LBP v CA
Quisumbing ☹
Summary:
In 1980, ECO Management Corporation (ECO) obtained
loans amounting to about P26 million from Land Bank.
ECO defaulted in its payment but in 1981, ECO
submitted a Payment Plan with the hope of
restructuring its loan. The plan was rejected and Land
Bank sued ECO. It impleaded Emmanuel C. Oñate, the
majority stockholder of ECO who is serving as the
Chairman and treasurer of ECO. The trial court ruled in
favor of Land Bank but Oñate was absolved from
liabilities. The Court of Appeals affirmed the decision of
the trial court.
Land Bank appealed as it wanted Oñate to be
personally liable on the following grounds (among
others): a) ECO stands for Emmanuel C. Oñate, b)
Oñate is the majority stockholder, c) ECO was formed
ostensibly to allow Oñate to acquire loans from Land
Bank which he used for his personal advantage, d)
Oñate holds two positions in the corporation, and e)
ECO never held any board meeting which just shows
only Oñate was in control of the corporation.
FACTS:
 Land Bank of the Philippines (LBP) extended a
series of credit accommodations to appellee
ECO, using the trust funds of the Philippine
Virginia Tobacco Administration (PVTA). The
proceeds of the credit accommodations were
received on behalf of ECO by appellee Oñate
 On the respective maturity dates of the loans,
ECO failed to pay the same. Oral and written
demands were made, but ECO was unable to
pay. ECO claims that the company was in
financial difficulty for it was unable to collect its
investments with companies which were
affected by the financial crisis brought about by
the Dewey Dee scandal
 ECO proposed and submitted to LBP a "Plan of
Payment" whereby the former would set up a
financing company which would absorb the loan
obligations. It was proposed that LBP would
participate in the scheme through the
conversion of P9,000,000.00 which was part of
the total loan, into equity. LBP approved the
payment plan but stated that it shall not
participate in the undertaking in any manner
whatsoever
 ECO submitted to LBP a "Revised Plan of
Payment" deleting the latter's participation in
the proposed financing company, however, LBP
resolved to reject it. LBP then sent a letter to the
PVTA for the latter's comments stating that if
PVTA does not responde within five (5) days
from the latter's receipt of the letter, such
silence would be construed to be an approval of
LBP's intention to file suit against ECO and its
corporate officers. PVTA did not respond to the
letter
 Landbank filed a complaint for Collection of Sum
of Money against ECO and Emmanuel C. Oñate
 After trial on the merits, a judgment was
rendered in favor of LBP; however, appellee
Oñate was absolved from personal liability for
insufficiency of evidence.
 Dissatisfied, both parties filed their respective
Motions for Reconsideration.
 LBP claimed that there was an error in
computation in the amounts to be paid. LBP also
 questioned the dismissal of the case with regard
to Oate.
 ECO questioned its being held liable for the
amount of the loan. Upon order of the court,
both parties submitted Supplemental Motions
for Reconsideration and their respective
Oppositions to each others Motions.
ISSUE and RULING
Whether or not the corporate veil of ECO Management
Corporation should be pierced and Oñate be held liable
for the amount of the judgment
NO.
Mere ownership by a single stockholder of all or nearly
all of the capital stock of a corporation is not by itself
sufficient reason for disregarding the fiction of
separate corporate personalities; A corporation may
assume any name provided it is lawful. There is
nothing illegal in a corporation acquiring the name or
as in this case, the initials of one of its shareholders.
Land Bank was not able to produce sufficient evidence
to prove its claim. A corporation, upon coming into
existence, is invested by law with a personality
separate and distinct from those persons composing it
as well as from any other legal entity to which it may
be related. The corporate fiction is only disregarded
when the fiction is used to defeat public convenience,
justify wrong, protect fraud, defend crime, confuse
legitimate legal or judicial issues, perpetrate deception
or otherwise circumvent the law. This is likewise true
where the corporate entity is being used as an alter
ego, adjunct, or business conduit for the sole benefit of
the stockholders or of another corporate entity. None
of the foregoing was proved by Land Bank.
The mere fact that Oñate owned the majority of the
shares of ECO is not a ground to conclude that Oñate
and ECO is one and the same. Mere ownership by a
single stockholder of all or nearly all of the capital
stock of a corporation is not by itself sufficient reason
for disregarding the fiction of separate corporate
personalities.
Anent the issue of the corporate name, the fact that
Oñate’s initials coincide with the corporate name ECO
is not sufficient to disregard the corporate fiction. Even
if ECO does stand for “Emmanuel C. Oñate”, it does
not mean that the said corporation is merely a dummy
of Oñate. A corporation may assume any name
provided it is lawful. There is nothing illegal in a
corporation acquiring the name or as in this case, the
initials of one of its shareholders.
That respondent corporation in this case was being
used as a mere alter ego of Oñate to obtain the loans
had not been shown. Bad faith or fraud on the part of
ECO and Oñate was not also shown. As the Court of
Appeals observed, if shareholders of ECO meant to
defraud petitioner, then they could have just easily
absconded instead of going out of their way to propose
Plans of Payment. Likewise, Oñate volunteered to pay
a portion of the corporations debt. This offer
demonstrated good faith on his part to ease the debt
of the corporation of which he was a part. It is
understandable that a shareholder would want to help
his corporation and in the process, assure that his
stakes in the said corporation are secured. In this case,
it was established that the P1 Million did not come
solely from Oñate. It was taken from a trust account
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
of ECO. This circumstance should not be construed as
an admission that he was really the debtor and not
ECO.
DISPOSITIVE WHEREFORE, the petition is DENIED for
lack of merit. The decision and resolution of the Court
of Appeals in CA-G.R. CV No. 43239 are AFFIRMED.
Costs against petitioner. SO ORDERED.
 Pacific Rehouse Corp. v. CA
2014 | Reyes
FACTS:
EIB Securities sold 32,180,000 shares of DMCI belonging to Pacific Rehouse
Corporation, Pacific Concorde Corporation, Mizpah Holdings, Forum Holdings and
East Asia Company (respondents). The lower court rendered judgment, ordering
EIB to return the shares to the respondents. This ruling reached the SC and
attained finality.
Writ of execution issued, but was returned as unsatisfiied. Respondents then filed
for issuance of an alias writ to hold Export and Industry Bank liable because EIB
Securities is a wholly-owned controlled and dominated subsidiary of Export snd
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.
RTC ruled that E-securities is a mere business conduit of Export Bank and pierced
the veil of corporate fiction.
Respondent questioned this, saying it was not impleaded as a party to the case.
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
summons upon E-Securities bestowed jurisdiction over the parent and subsidiary.
CA issued 60-day TRO enjoining the execution of the RTC orders granting the
alias writ for having been made with grave abuse of discretion. Then they issued
writ of preliminary injunction.
Respondents on the other hand, argued that as an alter ego, there is no need for a
finding of fraud or illegality before the doctrine of piercing of corporate veil can be
applied.
The CA held the alter ego theory cannot be sustained because ownership by a
parent corporation of a subsidiary is not enough justification to pierce the veil.
Proof must be shown, apart from mere ownership, that Export Bank misused the
corporate fiction of E-Securities.
 Mere interlocking of directors not enough
 Export Bank does not have complete control over business policies and
affairs
ISSUE: WoN CA erred in ruling that alter ego doctrine is inapplicable
RULING:
CA did not err. Export Bank argues that it was never impleaded in the earlier case
between E-Securities and Pacific Rehouse.
However, the SC held that in the case of Kukan International v. Reyes, compliance
with the recognized modes of acquiring jurisdiction cannot be dispensed with even
in piercing the veil of corporate fiction:
 Piercing the veil is applied only to determine liability. It is not available to
confer jurisdiction it has not acquired over a party not impleaded in the
case.
 In other words, a corporation not impleaded in a suit cannot be subject to
the court’s process of piercing the veil of its corporate fiction.
Court must first acquire jurisdiction over the parties before piercing its corporate
veil; otherwise, it cannot pierce because such action offends the corporation’s right
to due process. Jurisdiction is acquire by service of summons. Without summons
or voluntary submission, any judgment over such person is null and void.
In this case, Export Bank was not served with summons, nor voluntarily appeared
before the court.
 Export Bank has consistently disputed RTC jurisdiction by filing of
Omnibus Motion by way of special appearance
 It was not pleaded as a party
 It was never served with summons
 It did not voluntarily appear before RTC
Alter ego doctrine is not applicable
 Where one corporation is organized and controlled, and its affairs
conducted so that it is in fact a mere instrumentality of the other, the fiction
of the instrumentality may be disregarded.
 Stock control not enough. Must be such domination of finances, policies,
and practices, that the controlled corporation has no separate mind, will or
existence of its own. Control must be exercised at the time the acts
complained of took place.
 Three pronged test
o Complete domination (above mentioned)
o Control must have been used to commit fraud or wrong, to
perpetuate violation of a statutory or other positive legal duty, or
dishonest and unjust act in contravention of plaintiff’s legal right
o The aforesaid control and breach of duty must have proximately
caused the injury or unjust loss complained of
 Absence of any one of these prevents piercing of the corporate veil in
applying the alter ego doctrine.
 The RTC said alter ego because of the ff:
o EIB Securities was only reactivated in 2002-2003 to serve as the
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
o They share key directors and corporate officers
o It was admitted in the Bank’s financial statements that EIB is a
controlled subsidiary
o Same lawyers
o Control was prevailing during the time the acts complained of
happened
 However, these were not pleaded properly in accordance with ROC, and
were merely raised in the Motion for Issuance of Alias writ.
 Nonetheless, there must be a perpetuation of fraud or at least a fraudulent
or illegal purpose behind the control to justify piercing the veil. In this case,
there is none.
 The 32.8 M shares were originally bought at 0.38 per share, and were sold
at 0.24. The proceeds were used to buy back 61M KPP shares.
Unexpectedly, the total amount of the DMCI shares ballooned to 1.4B,
which did not inure to E-Securities benefit nor Export Bank.
 Ownership by single stockholder of all or substantially all stock is not
sufficient, in the absence of fraud and other public policy considerations.
 US v. Milwaukee Refrigerator Transit Co
December 28 1905
Doctrine: A corporation will be looked upon as a legal entity, as a general rule,
and until sufficient reason to the contrary appears; but, when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an association of persons;
and, where one corporation was organized and is owned by the officers and
stockholders of another, making their interests identical, they may be treated as
identical when the interests of justice require it.
Relevant laws:
1. Section 10 of the interstate commerce act:
Common carriers, and the officers, receivers, agents, etc., of such corporations, are
prohibited from giving rebates, preferences, and advantages, and making unjust
discriminations, and are punishable by fine and imprisonment.
 Under this section, only the agents of corporate carriers, and not the
carriers themselves, were punishable.
2. Act of 1889.
Agents of carriers: Any common carrier, and officers and agents of corporation carriers,
who by means of false billing, classification, weighing, or other device or
means, shall assist, suffer, or permit any one to obtain transportation at less
than established rates, shall be guilty of a misdemeanor, punishable by fine and
imprisonment.
Shippers: Any person or corporation agent shipping property, who shall knowingly, by
false billing, classification, etc., or other device or means, with or without the
carrier’s consent or connivance, obtain carriage at less than such established
rates, shall be deemed guilty of fraud, declared to be a misdemeanor,
punishable by fine and imprisonment.
Bribery to obtain unjust discrimination: Any such person, officer, etc., who shall by
paying money or- thing of value, or by solicitation, induce a carrier to
discriminate unjustly in his favor as against other shippers, or aid or abet such
discrimination, he shall be deemed guilty of a misdemeanor, punishable by fine
and imprisonment.
Tort action: Shippers discriminated against are given action for damages against such
person, officer, etc., as well as the carrier.
 Corporation carriers themselves are not within the penalties of these
acts..
3. Elkins Act of 1903.
 Corporation carriers are made liable to the same extent as were their
agents under the earlier statutes, but subject to fine only, not
imprisonment.
Facts:
 This is a bill in equity for an injunction to prevent the payment of
alleged rebates on freight.
 PLAINTIFF charges the creation by a shipper of a dummy corporation
as a device to cover rebates on large shipments of beer in interstate and
foreign traffic. It alleges that after the passage and promulgation of the
act of Congress entitled ‘An act to further regulate commerce with
foreign nations and among the states,’ defendant Pabst Brewing
Company had, through the agency of Gustav G. Pabst and
Frederick Pabst, habitually received from many of the railroads
and common carriers, which so transported the beer and other
articles so shipped by it from the state of Wisconsin into foreign
countries and other states, rebates and concessions and other
discriminations.
 The carriers which are charged with paying the rebates are joined as
defendants.
1. The Pabst Brewing Company, Milwaukee Refrigerator Transit
Company, and Wisconsin Central Railway Company are
Wisconsin corporations.
2. The transit company operates refrigerator cars on defendants’
and other lines. It owns or controls 540 such cars. It was
conceived and is operated as a device to cover the receiving of
rebates, concessions, and discriminations, to wit, an eighth or
tenth of the published rate; whereby the traffic is carried at
less than published rates. Such rebates are paid and accepted
under the pretense of “commissions,” and amount to large
sums to complainants unknown.
 The transit company was incorporated by
procurement of the attorneys of the brewing
company, and at its instance and request, with a
capital of $150,000, having five directors, and with
power to acquire and operate refrigerator cars, and
contract for the supply and operation of refrigerator
transportation by land and water.
3. The Brewing company operates a large brewery, and selling
and shipping beer into all the states and territories and to
purchasers in foreign countries. It has a capital of $10,000,000
or 10,000 shares. Gustav Pabst and Fred Pabst are brothers,
owning 2,000 shares, and with their mother and sisters over
half of the stock. They vote and control a majority of the
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,
and shipments.
4. Upon the passage of that act the brewing company was no
longer able to directly secure rebates, and cast about for
some device to evade the statute, and the Pabsts, as such
officers, and one Howe, as traffic manager, intending to
contrive and operate a device for such evasion, caused the
transit company to be formed. Of its 1,500 shares, 1,340
were issued to the two Pabsts, 35 shares to Fred Pabst’s
wife, and the balance to dummy directors, to give color to
the claim that its stock was not owned by the brewing
company.
5. After investigation by the interstate commerce commission,
Gustav Pabst transferred his stock in the transit company to
Fred Pabst, and had some person elected director in his place;
but such acts were colorable merely, he still retaining a large
pecuniary interest in the corporation, and participating in its
control.
6. Immediately on the creation of the transit company, the Pabsts,
as controlling officers of the brewing company, contracted
with themselves as executive officers of the transit company,
for a term not yet expired, to give the latter exclusive control
of the shipment of all freight of the brewing company moving
in interstate and foreign commerce, which it is still exercising.
7. The contract was made to enable the transit company to route
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
the rebates, concessions, and discriminations charged in the
bill have been exacted by threats of such diversion.
8. Many thousand tons of said freight have been hauled by
defendant carriers since the contract was made. On such
shipments the brewing company pays to the carriers the full
tariff rate, and the carriers pay the transit company for use of
its refrigerator cars for mileage 3/4s of a cent to a cent per
mile, and in addition an eighth or tenth of the sums paid them
by the brewing company; and in every instance the property is
transported by defendant carriers at an eighth or tenth less than
the published tariff. Such rebates amount to many thousands
of dollars, the exact sum unknown to complainants.
9. All the defendant carriers well knew that the transit company
was organized in the interest of the brewing company, and for
the purpose of evading the law, and paid such rebates with tire
like purpose and intent.
10. TRANSIT COMPANY: claims that such repayments were
made and accepted as compensation for its services in
soliciting and procuring freight for carriage by defendants; but
such claim or pretense is UNTRUE. The transit company has
entire control of all the shipping business of the brewery,
comprising almost the entire business of the transit company,
which it does not solicit.
 DEFENSE: filed a demurrer, arguing that it appears on the face of the
bill that the alleged rebates were not paid back to the shipper (the
brewing company), but to the Refrigerator Transit Company. In effect,
nothing more is shown than the payment to a soliciting agent (the
transit company) of a commission of an eighth or tenth of the published
tariff rates, thus showing acts neither unlawful, immoral, nor injurious.
 BREWING COMPANY: filed a motion to strike out certain
allegations averring prior and disconnected illegal acts on of its
principal officers and managers in organizing the transit company, and
rebut the theory that the moneys paid by the carriers to the transit
company were paid as commissions for obtaining the business and not
as prohibited rebates.
ISSUE:
1. WON the payments are sufficiently shown to have been made, “by any device
whatever,” not as commissions, but with intent to evade the law? – YES.
2. WON the two Wisconsin corporations are so united in interest, control, and
management as to make them substantially the same? – YES.
RULING:
Many devices and schemes have been contrived to evade the statutes against
discrimination.
 One of the most common is the manipulation of carriers controlled by
the shipper.
 Another is the direct purchase of freight by a carrier, and its sale and
carriage at a loss, or indirect purchase through a dummy corporation,
and shipment at nominal freight rates by the carrier itself
RULE: if such dealings are devices for discrimination, they are unlawful,
although in ordinary cases it is not unlawful for the carrier to be also the shipper.
A. The question is, are the payments lawful commissions or unlawful
rebates? The question can only be answered by finding out with what
INTENT the acts were done. The payments were innocent and lawful
if in good faith intended as commissions, but criminal if intended as
rebates. The intent becomes therefore not merely material, but
 absolutely vital. ITC, the bill states several facts tending to show
unlawful purpose:
o prior habitual violations of former laws, not then sufficiently
punishable, and later the creation of a dummy corporation to
escape from the strictness of an amended statute; which
corporation, though a separate legal entity, should be
substantially the some aggregation of persons, interests, and
aims; scienter of the carriers of the purposes of such
manipulation; that the transit company solicits no freight, etc.
o the manifest purpose of these statutes is to strike through all
pretense, all ingenious device, to the substance of the
transaction itself.
B. CORPORATE IDENTITY OR CONTROL. It is essential, to bring
the case within the law, that the repayments be made to the brewing
company, or for its benefit, directly or indirectly, and not merely to
third persons for obtaining the business; otherwise, the repayment is no
more than a salary or other expense incident to the carrier’s business.
The question is, whether this is sufficiently shown in the bill?
o It is forcibly argued that the bill carefully avoids the statement
that the brewing company received the money repaid, or even
that it was paid back for its benefit; and that the two
corporations are not only distinct legal entities, but have
different stockholders.
o The bill shows the creation, by the controlling interests of the
brewing company, of a dummy corporation, with dummy
directors, and scienter of its character by the carriers, with
intent to evade the law. The transit company is merely the alter
ego of the brewing corporation; both being substantially
identical in interest and control, and the brewing company the
ultimate beneficiary, in some form, of the operations
o The solution of this question depends on whether the brewing
corporation is an association of individuals, rather than a legal
entity apart from those who own and control it.
RULE: the Supreme Court, in order to sustain the most important and far-
reaching jurisdiction of the national courts over corporations, ruled that a
corporation is an association of persons who may have citizenship, and the
members of a corporation are conclusively presumed to be citizens of the state
creating it. It was not reasonable that those who deal with corporate affairs or
agents should be deprived of the valuable privilege of litigating in the federal
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.
While it is true that for certain purposes the law will recognize the corporation
as an entity distinct from the individual stockholders, that fiction is only resorted
to for the purpose of working out the lawful objects of the corporation. It is
never resorted to when it would work an injury to any one, or allow the
corporation to perpetrate a fraud upon anybody.
A corporation, from one point of view, may be considered an entity, without
regard to its shareholders, yet the fact remains self-evident that it is not in reality
a person or thing distinct from its consistent parts. The word corporation is but a
collective name for the members who compose the association. If any general
rule can be laid down, in the present state of authority, it is that a
corporation will be looked upon as a legal entity as a general rule, and until
sufficient reason to the contrary appears; but, when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an association of
persons.
A corporation, as expressive of legal rights and powers, is no more fictitious or
intangible than a man’s right to his own home or his own liberty.
ITC, the shipper practically controls the transit company; this shows a sufficient
identity of interest among the shareholders of both in these repayments to make
them rebates, if paid and received with unlawful intent.
o It is said that the procurement of the shipments through the contract is
the mere soliciting of them for the carriers, for which they are lawfully
authorized to pay a part of the rate, in order to get the business; and the
transit company, owning a large number of refrigerator cars, and
wishing to keep them employed, simply gives the freight to those
competing shippers who will make the best terms, the business being of
great volume, and the sums paid for freights large.
o BUT this theory of innocence is exploded by the fact that the
transit company is a mere separate name for the brewing company,
being in fact the same collection of persons and interests.
The device adopted is “neither new, nor deserving of new success.” For many
years transportation development was encouraged in every possible way. Now
we are beginning to feel the tyranny of arbitrary and overwhelming industrial
and commercial power. The courts, so far as possible it is for them to keep
fundamental rules steadily in view, with discrimination and careful reflection see
to it that injustice is prevented.
Petition is GRANTED.
 Traders Royal Bank v. CA
March 3, 1997| Torres, J|
SUMMARY: (See Also: last paragraph of digest) Filriters is the
registered owner of a Central Bank Certificates of Indebtedness
(CBCI). It assigned the same to Philfinance (a company with whom
it shares common stockholders and corporate officers [around
90%]). Philfinance then sold this CBCI to Traders Royal Bank
(TRB). TRB sought to have the CBCI registered in its name,
however, the Central Bank refused since it violated Central Bank
Circular No. 769 which required that the for the assignment to be
valid, should be made by the registered owner or duly authorized
representative. TRB filed a mandamus attempting to compel
Central Bank to register and transfer the CBCIs in its name.
TRB’s argument is that a) the CBCI is a negotiable instrument, b)
TRB is a holder in due course, and c) the corporate veil should be
pierced as to consider the transfer by Philfinance a transfer by
Filriters (the entity whose authority is needed to validly transfer
CBCIs according to the CB Circular). RTC, CA, and SC rejected all
these contentions
The instrument is NOT NEGOTIABLE for lack of “the magic words
for negotiability”, thus, the governing law is CB Circular 769, not
the NIL. Banaria, who signed the deed of assignment purportedly
for and on behalf of Filriters, did not have the necessary written
authorization from the Board of Directors. Therefore, Philfinance
acquired no title or rights under CBCI No. D891 which it could
assign or transfer to Traders Royal Bank and which the latter can
register with the Central Bank
DOCTRINE:
Admittedly, the subject CBCI is not an instrument in the absence of
words of negotiability within the negotiable meaning of the
negotiable instruments law
As worded, the instrument provides a promise "to pay Filriters
Guaranty Assurance Corporation, the registered owner hereof."
Very clearly, the instrument is payable only to Filriters, the
registered owner, whose name is inscribed thereon.
It lacks the words of negotiability which should have served
as an expression of consent that the instrument may be
transferred by negotiation.
A reading of the subject CBCI indicates that the same is payable to
FILRITERS GUARANTY ASSURANCE CORPORATION, and to no
one else, thus, discounting the petitioner's submission that the
same is a negotiable instrument, and that it is a holder in due
course of the certificate.
FACTS
● Defendant Filriters is the registered owner of Central Bank
Certificates of Indebtedness (CBCI) [spoiler: THEY ARE NOT
NEGOTIABLE INSTRUMENTS!] No. D891
● Under a deed of assignment
Filriters transferred CBCI No. D891 to Philippine
Underwriters Finance Corporation (Philfinance)
● Philfinance transferred CBCI No. D891, which was still
registered in the name of
Filriters, to appellant Traders Royal Bank (TRB)
● Armed with the deed of assignment still in Filtriers’ name, TRB
then sought the transfer and registration of CBCI No. D891
in its name before the
Security and Servicing Department of the Central Bank (CB).
o Central Bank, however, refused to effect the transfer
and registration in
view of an adverse claim filed by defendant Filriters
(Filtriers claims the CBCI is still theirs).
● Left with no other recourse, TRB filed a special civil action for
mandamus against the Central Bank in the RTC
● RTC: dismissed.
● CA: Also dismissed, for the same issues and ratio as in the SC
Decision.
HELD Petition DISMISSED. TRB has no right to the transfer and
registration of the CBCI in their name.
W/N the CBCI is a negotiable instrument (and W/N TRB is a
holder in due course) - NO
W/N the doctrine of piercing the corporate veil should be
applied – NO
Court discusses TRB’s argument in the CA, reiterated here, that
the CBCI was a negotiable instrument and therefore, that TRB was
a holder in due course who is free from all personal defenses and
equities
● Admittedly, the subject CBCI is not a instrument in the absence
of words of negotiability within the negotiable
meaning of the NIL
 o The pertinent portions of the subject CBCI read:
▪ “The Central Bank of the Philippines (the Bank) f
or value received, hereby
promises to pay bearer, of this Certificate of
indebtedness be registered , to FILRITERS
GUARANTY ASSURANCE CORPORATION, the
registered owner hereof, the principal sum
of FIVE HUNDRED THOUSAND PESOS.
o As worded, the instrument provides a promise "to pay Fi
lriters Guaranty Assurance Corporation, the registered
owner hereof."
o Very clearly, the instrument is payable only to Filriters, t
he registered owner, whose name is inscribed thereon.
▪ It lacks the words of negotiability which should h
ave served
as an expression of consent that the instrument
may be transferred by negotiation.
● Thus, the transfer of the instrument from Philfinance to T
RB was merely an assignment, and is not governed by
the negotiable instruments law.
Applicable law: Central Bank Circular No. 769, series of 1980
● “Any assignment of registered certificates shall not be valid
unless made . . . by the registered
owner thereof in person or by his representative duly
authorized in writing.”
● In the case at bar, Alfredo O. Banaria, who signed the deed of a
ssignment for and on behalf of Filriters, did not have the
necessary written authorization from the Board of Directors of
Filriters to act for the latter.
o For lack of such authority, the assignment did not theref
ore bind Filriters
and violated at the same time Central Bank Circular No.
769 which has the force and effect of a law
On piercing the corporate veil
● Petitioner's present position rests solely on the argument that
Philfinance owns 90% of Filriters equity and the two
corporations have identical corporate officers, thus demanding
the application of the doctrine or piercing the veil of corporate
fiction, as to give validity to the transfer of the CBCI from
registered owner to petitioner TRB.
o The fact that Filfinance owns majority shares in Filriters
is not by itself a ground
to disregard the independent corporate status of Filriter
s
● Petitioner cannot put up the excuse of piercing the veil of corp
orate entity, as this merely an equitable remedy, and may be
awarded only in cases when the corporate
fiction is used to defeat public convenience, justify wrong,
protect fraud or defend crime or where a corporation is a mere
alter ego or business conduit of a person
o In the case at bar, there is sufficient showing that the pe
titioner was not
defrauded at all when it acquired subject certificate of i
ndebtedness from Philfinance
o On its face the subject certificates states that it is regist
ered in the name ofFilriters.
▪ This should have put the petitioner on notice,
and prompted it
to inquire from Filriters as to Philfinance's title o
ver the same or its authority
to assign the certificate
▪ Petitioner knew that Philfinance is not registered
owner of the CBCI No. D891.
▪ The fact that a nonowner was disposing of the
registered CBCI
owned by another entity was a good reason for p
etitioner to verify or inquire as
to the title Philfinance to dispose to the CBC
▪ Petitioner, being a commercial bank, cannot feig
n ignorance of
Central Bank Circular 769, and its requirements.
Conclusion
● The CBCI is not a negotiable instrument
● The applicable law this is CB Circular 769 (requiring authority
from Board of Directors in order to transfer CBCIs), which they
failed to comply with in this case.
● The sale from Filriters to Philfinance was fictitious, and
therefore void and inexistent
● Philfinance had no title over the subject certificate to convey th
e Traders Royal Bank.
● TRB acquired no title and cannot compel Central bank to
register the CBCI in TRB’s name
● This petition for mandamus should be dismissed
 Indophil Textile Mill Workers Union-PTGWA vs Voluntary Arbitrator Teodorico P.
Calica and Indophil Textile Mills, Inc.
GR 96490 | Feb 3, 1992 | Medialdea, J.
 Petitioner Indophil Textile Mill Workers Unio-PTGWO and private respondent
Indophil Textile Mills, Inc. executed a collective bargaining agreement effective
from April 1, 1987 to March 31, 1990.
 On Nov 3, 1987, Indophil Acrylic Manufacturing Corporation was formed and
registered with the SEC.
o In 1988, Acrylic became operational and hired workers according to its own
criteria and standards.
o Sometime in July 1989, the workers of Acrylic unionized and a duly
certified collective bargaining agreement was executed.
 In 1990 or a year after the workers of Acrylic have been unionized and a CBA
executed, the petitioner union claimed that the plant facilities built and set up by
Acrylic should be considered as an extension or expansion of the facilities or
private respondent Company pursuant to Section 1(c), Art I of their CBA1.
o Hence, Acrylic is part of the Indophil bargaining unit.
 Private respondent opposed as it is a juridical entity separate and distinct
from Acrylic.
 The existing impasse led the parties to enter into a submission agreement. The
parties jointly requested the VA Calica to act as voluntary arbitrator in the
resolution of he pending labor dispute pertaining to the proper interpretation of the
CBA provision.
 VA’s Decision: it would be a strained interpretation and application of the
questioned CBA provision if we would extend to the employees of Acrylic the
coverage clause of Indophil Textile Mills CBA. Sec 1(c), Art I d no t extend to the
employees of Acrylic as an extension or expansion of Indophil Textile Mills.
PETITIONER’S ARGUMENTS
 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
Indophil Acrylic is but a devise of respondent Company to evade the application of
the CBA between petitioner Union and respondent Company.
 The articles of incorporation of the 2 corporations establish that the 2 entities are
engaged in the same kind of business, which is the manufacture and sale of yarns
of various counts and kinds and of other materials of kindred character or nature.
 The two corporations have practically the same incorporators, directors and
officers.
 The total stock subscription of Indophil Acrylic of P1,749,970 which represents
70% of the total 2,500,000 was subscribed to by respondent company.
 Acrylic is but an extension or expansion of private respondent:
1 “c) This Agreement shall apply to the Company’s facilities
and installations and to any extension and expansion
thereat.”
o The 2 corporations have their physical plants, offices and facilities situated
in the same compound at Barrio Lambakin, Marilao, Bulacan.
o Many of private respondent’s own machineries, such as dyeing machines,
reeling, boiler, Kamitsus among others, were transferred to and are not
installed and being used in the Acrylic plant
o The services of a number of units, departments or sections of private
respondent are provided to Acrylic
o The employees of private respondent are the same persons manning and
servicing the units of Acrylic.
PUBLIC RESPONDENT’S ARGUMENTS (THROUGH THE SOLGEN)
 Indophil Acrylic Manufacturing Corporation is not an alter ego or an adjunct or
business conduit of private respondent because it has a separate legitimate
business purpose.
 The primary purpose of private respondent is to engage in the business of
manufacturing yarns of various counts and kinds of textiles. On the other hand,
the primary purpose of Acrylic is to manufacture, buy, sell at wholesale basis,
barter, import, export and otherwise deal in yarns of various counts and kinds.
o Hence, unlike private respondent, Indophil Acrylic cannot manufacture
textiles while private respondent cannot buy or import yarns.
 Diatagon Labor Federation vs Ople: two corporations cannot be treated as a
single bargaining unit even if their business are related.
o The fact that there are as man bargaining units as there are companies in
a conglomeration of a companies is a positive proof that a corporation is
endowed with a legal personality distinctly its own, independent and
separate from other corporations.
The existence of a bona fide business relationship between Acrylic and private
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
which are not really essential in the actual production of Acrylic.
W/N THE OPERATIONS IN INDOPHIL ACRYLIC CORPORATION ARE AN
EXPANSION OF PRIVATE RESPONDENT COMPANY – NO
 Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exist, the legal fiction that a corporation is an entity with
a juridical personality separate and distinct from its members or
stockholders may be disregarded.
o In such cases, the corporation will be considered as mere association of
persons. The members or stockholders of the corporation will be
considered as the corporation, that is liability will attach directly to the
officers and stockholders.
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
made as a shield to confuse the legitimate issues, or where a corporation
is the mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted
 as to make it merely an instrumentality, agency, conduit or adjunct of 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
"LA CAMPANA GAUGAU PACKING" vs. KAISAHAN NG MGA MANGGAGAWA SA
LA CAMPANA (KKM) and THE COURT OF INDUSTRIAL RELATIONS
May 25, 1953 | REYES, J.
FACTS:
 Since 1932, Tan Tong has been engaged in the business of buying and selling
gaugau under the trade name La Campana Gaugau Packing with an
establishment in Binondo, Manila, which was later transferred to España
Extension, Quezon City.
 On July 6, 1950, Tan Tong, with himself and members of his family, incorporated
the company known as La Campana Factory Co., Inc., with its principal office
located in the same place as that of La Campana Gaugau Packing.
 About a year before the formation of the corporation, Tan Tong had entered into
a CBA with the Philippine Legion of Organized Workers, known as PLOW for
short, to which the union of Tan Tong's employees headed by Manuel E. Sadde
was then affiliated.
 Tan Tong's employees later formed their own organization known as Kaisahan
Ng Mga Manggagawa Sa La Campana and applied for registration in the DOLE
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
Ng Mga Manggagawa.
 The Kaisahan presented a demand for higher wages and more privileges, the
demand being addressed to La Campana Starch and Coffee Factory, by which
name they sought to designate, so it appears, the La Campana Gaugau Packing
and the La Campana Coffee Factory Co., Inc.
 As the demand was not granted and an attempt at settlement through the
mediation of the Conciliation Service of the Department of Labor had given no
result, the said Department certified the dispute to the Court of Industrial
Relations on July 17, 1951, the case being there docketed as Case No. 584-V.
 With the case already pending in the industrial court, the SOLE revoked the
Kalipunan Ng Mga Kaisahang Manggagawa's permit as a labor union on the
ground that it was dominated by subversive elements, and also suspended the
permit of its affiliate—Kaisahan.
 PLOW and Kaisahan had been allowed to intervene as a party having an
interest in the dispute, filed separate motions for the dismissal of the case on the
following grounds:
1. That the action is directed against two different entities with distinct
personalities, with "La Campana Starch Factory" and the "La Campana
Coffee Factory, Inc.";
2. That the workers of the "La Campana Coffee Factory, Inc." are less than
31;
3. That the petitioning union has no legal capacity to sue, because its
registration as an organized union has been revoked by the DOLE; and
4. That there is an existing valid contract between the respondent "La
Campana Gaugau Packing" and the intervenor PLOW, where-in the
petitioner's members are contracting parties bound by said contract.
 CIR: denied the said motions, because if found as a fact that:
o While the coffee corporation is a family corporation with Mr. Tan Tong, his
wife, and children as the incorporations and stockholders, the La Campana
Gaugau Packing is merely a business name.
o According to the contract of lease, Mr. Tan Tong, manager of the Ka Campana
Gaugau Factory, leased a space of 200 square meters in the bodega housing
the gaugau factory to his son Tan Keng Lim, manager of the La Campana
Coffee Factory. But the lease was executed only on September 1, 1951, while
the dispute between the parties was pending before the Court.
o There is only one entity La Campana Starch and Coffee Factory, as shown by
the signboard, the advertisement in the delivery trucks, the packages of
gaugau, and delivery forms.
o All the laborers working in the gaugau or in the coffee factory receive their pay
from the same person, the cashier, Miss Natividad Garcia, secretary of Mr. Tan
Tong; and they are transferred from the gaugau to the coffee and vice-versa as
the management so requires.
o There has been only one payroll for the entire La Campana personnel and
only one person preparing the same — Miss Natividad Garcia, secretary of Mr.
Tan Tong. But after the case at bar was certified to the Court on July 17, 1951,
the company began making separate payrolls for the coffee factory, and for the
gaugau factory.
ISSUE: WON the gaugau and coffee company are one and the same
RULING: YES
 As found by the industrial court—and this finding is conclusive upon the SC—La
Campana Gaugau Packing and La Campana Coffee Factory Co. Inc., are
operating under one single management, that is, as one business though with
two trade names.
 True, the coffee factory is a corporation and, by legal fiction, an entity existing
separate and apart fro the persons composing it, that is, Tan Tong and his family.
But it is settled that this fiction of law, which has been introduced as a matter of
convenience and to subserve the ends of justice cannot be invoked to further an
end subversive of that purpose.
 Disregarding Corporate Entity. — The doctrine that a corporation is a legal
entity existing separate and apart from the person composing it is a legal theory
introduced for purposes of convenience and to subserve the ends of justice. The
concept cannot, therefore, be extended to a point beyond its reason and policy,
and when invoked in support of an end subversive of this policy, will be
disregarded by the courts. Thus, in an appropriate case and in furtherance of the
ends of justice, a corporation and the individual or individuals owning all its
stocks and assets will be treated as identical, the corporate entity being
disregarded where used as a cloak or cover for fraud or illegality.
 A subsidiary or auxiliary corporation which is created by a parent corporation
merely as an agency for the latter may sometimes be regarded as identical with
the parent corporation, especially if the stockholders or officers of the two
corporations are substantially the same or their system of operation unified.
 ITC: Tan Tong appears to be the owner of the gaugau factory. And the coffee
factory, though an incorporated business, is in reality owned exclusively by Tan
Tong and his family. As found by the Court of industrial Relations, the two
factories have but one office, one management and one payroll, except after
July 17, the day the case was certified to the Court of Industrial Relations, when
the person who was discharging the office of cashier for both branches of the
business began preparing separate payrolls for the two. And above all, it should
not be overlooked that, as also found by the industrial court, the laborers of the
gaugau factory and the coffee factory were interchangeable, that is, the laborers
from the gaugau factory were sometimes transferred to the coffee factory and
vice-versa. In view of all these, the attempt to make the two factories appears as
two separate businesses, when in reality they are but one, is but a device to
defeat the ends of the law (the Act governing capital and labor relations) and
should not be permitted to prevail.
 The second point raised by petitioners is likewise with-out merit. In the first
place, there being more than 30 laborers involved and the Secretary of Labor
having certified the dispute to the Court of Industrial Relations, that court duly
acquired jurisdiction over the case. This jurisdiction was not when the
Department of Labor suspended the permit of the respondent Kaisahan as a
labor organization. For once jurisdiction is acquired by the Court of Industrial
Relations it is retained until the case is completely decided.
 In view of the foregoing, the petition is denied, with costs against the petitioner.
Francisco Motors v CA | June 25, 1999
G.R. No. 100812 | Quisumbing
Summary:
The Sps. Manuels owed FM money for jeep making services
rendered. When they were sued, the Manuels claimed that the
incorporators of FM owed them money for legal services rendered by
Gregorio Manuel. The RTC and CA ruled that FM be liable for such legal
services and to pay the Manuels, the latter court applying the doctrine of
piercing the veil of corporate identity. The SC, however, reversed the
ruling, and held that the corporation cannot be made liable for the
incorporators’ personal liabilities and obligations.
Facts:
● Francisco Motors (FM) filed a claim against Manuels for the
collection of the balance from the sale of jeep bodies, parts, and
repairs by the former to the latter, totalling 30K.
● The Manuels interposed a counterclaim for unpaid legal services
by Gregorio Manuel in the amount of 50K. Gregorio claims that
he represented the incorporators of FM in intestate of their
mother, for which he was not paid.
● The RTC ruled in favor of both FM and Manuels, allowing both
their claims for money. FM was found to be in default for failure to
answer the counterclaim, and held the corporation liable for such
legal services rendered in favor of the incorporators. The CA
affirmed the same, stating:
However, this distinct and separate personality is merely a fiction created by law
for convenience and to promote justice. Accordingly, this separate personality of
the corporation may be disregarded, or the veil of corporate fiction pierced, in
cases where it is used as a cloak or cover for found (sic) illegality, or to work an
injustice, or where necessary to achieve equity or when necessary for the
protection of creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc.) Corporations are
composed of natural persons and the legal fiction of a separate corporate
personality is not a shield for the commission of injustice and inequity. (Chemplex
Philippines, Inc. vs. Pamatian)
In the instant case, evidence shows that the FM is composed of the heirs of the
late Trinidad as directors and incorporators for whom Gregorio Manuel rendered
legal services in the intestate estate case of their deceased mother. Considering
the aforestated principles and circumstances established in this case, equity and
justice demands FM’s veil of corporate identity should be pierced and Manuel be
compensated for legal services rendered to the heirs, who are directors of FM.
Issue:
Whether or not the lower courts erred in ruling FM liable for
Manuel’s legal services? YES
Ruling:
Under the doctrine of piercing the veil of corporate entity, the
corporations separate juridical personality may be disregarded, for
example, when the corporate identity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime. Also, where
the corporation is a mere alter ego or business conduit of a person, or
where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation, then its distinct personality may be
ignored. In these circumstances, the courts will treat the corporation as a
mere aggrupation of persons and the liability will directly attach to them.
The legal fiction of a separate corporate personality in those cited
instances, for reasons of public policy and in the interest of justice, will be
justifiably set aside.
The rationale behind piercing a corporations identity in a given
case is to remove the barrier between the corporation from the persons
comprising it to thwart the fraudulent and illegal schemes of those who
use the corporate personality as a shield for undertaking certain
proscribed activities.
In this case, the doctrine of piercing the corporate veil has no
relevant application. Instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed.
It is the corporation which is being ordered to answer for the personal
liability of individual incorporators. Hence, it appears to us that the
doctrine has been turned upside down because of its erroneous
invocation.
According to Manuel his services were solicited as counsel for
members of the Francisco family to represent them in the intestate
proceedings over Benita Trinidads estate. These estate proceedings did
not involve any business of FM. His move to recover unpaid legal fees
through a counterclaim against Francisco Motors Corporation, to offset
the unpaid balance of the purchase and repair of a jeep body could only
result from an obvious misapprehension that petitioners corporate assets
could be used to answer for the liabilities of its individual directors,
officers, and incorporators. Such result if permitted could easily prejudice
the corporation, its own creditors, and even other stockholders; hence,
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.
2001|Kapunan
PNB International Finance Ltd. (PNB-IFL), a subsidiary of PNB, organized
and doing business in Hong Kong, extended to the Ritratto Group a letter of credit for
$300,000 secured by real estate mortgages over four parcels of land in Makati City.
 It was later increased and as of April 1998, their outstanding obligations was
$1,487,274.70.
o Thus, PNB-IFL, through their attorney-in-fact PNB, notified the
respondents of the foreclosure of the real estate mortgages.
Respondents filed a complaint for injunction with a prayer for the issuance of a writ of
preliminary injunction and/or TRO.
 Petitioners filed an opposition stating failure to state a cause of action and the
absence of any privity between the petitioner and the respondents. They said that
PNB and PNB-IFL are two separate entities and thus, PNB is not a real party in
interest to the case.
 Respondents argue that PNB is a real party in interest as it is a wholly-owned
subsidiary by PNB-IFL and was tasked to commit the acts of foreclosing
respondents’ properties. In addition, they maintain that the entire credit facility is
void as it contains principles in violation of the principle of mutuality of contract. In
addition, the doctrine of “Piercing the veil of Corporate Identity” was applicable
because the petitioner is merely an alter ego or business conduit of PNB-IFL.
RTC: Issued the writ of preliminary injunction; CA affirmed.
ISSUE: W/N PNB was the real party in interest, being an attorney-in-fact authorized
to enforce an ancillary contract – NO.
HELD:
1. The contract entered into was between Ritratto and PNB-IFL, not PNB.
The respondents admit that the petitioner is a mere attorney-in-fact for
the PNB-IFL with full power to foreclose properties mortgaged to
secure their loan obligations with PNB-IFL.
a. PNB is an agent with limited authority and specific duties
under a SPA incorporated in the real estate mortgage it is not privy
to the loan contracts executed by PNB-IFL.
b. The issue of validity of the loan contracts is a matter between PNB-
IFL and the respondents. Thus, as PNB is recognized as a mere
agent, the respondents still prayed that PNB be ordered to
recomputed the scheduling of the interest to be paid to them and
crediting the amount previously paid to PNB by the respondents.
ITC: However, PNB is not a part of the contract and has no power to recomputed
the interest rates set forth in the contract.
2. The case of Koppel Phil Inc. vs. Yatco disregarded the separate existence of
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
business conduit of a person or where the corporation is merely an
instrumentality, agency, conduit or adjunct of another corporation. However,
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
stockholders or members, and is not affected by the personal
rights, obligations and transactions of the latter.
i. The mere fact that a corporation owns all of the stocks
of another corporation is not sufficient to justify their
being treated as one entity. If used to perform legitimate
functions, a subsidiary's separate existence may be
respected, and the liability of the parent corporation
as well as the subsidiary will be confined to those
arising in their respective business. The courts may in
the exercise of judicial discretion step in to prevent the
abuses of separate entity privilege and pierce the veil of
corporate entity.
b. There are some factors which will justify the application of the
treatment of the doctrine of piercing the corporate veil.
i. Garrett vs. Southern Railway Co.: petitioner filed a suit
against Southern Railway as Southern acquired the entire
capital stock of Lenoir Car Works from where he sustained
injuries. However, the Court stated that stoc ownership
alone by one corporation does not render the dominant
corporation liable for torts of the subsidiary unless the
separate corporate existence of the subsidiary is a mere
sham.
Circumstances rendering the subsidiary an instrumentality:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.(f) The parent corporation pays the
salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or
no assets except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or its
business or financial responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the
interest of the subsidiary but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
3. In the PH jurisdiction, the doctrine of piercing the corporate veil is an
equitable doctrine developed to address situations where the separate
corporate personality of a corporation is abused or used for wrongful
purposes.
a. The doctrine applies when corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime.
In Concept Builders, Inc. v. NLRC, the test in determining the applicability of the
doctrine of piercing the veil of corporate fiction is:
 Thus, as an issuance of preliminary injunction is merely adjunct to the main
suit, the dismissal of the principal action results in the denial of the prayer for
the writ.
o Moreover, they do not fulfill the grounds for the issuance of the writ
under Section 3, Rule 48 of the ROC1.
o An injunctive remedy may only be resorted to when there is a
pressing necessity to avoid injurious consequences which cannot
be remedied under any standard compensation.
 ITC: Respondents do not deny their indebtedness. Moreover, respondents
questioned the alleged void stipulations in the contract only when petitioner
initiated the foreclosure proceedings. Clearly, respondents have failed to
prove that they have a right protected and that the acts against which the
writ is to be directed are violative of said right.

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
Facts:
 The Castillo family are the owners of a parcel of
lands which was given as security for a loan
from the DBP. Mauricia Castillo was the
administratrix in charge over a parcel of land
left by Felipe Castillo. For their failure to pay the
amortization, foreclosure of the said property
was about to be foreclosed.
 This problem was made known to Rivera,
(Plaintiff Santiago Rivera is the nephew of
plaintiff Mauricia Meer Vda. de Castillo.) who
proposed to them the conversion into
subdivision of the four parcels of land adjacent
to the mortgaged property to raise the
necessary fund. The Idea was accepted by the
Castillo family and to carry out the project, a
Memorandum of Agreement was executed by
and between Slobec Realty and Development,
Inc., represented by its President Rivera and the
Castillo family.
 Rivera, armed with the agreement, approached
Mr. Modesto Cervantes, President of defendant
Bormaheco, and proposed to purchase from
Bormaheco tractors.
 Slobec, through Rivera, executed in favor of
Bormaheco a Chattel Mortgage over the said
equipment as security. As further security of the
aforementioned unpaid balance, Slobec
obtained from Insurance Corporation of the Phil.
a Surety Bond, with ICP (Insurance Corporation
of the Phil.) as surety and Slobec as principal, in
favor of Bormaheco.
o The aforesaid surety bond was in turn
secured by an Agreement of Counter-
Guaranty with Real Estate Mortgage
executed by Rivera as president of Slobec
and Castillo family, as mortgagors and ICP
as mortgagee. In giving the bond, ICP
required that the Castillos mortgage to
them the four parcels of land.
 For violation of the terms and conditions of the
Counter-Guaranty Agreement, the properties of
the Castillos were foreclosed by ICP - the highest
bidder.
o The mortgagors had one year to redeem
the property, but they failed to do so.
o Consequently, ICP consolidated its
ownership. ICP sold to PM Parts the four
parcels of land.
o Thereafter, PM Parts, through its
President, Mr. Modesto Cervantes, sent a
letter addressed to plaintiff Mrs. Mauricia
Meer Castillo requesting her and her
children to vacate the subject property.
 The heirs of the late Felipe Castillo filed an
action for annulment of title.
CFI: Judgment is hereby rendered in favor of the
plaintiffs – agreements etc - null and void for being
fictitious, spurious and without consideration.
CA: reversed
ISSUE and RULING
WON there is necessity to pierce the veil of corporate
entity of Bormaheco, ICP and PM Parts, to determine
whether they employed fraud in causing the
foreclosure and subsequent sale of the real properties
belonging to petitioners

NO.
Under the doctrine of piercing the veil of corporate
entity, when valid grounds therefore exist, the legal
fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or
stockholders may be disregarded. In such cases, the
corporation will be considered as a mere association of
persons. The members or stockholders of the
corporation will be considered as the corporation, that
is, liability will attach directly to the officers and
stockholders. 12 The doctrine applies when the
corporate fiction is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, 13 or
when it is made as a shield to confuse the legitimate
issues 14 or where a corporation is the mere alter ego
or business conduit of a person, or where the
corporation is so organized and controlled and its
affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another
corporation.
While we do not discount the possibility of the
existence of fraud in the foreclosure proceeding,
neither are we inclined to apply the doctrine invoked
by petitioners in granting the relief sought. It is our
considered opinion that piercing the veil of corporate
entity is not the proper remedy in order that the
foreclosure proceeding may be declared a nullity under
the circumstances obtaining in the legal case at bar.
In the first place, the legal corporate entity is
disregarded only if it is sought to hold the officers and
stockholder directly liable for a corporate debt or
obligation. In the instant case, petitioners do not seek
to impose a claim against the individual members of
the three corporations involved; on the contrary, it is
these corporations which desire to enforce an alleged
right against petitioners. Assuming that petitioners
were indeed defrauded by private respondents in the
foreclosure of the mortgaged properties, this fact alone
is not, under the circumstances, sufficient to justify the
piercing of the corporate fiction, since petitioners do
not intend to hold the officers and/or members of
respondent corporations personally liable therefor.
Petitioners are merely seeking the declaration of the
nullity of the foreclosure sale, which relief may be
obtained without having to disregard the aforesaid
corporate fiction attaching to respondent corporations.
Secondly, petitioners failed to establish by clear and
convincing evidence that private respondents were
purposely formed and operated, and thereafter
transacted with petitioners, with the sole intention of
defrauding the latter.
The mere fact, therefore, that the businesses of two or
more corporations are interrelated is not a justification
for disregarding their separate personalities, absent
sufficient showing that the corporate entity was
purposely used as a shield to defraud creditors and
third persons of their rights.
 BOYER-ROXAS V CA and HEIRS OF EUGENIA V. ROXAS, INC
JUL 14 1992 | GUTIERREZ, JR., J
FACTS: RESPONDENT corporation, HEIRS OF EUGENIA V ROXAS, INC was
incorporated on DEC 4 1962 with the primary purpose of engaging in agriculture to
develop the properties inherited from EUGENIA V. ROXAS and that of EUFROCINO
ROXAS
 The AOI, in 1971, was amended to allow it to engage in the resort business. The
incorporators as original members of the board of directors of RESPONDENT
were all members of the same family, with EUFROCINO having the biggest share
 RESPONDENT put up a resort (Hidden Valley Spring Resort) in Calauan,
Laguna and improvements were introduced such as cottages, houses or
buildings, swimming pools, tennis court, restaurant and open pavilions.
 The house near the Balugbugan Pool being occupied by REBECCA and was
originally intended as staff house but later used as the residence of
ERIBERTO, deceased husband of REBECCA and father of GUILLERMO. This
was built from corporate funds. The construction of the unfinished house was
started by REBECCA and her husband ERIBERTO.
 The third building occupied by GUILLERMO was originally intended as a
recreation hall but later converted as a residential house. It was also built from
corporate funds.
o The conversion from a recreational hall to a residential house was with the
knowledge of EUFROCINO and was not objected to by any of the Board of
Directors.
o Most materials used in converting the building into a residential house came
from materials left by COPPOLA, a film producer, who filed “Apocalypse
Now” – left the materials as part of his payment for rents of the room he
occupied in the resort.
o GUILLERMO moved in and occupied the house with his family in 1977 or
1978. During that time, EUFROCINO was still alive, ERIBERTO was the
general manager of the corporation and there was seldom any board
meeting
 EUFROCINO with ERIBERTO were the ones who were running the corporation.
ERIBERTO was the restaurant and wine concessionaire. After the death of
EUFROCINO, ERIBERTO continued as general manager until his death in 1980
 After the death of ERIBERTO, PETITIONERS (REBECCA and GUILLERMO)
committed acts that impeded the RESPODNENT’s expansion and normal
operation of the resort. It could not even use its own pavilions, kitchen and other
facilities because of the acts of PETITIONERS which led to cases filed against
them
The Board of Directors adopted Resolution No. 83-12 s. 1983 authorizing the
ejectment of PETITIONERS from the premises. Demand letters for them to vacate
were sent. The dispute was brought before the barangay level but was not settled.
 RESPONDENT filed 2 separate complaints for recovery of possession against
REBECCA and GUILLERMO respectively.
 RESPONDENT prayed for the ejectment of PETITIONERS from the buildings
inside the Hidden Valley Springs Resort allegedly owned by RESPONDENT.
 Their occupancy was only upon the tolerance of RESPONDENT. They never paid
rentals and ignored the demand letters for them to vacate.
RTC: ORDERED TO VACATE AND PAY RENT FOR STAY; CA: AFFIRMED
ISSUE: WON PETITIONERS are owners of an aliquot portion of all properties of the
RESPONDENT CORP being stockholders thereof? NO
ITC, RESPONDENT is a bona fide corporation. It has a juridical personality of its own
separate from the members composing it.
 Title over the land where the resort is located is registered in the name of the
corporation. The staff house being occupied by REBECCA and recreation hall
which was later on converted into a residential house occupied by GUILLERMO
are owned by RESPONDENT CORP.
STOCKHOLDERS OF F. GUANZON AND SONS INC V REGISTER OF DEEDS OF
MANILA - Properties registered in the name of the corporation are owned by it as an
entity separate and distinct from its members. While shares of stock constitute
personal property, they do not represent property of the corporation.
 A share of stock only typifies an aliquot part of the corporation’s property,
or the right to share in its proceeds to that extent when distributed
according to law and equity BUT the holder is not the owner of any part of
the capital of the corporation
 He is also not entitled to the possession of any definite portion of its property or
assets. The stockholder is not a co-owner or tenant in common of the corporate
property.
PETITIONERS: Point out that their occupancy of the staff house which was later used
as the residence of ERIBERTO, husband of REBECCA and the recreation hall which
was converted into a residential house were with the blessings of EUFROCINO, the
deceased husband of EUGENIA, who was the majority and controlling stockholder of
the corporation.
 In his lifetime, EUFROCINO and ERIBERTO managed the corporation. The
Board of Directors did not object to such arrangement. The authority given by
EUFROCINO for the conversion of the recreation hall into a residential house can
no longer be questioned by the stockholders of the RESPONDENT and/or its
board of directors for they impliedly but no less explicitly delegated such authority
to EUFROCINO.
RESPODNENT is a distinct personality separate from its members. The corporation
transacts its business only through its officers or agents
 Whatever authority these officers or agents may have is derived from the board
of directors or other governing body unless conferred by the charter of the
corporation.
 An officer’s power as an agent of the corporation must be sought from the
statute, charter, the by-laws or in a delegation of authority to such officer, from
the acts of the board of directors, formally expressed or implied from a habit or
custom of doing business.
ITC, EUFROCINO who then controlled the management of the corporation, being the
majority stockholder, consented to PETITIONERS’ stay within the properties. They
were allowed to stay until AUG 27 1983, when the Board of Directors approved the
Resolution ejecting the petitioners
 COURT: Nothing irregular in the adoption of the Resolution by the BOD –
PETITIONERS’ stay was merely by tolerance in deference to the wishes of
EUFROCINO, who during his lifetime, could not have bound the corporation
forever.
 PETITIONERS have not cited any provision of the corporation-by-laws or any
resolution or act of the BOD which authorizes EUFROCINO to allow them to stay
within the company premises forever
 In the absence of any existing contract between PETITIONERS and
RESPONDENT CORP, the corporation may elect to eject the PETITIONERS
at any time it wishes for the benefit and interest of the corporation
ON PIERCING THE CORPORATE VEIL
The separate personality of the corporation may be disregarded only when the
corporation is used “as a cloak or cover for fraud or illegality, or to work injustice, or
where necessary to achieve equity or when necessary for the protection of the
creditors.”
 Circumstances in the present case do not fall under any of the enumerated
categories
OTHER ISSUES:
RE: UNFINISHED BUILDING
REBECCA is a builder in good faith.
 The construction of the unfinished building started when ERIBERTO was still
alive and was the general manager of the CORPORATION. The couple used
their own funds to finance the construction of the building. The BOD did not
object to the construction. They allowed the construction despite the fact that it
was within the property of the corporation.
 APPLY ART 453 CIVIL CODE – (APPLIES ART 448 WHEN BOTH IN BAD
FAITH)
ON DUE PROCESS
DOCTRINE: The client is bound by the mistakes of his lawyer
EXCEPTION: The party is not bound by the actions of his counsel in case the gross
negligence of the counsel resulted in the client’s deprivation of his property without
due process of law
ITC, PETITIONERS were not victims of gross negligence of their counsel.
 PETITIONERS are to be blamed for the RTC order submitting the cases for
decision. They received notices of the scheduled hearings and yet they did not
do anything
 The parties received notice of the order with the warning that if they fail to attend
the hearing, the cases would be submitted for decision based on the evidence on
record. They were given another chance by the lower court by rescheduling
however they still failed to appear.
 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
their cases until it was too late.
 They continued to retain the services of ATTY. MANICAD knowing fully well his
lapses vis-à-vis their cases.
WHEREFORE, PARTLY GRANTED. RTC MODIFIED – REBECCA AND
RESPONDENT CORP ORDERED OT FOLLOW ART 448 CC ON UNFINISHED
BUILDING; AFFIRMED IN ALL OTHER RESPECTS
 14 Sian Enterprises v Cupertino Realty
G.R. No. 170782 | June 22, 2009 | Nachura
petitioner is engaged in the manufacturing and retailing/wholesaling business. On
the other hand, Cupertino is engaged in the realty business.
On April 10, 1995, petitioner Siain Enterprises, Inc. obtained a loan of
₱37,000,000.00 from respondent Cupertino Realty Corporation (Cupertino)
- covered by a promissory note signed by both petitioner’s and Cupertino’s
respective presidents, Cua Le Leng and Wilfredo Lua.
- The promissory note authorizes Cupertino, as the creditor, to place in
escrow the loan proceeds of ₱37,000,000.00 with Metropolitan Bank & Trust
Company to pay off petitioner’s loan obligation with Development Bank of
the Philippines (DBP).
To secure the loan, petitioner, on the same date, executed a real estate mortgage
over two (2) parcels of land and other immovables, such as equipment and
machineries.
Two (2) days thereafter the parties executed an amendment to promissory note
- provided for a seventeen percent (17%) interest per annum on the
₱37,000,000.00 loan.
- The amendment to promissory note was likewise signed by Cua Le Leng
and Wilfredo Lua on behalf of petitioner and Cupertino, respectively.
it has been the agreement between [petitioner] and Cupertino that the aforesaid
loan will be non-interest bearing. Accordingly, the parties saw to it that the
promissory note (evidencing their loan agreement) did not provide any stipulation
with respect to interest.
On several occasions thereafter, [petitioner] made partial payments to Cupertino in
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.
Cua Le Leng signed a second promissory note in favor of Cupertino for
₱160,000,000.00.
- 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.
Parenthetically, on even date, the parties executed an amendment of real estate
mortgage, in order to reflect the current total loan secured by the said Real Estate
Mortgage;
- This amendment to REM was executed preparatory to the promised release
by Cupertino of additional loan proceeds to [petitioner] in the total amount
of Php160,000,000.00.
However, despite the execution of the said amendment to REM and its subsequent
registration with the Register of Deeds of Iloilo City and notwithstanding the clear
agreement between [petitioner] and Cupertino and the latter will release and deliver
to the former the aforesaid additional loan proceeds of P160,000,000.00 after the
signing of pertinent documents and the registration of the amendment of REM,
Cupertino failed and refused to release the said additional amount for
When petitioner tendered payment of the amount of Php29,014,960.92 which is the
remaining balance of the Php37,000,000.00 loan subject of the REM, in order to
discharge the same, Cupertino unreasonably and unjustifiably refused acceptance
thereof on the ground that the previous payment amounting to Php7,985,039.08,
was applied by Cupertino to alleged interests and not to principal amount, despite
the fact that, as earlier stated, the aforesaid loan by agreement of the parties, is
non-interest bearing.
Cupertino instituted extrajudicial foreclosure proceedings
- The auction sale was scheduled on October 11, 1996 with respondent
Notary Public Edwin R. Catacutan commissioned to conduct the same
petitioner filed a complaint with a prayer for a restraining order to enjoin Notary
Public Catacutan from proceeding with the public auction.
- Petitioner claims Cupertino was already making arrangements with
[respondent] Notary Public for the extrajudicial sale of the mortgage
properties even as [petitioner] is more than willing to pay the
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
deliver to [petitioner] the amount of Php160,000,000.00.
- In fact, a notarial sale of the mortgaged properties is already scheduled on
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,
Cupertino has no legal right to foreclose the mortgaged properties.
- Cupertino cannot extrajudicially cause the foreclosure by notarial sale of
the mortgage properties by [respondent] Notary Public as there is nothing
in the REM (dated 10 April 1995) or in the amendment thereto that grants
Cupertino the said right.
Respondents filed an answer
- alleging that the loan have (sic) an interest of 17% per annum:
- that no payment was ever made by petitioner
- petitioner has already received the amount of the loan prior to the
execution of the promissory note and amendment of Real Estate Mortgage,
xxx.
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.
- recalled and set aside its previous order declaring the notarial foreclosure
of the mortgaged properties as null and void.
CA affirmed the RTC’s ruling.
- although the amended real estate mortgage fell within the exceptions to
the parol evidence rule under Section 9, Rule 130 of the Rules of Court,
petitioner still failed to overcome and debunk Cupertino’s evidence that the
amended real estate mortgage had a consideration, and petitioner did
receive the amount of ₱160,000,000.00 representing its incurred obligation
to Cupertino.
- 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
existence of the consideration, the latter must be given more weight and
value.
- gave credence to Cupertino’s evidence that the ₱160,000,000.00 proceeds
were the total amount received by petitioner and its affiliate companies
over the years from Wilfredo Lua, Cupertino’s president.
- In this regard, the lower courts applied the doctrine of "piercing the veil of
corporate fiction" to preclude petitioner from disavowing receipt of the
₱160,000,000.00 and paying its obligation under the amended real estate
mortgage.
Petitioner claims
 - amended real estate mortgage is void as it did not receive the agreed
consideration therefor i.e. ₱160,000,000.00.
- the amended real estate mortgage does not accurately reflect the
agreement between the parties as, at the time it signed the document, it
actually had yet to receive the amount of ₱160,000,000.00.
- asseverates that the lower courts erroneously applied the doctrine of
"piercing the veil of corporate fiction" when both gave credence to
Cupertino’s evidence showing that petitioner’s affiliates were the previous
recipients of part of the ₱160,000,000.00 indebtedness of petitioner to
Cupertino.
WON the loan documents were supported by consideration – YES,
presumption not overcome
All the loan documents, on their face, unequivocally declare petitioner’s
indebtedness to Cupertino:
1. Promissory Note dated April 10, 1995, prefaced with a "[f]or value
received," and the escrow arrangement for the release of the
₱37,000,000.00 obligation in favor of DBP, another creditor of petitioner.
2. Mortgage likewise dated April 10, 1995 executed by petitioner to secure its
₱37,000,000.00 loan obligation with Cupertino.
3. Amendment to Promissory Note for ₱37,000,000.00 dated April 12, 1995
which tentatively sets the interest rate at seventeen percent (17%) per
annum.
4. Promissory Note dated August 16, 1995, likewise prefaced with "[f]or value
received," and unconditionally promising to pay Cupertino ₱160,000,000.00
with a stipulation on compounding interest at thirty percent (30%) per
annum. The Promissory Note requires, among others, the execution of a
real estate mortgage to serve as collateral therefor. In case of default in
payment, petitioner, specifically, through its president, Cua Le Leng,
authorizes Cupertino to "dispose of said security or any part thereof at [a]
public sale."
5. Amendment of Real Estate Mortgage also dated August 16, 1995 with a
recital that the mortgagor, herein petitioner, has increased its loan payable
to the mortgagee, Cupertino, from ₱37,000,000.00 to ₱197,000,000.00. In
connection with the increase in loan obligation, the parties confirmed and
ratified the Real Estate Mortgage dated April 10, 1995.
from the foregoing chain of transactions, a presumption has arisen that the loan
documents were supported by a consideration.
Rule 131, Section 3 of the Rules of Court specifies that a disputable
presumption is satisfactory if uncontradicted and not overcome by other
evidence.
Negotiable Instruments Law
SEC. 3. Disputable presumptions.— The following presumptions are
satisfactory if uncontradicted, but may be contradicted and overcome by
other evidence:
(r) That there was sufficient consideration for a contract;
(s) That a negotiable instrument was given or indorsed for a sufficient
consideration;
SEC. 24. Presumption of consideration.— Every negotiable instrument is
deemed prima facie to have been issued for a valuable consideration; and
every person whose signature appears thereon to have become a party
thereto for value.
petitioner has not been able to establish its claim of non-receipt by a
preponderance of evidence.
- the Court is inclined to give more weight and credence to the affirmative
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
jewelries, the trucks and the condominiums plus the interests that will be
incurred which all in all amounted to Php197,000,000.00.
- as between the plaintiff’s negative evidence of denial and the defendant’s
affirmative evidence on the existence of the consideration, the latter must
be given more weight and value.
- Moreover, [Cupertino’s] foregoing testimony on the existence of the
consideration of the Php160,000,000.00 promissory note has never been
refuted nor denied by the [petitioner], who while initially having manifested
that it will present rebuttal evidence eventually failed to do so, despite all
available opportunities accorded to it.
o By such failure to present rebutting evidence, [Cupertino’s]
testimony on the existence of the consideration of the amended
real estate mortgage does not only become impliedly admitted by
the [petitioner], more significantly, to the mind of this Court, it is a
clear indication that [petitioner] has no counter evidence to
overcome and defeat the [Cupertino’s] evidence on the matter.
The presentation by [petitioner] of its cash Journal Receipt Book as proof
that it did not receive the proceeds of the Php160,000,000.00 promissory
note does not likewise persuade the Court.
- In the first place, the subject cash receipt journal only contained cash
receipts for the year 1995. But as appearing from the various checks and
debit memos issued by Wilfredo Lua and his wife, Vicky Lua and from the
former’s unrebutted testimony in Court, the issuance of the checks, debit
memos, pledges of jewelries, condominium units, trucks and the other
components of the Php197,000,000.00 amended real estate mortgage had
all taken place prior to the year 1995, hence, they could not have been
recorded therein.
- What is more, the said cash receipt journal appears to be prepared solely at
the behest of the [petitioner], hence, can be considered as emanating from
a "poisonous tree" therefore self-serving and cannot be given any serious
credibility.
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
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.
petitioner was the plaintiff in the trial court, the party that brought suit
against respondent. Accordingly, it had the burden of proof, the duty to
present a preponderance of evidence to establish its claim.1
- petitioner’s evidence consisted only of a barefaced denial of receipt and a
vaguely drawn theory that in their previous loan transaction with
 respondent covered by the first promissory note, it did not receive the
proceeds of the ₱37,000,000.00.
- Petitioner conveniently ignores that this particular promissory note secured
by the real estate mortgage was under an escrow arrangement and taken
out to pay its obligation to DBP.
o petitioner, quite obviously, would not be in possession of the
proceeds of the loan.
- Contrary to petitioner’s contention, there is no precedent to explain its
stance that respondent undertook to release the ₱160,000,000.00 loan only
after it had first signed the Amended Real Estate Mortgage
WON the piercing of the corporate veil doctrine was properly applied – YES
As a general rule, a corporation will be deemed a separate legal entity until
sufficient reason to the contrary appears.
- But the rule is not absolute. A corporation’s separate and distinct legal
personality may be disregarded and the veil of corporate fiction pierced
when the notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime.
IN THIS CASE, Cupertino presented overwhelming evidence that petitioner
and its affiliate corporations had received the proceeds of the
₱160,000,000.00 loan increase which was then made the consideration for
the Amended Real Estate Mortgage.
- the checks, debit memos and the pledges of the jewelries, condominium
units and trucks were constituted not exclusively in the name of [petitioner]
but also either in the name of Yuyek Manufacturing Corporation, Siain
Transport, Inc., Cua Leleng and Alberto Lim is of no moment.
The conjunction of the identity of the [petitioner] corporation in relation to
Siain Transport, Inc. (Siain Transport), Yuyek Manufacturing Corp. (Yuyek),
as well as the individual personalities of Cua Leleng and Alberto Lim has
been indubitably shown in the instant case by the following established
considerations, to wit:
1. Siain and Yuyek have [a] common set of [incorporators], stockholders and
board of directors;
2. They have the same internal bookkeeper and accountant in the person of
Rosemarie Ragodon;
3. They have the same office address at 306 Jose Rizal St., Mandaluyong City;
4. They have the same majority stockholder and president in the person of
Cua Le Leng; and
5. In relation to Siain Transport, Cua Le Leng had the unlimited authority by
and on herself, without authority from the Board of Directors, to use the
funds of Siain Trucking to pay the obligation incurred by the [petitioner]
corporation.
it is crystal clear that [petitioner] corporation, Yuyek and Siain Transport
are characterized by oneness of operations vested in the person of their
common president, Cua Le Leng, and unity in the keeping and
maintenance of their corporate books and records through their common
accountant and bookkeeper, Rosemarie Ragodon.
- Consequently, these corporations are proven to be the mere alter-ego of
their president Cua Leleng, and considering that Cua Leleng and Alberto
Lim have been living together as common law spouses with three children,
this Court believes that while Alberto Lim does not appear to be an officer
of Siain and Yuyek, nonetheless, his receipt of certain checks and debit
memos from Willie Lua and Victoria Lua was actually for the account of his
common-law wife, Cua Leleng and her alter ego corporations.
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
Cupertino are deemed to be that of the [petitioner] itself.
- legal fiction cannotbe applied to its benefit in this case where to do so
would result to injustice and evasion of a valid obligation, for well settled is
the rule in this jurisdiction that the veil of corporate fiction may be pierced
when it is used as a shield to further an end subversive of justice, or for
purposes that could not have been intended by the law that created it; or to
justify wrong, or for evasion of an existing obligation. Resultantly,
while it appears that the issuance of the checks and the debit memos as well as the
pledges of the condominium units, the jewelries, and the trucks had occurred prior
to March 2, 1995, the date when Cupertino was incorporated, the same does not
affect the validity of the subject transactions because applying again the principle of
piercing the corporate veil, the transactions entered into by Cupertino Realty
Corporation, it being merely the alter ego of Wilfredo Lua, are deemed to be the
latter’s personal transactions and vice-versa.
[petitioner] corporation is now estopped from denying the apparent
authorities of Cua Le Leng who holds herself to the public as possessing
the power to do those acts, against any person who dealt in good faith as
in the case of Cupertino.
- Cua Leleng is the majority stockholder of the three (3) corporations namely,
Yuyek Manufacturing Corporation, Siain Transport, Inc., and Siain
Enterprises Inc., at the same time the President thereof. Second. Being the
majority stockholder and the president, Cua Le leng has the unlimited
power, control and authority without the approval from the board of
directors to obtain for and in behalf of the [petitioner] corporation from
[Cupertino] thereby mortgaging her jewelries, the condominiums of her
common law husband, Alberto Lim, the trucks registered in the name of
[petitioner] corporation’s sister company, Siain Transport Inc., the subject
lots registered in the name of [petitioner] corporation and her oil mill
property at Iloilo City. And, to apply the proceeds thereof in whatever way
she wants, to the prejudice of the public.
WHEREFORE, premises considered, the petition is DENIED. The Decision of
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
Corporation
January 29, 2007 | J. Garcia
 GCC, a finance and investment company, then known as Commercial Credit
Corporation (CCC) established CCC franchise companies in different urban
centers of the country.
 CCC Equity Corporation (Equity) was also organized in November 1994 by GCC
for the purpose of, among other things, taking over the operations and
management of the various franchise companies
 Alsons Development and Investment Corporation (Alsons) and the Alcantara
familyeach owned, just like GCC, shares in the aforesaid GCC franchise
companies, e.g., CCC Davao and CCC Cebu.
 For a consideration of 2M, Alsons and the Alcantara family sold their
shareholdings in CCC franchise companies (101,953 shares) to Equity.
o Equity thus issued a bearer PN
o The Alcantaras subsequently assigned its rights and interests over the
bearer note to Alsons  Alsons thus became the holder.
 Having failed to collect on the note, Alsons filed a complaint for a sum of money
against Equity and GCC.
o GCC was impleaded as party-defendant for any judgment ALSONS might
secure against Equity and, under the doctrine of piercing the veil of
corporate fiction, against GCC, Equity having been organized as a tool
and mere conduit of GCC.
 Equity answered with a cross-claim against GCC.
o It claimed that Equity was purposely organized by GCC for the latter to avoid
CB Rules and Regulations on DOSRI (Directors, Officers, Stockholders and
Related Interest) limitations, and that it acted merely as intermediary or
bridge for loan transactions and other dealings of GCC to its franchises and
the investing public;
o It also claimed that it was solely dependent upon GCC for its funding
o Thus, GCC is solely and directly liable to Alsons
GCC filed its answer to the cross-claim
o Emphasized that it was a distinct and separate entity from Equity
o Claim that the business relationships with each other were always at arms
length.
 During trial, Alsons presented Central Bank and GCC officers as adverse
witnesses
o Showed evidence that 5 incorporators, each contributing 100K as the initial
paid up capital of the company, organized Equity to manage, as it did
manage, various GCC franchises through management contracts.
o Before Equitys incorporation, GCC was already into the financing business
as it was in fact managing and operating various CCC franchises.
o A letter-reply of one G. Villanueva, then GCC President, to Equity President
Wilfredo Labayen, bearing on the sale of EQUITY shares to third parties,
part of the proceeds of which the Alcantaras wanted applied to liquidate the
promissory note in question.
 In said letter, Mr. Villanueva explained that the GCC Board denied the
Alcantaras request to be paid out of such proceeds, but nonetheless
authorized Equity to pay them interest out of Equitys operation income, in
preference over what was due GCC
 RTC: Equity was a mere instrumentality / adjunct of GCC; Equity and GCC
solidarily liable on the instrument. CA: affirmed the RTC.
 Hence this petition.
o GCC faults the lower courts for, among others piercing the veil of corporate
fiction
W/N THE PIERCING OF CORPORATE VEIL WAS PROPER – Yes.
 The first consequence of the doctrine of legal entity of the separate personality of
the corporation is that a corporation may not be made to answer for acts and
liabilities of its stockholders or those of legal entities to which it may be
connected or vice versa.
 This notion, however, may be disregarded under the doctrine piercing the
veil of corporate fiction. This occurs:
1. When court will look at the corporation as a mere collection of individuals or
an aggregation of persons undertaking business as a group, disregarding
the separate juridical personality of the corporation unifying the group.
2. When two (2) business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and treat them as
identical or one and the same.
 Whether the separate personality of the corporation should be pierced hinges on
obtaining facts, appropriately pleaded or proved
 There are three basic areas where piercing the veil with which law covers and
isolates the corporation from any other legal is allowed.
1. Defeat of public convenience (ie used as an evasing of existing obligation)
2. Fraud cases or when the corporate entity is used to justify a wrong, protect
fraud, or defend a crime
3. Alter ego cases, where a corporation is merely a farce since it is a mere
alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another
corporation.
 ITC: The existence of certain circumstances, taken together, gave rise to
the conclusion that Equity is a mere instrumentality or adjunct of GCC. The
trial court enumerated no less than 20 documented circumstances and
transactions to support this, including:
o The commonality of directors, officers and stockholders and even sharing of
office between GCC and Equity
o Certain financing and management arrangements between the two, allowing
GCC to handle the funds Equity
o The virtual domination if not control wielded by GCC over the finances,
business policies and practices of respondent Equity
o EQUITY never acted independently but took their orders from GCC.
o The establishment of Equity by the GCC to circumvent CB rules.
 CONCEPT BUILDERS, INC. v. NLRC & NORBERTO MARABE, ET.AL.
G.R. No. 108734 | May 29, 1996 | J. Hermosisima, Jr.
FACTS:
 Concept Builders, Inc., a domestic corporation with principal office at
Valenzuela, Metro Manila, is engaged in the construction business.
o Private respondents (Marabe, Raquel, and 19 others) were
employed by Concept Builders as laborers, carpenters and riggers.
 The private respondents were served individual written notices of termination
of employment by Concept Builders.
o It was stated in the individual notices that their contracts of
employment had expired and the project in which they were hired
had been completed.
o However, at the time of the termination of private respondents’
employment, the project in which they were hired had not yet been
finished and completed. Concept Builders had to engage the
services of sub-contractors whose workers performed the functions
of private respondents.
 Private respondents filed a complaint for illegal dismissal, unfair labor
practice and non-payment of their legal holiday pay, overtime pay and
thirteenth-month pay against Concept Builders.
 LABOR ARBITER: Ordered Concept Builders to reinstate the private
respondents and to pay them back wages equivalent to 1 year or 300
working days.
 NLRC: Dismissed Concept Builders’ MR on the ground that the said
decision had already become final and executory. NLRC further made the
finding that the private respondents’ backwages amounted to P199,800.00.
 LA: Issued a writ of execution directing the sheriff to execute the LA
Decision.
o The writ was partially satisfied through garnishment of sums from
petitioner’s debtor, the Metropolitan Waterworks and Sewerage
Authority, in the amount of P81,385.34.
o An Alias Writ of Execution was issued by the LA, directing the
sheriff to collect from Concept Builders the sum of P117,414.76,
representing the balance of the judgment award, and to reinstate
private respondents to their former positions.
 The sheriff issued a report stating that he tried to serve the alias writ of
execution on Concept Builders through the security guard on duty, but the
service was refused because Concept Builders no longer occupied the
premises. Thus, the LA issued a second alias writ of execution.
 However, the said writ had not been enforced by the special sheriff because,
as stated in his progress report:
o All the employees inside Concept Builders’ premises at 355
Maysan Road, Valenzuela, Metro Manila, claimed that they were
employees of Hydro Pipes Philippines, Inc. (HPPI);
o Levy was made upon personal properties he found in the premises,
but the security guards with high-powered guns prevented him from
removing the properties he had levied upon.
 The special sheriff recommended that a break-open order be issued to
enable him to enter the premises so that he could proceed with the public
auction sale of the aforesaid personal properties.
 A certain Dennis Cuyegkeng filed a third-party claim with the LA alleging that
the properties sought to be levied upon by the sheriff were owned by Hydro
(Phils.), Inc. (HPPI) of which he is the Vice-President.
 The private respondents filed a Motion for Issuance of a Break-Open Order,
alleging that HPPI and Concept Builders were owned by the same
incorporators/stockholders.
o They also alleged that Concept Builders temporarily suspended its
business operations in order to evade its legal obligations to them
and that private respondents were willing to post an indemnity bond
to answer for any damages which petitioner and HPPI may suffer
because of the issuance of the break-open order.
o To support their claim, they presented duly certified copies of the
General Information Sheets submitted by Concept Builders and by
HPPI to the SEC.
 These information sheets contained exactly the same
information with respect to the the names of stockholders
and the corresponding amounts subscribed, the list of the
Board of Directors, the corporate officers, and the principal
office. (See the table at the end of the digest)
 HPPI opposed the motion, contending that HPPI is a corporation which is
separate and distinct from petitioner.
o HPPI also alleged that the two corporations are engaged in two
different kinds of businesses, i.e., HPPI is a manufacturing firm
while petitioner was then engaged in construction.
 LA: Issued an Order which denied the motion for break-open order.
 NLRC: Set aside the order of the LA, and issued a break-open order and
directed private respondents to file a bond. MR was denied.
 In the present petition, Concept Builders alleges, among others, that the
doctrine of piercing the corporate veil should not have been applied in the
absence of any showing that it created HPPI in order to evade its liability to
the private respondents.
o It also contends that HPPI is engaged in the manufacture and sale
of steel, concrete and iron pipes, a business which is distinct and
separate from petitioners construction business.
o Hence, it is of no consequence that Concept Builders and HPPI
shared the same premises, the same President and the same set of
officers and subscribers.
ISSUE:
W/N the doctrine of piercing the corporate veil was applicable - YES
RATIO:
 It is a fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders and from other corporations to
which it may be connected.
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
defend crime, or is used as a device to defeat the labor laws,
this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced.
o This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another
corporation.
 The conditions under which the juridical entity may be disregarded vary
according to the peculiar facts and circumstances of each case. While there
is no hard and fast rule which can be accurately laid down, there are some
probative factors of identity that will justify the application of the doctrine
of piercing the corporate veil:
o Stock ownership by one or common ownership of both
corporations.
o Identity of directors and officers.
o The manner of keeping corporate books and records.
o Methods of conducting the business.
 The SEC en banc explained the instrumentality rule which the courts have
applied in disregarding the separate juridical personality of corporations as
follows:
o 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.
o 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.
o The control must be shown to have been exercised at the time the
acts complained of took place. Moreover, the control and breach of
duty must proximately cause the injury or unjust loss for which the
complaint is made.
 The test in determining the applicability of the doctrine of piercing the
veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and unjust act in contravention of 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 defendants relationship to that operation.
o Hence, the question of whether a corporation is a mere alter
ego, a mere sheet or paper corporation, a sham or a
subterfuge is purely one of fact.
 IN THE CASE: While Concept Builders claimed that it ceased its business
operations on April 29, 1986, it filed an Information Sheet with the SEC on
May 15, 1987, stating that its office address is at 355 Maysan Road,
Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant,
submitted on the same day, a similar information sheet stating that its office
address is at 355 Maysan Road, Valenzuela, Metro Manila.
o Both information sheets were filed by Virgilio O. Casino as the
corporate secretary of both corporations.
o Both corporations had the same president, the same board of
directors, the same corporate officers, and substantially the same
subscribers.
 Clearly, petitioner ceased its business operations in order to evade the
payment to private respondents of backwages and to bar their reinstatement
to their former positions. HPPI is obviously a business conduit of Concept
Builders and its emergence was skillfully orchestrated to avoid the financial
liability that already attached to petitioner corporation.
 It is very obvious that the second corporation seeks the protective shield of a
corporate fiction whose veil in the present case could, and should, be
pierced as it was deliberately and maliciously designed to evade its financial
obligation to its employees.
OTHER ISSUE: W/N the NLRC committed GAOD in affirming the break-open order issued
by the LA- NO
 Section 3, Rule VII of the NLRC Manual of Execution of Judgment: Should the
losing party, his agent or representative, refuse or prohibit the Sheriff or his
representative entry to the place where the property subject of execution is located or
kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned
for a break-open order.
 Here, given the failure of the sheriff to effect a levy upon the property subject of the
execution, private respondents had no other recourse but to apply for a break-open
order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC.
 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
evidence in support of their claim. Hence, the NLRC did not commit any grave abuse
of discretion when it affirmed the break-open order issued by the Labor Arbiter.
RULING:
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC,
dated April 23, 1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.

General Information Sheets submitted to the SEC:
Concept Builders’ GIS:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
HPPI P6,999,500.00
Antonio W. Lim 2,900,000.00
Dennis S. Cuyegkeng 300.00
Elisa C. Lim 100,000.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Teodulo R. Dino Member
Virgilio O. Casino Member
3. Corporate Officers
Antonio W. Lim President
HPPI’s GIS
Dennis S. Cuyegkeng Assistant to the
1. Breakdown of Subscribed Capital
President
Elisa 0. Lim Treasurer
Name of Stockholder Amount Subscribed
Virgilio O. Casino Corporate Secretary
Antonio W. Lim P400,000.00
4. Principal Office
Elisa C. Lim 57,700.00
AWL Trading 455,000.00
355 Maysan Road, Valenzuela, Metro
Dennis S. Cuyegkeng 40,100.00
Manila.
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the
President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro
Manila.
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,
SHERIFF of MANILA, CA
No. L-22614.August 29, 1969.CAPISTRANO, J.
(Note: some parts of the case were in Spanish. I just tried to translate them)
● Defendant Herbosa owned the building in Sta. Mesa leased by
Ruben Ramirez as President of Ramirez Telephone Corp.
● Ramirez failed to pay rent; hence, Herbosa filed an eviction claim
against Ramirez
● CFI ruled in favor of Herbosa and issued an order of
attachment/garnishment against Ramirez. The said order of
attachment/garnishment was served on the Bank of America
○ The order stated that the personal property of Ruben
Ramirez under the control of Bank of America to cover the
amount of P2,400 are being levied upon
● Upon receipt of the order, Bank of America wrote a letter to the
sheriff saying that Ruben Ramirez did not have funds with the bank
● The Sheriff replied, clarifying that the order of attachment referred to
the interest or participation which Ruben Ramirez may have in the
deposit of the Ramirez Telephone Corp. with the bank
● At that time, Ramirez Telephone Corp. had P4,789.53 in its account
with Bank of America, from which, P2,400 was garnished according
to the order served by the Sheriff
● Ramirez Telephone withdrew P1,500 from the account, leaving a
balance of P889
● Ramirez Telephone, through its President, Ruben Ramirez, issued a
check in the amount ot P2,320 in favor of Ray Electronics, in
payment of certain equipment
● The said check was dishonored by the Bank of America due to
insufficient funds.
● Ramirez Telephone sued Bank of America because of the damage
and embarrassment it suffered, and because of the cancellation of
the order of the necessary equipment for the construction of
telephone lines, paralyzing its operations
● Lower court ruled in favor of Ramirez Telephone. Bank of America
appealed to the CA
● Before the CA, Herbosa testified that Ruben Ramirez paid rentals
using checks from Ramirez Telephone Corp. funded by the
corporation’s account with Bank of America.
○ He added that 75% of the shares of Ramirez Telephone
were owned by Ruben Ramirez and his wife Rizalina
○ Basically, Herbosa was trying to justify that the seizure of the
funds of Ramirez Telephone to pay for the unpaid rentals
was proper
● CA ruled in favor of Bank of America and Herbosa
● Before the SC, Ramirez telephone argued that a corporation has a
personality separate and distinct from that of its stockholders and,
therefore, the funds of a corporation cannot be reached to satisfy the
debt of its stockholders.
○ Even if Ruben and Rizalina owned 75% of the srock of the
corporation, iits funds as a corporation cannot be garnished
to satisfy the debts of a principal stockholder
HELD:
● While respect for the corporate personality as such is the general
rule, there are exceptions. In appropriate cases, the veil of corporate
fiction may be pierced.
● the funds of the corporation may be garnished to satisfy the debts of
a principal stockholder, to administer the ends of justice
CA AFFIRMED
Villanueva notes: Mixing of personal accounts with corporate bank accounts
would authorize piercing to protect the judgment creditors.
 TELEPHONE ENGINEERING & SERVICE COMPANY, INC., petitioner,
vs.
WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF
RIZAL and LEONILA SANTOS GATUS, for herself and in behalf of her minor
children, Teresita, Antonina and Reynaldo, all surnamed GATUS, respondents.
(May 13, 1981 | MELENCIO-HERRERA, J.)
DOCTRINE (from the book, p. 129):
● The veil of corporate fiction was not allowed to be availed of, and piercing
was allowed when the corporate fiction was made as a scheme to confuse
the legitimate issues, such when the defense of separate juridical personality
is interposed for the 1st time on appeal.
FACTS:
● Petitioner is a domestic corporation engaged in the business of
manufacturing telephone equipment with offices at Rizal.
○ Its Executive Vice-President and General Manager is Jose Luis
Santiago.
○ It has a sister company, the Utilities Management Corporation
(UMACOR), with offices in the same location. UMACOR is also
under the management of Jose Luis Santiago.
● Sept. 8, 1964: UMACOR employed the late Pacifico L. Gatus as Purchasing
Agent.
● May 16, 1965: Pacifico L. Gatus was detailed with petitioner company.
● Aug. 1, 1965: He reported back to UMACOR.
● Jan. 13, 1967: He contracted illness.
● May 10, 1967: He retained to work.
● July 14, 1967: He died of "liver cirrhosis with malignant degeneration."
● Aug. 7, 1967: His widow, respondent Leonila S. Gatus, filed a "Notice and
Claim for Compensation" with Regional Office, Workmen's Compensation
Section, alleging therein that her deceased husband was an employee of
TESCO, and that he died of liver cirrhosis.
● Aug. 9, 1967: Regional Office wrote petitioner transmitting the Notice and
for Compensation, and requiring it to submit an Employer's Report of
Accident or Sickness pursuant to Section 37 of the Workmen's
Compensation Act (Act No. 3428).
● An "Employer's Report of Accident or Sickness" was thus submitted with
UMACOR indicated as the employer of the deceased.
○ The Report was signed by Jose Luis Santiago.
○ In answer to questions Nos. 8 and 17, the employer stated that it
would not controvert the claim for compensation, and admitted that
the deceased employee contracted illness "in regular occupation."
● On the basis of this Report, the Acting Referee awarded in a letter-award
dated October 6, 1967 against TESCO:
○ death benefits in the amount of P5,759.52 plus
○ burial expenses of P200.00 in favor of the heirs of Gatus.
● Oct. 27, 1967, TESCO, through Jose Luis Santiago, informed the Acting
Referee that it would avail of the 15-days-notice given to it to state its non-
conformity to the award and contended that the cause of the illness
contracted by Gatus was in no way aggravated by the nature of his work.
● 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
additional extension of 5 days.
● Nov. 18, 1967: TESCO filed its "Motion for Reconsideration and/or Petition
to Set Aside Award”, alleging
○ that the admission made in the "Employer's Report of Accident or
Sickness" was due to honest mistake and/or excusable negligence
on its part, and
○ that the illness for which compensation is sought is not an
occupational disease, hence, not compensable under the law.
● Dec. 28, 1967: The Regional Office denied the extension and Motion for
Reconsideration on the ground
○ that the alleged mistake or negligence was not excusable, and
○ that the basis of the award was not the theory of direct causation
alone but also on that of aggravation.
● Jan. 28, 1968: An Order of execution was issued.
● Feb. 3, 1968: Petitioner filed an "Urgent Motion to Compel Referee to
Elevate the Records to the Workmen's Compensation Commission for
Review."
● Feb. 17, 1968: Meanwhile, the Provincial Sheriff of Rizal levied on and
attached the properties of TESCO, and scheduled the sale of the same at
public auction on February 26, 1968.
● Feb. 28, 1968: The Commission issued an Order requiring petitioner
○ to submit verified or true copies of the Motion for Reconsideration
and/or Petition to Set Aside Award and Order of December 28,
1967, and
○ to show proof that said Motion for Reconsideration was filed
within the reglementary period,
■ with the warning that failure to comply would result in the
dismissal of the Motion.
● Feb. 22, 1968: However, before this Order could be released, TESCO filed
with this Court the present petition for "Certiorari with Preliminary
Injunction" seeking
○ to annul the award and
○ to enjoin the Sheriff from levying and selling its properties at
public auction.
ISSUE & RATIO: Whether or not TESCO is estopped from claiming lack of
employer-employee relationship. - YES.
TESCO:
 ● The Commission has no jurisdiction to render a valid award in this suit as
there was no employer-employee relationship between them, the deceased
having been an employee of UMACOR and not of TESCO.
● In support of this contention, photostat copies of the payroll of UMACOR
were submitted, showing the name of the deceased as one of the 3
employees listed under the Purchasing Department of UMACOR.
● It also presented a photostat copy of a check of UMACOR payable to the
deceased representing his salary.
CONCEPTS:
● The existence of employer-employee relationship is the jurisdictional
foundation for recovery of compensation under the Workmen's
Compensation Law.
● The lack of employer-employee relationship, however, is a matter of
defense that the employer should properly raise in the proceedings below.
● The determination of this relationship involves a finding of fact, which is
conclusive and binding and not subject to review by this Court.
SC:
● It is only in this Petition that petitioner denied, for the first time, the
employer-employee relationship.
● In fact, in its letter to the Acting Referee, in its request for extension of time
to file "Motion for Reconsideration and/or Petition to Set Aside Award," and
in its "Urgent Motion to Compel the Referee to Elevate Records to the
Commission for Review," petitioner represented and defended itself as the
employer of the deceased.
○ Nowhere in said documents did it allege that it was not the
employer.
● Petitioner even admitted that TESCO and UMACOR are sister companies
operating under a single management and housed in the same building.
● Although respect for the corporate personality as such, is the general rule,
there are 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.
● While jurisdiction cannot be conferred by acts or omission of the parties,
TESCO'S denial at this stage that it is the employer of the deceased is
obviously an afterthought, a devise to defeat the law and evade its
obligations.
● This denial also constitutes a change of theory on appeal which is not
allowed in this jurisdiction.
● Moreover, issues not raised before the Workmen's Compensation
Commission cannot be raised for the first time on appeal.
● For that matter, a factual question may not be raised for the first time on
appeal to the Supreme Court.
● This certiorari proceeding must also be held to have been prematurely
brought.
○ Before a petition for certiorari can be instituted, all remedies
available in the trial Court must be exhausted first.
○ Certiorari cannot be resorted to when the remedy of appeal is
present.
○ TESCO did not pursue
■ an appeal from the award of the Referee, within 15 days
from notice, to the Commission;
■ a petition for reconsideration of the latter's resolution, if
adverse, to the Commission en banc; and
■ within 10 days from receipt of an unfavorable decision by
the latter, an appeal to this Court.
● Although this rule admits of exceptions, as
○ where public welfare and the advancement of public policy so
dictate,
○ the broader interests of justice so require, or
○ where the Orders complained of were found to be completely null
and void or
○ that the appeal was not considered the appropriate remedy,
■ the case at bar does not fan within any of these
exceptions.
RULING: Petition dismissed.
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
AL. vs. CA and DOMINGA DE LOS REYES, assisted by her
husband, SABINO PADILLA
Facts: Park Rite Co., Inc. leased from Samanillo a vacant lot in
Manila which it used for parking motor vehicles for a
consideration. It turned out that in operating its parking
business, the corp. occupied and used not only the Samanillo
lot it had leased but also an adjacent lot belonging to the
respondents Padilla, without the owners' knowledge and
consent.
When the latter discovered the truth, they demanded
payment for the use and occupation of the lot. The
corporation (then controlled by petitioners Cirilo Parades and
Ursula Tolentino, who had purchased and held 1,496 of its
1,500 shares) disclaimed liability, blaming the original
incorporators, McConnel, Rodriguez and Cochrane.
Whereupon, the lot owners filed against it a complaint for
forcible entry in the Municipal Court of Manila on 7 October
1947. Judgment was rendered ordering the Park Rite Co., Inc.
to pay P11,732.50 plus legal interest as damages.
Upon execution, the corporation was found without any
assets other than P550.00 deposited in Court. After their
application to the judgment credit, there remained a balance
of P11,182.50 outstanding and unsatisfied.
The judgment creditors then filed suit in the CFI of Manila
against the corporation and its past and present
stockholders, to recover from them, jointly and severally, the
unsatisfied balance of the judgment, plus legal interest and
costs. The Court of First Instance denied recovery; but on
appeal, the CA reversed, finding that the corporation was a
mere alter ego or business conduit of the principal
stockholders that controlled it for their own benefit, and
adjudged them responsible for the amounts demanded by
the lot owners.
ISSUE: WON to disregard the corporate entity of the Park Rite
Co., Inc., and hold its controlling stockholders personally
responsible for a judgment against the corporation.
HELD: YES.
It has been already been held that individual stockholders
may be held liable for obligations contracted by the
corporation where circumstances have shown that the
corporate entity is being used as an alter ego or business
conduit for the sole benefit of the stockholders, or else to
defeat public convenience, justify wrong, protect fraud, or
defend crime.
In this case, evidence clearly shows that these persons
completely dominated and controlled the corporation and
that the functions of the corporation were solely for their
benefits. There is no doubt that the corporation was a mere
alter ego or business conduit of the defendants Cirilo Paredes
and Ursula Tolentino, and before them — the defendants M.
McConnel, W. P. Cochrane, and Ricardo Rodriguez
When it was originally organized, the original incorporators
were M. McConnel, W. P. Cochrane, Ricardo Rodriguez,
Benedicto M. Dario and Aurea Ordrecio with a capital stock of
P1,500.00 divided into 1,500 shares at P1.00 a share.
McConnel and Cochrane each owned 500 shares, Ricardo
Rodriguez 408 shares, and Dario and Ordrecio 1 share each.
It is obvious that the shares of the last two named persons
were merely qualifying shares.
Then, defendants Cirilo Paredes and Ursula Tolentino
purchased 1,496 shares of the said corporation and the
remaining four shares were acquired by Bienvenido J.
Claudio, Quintin C. Paredes, Segundo Tarictican, and Paulino
Marquez at one share each. It is obvious that the last four
shares bought by these four persons were merely qualifying
shares and that to all intents and purposes the
spouses Cirilo Paredes and Ursula Tolentino composed
the so-called Park Rite Co., Inc.
That the corporation was a mere extension of their
personality is shown by the fact that the office of Cirilo
Paredes and that of Park Rite Co., Inc. were located in the
same building, in the same floor and in the same room.
Moreover, funds of the corporation were kept by Cirilo
Paredes in his own name.
The corporation itself had no visible assets, except perhaps
the toll house, the wire fence around the lot and the signs
thereon. It was for this reason that the judgment against it
could not be fully satisfied. (Emphasis supplied).
The corporation is a mere instrumentality of the individual
stockholder's, hence the latter must individually answer for
the corporate obligations.
While the mere ownership of all or nearly all of the capital
stock of a corporation is a mere business conduit of the
stockholder, that conclusion is amply justified where it is
shown that the operations of the corporation were so merged
with those of the stockholders as to be practically
indistinguishable from them.
To hold the latter liable for the corporation's
obligations is not to ignore the corporation's separate
entity, but merely to apply the established principle
that such entity can not be invoked or used for
purposes that could not have been intended by the
law that created that separate personality.
 Donnina C. Halley v. Printwell, Inc.
[Bersamin, May 30, 2011, Third Division]
FACTS
 Petitioner was an incorporator and original director of Business Media
Philippines, Inc. (BMPI).
o On November 12, 1987, BMPI was incorporated and had an authorized
capital stock of P 3,000,000.00 divided into 300,000 shares each with a par
value of P 10.00. 75,000 shares were initially subscribed.
 Respondent engaged in commercial and industrial printing. BMPI commissioned
it for the printing of the magazine it was selling, Philippines, Inc. along with
wrappers and subscription cards. Printwell extended 30-day credit
accommodations to BMPI.
 From October 11,1988 to July 12, 1989, BMPI placed with Printwell several
orders on credit, evidenced by invoices and delivery receipts totaling P
316,342.76. BMPI paid only P 25,000.
 Printwell sued BMPI for the collection of the unpaid balance in the RTC.
o Printwell amended its complaint to implead as defendants all the original
stockholders and incorporators to recover their unpaid subscriptions.
o In their consolidated answer, defendants averred that they all paid their
subscriptions in full and that BMPI had a separate personality from those of
its stockholders.
 As evidence, defendants submitted their BMPI official receipts. They
also submitted other documents1
 RTC ruled in favor of Printwell and rejected the allegation that the payments of
the subscription fee were in full.
o It noted an irregularity in the issuance of the Ors and observed that the
defendants had used BMPI’s corporate personality to evade payment and
create injustice.
o RTC applied the trust fund doctrine and declared the defendant stockholders
liable to Printwell, pro rata.
 CA affirmed the RTC and held that the defendant’s resort to the corporate
personality would create an injustice because Printwell would thereby be at a
loss against whom it would assert the right to collect.
ISSUES
WON the CA erred in affirming the decision of the RTC which allowed the
piercing of the veil of corporate fiction - NO
Respondent Printwell impleaded the petitioner and the other stockholders of BMPI for
2 reasons: (1) to reach the unpaid subscriptions because it appeared that such
subscriptions were the remaining assets of BMPI; and (2) to avoid multiplicity of suits.
1 an audit report dated March 30, 1989, BMPI balance sheet and income statement as of
December 31, 1988, BMPI income tax return for year 1988, journal vouchers, cash deposit slip,
and BPI savings account passbook in BMPI’s name
Petitioner submits that she had no participation in the transaction between BMPI and
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.
Court: Although a corporation has a personality separate and distinct from those of its
stockholders, directors, or officers, such separate and distinct personality is
merely a fiction created by law for the sake of convenience and to promote the
ends of justice. The corporate personality may be disregarded, and the
individuals composing the corporation will be treated as individuals, if the
corporate entity is being used as a cloak or cover for fraud or illegality; as a
justification for a wrong; as an alter ego, an adjunct, or a business conduit for the
sole benefit of the stockholders.
As a general rule, a corporation is looked upon as a legal entity, unless and until
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
the corporation, disregarding the corporate personality only after the
wrongdoing is first clearly and convincingly established. It thus behooves the
courts to be careful in assessing the milieu where the piercing of the corporate veil
shall be done.
ITC, although nowhere in Printwell's amended complaint or in the testimonies
Printwell offered can it be read or inferred from that the petitioner was instrumental in
persuading BMPI to renege on its obligation to pay; or that she induced Printwell to
extend the credit accommodation by misrepresenting the solvency of BMPI to
Printwell, her personal liability, together with that of her co-defendants, remained
because the CA found her and the other defendant stockholders to be in charge of
the operations of BMPI at the time the unpaid obligation was transacted and incurred.
Appellants stockholders were in charge of the operation of BMPI despite the fact that
they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited
from said transactions.
WON the CA erred in applying the trust fund doctrine when the grounds have
not been satisfied – NO
CA and RTC applied the trust fund doctrine.
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
lower courts erred in disregarding the evidence on the complete payment of the
subscription like receipts, income tax returns, and relevant financial statements.
The trust fund doctrine was first enunciated in the American case Wood v. Dummer
and was adopted in the Philippines in Philippine Trust Co. v. Rivera where the Court
declared that:
“It is established doctrine that subscriptions to the capital of a corporation
constitute a fund to which creditors have a right to look for satisfaction of their
claims and that the assignee in insolvency can maintain an action upon any
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
unpaid subscriptions. The scope of the doctrine when the corporation is
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
debts. All assets and property belonging to the corporation held in trust for the
benefit of creditors that were distributed or in the possession of the
stockholders, regardless of full payment of their subscriptions, may be reached
by the creditor in satisfaction of its claim.
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
shares, in whole or in part, without a valuable consideration, or fraudulently, to
the prejudice of creditors. The creditor is allowed to maintain an action upon any
unpaid subscriptions and thereby steps into the shoes of the corporation for the
satisfaction of its debt.
To make out a prima facie case in a suit against stockholders of an insolvent
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
stockholders have not in good faith paid the par value of the stocks of the
corporation.
ITC, the petitioner failed to discharge her burden. A receipt is the written
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
services, and the client or the customer. Although a receipt is the best evidence of the
fact of payment, it is not conclusive, but merely presumptive; nor is it exclusive
evidence, considering that parole evidence may also establish the fact of payment.
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
check.
Payment is defined as the delivery of money. Yet, because a check is not money and
only substitutes for money, the delivery of a check does not operate as payment and
does not discharge the obligation under a judgment. The delivery of a bill of exchange
only produces the fact of payment when the bill has been encashed
Ostensibly, therefore, the petitioner's mere submission of the receipt issued in
exchange of the check did not satisfactorily establish her allegation of full payment of
her subscription. Indeed, she could not even inform the trial court about the identity of
her drawee bank, and about whether the check was cleared and its amount paid to
BMPI. In fact, she did not present the check itself.
The income tax return (ITR) and statement of assets and liabilities of BMPI, albeit
presented, had no bearing on the issue of payment of the subscription because they
did not by themselves prove payment. ITRs establish a taxpayer's liability for taxes or
a taxpayer's claim for refund. In the same manner, the deposit slips and entries in the
passbook issued in the name of BMPI were hardly relevant due to their not reflecting
the alleged payments.
It is notable, too, that the petitioner and her co-stockholders did not support their
allegation of complete payment of their respective subscriptions with the stock and
transfer book of BMPI. Indeed, books and records of a corporation (including the
stock and transfer book) are admissible in evidence in favor of or against the
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
corporate acts and proceedings.
Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a
certificate covering her subscription might have been a reliable evidence of full
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
subscription.
Although the articles of incorporation may possibly reflect only the preincorporation
status of a corporation, the lower courts' reliance on that document to determine
whether the original subscribers already fully paid their subscriptions or not was
neither unwarranted nor erroneous.
The burden of establishing the fact of full payment belonged not to Printwell even if it
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
their averment of full payment, as well as their failure to counter the reliance on the
recitals found in the articles of incorporation simply meant their failure or inability to
satisfactorily prove their defense of full payment of the subscriptions.
 Petition for review on certiorari DENIED, AFFIRMED with modification the
CA decision and ordered the petitioner to pay Printwell P 262,500.00 plus
interest of 12% per annum to be computed from February 8, 1990.
YUTIVO SONS HARDWARE V. CTA
GUTIERREZ DAVID, J.:
FACTS – Petitioner Yutivo Sons Hardware Co. (Yutivo) is a
domestic corporation, organized under the laws of the
Philippines, with principal office at Manila. Incorporated in
1916, it was engaged in the importation and sale of hardware
supplies and equipment. In June of 1946, Yutivo bought cars
and trucks from General Motors Overseas Corporation (GM),
an American corporation licensed to do business in the
Philippines. As importer, GM paid sales tax prescribed by
sections 184, 185 and 186 of the Tax Code on the basis of its
selling price to Yutivo. Said tax being collected only once on
original sales, Yutivo paid no further sales tax on its sales to
the public.
On June 1946, the Southern Motors, Inc. (SM) was
organized to engage in the business of selling cars, trucks and
spare parts.
P250,000 worth of shares were subscribed into equal
proportions by the sons of Yu Tiong Yee, one of Yutivo's
founders; and the sons of Yu Tiong Sin and Albino Sycip, who
are also among the founders of Yutivo.
After the incorporation of SM and until the withdrawal
of GM from the Philippines in the middle of 1947, the cars and
tracks purchased by Yutivo from GM were sold by Yutivo to
SM which, in turn, sold them to the public in the Visayas and
Mindanao.
When GM decided to withdraw from the Philippines in
the middle of 1947, it appointed Yutivo as importer for the
Visayas and Mindanao, and Yutivo continued its previous
arrangement of selling exclusively to SM. In the same way that
GM used to pay sales taxes based on its sales to Yutivo, the
latter paid sales tax prescribed on the basis of its selling price
to SM, and since such sales tax, as already stated, is collected
only once on original sales, SM paid no sales tax on its sales to
the public.
In 1950, the Collector of Internal Revenue made an
assessment upon Yutivo and demanded deficiency sales tax
plus surcharge from July 1, 1947 to December 31, 1949,
claiming that the taxable sales were the retail sales by SM to
the public and not the sales at wholesale made by, Yutivo to
the latter inasmuch as SM and Yutivo were one and the same
corporation, the former being the subsidiary of the latter.
Yutivo appealed before the Court of Tax Appeals,
alleging that there is no valid ground to disregard the
corporate personality of SM and to hold that it is an adjunct of
petitioner Yutivo; (2) that assuming the separate personality of
SM may be disregarded, the sales tax already paid by Yutivo
should first be deducted from the selling price of SM in
computing the sales tax due on each vehicle; and (3) that the
surcharge has been erroneously imposed by respondent. The
CTA sustained the respondent Collector's theory that there
was no legitimate or bona fide purpose in the organization of
SM — the apparent objective of its organization being to evade
the payment of taxes — and that it was owned (or the majority
of the stocks thereof are owned) and controlled by Yutivo and
is a mere subsidiary, branch, adjunct, conduit, instrumentality
or alter ego of the latter. The CTA disregarded its separate
corporate existence. Reconsideration of this decision having
been denied, Yutivo brought the case to this Court thru the
present petition for review.
ISSUE – Whether or not the CTA erred in holding that SM was
a mere alter-ego of Yutivo?
HELD – It is a fundamental principle of corporation law that a
corporation is an entity separate and distinct from its
stockholders and from other corporation petitions to which it
may be connected. However, "when the notion of legal entity is
used to defeat public convenience, justify wrong, protect fraud,
or defend crime," the law will regard the corporation as an
association of persons, or in the case of two corporations
merge them into one.
ITC, firstly, SM was organized in June, 1946 when it
could not have caused Yutivo any tax savings. From that date
up to June 30, 1947, GM was the importer of the cars and
trucks sold to Yutivo, which, in turn resold them to SM.
During that period, it is not disputed that GM as importer, was
the one solely liable for sales taxes. Neither Yutivo nor SM was
subject to the sales taxes on their sales of cars and trucks. The
sales tax liability of Yutivo did not arise until July 1, 1947 when
it was appointed as the importer and simply continued its
practice of selling to SM. The decision, therefore, of the Tax
Court that SM was organized purposely as a tax evasion
device runs counter to the fact that there was no tax to evade.
The intention to minimize taxes, when used in the
context of fraud, must be proved to exist by clear and
convincing evidence amounting to more than mere
preponderance
The transactions between Yutivo and SM have always
been in the open, constantly subject to inspection by the tax
authorities.
We, however, agree with the court below that SM was
actually owned and controlled by petitioner as to make it a
mere subsidiary or branch of the latter created for the purpose
of selling the vehicles at retail and maintaining stores for spare
parts as well as service repair shops. It is not disputed that the
petitioner is completely controlled by the Yutivo family. The
founders of the corporation are closely related to each other
either by blood or affinity, and most of its stockholders are
members of the same family.
The shareholders in SM are mere nominal stockholders
holding the shares for and in behalf of Yutivo, so even
conceding that the original subscribers were stockholders bona
fide, Yutivo was at all times in control of the majority of the
stock of SM and that the latter was a mere subsidiary of the
former. The principal officers of both corporations are
identical. There is therefore no doubt that by virtue of such
control, the business, financial and management policies of
both corporations could be directed towards common ends.
That cash or funds of SM, including those of its branches
which are directly remitted to Yutivo, are placed in the custody
and control of Yutivo, resources and subject to withdrawal
only by Yutivo. SM's being under Yutivo's control, the former's
operations and existence became dependent upon the latter.
The circumstances, especially when taken together,
indicates that Yutivo treated SM merely as its department or
adjunct. For one thing, the accounting system maintained by
Yutivo shows that it maintained a high degree of control over
SM accounts.
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.