DEFINITION AND ATTRIBUTES

OF A CORPORATION

it. The delivery man served instead a claim notice

to insure he would personally receive the money.
RTC ruled in favor of Carloto.

CASE NO. 1
On appeal, respondent court modified the
judgment by deleting the award of attorney's fees.

LBC EXPRESS, INC., petitioner,

vs.
THE COURT OF APPEALS, ADOLFO M.
CARLOTO, and RURAL BANK OF LABASON,
INC., respondents.

ISSUE:
Whether or not respondent Rural Bank of Labason
Inc., being an artificial person should be awarded
moral damages.

FACTS:
Respondent Carloto, incumbent President-Manager
of private respondent Rural Bank of Labason was
instructed by Central Bank Regional Office to
proceed to Manila on or before November 21, 1984
to follow-up the Rural Bank's plan of payment of
rediscounting obligations with Central Bank's main
office in Manila.

RULING:
No.
The respondent court erred in awarding moral
damages to the Rural Bank of Labason, Inc., an
artificial person.

He then purchased a round trip plane ticket to

Manila. He also phoned his sister Elsie CarlotoConcha to send him ONE THOUSAND PESOS
(P1,000.00) for his pocket money in going to Manila
and some rediscounting papers thru petitioner's
LBC Office at Dipolog City.

Moral damages are granted in recompense

for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation,
wounded feelings, moral shock, social
humiliation, and similar injury. 7 A
corporation, being an artificial person and
having existence only in legal contemplation,
has no feelings, no emotions, no senses;
therefore, it cannot experience physical
suffering and mental anguish. 8 Mental
suffering can be experienced only by one
having a nervous system and it flows from
real ills, sorrows, and griefs of life 9 all of
which cannot be suffered by respondent bank
as an artificial person.

On November 16, 1984, Mrs. Concha thru her clerk,

Adelina Antigo consigned thru LBC Dipolog Branch
the pertinent documents and the sum of ONE
THOUSAND PESOS (P1,000.00)
On November 17, 1984, the documents arrived
without the cashpack. Respondent Carloto made
personal follow-ups on that same day, and also on
November 19 and 20, 1984 at LBC's office in Cebu
but petitioner failed to deliver to him the cashpack.

CASE NO. 2

Consequently, respondent Carloto said he was

compelled to go to Dipolog City on November 24,
1984 to claim the money at LBC's office. His effort
was once more in vain. On November 27, 1984, he
went back to Cebu City at LBC's office. He was,
however, advised that the money has been
returned to LBC's office in Dipolog City upon
shipper's request. Again, he demanded for the ONE
THOUSAND PESOS (P1,000.00) and refund of
FORTY-NINE PESOS (P49.00) LBC revenue charges.
He received the money only on December 15, 1984
less the revenue charges.

TAMAYO VS UNIVERSITY OF NEGROS (to

follow)

Petitioner LBC alleged that it delivered the

cashpack. However, he was not around to receive

FACTS:

CASE NO. 3
G.R. No. L-22973

January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiffappellant,

vs.
PHILIPPINE NATIONAL BANK and ANACLETO
HERALDO Deputy Provincial Sheriff of
Camarines Norte,defendants-appellees.

PNB released from the approved loan the

sum of P27,500, and P15,500, respectively,
wherein the plaintiff signed a promissory
note promising to pay to the PNB the said
sums in 5 equal yearly installments
beginning July 31, 1957, and every year
thereafter, the last of which would be on
July 31, 1961.

The plaintiff failed to pay the amortization

on the amounts released to and received
by it. Repeated demands were made upon
the plaintiff to pay its obligation but it
failed or otherwise refused to do so. Upon
inspection and verification made by
employees of the PNB, it was found that
the plaintiff had already stopped operation
about the end of 1957 or early part of
1958.

The PNB requested the Provincial Sheriff of

Camarines Norte to take possession of (1)
the parcel of land (TCT No. 381) and its
improvements owned by plaintiff, and (2)
the logging and transportation equipment
to sell it at public auction.

The plaintiff sent separate letters to the

PNB Naga Branch and to the Provincial
Sheriff of Camarines Norte, protesting
against the foreclosure of the real estate
and chattel mortgages. It intimated that if
the public auction sale would be suspended
and the plaintiff would be given an
extension of ninety (90) days, its obligation
would be settled satisfactorily because an
important negotiation was then going on
for the sale of its "whole interest" for an
amount more than sufficient to liquidate
said obligation.

plaintiff to redeem the same within a

period of one year.

Plaintiff applied for an industrial with PNB

Naga Branch. It offered real estate,
machinery, logging and transportation
equipments as collaterals. The application
was approved for a loan of P100,000 only.
To secure the payment of the loan, the
plaintiff mortgaged to PNB a parcel of land
(covered with TCT No. 381), together with
the buildings and improvements existing
thereon, situated in the poblacion of Jose
Panganiban (formerly Mambulao), province
of Camarines Norte, as well as various
sawmill equipment, rolling unit and other
fixed assets in its compound.

As a result, PNB Naga Branch advised the

Sheriff of Camarines Norte to defer the
auction, however, the foreclosure sale of
the parcel of land, together with the
buildings and improvements, covered by
TCT No. 381, was made. The said property
was sold to the PNB for the sum of
P56,908.00, subject to the right of the

The plaintiff then sent a bank draft for

P738.59 to PNB Naga Branch, allegedly in
full settlement of the balance of the
obligation of the plaintiff after the
application thereto of the sum of
P56,908.00 representing the proceeds of
the foreclosure sale of parcel of land in TCT
No. 381. In the said letter, the plaintiff
reiterated its request that the foreclosure
sale of the mortgaged chattels be
discontinued.

The plaintiff advised the Provincial Sheriff

of Camarines Norte that it had fully paid its
obligation to the PNB. The Attorney of PNB
Naga Branch wrote to the plaintiff
acknowledging the remittance of P738.59
however, he stated that the balance of
plaintiff was P9,161.76, to which should be
added the expenses of guarding the
mortgaged chattels at the rate of P4.00 a
day beginning December 19, 1961. It was
further explained in said letter that the
sum of P57,646.59, which was stated in the
request for the foreclosure of the real
estate mortgage, did not include the 10%
attorney's fees and expenses of the sale.
Accordingly, the plaintiff was advised that
the foreclosure sale scheduled on the 21st
of said month would be stopped if a
remittance of P9,161.76, plus interest
thereon and guarding fees, would be made.

On December 21, 1961, the foreclosure

sale of the mortgaged chattels was held
and they were awarded to the PNB. The
Manager of PNB Naga Branch advised the
plaintiff to repurchase the chattels and that
he should exercise his right of redemption
and apply for the condonation of the
attorney's fees. The plaintiff did not follow
the advice but on the contrary it made
known of its intention to file appropriate
action or actions for the protection of its
interests.

On May 24, 1962, several employees of the

PNB arrived in the compound of the
plaintiff and the Chief Security Guard
therein that the properties had been
auctioned and bought by the PNB, which in
turn sold them to Mariano Bundok. Salgado
immediately sent a wire to the President of
the plaintiff in Manila, asking advice as to
what he should do. He received a telegram
from the plaintiff's President directing him
not to deliver the "chattels" without court
order, with the information that the
company was then filing an action for
damages against the PNB.

On the following two trucks and men of

Mariano Bundok arrived and they were able
to haul the properties our of the plaintiffs
premises.

Plaintiff filed an action against PNB. The

trial court rendered a decision, in favour of
the bank. Mambulao Lumber Company
interposed an appeal, seeking reversal of
the decision, advancing the following
proposition:

P10,000.00. The circumstances of the case

also warrant the award of P3,000.00 as
attorney's fees for herein appellant.
CASE NO. 4
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA),
INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and
TRADERS ROYAL BANK, respondents.

That for the acts of the PNB in proceeding

with the sale of the chattels, in utter
disregard of plaintiff's vigorous opposition
thereto, and in taking possession thereof
after the sale thru force, intimidation,
coercion, and by detaining its "man-incharge" of said properties, the PNB is liable
to plaintiff for damages and attorney's
fees.

We are concerned in this case with the question of

damages, specifically moral and exemplary
damages. The negligence of the private
respondent has already been established. All we
have to ascertain is whether the petitioner is
entitled to the said damages and, if so, in what
amounts.

ISSUE: Whether or not a corporation can claim for

moral damages in the case at bar?
RULING:

Herein appellant's claim for moral

damages, however, seems to have no legal
or factual basis. An artificial person like
herein appellant corporation cannot
experience physical sufferings, mental
anguish, fright, serious anxiety, wounded
feelings, moral shock or social humiliation
which are basis of moral damages. A
corporation may have a good reputation
which, if besmirched, may also be a ground
for the award of moral damages.

The parties agree on the basic facts. The petitioner

is a private corporation engaged in the exportation
of food products. It buys these products from
various local suppliers and then sells them abroad,
particularly in the United States, Canada and the
Middle East. Most of its exports are purchased by
the petitioner on credit.

The same cannot be considered under the

facts of this case, however, not only
because it is admitted that herein appellant
had already ceased in its business
operation at the time of the foreclosure
sale of the chattels, but also for the reason
that whatever adverse effects of the
foreclosure sale of the chattels could have
upon its reputation or business standing
would undoubtedly be the same whether
the sale was conducted at Jose Panganiban,
Camarines Norte, or in Manila which is the
place agreed upon by the parties in the
mortgage contract.

FACTS:

For the wrongful acts of herein appellee

bank and the deputy sheriff of Camarines
Norte in proceeding with the sale in utter
disregard of the agreement to have the
chattels sold in Manila as provided for in
the mortgage contract, to which their
attentions were timely called by herein
appellant, and in disposing of the chattels
in gross for the miserable amount of
P4,200.00, herein appellant should be
awarded exemplary damages in the sum of

The petitioner was a depositor of the

respondent bank and maintained a
checking account in its branch at Romulo
Avenue, Cubao, Quezon City. On May 25,
1981, it deposited to its account the
amount of P100,000.00, thus increasing its
balance as of that date to
P190,380.74. Subsequently, the petitioner
issued several checks against its deposit
but was suprised to learn later that they
had been dishonored for insufficient funds.

As a consequence, suppliers of the

petitioner sent letters of demand
threatening prosecution if the dishonored

checks issued to it were not made good. It

also withheld delivery of the orders made
by the petitioner.

1.

The Court held that the negligence of the

private respondent had been brushed off
rather lightly as if it were a minor infraction
requiring no more than a slap on the wrist.
It stated that the private respondents
rectification of its records and crediting
back to the petitioners account the deposit
in less than a month is not enough. The
error should not have been committed in
the first place.

The initial carelessness of the respondent

bank, aggravated by the lack of
promptitude in repairing its error, justifies
the grant of moral damages. This rather
lackadaisical attitude toward the
complaining depositor constituted gross
negligence, if not wanton bad faith. The
fact is that the petitioner's credit line was
canceled and its orders were not acted
upon pending receipt of actual payment by
the suppliers. Its business declined. Its
reputation was tarnished. Its standing was
reduced in the business community. All this
was due to the fault of the respondent
bank which was undeniably remiss in its
duty to the petitioner.

There is no question that the petitioner did

sustain actual injury as a result of the
dishonored checks and that the existence
of the loss having been established
"absolute certainty as to its amount is not
required." Such injury should bolster all the
more the demand of the petitioner for
moral damages and justifies the
examination by this Court of the validity
and reasonableness of the said claim.

The petitioner complained to the

respondent bank on June 10, 1981. An
investigation disclosed that the sum of
P100,000.00 deposited by the petitioner on
May 25, 1981, had not been credited to it.
The error was rectified on June 17, 1981,
and the dishonored checks were paid after
they were re-deposited.

In its letter dated June 20, 1981, the

petitioner demanded reparation from the
respondent bank for its "gross and wanton
negligence." This demand was not met.
The petitioner then filed a complaint in the
CFI of Rizal, claiming from the private
respondent moral damages in the sum of
P1,000,000.00 and exemplary damages in
the sum of P500,000.00, plus 25%
attorney's fees, and costs.

Judge Johnico G. Serquinia rendered

judgment holding that moral and
exemplary damages were not called for
under the circumstances. However,
observing that the plaintiff's right had been
violated, he ordered the defendant to pay
nominal damages in the amount of
P20,000.00 plus P5,000.00 attorney's fees
and costs. This decision was affirmed in
toto by the respondent court.

ISSUE: 1. Whether or not the petitioner in the case

at bar is entitled to moral damages?

2. However, the petitioner's claim of moral

damages in the amount of P1,000,000.00 is
nothing short of preposterous. Its business
certainly is not that big, or its name that
prestigious, to sustain such an extravagant
pretense. Moreover, a corporation is not as
a rule entitled to moral damages because,
not being a natural person, it cannot
experience physical suffering or such

2. Whether the petitioner is entitled to its

claim of P1,000,000.00 for moral damages?

RULING:

sentiments as wounded feelings, serious

anxiety, mental anguish and moral shock.
The only exception to this rule is
where the corporation has a good
reputation that is debased, resulting
in its social humiliation.

for petitioner's corporate loan of three million

pesos.

We recognize that the petitioner suffered

injury because of the private respondent's
negligence that caused the dishonor of the
checks issued by it. The immediate
consequence was that its prestige was
impaired because of the bouncing checks
and confidence in it as a reliable debtor
was diminished. The private respondent
makes much of the one instance when the
petitioner was sued in a collection case,
but that did not prove that it did not have a
good reputation that could not be marred,
more so since that case was ultimately
settled. It does not appear that, as the
private respondent would portray it, the
petitioner is an unsavory and disreputable
entity that has no good name to protect.

Respondent bank applied for an extrajudicial

foreclosure of the chattel mortgage. Petitioner
Corporation filed an action for injunction, with
damages and a prayer for a writ of preliminary
injunction before the RTC.

This loan and another additional loan were

paid by Petitioner Corporation.
The bank yet again extended to petitioner
corporation a loan of P1, 000,000.00 covered by
four promissory notes for P250,000.00 each. Due
to financial constraints, the loan was not settled at
maturity.

RTC: dismissed the complaint and ordered the

foreclosure of the chattel mortgage. It held the
corporation bound by the stipulations of the chattel
mortgage.
CA: affirmed RTC
2nd
Motion
for
reconsideration
petitioner: granted. reinstated the petition.

by

While a pledge, real estate mortgage, or

antichresis may exceptionally secure after-incurred
obligations so long as these future debts are
accurately described,a chattel mortgage, however,
can only cover obligations existing at the time the
mortgage
is
constituted. Although
a promise expressed in a chattel mortgage to
include debts that are yet to be contracted can be
a binding commitment that can be compelled
upon, the security itself, however, does not come
into existence or arise until after a chattel
mortgage
agreement
covering
the
newly
contracted debt is executed either by concluding a
fresh chattel mortgage or by amending the old
contract conformably with the form prescribed by
the Chattel Mortgage Law. Refusal on the part of
the borrower to execute the agreement so as to
cover the after-incurred obligation can constitute
an act of default on the part of the borrower of the
financing agreement whereon the promise is
written but, of course, the remedy of foreclosure
can only cover the debts extant at the time of
constitution and during the life of the chattel
mortgage sought to be foreclosed.

As we have found that the petitioner has

indeed incurred loss through the fault of
the private respondent, the proper remedy
is the award to it of moral damages, which
we impose, in our discretion, in the same
amount of P20,000.00.

CASE NO. 5
ACME SHOE, RUBBER & PLASTIC
CORPORATION and CHUA PAC, petitioners,
vs. COURT OF APPEALS, PRODUCERS BANK
OF THE PHILIPPINES and REGIONAL SHERIFF
OF CALOOCAN CITY, respondents

In the chattel mortgage here involved, the

only obligation specified in the chattel mortgage
contract was the P3,000,000.00 loan which
petitioner corporation later fully paid. By virtue of
Section 3 of the Chattel Mortgage Law, the
payment of the obligation automatically rendered
the chattel mortgage void or terminated. In Belgian
Catholic Missionaries, Inc., vs. Magallanes Press,
Inc., et al. the Court said -

VITUG, J.:
Would it be valid and effective to have a
clause in a chattel mortgage that purports to
likewise extend its coverage to obligations yet to
be contracted or incurred? This question is the core
issue in the instant petition for review on certiorari.
Petitioner Chua Pac, the president and general
manager of co-petitioner "Acme Shoe, Rubber &
Plastic Corporation," executed for and in behalf of
the company, a chattel mortgage in favor of
private respondent Producers Bank of the
Philippines. The mortgage stood by way of security

"x x x A mortgage that contains a stipulation in

regard to future advances in the credit will take
effect only from the date the same are made and
not from the date of the mortgage.

The significance of the ruling to the instant

problem would be that since the 1978 chattel
mortgage had ceased to exist coincidentally with
the full payment of the P3,000,000.00 loan there
no longer was any chattel mortgage that could
cover the new loans that were concluded
thereafter.

Subdivision in Antipolo, Rizal, and owned by said

corporation. The sale price was P23,300.00 with
9% interest per annum, payable with a
downpayment
of
P4,660.00
and
monthly
installments of P246.42 until fully paid. Paragraph
6 of the contract provided for automatic
extrajudicial rescission upon default in payment of
any monthly installment after the lapse of 90 days
from the expiration of the grace period of one
month, without need of notice and with forfeiture
of all installments paid.

ISSUE: w/n petitioner can recover moral

damages from respondent bank?
HELD: We find no merit in petitioner corporation's
other prayer that the case should be remanded to
the trial court for a specific finding on the amount
of damages it has sustained "as a result of the
unlawful action taken by respondent bank against
it."This prayer is not reflected in its complaint
which has merely asked for the amount of
P3,000,000.00 by way of moral damages. In LBC
Express, Inc. vs. Court of Appeals, we have said:

Respondent Dumpit paid the downpayment and

several installments . The last payment was made
on December 5, 1967 for installments up to
September 1967.
On May 10, 1973, or almost six (6) years later,
private respondent wrote petitioner offering to
update all his overdue accounts with interest, and
seeking its written consent to the assignment of his
rights to a certain Lourdes Dizon. He followed this
up with another letter dated June 20, 1973
reiterating the same request. Replying petitioners
informed respondent that his Contract to Sell had
long been rescinded pursuant to paragraph 6 of the
contract, and that the lot had already been resold.

"Moral damages are granted in recompense

for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and
similar injury. A corporation, being an artificial
person and having existence only in legal
contemplation, has no feelings, no emotions,
no senses; therefore, it cannot experience
physical
suffering
and
mental
anguish. Mental suffering can be experienced
only by one having a nervous system and it
flows from real ills, sorrows, and griefs of life
- all of which cannot be suffered by
respondent bank as an artificial person."

Questioning the validity of the rescission of the

contract, respondent filed a letter complaint with
the National Housing Authority (NHA) for
reconveyance with an alternative prayer for refund.

While Chua Pac is included in the case, the

complaint, however, clearly states that he has
merely
been
so
named
as
a
party
in representation of Petitioner Corporation.

NHA Resolution: finding the rescission void in the

absence of either judicial or notarial demand,
ordered Palay, Inc. and Alberto Onstott in his
capacity as President of the corporation, jointly and
severally, to refund immediately to Nazario
Dumpit.

WHEREFORE, the questioned decisions of the

appellate court and the lower court are set aside
without prejudice to the appropriate legal recourse
by private respondent as may still be warranted as
an unsecured creditor.

Appeal to the Office of the President: affirmed the

Resolution.

CASE NO. 6
G.R.No. L-56076 September 21, 1983

Thus, the present petition.

PALAY, INC. and ALBERT ONSTOTT, petitioner,

vs.
JACOBO C. CLAVE, Presidential Executive
Assistant NATIONAL HOUSING AUTHORITY
and NAZARIO DUMPIT respondents.

ISSUE: 1. whether petitioners may be held liable

for the refund of the installment payments made
by respondent Nazario M. Dumpit. (Only the
corporation is liable)
2. Whether the doctrine of piercing the veil
of corporate fiction has application to the case at
bar. ( No)

MELENCIO-HERRERA, J.:
On March 28, 1965, petitioner Palay, Inc., through
its President, Albert Onstott executed in favor of
private respondent, Nazario Dumpit, a Contract to
Sell a parcel of Land of the Crestview Heights

HELD: 1. Article 1385 of the Civil Code provides:

ART. 1385. Rescission creates the

obligation to return the things
which were the object of the
contract, together with their fruits,
and the price with its interest;
consequently, it can be carried out
only when he who demands
rescission can return whatever he
may be obliged to restore.

to perpetuate fraud or confuse legitimate

issues; or to circumvent the law or
perpetuate deception; or as an alter ego,
adjunct or business conduit for the sole
benefit of the stockholders.
We find no badges of fraud on petitioners' part.
They had literally relied, albeit mistakenly, on its
contract with private respondent when it rescinded
the contract to sell extrajudicially and had sold it to
a third person.

Neither sham rescission take place

when the things which are the
object of the contract are legally in
the possession of third persons
who did not act in bad faith.

In this case, petitioner Onstott was made liable

because he was then the President of the
corporation and he appears to be the controlling
stockholder. No sufficient proof exists on record
that said petitioner used the corporation to defraud
private respondent. He cannot, therefore, be
made personally liable just because he
"appears to be the controlling stockholder".
Mere ownership by a single stockholder or by
another corporation is not of itself sufficient ground
for
disregarding
the
separate
corporate
personality. In this respect then, a modification of
the Resolution under review is called for.

In this case, indemnity for damages

may be demanded from the person
causing the loss.
As a consequence of the resolution by petitioners,
rights to the lot should be restored to private
respondent or the same should be replaced by
another acceptable lot. However, considering that
the property had already been sold to a third
person and there is no evidence on record that
other lots are still available, private respondent is
entitled to the refund of installments paid plus
interest at the legal rate of 12% computed from the
date of the institution of the action. It would be
most inequitable if petitioners were to be allowed
to retain private respondent's payments and at the
same time appropriate the proceeds of the second
sale to another.

WHEREFORE, the questioned Resolution of

respondent public official, dated May 2, 1980, is
hereby modified. Petitioner Palay, Inc. is directed to
refund to respondent Nazario M. Dumpit the
amount of P13,722.50, with interest at twelve
(12%) percent per annum from November 8, 1974,
the date of the filing of the Complaint.
CASE NO. 7

2nd issue: regarding the personal liability of

petitioner Onstott who was made jointly and
severally liable with petitioner corporation for
refund to private respondent of the total amount
the latter had paid to petitioner company.

JARDINE DAVIES INC. v.COURT OF APPEALS

and FAR EAST MILLS SUPPLY CORPORATION
GR No. 128066 (June 19, 2000)
PURE FOODS CORPORATION v.NCOURT OF
APPEALS and FAR EAST MILLS SUPPLY
CORPORATION,

It is basic that a corporation is invested by

law with a personality separate and distinct
from those of the persons composing it as
when as from that of any other legal entity to
which it may be related. As a general rule, a
corporation may not be made to answer for
acts or liabilities of its stockholders or those
of the legal entities to which it may be
connected and vice versa. However, the veil
of corporate fiction may be pierced when it is
used as a shield to further an end subversive
of justice; or for purposes that could not
have been intended by the law that created
it; or to defeat public convenience, justify
wrong, protect fraud, or defend crime. ; Or

BELLOSILLO, J.
The controversy started in 1992 at the height of
the power crisis which the country was then
experiencing. To remedy and curtail further losses
due to the series of power failures, petitioner PURE
FOODS CORPORATION (PUREFOODS) decided to
install two (2) 1500 KW generators in its food
processing plant in San Roque, Marikina City.
Out of the eight (8) prospective bidders who
attended the pre-bidding conference, only three (3)
bidders, namely, respondent FAR EAST MILLS

SUPPLY
CORPORATION
(hereafter
FEMSCO),
MONARK and ADVANCE POWER submitted bid
proposals and gave bid bonds equivalent to 5% of
their respective bids, as required.

flagrant violation of the express provisions of the

law and is contrary to fair and just dealings to
which every man is due.
This Court has awarded in the past moral damages
to a corporation whose reputation has been
besmirched. In the instant case, respondent
FEMSCO has sufficiently shown that its reputation
was tarnished after it immediately ordered
equipment from its suppliers on account of the
urgency of the project, only to be canceled later.
We thus sustain respondent appellate court's
award of moral damages. (However, the award of
moral damages was reduced to P1 million, as moral
damages are never intended to enrich the
recipient).

Thereafter, in a letter dated 12 December 1992

addressed to FEMSCO President Alfonso Po,
PUREFOODS confirmed the award of the contract to
FEMSCO.
Immediately, FEMSCO submitted the required
performance bond and contractor's all-risk
insurance policy which PUREFOODS through its
Vice President Benedicto G. Tope acknowledged in
a letter dated 18 December 1992. FEMSCO also
made arrangements with its principal and started
the PUREFOODS project by purchasing the
necessary materials.

The CA Decision is AFFIRMED with modification as

to amount of damages and insofar as the Order
requiring JARDINE to pay for moral damages, the
same is SET ASIDE (no sufficient evidence was
adduced to prove that JARDINE connived with
PUREFOODS in the cancellation of the contract.)

Later, however, in a letter dated 22 December

1992, PUREFOODS through its Senior Vice
President Teodoro L. Dimayuga unilaterally
canceled the award as "significant factors were
uncovered and brought to (their) attention which
dictate (the) cancellation and warrant a total
review and re-bid of (the) project." Consequently,
FEMSCO protested the cancellation of the award
and sought a meeting with PUREFOODS. However,
on 26 March 1993, before the matter could be
resolved, PUREFOODS already awarded the project
and entered into a contract with JARDINE NELL, a
division of Jardine Davies, Inc. (hereafter JARDINE),
which incidentally was not one of the bidders.

CASE 8
FILIPINAS BROADCASTING NETWORK, INC.
v.
AGO MEDICAL AND EDUCATIONAL CENTERBICOL CHRISTIAN COLLEGE OF MEDICINE,
(AMEC-BCCM) and ANGELITA F. AGO

FEMSCO sued both PUREFOODS and JARDINE:

PUREFOODS for reneging on its contract, and
JARDINE for its unwarranted interference and
inducement.

GR No. 141994 (January 17, 2005)

CARPIO, J.

RTC: Granted Demurrer to Evidence filed by

Jardine. Ordered PUREFOODS to indemnify FEMSCO
for the value of engineering services it rendered,
attorneys fees, and costs.

"Expos" is a radio documentary program hosted

by Carmelo Mel Rima (Rima) and Hermogenes
Jun Alegre (Alegre). Expos is aired every morning
over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc. (FBNI) and is heard over
Legazpi City, the Albay municipalities and other
Bicol areas.

CA: AFFIRMED in toto the lower court decision. Also

ordered JARDINE to pay FEMSCO P2 million for
moral damages (for inducing PUREFOODS to
violate its contract with FEMSCO). PUREFOODS was
also ordered to pay P2 million for moral damages.

In the morning of 14 and 15 December 1989, Rima

and Alegre exposed various alleged complaints
from students, teachers and parents against Ago
Medical and Educational Center-Bicol Christian
College of Medicine (AMEC) and its administrators.
Claiming that the broadcasts were defamatory,
AMEC and Angelita Ago ("Ago"), as Dean of AMECs
College of Medicine, filed a complaint for damages
against FBNI, Rima and Alegre on 27 February
1990.

ISSUE: WON FEMSCO, AN ARTIFICIAL PERSON, IS

ENTITLED TO MORAL DAMAGES.
HELD:
By the unilateral cancellation of the contract,
PUREFOODS acted with bad faith and this was
further aggravated by the subsequent inking of a
contract between defendant Purefoods JARDINE. It
is very evident that PUREFOODS thought that by
the expedient means of merely writing a letter
would automatically cancel or nullify the existing
contract entered into by both parties after a
process of bidding. This, to the Court's mind, is a

[YOU MAY SKIP THIS PART]. Quoted are portions of

the allegedly libelous broadcasts:

Let us begin with the less burdensome: if you have

children taking medical course at AMEC-BCCM,
advise them to pass all subjects because if they fail
in any subject they will repeat their year level,
taking up all subjects including those they have
passed already. Several students had approached
me stating that they had consulted with the DECS
which told them that there is no such regulation. If
[there] is no such regulation why is AMEC doing
the same?

if she is very old. As in atmospheric situation zero

visibility the plane cannot land, meaning she is
very old, low pay follows. By the way, Dean Justita
Lola is also the chairman of the committee on
scholarship in AMEC. She had retired from Bicol
University a long time ago but AMEC has patiently
made use of her.

The complaint alleged that AMEC is a reputable

learning institution. With the supposed exposs,
FBNI, Rima and Alegre "transmitted malicious
imputations, and as such, destroyed plaintiffs
(AMEC and Ago) reputation." AMEC and Ago
included FBNI as defendant for allegedly failing to
exercise due diligence in the selection and
supervision of its employees, particularly Rima and
Alegre.

Second: Earlier AMEC students in Physical Therapy

had complained that the course is not recognized
by DECS.
Third: Students are required to take and pay for
the subject even if the subject does not have an
instructor - such greed for money on the part of
AMECs administration. Take the subject Anatomy:
students would pay for the subject upon enrolment
because it is offered by the school. However there
would be no instructor for such subject. Students
would be informed that course would be moved to
a later date because the school is still searching for
the appropriate instructor.

FBNI, Rima and Alegre, through Atty. Rozil Lozares,

filed an Answer alleging that the broadcasts
against AMEC were fair and true. FBNI, Rima and
Alegre claimed that they were plainly impelled by a
sense of public duty to report the "goings-on in
AMEC, [which is] an institution imbued with public
interest."

It is a public knowledge that the Ago Medical and

Educational Center has survived and has been
surviving for the past few years since its inception
because of funds support from foreign foundations.
If you will take a look at the AMEC premises youll
find out that the names of the buildings there are
foreign soundings. There is a McDonald Hall. Why
not Jose Rizal or Bonifacio Hall? That is a very
concrete and undeniable evidence that the support
of foreign foundations for AMEC is substantial, isnt
it? With the report which is the basis of the expose
in DZRC today, it would be very easy for detractors
and enemies of the Ago family to stop the flow of
support of foreign foundations who assist the
medical school on the basis of the latters purpose.
But if the purpose of the institution (AMEC) is to
deceive students at cross purpose with its reason
for being it is possible for these foreign foundations
to lift or suspend their donations temporarily.

RTC: The broadcasts are libelous per se.

Defendants were ordered to pay P300, 000 for
moral damages.
CA: UPHELD lower court ruling.

ISSUE: WON
DAMAGES.

AMEC

IS

ENTITLED

TO

MORAL

HELD:
A libel is a public and malicious imputation of a
crime, or of a vice or defect, real or imaginary, or
any act or omission, condition, status, or
circumstance tending to cause the dishonor,
discredit, or contempt of a natural or juridical
person, or to blacken the memory of one who is
dead.

On the other hand, the administrators of AMECBCCM, AMEC Science High School and the AMECInstitute of Mass Communication in their effort to
minimize expenses in terms of salary are
absorbing or continues to accept "rejects". For
example how many teachers in AMEC are former
teachers of Aquinas University but were removed
because of immorality? Does it mean that the
present administration of AMEC have the total
definite
moral
foundation
from
catholic
administrator of Aquinas University. I will prove to
you my friends, that AMEC is a dumping ground,
garbage, not merely of moral and physical misfits.
Probably they only qualify in terms of intellect. The
Dean of Student Affairs of AMEC is Justita Lola, as
the family name implies. She is too old to work,
being an old woman. Is the AMEC administration
exploiting the very [e]nterprising or compromising
and undemanding Lola? Could it be that AMEC is
just patiently making use of Dean Justita Lola were

There is no question that the broadcasts were

made public and imputed to AMEC defects or
circumstances tending to cause it dishonor,
discredit and contempt.

A juridical person is generally not entitled to moral

damages because, unlike a natural person, it
cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock. The Court of
Appeals cites Mambulao Lumber Co. v. PNB, et al.
to justify the award of moral damages. However,
the Courts statement in Mambulao that "a
corporation may have a good reputation which, if
besmirched, may also be a ground for the award of
moral damages" is an obiter dictum.

Aerocom in all corporations where it owns shares of

stock. Commenting thereon,[7] the PCGG opposed
the release of the dividends on the argument that
the fact that plaintiff (Aerocom) is mentioned in
Annex A of the complaint filed in Civil Case No.
0009 is a clear indication that the shares thereof
are likewise sequestered.
ISSUE: 1.) WON the annexing of the list of
firms in the complaint but without impleading
them satisfy the constitutional requirement
of seizure.

Nevertheless, AMECs claim for moral damages

falls under item 7 of Article 221943 of the Civil
Code. This provision expressly authorizes the
recovery of moral damages in cases of libel,
slander or any other form of defamation. Article
2219(7) does not qualify whether the plaintiff is a
natural or juridical person. Therefore, a juridical
person such as a corporation can validly complain
for libel or any other form of defamation and claim
for moral damages.

RULING: The suit against Mr. Nieto and Mr. Africa

as shareholders in Aerocom is not and cannot ipso
facto be a suit against the unimpleaded Aerocom
itself without violating the fundamental principle
that a corporation has a legal personality distinct
and separate from its stockholders. Such is the
ruling laid down in PCGG v. Interco[19] reiterated
anew in a case of more recent vintage - Republic v.
Sandiganbayan, Sipalay Trading Corp. and Allied
Banking Corp.[20] where this Court, speaking
through Mr. Justice Ricardo J. Francisco, [21] hewed to
the lone dissent of Mr. Justice Teodoro R.
Padilla[22] in the very same Republic v.
Sandiganbayan case herein invoked by the PCGG,
to wit:

However, the award of P300,000 moral damages is

unreasonable. AMEC has not suffered any
substantial or material damage to its reputation.
Therefore, amount is reduced to P150, 000.
CASE NO. 9
[G.R. No. 125788. June 5, 1998]
THE PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG), petitioner,
vs. HON. SANDIGANBAYAN and
AEROCOM INVESTORS & MANAGERS,
INC., respondents.

x x x failure to implead these corporations as

defendants and merely annexing a list of such
corporations to the complaints is a violation of their
right to due process for it would in effect be
disregarding their distinct and separate personality
without a hearing.

FACTS:
In its continuing search for ill-gotten wealth,
(PCGG) filed in the Sandiganbayan on July 22, 1987
a case for reconveyance, reversion, accounting,
restitution and damages against Manuel H. Nieto,
Jose L. Africa, Roberto S. Benedicto, Potenciano
Ilusorio, Juan Ponce Enrile and Ferdinand Marcos, Jr.
alleging, in substance, that said defendants
as dummies of the late strongman and devised
schemes and strategems
to monopolize the telecommunications
industry. Annexed to the complaint is a listing of
the assets of defendants Nieto and Africa, among
which are their shares of stock in private
respondent Aerocom Investors and Managers, Inc.
(Aerocom).[1]

In cases where stocks of a corporation were

allegedly the fruits of ill-gotten wealth, it should be
remembered that in most of these cases the stocks
involved constitute a substantial if not controlling
interest in the corporations. The basic tenets of fair
play demand that these corporations be impleaded
as defendants since a judgment in favor of the
government will undoubtedly substantially and
decisively affect the corporations as distinct
entities. The judgment could strip
them of everything without being previously heard
as they are not parties to the action in which the
judgment is rendered.
x x x. Holding that the `corresponding judicial
action or proceeding contemplated by the
Constitution is any action concerning or involving
the corporation under sequestration is

During the pendency of the case, Aerocom

filed a Manifestation and Motion[6] praying that the
Sandiganbayan direct the PCGG to release and
distribute the dividends pertaining to the shares of

10

oversimplifying the solution, the result of which is

antagonistic to the principles of justice and fair
play.

RULING: In the case at bar, the supposed

payments were not made to Roces-Reyes Realty,
Inc. or to its successor in interest nor is there
positive evidence that the payment was made to a
person authorized to receive it. No such proof was
submitted but merely inferred by the Regional Trial
from Marcos Roces having signed the Lease
Contract as President which was witnessed by
Jesus Marcos Roces. The latter, however, was no
longer President or even an officer of Roces-Reyes
Realty, Inc. at the time he received the money
(Exhibit "1") and signed the sale with pacto de
retro (Exhibit "2"). He, in fact, denied being in
possession of authority to receive payment for the
respondent corporation nor does the receipt show
that he signed in the same capacity as he did in
the Lease Contract at a time when he was
President for respondent corporation (Rollo, p. 20,
MTC decision).

x x x the actions contemplated by the Constitution

should be those which include the corporation not
as a mere annex to the complaint but as
defendant. This is the minimum requirement of the
due process guarantee.Short of being impleaded,
the corporation has no standing in the judicial
action. It cannot adequately defend itself. It may
not even be heard.
WHEREFORE, the instant petition is hereby
DISMISSED. The assailed Resolutions of the
Sandiganbayan promulgated on January 31, 1996
and May 7, 1996 are AFFIRMED in their entirety.

On the other hand, Jesus Marcos Roces testified

that the amount of P1 million evidenced by the
receipt (Exhibit "1") is the payment for a loan
extended by him and Marcos Roces in favor of Lim
Ka Ping. The assertion is home by the receipt itself
whereby they acknowledged payment of the loan
in their names and in no other capacity.

CASE NO. 10
G.R. No. 82797

February 27, 1991

GOOD EARTH EMPORIUM INC., and LIM KA

PING, petitioners, vs.
HONORABLE COURT OF APPEALS and ROCESREYES REALTY INC., respondents.

A corporation has a personality distinct and

separate from its individual stockholders or
members. Being an officer or stockholder of a
corporation does not make one's property also of
the corporation, and vice-versa, for they are
separate entities (Traders Royal Bank v. CA-G.R. No.
78412, September 26, 1989; Cruz v. Dalisay, 152
SCRA 482). Shareowners are in no legal sense the
owners of corporate property (or credits) which is
owned by the corporation as a distinct legal person
(Concepcion Magsaysay-Labrador v. CA-G.R. No.
58168, December 19, 1989). As a consequence of
the separate juridical personality of a corporation,
the 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 .

FACTS:
A Lease Contract, was entered into by and between
ROCES-REYES REALTY, INC., as lessor, and GOOD
EARTH EMPORIUM, INC., as lessee, for a term of
three years beginning November 1, 1981 and
ending October 31, 1984 at a monthly rental of
P65,000.00. It had defaulted in the payment of
rentals, as a consequence of which, private
respondent ROCES filed an ejectment case
(Unlawful Detainer) against herein petitioners, GEE.
The lower court ordered them to vacate. Roces
filed a motion for execution which was opposed by
GEE simultaneous with the latter's filing of a Notice
of Appeal.

In addition, the totality of the amount covered by

the receipt (Exhibit "1/A") and that of the sale
with pacto de retro(Exhibit "2/B") all in the sum of
P2 million, far exceeds petitioners' judgment
obligation in favor of respondent corporation in the
sum of P1,560,000.00 by P440,000.00, which
militates against the claim of petitioner that the
aforesaid amount (P2M) was in full payment of the
judgment obligation.

On June 14, 1984, a writ of execution was issued by

the lower court. Meanwhile on appeal, the Regional
Trial Court of Manila, finding that the amount of P1
million evidenced and another P1 million
evidenced by the pacto de retro sale instrument
were in full satisfaction of the judgment obligation,
reversed the decision of the Municipal Trial Court,
quashing the writ of execution and ordering the
cancellation of the notice of levy and declaring the
judgment debt as having been fully paid and/or
Liquidated.

PREMISES CONSIDERED, the petition is hereby

DENIED and the Decision of the Respondent court
is hereby AFFIRMED, reinstating the April 8, 1985
Resolution of the Metropolitan Trial Court of Manila.

ISSUE: WON there was full satisfaction of the

judgment debt in favor of respondent corporation
which would justify the quashing of the Writ of
Execution. NO

CASE NO. 11

11

ENGR.
RANULFO
C.
FELICIANO
COMMISSION ON AUDIT
G.R. No. 147402
January 14, 2004

vs

"government-owned and controlled corporations

with original charters" as well as "other
government-owned or controlled corporations"
without original charters.

Facts:

The Constitution recognizes two classes of

corporations.
The
first
refers
to
private
corporations created under a general law. The
second refers to government-owned or controlled
corporations created by special charters.

A Special Audit Team from COA Regional

Office No. VIII audited the accounts of
Leyte Metropolitan Water District (LMWD)
Subsequently, LMWD received a letter from
COA requesting payment of auditing fees
As General Manager of LMWD, petitioner
sent a reply informing COAs Regional
Director that the water district could not
pay the auditing fees and cited as basis
Sections 6 and 20 of PD 198 and Section
18 of RA 675
Petitioner then wrote COA through the
Regional Director asking for refund of all
auditing fees LMWD previously paid to COA
Petitioner contended that they are private
corporations and not a government-owned
and controlled corporation, hence, not
under the audit jurisdiction of the COA.
Moreover, he also stated that what PD 198
created was the Local Waters Utilities
Administration ("LWUA") and not the LWDs.
Thus, he concluded that PD 198 is not an
"original charter" that would place LWDs
within the audit jurisdiction of COA.
Petitioners request was denied by COA. He
then filed a motion for reconsideration but
was again denied
Hence, petitioner filed this a petition for
certiorari to annul the COA decision
denying petitioners request to stop
charging auditing fees and refund all
auditing fees previously paid by LMWD

The Constitution emphatically prohibits the

creation of private corporations except by a
general law applicable to all citizens. The purpose
of this constitutional provision is to ban private
corporations created by special charters, which
historically gave certain individuals, families or
groups special privileges denied to other citizens.
In short, Congress cannot enact a law creating a
private corporation with a special charter. Such
legislation would be unconstitutional. Private
corporations may exist only under a general law.
The Constitution authorizes Congress to create
government-owned or controlled corporations
through
special
charters.
Since
private
corporations cannot have special charters, it
follows that Congress can create corporations with
special charters only if such corporations are
government-owned or controlled.
Obviously, LWDs are not private corporations
because they are not created under the
Corporation Code. LWDs are not registered
with
the
Securities
and
Exchange
Commission. Moreover, LWDs have no articles of
incorporation,
no
incorporators
and
no
stockholders
or
members.
There
are
no
stockholders or members to elect the board
directors of LWDs as in the case of all corporations
registered with the Securities and Exchange
Commission. The local mayor or the provincial
governor appoints the directors of LWDs for a fixed
term of office.

Issues:
1. Whether or not a Local Water District ("LWD")
created under PD 198, as amended, is a
government-owned or controlled corporation
subject to the audit jurisdiction of COA -YES

LWDs exist by virtue of PD 198, which

constitutes their special charter. Since under
the Constitution only government-owned or
controlled corporations may have special
charters, LWDs can validly exist only if they
are government-owned or controlled. To
claim that LWDs are private corporations
with a special charter is to admit that their
existence is constitutionally infirm.

2. Whether or not Section 18 of RA 6758 prohibits

the COA from charging government-owned and
controlled corporations auditing fees -NO

Held:

The phrase "government-owned and controlled

corporations with original charters" means
GOCCs created under special laws and not
under the general incorporation law. There is
no difference between the term "original charters"
and "special charters."

1. The Constitution and existing laws mandate COA

to audit all government agencies, including
government-owned and controlled corporations
("GOCCs") with original charters. An LWD is a GOCC
with an original charter. The COAs audit
jurisdiction extends not only to government
"agencies or instrumentalities," but also to

12

As to petitioners contention that the Sangguniang

Bayan resolution creates the LWDs assumes that
the Sangguniang Bayan has the power to create
corporations, the Supreme Court held that the
Local Government Code does not vest in the
Sangguniang Bayan the power to create
corporations. What the Local Government Code
empowers the Sangguniang Bayan to do is to
provide for the establishment of a waterworks
system "subject to existing laws." The Sangguniang
Bayan may establish a waterworks system only in
accordance with the provisions of PD 198.

COA charges LWDs auditing fees in excess of COAs

"actual audit cost." Neither has petitioner alleged
that the auditing fees are paid by LWDs directly to
individual COA auditors.

As to the contention that one special law cannot

serve as enabling law for several GOCCs, Section
16, Article XII of the Constitution mandates that
"Congress shall
not,
except
by
general
law," provide
for
the
creation
of
private
corporations. Thus, the Constitution prohibits one
special law to create one private corporation,
requiring instead a "general law" to create private
corporations. In contrast, the same Section 16
states that "Government-owned or controlled
corporations may be created or established by
special
charters."
Thus,
the
Constitution permits Congress to create a GOCC
with a special charter. There is, however, no
prohibition on Congress to create several GOCCs of
the same class under one special enabling charter.

Facts:

CASE NO. 12
CONCEPCION MAGSAYSAY-LABRADOR vs CA
G.R. No. 58168 December 19, 1989

The Constitution vests in the COA audit jurisdiction

over
"government-owned
and
controlled
corporations with original charters," as well as
"government-owned or controlled corporations"
without original charters. GOCCs with original
charters are subject to COA pre-audit, while GOCCs
without original charters are subject to COA postaudit. GOCCs without original charters refer to
corporations created under the Corporation Code
but are owned or controlled by the government.
The nature or purpose of the corporation is not
material in determining COAs audit jurisdiction.
Neither is the manner of creation of a corporation,
whether under a general or special law. The
determining factor of COAs audit jurisdiction
is government ownership or control of the
corporation.

2. Petitioners Contention: The auditing fees COA

charges violates the prohibition in Section 18 of RA
6758.
Held: No. Section 18 of RA 6758 prohibits COA
personnel from receiving any kind of compensation
from
any
government
entity
except
"compensation paid directly by COA out of its
appropriations and contributions." Thus, RA
6758 itself recognizes an exception to the statutory
ban on COA personnel receiving compensation
from GOCCs.

COA may charge GOCCs "actual audit cost" but

GOCCs must pay the same directly to COA and not
to COA auditors. Petitioner has not alleged that

13

In 1958, Adelaida Rodriguez-Magsaysay

and Senator Genaro Magsaysay acquired,
thru conjugal funds, a parcel of land with
improvements, known as "Pequena Island",
covered by TCT No. 3258
After the death of her husband, Adelaida
discovered an annotation at the back of
TCT No. 3258 that "the land was acquired
by her husband from his separate capital;"
[b] the registration of a Deed of
Assignment
dated
June
25,
1976
purportedly executed by the late Senator in
favor of SUBIC, as a result of which TCT No.
3258 was cancelled and TCT No. 22431
issued in the name of SUBIC; and [c] the
registration of Deed of Mortgage in the
amount of P 2,700,000.00 executed by
SUBIC in favor of FILMANBANK;
Adelaida (widow and special administratix
of the estate of the late Senator Genaro
Magsaysay) then brought an action to
annul the Deed of Assignment and Deed of
Motgage covering TCT No. 22431 before
the CFI of Olongapo against Artemio
Panganiban, Subic Land Corporation,
Filipinas Manufacturer's Bank and the
Register of Deeds of Zambales
She alleged that the annotated acts were
void and done in an attempt to defraud the
conjugal partnership considering that the
land is conjugal, her marital consent to the
annotation on TCT No. 3258 was not
obtained, the change made by the Register
of Deeds of the titleholders was effected
without the approval of the Commissioner
of Land Registration and that the late
Senator did not execute the purported
Deed of Assignment or his consent thereto,
if obtained, was secured by mistake,
violence and intimidation
She further alleged that the assignment in
favor of SUBIC was without consideration
and consequently null and void
She prayed that the Deed of Assignment
and the Deed of Mortgage be annulled and
that the Register of Deeds be ordered to
cancel TCT No. 22431 and to issue a new
title in her favor

dissolution, after payment of the corporate debts

and obligations.

Petitioners (sisters of the late senator) filed

a motion for intervention on the ground
that their brother conveyed to them onehalf (1/2) of his shareholdings in SUBIC or a
total of 416,566.6 shares and as assignees
of around 41 % of the total outstanding
shares of such stocks of SUBIC, they have a
substantial and legal interest in the subject
matter of litigation and that they have a
legal interest in the success of the suit with
respect to SUBIC

While a share of stock represents a

proportionate or aliquot interest in the
property of the corporation, it does not vest
the owner thereof with any legal right or title
to any of the property, his interest in the
corporate property being equitable or
beneficial in nature. Shareholders are in no
legal sense the owners of corporate property,
which is owned by the corporation as a
distinct legal person.

CFI: The court denied the motion for intervention,

and ruled that petitioners have no legal interest
whatsoever in the matter in litigation and their
being alleged assignees or transferees of certain
shares in SUBIC cannot legally entitle them to
intervene because SUBIC has a personality
separate and distinct from its stockholders.

Neither do we lend credence to petitioners'

argument that they are more interested in the
outcome of the case than the corporation-assignee,
owing to the fact that the latter is willing to
compromise with widow-respondent and since a
compromise involves the giving of reciprocal
concessions, the only conceivable concession the
corporation may give is a total or partial
relinquishment of the corporate assets.

Appeal: Denied; MR: Denied. Hence, this petition.

Petitioners Contention: Petitioners strongly argue
that their ownership of 41.66% of the entire
outstanding capital stock of SUBIC entitles them to
a significant vote in the corporate affairs; that they
are affected by the action of the widow of their late
brother for it concerns the only tangible asset of
the corporation and that it appears that they are
more vitally interested in the outcome of the case
than SUBIC.

The petitioners cannot claim the right to

intervene on the strength of the transfer of
shares allegedly executed by the late
Senator. The corporation did not keep books
and records. Perforce, no transfer was ever
recorded, much less effected as to prejudice
third parties. The transfer must be registered
in the books of the corporation to affect third
persons. The law on corporations is explicit.
Section 63 of the Corporation Code provides,
thus: "No transfer, however, shall be valid,
except as between the parties, until the
transfer is recorded in the books of the
corporation showing the names of the parties
to the transaction, the date of the transfer,
the number of the certificate or certificates
and the number of shares transferred."

Issue: W/N petitioners have legal interest in

the subject matter to entitle them to
intervene
Held: No.
To allow intervention, [a] it must be shown that the
movant has legal interest in the matter in litigation,
or otherwise qualified; and [b] consideration must
be given as to whether the adjudication of the
rights of the original parties may be delayed or
prejudiced, or whether the intervenor's rights may
be protected in a separate proceeding or not. Both
requirements must concur as the first is not more
important than the second.

And even assuming arguendo that there was a

valid transfer, petitioners are nonetheless barred
from intervening inasmuch as their rights can be
ventilated and amply protected in another
proceeding.
Petition is denied.

The words "an interest in the subject" mean a

direct interest in the cause of action as pleaded,
and which would put the intervenor in a legal
position to litigate a fact alleged in the complaint,
without the establishment of which plaintiff could
not recover.

CASE NO. 13
G.R. No. L-31061 August 17, 1976
SULO
NG
BAYAN
INC., plaintiff-appellant,
vs.
GREGORIO ARANETA, INC., PARADISE FARMS,
INC., NATIONAL WATERWORKS & SEWERAGE
AUTHORITY, HACIENDA CARETAS, INC, and
REGISTER OF DEEDS OF BULACAN, defendantsappellees.

Here, the interest, if it exists at all, of petitionersmovants

is
indirect,
contingent,
remote,
conjectural, consequential and collateral. At the
very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of
the corporation and to share in the profits thereof
and in the properties and assets thereof on

14

FACTS:

Plaintiff-appellant Sulo ng Bayan, Inc. filed

an accion de revindicacion with the Court
of First Instance of Bulacan, Fifth Judicial
District, Valenzuela, Bulacan, against
defendants-appellees
to
recover
the
ownership and possession of a large tract
of land in San Jose del Monte, Bulacan,
containing an area of 27,982,250 square
meters, more or less, registered under the
Torrens System in the name of defendantsappellees' predecessors-in-interest.
the complaint alleged that plaintiff is a
corporation organized and existing under
the laws of the Philippines, with its
principal office and place of business at
San Jose del Monte, Bulacan; that its
membership is composed of natural
persons residing at San Jose del Monte,
Bulacan; that the members of the plaintiff
corporation, through themselves and their
predecessors-in-interest, had pioneered in
the clearing of the fore-mentioned tract of
land, cultivated the same since the Spanish
regime and continuously possessed the
said property openly and public under
concept of ownership adverse against the
whole world; that defendant-appellee
Gregorio Araneta, Inc., sometime in the
year 1958, through force and intimidation,
ejected the members of the plaintiff
corporation fro their possession of the
aforementioned vast tract of land; that
upon investigation conducted by the
members
and
officers
of
plaintiff
corporation, they found out for the first
time in the year 1961 that the land in
question "had been either fraudelently or
erroneously
included,
by
direct
or
constructive fraud, in Original Certificate of
Title No. 466 of the Land of Records of the
province of Bulacan", issued on May 11,
1916, which title is fictitious, non-existent
and devoid of legal efficacy due to the fact
that "no original survey nor plan
whatsoever" appears to have been
submitted as a basis thereof and that the
Court of First Instance of Bulacan which
issued the decree of registration did not
acquire
jurisdiction
over
the
land
registration case because no notice of such
proceeding was given to the members of
the plaintiff corporation who were then in
actual possession of said properties; that
as a consequence of the nullity of the
original title, all subsequent titles derived

15

therefrom, such as Transfer Certificate of

Title No. 4903 issued in favor of Gregorio
Araneta and Carmen Zaragoza, which was
subsequently
cancelled
by
Transfer
Certificate of Title No. 7573 in the name of
Gregorio Araneta, Inc., Transfer Certificate
of Title No. 4988 issued in the name of, the
National Waterworks & Sewerage Authority
(NWSA), Transfer Certificate of Title No.
4986 issued in the name of Hacienda
Caretas, Inc.,
and another transfer
certificate of title in the name of Paradise
Farms, Inc., are therefore void. Plaintiffappellant consequently prayed (1) that
Original Certificate of Title No. 466, as well
as all transfer certificates of title issued
and derived therefrom, be nullified; (2) that
"plaintiff's members" be declared as
absolute owners in common of said
property and that the corresponding
certificate of title be issued to plaintiff; and
(3) that defendant-appellee Gregorio
Araneta, Inc. be ordered to pay to plaintiff
the damages therein specified.
defendants-appellees filed a motion to
dismiss the amended complaint on the
grounds that (1) the complaint states no
cause of action; and (2) the cause of
action, if any, is barred by prescription and
laches.
During the pendency of the motion to
dismiss, plaintiff-appellant filed a motion,
dated October 7, 1966, praying that the
case be transferred to another branch of
the Court of First Instance sitting at
Malolos, Bulacan. According to defendantsappellees, they were not furnished a copy
of said motion. Thereafter, prayed that the
said motion be denied for lack of notice
and for failure of the plaintiff-appellant to
comply with the Order of October 14,
1966. On January 24, 1967, the trial court
issued an Order dismissing the amended
complaint.
On 14 February 1967, Sulo ng Bayan filed a
motion to reconsider the Order of
dismissal, arguing among others that the
complaint states a sufficient cause of
action because the subject matter of the
controversy in one of common interest to
the members of the corporation who are so
numerous that the present complaint
should be treated as a class suit. The
motion was denied by the trial court in its
Order dated 22 February 1967.

ISSUES: 1.) WON the trial court acted

quo acted

without

in

denying the motion for the transfer the

dismissing the amended complaint when

case to Malolos notwithstanding the

the

authorization" of the same by the

authority

Secretary

and

of

Justice

jurisdiction
had

already

approved the transfer of the case to any

First Instance of Malolos, Bulacan. 2.)
Whether the corporation (non-stock) may
the

recovery

of

certain

parcels of land allegedly owned by said

members, among others. 3.) Whether the
complaint filed by the corporation in behalf
of its members may be treated as a class
suit.
RULING:
1.) Jurisdiction implies the power of the
court to decide a case, while venue the
place of action. There is no question
that respondent court has jurisdiction
over the case. The venue of actions in
the Court of First Instance is prescribed
in Section 2, Rule 4 of the Revised
Rules of Court. The laying of venue is
not left to the caprice of plaintiff, but
must

be

in

accordance

with

authority

in

The issue of lack of cause of action

raised in the motions to dismiss refer to
the lack of personality of plaintiff to file
the instant action. Essentially, the term
'cause of action' is composed of two
elements: (1) the right of the plaintiff
and (2) the violation of such right by
the defendant. x x x In the amended
complaint, the people whose rights
were alleged to have been violated by
being deprived and dispossessed of
their land are the members of the
corporation and not the corporation
itself. The corporation has a separate.
and distinct personality from its
members, and this is not a mere
technicality but a matter of substantive
law. There is no allegation that the
members have assigned their rights to
the corporation or any showing that the
corporation has in any way or manner
succeeded to such rights.

institute an action in behalf of its individual

for

its

Secretary of Justice.
2.) In dismissing the amended complaint,
the court a quo said:

one of the two branches of the Court of

members

within

the

aforesaid provision of the rules. The

2

mere

fact

that

a request

It is a doctrine well-established and obtains

both at law and in equity that a corporation is a
distinct legal entity to be considered as
separate and apart from the individual
stockholders or members who compose it, and
is not affected by the personal rights,
obligations and transactions of its stockholders
or members. The property of the corporation is
its property and not that of the stockholders, as
owners, although they have equities in it.
Properties registered in the name of the
corporation are owned by it as an entity
separate and distinct from its members.
Conversely, a corporation ordinarily has no
interest in the individual property of its
stockholders
unless
transferred
to
the
corporation, "even in the case of a one-man
corporation." The mere fact that one is
president of a corporation does not render the
property which he owns or possesses the
property of the corporation, since the
president, as individual, and the corporation
are
separate
similarities.
Similarly,
stockholders in a corporation engaged in
buying and dealing in real estate whose

for the

transfer of a case to another branch of

the same court has been approved by
the Secretary of Justice does not divest
the court originally taking cognizance
thereof of its jurisdiction, much less
does it change the venue of the action.
As correctly observed by the trial court,
the indorsement of the Undersecretary
of Justice did not order the transfer of
the case to the Malolos Branch of the
Bulacan Court of First Instance, but
only "authorized" it for the reason
given by plaintiff's counsel that the
transfer would be convenient for the
parties. The trial court is not without
power to either grant or deny the
motion, especially in the light of a
strong opposition thereto filed by the
defendant. We hold that the court a

16

certificates of stock entitled the holder thereof

to an allotment in the distribution of the land of
the corporation upon surrender of their stock
certificates were considered not to have such
legal or equitable title or interest in the land, as
would support a suit for title, especially against
parties other than the corporation. It must be
noted, however, that the juridical personality of
the corporation, as separate and distinct from
the persons composing it, is but a legal fiction
introduced for the purpose of convenience and
to subserve the ends of justice. This separate
personality of the corporation may be
disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or
cover for fraud or illegality, or to work -an
injustice, or where necessary to achieve equity.
It has not been claimed that the members have
assigned or transferred whatever rights they
may have on the land in question to the
corporation. Absent any showing of interest,
therefore, a corporation, has no personality to
bring an action for and in behalf of its
stockholders or members for the purpose of
recovering property which belongs to said
stockholders or members in their personal
capacities.

RUFINA
LUY
LIM, petitioner,
vs.
COURT OF APPEALS, AUTO TRUCK TBA
CORPORATION, SPEED DISTRIBUTING, INC.,
ACTIVE DISTRIBUTORS, ALLIANCE MARKETING
CORPORATION,
ACTION
COMPANY,
INC. respondents.
BUENA, J.:
FACTS:Petitioner Rufina Luy Lim is the surviving
spouse of late Pastor Y. Lim whose estate is the
subject of probate proceedings in Special
Proceedings Q-95-23334, entitled, "In Re: Intestate
Estate of Pastor Y. Lim Rufina Luy Lim, represented
by George Luy, Petitioner
Private respondents Auto Truck Corporation,
Alliance Marketing Corporation, Speed Distributing,
Inc., Active Distributing, Inc. and Action Company
are corporations formed, organized and existing
under Philippine laws and which owned real
properties covered under the Torrens system.
On 11 June 1994, Pastor Y. Lim died intestate.
Herein petitioner filed on 17 March 1995, a joint
petition for the administration of the estate of
Pastor Y. Lim before the Regional Trial Court of
Quezon City.

3.) In order that a class suit may prosper,

the following requisites must be
present: (1) that the subject matter of
the controversy is one of common or
general interest to many persons; and
(2) that the parties are so numerous
that it is impracticable to bring them all
before the court. Here, there is only
one party plaintiff, and the corporation
does not even have an interest in the
subject matter of the controversy, and
cannot,
therefore,
represent
its
members or stockholders who claim to
own in their individual capacities
ownership of the said property.
Moreover, a class suit does not lie in
actions for the recovery of property
where
several
persons
claim
partnership of their respective portions
of the property, as each one could
alleged and prove his respective right
in a different way for each portion of
the land, so that they cannot all be
held to have identical title through
acquisition/prescription.

Private respondent corporations, whose properties

were included in the inventory of the estate of
Pastor Y. Lim, then filed a motion for the lifting of lis
pendens and motion for exclusion of certain
properties from the estate of the decedent.
RTC
granted
private
respondents
motions.
Subsequently, Rufina Luy Lim filed a verified
amended petition stating that all their(private
respondents) capital, assets and equity were
however, personally owned by the late Pastor Y
Lim. Hence the alleged stockholders and officers
appearing
in
the
respective
articles
of
incorporation of the above business entities were
mere dummies of Pastor Y. Lim, and they were
listed therein only for purposes of registration with
the Securities and Exchange Commission; and that
the real properties, although registered in the
name of the corporations, were actually acquired
by Pastor Lim during his marriage with Rufina Lim.
The RTC acting on such motion set aside its order
and ordered the Register of Deeds to reinstate the
lis pendens.
Private respondent filed a special civil action
for certiorari, with an urgent prayer for a
restraining order or writ of preliminary injunction,
before the Court of Appeals questioning the orders

CASE NO. 14
G.R. No. 124715

January 24, 2000

17

of the Regional Trial Court, sitting as a probate

court. The Court of Appeals, finding in favor of
herein private respondents.

presumption of conclusiveness of said titles in

favor of private respondents should stand
undisturbed.

Rufina Lim disputes such decision and urges that

not only are the properties of the corporations part
of the estate but also the corporations themselves.
She cites that Pastor Lim during his lifetime
organized and wholly owned the 5 corporations.

It is settled that a corporation is clothed with

personality separate and distinct from that of the
persons composing it. It may not generally be held
liable for that of the persons composing it. It may
not be held liable for the personal indebtedness of
its stockholders or those of the entities connected
with it.

ISSUE: Whether or not a corporation in its

universality be the proper subject of and be
included in the inventory of the estate of a
deceased person?

Rudimentary is the rule that a corporation is

invested by law with a personality distinct and
separate from its stockholders or members. In the
same vein, a corporation by legal fiction and
convenience is an entity shielded by a protective
mantle and imbued by law with a character alien to
the persons comprising it.

RULING: NO.
Under the peculiar circumstances, where the
parcels of land are registered in the name of
private respondent corporations, the jurisprudence
pronounced in BOLISAY vs., ALCID is of great
essence and finds applicability, thus:

The corporate mask may be lifted and the

corporate veil may be pierced when a corporation
is just but the alter ego of a person or of another
corporation. Where badges of fraud exist, where
public convenience is defeated; where a wrong is
sought to be justified thereby, the corporate fiction
or the notion of legal entity should come to
naught.31

It does not matter that respondent-administratrix

has evidence purporting to support her claim of
ownership, for, on the other hand, petitioners have
a Torrens title in their favor, which under the law is
endowed with incontestability until after it has
been set aside in the manner indicated in the law
itself, which of course, does not include, bringing
up the matter as a mere incident in special
proceedings for the settlement of the estate of
deceased persons. . . .

Further, the test in determining the applicability of

the doctrine of piercing the veil of corporate fiction
is as follows: 1) Control, not mere majority or
complete stock control, but complete domination,
not only of finances but of policy and business
practice in respect to the transaction attacked so
that the corporate entity as to this transaction had
at the time no separate mind, will or existence of
its own; (2) Such control must have been used by
the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in
contravention of plaintiffs legal right; and (3) The
aforesaid control and breach of duty must
proximately cause the injury or unjust loss
complained of. The absence of any of these
elements prevent "piercing the corporate veil".

. . . . In regard to such incident of inclusion or

exclusion, We hold that if a property covered by
Torrens title is involved, the presumptive
conclusiveness of such title should be given due
weight, and in the absence of strong compelling
evidence to the contrary, the holder thereof should
be considered as the owner of the property in
controversy until his title is nullified or modified in
an appropriate ordinary action, particularly, when
as in the case at bar, possession of the property
itself is in the persons named in the title. . . .
A perusal of the records would reveal that no
strong compelling evidence was ever presented by
petitioner to bolster her bare assertions as to the
title of the deceased Pastor Y. Lim over the
properties.

Mere ownership by a single stockholder or by

another corporation of all or nearly all of the capital
stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate
corporate personalities.

Inasmuch as the real properties included in the

inventory of the estate of the Late Pastor Y. Lim are
in the possession of and are registered in the name
of private respondent corporations, which under
the law possess a personality separate and distinct
from their stockholders, and in the absence of any
cogency to shred the veil of corporate fiction, the

Moreover, to disregard the separate juridical

personality of a corporation, the wrong-doing must
be clearly and convincingly established. It cannot
be presumed.

18

CASE NO. 15
Adm. Matter No. R-181-P
1987

Qualitrans Limousine Service, Inc. in its judgment

and not the owner thereof.
July 31,

Respondent, however, choose to pierce the veil

of corporate entity usurping a power belonging
to the court and assumed improvidently that since
the complainant is the owner/president of
Qualitrans Limousine Service, Inc., they are one
and the same. It is a well settled doctrine both in
law and equity that as a legal entity, a corporation
has a personality distinct and separate from its
individual stockholders or members.

ADELIO C. CRUZ, complainant,

vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC,
Manila, respondents.

The mere fact that one is president of the

corporation does not render the property he owns
or possesses the property of the corporation, since
that president, as an individual, and the
corporation are separate entities.

Facts:

A sworn complaint dated July 23, 1984 was

filed by Adelio Cruz charging Quiterio
Dalisay, Senior Deputy Sheriff of Manila,
with malfeasance in office, corrupt
practices
and
serious
irregularities
allegedly committed as follows:
a. Respondent attached and/or
levied the money belonging to
complainant Cruz when he was not
himself the judgment debtor in
the final judgment of an NLRC case
sought to be enforced but rather
the company known as Qualitrans
Limousine Service, Inc.; and
b. Respondent also caused the
service of the alias writ of
execution upon complainant who is
a resident of Pasay City, despite
knowledge that his territorial
jurisdiction covers Manila only and
does not extend to Pasay City.

CASE NO. 16
G.R. No. 125986 January 28, 1999
LUXURIA HOMES, INC., and/or AIDA M.
POSADAS, petitioners,
vs.
HONORABLE COURT OF APPEALS, JAMES
BUILDER CONSTRUCTION and/or JAIME T.
BRAVO,respondents.
Facts:

Respondent in his reply explained that

when he garnished complainants cash
deposit at the Philtrust bank he was merely
performing a ministerial duty. And that
while it is true that said writ was addressed
to Qualitrans Limousine Service, Inc., it is
also a fact that complainant had executed
an affidavit before the Pasay City assistant
fiscal stating that he is the owner/
president of Qualitrans. Because of that
declaration, the counsel for the plaintiff in
the labor case advised him to serve notice
of garnishment on the Philtrust bank.

Aida Posadas was the owner of a 1.6

hectare land in Sucat, Muntinlupa. In 1989,
she entered into an agreement with Jaime
Bravo for the latter to draft a development
and architectural design for the said
property.

The contract price was

Posadas gave a down
P25,000.00.

Later, Posadas assigned her property to

Luxuria Homes, Inc. One of the witnesses
to the deed of assignment and articles of
incorporation was Jaime Bravo.

Issue: Whether or not the personal property of

Cruz (complainant) is properly levied or attached
as owner of the corporation?
Ruling : NO
Respondents actuation in enforcing a judgment
against complainant who is not a judgment debtor
in the case calls for disciplinary action. What is
incumbent upon respondent is to ensure that only
the portion of a decision ordained or decreed in the
dispositive part should be the subject of the
execution. The tenor of the NLRC judgment and the
implementing writ is clear enough. It directed

19

P450,000.00.
payment of

In 1992, Bravo finished the architectural

design so he proposed that he and his
company manage the development of the
property. But Posadas turned down the
proposal and thereafter the business
relationship between the two went sour.
Bravo then demanded Posadas to pay them
the balance of their agreement as regards
the architectural design (P425k).

Bravo also demanded payment for some

other expenses and fees he incurred i.e.,
negotiating and relocating the informal
settlers then occupying the land of
Posadas.
Posadas
refused to
make
payment. Bravo then filed a complaint for
specific performance against Posadas but
he included Luxuria Homes as a codefendant as he alleged that Luxuria
Homes was a mere conduit of Posadas;
that the said corporation was created in
order to defraud Bravo and avoid the
payment of debt.

Besides petitioner Posadas is not the majority

stockholder of petitioner Luxuria Homes, Inc., as
erroneously stated by the lower court. The Articles
of Incorporation of petitioner Luxuria Homes, Inc.,
clearly show that petitioner Posadas owns
approximately 33% only of the capital stock. Hence
petitioner Posadas cannot be considered as an
alter ego of petitioner Luxuria Homes, Inc.

To disregard the separate juridical personality of a

corporation, the wrongdoing must be clearly and
convincingly established. It cannot be presumed

Obviously in the instant case, private respondents

failed to show proof that petitioner Posadas acted
in
bad
faith.
Consequently
since
private
respondents failed to show that petitioner Luxuria
Homes, Inc., was a party to any of the supposed
transactions, not even to the agreement to
negotiate with and relocate the squatters, it cannot
be held liable, nay jointly and in solidum, to pay
private respondents. In this case since it was
petitioner Aida M. Posadas who contracted
respondent Bravo to render the subject services,
only she is liable to pay the amounts adjudged
herein.

ISSUE: WON petitioner Luxuria Homes, Inc. be

held liable to private respondents for the
transactions supposedly entered into between
petitioner Posadas and private respondents?

CASE NO. 17
CONCEPT BUILDERS VS NLRC, ET AL

Ruling: No. It was Posadas who entered into a

contract with Bravo in her personal capacity. Bravo
was not able to prove that Luxuria Homes was a
mere conduit of Posadas.

FACTS:
Petitioner Concept Builders, Inc., a domestic
corporation, with principal office at 355 Maysan
Road, Valenzuela, Metro Manila, is engaged in the
construction business. Private respondents were
employed by said company as laborers, carpenters
and riggers.

The Deed of Assignment dated 11 December 1989

and the Articles of Incorporation of Luxuria Homes,
Inc., issued 26 January 1990 were both signed by
respondent Bravo himself as witness. It cannot be
said then that the incorporation of petitioner
Luxuria Homes and the eventual transfer of the
subject property to it were in fraud of private
respondents as such were done with the full
knowledge of respondent Bravo himself.

On November, 1981, private respondents were

served individual written notices of termination of
employment by petitioner, effective on November
30, 1981. It was stated in the individual notices
that their contracts of employment had expired
and the project in which they were hired had been
completed.
Public respondent found it to be, the fact,
however, that at the time of the termination of
private respondents employment, the project in

20

which they were hired had not yet been finished

and completed. Petitioner had to engage the
services
of sub-contractors whose workers
performed the functions of private respondents.

Whether
the
National
Labor
Relations
Commission committed grave abuse of discretion
when it issued a break-open order to the sheriff to
be enforced against personal property found in the
premises of petitioners sister company.

Aggrieved, private respondents filed a

complaint for illegal dismissal, unfair labor practice
and non-payment of their legal holiday pay,
overtime pay and thirteenth-month pay against
petitioner.

RULING:
No. The corporate veil must be pierced in the
present case.

The Labor Arbiter rendered judgment1 ordering

petitioner to reinstate private respondents and to
pay them back wages

Reasons:

The National Labor Relations Commission (NLRC)

dismissed the motion for reconsideration filed by
petitioner on the ground that the said decision had
already become final and executory.
The first writ issued by the Labor Arbiter was
partially satisfied.
The second writ was not served since according to
the sheriff, all the employees inside petitioners
premises at 355 Maysan Road, Valenzuela, Metro
Manila, claimed that they were employees of Hydro
Pipes Philippines, Inc. (HPPI) and not by
respondent;

1.

Petitioners and HPPIs address is the same:

355 Maysan Road,
Valenzuela,
Metro
Manila.

2.

Both information sheets were filed by

the same Virgilio O. Casino as the
corporate secretary of both corporations.

3.

both corporations had the same president,

the same board of directors,
the same corporate officers, and
substantially the same subscribers.

It
is
a
fundamental
principle
of
corporation law that a corporation is an
entity separate and distinct from its
stockholders and from other corporations to
which it may be connected.8 But, this
separate and distinct personality of a
corporation is merely a fiction created by law
for convenience and to promote justice.9 So,
when the notion of separate juridical personality is
used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a
device to defeat the labor laws,10 this separate
personality of the corporation may be disregarded
or the veil of corporate fiction pierced. 11 This is true
likewise when the corporation is merely an adjunct,
a business conduit or an alter ego of another
corporation.12

A certain Dennis Cuyegkeng filed a third-party

claim with the Labor Arbiter alleging that the
properties sought to be levied upon by the sheriff
were owned by Hydro (Phils.), Inc. (HPPI) of which
he is the Vice-President.
Private respondents filed a Motion for Issuance of a
Break-Open Order, alleging that HPPI and petitioner
corporation were owned by the same incorporators
and stockholders. In support of their claim against
HPPI, private respondents presented duly certified
copies of the General Informations Sheet,
dated May 15, 1987, submitted by petitioner to the
Securities and Exchange Commission (SEC) and the
General Information Sheet, dated May 15, 1987,
submitted by HPPI to the Securities and Exchange
Commission.

The following are the probative factors of

identity that will justify the application of the
doctrine of piercing the corporate veil, to wit:

The Labor Arbiter issued an Order which denied

private respondents motion for break-open order

1. Stock ownership by one or common ownership

of both corporations.

NLRC set aside the order of the Labor Arbiter,

issued a break-open order and directed private
respondents to file a bond.

2. Identity of directors and officers.

ISSUE:

21

3. The manner of keeping corporate books and

records.

PANGASINAN TRANSPORTATION CO.,

INC., third-party plaintiff-appellant,
vs.
JOSE M. VILLARAMA, third-party defendantappellee.

4. Methods of conducting the business.

INSTRUMENTALITY RULE:

FACTS:

Where one corporation is so organized and

controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of the
instrumentality may be disregarded.

Jose M. Villarama was an operator of a bus

transportation, under the business name of Villa
Rey Transit, pursuant to certificates of public
convenience granted him by the Public Service
Commission (PSC, for short).
He sold the aforementioned two certificates of
public convenience to the Pangasinan
Transportation Company, Inc. (otherwise known as
Pantranco), for P350,000.00 with the condition,
among others, that the seller (Villarama) "shall not
for a period of 10 years from the date of this sale,
apply for any TPU service identical or competing
with the buyer.

The test in determining the applicability of the

doctrine of piercing the veil of corporate fiction is
as follows:
1. Control, not mere majority or complete stock
control, but complete domination, not only of
finances but of policy and business practice in
respect to the transaction attacked so that the
corporate entity as to this transaction had at the
time no separate mind, will or existence of its own;

Barely three months thereafter, or on March 6,

1959: a corporation called Villa Rey Transit, Inc.
(which shall be referred to hereafter as the
Corporation) was organized wherein Natividad R.
Villarama (wife of Jose M. Villarama) was one of the
incorporator.

2. Such control must have been used by the

defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal
duty, or dishonest and unjust act in contravention
of plaintiffs legal rights; and

In less than a month after its registration with the

Securities and Exchange Commission (March 10,
1959), the Corporation, on April 7, 1959,
bought five certificates of public convenience,
forty-nine buses, tools and equipment from one
Valentin Fernando.

3. The aforesaid control and breach of duty must

proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements
prevents piercing the corporate veil. in applying
the instrumentality or alter ego doctrine, the courts
are concerned with reality and not form, with how
the corporation operated and the individual
defendants relationship to that operation

PSC granted the provisional permit prayed for by

Villarama.
Before the PSC could take final action on said
application for approval of sale, however, the
Sheriff of Manila, on July 7, 1959, levied on two of
the five certificates of public convenience involved
therein, namely, those issued under PSC cases Nos.
59494 and 63780, pursuant to a writ of execution
issued by the Court of First Instance of Pangasinan
in Civil Case No. 13798, in favor of Eusebio Ferrer,
plaintiff, judgment creditor, against Valentin
Fernando, defendant, judgment debtor.

CASE NO. 18
VILLA REY TRANSIT, INC., plaintiff-appellant,
vs.
EUSEBIO E. FERRER, PANGASINAN
TRANSPORTATION CO., INC. and PUBLIC
SERVICE COMMISSION,defendants.
EUSEBIO E. FERRER and PANGASINAN
TRANSPORTATION CO., INC., defendantsappellants.

A public sale was conducted by the Sheriff of the

said two certificates of public convenience. Ferrer
was the highest bidder, and a certificate of sale
was issued in his name.

22

Thereafter, Ferrer sold the two certificates of public

convenience to Pantranco, and jointly submitted for
approval their corresponding contract of sale to the
PSC.

fiction is urged as a means of perpetrating a

fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the
circumvention of statutes, the achievement
or perfection of a monopoly or generally the
perpetration of knavery or crime,30 the veil
with which the law covers and isolates the
corporation from the members or
stockholders who compose it will be lifted to
allow for its consideration merely as an
aggregation of individuals.

The Corporation filed in the Court of First Instance

of Manila, a complaint for the annulment of the
sheriff's sale of the aforesaid two certificates of
public convenience (PSC Cases Nos. 59494 and
63780) in favor of the defendant Ferrer, and the
subsequent sale thereof by the latter to Pantranco,
against Ferrer, Pantranco and the PSC.

Rationale for ruling that they are one the same:

Pantranco, filed a third-party complaint against
Jose M. Villarama, alleging that Villarama and the
Corporation, are one and the same; that Villarama
and/or the Corporation was disqualified from
operating the two certificates in question by virtue
of the aforementioned agreement between said
Villarama and Pantranco, which stipulated that
Villarama "shall not for a period of 10 years from
the date of this sale, apply for any TPU service
identical or competing with the buyer."
CFI: declared null and void the sheriff's sale
of two certificates of public convenience in favor of
defendant Eusebio E. Ferrer and the subsequent
sale thereof by the latter to defendant Pangasinan
Transportation Co., Inc

1.

The finances of the Corporation which,

under all concepts in the law, are supposed
to be under the control and administration
of the treasurer keeping them as trust fund
for the Corporation, were, nonetheless,
manipulated and disbursed as if they were
the private funds of Villarama, in such a
way and extent that Villarama appeared to
be the actual owner-treasurer of the
business without regard to the rights of the
stockholders.

2.

the initial cash capitalization of the

corporation of P105,000.00 was mostly
financed by Villarama. Of the P105,000.00
deposited in the First National City Bank of
New York, representing the initial paid-up
capital of the Corporation, P85,000.00 was
covered by Villarama's personal check.

3.

when the Corporation was in its initial

months of operation, Villarama purchased
and paid with his personal checks Ford
trucks for the Corporation

4.

photostatic copies of ledger entries and

vouchers showing that Villarama had comingled his personal funds and
transactions with those made in the name
of the Corporation

5.

Villarama supplied the organization

expenses and the assets of the
Corporation, such as trucks and
equipment;17 there was no actual payment
by the original subscribers of the amounts
of P95,000.00 and P100,000.00 as
appearing in the books;18 Villarama made
use of the money of the Corporation and
deposited them to his private
accounts;19 and the Corporation paid his
personal accounts.20

ISSUE:
WON Villarama and the Corporation are one and
the same hence they cannot apply for any TPU
service competing with the buyer
RULING:
Yes, they are one and the same.
The Villa Rey Transit, Inc. is an alter ego of Jose M.
Villarama, and that the restrictive clause in the
contract entered into by the latter and Pantranco is
also enforceable and binding against the said
Corporation. For the rule is that a seller or promisor
may not make use of a corporate entity as a means
of evading the obligation of his covenant.31 Where
the Corporation is substantially the alter ego of the
covenantor to the restrictive agreement, it can be
enjoined from competing with the covenantee.
The doctrine that a corporation is a legal
entity distinct and separate from the
members and stockholders who compose it is
recognized and respected in all cases which
are within reason and the law.29 When the

23

CASE NO. 19

incorporators for whom defendant Gregorio

Manuel rendered legal services in the
intestate estate case of their deceased
mother. Considering the aforestated
principles and circumstances established in
this case, equity and justice demands
plaintiff-appellant's veil of corporate
identity should be pierced and the
defendant be compensated for legal
services rendered to the heirs, who are
directors of the plaintiff-appellant
corporation.

G.R. No. 100812 June 25, 1999

FRANCISCO MOTORS
CORPORATION, petitioner,
vs.
COURT OF APPEALS and SPOUSES GREGORIO
and LIBRADA MANUEL, respondents.
FACTS:

On January 23, 1985, petitioner filed a

complaint against private respondents to
recover P3,412.06, representing the
balance of the jeep body purchased by the
Manuels from petitioner; an additional sum
of P20,454.80 representing the unpaid
balance on the cost of repair of the vehicle;
and P6,000.00 for cost of suit and
attorney's fees. To the original balance on
the price of jeep body were added the
costs of repair.

Hence, the present petition.

ISSUE:
I
Whether or not petitioner can be made a
party to the case, despite the fact that it
was not the real party in interest but the
individual members of the Francisco family
concerned with the intestate case?
Whether or not the Court of Appeals erred
in applying the doctrine of piercing the veil
of corporate entity?

Private respondent Gregorio Manuel was

petitioner's Assistant Legal Officer. He
represented members of the Francisco
family in the intestate estate proceedings
of the late Benita Trinidad. However, even
after the termination of the proceedings,
his services were not paid. Said family
members, he said, were also incorporators,
directors and officers of petitioner. To
petitioner's collection suit, he filed a
counter permissive counterclaim for the
unpaid attorney's fees.

RULING:
Given the facts and circumstances of this
case, the doctrine of piercing the corporate
veil has no relevant application here.
Respondent court erred in permitting the
trial court's resort to this doctrine. The
rationale behind piercing a corporation's
identity in a given case is to remove the
barrier between the corporation from the
persons comprising it to thwart the
fraudulent and illegal schemes of those
who use the corporate personality as a
shield for undertaking certain proscribed
activities.

In their answer, private respondents

interposed a counterclaim for unpaid legal
services by Gregorio Manuel in the amount
of P50,000 which was not paid by the
incorporators, directors and officers of the
petitioner. The trial court decided the case
on June 26, 1985, in favor of petitioner in
regard to the petitioner's claim for money,
but also allowed the counter-claim of
private respondents. Both parties
appealed.

In the case at bar, instead of holding

certain individuals or persons 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. Note that according to private
respondent Gregorio Manuel his services
were solicited as counsel for members of
the Francisco family to represent them in
the intestate proceedings over Benita
Trinidad's estate. These estate proceedings
did not involve any business of petitioner.

Petitioner argued that being a corporation,

it should not be held liable therefor
because these fees were owed by the
incorporators, directors and officers of the
corporation in their personal capacity as
heirs of Benita Trinidad. Petitioner stressed
that the personality of the corporation, visa-vis the individual persons who hired the
services of private respondent, is separate
and distinct, hence, the liability of said
individuals did not become an obligation
chargeable against petitioner.

The CA ruled that Francisco Motors

Corporation is composed of the heirs of the
late Benita Trinidad as directors and

24

Note also that he sought to collect legal

fees not just from certain Francisco family
members but also from petitioner
corporation on the claims that its

management had requested his services

and he acceded thereto as an employee of
petitioner from whom it could be deduced
he was also receiving a salary. 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 petitioner's
corporate assets could be used to answer
for the liabilities of its individual directors,
officers, and incorporators. Such result if
permitted could easily prejudice the
corporation, its own creditors, and even
other stockholders; hence, clearly
inequitous to petitioner.

ANDRADA ELECTRIC & ENGINEERING

COMPANY, respondent.

Considering the nature of the legal services

involved, whatever obligation said
incorporators, directors and officers of the
corporation had incurred, it was incurred in
their personal capacity. When directors and
officers of a corporation are unable to
compensate a party for a personal
obligation, it is far-fetched to allege that
the corporation is perpetuating fraud or
promoting injustice, and be thereby held
liable therefor by piercing its corporate veil.
While there are no hard and fast rules on
disregarding separate corporate identity,
we must always be mindful of its function
and purpose. A court should be careful in
assessing the milieu where the doctrine of
piercing the corporate veil may be applied.
Otherwise an injustice, although
unintended, may result from its erroneous
application.

National Sugar Development Corporation

(NASUDECO in brief)- a semi-government
corporation and the sugar arm of the PNB,
with office and principal place of business
at the 2nd Floor, Sampaguita Building,
Cubao, Quezon City.

Pampanga Sugar Mills (PASUMIL in short)a corporation organized, existing and

operating under the 1975 laws of the
Philippines, and had its business office
before 1975 at Del Carmen, Floridablanca,
Pampanga.

FACTS:

The personality of the corporation and

those of its incorporators, directors and
officers in their personal capacities ought
to be kept separate in this case. The claim
for legal fees against the concerned
individual incorporators, officers and
directors could not be properly directed
against the corporation without violating
basic principles governing corporations.
Moreover, every action including a
counterclaim must be prosecuted or
defended in the name of the real party in
interest. It is plainly an error to lay the
claim for legal fees of private respondent
Gregorio Manuel at the door of petitioner
(FMC) rather than individual members of
the Francisco family.

Respondent (ANDRADA) was engaged in

the business of general construction for the
repairs and/or construction of different
kinds of machinery and buildings.

Pampanga Sugar Mills (PASUMIL in short)

was a corporation operating under laws of
the Philippines having its business at
Floridablanca, Pampanga.

PASUMIL engaged the services of Andrada

Electric & Engineering Company
(ANDRADA) for electrical rewinding and
repair, most of which were partially paid by
PASUMIL, leaving several unpaid accounts
with the plaintiff.

On August 26, 1975, PNB acquired the

assets of PASUMIL that were earlier
foreclosed by the Development Bank of the
Philippines (DBP) under LOI No. 311.

PNB organized the defendant NASUDECO in

September, 1975, to take ownership and
possession of the assets and ultimately to
nationalize and consolidate its interest in
other PNB controlled sugar mills.

PASUMIL, on the other hand, still had

unpaid balance to ANDRADA, prompting
the latter to collect from PASUMIL, PNB,
and also NASUDECO (since allegedly,
PASUMIL was acquired by PNB).

PASUMIL and PNB, and now the

NASUDECO, failed and refused to pay the
Andrada their just, valid and demandable
obligation.

Because of the failure and refusal of PNB,

PASUMIL, AND NASUDECO to pay their just,
valid, and demandable obligations,
ANDRADA filed a case against them for the
said outstanding obligation.

CASE NO. 20
G.R. No. 142936

April 17, 2002

PHILIPPINE NATIONAL BANK & NATIONAL

SUGAR DEVELOPMENT
CORPORATION, petitioners,
vs.

25

PNB and NASUDECO filed a joint motion to

dismiss the complaint chiefly on the ground
that there is lack or want of privity of
contract between them and ANDRADA,
given that the obligation was acquired by
PASUMIL and not by them.

The Trial Court rendered judgment in favor

of ANDRADA and against the PNB,
NASUDECO, and PASUMIL.

The corporate mask may be removed or

the corporate veil pierced when the
corporation is just an alter ego of a person
or of another corporation. For reasons of
public policy and in the interest of justice,
the corporate veil will justifiably be
impaled only when it becomes a shield for
fraud, illegality or inequity committed
against third persons.

Any application of the doctrine of piercing

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

Piercing the veil of corporate fiction may be

allowed only if the following elements
concur: (1) control -- not mere stock
control, but complete domination -- not
only of finances, but of policy and business
practice in respect to the transaction
attacked, must have been such that the
corporate entity as to this transaction had
at the time no separate mind, will or
existence of its own; (2) such control must
have been used by the defendant to
commit a fraud or a wrong to perpetuate
the violation of a statutory or other positive
legal duty, or a dishonest and an unjust act
in contravention of plaintiffs legal right;
and (3) the said control and breach of duty
must have proximately caused the injury or
unjust loss complained of.

The absence of the foregoing elements in

the present case precludes the piercing of
the corporate veil. First, other than the fact
that petitioners acquired the assets of
PASUMIL, there is no showing that their
control over it warrants the disregard of
corporate personalities. Second, there is no
evidence that their juridical personality was
used to commit a fraud or to do a wrong; or
that the separate corporate entity was
farcically used as a mere alter ego,
business conduit or instrumentality of
another entity or person. Third, respondent
was not defrauded or injured when
petitioners acquired the assets of PASUMIL.

Being the party that asked for the piercing

of the corporate veil, respondent had the
burden of presenting clear and convincing
evidence to justify the setting aside of the
separate corporate personality
rule. However, it utterly failed to discharge

The CA affirmed the ruling of the TC,

holding that it was offensive to the basic
tenets of justice and equity for a
corporation to take over and operate the
business of another corporation, while
disavowing or repudiating any
responsibility, obligation or liability arising
therefrom.

ISSUE:
Whether or not herein petitioners (PNB and
NASUDECO) are liable for the unpaid
corporate debts of PASUMIL, a corporation
whose corporate existence has not been
legally extinguished or terminated, simply
because of petitioners take-over of its
management and operation pursuant to
the mandates of LOI No. 311?
RULING:

The Petition is meritorious.wphi1.nt

As a rule, a corporation that purchases the

assets of another will not be liable for the
debts of the selling corporation, provided
the former acted in good faith and paid
adequate consideration for such assets,
except when any of the following
circumstances is present: (1) where the
purchaser expressly or impliedly agrees to
assume the debts, (2) where the
transaction amounts to a consolidation or
merger of the corporations, (3) where the
purchasing corporation is merely a
continuation of the selling corporation, and
(4) where the transaction is fraudulently
entered into in order to escape liability for
those debts.

Piercing the Corporate

Veil Not Warranted

A corporation is an artificial being created

by operation of law. It possesses the right
of succession and such powers, attributes,
and properties expressly authorized by law
or incident to its existence. It has a
personality separate and distinct from the
persons composing it, as well as from any
other legal entity to which it may be
related.

26

this burden; it failed to establish by

competent evidence that petitioners
separate corporate veil had been used to
conceal fraud, illegality or inequity.

or terminated. Neither did petitioner

expressly or impliedly agree to assume the
debt of PASUMIL to respondent. LOI No. 311
explicitly provides that PNB shall study and
submit recommendations on the claims of
PASUMILs creditors. Clearly, the corporate
separateness between PASUMIL and PNB
remains, despite respondents insistence to
the contrary.

While the Court agrees with the

respondents claim that the assets of the
National Sugar Development Corporation
(NASUDECO) can be easily traced to
PASUMIL, it is not convinced that the
transfer of the latters assets to petitioners
was fraudulently entered into in order to
escape liability for its debt to respondent.

CASE NO. 21
ESTELITA BURGOS LIPAT and ALFREDO
LIPAT, petitioners, vs.
PACIFIC
BANKING CORPORATION, REGISTER OF
DEEDS, RTC EX-OFFICIO SHERIFF OF
QUEZON CITY and the Heirs of
EUGENIO D. TRINIDAD, respondents.
(4/30/2003)

The corporate fiction was not used to

defeat public convenience, justify a wrong,
protect fraud or defend crime.52 None of
the foregoing exceptions was shown to
exist in the present case.53 On the contrary,
the lifting of the corporate veil would result
in manifest injustice. This we cannot allow.

QUISUMBING, J.:

No Merger or Consolidation

Respondent further claims that petitioners

should be held liable for the unpaid
obligations of PASUMIL by virtue of LOI No.
311, which expressly authorized PASUMIL
and PNB to merge or consolidate. On the
other hand, petitioners contend that their
takeover of the operations of PASUMIL did
not involve any corporate merger or
consolidation, because the latter had never
lost its separate identity as a corporation.

A consolidation is the union of two or more

existing entities to form a new entity called
the consolidated corporation. A merger, on
the other hand, is a union whereby one or
more existing corporations are absorbed by
another corporation that survives and
continues the combined business. The
merger, however, does not become
effective upon the mere agreement of the
constituent corporations. Since a merger or
consolidation involves fundamental
changes in the corporation, as well as in
the rights of stockholders and creditors,
there must be an express provision of law
authorizing them. For a valid merger or
consolidation, the approval by the
Securities and Exchange Commission (SEC)
of the articles of merger or consolidation is
required. These articles must likewise be
duly approved by a majority of the
respective stockholders of the constituent
corporations.

Petitioner-spouses Lipat, owned Belas Export

Trading (BET), a single proprietorship with principal
office at Cubao, Quezon City. BET was engaged in
the manufacture of garments for domestic and
foreign consumption. The Lipats also owned the
Mystical Fashions in the United States, which sells
goods imported from the Philippines through
BET. Mrs. Lipat designated her daughter, Teresita B.
Lipat, 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 Lipat executed a special power of
attorney appointing Teresita as her attorney-in-fact
to obtain loans and other credit accommodations
from respondent Pacific Bank. She likewise
authorized Teresita to execute mortgage contracts
on properties owned or co-owned by her as
security for the obligations to be extended by the
bank including any extension or renewal thereof.
Teresita then was able to secure for and in
behalf of her mother, Mrs. Lipat and BET, a loan
from Pacific Bank. As security, the Lipat spouses,
as represented by Teresita, executed a Real Estate
Mortgage over their property located at Cubao,
Quezon City. Said property was likewise made to
secure other additional or new loans.
Later, BET was incorporated into a family
corporation named Belas Export Corporation (BEC)
in order to facilitate the management of the
business. BEC utilized the same machineries and
equipment
previously
used
by
BET. Its
incorporators and directors included the Lipat
spouses who owned a combined 300 shares out of
the 420 shares subscribed, Teresita Lipat who
owned 20 shares, and other close relatives and
friends of the Lipats. Estelita Lipat was named
president of BEC, while Teresita became the vicepresident and general manager.

In the case at bar, the Court held that there

is no merger or consolidation with respect
to PASUMIL and PNB. The procedure
prescribed under Title IX of the Corporation
Code was not followed. PASUMILs
corporate existence, as correctly found by
the CA, had not been legally extinguished

27

Eventually, the loan was later restructured in

the name of BEC and subsequent loans were
obtained by BEC with the corresponding
promissory notes duly executed by Teresita on
behalf of the corporation. A letter of credit was also
opened by Pacific Bank in favor of A. O. Knitting
Manufacturing Co., Inc., upon the request of BEC
after BEC executed the corresponding trust receipt
therefor. Export bills were also executed in favor of
Pacific
Bank
for
additional
finances. These
transactions were all secured by the real estate
mortgage over the Lipats property.

that both are one and the same. Hence, the Lipats
were estopped from disclaiming any obligations on
the theory of separate personality of corporations,
which is contrary to principles of reason and good
faith.
CA: dismissed Lipats appeal
-there was ample evidence on record to support
the application of the doctrine of piercing the veil
of corporate fiction. In affirming the findings of the
RTC, the appellate court noted that Mrs. Lipat had
full control over the activities of the corporation
and used the same to further her business
interests. In fact, she had benefited from the loans
obtained by the corporation to finance her
business. It also found unnecessary a board
resolution authorizing Teresita Lipat to secure loans
from Pacific Bank on behalf of BEC because the
corporations by-laws allowed such conduct even
without a board resolution.

Promissory notes, export bills, and trust

receipt eventually became due and demandable.
BEC defaulted in its payments.
The real estate mortgage was foreclosed and
sold at public auction and a certificate of sale was
issued to respondent Trinidad as the highest
bidder.
Spouses Lipat filed before the Quezon
City RTC a complaint for annulment of the
real
estate
mortgage,
extrajudicial
foreclosure and the certificate of sale .

Hence, this petition.

ISSUE:
1. Whether or not the doctrine of piercing the
veil of corporate fiction is applicable in this case.
( Yes)

They alleged that the promissory notes, trust

receipt, and export bills were all ultra vires acts of
Teresita as they were executed without the
requisite board resolution of the Board of Directors
of BEC. The Lipats also averred that assuming said
acts were valid and binding on BEC, the same were
the corporations sole obligation, it having a
personality distinct and separate from spouses
Lipat. It was likewise pointed out that Teresitas
authority to secure a loan from Pacific Bank was
specifically limited to Mrs. Lipats sole use and
benefit and that the real estate mortgage was
executed
to
secure
the
Lipats
and
BETs P583,854.00 loan only.

2. Whether or not petitioners' property under

the real estate mortgage is liable not only for the
amount of P583,854.00 but also for the value of
the promissory notes, trust receipt, and export bills
subsequently incurred by BEC. (YES)
HELD:
In finding petitioners mortgaged property
liable for the obligations of BEC, both courts below
relied
upon
the alter
ego doctrine
or
instrumentality rule, rather than fraud in
piercing the veil of corporate fiction. When the
corporation is the mere alter ego or business
conduit of a person, the separate personality of the
corporation may be disregarded. This is commonly
referred to as the instrumentality rule or the alter
ego doctrine, which the courts have applied in
disregarding the separate juridical personality of
corporations. As held in one case,

Pacific Bank and Trinidad alleged in common

that petitioners Lipat cannot evade payments with
their property because they and the BEC are one
and the same, the latter being a family
corporation. Respondent Trinidad further claimed
that he was a buyer in good faith and for value and
that petitioners are estopped from denying BECs
existence after holding themselves out as a
corporation.

Where one corporation is so organized and

controlled and its affairs are conducted so that it is,
in fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of the
instrumentality may be disregarded. The control
necessary to invoke the rule is not majority or even
complete stock control but such domination of
finances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will
or existence of its own, and is but a conduit for its
principal.

RTC : dismissed the complaint

The trial court ruled that there was convincing
and conclusive evidence proving that BEC was a
family corporation of the Lipats. As such, it was a
mere extension of petitioners personality and
business and a mere alter ego or business conduit
of the Lipats established for their own
benefit. Hence, to allow petitioners to invoke the
theory of separate corporate personality would
sanction its use as a shield to further an end
subversive of justice. Thus, the trial court pierced
the veil of corporate fiction and held that Belas
Export Corporation and petitioners (Lipats) are one
and the same. Pacific Bank had transacted
business with both BET and BEC on the supposition

We find that the evidence on record

demolishes, rather than buttresses, petitioners
contention that BET and BEC are separate business
entities. We note further that: (1) Estelita and

28

Alfredo Lipat are the owners and majority

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

Apparent authority, is derived not merely from

practice. Its existence may be ascertained through
(1) the general manner in which the corporation
holds out an officer or agent as having the power
to act or, in other words, the apparent authority to
act in general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether
within or beyond the scope of his ordinary powers.

Hence, Pacific Bank cannot be faulted for

relying on the same authority granted to Teresita
Lipat by Estelita Lipat by virtue of a special power
of attorney. It is a familiar doctrine that if a
corporation knowingly permits one of its officers or
any other agent to act within the scope of an
apparent authority, it holds him out to the public as
possessing the power to do those acts; thus, the
corporation will, as against anyone who has in
good faith dealt with it through such agent, be
estopped from denying the agents authority.
WHEREFORE,
AFFIRMED.

the

petition

is DENIED. CA

CASE NO. 22
LIM TONG LIM vs. PHILIPPINE FISHING GEAR
INDUSTRIES, INC. 11/3/1999
PANGANIBAN, J.:
FACTS:
On behalf of "Ocean Quest Fishing
Corporation," Antonio Chua and Peter Yao entered
into a Contract for the purchase of fishing nets of
various sizes from the Philippine Fishing Gear
Industries, Inc. They claimed that they were
engaged in a business venture with Petitioner Lim
Tong Lim, who however was not a signatory to the
agreement.

2nd issue: As noted earlier, BEC merely

succeeded BET as petitioners alter ego; hence,
petitioners mortgaged property must be held liable
for the subsequent loans and credit lines of BEC.

The buyers failed to pay for the fishing nets

and the floats; hence, private respondent filed a
collection suit against Chua, Yao and Petitioner Lim
Tong Lim. The suit was brought against the three in
their capacities as general partners, on the
allegation that Ocean Quest Fishing Corporation
was a nonexistent corporation as shown by a
Certification from the Securities and Exchange
Commission.

Secondly, the principle of estoppel precludes

petitioners from denying the validity of the
transactions entered into by Teresita Lipat with
Pacific Bank, who in good faith, relied on the
authority of the former as manager to act on behalf
of petitioner Estelita Lipat and both BET and
BEC. While the power and responsibility to decide
whether the corporation should enter into a
contract that will bind the corporation is lodged in
its board of directors, subject to the articles of
incorporation, by-laws, or relevant provisions of
law, yet, just as a natural person may authorize
another to do certain acts for and on his behalf, the
board of directors may validly delegate some of its
functions and powers to officers, committees, or
agents. The authority of such individuals to bind
the corporation is generally derived from law,
corporate by-laws, or authorization from the board,
either expressly or impliedly by habit, custom, or
acquiescence in the general course of business.

RTC: issued a Writ of Preliminary Attachment,

which the sheriff enforced by attaching the fishing
nets on board F/B Lourdes.
Lim Tong Lim filed an Answer with Counterclaim
and Crossclaim and moved for the lifting of the Writ
of Attachment. The trial court maintained the Writ,
and upon motion of private respondent, ordered
the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the
bidding and deposited with the said court the sales
proceeds.

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RTC DECISION: Philippine Fishing Gear Industries

was entitled to the Writ of Attachment and that
Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent.

who act or purport to act as its representatives or

agents do so without authority and at their own
risk. And as it is an elementary principle of law that
a person who acts as an agent without authority or
without a principal is himself regarded as the
principal, possessed of all the right and subject to
all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which
has no valid existence assumes such privileges and
obligations and becomes personally liable for
contracts entered into or for other acts performed
as such agent.

CA: affirmed the RTC.

- Held that petitioner was a partner
of Chua and Yao in a fishing business and
may thus be held liable as a such for the
fishing nets and floats purchased by and
for the use of the partnership. The
evidence
establishes
that
all
the
defendants including herein appellant Lim
Tong Lim undertook a partnership for a
specific undertaking, that is for commercial
fishing x x x. Obviously, the ultimate
undertaking of the defendants was to
divide the profits among themselves which
is what a partnership essentially is x x x

The doctrine of corporation by estoppel may

apply to the alleged corporation and to a third
party. In the first instance, an unincorporated
association, which represented itself to be a
corporation, will be estopped from denying its
corporate capacity in a suit against it by a third
person who relied in good faith on such
representation. It cannot allege lack of personality
to be sued to evade its responsibility for a contract
it entered into and by virtue of which it received
advantages and benefits.

Hence, this case.

ISSUE: SINCE
IT
WAS
ONLY
CHUA
WHO
REPRESENTED THAT HE WAS ACTING FOR OCEAN
QUEST FISHING CORPORATION WHEN HE BOUGHT
THE NETS FROM PHILIPPINE FISHING, THE COURT
OF APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.

On the other hand, a third party who, knowing

an association to be unincorporated, nonetheless
treated it as a corporation and received benefits
from it, may be barred from denying its corporate
existence in a suit brought against the alleged
corporation. In such case, all those who benefited
from the transaction made by the ostensible
corporation, despite knowledge of its legal defects,
may be held liable for contracts they impliedly
assented to or took advantage of.

RULING: The Petition is devoid of merit.

Petitioner argues that under the doctrine of
corporation by estoppel, liability can be imputed
only to Chua and Yao, and not to him. We disagree.

There is no dispute that the respondent,

Philippine Fishing Gear Industries, is entitled to be
paid for the nets it sold. The only question here is
whether petitioner should be held jointly liable with
Chua and Yao. Petitioner contests such liability,
insisting that only those who dealt in the name of
the ostensible corporation should be held
liable. Since his name does not appear on any of
the contracts and since he never directly
transacted with the respondent corporation, ergo,
he cannot be held liable.

Section 21 of the Corporation Code of the

Philippines provides:
Sec. 21. Corporation by estoppel. - All persons
who assume to act as a corporation knowing it to
be without authority to do so shall be liable as
general partners for all debts, liabilities and
damages incurred or arising as a result
thereof: Provided however, That when any such
ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to
use as a defense its lack of corporate personality.

It is difficult to disagree with the RTC and

the CA that Lim, Chua and Yao decided to
form a corporation. Although it was never
legally formed for unknown reasons, this fact
alone does not preclude the liabilities of the
three as contracting parties in representation
of it. Clearly, under the law on estoppel,
those acting on behalf of a corporation and
those benefited by it, knowing it to be
without valid existence, are held liable as
general partners.

One who assumes an obligation to an ostensible

corporation as such, cannot resist performance
thereof on the ground that there was in fact no
corporation.
Thus, even if the ostensible corporate entity is
proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. The
reason behind this doctrine is obvious - an
unincorporated association has no personality and
would be incompetent to act and appropriate for
itself the power and attributes of a corporation as
provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those

Technically, it is true that petitioner did

not directly act on
behalf
of
the
corporation. However, having reaped the benefits
of the contract entered into by persons with whom
he previously had an existing relationship, he is
deemed to be part of said association and is

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covered by the scope of the doctrine of corporation

by estoppel.
WHEREFORE, the Petition is DENIED and the
assailed
Decision AFFIRMED. Costs
against
petitioner.

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