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CIR. vs. Club Filipino, Inc.

de Cebu, 5 SCRA 321

Manuel R. Dulay Enterprises. vs. CA, 225 SCRA 678

National Development Corporation vs Philippine Veterans Bank


192 SCRA 257(GR No. 84132-33)
December 10, 1990
Doctrine: A mortgage lien is a property right derived from contract and so comes under the protection of Bill of rights so
do interests on loans, as well s penalties and charges, which are also vested rights once they accrue. Private property
cannot simply be taken by law from one person and given to another without just compensation and any known public
purpose. This is plain arbitrariness and is not permitted under the Constitution.

Facts: The particular enactment in question is Presidential Decree No. 1717, which ordered the rehabilitation of the Agrix
Group of Companies to be administered mainly by the National Development Company. The law outlined the procedure
for filling claims against the Agrix Companies and created a claims committee to process these claims. Especially relevant
to this case, and noted at the outset, is section 4(1) thereof providing that “all mortgages and other liens presently
attaching to any of the assets of the dissolved corporations are hereby extinguished.”

The Agrix Marketing Inc. had executed in favor of private respondent Philippine Veterans Bank for a real estate mortgage
over three parcels of land situated in Los Baños, Laguna. During the existence of the mortgage, Agrix went bankrupt. It
was the expressed purpose of salvaging this and the other Agrix companies that the aforementioned decree was issued
by President Marcos.

The New Agrix, Inc. and the National Development Company, petitioners herein, invoking Sec. 4 (1) of the decree, filed a
petition with the Regional Trial Court of Calamba, Laguna, for the cancellation of the mortgage lien in favor of the private
respondent (Godofredo Quiling, Sherrif), as he prompted the steps for extrajudicial foreclosure.

Judge Francisco Ma. Guerrero annulled not only the challenged provision, viz., Sec. 4 (1), but the entire Pres. Decree No.
1717 on the grounds that: (1) the presidential exercise of legislative power was a violation of the principle of separation
of powers; (2) the law impaired the obligation of contracts; and (3) the decree violated the equal protection clause.

The petitioners argued that property rights like all other rights are subject to regulation under the police power for the
promotion of the common welfare and state may be exercised at any time for this purpose so long as the taking of the
property right, even if based on contract, is done with due process of law.

A claim for the payment of its loan credit was filed by PNB against herein petitioner, however the latter alleged and
invoked that the same was extinguished by PD 1717. Hence this petition.

Issue: Whether or not P.D. 1717 is a valid.


Whether or not Philippine Veterans Bank as creditor of Agrix is still entitled for payment without prejudice to PD
1717.

Held: The Court finds first of all that the interests of the public are not sufficiently involved to warrant the interference
of the government with the private contracts of AGRIX. The decree speaks vaguely of the "public, particularly the small
investors," who would be prejudiced if the corporation were not to be assisted.

It has not been shown that by the creation of the New Agrix, Inc. and the extinction of the property rights of the creditors
of AGRIX, the interests of the public as a whole, as distinguished from those of a particular class, would be promoted or
protected. The decree was only created in favor for a special group of investors.

The means are also unduly oppressive. The right to property in all mortgages, liens, interests, penalties and charges
owing to the creditors of AGRIX is arbitrarily destroyed. No consideration is paid for the extinction of the mortgage rights.

A mortgage lien is a property right derived from contract and so comes under the protection of Bill of rights so do
interests on loans, as well s penalties and charges, which are also vested rights once they accrue. Private property cannot
simply be taken by law from one person and given to another without just compensation and any known public purpose.
This is plain arbitrariness and is not permitted under the Constitution.
Our finding in sum, is that PD 1717 is an invalid exercise of the police power, not being in conformity with
the traditional requirements of a lawful subject and a lawful method. The extinction of the mortgage and other
liens and of the interest and other charges pertaining to the legitimate creditors of Agrix constitutes taking without due
process of law, and this is compounded by the reduction of the secured creditors to the category of unsecured creditors
in violation of the equal protection clause.

On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article XIV, Section 4 of
the 1973 Constitution, then in force, that:
SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization, or
regulation of private corporations, unless such corporations are owned or controlled by the Government or any
subdivision or instrumentality thereof.
The new corporation is neither owned nor controlled by the government. The National Development Corporation was
merely required to extend a loan of not more than P10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC
would undertake the management of the corporation, but with the obligation of making periodic reports to the Agrix
board of directors. After payment of the loan, the said board can then appoint its own management. The stocks of the
new corporation are to be issued to the old investors and stockholders of AGRIX upon proof of their claims against the
abolished corporation. They shall then be the owners of the new corporation. New Agrix, Inc. is entirely private and so
should have been organized under the Corporation Law in accordance with the above-cited constitutional provision.
The court also feels that the decree impairs the obligation of the contract between Agrix and the private respondent
without justification. While it is true that the police power is superior to the impairment clause, the principle will apply
only where the contract is so related to the public welfare that it will be considered congenitally susceptible to change by
the legislature in the interest of greater number.
The new corporation being neither owned nor controlled by the government should have been created only by general
and not special law. And insofar as the decree also interferes with purely private agreements without any demonstrated
connection with the public interest, there is likewise an impairment of the obligation of the contract.

Pioneer Insurance vs. CA, 175 SCRA 668

J,G. Summit Holdings, Inc. vs. CA, 450 SCRA 169

TRAMAT vs. CA,


G.R. No. 111008
November 7, 1994

FACTS: Melchor de la Cuesta, doing business under the name and style of "Farmers Machineries," sold to Tramat
Mercantile, Inc. ("Tramat"), one (1) unit HINOMOTO TRACTOR Model MB 1100D powered by a 13 H.P. diesel engine. In
payment, David Ong, Tramat's president and manager, issued a check for P33,500.00 (apparently replacing an earlier
postdated check for P33,080.00). Tramat, in turn, sold the tractor, together with an attached lawn mower fabricated by
it, to the Metropolitan Waterworks and Sewerage System for P67,000.00. David Ong caused a "stop payment" of the
check when NAWASA refused to pay the tractor and lawn mower after discovering that, aside from some stated defects
of the attached lawn mower, the engine (sold by de la Cuesta) was a reconditioned unit.

De la Cuesta filed an action for the recovery of P33,500.00, as well as attorney's fees of P10,000.00, and the costs of suit.
Ong, in his answer, averred, among other things, that de la Cuesta had no cause of action; that the questioned
transaction was between plaintiff and Tramat Mercantile, Inc., and not with Ong in his personal capacity; and that the
payment of the check was stopped because the subject tractor had been priced as a brand new, not as a reconditioned
unit.

The trial court ruled in favor of the plaintiff which was affirmed by the Court of Appeals.
1. Ordering the defendants, jointly and severally, to pay the plaintiff the sum of P33,500.00 with legal interest thereon at
the rate of 12% per annum from July 7, 1984 until fully paid; and
2. Ordering the defendants, jointly and severally, to pay the plaintiff the sum of P10,000.00 as attorney's fees, and the
costs of this suit.
Hence, this petition.

ISSUE: Where or not David Ong should be held liable?


RULING: No. David Ong should not be jointly and severally liable with TRAMAT to de la Cuesta under the questioned
transaction. Ong had there so acted, not in his personal capacity, but as an officer of a corporation, TRAMAT, with a
distinct and separate personality. As such, it should only be the corporation, not the person acting for and on its behalf,
that properly could be made liable thereon.3

Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so
validly attach, as a rule, only when —
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith, or gross negligence in
directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other
persons;4
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto;5
3. He agrees to hold himself personally and solidarily liable with the corporation; 6 or
4. He is made, by a specific provision of law, to personally answer for his corporate action. 7

In the case at bench, there is no indication that petitioner David Ong could be held personally accountable under any of
the abovementioned cases.

MARVEL BUILDING CORPORATION, ET AL, vs. SATURNINO DAVID


G.R. No. L-5081
February 24, 1954

Facts: The Collector of Internal Revenue filed an action against Maria Castro for the collection fo war tax. Due to the
non-payment of Maria Castro, 3 parcels of land with buildings situated thereon known as the Aguinaldo Building, the Wise
building and the Dewey Boulevard-Padre Faura, were seized and for selling at public auction. The said properties were
seized and distrained by the defendant because they were alleged to be owned by Maria Castro. However, the plaintiffs
allege that the said three properties belong to Marvel Building Corporation and not to Maria Castro.

Issue: Whether or not Maria Castro is the owner of all the shares of stocks of Marvel Building Corporation.

Ruling:Yes, Maria Castro is the sole owner of the Marvel Building Corporation and thus liable for the payment of war
taxes. Under the circumstantial evidences presented in court, it was proved that the existence of endorsed checked
discovered by the internal revwnue agents between 1948 and 1949 in the possession of the Secretary-Treasurer, the 25
certificates were signed by the president of the corporation, for no justifiable reason, the fact that two sets of certificates
were issued, the undisputed fact that Maria B. Castro had made enormous profits and, therefore, had a motive to hide
them to evade the payment of taxes, the fact that the other subscribers had no incomes of sufficient magnitude to justify
their big subscriptions, the fact that the subscriptions were not receipted for and deposited by the treasurer in the name
of the corporation but were kept by Maria B. Castro herself, the fact that the stockholders or the directors never appeared
to have ever met to discuss the business of the corporation, the fact that Maria B. Castro advanced big sums of money to
the corporation without any previous arrangement or accounting, and the fact that the books of accounts were kept as if
they belonged to Maria B. Castro alone — these facts are of patent and potent significance.What are their necessary
implications? Maria B. Castro would not have asked them to endorse their stock certificates, or be keeping these in her
possession, if they were really the owners. They never would have consented that Maria B. Castro keep the funds without
receipts or accounting, nor that she manages the business without their knowledge or concurrence, were they owners of
the stocks in their own rights. Each and every one of the facts all set forth above, in the same manner, is inconsistent
with the claim that the stockholders, other than Maria B. Castro, own their shares in their own right. On the other hand,
each and every one of them, and all of them, can point to no other conclusion than that Maria B. Castro was the sole and
exclusive owner of the shares and that they were only her dummies.

NAMARCO vs. Associated Finance Company, 19 SCRA 962

Indo Phil Textile Mills vs. Calica


205 SCRA 698

Facts:

Petitioner Indophil Textile Mills Union and respondent Indophil Textile Mills, Inc. executed a CBA.
IndophilAcryllic Manufacturing Corp was formed and registered with SEC. It became operational and hired workers
according to its criteria and standards.

The petitioner union contends the plant facilitates built up and set up by Acrylic should be considered as an extension or
expansion of the facilities of respondent Company . In other words, it is the petitioners contention that Acrylic is part of
the Indophil bargaining unit; that the creation of Indophil Acrylic is a device of respondent Indophil Textile to evade the
application of CBA between the union and the company to Acrylic.

On the other hand, respondent Indophil Textile submits that it is a juridical entity separate and distinct from the
Acrylic cited in the case of DiatogonLabor Federations vsOple, which ruled that 2 corporations cannot be treated as single
bargaining unit even if the businesses are related.

Voluntary Arbitrator: ruled in favour of the respondent and found the provision in the CBA between Indophil Textile Inc.
and Indophil Textile Union does not extend to the employees of Indophil Acrylic Corp.

Issue:

Whether the Voluntary Arbitrator committed Grave Abuse of Discretion in failing to disregard the corporate entity of
Indophil Acrylic.

HELD: No. Acrylic Indophil Corporation cannot be considered an extension of Indophil Corporation as to cover in one
bargaining unit all employees thereof. Note separate corporate entities: doctrine of piercing the corporate veil does not
apply.

The fact that the businesses of private respondent and Acrylic are related, that some of the employees of the private
respondent are the same persons manning and providing auxiliary services to the units of Acrylic, and that the same
physical plants, office and facilities are situated in the same compound , it is our considered opinion that these facts are
not sufficient to justify the piercing of the corporate veil of Acrylic.

Hence, Acrylic not being an extension or expansion of private respondent, rank and file employees working at Acrylic
should not be recognized as part of or within the scope of the petitioner as the bargaining representative of private
respondent.

Concept Builders, Inc. vs. NLRC, 257 SCRA 149

Villa Rey Transit vs. Ferrer


25 SCRA 845

Facts: Jose Villarama was an operator of a bus transportation pursuant to two certificates of public convenience granted
him by the Public Service Commission
Laterhe sold the certificates to the Pangasinan Transportation Company Inc (Pantranco) with the condition that the seller
Villaramashall not for a period of 10 years, apply for any TPU service identical or competing with the buyer.

Barely three months thereafter,, a corporation called Villa Rey Transit Inc, it was organized with a capital stock of
P500,000.00 divided into 5,000 shares of the par value of P100.00 each.

P200,000.00 was the subscribed stock, Natividad Villarama (wife of Jose Villarama) was one of the incorporators, and she
subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and sister - in - law of Jose
Villaramaof the subscribed capital stock, P105,000.00 was paid to te treasurer of the corporation , Natividad.

In less than a month after its registration with the SECthe Corporation bought five certificates of public convenience and
49 buses from one Valentin Fernando . Later, the Sheriff of Manila levied on 2 of the 5 certificates , in favor of Eusebio
Ferrer , judgment creditoragainst Fernando , judgment debtor. A public sale was conducted . Ferrer was the highest
bidder . Ferrer sold the two certificates to Pantranco

The Corporation filed a complaint against Ferrer, Pantranco and the PSC for the annulment of the sheriff's sale.
Pantrancoon its part filed a third - party complaint against Villarama, alleging that Villarama and/or the Corporation was
disqualified from operating the two certificates in question by virtue of the previous agreement.
The trial court declared null and void the sheriff's sale of two certificates of public convenience in favor of Ferrer and the
subsequent sale thereof by the latter to Pantranco and declaring Villa Rey TransitInc to be the lawful owner of the said
certificates of public convenience.

Issue: Whether the stipulation between Villarama and Pantranco binds Villa Rey Transit , Inc

Ruling: Yes. The restrictive clause in the contract entered into by the Villarama and Pantranco is also enforceable and
binding against the said Corporation. The rule is that a seller or promisor may not make use of a corporate entity as a
means of evading the obligation of his covenant.The evidence has disclosed that Villarama,, albeit was not an
incorporator or stockholder of the Corporation his wife owever,, was an incorporator and was elected treasurer of the
Corporation. The evidence further shows that the initial cash capitalization of the corporation was mostly financed by
Villarama.

The foregoing circumstances are strong persuasive evidence showing that Villarama has been too much involved in the
affairs of the Corporation to altogether negate the claim that he was only a part - time general manager. They show
beyond doubt that the Corporation is his alter ego.

The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose
it is recognized and respected in all cases which are within reason and the law.

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 the circumvention of statutes, 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.

Secosa, et at vs. Heirs of Erwin Suarez Francisco, 433 SCRA 273

JAMES YU and WILSON YOUNG, vs. THE NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER
DANIEL C. CUETO, TANDUAY DISTILLERY INC., FERNANDO DURAN, EDUARDO PALIWAN, ROQUE ESTOCE
AND RODRIGO SANTOS
G.R. Nos. 111810-11
June 16, 1995
TOPIC: The doctrine of piercing the veil of corporate entity

Facts: Private respondents-employees Fernando Duran, Eduardo Paliwan, Roque Estoce, and Rodrigo Santos were
employees of respondent corporation Tanduay Distillery, Inc, (TDI).Employees of TDI, including private respondents
employees, received a memorandum from TDI terminating their services. For reasons of retrenchment.All 22 employees
of TDI filed an application for the issuance of a temporary restraining order against their retrenchment. Theywere still
retrenched due to the limited effectivity of the TRO.On June 1, 1988, or after respondents-employees had ceased as such
employees, a new buyer of TDI's assets, Twin Ace Holdings, Inc. took over the business. Twin Ace assumed
the business name Tanduay Distillers.

The employees filed a motion to implead herein petitioners James Yu and Wilson Young, doing business under the name
and style of Tanduay Distillers, as party respondents in said cases. Petitioners filed an opposition thereto, asserting
that they are representatives of Tanduay Distillers an entity distinct and separate from TDI, the previous owner, and that
there is no employer-employee relationship between Tanduay Distillers and private respondents.

Issue: WON it may be said that petitioners and Tanduay Distillers are one and the same as TDI

Held: NO. Twin Ace or Tanduay Distillers, on one hand, and Tanduay Distillery Inc. (TDI), on the other, are
distinct and separate corporations. There is nothing to suggest that the owners of TDI, have any common
relationship as to identify it with Allied Bank Group which runs Tanduay Distillers.

It is basic that a corporation is invested by law with a personality separate and distinct from those of the
persons composingit as well as from that of any other legal entity to which it may be related.

Respondents-employees have not presented any proof as to communality of ownership and management to support their
contention that the two companies are one firm or closely related.
The doctrine of piercing the veil of corporate entity

This applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime
or where a corporation is the mere alter ego or business conduit of a person.

To disregard the separate juridical personality of a corporation, the wrong-doing must be clearly and convincingly
established. It cannot be presumed.

The complaint for unfair labor practice, illegal lay off, and separation benefits was filed against TDI. Only
later when the manufacture and sale of Tanduay products was taken over by Twin Ace or Tanduay
Distillers were James Yu and Wilson Young impleaded. The corporation itself — Twin Ace or Tanduay Distillers — was
never made a party to the case.

TDI as a corporation or its shares of stock were not purchased by Twin Ace. The buyer limited itself to
purchasing most of the assets, equipment, and machinery of TDI. The trade name "Tanduay" went with the sale because
the new firm does business as Tanduay Distillers and its main product of rum is sold as Tanduay Rum. There is no
showing, however, that TDI itself was absorbed by Twin Ace or that it ceased to exist as a separate corporation, In point
whom the business and assets of TDI were sold."

Since TDI and Twin Ace or Tanduay Distillers are two separate and distinct entities, the order to reinstate
respondents-employees is obviously without legal and factual basis.

Delpher Trades Corporation vs. CA


157 SCRA 349

Facts: In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, are the co-owners of 27,169 square meters of real estate
Identified as Lot. No. 1095 which is covered by TCT No. T-4240 of the Bulacan land registry.

On April 3, 1974, the co-owners leased the subject property to Construction Components International Inc. and an
stipulation therein that during the existence or after the term of this lease the lessor should decide to sell the property
leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions.

On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and obligations under the
contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent from lessor, which is
annotated at the back of the title.

On January 3, 1976, a deed of exchange was executed between lessors (Pacheco’s) and Delpher Trades Corporation
conveying the leased property (TCT No.T-4240) together with another parcel of land for 2,500 shares of stock of Delpher
Trades Corp. with a total value of P1,500,000.00.

Respondent Hydro Pipes Philippines, Inc., filed a complaint for reconveyance of the leased property in its favor on the
ground that it was not given the first option to buy said property pursuant to the Lease Agreement.

The trial court ruled in favor of the plaintiff and on appeal the lower court's decision was affirmed by the Intermediate
Appellate Court, thus the petition for certiorari to this Court.

Issue: Whether or not the Deed of Exchange executed by the Pacheco’s and Delpher Trades Corporation is considered
as a Contract of Sale.

Ruling: No. The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be
considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The
Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands.
Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract.

In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their
properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher
Trades Corporation to take control of their properties.
In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of
stocks of the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by
subscription "The essence of the stock subscription is an agreement to take and pay for original unissued shares of a
corporation, formed or to be formed."

Jardine Davies, Inc. vs. JRB Realty Inc


463 SCRA 555

DOCTRINE: REGISTRATION AND ISSUANCE OF CERTIFICATE OF INCORPORATION

The general rule is that parties who associate themselves together and actively engage in business for profit
under any name are liable as partners for the debts they incur under that name. It is an exception to this rule that such
associates may escape individual liability for such debts by a compliance with incorporation laws or by a real attempt
to comply with them which gives the color of a legal corporation, and by the user of the franchise of such a
corporation in the honest belief that it is duly incorporated.

When the fact appears, by indisputable evidence that parties associated and knowingly incurred liabilities
under a given name, the legal presumption is that they are governed by the general rule, and the burden is upon them
to prove that they fall under some exception to it.

For the exception to apply, the filing of articles of incorporation with the clerk of the Court of Appeals was a
sine qua non of any color of a legal corporation. Without that there was not, and there could not be, an apparent
corporation or the color of a corporation, Agreements to form one, statements that there was one, signed articles of
association to make one, acts as one, created no color of incorporation, because there could be no incorporation or
color of it under the law until the articles were filed.

FACTS: The four defendants(Walter B. Mann, Frank Davis, Robert S. Davis, and James G. Knight) agreed in April or
June, 1902, to take specified shares in a $10,000 enterprise for the purpose of building a cotton gin and carrying on
the business of buying, ginning, and selling cotton, and to organize a corporation for this purpose. They transacted a
business with the plaintiff consisting of the purchase of lumber, materials, and labor for their buildings and of dealing in
cotton with it which amounted to several tens of thousands of dollars, and they remained indebted to it over
$5,000, of which $4,700.

On September 3, 1902, three of the defendants met and signed articles of incorporation as the "Coweta Cotton & Milling
Company" and a declaration of the purpose of the incorporation, which the statutes required to be verified by the
signers and to be filed with the clerk of the Court of Appeals and with the clerk of the judicial district in which the
contemplated corporation was to do business.

This declaration was verified by Mann on November 10, 1902, and by Frank M. Davis on December 10, 1902, and it was
filed with the clerk of the Court of Appeals on December 22, 1902, and was never filed elsewhere. Frank M. Davis, as
general manager of the investment company, treated the milling company as a corporation all the time during which
this indebtedness was contracted, and never charged any of it to himself or his associates.

The Western Investment Company brought this action for a balance due It upon an account for lumber and materials
sold, cotton handled, and services rendered to Walter B. Mann, Frank Davis, Robert S. Davis, and James G. Knight, as
partners doing business under the firm name the "Coweta Cotton & Milling Company. The defendants denied the
partnership and their liability, and averred that the indebtedness in question was that of the milling company and
that that company was a corporation.

ISSUE: WON there was a ‘colorable’ compliance enough to give the supposed corporation at least the status of a ‘de
facto’ corporation?

RULING: No. The defendants cannot escape individual liability on the ground that the Coweta Cotton & Milling
Company was a corporation de facto when that portion of the plaintiff's claim was incurred, because it then had no color
of incorporation, and they knew it and yet, actively used
its name to incur the obligation.
The general rule is that parties who associate themselves together and actively engage in business for profit under
any name are liable as partners for the debts they incur under that name. It is an exception to this rule that such
associates may escape individual liability for such debts by a compliance with incorporation laws or by a real attempt
to comply with them which gives the color of a legal corporation, and by the user of the franchise of such a
corporation in the honest belief that it is duly incorporated.

When the fact appears, as it does in the case at bar, by indisputable evidence that parties associated and knowingly
incurred liabilities under a given name, the legal presumption is that they are governed by the general rule, and the
burden is upon them to prove that they fall under some exception to it.

For the exception to apply, under the general law of Arkansas in force in the Indian Territory, the filing of
articles of incorporation with the clerk of the Court of Appeals was a sine qua non of any color of a legal corporation.
Without that there was not, and there could not be, an apparent corporation or the color of a corporation, Agreements
to form one, statements that there was one, signed articles of association to make one, acts as one, created no color of
incorporation, because there could be no incorporation or color of it under the law until the articles were filed.

The defendants never became a corporation de facto prior to December 22, 1902, that they never became a
corporation de jure, that the indebtedness here in question was not incurred under any promise or assurance of the
defendants as promoters that it should become the obligation of a corporation to be formed, that a large part of it was
incurred in the conduct of a general commercial business, and not to prepare for the commencement of such a business
or for the organization of a corporation

Koppel (Phil.) Inc. vs. Yatco, 77 Phil 496

WPM International Trading vs. Labayen


735 SCRA 297

Facts:The respondent, Fe Corazon Labayen, is the owner of H.B.O. Systems Consultants, a management and consultant
firm. The petitioner, WPM International Trading, Inc. (WPM), is a domestic corporation engaged in the restaurant
business, while Warlito P. Manlapaz (Manlapaz) is its president.

Sometime in 1990, WPM entered into a management agreement with the respondent, by virtue of which the respondent
was authorized to operate, manage and rehabilitate Quickbite, a restaurant owned and operated by WPM. As part of her
tasks, the respondent looked for a contractor who would renovate the two existing Quickbite outlets in Divisoria, Manila
and Lepanto St., University Belt, Manila. Pursuant to the agreement, the respondent engaged the services of CLN
Engineering Services (CLN) to renovate Quickbite-Divisoria at the cost of ₱432,876.02.

On June 13, 1990, Quickbite-Divisoria’s renovation was finally completed, and its possession was delivered to the
respondent. However, out of the ₱432,876.02 renovation cost, only the amount of ₱320,000.00 was paid to CLN, leaving
a balance of ₱112,876.02.

On October 19, 1990, CLN filed a complaint for sum of money and damages before the RTC against the respondent and
Manlapaz. CLN later amended the complaint to exclude Manlapaz as defendant. The respondent was declared in default
for her failure to file a responsive pleading.

The RTC found the respondent liable to pay CLN actual damages. Respondent instituted a complaint for damages against
the petitioners as they are entitled for reimbursement and that her participation in the management agreement was
limited only to introducing Manlapaz to Neri (Engineer).

RTC also found that there is a clear indication that WPM is a mere instrumentality or business conduit of Manlapaz and as
such, WPM and Manlapaz are considered one and the same. Manlapaz had complete control over WPM considering that
he is its chairman, president and treasurer at the same time. Manlapaz is therefore liable in his personal capacity to
reimburse the respondent the amount she paid to CLN in connection with the renovation agreement.

The petitioners appealed to CA. There, they argued that in view of the respondent’s act of entering into a renovation
agreement with CLN in excess of her authority as WPM’s agent, she is not entitled to indemnity for the amount she paid.
Manlapaz also contended that by virtue of WPM’s separate and distinct personality, he cannot be made solidarily liable
with WPM.
CA ruled that WPM and Manlapaz are one and the same based on the following: (1) Manlapaz is the principal stockholder
of WPM; (2) Manlapaz had complete control over WPM because he concurrently held the positions of president, chairman
of the board and treasurer, in violation of the Corporation Code; (3) two of the four other stockholders of WPM are
employed by Manlapaz either directly or indirectly; (4) Manlapaz’s residence is the registered principal office of WPM; and
(5) the acronym "WPM" was derived from Manlapaz’s initials. The CA applied the principle of piercing the veil of corporate
fiction and agreed with the RTC that Manlapaz cannot evade his liability by simply invoking WPM’s separate and distinct
personality.

After the CA's denial of their motion for reconsideration, the petitioners filed the present petition for review on certiorari
under Rule 45 of the Rules of Court. Hence this petition.

Issues: (1) whether WPM is a mere instrumentality, alter-ego, and business conduit of Manlapaz.
(2) whether Manlapaz is jointly and severally liable with WPM to the respondent for reimbursement, damages and
interest.

Ruling:.

We have reviewed the records and found that the application of the principle of piercing the veil of corporate fiction is
unwarranted in the present case.

The rule is settled that a corporation has a personality separate and distinct from the persons acting for and in its behalf
and, in general, from the people comprising it. Following this principle, the obligations incurred by the corporate officers,
orother persons acting as corporate agents, are the direct accountabilities of the corporation they represent, and not
theirs. Thus, a director, officer or employee of a corporation is generally not held personally liable for obligations incurred
by the corporation; it is only in exceptional circumstances that solidary liability will attach to them.

Incidentally, the doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the
separate and distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle
for the evasion of an existing obligation; b) in fraud cases, or when the corporate entity is used to justify a wrong, protect
a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a
mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs so
conducted as to make it merely aninstrumentality, agency, conduit or adjunct of another corporation. 11

Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements, namely:

(1) 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 beenused 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 plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained
of.

The absence of any of these elements prevents piercing the corporate veil.

In the present case, the attendant circumstances do not establish that WPM is a mere alter ego of
Manlapaz. To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and
convincingly established.

Likewise, the records of the case do not support the lower courts’ finding that Manlapaz had control or domination over
WPM or its finances. That Manlapaz concurrently held the positions of president, chairman and treasurer, or that the
Manlapaz’s residence is the registered principal office of WPM, are insufficient considerations to prove that he had
exercised absolutecontrol over WPM.
In this connection, we stress that the control necessary to invoke the instrumentality or alter ego rule is not majority or
even complete stock control but such domination of finances, policies and practices that the controlled corporation has, so
tospeak, no separate mind, will or existence of its own, and is but a conduit for its principal. The control must be shown
to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must
proximately cause the injury or unjust loss for which the complaint is made.

Here, the respondent failed to prove that Manlapaz, acting as president, had absolute control over WPM. 1âwAlso, there
was not a single proof that WPM was formed to defraud CLN or the respondent, or that Manlapaz was guilty of bad faith
or fraud.

Since no harm could be said to have been proximately caused by Manlapaz for which the latter could be held solidarily
liable with WPM, and considering that there was no proof that WPM had insufficient funds, there was no sufficient
justification for the RTC and the CA to have ruled that Manlapaz should be held jointly and severally liable to the
respondent for the amount she paid to CLN. Hence, only WPM is liable to indemnify the respondent.

Finally, we emphasize that the piercing of the veil of corporate fiction is frowned upon and thus, must be done with
caution.15 It can only be done if it has been clearly established that the separate and distinct personality of the
corporation is used to justify a wrong, protect fraud, or perpetrate a deception. The court must be certain that the
corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in
disregard of its rights; it cannot be presumed.

Tantongco vs. Kaisahan ng mga Manggagawa, 106 Phil 198

CRUZ VS DALISAY
152 SCRA 482
TOPIC: Doctrine Piercing the Veil of Corporate Fiction – Exercised by the Wrong Person

FACTS:
In 1984, the National Labor Relations Commission issued an order against Qualitrans Limousine Service, Inc. (QLSI)
ordering the latter to reinstate the employees it terminated and to pay them backwages. QuiterioDalisay, Deputy Sheriff
of the court, to satisfy the backwages, then garnished the bank account of Adelio Cruz. Dalisay justified his act by
averring that Cruz was the owner and president of QLSI. Further, he claimed that the counsel for the discharged
employees advised him to garnish the account of Cruz.
ISSUE: Whether or not the action of Dalisay is correct.
HELD:
No. What Dalisay did is tantamount to piercing the veil of corporate fiction. He actually usurped the power of the court.
He also overstepped his duty as a deputy sheriff. His duty is merely ministerial and it is incumbent upon him to execute
the decision of the court according to its tenor and only against the persons obliged to comply. In this case, the person
judicially named to comply was QLSI and not Cruz. It is a well-settled doctrine both in law and in equity that as a legal
entity, a corporation has a personality distinct and separate from its individual stockholders or members. The mere fact
that one is president of a corporation does not render the property he owns or possesses the property of the corporation,
since the president, as individual, and the corporation are separate entities.

NASECO Guards Association-PEMA vs. National Service Corporation


629 SCRA 90

Facts: Respondent National Service Corporation (NASECO) is a wholly-owned subsidiary of the Philippine National Bank
(PNB) organized under the Corporation Code in 1975. It supplies security and manpower services to different clients such
as the Securities and Exchange Commission, the Philippine Deposit Insurance Corporation, Food Terminal Incorporated,
Forex Corporation and PNB. Petitioner NASECO Guards Association-PEMA (NAGA-PEMA) is the collective bargaining
representative of the regular rank and file security guards of respondent. NASECO Employees Union-PEMA (NEMU-PEMA)
is the collective bargaining representative of the regular rank and file (non-security) employees of respondent such as
messengers, janitors, typists, clerks and radio-telephone operators.

On December 2, 1993, respondent entered into a memorandum of agreement with petitioner. The terms of the
agreement covered the monetary claims of the petitioner such as salary adjustments, conversion of salary scheme under
Republic Act (R.A.) No. 6758to R.A. No. 6727,signing bonus, leaves and other benefits. A year after, petitioner demanded
full negotiation for a collective bargaining agreement (CBA) with the respondent and submitted its proposals thereto.

During the given period both petitioner and respondent weren’t able to agree on the terms of the CBA because of the
respondent’s refusal to bargain for the economic benefits in the CBA and a dispute among the leaders of NEMU-PEMA.
Hence, the negotiations concerning the economic terms of the CBA were put on hold until the internal dispute could be
resolved.

Respondent promptly filed a petition for certiorari before the CA questioning the DOLE Secretarys order and arguing that
the ruling of the DOLE Secretary in favor of the unions and awarding them monetary benefits totaling five hundred thirty-
one million four hundred forty-six thousand six hundred sixty-six and 67/100 (P531,446,666.67) was inimical and
deleterious to its financial standing and will result in closure and cessation of business for the company.

Issue: WON the piercing of the veil of corporate fiction of respondent and hold PNB (being the mother company) liable
for the CBA benefits is valid.

Ruling: No, piercing the veil of corporate fiction is not necessary in this case.

Applying the doctrine to the case at bar, we find no reason to pierce the corporate veil of respondent and go beyond its
legal personality. Control, 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.

There is no showing that such no loss, no profit scheme between respondent and PNB was implemented to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, nor does the
scheme show that respondent is a mere business conduit or alter ego of PNB. Absent proof of these circumstances,
respondents corporate personality cannot be pierced.

It is apparent that petitioner wants the Court to disregard the corporate personality of respondent and directly go after
PNB in order for it to collect the CBA benefits. On the same breath, however, petitioner argues that ultimately it is PNB,
by virtue of the no loss, no profit scheme, which shoulders and provides the funds for financial liabilities of respondent
including wages and benefits of employees. If such scheme was indeed true as the petitioner presents it, then there was
absolutely no need to pierce the veil of corporate fiction of respondent. Moreover, the Court notes the pendency of a
separate suit for absorption or regularization of NASECO employees filed by petitioner and NEMU-PEMA against PNB and
respondent, docketed as NLRC NCR Case No. 06-03944-96), which is still on appeal with the National Labor Relations
Commission (NLRC), as per manifestation by respondent. In the said case, petitioner submitted for resolution by the labor
tribunal the issues of whether PNB is the employer of NASECOs work force and whether NASECO is a labor-only
contractor.

Pacific Rehaus Corporation vs. CA, 719 SCRA 665