Ronald C.

Lara Business Organization II: Private Corporation Law

Fourth Year Atty. Alizedney M. Ditucalan, LL.M.
MSU Law, Iligan Extension Class

Can A Corporation Pierce the Veil of Another Corporation?

The fiction of corporate veil of a corporation may successfully be pierced at the

instance of another corporation and upon the order of a competent court, provided
certain requisites are attendant in the particular case. Generally, the law allows the
corporate veil to be disregarded when such is used to defeat public convenience,
justify wrong, protect fraud, defend crime, when it is merely an alter ego or a
business conduit of another, and for any other equitable grounds.

In addition, the wrong doing must be clearly and convincingly established. The court
must also be sure that the misuse of the corporate veil resulted to an injustice upon
another, adversely affecting his or her or its rights.

The corporate veil describes the separation of a corporation to its shareholders or

members. It is very essential as it gives life to the statutory provision that a
corporation is an entity separate and distinct from its shareholders. Further, it
necessitates the shielding of the shareholders and members from the liabilities of
the corporation. Thus, as a matter of policy, the Court is always careful in assessing
the milieu where the doctrine of corporate veil maybe applied. Otherwise an
injustice, although unintended, may result from its erroneous application.

In the case of Lafarge Cement Philippines, Inc versus Continental Cement

Corporation, GR. No. 155173 (2004), the court granted the prayer of a corporation
to pierce the corporate veil of another in order to bring to the court its officers. In
the said case, the defendant corporation prayed to bring into the action by way of
counterclaim the President and Secretary of the plaintiff-corporation. The court
based its decision on the allegation of the respondent that the two (2) officers act
of filing the complaint and writ of attachment were made fraudulently and in bad

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Ronald C. Lara Business Organization II: Private Corporation Law
Fourth Year Atty. Alizedney M. Ditucalan, LL.M.
MSU Law, Iligan Extension Class
faith. The court said that the allegations warrant the inclusion of the said officers
and

pierce the corporate veil of the corporate fiction so that the said individuals may not
seek refuge therein, but may be held individually and personally liable for their
actions.

In certain cases, the Court refused to disregard the corporate veil, and instead
upheld it, when the above requirements are not sufficiently established in the case.

In Traders Royal Bank versus Court of Appeals, 269 SCRA 15 (1997), the court did
not grant the prayer of the petitioner to pierce the corporate veils of Filriters
Guaranty Assurance Corporation (FGAC) and Philippine Underwriters Finance
Corporation (PUFC), treat them as one and allow the petitioner to recover from
FGAC the alleged liabilities of PUFC. This is despite the fact that the two (2)
corporations have identical set of Directors and that PUFC owns 90% of FGAC, which
are undeniable among the factors that will justify the application of the Piercing
Doctrine. In refusing, the Court held that the corporate veil cannot be pierced at the
instance of herein petitioner just for the sake of allowing it to complete its claim
against PUFC absent the showing that the corporate veil is used to defraud it.