5 Separate Juridical Personality and Doctrine of Piercing The Veil of Corporate Fictions PDF

CORPORATION
LAW REVIEWER (2013-2014) ATTY. JOSE MARIA G. HOFILEA

SEPARATE JURIDICAL PERSONALITY AND DOCTRINE composing it as well as from any other legal entity to which it
may be related, with the following consequences:
OF PIERCING THE VEIL OF CORPORATE FICTION 1. The first consequence of the doctrine of legal entity of the
separate personality of the corporation may not be made to
I. MAIN DOCTRINE: A Corporation Has A Personality Separate and answer for acts and liabilities of its stockholders or those of
Distinct from its Stockholders or Members. (Sec. 2; Article 44, Civil Code) legal entities to which it may be connected or vice versa.
General Credit Corp. v. Alsons Dev. and Investment Corp., 513
Section 2. Corporation defined. SCRA 225 (2007);1
A corporation is an artificial being created by operation of law, having 2. This separate and distinct personality is, however, merely a
the right of succession and the powers, attributes and properties fiction created by law for conveyance and to promote the ends
expressly authorized by law or incident to its existence. of justice. LBP v. Court of Appeals, 364 SCRA 375 (2001).2

CIVIL CODE B. Applications:
Article 44. 1. Majority Equity Ownership and Interlocking Directorship:
The following are juridical persons: Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a
1. The State and its political subdivisions; corporation is not of itself sufficient ground for disregarding the
separate corporate personality. Sunio v. NLRC , 127 SCRA 390
2. Other corporations, institutions and entities for public interest or (1984).3
purpose, created by law; their personality begins as soon as they have
been constituted according to law;

1
McLeod v. NLRC, 512 SCRA 222 (2007); Uy v. Villanueva, 526 SCRA 73 (2007);
3. Corporations, partnerships and associations for private interest or Pantranco Employees Association (PEA- PTGWO) v. NLRC, 581 SCRA 598 (2009);
purpose to which the law grants a juridical personality, separate and 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,
distinct from that of each shareholder, partner or member. (35a) 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
A. Importance of Main Doctrine: (2009).
3
Asionics Philippines, Inc. v. NLRC, 290 SCRA 164 (1998); Francisco v. Mejia, 362
A corporation, upon coming into existence, is invested by law SCRA 738 (2001); Matutina Integrated Wood Products, Inc. v. CA, 263 SCRA 490
with a personality separate and distinct from those persons (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)
CORPORATION LAW REVIEWER (2013-2014) ATTY. JOSE MARIA G. HOFILEA

Ownership of a majority of capital stock and the fact that entities. Cruz v. Dalisay, 152 SCRA 487 (1987); Booc v. Bantuas,
majority of directors of a corporation are the directors of 354 SCRA 279 (2001).
another corporation creates no employer-employee It is hornbook law that corporate personality is a shield against
relationship with the latters employees. DBP v. NLRC, 186 SCRA personal liability of its officers a corporate officer and his
841 (1990).1 spouse cannot be made personally liable under a trust receipt
Having interlocking directors, corporate officers and where he entered into and signed the contract clearly in his
shareholders is not enough justification to pierce the veil of official capacity. Intestate Estate of Alexander T. Ty v. Court of
corporate fiction in the absence of fraud or other public policy Appeals, 356 SCRA 61 (2001).4
considerations. Velarde v. Lopez, 419 SCRA 422 (2004).2 The President of the corporation which becomes liable for the
2. Being Corporate Officer: accident caused by its truck driver cannot be held solidarily
Being an officer or stockholder of a corporation does not by liable for the judgment obligation arising from quasi-delict, since
itself make ones property also that of the corporation, and vice- the fact alone of being President is not sufficient to hold him
versa, for they are separate entities, and that shareholders who solidarily liable for the liabilities adjudged against the
are officers are in no legal sense the owners of corporate corporation and its employee. Secosa v. Heirs of Erwin Suarez
property which is owned by the corporation as a distinct legal Fancisco, 433 SCRA 273 (2004).
person. Good Earth Emporium, Inc. v. CA, 194 SCRA 544 When the compulsory counterclaim filed against corporate
(1991).3 officers for their alleged fraudulent act indicate that such
The mere fact that one is President does not render the corporate officers are indispensable parties in the litigation, the
property he owns the property of the corporation, since the original inclusion of the corporation in the suit does not thereby
president, as an individual, and the corporation are separate allow the denial of a specific counter-claim being filed to make
the corporate officers personally liable. A corporation has a
v. BF Corp., 556 SCRA 25 (2008); Pantranco Employees Association (PEA- legal personality entirely separate and distinct from that of its
PTGWO) v. NLRC, 581 SCRA 598 (2009).
1 officers and cannot act for and on their behalf, without being so
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. authorized. Lafarge Cement Phils., Inc. v. Continental Cement
Fuji-Triumph Agri-Industrial Corp., 608 SCRA 1 (2009); Hacienda Luisita, Inc. v. Corp., 443 SCRA 522 (2004).
Presidential Agrarian Reform Council, 660 SCRA 525 (2011). 3. Dealings Between Corporation and Stockholders:
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 &
4
Dev. Corp. v. Menchavez, 614 SCRA 590 (2010). Consolidated Bank and Trust Corp. v. Court of Appeals, 356 SCRA 671 (2001).


The fact that the majority stockholder had used his own money Debts incurred by directors, officers, and employees acting as
to pay part of the loan of the corporation cannot be used as the corporate agents are not their direct liability but of the
basis to pierce: It is understandable that a shareholder would corporation they represent. Crisologo v. People, 686 SCRA 782
want to help his corporation and in the process, assure that his (2012); Heirs of Fe Tan Uy v. International Exchange Bank, 690
stakes in the said corporation are secured. LBP v. Court of SCRA 519 (2013).
Appeals, 364 SCRA 375 (2001). o Corporate debt or credit is not the debt or credit of the
Use of a controlling stockholders initials in the corporate name stockholder nor is the stockholder's debt or credit that
is not sufficient reason to pierce, since by that practice alone of the corporation. Traders Royal Bank v. CA, 177 SCRA
does it mean that the said corporation is merely a dummy of the 789 (1989).
individual stockholder, provided such act is lawful. LBP v. Court o A corporation has no legal standing to file a suit for
of Appeals, 364 SCRA 375 (2001). recovery of certain parcels of land owned by its
Just because two foreign companies came from the same members in their individual capacity, even when the
country and closely worked together on certain projects would corporation is organized for the benefit of the
the conclusion arise that one was the conduit of the other, thus members. Sulo ng Bayan v. Araneta, Inc., 72 SCRA 347
piercing the veil of corporate fiction. Marubeni Corp. v. Lirag, (1976).
362 SCRA 620 (2001). o Stockholders have no personality to intervene in a
4. On the Properties of the Corporation: collection case covering the loans of the corporation
The creation by DBP as the mother company of the three mining since the interest of shareholders in corporate property
corporations to manage and operate the assets acquired in the is purely inchoate. Saw v. CA, 195 SCRA 740 (1991); and
foreclosure sale lest they deteriorate from non-use and lose vice-versa Francisco Motors Corp. v. Court of Appeals,
their value, does not indicate fraud or wrongdoing and will not 309 SCRA 72 (1999).
constitute application of the piercing doctrine. DBP v. Court of The majority stockholder cannot be held personality liable for
Appeals, 363 SCRA 307 (2001). the attorneys fees charged by a lawyer for representing the
5. On Privileges Enjoyed: corporation. Laperal Dev. Corp. v. CA, 223 SCRA 261 (1993).
The tax exemption clause in the charter of a corporation cannot The obligations of a stockholder in one corporation cannot be
be extended to nor enjoyed even by the controlling offset from the obligation of the stockholder in a second
stockholders. Manila Gas Corp. v. Collector of Internal corporation, since the corporation has a separate juridical
Revenue, 62 Phil. 895 (1936). personality. CKH Industrial and Dev. Corp v. Court of Appeals,
6. Obligations and Debts: 272 SCRA 333 (1997).


A corporate defendant against whom a writ of possession has corporation.
been issued, cannot use the fact that it has obtained controlling
equities in the corporate plaintiffs to suspend enforcement of Held: NO. The transit company was created with intent to evade the law
the writ, for they are separate juridical persons, and thus their making the transit company as a mere alter ego of the brewing
separate business and proprietary interests remain. Silverio, Jr. corporation, both being substantially identical in interest and control,
v. Filipino Business Consultants, Inc., 466 SCRA 584 (2005). and the brewing company the ultimate beneficiary. It clearly appears
that the shipper practically controls the transit company, and this shows
II. PIERCING THE VEIL OF CORPORATE FICTION: a sufficient identity of interest among the shareholders of both.

A. Source of Incantation: U.S. v. Milwaukee Refrigerator Transit Co., Doctrine: As a general rule, a corporation will be looked upon as a legal
142 Fed. 247 (1905). entity, until sufficient reason to the contrary appears. An exception to
this is when the notion of legal entity is used to defeat public
U.S. v. Milwaukee Refrigerator Transit Co. convenience, justify wrong, protect fraud, defend crime, the law will
regard the corporation as an association of persons; and, where one
Facts: The Elkins Act was enacted to prohibit railroads from giving and corporation was organized and is owned by the officers and
receiving of unlawful rebates. After the enactment of the said Act, stockholders of another, making their interests identical, they may be
officers of a brewing company, who were also its controlling treated as identical when the interests of justice require it.
stockholders, organized a transit company named Milwaukee
Refrigerator Transit, et al and became its officers and the owners of all As a general rule, a corporation will be looked upon as a legal
of its stock. On behalf of the brewing company, the officers contracted entity, unless and until sufficient reason to the contrary
with the transit company to make all the shipments for the brewing appears. When the notion of legal entity is used to defeat public
company. The transit company contracted for shipments with interstate convenience, justify wrong, protect fraud, or defend crime, the
carriers, where they would only pay it from 1/10 to 1/8 of the published law will regard the corporation as an association of persons.
rate, for the transportation, supposedly as a commission for obtaining Also, the corporate entity may be disregarded in the interest of
the business, but was known really a rebate for the benefit of the justice in such cases as fraud that may work inequities among
brewing company. members of the corporation internally, involving no rights of the
public or third persons. In both instances, there must have been
Issue: Whether or not a corporation organized and owned by the fraud and proof of it. For the separate juridical personality of a
officers and stockholders of another is in fact an independent corporation to be disregarded, the wrong-doing must be clearly


and convincingly established. It cannot be presumed. Suldao v. corporation unifying the group. Traders Royal Bank v. Court of
Cimech System Construction, Inc., 506 SCRA 256 (2006). Appeals, 269 SCRA 15 (1997).2
The legal fiction of separate corporate existence is not at all
times invincible and the same may be pierced when employed Traders Royal Bank v. Court of Appeals
as a means to perpetrate a fraud, confuse legitimate issues, or
used as a vehicle to promote unfair objectives or to shield an Facts: Central Bank Certificates of Indebtedness (CBCIs) under the name
otherwise blatant violation of the prohibition against forum- of Filriters were transferred by the Filriters Senior Vice President for
shopping. While it is settled that the piercing of the corporate Treasury Alfredo Banaria to PhilFinance (a company which also owns
veil has to be done with caution, this corporate fiction may be 90% of Filriters). PhilFinace then entered into a repurchase agreement
disregarded when necessary in the interest of justice. Rovels with the petitioner Traders Royal Bank (TRB) wherein PhilFinace sold the
Enterprises, Inc. v. Ocampo, 391 SCRA 176 (2002). CBCIs to TRB then pay installments to buy back the same. PhilFinance
o The notion of corporate entity will be pierced or defaulted in its payments and hence, forfeited the CBCIs in favor of TRB.
disregarded and the individuals composing it will be TRB sought to transfer the CBCIs (still under the name of Filriters) under
treated as identical if the corporate entity is being used its name but was refused by the Central Bank. Filriters interposed the
as a cloak or cover for fraud or illegality; as a defense of invalidity of the initial transfer to Philfinance. The initial
justification for a wrong; or as an alter ego, an adjunct, transfer was done by Banaria without any board resolution knowledge
or a business conduit for the sole benefit of the or consent of the Board of Directors, and without authority from the
stockholders. Gochan v. Young, 354 SCRA 207 (2001).1 Insurance Commissioner.

B. Objectives and Effect of the Application of the Doctrine Filriters Philfinance Traders Royal Bank
Under the doctrine of piercing the veil of corporate fiction,
the courts look at the corporation as a mere collection of Issue: Whether or not the veil of corporate entity must be pierce on the
individuals or an aggregation of persons undertaking business as basis of the allegation that Filriters was 90% owned by PhilFinace and
a group, disregarding the separate juridical personality of the that although they are separate entities on paper, they have used their
corporate fiction to defraud TRB.
1
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);
Held: NO. The corporate separateness between Filriters and Philfinance
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
2
(2009). Pantranco Employees Association (PEA-PTGWO) v. NLRC, 581 SCRA 598 (2009)


remains, despite the petitioners insistence on the contrary. For one, which the law aims to protect by this doctrine. (Victim Standing)
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 The rationale behind piercing a corporations identity in a given
else which could lead the court under circumstance to disregard their case is to remove the barrier between the corporation from the
corporate personalities. The fact that Filfinance owns majority shares in persons comprising it to thwart the fraudulent and illegal
Filriters is not by itself a ground to disregard the independent corporate schemes of those who use the corporate personality as a shield
status of Filriters. for undertaking certain proscribed activities. However, in the
case at bar, instead of holding certain individuals or person
In the case at bar, there is sufficient showing that the petitioner was not responsible for an alleged corporate act, the situation has been
defrauded at all when it acquired the subject certificate of indebtedness reversed. It is the petitioner as a corporation which is being
from Philfinance. On its face the subject certificates states that it is ordered to answer for the personal liability of certain individual
registered in the name of Filriters. This should have put the petitioner directors, officers and incorporators concerned. Hence, it
on notice, and prompted it to inquire from Filriters as to Philfinance's appears to us that the doctrine has been turned upside down
title over the same or its authority to assign the certificate. As it is, there because of its erroneous invocation. Francisco Motors Corp. v.
is no showing to the effect that petitioner had any dealings whatsoever CA, 309 SCRA 72 (1999).
with Filriters, nor did it make inquiries as to the ownership of the
certificate. Because the transfer of the CBCIs from Filriters to Francisco Motors Corp. v. CA
PhilFinance was fictitious, PhilFinance had no title to convey to TRB.
Consequently, the title of Filriters over the CBCIs must be upheld over Facts: Francisco Motors Corporation (FMC) filed a complaint against
the interest claimed by TRB. Spouses Gregorio and Librada Manuel to recover a sum of money
representing the balance of the jeep body purchased, and an additional
Doctrine: This doctrine may not be employed by a corporation to be sum representing the unpaid balance on the cost of repair of the
able to complete its claims against another corporation, and cannot vehicle. Spouses Manuel interposed a counterclaim for unpaid legal
therefore be employed by the claimant who does not interpose to be services by Gregorio Manuel, which was not paid by the incorporators,
the victim of any wrong or fraud. In order to pierce the veil of corporate directors and officers of the FMC. Manuel alleges that he represented
entity, the court must be sure that the corporate fiction was misused to members of the Francisco family in the intestate estate proceedings of
such an extent that injustice, fraud or crime was committed upon the late Benita Trinidad. However, after the termination of the
another, disregarding, thus, his, her, or its rights. It is the protection of proceedings, his services were not paid. Said family members, he said,
the interests of innocent third persons dealing with the corporate entity were also incorporators, directors and officers of petitioner.


individual hid his assets in a corporation. See Emilio Cano
Issue: Whether or not the doctrine of piercing the veil of corporate Enterprises v. CIR, 13 SCRA 291 (1965).
fiction can be applied to hold the company liable for unpaid legal Another formulation of this doctrine is that when two (2)
services rendered to its incorporators in an intestate proceeding. business enterprises are owned, conducted and controlled by
the same parties, both law and equity will, when necessary to
Held: NO. Gregorio Manuel his services were solicited as counsel for protect the rights of third parties, disregard the legal fiction that
members of the Francisco family to represent them in the intestate two corporations are distinct entitled and treat them as
proceedings over Benita Trinidads estate. These estate proceedings did identical or one and the same. General Credit Corp. v. Alsons
not involve any business of FMC. His move to recover unpaid legal fees Dev. and Investment Corp., 513 SCRA 225 (2007).1
through a counterclaim against Francisco Motors Corporation, to offset o The attempt to make the security agencies appear as
the unpaid balance of the purchase and repair of a jeep body could only two separate entities, when in reality they were but
result from an obvious misapprehension that FMCs corporate assets one, was a devise to defeat the law [i.e., in this case to
could be used to answer for the liabilities of its individual directors, avoid liabilities under labor laws] and should not be
officers, and incorporators. Such result if permitted could easily permitted. Enriquez Security Services, Inc. v. Cabotaje,
prejudice the corporation. Whatever obligation said incorporators, 496 SCRA 169 (2006).
directors and officers of the corporation had incurred, it was incurred in 1. Recent Attempts to Narrow the Objectives for Availing of
their personal capacity. In conclusion, FMC cannot be held responsible. Piercing:
Piercing is not allowed unless the remedy sought is to make the
Doctrine: The rationale behind piercing a corporations identity in a officer or another corporation pecuniarily liable for corporate
given case is to remove the barrier between the corporation from the debts. Indophil Textile Mill Workers Union-PTGWO v. Calica,
persons comprising it to thwart the fraudulent and illegal schemes of 205 SCRA 697 (1992).
those who use the corporate personality as a shield for undertaking
certain proscribed activities. Indophil Textile Mill Workers Union-PTGWO v. Calica

Atty. Hofilea Can there be a situation whereby the Court Facts: Indophil Textile and the petitioner executed a Collective
will allow a case against an individual to be a basis for reaching Bargaining Agreement (CBA) whereby the petitioner is the exclusive
the corporations assets? YES. But not on the sole basis that you
1
personally dont have properties to satisfy your personal Marques v. Far East Bank and Trust Co., 639 SCRA 312 (2011); Sarona v. NLRC,
obligations. There may conceivably be situations wherein the 663 SCRA 394 (2012); PNB v. Hydro Resources Contractors Corp., 693 SCRA 294
(2013).


bargaining agent of all the rank-and-file employees of Indophil Textile BUT SEE: La Campana Coffee Factory v. Kaisahan ng
Mills, Incorporated. Later, Indophil Acrylic Manufacturing Corporation Manggagawa, 93 Phil. 160 (1953).
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 La Campana Coffee Factory v. Kaisahan ng Manggagawa
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 Facts: Tan Tong and his family own two corporations, namely: La
extension or expansion of the facilities of respondent Company. Campana Gaugau Packing (The Gaugau Corporation) and La Campana
Coffee Factory, Inc. (The Coffee Corporation). Both are located in the
Issue: Whether or not Indophil Acrylic is but an extension of Indophil same office in Espana. In 1951, the laborers of the two corporations of
Textile, and as such the workers of Indophil Acrylic may be considered Tan Tong formed a labor union named as Kaisahan ng Manggagawa sa
as part of the bargaining unit of Indophil Textile. La Compana (The Kaisahan). The 66 members of which are under one
payroll of the two corporations. A dispute arose between Tan Tong and
Held: NO. The fact that the businesses of private respondent and Acrylic Kaisahan when they could not agree concerning increased wages under
are related, that some of the employees of the private respondent are the corporate bargaining agreement, and this was given to the Court of
the same persons manning and providing for auxiliary services to the Industrial Relations.
units of Acrylic, and that the physical plants, offices and facilities are
situated in the same compound, it is our considered opinion that these Tan Tong now pushes for the dismissal of the case in the Court of
facts are not sufficient to justify the piercing of the corporate veil of Industrial Relations for lack of jurisdiction. The claim that the number of
Acrylic. Hence, Indophil Acrylic not being an extension or expansion of workers in the La Campana Coffee Factory is only 14 and the Court of
private respondent, Indophil Textile, the rank- and-file employees of Industrial Relations requires that to have jurisdiction over a dispute, an
Acrylic should not be recognized as the bargaining representative of organization must have at least 31 members.
private respondent.
Issue: Whether or not La Campana Gaugau Packing (The Gaugau
Doctrine: We already emphasized that "the legal corporate entity is Corporation) and La Campana Coffee Factory, Inc. (The Coffee
disregarded only if it is sought to hold the officers and stockholders Corporation) are one and the same, and therefore the dispute would be
directly liable for a corporate debt or obligation." In the instant case, within the jurisdiction of the Court of Industrial Relations.
petitioner does not seek to impose a claim against the members of the
Acrylic. 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


only one office, its goods (gaugau and coffee) are stored in one place Facts: Felix Gochan and Sons Realty Corporation (FGSRC) was registered
and in one warehouse, delivery trucks indicate deliveries of both gaugau under the SEC on June, 1951 with Felix Gochan, Sr. as one of the
and coffee. It is also stated that the employees receive their salaries incorporators. Felixs daughter, Alice, is the mother of the respondents.
from only one payroll and from one Natividad Garcia, Tan Tongs Upon the death of Alice and later her husband, the certificates were still
secretary. In this case, the court treats the two companies as one. under the name of John Young Sr., not their children. Four years later,
Therefore, the count of employees should be taken as a whole, which is the Uys and the Youngs filed a complaint against the directors of FGSRC
66, very well above the minimum number required for the Court of with the SEC alleging that the directors were using the corporation for
Industrial Relations to acquire jurisdiction. fraudulent purposes. FGSRC apparently sold some of its real properties
to 2 other corporations, with these corporations having the same
Doctrine: The law treats two corporations as one, in a case filed against directors as FGSRC.
them, when they have only one management, set of shareholders,
office, and payroll. Issue: Whether or not a derivative may be brought by the Uys in behalf
of the corporation against the FGSRC directors.
2. Applicable to Third-Parties:
That respondents are not stockholders of the sister corporations Held: YES. As the complaint already avers that the corporation suffered
does not make them non-parties to this case, since it is alleged damage as a result of the action of the directors, the derivative suit
that the sister corporations are mere alter egos of the directors- could prosper. The complainants need not be stockholders of the two
petitioners, and that the sister corporations acquired the other corporations in order to make them parties to the case. On the
properties sought to be reconveyed to FGSRC in violation of complaint, it was stated that the directors were using those 2 other
directors-petitioners fiduciary duty to FGSRC. The notion of corporations as alter-egos, and the Uys and Youngs wanted the lands
corporate entity will be pierced and the individuals composing it sold to these two corporations reconveyed in the name of FGSRC. The
will be treated as identical if the corporate entity is being used other two corporations to whom the properties were being transferred
as a cloak or cover for fraud or illegality; as a justification for a have the same stockholders, and the fact that they were not
wrong; or as an alter ego, an adjunct, or a business conduit for stockholders in those companies cannot prevent Uy and Young from
the sole benefit of the stockholders. Gochan v. Young, 354 suing them since FGSRC and those two companies would be one the
SCRA 207 (2001). same. There was an intent to defraud Uy and Young by hiding the
properties in the other corporations.
Gochan v. Young
Doctrine: The notion of corporate entity will be pierced or disregarded


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 In any case, the parent-subsidiary relationship between PNB and PNB-
illegality; as a justification for a wrong; or as an alter-ego, an adjunct, or IFL is not the significant legal relationship involved in this case since the
a business conduit for the sole benefit of the stockholders. 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
C. Nature of the Piercing Doctrine as an Equitable Remedy: The initiating the foreclosure proceedings. A suit against an agent cannot
doctrine of piercing the corporate veil is an equitable doctrine without compelling reasons be considered a suit against the principal.
developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful purposes. Doctrine: The Circumstance rendering the subsidiary an instrumentality.
PNB v. Ritratto Group, Inc., 362 SCRA 216 (2001). CONSEQUENTLY: It is manifestly impossible to catalogue the infinite variations of fact that
can arise but there are certain common circumstances which are
PNB v. Ritratto Group, Inc. important and which, if present in the proper combination, are
controlling. These are as follows:
Facts: PNB International Finance Ltd. (PNB-IFL), a subsidiary company of 1. The parent corporation owns all or most of the capital stock of
PNB, extended credit to Ritratto and secured by the real estate the subsidiary.
mortgages on four parcels of land. Since there was default, PNB-IFL 2. The parent and subsidiary corporations have common directors
(thru PNB as its attorney-in-fact) foreclosed the properties and were or officers.
subject to public auction. Ritratto Group filed a complaint for injunction 3. The parent corporation finances the subsidiary.
against PNB claiming that that PNB is merely an alter ego or a business 4. The parent corporation subscribes to all the capital stock of the
conduit of PNB-IFL that is why it is being impleaded in the case. subsidiary or otherwise causes its incorporation.
5. The subsidiary has grossly inadequate capital.
Issue: Whether or not PNB is a mere alter-ego of PNB-IFL. 6. The parent corporation pays the salaries and other expenses or
losses of the subsidiary.
Held: NO. The contract questioned is one entered into between 7. The subsidiary has substantially no business except with the
respondent and PNB-IFL. PNB is a mere attorney-in- fact for the PNB-IFL parent corporation or no assets except those conveyed to or by
with full power and authority to foreclose on the properties mortgaged the parent corporation.
to secure their loan obligations with PNB-IFL. In other words, PNB is an 8. In the papers of the parent corporation or in the statements of
agent with limited authority and specific duties. It is not privy to the its officers, the subsidiary is described as a department or
loan contracts entered into by respondents and PNB-IFL. division of the parent corporation, or its business or financial


responsibility is referred to as the parent corporations own.
9. The parent corporation uses the property of the subsidiary as its Rivera then approached Modesto Cervantes, president of Bormaheco,
own. and bought a Caterpillar Tractor, which was also the chattel mortgage in
10. The directors or executives of the subsidiary do not act favor of Bormaheco. This sale was secured by Insurance Corporation of
independently in the interest of the subsidiary but take their the Philippines, and re-insured by an Agreement of Counter Guaranty
orders from the parent corporation. whereby as security for the bond given by ICP, the Castillos mortgaged
11. The formal legal requirements of the subsidiary are not to ICP the 4 parcels of land.
observed.
The 4 parcels of land were foreclosed by ICP for violation of the terms
NOTE: and conditions of the Counter Guaranty. These were then sold by ICP to
Atty. Hofilea What level of control is necessary for a subsidiary Phil. Machinery Parts Manufacturing Co. (also owned by Modesto
company to be considered as a mere alter-ego of the parent company? Cervantes) who then sent a letter to Mauricia Castillo asking her to
Domination. The parent corporation must dominate the subsidiary, and vacate the property. The heirs of the late Felipe Castillo filed an action
it must be the reason behind the latters incorporation. for annulment of title before the CFI of Quezon contending that all the
aforementioned transactions are void for being entered into in fraud
1. It is a Remedy of Last Resort: Piercing the corporate veil is and without the consent and approval of the CFI of Quezon before
remedy of last resort and is not available when other remedies whom the administration proceedings was proceeding.
are still available. Umali v. Court of Appeals, 189 SCRA 529
(1990). Issue: Whether or not the doctrine of piercing the veil of corporate
entity should be applied against the respondent-Corporations.
Umali v. Court of Appeals
Held: NO. In the case at bar, petitioners seek to pierce the veil of
Facts: The Castillo family owns a parcel of land in Lucena City which was corporate entity of Bormaheco, ICP and PM Parts, alleging that these
mortgaged to the Development Bank of the Philippines. For failing to corporations employed fraud in causing the foreclosure and subsequent
pay, the property was about to be foreclosed. Santiago Rivera, nephew sale of the real properties belonging to petitioners. While we do not
of Mauricia Castillo, proposed that the 4 lots adjacent to the mortgaged discount the possibility of the existence of fraud in the foreclosure
property be converted into a subdivision to raise funds to redeem the proceeding, neither are we inclined to apply the doctrine invoked by
mortgaged lot. Thus, Castillo and Rivera executed an agreement petitioners in granting the relief sought. Petitioners are merely seeking
whereby Rivera would pay the Castillos for the development project. the declaration of the nullity of the foreclosure sale, which relief may be


obtained without having to disregard the aforesaid corporate fiction 3. Piercing Doctrine Not Applicable to Theorizing or to
attaching to respondent corporations. Secondly, petitioners failed to Advance/Create New Rights or Interest: Piercing of the veil of
establish by clear and convincing evidence that private respondents corporate fiction is not allowed when it is resorted under a
were purposely formed and operated, and thereafter transacted with theory of co-ownership to justify continued use and possession
petitioners, with the sole intention of defrauding the latter. by stockholders of corporate properties. Boyer-Roxas v. Court
of Appeals, 211 SCRA 470 (1992).
It must be noted that Modesto N. Cervantes served as Vice-President of
Bormaheco and, later, as President of PM Parts. On this fact alone, it Boyer-Roxas v. Court of Appeals
cannot be said that PM Parts had no knowledge of the aforesaid several
transactions executed between Bormaheco and petitioners. Facts: Two separate ejectment cases were filed against Guillermo Roxas
and Rebecca Boyer-Roxas, respectively by the Heirs of Eugenia V. Roxas,
Doctrine: The mere fact that the businesses of two or more Incorporated. The corporation alleges that both Guillermo and Rebecca
corporations are interrelated is not a justification for disregarding their are occupying houses within a resort owned by the corporation, and this
separate personalities, absent sufficient showing that the corporate was only tolerated.
entity was purposely used as a shield to defraud creditors and third
persons of their rights. In their answers, Guillermo and Rebecca alleged that they were also
heirs of Eugenia Roxas and as such they have a share in the resort, and
It is essential that the corporate fiction is the very means by that they have the right to stay in the property. According to them, the
which to defeat public convenience, justify wrong, protect fraud veil of corporate fiction must be pierced insofar as it does not allow
and defend crime. Jardine Davies, Inc. v. JRB Realty, Inc., 463 them to possess the properties owned by the corporation even though
SCRA 555, 565 (2005). they are co-owners of the corporation and its properties along with
2. Can Be Availed-of Only to Prevent Fraud: Piercing doctrine is other stockholders.
meant to prevent fraud, and cannot be employed when the net
result would be to perpetrate fraud or a wrong. Gregorio Issue: Whether or not the corporate veil must be pierced.
Araneta, Inc. v. Tuason de Paterno and Vidal, 91 Phil. 786
(1952). Held: NO. The fact that the corporation was incorporated with the
The theory of corporate entity was not meant to promote unfair estate left by Eugenia Roxas as capital, and that Rebecca/Guillermo, as
objectives or otherwise, nor to shield them. Villanueva v. Adre, heirs of Roxas, were stockholders of the company, do not justify the
172 SCRA 876 (1989). piercing of the corporate veil. Even if the former manager of the


Corporation granted permission to Rebecca/Guillermo to possess the amended real estate mortgage.
property, the Corporation is not forever bound by this permission. In the
absence of any contract between the Corporation and Issue: Whether or not the doctrine of piercing the veil of corporate
Rebecca/Guillermo regarding the length of their possession, the Board fiction was properly applied.
may at any time revoke the permission through a board resolution, as
what they did in the case at bar. Held: YES. Cupertino presented overwhelming evidence that Siain
Enterprises Inc., and its affiliate corporations (Yuyek and Siain
Doctrine: Properties registered in the name of the corporation are Transport) had received the proceeds of the loan which was the
owned by it as an entity separate and distinct from its members. While consideration of the amended real estate mortgage. Moreover, it was
shares of stock constitute personal property, they do not represent established in the lower courts that Siain Enterprises and Yuyek had a
property of the corporation. A stockholder is not entitled to possess any common set of incorporators, stockholders and board of directors, the
definite property of the corporation. same bookkeeper and accountant, the same office address and the
same majority stockholder which is Cua Le Leng. Cua Le Leng had the
BUT SEE: Siain Enterprises, Inc v. Cupertino Realty Corp., 590 unlimited liability to use Siain Transports funds to pay the obligations
SCRA 435 (2009). incurred by Siain Enterprises. Thus, it is clear that Siain Enterprises, Siain
Transport and Yuyek are characterized by oneness of operations vested
Siain Enterprises, Inc v. Cupertino Realty Corp. in Cua Le Leng alone. Consequently, these corporations were proven to
be mere alter-egos of Cua Le Leng.
Facts: Siain Enterprises obtained a loan (and executed a promissory
note) from Cupertino Realty Corporation secured by a mortgage over Doctrine: Where clear evidence presented support the fact that a
two parcels of land and other machineries and equipment. Another corporations affiliates have received large amounts which became the
promissory note in favor of Cupertino was executed by Cua Le Leng consideration for the company execution of a real estate mortgage over
(President of Siain Enterprises) where the latter was bound in her its properties, then the piercing doctrine shall be applied to support the
personal capacity. Later, Cupertino instituted foreclosure proceedings, fact that the real estate mortgage was valid and supported by proper
but Siain Enterprises claim that the amended real estate mortgage was consideration.
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 piercing cannot be availed of in order to dislodge from SECs
the veil of corporate fiction to preclude Siain Enterprises from jurisdiction a petition for suspension of payments filed under
disavowing the receipt of the loan and paying its obligation under the P.D. 902-A, on the ground that the petitioning individuals should


be treated as the real petitioners to the exclusion of the unintended may result from an erroneous application. PNB v.
petitioning corporate debtor: doctrine only applies when such Andrada Electric & Engineering Co., 381 SCRA 244 (2002). 1
corporate fiction is used to defeat public convenience, justify Thus:
wrong, protect fraud or defend crime. Union Bank v. Court of o The organization of the corporation at the time when
Appeals, 290 SCRA 198 (1998). the relationship between the landowner and the
Application of the piercing of the subsidiary company to merge developer were still cordial cannot be used as a basis to
it with the holding company cannot be allowed to support a hold the corporation liable later on for the obligations
theory of set-off or compensation, there being no allegation of the landowner to the developer under the mere
much less any proof of fraud. Nisce v. Equitable PCI Bank, Inc., allegation that the corporation is being used to evade
516 SCRA 231 (2007). the performance of obligation by one of its major
An employee who has officially retired from the company and stockholders. Luxuria Homes, Inc. v. Court of Appeals,
availed of her retirement benefit, but who continued to be 302 SCRA 315 (1999).
employed as a consultant with affiliate companies, cannot o In this case, the Court finds that the Remington failed to
employ piercing in order to treat her stint with the affiliate discharge its burden of proving bad faith on the part of
companies as part of her employment with the main company Marinduque Mining and its transferees in the mortgage
she retired from there is no fraud or employment of unfair and foreclosure of the subject properties to justify the
shielding. Rivera v. United Laboratories, Inc., 586 SCRA 269 piercing of the corporate veil. DBP v. Court of Appeals,
(2009). 363 SCRA 307 (2001).2
4. Basis Must Be Clear Evidence o Neither has it been alleged or proven that Merryland is
To disregard the separate juridical personality of a corporation, so organized and controlled and its affairs are so
it is elementary that the wrongdoing cannot be presumed and conducted as to make it merely an instrumentality,
must be clearly and convincingly established. Application of the agency conduit or adjunct of Cardale. Even assuming
doctrine of piercing the corporate veil should be done with that the businesses of Cardale and Merryland are
caution. A court should be mindful of the milieu where it is to be interrelated, this alone is not justification for
applied. It must be certain that the corporate fiction was
misused to such an extent that injustice, fraud, or crime was
1
General Credit Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225
committed against another, in disregard of its rights. The (2007); Pantranco Employees Association (PEA- PTGWO) v. NLRC, 581 SCRA 598
wrongdoing must be clearly and convincingly established; it (2009); Halley v. Printwell, Inc. 649 SCRA 116 (2011).
2
cannot be presumed. Otherwise, an injustice that was never Also McLeod v. NLRC, 512 SCRA 222 (2007); Uy v. Villanueva, 526 SCRA 73
(2007).


disregarding their separate personalities, absent any for which the doctrine was applied. Koppel (Phil.) Inc. v. Yatco,
showing that Merryland was purposely used as a shield 77 Phil. 496 (1946).3
to defraud creditors and third persons of their rights. The application of the piercing doctrine does not attach to the
Francisco v. Mejia, 362 SCRA 738 (2001).1 person of the corporation, but merely an equity remedy that
o The mere assertion by a Filipino litigant against the pertains to the transactions in controversy.4
existence of a tandem between two Japanese When the doctrine is applied, the consequences would be that
corporations cannot be the basis for piercing, which can the members or stockholders of the corporation will be
only be applied by showing wrongdoing by clear and considered as the corporation, that is, liability will attach
convincing evidence. Marubeni Corp. v. Lirag, 362 SCRA directly to the officers and stockholders. Umali v. Court of
620 (2001). Appeals, 189 SCRA 529 (1990).
The party seeking to pierce has the burden of presenting clear
and convincing evidence to justify the setting aside of the D. CLASSIFICATION OF PIERCING CASES:
separate corporate personality rule. The question of whether a DEFEAT OF PUBLIC CONVENIENCE (EQUITY PIERCING): When
corporation is a mere alter ego is a purely one of fact, and the the application of the separate corporate personality would be
burden is on the party who alleges it. PNB v. Andrada Electric & inconsistent with the business purpose of the legal fiction, or
Engineering Co., 381 SCRA 244 (2002).2 when piercing the corporate fiction is necessary to achieve
5. Piercing is a power belonging to the court and cannot be justice or equity for those who deal in good faith with the
assumed improvidently by a sheriff. Cruz v. Dalisay, 152 SCRA corporation, or when the use of the separate juridical
482 (1987); D.R. CATC Services v. Ramos, 477 SCRA 18 (2005). personality is used to confuse legitimate issues.
6. Piercing Has Only Res Judicata Effect: Application of the FRAUD PIERCING: When corporate entity used to commit a
doctrine to a particular case does not deny the corporation of crime, to undertake fraud or do a wrong, or that the corporate
legal personality for any and all purposes, but only for the veil is used as a means to evade the consequences of ones
particular transaction or instance, or the particular obligation criminal or fraudulent acts.

1
Also Ramoso v. Court of Appeals, 347 SCRA 463 (2000); Guatson Intl Travel
3
and Tours, Inc. v. NLRC, 230 SCRA 815 (1990). Tantoco v. Kaisahan ng Mga Manggagawa sa La Campana, 106 Phil. 198
2
Also Concept Builders, Inc. v. NLRC, 257 SCRA 149 (1996); Heirs of Ramon (1959); Francisco v. Mejia, 362 SCRA 738 (2001).
4
Durano, Sr. v. Uy, 344 SCRA 238 (2000); MR Holdings, Ltd. V. Bajar, 380 SCRA Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
617 (2002); Ramirez v. Mar Fishing Co., Inc., 672 SCRA 137 (2012). (2013 ed.). Manila, Philippines: Rex Book Store.


ALTER-EGO PIERCING: When corporate entity merely a farce (ALSONS) and the Alcantara Family each owned shares in the aforesaid
since the corporation is merely the alter ego, business conduit, GCC franchise companies, e.g., CCC Davao and CCC Cebu.
or instrumentality of a person or another entity.
Authorities are agreed on at least three (3) basic areas where In December 1980, ALSONS and the Alcantara Family sold their
piercing the veil, with which the law covers and isolates the shareholdings (101,953shares) in the CCC franchise companies to
corporation from any other legal entity to which it may be EQUITY for P2M, for which EQUITY issued a bearer promissory note
related, is allowed. These are: 1) defeat of public convenience, for P2M with a one-year maturity date and 18% interest per annum.
as when the corporation is used as vehicle for the evasion of
existing obligation; 2) fraud cases or when the corporate entity Some four years later, the Alcantara Family assigned its rights and
is used to justify wrong, protect fraud, or defend a crime; or 3) interests over the bearer note to ALSONS. Even before the execution of
alter ego cases, where the corporation is merely a farce since it the assignment deal, letters for demand for interest payment were
is a mere alter ego or business conduit of a person, or where the already sent to EQUITY through its President, Wilfredo Labayen, who
corporation is so organized and controlled and its affairs are so pleaded inability to pay the stipulated interest, EQUITY no longer having
conducted as to make it merely an instrumentality, agency, assets or property neither to settle its obligation nor being extended
conduit or adjunct of another corporation. General Credit Corp. financial support by GCC.
v. Alsons Dev. and Investment Corp., 513 SCRA 225 (2007)1
citing VILLANUEVA, COMMERCIAL LAW REVIEW (2004 ed), at On January 14, 1986, ALSONS filed a complaint for a sum of money
p. 576. against EQUITY and GCC. GCC was impleaded as party-defendant since
EQUITY has been organized as a tool and mere conduit of GCC.
General Credit Corp. v. Alsons Dev. and Investment Corp.
Issue: Whether or not the doctrine of Piercing the Veil of Corporate
Facts: General Credit Corp (GCC), then known as Commercial Credit Fiction should be applied
Corp (CCC), established CCC franchise companies in different urban
centers in the country. CCC Equity Corporation (EQUITY) was organized Held: YES. The relationship of GCC and EQUITY have been that of
by GCC for the purpose of taking over the operations and management parent-subsidiary corporations, the doctrine is applicable in the case
of the various franchise companies. Alsons Devt & Investment Corp at bar. There are at least 20 documented circumstances and
transactions which, taken together, strongly support the conclusion that
1
Also Pantranco Employees Association (PEA-PTGWO) v. NLRC, 581 SCRA 598 EQUITY was an adjunct / instrumentality / business conduit of GCC
(2009); Prisma Construction & Dev. Corp. v. Menchavez, 614 SCRA 590 (2010); i.e. commonality of directors, officers and stockholders, sharing of office
Sarona v. NLRC, 663 SCRA 394 (2012).


between GCC and EQUITY, financing and management arrangements
allowing GCC to handle the funds of EQUITY, virtual control of GCC over Concept Builders, Inc. v. NLRC
finances, business policies and practices of EQUITY, and the
establishment of EQUITY by GCC to circumvent CB rules. Facts: Concept Builders Inc. was engaged in the construction business
and lost in a case before the NLRC concerning the termination of private
Doctrine: Another formulation of this doctrine is that when 2 business respondents whom it had employed as laborers, carpenters and riggers
enterprises are owned, conducted and controlled by the same parties, in a project which Concept claims was finished, but upon inspection was
both law and equity will disregard the legal fiction that 2 corporations found to be the contrary. The Labor Arbiter rendered judgment against
are distinct entities and treat them as one and the same, when Concept requiring it to pay private respondents back wages. The Sheriff
necessary to protect third parties rights. 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
1. Rundown on Piercing Application: manufacturing company allegedly owned by the same stockholders.
This Court pierced the corporate veil to ward off a judgment
credit, to avoid inclusion of corporate assets as part of the Issue: Whether or not the doctrine of piercing the corporate veil is
estate of the decedent, to escape liability arising for a debt, or applicable to this case.
to perpetuate fraud and/or confuse legitimate issues either to
promote or to shield unfair objectives to cover up an otherwise Held: YES. While petitioners claimed it ceased operations in 1986, it
blatant violation of the prohibition against forum shopping. filed an Information Sheet with the SEC in 1987 stating that its office
Only is these and similar instances may the veil be pierced and address is their old address. Both information sheets were filed by
disregarded. PNB v. Andrada Electric & Engineering Co., 381 Virgilio Casino, the same corporate secretary. They had the same
SCRA 244 (2002). President, Board of Directors and substantially the same subscribers.
2. Summary of Probative Factors: Concept Builders, Inc. v. NLRC, Clearly, petitioner ceased its business operations in order to evade the
257 SCRA 149 (1996).1 payment to private respondents of back wages and to bar their
The absence of these elements prevents piercing the corporate reinstatement to their former positions. HPPI is obviously a business
veil. Lim v. Court of Appeals, 323 SCRA 102 (200).2 conduit of Concept Builders and its emergence was skillfully
orchestrated to avoid the latters financial liability.

1 2
PNB v. Ritratto Group, Inc., 362 SCRA 216 (2001); Velarde v. Lopez, 419 SCRA Child Learning Center, Inc. v. Tagorio, 475 SCRA 236 (2005); General Credit
422 (2004); Jardine Davies, Inc. v. JRB Realty, Inc., 463 SCRA 555 (2005); Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225 (2007); Nisce v.
Pantranco Employees Association (PEA-PTGWO) v. NLRC, 581 SCRA 598 (2009). Equitable PCI Bank, Inc., 516 SCRA 231 (2007).


BEC defaulted, and the bank foreclosed on the real mortgage. The
Doctrine: Probative factors of identity that will justify the application of spouses Lipat claim that the loan obtained by Teresita were ultra vires
the doctrine: acts because they were executed without the requisite board resolution
1. Stock membership by one or common ownership of both of the Board of Directors of BEC.
2. Identity of directors and officers (management)
3. Manner of keeping corporate books and records (management) Issue: Whether or not the doctrine of piercing the veil of corporate
4. Methods of conducting business (management). fiction applies in this case.

3. Distinction Between Fraud Piercing and Alter-ego Piercing: Held: YES. In finding the Lipats mortgaged property liable for the
Lipat v. Pacific Banking Corp., 402 SCRA 339 (2003). obligations of BEC, both courts below relied upon the alter ego doctrine
or instrumentality rule.
Lipat v. Pacific Banking Corp.
Evidence suggests an alter ego case in the sense that: (1) the spouses
Facts: Spouses Lipat (Alfredo and Estelita) owns Belas Export Trading are the owners and majority shareholders of BET and BEC; (2) both firms
(BET), a single proprietorship engaged in garment manufacturing in were managed by their daughter, Teresita; (3) both firms were engaged
Quezon City. The Lipats also owned the Mystical Fashions in the United in the garment business, supplying products to Mystical Fashion, a US
States, which sells goods imported from the Philippines through BET. firm established by Estelita; (4) both firms held office in the same
Estelita designated her daughter, Teresita, to manage BET in the building owned by the Lipats; (5) BEC is a family corporation with the
Philippines while she was managing Mystical Fashions in the United Lipats as its majority stockholders; (6) the business operations of the
States. BEC were so merged with those of Mrs. Lipat such that they were
practically indistinguishable; (7) the corporate funds were held by
In order to facilitate the convenient operation of BET, Estelita executed Estelita Lipat and the corporation itself had no visible assets; (8) the
a special power of attorney appointing Teresita as her attorney-in-fact board of directors of BEC was composed of the Burgos and Lipat family
to obtain loans. By virtue of this SPA, Teresita obtained a sizeable loan members; (9) Estelita had full control over the activities of and decided
from Pacific Bank. Three months after the loan, BET was incorporated business matters of the corporation; and that (10) Estelita Lipat had
into a family corporation named Belas Export Corporation (BEC), benefited from the loans secured from Pacific Bank to finance her
engaged in the same business and utilized the same properties. The loan business abroad and from the export bills secured by BEC for the
was restructured in the name of BEC and secured with Lipats property. account of Mystical Fashion. It could not have been coincidental that
BET and BEC are so intertwined with each other in terms of ownership,


business purpose, and management. TESCON contested the judgment claiming that the admission made in
the "Employer's Report of Accident or Sickness" was due to honest
Doctrine: When the corporation is the mere alter ego or business mistake and/or excusable negligence on its part, and that the illness for
conduit of a person, the separate personality of the corporation may be which compensation is sought is not an occupational disease, hence, not
disregarded. compensable under the law.

E. DEFEAT OF PUBLIC CONVENIENCE (EQUITY PIERCING): Juridical Issue: Whether or not TESCO may be held liable for the death.
Personality Cannot Be Employed:
1. To Confuse Legitimate Issues: Telephone Engineering and Held: YES. TESCO'S denial at this stage that it is the employer of the
Service Co., Inc. V. WCC, 104 SCRA 354 (1981). deceased is obviously an afterthought, a devise to defeat the law and
evade its obligations. This denial also constitutes a change of theory on
Telephone Engineering and Service Co., Inc. V. WCC appeal which is not allowed in this jurisdiction. The Court pierced the
veil between TESCO and UMARCO in the interest of justice and equity.
Facts: Petitioner engaged in the business of manufacturing telephone
equipment. Its sister company, the Utilities Management Corporation Doctrine: Although respect for the corporate personality as such, is the
(UMACOR), with offices in the same location. UMACOR is also under the general rule, there are exceptions. In appropriate cases, the veil of
management of Jose Luis Santiago. UMACOR employed the late Pacifica corporate fiction may be pierced as when the same is made as a shield
L. Gatus as Purchasing Agent. Then was detailed with petitioner to confuse the legitimate issues.
company. He reported back to UMACOR and after 2 years he contracted
illness and died of "liver cirrhosis with malignant degeneration." 2. To Raise Legal Technicalities: Emilio Cano Enterprises v. CIR, 13
SCRA 291 (1965).
Respondent Leonila S. Gatus, filed a "Notice and Claim for
Compensation" with Workmen's Compensation Commission sub-office, Emilio Cano Enterprises v. CIR
alleging that her husband was an employee of TESCO, and that he died
of liver cirrhosis. UMACOR submitted an Employer's Report of Accident Facts: A complaint for unfair labor practice was filed By Honorata Cruz
or Sickness which indicated that the employee contracted illness in against Emilio, Ariston and Rodolfo Cano as president and proprietor,
regular occupation. On this basis, the Acting Referee awarded death field supervisor and manager, respectively, of Emilio Cano Enterprises,
benefits plus burial expenses in favor of the heirs of Gatus. Inc. An order of execution was issued to reinstate Honorata and to
deposit with the court the amount P7,222.58 within 10 days from


receipt of the order, failing which the court will order either a levy on One cannot evade civil liability by incorporating properties or
respondents properties or the filing of an action for contempt of court. the business. Palacio v. Fely Transportation Co., 5 SCRA 1011
(The order of execution was directed against the properties of Emilio (1962).1
Cano Enterprises, Inc.) Where a debtor registers his residence to a family corporation
in exchange of shares of stock and continues to live therein,
Issue: Whether or not the judgment against Emilio and Rodolfo in their then the separate juridical personality may be disregarded.
capacity as officials of the corporation can be made effective against the PBCom v. CA, 195 SCRA 567 (1991).
property of the latter which was not a party to the case. Where corporate fiction was used to perpetrate social injustice
or as a vehicle to evade obligations or confuse the legitimate
Held: YES. While it is an undisputed rule that a corporation has a issues (as in this case where the actions of management of the
personality separate and distinct from its members or stockholders two corporations created confusion as to the proper employer
because of a fiction of the law, here we should not lose sight of the fact of claimants), the two corporations would be merged as one.
that the Emilio Cano Enterprises, Inc. is a closed family corporation Azcor Manufacturing, Inc. v. NLRC, 303 SCRA 26 (1999).
where the incorporators and directors belong to one single family. Here The corporate veil cannot be used to blatantly violate the
is an instance where the corporation and its members can be prohibition against forum-shopping. Where the corporation
considered as one. And to hold such entity liable for the acts of its itself has not been remiss in vigorously prosecuting or defending
members is not to ignore the legal fiction but merely to give meaning to corporate causes and in using and applying remedies available
the principle that such fiction cannot be invoked if its purpose is to use to it, then shareholders, whether suing as the majority in direct
it as a shield to further an end subversive of justice. actions or as the minority in a derivative suit, cannot be allowed
to pursue the same claims. First Philippine International Bank
Doctrine: And so it has been held that while a corporation is a legal v. Court of Appeals, 252 SCRA 259 (1996).
entity existing separate and apart from the persons composing it, that 3. The Case for Thinly-Capitalized Corporations: McConnel v. CA,
concept cannot be extended to a point beyond its reason and policy, 1 SCRA 722 (1961).
and when invoked in support of an end subversive of this policy it
should be disregarded by the courts. McConnel v. CA

Facts: Park Rite Co. (PRC) leased from Rafael Samanillo a vacant lot

1
Also Mendoza and Yotoko v. Banco Real Dev. Bank, 470 SCRA 86 (2005).


which was used for parking motor vehicles for consideration. It turned the corporate obligations.
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 Doctrine: While the mere ownership of all or nearly all of the capital
belonging to Padilla (respondent) without the owners knowledge and stock of a corporation is a mere business conduit of the stockholder,
consent. Padilla wanted payment for the use and occupation of the lot. that conclusion is amply justified where it is shown that the operations
of the corporation were so merged with those of the stockholders as to
Judgment was rendered against Park Rite, but it was found to be be practically indistinguishable from them.
without any assets apart from the money deposited with the Court. The
judgment creditors then filed suit in the CFI Manila against the The DOJ Resolution explicitly identified the false pretense,
corporation and its past and present stockholders, to recover from fraudulent act or fraudulent means perpetrated upon the
them, jointly and severally, the unsatisfied balance of the judgment, investing public who were made to believe that ASBHI had the
plus legal interest and costs. financial capacity to repay the loans it enticed petitioners to
extend, despite the fact that it had an authorized capital stock
Issue: Whether or not there was justification for disregarding the of only P500,000.00 and paid up capital of only P125,000.00),
corporate entity of Park Rite Co., Inc. and holding its controlling with the deficient capitalization evidenced by its articles of
stockholders personally responsible for a judgment against the corp. incorporation, the treasurers affidavit, the audited financial
statements. Moreover, respondents argument assumes that
Held: YES. The evidence clearly shows that these persons completely there is legal obligation on the part of petitioners to undertake
dominated and controlled the corporation and that the functions of the an investigation of ASBHI before agreeing to provide the loans.
corporation were solely for their benefits. It is obvious from the sharing There is no such obligation. It is unfair to expect a person to
that only 1 or 2 people possess the majority shares. Other incorporators procure every available public record concerning an applicant
had about 1 or 2 each which were merely qualifying shares. That the for credit to satisfy himself of the latters financial standing. At
corporation was a mere extension of their personality is shown by the least, that is not the way an average person takes care of his
fact that the office of Cirilo Paredes and that of Park Rite Co., Inc. were concerns. Gabionza v. Court of Appeals, 565 SCRA 38 (2008).
located in the same building, in the same floor and in the same room Where the corporation was under the control of its stockholders
at 507 Wilson Building. This is further shown by the fact that the funds who ran-up quite a high obligation with the printing company
of the corporation were kept by Cirilo Paredes in his own name. The knowing fully well that their corporation was not in a position to
facts show that the corporation is a mere instrumentality of the pay for the accounts, and where in fact they personally
individual stockholders; hence the latter must individually answer for benefited from the operations of the company to which they


never paid their subscription in full, would constitute piercing of
the veil to allow the creditor to be able to collect what Doctrine: TRUST FUND DOCTRINE. Under which corporate debtors
otherwise were debts owed by the company which has no might look to the unpaid subscriptions for the satisfaction of unpaid
visible assets and has ceased all operations. Halley v. Printwell, corporate debts. Subscriptions to the capital of a corporation
Inc. 649 SCRA 116 (2011). constitutes a trust fund for the payment of the creditors (by mere
analogy) In reality, corporation is a simple debtor. The creditor is
Halley v. Printwell, Inc. allowed to maintain an action upon any unpaid subscriptions and
thereby steps into the shoes of the corporation for the satisfaction of its
Facts: BMPI (Business Media Philippines Inc.) is a corporation under the debt. The trust fund doctrine is not limited to reaching the stockholders
control of its stockholders, including Donnina Halley. In the course of its unpaid subscriptions. The scope of the doctrine when the corporation is
business, BMPI commissioned PRINTWELL to print Philippines, Inc. (a insolvent encompasses not only the capital stock but also other
magazine published and distributed by BMPI). BMPI placed several property and assets generally regarded in equity as a trust fund for the
orders amounting to P3160,000 but was only able to pay P25,000. payment of corporate debts.
PRINTWELL sued BMPI for collection of the unpaid balance and later on
impleaded BMPIs original stockholders and incorporators to recover on 4. Avoidance or Minimization of Taxes: Yutivo Sons Hardware v.
their unpaid subscriptions. Court of Tax Appeals 1 SCRA 160 (1961); Liddell & Co. v.
Collector of Internal Revenue, 2 SCRA 632 (1961).
Issue: Whether or not a stockholder (Halley in this case) who was in
active management of the business of the corporation and still has Yutivo Sons Hardware v. Court of Tax Appeals
unpaid subscriptions should be made liable for the debts of the
corporation by piercing the veil of corporate fiction Facts: Yutivo Sons Hardware Co. is a company engaged in the
importation and sale of hardware supplies and equipment. The former
Held: YES. Such stockholder should be made liable up to the extent of bought a number of cars from General Motors Overseas Corporation. As
her unpaid subscription. It was found that at the time the obligation was importer, GM paid sales tax prescribed by sections 184, 185 and 186 of
incurred, BMPI was under the control of its stockholders who know fully the Tax Code on the basis of its selling price to Yutivo. Said tax being
well that the corporation was not in a position to pay its account (thinly collected only once on original sales, Yutivo paid no further sales tax on
capitalized). And, that the stockholders personally benefited from the its sales to the public. Eventually, Yutivo sold exclusively to Southern
operations of the corporation even though they never paid their Motors, which was organized to engage in the business of selling cars,
subscriptions in full. trucks, and spare parts to the public.


to arrive at the true tax liability of Yutivo.
When GM decided to withdraw from the Philippines, it appointed Yutivo
as importer for the Visayas and Mindanao, and Yutivo continued its Doctrine:
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 Use of nominees to constitute the corporation for the benefit of
importer, paid sales tax prescribed on the basis of its selling price to SM, the controlling stockholder who sought to avoid payment of
and since such sales tax, as already stated, is collected only once on taxes. Marvel Building v. David, 9 Phil. 376 (1951).
original sales, SM paid no sales tax on its sales to the public. The plea to pierce the veil of corporate fiction on the allegation
that the corporations true purpose is to avoid payment by the
After some time, the CIR made an assessment on Yutivo and demanded incorporating spouses of the estate taxes on the properties
from the latter P1,804,769.85 as deficiency sales tax, claiming that the transferred to the corporations: With regard to their claim that
taxable sales were the retail sales by SM to the public and not the sales [the companies] Ellice and Margo were meant to be used as
at wholesale made by Yutivo to the latter inasmuch as SM and Yutivo mere tools for the avoidance of estate taxes, suffice it to say
were one and the same corporation, the former being the subsidiary of that the legal right of a taxpayer to reduce the amount of what
the latter. otherwise could be his taxes or altogether avoid them, by
means which the law permits, cannot be doubted. Gala v.
Issue: Whether or not Southern Motors was a mere adjunct of Yutivo. Ellice Agro-Industrial Corp., 418 SCRA 431 (2003).
HOWEVER: The mere existence of parent-subsidiary relations,
Held: YES. Briefly stated, Yutivo financed principally, if not wholly, the or the fact that one corporation is affiliated with another
business of SM and actually extended all the credit to the latter not only corporation does not justify piercing based on serving public
in the form of starting capital but also in the form of credits extended convenience. Comm. of Internal Revenue v. Norton and
for the cars and vehicles allegedly sold by Yutivo to SM as well as Harrison, 11 SCRA 704 (1954).1
advances or loans for the expenses of the latter when the capital had
been exhausted. The funds of SM were all merged in the cash fund of F. FRAUD CASES:
Yutivo. At all times, Yutivo, through officers and directors common to it When the legal fiction of the separate corporate personality is
and SM, exercised full control over the cash funds, policies, abused, such as when the same is used for fraudulent or
expenditures and obligations of the latter. Southern Motors being but a
mere instrumentality, or adjunct of Yutivo, the Court CTA correctly
1
disregarded the technical defense of separate corporate entity in order Tomas Lao Construction v. NLRC, 278 SCRA 716 (1997). Marques v. Far East
Bank and Trust Co., 639 SCRA 312 (2011).


wrongful ends, the courts have not hesitated to pierce the payment of taxes so that the properties may be levied upon and be the
corporate veil. Francisco v. Mejia, 362 SCRA 738 (2001). subject of an auction where Merryland could bid, which was exactly
what happened.
Francisco v. Mejia
Doctrines: With specific regard to corporate officers, the general rule is
Facts: Andrea Gutierrez was the owner of a parcel of land in Caloocan. that the officer cannot be held personally liable with the corporation,
This property was subdivided into five lots, four of which are the subject whether civilly or otherwise, for the consequences of his acts, if he
of this controversy. The four lots were sold to Cardale Financing and acted for and in behalf of the corporation, within the scope of his
Realty Corporation which made an initial payment, and the balance was authority and in good faith. In such cases, the officers acts are properly
secured by 3 of 4 lots mortgaged to Gutierrez herself. When Cardale attributed to the corporation. However, if it is proven that the officer
failed to pay, Gutierrez filed a suit for rescission. Cardale was has used the corporate fiction to defraud a third party, or that he has
represented by its VP and Treasurer, herein petitioner Adalia Francisco. acted negligently, maliciously or in bad faith, then the corporate veil
shall be lifted and he shall be held personally liable for the particular
The case dragged on for 14 years, during which the taxes for the corporate obligation involved.
mortgaged properties were not paid. As a result, the government levied
upon them. They became subject of an auction sale. The highest bidder The general rule is that obligations incurred by a corporation,
was Merryland Development Corporation, whose President was also acting through its directors, officers or employees, are its sole
Adalia Francisco. Because of these, Rita Mejia, the administrator of liabilities. However, there would be piercing of the veil when
Gutierrezs estate, filed a complaint for damages against Francisco for the corporation is used by any of them as a cloak or cover for
fraud. fraud or illegality or injustice. Here, the fraud was committed by
petitioners to the prejudice of respondent bank. Mendoza v.
Issue: Whether or not Francisco may be held liable. Banco Real Dev. Bank, 470 SCRA 86 (2005).
Fraud and bad faith on the part of certain corporate officers or
Held: YES, it was evident that Francisco was in bad faith, not informing stockholders may warrant the piercing of the veil of corporate
Gutierrezs estate of the tax delinquencies. Apparently, Francisco made fiction so that the said individual may not seek refuge therein,
use of her involvement in Cardale and Merryland to secure an but may be held individually and personally liable for his or her
advantage for the latter. Cardale as the mortgagor had the duty of actions. Lafarge Cement Phils., Inc. v. Continental Cement
paying the taxes for the properties. Evidence showed that Francisco as Corp., 443 SCRA 522 (2004).
Cardales Treasurer, intended to conceal the delinquency in the


However, mere allegation of fraud or bad faith, without or when they practice fraud on internal revenue laws, the fiction
evidence supporting such claims cannot warrant the piercing of of their separate and distinct corporate identities shall be
the corporate veil. DBP v. Court of Appeals, 357 SCRA 626, 358 disregarded, and both entities treated as one taxable person,
SCRA 501, 363 SCRA 307 (2001). subject to assessment for the same taxable transaction.
1. Acts by Controlling Shareholder: Commissioner of Internal Revenue v. Menguito, 565 SCRA 461
The fact that a corporation owns all of the stocks of another (2008).
corporation, taken alone, is not sufficient to justify their being 3. Guiding Principles in Fraud Cases:
treated as one entity. If used to perform legitimate functions, a
subsidiarys separate existence shall be respected, and the Why is there inordinate showing of alter-ego elements?
liability of the parent corporation, as well as the subsidiary shall 1. There must have been fraud or an evil motive in the affected
be confined to those arising in their respective business. Nisce v. transaction, and the mere proof of control of the corporation by
Equitable PCI Bank, Inc., 516 SCRA 231 (2007).1 itself would not authorize piercing;
Where a stockholder, who has absolute control over the 2. The corporate fiction is used as a means to commit the fraud or
business and affairs of the corporation, entered into a contract avoid the consequences thereof; and
with another corporation through fraud and false 3. The main action should seek for the enforcement of pecuniary
representations, such stockholder shall be liable solidarily with claims pertaining to the corporation against corporate officers
co-defendant corporation even when the contract sued upon or stockholders.
was entered into on behalf of the corporation. Namarco v.
Associated Finance Co., 19 SCRA 962 (1967). Respondent corporations may be engaged in the same business
Where the corporation is used as a means to appropriate a or even share the same address, or have interlocking
property by fraud which property was later resold to the incorporators, directors or officers, in the absence of fraud or
controlling stockholders, then piercing should be allowed. Heirs other public policy consideration, does not warrant piercing the
of Ramon Durano, Sr. v. Uy, 344 SCRA 238 (2000). veil of corporate fiction. McLeod v. NLRC, 512 SCRA 222 (2007),
2. Tax Evasion or Fraud: quoting from Indophil Textile Mill Workers Union v. Calica, 205
In a number of cases, the Court has shredded the veil of SCRA 697 (1992), and Del Rosario v. NLRC, 187 SCRA 777
corporate identity and ruled that where a corporation is merely (1990); Heirs of Fe Tan Uy v. International Exchange Bank, 690
an adjunct, business conduit or alter ego of another corporation SCRA 519 (2013).
Mere substantial identity of incorporators of two corporations
does not necessarily imply fraud, nor warrant the piercing of the
1
Marques v. Far East Bank and Trust Co., 639 SCRA 312 (2011).


veil of corporate fiction. In the absence of clear and convincing Philippines with the same name. Again, he owned practically all the
evidence to show that the corporate personalities were used to shares (legally, the San Francisco corporation owned all the assets and
perpetuate fraud, or circumvent the law, the corporations are liabilities of the Manila corporation). Sometime in 1919, Willits and
to be rightly treated as distinct and separate from each other. Arnold entered into another contract, marked Exhibit B, which clarified
To disregard the said separate juridical personality of a Arnolds mode of compensation.
corporation, the wrongdoing must be proven clearly and
1
convincingly. Laguio v. NLRC, 262 SCRA 715 (1996). Willits corporation went through financial trouble, and its creditors
committee refused to honor Exhibit B because according to it, the
G. ALTER-EGO CASES: corporation never allowed or acceded to such a contract or
1. Using Corporation as Conduit or Alter Ego: understanding, and that Willits signed it without authority.
Where the capital stock is owned by one person and it functions
only for the benefit of such individual owner, the corporation Issue: Whether or not Exhibit B is binding upon the corporation and the
and the individual should be deemed the same. Arnold v. creditors committee despite the lack of approval from the Board
Willets and Patterson, Ltd., 44 Phil. 634 (1923).
Held: YES. The approval of the Board is not needed since it is evident
Arnold v. Willets and Patterson, Ltd. that Willis owns and controls the corporation. Willits actions were done
not just to benefit him as a shareholder but to control the whole
Facts: Willits & Patterson was a partnership organized in San Francisco, corporation and to affect the transaction of its business, in the same
California. In 1916, they engaged the services of Arnold to be their agent manner as if it had been clothed with all the formalities of a corporate
in the Philippines who will enjoy profit-sharing and a fixed salary. Arnold act. Also, Exhibit B came into effect in 1919 and since then, was used by
was to be Willits & Pattersons agent for five years, and he was tasked the corporation in determining Arnolds salary and dues. There was no
to operate a certain oil mill. objection ever raised against it except two years later, in 1921, by the
creditors committee. Its a well-settled doctrine that acts of officers,
Sometime later, Patterson retired, and Willits then created a new though unauthorized, may be ratified by the corporation where the
corporation under the same name. Under this corporation, Willits latter acquiesces to the act. Here, the creditors committee cannot
owned practically all the shares except those nominal shares needed to object to Exhibit B because the corporation has in effect ratified its
qualify directors. Willits also created another corporation in the validity by applying it for two years.

Doctrine: When the stock of a corporation owned by one individual and
1
Martinez v. Court of Appeals, 438 SCRA 130 (2004).


the corporation functions for his benefit, the corporation and individual subsidiarys separate existence shall be respected, and the
should be deemed the same. liability of the parent corporation, as well as the subsidiary shall
be confined to those arising in their respective business. A
A corporation has a personality separate and distinct from the corporation has a separate personality distinct from its
persons composing it, as well as from any other legal entity to stockholders and from other corporations to which it may be
which it may be related. Equally well-settled is the principle that conducted a legal fiction created by law for convenience and
the corporate mask may be removed or the corporate veil to prevent injustice. Nisce v. Equitable PCI Bank, Inc., 516 SCRA
pierced when the corporation is just an alter ego of a person or 231 (2007).
of another corporation. Sarona v. NLRC, 663 SCRA 394 (2012). 2. Mixing-up Operations; Disrespect to the Corporate Entity:
o When corporation is merely an adjunct, business Mixing of personal accounts with corporate bank deposit
conduit or alter ego of another corporation, the fiction accounts. Ramirez Telephone Corp. v. Bank of America, 29
of separate and distinct corporation entities should be SCRA 191 (1969).
disregarded. Tan Boon Bee & Co. v. Jarencio, 163 SCRA Where two business enterprises are owned, conducted, and
205 (1988).1 controlled by the same parties, both law and equity will, when
The fictive veil of corporate personality holds lesser sway for necessary to protect the rights of third persons, disregard the
subsidiary corporations whose shares are wholly if not almost legal fiction that two corporations are distinct entities and treat
wholly owned by its parent company. The structural and them as identical. Sibagat Timber Corp. v. Garcia, 216 SCRA 70
systems overlap inherent in parent and subsidiary relations (1992).
often render the subsidiary as mere local branch, agency or Employment of same workers; single place of business, etc.,
adjunct of the foreign parent. Thus, when the foreign parent may indicate alter ego situation. Shoemart v. NLRC, 225 SCRA
company leased a large parcel of land purposely for the benefit 311 (1993).
of its subsidiary, which took over possession of the leased
premises, the subsidiary was a mere alter ego of ESSO Eastern. Shoemart v. NLRC
Mariano v. Petron Corp., 610 SCRA 487 (2010).
The fact that a corporation owns all of the stocks of another Facts: Moris Industries was engaged in manufacture of leather goods. In
corporation, taken alone, is not sufficient to justify their being 1985, 56 out of 74 workers decided to form the Moris Industries Union.
treated as one entity. If used to perform legitimate functions, a When the Union contacted Moris in order to fix a collective bargaining
agreement, Moris suddenly shut down and ceased operations two days
1
General Credit Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225 later. Because of this, the Union filed a case with the NLRC against Moris
(2007).


for unfair labor practice, recovery of wage differentials and other 4. Both are housed in one building and Moris for many years has
monetary benefits. Shoemart, and its president, Henry Sy, was also been using the payrolls of SM Shoe Mart. SM glibly excuses this
impleaded because according to the Union, Shoemart and Moris had fact by alleging that this was done without its knowledge. We,
only one juridical personality. however, considering the close relationship of parties, find this
incredible.
Issue: Whether or not the NLRC correctly applied the piercing doctrine
by holding SM liable together with Moris Doctrine: See above.

Held: YES. The facts show that Moris was the mere alter ego of SM. The facts that two corporations may be sister companies, and
Thus, in order to protect the rights of the workers, the NLRC properly that they may be sharing personnel and resources, without
applied the piercing of the corporate veil doctrine. And since Moris more, is insufficient to prove that their separate corporate
doesnt exist anymore to rehire the workers, who also cant work for SM personalities are being used to defeat public convenience,
because of a difference in expertise of labor, then the SC deemed it justify wrong, protect fraud, or defend crime. Padilla v. Court of
proper to hold SM solidarily liable with Moris for separation pay. Appeals, 370 SCRA 208 (2001).

1. The Union presented one Cresencio Edic as a witness. Edic Padilla v. Court of Appeals
testified that he was first hired by the persons who owned SM
to make samples to be displayed on the store windows. When Facts: Susana Realty Inc. (SRI) sold to Light Rail Transit Authority (LRTA)
he was promoted as over-all supervisor, the factory was several parcels of land along Taft Avenue whereby SRI had a right of first
transferred, the production division was separately refusal in case LRTA decided to develop the land. LRTA contracted with
incorporated and underwent many name changes. However, Phoenix-Omega Development and Management Corporation (Phoenix-
the owners remained the same. Omega) to develop the land to which SRI later agreed on the condition
2. An examination of the Incorporation papers of SM Shoe Mart that all plans must be approved by it. Phoenix-Omega then assigned its
and Moris Manufacturing show (sic) that except for Elizabeth Sy rights to PKA Development and Management Corporation (PKA) whose
all other five (5) incorporators and directors of Morris President and General Manager is Padilla (who is at the same time
Industries are major stockholders of SM Shoe Mart as of July 20, Chairman of the Board of Phoenix-Omega).
1985;
3. The SM Shoe Mart is the exclusive buyer of all of Moris' So now, PKA was in charge of developing the properties. However, it
products; continuously failed to and eventually its building permit was revoked for


defects in construction. PKA then filed for rescission of the contract, Doctrine: For the separate juridical personality of a corporation to be
alleging that SRI maliciously withheld approval of the plans, which in disregarded, the wrongdoing must be clearly and convincingly
turn led to PKA being unable to comply with its obligations. However, established. It cannot be presumed. In this case, there was no reason to
the judgment went in favor of SRI. justify piercing the corporate veil.

The contract was rescinded, and PKA was ordered to indemnify SRI for 3. Guiding Principles in Alter-Ego Cases:
damages. The properties were returned to SRI, but PKA failed to pay the Doctrine applies even in the absence of evil intent, because of
monetary awards. Thus, SRI filed a motion for the issuance of an alias the direct violation of a central corporate law principle of
writ against Padilla and Phoenix-Omega, saying that they were one and separating ownership from management;
the same entity with PKA. Padilla and Phoenix-Omega claimed they Doctrine in such cased is based on estoppel: if stockholders do
were denied due process because Phoenix was not given its days in not respect the separate entity, others cannot also be expected
Court. to be bound by the separate juridical entity;
Piercing in alter ego cases may prevail even when no monetary
Issue: Whether or not Padillas participation in the proceedings as PKAs claims are sought to be enforced against the stockholders or
President and General Manager could be construed as the opportunity officers of the corporation.
to be heard in court of Padilla and Phoenix-Omega HOWEVER: The mere existence of a parent-subsidiary
relationship between two corporation, or that one corporation
Held: NO. Padilla and Phoenix-Omega were not given their day in court. is affiliated with another company does not by itself allow the
It is clear that Padilla participated in the proceedings as General application of the alter-ego piercing doctrine. Koppel (Phil.), Inc.
Manager of PKA and not in any other capacity. The fact that he was the v. Yatco, 77 Phil. 97 (1946); PHIVIDEC v. Court of Appeals, 181
Chairman of the Board of Phoenix-Omega cannot equate to SCRA 669 (1990).
participation by Phoenix-Omega in the same proceedings. Phoenix- A subsidiary corporation has an independent and separate
Omega was never a party to the case and so could not have participated juridical personality, distinct from that of its parent company,
therein. PKA and Phoenix-Omega are admittedly sister companies, and hence, any claim or suit against the latter does not bind the
may be sharing personnel and resources, but there was no allegation, former and vice- versa. Jardine Davies, Inc. v. JRB Realty, Inc.,
much less positive proof, that their separate corporate personalities 463 SCRA 555 (2005).1
were being used to defeat public convenience, justify wrong, protect
fraud, or defend crime.

1
Fortune v. Quinsayas, 690 SCRA 336 (2013).


o If used to perform legitimate functions, a subsidiarys judgment rendered by the court. Padilla v. Court of Appeals,
separate existence shall be respected, and the liability 370 SCRA 208 (2001).
of the parent corporation as well as the subsidiary will 2. When corporate officers are sued in their official capacity, the
be confined to those arising in their respective corporation which was not made a party, is not denied due
businesses. Even when the parent corporation agreed process. Emilio Cano Enterprises v. CIR, 13 SCRA 291 (1965).
to the terms to support a standby credit agreement in We suggest as much in Arcilla v. Court of Appeals, (215 SCRA
favor of the subsidiary, does not mean that its 120 [1992]), an appellate proceedings involving petitioner
personality has merged with that of the subsidiary. MR. Arcillas bid to avoid the adverse CA decision on argument that
Holdings, Ltd. V. Bajar, 380 SCRA 617 (2002). he is not personally liable for the amount adjudged since the
same constitutes a corporate liability which nevertheless cannot
H. PIERCING DOCTRINE AND THE DUE PROCESS CLAUSE be enforced against the corporation which has not been
1. Need to Bring a New Case Against the Officer. McConnel v. CA, impleaded as a party below. Violago v. BA Finance Corp., 559
1 SCRA 723 (1961). SCRA 69 (2008).
A suit against individual shareholders is not a suit against the 3. Provided that evidential basis has been adduced during trial to
corporation. Failure to implead the corporations as defendants apply the piercing doctrine. Jacinto v. Court of Appeals, 198
and merely annexing a list of such corporations to the SCRA 211 (1991).1
complaints is a violation of due process for it would in effect be
disregarding their distinct and separate personality without a Jacinto v. Court of Appeals
hearing. PCGG v. Sandiganbayan, 365 SCRA 538 (2001).
Although both lower courts found sufficient basis for the Facts: The case is an appeal concerning the decision of the Regional Trial
conclusion that PKA and Phoenix Omega were one and the Court ordering Inland Industries Inc. and Roberto Jacinto to pay jointly
same, and the former is merely a conduit of the other the and severally Metropolitan Bank and Trust Co. The Bank claims that
Supreme Court held void the application of a writ of execution Roberto Jacinto can be held personally liable because he is the President
on a judgment held only against PKA, since the RTC obtained no and General Manager of Inland Industries Inc. and his wife owns a
jurisdiction over the person of Phoenix Omega which was never majority of its shares. While on the face of the complaint there is no
summoned as formal party to the case. The general principle is specific allegation that the corporation is a mere alter ego of petitioner,
that no person shall be affected by any proceedings to which he subsequent developments, from the stipulation of facts up to the
is a stranger, and strangers to a case are not bound by the

1
Arcilla v. Court of Appeals, 215 SCRA 120 (1992).


presentation of evidence and the examination of witnesses, Court may deny your right to claim a separate personality.
unequivocally show that respondent Metropolitan Bank and Trust 1. Commit a fraud Bogus NGOs; so long as the fraud is proved,
Company sought to prove that petitioner and the corporation are one or the Court will deny separate personality, provided that it was
that he is the corporation. No serious objection was heard from committed/concealed thru the use of separate personality.
petitioner. 2. Alter-ego/Instrumentalities The Court has pierced the veil in
occasions where the act committed is short of fraud on the
Issue: Whether or not the application of piercing the veil was supported ground of interlinking which indicates that the subsidiary
with evidence. company is but an alter-ego.
3. Defeating public convenience, equity and justice As such,
Held: YES. Roberto A. Jacinto, it would appear that he is in fact, the piercing of the corporate veil should be a last resort. If there is
corporation itself known as Inland Industries, Inc. Aside from the fact another way, the Courts should take that path in order to
that he is admittedly the President and General Manager of the preserve such an important feature of the corporate.
corporation and a substantial stockholder thereof, it was defendant 4. There is no hard and fast rule regarding piercing. It is subject to
Roberto A. Jacinto who dealt entirely with the plaintiff in those the circumstances of the case, and (unfortunately?) dependent
transactions. In the Trust Receipts that he signed supposedly in behalf of on who the Justices are.
Inland Industries, Inc., it is not even mentioned that he did so in this 5. These cases of piercing the corporate veil, when the Court says
official capacity. that the stockholder shares the same personality as the
corporation, that is good for purposes of the issue that is being
Doctrine: When evidence is presented by one party, with the express or rule upon. But it does not result in a complete denial of the
implied consent of the adverse party, as to issues not alleged in the separate personality of the corporate entity for matters
pleadings, judgment may be rendered validly as regards those issues, unrelated to the issue.
which shall be considered as if they have been raised in the pleadings.
There is implied consent to the evidence thus presented when the
adverse party fails to object thereto.

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


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