CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
DOCTRINE OF PIERCING THE VEIL OF CORPORATE
FICTION
Under certain circumstances, the courts may disregard
the separate and distinct personality of the corporation
from its members or stockholders and treat the
corporation as a mere collection of individuals or an
aggregation of persons undertaking business as a group
such as when the corporate legal entity is used as a cloak
for fraud or illegality.
It is an equitable doctrine used as a last resort only when
the objective is to hold the officers and or stockholders
liable. Thus, in one case, it cannot be applied in order to
declare a foreclosure proceeding a nullity.
Being merely an equitable remedy, employment of the
piercing doctrine can only be for the protection of the
interests of innocent third persons dealing with the
corporate entity which the law aims to protect by this
doctrine.
Classification of piercing cases:
• Fraud piercing- when a corporate entity is used to
commit fraud or justify a wrong or to defend a crime.
• Alter-ego piercing-when a corporate entity is used
to defeat public convenience or is merely a farce
since the corporation is merely the alter ego,
business conduit, instrumentality of a person or
another entity.
• Equity cases- when piercing the corporate fiction is
necessary to achieve justice or equity.
Note: The three cases may appear together in one
application.
Grounds for application of the different types of
piercing
For Fraud Cases
• There must have been fraud or an evil motive in the
affected transaction, and the mere proof of control
of the corporation by itself would not authorize
piercing; and
• The main action should seek for the enforcement of
pecuniary claims pertaining to the corporation
against corporate officers or stockholders;
For Alter-ego cases:
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• The doctrine applies in this case even in the
absence of evil intent: it applies because of the
direct violation of a central corporate law
principle of separating ownership from
management.
• The doctrine in such cases is based on estoppel;
if stockholders do not respect the separate
entity, others cannot also be expected to be
bound by the separate juridical entity;
• Piercing in alter-ego cases may prevail even
when no monetary claims are sought to be
enforced against the stockholders or officers of
the corporation.
TESTS FOR APPLICABILITY OF THE DOCTRINE OF
PIERCING THE VEIL OF CORPORATE FICTION:
• CONTROL-not mere stock control but complete
domination, not only of finances, but of policy and
business practice in respect to the transaction
attacked and must have been such that the
corporate entity as to this transaction had at the
time no separate mind, will, or existence as of its
own.
• Such control must have been used by the
defendant to commit a fraud or wrong to
perpetuate the violation of a statutory or other
positive legal breach of duty, or a dishonest and an
unjust act in contravention of the plaintiff’s legal
right; and
• The said control and breach of duty must have
proximately caused the injury or unjust loss
complained of.
These were expanded as three-pronged tests:
The first prong is the instrumentality or control test.
This test requires that the subsidiary be completely
under the control and domination of the parent
corporation or shareholder. It seeks to establish whether
the corporation has no autonomy and the parent
corporation or shareholder is operating the business
directly for itself or themselves.
The second prong is the fraud test. This requires that the
conduct in using the corporation be unjust, fraudulent,
or wrongful.
The third prong is the harm test. This test requires the
plaintiff to show that the defendant’s control, exerted in
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
a fraudulent, illegal, or otherwise unfair manner toward
it, caused the harm suffered.
Factors to consider in cases of parent and subsidiary
corporations in alter-ego piercing:
(a) The parent corporation owns all or most of the capital
stock of the subsidiary.
(b) The parent and subsidiary corporations have
common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital
stock of the subsidiary or otherwise causes its
incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other
expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except
with the parent corporation or no assets except those
conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the
statements of its officers, the subsidiary is described as
a department or division of the parent corporation, or its
business or financial responsibility is referred to as the
parent corporation's own.
(i) The parent corporation uses the property of the
subsidiary as its own.
(j) The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary but take
their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are
not observed.
Note: Mere ownership by a single stockholder or by
another corporation of all or substantially all of the
capital stock of the corporation does not justify the
application of the doctrine.
Reverse piercing has two (2) types:
1. Outsider Reverse-piercing occurs when a party
with a claim against an individual or corporation
attempts to be repaid with assets of a
corporation owned or substantially controlled by
the defendant,
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2. Inside Reverse Piercing-the controlling
members will attempt to ignore the corporate
fiction in order to take advantage of a benefit
available to the corporation, such as an interest
in a lawsuit or protection of personal assets.
CASES:
SIA VS COURT OF APPEALS, G.R. NO. 108222, MAY
5, 1997
FACTS: Atty. Rodolfo N. Pelaez was the owner of a parcel
of land at the corner of Tiano Bros. Street and Cruz Taal
Street, Cagayan de Oro, City. He leased the land to Henry
L. Sia's parents, the spouses Lim Siok Oan and Sia Bon
Suan, who in 1970, constructed a building with the
consent of lessor. When Rodolfo Pelaez died, the land
was inherited by his son, Atty. Pacifico Pelaez, who sold
it to the private respondent Torre de Oro Development
Corp. On the other hand, petitioner succeeded to the
rights of his parents as lessees of property, upon the
latter's death.
On March 22, 1988, private respondent Torre de Oro
Development Corp., represented by Atty. Pacifico
Pelaez, and petitioner Henry L. Sia entered into a lease
contract (Exh. H) of the land in question.
On December 22, 1988, private respondent sent a letter
to petitioner, informing him that it was not renewing their
least contract after its expiration, on the ground that
petitioner had subleased the property without the
written consent of private respondent, in violation of
condition par. 2 of the lease contract. In letters dated
December 26, 1988 (Annexes B-l to B-5) the sublessees
were similarly notified of the expiration of petitioner's
lease and were advised that in case they wished to
continue with their lease, arrangements should be made
directly with private respondent.
Petitioner, through counsel, wrote a letter to private
respondent dated January 20, 1989 (Exh. J), stating that
the increase in rent from P2,000.00 to P8,500.00, which
private respondent demanded, was excessive. He
intimated that he was willing to pay an increase of
P500.00 only.
Private respondent ignored the offer, but petitioner
insisted on remaining in the premises. Private
respondent Torre de Oro Development Corp., therefore,
brought this suit in the court below for his ejectment.
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
On June 26, 1990, the Municipal Trial Court rendered
judgment in favor of petitioner. However, on appeal, the
Regional Trial Court reversed its decision.
Consequently, the Regional Trial Court upheld the right
of private respondent as lessor to terminate the contract
of lease upon expiration thereof, regardless of the
tenability of petitioner's violation of the prohibition
against the sub-leasing of the leased premises which
was private respondent's original ground for ejecting
petitioner.
The Municipal Trial Court, in the course of dismissing
private respondent's complaint for ejectment, also ruled
that petitioner is a builder in good faith in contemplation
of Article 448 in relation to Article 546 of the New Civil
Code and that as such, he cannot be ejected without
being paid the fair market value of the commercial
building erected on the leased premises by his parents.
Again, the Regional Trial Court found this ruling by the
court a quo to be erroneous. The Regional Trial Court
ratiocinated, thus:
It must always be remembered that Art. 448 of the New
Civil Code comes in only when the possessor builds on
the land of another believing that he is the owner of the
land of another. The facts in this proceeding are very
much different. Defendant Henry Sia is a tenant of
plaintiff and no amount of denial or legal forensic can
add or alter that status of the defendant. This being so, it
must perforce be safe to uphold that the provisions of
Article 1678 of the New Civil Code shall govern the
respective rights of the parties herein.
In connection with the petitioner's contention that she
be considered a builder in good faith and, therefore,
entitled to reimbursement in addition to reasonable
expenses that may be incurred in transferring the house
to another place, the same cannot stand legal scrutiny.
The rule is well-settled that lessees, like petitioner, are
not possessors in good faith, the premises continues
only during the life of the lease, and they cannot as a
matter of right, recover the value of their improvements
from the lessor, much less retain the premises until they
are reimbursed. Their rights are governed by Article 1678
of the Civil Code which allows reimbursement of lessees
up to one-half of the value of their improvements if the
lessor so elects. (p. 250, emphasis supplied) (Bocaling
vs. Laguna, et al. 54 SCRA 243).
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In this connection, this court finds that the court a
quo erred in applying the provisions of Arts. 448 and 527
of the New Civil Code to the case at bar because said
ruling is against the principles set by the New Civil Code
and of our established jurisprudence.
The Regional Trial Court therefore rendered its decision
on appeal setting aside the judgment of the court a
quo and ordering petitioner to vacate the leased
premises and to pay private respondent a monthly rental
of P5,000.00 from December, 1988 until he actually
vacates said premises. Petitioner was also adjudged
liable for P5,000.00 as litigation expenses and
P10,000.00 as attorney's fees.
Aggrieved by the foregoing decision, petitioner appealed
to the Court of Appeals
At the time of the filing of this case and during the
execution of the Lease Contract, Exhibit H, the parties
cannot deny that there was already a commercial
building standing on the land in dispute since the early
part of 1971 because there was a big fire in 1969 that
razed down the Divisoria area including the building that
used to stand on the land. After the construction of the
building it cannot be denied that the purpose of the
building which cost the defendant's predecessors the
sum of P35,000.00 was to have it subleased to several
tenants subject to the terms of their contract which
expressly prohibited any sub-lease. This court finds the
situation incongruous but cannot fault the defendant on
this because the violation or non-violation of this
prohibition is not very relevant to this resolution.
Moreover, as correctly found by the trial court, the
plaintiffs-appellants, as lessees, are neither builders in
good faith nor in bad faith. Their rights are governed not
by Article 448 but by Art. 1678 of the New Civil Code. . .
As lessees, they may remove the improvements should
the lessor refuse to reimburse them, but the lessee does
not have the right to buy the land
ISSUES: 1. Whether the contract of lease has not yet
expired when the instant complaint was filed; 2.
Whether defendant subleased the area or not; 3.
Whether plaintiff owns the building upon the
expiration of the contract; and 4. Whether plaintiff can
legally eject defendant from the leased premises.
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.

RULING: of excessive rentals, the valuation made by the Regional

Petitioner stubbornly insists that he may not be ejected
from private respondent's land because he has the right,
under Articles 448 and 546 of the New Civil Code, to
retain possession of the leased premises until he is paid
the full fair market value of the building constructed
thereon by his parents. Petitioner is wrong, of course. The
Regional Trial Court and the Court of Appeals correctly
held that it is Article 1678 of the New Civil Code that
governs petitioner's right vis-a-vis the improvements
built by his parents on private respondent's land.
Moreover, petitioner's postulations are disjoined from
the well-settled interrelated principles that (1) Articles
448 and 546 of the New Civil Code vest the right of
retention and the right to reimbursement in a possessor
Trial Court, as affirmed by the respondent Court of
Appeals, stands.
It is worth stressing at this juncture that the trial court
had the authority to fix the reasonable value for the
continued use and occupancy of the leased premises
after the termination of the lease of the lease contract,
and that it was not bound by the stipulated rental in the
contract of lease since it is equally settled that upon
termination or expiration of the contract of lease, the
rental stipulated therein may no longer he the
reasonable value for the use and occupation of the
premises as a result or by reason of the change or rise in
values. Moreover, the trial court can take judicial notice
of the general increase in rentals of real estate specially
of business establishments . . . 25

of a parcel of land who believed himself to be the owner

of said land and as such, built thereon and incurred
expenses in so doing; (2) a lessee, being conclusively
presumed to know that he is not the owner of the land
that he is leasing, is not such a possessor-builder
contemplated of by Articles 448 and 546 of the New Civil
Code; and (3) a lessee who constructs a house or
building or any other improvement or structure on the
leased land, only has the right granted to him by Article
1678 of the New Civil Code to remove the same in case
the lessor elects not to appropriate the building and pay
50% of its value. All these are already settled doctrines
and uniformly applied in such recent cases as Guzman
v. Court of Appeals, Guiang v. Samano, Heirs of the late
Jaime Binuya v. Court of Appeals, and Chua v. Court of
Appeals.
Finally, petitioner submits that the award of monthly
rental of P5,000.00 as fixed by the Regional Trial Court
and affirmed by respondent Court of Appeals, is
excessive, exorbitant and unreasonable. We disagree.
On the contrary, the records bear out that the P5,000.00
monthly rental is a reasonable amount, considering that
the subject lot is prime commercial real property whose
value has significantly increased and that P5,000.00 is
within the range of prevailing rental rates in that vicinity.
Moreover, petitioner has not proffered controverting
evidence to support what he believes to be the fair rental
value of the leased building since the burden of proof to
show that the rental demanded is unconscionable or
exorbitant rests upon the lessee. Thus, here and now we
rule, as we did in the case of Manila Bay Club v. Court of
Appeals, that petitioner having failed to prove its claim
24
WHEREFORE, premises considered, the instant
petition is hereby DISMISSED for lack of merit.
PRIME WHITE CEMENT CORPORATION VS
HONORABLE INTERMEDIATE APPELLATE COURT AND
ALEJANDRO TE, G.R. NO. L-68555, MARCH 19, 1993
Doctrine: “A director of a corporation holds a position of
trust and as such, he owes a duty of loyalty to his
corporation. In case his interests conflict with those of
the corporation, he cannot sacrifice the latter to his own
advantage and benefit. As corporate managers,
directors are committed to seek the maximum amount
of profits for the corporation. This trust relationship "is
not a matter of statutory or technical law. It springs from
the fact that directors have the control and guidance of
corporate affairs and property and hence of the property
interests of the stockholders”.
FACTS: On or about the 16th day of July, 1969, plaintiff
and defendant corporation thru its President, Mr.
Zosimo Falcon and Justo C. Trazo, as Chairman of the
Board, entered into a dealership agreement whereby
said plaintiff was obligated to act as the exclusive dealer
and/or distributor of the said defendant corporation of
its cement products in the entire Mindanao area for a
term of five (5) years and proving (sic) among others that:
a. The corporation shall, commencing September, 1970, sell to
and supply the plaintiff, as dealer with 20,000 bags (94 lbs/bag) of
white cement per month;chanrobles virtual law library

4|Pa g e
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
b. The plaintiff shall pay the defendant corporation P9.70,
Philippine Currency, per bag of white cement, FOB Davao and
Cagayan de Oro ports;
c. The plaintiff shall, every time the defendant corporation is ready
to deliver the good, open with any bank or banking institution a
confirmed, unconditional, and irrevocable letter of credit in favor
of the corporation and that upon certification by the boat captain
on the bill of lading that the goods have been loaded on board the
vessel bound for Davao the said bank or banking institution shall
release the corresponding amount as payment of the goods so
shipped.
Right after the plaintiff entered into the aforesaid
dealership agreement, he placed an advertisement in a
national, circulating newspaper the fact of his being the
exclusive dealer of the defendant corporation's white
cement products in Mindanao area, more particularly, in
the Manila Chronicle dated August 16, 1969 and was
even congratulated by his business associates, so much
so, he was asked by some of his businessmen friends
and close associates if they can be his sub-dealer in the
Mindanao area.
Relying heavily on the dealership agreement, plaintiff
sometime in the months of September, October, and
December, 1969, entered into a written agreement with
several hardware stores dealing in buying and selling
white cement in the Cities of Davao and Cagayan de Oro
which would thus enable him to sell his allocation of
20,000 bags regular supply of the said commodity, by
September, 1970. After the plaintiff was assured by his
supposed buyer that his allocation of 20,000 bags of
white cement can be disposed of, he informed the
defendant corporation in his letter dated August 18,
1970 that he is making the necessary preparation for the
opening of the requisite letter of credit to cover the price
of the due initial delivery for the month of September,
1970, looking forward to the defendant corporation's
duty to comply with the dealership agreement.
Several demands to comply with the dealership
agreement were made by the plaintiff to the defendant,
however, defendant refused to comply with the same,
and plaintiff by force of circumstances was constrained
to cancel his agreement for the supply of white cement
with third parties, which were concluded in anticipation
of, and pursuant to the said dealership agreement.
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Notwithstanding that the dealership agreement between
the plaintiff and defendant was in force and subsisting,
the defendant corporation, in violation of, and with
evident intention not to be bound by the terms and
conditions thereof, entered into an exclusive dealership
agreement with a certain Napoleon Co for the marketing
of white cement in Mindanao hence, this suit.
RULING OF THE RTC AND CA: After trial, the trial court
adjudged the corporation liable to Alejandro Te in the
amount of P3,302,400.00 as actual damages,
P100,000.00 as moral damages, and P10,000.00 as and
for attorney's fees and costs. The appellate court
affirmed the said decision.
ISSUES: Whether or not the "dealership agreement"
referred by the President and Chairman of the Board of
petitioner corporation is a valid and enforceable
contract.
RULING: We do not agree with the decision of the
Respondent Court.
Under the Corporation Law, which was then in force at
the time this case arose, as well as under the present
Corporation Code, all corporate powers shall be
exercised by the Board of Directors, except as otherwise
provided by law. Although it cannot completely abdicate
its power and responsibility to act for the juridical entity,
the Board may expressly delegate specific powers to its
President or any of its officers. In the absence of such
express delegation, a contract entered into by its
President, on behalf of the corporation, may still bind the
corporation if the board should ratify the same expressly
or impliedly. Implied ratification may take various forms
- like silence or acquiescence; by acts showing approval
or adoption of the contract; or by acceptance and
retention of benefits flowing therefrom. Furthermore,
even in the absence of express or implied authority by
ratification, the President as such may, as a general rule,
bind the corporation by a contract in the ordinary course
of business, provided the same is reasonable under the
circumstances.
The situation is quite different where a director or
officer is dealing with his own corporation. In the
instant case respondent Te was not an ordinary
stockholder; he was a member of the Board of
Directors and Auditor of the corporation as well. He
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
was what is often referred to as a "self-dealing"
director.
A director of a corporation holds a position of trust and
as such, he owes a duty of loyalty to his corporation. In
case his interests conflict with those of the corporation,
he cannot sacrifice the latter to his own advantage and
benefit. As corporate managers, directors are
committed to seek the maximum amount of profits for
the corporation. This trust relationship "is not a matter of
statutory or technical law. It springs from the fact that
directors have the control and guidance of corporate
affairs and property and hence of the property interests
of the stockholders."
On the other hand, a director's contract with his
corporation is not in all instances void or voidable. If the
contract is fair and reasonable under the
circumstances, it may be ratified by the stockholders
provided a full disclosure of his adverse interest is made.
Section 32 of the Corporation Code provides, thus:
Sec. 32. Dealings of directors, trustees or officers with the
corporation. - A contract of the corporation with one or more of its
directors or trustees or officers is voidable, at the option of such
corporation, unless all the following conditions are present:
1. That the presence of such director or trustee in the board
meeting in which the contract was approved was not necessary to
constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for
the approval of the contract;
3. That the contract is fair and reasonable under the
circumstances;
4. That in the case of an officer, the contract with the officer has
been previously authorized by the Board of Directors.
Where any of the first two conditions set forth in the
preceding paragraph is absent, in the case of a contract
with a director or trustee, such contract may be ratified
by the vote of the stockholders representing at least two-
thirds (2/3) of the outstanding capital stock or of two-
thirds (2/3) of the members in a meeting called for the
purpose: Provided, That full disclosure of the adverse
interest of the directors or trustees involved is made at
such meeting: Provided, however, That the contract is
fair and reasonable under the circumstances.
6|Pa g e
Granting arguendo that the "dealership agreement"
involved here would be valid and enforceable if entered
into with a person other than a director or officer of the
corporation, the fact that the other party to the contract
was a Director and Auditor of the petitioner corporation
changes the whole situation. First of all, We believe that
the contract was neither fair nor reasonable. The
"dealership agreement" entered into in July, 1969, was to
sell and supply to respondent Te 20,000 bags of white
cement per month, for five years starting September,
1970, at the fixed price of P9.70 per bag.
Respondent Te is a businessman himself and must have
known, or at least must be presumed to know, that at
that time, prices of commodities in general, and white
cement in particular, were not stable and were expected
to rise. At the time of the contract, petitioner corporation
had not even commenced the manufacture of white
cement, the reason why delivery was not to begin until
14 months later. He must have known that within that
period of six years, there would be a considerable rise in
the price of white cement.
In the light of the circumstances of this case, it is to Us
quite clear that he was guilty of disloyalty to the
corporation; he was attempting in effect, to enrich
himself at the expense of the corporation. There is no
showing that the stockholders ratified the "dealership
agreement" or that they were fully aware of its
provisions. The contract was therefore not valid and this
Court cannot allow him to reap the fruits of his disloyalty.
As a result of this action which has been proven to be
without legal basis, petitioner corporation's reputation
and goodwill have been prejudiced. However, there can
be no award for moral damages under Article 2217 and
succeeding articles on Section 1 of Chapter 3 of Title
XVIII of the Civil Code in favor of a corporation.
In view of the foregoing, the Decision and Resolution
of the Intermediate Appellate Court dated March 30,
1984 and August 6, 1984, respectively, are hereby SET
ASIDE. Private respondent Alejandro Te is hereby
ordered to pay petitioner corporation the sum of
P20,000.00 for attorney's fees, plus the cost of suit
and expenses of litigation.
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
SPOUSES CRYSTAL VS. BANK OF THE PHILIPPINE
ISLANDS, G.R. NO. 17248, NOVEMBER 28, 2008
DOCTRINE: A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish or moral shock. 32 The Court of
Appeals found BPI as "being famous and having gained its
familiarity and respect not only in the Philippines but also in the
whole world because of its good will and good reputation must
protect and defend the same against any unwarranted suit such
as the case at bench." In holding that BPI is entitled to moral
damages, the Court of Appeals relied on the case of People v.
Manero, wherein the Court ruled that "[i]t is only when a juridical
person has a good reputation that is debased, resulting in social
humiliation, that moral damages may be awarded.
FACTS: On 28 March 1978, spouses Raymundo and
Desamparados Crystal obtained a P300,000.00 loan in
behalf of the Cebu Contractors Consortium Co. (CCCC)
from the Bank of the Philippine Islands-Butuan branch (BPI-
Butuan). The loan was secured by a chattel mortgage on
heavy equipment and machinery of CCCC. On the same
date, the spouses executed in favor of BPI-Butuan a
Continuing Suretyship where they bound themselves as
surety of CCCC in the aggregate principal sum of not
exceeding P300,000.00. Thereafter, or on 29 March 1979,
Raymundo Crystal executed a promissory note6 for the
amount of P300,000.00, also in favor of BPI-Butuan.
Sometime in August 1979, CCCC renewed a previous loan,
this time from BPI, Cebu City branch (BPI Cebu City). The
renewal was evidenced by a promissory note, signed by the
spouses in their personal capacities and as managing
partners of CCCC. The promissory note states that the
spouses are jointly and severally liable with CCCC. It
appears that before the original loan could be granted, BPI-
Cebu City required CCCC to put up a security.
However, CCCC had no real property to offer as security for
the loan; hence, the spouses executed a real estate
mortgage over their own real property. On 3 October 1977,
they executed another real estate mortgage over the same
lot in favor of BPI-Cebu City, to secure an additional loan of
P20,000.00 of CCCC.
CCCC failed to pay its loans to both BPI-Butuan and BPI-
Cebu City when they became due. CCCC, as well as the
spouses, failed to pay their obligations despite demands.
Thus, BPI resorted to the foreclosure of the chattel
mortgage and the real estate mortgage. The foreclosure
sale on the chattel mortgage was initially stalled with the
issuance of a restraining order against BPI. However,
following BPI’s compliance with the necessary requisites of
7|Pa g e
extrajudicial foreclosure, the foreclosure sale on the chattel
mortgage was consummated on 28 February 1988, with the
proceeds amounting to P240,000.00 applied to the loan
from BPI-Butuan which had then reached P707,393.90.
BPI filed a complaint for sum of money against CCCC and
the spouses before the Regional Trial Court of Butuan City
(RTC Butuan), seeking to recover the deficiency of the loan
of CCCC and the spouses with BPI-Butuan. The trial court
ruled in favor of BPI. Pursuant to the decision, BPI instituted
extrajudicial foreclosure of the spouses’ mortgaged
property.
On the other hand, spouses filed an action for Injunction
With Damages, With A Prayer For A Restraining Order and/
or Writ of Preliminary Injunction. The spouses claimed that
the foreclosure of the real estate mortgages is illegal
because BPI should have exhausted CCCC’s properties
first, stressing that they are mere guarantors of the
renewed.
Ruling of the RTC & CA: The trial court dismissed the
spouses’ complaint and ordered them to pay moral and
exemplary damages and attorney’s fees to BPI. Spouses
appealed to the CA but was denied.
ISSUE/S: Whether or not BPI is entitled to moral damages;
RULING: No, BPI is not entitled to moral damages.
A juridical person is generally not entitled to moral damages
because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish or moral shock. The Court
of Appeals found BPI as "being famous and having gained
its familiarity and respect not only in the Philippines but also
in the whole world because of its good will and good
reputation must protect and defend the same against any
unwarranted suit such as the case at bench."
In holding that BPI is entitled to moral damages, the Court
of Appeals relied on the case of People v. Manero, wherein
the Court ruled that "it is only when a juridical person has a
good reputation that is debased, resulting in social
humiliation, that moral damages may be awarded."
We do not agree with the Court of Appeals. A statement
similar to that made by the Court in Manero can be found in
the case of Mambulao Lumber Co. v. PNB, et al., thus:
Obviously, an artificial person like herein appellant
corporation cannot experience physical sufferings, mental
anguish, fright, serious anxiety, wounded feelings, moral
shock or social humiliation which are basis of moral
damages. A corporation may have good reputation which, if
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
besmirched may also be a ground for the award of moral
damages.
Nevertheless, in the more recent cases of ABS-CBN Corp.
v. Court of Appeals, et al., and Filipinas Broadcasting
Network, Inc. v. Ago Medical and Educational Center-Bicol
Christian College of Medicine (AMEC-BCCM), the Court
held that the statements in Manero and Mambulao were
mere obiter dicta, implying that the award of moral
damages to corporations is not a hard and fast rule. Indeed,
while the Court may allow the grant of moral damages to
corporations, it is not automatically granted; there must still
be proof of the existence of the factual basis of the damage
and its causal relation to the defendant’s acts. This is so
because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not
to impose a penalty on the wrongdoer.
The spouses’ complaint against BPI proved to be
unfounded, but it does not automatically entitle BPI to
moral damages. Although the institution of a clearly
unfounded civil suit can at times be a legal justification for
an award of attorney's fees, such filing, however, has almost
invariably been held not to be a ground for an award of
moral damages. The rationale for the rule is that the law
could not have meant to impose a penalty on the right to
litigate. Otherwise, moral damages must every time be
awarded in favor of the prevailing defendant against an
unsuccessful plaintiff. BPI may have been inconvenienced
by the suit, but we do not see how it could have possibly
suffered besmirched reputation on account of the single
suit alone. Hence, the award of moral damages should be
deleted.
KUKAN INTERNATIONAL CORPORATION VS. REYES,
G.R. NO. 182729, September 29, 2010
DOCTRINE: A corporation is an artificial being created by
operation of law. It has a personality separate and distinct from the
persons composing it, as well as from any other legal entity to
which it may be related. This is basic.
Equally well-settled is the principle that the corporate mask may
be removed or the corporate veil pierced when the corporation is
just an alter ego of a person or of another corporation. For reasons
of public policy and in the interest of justice, the corporate veil will
justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.
Hence, any application of the doctrine of piercing the corporate
veil should be done with caution. A court should be mindful of the
milieu where it is to be applied. It must be certain that the
corporate fiction was misused to such an extent that injustice,
8|Pa g e
fraud, or crime was committed against another, in disregard of its
rights. The wrongdoing must be clearly and convincingly
established; it cannot be presumed. Otherwise, an injustice that
was never unintended may result from an erroneous application.
This Court has pierced the corporate veil to ward off a judgment
credit, to avoid inclusion of corporate assets as part of the estate
of the decedent, to escape liability arising from a debt, or to
perpetuate fraud and/or confuse legitimate issues either to
promote or to shield unfair objectives or to cover up an otherwise
blatant violation of the prohibition against forum-shopping. Only in
these and similar instances may the veil be pierced and
disregarded.
FACTS: Sometime in March 1998, Kukan, Inc. conducted a
bidding worth Php 5M (reduced to PhP 3,388,502) for the
supply and installation of signages in a building being
constructed in Makati City which was won by Morales.
Despite his compliance, Morales was only paid the amount
of PhP 1,976,371.07, leaving a balance of PhP
1,412,130.93, which Kukan, Inc. refused to pay despite
demands.
Morales filed a Complaint with the RTC against Kukan, Inc.
for a sum of money. However, starting November 2000,
Kukan, Inc. no longer appeared and participated in the
proceedings before the trial court, prompting the RTC to
declare Kukan, Inc. in default and paving the way for
Morales to present his evidence ex parte.
On November 28, 2002, the RTC rendered a Decision finding
for Morales and against Kukan, Inc.
After the above decision became final and executory,
Morales moved for and secured a writ of execution against
Kukan, Inc. The sheriff then levied upon various personal
properties found at what was supposed to be Kukan, Inc.’s
office at Unit 2205, 88 Corporate Center, Salcedo Village,
Makati City. Alleging that it owned the properties thus levied
and that it was a different corporation from Kukan, Inc.,
Kukan International Corporation (KIC) filed an Affidavit of
Third-Party Claim. Notably, KIC was incorporated in August
2000, or shortly after Kukan, Inc. had stopped participating
in Civil Case No. 99-93173.
In reaction to KIC’s claim, Morales interposed an Omnibus
Motion dated April 30, 2003, praying, and applying the
principle of piercing the veil of corporate fiction, that an
order be issued for the satisfaction of the judgment debt of
Kukan, Inc. with the properties under the name or in the
possession of KIC, it being alleged that both corporations
are but one and the same entity. KIC opposed Morales’
motion. The court denied the omibus motion.
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
In a bid to establish the link between KIC and Kukan, Inc.,
Morales filed a Motion for Examination of Judgment Debtors
dated May 4, 2005 which sought that subponae be issued
against the primary stockholders of Kukan, Inc., among
them Michael Chan, a.k.a. Chan Kai Kit. This too was denied
by the court.
Morales then sought the inhibition of the presiding judge,
Eduardo B. Peralta, Jr., who eventually granted the motion.
The case was re-raffled to Branch 21, presided by public
respondent Judge Amor Reyes.
Before the Manila RTC, Branch 21, Morales filed a Motion to
Pierce the Veil of Corporate Fiction to declare KIC as having
no existence separate from Kukan, Inc. This time around,
the RTC, by Order dated March 12, 2007, granted the
motion. From the above order, KIC moved but was denied
reconsideration in another Order dated June 7, 2007.
KIC went to the CA on a petition for certiorari to nullify the
aforesaid March 12 and June 7, 2007 RTC Orders but on
January 23, 2008, the CA denied the petition and affirmed
the assailed Orders. The CA later denied KIC’s MR in the
assailed resolution.
Hence, the instant petition for review.
ISSUES
A. Whether or not the trial court can, after the judgment
against Kukan, Inc. has attained finality, execute it against
the property of KIC;
B. Whether or not the trial court acquired jurisdiction over
KIC;
C. Whether or not the trial and appellate courts correctly
applied, under the premises, the principle of piercing the
veil of corporate fiction.
RULING:
No.
In Carpio v. Doroja,[13] the Court ruled that the deciding
court has supervisory control over the execution of its
judgment:
A case in which an execution has been issued is regarded
as still pending so that all proceedings on the execution are
proceedings in the suit. There is no question that the court
which rendered the judgment has a general supervisory
control over its process of execution, and this power carries
with it the right to determine every question of fact and law
which may be involved in the execution.
9|Pa g e
The court’s supervisory control does not, however, extend
as to authorize the alteration or amendment of a final and
executory decision, save for certain recognized exceptions,
among which is the correction of clerical errors. Else, the
court violates the principle of finality of judgment and
immutability.
As may be noted, the above decision, in unequivocal terms,
directed Kukan, Inc. to pay the aforementioned awards to
Morales. Thus, making KIC, thru the medium of a writ of
execution, answerable for the above judgment liability is a
clear case of altering a decision, an instance of granting
relief not contemplated in the decision sought to be
executed. And the change does not fall under any of the
recognized exceptions to the doctrine of finality and
immutability of judgment. It is a settled rule that a writ of
execution must conform to the fallo of the judgment; as an
inevitable corollary, a writ beyond the terms of the judgment
is a nullity.
Thus, on this ground alone, the instant petition can already
be granted. Nonetheless, an examination of the other
issues raised by KIC would be proper.
B. No.
In the instant case, KIC was not made a party-defendant in
Civil Case No. 99-93173. Even if it is conceded that it raised
affirmative defenses through its aforementioned pleadings,
KIC never abandoned its challenge, however implicit, to the
RTC’s jurisdiction over its person. The challenge was
subsumed in KIC’s primary assertion that it was not the
same entity as Kukan, Inc. Pertinently, in its Comment and
Opposition to Plaintiff’s Omnibus Motion dated May 20,
2003, KIC entered its “special but not voluntary
appearance” alleging therein that it was a different entity
and has a separate legal personality from Kukan, Inc. And
KIC would consistently reiterate this assertion in all its
pleadings, thus effectively resisting all along the RTC’s
jurisdiction of its person. It cannot be overemphasized that
KIC could not file before the RTC a motion to dismiss and its
attachments in Civil Case No. 99-93173, precisely because
KIC was neither impleaded nor served with summons.
Consequently, KIC could only assert and claim through its
affidavits, comments, and motions filed by special
appearance before the RTC that it is separate and distinct
from Kukan, Inc.
Following La Naval Drug Corporation, KIC cannot be
deemed to have waived its objection to the court’s lack of
jurisdiction over its person. It would defy logic to say that
KIC unequivocally submitted itself to the jurisdiction of the
RTC when it strongly asserted that it and Kukan, Inc. are
different entities. In the scheme of things obtaining, KIC had
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
no other option but to insist on its separate identity and
plead for relief consistent with that position.
C. No.
Now, as before the appellate court, petitioner KIC
maintains that the RTC violated its right to due process
when, in the execution of its November 28, 2002 Decision,
the court authorized the issuance of the writ against KIC for
Kukan, Inc.’s judgment debt, albeit KIC has never been a
party to the underlying suit. As a counterpoint, Morales
argues that KIC’s specific concern on due process and on
the validity of the writ to execute the RTC’s November 28,
2002 Decision would be mooted if it were established that
KIC and Kukan, Inc. are indeed one and the same
corporation.
Morales’ contention is untenable.
The principle of piercing the veil of corporate fiction, and the
resulting treatment of two related corporations as one and
the same juridical person with respect to a given
transaction, is basically applied only to determine
established liability; it is not available to confer on the court
a jurisdiction it has not acquired, in the first place, over a
party not impleaded in a case. Elsewise put, a corporation
not impleaded in a suit cannot be subject to the court’s
process of piercing the veil of its corporate fiction. In that
situation, the court has not acquired jurisdiction over the
corporation and, hence, any proceedings taken against that
corporation and its property would infringe on its right to
due process. Aguedo Agbayani, a recognized authority on
Commercial Law, stated as much:
Piercing the veil of corporate entity applies to determination
of liability not of jurisdiction.
This is so because the doctrine of piercing the veil of
corporate fiction comes to play only during the trial of the
case after the court has already acquired jurisdiction over
the corporation. Hence, before this doctrine can be applied,
based on the evidence presented, it is imperative that the
court must first have jurisdiction over the corporation.
The implication of the above comment is twofold: (1) the
court must first acquire jurisdiction over the corporation or
corporations involved before its or their separate
personalities are disregarded; and (2) the doctrine of
piercing the veil of corporate entity can only be raised during
a full-blown trial over a cause of action duly commenced
involving parties duly brought under the authority of the
court by way of service of summons or what passes as such
service.
10 | P a g e
In fine, to justify the piercing of the veil of corporate fiction,
it must be shown by clear and convincing proof that the
separate and distinct personality of the corporation was
purposefully employed to evade a legitimate and binding
commitment and perpetuate a fraud or like wrongdoings. To
be sure, the Court has, on numerous occasions, applied the
principle where a corporation is dissolved and its assets are
transferred to another to avoid a financial liability of the first
corporation with the result that the second corporation
should be considered a continuation and successor of the
first entity.
In those instances when the Court pierced the veil of corporate
fiction of two corporations, there was a confluence of the following
factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is transferred to a second
corporation to avoid a financial liability of the first corporation; and
3. Both corporations are owned and controlled by the same
persons such that the second corporation should be considered
as a continuation and successor of the first corporation.
In the instant case, however, the second and third factors
are conspicuously absent. There is, therefore, no
compelling justification for disregarding the fiction of
corporate entity separating Kukan, Inc. from KIC. In
applying the principle, both the RTC and the CA miserably
failed to identify the presence of the abovementioned
factors.
It bears reiterating that piercing the veil of corporate fiction
is frowned upon. Accordingly, those who seek to pierce the
veil must clearly establish that the separate and distinct
personalities of the corporations are set up to justify a
wrong, protect fraud, or perpetrate a deception. In the
concrete and on the assumption that the RTC has validly
acquired jurisdiction over the party concerned, Morales
ought to have proved by convincing evidence that Kukan,
Inc. was collapsed and thereafter KIC purposely formed
and operated to defraud him. Morales has not to us
discharged his burden.
WHEREFORE, the petition is hereby GRANTED The levy
placed upon the personal properties of Kukan
International Corporation is hereby ordered lifted and
the personal properties ordered returned to Kukan
International Corporation.
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
UMALI V. COURT OF APPEALS G.R. 89561, SEPTEMBER
13, 1990
DOCTRINE: 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.
FACTS: The Castillo family are the owners of a parcel of
lands which was given as security for a loan from the DBP.
Mauricia Castillo was the administratrix in charge over a
parcel of land left by Felipe Castillo. For their failure to pay
the amortization, foreclosure of the said property was about
to be foreclosed. This problem was made known to Rivera,
(Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia
Meer Vda. de Castillo.) who proposed to them the
conversion into subdivision of the four parcels of land
adjacent to the mortgaged property to raise the necessary
fund. The Idea was accepted by the Castillo family and to
carry out the project, a Memorandum of Agreement was
executed by and between Slobec Realty and Development,
Inc., represented by its President Rivera and the Castillo
family.
Rivera, armed with the agreement, approached Mr.
Modesto Cervantes, President of defendant Bormaheco,
and proposed to purchase from Bormaheco tractors.
Slobec, through Rivera, executed in favor of Bormaheco a
Chattel Mortgage over the said equipment as security. As
further security of the aforementioned unpaid balance,
Slobec obtained from Insurance Corporation of the Phil. a
Surety Bond, with ICP (Insurance Corporation of the Phil.)
as surety and Slobec as principal, in favor of Bormaheco.
The aforesaid surety bond was in turn secured by an
Agreement of Counter-Guaranty with Real Estate Mortgage
executed by Rivera as president of Slobec and Castillo
family, as mortgagors and ICP as mortgagee. In giving the
bond, ICP required that the Castillos mortgage to them the
four parcels of land.
For violation of the terms and conditions of the Counter-
Guaranty Agreement, the properties of the Castillos were
11 | P a g e
foreclosed by ICP - the highest bidder. The mortgagors had
one year to redeem the property, but they failed to do so.
Consequently, ICP consolidated its ownership. ICP sold to
PM Parts the four parcels of land. Thereafter, PM Parts,
through its President, Mr. Modesto Cervantes, sent a letter
addressed to plaintiff Mrs. Mauricia Meer Castillo
requesting her and her children to vacate the subject
property.
The heirs of the late Felipe Castillo filed an action for
annulment of title.
CFI: Judgment is hereby rendered in favor of the plaintiffs –
agreements etc - null and void for being fictitious, spurious
and without consideration.
CA: reversed Hence this petition.
ISSUES: Whether or not there is necessity to pierce the veil
of corporate entity of Bormaheco, ICP and PM Parts, to
determine whether they employed fraud in causing the
foreclosure and subsequent sale of the real properties
belonging to petitioners;
RULING: 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, petitioners seek to pierce the V621 Of
corporate entity of Bormaheco, ICP and PM Parts, alleging
that these corporations employed fraud in causing the
foreclosure and subsequent sale of the real properties
belonging to petitioners.
While we do not discount the possibility of the existence of
fraud in the foreclosure proceeding, neither are we inclined
to apply the doctrine invoked by petitioners in granting the
relief sought. It is our considered opinion that piercing the
veil of corporate entity is not the proper remedy in order that
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
the foreclosure proceeding may be declared a nullity under
the circumstances obtaining in the legal case at bar.
In the first place, the legal corporate entity is disregarded
only if it is sought to hold the officers and stockholder
directly liable for a corporate debt or obligation.
In the instant case, petitioners do not seek to impose a
claim against the individual members of the three
corporations involved; on the contrary, it is these
corporations which desire to enforce an alleged right
against petitioners. Assuming that petitioners were indeed
defrauded by private respondents in the foreclosure of the
mortgaged properties, this fact alone is not, under the
circumstances, sufficient to justify the piercing of the
corporate fiction, since petitioners do not intend to hold the
officers and/or members of respondent corporations
personally liable therefor. Petitioners are merely seeking the
declaration of the nullity of the foreclosure sale, which relief
may be obtained without having to disregard the aforesaid
corporate fiction attaching to respondent corporations.
Secondly, petitioners failed to establish by clear and
convincing evidence that private respondents were
purposely formed and operated, and thereafter transacted
with petitioners, with the sole intention of defrauding the
latter.
The mere fact, therefore, that the businesses of two or more
corporations are interrelated is not a justification for
disregarding their separate personalities, absent sufficient
showing that the corporate entity was purposely used as a
shield to defraud creditors and third persons of their rights.
TRADERS ROYAL BANKK VS. COURT OF APPEALS,
FILRITERS GUARANTY ASSURANCE CORPORATION AND
CENTRAL BANK OF THE PHILIPPINES, G.R. NO. 93397,
MARCH 3, 1997
DOCTRINE: Though it is true that when valid reasons exist, the
legal fiction that a corporation is an entity with a juridical
personality separate from its stockholders and from other
corporations may be disregarded, in the absence of such grounds,
the general rule must upheld. The fact that Filfinance owns
majority shares in Filriters is not by itself a ground to disregard the
independent corporate status of Filriters. In Liddel & Co., Inc. vs.
Collector of Internal Revenue, the mere ownership by a single
stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities
FACTS: On November 27, 1979, Filriters Guaranty
Assurance Corporation (Filriters) executed a "Detached
Assignment" . . ., whereby Filriters, as registered owner,
12 | P a g e
sold, transferred, assigned and delivered unto Philippine
Underwriters Finance Corporation (Philfinance) all its rights
and title to Central Bank Certificates of Indebtedness of
PESOS: FIVE HUNDRED THOUSAND (P500,000) and having
an aggregate value of PESOS: THREE MILLION FIVE
HUNDRED THOUSAND (P3,500,000.00);
On February 4, 1981, petitioner entered into a Repurchase
Agreement with PhilFinance . . ., whereby, for and in
consideration of the sum of PESOS: FIVE HUNDRED
THOUSAND (P500,000.00), PhilFinance sold, transferred
and delivered to petitioner CBCI 4-year, 8th series, Serial
No. D891 with a face value of P500,000.00 . . ., which CBCI
was among those previously acquired by PhilFinance from
Filriters as averred in paragraph 3 of the Petition;
Pursuant to the aforesaid Repurchase Agreement (Annex
"B"), Philfinance agreed to repurchase CBCI Serial No. D891
(Annex "C"), at the stipulated price of PESOS: FIVE
HUNDRED NINETEEN THOUSAND THREE HUNDRED
SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981;
PhilFinance failed to repurchase the CBCI on the agreed
date of maturity, April 27, 1981, when the checks it issued
in favor of petitioner were dishonored for insufficient funds;
Owing to the default of PhilFinance, it executed a Detached
Assignment in favor of the Petitioner to enable the latter to
have its title completed and registered in the books of the
respondent. And by means of said Detachment, Philfinance
transferred and assigned all, its rights and title in the said
CBCI to petitioner and, furthermore, it did thereby
"irrevocably authorize the said issuer (respondent herein) to
transfer the said bond/certificate on the books of its fiscal
agent."
Petitioner presented the CBCI, together with the two (2)
aforementioned Detached Assignments to the Securities
Servicing Department of the respondent, and requested the
latter to effect the transfer of the CBCI on its books and to
issue a new certificate in the name of petitioner as absolute
owner thereof;
Respondent failed and refused to register the transfer as
requested, and continues to do so notwithstanding
petitioner's valid and just title over the same and despite
repeated demands in writing.
The Regional Trial Court of Manila, Branch XXXIII found the
assignment of CBCI No. D891 in favor of Philfinance, and
the subsequent assignment of the same CBCI by
Philfinance in favor of Traders Royal Bank null and void and
of no force and effect. The CA affirmed this decision.
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
ISSUE/S: Was the transfer of the CBCI from Filriters to
Philfinance and subsequently from Philfinance to TRB, in
accord with existing law, so as to entitle TRB to have the
CBCI registered in its name with the Central Bank?
RULING: No.
Clearly shown in the record is the fact that Philfinance's title
over CBCI No. D891 is defective since it acquired the
instrument from Filriters fictitiously. Although the deed of
assignment stated that the transfer was for "value
received", there was really no consideration involved. What
happened was Philfinance merely borrowed CBCI No. D891
from Filriters, a sister corporation. Thus, for lack of any
consideration, the assignment made is a complete nullity.
We find that the transfer made by Filriters to Philfinance did
not conform to Central Bank Circular No. 769, series of
1980, otherwise known as the "Rules and Regulations
Governing Central Bank Certificates of Indebtedness",
under which the note was issued. Published in the Official
Gazette on November 19, 1980, Section 3 thereof provides
that any assignment of registered certificates shall not be
valid unless made . . . by the registered owner thereof in
person or by his representative duly authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed the deed
of assignment purportedly for and on behalf of Filriters, did
not have the necessary written authorization from the Board
of Directors of Filriters to act for the latter. For lack of such
authority, the assignment did not therefore bind Filriters and
violated at the same time Central Bank Circular No. 769
which has the force and effect of a law, resulting in the
nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640;
3M Philippines, Inc. vs. Commissioner of Internal Revenue,
165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI
No. D891 which it could assign or transfer to Traders Royal
Bank and which the latter can register with the Central Bank
Petitioner now argues that the transfer of the subject CBCI
to TRB must upheld, as the respondent Filriters and
Philfinance, though separate corporate entities on paper,
have used their corporate fiction to defraud TRB into
purchasing the subject CBCI, which purchase now is
refused registration by the Central Bank.
Since Philfinance own about 90% of Filriters and the two
companies have the same corporate officers, if the
principle of piercing the veil of corporate entity were to be
applied in this case, then TRB's payment to Philfinance for
the CBCI purchased by it could just as well be considered a
payment to Filriters, the registered owner of the CBCI as to
13 | P a g e
bar the latter from claiming, as it has, that it never received
any payment for that CBCI sold and that said CBCI was sold
without its authority.
We respectfully submit that, considering that the Court of
Appeals has held that the CBCI was merely borrowed by
Philfinance from Filriters, a sister corporation, to guarantee
its (Philfinance's) financing operations, if it were to be
consistent therewith, on the issued raised by TRB that there
was a piercing a veil of corporate entity, the Court of
Appeals should have ruled that such veil of corporate entity
was, in fact, pierced, and the payment by TRB to Philfinance
should be construed as payment to Filriters.
Petitioner cannot put up the excuse of piercing the veil of
corporate entity, as this merely an equitable remedy, and
may be awarded only in cases when the corporate fiction is
used to defeat public convenience, justify wrong, protect
fraud or defend crime or where a corporation is a mere alter
ego or business conduit of a person.
Piercing the veil of corporate entity requires the court to see
through the protective shroud which exempts its
stockholders from liabilities that ordinarily, they could be
subject to, or distinguished one corporation from a
seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure that
the corporate fiction was misused, to such an extent that
injustice, fraud, or crime was committed upon another,
disregarding, thus, his, her, or its rights. It is the protection
of the interests of innocent third persons dealing with the
corporate entity which the law aims to protect by this
doctrine.
The corporate separateness between Filriters and
Philfinance remains, despite the petitioners insistence on
the contrary. For one, other than the allegation that Filriters
is 90% owned by Philfinance, and the identity of one shall
be maintained as to the other, there is nothing else which
could lead the court under circumstance to disregard their
corporate personalities.
Though it is true that when valid reasons exist, the legal
fiction that a corporation is an entity with a juridical
personality separate from its stockholders and from other
corporations may be disregarded, in the absence of such
grounds, the general rule must upheld. The fact that
Filfinance owns majority shares in Filriters is not by itself a
ground to disregard the independent corporate status of
Filriters. In Liddel & Co., Inc. vs. Collector of Internal
Revenue, the mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of
a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities.
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
In the case at bar, there is sufficient showing that the
petitioner was not defrauded at all when it acquired the
subject certificate of indebtedness from Philfinance.
On its face the subject certificates states that it is registered
in the name of Filriters. This should have put the petitioner
on notice, and prompted it to inquire from Filriters as to
Philfinance's title over the same or its authority to assign the
certificate. As it is, there is no showing to the effect that
petitioner had any dealings whatsoever with Filriters, nor
did it make inquiries as to the ownership of the certificate.
R.F. SUGAY AND CO INC. VS. PABLO C. REYES, G.R. NO.
L-20451, DECEMBER 28, 1964
DOCTRINE: It is a legal truism that when the veil of corporate
fiction is made as a shield to perpetrate a fraud and/or confuse
legitimate issues (here, the relation of employer-employee), the
same should be pierced. Verily the R. F. Sugay & Co., Inc. is a
business conduit of R. F. Sugay.
FACTS: In the evening of January 13, 1961, respondents
Pablo Reyes and Cesar Curata suffered burns of various
degrees, while painting the building of the Pacific Products,
Inc., caused by a fire of accidental origin, resulting in their
temporary disability from work. For said injuries they filed
claims for disability and medical expenses against the R. F.
Sugay & Co., Inc., Romulo F. Sugay and the Pacific Products,
Inc.
The R. F. Sugay & Co., Inc., answered the claim, alleging that
the corporation was not the employer of the claimants but
it was the Pacific Products, Inc., which had an
administration and supervision job contract with Romulo F.
Sugay, who, aside from being the President of the
corporation, bearing his name, had also a business of his
own, distinct and separate from said corporation; and that
the Regional Office of the Department of Labor had no
jurisdiction over the subject matter. Romulo F. Sugay did not
file an Answer, but voluntarily appeared during the hearing
and disclaimed liability. The Answer of Pacific Products,
Inc., contained the customary admissions and denials, and
averred that its business was mainly in the manufacture
and sale of lacquer and other painting materials.
As defenses, it stated that the claimants were the
employees of respondents R. F. Sugay Construction Co.,
Inc., and/or Romulo F. Sugay that as a result of the, fire, it
incurred a loss of P2,000,000.00, occasioned by the
employment of incompetent men in the painting of its
factory by the Sugays.
The Hearing Officer dismissed the case with respect, to R.
F. Sugay & Co., Inc., and Romulo F. Sugay "for want of
employer-employee relationship with the claimant.
14 | P a g e
Pacific Products, Inc., appealed the above decision to the
Commission.
Commissioner Jose Sanchez rendered judgment affirming
the compensability of the injuries and the amounts due
them, but modified the decision of the Hearing Officer, by
finding that R. F. Sugay & Co., Inc., was the statutory
employer of the claimants and should be liable to them.
Pacific Products, Inc., was absolved from all responsibility.
ISSUE: Who among the three persons (Romulo Sugay, R.F.
Sugay and Co, Inc. and Pacific Products Inc) is the statutory
employer of said claimants and who should be liable for
their disability compensation?
RULING:
A careful study of the evidence leads us to the conclusion
that, although the accident happened within the premises
of the respondent Pacific Products, Inc., the responsibility
for the payment of the compensation due in this case
should be lodged somewhere else. In the first place, even
the evidence presented by the claimants and the other two
respondents clearly established the fact that the accident
occurred while the claimant, were painting the Office of
Pacific Products Inc., an undertaking which had nothing to
do with the business of the latter. It was fairly shown that
Pacific Products, Inc., was engaged in the manufacture and
sale of paints, varnish and other allied products, and,
therefore, the work which was then being undertaken in its
office at the time of the accident has nothing to do with the
nature of its business. The records disclose that the injured
painter were hired, through an intermediary, by R. F. Sugay
& Co., which was purposely established "to engage itself in
the constructions, repairs, remodelling of all kinds of
houses, residences, edifices and all such other buildings
and all kinds of construction works allied thereto."
The evidence adduced by the parties indicates rather
clearly that, except for the fact that the Pacific Products,
Inc. supplied the paint, it did not exercise any of the above-
enumerated powers. The claimants were hired by one
Rodolfo Babatid pursuant to the instruction received by the
latter from Romulo Sugay. They were paid by Eduardo
Sugay, brother of Romulo and Secretary of R. F. Sugay & Co.,
and were under the control of these persons during the time
they were painting the office of Pacific Products, Inc.
Following the rulings enunciated in the abovecited
decisions of the Supreme Court. We are constrained to
disagree with the Hearing Officer's decision in so far as it
held that respondent Pacific Products, Inc. should be solely
responsible for the payment of the compensation he
awarded in favor of the claimants.
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
The decisive elements showing that it is the employer, are
present, such as selection and engagement; payment of
wages; power of dismissal, and control (Viaña vs. Alejo-
Alagadan, et al., May 31, 1956). These powers were lodged
in R. F. Sugay & Co.
There was a faint attempt by the petitioning corporation, to
evade liability, by advancing the theory that Romulo P.
Sugay, its President, was the one who entered into a
contract of administration and supervision for the painting
of the factory of the Pacific Products, Inc., and making it
appear that said Romulo F. Sugay acted as an agent of the
Pacific Products, Inc., and as such, the latter should be
made answerable to the compensation due to the
claimants. We, however, agree with the Commission that
"the dual roles of Romulo F. Sugay should not be allowed to
confuse the facts relating to employer-employee
relationship." It is a legal truism that when the veil of
corporate fiction is made as a shield to perpetrate a fraud
and/or confuse legitimate issues (here, the relation of
employer-employee), the same should be pierced. Verily
the R. F. Sugay & Co., Inc. is a business conduit of R. F.
Sugay.
NATIONAL MARKETING CORPORATION (NAMARCO) VS.
ASSOCIATED FINANCE COMPANY, INC. and Francisco
Sycip
DOCTRINE: It is settled law in this and other jurisdictions that
when the corporation is the mere alter ego of a person, the
corporate fiction may be disregarded. It is also true when the
corporation is controlled and its affairs are conducted as to make
it merely an instrumentality, agency or conduit of another
corporation.
FACTS: On March 28, 1958, Associated, thru its President,
Francisco Sycip, entered into an agreement to exchange
sugar with NAMARCO, represented by its then General
Manager, Benjamin Estrella, whereby Associated would
deliver to NAMARCO 22,516 bags of "Victorias" and/or
"National" refined sugar in exchange for 7,732.71 bags of
"Busilak" and 17,285.08 piculs of "Pasumil" raw sugar
belonging to NAMARCO.
They both agreed to pay liquidated damages equivalent to
20% of the contractual value of the sugar should either
party fail to comply with the terms and conditions
stipulated. Pursuant thereto, NAMARCO delivered to
Associated 7,732.71 bars of "Busilak" and 17,285.08 piculs
of "Pasumil" domestic raw sugar. However, Associated
failed to deliver to NAMARCO the 22,516 bags of "Victoria"
and/or "National" refined sugar agreed upon. As a
15 | P a g e
consequence, Associated demanded in writing from
Associated either the immediate delivery of “Victoria”
and/or “Busilak” before January 20, or the payment of its
equivalent cash value amounting to P372,639.80.
On January 19, 1959, Associated, through Sycip, offered to
pay NAMARCO the value of 22,516 bags of refined sugar at
the rate of P15.30 per bag. NAMARCO rejected the offer.
Instead, on January 21 of the same year, it demanded
payment of the 7,732.71 bags of "Busilak" raw sugar at
amounting to P118,310.40 and of the 17,285.08 piculs of
"Pasumil" raw sugar, amounting to a total price of
P403,514.28 for both kinds of sugar.
Associated refused to deliver the raw sugars or pay for the
refined sugar delivered to it inspite of repeated demands.
NAMARCO instituted the present action in the lower court
to recover the sum of P403,514.28, among others.
The Court of First Instance decided in favor of NAMARCO.
ISSUE: Whether or not Francisco Sycip may be held liable,
jointly and severally with his co-defendant, for the sums of
money adjudged in favor of NAMARCO;
RULING:
According to the Court, the capital stock of Associated
owned by Francisco Sycip is P60,000.00 worth of shares,
while his wife — the second biggest stockholder — owned
P20,000.00 worth of shares; that the par value of the
subscribed capital stock of Associated was only
P105,000.00; that negotiations that lead to the execution of
the exchange agreement in question were conducted
exclusively by Sycip on behalf of Associated; that, Sycip
referred to himself as the one who contracted in his
personal capacity, and asserted that the exchange
agreement was his personal contract; that it was Sycip who
made personal representations and gave assurances that
Associated was in actual possession of the 22,516 bags of
"Victorias" and/or "National" refined sugars; that, as a
matter of fact, Associated was already insolvent at the time
he entered into the agreement; that when NAMARCO made
demands upon Associated to deliver the 22,516 bags of
refined sugar it was under obligation to deliver to
NAMARCO, Associated and Sycip, instead of making
delivery of the sugar, offered to pay its value at the rate of
P15.30 per bag. Accordingly, it is a clear indication that
Associated did not have the sugar contracted for.
Sycip was guilty of fraud because through false
representations, he succeeded in inducing NAMARCO to
enter into the agreement, with full knowledge that
Associated, whom he represented and over whose
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
business and affairs he had absolute control, was in no
position to comply with the obligation it had assumed.
Consequently, he can not 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.
Upon the proven facts, the Court is justified in "piercing the
veil of corporate fiction" and in holding Sycip personally
liable, jointly and severally with his co-defendant, for the
sums of money adjudged in favor of NAMARCO. It is settled
law in this and other jurisdictions that when the corporation
is the mere alter ego of a person, the corporate fiction may
be disregarded. It is also true when the corporation is
controlled and its affairs are conducted as to make it merely
an instrumentality, agency or conduit of another
corporation.
Wherefore, the decision appealed from is modified by
sentencing defendant-appellee Francisco Sycip to pay,
jointly and severally with the Associated Finance
Company, Inc., the sum of money which the trial court
sentenced the latter to pay to the National Marketing
Corporation.
LAFARGE CEMENT PHILS., INC. V. CONTINENTAL
CEMENT CORP., (443 SCRA 522 [2004])
Doctrine: A corporation has a personality separate and distinct
from its members. It has a personality separate and distinct from
the persons composing it as well as from that of any other entity to
which it may be related. (Secosa v. Heirs of Francisco)
Article 44: Corporations as among those considered as juridical
persons with juridical personality, separate, and distinct from that
of each shareholder and member.
Rights can be enforced for and against the corporation and the
filing of a complaint against the stockholder is not ipso facto a
complaint against the corporation
Facts: On a Letter of Intent or LOI whereby Petitioner
Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its
affiliates and other qualified entities, including Petitioner
Luzon Continental Land Corporation (LCLC) -- agreed to
purchase the cement business of Respondent Continental
Cement Corporation (CCC).
On October 21, 1998, both parties entered into a Sale and
Purchase Agreement (SPA). At the time of the foregoing
transactions, petitioners were well aware that CCC had a
case pending with the Supreme Court. In anticipation of the
liability that the High Tribunal might adjudge against CCC,
the parties, under Clause 2 (c) of the SPA, allegedly agreed
to retain from the purchase price a portion of the contract
16 | P a g e
price in the amount of P117,020,846.84 -- the equivalent of
US$2,799,140.
However, petitioners allegedly refused to apply the sum to
the payment to APT. Fearful that nonpayment to APT would
result in the foreclosure, not just of its properties covered by
the SPA with Lafarge but of several other properties as well,
CCC filed before the Regional Trial Court of Quezon City on
June 20, 2000, a "Complaint with Application for
Preliminary Attachment" against petitioners. Docketed as
Civil Case No. Q-00-41103, the Complaint prayed, among
others, that petitioners be directed to pay the "APT Retained
Amount" referred to in Clause 2 (c) of the SPA.
Petitioners alleged that CCC, through Lim and Mariano, had
filed the "baseless" Complaint in Civil Case No. Q-00-41103
and procured the Writ of Attachment in bad faith. Relying on
this Court's pronouncement in Sapugay v. CA, petitioners
prayed that both Lim and Mariano be held "jointly and
solidarily" liable with Respondent CCC.
On behalf of Lim and Mariano who had yet to file any
responsive pleading, CCC moved to dismiss petitioners'
compulsory counterclaims on grounds that essentially
constituted the very issues for resolution in the instant
Petition.
Issues: Whether or not CCC's Motion to Dismiss the
Counterclaim on Behalf of Respondents Lim and Mariano is
Allowed?
Ruling:
No. While Respondent CCC can move to dismiss the
counterclaims against it by raising grounds that pertain to
individual defendants Lim and Mariano, it cannot file the
same Motion on their behalf for the simple reason that it
lacks the requisite authority to do so.
A corporation has a legal personality entirely separate and
distinct from that of its officers and cannot act for and on
their behalf, without being so authorized.
Thus, unless expressly adopted by Lim and Mariano, the
Motion to Dismiss the compulsory counterclaim filed by
Respondent CCC has no force and effect as to them.
The inclusion of a corporate officer or stockholder
Cardenas in Sapugay or Lim and Mariano in the instant case
is not premised on the assumption that the plaintiff
corporation does not have the financial ability to answer for
damages, such that it has to share its liability with individual
defendants.
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
Rather, such inclusion is based on the allegations of fraud
and bad faith on the part of the corporate officer or
stockholder. These allegations may warrant the piercing of
the veil of corporate fiction, so that the said individual may
not seek refuge therein, but may be held individually and
personally liable for his or her actions.
In Tramat Mercantile v. Court of Appeals, the Court held
that generally, it should only be the corporation that could
properly be held liable. However, circumstances may
warrant the inclusion of the personal liability of a corporate
director, trustee, or officer, if the said individual is found
guilty of bad faith or gross negligence in directing corporate
affairs.
Remo Jr. v. IAC has stressed that while a corporation is an
entity separate and distinct from its stockholders, the
corporate fiction may be disregarded if “used to defeat
public convenience, justify a wrong, protect fraud, or
defend crime.”
In these instances, “the law will regard the corporation as
an association of persons, or in case of two corporations,
will merge them into one.” Thus, there is no debate on
whether, in alleging bad faith on the part of Lim and Mariano
the counterclaims had in effect made them “indispensable
parties” thereto; based on the alleged facts, both are clearly
parties in interest to the counterclaim.
Suability and liability are two distinct matters. While the
Court does rule that the counterclaims against Respondent
CCC’s president and manager may be properly filed, the
determination of whether both can in fact be held jointly
and severally liable with respondent corporation is entirely
another issue that should be ruled upon by the trial court.
CONCEPT BUILDERS INC. VS NLRC, GR NO. 108734, 1996
Doctrine: The corporate mask may be lifted and the corporate veil
may be pierced when a corporation is just but the alter ego of a
person or of another corporation. Where badges of fraud exist;
where public convenience is defeated; where a wrong is sought to
be justified thereby, the corporate fiction or the notion of legal
entity should come to naught. The law in these instances will
regards the corporate as a mere association of persons and, in
case of two corporations, merge them in to one.
Thus, where a sister corporation is used as a shieled to evade a
corporation’s subsidiary liability for damages, the corporation may
not be heard to say that it has personality separate and distinct
from the other corporation. The piercing of the corporate veil
comes into play.
FACTS: Petitioner Concept Builders, Inc., (CBI), a domestic
corporation, with principal office at 355 Maysan Road,
Valenzuela, Metro Manila, is engaged in the construction
17 | P a g e
business. Private respondents (Marabe et al.) were
employed by said company as laborers, carpenters and
riggers. On November 1981, these respondents were served
individual written notices of termination of employment by
CBI, effective on 30 November 1981.
It was stated in the individual notices that their contracts of
employment had expired and the project in which they were
hired had been completed. The National Labor Relations
Commission (NLRC) found it to be, the fact, however, that
at the time of the termination of Marabe, et.al.’s
employment, the project in which they were hired had not
yet been finished and completed. Aggrieved, private
respondents filed a complaint for illegal dismissal, unfair
labor practice and non-payment of their legal holiday pay,
overtime pay and thirteenth-month pay against CBI.
On 19 December 1984, the Labor Arbiter rendered
judgment ordering CBI to reinstate private respondents
Marabe et. al. and to pay them back wages equivalent to 1
year or 300 working days. On 27 November 1985, the NLRC
dismissed the motion for reconsideration filed by CBI on the
ground that the said decision had already become final and
executory. On 29 October 1986, the Labor Arbiter issued a
writ of execution directing the sheriff to execute the
Decision to collect from petitioner the sum PHP
117,414.76, representing the balance of the judgement
award.
The alias writ of execution was not served however,
because, according to the sheriff’s report, he was by the
security guard on duty that petitioner CBI was no longer
occupying the premises.
This prompted the Labor Arbiter to issue a second alias writ
of execution which also failed because, according to the
sheriff, the employees at petitioner’s premises were not
employees of petitioner and that armed guard prevented
him from levying the properties there.
On 23 November 1989, private respondents Marabe, et. al.
filed a “Motion for Issuance of a Break-Open Order,” alleging
that HPPI and CBI were owned by the same
incorporator/stockholders. They also alleged that petitioner
temporarily suspended its business operations in order to
evade its legal obligations to them.
On 1 February 1990, HPPI filed an Opposition to private
respondents’ motion for issuance of break-open order,
contending that HPPI is a corporation which is separate and
distinct from petitioner. HPPI also alleged that the two
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
corporations are engaged in two different kinds of
businesses.
On 2 March 1990, the Labor Arbiter issued an Order which
denied Marabe’s motion for break-open order. Marabe, et.
al. then appealed to the NLRC. On 23 April 1992, the NLRC
set aside the order of the Labor Arbiter, issued a break-open
order.
Thereafter, it directed the sheriff to proceed with the
auction sale of the properties already levied upon. It
dismissed the third-party claim for lack of merit. CBI moved
for reconsideration but the motion was denied by the NLRC
in a Resolution, dated 3 December 1992.
ISSUE: Whether the doctrine of “piercing the corporate veil
should be applied in the case in the absence of any showing
that petitioner corporation created the sister corporation
(HPPI) to evade liability.
RULING: 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. The conditions under
which the juridical entity may be disregarded vary according
to the peculiar facts and circumstances of each case.
No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that
will justify the application of the doctrine of piercing the
corporate veil, to wit:
1. Stock ownership by one or common ownership of both
corporations;
2. Identity of directors and officers;
3. The manner of keeping corporate books and records; and
4. Methods of conducting the business
The SEC en banc explained the “instrumentality rule” which
the courts have applied in disregarding the separate
juridical personality of corporations as “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
18 | P a g e
‘instrumentality’ may be disregarded. The control
necessary to invoke the rule is not majority or even
complete stock control but such domination of instances,
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.”
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, 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 rights; 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. Thus the question of whether
a corporation is a mere alter ego, a mere sheet or paper
corporation, a sham or a subterfuge is purely one of fact.
Here, while CBI claimed that it ceased its business
operations on 29 April 1986, it filed an Information Sheet
with the Securities and Exchange Commission on 15 May
1987, stating that its office address is at 355 Maysan Road,
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 355
Maysan Road, Valenzuela, Metro Manila. Further, both
information sheets were filed by the same Virgilio O. Casiño
as the corporate secretary of both corporations. Both
corporations had the same president, the same board of
directors, the same corporate officers, and substantially
the same subscribers.
From the foregoing, it appears that, among other things, the
CBI and the HPPI shared the same address and/or
premises. Under these circumstances, it cannot be said
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.
that the property levied upon by the sheriff were not of
CBI’s. Clearly, CBI ceased its business operations in order
to evade the payment to Marabe, et. al. of back wages and
to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of CBI and its emergence was
skillfully orchestrated to avoid the financial liability that
already attached to CBI.
LA CAMPANA COFFEE FACTORY, INC. vs. KAISAHAN NG
MGA MANGGAGAWA, G.R. No. L-5677, May 25, 1953
DOCTRINE: The doctrine that a corporation is a legal entity
existing separate and apart from the person composing it is a legal
theory introduced for purposes of convenience and to subserve
the ends of justice. The concept cannot, therefore, be extended to
a point beyond its reason and policy, and when invoked in support
of an end subversive of this policy, will be disregarded by the
courts. Thus, in an appropriate case and in furtherance of the ends
of justice, a corporation and the individual or individuals owning
all its stocks and assets will be treated as identical, the corporate
entity being disregarded where used as a cloak or cover for fraud
or illegality. (13 Am. Jur., 160-161.)
A subsidiary or auxiliary corporation which is created by a parent
corporation merely as an agency for the latter may sometimes be
regarded as identical with the parent corporation, especially if the
stockholders or officers of the two corporations are substantially
the same or their system of operation unified.
FACTS: Tan Tong, one of the herein petitioners, has since
1932 been engaged in the business of buying and selling
gaugau under the trade name La Campana Gaugau Packing
with an establishment in Binondo, Manila, which was later
transferred to España Extension, Quezon City. But on July 6,
1950, Tan Tong, with himself and members of his family
corporation known as La Campana Factory Co., Inc., with
its principal office located in the same place as that of La
Campana Gaugau Packing.
About a year before the formation of the corporation, or on
July 11, 1949, Tan Tong had entered into a collective
bargaining agreement with the Philippine Legion of
Organized Workers, known as PLOW for short, to which the
union of Tan Tong's employees headed by Manuel E. Sadde
was then affiliated. Seceding, however, from the PLOW, Tan
Tong's employees later formed their own organization
known as Kaisahan Ng Mga Manggagawa Sa La Campana,
one of the herein respondents, and applied for registration
in the Department of Labor as an independent entity.
On July 19, 1951, the Kaisahan Ng Mga Manggagawa Sa La
Campana, hereinafter to be referred to as the respondent
Kaisahan, which, as of that date, counted with 66 members
— workers all of them of both La Campana Gaugau Packing
19 | P a g e
and La Campana Coffee Factory Co., Inc. — presented a
demand for higher wages and more privileges, the demand
being addressed to La Campana Starch and Coffee Factory,
by which name they sought to designate, so it appears, the
La Campana Gaugau Packing and the La Campana Coffee
Factory Co., Inc. As the demand was not granted and an
attempt at settlement through the mediation of the
Conciliation Service of the Department of Labor had given
no result, the said Department certified the dispute to the
Court of Industrial Relations on July 17, 1951, the case
being there docketed as Case No. 584-V.
ISSUE: Whether the two factories should be considered as
separate businesses or one business.
RULING: the Court of Industrial Relations denied the said
motions in its order of January 14, 1952, because if found as
a fact that:
A. While the coffee corporation is a family corporation with
Mr. Tan Tong, his wife, and children as the incorporations
and stockhelders, the La Campana Gaugau Packing is
merely a business name.
B. According to the contract of lease, Mr. Tan Tong.,
propriety and manager of the Ka Campana Gaugau Factory,
leased a space of 200 square meters in the bodega housing
the gaugau factory to his son Tan Keng Lim, manager of the
La Campana Coffee Factory. But the lease was executed
only on September 1, 1951, while the dispute between the
parties was pending before the Court.
C. There is only one entity La Campana Starch and Coffee
Factory, as shown by the signboard, the advertisement in
the delivery trucks, the packages of gaugau, and delivery
forms.
D. All the laborers working in the gaugau or in the coffee
factory receive their pay from the same person, the cashier,
Miss Natividad Garcia, secretary of Mr. Tan Tong; and they
are transferred from the gaugau to the coffee and vice-versa
as the management so requires.
E. There has been only one payroll for the entire La
Campana personnel and only one person preparing the
same — Miss Natividad Garcia, secretary of Mr. Tan Tong.
But after the case at bar was certified to this Court on July
17, 1951, the company began making separate payrolls for
the coffee factoryand for the gaugau factory It is to be noted
that before July 21, 1951, the coffee payrolls all began with
number "41-Maria Villanueva" with 24 or more laborers,
whereas beginning July 21, 1951, the payrolls for the coffee
factory began with No. 1-Loreta Bernabe with only 14
laborers.
CORPORATION LAW CASE DIGESTS
Atty. Mary Jane Delgado
Compiled by: Torres, Katelyn-Ann B.

F. During the ocular inspection made in the factory on
August 26, 1951 the Court has found the following:
In the ground floor and second floor of the gaugau factory
there were hundreds of bags of raw coffee behind the pile of
gaugau sacks. There were also women employees working
paper wrappers for gaugau, and, in the same place there
were about 3,000 cans to be used as containers for coffee.
The Court found out also that there were 16 trucks used
both for the delivery of coffee and gaugau. To show that
those trucks carried both coffee and gaugau, the union
president invited the Court to examine the contents of
delivery truck No. T-582 parked in a garage between the
gaugau building and the coffee factory, and upon
examination, there were found inside the said truck boxes
of gaugau and cans of coffee, and held that: there is only
one management for the business of gaugau and coffee
with whom the laborers are dealing regarding their work.
Hence, the filing of action against the Ka Campana Starch
and Coffee Factory is proper and justified.
when the person who was discharging the office of cashier
for both branches of the business began preparing separate
payrolls for the two. And above all, it should not be
overlooked that, as also found by the industrial court, the
laborers of the gaugau factory and the coffee factory were
interchangeable, that is, the laborers from the gaugau
factory were sometimes transferred to the coffee factory
and vice-versa. In view of all these, the attempt to make the
two factories appears as two separate businesses, when in
reality they are but one, is but a device to defeat the ends of
the law (the Act governing capital and labor relations) and
should not be permitted to prevail.

La Campana Gaugau Packing and La Campana Coffee

Factory Co. Inc., are operating under one single
management, that is, as one business though with two
trade names. True, the coffee factory is a corporation and,
by legal fiction, an entity existing separate and apart fro the
persons composing it, that is, Tan Tong and his family. But it
is settled that this fiction of law, which has been introduced
as a matter of convenience and to subserve the ends of
justice cannot be invoked to further an end subversive of
that purpose.

Disregarding Corporate Entity. — The doctrine that a

corporation is a legal entity existing separate and apart from
the person composing it is a legal theory introduced for
purposes of convenience and to subserve the ends of
justice. The concept cannot, therefore, be extended to a
point beyond its reason and policy, and when invoked in
support of an end subversive of this policy, will be
disregarded by the courts. Thus, in an appropriate case and
in furtherance of the ends of justice, a corporation and the
individual or individuals owning all its stocks and assets will
be treated as identical, the corporate entity being
disregarded where used as a cloak or cover for fraud or
illegality.

In the present case Tan Tong appears to be the owner of the

gaugau factory. And the coffee factory, though an
incorporated business, is in reality owned exclusively by Tan
Tong and his family. As found by the Court of industrial
Relations, the two factories have but one office, one
management and one payroll, except after July 17, the day
the case was certified to the Court of Industrial Relations,
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