CORPO – DIGEST Velasquez (the executive vice-president).

In his complaint-affidavit
(position paper), submitted on 27 October 1986, Millena alleged, among
Santos vs. National Labor Relations Commission other things, that his dismissal was merely an offshoot of his letter of 12
August 1986 to Abaño about the company's inability to pay its workers and
[GR 101699, 13 March 1996] to remit withholding taxes to the BIR. On 27 July 1988, Labor Arbiter
Fructouso T. Aurellano, finding no valid cause for terminating complaint's
Facts: Melvin D. Millena, on 1 October 1985, was hired to be the project
employment, ruledthat a partial closure of an establishment due to losses
accountant for Mana Mining and Development Corporation's (MMDC)
was a retrenchment measure that rendered the employer liable for unpaid
mining operations in Gatbo, Bacon, Sorsogon. On 12 August 1986, Millena
salaries and other monetary claims.
sent to Mr. Gil Abaño, the MMDC corporate treasurer, a memorandum
calling the latter's attention to the failure of the company to comply with the
withholding tax requirements of, and to make the corresponding monthly
remittances to, the Bureau of Internal Revenue (BIR) on account of The Labor Arbiter ordered Santos, et. al. to pay Millena the amount of
delayed payments of accrued salaries to the company's laborers and P37,132.25 corresponding to the latter's unpaid salaries and advances:
employees. In a letter, dated 8 September 1986, Abaño advised Millena P5,400.00 for petitioner's 13th month pay; P3,340.95 as service incentive
that it was the board's decision that it stop porduction (operation) in leave pay; and P5, 400.00 as separation pay. Santos, et. al. were further
Sorsogon due to the upcoming rainy seasons and the deterioration of the ordered to pay Millena 10% of the monetary awards as attorney's fees.
peace and order in the said area; that the corporation will undertake only Alleging abuse of discretion by the Labor Arbiter, the company and its co-
necessary maintenance and repair work and will keep overhead down to respondents filed a "motion for reconsideration and /or appeal." 8 The
the minimum manageable level; and that the corporation will not need a motion/appeal was forthwith indorsed to the Executive Director of the
project accountant until the corporaton resumes full-scale operations. NLRC in Manila. In a resolution, dated 04 September 1989, the NLRC
Millena expressed "shock" over the termination of his employment. affirmed the decision of the Labor Arbiter. A writ of execution
correspondingly issued; however, it was returned unsatisfied for the failure
of the sheriff to locate the offices of the corporation in the addressed
indicated. Another writ of execution and an order of garnishment was
He complained that he would not have resigned from the Sycip, Gores &
thereupon served on Santos at his residence. Contending that he had
Velayo accounting firm, where he was already a senior staff auditor, had it
been denied due process, Santos filed a motion for reconsideration of the
not been for the assurance of a "continuous job" by MMDC's Eng.
NLRC's resolution along with a prayer for the quashal of the writ of
Rodillano E. Velasquez. Millena requested that he be reimbursed the
execution and order of garnishment. He averred that he had never
"advances" he had made for the company and be paid his "accrued
received any notice, summons or even a copy of the complaint; hence, he
salaries/claims." The claim was not heeded. On October 1986, Millena
said, the Labor Arbiter at no time had acquired jurisdiction over him. On 16
filed with the NLRC Regional Arbitration, Branch No. V, in Legazpi City, a
August 1991, the NLRC dismissed the motion for reconsideration. Santos
complaint for illegal dismissal, unpaid salaries, 13th month pay, overtime
filed the petition for certiorari.
pay, separation pay and incentive leave pay against MMDC and its two top
officials, namely, Benjamin A Santos (the President) and Rodillano A.

1
 the insurgency problem, in Sorsogon and the lack of funds to further
support the mining operation in Gatbo. It is basic that a corporation is
Issue: Whether Santos should be made solidarily liable with MMDC. invested by law with a personally separate and distinct from those of the
persons composing it as well as from that of any, other legal entity to
which it may be related. Mere ownership by a single stockholder or by
Held: A corporation is a judicial entity with legal personality separated and another corporation of all nearly all of the capital stock of a corporation is
distinct from those acting for and in its behalf and, in general, from the not of itself sufficient ground for disregarding the separate corporate
people comprising it. The rule is that obligations incurred by the personally. Similar to the case of Sunio vs. National Labor Relations
corporation, acting through its directors, officers and employees, are its Commission, Santos should not have been made personally answerable
sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations for the payment of Millena's back salaries.
or valid grounds can exist to warrant, albeit done sparingly, the disregard
of its independent being and the lifting of the corporate veil. As a rule, this
situation might arise a corporation is used to evade a just and due
obligation or to justify a wrong, to shield or perpetrate fraud, to carry out
similar other unjustifiable aims or intentions, or as a subterfuge to commit
injustice and so circumvent the law. Without necessarily piercing the veil of  STOCKHOLDERS OF GUANZON V. REGISTER,
corporate fiction, personal civil liability can also be said to lawfully attach to
a corporate director, trustee or officer; to wit: When (1) He assents (a) to a
6 SCRA 373 (1962)
patently unlawful act of the corporation, or (b) for bad faith or gross
STOCKHOLDERS OF F. GUANZON & SONS Inc. v REGISTER OF DEEDS
negligence in directing its affairs, or (b) for conflict of interest, resulting in
damages to the corporation, its stockholders or other persons; (2) He Facts:
consents to the issuance of watered stocks or who, having knowledge In 1960, five stockholders of F. Guanzon & Sons, Inc. executed a
thereof, does not forthwith file with the corporate secretary his written certificate of liquidation of the assets of the corporation which provided
objection thereto; (3) He agrees to hold himself personally and solidarily that due to the resolution of the stockholders dissolving the corporation,
they have distributed among themselves in proportion to their
liable with the corporation; or (4) He is made, by a specific provision of shareholdings, as liquidating dividends, the assets of said corporation
law, to personally answer for his corporate action. The case of Santos is including real properties located in Manila. The certificate of liquidation
way of these exceptional instances. It is not even shown that Santos has was denied registration by the Register of Deeds and one of the grounds
had a direct hand in the dismissal of Millena enough to attribute to Santos is that the judgment of the corporation in approving dissolution and
a patently unlawful act while acting for the corporation. Neither can Article directing opposition of assets of the corporation need to be presented
aside from the following: (1) the number of parcels which were not
289 of the Labor Code be applied since this specifically refers only to the certified in the acknowledgement (2) P430.50 registration fees have
imposition of penalties under the Code. It is undisputed that the to be paid (3) P90.45 docustamps need to be attached. Stockholders
termination of Millena's employment has, instead, been due, collectively, to contend that it was not conveyance but a mere distribution of
the need for a further mitigation of losses, the onset of the rainy season, corporate assets after the corporation ceased to exist upon dissolution.

2
Issue: WON the certificate merely involves a distribution of the This is an action brought by the Manila Gas Corporation against the Collector of
corporate assets or should be considered a transfer or conveyance. Internal Revenue for the recovery of P56,757.37, which the plaintiff was required by
the defendant to deduct and withhold from the various sums paid it to foreign
Held:
corporations as dividends and interest on bonds and other indebtedness and which
The Supreme Court agrees with the Register of Deeds and the Land
the plaintiff paid under protest. On the trial court dismissing the complaint, with costs,
Registration Commission. A corporation is a juridical person distinct from the plaintiff appealed assigning as the principal errors alleged to have been committed
the members composing it. Properties registered in the name of the the following:
corporation are owned by it as an entity separate and distinct from its
members. While shares of stock constitute personal property, they do not 1. The trial court erred in holding that the dividends paid by the plaintiff corporation
represent property of the corporation. The corporation has property of its were subject to income tax in the hands of its stockholders, because to impose the tax
own which consist mainly of real estates. A share of stock only typifies an thereon would be to impose a tax on the plaintiff, in violation of the terms of its
aliquot part of the corporation’s property or the right to share in the proceeds franchise, and would, moreover, be oppressive and inequitable.
to that extent when distributed according to law and equity. But its holder is
not the owner of any part of the capital nor is he entitled to the possession 2. The trial court erred in not holding that the interest on bonds and other
indebtedness of the plaintiff corporation, paid by it outside of the Philippine Islands to
of any definite portion of its property or assets. The stockholder is not a co-
corporations not residing therein, were not, on the part of the recipients thereof,
owner or tenant in common of the corporate property. Thus, the act of income from Philippine sources, and hence not subject to Philippine income tax.
liquidation made by the stockholders of the corporation’s assets cannot
be considered as a partition of the community property but rather a The facts, as stated by the appellant and as accepted by the appellee, may be
transference or conveyance of the title of its assets to the individual summarized as follows: The plaintiff is a corporation organized under the laws of the
stockholders in proportion to their stockholdings. Therefore, said transfer Philippine Islands. It operates a gas plant in the City of Manila and furnishes gas
cannot be effected without the corresponding deed of conveyance from the service to the people of the metropolis and surrounding municipalities by virtue of a
corporation to the stockholders. franchise granted to it by the Philippine Government. Associated with the plaintiff are
the Islands Gas and Electric Company domiciled in New York, United States, and the
General Finance Company domiciled in Zurich, Switzerland. Neither of these last
 MANILA GAS V. CIR, 62 PHIL 895 (1936) mentioned corporations is resident in the Philippines.

G.R. No. L-42780 January 17, 1936 For the years 1930, 1931, and 1932, dividends in the sum of P1,348,847.50 were paid
by the plaintiff to the Islands Gas and Electric Company in the capacity of
MANILA GAS CORPORATION, plaintiff-appellant, stockholders upon which withholding income taxes were paid to the defendant
vs. totalling P40,460.03 For the same years interest on bonds in the sum of P411,600
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee. was paid by the plaintiff to the Islands Gas and Electric Company upon which
withholding income taxes were paid to the defendant totalling P12,348. Finally for the
stated time period, interest on other indebtedness in the sum of P131,644,90 was paid
DeWitt, Perkins and Ponce Enrile for appellant.
by the plaintiff to the Islands Gas and Electric Company and the General Finance
Office of the Solicitor-General Hilado for appellee.
Company respectively upon which withholding income taxes were paid to the
defendant totalling P3,949.34.
MALCOLM, J.:

3
Some uncertainty existing regarding the place of payment, we will not go into this For the foreign reasons, we are led to sustain the decision of the trial court and to
factor of the case at this point, except to remark that the bonds and other tokens of overrule appellant's first assigned error.
indebtedness are not to be found in the record. However, Exhibits E, F, and G,
certified correct by the Treasurer of the Manila Gas Corporation, purport to prove that 2. In support of its second assignment of error, appellant contends that, as the Islands
the place of payment was the United States and Switzerland. Gas and Electric Company and the General Finance Company are domiciled in the
United States and Switzerland respectively, and as the interest on the bonds and
The appeal naturally divides into two subjects, one covered by the first assigned error, other indebtedness earned by said corporations has been paid in their respective
and the other by the second assigned error. We shall discuss these subjects and domiciles, this is not income from Philippine sources within the meaning of the
errors in order. Philippine Income Tax Law. Citing sections 10 (a) and 13 (e) of Act No. 2833, the
Income Tax Law, appellant asserts that their applicability has been squarely
1. Appellant first contends that the dividends paid by it to its stockholders, the Islands determined by decisions of this court in the cases of Manila Railroad Co. vs. Collector
Gas and Electric Company , were not subject to tax because to impose a tax thereon of Internal Revenue (No. 31196, promulgated December 2, 1929, nor reported), and
would be to do so on the plaintiff corporation, in violation of the terms of its franchise Philippine Railway Co. vs. Posadas (No. 38766, promulgated October 30, 1933 [58
and would, moreover, be oppressive and inequitable. This argument is predicated on Phil., 968]) wherein it was held that interest paid to non-resident individuals or
the constitutional provision that no law impairing the obligation of contracts shall be corporations is not income from Philippine sources, and hence not subject to the
enacted. The particular portion of the franchise which is invoked provides: Philippine Income Tax. The Solicitor-General answers with the observation that the
cited decisions interpreted the Income Tax Law before it was amended by Act No.
3761 to cover the interest on bonds and other obligations or securities paid "within or
The grantee shall annually on the fifth day of January of each year pay to the City of
without the Philippine Islands." Appellant rebuts this argument by "assuming, for the
Manila and the municipalities in the Province of Rizal in which gas is sold, two and
sake of the argument, that by the amendment introduced to section 13 of Act No.
one half per centum of the gross receipts within said city and municipalities,
2833 by Act No. 3761 the Legislature intended the interest from Philippine sources
respectively, during the preceding year. Said payment shall be in lieu of all taxes,
and so is subject to tax," but with the necessary sequel that the amendatory statute is
Insular, provincial and municipal, except taxes on the real estate, buildings, plant,
invalid and unconstitutional as being the power of the Legislature to enact.
machinery, and other personal property belonging to the grantee.

Taking first under observation that last point, it is to be observed that neither in the
The trial judge was of the opinion that the instant case was governed by our previous
pleadings, the decision of the trial court, nor the assignment of errors, was the
decision in the case of Philippine Telephone and Telegraph Co., vs. Collector of
question of the validity of Act No. 3761 raised. Under such circumstances, and no
Internal Revenue ([1933], 58 Phil. 639). In this view we concur. It is true that the tax
jurisdictional issue being involved, we do not feel that it is the duty of the court to pass
exemption provision relating to the Manila Gas Corporation hereinbefore quoted
on the constitutional question, and accordingly will refrain from doing so. (Cadwaller-
differs in phraseology from the tax exemption provision to be found in the franchise of
Gibson Lumber Co. vs. Del Rosario [1913], 26 Phil., 192; Macondray and Co. vs.
the Telephone and Telegraph Company, but the ratio decidendi of the two cases is
Benito and Ocampo, P. 137, ante; State vs. Burke [1912], 175 Ala., 561.)
substantially the same. As there held and as now confirmed, a corporation has a
personality distinct from that of its stockholders, enabling the taxing power to reach
the latter when they receive dividends from the corporation. It must be considered as As to the applicability of the local cases cited and of the Porto Rican case of
settled in this jurisdiction that dividends of a domestic corporation, which are paid and Domenech vs. United Porto Rican Sugar co. ([1932], 62 F. [2d], 552), we need only
delivered in cash to foreign corporations as stockholders, are subject to the payment observe that these cases announced good law, but that each he must be decided on
in the income tax, the exemption clause in the charter of the corporation its particular facts. In other words, in the opinion of the majority of the court, the facts
notwithstanding. at bar and the facts in those cases can be clearly differentiated. Also, in the case at
bar there is some uncertainty concerning the place of payment, which under one view

4
could be considered the Philippines and under another view the United States and In synthesis, therefore, we hold that conditions have not been provided which justify
Switzerland, but which cannot be definitely determined without the necessary the court in passing on the constitutional question suggested; that the facts while
documentary evidence before, us. somewhat obscure differ from the facts to be found in the cases relied upon, and that
the Collector of Internal Revenue was justified in withholding income taxes on interest
The approved doctrine is that no state may tax anything not within its jurisdiction on bonds and other indebtedness paid to non-resident corporations because this
without violating the due process clause of the constitution. The taxing power of a income was received from sources within the Philippine Islands as authorized by the
state does not extend beyond its territorial limits, but within such it may tax persons, Income Tax Law. For the foregoing reasons, the second assigned error will be
property, income, or business. If an interest in property is taxed, the situs of either the overruled.
property or interest must be found within the state. If an income is taxed, the recipient
thereof must have a domicile within the state or the property or business out of which Before concluding, it is but fair to state that the writer's opinion on the first subject and
the income issues must be situated within the state so that the income may be said to the first assigned error herein discussed is accurately set forth, but that his opinion on
have a situs therein. Personal property may be separated from its owner, and he may the second subject and the second assigned error is not accurately reflected, because
be taxed on its account at the place where the property is although it is not the place on this last division his views coincide with those of the appellant. However, in the
of his own domicile and even though he is not a citizen or resident of the state which interest of the prompt disposition of this case, the decision has been written up in
imposes the tax. But debts owing by corporations are obligations of the debtors, and accordance with instructions received from the court.
only possess value in the hands of the creditors. (Farmers Loan Co. vs. Minnesota
[1930], 280 U.S., 204; Union Refrigerator Transit Co. vs. Kentucky [1905], 199 U.S., Judgment affirmed, with the cost of this instance assessed against the appellant.
194 State Tax on Foreign held Bonds [1873, 15 Wall., 300; Bick vs. Beach [1907], 206
U. S., 392; State ex rel. Manitowoc Gas Co. vs. Wig. Tax Comm. [1915], 161 Wis.,
Hull, Vickers, Imperial, Butte, and Recto, JJ., concur.
111; United States Revenue Act of 1932, sec. 143.)

These views concerning situs for taxation purposes apply as well to an organized,
unincorporated territory or to a Commonwealth having the status of the Philippines.
Separate Opinions
Pushing to one side that portion of Act No. 3761 which permits taxation of interest on
bonds and other indebtedness paid without the Philippine Islands, the question is if VILLA-REAL, J., concurring and dissenting:
the income was derived from sources within the Philippine Islands.
I concur with the majority decision regarding the disposition of the second error, but
In the judgment of the majority of the court, the question should be answered in the dissent as to its disposition of the first error. In my opinion, the exemption clause to be
affirmative. The Manila Gas Corporation operates its business entirely within the found in the charter of the plaintiff is broader in scope than that to be found in the
Philippines. Its earnings, therefore come from local sources. The place of material charter of the Philippine Telephone and Telegraph Company, thus making
delivery of the interest to the foreign corporations paid out of the revenue of the inapplicable the decision of this court in the case of Philippine Telephone and
domestic corporation is of no particular moment. The place of payment even if Telegraph Co. vs. Collector of Internal Revenue (58 Phil., 639).
conceded to be outside of tho country cannot alter the fact that the income was
derived from the Philippines. The word "source" conveys only one idea, that of origin, ABAD SANTOS, J., concurring in part and dissenting in part:
and the origin of the income was the Philippines.
I am of opinion that the first assignment of error should be sustained and the judgment
below reversed in that respect.

5
The franchise held by the appellant corporation contains a stipulation by the I do not agree with the majority opinion with respect to the appellant's second
Government to the effect that the payment by the corporation to the entities named in assignment of error, which in my opinion should be sustained. The question involved
the franchise of two and one-half per centum of its gross receipts, shall be in lieu of all in this error has been clearly decided by this court in the case of Manila Railroad Co.
taxes, except taxes on the real estate, buildings, plant, machinery and other personal vs. Collector of Internal Revenue (G.R. No. 31196, promulgated December 2, 1929,
property belonging to the corporation. The dividends paid by the appellant corporation not reported). In said case it was held that interest on bonds purchased outside the
to its stockholders were a part of its earnings and as such not subject to tax under the Philippine Islands by non-residents of the Islands cannot be considered derived from
terms of the franchise. The franchise in this case is a contract, the obligation of which sources within the Islands. The amendment of the law introduced by Act no. 3761 as
can not be impaired. to the place of payment of interest does not affect the aspect of the question raised in
this error if the interest on which the tax in the present case has been collected is not
I agree with the majority of the court that the second assignment of error should be derived from sources within the Islands, as it is not so in fact, in accordance with the
overruled, and the judgment affirmed in that particular. doctrine laid down in said case of Manila Railroad Co. vs. Collector of Internal
Revenue.
Section 13 (e) of Act No. 2833, as amended by Act No. 3761, expressly provides for
the imposition of a tax "... upon the income derived from interest upon bonds and GODDARD, J., dissenting:
mortgages, or deeds of trust, notes, or other interest-bearing obligations of a domestic
or resident foreign corporation, ..." The income derived from the interest on bonds and The tax exemption and commutation clause in the plaintiffs franchise provides that:
other indebtedness of the appellant corporation, is clearly within the purview of the
statute. The power of the legislature to impose such a tax must be recognized. As The grantee shall annually on the 5th day of January of each year pay to the City of
stated by Justice Bradley in United States vs. Erie R. Co. (106 U.S., 327; 27 Law. ed., Manila and to the municipalities in the Province of Rizal in which gas is sold, two and
151, 153) : "... The tax laid upon their bonds was intended to affect the owners of the one half per centum of the gross receipts within said city and municipalities,
bonds, and whilst the companies were directed to pay it, they were authorized to respectively, during the preceding year. Said payment shall be in lieu of all tax,
retain the amount from the installments due to the bondholders, whether citizens or Insular, provincial and municipal, except taxes on the real estate, buildings, plant,
aliens. The objection that Congress had no power to tax non-resident aliens, is met by machinery, and other personal property belonging to the grantee.
the fact that the tax was not assessed against them personally, but against the rem,
the credit, the debt due to them. Congress has the right to tax all property within the
This franchise is a contract between the Government and the grantees thereof, whose
jurisdiction of the United States, with certain exceptions not necessary to be noted.
rights have been acquired by the plaintiff corporation. In Manila Railroad Co. vs.
The money due to non-resident bondholders in this case was in the United States in
Rafferty (40 Phil., 224, 230), this court held that "... Once granted, a charter becomes
the hands of the company before it could be transmitted to London, or other place
a private contract ...." Article 1091 of the Civil Code provides that "Obligations arising
where the bondholders resided. Whilst here it was liable to taxation. Congress, by the
from contract shall have the force of law between the contracting parties and must be
internal revenue law, by way of tax., stopped a part of the money before its
performed in accordance with their stipulations." It follows that as the plaintiff
transmission, namely; 5 per cent of it. Plausible grounds for levying such a tax might
corporation has paid to the City of Manila and to the municipalities of Rizal, where gas
be assigned. It might be said that the creditor is protected by our laws in the
is sold by it, the franchise tax stipulated in the contract, the Government has no legal
enjoyment of the debt; that the whole machinery of our courts and the physical power
right to impose another tax on its earnings.
of the government are placed at his disposal for its security and collection."
The case of Farrington vs. Tennessee (95 U.S., 679; 24 Law. ed., 558), is almost in
AVANCEÑA, C.J., dissenting:
exact parallel with the case at bar. The facts of that case were as follows: The Union
and Planters' Bank of Memphis was duly organized under the charter granted by the
Legislature of Tennessee, by two Acts, respectively dated March 20, 1858, and

6
February 12, 1869. Since its organization it continued doing a regular banking xxx xxx xxx
business. Its capital subscribed and paid in amounted to $675,000, divided into 6,750
shares of $100 each. Farrington, the plaintiff in error, was the owner of 150 shares, of When this charter was granted, the State might have been silent as to taxation. In that
the value of $15,000. case, the power would have been unfettered. (Bk. vs. Billings, 4 Pet., 514.) It might
have reserved the power as to some things, and yielded it as to others. It had the
The tenth section of the charter of the bank declared: power to make its own terms or to refuse the charter. It chose to stipulate for a
specified tax on the and declared and bound itself that this tax should be "in lieu of all
That said Company shall pay to the State an annual tax of one-half of one per cent on other taxes."
each share of the capital stock subscribe, which shall be in lieu of all other taxes.
There is no question before us as to the tax imposed on the shares by the charter. But
The State of Tennessee and the County of Shelby, claiming the right under the the State has by her revenue imposed another and an additional tax on these same
Revenue Law of the State, to tax the stock of the plaintiff in error, a stockholder of the shares. This is one of those "other taxes" which it had stipulated to forego. The
bank, assessed and taxed it for the year 1872. It was assessed at its per value. The identity of the thing doubly taxed is not affected by the fact that in one case the tax is
tax imposed by the State was forty cents on the $100, making the state tax $60. The to be paid vicariously by the bank, and in the other by the owner of the share himself.
county tax was $1.20 on the $100, making the county tax $180. The thing thus taxed is to the same, and the second tax is expressly forbidden by the
contract of the parties. After the most careful consideration, we can come to no other
conclusion. Such, we think, must have been the understanding and intent of the
The plaintiff in error denied the right of the State and County to impose these taxes.
parties when the charter was granted and the bank was organized. Any other view
He claimed;
would ignore the covenant that the tax specified should be "in lieu of all other taxes." It
would blot those terms from the context, and construe it as if they were not a part of it.
(1) That the 10th section of the charter was a contract between the State and the ...
bank;
xxx xxx xxx
(2) That any other tax than that therein specified was expressly forbidden, and.
The decree of the Supreme Court of Tennessee is reversed and the case will be
(3) That the revenue laws imposing the taxes in question impaired the obligation of the remanded, with directions to enter a decree in favor of the plaintiff in error. (Farrington
contract. vs. Tennessee, 95 U.S., 679; 24 Law. ed., 560, 561.)

The Supreme Court of Tennessee adjudge the taxes to be valid and the plaintiff in That case, it will be observed, is almost in exact parallel with the case at bar. Both
error thereupon removed the case to the Federal Supreme Court for review. cases deal with tax commutation provided for in a franchise granted by the State. In
both cases the State covenanted that the tax specified in the franchise should be in
In upholding all of the contentions of the plaintiff in error, and pronouncing invalid the lieu of all other taxes. In both cases the additional tax which the tax authorities sought
taxes involved as impairing the obligation of the contract created by the franchise, the to impose was a revenue tax. In both cases the tax provided for in the franchise was
United States Supreme court said: paid by the corporation, and the tax which the authorities attempted to collect were
imposed on the stockholders. In the Farrington case the provision in the Federal
This case turns upon the construction to be given to the 10th section of the charter of Constitution that "No State shall ... pass any ... law impairing the obligation of
the bank. . . . contracts" was applied; in this case the provision of our Organic Law that "no law
impairing the obligation of contracts shall be enacted" is involved. It will be observed

7
further, that in the Farrington case the franchise was granted to a corporation, yet the In view of the above I am of the opinion that the appealed decision should be reversed
court held that the court mutation provision of the franchise extended to the individual and another entered by this courts ordering the defendant to pay the plaintiff the sum
stockholders. In the case at bar, while the plaintiff the present owner of the franchise. of P40,460.03, the amount of withholding taxes paid on account of interest on bonds
is a corporation, the original grantees were natural persons; hence there is more and other indebtedness, or a total of P56,757.37.
reason for holding in the present case that the mutation provision in the franchise
granted by the Philippine Government should extend to the stockholders of plaintiff
corporation.

The Farrington Case, decided in 1878, was by a divided court. Eighteen years — later  MAGSAYSAY – LABRADOR V. CA, 180 SCRA
in 1896 — the State of Tennessee sought to have the decision in that case reviewed, 266 (1989)
on the ground that the court did not consider the other portions of the charter which,
according to the State, were material. The Supreme Court — this time unanimously —
declined to reverse its view as expressed in the Farrington decision, saying. Magsaysay-Labrador, et. al. vs. Court of Appeals
[GR 58168, 19 December 1989]
We do not think under the circumstances that we ought now to come to a different
conclusion upon the question of exemption from that which was arrived at by this court Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special
in the Farrington Case. As the whole charter was then before the court, we are not administratix of the estate of the late Senator Genaro Magsaysay, brought before the
prepared to say that its force was misunderstood, or that there was an omission by the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic
court to consider all the language of the exemption clause simply because a portion of Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the
its omitted in the quotation from the record made in the opinion therein delivered. We Register of Deeds of Zambales, for the annulment of the Deed of Assignment
are not inclined, therefore, to overrule or distinguish the Farrington Case, and we must executed by the late Senator in favor of SUBIC (as a result of which TCT 3258 was
now told that the charter clause of exemption limits the amount of tax on each share of cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the
stock in the hands of the shareholder, and that any subsequent revenue law of the Deed of Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977
state which imposes an additional tax on such shares in the hands or shareholders, in the amount of P 2,700,000.00), and cancellation of TCT 22431 by the Register of
impairs the obligation of the contract, and is void. This compels us to reverse the Deeds, and for the latter to issue a new title in her favor. On 7 March 1979,
judgments herein against the shareholders. (Bank of Commerce vs. Tennessee, 16 Concepcion Magsaysay-Labrador, Soledad Magsaysay-Cabrera, Luisa Magsaysay-
U.S. 134; 40 Law. ed., 645, 648.) Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late
senator, filed a motion for intervention on the ground that on 20 June 1978, their
The doctrine of the Farrington Case is now the settled rule of the highest court of the brother conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6
United States. The first assignment of error should therefore be sustained. shares and as assignees of around 41 % of the total outstanding shares of such
stocks of SUBIC, they have a substantial and legal interest in the subject matter of
As to the second assignment of error I concur with the dissenting opinion of the Chief litigation and that they have a legal interest in the success of the suit with respect to
Justice for the reasons set forth therein. Consequently that assignment of error should SUBIC. On 26 July 1979, the trial court denied the motion for intervention, and ruled
also be sustained. that petitioners have no legal interest whatsoever in the matter in litigation and their
being alleged assignees or transferees of certain shares in SUBIC cannot legally
entitle them to intervene because SUBIC has a personality separate and distinct from
The trial court erred in not holding that interest received by a non-resident corporation,
its stockholders.
outside the Philippine Islands, is not income from Philippine sources and so not
subject to income tax.

8
 On appeal, the Court of Appeals found no factual or legal justification to disturb the executed by the late Senator in favor of SUBIC (as a result of which TCT 3258 was
findings of the lower court. The appellate court further stated that whatever claims the cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the Deed of
Magsaysay sisters have against the late Senator or against SUBIC for that matter can Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the amount
be ventilated in a separate proceeding. The motion for reconsideration of the
of P 2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the
Magsaysay sisters was denied. Hence, the petition for review on certiorari.
latter to issue a new title in her favor. On 7 March 1979, Concepcion Magsaysay-Labrador,
Issue: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested Soledad Magsaysay-Cabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and
parties in a case where corporate properties are in dispute. Mercedes Magsaysay-Diaz, sisters of the late senator, filed a motion for intervention on the
ground that on 20 June 1978, their brother conveyed to them 1/2 of his shareholdings in
Held: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total
Magsaysay sisters have no legal interest in the subject matter in litigation so as to outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in
entitle them to intervene in the proceedings. To be permitted to intervene in a pending
the subject matter of litigation and that they have a legal interest in the success of the suit
action, the party must have a legal interest in the matter in litigation, or in the success
of either of the parties or an interest against both, or he must be so situated as to be with respect to SUBIC. On 26 July 1979, the trial court denied the motion for intervention,
adversely affected by a distribution or other disposition of the property in the custody and ruled that petitioners have no legal interest whatsoever in the matter in litigation and
of the court or an officer thereof . Here, the interest, if it exists at all, of the Magsaysay their being alleged assignees or transferees of certain shares in SUBIC cannot legally
sisters is indirect, contingent, remote, conjectural, consequential and collateral. At the entitle them to intervene because SUBIC has a personality separate and distinct from its
very least, their interest is purely inchoate, or in sheer expectancy of a right in the stockholders.
management of the corporation and to share in the profits thereof and in the
properties and assets thereof on dissolution, after payment of the corporate debts and On appeal, the Court of Appeals found no factual or legal justification to disturb the findings
obligations. While a share of stock represents a proportionate or aliquot interest in the of the lower court. The appellate court further stated that whatever claims the Magsaysay
property of the corporation, it does not vest the owner thereof with any legal right or
title to any of the property, his interest in the corporate property being equitable or sisters have against the late Senator or against SUBIC for that matter can be ventilated in
beneficial in nature. Shareholders are in no legal sense the owners of corporate a separate proceeding. The motion for reconsideration of the Magsaysay sisters was
property, which is owned by the corporation as a distinct legal person. denied. Hence, the petition for review on certiorari.

Issue: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested
Magsaysay-Labrador, et. al. vs. Court of Appeals [GR 58168, 19 December 1989] parties in a case where corporate properties are in dispute.
Third Division, Fernan (CJ): 3 concur, 1 on leave Held: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the
Magsaysay sisters have no legal interest in the subject matter in litigation so as to entitle
Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special
them to intervene in the proceedings. To be permitted to intervene in a pending action, the
administratix of the estate of the late Senator Genaro Magsaysay, brought before the then
party must have a legal interest in the matter in litigation, or in the success of either of the
Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land
parties or an interest against both, or he must be so situated as to be adversely affected by
Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of
a distribution or other disposition of the property in the custody of the court or an officer
Deeds of Zambales, for the annulment of the Deed of Assignment
thereof . Here, the interest, if it exists at all, of the Magsaysay sisters is indirect, contingent,
remote, conjectural, consequential and collateral. At the very least, their interest is purely
inchoate, or in sheer expectancy of a right in the management of the corporation and to

9
share in the profits thereof and in the properties and assets thereof on dissolution, after Held: No. Under article 1240 of the civil code of the Philippines – Payment
payment of the corporate debts and obligations. While a share of stock represents a shall be made to the person in whose favor the obligation has been
proportionate or aliquot interest in the property of the corporation, it does not vest the constituted, on his successor in interest or any person authorized to receive it.
owner thereof with any legal right or title to any of the property, his interest in the corporate
property being equitable or beneficial in nature. Shareholders are in no legal sense the In the case at bar, the supposed payments were not made to Roces-Reyes
Realty Inc. or to its successors in interest nor is there positive evidence that
owners of corporate property, which is owned by the corporation as a distinct legal person.
payment was made to a person authorized to receive it. No such proof was
submitted but merely inferred by the RTC from Marcos Roces having signed
the lease contract as President which was witnessed by Jesus Marcos Roces.
The later, however, was no longer President or even an officer of the Roces-
 GOOD EARTH V. CA, 194 SCRA 544 (1991) Realty Inc at the time he received the money and signed the sale with pacto
de retro. He, in fact denied being in possession of authority to receive
payment for the respondent corporation nor does the receipt show that he
Good Earth Emporium Inc. vs Court of Appeals
signed in the same capacity as he did in the lease contract at a time when he
194 SCRA 544 [GR No. 82797 February 27, 1991]
was President for respondent corporation.
Facts: A lease contract, dated October 16, 1981, was entered into by and
A corporation has a personality distinct and separate from its individual
between Roces-Reyes Realty Inc. as lessor, and Good Earth Emporium Inc.
stockholders or members. Being an officer or stockholder of a corporation
(GEE) as lessee for a term of three years beginning November 1, 1981 and
does not make one’s property also of the corporation, and vice-versa, for they
ending October 31, 1984 at a monthly rental of Php65,000. The building
are separate entities. Share owners are in no legal sense the owners corporate
which was the subject of the contract of lease is a five story building located
property which is owned by the corporation as a distinct legal person. As a
at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila. From
consequence of the separate juridical personality of a corporation, the
March 1983 up to the complaint was filed, the lessee had defaulted in the
corporate debt or credit is not the debt or credit of the stockholder, nor is the
payment of rentals, as a consequence of which, private respondent Roces-
stockholder’s debt or credit that of the corporation.
Reyes Realty Inc. filed on October 14, 1984 an ejectment case against herein
petitioners, Good Earth Emporium Inc. and Lim Ka Ring. After the latter had
tendered their responsive pleading, the lower court on motion of Roces
rendered judgement on the pleadings dated April 17, 1984 to which
petitioners were ordered to vacate the premises and surrender the same to the TAYKO VS CAPISTRANO
plaintiffs. On May 16, 1984, Roces filed a motion for execution which was
opposed by petitioners on May 28, 1984 simultaneous with the latter’s filing FACTS:
of a notice of appeal. However, on August 15, 1984, GEE thru counsel filed a
motion to withdraw said appeal citing as reason that they are satisfied with A criminal cases and election protests for violation of the election law was filed in the
the decision of the lower court. CFI of Oriental Negros arising from the last election of June 05, 1928. That Honorable
Sixto de la Costa was duly designated and acted as auxiliary judge of the Province of
Issue: Whether or not the payment made by GEE to the Roces brothers Oriental Negros; that between the auxiliary judge and the respondent judge herein
constitute payment to private respondent corporation which would result to there was an understanding, and the assignment of the said auxiliary judge was made
the extinguishment of the obligation. with this understanding, that the said auxiliary judge so designated would hear and

10
take cognizance of all election protests and criminal actions then pending or to filed Apart from any constitutional or statutory regulation on the subject there seems
arising from the said last general election, and that the respondent Honorable Nicolas to be a general rule of law that an incumbent of an office will hold over after the
Capistrano would try and hear the ordinary cases pending in the said court, but, conclusion of his term until the elction and qualification of a successor (22 R. C. L., pp.
notwithstanding this understanding or agreement, the respondent judge tried and is 554-5). When a judge in good faith remains in office after his title has ended, he is a
still trying to take cognizance of the election protests an criminal actions in said court; de facto officer (Sheehan's Case, 122 Mass., 445).
that the respondent judge declared in open court that he will try the criminal cases
herein mentioned for the reason that the auxiliary judge refused to try the same on the Applying the principles stated to the facts set forth in the petition before us, we
ground that the preliminary investigations were held before him, when, in truth and in cannot escape the conclusion that, on the assumption that said facts are true, the
fact, the said auxiliary judge did not make the statement imputed to him and was and respondent judge must be considered a judge de facto. His term of office may have
is still willing to try the election protests and criminal cases for violation of the election expired, but his successor has not been appointed, and as good faith is presumed, he
law pending in the court of the Province of Oriental Negros. Petitioners further allege must be regarded as holding over in good faith. The contention of counsel for the
that respondent judge already reached the age of 65 years and therefore under the petitioners that the auxiliary judge present in the district must be considered the
provisions of section 28 of the Administrative Code as amended, is disqualified from regular judge seems obviously erroneous. The title of a de facto officer cannot be
acting as a judge of the CFI. indirectly questioned in a proceeding to obtain a writ of prohibition to prevent him from
doing an official act nor in a suit to enjoin the collection of a judgment rendered by
ISSUE: him. Having at least colorable right to the office his title can be determined only in a
quo warranto proceeding or information in the nature of a quo warranto at suit of the
Whether or not respondent judge who is already over 65 years of age is disqualified sovereign.
as judge of the CFI of Oriental Negros and that he is neither a judge de jure nor de
facto?

RULING:

It is well settled that the title to the office of a judge, whether de jure or de facto, can
only be determined in a proceeding in the nature of quo warranto and cannot be
tested by prohibition. But counsel for the petitioners maintains that the respondent
judge is neither a judge de jure nor de facto and that, therefore, prohibition will lie. In
this, counsel is undoubtedly mistaken. Briefly defined, a de facto judge is one who
exercises the duties of a judicial office under color of an appointment or election
thereto (Brown vs. O'Connell, 36 Conn., 432). He differs, on the one hand, from a
mere usurper who undertakes to act officially without any color of right, and on the
other hand, from a judge de jure who is in all respects legally appointed and qualified
and whose term of office has not expired (State vs. Carroll, 38 Conn., 449; Denny vs.
Matton, 2 Allen [Mass.], 361; Van Slyke vs. Farmers' Mut. Fire Ins. Co., 39 Wis., 390).

11
 a. REQUISITES against the defendant corporation), the filing of action of Fernandez on the Regional
Office no. 4 of the Department of labor was not covered by the said declaration of
2. FERNANDEZ V. CUERVA, 21 unconstitutionality of said reorganization plan. Since the filing of Fernandez in the
SCRA 1095 (1967) Department of Labor in 1960 almost 8 months after he was severed from work, his
acts stops the running of the prescriptive period. Therefore it is only right that he file
Fernandez vs. P. Cuerva & Co. (NOTE: LABOR CASE ATA ITO WALA AKO his action in the CFI of Manila after declaring that the Regional Office of the
MAKITA REGARDING CORPORATION LAW, BUT ETO PARIN YUNG CASE Department of Labor has no more jurisdiction over his actions. Therefore, the case is
PAKI-ARAL NALANG PARA SURE) remanded to the CFI of Manila.

Facts: 3. HALL V. PICCIO, 68 PHIL 603

Federico Fernandez was employed as salesman by defendant P. Cuerva & Co. From (1950)
1949 to 1959. When he was severed from work, he filed an action against the
defendant corporation to recover unpaid salaries and commission as well as ARNOLD HALL and BRADLEY P. HALL vs. EDMUNDO S. PICCIO, Judge of the
separation pay on July 1960 in the regional Office No. 4 of the Department of Labor. Court of First Instance of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA
CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and
During the pendency of the case, he filed the same action in the CFI of Manila on
Commercial Co., Inc.
December 17, 1962. Defendant on the other hand contended that the action of the
plaintiff in instituting the case in the CFI of Manila was already barred by the three FACTS:
year period to file monetary claim (he was severed from work on MARCH 1959). Petitioners signed and acknowledged in Leyte, the article of incorporation of the Far
Eastern Lumber and Commercial Co., Inc. Attached to the article was an affidavit of
The CFI dismissed the claim of Fernandez on the ground that his action has already the treasurer stating that 23,428 shares of stock had been subscribed and fully paid
prescribed. On M.R. Fernandez contended that his filing in the Regional office No. 4 of with certain properties transferred to the corporation described in a list appended
the Department of Labor on July 1960 (barely 8 mos. After his separation from work) thereto.
stops the running of the prescriptive period. Immediately after the execution of said articles of incorporation, the corporation
proceeded to do business with the adoption of by-laws and the election of its officers.
Issue: whether or not the filing of Fernandez in the Regional Office No. 4 of the
The articles of incorporation were filed (SEC) for the issuance of the corresponding
Department of Labor stops the prescriptive period to file monetary claim, and therefore certificate of incorporation. Pending action on the articles of incorporation,
the CFI of Manila has jurisdiction over his claim. respondents filed before the CFI of Leyte a complaint, entitled "Fred Brown et al. vs.
Arnold C. Hall et al.", alleging that the Far Eastern Lumber and Commercial Co. was
Held: an unregistered partnership; that they wished to have it dissolved because of bitter
dissension among the members, mismanagement and fraud by the managers and
Since the Reorganization Plan No. 20-A (Giving jurisdiction to the Regional heavy financial losses. Petitioners filed motion to dismiss, contesting the court's
Office of the Department of Labor actions for monetary claims of laborers) was only jurisdiction and the sufficiently of the cause of action.
declared unconstitutional on June 30, 1961 (almost 1 year after Fernandez instituted
the action in the Regional office No. 4 of the Department of Labor his monetary claim After hearing the parties, respondent judge (CFI) ordered the dissolution of the
company. Petitioners offered to file a counter-bond for the discharge of the receiver,

12
but the respondent judge refused to accept the offer and to discharge the receiver. principal reason why this petition may not prosper, namely: the petitioners have their
Hence this petition. Petitioner contended, the court had no jurisdiction to decree the remedy by appealing the order of dissolution at the proper time.
dissolution of the company, because it being a de facto corporation, dissolution
thereof may only be ordered in a quo warranto proceeding instituted in accordance Moreover, all the parties are informed that the Securities and Exchange Commission
with section 19 of the Corporation Law. has not, so far, issued the corresponding certificate of incorporation. All of them know,
or sought to know, that the personality of a corporation begins to exist only from the
ISSUE: W/N Far Eastern Lumber and Commercial Co. (as alleged to being a de facto moment such certificate is issued — not before (Sec. 11, Corporation Law). The
corporation), is covered by Sec. 19 of the Corporation Law. complaining associates have not represented to the others that they were
incorporated any more than the latter had made similar representations to them. And
as nobody was led to believe anything to his prejudice and damage, the principle of
Section 19:. . . The due incorporation of any corporations claiming in good faith to be a estoppel does not apply. Obviously this is not an instance requiring the enforcement of
corporation under this Act and its right to exercise corporate powers shall not be contracts with the corporation through the rule of estoppel.
inquired into collaterally in any private suit to which the corporation may be a party,
but such inquiry may be had at the suit of the Insular Government on information of
the Attorney-General.

HELD: This section does not apply on 2 reasons:

(1) Not having obtained the certificate of incorporation, Far Eastern Lumber and 4. BENGUET CONSOLIDATED V.
Commercial Co. — even its stockholders — may not probably claim "in good
faith" to be a corporation. PINEDA, 98 PHIL 711 (1956)
Under our statue it is to be noted (Corporation Law, Sec. 11) that it is the issuance of
a certificate of incorporation by the Director of the Bureau of Commerce and Industry BENGUET CONSOLIDATED MINING CO. V. PINEDA
which calls a corporation into being. The immunity if collateral attack is granted to
corporations "claiming in good faith to be a corporation under this act." Such a claim is FACTS: The Petitioner, the Benguet Consolidated Mining Co. (hereafter termed
compatible with the existence of errors and irregularities; but not with a total or “Benguet” for short), was organized on June 24,1903, as a sociedad anonima
substantial disregard of the law. Unless there has been an evident attempt to comply regulated by Articles 151 et seq., of the Spanish Code of Commerce of 1886, then in
with the law the claim to be a corporation "under this act" could not be made "in good
force in the Philippines. The articles of association expressly provided that it was
faith."
organized for a term of fifty (50) years. In 1906, the governing Philippine Commission
(2) This is not a suit in which the corporation is a party. This is a litigation enacted Act 1459, commonly known as the Corporation Law, establishing in the
between stockholders of the alleged corporation, for the purpose of obtaining islands the American type of juridical entities known as corporation, to take effect on
its dissolution. Even the existence of a de jure corporation may be terminated in April 1, 1906. Prior to the expiration of its corporate term, petitioner filed with the SEC
a private suit for its dissolution between stockholders, without the intervention an alternative registration, extending its term of existence for another 50 years and
of the state. reformation or reorganization of the corporation in accordance with the Corporation
There might be room for argument on the right of minority stockholders to sue for Code. Respondent herein, Securities and Exchange Commissioner denied the
dissolution;1 but that question does not affect the court's jurisdiction, and is a matter registration relying mainly upon the opinion of the Sec. of Justice on the ground that
for decision by the judge, subject to review on appeal. Whkch brings us to one petitioner has no right to extend the original term of its corporate existence as stated
in the Articles of Incorporation being a sociedad anonima.

13
ISSUE: WON petitioner has the right to extend the term of its corporate existence in section 75; chan roblesvirtualawlibraryit also appears from positive acts. Thus around
accordance with the Corporation Code. 1933, Benguet claimed and defended in court its acquisition of shares of the capital
stock of the Balatoc Mining Company, on the ground that as a sociedad anonima it
RULING: Petitioner Benguet (and here lies the second issue in this appeal) that (Benguet) was not a corporation within the purview of the laws prohibiting a mining
the possibility to extend its corporate life under the Code of Commerce constituted a corporation from becoming interested in another mining corporation (Harden vs.
right already vested when Act No. 1459 was adopted. At that time, Benguet’s Benguet Mining Corp., 58 Phil., p. 149). Even in the present proceedings, Benguet
existence was well within the 50 years period set in its articles of association; and its has urged its right to amend its original articles of association as “sociedad anonima”
members had not entered into any agreement that such period should be extended. It and extend its life as such under the provisions of the Spanish Code of Commerce.
is safe to say that none of the members of Benguet anticipated in 1906 any need to Such appeals to privileges as “sociedad anonima” under the Code of 1886 necessarily
reach an agreement to increase the term of its corporate life, barely three years after it imply that Benguet has rejected the alternative of reforming under the Corporation
had started. The prorogation was purely speculative; a mere possibility that could not Law.
be taken for granted. It was as yet conditional, depending upon the ultimate decision
of the members and directors. They might agree to extend Benguet’s existence The prohibition contained in section 18 of Act No. 1459, against extending the period
beyond the original 50 years; or again they might not. It must be remembered that in of corporate existence by amendment of the original articles, was intended to apply,
1906, the success of Benguet in its mining ventures was by no means so certain as to and does apply, to sociedades anonimas already formed, organized and existing at
warrant continuation of its operations beyond the 50 years set in its articles. The the time of the effectivity of the Corporation Law (Act No. 1459) in 1906.
records of this Court show that Benguet ran into financial difficulties in the early part of
its existence, to the extent that, as late as 1913, ten years after it was found, 301,100 A sociedad anonima, existing before the Corporation Law, that continues to do
shares of its capital stock (with a par value of $1 per share) were being offered for business as such for a reasonable time after its enactments, is deemed to have made
sale at 25 centavos per share in order to raise the sum of P75,000 that was needed to its election and may not subsequently claim to reform into a corporation under section
rehabilitate the company (Hanlon vs. Hausermann and Beam, 40 Phil., 796). Certainly 75 of Act No. 1459.
the prolongation of the corporate existence of Benguet in 1906 was merely a
Asia Banking Corporation (plaintiff) v. Standard Products Co. (defendant)
possibility in futuro, a contingency that did not fulfill the requirements of a vested right
entitled to constitutional protection. Facts: Standard Products Co. paid partially and made a promissory note in favour of
Asia Banking Corporation. It then thereafter filed a case to recover the payment it
Since there was no agreement as yet to extend the period of Benguet’s corporate made to Asia Banking which the lower court denied. By using as a defense the failure
existence (beyond the original 50 years) when the Corporation Law was adopted in of the plaintiff to prove the corporate existence of the parties and the argument that
1906, neither Benguet nor its members had any actual or vested right to such the court erred in finding that the parties were corporations with juridical personality.
extension at that time. Therefore, when the Corporation Law, by section 18, forbade
extensions of corporate life, neither Benguet nor its members were deprived of any Issue: Whether or not the lower court erred in its findings that the parties were
corporations with juridical personality?
actual or fixed right constitutionally protected.
Held: The Appellate Court affirmed the decision of the lower court. The defendant
The election of Benguet to remain a sociedad anonima after the enactment of the
having recognized the corporate existence of the plaintiff by making a promissory note
Corporation Law is evidence, not only by its failure, from 1906 to 1953, to adopt the
alternative to transfer its corporate interests to a new corporation, as required by

14
in its favor and making partial payments on the same is therefore estopped to deny
said plaintiff's corporate existence. It is, of Apparently, the aforementioned obligations imposed on the alleged corporation were
course, also estopped from denying its own corporate existence. Under these not complied with because on April 5, 1955, Alanuela T. Vda, de Salvatierra filed with
circumstances it was unnecessary for the plaintiff to present other evidence of the the Court of First Instance of Leyte a complaint against the Philippine Fibers
corporate existence of either of the parties. There is no merit whatever in the Producers Co., Inc., and Segundino Q. Refuerzo, for accounting, rescission and
appellant's contention. The general rule is damages (Civil Case No. 1912). She averred that sometime in April, 1954, defendants
that in the absence of fraud a person who has contracted or otherwise dealt with an planted kenaf on 3 hectares of the leased property which crop was, at the time of the
association in such a way as to recognize and in effect admit its legal existence as a commencement of the action, already harvested, processed and sold by defendants;
corporate body is thereby estopped to deny its corporate existence in any action that notwithstanding that fact, defendants refused to render an accounting of the
leading out of or involving such contract or dealing, unless its existence is attacked for income derived therefrom and to deliver the lessor's share; that the estimated gross
cause which have arisen since making the contract or other dealing relied on as an income was P4,500, and the deductible expenses amounted to P1,000; that as
estoppel and this applies to foreign as well as to domestic corporations. defendants' refusal to undertake such task was in violation of the terms of the
covenant entered into between the plaintiff and defendant corporation, a rescission
was but proper.

1. VDA. DE SALVATIERRA V. ISSUE: Whether or not an officer of the corporation can be made liable to the
GARLITOS, 103 PHIL 757 (1958) transaction entered into by an unorganized corporation purporting to be a valid one.

RULINGS: While as a general rule a person who has contracted or dealt with an
MANUELA T. VDA. DE SALVATIERRA, petitioner, association in such a way as to recognize its existence as a corporate body is
vs. estopped from denying the same in an action arising out of such transaction or
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First dealing, (Asia Banking Corporation vs. Standard Products Co., 46 Phil., 114;
Instance of Leyte, Branch II, and SEGUNDINO REFUERZO, respondents. Compania Agricola de Ultramar vs. Reyes, 4 Phil., 1; Ohta Development Co.; vs.
Steamship Pompey, 49 Phil., 117), yet this doctrine may not be held to be applicable
FACTS: where fraud takes a part in the said transaction. In the instant case, on plaintiff's
charge that she was unaware of the fact that the Philippine Fibers Producers Co., Inc.,
Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located had no juridical personality, defendant Refuerzo gave no confirmation or denial and
at Maghobas, Poblacion, Burauen, Teyte. On March 7, 1954, said landholder entered the circumstances surrounding the execution of the contract lead to the inescapable
into a contract of lease with the Philippine Fibers Producers Co., Inc., allegedly a conclusion that plaintiff Manuela T. Vda. de Salvatierra was really made to believe that
corporation "duly organized and existing under the laws of the Philippines, domiciled such corporation was duly organized in accordance with law.
at Burauen, Leyte, Philippines, and with business address therein, represented in this
instance by Mr. Segundino Q. Refuerzo, the President". It was provided in said
contract, among other things, that the lifetime of the lease would be for a period of 10
years; that the land would be planted to kenaf, ramie or other crops suitable to the 2. ALBERT V. UNIVERSITY
soil; that the lessor would be entitled to 30 per cent of the net income accruing from
the harvest of any, crop without being responsible for the cost of production thereof; PUBLISHING, 13 SCRA 84 (1965)
and that after every harvest, the lessee was bound to declare at the earliest possible
time the income derived therefrom and to deliver the corresponding share due the Albert vs. University Publishing Co., Inc.
lessor.

15
Facts: waived his rights and Lim filed an answer for Counterclaim and Crossclaim and
Mariano Albert entered into a contract with University Publishing Co. Inc. for the moved for the lifting of the writ of attachment.
exclusive right to publish his commentaries on the RPC and for his share in the sales
of the said book. The publishing company failed to pay Albert and so the latter sued The writ was maintained by the Trial Court and ruled that a partnership among Lim,
the company. Yao and Chua existed. Lim appealed to the CA, but the latter affirmed the ruling of the
The lower court ruled in favor of Albert. However, it was discovered that the trial court, hence, this petition.
publishing company was not registered with the SEC. Plaintiff Albert filed a petition for
a writ of execution against Jose Aruego as the real party defendant. CA denied said Issue: Whether or not Lim, Chua and Yao could be deemed to have entered into a
petition. Albert filed an appeal. partnership.

Issue: Ruling:
Whether or not Jose Aruego was the real party defendant in the said case and
whether or not corporation by estoppel is applicable. It is clear that Chua, Yao and Lim decided to engage in a fishing business, their
Compromise Agreement revealed that their intention to pay the loan with the proceeds
Held: of the sale of the boats and to divide among themselves the excess or loss. The
The SC held that Jose Aruego was the real party defendant as he possess the parties agreed that any loss or profit from the sale and operation would be divided
right to control the proceeding, to make defenses, adduce and cross examine equally among them which shows that they had intended to from a partnership.
witnesses. It was clear that he acted as a representative of a non-existent principal.
He was the one who reaped the benefits resulting from the contract. Sec. 21 provides that a Corporation by estoppel, all persons assume to act as a
Corporation by estoppel cannot be invoked by Aruego. The law provides that one corporation knowing it to be without authority to do so shall be liable as general
who has induced another to act upon his willful misrepresentation that a corporation partners for all debts, liabilities and damages incurred or arising as a result thereof.
was duly organized and existing under the law cannot thereafter set up against his Provided, however, that when any such corporation is sued on any transaction
victim the said principle. entered by it as a corporation or on any tort committed by it as such, it shall not be
3. LIM V. PHILIPPINE FISHING allowed to use as a defense its lack of corporate personality. One who assumes an
obligation to an ostensible corporation as such cannot resist performance thereof on
GEAR, G.R. NO. 136448 (1999) the ground that there was in fact no corporation. Even if the ostensible corporation is
proven to be legally nonexistent, a party may be estopped from denying its corporate
Lim Tong Lim vs. Philippine Fishing Gear, inc. existence.
G.R. No. 1346448, November 3, 1999
The SC affirmed the decision of the CA.
Facts:

On behalf of Ocean Quest Fishing Corp. Antonio Chua, Peter Yao entered into a UMALI v. COURT OF APPEALS
Contract to purchase fishing nets from Philippine Fishing Gear Industries, Chua and
Yao claimed that they engaged in the business venture with Lim Tong Lim. They failed Facts:
to pay the fishing nets and the boats, the Philippine Fishing Gear, Inc. filed a collection The Castillo family is the owner of a parcel of land which was given as security
suit against Chua, Yap and Lim as general partners of a nonexistent corporation for a loan from the DBP. For failure to pay the amortization, foreclosure of
Ocean Quest Fishing Corp. The Lower Court issued a writ of Preliminary Attachment the property was initiated. This was made known to Santiago Rivera, the
for the fishing nets. Chua admitted his liability, Yao filed his answer but deemed nephew of plaintiff Mauricia Meer vda. De Castillo and president of Slobec

16
 Realty Dev. Corp. Rivera proposed to them the conversion into a corporation will be considered as a mere association of person (3) the
subdivision lot of the four parcels of land adjacent to the mortgaged members or stockholders of the corporation will be considered as the
property to raise the money. The Castillos agreed so a MOA was corporation, making them liable directly. It is only applicable when
executed between Slobec represented by Rivera and the Castillos. Rivera corporate fiction is: (1) used to defeat public convenience, justify wrong,
obliged himself to pay the Castillos P70T after the execution of the contract protect fraud, or defend crime (2) made as a shield to confuse legitimate
and P400T after the property had been converted into a subdivision. Rivera issued (3) where a corporation is the mere alter ego or business conduit of
armed with the agreement approached Cervantes, president of Bormaheco a person (4) where the corporation is so organized and controlled and its
and bought a Caterpillar Tractor with P50T down payment and the affairs are so conducted as to make it merely an instrumentality., agency ,
balance of P180T payable in installments. Slobec through Rivera executed conduit or adjunct of another corporation.
in favor of Bormaheco a chattel mortgage over the said equipment as
The SC is of the opinion that piecing the veil is not the proper remedy in order
security for the unpaid balance. As further security, Slobec obtained
that the foreclosure proceedings may be declared a nullity under the
through the Insurance Corporation of the Philippines a Surety Bond in favor of
circumstances in the case at bar. Petitioners are merely seeking the
Counter-Guaranty with REM executed by Rivera as president of Slobec
declaration of the nullity of the foreclosure sale, which relief may be
and the Castillos as mortgagors and ICP as mortgagee. The Caterpillar
obtained without having to disregard the aforesaid corporate fiction attaching
Tractorwas delivered to Slobec.
to the respondent corporations. Petitioners also fail to establish by clear
Meanwhile for violation of the terms and the conditions of the Counter- and convincing evidence that private respondents were purposely formed
Guaranty Agreement, the properties of the Castillos was foreclosed by and operated, with the sole intention of defrauding the latter. The facts
ICP. As the highest bidder, a Certificate of Sale was issued in its favor showed that the surety of ICP is good only for 12 months therefore the
and TCTs over the parcels of land were issued by the Register of Deeds in surety had already expired. The failure of ICP to give notice renders ICP to
favor of ICP. The mortgagors had one year from the registration of the sale have no right to foreclosure. In this case, piercing need not be resorted to.
to redeem the property but they failed to do so. ICP consolidated its
ownership over the parcels of land. Later on ICP sold to Philippine Machinery
Parts Mfg. Co. the parcels of land and by virtue of said sale, PM transferred
unto itself the title of the lots. PM parts through its President, Cervantes sent BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M.
a letter to the Castillos to vacate the property. The Castillos refused to do CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA C.
so. Subsequently, Umali the administratix of the properties of Castillos filed JALBUENA and SANTIAGO M. RIVERA vs. COURT OF APPEALS, BORMAHECO,
an action for annulment of titles. They countered that all the transaction INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING CO., INC.
starting from the Agreement of Counter-Guaranty with REM are void for
being entered into in fraud. They seek to pierce the veil of corporate entity FACTS:
of Bormaheco, ICP and PM Parts alleging that these corporations Petitioner Santiago Rivera is the nephew of petitioner Mauricia Meer Vda. de Castillo.
employed fraud in causing the foreclosure and subsequent sale of their land. The Castillo family are the owners of a parcel of land located in Lucena City which
The lower court ruled in favor of Umali. This was reversed by the CA. was given as security for a loan from the Development Bank of the Philippines. For
their failure to pay the amortization, foreclosure of the said property was about to be
Held: initiated. This problem was made known to Santiago Rivera, who proposed to them
The SC is not convinced that the contract entered into by the parties are fraudulent. the conversion into subdivision of the four (4) parcels of land adjacent to the
mortgaged property to raise the necessary fund. The Idea was accepted by the
Under the doctrine of piecing the veil of corporate entity, when valid ground
Castillo family and to carry out the project, a Memorandum of Agreement was
exists , the following effects would be produced: (1) legal fiction that a
executed by and between Slobec Realty and Development, Inc., represented by its
corporation is an entity with a juridical personality separate and distinct from
President Santiago Rivera and the Castillo family. In this agreement, Santiago Rivera
its members or stockholders may be disregarded (2) in such cases, the
obliged himself to pay the Castillo family the sum of P70K immediately after the

17
execution of the agreement and to pay the additional amount of P400T after the The heirs of the late Felipe Castillo, petitioner Buenaflor M. Castillo Umali as the
property has been converted into a subdivision. Rivera, armed with the agreement, appointed administratrix of the properties filed an action for annulment of title before
approached Mr. Modesto Cervantes, president of defendant Bormaheco, and the then CFI of Quezon. Thereafter, they filed an Amended Complaint. Then
proposed to purchase from Bormaheco two (2) tractors, Sales Agreement was petitioners filed their Second Amended Complaint, impleading Santiago M. Rivera as
executed on Dec. 28, 1970. a party plaintiff. They contended that all the aforementioned transactions starting
Bormaheco, Inc. and Slobec Realty and Development, Inc. executed a Sales with the Agreement of Counter-Guaranty with Real Estate Mortgage, Certificate
Agreement over one unit of Caterpillar Tractor D-7. In the contract, the price was of Sale and the Deeds of Authority to Sell, Sale and the Affidavit of
P230,000.00 of which P50,000.00 was to constitute a down payment, and the balance Consolidation of Ownership and the Deed of Sale are void for being entered into
of P180,000.00 payable in eighteen monthly installments. On the same date, Slobec, in fraud and without the consent and approval of the CFI of Quezon, before
through Rivera, executed in favor of Bormaheco a Chattel Mortgage over the said whom the administration proceedings has been pending. Petitioners pray that the
equipment as security for the payment of the aforesaid balance of P180,000.00. As 4 parcels of land be declared as owned by the estate of the late Felipe Castillo and
further security of the aforementioned unpaid balance, Slobec obtained from that all Transfer Certificates of Title, as well as those appearing as encumbrances at
Insurance Corporation of the Phil. a Surety Bond, with ICP as surety and Slobec as the back of the certificates of title mentioned be declared as a nullity.
principal, in favor of Bormaheco. The surety bond was in turn secured by an In their amended answer, the defendants (r
Agreement of Counter-Guaranty with Real Estate Mortgage executed by Rivera as espondents herein) controverted the complaint and alleged, that the complaint did not
president of Slobec and Castillo family, as mortgagors and ICP as mortgagee. In this state facts sufficient to state a cause of action against defendants; that petitioners are
agreement, ICP guaranteed the obligation of Slobec with Bormaheco in the amount of not entitled to the reliefs demanded; that they are estopped or precluded from
P180,000.00. In giving the bond, ICP required that the Castillos mortgage to them the asserting the matters set forth in the Complaint; that they are guilty of laches in not
properties in question, namely, four parcels of land in the name of the aforementioned asserting their alleged right in due time; that respondent PM Parts is an innocent
mortgagors. purchaser for value and relied on the face of the title before it bought the subject
Meanwhile, for violation of the terms and conditions of the Counter-Guaranty property.
Agreement, the properties of the Castillos were foreclosed by ICP as the highest The trial court rendered judgment in favor of petitioners and declared all said
bidder, a Certificate of Sale was issued by the Provincial Sheriff of Lucena City and transactions as null and void for being fictitious, spurious and without consideration.
Transfer Certificates of Title over the subject parcels of land were issued by the The CA reversed said decision, hence this petition.
Register of Deeds of Lucena City in favor of ICP. The mortgagors had one (1) year
from the date of the registration of the certificate of sale, to redeem the property, but ISSUE:
they failed to do so. Consequently, ICP consolidated its ownership over the subject W/N the doctrine of piercing the veil of corporate fiction is not applicable in this
parcels of land through the requisite affidavit of consolidation of ownership. Pursuant case.
thereto, a Deed of Sale of Real Estate covering the subject properties was issued in
favor of ICP. HELD:
No. Under the doctrine of piercing the veil of corporate entity, when valid grounds
Subsequently, ICP sold to Phil. Machinery Parts Manufacturing Co. (PM Parts) the therefore exist, the legal fiction that a corporation is an entity with a juridical
four (4) parcels of land and by virtue of said conveyance, PM Parts transferred unto personality separate and distinct from its members or stockholders may be
itself the titles over the lots in dispute. disregarded. In such cases, the corporation will be considered as a mere association
Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a letter of persons. The members or stockholders of the corporation will be considered as the
addressed to petitioner Mrs. Mauricia Meer Castillo requesting her and her children to corporation, that is, liability will attach directly to the officers and stockholders. The
vacate the subject property, who (Mrs. Castillo) in turn sent her reply expressing her doctrine applies: (1)when the corporate fiction is used to defeat public
refusal to comply with his demands. convenience, justify wrong, protect fraud, or defend crime; (2) when it is made
as a shield to confuse the legitimate issues; (3)where a corporation is the mere

18
alter ego or business conduit of a person; (4)where the corporation is so Koppel v Yatco
organized and controlled and its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation. (The subsidiary was so controlled by the parent that its separate identity was hardly
discernible, and became a mere alter ego of the parent and was used to evade taxes)
In the case at bar, petitioners seek to pierce the V621 Of corporate entity of
Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in Koppel Industrial and Car Company is a corporation organized and existing under the
causing the foreclosure and subsequent sale of the real properties belonging to laws of the State of Pennsylvania. They are not licensed to do business in the RP, but
petitioners. While we do not discount the possibility of the existence of fraud in the
do business through Koppel Phils, Inc, owning 995 out of 1000 shares of stock of the
foreclosure proceeding, neither are we inclined to apply the doctrine invoked by
petitioners in granting the relief sought. It is our considered opinion that piercing the said company (the remaining 5 were owned by the 5 officers of Koppel Phils). Koppel
veil of corporate entity is not the proper remedy in order that the foreclosure Phils cabled Koppel Industrial for quotation desired by a prospective client. Koppel
proceeding may be declared a nullity. Phils however quoted a higher price for the buyer than that quoted by Koppel
Industrial. Koppel Phils then cabled to ship the merchandise to Manila. Koppel Phils
In the first place, the legal corporate entity is disregarded only if it is sought to received a %age of the profits realized or its share of the losses on the transactions.
hold the officers and stockholders directly liable for a corporate debt or Koppel also returned a sum allotted as payment of commercial broker’s tax of
obligation. In the instant case, petitioners do not seek to impose a claim against
4%.Koppel Industrial demanded from Koppel Phils the sum of P64,122.51 as
the individual members of the three corporations involved; on the contrary, it is
these corporations which desire to enforce an alleged right against petitioners. merchant’s sales tax of 1 ½% of the share of Koppel Phils in the profits. Held: The
Assuming that petitioners were indeed defrauded by private respondents in the Court said that the virtual control of the shareholdings of a corporation would lead to
foreclosure of the mortgaged properties, this fact alone is not, under the certain legal conclusions. It could not overlook the fact that in the practical working of
circumstances, sufficient to justify the piercing of the corporate fiction, since corporate organizations of the class to which the two entities belonged, the holder or
petitioners do not intend to hold the officers and/or members of respondent holders of the controlling part of the capital stock of the corporation, particularly where
corporations personally liable therefor. Petitioners are merely seeking the
the control is determined by the virtual ownership of the totality of the shares,
declaration of the nullity of the foreclosure sale, which relief may be obtained
without having to disregard the aforesaid corporate fiction attaching to dominate not only the selection of the board of directors but more often than not, also
respondent corporations. Secondly, petitioners failed to establish by clear and the action of that board. It held that applying this to the case, it cannot be conceived
convincing evidence that private respondents were purposely formed and operated, how the Koppel Phils could effectively go against the policies, decisions, and desires
and thereafter transacted with petitioners, with the sole intention of defrauding the of the American corporation… Neither can it be conceived how the Phil corporation
latter. could avoid following the directions of the American corporation in every other
transaction where they had both to intervene, in view of the fact that the American
The mere fact, therefore, that the businesses of two or more corporations are
corporation held 99.5% of the capital stock of the Phil corporation… In so far as the
interrelated is not a justification for disregarding their separate personalities,
absent sufficient showing that the corporate entity was purposely used as a sales are concerned, Koppel Phils and Koppel Industrial are for all intents and
shield to defraud creditors and third persons of their rights. purposes one and the same, and the former is a mere branch, subsidiary, or agency
of the latter. The ff are facts which led to the Court to conclude the above:

— share in the profits of Koppel Phils was left to the sole, unbridled control of Koppel
Industrial

19
— Shares of stock of Koppel Phils are all owned by Koppel Industrial(overwhelming Injury or damage or loss
majority)
— Estate planning:
— Koppel Phils acted as agent and representative of Koppel Industrial
o No impediment to use corporate as vehicle for estate planning
— Koppel Phils alone bore the incidental expenses for transactions, such as cable
expenses o Corporation can be put up by a single person

— Koppel Phils was fully empowered to instruct banks it deals with, if purchasers o Nothing prevents an individual from funding a corporation
were not able to pay the bank drafts to the bank as payment for the purchases
o To meet requirements of code, assign nominal shares to persons
— Koppel Phils makes good any deficiencies by deliveries from its own stock the
o If it is money, can be used to acquire assets; still corporate-owned
application of the piercing doctrine is not a contravention of the principle that the
corporate personality of a corporation cannot be collaterally attacked. When the o Even a 99.9% owner cannot distribute the property, only the shares
piercing doctrine is applied against a corporation in a particular case, the court does
not deny legal personality… for any and all purposes. The application of the piercing — Cease: ideal, but there was a dispute
doctrine is therefore within the ambit of the principle of res judicata that binds only the
parties to the case and only to the matters actually resolved therein. — Marvel had no compulsory heirs

— GR: separate personality — Delpher ruling on transfer is obiter

— Exception: cases where veil may be pierced — Just defer: use corporate as a vehicle to distribute what appears to be the estate

o There was a violation of rights or injury in all these cases where veil was O But: you still have to distribute the shares (dispose or donate)
pierced
O Mechanism to ensure that once you die, corporation is dissolved
o Elements of ownership, control, mgt in the corporate entity
Otherwise: Cease case
Inevitable that these will exist
Exit mechanism for those who want out
All elements have to be satisfied so the corporate veil can be pierced
RICARDO TANTONGCO, petitioner,
What determines pierceability? -versus-
KAISAHAN NG MGA MANGGAGAWA SA LA CAMPAN (KKM) AND THE HONORABLE
Motive/intention COURT OF INDUSTRIAL RELATIONS, respondents

Liability arising

20
FACTS: management, that is, one business though with two trade names. True, the coffee
Tantongco was cited in contempt in relation to the orders issued by the CIR- the La factory is a corporation , and, by legal fiction, an entity existing separate and part from
Campana Starch and Coffee Factory or its manager or the person who has charge of the persons composing it, that is, Tan Tong and his family. But is settled this fiction of
the management, and the administrator of the Estate of Ramon Tantongco are hereby law, which has been introduced as a matter of convenience and to subserve the ends
ordered to comply with said order, within five days from receipt hereof, particularly the of justice cannot be invoke to further an end subversive of that purpose.
following, to:
ISSUE: Whether or not the court is correct in piercing the veil of corporate fiction of La
(a) To reinstate the persons named in the said Order of February 18, 1957; Campana Co despite the death of Tantongco.
(b) To deposit the amount of P65,534.01 with this Court.
RULING: YES- we "pierced the veil of corporate existence", and held that the La
With respect to possible back wages from August 28, 1957 as mentioned in the Campana Starch and Coffee Factory and its owner, Ramon Tantongco, were one; so
petition for contempt of August 30, 1957, the same shall first be determined.
that with the death of Ramon, the La Campana entities ceased to exist, resulting in the
The facts in this case may be briefly narrated thus: Sometime in June, 1951, members loss of jurisdiction of the CIR to enforce its order against said entities. The reason we
of the Kaisahan ng mga Manggagawa sa La Campana, a labor union to which were applied the so-called "piercing the veil of corporate existence" in G.R. No. L-5677 was
affiliated workers in the La Campana Starch Factory and La Campana Coffee Factory, to avoid the technicality therein advanced in order to defeat the jurisdiction of the CIR.
two separate entities but under the one management, presented demands for higher We there found that although there were ostensibly two separate companies or
wages, and more privileges and benefits in connection with their work. When the entities, they were managed by the same person or persons and the workers in both
management failed and refused to grant the demands, the Department of Labor were used interchangeably so that in order to determine whether or not the CIR had
intervened; but failing to settle the controversy, it certified the dispute to the Court of
jurisdiction, the number of workers in both entitles, not in only one, was to be
Industrial Relations on July 17, 1951, where it was docketed as Case No. 584–V. On
the theory that the laborers presenting the demands were only the ones working in the considered. However, we still believe that although the family of Ramon Tantongco
coffee factory, said company filed through the management a motion to dismiss was practically the owner of both the coffee factory and the starch factory,
claiming that inasmuch as there were only 14 of them in said factory, the Court of nevertheless these entities are separate from the personality of Ramon. The coffee
Industrial Relations had no jurisdiction to entertain and decide the case. The motion factory is a stock corporation and the shares are owned not only by Ramon but also
was denied by the Court of Industrial Relations, which said: by others, such as petitioner Ricardo who not only is a stockholder and director and
treasurer but also the management of the same Furthermore, petitioner is now
There was only management for the business of gawgaw and coffee with whom the
estopped from claiming that the two entities in question and Ramon are one. Thus in
laborers are dealing regarding their work. Hence, the filing of action against the La
Campana Starch and Coffee Factory is proper and justified. Annex 3-CIR (par. 1 thereof) which is a complaint for injunction filed by La Campana
Food Products, et al and La Campana Starch Packing against the consolidated Labor
Petitioner contends on the other hand-obviously do not question the fact that the Organization of the Philippines, in civil Case No. P-25482 in the Court of First Instance
number of employees of the La Campana Gaugau Packing involved in the case is of Rizal, petitioner admitted the existence and operation of said entities; in Annex 4—
more than the jurisdictional number (31) required by law, contend that the industrial CIR where petitioner appeared as General Manager representing the two entities in its
court has no jurisdiction to try case against La Campana Coffee Factory Co. Inc.
agreement with the La Campana Workers Union to resolve the dispute between the
because the latter has allegedly only 14 laborers and only five of these are members
of respondent Kaisahan. This contention loses force when it is noted that, as found by two entities and the laborers in case Nos. 1072-V and 1371-ULP, the existence of the
the industrial court — and this finding is conclusive upon us — La Campana Gaugau two entities appears to have been admitted; and in Annex 5-A-CIR, an answer to the
Packing and La Campana Coffee Factory Co. Inc., are operating under one single complaint of La Campana Workers Union in case No. 1471-ULP (Annex 5-CIR),

21
petitioner admitted the allegation that said two factories were in existence and doing UMALI v. COURT OF APPEALS
business with petitioner as manager of the same. Facts:
The Castillo family is the owner of a parcel of land which was given as security
for a loan from the DBP. For failure to pay the amortization, foreclosure of
ROBLEDO vs. NLRC (Recognition and disregard of corporateness: Piercing the the property was initiated. This was made known to Santiago Rivera, the
veil of corporate fiction) nephew of plaintiff Mauricia Meer vda. De Castillo and president of Slobec
238 SCRA 52( 1994) Realty Dev. Corp. Rivera proposed to them the conversion into a
subdivision lot of the four parcels of land adjacent to the mortgaged
FACTS: property to raise the money. The Castillos agreed so a MOA was
executed between Slobec represented by Rivera and the Castillos. Rivera
obliged himself to pay the Castillos P70T after the execution of the contract
The BASEC corporation was organized to be engaged in operating security agency,
and P400T after the property had been converted into a subdivision. Rivera
having as one of its incorporators, Bacani, who also had at that time a security agency
armed with the agreement approached Cervantes, president of Bormaheco
operated as a single proprietorship. Later, Bacani closed down his operations and
and bought a Caterpillar Tractor with P50T down payment and the
terminated his employees. His terminated employees sought to hold that BASEC balance of P180T payable in installments. Slobec through Rivera executed
corporation liable for unpaid overtime and legal holiday pays, contending that Bacani in favor of Bormaheco a chattel mortgage over the said equipment as
intentionally closed his operations to allow expansion of the business through BASEC. security for the unpaid balance. As further security, Slobec obtained
They contended that the Bacani family merely continued the operation of the business through the Insurance Corporation of the Philippines a Surety Bond in favor of
by creating BASEC in order to avoid the obligations of the former, contending that Counter-Guaranty with REM executed by Rivera as president of Slobec
Bacani became an incorporator of BASEC together with his wife and daughter. and the Castillos as mortgagors and ICP as mortgagee. The Caterpillar
ISSUE: Tractorwas delivered to Slobec.
Whether or not Bacani intentionally closed his operation to allow expansion of the
business by creating BASEC and to avoid obligations of his former company. Meanwhile for violation of the terms and the conditions of the Counter-
Guaranty Agreement, the properties of the Castillos was foreclosed by
HELD: ICP. As the highest bidder, a Certificate of Sale was issued in its favor
and TCTs over the parcels of land were issued by the Register of Deeds in
It would make the successor enterprise liable for debts of the previous enterprise on
favor of ICP. The mortgagors had one year from the registration of the sale
the basis of piercing doctrine scenario.
to redeem the property but they failed to do so. ICP consolidated its
The doctrine of piercing the veil of corporate entity is used whenever a court finds that
ownership over the parcels of land. Later on ICP sold to Philippine Machinery
the corporate fiction is being used to defeat public convenience, justify wrong, protect Parts Mfg. Co. the parcels of land and by virtue of said sale, PM transferred
fraud, or defend crime, or to confuse legitimate issues, or that a corporation is a mere unto itself the title of the lots. PM parts through its President, Cervantes sent
alter ego or business conduit of a person or where the corporation is so organized and a letter to the Castillos to vacate the property. The Castillos refused to do
controlled and its affairs are so conducted as to make it merely as an instrumentality, so. Subsequently, Umali the administratix of the properties of Castillos filed
an action for annulment of titles. They countered that all the transaction
agency, conduit or adjunct of another corporation. The Court refused to make BASEC
starting from the Agreement of Counter-Guaranty with REM are void for
liable for the claims of the terminated employees since the facts showed that BASEC being entered into in fraud. They seek to pierce the veil of corporate entity
already existed prior to closure of Bacani of his operations; that Bacani was merely of Bormaheco, ICP and PM Parts alleging that these corporations
one of fie incorporators with the lease number of shares in BASEC; and there was no employed fraud in causing the foreclosure and subsequent sale of their land.
showing that the assets of the single proprietorship were even transferred to BASEC. The lower court ruled in favor of Umali. This was reversed by the CA.
Held:

22
The SC is not convinced that the contract entered into by the parties are fraudulent.
A: The allegations made by Umali were based on fraud and yet the main objective
Under the doctrine of piecing the veil of corporate entity, when valid ground of the suit was to annul the foreclosure of the mortgage. The Court found no
exists , the following effects would be produced: (1) legal fiction that a reason to pierce since the main objective was not in consonance with the
corporation is an entity with a juridical personality separate and distinct from remedy of piercing in a fraud case would do, which was to hold the Board of
its members or stockholders may be disregarded (2) in such cases, the Directors liable. Piercing is not allowed unless the remedy sought is to make
corporation will be considered as a mere association of person (3) the the officer or another corporation pecuniary liable for corporate debts.
members or stockholders of the corporation will be considered as the
corporation, making them liable directly. It is only applicable when Q: What if it was based on alter ego?
corporate fiction is: (1) used to defeat public convenience, justify wrong,
protect fraud, or defend crime (2) made as a shield to confuse legitimate A: The probative factor show that no alter ego existed since there was no disrespect
issued (3) where a corporation is the mere alter ego or business conduit of of the corporate fiction, the corporations each having its own way of conducting
a person (4) where the corporation is so organized and controlled and its business. Even if it may be that they compliment one another in their business
affairs are so conducted as to make it merely an instrumentality., agency , conduct, it does not form enough basis for their circumvention of any liability
conduit or adjunct of another corporation.
BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M.
The SC is of the opinion that piecing the veil is not the proper remedy in order CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA C.
that the foreclosure proceedings may be declared a nullity under the JALBUENA and SANTIAGO M. RIVERA vs. COURT OF APPEALS, BORMAHECO,
circumstances in the case at bar. Petitioners are merely seeking the
INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING CO., INC.
declaration of the nullity of the foreclosure sale, which relief may be
obtained without having to disregard the aforesaid corporate fiction attaching
to the respondent corporations. Petitioners also fail to establish by clear FACTS:
and convincing evidence that private respondents were purposely formed Petitioner Santiago Rivera is the nephew of petitioner Mauricia Meer Vda. de Castillo.
and operated, with the sole intention of defrauding the latter. The facts The Castillo family are the owners of a parcel of land located in Lucena City which
showed that the surety of ICP is good only for 12 months therefore the was given as security for a loan from the Development Bank of the Philippines. For
surety had already expired. The failure of ICP to give notice renders ICP to their failure to pay the amortization, foreclosure of the said property was about to be
have no right to foreclosure. In this case, piercing need not be resorted to. initiated. This problem was made known to Santiago Rivera, who proposed to them
the conversion into subdivision of the four (4) parcels of land adjacent to the
mortgaged property to raise the necessary fund. The Idea was accepted by the
Q: Why is Umali seeking to pierce the corporate entity? Castillo family and to carry out the project, a Memorandum of Agreement was
executed by and between Slobec Realty and Development, Inc., represented by its
A: Umali is seeking to have the veil pierced because it would have shown that President Santiago Rivera and the Castillo family. In this agreement, Santiago Rivera
the contracts entered into were fictitious and simulated, there being a obliged himself to pay the Castillo family the sum of P70K immediately after the
fraudulent intent on the part of Bormaheco, ICP & PM parts to acquire the execution of the agreement and to pay the additional amount of P400T after the
property of Umali through the foreclosure of the mortgage by ICP. However, property has been converted into a subdivision. Rivera, armed with the agreement,
the court belied such allegation because the mere fact that the business of approached Mr. Modesto Cervantes, president of defendant Bormaheco, and
two or more corporations are interrelated is not a justification for proposed to purchase from Bormaheco two (2) tractors, Sales Agreement was
disregarding their separate personalities, absent a sufficient showing that executed on Dec. 28, 1970.
the corporate entity was purposely used as a shield to defraud creditors and Bormaheco, Inc. and Slobec Realty and Development, Inc. executed a Sales
third persons of their rights. Agreement over one unit of Caterpillar Tractor D-7. In the contract, the price was
Q: Why are we studying Umali? P230,000.00 of which P50,000.00 was to constitute a down payment, and the balance

23
of P180,000.00 payable in eighteen monthly installments. On the same date, Slobec, in fraud and without the consent and approval of the CFI of Quezon, before
through Rivera, executed in favor of Bormaheco a Chattel Mortgage over the said whom the administration proceedings has been pending. Petitioners pray that the
equipment as security for the payment of the aforesaid balance of P180,000.00. As 4 parcels of land be declared as owned by the estate of the late Felipe Castillo and
further security of the aforementioned unpaid balance, Slobec obtained from that all Transfer Certificates of Title, as well as those appearing as encumbrances at
Insurance Corporation of the Phil. a Surety Bond, with ICP as surety and Slobec as the back of the certificates of title mentioned be declared as a nullity.
principal, in favor of Bormaheco. The surety bond was in turn secured by an In their amended answer, the defendants (r
Agreement of Counter-Guaranty with Real Estate Mortgage executed by Rivera as espondents herein) controverted the complaint and alleged, that the complaint did not
president of Slobec and Castillo family, as mortgagors and ICP as mortgagee. In this state facts sufficient to state a cause of action against defendants; that petitioners are
agreement, ICP guaranteed the obligation of Slobec with Bormaheco in the amount of not entitled to the reliefs demanded; that they are estopped or precluded from
P180,000.00. In giving the bond, ICP required that the Castillos mortgage to them the asserting the matters set forth in the Complaint; that they are guilty of laches in not
properties in question, namely, four parcels of land in the name of the aforementioned asserting their alleged right in due time; that respondent PM Parts is an innocent
mortgagors. purchaser for value and relied on the face of the title before it bought the subject
Meanwhile, for violation of the terms and conditions of the Counter-Guaranty property.
Agreement, the properties of the Castillos were foreclosed by ICP as the highest The trial court rendered judgment in favor of petitioners and declared all said
bidder, a Certificate of Sale was issued by the Provincial Sheriff of Lucena City and transactions as null and void for being fictitious, spurious and without consideration.
Transfer Certificates of Title over the subject parcels of land were issued by the The CA reversed said decision, hence this petition.
Register of Deeds of Lucena City in favor of ICP. The mortgagors had one (1) year
from the date of the registration of the certificate of sale, to redeem the property, but ISSUE:
they failed to do so. Consequently, ICP consolidated its ownership over the subject W/N the doctrine of piercing the veil of corporate fiction is not applicable in this
parcels of land through the requisite affidavit of consolidation of ownership. Pursuant case.
thereto, a Deed of Sale of Real Estate covering the subject properties was issued in
favor of ICP. HELD:
No. Under the doctrine of piercing the veil of corporate entity, when valid grounds
Subsequently, ICP sold to Phil. Machinery Parts Manufacturing Co. (PM Parts) the therefore exist, the legal fiction that a corporation is an entity with a juridical
four (4) parcels of land and by virtue of said conveyance, PM Parts transferred unto personality separate and distinct from its members or stockholders may be
itself the titles over the lots in dispute. disregarded. In such cases, the corporation will be considered as a mere association
Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a letter of persons. The members or stockholders of the corporation will be considered as the
addressed to petitioner Mrs. Mauricia Meer Castillo requesting her and her children to corporation, that is, liability will attach directly to the officers and stockholders. The
vacate the subject property, who (Mrs. Castillo) in turn sent her reply expressing her doctrine applies: (1)when the corporate fiction is used to defeat public
refusal to comply with his demands. convenience, justify wrong, protect fraud, or defend crime; (2) when it is made
as a shield to confuse the legitimate issues; (3)where a corporation is the mere
The heirs of the late Felipe Castillo, petitioner Buenaflor M. Castillo Umali as the alter ego or business conduit of a person; (4)where the corporation is so
appointed administratrix of the properties filed an action for annulment of title before organized and controlled and its affairs are so conducted as to make it merely
the then CFI of Quezon. Thereafter, they filed an Amended Complaint. Then an instrumentality, agency, conduit or adjunct of another corporation.
petitioners filed their Second Amended Complaint, impleading Santiago M. Rivera as
a party plaintiff. They contended that all the aforementioned transactions starting In the case at bar, petitioners seek to pierce the V621 Of corporate entity of
with the Agreement of Counter-Guaranty with Real Estate Mortgage, Certificate Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in
of Sale and the Deeds of Authority to Sell, Sale and the Affidavit of causing the foreclosure and subsequent sale of the real properties belonging to
Consolidation of Ownership and the Deed of Sale are void for being entered into petitioners. While we do not discount the possibility of the existence of fraud in the

24
 foreclosure proceeding, neither are we inclined to apply the doctrine invoked by koppel v Yatco
petitioners in granting the relief sought. It is our considered opinion that piercing the
veil of corporate entity is not the proper remedy in order that the foreclosure
(The subsidiary was so controlled by the parent that its separate identity was hardly
proceeding may be declared a nullity.
discernible, and became a mere alter ego of the parent and was used to evade taxes)
In the first place, the legal corporate entity is disregarded only if it is sought to
hold the officers and stockholders directly liable for a corporate debt or Koppel Industrial and Car Company is a corporation organized and existing under the
obligation. In the instant case, petitioners do not seek to impose a claim against laws of the State of Pennsylvania. They are not licensed to do business in the RP, but
the individual members of the three corporations involved; on the contrary, it is do business through Koppel Phils, Inc, owning 995 out of 1000 shares of stock of the
these corporations which desire to enforce an alleged right against petitioners. said company (the remaining 5 were owned by the 5 officers of Koppel Phils). Koppel
Assuming that petitioners were indeed defrauded by private respondents in the Phils cabled Koppel Industrial for quotation desired by a prospective client. Koppel
foreclosure of the mortgaged properties, this fact alone is not, under the Phils however quoted a higher price for the buyer than that quoted by Koppel
circumstances, sufficient to justify the piercing of the corporate fiction, since
Industrial. Koppel Phils then cabled to ship the merchandise to Manila. Koppel Phils
petitioners do not intend to hold the officers and/or members of respondent
corporations personally liable therefor. Petitioners are merely seeking the received a %age of the profits realized or its share of the losses on the transactions.
declaration of the nullity of the foreclosure sale, which relief may be obtained Koppel also returned a sum allotted as payment of commercial broker’s tax of
without having to disregard the aforesaid corporate fiction attaching to 4%.Koppel Industrial demanded from Koppel Phils the sum of P64,122.51 as
respondent corporations. Secondly, petitioners failed to establish by clear and merchant’s sales tax of 1 ½% of the share of Koppel Phils in the profits. Held: The
convincing evidence that private respondents were purposely formed and operated, Court said that the virtual control of the shareholdings of a corporation would lead to
and thereafter transacted with petitioners, with the sole intention of defrauding the
certain legal conclusions. It could not overlook the fact that in the practical working of
latter.
corporate organizations of the class to which the two entities belonged, the holder or
The mere fact, therefore, that the businesses of two or more corporations are holders of the controlling part of the capital stock of the corporation, particularly where
interrelated is not a justification for disregarding their separate personalities, the control is determined by the virtual ownership of the totality of the shares,
absent sufficient showing that the corporate entity was purposely used as a dominate not only the selection of the board of directors but more often than not, also
shield to defraud creditors and third persons of their rights. the action of that board. It held that applying this to the case, it cannot be conceived
how the Koppel Phils could effectively go against the policies, decisions, and desires
of the American corporation… Neither can it be conceived how the Phil corporation
Application of the doctrine to a particular case does not deny could avoid following the directions of the American corporation in every other
the corporation of legal personality for any and all purposes, transaction where they had both to intervene, in view of the fact that the American
but only for the particular transaction or instance, or the
particular obligation for which the doctrine was applied. Koppel corporation held 99.5% of the capital stock of the Phil corporation… In so far as the
(Phil.) Inc. v. Yatco, 77 Phil. 496 (1946); Tantoco v. Kaisahan ng Mga sales are concerned, Koppel Phils and Koppel Industrial are for all intents and
Manggagawa sa La Campana, 106 Phil. 198 (1959); Francisco v. purposes one and the same, and the former is a mere branch, subsidiary, or agency
Mejia, 362 SCRA 738 (2001). of the latter. The ff are facts which led to the Court to conclude the above:

— share in the profits of Koppel Phils was left to the sole, unbridled control of Koppel
Industrial
1. KOPPEL
25
— Shares of stock of Koppel Phils are all owned by Koppel Industrial(overwhelming Injury or damage or loss
majority)
— Estate planning:
— Koppel Phils acted as agent and representative of Koppel Industrial
o No impediment to use corporate as vehicle for estate planning
— Koppel Phils alone bore the incidental expenses for transactions, such as cable
expenses o Corporation can be put up by a single person

— Koppel Phils was fully empowered to instruct banks it deals with, if purchasers o Nothing prevents an individual from funding a corporation
were not able to pay the bank drafts to the bank as payment for the purchases
o To meet requirements of code, assign nominal shares to persons
— Koppel Phils makes good any deficiencies by deliveries from its own stock the
o If it is money, can be used to acquire assets; still corporate-owned
application of the piercing doctrine is not a contravention of the principle that the
corporate personality of a corporation cannot be collaterally attacked. When the o Even a 99.9% owner cannot distribute the property, only the shares
piercing doctrine is applied against a corporation in a particular case, the court does
not deny legal personality… for any and all purposes. The application of the piercing — Cease: ideal, but there was a dispute
doctrine is therefore within the ambit of the principle of res judicata that binds only the
parties to the case and only to the matters actually resolved therein. — Marvel had no compulsory heirs

— GR: separate personality — Delpher ruling on transfer is obiter

— Exception: cases where veil may be pierced — Just defer: use corporate as a vehicle to distribute what appears to be the estate

o There was a violation of rights or injury in all these cases where veil was O But: you still have to distribute the shares (dispose or donate)
pierced
O Mechanism to ensure that once you die, corporation is dissolved
o Elements of ownership, control, mgt in the corporate entity
Otherwise: Cease case
Inevitable that these will exist
Exit mechanism for those who want out
All elements have to be satisfied so the corporate veil can be pierced
RICARDO TANTONGCO, petitioner,
What determines pierceability? -versus-
KAISAHAN NG MGA MANGGAGAWA SA LA CAMPAN (KKM) AND THE
Motive/intention HONORABLE COURT OF INDUSTRIAL RELATIONS, respondents

Liability arising

26
FACTS: management, that is, one business though with two trade names. True, the coffee
Tantongco was cited in contempt in relation to the orders issued by the CIR- the La factory is a corporation , and, by legal fiction, an entity existing separate and part from
Campana Starch and Coffee Factory or its manager or the person who has charge of the persons composing it, that is, Tan Tong and his family. But is settled this fiction of
the management, and the administrator of the Estate of Ramon Tantongco are hereby law, which has been introduced as a matter of convenience and to subserve the ends
ordered to comply with said order, within five days from receipt hereof, particularly the of justice cannot be invoke to further an end subversive of that purpose.
following, to:
ISSUE: Whether or not the court is correct in piercing the veil of corporate fiction of La
(a) To reinstate the persons named in the said Order of February 18, 1957; Campana Co despite the death of Tantongco.
(b) To deposit the amount of P65,534.01 with this Court.
RULING: YES- we "pierced the veil of corporate existence", and held that the La
With respect to possible back wages from August 28, 1957 as mentioned in the Campana Starch and Coffee Factory and its owner, Ramon Tantongco, were one; so
petition for contempt of August 30, 1957, the same shall first be determined.
that with the death of Ramon, the La Campana entities ceased to exist, resulting in the
The facts in this case may be briefly narrated thus: Sometime in June, 1951, members loss of jurisdiction of the CIR to enforce its order against said entities. The reason we
of the Kaisahan ng mga Manggagawa sa La Campana, a labor union to which were applied the so-called "piercing the veil of corporate existence" in G.R. No. L-5677 was
affiliated workers in the La Campana Starch Factory and La Campana Coffee Factory, to avoid the technicality therein advanced in order to defeat the jurisdiction of the CIR.
two separate entities but under the one management, presented demands for higher We there found that although there were ostensibly two separate companies or
wages, and more privileges and benefits in connection with their work. When the entities, they were managed by the same person or persons and the workers in both
management failed and refused to grant the demands, the Department of Labor were used interchangeably so that in order to determine whether or not the CIR had
intervened; but failing to settle the controversy, it certified the dispute to the Court of
jurisdiction, the number of workers in both entitles, not in only one, was to be
Industrial Relations on July 17, 1951, where it was docketed as Case No. 584–V. On
the theory that the laborers presenting the demands were only the ones working in the considered. However, we still believe that although the family of Ramon Tantongco
coffee factory, said company filed through the management a motion to dismiss was practically the owner of both the coffee factory and the starch factory,
claiming that inasmuch as there were only 14 of them in said factory, the Court of nevertheless these entities are separate from the personality of Ramon. The coffee
Industrial Relations had no jurisdiction to entertain and decide the case. The motion factory is a stock corporation and the shares are owned not only by Ramon but also
was denied by the Court of Industrial Relations, which said: by others, such as petitioner Ricardo who not only is a stockholder and director and
treasurer but also the management of the same Furthermore, petitioner is now
There was only management for the business of gawgaw and coffee with whom the
estopped from claiming that the two entities in question and Ramon are one. Thus in
laborers are dealing regarding their work. Hence, the filing of action against the La
Campana Starch and Coffee Factory is proper and justified. Annex 3-CIR (par. 1 thereof) which is a complaint for injunction filed by La Campana
Food Products, et al and La Campana Starch Packing against the consolidated Labor
Petitioner contends on the other hand-obviously do not question the fact that the Organization of the Philippines, in civil Case No. P-25482 in the Court of First Instance
number of employees of the La Campana Gaugau Packing involved in the case is of Rizal, petitioner admitted the existence and operation of said entities; in Annex 4—
more than the jurisdictional number (31) required by law, contend that the industrial CIR where petitioner appeared as General Manager representing the two entities in its
court has no jurisdiction to try case against La Campana Coffee Factory Co. Inc.
agreement with the La Campana Workers Union to resolve the dispute between the
because the latter has allegedly only 14 laborers and only five of these are members
of respondent Kaisahan. This contention loses force when it is noted that, as found by two entities and the laborers in case Nos. 1072-V and 1371-ULP, the existence of the
the industrial court — and this finding is conclusive upon us — La Campana Gaugau two entities appears to have been admitted; and in Annex 5-A-CIR, an answer to the
Packing and La Campana Coffee Factory Co. Inc., are operating under one single complaint of La Campana Workers Union in case No. 1471-ULP (Annex 5-CIR),

27
petitioner admitted the allegation that said two factories were in existence and doing
business with petitioner as manager of the same.

ROBLEDO vs. NLRC (Recognition and disregard of corporateness: Piercing the

veil of corporate fiction)
238 SCRA 52( 1994)

FACTS:

The BASEC corporation was organized to be engaged in operating security agency,

having as one of its incorporators, Bacani, who also had at that time a security agency
operated as a single proprietorship. Later, Bacani closed down his operations and
terminated his employees. His terminated employees sought to hold that BASEC
corporation liable for unpaid overtime and legal holiday pays, contending that Bacani
intentionally closed his operations to allow expansion of the business through BASEC.
They contended that the Bacani family merely continued the operation of the business
by creating BASEC in order to avoid the obligations of the former, contending that
Bacani became an incorporator of BASEC together with his wife and daughter.
ISSUE:
Whether or not Bacani intentionally closed his operation to allow expansion of the
business by creating BASEC and to avoid obligations of his former company.

HELD:
It would make the successor enterprise liable for debts of the previous enterprise on
the basis of piercing doctrine scenario.
The doctrine of piercing the veil of corporate entity is used whenever a court finds that
the corporate fiction is being used to defeat public convenience, justify wrong, protect
fraud, or defend crime, or to confuse legitimate issues, or that a corporation is a mere
alter ego or business conduit of a person or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely as an instrumentality,
agency, conduit or adjunct of another corporation. The Court refused to make BASEC
liable for the claims of the terminated employees since the facts showed that BASEC
already existed prior to closure of Bacani of his operations; that Bacani was merely
one of fie incorporators with the lease number of shares in BASEC; and there was no
showing that the assets of the single proprietorship were even transferred to BASEC.

28