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I.
MAIN
DOCTRINE:
A
Corporation
Has
A
Personality
Separate
and
Distinct
from
its
Stockholders
or
Members.
(Sec.
2;
Article
44,
Civil
Code)
B.
Applications:
Article
44.
The
following
are
juridical
persons:
1.
The
State
and
its
political
subdivisions;
2.
Other
corporations,
institutions
and
entities
for
public
interest
or
purpose,
created
by
law;
their
personality
begins
as
soon
as
they
have
been
constituted
according
to
law;
3.
Corporations,
partnerships
and
associations
for
private
interest
or
purpose
to
which
the
law
grants
a
juridical
personality,
separate
and
distinct
from
that
of
each
shareholder,
partner
or
member.
(35a)
A.
Importance
of
Main
Doctrine:
McLeod
v.
NLRC,
512
SCRA
222
(2007);
Uy
v.
Villanueva,
526
SCRA
73
(2007);
Pantranco
Employees
Association
(PEA-
PTGWO)
v.
NLRC,
581
SCRA
598
(2009);
Shrimp
Specialists,
Inc.
v.
Fuji-Triumph
Agri-Industrial
Corp.,
608
SCRA
1
(2009).
2
Martinez
v.
Court
of
Appeals,
438
SCRA
139
(2004);
Prudential
Bank
v.
Alviar,
464
SCRA
353
(2005);
EDSA
Shangri-La
Hotel
and
Resorts,
Inc.
v.
BF
Corp.,
556
SCRA
25
(2008);
Siain
Enterprises,
Inc
v.
Cupertino
Realty
Corp.,
590
SCRA
435
(2009).
3
Asionics
Philippines,
Inc.
v.
NLRC,
290
SCRA
164
(1998);
Francisco
v.
Mejia,
362
SCRA
738
(2001);
Matutina
Integrated
Wood
Products,
Inc.
v.
CA,
263
SCRA
490
(1996);
Manila
Hotel
Corp.
v.
NLRC,
343
SCRA
1
(2000);
Secosa
v.
Heirs
of
Erwin
Suarez
Fancisco,
433
SCRA
273
(2004);
EDSA
Shangri-La
Hotel
and
Resorts,
Inc.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Having
interlocking
directors,
corporate
officers
and
The mere fact that one is President does not render the
v.
BF
Corp.,
556
SCRA
25
(2008);
Pantranco
Employees
Association
(PEA-
PTGWO)
v.
NLRC,
581
SCRA
598
(2009).
1
Also
Suldao
v.
Cimech
System
Construction,
Inc.,
506
SCRA
256
(2006);
Union
Bank
of
the
Philippines
v.
Ong,
491
SCRA
581
(2006);
Shrimp
Specialists,
Inc.
v.
Fuji-Triumph
Agri-Industrial
Corp.,
608
SCRA
1
(2009);
Hacienda
Luisita,
Inc.
v.
Presidential
Agrarian
Reform
Council,
660
SCRA
525
(2011).
2
Also
Sesbreno
v.
Court
of
Appeals,
222
SCRA
466
(1993);
G
Holdings,
Inc.
v.
National
Mines
and
Allied
Workers
Union
Local,
103
(NAMAWU),
604
SCRA
73
(2010).
3
Bautista
v.
Auto
Plus
Traders,
Inc.
561
SCRA
223
(2008);
Prisma
Construction
&
Dev.
Corp.
v.
Menchavez,
614
SCRA
590
(2010).
itself
make
ones
property
also
that
of
the
corporation,
and
vice-
versa,
for
they
are
separate
entities,
and
that
shareholders
who
are
officers
are
in
no
legal
sense
the
owners
of
corporate
property
which
is
owned
by
the
corporation
as
a
distinct
legal
person.
Good
Earth
Emporium,
Inc.
v.
CA,
194
SCRA
544
(1991).3
Consolidated Bank and Trust Corp. v. Court of Appeals, 356 SCRA 671 (2001).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
The
fact
that
the
majority
stockholder
had
used
his
own
money
to
pay
part
of
the
loan
of
the
corporation
cannot
be
used
as
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
II.
PIERCING
THE
VEIL
OF
CORPORATE
FICTION:
A.
Source
of
Incantation:
U.S.
v.
Milwaukee
Refrigerator
Transit
Co.,
142
Fed.
247
(1905).
U.S.
v.
Milwaukee
Refrigerator
Transit
Co.
Facts:
The
Elkins
Act
was
enacted
to
prohibit
railroads
from
giving
and
receiving
of
unlawful
rebates.
After
the
enactment
of
the
said
Act,
officers
of
a
brewing
company,
who
were
also
its
controlling
stockholders,
organized
a
transit
company
named
Milwaukee
Refrigerator
Transit,
et
al
and
became
its
officers
and
the
owners
of
all
of
its
stock.
On
behalf
of
the
brewing
company,
the
officers
contracted
with
the
transit
company
to
make
all
the
shipments
for
the
brewing
company.
The
transit
company
contracted
for
shipments
with
interstate
carriers,
where
they
would
only
pay
it
from
1/10
to
1/8
of
the
published
corporation.
Held:
NO.
The
transit
company
was
created
with
intent
to
evade
the
law
making
the
transit
company
as
a
mere
alter
ego
of
the
brewing
corporation,
both
being
substantially
identical
in
interest
and
control,
and
the
brewing
company
the
ultimate
beneficiary.
It
clearly
appears
that
the
shipper
practically
controls
the
transit
company,
and
this
shows
a
sufficient
identity
of
interest
among
the
shareholders
of
both.
Doctrine:
As
a
general
rule,
a
corporation
will
be
looked
upon
as
a
legal
entity,
until
sufficient
reason
to
the
contrary
appears.
An
exception
to
this
is
when
the
notion
of
legal
entity
is
used
to
defeat
public
convenience,
justify
wrong,
protect
fraud,
defend
crime,
the
law
will
regard
the
corporation
as
an
association
of
persons;
and,
where
one
corporation
was
organized
and
is
owned
by
the
officers
and
stockholders
of
another,
making
their
interests
identical,
they
may
be
treated
as
identical
when
the
interests
of
justice
require
it.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
and
convincingly
established.
It
cannot
be
presumed.
Suldao
v.
Cimech
System
Construction,
Inc.,
506
SCRA
256
(2006).
B.
Objectives
and
Effect
of
the
Application
of
the
Doctrine
DBP
v.
Court
of
Appeals,
357
SCRA
626,
358
SCRA
501,
363
SCRA
307
(2001);
Velarde
v.
Lopez,
419
SCRA
422
(2004);
R
&
E
Transport,
Inc.
v.
Latag,
422
SCRA
698
(2004);.Secosa
v.
Heirs
of
Erwin
Suarez
Fancisco,
433
SCRA
273
(2004);
Martinez
v.
Court
of
Appeals,
438
SCRA
139
(2004);
McLeod
v.
NLRC,
512
SCRA
222
(2007);
Siain
Enterprises,
Inc
v.
Cupertino
Realty
Corp.,
590
SCRA
435
(2009).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
remains,
despite
the
petitioners
insistence
on
the
contrary.
For
one,
other
than
the
allegation
that
Filriters
is
90%
owned
by
Philfinance,
and
the
identity
of
one
shall
be
maintained
as
to
the
other,
there
is
nothing
else
which
could
lead
the
court
under
circumstance
to
disregard
their
corporate
personalities.
The
fact
that
Filfinance
owns
majority
shares
in
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
individual
hid
his
assets
in
a
corporation.
See
Emilio
Cano
Enterprises
v.
CIR,
13
SCRA
291
(1965).
Issue:
Whether
or
not
the
doctrine
of
piercing
the
veil
of
corporate
fiction
can
be
applied
to
hold
the
company
liable
for
unpaid
legal
services
rendered
to
its
incorporators
in
an
intestate
proceeding.
Held:
NO.
Gregorio
Manuel
his
services
were
solicited
as
counsel
for
members
of
the
Francisco
family
to
represent
them
in
the
intestate
proceedings
over
Benita
Trinidads
estate.
These
estate
proceedings
did
not
involve
any
business
of
FMC.
His
move
to
recover
unpaid
legal
fees
through
a
counterclaim
against
Francisco
Motors
Corporation,
to
offset
the
unpaid
balance
of
the
purchase
and
repair
of
a
jeep
body
could
only
result
from
an
obvious
misapprehension
that
FMCs
corporate
assets
given
case
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.
Facts:
Indophil
Textile
and
the
petitioner
executed
a
Collective
Bargaining
Agreement
(CBA)
whereby
the
petitioner
is
the
exclusive
Marques
v.
Far
East
Bank
and
Trust
Co.,
639
SCRA
312
(2011);
Sarona
v.
NLRC,
663
SCRA
394
(2012);
PNB
v.
Hydro
Resources
Contractors
Corp.,
693
SCRA
294
(2013).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
bargaining
agent
of
all
the
rank-and-file
employees
of
Indophil
Textile
Mills,
Incorporated.
Later,
Indophil
Acrylic
Manufacturing
Corporation
was
formed,
and
its
employees
also
unionized
and
executed
a
CBA
with
the
said
corporation.
In
1990
or
a
year
after
the
workers
of
Acrylic
have
been
unionized
and
a
CBA
executed,
the
petitioner
union
claimed
that
the
plant
facilities
built
and
set
up
by
Acrylic
should
be
considered
as
an
extension
or
expansion
of
the
facilities
of
respondent
Company.
Issue:
Whether
or
not
Indophil
Acrylic
is
but
an
extension
of
Indophil
Textile,
and
as
such
the
workers
of
Indophil
Acrylic
may
be
considered
as
part
of
the
bargaining
unit
of
Indophil
Textile.
Held:
NO.
The
fact
that
the
businesses
of
private
respondent
and
Acrylic
are
related,
that
some
of
the
employees
of
the
private
respondent
are
the
same
persons
manning
and
providing
for
auxiliary
services
to
the
units
of
Acrylic,
and
that
the
physical
plants,
offices
and
facilities
are
situated
in
the
same
compound,
it
is
our
considered
opinion
that
these
facts
are
not
sufficient
to
justify
the
piercing
of
the
corporate
veil
of
Acrylic.
Hence,
Indophil
Acrylic
not
being
an
extension
or
expansion
of
private
respondent,
Indophil
Textile,
the
rank-
and-file
employees
of
Acrylic
should
not
be
recognized
as
the
bargaining
representative
of
private
respondent.
Doctrine:
We
already
emphasized
that
"the
legal
corporate
entity
is
disregarded
only
if
it
is
sought
to
hold
the
officers
and
stockholders
directly
liable
for
a
corporate
debt
or
obligation."
In
the
instant
case,
petitioner
does
not
seek
to
impose
a
claim
against
the
members
of
the
Acrylic.
La
Campana
Coffee
Factory
v.
Kaisahan
ng
Manggagawa
Facts:
Tan
Tong
and
his
family
own
two
corporations,
namely:
La
Campana
Gaugau
Packing
(The
Gaugau
Corporation)
and
La
Campana
Coffee
Factory,
Inc.
(The
Coffee
Corporation).
Both
are
located
in
the
same
office
in
Espana.
In
1951,
the
laborers
of
the
two
corporations
of
Tan
Tong
formed
a
labor
union
named
as
Kaisahan
ng
Manggagawa
sa
La
Compana
(The
Kaisahan).
The
66
members
of
which
are
under
one
payroll
of
the
two
corporations.
A
dispute
arose
between
Tan
Tong
and
Kaisahan
when
they
could
not
agree
concerning
increased
wages
under
the
corporate
bargaining
agreement,
and
this
was
given
to
the
Court
of
Industrial
Relations.
Tan
Tong
now
pushes
for
the
dismissal
of
the
case
in
the
Court
of
Industrial
Relations
for
lack
of
jurisdiction.
The
claim
that
the
number
of
workers
in
the
La
Campana
Coffee
Factory
is
only
14
and
the
Court
of
Industrial
Relations
requires
that
to
have
jurisdiction
over
a
dispute,
an
organization
must
have
at
least
31
members.
Issue:
Whether
or
not
La
Campana
Gaugau
Packing
(The
Gaugau
Corporation)
and
La
Campana
Coffee
Factory,
Inc.
(The
Coffee
Corporation)
are
one
and
the
same,
and
therefore
the
dispute
would
be
within
the
jurisdiction
of
the
Court
of
Industrial
Relations.
Held:
YES.
It
has
been
proven
that
the
corporations
owned
by
Tan
Tong
are
merely
one
and
the
same.
This
is
for
the
fact
that
they
are
based
in
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
only
one
office,
its
goods
(gaugau
and
coffee)
are
stored
in
one
place
and
in
one
warehouse,
delivery
trucks
indicate
deliveries
of
both
gaugau
and
coffee.
It
is
also
stated
that
the
employees
receive
their
salaries
from
only
one
payroll
and
from
one
Natividad
Garcia,
Tan
Tongs
secretary.
In
this
case,
the
court
treats
the
two
companies
as
one.
Facts:
Felix
Gochan
and
Sons
Realty
Corporation
(FGSRC)
was
registered
under
the
SEC
on
June,
1951
with
Felix
Gochan,
Sr.
as
one
of
the
incorporators.
Felixs
daughter,
Alice,
is
the
mother
of
the
respondents.
Upon
the
death
of
Alice
and
later
her
husband,
the
certificates
were
still
under
the
name
of
John
Young
Sr.,
not
their
children.
Four
years
later,
the
Uys
and
the
Youngs
filed
a
complaint
against
the
directors
of
FGSRC
with
the
SEC
alleging
that
the
directors
were
using
the
corporation
for
fraudulent
purposes.
FGSRC
apparently
sold
some
of
its
real
properties
to
2
other
corporations,
with
these
corporations
having
the
same
directors
as
FGSRC.
Issue:
Whether
or
not
a
derivative
may
be
brought
by
the
Uys
in
behalf
2. Applicable to Third-Parties:
Gochan
v.
Young
corporations
as
alter-egos,
and
the
Uys
and
Youngs
wanted
the
lands
sold
to
these
two
corporations
reconveyed
in
the
name
of
FGSRC.
The
other
two
corporations
to
whom
the
properties
were
being
transferred
have
the
same
stockholders,
and
the
fact
that
they
were
not
stockholders
in
those
companies
cannot
prevent
Uy
and
Young
from
suing
them
since
FGSRC
and
those
two
companies
would
be
one
the
same.
There
was
an
intent
to
defraud
Uy
and
Young
by
hiding
the
properties
in
the
other
corporations.
Doctrine:
The
notion
of
corporate
entity
will
be
pierced
or
disregarded
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
and
the
individuals
composing
it
will
be
treated
as
identical
if,
as
alleged
here,
the
corporate
entity
is
being
used
as
a
cloak
or
cover
for
fraud
or
illegality;
as
a
justification
for
a
wrong;
or
as
an
alter-ego,
an
adjunct,
or
a
business
conduit
for
the
sole
benefit
of
the
stockholders.
C.
Nature
of
the
Piercing
Doctrine
as
an
Equitable
Remedy:
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.
PNB
v.
Ritratto
Group,
Inc.,
362
SCRA
216
(2001).
CONSEQUENTLY:
PNB
v.
Ritratto
Group,
Inc.
Facts:
PNB
International
Finance
Ltd.
(PNB-IFL),
a
subsidiary
company
of
PNB,
extended
credit
to
Ritratto
and
secured
by
the
real
estate
mortgages
on
four
parcels
of
land.
Since
there
was
default,
PNB-IFL
(thru
PNB
as
its
attorney-in-fact)
foreclosed
the
properties
and
were
subject
to
public
auction.
Ritratto
Group
filed
a
complaint
for
injunction
against
PNB
claiming
that
that
PNB
is
merely
an
alter
ego
or
a
business
conduit
of
PNB-IFL
that
is
why
it
is
being
impleaded
in
the
case.
Issue:
Whether
or
not
PNB
is
a
mere
alter-ego
of
PNB-IFL.
Held:
NO.
The
contract
questioned
is
one
entered
into
between
respondent
and
PNB-IFL.
PNB
is
a
mere
attorney-in-
fact
for
the
PNB-IFL
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
as
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.
Doctrine:
The
Circumstance
rendering
the
subsidiary
an
instrumentality.
It
is
manifestly
impossible
to
catalogue
the
infinite
variations
of
fact
that
can
arise
but
there
are
certain
common
circumstances
which
are
important
and
which,
if
present
in
the
proper
combination,
are
controlling.
These
are
as
follows:
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
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
5.
6.
7.
8.
responsibility
is
referred
to
as
the
parent
corporations
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
Rivera
then
approached
Modesto
Cervantes,
president
of
Bormaheco,
and
bought
a
Caterpillar
Tractor,
which
was
also
the
chattel
mortgage
in
favor
of
Bormaheco.
This
sale
was
secured
by
Insurance
Corporation
of
the
Philippines,
and
re-insured
by
an
Agreement
of
Counter
Guaranty
whereby
as
security
for
the
bond
given
by
ICP,
the
Castillos
mortgaged
to
ICP
the
4
parcels
of
land.
The
4
parcels
of
land
were
foreclosed
by
ICP
for
violation
of
the
terms
and
conditions
of
the
Counter
Guaranty.
These
were
then
sold
by
ICP
to
Phil.
Machinery
Parts
Manufacturing
Co.
(also
owned
by
Modesto
Cervantes)
who
then
sent
a
letter
to
Mauricia
Castillo
asking
her
to
NOTE:
Atty.
Hofilea
What
level
of
control
is
necessary
for
a
subsidiary
company
to
be
considered
as
a
mere
alter-ego
of
the
parent
company?
Domination.
The
parent
corporation
must
dominate
the
subsidiary,
and
it
must
be
the
reason
behind
the
latters
incorporation.
1. It
is
a
Remedy
of
Last
Resort:
Piercing
the
corporate
veil
is
remedy
of
last
resort
and
is
not
available
when
other
remedies
are
still
available.
Umali
v.
Court
of
Appeals,
189
SCRA
529
(1990).
Umali
v.
Court
of
Appeals
Facts:
The
Castillo
family
owns
a
parcel
of
land
in
Lucena
City
which
was
mortgaged
to
the
Development
Bank
of
the
Philippines.
For
failing
to
pay,
the
property
was
about
to
be
foreclosed.
Santiago
Rivera,
nephew
of
Mauricia
Castillo,
proposed
that
the
4
lots
adjacent
to
the
mortgaged
property
be
converted
into
a
subdivision
to
raise
funds
to
redeem
the
mortgaged
lot.
Thus,
Castillo
and
Rivera
executed
an
agreement
whereby
Rivera
would
pay
the
Castillos
for
the
development
project.
vacate
the
property.
The
heirs
of
the
late
Felipe
Castillo
filed
an
action
for
annulment
of
title
before
the
CFI
of
Quezon
contending
that
all
the
aforementioned
transactions
are
void
for
being
entered
into
in
fraud
and
without
the
consent
and
approval
of
the
CFI
of
Quezon
before
whom
the
administration
proceedings
was
proceeding.
Issue:
Whether
or
not
the
doctrine
of
piercing
the
veil
of
corporate
entity
should
be
applied
against
the
respondent-Corporations.
Held:
NO.
In
the
case
at
bar,
petitioners
seek
to
pierce
the
veil
of
corporate
entity
of
Bormaheco,
ICP
and
PM
Parts,
alleging
that
these
corporations
employed
fraud
in
causing
the
foreclosure
and
subsequent
sale
of
the
real
properties
belonging
to
petitioners.
While
we
do
not
discount
the
possibility
of
the
existence
of
fraud
in
the
foreclosure
proceeding,
neither
are
we
inclined
to
apply
the
doctrine
invoked
by
petitioners
in
granting
the
relief
sought.
Petitioners
are
merely
seeking
the
declaration
of
the
nullity
of
the
foreclosure
sale,
which
relief
may
be
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
3. Piercing
Doctrine
Not
Applicable
to
Theorizing
or
to
Advance/Create
New
Rights
or
Interest:
Piercing
of
the
veil
of
corporate
fiction
is
not
allowed
when
it
is
resorted
under
a
theory
of
co-ownership
to
justify
continued
use
and
possession
by
stockholders
of
corporate
properties.
Boyer-Roxas
v.
Court
of
Appeals,
211
SCRA
470
(1992).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Corporation
granted
permission
to
Rebecca/Guillermo
to
possess
the
property,
the
Corporation
is
not
forever
bound
by
this
permission.
In
the
absence
of
any
contract
between
the
Corporation
and
Rebecca/Guillermo
regarding
the
length
of
their
possession,
the
Board
may
at
any
time
revoke
the
permission
through
a
board
resolution,
as
same
majority
stockholder
which
is
Cua
Le
Leng.
Cua
Le
Leng
had
the
unlimited
liability
to
use
Siain
Transports
funds
to
pay
the
obligations
incurred
by
Siain
Enterprises.
Thus,
it
is
clear
that
Siain
Enterprises,
Siain
Transport
and
Yuyek
are
characterized
by
oneness
of
operations
vested
in
Cua
Le
Leng
alone.
Consequently,
these
corporations
were
proven
to
be
mere
alter-egos
of
Cua
Le
Leng.
Siain
Enterprises,
Inc
v.
Cupertino
Realty
Corp.
Facts:
Siain
Enterprises
obtained
a
loan
(and
executed
a
promissory
note)
from
Cupertino
Realty
Corporation
secured
by
a
mortgage
over
two
parcels
of
land
and
other
machineries
and
equipment.
Another
promissory
note
in
favor
of
Cupertino
was
executed
by
Cua
Le
Leng
(President
of
Siain
Enterprises)
where
the
latter
was
bound
in
her
personal
capacity.
Later,
Cupertino
instituted
foreclosure
proceedings,
but
Siain
Enterprises
claim
that
the
amended
real
estate
mortgage
was
null
and
void
because
it
never
received
the
P160M
loan.
The
lower
courts
ruled
in
favor
of
Cupertino
and
applied
the
doctrine
of
piercing
the
veil
of
corporate
fiction
to
preclude
Siain
Enterprises
from
disavowing
the
receipt
of
the
loan
and
paying
its
obligation
under
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
be
treated
as
the
real
petitioners
to
the
exclusion
of
the
petitioning
corporate
debtor:
doctrine
only
applies
when
such
corporate
fiction
is
used
to
defeat
public
convenience,
justify
wrong,
protect
fraud
or
defend
crime.
Union
Bank
v.
Court
of
Appeals,
290
SCRA
198
(1998).
General
Credit
Corp.
v.
Alsons
Dev.
and
Investment
Corp.,
513
SCRA
225
(2007);
Pantranco
Employees
Association
(PEA-
PTGWO)
v.
NLRC,
581
SCRA
598
(2009);
Halley
v.
Printwell,
Inc.
649
SCRA
116
(2011).
2
Also
McLeod
v.
NLRC,
512
SCRA
222
(2007);
Uy
v.
Villanueva,
526
SCRA
73
(2007).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
for
which
the
doctrine
was
applied.
Koppel
(Phil.)
Inc.
v.
Yatco,
77
Phil.
496
(1946).3
Also
Ramoso
v.
Court
of
Appeals,
347
SCRA
463
(2000);
Guatson
Intl
Travel
and
Tours,
Inc.
v.
NLRC,
230
SCRA
815
(1990).
2
Also
Concept
Builders,
Inc.
v.
NLRC,
257
SCRA
149
(1996);
Heirs
of
Ramon
Durano,
Sr.
v.
Uy,
344
SCRA
238
(2000);
MR
Holdings,
Ltd.
V.
Bajar,
380
SCRA
617
(2002);
Ramirez
v.
Mar
Fishing
Co.,
Inc.,
672
SCRA
137
(2012).
D.
CLASSIFICATION
OF
PIERCING
CASES:
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Facts:
General
Credit
Corp
(GCC),
then
known
as
Commercial
Credit
Corp
(CCC),
established
CCC
franchise
companies
in
different
urban
centers
in
the
country.
CCC
Equity
Corporation
(EQUITY)
was
organized
by
GCC
for
the
purpose
of
taking
over
the
operations
and
management
of
the
various
franchise
companies.
Alsons
Devt
&
Investment
Corp
(ALSONS)
and
the
Alcantara
Family
each
owned
shares
in
the
aforesaid
GCC
franchise
companies,
e.g.,
CCC
Davao
and
CCC
Cebu.
In
December
1980,
ALSONS
and
the
Alcantara
Family
sold
their
shareholdings
(101,953shares)
in
the
CCC
franchise
companies
to
EQUITY
for
P2M,
for
which
EQUITY
issued
a
bearer
promissory
note
for
P2M
with
a
one-year
maturity
date
and
18%
interest
per
annum.
Some
four
years
later,
the
Alcantara
Family
assigned
its
rights
and
interests
over
the
bearer
note
to
ALSONS.
Even
before
the
execution
of
the
assignment
deal,
letters
for
demand
for
interest
payment
were
already
sent
to
EQUITY
through
its
President,
Wilfredo
Labayen,
who
pleaded
inability
to
pay
the
stipulated
interest,
EQUITY
no
longer
having
assets
or
property
neither
to
settle
its
obligation
nor
being
extended
financial
support
by
GCC.
On
January
14,
1986,
ALSONS
filed
a
complaint
for
a
sum
of
money
against
EQUITY
and
GCC.
GCC
was
impleaded
as
party-defendant
since
EQUITY
has
been
organized
as
a
tool
and
mere
conduit
of
GCC.
Issue:
Whether
or
not
the
doctrine
of
Piercing
the
Veil
of
Corporate
Fiction
should
be
applied
Held:
YES.
The
relationship
of
GCC
and
EQUITY
have
been
that
of
parent-subsidiary
corporations,
the
doctrine
is
applicable
in
the
case
at
bar.
There
are
at
least
20
documented
circumstances
and
transactions
which,
taken
together,
strongly
support
the
conclusion
that
EQUITY
was
an
adjunct
/
instrumentality
/
business
conduit
of
GCC
i.e.
commonality
of
directors,
officers
and
stockholders,
sharing
of
office
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
between
GCC
and
EQUITY,
financing
and
management
arrangements
allowing
GCC
to
handle
the
funds
of
EQUITY,
virtual
control
of
GCC
over
finances,
business
policies
and
practices
of
EQUITY,
and
the
establishment
of
EQUITY
by
GCC
to
circumvent
CB
rules.
Doctrine:
Another
formulation
of
this
doctrine
is
that
when
2
business
enterprises
are
owned,
conducted
and
controlled
by
the
same
parties,
both
law
and
equity
will
disregard
the
legal
fiction
that
2
corporations
are
distinct
entities
and
treat
them
as
one
and
the
same,
when
necessary
to
protect
third
parties
rights.
1. Rundown
on
Piercing
Application:
Concept
Builders,
Inc.
v.
NLRC
Facts:
Concept
Builders
Inc.
was
engaged
in
the
construction
business
and
lost
in
a
case
before
the
NLRC
concerning
the
termination
of
private
respondents
whom
it
had
employed
as
laborers,
carpenters
and
riggers
in
a
project
which
Concept
claims
was
finished,
but
upon
inspection
was
found
to
be
the
contrary.
The
Labor
Arbiter
rendered
judgment
against
Concept
requiring
it
to
pay
private
respondents
back
wages.
The
Sheriff
then
tried
to
execute
the
writ
of
execution
but
found
that
the
office
previously
occupied
by
Concept
is
now
occupied
by
Hydro
Phils.
Inc.
a
manufacturing
company
allegedly
owned
by
the
same
stockholders.
Issue:
Whether
or
not
the
doctrine
of
piercing
the
corporate
veil
is
applicable
to
this
case.
Held:
YES.
While
petitioners
claimed
it
ceased
operations
in
1986,
it
filed
an
Information
Sheet
with
the
SEC
in
1987
stating
that
its
office
address
is
their
old
address.
Both
information
sheets
were
filed
by
Virgilio
Casino,
the
same
corporate
secretary.
They
had
the
same
President,
Board
of
Directors
and
substantially
the
same
subscribers.
Clearly,
petitioner
ceased
its
business
operations
in
order
to
evade
the
payment
to
private
respondents
of
back
wages
and
to
bar
their
reinstatement
to
their
former
positions.
HPPI
is
obviously
a
business
conduit
of
Concept
Builders
and
its
emergence
was
skillfully
orchestrated
to
avoid
the
latters
financial
liability.
PNB
v.
Ritratto
Group,
Inc.,
362
SCRA
216
(2001);
Velarde
v.
Lopez,
419
SCRA
422
(2004);
Jardine
Davies,
Inc.
v.
JRB
Realty,
Inc.,
463
SCRA
555
(2005);
Pantranco
Employees
Association
(PEA-PTGWO)
v.
NLRC,
581
SCRA
598
(2009).
Child
Learning
Center,
Inc.
v.
Tagorio,
475
SCRA
236
(2005);
General
Credit
Corp.
v.
Alsons
Dev.
and
Investment
Corp.,
513
SCRA
225
(2007);
Nisce
v.
Equitable
PCI
Bank,
Inc.,
516
SCRA
231
(2007).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Doctrine:
Probative
factors
of
identity
that
will
justify
the
application
of
the
doctrine:
1. Stock
membership
by
one
or
common
ownership
of
both
2. Identity
of
directors
and
officers
(management)
3. Manner
of
keeping
corporate
books
and
records
(management)
4. Methods
of
conducting
business
(management).
3. Distinction
Between
Fraud
Piercing
and
Alter-ego
Piercing:
Lipat
v.
Pacific
Banking
Corp.,
402
SCRA
339
(2003).
Lipat
v.
Pacific
Banking
Corp.
Facts:
Spouses
Lipat
(Alfredo
and
Estelita)
owns
Belas
Export
Trading
(BET),
a
single
proprietorship
engaged
in
garment
manufacturing
in
Quezon
City.
The
Lipats
also
owned
the
Mystical
Fashions
in
the
United
States,
which
sells
goods
imported
from
the
Philippines
through
BET.
Estelita
designated
her
daughter,
Teresita,
to
manage
BET
in
the
Philippines
while
she
was
managing
Mystical
Fashions
in
the
United
States.
In
order
to
facilitate
the
convenient
operation
of
BET,
Estelita
executed
a
special
power
of
attorney
appointing
Teresita
as
her
attorney-in-fact
to
obtain
loans.
By
virtue
of
this
SPA,
Teresita
obtained
a
sizeable
loan
from
Pacific
Bank.
Three
months
after
the
loan,
BET
was
incorporated
into
a
family
corporation
named
Belas
Export
Corporation
(BEC),
engaged
in
the
same
business
and
utilized
the
same
properties.
The
loan
was
restructured
in
the
name
of
BEC
and
secured
with
Lipats
property.
BEC
defaulted,
and
the
bank
foreclosed
on
the
real
mortgage.
The
spouses
Lipat
claim
that
the
loan
obtained
by
Teresita
were
ultra
vires
acts
because
they
were
executed
without
the
requisite
board
resolution
of
the
Board
of
Directors
of
BEC.
Issue:
Whether
or
not
the
doctrine
of
piercing
the
veil
of
corporate
fiction
applies
in
this
case.
Held:
YES.
In
finding
the
Lipats
mortgaged
property
liable
for
the
obligations
of
BEC,
both
courts
below
relied
upon
the
alter
ego
doctrine
or
instrumentality
rule.
Evidence
suggests
an
alter
ego
case
in
the
sense
that:
(1)
the
spouses
are
the
owners
and
majority
shareholders
of
BET
and
BEC;
(2)
both
firms
were
managed
by
their
daughter,
Teresita;
(3)
both
firms
were
engaged
in
the
garment
business,
supplying
products
to
Mystical
Fashion,
a
US
firm
established
by
Estelita;
(4)
both
firms
held
office
in
the
same
building
owned
by
the
Lipats;
(5)
BEC
is
a
family
corporation
with
the
Lipats
as
its
majority
stockholders;
(6)
the
business
operations
of
the
BEC
were
so
merged
with
those
of
Mrs.
Lipat
such
that
they
were
practically
indistinguishable;
(7)
the
corporate
funds
were
held
by
Estelita
Lipat
and
the
corporation
itself
had
no
visible
assets;
(8)
the
board
of
directors
of
BEC
was
composed
of
the
Burgos
and
Lipat
family
members;
(9)
Estelita
had
full
control
over
the
activities
of
and
decided
business
matters
of
the
corporation;
and
that
(10)
Estelita
Lipat
had
benefited
from
the
loans
secured
from
Pacific
Bank
to
finance
her
business
abroad
and
from
the
export
bills
secured
by
BEC
for
the
account
of
Mystical
Fashion.
It
could
not
have
been
coincidental
that
BET
and
BEC
are
so
intertwined
with
each
other
in
terms
of
ownership,
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
business
purpose,
and
management.
Doctrine:
When
the
corporation
is
the
mere
alter
ego
or
business
conduit
of
a
person,
the
separate
personality
of
the
corporation
may
be
disregarded.
E.
DEFEAT
OF
PUBLIC
CONVENIENCE
(EQUITY
PIERCING):
Juridical
Personality
Cannot
Be
Employed:
1. To
Confuse
Legitimate
Issues:
Telephone
Engineering
and
Service
Co.,
Inc.
V.
WCC,
104
SCRA
354
(1981).
Telephone
Engineering
and
Service
Co.,
Inc.
V.
WCC
Issue:
Whether
or
not
TESCO
may
be
held
liable
for
the
death.
Held:
YES.
TESCO'S
denial
at
this
stage
that
it
is
the
employer
of
the
deceased
is
obviously
an
afterthought,
a
devise
to
defeat
the
law
and
evade
its
obligations.
This
denial
also
constitutes
a
change
of
theory
on
appeal
which
is
not
allowed
in
this
jurisdiction.
The
Court
pierced
the
Facts:
Petitioner
engaged
in
the
business
of
manufacturing
telephone
equipment.
Its
sister
company,
the
Utilities
Management
Corporation
(UMACOR),
with
offices
in
the
same
location.
UMACOR
is
also
under
the
management
of
Jose
Luis
Santiago.
UMACOR
employed
the
late
Pacifica
L.
Gatus
as
Purchasing
Agent.
Then
was
detailed
with
petitioner
veil
between
TESCO
and
UMARCO
in
the
interest
of
justice
and
equity.
Doctrine:
Although
respect
for
the
corporate
personality
as
such,
is
the
general
rule,
there
are
exceptions.
In
appropriate
cases,
the
veil
of
corporate
fiction
may
be
pierced
as
when
the
same
is
made
as
a
shield
to
confuse
the
legitimate
issues.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
receipt
of
the
order,
failing
which
the
court
will
order
either
a
levy
on
respondents
properties
or
the
filing
of
an
action
for
contempt
of
court.
(The
order
of
execution
was
directed
against
the
properties
of
Emilio
Cano
Enterprises,
Inc.)
(1962).1
Issue:
Whether
or
not
the
judgment
against
Emilio
and
Rodolfo
in
their
capacity
as
officials
of
the
corporation
can
be
made
effective
against
the
property
of
the
latter
which
was
not
a
party
to
the
case.
Held:
YES.
While
it
is
an
undisputed
rule
that
a
corporation
has
a
personality
separate
and
distinct
from
its
members
or
stockholders
because
of
a
fiction
of
the
law,
here
we
should
not
lose
sight
of
the
fact
Doctrine:
And
so
it
has
been
held
that
while
a
corporation
is
a
legal
entity
existing
separate
and
apart
from
the
persons
composing
it,
that
concept
cannot
be
extended
to
a
point
beyond
its
reason
and
policy,
and
when
invoked
in
support
of
an
end
subversive
of
this
policy
it
should
be
disregarded
by
the
courts.
Also Mendoza and Yotoko v. Banco Real Dev. Bank, 470 SCRA 86 (2005).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
which
was
used
for
parking
motor
vehicles
for
consideration.
It
turned
out
that
in
operating
its
parking
business,
the
corporation
occupied
and
used
not
only
the
Samanillo
lot
it
had
leased
but
also
an
adjacent
lot
belonging
to
Padilla
(respondent)
without
the
owners
knowledge
and
consent.
Padilla
wanted
payment
for
the
use
and
occupation
of
the
lot.
Judgment
was
rendered
against
Park
Rite,
but
it
was
found
to
be
without
any
assets
apart
from
the
money
deposited
with
the
Court.
The
judgment
creditors
then
filed
suit
in
the
CFI
Manila
against
the
corporation
and
its
past
and
present
stockholders,
to
recover
from
them,
jointly
and
severally,
the
unsatisfied
balance
of
the
judgment,
plus
legal
interest
and
costs.
Issue:
Whether
or
not
there
was
justification
for
disregarding
the
corporate
entity
of
Park
Rite
Co.,
Inc.
and
holding
its
controlling
stockholders
personally
responsible
for
a
judgment
against
the
corp.
Held:
YES.
The
evidence
clearly
shows
that
these
persons
completely
dominated
and
controlled
the
corporation
and
that
the
functions
of
the
corporation
were
solely
for
their
benefits.
It
is
obvious
from
the
sharing
that
only
1
or
2
people
possess
the
majority
shares.
Other
incorporators
had
about
1
or
2
each
which
were
merely
qualifying
shares.
That
the
corporation
was
a
mere
extension
of
their
personality
is
shown
by
the
fact
that
the
office
of
Cirilo
Paredes
and
that
of
Park
Rite
Co.,
Inc.
were
located
in
the
same
building,
in
the
same
floor
and
in
the
same
room
at
507
Wilson
Building.
This
is
further
shown
by
the
fact
that
the
funds
of
the
corporation
were
kept
by
Cirilo
Paredes
in
his
own
name.
The
facts
show
that
the
corporation
is
a
mere
instrumentality
of
the
individual
stockholders;
hence
the
latter
must
individually
answer
for
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
never
paid
their
subscription
in
full,
would
constitute
piercing
of
the
veil
to
allow
the
creditor
to
be
able
to
collect
what
otherwise
were
debts
owed
by
the
company
which
has
no
visible
assets
and
has
ceased
all
operations.
Halley
v.
Printwell,
Inc.
649
SCRA
116
(2011).
Halley
v.
Printwell,
Inc.
Facts:
BMPI
(Business
Media
Philippines
Inc.)
is
a
corporation
under
the
control
of
its
stockholders,
including
Donnina
Halley.
In
the
course
of
its
business,
BMPI
commissioned
PRINTWELL
to
print
Philippines,
Inc.
(a
magazine
published
and
distributed
by
BMPI).
BMPI
placed
several
Doctrine:
TRUST
FUND
DOCTRINE.
Under
which
corporate
debtors
might
look
to
the
unpaid
subscriptions
for
the
satisfaction
of
unpaid
corporate
debts.
Subscriptions
to
the
capital
of
a
corporation
constitutes
a
trust
fund
for
the
payment
of
the
creditors
(by
mere
analogy)
In
reality,
corporation
is
a
simple
debtor.
The
creditor
is
allowed
to
maintain
an
action
upon
any
unpaid
subscriptions
and
thereby
steps
into
the
shoes
of
the
corporation
for
the
satisfaction
of
its
debt.
The
trust
fund
doctrine
is
not
limited
to
reaching
the
stockholders
unpaid
subscriptions.
The
scope
of
the
doctrine
when
the
corporation
is
insolvent
encompasses
not
only
the
capital
stock
but
also
other
property
and
assets
generally
regarded
in
equity
as
a
trust
fund
for
the
Facts:
Yutivo
Sons
Hardware
Co.
is
a
company
engaged
in
the
importation
and
sale
of
hardware
supplies
and
equipment.
The
former
bought
a
number
of
cars
from
General
Motors
Overseas
Corporation.
As
importer,
GM
paid
sales
tax
prescribed
by
sections
184,
185
and
186
of
the
Tax
Code
on
the
basis
of
its
selling
price
to
Yutivo.
Said
tax
being
4. Avoidance
or
Minimization
of
Taxes:
Yutivo
Sons
Hardware
v.
Court
of
Tax
Appeals
1
SCRA
160
(1961);
Liddell
&
Co.
v.
Collector
of
Internal
Revenue,
2
SCRA
632
(1961).
Yutivo
Sons
Hardware
v.
Court
of
Tax
Appeals
collected
only
once
on
original
sales,
Yutivo
paid
no
further
sales
tax
on
its
sales
to
the
public.
Eventually,
Yutivo
sold
exclusively
to
Southern
Motors,
which
was
organized
to
engage
in
the
business
of
selling
cars,
trucks,
and
spare
parts
to
the
public.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
When
GM
decided
to
withdraw
from
the
Philippines,
it
appointed
Yutivo
as
importer
for
the
Visayas
and
Mindanao,
and
Yutivo
continued
its
previous
arrangement
of
selling
exclusively
to
SM.
In
the
same
way
that
GM
used
to
pay
sales
taxes
based
on
its
sales
to
Yutivo,
the
latter,
as
importer,
paid
sales
tax
prescribed
on
the
basis
of
its
selling
price
to
SM,
and
since
such
sales
tax,
as
already
stated,
is
collected
only
once
on
original
sales,
SM
paid
no
sales
tax
on
its
sales
to
the
public.
After
some
time,
the
CIR
made
an
assessment
on
Yutivo
and
demanded
from
the
latter
P1,804,769.85
as
deficiency
sales
tax,
claiming
that
the
taxable
sales
were
the
retail
sales
by
SM
to
the
public
and
not
the
sales
F.
FRAUD
CASES:
Tomas
Lao
Construction
v.
NLRC,
278
SCRA
716
(1997).
Marques
v.
Far
East
Bank
and
Trust
Co.,
639
SCRA
312
(2011).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
wrongful
ends,
the
courts
have
not
hesitated
to
pierce
the
corporate
veil.
Francisco
v.
Mejia,
362
SCRA
738
(2001).
payment
of
taxes
so
that
the
properties
may
be
levied
upon
and
be
the
subject
of
an
auction
where
Merryland
could
bid,
which
was
exactly
what
happened.
Doctrines:
With
specific
regard
to
corporate
officers,
the
general
rule
is
that
the
officer
cannot
be
held
personally
liable
with
the
corporation,
whether
civilly
or
otherwise,
for
the
consequences
of
his
acts,
if
he
acted
for
and
in
behalf
of
the
corporation,
within
the
scope
of
his
authority
and
in
good
faith.
In
such
cases,
the
officers
acts
are
properly
attributed
to
the
corporation.
However,
if
it
is
proven
that
the
officer
has
used
the
corporate
fiction
to
defraud
a
third
party,
or
that
he
has
acted
negligently,
maliciously
or
in
bad
faith,
then
the
corporate
veil
The
case
dragged
on
for
14
years,
during
which
the
taxes
for
the
mortgaged
properties
were
not
paid.
As
a
result,
the
government
levied
upon
them.
They
became
subject
of
an
auction
sale.
The
highest
bidder
was
Merryland
Development
Corporation,
whose
President
was
also
Adalia
Francisco.
Because
of
these,
Rita
Mejia,
the
administrator
of
Gutierrezs
estate,
filed
a
complaint
for
damages
against
Francisco
for
shall
be
lifted
and
he
shall
be
held
personally
liable
for
the
particular
corporate
obligation
involved.
Francisco v. Mejia
fraud.
Issue:
Whether
or
not
Francisco
may
be
held
liable.
Held:
YES,
it
was
evident
that
Francisco
was
in
bad
faith,
not
informing
Gutierrezs
estate
of
the
tax
delinquencies.
Apparently,
Francisco
made
use
of
her
involvement
in
Cardale
and
Merryland
to
secure
an
advantage
for
the
latter.
Cardale
as
the
mortgagor
had
the
duty
of
paying
the
taxes
for
the
properties.
Evidence
showed
that
Francisco
as
Cardales
Treasurer,
intended
to
conceal
the
delinquency
in
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
the
corporate
veil.
DBP
v.
Court
of
Appeals,
357
SCRA
626,
358
SCRA
501,
363
SCRA
307
(2001).
1. Acts
by
Controlling
Shareholder:
SCRA
697
(1992),
and
Del
Rosario
v.
NLRC,
187
SCRA
777
(1990);
Heirs
of
Fe
Tan
Uy
v.
International
Exchange
Bank,
690
SCRA
519
(2013).
Marques v. Far East Bank and Trust Co., 639 SCRA 312 (2011).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
veil
of
corporate
fiction.
In
the
absence
of
clear
and
convincing
evidence
to
show
that
the
corporate
personalities
were
used
to
perpetuate
fraud,
or
circumvent
the
law,
the
corporations
are
to
be
rightly
treated
as
distinct
and
separate
from
each
other.
To
disregard
the
said
separate
juridical
personality
of
a
corporation,
the
wrongdoing
must
be
proven
clearly
and
1
Facts:
Willits
&
Patterson
was
a
partnership
organized
in
San
Francisco,
California.
In
1916,
they
engaged
the
services
of
Arnold
to
be
their
agent
in
the
Philippines
who
will
enjoy
profit-sharing
and
a
fixed
salary.
Arnold
was
to
be
Willits
&
Pattersons
agent
for
five
years,
and
he
was
tasked
to
operate
a
certain
oil
mill.
Philippines
with
the
same
name.
Again,
he
owned
practically
all
the
shares
(legally,
the
San
Francisco
corporation
owned
all
the
assets
and
liabilities
of
the
Manila
corporation).
Sometime
in
1919,
Willits
and
Arnold
entered
into
another
contract,
marked
Exhibit
B,
which
clarified
Arnolds
mode
of
compensation.
Willits
corporation
went
through
financial
trouble,
and
its
creditors
committee
refused
to
honor
Exhibit
B
because
according
to
it,
the
corporation
never
allowed
or
acceded
to
such
a
contract
or
understanding,
and
that
Willits
signed
it
without
authority.
Issue:
Whether
or
not
Exhibit
B
is
binding
upon
the
corporation
and
the
creditors
committee
despite
the
lack
of
approval
from
the
Board
Held:
YES.
The
approval
of
the
Board
is
not
needed
since
it
is
evident
that
Willis
owns
and
controls
the
corporation.
Willits
actions
were
done
not
just
to
benefit
him
as
a
shareholder
but
to
control
the
whole
corporation
and
to
affect
the
transaction
of
its
business,
in
the
same
manner
as
if
it
had
been
clothed
with
all
the
formalities
of
a
corporate
act.
Also,
Exhibit
B
came
into
effect
in
1919
and
since
then,
was
used
by
the
corporation
in
determining
Arnolds
salary
and
dues.
There
was
no
objection
ever
raised
against
it
except
two
years
later,
in
1921,
by
the
creditors
committee.
Its
a
well-settled
doctrine
that
acts
of
officers,
though
unauthorized,
may
be
ratified
by
the
corporation
where
the
latter
acquiesces
to
the
act.
Here,
the
creditors
committee
cannot
object
to
Exhibit
B
because
the
corporation
has
in
effect
ratified
its
validity
by
applying
it
for
two
years.
Doctrine:
When
the
stock
of
a
corporation
owned
by
one
individual
and
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
subsidiarys
separate
existence
shall
be
respected,
and
the
liability
of
the
parent
corporation,
as
well
as
the
subsidiary
shall
be
confined
to
those
arising
in
their
respective
business.
A
corporation
has
a
separate
personality
distinct
from
its
stockholders
and
from
other
corporations
to
which
it
may
be
conducted
a
legal
fiction
created
by
law
for
convenience
and
the
corporation
functions
for
his
benefit,
the
corporation
and
individual
should
be
deemed
the
same.
General
Credit
Corp.
v.
Alsons
Dev.
and
Investment
Corp.,
513
SCRA
225
(2007).
Facts:
Moris
Industries
was
engaged
in
manufacture
of
leather
goods.
In
1985,
56
out
of
74
workers
decided
to
form
the
Moris
Industries
Union.
When
the
Union
contacted
Moris
in
order
to
fix
a
collective
bargaining
agreement,
Moris
suddenly
shut
down
and
ceased
operations
two
days
later.
Because
of
this,
the
Union
filed
a
case
with
the
NLRC
against
Moris
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
for
unfair
labor
practice,
recovery
of
wage
differentials
and
other
monetary
benefits.
Shoemart,
and
its
president,
Henry
Sy,
was
also
impleaded
because
according
to
the
Union,
Shoemart
and
Moris
had
only
one
juridical
personality.
Issue:
Whether
or
not
the
NLRC
correctly
applied
the
piercing
doctrine
by
holding
SM
liable
together
with
Moris
Held:
YES.
The
facts
show
that
Moris
was
the
mere
alter
ego
of
SM.
Thus,
in
order
to
protect
the
rights
of
the
workers,
the
NLRC
properly
applied
the
piercing
of
the
corporate
veil
doctrine.
And
since
Moris
doesnt
exist
anymore
to
rehire
the
workers,
who
also
cant
work
for
SM
because
of
a
difference
in
expertise
of
labor,
then
the
SC
deemed
it
proper
to
hold
SM
solidarily
liable
with
Moris
for
separation
pay.
1. The
Union
presented
one
Cresencio
Edic
as
a
witness.
Edic
testified
that
he
was
first
hired
by
the
persons
who
owned
SM
to
make
samples
to
be
displayed
on
the
store
windows.
When
he
was
promoted
as
over-all
supervisor,
the
factory
was
transferred,
the
production
division
was
separately
incorporated
and
underwent
many
name
changes.
However,
the
owners
remained
the
same.
2. An
examination
of
the
Incorporation
papers
of
SM
Shoe
Mart
and
Moris
Manufacturing
show
(sic)
that
except
for
Elizabeth
Sy
all
other
five
(5)
incorporators
and
directors
of
Morris
Industries
are
major
stockholders
of
SM
Shoe
Mart
as
of
July
20,
1985;
3. The
SM
Shoe
Mart
is
the
exclusive
buyer
of
all
of
Moris'
products;
4. Both
are
housed
in
one
building
and
Moris
for
many
years
has
been
using
the
payrolls
of
SM
Shoe
Mart.
SM
glibly
excuses
this
fact
by
alleging
that
this
was
done
without
its
knowledge.
We,
however,
considering
the
close
relationship
of
parties,
find
this
incredible.
Doctrine:
See
above.
Facts:
Susana
Realty
Inc.
(SRI)
sold
to
Light
Rail
Transit
Authority
(LRTA)
several
parcels
of
land
along
Taft
Avenue
whereby
SRI
had
a
right
of
first
refusal
in
case
LRTA
decided
to
develop
the
land.
LRTA
contracted
with
Phoenix-Omega
Development
and
Management
Corporation
(Phoenix-
Omega)
to
develop
the
land
to
which
SRI
later
agreed
on
the
condition
that
all
plans
must
be
approved
by
it.
Phoenix-Omega
then
assigned
its
rights
to
PKA
Development
and
Management
Corporation
(PKA)
whose
President
and
General
Manager
is
Padilla
(who
is
at
the
same
time
Chairman
of
the
Board
of
Phoenix-Omega).
So
now,
PKA
was
in
charge
of
developing
the
properties.
However,
it
continuously
failed
to
and
eventually
its
building
permit
was
revoked
for
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
defects
in
construction.
PKA
then
filed
for
rescission
of
the
contract,
alleging
that
SRI
maliciously
withheld
approval
of
the
plans,
which
in
turn
led
to
PKA
being
unable
to
comply
with
its
obligations.
However,
the
judgment
went
in
favor
of
SRI.
The
contract
was
rescinded,
and
PKA
was
ordered
to
indemnify
SRI
for
damages.
The
properties
were
returned
to
SRI,
but
PKA
failed
to
pay
the
monetary
awards.
Thus,
SRI
filed
a
motion
for
the
issuance
of
an
alias
writ
against
Padilla
and
Phoenix-Omega,
saying
that
they
were
one
and
the
same
entity
with
PKA.
Padilla
and
Phoenix-Omega
claimed
they
were
denied
due
process
because
Phoenix
was
not
given
its
days
in
Court.
Issue:
Whether
or
not
Padillas
participation
in
the
proceedings
as
PKAs
President
and
General
Manager
could
be
construed
as
the
opportunity
to
be
heard
in
court
of
Padilla
and
Phoenix-Omega
Held:
NO.
Padilla
and
Phoenix-Omega
were
not
given
their
day
in
court.
It
is
clear
that
Padilla
participated
in
the
proceedings
as
General
Manager
of
PKA
and
not
in
any
other
capacity.
The
fact
that
he
was
the
Chairman
of
the
Board
of
Phoenix-Omega
cannot
equate
to
participation
by
Phoenix-Omega
in
the
same
proceedings.
Phoenix-
Omega
was
never
a
party
to
the
case
and
so
could
not
have
participated
therein.
PKA
and
Phoenix-Omega
are
admittedly
sister
companies,
and
may
be
sharing
personnel
and
resources,
but
there
was
no
allegation,
much
less
positive
proof,
that
their
separate
corporate
personalities
were
being
used
to
defeat
public
convenience,
justify
wrong,
protect
fraud,
or
defend
crime.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
H.
PIERCING
DOCTRINE
AND
THE
DUE
PROCESS
CLAUSE
1. Need
to
Bring
a
New
Case
Against
the
Officer.
McConnel
v.
CA,
1
SCRA
723
(1961).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
presentation
of
evidence
and
the
examination
of
witnesses,
unequivocally
show
that
respondent
Metropolitan
Bank
and
Trust
Company
sought
to
prove
that
petitioner
and
the
corporation
are
one
or
that
he
is
the
corporation.
No
serious
objection
was
heard
from
petitioner.
Issue:
Whether
or
not
the
application
of
piercing
the
veil
was
supported
with
evidence.
Held:
YES.
Roberto
A.
Jacinto,
it
would
appear
that
he
is
in
fact,
the
corporation
itself
known
as
Inland
Industries,
Inc.
Aside
from
the
fact
that
he
is
admittedly
the
President
and
General
Manager
of
the
NOTE:
Atty.
Hofilea
GENERAL
RULE:
The
Corporation
has
a
personality
separate
from
officers,
stockholders
and
related
companies.
EXCEPTION:
When
it
is
necessary
to
advance
the
cause
of
justice,
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)