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CORPORATION - CASES

Tayag vs. Benguet Consolidated, Inc., 26 SCRA 242(1968)


Corporation law; Corporation; Concept and nature.A corporation
is an artificial being created by operation of law (Sec. 2, Act No.
1459). A corporation as known to Philippine jurisprudence is a
creature without any existence until it has received the imprimatur
of the state acting according to law. It is logically inconceivable
therefore that it will have rights and privileges of a higher priority
than that of its creator. More than that, it cannot legitimately refuse
to yield obedience to acts of its state organs, certainly not excluding
the judiciary. whenever called upon .to do so.
A corporation is not in fact and in reality a person, but the law treats
it as though it were a person by process of fiction, or by regarding it
as an artificial icial person distinct and separate from its individual
stockholders (1 Fletcher, Cyclopedia Corporations, pp. 19-20).
Principal administration and ancillary administration distinguished;
When ancillary administration is proper; Reason.It is often
necessary to have more than one administration of an estate. When
a person dies intestate owning property in the country of his
domicile as well as in a foreign country, administration is had in both
countries. That which is granted in the jurisdiction of decedent's last
domicile is termed the principal administration, while any other
administration is termed the ancillary administration.
Refusal of domiciliary administrator to deliver shares of stock
despite judicial order; Case at bar.Since, in the case at bar, there
is a refusal, persistently adhered to by the domiciliary administrator
in New York, to deIiver the shares of stocks of appellant corporation
owned by the decedent to fee ancillary administrator in the
Philippines, there was nothing unreasonable or arbitrary in
considering them as lost and requiring the appellant to issue new
certificates in lieu thereof.
Thereby, the task incumbent under the law on the ancillary
administrator could be discharged and his responsibility fulfilled.
Any other view would result in the compliance to a valid judicial
order being made to depend on the uncontrolled discretion of a
party or entity.
In this connection, our Supreme Court held: "Our attention has not
been called to any law or treaty that would make the findings of the
Veterans' Administrator (of the United States), in actions where he is
a party, conclusive on our courts. That, in effect, would deprive our
tribunals of judicial descretion and render them subordinate
instrumentalities of the Veterans' Administrator" (Viloria v.
Administrator of Veterans Affairs, 101 Phil. 762).
It is bad enough as the Viloria decision made patent for our judiciary
to accept as final and conclusive, determinations made by foreign
governmental agencies. It is infinitely worse if through the absence
of any coercive power by our courts over juridical persons within our
jurisdiction, the force and effectivity of their orders could be made
to depend on the whim or caprice of alien entities. It is difficult to
imagine of a situation more offensive to the dignity of the bench or
the honor of the country.

convenience, justify wrong, protect fraud or defend crime.It is an


elementary and fundamental principle of corporation law that a
corporation is an artificial being invested by law with a personality
separate and distinct from its stockholders and from other
corporations to which it may be connected. While a corporation is
allowed to exist solely for a lawful purpose, the law will regard it as
an association of persons or in case of two corporations, merge
them into one, when this corporate legal entity is used as a cloak for
fraud or illegality. This is the doctrine of piercing the veil of
corporate fiction which applies only when such corporate fiction is
used to defeat public convenience, justify wrong, protect fraud or
defend crime. The rationale behind piercing a corporations identity
is to remove the barrier between the corporation from 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.
A subsidiary has an independent and separate juridical personality,
distinct from that of its parent company, hence, any claim or suit
against the latter does not bind the former and vice versa.While
it is true that Aircon is a subsidiary of the petitioner, it does not
necessarily follow that Aircons corporate legal existence can just be
disregarded. In Velarde v. Lopez, Inc., the Court categorically held
that a subsidiary has an independent and separate juridical
personality, distinct from that of its parent company; hence, any
claim or suit against the latter does not bind the former, and vice
versa. In applying the doctrine, the following requisites must be
established: (1) control, not merely majority or complete stock
control; (2) such control must have been used by the defendant to
com-mit fraud or wrong, to perpetuate the violation of a statutory
or other positive legal duty, or dishonest acts 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 existence of interlocking directors, corporate officers and
shareholders which the respondent court considered, is not enough
justification to pierce the veil of corporate fiction, in the absence of
fraud or other public policy considerations; Even when there is
dominance over the affairs of the subsidiary, the doctrine of piercing
the veil of corporate fiction applies only when such fiction is used to
defeat public convenience, justify wrong, protect fraud or defend
crime; The wrongdoing must be clearly and convincingly
established, it cannot just be presumed.The existence of
interlocking directors, corporate officers and shareholders, which
the respondent court considered, is not enough justification to
pierce the veil of corporate fiction, in the absence of fraud or other
public policy considerations. But even when there is dominance over
the affairs of the subsidiary, the doctrine of piercing the veil of
corporate fiction applies only when such fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime. To
warrant resort to this extraordinary remedy, there must be proof
that the corporation is being used as a cloak or cover for fraud or
illegality, or to work injustice. Any piercing of the corporate veil has
to be done with caution. The wrongdoing must be clearly and
convincingly established. It cannot just be presumed.
______________________________
Union Bank of the Philippines vs. Ong, 491 SCRA 581(2006)

---------------------------------------------------Jardine Davies, Inc. vs. JRB Realty, Inc., 463 SCRA 555(2005)
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction;
A corporation is an artificial being invested by law with a personality
separate and distinct from its stockholders and from other
corporations to which it may be connected; The doctrine applies
only when such corporate fiction is used to defeat public

MARIA KATRINA S. TANJUSAY

Corporation Law; A corporation, upon coming into existence, is


invested by law with a personality separate and distinct from those
of the persons composing itmere ownership by a single or small
group of stockholders of nearly all of the capital stock of the
corporation is not, without more, sufficient to disregard the fiction
of separate corporate personality.The real debtor of petitioner
bank in this case is BMC. The fact that the respondent spouses
bound themselves to answer for BMCs indebtedness under the

CORPORATION - CASES
surety agreement referred to at the outset is not reason enough to
conclude that the spouses are themselves debtors of petitioner
bank. We have already passed upon the simple reason for this
proposition. We refer to the basic precept in this jurisdiction that a
corporation, upon coming into existence, is invested by law with a
personality separate and distinct from those of the persons
composing it. Mere ownership by a single or small group of
stockholders of nearly all of the capital stock of the corporation is
not, without more, sufficient to disregard the fiction of separate
corporate personality.
Notarial Law; A notarized conveying deed carries with it the
presumption of validity and regularity.In the present case,
respondent spouses Ong, as the CA had determined, had sufficiently
established the validity and legitimacy of the sale in question. The
conveying deed, a duly notarized document, carries with it the
presumption of validity and regularity. Too, the sale was duly
recorded and annotated on the title of the property owners, the
spouses Ong. As the transferee of said property, respondent Lee
caused the transfer of title to his name.
The existence of fraud or the intent to defraud creditors cannot
plausibly be presumed from the fact that the price paid for a piece
of real estate is perceived to be slightly lower than its market
value.The existence of fraud or the intent to defraud creditors
cannot plausibly be presumed from the fact that the price paid for a
piece of real estate is perceived to be slightly lower, if that really be
the case, than its market value. To be sure, it is logical, even
expected, for contracting minds, each having an interest to protect,
to negotiate on the price and other conditions before closing a sale
of a valuable piece of land. The negotiating areas could cover various
items. The purchase price, while undeniably an important
consideration, is doubtless only one of them. Thus, a scenario where
the price actually stipulated may, as a matter of fact, be lower than
the original asking price of the vendor or the fair market value of the
property, as what perhaps happened in the instant case, is not out
of the ordinary, let alone indicative of fraudulent intention. That the
spouses Ong acquiesced to the price of P12,500,000.00, which may
be lower than the market value of the house and lot at the time of
alienation, is certainly not an unusual business phenomenon.
__________________________
Lafarge Cement Philippines, Inc. vs. Continental Cement
Corporation, 443 SCRA 522(2004)
Corporation Law; Piercing the Veil Corporate Fiction; Allegations of
fraud and bad faith on the part of certain corporate officers or
stockholders may warrant the piercing of the veil of corporate
fiction so that the said individual may not seek refuge therein, but
may be held individually and personally liable for his or her
actions.The inclusion of a corporate officer or stockholder
Cardenas in Sapugay or Lim and Mariano in the instant caseis not
premised on the assumption that the plaintiff corporation does not
have the financial ability to answer for damages, such that it has to
share its liability with individual defendants. Rather, such inclusion is
based on the allegations of fraud and bad faith on the part of the
corporate officer or stockholder. These allegations may warrant the
piercing of the veil of corporate fiction, so that the said individual
may not seek refuge therein, but may be held individually and
personally liable for his or her actions. In Tramat Mercantile v. Court
of Appeals, the Court held that generally, it should only be the
corporation that could properly be held liable. However,
circumstances may warrant the inclusion of the personal liability of a
corporate director, trustee, or officer, if the said individual is found
guilty of bad faith or gross negligence in directing corporate affairs.
Remo Jr. v. IAC has stressed that while a corporation is an entity
separate and distinct from its stockholders, the corporate fiction

MARIA KATRINA S. TANJUSAY

may be disregarded if used to defeat public convenience, justify a


wrong, protect fraud, or defend crime. In these instances, the law
will regard the corporation as an association of persons, or in case of
two corporations, will merge them into one. Thus, there is no
debate on whether, in alleging bad faith on the part of Lim and
Mariano the counterclaims had in effect made them indispensable
parties thereto; based on the alleged facts, both are clearly parties
in interest to the counterclaim.
Suability and liability are two distinct matters. While the Court
does rule that the counterclaims against Respondent CCCs
president and manager may be properly filed, the determination of
whether both can in fact be held jointly and severally liable with
respondent corporation is entirely another issue that should be
ruled upon by the trial court.
Obligations and Contracts; Joint and Solidary Obligations;
Obligations may be classified as either joint or solidary; Petitioners
usage of the term joint and solidary is confusing and ambiguous.
Obligations may be classified as either joint or solidary. Joint or
jointly or conjoint means mancum or mancomunada or pro rata
obligation; on the other hand, solidary obligations may be used
interchangeably with joint and several or several. Thus,
petitioners usage of the term joint and solidary is confusing and
ambiguous.
A corporation has a legal personality entirely separate and distinct
from that of its officers and cannot act for and on their behalf,
without being so authorized.While Respondent CCC can move to
dismiss the counterclaims against it by raising grounds that pertain
to individual defendants Lim and Mariano, it cannot file the same
Motion on their behalf for the simple reason that it lacks the
requisite authority to do so. A corporation has a legal personality
entirely separate and distinct from that of its officers and cannot act
for and on their behalf, without being so authorized. Thus, unless
expressly adopted by Lim and Mariano, the Motion to Dismiss the
compulsory counterclaim filed by Respondent CCC has no force and
effect as to them.
-----------------------------------------Land Bank of the Philippines vs. Court of Appeals, 364 SCRA
375(2001)
Corporation Law; Piercing the Veil Corporation Fiction; A
corporation, upon coming into existence, is invested by law with a
personality separate and distinct from those persons composing it as
well as from any other legal entity to which it may be related; This
separate and distinct personality is, however, merely a fiction
created by law for convenience and to promote the ends of
justice.A corporation, upon coming into existence, is invested by
law with as personality separate and distinct from those persons
composing it as well as from any other legal entity to which it may
be related. By this attribute, a stockholder may not, generally, be
made to answer for acts or liabilities of the said corporation, and
vice versa. This separate and distinct personality is, however, merely
a fiction created by law for convenience and to promote the ends of
justice. For this reason, it may not be used or invoked for ends
subversive to the policy and purpose behind its creation or which
could not have been intended by law to which it owes its being. This
is particularly true when the fiction is used to defeat public
convenience, justify wrong, protect fraud, defend crime, confuse
legitimate legal or judicial issues, perpetrate deception or otherwise
circumvent the law. This is likewise true where the corporate entity
is being used as an alter ego, adjunct, or business conduit for the
sole benefit of the stockholders or of another corporate entity. In all
these cases, the notion of corporate entity will be pierced or
disregarded with reference to the particular transaction involved.

CORPORATION - CASES
In order to disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly
established; In the absence of any malice or bad faith, a stockholder
or an officer of a corporation cannot be made personally liable for
corporate liabilities.The burden is on petitioner to prove that the
corporation and its stockholders are, in fact, using the personality of
the corporation as a means to perpetrate fraud and/or escape a
liability and responsibility demanded by law. In order to disregard
the separate juridical personality of a corporation, the wrongdoing
must be clearly and convincingly established. In the absence of any
malice or bad faith, a stockholder or an officer of a corporation
cannot be made personally liable for corporate liabilities.
____________________________
Philippine National Bank vs. Ritratto Group, Inc., 362 SCRA
216(2001)
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction;
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.The general rule is that 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 subsidiarys
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.
The doctrine of piercing the corporate veil of corporate fiction is an
equitable doctrine developed to address situations where the
separate corporate personality of a corporation is abused or used for
wrongful purposes.In this jurisdiction, we have held that 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.
Test in Determining Applicability of the Doctrine of Piercing the
Veil of Corporate Fiction.In Concept Builders, Inc. v. NLRC, we
have laid the test in determining the applicability of the doctrine of
piercing the veil of corporate fiction, to wit: 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
defendants relationship to the operation.

MARIA KATRINA S. TANJUSAY

Agency; A suit against an agent cannot without compelling reasons


be considered a suit against the principal.In any case, the parentsubsidiary relationship between PNB and PNB-IFL is not the
significant legal relationship involved in this case since the petitioner
was not sued because it is the parent company of PNB-IFL. Rather,
the petitioner 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.
-----------------------------------------------Marubeni Corporation vs. Lirag, 362 SCRA 620(2001)
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction;
Not because two foreign companies came from the same country
and closely worked together on certain projects would the
conclusion arise that one was the conduit of the other, thus piercing
the veil of corporate fiction.Respondent tried to justify his
commission of roughly about P6,000,000.00 in the guise that
Marubeni and Sanritsu are sister corporations, thereby implying the
need to pierce the veil of corporate fiction. Respondent claimed that
Marubeni as the supplier and real contractor of the project hired
and sub-contracted the project to Sanritsu. We believe that this line
of reasoning is too far-fetched. Not because two foreign companies
came from the same country and closely worked together on certain
projects would the conclusion arise that one was the conduit of the
other, thus piercing the veil of corporate fiction.
___________________________
Development Bank of the Philippines vs. Court of Appeals, 363 SCRA
307(2001)
Corporation Law; Piercing the Veil of Corporate Fiction Doctrine;
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 or in case of two
corporations, merge them into one.In Yutivo Sons Hardware vs.
Court of Tax Appeals, cited by the Court of Appeals in its decision,
this Court declared: It is an elementary and 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. However, 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 or in case of two corporations, merge them into one.
(Koppel [Phils.], Inc., vs. Yatco, 71 Phil. 496, citing 1 Fletcher
Encyclopedia of Corporation, Permanent Ed., pp. 135-136; U.S. vs.
Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255 per
Sanborn, J.) x x x In accordance with the foregoing rule, this Court
has disregarded the separate personality of the corporation where
the corporate entity was used to escape liability to third parties. In
this case, however, we do not find any fraud on the part of
Marinduque Mining and its transferees to warrant the piercing of
the corporate veil.
The rule pertaining to transactions between corporations with
interlocking directors resulting in the prejudice to one of the
corporations does not apply where the corporation allegedly
prejudiced is a third party, not one of the corporations with
interlocking directors.The Court of Appeals made reference to

CORPORATION - CASES
two principles in corporation law. The first pertains to transactions
between corporations with interlocking directors resulting in the
prejudice to one of the corporations. This rule does not apply in this
case, however, since the corporation allegedly prejudiced
(Remington) is a third party, not one of the corporations with
interlocking directors
No bad faith could be discerned in the creation by DBP of three
corporations where the same was necessary to manage and operate
assets acquired in the foreclosure sale lest they deteriorate from
non-use and lose their value.Neither do we discern any bad faith
on the part of DBP by its creation of Nonoc Mining, Maricalum and
Island Cement. As Remington itself concedes, DBP is not authorized
by its charter to engage in the mining business. The creation of the
three corporations was necessary to manage and operate the assets
acquired in the foreclosure sale lest they deteriorate from non-use
and lose their value. In the absence of any entity willing to purchase
these assets from the bank, what else would it do with these
properties in the meantime? Sound business practice required that
they be utilized for the purposes for which they were intended.
anteed by a chattel mortgage, upon the things pledged or
mortgaged, up to the value thereof. x x x
The doctrine of piercing the veil of corporate fiction applies only
when such corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crimeto disregard juridical
personality of a corporation, the wrongdoing must be clearly and
convincingly established.
___________________________
Woodchild Holdings, Inc. vs. Roxas Electric and Construction
Company, Inc., 436 SCRA 235(2004)
Corporations; Corporate Officers; Apparent Authority; Agency; The
property of the corporation is not the property of its stockholders
or members and may not be sold by the stockholders or members
without express authorization from the corporations board of
directors.A corporation is a juridical person separate and distinct
from its stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders or members and
may not be sold by the stockholders or members without express
authorization from the corporations board of direc-tors. Section 23
of BP 68, otherwise known as the Corporation Code of the
Philippines, provides: SEC. 23. The Board of Directors or Trustees.
Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held
by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year
and until their successors are elected and qualified. Indubitably, a
corporation may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through
its officers or agents in the normal course of business. The general
principles of agency govern the relation between the corporation
and its officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law. . .
Elements; For the principle of apparent authority to apply, the
petitioner was burdened to prove the following.For the principle
of apparent authority to apply, the petitioner was burdened to
prove the following: (a) the acts of the respondent justifying belief in
the agency by the petitioner; (b) knowledge thereof by the
respondent which is sought to be held; and, (c) reliance thereon by
the petitioner consistent with ordinary care and prudence.
____________________________

MARIA KATRINA S. TANJUSAY

Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347(1976)


Corporation law; Actions; Absent any showing of interest a
corporation has no personality to bring an action to recover
property belonging to its members or stockholders in their personal
capacities.It has not been claimed that the members have
assigned or transferred whatever rights they may have on the land
in question to the plaintiff-corporation. Absent any showing of
interest, therefore, a corporation, like plaintiff-appellant herein, has
no personality to bring an action for and in behalf of its stockholders
or members for the purpose of recovering property which belongs
to said stockholders or members in their personal capacities.
________________________
Francisco Motors Corporation vs. Court of Appeals, 309 SCRA
72(1999)
Corporation Law; Piercing the Veil of Corporate Entity Doctrine;
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.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.
In our view, however, given the facts and circumstances of this case,
the doctrine of piercing the corporate veil has no relevant
application here. Respondent court erred in permitting the trial
courts resort to this doctrine. The rationale behind piercing a
corporations identity in a given case is to remove the barrier
between the corporation from 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.
However, 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. Note that according to private respondent
Gregorio Manuel his services were solicited as counsel for members
of the Francisco family to represent them in the intestate
proceedings over Benita Trinidads estate. These estate proceedings
did not involve any business of petitioner.
If corporate assets could be used to answer for the liabilities of its
individual directors, officers, and incorporators, the same could
easily prejudice the corporation, its own creditors, and even other
stockholders.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

CORPORATION - CASES
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.
When directors and officers of a corporation are unable to
compensate a party for a personal obligation, it is farfetched to
allege that the corporation is perpetuating fraud or promoting
injustice, and be thereby held liable therefor by piercing its
corporate veil.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 farfetched 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.
__________________________
R & E Transport, Inc. vs. Latag, 422 SCRA 698(2004)
Corporations; Doctrine of Piercing the Corporate Veil; Any
application of the doctrine of piercing the corporate veil should be
done with caution.x x x [A]ny application of the doctrine of
piercing the corporate veil should be done with caution. A court
should be mindful of the milieu where it is to be applied. It must be
certain that the corporate fiction was misused to such an extent that
injustice, fraud, or crime was committed against another, in
disregard of its rights. The wrongdoing must be clearly and
convincingly established; it cannot be presumed. Otherwise, an
injustice that was never unintended may result from an erroneous
application.
The failure to perfect an appeal has the effect of rendering the
judgment final and executory.That the perfection of an appeal in
the manner and within the period prescribed by law is not only
mandatory but jurisdictional, and the failure to perfect an appeal
has the effect of rendering the judgment final and executory.
Nonetheless, procedural lapses may be disregarded because of
fundamental considerations of substantial justice; or because of the
special circumstances of the case combined with its legal merits or
the amount and the issue involved.
____________________________
Secosa vs. Heirs of Erwin Suarez Francisco, 433 SCRA 273(2004)
Corporation Law; Veil of Corporate Fiction; Petitioner El Buenasenso
Sy cannot be held solidarily liable with his co-petitioners; A
corporation is invested by law with a personality separate from that
of its stockholders or members; Mere ownership by a single
stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not in itself sufficient ground for
disregarding the separate corporate personality.
_________________________
McLeod vs. National Labor Relations Commission, 512 SCRA
222(2007)

MARIA KATRINA S. TANJUSAY

Corporation Law; As a rule, a corporation that purchases the assets


of another will not be liable for the debts of the selling corporation,
provided the former acted in good faith and paid adequate
consideration for such assets; Exceptions.As a rule, a corporation
that purchases the assets of another will not be liable for the debts
of the selling corporation, provided the former acted in good faith
and paid adequate consideration for such assets, except when any
of the following circumstances is present: (1) where the purchaser
expressly or impliedly agrees to assume the debts, (2) where the
transaction amounts to a consolidation or merger of the
corporations, (3) where the purchasing corporation is merely a
continuation of the selling corporation, and (4) where the selling
corporation fraudulently enters into the transaction to escape
liability for those debts.
Consolidation, and Merger, Defined; The parties to a merger or
consolidation are called constituent corporations; The surviving or
consolidated corporation assumes automatically the liabilities of the
dissolved corporations, regardless of whether the creditors have
consented or not to such merger or consolidation.Consolidation is
the union of two or more existing corporations to form a new
corporation called the consolidated corporation. It is a combination
by agreement between two or more corporations by which their
rights, franchises, and property are united and become those of a
single, new corporation, composed generally, although not
necessarily, of the stockholders of the original corporations. Merger,
on the other hand, is a union whereby one corporation absorbs one
or more existing corporations, and the absorbing corporation
survives and continues the combined business. The parties to a
merger or consolidation are called constituent corporations. In
consolidation, all the constituents are dissolved and absorbed by the
new consolidated enterprise. In merger, all constituents, except the
surviving corporation, are dissolved. In both cases, however, there is
no liquidation of the assets of the dissolved corporations, and the
surviving or consolidated corporation acquires all their properties,
rights and franchises and their stockholders usually become its
stockholders. The surviving or consolidated corporation assumes
automatically the liabilities of the dissolved corporations, regardless
of whether the creditors have consented or not to such merger or
consolidation.
The existence of interlocking incorporators, directors, and officers is
not enough justification to pierce the veil of corporate fiction, in the
absence of fraud or other public policy considerations.
In the absence of malice, bad faith, or specific provision of law, a
stockholder or an officer of a corporation cannot be made
personally liable for corporate liabilities.On Patricios personal
liability, it is settled that in the absence of malice, bad faith, or
specific provision of law, a stockholder or an officer of a corporation
cannot be made personally liable for corporate liabilities. To
reiterate, a corporation is a juridical entity with legal personality
separate and distinct from those acting for and in its behalf and, in
general, from the people comprising it. The rule is that obligations
incurred by the corporation, acting through its directors, officers,
and employees, are its sole liabilities. Personal liability of corporate
directors, trustees or officers attaches only when (1) they assent to a
patently unlawful act of the corporation, or when they are guilty of
bad faith or gross negligence in directing its affairs, or when there is
a conflict of interest resulting in damages to the corporation, its
stockholders or other persons; (2) they consent to the issuance of
watered down stocks or when, having knowledge of such issuance,
do not forthwith file with the corporate secretary their written
objection; (3) they agree to hold themselves personally and
solidarily liable with the corporation; or (4) they are made by specific
provision of law personally answerable for their corporate action.

CORPORATION - CASES
The rule is still that the doctrine of piercing the corporate veil
applies only when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime.
__________________________
Suldao vs. Cimech System Construction, Inc., 506 SCRA 256(2006)
Corporation Law; A corporation is invested by law with a
personality separate from that of its stockholders or members.A
corporation is invested by law with a personality separate from that
of its stockholders or members. It has a personality separate and
distinct from those of the persons composing it as well as from that
of any other entity to which it may be related. Mere ownership by a
single stockholder or by another corporation of all or nearly all of
the capital stock of a corporation is not in itself sufficient ground for
disregarding the separate corporate personality. A corporations
authority to act and its liability for its actions are separate and apart
from the individuals who own it. As a general rule, a corporation will
be looked upon as a legal entity, unless and until sufficient reason to
the contrary appears.The veil of corporate fiction treats as
separate and distinct the affairs of a corporation and its officers and
stockholders. As a general rule, a corporation will be looked upon as
a legal entity, unless and until sufficient reason to the contrary
appears. 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. Also, the
corporate entity may be disregarded in the interest of justice in such
cases as fraud that may work inequities among members of the
corporation internally, involving no rights of the public or third
persons. In both instances, there must have been fraud and proof of
it. For the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.
_____________________________
General Credit Corporation vs. Alsons Development and Investment
Corporation, 513 SCRA 225(2007)
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction;
The first consequence of the doctrine of legal entity of the separate
personality of the corporation is that 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.A
corporation is an artificial being 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. The first
consequence of the doctrine of legal entity of the separate
personality of the corporation is that 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. The notion
of separate personality, however, may be disregarded under the
doctrinepiercing the veil of corporate fictionas in fact 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. Another formulation of this doctrine
is that when two (2) business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and treat them as
identical or one and the same.
Whether the separate personality of the corporation should be
pierced hinges on obtaining facts, appropriately pleaded or
proved.Whether the separate personality of the corporation
should be pierced hinges on obtaining facts, appropriately pleaded

MARIA KATRINA S. TANJUSAY

or proved. However, any piercing of the corporate veil has to be


done with caution, albeit the Court will not hesitate to disregard the
corporate veil when it is misused or when necessary in the interest
of justice. After all, the concept of corporate entity was not meant to
promote unfair objectives. Authorities are agreed on at least three
(3) basic areas where piercing the veil, with which the law covers
and isolates the corporation from any other legal entity to which it
may be related, is allowed. These are: 1) defeat of public
convenience, as when the corporate fiction is used as vehicle for the
evasion of an existing obligation; 2) fraud cases or when the
corporate entity is used to justify a wrong, protect fraud, or defend a
crime; or 3) alter ego cases, where a corporation is merely a farce
since it 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.
___________________________
Culili vs. Eastern Telecommunications Philippines, Inc., 642 SCRA
338(2011)
Corporation Law; As a general rule, a corporate officer cannot be
held liable for acts done in his official capacity because a
corporation, by legal fiction, has a personality separate and distinct
from its officers, stockholders, and members; In illegal dismissal
cases, corporate officers may be held solidarily liable with the
corporation if the termination was done with malice or bad faith.
As a general rule, a corporate officer cannot be held liable for acts
done in his official capacity because a corporation, by legal fiction,
has a personality separate and distinct from its officers,
stockholders, and members. To pierce this fictional veil, it must be
shown that the corporate personality was used to perpetuate fraud
or an illegal act, or to evade an existing obligation, or to confuse a
legitimate issue. In illegal dismissal cases, corporate officers may be
held solidarily liable with the corporation if the termination was
done with malice or bad faith.
__________________________
Baluyot vs.Holganza, 325 SCRA 248(2000)
Corporation Law; Philippine National Red Cross is a government
owned and controlled corporation, with an original charter under
Republic Act No. 95, as amended; Test to determine whether a
corporation is government owned or controlled, or private in nature
is simple.Resolving the issue set out in the opening paragraph of
this opinion, we rule that the Philippine National Red Cross (PNRC) is
a government owned and controlled corporation, with an original
charter under Republic Act No. 95, as amended. The test to
determine whether a corporation is government owned or
controlled, or private in nature is simple. Is it created by its own
charter for the exercise of a public function, or by incorporation
under the general corporation law? Those with special charters are
government corporations subject to its provisions, and its
employees are under the jurisdiction of the Civil Service
Commission, and are compulsory members of the Government
Service Insurance System. The PNRC was not impliedly converted to
a private corporation simply because its charter was amended to
vest in it the authority to secure loans, be exempted from payment
of all duties, taxes, fees and other charges of all kinds on all
importations and purchases for its exclusive use, on donations for its
disaster relief work and other services and in its benefits and fund
raising drives, and be allotted one lottery draw a year by the
Philippine Charity Sweepstakes Office for the support of its disaster
relief operation in addition to its existing lottery draws for blood
program.
--------------------------------------------

CORPORATION - CASES
Roman Cath. Apostolic Adm. of Davao, Inc. vs. Land Reg. Com., et al.,
102 Phil. 596(1957)

Courts statement in Mambulao that a corporation may have a


good reputation which, if besmirched, may also be a ground for the
award of moral damages is an obiter dictum.
____________________________

CORPORATION SOLE; COMPONENTS AND PURPOSE OF; POWER TO


HOLD AND TRANSMIT CHURCH PROPERTIES TO His SUCCESSOR IN
OFFICE.A corporation sole is a special form of corporation usually
associated with the clergy * * * designed to facilitate the exercise of
the functions of ownership of the church which was regarded as the
property owner (I Bouvier's Law Dictionary, p. 682-683). It consists
of one person only, and his successors (who will always be one at a
time), in some particular station, who are incorporated by law in
order to give them some legal capacities and advantages particularly
that of perpetuity which in their natural persons they could not
have. * * * (Reid vs. Barry, 93 Fla. 849 112 So. 846). Through this
legal fiction, church properties acquired by the incumbent of a
corporation sole pass, by operation of law, upon his death not to his
personal heirs but to his successor in office. A corporation sole,
therefore, is created not only to administer the temporalities of the
church or religious society where he belongs, but also to hold and
transmit the same to his successor in said office.
PERSONALITY OF, SEPARATE AND DISTINCT FROM THAT OF ROMAN
PONTIFF.Although a branch of the Universal Roman Catholic
Apostolic Church, every Roman Catholic Church in different
countries, if it exercises its mission and is lawfully incorporated in
accordance with the laws of the country where it is located, is
considered an entity or person with all the rights and privileges
granted to such artificial being under the laws of that country,
separate and distinct from the personality of the Roman Pontiff or
the Holy See, without prejudice to its religious relations with the
latter which are governed by the Cannon Law or their rules and
regulations.
CORPORATION SOLE WITHOUT NATIONALITY; NATIONALITY OF
CONSTITUENTS
DETERMINES
WHETHER
CONSTITUTIONAL
REQUIREMENT is APPLICABLE.The corporation sole by reason of
their peculiar constitution and form of operation have no designed
owner of its temporalities, although by the terms of the law it can be
safely implied that they ordinarily hold them in trust for the benefit
of the Roman Catholic faithful of their respective locality or diocese.
They can not be considered as aliens because they have no
nationality at all. In determining, therefore, whether the
constitutional provision requiring 60 per centum Filipino capital is
applicable to corporations sole, the nationality of the constituents of
the diocese, and not the nationality of the actual incumbent of the
parish, must be taken into consideration. In the present case, even if
the question of nationality be considered, the aforesaid
constitutional requirement is fully met and satisfied, considering
that the corporation sole in question is composed of an
overwhelming majority of Filipinos.
_____________________________
Filipinas Broadcasting Network, Inc. vs. Ago Medical and
Eduacational Central-Bicol Christian college of Medicine (AMECBCCM), 448 SCRA 413(2005)
Corporations; Obiter Dictum; The Courts statement in Mambulao
Lumber Co. v. PNB, 22 SCRA 359 (1968), that a corporation may
have a good reputation which, if besmirched, may also be a ground
for the award of moral damages is an obiter dictum.A juridical
person is generally not entitled to moral damages because, unlike a
natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock. The Court of Appeals cites Mambulao Lumber Co. v.
PNB, et al. to justify the award of moral damages. However, the

MARIA KATRINA S. TANJUSAY

Heirs of Wilson P. Gamboa vs. Teves, 682 SCRA 397(2012)


The 60-40 ownership requirement in favor of Filipino citizens must
apply separately to each class of shares, whether common,
preferred non-voting, preferred voting or any other class of
shares.If a corporation, engaged in a partially nationalized
industry, issues a mixture of common and preferred non-voting
shares, at least 60 percent of the common shares and at least 60
percent of the preferred non-voting shares must be owned by
Filipinos. Of course, if a corporation issues only a single class of
shares, at least 60 percent of such shares must necessarily be owned
by Filipinos. In short, the 60-40 ownership requirement in favor of
Filipino citizens must apply separately to each class of shares,
whether common, preferred non-voting, preferred voting or any
other class of shares. This uniform application of the 60-40
ownership requirement in favor of Filipino citizens clearly breathes
life to the constitutional command that the ownership and
operation of public utilities shall be reserved exclusively to
corporations at least 60 percent of whose capital is Filipino-owned.
Applying uniformly the 60-40 ownership requirement in favor of
Filipino citizens to each class of shares, regardless of differences in
voting rights, privileges and restrictions, guarantees effective Filipino
control of public utilities, as mandated by the Constitution.
The use of the term capital was intended to replace the word
stock because associations without stocks can operate public
utilities as long as they meet the 60-40 ownership requirement in
favor of Filipino citizens prescribed in Section 11, Article XII of the
Constitution.The use of the term capital was intended to replace
the word stock because associations without stocks can operate
public utilities as long as they meet the 60-40 ownership
requirement in favor of Filipino citizens prescribed in Section 11,
Article XII of the Constitution. However, this did not change the
intent of the framers of the Constitution to reserve exclusively to
Philippine nationals the controlling interest in public utilities.
Allowing foreign shareholders to elect a controlling majority of the
board, even if all the directors are Filipinos, grossly circumvents the
letter and intent of the Constitution and defeats the very purpose of
our nationalization laws.Even if foreigners who own more than
forty percent of the voting shares elect an all-Filipino board of
directors, this situation does not guarantee Filipino control and does
not in any way cure the violation of the Constitution. The
independence of the Filipino board members so elected by such
foreign shareholders is highly doubtful. As the OSG pointed out,
quoting Justice George Sutherlands words in Humphreys Executor
v. US, x x x it is quite evident that one who holds his office only
during the pleasure of another cannot be depended upon to
maintain an attitude of independence against the latters will.
Allowing foreign shareholders to elect a controlling majority of the
board, even if all the directors are Filipinos, grossly circumvents the
letter and intent of the Constitution and defeats the very purpose of
our nationalization laws.
Capital; Doctrine of Equality of Shares; View that under the
doctrine of equality of sharesall stocks issued by the corporation
are presumed equal with the same privileges and liabilities, provided
that the Articles of Incorporation is silent on such differences.For
sure, both common and preferred shares have always been
considered part of the corporations capital stock. Its shareholders
are no different from ordinary investors who take on the same
investment risks. They participate in the same venture, willing to

CORPORATION - CASES
share in the profits and losses of the enterprise. Under the doctrine
of equality of sharesall stocks issued by the corporation are
presumed equal with the same privileges and liabilities, provided
that the Articles of Incorporation is silent on such differences.
__________________________
DAVID LU, [Lu vs. Lu Ym, Sr., 643 SCRA 23(2011)
Corporation Law; The latest amendments to Rule 141 of the Rules of
Court seem to imply that there can be no case of intra-corporate
controversy where the value of the subject matter cannot be
estimatedeven one for a mere inspection of corporate books.
The new Section 21(k) of Rule 141 of the Rules of Court, as amended
by A.M. No. 04-2-04-SC (July 20, 2004), expressly provides that *f+or
petitions for insolvency or other cases involving intra-corporate
controversies, the fees prescribed under Section 7(a) shall apply.
Notatu dignum is that paragraph (b) 1 & 3 of Section 7 thereof was
omitted from the reference. Said paragraph refers to docket fees for
filing *a+ctions where the value of the subject matter cannot be
estimated and all other actions not involving property. By
referring the computation of such docket fees to paragraph (a) only,
it denotes that an intra-corporate controversy always involves a
property in litigation, the value of which is always the basis for
computing the applicable filing fees. The latest amendments seem
to imply that there can be no case of intra-corporate controversy
where the value of the subject matter cannot be estimated. Even
one for a mere inspection of corporate books. If the complaint were
filed today, one could safely find refuge in the express phraseology
of Section 21 (k) of Rule 141 that paragraph (a) alone applies.

MARIA KATRINA S. TANJUSAY