21 - US v. Milwaukee Refrigerator Transit Co.

(1905) (dummy corporation)
General Rule: A corporation will be looked upon as a legal entity, until sufficient reason to the contrary
Exception: when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud,
defend crime, the law will regard the corporation as an association of persons; and, where one corporation
was organized and is owned by the officers and stockholders of another, making their interests identical,
they may be treated as identical when the interests of justice require it.
The Elkins Act was enacted to prohibit railroads from giving and receiving of unlawful rebates. After the
enactment of the said Act, officers of a brewing company, who were also its controlling stockholders,
organized a transit company named Milwaukee Refrigerator Transit, et al and became its officers and the
owners of all of its stock.
On behalf of the brewing company, the officers contracted with the transit company to make all the
shipments for the brewing company. The transit company contracted for shipments with interstate carriers,
where they would only pay it from 1/10 to 1/8 of the published rate, for the transportation, supposedly as a
commission for obtaining the business, but was known really a rebate for the benefit of the brewing
Thus, the US filed a suit against the brewing company to enjoin them from receiving rebates from carriers.
1. W/N the piercing of the veil is in order (whether a corporation organized and owned by the officers and
stockholders of another is in fact an independent corporation or was organized merely as a dummy to
enable the other through it to solicit and obtain illegal rebates from carriers)
1. Yes, the piercing is in order. As a general rule, a corporation will be looked upon as a legal entity, until
sufficient reason to the contrary appears. An exception to this is when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, defend crime, the law will regard the corporation as
an association of persons; and, where one corporation was organized and is owned by the officers and
stockholders of another, making their interests identical, they may be treated as identical when the interests
of justice require it.
The bill shows the creation, by the controlling interests of the brewing company, of a dummy corporation,
and with dummy directors, with intent to evade the law making the transit company as a mere alter ego of
the brewing corporation, both being substantially identical in interest and control, and the brewing company
the ultimate beneficiary.
Applying the rule here laid down to the circumstances shown to surround the brewing company and transit
company, 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.
It is the argument of Milwaukee 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; and the transit company, owing a large number of refrigerator cars, and wishing to keep
them employed, simply gives the freight to those competing shippers who will make the best terms, the
business being of great volume, and the sums paid for the freights large. But this theory of innocence is
exploded by the fact that the transit company is a mere separate name for the brewing company, being in
fact the same collection of persons and interests.
TRADERS ROYAL BANK v. CA – “mere 90% ownership / no fraud” Filriters was the registered owner of
CB Certificates of Indebtedness (CBCI). Banaria, VP of Treasury of Filriters assigned the CBCI, w/o
Board authorization, (fictitiously) to Philfinance, w/c then assigned it to Traders. The CB refused to
register the same as the transfer was not made in compliance w/ the CB Rules & Regulations – the
assignment was not made by the registered owner or his representative. Traders now claims that the
veil of corporate fiction must be pierced – as Philfinance owns 90% of Filriters, and payment to
Philfinance is tantamount to payment to Filriters.
Piercing the veil is an equitable remedy available only in case the corporate fiction is used to
protect fraud, justify wrong, defend crime, or if a corporation is a mere alter ego of another
person. Its primary intent is the protection of 3 persons. The mere fact that Philfinance owns
90% of Filriters is not itself sufficient to warrant piercing in the absence of the above
circumstances. In this case, Traders was not defrauded. On its face, the certificates were in the

Legion (labor) but later his employees formed their own union (KMM). DD: There was negligence in this case. CA – “doctrine turned upside-down / jeep services vs. he and his family incorporated La Campana Coffee Factory (COFFEE). This ruling is reiterated by Shoemart v. using common machineries. Later on. Hence no monetary claim against the corporation is needed. He entered into Collective Bargaining Agreement w/ Phil. Piercing has no application in this case. The Union should have just alleged that one is the alter ego of another – in which case. and that the employees of Acrylic should be recognized as w/in the scope of their collective bargaining agreement. there was no invocation of fraud in this case. Now the heirs bring the matter . management. and piercing the corporate veil cannot be used as a means to extricate the negligent party from the consequences of its own fault or non-compliance with the rules. w/c were. Atty. INDOPHIL WORKERS UNION v. GOCHAN v. Unlike the case of Indophil. Their employees were interchangeable. Mediation was to no avail. Hence. His daughter Alice inherited his shares. They demanded higher wages and more privileges. Then Indophil Acrylic was incorporated. as a commercial bank it should have automatically put it on guard. LA CAMPANA v. in turn inherited by her spouse (John Young) and then her children. shared the same office. The Tan Tong Family owned both of them. in this case. DD: This was a case of alter ego piercing (arguably also equity piercing). That being the case. In this case. was not a real-party-in-interest w/ regard to Atty. Manuel (husband) interposed a counter-claim. The Indophil Union was the exclusive bargaining unit of its rank-and-file employees. but the Board continues to refuse – alleging a right of first refusal embodied in the Articles of Incorporation. no claim is interposed against the members of Acrylic. The transfer also did not conform w/ the Rules & Regulations and the CBCI formed part of Filriters’ required legal reserves required w/c cannot be taken out of the said funds w/o violating the law. having common incorporators. KKM – “gaugau & coffee factories / labor dispute / same entities” Tan Tong owned the La Campana Gaugau Co. The corporation. there should be a set-off. A court should be cautious in applying the piercing doctrine. The foregoing facts are not sufficient to warrant piercing the corporate veil – w/c is only employed when it is sought to hold the officers / stockholders liable for corporate obligations. a monetary claim is not required. The SC disregarded the separate personalities of GAUGAU and COFFEE for several reasons. and have yet to pay him. They refused to pay. alleging that the Francisco Family (incorporators of FM) availed of his legal services in an intestate proceeding. the separate personality of GAUGAU cannot be interposed as a defense to subvert the ends of the law governing capital-labor relations. Felix had requested that the shares be issued in the name of his children. Thus. CALICA – “unions / purpose of piercing” Indophil Textile Mills was engaged in manufacture & sale of yarns. Manuel’s’ cause of action. that they are engaged in the same business and having some common employees. and payroll. and that 70 % of the total stock subscription of Acrylic pertained to Indophil. The rationale of the rule is to remove a barrier between the corporation and its incorporators to thwart their fraudulent schemes and use the corporate personality as a shield. NLRC. FRANCISCO MOTORS v. Compare this with the La Campaña Case. The Francisco Family availed of Manuel’s legal services in their personal capacity and does not involve any business of the corporation. DD: Here the Union made the fatal mistake of alleging fraud. located in the same compound. was a stockholder w/ the Felix Gochan & Sons Inc. Thus. During his life. The separate juridical personality must be respected. the reverse is sought. But in this case. FM filed a collection suit. their separate juridical personalities must be respected. Once fraud is alleged. The Union now claims that Acrylic is only an extension of Indophil. a monetary claim against the corporation becomes indispensable as a requirement for piercing. La Campana sought to dismiss on the ground that the case was filed against 2 separate companies (GAUGAU & COFFEE) and that GAUGAU had only 14 employees – below the required minimum jurisdictional requirement for the Industrial Court. (GAUGAU). legal fees” The Spouses Manuel purchased a jeep body and availed of repair services from Francisco Motors (FM).name of Filriters. YOUNG – “derivative suit / conveyance of corporate property to alter ego” Felix Gochan Sr. They allege that it is only a devise to evade the application of the CBA. they brought the matter to the Industrial Court.

then a suit against latter is a suit against PNB-IFL as well. Rittrato also avers that PNB is a real-party-ininterest for being a mere alter ego of PNB-IFL. averring that the credit facility is void. The debts swelled to some $ 1. is also VP of Bormaheco. . or where a corporation is a mere alter ego or business conduit of the other.4 million. PM Parts wants the Castillos to vacate. The trial court stated that since PNB-IFL is a subsidiary of PNB. DD: Refer to Concept Builders v. piercing is a remedy of last resort. etc. NLRC for the “test” to determine the applicability of the piercing doctrine. Rivera then purchased tractors from Bormaheco. piercing is a remedy to protect third persons. but in this case it was used to settle an intra-corporate dispute.to court by filing a derivative suit in behalf thereof – alleging breach of trust and confidence. No such circumstances exist in this case to warrant piercing. Now. this is an indispensable requirement to fraud piercing. DD: Take note that fraud was alleged in this case. w/c need not be resorted to in this case in order to resolve the controversy. consolidated ownership. and sold the same to PM Parts. He then mortgaged the 4 lots to ICP to secure the surety in favor of Bormaheco. ICP then foreclosed on the 4 lots. If fraud is alleged. PNB v. They procured notices of lis pendens and ask for the delivery to the corporation of certain corporate properties conveyed to the Mactan & Lapu-Lapu Corporations w/c are mere alter egos of the directors of the corporation. it thus had no right to foreclose on the mortgage. may reasonably indicate that a corporation is but a conduit of another. if combined. Considering that ICP made no payment based on the surety. Rivera proposed to them the development of their other 4 adjacent lots to raise the funds. The doctrine will apply only if the veil is used to shield fraud. De Guzman was EVP of Bormaheco and legal counsel of ICP. They invoke the piercing doctrine alleging that every transaction was fraudulent. justify wrong. procured an Order of Injunction against PNB (not PNB-IFL). This case can be considered a case of equity piercing. Piercing the veil is not the proper remedy. RITTRATO GROUP – “letter of credit / attorney-in-fact corporation / subsidiary” The Rittrato Group procured a Letter of Credit from PNB International Finance (PNB-IFL) based in Hong Kong and a subsidiary of PNB. There was in act no proof of fraud in this case. Cervantes. They thus entered into an agreement w/ Slobec (Rivera was President) for the development of the 4 lots. (ICP). CA – “tangled web / last resort / mere inter-relation insufficient” The Castillo Family owned lands about to be foreclosed by DBP. Various factors – mostly indicating total control – may be considered which. or mere business conduit for the benefit of the stockholders. when the corporate medium is being used as a cloak to cover fraud of illegality. defend crime. confuse legitimate issues. But the mere fact that their businesses are inter-related is not justification for piercing the corporate veil. Rittrato failed to show any reason why the corporate veil must be pierced. there must be a monetary claim against the corporation. The fact that a corporation is a subsidiary of another. and Atty. a subsidiary’s separate existence must be respected. They are chargeable w/ knowledge. w/c was granted by the lower courts. but also to pierce the corporate veil. through its attorney-in-fact PNB sought to foreclose. The case is remanded to the trial court for further trial – the notices of lis pendens are retained. does not suffice as a ground to pierce. Untenable! If used to perform legitimate functions. and usurpation of business opportunities in conflict w/ their fiduciary duties on the part of members of the Board. Rittrato. PNB-IFL. by itself. UMALI v. exhausting the corporate properties. It was secured by real estate mortgages. alter ego. DD: As a general rule. It also seeks a re-computation of its debt. thus the conveyance in favor of PM Parts cannot be sustained – considering that it is not a purchaser in good faith – considering that its president. It can only be employed if the stockholders/officers are sought to be held liable for corporate debts or where they have used the corporate medium to protect fraud. Castillos allege that the foreclosure (and all the other transactions) by ICP was void. This is an appropriate circumstance not only to file a derivative suit. Further. the balance of the price secured by Insurance Corp. as a justification for wrong.

Siain Enterprises through counsel. its evidence consisted of only a barefaced denial of receipt of the P160M loan and a vaguely drawn theory. Cupertino Realty Corp. To secure the loan. etc. 27 . Therefore are they not entitled to the possession of any definite portion of its property. On the other hand. DD: Piercing is a remedy intended to protect third persons. Inc.” Issue:
 1. Edilberto. W/N the doctrine of “piercing the veil of corporate fiction” was properly applied. The Board tolerated this. The promissory note was subsequently amended to contain a 17% annual interest on the P37M loan. it was established in the lower courts that Siain Enterprises and Yuyek had a common set of . Shares of stock do not represent corporate property – it only typifies the right to share in its proceeds. (Siain Enterprises) obtained a loan of P37M from Cupertino Realty Corporation (Cupertino) covered by a promissory note signed by both Siain Enterprises’s and Cupertino’s respective presidents. allowed his son Guillermo as well as Rebecca to use the resort staff-house and recreation hall respectively as residences. also through counsel. then GM. Siain Enterprises Enterprises. Cupertino then instituted extrajudicial foreclosure proceedings over the properties subject of the amended real estate mortgage. Piercing can only be done when the corporation is being used as a cloak to cover fraud or illegality. HEIRS OF EUGENIA ROXAS INC. they are co-owners of the property w/ a right to stay in the premises. Siain Enterprises executed a real estate mortgage over two parcels of land. liable to Cupertino in her personal capacity. then the piercing doctrine shall be applied to support the fact that the real estate mortgage was valid and supported by proper consideration. Held/Ratio: 2. Instead. Siain Enterprises contends that the court erroneously applied the doctrine of “piercing the veil or corporate fiction. On the other hand. Siain Enterprises further contends that because it never received the P160M loan. First and foremost. They propose that the corporate veil be pierced considering the circumstances under w/c the corporation was formed. the amended real estate mortgage is null and void because there was no consideration therefore. The real estate mortgage was also amended to reflect the increased amount of the loan from P37M to P197M A year after. Her heirs incorporated and used her estate properties to engage in a resort business: Hidden Valley. Cua Le Leng and Wilfredo Lua. Facts: In 1995. the Board approved a resolution ordering them to vacate. Yes. had the burden of proof and the duty to present a preponderance of evidence to establish its claim. Cupertino failed to release P160M. the court applied the doctrine of “piercing the veil of corporate fiction” to preclude Siain Enterprises from disavowing the receipt of the loan and paying its obligation under the amended real estate mortgage. Moreover. – “Hidden Valley Resort” Eugenia Roxas died and left several properties. They allege that as stockholders. The corporation has a separate juridical personality. Siain Enterprises contends that despite repeated verbal demands. Inc.BOYER-ROXAS v. Siain Enterprises being the plaintiff. and its affiliate corporations (Yuyek and Siain Transport) had received the proceeds of the loan which was the consideration of the amended real estate mortgage. wrote Cupertino and demanded from the latter the release of the P160M loan. denied that it had yet to release the P160M loan and maintained that Siain Enterprises had long obtained the proceeds of such loan and that Siain Enterprises was only trying to abscond from a just and valid obligation. Cupertino. Cupertino presented overwhelming evidence that Siain Enterprises Inc. Both Guillermo and Rebecca were stockholders. A few months after. It is not available for the purpose of justifying a theory of coownership for the purpose of utilizing corporate property. The lower court disregarded Siain Enterprises’s bare denial and negative evidence and gave credence to Cupertino’s evidence that the P160M loan was received by Siain Enterprises and its affiliate companies. Cua Le Leng executed another promissory note in favor of Cupertino for P160M and signed it as maker on behalf of Siain Enterprises and as co-maker. (2009) Doctrine: Where clear evidence presented support the fact that a corporation’s affiliates have received large amounts which became the consideration for the company execution of a real estate mortgage over its properties. In this regard. v. other equipment and machineries. Several years later..Siain Enterprises Enterprises. This prompted Siain Enterprises to file a complaint with a prayer for a restraining order to enjoin from proceeding with the public auction. The lower courts ruled in favor of Cupertino and upheld the validity of the amended real estate mortgage.

Thus. stockholders and board of directors. the same office address and the same majority stockholder which is Cua Le Leng. Siain Transport and Yuyek are characterized by oneness of operations vested in Cua Le Leng alone. the same bookkeeper and accountant. Where clear evidence presented support the fact that a corporation’s affiliates have received large amounts which became the consideration for the company execution of a real estate mortgage over its properties. it is clear that Siain Enterprises. then the piercing doctrine . these corporations were proven to be mere alteregos of Cua Le Leng. Consequently.incorporators. Cua Le Leng had the unlimited liability to use Siain Transport’s funds to pay the obligations incurred by Siain Enterprises.