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CORPORATION LAW SY 2015-2016 1

DIANE UY

DIGESTS and DOCTRINES
GOOD EARTH EMPORIUM vs. CA, 154 SCRA 594
X Pierce corporate veil
- A corporation has a personality distinct and separate from its
individual stockholders and 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.
CRUZ vs. DALISAY,
DALISAY, 152 SCRA 482
X Pierce corporate veil
- A corporation has a personality distinct and separate from its
individual stockholders or members. The mere fact that one is
president of the corporation does not render the property he owns or
possesses the property of the corporation, since that president, as
an individual, and the corporation, are separate entities.
- To ‘pierce the corporate veil’ is a power belonging to the Court

law, it has no effect on the identity of the corporation, or on its
property, rights, or liabilities.
CONCEPT BUILDERS, INC. VS. NLRC, 257 SCRA 149
Pierced corporate veil
- TEST IN DETERMINING THE APPLICABILITY OF THE DOCTRINE OF
PIERCING THE VEIL OF CORPORATE FICTION:
FICTION
1. Control,
Control not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate
mind, will or existence of its own;
2. Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of
plaintiffs legal rights;
rights and
3. The aforesaid control and breach of duty must proximately cause
cause
the injury or unjust loss complained of.
of

BANK OF AMERICA vs. CA, G.R. No.120135,
No.120135, March 31, 2003
2003
-

Petitioners' argument that private respondents, being mere
stockholders of the foreign corporations, have no personalities to
sue, and therefore, the complaint should be dismissed, is untenable.
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.

AVON DALE GARMENTS, INC. VS. CA, 246 SCRA 733
Pierced corporate veil
- The two entities cannot be deemed as separate and distinct where
there is a showing that one is merely the continuation of the other. In
fact, even a change in the corporate name does not make a new
corporation, whether effected by a special act or under a general

The absence of any one of these elements prevents piercing the
corporate veil in applying the instrumentality or alter ego doctrine;
FIRST PHIL. INTERNATIONAL BANK vs. CA, 252 SCRA 259
Pierced corporate veil
- The corporate veil cannot be used to shield an otherwise blatant
violation of the prohibition against forum-shopping. Shareholders,
whether suing as the majority in direct actions or as the minority in a
derivative suit, cannot be allowed to trifle with court processes,
particularly where, as in this case, the corporation itself has not been
remiss in vigorously prosecuting or defending corporate causes and
in using and applying remedies available to it.

. appears to be part of a scheme to terminate the services of FISI's security guards posted at the premises of FTC and bust their newly-organized union which was then beginning to become active in demanding the company's compliance with Labor Standards laws. protect fraud or defend crime. the Court cannot allow FTC to use its separate corporate personality to shield itself from liability for illegal acts committed against its employees. ESTELITA BURGOS LIPAT vs PACIFIC BANKING CORP. . NLRC. vs. Inc..As a rule. justify wrong. the defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. policies and practices that the controlled corporation has. (3) where the purchasing corporation is merely a continuation of the selling corporation. CA. protect fraud or defend crime. 358 SCRA 274 Pierced corporate veil .Any piercing of the corporate veil has to be done with caution. 381 SCRA 244 X Pierce corporate veil . ANDRADA ELECTRIC & ENGR. 345 SCRA 335 Pierced corporate veil . except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts. or in case of two corporations. PNB vs. But even when there is dominance over the affairs of the subsidiary.The rationale behind piercing a corporation’s 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.. 309 SCRA 72 X Pierce corporate veil . the fiction of the corporate entity of the instrumentality may be disregarded. and is but a conduit for its principal. 402 SCRA 339 Pierced corporate veil . BIBIANO REYNOSO vs. justify wrong. the law will regard the corporation as an association of persons.When the concept of separate legal entity is used to defeat public convenience.CORPORATION LAW SY 2015-2016 2 DIANE UY FRANCISCO MOTORS CORP. CO. merge them into one. (2) where the transaction amounts to a consolidation or merger of the corporations. Under these circumstances.The purported sale of the shares of the former stockholders to a new set of stockholders who changed the name of the corporation to Magnum Integrated Services. the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience. The control necessary to invoke the rule is not majority or even complete stock control but such domination of finances. a corporation that purchases the assets of another will not be liable for the debts of the selling corporation. SIMEON DE LEON vs. which the courts have applied in disregarding the separate juridical personality of corporations. so to speak. provided the former acted in good faith and paid adequate consideration for such assets. However. a mere instrumentality or adjunct of the other.When the corporation is the mere alter ego or business conduit of a person. This is commonly referred to as the instrumentality rule or the alter ego doctrine. in fact. CA. will or existence of its own. Where one corporation is so organized and controlled and its affairs are conducted so that it is. no separate mind. the separate personality of the corporation may be disregarded. and (4) where the transaction is fraudulently entered into in order to escape liability for those debts.

12401 of the NCC The supposed payments were not made to respondent corporation or to its SII nor to a person positively authorized to receive it Marcos Roces despite being the previous President of RRR who signed the lease contract is not authorized to receive payment. GEE filed a motion to quash writ of execution to which the lower court issued a restraining order to hold execution. and vice-versa. From March 1983 up to the filing of complaint. CA FACTS - - - - - - On October 16. where the former as lessee. GEE also filed petition for relief from judgment with RTC which was dismissed MTC denied motion to quash GEE appealed from dismissal of motion with RTC. a 3-yr lease contract on a 5-storey building was entered into by petitioner (GEE) and respondent (Roces-Reyes Realty). the Court referred to Art. Jesus Roces testified that the P1M was in payment for a personal loan extended by him in favor of Lim Ka Ping A corporation has a personality distinct and separate from its individual stockholders and members. for they are separate entities. 1 Payment shall be made to the person in whose favor the obligation has been constituted. petitioner had defaulted in the payment of its rentals. MTC ruled in favor of respondent. RTC reversed the decision of MTC in finding evidence in the amount of P1M and another P1M evidenced by a pacto de retro sale instrument. On further appeal. respondent filed an ejectment case (Unlawful Detainer) against herein petitioners. There was no valid payment made by petitioner to respondent corporation. as a consequence of which. Being an officer or stockholder of a corporation does not make one’s property also of the corporation. 1981. ISSUE: W/N there was full satisfaction of judgment debt in favor of respondent corporation which would justify the quashing of writ of execution HELD - No. drawn in favor of Jesus Roces and Marcos Roces were in full satisfaction of the judgment obligation. CA reversed RTC decision and reinstated MTC’s. RRR filed a motion for execution while GEE appealed from the decision A writ of execution was issued by MTC while GEE withdrew its appeal An alias writ of execution was issued by RTC.CORPORATION LAW SY 2015-2016 3 DIANE UY - GOOD EARTH EMPORIUM vs. or his successor in interest or any person authorized to receive it . - In deciding the case.

is untenable. LTD. the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action. If these elements are absent. Ltd. while lack of cause of action may be raised any time after the questions of fact have been resolved on the basis of stipulations.. (2) the correlative obligation of the defendant. evidently states no cause of action. A case is dismissible for lack of personality to sue upon proof that the plaintiff is not the real party-in-interest. The Litonjuas prayed for the accounting of the revenues derived in the operation of the six vessels and of the proceeds of the sale thereof at the foreclosure proceedings instituted by petitioners. Petitioners argument that private respondents. EDUARDO LITONJUA. and AURELIO K. and (3) the act or omission of the defendant in violation of said legal right..CORPORATION LAW SY 2015-2016 4 DIANE UY BANK OF AMERICA NT&SA. CA dismissed petition for review on certiorari Petitioners argue that the borrowers and the registered owners of the vessels are the foreign corporations and not private respondents Litonjuas who are mere stockholders. namely: (1) the legal right of the plaintiff. RTC dismissed MD. and (3) petitioners failed to do the same. SR. 2 . the complaint contains the three elements of a cause of action. unlike lack of cause of action which refers to the insufficiency of factual basis for the action. It is not the lack or absence of cause of action that is a ground for dismissal of the complaint but rather the fact that the complaint states no cause of action2. the complaint should be dismissed. and therefore. admissions or evidence presented. to render such an accounting. on the face thereof. and that the revenues derived from the operations of all the vessels are deposited in the accounts of the corporations. offering them easy loans to acquire more vessels. as trustees by reason of the fiduciary relationship that was created between the parties involving the vessels in question. A complaint states a cause of action where it contains three essential elements of a cause of action. exemplary damages and attorney’s fees. Failure to state a cause of action may be raised at the earliest stages of an action through a motion to dismiss the complaint. vs. alleging that petitioner induced them to increase the number of their ships in operation. Hence. have the right to demand for an accounting from defendants (herein petitioners).. the vessels were registered in the names of their corporation while the operation and the funds derived therefrom were placed under the exclusive control and disposition of the petitioner bank Possession the vessels was also placed by petitioner banks in the hands of persons selected and designated by them (banks). BANK OF AMERICA INTERNATIONAL. owned two vessels through their wholly-owned corporations and deposited their revenues from said business and other funds with the branches of petitioner banking corporation in the United Kingdom and Hongkong up to 1979 Litonjuas filed a Complaint before the RTC against the Bank of America NT&SA and Bank of America International. (2) petitioners have the obligation. corporations which are the registered owners of the vessels and the borrowers of petitioners FACTS HELD - - - - Respondents (Litonjuas) are engaged in the shipping business. JR. herein private respondents. have no personalities to sue. damages for breach of trust. petitioners maintain that these foreign corporations are the legal entities that have the personalities to sue and not herein private respondents ISSUE: W/N trial court committed 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 No. LITONJUA. as trustees. CA. In the case at bar. being mere stockholders of the foreign corporations. Failure to state a cause of action refers to the insufficiency of allegation in the pleading. It alleges that: (1) plaintiffs. The Litonjuas allege that there was breach of fiduciary duties and negligence on the part of petitioner banks as trustees. Petitioner banks filed a Motion to Dismiss on grounds of forum non conveniens and lack of cause of action against them. Lack of personality to sue can be used as a ground for a Motion to Dismiss based on the fact that the complaint.

usurping power belonging to the Court. Considering the ministerial nature of a sheriff’s duty in enforcement writs of execution. has a separate and distinct personality from its predecessor-in-interest as to absolve the same from paying disputed separation pay HELD No. there was payment of separation pay of terminated EEs.CORPORATION LAW SY 2015-2016 5 DIANE UY ADELIO CRUZ vs. 3 Avon Dale Shirt Factory and Avon Dale Shirt Garment Inc. vs. INC. There was no showing that upon dissolution. Adelio Cruz charged respondent Dalisay with malfeasance in office. were employees of petitioner corporation Following a dispute and upon execution of a compromise agreement. and the corporation. Respondents claim that the separation pay was insufficient as it did not include the period during which the latter were employed by its predecessor-in-interest. DUMANTAY ET AL. since that president. FACTS - - - In a complaint. NLRC reversed the decision4. corrupt practices and serious irregularities in performing his duties as Senior Deputy Sheriff. is a separate and distinct entity from Avon Dale Shirt Factory. as an individual. are separate entities. are not one and the same pursuant to the former’s filing of Articles of Dissolution with SEC 4 Avon Dale Shirt Garment Inc. respondents were terminated and given their separation pay. Petitioner failed to establish that Avon Dale Garments. absent any showing that there was indeed an actual closure and cessation of the latter. Cruz was the owner/president of aforementioned corporation. . Labor arbiter dismissed the complaint3. it is incumbent upon him to ensure that only that portion of a decision in the dispositive part should be the subject of the execution. chose to “pierce the veil of corporate entity”. as successor-in-interest was held liable for claim. Dalisay allegedly attached/levied the money belonging to complainant when he himself was not the judgment debtor in a labor case sought to be enforced against but rather Quilitrans Limousine Service Inc. QUITERIO DALISAY FACTS AVON DALE GARMENTS. NATIONAL LABOR RELATIONS COMMISSION. in enforcing the writ of execution against petitioner. Mere filing of the Articles of Dissolution with SEC without more is not enough to support the conclusion that actual dissolution of an entity took place. Inc. the latter filed a complaint in the labor arbiter Respondents further aver that such period should be credited in computing for separation pay. The mere fact that one is president of the corporation does not render the property he owns or possesses the property of the corporation. Avon Dale Shirt Factory. Respondent. Upon refusal of petitioner to accede to respondents’ claims. A corporation has a personality distinct and separate from its individual stockholders or members. considering that Avon Dale Shirt Factory was not dissolved and they were not hired as new employees by Petitioner Corporation. ISSUE: W/N Avon Dale Garments Inc. The Court ruled that respondent as sheriff was negligent in the enforcement of the writ of execution. - Respondents Dumantay et al. - - ISSUE: W/N the enforcement of the writ of execution against the president of the judgment debtor corporation was proper - HELD No.

Employees in the premises claim to be of Hydro Pipes Philippines. to wit: 1. vs. it is no longer occupied by the petitioner. but certainly. LA denied motion for break-open order NLRC reversed the order and granted the motion ISSUE: W/N NLRC committed grave abuse of discretion when it ordered the execution of its decision CONCEPT BUILDERS. A second Alias Writ of Execution was issued which was unenforced. the sheriff failed to enforce because the security guard on the premises refused him to enter on the ground that.414. Identity of directors and officers. INC. No hard and fast rule can be accurately laid down. ordering for their reinstatement and back wages amounting to Php 199. and even continued to hire the same employees. Stock ownership by one or common ownership of both corporations. it has no effect on the identity of the corporation. This is true likewise when the corporation is merely an adjunct. In 1986. The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. . They filed a complaint for illegal dismissal.CORPORATION LAW SY 2015-2016 6 DIANE UY The two entities cannot be deemed as separate and distinct where there is a showing that one is merely the continuation of the other. or is used as a device to defeat the labor laws. even a change in the corporate name does not make a new corporation. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. 2. But. an Alias Writ of Execution was issued by the LA directing the sheriff to collect the balance of the judgment award. there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil.800. protect fraud or defend crime. this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. same business venture at the same address. However. In the case at bar. rights. a business conduit or an alter ego of another corporation. In fact. - - - A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by HPPI of which he is the Vice-President. and to reinstate respondents. Respondents claim that the entities are owned by the same stockholders/incorporators. 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 owner. Inc. (HPPI). whether effected by a special act or under a general law. labor arbiter rendered judgment in favor of respondents. However. NLRC W/N piercing the veil doctrine should be applied HELD FACTS - - - - Private Respondents were the employees of the Petitioner Corporation. this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced when the notion of separate juridical personality is used to defeat public convenience. justify wrong. or liabilities. or on its property. unfair labor practice and claimed for their benefits with the NLRC against petitioner. LA issued for a writ of execution and was partially satisfied with a balance of Php 117.. and that petitioner corporation only suspended business activities in order to evade legal obligation In 1990. The special sheriff recommended the issuance of a break-open order in order to levy the personal properties found in the premises of petitioner corporation Yes.76 In 1989. In 1984.

a mere sheet or paper corporation. Methods of conducting the business. The manner of keeping corporate books and records. will or existence of its own.CORPORATION LAW SY 2015-2016 7 DIANE UY 3. and substantially the same subscribers. a mere instrumentality or adjunct of the other. or dishonest and unjust act in contravention of plaintiffs plaintiffs legal rights. submitted on the same day. Metro Manila. 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. the courts are concerned with reality and not form. policies and practices that the controlled corporation has. but complete domination. so to speak. It is noted that: - Both information sheets were filed by the same Virgilio O. The control necessary to invoke the rule is not majority or even complete stock control but such domination of finances. 2. petitioner ceased its business operations in order to evade the payment to private respondents of backwages and to bar their reinstatement to their former positions. Thus. the same corporate officers. while petitioner claimed that it ceased its business operations on April 29. Control not mere majority or complete stock control. 1986. with how the corporation operated and the individual defendants relationship to that operation. will or existence of its own. a similar information sheet stating that its office address is at 355 Maysan Road. in fact. Clearly. Valenzuela. Casino as the corporate secretary of both corporations. On the other hand. Moreover. In this case. to perpetuate the violation of a statutory or other positive legal duty. HPPI is obviously a business conduit of petitioner corporation and its emergence was skilfully orchestrated to avoid the financial liability that already attached to petitioner corporation. Both corporations had the same president. The TEST IN DETERMINING THE APPLICABILITY OF THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION is as follows: 1. it filed an Information Sheet with the Securities and Exchange Commission on May 15. Valenzuela. Control. no separate mind. 4. stating that its office address is at 355 Maysan Road. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The SEC en banc explained the instrumentality rule which the courts have applied in disregarding the separate juridical personality of corporations as follows: Where one corporation is so organized and controlled and its affairs are conducted so that it is. a sham or a subterfuge is purely one of fact. the same board of directors. . the fiction of the corporate entity of the instrumentality may be disregarded. the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made. 1987. Such control must have been used by the defendant to commit fraud or wrong. Metro Manila. the third-party claimant. and is but a conduit for its principal. HPPI. of The absence of any one of these elements prevents piercing the corporate veil in applying the instrumentality or alter ego doctrine. the question of whether a corporation is a mere alter ego. rights and 3. 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.

5M through a letter.CORPORATION LAW SY 2015-2016 8 DIANE UY FIRST PHILIPPINE INTERNATIONAL BANK vs. Although the plaintiffs in the Second Case (Henry L. the counter-offer of Php 5M was said to be illegal and unauthorized. Rivera made a counter-offer at Php 5. the same was refused. ISSUE: W/N there were separate identities as to negate forum-shopping 5 Respondents had met with the (Rivera) Manager of Property Mgt. respondents through a letter accepted the purchase price of Php 5. A meeting took place between (Co)SVP of the bank. and Secondly. RTC and CA ruled in favor of herein respondents as to the perfection of contract of sale.5M for the property. much less are they direct parties in the assailed contract of sale. Shareholders. JANOLO. DEMETRIA AND EJERCITO FACTS - - - - In early August 1987. They are not principally or even subsidiarily liable. When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation. this is the very essence of a derivative suit: . the allegations of the complaint in the Second Case show that the stockholders are bringing a derivative suit. et al. During the pendency of the proceedings in the CA. as in this case. particularly. Rivera and respondents. petitioners claim to have brought suit for and in behalf of the Producers Bank of the Philippines. Respondents filed a suit for specific performance with damages. Laguna which had been previously acquired by petitioner in the course of banking operations. the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. particularly where. At that time. Dept. the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. Co. Petitioner may not seek refuge in the corporate fiction that the personality of the Bank is separate and distinct from its shareholders. cannot be allowed to trifle with court processes. Co and other several stockholders of the bank filed an action. because: Firstly. the authority of Rivera in his dealings with respondents was repudiated. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping. Rosa. HELD No. Indeed. a derivative suit to declare any perfected sale of the property as unenforceable.5M. Petitioner through Rivera and respondents negotiated with the purchase price of the property by correspondence of letters 5. petitioner Bank. Subsequently. they represent the same interest and entity. petitioner banking corporation was under conservatorship. Of petitioner bank.) are not name parties in the First Case. CA. whether suing as the majority in direct actions or as the minority in a derivative suit. the achievement or perfection of a monopoly or generally the perpetration of knavery or crime. namely. The corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. and had made formal purchase offer at the amount of Php 3. the circumvention of statutes. Through its acting conservator. Despite succeeding demands by the respondents for compliance by the petitioner bank with what respondents considered as a perfected contract of sale. In the caption itself. CA. private respondents (Janolo and Demetria) initiated negotiations with herein petitioner for the purpose of purchasing six parcels of land located in Sta. they are not suing in their personal capacities. for they have no direct personal interest in the matter in controversy.

In these circumstances. separate personality of the corporation may be disregarded or the veil of corporate fiction pierced when the notion of separate juridical personality is used to defeat public convenience. officers and incorporators concerned. CA AND Sps. justify wrong. FACTS - - - - Petitioner filed a complaint against respondents Manuel to recover a sum of money representing the balance of a jeep body purchased by respondent from petitioner. In the case at bar. protect fraud or defend crime. Under the doctrine of piercing the veil of corporate entity. 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. FRANCISCO MOTORS CORP. the situation has been reversed. hence. with the corporation as the real party in interest. these circumstances.000 which was not paid by incorporators. The legal fiction of a separate corporate personality in those cited instances. In their answer. MANUEL 309 SCRA 72 No.CORPORATION LAW SY 2015-2016 9 DIANE UY An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights. cost of repairs as well as cost of suit and attorney’s fees. RTC ruled in favor of petitioner but also allowed respondent’s counterclaim. It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors. and even other stockholders. its own creditors. the doctrine of piercing the corporate veil has no relevant application here. clearly inequitous to petitioner. Hence. the services were incurred in a personal capacity. . vs. a business conduit or an alter ego of another corporation. Instead of holding certain individuals or persons responsible for an alleged corporate act. when the corporation is merely an adjunct. the suing stockholder is regarded as a nominal party. directors and officers of the petitioner Manuel was employed as assistant legal officer of petitioner corporation and that his services were solicited by the incorporators. Both parties appealed. will be justifiably set aside. also. and incorporators. or is used as a device to defeat the labor laws. ISSUE: W/N doctrine of piercing the veil of corporate entity should be applied HELD - - The rationale behind piercing a corporation’s 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. The estate proceedings did not involve any business of petitioner. CA sustained RTC’s ruling. the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to them. or are the ones to be sued or hold the control of the corporation. Such result if permitted could easily prejudice the corporation. respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel for Php 50. for reasons of public policy and in the interest of justice. Respondent’s move to recover unpaid legal fees through a counterclaim against Francisco Motors Corporation. whenever the officials of the corporation refuse to sue. officers. it appears to us that the doctrine has been turned upside down because of its erroneous invocation. directors and members to handle and represent them in the Special Proceedings concerning the Intestate Estate of Benita Trinidad in which members of the corporation are heirs of the decedent. In such actions.

Every action including a counterclaim must be prosecuted or defended in the name of the real party in interest. General Credit Corporation filed a Special Appearance and Opposition alleging that it was not a party to the case. prohibiting the lending of funds by corporations to its directors. The complaint alleged that petitioner embezzled the funds of CCCQC. Employees of the CCC were designated as resident managers of the franchise companies. GCC instituted a complaint before the RTC against Bibiano Reynoso IV and Edgardo C. RTC ruled in favor of Reynoso and held CCC-QC liable for the amount of Php3. the Commercial Credit Corporation (CCC). - - - - Petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum of P1. this discounting arrangement was discontinued pursuant to the so-called DOSRI Rule. and therefore petitioner should direct his claim against CCC-QC and not GCC. RTC did not issue a TRO. IV was designated as the resident manager of the franchise in Quezon City (CCC-QC) CCC-QC entered into an exclusive management contract with CCC. In 1983. officers. On August 15. deposited his personal funds in the company. CA rendered a decision enjoining Reynoso and the sheriff from conducting an auction sale (on execution) of GCC's properties as well as initiating similar acts of levying (upon) and selling on execution other properties of said petitioner.CORPORATION LAW SY 2015-2016 10 DIANE UY - - When directors and officers of a corporation are unable to compensate a party for a personal obligation. CA FACTS - - - - - - In 1960. CCC-QC issued to him its interestbearing promissory notes. in this case the individual members of the Francisco family. CCC-QC shall sell. who had in the meantime been dismissed from his employment by CCC-Equity. a financing and investment firm. however. as shown by twenty-three (23) checks which he issued to the said company. a complaint for sum of money was instituted in the CFI by CCC-QC against petitioner. stockholders and other persons with related interests therein.300. conduit and agency of CCC. in his capacity as Deputy Sheriff of Quezon City. Petitioner averred that the CCC-QC is an adjunct instrumentality.11 represented his money placements in CCC-QC. Metro Manila be declared null and void. A writ of execution was issued in 1989 however the judgment award remained unsatisfied. Under the contract.6M and damages. Subsequently. Reynoso filed a petition for review ISSUE: W/N the judgment in favor of petitioner may be executed against respondent General Credit Corporation . organized franchise companies in different parts of the country. Tanangco. RTC ordered the issuance of an alias writ of execution. it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice. CCC-QC. 1980. and be thereby held liable therefor by piercing its corporate veil.593. General Credit Corporation instituted two (2) petitions for certiorari with the CA which were later consolidated. and set aside the levy made in the Pasig properties. Petitioner Reynoso. and that defendant sheriff be enjoined from consolidating ownership over the land and from further levying on other properties of General Credit Corporation to answer for any liability under the decision in the first civil case. In return. CCC became known as the General Credit Corporation. discount and/or assign its receivables to CCC. Thus. praying that the levy on its parcel of land located in Pasig. In order to boost business activities. - - BIBIANO REYNOSO IV vs.

However. These criminal cases were later dismissed. It continues for legitimate objectives. the ability to cover more territory and population. Funds from his current account in the Far East Bank and Trust Company were transferred to CCC-QC. the defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. However. Complaints for qualified theft and estafa were brought by CCC-QC against petitioner. In the case at bar. the prohibited practice. These monies were alleged in the criminal complaints against him as having been stolen. But even when there is dominance over the affairs of the subsidiary. i. Petitioner issued twenty-three checks as money placements with CCC-QC because of difficulties faced by the firm in implementing the required phaseout program. Any piercing of the corporate veil has to be done with caution. 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. such as that inflicted in this case. the corporate character is not necessarily abrogated.. including petitioner. the civil complaint which was filed with the Court of First Instance of Pasig and later transferred to the Regional Trial Court of Quezon City was dismissed. the new name of CCC. were told to observe a pseudo-compliance with the phasing out orders. protect fraud or defend crime. and the securing of other legitimate advantages. petitioner earned the ire of his employers. resident managers. But when the mother corporation and its subsidiary cease to act in good faith and honest business judgment.CORPORATION LAW SY 2015-2016 11 DIANE UY Yes. CCC used the corporate device to continue Faced with the financial obligations which CCC-QC had to satisfy. Conveniently. In order to circumvent the Central Banks disapproval of CCC-QCs mode of reducing its DOSRI lender accounts and its directive to follow Central Bank requirements. the contention of respondent General Credit Corporation. instead of opposing its closure. investment and financing. and criminal and civil cases were filed against him. CCC organized still another corporation. his services were terminated. Under the foregoing circumstances. HELD The organization of subsidiary corporations as what was done is usually resorted to for the aggrupation of capital.e. as a wholly owned subsidiary. A corporation is an artificial being invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. CCC-QC. Eventually. Similarly. in obvious fraud of its creditors. The discounting agreements through which CCC controlled the finances of its subordinates became unlawful when Central Bank adopted the DOSRI prohibitions. but his counterclaims were granted. When that happens. including the resident managers of subsidiary corporations. CCC-Equity was in fact only another name for CCC. that the corporate fiction should be appreciated in its favor is without merit. the decentralization of activities best decentralized. Key officials of CCC. the mother firm closed CCC-QC. For his unwillingness to satisfactorily conform to these directives and his reluctance to resort to illegal practices. the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience. Instead of adhering to the letter and spirit of the regulations by avoiding DOSRI loans altogether. the law steps in to remedy the problem. the CCCEquity Corporation. it is pierced in order to remedy injustice. cooperated in its own demise. However. when the corporate device is used by the parent to avoid its liability for legitimate obligations of the subsidiary. justify wrong. CCC-QC stated in its opposition to the motion for alias writ of execution that all its properties and assets had been transferred and taken over by CCC. . and when the corporate fiction is used to perpetrate fraud or promote injustice. were appointed to positions in CCCEquity.

Respondent FTC. by virtue of a contract for security services. . it also amended its Articles of Incorporation changing its name to Magnum Integrated Services. However. ULP and refund of cash bond. justify wrong.CORPORATION LAW SY 2015-2016 12 DIANE UY SIMEON DE DE LEON et al. 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. Inc. FORTUNE TOBACCO CORP. The purported sale of the shares of the former stockholders to a new set of stockholders who changed the name of the corporation to Magnum Integrated Services. 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. ISSUE: W/N doctrine of piercing the corporate veil should be applied as to hold FTC liable HELD Yes. the Court cannot allow FTC to use its separate corporate personality to shield itself from liability for illegal acts committed against its employees. Petitioners filed a complaint for illegal dismissal. MAGNUM SERVICES INC. it was shown that FISI was a mere adjunct of FTC. whose security guards were posted to replace FISI's security guards. Inc. merge them into one. Sometime after. or in case of two corporations. records show that FISI and FTC have the same owners and business address. and FISI provided security services only to FTC and other companies belonging to the Lucio Tan group of companies. In the case at bar. However. FTC terminated the contract with FISI which resulted in the displacement of some 582 security guards assigned to FTC. Inc. maintained that there was no EE-ER relationship. It was averred that they were regular employees of FTC which was also using the corporate names FISI and MISI. FISI stockholders executed a “Deed of Sale of Shares of Stock” in favor of a group of new stockholders. (FISI). the law will regard the corporation as an association of persons. that they work under the control and supervision of FTC’s security supervisors. that petitioners were employee of MISI a separate and distinct corporation from FTC. on the other hand.. Asian Security Agency and Ligalig Security Services. and that. LA ruled for herein petitioners. NLRC. provided FTC with security guards to safeguard its premises. appears to be part of a scheme to terminate the services of FISI's security guards posted at the premises of FTC and bust their newly-organized union which was then beginning to become active in demanding the company's compliance with Labor Standards laws. - - FISI. they were dismissed without just cause and due process. NLRC. FTC engaged the services of two (2) other security agencies. The doctrine of piercing the corporate veil to hold all respondents liable for unfair labor practice and illegal termination of petitioners' employment was correctly applied by the labor arbiter. (FTC) pursuant to a contract for security services with Fortune Integrated Services Inc. vs. including petitioners herein. FACTS - - - - - - Petitioners are security guards assigned in the premises of Fortune Tobacco Services. when the concept of separate legal entity is used to defeat public convenience. Under these circumstances. protect fraud or defend crime. NLRC reversed. (MISI).

PNB acquired the assets of PASUMIL that were earlier foreclosed by DBP under LOI No.000.not mere stock control. because the PASUMIL account had incurred . to take ownership and possession of the assets and ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills ANDRADA demands payment of the obligation from PNB and NASUDECO inasmuch as both entities owned and possessed the assets of PASUMIL RTC ruled in favor of Andrada and held PND. leaving an unpaid balance of P513. respondent was not defrauded or injured when petitioners acquired the assets of PASUMIL. there is no evidence that their juridical personality was used to commit a fraud or to do a wrong. covering the period from January 5.80. there is no showing that their control over it warrants the disregard of corporate personalities. leaving an unpaid balance. most of which were partially paid by the defendant PASUMIL. or that the separate corporate entity was farcically used as a mere alter ego. Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1) control -.00. FACTS - - - - - - In October 1971. (2) where the transaction amounts to a consolidation or merger of the corporations. ISSUE: W/N PNB may be held liable for the unpaid debts of PASUMIL to respondent HELD No. 1974. provided the former acted in good faith and paid adequate consideration for such assets. First. will or existence of its own. Third. amounting to P527. the defendant PASUMIL had paid only P250. 311. Respondent asserts that petitioners and PASUMIL should be treated as one entity and. business conduit or instrumentality of another entity or person. and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of. except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts. 1973. (3) where the purchasing corporation is merely a continuation of the selling corporation. but complete domination -.263. a corporation that purchases the assets of another will not be liable for the debts of the selling corporation. (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. leaving several unpaid accounts with the plaintiff Out of the total obligation of P777.263.not only of finances.80. or a dishonest and an unjust act in contravention of plaintiffs legal right. 1974 up to May 23. because their takeover of the latters foreclosed assets did not make them assignees. DBP foreclosed the mortgage executed by PASUMIL and acquired the assets as the highest bidder at the public auction conducted. The bank was justified in foreclosing the mortgage. other than the fact that petitioners acquired the assets of PASUMIL. Petitioners posit that they should not be held liable for the corporate debts of PASUMIL. The absence of the foregoing elements in the present case precludes the piercing of the corporate veil. and affirmed by CA. but of policy and business practice in respect to the transaction attacked.000. as of June 27. Second. in broken amounts.CORPORATION LAW SY 2015-2016 13 DIANE UY PNB vs. As a rule. ANDRADA ELECTRIC & ENGR.80 In August 1975. the defendant PASUMIL engaged the services of plaintiff for electrical rewinding and repair.00. while PNB organized NASUDECO in September 1975. PASUMIL and NASUDECO jointly and severally liable. jointly and severally held liable for PASUMILs unpaid obligation. and (4) where the transaction is fraudulently entered into in order to escape liability for those debts. CO. PASUMIL made a partial payment to the plaintiff of P14. must have been such that the corporate entity as to this transaction had at the time no separate mind.263. as such.

. 311. Petitioners filed before the RTC a complaint for annulment of the real estate mortgage. Unfortunately. Lipat. as well as Mystical Fashions in the United States.CORPORATION LAW SY 2015-2016 14 DIANE UY arrearages of more than 20 percent of the total outstanding obligation. discounting lines. Trinidad (highest bidder). as the second mortgagee. PNB acquired PASUMILs assets that DBP had foreclosed and purchased in the normal course. the Lipats were estopped from disclaiming any obligations on the theory of separate personality of corporations. The Lipats also averred that assuming said acts were valid and binding on BEC. redeemed from DBP the foreclosed PASUMIL assets pursuant to Section 6 of Act No. - - - - ESTELITA ESTELITA BURGOS LIPAT vs PACIFIC BANKING CORP. to manage BET in the Philippines while she was managing Mystical Fashions in the United States. owned Belas Export Trading (BET). All transactions were all secured by the real estate mortgage over the Lipats property. By way of a Deed of Assignment. CA dismissed the appeal . the prior and subsequent loans were restructured in the name of BEC with the corresponding promissory notes duly executed by Teresita on behalf of the corporation. a single proprietorship engaged in the manufacture of garments for domestic and foreign consumption. and export bills were all ultra vires acts of Teresita as they were executed without the requisite board resolution of the Board of Directors of BEC. PNB then transferred to NASUDECO all its rights under the Redemption Agreement. the spouses Alfredo Lipat and Estelita Burgos Lipat. Consequently. FACTS . . the real estate mortgage was foreclosed and the mortgaged property was sold at public auction. Petitioner bank was likewise tasked to manage temporarily the operation of such assets either by itself or through a subsidiary corporation. Thus. the terms of which were embodied in the Redemption Agreement. The promissory notes. Lipat designated her daughter. overdrafts and credit accommodations.Petitioners. but also a duty under the law to foreclose the subject properties. PNB. the same were the corporations sole obligation. 189-A as amended by LOI No. it having a personality distinct and separate from spouses Lipat. stepped into the shoes of DBP as PASUMILs creditor. 3135. BET was incorporated into a family corporation named Belas Export Corporation (BEC). Eventually. and trust receipt eventually became due and demandable. These assets were later conveyed to PNB for a consideration. BEC defaulted in its payments. Trust receipt and export bills were also executed for additional finances. as successor-in-interest. Pacific Bank had transacted business with both BET and BEC on the supposition that both are one and the same. . Hence. The complaint alleged among others. extrajudicial foreclosure and the certificate of sale issued over the property against Pacific Bank and Eugenio D.In 1978. DBP had not only a right.854. that the promissory notes. export bills. RTC pierced the veil of corporate fiction and held that Belas Export Corporation and petitioners (Lipats) are one and the same.Mrs. Teresita B. Estelita executed an SPA appointing Teresita as her attorney-in-fact to obtain loans and other credit accommodations from respondent Pacific Banking Corporation (Pacific Bank). PNB. - - - The property was likewise made to secure other additional or new loans.Teresita was able to secure from Pacific Bank a loan of P583. trust receipt. Pursuant to LOI No. In September 1979. which is contrary to principles of reason and good faith.00 for business operations which was secured by a Real Estate Mortgage over their property located in QC. which sells goods imported from the Philippines through BET.

rather than fraud in piercing the veil of corporate fiction.Both firms were managed by their daughter. Estelita Lipat had benefited from the loans secured from Pacific Bank to finance her business abroad. BEC is a mere continuation and successor of BET. the fiction of the corporate entity of the instrumentality may be disregarded. supplying products to Mystical Fashion. a mere instrumentality or adjunct of the other. . .Both firms were engaged in the garment business. and petitioners 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. firm established by Estelita Lipat.The corporate funds were held by Estelita Lipat and the corporation itself had no visible assets. When the corporation is the mere alter ego or business conduit of a person. Estelita had full control over the activities of and decided business matters of the corporation. policies and practices that the controlled corporation has. The judgment of the RTC and the resolution of the appellate court show that in finding petitioners mortgaged property liable for the obligations of BEC.Both firms held office in the same building owned by the Lipats. so to speak. Petitioners attempt to isolate themselves from and hide behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the doctrine of piercing the veil of corporate entity seeks to prevent and remedy.Lipat spouses are the owners and majority shareholders of BET and BEC. Teresita. It is noted that: . . Where one corporation is so organized and controlled and its affairs are conducted so that it is. no separate mind. will or existence of its own. - The board of directors of BEC was composed of the Burgos and Lipat family members. both courts below relied upon the alter ego doctrine or instrumentality rule. . a U.BEC is a family corporation with the Lipats as its majority stockholders. This is commonly referred to as the instrumentality rule or the alter ego doctrine. Lipat such that they were practically indistinguishable. respectively.S.CORPORATION LAW SY 2015-2016 15 DIANE UY ISSUE: W/N DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS CASE. . The control necessary to invoke the rule is not majority or even complete stock control but such domination of finances. which the courts have applied in disregarding the separate juridical personality of corporations. - Yes. . BET and BEC are one and the same and the latter is a conduit of and merely succeeded the former. in fact. . the separate personality of the corporation may be disregarded.The business operations of the BEC were so merged with those of Mrs. In our view. and is but a conduit for its principal.