1. Feliciano vs.

COA, January 14, 2004;

2. Manila International Airport Authority vs. CA, 20 July 2006;
3. Sulo ng Bayan vs. Araneta, 72 SCRA 247;
4. Luxuria Homes vs. CA, 302 SCRA 315;
5. Villarey Transit vs. Ferrer, 25 SCRA 845;
6. Francisco Motors vs. CA, 309 SCRA 72;
7. Lipat, et al. vs. Pacific Banking Corp., GR No. 142435, April 30, 2003;
8. Yao, Sr. vs. People, et al., 19 June 2007;
9. Hall vs. Piccio, 86 Phil 603;
10. Lyceum of the Philippines vs. CA, 219 SCRA 612;
11. Ang Mga Kaanib sa Iglesia ng Dios vs. Iglesia ng Dios Kay Kristo Jesus,
December 12, 2001
12. Gamboa vs. Teves

Feliciano vs. COA (G.R. No. 147402, January 14, 2004

Facts:
COA assessed Leyte Metropolitan Water District (LMWD) auditing fees. Petitioner
Feliciano, as General Manager of LMWD, contended that the water district could not
pay the said fees on the basis of Sections 6 and 20 of P.D. No. 198 as well as Section
18 of R.A. No. 6758. He primarily claimed that LMWD is a private corporation not
covered by COA's jurisdiction. Petitioner also asked for refund of all auditing fees
LMWD previously paid to COA. COA Chairman denied petitioners requests.
Petitioner filed a motion for reconsideration which COA denied. Hence, this petition.

Issue:
Whether a Local Water District (LWD) created under PD 198, as amended, is a
government-owned or controlled corporation subject to the audit jurisdiction of COA
or a private corporation which is outside of COAs audit jurisdiction.

Held:
Petition lacks merit. The Constitution under Sec. 2(1), Article IX-D and existing laws
mandate COA to audit all government agencies, including government-owned and
controlled corporations with original charters. An LWD is a GOCC with an original
charter.

The Constitution recognizes two classes of corporations. The first refers to private
corporations created under a general law. The second refers to government-owned
or controlled corporations created by special charters. Under existing laws, that
general law is the Corporation Code.

Obviously, LWDs are not private corporations because they are not created under
the Corporation Code. LWDs are not registered with the Securities and Exchange
Commission. Section 14 of the Corporation Code states that all corporations
organized under this code shall file with the SEC articles of incorporation x x x.
LWDs have no articles of incorporation, no incorporators and no stockholders or
members. There are no stockholders or members to elect the board directors of
LWDs as in the case of all corporations registered with the SEC. The local mayor or
the provincial governor appoints the directors of LWDs for a fixed term of office. The
board directors of LWDs are not co-owners of the LWDs. The board directors and
other personnel of LWDs are government employees subject to civil service laws
and anti-graft laws. Clearly, an LWD is a public and not a private entity, hence,
subject to COAs audit jurisdiction.
 MIAA v. Court of Appeals
G.R. No. 155650, July 20, 2006
Carpio, J.

Facts:
The Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Paraaque City under Executive Order No. 903 (MIAA
Charter), as amended. As such operator, it administers the land, improvements and
equipment within the NAIA Complex. In March 1997, the Office of the Government Corporate
Counsel (OGCC) issued Opinion No. 061 to the effect that the Local Government Code of
1991 (LGC) withdrew the exemption from real estate tax granted to MIAA under Section 21
of its Charter.

Thus, MIAA paid some of the real estate tax already due. In June 2001, it received
Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the taxable years
1992 to 2001. The City Treasurer subsequently issued notices of levy and warrants of levy on
the airport lands and buildings.

At the instance of MIAA, the OGCC issued Opinion No. 147 clarifying Opinion No. 061,
pointing out that Sec. 206 of the LGC requires persons exempt from real estate tax to show
proof of exemption. According to the OGCC, Sec. 21 of the MIAA Charter is the proof that
MIAA is exempt from real estate tax. MIAA, thus, filed a petition with the Court of Appeals
seeking to restrain the City of Paraaque from imposing real estate tax on, levying against,
and auctioning for public sale the airport lands and buildings, but this was dismissed for
having been filed out of time.

Hence, MIAA filed this petition for review, pointing out that it is exempt from real
estate tax under Sec. 21 of its charter and Sec. 234 of the LGC. It invokes the principle that
the government cannot tax itself as a justification for exemption, since the airport lands and
buildings, being devoted to public use and public service, are owned by the Republic of the
Philippines. On the other hand, the City of Paraaque invokes Sec. 193 of the LGC, which
expressly withdrew the tax exemption privileges of government-owned and controlled
corporations (GOCC) upon the effectivity of the LGC.

It asserts that an international airport is not among the exceptions mentioned in the
said law. Meanwhile, the City of Paraaque posted and published notices announcing the
public auction sale of the airport lands and buildings. In the afternoon before the scheduled
public auction, MIAA applied with the Court for the issuance of a TRO to restrain the auction
sale. The Court issued a TRO on the day of the auction sale, however, the same was
received only by the City of Paraaque three hours after the sale.

Issue:
Whether or not the airport lands and buildings of MIAA are exempt from real estate
tax?

Held:
The airport lands and buildings of MIAA are exempt from real estate tax imposed by
local governments. Sec. 243(a) of the LGC exempts from real estate tax any real property
owned by the Republic of the Philippines. This exemption should be read in relation with Sec.
133(o) of the LGC, which provides that the exercise of the taxing powers of local
governments shall not extend to the levy of taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities.
 These provisions recognize the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the power to
tax.

The rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. This rule applies with greater force when local governments seek to tax
national government instrumentalities. Moreover, a tax exemption is construed liberally in
favor of national government instrumentalities.

MIAA is not a GOCC, but an instrumentality of the government.

The Republic remains the beneficial owner of the properties. MIAA itself is owned
solely by the Republic. At any time, the President can transfer back to the Republic title to
the airport lands and buildings without the Republic paying MIAA any consideration. As long
as the airport lands and buildings are reserved for public use, their ownership remains with
the State. Unless the President issues a proclamation withdrawing these properties from
public use, they remain properties of public dominion. As such, they are inalienable, hence,
they are not subject to levy on execution or foreclosure sale, and they are exempt from real
estate tax.

However, portions of the airport lands and buildings that MIAA leases to private
entities are not exempt from real estate tax. In such a case, MIAA has granted the beneficial
use of such portions for a consideration to a taxable person.

Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347 ,

August 17, 1976
Case Title : SULO NG BAYAN, INC., plaintiff-appellant, vs. GREGORIO ARANETA, INC., PARADISE
FARMS, INC., NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC.
and REGISTER OF DEEDS OF BULACAN, defendants-appellees.Case Nature : APPEAL from an order
of the Court of First Instance of Bulacan. Juan de Borja, J.

Syllabi Class : Actions|Corporation law|Venue|Actions|Class suit

Syllabi:
1. Actions; Venue; Venue of action is not left to caprice of plaintiff who must follow the rules laid down in
the Rules of Court.-
The venue of actions in the Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules
of Court. The laying of venue is not left to the caprice of plaintiff, but must be in accordance with the
aforesaid provision of the rules.
2. Actions; Venue; The mere fact that the Secretary of Justice approved the transfer of a case to another
court branch does not divest the court originally taking cognizance of the case of its jurisdiction or change
the venue of action.-
The mere fact that a request for the transfer of a case to another branch of the same court has been
approved by the Secretary of Justice does not divest the court originally taking cognizance thereof of its
jurisdiction, much less does it change the venue of the action.
3. Corporation law; Actions; Absent any showing of interest a corporation has no personality to bring
an action to recover property belonging to its members or stockholders in their personal capacities.-
It has not been claimed that the members have assigned or transferred whatever rights they may have on
the land in question to the plaintiff-corporation. Absent any showing of interest, therefore, a corporation,
like plaintiff-appellant herein, has no personality to bring an action for and in behalf of its stockholders or
members for the purpose of recovering property which belongs to said stockholders or members in their
personal capacities.
4. Corporation law; Actions; Class suit;-
5. Corporation law; Actions; Class suit; A class suit does not lie in actions for recovery of property
portions of which are being claimed by several persons.-
A class suit does not lie in actions for the recovery of property where several persons claim ownership of
their respective portions of the property, as each one could allege and prove his respective right in a
different way for each portion of the land so that they cannot all be held to have identical title through
acquisitive prescription.

Division: SECOND DIVISION

Docket Number: No. L-31061

Counsel: Hill & Associates Law Offices, Araneta, Mendoza & Papa, Carlos, Madarang, Carballo &
Valdez, Leopoldo M. Abellera, Arsenio J. Magpale, Raul G. Bernardo, Office of the Government Corporate
Counsel, Candido G. del Rosario

Ponente: ANTONIO

Dispositive Portion:
ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.

Sulo ng Bayan vs. Araneta

[GR L-31061, 17 August 1976]
Second Division, Antonio (J): 4 concur

Facts:

On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance of
Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against Gregorio Araneta Inc. (GAI), Paradise Farms
Inc., National Waterworks & Sewerage Authority (NAWASA), Hacienda Caretas Inc., and the Register of
Deeds of Bulacan to recover the ownership and possession of a large tract of land in San Jose del Monte,
Bulacan, containing an area of 27,982,250 sq. ms., more or less, registered under the Torrens System in
the name of GAI, et. al.'s predecessors-in-interest (who are members of the corporation). On 2
September 1966, GAI filed a motion to dismiss the amended complaint on the grounds that (1) the
complaint states no cause of action; and (2) the cause of action, if any, is barred by prescription and
laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the same
grounds. NAWASA did not file any motion to dismiss. However, it pleaded in its answer as special and
affirmative defenses lack of cause of action by Sulo ng Bayan Inc. and the barring of such action by
prescription and laches. On 24 January 1967, the trial court issued an Order dismissing the (amended)
complaint. On 14 February 1967, Sulo ng Bayan filed a motion to reconsider the Order of dismissal,
arguing among others that the complaint states a sufficient cause of action because the subject matter of
the controversy in one of common interest to the members of the corporation who are so numerous that
the present complaint should be treated as a class suit. The motion was denied by the trial court in its
Order dated 22 February 1967.
Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, the Court of Appeals, upon
finding that no question of fact was involved in the appeal but only questions of law and jurisdiction,
certified the case to the Supreme Court for resolution of the legal issues involved in the controversy.

Issue [1]: Whether the corporation (non-stock) may institute an action in behalf of its individual members
for the recovery of certain parcels of land allegedly owned by said members, among others.

Held [1]: It is a doctrine well-established and obtains both at law and in equity that a corporation is a
distinct legal entity to be considered as separate and apart from the individual stockholders or members
who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders
or members. The property of the corporation is its property and not that of the stockholders, as owners,
although they have equities in it. Properties registered in the name of the corporation are owned by it as
an entity separate and distinct from its members. Conversely, a corporation ordinarily has no interest in
the individual property of its stockholders unless transferred to the corporation, "even in the case of a
one-man corporation." The mere fact that one is president of a corporation does not render the property
which he owns or possesses the property of the corporation, since the president, as individual, and the
corporation are separate similarities. Similarly, stockholders in a corporation engaged in buying and
dealing in real estate whose certificates of stock entitled the holder thereof to an allotment in the
distribution of the land of the corporation upon surrender of their stock certificates were considered not to
have such legal or equitable title or interest in the land, as would support a suit for title, especially against
parties other than the corporation. It must be noted, however, that the juridical personality of the
corporation, as separate and distinct from the persons composing it, is but a legal fiction introduced for
the purpose of convenience and to subserve the ends of justice. This separate personality of the
corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a
cloak or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. It has
not been claimed that the members have assigned or transferred whatever rights they may have on the
land in question to the corporation. Absent any showing of interest, therefore, a corporation, has no
personality to bring an action for and in behalf of its stockholders or members for the purpose of
recovering property which belongs to said stockholders or members in their personal capacities.

Issue [2]: Whether the complaint filed by the corporation in behalf of its members may be treated as a
class suit

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

302 SCRA 315 Business Organization Corporation Law Piercing

the Veil of Corporate Fiction
Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In 1989, she entered into
an agreement with Jaime Bravo for the latter to draft a development and architectural design for
the said property. The contract price was P450,000.00. Posadas gave a down payment of
P25,000.00. Later, Posadas assigned her property to Luxuria Homes, Inc. One of the witnesses to
the deed of assignment and articles of incorporation was Jaime Bravo.

In 1992, Bravo finished the architectural design so he proposed that he and his company manage
the development of the property. But Posadas turned down the proposal and thereafter the
business relationship between the two went sour. Bravo then demanded Posadas to pay them the
balance of their agreement as regards the architectural design (P425k). Bravo also demanded
payment for some other expenses and fees he incurred i.e., negotiating and relocating the
informal settlers then occupying the land of Posadas. Posadas refused to make payment. Bravo
then filed a complaint for specific performance against Posadas but he included Luxuria Homes
as a co-defendant as he alleged that Luxuria Homes was a mere conduit of Posadas; that the said
corporation was created in order to defraud Bravo and avoid the payment of debt.

ISSUE: Whether or not Luxuria Homes should be impleaded.

HELD: No. It was Posadas who entered into a contract with Bravo in her personal capacity.
Bravo was not able to prove that Luxuria Homes was a mere conduit of Posadas. Posadas owns
just 33% of Luxuria Homes. Further, when Luxuria Homes was created, Bravo was there as a
witness. So how can he claim that the creation of said corporation was to defraud him. The
eventual transfer of Posadas property to Luxuria was with the full knowledge of Bravo. The
agreement between Posadas and Bravo was entered into even before Luxuria existed hence
Luxuria was never a party thereto. Whatever liability Posadas incurred arising from said
agreement must be borne by her solely and not in solidum with Luxuria. To disregard the
separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.
 This is a corporation law case. A fraud piercing case with an alter-ego issue. No
not the Batman-Bruce Wayne type. And 'fraud piercing' meaning, in order to get
into
the

bottom of it all and

expose
the
corporate fraud the court
decides
to pierce
its veil of corporate

fiction of what it seems to be.

Question: Is
the

DOCTRINE THAT A

CORPORATION IS A LEGAL ENTITY

DISTINCT
AND SEPARATE FROM THE MEMBERS AND STOCKHOLDERS A hard fast rule? Well not
all the time.

It's kinda bit complicated when you read this case. But here's what's its all about. It's all about
FOUR CONTRACTS OF SALE:

1. Villarama PANTRANCO (Conditional Sale - 2 Certificates)

2. CORPORATION Fernando ( 5 Certificates)
3. SHERIFF Ferrer (Public Bidding - 2 Certificates)
4. Ferrer PANTRANCO (Subsequent Sale - 2 Certificates)

Just pay attention to the first one, co'z the crux of this case lies in it. Let me give you an
overview of this case:

Jose Villarama was a bus operator, under the business name of Villa Rey Transit. He operated 32
bus units on various route lines from Pangasinan to Manila, vice-versa, by virtue of 2 certificates
of public convenience granted him by the Public Service Commission (PSC).

Now, he sold the 2 certificates of public convenience to the Pangasinan Transportation Company,
Inc. (PANTRANCO), for P350 grand. PANTRANCO? remember? Fisherman's Mall? (NOW
TAKE NOTE) this is a conditional sale with a stipulated condition 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." This simply means NO COMPETITION WITH BUYER FOR 10
YEARS.

But barely 3 months thereafter, a corporation called VILLA REY TRANSIT INC. (let's call this
'the Corporation' as differentiated from the previous Villa Rey Transit ) was organized with a
capital stock of P500,000.00 where Natividad Villarama (wife of JoseVillarama) was one of the
incorporators other than the brother and sister-in-law of Jose Villarama.

And in less than a month after its registration with the SEC the Corporation, bought 5
certificates of public convenience, 49 buses, tools and equipment from one Valentin Fernando,
for the sum of P249 grand. Wow. So there you go, sold at high bought at low. The guy really
knows what he's doing.

So, the very same day the contract of sale was executed, the parties to the sale immediately
applied with the PSC for approval of the sale coupled with a permit to operate provisionally
while the case is pending. (Q: Why approval of the sale? A: Because public transport involves
public interest therefore the government must come in to regulate)

But before PSC could take final action on said application for approval, however, the Sheriff of
Manila, pursuant to a writ of execution issued by the CFI of Pangasinan, levied on 2 of the 5
certificates of public convenience in favor of Eusebio Ferrer (respondent in this case) against
Valentin Fernando (vendor of 5 certificates). So.. simply, the 2 of 5 certificates sold by Fernando
to the Corporation was under litigation in a pending case which was newly decided and now
executed. (Bummer huh? Too bad for Villarama).
So consequently the Sheriff conducted a public sale for the said 2 certificates of public
convenience. And Ferrer was the highest bidder, therefore a certificate of sale was issued in his
name.

And here's what Ferrer did. He sold the 2 certificates of public convenience to none other than
PANTRANCO.

So.. nagsabay ngayon... the applications for approval of sale, filed before the PSC, by Fernando
and the Corporation, for the supposed 5 certificates and that of Ferrer and Pantranco, for the
subsequent 2 certificate sale, and both were scheduled for a joint hearing.

And here's what irked Villarama. In the meantime during the pendency of the case the PSC
issued an order disposing that before a final resolution on the aforesaid applications,
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, 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.

So the PSC was pro-PANTRANCO and the SC was pro-CORPORATION.

Now to get an upper-hand on this case, the Corporation filed in the CFI of Manila, a complaint
praying for the annulment of the :

1. sheriff's sale of the aforesaid two certificates of public convenience in favor of Ferrer,
2. the subsequent sale thereof by the latter to Pantranco.
3. that all the orders of the PSC relative to the parties' dispute over the said certificates

And BOOM! 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. And PANTRANCO rested it's
defense on the very first contract of sale zeroing in on the 10 year prescriptive period of
competition between vendor and vendee stipulated in the very first conditional sale, assailing the
DISTINCT AND SEPARATE PERSONALITY and therefore LIMITED LIABILITY of the
members and stockholders of the corporation from the corporation it self, since the seller of the 2
certificates in the conditional sale are one and the same with their competitor CORPORATION
(Villa Rey Transit Inc.)
So clearly this is an alter-ego issue. And Villarama committed fraud by creating another company
which is merely a fictional corporation in order to evade the 10 year prescriptive period
stipulated in the conditional sale.

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:

The court answered YES. And therefore PIERCED THE VEIL OF CORPORATE FICTION.

1. Villarama supplied the organization expenses and the assets of the Corporation, where he
himself made use of the money of the Corporation and deposited them to his private accounts.
The Corporation furthermore 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.

2. 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.

3. 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.

4. 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.

5. Hence, the Villa Rey Transit, Inc. is an alter ego of Jose 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.
309 SCRA 72 Business Organization Corporation Law Piercing the Veil of Corporate
Fiction (Upside Down)

Francisco Motors vs. CA, 309 SCRA 72;

In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio Manuel to recover from a
him a sum of money in the amount of P23,000.00+. Said amount was allegedly owed to them by
Manuel for the purchase of a jeep body plus repairs thereto. Manuel filed a counterclaim in the
amount of P50,000.00. In his counterclaim, Manuel alleged that he was the Assistant Legal
Officer for FMC; that the Francisco Family, owners of FMC, engaged his services for the
intestate estate proceedings of one Benita Trinidad; that he was not paid for his legal services;
that he is filing the counterclaim against FMC because said corporation was merely a conduit of
the Francisco Family. The trial court as well as the Court of Appeals granted Manuels
counterclaim on the ground that the legal fees were owed by the incorporators of FMC (an
application of the doctrine of piercing the veil of corporation fiction in a reversed manner).

ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction was properly used
by the Court of Appeals.

HELD: No. In the first place, the doctrine is to be used in disregarding corporate fiction and
making the incorporators liable in appropriate circumstances. In the case at bar, the doctrine is
applied upside down where the corporation is held liable for the personal obligations of the
incorporators such was uncalled for and erroneous. It must be noted that that Atty. Manuels
legal services were secured by the Francisco Family to represent them in the intestate
proceedings over Benita Trinidads estate. The indebtedness was incurred by the Francisco
Family in their separate and personal capacity. These estate proceedings did not involve any
business of FMC. The proper remedy is for Manuel to sue the concerned members of the
Francisco Family in their individual capacity.
Lipat vs. Pacific Banking Corporation [GR 142435, 30 April 2003]

Quisumbing (J): 3 concur

Commercial Law - Corporation Law, 2005 ( 10 )

Narratives (Berne Guerrero)
Facts:
The spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading" (BET), a single
proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged
in the manufacture of garments for domestic and foreign consumption. The Lipats also owned the
"Mystical Fashions" in the United States, which sells goods imported from the Philippines through BET.
Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the Philippines while she was
managing "Mystical Fashions" in the United States. In order to facilitate the convenient operation of BET,
Estelita Lipat executed on 14 December 1978, a special power of attorney appointing Teresita Lipat as her
attorney-in-fact to obtain loans and other credit accommodations from Pacific Banking Corporation
(Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on properties owned or co-
owned by her as security for the obligations to be extended by Pacific Bank including any extension or
renewal thereof. Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to
secure for and in behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting to
P583,854.00 to buy fabrics to be manufactured by BET and exported to "Mystical Fashions" in the United
States. As security therefor, the Lipat spouses, as represented by Teresita, executed a Real Estate
Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property was
likewise made to secure other additional or new loans, etc. On 5 September 1979, BET was incorporated
into a family corporation named Bela's Export Corporation (BEC) in order to facilitate the management of
the business. BEC was engaged in the business of manufacturing and exportation of all kinds of garments
of whatever kind and description and utilized the same machineries and equipment previously used by
BET. Its incorporators and directors included the Lipat spouses who owned a combined 300 shares out of
the 420 shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives and friends of
the Lipats. Estelita Lipat was named president of BEC, while Teresita became the vice-president and
general manager. Eventually, the loan was later restructured in the name of BEC and subsequent loans
were obtained by BEC with the corresponding promissory notes duly executed by Teresita on behalf of
the corporation. A letter of credit was also opened by Pacific Bank in favor of A. O. Knitting
Manufacturing Co., Inc., upon the request of BEC after BEC executed the corresponding trust receipt
therefor. Export bills were also executed in favor of Pacific Bank for additional finances. These
transactions were all secured by the real estate mortgage over the Lipats' property. The promissory notes,
export bills, and trust receipt eventually became due and demandable. Unfortunately, BEC defaulted in its
payments. After receipt of Pacific Bank's demand letters, Estelita Lipat went to the office of the bank's
liquidator and asked for additional time to enable her to personally settle BEC's obligations. The bank
acceded to her request but Estelita failed to fulfill her promise. Consequently, the real estate mortgage was
foreclosed and after compliance with the requirements of the law the mortgaged property was sold at
public auction. On 31 January 1989, a certificate of sale was issued to respondent Eugenio D. Trinidad as
the highest bidder. On 28 November 1989, the spouses Lipat filed before the Quezon City RTC a
complaint for annulment of the real estate mortgage, extrajudicial foreclosure and the certificate of sale
issued over the property against Pacific Bank and Eugenio D. Trinidad. The complaint alleged, among
others, that the promissory notes, trust receipt, and export bills were all ultra vires acts of Teresita as they
were executed without the requisite board resolution of the Board of Directors of BEC. The Lipats also
averred that assuming said acts were valid and binding on BEC, the same were the corporation's sole
obligation, it having a personality distinct and separate from spouses Lipat. It was likewise pointed out
that Teresita's authority to secure a loan from Pacific Bank was specifically limited to Mrs. Lipat's sole
use and benefit and that the real estate mortgage was executed to secure the Lipats' and BET's
P583,854.00 loan only. In their respective answers, Pacific Bank and Trinidad alleged in common that
petitioners Lipat cannot evade payments of the value of the promissory notes, trust receipt, and export
bills with their property because they and the BEC are one and the same, the latter being a family
corporation. Trinidad further claimed that he was a buyer in good faith and for value and that the Lipat
spouses are estopped from denying BEC's existence after holding themselves out as a corporation. After
trial on the merits, the RTC dismissed the complaint. The Lipats timely appealed the RTC decision to the
Court of Appeals in CA-G.R. CV 41536. Said appeal, however, was dismissed by the appellate court for
lack of merit. The Lipats then moved for reconsideration, but this was denied by the appellate court in its
Resolution of 23 February 2000. The Lipat spouses filed the petition for review on certiorari.

Issue:
Whether BEC and BET are separate business entities, and thus the Lipt spouses can isolate themselves
behind the corporate personality of BEC.

Held:
When the corporation is the mere alter ego or business conduit of a person, the separate personality of the
corporation may be disregarded. This is commonly referred to as the "instrumentality rule" or the alter
ego doctrine, which the courts have applied in disregarding the separate juridical personality of
corporations. As held in one case, where one corporation is so organized and controlled and its affairs are
conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate
entity of the 'instrumentality' may be disregarded. The control necessary to invoke the rule is not majority
or even complete stock control but such domination of finances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its
principal. The evidence on record shows BET and BEC are not separate business entities. (1) Estelita and
Alfredo Lipat are the owners and majority shareholders of BET and BEC, respectively; (2) both firms
were managed by their daughter, Teresita; 19 (3) both firms were engaged in the garment business,
supplying products to "Mystical Fashion," a U.S. firm established by Estelita Lipat; (4) both firms held
office in the same building owned by the Lipats; (5) BEC is a family corporation with the Lipats as its
majority stockholders; (6) the business operations of the BEC were so merged with those of Mrs. Lipat
such that they were practically
indistinguishable; (7) the corporate funds were held by Estelita Lipat and the corporation itself had no
visible assets; (8) the board of directors of BEC was composed of the Burgos and Lipat family members;
(9) Estelita had full control over the activities of and decided business matters of the corporation; and that
(10) Estelita Lipat had benefited from the loans secured from Pacific Bank to finance her business abroad
and from the export bills secured by BEC for the account of "Mystical Fashion." It could not have been
coincidental that BET and BEC are so intertwined with each other in terms of ownership, business
purpose, and management. Apparently, BET and BEC are one and the same and the latter is a conduit of
and merely succeeded the former. The spouses' attempt to isolate themselves from and hide behind the
corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the classical
doctrine of piercing the veil of corporate entity seeks to prevent and remedy. BEC is a mere continuation
and successor of BET, and the Lipat spouses cannot evade their obligations in the mortgage contract
secured under the name of BEC on the pretext that it was signed for the benefit and under the name of
BET.

Yao vs. People

Facts:
NBI Agent Ritche Oblanca applied for 2 search warrants with RTC Cavite against petitioners
along with other occupants of MASAGANA compound for allegedly violating the Intellectual
Property rights of Petron and Pilipinas Shell with attached affidavits stating the following:

1) NBI received a letter-complaint from Atty. Bienvenido Somera Jr. in behalf of Petron and
Shell requesting assistance in the investigation and if warranted, prosecution of the
persons/establishment in violation of their Intellectual Property rights.

2) Based on the letter-complaint, Oblanca and Agent Angelo Zarzoso were assigned on the case.

3) Prior to conducting investigations, Oblanca reviewed the trademark registrations issued to

Petron and Shell as well as other documents and evidence obtained when Petron and company
employed an investigative agency by Mr. Bernabe Alajar.

4) MASAGANA Gas Corporation is not authorized to refill and sell and distribute Gasul and
Shellane products. Petitioners are the directors and stockholders of said corporation.

5) Oblanca and Alajar conducted test-buys on 2 occasions, Feb. 13, 2003 and Feb. 27, 2003.
After stating their intent to do business, were allowed inside the MASAGANA refilling plant,
receipts were issued and were assisted in choosing empty Gasul cylinders. In their presence, the
empty cylinders were refilled where Oblanca noticed that there was no valve seal placed on the
cylinders. Oblanca furnished copies of photographs of the delivery trucks in his application for
the search warrant.

RTC issued 2 search warrants for the search and seizure of transaction records, the trucks used in
the delivery of illegally refilled cylinders, machinery and equipment being used or intended to be
used in illegally refilling the cylinders bearing the trademarks of Gasul and Shellane, and Gasul
and Shellane cylinders and any other items bearing their trademark.

Petitioners filed a Motion to Quash on the grounds that there is no probable cause, that Oblanca
and Alajar do not have the authority to apply for search warrant, allegedly committing perjury
when they submitted their sworn statements that they conducted test-buys, that the area was not
specified as the place to be searched must be indicated with particularity and that the search
warrant was general in nature as the items seized were being used in the conduct of lawful
business. Petitioners also filed for a Motion for the Return of the Motor Compressor and the LPG
Refilling Machine as said items were being used in the conduct of lawful business as third-party
claimants. RTC denied both motions holding that the search warrant issued was based on
probable cause considering the testimonies of Oblanca and Alajar, the documentary evidence
presented that MASAGANA was in violation of Petron and Shells intellectual property rights. It
was also ruled that Oblanca and Alajar had personal knowledge since they were the ones who
conducted the search warrant, the search warrant was not general in nature since the are
described was solely being used by MASAGANA and the items to be seized were sufficiently
described with particularity as the same was limited to cylinders bearing the trademarks of Gasul
and Shellane. Denying the motion of MASAGANA for the Return of the equipment as third
party complainant cannot be considered since evidence show that the petitioners are the
stockholders of MASAGANA, conducting their business through the same judicial entity. RTC
added that the ownership of another person or entity of the seized items is not a ground to order
its return, in seizures pursuant to a warrant what is important is that the seized items were being
used or intended to be used as means of committing the offense complained of that by its very
nature, the properties sought to be returned in the instant case appear to be related to and
intended for the illegal activity for which the search warrants were applied for; and that the items
seized are instruments of an offense.

RTC denied petitioners Motion for Reconsideration for lack of compelling cause on July 21,
2003. Pettitioners field for certiorari with CA who affirmed the assailed decision and orders of
RTC on Sept. 30, 2004, finding that grave abuse of discretion was no proven to exist. Thus the
instant petition.

Issues:
1) W/N there was probable cause.
2) W/N Oblanca has the authority to apply for the search warrant.
3) W/N the requirement of giving particular description of the place to be searched was complied
with.
4) W/N the search warrant was general in nature.
5) W/N the complaint was against MASAGANA [to not consider it as third party claimant whose
rights were violated as a result of the seizure]

Ruling:
1.) As provided for by Art. III, Sec. 2 of the Constitution and Rule 126 of the Revised Rules on
Criminal Procedure regarding requisites of issuing search warrants. According to these
provisions, a search warrant can only be issued upon a finding of probable cause. The facts and
circumstances referred to pertain to facts and information personally known to the applicant and
the witness he may present. As provided by Sec. 155 of RA 8293, mere unauthorized use of a
container bearing a registered trademark in connection with the sale, distribution or advertising
of goods or services which is likely to cause confusion, mistake or deception among the
buyers/consumers can be considered as trademark infringement. Oblanca in his sworn affidavits
stated that in reviewing the trademark registrations issued by Philippine Intellectual Property
Office to Petron and Pilipinas Shell, he confirmed that MASAGANA is not authorized to sell,
use, refill or distribute Gasul and Shellane LPG cylinders. Aside from the documentary evidence
Oblanca submitted, both him and Alajar had personal knowledge, stating in their affidavits that
they used different names during the test-buys to avoid suspicion and personally witnessed the
refilling, of cylinders bearing the marks Gasul and Shellane inside the plant and the deliveries of
these refilled containers to some outlets using mini-trucks. Such facts and circumstances
establish a sufficient probable cause. As the term implies, probable cause is concerned with
probability, not absolute or even moral certainty. The standards of judgment are those of a
reasonably prudent man, not the exacting calibrations of a judge after a full blown trial. Using
different names do not negate the personal knowledge that Oblanca and Alajar have since it is
the common practice of officers of the law such as NBI agents during covert investigations to use
another name to conceal their true identities. Oblanca having reviewed the trademark
registrations issued to Petron ans Shell and Alajar, a private investigator employed by both
[Petron and Shell] to verify the reports that MASAGANA is involved in the illegal refilling,
selling and distribution of cylinders bearing their trademarks cannot be said incompetent to
testify on the trademarks infringed by the petitioners. As provided by Section 5 of the Revised
Rules on Criminal Procedure, the searching questions propounded to the applicant and the
witnesses depend largely on the discretion of the judge. Reviewing the Transcript of
Stenographic Notes of the preliminary examination, it was found that the questions of Judge
Sadang to be sufficiently probing, not at all superficial and perfunctory. The reviewing court can
overturn such findings only upon proof that the judge disregarded the facts before him or ignored
the clear dictates of reason.

2.) Oblanca s authority to apply for the search warrant is clearly discussed in his affidavit. It can
also be presumed that Oblanca, as an NBI agent, is a public officer who had regularly performed
his official duty. He would not have initiated an investigation on MASAGANA without a proper
complaint.

3.) The long standing rule is that a description of the place to be searched is sufficient if the
officer with the warrant can, with reasonable effort, ascertain and identify the place intended and
distinguish it from other places in the community. Any designation or description known to the
locality that points out the place to the exclusion of all others, and on inquiry leads the officers
unerringly to it, satisfies the constitutional requirement.

4.) A search warrant may be said to particularly describe the things to be seized when the
description therein is as specific as the circumstances will ordinarily allow; or when the
description expresses a conclusion of fact not of law by which the warrant officer may be guided
in making the search and seizure; or when the things described are limited to those which bear
direct relation to the offense for which the warrant is being issued. The law does not require that
the things to be seized must be described in precise and minute details as to leave no room for
doubt on the part of the searching authorities; otherwise it would be virtually impossible for the
applicants to obtain a search warrant as they would not know exactly what kind of things they
are looking for. Once described, however, the articles subject of the search and seizure need not
be so invariant as to require absolute concordance, in our view, between those seized and those
described in the warrant. Substantial similarity of those articles described as a class or specie
would suffice. The items to be seized under the search warrants in question were sufficiently
described with particularity. Additionally, since the described items are clearly limited only to
those which bear direct relation to the offense, i.e., violation of section 155 of Republic Act No.
8293, for which the warrant was issued, the requirement of particularity of description is
satisfied.

5.) A fundamental principle of corporation law is that a corporation is a separate and distinct
entity from its stockholders, directors, or officers 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, or in the case of two corporations merge them into one.
Petitioners are directors and officers of MASAGANA, using the entity to violate the intellectual
property right of Petron and Shell and so they should be considered one and the same for liability
purposes. The motor compressor and the LPG refilling machine were the corpus delicti or the
evidence of the commission of the trademark infringement, thus RTC denying the return of said
items was to prevent MASAGANA/petitioners from using it again in trademark infringement.
Petitioner relying on Section 20 of AM No 02-1-06 SC is not tenable because it is not applicable
in the present case as it governs only searches and seizure in civil actions whereas this case is for
criminal violation of RA 8293.

RA 8293 Intellectual Property Code of the Philippines

Section 155. Remedies; Infringement. - Any person who shall, without the consent of the owner
of the registered mark:

155.1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation of a

registered mark or the same container or a dominant feature thereof in connection with the sale,
offering for sale, distribution, advertising of any goods or services including other preparatory
steps necessary to carry out the sale of any goods or services on or in connection with which
such use is likely to cause confusion, or to cause mistake, or to deceive; or
155.2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature
thereof and apply such reproduction, counterfeit, copy or colorable imitation to labels, signs,
prints, packages, wrappers, receptacles or advertisements intended to be used in commerce upon
or in connection with the sale, offering for sale, distribution, or advertising of goods or services
on or in connection with which such use is likely to cause confusion, or to cause mistake, or to
deceive, shall be liable in a civil action for infringement by the registrant for the remedies
hereinafter set forth: Provided, That the infringement takes place at the moment any of the acts
stated in Subsection 155.1 or this subsection are committed regardless of whether there is actual
sale of goods or services using the infringing material. (Sec. 22, R.A. No 166a)

Section 170. Penalties. - Independent of the civil and administrative sanctions imposed by law, a
criminal penalty of imprisonment from two (2) years to five (5) years and a fine ranging from
Fifty thousand pesos (P50,000) to Two hundred thousand pesos(P200,000), shall be imposed on
any person who is found guilty of committing any of the acts mentioned in Section 155, Section
168 and Subsection 169.1. (Arts. 188 and 189, Revised Penal Code)

Article III, Section 2 of the Constitution:

Section 2. The right of the people to be secure in their persons, houses, papers, and effects
against unreasonable searches and seizures of whatever nature and for any purpose shall be
inviolable, and no search warrant or warrant of arrest shall issue except upon probable cause to
be determined personally by the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly describing the place to be
searched and the persons or things to be seized. (emphasis supplied).

Section 4 and 5 of Rule 126 of the Revised Rules on Criminal Procedure:

SEC. 4. Requisites for issuing search warrant. A search warrant shall not issue except upon
probable cause in connection with one specific offense to be determined personally by the judge
after examination under oath or affirmation of the complainant and the witnesses he may
produce, and particularly describing the place to be searched and the things to be seized which
may be anywhere in the Philippines.

SEC. 5. Examination of complainant; record.- The judge must, before issuing the warrant,
personally examine in the form of searching questions and answers, in writing under oath, the
complainant and the witnesses he may produce on facts personally known to them and attach to
the record their sworn statements, together with the affidavits submitted.

A.M. No. 02-1-06-SC - RULE ON SEARCH AND SEIZURE IN CIVIL ACTIONS FOR
INFRINGEMENT
OF INTELLECTUAL PROPERTY RIGHTS
Section 20. Failure to file complaint. - The writ shall also. Upon motion of the expected
adverse party, be set aside and the seized documents and articles returned to the expected adverse
party if no case is filed with the appropriate court or authority within thirty-one (31) calendar
days from the date of issuance of the writ.

Probable cause for search warrant means such facts and circumstances which would lead a
reasonably discreet and prudent man to believe that an offense has been committed and that the
objects sought in connection with the offense are in the place to be searched.

> Probable cause is the existence of such facts and circumstances as would excite the belief in a
reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person
charged was guilty of the crime for which he was prosecuted
> Based on the evidence that would be adduced by the parties Doctrine of Piercing the Veil of
Corporate Entity Requires the court to see through the protective shroud which exempts its
stockholders from liabilities that they ordinarily would be subject to, or distinguishes a
corporation from a seemingly separate one, were it not for the existing corporate fiction (Lim vs
CA, 323 SCRA 102)
Extent: The application of the doctrine to a particular case does not deny the corporation of legal
personality for any and all purposes, but only for the particular transaction or instance for which
the doctrine was applied (Koppel v. Yatco 77 Phil. 496)

HALL VS. PICCIO

Ang Mga Kaanib vs. Iglesia (December 12, 2001)

FACTS:
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church
of God in Christ Jesus, the Pillar and Ground of Truth), is a non-stock religious society
or corporation registered in 1936. Sometime in 1976, one Eliseo Soriano and several
other members of respondent corporation disassociated themselves from the latter and
succeeded in registering on March 30, 1977 a new non-stock religious society or
corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.
Respondent corporation filed with the SEC a petition to compel the Iglesia ng Dios Kay
Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name to another
name that is not similar or identical to any name already used by a corporation,
partnership or association registered with the Commission. Petitioner is compelled to
change its corporate name and be barred from using the same or similar name on the
ground that the same causes confusion among their members as well as the public.
SEC rendered a decision ordering petitioner to change its corporate name. The Court of
Appeals rendered the assailed decision affirming the decision of the SEC En Banc.

ISSUE: Whether the court of appeals failed to properly appreciate the scope of the
constitutional guarantee on religious freedom

RULING:
The additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in petitioner's
name are, as correctly observed by the SEC, merely descriptive of and also referring to
the members, or kaanib, of respondent who are likewise residing in the Philippines.
These words can hardly serve as an effective differentiating medium necessary to avoid
confusion or difficulty in distinguishing petitioner from respondent. This is especially so,
since both petitioner and respondent corporations are using the same acronym
H.S.K.; not to mention the fact that both are espousing religious beliefs and operating in
the same place. The fact that there are other non-stock religious societies or
corporations using the names Church of the Living God, Inc., Church of God Jesus
Christ the Son of God the Head, Church of God in Christ & By the Holy Spirit, and other
similar names, is of no consequence. It does not authorize the use by petitioner of the
essential and distinguishing feature of respondent's registered and protected corporate
name. Ordering petitioner to change its corporate name is not a violation of its
constitutionally guaranteed right to religious freedom. In so doing, the SEC merely
compelled petitioner to abide by one of the SEC guidelines in the approval of
partnership and corporate names, namely its undertaking to manifest its willingness to
change its corporate name in the event another person, firm, or entity has acquired a
prior right to the use of the said firm name or one deceptively or confusingly similar to it.
The instant petition for review is DENIED. The appealed decision of the Court of
Appeals is AFFIRMED in toto.

Gamboa v. Teves etal., GR No. 176579, October 9, 2012

Facts:

The issue started when petitioner Gamboa questioned the indirect sale of shares
involving almost 12 million shares of the Philippine Long Distance Telephone Company
(PLDT) owned by PTIC to First Pacific. Thus, First Pacifics common shareholdings in
PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common
shareholdings of foreigners in PLDT to about 81.47%. The petitioner contends that it
violates the Constitutional provision on filipinazation of public utility, stated in Section 11,
Article XII of the 1987 Philippine Constitution, which limits foreign ownership of the
capital of a public utility to not more than 40%. Then, in 2011, the court ruled the case in
favor of the petitioner, hence this new case, resolving the motion for reconsideration for
the 2011 decision filed by the respondents.

Issue: Whether or not the Court made an erroneous interpretation of the term capital in
its 2011 decision?

Held/Reason:

The Court said that the Constitution is clear in expressing its State policy of developing
an economy effectively controlled by Filipinos. Asserting the ideals that our
Constitutions Preamble want to achieve, that is to conserve and develop our
patrimony , hence, the State should fortify a Filipino-controlled economy. In the 2011
decision, the Court finds no wrong in the construction of the term capital which refers to
the shares with voting rights, as well as with full beneficial ownership (Art. 12, sec. 10)
which implies that the right to vote in the election of directors, coupled with benefits, is
tantamount to an effective control. Therefore, the Courts interpretation of the term
capital was not erroneous. Thus, the motion for reconsideration is denied.