UNION GLASS & CONTAINER CORPORATION and CARLOS PALANCA, JR., vs.

SEC and CAROLINA HOFILEÑA November 28, 1983

Facts; Hofileña, is a stockholder of Pioneer Glass w/c is engaged in the manufacture of

glassware. Pioneer Glass had obtained various loans from DBP. As security, Pioneer
Glass mortgaged its assets to the DBP. The proceeds were used in the construction of
a glass plant, and the operation of seven silica mining claims. Through the conversion
into equity of the accumulated unpaid interests, DBP was able to get three, regular
seats in the board of directors. In March, 1978, suffering from liquidity problems,
Pioneer Glass entered into a dacion en pago agreement with DBP. Part of the assets
transferred was the glass plant in Cavite, which DBP sold to Union Glass. On 1981,
Hofileña filed a complaint before SEC against the DBP, Union Glass and Pioneer Glass.
SEC Hearing Officer Reyes granted the motion to dismiss for lack of jurisdiction.
However, upon motion for reconsideration, Hearing Officer Reyes reversed his original
order by upholding the SEC's jurisdiction.

Issue; Whether or not SEC has jurisdiction over the case.

Ruling: None. Union Glass dropped from case w/o prejudice to a separate suit before a
regular court In the ordinary course of things, Union Glass, should be joined as party-
defendant under the general rule which requires the joinder of every party who has an
interest in or lien on the property subject matter of the dispute. Such joinder of parties
avoids multiplicity of suits.

But since petitioner Union Glass has no intra-corporate relation with either the
complainant or the DBP, its joinder as party-defendant brings the cause of action
asserted against it outside the jurisdiction of the respondent SEC. The jurisdiction of the
SEC is delineated by Section 5 of PD No. 902-A. In addition to the regulatory and
adjudicative function of the SEC over corporations, partnerships and other forms of
associations registered with it as expressly granted under existing laws and devices, it
shall have original and exclusive jurisdiction to hear and decide cases involving: a]
Devices and schemes employed by or any acts, of the board of directors, amounting to
fraud and misrepresentation b] Controversies arising out of intra-corporate or
partnership relations, c] Controversies in the election or appointments of directors,
trustees, officers or managers of such corporations, partnerships or associations.

SPOUSES JOSE ABEJO AND AURORA ABEJO, TELECTRONIC SYSTEMS, INC.,

vs. HON. RAFAEL DE LA CRUZ, JUDGE OF THE REGIONAL TRIAL COURT
(NATIONAL CAPITAL JUDICIAL REGION, BRANCH CLX-PASIG), SPOUSES
AGAPITO BRAGA AND VIRGINIA BRAGA, VIRGILIO BRAGA AND NORBERTO
BRAGA.

Facts; These two cases involve the question of who, between the Regional Trial Court
and the Securities and Exchange Commission (SEC), has original and exclusive
jurisdiction over the dispute between the principal stockholders of the corporation
Pocket Bell, a voice paging corporation," namely, the spouses Abejo and the purchaser,
Telectronic of their minority shareholdings registered in the name of Virginia Braga
covered by five stock certificates endorsed in blank and the spouses Braga erstwhile
majority stockholders. With the said purchases, Telectronics would become the majority
stockholder. Telectronics requested the corporate secretary Norberto Braga, to register
and transfer to its name. Norberto Braga, the corporate secretary and son of the
Bragas, refused asserting that the Bragas claim preemptive rights over the Abejo
shares and that Virginia Braga never transferred her shares to Telectronics but had lost
the five stock certificates. This triggered off the series of intertwined actions (both in
SEC & RTC), all centered on the question of jurisdiction over the dispute, which were to
culminate in the filing of the two cases at bar.

Issue; Whether or not SEC has jurisdiction

Ruling: Yes. The dispute at bar, is an intracorporate dispute that has arisen between
and among the principal stockholders of the corporation Pocket Bell due to the refusal
of the corporate secretary to perform his "ministerial duty" to record the transfers of the
corporation's controlling (56%) shares of stock, covered by duly endorsed certificates of
stock, in favor of Telectronics. Mandamus in the SEC was properly resorted to under
Rule XXI, Section 1 of the SEC's New Rules of Procedure, which provides for the filing
of such petitions with the SEC.

Section 3 of said Rules further authorizes the SEC to "issue orders expediting the
proceedings”. The complaint of the Bragas for annulment of the sales questions the
validity of the transfer and endorsement of the certificates of stock, claiming alleged pre-
emptive rights. Such dispute clearly involve's controversies "between and among
stockholders, " as to the Abejos' right to sell and dispose of their shares to Telectronics,
the validity of the latter's acquisition of Virginia Braga's shares, who between the Bragas
and the Abejos' transferee should be recognized as the controlling shareholders of the
corporation, with the right to elect the corporate officers and the management and
control of its operations. Such a dispute fall within the original and exclusive jurisdiction
of the SEC to decide, under Section 5 of P.D. 902-A.

Thus, the Corporation Code (B.P. No. 178) enacted on May 1, 1980 specifically vests
the SEC with the Rule-making power in the discharge of its task of implementing the
provisions of the Code and particularly charges it with the duty of preventing fraud and
abuses on the part of controlling stockholders, directors and officers.

ALMA MAGALAD vs. PREMIERE FINANCING CORP.

Facts; This is an appeal from the decision of the RTC ordering appellant Premiere
Financing to pay appellee Magalad P50,000.00, the principal obligation, plus interest
and damages. Premiere is engaged in soliciting and accepting money market
placements or deposits. On September 1983 with expired permit to issue commercial
papers and with intention to defraud its creditors, Premiere misled Magalad into making
a money market placement of P50,000.00 at 22% interest per annum. Aside from the
receipt, Premier likewise issued two PDCs in the total sum of P51,079.00 and assigned
to Magalad its receivable from a certain Saman for the same amount. When the said
checks were presented for payment, the drawee bank dishonored the checks for lack of
sufficient funds. Premiere, for no valid reason, failed and refused to honor such
Magalad’s demands. On January 1984, Magalad filed a complaint for damages.
Premiere filed a motion for reconsideration alleging that the Securities and Exchange
Commission (SEC) has exclusive and original jurisdiction over a corporation under a
state of suspension of payments.

Issue; Whether or not SEC has jurisdiction

Ruling; Yes, reversed Magalad's complaint alleges acts amounting to fraud committed
by Premiere, the SEC must be held to retain its original and exclusive jurisdiction over
the case, despite the fact that the suit involves collection of sums of money paid to said
corporation, the recovery of which would ordinarily fall within the jurisdiction of regular
courts. The fraud committed is detrimental to the interest of the public and, therefore,
encompasses a category of relationship within the SEC jurisdiction. The devices or
schemes amounting to fraud and misrepresentation detrimental to the interest of the
public have been resorted to by Premiere Corporation. It cannot but be conceded,
therefore, that the SEC may exercise its adjudicative powers pursuant to Sec. 5(a) of
Pres. Decree No. 902-A. The fact that Premiere's authority to engage in financing
already expired will not have the effect of divesting the SEC of its original and exclusive
jurisdiction. The expanded jurisdiction of the SEC was conceived primarily to protect
them interest of the investing public. That Magalad's money placements were in the
nature of investments in Premiere cannot be gain said. Magalad had reasonably
expected to receive returns from moneys she had paid to Premiere.

THE COLLECTOR OF INTERNAL REVENUE vs. THE CLUB FILIPINO, INC. DE

CEBU

Facts; "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation with an
original authorized capital stock. Neither in the articles or by-laws is there a provision
relative to dividends although it is covenanted that upon its dissolution, the Club's
remaining assets, after paying debts, shall be donated to a charitable Philippine
Institution in Cebu. The Club owns and operates a club house, a bowling alley, a golf
course, and a bar-restaurant. The bar-restaurant was a necessary incident to the
operation of the club and its golf-course. The club is operated mainly with funds derived
from membership fees and dues. Whatever profits it had, were used to defray its
overhead expenses and to improve its golf-course. In 1951. As a result of a capital
surplus, arising from the re-valuation of its real properties, the value or price of which
increased, the Club declared stock dividends; but no actual cash dividends were
distributed to the stockholders. In 1952, a BIR agent discovered that the Club has never
paid percentage tax on the gross receipts of its bar and restaurant. In December 1952,
the Collector of Internal Revenue assessed against the Club.

Issues; Whether or not Club is liable for percentage taxes prescribed in sections 182,
183 and 191 of the Tax Code
Ruling: No. It has been held that the liability for fixed and percentage taxes, as provided
by these sections, does not ipso facto attach by mere reason of the operation of a bar
and restaurant. For the liability to attach, the operator thereof must be engaged in the
business as a barkeeper and restaurateur. The plain and ordinary meaning of business
is restricted to activities or affairs where profit is the purpose or livelihood is the motive,
and the term business when used without qualification, should be construed in its plain
and ordinary meaning, restricted to activities for profit or livelihood. The Club was
organized to develop and cultivate sports of all class and denomination, for the healthful
recreation and entertainment of its stockholders and members;. The Club derived profit
from the operation of its bar and restaurant, but such fact does not necessarily convert it
into a profit-making enterprise. The bar and restaurant are necessary adjuncts of the
Club to foster its purposes and the profits derived therefrom are necessarily incidental to
the primary object. That a Club makes some profit, does not make it a profit-making
Club. As has been remarked a club should always strive, whenever possible, to have
surplus

The facts that the capital stock of the respondent Club is divided into shares, does not
detract from the finding of the trial court that it is not engaged in the business of
operator of bar and restaurant. What is determinative of whether or not the Club is
engaged in such business is its object or purpose, as stated in its articles and by-laws.
The actual purpose is not controlled by the corporate form or by the commercial aspect
of the business prosecuted, but may be shown by extrinsic evidence, including the by-
laws and the method of operation. Strictly speaking, it cannot, therefore, be considered
a stock corporation.

MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND

NEPOMUCENO REDOVAN, vs. THE HONORABLE COURT OF APPEALS,
EDGARDO D. PABALAN, MANUEL A. TORRES, JR., MARIA THERESA V. VELOSO
and CASTRENSE C. VELOSO

Facts; Dulay Enterprises, Inc, a domestic corporation. Manuel Dulay by virtue of Board
Resolution sold the subject property to spouses Veloso. Subsequently, Manuel Dulay
and spouses Veloso executed a Memorandum to the Deed of Absolute Sale giving
Manuel Dulay within (2) years or until December 9, 1979 to repurchase the subject
property. On December 24, 1976, Veloso, without the knowledge of Manuel Dulay,
mortgaged the subject property to Manuel A. Torres for a loan of P250,000.00 which
was duly annotated. Upon the failure of private respondent Maria Veloso to pay, the
subject property was sold to private respondent Torres as the highest bidder in an
extrajudicial foreclosure sale. On July 20, 1978, Veloso executed a Deed of Absolute
Assignment of the Right to Redeem in favor of Dulay assigning her right to repurchase
from Torres as a result of the extra sale held on April 25, 1978. As neither Veloso nor
Dulay was able to redeem, Torres filed an Affidavit of Consolidation of Ownership.
Torres filed an action against petitioner corporation, Virgilio Dulay and Nepomuceno
Redovan, a tenant for the recovery of possession. The trial court rendered a decision in
favor of private respondents w/c the CA affirmed.
Issue; Whether or not sale binding against the corporation Dulay Inc

Ruling: Yes. Petitioners contend that the court erred when it applied the doctrine of
piercing the veil of corporate entity considering that the sale has no binding effect on
petitioner corporation as Board Resolution No. 18 was resolved without the approval of
all the members of the board and Resolution was not prepared by its secretary.

Section 101 of the Corporation Code of the Philippines provides: “When board meeting
is unnecessary or improperly held. Unless the by-laws provide otherwise, any action by
the directors of a close corporation without a meeting shall nevertheless be deemed
valid. If a directors' meeting is held without call or notice, an action taken therein within
the corporate powers is deemed ratified by a director who failed to attend, unless he
promptly files his written objection with the secretary of the corporation after having
knowledge thereof.

Petitioner corporation is classified as a close corporation and consequently a board

resolution authorizing the sale is not necessary to bind the corporation for the action of
its president. Corporate action taken at a board meeting without proper call or notice in
a close corporation is deemed ratified by the absent director unless the latter promptly
files his written objection with the secretary of the corporation after having knowledge of
the meeting which, in his case, petitioner Virgilio Dulay failed to do. Although a
corporation is an entity which has a personality distinct and separate from its individual
stockholders or members, the veil of corporate fiction may be pierced when it is used to
defeat public convenience justify wrong, protect fraud or defend crime. Petitioners' claim
that the sale is null and void as the alleged Board Resolution No. 18 was passed
without the knowledge and consent of the other members cannot be sustained. The
corporation was a closed family corporation and the only non-relative in the board of
directors was Atty. Plaridel C. Jose who appeared on paper as the secretary. …It
cannot be concealed that Manuel R. Dulay as president, treasurer and general manager
almost had absolute control over the business and affairs of the corporation.

NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC. vs. PHILIPPINE

VETERANS BANK, THE EX-OFFICIO SHERIFF and GODOFREDO QUILING

Facts; This case involves the constitutionality of Pres. Decree No. 1717, which ordered
the rehabilitation of the Agrix Group of Companies to be administered mainly by the
National Development Company. The law outlined the procedure for filing claims
against the Agrix companies and created a Claims Committee. The AGRIX had
executed in favor of Philippine Veterans Bank a real estate mortgage dated July 7,
1978, over three (3) parcels of land situated in Laguna. During the existence of the
mortgage, AGRIX went bankrupt. It was for the expressed purpose of salvaging this and
the other Agrix companies that the aforementioned decree was issued by Marcos. The
private respondent filed a claim with the AGRIX Claims Committee. The New Agrix, Inc.
and the National Development Company, invoking Sec. 4 (1) of the decree, filed a
petition with the Regional Trial Court for the cancellation of the mortgage lien. Private
respondent took steps to extrajudicially foreclose the mortgage. The petitioners contend
that the private respondent is now estopped.

Issue; Whether or not PD 1717 constitutional

Ruling: It is unconstitutional. The Court does not agree that the principle of estoppel is
applicable. Private respondent did file a claim with the AGRIX Claims Committee. It
must be noted, however, that this was done in 1980, when President Marcos was the
absolute ruler of this country. Any judicial challenge to them would have been futile.
This case must be distinguished from Mendoza, where the petitioners, received in
settlement thereof shares of stock valued at P40,000.00 without protest. The private
respondent has not been paid a single centavo on its claim.

In defending the decree, the petitioners argue that property rights, are subject to
regulation under the police power. The police power is not a panacea for all
constitutional maladies. Neither does its mere invocation conjure an instant and
automatic justification for every act of the government depriving a person of his life,
liberty or property. The Court finds first of all that the interests of the public are not
sufficiently involved to warrant the interference of the government with the private
contracts of AGRIX.

The new corporation is neither owned nor controlled by the government. The National
Development Corporation was merely required to extend a loan of not more than
P10,000,000.00 to New Agrix, Inc. New Agrix, Inc. is entirely private and so should have
been organized under the Corporation Law in accordance with the above-cited
constitutional provision. The Court also feels that the decree impairs the obligation of
the contract between AGRIX and the private respondent without justification. While it is
true that the police power is superior to the impairment clause, the principle will apply
only where the contract is so related to the public welfare that it will be considered
congenitally susceptible to change by the legislature in the interest of the greater
number.

PIONEER INSURANCE & SURETY CORPORATION vs. THE HON. COURT OF

APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO),
CONSTANCIO M. MAGLANA and JACOB S. LIM

Facts: In 1965, Jacob S. Lim was engaged in the airline business as owner-operator of
Southern Air Lines (SAL) a single proprietorship. On May 1965, at Tokyo, Japan, Japan
Domestic Airlines (JDA) and Lim entered into a sales contract for the sale and of two
(aircrafts and one (1) set of necessary spare parts in installments. On May 1965,
Pioneer Insurance and Surety Corporation) acted as surety in favor of JDA, in behalf of
Lim, for the balance price. Bormaheco Inc), Francisco and Modesto Cervantes and
Constancio Maglana contributed some funds used in the purchase. The funds were
supposed to be their contributions to a new corporation proposed by Lim. They
executed two (2) separate indemnity agreements in favor of Pioneer. On June 1965,
Lim executed in favor of Pioneer as deed of chattel mortgage as security for the latter's
suretyship in favor of the former. It was stipulated therein that Lim transfer and convey
to the surety the two aircrafts. The deed was duly registered. Lim defaulted prompting
JDA to request payments from the surety. The Cervanteses and Maglana, however,
filed a third party claim alleging that they are co-owners . After trial on the merits, the
appellate court, upon petition, modified the trial court's decision in that the plaintiffs
complaint against all the defendants was dismissed.

Issues: Whether or not Pioneer has COA against defendants and WON Pioneer has a
claim based on the indemnity agreement

Ruling: No. It is clear from the records that Pioneer sued in its own name and not as an
attorney-in-fact of the reinsurer. Accordingly, the appellate court did not commit a
reversible error in dismissing the petitioner's complaint as against the respondents for
the reason that the petitioner was not the real party in interest in the complaint and,
therefore, has no cause of action against the respondents. SAL or Lim, having failed to
pay the second to the eight and last installments to JDA and Pioneer as surety having
made of the payments to JDA,

While it has been held that as between themselves the rights of the stockholders in a
defectively incorporated association should be governed by the supposed charter and
the laws of the state relating thereto and not by the rules governing partners, it is
ordinarily held that persons who attempt, but fail, to form a corporation and who carry on
business under the corporate name occupy the position of partners inter se.. However,
such a relation does not necessarily exist, for ordinarily persons cannot be made to
assume the relation of partners, as between themselves, when their purpose is that no
partnership shall exist, and it should be implied only when necessary to do justice
between the parties; thus, one who takes no part except to subscribe for stock in a
proposed corporation which is never legally formed does not become a partner with
other subscribers who engage in business under the name of the pretended
corporation, so as to be liable as such in an action for settlement of the alleged
partnership and contribution.

PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS

INDUSTRIAL DEVELOPMENT, INC. vs. COURT OF APPEALS, SECURITIES &
EXCHANGE COMMISSION and STANDARD PHILIPS CORPORATION

Facts; Philips Export, a foreign corporation organized in Netherlands, although not

engaged in business here. Philips Electrical and Philips Industrial are authorized users
of the trademarks and were incorporated in 1956. On September 1984, Petitioners filed
a complaint with the SEC asking for the cancellation of the word "PHILIPS" from Private
Respondent's corporate name. Private Respondent countered that Petitioner PEBV has
no legal capacity to sue; that its use of its corporate name is not at all similar to
Petitioners' trademark PHILIPS when considered in its entirety; and that its products
consisting of chain rollers, belts, bearings and cutting saw are grossly different from
Petitioners' electrical products. The Hearing Officer dismissed the Petition for lack of
merit.
Issue; Whether or not “Philips” should be removed

Ruling: Yes. A corporation's right to use its corporate and trade name is a property
right, a right in rem, which it may assert and protect against the world. It cannot be
impaired or defeated by subsequent appropriation by another corporation in the same
field. The general rule as to corporations is that each corporation must have a name by
which it is to sue and be sued and do all legal acts. The name of a corporation
designates the corporation in the same manner as the name of an individual designates
the person.

A corporation acquires its name by choice and need not select a name identical with or
similar to one already appropriated by a senior corporation while an individual's name is
thrust upon him. Our own Corporation Code, in its Section 18, expressly provides that:
No corporate name may be allowed by the Securities and Exchange Commission if the
proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing law…

Private respondent's choice of "PHILIPS" as part of its corporate name tends to show
said respondent's intention to ride on the popularity and established goodwill of said
petitioner's business throughout the world". The SEC maintains that the corporate
names of Petitioners contain at least two words different which words will readily identify
Private Respondent from Petitioners and vice-versa. As a general rule, parties
organizing a corporation must choose a name at their peril; and the use of a name
similar to one adopted by another corporation, if misleading and likely to injure it in the
exercise in its corporate functions, regardless of intent, may be prevented by the
corporation having the prior right, by a suit for injunction against the new corporation to
prevent the use of the name

LYCEUM OF THE PHILIPPINES, INC. vs. COURT OF APPEALS, et al.

Facts; Petitioner is an educational institution registered with the SEC on September

1950. On February 1984, petitioner instituted proceedings before the SEC to compel the
private respondents, which are also educational institutions, to delete the word
"Lyceum" from their corporate names. The SEC held that the corporate names were
substantially identical. The SEC ordered the latter to change its name. The Lyceum of
Baguio, Inc. assailed the Order of the SEC before the Supreme Court w/c was denied in
1977. Armed with this Resolution, petitioner wrote all the educational institutions it could
find using the word "Lyceum" as part of their corporate name, and advised them to
discontinue such use. Soon, petitioner filed a complaint before the SEC.

Issue; Whether or not “Lyceum” should be removed

Ruling: No. The Articles of Incorporation must set out the name of the corporation.
Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate
names are concerned. The policy underlying the prohibition in Section 18 is the
avoidance of fraud upon the public which would have occasion to deal with the entity
concerned, the evasion of legal obligations and duties, and the reduction of difficulties of
administration and supervision over corporations.

We do not consider that the corporate names of private respondent institutions are
"identical with, or deceptively or confusingly similar". Confusion and deception are
effectively precluded by the appending of geographic names. Since "Lyceum" or "Liceo"
denotes a school or institution of learning, it is not unnatural to use this word to
designate an entity which is organized and operating as an educational institution.

It may be noted also that at least one of the private respondents, i.e., the Western
Pangasinan Lyceum, Inc., used the term "Lyceum" seventeen (17) years before the
petitioner registered its own corporate name . It follows that if any institution had
acquired an exclusive right to the word "Lyceum," that institution would have been the
Western Pangasinan Lyceum, Inc. rather than the petitioner institution. We refer to this
earlier registration simply to underscore the fact that petitioner's use of the word
"Lyceum" was neither the first use of that term in the Philippines nor an exclusive use
thereof.

P.C. JAVIER & SONS, INC., SPS. PABLO C. JAVIER, SR. and ROSALINA F.
JAVIER vs. HON. COURT OF APPEALS, PAIC SAVINGS & MORTGAGE BANK,
INC., SHERIFFS GRACE BELVIS, SOFRONIO VILLARIN, PIO MARTINEZ and
NICANOR BLANCO

Facts: In 1981, P.C. Javier Inc applied with First Summa Savings and Mortgage Bank,
later on renamed as PAIC Savings, for a loan for P1.5 Million. The central bank
released the loan to Defendant Bank in two (2) tranches of P750,000 each. The first
tranche was released to the Plaintiff Corporation on May 1981 and the second tranche
on November 1981. From the second tranche release, the amount of P250,000.00 was
deducted. Plaintiffs claim that the loan releases were delayed; that Plaintiffs were never
allowed to withdraw the proceeds of the time deposit because Defendant Bank intended
this time deposit as automatic payments on the accrued principal and interest due.
Defendant Bank, claims that only the final proceeds of the loan was delayed but this
was because of the shortfall in the collateral cover of Plaintiff’s loan; this second tranche
of the loan was released after a commitment by Plaintiff Corporation to cover the
collateral deficiency through the opening of a time deposit using a portion of the loan.
When Plaintiffs failed to pay, Defendant Bank initiated extrajudicial foreclosure of the
real estate mortgage. The RTC declared that First Summa Savings and Mortgage Bank
and PAIC Savings and Mortgage Bank, Inc. are one and the same entity and that
petitioner corporation is liable to respondent bank for the unpaid balance of its loans.

Issue: Whether or not petitioner liable to defense

Ruling: Yes. Petitioners argue that they are legally justified to withhold their amortized
payments until such time they would have been properly notified of the change in the
corporate name.

Their defense that they should first be formally notified presupposes that there exists a
requirement ordering a bank that changes its corporate name to formally notify all its
debtors. There is no such requirement. Moreover evidence abound that they had notice
or knowledge thereof. Knowing fully well of such change, petitioner corporation has no
valid reason not to pay. A change in the corporate name does not make a new
corporation, whether effected by a special act or under a general law. It has no effect on
the identity of the corporation, or on its property, rights, or liabilities.

Petitioners maintain that to collect the P250,000.00 from them would be a clear case of
unjust enrichment because they have not availed or used said amount for the same was
unlawfully withheld from them. There is no unjust enrichment to speak of. Petitioners
argue that there being no malice or bad faith on their part when they filed the instant
case, no damages should have been awarded to respondent bank. We cannot sustain
such argument. The presence of malice or bad faith is very evident. Petitioner
corporation was well aware that First Summa Savings changed its corporate name.
Despite this knowledge, it pretended otherwise. If it were in good faith, it should have
made a valid consignation in court.

THE MUNICIPALITY OF MALABANG, LANAO DEL SUR and AMER MACAORAO

BALINDONG vs. PANGANDAPUN BENITO, HADJI NORODIN MACAPUNUNG,
HADJI HASAN MACARAMPAD, FREDERICK V. DUJERTE, MONDACO ONTAL,
MARONSONG ANDOY, MACALABA INDAR LAO,

Facts; The petitioner Balindong is the mayor of Malabang, Lanao del Sur, while
respondent Bonito is the mayor, and the rest councilors, of Balabagan of the same
province. Balabagan was formerly a part of the municipality of Malabang, having been
created on March 1960, by EO386 of then President Carlos Garcia. The respondents
argue that the rule announced in Pelaez can have no application in this case because
unlike the municipalities involved in Pelaez, the municipality of Balabagan is a de facto
corporation, having been organized under color of a statute before this was declared
void, and the municipality having discharged its corporate functions for the past five
years. As a de facto corporation, its existence cannot be collaterally attacked, although
it may be inquired into directly in an action for quo warranto at the instance of the State
and not of an individual like Balindong.

Issue; Whether or not Balabagan is de facto corporation

Ruling: No. Generally, an inquiry into the legal existence of a municipality is reserved to
the State in a proceeding for quo warranto or other direct proceeding. But the rule
disallowing collateral attacks applies only where the municipal corporation is at least a
de facto corporation. Where it is neither de jure nor de facto, but a nullity, its existence
may be questioned collaterally in any action by any one whose rights are affected
unless they are estopped. Whether a statute can lend color of validity to an attempted
organization of a municipality despite the fact that such statute is subsequently declared
unconstitutional.

Hence, in the case at bar, the mere fact that Balabagan was organized at a time when
the statute had not been invalidated cannot conceivably make it a de facto corporation,
as, independently of the Administrative Code provision in question, there is no other
valid statute to give color of authority to its creation. An unconstitutional act is not a law;
it confers no rights; it imposes no duties; it affords no protection; it creates no office; it
is, in legal contemplation, as inoperative as though it had never been passed."
Executive Order 386 "created no office." This is not to say, that the acts done by the
municipality of Balabagan in the exercise of its corporate powers are a nullity." There is
then no basis for the respondents' apprehension that the invalidation of the executive
order creating Balabagan would have the effect of unsettling many an act done in
reliance upon the validity of the creation of that municipality. EO386 is declared void,
and the respondents are hereby permanently restrained from performing the duties and
functions of their respective offices.

C. ARNOLD HALL and BRADLEY P. HALL vs. EDMUNDO S. PICCIO, Judge of the
Court of First Instance of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA
CAPUCIONG

Facts; On May 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the
respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella,
signed in Leyte, the article of incorporation of the Far Eastern Lumber organized to
engage in a general lumber business. Attached to the article was an affidavit of the
treasurer stating that 23,428 shares of stock had been subscribed and fully paid with
certain properties. After the execution of said articles of incorporation, the corporation
proceeded to do business with the adoption of bylaws and the election of its officers. On
December 1947, the articles were filed in the SEC. Pending action on the articles,
respondents filed the civil case alleging that the Far Eastern Lumber was an
unregistered partnership; that they wished to have it dissolved because of dissension
among the members, mismanagement, fraud and heavy financial losses. After hearing,
Hon. Piccio ordered the dissolution. Whereupon, the present special civil action was
instituted. They allege that the court had no jurisdiction in civil case.

Issue; Whether or not CFI has jurisdiction and whether or not Far East is a de facto
corporation

Ruling: Section 19 reads as follows: “The due incorporation of any corporations

claiming in good faith to be a corporation under this Act and its right to exercise
corporate powers shall not be inquired into collaterally in any private suit to which the
corporation may be a party, but such inquiry may be had at the suit of the Insular
Government on information of the Attorney-General”.

There are two reasons why this section does not govern. Not having obtained the
certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its
stockholders — may not probably claim "in good faith" to be a corporation. Under our
statue it is the issuance of a certificate of incorporation which calls a corporation into
being. The immunity if collateral attack is granted to corporations "claiming in good faith
to be a corporation under this act." Such a claim is compatible with the existence of
errors and irregularities; but not with a total or substantial disregard of the law. Unless
there has been an evident attempt to comply with the law the claim to be a corporation
"under this act" could not be made "in good faith." Second, this is not a suit in which the
corporation is a party. This is a litigation between stockholders of the alleged
corporation, for the purpose of obtaining its dissolution.

ASIA BANKING CORPORATION vs. STANDARD PRODUCTS CO., INC

Facts; This action is to recover the sum of P24,736.47, the balance due on the a
promissory note: “…we promise to pay to the Asia Banking Corporation, or order, the
sum of thirty-seven thousand seven hundred fifty-seven and 22/100 pesos…” The court
favored plaintiff. At the trial, plaintiff failed to prove the corporate existence of the parties
and the appellant insists that under these circumstances the court erred in finding that
the parties were corporations with juridical personality.

Issue: Whether or not parties may sue / be sued

Ruling: Yes. The general rule is that in the absence of fraud, a person who has
contracted or otherwise dealt with an association in such a way as to recognize and in
effect admit its legal existence as a corporate body is thereby estopped to deny its
corporate existence in any action leading out of or involving such contract or dealing,
unless its existence is attacked for cause which have arisen since making the contract
or other dealing relied on as an estoppel and this applies to foreign as well as to
domestic corporations. The defendant having recognized the corporate existence of the
plaintiff by making a promissory note in its favor and making partial payments on the
same is therefore estopped to deny said plaintiff's corporate existence. It is also
estopped from denying its own corporate existence. It is unnecessary for the plaintiff to
present evidence of the corporate existence of either.

MANUELA T. VDA. DE SALVATIERRA, vs. HON. LORENZO C. GARLITOS, and

SEGUNDINO REFUERZO

Facts; Salvatierra owns a parcel of land located in Leyte. On March 1954, she entered
into a 10 year lease with the Philippine Fibers Producers Co., Inc., represented by
Refuerzo, the President". The land would be planted to kenaf, ramie or other crops; that
the lessor would be entitled to 30 per cent of the net income; and that after every
harvest, the lessee was to declare at the earliest possible time the income and to deliver
the corresponding share due the lessor. The obligations imposed were not complied
hence Salvatierra filed with the CFI a complaint against the Philippine Fibers Producers
Co., Inc., and Refuerzo, for accounting, rescission and damages. The lower Court
rendered judgment granting plaintiff's prayer. On January 1956, Refuerzo filed a motion
claiming that the decision was null with respect to him, there being no allegation in the
complaint pointing to his personal liability and thus prayed that an order be issued
limiting such liability to defendant corporation.

Issue; Whether or not Refuerzo liable.

Ruling: Yes. Rule 38 of the Rules of Court. Section 3 of said Rule provides for the
period within which such a motion may be filed, prescribes that:

SEC. 3.WHEN PETITION FILED; CONTENTS AND VERIFICATION. — A petition

…must be verified, filed within sixty days after the petitioner learns of the judgment,
order, or other proceeding to be set aside, and not more than six months after such
judgment or order was entered, or such proceeding was taken; …

As the decision in the case at bar was date of June 8, 1955, whereas the motion was
dated January 31, 1956, or after the lapse of 7 months and 23 days, the filing of the
motion was beyond the prescriptive period. The remedy allowed by Rule 38 to a party
adversely affected by a decision is certainly an alert of grace or benevolence intended
to afford said litigant a penultimate opportunity to protect his interest.

Refuerzo interposed the defense that the complaint contained no allegation which would
hold him liable personally. While as a general rule a person who has contracted or dealt
with an association in such a way as to recognize its existence as a corporate body is
estopped from denying the same in an action arising out of such transaction or dealing,
yet this doctrine may not be held to be applicable where fraud takes a part in the said
transaction. But this rule is understood to refer merely to registered corporations and
cannot be made applicable to the liability of members of an unincorporated association.
The reason behind this doctrine is obvious-since an organization which before the law is
non-existent has no personality and would be incompetent to act and appropriate for
itself the powers and attribute of a corporation as provided by law.

REYNALDO M. LOZANO vs. HON. ELIEZER R. DE LOS SANTOS, Presiding Judge,

RTC, Br. 58, Angeles City; and ANTONIO ANDA

Facts: In August 1995, petitioner and private respondent agreed to consolidate their
respective associations and form the Unified Mabalacat-Angeles Jeepney Operators'
and Drivers Association, Inc. (UMAJODA); they also agreed to elect one set of officers
who shall be given the sole authority to collect the daily dues; elections were held on
October 1995 and both ran for president; petitioner won private respondent protested
and, alleging fraud, refused to recognize the results of the election; private respondent
also refused to abide by their agreement and continued collecting the dues from the
members of his association. Petitioner was thus constrained to file the complaint to
restrain private respondent. Respondent claimed that jurisdiction was lodged with the
SEC.
Issue: Whether or not SEC has jurisdiction

Ruling: None. The jurisdiction of the SEC) is set forth in Section 5 of Presidential
Decree No. 902-A: Sec. 5. This jurisdiction is determined by a concurrence of two
elements: (1) the status or relationship of the parties; and (2) the nature of the question
that is the subject of their controversy. The first element requires that the controversy
must arise out of intra-corporate or partnership relations between and among
stockholders, members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and the State in
so far as it concerns their individual franchises.

There is no intra-corporate nor partnership relation between petitioner and private

respondent. The controversy between them arose out of their plan to consolidate their
respective associations. This unified association was still a proposal. It had not been
approved by the SEC. Consolidation becomes effective not upon mere agreement of
the members but only upon issuance of the certificate of consolidation by the SEC. The
dispute is between members of separate and distinct associations. Petitioner and
private respondent have no intra-corporate relation much less do they have an intra-
corporate dispute. The SEC therefore has no jurisdiction over the complaint.

LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.

Facts: Lim Tong Lim assails the the Court of Appeals w/c affirmed the RTC finding Lim
et al liable to PFGI, Antonio Chua and Peter Yao entered into a Contract for the
purchase of fishing nets from the Philippine Fishing Gear Industries, Inc.. They claimed
that they were engaged in a business venture with Lim Tong Lim. The buyers failed to
pay hence, private respondents filed a collection suit against Chua, Yao and Petitioner
Lim Tong Lim. The suit was brought in their capacities as general partners, on the
allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as
shown by a Certification from the SEC. The trial court ruled that Chua, Yao and Lim, as
general partners, were jointly liable to pay respondent. CA affirmed.

Issue; Whether or not Lim is jointly liable to pay the respondent.

Ruling: Yes. The Court must resolve this key issue: whether by their acts, Lim, Chua
and Yao could be deemed to have entered into a partnership. First and Second Issues:
Existence of a Partnership and Petitioner's Liability Petitioner disclaims any direct
participation in the purchase, and that he has not even met the representatives of the
respondent company. We are not persuaded. Article 1767 of the Civil Code provide:
“By the contract of partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits
among themselves”.

It is clear that there was a partnership. Petitioner Was a Partner, Not a Lessor We are
not convinced. His allegation defies logic. In effect, he would like this Court to believe
that he consented to the sale of his own boats to pay a debt of Chua and Yao, with the
excess of the proceeds to be divided among the three of them. Indeed, his consent to
the sale proved that there was a preexisting partnership among all three.

Petitioner argues that under the doctrine of corporation by estoppel, liability can be
imputed only to Chua and Yao. The doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be estopped from denying
its corporate capacity in a suit against it by a third person who relied in good faith on
such representation. It cannot allege lack of personality to be sued to evade its
responsibility for a contract it entered into and by virtue of which it received advantages
and benefits.

The only question here is whether petitioner should be held jointly liable. Petitioner
contests such liability, insisting that only those who dealt in the name of the ostensible
corporation should be held liable. Unquestionably, petitioner benefited from the use of
the nets. Clearly, under the law on estoppel, those acting on behalf of a corporation and
those benefited by it, knowing it to be without valid existence, are held liable as general
partners. Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of he is deemed to be part of said
association and is covered by the scope of the doctrine of corporation by estoppel.
Technicality, when it deserts its proper office as an aid to justice and becomes its great
hindrance and chief enemy, deserves scant consideration from courts. There should be
no vested rights in technicalities.

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC. vs. HON. COURT
OF APPEALS, HENRI KAHN, PHILIPPINES FOOTBALL FEDERATION

Facts; Petitioner secured the airline tickets for the trips of the athletes and officials of the
Federation to Kuala Lumpur, China and Brisbane. The total cost amounted to
P449,654.83. The Federation made two partial payments. On October 1989, petitioner
wrote the Federation, requesting for the amount of P265,894.33. On October 1989, the
Federation, paid the amount of P31,603.00. 27 December 1989, Henri Kahn issued a
personal check in the amount of P50,000. Thereafter, no further payments were made.
This prompted petitioner to file a civil case. Petitioner sued Henri Kahn in his personal
capacity and as President and impleaded the Federation as an alternative defendant.
Henri Kahn averred that the petitioner has no cause of action against him either in his
personal capacity or in his official capacity as president. He maintained that he did not
guarantee payment but merely acted as an agent of the Federation. The trial court
favored petitioner and declared Henri Kahn personally liable. Henri Kahn would have
been correct in his contentions had it been duly established that defendant Federation is
a corporation. The officers or agents are themselves personally liable.

Issue; Whether or not Kahn is personally liable

Ruling: The resolution of the case at bar hinges on the determination of the existence of
the Philippine Football Federation as a juridical person. The appellate court recognized
the existence of the Federation. In support of this, the CA cited Republic Act 3135, the
Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree
No. 604. Both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national
sports associations.

We cannot agree with the view of the appellate court and the private respondent that
the Philippine Football Federation came into existence upon the passage of these laws.
Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine
Football Federation. These laws merely recognized the existence of national sports
associations and provided the manner by which these entities may acquire juridical
personality. This fact of recognition, however, Henri Kahn failed to substantiate.
Accordingly, we rule that the Philippine Football Federation is not a national sports
association within the purview of the aforementioned laws and does not have corporate
existence of its own. It follows that Kahn should be held liable. Any person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such
privileges and becomes personally liable for contract entered into or for other acts
performed as such agent.

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC. vs. HON.

COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION,
EMDEN ENCARNACION and HORATIO AYCARDO

Facts: LGVHAI was organized on February 1983. It was registered with the Home
Financing Corporation. For unknown reasons, LGVHAI did not file its corporate by-laws.
In 1988, the officers of the LGVHAI tried to register its by-laws. They failed. They
discovered that there were two other organizations within the subdivision. None of the
members of the LGVHAI was listed as member of the North Association while three (3)
members of LGVHAI were listed as members of the South Association. In July, 1989,
when Soliven (the developer) inquired about the status of LGVHAI, HIGC informed him
that LGVHAI had been automatically dissolved for two reasons. First, it did not submit
its by-laws within the period required by the Corporation Code and, second, there was
non-user of corporate charter because HIGC had not received any report on the
association’s activities. These prompted the officers of the LGVHAI to lodge a complaint
with the HIGC.

Issue; Whether or not non-filing of bylaws w/in prescribed period results in automatic
dissolution

Ruling: No.

The pertinent provision of the Corporation Code that is the focal point of controversy in
this case states: “Sec. 46. Adoption of by-laws. – Every corporation formed under this
Code, must within one (1) month after receipt of official notice of the issuance of its
certificate of incorporation by the Securities and Exchange Commission, adopt a code
of by-laws for its government not inconsistent with this Code.…”

Interpretation of this provision of law begins with the determination of the meaning and
import of the word “must” in this section. Ordinarily, the word “must” connotes an
imperative act or operates to impose a duty which may be enforced. However, the word
“must” in a statute, like “shall,” is not always imperative. It may be consistent with an
exercise of discretion. In this jurisdiction, the tendency has been to interpret “shall” as
the context or a reasonable construction of the statute in which it is used demands or
requires. This is equally true as regards the word “must.” Thus, if the language of a
statute considered as a whole and with due regard to its nature and object reveals that
the legislature intended to use the words “shall” and “must” to be directory, they should
be given that meaning.

Note should be taken of the second paragraph of the law which allows the filing of the
by-laws even prior to incorporation. This provision in the same section of the Code rules
out mandatory compliance with the requirement of filing the by-laws “within one (1)
month after receipt of official notice of the issuance of its certificate of incorporation. It
necessarily follows that failure to file the by-laws within that period does not imply the
“demise” of the corporation. By-laws may be necessary for the “government” of the
corporation but these are subordinate to the articles of incorporation as well as to the
Corporation Code and related statutes.

HENRY FLEISCHER vs. BOTICA NOLASCO CO., INC.

Facts: On March 1923, he assigned and delivered said five shares to the plaintiff, Henry
Fleischer in consideration of a large sum of money owed by Gonzalez to Fleischer; Dr.
Eduardo Miciano offered to buy from Henry Fleischer, on behalf of the corporation, said
shares at their par value by virtue of article 12 of the by-laws of Botica Nolasco, Inc.,
said corporation had the preferential right to buy from Manuel Gonzalez said share.
Plaintiff refused, instead he requested Miciano to register said shares in his name;
Miciano refused to do so, saying that it would be in contravention of the by-laws of the
corporation. The plaintiff filed an complaint against the Botica Nolasco, Inc. The CFI
held that article 12 of the by-laws of the corporation which gives it preferential right to
buy its shares from retiring stockholders, is in conflict with Act No. 1459 (Corporation
Law),

Issue; Whether or not Article 12 of bylaws contravene Sec 35 of Act 1459 of the
Corporation Law

Ruling;

A by-law adopted by a corporation relating to transfer of stock should be in harmony

with the law on the subject of transfer of stock. The law on this subject is found in
section 35 of Act No. 1459. Under said section they are personal property and may be
transferred as therein provided. Said section contemplates no restriction as to whom
they may be transferred or sold. It does not suggest that any discrimination may be
created by the corporation in favor or against a certain purchaser. The holder of shares,
as owner of personal property, is at liberty, under said section, to dispose of them in
favor of whomsoever he pleases, without any other limitation in this respect, than the
general provisions of law. In adopting said by-law the corporation has transcended the
limits fixed by law. As a general rule, the by-laws of a corporation are valid if they are
reasonable and calculated to carry into effect the objects of the corporation, and are not
contradictory to the general policy of the laws of the land.

Restrictions upon the traffic in stock must have their source in legislative enactment, as
the corporation itself cannot create such impediments. Bylaw are intended merely for
the protection of the corporation, and prescribe regulation and not restriction; they are
always subject to the charter of the corporation. The corporation, in the absence of such
a power, cannot ordinarily inquire into or pass upon the legality of the transaction by
which its stock passes from one person to another, nor can it question the consideration
upon which a sale is based. A bylaw cannot take away or abridge the substantial rights
of stockholder. It follows from the foregoing that a corporation has no power to prevent
or to restrain transfers of its shares, unless such power is expressly conferred in its
charter or governing statute. This conclusion follows from the further consideration that
by-laws or other regulations restraining such transfers, unless derived from authority
expressly granted by the legislature, would be regarded as impositions in restraint of
trade.

STOCKHOLDERS OF F. GUANZON AND SONS, INC. vs. REGISTER OF DEEDS OF

MANILA

Facts; On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc.
executed a certificate of liquidation of the assets of the corporation dissolving the
corporation. The certificate of liquidation was denied registration by the Registry. The
judgment of the Court approving the dissolution and directing the disposition of the
assets of the corporation need be presented (Rules of Court, Rule 104, Sec. 3).

Issue; Whether or not the liquidation is conveyance from Corp to Stockholders or merely
a partition of common properties

Ruling: It is a conveyance. The Commissioner of Land Registration, expressed by the

register of deed to the effect that the certificate of liquidation in question, though it
involves a distribution of the corporation's assets, in the last analysis represents a
transfer of said assets from the corporation to the stockholders. Hence, in substance it
is a transfer or conveyance.

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. While shares of stock constitute personal property they do
not represent property of the corporation. The corporation has property of its own which
consists chiefly of real estate. A share of stock only typifies an aliquot part of the
corporation's property, or the right to share in its proceeds to that extent when
distributed according to law and equity , but its holder is not the owner of any part of the
capital of the corporation. Nor is he entitled to the possession of any definite portion of
its property or assets. The stockholder is not a co-owner or tenant in common of the
corporate property. The act of liquidation is not a partition of community property, but
rather a transfer or conveyance. It is, therefore, fair and logical to consider the certificate
of liquidation as one in the nature of a transfer or conveyance.

FERMIN Z. CARAM, JR. and ROSA O. DE CARAM vs. THE HONORABLE COURT
OF APPEALS and ALBERTO V. ARELLANO

Facts: Defendants are hereby ordered to jointly and severally pay the plaintiff the
amount of P50,000.00 for the preparation of the project study and his technical services
that led to the organization of the defendant corporation. The CA said that it was upon
the request of defendants Barretto and Garcia that plaintiff handled the preparation of
the project study which was presented to Caram so the latter was convinced to invest in
the proposed airlines. Defendants Garcia and Caram, and Barretto became members of
the Board and/or officers of defendant corporation. Thus, not only the defendant
corporation but all the other defendants who were involved in the preparatory stages of
the incorporation, who caused the preparation and/or benefited from the project study
and the technical services of plaintiff must be liable.

Issue; Whether or not petitioners themselves are also and personally liable

Ruling: Not liable. Petitioners were not involved in the initial stages of the organization
of the airline, which were being directed by Barretto as the main promoter. Barretto was
described as "the moving spirit." It was he who was putting all the pieces together, so to
speak. The petitioners were merely among the financiers. The finding of the respondent
court is that the project study was undertaken by the private respondent at the request
of Barretto and Garcia who presented it to the petitioners to induce them to invest. The
study could have been presented to others. At any rate, the airline was eventually
organized on the basis of the project study with the petitioners as major stockholders
and, together with Barretto and Garcia, as principal officers. As a bona fide corporation,
the Filipinas Orient Airways should alone be liable for its corporate acts as duly
authorized by its officers and directors. Petitioners cannot be held personally liable for
the compensation claimed by the private respondent. Petitioners did not contract such
services. It was only the results of such services that Barretto and Garcia presented to
them and which persuaded them to invest in the proposed airline. The most that can be
said is that they benefited from such services, but that surely is no justification to hold
them personally liable therefor. Otherwise, all the other stockholders of the corporation,
including those who came in later, and regardless of the amount of their share holdings,
would be equally and personally liable also with the petitioners for the claims of the
private respondent.
PALAY, INC. and ALBERT ONSTOTT, vs. JACOBO C. CLAVE, Presidential
Executive Assistant NATIONAL HOUSING AUTHORITY and NAZARIO DUMPIT

Facts; On March 1965, Palay, Inc., through its President, Onstott executed in favor of
Dumpit, a Contract to Sell a parcel of Land in Antipolo. It provided for automatic
rescission upon default and with forfeiture of all installments paid. Dumpit paid the
downpayment and several installments amounting to P13,722.50. On May 1973, private
respondent wrote petitioner offering to update all his overdue accounts and seeking its
consent to the assignment of his rights to a certain Lourdes Dizon. Petitioners informed
respondent that his Contract to Sell had long been rescinded and that the lot had
already been resold. Respondent filed a letter complaint with the NHA for
reconveyance. The NHA, found the rescission void in the absence of either judicial or
notarial demand, and ordered Palay, Inc. and Alberto Onstott, jointly and severally, to
refund Nazario Dumpit.

Issue; Whether or notrescission proper and Whether or not Onstott personally liable

Ruling: No. That judicial action for the rescission of a contract is not necessary where
the contract provides that it may be revoked and cancelled for violation of any of its
terms and conditions. However, the act of a party in treating a contract as cancelled
should be made known to the other. Resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in Court. If the debtor impugns the
declaration, it shall be subject to judicial determination. In this case, private respondent
has denied that rescission is justified and has resorted to judicial action. It is now for the
Court to determine whether resolution of the contract by petitioners was warranted. We
hold that resolution by petitioners of the contract was ineffective and inoperative against
private respondent for lack of notice of resolution.

Onstott is not personally liable. A corporation is invested by law with a personality

separate and distinct from those of the persons composing it as wen as from that of any
other legal entity to which it may be related. As a general rule, a corporation may not be
made to answer for acts or liabilities of its stockholders or those of the legal entities to
which it may be connected and vice versa. However, the veil of corporate fiction may be
pierced when: it is used as a shield to further an end subversive of justice; or for
purposes that could not have been intended by the law that created it; or to defeat
public convenience, justify wrong, protect fraud, or defend crime; or to perpetuate fraud
or confuse legitimate issues; or to circumvent the law or perpetuate deception; or as an
alter ego, adjunct or business conduit for the sole benefit of the stockholders. We find
no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on its
contract when it rescinded the contract to sell. Onstott was made liable because he was
then the President and the controlling stockholder. No sufficient proof exists that said
petitioner used the corporation to defraud. He cannot be made personally liable just
because he "appears to be the controlling stockholder". Mere ownership by a single
stockholder or by another corporation is not of itself sufficient ground for disregarding
the separate corporate personality.
J.G. SUMMIT HOLDINGS, INC. vs. COURT OF APPEALS; COMMITTEE ON
PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION TRUST; and
PHILYARDS HOLDINGS, INC

Facts: The National Investment and Development Corporation (NIDC), a government

corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and
management of the Subic National Shipyard Inc., (SNS) which subsequently became
the Philippine Shipyard and Engineering Corporation (PHILSECO).

Under the JVA, the NDC and KAWASAKI will contribute P330M for the capitalization of
PHILSECO in the proportion of 60%-40% respectively. One of its salient features is the
grant to the parties of the right of first refusal should either of them decide to sell, assign
or transfer its interest in the joint venture.

NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National
Bank (PNB). Such interests were subsequently transferred to the National Government
pursuant to an Administrative Order.

When the former President Aquino issued Proclamation No. 50 establishing the
Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title
to, and possession of, conserve, manage and dispose of non-performing assets of the
National Government, a trust agreement was entered into between the National
Government and the APT wherein the latter was named the trustee of the National
Government’s share in PHILSECO.

In the interest of the national economy and the government, the COP and the APT
deemed it best to sell the National Government’s share in PHILSECO to private
entities. After a series of negotiations between the APT and KAWASAKI , they agreed
that the latter’s right of first refusal under the JVA be “exchanged” for the right to top by
5%, the highest bid for the said shares. They further agreed that KAWASAKI woul.d be
entitled to name a company in which it was a stockholder, which could exercise the right
to top. KAWASAKI then informed APT that Philyards Holdings, Inc. (PHI) would
exercise its right to top.

Petitioners, in their motion for reconsideration, raised, inter alia, the issue on the
maintenance of the 60%-40% relationship between the NIDC and KAWASAKI arising
from the Constitution because PHILSECO is a landholding corporation and need not be
a public utility to be bound by the 60%-40% constitutional limitation.

ISSUE: Whether under the 1977 Joint Venture Agreement, KAWASAKI can
purchase only a maximum of 40% of PHILSECO’s total capitalization.
RULING: The court upheld the validity of the mutual rights of first refusal under the JVA
between KAWASAKI and NIDC.

The right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and
NIDC, under the terms of their JVA. This right allows them to purchase the shares of
their co-shareholder before they are offered to a third party. The agreement of co-
shareholders to mutually grant this right to each other, by itself, does not constitute a
violation of the provisions of the Constitution limiting land ownership to Filipinos and
Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still owns the land,
the right of first refusal can be validly assigned to a qualified Filipino entity in order to
maintain the 60%-40% ration. This transfer by itself, does not amount to a violation of
the Anti-Dummy Laws, absent proof of any fraudulent intent. The transfer could be
made either to a nominee or such other party which the holder of the right of first refusal
feels it can comfortably do business with.
Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in
exercising its right of first refusal, can exceed 40% of PHILSECO’s equity. In fact, in
can even be said that if the foreign shareholdings of a landholding corporation exeeds
40%, it is not the foreign stockholders’ ownership of the shares which is adversely
affected but the capacity of the corporation to won land—that is, the corporation
becomes disqualified to own land.

This finds support under the basic corporate law principle that the corporation and its
stockholders are separate judicial entities. In this vein, the right of first refusal over
shares pertains to the shareholders whereas the capacity to own land pertains to the
corporation. Hence, the fact that PHILSECO owns land cannot deprive stockholders of
their right of first refusal. No law disqualifies a person from purchasing shares in a
landholding corporation even if the latter will exceed the allowed foreign equity,
what the law disqualifies is the corporation from owning land.

MARVEL BUILDING CORPORATION, ET AL. vs. SATURNINO DAVID, Bureau of

Internal Revenue

Facts; The Articles of Incorporation of the Marvel Building Corporation is dated February
12, 1947 and according to it the capital stock is P2,000,000. Maria B Castro was elected
President. The Wise Building was purchased on September 4, 1946, the purchase
being made in the name of Dolores Trinidad, and the Aguinaldo Building. On January
17, 1947, in the name of Segundo Esguerra, Sr. Both building were purchased for
P1,800,000, but as the corporation had only P1,025,000, the balance of the purchase
price was obtained as loans from the Insular Life Assurance Co., Ltd. and the Philippine
Guaranty Co., Inc. It does not appear that the stockholders or the board of directors of
the Marvel Building Corporation have ever held a business meeting. The by-laws of the
corporation, if any had ever been approved, has not been presented. Neither does it
appear that any report of the affairs of the corporation has been made, either of its
transactions or accounts. The Secretary of Finance, upon consideration of the report of
a special committee assigned to study the war profits tax case of Mrs. Maria B. Castro,
recommended the collection of P3,593,950.78 as war profits taxes. The Collector of
Internal Revenue has appealed to this Court against the judgment. Defendant claims
that Maria B. Castro is the true and sole owner of all the subscribed stock of the Marvel
Building Corporation, including those appearing to have been subscribed and paid for
by the other members, and consequently said Maria B. Castro is also the true and
exclusive owner of the properties seized

Issue; Is Maria B. Castro the owner of all the shares of stocks of Marvel Building
Corporation and the other stockholders mere dummies of hers?

Ruling: Yes. In general the evidence offered by the plaintiffs is testimonial and direct
evidence, easy of fabrication; that offered by defendant, documentary and
circumstantial, not only difficult of fabrication but in most cases found in the possession
of plaintiffs. There is very little room for choice as between the two. The circumstantial
evidence is not only convincing; it is conclusive. The existence of endorsed certificates,
discovered by the internal revenue agents between 1948 and 1949 in the possession of
the Secretary-Treasurer, the fact that twenty-five certificates were signed by the
president of the corporation, for no justifiable reason, the fact that two sets of certificates
were issued, the undisputed fact that Maria B. Castro had made enormous profits and,
therefore, had a motive to hide them to evade the payment of taxes---these facts are of
patent and potent significance. What are their necessary implications? Maria B. Castro
would not have asked them to endorse their stock certificates, or be keeping these in
her possession, if they were really the owners. They never would have consented that
Maria B. Castro keep the funds without receipts or accounting, nor that she manages
the business without their knowledge or concurrence, were they owners of the stocks in
their own rights. Each and every one of the facts all set forth above, in the same
manner, is inconsistent with the claim that the stockholders, other than Maria B. Castro,
own their shares in their own right. On the other hand, each and every one of them, and
all of them, can point to no other conclusion than that Maria B. Castro was the sole and
exclusive owner of the shares and that they were only her dummies.

GREGORIO PALACIO, in his own behalf and in behalf of his minor child MARIO
PALACIO vs. FELY TRANSPORTATION COMPANY

Facts:
In their complaint, the Palacio alleged that Fely hired Alfredo Canillo as driver who
negligently run over a child (Mario). Gregorio , the father of Mario is a welder and in the
account of his child's injuries has abandoned his shop which is the family's source of
income. Fely filed a motion to dismiss on the grounds that there is no cause of action
against the company and that the cause of action is barred by prior judgment. But the
court deferred the determination of the grounds alleged in the motion to dismiss until the
trial of the case. The defendant then alleges (1) that complaint states no cause of action
against defendant, and (2) that the sale and transfer of the jeep AC-687 by Isabelo
Calingasan to the Fely Transportation was made on December 24, 1955, long after the
driver Alfredo Carillo of said jeep had been convicted and had served his sentence. In
view of the evidence presented, the lower court barred the judgment in the criminal case
and held that the person subsidiarily liable to pay damages is Isabel Calingasan, the
employer.

Issue: Whether Fely Transportation can be held liable for the damages.

Ruling: The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and
defendant Fely Transportation may be regarded as one and the same person. It is
evident that Isabelo Calingasan's main purpose in forming the corporation was to evade
his subsidiary civil liability resulting from the conviction of his driver, Alfredo Carillo. This
conclusion is borne out by the fact that the incorporators of the Fely Transportation are
Isabelo Calingasan, his wife, his son, Dr. Calingasan, and his two daughters.
Accordingly, defendants Fely Transportation and Isabelo Calingasan should be held
subsidiarily liable for P500.00 which Alfredo Carillo was ordered to pay in the criminal
case and which amount he could not pay on account of insolvency.

NATIONAL MARKETING CORPORATION (NAMARCO) vs. ASSOCIATED FINANCE

COMPANY, INC. and FRANCISCO SYCIP, defendant, FRANCISCO SYClP,

Facts: In 1958, National Marketing Corporation (NAMARCO) entered into an agreement

with Associated Finance Company, Inc. (AFCI). NAMARCO was represented by its
general manager Benjamin Estrella. AFCI was represented by its president Francisco
Sycip. The agreement was that NAMARCO will deliver raw sugar to AFCI. In exchange,
AFCI will deliver refined sugar to NAMARCO. NAMARCO delivered the raw sugar but
AFCI failed to comply with its obligation. NAMARCO then demanded AFCI to comply or
if not pay the amount of the raw sugar delivered which was at P403,. AFCI was not able
to do either hence NAMARCO sued AFCI and Sycip was impleaded.

ISSUE: Whether or not Sycip should be held jointly and severally liable with Associated
Finance Company, Inc.

HELD: Yes. In this case, it is proper to pierce the veil of corporate fiction. It was proven
that during the time of the agreement, AFCI was already insolvent. Such fact was already
known to Sycip. He knew that AFCI was not in a position to transact with NAMARCO
because it could not possibly comply with its obligations. Sycip’s assurances that AFCI
can deliver said refined sugar products is obviously fashioned to defraud NAMARCO into
delivering the raw sugar to AFCI. Consequently, Sycip cannot now seek refuge behind
the general principle that a corporation has a personality distinct and separate from that
of its stockholders and that the latter are not personally liable for the corporate obligations.
He is therefore liable jointly and severally with AFCI to pay the amount claim for the raw
sugar delivered plus other damages claimed by NAMARCO with interest.
TAN BOON BEE & CO., INC. vs. THE HONORABLE HILARION U. JARENCIO,
PRESIDING JUDGE OF BRANCH XXIII of the Court of First Instance of Manila,
GRAPHIC PUBLISHING, INC., and PHILIPPINE AMERICAN DRUG COMPANY

Facts: Petitioner doing business under the name and style of Anchor Supply Co., sold
on credit to Graphic Publishing, Inc. paper products. GRAPHIC made partial payment
by check to petitioner and a promissory note was executed to cover the balance. For
failure of GRAPHIC to pay any installment, petitioner filed a Civil case for a Sum of
Money. In a Decision the trial court ordered GRAPHIC to pay the petitioner. On motion
of petitioner, a writ of execution was issued by respondent judge; but the writ having
expired without the sheriff finding any property of GRAPHIC, an alias writ of execution
was issued. The plaintiff, however, contends that the controlling stockholders of the
PADC are also the same controlling stockholders of Graphic and, therefore, the levy
upon the said machinery which was found in the premises occupied by the Graphic
Publishing, Inc. should be upheld.

Issue: Whether or not the corporate fiction of the two corporations shall be disregarded

Ruling:In the instant case, petitioner's evidence established that PADCO was never
engaged in the printing business; that the board of directors and the officers of
GRAPHIC and PADCO were the same; and that PADCO holds 50% share of stock of
GRAPHIC. Petitioner likewise stressed that PADCO's own evidence shows that the
printing machine in question had been in the premises of GRAPHIC since May, 1965,
long before PADCO even acquired its alleged title on July 11, 1966 from Capitol
Publishing. That the said machine was allegedly leased by PADCO to GRAPHIC on
January 24, 1966, even before PADCO purchased it from Capital Publishing on July 11,
1966, only serves to show that PADCO's claim of ownership over the printing machine
is not only farce and sham but also unbelievable.

Considering the principles and the circumstances established in this case, respondent
judge should have pierced PADCO's veil of corporate Identity.

CONCEPCION MAGSAYSAY-LABRADOR, et. al vs. THE COURT OF APPEALS and

ADELAIDA RODRIGUEZ-MAGSAYSAY, et al.

Facts: On 7 March 1979, petitioners filed a motion for intervention on the ground that
on 20 June 1978, their brother conveyed to them 1/2 of his shareholdings in SUBIC and
as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC,
they have a substantial and legal interest in the subject matter of litigation and that they
have a legal interest in the success of the suit with respect to SUBIC. On 26 July 1979,
the trial court denied the motion for intervention, and ruled that petitioners have no legal
interest whatsoever in the matter in litigation and their being alleged assignees or
transferees of certain shares in SUBIC cannot legally entitle them to intervene because
SUBIC has a personality separate and distinct from its stockholders. On appeal, the
Court of Appeals found no factual or legal justification to disturb the findings of the lower
court. The appellate court further stated that whatever claims the Magsaysay sisters
have against the late Senator or against SUBIC for that matter can be ventilated in a
separate proceeding. The motion for reconsideration of the Magsaysay sisters was
denied.

Issue: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested
parties in a case where corporate properties are in dispute.

Held: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the
Magsaysay sisters have no legal interest in the subject matter in litigation so as to
entitle them to intervene in the proceedings. To be permitted to intervene in a pending
action, the party must have a legal interest in the matter in litigation, or in the success of
either of the parties or an interest against both, or he must be so situated as to be
adversely affected by a distribution or other disposition of the property in the custody of
the court or an officer thereof . Here, the interest, if it exists at all, of the Magsaysay
sisters 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.

INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO vs. VOLUNTARY

ARBITRATOR TEODORICO P. CALICA AND INDOPHIL TEXTILE MILLS, INC.
FACTS: In April, 1987, petitioner Indophil Textile Mill Workers Union-PTGWO and
private respondent Indophil Textile Mills, Inc. executed a collective bargaining
agreement. Meanwhile, Indophil Acrylic Manufacturing Corporation was formed and
registered with the SEC. Subsequently, Acrylic applied for registration with the Board of
Investments for incentives under the 1987 Omnibus Investments Code. In 1988, Acrylic
became operational and hired workers according to its own criteria and standards.
Sometime in July, 1989, the workers of Acrylic unionized and a duly certified collective
bargaining agreement was executed. In 1990 or a year after the workers of Acrylic have
been unionized and a CBA executed, the petitioner union claimed that the plant facilities
built and set up by Acrylic should be considered as an extension or expansion of the
facilities. This Agreement shall apply to the Company's plant facilities and installations
and to any extension and expansion thereat. In other words, it is the petitioner's
contention that Acrylic is part of the Indophil bargaining unit.

ISSUE: Whether Indophil Acrylic is a separate and distinct entity from respondent
company for purposes of union representation.

RULING: Yes. Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exist, the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or stockholders may be disregarded.
In such cases, the corporation will be considered as a mere association of persons. The
members or stockholders of the corporation will be considered as the corporation that is
liability will attach directly to the officers and stockholders. The doctrine applies when
the 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.

In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic,
alleging that the creation of the corporation is a devise to evade the application of the
CBA between petitioner Union and private respondent Company. While we do not
discount the possibility of the similarities of the businesses of private respondent and
Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting the
relief sought. The fact that the businesses of private respondent and Acrylic are related,
that some of the employees of the private respondent are the same persons manning
and providing for auxiliary services to the units of Acrylic, and that the physical plants,
offices and facilities are situated in the same compound, it is our considered opinion that
these facts are not sufficient to justify the piercing of the corporate veil of Acrylic.

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

ROBERTO A. JACINTO vs. HONORABLE COURT OF APPEALS AND

METROPOLITAN BANK AND TRUST COMPANY

FACTS: Roberto Jacinto entered into a trust receipt agreement with Metropolitan Bank
and Trust Company. All the goods covered by the three Letters of Credit and paid for
under the Bills of Exchange were delivered to and received by Inland Industries through
Jacinto, who signed for and in behalf of Inland Industries and agreed to the terms and
conditions of three separate trust receipts covering the same goods. The entrustee
defaulted on the agreement, prompting Metrobank to file an action against both Inland
Industries and Jacinto. Jacinto tried to escape liability and shift the entire blame under
the trust receipts solely and exclusively on Inland Industries, arguing that he cannot be
held solidarily liable with the latter because he just signed said instruments in his official
capacity as president and that Inland Industries has a juridical personality distinct and
separate from its officers and stockholders. In his appeal by certiorari filed before the
SC, Jacinto challenged the CA's ruling, arguing that the CA cannot validly pierce the
fiction of corporate identity of Inland Industries because there was no allegation or
prayer demanding the same nor was there any evidence presented to justify the same.

Issues: Whether the corporate veil of Inland Industries can be validly pierced even if
there was no allegation or prayer demanding the same.

Ruling: YES. While on the face of the complaint there is no specific allegation that
Inland Industries is a mere alter ego of Jacinto, subsequent developments, from the
stipulation of facts up to the presentation of evidence and the examination of witnesses,
unequivocally show that Metrobank sought to prove that Jacinto and the corporation are
one or that he is the corporation. The factual findings of the CA are well-grounded as
the same in fact even include a portion of the very testimony of Jacinto admitting that he
and his wife own 52% of the stocks of Inland Industries. During the duration of the trial,
no serious objection was heard from Jacinto. According to Sec. 5 of Rule 10 of the
ROC, when issues not raised by the pleadings are tried by express or implied consent
of the parties, they shall be treated in all respects, as if they had been raised in the
pleadings. In other words, there is implied consent to the evidence thus presented when
the adverse party fails to object thereto, as in the present case.

CONCEPT BUILDERS, INC. vs. THE NATIONAL LABOR RELATIONS,

COMMISSION

Facts: Petitioner concept, a construction company engaged the services of the

respondents as laborers, carpenters and riggers. In November, the respondents were
served individual notice of termination of employment stating that their employment
contract has expired and that the project for which they were hired had been completed.
The respondents filed a complaint of illegal dismissal with the NLRC alleging that the
project for which they were hired had not been completed and that in fact the petitioner
engaged the service of subcontractors for the said project. The NLRC decided in favour
of the respondents and a writ of execution was issued but was only partially satisfied.
Filing a motion for Issuance of a break-open order, the respondents alleged that the
petitioner and HPPI are owned by the same stockholders/incorporators. Petitioner
contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron
pipes, a business which is distinct and separate from petitioner’s construction business.

Issue: Whether the doctrine of piercing the corporate veil should not have been applied
in this case.

Ruling: The test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows: “1. Control, not mere majority or complete stock control,
but complete domination ; 2. Such control must have been used by the defendant to
commit fraud or wrong; and 3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents ‘piercing the corporate veil.’ In
applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality
and not form, with how the corporation operated and the individual defendant’s
relationship to that operation.” In this case, the NLRC noted that, while petitioner
claimed that it ceased its business operations on April 29, 1986, it filed an Information
Sheet with the SEC on May 15, 1987, stating that its office address is at Valenzuela,
Metro Manila. On the other hand, HPPI, the third party claimant, submitted on the same
day, a similar information sheet stating that its office address is at Valenzuela, Metro
Manila. From the foregoing, it appears that, among other things, the respondent and the
third-party claimant shared the same address and/or premises. Under this
circumstances, it cannot be said that the property levied upon by the sheriff were not of
respondents. Clearly, petitioner ceased its business operations in order to evade the
payment to private respondents of back wages and to bar their reinstatement to their
former positions. HPPI is obviously a business conduit of petitioner corporation and its
emergence was skillfully orchestrated to avoid the financial liability that already attached
to petitioner corporation.

EDUARDO CLAPAROLS, et al vs. COURT OF INDUSTRIAL RELATIONS, ALLIED

WORKERS' ASSOCIATION et al.

Facts: On August 6 1957, a complaint for unfair labor practice was filed by Allied
Workers Assoc and other respondents against herein petitioner on account of their
dismissal from Clarapols Steel and Nail Plant. September 1963 The CIR found Mr.
Claparols guilty of union busting and dismissing respondents because of their activities.
As such, the CIR ordered the petitioners herein to cease and desist from committing
ULPs and to reinstate respondents.

Respondents moved for recomputation of back wages. CIR directed a recomputation.

The Chief Examining Officer, in its recomputation, included the bonuses of the
employees for every dependent 1. After the CIR approved the recomputation, private
respondents filed a Constancia submitting the case for resolution of CIR. Hence, the
May 30 1969 ruling which is the subject of this case, where CIR ordered petitioners to
pay the backwages of the respondents based on the recomputation.

Issue: a) Whether this case should prosper. B)Whether bonuses should be included.
Ruling:
a) NO, because questions in this case were already answered by a previous case
submitted to the SC. Nevertheless, the court discussed the topic below Whether
bonuses should be included. The court first reminded petitioners of their previous
petition for certiorari filed before the SC which was denied. According to the court, such
constitutes the law of the case. Still, the SC reiterated the governing principles of why it
denied the earlier petition. Citing numerous cases, the SC stated the doctrine that “ a
bonus is not a demandable and enforceable obligation, except when it is part of the
wage or salary compensation”

b) YES, since it was shown that such bonuses were given regularly even when the
company was experiencing losses as to amount of backwages. At this late stage,
petitioners are still insisting that Sta Cecilia Sawmills be applied to them. In that case,
the recoverable back wages were limited to only 3 months since the Sawmill ceased
operations due to enormous business reverses. It’s very clear that Claparols Steel was
a continuation and successor of the 1st entity, and its emergence was skillfully timed to
avoid the financial liability that attached to its predecessor. Both predecessors and
successor were owned and controlled by petitioner Eduardo Claparols and there was no
break in the succession and continuity of the same business. - According to the court,
this “avoiding-the-liability” scheme is very patent, considering that 90% of the
subscribed shares of stock of Claparols Steel was owned by Claparols himself. It is very
obvious that the 2nd corporation seeks the protective shield of a corporate fiction whose
veil in this case should be pierced as it was deliberately and maliciously designed to
evade its financial obligations to its employees.

VILLA REY TRANSIT, INC., vs. THE COURT OF APPEALS G.R. No. L-25499
February 18, 1970

Facts: Petitioner Villa Rey Transit Inc., due to the negligence of its bus driver, was
involved in a vehicular accident resulted to the death of Policronio Quintos, Jr., Private
respondents’ brother. The private respondents brought this action against herein
petitioner as owner and operator of said passenger bus. The RTC ruled in favor of the
Respondents and that the mishap was not the result of any unforeseeable fortuitous event
or emergency but was the direct result of the negligence of the driver of the defendant.
The defendant must, therefore, respond for damages resulting from its breach of contract
for carriage. As the complaint alleged a total damage of only P63,750.00. Aggrieved,
petitioner went to the CA to reverse the decision of the RTC. CA affirmed the decision of
the RTC, hence this case.

Issue: Whether the RTC erred in computing the compensatory damages awarded to
the respondents?

Held: Yes, the Court ruled that the CA affirming the award in toto is erroneous, and
modified the amount awarded to the respondents. Thus, life expectancy is, not only
relevant, but, also, an important element in fixing the amount recoverable by private
respondents herein. Although it is not the sole element determinative of said amount, no
cogent reason has been given to warrant its disregard and the adoption, in this case, of
a purely arbitrary standard, such as a four-year rule. In short, the Court of Appeals has
not erred in basing the computation of petitioner’s liability upon the life expectancy of
Policronio Quintos, Jr..

It should be noted, also, that the Court are mainly concerned with the determination of
the losses or damages sustained by the private respondents, as dependents and intestate
heirs of the deceased, and that said damages consist, not of the full amount of his
earnings, but of the support, they received or would have received from him had he not
died in consequence of the negligence of petitioner’s agent. In fixing the amount of that
support, We must reckon with the “necessary expenses of his own living”, which should
be deducted from his earnings. Thus, it has been consistently held that earning capacity,
as an element of damages to one’s estate for his death by wrongful act is necessarily his
net earning capacity or his capacity to acquire money, “less the necessary expense for
his own living. Stated otherwise, the amount recoverable is not loss of the entire earning,
but rather the loss of that portion of the earnings which the beneficiary would have
received. In other words, only net earnings, not gross earning, are to be considered that
is, the total of the earnings less expenses necessary in the creation of such earnings or
income and less living and other incidental expenses.

RAYMUNDO ODANI SECOSA, EL BUENASENSO SY and DASSAD WAREHOUSING

and PORT SERVICES, INCORPORATED vs. HEIRS OF ERWIN SUAREZ
FRANCISCO

Facts: On June 27, 1996, Erwin Suarez Francisco, was riding a motorcycle along
Radial 10 Avenue, near the Veteran Shipyard Gate in the City of Manila. At the same
time, petitioner, Raymundo Odani Secosa, was driving an Isuzu cargo truck on the
same road. The truck was owned by petitioner, Dassad Warehousing and Port
Services, Inc. Traveling behind the motorcycle driven by Francisco was a sand and
gravel truck, which in turn was being tailed by the Isuzu truck driven by Secosa.
The three vehicles were traversing the southbound lane at a fairly high speed.
When Secosa overtook the sand and gravel truck, he bumped the motorcycle
causing Francisco to fall. The rear wheels of the Isuzu truck then ran over
Francisco, which resulted in his instantaneous death. Fearing for his life,
petitioner Secosa left his truck and fled the scene of the collision. Respondents,
the parents of Erwin Francisco, thus filed an action for damages against Raymond
Odani Secosa, Dassad Warehousing and Port Services, Inc. and Dassad’s
president, El Buenasucenso Sy.

Issue: Whether or not Sy can be held solidarily liable without violating the veil of
corporation fiction.

Held: Negative. Sy cannot be held liable with co-petitioners. A corporation is invested

by law with a personality separate from that of its stockholders or members. Mere
ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not in itself sufficient ground for disregarding
corporate personality. A corporation’s authority to act & its liability for its actions are
separate and apart from the individuals who own it.

The corporate entity may be disregarded in the interest of justice in such cases as
fraud that may work inequities among members of the corporation internally,
involving no rights of the public or third persons. In both instances, there must
have been fraud and proof of it. For the separate juridical personality of a
corporation to be disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.

The Isuzu truck was registered in the name of Dassad and not in the name of Sy.
Secosa is an employer of Dassad not of Sy. All these things when taken collectively,
clears Sy of liability for damages arising from the death of Francisco. Of course,
Secosa and Dassad are both liable. Dassad as employer must not merely present
testimonial evidence to prove that he observe diligence of a good father of a
family in the selection and supervision of his employees, it must be supported by
concrete or documentary evidence.

DELPHER TRADES CORPORATION, and DELFIN PACHECO vs. INTERMEDIATE

APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC.,

Facts: In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of
27,169 square meters of real estate in the Municipality of Polo (now Valenzuela),
Province of Bulacan (now Metro Manila) The said co-owners leased to Construction
Components International Inc. the same property and providing that during the
existence or after the term of this lease the lessor should he decide to sell the property
leased shall first offer the same to the lessee and the letter has the priority to buy under
similar conditions. On August 3, 1974, lessee Construction Components International,
Inc. assigned its rights and obligations under the contract of lease in favor of Hydro
Pipes Philippines, Inc. with the signed conformity and consent of lessors Delfin Pacheco
and Pelagia Pacheco. On January 3, 1976, a deed of exchange was executed between
lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation
whereby the former conveyed to the latter the leased property together with another
parcel of land also located in Malinta Estate, Valenzuela, Metro Manila for 2,500 shares
of stock of defendant corporation with a total value of P1,500,000.00

Issue: Whether or not the “Deed of Exchange” of the properties executed by the
Pachecos on the one hand and the Delpher Trades Corporation on the other was meant
to be a contract of sale.

Held: We rule for the petitioners. In the case at bar, in exchange for their properties, the
Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher
Trades Corporation. Consequently, the Pachecos became stockholders of the
corporation by subscription. “The essence of the stock subscription is an agreement to
take and pay for original unissued shares of a corporation, formed or to be formed.”

The records do not point to anything wrong or objectionable about this “estate planning”
scheme resorted to by the Pachecos. “The legal right of a taxpayer to decrease the
amount of what otherwise could be his taxes or altogether avoid them, by means which
the law permits, cannot be doubted.”

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

JARDINE DAVIES, INC. vs. JRB REALTY, INC

Notes from Syllabus:

1. COMMERCIAL LAW; CORPORATION LAW; CORPORATIONS; DOCTRINE OF

PIERCING THE VEIL OF CORPORATE FICTION; WHEN APPLICABLE; RATIONALE
BEHIND THE DOCTRINE. — It is an elementary and fundamental principle of
corporation law that a corporation is an artificial being invested by law with a personality
separate and distinct from its stockholders and from other corporations to which it may
be connected. While a corporation is allowed to exist solely for a lawful purpose, the law
will regard it as an association of persons or in case of two corporations, merge them
into one, when this corporate legal entity is used as a cloak for fraud or illegality. This is
the doctrine of piercing the veil of corporate fiction which applies only when such
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or
defend crime. The rationale behind piercing a corporation's identity is to remove the
barrier between the corporation from 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.
2. REQUISITES; A SUBSIDIARY HAS AN INDEPENDENT AND SEPARATE
JURIDICAL PERSONALITY DISTINCT FROM THAT OF ITS PARENT COMPANY;
CASE AT BAR. — While it is true that Aircon is a subsidiary of the petitioner, it does not
necessarily follow that Aircon's corporate legal existence can just be disregarded. In
Velarde v. Lopez, Inc., the Court categorically held that a subsidiary has an independent
and separate juridical personality, distinct from that of its parent company; hence, any
claim or suit against the latter does not bind the former, and vice versa. In applying the
doctrine, the following requisites must be established: (1) control, not merely majority or
complete stock control; (2) such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest acts in contravention of plaintiff's legal rights; and (3) the aforesaid
control and breach of duty must proximately cause the injury or unjust loss complained
of. The records bear out that Aircon is a subsidiary of the petitioner only because the
latter acquired Aircon's majority of capital stock. It, however, does not exercise complete
control over Aircon; nowhere can it be gathered that the petitioner manages the
business affairs of Aircon. Indeed, no management agreement exists between the
petitioner and Aircon, and the latter is an entirely different entity from the petitioner.

KOPPEL (PHILIPPINES),INC. vs.ALFREDO L. YATCO, Collector of Internal

Revenue,

Facts: Koppel Industrial Car and Equipment company (KICE), a foreign company
not doing business in the Philippines, owned 995 shares out of the 1000 shares that
comprise the capital stock of KPI, a domestic corporation licensed as commercial broker
in the Philippines. The remaining 5 shares were owned by each of the officers of KPI.
KICE is in the business of selling railway materials, machineries and supplies. Buyers
in the Philippines, when interested, asked for price quotations from KPI, and KPI then
cabled for the quotation desired from KICE. However, KPI quoted to the purchaser a
selling price above the figures quoted by KICE. On the basis of these quotations,
orders were placed by the local buyers. Between KICE and KPI, the arrangement
nonetheless was that KICE controls how much share of the profits goes to KPI. For
these transactions, the BIR treated KPI as a subsidiary of KICE and collected from KPI
the merchants’ sales tax, which was a revenue law in force at the time the sales took
place. KPI paid the taxes under protest, demanded for refund and contended that KPI
could not be liable for merchants’ sales tax because it was only acting as broker
between KICE and the local buyers. The lower court dismissed the complaint and ruled
in favor of the government.

Issue: Whether or not the application of “piercing the corporate veil” doctrine is proper

Ruling: Yes. With regards only to the transactions involved, KPI and KICE were treated
as one and the same so that taxes could be rightly collected. The court has to
disregard this “corporate fiction” to prevent KICE / KPI from evading its taxes by
contravening the local internal revenue laws. The court did not deny legal personality to
KPI; in fact, it had no power to hold so. The doctrine was used only to adjudge the
rights and liabilities of each parties in these kind of transactions.

LIDDELL & CO., INC. vs. THE COLLECTOR OF INTERNAL REVENUE

Facts:
Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation established in the
Philippines... with the limited paid-in capital of P20,000, Liddell & Co. was able to
declare a 900% stock dividend after which declaration, Frank Liddell's holdings in the
company increased to 1,960 shares and the employees, Charles Kurz, E.J. Darras,
Angel Manzano... and Julian Serrano at 10 shares each. The declaration of stock
dividend was followed by a resolution increasing the authorized capital of the company
to P1,000,000 which the Securities & Exchange Commission... approved on March 3,
1947. Upon such approval, Frank Liddell... subscribed to 3,000 additional shares, for
which he paid into the corporation P300,000 so that he had in his own name 4,960
shares.

In various instances, complaints were filed against Liddel which were affirmed by the
court. Liddell & Co., Inc. appealed the decision of the Court of Tax Appeals, which
imposed a tax deficiency liability of P1,317,629.61 on the company.

Issue:
Whether or not the income received by Liddell & Co., Inc. from its Philippine branch
should be subject to Philippine income tax

Ruling:
The Supreme Court ruled in favor of Liddell & Co., Inc. and reversed the decision of the
Court of Tax Appeals. The Court held that the corporation was not liable for the tax
deficiency because it was not engaged in trade or business in the Philippines and did
not have any income derived from sources within the country. The Court also found that
the corporation did not have a resident agent in the Philippines, and therefore, the
Collector of Internal Revenue had no authority to assess and collect taxes from the
corporation.

LA CAMPANA COFFEE FACTORY, INC., and TAN TONG, "LA CAMPANA

GAUGAU PACKING" vs. KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA
(KKM) and THE COURT OF INDUSTRIAL RELATIONS

Facts: La Campana Coffee Factory, Inc. and Tan Tong doing business under the trade
name "La Campana Gaugau Packing" were the petitioners. Kaisahan ng mga
Manggagawa sa La Campana, a labor union with 66 members, presented a demand for
higher wages and more privileges to La Campana Starch and Coffee Factory. The
company refused to negotiate with the union and instead filed a petition for a
declaratory relief with the Court of First Instance of Manila to declare the union as an
illegal organization. The union filed a motion to dismiss the petition on the ground that
the company failed to exhaust all administrative remedies before resorting to judicial
action.

Issue: Whether or not the union is an illegal organization.

Ruling: The union is not an illegal organization. The ruling that the union is not an illegal
organization is based on the principle of freedom of association, which is enshrined in
the Philippine Constitution. This principle guarantees the right of workers to form and
join unions for the purpose of collective bargaining and other lawful purposes.

WPM INTERNATIONAL TRADING, INC. and WARLITO P. MANLAPAZ, petitioners,

vs. FE CORAZON LABAYEN

Facts: The petitioner, WPM International Trading, Inc. (WPM), is a domestic corporation
engaged in the restaurant business, while Warlito P. Manlapaz is its president.
Sometime in 1990, WPM entered into a management agreement with Labayen, by
virtue of which the respondent was authorized to operate, manage and rehabilitate
Quickbite, a restaurant owned and operated by WPM. On October 19, 1990, CLN filed a
complaint for sum of money and damages before the RTC against the respondent and
Manlapaz. The respondent was declared in default for her failure to file a responsive
pleading. Respondent instituted a complaint for damages against the petitioners, WPM
and Manlapaz.

Based on the records, there is a clear indication that WPM is a mere instrumentality or
business conduit of Manlapaz. The RTC also found that Manlapaz had complete control
over WPM considering that he is its chairman, president and treasurer at the same time.
CA affirmed and held that the petitioners are barred from raising as a defense the
respondent’s alleged lack of authority to enter into the renovation agreement in view of
their tacit ratification of the contract.

Issue: Whether or not WPM is a mere instrumentality, alter-ego, and business conduit of
Manlapaz

Ruling: No. a) Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own; b) Such control must have been used by the
defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right;
and c) The aforesaid control and breach of duty must have proximately caused the
injury or unjust loss complained of.

In the present case, the attendant circumstances do not establish that WPM is a mere
alter ego of Manlapaz. Aside from the fact that Manlapaz was the principal stockholder
of WPM, records do not show that WPM was organized and controlled, and its affairs
conducted in a manner that made it merely an instrumentality, agency, conduit or
adjunct of Manlapaz.

RICARDO TANTONGCO vs. KAISAHAN NG MGA MANGGAGAWA SA LA

CAMPANA (KKM) AND THE HONORABLE COURT OF INDUSTRIAL RELATIONS

FACTS: La Campana Starch Factory and La Campana Coffee Factory (La

Campana forBrevity) are two separate entities run by a single management
under the leadership of Ramon Tantongco. Kaisahan ng mga Manggagawa
sa La Campana (Kaisahan for brevity), on the other hand, is a labor union with
members from the two companies. Sometime in June, 1951, representatives
of Kaisahan approached the management of La Campana to demand higher
wages and more benefits. A deadlock ensued since none of the parties is
willing to give concessions. The dispute was certified to the Court of Industrial
Relations (CIR). The administrator of the estate of Ramon Tantongco, herein
petitioner Ricardon Tantongco, was ordered included as respondent in the
cases pending before the CIR. The CIR rendered a decision on the incidental
cases and ordered the reinstatement of the dismissed employees. When the
employees reported to work, the management refused them admittance.
Kaisahan then filed a petition to cite the management in contempt before
the CIR. Hence this petition.

ISSUE: Whether or not the Doctrine of Piercing the Veil of Corporate

Existence applies to the present case

RULING: The Supreme Court DENIED the Petition for Certiorari and
Prohibition. It ruled that La Camapana continued to exist despite the death of
Ramon Tantongco. It further ruled that the Doctrine of Piercing the Veil of
Corporate Existence is not applicable in the present case. The death of
Ramon Tantongco did not end the existence of La Campana. The Supreme
Court applied the Doctrine of Piercing the Veil of Corporate Existence in GR
no. L-5677 to avoid the use of technicality to defeat the jurisdiction of the CIR.
In the said case, the Court determined that although La Campana are two
separate companies, they are being managed by only one management.
Furthermore, the workers of both factories were interchangeably assigned. In
the present case, however, the Court ruled that despite the obvious fact that
La Campana was run by the same people, they still are two different
companies with separate personalities from Ramon Tantongco. La Campana
was owned not only by Ramon but others as well including Ricardo
Tantongco. Lastly, the Court ruled that petitioner is under estoppel and
cannot claim that La Campana and Ramon are one and the same since he
has represented La Campana as separate entities in numerous dealings.
ADELIO C. CRUZ vs. QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila

FACTS:

Respondent sheriff attached and/or levied the money belonging to complainant Cruz
when he was not himself the judgment debtor in the final judgment of NLRC NCR Case
No. 8-12389-91 sought to be enforced but rather the company known as "Qualitrans
Limousine Service, Inc.," a duly registered corporation; and,

Respondent likewise caused the service of the alias writ of execution upon complainant
who is a resident of Pasay City, despite knowledge that his territorial jurisdiction covers
Manila only and does not extend to Pasay City.

In his Comments, respondent Dalisay explained that when he garnished complainant's

cash deposit at the Philtrust bank, he was merely performing a ministerial duty. While it
is true that said writ was addressed to Qualitrans Limousine Service, Inc., yet it is also a
fact that complainant had executed an affidavit before the Pasay City assistant fiscal
stating that he is the owner/president of said corporation and, because of that
declaration, the counsel for the plaintiff in the labor case advised him to serve notice of
garnishment on the Philtrust bank.

ISSUE: Whether or not Respondent Deputy Sheriff Quiterio L. Dalisay in the

enforcement of the writ of execution in NLRC is correct?

HELD: No. Respondent, however, chose to "pierce the veil of corporate entity" usurping
a power belonging to the court and assumed improvidently that since the complainant is
the owner/president of Qualitrans Limousine Service, Inc., they are one and the same.

It is a well-settled doctrine both in law and in equity that as a legal entity, a corporation
has a personality distinct and separate from its individual stockholders or members. The
mere fact that one is president of a corporation does not render the property he owns or
possesses the property of the corporation, since the president, as individual, and the
corporation are separate entities.

NASECO GUARDS ASSOCIATION-PEMA (NAGA-PEMA) vs. NATIONAL SERVICE

CORPORATION (NASECO)

FACTS: Respondent National Service Corporation (NASECO) is a wholly-owned

subsidiary of the PNB organized under the Corporation Code in 1975. NASECO
Employees Union-PEMA (NEMU-PEMA) is the collective bargaining representative of
the regular rank and file. On June 8, 1995, petitioner and respondent agreed to sign a
CBA on non-economic terms. On September 24, 1996, petitioner filed a notice of strike
because of respondent’s refusal to bargain for economic benefits in the CBA. Following
conciliation hearings, the parties again commenced CBA negotiations and started to
resolve the issues on wage increase, productivity bonus, incentive bonus, allowances,
and other benefits but failed to reach an agreement. Meanwhile, respondent and
NEMU-PEMA entered into a CBA on non-economic terms. Unfortunately, a dispute
among the leaders of NEMU-PEMA arose and at a certain point, leadership of the
organization was unclear. Hence, the negotiations concerning the economic terms of
the CBA were put on hold until the internal dispute could be resolved.

ISSUE: Whether or not PNB, being the undisputed owner of and exercising control over
respondent, should be made liable topay the CBA benefits awarded to the petitioner.

RULING: Petitioner argues that the CA erred in stating that respondent was a company
operating at a loss and therefore cannot be expected to act generously and confer upon
its employees additional benefits exceeding what is mandated by law. It is the
petitioner’s position that based on the “no loss, no profit” policy of respondent with PNB,
respondent in truth has no “pocket” of its own and is, in effect, and the same with PNB
with regard to financial gains and/or liabilities. Thus, petitioners contend that the CBA
benefits should be shouldered by PNB considering the poor financial condition of
respondent.

What the petitioner is asking this Court to do is to pierce the veil of corporate fiction of
respondent and hold PNB(being the mother company) liable for the CBA benefits.
.Applying the doctrine to the case at bar, we find no reason to pierce the corporate veil
of respondent and go beyond its legal personality. Control, by itself, does not mean that
the controlled corporation is a mere instrumentality or a business conduit of the mother
company. Even control over the financial and operational concerns of a subsidiary
company does not by itself call for disregarding its corporate fiction. There must be a
perpetuation of fraud behind the control or at least a fraudulent or illegal purpose behind
the control in order to justify piercing the veil of corporate fiction. Such fraudulent intent
is lacking in this case.

Pacific Rehouse Corp. v. Court of Appeals, G.R. Nos. 199687 & 201537, [March 24, 2014], 730 PHIL
325-353) [G.R. No. 182729. September 29, 2010].

The Alter Ego Doctrine is not applicable

"The question of whether one corporation is merely an alter ego of another is purely one of fact. So is the
question of whether a corporation is a paper company, a sham or subterfuge or whether petitioner adduced
the requisite quantum of evidence warranting the piercing of the veil of respondent's corporate entity."
As a rule, the parties may raise only questions of law under Rule 45, because the Supreme Court is not a
trier of facts. Generally, we are not duty-bound to analyze again and weigh the evidence introduced in and
considered by the tribunals below. However, justice for all is of primordial importance that the Court will not
think twice of reviewing the facts, more so because the RTC and the CA arrived in contradicting
conclusions.

"It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience and to promote justice. So,
when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the
corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego of another corporation."
"Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a
mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may
be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but
such domination of finances, policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that
the control must be shown to have been exercised at the time the acts complained of took place. Moreover,
the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is
made."

(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but
of policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff's
legal right; and
(3) The aforesaid control and breach of duty must [have] proximately caused the injury or unjust loss
complained of. 63

The absence of any one of these elements prevents 'piercing the corporate veil' in applying the
'instrumentality' or 'alter ego' doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant's relationship to that operation. 64 Hence, all three
elements should concur for the alter ego doctrine to be applicable.