SUMALINOG, APRIL B.

Corporation Law, Sunday:2:30-4:30/5:00-7:00

CASE DIGEST ASSIGNMENT

WILSON P. GAMBOA vs. FINANCE SECRETARY TEVES, G.R. No. 176579, June 28, 2011

FACTS: PLDT was granted a franchise to engage in the telecommunications business in

1928 through Act. No. 3436. During Martial Law 26 percent of the outstanding
common shares were sold by General Telephone and Electronics Corporation (GTE)
(an American company) to Philippine Telecommunications Investment Corporation
(PTIC), who in turn assigned 111,415 shares of stock of PTIC (46 percent of outstanding
capital stock) to Prime Holdings Inc. (PHI). These shares of PTIC were later sequestered
by PCGG and adjudged by the court to belong to the Republic.
The 54 percent of PTIC shares were sold to Hong Kong-based firm First Pacific, and the
remaining 46percent was sold through public bidding by the Inter-Agency Privatization
Council, and eventually ended up being bought by First Pacific subsidiary Metro
Pacific Asset Holdings Inc. (MPAH) after the corporation exercised it’s right of first
refusal. The transaction was an indirect sale of 12 million shares or 6.3 percent of the
outstanding common shares of PLDT, making FirstPacific’s common shareholdings of
PLDT to 37 percent and the total common shareholdings offoreigners in PLDT to 81.47
percent. Japanese NTT DoCoMo owns 51.56 percent of the other foreign
shareholdings/equity.
Petitioner Gamboa, alleged that the sale of 111,415 shares to MPAH violates Sec. 11 of
Art. XII of the Constitution, which limits foreign ownership of the capital of a public
utility to not more than 40 percent.

ISSUE/S: (1) Whether petitioner’s choice of remedy was proper

(2) Whether the term “capital” under Sec. 11, Article XII of the Constitution refers only
to the total common shares or to the total outstanding stock of PLDT (public utility)

HELD: (1) NO. However, since the threshold and purely legal issue on the definition of
the term “capital” in Section 11, Article XII of the Constitution has far-reaching
implications to the national economy, the Court treats the petition for declaratory
relief as one for mandamus. It is well-settled that this Court may treat a petition for
declaratory relief as one for mandamus if the issue involved has far-reaching
implications.
(2) The term “capital” in Section 11, Article XII of the Constitution refers only to shares of
stock entitled to vote in the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital stock comprising both
common and non-voting preferred shares. The SC directed the SEC to apply this
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definition in determining what was the extent of allowable foreign ownership in PLDT,
and in case of violation, impose the appropriate penalty under the law.
Consistent with the constitutional mandate that the “State shall develop a self-reliant
and independent national economy effectively controlled by Filipinos,” the term
"capital" means the outstanding capital stock entitled to vote (voting stock), coupled
with beneficial ownership, both of which results to "effective control."
"Mere legal title is insufficient to meet the 60 percent Filipino owned “capital” required
in the Constitution for certain industries. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, is required." In
this case, such twin requirements must apply uniformly and across the board to all
classes of shares comprising the capital. Thus, "the 60-40 ownership requirement in
favor of Filipino citizens must apply separately to each class of shares, whether
common, preferred non-voting, preferred voting or any other class of shares." This
guarantees that the “controlling interest” in public utilities always lies in the hands of
Filipino citizens.
A broader definition would unjustifiably disregards who owns the all-important voting
stock, which necessarily equates to control of the public utility would be contrary to
Sec. 11, Art. XII, a self-executing provision of the Constitution.
A similar definition is found in Section 10, Article XII of the Constitution, the Foreign
Investments Act of 1991 and it’s IRR, Regulation of Award of Government Contracts or
R.A. No. 5183, Philippine Inventors Incentives Act or R.A. No. 3850, Magna Carta for
Micro, Small and Medium Enterprises or R.A. No. 6977, Philippine Overseas Shipping
Development Act or R.A. No. 7471, Domestic Shipping Development Act of 2004 or
R.A. No. 9295, Philippine Technology Transfer Act of 2009 or R.A. No. 10055, and Ship
Mortgage Decree or P.D. No. 1521.

NARRA NICKEL MINING VS REDMONT , G.R. No. 195580, April 21, 2014

Facts: Sometime in December 2006, respondent Redmont Consolidated Mines Corp.

(Redmont), a domestic corporation organized and existing under Philippine laws, took
interest in mining and exploring certain areas of the province of Palawan. After
inquiring with the Department of Environment and Natural Resources (DENR), it learned
that the areas where it wanted to undertake exploration and mining activities where
already covered by Mineral Production Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur. Petitioner McArthur, through its predecessor-in-
interest Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA and
Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B,

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Office of the Department of Environment and Natural Resources (DENR).

Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782
hectares in Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and
EPA-IVB-44 which includes an area of 3,720 hectares in Barangay Malatagao,
Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining
Corporation (MMC) and, on November 6, 2006, assigned to petitioner McArthur.
Petitioner Narra acquired its MPSA from Alpha Resources and Development
Corporation and Patricia Louise Mining & Development Corporation (PLMDC) which
previously filed an application for an MPSA with the MGB, Region IV-B, DENR on
January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering
an area of 3.277 hectares in barangays Calategas and San Isidro, Municipality of
Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or assigned its rights
and interests over the MPSA application in favor of Narra. Another MPSA application
of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly
EPA-IVB-47) over 3,402 hectares in Barangays Malinao and PrincesaUrduja,
Municipality of Narra, Province of Palawan. SMMI subsequently conveyed, transferred
and assigned its rights and interest over the said MPSA application to Tesoro. On
January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three
(3) separate petitions for the denial of petitioners’ applications for MPSA designated as
AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur,
Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100%
Canadian corporation. Redmont reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving force behind petitioners’ filing of the
MPSAs over the areas covered by applications since it knows that it can only
participate in mining activities through corporations which are deemed Filipino
citizens. Redmont argued that given that petitioners’ capital stocks were mostly
owned by MBMI, they were likewise disqualified from engaging in mining activities
through MPSAs, which are reserved only for Filipino citizens.

Issue: Whether or not the petitioner corporations are Filipino and can validly be issued
MPSA and EP

Held: No. The SEC Rules provide for the manner of calculating the Filipino interest in a
corporation for purposes, among others, of determining compliance with nationality
requirements (the ‘Investee Corporation’). Such manner of computation is necessary
since the shares in the Investee Corporation may be owned both by individual
stockholders (‘Investing Individuals’) and by corporations and partnerships (‘Investing
Corporation’). The said rules thus provide for the determination of nationality
depending on the ownership of the Investee Corporation and, in certain instances, the
Investing Corporation.
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Under the SEC Rules, there are two cases in determining the nationality of the Investee
Corporation. The first case is the ‘liberal rule’, later coined by the SEC as the Control
Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the
1967 SEC Rules which states, ‘(s)hares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality.’ Under the liberal Control Test, there is no need to further trace
the ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation
since a corporation which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the
portion in said Paragraph 7 of the 1967 SEC Rules which states, “but if the percentage
of Filipino ownership in the corporation or partnership is less than 60%, only the number
of shares corresponding to such percentage shall be counted as of Philippine
nationality.” Under the Strict Rule or Grandfather Rule Proper, the combined totals in
the Investing Corporation and the Investee Corporation must be traced (i.e.,
“grandfathered”) to determine the total percentage of Filipino ownership. Moreover,
the ultimate Filipino ownership of the shares must first be traced to the level of the
Investing Corporation and added to the shares directly owned in the Investee
Corporation.
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or
the second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity
ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino
and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in
other joint venture corporation which is either 60-40% Filipino-alien or the 59% less
Filipino). Stated differently, where the 60-40 Filipino- foreign equity ownership is not in
doubt, the Grandfather Rule will not apply.

RUBEN SAW v. CA, GR No. 90580, 1991-04-08

Facts: Collection suit with preliminary attachment filed by Equitable Banking

Corporation against Freeman, Inc. and Saw ChiaoLian, its President and General
Manager, petitioners moved to intervene denied petitioners appealed to the Court of
Appeals. Equitable and Saw Chiao Lian entered into a compromise agreement which
they submitted to and was approved by the lower court.
It was not complied with, Equitable secured a writ of execution… two lots owned by
Freeman, Inc. were levied upon and… sold at public auction to Freeman
Management and Development Corp. Court of Appeals sustained the denial of the
petitioners’ motion for intervention, holding that “the compromise agreement… will
not necessarily prejudice petitioners. It also ruled against the petitioners’ argument
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that because they had already filed a notice of appeal, the trial judge had lost
jurisdiction over the case and could no longer issue the writ of execution.
The petitioners base their right to intervene for the protection of their interests as
stockholders on Everett v. Asia Banking Corp.
The well-known rule that shareholders cannot ordinarily sue in equity to redress wrongs
done to the corporation, but that the action must be brought by the Board of
Directors, x x x has its exceptions.
[If] the corporation [were] under the complete control of the principal… defendants
Equitable… on tending that the collection suit against Freeman, Inc. and Saw Chiao
Lian is essentially in personam and, as an action against defendants in their personal
capacities, will not prejudice the petitioners as stockholders of the corporation.
Equitable also argues that the subject matter of the intervention falls properly within
the original and exclusive jurisdiction of the Securities and Exchange Commission
Equitable maintains that the petitioners’ appeal could only apply to the denial of their
motion for intervention and not to the main case because their personality as party
litigants had not been recognized by the trial court.

Issues: Whether or not the Honorable Court of Appeals erred in holding that the
petitioners cannot intervene… because their rights as stockholders of Freeman are
merely inchoate and not actual, material, direct and immediate prior to the
dissolution of the corporation
Whether or not the Honorable Court of Appeals erred in holding that the appeal of
the petitioners… was confined only to the order denying their motion to intervene and
did not divest the trial court of its jurisdiction over the whole case

Ruling: The Court finds that the respondent court committed no reversible error in
sustaining the denial by the trial court of the petitioners’ motion for intervention.
To allow intervention, [a] it must be shown that the movant has legal interest in the
matter in litigation, or otherwise qualified; and [b] consideration must be given as to
whether the adjudication of the rights of the original parties may be delayed or
prejudiced, or whether… the intervenor’s rights may be protected in a separate
proceeding or not.
The interest which entitles a person to intervene in a suit between other parties must be
in the matter in litigation and of such direct and immediate character that the
intervenor will either gain or lose by the direct legal operation and effect of the
judgment.

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The words “an interest in the subject” mean a direct interest in the cause of action as
pleaded, and which would put the intervenor in a legal position to litigate a fact
alleged in the complaint, without the establishment of which plaintiff could not
recover.
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely
inchoate, or in sheer expectancy of a right in the management of the corporation
and to… share in the profits thereof and in the properties and assets thereof on
dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of
the corporation, it does not vest the owner thereof with any legal right or title to any of
the property, his interest in the corporate property being equitable or beneficial in…
nature. Shareholders are in no legal sense the owners of corporate property, which is
owned by the corporation as a distinct legal person.
The petitioners’ appeal could not have concerned the “whole” case (referring to the
decision) because the petitioners “did not appeal the decision as indeed they cannot
because they are not parties to the case despite their being stockholders of
respondent Freeman, Inc.” They… could only appeal the denial of their motion for
intervention as they were never recognized by the trial court as party litigants in the
main case.
In the case at bar, there is no more principal action to be resolved as a writ of
execution had already been issued by the lower court and the claim of Equitable had
already been satisfied. The decision of the lower court had already become final and
in fact had already… been enforced. There is therefore no more principal proceeding
in which the petitioners may intervene.

Timoteo Sarona vs. NLRC, GR No. 185280, January 18, 2012

Facts: Petitioner, a security guard in Sceptre since April 1976, was asked by Sceptre’s
operations manager on June 2003, to submit a resignation letter as a requirement for
an application in Royale and to fill up an employment application form for the said
company. He was then assigned at Highlight Metal Craft Inc. from July 29 to August 8,
2003 and was later transferred to Wide Wide World Express Inc. On September 2003, he
was informed that his assignment at WWWE Inc. was withdrawn because Royale has
been allegedly replaced by another security agency which he later discovered to be
untrue. Nevertheless, he was once again assigned at Highlight Metal sometime in
September 2003 and when he reported at Royale’s office on October 1, 2003, he was

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informed that he would no longer be given any assignment as instructed by Sceptre’s

general manager.
He thus filed a complaint for illegal dismissal. The LA ruled in petitioner’s favor as he
found him illegally dismissed and was not convinced by the respondent’s claim on
petitioner’s abandonment.
Respondents were ordered to pay back wages computed from the day he was
dismissed up to the promulgation of his decision on May 11, 2005.The LA also ordered
for the payment of separation pay but refused to pierce Royale’s corporate veil.
Respondents appealed to the NLRC claiming that the LA acted with grave abuse of
discretion upon ruling on the illegal dismissal of petitioner. NLRC partially affirmed the
LA’s decision with regard to petitioner’s illegal dismissal and separation pay but
modified the amount of backwages and limited it to only 3 months of his last month
salary reducing P95, 600 to P15, 600 since he worked for Royale for only 1 month and 3
days.
Petitioner did not appeal to LA but raised the validity of LA’s findings on piercing
Royale’s corporate personality and computation of his separation pay and such
petition was dismissed by the NLRC. Petitioner elevated NLRC’s decision to the CA on
a petition for certiorari, and the CA disagreed with the NLRC’s decision of not
proceeding to review the evidence for determining if Royale is Sceptre’s alter ego that
would warrant the piercing of its corporate veil.

Issues: Whether or not Royale’s corporate fiction should be pierced for the purpose of
compelling it to recognize the petitioner’s length of service with Sceptre and for
holding it liable for the benefits that have accrued to him arising from his employment
with Sceptre.
Whether or not petitioner’s back wages should be limited to his salary for 3 months

Ruling: The doctrine of piercing the corporate veil is applicable on alter ego cases,
where a corporation is merely a farce since it is a mere alter ego or business conduit of
a person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.
The respondents’ scheme reeks of bad faith and fraud and compassionate justice
dictates that Royale and Sceptre be merged as a single entity, compelling Royale to
credit and recognize the petitioner’s length of service with Sceptre. The respondents
cannot use the legal fiction of a separate corporate personality for ends subversive of
the policy and purpose behind its creation or which could not have been intended by
law to which it owed its being.

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Also, Sceptre and Royale have the same principal place of business. As early as
October 14, 1994, Aida and Wilfredo became the owners of the property used by
Sceptre as its principal place of business by virtue of a Deed of Absolute Sale they
executed with Roso. Royale, shortly after its incorporation, started to hold office in the
same property. These, the respondents failed to dispute.
Royale also claimed a right to the cash bond which the petitioner posted when he
was still with Sceptre. If Sceptre and Royale are indeed separate entities, Sceptre
should have released the petitioner’s cash bond when he resigned and Royale would
have required the petitioner to post a new cash bond in its favor.
The way on how petitioner was made to resign from Sceptre then later on made an
employee of Royale, reflects the use of the legal fiction of the separate corporate
personality and is an implication of continued employment. Royale is a continuation or
successor or Sceptre since the employees of Sceptre and of Royale are the same and
said companies have the same principal place of business.
Because petitioner’s rights were violated and his employer has not changed, he is
entitled to separation pay which must be computed from the time he was hired until
the finality of this decision. Royale is also ordered to pay him backwages from his
dismissal on October 1, 2003 until the finality of this decision.
However, the amount already received by petitioner from the respondents shall be
deducted. He is also awarded moral and exemplary damages amounting to P 25,
000.00 each for his dismissal which was tainted with bad faith and fraud. Petition is
granted. CA’s decision is reversed and set aside.

Bibiano Reynoso vs. CA, GR No. 116124-25, November 23, 2000

Facts: Sometime in early 1960s, the Commercial Credit Corporation (CCC), a financing
company and investment firm, decided to organize franchise companies indifferent
parts of the country, wherein it shall hold 30% equity. Employees of the CCC were
designated as resident managers of the franchise companies. Petitioner Bibiano O.
Reynoso IV was designated as the resident manager of the franchise in Quezon City,
known as the Commercial Credit Corporation of Quezon City. CCC-QC entered into
an exclusive agreement management contract with CCC whereby the latter was
granted the management and full control of the business activities of the former.
Under the contract, CCC-QC shall sell, discount and/or assign its receivables to CCC.
Subsequently, however, this discounting arrangement was discontinued pursuant to
the so called DOSRI rule, prohibiting the lending of funds by corporations to its
directors, officers, stockholders and other persons with related interest therein. On

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account of the new restrictions imposed by the Central Bank policy by virtue of the
DOSRI rule, CCC decided to form CCC Equity Corporation, a wholly-owned subsidiary,
to which CCC transferred its 30% equity in CCC-QC, together with 2 seats in the latter’s
Board of Directors. A complaint for sum of money with preliminary attachment was
filed by CCC-equity against petitioner and the latter was also dismissed from
employment to which the lower court’s decision was rendered in favor of the
petitioner and the same has become final and executory. CCC changed its name to
General Credit Corporation (GCC).

Issue: Whether or not the judgement in favor of the petitioner may be executed
against respondent GCC.

Held: Yes. A corporation is an artificial being created by operation of law, having the
right of succession and the powers, attributes, and properties expressly authorized by
law or incident to its existence. It 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. It was evolved to make possible the
aggregation and assembling of huge amounts of capital upon which big business
depends. It also has the advantage of non-dependence on the lives of those who
compose it even as it enjoys certain rights and conducts activities of natural persons.
Any piercing of the corporate veil has to be done with caution. However, the court will
not hesitate to use its supervisory and adjudicative powers where the corporate fiction
is used as an unfair device to achieve an inequitable result defraud creditors, evade
contracts and obligations, or to shield it from the effects of a court decision. The
corporate fiction has to be disregarded when necessary in the interest of justice.
The defense of separateness will be disregarded when 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. But even when there is dominance over
the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction
applies only when such fiction is used to defeat public convenience, justify wrong,
protect fraud or defend crime.
The organization of subsidiary corporations as what was done here is usually resorted
to for aggrupation of capital the ability to cover more territory and population, the
decentralization of activities best decentralized, and the securing of other legitimate
advantages. But when the mother corporation and its subsidiary cease to act in good
faith and honest business judgement, when the corporate device is used by the
parent to avoid its liability for legitimate obligations of the subsidiary, and when the
corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to
remedy the problem. When that happens, the corporate character is not necessarily

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abrogated. It continuous for legitimate objectives. However, it is pursued in order to

remedy injustice, such as that inflicted in this case.

INTERNATIONAL ACADEMY OF MANAGEMENT v. LITTON, GR No. 191525, 2017-12-13,

December 13,2017

Facts: Atty. Emmanuel T. Santos (Santos), a lessee to two (2) buildings owned by Litton
owed the latter rental arrears as well as his share of the payment of realty taxes.
Litton filed a complaint for unlawful detainer against Santos before the MeTC of
Manila. The MeTC ruled in Litton’s favor and ordered Santos to vacate A.I.D. Building
and Litton Apartments and to pay various sums of money representing unpaid arrears,
realty taxes, penalty, and attorney’s fees.
The judgment was not executed.
On 11 November 1996, the sheriff of the MeTC of Manila levied on a piece of real
property covered by Transfer Certificate of Title (TCT) No. 187565 and registered in the
name of International Academy of Management and Economics Incorporated
(I/AME), in order to execute the judgment against Santos.
Indicated that such was “only up to the extent of the share of Emmanuel T. Santos.”
I/AME claimed that it has a separate and distinct personality from Santos; hence, its
properties should not be made to answer for the latter’s liabilities.
Upon motion for reconsideration of I/AME, the MeTC reversed its earlier ruling and
ordered the cancellation of the annotations of levy as well as the writ of execution.
Petitioner avers that its right to due process was violated when it was dragged into the
case and its real property made an object of a writ of execution in a judgment
against Santos.
It argues that since it was not impleaded in the main case, the court a quo never
acquired jurisdiction over it.
Petitioner I/AME argues that the doctrine of piercing the corporate veil applies only to
stock corporations, and not to non-stock, nonprofit corporations such as I/AME since
there are no stockholders to hold liable in such a situation but instead only members.
Hence, they do not have investments or shares of stock or assets to answer for possible
liabilities. Thus, no one in a non-stock corporation can be held liable in case the
corporate veil is disregarded or pierced.

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The petitioner also insists that the piercing of the corporate veil cannot be applied to a
natural person – in this case, Santos – simply because as a human being, he has no
corporate veil shrouding or covering his person.

Issues: The issues boil down to the alleged denial of due process when the court
pierced the corporate veil of I/AME and its property was made to answer for the
liability of Santos.

Ruling: The piercing of the corporate veil is premised on the fact that the corporation
concerned must have been properly served with summons or properly subjected to
the jurisdiction of the court a quo. Corollary thereto, it cannot be subjected to a writ of
execution meant for another in violation of its right to due process.
There exists, however, an exception to this rule: if it is shown “by clear and convincing
proof that the separate and distinct personality of the corporation was purposefully
employed to evade a legitimate and binding commitment and perpetuate a fraud or
like wrongdoings.”
The resistance of the Court to offend the right to due process of a corporation that is a
nonparty in a main case, may disintegrate not only when its director, officer,
shareholder, trustee or member is a party to the main case, but when it finds facts
which show that piercing of the corporate veil is merited.
In determining the propriety of applicability of piercing the veil of corporate fiction, this
Court, in a number of cases, did not put in issue whether a corporation is a stock or
non-stock corporation.
In the United States, from which we have adopted our law on corporations, non-profit
corporations are not immune from the doctrine of piercing the corporate veil. Their
courts view piercing of the corporation as an equitable remedy, which justifies said
courts to scrutinize any organization however organized and in whatever manner it
operates. Moreover, control of ownership does not hinge on stock ownership.
As held in Barineau v. Barineau:[36] [t]he mere fact that the corporation involved is a
nonprofit corporation does not by itself preclude a court from applying the equitable
remedy of piercing the corporate veil. The equitable character of the remedy permits
a court to look to the substance of the organization, and its decision is not controlled
by the statutory framework under which the corporation was formed and operated.
While it may appear to be impossible for a person to exercise ownership control over a
nonstock, not-for-profit corporation, a person can be held personally liable under the
alter ego theory if the evidence shows that the person controlling the corporation did
in fact exercise control, even though there was no stock ownership.
The concept of equitable ownership, for stock or non-stock corporations, in piercing of
the corporate veil scenarios, may also be considered. An equitable owner is an
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individual who is a non-shareholder defendant, who exercises sufficient control or

considerable authority over the corporation to the point of completely disregarding
the corporate form and acting as though its assets are his or her alone to manage and
distribute.
The piercing of the corporate veil may apply to corporations as well as natural persons
involved with corporations. This Court has held that the “corporate mask may be lifted
and the corporate veil may be pierced when a corporation is just but the alter ego of
a person or of another corporation.”
Like Arcilla, Santos: (1) was adjudged liable to pay on a judgment against him; (2) he
became President of a corporation; (3) he formed a corporation to conceal assets
which were supposed to pay for the judgment against his favor; (4) the corporation
which has Santos as its President, is being asked by the court to pay on the judgment;
and (5) he may not use as a defense that he is no longer President of I/AME (although
a visit to the website of the school shows he is the current President).
This Court agrees with the CA that I/AME is the alter ego of Santos and Santos – the
natural person – is the alter ego of I/AME. Santos falsely represented himself as
President of I/AME in the Deed of Absolute Sale when he bought the Makati real
property, at a time when I/AME had not yet existed.
We borrow from American parlance what is called reverse piercing or reverse
corporate piercing or piercing the corporate veil “in reverse.”
“in a traditional veil-piercing action, a court disregards the existence of the corporate
entity so a claimant can reach the assets of a corporate insider. In a reverse piercing
action, however, the plaintiff seeks to reach the assets of a corporation to satisfy
claims against a corporate insider.”
“Reverse-piercing flows in the opposite direction (of traditional corporate veil-piercing)
and makes the corporation liable for the debt of the shareholders.”
It has two (2) types: outsider reverse piercing and insider reverse piercing. Outsider
reverse piercing occurs when a party with a claim against an individual or corporation
attempts to be repaid with assets of a corporation owned or substantially controlled
by the defendant.[52] In contrast, in insider reverse piercing, the controlling members
will attempt to ignore the corporate fiction in order to take advantage of a benefit
available to the corporation, such as an interest in a lawsuit or protection of personal
assets.
Outsider reverse veil-piercing is applicable in the instant case. Litton, as judgment
creditor, seeks the Court’s intervention to pierce the corporate veil of I/AME in order to
make its Makati real property answer for a judgment against Santos, who formerly
owned and still substantially controls I/AME.
In the U.S. case Acree v. McMahan,[54] the American court held that “[o]utsider
reverse veil-piercing extends the traditional veil-piercing doctrine to permit a third-

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party creditor to pierce the veil to satisfy the debts of an individual out of the
corporation’s assets.”
This notwithstanding, the equitable remedy of reverse corporate piercing or reverse
piercing was not meant to encourage a creditor’s failure to undertake such remedies
that could have otherwise been available, to the detriment of other creditors.
Reverse corporate piercing is an equitable remedy which if utilized cavalierly, may
lead to disastrous consequences for both stock and non-stock corporations. We are
aware that ordinary judgment collection procedures or other legal remedies are
preferred over that which would risk damage to third parties (for instance, innocent
stockholders or voluntary creditors) with unprotected interests in the assets of the
beleaguered corporation.[57] Thus, this Court would recommend the application of
the current 1997 Rules on Civil Procedure on Enforcement of Judgments. Under the
current Rules of Court on Civil Procedure, when it comes to satisfaction by levy, a
judgment obligor is given the option to immediately choose which property or part
thereof may be levied upon to satisfy the judgment. If the judgment obligor does not
exercise the option, personal properties, if any, shall be first levied and then on real
properties if the personal properties are deemed insufficient to answer for the
judgment.[58] In the instant case, it may be possible for this Court to recommend that
Litton run after the other properties of Santos that could satisfy the money judgment –
first personal, then other real properties other than that of the school. However, if we
allow this, we frustrate the decades-old yet valid MeTC judgment which levied on the
real property now titled under the name of the school.
Moreover, this Court will unwittingly condone the action of Santos in hiding all these
years behind the corporate form to evade paying his obligation under the judgment in
the court a quo. This we cannot countenance without being a party to the injustice.
Thus, the reverse piercing of the corporate veil of I/AME to enforce the levy on
execution of the Makati real property where the school now stands is applied.

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