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1. G.R. No. 197530. July 9, 2014.* that PNB-Madecor was the owner of the Pantranco
ABOITIZ EQUITY VENTURES, INC., properties. Moreover, these corporations are registered as
petitioner, vs. VICTOR S. CHIONGBIAN, BENJAMIN separate entities and, absent any valid reason, we maintain
D. GOTHONG, and CARLOS A. GOTHONG LINES, their separate identities and we cannot treat them as one.
INC. (CAGLI), respondents. Neither can we merge the personality of PNEI with PNB
simply because the latter acquired the former. Settled is the
Mercantile Law; Corporations; It is basic that a corporation rule that where one corporation sells or otherwise transfers
has a personality separate and distinct from that of its all its assets to another corporation for value, the latter is
individual stockholders.—It is basic that a corporation has a not, by that fact alone, liable for the debts and liabilities of
personality separate and distinct from that of its individual the transferor.
stockholders. Thus, a stockholder does not automatically Same; Same; Words and Phrases; Under the doctrine of
assume the liabilities of the corporation of which he is a “piercing the veil of corporate fiction,” the court looks at the
corporation as a mere collection of individuals or an
stockholder. As explained in Philippine National Bank v.
aggregation of persons undertaking business as a group,
Hydro Resources Contractors Corporation, 693 SCRA 294
disregarding the separate juridical personality of the
(2013): A corporation is an artificial entity created by corporation unifying the group; Any piercing of the corporate
operation of law. It possesses the right of succession and veil has to be done with caution, albeit the Court will not
such powers, attributes, and properties expressly authorized hesitate to disregard the corporate veil when it is misused or
by law or incident to its existence. It has a personality when necessary in the interest of justice.—Under the doctrine
separate and distinct from that of its stockholders and from of “piercing the veil of corporate fiction,” the court looks at
that of other corporations to which it may be connected. As a the corporation as a mere collection of individuals or an
consequence of its status as a distinct legal entity and as a aggregation of persons undertaking business as a group,
result of a conscious policy decision to promote capital disregarding the separate juridical personality of the
formation, a corporation incurs its own liabilities and is corporation unifying the group. Another formulation of this
legally responsible for payment of its obligations. In other doctrine is that when two business enterprises are owned,
conducted and controlled by the same parties, both law and
words, by virtue of the separate juridical personality of a
equity will, when necessary to protect the rights of third
corporation, the corporate debt or credit is not the debt or
parties, disregard the legal fiction that two corporations are
credit of the stockholder. This protection from liability for distinct entities and treat them as identical or as one and the
shareholders is the principle of limited liability. same. Whether the separate personality of the corporation
should be pierced hinges on obtaining facts appropriately
pleaded or proved. However, any piercing of the corporate
2. PANTRANCO EMPLOYEES ASSOCIATION (PEA- veil has to be done with caution, albeit the Court will not
PTGWO) and PANTRANCO RETRENCHED hesitate to disregard the corporate veil when it is misused or
EMPLOYEES ASSOCIATION (PANREA), when necessary in the interest of justice. After all, the
petitioners, vs. NATIONAL LABOR RELATIONS concept of corporate entity was not meant to promote unfair
COMMISSION (NLRC), PANTRANCO NORTH objectives.
EXPRESS, INC. (PNEI), PHILIPPINE NATIONAL Same; Same; Labor Law; It was clarified in Carag v.
BANK (PNB), PHILIPPINE NATIONAL BANK- National Labor Relations Commission (520 SCRA 28 [2007]),
and McLeod v. National Labor Relations Commission (512
. SCRA 222 [2007]), that Article 212(e) of the Labor Code, by
Corporation Law; Piercing the Veil of Corporate Fiction; itself, does not make a corporate officer personally liable for
The general rule is that a corporation has a personality the debts of the corporation—the governing law on personal
separate and distinct from those of its stockholders and other liability of directors or officers for debts of the corporation is
corporations to which it may be connected, a fiction created still Section 31 of the Corporation Code.—In the recent
by law for convenience and to prevent injustice; Settled is the cases Carag v. National Labor Relations Commission (520
rule that where one corporation sells or otherwise transfers SCRA 28 [2007]), and McLeod v. National Labor Relations
all its assets to another corporation for value, the latter is not, Commission (512 SCRA 222 [2007]), the Court explained the
by that fact alone, liable for the debts and liabilities of the doctrine laid down in AC Ransom relative to the personal
transferor.—The general rule is that a corporation has a liability of the officers and agents of the employer for the
personality separate and distinct from those of its debts of the latter. In AC Ransom, the Court imputed
stockholders and other corporations to which it may be liability to the officers of the corporation on the strength of
connected. This is a fiction created by law for convenience the definition of an employer in Article 212(c) (now Article
and to prevent injustice. Obviously, PNB, PNB-Madecor, 212[e]) of the Labor Code. Under the said
Mega Prime, and PNEI are corporations with their own provision, employer includes any person acting in the
personalities. The “separate personalities” of the first three interest of an employer, directly or indirectly, but does not
corporations had been recognized by this Court in PNB v. include any labor organization or any of its officers or agents
Mega Prime Realty and Holdings Corporation/Mega Prime except when acting as employer. It was clarified
Realty and Holdings Corporation v. PNB (567 SCRA 633 in Carag and McLeod that Article 212(e) of the Labor Code,
[2008]) where we stated that PNB was only a stockholder of by itself, does not make a corporate officer personally liable
PNB-Madecor which later sold its shares to Mega Prime; and for the debts of the corporation. It added that the governing
2|Page

law on personal liability of directors or officers for debts of instrumentality of the parent-corporation.—In PNB v.
the corporation is still Section 31 of the Corporation Code. Ritratto Group, Inc. (362 SCRA 216 [2001]), we outlined the
More importantly, as aptly observed by this Court in AC circumstances which are useful in the determination of
Ransom, it appears that Ransom, foreseeing the possibility whether a subsidiary is but a mere instrumentality of the
or probability of payment of backwages to its employees, parent-corporation, to wit: 1. The parent corporation owns all
organized Rosario to replace Ransom, with the latter to be or most of the capital stock of the subsidiary; 2. The parent
eventually phased out if the strikers win their case. The and subsidiary corporations have common directors or
execution could not be implemented against Ransom because officers; 3. The parent corporation finances the subsidiary; 4.
of the disposition posthaste of its leviable assets evidently in The parent corporation subscribes to all the capital stock of
order to evade its just and due obligations. Hence, the Court the subsidiary or otherwise causes its incorporation; 5. The
sustained the piercing of the corporate veil and made the subsidiary has grossly inadequate capital; 6. The parent
officers of Ransom personally liable for the debts of the corporation pays the salaries and other expenses or losses of
latter. the subsidiary; 7. The subsidiary has substantially no
business except with the parent corporation or no assets
Same; Same; The doctrine of piercing the corporate veil except those conveyed to or by the parent corporation; 8. In
applies only in three (3) basic areas, namely: 1) defeat of the papers of the parent corporation or in the statements of
public convenience as when the corporate fiction is used as a its officers, the subsidiary is described as a department or
vehicle for the evasion of an existing obligation; 2) fraud cases division of the parent corporation, or its business or financial
or when the corporate entity is used to justify a wrong, protect responsibility is referred to as the parent corporation’s own;
fraud, or defend a crime; or 3) alter ego cases, where a 9. The parent corporation uses the property of the subsidiary
corporation is merely a farce since it is a mere alter ego or as its own; 10. The directors or executives of the subsidiary
business conduit of a person, or where the corporation is so do not act independently in the interest of the subsidiary,
organized and controlled and its affairs are so conducted as but take their orders from the parent corporation; 11. The
to make it merely an instrumentality, agency, conduit or formal legal requirements of the subsidiary are not observed.
adjunct of another corporation.—What can be inferred from Actions; Parties; Writs of Execution; Settled is the rule that
the earlier cases is that the doctrine of piercing the corporate proceedings in court must be instituted by the real party in
veil applies only in three (3) basic areas, namely: 1) defeat of interest; Specifically, in proceedings to set aside an execution
public convenience as when the corporate fiction is used as a sale, the real party in interest is the person who has an
vehicle for the evasion of an existing obligation; 2) fraud interest either in the property sold or the proceeds thereof—
cases or when the corporate entity is used to justify a wrong, one who is not interested or is not injured by the execution
protect fraud, or defend a crime; or 3) alter ego cases, where sale cannot question its validity.—It has been repeatedly
a corporation is merely a farce since it is a mere alter ego or stated that the Pantranco properties which were the subject
business conduit of a person, or where the corporation is so of execution sale were owned by Macris and later, the PNB-
organized and controlled and its affairs are so conducted as Madecor. They were never owned by PNEI or PNB.
to make it merely an instrumentality, agency, conduit or Following our earlier discussion on the separate
adjunct of another corporation. In the absence of malice, bad personalities of the different corporations involved in the
faith, or a specific provision of law making a corporate officer instant case, the only entity which has the right and interest
liable, such corporate officer cannot be made personally to question the execution sale and the eventual right to
liable for corporate liabilities. annul the same, if any, is PNB-Madecor or its successor-in-
Same; Same; The mere fact that a corporation owns all interest. Settled is the rule that proceedings in court must be
of the stocks of another corporation, taken alone, is not instituted by the real party in interest. A real party in
sufficient to justify their being treated as one entity—if used interest is the party who stands to be benefited or injured by
to perform legitimate functions, a subsidiary’s separate the judgment in the suit, or the party entitled to the avails of
existence shall be respected, and the liability of the parent the suit. “Interest” within the meaning of the rule means
corporation as well as the subsidiary will be confined to those material interest, an interest in issue and to be affected by
arising in their respective businesses.—For the sake of the decree, as distinguished from mere interest in the
argument, that PNB may be held liable for the debts of question involved, or a mere incidental interest. The interest
PNEI, petitioners still cannot proceed against the Pantranco of the party must also be personal and not one based on a
properties, the same being owned by PNB-Madecor, desire to vindicate the constitutional right of some third and
notwithstanding the fact that PNB-Madecor was a unrelated party. Real interest, on the other hand, means a
subsidiary of PNB. The general rule remains that PNB- present substantial interest, as distinguished from a mere
Madecor has a personality separate and distinct from PNB. expectancy or a future, contingent, subordinate, or
The mere fact that a corporation owns all of the stocks of consequential interest. Specifically, in proceedings to set
another corporation, taken alone, is not sufficient to justify aside an execution sale, the real party in interest is the
their being treated as one entity. If used to perform person who has an interest either in the property sold or the
legitimate functions, a subsidiary’s separate existence shall proceeds thereof. Conversely, one who is not interested or is
be respected, and the liability of the parent corporation as not injured by the execution sale cannot question its validity.
well as the subsidiary will be confined to those arising in
their respective businesses.
Same; Same; Circumstances which are useful in the 3. Sarona vs. National Labor Relations Commission
determination of whether a subsidiary is but a mere
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Corporation Law; Piercing the Veil of Corporate Fiction; It
has a personality separate and distinct from the persons
composing it, as well as from any other legal entity to which
it may be related. Equally well-settled is the principle that the
corporate mask may be removed or the corporate veil pierced
when the corporation is just an alter ego of a person or of
another corporation.—A corporation is an artificial being
created by operation of law. It possesses the right of
succession and such powers, attributes, and properties
expressly authorized by law or incident to its existence. It
has a personality separate and distinct from the persons
composing it, as well as from any other legal entity to which
it may be related. This is basic. Equally well-settled is the
principle that the corporate mask may be removed or the
corporate veil pierced when the corporation is just an alter
ego of a person or of another corporation. For reasons of
public policy and in the interest of justice, the corporate veil
will justifiably be impaled only when it becomes a shield for
fraud, illegality or inequity committed against third persons.
Instances When the Doctrine of Piercing the Corporate
Veil Applies.—The doctrine of piercing the corporate veil
applies only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; 2) fraud
cases or when the corporate entity is used to justify a wrong,
protect fraud, or defend a crime; or 3) 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.
Same; Same; A settled formulation of the doctrine of
piercing the corporate veil is that when two business
enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect
the rights of third parties, disregard the legal fiction that
these two entities are distinct and treat them as identical or
as one and the same.—For the piercing doctrine to apply, it is
of no consequence if Sceptre is a sole proprietorship. As ruled
in Prince Transport, Inc., et al. v. Garcia, et al., 639 SCRA
312 (2011), it is the act of hiding behind the separate and
distinct personalities of juridical entities to perpetuate fraud,
commit illegal acts, evade one’s obligations that the
equitable piercing doctrine was formulated to address and
prevent: A settled formulation of the doctrine of piercing the
corporate veil is that when two business enterprises are
owned, conducted and controlled by the same parties, both
law and equity will, when necessary to protect the rights of
third parties, disregard the legal fiction that these two
entities are distinct and treat them as identical or as one and
the same. In the present case, it may be true that Lubas is a
single proprietorship and not a corporation. However,
petitioners’ attempt to isolate themselves from and hide
behind the supposed separate and distinct personality of
Lubas so as to evade their liabilities is precisely what the
classical doctrine of piercing the veil of corporate entity seeks
to prevent and remedy.
4. NFF Industrial Corporation vs. G ###amp### L
Associated Brokerage
CROSS-EXAMINATION
ATTY. RODRIGUEZ:
Q: How about the other officers of the corporation, did
you inquire from them?
A: Not me personally sir, but my credit collector.
Q: Did you inquire from them what was the result of the
inquiry?
A: This was after the third delivery was made when
they said that they have no money to pay that is why
they were postponing the payment sir.62Essentially,
preponderance of evidence refers to the comparative weight
of the evidence presented by the opposing parties. 64 As such,
it has been defined as “the weight, credit, and value of the
aggregate evidence on either side,” and is usually considered
to be synonymous with the term greater weight of the
evidence or greater weight of the credible evidence.65 It is
proof that is more convincing to the court as worthy of belief
than that which is offered in opposition thereto.66 Contrary
to respondents’ view, We find that petitioner has successfully
established its case. Accordingly, We give greater weight,
credit and value to its evidence.
Finally, with regard to the liability of respondent
Trinidad, we adopt with approval the findings of the RTC
that he was merely being sued in his capacity as General
Manager of respondent company.67 Since there was no
showing of any of circumstances warranting the piercing the
veil of corporate fiction, he cannot be held jointly and
severally liable for the outstanding obligation of respondent
company.68 As held in
Kukan International Corporation v. Reyes,69 citing an
earlier case, those who seek to pierce the veil must clearly
establish that the separate and distinct personalities of the
corporations are set up to justify a wrong, protect fraud, or
perpetrate a deception, to wit:
The same principle was the subject and discussed
in Rivera v. United Laboratories, Inc.:
While a corporation may exist for any lawful purpose, the
law will regard it as an association of persons or, in case of
two corporations, merge them into one, when its
corporate legal entity is used as a cloak for fraud or
illegality. This is the doctrine of piercing the veil of
corporate fiction. The doctrine applies only when such
corporate fiction is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, or when
it is made as a shield to confuse the legitimate issues,
or where a corporation is the 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.
To disregard the separate juridical personality of a
corporation, the wrongdoing must be established
clearly and convincingly. It cannot be presumed.
4|Page
5. Commossioner of Customs vs. Oilink
International Corporation
Corporations; Separate Personality; A corporation, upon
coming into existence, is invested by law with a personality
separate and distinct from those of the persons composing it
as well as from any other legal entity to which it may be
related.—A corporation, upon coming into existence, is
invested by law with a personality separate and distinct
from those of the persons composing it as well as from any
other legal entity to which it may be related. For this reason,
a stockholder is generally not made to answer for the acts or
liabilities of the corporation, and vice versa. The separate
and distinct personality of the corporation is, however, a
mere fiction established by law for convenience and to
promote the ends of justice. It may not be used or invoked for
ends that subvert the policy and purpose behind its
establishment, or intended by law to which the corporation
owes its being. This is true particularly when the fiction is
used to defeat public convenience, to justify wrong, to protect
fraud, to defend crime, to confuse legitimate legal or judicial
issues, to perpetrate deception or otherwise to 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. In such instances, the veil of corporate entity will be
pierced or disregarded with reference to the particular
transaction involved.
Same; Same; Alter Ego Doctrine; In applying the
“instrumentality” or “alter ego” doctrine, the courts are
concerned with reality, not form, and with how the
corporation operated and the individual defendant’s
relationship to the operation.—In applying the
“instrumentality” or “alter ego” doctrine, the courts are
concerned with reality, not form, and with how the
corporation operated and the individual defendant’s
relationship to the operation. Consequently, the absence of
any one of the foregoing elements disauthorizes the piercing
of the corporate veil. Indeed, the doctrine of piercing the
corporate veil has no application here because the
Commissioner of Customs did not establish that Oilink had
been set up to avoid the payment of taxes or duties, or for
purposes that would defeat public convenience, justify
wrong, protect fraud, defend crime, confuse legitimate legal
or judicial issues, perpetrate deception or otherwise
circumvent the law. It is also noteworthy that from the
outset the Commissioner of Customs sought to collect the
deficiency taxes and duties from URC, and that it was only
on July 2, 1999 when the Commissioner of Customs sent the
demand letter to both URC and Oilink. That was revealing,
because the failure of the Commissioner of Customs to
pursue the remedies against Oilink from the outset
manifested that its belated pursuit of Oilink was only an
afterthought.
6. Mayor vs. Tiu
Persons and Family Relations; Artificial Persons;
Artificial persons include (1) a collection or succession of
natural persons forming a corporation; and (2) a collection of
property to which the law attributes the capacity of having
rights and duties. This class of artificial persons is
recognized only to a limited extent in our law. Example is the
estate of a bankrupt or deceased person.—Artificial persons
include (1) a collection or succession of natural persons
forming a corporation; and (2) a collection of property to
which the law attributes the capacity of having rights and
duties. This class of artificial persons is recognized only to a
limited extent in our law. Example is the estate of a
bankrupt or deceased person.
Same; Same; The estate of the deceased person is a
juridical person separate and distinct from the person of the
decedent and any other corporation. This status of an estate
comes about by operation of law.—From this pronouncement,
it can be gleaned that the estate of the deceased person is a
juridical person separate and distinct from the person of the
decedent and any other corporation. This status of an estate
comes about by operation of law. This is in consonance with
the basic tenet under corporation law that a corporation has
a separate personality distinct from its stockholders and
from other corporations to which it may be connected.
Piercing the Veil of Corporate Fiction; Under this
doctrine, the court looks at the corporation as a mere
collection of individuals or an aggregation of persons
undertaking business as a group, disregarding the separate
juridical personality of the corporation unifying the group.—
The doctrine of piercing the corporate veil has no relevant
application in this case. Under this doctrine, the court looks
at the corporation as a mere collection of individuals or an
aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the
corporation unifying the group.
Another formulation of this doctrine is that when two
business enterprises are owned, conducted and controlled by
the same parties, both law and equity will, when necessary
to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and treat
them as identical or as one and the same.
Same; The purpose behind piercing a corporation’s
identity is to remove the barrier between the corporation and
the persons comprising it to thwart the fraudulent and illegal
schemes of those who use the corporate personality as a shield
for undertaking certain proscribed activities.—The purpose
behind piercing a corporation’s identity is to remove the
barrier between the corporation and the persons comprising
it to thwart the fraudulent and illegal schemes of those who
use the corporate personality as a shield for undertaking
certain proscribed activities.
Same; Mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stocks of
a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities.—
The probate court ordered the lessees of the corporation to
remit rentals to the estate’s administrator without taking
note of the fact that the decedent was not the absolute owner
of Primrose but only an owner of shares thereof. Mere
ownership by a single stockholder or by another corporation
of all or nearly all of the capital stocks of a corporation is not
5|Page
of itself a sufficient reason for disregarding the fiction of
separate corporate personalities. Moreover, to disregard the
separate juridical personality of a corporation, the
wrongdoing cannot be presumed, but must be clearly and
convincingly established.
Probate Courts; For the purpose of determining whether
a certain property should, or should not, be included in the
inventory of estate properties, the probate court may pass
upon the title thereto, but such determination is provisional,
not conclusive, and is subject to the final decision in a
separate action to resolve title.—In Pastor, Jr. v. Court of
Appeals, 122 SCRA 885 (1983), the Court explained that, as
a rule, the question of ownership was an extraneous matter
which the probate court could not resolve with finality. Thus,
for the purpose of determining whether a certain property
should, or should not, be included in the inventory of estate
properties, the probate court may pass upon the title thereto,
but such determination is
provisional, not conclusive, and is subject to the final
decision in a separate action to resolve title.
Same; It is a well-settled rule that a probate court or one
in charge of proceedings, whether testate or intestate, cannot
adjudicate or determine title to properties claimed to be part
of the estate but which are equally claimed to belong to
outside parties.—It is a well-settled rule that a probate court
or one in charge of proceedings, whether testate or intestate,
cannot adjudicate or determine title to properties claimed to
be part of the estate but which are equally claimed to belong
to outside parties. It can only determine whether they
should, or should not, be included in the inventory or list of
properties to be overseen by the administrator. If there is no
dispute, well and good; but if there is, then the parties, the
administrator and the opposing parties have to resort to an
ordinary action for a final determination of the conflicting
claims of title because the probate court cannot do so.
Piercing the Veil of Corporate Fiction; Piercing the veil
of corporate entity applies to determination of liability not of
jurisdiction; it is basically applied only to determine
established liability.—Piercing the veil of corporate entity
applies to determination of liability not of jurisdiction; it is
basically applied only to determine established liability. It is
not available to confer on the court a jurisdiction it has not
acquired, in the first place, over a party not impleaded in a
case.
Same; The doctrine of piercing the veil of corporate
fiction comes to play only during the trial of the case after the
court has already acquired jurisdiction over the
corporation.—The doctrine of piercing the veil of corporate
fiction comes to play only during the trial of the case after
the court has already acquired jurisdiction over the
corporation. Hence, before this doctrine can be even applied,
based on the evidence presented, it is imperative that the
court must first have jurisdiction over the corporation.
Same; A corporation not impleaded in a suit cannot be
subject to the court’s process of piercing the veil of its
corporate fiction.— Hence, a corporation not impleaded in a
suit cannot be subject to the court’s process of piercing the
veil of its corporate fiction. Resultantly, any proceedings
taken against the corporation and its properties would
infringe on its right to due process.
7. International Academy of Management and
Economics (I/AME)vs. Litton and Company, Inc.
Mercantile Law; Corporations; Separate Legal
Personality; In general, corporations, whether stock or
nonstock, are treated as separate and distinct legal entities
from the natural persons composing them.—In general,
corporations, whether stock or nonstock, are treated as
separate and distinct legal entities from the natural persons
composing them. The privilege of being considered a distinct
and separate entity is confined to legitimate uses, and is
subject to equitable limitations to prevent its being exercised
for fraudulent, unfair or illegal purposes. However, once
equitable limitations are breached using the coverture of the
corporate veil, courts may step in to pierce the same.
Same; Same; Same; Piercing the Veil of Corporate
Fiction; 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.—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.
Same; Same; Same; Same; The Supreme Court (SC) did
not put in issue whether the corporation is a nonstock,
nonprofit, nongovernmental corporation in considering the
application of the doctrine of piercing of corporate veil.—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 nonstock
corporation. In Sulo ng Bayan, Inc. v. Gregorio Araneta, Inc.,
72 SCRA 347 (1976), we considered but ultimately refused to
pierce the corporate veil of a nonstock, nonprofit corporation
which sought to institute an action for reconveyance of real
property on behalf of its members. This Court held that the
nonstock corporation had no personality to institute a class
suit on behalf of its members, considering that the non-stock
corporation was not an assignee or transferee of the real
property in question, and did not have an identity that was
one and the same as its members. In another case, this Court
did not put in issue whether the corporation is a non-stock,
nonprofit, nongovernmental corporation in considering the
application of the doctrine of piercing of corporate veil.
In Republic of the Philippines v. Institute for Social Concern,
449 SCRA 512 (2005), while we did not allow the piercing of
the corporate veil, this Court affirmed the finding of the CA
6|Page
that the Chairman of the Institute for Social Concern cannot
be held jointly and severally liable with the aforesaid
nongovernmental organization (NGO) at the time the
Memorandum of Agreement was entered into with the
Philippine Government. We found no fraud in that case
committed by the Chairman that would have justified the
piercing of the corporate veil of the NGO.
Same; Same; Equitable Owner; Words and Phrases; An
equitable owner is an 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
concept of equitable ownership, for stock or nonstock
corporations, in piercing of the corporate veil scenarios, may
also be considered. An equitable owner is an 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.
Same; Same; Separate Legal Personality; Piercing the
Veil of Corporate Fiction; The Supreme Court (SC) has
considered a deceased natural person as one and the same
with his corporation to protect the succession rights of his
legal heirs to his estate.—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.” We have considered a
deceased natural person as one and the same with his
corporation to protect the succession rights of his legal heirs
to his estate. In Cease v. Court of Appeals, 93 SCRA 483
(1979), the predecessor-in-interest organized a close
corporation which acquired properties during its existence.
When he died intestate, trouble ensued amongst his children
on whether or not to consider his company one and the same
with his person. The Court agreed with the trial court when
it pierced the corporate veil of the decedent’s corporation. It
found that said corporation was his business conduit
and alter ego. Thus, the acquired properties were actually
properties of the decedent and as such, should be divided
among the decedent’s legitimate children in the partition of
his estate.
Same; Same; Same; Same; Outsider Reverse Piercing;
Insider Reverse Piercing; Words and Phrases; 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. 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.—As held in the U.S. Case, C.F. Trust, Inc.,
v. First Flight Limited Partnership, “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. 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.
8. Kukan International Corporation vs. Reyes
Same; Same; Same; Making another corporation, thru the
medium of a writ of execution, answerable for an adjudged
liability against another is a clear case of altering a decision,
an instance of granting relief not contemplated in the decision
sought to be executed.—As may be noted, the above decision,
in unequivocal terms, directed Kukan, Inc. to pay the
aforementioned awards to Morales. Thus, making KIC, thru
the medium of a writ of execution, answerable for the above
judgment liability is a clear case of altering a decision, an
instance of granting relief not contemplated in the decision
sought to be executed. And the change does not fall under
any of the recognized exceptions to the doctrine of finality
and immutability of judgment. It is a settled rule that a writ
of execution must conform to the fallo of the judgment; as an
inevitable corollary, a writ beyond the terms of the judgment
is a nullity.
Jurisdiction; Special Appearance; Legal Research;
Republic v. Ker & Co, Ltd., 18 SCRA 207 (1966) and De
Midgely v. Ferandos, 64 SCRA 23 (1975), have already been
modified if not altogether superseded by La Naval Drug
Corporation v. Court of Appeals, 236 SCRA 78 (1994),
wherein the Court essentially ruled and elucidated on the
current view in our jurisdiction, to wit: “[A] special
appearance before the court––challenging its jurisdiction over
the person through a motion to dismiss even if the movant
invokes other grounds––is not tantamount to estoppel or a
waiver by the movant of his objection to jurisdiction over his
person; and such is not constitutive of a voluntary submission
to the jurisdiction of the court.”—To be sure, the CA’s ruling
that any form of appearance by the party or its counsel is
deemed as voluntary appearance finds support in the
kindred Republic v. Ker & Co., Ltd., 18 SCRA 207 (1966),
and De Midgely v. Ferandos, 64 SCRA 23
(1975). Republic and De Midgely, however, have already
been modified if not altogether superseded by La Naval Drug
Corporation v. Court of Appeals, 236 SCRA 78 (1994),
wherein the Court essentially ruled and elucidated on the
current view in our jurisdiction, to wit: “[A] special
appearance before the court—challenging its jurisdiction
over the person through a motion to dismiss even if the
movant invokes other grounds—is not tantamount to
estoppel or a waiver by the movant of his objection to
jurisdiction over his person; and such is not constitutive of a
voluntary submission to the jurisdiction of the court.”
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Corporation Law; Doctrine of Piercing the Veil of
Corporate Fiction; Words and Phrases; Under the doctrine of
“piercing the veil of corporate fiction,” the court looks at the
corporation as a mere collection of individuals or an
aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the
corporation unifying the group.—In Pantranco Employees
Association (PEA-PTGWO) v. National Labor Relations
Commission, 581 SCRA 598 (2009), the Court revisited the
subject principle of piercing the veil of corporate fiction and
wrote: Under the doctrine of “piercing the veil of corporate
fiction,” the court looks at the corporation as a mere
collection of individuals or an aggregation of persons
undertaking business as a group, disregarding the separate
juridical personality of the corporation unifying the
group. Another formulation of this doctrine is that when
two business enterprises are owned, conducted and
controlled by the same parties, both law and equity
will, when necessary to protect the rights of third
parties, disregard the legal fiction that two
corporations are distinct entities and treat them as
identical or as one and the same. Whether the separate
personality of the corporation should be pierced
hinges on obtaining facts appropriately pleaded or
proved. However, any piercing of the corporate veil has to
be done with caution, albeit the Court will not hesitate to
disregard the corporate veil when it is misused or when
necessary in the interest of justice. x x x
Same; Same; Due Process; A corporation not impleaded in
a suit cannot be subject to the court’s process of piercing the
veil of its corporate fiction—in that situation, the court has
not acquired jurisdiction over the corporation and, hence, any
proceedings taken against that corporation and its property
would infringe on its right to due process.—The principle of
piercing the veil of corporate fiction, and the resulting
treatment of two related corporations as one and the same
juridical person with respect to a given transaction, is
basically applied only to determine established liability; it is
not available to confer on the court a jurisdiction it has not
acquired, in the first place, over a party not impleaded in a
case. Elsewise put, a corporation not impleaded in a suit
cannot be subject to the court’s process of piercing the veil of
its corporate fiction. In that situation, the court has not
acquired jurisdiction over the corporation and, hence, any
proceedings taken against that corporation and its property
would infringe on its right to due process.
Same; Same; Motions; Generally, a motion is appropriate
only in the absence of remedies by regular pleadings, and is
not available to settle important questions of law, or to
dispose of the merits of the case.—The issue of jurisdiction or
the lack of it over KIC has already been discussed. Anent the
matter of the time and manner of raising the principle in
question, it is undisputed that no full-blown trial involving
KIC was had when the RTC disregarded the corporate veil of
KIC. The reason for this actuality is simple and undisputed:
KIC was not impleaded in Civil Case No. 99-93173 and that
the RTC did not acquire jurisdiction over it. It was dragged
to the case after it reacted to the improper execution of its
properties and veritably hauled to court, not thru the usual
process of service of summons, but by mere motion of a party
with whom it has no privity of contract and after the decision
in the main case had already become final and executory. As
to the propriety of a plea for the application of the principle
by mere motion, the following excerpts are
instructive: Generally, a motion is appropriate only in
the absence of remedies by regular pleadings, and is
not available to settle important questions of law, or
to dispose of the merits of the case. A motion is
usually a proceeding incidental to an action, but it may
be a wholly distinct or independent proceeding. A motion in
this sense is not within this discussion even though the relief
demanded is denominated an “order.” A motion generally
relates to procedure and is often resorted to in order to
correct errors which have crept in along the line of the
principal action’s progress. Generally, where there is a
procedural defect in a proceeding and no method under
statute or rule of court by which it may be called to the
attention of the court, a motion is an appropriate remedy. In
many jurisdictions, the motion has replaced the common-law
pleas testing the sufficiency of the pleadings, and various
common-law writs, such as writ of error coram nobis and
audita querela. In some cases, a motion may be one of
several remedies available. For example, in some
jurisdictions, a motion to vacate an order is a remedy
alternative to an appeal therefrom. Statutes governing
motions are given a liberal construction. (Emphasis
supplied.)
Same; Same; Same; Where the motion to pierce the veil of
corporate fiction states a new cause of action, i.e., for the
liability of defendant corporation to be borne by another
entity on the alleged identity of the two corporations, such
new cause of action should be properly ventilated in another
complaint and subsequent trial where the doctrine of piercing
the corporate veil can, if appropriate, be applied, based on the
evidence adduced—the matter could hardly be the subject,
under the premises, of a mere motion interposed after the
principal action against the defendant corporation alone had
peremptorily been terminated.—Morales espouses the
application of the principle of piercing the corporate veil to
hold KIC liable on theory that Kukan, Inc. was out to
defraud him through the use of the separate and distinct
personality of another corporation, KIC. In net effect,
Morales’ adverted motion to pierce the veil of corporate
fiction dated January 3, 2007 stated a new cause of
action, i.e., for the liability of judgment debtor Kukan, Inc. to
be borne by KIC on the alleged identity of the two
corporations. This new cause of action should be properly
ventilated in another complaint and subsequent trial where
the doctrine of piercing the corporate veil can, if appropriate,
be applied, based on the evidence adduced. Establishing the
claim of Morales and the corresponding liability of KIC for
Kukan Inc.’s indebtedness could hardly be the subject, under
the premises, of a mere motion interposed after the principal
action against Kukan, Inc. alone had peremptorily been
terminated. After all, a complaint is one where the plaintiff
alleges causes of action.
Same; Same; To justify the piercing of the veil of corporate
fiction, it must be 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.—In
fine, to justify the piercing of the veil of corporate fiction, it
8|Page

must be shown by clear and convincing proof that the factor to be constitutive of corporate identity.—The
separate and distinct personality of the corporation was suggestion that KIC is but a continuation and successor of
purposefully employed to evade a legitimate and binding Kukan, Inc., owned and controlled as they are by the same
commitment and perpetuate a fraud or like wrongdoings. To stockholders, stands without factual basis. It is true that
be sure, the Court has, on numerous occasions, applied the Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the
principle where a corporation is dissolved and its assets are outstanding capital stock of both corporations. But such
transferred to another to avoid a financial liability of the circumstance, standing alone, is insufficient to establish
first corporation with the result that the second corporation identity. There must be at least a substantial identity of
should be considered a continuation and successor of the first stockholders for both corporations in order to consider this
entity. factor to be constitutive of corporate identity.
Same; Same; Mere ownership by a single stockholder or by Same; Same; Piercing the veil of corporate fiction is
another corporation of a substantial block of shares of a frowned upon.—It bears reiterating that piercing the veil of
corporation does not, standing alone, provide sufficient corporate fiction is frowned upon. Accordingly, those who
justification for disregarding the separate corporate seek to pierce the veil must clearly establish that the
personality.—As is apparent from its disquisition, the RTC separate and distinct personalities of the corporations are set
brushed aside the separate corporate existence of Kukan, up to justify a wrong, protect fraud, or perpetrate a
Inc. and KIC on the main argument that Michael Chan owns deception. In the concrete and on the assumption that the
40% of the common shares of both corporations, obviously RTC has validly acquired jurisdiction over the party
oblivious that overlapping stock ownership is a common concerned, Morales ought to have proved by convincing
business phenomenon. It must be remembered, however, evidence that Kukan, Inc. was collapsed and thereafter KIC
that KIC’s properties were the ones seized upon levy on purposely formed and operated to defraud him. Morales has
execution and not that of Kukan, Inc. or of Michael Chan for not to us discharged his burden.
that matter. Mere ownership by a single stockholder or by
another corporation of a substantial block of shares of a
corporation does not, standing alone, provide sufficient
justification for disregarding the separate corporate
personality. For this ground to hold sway in this case, there
must be proof that Chan had control or complete dominion of
Kukan and KIC’s finances, policies, and business practices;
he used such control to commit fraud; and the control was
the proximate cause of the financial loss complained of by
Morales. The absence of any of the elements prevents the
piercing of the corporate veil. And indeed, the records do not
show the presence of these elements.
Same; Same; Words and Phrases; Paid-up capital is
merely seed money to start a corporation or a business entity;
Paid-up capitalization of PhP 5,000 is not and should not be
taken as a reflection of the firm’s capacity to meet its
recurrent and long-term obligations—the equity portion
cannot be equated to the viability of a business concern, for
the best test is the working capital which consists of the liquid
assets of a given business relating to the nature of the
business concern.—The fact that Kukan, Inc. entered into a
PhP 3.3 million contract when it only had a paid-up capital
of PhP 5,000 is not an indication of the intent on the part of
its management to defraud creditors. Paid-up capital is
merely seed money to start a corporation or a business
entity. As in this case, it merely represented the
capitalization upon incorporation in 1997 of Kukan, Inc.
Paid-up capitalization of PhP 5,000 is not and should not be
taken as a reflection of the firm’s capacity to meet its
recurrent and long-term obligations. It must be borne in
mind that the equity portion cannot be equated to the
viability of a business concern, for the best test is the
working capital which consists of the liquid assets of a given
business relating to the nature of the business concern.
Same; Same; The circumstance that a single stockholder
owns 40% of the outstanding capital stock of two
corporations, standing alone, is insufficient to establish
identity—there must be at least a substantial identity of
stockholders for both corporations in order to consider this