immovables, such as
equipment and machineries
● the parties executed an amendment to promissory note which provided
for a 17% interest pa on the P37M loan.
Thereafter, Cua Le Leng (Siain president) signed a second promissory note in
favor of Cupertino for P160M. Cua Le Leng signed the second promissory note as
maker, on behalf of petitioner, and as co-maker, liable to Cupertino in her
personal capacity.
● Likewise, the parties executed an amendment of real estate mortgage,
which provided that the loan payable to Cupertino was increased from
P37m to P197M (since na-release na yung initial 37M plus 160M
additional, 197M na total loan)
● Note: the P160M was not received by Siain Enterprises directly, but
through its affiliates,Yuyek Manufacturing Corporation, Siain Transport,
Inc., Cua Leleng and Alberto Lim, through various means such as
checks, debit memos and the pledges of the jewelries, condominium
units and trucks, all NOT in the name of petitioner Siain Enterprises but
the affiliates‘.
Thereafter, Siain Enterprises wrote Cupertino and demanded the release of the
P160M loan. In its answer, Cupertino maintained that Siain Enterprises had long
obtained the proceeds of the loan. It declared that Siain Enterprises‘ demand for
the release was merely an attempt to abscond from payment, as it already
demanded payment of the overdue interest on the loan covered by the first
promissory note.
Thus, CupertinoCupertino instituted extrajudicial foreclosure proceedings over the
properties subject of the amended REM, and scheduled its auction sale. This
prompted Siain Enterprisesto file a complaint with a prayer for TRO to restrain the
auction. It contended that the REM was void for having no consideration, it not
having received the P160M directly.
RTC and CA dismissed. Applying the doctrine of piercing the corporate veil, they
ruled that the REM had a consideration and therefore valid since the affiliates
which received the proceeds were mere alter egos of Siain Enterprises.
Issue/s: WON, applying the doctrine of piercing the veil, the REM had a
consideration --- YES
Ratio:
As a general rule, a corporation will be deemed a separate legal entity until
sufficient reason to the contrary appears. But the rule is not absolute. A
corporations separate and distinct legal personality may be disregarded and the
veil of corporate fiction pierced when the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime
In this case, Cupertino presented overwhelming evidence that petitioner and its
affiliate corporations had received the proceeds of the P160M loan increase which
was then made the consideration for the Amended REM.
● That the checks, debit memos and the pledges of the jewelries,
condominium units and trucks were constituted not exclusively in the
name of Siain Enterprises but also either in the name of Yuyek
Manufacturing Corporation, Siain Transport, Inc., Cua Leleng and Alberto
Lim is of no moment.
● For the facts established in this case calls for the application of doctrine
of piercing the veil of the corporate entity by virtue of which, the juridical
personalities of the various corporations involved are disregarded
and the ensuing liability of the corporation to attach directly to its
responsible officers and stockholders.
The conjunction of the identity of the Siain Enterprises in relation to Siain
Transport, Inc., Yuyek Manufacturing Corp., as well as the individual personalities
of Cua Leleng and Alberto Lim has been indubitably shown by the following:
1. Siain and Yuyek have [a] common set of [incorporators], stockholders and
board of directors;
2. They have the same internal bookkeeper and accountant in the person of
Rosemarie Ragodon;
3. They have the same office address at 306 Jose Rizal St., Mandaluyong City;
4. They have the same majority stockholder and president in the person of Cua Le
Leng; and
5. In relation to Siain Transport, Cua Le Leng had the unlimited authority by and
on herself, without authority from the Board of Directors, to use the funds of Siain
Trucking to pay the obligation incurred by the [petitioner] corporation.
Thus, it is crystal clear that [petitioner] corporation, Yuyek and Siain Transport are
characterized by oneness of operations vested in the person of their common
CORP 2-D Digests | 28
president, Cua Le Leng, and unity in the keeping and maintenance of their
corporate books and records through their common accountant and bookkeeper,
Rosemarie Ragodon.

Consequently, these corporations are proven to be the mere alter-ego of their

president Cua Leleng, and considering that Cua Leleng and Alberto Lim have
been living together as common law spouses with three children, this Court
believes that while Alberto Lim does not appear to be an officer of Siain and
Yuyek, nonetheless, his receipt of certain checks and debit memos from Willie
Lua and Victoria Lua was actually for the account of his common-law wife, Cua
Leleng and her alter ego corporations.

The same principle equally applies to Cupertino. Thus, while it appears that
the issuance of the checks and the debit memos as well as the pledges of the
condominium units, the jewelries, and the trucks had occurred prior the date when
Cupertino was incorporated, the same does not affect the validity of the subject
transactions because applying again the principle of piercing the corporate veil,
the transactions entered into by Cupertino Realty Corporation, it being merely the
alter ego of Wilfredo Lua, are deemed to be the latters personal transactions and
vice-versa.

Dispositive:
WHEREFORE, premises considered, the petition is DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 71424 is AFFIRMED. Costs against the
petitioner.

CORP 2-D Digests | 29

 Lipat v. Pacific Banking Corp.
G.R. No.142435 | April 30, 2003 | Quisumbing, J.
Digest by: AVILLON
Petitioners: Estelita Burgos Lipat and Alfredo Lipat
Respondents: Pacific Banking Corporation, Register of Deeds, RTC Ex-officio
sheriff of QC, Heirs of Eugenio Trinidad
Doctrine:
Where one corporation is so organized and controlled and its affairs are conducted
so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the
corporate entity of the instrumentality may be disregarded. The control necessary
to invoke the rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled corporation has,
so to speak, no separate mind, will or existence of its own, and is but a conduit for
its principal.
Facts:
● Petitioners Spouses Lipat owned Belas Export Trading (BET), a single
proprietorship with principal office in Cubao, QC. BET was engaged in
manufacture of garments.
● Spouses Lipat also owned Mystical Fashions in the US, which sell goods
imported from the PH through BET.
● Mrs. Lipat executed a special power of attorney appointing her daughter,
Teresita as atty-in-fact to obtain loans and other credit accommodations
from Respondent Pacific Bank.
● In 1979, Teresita was able to secure, on behalf of Mrs. Lipat and BET, a
loan from Pacific Bank This was secured with a real estate mortgage
over their property in Cubao.
● Later that year, BET was incorporated into a family corporation named
Belas Export Corporation (BEC).
● Its incorporators:
○ Spouses Lipat: 300 shares out of the 420 subscribed shares
○ Teresita: 20 shares
○ other close relatives and friends
● Mrs. Lipat became President while Teresita became VP
● The loan was restructured in the name of BEC and subsequent loans
were obtained by BEC and secured by promissory notes executed by
Teresita. A letter of credit was opened by Pacific Bank and BEC
executed the corresponding trust receipt. BEC also executed export bills.
All these transactions were secured by the real estate mortgage over the
Lipats property.
● The PNs, export bills and trust receipt became due and BEC defaulted.
● The mortgage was foreclosed and the property was sold to Respondent
Eugenio Trinidad.
● Sps. Lipat filed a complaint for annulment of the real estate mortgage,
extrajudicial foreclosure and the certificate of sale issued over the
property, arguing:
○ that the promissory notes, trust receipt, and export bills were all
ultra vires as they were executed without the requisite board
resolution
○ that assuming said acts were valid,, the same were the
corporations sole obligation, it having a personality distinct and
separate from spouses Lipat.
● Pacific Bank and Trinidad argue:
○ that the Lipats cannot evade payments of the value of the
promissory notes, trust receipt, and export bills with their
property because they and the BEC are one and the same, the
latter being a family corporation
Issue/s:
W/N the doctrine of piercing the veil of corporate fiction is applicable in this case -
YES
Ratio:
● A careful reading of the judgment of the RTC and the resolution of the
appellate court show that in finding petitioners mortgaged property liable
for the obligations of BEC, both courts below relied upon the alter ego
doctrine or instrumentality rule, rather than fraud in piercing the veil of
corporate fiction. When the corporation is the mere alter ego or business
conduit of a person, the separate personality of the corporation may be
disregarded. This is commonly referred to as the instrumentality rule or
the alter ego doctrine, which the courts have applied in disregarding the
separate juridical personality of corporations
● Evidence that prove that BET and BEC are not separate business
entities
○ Spouse Lipat were the owners of BET and were two of the
incorporators and majority stockholders of BEC
○ both firms were managed by their daughter Teresita
○ both firms were engaged in the garment business, supplying
products to Mystical Fashion
○ both firms held office in the same building owned by the Lipats
○ BEC is a family corporation with the Lipats as its majority
stockholders
○ the business operations of the BEC were so merged with those
of Mrs. Lipat such that they were practically indistinguishable
○ the corporate funds were held by Mrs. Lipat and the corporation
itself had no visible assets
○ Mrs. Lipat had full control over the activities of and decided
business matters of the corporation
○ Mrs. Lipat had benefited from the loans secured from Pacific
Bank to finance her business abroad and from the export bills
secured by BEC for the account of Mystical Fashion
● BET and BEC are one and the same and the latter is a conduit of and
merely succeeded the former.
CORP 2-D Digests | 30
 ● Petitioners attempt to isolate themselves from and hide behind the
corporate personality of BEC so as to evade their liabilities to Pacific
Bank is precisely what the classical doctrine of piercing the veil of
corporate entity seeks to prevent and remedy.

Dispositive:
WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and
the Resolution dated February 23, 2000 of the Court of Appeals in CA-G.R. CV
No. 41536 are AFFIRMED. Costs against petitioners.
SO ORDERED.

CORP 2-D Digests | 31

 Ramirez Telephone Corp. v. Bank of America
G.R. No. L-22614 | August 29, 1969| Capistrano, J.
Digest by: BALAGTAS
Petitioners: Ramirez Telephone Corporation
Respondents: Bank of America, E.F. Herbosa, The Sheriff of Manila, and CA
Doctrine: While respect for the corporate personality as such is the general rule,
there are exceptions. In appropriate cases, the veil of corporate fiction may be
pierced to administer the ends of justice.
Facts: (Sorry if medj malabo, majority of the case was translated from Spanish)
1) HERBOSA owned a building in Sta Mesa,
a) Which he leased to RUBEN RAMIREZ,
i) The president of the Ramirez Telco.
2) The building was the workshop of the corporation, despite the head office
being in Escolta.
3) The rent however was not paid,
a) so HERBOSA filed an eviction claim against RAMIREZ.
4) The CFI of Manila ruled in favor of HERBOSA (CFI Ordered Ramirez to
vacate)
5) The Sheriff of Manila, however, served a Garnishment Order upon the
Bank of America, for a sum of 2,400PHP.
6) The Bank replied that it did not hold any money for Ruben Ramirez;
7) But upon persistence of the Sheriff:
a) It was found that the money was in the name of Ramirez
Telephone Inc.
8) The bank was willing to comply with the garnishment order.
9) MONEY that Ramirez Telco had that day (Oct 17, 1950):
a) 4,789.53 PHP
10) Minus the garnishment:
a) 2,389.53 PHP
11) The following day, Ramirez Telco withdrew 1,500PHP,
a) Leaving a 889 PHP BALANCE
12) Ruben Ramirez had also issued a check for 2,320 PHP
a) In favor of Ray Electronics
13) Said check was presented to Bank of America
a) The Bank rejected it for insufficiency of funds.
14) Ramirez Telcorp‘s lawyer contacted Bank of America as to why the Bank
rejected the check.
a) The Bank replied that they should obtain a release on the civil
case involving Ruben Ramirez,
b) And that they are merely acting in accordance with the
garnishment order.
15) The lawyer for Ramirez Telco initiated an action on its behalf,
a) Stating that:
i) The bank should have known that Ruben Ramirez,
defendant in said civil case, has no personal deposit
in Bank of America,
ii) And that the Ramirez Telco is an entirely distinct and
separate entity,
(1) Regardless of the fact that Ruben Ramirez
happened to be its President and General
Manager.
(2) And the fact that Ruben Ramirez and his
wife owned 75% of the stock of the
corporation.
16) In turn, the bank filed a counterclaim and a complaint against the Sheriff.
17) CFI: Ruled in favor of Ramirez
a) CFI ordered Bank of America to pay 3k php and litigation costs.
18) CA: Reversed the CFI Ruling
a) Ruled that the Bank of America can garnish the
Issue/s:
W/N the CA erred in not applying the legal principle that a corporation has a
personality separate and distinct from that of its stockholders and thus the funds
of a corporation cannot be reached to satisfy the debt of its stockholders. -- NO.
Ratio:
1) Ramirez Telcorp. maintain that its personality as an entity separate and
distinct from its major stockholders, Ruben R. Ramirez and his wife, was
not to be disregarded even if they did own 75% of the stock of the
corporation.
a) In Ramirez Telcorp‘s opinion, its funds as a corporation can not
be garnished to satisfy the debts of a principal stockholder.
2) While respect for the corporate personality as such is the general rule,
there are exceptions.
3) In appropriate cases, the veil of corporate fiction may be pierced.
4) Ramirez Telcorp‘s petition has no merit, in view of a number of cases
decided by this Court.
a) The latest of which is Albert v. Court of First Instance reaffirming
a 1965 resolution in Albert v. University Publishing Co., Inc
which stated that:
i) "Even with regard to corporations duly organized and
existing under the law:
(1) We have in many a case pierced the veil of
corporate fiction to administer the ends of
justice."
Dispositive:
PREMISES CONSIDERED, the judgment of the Court of Appeals of February 27,
1964 is affirmed, with costs against petitioner Ramirez Telephone Corporation.
Notes:
Translated with www.DeepL.com/Translator
CORP 2-D Digests | 32
 Telephone Engineering and Service Co. v. WCC
G.R. No. L-28694. | May 13, 1981 | MELENCIO-HERRERA, J.:
Digest by: BULATAO
Petitioners: TELEPHONE ENGINEERING & SERVICE COMPANY, INC.
Respondents: WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL
SHERIFF OF RIZAL and LEONILA SANTOS GATUS, for herself and in behalf of
her minor children, Teresita, Antonina and Reynaldo, all surnamed GATUS
Doctrine:
Although respect for the corporate personality as such, is the general rule, there
are exceptions. In appropriate cases, the veil of corporate fiction may be pierced as
when the same is made as a shield to confuse the legitimate issues.
Facts:
● Telephone Engineering and Services, Co., Inc. (TESCO) is a domestic
corporation engaged in the business of manufacturing telephone
equipment with offices at Sheridan Street, Mandaluyong, Rizal.
● Its Executive Vice-President and General Manager is Jose Luis
Santiago.
● It has a sister company, the Utilities Management Corporation
(UMACOR), with offices in the same location.
● UMACOR is also under the management of Santiago.
● UMACOR employed the late Pacifica L. Gatus as Purchasing Agent.
● Gatus was detailed with TESCO.
● He reported back to UMACOR.
● Gatus contracted illness and although he retained to work, he died
nevertheless of "liver cirrhosis with malignant degeneration."
● His widow, respondent Leonila S. Gatus, filed a "Notice and Claim for
Compensation" with the Regional Office of Quezon City, alleging therein
that her deceased husband was an employee of TESCO, and that he
died of liver cirrhosis.
● TESCO was transmitted the Notice and for Compensation, and was
required to submit an Employer's Report of Accident or Sickness
pursuant to Section 37 of the Workmen's Compensation Act (Act No.
3428).
● An "Employer's Report of Accident or Sickness" was submitted indicating
UMACOR as the employer of the deceased.
● The Report was signed by Santiago.
● The employer stated that it would not controvert the claim for
compensation, and admitted that the deceased employee contracted
illness "in regular occupation."
● On the basis of this Report, the Acting Referee awarded death benefits in
the amount of P5,759.52 plus burial expenses of P200.00 in favor of the
heirs of Gatus in a letter-award against TESCO.
● TESCO, through Jose Luis Santiago, informed the Acting Referee that it
would avail of the 15-days-notice given to it to state its non-conformity to
the award and contended that the cause of the illness contracted by
Gatus was in no way aggravated by the nature of his work.
● TESCO filed its "Motion for Reconsideration and/or Petition to Set Aside
Award,‖ alleging as grounds therefor, that the admission made in the
"Employer's Report of Accident or Sickness" was due to honest mistake
and/or excusable negligence on its part, and that the illness for which
compensation is sought is not an occupational disease, hence, not
compensable under the law.
● The Motion for Reconsideration was denied in an Order issued by the
Chief of Section of the Regional Office dated December 28, 1967
predicated on two grounds:
● That the alleged mistake or negligence was not excusable
● That the basis of the award was not the theory of direct causation alone
but also on that of aggravation.
● An Order of execution was issued by the same Office.
● TESCO filed an "Urgent Motion to Compel Referee to Elevate the
Records to the Workmen's Compensation Commission for Review."
● Meanwhile, the Provincial Sheriff of Rizal levied on and attached the
properties of TESCO and scheduled the sale of the same at public
auction.
● TESCO filed with this Court, the present petition for "Certiorari with
Preliminary Injunction" seeking to annul the award and to enjoin the
Sheriff from levying and selling its properties at public auction.
● The Court required Gatus to answer the Petition but denied Injunction.
● TESCO'S Urgent Motion for the issuance of a temporary restraining
order to enjoin the Sheriff from proceeding with the auction sale of its
properties was denied.
● TESCO takes the position that the Commission has no jurisdiction
to render a valid award in this suit as there was no employer-
employee relationship between them, the deceased having been an
employee of UMACOR and not of TESCO.
● In support of this contention, petitioner submitted photostat copies of the
payroll of UMACOR for the periods May 16-31, 1967 and June 1-15,
1967 12 showing the name of the deceased as one of the three
employees listed under the Purchasing Department of UMACOR.
● It also presented a photostat copy of a check of UMACOR payable to the
deceased representing his salary for the period June 14 to July 13, 1967.
13
● Both public and private respondents contend, on the other hand,
that TESCO is estopped from claiming lack of employer – employee
relationship.
Issue/s:
W/N there was an employer-employee rationship between TESCO and Gatus‘
deceased husband. – YES.
Ratio:
CORP 2-D Digests | 33
 ● The existence of employer-employee relationship is the jurisdictional SO ORDERED.
foundation for recovery of compensation under the Workmen's
Compensation Law.
● The lack of employer-employee relationship, however, is a matter of
defense that the employer should properly raise in the proceedings
below.
● The determination of this relationship involves a finding of fact, which is
conclusive and binding and not subject to review by the SC.
● It is only in this Petition before the SC that petitioner denied, for the first
time, the employer-employee relationship.
● In fact, in its letter dated October 27, 1967 to the Acting Referee, in
its request for extension of time to file Motion for Reconsideration,
in its "Motion for Reconsideration and/or Petition to Set Aside
Award," and in its "Urgent Motion to Compel the Referee to Elevate
Records to the Commission for Review," petitioner represented and
defended itself as the employer of the deceased.
● Nowhere in said documents did it allege that it was not the employer.
● Petitioner even admitted that TESCO and UMACOR are sister
companies operating under one single management and housed in
the same building.
● Although respect for the corporate personality as such, is the general
rule, there are exceptions.
● In appropriate cases, the veil of corporate fiction may be pierced as
when the same is made as a shield to confuse the legitimate issues.
● While, indeed, jurisdiction cannot be conferred by acts or omission of the
parties, TESCO'S denial at this stage that it is the employer of the
deceased is obviously an afterthought, a devise to defeat the law
and evade its obligations.
● This denial also constitutes a change of theory on appeal which is not
allowed in this jurisdiction.
● Issues not raised before the Workmen's Compensation Commission
cannot be raised for the first time on appeal.
● For that matter, a factual question may not be raised for the first time on
appeal to the Supreme Court.
● An aggrieved party by the decision of a Commissioner should seek a
reconsideration of the decision by the Commission en banc.
● If the decision is adverse to him, he may appeal to the Supreme Court.
● An appeal brought to the Supreme Court without first resorting to
the remedy referred to is premature and may be dismissed.
● Although this rule admits of exceptions, as where public welfare and the
advancement of public policy so dictate, the broader interests of justice
so require, or where the Orders complained of were found to be
completely null and void or that the appeal was not considered the
appropriate remedy, 23 the case at bar does not fan within any of these
exceptions.

Dispositive:
WHEREFORE, this Petition is hereby dismissed.
CORP 2-D Digests | 34
 Emilio Cano Enterprises v. CIR ● While it is an undisputed rule that a corporation has a personality
G.R. No. L-20502 | February 26, 1965 | BAUTISTA ANGELO, J. separate and distinct from its members or stockholders because of a
Digest by: CAPACITE fiction of the law, here we should not lose sight of the fact that
Enterprises is a closed family corporation where the incorporators and
Petitioners: Emilio Cano Enterprises, Inc. (Enterprises)
directors belong to one single family.
Respondents: Court of Industrial Relations, et al.
○ Here, the corporation and its members can be considered as
one.
Doctrine:
○ To hold such entity liable for the acts of its members is not to
To hold such entity (closed family corporation) liable for the acts of its members is ignore the legal fiction but merely to give meaning to the
not to ignore the legal fiction but merely to give meaning to the principle that such principle that such fiction cannot be invoked if its purpose is to
fiction cannot be invoked if its purpose is to use it as a shield to further an end use it as a shield to further an end subversive of justice.
subversive of justice. ○ While a corporation is a legal entity existing separate and apart
from the persons composing it, that concept cannot be
Facts: extended to a point beyond its reason and policy, and when
● Complaint for unfair labor practice - the ff (all Cano) were made invoked in support of an end subversive of this policy it should
respondents: be disregarded by the courts.
○ Emilio - as president and proprietor of Enterprises ● Emilio and Rodolfo were not indicted in their private capacities but as
○ Ariston - as field supervisor president and manager of Enterprises.
○ Rodolfo - as manager ○ Having been sued officially their connection with the case must
● Incorporators of Enterprises: be deemed to be impressed with the representation of the
○ Emilio corporation.
○ Juliana, his wife ● The court's order is for them to reinstate Cruz to her former position in
○ Rodolfo and Carlos, his sons the corporation and incidentally pay her the wages she had been
○ Ana, his daughter-in-law deprived of during her separation.
○ (no mention of Ariston) ○ Verily, the order against them is in effect against the
● Emilio and Rodolfo - guilty, ordered to reinstate Honorata Cruz to her corporation.
former position with payment of backwages; Ariston - absolved for
insufficiency of evidence Dispositive:
● Emilio died. WHEREFORE, petition is dismissed, with costs.
4
○ Order of execution was directed against the properties of
Enterprises instead of the respondents.
● Enterprises filed a motion to quash that the judgment was not rendered
against it which is a juridical entity separate from its officials.
○ Denied

Issue/s:
Can the judgment rendered against Emilio and Rodolfo in their capacities as
officials of Enterprises be made effective against the property of the latter which
was not a party to the case? - YES

Ratio:

4 (1) to reinstate Honorata Cruz to her former position as ordered in the decision; and (2) to
deposit with the court the amount of P7,222.58 within ten days from receipt of the order,
failing which the court will order either a levy on respondents' properties or the filing of an
action for contempt of court.
CORP 2-D Digests | 35
 Gabionza v. Court of Appeals
G.R. No. 161057 | September 12, 2008 | Tinga
Digest by: CHANG
Petitioners: Betty Gabionza and Isabelita Tan
Respondents: CA, Luke Roxas and Evelyn Nolasco
Doctrine:
The DOJ Resolution explicitly identified the false pretense, fraudulent act or
fraudulent means perpetrated upon the investing public who were made to believe
that ASBHI had the financial capacity to repay the loans it enticed petitioners to
extend, despite the fact that the deficient capitalization evidenced by its articles of
incorporation, the treasurer‘s affidavit, the audited financial statements. ―Moreover,
respondent‘s argument assumes that there is legal obligation on the part of
petitioners to undertake an investigation of ASBHI before agreeing to provide the
loans. There is no such obligation. It is unfair to expect a person to procure every
available public record concerning an applicant for credit to satisfy himself of the
latter‘s financial standing. At least, that is not the way an average person takes
care of his concerns.‖ (Based on the outline)
Facts:
● Roxas was the president of ASB Holdings, Inc. (ASBHI) while Nolasco
was the senior vice president and treasurer.
● ASBHI was incorporated in 1996 with its declared primary purpose to
invest in any and all real and personal properties of every kind or
otherwise acquire the stocks, bonds, and other securities or evidence of
indebtedness of any other corporation, and to hold or own, use, sell, deal
in, dispose of, and turn to account any such stocks.
o ASBHI was organized with an authorized capital stock of P500k,
a fact shown in the articles of incorporation.
● Gabionza and Tan had previously placed monetary investment with the
Bank of Southeast Asia (BSA).
o They alleged that they were convinced by the officers of
ASBHI to lend or deposit money with the corporation.
o At first, they were issued receipts reflecting the name ASB
Realty Development which they were told was the same entity
as BSA or was connected therewith, but beginning in March
1998, the receipts were issued in the name of ASBHI.
o They claimed that they were told that ASBHI was exactly
the same institution that they had previously dealt with.
● ASBHI would issue 2 postdated checks to its lenders, one representing
the principal amount and the other covering the interest thereon. The
checks were drawn against DBS Bank and would mature in 30 to 45
days.
● In the first quarter of 2000, DBS Bank started to refuse to pay for the
checks purportedly by virtue of stop payment orders from ASBHI.
● May 2000, ASBHI filed a petition for rehabilitation and receivership
with the SEC, and it was able to obtain an order enjoining it from paying
its outstanding liabilities.
● This led to the filing of the complaints by petitioners, together with
Christine Chua, Elizabeth Chan, Ando Sy and Antonio Villareal, against
ASBHI.
o Complaints: Estafa under Art. 315(2)(a) and (2)(d) of the RPC,
violation of the Revised Securities Act and violation of the
General Banking Act.
[Procedural part below.]
● The Task Force on Financial Fraud (Task Force) that was created by the
DOJ to investigate the complaints lodged against ASBHI dismissed the
complaint.
● Petitioners filed an MR but was denied in Feb 2001.
● With respect to the charges of estafa under Article 315(2) of the RPC
and of violation of the Revised Securities Act, the Task Force
concluded that the subject transactions were loans which gave rise
only to civil liability; that petitioners never directly dealt with
Nolasco and Roxas.
● 15 Oct 2001, then DOJ Sec. Hernando Perez issued a resolution which
partially reversed the Task Force and instead directed the filing of
five (5) Informations for estafa under Article 315(2)(a) of the RPC,
and an Information for violation of Section 4 in relation to Section 56 of
the Revised Securities Act.
● As the Informations were filed before the RTC of Makati, private
respondents assailed the DOJ Resolution by way of a certiorari petition
with the CA.
● The CA reversed the DOJ and ordered the dismissal of the criminal
cases. The dismissal was sustained when the CA denied petitioners‘
MR. Hence, petitioners filed this case.
Issue/s:
● W/N the facts result in a prima facie case against either Roxas or Nolasco,
especially given that neither of them engaged in any face-to-face dealings
with petitioners? Yes! There is probable cause.
Ratio:
● It is critical to know the key factual findings of the DOJ which led to the
conclusion that probable cause existed against the respondents.
● (I think that the SC agreed with the resolution of the DOJ. Please
read the resolution carefully.)
● The DOJ Resolution states, to wit: (copy and pasted from the case)
―The transactions in question appear to be mere renewals of the loans the
complainant-petitioners earlier granted to BSA. However, just after they agreed to
renew the loans, the ASB agents who dealt with them issued to them receipts
indicating that the borrower was ASB Realty, with the representation that it
was the same entity as BSA or connected therewith. On the strength of this
CORP 2-D Digests | 36
representation, along with other claims relating to the status of ASB and its
supposed financial capacity to meet obligations, the complainant-petitioners
acceded to lend the funds to ASB Realty instead. As it turned out, however, ASB
had in fact no financial capacity to repay the loans as it had an authorized capital
stock of only P500,000.00 and paid up capital of only P125,000.00. Clearly, the
representations regarding its supposed financial capacity to meet its obligations to
the complainant-petitioners were simply false. Had they known that ASB had in
fact no such financial capacity, they would not have invested millions of pesos.
Indeed, no person in his proper frame of mind would venture to lend millions of
pesos to a business entity having such a meager capitalization. The fact that the
complainant-petitioners might have benefited from its earlier dealings with ASB,
through interest earnings on their previous loans, is of no moment, it appearing
that they were not aware of the fraud at those times they renewed the loans.
The false representations made by the ASB agents who dealt with the
complainant-petitioners and who inveigled them into investing their funds in
ASB are properly imputable to respondents Roxas and Nolasco, because
they, as ASBs president and senior vice president/treasurer, respectively, in
charge of its operations, directed its agents to make the false
representations to the public, including the complainant-petitioners, in order
to convince them to invest their moneys in ASB. It is difficult to make a
different conclusion, judging from the fact that respondents Roxas and Nolasco
authorized and accepted for ASB the fraud-induced loans. This makes them
liable for estafa under Article 315 (paragraph 2 [a]) of the Revised Penal
Code. They cannot escape criminal liability on the ground that they did not
personally deal with the complainant-petitioners in regard to the transactions in
question. Suffice it to state that to commit a crime, inducement is as sufficient and
effective as direct participation.‖(Read notes for elements of estafa by means of
deceit.)
● The DOJ Resolution explicitly identified the false pretense,
fraudulent act or fraudulent means perpetrated upon the
petitioners.
● It narrated that petitioners were made to believe that ASBHI had the
financial capacity to repay the loans it enticed petitioners to extend,
despite the fact that it had an authorized capital stock of only
P500,000.00 and paid up capital of only P125,000.00.
a. The deficient capitalization of ASBHI is evinced by its articles of
incorporation, the treasurer's affidavit executed by Nolasco, the
audited financial statements of the corporation for 1998 and the
general information sheets.
● Even if ASBHI, was able to repay its initial loans does not negate the
fraudulent misrepresentation or inducement it has undertaken to obtain
the loans in the first place.
a. The material question is not whether ASBHI inspired
exculpatory confidence in its investors by making good on its
loans for a while, but whether such investors would have
extended the loans in the first place had they known its true
financial setup.
● Even if ASBHI‘s lack of financial and structural integrity is verifiable from
the articles of incorporation or other publicly available SEC records, it
does not follow that the crime of estafa through deceit would be beyond
commission when precisely there are bending representations that the
company would be able to meet its obligations.
a. There is no obligation on the part of petitioners to undertake an
investigation of ASBHI before agreeing to provide the loans. It is
unfair to expect a person to procure every available public
record concerning an applicant for credit to satisfy himself of the
latters financial standing. At least, that is not the way an
average person takes care of his concerns.
● There is also the fact that ABSHI actually received the alleged amounts
of money from petitioners. It is especially curious that according to the
ASBHI balance sheets, over Php 5B were booked as advances to
stockholders when, according to the general information sheet for
1999, Roxas owned 124,996 of the 125k subscribed shares of
ASBHI. Considering that ASBHI had an authorized capital stock of
only P500k and a subscribed capital of P125k, it can be reasonably
deduced that such large amounts booked as advances to
stockholder could have only come from the loans extended by over
700 investors to ASBHI.
● The Court's conclusion is that the DOJ‘s decision to prosecute private
respondents is founded on sufficient probable cause, and the ultimate
determination of guilt or acquittal is best made through a full trial on the
merits. Indeed, many of the points raised by private respondents before
this Court, related as they are to the factual context surrounding the
subject transactions, deserve the full assessment and verification only a
trial on the merits can accord.
Dispositive:
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution
of the Court of Appeals dated 18 July 2003 and 28 November 2003 are
REVERSED and SET ASIDE. The Resolutions of the Department of Justice in I.S.
Nos. 2000-1418 to 1422 dated 15 October 2001 and 3 July 2002 are
REINSTATED. Costs against private respondents.
Notes:
● Article 315(2)(a) of the Revised Penal Code states:
ART. 315. Swindling (estafa). Any person who shall defraud another by any of the
means mentioned herein below shall be punished by:
xxx xxx xxx
(2) By means of any of the following false pretenses or fraudulent acts
executed prior to or simultaneous with the commission of the fraud:
(a) By using a fictitious name, or falsely pretending to possess power,
influence, qualifications, property, credit, agency, business or imaginary
transactions, or by means of other similar deceits;
CORP 2-D Digests | 37
 ● The elements of estafa by means of deceit as defined under
Article 315(2)(a) of the Revised Penal Code are as follows:
(1) that there must be a false pretense, fraudulent act or fraudulent
means;
(2) that such false pretense, fraudulent act or fraudulent means must be
made or executed prior to or simultaneously with the commission of the
fraud;
(3) that the offended party must have relied on the false pretense,
fraudulent act or fraudulent means, that is, he was induced to part with
his money or property because of the false pretense, fraudulent act or
fraudulent means; and
(4) that as a result thereof, the offended party suffered damage.

CORP 2-D Digests | 38

 Yutivo Sons Hardware v. Court of Tax Appeals covering the period from the third quarter of 1947 to the fourth quarter of
G.R. No. L-13203 | January 28, 1961 | Gutierrez, J. 1949.
Digest by: CORPUS ○ They claim that the taxable sales were the retail sales by
Southern Motors to the public and not the sales at wholesale
Petitioners: Yutivo Sons Hardware Company
made by Yutivo to the latter inasmuch as Southern Motors and
Respondents: Court Of Tax Appeals and Collector Of Internal Revenue
Yutivo were one and the same corporation, the former being the
subsidiary of the latter.
Doctrine:
● This was disputed by the petitioner, and a reinvestigation of the case was
A corporation is an entity separate and distinct from its stockholders and from other made by the BIR.
corporation petitions to which it may be connected. However, "when the notion of ○ the Collector (in a letter) countermanded his demand for sales
legal entity is used to defeat public convenience, justify wrong, protect fraud, or tax deficiency on the ground that "after several investigations
defend crime," the law will regard the corporation as an association of persons, or conducted into the matter no sufficient evidence could be
in the case of two corporations merge them into one. When the corporation is the gathered to sustain the assessment of this Office based on
"mere alter ego or business conduit of a person, it may be disregarded the theory that Southern Motors is a mere instrumentality
or subsidiary of Yutivo." The withdrawal was subject,
Facts: however, to the general power of review by the Board of Tax
● Yutivo Sons Hardware Co. is a domestic corporation. Prior to the last Appeals. The Secretary of Finance returned them to the
world war, Yuvito was engaged in the importation and sale of hardware respondent Collector for reinvestigation.
supplies and equipment. After the liberation, it resumed its business and ● · After another investigation, the Collector redetermined that the
until June of 1946 bought a number of cars and trucks from General aforementioned tax assessment was lawfully due the government and in
Motors (GM). addition assessed deficiency sales tax due from petitioner for the four
● As importer, GM paid sales tax prescribed by sections 184, 185 and 186 quarters of 1950, with the last demand in the total sum of P2.2M, detailed
of the Tax Code on the basis of its selling price to Yutivo. Said tax being as follows:
collected only once on original sales, Yutivo paid no further sales tax on
its sales to the public. Deficiency 75% Total Amount
● In 1946, Southern Motors was organized to engage in the business of
Sales Tax Surcharge Due
selling cars, trucks and spare parts. Its original authorized capital stock
was P1M divided into 10,000 shares with a par value of P100 each. Assessment (First) of P1,031,296.60 P773,473.45 P1,804,769.05
○ At incorporation, 2,500 shares worth P250k appear to have November 7, 1950 for
been subscribed into equal proportions by Yu Khe Thai, Yu deficiency sales Tax for the
Khe Siong, Hu Kho Jin, Yu Eng Poh, and Washington Sycip. period from 3rd Qrtr 1947 to
The first three named subscribers are brothers, being sons of 4th Qrtr 1949 inclusive
Yu Tiong Yee, one of Yutivo's founders. The latter two are
respectively sons of Yu Tiong Sin and Albino Sycip, who are Additional Assessment for 234,880.13 176,160.09 411,040.22
among the founders of Yutivo. period from 1st to 4th Qrtr
● After the incorporation of Southern Motors, the cars and trucks 1950, inclusive
purchased by Yutivo from GM were sold by Yutivo to Southern Motors
which, in turn, sold them to the public in the Visayas and Mindanao. Total amount demanded per P1,266,176.73 P949,632.54 P2,215,809.27
○ When GM decided to withdraw from the Philippines in 1947, the letter of December 16, 1954
U.S. manufacturer of GM cars and trucks appointed Yutivo as
importer for the Visayas and Mindanao, and Yutivo continued its
previous arrangement of selling exclusively to Southern Motors. ● This was also contested by Yutivo before the CTA, alleging that
Yutivo, as importer, paid sales tax prescribed on the basis of its ○ there is no valid ground to disregard the corporate personality of
selling price to Southern Motors, and since such sales tax, as Southern Motors and to hold that it is an adjunct of petitioner
already stated, is collected only once on original sales, Yutivo;
Southern Motors paid no sales tax on its sales to the public. ○ assuming the separate personality of Southern Motors may be
● The Collector of Internal Revenue made an assessment upon Yutivo and disregarded, the sales tax already paid by Yutivo should first be
demanded from the latter P1.8M as deficiency sales tax plus surcharge
CORP 2-D Digests | 39
 deducted from the selling price of Southern Motors in computing
the sales tax due on each vehicle; and
○ the surcharge has been erroneously imposed by respondent.
● CTA — with Judge Roman Umali not taking part – disregarded Yutivo
and Southern Motor‘s separate corporate existence. They sustained the
Collector's theory that
○ there was no legitimate purpose in the organization of
Southern Motors — the apparent objective of its organization
being to evade the payment of taxes
○ it was owned (or the majority of the stocks thereof are owned)
and controlled by Yutivo and is a mere subsidiary, branch,
adjunct, conduit, instrumentality or alter ego of the latter.
● Of the two Judges who signed the decision, one voted for the
modification of the computation of the sales tax as determined by the
respondent Collector in his decision so as to give allowance for the
reduction of the tax already paid (resulting in the reduction of the
assessment to P820,509.91 exclusive of surcharges), while the other
voted for affirmance. The dispositive part of the decision, however,
affirmed the assessment made by the Collector.
● Hence this petition.
Issue/s:
1. W/N Southern Motors was organized for no other purpose than to evade
taxes – NO.
2. W/N Southern Motors was owned and controlled by Yuvito – YES.
3. W/N Court of Tax Appeals erred in the imposition of the 5% fraud
surcharge - YES.
Ratio:
1. No. Southern Motors was organized in June 1946, when it could not
have caused Yutivo any tax savings. For a period of more than one year
after its incorporation, GM was the importer of the cars and trucks sold to
Yutivo, which, in turn resold them to Southern Motors. During that period,
GM as importer, was the one solely liable for sales taxes. Neither Yutivo
or Southern Motors was subject to the sales taxes on their sales of cars
and trucks. The sales tax liability of Yutivo did not arise until July 1, 1947
when it became the importer and simply continued its practice of selling
to Southern Motors. The decision, therefore, of the Tax Court that
Southern Motors was organized purposely as a tax evasion device runs
counter to the fact that there was no tax to evade.
○ Southern Motors was organized and it operated, under circumstance that
belied any intention to evade sales taxes. "Tax evasion" is a term that
connotes fraud thru the use of pretenses and forbidden devices to lessen
or defeat taxes. The transactions between Yutivo and Southern Motors,
however, have always been in the open, embodied in private and public
documents, constantly subject to inspection by the tax authorities. After
Yutivo became the importer of GM cars and trucks for Visayas and
Mindanao, it merely continued the method of distribution that it had
initiated long before GM withdrew from the Philippines.
○ Sections 184 to 186 of the said Code provides that the sales tax shall be
collected "once only on every original sale, barter, exchange . . , to be
paid by the manufacturer, producer or importer." The use of the word
"original" and the express provision that the tax was collectible "once
only" evidently has made the provisions susceptible of different
interpretations. A taxpayer has the legal right to decrease the amount of
what otherwise would be his taxes or altogether avoid them by means
which the law permits. A man may, therefore, perform an act that he
honestly believes to be sufficient to exempt him from taxes. He does not
incur fraud thereby even if the act is thereafter found to be insufficient.
○ One other consideration would show that the intent to save taxes could
not have existed in the minds of the organizers of Southern Motors. The
sales tax imposed, in theory and in practice, is passed on to the vendee,
and is usually billed separately as such in the sales invoice. As pointed
out by petitioner Yutivo, had not Southern Motors handled the retail, the
additional tax that would have been payable by it, could have been easily
passed off to the consumer.
2. Yes. Yutivo, which is engaged principally in hardware supplies and
equipment, is completely controlled by the Yutivo, Young or Yu family.
○ The founders of the corporation are closely related to each other either
by blood or affinity, and most of its stockholders are members of the Yu
(Yutivo or Young) family. Southern Motors was organized by the leading
stockholders of Yutivo headed by Yu Khe Thai. During incorporation
2,500 shares worth P250,000.00 appear to have been subscribed in 5
equal proportions by Yu Khe Thai, Yu Khe Siong, Yu Khe Jin, Yu Eng
Poh and Washington Sycip. The first three named subscribers are
brothers, being the sons of Yu Tien Yee, one of Yutivo's founders. Yu
Eng Poh and Washington Sycip are respectively sons of Yu Tiong Sing
and Alberto Sycip who are co-founders of Yutivo.
○ According to the Articles of Incorporation of the said subscriptions, the
amount of P62,500 was paid by the aforenamed subscribers, but actually
the said sum was advanced by Yutivo. The additional subscriptions to
the capital stock of Southern Motors and subsequent transfers thereof
were paid by Yutivo itself. The payments were made without any transfer
of funds from Yutivo to Southern Motors. Yutivo simply charged the
accounts of the subscribers for the amount allegedly advanced by Yutivo
in payment of the shares. Whether a charge was to be made against the
accounts of the subscribers or said subscribers were to subscribe shares
appears to constitute a unilateral act on the part of Yutivo, there being no
showing that the former initiated the subscription.
○ The transactions were made solely by and between Southern Motors and
Yutivo. In effect, it was Yutivo who undertook the subscription of shares,
employing the persons named or "charged" with corresponding account
as nominal stockholders. The shareholders in Southern Motors are mere
nominal stockholders holding the shares for and in behalf of Yutivo, so
even conceding that the original subscribers were stockholders bona fide
CORP 2-D Digests | 40
 Yutivo was at all times in control of the majority of the stock of Southern
Motors and that the latter was a mere subsidiary of the former.
○ While Yutivo and other recorded stockholders transferred their
shareholdings, the transfers were made to their immediate relatives,
either to their respective spouses and children or sometimes brothers or
sisters. Yutivo's shares in Southern Motors were transferred to
immediate relatives of persons who constituted its controlling
stockholders, directors and officers. Despite these purported changes in
stock ownership in both corporations, the Board of Directors and officers
of both corporations remained unchanged.
○ All cash assets of SM were handled by Yutivo and all cash transactions
of SM were actually maintained thru Yutivo. Any and all receipts of cash
by SM including its branches were transmitted or transferred immediately
and directly to Yutivo in Manila upon receipt thereof. Likewise, all
expenses, purchases or other obligations incurred by SM are referred to
Yutivo which in turn prepares the corresponding disbursement vouchers
and payments.
○ Consideration of various other circumstances, especially when taken
together, indicates that Yutivo treated SM merely as its department or
adjunct. Even the branches of SM in Bacolod, Iloilo, Cebu, and Davao
treat Yutivo — Manila as their "Head Office" or "Home Office" as shown
by their letters of remittances or other correspondences.
○ Yutivo financed principally, if not wholly, the business of SM and actually
extended all the credit to the latter not only in the form of starting capital
but also in the form of credits extended for the cars and vehicles
allegedly sold by Yutivo to SM as well as advances or loans for the
expenses of the latter when the capital had been exhausted.
3. Yes. Pursuant to Section 183 of the National Internal Revenue Code the
50% surcharge should be added to the deficiency sales tax "in case a
false or fraudulent return is willfully made." No element of fraud is
present.Although the sales made by SM are in substance by Yutivo this
does not necessarily establish fraud nor the willful filing of a false or
fraudulent return.
○ When GM was the importer and Yutivo, the wholesaler, of the cars and
trucks, the sales tax was paid only once and on the original sales by the
former and neither the latter nor SM paid taxes on their subsequent
sales. Yutivo might have honestly believed that the payment by it, as
importer, of the sales tax was enough as in the case of GM.
Consequently, in filing its return on the basis of its sales to SM and not
on those by the latter to the public, it cannot be said that Yutivo
deliberately made a false return for the purpose of defrauding the
government of its revenues which will justify the imposition of the
surcharge penalty.

Dispositive:
IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals under
review is hereby modified in that petitioner shall be ordered to pay to respondent
the sum of P820,549.91, plus 25% surcharge thereon for late payment.
CORP 2-D Digests | 41
 Padilla v. Court of Appeals
G.R. No. 123893 | November 22, 2001 | Quisumbing J.
Digest by: CRUZ
Petitioners: Luisito Padilla and Phoenix-Omega Development and Management
Corporation
Respondents: CA and Susana Realty Inc.
Doctrine: The general rule is that a corporation is clothed with a personality
separate and distinct from the persons composing it. It may not be held liable for
the obligations of the persons composing it, and neither can its stockholders be
held liable for its obligations. This veil of corporate fiction may only be disregarded
in cases where the corporate vehicle is being used to defeat public convenience,
justify wrong, protect fraud, or defend crime.
Facts:
● On June 27, 1983, Susana Realty, Inc. (SRI), by a deed of absolute
sale, sold to the Light Rail Transit Authority (LRTA) several parcels of
land located in Taft Avenue Extension, San Rafael District, Pasay City.
● Under paragraph 7 of the deed of sale, SRI reserved to itself the right of
first refusal to develop and/or improve the property sold should the LRTA
decide to lease and/or assign to any person the right to develop and/or
improve the property.
● The LRTA and Phoenix Omega Development and Management
Corporation (Phoenix Omega) entered into a Commercial Stall
Concession Contract authorizing the latter to construct and develop
commercial stalls on a 90 sq. m. portion of the property bought from SRI.
● SRI opposed the agreement as having violated the deed of sale it
entered with LRTA.
● A tripartite agreement was later concluded by the parties, however,
whereby SRI agreed to honor the terms of the concession contract and
to lease to Phoenix Omega its (SRI's) property (remaining property)
adjacent to the 90 sq. m. portion subject of the concession contract.
● A contract was thus entered into on July 28, 1988 between Phoenix
Omega and SRI with LRTA whereby Phoenix Omega undertook to
construct commercial stalls on the 90-sq. m. property in accordance with
plans and specifications prepared by the latter, the construction to begin,
however, only upon SRI's approval of such plans and specifications.
● Also on July 28, 1988, Phoenix Omega, by a deed of assignment,
assigned its right and interests over the remaining property unto its sister
company, PKA Development and Management Corporation (PKA).
● Signatories to the deed of assignment were Eduardo Gatchalian in his
capacity as President of Phoenix Omega, and Luisito B. Padilla (Padilla),
one of the petitioners herein, in his capacity as President and General
Manager of PKA.
● The development of the remaining property having been assigned to
PKA, it entered into a contract of lease with SRI likewise on July 28,
1988.
● In the meantime, SRI sold part of its remaining property to a third party.
● An amended contract of lease was thus forged in January 1989 among
SRI, PKA and Phoenix Omega, whereby the parties agreed to substitute
the already sold portion of SRI's remaining property with 2 parcels of land
also belonging to SRI. In this amended contract of lease, PKA was again
represented by Padilla in his capacity as its President and General
Manager.
● And Phoenix Omega, which was not a party to the July 28, 1988 lease
contract sought to be amended but which was a party, to the amended
contract, was also represented by Padilla as Chairman of the Board of
Directors of Phoenix Omega.
● PKA's building permit was later revoked due to certain violations of the
National Building Code
● On August 24, 1989, PKA was allowed by the (Department) of Public
Works and Highway(s) to resume construction on the leased premises
subject to PKA's correction of the defects in the construction to conform
to BP 344.
● As SRI's approval of PKA's amended plans in the construction was
required, PKA transmitted the same to SRI which withheld approval
thereof pending PKA's correction of the defects in the construction.
● Repeated requests for approval of its amended plans not having been
heeded by SRI, PKA filed at the court a quo the action at bar for
rescission of contract of lease against SRI, alleging that SRI's refusal to
approve the plans without any justifiable reason deprived it of the use of
the commercial stalls, thereby incurring losses.
● SRI, upon the other hand, claimed that it was PKA which violated the
terms of their contract, alleging that PKA failed to complete within six
months the construction of the commercial stalls during which period it
was not paying any rentals and that PKA undertook the construction
without first having its plans approved."
● RTC rendered its decision, as follows:
● 1. Declaring the rescission and termination of the Contract of Lease, as
amended, and the passing in ownership of all the improvements now
existing on the premises, and ordering plaintiff to surrender possession
of the leased premises to the defendant.
● 2. Ordering PKA to pay to the SRI sums of money
● CA affirmed the RTC decision
● A writ of execution was issued in due course by the RTC
● Possession of the subject properties was subsequently restored to SRI,
but the monetary award was left unsatisfied.
● SRI filed a motion for issuance of an alias writ against herein petitioners,
based on the trial court's observation that PKA and Phoenix-Omega
are one and the same entity.
● This was granted by the RTC in an order which reads: "WHEREFORE,
as prayed for by the defendant-judgment creditor Susana Realty, Inc., let
an alias writ of execution issue against the properties, both real and
personal, of PKA Development and Management Corporation, of
Phoenix-Omega Development Corporation, and of Luisito B. Padilla,
CORP 2-D Digests | 42
 for the enforcement of the decision dated January 7, 1991, promulgated
by this Court, the same be implemented by deputy sheriff Edilberto A.
Santiago."
● The RTC issued an alias writ on the same day pursuant to the above
order
● Alleging that the writ of execution cannot be enforced against them,
Padilla and Phoenix filed with the RTC an omnibus motion for the
reconsideration and for annulment of the alias writ
● Padilla and Phoenix assailed these orders as confiscatory, since they
were never parties to the case filed by PKA against SRI, and they
were unable to present evidence on their behalf.
● The motion was denied
● CA also denied the petition
Issue/s:
W/N the RTC‘s issuance of the alias writ of execution can be enforced against
Padilla and Phoenix? NOOOOOooooooo
Ratio:
● A court acquires jurisdiction over a person through either a valid service
of summons or the person's voluntary appearance in court.
● A court must necessarily have jurisdiction over a party for the latter to be
bound by a court decision.
● Generally accepted is the principle that no man shall be affected by any
proceeding to which he is a stranger, and strangers to a case are not
bound by judgment rendered by the court
● In the present case, we note that the trial court never acquired
jurisdiction over petitioners through any of the modes mentioned
above. Neither of the petitioners was even impleaded as a party to the
case.
● Without the trial court having acquired jurisdiction over petitioners, the
latter could not be bound by the decision of the court.
● Execution can only be issued against a party and not against one who
was not accorded his day in court.
● The courts a quo ruled that petitioner Padilla, in particular, had his day in
court. As general manager of PKA, he actively participated in the case in
the trial court. He "ha(d) the right to control the proceedings, to make
defense, to adduce and cross examine witnesses, and to appeal from a
decision." Therefore, Padilla and Phoenix-Omega, of which Padilla is
chairman of the board, could not now argue that they did not have the
opportunity to present their case in court, according to private
respondent.
● To begin with, it is clear that Padilla participated in the proceedings
below as general manager of PKA and not in any other capacity.
● The fact that at the same time he was the chairman of the board of
Phoenix-Omega cannot, by any stretch of reasoning, equate to
participation by Phoenix-Omega in the same proceedings. We again
stress that Phoenix-Omega was not a party to the case and so
could not have taken part therein.
● SRI, however, insists that the trial court had pierced the veil of corporate
fiction protecting petitioners, and this justifies execution against their
properties.
● The general rule is that a corporation is clothed with a personality
separate and distinct from the persons composing it. It may not be
held liable for the obligations of the persons composing it, and
neither can its stockholders be held liable for its obligations.
● This veil of corporate fiction may only be disregarded in cases
where the corporate vehicle is being used to defeat public
convenience, justify wrong, protect fraud, or defend crime.
● PKA and Phoenix-Omega are admittedly sister companies, and may be
sharing personnel and resources, but we find in the present case no
allegation, much less positive proof, that their separate corporate
personalities are being used to defeat public convenience, justify wrong,
protect fraud, or defend crime.
● "For the separate juridical personality of a corporation to be disregarded,
the wrongdoing must be clearly and convincingly established. It cannot
be presumed." We find no reason to justify piercing the corporate veil in
this instance.
● We understand private respondent's frustration at not being able to have
the monetary award in their favor satisfied. But given the circumstances
of this case, public respondent cannot order the seizure of petitioners'
properties without violating their constitutionally enshrined right to due
process, merely to compensate private respondent.
Dispositive:
WHEREFORE, the instant petition is GRANTED. The assailed decision and
resolution of the Court of Appeals in CA-G.R. SP No. 36685 are SET ASIDE, and
the order of the trial court dated November 29, 1994 and the alias writ of
execution issued on the same date in connection with Civil Case No. 7302, are
declared NULL and VOID.
CORP 2-D Digests | 43
 Mayor v. Tiu
G.R. No. 203770 | November 23, 2016 | MENDOZA, J.
Digest by: CUA
Petitioners: Manuela Azucena Mayor
Respondents: Edwin Tiu and Damiana Charito Marty
Doctrine:
Ownership by a single stockholder or another corporation of all or nearly all of the
capital stocks of a corporation is not of itself a sufficient reason for disregarding the
fiction of separate corporate personalities. To disregard the separate personality
the wrong doing cannot be presumed but must be clearly and convincingly
established
Facts:
● Rosario, the widow of Primo passed away leaving a holographic last will
and testament
● There she named her sister Remedios and her niece, Manuela as
executors
● Remedios and Manuel filed a petition for the probate of Rosario‘s
holographic will
● A few days later Marty, claiming to be the adopted daughter of Rosario
filed a petition for letters of administration. It was not given due course
because of the probate proceedings.
● RTC found the petition for probate of will filed by Remedios and Manuela
as sufficient in form and substance and set the case for hearing
● Marty filed motion stating that Remedios kept Rosario a virtual hostage
for the past ten years and her family was financially dependent on her
which led to the disposal of her and her husband‘s properties.
● Marty averred that until the will of the descendent could be probated and
admitted, Remedios and her ten children had no standing to possess or
control the properties.
● She prayed for the probate court to 1.) make immediate inventory of all
the properties 2.) direct tenants (Mercury Drug, Chowking) located at
Primrose Hotel to deposit their rentals with the court 3.) direct Metrobank
to freeze the accounts in the name of Rosario and Primrose
Development 4.) lock up the Primrose Hotel in order to preserve the
property
● Remedios and Manuela claim that Marty was not an adopted child and
that the probate court had no jurisdiction over the properties mistakenly
claimed by Marty as part of Rosario‘s estate as the properties were
actually owned by Primrose
● Marty in her reply cited a CFI order claiming that the veil of corporate
entity of Primrose was pierced on the ground that it was a closed family
corporation controlled by Rosario and Primo‘s death.
● Thus Marty alleged that the piercing was proper in the case as the
incorporation of Primrose was founded on a fraudulent consideration,
having been done in contemplation of Primo‘s death.
● The RTC granted the motion of Marty and appointed a special
administrator of the estate. The probate court also ordered Mercury
and Chowking to deposit its rental income with the court and Metrobank
to freeze the bank accounts mentioned in the motion of Marty. The
doctrine of piercing the corporate veil was applied considering that
Rosario had no other properties comprising her estate
● Remedios and Manuela filed a motion for inhibition and later an MR ad
cautelam
○ They argued that Rosario‘s estate consisted only of shares of
stock in Primrose and not the corporation itself
○ Thus the probate court could not order lessees to remit the
rentals to the estate‘s administrators. They also insisted that the
special administrator be recalled
● RTC denied the mr
● CA reversed the orders except as to the appointment of a special
administrator. Court held that Primose had a personality separate and
distinct from the estate and thus the probate court had no jurisdiction to
apply the doctrine of piercing the corporate veil
○ When the probate court applied the doctrine of "piercing," in
effect, it adjudicated with finality the ownership of the properties
in favor of the Estate.
○ CA stated that RTC had no jurisdiction to adjudicate ownership
of a property claimed by another based on adverse title; and
that questions like this must be submitted to a court of general
jurisdiction and not to a probate court.
● Even if the court‘s determination on ownership was merely intended to
be provisional, the properties claimed are registered under the Torrens
system
● As such Primrose was considered owner until the titles were nullified in
an appropriate ordinary action
● The CA further stated that the RTC erroneously relied on the order
issued by the CFI Leyte in 1981, in the probate proceedings involving the
estate of Primo. Whatever determination the CFI made at the time
regarding the title of the properties was merely provisional, hence, not
conclusive as to the ownership.
● By reason of the favorable decision by the CA, Remedios and Manuela
filed a motion to partially revoke the write of execution. RTC granted the
motion and revoked the power of the special administrator to oversee the
operations of Primrose and revoked orders with respect to Mercury Drug
and Chowking
● 10 months after the order, Marty filed an Omnibus motion praying for
the probate court to 1.) order accounting of all properties 2.) deposit all
rental payments and 3.) prohibit the disbursement of funds comprising
the estate without formal motion and approval by the probate court
● RTC granted Marty’s Omnibus motion. Although it agreed with the CA
decision reversing the previous RTC order, the court acknowledged the
urgency and necessity of appointing a special administrator
● The court directed the following:
CORP 2-D Digests | 44

○ 1. DIRECTS petitioners, either individually or jointly, to: (a)
RENDER AN ACCOUNTING of all the properties and assets
comprising the estate of the decedent that may have come into
their possession; and, (b) DEPOSIT OR CONSIGN all the
rentals payments or such other passive incomes from the
properties and assets registered in the name of Primrose
Development Corporation, including all income derived from
the Primrose Hotel and the lease contracts with Mercury Drug
and Chowking Restaurant, both within fifteen (15) days from
receipt of this Order;
○ 2. DIRECTS the Special Administrator to take possession and
charge of the properties comprising the decedent's estate,
specially those pertaining to the shareholding of the decedent in
Primrose Development Corporation, to determine whether or
not action for the recovery of the shares of stock supposedly
transferred from the decedent to petitioners Remedios Tiu,
Manuela Azucena Mayor should be instituted in the name of the
estate against the said transferees and to submit a Report on
the foregoing matters to this Court, within fifteen (15) days from
receipt of this Order; and,
○ 3. ORDERS that no funds comprising the estate of the decedent
shall be disbursed without formal Motion therefor, with the
conformity of the Special Administrator, duly approved by this
Court.
● CA dismissed the MR field by Remedios and Manuela
● Later Manuela filed a motion for issuance of TRO and writ of preliminary
injunction on the ground that the probate court ordered an inventory of
the assets of Primrose, as separate and distinct entity.
Issue/s:
WON Primrose is a separate and distinct entity? YES
Ratio:
● The estate of the deceased person is a juridical person separate and
distinct from the person of the decedent and any other corporation. This
status of an estate comes about by operation of law. This is in
consonance with the basic tenet under corporation law that a corporation
has a separate personality distinct from its stockholders and from other
corporations to which it may be connected.
● The doctrine of piercing the corporate veil has no relevant application in
this case. Under this doctrine, the court looks at the corporation as a
mere collection of individuals or an aggregation of persons undertaking
business as a group, disregarding the separate juridical personality of the
corporation unifying the group.
● The purpose behind piercing a corporation's identity is to remove the
barrier between the corporation and the persons comprising it to thwart
the fraudulent and illegal schemes of those who use the corporate
personality as a shield for undertaking certain proscribed activities.
● Instead of holding the decedent's interest in the corporation separately
as a stockholder, the situation was reversed. The probate court ordered
the lessees of the corporation to remit rentals to the estate's
administrator without taking note of the fact that the decedent was not
the absolute owner of Primrose but only an owner of shares
● Ownership by a single stockholder or another corporation of all or
nearly all of the capital stocks of a corporation is not of itself a
sufficient reason for disregarding the fiction of separate corporate
personalities. To disregard the separate personality the wrong
doing cannot be presumed but must be clearly and convincingly
established
● It is a well-settled rule that a probate court or one in charge of
proceedings cannot adjudicate or determine title to properties claimed to
be part of the estate but which are equally claimed to belong to outside
parties.
● The court can only determine whether they should, or should not, be
included in the inventory or list of properties to be overseen by the
administrator.
● If there is a dispute the administrator and the opposing parties have
to resort to an ordinary action for the final determination of the
conflicting claims of title because the probate court cannot do so
● The probate court should have recognized the incontestability accorded
to the Torrens title of Primrose over Marty's arguments of possible
dissipation of properties.
○ If a property covered by Torrens title is involved, "the
presumptive conclusiveness of such title should be given due
weight, and in the absence of strong compelling evidence to the
contrary, the holder thereof should be considered as the owner
of the property in controversy until his title is nullified or modified
in an appropriate ordinary action, particularly, when as in the
case at bar, possession of the property itself is in the persons
named in the title.
● The records of this case would show that that no compelling evidence
was ever presented to substantiate the position of Marty that Rosario and
Primrose were one and the same, justifying the inclusion of the latter's
properties in the inventory of the decedent's properties.
● At most Rosario owned shares of stock in Primrose, a separate and
distinct personality from the estate of the decedent
● Furthermore the probate court has not acquired jurisdiction over
Primrose and its properties. Piercing the veil applies to determination of
liability not of jurisdiction
● It is not available to confer on the court a jurisdiction it has not acquired.
To apply this doctrine, it is imperative that the court must first have
jurisdiction over the corporation
CORP 2-D Digests | 45
Dispositive:
WHEREFORE, the petition is GRANTED. The Temporary Restraining Order,
dated June 14, 2013, is hereby made PERMANENT, effective immediately. The
Regional Trial Court, Branch 6, Tacloban City, is ENJOINED from enforcing and
implementing its January 20, 2011 and June 10, 2011 Orders, insofar as the
corporate properties of Primrose Development Corporation are concerned, to
avert irreparable damage to a corporate entity, separate and distinct from the
Estate of Rosario Guy-Juco Villasin Casilan.

CORP 2-D Digests | 46

 McConnel v. Court of Appeals
G.R. No.L-10510 | March 17, 1961 | Reyes, J.B.L., J Ratio:
Digest by: DA SILVA ● The corporation in question is a mere instrumentality of the individual
stockholders, hence the latter must individually answer for the corporate
Petitioners: M. Mc Connel, W.P. Cochrane, Ricardo Rodriguez, Et al.
obligations. While the mere ownership of all or nearly all of the capital
Respondents: CA, Dominga De Los Reyes, Sabino Padilla
stock of a corporation is a mere business conduit of the stockholder, that
conclusion is amply justified where it is shown, as in the present case,
Doctrine: To hold the individual stockholders liable for the corporation‘s obligations
that the operations of the corporation were so merged with those of the
is not to ignore the corporation as a separate entity, but merely to apply the stockholders as to be practically indistinguishable from them. To hold the
established principle that such entity cannot be invoked for purposes that could not individual stockholders liable for the corporation‘s obligations is not to
have been intended by the law creating the corporation itself. ignore the corporation as a separate entity, but merely to apply the
established principle that such entity cannot be invoked for purposes that
Facts: could not have been intended by the law creating the corporation itself.
● The Court of appeals found that the Park Rite Co., a Philippine
corporation, was originally organized on or about April 15, 1947
○ It had a capital stock of 1,500 shares at P1.00 per share. Dispositive:
● The Company leased from Rafael Rosales y Samanillo a vacant lot on Finding no error in the judgment appealed from, the same is hereby affirmed, with
Juan Luna street, which it used for parking motor vehicles for a costs against petitioners-appellants Cirilo Paredes and Ursula Tolentino.
consideration
● It turned out that in operating its business, the corporation occupied and
used not just the lot it leased from Samanillo, but an adjacent lot
belonging to respondents-appellees Padilla, without their knowledge and
consent.
○ upon learning of the use of their lot around October, 1947,
respondents demanded payment for use and occupation of the
lot
● The corporation (controlled by Cirilo Parades and Ursula Tolentino, who
purchased and held 1,496 of the 1500 shares) disclaimed liability, and
blamed the original incorporators, McConnel, Rodriguez and Cochrane.
● Judgment was rendered in due course ordering Park Rite Co to pay
P7,410.00 plus legal interest as damages from April 15,1947 until return
of the lot. Restitution not having been made until Jan 31 1948, the
judgment amounted to P11,732.50.
● Upon execution of judgment, the corporation was found to be without
assets other than P550 deposited in Court.
● After application to the judgment credit, there remained a balance of
P11,182.5 outstanding and unsatisfied
● The judgment creditors then filed suit in the CFI of Manila against the
corporation, and its past and present stockholders to recover from them,
jointly and severally, the unsatisfied balance of the judgment, plus legal
interest and costs.
● CFI denied recovery, but CA reversed
● Hence the present petition on certiorari

Issue/s:
W/N The individual stockholders may be held liable for obligations contracted by
the corporation – YES
CORP 2-D Digests | 47
 Jacinto v. Court of Appeals
G.R. No. 80043 | June 6, 1991 | Davide, Jr., J.
Digest by: DE GUZMAN
Petitioners: Roberto A. Jacinto
Respondents: Honorable Court of Appeals and Metropolitan Bank and Trust
Company
Doctrine: When the veil of corporate fiction is made as a shield to perpetuate fraud
and or confuse legitimate issues, the same should be pierced.
CLV Outline: There is no denial of due process to hold officers liable under the
piercing doctrine, provided that evidential basis has been adduced during trial to
apply the piercing doctrine.
Facts:
● This is an appeal by certiorari to partially set aside the Decision of CA
which affirmed in toto the decision of the RTC of Manila, Branch 11.
● The RTC found that Jacinto was in fact the corporation itself known as
Inland Industries, Inc. He admitted that he was both its President and
General Manager, as well as a substantial stockholder (52% with his
wife). He was also the one who entirely dealt with the transaction of
Metrobank through the trust receipts he signed with no indication as to in
what capacity.
● Said decision ordered Roberto Jacinto and Inland Industries, Inc. to
jointly and severally pay Metrobank for 382,015.80 pesos, with 16%
interest and attorney‘s fees.
● Jacinto argued that he cannot be held solidarily liable with Inland
because:
❏ He just signed said instruments in his official capacity as its
President;
❏ Inland has a juridical personality distinct and separate from its
officers and stockholders
❏ The principle of piercing the fiction of corporate entity should be
applied with great caution and not precipitately, because a dual
personality by a corporation and its stockholders would defeat
the principal purpose for which a corporation is formed.
❏ There is no allegation in the complaint questioning the separate
identity and existence of Inland
Issue:
W/N CA can validly pierce the fiction of corporate identity of Inland Industries, Inc.
even if there is no allegation in the complaint nor a prayer regarding the same? –
YES
Ratio:
This petition is bereft of merit. The issues are basically factual and a careful
scrutiny of the decisions of both lower courts reveals that their findings and
conclusions on the matter of piercing the veil of corporate fiction and on the
liability of Jacinto are overwhelmingly supported by the evidence.
● In Jacinto‘s stipulation of facts, he claimed to be both President and
General Manager of Inland Industries. However, in his direct testimony,
he claimed that one Bienvenida Catabas was the President and one
Aurora Heresa was Chairman of the Board.
● The disparity places extreme doubt as to his credibility. There was no
clear-cut delimitation between the personality of Jacinto as an individual
and the personality of Inland Industries as a corporation.
● Jurisprudence provides that the veil of corporate fiction may be pierced
when it is made as a shield to perpetuate fraud and or confuse legitimate
issues.
● As dictum in the case of CIR v. Norton & Harrison Co., where a
corporation is merely an adjunct, business conduit or alter ego, the fiction
of separate and distinct corporate entity should be disregarded.
On the assertion of lack of evidence:
● It was just an empty assertion because it was found that all the goods
covered by the 3 Letters of Credit and paid for under the Bills of
Exchange were delivered to and received by Inland Industries, Inc.
through Roberto A. Jacinto, its President and General Manager, who
signed for and in behalf of defendant Inland and agreed to the terms and
conditions of 3 separate trust receipts covering the same.
● While on the face of the complaint there is no specific allegation that the
corporation is a mere alter ego of petitioner, subsequent developments,
from the stipulation of facts up to the presentation of evidence and the
examination of witnesses, unequivocally show that Metrobank sought to
prove that Jacinto and Inland are one or that he is the corporation. No
serious objection was heard from petitioner.
● Section 5 of Rule 10 of the Rules of Court provides:
● SEC. 5. Amendment to conform to or authorize presentation of evidence.
— When issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all respects,
as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure so to amend does not
affect the trial of these issues. If the evidence is objected to at the time of
trial on the ground that it is not within the issues made by the pleadings,
the court may allow the pleadings to be amended and shall do so freely
when the presentation of the merits of the action will be subserved
thereby and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining his action
or defense upon the merits. The court may grant continuance to enable
the objecting party to meet such evidence.
Dispositive:
CORP 2-D Digests | 48
WHEREFORE, for lack of merit, the Petition is DISMISSED with costs against
petitioner.

CORP 2-D Digests | 49