DOCTRINE OF CORPORATE ENTITY DOCTRINE/EFFECTS GALLAGHER V. GERMANIA BREWING CO.

FACTS: Plaintiff, as assignee of Westphal, brought this action to recover goods sold and delivered by his assignor (Westphal), to the defendant corporation. However, Barge and Vander Horck intervened, and stated that they could intervene because they owned all the capital stock of the defendant, and that no other person but themselves had an interest in the stock and property of Germania Brewing Co. They also contended that they had a COA against Westphal, which accrued before the assignment to the plaintiff, and that Westphal was utterly insolvent. The relief they were seeking was that to equitably set-off their claims against Westphal from those that Gallgher (as Westphals assignee) has against the defendant corp. Gallagher states that Barge and Vander Horck had no such interest in the litigation as to entitle them to intervene and that their claims cannot be set off against a claim against the corporation, since a corporation is a legal entity, entirely distinct from its stockholders. ISSUE: WON the claims of Barge and Vander Horck can be equitably set-off against the claims of Gallagher as against Germania Brewing Co. HELD: NO. Their claims against Westphal are not subject of equitable set-off to a claim against the defendant corporation. To allow the set-off in the case at bar, it will be tantamount to totally ignoring the legal doctrine, that a corporation is an entity separate and distinct from the body of its stockholders. It had been absolutely essential, for the administration of justice, to treat a corporation as a collective entity, without regard to its individual stockholders. If the rights or liabilities of a corporation could be affected by the acts of the stockholders, except when acting in the corporate name, it can easily be seen into what confusion and chaos corporate affairs would inevitably fall. In as much as the 2 interveners own all the stock of the corporation, the facts of this case seem comparatively free from embarrassments, and the contention of the respondent quite plausible. But suppose there were 50 other stockholders, what would be the result? Could interveners then interpose their claims as set-offs, and if so, could they do so to the full amount of their claims? NO. Illustration might be multiplied indefinitely to show that to recognize any such right would result in the worst sort of complications, and that only safe or sound rule is to adhere strictly to the doctrine of a corporate entity distinct from the individual stockholders. CONCEPCION MAGSAYSAY-LABRADOR VS. COURT OF APPEALS, 19 DECEMBER 1989 NATURE: FACTS: Petition for certiorari to review the decision and resolution of CA Private respondent Adelaida Rodriguez-Magsaysay, widow of the late Senator Genaro Magsaysay, brought before the CFI of Olongapo an action against SUBIC, FILMANBANK and the Register of Deeds of Zambales. According to her, in 1958, she and her husband acquired, thru conjugal funds, Pequea Island; that after the death of her husband, she discovered (1) an annotation at the back of the TCT that the land was acquired by her husband from his separate capital; (2) the registration of a Deed of Assignment purportedly executed by the late Senator in favor of SUBIC, as a result of which their TCT was cancelled and a new TCT issued in the name of SUBIC; and (3)

ISSUE: RULING:

the registration of a Deed of Mortgage executed by SUBIC in favor of FILMANBANK. On the other hand, petitioners, sisters of the late senator, filed a motion for intervention claiming that their brother conveyed to them of his shareholdings or around 41% of the total outstanding shares of stocks of SUBIC. Petitioners prayer: That they be allowed to intervene on the ground that as assignees of their brother, they have substantial interest in the subject matter Private respondents prayer: (a) That the Deed of Assignment in favor of SUBIC and the Deed of Mortgage in favor of FILMANBANK be annulled, and (b) that a new TCT be issued in her favor on the ground that that the acts abovementioned were void and done in an attempt to defraud the conjugal partnership CFIs ruling: Petitioners as assignees of certain shares in SUBIC cannot intervene because SUBIC has a personality separate and distinct from its stockholders CAs ruling: CFIs decision affirmed WON the assignment of shares vests the petitioners a legal interest in the corporate property Petition denied, CFI and CA affirmed. THE VALIDITY OF THE ALLEGED TRANSFER OF SHARES IS QUESTIONABLE. The corporation did not keep books and records. Hence, no transfer was ever recorded, much less effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect third persons in accordance with Section 63 of the Corporation Code. Granting there was a valid transfer, the interest which entitles a person to intervene in a suit must be of such direct and immediate character. Here, THE INTEREST OF PETITIONERS-MOVANTS IS INDIRECT, CONTINGENT, REMOTE, CONJECTURAL, CONSEQUENTIAL AND COLLATERAL. 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 an 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.

STOCKHOLDERS OF F. GUANZON AND SONS, INC. VS. REGISTER OF DEEDS FACTS: The five stockholders of F. Guanzon and Sons, Inc. (Guanzon) executed an Affidavit of Liquidation of the assets of the corporation. By virtue of the dissolution, they have distributed amongst themselves, in proportion to their shareholdings, the assets of the corporation, including real properties located in Manila. the Certificate of Liquidation was presented to the Register of Deeds but was denied registration on seven grounds, which were disputed by the stockholders: (a) The number of parcels of land not certified in the acknowledgment (b) Registration fees were not paid (c) Documentary stamps need to be attached to the instrument (d) The judgment of the court approving the dissolution needs to be presented.

The Consulta, which was elevated to the Commissioner of Land Registration overruled ground number seven - judgment of court needs to be presented - and sustained the others. ISSUE: Whether the Certificate of Liquidation is a conveyance of transfer or not? RULING: The Court agrees with the opinion of the two officials. A corporation is a juridical person distinct from the members comprising it. Properties registered in the name of the corporation are owned by the corporation. While shares of stock constitute personal property, they do not represent the property of the corporation. The corporation has property of its own, which consists chiefly of real estate. A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity, but its holder is not the owner of any part of the capital of the corporation. Nor is he entitled to the possession of a definite portion of its property or assets. The stockholder is not a co-owner or tenant in common of the corporate property. The act of liquidation made by the stockholders is not considered a partition of community property but rather a transfer or conveyance of the title of its assets to its stockholders. Caram vs CA Facts: Caram was ordered by the CA to jointly and severally pay the plaintiff the amount of P50,000.00 for the preparation of the project study and his technical services that led to the organization of the corporation. Their position is that as mere subsequent investors in the corporation that was later created, they should not be held solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with Barretto and Garcia, their co-defendants in the lower court, who were the ones who requested the said services from them. Issue: WON the Carams are also and personally liable for such expenses. Held: No. The petitioners are not liable at all, jointly or jointly and severally. The petitioners were not really involved in the initial steps that finally led to the incorporation of the Filipinas Orient Airways. Barreto was also described as the moving spirit. The project study was undertaken by the private respondent at the request of Barretto and Garcia who, upon its completion, presented it to the petitioners to induce them to invest in the proposed airline. The airline was eventually organized on the basis of the project study with the petitioners as major stockholders and, together with Barretto and Garcia, as principal officers. Caram was properly compensated not only for having actively participated in the preparation of the project study for several months and its subsequent revision but also in his having been involved in the pre-organization of the defendant corporation, in the preparation of the franchise, in inviting the interest of the financiers and in the training and screening of personnel. The above finding bolsters the conclusion that the petitioners were not involved in the initial stages of the organization of the airline, which were being directed by Barretto as the main promoter. It was he who was putting all the pieces together, so to speak. The petitioners were merely among the financiers whose interest was to be invited and who were in fact persuaded, on the strength of the project study, to invest in the proposed airline.

There was no showing that the Filipinas Orient Airways was a fictitious corporation and did not have a separate juridical personality, to justify making the petitioners, as principal stockholders thereof, responsible for its obligations. As a bona fide corporation, the Filipinas Orient Airways should alone be liable for its corporate acts as duly authorized by its officers and directors. The petitioners cannot be held personally liable for the compensation claimed by the private respondent for the services performed by him in the organization of the corporation. To repeat, the petitioners did not contract such services. It was only the results of such services that Barretto and Garcia presented to them and which persuaded them to invest in the proposed airline. The most that can be said is that they benefited from such services, but that surely is no justification to hold them personally liable therefor. Otherwise, all the other stockholders of the corporation, including those who came in later, and regardless of the amount of their share holdings, would be equally and personally liable also with the petitioners for the claims of the private respondent. PALAY vs. CLAVE FACTS: Palay, Inc., through its President, Albert Onstott executed in favor of Nazario Dumpit, a Contract to Sell a parcel of Land of the Crestview Heights Subdivision in Antipolo, Rizal, owned by said corporation. The sale price was P23,300.00 with 9% interest per annum, payable with a downpayment of P4,660.00 and monthly installments of P246.42 until fully paid. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all installments paid. Dumpit paid the downpayment and several installments amounting to P13,722.50. The last payment was made on December 5, 1967 for installments up to September 1967. Almost 6 years later, Dumpit wrote petitioner offering to update all his overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold. Dumpit questioned the validity of the rescission of the contract with the NHA. NHA found the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund immediately to Nazario Dumpit the amount of P13,722.50 Issue: WON Onstott, as the President, should be solidarily liable with Palay Inc to refund the amount Held: No. Only Palay Inc should refund the payment made by Dumpit It is important to note that even though there has been a stipulation of automatic rescission of the contract in case of default of payment of installments, still, a notice should be given. This was not done in the case at bar. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as when as from that of any other legal entity to which it may be

related. As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or defend crime or to perpetuate fraud or confuse legitimate issues; or to circumvent the law or perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders. We find no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on paragraph 6 of its contract with private respondent when it rescinded the contract to sell extrajudicially and had sold it to a third person. In this case, petitioner Onstott was made liable because he was then the President of the corporation and he was the controlling stockholder. No sufficient proof exists on record that said petitioner used the corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he "appears to be the controlling stockholder". Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality. Dulay Enterprises v. CA In this case the Dulay Enterprises is a Closed Corporation with Manuel Dulay owning more than 98% of the shares of the corporation, being the managing director and president. There is no doubt that despite Dulay Enterprises being a family corporation the majority of the power rests upon Manuel Dulay. Dulay Enterprises owns an apartment in the Pasay area. Dulay Enterprises later undertook to build a Hotel and due to lack of funds had to obtain several loans. Later Dulay Enterprises/Manuel Dulay (he was empowered by a board resolution) sold the apartment to spouses Veloso for 300k with the right of repurchase for 2 years, however such right to repurchase was not annotated in the TCT issued in favor of the spouses Veloso. Before the 2 years was finished one of the spouses Veloso subsequently mortgaged the apartment to Mr. Torres, this mortgage was not known to Manuel Dulay/Dulay Enterprises. Due to failure to pay, the apartment was foreclosed and Mr. Torres being the only bidder was sold the property, after this the Velosos transferred their right to redeem to Manuel Dulay. A year has passed and the property was not redeemed, Mr. Torres became the owner of the apartment. Torres moved to eject some of the tenants of the apartment including the lawyer of the corporation. The corporation intervened in favor of the tenants. Ultimately the metropolitan trial court granted the action for ejectment and ordered the said tenants to vacate. The corporation through its lawyer appealed to the RTC to annul the decision, RTC refused. So did the CA. upon bringing the matter to the SC they questioned the validity of the sale of the apartment by Manuel Dulay to the Veloso Spouses. In light of these the corporation attempted to use the courts to render void the board resolution to sell the said apartment by saying that such board resolution was void. They allege that the board resolution to sell the apartment did not have the approval of all its members. To this the court replied:

In the instant case, petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in his case, petitioner Virgilio Dulay failed to do. It is relevant to note that although a corporation is an entity which has a personality distinct and separate from its individual stockholders or members, the veil of corporate fiction may be pierced when it is used to defeat public convenience justify wrong, protect fraud or defend crime. The privilege of being treated as an entity distinct and separate from its stockholder or members is therefore confined to its legitimate uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act. When the corporation is used merely as an alter ego or business conduit of a person, the law will regard the corporation as the act of that person. The Supreme Court had repeatedly disregarded the separate personality of the corporation where the corporate entity was used to annul a valid contract executed by one of its members. Ultimately the Supreme Court denied the petition to annul the decision of the MTC and upheld the decision of the MTC. Here while the Dulay Enterprises has a separate entity from Manuel Dulay, the court cannot acquiesce to the corporations allegation that Manuel Dulay acted without the knowledge of other directors. Manuel Dulay cannot hide behind the corporation and allege that his sale of the apartment as void due to some technicality with the board resolution.

San Juan Structural v. CA Summarily stated the secretary of the corporation came into contract with another company (san Juan) to sell a parcel of land. The other company eventually asked that the supposedly perfected contract of sale be executed. Motorich however did not honor the contract of sale made by its treasurer since such sale was not authorized by a board resolution. San Juan corporation then went to the courts to enforce the contract of sale. The courts declined to enforce such sale. The RTC dismissed the case altogether; the CA merely ordered that the down payment received by the treasurer be returned. The Supreme Court further elaborates on the action of the lower courts. Primarily the question raised was if the acts of the treasurer (here treasurer and her husband owns 98+% of the stocks of the corporation) would bind the corporation. The Supreme Court said no. first a corporation need to act through agents but such agents must be empowered by the corporation itself through a board resolution. The court states that: A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation's board of directors. Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides; Sec. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or

trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. Indubitably, a corporation may act only through its board of directors or, when authorized either by its bylaws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law. Thus, this Court has held that "a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that the authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred." Second citing the previous case of Dulay v. CA, the decision in that case is not applicable here given that Motorich is not a closed corporation. The court adamantly posited that under no stretching of the imagination can the treasurer sell the subject lot, even if she and her husband own 98% of the stock of the corporation. A board resolution to the effect that the corporation intends to sell the subject lot is needed for such sale to be possible. The mere fact that the corporation refuses to ratify the acts of the treasurer shows that such act of its officer is not according to the will of the corporation. Finally the court chastises the petitioner corporation (san juan) and its president for falling to such machination being in the business for 10 years, they should have known that corporate treasurers are not empowered to sell corporate property Tramat Mercantile v. CA Dela Cuesta sold a tractor to Tramat corporation. David Ong (president of Tramat) paid dela Cuesta via a check. Tramat modified the tractor and made it into a lawn mower and subsequently sold the same to NAWASA. NAWASA refused to pay Tramat for the tractor saying that it had defects and that the tractor engine is reconditioned. Tramat through David ong subsequently caused a stop payment of the check paid to Dela Cuesta (lesson, take cash or cash in ASAP). Dela Cuesta ofcourse sued Tramat for non-payment and asked that Tramat and David Ong be solidarily held liable. The RTC granted this and asked the above mentioned to pay jointly and severally (aka solidarily). The CA said the same. The Supreme Court generally agreed that Tramat should pay however in the case of David Ong being merely the President of the company corporation, he should not be held personally liable for transactions carried in the name of the corporation. It must be remembered that the corporation has a separate and distinct personality from its officers (even its president) and the liability incurred by the corporation is to be born by the corporation. The court said essentially the same: Ong had there so acted, not in his personal capacity, but as an officer of a corporation, TRAMAT, with a distinct and separate personality. As such, it should only be the corporation, not the person acting for and on its behalf, that properly could be made liable thereon.

The case however said that the above is not a hard and fast rule. In certain circumstance the corporate officers may be held liable in cases of: 1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; 4 2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 5 3. He agrees to hold himself personally and solidarily liable with the corporation; 6 or 4. He is made, by a specific provision of law, to personally answer for his corporate action. Clearly Ong has not committed any of the above mentioned and shouldnt be held personally liable.

JACINTO vs. COURT OF APPEALS, 6 JUNE 1991 Petition for certiorari to review the decision of the Court of Appeals Petitioner Roberto Jacinto is the President and General Manager of Inland Industries, Inc. and a substantial stockholder thereof. In the transactions between the corporation and private respondent Metrobank, it was Jacinto who received all the goods covered by the 3 Letters of Credit, and signed, for and in behalf of Inland, 3 separate trust receipts covering the same. Petitioners prayer: That he not be held solidarily liable with Inland Industries because he acted in his official capacity as president of the corporation and the latter has a juridical personality distinct and separate from its officers and stockholders Private respondents prayer: That petitioner Jacinto be made solidarily liable with Inland Industries on the ground that defendant corporation is just a mere alter ego of defendant Roberto Jacinto who is its President and General Manager RTCs ruling: That Jacinto pay Metrobank because Jacinto was practically the corporation itself CAs ruling: RTC affirmed ISSUE: WON to pierce the veil of corporate entity of Inland Industries and hold its president liable for its principal obligation to Metrobank RULING: Petition denied, RTC and CA affirmed. INLAND INDUSTRIES IS MERELY AN ADJUNCT, BUSINESS CONDUIT OR ALTER EGO OF JACINTO TO EVADE PERSONAL LIABILITY. In his own testimony, petitioner admitted that he and his wife owned 52% of the stocks of the corporation. The stipulation of facts also shows that it was Jacinto who dealt entirely with Metrobank in its transactions with Inland Industries. When the veil of corporate fiction is made as a shield to perpetuate fraud and/or confuse legitimate issues, the same should be pierced. PETITIONER DID NOT OBJECT WHEN RESPONDENT METROBANK SOUGHT TO PROVE THAT THE FORMER AND THE CORPORATION ARE ONE AND THE SAME. NATURE: FACTS:

When one party, with the express or implied consent of the adverse party, presents evidence as to issues not alleged in the pleadings, judgment may be rendered validly as regards those issues, which shall be considered as if they have been raised in the pleadings. There is implied consent to the evidence thus presented when the adverse party fails to object thereto. JG Summit Holdings Inc. vs. CA FACTS: The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction, operation and management of the Subic National Shipyard, Inc., later became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding proportion of 60%-40% and that the parties have the right of first refusal in case of a sale. Through a series of transfers, NIDCs rights, title and interest in PHILSECO eventually went to the National Government. In the interest of national economy, it was decided that PHILSECO should be privatized by selling 87.67% of its total outstanding capital stock to private entities. After negotiations, it was agreed that Kawasakis right of first refusal under the JVA be exchanged for the right to top by five percent the highest bid for said shares. Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a stockholder, would exercise this right in its stead. During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the right to top by 5% percent the highest bid, it was able to top JG Summits bid. JG Summit protested, contending that PHILSECO, as a shipyard is a public utility and, hence, must observe the 60%40% Filipino-foreign capitalization. By buying 87.67% of PHILSECOs capital stock at bidding, Kawasaki/PHI in effect now owns more than 40% of the stock. In the year 2000 case, it was settled by the Court that PHILSECO is a public utility and is therefore required to comply with the 60%-40% capitalization under the constitution. On the other hand, Kawasaki could only exercise its right of first refusal to the extent that its total shares of stock should not exceed 40% of the entire shares of stock due to the constitutional and contractual proscriptions. NIDC being a government corporation may purchase even beyond the 60% of the total shares. Petitioner now assails the SC decision through a motion for reconsideration. ISSUE: Whether or not PHILSECO continues to violate the Constitution by owning long-term leasehold rights which are real rights within the meaning of immovable property under Art. 415 of the Civil Code HELD: Petitioner cites Article 415 of the Civil Code alleges that PHILSECO continues to violate the constitution by owning long-term leasehold rights. It states that in the definition of immovable property, it includes: contracts for public works, and servitudes and other real rights over immovable property. The Court ruled that whether or not owning long -term leasehold rights are questions of fact, the veracity of which would require introduction of evidence and the Court needs to validate these factual allegations based on competent and reliable evidence. As such, the Court cannot resolve the questions they pose. Second, J.G. Summit misreads the provisions of the Constitution cited in its own pleadings, to wit:

Petitioner has consistently pointed out in the past that private respondent is not a 60%-40% corporation, and this violates the Constitution x x x The violation continues to this day because under the law, it continues to own real property To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution (the JVA was signed in 1977), provided: Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. This provision is the same as Section 7, Article XII of the 1987 Constitution. It was correctly observed by the public respondents that the prohibition in the Constitution applies only to ownership of land. It does not extend to immovable or real property as defined under Article 415 of the Civil Code which embraces real rights. Otherwise, we would be confronted with a strange situation where the ownership of immovable property such as trees, plants and growing fruit attached to the land would be limited to Filipinos and Filipino corporations only. B. PIERCING THE CORPORATE VEIL Villa-Rey Transit Inc., vs. Ferrer FACTS: Jose M. Villarama was the operator of a bus company under the name Villa Rey Transit, authorized to operate 32 units from Pangasinan to Manila and vice-versa, sold 2 CPCs to Pantranco. One of the conditions included in the contract of sale was that the seller (Villarama) "shall not, for a period of 10 years from the date of the sale, apply for any TPU service identical or competing with the buyer (Pantranco)." Barely 3 months after the sale, a corporation called Villa Rey Transit, Inc. was organized, with the wife of Jose M. Villarama as one of the incorporators and who was subsequently elected as treasurer of the Corporation. Barely a month after its registration with the SEC, the corporation bought 5 CPCs and 49 buses from one Valentin Fernando, and applied with the Public Service Commission (PSC) for approval of the sale. Before the PSC could take final action on the said application, however, 2 of the 5 CPCs were levied upon pursuant to a writ of execution issued by the CFI in favor of Eusebio Ferrer, judgment creditor, against Valentin Fernando, judgment debtor. During the public sale conducted, Ferrer was the highest bidder, and a certificate of sale was issued in his name. Shortly thereafter, he sold the said CPCs to Pantranco, and they jointly submitted their contract of sale to the PSC for approval. The PSC issued an order that pending resolution of the applications, Pantranco shall have the authority to provisionally operate the service under the 2 CPCS that were the subject of the contract between Ferrer and Pantranco. Villa Rey Transit took filed a complaint for annulment of the sheriff's sale of the CPCs and prayed that all the orders of the PSC relative to the dispute over the CPCs in question be annulled. Pantranco filed a third-party complaint against Jose M. Villarama, alleging that Villarama and Villa Rey Transit are one and the same, and that Villarama

and/or the Corporation is disqualified from operating the CPCs by virtue of the agreement entered into between Villarama and Pantranco. 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: YES. 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. However, 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. In the present case, the Court found that the finances of Villa-Rey, Inc. were managed as if they were the private funds of Villarama and in such a way and extent that Villarama appeared to be the actual owner of the business without regard to the rights of the stockholders. Villarama even admitted that he mingled the corporate funds with his own money. These circumstances negate Villarama's claim that he was only a part-time General Manager, and show beyond doubt that the corporation is his alter ego. Thus, the restrictive clause with Pantranco applies. A seller 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 one of the parties to the covenant or the restrictive agreement, it can be enjoined from competing with the covenantee. 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. Marvel Building Corporation et al. v David Facts: Plaintiffs, as stockholders of Marvel Building Corp (corp) wants to enjoin from selling at public auction properties in the complaint that included 3 parcels of land, namely the Aguinaldo Building, Wise Building, and Dewey Boulevard-Padre Faura Mansion, all registered in the name of the corp. Said properties were seized to collect war profit taxes against plaintiff Maria Castro. Plaintiffs allege that the 3 properties belong to the Corp and not to Maria Castro while defendant claims that Castro is the true and exclusive owner of the said properties. In the Articles of Incorporation (AI) of the corp, the capital stock was at P2M but what was only subscribed and paid was P1.025M by 11 stockholders. Maria Castro was the president of the corp. Of the 11 stockholders, it appears that Castro was related to almost all of them (half brothers, half sisters, brother-in-law, husband of Maria CAstro). The stockholders never held any business meetings, the by-laws of the corp was never presented, and no reports of the affairs of the corporation has been made, either of its transactions or its accounts. From the books, advances were made by Maria Castro to the corp 3 times amounting to almost P400K.

Issue: WON Maria Castro is the sole and exlclusive owner of all the shares of stock of Marvel Building Corp and that the other partners are her mere dummies Held: Yes. 1. Maria Castro had endorsements in blank of the shares of stock issued in the name of the other incorporators, and she has possession of them. She signed 25 stock certificates but only 11 were issued. 2. The stockholders did not have that much income to pay the amounts corresponding to their shares. It was found that Castro profited a lot in her business. This shows that Castro furnished all the money that the Corp had. 3. It is also significant that the plaintiffs, the supposed subscribers, should have come to court to assert that they actually paid for their subscriptions and that they are not mere dummies. They never did. They could have rebutted the charges, but they kept slent. 4. 5. 6. Stockholders never met to discuss business matters. The books of account were kept as if they belonged to Castro alone. Castro advanced a big amount of money for the corporation.

All these show that Castro was the sole and exclusive owner of the shares and that the subscribers were her mere dummies.

Cease vs. Court of Appeals FACTS: Forrest Cease and five (5) other American citizens formed Tiaong Milling and Plantation Company. Eventually, the shares of the other original incorporators were bought out by Cease with his children. The companys charter lapsed in June 1958. Forrest Cease died in August 1959. There was no mention whether there were steps to liquidate the company. Some of his children wanted an actual division while others wanted a reincorporation. Two of his children, Benjamin and Florence, initiated Special Proceeding No. 3893 with CFI Tayabas asking that the Tiaong Milling and Plantation Corporation be declared identical to Forrest Cease and that its properties be divided among his children as intestate heirs. Defendants opposed the same but the CFI ruled in favor of the plaintiffs. Defendants filed a notice of appeal from the CFIs decision but the same was dismissed for being premature. The case was elevated to the SC which remanded it to the Court of Appeals. The CA dismissed the petition. ISSUE: Whether or not the Court of Appeals erred in affirming the lower courts decision that the subject properties owned by the corporation are also properties of the estate of Forrest Cease

HELD: NO. The trial court indeed found strong support, one that is based on a well-entrenched principle of law which is the theory of "merger of Forrest L. Cease and The Tiaong Milling as one personality", or that "the company is only the business conduit and alter ego of the deceased Forrest L. Cease and the registered properties of Tiaong Milling are actually properties of Forrest L. Cease and should be divided equally, share and share alike among his six children, ... ", the trial court aptly applied the familiar exception to the general rule by disregarding the legal fiction of distinct and separate corporate personality and regarding the corporation and the individual member one and the same. In shredding the fictitious corporate veil, the trial judge narrated the undisputed factual premise, thus: While the records showed that originally its incorporators were aliens, friends or third-parties in relation to another, in the course of its existence, it developed into a close family corporation. The Board of Directors and stockholders belong to one family the head of which Forrest L. Cease always retained the majority stocks and hence the control and management of its affairs. It must be noted that as his children increase or become of age, he continued distributing his shares among them adding Florence, Teresa and Marion until at the time of his death only 190 were left to his name. Definitely, only the members of his family benefited from the Corporation. The corporation 'never' had any account with any banking institution or if any account was carried in a bank on its behalf, it was in the name of Mr. Forrest L. Cease. There is truth in plaintiff's allegation that the corporation is only a business conduit of his father and an extension of his personality, they are one and the same thing. Thus, the assets of the corporation are also the estate of Forrest L. Cease, the father of the parties herein who are all legitimate children of full blood. A rich store of jurisprudence has established the rule known as the doctrine of disregarding or piercing the veil of corporate fiction. GENERAL RULE: a corporation is vested by law with a personality separate and distinct from the persons composing it as well as any other legal entity to which it may be related. By virtue of this attribute, a corporation may not, generally, be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected, and vice versa. This separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice EXCEPTIONS: Such rule may not be used or invoked for ends subversive of the policy and purpose behind its creation or which could not have been intended by law to which it owes its being. This is particularly true where the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate deception or otherwise circumvent the law This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate. In any of these cases, the notion of corporate entity will be pierced or disregarded, and the corporation will be treated merely as an association of persons or, where there are two corporations, they will be merged as one, the one being merely regarded as part or the instrumentality of the other.

An indubitable deduction from the findings of the trial court cannot but lead to the conclusion that the business of the corporation is largely, if not wholly, the personal venture of Forrest L. Cease. There is not even a shadow of a showing that his children were subscribers or purchasers of the stocks they own. Their participation as nominal shareholders emanated solely from Forrest L. Cease's gratuitous dole out of his own shares to the benefit of his children and ultimately his family. If the Court sustained the theory of petitioners that the trial court acted in excess of jurisdiction or abuse of discretion amounting to lack of jurisdiction in deciding the civil case as a case for partition, Tiaong Milling and Plantation Company would have been able to extend its corporate existence beyond the period of its charter which lapsed in June, 1958 under the guise and cover of F. L, Cease Plantation Company, Inc. as Trustee which would be against the law, and as Trustee shall have been able to use the assets and properties for the benefit of the petitioners, to the great prejudice and defraudation. of private respondents. Hence, it becomes necessary and imperative to pierce that corporate veil. The judgment appealed from is AFFIRMED. SECOSA vs. FRANCISCO FACTS: On June 27, 1996, at around 4:00 p.m., Erwin Suarez Francisco, an eighteen year old third year physical therapy student of the Manila Central University, was riding a motorcycle along Radial 10 Avenue, near the Veteran Shipyard Gate in the City of Manila. At the same time, Petitioner, Raymundo Odani Secosa, was driving an Isuzu cargo truck with plate number PCU253 on the same road. The truck was owned by petitioner, Dassad Warehousing and Port Services, Inc. Traveling behind the motorcycle driven by Francisco was a sand and gravel truck, which in turn was being tailed by the Isuzu truck driven by Secosa. The three vehicles were traversing the southbound lane at a fairly high speed. When Secosa overtook the sand and gravel truck, he bumped the motorcycle causing Francisco to fall. The rear wheels of the Isuzu truck then ran over Francisco, which resulted in his instantaneous death. Fearing for his life, petitioner Secosa left his truck and fled the scene of the collision. Respondents, the parents of Erwin Francisco, thus filed an action for damages against Raymond Odani Secosa, Dassad Warehousing and Port Services, Inc. and Dassads President, El Buenasucenso Sy. The trial court rendered a decision in favor of respondents and ordered the petitioners herein to pay jointly and severally damages. Petitioners then appealed said Decision to the CA, which affirmed the Trial Courts Decision in toto. ISSUE: W/N the CA erred in affirming the TCs Decision wherein it held Petitioner Sy (DASSAD President) solidarily liable with DASSAD and SECOSA in violation of the Corp Law.

HELD: The Court ruled in the affirmative. While it may be true that Sy is the president of petitioner Dassad Warehousing and Port Services, Inc., such fact is not by itself sufficient to hold him solidarily liable for the liabilities adjudged against his co-petitioners. It is a settled precept in this jurisdiction that a corporation is invested by law with a personality separate from that of its stockholders or members. It has a personality separate and distinct from those of the persons composing it as well as from that of any other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not in itself sufficient ground for disregarding the separate corporate personality. A corporations authority to act and its liability for its actions are separate and apart from the individuals who own it. The so-called veil of corporate fiction treats as separate and distinct the affairs of a corporation and its officers and stockholders. As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud that may work inequities among members of the corporation internally, involving no rights of the public or third persons. In both instances, there must have been fraud and proof of it. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed. The records of the case are bereft of any evidence tending to show the presence of any grounds enumerated above that will justify the piercing of the veil of corporate fiction such as to hold the president of Dassad Warehousing and Port Services, Inc. solidarily liable with it. The Isuzu cargo truck which ran over Erwin Francisco was registered in the name of Dassad Warehousing and Port Services, Inc., and not in the name of El Buenasenso Sy. Raymundo Secosa is an employee of Dassad Warehousing and Port Services, Inc. and not of El Buenasenso Sy. All these things, when taken collectively, point toward El Buenasenso Sys exclusion from liability for damages arising from the death of Erwin Francisco. DECISION AFFIRMED WITH MODIFICATION that that petitioner El Buenasenso Sy is ABSOLVED from any liability adjudged against his co-petitioners in this case.

ISSUE: RULING:

through garnishment of sums from petitioner's debtor MWSS. To collect the balance of the judgment award, the Labor Arbiter issued an Alias Writ of Execution. However, said writ had not been enforced because security guards with high-powered guns prevented the sheriff from removing the properties he had levied upon. To enable him to enter petitioner's premises, the sheriff recommended that a break-open order be issued. A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President. Petitioners prayer: That the motion for break-open order be denied because HPPI is a corporation separate and distinct from petitioner as evidenced by the different kinds of business they are engaged in, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction Private respondents prayer: That a break-open order be issued on the ground that HPPI was created to evade Concept Builders liability to private respondents NLRCs ruling: That a break-open order be enforced against personal property found in the premises of petitioners sister company because the two corporations are one and the same, sharing the same premises, the same President and the same set of officers and subscribers WON to apply the doctrine of piercing the corporate veil in determining the liability of a corporation for the obligations of a sister corporation Petition denied, RTC and CA affirmed. HPPI IS A BUSINESS CONDUIT OF CONCEPT BUILDERS AND ITS EMERGENCE WAS
SKILLFULLY ORCHESTRATED TO AVOID THE FINANCIAL LIABILITY THAT ALREADY ATTACHED TO PETITIONER CORPORATION. The question of whether a

corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely one of fact. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents piercing the corporate veil. CLAPAROLS vs. CIR, 31 JULY 1975 Petition for certiorari to review the decision of respondent Court of Industrial The day after the Claparols Steel and Nail Plant ceased operations on 30 June 1957, the Claparols Steel Corporation was put up to succeed the former. In August 1957, a complaint for unfair labor practice was filed by herein private respondent workers against petitioner Claparols on account of the dismissal of respondent workers from Claparols Steel and Nail Plant. On 7 December 1962 the Claparols Steel Corporation stopped operations. In September 1963, public respondent CIR found petitioner Claparols guilty of union busting and ordered him to pay respondent workers back wages from the date of their dismissal up to their actual reinstatement.

NATURE: FACTS:

CONCEPT BUILDERS, INC. vs. NLRC, 29 May 1996 Special civil action in the Supreme Court. Certiorari. Petitioner Concept Builders, Inc., a domestic corporation, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers, who were served individual written notices of termination of employment. It was stated in the individual notices that their contracts of employment had expired and the project for which they were hired had been completed. Having found out that said project had not yet been finished and that petitioner had to engage the services of sub-contractors, private respondents filed a complaint for illegal dismissal against petitioner. The Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year. The award was partially satisfied

NATURE: Relations FACTS:

ISSUE: RULING:

Petitioners prayer: That the recoverable back wages of respondent workers be limited to only 3 months because the Claparols Steel and Nail Plant ceased operations due to enormous business reverses as in the Sta. Cecilia Sawmills case, and it is separate and distinct from Claparols Steel Corp. Private respondents prayer: That the back wages be computed up to the cessation of operations of the Claparols Steel Corporation because Claparols Steel and Nail Plant and Claparols Steel Corporation are one and the same corporation controlled by petitioner Claparols, with the latter corporation succeeding the former CIRs ruling: That petitioners pay the respondent workers their back wages accruing up to 7 December 1962 when the Claparols Steel Corporation ceased operations because the latter corporation was a continuation and successor of the first entity, and its emergence was skillfully timed to avoid the financial liability that already attached to its predecessor, the Claparols Steel and Nail Plant WON to apply the doctrine of piercing the corporate veil in determining the liability of a corporation for the obligations of its predecessor corporation Petition denied, CIR affirmed. CLAPAROLS STEEL CORPORATION WAS DELIBERATELY AND MALICIOUSLY DESIGNED TO EVADE THE FINANCIAL OBLIGATION OF CLAPAROLS STEEL AND NAIL PLANT TO ITS EMPLOYEES. Both predecessor and successor were owned and controlled by the petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. The avoiding-the-liability scheme is very patent, considering that 90% of the subscribed shares of stocks of the Claparols Steel Corporation (the 2nd corporation) was owned by petitioner Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant (the 1st corporation) were turned over to the emerging Claparols Steel Corporation. 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 or persons, or, in the case of two corporations, will merge them into one. Likewise, where a corporation is a dummy and serves no business purpose and is intended only as a blind, the corporate fiction may be ignored.

Petitioner, however, denied this, alleging that some of the complainants are seasonal employees, some are contractors, others were hired under the pakyaw system, while the rest were hired by the Pamplona Plantation Leisure Corporation, which has a separate and distinct entity from it. The Labor Arbiter (LA) held petitioner and Pamplona Plantations manager, Jose Luis Bondoc, liable for underpayment as complainants were regular employees of petitioner. They were also held guilty of illegal dismissal with regard to two complainants. The NLRC reversed the LAs decision, dismissing all the complaints, finding that the complaint should have been directed against the Pamplona Plantation Leisure Corporation since complainants individual affidavits contained the allegations that their tasks pertained to their work in the golf course. The Court of Appeals (CA) set aside the NLRCs dismissal and reinstated the LAs Decision with modification. ISSUES 1) Whether or not Pamplona Plantation is liable for the wage differentials of the workerrespondents who themselves admitted in their affidavits that their employer was another entity Pamplona Plantation Leisure Corporation? 2) Whether or not Pamplona Plantations manager is personally liable for the money claims awarded to the workers? RULING Petition PARTIALLY GRANTED. For the purpose of resolving the workers claims, Pamplona Plantation and Pamplona Leisure are hereby deemed one and the same entity. The CA is MODIFIED in that the manager of Pamplona Plantation is absolved of any personal liability as regards the money claims awarded to respondents. In all other respects, the Decision is AFFIRMED.

LA CAMPANA VS. KAISAHAN (93 Phil. 160; 1953) The La Campana Gaugau Packing and La Campana Coffee Factory were operating under one single business although with 2 trade names. It is a settled doctrine that the fiction of law of having the corporate identity separate and distinct from the identity of the persons running it cannot be invoked to further the end subversive of the purpose for which it was created. In the case at bar, the attempt to make the two businesses appear as one is but a device to defeat the ends of the law governing capital and labor relations and should not be permitted to prevail. Pamplona Plantation Co., Inc.vs. Rodel Tinghil FACTS This stems from a case before the Labor Arbiter for underpayment, overtime pay, premium pay for rest day and holiday, service incentive leave pay, damages, attorneys fees, and 13th month pay. The complainants claimed that they were regular rank and file employees of petitioner Pamplona Plantation Co., Inc. with different hiring periods, work designations, and salary rates. By setting forth these defenses, petitioner, in effect, admitted that respondents worked for it, albeit in different capacities. Such allegations are negative pregnants denials pregnant with the admission of the substantial facts in the pleading responded to which are not squarely denied, and amounts to an acknowledgement that respondents were indeed employed by petitioner. Reiterating Pamplona Plantation Company, Inc. v. Tinghil, the Court holds that by piercing the veil of corporate fiction, the two corporations the Pamplona Plantation Corporation, Inc. and the

Petitioner is estopped from denying that respondents worked for it. It never raised this defense in the proceedings before the Labor Arbiter. Notably, the defense it raised pertained to the nature of respondents employment, i.e., whether they are seasonal employees, contractors, or worked under the pakyaw system. Thus, in its Position Paper, petitioner alleged that some of the respondents are coconut filers and copra hookers or sakadors; some are seasonal employees who worked as scoopers or lugiteros; some are contractors; and some worked under the pakyaw system. In support of these allegations, petitioner even presented the companys payroll.

Pamplona Plantation Leisure Corporation are one and the same. An examination of the facts reveals that, for both the coconut plantation and the golf course, there is only one management which the laborers deal with regarding their work. A portion of the plantation (also called Hacienda Pamplona) had actually been converted into a golf course and other recreational facilities. The weekly payrolls issued by petitioner-company bore the name Pamplona Plantation Co., Inc. It is also a fact that respondents all received their pay from the same person, Bondoc -- the managing director of the company. True, Pamplona Plantation Co., Inc., and the Pamplona Plantation Leisure Corporation appear to be separate corporate entities. But it is settled that this fiction of law cannot be invoked to further an end subversive of justice. The corporations have basically the same incorporators and directors and are headed by the same official. Both use only one office and one payroll and are under one management. The attempt to make the two corporations appear as two separate entities, insofar as the workers are concerned, should be viewed as a devious but obvious means to defeat the ends of the law. Such a ploy should not be permitted to cloud the truth and perpetrate an injustice. Also, just because they worked at the golf course did not necessarily mean that they were not employed to do other tasks, especially since the golf course was merely a portion of the coconut plantation. Thus, petitioner cannot now deny that respondents are its employees. As to the issue on the dismissal of one particular worker, Joselito Tinghil, it is well-settled that the employer has the burden of proving that the dismissal was for a valid and just cause. Failure to discharge this burden of proof substantially means that the dismissal was not justified and therefore, illegal. Given petitioners failure to discharge this burden, the Court sustains the finding of illegal dismissal vis--vis respondent Joselito Tinghil. Lastly, petitioner believes that its manager, Jose Luis Bondoc, should not have been held solidarily liable with the company for the wage differentials awarded to respondents. Petitioner argues that Bondoc is merely an employee of the company and not a corporate director or officer who can be held personally liable therefor. The rule is that officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. However, the legal fiction that a corporation has a personality separate and distinct from stockholders and members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. Moreover, assuming Bondoc is a corporate officer, a corporate officer is not personally liable for the money claims of discharged corporate employees unless he acted with evident malice and bad faith in terminating their employment. YU VS. NLRC, 16 JUNE 1995 Petition for certiorari to review a decision of the NLRC Private respondents were employees of respondent corporation Tanduay Distillery, Inc, (TDI). They were among the 22 employees of TDI who received a memorandum from TDI terminating their services for reasons of retrenchment. A buyer of TDI's assets, Twin Ace Holdings, Inc. took over the business. Twin Ace assumed the business name Tanduay Distillers. Employees filed a motion to implead petitioners James Yu and Wilson Young, doing business under the name and style of Tanduay Distillers as party respondents. After declaring that the retrenchment was illegal, public respondent NLRC issued two orders of execution. In its first order dated 24 May 1989, only TDI was held liable to reinstate respondents up to the time of change of ownership, and for

ISSUE: RULING:

separation benefits. In the second one dated 17 November 1992 petitioners and Tanduay Distillers were ordered to reinstate private respondents employees. Petitioners prayer: That the motion for execution ordering petitioners to reinstate private respondents be denied because Tanduay Distillers is an entity distinct and separate from TDI, the previous owner Private respondents prayer: That they be reinstated by Tanduay Distillers NLRCs ruling: That petitioners and Tanduay Distillers reinstate private respondents WON to pierce the veil of corporate entity of Tanduay Distillers and hold its president solidarily liable for quasi-delict Petition granted, NLRCs ruling reversed. TWIN ACE OR TANDUAY DISTILLERS, ON ONE HAND, AND TANDUAY DISTILLERY INC. (TDI), ON THE OTHER, ARE DISTINCT AND SEPARATE CORPORATIONS. The name of the company for whom the petitioners are working is Twin Ace Holdings Corporation. Moreover, Twin Ace is part of the Allied Bank Group although it conducts the rum business under the name of Tanduay Distillers. The use of a similar sounding or almost identical name is an obvious device to capitalize on the goodwill, which Tanduay Rum has built over the years. There is nothing to suggest that the owners of TDI, have any common relationship as to identify it with Allied Bank Group which runs Tanduay Distillers. The genuine nature of the sale to Twin Ace is evidenced by the fact that Twin Ace was only a subsequent interested buyer. At the time when termination notices were sent to its employees, TDI was negotiating with the First Pacific Metro Corporation for the sale of its assets. Only after First Pacific gave up its efforts to acquire the assets did Twin Ace or Tanduay Distillers come into the picture. No proof was presented as regards the communality of ownership and management to support the contention that the two companies are one firm or closely related. The doctrine of piercing the veil of corporate entity applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime or where a corporation is the mere alter ego or business conduit of a person. To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed.

NATURE: FACTS:

INDOPHIL TEXTILE UNION vs. TEODORICO P. CALICA, ET AL., 3 FEBRUARY 1992 NATURE: Petition for certiorari to review the award issued by the Voluntary Arbitrator FACTS: Petitioner Indophil Textile Union is the exclusive bargaining agent of all the rankand-file employees of private respondent Indophil Textile Mills, Inc., a corporation engaged in the manufacture, sale and export of yarns and of materials of kindred character. In April 1987, petitioner Union and private respondent Company executed a collective bargaining agreement. In November 1987, Indophil Acrylic was formed and registered with the SEC. After Acrylic became operational, its workers unionized and a duly certified CBA was executed. Petitioners prayer: That the Indophil Textile Mills CBA be extended to Acrylic employees because the creation of Acrylic is merely a device to evade the application of the CBA between petitioner Union and private respondent Company Private respondents prayer: That the CBA be not extended to Acrylic employees for Indophil Textile Mills is a juridical entity separate and distinct from Acrylic

Petitioner (Union) Both entities are engaged in the same kind of business based on their articles of incorporation; both corporations have practically the same incorporators, directors and officers; & a bonafide business relationship exists between Acrylic and private respondent.

ISSUE: RULING:

Private respondent (Indophil Textile Mills) While Indophil Acrylic cannot manufacture textiles, Indophil Textile cannot buy or import yarns; two corporations cannot be treated as a single bargaining unit even if their businesses are related (Diatagon Labor Federation v. Ople); & the services provided by it to Acrylic are only auxiliary services in the actual production of Acrylic, the essential services are discharged exclusively by Acrylic personnel. VAs ruling: That the Indophil Textile Mills CBA cannot apply to Acrylic employees because the two companies are separate and distinct entities WON to pierce the veil of corporate entity of Acrylic for purposes of union representation Petition denied, VA affirmed. THAT THE BUSINESSES OF PRIVATE RESPONDENT AND ACRYLIC ARE RELATED,
THAT SOME OF THE EMPLOYEES OF THE PRIVATE RESPONDENT ARE THE SAME PERSONS PROVIDING FOR AUXILIARY SERVICES TO ACRYLIC, AND THAT THE PHYSICAL PLANTS AND FACILITIES ARE SITUATED IN THE SAME COMPOUND, DO NOT SUFFICIENTLY JUSTIFY THE PIERCING OF THE CORPORATE VEIL OF ACRYLIC.

After SMs incorporation and until the withdrawal of GM from the Philippines, the cars and trucks purchased by Yutivo from GM were sold by Yutivo to SM which the latter sold to the public. Yutivo was appointed importer for Visayas and Mindanao by the US manufacturer of cars and trucks sold by GM. Yutivo paid the sales tax prescribed on the basis of selling price to SM. SM paid no sales tax on its sales to the public. An assessment was made upon Yutivo for deficiency sales tax. The Collector of Internal Revenue, contends that the taxable sales were the retail sales by SM to the public and not the sales at wholesale made by Yutivo to the latter inasmuch as SM and Yutivo were one and the same corporation, the former being a subsidiary of the latter. The assessment was disputed by petitioner. After reinvestigation, a second assessment was made, sustaining the validity of the first assessment. Yutivo contested the second assessment, alleging that there is no valid ground to disregard the corporate personality of SM and to hold that it is an adjunct of petitioner. Issue: Whether or not the corporate personality of SM could be disregarded. Held: Yes. A corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. However, 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, or, in the case of two corporations, merge them into one. When the corporation is a mere alter ego or business conduit of a person, it may be disregarded. SC ruled that CTA was not justified in finding that SM was organized to defraud the Government. SM was organized in June 1946, from that date until June 30, 1947, GM was the importer of the cars and trucks sold to Yutivo, which in turn was sold to SM. GM, as importer was the one solely liable for sales taxes. Neither Yutivo nor SM was subject to the sales taxes. Yutivos liability arose only until July 1, 1947 when it became the importer. Hence, there was no tax to evade. However, SC agreed with the respondent court that SM was actually owned and controlled by petitioner. Consideration of various circumstances indicate that Yutivo treated SM merely as its department or adjunct: a. The founders of the corporation are closely related to each other by blood and affinity. b. The object and purpose of the business is the same; both are engaged in sale of vehicles, spare parts, hardware supplies and equipment. c. The accounting system maintained by Yutivo shows that it maintained high degree of control over SM accounts. d. Several correspondences have reference to Yutivo as the head office of SM. SM may even freely use forms or stationery of Yutivo. e. All cash collections of SMs branches are remitted directly to Yutivo.

The doctrine of piercing the veil of corporate entity applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. THE LEGAL CORPORATE ENTITY IS DISREGARDED ONLY IF IT IS SOUGHT TO HOLD
THE OFFICERS AND STOCKHOLDERS DIRECTLY LIABLE FOR A CORPORATE DEBT OR OBLIGATION. In the instant case, petitioner does not seek to impose a

claim against the members of Acrylic.

C. PARENT-SUBSIDIARY RELATIONSHIP YUTIVO V. CTA Facts: Yutivo, a domestic corporation incorporated in 1916 under Philippine laws, was engaged in the importation and sale of hardware supplies and equipment. After the first world war, it resumed its business and bought a number of cars and trucks fromGeneral Motors(GM), an American Corporation licensed to do business in the Philippines. On June 13, 1946, the Southern Motors Inc,(SM) was organized to engage in the business of selling cars, trucks and spare parts. One of the subscribers of stocks during its incorporation was Yu Khe Thai, Yu Khe Siong and Hu Kho Jin, who are sons of Yu Tiong Yee, one of Yutivos founders.

f. The controlling majority of the Board of Directors of Yutivo is also the controlling majority of SM. g. The principal officers of both corporations are identical. Both corporations have a common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivos president, Yu Khe Thai. h. Yutivo, financed principally the business of SM and actually extended all the credit to the latter not only in the form of starting capital but also in the form of credits extended for the cars and vehicles allegedly sold by Yutivo to SM.

Respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order. PNB filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between respondents and petitioner. Trial Court issued the writ of preliminary injunction and denied PNBs motion to dismiss. In the impugned decision, the CA dismissed the petition for certiorari and prohibition. ISSUE: Whether or not PNB is privy to the loan contracts entered into by respondent & PNB-IFL. RULING: The contract questioned is one entered into between responded and PNB-IFL. Petitioner was admittedly an agent of the latter who acted as an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts entered into by them. Yet, despite the recognition that PNB is a mere agent, the respondents, in their complaint, prayed that PNB be ordered to recompute the scheduling accordance with the terms and conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to PNB by respondent. The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiarys separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. The courts may, in the exercise of judicial discretion, step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity. Jardine Davis Inc. vs. CA

KOPPEL VS. YATCO (77 Phil. 496; 1946) This case involved a complaint for the recovery of merchant sales tax paid by Koppel (Philippines), Inc. under protest to the Collector of Internal Revenue. Although the Court of First Instance did not deny legal personality to Koppel (Philippines), Inc. for any and all purposes, it dismissed the complaint saying that in the transactions involved in the case, the public interest and convenience would be defeated and would amount to a perpetration of tax evasion unless resort was had to the doctrine of "disregard of the corporate fiction." The facts show that 99.5% of the shares of stocks of K-Phil were owned by K-USA. KPhil. acted as a representative of K-USA and not as an agent. K-Phil. also bore alone its own incidental expenses (e.g. Cable expenses) and also those of its principal. Moreover, K-Phils share in the profits was left in the hands of K-USA. Clearly, K-Phil was a mere branch or dummy of K-USA, and was therefore liable for merchant sales tax. To allow otherwise would be to sanction a circumvention of our tax laws and permit a tax evasion of no mean proportion and the consequent commission of a grave injustice to the Government. Moreover, it would allow the taxpayer to do by indirection what the tax laws prohibit to be done directly. LIDDELL & CO. VS. CIR (2 SCRA 632; 1961) Liddel Motors Inc. was an alter ego of Liddel & Co. At the time of its incorporation, 98% of the Liddel Inc.s stock belonged to Frank Liddel. As to Liddel Motors, Frank supplied the original capital funds. The bulk of the business of Liddel Inc. was channeled through Liddel Motors. Also, Liddel Motors pursued no other activities except to secure cars, trucks and spare parts from Liddel Inc. and then sell them to the general public. To allow the taxpayer to deny tax liability on the ground that the sales were made through another and distinct corporation when it is proved that the latter is virtually owned by the former or that they were practically one and the same is to sanction the circumvention of tax laws. PNB vs. RITRATTO GRP FACTS: PNB-IFL, a subsidiary company of PNB extended credit to Ritratto in the amount $300,000 secured by the real estate mortgages on two parcels of land located in Makati. Said credit was increased until April 1998. Respondents outstanding obligations up to that time stood at $1,497,274.40. Pursuant to the terms of the mortgage, PNB-IFL thru PNB, foreclosed the property and were subject to public auction.

Facts: Petitioner PURE FOODS CORPORATION decided to install two generators in its food processing plant in San Roque, Marikina City to recover from losses due to the series of power failures. Consequently, bidding for the supply and installation of the generators was held. Several suppliers and dealers were invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications that would best suit the needs of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding conference, only three (3) bidders, namely, respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO. FEMSCO started the PUREFOODS project and bought the necessary materials. However, PUREFOODS unilaterally canceled the award because significant factors were uncovered which dictates the cancellation and warrant a total review and re-bid of the said project. Consequently, FEMSCO protested the cancellation of the award and sought a meeting with PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS already awarded the project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc. which incidentally was not one of the bidders. FEMSCO sued PUREFOODS for reneging on its contract and JARDINE for its unwarranted interference and inducement. Issues: Whether or not there existed a perfected contract between PUREFOODS and FEMSCO.

And granting there existed a perfected contract, whether there is any showing that JARDINE induced or connived with PUREFOODS to violate the latter's contract with FEMSCO. Held: The Supreme Court held that there was no issue as regards the subject matter of the contract and the cause of the obligation. The controversy lies in the consent whether there was an acceptance of the offer, and if so, if it was communicated, therebyperfecting the contract. Since petitioner PUREFOODS started the process of entering into the contract by conducting bidding, Art. 1326 of the Civil Code, which provides that advertisements for bidders are simply invitations to make proposals applies. The Supreme Court also re-stated the distinguishment between a condition imposed on the perfection of a contract and a condition imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a contract, failure to comply with the second merely gives the other party options and/or remedies to protect his interests.