1

MALAO, CLARRENCE KATE

TOMAS, JANNELLE KYLE

SCENARIO D

FACTS:

Alpha is the judgment creditor of Wal Apera and the judgment is for execution.
Wal Apera is the judgment debtor of Alpha with no money or assets to pay off its
obligation contained in the judgment. M-ore Corp. is 99% owned by Wal Apera, and 1%
owned by his wife. It is incorporated prior to the issuance of the judgment in favor of
Alpha.

ISSUE:

WHETHER OR NOT THE CORPORATE VEIL MAY BE PIERCED TO PAY THE

OBLIGATION OF WAL PERA CORPORATION TO ALPHA.

PLAINTIFF

Yes. Piercing is applicable in this case.

The Court held in Lanuza, Jr. v. BF Corporation (cited in I/AME vs. Litton and Co.,
INC.), that Piercing the corporate veil is warranted when "the separate personality of a
corporation is used as a means to perpetrate fraud or an illegal act, or as a vehicle for
the evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues." It is also warranted in 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."

In this case Wal Apera had an obligation to pay Alpha, despite that he elected to for
incorporation of the M-Ore Corporation. As a matter of fact, it was incorporated prior to
the issuance of the judgement in favor of Alpha. This means the corporation was used
as a vehicle to evade the obligation to Alpha, for Wal Apera had the means and
opportunity to satisfy the obligation. Yet he did not, instead he incorporated his assets
into M-Ore Corporation to the detriment of Alpha.
 2
MALAO, CLARRENCE KATE
TOMAS, JANNELLE KYLE

Moreover, 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. This Court has pierced the corporate veil to
ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of
the decedent, to escape liability arising from a debt.

DEFENDANT

A corporation is a juridical person distinct from the members composing it. Properties
registered in the name of the corporation are owned by it as an entity separate and
distinct from its members (Stockholders of Guanzon & Sons, Inc. vs. Register of Deeds
of Manila, G.R. No. L-18216, October 30, 1962).

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 (Asia's Emerging Dragon
Corporation, et al. vs. Department of Transportation And Communication, et al., G.R.
No. 169914 and G.R. No. 174166, March 24, 2008).

However, the doctrine of piercing the veil of corporate entity is used whenever a
court finds that the corporate fiction is being used to defeat public convenience, justify
wrong, protect fraud, or defend crime or confuse legitimate issues, or that 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 (I/AME vs. Litton and
Company, Inc., G.R. No. 191525, December 13, 2017).
 3
MALAO, CLARRENCE KATE
TOMAS, JANNELLE KYLE

In this case, the court cannot pierce the veil of separate corporate identity of M-
ore Corp to go after the properties of another separate person, Wal-Apera. M-ore Corp
is incorporated prior to the issuance of the judgment. Thus M-ore Corp has existed way
before judgment and it cannot be presumed that it was incorporated just to aid Wal-
Apera hide his properties to evade his current liabilities. In addition, whether the
separate personality of the corporation should be pierced hinges on obtaining facts
appropriately pleaded or proved. Also, to disregard the separate juridical personality of
a corporation, the wrongdoing must be established clearly and convincingly. It cannot
be presumed (Kukan International Corporation vs. Ho. Amor Reyes, et al., G.R. No.
182729, September 29, 2010). It neither proved nor pleaded that the incorporation of M-
ore Corp is used to defraud Alpha of his rights as the judgment creditor especially that it
is incorporated prior to the issuance of judgment. Thus, Wal Apera and M-ore Corp
enjoy their separate judicial personality.
 4
MALAO, CLARRENCE KATE
TOMAS, JANNELLE KYLE

DECISION

In this case before the Court, the Plaintiff argued that, the doctrine of piercing the
veil of corporate fiction must apply. Stating that Wal Apera had an obligation to pay
Alpha, despite that he elected to for incorporation of the M-Ore Corporation. That M-Ore
was incorporated prior to the issuance of the judgement in favor of Alpha. This means
the corporation was used as a vehicle to evade the obligation to Alpha, for Wal Apera
had the means and opportunity to satisfy the obligation. Yet he did not, instead he
incorporated his assets into M-Ore Corporation to the detriment of Alpha.

In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations

Commission, 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 justice1.

The Corporation is the Alter Ego of a Natural Person as cited in the case of Sula
ng Bayan, Inc. v. Araneta, Inc., 2 "the doctrine of alter ego is based upon the misuse of a
1
Kukan International Corporation vs. Hon. Amor Reyes, G.R. No. 182729, September 29, 2010
2
164 Phil. 349, 359 (1976)
 5
MALAO, CLARRENCE KATE
TOMAS, JANNELLE KYLE

corporation by an individual for wrongful or inequitable purposes, and in such case the
court merely disregards the corporate entity and holds the individual responsible for acts
knowingly and intentionally done in the name of the corporation." 3

”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 4.”

It is true that a corporation enjoys a separate juridical personality from its

stockholders. However, the separate juridical entity may be disregarded when there is
abuse of the corporate form. M-Ore Corporation being the alter ego of Wal- Apera can
also be held answerable for the liabilities of its owner Wal-Apera who is the debtor of
Alpha. The veil of corporate fiction can be pierced or lifted when the corporation is used
to evade existing obligation. Wal-Apera, the debtor of Aplha with no Money or assets
but owned 99% of M-Ore Corporation diverted his assets to it and to use the corporation
to avoid or conceal liability from Alpha.

Furthermore, in the case of I/AMEA vs Litton 5, the concept of Reversed

Corporate Piercing was introduced by citing it in the U.S. Case, C.F. Trust, Inc., v. First
Flight Limited Partnership,6 "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." By applying the Reversed
3
International Academy of Management and Economics (I/AME) vs. Litton And Company, Inc., G.R. No. 191525,
December 13, 2017
4
Sarona vs. NLRC, G.R. No. 185280, January 18, 2012
5
Supra.
6
111 F. Supp. 20 734; 2000 U.S. Dist. LEXIS 13123, 13
 6
MALAO, CLARRENCE KATE
TOMAS, JANNELLE KYLE

Corporate Piercing, Wal-Apera the debtor with no money or assets but the majority
stockholder of M-Ore Corporation makes the corporation liable for the debt of majority
stockholder Wal-Apera.