Академический Документы
Профессиональный Документы
Культура Документы
13 SCRA 291 Business Organization Corporation Law Principle of the Corporate Fiction Equity
Case
Honorata Cruz was terminated by Emilio Cano Enterprises, Inc. (ECEI). She then filed a complaint for
unfair labor practice against Emilio Cano, in his capacity as president and proprietor, and Rodolfo Cano,
in his capacity as manager. Cruz won and the Court of Industrial Relations (CIR) ordered the Canos to
reinstate Cruz plus pay her backwages with interest. The Canos appealed to the CIR en banc but while
on appeal Emilio died. The Canos lost on appeal and an order of execution was levied against ECEIs
property. ECEI filed an ex parte motion to quash the writ as ECEI avers that it is a corporation with a
separate and distinct personality from the Canos. Their motion was denied and ECEI filed a petition for
certiorari with the Supreme Court.
ISSUE: Whether or not the judgment of the Court of Industrial Relations is correct.
HELD:
Yes. This is an instance where the corporation and its members can be considered as one. ECEI is a close
family corporation the incorporators are members of the Cano family. Further, the Canos were sued in
their capacity as officers of ECEI not in their private capacity. Having been sued officially their
connection with the case must be deemed to be impressed with the representation of the corporation.
The judgment against the Canos has a direct bearing to ECEI. Verily, the order against them is in effect
against the corporation. Further still, even if this technicality be strictly observed, what will simply
happen is for this case to be remanded, change the name of the party, but the judgment will still be the
same there can be no real benefit and will only subversive to the ends of justice. In this case, to hold
ECEI liable is not to ignore the legal fiction but merely to give meaning to the principle that such fiction
cannot be invoked if its purpose is to use it as a shield to further an end subversive of justice.
However, SC agreed with the respondent court that SM was actually owned and controlled by
petitioner. Consideration of various circumstances indicate that Yutivo treated SM merely as its
department or adjunct:
a. The founders of the corporation are closely related to each other by blood and affinity.
b. The object and purpose of the business is the same; both are engaged in sale of vehicles, spare parts,
hardware supplies and equipment.
c. The accounting system maintained by Yutivo shows that it maintained high degree of control over SM
accounts.
d. Several correspondences have reference to Yutivo as the head office of SM. SM may even freely use
forms or stationery of Yutivo.
e. All cash collections of SMs branches are remitted directly to Yutivo.
f. The controlling majority of the Board of Directors of Yutivo is also the controlling majority of SM.
g. The principal officers of both corporations are identical. Both corporations have a common
comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivos president, Yu Khe Thai.
h. Yutivo, financed principally the business of SM and actually extended all the credit to the latter not
only in the form of starting capital but also in the form of credits extended for the cars and vehicles
allegedly sold by Yutivo to SM.
Business Organization Corporation Law Piercing the Veil of Corporate Fiction Fraud Test vs Alter
Ego Test
Adalia Francisco was the Treasurer of Cardale Financing and Realty Corporation (Cardale). Cardale,
through Francisco, contracted with Andrea Gutierrez for the latter to execute a deed of sale over certain
parcels of land in favor of Cardale. It was agreed that Gutierrez shall hand over the titles to Cardale but
Cardale shall only give a downpayment, and later on full payment in installment. As security, Gutierrez
shall retain a lien over the properties by way of mortgage. Nonetheless, Cardale defaulted in its
payment. Gutierrez then filed a petition with the trial court to have the Deed rescinded.
While the case was pending, Gutierrez died, and Rita Mejia, being the executrix of the will of Gutierrez
took over the affairs of the estate.
The case dragged on for 14 years because Francisco lost interest in presenting evidence. And while the
case was pending, Cardale failed to pay real estate taxes over the properties in litigation hence, the local
government subjected said properties to an auction sale to satisfy the tax arrears. The highest bidder in
the auction sale was Merryland Development Corporation (Merryland).
Apparently, Merryland is a corporation in which Francisco was the President and majority stockholder.
Mejia then sought to nullify the auction sale on the ground that Francisco used the two corporations as
dummies to defraud the estate of Gutierrez especially so that these circumstances are present:
Francisco did not inform the lower court that the properties were delinquent in taxes;
That there was notice for an auction sale and Francisco did not inform the Gutierrez estate and as such,
the estate was not able to perform appropriate acts to remedy the same;
That without knowledge of the auction, the Gutierrez estate cannot exercise their right of redemption;
That Francisco failed to inform the court that the highest bidder in the auction sale was Merryland, her
other company;
That thereafter, Cardale was dissolved and the subject properties were divided and sold to other people.
ISSUE: Whether or not Merryland and Francisco shall be held solidarily liable.
HELD: No. Only Francisco shall be held liable to pay the indebtedness to the Gutierrez estate. What was
only proven was that Francisco defrauded the Gutierrez estate as clearly shown by the dubious
circumstances which caused the encumbered properties to be auctioned. By not disclosing the tax
delinquency, Francisco left Gutierrez in the dark. She obviously acted in bad faith. Franciscos elaborate
act of defaulting payment, disregarding the case, not paying realty taxes (since as treasurer of Cardale,
shes responsible for paying the real estate taxes for Cardale), and failure to advise Gutierrez of the tax
delinquencies all constitute bad faith. The attendant fraud and bad faith on the part of Francisco
necessitates the piercing of the veil of corporate fiction in so far as Cardale and Francisco are concerned.
Cardale and Francisco cannot escape liability now that Cardale has been dissolved. Francisco shall then
pay Guttierez estate the outstanding balance with interest (total of P4.3 + million).
As regards Merryland however, there was no proof that it is merely an alter ego or a business conduit of
Francisco. Merryland merely bought the properties from the auction sale and such per se is not a
wrongful act or a fraudulent act. Time and again it has been reiterated that 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. Hence, Merryland cant be
held solidarily liable with Francisco.
RIZAL LIGHT & ICE vs. THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE COMMISSION
September 28, 1968 / Zaldivar, J.
Rizal Light & Ice Co. was granted by the Commission a certificate of public convenience and
necessity for the installation, operation and maintenance of an electric light, heat and power service in
the municipality of Morong, Rizal
Commission required the petitioner to appear before it to show cause why it should not be
penalized for violation of the conditions of its certificate of public convenience and the regulations of
the Commission, and for failure to comply with the directives to raise its service voltage and maintain
them within the limits prescribed in the Revised Order No. 1 of the Commission, and to acquire and
install a kilowattmeter to indicate the load in kilowatts at any particular time of the generating unit
The motion was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial Division of the
Commission, was authorized to conduct the hearing for the reception of the evidence of the parties
For failure of the petitioner to appear at the hearing, Commission ordered the cancellation and
revocation of petitioner's certificate of public convenience and necessity and the forfeiture of its
franchise
Petitioner moved for reconsideration of said order on the ground that its manager was not
aware of said hearing
Finding that the failure of the petitioner to appear at the hearing the sole basis of the
revocation of petitioner's certificate was really due to the illness of its manager, the Commission set
aside its order of revocation
When the case was called for hearing, petitioner failed to appear again so municipality was then
allowed to present its documentary evidence, and thereafter the case was submitted for decision
on the basis of the inspection reports, Commission found that the petitioner had failed to
comply with the directives and had violated the conditions of its certificate of public convenience as well
certificate of public convenience and the forfeiture of its franchise
petitioner moved for reconsideration of the decision but before said motion for reconsideration
was filed, Morong Electric filed with the Commission an application for a certificate of public
convenience and necessity for said service
Held:
1.
YES BUT...
Indeed, Mr. Talavera is not a lawyer. Under the second paragraph of Section 32 of Commonwealth Act
No. 146, as amended, the Commission can only authorize a division chief to hear and investigate a case
filed before it if he is a lawyer. However, the petitioner is raising this question for the first time in this
appeal. The record discloses that petitioner never made any objection to the authority of Mr. Talavera
to hear the case and to receive the evidence of the parties. On the contrary, petitioner had appeared
and submitted evidence at the hearings conducted by Mr. Talavera, particularly the hearings relative to
the motion for reconsideration of the order cancelling and revoking its certificate. Through counsel,
petitioner had entered into agreements with Mr. Talavera, as hearing officer, and the counsel for
respondent municipality, regarding procedure in order to abbreviate the proceedings. It is only after the
decision in the case turned out to be adverse to it that petitioner questioned the proceedings held
before Mr. Talavera.
Objection to the delegation of authority to hear a case filed before the Commission and to receive the
evidence in connection therewith is a procedural, not a jurisdictional point, and is waived by failure to
interpose timely the objection and the case had been decided by the Commission. Since petitioner has
never raised any objection to the authority of Mr. Talavera before the Commission, it should be deemed
to have waived such procedural defect, and consonant with the precedents on the matter, petitioner's
claim that the Commission acted without or in excess of jurisdiction in so authorizing Mr. Talavera
should be dismissed.
2. NO. Settled is the rule that in reviewing the decision of the Public Service Commission this Court is not
required to examine the proof de novo and determine for itself whether or not the preponderance of
evidence really justifies the decision. The only function of this Court is to determine whether or not
there is evidence before the Commission upon which its decision might reasonably be based. This Court
will not substitute its discretion for that of the Commission on questions of fact and will not interfere in
the latter's decision unless it clearly appears that there is no evidence to support it. Inasmuch as the
only function of this Court in reviewing the decision of the Commission is to determine whether there is
sufficient evidence before the Commission upon which its decision can reasonably be based, as it is not
required to examine the proof de novo, the evidence that should be made the basis of this Court's
determination should be only those presented in this case before the Commission. The Commission
based its decision on the inspection reports submitted by its engineers who conducted the inspection of
petitioner's electric service upon orders of the Commission. Said inspection reports specify in detail the
deficiencies incurred, and violations committed, by the petitioner resulting in the inadequacy of its
service. SC considers that said reports are sufficient to serve reasonably as bases of the decision in
question. It should be emphasized, in this connection that said reports, are not mere documentary
proofs presented for the consideration of the Commission, but are the results of the Commission's own
observations and investigations which it can rightfully take into consideration, particularly in this case
where the petitioner had not presented any evidence in its defense, and speaking of petitioner's failure
to present evidence, as well as its failure to cross-examine the authors of the inspection reports,
petitioner should not complain because it had waived not only its right to cross-examine but also its
right to present evidence.
Cagayan Fishing Development Co., Inc., vs. Sandiko, [G.R. No. L-43350 December 23, 1937]
Facts: Manuel Tabora is the registered owner of four parcels of land. To guarantee the payment of two
loans, Manuel Tabora, executed in favor of PNB two mortgages over the four parcels of land between
August, 1929, and April 1930. Later, a third mortgage on the same lands was executed also on April,
1930 in favor of Severina Buzon to whom Tabora was indebted.
On May, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad
Inmueble" (Exhibit A) by virtue of which the four parcels of land owned by him was sold to the plaintiff
company, said to under process of incorporation. The plaintiff company filed its article incorporation
with the Bureau of Commerce and Industry only on October, 1930 (Exhibit 2).
A year later, the board of directors of said company adopted a resolution authorizing its president to sell
the four parcels of lands in question to Teodoro Sandiko. Exhibits B, C and D were thereafter made and
executed. Exhibit B is a deed of sale where the plaintiff sold ceded and transferred to the defendant all
its right, titles, and interest in and to the four parcels of land. Exhibit C is a promissory note drawn by the
defendant in favor of the plaintiff, payable after one year from the date thereof. Exhibit D is a deed of
mortgage executed where the four parcels of land were given a security for the payment of the
promissory note, Exhibit C.
The defendant having failed to pay the sum stated in the promissory note, plaintiff, brought this action
in the Court of First Instance of Manila praying that judgment be rendered against the defendant for the
sum stated in the promissory note. After trial, the court rendered judgment absolving the defendant.
Plaintiff presented a motion for new trial, which motion was denied by the trial court. After due
exception and notice, plaintiff has appealed to this court and makes an assignment of various errors.
Issue: Whether Exhibit B, the deed of sale executed in favor of Teodoro Sandiko, was valid.
The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected
on May 31, 1930 (Exhibit A) and the actual incorporation of said company was affected later on October
22, 1930 (Exhibit 2). In other words, the transfer was made almost five months before the incorporation
of the company.
Unquestionably, a duly organized corporation has the power to purchase and hold such real property as
the purposes for which such corporation was formed may permit and for this purpose may enter into
such contracts as may be necessary. But before a corporation may be said to be lawfully organized,
many things have to be done. Among other things, the law requires the filing of articles of incorporation.
In the case before us it can not be denied that the plaintiff was not yet incorporated when it entered
into a contract of sale, Exhibit A. Not being in legal existence then, it did not possess juridical capacity to
enter into the contract.
Boiled down to its naked reality, the contract here (Exhibit A) was entered into not between Manuel
Tabora and a non-existent corporation but between the Manuel Tabora as owner of the four parcels of
lands on the one hand and the same Manuel Tabora, his wife and others, as mere promoters of a
corporations on the other hand.
For reasons that are self-evident, these promoters could not have acted as agent for a projected
corporation since that which no legal existence could have no agent. A corporation, until organized, has
no life and therefore no faculties.
This is not saying that under no circumstances may the acts of promoters of a corporation be ratified by
the corporation if and when subsequently organized.
There are, of course, exceptions, but under the peculiar facts and circumstances of the present case we
decline to extend the doctrine of ratification which would result in the commission of injustice or fraud
to the candid and unwary.
G.R. No. L-48627 June 30, 1987FERMIN Z. CARAM, JR. and ROSA O. DE CARAM
, petitionersvs.
THE HONORABLE COURT OF APPEALS and ALBERTO V.ARELLANO,
respondents.Doctrine: A bona fide corporation is liable for its corporate acts as dulyauthorized by its
officers and directors.Facts:Respondent Alberto Arellano was contracted by Barretto andGarcia(Walang
binigay na first names sa case, damn you JusticeCruz!) to do a project study and other technical services
in forming acorporation, which was later on named Filipinas Orient Airways. Theproject study was
presented by Barretto and Garcia to the Carams. After seeing the project study, the Carams were
convinced to investand become stockholders of the said company.The case involves the collection of the
unpaid compensation for
Arellanos services. The CA decided that the Carams were jointly and
severally liable to Arellano stating that:
It was on the basis of this study that defendant corporation was
actually organized and rendered operational. Defendants Garcia and Caram, and Barretto became
members of the Board and/or officers of defendant corporation. Thus, not only the defendant
corporation but all the other defendants who were involved in the preparatory stagesof the
incorporation, who caused the preparation and/or benefited from the project study and the technical
services of plaintiff must be
liable.
Hence this petition.Issue/s:WON the CA was correct in holding the Carams liable?Held: The Court held
that the Carams were not liable.The petitioners were not involved in the initial stages of theorganization
of the airline, which were being directed by Barretto asthe main promoter. It was he who was putting all
the pieces together,so to speak. The petitioners were merely among the financiers whoseinterest was to
be invited and who were in fact persuaded, on thestrength of the project study, to invest in the
proposed airline.Significantly, there was no showing that the Filipinas Orient Airwayswas a fictitious
corporation and did not have a separate juridicalpersonality, to justify making the petitioners, as
principal stockholdersthereof, responsible for its obligations. As a bona fide corporation, theFilipinas
Orient Airways should alone be liable for its corporate actsas duly authorized by its officers and
directors.In the light of these circumstances, we hold that the petitionerscannot be held personally
liable for the compensation claimed by theprivate respondent for the services performed by him in
theorganization of the corporation. To repeat, the petitioners did notcontract such services. It was only
the results of such services thatBarretto and Garcia presented to them and which persuaded them
toinvest in the proposed airline. The most that can be said is that theybenefited from such services, but
that surely is no justification to holdthem personally liable therefor. Otherwise, all the other
stockholdersof the corporation, including those who came in later, and regardlessof the amount of their
share holdings, would be equally andpersonally liable also with the petitioners for the claims of the
Immediately after the execution of the articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers.
Then, the articles of incorporation were filed in SEC for the issuance of the corresponding certificate of
incorporation.
Pending action on the articles of incorporation, Fred Brown, Emma Brown, Hipolita Chapman and
Ceferino Abella filed a civil case against the Halls alleging among other things that Far Eastern Lumber
and Commercial Co, was an unregistered partnership and that they wished to have it dissolved because
of bitter dissension among the members, mismanagement and fraud by the managers and heavy
financial losses.
The Halls filed a Motion to Dismiss contesting the courts jurisdiction and the sufficiency of the cause of
action but Judge Piccio ordered the dissolution of the company and appointed a receiver.
Issues:
(1) Whether or not the court had jurisdiction to decree the dissolution of the company because it being
a de facto corporation, dissolution may only be ordered in a quo warranto proceeding in accordance
with Section 19.
(2) Inasmuch as the Browns had signed the articles of incorporation, whether or not they are estopped
from claiming that it is not a corporation but only a partnership.
Held:
(1) YES. The court had jurisdiction but Section 19 does not apply.
First, not having obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co.
even its stockholders may not probably claim in good faith to be a corporation.
The immunity of collateral attack is granted to corporations claiming in good faith to be corporation
under this act. Such a claim is compatible with the existence of errors and irregularities but not with a
total or substantial disregard of the law. Unless there has been an evident attempt to comply with the
law, the claim to be a corporation under this act could not be made in good faith.
Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of
the alleged corporation for the purpose of obtaining its dissolution. Even the existence of a de jure
corporation may be terminated in a private suit for its dissolution between stockholders, without the
intervention of the state.
(2) NO. The Browns are not estopped. Because the SEC has not yet issued the corresponding certificate
of incorporation, all of them know or ought to know that the personality of a corporation begins to exist
only from the moment such certificate is issued and not before.
The complaining associates have not represented to the others that they were incorporated any more
than the latter had made similar representations to them.
And as nobody was led to believe anything to his prejudice and damage, the principle of estoppel does
not apply. This is not an instance requiring the enforcement of contracts with the corporation through
the rule of estoppel.
Salvatierra vs garlitos
103 Phil 757 Business Organization Corporation Law Separate and Distinct Personality When Not
Applicable
In 1954, Manuela Vda. De Salvatierra entered into a lease contract with Philippine Fibers Producers Co.,
Inc. (PFPC). PFPC was represented by its president Segundino Refuerzo. It was agreed that Manuela shall
lease her land to PFPC in exchange of rental payments plus shares from the sales of crops. However,
PFPC failed to comply with its obligations and so in 1955, Manuela sued PFPC and she won. An order
was issued by Judge Lorenzo Garlitos of CFI Leyte ordering the execution of the judgment against
Refuerzos property (there being no property under PFPC). Refuerzo moved for reconsideration on the
ground that he should not be held personally liable because he merely signed the lease contract in his
official capacity as president of PFPC. Garlitos granted Refuerzos motion.
Manuela assailed the decision of the judge on the ground that she sued PFPC without impleading
Refuerzo because she initially believed that PFPC was a legitimate corporation. However, during trial,
she found out that PFPC was not actually registered with the Securities and Exchange Commission (SEC)
hence Refuerzo should be personally liable.
ISSUE: Whether or not Manuela is correct.
HELD: Yes. It is true that as a general rule, the corporation has a personality separate and distinct from
its incorporators and as such the incorporators cannot be held personally liable for the obligations of the
corporation. However, this doctrine is not applicable to unincorporated associations. The reason behind
this doctrine is obvious-since an organization which before the law is non-existent has no personality
and would be incompetent to act and appropriate for itself the powers and attribute of a corporation as
provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those
who act or purport to act as its representatives or agents do so without authority and at their own risk.
In this case, Refuerzo was the moving spirit behind PFPC. As such, his liability cannot be limited or
restricted that imposed upon [would-be] corporate shareholders. In acting on behalf of a corporation
which he knew to be unregistered, he assumed the risk of reaping the consequential damages or
resultant rights, if any, arising out of such transaction.