G.R. No.

132358 April 12, 2002

MILA YAP SUMNDAD vs. JOHN WILLIAM HARRIGAN
FACTS:
Boracay Beach Club Hotel Inc. (BBCHI), represented by Petitioner Sumndad, borrowed a loan of at
least P 8,000.00 from Respondent Harrigan for the construction of a resort in Boracay. Upon demand,
BBCHI failed to pay. On March 6, 1995, Harrigan filed an amended complaint impleading the
management committee of BBCHI. The lower courts ruled in favor of Harrigan ordering BBCHI to settle
their loan. However, Sumndad insists that it is the SEC that has jurisdiction by virtue of PD No. 902-A
(Reorganization of the Securities and Exchange Commission with Additional Powers) because the
complaint alludes to fraud committed by BBCHI, and the Harrigan is a stockholder of the respondent
corporation. Harrigan, on the other hand, maintains that jurisdiction is lodged with the regular courts, it
being a simple collection case.
ISSUE: Sinetch ang may jurisdiction over the case? Is it the SEC or the regular courts?
HELD: It would be the REGULAR COURTS.
Harrigan seeks to collect from BBCHI his advances or loans in the amount of at least P8 million, which
are demandable in character. The cause of action of the suit is, clearly, for the collection of a sum of
money. However, petitioner interprets said collection complaint as one involving mainly the issue of
fraud committed by respondent corporation, which makes the controversy fall under the ambit of PD
902-A. But according to the SC, the main issue of the totality of the complaint filed by Harrigan is
whether or not he is entitled to collect the loan and not whether or not he was defrauded by BBCHI. The
mere use of the phrase "in fraud of creditors" does not, ipso facto, throw the case within SECs
jurisdiction.
The law on jurisdiction of the SEC, Section 5 of PD 902-A, states that in addition to the regulatory and
adjudicative functions of the SEC over corporations, partnerships and other forms of associations
registered with it as expressly granted under the existing laws and decrees, it shall have original and
exclusive jurisdiction to hear and decide cases involving devises or schemes employed by or any acts of
the Board of Directors, business associates, its officers and partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public and/or to the stockholders,
partners, members of associations or organizations registered with the Commission.

MEL VELARDE vs. LOPEZ, INC
G.R. No. 153886 January 14, 2004

FACTS: On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez, Inc., as LENDER, and
petitioner Mel Velarde, then General Manager of Sky Vision Corporation, a subsidiary of respondent, as
BORROWER, forged a notarized loan agreement covering the amount of P10,000,000.00. The agreement
expressly provided for, among other things, the manner of payment and the circumstances constituting default
which would give the lender the right to declare the loan together with accrued interest immediately due and
payable. As petitioner failed to pay the installments as they became due, respondent, apparently in answer to a
proposal of petitioner respecting the settlement of the loan, advised him by letter dated July 15, 1998 that he may
use his retirement benefits in Sky Vision in partial settlement of his loan after he settles his accountabilities to the
latter and gives his written instructions to it. Petitioner protested the computation indicated in the July 15, 1998
letter, he asserting that the imputed unliquidated advances from Sky Vision had already been properly liquidated.
On August 18, 1998, respondent filed a complaint for collection of sum of money with damages at the RTC of
Pasig City against petitioner because of failure to comply with the loan agreement and refusal to pay upon
demand. Respondent filed a manifestation and a motion to dismiss the counterclaim for want of jurisdiction, which
drew petitioner to assert in his comment and opposition thereto that the veil of corporate fiction must be pierced to
hold respondent liable for his counterclaims. RTC of Pasig denied respondents motion to dismiss the
counterclaim and ruled that there is identity of interest between respondent and Sky Vision to merit the piercing of
the veil of corporate fiction. Respondents motion for reconsideration having been denied, it filed a Petition for
Certiorari at the CA which held that respondent is not the real party-in-interest on the counterclaim and that there
was failure to show the presence of any of the circumstances to justify the application of the principle of "piercing
the veil of corporate fiction." Motion for Reconsideration was likewise denied. Hence this Petition for Review on
Certiorari.
ISSUE: Whether or not the veil of corporate fiction must be pierced to hold respondent liable.
RULING: In applying the doctrine of piercing the veil of corporate fiction, 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.
Nowhere, however, in the pleadings and other records of the case can it be gathered that respondent has
complete control over Sky Vision, not only of finances but of policy and business practice in respect to the
transaction attacked, so that Sky Vision had at the time of the transaction no separate mind, will or existence of its
own. The existence of interlocking directors, corporate officers and shareholders is not enough justification to
pierce the veil of corporate fiction in the absence of fraud or other public policy considerations.
Petitioner muddles the issues by arguing that respondent fraudulently took advantage of the control over the
matter of compensation and benefits of an employee of Sky Vision to deceive petitioner into signing the loan
agreement on the misleading assurance that it was merely for the purpose of documenting the reward to him of
ten million pesos. This argument does not persuade. Petitioner, being a lawyer, is presumed to know the legal
and binding effects of loan agreements.
As for the trial courts ruling that the agreement to set-off is an amendment of the loan agreement resulting to an
identity of interest between respondent and Sky Vision and, therefore, sufficient to pierce the veil of corporate
fiction, it is untenable. In the letter sent to petitioner it was mentioned that, to effect a set-off, it is a condition sine
qua non that the approval thereof by "Sky/Central" must be obtained, and that petitioner liquidate his advances
from Sky Vision. These conditions hardly manifest that respondent possessed that degree of control over Sky
Vision as to make the latter its mere instrumentality, agency or adjunct.