CASES OUTLINE 2 in the property of the corporation, it does not vest the owner thereof with any legal
in the property of the corporation, it does not vest the owner thereof with any legal right or title to
IV. DOCTRINE OF CORPORATE ENTITY
 A corporation has a personality separate and distinct from that of its stockholders and
members and is not affected by the personal rights, obligations, and transactions of the
latter.
 Since corporate property is owned by the corporation as a juridical person, the stockholders
have no claim on it as owners, but have merely an expectancy or inchoate right to the same
should any of it remain upon dissolution of the corporation after all corporate creditors have
been paid.
 Such right is limited only to their equity interest (doctrine of limited liability). Although
stockholder’s interest in the corp may be attached by his personal creditor, corp. property
cannot be used to satisfy his claim
 GENERAL RULE: Separate personality is vested to a corporate entity when it is issued the
certificate of incorporation by the SEC.
 The exceptions are:
a. de facto corporation
b. corporation by estoppel
 As a separate juridical personality, a corporation can be held liable for torts committed by
its officers for corporate purpose
 Corporate entities are entitled to the following constitutional rights: due process, equal
protection, and protection against unreasonable searches and seizures.
 However, a corp is not entitled to the privilege against self-incrimination
 Juridical personality of the corporation ends when liquidation ends (payment of debts and
distribution of assets) and inchoate rights or expectancies of stockholders are realized. Until
such conveyance is made, title over the assets remains with the corporation.
 **Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when—
1. He assents
(a) to a patently unlawful act of the corporation, or
(b) for bad faith or gross negligence in directing its affairs, or
(c) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does
not forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate action.
A. Doctrine/ Effects:
1. Magsaysay-Labrador v. CA. (1989) 180 SCRA 266
Corporations; A share of stock in a corporation does not vest the owner thereof with any legal right
or title to any of the property.—While a share of stock represents a proportionate or aliquot interest
any of the property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.
That movant’s interest which may be protected in a separate proceeding is a factor to be considered
in allowing or disallowing a motion for intervention.—We cannot give credit to such averment. As
earlier stated, that the movant’s interest may be protected in a separate proceeding is a factor to be
considered in allowing or disallowing a motion for intervention.
Transfer of shares in a corporation must be registered in the books of the corporation to affect third
persons.—The factual findings of the trial court are clear on this point. The petitioners cannot claim
the right to intervene on the strength of the transfer of shares allegedly executed by the late Senator.
The corporation did not keep books and records. Perforce, no transfer was ever recorded, much less
effected as to prejudice third parties. The transfer must be registered in the books of the corporation
to affect third persons. The law on corporations is explicit. Section 63 of the Corporation Code
provides, thus: “No transfer, however, shall be valid except as between the parties, until the transfer
is recorded in the books of the corporation showing the names of the parties to the transaction, the
date of the transfer, the number of the certificate or certificates and the number of shares
transferred.”
2. Stockholders of Guanzon v. RD (1962) 6 SCRA 373
Corporations; Liquidation and distribution of assets for transfer to stockholders; Certificate of
liquidation in the nature of transfer or conveyance.—Where the purpose of the liquidation, as well
as the distribution of the assets of the corporation, is to transfer their title from the corporation to the
stockholders in proportion to their shareholdings, that transfer cannot be effected without the
corresponding deed of conveyance from the corporation to the stockholders, and the certificate
should be considered as one in the nature of a transfer or conveyance.
3. Tramat Mercantile v. CA (1994) 238 SCRA 14
Corporation Law; Civil Law; Sale; There is no reason to reverse the factual findings of both the trial
court and the appellate court, particularly in holding that the contract between de la Cuesta and
TRAMAT was one of absolute, not conditional sale.—We could find no reason to reverse the
factual findings of both the trial court and the appellate court, particularly in holding that the
contract between de la Cuesta and TRAMAT was one of absolute, not conditional, sale of the tractor
and that de la Cuesta did not violate any warranty on the sale of the tractor to TRAMAT.
It should only be the corporation, not the person acting for and on its behalf, that properly could be
made liable under the questioned transaction.—It was, nevertheless, an error to hold David Ong
jointly and severally liable with TRAMAT to de la Cuesta under the questioned transaction. Ong
had there so acted, not in his personal capacity, but as an officer of a corporation, TRAMAT, with a
distinct and separate personality. As such, it should only be the corporation, not the person acting
for and on its behalf, that properly could be made liable thereon.
Instances when personal liability of a corporate director, trustee or officer along with the
corporation may so validly attach.—Personal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly attach, as a rule, only when—1. He
assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in
directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons; 2. He consents to the issuance of watered stocks or who, having
knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or 4. He is made,
by a specific provision of law, to personally answer for his corporate action.
4. Palay, Inc. V. Clave (1983) 124 SCRA 640
Corporation Law; General rule that a corporation may not be made to answer for acts or liabilities of
its stockholders or those of legal entities to which it may be connected and vice versa; Exceptions to
rule that veil of corporate fiction may not be pierced.—It is basic that a Corporation is invested by
law with a personality separate and distinct from those of the persons composing it as well as from
that of any other legal entity to which it may be related. As a general rule, a corporation may not be
made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may
be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used
as a shield to further an end subversive of justice; or for purposes that could not have been intended
by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or defend
crime; or to perpetuate fraud or confuse legitimate issues; or to circumvent the law or perpetuate
deception; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders.
Absence of badges of fraud of subdivision owner when it rescinded a contract to sell extrajudicially
and sold the property to a third person.—We find no badges of fraud on petitioners’ part. They had
literally relied, albeit mistakenly, on paragraph 6 (supra) of its contract with private respondent
when it rescinded the contract to sell extrajudicially and had sold it to a third person.
President of real estate corporation cannot be held personally liable where he appears to be
controlling stockholder absent sufficient proof that he used the corporation to defraud defaulting lot
buyer; Mere ownership by a single stockholder or by another corporation of all or nearly all capital
stock of corporation not sufficient ground for disregarding corporate personality; Case at bar.—In
this case, petitioner Onstott was made liable because he was then the President of the corporation
and he appeared to be the controlling stockholder. No sufficient proof exists on record that said
petitioner used the corporation to defraud private respondent. He cannot, therefore, be made
personally liable just because he “appears to be the controlling stockholder”. Mere ownership by a
single stockholder or by another corporation of all or nearly all of the capital stock of a corporation
is not of itself sufficient ground for disregarding the separate corporate personality.
5. JG Summit Holdings v. CA (2005) 450 SCRA 169
Commercial Law; Estoppel; Right of First Refusal; Contractual obligations arising from rights of
first refusal are not new in this jurisdiction and have been recognized in numerous cases, and
estoppel is too known a civil law concept to require an elongated discussion.—We reject
petitioner’s argument that the present case may be considered under the Supreme Court Resolution
dated February 23, 1984 which included among en banc cases those involving a novel question of
law and those where a doctrine or principle laid down by the court en banc or in division may be
modified or reversed. The case was resolved based on basic principles of the right of first refusal in
commercial law and estoppel in civil law. Contractual obligations arising from rights of first refusal
are not new in this jurisdiction and have been recognized in numerous cases. Estoppel is too known
a civil law concept to require an elongated discussion. Fundamental principles on public bidding
were likewise used to resolve the issues raised by the petitioner. To be sure, petitioner leans on the
right to top in a public bidding in arguing that the case at bar involves a novel issue. We are not
swayed. The right to top was merely a condition or a reservation made in the bidding rules which
was fully disclosed to all bidding parties.
Separation of Powers; There is no “executive interference” in the functions of the Supreme Court by
the mere filing of a memorandum by the Secretary of Finance, which memorandum was merely
“noted” to acknowledge its filing—it had no further legal significance.—There is no “executive
interference” in the functions of this Court by the mere filing of a memorandum by Secretary of
Finance Jose Isidro Camacho. The memorandum was merely “noted” to acknowledge its filing. It
had no further legal significance. Notably too, the assailed Resolution dated September 24, 2003
was decided unanimously by the Special First Division in favor of the respondents.
Bids and Bidding; Infrastructure Projects; There is nothing inherently illegal on a corporation’s act
in seeking funding from parties who were losing bidders—this is a purely commercial decision over
which the State should not interfere absent any legal infirmity; A case involving the disposition of
shares in a corporation which the government seeks to privatize, in which the persons with whom it
desires to enter into business with in order to raise funds to purchase the shares are basically its
business, differs from a case involving a contract for the operation or construction of a government
infrastructure where the identity of the buyer/bidder or financier constitutes an important
consideration.—We see no inherent illegality on PHILYARDS’ act in seeking funding from parties
who were losing bidders. This is a purely commercial decision over which the State should not
interfere absent any legal infirmity. It is emphasized that the case at bar involves the disposition of
shares in a corporation which the government sought to privatize. As such, the persons with whom
PHILYARDS desired to enter into business with in order to raise funds to purchase the shares are
basically its business. This is in contrast to a case involving a contract for the operation of or
construction of a government infrastructure where the identity of the buyer/bidder or financier
constitutes an important consideration. In such cases, the government would have to take utmost
precaution to protect public interest by ensuring that the parties with which it is contracting have the
ability to satisfactorily construct or operate the infrastructure.
Right of First Refusal; The agreement of co-shareholders to mutually grant the right of first refusal
to each other, by itself, does not constitute a violation of the provisions of the Constitution limiting
land ownership to Filipinos and Filipino corporations; If the foreign shareholdings of a landholding
corporation exceeds 40%, it is not the foreign stockholders’ ownership of the shares which is
adversely affected but the capacity of the corporation to own land—that is, the corporation becomes
disqualified to own land. We uphold the validity of the mutual rights of first refusal under the JVA
between KAWASAKI and NIDC. First of all, the right of first refusal is a property right of
PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA. This right allows
them to purchase the shares of their co-shareholder before they are offered to a third party. The
agreement of co-shareholders to mutually grant this right to each other, by itself, does not constitute
a violation of the provisions of the Constitution limiting land ownership to Filipinos and Filipino
corporations. As PHILYARDS correctly puts it, if PHILSECO still owns land, the right of first
refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio.
This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of
any fraudulent intent. The transfer could be made either to a nominee or such other party which the
holder of the right of first refusal feels it can comfortably do business with. Alternatively,
PHILSECO may divest of its landholdings, in which case KAWASAKI, in exercising its right of
first refusal, can exceed 40% of PHILSECO’s equity. In fact, it can even be said that if the foreign
shareholdings of a landholding corporation exceeds 40%, it is not the foreign stockholders’
ownership of the shares which is adversely affected but the capacity of the corporation to own
land—that is, the corporation becomes disqualified to own land. This finds support under the basic
corporate law principle that the corporation and its stockholders are separate juridical entities. In
this vein, the right of first refusal over shares pertains to the shareholders whereas the capacity to
own land pertains to the corporation. Hence, the fact that PHILSECO owns land cannot deprive
stockholders of their right of first refusal. No law disqualifies a person from purchasing shares in a
landholding corporation even if the latter will exceed the allowed foreign equity, what the law
disqualifies is the corporation from owning land.
Constitutional Law; National Economy and Patrimony; Statutory Construction; The prohibition
under Section 7, Article XII of the Constitution applies only to ownership of land—it does not
extend to immovable or real property as defined under Article 415 of the Civil Code.—As correctly
observed by the public respondents, the prohibition in the Constitution applies only to ownership of
land. It does not extend to immovable or real property as defined under Article 415 of the Civil
Code. Otherwise, we would have a strange situation where the ownership of immovable property
such as trees, plants and growing fruit attached to the land would be limited to Filipinos and Filipino
corporations only.
6. San Juan Structural v. CA (1998) 296 SCRA 631
Corporation Law; Sales; The property of the corporation is not the property of its stockholders or
members and may not be sold by the stockholders or members without express authorization from
the corporation’s board of directors.—A corporation is a juridical person separate and distinct from
its stockholders or members. Accordingly, the property of the corporation is not the property of its
stockholders or members and may not be sold by the stockholders or members without express
authorization from the corporation’s board of directors.
Agency; The general principles of agency govern the relation between the corporation and its
officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law.—
Indubitably, a corporation may act only through its board of directors or, when authorized either by
its bylaws or by its board resolution, through its officers or agents in the normal course of business.
The general principles of agency govern the relation between the corporation and its officers or
agents, subject to the articles of incorporation, bylaws, or relevant provisions of law. Thus, this
Court has held that “ ‘a corporate officer or agent may represent and bind the corporation in
transactions with third persons to the extent that the authority to do so has been conferred upon him,
and this includes powers which have been intentionally conferred, and also such powers as, in the
usual course of the particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually pertaining to the particular
officer or agent, and such apparent powers as the corporation has caused persons dealing with the
officer or agent to believe that it has conferred.’ ”
Corporate Treasurers; Unless duly authorized, a treasurer, whose powers are limited, cannot bind
the corporation in a sale of its assets.—The Court has also recognized the rule that “persons dealing
with an assumed agent, whether the assumed agency be a general or special one, are bound at their
peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted, the burden of proof is upon them to
establish it (Harry Keeler v. Rodriguez, 4 Phil. 19).” Unless duly authorized, a treasurer, whose
powers are limited, cannot bind the corporation in a sale of its assets.
Selling is obviously foreign to a corporate treasurer’s function, which generally has been described
as “to receive and keep the funds of the corporation, and to disburse them in accordance with the
authority given him by the board or the properly authorized officers.”—That Nenita Gruenberg is
the treasurer of Motorich does not free petitioner from the responsibility of ascertaining the extent
of her authority to represent the corporation. Petitioner cannot assume that she, by virtue of her
position, was authorized to sell the property of the corporation. Selling is obviously foreign to a
corporate treasurer’s function, which generally has been described as “to receive and keep the funds
of the corporation, and to disburse them in accordance with the authority given him by the board or
the properly authorized officers.”
When the corporate officers exceed their authority, their actions “cannot bind the corporation,
unless it has ratified such acts or is estopped from disclaiming them.”—As a general rule, the acts of
corporate officers within the scope of their authority are binding on the corporation. But when these
officers exceed their authority, their actions “cannot bind the corporation, unless it has ratified such
acts or is estopped from disclaiming them.”
Contracts; Requisites of a Valid and Perfected Contract.—Article 1318 of the Civil Code lists the
requisites of a valid and perfected contract: “(1) consent of the contracting parties; (2) object certain
which is the subject matter of the contract; (3) cause of the obligation which is established.” As
found by the trial court and affirmed by the Court of Appeals, there is no evidence that Gruenberg
was authorized to enter into the contract of sale, or that the said contract was ratified by Motorich.
This factual finding of the two courts is binding on this Court. As the consent of the seller was not
obtained, no contract to bind the obligor was perfected. Therefore, there can be no valid contract of
sale between petitioner and Motorich.
Where a corporation never gave a written authorization to its treasurer to sell a parcel of land it
owns, any agreement to sell entered into by the latter with a third party is void.—Because Motorich
had never given a written authorization to Respondent Gruenberg to sell its parcel of land, we hold
that the February 14, 1989 Agreement entered into by the latter with petitioner is void under Article
1874 of the Civil Code. Being inexistent and void from the beginning, said contract cannot be
ratified.
Appeals; Pleadings and Practice; It is well-settled that points of law, theories and arguments not
brought to the attention of the trial court need not be, and ordinarily will not be, considered by a
reviewing court, as they cannot be raised for the first time on appeal—allowing a party to change
horses in midstream, as it were, is to run roughshod over the basic principles of fair play, justice and
due process.—Petitioner itself concedes having raised the issue belatedly, not having done so during
the trial, but only when it filed its surrejoinder before the Court of Appeals. Thus, this Court cannot
entertain said issue at this late stage of the proceedings. It is well-settled that points of law, theories
and arguments not brought to the attention of the trial court need not be, and ordinarily will not be,
considered by a reviewing court, as they cannot be raised for the first time on appeal. Allowing
petitioner to change horses in midstream, as it were, is to run roughshod over the basic principles of
fair play, justice and due process.
Piercing the Veil of Corporate Fiction Doctrine; On equitable considerations, the corporate veil can
be disregarded when it is utilized as a shield to commit fraud, illegality or inequity; defeat public
convenience; confuse legitimate issues; or serve as a mere alter ego or business conduit of a person
or an instrumentality, agency or adjunct of another corporation.—True, one of the advantages of a
corporate form of business organization is the limitation of an investor’s liability to the amount of
the investment. This feature flows from the legal theory that a corporate entity is separate and
distinct from its stockholders. However, the statutorily granted privilege of a corporate veil may be
used only for legitimate purposes. On equitable considerations, the veil can be disregarded when it
is utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse
legitimate issues; or serve as a mere alter ego or business conduit of a person or an instrumentality,
agency or adjunct of another corporation.
Evidence; The question of piercing the veil of corporate fiction is essentially a matter of proof.—We
stress that the corporate fiction should be set aside when it becomes a shield against liability for
fraud, illegality or inequity committed on third persons. The question of piercing the veil of
corporate fiction is essentially, then, a matter of proof. In the present case, however, the Court finds
no reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish
that said corporation was formed, or that it is operated, for the purpose of shielding any alleged
fraudulent or illegal activities of its officers or stockholders; or that the said veil was used to conceal
fraud, illegality or inequity at the expense of third persons like petitioner.
Close Corporations; Words and Phrases; “Close Corporation,” Defined.—Petitioner claims that
Motorich is a close corporation. We rule that it is not. Section 96 of the Corporation Code defines a
close corporation as follows: “SEC. 96. Definition and Applicability of Title.—A close corporation,
within the meaning of this Code, is one whose articles of incorporation provide that: (1) All of the
corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not
more than a specified number of persons, not exceeding twenty (20); (2) All of the issued stock of
all classes shall be subject to one or more specified restrictions on transfer permitted by this Title;
and (3) The corporation shall not list in any stock exchange or make any public offering of any of its
stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled
by another corporation which is not a close corporation within the meaning of this Code. x x x.”
A corporation does not become a close corporation just because a man and his wife owns 99.866%
of its subscribed capital stock; So, too, a narrow distribution of ownership does not, by itself, make
a close corporation.—The articles of incorporation of Motorich Sales Corporation does not contain
any provision stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of
shares is restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any
stock exchange or making a public offering of such stocks is prohibited. From its articles, it is clear
that Respondent Motorich is not a close corporation. Motorich does not become one either, just
because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock.
The “[m]ere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personalities.” So, too, a narrow distribution of ownership does not, by itself, make a close
corporation.
In exceptional cases, “an action by a director, who singly is the controlling stockholder, may be
considered as a binding corporate act and a board action as nothing more than a mere formality.”—
The Court is not unaware that there are exceptional cases where “an action by a director, who singly
is the controlling stockholder, may be considered as a binding corporate act and a board action as
nothing more than a mere formality.” The present case, however, is not one of them. As stated by
petitioner, Spouses Reynaldo and Nenita Gruenberg own “almost 99.866%” of Respondent
Motorich. Since Nenita is not the sole controlling stockholder of Motorich, the aforementioned
exception does not apply.
Marriage; Husband and Wife; Conjugal Partnership; Co-Ownership; There is no co-ownership
between the spouses in the properties of the conjugal partnership of gains.—Granting arguendo that
the corporate veil of Motorich is to be disregarded, the subject parcel of land would then be treated
as conjugal property of Spouses Gruenberg, because the same was acquired during their marriage.
There being no indication that said spouses, who appear to have been married before the effectivity
of the Family Code, have agreed to a different property regime, their property relations would be
governed by conjugal partnership of gains. As a consequence, Nenita Gruenberg could not have
effected a sale of the subject lot because “[t]here is no co-ownership between the spouses in the
properties of the conjugal partnership of gains. Hence, neither spouse can alienate in favor of
another his or her interest in the partnership or in any property belonging to it; neither spouse can
ask for a partition of the properties before the partnership has been legally dissolved.”
Absolute Community of Property; Under the regime of absolute community of property, “alienation
of community property must have the written consent of the other spouse or the authority of the
court without which the disposition or encumbrance is void.”—Assuming further, for the sake of
argument, that the spouses’ property regime is the absolute community of property, the sale would
still be invalid. Under this regime, “alienation of community property must have the written consent
of the other spouse or the authority of the court without which the disposition or encumbrance is
void.” Both requirements are manifestly absent in the instant case.
B. Piercing the Corporate Veil:
 Piercing the veil of corporate entity requires the court to see through the protective shroud
which exempts its stockholders from liabilities that ordinarily they could be subject to, or
distinguishes one corporation from a seemingly separate one, were it not for the existing
corporate fiction
 the court must be sure that the corporate fiction was misused, to such an extent that
injustice, fraud or crime was committed upon another, disregarding, their, his, her or its
rights. It is the protection of the interests of innocent third persons dealing with the
corporate entity which the law seeks to protect by this doctrine.
 The presumption is that the stockholders or officers are distinct entities. The burden of
proving otherwise is on the party seeking to have the court pierce the veil of corporate
entity.
 Piercing the veil of corporate entity is merely an equitable remedy, and may be awarded
only in cases when the corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime or where the corporation is a mere alter ego or
business conduit of a person
 In case of wholly-owned corporations, corporations with common stockholders, or
corporations having a parent-subsidiary relationship, the following are the “inevitable
consequences”:
 a) Control and management of the corporation;
 b) Interlocking directors;
 c) Common access to the use of resources, services, and 3rd-party providers; and
 d) Intra-corporate dealings.
 In the above consequences, there is no necessity for applying the doctrine of
piercing the corporate veil unless there is a particular act by the corporation,
stockholder, or BOD that gives rise to a liability. If there’s a liability to speak of,
such consequences may be considered as a means of evading such thus the need
for the piercing.
 In applying the doctrine, determine:
1. the rights and obligations of the parties.
2. the possibility of non-enforcement of such rights and obligations because of the shield or
veil.
3. look into the circumstances and underlying purpose of putting up the corporation
 there are some probative factors of identity that will justify the application of the doctrine of
piercing the corporate veil, to wit: “
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.”
 **When corp veil may be pierced
1. used to defeat public convenience,
2. justify wrong,
3. protect fraud or defend crime, or is
 4. used as a device to defeat the labor laws, this separate personality of the
corporation may be disregarded or the veil of corporate fiction pierced.
7.Villa Rey Transit v. Ferrer (1968) 25 SCRA 845
Corporation law; Corporation separate and distinct from members thereof; Piercing the corporate
veil, when necessary.—The doctrine that a corporation is a legal entity distinct and separate from
the members and stockholders who compose it is recognized and respected in all cases which are
within reason and the law. When the fiction is urged as a means of perpetrating a fraud or an illegal
act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil
with which the law covers and isolates the corporation from the members or stockholders who
compose it will be lifted to allow for its consideration merely as an aggregation of individuals.
Contracts; Validity of stipulations in restraint of trade.—The 10-year restrictive clause in the
contract between Villarama and Pantranco while in the nature of an agreement suppressing
competition, is nevertheless reasonable and not harmful or obnoxious to public interest. The
disputed stipulation is only incidental to the main agreement which is that of sale, the restraint is
only partial: first, in scope, it refers only to application for TPU by the seller in competition with the
lines sold to the buyer; second, in duration, it is only for ten (10) years; and, third, with respect to
situs or territory, the restraint is only along the lines covered by the certif icates sold. It does not
appear that the ultimate result of the clause or stipulation would leave solely to Pantranco the right
to operate along the lines in question, thereby establishing a monopoly. The main purpose of the
restraint is to protect for a limited time the business of the buyer. The rule is that a contract in
restraint of trade is valid provided there is a limitation upon either time or place.
Contracts; Purchaser in good faith; Rule of caveat emptor.—The 10-year prohibition upon
Villarama is not against his application f or, or purchase of, certif icates of public convenience, but
merely the operation of TPU along the lines covered by the certificates sold by him to Pantranco.
Consequently, the sale between Fernando and the Corporation is valid, such that the rightful
ownership of the disputed certificates still belongs to the plaintiff being the purchaser in good faith
and for value thereof. In view of the rule of caveat emptor, what was acquired by Ferrer in the
sheriff's sale was only the right which Fernando had in the certificates of public convenience on the
day of the sale. Of the same principle is the provision of Article 1544. of the Civil Code, that "If the
same thing should have been sold to different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith. if it should be movable property."
8.Marvel Bldg. v. David (1954) 94 Phil. 376
CORPORATIONS; CIRCUMSTANTIAL EVIDENCE SHOWING ONE-MAN
CORPORATION.—The existence of endorsed certificates discovered by internal revenue agents
between 1948 and 1949 in the possession of the Secretary-Treasurer of a supposed corporation; the
fact that twenty-five certificates were signed by its president for no justifiable reason; the fact that
two sets of certificates were issued; the undisputed fact that its principal stockholder had made
enormous profits and, therefore, had a motive to hide them to evade the payment of taxes; the fact
that the other subscribers had no incomes of sufficient magnitude to justify their big subscriptions;
the fact that the subscriptions were not receipted for and deposited by the treasurer in the name of
the alleged corporation but were kept by the principal stockholder herself; the fact that the
stockholders or the directors never appeared to have ever met to discuss the business of the
corporation; the fact that she advanced big sums of money to the corporation without any previous
arrangement or accounting; and the fact that the books of accounts were kept as if they belonged to
her alone—are circumstantial evidence which are not only convincing but conclusive that she is the
sole and exclusive owner of all the shares of stock of the corporation and that the other partners are
her dummies.
9.Concept Builders v. NLRC (1996) 257 SCRA 149
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; The separate and distinct
personality of a corporation is merely a fiction created by law for convenience and to promote
justice; When the notion of separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this
separate personality of the corporation may be disregarded or the veil of corporate fiction pierced.—
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. But, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to
promote justice. So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an
alter ego of another corporation.
probative factors of identity that will justify the application of the doctrine of piercing the corporate
veil.—The conditions under which the juridical entity may be disregarded vary according to the
peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will justify the application of the doctrine
of piercing the corporate veil, to wit: “1. Stock ownership by one or common ownership of both
corporations. 2. Identity of directors and officers. 3. The manner of keeping corporate books and
records. 4. Methods of conducting the business.”
“Instrumentality Rule,” Explained.—The SEC en banc explained the “instrumentality rule” which
the courts have applied in disregarding the separate juridical personality of corporations as follows:
“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. It must be kept in mind that the control must be shown to have been
exercised at the time the acts complained of took place. Moreover, the control and breach of duty
must proximately cause the injury or unjust loss for which the complaint is made.”
Test in determining the applicability of the doctrine of piercing the veil of corporate fiction.—The
test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows: “1. Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiff’s legal rights; and 3. The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of. The absence of any one of these elements prevents ‘piercing the
corporate veil.’ In applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned
with reality and not form, with how the corporation operated and the individual defendant’s
relationship to that operation.”
Same; Same; The question of whether a corporation is a mere alter ego, a mere sheet or paper
corporation, a sham or a subterfuge is purely one of fact.—Thus, the question of whether a
corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely
one of fact.
10.Claparols v. CIR (1965) 65 SCRA 613
Employer and employee; Conditions of employment; Bonus; Bonus demandable and enforceable
when made part of wages or salary.—A bonus is not a demandable and enforceable obligation,
except when it in made part of the wage or salary compensation. Whether or not bonus forms part of
wages depends upon the condition or circumstance for its payment. If it is an additional
compensation which the employer promised and agreed to give without any condition imposed for
its payment x x x then it is part of the wage.
Same; Same; Same; Bonus demandable and enforceable when given by the employer regularly or
periodically.—An employee is not entitled to bonus where there is no showing that it had been
granted by the employer to its employees periodically or regularly as to become part of their wages
or salaries. The clear implication is that bonus is recoverable as part of the wage or salary where the
employer regularly or periodically gives it to employees.
Corporation law; Piercing the veil of corporate entity; Dissolution of corporation and transfer of its
assets to another to avoid financial liability attached to the first corporation; Case at bar.—The
second corporation seeks the protective shield of a corporate fiction whose veil could, and should,
be pierced as it was deliberately and maliciously designed to evade its financial obligation to its
employees. When the notion of legal entity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, the law will regard the corporation as an association or persons, or,
in the case of two corporations, will merge them into one.
C. Parent-Subsidiary Relationship:
 A subsidiary has an independent and separate juridical personality, distinct from that of
its parent company; hence, any claim or suit against the latter does not bind the former,
and vice versa.
 **In applying the doctrine, the following requisites must be established:
(1) control, not merely majority or complete stock control;
(2) such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in
contravention of plaintiffs legal rights; and
(3) the aforesaid control and breach of duty must proximately cause the injury or unjust
loss complained of.
 Circumstances which if present in the proper combination renders the subsidiary an
instrumentality:
a. The parent corporation owns all or most of the capital stock of the subsidiary.
b. The parent and subsidiary corporations have common directors or officers.
c. The parent corporation finances the subsidiary.
d. The parent corporation subscribes to all the capital stock of the subsidiary or otherwise
causes its incorporation.
e. The subsidiary has grossly inadequate capital.
f. The parent corporation pays the salaries and other expenses or losses of the subsidiary.
g. The subsidiary has substantially no business except with the parent corporation or no
assets except those conveyed to it by the parent corporation.
h. In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or its
business or financial responsibility is referred to as the parent corporation's own.
i. The parent corporation uses the property of the subsidiary as its own.
j. The directors or executives of the subsidiary do not act independently in the interest of
the subsidiary but take their orders from the parent corporation in the latter's interest.
k. The formal legal requirements of the subsidiary are not observed.'"
11.Yutivo v. CTA (1961) 1 SCRA 160
Corporations; Piercing the veil of corporate fiction.—A corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. However, when the
notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an association of persons, or, in the case of two
corporations, merge them into one. When the corporation is the mere alter ego or business conduit
of a person, it may be disregarded.
Taxation; Sales tax; Tax evasion.—A corporation cannot be said to have been organized as a tax
evasion device when there was no tax to evade.
12.Jardine Davis Inc. v. JRB Realty (2005) 463 SCRA 555
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; A corporation is an artificial
being invested by law with a personality separate and distinct from its stockholders and from other
corporations to which it may be connected; The doctrine applies only when such corporate fiction is
used to defeat public convenience, justify wrong, protect fraud or defend crime.—It is an
elementary and fundamental principle of corporation law that a corporation is an artificial being
invested by law with a personality separate and distinct from its stockholders and from other
corporations to which it may be connected. While a corporation is allowed to exist solely for a
lawful purpose, the law will regard it as an association of persons or in case of two corporations,
merge them into one, when this corporate legal entity is used as a cloak for fraud or illegality. This
is the doctrine of piercing the veil of corporate fiction which applies only when such corporate
fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. The
rationale behind piercing a corporation’s identity is to remove the barrier between the corporation
from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the
corporate personality as a shield for undertaking certain proscribed activities.
A subsidiary has an independent and separate juridical personality, distinct from that of its parent
company, hence, any claim or suit against the latter does not bind the former and vice versa.—
While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that
Aircon’s corporate legal existence can just be disregarded. In Velarde v. Lopez, Inc., the Court
categorically held that a
**subsidiary has an independent and separate juridical personality, distinct from that of its
parent company; hence, any claim or suit against the latter does not bind the former, and vice
versa. In applying the doctrine, the following requisites must be established:
(1) control, not merely majority or complete stock control;
(2) such control must have been used by the defendant to com mit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in
contravention of plaintiff’s legal rights; and
(3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
The existence of interlocking directors, corporate officers and shareholders which the respondent
court considered, is not enough justification to pierce the veil of corporate fiction, in the absence of
fraud or other public policy considerations; Even when there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is
used to defeat public convenience, justify wrong, protect fraud or defend crime; The wrongdoing
must be clearly and convincingly established, it cannot just be presumed.—The existence of
interlocking directors, corporate officers and shareholders, which the respondent court considered, is
not enough justification to pierce the veil of corporate fiction, in the absence of fraud or other public
policy considerations. But even when there is dominance over the affairs of the subsidiary, the
doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime. To warrant resort to this
extraordinary remedy, there must be proof that the corporation is being used as a cloak or cover for
fraud or illegality, or to work injustice. Any piercing of the corporate veil has to be done with
caution. The wrongdoing must be clearly and convincingly established. It cannot just be presumed.
Civil Law; Damages; To justify a grant of actual or compensatory damages, it is necessary to prove
with a reasonable degree of certainty, premised upon competent proof and on the best evidence
obtainable by the injured party, the actual amount of loss.—It was reversible error to award the
respondent the amount of P556,551.55 representing the alleged 30% unsaved electricity costs and
P185,951.67 as maintenance cost without showing any basis for such award. To justify a grant of
actual or compensatory damages, it is necessary to prove with a reasonable degree of certainty,
premised upon competent proof and on the best evidence obtainable by the injured party, the actual
amount of loss. The respondent merely based its cause of action on Aircon’s alleged representation
that Fedders air conditioners with rotary compressors can save as much as 30% on electricity
compared to other brands. Offered in evidence were newspaper advertisements published on April
12 and 26, 1981.
13.PNB v. Ritratto Group (2001) 362 SCRA 216
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; The mere fact that a
corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their
being treated as one entity.—The general rule is that as a legal entity, a corporation has a personality
distinct and separate from its individual stockholders or members, and is not affected by the
personal rights, obligations and transactions of the latter. The mere fact that a corporation owns all
of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one
entity. If used to perform legitimate functions, a subsidiary’s separate existence may be respected,
and the liability of the parent corporation as well as the subsidiary will be confined to those arising
in their respective business. The courts may in the exercise of judicial discretion step in to prevent
the abuses of separate entity privilege and pierce the veil of corporate entity.
The doctrine of piercing the corporate veil of corporate fiction is an equitable doctrine developed to
address situations where the separate corporate personality of a corporation is abused or used for
wrongful purposes.—In this jurisdiction, we have held that the doctrine of piercing the corporate
veil is an equitable doctrine developed to address situations where the separate corporate personality
of a corporation is abused or used for wrongful purposes. The doctrine applies when the corporate
fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it
is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or
business conduit of a person, or where the corporation is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.
Test in Determining Applicability of the Doctrine of Piercing the Veil of Corporate Fiction.—In
Concept Builders, Inc. v. NLRC, we have laid the test in determining the applicability of the
doctrine of piercing the veil of corporate fiction, to wit: 1. Control, not mere majority or complete
control, but complete domination, not only of finances but of policy and business practice in respect
to the transaction attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own. 2. Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or
dishonest and, unjust act in contravention of plaintiff’s legal rights; and, 3. The aforesaid control
and breach of duty must proximately cause the injury or unjust loss complained of. The absence of
any one of these elements prevents “piercing the corporate veil.” In applying the “instrumentality”
or “alter ego” doctrine, the courts are concerned with reality and not form, with how the corporation
operated and the individual defendant’s relationship to the operation.
Agency; A suit against an agent cannot without compelling reasons be considered a suit against the
principal.—In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the
significant legal relationship involved in this case since the petitioner was not sued because it is the
parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact
of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without
compelling reasons be considered a suit against the principal. Under the Rules of Court, every
action must be prosecuted or defended in the name of the real party-in-interest, unless otherwise
authorized by law or these Rules. In mandatory terms, the Rules require that “parties-in-interest
without whom no final determination can be had, an action shall be joined either as plaintiffs or
defendants.” In the case at bar, the injunction suit is directed only against the agent, not the
principal.
Preliminary Injunction; A writ of preliminary injunction is an ancillary or preventive remedy that
may only be resorted to by a litigant to protect or preserve his rights or interests and for no other
purpose during the pendency of the principal action—the dismissal of the principal action thus
results in the denial of the prayer for the issuance of the writ.—Anent the issuance of the
preliminary injunction, the same must be lifted as it is a mere provisional remedy but adjunct to the
main suit. A writ of preliminary injunction is an ancillary or preventive remedy that may only be
resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during
the pendency of the principal action. The dismissal of the principal action thus results in the denial
of the prayer for the issuance of the writ.
An injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard compensation.—An injunctive remedy
may only be resorted to when there is a pressing necessity to avoid injurious consequences which
cannot be remedied under any standard compensation. Respondents do not deny their indebtedness.
Their properties are by their own choice encumbered by real estate mortgages. Upon the non-
payment of the loans, which were secured by the mortgages sought to be foreclosed, the mortgaged
properties are properly subject to a foreclosure sale. Moreover, respondents questioned the alleged
void stipulations in the contract only when petitioner initiated the foreclosure proceedings. Clearly,
respondents have failed to prove that they have a right protected and that the acts against which the
writ is to be directed are violative of said right. The Court is not unmindful of the findings of both
the trial court and the appellate court that there may be serious grounds to nullify the provisions of
the loan agreement. However, as earlier discussed, respondents committed the mistake of filing the
case against the wrong party, thus, they must suffer the consequences of their error. Philippine
National Bank vs. Ritratto Group, Inc., 362 SCRA 216, G.R. No. 142616 July 31, 2001

14.Pantranco v. NLRC. (GR 170689) 3/17/2009
Corporation Law; Piercing the Veil of Corporate Fiction; The general rule is that a corporation has a
personality separate and distinct from those of its stockholders and other corporations to which it
may be connected, a fiction created by law for convenience and to prevent injustice; Settled is the
rule that where one corporation sells or otherwise transfers all its assets to another corporation for
value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor.—The
general rule is that a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected. This is a fiction created by law
for convenience and to prevent injustice. Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI
are corporations with their own personalities. The “separate personalities” of the first three
corporations had been recognized by this Court in PNB v. Mega Prime Realty and Holdings
Corporation/Mega Prime Realty and Holdings Corporation v. PNB (567 SCRA 633 [2008]) where
we stated that PNB was only a stockholder of PNB-Madecor which later sold its shares to Mega
Prime; and that PNB-Madecor was the owner of the Pantranco properties. Moreover, these
corporations are registered as separate entities and, absent any valid reason, we maintain their
separate identities and we cannot treat them as one. Neither can we merge the personality of PNEI
with PNB simply because the latter acquired the former. Settled is the rule that where one
corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not,
by that fact alone, liable for the debts and liabilities of the transferor.
Words and Phrases; Under the doctrine of “piercing the veil of corporate fiction,” the court looks at
the corporation as a mere collection of individuals or an aggregation of persons undertaking
business as a group, disregarding the separate juridical personality of the corporation unifying the
group; Any piercing of the corporate veil has to be done with caution, albeit the Court will not
hesitate to disregard the corporate veil when it is misused or when necessary in the interest of
justice.—Under the doctrine of “piercing the veil of corporate fiction,” the court looks at the
corporation as a mere collection of individuals or an aggregation of persons undertaking business as
a group, disregarding the separate juridical personality of the corporation unifying the group.
Another formulation of this doctrine is that when two business enterprises are owned, conducted
and controlled by the same parties, both law and equity will, when necessary to protect the rights of
third parties, disregard the legal fiction that two corporations are distinct entities and treat them as
identical or as one and the same. Whether the separate personality of the corporation should be
pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the
corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the
corporate veil when it is misused or when necessary in the interest of justice. After all, the concept
of corporate entity was not meant to promote unfair objectives.
Labor Law; It was clarified in Carag v. National Labor Relations Commission (520 SCRA 28
[2007]), and McLeod v. National Labor Relations Commission (512 SCRA 222 [2007]), that Article
212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts
of the corporation—the governing law on personal liability of directors or officers for debts of the
corporation is still Section 31 of the Corporation Code.—In the recent cases Carag v. National
Labor Relations Commission (520 SCRA 28 [2007]), and McLeod v. National Labor Relations
Commission (512 SCRA 222 [2007]), the Court explained the doctrine laid down in AC Ransom
relative to the personal liability of the officers and agents of the employer for the debts of the latter.
In AC Ransom, the Court imputed liability to the officers of the corporation on the strength of the
definition of an employer in Article 212(c) (now Article 212[e]) of the Labor Code. Under the said
provision, employer includes any person acting in the interest of an employer, directly or indirectly,
but does not include any labor organization or any of its officers or agents except when acting as
employer. It was clarified in Carag and McLeod that Article 212(e) of the Labor Code, by itself,
does not make a corporate officer personally liable for the debts of the corporation. It added that the
governing law on personal liability of directors or officers for debts of the corporation is still
Section 31 of the Corporation Code. More importantly, as aptly observed by this Court in AC
Ransom, it appears that Ransom, foreseeing the possibility or probability of payment of backwages
to its employees, organized Rosario to replace Ransom, with the latter to be eventually phased out if
the strikers win their case. The execution could not be implemented against Ransom because of the
disposition posthaste of its leviable assets evidently in order to evade its just and due obligations.
Hence, the Court sustained the piercing of the corporate veil and made the officers of Ransom
personally liable for the debts of the latter.
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.—What can be inferred from the earlier cases is that the doctrine of piercing the
corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when
the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or
when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego
cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation. In the absence
of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate
officer cannot be made personally liable for corporate liabilities.
The mere fact that a corporation owns all of the stocks of another corporation, taken alone, is not
sufficient to justify their being treated as one entity—if used to perform legitimate functions, a
subsidiary’s separate existence shall be respected, and the liability of the parent corporation as well
as the subsidiary will be confined to those arising in their respective businesses.—For the sake of
argument, that PNB may be held liable for the debts of PNEI, petitioners still cannot proceed against
the Pantranco properties, the same being owned by PNB-Madecor, notwithstanding the fact that
PNB-Madecor was a subsidiary of PNB. The general rule remains that PNB-Madecor has a
personality separate and distinct from PNB. The mere fact that a corporation owns all of the stocks
of another corporation, taken alone, is not sufficient to justify their being treated as one entity. If
used to perform legitimate functions, a subsidiary’s separate existence shall be respected, and the
liability of the parent corporation as well as the subsidiary will be confined to those arising in their
respective businesses.
Circumstances which are useful in the determination of whether a subsidiary is but a mere
instrumentality of the parent-corporation.—In PNB v. Ritratto Group, Inc. (362 SCRA 216
[2001]), we outlined the
which are useful in the determination of whether a subsidiary is but a mere instrumentality of
the parent-corporation, to wit:
1. The parent corporation owns all or most of the capital stock of the subsidiary;
2. The parent and subsidiary corporations have common directors or officers;
3. The parent corporation finances the subsidiary;
4. The parent corporation subscribes to all the capital stock of the subsidiary or otherwise
causes its incorporation;
 5. The subsidiary has grossly inadequate capital;
6. The parent corporation pays the salaries and other expenses or losses of the subsidiary;
7. The subsidiary has substantially no business except with the parent corporation or no
assets except those conveyed to or by the parent corporation;
8. In the papers of the parent corporation or in the statements of its officers, the subsidiary is
described as a department or division of the parent corporation, or its business or
financial responsibility is referred to as the parent corporation’s own;
9. The parent corporation uses the property of the subsidiary as its own;
10. The directors or executives of the subsidiary do not act independently in the interest of
the subsidiary, but take their orders from the parent corporation;
11. The formal legal requirements of the subsidiary are not observed.
D. OTHERS:
15.Almocera v. Ong Feb. 18, 2008
Sales; Contracts to Sell; Words and Phrases; A contract to sell is akin to a conditional sale where the
efficacy or obligatory force of the vendor’s obligation to transfer title is subordinated to the
happening of a future and uncertain event, so that if the suspensive condition does not take place,
the parties would stand as if the conditional obligation had never existed.—It cannot be disputed
that the contract entered into by the parties was a contract to sell. The contract was denominated as
such and it contained the provision that the unit shall be conveyed by way of an Absolute Deed of
Sale, together with the attendant documents of Ownership—the Transfer Certificate of Title and
Certificate of Occupancy—and that the balance of the contract price shall be paid upon the
completion and delivery of the unit, as well as the acceptance thereof by respondent. All these
clearly indicate that ownership of the townhouse has not passed to respondent. In Serrano v.
Caguiat, 517 SCRA 57 (2007) we explained: A contract to sell is akin to a conditional sale where
the efficacy or obligatory force of the vendor’s obligation to transfer title is subordinated to the
happening of a future and uncertain event, so that if the suspensive condition does not take place,
the parties would stand as if the conditional obligation had never existed. The suspensive condition
is commonly full payment of the purchase price.
Reciprocal Obligations; Where one of the parties to a contract did not perform the undertaking to
which he was bound by the terms of the agreement to perform, he is not entitled to insist upon the
performance of the other party.—The contract subject of this case contains reciprocal obligations
which were to be fulfilled by the parties, i.e., to complete and deliver the townhouse within six
months from the execution of the contract to sell on the part of petitioner and FBMC, and to pay the
balance of the contract price upon completion and delivery of the townhouse on the part of the
respondent. In the case at bar, the obligation of petitioner and FBMC which is to complete and
deliver the townhouse unit within the prescribed period, is determinative of the respondent’s
obligation to pay the balance of the contract price. With their failure to fulfill their obligation as
stipulated in the contract, they incurred delay and are liable for damages. They cannot insist that
respondent comply with his obligation. Where one of the parties to a contract did not perform the
undertaking to which he was bound by the terms of the agreement to perform, he is not entitled to
insist upon the performance of the other party.
For failure of one party to assume and perform the obligation imposed on him, the other party does
not incur delay.—The obligation of respondent to pay the balance of the contract price was
conditioned on petitioner and FBMC’s performance of their obligation. Considering that the latter
did not comply with their obligation to complete and deliver the townhouse unit within the period
agreed upon, respondent could not have incurred delay. For failure of one party to assume and
perform the obligation imposed on him, the other party does not incur delay.
Doctrine of Unjust Enrichment; Elements; The fundamental doctrine of unjust enrichment is the
transfer of value without just cause or consideration.—Under the circumstances obtaining in this
case, we find that respondent is justified in refusing to pay the balance of the contract price. He was
never in possession of the townhouse unit and he can no longer be its owner since ownership thereof
has been transferred to a third person who was not a party to the proceedings below. It would simply
be the height of inequity if we are to require respondent to pay the balance of the contract price. To
allow this would result in the unjust enrichment of petitioner and FBMC. The fundamental doctrine
of unjust enrichment is the transfer of value without just cause or consideration. The elements of
this doctrine which are present in this case are: enrichment on the part of the defendant;
impoverishment on the part of the plaintiff; and lack of cause. The main objective is to prevent one
to enrich himself at the expense of another. It is commonly accepted that this doctrine simply means
a person shall not be allowed to profit or enrich himself inequitably at another’s expense. Hence, to
allow petitioner and FBMC keep the down payment made by respondent amounting to
P1,060,000.00 would result in their unjust enrichment at the expense of the respondent. Thus, said
amount should be returned.
Pleadings and Practice; Due Process; Points of law, theories, issues and arguments not brought to
the attention of the trial court will not be and ought not to be considered by a reviewing court, as
these cannot be raised for the first time on appeal—it would be unfair to the adverse party who
would have no opportunity to present further evidence material to the new theory not ventilated
before the trial court.—This issue of piercing the veil of corporate fiction was never raised before
the trial court. The same was raised for the first time before the Court of Appeals which ruled that it
was too late in the day to raise the same. The Court of Appeals declared: In the case below, the
pleadings and the evidence of the defendants are one and the same and never had it made to appear
that Almocera is a person distinct and separate from the other defendant. In fine, we cannot treat this
error for the first time on appeal. We cannot in good conscience, let the defendant Almocera raise
the issue of piercing the veil of corporate fiction just because of the adverse decision against him.
x x x. To allow petitioner to pursue such a defense would undermine basic considerations of due
process. Points of law, theories, issues and arguments not brought to the attention of the trial court
will not be and ought not to be considered by a reviewing court, as these cannot be raised for the
first time on appeal. It would be unfair to the adverse party who would have no opportunity to
present further evidence material to the new theory not ventilated before the trial court.

Delay; Demand would be useless where there would be impossibility of the other party complying
with its obligation due to its fault.—Demand is not necessary in the instant case. Demand by the
respondent would be useless because the impossibility of complying with their (petitioner and
FBMC) obligation was due to their fault. If only they paid their loans with the LBP, the mortgage
on the subject townhouse would not have been foreclosed and thereafter sold to a third person.