Santos VS NLRC

In 1986, Gil Abaño, the treasurer of Mana Mining and Development Corporation (MMDC), sent a letter
to Melvin Millena, a project accountant of MMDC, advising the latter that he is being laid-off due to the
fact that the rainy season is on; that there is deteriorating peace and order in the area (Sorsogon), and
that there will be little paperwork to do.

As a result, Millena filed an illegal dismissal case against MMDC before the labor arbiter. Eventually,
Millena won and a writ of execution was issued against MMDC. However, since MMDC’s office closed
down, the writ was served to Benjamin Santos, the former president of MMDC.

In his defense, Santos argued, among others, that he cannot be made personally liable because he was
not served any summons or notice and that he did not even know the nature of the complaint because
no copy was served upon him in compliance with Rule 14 (Summons) of the Rules of Court; that the
lawyer who represented MMDC cannot be considered as Santos’ representative in court; that the labor
arbiter and the NLRC (National Labor Relations Commission) never acquired jurisdiction over his person;
that it would be violative of due process if he is made liable.

ISSUE: Whether or not Benjamin Santos was properly placed under the jurisdiction of the NLRC.

HELD: Yes. Although as a rule, modes of service of summons are strictly followed in order that the court
may acquire jurisdiction over the person of a defendant, such procedural modes, however, are liberally
construed in quasi-judicial proceedings, such as in the case at bar. Substantial compliance with the same
is considered adequate.

In this case, summonses were actually sent to MMDC as well as to Santos and to another MMDC officer.
When the lawyer of MMDC appeared, he did so in representation of MMDC, Santos, and the other
corporate officer named in the summons. The lawyer actively participated in the proceeding, thus,
Santos cannot claim that he was not duly represented in the proceedings nor can he claim that he was
never placed under the custody of the labor arbiter or the NLRC.
Stockholders of F. Guanzon and Sons, Inc v. Register of Deeds of Manila (1962)

G.R. No. L-18216 October 30, 1962 Lessons Applicable: Strong Juridical Personality (Corporate Law)
FACTS: Sept 19, 1960: 5 stockholders of F Guanzon executed a certificate of liquidation of the assets of
the corporation. By virtue of a resolution dissolving the corporation, they wish to distribute as liquidated
dividends among themselves and in proportion to their shareholdings, the assets of the corporation,
which includes real estate properties in Manila. The Register of Deeds however, upon presentment of
the certificate of liquidation by the 5 stockholders, denied registration of the properties to be
distributed on 7 grounds, 3 of which were questioned by the stockholders: (1) no statement of the # of
parcels of land to be distributed (2) registration fees iao P430.50 (3) doc stamp tax iao P940.45 (4) court
judgment approving the dissolution and directing disposition of the assets. The stockholders claim that
the certificate of liquidation merely partitions/distributes the corporate assets among them because the
corporation has already been dissolved. Hence they need not comply with the requirements imposed by
the Register of Deeds and the Land Registration Authority. The LRA counters that the distribution of the
corporate assets upon dissolution of the corporation, is ultimately a transfer/conveyance of property to
the stockholders.

ISSUE:

W/N the certificate of liquidation involves a mere distribution of corporate assets or a transfer or
conveyance of property.

HELD:

It is a transfer/conveyance of property. A corporation is a juridical person separate and distinct from the
stockholders. Properties registered in the name of the corporation are owned by it as a separate entity.
The shares held by stockholders are their personal property and not the corporation, and it only typifies
an aliquot part of the corporation’s property or the right to share in the proceeds. The holder of such
share is not the owner of any part of the capital of the corporation, nor is he entitled to possession of
any definite portion of its assets, neither is he a co-owner.

Liquidation by stockholders after a corporation’s dissolution is not mere partitioning of community

property, but already a conveyance or transfer of title to them from the corporation. The distribution of
the corporate properties to the SHs was deemed not in the nature of a partition among co-owners, but
rather a disposition by the corporation to the SHs as opposite parties to a contract Properties registered
in the name of the corporation are owned by it as an entity separate and distinct from its members;
shares of stock are personal property, and NOT corporate property share of stock typifies an aliquot part
of the corporation’s property, or the right to share in the proceeds to that extent when distributed
holder of shares is not the owner of any part of the capital of the corporation, nor is he entitled to the
possession of any definite portion of its property or assets.
Manila Gas vs. Collector

FACTS: This is an action brought by the Manila Gas Corporation against the Collector of Internal Revenue
for the recovery of P56,757.37, which the plaintiff was required by the defendant to deduct and
withhold from the various sums paid it to foreign corporations as dividends and interest on bonds and
other indebtedness and which the plaintiff paid under protest.

ISSUES: Won the Collector of Internal Revenue was justified in withholding income taxes on interest on
bonds and other indebtedness paid to nonresident corporations

RULING: YES. The approved doctrine is that no state may tax anything not within its jurisdiction without
violating the due process clause of the constitution. The taxing power of a state does not extend beyond
its territorial limits, but within such it may tax persons, property, income, or business. If an interest in
property is taxed, the situs of either the property or interest must be found within the state. If an
income is taxed, the recipient thereof must have a domicile within the state or the property or business
out of which the income issues must be situated within the state so that the income may be said to have
a situs therein. Personal property may be separated from its owner, and he may be taxed on its account
at the place where the property is although it is not the place of his own domicile and even though he is
not a citizen or resident of the state which imposes the tax. But debts owing by corporations are
obligations of the debtors, and only possess value in the hands of the creditors. The Manila Gas
Corporation operates its business entirely within the Philippines. Its earnings, therefore come from local
sources. The place of material delivery of the interest to the foreign corporations paid out of the
revenue of the domestic corporation is of no particular moment. The place of payment even if conceded
to be outside of the country cannot alter the fact that the income was derived from the Philippines. The
word "source" conveys only one idea, that of origin, and the origin of the income was the Philippines.
MAGSAYSAY-LABRADOR vs. COURT OF APPEALS

G.R. No. 58168. December 19, 1989.Fernan,

C.J.

FACTS:

Private respondent Adelaida Rodriguez Magsaysay filed an action against Subic Land Corporation
(SUBIC), among others, to annul the deed of assignment and deed of mortgage executed in favor of the
latter by her late husband.

Private respondent alleged that the subject land of the two deeds was acquired through conjugal funds.
Since her consent to the disposition of the same was not obtained, she claimed that the acts of
assignment and mortgage were done to defraud the conjugal partnership. She further contended that
the same were done without consideration and hence null and void.

Petitioners, sisters of the deceased husband of the private respondent, filed a motion for intervention
on the ground that their brother conveyed to them one-half of his shareholdings in SUBIC, or about 41%.
The trial court denied the motion for intervention ruling that petitioners have no legal interest because
SUBIC has a personality separate and distinct from its stockholders. The CA confirmed the denial on
appeal. Hence, this petition.

ISSUE:

Whether petitioners, as stockholders of SUBIC, have a legal interest in the action for annulment of the
deed of assignment and deed of mortgage in favor of the corporation.

HELD:

NO. The Court noted that the interest which entitles person to intervene in a suit between other parties
must be in the matter in litigation and of such direct and immediate character that the intervenor will
either gain or lose by the direct legal operation and effect of the judgment. In the instant petition, it was
said that the interest, if it exists at all, of petitioners-movants 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 dissolution, after payment of the corporate debts and obligations.
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.
GOOD EARTH EMPORIUM VS CA (194 SCRA 544)
Good Earth Emporium Inc. vs Court of Appeals
194 SCRA 544 [GR No. 82797 February 27, 1991]

Facts: A lease contract, dated October 16, 1981, was entered into by and between Roces-Reyes Realty Inc. as lessor,
and Good Earth Emporium Inc. (GEE) as lessee for a term of three years beginning November 1, 1981 and ending
October 31, 1984 at a monthly rental of Php65,000. The building which was the subject of the contract of lease is a
five story building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila. From March 1983
up to the complaint was filed, the lessee had defaulted in the payment of rentals, as a consequence of which, private
respondent Roces-Reyes Realty Inc. filed on October 14, 1984 an ejectment case against herein petitioners, Good
Earth Emporium Inc. and Lim Ka Ring. After the latter had tendered their responsive pleading, the lower court on
motion of Roces rendered judgement on the pleadings dated April 17, 1984 to which petitioners were ordered to
vacate the premises and surrender the same to the plaintiffs. On May 16, 1984, Roces filed a motion for execution
which was opposed by petitioners on May 28, 1984 simultaneous with the latter’s filing of a notice of appeal.
However, on August 15, 1984, GEE thru counsel filed a motion to withdraw said appeal citing as reason that they
are satisfied with the decision of the lower court.

Issue: Whether or not the payment made by GEE to the Roces brothers constitute payment to private respondent
corporation which would result to the extinguishment of the obligation.

Held: No. Under article 1240 of the civil code of the Philippines – Payment shall be made to the person in whose
favor the obligation has been constituted, on his successor in interest or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its successors in interest
nor is there positive evidence that payment was made to a person authorized to receive it. No such proof was
submitted but merely inferred by the RTC from Marcos Roces having signed the lease contract as President which
was witnessed by Jesus Marcos Roces. The later, however, was no longer President or even an officer of the Roces-
Realty Inc at the time he received the money and signed the sale with pacto de retro. 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.

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. Share owners are in no legal sense the owners corporate property which is owned by the
corporation as a distinct legal person. 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.
FELIPE TAYKO vs. NICOLAS CAPISTRANOG.R. No. L-30188, October 2, 1928OSTRAND,

THE CASE:

This is a petition for a writ of prohibition enjoining the respondent judge from making cognizance of certain civil
and criminal election cases in which the petitioners are parties.

THE FACTS:

The petitioners allege that Capistrano was appointed judge of the CFI of Oriental Negros, to hold office during good
behavior and until he should reach the age of 65 years; that he now has reached that age and, therefore, under the
provisions of section 148 of the Administrative Code as amended, is disqualified from acting as a judge of the Court
of First Instance. The petitioners further allege that in view of the many election protests and criminal cases for
violation of the election law filed in the CFI of Oriental Negros arising in the from the last election, de la Costa was
duly designated and acted as auxiliary judge. There was an understanding that de la Costa would hear and take
cognizance of all election protests and criminal actions then pending or to filed arising from the said last general
election, and that Capistrano would try and hear the ordinary cases pending. Notwithstanding the understanding,
Capistrano tried and is still trying to take cognizance of the election protests an criminal actions in said court;
declared in open court that he will try the criminal cases for the reason that de la Costa refused to try the same on the
ground that the preliminary investigations were held before him, when, in truth and in fact, the d la Costa did not
make the statement imputed to him and was and is still willing to try the election protests and criminal cases for
violation of the election law pending in the court. Additionally that Capistrano, in spite of the fact that he was
holding and is now pretending to hold the office of judge took great interest and active part in the filing of criminal
charges against the petitioners to the unjustifiable extent of appointing a deputy fiscal, who then filed the proper
information, when the provincial fiscal refused to file criminal charges against the petitioners for violation of the
election law for lack of sufficient evidence to sustain the same Finally, that Capistrano is neither a judge de jure nor
de facto, but that he continues to hold the office of judge and pretends to be duly qualified and acting judge of the
said province; and that he has tried, and continues to try, to act as such judge. Hence this petition.

THE ISSUE:

Whether or not Capistrano, upon reaching the age of 65, can still continue public office? Is he considered a de facto
judge?

THE RULING:

Briefly defined, a de facto judge is one who exercises the duties of a judicial office under color of an appointment or
election thereto (Brown vs. O'Connell, 36 Conn., 432). He differs, on the one hand, from a mere usurper who
undertakes to act officially without any color of right, and on the other hand, from a judge de jure who is in all
respects legally appointed and qualified and whose term of office has not expired (State vs. Carroll, 38 Conn., 449;
Denny vs. Matton, 2 Allen [Mass.], 361; Van Slyke vs. Farmers' Mut. Fire Ins. Co., 39 Wis., 390).Apart from any
constitutional or statutory regulation on the subject there seems to be a genera l rule of law that an incumbent of an
office will hold over after the conclusion of his term until the election and qualification of a successor (22 R. C. L.,
pp. 554-5). When a judge in good faith remains in office after his title has ended, he is a de facto officer (Sheehan's
Case, 122 Mass., 445).

Applying the principles stated to the facts set forth in the petition before us, we cannot escape the conclusion that, on
the assumption that said facts are true, the respondent judge must be considered a judge de facto. His term of office
may have expired, but his successor has not been appointed, and as good faith is presumed, he must be regarded as
holding over in good faith. The contention of counsel for the petitioners that the auxiliary judge present in the
district must be considered the regular judge seems obviously erroneous. Accordingly, it is a well-established
principle, dating from the earliest period and repeatedly confirmed by an unbroken current of decisions, that the
official acts of a de facto judge are just as valid for all purposes as those of a de jure judge, so far as the public or
third persons who are interested therein are concerned. The principle is one founded in policy and convenience, for
the right of no one claiming a title or interest under or through the proceedings of an officer having an apparent
authority to act would be safe, if it were necessary in every case to examine the legality of the title of such officer up
to its original source, and the title or interest of such person were held to be invalidated by some accidental defect or
flaw in the appointment, election or qualification of such officer, or in the rights of those from whom his
appointment or election emanated; nor could the supremacy of the laws be maintained, or their execution enforced,
if the acts of the judge having a colorable, but not a legal title, were to be deemed invalid. As in the case of judges of
courts of record, the acts of a justice de facto cannot be called in question in any suit to which he is not a party.
Petition is sustained.

FEDERICO FERNANDEZ, plaintiff-appellant, vs. P. CUERVA

This is an appeal from the order of the Court of First Instance of Manila, dated January 29, 1963, in its Civil Case
No. 52946, dismissing the complaint upon the ground that the action in the first two causes of action had prescribed
and that it had no jurisdiction over the third cause of action.

It appears that plaintiff Federico Fernandez was employed as salesman by defendant P. Cuerva & Co. from March,
1949 to October, 1959. After his separation from the service, plaintiff filed a claim, on July 26, 1960, before
Regional Office No. 4 of the Department of Labor,1 docketed as L. S. Case No. 2940, to recover unpaid salaries and
commissions, and separation pay.

During the pendency of said case, or on December 17, 1962, plaintiff again instituted a similar complaint against the
same defendant with the Court of First Instance of Manila (Civil Case No. 52946) alleging, among others, that he
was employed by defendant company as salesman in March, 1949 with a salary of P200.00 per month that
beginning June, 1955 until the termination of his services in October, 1959, his salary was increased to, P300.00
monthly and was given, in addition, a commission of 10% on his sales; that the increase of P100.00 a month and the
10% commission were not actually received by him as there was a verbal understanding between him and defendant
company that the same would be retained by the latter as bond or deposit for the goods being handled by the former;
and that because plaintiff was separated from the service in October, 1959, he sought to recover the sum of
P5,300.00 representing the P100.00 monthly deductions from his salary; P4,770.00 corresponding to his 10%
commissions that were withheld, and P1,500.00 as separation pay, or the total sum of P11,570.00. These three items
were respectively the subject matter of the first, second and third causes of action of the complaint.

On January 2, 1963, defendant filed a motion to dismiss the complaint upon the grounds that the actions had
prescribed and that the court had no jurisdiction over the case. The court below, after allowing the parties to submit
their respective memorandum on the questions of prescription and jurisdiction, dismissed the case, in an order issued
on January 29, 1963, holding that because the claim of plaintiff in the first two causes of action amounting to
P10,070.00 represented the sum total of unauthorized deductions from his salaries and withheld commissions, under
Section 10, paragraph (f) of Republic Act No. 602, otherwise known as the Minimum Wage Law, the action to
recover the same was already barred under Section 17 of said Act inasmuch as it was not brought within three years
from the time the right of action accrued; and that because the remaining claim of plaintiff was limited to his
separation pay amounting only to P1,500.00, the action to collect the same was not within the original jurisdiction of
the court.

On February 1, 1963, plaintiff moved to reconsider the above-mentioned order, advancing as his main argument the
fact that his having filed a similar claim with Regional Office No. 4 of the Department of Labor had suspended the
running of the prescriptive period insofar as his claim for refund of unauthorized deductions and withheld
commissions was concerned — which were the subject matters of the first and second causes of action that were
dismissed by the court. The defendant filed an opposition to the motion for reconsideration. In an order dated
February 15, 1963, the court denied plaintiff's motion for reconsideration. Hence this appeal by the plaintiff direct to
this Court on purely questions of law.
We are in accord with the court a quo that the law applicable to the case at bar is Republic Act 602 because the bond
or deposit sought to be recovered by appellant was actually the sum total of the unauthorized deductions from his
salaries and withheld commissions under Section 10 thereof. Under Section 17 of said law, "any action . . . to
enforce any cause of action under this Act may be commenced within three years after the cause of action accrued,
and every such action shall be forever barred unless commenced within three years after the cause of action
accrued." Since a right of action accrues only from the moment the right to commence the action comes into
existence, and prescription begins to run from that time,2 the question to be resolved is: When did the right of action
of plaintiff accrue?

To answer the foregoing query, it is meet to recall that while the amounts withheld by defendant were actually
deductions from plaintiff's salaries and unpaid commissions, they were, however, constituted as a bond or a deposit
to answer for any liability that he might incur in connection with the goods handled by him. The bond and/or deposit
was thus answerable for merchandise entrusted to plaintiff during the period of his employment with defendant. It
was, therefore, not feasible for plaintiff to demand every month or every payday, or during the period of his
employment with the company the return or refund of those amounts withheld as contended by defendant, because
the undertaking for which the bond or deposit was constituted was still subsisting. And so the right of plaintiff to
commence an action for the return or refund of the amounts representing such bond or deposit would accrue only
when the same was no longer needed, and the time when it was no longer needed only came in October 1959 when
plaintiff was separated from the service. Having ceased to be employed by the defendant, the bond put up by
plaintiff thereby became unnecessary or useless.

It would seem, however, that even if We count from October, 1959 in computing the prescriptive period, plaintiff's
action to recover the amount held by defendant as bond is already barred because more than three years had elapsed
by the time plaintiff instituted the present case in the court below on December 17, 1962. The record, however,
shows that on July 26, 1960, plaintiff filed a similar claim against the defendant with Regional Office No. 4 of the
Department of Labor.

At this juncture, the question posed is: Did the filing by plaintiff of that claim with the regional office of the
Department of Labor suspend the running of the period of prescription?

Defendant answers the question in the negative. While defendant does not question the applicability to the case at
bar of Article 1155 of the Civil Code, which provides that the "prescription of actions is interrupted when they are
filed before the Court," nevertheless, it contends that inasmuch as plaintiff's claim was lodged with the regional
office of the Department of Labor, which is not a court, the same could not be considered a judicial demand that
would suspend the running of the prescriptive period.

We do not agree with defendant. It is true that the claim filed by plaintiff with the regional office of the Department
of Labor is not a judicial demand in the same sense of the term "judicial demand" because the same was not
instituted in a court of justice. Judicial notice, however, should be taken that on December 10, 1956, Reorganization
Plan No. 20-A was promulgated pursuant to Republic Act 997, and under Section 25 of said reorganization plan
each regional office of the Department of Labor was vested with original and exclusive jurisdiction over all cases
affecting all money claims arising from violations of labor standards on working conditions such as unpaid wages,
underpayment, overtime and separation pay, etc., to the exclusion of courts.3 Consequently, when plaintiff wanted
to enforce his claim after his dismissal from the service in October, 1959, he had no choice but to file the same with
Regional Office No. 4 of the Department of Labor which was the agency then empowered to take cognizance of the
claim. He could not institute the action to recover his claim in the court of justice because of the provisions of
Reorganization Plan No. 20-A. At least it may be said that on July 26, 1960, when plaintiff filed his claim with
Regional Office. No. 4 of the Department of Labor, he acted in accordance with the procedure that was then
prescribed under authority of law. Under the circumstances, We believe that the filing by plaintiff of his claim
before the regional office of the Department of Labor had the attributes of a judicial demand. And We say this
because under the provisions of Section 25 of Reorganization Plan No. 20-A each regional office of the Department
of Labor was invested with jurisdiction, similar to that of a court, to receive, determine, and adjudicate claims
arising out of employer-employee relations as specified in said section. We quote Section 25 of Reorganization Plan
No. 20-A:
Each Regional Office shall have original and exclusive jurisdiction over all cases affecting all money claims arising
from violations of labor standards on working conditions, including but not restrictive to: unpaid wages,
underpayment, overtime, separation pay, and maternity leave of employees/laborers and unpaid wages, overtime,
separation pay, vacation pay, and payment for medical services of domestic held. (Emphasis supplied)

It can be gathered from a reading of the above-quoted Section 25 of Reorganization Plan No. 20-A that some sort of
judicial powers was conferred upon the regional offices of the Department of Labor over money claims mentioned
in said section. Certainly, it can be considered that filing a money claim before a regional office of the Department
of Labor pursuant to Section 25 of Reorganization Plan No. 20-A is like filing a complaint in court to enforce said
money claim. We believe that the filing of a claim before an administrative agency which is vested with authority to
decide said claim would produce the effect of a judicial demand for the purpose of interrupting the running of the
period of prescription. The purpose of the law on prescription and the statute of limitations is to protect the person
who is diligent and vigilant in asserting his right, and conversely to punish the person who sleeps on his right.4
Indeed, it cannot be said that in the case before Us the plaintiff had slept on his right, because shortly after he was
separated from the service by the defendant he filed his claim before the agency of the government that was at the
time clothed with exclusive authority to pass upon his claim.

We have taken note of the fact that on June 30, 1961, Section 25 of Reorganization Plan No. 20-A had been declared
unconstitutional by this Court in the case of Corominas, et al. v. The Labor Standards Commission, et al., supra. It
appears, however, that the plaintiff had filed his claim before Regional Office No. 4 of the Department of Labor on
July 26, 1960, or about one year before said Section 25 had been declared unconstitutional. The circumstance that
Section 25 of Reorganization Plan No. 20-A had been declared unconstitutional should not be counted against the
defendant in the present case. In the case of Manila Motor Co., Inc. v. Flores, 99 Phil., 738, this Court upheld the
right of a party under the Moratorium Law which had accrued in his favor before said law was declared
unconstitutional by this Court in the case of Rutter v. Esteban, 93 Phil., 68. This Court, in its decision in the Manila
Motor case, quoted the following doctrine:

[t]here are several instances wherein courts, out of equity, have relaxed its operation (cf. note in Cooley's
Constitutional Limitations 8th ed., p. 383 and Notes 53 A.L.R., 273) or qualified its effects "since the actual
existence of a statute prior to such declaration is an operative fact, and may have consequences which cannot justly
be ignored" (Chicot County vs. Baster, 308 U.S., 371) and a realistic approach is eroding the general doctrine
(Warring vs. Colpoys 136 Am. Law Rep., 1025, 1030).

We believe that it is only fair and just that the foregoing doctrine should be applied in favor of the plaintiff in the
present case. We have noted in the record that it was precisely because Section 25 of Reorganization Plan No. 20-A
was declared unconstitutional by this Court on June 30, 1961 that the plaintiff, without awaiting the action of
Regional Office No. 4 of the Department of Labor on the claim that he filed on July 26, 1960, instituted his action in
the present case in the court below on December 17, 1962. The move of plaintiff was precisely intended to protect
his right of action from the adverse effect of the decision of this Court. The Regional Office No. 4 of the Department
of Labor dismissed plaintiff's claim on January 16, 1963 upon the ground that it had no more jurisdiction to pass
upon the claim as a result of the ruling of this Court in the Corominas case.

Considering that from October, 1959 when plaintiff was separated from the service up to July 26, 1960 when he
filed his claim with Regional Office No. 4 of the Department of Labor only eight months had elapsed, and that since
July 26, 1960 until the filing of the complaint in the court below on December 17, 1962 the running of prescriptive
period was deemed interrupted, it is clear that plaintiff's action to enforce his claim was not yet barred by the statute
of limitations when he filed his complaint in the court below. Plaintiff's action may be considered as brought before
the court still within the period of three years from the time his right of action accrued in accordance with the
provisions of Section 17 of Republic Act 602 (Minimum Wage Law). Only about nine months of the three-year
period provided in Section 17 of Republic Act 602 may be considered as having lapsed when plaintiff commenced
his action in the court below. And considering further that the amount sought to be recovered in the complaint is
more than P10,000.00, it follows that the court a quo has the exclusive and original jurisdiction to entertain the
action of the plaintiff. The lower court, therefore, erred when it dismissed plaintiff's complaint. WHEREFORE, the
order appealed from is set aside, and this case is remanded to the court below for further proceedings, with costs
against the defendant-appellee. It is so ordered.
ARNOLD HALL vs. EDMUNDO PICCIO

FACTS:

On May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma
Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the articles of
incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber
business to carry on as general contractors, operators and managers, etc. Attached to the articles was an affidavit of
the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain properties
transferred to the corporation described in a list appended thereto.

Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the
adoption of by-laws and the election of its officers. On December 2, 1947, the said articles of incorporation were
filed in the office of the Securities and Exchange Commission for the issuance of the corresponding certificate of
incorporation.

On March 22, 1948, pending action on the articles of incorporation by the SEC, respondents Fred Brown, Emma
Brown, Hipolita D. Chapman and Ceferino S. Abella filed a suit against petitioners before the Court of First Instance
of Leyte alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered
partnership; that they wished to have it dissolved because of bitter dissension among the members, mismanagement
and fraud by the managers and heavy financial losses.

The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the
court’s jurisdiction and the sufficiency of the cause of action.

After hearing the parties, the Hon. Edmundo S. Piccio ordered the dissolution of the company; and at the request of
plaintiffs, appointed the respondent Pedro A. Capuciong as receiver of the properties thereof, upon the filing of a
P20,000 bond.

The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver, but the
respondent judge refused to accept the offer and to discharge the receiver.

Hence, this petition.

ISSUE: Whether or not the trial court has jurisdiction over the case?

HELD:

No. The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being a
de facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in accordance
with section 19 of the Corporation Law.

Under our statute it is to be noted that it is the issuance of a certificate of incorporation by the Director of the Bureau
of Commerce and Industry which calls a corporation into being. The immunity of collateral attack is granted to
corporations ‘claiming in good faith to be a corporation under this act.’

Further, this is not a suit in which the corporation is a party. This is litigation between stockholders of the alleged
corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be
terminated in a private suit for its dissolution between stockholders, without the intervention of the state.

WHEREFORE, the petition is dismissed.

Benguet Consolidated Mining Co. vs Mariano Pineda

Benguet Consolidated Mining Company was organized in 1903 under the Spanish Code of Commerce of 1886 as a
sociedad anonima. It was agreed by the incorporators that Benguet Mining was to exist for 50 years.

In 1906, Act 1459 (Corporation Law) was enacted which superseded the Code of Commerce of 1886. Act 1459
essentially introduced the American concept of a corporation. The purpose of the law, among others, is to eradicate
the Spanish Code and make sociedades anonimas obsolete.

In 1953, the board of directors of Benguet Mining submitted to the Securities and Exchange Commission an
application for them to be allowed to extend the life span of Benguet Mining. Then Commissioner Mariano Pineda
denied the application as it ruled that the extension requested is contrary to Section 18 of the Corporation Law of
1906 which provides that the life of a corporation shall not be extended by amendment beyond the time fixed in
their original articles.

Benguet Mining contends that they have a vested right under the Code of Commerce of 1886 because they were
organized under said law; that under said law, Benguet Mining is allowed to extend its life by simply amending its
articles of incorporation; that the prohibition in Section 18 of the Corporation Code of 1906 does not apply to
sociedades anonimas already existing prior to the Law’s enactment; that even assuming that the prohibition applies
to Benguet Mining, it should be allowed to be reorganized as a corporation under the said Corporation Law.

ISSUE: Whether or not Benguet Mining is correct.

HELD: No. Benguet Mining has no vested right to extend its life. It is a well settled rule that no person has a vested
interest in any rule of law entitling him to insist that it shall remain unchanged for his benefit. Had Benguet Mining
agreed to extend its life prior to the passage of the Corporation Code of 1906 such right would have vested. But
when the law was passed in 1906, Benguet Mining was already deprived of such right.

To allow Benguet Mining to extend its life will be inimical to the purpose of the law which sought to render obsolete
sociedades anonimas. If this is allowed, Benguet Mining will unfairly do something which new corporations
organized under the new Corporation Law can’t do – that is, exist beyond 50 years. Plus, it would have reaped the
benefits of being a sociedad anonima and later on of being a corporation. Further, under the Corporation Code of
1906, existing sociedades anonimas during the enactment of the law must choose whether to continue as such or be
organized as a corporation under the new law. Once a sociedad anonima chooses one of these, it is already
proscribed from choosing the other. Evidently, Benguet Mining chose to exist as a sociedad anonima hence it can no
longer elect to become a corporation when its life is near its end.
Asia Banking Corporation v. Standard Products Co. (1924) – Ostrand, J.

Petitioner: Asia Banking Corporation

Respondents: Standard Products Co., Inc.

Concept: Formation and Organization of Corporations

Doctrine: The general rule is that in the absence of fraud, a person who has contracted or otherwise dealt
with an association in such a way as to recognize and in effect admit its legal existence as a corporate
body is thereby estopped to deny its corporate existence in any action leading out of or involving such
contract or dealing, unless its existence is attacked for causes which have arisen since making the contract
or other dealing relied on as an estoppel.

FACTS:

1. The Stadard Products Co., Inc executed a promissory note through its president George H. Seaver in
favour of Asia Banking Corporation or order.
2. This is an action brought by Asia Banking Corporation to recover the sum of P24, 736.47 which is the
balance due on such note.

Lower Court: Rendered judgment in favour of plaintiff for the sum demanded in the complaint, with interest
on the sum of P24, 147.34 from November 1, 1923 at the rate of 10% per annum, and the costs. From this
judgment, the defendant appeals to this court.

At the trial, plaintiff failed to prove affirmatively the corporate existence of the parties, and Standard
Products Co. argues that the lower court erred in finding that the parties were corporations with judicial
personality.

ISSUES:

WON the judgment of the lower court is a reversible error despite Asia Baking’s failure to present evidence
of its corporate existence (NO)

RATIO:

- The general rule is that in the absence of fraud, a person who has contracted or otherwise dealt with
an association in such a way as to recognize and in effect admit its legal existence as a corporate
body is thereby estopped to deny its corporate existence in any action leading out of or involving such
contract or dealing, unless its existence is attacked for causes which have arisen since making the
contract or other dealing relied on as an estoppel.
- This doctrine applies to domestic as well as foreign corporations.
- Since Standard Products has recognized the corporate existence of Asia Banking by making a
promissory note in its favour and making partial payments on the same, it is estopped from denying
Asia Banking’s corporate existence.
- It is also denied from denying its own corporate existence.
- Under these circumstances, it was unnecessary for Asia Banking to present other evidence of the
corporate existence of either of the parties.

DISPOSITIVE: Judgment appealed from is affirmed, with costs against appellant.

Manuela Vda. De Salvatierra vs Lorenzo Garlitos

103 Phil 757 – Business Organization – Corporation Law – Separate and Distinct Personality – When Not
Applicable

In 1954, Manuela Vda. De Salvatierra entered into a lease contract with Philippine Fibers Producers Co., Inc.
(PFPC). PFPC was represented by its president Segundino Refuerzo. It was agreed that Manuela shall lease her land
to PFPC in exchange of rental payments plus shares from the sales of crops. However, PFPC failed to comply with
its obligations and so in 1955, Manuela sued PFPC and she won. An order was issued by Judge Lorenzo Garlitos of
CFI Leyte ordering the execution of the judgment against Refuerzo’s property (there being no property under
PFPC). Refuerzo moved for reconsideration on the ground that he should not be held personally liable because he
merely signed the lease contract in his official capacity as president of PFPC. Garlitos granted Refuerzo’s motion.

Manuela assailed the decision of the judge on the ground that she sued PFPC without impleading Refuerzo because
she initially believed that PFPC was a legitimate corporation. However, during trial, she found out that PFPC was
not actually registered with the Securities and Exchange Commission (SEC) hence Refuerzo should be personally
liable.

ISSUE: Whether or not Manuela is correct.

HELD: Yes. It is true that as a general rule, the corporation has a personality separate and distinct from its
incorporators and as such the incorporators cannot be held personally liable for the obligations of the corporation.
However, this doctrine is not applicable to unincorporated associations. The reason behind this doctrine is obvious-
since an organization which before the law is non-existent has no personality and would be incompetent to act and
appropriate for itself the powers and attribute of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so
without authority and at their own risk. In this case, Refuerzo was the moving spirit behind PFPC. As such, his
liability cannot be limited or restricted that imposed upon [would-be] corporate shareholders. In acting on behalf of
a corporation which he knew to be unregistered, he assumed the risk of reaping the consequential damages or
resultant rights, if any, arising out of such transaction.
Albert VS University Publishing

Facts: In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to damages
(for breach of contract) but reduced the amount from P23, 000.00 to P15, 000.00.

Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the judgment for
P15,000.00 which had become final and executory, should be executed to its full amount, since in fixing it, payment
already made had been considered.

15 years ago, Mariano Albert entered into a contract with University Publishing Co., Inc. through Jose M. Aruego,
its President, whereby University would pay plaintiff for the exclusive right to publish his revised Commentaries on
the Revised Penal Code. The contract stipulated that failure to pay one installment would render the rest of the
payments due. When University failed to pay the second installment, Albert sued for collection and won.

However, upon execution, it was found that the records of this Commission do not show the registration of
UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership. Albert petitioned for a writ of
execution against Jose M. Aruego as the real defendant. University opposed, on the ground that Aruego was not a
party to the case.

Issue: WON the non-registration of University Publishing Co., Inc. in the SEC is an existing corporation with an
independent juridical personality.

Held: No.

Ratio: On account of the non-registration it cannot be considered a corporation, not even a corporation de facto (Hall
vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M. Aruego; it cannot be sued
independently.

In the case at bar, Aruego represented a non-existent entity and induced not only Albert but the court to believe in
such representation. He signed the contract as “President” of “University Publishing Co., Inc.,” stating that this was
“a corporation duly organized and existing under the laws of the Philippines”.

“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.”

Aruego, acting as representative of such non-existent principal, was the real party to the contract sued upon, and thus
assumed such privileges and obligations and became personally liable for the contract entered into or for other acts
performed as such agent.

The Supreme Court likewise held that the doctrine of corporation by estoppel cannot be set up against Albert since
it was Aruego who had induced him to act upon his (Aruego’s) willful representation that University had been duly
organized and was existing under the law.
Lim Tong Lim vs Philippine Fishing Gear Industries, Inc.

Business Organization – Partnership, Agency, Trust – Corporation by Estoppel

It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with him and one
Antonio Chua. The three agreed to purchase two fishing boats but since they do not have the money they borrowed
from one Jesus Lim (brother of Lim Tong Lim). They again borrowed money and they agreed to purchase fishing
nets and other fishing equipments. Now, Yao and Chua represented themselves as acting in behalf of “Ocean Quest
Fishing Corporation” (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of
fishing nets amounting to more than P500k.

They were however unable to pay PFGI and so they were sued in their own names because apparently OQFC is a
non-existent corporation. Chua admitted liability and asked for some time to pay. Yao waived his rights. Lim Tong
Lim however argued that he’s not liable because he was not aware that Chua and Yao represented themselves as a
corporation; that the two acted without his knowledge and consent.

ISSUE: Whether or not Lim Tong Lim is liable.

HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to
engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured
from Jesus Lim. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and
the repair of which were financed with borrowed money, fell under the term “common fund” under Article 1767.
The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That
the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among
them also shows that they had indeed formed a partnership.

Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to Yao and Chua.
Unquestionably, Lim Tong Lim benefited from the use of the nets found in his boats, the boat which has earlier been
proven to be an asset of the partnership. 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.
Buenaflor Umali vs Court of Appeals

189 SCRA 529 – Business Organization – Corporation Law – Piercing the Veil of Corporate Fiction

Mauricia Castillo was the administratrix in charge over a parcel of land left be Felipe Castillo. Said land was
mortgaged to the Development Bank of the Philippines and was about to be foreclosed but then Mauricia’s nephew,
Santiago Rivera, proposed that they convert the land into 4 subdivisions so that they can raise the necessary money
to avoid foreclosure. Mauricia agreed. Rivera sought to develop said land through his company, Slobec Realty
Corporation (SRC), of which he was also the president. SRC then contracted with Bormaheco, Inc. for the purchase
of one tractor. Bormaheco agreed to sell the tractor on an installment basis. At the same time, SRC mortgaged said
tractor to Bormaheco as security just in case SRC will default. As additional security, Mauricia and other family
members executed a surety agreement whereby in case of default in paying said tractor, the Insurance Corporation
of the Philippines (ICP) shall pay the balance. The surety bond agreement between Mauricia and ICP was secured
by Mauricia’s parcel of land (same land to be developed).

SRC defaulted in paying said tractor. Bormaheco foreclosed the tractor but it wasn’t enough hence ICP paid the
deficiency. ICP then foreclosed the property of Mauricia. ICP later sold said property to Philippine Machinery Parts
Manufacturing Corporation (PMPMC). PMPMC then demanded Mauricia et al to vacate the premises of said
property.

While all this was going on, Mauricia died. Her successor-administratrix, Buenaflor Umali, questioned the
foreclosure made by ICP. Umali alleged that all the transactions are void and simulated hence they were defrauded;
that through Bormaheco’s machinations, Mauricia was fooled into entering into a surety agreement with ICP; that
Bormaheco even made the premium payments to ICP for said surety bond; that the president of Bormaheco is a
director of PMPMC; that the counsel who assisted in all the transactions, Atty. Martin De Guzman, was the legal
counsel of ICP, Bormaheco, and PMPMC.

ISSUE: Whether or not the veil of corporate fiction should be pierced.

HELD: No. There is no clear showing of fraud in this case. The mere fact that Bormaheco paid said premium
payments to ICP does not constitute fraud per se. As it turned out, Bormaheco is an agent of ICP. SRC, through
Rivera, agreed that part of the payment of the mortgage shall be paid for the insurance. Naturally, when Rivera was
paying some portions of the mortgage to Bormaheco, Bormaheco is applying some parts thereof for the payment of
the premium – and this was agreed upon beforehand.

Further, piercing the veil of corporate fiction is not the proper remedy in order that the foreclosure conducted by ICP
be declared a nullity. The nullity may be attacked directly without disregarding the separate identity of the
corporations involved. Further still, Umali et al are not enforcing a claim against the individual members of the
corporations. They are not claiming said members to be liable. Umali et al are merely questioning the validity of the
foreclosure.

The veil of corporate fiction can’t be pierced also by the simple reason that the businesses of two or more
corporations are interrelated, absent sufficient showing that the corporate entity was purposely used as a shield to
defraud creditors and third persons of their rights. In this case, there is no justification for disregarding their separate
personalities.
 KOPPEL (PHILIPPINES), INC., plaintiff-appellant,
vs.
ALFREDO L. YATCO, Collector of Internal Revenue, defendant-appellee

G.R. No. L-47673

October 10, 1946

FACTS:
Plaintiff is a corporation duly organized and existing under and by virtue of the laws of the Philippines,
with principal office in Manila, the capital stock of which is divided into 1,000 shares of P100 each. The Koppel
Industrial Car and Equipment company, a corporation organized and existing under the laws of the State of
Pennsylvania, United States of America, and not licensed to do business in the Philippines, owned nine hundred and
995 shares out of the total capital stock of the plaintiff. The remaining 5 shares only were and are owned one each
by officers of the plaintiff corporation. That plaintiff, at all times material to this case, was and now is duly licensed
to engage in business as a merchant and commercial broker in the Philippines; and was and is the holder of the
corresponding merchant's and commercial broker's privilege tax receipts.
Exhibited H of the evidence: It is clearly understood that the intent of this contract is that the broker shall
perform only the functions of a broker as set forth above, and shall not take possession of any of the materials or
equipment applying to said orders or perform any acts or duties outside the scope of a broker; and in no sense
shall this contract be construed as granting to the broker the power to represent the principal as its agent or to
make commitments on its behalf. The Court of First Instance held for the defendant and dismissed plaintiff's
complaint with costs to it.

ISSUE: Whether or not Koppel Philippines is a domestic corporation distinct and separate from, and not a mere
branch of Koppel Industrial Car and Equipment Co

RULING:
Koppel Philippines is a mere branch, subsidiary or agency of the latter. A corporation will be looked upon
as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons. The corporate entity is disregarded where it is so organized and
controlled, and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct
of another corporation.
SC reasoned that, in so far as the sales involved herein are concerned, Koppel Philippines, Inc., and
Koppel Industrial Car and Equipment company are to all intents and purposes one and the same; or, to use
another mode of expression, that, as regards those transactions, the former corporation is a mere branch,
subsidiary or agency of the latter. This is conclusively borne out by the fact, among others, that the amount of the
so-called "share in the profits" of Koppel (Philippines), Inc., was ultimately left to the sole, unbridled control of
Koppel Industrial Car and Equipment Company. No group of businessmen could be expected to organize a
mercantile corporation — the ultimate end of which could only be profit — if the amount of that profit were to
be subjected to such a unilateral control of another corporation, unless indeed the former has previously been
designed by the incorporators to serve as a mere subsidiary, branch or agency of the latter. Evidently, Koppel
Industrial Car and Equipment Company made us of its ownership of the overwhelming majority — 99.5% — of the
capital stock of the local corporation to control the operations of the latter to such an extent that it had the final
say even as to how much should be allotted to said local entity in the so-called sharing in the profits. SC further
ruled that, it cannot overlook the fact that in the practical working of corporate organizations of the class to which
these two entities belong, the holder or holders of the controlling part of the capital stock of the corporation,
particularly where the control is determined by the virtual ownership of the totality of the shares, dominate not
only the selection of the Board of Directors but, more often than not, also the action of that Board. Philippine
corporation could not possibly contravene with the American corporation in this case under Exhibit H. This fact
necessarily leads to the inference that the corporation had at least a Vice-President, and presumably also a
President, who were not resident in the Philippines but in America, where the parent corporation is domiciled. If
Koppel (Philippines), Inc., had been intended to operate as a regular domestic corporation in the Philippines, where
it was formed, the record and the evidence do not disclose any reason why all its officers should not reside and
perform their functions in the Philippines.
RICARDO TANTONGCO v.

KAISAHAN NG MGA MANGGAGAWA SA LACAMPANA (KKM) and THE HONORABLE

COURT OF INDUSTRIAL RELATIONS

The present case is a petition for Certiorari and prohibition with prayer for the issuance of a writ of preliminary
injunction to prohibit the respondent Court of Industrial Relationsfrom proceeding with the hearing of the
contempt proceedings.

FACTS

La Campana Starch Factory and La Campana Coffee Factory (La Campana forBrevity) are two separate entities run
by a single management under the leadership of Ramon Tantongco. Kaisahan ng mga Manggagawa sa La Campana
(Kaisahan for brevity), on the other hand, is a labor union with members from the two companies. Sometime in
June, 1951, representatives of Kaisahan approached the management of La Campana to demand higher wages and
more benefits. A deadlock ensued since none of the parties is willing to give concessions. The dispute was certified
to the Court of Industrial Relations (CIR). La Campana filed a motion to dismiss before the CIR claiming that the
CIR has no jurisdiction because only those from the coffee factory were presenting the demands there were
only14 employees in said factory. This was done in light of the requirement that at least 31employees should
present the demands. The motion was denied by the CIR. According to the CIR, the Kaisahan was the one that
presented the demands and not just the workers in the coffee factory. The Supreme Court affirmed the order of
the CIR citing that although the two entities are separate, there is only one management. The entire membership
of the Kaisahan is therefore to be counted and not simply those employed in the coffee factory. Additional
incidental cases were filed by Kaisahan before the CIR including a petition for the reinstatement of some
employees. Ramon Tantongco died some time in1956. The administrator of the estate of Ramon Tantongco,
herein petitioner RicardoTantongco, was ordered included as respondent in the cases pending before the CIR. The
CIR rendered a decision on the incidental cases and ordered the reinstatement of the dismissed employees. When
the employees reported to work, the management refused them admittance. Kaisahan then filed a petition to cite
the management in contempt before the CIR. Hence this petition.

CONTENTIONS

Petitioner: The two companies ceased to exist upon the death of Ramon Tantongco. The Supreme Court held in
GR No. L-5677 that La Campana and Ramon Tantongco are one based on the doctrine of piercing the veil of
corporate existence.Therefore, the death of Ramon Tantongco meant the death of La Campana. Since La Campana
already ceased to exist, the CIR no longer has jurisdiction over it. The claims should have been filed with the
probate court.

Defendant: La Campana continues to exist despite the death of Ramon Tantongco. The CIR therefore has
jurisdiction when it rendered its decision on the incidental cases. The non-compliance by La Campana therefore
amounted to contempt of court.

ISSUE

1. WON La Campana ceased to exist upon the death of Ramon Tantongco;

2. WON the Doctrine of Piercing the Veil of Corporate Existence applies to the present case ; and WON the
contempt of court proceedings in the CIR should proceed.
RULING

The Supreme Court DENIED the Petition for Certiorari and Prohibition. It ruled that La Camapana continued to
exist despite the death of Ramon Tantongco. It further ruled that the Doctrine of Piercing the Veil of Corporate
Existence is not applicable in the present case. Finally, it allowed the CIR to proceed with the contempt hearing.

1 and 2

The death of Ramon Tantongco did not end the existence of La Campana. The Supreme Court applied the
Doctrine of Piercing the Veil of Corporate Existence in GR no. L-5677 to avoid the use of technicality to defeat
the jurisdiction of the CIR. In the said case, the Court determined that although La Campana are two separate
companies, they are being managed by only one management. Furthermore, the workers of both factories were
interchangeably assigned. In the present case, however, the Court ruled that despite the obvious fact that La
Campana was run by the same people, they still are two different companies with separate personalities from
Ramon Tantongco. La Campana was owned not only by Ramon but others as well including Ricardo Tantongco.
Lastly, the Court ruled that petitioner is under estoppel and cannot claim that La Campana and Ramon are one
and the same since he has represented La Campana as separate entities in numerous dealings.

3. Ricardo Tantongco should still face the contempt proceedings because under Section 6 of Commonwealth Act
No. 143, “In case the employer (or landlord) committing any such violation or contempt is an association or
corporation, the manager or the person who has the charge of the management of the business of the association
or corporation and the officers of directors thereof who have ordered or authorized the violation of contempt
shall be liable. . . .” Since Tantongco is the General Manager of La Campana, he is still obliged to appear at the
contempt proceedings.
ROBLEDO VS. NLRC

(G.R. No. 110358, Nov. 9, 1994)

FACT OF THE CASE

Robledo ET. Al. filed a Petition for Review of the Decision of NLRC, setting aside the decision of the Labor
Arbiter, which held private respondents jointly and severally liable to the petitioners for overtime and legal holiday
pay.

Petitioners were former employees of Bacani Security and Protective Agency (BPSA). They were employed as
security guards at different times during the period 1969 to December 1989 when BPSA ceased to operate. BPSA
was a single proprietorship owned, managed, and operated by the late Felipe Bacani. On December 31, 1989,
Felipe Bacani retired the business name and BSPA ceased to operate effective on that day. On Jan. 15, 1990 Felipe
Bacani died. An intestate proceeding was instituted for the settlement of his estate before Pasig-RTC. Earlier, on
Oct. 26, 1989, respondent Bacani Security and Allied Services Co., Inc. (BASEC) had been organized and registered
as a corporation with SEC. Several of the incorporator (3) surnamed Bacani, and that includes the daughter of the
late Felipe Bacani. On July 5, 1990, the petitioners filed a complaint with the DOLE for underpayment of wages and
nonpayment of overtime pay and other accrued benefits, and for the return of their cash bond, which they posted,
with BPSA. Made respondents were BSPA and BASEC. On March 1, 1992, the Labor Arbiter rendered a decision
upholding the right of petitioners, finding the complainants entitled to their money claims to be paid by all the
respondents’ solidarily. On appeal, the NLRC reversed the decision declaring that the Labor Arbiter is without
jurisdiction and instead suggested that petitioners file their claims with Pasig-RTC where an intestate proceeding of
Bacani’s estate was pending. Petitioners moved for reconsideration but their motion was denied for lack of merit.
The case was elevated to the SC and was treated as a special civil action of certiorari to determine whether the
NLRC committed a grave abuse of discretion in reversing the Labor Arbiter’s decision.

ISSUE

Whether Bacani Security and Allied Services, Inc. (BASEC) can be held liable for claims of petitioners against Bacani
Security and Protective Agency (BSPA).

RULING

No. Petitioners contend that public respondent, NLRC, erred in setting aside the Labor Arbiter’s judgment on the
ground that BASEC is the same entity as BSPA the latter being owned and controlled by one and the same family,
the Bacani family. For this reason they urge that corporate fiction should be disregarded and BASEC should be
held liable for the obligations of the defunct BSPA. As correctly found by the NLRC, BASEC is an entity separate
and distinct from that of BSPA. BSPA is a single proprietorship owned and operated by Felipe Bacani. Hence, its
debts and obligations were the personal obligations of its owner. Petitioner’s claims, which are based on these
debts and personal obligations, did not survive the death of Felipe Bacani on Jan. 15, 1990 and should have been
filed instead in the intestate proceedings involving his estate.
Araneta, Inc. v. Del Paterno (1952)

Tuason, J.

FACTS:

 Defendant Paz Tuason de Paterno (Tuason) was the registered owner of several parcels of land
in Sta. Mesa, Manila.
 The lots were subdivided and were occupied by tenants who had lease contracts. It was
stipulated that in the event the owner and lessor should decide to sell the property, the lessees
were to be given priority over other buyers if they should desire to buy their leaseholds, all
things being equal.
 In 1940 and 1941, Tuason obtained several loans from Jose Vidal (Vidal) amounting to P90,098.
The loans were secured by mortgages executed over the subject property.
 In 1943, Tuason obtained additional loans amounting to P50,000 upon the same security. The
mortgage contracts were renewed.
 It was alleged that there was another agreement (Agreement), all copies of which were
destroyed during the war. This contained stipulations as to the manner and time of payment, as
well as the corresponding penalties.
 Tuason later decided to sell her property to plaintiff Gregorio Araneta, Inc. (Araneta, Inc).
o They executed an agreement to buy and sell (Exhibit 1). This contract provided that
subject to the preferred right of the lessees and that of Jose Vidal as mortgagee, Paz
Tuason would sell to Gregorio Araneta, Inc. and the latter would buy for the said
amount of P400,000 the entire estate.
o Some of the lessees exercised their right to purchase their respective leaseholds.
o An absolute deed of sale was then executed by the parties over the remaining lots
(Exhibit A). The total amount to be paid was P190k, broken down as follows:
 P13,476.62 – Paz Tuason;
 P3,373.38 – City Treasurer of Manila
 P30,000 – Jose Vidal
 P143,150 – Jose Vidal1
o The deed of sale contained a stipulation that should the vendor lose the checks issued,
the vendee shall not be held liable for such loss.
 The day after the consummation of the sale, Tuason tendered payment to Vidal by offering the
check drawn by Araneta, Inc. Vidal refused to accept the payment, alleging that according to the
Agreement, payment of the mortgage was not to be effected totally or partially before the end
of four years from April, 1943.
 Thus, Tuason, with the help of her attorney Ponce Enrile, commenced an action against Vidal to
compel the latter to accept payment. The checks were deposited with the clerk of court.
 The action was never tried and all the records, including the checks, were lost during the war.
 After the war, the value of the property increased tremendously. Tuason is now repudiating
Exhibits 1 and A.
 Araneta, Inc. filed the present action to compel Tuason to deliver clear title to the lots subject of
the sale free from all liens and encumbrances. It also seeks the cancellation of the mortgage to
Vidal. The latter filed a cross-claim against Tuason to foreclose the mortgage.
 TC ruled in favor of defendant; it declared Exhibit A void.

1 Both checks issued in order to satisfy the mortgage obligation.

ISSUES + RULING:

Is Exhibit A (absolute deed of sale) valid? YES.

 Trial court based its decision on the alleged variance between the terms of Exhibit 1 (agreement
to buy and sell) and Exhibit A. It is the SC’s submission that the lower court’s interpretation of
Exhibit 1 was wrong.
o One of the conditions in Exhibit 1 is that the deed of sale is to be executed only when
Tuason has already determined which lots she can validly dispose of. After the lessees
exercised their right to repurchase, she was already in a position to sell the remaining
lots.
 Tuason claims that the sale was effected through fraud as the document was written in English,
a language she did not understand. Had she known how one-sided its provisions were, she
would not have affixed her signature thereto.
o Court finds this hard to believe. She had an able attorney who assisted her throughout
the proceedings. Further, her suit against Vidal was instituted precisely to enforce the
provisions of the sale.
o Also, she had a son who was “a leading citizen and businessman.” He took active part in
the negotiations that led to the execution of the sale.
o Court doubts the defendant’s veracity. She as probably gambling on the chance that no
signed copy of the document had been saved from the war.
 ON THE ISSUE OF AGENCY: It is argued that the sale is invalid because Jose Araneta was both
the defendant’s agent and the President of Araneta, Inc.
o Trial court simply disposed of the issue by saying that he was not an agent. However,
this is contrary to the clear weight of the evidence.
 In Exhibit 1, Jose Araneta was referred to as “defendant’s agent or broker ‘who
acts in this transaction’”, entitled to a commission of 5%.
o The trial court, hypothetically admitting the agency relationship, pointed out that it was
the Corporation (Araneta, Inc.) and not the person (Jose Araneta) who purchased the
property, thus it does not come within the prohibition of the old Civil Code.
o Tuason would have the SC pierce the veil of corporate fiction in this case. There is,
however, no basis for the application of the rule.
 Araneta, Inc. had long been engaged in the real estate business. Clearly, it was
not constituted merely to circumvent the prohibition of the old CC.
 The principle invoked by defendant is applicable only as a measure of protection
against deceit and not to open the door to deceit.
o The corporate theory aside, granting that the two entities are in fact identical, the
relation between Tuason and Araneta still did not fall within the prohibition found in
Art. 14592, Old Civil Code.
 Citing the commentaries of Scaevola, the Court said that the rationale behind
the prohibition rests in the fact that both the agent and the principal form one
juridical person.

2 Art. 1459. The following persons cannot take by purchase, even at a public or judicial auction, either in person or through the
mediation of another:

2. An agent, any property of which the management or sale may have been intrusted to him;
  In American jurisprudence, commentators are of the opinion that the law does
not trust human nature to resist the temptations likely to arise out of
antagonism between the interst of the seller and the buyer.
 Par. 2 connotes the idea of trust and confidence; where the relationship does
not involve considerations of good faith and integrity, the prohibition should not
apply.
 Using the test of trust and confidence, it can be seen that Jose Araneta was
nothing more than a middleman between the defendant and purchaser.
 He was not to sell and did not sell the property. He was not authorized to enter
into a contract on behalf of Tuason.
 Defendant also claims that there was a conflict of interest as the attorneys who represented her
in the sale negotiations were the Attys. Araneta.
o Not likely. Ponce Enrile was already representing her in the case against Vidal so it
would be reasonable to assume that it was also he who assisted her in negotiating the
sale.
o Assuming arguendo that they were in fact lawyers of Tuason, such fact would not bar
them from purchasing her property. What is prohibited is the sale of property under
litigation, and in this case the sale was effected even before the present action.

Should Tuason be held liable for the loss of the certified checks lost in the war? NO.

 While Exhibit A is valid, the provision relieving the vendee (Araneta, Inc.) for liability arising from
Vidal’s failure to collect the checks is VOID.
o Prevailing bank regulations: checks have to be encashed within 90 days otherwise they
will be considered void (EO 49).
o The stipulation in Exhibit A that the defendant or seller “shall not hold the vendee
responsible for any loss of these checks” was unconscionable, void and unenforceable
insofar as the said stipulation would stretch the defendant’s liability for these checks
beyond 90 days.
o Tuason cannot be held liable for the checks after they expired and became absolutely
useless.

Is Vidal entitled to payment in fulfillment of the mortgage obligation? YES.

 Tuason offered to pay the loans before they fell due, but Vidal refused to accept payment
because he wanted interest to accrue.
 The question then is: Did Tuason’s offer to pay before the due date operate to suspend the
accrual of interest?
o The Court is of the opinion that it did.
o Two checks were tendered to Vidal—one for P143,150 (covering the principal) and
P30,000 (penalty).
o Penalty clause embodied in the Agreement: such penalty takes the place of interest in
the event the mortgagor chooses to pay before the due date.
o To say, as Vidal says, that the debtor could not pay the mortgage within four years and,
at the same time, that there would be penalty if she paid after that period, would be a
contradiction. Moreover, adequate remedy was provided for failure to pay on or after
 the expiration of the mortgage: increased rate of interest, foreclosure of the mortgage,
and attorney’s fees.

Gregorio Palacio and Mario Palacio (minor) vs Fely Transportation Company

Ponente: Regala

Facts:

In their complaint, the Palacio alleged that Fely hired Alfredo Canillo as driver who negligently run over a child
(Mario). Gregorio , the father of Mario is a welder and in the account of his child's injuries has abandoned his shop
which is the family's source of income.

Fely filed a motion to dismiss on the grounds that there is no cause of action against the company and that the
cause of action is barred by prior judgment. But the court deferred the determination of the grounds alleged in the
motion to dismiss until the trial of the case.

The defendant then alleges (1) that complaint states no cause of action against defendant, and (2) that the sale and
transfer of the jeep AC-687 by Isabelo Calingasan to the Fely Transportation was made on December 24, 1955,
long after the driver Alfredo Carillo of said jeep had been convicted and had served his sentence.

In view of the evidence presented, the lower court barred the judgment in the criminal case and held that the
person subsidiarily liable to pay damages is Isabel Calingasan, the employer.

Issue: Whether Fely Transportation can be held liable for the damages.

Ruling:

The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and defendant Fely Transportation may
be regarded as one and the same person. It is evident that Isabelo Calingasan's main purpose in forming the
corporation was to evade his subsidiary civil liability resulting from the conviction of his driver, Alfredo Carillo.
This conclusion is borne out by the fact that the incorporators of the Fely Transportation are Isabelo Calingasan,
his wife, his son, Dr. Calingasan, and his two daughters.

Accordingly, defendants Fely Transportation and Isabelo Calingasan should be held subsidiarily liable for P500.00
which Alfredo Carillo was ordered to pay in the criminal case and which amount he could not pay on account of
insolvency.
 Palay Inc. v. Clave

Facts:
1. On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott sold a parcel of land
owned by the corporation to the private respondent, Nazario Dumpit, by virtue of a Contract to Sell. The
sale price was P23,300.00 with 9% interest per annum, payable with a down payment of P4,660.00 and
monthly instalments of P246.42 until fully paid. Paragraph 6 of the contract provided for automatic
extrajudicial rescission upon default in payment of any monthly instalment 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
instalments paid.
2. Respondent Dumpit paid the down payment and several instalments amounting to P13,722.50 with the
last payment was made on December 5, 1967 for instalments up to September 1967. Almost six (6)
years later, private respondent wrote petitioner offering to update all his overdue accounts and sought
consent to the assignment of his rights to a certain Lourdes Dizon. 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.
3. Respondent filed a letter complaint with the National Housing Authority (NHA) questioning the validity
of the rescission. The NHA held that the rescission is void in the absence of either judicial or notarial
demand. Palay, Inc. and Onstott in his capacity as President of the corporation, jointly and severally,
was ordered to refund Dumpit the amount paid plus 12% interest from the filing of the complaint.
Petitioners' MR was denied by the NHA. Respondent Presidential Executive Assistant, on May 2, 1980,
affirmed the Resolution of the NHA. Reconsideration sought by petitioners was denied for lack of merit.
Thus, the present petition.

Issue: W/N demand is necessary to rescind a contract

Ruling: As held in previous jurisprudence, the judicial action for the rescission of a contract is not
necessary where the contract provides that it may be revoked and cancelled for violation of any of its
terms and conditions. However, even in the cited cases, there was at least a written notice sent to the
defaulter informing him of the rescission. A written notice is indispensable to inform the defaulter of the
rescission. Hence, the resolution by petitioners of the contract was ineffective and inoperative against
private respondent for lack of notice of resolution (as held in the U.P. vs. Angeles case). The act of a
party in treating a contract as cancelled should be made known to the other.
Later, RA 6551 6551 entitled "An Act to Provide Protection to Buyers of Real Estate on Instalment
Payments,” emphasized the indispensability of notice of cancellation to the buyer when it specifically
provided:
Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from receipt by the
buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and
upon full payment of the cash surrender value to the buyer. (Emphasis supplied).

Moreover, there was no waiver on the part of the private respondent of his right to be notified under
paragraph 6 of the contract since it was a contract of adhesion, a standard form of petitioner
corporation, and private respondent had no freedom to stipulate. Finally, it is a matter of public policy
to protect buyers of real estate on instalment payments against onerous and oppressive conditions.
Waiver of notice is one such onerous and oppressive condition to buyers of real estate on instalment
payments.
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 but since 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 instalments 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.

Onstott not personally liable

Onstott was made liable because he was then the President of the corporation and the controlling
stockholder but there was no sufficient proof that he 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.
Finally, there are no badges of fraud on the petitioners' part. They had literally relied, albeit mistakenly,
on paragraph 6 (supra) of the contract when it rescinded the contract to sell extrajudicially and had sold
it to a third person.
Petitioner Palay, Inc. is liable to refund to respondent Dumpit the amount of P13,722.50, with interest at
twelve (12%) p.a. from November 8, 1974, the date of the filing of the Complaint.
PABALAN AND LAGDAMEO V. NLRC (G.R. NO. 89879)

Facts:

84 workers of the Philippine Inter-Fashion (PIF) filed a complaint against the latter for illegal transfer simultaneous
with illegal dismissal in violation of the Labor Code. PIF was notified about the complaint and summons but
hearings were continually re-set for failure of its officers (petitioners herein) to appear. Complainant workers thus
moved to implead petitioners as officers of PIF in the complaint for their illegal transfer to a new firm. The Labor
Arbiter ruled in favor of workers holding petitioners-officers jointly and severally liable with PIF to pay them their
benefits. Petitioners’ appeal was dismissed.

Issue:

Whether or not petitioners as officers may be held jointly and severally liable with the corporation for its liability.

Ruling: NO.

The settled rule is that the corporation is vested by law with a personality separate and distinct from the persons
composing it, including its officers as well as from that of any other legal entity to which it may be related. Thus, a
company manager acting in good faith within the scope of his authority in terminating the services of certain
employees cannot be held personally liable for damages. However, the legal fiction that a corporation has a
personality separate and distinct from stockholders and members may be disregarded when the notion of legal
entity is used as a means to perpetrate fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, and or (to) confuse legitimate issues the veil which protects the
corporation will be lifted.

In this particular case complainants did not allege or show that petitioners, as officers of the corporation
deliberately and maliciously designed to evade the financial obligation of the corporation to its employees, or used
the transfer of the employees as a means to perpetrate an illegal act or as a vehicle for the evasion of existing
obligations, the circumvention of statutes, or to confuse the legitimate issues.

Not one of the above circumstances has been shown to be present. Hence petitioners cannot be held jointly and
severally liable with the PIF corporation under the questioned decision and resolution of the public respondent.
DEL ROSARIO VS NLRC (187 SCRA 777)
Del Rosario vs National Labor Relations Commission
187 SCRA 777 [GR No. 85416 July 24, 1990]

Facts: In POEA case no. 85-06-0394, the Philippine Overseas Employment Administration (POEA) promulgated a
decision on February 4,1986 dismissing the complaint for money claims for lack of merit. The decision was
appealed to the NLRC, which on April 30, 1987 reversed the POEA decision and ordered Philsa Construction and
Trading Co.Ind and Ariel Enterprises (the foreign employer) to jointly and severally pay private respondent the peso
equivalent of $16,039,000 salary differentials and $2,420.03 as vacation leave benefits. A writ of execution was
issued by the POEA but it was returned unsatisfied incapable of satisfying the judgement. Private respondent moved
for the issuance of an alias writ against the officers of Philsa. This motion was opposed by the officers led by
petitioners, the president and general manager of the corporation. However, POEA issued a resolution ordering the
sheriff to execute against the properties of the petitioner and if insufficient, against the cash and/or surety bond of
bonding company concerned for the full satisfaction of the judgement awarded.

Issue: Whether or not the POEA resolution is proper.

Held: No. Under the law, a corporation is bestowed juridical personality, separate and distinct from its stockholders.
But when the juridical personality of the corporation is used to defeat public convenience, justify wrong, protect or
defend crime, the corporation shall be considered as a mere association of persons and its responsible officers and/or
stockholders shall be individually liable. For the same reasons, a corporation shall be liable for obligations of a
stockholder or a corporation and its successor-in-interest shall be considered as one and the liability of the former
shall attach to the latter.

But for the separate juridical personality of a corporation to be disregarded, the wrong doing must be clearly and
convincingly established. It cannot be presumed.

Thus, at the time Philsa allowed its license to lapse in 1985 and even at the time it was delivered in 1986, there was
yet no judgement in favor of private respondent. An intent to evade payment of his claims cannot therefore be
implied from the expiration of Phila’s license and its delisting.

Neither will the organization of Philsa International Placement and Services Corp. and its registration with the
POEA as a private employment agency imply fraud since it was organized and registered in 1981, several years
before private respondent filed his complaint with the POEA in 1985. The creation of the second anticipation of
private respondent’s money claims and the consequent adverse judgement against Philsa.

Likewise, substantially identity of the incorporators of the two corporations does not necessarily imply fraud.
Villa Rey Transit vs. Ferrer Case Digest

Villa Rey Transit vs. Ferrer

Facts: [preceding case] Prior to 1959, 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) in Cases 44213 and 104651, which authorized him to operate a total of 32 units on various
routes or lines from Pangasinan to Manila, and vice-versa. On 8 January 1959, he sold the two certificates of public
convenience to the Pangasinan Transportation Company, Inc. (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."

Barely 3 months thereafter, or on 6 March 1959: a corporation called Villa Rey Transit, Inc. (the Corporation) was
organized with a capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each;
P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the
incorporators, and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and
sister-in-law of Jose M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the treasurer of the
corporation, who was Natividad R. Villarama. In less than a month after its registration with the Securities and
Exchange Commission (10 March 1959), the Corporation, on 7 April 1959, bought 5 certificates of public
convenience, 49 buses, tools and equipment from one Valentin Fernando, for the sum of P249,000.00, of which
P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final approval of the sale
by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by
the BUYER to the different suppliers of the SELLER."

The very same day that the contract of sale was executed, the parties thereto immediately applied with the PSC
for its approval, with a prayer for the issuance of a provisional authority in favor of the vendee Corporation to
operate the service therein involved. On 19 May 1959, the PSC granted the provisional permit prayed for, upon
the condition that "it may be modified or revoked by the Commission at any time, shall be subject to whatever
action that may be taken on the basic application and shall be valid only during the pendency of said application."
Before the PSC could take final action on said application for approval of sale, however, the Sheriff of Manila, on 7
July 1959, levied on 2 of the five certificates of public convenience involved therein, namely, those issued under
PSC cases 59494 and 63780, pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in
Civil Case 13798, in favor of Eusebio E. Ferrer against Valentin Fernando. The Sheriff made and entered the levy in
the records of the PSC. On 16 July 1959, 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. Thereafter,
Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval their
corresponding contract of sale to the PSC. Pantranco therein prayed that it be authorized provisionally to operate
the service involved in the said two certificates.

The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case 124057, and
that of Ferrer and Pantranco, Case 126278, were scheduled for a joint hearing. In the meantime, to wit, on 22 July
1959, the PSC issued an order disposing that during the pendency of the cases and before a final resolution on the
aforesaid applications, the Pantranco shall be the one to operate provisionally the service under the two
certificates embraced in the contract between Ferrer and Pantranco. The Corporation took issue with this
particular ruling of the PSC and elevated the matter to the Supreme Court, which decreed, after deliberation, that
until the issue on the ownership of the disputed certificates shall have been finally settled by the proper court, the
Corporation should be the one to operate the lines provisionally.

[present case] On 4 November 1959, 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 59494 and
63780) in favor of Ferrer, and the subsequent sale thereof by the latter to Pantranco, against Ferrer, Pantranco and
the PSC. The Corporation prayed therein that all the orders of the PSC relative to the parties' dispute over the
said certificates be annulled. The CFI of Manila declared the sheriff's sale of two certificates of public convenience
in favor of Ferrer and the subsequent sale thereof by the latter to Pantranco null and void; declared the
Corporation to be the lawful owner of the said certificates of public convenience; and ordered Ferrer and
Pantranco, jointly and severally, to pay the Corporation, the sum of P5,000.00 as and for attorney's fees. The case
against the PSC was dismissed. All parties appealed.

Issue: Whether the stipulation, "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" in the contract between
Villarama and Pantranco, binds the Corporation (the Villa Rey Transit, Inc.).

Held: Villarama supplied the organization expenses and the assets of the Corporation, such as trucks and
equipment; 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; Villarama made use of the money of the Corporation and deposited them to his private
accounts; and the Corporation paid his personal accounts. Villarama himself admitted that he mingled the
corporate funds with his own money. These circumstances are strong persuasive evidence showing that Villarama
has been too much involved in the affairs of the Corporation to altogether negative the claim that he was only a
part-time general manager. They show beyond doubt that the Corporation is his alter ego. The interference of
Villarama in the complex affairs of the corporation, and particularly its finances, are much too inconsistent with the
ends and purposes of the Corporation law, which, precisely, seeks to separate personal responsibilities from
corporate undertakings. It is the very essence of incorporation that the acts and conduct of the corporation be
carried out in its own corporate name because it has its own personality. 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. When the 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, 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. Hence, 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. Where the Corporation is substantially the
alter ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee.