LBP v CA financial difficulty for it was unable to collect its

Quisumbing ☹ investments with companies which were

Summary: affected by the financial crisis brought about by
In 1980, ECO Management Corporation (ECO) obtained the Dewey Dee scandal
loans amounting to about P26 million from Land Bank.  ECO proposed and submitted to LBP a "Plan of
ECO defaulted in its payment but in 1981, ECO Payment" whereby the former would set up a
submitted a Payment Plan with the hope of financing company which would absorb the loan
restructuring its loan. The plan was rejected and Land obligations. It was proposed that LBP would
Bank sued ECO. It impleaded Emmanuel C. Oñate, the participate in the scheme through the
majority stockholder of ECO who is serving as the conversion of P9,000,000.00 which was part of
Chairman and treasurer of ECO. The trial court ruled in the total loan, into equity. LBP approved the
favor of Land Bank but Oñate was absolved from payment plan but stated that it shall not
liabilities. The Court of Appeals affirmed the decision of participate in the undertaking in any manner
the trial court. whatsoever
Land Bank appealed as it wanted Oñate to be  ECO submitted to LBP a "Revised Plan of
personally liable on the following grounds (among Payment" deleting the latter's participation in
others): a) ECO stands for Emmanuel C. Oñate, b) the proposed financing company, however, LBP
Oñate is the majority stockholder, c) ECO was formed resolved to reject it. LBP then sent a letter to the
ostensibly to allow Oñate to acquire loans from Land PVTA for the latter's comments stating that if
Bank which he used for his personal advantage, d) PVTA does not responde within five (5) days
Oñate holds two positions in the corporation, and e) from the latter's receipt of the letter, such
ECO never held any board meeting which just shows silence would be construed to be an approval of
only Oñate was in control of the corporation. LBP's intention to file suit against ECO and its
corporate officers. PVTA did not respond to the
FACTS: letter
 Landbank filed a complaint for Collection of Sum
 Land Bank of the Philippines (LBP) extended a of Money against ECO and Emmanuel C. Oñate
series of credit accommodations to appellee  After trial on the merits, a judgment was
ECO, using the trust funds of the Philippine rendered in favor of LBP; however, appellee
Virginia Tobacco Administration (PVTA). The Oñate was absolved from personal liability for
proceeds of the credit accommodations were insufficiency of evidence.
received on behalf of ECO by appellee Oñate  Dissatisfied, both parties filed their respective
 On the respective maturity dates of the loans, Motions for Reconsideration.
ECO failed to pay the same. Oral and written
 LBP claimed that there was an error in
demands were made, but ECO was unable to
computation in the amounts to be paid. LBP also
pay. ECO claims that the company was in
 questioned the dismissal of the case with regard
to Oate. The mere fact that Oñate owned the majority of the
 ECO questioned its being held liable for the shares of ECO is not a ground to conclude that Oñate
amount of the loan. Upon order of the court, and ECO is one and the same. Mere ownership by a
both parties submitted Supplemental Motions single stockholder of all or nearly all of the capital
for Reconsideration and their respective stock of a corporation is not by itself sufficient reason
Oppositions to each others Motions. for disregarding the fiction of separate corporate
personalities.
ISSUE and RULING
Whether or not the corporate veil of ECO Management Anent the issue of the corporate name, the fact that
Corporation should be pierced and Oñate be held liable Oñate’s initials coincide with the corporate name ECO
for the amount of the judgment is not sufficient to disregard the corporate fiction. Even
if ECO does stand for “Emmanuel C. Oñate”, it does
NO. not mean that the said corporation is merely a dummy
Mere ownership by a single stockholder of all or nearly of Oñate. A corporation may assume any name
all of the capital stock of a corporation is not by itself provided it is lawful. There is nothing illegal in a
sufficient reason for disregarding the fiction of corporation acquiring the name or as in this case, the
separate corporate personalities; A corporation may initials of one of its shareholders.
assume any name provided it is lawful. There is
nothing illegal in a corporation acquiring the name or That respondent corporation in this case was being
as in this case, the initials of one of its shareholders. used as a mere alter ego of Oñate to obtain the loans
had not been shown. Bad faith or fraud on the part of
Land Bank was not able to produce sufficient evidence ECO and Oñate was not also shown. As the Court of
to prove its claim. A corporation, upon coming into Appeals observed, if shareholders of ECO meant to
existence, is invested by law with a personality defraud petitioner, then they could have just easily
separate and distinct from those persons composing it absconded instead of going out of their way to propose
as well as from any other legal entity to which it may Plans of Payment. Likewise, Oñate volunteered to pay
be related. The corporate fiction is only disregarded a portion of the corporations debt. This offer
when the fiction is used to defeat public convenience, demonstrated good faith on his part to ease the debt
justify wrong, protect fraud, defend crime, confuse of the corporation of which he was a part. It is
legitimate legal or judicial issues, perpetrate deception understandable that a shareholder would want to help
or otherwise circumvent the law. This is likewise true his corporation and in the process, assure that his
where the corporate entity is being used as an alter stakes in the said corporation are secured. In this case,
ego, adjunct, or business conduit for the sole benefit of it was established that the P1 Million did not come
the stockholders or of another corporate entity. None solely from Oñate. It was taken from a trust account
of the foregoing was proved by Land Bank. which was owned by Oñate and other investors. It was
likewise proved that the P1 Million was a loan granted
by Oñate and his co-depositors to alleviate the plight DISPOSITIVE WHEREFORE, the petition is DENIED for
of ECO. This circumstance should not be construed as lack of merit. The decision and resolution of the Court
an admission that he was really the debtor and not of Appeals in CA-G.R. CV No. 43239 are AFFIRMED.
ECO. Costs against petitioner. SO ORDERED.
 Pacific Rehouse Corp. v. CA However, the SC held that in the case of Kukan International v. Reyes, compliance
2014 | Reyes with the recognized modes of acquiring jurisdiction cannot be dispensed with even
in piercing the veil of corporate fiction:
FACTS:  Piercing the veil is applied only to determine liability. It is not available to
EIB Securities sold 32,180,000 shares of DMCI belonging to Pacific Rehouse confer jurisdiction it has not acquired over a party not impleaded in the
Corporation, Pacific Concorde Corporation, Mizpah Holdings, Forum Holdings and case.
East Asia Company (respondents). The lower court rendered judgment, ordering  In other words, a corporation not impleaded in a suit cannot be subject to
EIB to return the shares to the respondents. This ruling reached the SC and the court’s process of piercing the veil of its corporate fiction.
attained finality. Court must first acquire jurisdiction over the parties before piercing its corporate
Writ of execution issued, but was returned as unsatisfiied. Respondents then filed veil; otherwise, it cannot pierce because such action offends the corporation’s right
for issuance of an alias writ to hold Export and Industry Bank liable because EIB to due process. Jurisdiction is acquire by service of summons. Without summons
Securities is a wholly-owned controlled and dominated subsidiary of Export snd or voluntary submission, any judgment over such person is null and void.
Industry Bank, and is thus a mere alter ego and business conduit. EIB Securities
opposed, saying it has a separate corporate personality, distinct from Export Bank. In this case, Export Bank was not served with summons, nor voluntarily appeared
RTC ruled that E-securities is a mere business conduit of Export Bank and pierced before the court.
the veil of corporate fiction.  Export Bank has consistently disputed RTC jurisdiction by filing of
Omnibus Motion by way of special appearance
Respondent questioned this, saying it was not impleaded as a party to the case.
 It was not pleaded as a party
This was denied, and directed garnishment of P1.4B, the total amount of the
32.18M DMCI shares. RTC said that since they are the same entity, service of  It was never served with summons
summons upon E-Securities bestowed jurisdiction over the parent and subsidiary.  It did not voluntarily appear before RTC

CA issued 60-day TRO enjoining the execution of the RTC orders granting the Alter ego doctrine is not applicable
alias writ for having been made with grave abuse of discretion. Then they issued  Where one corporation is organized and controlled, and its affairs
writ of preliminary injunction. conducted so that it is in fact a mere instrumentality of the other, the fiction
Respondents on the other hand, argued that as an alter ego, there is no need for a of the instrumentality may be disregarded.
finding of fraud or illegality before the doctrine of piercing of corporate veil can be  Stock control not enough. Must be such domination of finances, policies,
applied. and practices, that the controlled corporation has no separate mind, will or
The CA held the alter ego theory cannot be sustained because ownership by a existence of its own. Control must be exercised at the time the acts
parent corporation of a subsidiary is not enough justification to pierce the veil. complained of took place.
Proof must be shown, apart from mere ownership, that Export Bank misused the  Three pronged test
corporate fiction of E-Securities. o Complete domination (above mentioned)
 Mere interlocking of directors not enough o Control must have been used to commit fraud or wrong, to
 Export Bank does not have complete control over business policies and perpetuate violation of a statutory or other positive legal duty, or
affairs dishonest and unjust act in contravention of plaintiff’s legal right
o The aforesaid control and breach of duty must have proximately
ISSUE: WoN CA erred in ruling that alter ego doctrine is inapplicable caused the injury or unjust loss complained of
 Absence of any one of these prevents piercing of the corporate veil in
RULING: applying the alter ego doctrine.
 The RTC said alter ego because of the ff:
CA did not err. Export Bank argues that it was never impleaded in the earlier case o EIB Securities was only reactivated in 2002-2003 to serve as the
between E-Securities and Pacific Rehouse.
securities brokerage arm of said parent corporation bank,
o its capital was supplied by Export Bank because EIB was cash
strapped
 o Offices located in the same building  Nonetheless, there must be a perpetuation of fraud or at least a fraudulent
o They share key directors and corporate officers or illegal purpose behind the control to justify piercing the veil. In this case,
o It was admitted in the Bank’s financial statements that EIB is a there is none.
controlled subsidiary  The 32.8 M shares were originally bought at 0.38 per share, and were sold
o Same lawyers at 0.24. The proceeds were used to buy back 61M KPP shares.
o Control was prevailing during the time the acts complained of Unexpectedly, the total amount of the DMCI shares ballooned to 1.4B,
happened which did not inure to E-Securities benefit nor Export Bank.
 However, these were not pleaded properly in accordance with ROC, and  Ownership by single stockholder of all or substantially all stock is not
were merely raised in the Motion for Issuance of Alias writ. sufficient, in the absence of fraud and other public policy considerations.
 US v. Milwaukee Refrigerator Transit Co Facts:
December 28 1905
 This is a bill in equity for an injunction to prevent the payment of
Doctrine: A corporation will be looked upon as a legal entity, as a general rule, alleged rebates on freight.
and until sufficient reason to the contrary appears; but, when the notion of legal  PLAINTIFF charges the creation by a shipper of a dummy corporation
entity is used to defeat public convenience, justify wrong, protect fraud, or as a device to cover rebates on large shipments of beer in interstate and
defend crime, the law will regard the corporation as an association of persons; foreign traffic. It alleges that after the passage and promulgation of the
and, where one corporation was organized and is owned by the officers and act of Congress entitled ‘An act to further regulate commerce with
stockholders of another, making their interests identical, they may be treated as foreign nations and among the states,’ defendant Pabst Brewing
identical when the interests of justice require it. Company had, through the agency of Gustav G. Pabst and
Frederick Pabst, habitually received from many of the railroads
Relevant laws: and common carriers, which so transported the beer and other
1. Section 10 of the interstate commerce act: articles so shipped by it from the state of Wisconsin into foreign
Common carriers, and the officers, receivers, agents, etc., of such corporations, are countries and other states, rebates and concessions and other
prohibited from giving rebates, preferences, and advantages, and making unjust discriminations.
discriminations, and are punishable by fine and imprisonment.
 The carriers which are charged with paying the rebates are joined as
 Under this section, only the agents of corporate carriers, and not the
defendants.
carriers themselves, were punishable. 1. The Pabst Brewing Company, Milwaukee Refrigerator Transit
Company, and Wisconsin Central Railway Company are
2. Act of 1889.
Agents of carriers: Any common carrier, and officers and agents of corporation carriers, Wisconsin corporations.
who by means of false billing, classification, weighing, or other device or 2. The transit company operates refrigerator cars on defendants’
means, shall assist, suffer, or permit any one to obtain transportation at less and other lines. It owns or controls 540 such cars. It was
than established rates, shall be guilty of a misdemeanor, punishable by fine and conceived and is operated as a device to cover the receiving of
imprisonment. rebates, concessions, and discriminations, to wit, an eighth or
Shippers: Any person or corporation agent shipping property, who shall knowingly, by tenth of the published rate; whereby the traffic is carried at
false billing, classification, etc., or other device or means, with or without the less than published rates. Such rebates are paid and accepted
carrier’s consent or connivance, obtain carriage at less than such established under the pretense of “commissions,” and amount to large
rates, shall be deemed guilty of fraud, declared to be a misdemeanor,
sums to complainants unknown.
punishable by fine and imprisonment.
Bribery to obtain unjust discrimination: Any such person, officer, etc., who shall by
 The transit company was incorporated by
paying money or- thing of value, or by solicitation, induce a carrier to procurement of the attorneys of the brewing
discriminate unjustly in his favor as against other shippers, or aid or abet such company, and at its instance and request, with a
discrimination, he shall be deemed guilty of a misdemeanor, punishable by fine capital of $150,000, having five directors, and with
and imprisonment. power to acquire and operate refrigerator cars, and
Tort action: Shippers discriminated against are given action for damages against such contract for the supply and operation of refrigerator
person, officer, etc., as well as the carrier. transportation by land and water.
 Corporation carriers themselves are not within the penalties of these 3. The Brewing company operates a large brewery, and selling
acts.. and shipping beer into all the states and territories and to
purchasers in foreign countries. It has a capital of $10,000,000
3. Elkins Act of 1903. or 10,000 shares. Gustav Pabst and Fred Pabst are brothers,
 Corporation carriers are made liable to the same extent as were their owning 2,000 shares, and with their mother and sisters over
agents under the earlier statutes, but subject to fine only, not half of the stock. They vote and control a majority of the
imprisonment. stock, and have always directed and controlled the election of
directors; they have been and are its president, VP, and general
 managers, and have always controlled all its sales, purchases, 10. TRANSIT COMPANY: claims that such repayments were
and shipments. made and accepted as compensation for its services in
4. Upon the passage of that act the brewing company was no soliciting and procuring freight for carriage by defendants; but
longer able to directly secure rebates, and cast about for such claim or pretense is UNTRUE. The transit company has
some device to evade the statute, and the Pabsts, as such entire control of all the shipping business of the brewery,
officers, and one Howe, as traffic manager, intending to comprising almost the entire business of the transit company,
contrive and operate a device for such evasion, caused the which it does not solicit.
transit company to be formed. Of its 1,500 shares, 1,340  DEFENSE: filed a demurrer, arguing that it appears on the face of the
were issued to the two Pabsts, 35 shares to Fred Pabst’s bill that the alleged rebates were not paid back to the shipper (the
wife, and the balance to dummy directors, to give color to brewing company), but to the Refrigerator Transit Company. In effect,
the claim that its stock was not owned by the brewing nothing more is shown than the payment to a soliciting agent (the
company. transit company) of a commission of an eighth or tenth of the published
5. After investigation by the interstate commerce commission, tariff rates, thus showing acts neither unlawful, immoral, nor injurious.
Gustav Pabst transferred his stock in the transit company to  BREWING COMPANY: filed a motion to strike out certain
Fred Pabst, and had some person elected director in his place; allegations averring prior and disconnected illegal acts on of its
but such acts were colorable merely, he still retaining a large principal officers and managers in organizing the transit company, and
pecuniary interest in the corporation, and participating in its rebut the theory that the moneys paid by the carriers to the transit
control. company were paid as commissions for obtaining the business and not
6. Immediately on the creation of the transit company, the Pabsts, as prohibited rebates.
as controlling officers of the brewing company, contracted
with themselves as executive officers of the transit company, ISSUE:
for a term not yet expired, to give the latter exclusive control 1. WON the payments are sufficiently shown to have been made, “by any device
of the shipment of all freight of the brewing company moving whatever,” not as commissions, but with intent to evade the law? – YES.
in interstate and foreign commerce, which it is still exercising. 2. WON the two Wisconsin corporations are so united in interest, control, and
7. The contract was made to enable the transit company to route management as to make them substantially the same? – YES.
the shipment of such freight on the lines of such companies as
will pay rebates, and withhold it from such as will not; and all RULING:
the rebates, concessions, and discriminations charged in the Many devices and schemes have been contrived to evade the statutes against
bill have been exacted by threats of such diversion. discrimination.
8. Many thousand tons of said freight have been hauled by  One of the most common is the manipulation of carriers controlled by
defendant carriers since the contract was made. On such
the shipper.
shipments the brewing company pays to the carriers the full
tariff rate, and the carriers pay the transit company for use of  Another is the direct purchase of freight by a carrier, and its sale and
its refrigerator cars for mileage 3/4s of a cent to a cent per carriage at a loss, or indirect purchase through a dummy corporation,
mile, and in addition an eighth or tenth of the sums paid them and shipment at nominal freight rates by the carrier itself
by the brewing company; and in every instance the property is
transported by defendant carriers at an eighth or tenth less than RULE: if such dealings are devices for discrimination, they are unlawful,
the published tariff. Such rebates amount to many thousands although in ordinary cases it is not unlawful for the carrier to be also the shipper.
of dollars, the exact sum unknown to complainants. A. The question is, are the payments lawful commissions or unlawful
9. All the defendant carriers well knew that the transit company rebates? The question can only be answered by finding out with what
was organized in the interest of the brewing company, and for INTENT the acts were done. The payments were innocent and lawful
the purpose of evading the law, and paid such rebates with tire if in good faith intended as commissions, but criminal if intended as
like purpose and intent. rebates. The intent becomes therefore not merely material, but
 absolutely vital. ITC, the bill states several facts tending to show While it is true that for certain purposes the law will recognize the corporation
unlawful purpose: as an entity distinct from the individual stockholders, that fiction is only resorted
o prior habitual violations of former laws, not then sufficiently to for the purpose of working out the lawful objects of the corporation. It is
punishable, and later the creation of a dummy corporation to never resorted to when it would work an injury to any one, or allow the
escape from the strictness of an amended statute; which corporation to perpetrate a fraud upon anybody.
corporation, though a separate legal entity, should be
substantially the some aggregation of persons, interests, and A corporation, from one point of view, may be considered an entity, without
aims; scienter of the carriers of the purposes of such regard to its shareholders, yet the fact remains self-evident that it is not in reality
manipulation; that the transit company solicits no freight, etc. a person or thing distinct from its consistent parts. The word corporation is but a
o the manifest purpose of these statutes is to strike through all collective name for the members who compose the association. If any general
pretense, all ingenious device, to the substance of the rule can be laid down, in the present state of authority, it is that a
transaction itself. corporation will be looked upon as a legal entity as a general rule, and until
B. CORPORATE IDENTITY OR CONTROL. It is essential, to bring sufficient reason to the contrary appears; but, when the notion of legal
the case within the law, that the repayments be made to the brewing entity is used to defeat public convenience, justify wrong, protect fraud, or
company, or for its benefit, directly or indirectly, and not merely to defend crime, the law will regard the corporation as an association of
third persons for obtaining the business; otherwise, the repayment is no persons.
more than a salary or other expense incident to the carrier’s business.
The question is, whether this is sufficiently shown in the bill? A corporation, as expressive of legal rights and powers, is no more fictitious or
o It is forcibly argued that the bill carefully avoids the statement intangible than a man’s right to his own home or his own liberty.
that the brewing company received the money repaid, or even
that it was paid back for its benefit; and that the two ITC, the shipper practically controls the transit company; this shows a sufficient
corporations are not only distinct legal entities, but have identity of interest among the shareholders of both in these repayments to make
different stockholders. them rebates, if paid and received with unlawful intent.
o The bill shows the creation, by the controlling interests of the o It is said that the procurement of the shipments through the contract is
brewing company, of a dummy corporation, with dummy the mere soliciting of them for the carriers, for which they are lawfully
directors, and scienter of its character by the carriers, with authorized to pay a part of the rate, in order to get the business; and the
intent to evade the law. The transit company is merely the alter transit company, owning a large number of refrigerator cars, and
ego of the brewing corporation; both being substantially wishing to keep them employed, simply gives the freight to those
identical in interest and control, and the brewing company the competing shippers who will make the best terms, the business being of
ultimate beneficiary, in some form, of the operations great volume, and the sums paid for freights large.
o The solution of this question depends on whether the brewing o BUT this theory of innocence is exploded by the fact that the
corporation is an association of individuals, rather than a legal transit company is a mere separate name for the brewing company,
entity apart from those who own and control it. being in fact the same collection of persons and interests.

RULE: the Supreme Court, in order to sustain the most important and far- The device adopted is “neither new, nor deserving of new success.” For many
reaching jurisdiction of the national courts over corporations, ruled that a years transportation development was encouraged in every possible way. Now
corporation is an association of persons who may have citizenship, and the we are beginning to feel the tyranny of arbitrary and overwhelming industrial
members of a corporation are conclusively presumed to be citizens of the state and commercial power. The courts, so far as possible it is for them to keep
creating it. It was not reasonable that those who deal with corporate affairs or fundamental rules steadily in view, with discrimination and careful reflection see
agents should be deprived of the valuable privilege of litigating in the federal to it that injustice is prevented.
courts by a syllogism, or rather sophism, which deals subtly with words and
names, without regard to the things or persons they are used to represent. Petition is GRANTED.
 Traders Royal Bank v. CA FILRITERS GUARANTY ASSURANCE CORPORATION, and to no
March 3, 1997| Torres, J| one else, thus, discounting the petitioner's submission that the
same is a negotiable instrument, and that it is a holder in due
SUMMARY: (See Also: last paragraph of digest) Filriters is the course of the certificate.
registered owner of a Central Bank Certificates of Indebtedness
(CBCI). It assigned the same to Philfinance (a company with whom FACTS
it shares common stockholders and corporate officers [around ● Defendant Filriters is the registered owner of Central Bank
90%]). Philfinance then sold this CBCI to Traders Royal Bank Certificates of Indebtedness (CBCI) [spoiler: THEY ARE NOT
(TRB). TRB sought to have the CBCI registered in its name, NEGOTIABLE INSTRUMENTS!] No. D891
however, the Central Bank refused since it violated Central Bank ● Under a deed of assignment
Circular No. 769 which required that the for the assignment to be Filriters transferred CBCI No. D891 to Philippine
valid, should be made by the registered owner or duly authorized Underwriters Finance Corporation (Philfinance)
representative. TRB filed a mandamus attempting to compel ● Philfinance transferred CBCI No. D891, which was still
Central Bank to register and transfer the CBCIs in its name. registered in the name of
Filriters, to appellant Traders Royal Bank (TRB)
TRB’s argument is that a) the CBCI is a negotiable instrument, b) ● Armed with the deed of assignment still in Filtriers’ name, TRB
TRB is a holder in due course, and c) the corporate veil should be then sought the transfer and registration of CBCI No. D891
pierced as to consider the transfer by Philfinance a transfer by in its name before the
Filriters (the entity whose authority is needed to validly transfer Security and Servicing Department of the Central Bank (CB).
CBCIs according to the CB Circular). RTC, CA, and SC rejected all o Central Bank, however, refused to effect the transfer
these contentions and registration in
view of an adverse claim filed by defendant Filriters
The instrument is NOT NEGOTIABLE for lack of “the magic words (Filtriers claims the CBCI is still theirs).
for negotiability”, thus, the governing law is CB Circular 769, not ● Left with no other recourse, TRB filed a special civil action for
the NIL. Banaria, who signed the deed of assignment purportedly mandamus against the Central Bank in the RTC
for and on behalf of Filriters, did not have the necessary written ● RTC: dismissed.
authorization from the Board of Directors. Therefore, Philfinance ● CA: Also dismissed, for the same issues and ratio as in the SC
acquired no title or rights under CBCI No. D891 which it could Decision.
assign or transfer to Traders Royal Bank and which the latter can
register with the Central Bank HELD Petition DISMISSED. TRB has no right to the transfer and
registration of the CBCI in their name.
DOCTRINE: W/N the CBCI is a negotiable instrument (and W/N TRB is a
Admittedly, the subject CBCI is not an instrument in the absence of holder in due course) - NO
words of negotiability within the negotiable meaning of the W/N the doctrine of piercing the corporate veil should be
negotiable instruments law applied – NO
As worded, the instrument provides a promise "to pay Filriters
Guaranty Assurance Corporation, the registered owner hereof." Court discusses TRB’s argument in the CA, reiterated here, that
Very clearly, the instrument is payable only to Filriters, the the CBCI was a negotiable instrument and therefore, that TRB was
registered owner, whose name is inscribed thereon. a holder in due course who is free from all personal defenses and
It lacks the words of negotiability which should have served equities
as an expression of consent that the instrument may be ● Admittedly, the subject CBCI is not a instrument in the absence
transferred by negotiation. of words of negotiability within the negotiable
A reading of the subject CBCI indicates that the same is payable to meaning of the NIL
 o The pertinent portions of the subject CBCI read: to disregard the independent corporate status of Filriter
▪ “The Central Bank of the Philippines (the Bank) f s
or value received, hereby ● Petitioner cannot put up the excuse of piercing the veil of corp
promises to pay bearer, of this Certificate of orate entity, as this merely an equitable remedy, and may be
indebtedness be registered , to FILRITERS awarded only in cases when the corporate
GUARANTY ASSURANCE CORPORATION, the fiction is used to defeat public convenience, justify wrong,
registered owner hereof, the principal sum protect fraud or defend crime or where a corporation is a mere
of FIVE HUNDRED THOUSAND PESOS. alter ego or business conduit of a person
o As worded, the instrument provides a promise "to pay Fi o In the case at bar, there is sufficient showing that the pe
lriters Guaranty Assurance Corporation, the registered titioner was not
owner hereof." defrauded at all when it acquired subject certificate of i
o Very clearly, the instrument is payable only to Filriters, t ndebtedness from Philfinance
he registered owner, whose name is inscribed thereon. o On its face the subject certificates states that it is regist
▪ It lacks the words of negotiability which should h ered in the name ofFilriters.
ave served ▪ This should have put the petitioner on notice,
as an expression of consent that the instrument and prompted it
may be transferred by negotiation. to inquire from Filriters as to Philfinance's title o
● Thus, the transfer of the instrument from Philfinance to T ver the same or its authority
RB was merely an assignment, and is not governed by to assign the certificate
the negotiable instruments law. ▪ Petitioner knew that Philfinance is not registered
owner of the CBCI No. D891.
Applicable law: Central Bank Circular No. 769, series of 1980 ▪ The fact that a nonowner was disposing of the
● “Any assignment of registered certificates shall not be valid registered CBCI
unless made . . . by the registered owned by another entity was a good reason for p
owner thereof in person or by his representative duly etitioner to verify or inquire as
authorized in writing.” to the title Philfinance to dispose to the CBC
● In the case at bar, Alfredo O. Banaria, who signed the deed of a ▪ Petitioner, being a commercial bank, cannot feig
ssignment for and on behalf of Filriters, did not have the n ignorance of
necessary written authorization from the Board of Directors of Central Bank Circular 769, and its requirements.
Filriters to act for the latter.
o For lack of such authority, the assignment did not theref Conclusion
ore bind Filriters ● The CBCI is not a negotiable instrument
and violated at the same time Central Bank Circular No. ● The applicable law this is CB Circular 769 (requiring authority
769 which has the force and effect of a law from Board of Directors in order to transfer CBCIs), which they
failed to comply with in this case.
On piercing the corporate veil ● The sale from Filriters to Philfinance was fictitious, and
● Petitioner's present position rests solely on the argument that therefore void and inexistent
Philfinance owns 90% of Filriters equity and the two ● Philfinance had no title over the subject certificate to convey th
corporations have identical corporate officers, thus demanding e Traders Royal Bank.
the application of the doctrine or piercing the veil of corporate ● TRB acquired no title and cannot compel Central bank to
fiction, as to give validity to the transfer of the CBCI from register the CBCI in TRB’s name
registered owner to petitioner TRB. ● This petition for mandamus should be dismissed
o The fact that Filfinance owns majority shares in Filriters
is not by itself a ground
 Indophil Textile Mill Workers Union-PTGWA vs Voluntary Arbitrator Teodorico P. o The 2 corporations have their physical plants, offices and facilities situated
Calica and Indophil Textile Mills, Inc. in the same compound at Barrio Lambakin, Marilao, Bulacan.
GR 96490 | Feb 3, 1992 | Medialdea, J. o Many of private respondent’s own machineries, such as dyeing machines,
reeling, boiler, Kamitsus among others, were transferred to and are not
 Petitioner Indophil Textile Mill Workers Unio-PTGWO and private respondent installed and being used in the Acrylic plant
Indophil Textile Mills, Inc. executed a collective bargaining agreement effective o The services of a number of units, departments or sections of private
from April 1, 1987 to March 31, 1990. respondent are provided to Acrylic
 On Nov 3, 1987, Indophil Acrylic Manufacturing Corporation was formed and o The employees of private respondent are the same persons manning and
registered with the SEC. servicing the units of Acrylic.
o In 1988, Acrylic became operational and hired workers according to its own
criteria and standards. PUBLIC RESPONDENT’S ARGUMENTS (THROUGH THE SOLGEN)
o Sometime in July 1989, the workers of Acrylic unionized and a duly  Indophil Acrylic Manufacturing Corporation is not an alter ego or an adjunct or
certified collective bargaining agreement was executed. business conduit of private respondent because it has a separate legitimate
 In 1990 or a year after the workers of Acrylic have been unionized and a CBA business purpose.
executed, the petitioner union claimed that the plant facilities built and set up by  The primary purpose of private respondent is to engage in the business of
Acrylic should be considered as an extension or expansion of the facilities or manufacturing yarns of various counts and kinds of textiles. On the other hand,
private respondent Company pursuant to Section 1(c), Art I of their CBA1. the primary purpose of Acrylic is to manufacture, buy, sell at wholesale basis,
o Hence, Acrylic is part of the Indophil bargaining unit. barter, import, export and otherwise deal in yarns of various counts and kinds.
 Private respondent opposed as it is a juridical entity separate and distinct o Hence, unlike private respondent, Indophil Acrylic cannot manufacture
from Acrylic. textiles while private respondent cannot buy or import yarns.
 The existing impasse led the parties to enter into a submission agreement. The  Diatagon Labor Federation vs Ople: two corporations cannot be treated as a
parties jointly requested the VA Calica to act as voluntary arbitrator in the single bargaining unit even if their business are related.
resolution of he pending labor dispute pertaining to the proper interpretation of the o The fact that there are as man bargaining units as there are companies in
CBA provision. a conglomeration of a companies is a positive proof that a corporation is
 VA’s Decision: it would be a strained interpretation and application of the endowed with a legal personality distinctly its own, independent and
questioned CBA provision if we would extend to the employees of Acrylic the separate from other corporations.
coverage clause of Indophil Textile Mills CBA. Sec 1(c), Art I d no t extend to the The existence of a bona fide business relationship between Acrylic and private
employees of Acrylic as an extension or expansion of Indophil Textile Mills. respondent is not a proof of being a single corporate entity because the services
which are supposedly provided by it to Acrylic are auxiliary services or activities
PETITIONER’S ARGUMENTS which are not really essential in the actual production of Acrylic.
 The VA erred in interpreting the aforementioned section of the CBA in its literal
meaning, without taking cognizance of the facts adduced that the creation of W/N THE OPERATIONS IN INDOPHIL ACRYLIC CORPORATION ARE AN
Indophil Acrylic is but a devise of respondent Company to evade the application of EXPANSION OF PRIVATE RESPONDENT COMPANY – NO
the CBA between petitioner Union and respondent Company.
 The articles of incorporation of the 2 corporations establish that the 2 entities are  Under the doctrine of piercing the veil of corporate entity, when valid
engaged in the same kind of business, which is the manufacture and sale of yarns grounds therefore exist, the legal fiction that a corporation is an entity with
of various counts and kinds and of other materials of kindred character or nature. a juridical personality separate and distinct from its members or
 The two corporations have practically the same incorporators, directors and stockholders may be disregarded.
officers. o In such cases, the corporation will be considered as mere association of
 The total stock subscription of Indophil Acrylic of P1,749,970 which represents persons. The members or stockholders of the corporation will be
70% of the total 2,500,000 was subscribed to by respondent company. considered as the corporation, that is liability will attach directly to the
 Acrylic is but an extension or expansion of private respondent: officers and stockholders.
o The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is
1 “c) This Agreement shall apply to the Company’s facilities made as a shield to confuse the legitimate issues, or where a corporation
and installations and to any extension and expansion 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
thereat.”
 as to make it merely an instrumentality, agency, conduit or adjunct of o Hence, the Acrylic not being an extension or expansion of private
another corporation. respondent, the rank-and-file employees working at Acrylic should
not be recognized as part of, and/or within the scope of the petitioner,
 IN THE CASE AT BAR, the fact that the businesses of private respondent and as the bargaining representative of private respondent.
Acrylic are related, that some of the employees of the private respondent are the
same persons manning and providing for auxilliary services to the units of Acrylic,
and that the physical plants, offices and facilities are situated in the same
compound are not sufficient to justify the piercing of the corporate veil of
Acrylic. RULING
o Umali, et al. v. Court of Appeals: The legal corporate entity is disregarded
only if it is sought to hold the officers and stockholders directly liable for a ACCORDINGLY, the petition is DENIED and the award of the respondent Voluntary
corporate debt or obligation. In the instant case, petitioner does not seek to Arbitrator are hereby AFFIRMED.
impose a claim against the members of the Acrylic.
o Furthermore, in the case of Diatagon Labor Federation Local 110 of the
ULGWP v. Ople, it was ruled that it is grave abuse of discretion to treat two
companies as a single bargaining unit when these companies are
indubitably distinct entities with separate juridical personalities.
LA CAMPANA FACTORY, INC., and TAN TONG doing business under the trial name o While the coffee corporation is a family corporation with Mr. Tan Tong, his
"LA CAMPANA GAUGAU PACKING" vs. KAISAHAN NG MGA MANGGAGAWA SA wife, and children as the incorporations and stockholders, the La Campana
LA CAMPANA (KKM) and THE COURT OF INDUSTRIAL RELATIONS Gaugau Packing is merely a business name.
o According to the contract of lease, Mr. Tan Tong, manager of the Ka Campana
May 25, 1953 | REYES, J. 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
FACTS: Coffee Factory. But the lease was executed only on September 1, 1951, while
 Since 1932, Tan Tong has been engaged in the business of buying and selling the dispute between the parties was pending before the Court.
gaugau under the trade name La Campana Gaugau Packing with an o There is only one entity La Campana Starch and Coffee Factory, as shown by
establishment in Binondo, Manila, which was later transferred to España the signboard, the advertisement in the delivery trucks, the packages of
Extension, Quezon City. gaugau, and delivery forms.
 On July 6, 1950, Tan Tong, with himself and members of his family, incorporated o All the laborers working in the gaugau or in the coffee factory receive their pay
the company known as La Campana Factory Co., Inc., with its principal office from the same person, the cashier, Miss Natividad Garcia, secretary of Mr. Tan
located in the same place as that of La Campana Gaugau Packing. Tong; and they are transferred from the gaugau to the coffee and vice-versa as
 About a year before the formation of the corporation, Tan Tong had entered into the management so requires.
a CBA with the Philippine Legion of Organized Workers, known as PLOW for o There has been only one payroll for the entire La Campana personnel and
short, to which the union of Tan Tong's employees headed by Manuel E. Sadde only one person preparing the same — Miss Natividad Garcia, secretary of Mr.
was then affiliated. Tan Tong. But after the case at bar was certified to the Court on July 17, 1951,
 Tan Tong's employees later formed their own organization known as Kaisahan the company began making separate payrolls for the coffee factory, and for the
Ng Mga Manggagawa Sa La Campana and applied for registration in the DOLE gaugau factory.
as an independent entity. Pending application, the Department gave the new
organization legal standing by issuing it a permit as an affiliate to the Kalipunan ISSUE: WON the gaugau and coffee company are one and the same
Ng Mga Manggagawa.
 The Kaisahan presented a demand for higher wages and more privileges, the RULING: YES
demand being addressed to La Campana Starch and Coffee Factory, by which  As found by the industrial court—and this finding is conclusive upon the SC—La
name they sought to designate, so it appears, the La Campana Gaugau Packing Campana Gaugau Packing and La Campana Coffee Factory Co. Inc., are
and the La Campana Coffee Factory Co., Inc. operating under one single management, that is, as one business though with
 As the demand was not granted and an attempt at settlement through the two trade names.
mediation of the Conciliation Service of the Department of Labor had given no  True, the coffee factory is a corporation and, by legal fiction, an entity existing
result, the said Department certified the dispute to the Court of Industrial separate and apart fro the persons composing it, that is, Tan Tong and his family.
Relations on July 17, 1951, the case being there docketed as Case No. 584-V. But it is settled that this fiction of law, which has been introduced as a matter of
 With the case already pending in the industrial court, the SOLE revoked the convenience and to subserve the ends of justice cannot be invoked to further an
Kalipunan Ng Mga Kaisahang Manggagawa's permit as a labor union on the end subversive of that purpose.
ground that it was dominated by subversive elements, and also suspended the  Disregarding Corporate Entity. — The doctrine that a corporation is a legal
permit of its affiliate—Kaisahan. entity existing separate and apart from the person composing it is a legal theory
 PLOW and Kaisahan had been allowed to intervene as a party having an introduced for purposes of convenience and to subserve the ends of justice. The
interest in the dispute, filed separate motions for the dismissal of the case on the concept cannot, therefore, be extended to a point beyond its reason and policy,
following grounds: and when invoked in support of an end subversive of this policy, will be
1. That the action is directed against two different entities with distinct disregarded by the courts. Thus, in an appropriate case and in furtherance of the
personalities, with "La Campana Starch Factory" and the "La Campana ends of justice, a corporation and the individual or individuals owning all its
Coffee Factory, Inc."; stocks and assets will be treated as identical, the corporate entity being
2. That the workers of the "La Campana Coffee Factory, Inc." are less than disregarded where used as a cloak or cover for fraud or illegality.
31;  A subsidiary or auxiliary corporation which is created by a parent corporation
3. That the petitioning union has no legal capacity to sue, because its merely as an agency for the latter may sometimes be regarded as identical with
registration as an organized union has been revoked by the DOLE; and the parent corporation, especially if the stockholders or officers of the two
4. That there is an existing valid contract between the respondent "La corporations are substantially the same or their system of operation unified.
Campana Gaugau Packing" and the intervenor PLOW, where-in the  ITC: Tan Tong appears to be the owner of the gaugau factory. And the coffee
petitioner's members are contracting parties bound by said contract. factory, though an incorporated business, is in reality owned exclusively by Tan
 CIR: denied the said motions, because if found as a fact that: 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, when
the person who was discharging the office of cashier for both branches of the  The second point raised by petitioners is likewise with-out merit. In the first
business began preparing separate payrolls for the two. And above all, it should place, there being more than 30 laborers involved and the Secretary of Labor
not be overlooked that, as also found by the industrial court, the laborers of the having certified the dispute to the Court of Industrial Relations, that court duly
gaugau factory and the coffee factory were interchangeable, that is, the laborers acquired jurisdiction over the case. This jurisdiction was not when the
from the gaugau factory were sometimes transferred to the coffee factory and Department of Labor suspended the permit of the respondent Kaisahan as a
vice-versa. In view of all these, the attempt to make the two factories appears as labor organization. For once jurisdiction is acquired by the Court of Industrial
two separate businesses, when in reality they are but one, is but a device to Relations it is retained until the case is completely decided.
defeat the ends of the law (the Act governing capital and labor relations) and  In view of the foregoing, the petition is denied, with costs against the petitioner.
should not be permitted to prevail.
Francisco Motors v CA | June 25, 1999 Whether or not the lower courts erred in ruling FM liable for
G.R. No. 100812 | Quisumbing Manuel’s legal services? YES
Summary: Ruling:
The Sps. Manuels owed FM money for jeep making services Under the doctrine of piercing the veil of corporate entity, the
rendered. When they were sued, the Manuels claimed that the corporations separate juridical personality may be disregarded, for
incorporators of FM owed them money for legal services rendered by example, when the corporate identity is used to defeat public
Gregorio Manuel. The RTC and CA ruled that FM be liable for such legal convenience, justify wrong, protect fraud, or defend crime. Also, where
services and to pay the Manuels, the latter court applying the doctrine of the corporation is a mere alter ego or business conduit of a person, or
piercing the veil of corporate identity. The SC, however, reversed the where the corporation is so organized and controlled and its affairs are so
ruling, and held that the corporation cannot be made liable for the conducted as to make it merely an instrumentality, agency, conduit or
incorporators’ personal liabilities and obligations. adjunct of another corporation, then its distinct personality may be
Facts: ignored. In these circumstances, the courts will treat the corporation as a
● Francisco Motors (FM) filed a claim against Manuels for the mere aggrupation of persons and the liability will directly attach to them.
collection of the balance from the sale of jeep bodies, parts, and The legal fiction of a separate corporate personality in those cited
repairs by the former to the latter, totalling 30K. instances, for reasons of public policy and in the interest of justice, will be
● The Manuels interposed a counterclaim for unpaid legal services justifiably set aside.
by Gregorio Manuel in the amount of 50K. Gregorio claims that The rationale behind piercing a corporations identity in a given
he represented the incorporators of FM in intestate of their case is to remove the barrier between the corporation from the persons
mother, for which he was not paid. comprising it to thwart the fraudulent and illegal schemes of those who
● The RTC ruled in favor of both FM and Manuels, allowing both use the corporate personality as a shield for undertaking certain
their claims for money. FM was found to be in default for failure to proscribed activities.
answer the counterclaim, and held the corporation liable for such In this case, the doctrine of piercing the corporate veil has no
legal services rendered in favor of the incorporators. The CA relevant application. Instead of holding certain individuals or persons
affirmed the same, stating: responsible for an alleged corporate act, the situation has been reversed.
However, this distinct and separate personality is merely a fiction created by law It is the corporation which is being ordered to answer for the personal
for convenience and to promote justice. Accordingly, this separate personality of liability of individual incorporators. Hence, it appears to us that the
the corporation may be disregarded, or the veil of corporate fiction pierced, in doctrine has been turned upside down because of its erroneous
cases where it is used as a cloak or cover for found (sic) illegality, or to work an
invocation.
injustice, or where necessary to achieve equity or when necessary for the
According to Manuel his services were solicited as counsel for
protection of creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc.) Corporations are
composed of natural persons and the legal fiction of a separate corporate members of the Francisco family to represent them in the intestate
personality is not a shield for the commission of injustice and inequity. (Chemplex proceedings over Benita Trinidads estate. These estate proceedings did
Philippines, Inc. vs. Pamatian) not involve any business of FM. His move to recover unpaid legal fees
In the instant case, evidence shows that the FM is composed of the heirs of the through a counterclaim against Francisco Motors Corporation, to offset
late Trinidad as directors and incorporators for whom Gregorio Manuel rendered the unpaid balance of the purchase and repair of a jeep body could only
legal services in the intestate estate case of their deceased mother. Considering result from an obvious misapprehension that petitioners corporate assets
the aforestated principles and circumstances established in this case, equity and could be used to answer for the liabilities of its individual directors,
justice demands FM’s veil of corporate identity should be pierced and Manuel be
officers, and incorporators. Such result if permitted could easily prejudice
compensated for legal services rendered to the heirs, who are directors of FM.
the corporation, its own creditors, and even other stockholders; hence,
Issue:
clearly iniquitous to petitioner. separate in this case. The claim for legal fees against the concerned
Considering the nature of the legal services involved, whatever individual incorporators, officers and directors could not be properly
obligation said incorporators, directors and officers of the corporation had directed against the corporation without violating basic principles
incurred, it was incurred in their personal capacity. When directors and governing corporations. Moreover, every action including a counterclaim
officers of a corporation are unable to compensate a party for a personal must be prosecuted or defended in the name of the real party in interest.
obligation, it is far-fetched to allege that the corporation is perpetuating It is plainly an error to lay the claim for legal fees of private respondent
fraud or promoting injustice, and be thereby held liable therefor by Gregorio Manuel at the door of petitioner (FMC) rather than individual
piercing its corporate veil. While there are no hard and fast rules on members of the Francisco family.
disregarding separate corporate identity, we must always be mindful of its
function and purpose. A court should be careful in assessing the milieu
where the doctrine of piercing the corporate veil may be applied.
Otherwise an injustice, although unintended, may result from its
erroneous application.
The personality of the corporation and those of its incorporators,
directors and officers in their personal capacities ought to be kept
 PNB vs. RITRATTO GROUP INC. instrumentality, agency, conduit or adjunct of another corporation. However,
2001|Kapunan Koppel does not apply in this case.
a. The general rule is that as a legal entity, a corporation has a
personality distinct and separate from its individual
PNB International Finance Ltd. (PNB-IFL), a subsidiary of PNB, organized stockholders or members, and is not affected by the personal
and doing business in Hong Kong, extended to the Ritratto Group a letter of credit for rights, obligations and transactions of the latter.
$300,000 secured by real estate mortgages over four parcels of land in Makati City. i. The mere fact that a corporation owns all of the stocks
 It was later increased and as of April 1998, their outstanding obligations was of another corporation is not sufficient to justify their
$1,487,274.70. being treated as one entity. If used to perform legitimate
o Thus, PNB-IFL, through their attorney-in-fact PNB, notified the functions, a subsidiary's separate existence may be
respondents of the foreclosure of the real estate mortgages. respected, and the liability of the parent corporation
as well as the subsidiary will be confined to those
Respondents filed a complaint for injunction with a prayer for the issuance of a writ of arising in their respective business. The courts may in
preliminary injunction and/or TRO. the exercise of judicial discretion step in to prevent the
 Petitioners filed an opposition stating failure to state a cause of action and the abuses of separate entity privilege and pierce the veil of
absence of any privity between the petitioner and the respondents. They said that corporate entity.
PNB and PNB-IFL are two separate entities and thus, PNB is not a real party in b. There are some factors which will justify the application of the
interest to the case. treatment of the doctrine of piercing the corporate veil.
 Respondents argue that PNB is a real party in interest as it is a wholly-owned i. Garrett vs. Southern Railway Co.: petitioner filed a suit
against Southern Railway as Southern acquired the entire
subsidiary by PNB-IFL and was tasked to commit the acts of foreclosing
capital stock of Lenoir Car Works from where he sustained
respondents’ properties. In addition, they maintain that the entire credit facility is
injuries. However, the Court stated that stoc ownership
void as it contains principles in violation of the principle of mutuality of contract. In
alone by one corporation does not render the dominant
addition, the doctrine of “Piercing the veil of Corporate Identity” was applicable
corporation liable for torts of the subsidiary unless the
because the petitioner is merely an alter ego or business conduit of PNB-IFL.
separate corporate existence of the subsidiary is a mere
RTC: Issued the writ of preliminary injunction; CA affirmed.
sham.
ISSUE: W/N PNB was the real party in interest, being an attorney-in-fact authorized
Circumstances rendering the subsidiary an instrumentality:
to enforce an ancillary contract – NO.
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
HELD:
1. The contract entered into was between Ritratto and PNB-IFL, not PNB. (b) The parent and subsidiary corporations have common directors or officers.
The respondents admit that the petitioner is a mere attorney-in-fact for
the PNB-IFL with full power to foreclose properties mortgaged to (c) The parent corporation finances the subsidiary.
secure their loan obligations with PNB-IFL.
a. PNB is an agent with limited authority and specific duties (d) The parent corporation subscribes to all the capital stock of the subsidiary or
under a SPA incorporated in the real estate mortgage it is not privy otherwise causes its incorporation.
to the loan contracts executed by PNB-IFL.
b. The issue of validity of the loan contracts is a matter between PNB- (e) The subsidiary has grossly inadequate capital.(f) The parent corporation pays the
IFL and the respondents. Thus, as PNB is recognized as a mere salaries and other expenses or losses of the subsidiary.
agent, the respondents still prayed that PNB be ordered to
recomputed the scheduling of the interest to be paid to them and (g) The subsidiary has substantially no business except with the parent corporation or
crediting the amount previously paid to PNB by the respondents. no assets except those conveyed to or by the parent corporation.
ITC: However, PNB is not a part of the contract and has no power to recomputed
the interest rates set forth in the contract.
(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
2. The case of Koppel Phil Inc. vs. Yatco disregarded the separate existence of
business or financial responsibility is referred to as the parent corporation's own.
a parent and a subsidiary since the subsidiary was for the purpose of
evading the payment of higher taxes. In that case, it reasoned that corporate
identity may be disregarded where a corporation is a mere alter ego or (i) The parent corporation uses the property of the subsidiary as its own.
business conduit of a person or where the corporation is merely an
(j) The directors or executives of the subsidiary do not act independently in the  Thus, as an issuance of preliminary injunction is merely adjunct to the main
interest of the subsidiary but take their orders from the parent corporation. suit, the dismissal of the principal action results in the denial of the prayer for
the writ.
(k) The formal legal requirements of the subsidiary are not observed. o Moreover, they do not fulfill the grounds for the issuance of the writ
under Section 3, Rule 48 of the ROC1.
3. In the PH jurisdiction, the doctrine of piercing the corporate veil is an o An injunctive remedy may only be resorted to when there is a
equitable doctrine developed to address situations where the separate pressing necessity to avoid injurious consequences which cannot
corporate personality of a corporation is abused or used for wrongful be remedied under any standard compensation.
purposes.  ITC: Respondents do not deny their indebtedness. Moreover, respondents
a. The doctrine applies when corporate fiction is used to defeat public questioned the alleged void stipulations in the contract only when petitioner
convenience, justify wrong, protect fraud or defend crime. initiated the foreclosure proceedings. Clearly, respondents have failed to
prove that they have a right protected and that the acts against which the
In Concept Builders, Inc. v. NLRC, the test in determining the applicability of the writ is to be directed are violative of said right.
doctrine of piercing the veil of corporate fiction is:

1. Control, not mere majority or complete 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 i.
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 plaintiffs 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 the operation.

ITC: The mere fact that PNB-IFL is a wholly owned subsidiary of PNB does not
justify the conclusion that it is a mere instrumentality of PNB. Neither is there a
demonstration that any of the evils sought to be prevented by the doctrine of piercing 1 SECTION 3. Grounds for issuance of preliminary injunction. — A preliminary injunction may
the corporate veil exists. Thus, the doctrine of piercing the corporate veil has no
be granted when it is established: (a) That the applicant is entitled to the relief demanded, and
application in the case.
the whole or part of such relief consists in restrainng the commission or continuance of the act or
acts complained of, or in requiring the performance of an act or acts, either for a limited period or
 In any case, the parent-subsidiary relationship between PNB and PNB-IFL is perpetually,
not the significant legal relationship involved in this case since the petitioner
was not sued because it is the parent company of PNB-IFL. (b) That the commission, continuance or non-performance of the acts or acts complained of
o the petitioner was sued because it acted as an attorney-in-fact of during the litigation would probably work injustice to the applicant; or
PNB-IFL in initiating the foreclosure proceedings.
 Under the Rules of Court, every action must be (c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is
prosecuted or defended in the name of the real party- procuring or suffering to be done, some act or acts probably in violation of the rights of the
in-interest, unless otherwise authorized by law or applicant respecting the subject of the action or proceeding, and tending to render the judgment
these Rules. In this case, the injunction suit is directed ineffectual.
against the agent (PNB), and not the principal (PNB-IFL). .
A suit against an agent cannot without compelling
reasons be considered a suit against the principal.
Umali v CA Guaranty with Real Estate Mortgage
executed by Rivera as president of Slobec
Facts: and Castillo family, as mortgagors and ICP
 The Castillo family are the owners of a parcel of as mortgagee. In giving the bond, ICP
lands which was given as security for a loan required that the Castillos mortgage to
from the DBP. Mauricia Castillo was the them the four parcels of land.
administratrix in charge over a parcel of land  For violation of the terms and conditions of the
left by Felipe Castillo. For their failure to pay the Counter-Guaranty Agreement, the properties of
amortization, foreclosure of the said property the Castillos were foreclosed by ICP - the highest
was about to be foreclosed. bidder.
 This problem was made known to Rivera, o The mortgagors had one year to redeem
(Plaintiff Santiago Rivera is the nephew of the property, but they failed to do so.
plaintiff Mauricia Meer Vda. de Castillo.) who o Consequently, ICP consolidated its
proposed to them the conversion into ownership. ICP sold to PM Parts the four
subdivision of the four parcels of land adjacent parcels of land.
to the mortgaged property to raise the o Thereafter, PM Parts, through its
necessary fund. The Idea was accepted by the President, Mr. Modesto Cervantes, sent a
Castillo family and to carry out the project, a letter addressed to plaintiff Mrs. Mauricia
Memorandum of Agreement was executed by Meer Castillo requesting her and her
and between Slobec Realty and Development, children to vacate the subject property.
Inc., represented by its President Rivera and the  The heirs of the late Felipe Castillo filed an
Castillo family. action for annulment of title.
 Rivera, armed with the agreement, approached
Mr. Modesto Cervantes, President of defendant CFI: Judgment is hereby rendered in favor of the
Bormaheco, and proposed to purchase from plaintiffs – agreements etc - null and void for being
Bormaheco tractors. fictitious, spurious and without consideration.
 Slobec, through Rivera, executed in favor of
Bormaheco a Chattel Mortgage over the said CA: reversed
equipment as security. As further security of the
aforementioned unpaid balance, Slobec ISSUE and RULING
obtained from Insurance Corporation of the Phil.
a Surety Bond, with ICP (Insurance Corporation WON there is necessity to pierce the veil of corporate
of the Phil.) as surety and Slobec as principal, in entity of Bormaheco, ICP and PM Parts, to determine
favor of Bormaheco. whether they employed fraud in causing the
o The aforesaid surety bond was in turn foreclosure and subsequent sale of the real properties
secured by an Agreement of Counter- belonging to petitioners
 In the first place, the legal corporate entity is
NO. disregarded only if it is sought to hold the officers and
Under the doctrine of piercing the veil of corporate stockholder directly liable for a corporate debt or
entity, when valid grounds therefore exist, the legal obligation. In the instant case, petitioners do not seek
fiction that a corporation is an entity with a juridical to impose a claim against the individual members of
personality separate and distinct from its members or the three corporations involved; on the contrary, it is
stockholders may be disregarded. In such cases, the these corporations which desire to enforce an alleged
corporation will be considered as a mere association of right against petitioners. Assuming that petitioners
persons. The members or stockholders of the were indeed defrauded by private respondents in the
corporation will be considered as the corporation, that foreclosure of the mortgaged properties, this fact alone
is, liability will attach directly to the officers and is not, under the circumstances, sufficient to justify the
stockholders. 12 The doctrine applies when the piercing of the corporate fiction, since petitioners do
corporate fiction is used to defeat public convenience, not intend to hold the officers and/or members of
justify wrong, protect fraud, or defend crime, 13 or respondent corporations personally liable therefor.
when it is made as a shield to confuse the legitimate Petitioners are merely seeking the declaration of the
issues 14 or where a corporation is the mere alter ego nullity of the foreclosure sale, which relief may be
or business conduit of a person, or where the obtained without having to disregard the aforesaid
corporation is so organized and controlled and its corporate fiction attaching to respondent corporations.
affairs are so conducted as to make it merely an Secondly, petitioners failed to establish by clear and
instrumentality, agency, conduit or adjunct of another convincing evidence that private respondents were
corporation. purposely formed and operated, and thereafter
While we do not discount the possibility of the transacted with petitioners, with the sole intention of
existence of fraud in the foreclosure proceeding, defrauding the latter.
neither are we inclined to apply the doctrine invoked The mere fact, therefore, that the businesses of two or
by petitioners in granting the relief sought. It is our more corporations are interrelated is not a justification
considered opinion that piercing the veil of corporate for disregarding their separate personalities, absent
entity is not the proper remedy in order that the sufficient showing that the corporate entity was
foreclosure proceeding may be declared a nullity under purposely used as a shield to defraud creditors and
the circumstances obtaining in the legal case at bar. third persons of their rights.
 BOYER-ROXAS V CA and HEIRS OF EUGENIA V. ROXAS, INC
JUL 14 1992 | GUTIERREZ, JR., J RTC: ORDERED TO VACATE AND PAY RENT FOR STAY; CA: AFFIRMED

FACTS: RESPONDENT corporation, HEIRS OF EUGENIA V ROXAS, INC was ISSUE: WON PETITIONERS are owners of an aliquot portion of all properties of the
incorporated on DEC 4 1962 with the primary purpose of engaging in agriculture to RESPONDENT CORP being stockholders thereof? NO
develop the properties inherited from EUGENIA V. ROXAS and that of EUFROCINO
ROXAS ITC, RESPONDENT is a bona fide corporation. It has a juridical personality of its own
 The AOI, in 1971, was amended to allow it to engage in the resort business. The separate from the members composing it.
incorporators as original members of the board of directors of RESPONDENT  Title over the land where the resort is located is registered in the name of the
were all members of the same family, with EUFROCINO having the biggest share corporation. The staff house being occupied by REBECCA and recreation hall
 RESPONDENT put up a resort (Hidden Valley Spring Resort) in Calauan, which was later on converted into a residential house occupied by GUILLERMO
Laguna and improvements were introduced such as cottages, houses or are owned by RESPONDENT CORP.
buildings, swimming pools, tennis court, restaurant and open pavilions.
 The house near the Balugbugan Pool being occupied by REBECCA and was STOCKHOLDERS OF F. GUANZON AND SONS INC V REGISTER OF DEEDS OF
originally intended as staff house but later used as the residence of MANILA - Properties registered in the name of the corporation are owned by it as an
ERIBERTO, deceased husband of REBECCA and father of GUILLERMO. This entity separate and distinct from its members. While shares of stock constitute
was built from corporate funds. The construction of the unfinished house was personal property, they do not represent property of the corporation.
started by REBECCA and her husband ERIBERTO.  A share of stock only typifies an aliquot part of the corporation’s property,
 The third building occupied by GUILLERMO was originally intended as a or the right to share in its proceeds to that extent when distributed
recreation hall but later converted as a residential house. It was also built from according to law and equity BUT the holder is not the owner of any part of
corporate funds. the capital of the corporation
o The conversion from a recreational hall to a residential house was with the  He is also not entitled to the possession of any definite portion of its property or
knowledge of EUFROCINO and was not objected to by any of the Board of assets. The stockholder is not a co-owner or tenant in common of the corporate
Directors. property.
o Most materials used in converting the building into a residential house came
from materials left by COPPOLA, a film producer, who filed “Apocalypse PETITIONERS: Point out that their occupancy of the staff house which was later used
Now” – left the materials as part of his payment for rents of the room he as the residence of ERIBERTO, husband of REBECCA and the recreation hall which
occupied in the resort. was converted into a residential house were with the blessings of EUFROCINO, the
o GUILLERMO moved in and occupied the house with his family in 1977 or deceased husband of EUGENIA, who was the majority and controlling stockholder of
1978. During that time, EUFROCINO was still alive, ERIBERTO was the the corporation.
general manager of the corporation and there was seldom any board  In his lifetime, EUFROCINO and ERIBERTO managed the corporation. The
meeting Board of Directors did not object to such arrangement. The authority given by
 EUFROCINO with ERIBERTO were the ones who were running the corporation. EUFROCINO for the conversion of the recreation hall into a residential house can
ERIBERTO was the restaurant and wine concessionaire. After the death of no longer be questioned by the stockholders of the RESPONDENT and/or its
EUFROCINO, ERIBERTO continued as general manager until his death in 1980 board of directors for they impliedly but no less explicitly delegated such authority
to EUFROCINO.
 After the death of ERIBERTO, PETITIONERS (REBECCA and GUILLERMO)
committed acts that impeded the RESPODNENT’s expansion and normal
RESPODNENT is a distinct personality separate from its members. The corporation
operation of the resort. It could not even use its own pavilions, kitchen and other
transacts its business only through its officers or agents
facilities because of the acts of PETITIONERS which led to cases filed against
 Whatever authority these officers or agents may have is derived from the board
them
of directors or other governing body unless conferred by the charter of the
The Board of Directors adopted Resolution No. 83-12 s. 1983 authorizing the corporation.
ejectment of PETITIONERS from the premises. Demand letters for them to vacate  An officer’s power as an agent of the corporation must be sought from the
were sent. The dispute was brought before the barangay level but was not settled. statute, charter, the by-laws or in a delegation of authority to such officer, from
 RESPONDENT filed 2 separate complaints for recovery of possession against the acts of the board of directors, formally expressed or implied from a habit or
REBECCA and GUILLERMO respectively. custom of doing business.
 RESPONDENT prayed for the ejectment of PETITIONERS from the buildings
ITC, EUFROCINO who then controlled the management of the corporation, being the
inside the Hidden Valley Springs Resort allegedly owned by RESPONDENT.
majority stockholder, consented to PETITIONERS’ stay within the properties. They
 Their occupancy was only upon the tolerance of RESPONDENT. They never paid were allowed to stay until AUG 27 1983, when the Board of Directors approved the
rentals and ignored the demand letters for them to vacate. Resolution ejecting the petitioners
 COURT: Nothing irregular in the adoption of the Resolution by the BOD –  APPLY ART 453 CIVIL CODE – (APPLIES ART 448 WHEN BOTH IN BAD
PETITIONERS’ stay was merely by tolerance in deference to the wishes of FAITH)
EUFROCINO, who during his lifetime, could not have bound the corporation
forever. ON DUE PROCESS
 PETITIONERS have not cited any provision of the corporation-by-laws or any DOCTRINE: The client is bound by the mistakes of his lawyer
resolution or act of the BOD which authorizes EUFROCINO to allow them to stay EXCEPTION: The party is not bound by the actions of his counsel in case the gross
within the company premises forever negligence of the counsel resulted in the client’s deprivation of his property without
 In the absence of any existing contract between PETITIONERS and due process of law
RESPONDENT CORP, the corporation may elect to eject the PETITIONERS
at any time it wishes for the benefit and interest of the corporation ITC, PETITIONERS were not victims of gross negligence of their counsel.
 PETITIONERS are to be blamed for the RTC order submitting the cases for
ON PIERCING THE CORPORATE VEIL decision. They received notices of the scheduled hearings and yet they did not
The separate personality of the corporation may be disregarded only when the do anything
corporation is used “as a cloak or cover for fraud or illegality, or to work injustice, or  The parties received notice of the order with the warning that if they fail to attend
where necessary to achieve equity or when necessary for the protection of the the hearing, the cases would be submitted for decision based on the evidence on
creditors.” record. They were given another chance by the lower court by rescheduling
 Circumstances in the present case do not fall under any of the enumerated however they still failed to appear.
categories  PETITIONERS knew all along that their counsel was not attending the scheduled
hearings. They did not take steps to change their counsel or make him attend to
OTHER ISSUES: their cases until it was too late.
RE: UNFINISHED BUILDING  They continued to retain the services of ATTY. MANICAD knowing fully well his
REBECCA is a builder in good faith. lapses vis-à-vis their cases.
 The construction of the unfinished building started when ERIBERTO was still
alive and was the general manager of the CORPORATION. The couple used WHEREFORE, PARTLY GRANTED. RTC MODIFIED – REBECCA AND
their own funds to finance the construction of the building. The BOD did not RESPONDENT CORP ORDERED OT FOLLOW ART 448 CC ON UNFINISHED
object to the construction. They allowed the construction despite the fact that it BUILDING; AFFIRMED IN ALL OTHER RESPECTS
was within the property of the corporation.
 14 Sian Enterprises v Cupertino Realty was applied by Cupertino to alleged interests and not to principal amount, despite
G.R. No. 170782 | June 22, 2009 | Nachura the fact that, as earlier stated, the aforesaid loan by agreement of the parties, is
non-interest bearing.
petitioner is engaged in the manufacturing and retailing/wholesaling business. On
the other hand, Cupertino is engaged in the realty business. Cupertino instituted extrajudicial foreclosure proceedings
- The auction sale was scheduled on October 11, 1996 with respondent
On April 10, 1995, petitioner Siain Enterprises, Inc. obtained a loan of Notary Public Edwin R. Catacutan commissioned to conduct the same
₱37,000,000.00 from respondent Cupertino Realty Corporation (Cupertino)
- covered by a promissory note signed by both petitioner’s and Cupertino’s petitioner filed a complaint with a prayer for a restraining order to enjoin Notary
respective presidents, Cua Le Leng and Wilfredo Lua. Public Catacutan from proceeding with the public auction.
- The promissory note authorizes Cupertino, as the creditor, to place in - Petitioner claims Cupertino was already making arrangements with
escrow the loan proceeds of ₱37,000,000.00 with Metropolitan Bank & Trust [respondent] Notary Public for the extrajudicial sale of the mortgage
Company to pay off petitioner’s loan obligation with Development Bank of properties even as [petitioner] is more than willing to pay the
the Philippines (DBP). Php29,014,960.92 which is the remaining balance of the Php37,000,000.00
loan and notwithstanding Cupertino’s unjustified refusal and failure to
To secure the loan, petitioner, on the same date, executed a real estate mortgage deliver to [petitioner] the amount of Php160,000,000.00.
over two (2) parcels of land and other immovables, such as equipment and - In fact, a notarial sale of the mortgaged properties is already scheduled on
machineries. 04 October 1996 by [respondent] Notary Public at his office located at Rm.
100, Iloilo Casa Plaza, Gen Luna St., Iloilo City. In view of the foregoing,
Two (2) days thereafter the parties executed an amendment to promissory note Cupertino has no legal right to foreclose the mortgaged properties.
- provided for a seventeen percent (17%) interest per annum on the - Cupertino cannot extrajudicially cause the foreclosure by notarial sale of
₱37,000,000.00 loan. the mortgage properties by [respondent] Notary Public as there is nothing
- The amendment to promissory note was likewise signed by Cua Le Leng in the REM (dated 10 April 1995) or in the amendment thereto that grants
and Wilfredo Lua on behalf of petitioner and Cupertino, respectively. Cupertino the said right.

it has been the agreement between [petitioner] and Cupertino that the aforesaid Respondents filed an answer
loan will be non-interest bearing. Accordingly, the parties saw to it that the - alleging that the loan have (sic) an interest of 17% per annum:
promissory note (evidencing their loan agreement) did not provide any stipulation - that no payment was ever made by petitioner
with respect to interest. - petitioner has already received the amount of the loan prior to the
execution of the promissory note and amendment of Real Estate Mortgage,
On several occasions thereafter, [petitioner] made partial payments to Cupertino in xxx.
respect of the aforesaid loan obligation by the former to the latter in the total
amount of Php7,985,039.08, thereby leaving a balance of Php29,014,960.92. RTC dismissed petitioner’s complaint and ordering it to pay Cupertino ₱100,000.00
each for actual and exemplary damages, and ₱500,000.00 as attorney’s fees.
Cua Le Leng signed a second promissory note in favor of Cupertino for - recalled and set aside its previous order declaring the notarial foreclosure
₱160,000,000.00. of the mortgaged properties as null and void.
- Cua Le Leng signed the second promissory note as maker, on behalf of
petitioner, and as co-maker, liable to Cupertino in her personal capacity. CA affirmed the RTC’s ruling.
- although the amended real estate mortgage fell within the exceptions to
Parenthetically, on even date, the parties executed an amendment of real estate the parol evidence rule under Section 9, Rule 130 of the Rules of Court,
mortgage, in order to reflect the current total loan secured by the said Real Estate petitioner still failed to overcome and debunk Cupertino’s evidence that the
Mortgage; amended real estate mortgage had a consideration, and petitioner did
- This amendment to REM was executed preparatory to the promised release receive the amount of ₱160,000,000.00 representing its incurred obligation
by Cupertino of additional loan proceeds to [petitioner] in the total amount to Cupertino.
of Php160,000,000.00. - as between petitioner’s bare denial and negative evidence of non-receipt of
the ₱160,000,000.00, and Cupertino’s affirmative evidence on the
However, despite the execution of the said amendment to REM and its subsequent existence of the consideration, the latter must be given more weight and
registration with the Register of Deeds of Iloilo City and notwithstanding the clear value.
agreement between [petitioner] and Cupertino and the latter will release and deliver - gave credence to Cupertino’s evidence that the ₱160,000,000.00 proceeds
to the former the aforesaid additional loan proceeds of P160,000,000.00 after the were the total amount received by petitioner and its affiliate companies
signing of pertinent documents and the registration of the amendment of REM, over the years from Wilfredo Lua, Cupertino’s president.
Cupertino failed and refused to release the said additional amount for - In this regard, the lower courts applied the doctrine of "piercing the veil of
corporate fiction" to preclude petitioner from disavowing receipt of the
When petitioner tendered payment of the amount of Php29,014,960.92 which is the ₱160,000,000.00 and paying its obligation under the amended real estate
remaining balance of the Php37,000,000.00 loan subject of the REM, in order to mortgage.
discharge the same, Cupertino unreasonably and unjustifiably refused acceptance
thereof on the ground that the previous payment amounting to Php7,985,039.08, Petitioner claims
 - amended real estate mortgage is void as it did not receive the agreed
consideration therefor i.e. ₱160,000,000.00. SEC. 24. Presumption of consideration.— Every negotiable instrument is
- the amended real estate mortgage does not accurately reflect the deemed prima facie to have been issued for a valuable consideration; and
agreement between the parties as, at the time it signed the document, it every person whose signature appears thereon to have become a party
actually had yet to receive the amount of ₱160,000,000.00. thereto for value.
- asseverates that the lower courts erroneously applied the doctrine of
"piercing the veil of corporate fiction" when both gave credence to petitioner has not been able to establish its claim of non-receipt by a
Cupertino’s evidence showing that petitioner’s affiliates were the previous preponderance of evidence.
recipients of part of the ₱160,000,000.00 indebtedness of petitioner to - the Court is inclined to give more weight and credence to the affirmative
Cupertino. and straightforward testimony of [Cupertino] explaining in plain and
categorical words that the Php197,000,000.00 loan represented by the
amended REM was the total sum of the debit memo, the checks, the real
estate mortgage and the amended real estate mortgage, the pledges of
WON the loan documents were supported by consideration – YES, jewelries, the trucks and the condominiums plus the interests that will be
presumption not overcome incurred which all in all amounted to Php197,000,000.00.
- as between the plaintiff’s negative evidence of denial and the defendant’s
All the loan documents, on their face, unequivocally declare petitioner’s affirmative evidence on the existence of the consideration, the latter must
indebtedness to Cupertino: be given more weight and value.
- Moreover, [Cupertino’s] foregoing testimony on the existence of the
1. Promissory Note dated April 10, 1995, prefaced with a "[f]or value consideration of the Php160,000,000.00 promissory note has never been
received," and the escrow arrangement for the release of the refuted nor denied by the [petitioner], who while initially having manifested
₱37,000,000.00 obligation in favor of DBP, another creditor of petitioner. that it will present rebuttal evidence eventually failed to do so, despite all
2. Mortgage likewise dated April 10, 1995 executed by petitioner to secure its available opportunities accorded to it.
₱37,000,000.00 loan obligation with Cupertino. o By such failure to present rebutting evidence, [Cupertino’s]
3. Amendment to Promissory Note for ₱37,000,000.00 dated April 12, 1995 testimony on the existence of the consideration of the amended
which tentatively sets the interest rate at seventeen percent (17%) per real estate mortgage does not only become impliedly admitted by
annum. the [petitioner], more significantly, to the mind of this Court, it is a
4. Promissory Note dated August 16, 1995, likewise prefaced with "[f]or value clear indication that [petitioner] has no counter evidence to
received," and unconditionally promising to pay Cupertino ₱160,000,000.00 overcome and defeat the [Cupertino’s] evidence on the matter.
with a stipulation on compounding interest at thirty percent (30%) per
annum. The Promissory Note requires, among others, the execution of a The presentation by [petitioner] of its cash Journal Receipt Book as proof
real estate mortgage to serve as collateral therefor. In case of default in that it did not receive the proceeds of the Php160,000,000.00 promissory
payment, petitioner, specifically, through its president, Cua Le Leng, note does not likewise persuade the Court.
authorizes Cupertino to "dispose of said security or any part thereof at [a] - In the first place, the subject cash receipt journal only contained cash
public sale." receipts for the year 1995. But as appearing from the various checks and
5. Amendment of Real Estate Mortgage also dated August 16, 1995 with a debit memos issued by Wilfredo Lua and his wife, Vicky Lua and from the
recital that the mortgagor, herein petitioner, has increased its loan payable former’s unrebutted testimony in Court, the issuance of the checks, debit
to the mortgagee, Cupertino, from ₱37,000,000.00 to ₱197,000,000.00. In memos, pledges of jewelries, condominium units, trucks and the other
connection with the increase in loan obligation, the parties confirmed and components of the Php197,000,000.00 amended real estate mortgage had
ratified the Real Estate Mortgage dated April 10, 1995. all taken place prior to the year 1995, hence, they could not have been
recorded therein.
from the foregoing chain of transactions, a presumption has arisen that the loan - What is more, the said cash receipt journal appears to be prepared solely at
documents were supported by a consideration. the behest of the [petitioner], hence, can be considered as emanating from
a "poisonous tree" therefore self-serving and cannot be given any serious
Rule 131, Section 3 of the Rules of Court specifies that a disputable credibility.
presumption is satisfactory if uncontradicted and not overcome by other
evidence. Both the trial and appellate courts agreed with petitioner and did not apply the parol
evidence rule. Yet, despite the allowance to present evidence and prove the
Negotiable Instruments Law invalidity of the Amended Real Estate Mortgage, petitioner still failed to substantiate
its claim of non-receipt of the proceeds of the ₱160,000,000.00 loan increase.
SEC. 3. Disputable presumptions.— The following presumptions are
satisfactory if uncontradicted, but may be contradicted and overcome by petitioner was the plaintiff in the trial court, the party that brought suit
other evidence: against respondent. Accordingly, it had the burden of proof, the duty to
present a preponderance of evidence to establish its claim.1
(r) That there was sufficient consideration for a contract; - petitioner’s evidence consisted only of a barefaced denial of receipt and a
(s) That a negotiable instrument was given or indorsed for a sufficient vaguely drawn theory that in their previous loan transaction with
consideration;
 respondent covered by the first promissory note, it did not receive the common president, Cua Le Leng, and unity in the keeping and
proceeds of the ₱37,000,000.00. maintenance of their corporate books and records through their common
- Petitioner conveniently ignores that this particular promissory note secured accountant and bookkeeper, Rosemarie Ragodon.
by the real estate mortgage was under an escrow arrangement and taken - Consequently, these corporations are proven to be the mere alter-ego of
out to pay its obligation to DBP. their president Cua Leleng, and considering that Cua Leleng and Alberto
o petitioner, quite obviously, would not be in possession of the Lim have been living together as common law spouses with three children,
proceeds of the loan. this Court believes that while Alberto Lim does not appear to be an officer
- Contrary to petitioner’s contention, there is no precedent to explain its of Siain and Yuyek, nonetheless, his receipt of certain checks and debit
stance that respondent undertook to release the ₱160,000,000.00 loan only memos from Willie Lua and Victoria Lua was actually for the account of his
after it had first signed the Amended Real Estate Mortgage common-law wife, Cua Leleng and her alter ego corporations.

WON the piercing of the corporate veil doctrine was properly applied – YES the obligation incurred and/or the transactions entered into either by
Yuyek, or by Siain Trucking, or by Cua Leleng, or by Alberto Lim with
As a general rule, a corporation will be deemed a separate legal entity until Cupertino are deemed to be that of the [petitioner] itself.
sufficient reason to the contrary appears. - legal fiction cannotbe applied to its benefit in this case where to do so
- But the rule is not absolute. A corporation’s separate and distinct legal would result to injustice and evasion of a valid obligation, for well settled is
personality may be disregarded and the veil of corporate fiction pierced the rule in this jurisdiction that the veil of corporate fiction may be pierced
when the notion of legal entity is used to defeat public convenience, justify when it is used as a shield to further an end subversive of justice, or for
wrong, protect fraud, or defend crime. purposes that could not have been intended by the law that created it; or to
justify wrong, or for evasion of an existing obligation. Resultantly,
IN THIS CASE, Cupertino presented overwhelming evidence that petitioner
and its affiliate corporations had received the proceeds of the while it appears that the issuance of the checks and the debit memos as well as the
₱160,000,000.00 loan increase which was then made the consideration for pledges of the condominium units, the jewelries, and the trucks had occurred prior
the Amended Real Estate Mortgage. to March 2, 1995, the date when Cupertino was incorporated, the same does not
- the checks, debit memos and the pledges of the jewelries, condominium affect the validity of the subject transactions because applying again the principle of
units and trucks were constituted not exclusively in the name of [petitioner] piercing the corporate veil, the transactions entered into by Cupertino Realty
but also either in the name of Yuyek Manufacturing Corporation, Siain Corporation, it being merely the alter ego of Wilfredo Lua, are deemed to be the
Transport, Inc., Cua Leleng and Alberto Lim is of no moment. latter’s personal transactions and vice-versa.

The conjunction of the identity of the [petitioner] corporation in relation to [petitioner] corporation is now estopped from denying the apparent
Siain Transport, Inc. (Siain Transport), Yuyek Manufacturing Corp. (Yuyek), authorities of Cua Le Leng who holds herself to the public as possessing
as well as the individual personalities of Cua Leleng and Alberto Lim has the power to do those acts, against any person who dealt in good faith as
been indubitably shown in the instant case by the following established in the case of Cupertino.
considerations, to wit: - Cua Leleng is the majority stockholder of the three (3) corporations namely,
Yuyek Manufacturing Corporation, Siain Transport, Inc., and Siain
1. Siain and Yuyek have [a] common set of [incorporators], stockholders and Enterprises Inc., at the same time the President thereof. Second. Being the
board of directors; majority stockholder and the president, Cua Le leng has the unlimited
2. They have the same internal bookkeeper and accountant in the person of power, control and authority without the approval from the board of
Rosemarie Ragodon; directors to obtain for and in behalf of the [petitioner] corporation from
3. They have the same office address at 306 Jose Rizal St., Mandaluyong City; [Cupertino] thereby mortgaging her jewelries, the condominiums of her
4. They have the same majority stockholder and president in the person of common law husband, Alberto Lim, the trucks registered in the name of
Cua Le Leng; and [petitioner] corporation’s sister company, Siain Transport Inc., the subject
5. In relation to Siain Transport, Cua Le Leng had the unlimited authority by lots registered in the name of [petitioner] corporation and her oil mill
and on herself, without authority from the Board of Directors, to use the property at Iloilo City. And, to apply the proceeds thereof in whatever way
funds of Siain Trucking to pay the obligation incurred by the [petitioner] she wants, to the prejudice of the public.
corporation.

it is crystal clear that [petitioner] corporation, Yuyek and Siain Transport WHEREFORE, premises considered, the petition is DENIED. The Decision of
are characterized by oneness of operations vested in the person of their the Court of Appeals in CA-G.R. CV No. 71424 is AFFIRMED. Costs against
the petitioner.
 General Credit Corporation vs Alsons Development and Investment authorized Equity to pay them interest out of Equitys operation income, in
Corporation preference over what was due GCC
January 29, 2007 | J. Garcia  RTC: Equity was a mere instrumentality / adjunct of GCC; Equity and GCC
solidarily liable on the instrument. CA: affirmed the RTC.
 GCC, a finance and investment company, then known as Commercial Credit  Hence this petition.
Corporation (CCC) established CCC franchise companies in different urban o GCC faults the lower courts for, among others piercing the veil of corporate
centers of the country. fiction
 CCC Equity Corporation (Equity) was also organized in November 1994 by GCC
for the purpose of, among other things, taking over the operations and W/N THE PIERCING OF CORPORATE VEIL WAS PROPER – Yes.
management of the various franchise companies
 Alsons Development and Investment Corporation (Alsons) and the Alcantara  The first consequence of the doctrine of legal entity of the separate personality of
familyeach owned, just like GCC, shares in the aforesaid GCC franchise the corporation is that a corporation may not be made to answer for acts and
companies, e.g., CCC Davao and CCC Cebu. liabilities of its stockholders or those of legal entities to which it may be
 For a consideration of 2M, Alsons and the Alcantara family sold their connected or vice versa.
shareholdings in CCC franchise companies (101,953 shares) to Equity.  This notion, however, may be disregarded under the doctrine piercing the
o Equity thus issued a bearer PN veil of corporate fiction. This occurs:
o The Alcantaras subsequently assigned its rights and interests over the 1. When court will look at the corporation as a mere collection of individuals or
bearer note to Alsons  Alsons thus became the holder. an aggregation of persons undertaking business as a group, disregarding
 Having failed to collect on the note, Alsons filed a complaint for a sum of money the separate juridical personality of the corporation unifying the group.
against Equity and GCC. 2. When two (2) business enterprises are owned, conducted and
o GCC was impleaded as party-defendant for any judgment ALSONS might controlled by the same parties, both law and equity will, when
secure against Equity and, under the doctrine of piercing the veil of necessary to protect the rights of third parties, disregard the legal
corporate fiction, against GCC, Equity having been organized as a tool fiction that two corporations are distinct entities and treat them as
and mere conduit of GCC. identical or one and the same.
 Equity answered with a cross-claim against GCC.  Whether the separate personality of the corporation should be pierced hinges on
o It claimed that Equity was purposely organized by GCC for the latter to avoid obtaining facts, appropriately pleaded or proved
CB Rules and Regulations on DOSRI (Directors, Officers, Stockholders and  There are three basic areas where piercing the veil with which law covers and
Related Interest) limitations, and that it acted merely as intermediary or isolates the corporation from any other legal is allowed.
bridge for loan transactions and other dealings of GCC to its franchises and 1. Defeat of public convenience (ie used as an evasing of existing obligation)
the investing public; 2. Fraud cases or when the corporate entity is used to justify a wrong, protect
o It also claimed that it was solely dependent upon GCC for its funding fraud, or defend a crime
o Thus, GCC is solely and directly liable to Alsons 3. Alter ego cases, where a corporation is merely a farce since it is a mere
alter ego or business conduit of a person, or where the corporation is so
GCC filed its answer to the cross-claim
organized and controlled and its affairs are so conducted as to make it
o Emphasized that it was a distinct and separate entity from Equity
merely an instrumentality, agency, conduit or adjunct of another
o Claim that the business relationships with each other were always at arms corporation.
length.  ITC: The existence of certain circumstances, taken together, gave rise to
 During trial, Alsons presented Central Bank and GCC officers as adverse the conclusion that Equity is a mere instrumentality or adjunct of GCC. The
witnesses trial court enumerated no less than 20 documented circumstances and
o Showed evidence that 5 incorporators, each contributing 100K as the initial transactions to support this, including:
paid up capital of the company, organized Equity to manage, as it did o The commonality of directors, officers and stockholders and even sharing of
manage, various GCC franchises through management contracts. office between GCC and Equity
o Before Equitys incorporation, GCC was already into the financing business o Certain financing and management arrangements between the two, allowing
as it was in fact managing and operating various CCC franchises. GCC to handle the funds Equity
o A letter-reply of one G. Villanueva, then GCC President, to Equity President o The virtual domination if not control wielded by GCC over the finances,
Wilfredo Labayen, bearing on the sale of EQUITY shares to third parties, business policies and practices of respondent Equity
part of the proceeds of which the Alcantaras wanted applied to liquidate the o EQUITY never acted independently but took their orders from GCC.
promissory note in question. o The establishment of Equity by the GCC to circumvent CB rules.
 In said letter, Mr. Villanueva explained that the GCC Board denied the
Alcantaras request to be paid out of such proceeds, but nonetheless
 CONCEPT BUILDERS, INC. v. NLRC & NORBERTO MARABE, ET.AL.  The special sheriff recommended that a break-open order be issued to
G.R. No. 108734 | May 29, 1996 | J. Hermosisima, Jr. enable him to enter the premises so that he could proceed with the public
auction sale of the aforesaid personal properties.
FACTS:  A certain Dennis Cuyegkeng filed a third-party claim with the LA alleging that
 Concept Builders, Inc., a domestic corporation with principal office at the properties sought to be levied upon by the sheriff were owned by Hydro
Valenzuela, Metro Manila, is engaged in the construction business. (Phils.), Inc. (HPPI) of which he is the Vice-President.
o Private respondents (Marabe, Raquel, and 19 others) were  The private respondents filed a Motion for Issuance of a Break-Open Order,
employed by Concept Builders as laborers, carpenters and riggers. alleging that HPPI and Concept Builders were owned by the same
 The private respondents were served individual written notices of termination incorporators/stockholders.
of employment by Concept Builders. o They also alleged that Concept Builders temporarily suspended its
o It was stated in the individual notices that their contracts of business operations in order to evade its legal obligations to them
employment had expired and the project in which they were hired and that private respondents were willing to post an indemnity bond
had been completed. to answer for any damages which petitioner and HPPI may suffer
o However, at the time of the termination of private respondents’ because of the issuance of the break-open order.
employment, the project in which they were hired had not yet been o To support their claim, they presented duly certified copies of the
finished and completed. Concept Builders had to engage the General Information Sheets submitted by Concept Builders and by
services of sub-contractors whose workers performed the functions HPPI to the SEC.
of private respondents.  These information sheets contained exactly the same
 Private respondents filed a complaint for illegal dismissal, unfair labor information with respect to the the names of stockholders
practice and non-payment of their legal holiday pay, overtime pay and and the corresponding amounts subscribed, the list of the
thirteenth-month pay against Concept Builders. Board of Directors, the corporate officers, and the principal
 LABOR ARBITER: Ordered Concept Builders to reinstate the private office. (See the table at the end of the digest)
respondents and to pay them back wages equivalent to 1 year or 300  HPPI opposed the motion, contending that HPPI is a corporation which is
working days. separate and distinct from petitioner.
 NLRC: Dismissed Concept Builders’ MR on the ground that the said o HPPI also alleged that the two corporations are engaged in two
decision had already become final and executory. NLRC further made the different kinds of businesses, i.e., HPPI is a manufacturing firm
finding that the private respondents’ backwages amounted to P199,800.00. while petitioner was then engaged in construction.
 LA: Issued a writ of execution directing the sheriff to execute the LA  LA: Issued an Order which denied the motion for break-open order.
Decision.  NLRC: Set aside the order of the LA, and issued a break-open order and
o The writ was partially satisfied through garnishment of sums from directed private respondents to file a bond. MR was denied.
petitioner’s debtor, the Metropolitan Waterworks and Sewerage  In the present petition, Concept Builders alleges, among others, that the
Authority, in the amount of P81,385.34. doctrine of piercing the corporate veil should not have been applied in the
o An Alias Writ of Execution was issued by the LA, directing the absence of any showing that it created HPPI in order to evade its liability to
sheriff to collect from Concept Builders the sum of P117,414.76, the private respondents.
representing the balance of the judgment award, and to reinstate o It also contends that HPPI is engaged in the manufacture and sale
private respondents to their former positions. of steel, concrete and iron pipes, a business which is distinct and
 The sheriff issued a report stating that he tried to serve the alias writ of separate from petitioners construction business.
execution on Concept Builders through the security guard on duty, but the o Hence, it is of no consequence that Concept Builders and HPPI
service was refused because Concept Builders no longer occupied the shared the same premises, the same President and the same set of
premises. Thus, the LA issued a second alias writ of execution. officers and subscribers.
 However, the said writ had not been enforced by the special sheriff because,
as stated in his progress report: ISSUE:
o All the employees inside Concept Builders’ premises at 355 W/N the doctrine of piercing the corporate veil was applicable - YES
Maysan Road, Valenzuela, Metro Manila, claimed that they were
employees of Hydro Pipes Philippines, Inc. (HPPI); RATIO:
o Levy was made upon personal properties he found in the premises,  It is a fundamental principle of corporation law that a corporation is an entity
but the security guards with high-powered guns prevented him from separate and distinct from its stockholders and from other corporations to
removing the properties he had levied upon. which it may be connected.
o But, this separate and distinct personality of a corporation is merely
a fiction created by law for convenience and to promote justice.
 o When the notion of separate juridical personality is used to
defeat public convenience, justify wrong, protect fraud or  In applying the instrumentality or alter ego doctrine, the courts are
defend crime, or is used as a device to defeat the labor laws, concerned with reality and not form, with how the corporation operated and
this separate personality of the corporation may be the individual defendants relationship to that operation.
disregarded or the veil of corporate fiction pierced. o Hence, the question of whether a corporation is a mere alter
o This is true likewise when the corporation is merely an ego, a mere sheet or paper corporation, a sham or a
adjunct, a business conduit or an alter ego of another subterfuge is purely one of fact.
corporation.  IN THE CASE: While Concept Builders claimed that it ceased its business
 The conditions under which the juridical entity may be disregarded vary operations on April 29, 1986, it filed an Information Sheet with the SEC on
according to the peculiar facts and circumstances of each case. While there May 15, 1987, stating that its office address is at 355 Maysan Road,
is no hard and fast rule which can be accurately laid down, there are some Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant,
probative factors of identity that will justify the application of the doctrine submitted on the same day, a similar information sheet stating that its office
of piercing the corporate veil: address is at 355 Maysan Road, Valenzuela, Metro Manila.
o Stock ownership by one or common ownership of both o Both information sheets were filed by Virgilio O. Casino as the
corporations. corporate secretary of both corporations.
o Identity of directors and officers. o Both corporations had the same president, the same board of
o The manner of keeping corporate books and records. directors, the same corporate officers, and substantially the same
o Methods of conducting the business. subscribers.
 The SEC en banc explained the instrumentality rule which the courts have  Clearly, petitioner ceased its business operations in order to evade the
applied in disregarding the separate juridical personality of corporations as payment to private respondents of backwages and to bar their reinstatement
follows: to their former positions. HPPI is obviously a business conduit of Concept
o Where one corporation is so organized and controlled and its affairs Builders and its emergence was skillfully orchestrated to avoid the financial
are conducted so that it is, in fact, a mere instrumentality or adjunct liability that already attached to petitioner corporation.
of the other, the fiction of the corporate entity of the instrumentality  It is very obvious that the second corporation seeks the protective shield of a
may be disregarded. corporate fiction whose veil in the present case could, and should, be
o The control necessary to invoke the rule is not majority or even pierced as it was deliberately and maliciously designed to evade its financial
complete stock control but such domination of finances, policies obligation to its employees.
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. OTHER ISSUE: W/N the NLRC committed GAOD in affirming the break-open order issued
by the LA- NO
o The control must be shown to have been exercised at the time the
 Section 3, Rule VII of the NLRC Manual of Execution of Judgment: Should the
acts complained of took place. Moreover, the control and breach of losing party, his agent or representative, refuse or prohibit the Sheriff or his
duty must proximately cause the injury or unjust loss for which the representative entry to the place where the property subject of execution is located or
complaint is made. kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned
 The test in determining the applicability of the doctrine of piercing the for a break-open order.
veil of corporate fiction is as follows:  Here, given the failure of the sheriff to effect a levy upon the property subject of the
1. Control, not mere majority or complete stock control, but complete execution, private respondents had no other recourse but to apply for a break-open
domination, not only of finances but of policy and business practice in order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC.
respect to the transaction attacked so that the corporate entity as to this  Furthermore, the twin requirements of due notice and hearing were complied with.
Concept Builders and the third-party claimant were given the opportunity to submit
transaction had at the time no separate mind, will or existence of its
evidence in support of their claim. Hence, the NLRC did not commit any grave abuse
own; of discretion when it affirmed the break-open order issued by the Labor Arbiter.
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 RULING:
duty, or dishonest and unjust act in contravention of plaintiffs legal WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC,
rights; and dated April 23, 1992 and December 3, 1992, are AFFIRMED.
3. The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of. SO ORDERED.
 The absence of any one of these elements prevents piercing the corporate
veil.
 2. Board of Directors 2. Board of Directors

Antonio W. Lim Chairman Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member Elisa C. Lim Member
Elisa C. Lim Member Dennis S. Cuyegkeng Member
Teodulo R. Dino Member Virgilio O. Casino Member
Virgilio O. Casino Member Teodulo R. Dino Member

3. Corporate Officers 3. Corporate Officers

General Information Sheets submitted to the SEC:
Antonio W. Lim President Antonio W. Lim President
Concept Builders’ GIS: HPPI’s GIS
Dennis S. Cuyegkeng Assistant to the Dennis S. Cuyegkeng Assistant to the
1. Breakdown of Subscribed Capital 1. Breakdown of Subscribed Capital
President President
Elisa 0. Lim Treasurer Elisa O. Lim Treasurer
Name of Stockholder Amount Subscribed Name of Stockholder Amount Subscribed
Virgilio O. Casino Corporate Secretary Virgilio O. Casino Corporate Secretary
HPPI P6,999,500.00 Antonio W. Lim P400,000.00
4. Principal Office 4. Principal Office
Antonio W. Lim 2,900,000.00 Elisa C. Lim 57,700.00
Dennis S. Cuyegkeng 300.00 AWL Trading 455,000.00
355 Maysan Road, Valenzuela, Metro 355 Maysan Road, Valenzuela, Metro
Elisa C. Lim 100,000.00 Dennis S. Cuyegkeng 40,100.00
Manila. Manila.
Teodulo R. Dino 100.00 Teodulo R. Dino 100.00
Virgilio O. Casino 100.00 Virgilio O. Casino 100.00
ESTELITA BURGOS LIPAT and ALFREDO LIPAT vs. PACIFIC BANKING CORPORATION, REGISTER OF
DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the Heirs of EUGENIO D. TRINIDAD
GR No. 142435 | April 30, 2003 | Quisumbing, J.

Summary: P-sps Lipat owned BET, a single proprietorship which was eventually incorporated. Even before
incorporation, daughter Teresita had an SPA to obtain loans for BET from Pacific Bank. When BEC defaulted,
an REM executed over the Lipats’ property was foreclosed. Ps questioned the foreclosure, contending that
Teresita had no authority to mortgage on behalf of BEC. Lower courts pierced the corporate veil to hold Ps
personally liable. SC ruled that the piercing was correctly applied pursuant to the alter ego doctrine or
instrumentality rule. Due to several indicia that BEC was a mere alter ego, it was held that it was a
continuation and successor of BET, and that Ps cannot evade their obligations in the mortgage contract
secured under the name of BEC on the pretext that it was signed for the benefit and under the name of
BET.

Facts:
P-sps Lipat owned Bela’s Export Trading (BET), a single proprietorship in Cubao engaged in manufacture of
garments. They also owned Mystical Fashions in the US which sells goods impored through BET. Daughter
Teresita was assigned to manage BET in the PH. Hence, mom Estelita executed an SPA appointing Teresita
as atty-in-fact to obtain loans from R Pacific Bank, authorizing Teresita to execute mortgage contracts in
connection thereof. By virtue of the SPA, Teresita obtained a loan from Pacific Bank, executing an REM over
their Cubao property as security. Said property was likewise made to secure other additional or new loans.

On September 5, 1979, BET was incorporated into a family corporation named Bela's Export Corporation
(BEC). It was engaged in the same business and utilized the same machineries and equipment previously
used by BET. Its incorporators and directors included the Lipat spouses who owned a combined 300 shares
out of the 420 shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives and friends
of the Lipats. Estelita Lipat was named president of BEC, while Teresita became the vice-president and
general manager.

Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by
BEC. These transactions were all secured by the real estate mortgage over the Lipats' property.

The promissory notes all became due and demandable. Unfortunately, BEC defaulted in its payments.
Consequently, the real estate mortgage was foreclosed and eventually sold at public auction. So, Spouses
Lipat filed before the Quezon City RTC a complaint for annulment of the real estate mortgage, extrajudicial
foreclosure and the certificate of sale issued over the property against Pacific Bank and buyer Eugenio D.
Trinidad. The complaint alleged that the promissory notes, trust receipt, and export bills were all ultra
vires acts of Teresita as they were executed without the requisite board resolution of the Board of Directors
of BEC. It was likewise pointed out that Teresita's authority to secure a loan from Pacific Bank was
specifically limited to Mrs. Lipat's sole use and benefit and that the real estate mortgage was executed to
secure the Lipats' and BET's P583,854.00 loan only.

Pacific Bank and Trinidad alleged in common that Ps Lipat cannot evade payments of the value of the
promissory notes, trust receipt, and export bills with their property because they and the BEC are one and
the same, the latter being a family corporation. R Trinidad further claimed that he was a buyer in good
faith and for value and that petitioners are estopped from denying BEC's existence after holding
themselves out as a corporation.

RTC: dismissed the Lipats’ complaint and pierced the corporate veil – there was convincing and conclusive
evidence proving that BEC was a family corporation of the Lipats and as such, it was a mere extension
of petitioners' personality and business and a mere alter ego or business conduit of the Lipats
established for their own benefit.

CA: affirmed; Mrs. Lipat had full control over the activities of the corporation and used the same to further
her business interests + a board resolution authorizing Teresita Lipat to secure loans from Pacific Bank on
behalf of BEC is unnecessary because the corporation's by-laws allowed such conduct even without a
board resolution

Ps contend that the doctrine of piercing the veil of corporate fiction is inapplicable as there is no clear
showing of fraud on their part. They also contend that the mortgage should not be made to answer for the
corporation’s subsequent loans.
Issue: WON the veil of corporate fiction was correctly pierced – YES

Ratio:
Ps’ contention is unmeritorious because the lower courts relied upon the alter ego doctrine or
instrumentality rule, rather than fraud in piercing the veil of corporate fiction. When the
corporation is the mere alter ego or business conduit of a person, the separate personality of the
corporation may be disregarded. As held in one case,
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in
fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
'instrumentality' may be disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal. x x x

Evidence on record is enough to show that BEC is a mere alter ego of the Lipats: (1) Estelita and Alfredo
Lipat are the owners and majority shareholders of BET and BEC, respectively; (2) both firms were
managed by their daughter, Teresita; (3) both firms were engaged in the garment business, supplying
products to "Mystical Fashion," a U.S. firm established by Estelita Lipat; (4) both firms held office in the
same building owned by the Lipats; (5) BEC is a family corporation with the Lipats as its majority
stockholders; (6) the business operations of the BEC were so merged with those of Mrs. Lipat such that
they were practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the
corporation itself had no visible assets; (8) the board of directors of BEC was composed of the Burgos
and Lipat family members; (9) Estelita had full control over the activities of and decided business
matters of the corporation; and that (10) Estelita Lipat had benefited from the loans secured from
Pacific Bank to finance her business abroad and from the export bills secured by BEC for the account of
"Mystical Fashion." It could not have been coincidental that BET and BEC are so intertwined with each
other in terms of ownership, business purpose, and management. Apparently, BET and BEC are one
and the same and the latter is a conduit of and merely succeeded the former. Ps' attempt to
isolate themselves from and hide behind the corporate personality of BEC so as to evade their
liabilities to Pacific Bank is precisely what the classical doctrine of piercing the veil of
corporate entity seeks to prevent and remedy. In our view, BEC is a mere continuation and successor
of BET, and petitioners cannot evade their obligations in the mortgage contract secured under the name of
BEC on the pretext that it was signed for the benefit and under the name of BET.

As to the issue that the mortgaged property should not be made liable for the subsequent loans of BEC as
it was not covered by the mortgage contract, and because it was secured by Teresita without any board
resolution, Ps’ contention is untenable as well.

The mortgage was executed not only for the purpose of securing the Bela's Export Trading's original loan of
P583,854.00, but also for "other additional or new loans, discounting lines, overdrafts and credit
accommodations, of whatever amount, which the Mortgagor and/or Debtor may subsequently obtain from
the mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of
said original, additional or new loans, discounting lines, overdrafts and other credit accommodations,
including interest and expenses or other obligations of the Mortgagor and/or Debtor owing to the
Mortgagee, whether directly, or indirectly principal or secondary, as appears in the accounts, books and
records of the mortgagee.”

Also, it could not have been possible for BEC to release a board resolution since per admissions by both
petitioner Estelita Lipat and Alice Burgos, Ps' rebuttal witness, no business or stockholder's meetings were
conducted nor were there election of officers held since its incorporation. In fact, not a single board
resolution was passed by the corporate board and it was Estelita Lipat and/or Teresita Lipat who decided
business matters.

Further, the principle of estoppel precludes petitioners from denying the validity of the
transactions entered into by Teresita Lipat with Pacific Bank, who in good faith, relied on the
authority of the former as manager to act on behalf of petitioner Estelita Lipat and both BET
and BEC. The authority of such individuals to bind the corporation is generally derived from law, corporate
by-laws, or authorization from the board, either expressly or impliedly by habit, custom, or acquiescence in
the general course of business. Apparent authority is derived not merely from practice. Its existence may
be ascertained through (1) the general manner in which the corporation holds out an officer or agent as
having the power to act or, in other words, the apparent authority to act in general, with which it clothes
him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, whether within or beyond the scope of his ordinary powers.

In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special
power of attorney executed by Estelita Lipat. Recall that Teresita Lipat acted as the manager of both BEC
and BET and had been deciding business matters in the absence of Estelita Lipat. Hence, Pacific Bank
cannot be faulted for relying on the same authority granted to Teresita Lipat by Estelita Lipat by virtue of a
special power of attorney. It is a familiar doctrine that if a corporation knowingly permits one of
its officers or any other agent to act within the scope of an apparent authority, it holds him out
to the public as possessing the power to do those acts; thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be estopped from denying the
agent's authority.
 RAMIREZ TELEPHONE CORP. V. BANK OF AMERICA, EF HERBOSA, telephone lines, paralyzing its operations
SHERIFF of MANILA, CA ● Lower court ruled in favor of Ramirez Telephone. Bank of America
No. L-22614.August 29, 1969.CAPISTRANO, J. appealed to the CA
(Note: some parts of the case were in Spanish. I just tried to translate them) ● Before the CA, Herbosa testified that Ruben Ramirez paid rentals
using checks from Ramirez Telephone Corp. funded by the
● Defendant Herbosa owned the building in Sta. Mesa leased by corporation’s account with Bank of America.
Ruben Ramirez as President of Ramirez Telephone Corp. ○ He added that 75% of the shares of Ramirez Telephone
● Ramirez failed to pay rent; hence, Herbosa filed an eviction claim were owned by Ruben Ramirez and his wife Rizalina
against Ramirez ○ Basically, Herbosa was trying to justify that the seizure of the
● CFI ruled in favor of Herbosa and issued an order of funds of Ramirez Telephone to pay for the unpaid rentals
attachment/garnishment against Ramirez. The said order of was proper
attachment/garnishment was served on the Bank of America ● CA ruled in favor of Bank of America and Herbosa
○ The order stated that the personal property of Ruben ● Before the SC, Ramirez telephone argued that a corporation has a
Ramirez under the control of Bank of America to cover the personality separate and distinct from that of its stockholders and,
amount of P2,400 are being levied upon therefore, the funds of a corporation cannot be reached to satisfy the
● Upon receipt of the order, Bank of America wrote a letter to the debt of its stockholders.
sheriff saying that Ruben Ramirez did not have funds with the bank ○ Even if Ruben and Rizalina owned 75% of the srock of the
● The Sheriff replied, clarifying that the order of attachment referred to corporation, iits funds as a corporation cannot be garnished
the interest or participation which Ruben Ramirez may have in the to satisfy the debts of a principal stockholder
deposit of the Ramirez Telephone Corp. with the bank
● At that time, Ramirez Telephone Corp. had P4,789.53 in its account HELD:
with Bank of America, from which, P2,400 was garnished according ● While respect for the corporate personality as such is the general
to the order served by the Sheriff rule, there are exceptions. In appropriate cases, the veil of corporate
● Ramirez Telephone withdrew P1,500 from the account, leaving a fiction may be pierced.
balance of P889 ● the funds of the corporation may be garnished to satisfy the debts of
● Ramirez Telephone, through its President, Ruben Ramirez, issued a a principal stockholder, to administer the ends of justice
check in the amount ot P2,320 in favor of Ray Electronics, in
payment of certain equipment CA AFFIRMED
● The said check was dishonored by the Bank of America due to
insufficient funds. Villanueva notes: Mixing of personal accounts with corporate bank accounts
● Ramirez Telephone sued Bank of America because of the damage would authorize piercing to protect the judgment creditors.
and embarrassment it suffered, and because of the cancellation of
the order of the necessary equipment for the construction of
 TELEPHONE ENGINEERING & SERVICE COMPANY, INC., petitioner, ● Oct. 27, 1967, TESCO, through Jose Luis Santiago, informed the Acting
vs. Referee that it would avail of the 15-days-notice given to it to state its non-
WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF conformity to the award and contended that the cause of the illness
RIZAL and LEONILA SANTOS GATUS, for herself and in behalf of her minor contracted by Gatus was in no way aggravated by the nature of his work.
children, Teresita, Antonina and Reynaldo, all surnamed GATUS, respondents.
(May 13, 1981 | MELENCIO-HERRERA, J.) ● Nov. 6, 1967: TESCO requested for an extension of 10 days within which to
file a Motion for Reconsideration, and on Nov. 15, 1967, asked for an
DOCTRINE (from the book, p. 129): additional extension of 5 days.
● The veil of corporate fiction was not allowed to be availed of, and piercing ● Nov. 18, 1967: TESCO filed its "Motion for Reconsideration and/or Petition
was allowed when the corporate fiction was made as a scheme to confuse to Set Aside Award”, alleging
the legitimate issues, such when the defense of separate juridical personality ○ that the admission made in the "Employer's Report of Accident or
is interposed for the 1st time on appeal. Sickness" was due to honest mistake and/or excusable negligence
on its part, and
FACTS: ○ that the illness for which compensation is sought is not an
● Petitioner is a domestic corporation engaged in the business of occupational disease, hence, not compensable under the law.
manufacturing telephone equipment with offices at Rizal. ● Dec. 28, 1967: The Regional Office denied the extension and Motion for
○ Its Executive Vice-President and General Manager is Jose Luis Reconsideration on the ground
Santiago. ○ that the alleged mistake or negligence was not excusable, and
○ It has a sister company, the Utilities Management Corporation ○ that the basis of the award was not the theory of direct causation
(UMACOR), with offices in the same location. UMACOR is also alone but also on that of aggravation.
under the management of Jose Luis Santiago. ● Jan. 28, 1968: An Order of execution was issued.
● Sept. 8, 1964: UMACOR employed the late Pacifico L. Gatus as Purchasing ● Feb. 3, 1968: Petitioner filed an "Urgent Motion to Compel Referee to
Agent. Elevate the Records to the Workmen's Compensation Commission for
● May 16, 1965: Pacifico L. Gatus was detailed with petitioner company. Review."
● Aug. 1, 1965: He reported back to UMACOR. ● Feb. 17, 1968: Meanwhile, the Provincial Sheriff of Rizal levied on and
● Jan. 13, 1967: He contracted illness. attached the properties of TESCO, and scheduled the sale of the same at
● May 10, 1967: He retained to work. public auction on February 26, 1968.
● July 14, 1967: He died of "liver cirrhosis with malignant degeneration." ● Feb. 28, 1968: The Commission issued an Order requiring petitioner
● Aug. 7, 1967: His widow, respondent Leonila S. Gatus, filed a "Notice and ○ to submit verified or true copies of the Motion for Reconsideration
Claim for Compensation" with Regional Office, Workmen's Compensation and/or Petition to Set Aside Award and Order of December 28,
Section, alleging therein that her deceased husband was an employee of 1967, and
TESCO, and that he died of liver cirrhosis. ○ to show proof that said Motion for Reconsideration was filed
● Aug. 9, 1967: Regional Office wrote petitioner transmitting the Notice and within the reglementary period,
for Compensation, and requiring it to submit an Employer's Report of ■ with the warning that failure to comply would result in the
Accident or Sickness pursuant to Section 37 of the Workmen's dismissal of the Motion.
Compensation Act (Act No. 3428). ● Feb. 22, 1968: However, before this Order could be released, TESCO filed
● An "Employer's Report of Accident or Sickness" was thus submitted with with this Court the present petition for "Certiorari with Preliminary
UMACOR indicated as the employer of the deceased. Injunction" seeking
○ The Report was signed by Jose Luis Santiago. ○ to annul the award and
○ In answer to questions Nos. 8 and 17, the employer stated that it ○ to enjoin the Sheriff from levying and selling its properties at
would not controvert the claim for compensation, and admitted that public auction.
the deceased employee contracted illness "in regular occupation."
● On the basis of this Report, the Acting Referee awarded in a letter-award ISSUE & RATIO: Whether or not TESCO is estopped from claiming lack of
dated October 6, 1967 against TESCO: employer-employee relationship. - YES.
○ death benefits in the amount of P5,759.52 plus
○ burial expenses of P200.00 in favor of the heirs of Gatus. TESCO:
 ● The Commission has no jurisdiction to render a valid award in this suit as TESCO'S denial at this stage that it is the employer of the deceased is
there was no employer-employee relationship between them, the deceased obviously an afterthought, a devise to defeat the law and evade its
having been an employee of UMACOR and not of TESCO. obligations.
● In support of this contention, photostat copies of the payroll of UMACOR ● This denial also constitutes a change of theory on appeal which is not
were submitted, showing the name of the deceased as one of the 3 allowed in this jurisdiction.
employees listed under the Purchasing Department of UMACOR. ● Moreover, issues not raised before the Workmen's Compensation
● It also presented a photostat copy of a check of UMACOR payable to the Commission cannot be raised for the first time on appeal.
deceased representing his salary. ● For that matter, a factual question may not be raised for the first time on
appeal to the Supreme Court.
CONCEPTS:
● The existence of employer-employee relationship is the jurisdictional ● This certiorari proceeding must also be held to have been prematurely
foundation for recovery of compensation under the Workmen's brought.
Compensation Law. ○ Before a petition for certiorari can be instituted, all remedies
● The lack of employer-employee relationship, however, is a matter of available in the trial Court must be exhausted first.
defense that the employer should properly raise in the proceedings below. ○ Certiorari cannot be resorted to when the remedy of appeal is
● The determination of this relationship involves a finding of fact, which is present.
conclusive and binding and not subject to review by this Court. ○ TESCO did not pursue
■ an appeal from the award of the Referee, within 15 days
SC: from notice, to the Commission;
● It is only in this Petition that petitioner denied, for the first time, the ■ a petition for reconsideration of the latter's resolution, if
employer-employee relationship. adverse, to the Commission en banc; and
● In fact, in its letter to the Acting Referee, in its request for extension of time ■ within 10 days from receipt of an unfavorable decision by
to file "Motion for Reconsideration and/or Petition to Set Aside Award," and the latter, an appeal to this Court.
in its "Urgent Motion to Compel the Referee to Elevate Records to the ● Although this rule admits of exceptions, as
Commission for Review," petitioner represented and defended itself as the ○ where public welfare and the advancement of public policy so
employer of the deceased. dictate,
○ Nowhere in said documents did it allege that it was not the ○ the broader interests of justice so require, or
employer. ○ where the Orders complained of were found to be completely null
● Petitioner even admitted that TESCO and UMACOR are sister companies and void or
operating under a single management and housed in the same building. ○ that the appeal was not considered the appropriate remedy,
● Although respect for the corporate personality as such, is the general rule, ■ the case at bar does not fan within any of these
there are exceptions. exceptions.
○ In appropriate cases, the veil of corporate fiction may be pierced as
when the same is made as a shield to confuse the legitimate issues. RULING: Petition dismissed.
● While jurisdiction cannot be conferred by acts or omission of the parties,
Emilio Cano Enterprises v CIR
February 26, 1965 | J. Bautista Angelo

FACTS:
- An unfair labor practice case was instituted against Emilio (President and Proprietor),
Ariston (field supervisor), and Rodofo (manager) of Emilio Cano Enterprises, Inc.
- Judge found Emilio and Rodolfo guilty. They were ordered to reinstate Honorata Cruz to
her former position and paid backwages.
- Emilio subsequently died, but the appeal of the judgement against him was denied
- An order of execution was issued against the properties of Emilio Cano Enterprises
- Said corporation filed an ex parte motion to quash the writ on the ground that the
judgment sought to be enforced was not rendered against it which is a juridical entity
separate and distinct from its officials.
- The motion of the corporation was denied, thus, this present petition
ISSUE:
Can the judgment rendered against Emilio and Rodolfo in their capacity as officials of the
corporation Emilio Cano Enterprises, Inc. be made effective against the property of the
latter which was not a party to the case? - YES
- We should not lose sight of the fact that the Emilio Cano Enterprises, Inc. is a closed
family corporation where the incorporators and directors belong to one single family
- Here is an instance where the corporation and its members can be considered as one.
- To hold such entity liable for the acts of its members is not to ignore the legal fiction but
merely to give meaning to the principle that such fiction cannot be invoked if its purpose
is to use it as a shield to further an end subversive of justice
- Moreover, Emilio and Rodolfo are here indicted, not in their private capacity, but as
officials of the corporation. Having been sued officially their connection with the case
must be deemed to be impressed with the representation of the corporation.
- The court order is even for reinstatement and payment of backwages, thus, the
order against the officials is also in effect an order against the corporation
M. MC CONNEL, W. P. COCHRANE, RICARDO RODRIGUEZ, ET ISSUE: WON to disregard the corporate entity of the Park Rite
AL. vs. CA and DOMINGA DE LOS REYES, assisted by her Co., Inc., and hold its controlling stockholders personally
husband, SABINO PADILLA responsible for a judgment against the corporation.
Facts: Park Rite Co., Inc. leased from Samanillo a vacant lot in HELD: YES.
Manila which it used for parking motor vehicles for a
It has been already been held that individual stockholders
consideration. It turned out that in operating its parking
may be held liable for obligations contracted by the
business, the corp. occupied and used not only the Samanillo
corporation where circumstances have shown that the
lot it had leased but also an adjacent lot belonging to the
corporate entity is being used as an alter ego or business
respondents Padilla, without the owners' knowledge and
conduit for the sole benefit of the stockholders, or else to
consent.
defeat public convenience, justify wrong, protect fraud, or
When the latter discovered the truth, they demanded defend crime.
payment for the use and occupation of the lot. The
In this case, evidence clearly shows that these persons
corporation (then controlled by petitioners Cirilo Parades and
completely dominated and controlled the corporation and
Ursula Tolentino, who had purchased and held 1,496 of its
that the functions of the corporation were solely for their
1,500 shares) disclaimed liability, blaming the original
benefits. There is no doubt that the corporation was a mere
incorporators, McConnel, Rodriguez and Cochrane.
alter ego or business conduit of the defendants Cirilo Paredes
Whereupon, the lot owners filed against it a complaint for and Ursula Tolentino, and before them — the defendants M.
forcible entry in the Municipal Court of Manila on 7 October McConnel, W. P. Cochrane, and Ricardo Rodriguez
1947. Judgment was rendered ordering the Park Rite Co., Inc.
When it was originally organized, the original incorporators
to pay P11,732.50 plus legal interest as damages.
were M. McConnel, W. P. Cochrane, Ricardo Rodriguez,
Upon execution, the corporation was found without any Benedicto M. Dario and Aurea Ordrecio with a capital stock of
assets other than P550.00 deposited in Court. After their P1,500.00 divided into 1,500 shares at P1.00 a share.
application to the judgment credit, there remained a balance McConnel and Cochrane each owned 500 shares, Ricardo
of P11,182.50 outstanding and unsatisfied. Rodriguez 408 shares, and Dario and Ordrecio 1 share each.
It is obvious that the shares of the last two named persons
The judgment creditors then filed suit in the CFI of Manila
were merely qualifying shares.
against the corporation and its past and present
stockholders, to recover from them, jointly and severally, the Then, defendants Cirilo Paredes and Ursula Tolentino
unsatisfied balance of the judgment, plus legal interest and purchased 1,496 shares of the said corporation and the
costs. The Court of First Instance denied recovery; but on remaining four shares were acquired by Bienvenido J.
appeal, the CA reversed, finding that the corporation was a Claudio, Quintin C. Paredes, Segundo Tarictican, and Paulino
mere alter ego or business conduit of the principal Marquez at one share each. It is obvious that the last four
stockholders that controlled it for their own benefit, and shares bought by these four persons were merely qualifying
adjudged them responsible for the amounts demanded by shares and that to all intents and purposes the
the lot owners. spouses Cirilo Paredes and Ursula Tolentino composed
the so-called Park Rite Co., Inc.
That the corporation was a mere extension of their While the mere ownership of all or nearly all of the capital
personality is shown by the fact that the office of Cirilo stock of a corporation is a mere business conduit of the
Paredes and that of Park Rite Co., Inc. were located in the stockholder, that conclusion is amply justified where it is
same building, in the same floor and in the same room. shown that the operations of the corporation were so merged
Moreover, funds of the corporation were kept by Cirilo with those of the stockholders as to be practically
Paredes in his own name. indistinguishable from them.
The corporation itself had no visible assets, except perhaps To hold the latter liable for the corporation's
the toll house, the wire fence around the lot and the signs obligations is not to ignore the corporation's separate
thereon. It was for this reason that the judgment against it entity, but merely to apply the established principle
could not be fully satisfied. (Emphasis supplied). that such entity can not be invoked or used for
purposes that could not have been intended by the
The corporation is a mere instrumentality of the individual
law that created that separate personality.
stockholder's, hence the latter must individually answer for
the corporate obligations.
 Donnina C. Halley v. Printwell, Inc. Petitioner submits that she had no participation in the transaction between BMPI and
[Bersamin, May 30, 2011, Third Division] Printwell; that BMPI acted on its own; and that she had no hand in persuading BMPI
to renege on its obligation to pay. She should not be personally liable.
FACTS
Court: Although a corporation has a personality separate and distinct from those of its
 Petitioner was an incorporator and original director of Business Media stockholders, directors, or officers, such separate and distinct personality is
Philippines, Inc. (BMPI). merely a fiction created by law for the sake of convenience and to promote the
o On November 12, 1987, BMPI was incorporated and had an authorized ends of justice. The corporate personality may be disregarded, and the
capital stock of P 3,000,000.00 divided into 300,000 shares each with a par individuals composing the corporation will be treated as individuals, if the
value of P 10.00. 75,000 shares were initially subscribed. corporate entity is being used as a cloak or cover for fraud or illegality; as a
 Respondent engaged in commercial and industrial printing. BMPI commissioned justification for a wrong; as an alter ego, an adjunct, or a business conduit for the
it for the printing of the magazine it was selling, Philippines, Inc. along with sole benefit of the stockholders.
wrappers and subscription cards. Printwell extended 30-day credit
accommodations to BMPI. As a general rule, a corporation is looked upon as a legal entity, unless and until
 From October 11,1988 to July 12, 1989, BMPI placed with Printwell several sufficient reason to the contrary appears. Thus, the courts always presume good
faith, and for that reason accord prime importance to the separate personality of
orders on credit, evidenced by invoices and delivery receipts totaling P
the corporation, disregarding the corporate personality only after the
316,342.76. BMPI paid only P 25,000.
wrongdoing is first clearly and convincingly established. It thus behooves the
 Printwell sued BMPI for the collection of the unpaid balance in the RTC.
courts to be careful in assessing the milieu where the piercing of the corporate veil
o Printwell amended its complaint to implead as defendants all the original shall be done.
stockholders and incorporators to recover their unpaid subscriptions.
o In their consolidated answer, defendants averred that they all paid their ITC, although nowhere in Printwell's amended complaint or in the testimonies
subscriptions in full and that BMPI had a separate personality from those of Printwell offered can it be read or inferred from that the petitioner was instrumental in
its stockholders. persuading BMPI to renege on its obligation to pay; or that she induced Printwell to
 As evidence, defendants submitted their BMPI official receipts. They extend the credit accommodation by misrepresenting the solvency of BMPI to
also submitted other documents1 Printwell, her personal liability, together with that of her co-defendants, remained
 RTC ruled in favor of Printwell and rejected the allegation that the payments of because the CA found her and the other defendant stockholders to be in charge of
the subscription fee were in full. the operations of BMPI at the time the unpaid obligation was transacted and incurred.
o It noted an irregularity in the issuance of the Ors and observed that the Appellants stockholders were in charge of the operation of BMPI despite the fact that
defendants had used BMPI’s corporate personality to evade payment and they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited
create injustice. from said transactions.
o RTC applied the trust fund doctrine and declared the defendant stockholders
liable to Printwell, pro rata. WON the CA erred in applying the trust fund doctrine when the grounds have
 CA affirmed the RTC and held that the defendant’s resort to the corporate not been satisfied – NO
personality would create an injustice because Printwell would thereby be at a
loss against whom it would assert the right to collect. CA and RTC applied the trust fund doctrine.

ISSUES Petitioner argues that the trust fund doctrine was inapplicable because she had
already fully paid her subscriptions to the capital stock of BMPI. She insists that both
WON the CA erred in affirming the decision of the RTC which allowed the lower courts erred in disregarding the evidence on the complete payment of the
piercing of the veil of corporate fiction - NO subscription like receipts, income tax returns, and relevant financial statements.

Respondent Printwell impleaded the petitioner and the other stockholders of BMPI for The trust fund doctrine was first enunciated in the American case Wood v. Dummer
2 reasons: (1) to reach the unpaid subscriptions because it appeared that such and was adopted in the Philippines in Philippine Trust Co. v. Rivera where the Court
subscriptions were the remaining assets of BMPI; and (2) to avoid multiplicity of suits. declared that:

“It is established doctrine that subscriptions to the capital of a corporation

1 an audit report dated March 30, 1989, BMPI balance sheet and income statement as of constitute a fund to which creditors have a right to look for satisfaction of their
December 31, 1988, BMPI income tax return for year 1988, journal vouchers, cash deposit slip, claims and that the assignee in insolvency can maintain an action upon any
and BPI savings account passbook in BMPI’s name unpaid stock subscription in order to realize assets for the payment of its
debts.”
We clarify that the trust fund doctrine is not limited to reaching the stockholder's her drawee bank, and about whether the check was cleared and its amount paid to
unpaid subscriptions. The scope of the doctrine when the corporation is BMPI. In fact, she did not present the check itself.
insolvent encompasses not only the capital stock, but also other property and
assets generally regarded in equity as a trust fund for the payment of corporate The income tax return (ITR) and statement of assets and liabilities of BMPI, albeit
debts. All assets and property belonging to the corporation held in trust for the presented, had no bearing on the issue of payment of the subscription because they
benefit of creditors that were distributed or in the possession of the did not by themselves prove payment. ITRs establish a taxpayer's liability for taxes or
stockholders, regardless of full payment of their subscriptions, may be reached a taxpayer's claim for refund. In the same manner, the deposit slips and entries in the
by the creditor in satisfaction of its claim. passbook issued in the name of BMPI were hardly relevant due to their not reflecting
the alleged payments.
Also, under the trust fund doctrine, a corporation has no legal capacity to release
an original subscriber to its capital stock from the obligation of paying for his It is notable, too, that the petitioner and her co-stockholders did not support their
shares, in whole or in part, without a valuable consideration, or fraudulently, to allegation of complete payment of their respective subscriptions with the stock and
the prejudice of creditors. The creditor is allowed to maintain an action upon any transfer book of BMPI. Indeed, books and records of a corporation (including the
unpaid subscriptions and thereby steps into the shoes of the corporation for the stock and transfer book) are admissible in evidence in favor of or against the
satisfaction of its debt. corporation and its members to prove the corporate acts, its financial status and other
matters (like the status of the stockholders), and are ordinarily the best evidence of
To make out a prima facie case in a suit against stockholders of an insolvent corporate acts and proceedings.
corporation to compel them to contribute to the payment of its debts by making good
unpaid balances upon their subscriptions, it is only necessary to establish that the Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a
stockholders have not in good faith paid the par value of the stocks of the certificate covering her subscription might have been a reliable evidence of full
corporation. payment of the subscriptions, considering that under Section 65 of the Corporation
Code, a certificate of stock issues only to a subscriber who has fully paid his
ITC, the petitioner failed to discharge her burden. A receipt is the written subscription.
acknowledgment of the fact of payment in money or other settlement between the
seller and the buyer of goods, the debtor or the creditor, or the person rendering Although the articles of incorporation may possibly reflect only the preincorporation
services, and the client or the customer. Although a receipt is the best evidence of the status of a corporation, the lower courts' reliance on that document to determine
fact of payment, it is not conclusive, but merely presumptive; nor is it exclusive whether the original subscribers already fully paid their subscriptions or not was
evidence, considering that parole evidence may also establish the fact of payment. neither unwarranted nor erroneous.
The petitioner's OR No. 227, presented to prove the payment of the balance of her
subscription, indicated that her supposed payment had been made by means of a The burden of establishing the fact of full payment belonged not to Printwell even if it
check. was the plaintiff, but to the stockholders like the petitioner who, as the defendants,
averred full payment of their subscriptions as a defense. Their failure to substantiate
Payment is defined as the delivery of money. Yet, because a check is not money and their averment of full payment, as well as their failure to counter the reliance on the
only substitutes for money, the delivery of a check does not operate as payment and recitals found in the articles of incorporation simply meant their failure or inability to
does not discharge the obligation under a judgment. The delivery of a bill of exchange satisfactorily prove their defense of full payment of the subscriptions.
only produces the fact of payment when the bill has been encashed
 Petition for review on certiorari DENIED, AFFIRMED with modification the
Ostensibly, therefore, the petitioner's mere submission of the receipt issued in CA decision and ordered the petitioner to pay Printwell P 262,500.00 plus
exchange of the check did not satisfactorily establish her allegation of full payment of interest of 12% per annum to be computed from February 8, 1990.
her subscription. Indeed, she could not even inform the trial court about the identity of
YUTIVO SONS HARDWARE V. CTA GM used to pay sales taxes based on its sales to Yutivo, the
GUTIERREZ DAVID, J.: latter paid sales tax prescribed on the basis of its selling price
FACTS – Petitioner Yutivo Sons Hardware Co. (Yutivo) is a to SM, and since such sales tax, as already stated, is collected
domestic corporation, organized under the laws of the only once on original sales, SM paid no sales tax on its sales to
Philippines, with principal office at Manila. Incorporated in the public.
1916, it was engaged in the importation and sale of hardware In 1950, the Collector of Internal Revenue made an
supplies and equipment. In June of 1946, Yutivo bought cars assessment upon Yutivo and demanded deficiency sales tax
and trucks from General Motors Overseas Corporation (GM), plus surcharge from July 1, 1947 to December 31, 1949,
an American corporation licensed to do business in the claiming that the taxable sales were the retail sales by SM to
Philippines. As importer, GM paid sales tax prescribed by the public and not the sales at wholesale made by, Yutivo to
sections 184, 185 and 186 of the Tax Code on the basis of its the latter inasmuch as SM and Yutivo were one and the same
selling price to Yutivo. Said tax being collected only once on corporation, the former being the subsidiary of the latter.
original sales, Yutivo paid no further sales tax on its sales to Yutivo appealed before the Court of Tax Appeals,
the public. alleging that there is no valid ground to disregard the
On June 1946, the Southern Motors, Inc. (SM) was corporate personality of SM and to hold that it is an adjunct of
organized to engage in the business of selling cars, trucks and petitioner Yutivo; (2) that assuming the separate personality of
spare parts. SM may be disregarded, the sales tax already paid by Yutivo
P250,000 worth of shares were subscribed into equal should first be deducted from the selling price of SM in
proportions by the sons of Yu Tiong Yee, one of Yutivo's computing the sales tax due on each vehicle; and (3) that the
founders; and the sons of Yu Tiong Sin and Albino Sycip, who surcharge has been erroneously imposed by respondent. The
are also among the founders of Yutivo. CTA sustained the respondent Collector's theory that there
After the incorporation of SM and until the withdrawal was no legitimate or bona fide purpose in the organization of
of GM from the Philippines in the middle of 1947, the cars and SM — the apparent objective of its organization being to evade
tracks purchased by Yutivo from GM were sold by Yutivo to the payment of taxes — and that it was owned (or the majority
SM which, in turn, sold them to the public in the Visayas and of the stocks thereof are owned) and controlled by Yutivo and
Mindanao. is a mere subsidiary, branch, adjunct, conduit, instrumentality
When GM decided to withdraw from the Philippines in or alter ego of the latter. The CTA disregarded its separate
the middle of 1947, it appointed Yutivo as importer for the corporate existence. Reconsideration of this decision having
Visayas and Mindanao, and Yutivo continued its previous been denied, Yutivo brought the case to this Court thru the
arrangement of selling exclusively to SM. In the same way that present petition for review.
ISSUE – Whether or not the CTA erred in holding that SM was We, however, agree with the court below that SM was
a mere alter-ego of Yutivo? actually owned and controlled by petitioner as to make it a
HELD – It is a fundamental principle of corporation law that a mere subsidiary or branch of the latter created for the purpose
corporation is an entity separate and distinct from its of selling the vehicles at retail and maintaining stores for spare
stockholders and from other corporation petitions to which it parts as well as service repair shops. It is not disputed that the
may be connected. However, "when the notion of legal entity is petitioner is completely controlled by the Yutivo family. The
used to defeat public convenience, justify wrong, protect fraud, founders of the corporation are closely related to each other
or defend crime," the law will regard the corporation as an either by blood or affinity, and most of its stockholders are
association of persons, or in the case of two corporations members of the same family.
merge them into one. The shareholders in SM are mere nominal stockholders
ITC, firstly, SM was organized in June, 1946 when it holding the shares for and in behalf of Yutivo, so even
could not have caused Yutivo any tax savings. From that date conceding that the original subscribers were stockholders bona
up to June 30, 1947, GM was the importer of the cars and fide, Yutivo was at all times in control of the majority of the
trucks sold to Yutivo, which, in turn resold them to SM. stock of SM and that the latter was a mere subsidiary of the
During that period, it is not disputed that GM as importer, was former. The principal officers of both corporations are
the one solely liable for sales taxes. Neither Yutivo nor SM was identical. There is therefore no doubt that by virtue of such
subject to the sales taxes on their sales of cars and trucks. The control, the business, financial and management policies of
sales tax liability of Yutivo did not arise until July 1, 1947 when both corporations could be directed towards common ends.
it was appointed as the importer and simply continued its That cash or funds of SM, including those of its branches
practice of selling to SM. The decision, therefore, of the Tax which are directly remitted to Yutivo, are placed in the custody
Court that SM was organized purposely as a tax evasion and control of Yutivo, resources and subject to withdrawal
device runs counter to the fact that there was no tax to evade. only by Yutivo. SM's being under Yutivo's control, the former's
The intention to minimize taxes, when used in the operations and existence became dependent upon the latter.
context of fraud, must be proved to exist by clear and The circumstances, especially when taken together,
convincing evidence amounting to more than mere indicates that Yutivo treated SM merely as its department or
preponderance adjunct. For one thing, the accounting system maintained by
The transactions between Yutivo and SM have always Yutivo shows that it maintained a high degree of control over
been in the open, constantly subject to inspection by the tax SM accounts.
authorities. Briefly stated, Yutivo financed principally, if not wholly,
the business of SM. As such being but a mere instrumentality
Yutivo, the CTA correctly disregarded the technical defense of separate corporate entity in order to arrive at the true tax
liability of Yutivo.