Anda di halaman 1dari 12

Pacific Rehouse Corporation v. Court of Appeals, G.R. No.

199687, March restraining order (TRO) seeking the nullification of the RTC Order. The Court
24, 2014. of Appeals reversed the RTC Order and explained that the alter ego theory
cannot be sustained because ownership of a subsidiary by the parent
FACTS company is not enough justification to pierce the veil of corporate fiction.
A complaint was instituted with the Makati City Regional Trial Court (RTC), There must be proof, apart from mere ownership, that Export Bank
Branch 66, against EIB Securities Inc. (E–Securities) for unauthorized sale of exploited or misused the corporate fiction of E–Securities. The existence of
32,180,000 DMCI shares of Pacific Rehouse Corporation, Pacific Concorde interlocking incorporators, directors and officers between the two
Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation, and East corporations is not a conclusive indication that they are one and the same.
Asia Oil Company, Inc. In its October 18, 2005 Resolution, the RTC rendered The records also do not show that Export Bank has complete control over
judgment on the pleadings, directing the E–Securities to return to the the business policies, affairs and/or transactions of E–Securities. It was
petitioners 32,180,000 DMCI shares, as of judicial demand. On the other solely E–Securities that contracted the obligation in furtherance of its
hand, petitioners are directed to reimburse the defendant the amount of legitimate corporate purpose; thus, any fall out must be confined within its
[P]10,942,200.00, representing the buy back price of the 60,790,000 KPP limited liability.
shares of stocks at [P]0.18 per share. The Resolution was ultimately affirmed
by the Supreme Court and attained finality.
Whether or not E-Securities is merely an alter ego of Export Bank so that
When the Writ of Execution was returned unsatisfied, petitioners moved for “piercing the veil of corporate fiction” is proper.
the issuance of an alias writ of execution to hold Export and Industry Bank,
Inc. liable for the judgment obligation as E–Securities is “a wholly–owned RULING
controlled and dominated subsidiary of Export and Industry Bank, Inc., and
is[,] thus[,] a mere alter ego and business conduit of the latter. E–Securities NO. An alter ego exists where one corporation is so organized and
opposed the motion[,] arguing that it has a corporate personality that is controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other. The control necessary to invoke the
separate and distinct from the respondent.
alter ego doctrine is not majority or even complete stock control but such
The RTC eventually concluded that E–Securities is a mere business conduit domination of finances, policies and practices that the controlled
or alter ego of petitioner, the dominant parent corporation, which justifies corporation has, so to speak, no separate mind, will or existence of its own,
piercing of the veil of corporate fiction, and issued an alias writ of summons and is but a conduit for its principal.
directing defendant EIB Securities, Inc., and/or Export and Industry Bank,
Inc., to fully comply therewith. It ratiocinated that being one and the same The Court has laid down a three–pronged control test to establish when the
entity in the eyes of the law, the service of summons upon EIB Securities, alter ego doctrine should be operative:
Inc. (E–Securities) has bestowed jurisdiction over both the parent and Control, not mere majority or complete stock control, but complete
wholly–owned subsidiary. domination, not only of finances but of policy and business practice in
Export and Industry Bank, Inc. (Export Bank) filed before the Court of respect to the transaction attacked so that the corporate entity as to this
Appeals a petition for certiorari with prayer for the issuance of a temporary transaction had at the time no separate mind, will or existence of its own;
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 right; Traders Royal Bank vs. Court of Appeals, 269 SCRA 15(1997)
and FACTS:
The aforesaid control and breach of duty must [have] proximately caused Filriters Guaranty Assurance Corporation (FGAC) is the owner of several
the injury or unjust loss complained of. Central Bank Certificates of Indebtedness (CBCI). These certificates are
actually proof that FGAC has the required reserve investment with the
The absence of any one of these elements prevents ‘piercing the corporate
veil’ in applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are Central Bank to operate as an insurer and to protect third persons from
concerned with reality and not form, with how the corporation operated whatever liabilities FGAC may incur. In 1979, FGAC agreed to assign said
CBCI to Philippine Underwriters Finance Corporation (PUFC). Later, PUFC
and the individual defendant’s relationship to that operation. Hence, all
three elements should concur for the alter ego doctrine to be applicable. sold said CBCI to Traders Royal Bank (TRB). Said sale with TRB comes with a
right to repurchase on a date certain. However, when the day to repurchase
In this case, the alleged control exercised by Export Bank upon its subsidiary arrived, PUFC failed to repurchase said CBCI hence TRB requested the
E–Securities, by itself, does not mean that the controlled corporation is a Central Bank to have said CBCI be registered in TRB’s name. Central Bank
mere instrumentality or a business conduit of the mother company. Even refused as it alleged that the CBCI are not negotiable; that as such, the
control over the financial and operational concerns of a subsidiary company transfer from FGAC to PUFC is not valid; that since it was invalid, PUFC
does not by itself call for disregarding its corporate fiction. There must be a acquired no valid title over the CBCI; that the subsequent transfer from
perpetuation of fraud behind the control or at least a fraudulent or illegal PUFC to TRB is likewise invalid.
purpose behind the control in order to justify piercing the veil of corporate
fiction. Such fraudulent intent is lacking in this case. TRB then filed a petition for mandamus to compel the Central Bank to
register said CBCI in TRB’s name. TRB averred that PUFC is the alter ego of
While the courts have been granted the colossal authority to wield the FGAC; that PUFC owns 90% of FGAC; that the two corporations have
sword which pierces through the veil of corporate fiction, concomitant to identical sets of directors; that payment of said CBCI to PUFC is like a
the exercise of this power, is the responsibility to uphold the doctrine of payment to FGAC hence the sale between PUFC and TRB is valid. In short,
separate entity, when rightly so; as it has for so long encouraged TRB avers that that the veil of corporate fiction, between PUFC and FGAC,
businessmen to enter into economic endeavors fraught with risks and should be pierced because the two corporations allegedly used their
where only a few dared to venture. separate identity to defraud TRD into buying said CBCI.

The decision of the Court of Appeals in favor of Export Bank (reversing the ISSUE:
RTC Order) is affirmed.
Whether or not the principle of piercing the veil of corporate fiction calls for
________________________________________________________ the application in the immediate case

The Supreme Court held that Traders Royal Bank cannot put up the excuse and expansion thereat. The union sough that Acrylic be considered part of
of piercing the veil of corporate entity, as this is merely an equitable the bargaining unit.
remedy, and may be awarded only in cases when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud or defend Their contention is that the articles of incorporation of the two corporation
crime or where a corporation is a mere alter ego or business conduit of a establish that the two entities are engaged in the same kind of business,
person. Piercing the veil of corporate entity requires the court to see which is the manufacture and sale of yarns of various counts and kinds and
through the protective shroud which exempts its stockholders from of other materials of kindred character or nature. Furthermore, they
liabilities that ordinarily, they could be subject to, or distinguishes one emphasize that the two corporations have practically the same
corporation from a seemingly separate one, were it not for the existing incorporators, directors and officers.
corporate fiction. But to do this, the court must be sure that the corporate Also the two corporation have their facilities in the same compound. That
fiction was misused, to such an extent that injustice, fraud, or crime was many of Indophil’s own machineries such as dyeing machines, reeler,
committed upon another, disregarding, thus, his, her, or its rights. It is the broiler, were transferred to and are now being used by the Acrylic plant.
protection of the interests of innocent third persons dealing with the That services of a number of units, departments or sections of private
corporate entity which the law aims to protect by this doctrine. respondents are provided by Acrylic and that the employees of Indophil are
_________________________________________________________ the same persons manning and servicing the units of Acrylic. Both parties
submitted the issue to LA Calica. Calica ruled for Indophil and stated that
Acrylic is not extension of Indophil an hence their CBA does not extend to
the employees of Acrylic.
Issue: WON Acrylic is a separate and distinct entity from Indophil for
G.R. 96490, February 3, 1992 purposes of union representation. WON the operations in Acrylic are an
Facts: extension or expansion of Indophil.

Indophil Union is a legitimate labor organization duly registered with the Held:
DOLE and the exclusive bargaining unit of all rank and file employees of Acrylic is not an alter ego or an adjunct or a business conduit of Indophil
Indophil Textile Mills. On April 1987, the Union and Indophil excecuted a because it has a separate legitimate business purpose. Indophil engages in
CBA effective April 1, 1987 to March 31, 1990. On November 1987, Indophil the manufacture of yarns while Acrylic is to manufacture, buy, sell at
Acrylic was formed and registered with the SEC. In 1998, Acrylic became wholesale basis, barter, import, export and otherwise deal in various kinds
international and hired workers according to its criteria and standards. of yarns. Two corporations cannot be treated as single bargaining unit just
Sometime in July 1989, the workers of Acrylic unionize and a duly certified
because they have related businesses.
CBA was executed. In 1990, the Union claimed that the plant facilities built
and set up by Acyrlic should be considered as an extension or expansion of The Union seeks to pierce the veil of Acrylic alleging that the corporation is a
Indophil pursuant to Sec. 1(c) of Art.1 of the CBA to wit: This agreement device to evade the application of the CBA. However the CA held that said
shall apply to all companies, facilities, and installations and to any extension doctrine is only used on the existence of valid grounds. In the case at bar,
the fact that the business of Indophil and Acrylic are related that sometimes
the employees of Indophil are the same persons manning and providing for separate and apart from the persons composing it namely, Tan Tong and his
auxiliary services to the units of Acrylic, and that the physical plants, offices, family.
and facilities are situated in the same compound. It is the SC’s considered
opinion that these facts are not sufficient to justify the piercing of the However, the concept of separate corporate personality cannot be
corporation veil of Acrylic. Furthermore, the legal entity is disregarded only extended to a point beyond reason and policy when invoked in support of
if sought to hold the officers and stockholders liable. In the instant case, the an end subversive of this policy and will be disregarded by the courts.A
Union does not seek relief from Indophil. subsidiary company which is created merely as an agent for the latter may
sometimes be regarded as identical with the parent corporation especially if
__________________________________________________________ the stockholders or officers of the two corporations are substantially the
same or their systems of operation unified. The facts showed that they had
LA CAMPANA COFFEE FACTORY v KAISAHAN NG MANGGAGAWA one management, one payroll prepared by the same person, laborers were
G.R. L-5677, May 25, 1953 interchangeable, there is only one entity as shown by the signboard ad in
trucks, packages and delivery forms and the same place of business.

The attempt to make the two factories appear as two separate businesses
Facts: Tan Tong since 1932 has been engaged in the buying and selling when in reality they are but one, is but a device to defeat the ends of the
gawgaw under the trade name La Campana Gawgaw Packing. In 1950, Tan law and should not be permitted to prevail.
Tong and members of his family organized the family corporation. La
Campana Coffee Factory with its principal office located in Gawgaw Packing. WHY PIERCE? So that La Campana cannot evade the jurisdiction of CIR since
Prior to said information, Tan Tong entered into a CBA with the labor union La Campana Gawgaw has only 14 employees and only 5 are members of
of La Campana Gawgaw. Later on, his employees formed Kaisahan ng mga Kaisahan.
Manggagawa ng La Campana with an authorization from the DOLE to
become an affiliate of the larger union.
Kaisahan with 66 members presented a demand for higher wages and more
privileges to La Campana Starch and Coffee Factory. The demand was not Petitioner Francisco Motors Corp filed a complaint to recover from
granted and the DOLE certified the issue to the CIR. La Campana filed a respondent spouses Manuel the unpaid balance of the jeepney bought by
motion to dismiss alleging that the action was directed against two different the latter from them. As their answer, respondent spouses interposed a
entities with distinct personalities. This was denied, hence this petition. counterclaim for unpaid legal services by Gregorio Manuel which was not
paid by petitioner corporation’s directors and officers. Respondent Manuel
Issue: W/N the CIR has jurisdiction over the case.
alleges that he represented members of the Francisco family who were
Held: YES. La Compana Gawgaw and La Campana Factory are operating directors and officers of herein petitioner corporation in an intestate estate
under one single management or as one business though with two trade proceeding but even after its termination, his services were not paid. The
names. The coffee factory is a corporation and by legal fiction, an entity trial court ruled in favor of petitioner but also allowed respondent spouses’
counterclaim. CA affirmed.

Whether or not petitioner corporation may be held liable for the liability FACTS:
incurred by its directors and officers in their personal capacity.
May 29, 1996: PNB International Finance Ltd. (PNB-IFL) a subsidiary
Ruling: NO. company of PNB, organized and doing business in Hong Kong, extended a
letter of credit in favor of the Ritratto Group, Inc. (Ritartto) in the amount of
In our view, however, given the facts and circumstances of this case, the US$300K secured by real estate mortgages constituted over 4 parcels of
doctrine of piercing the corporate veil has no relevant application here.
land in Makati City
Respondent court erred in permitting the trial court’s resort to this doctrine.
September 1996: increased successively to US$1,140,000.00
In the case at bar, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed. It November 1996: to US$1,290,000.00
is the petitioner as a corporation which is being ordered to answer for the
personal liability of certain individual directors, officers and incorporators February 1997: US$1,425,000.00
concerned. Hence, it appears to us that the doctrine has been turned upside April 1998: decreased to US$1,421,316.18
down because of its erroneous invocation. Note that according to private
respondent Gregorio Manuel his services were solicited as counsel for Ritratto Group, Inc. made repayments of the loan incurred by remitting
members of the Francisco family to represent them in the intestate those amounts to their loan account with PNB-IFL in Hong Kong.
proceedings over Benita Trinidad’s estate. These estate proceedings did not
April 30, 1998: outstanding amounted to US$1,497,274.70
involve any business of petitioner.
PNB-IFL, through its attorney-in-fact PNB, notified them of the foreclosure
Furthermore, considering the nature of the legal services involved,
of all the real estate mortgages and that the properties subjected
whatever obligation said incorporators, directors and officers of the
corporation had incurred, it was incurred in their personal capacity. When May 25, 1999: Ritratto Group, Inc filed a complaint for injunction with
directors and officers of a corporation are unable to compensate a party for prayer for the issuance of a writ of preliminary injunction and/or temporary
a personal obligation, it is far-fetched to allege that the corporation is restraining order before the RTC. -granted 72-hour TRO
perpetuating fraud or promoting injustice, and be thereby held liable
therefore by piercing its corporate veil. RTC and CA: dismissed motion to dismiss

PNB-IFL, is a wholly owned subsidiary of defendant Philippine National

Bank, the suit against the defendant PNB is a suit against PNB-IFL

Rittratto: entire credit facility is void as it contains stipulations in violation of

the principle of mutuality of contracts

ISSUE: W/N PNB is an alter ego of PNB-IFL

HELD: NO. Petition is granted (g) The subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to or by the parent
PNB is an agent with limited authority and specific duties under a special corporation.
power of attorney incorporated in the real estate mortgage.
(h) In the papers of the parent corporation or in the statements of its
not privy to the loan contracts entered into by PNB-IFL. officers, the subsidiary is described as a department or division of the
mere fact that a corporation owns all of the stocks of another corporation, parent corporation, or its business or financial responsibility is referred to as
taken alone is not sufficient to justify their being treated as one entity. the parent corporation's own.

If used to perform legitimate functions, a subsidiary's separate existence (i) The parent corporation uses the property of the subsidiary as its own.
may be respected, and the liability of the parent corporation as well as the (j) The directors or executives of the subsidiary do not act independently in
subsidiary will be confined to those arising in their respective business. the interest of the subsidiary but take their orders from the parent
general rule the stock ownership alone by one corporation of the stock of corporation.
another does not thereby render the dominant corporation liable for the
(k) The formal legal requirements of the subsidiary are not observed.
torts of the subsidiary unless the separate corporate existence of the
subsidiary is a mere sham, or unless the control of the subsidiary is such Umali vs Court of Appeals
that it is but an instrumentality or adjunct of the dominant corporation.
189 SCRA 529 [GR No. 89561 September 13, 1990]
The Circumstance rendering the subsidiary an instrumentality (common
circumstances) Facts: Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Mur Vda.
de Castillo. The Castillo family are the owners of parcel of land located in
(a) The parent corporation owns all or most of the capital stock of the Lucena City which was given as security for a loan from the development
subsidiary. Bank of the Philippines (DBP) for their failure to pay the amortization,
foreclosure of the said property was about to be initiated. This problem was
(b) The parent and subsidiary corporations have common directors or
made known to Santiago Rivera, who proposed to them the conversion into
subdivision of the four parcels of land adjacent to the mortgaged property
(c) The parent corporation finances the subsidiary. to raise the necessary fund. The idea was accepted by the Castillo family
and to carry out the project, a memorandum of agreement was executed by
(d) The parent corporation subscribes to all the capital stock of the and between Slobec Realty and Development Inc. represented by its
subsidiary or otherwise causes its incorporation. president Santiago Rivera and Castillo family. In this agreement, Santiago
Rivera obliged himself to pay the Castillo family the sum of P70,000
(e) The subsidiary has grossly inadequate capital.
immediately after the execution of the agreement and to pay additional
(f) The parent corporation pays the salaries and other expenses or losses of amount of P40,000 after the property has been converted into a
the subsidiary. subdivision. Rivera, with agreement approached Mr. Modesto Cervantes,
president of defendant Bormaheco and proposed to purchase from
Bormaheco two tractors model D7 and D8 subsequently a sales agreement protect fraud, or defend crime, on when it is made as a shield to confuse the
was executed on December 28, 1970. On January 3, 1971, Slobec, through legitimate issues or where a corporation is the mere alter ego or business
Rivera, executed in favor of Bormaheco a chattel mortgage over the said conduit of a person, or where the corporation is so organized and controlled
equipment as security for the payment of the aforesaid balance of and its affairs are so conducted as to make it merely an instrumentality,
P180,000. As further security of the aforementioned unpaid balance, Slobec agency, conduit or adjunct of another corporation.
obtained from insurance corporation of the Philippines a security bond, with
Insurance Corporation of the Philippines (ICP) as surety and Slobec as In the case at bar, petitioners seek to pierce the veil of corporate entity of
principal, in favor of Bormaheco, as borne out of by Exhibit 8. The aforesaid Bormaheco, ICP and PM parts, alleging that these corporations employed
surety bond was in turn secured by an agreement of counter-guaranty with fraud in causing the foreclosure and subsequent sale of the real properties
real estate mortgage executed by Rivera as President of Slobec and belonging to petitioners while we do not discount the possibility of
Mauricia Mur Vda. de Castillo, Buenaflor Castillo Umali, Bertilla Castillo- existence of fraud in the foreclosure proceeding, neither are we inclined to
Rada, Victoria Castillo, Marietta Castillo and Leovina Castillo Jalbuena as apply the doctrine invoked by petitioners in granting the relief sought. It is
mortgagors and insurance corporation of the Philippines as mortgagee. In our considered opinion that piercing the veil of corporate entity is not the
this agreement, ICP guaranteed the obligation of Slobec with Bormaheco in proper remedy in order that the foreclosure proceeding may be declared a
the amount of P180,000. In giving the bond, ICP required that the Castillos nullity under the circumstances obtaining in the legal case at bar.
mortgage to them the properties in question, namely, four parcels of land The mere fact, therefore, that the business of two or more corporations are
covered by TCT in the name of the aforementioned mortgagors, namely TCT interrelated is not a justification for disregarding their separate
no. 13114, 13115, 13116, and 13117 all of the Register of Deeds of Lucena personalities, absent sufficient showing that the corporate entity was
City. Meanwhile, for violation of the terms and conditions of the counter- purposely used as a shield to defraud creditors and third persons of their
guaranty agreement, the properties of the Castillos were foreclosed by ICP rights.
as the highest bidder with a bid of P285,212, a certificate of sale was issued
by the provincial sheriff of Lucena City and TCT over the subject parcels of Araneta v. De Paterno (1952) Tuason, J.
land were issued.

Issue: Whether or not the foreclosure is proper so as to apply the doctrine

of piercing the veil of corporate entity. FACTS: Paz Tuason de Paterno is the registered owner of certain portions
(approximately 40,703 square meters) of a big block of residential land in
Held: No. Under the doctrine of piercing the veil of corporate entity, when the district of Santa Mesa, Manila. The land was subdivided into city lots
valid grounds therefore exists, the legal fiction that a corporation is an most of which were occupied by lessees who had contracts of lease which
entity with a juridical personality separate and distinct from its members or were to expire on December 31, 1952. A salient stipulation in the contracts
stockholders may be disregarded. In such cases, the corporation will be was that in the event the owner and lessor should decide to sell the
considered as a mere association of persons. The members or stockholders property the lessees were to be given priority over other buyers if they
of the corporation will be considered as the corporation, that is, liability will should desire to buy their leaseholds. Smaller lots were occupied by tenants
attach directly to the officers and stockholders. The doctrine applies when without formal contract. In 1940 and 1941 Paz De Paterno obtained from
the corporate fiction is used to defeat public convenience, justify wrong, Jose Vidal several loans amounting to P90,098 and constituted a first
mortgage on the aforesaid property to secure the debt. In January and April,
1943, she obtained additional loans of P30,000 and P20,000 upon the same
security. In each of these two, the previous contract of mortgage was HELD: Yes. There was an absolute sale between Paterno and Araneta.
renewed and the amounts received were consolidated. In the first novated Exhibit A (Deed of Sale) is valid and enforceable.
contract the time of payment was fixed at two years and in the second and
last at four years. 1943- Paz decided to sell the entire property for P400,000
and entered into negotiations with Gregorio Araneta, Inc. They executed a RATIO: The contemplated execution of an absolute deed of sale was not
contract called "Promesa de Compra y Venta" or Promise to Buy and Sell contingent on the cancellation of Vidal's mortgage therefore, there was no
(Exhibit 1). The contract indicated that subject to the preferred right of the need to settle the mortgage first. The agreement only provided that such
lessees and that of Jose Vidal as mortgagee, Paz De Paterno would sell to deed of absolute sale should be executed upon the determination of the
Gregorio Araneta, Inc. and the latter would buy for the said amount of specific lots to be sold to Araneta. The said lots became definite when the
P400,000 the entire estate under these terms. Letters were sent the lessees tenants option to buy expired.Vidal's mortgage was not an obstacle to the
giving them until August 31, 1943, an option to buy the lots they occupied. sale. An amount had been set aside to take care of it, and the parties, it
Some of the lessees bought their part of the property and were given their would appear, were confident that the suit against the mortgagee would
deeds of conveyance. De Paterno and Araneta executed a deed of absolute succeed. The charge that Araneta was in a rush in the sale of the lands
deed of sale (Exhibit A) over Lots 1, 8-16 and 18 which have an aggregate cannot be gleaned from the facts. The fact that simultaneously with the
area of 14,810.20 square meters with the exclusion of the lots sold to agreement with Araneta, similar deeds were given the lessees who had
tenants and those which were mortgaged to Vidal. A day before the elected to buy their leaseholds, which comprise an area about twice as big
execution of the said deed of absolute sale, a day after the signing of the as the lots described in said agreement, and the further fact that the sale to
agreement to buy and sell between De Paterno and Araneta, De Paterno the lessees have never been questioned and the proceeds thereof have
had offered to Vidal the check for P143,150 to settle her mortgage been received by the defendant, should add to dispel any suspicion of bad
obligation. Vidal refused to receive that check or to cancel the mortgage, faith on the part of the plaintiff. If anyone was in a hurry it could have been
contending that by the separate agreement before, payment of mortgage the defendant. De Paterno was pressed for cash and that the payment of
was not to be effected totally or partially before the end of four years from the mortgage was only an incident, or a necessary means to effectuate the
April, 1943. This prompted De Paterno to file an action against Vidal but this sale. She could have settled her mortgage obligation merely by selling a
never came to trial and the record and the checks were destroyed during portion of her estate. Araneta and de Paterno were at perfect liberty to
the war operations. Araneta then, filed an action against De Paterno to make a new agreement different from or even contrary to the provisions of
compel the latter to deliver to him a clear title to the lots and a deed of the promise to buy and sell. The validity of the subsequent sale must of
cancellation of Vidals mortgage. Vidal filed a cross-claim against De Paterno necessity depend on what it said and not on the provisions of the promise
for the foreclosure of the mortgage. to buy and sell.

1st ISSUE: Whether or not there had been an absolute deed of sale between 2nd ISSUE: Whether or not De Paterno can claim fraud as defense.
Araneta and De Paterno
Held: No. Ratio: De Paterno alleges that her attorneys educated whohad been managing her affairs, she had an able attorney who
was assisting her in the suit against Vidal, a case which wasinstituted
Held: No. precisely to carry into effect Exhibit A or Exhibit 1, and a son who is leading
Ratio: De Paterno alleges that her attorneys, Attorneys Salvador Araneta citizen and a business-man andknew the English language very well if she
and J. Antonio Araneta who had drawn ExhibitA (deed of sale), did not did not. If the defendant signed Exhibit A without being apprised of its
inform her or had misinformed her about the contents of the deed and that import,it can hardly be conceived that she did not have her attorney or her
it was in English,that’s why she did not read it. She would not have affixed son read it to her afterward. She denied the existenceof Exhibit A at first
her signature in a one-sided contract. She alleges that thediscrepancies in and afterwards, alleged fraud in its execution. It would look as if she
Exhibit 1 and Exhibit A are evidence of fraud. SC: there were two documents gambled on the chance that nosigned copy of the deed had been saved
involved in the case. One was the Promise to Buy and Sell (Exhibit 1) and the from the war.
AbsoluteDeed of Sale (Exhibit A). The first provision which was not in Exhibit 3rd ISSUE: Whether or not there was an agent-principal relationship
1 but was in Exhibit A:The provision that 10 per cent of the purchase price
between Jose Araneta (president of GregorioAraneta, Inc.) and de Paterno
should be paid only after Vidal's mortgage should have beencancelled is not
onerous or unusual. The stipulation that a vendee should withhold a Held: No. Jose Araneta was not an agent within the meaning of article 1459.
relatively small portion of thepurchase price before all the impediments to He was nothing more than a go-between ormiddleman between the
the final consummation of the sale had been removed is valid. The defendant and the purchaser, bringing them together to make the contract
tenantswho had bought their lots had been granted the privilege to deduct themselves.
as much as 40 per cent of the stipulated price pendingdischarge of the
mortgage, although his percentage was later reduced to 10 as in the case of Exhibit 1 is decisive of the defendant's assertion. In paragraph 8 of Exhibit 1
Gregorio Araneta, Inc. It hasalso been that the validity of the sales to the Jose Araneta was referred to asdefendant's agent or broker "who acts in
this transaction" and who as such was to receive a commission of 5 per
tenants has not been contested; that these sales embraced in the
aggregate24,245.40 square meters for P260,916.68 as compared to centalthough the commission was to be charged to the purchasers. In in
14,811.20 square meters sold to Gregorio Araneta, Inc. forP139,083.32. The paragraph 13 the defendant promised, in considerationof Jose Araneta's
second stipulation in Exhibit A which had no counterpart in Exhibit 1 was services rendered to her, to assign to him all her right, title and interest to
that by which Gregorio Araneta Inc. wouldhold Paz Tuason liable for the lost and in certain lots notembraced in the sales to Gregorio Araneta, Inc. or the
checks and which, as stated, appeared to be at the root of the whole tenants. However, there is no denying that Gregorio Araneta, Inc. entered
into the contract for itself and for its benefit as acorporation. There is no
trouble between theplaintiff and the defendant. “In view of the foregoing
liquidation, the Vendor acknowledges fully and unconditionally, pretense, nor is there reason to suppose, that if Paz Tuason had known Jose
havingreceived the sum of P125,174.99 of the present legal currency and Araneta to GregorioAraneta, Inc's president, which she knew, she would not
hereby expressly declares that she will not holdthe Vendee responsible for have gone ahead with the deal. . From her point of view and fromthe point
any loss that she might suffer due to the fact that two of the checks paid to of view of public interest, it would have made no difference, except for the
her by theVendee were used in favor of Jose Vidal and the latter has, up to brokerage fee, whether GregorioAraneta, Inc. or Jose Araneta was the
the present time, not yet collected the same.”SC: It is difficult to believe purchaser. Assuming that Jose Araneta and Gregorio Araneta, Inc. were
that the defendant was deceived into signing Exhibit A. Intelligent and well identical and that the acts of one where the acts ofthe other, the relation
between the defendant and Jose Araneta did not fall within the purview of
article 1459 of theSpanish Civil Code. In Article 1709, an agent is one who lawlibraryPaz Tuason shall pay Jose Vidal the amount of the mortgage and
accepts another's representation to perform in his name certainacts of the stipulated interest up to October20,1943, plus the penalty of P30,000,
more or less transcendency. Another interpretation says that the agent's provided that the loans obtained during the Japanese occupation shall
incapacity to buy his principal's propertyrests in the fact that the agent and bereduced according to the Ballantyne scale of payment, and provided that
the principal form one juridicial person. To come under the prohibition, the the date basis of the computation as tothe penalty is the date of the filing of
agent mustbe in a fiduciary with his principal. Jose Araneta was not the suit against Vidal.chanroblesvirtualawlibrary chanrobles virtual
authorized to make a binding contract for the defendant. He was not to sell lawlibraryPaz Tuason shall pay the amount that shall have been found due
and he did notsell the defendant's property. He was to look for a buyer and under the contracts of mortgage within90 days from the time the court's
the owner herself was to make, and did make, the sale.Furthermore, the judgment upon the liquidation shall have become final, otherwise the
fact that Attys. Salvador and Araneta and J. Antonio Araneta drew Exhibits 1 propertymortgaged shall be ordered sold provided by law.
and A, undertookto write the letters to the tenants and the deeds of sale to
the latter, and charged the defendant the corresponding fees forall this Vidal's mortgage is superior to the purchaser's right under Exhibit A, which
work, did not themselves prove that they were the seller's attorneys. These is hereby declared subject tosaid mortgage. Should Gregorio Araneta, Inc.
letters and documents were wrapped upwith the contemplated sale in be forced to pay the mortgage, it will be subrogated to the right ofthe
which Gregorio Araneta, Inc. was interested, and could very well have been mortgagee.chanroblesvirtualawlibrary chanrobles virtual law libraryThis
written byAttorneys Araneta and Araneta in furtherance of Gregorio case will be remanded to the court of origin with instruction to hold a
Araneta's own interest. Granting that Attorney Araneta andAraneta were rehearing for the purpose ofliquidation as herein provided. The court also
attorneys for the defendant, yet they were not forbidden to buy the shall hear and decide all other controversies relative to theliquidation
property in question. Attorneys are onlyprohibited from buying their client's which may have been overlooked at this decision, in a manner not
property which is the subject of litigation. (Art. 1459, No. 5, Spanish Civil inconsistent with the above findings and judgement.
Code.)The questioned sale was effected before the subject thereof became
involved in the present action. There was already at the time the time of the
sale a litigation over this property between the defendant and Vidal, but 211 SCRA 470 (1992)
Attys. Salvador Araneta and J.Antonio Araneta were not her attorneys in
that case. (the other issues are not relevant to agency). The Court dispensed FACTS OF THE CASE
with all the issues as follows:The contract of sale Exhibit A was valid and
When Eugenia V. Roxas died, her heirs formed a corporation under the
enforceable, but the loss of the checks for P143,150 andP12,932.61 and
name and style of Heirs of Eugenia V. Roxas, Inc. using her estate as the
invalidation of the corresponding deposit is to be borne by the buyer.
capital of the corporation, the private respondent herein. It was primarily
Gregorio Araneta, Inc. thevalue of these checks as well as the several
engaged in agriculture business, however it amended its purpose to enable
payments made by Paz Tuason to Gregorio Araneta, Inc. shall bededucted
it to engage in resort and restaurant business. Petitioners are stockholders
from the sum of P190,000 which the buyer advanced to the seller on the
of the corporation and two of the heirs of Eugenia. By tolerance, they were
execution of Exhibit1.chanroblesvirtualawlibrary chanrobles virtual law
allowed to occupy some of the properties of the corporation as their
libraryThe buyer shall be entitled to the rents on the land which was the
residence. However, the board of directors of the corporation passed a
subject of the sale, rents which mayhave been collected by Paz Tuason after
the date of the sale.chanroblesvirtualawlibrary chanrobles virtual
resolution evicting the petitioners from the property of the corporation from its members. While shares of stocks are personal property, they do not
because the same will be needed for expansion. represent property of the corporation. A share of stock only typifies an
aliquot part of the corporation’s property, or the right to share in its
At the RTC, private respondent presented its evidence averring that the proceeds to that extent when distributed according to law and equity, but
subject premises are owned by the corporation. Petitioners failed to present its holder is not the owner of any part of the capital of the corporation. Nor
their evidence due to alleged negligence of their counsel. RTC handed a is he entitled to the possession of any definite portion of its property or
decision in favor of private respondent. assets. The holder is not a co-owner or a tenant in common of the corporate
Petitioners appealed to the Court of Appeals but the latter denied the property.”
petition and affirmed the ruling of the RTC. Hence, they appealed to the
Supreme Court. In their appeal, petitioners argues that the CA made a
mistake in upholding the decision of the RTC, and that their occupancy of SIAIN ENTERPRISES, INC. v. F.F. CRUZ & CO., INC.
the subject premises should be respected because they own an aliquot part
of the corporation as stockholders, and that the veil of corporate fiction 500 SCRA 406 (2006)
must be pierced by virtue thereof.
That the foreshore area had been reclaimed does not remove it from its
ISSUE classification of foreshore area subject to the preferential right to lease of
the littoral owner.
1. Whether petitioner’s contention were correct as regards the piercing of
the corporate veil. Western Visayas Industrial Corporation (WESVICO) filed a foreshore lease
application over the foreshore land adjacent to certain lots registered in its
2. Whether petitioners were correct in their contention that they should be name. It eventually withdrew the application and filed a petition for
respected as regards their occupancy since they own an aliquot part of the registration over the same foreshore land with the then Court of First
corporation. Instance of Iloilo. The case was, however, archived as WESVICO‘s
representative could no longer be contacted, and later on, WESVICO has
ceased operations.
1.Petitioner’s contention to pierce the veil of corporate fiction is untenable.
As aptly held by the court: “..The separate personality of a corporation may
ONLY be disregarded when the corporation is used as a cloak or cover for F.F. Cruz & Co. (F.F. Cruz) filed with the Bureau of Lands, Iloilo City a
fraud or illegality, or to work injustice, or when necessary to achieve equity foreshore lease application over a foreshore land, a portion of which is
or when necessary for the protection of creditors.” adjacent to the lot previously occupied by WESVICO. Sian Enterprises Inc.
(SIAIN) purchased the properties previously owned by WESVICO from the
2. As regards petitioners contention that they should be respected on their
Development Bank of the Philippines. It subsequently filed a foreshore lease
occupancy by virtue of an aliquot part they own on the corporation as
application over the foreshore land adjacent to the properties it bought
stockholders, it also fails to hold water. The court held that “properties
from DBP.
owned by a corporation are owned by it as an entity separate and distinct
Upon learning that 130 linear meters of the foreshore land subject of F.F. Contrary to the ruling of the Office of the President, as affirmed by the
Cruz’s foreshore lease application overlapped that covered by its foreshore appellate court, littoral owner WESVICO cannot be considered to have
lease application, SIAIN filed a protest 8 alleging that it being the owner of waived or abandoned its preferential right to lease the disputed area when
the property adjoining the overlapping area, it should be given preference in it subsequently filed an application for registration thereover. For being a
its lease. part of the public domain, ownership of the area could not be acquired by
WESVICO. Its preferential right remained, however. Its move to have the
F.F. Cruz, argued that SIAIN must not be given preferential right since the contested land titled in its name, albeit a faux pas, in fact more than proves
area in dispute is classified as ―reclaimed‖ and that the ownership was not
its interest to utilize it.
by means of accretion. This argument has been sustained by the Land
Management Bureau. As correctly argued by SIAIN, were WESVICO‘s petition for registration
which, as stated earlier, was archived by the trial court, pursued but
Upon appeal to the DENR Secretary, SIAIN was upheld, declaring that there eventually denied, WESVICO would not have been barred from filing anew a
was no basis to declare the area as ―reclaimed‖. F.F. Cruz however foreshore lease application. Parenthetically, the petition for registration of
appealed to the Office of the President which overturned the decision of the WESVICO was archived not on account of lack of interest but because it
DENR Secretary and found that the area is reclaimed. On appeal, the Court
ceased operations due to financial reasons.
of Appeals affirmed the decision. Hence, the present petition. SIAIN
contends that the evidence overwhelmingly proves that the disputed area is
foreshore land and not reclaimed land which thus entitles it preferential
rights over the


Whether the disputed land is a ―foreshore‖ or ―reclaimed‖ area


That the foreshore area had been reclaimed does not remove it from its
classification of foreshore area subject to the preferential right to lease of
the littoral owner.

It bears noting that it was not the reclamation that brought the disputed
foreshore area into existence. Such foreshore area existed even before F.F.
Cruz undertook its reclamation. It was ―formed by accretions or alluvial
deposits due to the action of the sea.‖ Following Santulan, the littoral owner
has preferential right to lease the same.