1. Feliciano vs Commission on Audit LWD have no private stockholders or members.

The
GR No. 147402 January 14, 2004 board of directors and other personnel of LWDs are
government employees subject to civil service laws,
Facts: A special audit team from COA Regional office anti-graft laws.
no. VIII audited the accounts of LMWD.
Subsequently, LMWD received a letter from COA Section 18 of RA 6758 prohibits COA Personnel from
dated July 19, 1999 requesting payment of auditing receiving any kind of compensation from any
fees. As general manager of LMWD, petitioner sent a government except compensation paid directly by
reply dated October 12, 1999 informing COA’s COA out of its appropriations and contributions. Thus,
regional director that the water district could not pay RA 6758 itself recognizes an exception to the
the auditing fees. Petitioner cited as basis for his statutory ban by COA personnel receiving
action section 6 and 20 of Presidential Decree no. compensation from GOCCs.
198 as well as section 18 of RA 6758. The regional
director referred petitioner to reply o the COA
Chairman on October 18, 1999. On October 19, 1999, 2. MANILA INTERNATIONAL AIRPORT
petitioner wrote COA through the Regional Director AUTHORITY v. CA, GR NO. 155650, 2006-07-20
asking for refund of all auditing fees LMWD previously
paid to COA. On March 16, 2000, petitioner received Facts:
COA Chairman Celso D. Gangans resolution dated
Petitioner Manila International Airport Authority
January 3, 2o00 denying his requests. Petitioner filed
(MIAA) operates the Ninoy Aquino International
a motion for reconsideration on March 31, 2000,
Airport (NAIA)
which COA denied on January 30, 2001.
As operator of the international airport, MIAA
Issue: Whether or not petitioner LMWD is a private
administers the land, improvements and equipment
corporation exempt from the auditing jurisdiction of
within the NAIA Complex. The MIAA Charter
COA.
transferred to MIAA approximately 600 hectares of
Held: No. Private corporations may exist only under a land,... The MIAA Charter further provides that no
general law. If the corporation is private, it must portion of the land transferred to MIAA shall be
necessarily exist under a general law. Stated disposed of through sale or any other mode unless
differently, only corporations created under a general specifically approved by the President of the
law can qualify as private corporations under existing
Philippines.
laws, that general law is the corporation code, except
that the cooperative code governs the incorporation of The OGCC opined that the Local Government Code
cooperatives. of 1991 withdrew the exemption from real estate tax
granted to MIAA under Section 21 of the MIAA
Obviously, LWDs are not private corporations
Charter. Thus, MIAA negotiated with... respondent
because they are not created under the corporation
City of Parañaque to pay the real estate tax imposed
code. LWDs are registered with the Securities and
by the City. MIAA then paid some of the real estate
Exchange Commission (SEC). Section 14 of the
tax already due.
corporation code states that all corporations under
this code shall file with the SEC articles of MIAA received Final Notices of Real Estate Tax
incorporation. LWDs have no articles of incorporation, Delinquency from the City of Parañaque
no incorporators and no stockholders or members.
There are no stockholders or members to elect the The Mayor of the City of Parañaque threatened to sell
board of directors of LWDs as in the case of all at public auction the Airport Lands and Buildings
corporations registered with the SEC. The local mayor should MIAA fail to pay the... real estate tax
or the provincial governor appoints the directors of delinquency.
LWDs for a fixed term of office. This court has ruled MIAA filed with the Court of Appeals an original
that LWDs are not created under the corporation petition for prohibition and injunction
code.
The petition sought to restrain the City of Parañaque
The determining factor of COA’s audit jurisdiction is from imposing real estate tax on, levying... against,
government ownership or control of the corporation. and auctioning for public sale the Airport Lands and
The criterion of ownership and control is more Buildings.
important than the issue of original charter.
Court of Appeals dismissed the petition because
Certainly, the government owns and controls LWDs. MIAA filed it beyond the 60-day reglementary period.
The government organizes LWDs in accordance with
a specific law, PD 198. There is no private party Court of Appeals also denied... motion for
involved as co-owner in the creation of and LWD. Just reconsideration... the present petition for review.
prior to the creation of LWDs, the national or local
MIAA insists that it is... exempt from real estate tax
government owns and controls all their assets. The
under Section 234 of the Local Government Code
government controls LWDs because under PD 198
because the Airport Lands and Buildings are owned
the municipal or city mayor, or the provincial
by... the Republic.
governor, appoints all the board of directors of an
LWD for a fixed term of six (6) years. The board of To justify the exemption, MIAA invokes the principle
directors of LWDs are not co-owners of the LWDs. that the government cannot tax itself.

1
Respondents invoke Section 193 of the Local There must be express language in the law
Government Code, which expressly withdrew the tax empowering local governments to tax national
exemption privileges of "government-owned and- government instrumentalities. Any doubt whether
controlled corporations" upon the effectivity of the such power exists is resolved against local...
Local Government Code. governments.
Issues:
whether the Airport Lands and Buildings of MIAA are 3. Magsaysay-Labrador, et. al. vs. Court of
exempt from real estate tax under existing laws. Appeals

Ruling: [GR 58168, 19 December 1989]

We rule that MIAA's Airport Lands and Buildings are Facts: On 9 February 1979, Adelaida Rodriguez-
exempt from real estate tax imposed by local Magsaysay, widow and special administratix of the
governments. estate of the late Senator Genaro Magsaysay,
brought before the then Court of First Instance of
First, MIAA is not a government-owned or controlled Olongapo an action against Artemio Panganiban,
corporation but an instrumentality of the National Subic Land Corporation (SUBIC), Filipinas
Government and thus exempt from local taxation. Manufacturer's Bank (FILMANBANK) and the
Second, the real properties of MIAA are owned by the Register of Deeds of Zambales, for the annulment of
Republic of the Philippines and thus... exempt from the Deed of Assignment executed by the late Senator
real estate tax. in favor of SUBIC (as a result of which TCT 3258 was
There is no dispute that a government-owned or cancelled and TCT 22431 issued in the name of
controlled corporation is not exempt from real estate SUBIC), for the annulment of the Deed of Mortgage
tax. However, MIAA is not a government-owned or executed by SUBIC in favor of FILMANBANK (dated
controlled corporation. 28 April 1977 in the amount of P 2,700,000.00), and
cancellation of TCT 22431 by the Register of Deeds,
Since MIAA is neither a stock nor a non-stock and for the latter to issue a new title in her favor. On 7
corporation, MIAA does not qualify as a government- March 1979, Concepcion Magsaysay-Labrador,
owned or controlled corporation. Soledad Magsaysay-Cabrera, Luisa Magsaysay-
Corpuz, Felicidad Magsaysay, and Mercedes
MIAA is a government instrumentality vested with
Magsaysay-Diaz, sisters of the late senator, filed a
corporate powers to perform efficiently its
motion for intervention on the ground that on 20 June
governmental functions. MIAA is like any other
1978, their brother conveyed to them 1/2 of his
government instrumentality, the only difference is that
shareholdings in SUBIC or a total of 416,566.6 shares
MIAA is vested with corporate powers.
and as assignees of around 41 % of the total
When the law vests in a government instrumentality outstanding shares of such stocks of SUBIC, they
corporate powers, the instrumentality does not have a substantial and legal interest in the subject
become a corporation. Unless the government matter of litigation and that they have a legal interest
instrumentality is organized as a stock or non-stock in the success of the suit with respect to SUBIC. On
corporation, it remains a government instrumentality 26 July 1979, the trial court denied the motion for
exercising not only... governmental but also corporate intervention, and ruled that petitioners have no legal
powers. Thus, MIAA exercises the governmental interest whatsoever in the matter in litigation and their
powers of eminent domain,... police authority... and being alleged assignees or transferees of certain
the levying of fees and charges. shares in SUBIC cannot legally entitle them to
intervene because SUBIC has a personality separate
At the same time, MIAA exercises "all the... powers of and distinct from its stockholders.
a corporation under the Corporation Law, insofar as
these powers are not inconsistent with the provisions
of this Executive Order."
On appeal, the Court of Appeals found no factual or
When local governments invoke the power to tax on legal justification to disturb the findings of the lower
national government instrumentalities, such power is court. The appellate court further stated that whatever
construed strictly against local governments. The rule claims the Magsaysay sisters have against the late
is that a tax is never presumed and there must be Senator or against SUBIC for that matter can be
clear language in the law imposing the tax. Any doubt ventilated in a separate proceeding. The motion for
whether a person,... article or activity is taxable is reconsideration of the Magsaysay sisters was denied.
resolved against taxation. This rule applies with Hence, the petition for review on certiorari.
greater force when local governments seek to tax
national government instrumentalities.
Issue: Whether the Magsaysay sister, allegedly
Another rule is that a tax exemption is strictly
stockholders of SUBIC, are interested parties in a
construed against the taxpayer claiming the
case where corporate properties are in dispute.
exemption. However, when Congress grants an
exemption to a national government instrumentality
from local taxation, such exemption is construed
liberally in favor of the national... government Held: Viewed in the light of Section 2, Rule 12 of the
instrumentality. Revised Rules of Court, the Magsaysay sisters have
2
no legal interest in the subject matter in litigation so Sulo ng Bayan appealed to the Court of Appeals. On
as to entitle them to intervene in the proceedings. To 3 September 1969, the Court of Appeals, upon finding
be permitted to intervene in a pending action, the that no question of fact was involved in the appeal but
party must have a legal interest in the matter in only questions of law and jurisdiction, certified the
litigation, or in the success of either of the parties or case to the Supreme Court for resolution of the legal
an interest against both, or he must be so situated as issues involved in the controversy.
to be adversely affected by a distribution or other
disposition of the property in the custody of the court
or an officer thereof . Here, the interest, if it exists at Issue:
all, of the Magsaysay sisters is indirect, contingent,
remote, conjectural, consequential and collateral. At Whether the corporation (non-stock) may institute an
the very least, their interest is purely inchoate, or in action in behalf of its individual members for the
sheer expectancy of a right in the management of the recovery of certain parcels of land allegedly owned by
corporation and to share in the profits thereof and in said members, among others.
the properties and assets thereof on dissolution, after
Whether the complaint filed by the corporation in
payment of the corporate debts and obligations. While
behalf of its members may be treated as a class suit
a share of stock represents a proportionate or aliquot
interest in the property of the corporation, it does not Held:
vest the 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. 1. It is a doctrine well-established and obtains both at
Shareholders are in no legal sense the owners of law and in equity that a corporation is a distinct legal
corporate property, which is owned by the corporation entity to be considered as separate and apart from
as a distinct legal person the individual stockholders or members who compose
it, and is not affected by the personal rights,
obligations and transactions of its stockholders or
4. Sulo ng Bayan vs. Araneta members. The property of the corporation is its
property and not that of the stockholders, as owners,
[GR L-31061, 17 August 1976]
although they have equities in it. Properties registered
Facts: On 26 April 1966, Sulo ng Bayan, Inc. filed an in the name of the corporation are owned by it as an
accion de revindicacion with the Court of First entity separate and distinct from its members.
Instance of Bulacan, Fifth Judicial District, Conversely, a corporation ordinarily has no interest in
Valenzuela, Bulacan, against Gregorio Araneta Inc. the individual property of its stockholders unless
(GAI), Paradise Farms Inc., National Waterworks & transferred to the corporation, "even in the case of a
Sewerage Authority (NAWASA), Hacienda Caretas one-man corporation." The mere fact that one is
Inc., and the Register of Deeds of Bulacan to recover president of a corporation does not render the
the ownership and possession of a large tract of land property which he owns or possesses the property of
in San Jose del Monte, Bulacan, containing an area of the corporation, since the president, as individual, and
27,982,250 sq. ms., more or less, registered under the corporation are separate similarities. Similarly,
the Torrens System in the name of GAI, et. al.'s stockholders in a corporation engaged in buying and
predecessors-in-interest (who are members of the dealing in real estate whose certificates of stock
corporation). On 2 September 1966, GAI filed a entitled the holder thereof to an allotment in the
motion to dismiss the amended complaint on the distribution of the land of the corporation upon
grounds that (1) the complaint states no cause of surrender of their stock certificates were considered
action; and (2) the cause of action, if any, is barred by not to have such legal or equitable title or interest in
prescription and laches. Paradise Farms, Inc. and the land, as would support a suit for title, especially
Hacienda Caretas, Inc. filed motions to dismiss based against parties other than the corporation. It must be
on the same grounds. NAWASA did not file any noted, however, that the juridical personality of the
motion to dismiss. However, it pleaded in its answer corporation, as separate and distinct from the persons
as special and affirmative defenses lack of cause of composing it, is but a legal fiction introduced for the
action by Sulo ng Bayan Inc. and the barring of such purpose of convenience and to subserve the ends of
action by prescription and laches. On 24 January justice. This separate personality of the corporation
1967, the trial court issued an Order dismissing the may be disregarded, or the veil of corporate fiction
(amended) complaint. On 14 February 1967, Sulo ng pierced, in cases where it is used as a cloak or cover
Bayan filed a motion to reconsider the Order of for fraud or illegality, or to work -an injustice, or where
dismissal, arguing among others that the complaint necessary to achieve equity. It has not been claimed
states a sufficient cause of action because the subject that the members have assigned or transferred
matter of the controversy in one of common interest to whatever rights they may have on the land in question
the members of the corporation who are so numerous to the corporation. Absent any showing of interest,
that the present complaint should be treated as a therefore, a corporation, has no personality to bring
class suit. The motion was denied by the trial court in an action for and in behalf of its stockholders or
its Order dated 22 February 1967. members for the purpose of recovering property
which belongs to said stockholders or members in
their personal capacities.

3
2. In order that a class suit may prosper, the following search was ever made. BASECO was merely ordered
requisites must be present: (1) that the subject matter to produce the corporate records.
of the controversy is one of common or general
interest to many persons; and (2) that the parties are
so numerous that it is impracticable to bring them all 6. Luxuria Homes, Inc. vs Court of Appeals
before the court. Here, there is only one party plaintiff,
and the corporation does not even have an interest in 302 SCRA 315 – Business Organization –
the subject matter of the controversy, and cannot, Corporation Law – Piercing the Veil of Corporate
therefore, represent its members or stockholders who Fiction
claim to own in their individual capacities ownership of
Aida Posadas was the owner of a 1.6 hectare land in
the said property. Moreover, a class suit does not lie
Sucat, Muntinlupa. In 1989, she entered into an
in actions for the recovery of property where several
agreement with Jaime Bravo for the latter to draft a
persons claim partnership of their respective portions
development and architectural design for the said
of the property, as each one could alleged and prove
property. The contract price was P450,000.00.
his respective right in a different way for each portion
Posadas gave a down payment of P25,000.00. Later,
of the land, so that they cannot all be held to have
Posadas assigned her property to Luxuria Homes,
identical title through acquisition/prescription.
Inc. One of the witnesses to the deed of assignment
and articles of incorporation was Jaime Bravo.

5. Bataan Shipyard & Engineering Co., Inc. vs In 1992, Bravo finished the architectural design so he
Presidential Commission on Good Government proposed that he and his company manage the
development of the property. But Posadas turned
down the proposal and thereafter the business
150 SCRA 181 – Business Organization – relationship between the two went sour. Bravo then
Corporation Law – A Corporation Cannot Invoke the demanded Posadas to pay them the balance of their
Right Against Self-Incrimination agreement as regards the architectural design
(P425k). Bravo also demanded payment for some
When President Corazon Aquino took power, the other expenses and fees he incurred i.e., negotiating
Presidential Commission on Good Government and relocating the informal settlers then occupying the
(PCGG) was formed in order to recover ill gotten land of Posadas. Posadas refused to make payment.
wealth allegedly acquired by former President Marcos Bravo then filed a complaint for specific performance
and his cronies. Aquino then issued two executive against Posadas but he included Luxuria Homes as a
orders in 1986 and pursuant thereto, a sequestration co-defendant as he alleged that Luxuria Homes was a
and a takeover order were issued against Bataan mere conduit of Posadas; that the said corporation
Shipyard & engineering Co., Inc. (BASECO). was created in order to defraud Bravo and avoid the
BASECO was alleged to be in actuality owned and payment of debt.
controlled by the Marcoses through the Romualdez
family, and in turn, through dummy stockholders. ISSUE: Whether or not Luxuria Homes should be
impleaded.
The sequestration order issued in 1986 required,
among others, that BASECO produce corporate HELD: No. It was Posadas who entered into a
records from 1973 to 1986 under pain of contempt of contract with Bravo in her personal capacity. Bravo
the PCGG if it fails to do so. BASECO assails this was not able to prove that Luxuria Homes was a mere
order as it avers, among others, that it is against conduit of Posadas. Posadas owns just 33% of
BASECO’s right against self incrimination and Luxuria Homes. Further, when Luxuria Homes was
unreasonable searches and seizures. created, Bravo was there as a witness. So how can
he claim that the creation of said corporation was to
ISSUE: Whether or not BASECO is correct. defraud him. The eventual transfer of Posadas’
property to Luxuria was with the full knowledge of
HELD: No. First of all, PCGG has the right to require Bravo. The agreement between Posadas and Bravo
the production of such documents pursuant to the was entered into even before Luxuria existed hence
power granted to it. Second, and more importantly, Luxuria was never a party thereto. Whatever liability
right against self-incrimination has no application to Posadas incurred arising from said agreement must
juridical persons. There is a reserve right in the be borne by her solely and not in solidum with
legislature to investigate the contracts of a corporation Luxuria. To disregard the separate juridical
and find out whether it has exceeded its powers. It personality of a corporation, the wrongdoing must be
would be a strange anomaly to hold that a state, clearly and convincingly established. It cannot be
having chartered a corporation like BASECO to make presumed.
use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been
employed, and whether they had been abused, and
demand the production of the corporate books and 7. Concept Builders Inc. vs National Labor
papers for that purpose. Relations Commission
257 SCRA 149 [G.R. No. 108734. May 29, 1996]
Neither is the right against unreasonable searches
and seizures applicable here. There were no Facts: Petitioner Concept Builders Inc., a domestic
searches made and no seizure pursuant to any corporation with principal office at 355 Maysan Road,
Valenzuela, Metro Manila is engaged in the
4
construction business. Private respondents were that the controlled corporation has, so to speak, no
employed by said company as laborers, carpenters, separate mind, will or existence of its own and is but a
and niggers. On November 1981, private respondents conduit for its principal. It must be kept in mind that
were served with individual written notices of the control must be shown to have been exercised at
termination of employment by petitioner, effective on the time the acts complained of took place. Moreover,
November 30, 1981. It was stated in the individual the control and breach of duty must proximately
notices that their contracts of employment had cause the injury or unjust loss for which the complaint
expired and the project in which they were hired had is made.
been completed. Public respondent found it to be the
fact, however, at the time of the termination of private The test in determining the applicability of the doctrine
respondents’ employment, the project in which they of piercing the veil of corporate fiction as follows:
were hired had not yet been finished and completed. Control, not mere majority or complete stock control
Petitioner had to engage the services of the but complete domination, not only of finances but of
subcontractors whose workers performed the policy and business practice in respect to the
functions of private respondents. Aggrieved, private transaction attacked so that the corporate entity as to
respondents filed a complaint for illegal dismissal, this transaction had at the time no separate mind, will
unfair labor practices and non-payment of their on exercise of its own;
holiday pay, overtime pay, and 13th month pay
against petitioners. The labor arbiter rendered Such control must have been used by the defendant
decision in favor of the private respondents. When the to commit fraud or wrong, to perpetuate the violation
same became final and executory, a writ of execution of a statutory or other positive legal duty or dishonest
was issued, however, the same was refused by the and unjust act in contravention of plaintiff’s legal
security guard on duty on the ground that the rights.
petitioners no longer occupied the premises. A break-
The aforesaid control and breach of duty must
open order was then recommended.
proximately cause the injury or unjust loss complained
Issue: Whether or not the alias writ of execution can of.
be issued against the sister company of the
The absence of any of these elements prevents
petitioners, HPPI.
“piercing the corporate veil” of the corporation. In
Held: Yes. It is a fundamental principle of corporation applying the instrumentality or “alter ego” doctrine, the
law that a corporation is an entity separate and courts are concerned with reality and not form, with
distinct from its stockholders and from other how the corporation operated and the individual
corporations to which it may be connected. But, this defendant’s relationship to that operation.
separate and distinct personality of a corporation is
merely a fiction created by law for convenience and to
promote justice. So, when the notion of separate 8. VILLA REY TRANSIT vs. FERRER
juridical personality is used to defeat public
convenience, justify wrong, protect fraud, or defend This is a corporation law case. A fraud piercing case
crime, or is used as a device to defeat labor laws, this with an alter-ego issue. No not the Batman-Bruce
separate personality of the corporation may be Wayne type. And 'fraud piercing' meaning, in order to
disregarded or the veil of corporate fiction pierced. get into the bottom of it all and expose the corporate
This is true likewise when the corporation is merely an fraud the court decides to pierce its veil of corporate
adjunct, a business conduit or an alter ego of another fiction of what it seems to be.
corporation. Question: Is the DOCTRINE THAT A
The conditions under which the juridical entity may be CORPORATION IS A LEGAL ENTITY DISTINCT
disregarded vary according to the peculiar facts and AND SEPARATE FROM THE MEMBERS AND
in circumstances laid down, but certainly there are STOCKHOLDERS A hard fast rule? Well not all the
some probative factors of identity that will justify the time.
application of the doctrine of piercing the corporate It's kinda bit complicated when you read this case. But
veil, to wit: here's what's its all about. It's all about FOUR
Stock ownership by one or common ownership of CONTRACTS OF SALE:
both corporations. 1. Villarama → PANTRANCO (Conditional Sale - 2
Identity of directors and officers. Certificates)

The names of keeping corporate books and records 2. CORPORATION ← Fernando ( 5 Certificates)

Methods of conducting the business. 3. SHERIFF → Ferrer (Public Bidding - 2

Certificates)
Where one corporation is so organized and controlled
and its affairs are conducted so that, it is in fact, a 4. Ferrer → PANTRANCO (Subsequent Sale - 2
mere instrumentality or adjunct of the other, the fiction Certificates)
of the corporate entity of the instrumentality may be
disregarded. The control necessary to invoke the rule
is not majority or even complete stock control but
such domination of instances, policies and practices

5
Just pay attention to the first one, co'z the crux of this of Ferrer and Pantranco, for the subsequent 2
case lies in it. Let me give you an overview of this certificate sale, and both were scheduled for a joint
case: hearing.
Jose Villarama was a bus operator, under the And here's what irked Villarama. In the meantime
business name of Villa Rey Transit. He operated 32 during the pendency of the case the PSC issued an
bus units on various route lines from Pangasinan to order disposing that before a final resolution on the
Manila, vice-versa, by virtue of 2 certificates of public aforesaid applications, PANTRANCO shall be the one
convenience granted him by the Public Service to operate provisionally the service under the two
Commission (PSC). certificates embraced in the contract between Ferrer
and Pantranco.
Now, he sold the 2 certificates of public convenience
to the Pangasinan Transportation Company, Inc. The Corporation took issue with this particular ruling
(PANTRANCO), for P350 grand. PANTRANCO? of the PSC and elevated the matter to the Supreme
remember? Fisherman's Mall? (NOW TAKE NOTE) Court, which decreed, that until the issue on the
this is a conditional sale with a stipulated condition ownership of the disputed certificates shall have been
that the seller (Villarama) "shall not for a period of 10 finally settled by the proper court, the
years from the date of this sale, apply for any TPU CORPORATION should be the one to operate the
service identical or competing with the buyer." This lines provisionally.
simply means NO COMPETITION WITH BUYER
FOR 10 YEARS. So the PSC was pro-PANTRANCO and the SC was
pro-CORPORATION.
But barely 3 months thereafter, a corporation called
VILLA REY TRANSIT INC. (let's call this 'the Now to get an upper-hand on this case, the
Corporation' as differentiated from the previous Villa Corporation filed in the CFI of Manila, a complaint
Rey Transit ) was organized with a capital stock of praying for the annulment of the :
P500,000.00 where Natividad Villarama (wife of 1. sheriff's sale of the aforesaid two certificates of
JoseVillarama) was one of the incorporators other public convenience in favor of Ferrer,
than the brother and sister-in-law of Jose Villarama.
2. the subsequent sale thereof by the latter to
And in less than a month after its registration with the Pantranco.
SEC the Corporation, bought 5 certificates of public
convenience, 49 buses, tools and equipment from 3. that all the orders of the PSC relative to the parties'
one Valentin Fernando, for the sum of P249 dispute over the said certificates
grand. Wow. So there you go, sold at high bought at
And BOOM! The CFI of Manila declared the sheriff's
low. The guy really knows what he's doing.
sale of two certificates of public convenience in favor
So, the very same day the contract of sale was of Ferrer and the subsequent sale thereof by the latter
executed, the parties to the sale immediately applied to Pantranco NULL AND VOID; declared the
with the PSC for approval of the sale coupled with a Corporation to be the lawful owner of the said
permit to operate provisionally while the case is certificates of public convenience; and ordered Ferrer
pending. (Q: Why approval of the sale? A: Because and Pantranco, jointly and severally, to pay the
public transport involves public interest therefore the Corporation, the sum of P5,000.00 as and for
government must come in to regulate) attorney's fees.

But before PSC could take final action on said The case against the PSC was dismissed. All parties
application for approval, however, the Sheriff of appealed. And PANTRANCO rested it's defense on
Manila, pursuant to a writ of execution issued by the the very first contract of sale zeroing in on the 10 year
CFI of Pangasinan, levied on 2 of the 5 certificates of prescriptive period of competition between vendor
public convenience in favor of Eusebio Ferrer and vendee stipulated in the very first conditional
(respondent in this case) against Valentin Fernando sale, assailing the DISTINCT AND SEPARATE
(vendor of 5 certificates). So.. simply, the 2 of 5 PERSONALITY and therefore LIMITED LIABILITY
certificates sold by Fernando to the Corporation was of the members and stockholders of the corporation
under litigation in a pending case which was newly from the corporation it self, since the seller of the 2
decided and now executed. (Bummer huh? Too bad certificates in the conditional sale are one and the
for Villarama). same with their competitor CORPORATION (Villa Rey
Transit Inc.)
So consequently the Sheriff conducted a public sale
for the said 2 certificates of public convenience. And So clearly this is an alter-ego issue. And Villarama
Ferrer was the highest bidder, therefore a certificate committed fraud by creating another company which
of sale was issued in his name. is merely a fictional corporation in order to evade the
10 year prescriptive period stipulated in the
And here's what Ferrer did. He sold the 2 certificates conditional sale.
of public convenience to none other than
PANTRANCO.
So.. nagsabay ngayon... the applications for approval Issue:
of sale, filed before the PSC, by Fernando and the
Corporation, for the supposed 5 certificates and that

6
Whether the stipulation, "SHALL NOT FOR A 9. Francisco Motors Corporation vs CA
PERIOD OF 10 YEARS FROM THE DATE OF THIS
SALE, APPLY FOR ANY TPU SERVICE IDENTICAL 309 SCRA 72 – Business Organization – Corporation
OR COMPETING WITH THE BUYER" in the contract Law – Piercing the Veil of Corporate Fiction (Upside
between Villarama and Pantranco, binds the Down)
Corporation (the Villa Rey Transit, Inc.). In 1985, Francisco Motors Corporation (FMC) sued
Atty. Gregorio Manuel to recover from a him a sum of
money in the amount of P23,000.00+. Said amount
Held: was allegedly owed to them by Manuel for the
purchase of a jeep body plus repairs thereto. Manuel
The court answered YES. And therefore PIERCED filed a counterclaim in the amount of P50,000.00. In
THE VEIL OF CORPORATE FICTION. his counterclaim, Manuel alleged that he was the
Assistant Legal Officer for FMC; that the Francisco
Family, owners of FMC, engaged his services for the
1. Villarama supplied the organization expenses and intestate estate proceedings of one Benita Trinidad;
the assets of the Corporation, where he himself made that he was not paid for his legal services; that he is
use of the money of the Corporation and deposited filing the counterclaim against FMC because said
them to his private accounts. The Corporation corporation was merely a conduit of the Francisco
furthermore paid his personal accounts. Family. The trial court as well as the Court of Appeals
granted Manuel’s counterclaim on the ground that the
Villarama himself admitted that HE MINGLED THE
legal fees were owed by the incorporators of FMC (an
CORPORATE FUNDS WITH HIS OWN MONEY.
application of the doctrine of piercing the veil of
These circumstances are strong persuasive evidence
corporation fiction in a reversed manner).
showing that Villarama has been too much involved in
the affairs of the Corporation to altogether negative ISSUE: Whether or not the doctrine of piercing the
the claim that he was only a part-time general veil of corporate fiction was properly used by the
manager. Court of Appeals.
2. They show beyond doubt that the Corporation is his HELD: No. In the first place, the doctrine is to be used
alter ego. The interference of Villarama in the in disregarding corporate fiction and making the
complex affairs of the corporation, and particularly its incorporators liable in appropriate circumstances. In
finances, are much too inconsistent with the ends and the case at bar, the doctrine is applied upside down
purposes of the Corporation law, which, precisely, where the corporation is held liable for the personal
seeks to separate personal responsibilities from obligations of the incorporators – such was uncalled
corporate undertakings. for and erroneous. It must be noted that that Atty.
Manuel’s legal services were secured by the
3. It is the very essence of incorporation that the acts
Francisco Family to represent them in the intestate
and conduct of the corporation be carried out in its
proceedings over Benita Trinidad’s estate. The
own corporate name because it has its own
indebtedness was incurred by the Francisco Family in
personality. The doctrine that a corporation is a legal
their separate and personal capacity. These estate
entity distinct and separate from the members and
proceedings did not involve any business of FMC.
stockholders who compose it is recognized and
The proper remedy is for Manuel to sue the
respected in all cases which are within reason and the
concerned members of the Francisco Family in their
law.
individual capacity.
4. When the fiction is urged as a means of
perpetrating a fraud or an illegal act or as a vehicle for
the evasion of an existing obligation, the 10. SPS. LIPAT V. PACIFIC BANKING
circumvention of statutes, the achievement or CORPORATION (G.R. NO. 142435)
perfection of a monopoly or generally the perpetration
of knavery or crime, the veil with which the law covers Facts:
and isolates the corporation from the members or Petitioner spouses Lipat owned Bela’s Export Trading
stockholders who compose it will be lifted to allow for (BET) a single proprietorship engaged in the
its consideration merely as an aggregation of manufacture of garments for domestic and foreign
individuals. consumption. The spouses by virtue of an SPA
5. Hence, the Villa Rey Transit, Inc. is an alter ego of appointed and authorized their daughter to obtain
Jose Villarama, and that the restrictive clause in the loan from respondent Pacific Bank. A loan was
contract entered into by the latter and Pantranco is secured and as security therefore a REM was
also enforceable and binding against the said executed over the property of the spouses. Sometime
Corporation. after, BET was incorporated into a family corporation
named Bela’s Export Corporation (BEC) and the loan
was restructured in its name. Subsequent loans were
obtained in behalf of BEC all secured by the previous
REM. BEC defaulted in its payments which led to the
foreclosure and sale of the mortgaged property. The
spouses moved to annul the sale alleging that BEC is
a distinct and separate personality from them and that

7
the REM was executed only to secure BET’s loan. of its officers. On December 2, 1947, the said articles
Both trial court and CA ruled to pierce the corporate of incorporation were filed in the office of the
veil to hold petitioner spouses liable for BEC’s Securities and Exchange Commission for the
obligations. issuance of the corresponding certificate of
incorporation.
Issue:
On March 22, 1948, pending action on the articles of
Whether or not the doctrine of piercing the veil of incorporation by the SEC, respondents Fred Brown,
corporate fiction is applicable in this case. Emma Brown, Hipolita D. Chapman and Ceferino S.
Ruling: YES. Abella filed a suit against petitioners before the Court
of First Instance of Leyte alleging among other things
We find that the evidence on record demolishes, that the Far Eastern Lumber and Commercial Co. was
rather than buttresses, petitioners’ contention that an unregistered partnership; that they wished to have
BET and BEC are separate business entities. Note it dissolved because of bitter dissension among the
that Estelita Lipat admitted that she and her husband, members, mismanagement and fraud by the
Alfredo, were the owners of BET and were two of the managers and heavy financial losses.
incorporators and majority stockholders of BEC. It is
also undisputed that Estelita Lipat executed a special The defendants in the suit, namely, C. Arnold Hall and
power of attorney in favor of her daughter, Teresita, to Bradley P. Hall, filed a motion to dismiss, contesting
obtain loans and credit lines from Pacific Bank on her the court’s jurisdiction and the sufficiency of the cause
behalf. Incidentally, Teresita was designated as of action.
executive-vice president and general manager of both After hearing the parties, the Hon. Edmundo S. Piccio
BET and BEC, respectively. ordered the dissolution of the company; and at the
It could not have been coincidental that BET and BEC request of plaintiffs, appointed the respondent Pedro
are so intertwined with each other in terms of A. Capuciong as receiver of the properties thereof,
ownership, business purpose, and management. upon the filing of a P20,000 bond.
Apparently, BET and BEC are one and the same and The defendants therein (petitioners herein) offered to
the latter is a conduit of and merely succeeded the file a counter-bond for the discharge of the receiver,
former. Petitioners’ attempt to isolate themselves from but the respondent judge refused to accept the offer
and hide behind the corporate personality of BEC so and to discharge the receiver.
as to evade their liabilities to Pacific Bank is precisely
what the classical doctrine of piercing the veil of Hence, this petition.
corporate entity seeks to prevent and remedy.
ISSUE:
In our view, BEC is a mere continuation and
successor of BET and petitioners cannot evade their Whether or not the trial court has jurisdiction over the
obligations in the mortgage contract secured under case?
the name of BEC on the pretext that it was signed for HELD:
the benefit and under the name of BET. We are thus
constrained to rule that the Court of Appeals did not No. The court had no jurisdiction in civil case No. 381
err when it applied the instrumentality doctrine in to decree the dissolution of the company, because it
piercing the corporate veil of BEC. being a de facto corporation, dissolution thereof may
only be ordered in a quo warranto proceeding
instituted in accordance with section 19 of the
Corporation Law.

13. ARNOLD HALL vs. EDMUNDO PICCIO Under our statute it is to be noted that it is the
issuance of a certificate of incorporation by the
G.R. No. L-2598 / June 29, 1950 Director of the Bureau of Commerce and Industry
which calls a corporation into being. The immunity of
FACTS: collateral attack is granted to corporations ‘claiming in
On May 28, 1947, the petitioners C. Arnold Hall and good faith to be a corporation under this act.’
Bradley P. Hall, and the respondents Fred Brown, Further, this is not a suit in which the corporation is a
Emma Brown, Hipolita D. Chapman and Ceferino S. party. This is a litigation between stockholders of the
Abella, signed and acknowledged in Leyte, the alleged corporation, for the purpose of obtaining its
articles of incorporation of the Far Eastern Lumber dissolution. Even the existence of a de
and Commercial Co., Inc., organized to engage in a jure corporation may be terminated in a private suit for
general lumber business to carry on as general its dissolution between stockholders, without the
contractors, operators and managers, etc. Attached to intervention of the state.
the articles was an affidavit of the treasurer stating
that 23,428 shares of stock had been subscribed and WHEREFORE, the petition is dismissed.
fully paid with certain properties transferred to the
corporation described in a list appended thereto.

Immediately after the execution of said articles of

incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election

8
15. Lim Tong Lim vs Philippine Fishing Gear 16. International Express Travel & Tour Services,
Industries, Inc Inc. vs Court of Appeals
Business Organization – Partnership, Agency, 343 SCRA 674 – Business Organization –
Trust – Corporation by Estoppel Corporation Law – Corporation by Estoppel –
When Applied
It was established that Lim Tong Lim requested Peter
Yao to engage in commercial fishing with him and one In 1989, International Express Travel & Tour
Antonio Chua. The three agreed to purchase two Services, Inc. (IETTI), offered to the Philippine
fishing boats but since they do not have the money Football Federation (PFF) its travel services for the
they borrowed from one Jesus Lim (brother of Lim South East Asian Games. PFF, through Henri Kahn,
Tong Lim). They again borrowed money and they its president, agreed. IETTI then delivered the plane
agreed to purchase fishing nets and other fishing tickets to PFF, PFF in turn made a down payment.
equipments. Now, Yao and Chua represented However, PFF was not able to complete the full
themselves as acting in behalf of “Ocean Quest payment in subsequent installments despite repeated
Fishing Corporation” (OQFC) they contracted with demands from IETTI. IETTI then sued PFF and Kahn
Philippine Fishing Gear Industries (PFGI) for the was impleaded as a co-defendant.
purchase of fishing nets amounting to more than
P500k. Kahn averred that he should not be impleaded
because he merely acted as an agent of PFF which
They were however unable to pay PFGI and so they he averred is a corporation with separate and distinct
were sued in their own names because apparently personality from him. The trial court ruled against
OQFC is a non-existent corporation. Chua admitted Kahn and held him personally liable for the said
liability and asked for some time to pay. Yao waived obligation (PFF was declared in default for failing to
his rights. Lim Tong Lim however argued that he’s not file an answer). The trial court ruled that Kahn failed
liable because he was not aware that Chua and Yao to prove that PFF is a corporation. The Court of
represented themselves as a corporation; that the two Appeals however reversed the decision of the trial
acted without his knowledge and consent. court. The Court of Appeals took judicial notice of the
existence of PFF as a national sports association; that
ISSUE: Whether or not Lim Tong Lim is liable. as such, PFF is empowered to enter into contracts
HELD: Yes. From the factual findings of both lower through its agents; that PFF is therefore liable for the
courts, it is clear that Chua, Yao and Lim had decided contract entered into by its agent Kahn. The CA
to engage in a fishing business, which they started by further ruled that IETTI is in estoppel; that it cannot
buying boats worth P3.35 million, financed by a loan now deny the corporate existence of PFF because it
secured from Jesus Lim. In their Compromise had contracted and dealt with PFF in such a manner
Agreement, they subsequently revealed their intention as to recognize and in effect admit its existence.
to pay the loan with the proceeds of the sale of the ISSUE: Whether or not the Court of Appeals is
boats, and to divide equally among them the excess correct.
or loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell under HELD: No. PFF, upon its creation, is not automatically
the term “common fund” under Article 1767. The considered a national sports association. It must first
contribution to such fund need not be cash or fixed be recognized and accredited by the Philippine
assets; it could be an intangible like credit or industry. Amateur Athletic Federation and the Department of
That the parties agreed that any loss or profit from the Youth and Sports Development. This fact was never
sale and operation of the boats would be divided substantiated by Kahn. As such, PFF is considered as
equally among them also shows that they had indeed an unincorporated sports association. And under the
formed a partnership. law, any person acting or purporting to act on behalf
of a corporation which has no valid existence
Lim Tong Lim cannot argue that the principle of assumes such privileges and becomes personally
corporation by estoppels can only be imputed to Yao liable for contract entered into or for other acts
and Chua. Unquestionably, Lim Tong Lim benefited performed as such agent. Kahn is therefore
from the use of the nets found in his boats, the boat personally liable for the contract entered into by
which has earlier been proven to be an asset of the PFF with IETTI.
partnership. Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for There is also no merit on the finding of the CA that
unknown reasons, this fact alone does not preclude IETTI is in estoppel. The application of the doctrine of
the liabilities of the three as contracting parties in corporation by estoppel applies to a third party only
representation of it. Clearly, under the law on when he tries to escape liability on a contract from
estoppel, those acting on behalf of a corporation and which he has benefited on the irrelevant ground of
those benefited by it, knowing it to be without valid defective incorporation. In the case at bar, IETTI is
existence, are held liable as general partners. not trying to escape liability from the contract but
rather is the one claiming from the contract.

9
17. FILIPINAS BROADCASTING NETWORK, NOTE: CASES 11, 12, 14, and 18 are printed in full
INC., petitioner, vs. AGO MEDICAL AND text no CASE DIGEST AVAILABLE
EDUCATIONAL CENTER-BICOL CHRISTIAN
COLLEGE OF MEDICINE, (AMEC-BCCM)
and ANGELITA F. AGO,respondents. G.R. No.
141994. January 17, 2005

Facts:

Rima & Alegre were host of FBNI radio program

“Expose”. Respondent Ago was the owner of the
Medical & Educational center, subject of the radio
program “Expose”. AMEC claimed that the broadcasts
were defamatory and owner Ago and school AMEC
claimed for damages. The complaint further alleged
that AMEC is a reputable learning institution. With the
supposed expose, FBNI, Rima and Alegre
“transmitted malicious imputations and as such,
destroyed plaintiff’s reputation. FBNI was included as
defendant for allegedly failing to exercise due
diligence in the selection and supervision of its
employees. The trial court found Rima’s statements to
be within the bounds of freedom of speech and ruled
that the broadcast was libelous. It ordered the
defendants Alegre and FBNI to pay AMEC 300k for
moral damages.”

ISSUE: Whether or not AMEC is entitled to moral

damages.

RULING: YES.
A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or
moral shock. Nevertheless, AMEC’s claim, or moral
damages fall under item 7 of Art – 2219 of the NCC.
This provision expressly authorizes the recovery of
moral damages in cases of libel, slander or any other
form of defamation. Art 2219 (7) does not qualify
whether the plaintiff is a natural or juridical person.
Therefore, a juridical person such as a corporation
can validly complain for libel or any other form of
defamation and claim for moral damages. Moreover,
where the broadcast is libelous per se, the law implied
damages. In such a case, evidence of an honest
mistake or the want of character or reputation of the
party libeled goes only in mitigation of damages. In
this case, the broadcasts are libelous per se. thus,
AMEC is entitled to moral damages. However, we find
the award P500,000 moral damages unreasonable.
The record shows that even though the broadcasts
were libelous, per se, AMEC has not suffered any
substantial or material damage to its reputation.
Therefore, we reduce the award of moral damages to
P150k.

10