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

199687, March 24, 2014

FACTS

A complaint was instituted with the Makati City Regional Trial Court (RTC), Branch 66, against EIB Securities Inc. (E–Securities) for unauthorized
sale of 32,180,000 DMCI shares of Pacific Rehouse Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum Holdings
Corporation, and East Asia Oil Company, Inc. In its October 18, 2005 Resolution, the RTC rendered judgment on the pleadings, directing the E–
Securities to return to the petitioners 32,180,000 DMCI shares, as of judicial demand. On the other hand, petitioners are directed to reimburse
the defendant the amount of [P]10,942,200.00, representing the buy back price of the 60,790,000 KPP shares of stocks at [P]0.18 per share. The
Resolution was ultimately affirmed by the Supreme Court and attained finality.

When the Writ of Execution was returned unsatisfied, petitioners moved for 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 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 opposed the motion[,] arguing that it has a
corporate personality that is separate and distinct from the respondent.

The RTC eventually concluded that E–Securities is a mere business conduit or alter ego of petitioner, the dominant parent corporation, which
justifies piercing of the veil of corporate fiction, and issued an alias writ of summons directing defendant EIB Securities, Inc., and/or Export and
Industry Bank, Inc., to fully comply therewith. It ratiocinated that being one and the same entity in the eyes of the law, the service of summons
upon EIB Securities, Inc. (E–Securities) has bestowed jurisdiction over both the parent and wholly–owned subsidiary.

Export and Industry Bank, Inc. (Export Bank) filed before the Court of Appeals a petition for certiorari with prayer for the issuance of a
temporary restraining order (TRO) seeking the nullification of the RTC Order. The Court of Appeals reversed the RTC Order and explained that
the alter ego theory cannot be sustained because ownership of a subsidiary by the parent company is not enough justification to pierce the veil
of corporate fiction. There must be proof, apart from mere ownership, that Export Bank exploited or misused the corporate fiction of E–
Securities. The existence of interlocking incorporators, directors and officers between the two corporations is not a conclusive indication that
they are one and the same. The records also do not show that Export Bank has complete control over the business policies, affairs and/or
transactions of E–Securities. It was solely E–Securities that contracted the obligation in furtherance of its legitimate corporate purpose; thus,
any fall out must be confined within its limited liability.

ISSUE: Whether or not E-Securities is merely an alter ego of Export Bank so that “piercing the veil of corporate fiction” is proper.

RULING: NO. An alter ego exists 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 control necessary to invoke the alter ego doctrine is not majority or even complete stock control
but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of
its own, and is but a conduit for its principal.

The Court has laid down a three–pronged control test to establish when the alter ego doctrine should be operative:

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;

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; and

The aforesaid control and breach of duty must [have] proximately caused 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. Hence, all three elements should concur for the alter ego doctrine to be applicable.

In this case, the alleged control exercised by Export Bank upon its subsidiary E–Securities, by itself, does not mean that the controlled
corporation is a mere instrumentality or a business conduit of the mother company. Even control over the financial and operational concerns of
a subsidiary company does not by itself call for disregarding its corporate fiction. There must be a perpetuation of fraud behind the control or at
least a fraudulent or illegal purpose behind the control in order to justify piercing the veil of corporate fiction. Such fraudulent intent is lacking
in this case.

While the courts have been granted the colossal authority to wield the sword which pierces through the veil of corporate fiction, concomitant
to the exercise of this power, is the responsibility to uphold the doctrine of separate entity, when rightly so; as it has for so long encouraged
businessmen to enter into economic endeavors fraught with risks and where only a few dared to venture.

The decision of the Court of Appeals in favor of Export Bank (reversing the RTC Order) is affirmed.

Francisco Motors Corporation v. CA and Sps. Manuel (G.R. No. 100812)

Facts:

Petitioner Francisco Motors Corp filed a complaint to recover from respondent spouses Manuel the unpaid balance of the jeepney bought by
the latter from them. As their answer, respondent spouses interposed a counterclaim for unpaid legal services by Gregorio Manuel which was
not paid by petitioner corporation’s directors and officers. Respondent Manuel alleges that he represented members of the Francisco family
who were directors and officers of herein petitioner corporation in an intestate estate proceeding but even after its termination, his services
were not paid. The trial court ruled in favor of petitioner but also allowed respondent spouses’ counterclaim. CA affirmed.

Issue: Whether or not petitioner corporation may be held liable for the liability incurred by its directors and officers in their personal capacity.

Ruling: NO. In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant
application here. Respondent court erred in permitting the trial court’s resort to this doctrine.

In the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It
is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors, officers and
incorporators concerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneous invocation. Note that
according to private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco family to represent them
in the intestate proceedings over Benita Trinidad’s estate. These estate proceedings did not involve any business of petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the
corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable to compensate a
party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held
liable therefore by piercing its corporate veil.

PHILIPPINE FIRST INSURANCE vs. HARTIGAN G.R. No. L-26370 July 31, 1970

FACTS:

On June 1, 1953, plaintiff was originally named as 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd’ an insurance corp. duly presented with
the Security and Exchange Commissioner and before a Notary Public as provided in their articles of incorporation. Later amended its articles of
incorporation and changed its name on May 26, 1961 as ‘Philippine First Insurance Co., Inc.’ pursuant to a certificate of the Board of Directors.
The complaint alleges that: Philippine First Insurance Co., Inc., doing business under the name of 'The Yek Tong Lin Fire and Marine Insurance
Co., Lt.' signed as comaker together with defendant Maria Carmen Hartigan, CGH, to which a promissory note was made in favour of China
Banking. Said defendant failed to pay in full despite renewal of such note. The complaint ends with a prayer for judgment against the
defendants, jointly and severally, for the sum of P4,559.50 with interest at the rate of 12% per annum from November 23, 1961 plus P911.90 by
way of attorney's fees and costs. Defendants admitted the execution of the indemnity agreement but they claim that they signed said
agreement in favor of the Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and not in favor of the plaintiff Philippine Insurance. They likewise
admit that they failed to pay the promissory note when it fell due but they allege that since their obligation with the China Banking Corporation
based on the promissory note still subsists, the surety who co-signed the promissory note is not entitled to collect the value thereof from the
defendants otherwise they will be liable for double amount of their obligation, there being no allegation that the surety has paid the obligation
to the creditor. In their special defense, defendants claim that there is no privity of contract between the plaintiff and the defendants and
consequently, the plaintiff has no cause of action against them, considering that the complaint does not allege that the plaintiff and the 'Yek
Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that the plaintiff has acquired the rights of the latter.

ISSUE:
May a Philippine corporation change its name and still retain its original personality and individuality?

RULING:

The court ruled in the affirmative.

As can be gleaned under Sections 6 and 18 of the Corporation Law, the name of a corporation is peculiarly important as necessary to the very
existence of a corporation. The general rule as to corporations is that each corporation shall have a name by which it is to sue and be sued and
do all legal acts. The name of a corporation in this respect designates the corporation in the same manner as the name of an individual
designates the person." Since an individual has the right to change his name under certain conditions, there is no compelling reason why a
corporation may not enjoy the same right. There is nothing sacrosanct in a name when it comes to artificial beings. The sentimental
considerations which individuals attach to their names are not present in corporations and partnerships. Of course, as in the case of an
individual, such change may not be made exclusively by the corporation's own act. It has to follow the procedure prescribed by law for the
purpose. Strict adherence to such procedure is important and indispensably prescribed.

A general power to alter or amend the charter of a corporation necessarily includes the power to alter the name of the corporation. Hence, a
mere change in the name of a corporation, either by the legislature or by the corporators or stockholders under legislative authority, does not,
generally speaking, affect the identity of the corporation, nor in any way affect the rights, privileges, or obligations previously acquired or
incurred by it. Indeed, it has been said that a change of name by a corporation has no more effect upon the identity of the corporation than a
change of name by a natural person has upon the identity of such person. The corporation, upon such change in its name, is in no sense a new
corporation, nor the successor of the original one, but remains and continues to be the original corporation. It is the same corporation with a
different name, and its character is in no respect changed.

As correctly pointed out by appellant, the approval by the stockholders of the amendment of its articles of incorporation changing the name
"The Yek Tong Lin Fire & Marine Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on March 8, 1961, did not automatically change the
name of said corporation on that date. To be effective, Section 18 of the Corporation Law, earlier quoted, requires that "a copy of the articles of
incorporation as amended, duly certified to be correct by the president and the secretary of the corporation and a majority of the board of
directors or trustees, shall be filed with the Securities & Exchange Commissioner", and it is only from the time of such filing, that "the
corporation shall have the same powers and it and the members and stockholders thereof shall thereafter be subject to the same liabilities as if
such amendment had been embraced in the original articles of incorporation." It goes without saying then that appellant rightly acted in its old
name when on May 15, 1961, it entered into the indemnity agreement, Annex A, with the defendant-appellees; for only after the filing of the
amended articles of incorporation with the Securities & Exchange Commission on May 26, 1961, did appellant legally acquire its new name; and
it was perfectly right for it to file the present case In that new name on December 6, 1961. Such is, but the logical effect of the change of name
of the corporation upon its actions.

Therefore, actions brought by a corporation after it has changed its name should be brought under the new name although for the
enforcement of rights existing at the time the change was made. The change in the name of the corporation does not affect its right to bring an
action on a note given to the corporation under its former name.

Alhambra Cigar & Cigarette Manufacturing Company Inc. vs Securities and Exchange Commission

G.R. No. L-23606 July 29, 1968

Facts: Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to simply as Alhambra) was duly
incorporated under Philippine laws on January 15, 1912. By its corporate articles it was to exist for fifty (50) years from incorporation. Its term
of existence expired on January 15, 1962. On that date, it ceased transacting business, entered into a state of liquidation. Thereafter, a new
corporation. — Alhambra Industries, Inc. — was formed to carry on the business of Alhambra. On May 1, 1962, Alhambra’s stockholders, by
resolution named Angel S. Gamboa trustee to take charge of its liquidation. On June 20, 1963 — within Alhambra’s three-year statutory period
for liquidation – Republic Act 3531 was enacted into law. It amended Section 18 of the Corporation Law; it empowered domestic private
corporations to extend their corporate life beyond the period fixed by the articles of incorporation for a term not to exceed fifty years in any
one instance. Previous to Republic Act 3531, the maximum non-extendible term of such corporations was fifty years. On July 15, 1963, at a
special meeting, Alhambra’s board of directors resolved to amend paragraph “Fourth” of its articles of incorporation to extend its corporate life
for an additional fifty years, or a total of 100 years from its incorporation. On August 26, 1963, Alhambra’s stockholders, representing more
than two-thirds of its subscribed capital stock, voted to approve the foregoing resolution. On October 28, 1963, Alhambra’s articles of
incorporation as so amended certified correct by its president and secretary and a majority of its board of directors, were filed with respondent
Securities and Exchange Commission (SEC). On November 18, 1963, SEC, however, returned said amended articles of incorporation to
Alhambra’s counsel with the ruling that Republic Act 3531 “which took effect only on June 20, 1963, cannot be availed of by the said
corporation, for the reason that its term of existence had already expired when the said law took effect in short, said law has no retroactive
effect.”

Issue: Whether or not the corporate life of a corporation be extended during the period of winding up or after it’s charter has already expired.

Held: No. The common law rule, at the beginning, was rigid and inflexible in that upon its dissolution, a corporation became legally dead for all
purposes. Statutory authorizations had to be provided for its continuance after dissolution “for limited and specified purposes incident to
complete liquidation of its affairs”. Thus, the moment a corporation’s right to exist as an “artificial person” ceases, its corporate powers are
terminated “just as the powers of a natural person to take part in mundane affairs cease to exist upon his death”. There is nothing left but to
conduct, as it were, the settlement of the estate of a deceased juridical person.

From July 15 to October 28, 1963, when Alhambra made its attempt to extend its corporate existence, its original term of fifty years had already
expired (January 15, 1962); it was in the midst of the three-year grace period statutorily fixed in Section 77 of the Corporation Law, thus: .

SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence
for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three years after the time when
it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and
close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for
which it was established.

Plain from the language of the provision is its meaning: continuance of a “dissolved” corporation as a body corporate for three years has for its
purpose the final closure of its affairs, and no other; the corporation is specifically enjoined from “continuing the business for which it was
established”. The liquidation of the corporation’s affairs set forth in Section 77 became necessary precisely because its life had ended. For this
reason alone, the corporate existence and juridical personality of that corporation to do business may no longer be extended.

Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The authority to prolong corporate life was
inserted by Republic Act 3531 into a section of the law that deals with the power of a corporation to amend its articles of incorporation. (For,
the manner of prolongation is through an amendment of the articles.) And it should be clearly evident that under Section 77 no corporation in a
state of liquidation can act in any way, much less amend its articles, “for the purpose of continuing the business for which it was established”.

All these dilute Alhambra’s position that it could revivify its corporate life simply because when it attempted to do so, Alhambra was still in the
process of liquidation. It is surely impermissible for us to stretch the law — that merely empowers a corporation to act in liquidation — to inject
therein the power to extend its corporate existence.

The pari materia rule of statutory construction, in fact, commands that statutes must be harmonized with each other. So harmonizing, the
conclusion is clear that Section 18 of the Corporation Law, as amended by Republic Act 3531 in reference to extensions of corporate existence,
is to be read in the same light as Republic Act 1932. Which means that domestic corporations in general, as with domestic insurance
companies, can extend corporate existence only on or before the expiration of the term fixed in their charters.

Ramirez vs Orientalist Co. (1918)

Facts: Orientalist Company was engaged in the business of maintaining and conducting a theatre in the city of Manila for the exhibition of
cinematographic films. engaged in the business of marketing films for a manufacturer or manufacturers, there engaged in the production or
distribution of cinematographic material. In this enterprise the plaintiff was represented in the city of Manila by his son, Jose Ramirez. The
directors of the Orientalist Company became apprised of the fact that the plaintiff in Paris had control of the agencies for two different marks
of films, namely, the “Eclair Films” and the “Milano Films;” and negotiations were begun with said officials of the Orientalist Company by Jose
Ramirez, as agent of the plaintiff. The defendant Ramon J. Fernandez, one of the directors of the Orientalist Company and also its treasure, was
chiefly active in this matter. Ramon J. Fernandez had an informal conference with all the members of the company’s board of directors except
one, and with approval of those with whom he had communicated, addressed a letter to Jose Ramirez, in Manila, accepting the offer contained
in the memorandum the exclusive agency of the Eclair films and Milano films. In due time the films began to arrive in Manila, it appears that the
Orientalist Company was without funds to meet these obligations. Action was instituted by the plaintiff to Orientalist Company, and Ramon J.
Fernandez for sum of money.

Issue: WON the Orientalist Co. is liable for the acts of its treasurer, Fernandez?
Held: Yes. It will be observed that Ramon J. Fernandez was the particular officer and member of the board of directors who was most active in
the effort to secure the films for the corporation. The negotiations were conducted by him with the knowledge and consent of other members
of the board; and the contract was made with their prior approval. In the light of all the circumstances of the case, we are of the opinion that
the contracts in question were thus inferentially approved by the company’s board of directors and that the company is bound unless the
subsequent failure of the stockholders to approve said contracts had the effect of abrogating the liability thus created.