Land Bank of the Philippines vs Court of Appeals

Commercial Law Corporation Law Veil of Corporate Fiction Corporate Name

In 1980, ECO Management Corporation (ECO) obtained loans amounting to about P26 million from
Land Bank. ECO defaulted in its payment but in 1981, ECO submitted a Payment Plan with the hope
of restructuring its loan. The plan was rejected and Land Bank sued ECO. It impleaded Emmanuel C.
Oate, the majority stockholder of ECO who is serving as the Chairman and treasurer of ECO.

The trial court ruled in favor of Land Bank but Oate was absolved from liabilities. The Court of
Appeals affirmed the decision of the trial court.

Land Bank appealed as it wanted Oate to be personally liable on the following grounds (among
others): a) ECO stands for Emmanuel C. Oate, b) Oate is the majority stockholder, c) ECO was
formed ostensibly to allow Oate to acquire loans from Land Bank which he used for his personal
advantage, d) Oate holds two positions in the corporation, and e) ECO never held any board
meeting which just shows only Oate was in control of the corporation.

ISSUE: Whether or not Oate should be held personally.

HELD: No. Land Bank was not able to produce sufficient evidence to prove its claim. 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. The corporate
fiction is only disregarded 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. None of the foregoing was proved by Land Bank.

The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude that
Oate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the
capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate
corporate personalities.

Anent the issue of the corporate name, the fact that Oates initials coincide with the corporate
name ECO is not sufficient to disregard the corporate fiction. Even if ECO does stand for Emmanuel
C. Oate, it does not mean that the said corporation is merely a dummy of Oate. A corporation may
assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name
or as in this case, the initials of one of its shareholders.

TELEPHONE ENGINEERING AND SERVICE CO INC (TESCO) v. WORKM ENS

COM PENSATION COM M ISSION (W CC)

Topic: Piercing the veil of corporate fiction in compensation cases

Case: Petition for certiorari from the award of the Workmens Compensation Section

FACTS:
TESCO is a domestic corporation engaged in telephone manufacturing, with sister company,
Utilities Management Corporation (UMACOR). Both companies are under the management of Jose
Louis Santiago, as Exec VP and General Manager.

UMACOR employed Pacifico Gatus as Purchasing Agent in 1964. He was assigned in TESCO for 2.5
months, and reported back to UMACOR. In 1967, he contracted an illness and died eventuall of liver
cirrhosis with malignant degeneration.
Pacificos widowed wife, Leonila Gatus, filed a Notice and Claim for Compensation with the
Workmens Compensation Section alleging the employment of Pacifico under TESCO and his death
of liver cirrhosis. The Notice and Claim was transmitted to TESCO, to which TESCO responded with
an Employers Report of Accident or Sickness, signed by Santiago, stating that UMACOR was
Pacificos employer, and that employer UMACOR would not controvert the claim for compensation,
and admitted that the deceased employee contracted illness in regular occupation. Thus, the
Acting Referee awarded death benefits (5,759) and burial expenses (200) in favor of Pacificos heirs.

TESCO filed a Motion for Reconsideration and Petition to Set Aside Award alleging that the
admission in the Employers Report was due to honest mistake and excusable negligence, and that
the illness for which compensation is sought is not an occupational disease, hence, not compensable
under the law. The MR was denied.

The Provincial Sheriff levied on and attached the properties of TESCO and scheduled the sale of such
at public auction. Hence, this petition seeking to annul the award and to enjoin the Sheriff from
levying and selling its properties at public auction.

In its Petition, TESCO asserts that there is no employer-employee relationship between it and
Pacifico Gatus.

ISSUE:
Whether TESCO is liable for the compensation claim of Pacificos heirs when it claims that it is not
the employer of Pacifico.

HELD/RATIO.
YES, the assertion of lack employer-employee relationship cannot be admitted at the point of the
petition before the Supreme Court anymore; the difference between the corporate personality of
TESCO and UMACOR cannot be admitted anymore to confuse the legitimate issues in this case.

In TESCOs pertinent documents letter to Acting Referee, Motion for Reconsideration and Petition
to Set Aside Award, and Urgent Motion to Compel the Referee to Elevate Records to Commission for
Review it represented and defended itself as the employer of the deceased. Nowhere in the said
documents did it allege that it was not the employer. TESCO even admitted that it and UMACOR are
sister companies operating under one single management and housed in the same building.
Although respect for the corporate personality as such, is the general rule, there are exceptions. In
appropriate cases, the veil of corporate fiction may be pierced as when the same is made as a shield
to confuse the legitimate issues.

Em ilio Cano Enterprises VS CIR

13 SCRA 291 Business Organization Corporation Law Principle of the Corporate Fiction
Equity Case

Facts:
Honorata Cruz was terminated by Emilio Cano Enterprises, Inc. (ECEI). She then filed a complaint
for unfair labor practice against Emilio Cano, in his capacity as president and proprietor, and
Rodolfo Cano, in his capacity as manager. Cruz won and the Court of Industrial Relations (CIR)
ordered the Canos to reinstate Cruz plus pay her backwages with interest. The Canos appealed to the
CIR en banc but while on appeal Emilio died. The Canos lost on appeal and an order of execution was
levied against ECEIs property. ECEI filed an ex parte motion to quash the writ as ECEI avers that it
is a corporation with a separate and distinct personality from the Canos. Their motion was denied
and ECEI filed a petition for certiorari with the Supreme Court.

ISSUE: Whether or not the judgment of the Court of Industrial Relations is correct.
HELD:
Yes. This is an instance where the corporation and its members can be considered as one. ECEI is a
close family corporation the incorporators are members of the Cano family. Further, the Canos
were sued in their capacity as officers of ECEI not in their private capacity. Having been sued
officially their connection with the case must be deemed to be impressed with the representation of
the corporation. The judgment against the Canos has a direct bearing to ECEI. Verily, the order
against them is in effect against the corporation. Further still, even if this technicality be strictly
observed, what will simply happen is for this case to be remanded, change the name of the party, but
the judgment will still be the same there can be no real benefit and will only subversive to the ends
of justice. In this case, to hold ECEI liable is not to ignore the legal fiction but merely to give meaning
to the principle that such fiction cannot be invoked if its purpose is to use it as a shield to further an
end subversive of justice.

M CCONNEL VS. CA 1 SCRA 722 (1961)

The issue before us in the correctness of the decision of the Court of Appeals that, under the
circumstances of record, there was justification for disregarding the corporate entity of the Park
Rite Co., Inc., and holding its controlling stockholders personally responsible for a judgment against
the corporation.

FACTS:

The Court of Appeals found that the Park Rite Co., Inc., a Philippine corporation, was originally
organized on or about April 15, 1947, with a capital stock of 1,500 shares at P1.00 a share. The
corporation leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan Luna street (Manila)
which it used for parking motor vehicles for a consideration.

It turned out that in operating its parking business, the corporation occupied and used not only the
Samanillo lot it had leased but also an adjacent lot belonging to the respondents-appellees Padilla,
without the owners' knowledge and consent.

When the latter discovered the truth around October of 1947, they demanded payment for the use
and occupation of the lot.

The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino, who had
purchased and held 1,496 of its 1,500 shares) disclaimed liability, blaming the original
incorporators, McConnel, Rodriguez and Cochrane.

Whereupon, the lot owners filed against it a complaint for forcible entry in the Municipal Court of
Manila on 7 October 1947 (Civil Case No. 4031).

RTC- Judgment was rendered in due course on 13 November 1947, ordering the Park Rite Co., Inc.
to pay P7,410.00 plus legal interest as damages from April 15, 1947 until return of the lot.
Restitution not having been made until 31 January 1948, the entire judgment amounted to
P11,732.50. Upon execution, the corporation was found without any assets other than P550.00
deposited in Court. After their application to the judgment credit, there remained a balance of
P11,182.50 outstanding and unsatisfied.

Now the judgment creditors then filed suit in the Court of First Instance of Manila against the
corporation and its past and present stockholders, to recover from them, jointly and severally, the
unsatisfied balance of the judgment, plus legal interest and costs.

RTC- The Court of First Instance denied recovery;

CA- Court of Appeals (CA-G.R. No. 8434-R) reversed, finding that the corporation was a mere alter
ego or business conduit of the principal stockholders that controlled it for their own benefit, and
adjudged them responsible for the amounts demanded by the lot owners,

Defendant-appellee RICARDO RODRIGUEZ is hereby ordered to pay to the plaintiffs-appellants

Dominga de los Reyes and Sabino Padilla the sum of P1,742.64 with legal interest thereon from the
time of the filing of the complaint and until it is fully paid. In addition thereto the defendants-
appellees Cirilo Paredes, Ursula Tolentino and Ricardo Rodriguez shall pay the costs proportionately
in both instances.

ISSUE
whether the individual stockholders maybe held liable for obligations contracted by the corporation.
this Court has already answered the question in the affirmative wherever circumstances have
shown that the corporate entity is being used as an alter ego or business conduit for the sole benefit
of the stockholders, or else to defeat public convenience, justify wrong, protect fraud, or defend
crime (Koppel [Phil.] Inc. vs. Yatco, 77 Phil. 496; Arnold vs. Willits and Patterson, 44 Phil. 364).

The Court of Appeals has made express findings to the following effect:

There is no question that a wrong has been committed by the so-called Park Rite Co., Inc., upon the
plaintiffs when it occupied the lot of the latter without its prior knowledge and consent and without
paying the reasonable rentals for the occupation of said lot. There is also no doubt in our mind that
the corporation was a mere alter ego or business conduit of the defendants Cirilo Paredes and
Ursula Tolentino, and before them the defendants M. McConnel, W. P. Cochrane, and Ricardo
Rodriguez. The evidence clearly shows that these persons completely dominated and controlled the
corporation and that the functions of the corporation were solely for their benefits.

When it was originally organized on or about April 15, 1947, the original incorporators were M.
McConnel, W. P. Cochrane, Ricardo Rodriguez, Benedicto M. Dario and Aurea Ordrecio with a capital
stock of P1,500.00 divided into 1,500 shares at P1.00 a share. McConnel and Cochrane each owned
500 shares, Ricardo Rodriguez 408 shares, and Dario and Ordrecio 1 share each. It is obvious that
the shares of the last two named persons were merely qualifying shares.

Then or about August 22, 1947 the defendants Cirilo Paredes and Ursula Tolentino purchased 1,496
shares of the said corporation and the remaining four shares were acquired by Bienvenido J.
Claudio, Quintin C. Paredes, Segundo Tarictican, and Paulino Marquez at one share each. It is
obvious that the last four shares bought by these four persons were merely qualifying shares and
that to all intents and purposes the spouses Cirilo Paredes and Ursula Tolentino composed the so-
called Park Rite Co., Inc. That the corporation was a mere extension of their personality is shown by
the fact that the office of Cirilo Paredes and that of Park Rite Co., Inc. were located in the same
building, in the same floor and in the same room at 507 Wilson Building. This is further shown by
the fact that the funds of the corporation were kept by Cirilo Paredes in his own name (p. 14,
November 8, 1950, T.S.N.) The corporation itself had no visible assets, as correctly found by the trial
court, except perhaps the toll house, the wire fence around the lot and the signs thereon. It was for
this reason that the judgment against it could not be fully satisfied. (Emphasis supplied).

The facts thus found can not be varied by us, and conclusively show that the corporation is a mere
instrumentality of the individual stockholder's, hence the latter must individually answer for the
corporate obligations. While the mere ownership of all or nearly all of the capital stock of a
corporation is a mere business conduit of the stockholder, that conclusion is amply justified where it
is shown, as in the case before us, that the operations of the corporation were so merged with those
of the stockholders as to be practically indistinguishable from them.

To hold the latter liable for the corporation's obligations is not to ignore the corporation's separate
entity, but merely to apply the established principle that such entity can not be invoked or used for
purposes that could not have been intended by the law that created that separate personality.
The petitioners-appellants insist that the Court could have no jurisdiction over an action to enforce a
judgment within five (5) years from its rendition, since the Rules of Court provide for enforcement
by mere motion during those five years. The error of this stand is apparent, because the second
action, originally begun in the Court of First Instance, was not an action to enforce the judgment of
the Municipal Court, but an action to have non-parties to the judgment held responsible for its
payment.

Pacific Rehouse Corporation v. Court of Appeals, G.R. No. 199687, M arch 24, 2014.

FACTS

A complaint was instituted with the Makati City Regional Trial Court (RTC), Branch 66, against EIB
Securities Inc. (ESecurities) for unauthorized sale of 32,180,000 DMCI shares of Pacific Rehouse
Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation, and
East Asia Oil Company, Inc. In its October 18, 2005 Resolution, the RTC rendered judgment on the
pleadings, directing the ESecurities to return to the petitioners 32,180,000 DMCI shares, as of
judicial demand. On the other hand, petitioners are directed to reimburse the defendant the amount
of [P]10,942,200.00, representing the buy back price of the 60,790,000 KPP shares of stocks at
[P]0.18 per share. The Resolution was ultimately affirmed by the Supreme Court and attained
finality.

When the Writ of Execution was returned unsatisfied, petitioners moved for the issuance of an alias
writ of execution to hold Export and Industry Bank, Inc. liable for the judgment obligation as E
Securities is a whollyowned controlled and dominated subsidiary of Export and Industry Bank,
Inc., and is[,] thus[,] a mere alter ego and business conduit of the latter. ESecurities opposed the
motion[,] arguing that it has a corporate personality that is separate and distinct from the
respondent.

The RTC eventually concluded that ESecurities is a mere business conduit or alter ego of petitioner,
the dominant parent corporation, which justifies piercing of the veil of corporate fiction, and issued
an alias writ of summons directing defendant EIB Securities, Inc., and/or Export and Industry Bank,
Inc., to fully comply therewith. It ratiocinated that being one and the same entity in the eyes of the
law, the service of summons upon EIB Securities, Inc. (ESecurities) has bestowed jurisdiction over
both the parent and whollyowned subsidiary.

Export and Industry Bank, Inc. (Export Bank) filed before the Court of Appeals a petition for
certiorari with prayer for the issuance of a temporary restraining order (TRO) seeking the
nullification of the RTC Order. The Court of Appeals reversed the RTC Order and explained that the
alter ego theory cannot be sustained because ownership of a subsidiary by the parent company is
not enough justification to pierce the veil of corporate fiction. There must be proof, apart from mere
ownership, that Export Bank exploited or misused the corporate fiction of ESecurities. The
existence of interlocking incorporators, directors and officers between the two corporations is not a
conclusive indication that they are one and the same. The records also do not show that Export
Bank has complete control over the business policies, affairs and/or transactions of ESecurities. It
was solely ESecurities that contracted the obligation in furtherance of its legitimate corporate
purpose; thus, any fall out must be confined within its limited liability.

ISSUE

Whether or not E-Securities is merely an alter ego of Export Bank so that piercing the veil of
corporate fiction is proper.

RULING
NO. An alter ego exists where one corporation is so organized and controlled and its affairs are
conducted so that it is, in fact, a mere instrumentality or adjunct of the other. The control necessary
to invoke the alter ego doctrine is not majority or even complete stock control but such domination
of finances, policies and practices that the controlled corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for its principal.

The Court has laid down a threepronged control test to establish when the alter ego doctrine should
be operative:

Control, not mere majority or complete stock control, but complete domination, not only of finances
but of policy and business practice in respect to the transaction attacked so that the corporate entity
as to this transaction had at the time no separate mind, will or existence of its own;

Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiffs legal right; and

The aforesaid control and breach of duty must [have] proximately caused the injury or unjust loss
complained of.

The absence of any one of these elements prevents piercing the corporate veil in applying the
instrumentality or alter ego doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendants relationship to that operation. Hence,
all three elements should concur for the alter ego doctrine to be applicable.

In this case, the alleged control exercised by Export Bank upon its subsidiary ESecurities, by itself,
does not mean that the controlled corporation is a mere instrumentality or a business conduit of the
mother company. Even control over the financial and operational concerns of a subsidiary company
does not by itself call for disregarding its corporate fiction. There must be a perpetuation of fraud
behind the control or at least a fraudulent or illegal purpose behind the control in order to justify
piercing the veil of corporate fiction. Such fraudulent intent is lacking in this case.

While the courts have been granted the colossal authority to wield the sword which pierces through
the veil of corporate fiction, concomitant to the exercise of this power, is the responsibility to uphold
the doctrine of separate entity, when rightly so; as it has for so long encouraged businessmen to
enter into economic endeavors fraught with risks and where only a few dared to venture.

The decision of the Court of Appeals in favor of Export Bank (reversing the RTC Order) is affirmed.

ASIA BANKING CORPORATION vs. STANDARD PRODUCTS, CO., INC

FACTS:
Standard Products, Co., Inc., was indebted to Asia Banking Corporation for the amount of
P37,757.22. To secure its indebtedness, it executed a promissory note in favor of plaintiff-appellee.
Upon demand for the balance due, the respondent-appellant failed to pay. Hence an action was
brought by plaintiff-appellee to recover the sum of P24,736.47. The court rendered judgment in
favor of the plaintiff-appellee for the sum demanded in the complaint, with interest on the sum of
P24,147.34 from November 1, 1923, at the rate of 10 per cent per annum, and the costs. Hence this
appeal by the respondent-appellant. At the trial of the case the plaintiff failed to prove affirmatively
the corporate existence of the parties and the appellant insists that under these circumstances the
court erred in finding that the parties were corporations with juridical personality and assigns same
as reversible error.

ISSUE: Whether or not respondent is estopped from denying the corporate existence of the plaintiff.
RULING:
The general rule is that in the absence of fraud a person who has contracted or otherwise dealt with
an association in such a way as to recognize and in effect admit its legal existence as a corporate
body is thereby estopped to deny its corporate existence in any action leading out of or involving
such contract or dealing, unless its existence is attacked for cause which have arisen since making
the contract or other dealing relied on as an estoppel and this applies to foreign as well as to
domestic corporations. The defendant having recognized the corporate existence of the plaintiff by
making a promissory note in its favor and making partial payments on the same is therefore
estopped to deny said plaintiff's corporate existence. It is, of course, also estopped from denying its
own corporate existence. Under these circumstances it was unnecessary for the plaintiff to present
other evidence of the corporate existence of either of the parties. It may be noted that there is no
evidence showing circumstances taking the case out of the rules stated.

NOTE: The name of parties as plaintiff/respondent in this case was not changed. They remained as
such even on appeal.

Paz v New International Environm ental University

One Who Assumes An Obligation To An Ostensible Corporation, As Such, Cannot Resist Performance
Thereof On The Ground That There Was In Fact No Corporation

The Facts:
Priscillo (Paz), then Officer-in-Charge of the Aircraft Hangar at the Davao International Airport,
entered into a memorandum of agreement with Captain Allan J. Clarke, president of International
Environmental University, for the use of the aircraft hangar space at the said airport exclusively for
company aircraft/helicopter for a period of four years, unless pre-terminated with 6-months
notice. By letters dated August 19, 2000 and January 16, 2001, to MR ALLAN J. CLARK,
International Environmental Universality Inc., Priscillo threatened to cancel the contract since the
company was using it to park trucks and equipments instead of aircraft. A third and fourth
demand letter was sent to Mr. Allan J, Clarke, New International Environmental University, Inc.,
demanding compliance with the memorandum of agreement, to no avail. New International
Environmental University Inc., then filed an action for breach of contract against Priscillo, alleging
that the latter violated the terms of the memorandum of agreement when he caused the
disconnection of electric and telephone lines at the hangar, as well as ordering the security guards
to prevent their employees from entering their premises, and did not give them the 6-month notice
as required under the MOA. In his answer, Priscillo alleged that the company had no cause of action
since he dealt with Mr. Allan J. Clark in his personal capacity; there was no need to wait for the
expiration of the contract since the company was performing high risk works in the leased
premises and the six-month notice was given thru his letters given to Mr. Allan J. Clarke. During
trial the RTC issued a writ of preliminary injunction to compel Priscillo to remove the steel gate
installed in the premises, but he refused, hence the company filed a motion to cite him in indirect
contempt of court.

After trial, the RTC rendered judgment in favour of the corporation. It held Prisicllo liable for
indirect contempt for disregarding the issued writ, as well as liable for breach of contract. On the
challenge to the corporate personality of the company, the RTC cited the SEC Order which stated
that the company was issued a Certificate of Incorporation on September 3, 2001 as New
International Environmental Universality, Inc. but that, subsequently, when it amended its Articles
of Incorporation on November 14, 2001 and July 11, 2002, the SEC Extension Office in Davao City
erroneously used the name New International Environmental University, Inc. The latter name was
used by the company when it filed its amended complaint on September 11, 2002 and the petition
for indirect contempt against petitioner on October 24, 2003 believing that it was allowed to do so, as
it was only on April 11, 2005 when the SEC directed it to revert to its correct name. It also ruled that
the parties (Priscillo and Allan J. Clarke) signed the MOA not only in their personal capacities but as
representatives of their respective corporations. It held that Priscillo violated the contract when it
effectively evicted the company from the premises long before the expiration of the contract.
Priscillo appealed to the CA, alleging the company is not the proper party to the action as it failed to
satisfy the requisites thereof (legal personality, legal capacity to sue or be sued)

The CA dismissed Priscillos appeal, ruling that, while there was no corporate entity at the time of
the execution of the MOA on March 1, 2000 when Capt. Clarke signed as President of International
Environmental University, petitioner is nonetheless estopped from denying that he had contracted
with respondent as a corporation, having recognized the latter as the Second Party in the MOA
that will use the hangar space exclusively for company aircraft/helicopter.

Priscillo elevated his case to the Supreme Court. He argues that the case should have been
dismissed for failure to implead Allan J. Calrke, and lack of legal capacity of the corporation. He
assails the failure of the CA to decide on both his indirect contempt case and the breach of contract
case.

The Issue:

Whether or not the company has the legal personality/capacity to file the case for breach of contract.

Whether or not Allan J. Clarke should have been impleaded in the case as an indispensable party.

The Ruling:

The petition lacks merit.

First, on the matter of the consolidation1 of the instant case with G.R. No. 202826 entitled Priscilo
B. Paz v. New International Environmental University, the petition for review of the portion of the
RTC Decision finding petitioner guilty of indirect contempt,2 the Court had earlier denied said
motion in a Resolution3 dated July 24, 2013 on the ground that G.R. No. 202826 had already been
denied4 with finality.5 Thus, any further elucidation on the issue would be a mere superfluity.

Second, whether or not Capt. Clarke should have been impleaded as an indispensable party was
correctly resolved by the CA which held that the former was merely an agent of respondent.6 While
Capt. Clarkes name and signature appeared on the MOA, his participation was, nonetheless, limited
to being a representative of respondent. As a mere representative, Capt. Clarke acquired no rights
whatsoever, nor did he incur any liabilities, arising from the contract between petitioner and
respondent. Therefore, he was not an indispensable party to the case at bar.7

It should be emphasized, as it has been time and again, that this Court is not a trier of facts, and is
thus not duty-bound to analyze again and weigh the evidence introduced in and considered by the
tribunals.8 When supported by substantial evidence, the findings of fact by the CA are conclusive
and binding on the parties and are not reviewable by this Court, unless the case falls under any of
the exceptions,9 none of which was established herein.

The CA had correctly pointed out that, from the very language itself of the MOA entered into by
petitioner whereby he obligated himself to allow the use of the hangar space for company
aircraft/helicopter, petitioner cannot deny that he contracted with respondent.10 Petitioner
further acknowledged this fact in his final letter dated July 23, 2002, where he reiterated and
strongly demanded the former to immediately vacate the hangar space his company is
occupying/utilizing.11

Section 2112 of the Corporation Code13 explicitly provides that one who assumes an obligation to
an ostensible corporation, as such, cannot resist performance thereof on the ground that there was
in fact no corporation. Clearly, petitioner is bound by his obligation under the MOA not only on
estoppel but by express provision of law. As aptly raised by respondent in its Comment14 to the
instant petition, it is futile to insist that petitioner issued the receipts for rental payments in
respondents name and not with Capt. Clarkes, whom petitioner allegedly contracted in the latters
personal capacity, only because it was upon the instruction of an employee15 Indeed, it is disputably
presumed that a person takes ordinary care of his concerns,16 and that all private transactions
have been fair and regular.17 Hence, it is assumed that petitioner, who is a pilot, knew what he was
doing with respect to his business with respondent.

Petitioners pleadings, however, abound with clear indications of a business relationship gone sour.
In his third letter dated July 19, 2002, petitioner lamented the fact that Capt. Clarkes alleged
promise to buy an aircraft had not materialized.18 He likewise insinuated that Capt. Clarkes real
motive in staying in the leased premises was the acquisition of petitioners right to possess and use
the hangar space.19 Be that as it may, it is settled that courts have no power to relieve parties from
obligations they voluntarily assumed, simply because their contracts turn out to be disastrous deals
or unwise investments.20

The lower courts, therefore, did not err in finding petitioner liable for breach of contract for
effectively evicting respondent from the leased premises even before the expiration of the term of
the lease. The Court reiterates with approval the ratiocination of the RTC that, if it were true that
respondent was violating the terms and conditions of the lease, [petitioner] should have gone to
court to make the [former] refrain from its illegal activities or seek rescission of the [MOA], rather
than taking the law into his own hands.21

WHEREFORE, the petition is DENIED. The Decision dated January 31, 2012 and the Resolution
dated October 2, 2012 of the Court of Appeals in CA-G.R. CV No. 00903-MIN are hereby AFFIRMED.

SO ORDERED.

Donnina Halley vs. Printwell, Inc.

Facts:
o BMPI (Business Media Philippines Inc.) is a corporation under the control of its stockholders,
including Donnina Halley.
o In the course of its business, BMPI commissioned PRINTWELL to print Philippines, Inc. (a
magazine published and distributed by BMPI)
o PRINTWELL extended 30-day credit accommodation in favor of BMPI and in a period of 9
mos. BMPI placed several orders amounting to 316,000.
o However, only 25,000 was paid hence a balance of 291,000
o PRINTWELL sued BMPI for collection of the unpaid balance and later on impleaded BMPIs
original stockholders and incorporators to recover on their unpaid subscriptions.
o It appears that BMPI has an authorized capital stock of 3M divided into 300,000 shares with
P10 par value.
o Only 75,000 shares worth P750,000 were originally subscribed of which P187,500 were paid
up capital.
o Halley subscribed to 35,000 shares worth P350,000 but only paid P87,500.

Halley contends that:

1. They all had already paid their subscriptions in full
2. BMPI had a separate and distinct personality
3. BOD and SH had resolved to dissolve BMPI

RTC and CA
o Defendant merely used the corporate fiction as a cloak/cover to create an injustice (against
PRINTWELL)
o Rejected allegations of full payment in view of irregularity in the issuance of ORs (Payment
made on a later date was covered by an OR with a lower serial number than payment made on an
earlier date.

Issue: WON a stockholder who was in active management of the business of the corporation and still
has unpaid subscriptions should be made liable for the debts of the corporation by piercing the veil
of corporate fiction

Held: YES! Such stockholder should be made liable up to the extent of her unpaid subscription

Ratio:
It was found that at the time the obligation was incurred, BMPI was under the control of its
stockholders who know fully well that the corporation was not in a position to pay its account (thinly
capitalized).
And, that the stockholders personally benefited from the operations of the corporation even
though they never paid their subscriptions in full.

The stockholders cannot now claim the doctrine of corporate fiction otherwise (to deny creditors to
collect from SH) it would create an injustice because creditors would be at a loss (limbo) against
whom it would assert the right to collect.

On piercing the veil:

Although the corporation has a personality separate and distinct from its SH, such personality is
merely a legal fiction (for the convenience and to promote the ends of justice) which may be
disregarded by the courts if it is used as a cloak or cover for fraud, justification of a wrong, or an
alter ego for the sole benefit of the SH.

As to the Trust Fund Doctrine:

The RTC and CA correctly applied the Trust Fund Doctrine
Under which corporate debtors might look to the unpaid subscriptions for the satisfaction of
unpaid corporate debts
Subscriptions to the capital of a corporation constitutes a trust fund for the payment of the
creditors (by mere analogy) In reality, corporation is a simple debtor.
Moreover, the corporation has no legal capacity to release an original subscriber to its capital
stock from the obligation of paying for his shares, in whole or in part, without valuable
consideration, or fraudulently, to the prejudice of the creditors.
The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby
steps into the shoes of the corporation for the satisfaction of its debt.
The trust fund doctrine is not limited to reaching the SHs unpaid subscriptions. The scope of
the doctrine when the corporation is insolvent encompasses not only the capital stock but also other
property and assets generally regarded in equity as a trust fund for the payment of corporate debts.

Ong Yong V. Tiu (2003)

Lessons Applicable: Pre-incorporation Subscription (Corporate Law)

FACTS:
1994: construction of the Masagana Citimall in Pasay City was threatened with stoppage, when its
owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became
heavily indebted to the Philippine National Bank (PNB) for P190M

To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong,
Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to
invest in FLADC.
Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in FLADC

Ongs: subscribe to 1,000,000 shares

Tius: subscribe to an additional 549,800 shares in addition to their already existing subscription of
450,200 shares

Tius: nominate the Vice-President and the Treasurer plus 5 directors

Ongs nominate the President, the Secretary and 6 directors (including the chairman) to the board of
directors of FLADC and right to manage and operate the mall.
Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M
(for 300K shares) and P49.8M (for 49,800 shares)

Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for their
subscription to 1M shares)
February 23, 1996: Tius rescinded the Pre-Subscription Agreement
February 27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking
confirmation of their rescission of the Pre-Subscription Agreement

SEC: confirmed recission of Tius

Ongs filed reconsideration that their P70M was not a premium on capital stock but an advance loan
SEC en banc: affirmed it was a premium on capital stock

CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them to rescission)
but, "for practical considerations," that is, their inability to work together, it was best to separate the
two groups by rescinding the Pre-Subscription Agreement, returning the original investment of the
Ongs and awarding practically everything else to the Tius.

ISSUE: W/N Specific performance and NOT recission is the remedy

HELD: YES. Ongs granted.

-did not justify the rescission of the contract

-providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer,
respectively, had no bearing on their obligations under the Pre-Subscription Agreement since the
obligation pertained to FLADC itself

-failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions also
pertained to the corporation and not to the Ongs

-the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994 was
to raise the P190 million

-law requires that the breach of contract should be so "substantial or fundamental" as to defeat the
primary objective of the parties in making the agreement

-since the cash and other contributions now sought to be returned already belong to FLADC, an
innocent third party, said remedy may no longer be availed of under the law.

-Any contract for the acquisition of unissued stock in an existing corporation or a corporation still
to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the
fact that the parties refer to it as a purchase or some other contract

-allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of
Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable shares by the
corporation, regardless of the existence of unrestricted retained earnings,25 and (3) dissolution and
eventual liquidation of the corporation.

-They want this Court to make a corporate decision for FLADC.

-The Ongs' shortcomings were far from serious and certainly less than substantial; they were in fact
remediable and correctable under the law. It would be totally against all rules of justice, fairness and
equity to deprive the Ongs of their interests on petty and tenuous grounds.