UMALI V CA Facts: 1.

Santiago Rivera, one of the petitioners and nephew of Mauricia Castillo, another petitioner, proposed to the latter to convert the subject lands (4 parcels) to a subdivision since it was mortgaged to DBP but Mauricia failed to pay the amortizations and foreclosure was about to be initiated 2. To start conversion, Santiago, as president of Slobec Corp, entered into an agreement with Mauricia whereby he obliged himself to pay 70K after execution of the agreement and 400K after the property is converted to a subdivision 3. A contract of sale of two tractors with chattel mortgage was entered into between Slobec, represented by its president Santiago, as the buyer and Bormaheco as the seller. Tractors are to be paid in installment with downpayment 4. As added security for payment of the balance of the tractors, Slobec, again through president Santiago, obtained a surety bond from Insurance Corporation (respondent), with the latter as surety and Slobec as principal 5. Surety agreement with Insurance was secured by the 4 parcels of land as mortgage. 6. For violation of the mortgage agreement, mortgage was foreclosed by Insurance and Mauricias lands were sold in public auction to Insurance 7. No redemption was made by Mauricia and children (Castillos) so titles of the parcels of land were named to Insurance 8. Insurance sold the land to PM, respondent in this case, through its President, Mr. Modesto Cervantes 9. Castillos refused to vacate the land 10. Petitioners, all heirs of Felipe Castillo, original owner of the land, filed for annulment of title of PM alleging that all the aforementioned transactions were void for not obtaining the consent and approval of the Court of First Instance of Quezon where the intestate proceeding for Felipes estate is pending. 11. Trial Court: in favor of plaintiff. a. All transactions were declared null and void for being fictitious, spurious and without consideration. b. Titles of Insurance declared null and void. c. Damages awarded to plaintiff 12. CA: dismissed petitioners complaint a. Ordered Castillos to vacate the prop b. Pay defendants counterclaim Issues: 1. W/N the actions entered into between petitioner Santiago with Cervantes are all fair and regular and binding 2. W/N there was necessity to pierce the veil of corporate existence 3. W/N PM was a buyer in good faith and therefore titles in its favor should be upheld Ruling:

1. YES. Contracts entered into are not fraudulent or absolutely simulated. There is absolute simulation when the parties do not intend to be bound at all by the same. But in the case at bar: a. no fraud was employed by private respondents in the execution thereof and the evidence on record reveals that petitioners had every intention to be bound by their undertakings in the various transactions b. failure of Santiago to pay the consideration agreed upon in the sale, which is a breach of the contract, cannot be availed of by the guilty party to justify and support an action for the declaration of nullity of the contract. 2. NO. While we do not discount the possibility of the existence of fraud in the foreclosure proceeding, neither are we inclined to apply the doctrine invoked by petitioners in granting the relief sought. It is our considered opinion that piercing the veil of corporate entity is not the proper remedy in order that the foreclosure proceeding may be declared a nullity under the circumstances obtaining in the legal case at bar. a. The doctrine is applied only when it is sought to hold the officers and stockholders directly liable for a corporate debt or obligation. In the case at bar, it is these corporations which desire to enforce an alleged right against petitioners. b. 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 3. NO. The sale of 4 parcels of land by Insurance in favor of PM Parts is VOID. 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 of piercing the veil of corporate entity is applicable when: a. The corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime b. It is made as a shield to confuse the legitimate issues c. Where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation