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CORPORATION

LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

SEPARATE JURIDICAL PERSONALITY AND DOCTRINE


OF PIERCING THE VEIL OF CORPORATE FICTION

composing it as well as from any other legal entity to which it


may be related, with the following consequences:
1. The first consequence of the doctrine of legal entity of the
separate personality of the 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.


I. MAIN DOCTRINE: A Corporation Has A Personality Separate and
Distinct from its Stockholders or Members. (Sec. 2; Article 44, Civil Code)

General Credit Corp. v. Alsons Dev. and Investment Corp., 513


SCRA 225 (2007);1
2. This separate and distinct personality is, however, merely a
fiction created by law for conveyance and to promote the ends
of justice. LBP v. Court of Appeals, 364 SCRA 375 (2001).2

Section 2. Corporation defined.


A corporation is an artificial being created by operation of law, having
the right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence.

CIVIL CODE


B. Applications:

Article 44.
The following are juridical persons:

1. The State and its political subdivisions;

2. Other corporations, institutions and entities for public interest or
purpose, created by law; their personality begins as soon as they have
been constituted according to law;

3. Corporations, partnerships and associations for private interest or
purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member. (35a)

A. Importance of Main Doctrine:

A corporation, upon coming into existence, is invested by law


with a personality separate and distinct from those persons

1. Majority Equity Ownership and Interlocking Directorship:

Mere ownership by a single stockholder or by another


corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the
separate corporate personality. Sunio v. NLRC , 127 SCRA 390
(1984).3

McLeod v. NLRC, 512 SCRA 222 (2007); Uy v. Villanueva, 526 SCRA 73 (2007);
Pantranco Employees Association (PEA- PTGWO) v. NLRC, 581 SCRA 598 (2009);
Shrimp Specialists, Inc. v. Fuji-Triumph Agri-Industrial Corp., 608 SCRA 1 (2009).
2
Martinez v. Court of Appeals, 438 SCRA 139 (2004); Prudential Bank v. Alviar,
464 SCRA 353 (2005); EDSA Shangri-La Hotel and Resorts, Inc. v. BF Corp., 556
SCRA 25 (2008); Siain Enterprises, Inc v. Cupertino Realty Corp., 590 SCRA 435
(2009).
3
Asionics Philippines, Inc. v. NLRC, 290 SCRA 164 (1998); Francisco v. Mejia, 362
SCRA 738 (2001); Matutina Integrated Wood Products, Inc. v. CA, 263 SCRA 490
(1996); Manila Hotel Corp. v. NLRC, 343 SCRA 1 (2000); Secosa v. Heirs of Erwin
Suarez Fancisco, 433 SCRA 273 (2004); EDSA Shangri-La Hotel and Resorts, Inc.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

entities. Cruz v. Dalisay, 152 SCRA 487 (1987); Booc v. Bantuas,


354 SCRA 279 (2001).

Ownership of a majority of capital stock and the fact that


majority of directors of a corporation are the directors of
another corporation creates no employer-employee
relationship with the latters employees. DBP v. NLRC, 186 SCRA
841 (1990).1

Having

interlocking

directors,

corporate

officers

personal liability of its officers a corporate officer and his


spouse cannot be made personally liable under a trust receipt
where he entered into and signed the contract clearly in his
official capacity. Intestate Estate of Alexander T. Ty v. Court of
Appeals, 356 SCRA 61 (2001).4

and

shareholders is not enough justification to pierce the veil of


corporate fiction in the absence of fraud or other public policy
considerations. Velarde v. Lopez, 419 SCRA 422 (2004).2
2. Being Corporate Officer:

Being an officer or stockholder of a corporation does not by

Fancisco, 433 SCRA 273 (2004).

The mere fact that one is President does not render the

When the compulsory counterclaim filed against corporate


officers for their alleged fraudulent act indicate that such
corporate officers are indispensable parties in the litigation, the
original inclusion of the corporation in the suit does not thereby
allow the denial of a specific counter-claim being filed to make
the corporate officers personally liable. A corporation has a
legal personality entirely separate and distinct from that of its
officers and cannot act for and on their behalf, without being so
authorized. Lafarge Cement Phils., Inc. v. Continental Cement
Corp., 443 SCRA 522 (2004).

property he owns the property of the corporation, since the


president, as an individual, and the corporation are separate


v. BF Corp., 556 SCRA 25 (2008); Pantranco Employees Association (PEA-
PTGWO) v. NLRC, 581 SCRA 598 (2009).
1
Also Suldao v. Cimech System Construction, Inc., 506 SCRA 256 (2006); Union
Bank of the Philippines v. Ong, 491 SCRA 581 (2006); Shrimp Specialists, Inc. v.
Fuji-Triumph Agri-Industrial Corp., 608 SCRA 1 (2009); Hacienda Luisita, Inc. v.
Presidential Agrarian Reform Council, 660 SCRA 525 (2011).
2
Also Sesbreno v. Court of Appeals, 222 SCRA 466 (1993); G Holdings, Inc. v.
National Mines and Allied Workers Union Local, 103 (NAMAWU), 604 SCRA 73
(2010).
3
Bautista v. Auto Plus Traders, Inc. 561 SCRA 223 (2008); Prisma Construction &
Dev. Corp. v. Menchavez, 614 SCRA 590 (2010).

The President of the corporation which becomes liable for the


accident caused by its truck driver cannot be held solidarily
liable for the judgment obligation arising from quasi-delict, since
the fact alone of being President is not sufficient to hold him
solidarily liable for the liabilities adjudged against the
corporation and its employee. Secosa v. Heirs of Erwin Suarez

itself make ones property also that of the corporation, and vice-
versa, for they are separate entities, and that shareholders who
are officers are in no legal sense the owners of corporate
property which is owned by the corporation as a distinct legal
person. Good Earth Emporium, Inc. v. CA, 194 SCRA 544
(1991).3

It is hornbook law that corporate personality is a shield against

3. Dealings Between Corporation and Stockholders:

Consolidated Bank and Trust Corp. v. Court of Appeals, 356 SCRA 671 (2001).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

The fact that the majority stockholder had used his own money
to pay part of the loan of the corporation cannot be used as the

basis to pierce: 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. LBP v. Court of
Appeals, 364 SCRA 375 (2001).

corporation they represent. Crisologo v. People, 686 SCRA 782


(2012); Heirs of Fe Tan Uy v. International Exchange Bank, 690
SCRA 519 (2013).
o Corporate debt or credit is not the debt or credit of the
stockholder nor is the stockholder's debt or credit that
of the corporation. Traders Royal Bank v. CA, 177 SCRA
789 (1989).
o A corporation has no legal standing to file a suit for

Use of a controlling stockholders initials in the corporate name


is not sufficient reason to pierce, since by that practice alone
does it mean that the said corporation is merely a dummy of the
individual stockholder, provided such act is lawful. LBP v. Court
of Appeals, 364 SCRA 375 (2001).

Just because two foreign companies came from the same

country and closely worked together on certain projects would


the conclusion arise that one was the conduit of the other, thus
piercing the veil of corporate fiction. Marubeni Corp. v. Lirag,
362 SCRA 620 (2001).
4. On the Properties of the Corporation:

stockholders. Manila Gas Corp. v. Collector of Internal


Revenue, 62 Phil. 895 (1936).
6. Obligations and Debts:


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

The majority stockholder cannot be held personality liable for


the attorneys fees charged by a lawyer for representing the
corporation. Laperal Dev. Corp. v. CA, 223 SCRA 261 (1993).

Appeals, 363 SCRA 307 (2001).


5. On Privileges Enjoyed:
The tax exemption clause in the charter of a corporation cannot
be extended to nor enjoyed even by the controlling

recovery of certain parcels of land owned by its


members in their individual capacity, even when the
corporation is organized for the benefit of the
members. Sulo ng Bayan v. Araneta, Inc., 72 SCRA 347
(1976).
Stockholders have no personality to intervene in a
collection case covering the loans of the corporation
since the interest of shareholders in corporate property
is purely inchoate. Saw v. CA, 195 SCRA 740 (1991); and
vice-versa Francisco Motors Corp. v. Court of Appeals,
309 SCRA 72 (1999).

The creation by DBP as the mother company of the three mining


corporations to manage and operate the assets acquired in the
foreclosure sale lest they deteriorate from non-use and lose
their value, does not indicate fraud or wrongdoing and will not
constitute application of the piercing doctrine. DBP v. Court of

Debts incurred by directors, officers, and employees acting as


corporate agents are not their direct liability but of the

The obligations of a stockholder in one corporation cannot be


offset from the obligation of the stockholder in a second
corporation, since the corporation has a separate juridical
personality. CKH Industrial and Dev. Corp v. Court of Appeals,
272 SCRA 333 (1997).

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

A corporate defendant against whom a writ of possession has


been issued, cannot use the fact that it has obtained controlling
equities in the corporate plaintiffs to suspend enforcement of
the writ, for they are separate juridical persons, and thus their
separate business and proprietary interests remain. Silverio, Jr.
v. Filipino Business Consultants, Inc., 466 SCRA 584 (2005).


II. PIERCING THE VEIL OF CORPORATE FICTION:

A. Source of Incantation: U.S. v. Milwaukee Refrigerator Transit Co.,
142 Fed. 247 (1905).

U.S. v. Milwaukee Refrigerator Transit Co.

Facts: The Elkins Act was enacted to prohibit railroads from giving and
receiving of unlawful rebates. After the enactment of the said Act,
officers of a brewing company, who were also its controlling
stockholders, organized a transit company named Milwaukee
Refrigerator Transit, et al and became its officers and the owners of all
of its stock. On behalf of the brewing company, the officers contracted
with the transit company to make all the shipments for the brewing
company. The transit company contracted for shipments with interstate
carriers, where they would only pay it from 1/10 to 1/8 of the published

corporation.

Held: NO. The transit company was created with intent to evade the law
making the transit company as a mere alter ego of the brewing
corporation, both being substantially identical in interest and control,
and the brewing company the ultimate beneficiary. It clearly appears
that the shipper practically controls the transit company, and this shows
a sufficient identity of interest among the shareholders of both.

Doctrine: As a general rule, a corporation will be looked upon as a legal
entity, until sufficient reason to the contrary appears. An exception to
this is when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, 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.

rate, for the transportation, supposedly as a commission for obtaining


the business, but was known really a rebate for the benefit of the
brewing company.

Issue: Whether or not a corporation organized and owned by the
officers and stockholders of another is in fact an independent


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

As a general rule, a corporation will be looked upon as a legal


entity, unless and until sufficient reason to the contrary
appears. 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.
Also, the corporate entity may be disregarded in the interest of
justice in such cases as fraud that may work inequities among
members of the corporation internally, involving no rights of the
public or third persons. In both instances, there must have been
fraud and proof of it. For the separate juridical personality of a
corporation to be disregarded, the wrong-doing must be clearly

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


and convincingly established. It cannot be presumed. Suldao v.
Cimech System Construction, Inc., 506 SCRA 256 (2006).

The legal fiction of separate corporate existence is not at all


times invincible and the same may be pierced when employed
as a means to perpetrate a fraud, confuse legitimate issues, or
used as a vehicle to promote unfair objectives or to shield an
otherwise blatant violation of the prohibition against forum-
shopping. While it is settled that the piercing of the corporate
veil has to be done with caution, this corporate fiction may be
disregarded when necessary in the interest of justice. Rovels
Enterprises, Inc. v. Ocampo, 391 SCRA 176 (2002).
o The notion of corporate entity will be pierced or
disregarded and the individuals composing it will be
treated as identical if the corporate entity is being used
as a cloak or cover for fraud or illegality; as a
justification for a wrong; or as an alter ego, an adjunct,
or a business conduit for the sole benefit of the
stockholders. Gochan v. Young, 354 SCRA 207 (2001).1


B. Objectives and Effect of the Application of the Doctrine

Under the doctrine of piercing the veil of corporate fiction,


the courts 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. Traders Royal Bank v. Court of


Appeals, 269 SCRA 15 (1997).2

DBP v. Court of Appeals, 357 SCRA 626, 358 SCRA 501, 363 SCRA 307 (2001);
Velarde v. Lopez, 419 SCRA 422 (2004); R & E Transport, Inc. v. Latag, 422 SCRA
698 (2004);.Secosa v. Heirs of Erwin Suarez Fancisco, 433 SCRA 273 (2004);
Martinez v. Court of Appeals, 438 SCRA 139 (2004); McLeod v. NLRC, 512 SCRA
222 (2007); Siain Enterprises, Inc v. Cupertino Realty Corp., 590 SCRA 435
(2009).

Traders Royal Bank v. Court of Appeals



Facts: Central Bank Certificates of Indebtedness (CBCIs) under the name
of Filriters were transferred by the Filriters Senior Vice President for
Treasury Alfredo Banaria to PhilFinance (a company which also owns
90% of Filriters). PhilFinace then entered into a repurchase agreement
with the petitioner Traders Royal Bank (TRB) wherein PhilFinace sold the
CBCIs to TRB then pay installments to buy back the same. PhilFinance
defaulted in its payments and hence, forfeited the CBCIs in favor of TRB.
TRB sought to transfer the CBCIs (still under the name of Filriters) under
its name but was refused by the Central Bank. Filriters interposed the
defense of invalidity of the initial transfer to Philfinance. The initial
transfer was done by Banaria without any board resolution knowledge
or consent of the Board of Directors, and without authority from the
Insurance Commissioner.

Filriters Philfinance Traders Royal Bank

Issue: Whether or not the veil of corporate entity must be pierce on the
basis of the allegation that Filriters was 90% owned by PhilFinace and
that although they are separate entities on paper, they have used their
corporate fiction to defraud TRB.

Held: NO. The corporate separateness between Filriters and Philfinance

Pantranco Employees Association (PEA-PTGWO) v. NLRC, 581 SCRA 598 (2009)


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


remains, despite the petitioners insistence on the contrary. For one,
other than the allegation that Filriters is 90% owned by Philfinance, and
the identity of one shall be maintained as to the other, there is nothing
else which could lead the court under circumstance to disregard their
corporate personalities. The fact that Filfinance owns majority shares in

which the law aims to protect by this doctrine. (Victim Standing)


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. However, in the
case at bar, instead of holding certain individuals or person

Filriters is not by itself a ground to disregard the independent corporate


status of Filriters.

In the case at bar, there is sufficient showing that the petitioner was not
defrauded at all when it acquired the subject certificate of indebtedness
from Philfinance. On its face the subject certificates states that it is
registered in the name of Filriters. This should have put the petitioner
on notice, and prompted it to inquire from Filriters as to Philfinance's
title over the same or its authority to assign the certificate. As it is, there
is no showing to the effect that petitioner had any dealings whatsoever
with Filriters, nor did it make inquiries as to the ownership of the
certificate. Because the transfer of the CBCIs from Filriters to
PhilFinance was fictitious, PhilFinance had no title to convey to TRB.
Consequently, the title of Filriters over the CBCIs must be upheld over
the interest claimed by TRB.

Doctrine: This doctrine may not be employed by a corporation to be
able to complete its claims against another corporation, and cannot
therefore be employed by the claimant who does not interpose to be
the victim of any wrong or fraud. In order to pierce the veil of corporate
entity, the court must be sure that the corporate fiction was misused to
such an extent that injustice, fraud or crime was committed upon
another, disregarding, thus, his, her, or its rights. It is the protection of
the interests of innocent third persons dealing with the corporate entity

The rationale behind piercing a corporations identity in a given

responsible for an alleged corporate act, the situation has been


reversed. It is the petitioner as a corporation which is being
ordered to answer for the personal liability of certain individual
directors, officers and incorporators concerned. Hence, it
appears to us that the doctrine has been turned upside down
because of its erroneous invocation. Francisco Motors Corp. v.
CA, 309 SCRA 72 (1999).

Francisco Motors Corp. v. CA

Facts: Francisco Motors Corporation (FMC) filed a complaint against
Spouses Gregorio and Librada Manuel to recover a sum of money
representing the balance of the jeep body purchased, and an additional
sum representing the unpaid balance on the cost of repair of the
vehicle. Spouses Manuel interposed a counterclaim for unpaid legal
services by Gregorio Manuel, which was not paid by the incorporators,
directors and officers of the FMC. Manuel alleges that he represented
members of the Francisco family in the intestate estate proceedings of
the late Benita Trinidad. However, after the termination of the
proceedings, his services were not paid. Said family members, he said,
were also incorporators, directors and officers of petitioner.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


individual hid his assets in a corporation. See Emilio Cano
Enterprises v. CIR, 13 SCRA 291 (1965).


Issue: Whether or not the doctrine of piercing the veil of corporate
fiction can be applied to hold the company liable for unpaid legal
services rendered to its incorporators in an intestate proceeding.

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 entitled and treat them as
identical or one and the same. General Credit Corp. v. Alsons
Dev. and Investment Corp., 513 SCRA 225 (2007).1
o The attempt to make the security agencies appear as

Held: NO. Gregorio 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 FMC. 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 FMCs corporate assets

two separate entities, when in reality they were but


one, was a devise to defeat the law [i.e., in this case to
avoid liabilities under labor laws] and should not be
permitted. Enriquez Security Services, Inc. v. Cabotaje,
496 SCRA 169 (2006).
1. Recent Attempts to Narrow the Objectives for Availing of
Piercing:

could be used to answer for the liabilities of its individual directors,


officers, and incorporators. Such result if permitted could easily
prejudice the corporation. Whatever obligation said incorporators,
directors and officers of the corporation had incurred, it was incurred in
their personal capacity. In conclusion, FMC cannot be held responsible.

Doctrine: 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.

Atty. Hofilea Can there be a situation whereby the Court


will allow a case against an individual to be a basis for reaching
the corporations assets? YES. But not on the sole basis that you
personally dont have properties to satisfy your personal
obligations. There may conceivably be situations wherein the

Another formulation of this doctrine is that when two (2)

Piercing is not allowed unless the remedy sought is to make the


officer or another corporation pecuniarily liable for corporate
debts. Indophil Textile Mill Workers Union-PTGWO v. Calica,
205 SCRA 697 (1992).

Indophil Textile Mill Workers Union-PTGWO v. Calica


Facts: Indophil Textile and the petitioner executed a Collective
Bargaining Agreement (CBA) whereby the petitioner is the exclusive

Marques v. Far East Bank and Trust Co., 639 SCRA 312 (2011); Sarona v. NLRC,
663 SCRA 394 (2012); PNB v. Hydro Resources Contractors Corp., 693 SCRA 294
(2013).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


bargaining agent of all the rank-and-file employees of Indophil Textile
Mills, Incorporated. Later, Indophil Acrylic Manufacturing Corporation
was formed, and its employees also unionized and executed a CBA with
the said corporation. 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 of respondent Company.

Issue: Whether or not Indophil Acrylic is but an extension of Indophil
Textile, and as such the workers of Indophil Acrylic may be considered
as part of the bargaining unit of Indophil Textile.

Held: NO. The fact that the businesses of private respondent and Acrylic
are related, that some of the employees of the private respondent are
the same persons manning and providing for auxiliary services to the
units of Acrylic, and that the physical plants, offices and facilities are
situated in the same compound, it is our considered opinion that these
facts are not sufficient to justify the piercing of the corporate veil of
Acrylic. Hence, Indophil Acrylic not being an extension or expansion of
private respondent, Indophil Textile, the rank- and-file employees of
Acrylic should not be recognized as the bargaining representative of
private respondent.

Doctrine: We already emphasized that "the legal corporate entity is
disregarded only if it is sought to hold the officers and stockholders
directly liable for a corporate debt or obligation." In the instant case,
petitioner does not seek to impose a claim against the members of the
Acrylic.

BUT SEE: La Campana Coffee Factory v. Kaisahan ng


Manggagawa, 93 Phil. 160 (1953).


La Campana Coffee Factory v. Kaisahan ng Manggagawa

Facts: Tan Tong and his family own two corporations, namely: La
Campana Gaugau Packing (The Gaugau Corporation) and La Campana
Coffee Factory, Inc. (The Coffee Corporation). Both are located in the
same office in Espana. In 1951, the laborers of the two corporations of
Tan Tong formed a labor union named as Kaisahan ng Manggagawa sa
La Compana (The Kaisahan). The 66 members of which are under one
payroll of the two corporations. A dispute arose between Tan Tong and
Kaisahan when they could not agree concerning increased wages under
the corporate bargaining agreement, and this was given to the Court of
Industrial Relations.

Tan Tong now pushes for the dismissal of the case in the Court of
Industrial Relations for lack of jurisdiction. The claim that the number of
workers in the La Campana Coffee Factory is only 14 and the Court of
Industrial Relations requires that to have jurisdiction over a dispute, an
organization must have at least 31 members.

Issue: Whether or not La Campana Gaugau Packing (The Gaugau
Corporation) and La Campana Coffee Factory, Inc. (The Coffee
Corporation) are one and the same, and therefore the dispute would be
within the jurisdiction of the Court of Industrial Relations.

Held: YES. It has been proven that the corporations owned by Tan Tong
are merely one and the same. This is for the fact that they are based in


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)


ATTY. JOSE MARIA G. HOFILEA

only one office, its goods (gaugau and coffee) are stored in one place
and in one warehouse, delivery trucks indicate deliveries of both gaugau
and coffee. It is also stated that the employees receive their salaries
from only one payroll and from one Natividad Garcia, Tan Tongs
secretary. In this case, the court treats the two companies as one.

Facts: Felix Gochan and Sons Realty Corporation (FGSRC) was registered
under the SEC on June, 1951 with Felix Gochan, Sr. as one of the
incorporators. Felixs daughter, Alice, is the mother of the respondents.
Upon the death of Alice and later her husband, the certificates were still
under the name of John Young Sr., not their children. Four years later,

Therefore, the count of employees should be taken as a whole, which is


66, very well above the minimum number required for the Court of
Industrial Relations to acquire jurisdiction.

Doctrine: The law treats two corporations as one, in a case filed against
them, when they have only one management, set of shareholders,
office, and payroll.

the Uys and the Youngs filed a complaint against the directors of FGSRC
with the SEC alleging that the directors were using the corporation for
fraudulent purposes. FGSRC apparently sold some of its real properties
to 2 other corporations, with these corporations having the same
directors as FGSRC.

Issue: Whether or not a derivative may be brought by the Uys in behalf

of the corporation against the FGSRC directors.



Held: YES. As the complaint already avers that the corporation suffered
damage as a result of the action of the directors, the derivative suit
could prosper. The complainants need not be stockholders of the two
other corporations in order to make them parties to the case. On the
complaint, it was stated that the directors were using those 2 other

2. Applicable to Third-Parties:

That respondents are not stockholders of the sister corporations


does not make them non-parties to this case, since it is alleged
that the sister corporations are mere alter egos of the directors-
petitioners, and that the sister corporations acquired the
properties sought to be reconveyed to FGSRC in violation of
directors-petitioners fiduciary duty to FGSRC. The notion of
corporate entity will be pierced and the individuals composing it
will be treated as identical if the corporate entity is being used
as a cloak or cover for fraud or illegality; as a justification for a
wrong; or as an alter ego, an adjunct, or a business conduit for
the sole benefit of the stockholders. Gochan v. Young, 354
SCRA 207 (2001).


Gochan v. Young

corporations as alter-egos, and the Uys and Youngs wanted the lands
sold to these two corporations reconveyed in the name of FGSRC. The
other two corporations to whom the properties were being transferred
have the same stockholders, and the fact that they were not
stockholders in those companies cannot prevent Uy and Young from
suing them since FGSRC and those two companies would be one the
same. There was an intent to defraud Uy and Young by hiding the
properties in the other corporations.

Doctrine: The notion of corporate entity will be pierced or disregarded


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


and the individuals composing it will be treated as identical if, as alleged
here, the corporate entity is being used as a cloak or cover for fraud or
illegality; as a justification for a wrong; or as an alter-ego, an adjunct, or
a business conduit for the sole benefit of the stockholders.

C. Nature of the Piercing Doctrine as an Equitable Remedy: 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.
PNB v. Ritratto Group, Inc., 362 SCRA 216 (2001). CONSEQUENTLY:

PNB v. Ritratto Group, Inc.

Facts: PNB International Finance Ltd. (PNB-IFL), a subsidiary company of
PNB, extended credit to Ritratto and secured by the real estate
mortgages on four parcels of land. Since there was default, PNB-IFL
(thru PNB as its attorney-in-fact) foreclosed the properties and were
subject to public auction. Ritratto Group filed a complaint for injunction
against PNB claiming that that PNB is merely an alter ego or a business
conduit of PNB-IFL that is why it is being impleaded in the case.

Issue: Whether or not PNB is a mere alter-ego of PNB-IFL.

Held: NO. The contract questioned is one entered into between
respondent and PNB-IFL. PNB is a mere attorney-in- fact for the PNB-IFL


In any case, the parent-subsidiary relationship between PNB and PNB-
IFL is not the significant legal relationship involved in this case since the
petitioner was not sued as the parent company of PNB-IFL. Rather, the
petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in
initiating the foreclosure proceedings. A suit against an agent cannot
without compelling reasons be considered a suit against the principal.

Doctrine: The Circumstance rendering the subsidiary an instrumentality.
It is manifestly impossible to catalogue the infinite variations of fact that
can arise but there are certain common circumstances which are
important and which, if present in the proper combination, are
controlling. These are as follows:
1. The parent corporation owns all or most of the capital stock of
the subsidiary.
2. The parent and subsidiary corporations have common directors
or officers.
3. The parent corporation finances the subsidiary.
4. The parent corporation subscribes to all the capital stock of the

with full power and authority to foreclose on the properties mortgaged


to secure their loan obligations with PNB-IFL. In other words, PNB is an
agent with limited authority and specific duties. It is not privy to the
loan contracts entered into by respondents and PNB-IFL.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

5.
6.
7.

8.

subsidiary or otherwise causes its incorporation.


The subsidiary has grossly inadequate capital.
The parent corporation pays the salaries and other expenses or
losses of the subsidiary.
The subsidiary has substantially no business except with the
parent corporation or no assets except those conveyed to or by
the parent corporation.
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

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


responsibility is referred to as the parent corporations own.
9. The parent corporation uses the property of the subsidiary as its
own.
10. The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary but take their


Rivera then approached Modesto Cervantes, president of Bormaheco,
and bought a Caterpillar Tractor, which was also the chattel mortgage in
favor of Bormaheco. This sale was secured by Insurance Corporation of
the Philippines, and re-insured by an Agreement of Counter Guaranty

orders from the parent corporation.


11. The formal legal requirements of the subsidiary are not
observed.

whereby as security for the bond given by ICP, the Castillos mortgaged
to ICP the 4 parcels of land.

The 4 parcels of land were foreclosed by ICP for violation of the terms
and conditions of the Counter Guaranty. These were then sold by ICP to
Phil. Machinery Parts Manufacturing Co. (also owned by Modesto
Cervantes) who then sent a letter to Mauricia Castillo asking her to


NOTE:
Atty. Hofilea What level of control is necessary for a subsidiary
company to be considered as a mere alter-ego of the parent company?
Domination. The parent corporation must dominate the subsidiary, and
it must be the reason behind the latters incorporation.

1. It is a Remedy of Last Resort: Piercing the corporate veil is
remedy of last resort and is not available when other remedies
are still available. Umali v. Court of Appeals, 189 SCRA 529
(1990).

Umali v. Court of Appeals

Facts: The Castillo family owns a parcel of land in Lucena City which was
mortgaged to the Development Bank of the Philippines. For failing to
pay, the property was about to be foreclosed. Santiago Rivera, nephew
of Mauricia Castillo, proposed that the 4 lots adjacent to the mortgaged
property be converted into a subdivision to raise funds to redeem the
mortgaged lot. Thus, Castillo and Rivera executed an agreement
whereby Rivera would pay the Castillos for the development project.

vacate the property. The heirs of the late Felipe Castillo filed an action
for annulment of title before the CFI of Quezon contending that all the
aforementioned transactions are void for being entered into in fraud
and without the consent and approval of the CFI of Quezon before
whom the administration proceedings was proceeding.

Issue: Whether or not the doctrine of piercing the veil of corporate
entity should be applied against the respondent-Corporations.

Held: NO. In the case at bar, petitioners seek to pierce the veil of
corporate entity of Bormaheco, ICP and PM Parts, alleging that these
corporations employed fraud in causing the foreclosure and subsequent
sale of the real properties belonging to petitioners. While we do not
discount the possibility of the existence of fraud in the foreclosure
proceeding, neither are we inclined to apply the doctrine invoked by
petitioners in granting the relief sought. Petitioners are merely seeking
the declaration of the nullity of the foreclosure sale, which relief may be


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


3. Piercing Doctrine Not Applicable to Theorizing or to
Advance/Create New Rights or Interest: Piercing of the veil of
corporate fiction is not allowed when it is resorted under a
theory of co-ownership to justify continued use and possession
by stockholders of corporate properties. Boyer-Roxas v. Court
of Appeals, 211 SCRA 470 (1992).

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.

It must be noted that Modesto N. Cervantes served as Vice-President of
Bormaheco and, later, as President of PM Parts. On this fact alone, it
cannot be said that PM Parts had no knowledge of the aforesaid several
transactions executed between Bormaheco and petitioners.

Doctrine: The mere fact 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.

It is essential that the corporate fiction is the very means by

which to defeat public convenience, justify wrong, protect fraud


and defend crime. Jardine Davies, Inc. v. JRB Realty, Inc., 463
SCRA 555, 565 (2005).
2. Can Be Availed-of Only to Prevent Fraud: Piercing doctrine is
meant to prevent fraud, and cannot be employed when the net

Boyer-Roxas v. Court of Appeals



Facts: Two separate ejectment cases were filed against Guillermo Roxas
and Rebecca Boyer-Roxas, respectively by the Heirs of Eugenia V. Roxas,
Incorporated. The corporation alleges that both Guillermo and Rebecca
are occupying houses within a resort owned by the corporation, and this
was only tolerated.

In their answers, Guillermo and Rebecca alleged that they were also
heirs of Eugenia Roxas and as such they have a share in the resort, and
that they have the right to stay in the property. According to them, the
veil of corporate fiction must be pierced insofar as it does not allow

The theory of corporate entity was not meant to promote unfair

them to possess the properties owned by the corporation even though


they are co-owners of the corporation and its properties along with
other stockholders.

Issue: Whether or not the corporate veil must be pierced.

Held: NO. The fact that the corporation was incorporated with the
estate left by Eugenia Roxas as capital, and that Rebecca/Guillermo, as

objectives or otherwise, nor to shield them. Villanueva v. Adre,


172 SCRA 876 (1989).

heirs of Roxas, were stockholders of the company, do not justify the


piercing of the corporate veil. Even if the former manager of the

result would be to perpetrate fraud or a wrong. Gregorio


Araneta, Inc. v. Tuason de Paterno and Vidal, 91 Phil. 786
(1952).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


Corporation granted permission to Rebecca/Guillermo to possess the
property, the Corporation is not forever bound by this permission. In the
absence of any contract between the Corporation and
Rebecca/Guillermo regarding the length of their possession, the Board
may at any time revoke the permission through a board resolution, as

amended real estate mortgage.



Issue: Whether or not the doctrine of piercing the veil of corporate
fiction was properly applied.

what they did in the case at bar.



Doctrine: 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 stockholder is not entitled to possess any
definite property of the corporation.

Held: YES. Cupertino presented overwhelming evidence that Siain


Enterprises Inc., and its affiliate corporations (Yuyek and Siain
Transport) had received the proceeds of the loan which was the
consideration of the amended real estate mortgage. Moreover, it was
established in the lower courts that Siain Enterprises and Yuyek had a
common set of incorporators, stockholders and board of directors, the
same bookkeeper and accountant, the same office address and the

same majority stockholder which is Cua Le Leng. Cua Le Leng had the
unlimited liability to use Siain Transports funds to pay the obligations
incurred by Siain Enterprises. Thus, it is clear that Siain Enterprises, Siain
Transport and Yuyek are characterized by oneness of operations vested
in Cua Le Leng alone. Consequently, these corporations were proven to
be mere alter-egos of Cua Le Leng.

BUT SEE: Siain Enterprises, Inc v. Cupertino Realty Corp., 590


SCRA 435 (2009).


Siain Enterprises, Inc v. Cupertino Realty Corp.

Facts: Siain Enterprises obtained a loan (and executed a promissory
note) from Cupertino Realty Corporation secured by a mortgage over
two parcels of land and other machineries and equipment. Another
promissory note in favor of Cupertino was executed by Cua Le Leng
(President of Siain Enterprises) where the latter was bound in her
personal capacity. Later, Cupertino instituted foreclosure proceedings,
but Siain Enterprises claim that the amended real estate mortgage was
null and void because it never received the P160M loan. The lower
courts ruled in favor of Cupertino and applied the doctrine of piercing
the veil of corporate fiction to preclude Siain Enterprises from
disavowing the receipt of the loan and paying its obligation under the

Doctrine: Where clear evidence presented support the fact that a


corporations affiliates have received large amounts which became the
consideration for the company execution of a real estate mortgage over
its properties, then the piercing doctrine shall be applied to support the
fact that the real estate mortgage was valid and supported by proper
consideration.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

The piercing cannot be availed of in order to dislodge from SECs


jurisdiction a petition for suspension of payments filed under
P.D. 902-A, on the ground that the petitioning individuals should

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


be treated as the real petitioners to the exclusion of the
petitioning corporate debtor: doctrine only applies when such
corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime. Union Bank v. Court of
Appeals, 290 SCRA 198 (1998).

unintended may result from an erroneous application. PNB v.


Andrada Electric & Engineering Co., 381 SCRA 244 (2002). 1
Thus:
o The organization of the corporation at the time when
the relationship between the landowner and the
developer were still cordial cannot be used as a basis to

Application of the piercing of the subsidiary company to merge


it with the holding company cannot be allowed to support a
theory of set-off or compensation, there being no allegation
much less any proof of fraud. Nisce v. Equitable PCI Bank, Inc.,
516 SCRA 231 (2007).

An employee who has officially retired from the company and


availed of her retirement benefit, but who continued to be
employed as a consultant with affiliate companies, cannot
employ piercing in order to treat her stint with the affiliate

companies as part of her employment with the main company


she retired from there is no fraud or employment of unfair
shielding. Rivera v. United Laboratories, Inc., 586 SCRA 269
(2009).
4. Basis Must Be Clear Evidence

To disregard the separate juridical personality of a corporation,


it is elementary that the wrongdoing cannot be presumed and
must be clearly and convincingly established. Application of the
doctrine of piercing the corporate veil should be done with
caution. A court should be mindful of the milieu where it is to be
applied. It must be certain that the corporate fiction was
misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The
wrongdoing must be clearly and convincingly established; it
cannot be presumed. Otherwise, an injustice that was never

hold the corporation liable later on for the obligations


of the landowner to the developer under the mere
allegation that the corporation is being used to evade
the performance of obligation by one of its major
stockholders. Luxuria Homes, Inc. v. Court of Appeals,
302 SCRA 315 (1999).
In this case, the Court finds that the Remington failed to
discharge its burden of proving bad faith on the part of
Marinduque Mining and its transferees in the mortgage
and foreclosure of the subject properties to justify the
piercing of the corporate veil. DBP v. Court of Appeals,
363 SCRA 307 (2001).2
Neither has it been alleged or proven that Merryland is
so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality,
agency conduit or adjunct of Cardale. Even assuming
that the businesses of Cardale and Merryland are
interrelated, this alone is not justification for

General Credit Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225
(2007); Pantranco Employees Association (PEA- PTGWO) v. NLRC, 581 SCRA 598
(2009); Halley v. Printwell, Inc. 649 SCRA 116 (2011).
2
Also McLeod v. NLRC, 512 SCRA 222 (2007); Uy v. Villanueva, 526 SCRA 73
(2007).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

disregarding their separate personalities, absent any


showing that Merryland was purposely used as a shield
to defraud creditors and third persons of their rights.
Francisco v. Mejia, 362 SCRA 738 (2001).1
The mere assertion by a Filipino litigant against the
existence of a tandem between two Japanese

for which the doctrine was applied. Koppel (Phil.) Inc. v. Yatco,
77 Phil. 496 (1946).3

person of the corporation, but merely an equity remedy that


pertains to the transactions in controversy.4

corporations cannot be the basis for piercing, which can


only be applied by showing wrongdoing by clear and
convincing evidence. Marubeni Corp. v. Lirag, 362 SCRA
620 (2001).

The party seeking to pierce has the burden of presenting clear

and convincing evidence to justify the setting aside of the


separate corporate personality rule. The question of whether a
corporation is a mere alter ego is a purely one of fact, and the
burden is on the party who alleges it. PNB v. Andrada Electric &
Engineering Co., 381 SCRA 244 (2002).2
5. Piercing is a power belonging to the court and cannot be

Also Ramoso v. Court of Appeals, 347 SCRA 463 (2000); Guatson Intl Travel
and Tours, Inc. v. NLRC, 230 SCRA 815 (1990).
2
Also Concept Builders, Inc. v. NLRC, 257 SCRA 149 (1996); Heirs of Ramon
Durano, Sr. v. Uy, 344 SCRA 238 (2000); MR Holdings, Ltd. V. Bajar, 380 SCRA
617 (2002); Ramirez v. Mar Fishing Co., Inc., 672 SCRA 137 (2012).

When the doctrine is applied, the consequences would be that


the members or stockholders of the corporation will be
considered as the corporation, that is, liability will attach
directly to the officers and stockholders. Umali v. Court of
Appeals, 189 SCRA 529 (1990).


D. CLASSIFICATION OF PIERCING CASES:

DEFEAT OF PUBLIC CONVENIENCE (EQUITY PIERCING): When


the application of the separate corporate personality would be
inconsistent with the business purpose of the legal fiction, or
when piercing the corporate fiction is necessary to achieve
justice or equity for those who deal in good faith with the
corporation, or when the use of the separate juridical

assumed improvidently by a sheriff. Cruz v. Dalisay, 152 SCRA


482 (1987); D.R. CATC Services v. Ramos, 477 SCRA 18 (2005).
6. Piercing Has Only Res Judicata Effect: Application of the
doctrine to a particular case does not deny the corporation of
legal personality for any and all purposes, but only for the
particular transaction or instance, or the particular obligation

The application of the piercing doctrine does not attach to the

personality is used to confuse legitimate issues.

FRAUD PIERCING: When corporate entity used to commit a


crime, to undertake fraud or do a wrong, or that the corporate
veil is used as a means to evade the consequences of ones
criminal or fraudulent acts.

Tantoco v. Kaisahan ng Mga Manggagawa sa La Campana, 106 Phil. 198


(1959); Francisco v. Mejia, 362 SCRA 738 (2001).
4
Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
(2013 ed.). Manila, Philippines: Rex Book Store.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

ALTER-EGO PIERCING: When corporate entity merely a farce


since the corporation is merely the alter ego, business conduit,
or instrumentality of a person or another entity.

Authorities are agreed on at least three (3) basic areas where


piercing the veil, with which the law covers and isolates the
corporation from any other legal entity to which it may be
related, is allowed. These are: 1) defeat of public convenience,
as when the corporation is used as vehicle for the evasion of
existing obligation; 2) fraud cases or when the corporate entity
is used to justify wrong, protect fraud, or defend a crime; or 3)
alter ego cases, where the 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. General Credit Corp.
v. Alsons Dev. and Investment Corp., 513 SCRA 225 (2007)1
citing VILLANUEVA, COMMERCIAL LAW REVIEW (2004 ed), at
p. 576.

General Credit Corp. v. Alsons Dev. and Investment Corp.


Facts: General Credit Corp (GCC), then known as Commercial Credit
Corp (CCC), established CCC franchise companies in different urban
centers in the country. CCC Equity Corporation (EQUITY) was organized
by GCC for the purpose of taking over the operations and management
of the various franchise companies. Alsons Devt & Investment Corp

Also Pantranco Employees Association (PEA-PTGWO) v. NLRC, 581 SCRA 598


(2009); Prisma Construction & Dev. Corp. v. Menchavez, 614 SCRA 590 (2010);
Sarona v. NLRC, 663 SCRA 394 (2012).

(ALSONS) and the Alcantara Family each owned shares in the aforesaid
GCC franchise companies, e.g., CCC Davao and CCC Cebu.

In December 1980, ALSONS and the Alcantara Family sold their
shareholdings (101,953shares) in the CCC franchise companies to
EQUITY for P2M, for which EQUITY issued a bearer promissory note
for P2M with a one-year maturity date and 18% interest per annum.

Some four years later, the Alcantara Family assigned its rights and
interests over the bearer note to ALSONS. Even before the execution of
the assignment deal, letters for demand for interest payment were
already sent to EQUITY through its President, Wilfredo Labayen, who
pleaded inability to pay the stipulated interest, EQUITY no longer having
assets or property neither to settle its obligation nor being extended
financial support by GCC.

On January 14, 1986, ALSONS filed a complaint for a sum of money
against EQUITY and GCC. GCC was impleaded as party-defendant since
EQUITY has been organized as a tool and mere conduit of GCC.

Issue: Whether or not the doctrine of Piercing the Veil of Corporate
Fiction should be applied

Held: YES. The relationship of GCC and EQUITY have been that of
parent-subsidiary corporations, the doctrine is applicable in the case
at bar. There are at least 20 documented circumstances and
transactions which, taken together, strongly support the conclusion that
EQUITY was an adjunct / instrumentality / business conduit of GCC
i.e. commonality of directors, officers and stockholders, sharing of office


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


between GCC and EQUITY, financing and management arrangements
allowing GCC to handle the funds of EQUITY, virtual control of GCC over
finances, business policies and practices of EQUITY, and the
establishment of EQUITY by GCC to circumvent CB rules.

Doctrine: Another formulation of this doctrine is that when 2 business
enterprises are owned, conducted and controlled by the same parties,
both law and equity will disregard the legal fiction that 2 corporations
are distinct entities and treat them as one and the same, when
necessary to protect third parties rights.

1. Rundown on Piercing Application:

This Court pierced the corporate veil to ward off a judgment


credit, to avoid inclusion of corporate assets as part of the
estate of the decedent, to escape liability arising for a debt, or
to perpetuate fraud and/or confuse legitimate issues either to

promote or to shield unfair objectives to cover up an otherwise


blatant violation of the prohibition against forum shopping.
Only is these and similar instances may the veil be pierced and
disregarded. PNB v. Andrada Electric & Engineering Co., 381
SCRA 244 (2002).
2. Summary of Probative Factors: Concept Builders, Inc. v. NLRC,
257 SCRA 149 (1996).1

The absence of these elements prevents piercing the corporate


veil. Lim v. Court of Appeals, 323 SCRA 102 (200).2


Concept Builders, Inc. v. NLRC

Facts: Concept Builders Inc. was engaged in the construction business
and lost in a case before the NLRC concerning the termination of private
respondents whom it had employed as laborers, carpenters and riggers
in a project which Concept claims was finished, but upon inspection was
found to be the contrary. The Labor Arbiter rendered judgment against
Concept requiring it to pay private respondents back wages. The Sheriff
then tried to execute the writ of execution but found that the office
previously occupied by Concept is now occupied by Hydro Phils. Inc. a
manufacturing company allegedly owned by the same stockholders.

Issue: Whether or not the doctrine of piercing the corporate veil is
applicable to this case.

Held: YES. While petitioners claimed it ceased operations in 1986, it
filed an Information Sheet with the SEC in 1987 stating that its office
address is their old address. Both information sheets were filed by
Virgilio Casino, the same corporate secretary. They had the same
President, Board of Directors and substantially the same subscribers.
Clearly, petitioner ceased its business operations in order to evade the
payment to private respondents of back wages and to bar their
reinstatement to their former positions. HPPI is obviously a business
conduit of Concept Builders and its emergence was skillfully
orchestrated to avoid the latters financial liability.

PNB v. Ritratto Group, Inc., 362 SCRA 216 (2001); Velarde v. Lopez, 419 SCRA
422 (2004); Jardine Davies, Inc. v. JRB Realty, Inc., 463 SCRA 555 (2005);
Pantranco Employees Association (PEA-PTGWO) v. NLRC, 581 SCRA 598 (2009).

Child Learning Center, Inc. v. Tagorio, 475 SCRA 236 (2005); General Credit
Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225 (2007); Nisce v.
Equitable PCI Bank, Inc., 516 SCRA 231 (2007).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA



Doctrine: Probative factors of identity that will justify the application of
the doctrine:
1. Stock membership by one or common ownership of both
2. Identity of directors and officers (management)
3. Manner of keeping corporate books and records (management)
4. Methods of conducting business (management).

3. Distinction Between Fraud Piercing and Alter-ego Piercing:
Lipat v. Pacific Banking Corp., 402 SCRA 339 (2003).

Lipat v. Pacific Banking Corp.

Facts: Spouses Lipat (Alfredo and Estelita) owns Belas Export Trading
(BET), a single proprietorship engaged in garment manufacturing in
Quezon City. The Lipats also owned the Mystical Fashions in the United
States, which sells goods imported from the Philippines through BET.
Estelita designated her daughter, Teresita, to manage BET in the
Philippines while she was managing Mystical Fashions in the United
States.

In order to facilitate the convenient operation of BET, Estelita executed
a special power of attorney appointing Teresita as her attorney-in-fact
to obtain loans. By virtue of this SPA, Teresita obtained a sizeable loan
from Pacific Bank. Three months after the loan, BET was incorporated
into a family corporation named Belas Export Corporation (BEC),
engaged in the same business and utilized the same properties. The loan
was restructured in the name of BEC and secured with Lipats property.

BEC defaulted, and the bank foreclosed on the real mortgage. The
spouses Lipat claim that the loan obtained by Teresita were ultra vires
acts because they were executed without the requisite board resolution
of the Board of Directors of BEC.

Issue: Whether or not the doctrine of piercing the veil of corporate
fiction applies in this case.

Held: YES. In finding the Lipats mortgaged property liable for the
obligations of BEC, both courts below relied upon the alter ego doctrine
or instrumentality rule.

Evidence suggests an alter ego case in the sense that: (1) the spouses
are the owners and majority shareholders of BET and BEC; (2) both firms
were managed by their daughter, Teresita; (3) both firms were engaged
in the garment business, supplying products to Mystical Fashion, a US
firm established by Estelita; (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,


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


business purpose, and management.

Doctrine: When the corporation is the mere alter ego or business
conduit of a person, the separate personality of the corporation may be
disregarded.

TESCON contested the judgment claiming 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.


E. DEFEAT OF PUBLIC CONVENIENCE (EQUITY PIERCING): Juridical
Personality Cannot Be Employed:
1. To Confuse Legitimate Issues: Telephone Engineering and
Service Co., Inc. V. WCC, 104 SCRA 354 (1981).

Telephone Engineering and Service Co., Inc. V. WCC


Issue: Whether or not TESCO may be held liable for the death.

Held: YES. 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. The Court pierced the


Facts: Petitioner engaged in the business of manufacturing telephone
equipment. Its sister company, the Utilities Management Corporation
(UMACOR), with offices in the same location. UMACOR is also under the
management of Jose Luis Santiago. UMACOR employed the late Pacifica
L. Gatus as Purchasing Agent. Then was detailed with petitioner

veil between TESCO and UMARCO in the interest of justice and equity.

Doctrine: 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.

company. He reported back to UMACOR and after 2 years he contracted


illness and died of "liver cirrhosis with malignant degeneration."

Respondent Leonila S. Gatus, filed a "Notice and Claim for
Compensation" with Workmen's Compensation Commission sub-office,
alleging that her husband was an employee of TESCO, and that he died
of liver cirrhosis. UMACOR submitted an Employer's Report of Accident

or Sickness which indicated that the employee contracted illness in


regular occupation. On this basis, the Acting Referee awarded death
benefits plus burial expenses in favor of the heirs of Gatus.

against Emilio, Ariston and Rodolfo Cano as president and proprietor,


field supervisor and manager, respectively, of Emilio Cano Enterprises,
Inc. An order of execution was issued to reinstate Honorata and to
deposit with the court the amount P7,222.58 within 10 days from

2. To Raise Legal Technicalities: Emilio Cano Enterprises v. CIR, 13


SCRA 291 (1965).

Emilio Cano Enterprises v. CIR

Facts: A complaint for unfair labor practice was filed By Honorata Cruz


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


receipt of the order, failing which the court will order either a levy on
respondents properties or the filing of an action for contempt of court.
(The order of execution was directed against the properties of Emilio
Cano Enterprises, Inc.)

(1962).1

Issue: Whether or not the judgment against Emilio and Rodolfo in their
capacity as officials of the corporation can be made effective against the
property of the latter which was not a party to the case.

Held: YES. While it is an undisputed rule that a corporation has a
personality separate and distinct from its members or stockholders
because of a fiction of the law, here we should not lose sight of the fact

Where a debtor registers his residence to a family corporation


in exchange of shares of stock and continues to live therein,
then the separate juridical personality may be disregarded.
PBCom v. CA, 195 SCRA 567 (1991).

Where corporate fiction was used to perpetrate social injustice


or as a vehicle to evade obligations or confuse the legitimate
issues (as in this case where the actions of management of the
two corporations created confusion as to the proper employer
of claimants), the two corporations would be merged as one.
Azcor Manufacturing, Inc. v. NLRC, 303 SCRA 26 (1999).

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. And 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.

The corporate veil cannot be used to blatantly violate the


prohibition against forum-shopping. Where the corporation

itself has not been remiss in vigorously prosecuting or defending


corporate causes and in using and applying remedies available
to it, then shareholders, whether suing as the majority in direct
actions or as the minority in a derivative suit, cannot be allowed
to pursue the same claims. First Philippine International Bank
v. Court of Appeals, 252 SCRA 259 (1996).
3. The Case for Thinly-Capitalized Corporations: McConnel v. CA,


Doctrine: And so it has been held that while a corporation is a legal
entity existing separate and apart from the persons composing it, that
concept cannot be extended to a point beyond its reason and policy,
and when invoked in support of an end subversive of this policy it
should be disregarded by the courts.

One cannot evade civil liability by incorporating properties or


the business. Palacio v. Fely Transportation Co., 5 SCRA 1011

1 SCRA 722 (1961).



McConnel v. CA

Facts: Park Rite Co. (PRC) leased from Rafael Samanillo a vacant lot

Also Mendoza and Yotoko v. Banco Real Dev. Bank, 470 SCRA 86 (2005).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


which was used for parking motor vehicles for consideration. It turned
out that in operating its parking business, the corporation occupied and
used not only the Samanillo lot it had leased but also an adjacent lot
belonging to Padilla (respondent) without the owners knowledge and
consent. Padilla wanted payment for the use and occupation of the lot.

the corporate obligations.



Doctrine: 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


Judgment was rendered against Park Rite, but it was found to be
without any assets apart from the money deposited with the Court. The
judgment creditors then filed suit in the CFI 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.

of the corporation were so merged with those of the stockholders as to


be practically indistinguishable from them.

fraudulent act or fraudulent means perpetrated upon the


investing public who were made to believe that ASBHI had the
financial capacity to repay the loans it enticed petitioners to
extend, despite the fact that it had an authorized capital stock
of only P500,000.00 and paid up capital of only P125,000.00),
with the deficient capitalization evidenced by its articles of
incorporation, the treasurers affidavit, the audited financial


Issue: Whether or not there was justification for disregarding the
corporate entity of Park Rite Co., Inc. and holding its controlling
stockholders personally responsible for a judgment against the corp.

Held: YES. The evidence clearly shows that these persons completely
dominated and controlled the corporation and that the functions of the
corporation were solely for their benefits. It is obvious from the sharing
that only 1 or 2 people possess the majority shares. Other incorporators
had about 1 or 2 each which were merely qualifying shares. 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
at 507 Wilson Building. This is further shown by the fact that the funds
of the corporation were kept by Cirilo Paredes in his own name. The
facts show that the corporation is a mere instrumentality of the
individual stockholders; hence the latter must individually answer for


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

The DOJ Resolution explicitly identified the false pretense,

statements. Moreover, respondents argument assumes that


there is legal obligation on the part of petitioners to undertake
an investigation of ASBHI before agreeing to provide the loans.
There is no such obligation. It is unfair to expect a person to
procure every available public record concerning an applicant
for credit to satisfy himself of the latters financial standing. At
least, that is not the way an average person takes care of his
concerns. Gabionza v. Court of Appeals, 565 SCRA 38 (2008).

Where the corporation was under the control of its stockholders


who ran-up quite a high obligation with the printing company
knowing fully well that their corporation was not in a position to
pay for the accounts, and where in fact they personally
benefited from the operations of the company to which they

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


never paid their subscription in full, would constitute piercing of
the veil to allow the creditor to be able to collect what
otherwise were debts owed by the company which has no
visible assets and has ceased all operations. Halley v. Printwell,
Inc. 649 SCRA 116 (2011).

Halley v. Printwell, Inc.

Facts: BMPI (Business Media Philippines Inc.) is a corporation under the
control of its stockholders, including Donnina Halley. In the course of its
business, BMPI commissioned PRINTWELL to print Philippines, Inc. (a
magazine published and distributed by BMPI). BMPI placed several


Doctrine: TRUST FUND DOCTRINE. Under which corporate debtors
might look to the unpaid subscriptions for the satisfaction of unpaid
corporate debts. Subscriptions to the capital of a corporation
constitutes a trust fund for the payment of the creditors (by mere
analogy) In reality, corporation is a simple debtor. 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. The trust fund doctrine is not limited to reaching the stockholders
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

orders amounting to P3160,000 but was only able to pay P25,000.


PRINTWELL sued BMPI for collection of the unpaid balance and later on
impleaded BMPIs original stockholders and incorporators to recover on
their unpaid subscriptions.

Issue: Whether or not a stockholder (Halley in this case) who was in
active management of the business of the corporation and still has

payment of corporate debts.

unpaid subscriptions should be made liable for the debts of the


corporation by piercing the veil of corporate fiction

Held: YES. Such stockholder should be made liable up to the extent of
her unpaid subscription. It was found that at the time the obligation was
incurred, BMPI was under the control of its stockholders who know fully
well that the corporation was not in a position to pay its account (thinly
capitalized). And, that the stockholders personally benefited from the


Facts: Yutivo Sons Hardware Co. is a company engaged in the
importation and sale of hardware supplies and equipment. The former
bought a number of cars from General Motors Overseas Corporation. 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

operations of the corporation even though they never paid their


subscriptions in full.


4. Avoidance or Minimization of Taxes: Yutivo Sons Hardware v.
Court of Tax Appeals 1 SCRA 160 (1961); Liddell & Co. v.
Collector of Internal Revenue, 2 SCRA 632 (1961).

Yutivo Sons Hardware v. Court of Tax Appeals

collected only once on original sales, Yutivo paid no further sales tax on
its sales to the public. Eventually, Yutivo sold exclusively to Southern
Motors, which was organized to engage in the business of selling cars,
trucks, and spare parts to the public.


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA



When GM decided to withdraw from the Philippines, 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, as

to arrive at the true tax liability of Yutivo.



Doctrine:

importer, 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.

After some time, the CIR made an assessment on Yutivo and demanded
from the latter P1,804,769.85 as deficiency sales tax, claiming that the
taxable sales were the retail sales by SM to the public and not the sales

mere instrumentality, or adjunct of Yutivo, the Court CTA correctly


disregarded the technical defense of separate corporate entity in order

Use of nominees to constitute the corporation for the benefit of


the controlling stockholder who sought to avoid payment of
taxes. Marvel Building v. David, 9 Phil. 376 (1951).

The plea to pierce the veil of corporate fiction on the allegation


that the corporations true purpose is to avoid payment by the
incorporating spouses of the estate taxes on the properties
transferred to the corporations: With regard to their claim that
[the companies] Ellice and Margo were meant to be used as

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.

Issue: Whether or not Southern Motors was a mere adjunct of Yutivo.

Held: YES. Briefly stated, Yutivo financed principally, if not wholly, the
business of SM and actually extended all the credit to the latter not only
in the form of starting capital but also in the form of credits extended
for the cars and vehicles allegedly sold by Yutivo to SM as well as
advances or loans for the expenses of the latter when the capital had
been exhausted. The funds of SM were all merged in the cash fund of
Yutivo. At all times, Yutivo, through officers and directors common to it
and SM, exercised full control over the cash funds, policies,
expenditures and obligations of the latter. Southern Motors being but a

mere tools for the avoidance of estate taxes, suffice it to say


that the legal right of a taxpayer to reduce the amount of what
otherwise could be his taxes or altogether avoid them, by
means which the law permits, cannot be doubted. Gala v.
Ellice Agro-Industrial Corp., 418 SCRA 431 (2003).

HOWEVER: The mere existence of parent-subsidiary relations,


or the fact that one corporation is affiliated with another
corporation does not justify piercing based on serving public
convenience. Comm. of Internal Revenue v. Norton and
Harrison, 11 SCRA 704 (1954).1


F. FRAUD CASES:

When the legal fiction of the separate corporate personality is


abused, such as when the same is used for fraudulent or

Tomas Lao Construction v. NLRC, 278 SCRA 716 (1997). Marques v. Far East
Bank and Trust Co., 639 SCRA 312 (2011).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


wrongful ends, the courts have not hesitated to pierce the
corporate veil. Francisco v. Mejia, 362 SCRA 738 (2001).

payment of taxes so that the properties may be levied upon and be the
subject of an auction where Merryland could bid, which was exactly
what happened.

Doctrines: With specific regard to corporate officers, the general rule is

Facts: Andrea Gutierrez was the owner of a parcel of land in Caloocan.


This property was subdivided into five lots, four of which are the subject
of this controversy. The four lots were sold to Cardale Financing and
Realty Corporation which made an initial payment, and the balance was
secured by 3 of 4 lots mortgaged to Gutierrez herself. When Cardale
failed to pay, Gutierrez filed a suit for rescission. Cardale was
represented by its VP and Treasurer, herein petitioner Adalia Francisco.

that the officer cannot be held personally liable with the corporation,
whether civilly or otherwise, for the consequences of his acts, if he
acted for and in behalf of the corporation, within the scope of his
authority and in good faith. In such cases, the officers acts are properly
attributed to the corporation. However, if it is proven that the officer
has used the corporate fiction to defraud a third party, or that he has
acted negligently, maliciously or in bad faith, then the corporate veil


The case dragged on for 14 years, during which the taxes for the
mortgaged properties were not paid. As a result, the government levied
upon them. They became subject of an auction sale. The highest bidder
was Merryland Development Corporation, whose President was also
Adalia Francisco. Because of these, Rita Mejia, the administrator of
Gutierrezs estate, filed a complaint for damages against Francisco for

shall be lifted and he shall be held personally liable for the particular
corporate obligation involved.

Francisco v. Mejia

fraud.

Issue: Whether or not Francisco may be held liable.

Held: YES, it was evident that Francisco was in bad faith, not informing
Gutierrezs estate of the tax delinquencies. Apparently, Francisco made
use of her involvement in Cardale and Merryland to secure an
advantage for the latter. Cardale as the mortgagor had the duty of
paying the taxes for the properties. Evidence showed that Francisco as
Cardales Treasurer, intended to conceal the delinquency in the


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

The general rule is that obligations incurred by a corporation,


acting through its directors, officers or employees, are its sole
liabilities. However, there would be piercing of the veil when
the corporation is used by any of them as a cloak or cover for
fraud or illegality or injustice. Here, the fraud was committed by
petitioners to the prejudice of respondent bank. Mendoza v.
Banco Real Dev. Bank, 470 SCRA 86 (2005).

Fraud and bad faith on the part of certain corporate officers or


stockholders may warrant the piercing of the veil of corporate
fiction so that the said individual may not seek refuge therein,
but may be held individually and personally liable for his or her
actions. Lafarge Cement Phils., Inc. v. Continental Cement
Corp., 443 SCRA 522 (2004).

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

or when they practice fraud on internal revenue laws, the fiction


of their separate and distinct corporate identities shall be
disregarded, and both entities treated as one taxable person,
subject to assessment for the same taxable transaction.
Commissioner of Internal Revenue v. Menguito, 565 SCRA 461
(2008).

However, mere allegation of fraud or bad faith, without


evidence supporting such claims cannot warrant the piercing of

the corporate veil. DBP v. Court of Appeals, 357 SCRA 626, 358
SCRA 501, 363 SCRA 307 (2001).
1. Acts by Controlling Shareholder:

The fact that a corporation owns all of the stocks of another


corporation, taken alone, is not sufficient to justify their being
treated as one entity. If used to perform legitimate functions, a
subsidiarys separate existence shall be respected, and the
liability of the parent corporation, as well as the subsidiary shall
be confined to those arising in their respective business. Nisce v.
Equitable PCI Bank, Inc., 516 SCRA 231 (2007).1

3. Guiding Principles in Fraud Cases:


Where a stockholder, who has absolute control over the

Why is there inordinate showing of alter-ego elements?


1. There must have been fraud or an evil motive in the affected
transaction, and the mere proof of control of the corporation by
itself would not authorize piercing;
2. The corporate fiction is used as a means to commit the fraud or

business and affairs of the corporation, entered into a contract


with another corporation through fraud and false
representations, such stockholder shall be liable solidarily with
co-defendant corporation even when the contract sued upon
was entered into on behalf of the corporation. Namarco v.

avoid the consequences thereof; and


3. The main action should seek for the enforcement of pecuniary
claims pertaining to the corporation against corporate officers
or stockholders.

Associated Finance Co., 19 SCRA 962 (1967).

or even share the same address, or have interlocking


incorporators, directors or officers, in the absence of fraud or
other public policy consideration, does not warrant piercing the
veil of corporate fiction. McLeod v. NLRC, 512 SCRA 222 (2007),
quoting from Indophil Textile Mill Workers Union v. Calica, 205

Where the corporation is used as a means to appropriate a


property by fraud which property was later resold to the
controlling stockholders, then piercing should be allowed. Heirs

of Ramon Durano, Sr. v. Uy, 344 SCRA 238 (2000).


2. Tax Evasion or Fraud:

SCRA 697 (1992), and Del Rosario v. NLRC, 187 SCRA 777
(1990); Heirs of Fe Tan Uy v. International Exchange Bank, 690
SCRA 519 (2013).

In a number of cases, the Court has shredded the veil of


corporate identity and ruled that where a corporation is merely
an adjunct, business conduit or alter ego of another corporation

Marques v. Far East Bank and Trust Co., 639 SCRA 312 (2011).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

Respondent corporations may be engaged in the same business

Mere substantial identity of incorporators of two corporations


does not necessarily imply fraud, nor warrant the piercing of the

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


veil of corporate fiction. In the absence of clear and convincing
evidence to show that the corporate personalities were used to
perpetuate fraud, or circumvent the law, the corporations are
to be rightly treated as distinct and separate from each other.
To disregard the said separate juridical personality of a
corporation, the wrongdoing must be proven clearly and
1

convincingly. Laguio v. NLRC, 262 SCRA 715 (1996).



G. ALTER-EGO CASES:
1. Using Corporation as Conduit or Alter Ego:

Where the capital stock is owned by one person and it functions


only for the benefit of such individual owner, the corporation
and the individual should be deemed the same. Arnold v.
Willets and Patterson, Ltd., 44 Phil. 634 (1923).

Arnold v. Willets and Patterson, Ltd.


Facts: Willits & Patterson was a partnership organized in San Francisco,
California. In 1916, they engaged the services of Arnold to be their agent
in the Philippines who will enjoy profit-sharing and a fixed salary. Arnold
was to be Willits & Pattersons agent for five years, and he was tasked
to operate a certain oil mill.

Philippines with the same name. Again, he owned practically all the
shares (legally, the San Francisco corporation owned all the assets and
liabilities of the Manila corporation). Sometime in 1919, Willits and
Arnold entered into another contract, marked Exhibit B, which clarified
Arnolds mode of compensation.

Willits corporation went through financial trouble, and its creditors
committee refused to honor Exhibit B because according to it, the
corporation never allowed or acceded to such a contract or
understanding, and that Willits signed it without authority.

Issue: Whether or not Exhibit B is binding upon the corporation and the
creditors committee despite the lack of approval from the Board

Held: YES. The approval of the Board is not needed since it is evident
that Willis owns and controls the corporation. Willits actions were done
not just to benefit him as a shareholder but to control the whole
corporation and to affect the transaction of its business, in the same
manner as if it had been clothed with all the formalities of a corporate

Sometime later, Patterson retired, and Willits then created a new


corporation under the same name. Under this corporation, Willits
owned practically all the shares except those nominal shares needed to
qualify directors. Willits also created another corporation in the

act. Also, Exhibit B came into effect in 1919 and since then, was used by
the corporation in determining Arnolds salary and dues. There was no
objection ever raised against it except two years later, in 1921, by the
creditors committee. Its a well-settled doctrine that acts of officers,
though unauthorized, may be ratified by the corporation where the
latter acquiesces to the act. Here, the creditors committee cannot
object to Exhibit B because the corporation has in effect ratified its
validity by applying it for two years.


Doctrine: When the stock of a corporation owned by one individual and

Martinez v. Court of Appeals, 438 SCRA 130 (2004).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


subsidiarys separate existence shall be respected, and the
liability of the parent corporation, as well as the subsidiary shall
be confined to those arising in their respective business. A
corporation has a separate personality distinct from its
stockholders and from other corporations to which it may be
conducted a legal fiction created by law for convenience and

the corporation functions for his benefit, the corporation and individual
should be deemed the same.

A corporation has a personality separate and distinct from the


persons composing it, as well as from any other legal entity to
which it may be related. Equally well-settled is the principle that
the corporate mask may be removed or the corporate veil
pierced when the corporation is just an alter ego of a person or

to prevent injustice. Nisce v. Equitable PCI Bank, Inc., 516 SCRA


231 (2007).
2. Mixing-up Operations; Disrespect to the Corporate Entity:

of another corporation. Sarona v. NLRC, 663 SCRA 394 (2012).


o When corporation is merely an adjunct, business
conduit or alter ego of another corporation, the fiction
of separate and distinct corporation entities should be
disregarded. Tan Boon Bee & Co. v. Jarencio, 163 SCRA
205 (1988).1

accounts. Ramirez Telephone Corp. v. Bank of America, 29


SCRA 191 (1969).

subsidiary corporations whose shares are wholly if not almost


wholly owned by its parent company. The structural and
systems overlap inherent in parent and subsidiary relations
often render the subsidiary as mere local branch, agency or
adjunct of the foreign parent. Thus, when the foreign parent

The fact that a corporation owns all of the stocks of another


corporation, taken alone, is not sufficient to justify their being
treated as one entity. If used to perform legitimate functions, a

General Credit Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225
(2007).

Where two business enterprises are owned, conducted, and


controlled by the same parties, both law and equity will, when
necessary to protect the rights of third persons, disregard the
legal fiction that two corporations are distinct entities and treat
them as identical. Sibagat Timber Corp. v. Garcia, 216 SCRA 70
(1992).

The fictive veil of corporate personality holds lesser sway for

company leased a large parcel of land purposely for the benefit


of its subsidiary, which took over possession of the leased
premises, the subsidiary was a mere alter ego of ESSO Eastern.
Mariano v. Petron Corp., 610 SCRA 487 (2010).

Mixing of personal accounts with corporate bank deposit

Employment of same workers; single place of business, etc.,


may indicate alter ego situation. Shoemart v. NLRC, 225 SCRA
311 (1993).

Shoemart v. NLRC


Facts: Moris Industries was engaged in manufacture of leather goods. In
1985, 56 out of 74 workers decided to form the Moris Industries Union.
When the Union contacted Moris in order to fix a collective bargaining
agreement, Moris suddenly shut down and ceased operations two days
later. Because of this, the Union filed a case with the NLRC against Moris


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


for unfair labor practice, recovery of wage differentials and other
monetary benefits. Shoemart, and its president, Henry Sy, was also
impleaded because according to the Union, Shoemart and Moris had
only one juridical personality.

Issue: Whether or not the NLRC correctly applied the piercing doctrine
by holding SM liable together with Moris

Held: YES. The facts show that Moris was the mere alter ego of SM.
Thus, in order to protect the rights of the workers, the NLRC properly
applied the piercing of the corporate veil doctrine. And since Moris
doesnt exist anymore to rehire the workers, who also cant work for SM
because of a difference in expertise of labor, then the SC deemed it
proper to hold SM solidarily liable with Moris for separation pay.

1. The Union presented one Cresencio Edic as a witness. Edic
testified that he was first hired by the persons who owned SM
to make samples to be displayed on the store windows. When
he was promoted as over-all supervisor, the factory was
transferred, the production division was separately
incorporated and underwent many name changes. However,
the owners remained the same.
2. An examination of the Incorporation papers of SM Shoe Mart
and Moris Manufacturing show (sic) that except for Elizabeth Sy
all other five (5) incorporators and directors of Morris
Industries are major stockholders of SM Shoe Mart as of July 20,
1985;
3. The SM Shoe Mart is the exclusive buyer of all of Moris'
products;

4. Both are housed in one building and Moris for many years has
been using the payrolls of SM Shoe Mart. SM glibly excuses this
fact by alleging that this was done without its knowledge. We,
however, considering the close relationship of parties, find this
incredible.

Doctrine: See above.

The facts that two corporations may be sister companies, and


that they may be sharing personnel and resources, without
more, is insufficient to prove that their separate corporate
personalities are being used to defeat public convenience,
justify wrong, protect fraud, or defend crime. Padilla v. Court of
Appeals, 370 SCRA 208 (2001).

Padilla v. Court of Appeals


Facts: Susana Realty Inc. (SRI) sold to Light Rail Transit Authority (LRTA)
several parcels of land along Taft Avenue whereby SRI had a right of first
refusal in case LRTA decided to develop the land. LRTA contracted with
Phoenix-Omega Development and Management Corporation (Phoenix-
Omega) to develop the land to which SRI later agreed on the condition
that all plans must be approved by it. Phoenix-Omega then assigned its
rights to PKA Development and Management Corporation (PKA) whose
President and General Manager is Padilla (who is at the same time
Chairman of the Board of Phoenix-Omega).

So now, PKA was in charge of developing the properties. However, it
continuously failed to and eventually its building permit was revoked for


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


defects in construction. PKA then filed for rescission of the contract,
alleging that SRI maliciously withheld approval of the plans, which in
turn led to PKA being unable to comply with its obligations. However,
the judgment went in favor of SRI.

Doctrine: For the separate juridical personality of a corporation to be


disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed. In this case, there was no reason to
justify piercing the corporate veil.

The contract was rescinded, and PKA was ordered to indemnify SRI for
damages. The properties were returned to SRI, but PKA failed to pay the
monetary awards. Thus, SRI filed a motion for the issuance of an alias
writ against Padilla and Phoenix-Omega, saying that they were one and
the same entity with PKA. Padilla and Phoenix-Omega claimed they
were denied due process because Phoenix was not given its days in
Court.

3. Guiding Principles in Alter-Ego Cases:

Doctrine in such cased is based on estoppel: if stockholders do


not respect the separate entity, others cannot also be expected
to be bound by the separate juridical entity;


Issue: Whether or not Padillas participation in the proceedings as PKAs
President and General Manager could be construed as the opportunity
to be heard in court of Padilla and Phoenix-Omega

Held: NO. Padilla and Phoenix-Omega were not given their day in court.
It is clear that Padilla participated in the proceedings as General

Piercing in alter ego cases may prevail even when no monetary


claims are sought to be enforced against the stockholders or
officers of the corporation.

HOWEVER: The mere existence of a parent-subsidiary

separating ownership from management;

relationship between two corporation, or that one corporation


is affiliated with another company does not by itself allow the
application of the alter-ego piercing doctrine. Koppel (Phil.), Inc.
v. Yatco, 77 Phil. 97 (1946); PHIVIDEC v. Court of Appeals, 181
SCRA 669 (1990).

Manager of PKA and not in any other capacity. The fact that he was the
Chairman of the Board of Phoenix-Omega cannot equate to
participation by Phoenix-Omega in the same proceedings. Phoenix-
Omega was never a party to the case and so could not have participated
therein. PKA and Phoenix-Omega are admittedly sister companies, and
may be sharing personnel and resources, but there was no allegation,
much less positive proof, that their separate corporate personalities
were being used to defeat public convenience, justify wrong, protect
fraud, or defend crime.

Doctrine applies even in the absence of evil intent, because of


the direct violation of a central corporate law principle of

A subsidiary corporation has an independent and separate


juridical personality, distinct from that of its parent company,
hence, any claim or suit against the latter does not bind the
former and vice- versa. Jardine Davies, Inc. v. JRB Realty, Inc.,
463 SCRA 555 (2005).1

Fortune v. Quinsayas, 690 SCRA 336 (2013).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

If used to perform legitimate functions, a subsidiarys


separate existence shall be respected, and the liability
of the parent corporation as well as the subsidiary will
be confined to those arising in their respective
businesses. Even when the parent corporation agreed
to the terms to support a standby credit agreement in

judgment rendered by the court. Padilla v. Court of Appeals,


370 SCRA 208 (2001).
2. When corporate officers are sued in their official capacity, the
corporation which was not made a party, is not denied due
process. Emilio Cano Enterprises v. CIR, 13 SCRA 291 (1965).

favor of the subsidiary, does not mean that its


personality has merged with that of the subsidiary. MR.
Holdings, Ltd. V. Bajar, 380 SCRA 617 (2002).

120 [1992]), an appellate proceedings involving petitioner


Arcillas bid to avoid the adverse CA decision on argument that
he is not personally liable for the amount adjudged since the
same constitutes a corporate liability which nevertheless cannot


H. PIERCING DOCTRINE AND THE DUE PROCESS CLAUSE
1. Need to Bring a New Case Against the Officer. McConnel v. CA,
1 SCRA 723 (1961).

A suit against individual shareholders is not a suit against the


corporation. Failure to implead the corporations as defendants
and merely annexing a list of such corporations to the
complaints is a violation of due process for it would in effect be
disregarding their distinct and separate personality without a
hearing. PCGG v. Sandiganbayan, 365 SCRA 538 (2001).

Although both lower courts found sufficient basis for the


conclusion that PKA and Phoenix Omega were one and the
same, and the former is merely a conduit of the other the
Supreme Court held void the application of a writ of execution
on a judgment held only against PKA, since the RTC obtained no
jurisdiction over the person of Phoenix Omega which was never
summoned as formal party to the case. The general principle is
that no person shall be affected by any proceedings to which he
is a stranger, and strangers to a case are not bound by the

We suggest as much in Arcilla v. Court of Appeals, (215 SCRA

be enforced against the corporation which has not been


impleaded as a party below. Violago v. BA Finance Corp., 559
SCRA 69 (2008).
3. Provided that evidential basis has been adduced during trial to
apply the piercing doctrine. Jacinto v. Court of Appeals, 198
SCRA 211 (1991).1

Jacinto v. Court of Appeals

Facts: The case is an appeal concerning the decision of the Regional Trial
Court ordering Inland Industries Inc. and Roberto Jacinto to pay jointly
and severally Metropolitan Bank and Trust Co. The Bank claims that
Roberto Jacinto can be held personally liable because he is the President
and General Manager of Inland Industries Inc. and his wife owns a
majority of its shares. While on the face of the complaint there is no
specific allegation that the corporation is a mere alter ego of petitioner,
subsequent developments, from the stipulation of facts up to the

Arcilla v. Court of Appeals, 215 SCRA 120 (1992).


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA


presentation of evidence and the examination of witnesses,
unequivocally show that respondent Metropolitan Bank and Trust
Company sought to prove that petitioner and the corporation are one or
that he is the corporation. No serious objection was heard from
petitioner.

Court may deny your right to claim a separate personality.


1. Commit a fraud Bogus NGOs; so long as the fraud is proved,
the Court will deny separate personality, provided that it was
committed/concealed thru the use of separate personality.
2. Alter-ego/Instrumentalities The Court has pierced the veil in


Issue: Whether or not the application of piercing the veil was supported
with evidence.

Held: YES. Roberto A. Jacinto, it would appear that he is in fact, the
corporation itself known as Inland Industries, Inc. Aside from the fact
that he is admittedly the President and General Manager of the

occasions where the act committed is short of fraud on the


ground of interlinking which indicates that the subsidiary
company is but an alter-ego.
3. Defeating public convenience, equity and justice As such,
piercing of the corporate veil should be a last resort. If there is
another way, the Courts should take that path in order to
preserve such an important feature of the corporate.

corporation and a substantial stockholder thereof, it was defendant


Roberto A. Jacinto who dealt entirely with the plaintiff in those
transactions. In the Trust Receipts that he signed supposedly in behalf of
Inland Industries, Inc., it is not even mentioned that he did so in this
official capacity.

Doctrine: When evidence is presented by one party, with the express or

4. There is no hard and fast rule regarding piercing. It is subject to


the circumstances of the case, and (unfortunately?) dependent
on who the Justices are.
5. These cases of piercing the corporate veil, when the Court says
that the stockholder shares the same personality as the
corporation, that is good for purposes of the issue that is being
rule upon. But it does not result in a complete denial of the

implied consent of the adverse party, as to issues not alleged in the


pleadings, judgment may be rendered validly as regards those issues,
which shall be considered as if they have been raised in the pleadings.
There is implied consent to the evidence thus presented when the
adverse party fails to object thereto.

separate personality of the corporate entity for matters


unrelated to the issue.


NOTE: Atty. Hofilea
GENERAL RULE: The Corporation has a personality separate from
officers, stockholders and related companies.
EXCEPTION: When it is necessary to advance the cause of justice, the


NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)