GOOD EARTH EMPORIUM VS CA

FACTS:
A Lease Contract was entered into by and between ROCES-REYES REALTY, INC., as lessor,
and GOODEARTH EMPORIUM, INC., as lessee, for a term of three years at a monthly rental of P65,
000.00.
From March 1983, up to the time the complaint was filed, the lessee had defaulted in the payment of
rentals, as a consequence of which, private respondent ROCES-REYES REALTY, INC., filed an
ejectment case (Unlawful Detainer) against herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM
KA PING.

ISSUE:
Whether or not the debt owed under the name of the officers of the company is the same as to that
owed under the name of the corporation
HELD:
NO. Personalities are completely distinct and separate from each other
Jesus Marcos Roces testified that the amount of P1 million evidenced by the receipt is the payment
for a loan extended by him and Marcos Roces in favor of Lim Ka Ping. The assertion is borne by the
receipt itself whereby they acknowledged payment of the loan in their names and in no other
capacity.
A corporation has a personality distinct and separate from its individual stockholders or members.
Being an officer or stockholder of a corporation does not make one's property also of the corporation,
and vice-versa, for they are separate entities. The delivery of the amount to and the receipt thereof
by the Roces brothers in their names raises the presumption that the said amount was due to them.
There is a disputable presumption that money paid by one to the other was due to the latter.
It have been an established rule that when the existence of a debt is fully established by the
evidence (which has been done in this case), the burden of proving that it has been extinguished by
payment devolves upon the debtor who offers such a defense to the claim of the plaintiff creditor.
CRUZ VS DALISAY

FACTS:
In a sworn complaint, Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff of Manila, with
"malfeasance in office, corrupt practices and serious irregularities" allegedly committed as follows:
1. Respondent sheriff attached and/or levied the money belonging to complainant Cruz when he was
not himself the judgment debtor in the final judgment of NLRC sought to be enforced but rather the
company known as "Qualitrans Limousine Service, Inc.," a duly registered corporation; and,
2. Respondent likewise caused the service of the alias writ of execution upon complainant who is a
resident of Pasay City, despite knowledge that his territorial jurisdiction covers Manila only and does
not extend to Pasay City.
In his Comments, respondent Dalisay explained that when he garnished complainant's cash deposit
at the Philtrust bank, he was merely performing a ministerial duty. While it is true that said writ was
addressed to Qualitrans Limousine Service, Inc., yet it is also a fact that complainant had executed
an affidavit before the Pasay City assistant fiscal stating that he is the owner/president of said
corporation and, because of that declaration, the counsel for the plaintiff in the labor case advised
him to serve notice of garnishment on the Philtrust bank.
ISSUE:
Whether or not the sheriffs act of garnishment of Cruzs personal account was proper
HELD:
No, the act of garnishment by the sheriff was improper since it is a well-settled doctrine both in law
and in equity that as a legal entity, a corporation has a personality distinct and separate from its
individual stockholders or members. The mere fact that one is president of a corporation does not
render the property he owns or possesses the property of the corporation, since the president, as
individual, and the corporations are separate entities.
BANK OF AMERICA VS CA
FACTS:
The Litonjuas were engaged in the shipping business and owned two vessels, through their whollyowned corporations. The petitioner banks induced them to increase the number of their ships in

operation, offering them easy loans to acquire said vessels. The Litonjuas claimed, among others,
that petitioners as trustees did not fully render an account of all the income derived from the
operation of the vessels.
ISSUE:
Did the trial court commit grave abuse of discretion in refusing to dismiss the complaint on the
ground that plaintiffs have no cause of action against defendants since plaintiffs are merely
stockholders of the

corporations

which

are

the

registered

owners of the

vessels

and

the

borrowers of petitioners?|
HELD:
No. A case is dismissible for lack of personality to sue upon proof that the plaintiff is not the real
party-in-interest. Lack of personality to sue can be used as a ground for a Motion to Dismiss based on
the fact that the complaint, on the face thereof, evidently states no cause of action.
In the case at bar, the complaint contains the three elements of a cause of action. It alleges that: (1)
plaintiffs, herein private respondents, have the right to demand for an accounting from defendants
(herein petitioners), as trustees by reason of the fiduciary relationship that was created between the
parties involving the vessels in question; (2) petitioners have the obligation, as trustees, to render
such an accounting; and (3) petitioners failed to do the same.
Petitioners insist that they do not have any obligation to the private respondents as they are mere
stockholders of the corporation; that the corporate entities have juridical personalities separate and
distinct from those of the private respondents. Private respondents maintain that the corporations
are

wholly

owned

by

them

and

prior

to

the

incorporation of

such

entities,

they

were

clients of petitioners which induced them to acquire loans from said petitioners to invest on the
additional ships.
We agree with private respondents.

AVON DALE GARMENTS VS CA

FACTS:

Private respondents were employees of Avon Dale Garments (ADG), Inc. and its predecessor-ininterest, Avon Dale Shirt Factory (ADSF). The respondents were terminated from service by Avon Dale
Garments upon payment of the corresponding separation pay as agreed by the compromise
agreement between the parties.
However, ADG refused to include in the computation of the separation pay, the period during which
the private respondents rendered to ADSF Therefore private respondents filed a complaint before the
labor arbiter for the deficiency in their separation pay. The respondents claimed that their service to
ADSF should be credited in computing their separation pay considering that ADG was not dissolved
and they were not hired as new employees by ADG.
LA ruled in favor of ADG, but was reversed by the NLRC finding that upon dissolution of ADSF, there
was no showing that its terminated employees were ever paid their separation pay.
ISSUE:
Whether or not Avon Dale Garments Inc. is separate and distinct from Avon Dale Shirt Factory
RULING:
NO, ADC is the continuing corporation of ADSF.
The Court ruled that Avon Dale garments Inc., failed to establish that it is a separate and distinct
entity from Avon Dale Shirt Factory, absent any showing that there was indeed an actual closure and
cessation of the operations of the latter. The mere filing of the Articles of Dissolution with the
Securities and Exchange Commission, without more, is not enough to support the conclusion that
actual dissolution of an entity in fact took place. The prevailing circumstances in this case indicated
that Petitioner Company is not distinct from its predecessor Avon Dale Shirt Factory, but in fact
merely continued the operations of the latter under the same owners, the same business venture, at
same address, and even continued to hire the same employees. Therefore, Avon Dale Garments Inc.
shall be liable for the deficiency in the employees separation pay.
PS
Baka lang bglang itanong ni Pogi, may issue din regarding dun sa compromise agreement ng ADG
tska nung employees. Hndi nirecognize ung compromise agreement kasi hndi sya signed and
executed before the Regional director ng NLRC.

CONCEPT BUILDERS, INC. VS NLRC

FACTS:
Petitioner Concept Builders, Inc., a domestic corporation, is engaged in the construction business.
Private respondents were employed by said company as laborers, carpenters and riggers.

Private respondents were served individual written notices of termination of employment

by petitioner. 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.
Public respondent found it to be untrue. Petitioner had to engage the services of subcontractors whose workers performed the functions of private respondents. Hence, private
respondents file a case against the petitioner corporation.
The Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents
and to pay them back wages equivalent to one year or three hundred working days.
the sheriff issued a report stating that he tried to serve the alias writ of execution on
petitioner through the security guard on duty but the service was refused on the ground that
petitioner no longer occupied the premises.
Private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI
and petitioner corporation were owned by the same incorporator/stockholders. They also alleged
that petitioner temporarily suspended its business operations in order to evade its legal
obligations to them and that private respondents were willing to post an indemnity bond to
answer for any damages which petitioner and HPPI may suffer because of the issuance of the
break-open order

ISSUE:

Whether the National Labor Relations Commission 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 petitioner's sister company.||

HELD:

NO, NLRC did not commit grave abuse of discretion. The break-open order was proper.
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.
"instrumentality rule"||| "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. It must be kept in mind that the control must be shown to
have been exercised at the time the acts complained of took place. Moreover, the control and breach
of duty must proximately cause the injury or unjust loss for which the complaint is made."|||

FIRST PHILIPPINE INTERNATIONAL BANK VS CA

FACTS: (ang haba tlga nito and wla akong makitang digest na ung issue is about
corporate law puro civpro shits and allergic nako as civpro shits huhuhu )
ISSUE:
HELD:
FRANCISCO MOTORS INC. VS CA

FACTS:
Petitioner Francisco Motors Corporation filed a complaint for Sum of Money against private
Respondent spouses Gregorio and Librada Manuel for the balance of the jeep body purchased by
them from the petitioner, the cost of repair of the said vehicle and the costs of suit and attorney's

fees. Spouses Manuel filed their answer and interposed a counterclaim for unpaid legal services by
Gregorio Manuel which was not paid by the incorporators, directors and officers of the petitioner
being the members of the Francisco family whom he represented in the intestate estate proceedings
of the late Benita Trinidad at time when he was still the Assistant Legal Officer of the petitioner.|||

ISSUE: Whether or not the act of Gregorio Manuel in setting off his legal services availed personally
by the stockholders of the corporation against the assets of the corporations separate personality is
proper?

HELD:

No, the personality of the stockholders in this case, is distinct and separate from the
personality of the corporation.

The personality of the corporation and those of its incorporators, directors and officers in their
personal capacities ought to be kept separate in this case. The claim for legal fees against the
concerned individual incorporators, officers and directors could not be properly directed against
the corporation without violating basic principles governing corporations. Moreover, every action
including a counterclaim must be prosecuted or defended in the name of the real party-ininterest. It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at
the door of petitioner (FMC) rather than individual members of the Francisco family.|||
WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar
only as it held Francisco Motors Corporation liable for the legal obligation owing to private
respondent Gregorio Manuel; but this decision is without prejudice to his filing the proper suit against
the concerned members of the Francisco family in their personal capacity. No pronouncement as to
costs.

BIBIANA REYNOSO VS CA

FACTS:
The Commercial Credit Corporation (hereinafter, "CCC"), a financing and investment firm, decided to
organize franchise companies in different parts of the country. Employees of the CCC were
designated as resident managers of the franchise companies. Petitioner Reynoso, was designated as

the resident manager of the franchise company in Quezon City, known as the Commercial Credit
Corporation of Quezon City (hereinafter, "CCC-QC"). CCC-QC entered into an exclusive management
contract with CCC whereby the latter was granted the management and full control of the business
activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its receivables
to CCC. Subsequently, however, this discounting arrangement was discontinued pursuant to the socalled "DOSRI Rule," prohibiting the lending of funds by corporations to its directors, officers,
stockholders and other persons with related interests therein. Petitioner, in order to boost the
business activities of CCC-QC, deposited his personal funds it the company: In return, CCC-QC issued
to him its interest-bearing promissory notes. A complaint for sum of money with preliminary
attachment was instituted against him by CCC-QC, alleging that petitioner embezzled the funds of
CCC-QC. But petitioner asserted that the said amount represented his money placement in CCCQC as
shown by 23 checks which he issued to the said company, court ruled in favor of Reynoso for the
troubles caused to him by the malicious case filed against him, a writ of execution was served to levy
on CCC under its new name, General Credit Corporation (GCC). GCC argued that the levy should be
made against CCC-QC and not against GCC for its not the real party in interest.
ISSUE:

Whether or not GCC is indeed the mother corporation of CCC-QC and thus may be held liable for
obligations it contracted

HELD:

Yes, GCC may be held liable.

It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was
intended to publicly identify it as a component of the CCC group of companies engaged in one and
the same business, i.e., investment and financing. Aside from CCC-Quezon City, other franchise
companies were organized such as CCC-North Manila and CCC-Cagayan Valley. The organization of

subsidiary corporations as what was done here is usually resorted to for the aggrupation of capital,
the ability to cover more territory and population, the decentralization of activities best
decentralized, and the securing of other legitimate advantages. But when the mother corporation
and its subsidiary cease to act in good faith and honest business judgment, when the corporate
device is used by the parent to avoid its liability for legitimate obligations of the subsidiary, and
when the corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to
remedy the problem. When that happens, the corporate character is not necessarily abrogated. It
continues for legitimate objectives. However, it is pierced in order to remedy injustice, such as that
inflicted in this case.
Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The
exclusive management contract insured that CCC-QC would be managed and controlled by CCC and
would not deviate from the commands of the mother corporation. In addition to the exclusive
management contract, CCC appointed its own employee, petitioner, as the resident manager of CCCQC.

SIMEON DE LEON VS NLRC

FACTS:
Fortune Tobacco Corporation (FTC) and Fortune Integrated Services, Inc. (FISI) entered into a contract
for security services where the latter undertook to provide security guards for the protection and
security of the former. The petitioners were among those engaged as security guards pursuant to the
contract.
On February 1, 1991, the incorporators and stockholders of FISI sold out lock, stock and barrel to a
group of new stockholders by executing for the purpose a "Deed of Sale of Shares of Stock". On the
same date, the Articles of Incorporation of FISI was amended changing its corporate name to
Magnum Integrated Services, Inc. (MISI). On 1991, FTC terminated the contract for security services
which resulted in the displacement of security guards assigned by FISI/MISI to FTC, including the

petitioners in this case. The petitioners raised the issues of illegal dismissal and unfair labor practice
against FTC. But FTC averred that there was no employer-employee relationship between it and the
petitioners, as they are employees of FISI and not FTC.

ISSUE:
Whether or not FTC and FISI/MISI is one and the same corporation
HELD:
YES.
We find that the Labor Arbiter correctly applied the doctrine of piercing the corporate veil to hold all
respondents liable for unfair labor practice and illegal termination of petitioners' employment. It is a
fundamental principle in corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it is connected. However, when the concept of
separate 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, or in case of two corporations,
merge them into one. The separate juridical personality of a corporation may also be disregarded
when such corporation is a mere alter ego or business conduit of another person. |||
Under these circumstances, the Court cannot allow FTC to use its separate corporate personality to
shield itself from liability for illegal acts committed against its employees.

PNB VS ANDRADA ELECTRIC & ENGINEERING COMPANY

FACTS:
Respondent filed an action against petitioners for the unpaid balance on electrical services it
previously rendered to Pampanga Sugar Mill (PASUMIL). Respondent alleged that petitioners became
liable to them when the former acquired the assets of, took over, and operated PASUMIL.|
PASUMIL (Pampanga Sugar Mills) engaged the services of Andrada Electric for electrical rewinding, repair,
the construction of a power house building, installation of turbines, transformers, among others. Most of the services
were partially paid by PASUMIL, leaving several unpaid accounts.
On August 1975, PNB, a semi-government corporation, acquired the assets of PASUMILassets that were earlier
foreclosed by the DBP.
On September 1975, PNB organized NASUDECO (National Sugar Development Corporation), to take ownership and
possession of the assets and ultimately, to nationalize and consolidate its interest in other PNB controlled sugar mills.
NASUDECO is a semi-government corporation and the sugar arm of the PNB.
Andrada Electric alleges that PNB and NASUDECO should be liable for PASUMILs unpaid obligation
amounting to 500K Php, damages, and attorneys fees, having owned and possessed the assets of PASUMIL
ISSUE:
Whether PNB and NASUDECO may be held liable for PASUMILs liability to Andrada Electric and Engineering Company
HELD:
NO.
Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities
owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong,
defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine
National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL),
which had earlier been foreclosed and purchased at the resulting public auction by the Development Bank of the
Philippines (DBP),will not make PNB liable for the PASUMIL's contractual debts to Andrada Electric &
Engineering Company (AEEC).
Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1) control not mere stock
control, but complete domination not only of finances, but of policy and business practice in respect to the
transaction attacked, must have been such 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 a
fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust
act in contravention of plaintiff's legal right; and (3) the said control and breach of duty must have proximately
caused the injury or unjust loss complained of. The absence of the foregoing elements in the present case
precludes the piercing of the corporate veil. First, other than the fact that PNB and NASUDECO acquired the assets
of PASUMIL, there is no showing that their control over it warrants the disregard of corporate personalities. Second,
there is no evidence that their juridical personality was used to commit a fraud or to do a wrong; or that the
separate corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of another
entity or person. Third, AEEC was not defrauded or injured when PNB and NASUDECO acquired the assets of
PASUMIL. Hence, although the assets of NASUDECO can be easily traced to PASUMIL, the transfer of the latter's
assets to PNB and NASUDECO was not fraudulently entered into in order to escape liability for its debt to AEEC.
There
was
NO
merger
or
consolidation
with
respect
to
PASUMIL
and
PNB.Re s p o n d e n t f u r t h e r c l a i m s t h a t p e t i t i o n e r s s h o u l d b e h e l d l i a b l e f o r t h e u n p a i d
o b l i g a t i o n s o f PA S U M I L b y v i r t u e o f LO I N o s . 1 8 9 - A a n d 3 1 1 , w h i c h

e x p re s s l y authorized PASUMIL and PNB to merge or consolidate (allegedly).On the other hand, petitioners
contend that their takeover of the operations of PASUMIL did not involve any corporate merger
or consolidation, because the latter had never lost its separate identity as a corporation. A consolidation
is the union of two or more existing entities to form a new entity called the consolidated
corporation. A
merger,
on
the
other
hand,
is
a union
whereby
one
or more existing corporations are absorbed by another corporation that survives and
continues the combined business. The merger, however, does not become eff ective upon the
mere agreement of the constituent corporations. Since a merger or consolidation involves fundamental
changes in the corporation, as well as in the rights of stockholders and creditors, there must be an
express provision of law authorizing them. For a valid merger or consolidation, the approval by the SEC of the
articles of merger or consolidation is required. These articles must likewise be duly approved by a majority of the
respective stockholders of the constituent corporations.
In the case at bar, there is no merger or consolidation with respect to PASUMIL and P N B .
T h e p ro c e d u re p re s c r i b e d u n d e r Ti t l e I X o f t h e C o r p o r a t i o n C o d e w a s n o t followed.In
fact, PASUMILs corporate existence, as correctly found by the CA, had not been legally
extinguished or terminated. Further, prior to PNBs acquisition of the foreclosed assets, PASUMIL had
previously
made
partial
payments
to
respondent
for
the
formers
obligation in the amount of P777,263.80.
A s o f J u n e 2 7 , 1 9 7 3 , PA S U M I L h a d p a i d P 2 5 0 , 0 0 0 t o r e s p o n d e n t a n d , f r o
m J a n u a r y 5 , 1 9 7 4 t o M a y 2 3 , 1 9 7 4 , another P14, 000.Neither did petitioner expressly
or impliedly agree to assume the debt Of PASUMIL to R e s p o n d e n t .
LOI No. 11
e x p l i c i t l y p r o v i d e s t h a t P N B s h a l l s t u d y a n d s u b m i t re c o m m e n d a t i o n s o n
t h e c l a i m s o f PA S U M I L s c re d i t o r s . C l e a r l y , t h e c o r p o r a t e separateness
between PASUMIL and PNB remains, despite respondents insistence to the contrary
ESTELITA BURGOS LIPAT VS PACIFIC BANKING
FACTS:
The spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading"(BET), a single
proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, QuezonCity. BET was
engaged in the manufacture of garments for domestic and foreign consumption. The Lipats also
owned the "Mystical Fashions" in the United States, which sells goods imported from the Philippines
through BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the Philippines
while she was managing "Mystical Fashions" in the United States. In order to facilitate the convenient
operation of BET, Estelita Lipat executed on 14December 1978, a special power of attorney
appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit accommodations
from Pacific Banking Corporation (Pacific Bank).She likewise authorized Teresita to execute mortgage
contracts on properties owned or co-owned by her as security for the obligations to be extended by
Pacific Bank including any extension or renewal thereof. Sometime in April 1979, Teresita, by virtue of
the special power of attorney, was able to secure for and in behalf of her mother, Mrs. Lipat and BET,
a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be manufactured by BET and
exported to "Mystical Fashions" in the United States. As security there for, the Lipat spouses, as
represented by Teresita, executed a Real Estate Mortgage over their property located at No.814
Aurora Blvd., Cubao, and Quezon City. Said property was likewise made to secure other additional or
new loans, etc. On 5 September 1979, BET was incorporated into a family corporation named Bela's
Export Corporation (BEC) in order to facilitate the management of the business. BEC was engaged in
the business of manufacturing and exportation of all kinds of garments of whatever kind and

description and utilized the same machineries and equipment previously used by BET. Its
incorporators and directors included the Lipat spouses who owned a combined 300 shares out of the
420 shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives and friends of
the Lipats. Estelita Lipat was named president of BEC, while Teresita became the vice-president and
general manager. Eventually, the loan was later restructured in the name of BEC and subsequent
loans were obtained by BEC with the corresponding promissory notes duly executed by Teresita on
behalf of the corporation. A letter of credit was also opened by Pacific Bank in favor of A. O. Knitting
Manufacturing Co., Inc.,

Upon the request of BEC after BEC executed the corresponding trust receipt therefore. Export bills
were also executed in favor of Pacific Bank for additional finances. These transactions were all
secured by the real estate mortgage over the Lipats' property. The promissory notes, export bills, and
trust receipt eventually became due and demandable. Unfortunately, BEC defaulted in its payments.
After receipt of Pacific Bank's demand letters, Estelita Lipat went to the office of the bank's liquidator
and asked for additional time to enable her to personally settle BEC's obligations. The bank acceded
to her request but Estelita failed to fulfill her promise. Consequently, the real estate mortgage was
foreclosed and after compliance with the requirements of the law the mortgaged property was sold
at public auction. On 31 January1989, a certificate of sale was issued to respondent Eugenio D.
Trinidad as the highest bidder. On 28 November 1989, the spouses Lipat filed before the Quezon City
RTC a complaint for annulment of the real estate mortgage, extrajudicial foreclosure and
the certificate of sale issued over the property against Pacific Bank and Eugenio D. Trinidad. The
complaint alleged, among others, that the promissory notes, trust receipt, and export bills were all
ultra vires acts ofTeresita as they were executed without the requisite board resolution of the Board
of Directors of BEC. The Lipats also averred that assuming said acts were valid and binding on BEC,
the same were the corporation's sole obligation, it having a personality distinct and separate from
spouses Lipat. It was likewise pointed out that Teresinas authority to secure a loan from Pacific Bank
was specifically limited to Mrs. Lipat's sole use and benefit and that the real estate mortgage was
executed to secure the Lipats' and BET's P583,854.00 loan only. In the irrespective answers, Pacific
Bank and Trinidad alleged in common that petitioners Lipat 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. Trinidad further claimed that he was a buyer
in good faith and for value and that the Lipat spouses are estopped from denying BEC's existence
after holding themselves out as a corporation. After trial on the merits, the RTC dismissed the
complaint. The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV 41536.
Said appeal, however, was dismissed by the appellate court for lack of merit. The Lipats then moved
for reconsideration, but this was denied by the appellate court in its Resolution of 23 February2000.
The Lipat spouses filed the petition for review on certiorari.
ISSUE:
Whether BEC and BET are separate business entities, and thus the Lipat spouses can isolate
themselves behind the corporate personality of BEC.
HELD:
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. As held in one case, 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 controls 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. The evidence on record shows BET and BEC
are not separate business entities. (1)

Estelita and Alfredo Lipat are the owners and majority shareholders of BET and BEC, respectively; (2)
both firms were managed by their daughter, Teresita; 19 (3) both firms were engaged in the garment
business, supplying products to "Mystical Fashion," a U.S. firm established by Estelita Lipat; (4) both
firms held office in the same building owned by the Lipats;(5) BEC is a family corporation with the
Lipats as its majority stockholders; (6) the business operations of the BEC were so merged with those
of Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds were held by
Estelita Lipat and the corporation itself had no visible assets; (8) the board of directors of BEC was
composed of the Burgos and Lipat family members; (9) Estelita had full control over the activities of
and decided business matters of the corporation; and that (10) Estelita 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." It could not have been coincidental that BET and BEC are
so intertwined with each other in terms of ownership, business purpose, and management.
Apparently, BET and BEC are one and the same and the latter is a conduit of and merely succeeded
the former. The spouses' 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. BEC is a mere
continuation and successor of BET, and the Lipat spouses cannot evade their obligations in the
mortgage contract secured under the name of BEC on the pretext that it was signed for the benefit
and under the name of BET.