Restatement of The Doctrine of Piercing

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19
RESTATEMENT OF THE DOCTRINE OF

PIERCING THE VEIL OF
CORPORATE FICTION
CESAR L. VILLANUEVA *
INTRODUCTION
The title of this paper may expectedly lead to the impression that
the main thrust would be to rehash existing decisions on the doctrine
of piercing the veil of corporate fiction. Although that would be the
process, the aim of this paper is to place more emphasis on the
complementary relationship of the piercing doctrine to the main doc-
trine that a corporation has a juridical personality separate and distinct
from the stockholders or members who compose it.
Looking at the number of decisions rendered by the Supreme
Court where it has pierced the veil of corporate fiction, compared with
the handful of decisions by which it has refused to apply the piercing
doctrine and instead affirmed the main doctrine of separate juridical
personality, may give one the impression that when the issue is whether
or not to treat the corporation as a separate person, the main doctrine
has lost some of its vitality, and that.the piercing doctrine has grown
lush and vital.
It is always comforting to note, especially for businessmen to whom
the corporate entity has undoubtedly become the most popular medium
by which to pursue business transactions, that the viability and vitality
of a doctrine is to be tested not by the times it has been challenged
and overcome in court decisions, but by the usefulness and frequency
of its use in the market place. The enormity of the number of Supreme
Court decisions applying the piercing doctrine does not even begin
to show the thousands upon thousands of daily transactions nego-
tiated and completed without a hitch employing the corporate entity.
The author is a professorial lecturer in Corporation Law at the Ateneo College of Law, and
the Managing Partner of Villanueva Bernardo & Gabionza Law Offices, 702 Vicente Madrigal
Bldg., Ayala Avenue, Makati, Metro Manila. Editor-in-Chief, Ateneo Law journal (1980-81).
Digitized from Best Copy Available

20 ATENEo LAW JOURNAL VOL. 37 NO. 2
When dealing with piercing cases, it is always important to note

that the aim which is, or at least would be, sought by the Supreme
Court is not to use the doctrine as a ram to break down the ramparts
of the main doctrine of separate juridical personality, but, more proper,
for the ancillary piercing doctrine to act as a regulating valve by which
to preserve the powerful engine that is the main doctrine of separate
juridical personality.
It is important, therefore, to consider that the vitality of the main
doctrine of separate juridical personality is essential in preserving and
promoting the corporate entity by which the business community can
continue to harness capital resources and undertake either risky or
large-scale enterprises. And that the development of the piercing doctrine
should n'ot compete with, but rather, complement and vitalize and the
main doctrine of separate juridical personality.
I. THE MAIN DOCTRINE OF

SEPARATE JURIDICAL PERSONALITY
Since its introduction in the Philippines in 1906, the corporation

has betn defined as "an artificial being created by operation of law,
having the right of succession and the powers, attributes, and
properties expressly authorized by law or incident to its existence."
This same definition has been adopted by Section 2 of the present
Corporation Code.'
The codal definition of the torporation is the basis of the main
doctrine that a corporation has a personality separate and distinct from
the stockholders or members who compose it. When studying
Corporation Law, there is little direct consciousness that the doctrine
of separate juridical personality also finds basis in Article 44 of the
Civil Code which recognizes as juridical persons "[clorporations,
partnerships, and associations for private interests or purposes to which
the law grants a juridical personality, separate and distinct from that
of each shareholder, partner, or member."
ACT No. 1459 passed by the then Philippine Commission, known as the CORPORATION LAW.
2 Section 2, AcT No. 1459, and Section 2, BATAS PAMBANSA BLG. 25, CORPORATION CODE, Section
2 (1980).
BATAS PAMBANSA BLG. 25 (1980).

1993 PIERCING THE VEIL OF CORPORATE FICTION 21
The granting of a separate juridical personality to the corporate

entity has been considered as the attribute or privilege most charac-
teristic of the corporation.'
Unlike the cumbersome personality of its nearest rival, the
partnership, the separate juridical personality of the corporation has
features that have made it most attractive to businessmen: right of
succession, limited liability, centralized management, and generally
free transferability of shares of stock. Therefore, an undermining of
the separate juridical personality of the corporationsuch as the
application of the piercing doctrine, necessarily dilutes any or all of
these attributes. The main theory of separate juridical personality is,
therefore, a legal creation; it is a fiction that readily gives way to the
reality of the situation.
The stability of the main doctrine of separate juridical. personality
is inextricably linked with the attractiveness of the corporation as ah
efficient medium by which businessmen can pursue business enter-
prises. And the undermilling of the main doctrine would also compel
businessmen to enter into inefficient and costly contractual relations
to fill in the gaps created by a flawed main doctrine.
The Supreme Court has not been wanting in paying lip service
to the main doctrine of separate juridical personality, especially in
recent years, when it seems, at every turn, that a proposition to pierce
the veil of corporate fiction has become a knee-jerk reaction in most
litigations involving corporate parties. However, as shown hereunder,
the Supreme Court has not really taken a clear and direct path on this
doctrine vis-a-vis the piercing doctrine.
In Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of
Manila,s the distribution of the corporate properties to the stockholders
was deemed not in the nature of a partition among co-owners, but
rather, a disposition by the corporation to the stockholders, as opposite
parties to a contract. It held that "[a] corporation is a juridical person
distinct from the members composing it [and that] [p]roperties
registered in the name of the corporation are owned by it as an entity
separate and distinct from its members. While shares of stock
constitute the personal property, they do not represent property of
the corporation. x x x A share of stock only typifies an aliquot part
Sec. 287.
BALLANTINE,
6 SCRA 373 (1962).

22 ATENEo LAW JOURNAL VOL. 37 NO. 2,
of the corporation's property, or the right to share in its proceeds to

that extent when distributed according to law and equity, but its holder
is not the owner of any part of the capital of the corporation, nor is
he entitled to the possession of any definite portion of its property
or assets. The stockholder is not a co-owner or tenant in common of
6
the corporate property."
Manila Gas Corp. v. Collector of Internal Revenue7 held that the tax
exemptions granted to a corporation do not pertain to its stockholders
due to the separate corporate personalities. "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
corporatipn. It must be considered as settled in this jurisdiction that
dividends of a domestic corporation which are paid and delivered in
cash to foreign corporations as stockholders are subject to the payment
of the income tax, the exemption clause to the charter [of the domestic
corporation] notwithstanding.""
Likewise, attempts by stockholders to intervene in suits against
their corporations have been struck down in Magsaysay-Labrador v.
Court of Appeals' on the basic premise that a party may intervene under
remedial provisions if he has a legal interest in the matter in litigation;
but that stockholders' right in corporate property is purely inchoate
and will not entitle them to intervene in a litigation involving corporate
property.
Magsaysay-Labrador held that a majority stockholder's interest in
corporate property, "if it exists at all, x x x is indirect, contingent,
remote, conjectural, [in]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 share in the profits thereof
and in the properties and assets thereof on dissolution, after payment
of the corporate debts and obligations.""o "While a share of stock
represents a proportionate or aliquot interest in the 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
Id. at 375-376.
7 62 Phil. 895 (1936).
* Id. at 898
9 180 SCRA 266 (1989).
1o Magsaysay-Labrador v. Court of Appeals, 180 SCRA 266, 271 (1989).

being equitable and beneficial in nature. Shareholders are in no legal

sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.""
In Saw v. Court of Appeals,12 the Supreme Court refused the petition
for intervention filed by the stockholders in a collection case covering
the loans of the corporation on the ground that the interest of share-
holders in corporate property is purely inchoate; and this purely inchoate
interest will not entitle them to intervene in a litigation involving
corporate property.1 3
And vice-versa in Sulo ng Bayan v. Araneta Inc." where an attempt
by a non-stock and non-profit corporation organized for the benefit
of its members to bring suit in behalf of its members for the recovery
of certain parcels of land owned by the members was not allowed by
the Supreme Court.
In Traders Royal Bank v. Court of Appeals,15 actions sought to make
officers and stock'olders liable for corporate debts on the basis of such
relationship alone have been turned down by the Supreme Court. "The
corporate debt or credit is not the debt or credit of the stockholder
6
nor is the stockholder's debt or credit that of the corporation."' Cruz
v. Dalisay" held that the mere fact that one is, president of the
corporation does not render the property he owns or possesses the
property of the corporation, since the president, as [an] individual,
and the corporation are separate entities."
In Good Earth Emporium, Inc. v. Court of Appeals,'9 the Supreme
Court, in refusing to allow execution of a judgment debt of a
corporation against the officer, held that being an officer or stockholder
" Magsaysay citing Ballantine 288-289; Pascual 0. Del Sanz Orozco, 19 Phil. 82, 86 (1911).
12 195 SCRA 740 (1991).
'n Id. at 744-745.
14 72 SCRA 347 (1976).
1 177 SCRA 789 (1989). The mere fact that an individual bound himself as surety for a corporations
obligations does not vest the SEC exclusive jurisdiction over said individuals or over the
latter's person or property in a rehabilitation and recievership proceedings pending with the
SEC over the Corporate entity (Traders Royal Bank v. Court of Appeals, 177 SCRA 788, 792
[1989]).
11 Id. at 792.
" 152 SCRA 487 (1987).
Is Id. at 486. See also Sulong Bayan, Inc. v. Araneta, Inc. 72 SCRA 347, 354-355 (1976).
19 194 SCRA 544 (1991).

24 ATENEO LAW JOURNAL VOL. 37 NO-
of a corporation does not by itself make one's property also that of

the corporation, and vice-versa, for they are separate entities, and that
shareholders are in no legal sense the owners of corporate property
2
which is owned by the corporation as a distinct legal person. o
Development Bank of the Philippines v. National Labor Relations
Commission" held that ownership of a majority of capital stock and
the fact that a majority of directors of a corporation are the directors
of another corporation creates no employer-employee relationship, nor
does it make the controlling stockholder liable for the employees'
claims.that pertain to the subject corporation. Earlier, Lidell & Co. v.
Collector of Internal Revenue22 expressed the principle that mere
ownersfip by a single stockholder or by another corporation of all
or nearly all of the capital stock of the corporation is not by itself
sufficient ground for disregarding the separate corporate personality?
Likewise, Umali v. Court of Appeals24 held that the mere fact that the
businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, absent
sufficient showing that the corporate entity was purposely used as a
shield to defraud creditors and third persons of their rights?
Substantial ownership in- the capital stock of a corporation entitling
the shareholder a significant vote in the corporate affairs allows them
no standing or claims pertaining to corporate affairs.2 6
II. APPLICATION OF THE PIERCING DOCTRINE
A. When Applicable
The main doctrine of separate juridical personality is to be
tempered by the supporting doctrine of piercing the veil of corporate
fiction. Since both theories were transported to Philippine jurisdiction
as part and parcel of the implantation of the American Corporation
2 Id. at p. 550, citing Traders Royal Bank v. Court of Appeals, 152 SCRA 482 (1989] and Cruz
v. Dalisay, 152 SCRA 482 [1989].
1 186 SCRA 841 (1990).
n 2 SCRA 632, 640 (1961).
3 See also Palay, Inc v. Clave, 124 SCRA 638 (1983); Pabalanv. National Labor Relations Commission,
184 SCRA 495 (1990).
u 189 SCRA 529, 543 (1990).
* Id. at 543. Also Diatagon Labor Federation v. Ople, 101 SCRA 534 (1980).
7A PNB v. Phil. Neg. Oil Co., 49 Phil. 857, 853, and 862 (1927).

Law, the source of the piercing doctrine is also common law. But the
magical words by which the piercing doctrine has come to be known 27
found their origins in the case of United States v. Milwaukee Refrigerator
Transit Co.:28
If any general rule can be laid down, in the present state of authority,
it is that a corporation will be looked upon as a legal entity as a
general rule, and until sufficient reason to the contrary appears;
but, when the notion of legal entity is used to defeat public con-
venience, justify wrong, protect fraud, or defend crime, the law will
29
regard the corporation as an association of persons.
The main value of the piercing doctrine to both corporate prac-
titioners and their clients has always been to show them how to avoid
both the application the courts of the doctrine to their particular
situation as well as the consequences of said application, which is
mainly to hold the associates in the venture personally liable for cor-
porate obligations. Therefore, the discussions below study the main
features of each of the three general classes of piercing, so that in actual
practice counsel and their clients would know how to properly struc-
ture their transactions to avoid incurring the ."ire" of judicial bodies.
B. Consequences of Piercing
Umali has held that when the piercing doctrine is applied in a

case, the consequences would be that the members or stockholders
of the corporation will be considered as the corporation, that is,
liability will attach directly to the officers and stockholders."o
However, earlier on, Koppel (Philippines), Inc. v. Yatcoax ruled that the
particular application of the piercing doctrine to a particular case does
not deprive the corporation of legal personality for any and all purposes,
but only for the particular transaction or instance in which the doctrine
was applied.
7 So common-place has the incatation been that even our own Supreme Court when it says
the magic words does not even cite the case of United States v. Milwaukee Refrigerator Transit
Co., 142 Fed. 247 [1905]).
- 142 Fed. 247 (1905).
1 Id. at 255.
30 Umali v. Court of Appeals, 189 SCRA 529 (1990).
3. 77 Phil. .496 (1946).

26 ATENEO LAW JOURNAL VOL. 37 NO. 2'
Since the piercing doctrine was fashioned to prevent fraud, or

injustice, it would have no application in situations where no fraud
or injustice would be prevented by the application of such doctrines,
as to make officers and stockholders liable for corporate debts. Thus,
in Umali, 2 the Supreme Court rejected the plea to pierce the veil of
corporate fiction to achieve a remedy of declaring void foreclosure
proceedings on the ground that "the legal corporate entity is disre-
garded only if it is sought to hold the officers and stockholders directly
liablesfor a corporate debt or obligation. In the instant case, petitioners
do not'seek to impose a claim against the individual members of the
three corporations which desire to enforce an alleged right against the
petitioners."33
The application of the piercing doctrine is not a contravention of

the principle that the corporate personality cannot be collaterally attacked.
KoppeP' held that when the piercing doctrine is applied against a
corporation in a particular case, the court, does "not deny legal
personality x x x for any and all purposes, but [holds] in effect that
in the transaction involved in [the] case the public interest and con-
venience should be defeated and what would amount to a tax evasion
perpetrated, unless resort is had to the doctrine of 'disregard the corporate
fiction.' In other words, in looking through the corporate form to the
ultimate person or corporation behind that form, in the particular
transactions that were involved in the case submitted to its determi-
nation and judgment, the court did so in order to prevent the con-
travention of the local internal revenue laws, and the perpetration of
what would amount to a tax evasion x x x. The court did not hold
that the corporate personality of Koppel (Philippines), Inc. would also
be disregarded in other cases or for other purposes. It would have
had no power to hold so."" The application of the piercing doctrine
is, therefore, within the ambit of the principle of res adjudicata that
binds only the parties to the case only to the matters actually resolved
therein. Thus, even when a corporation's legal personality had been
pierced in another case, it was held in Tantongco v. Kaisahan ng mga
Manggagawa sa La Campana and CIR 6 that such corporation still
n .189 SCRA 529 (1990).

* Id. at 543.
* 77 Phil. 496 (1946).
s Id. at 504-505.
* 106 Phil. 199 (1959).

possessed such separate juridical personality in any other case. It therefore

seemed logical to hold, as Cruz v. DalisayN held, that, piercing the veil
of corporate fiction is a remedy not available to administrative agen-
cies. In Cruz, the executing sheriff, when he could not locate properties
of the corporation to enforce a judgment debt, chose to pierce the veil
of corporate fiction and levied on the properties of the. president and
majority stockholder of the corporation. The Supreme Court overruled
such actuation because the sheriff had usurped a "power belonging
to the court."
However, as will be discussed hereunder, the pronouncement in
Cruz does not square with previous decisions of the Supreme Court
where administrative application or the piercing doctrine, such as by
the Bureau of Internal Revenue to uphold tax assessments," have been
upheld by the Supreme Court. Properly, therefore, the more appro-
priate application of Cruz would be that the administrative determi-
nation of the facts upon which the piercing doctrine is to be applied
is subject to judicial or quasi-judicial review, as the case may be.
III. CLASSIFICATION OF THE PIERCING CASES
A review of the piercing cases decided by the Supreme Court

would point out their classification into three major areas:39
(a) When the corporate entity is used to commit fraud or to do
a wrong ("fraud cases");
(b) When the corporate entity is merely a farce, since the
corporation is merely the alter ego, business conduit or
instrumentality of a person or another entity ("alter ego cases");
and
37 192 SCRA 487 (1987).

38 Koppel (Philippines,Inc. v. Yatco, 77 Phil. 496 (1946); Yutivo Sons Hardwarev. Court of Tax Appeals,
1 SCRA 160 (1961); Lidell & co. v. Collector of Internal Revenue, 2 SCRA 632 (1961); Commissioner
of Internal Revenue v. Norton and Harrison, 11 SCRA 714 (1954).
* Adolfo S. Azcuna in his article 'The Doctrine of Piercingthe Veil of Corporate Fiction: A Review
and Analysis of Philippine Supreme Court Decision from Willets to Ramirez" (18 ATENEo L.J. Vol.
1, 9) groups them only into two: (1) when the corporate entity is used to promote fraud,
injustice, illegality of wrong; and (2) the corporate entity is a mere alter ego, business, conduit,
branch or agency of a person, natural or another corporation.1 (at 34)..
However, Umali v. Court of Appeals, 189 SCRA 529 (1990), has impliedly recognized three (3)
groupings (at 542).

28 ATENEO LAW JOURNAL VOL. 37 NO.2
(c) When the piercing the corporate fiction is necessary to achieve

justice or equity ("equity cases").
Although when the corporate entity is used to commit a wrong
or to achieve fraud, necessarily an alter ego scenario is likewise achieved,
the main distinction between the fraud cases or piercing from the mere
alter ego cases of piercing is that in the former, there is always an
element of malice or the presence of an evil motive, while in the latter
case, even in the absence of an evil motive, piercing would be allowed.
The third category of equity cases has mainly become the "dumping
ground" or perhaps the "added flourish" of the Supreme Court when
it has to apply the piercing doctrine but cannot find it convenient to
do so because no evil had been sought to be achieved, but, at the same
time, th corporate juridical personality of the corporation has always
been respected.
The three cases of piercing may appear together as in the case
of R.F. Sugay v. Reyes" where an attempt by the corporation to avoid
liability by distancing itself from the acts of its President, Mr. Romulo
F. Sugay, alleging that he acted as agent for another corporation, was
brushed aside by the Supreme Court when it held that the "dual roles
of Roniulo F. Sugay should not be allowed to confuse the facts relating
to employer-employee relationship x x x[ilt being a legal truism that
when the veil of corporate fiction is made a shield to perpetrate a fraud
and/or confuse legitimate issues (in this case, the relation of employer-
employee), the same should be pierced. Verily, the R.F. Sugay & Co.,
Inc. is a business conduit of R.f. Sugay." 4 1
IV. FRAUD CASES
Gregorio Araneta, Inc. v. Tuason de Paternoand Vidale held that the

piercing doctrine is employed to prevent the commission of fraud and
cannot be employed to perpetuate a fraud. In that case, Tuason sold
lots to G. Araneta Inc. Subsequently, the corporation filed a case against
Tuason to compel delivery of clean title to said lots. Tuason claimed
that the sale was made to her agent, Jose Araneta, president of the
corporation, and therefore the corporate fiction should be disregarded,
" SCRA 700 (1964).

4 Id. at 705.
91 Phil. 786 (1952).

since the sale was invalid for being made to an agent of the seller.43
The Supreme Court ruled that corporate fiction will not be disregarded
because the corporate entity was used neither to perpetuate fraud nor
to circumvent the law, and the disregard of the technicality would
pave the way for the evasion of a legitimate and binding commitment,
especially since Tuason was fully aware of the position of Mr. Araneta
in the corporation at the time of the sale.
Since the piercing doctrine is meant to prevent th commission
of fraud, it cannot apply when it would allow persons or entities to
gain advantages."
In addition, the piercing doctrine offers a remedy of last resort
and will not be applied, even in case of fraud, if other remedies are
available to the parties. Thus, in Umali the Supreme Court refused
to apply the piercing doctrine since the petitioners were "merely seeking
the declaration of the nullity of the foreclosure sale, which relief may
be obtained without having to disregard the aforesaid corporate fiction
attaching to respondent corporations, [especially since] petitioners failed
to establish by clear and convincing evidence that private respondents
were purposely formed and operated, and thereafter transacted with
petitioners, with the sole intention of defrauding the latter."4
In Commissioner of Internal Revenue v. Norton and Harrison4 where
the parent corporation owned all the outstanding stocks of the
subsidiary corporation; where parent corporation financed all the
operations of the subsidiary; where the parent treated the subsidiary's
employees as its own; where the officers of both corporations were
located in the same compound; where the Board of the subsidiary was
constituted in such a way as to enable the parent to actually direct
and manage the subsidiary's affairs, because the same officers
comprised the Boards for both corporations; and where the fiction of
a Under Article 1491 of the REPUBLIC ACT NO. 386, CIVIL CODE OF THE PHILIPINES, a purchase by
an agent of the property of the principal is void.
* In Burnett Commisioner v. Clarke, 287 US 410, 53 S.Ct. 207, 77 L.Ed. 397, the United States
Supreme Court refused to allow a taxpayer to use the piercing doctrine to gain a tax advantage.
Clarke indorsed his notes for a corporation of which he was majority stockholder. He sustained
losses by virtue of such endorsement. Such losses cannot be deducted from his income tax
returns, because first, it did not result from any operation of any trade or business a corporation
and its stockholders are generally to be treated as separate entities, and second, only under
exceptional circumstances can the difference be diregarded.
's 189 SCRA 529, 543 (1990).
4 11 SCRA 714 (1954).

30 ATENEO LAW JOURNAL VOL. 37 NO. I
corporate entity was being used as a shield for tax evasion by making
it appear that the original sale was made by the parent corporation
to the subsidiary corporation in order to gain a tax advantage, the
courts will not hesitate to pierce the veil of corporate fiction and treat
as void the sales between the two corporations.
Since Norton and Harrison is a fraud case, one begins to wonder
why there was a need to show that the subsidiary corporation was
being used as an instrumentality or conduit of the parent corporation,
since even in the absence of such evidence, piercing to prevent fraud
(i.e., tax evasion) would have been warranted. Must fraud cases
necessarily be accompanied by alter-ego elements to make a fraud case
stick for\ application of the piercing doctrine?
It would seem not to be necessarily so, because fraud is a matter
of proof, and often it is a state of the mind being founded on malice.
It becomes necessary, therefore, that in order to establish the state of
mind of the stockholders to make them liable for corporate debts, or,
as in the case of Norton and Harrison,in order to consider two separate
entities as one and the same, there is an imperative need to detail the
circumstances which show that the corporate fiction is being used
consciously as a means to commit a fraud. In short, the alter-ego
circumstances are needed to prove the malicious intent of the parties.
In Namarco v. Associated Finance Co.4 1 it was held that where a
stockholder, who has absolute control over the business and affairs
of the corporation, entered into a contract with another corporation
through fraud and false representqtions, such stockholder shall be liable
jointly and severally with his co-defendant corporation even when the
contract sued upon was entered into on behalf of the corporation.
Namarco demonstrates an instance when a fraud case overlaps
with an alter ego case, as the Supreme Court held: "We feel perfectly
justified in 'piercing the veil of corporation fiction' and in holding
Sycip personally liable, jointly and severally with his co-defendant,
for the sums of money adjudged in favor of the applicant. It is settled
law in this and other jurisdictions that when the corporation is the
mere alter ego of a person, the corporate fiction may be disregarded;
the same being true when the corporation is controlled and its affairs
so conducted, as to make it merely an instrumentality, agency, or
conduit of another."#
47 19 SCRA 962 (1967).

0 Id. at 965.

Other than having entered into a fraudulent contract in the name

of the corporation - a transaction which normally would never have
been approved by the board of directors - Sycip was not found to
have engaged consistently in the practice of using the corporation as
an alter ego. Therefore, in fraud cases, the alter ego concept may be
employed even for a single transaction to do evil. This is unlike pure
alter ego cases where the courts go into systematic findings of utter
disregard of and disrespect for the separate juridical person of the
corporation.
In Palacio v. Fely TransportationCo.,49 where it was found that an
incorporator's main purpose in forming the corporation was to evade
his subsidiary civil liability resulting from the conviction of his driver,
the Supreme Court held a corporation liable for such subsidiary civil
liability by rejecting its defense that it had a separate juridical
personality and could not, as a result, be held liable for the personal
liabilities of its stockholder. The Court considered, as part of the
attempt to do fraud the fact that the only property of the corporation
was the jeep owned by the main stockholder who was involved in
the accident.
A. Liability of Officers
The general rule is laid down in Palay, Inc. v. Clave:0 unless "sufficient
proof exists on record" that an officer (in this case, a president and
controlling stockholder) has "used the corporation to defraud private
respondent" he cannot be made personally liable "just because he
appears to be the controlling stockholder."' "Mere ownership by a
single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality."5 2
Pabalan v. National Labor Relations Commission" held that "[t]ffe
settled rule is that the corporation is vested by law with a personality
separate and distinct from the persons composing it, including its
officers, as well as from that of any other entity to which it may be
* 5 SCRA 1011 (1962).

" 124 SCRA 638 (1983).
5 Id. at 648-649.
sz Id. at 649.
s 184 SCRA 495 (1990).

32 ATENEO LAW JOURNAL VOL. 37 NO. 3
related x x x [and an officer] acting in good faith within the scope

of his authority x x x cannot be held personally liable for damages."5
Pabalan refused to hold the officers of the corporation liable for
corporate obligations on employee's wages, since "[i]n this particular
case complainants did not allege or show that petitioners, as officers
of the corporation deliberately and maliciously designed to evade the
financial obligations of the corporation to its employees, or used the
transfer of the employees as a means to perpetrate an illegal act, or
as a vehicle for evasion of existing obligations, the circumvention of
statutes, or to confuse legitimate issues.""
In R.F. Sugay v. Reyes" an attempt by the corporation to avoid
liability by distancing itself from the acts of its President was struck
down byl the Supreme Court which held that a corporation may not
distance itself from the acts of a senior officer: "the dual roles of
Romulo F. Sugay should not be. allowed to confuse the facts." 5 To
the same effect is the ruling in Paradise Sauna Massage Corporation v.
Ng" where it was held that an officer-stockholder who is a party
signing in behalf of the corporation to a fraudulent contract cannot
claim the benefit of separate juridical entity: "Thus, being a party to
a simulated contract of management, petitioner Uy cannot be permit-
ted to escape liability under the said contract by using the corporate
entity theory. This is one instance when the veil of corporate entity
has to be pierced to avoid injustice and inequity."59
However, in the field of labor, liability of corporate officers for
corporate obligations to employees seems to have taken two different
strains.
In A.C. Ransom Labor Union-CCLU v. National Labor Relations
Commission, 0 the Supreme Court, interpreting the Labor Code, held
that since a corporate employer is an artificial person, it must have
an officer who can be presumed to be the employer, being the "person
acting in the interest of (the) employer" as provided in the Labor Code.
" Id. at p. 499.

* Id. at 500.
* 12 SCRA 700 (1964).
s' Id. at 705.
* 181 SCRA 719 (1990).
" Id. at 729.
6 142 SCRA 269 (1986).

Therefore, A.C. Ransom held that "the responsible officer of the employer
corporation can be held personally, not to say even criminally, liable
for the non-payment of backwages; and that in the absence of definite
proof as to the identity of an officer or officers of the corporation
directly liable for failure to pay backwages, the responsible officer is
the president of the corporation jointly and severally with other presidents
of the same corporation.
In effect, A.C. Ransom would hold a corporate officer liable for
corporate obligations by the mere fact that he is the highest officer,
even when there is no proof that he acted in the particular matter for
the corporation.
In Del Rosario v. National Labor Relations Commission,6 the
Supreme Court, stating that the doctrine in A.C. Ransom was
inapplicable without further explanation, refused to allow a writ of
execution against the properties of officers and stockholders for a judgment
rendered against the corporation, which was later found to be without
assets, on the grouhd that "[bjut for the separate juridical personality
of a corporation to be disregarded, the wrongdoing must be clearly
and convincingly established. It cannot be presumed." In addition,
it was held that "[tlhe distinguishing marks of fraud were therefore
clearly apparent in A.C. Ransom. A new corporation was created,
owned by the same family, engaging in the same business, and
operating in the same compound." In short, Del Rosario re-affirmed
the original doctrine before the A.C. Ransom pronouncement that in
order for a corporate officer or stockholder to be held liable for corporate
debts, it must clearly be shown that he had participated in the
fraudulent act.
This principle was reinforced in Western Agro Industrial Corpora-
tion v. Court of Appeals6 2 which held that a corporate officer cannot be
made personally liable for a corporate debt simply because he hall
executed the contract for and in behalf of the corporation. It explained
that when a corporate officer acts in-behalf of a corporation, pursuant
to his authority, there results "a corporate act for which only the
corporation should be made liable for any obligations arising from
them."'6
61 187 SCRA 777 (1990).

- 188 SCRA 709 (1990).
' Id. at 718.

Two months after Del Rosario, the Supreme Court, in Maglutac v.

National Labor Relations Commission," held a corporate officer liable for
the claims against the corporation, relying upon the A.C. Ransom ruling,
but only with respect to the doctrine that the responsible officer of
a corporation who had a hand in illegally dismissing an employee
should be held personally liable for the corporate obligations arising
from such act.
B: In Summary
From all the foregoing, what clearly comes out as the guiding rule
is that piercing is allowed in fraud cases only when the following
elements are present:
(a) there must have been fraud or an evil motive in the affected
transacticn, and the mere proof of control of the corporation, by itself,
would not authorize piercing; and
(b) the main action should seek the enforcement of pecuniary
claims pertaining to the corporation against corporate officers or
stockholders.
Fraud cases requiring the application of the piercing doctrine should,
therefore, be properly read as viewing the corporate entity from outside,
from the perspective of those in the business community who have
to deal with corporations on the other side of the bargaining table.
If shady businessmen can hide behind the fortress of the separate
juridical personality, then it would make dealings with corporations
more tentative since the outside party must demand additional assur-
ances (such as joint and solidary undertakings by key officers and
stockholders or corporate liabilities) from the players behind the
corporation.
Applying the piercing doctrine in fraud cases, therefore, is an
assurance to the public that deals with the corporation that, in cases
of mischief by the actors behind the corporate entity, the public would
have a remedy against the very actors themselves. This safety hatch,
in fact, makes the corporate entity attractive not only for the business-
men who employ it, but also for the parties who have to contract with
such corporate entities.
In addition, a basic public policy abounds in fraud cases of piercing,
similar to the doctrine of why, in criminal corporate acts, it is the actor
" 189 SCRA 767 (1990).

behind the corporation, and not the corporate entity, that is liable for
the criminal prosecution. Without the fraud cases of piercing, the
corporate entity would become a shield behind which unscrupulous
businessmen may hide and perhaps even become dangerously aggres-
sive in undertaking shady deals, because there would be no risk of
personal liability for their fraudulent acts. To maintain separate
juridical personality under such circumstances would; therefore,
encourage fraudulent activities within society. Instead of making the
corporation an attractive medium, the dastardly deals closed through
exploited corporate entities could put corporations at the periphery
or, perhaps, even in the underworld of business dealings.
V. ALTER EGO CASES
The first Philippine case to apply the piercing doctrine is actually

Arnold v. Willets and Patterson, Ltd.," and it was clearly an alter ego
case." It expressed4he language of the piercing doctrine when applied
to alter-ego cases:
Where the stock of a corporation is owned by one person whereby
the corporation functions only for the benefit of such individual
owner, the corporation and the individual should be deeined the
same. 7
In Arnold, the creditors' committee of the corporation opposed
the payment of compensation due to the plaintiff Arnold. under a
contract-letter signed by the president and controlling stockholder Willit
but without board approval. The Supreme Court upheld the validity
of the contract and "[a]lthough the plaintiff was the president of the
local corporation, the testimony is conclusive that both of them were what
is known as a one-man corporation, and Willits, as the owner of all the
stocks, was the force and dominant power which controlled them."V
In La Campapa Coffee Factory v. Kaisahan ng Manggagawa,69 Tan
Tiong and his family owned and controlled two corporations, one
65 44 Phil. 664 (1923).

" The Court found that "There is no claim or pretense that ther was any fraud or collusion
between plaintiff and Willits, and it is very apparent that Exhibit B was to the mutual interests
of both parties." Id, at 643.
6 Id. at 645 citing U.S. v. Mackay Wall Plaster, Co., 199 Pac. 249.
6* Id. at 641.
6 93 Phil. 160 (1953).

36 ATENEO LAW JOURNAL VOL. 37 NO. 2,
engaged in the sale of coffee, and the other, in starch. Both

corporations had one office, one management, and one payroll. The
laborers of both corporations were interchangeable. The 60 members
of the labor association in the coffee and starch factories demanded
for higher wages and addressed their grievances to "La Campana
Starch and Coffee Factory." La Campana Coffee Factory sought the
dismissal of the petition on the ground that the starch and coffee
factory are two distinct juridical persons. The Court disregarded the
fiction of corporate existence, as the two companies are but one.
It should be noted that cases like La Campana Coffee Factory, where
the issue is the jurisdiction of the Court of Industrial Relations to hear
the matter, show that, unlike in fraud cases where there must be a
pecuniary claim as enunciated in Umali, in alter ego cases, no such
pecuniary claim need be involved to allow the courts to apply the
piercing doctrine.
The same was true in Marvel Building v. David,70 where corporate
properties were about to be sold by the Bureau of Internal Revenue
(BIR) in order to enforce payment of the tax liabilities of its
stockholder, Castro. The Court found that Castro and ten others had
incorpo'rated Marvel Building Corporation. It seems that the ten other
incorporators were mere dummies. The Court upheld the BIR's finding
that the corporation was a mere alter ego of Castro, as it appeared
that she had enormous profits, and accordingly, had the motive to
set up such a title-holding shield: that duplicate stock certificates had
been issued to various purported stockholders lacking the means to
pay their alleged subscriptionsf and no receipts were issued for
subscriptions paid; that no stockholder's or director's meeting was
ever held; that the books of account treated everything as belonging
to and controlled by Castro. Although it would seem that Marvel should
be classified as a fraud case (evasion of taxes), this would not seem
to be so under that case.
In Yutivo Sons Hardware v. Court of Tax Appeals7' Yutivo Sons and
Hardware Co. imported cars and trucks, which it sold to Southern
Motors, Inc. Sales taxes were paid by Yutivo on this first sale. Southern
Motors sold the vehicles to the public. The Collector of Internal Revenue
sought to impose the sales tax not on the basis of Yutivo's sales to
70 94 Phil. 376 (1954).

' 1 SCRA 160 (1961).

Southern Motors, but on Southern Motors' sale to the public. To this,

the Supreme Court agreed; although, it found that Southern Motors
was not organized to perpetuate fraud. However, Southern Motors
was, indeed, actually owned and controlled by Yutivo as to make it
a mere subsidiary or branch of the latter. Yutivo, through officers and
directors common to it and Southern Motors, exercised full control
over the cash funds, policy, expenditures, and obligations of the latter.
In Lidell & Co. v. Collector of Internal Revenue, 2 Lidell & Co. was
engaged in importing and retailing cars and trucks. Frank Lidell owned
98% of its stocks. Later, Lidell Motors was organized to do retailing
for Lidell & Co. Frank's wife owned almost all of its stocks. Since
then, Lidell & Co. paid sales tax on the basis of its sales to Lidell
Motors, but the Collector of Internal Revenue considered the sales by
Lidell Motors to the public as the basis for the original sales tax. The
Court agreed with the Collector. Frank owned both corporations as
his wife could not have had the money to pay for her subscriptions.
This fact alone, however, is not sufficient to warrant piercing. In this
case, Lidell Motors was the medium created by Lidell & Co. to reduce
its tax liability. A taxpayer has the legal right either to decrease, by
means which the law permits, the amount of what otherwise would
be his taxes or to altogether avoid paying taxes; but the separate
personality of a dummy corporation serving no business purpose other
than as a blind will be disregarded.
Yutivo and Lidell (and therefore Marvel) are alter ego cases and
not fraud cases; although, the clear intention of the parties was to
minimize taxes, and the Supreme Court clearly decreed that no imposition
of. surcharge by the BIR due to fraud was proper in these cases. The
Supreme Court held in a language so sweet to the ears of businessmen
and tax lawyers that "the legal right of a taxpayer to decrease the
amount of what otherwise would be his taxes, or altogether avoid
them, by means which the law permits, cannot be doubted x x x [and]
a taxpayer may gain advantage of doing business through a corpo-
ration if he pleases, but the revenue officers in proper cases, may
disregard the separate corporate entity where it serves but as a shield
for tax evasion and treat the person who actually may take the benefits
of the transactions as the person accordingly taxable." 3
72 SCRA 632 (1961).

73 Id. at 641, citing Gregory v. Helvering, 293 U.S. 465, 7 L.Ed. 596, 599, 55 S.Ct.

Thus, no less than the Supreme Court has stated that the use of
the corporate entity to gain an advantage (such as minimizing taxes
due) is not by itself a fraudulent scheme. The corporate entity is there
for both businessmen and lawyers to tinker with in order to gain every
advantage available under the law, and that alone is not a reprehen-
sible act.
In Ramirez Telephone Corp. v. Bank of America,74 Ramirez had unpaid
rents due Herbosa. The latter sought to garnish Ramirez's bank ac-
count, but no such personal account existed, and only an account in
the name of Ramirez Telephone Corp. could be found and was gar-
nished. The Supreme Court held that the corporate bank account can
be garniphed despite the fact that Ramirez himself leased Herbosa's
premises because of the following: (1) although Ramirez was the tenant,
the company, in truth, occupied the premises; (2) Ramirez paid the
rent with checks of the telephone company; and (3) 75% of the shares
of the company belonged to Ramirez and his wife.
In Madrigal Shipping v. Oglivie,5 the crew members of SS Bridge
brought an action against Madrigal Shipping Company for payment
of their salaries. It seemed, however, that Madrigal & Co. was the
registered owner of SS Bridge. The Supreme Court held that, granting
that it was not the Madrigal Shipping Co. that owned SS Bridge but
Madrigal & Co., a corporation with a juridical personality distinct from
the former, yet as the former was the subsidiary of the latter, and,
as found by the facts, a business conduit for the latter, the fiction of
corporate existence may be disregarded to make the former liable for
the claims.
In McConnel v. Court of Appeals, 76 a forcible entry case, the
corporation was ordered to pay damages, but such corporation was
later found to be without sufficient assets, so the defendant went after
the properties of the stockholders. The Supreme Court decided to
pierce and held the stockholders liable for the deficiency. Although
it held that mere ownership of all or nearly all of the stocks does not
make a corporation a business conduit of the stockholders, in that case,
the operation of the corporation was so merged with those of the
stockholders as to be practically indistinguishable. Furthermore, they
7 29 SCRA 191 (1969).

7 Supreme Court Advanced Decision, October, 1958 issue; 55 O.G. No. 35, p. 7331.
- 1 SCRA 722 (1961).

had the same office, the funds were held by the stockholders, and the
corporation had no visible assets.
One cannot be sure whether McConnel is clearly an alter ego case
or a fraud case of piercing, since the Supreme Court has cited and
fused the magical Milwaukee chants on piercing in fraud cases together
with the alter ego formula. No fraud seems to have been intimated
in the decision, since the conclusion was based more on the findings
of the lower court that "the evidence clearly shows that these persons
completely dominated and controlled the corporation and that functions of
the corporation were solely for their benefits."77
However, it is in McConnel where the Supreme Court took special
notice of the fact that "[tJhe corporation itself had no visible assets,
as correctly found by the trial court, except perhaps the toll house, the
wire fence around the lot and the signs thereof. It was for this reason that
the judgment against it could not be fully satisfied."7 Does the incor-
poration of an entity without reasonable assets to support the under-
taking or venture for which it is organized constitute a fraud against
the corporate creditors? From the decision in McConnel, it would not
seem so, since after noting the lack of visible assets of the corporation,
the Supreme Court held:
The facts thus found can not be varied by us, and conclusively show
that the corporation is a mere instrumentality of the individual
stockholders, hence, the latter must individually answer for the
corporate obligations. While the mere ownership of all or nearly
all of the capital stock of a corporation [does not make it] a mere
business conduit of the stockholder, that conclusion is amply justified
where it is shown, as the case before us, that the operations of the
corporation were so merged with those of the stockholders as to
be practically indistinguishable from them. To hold the latter liable
for the corporation's separate entity, but merely to apply the
established principle that such entity can not be invoked or used
for purposes that could not have been intended by the law that
created that separate personality."
Under-capitalizing a corporate entity, as distinguished from si-
phoning off corporate assets, is, therefore, a species of- alter ego cases,
especially so when it is never considered prudent business practice
' Id. at 725.

7 Id. at 726.
" Id. at 726.

40 ATENEO LAW JOURNAL VOL. 37 NOt 2
for ventures to shoulder all the capital needed for the venture when
credit therefor is available. Thus, leveraging is an accepted and, indeed,
idealized business practice. More importantly, most corporate credi-
tors extend credit to the corporation after having studied the financial
statements of the corporation, and the allegation of under-capitaliza-
tion would have been apparent from such statements. Corporate creditors,
therefore, extend credit fully aware of the risk involved in case of
under-capitalization, and the element of fraud generally does not attain
by that fact alone.
A. Parent-Subsidiary Relationship
The alter ego doctrine has been applied unevenly in the area of
the parent-subsidiary relationship. We start with the premise laid down
in Lidell & Co. v. Collector of Internal Revenue:a0
It is of course accepted that the mere fact that one or more cor-
porations are owned and controlled by a single stockholder is not
of itself sufficient ground for disregarding separate corporate entities.
Authorities support the rule that it is lawful to obtain a corporate
charter, even when a single substantial stockholder, to engage in
S specific activity, and. such activity may co-exist with other private
activities of the stockholder. If the corporation is a substantial one,
conducted lawfully and without fraud on another, its separate entity
is to be respected."
While ownership of the controlling capital stock of the corporation

by itself would not authorize pierting, this control feature, existing
together with other factors, has been given much weight by the courts
in their decision to pierce.
Thus, in Koppel (Phil.), Inc. v. Yatco," the Supreme Court found
that virtual control of the shareholdings of a corporation would lead
to certain legal conclusions, as a result:
x x x. We cannot overlook the fact that in the practical working
of corporate organizations of the class to which these two entities
belong, the holder or holders of the controlling part of the capital
stock of the corporation, particularly where the control is deter-
" 2 SCRA 632 (1961).

" Id. at p. 640.
z 77 Phil. 497 (1946).

mined by the virtual ownership of the totality of the shares, dominate

not only the selection of the Board of Directors but, more often
than not, also the action of the board. Applying this to the instant
case, we can not conceive how the Philippine corporation could effectively
go against the policies, decisions, and desires of the American cor-
poration x x x. Neither can we conceive how the Philippine corpo-
ration could avoid following the directions of the American corpo-
ration in every other transaction where they both had to intervene,
in view of the fact that the American corporation held 99.5 per
cent of the capital stock of the Philippine corporation x x .13
Fortunately, the pronouncements in Koppel should not constitute
precedents in alter ego cases simply because Koppel actually involved
a fraud case of piercing, and there were, in fact, numerous findings
in the decision where the subsidiary corporation was made an instru-
mentality of the parent corporation.1 4
The afore-quoted Lidell pronouncements have been reaffirmed in
Development Bank of the Philippines v. National Labor Relations Commis-
sion 5 where, des'pite the fact that DBP was the majority stockholder
of Philippine Smelters Corporation (PSC), that majority of PSC's board
members came from DBP, and that DBP was the mortgagee to prac-
tically all the properties of PSC, in order, the Supreme Court still
refused to pierce the veil of corporation fiction to make DBP liable
for the claims of PSC's employees: "We do not believe that these
circumstances are sufficient indicia of the existence of an employer-
employee relationship as would confer jurisdiction over the case of
the labor arbiter." To the same effect is the earlier ruling in Diatagon
Labor Federation v. Ople.86
However, in Philippine Veterans Investment Development Corpora-
tion v. Court of Appeals8 7 things took a different turn." In that case,
* Id. at 508-509.
* The subsidiary corporation bore the expenses of the parent company; used its own inventory
to cover orders from the parent company; answered for the drafts of the parent company;
had key officers residing in the United States; and employed simple booking entries for credits
due from the parent company.
as 186 SCRA 841 (1990).
- 101 SCRA 534 (1980).
87181 SCRA 669 (1990).
*I am always frightened by Supreme Court decisions that seeks to oversimplify things, as Justice
Cruz enunciated in his opening statement in Philippine Veterans Investment Development Corporation
(181 SCRA 669, 670): "The concept of piercing the veil of corporate fiction is a mystique to
many people, especially the layman, but it is not as esoteric as all that is this case will
demonstrate."

42 ATENEO LAW JOURNAL VOL. 37 NO. 2e
PHIVIDEC sold its controlling equity interests in PRI to PHILSUCOM,

with a stipulation that PHIVIDEC shall hold PHILSUCOM free and
harmless against all liabilities of PRI. PHILSUCOM subsequently formed
the Panay Railways, Inc. to operate the railway assets acquired from
PHIVIDEC. Borres, a prior creditor of PRI, sued both PRI and Panay
Railways, and the latter, in turn, filed a third-party complaint agaitst
PHIVIDEC. In the judgment, PHIVIDEC was held liable with PRI on
the claims of Borres.
PHIVIDEC contended before the Supreme Court that it cannot
be held liable for the debts of PRI since it is an entirely distinct and
separate corporation from PRI; although, the latter is its subsidiary.
It also argued that the transfer of shares of stock of PRI to PHILSUCOM
did not d vest PRI of its juridical personality or of its capacity to direct
its own affairs and conduct its own business under the control of its
own board of directors, and that, by the same token, it is answerable
for its own obligations, which. cannot be passed on to PHIVIDEC as
the latter's own liability.
Aside from the fact that PHIVIDEC agreed expressly to hold
PHILSUCOM (and also consequently the latter's subsidiary Panay
Railways, Inc. which filed- a third-party complaint against PHIVIDEC)
free and harmless against claims arising before the transfer of PRI,
the Supreme Court held for the piercing of the corporate fiction on
the following principle:
Where it appears that two business enterprises are owned, con-
ducted, and controlled by the .same parties, both law and equity
will, when necessary to protect the rights of third persons, disre-
gard the legal fiction that two corporations are distinct entities, and
treat them as identical.89
The factual basis used by the Supreme Court in order to enforce
the above-quoted doctrine is the finding of the trial court that
"PHIVIDEC's act of selling PRI to PHILSUCOM shows that PHIVIDEC
had complete control of PRI's business."" Perhaps there were other
considerations in the lower court's findings showing that indeed
PHIVIDEC had complete control over PRI, but they certainly were not
mentioned in the Supreme Court's decision. It is, therefore, unfortu-
nate, and perhaps even tragic, that to allow a piercing under the alter
8 Id. at 673, citing Jabney v. Belmont Country Club Properties, Inc. 279 Pac. 829.
" Id. at 674

1993 . PIERCING THE VEIL OF CORPORATE FICTION 43
ego doctrine, the Supreme Court would use the sale by a parent company
of its shareholdings in a subsidiary to demonstrate complete control
over the subsidiary. The result of such a doctrine would be that in
cases of "equity transfers" as discussed below, contrary to the ruling
in Edward J. Nell Company v. Pacific Farms, Inc.," the applicable. rule
would be that the transferor is always liable for the corporate liabilities
of the corporation whose shares are transferred, in complete deroga-
tion of the main doctrine of separate juridical personality.
Logically, a stockholder always has complete and near-absolute
control over the share he holds in a corporation. But that does not
necessarily mean that he has complete control over the affairs and
transactions of the corporation. Perhaps the Supreme Court forgot its
own pronouncement that shares of stock in a corporation do not translate
into any interest in corporate properties, as it held in Stockholders of
F. Guanzon and Sons Inc. v. Register of Deeds of Manila,9 2 Magsaysay-
Labrador v. Court of Appeals,93 Saw v. Court of Appeals, 94 and Sulo ng
Bayan, Inc. v. Araneta, Inc.95
B. Transfer of Business Enterprise

There is a species of alter ego cases which deserves separate
discussion. Often, a business enterprise, apart from the juridical
personality under which it operates, has a "separate being" of its own.
Properly, a business enterprise comprises more than just the properties
of the business, but includes a "being" that covers the employees, the
goodwill, the list of clientele suppliers, among others, which give it
a value separate and distinct from its owners or the juridical entity
under which it operates. This is what is termed as the "economic unit,"
"the enterprise," "the going concern," or the "financial unit" recog-
nized in other disciplines such as economics and accounting. Thus,
in accounting, although a business enterprise is carried on in the form
of a single proprietorship (and therefore has no separate juridical
personality), it is considered and accounted for as a separate account-
ing unit apart from the other assets and business of the proprietor.
91 15 SCRA 415 (1965).
- 6 SCRA 373 (1962).

9 180 SCRA 266 (1989).
195 SCRA 740 (1991).
* 72 SCRA 347 (1976).

In fact, a business enterprise is by itself a "concern" that has a

separate economic or selling value from its owners, and businessmen's
evaluation of whether to purchase such enterprise or not do not only
look at the properties of the business but many other intangibles that
really have no economic or monetary value (except when expressed
as goodwill in accounting), such as the moral and technical competefice
of the employees and middle-management, the list of its' valued cli-
entele, etc. And although formal jurisprudential doctrine refuses to
recognize a separate existence of the business enterprise other than
the juridical personality that the State grants to corporations 9 6 and
partnerships, 97 such separate existence of the business enterprise does
exist and is recognized in the business world.
In A.D. Santos v. Vasquez," where the Supreme Court upheld a
judgment in suit for workmen's compensation against the corporate
taxi cab company, despite the testimony of the claimant that he was
employed not by the taxi cab company, but rather by the majority
stockholder in his personal capacity, it observed that, although in
truth, the majority stockholder operated the business under a sole
proprietorship scheme, he subsequently transferred operations to the
taxi cab company.
In San Teodoro Development Enterprise, Inc. v. Social Security Sys-
tem," although the business enterprise was originally held under a
partnership scheme and later the business was transferred to a cor-
poration, the business enterprise was deemed to have been in opera-
tion for the required two-year period as to come under the coverage
of the SSS law.
On the strength of the foregoing facts, the Social Security Com-
mission found that the dissolution of the partnership and the or-
ganization of the corporation were effected in'such sequence as to
insure the smooth and orderly transfer of the business from the
partnership to the corporation without interruption in the function
of the business; that the entire business of the partnership, includ-
ing the materials and equipment used in connection therewith,
Tayag v. Benguet Consolidated, Inc., 26 SCRA 242 (1968). It rejected the genossenchaft theory
of Friedman that would recognize the corporate entity as the "reality of the group as a social
and legal entity independent of state recognition and concession."
" Ang Pue & Co. v. Sec. of Commerce and Industry, 5 SCRA 645 (1962). The formation of a corporate
entity or a pertnership is not a matter of right, but rather of a privilege.
" 22 SCRA 1158 (1968).
* 8 SCRA 96 (1963).

sideration; and that even the name of the corporation was the same
as the tradename of the partnership, and apparently their employ-
ees are also the hame. All these, the Commission said, coupled with
the fact that four out of the five members of the partnership do
not only own the controlling stock of the corporation, indicates in
a conclusive manner that there was merely a change in the juridical
personality of the entity operating the business, so that it may be
said that the substance of the juridical person owning and operating
the business remain the same if its legal personality has changed."oo
Although there was no fraud intended, San Teodoro held that the
possibility of fraud allowed the application of the piercing doctrine.
To the same effect is Laguna Trans. Co., Inc. v. Social Security System'
where the Supreme Court held that "[t]he corporation continued the
same transportation business of the unregistered partnership, using
the same lines and equipment. There was, in effect, only a change in
the form of the organization of the entity engaged in the business of
transportation of passengers."o2 It further held that "While it is true
that the corporation once formed is conferred a juridical personality
separate and distinct from the persons composing it, it is but a legal
fiction introduced for purposes of convenience and to subserve the
ends of justice. The concept cannot be extended to a point beyond its
reasons and policy and, when invoked in supportof an end subversive
of this policy, will be disregarded by the courts."o3
EdwardJ. Nell Company v. Pacific Farms, Inc." held, that generally,

where one corporation sells or otherwise transfers all of its assets to
another corporation, the latter is not liable for the debts and liabilities
of the transferor, except: (1) where the purchaser expressly or impliedly
agrees to assume such debts; (2) where the transaction amounts to a
consolidation or merger of the corporation; (3) where the purchasing
corporation is merely a continuation of the selling corporation; arid
(4) where the transaction is entered into fraudulently in order to escape
liability for such debts.
Properly evaluating the pronouncements in Edward J. Nell in so
far as it involves the transfer of business concerns, the following rules
'" Id. at 99-100.
101 107 Phil. 833 (1960).

1oz Id. at 837.
103 Id. at 837, citing 13 Am. Jur. 160.
'" 15 SCRA 415 (1965).

apply to the enforceability of liabilities against the transferee regard-

less of the separate juridical personality of such transferee:
(a) In a pure "assets only" transfer, the transferee is not liable
for the debts and liabilities of the transferor, except where the tra ns-
feree expressly or impliedly agrees to assume such debts;
(b) In a transfer of the "business enterprise," the transferee is liable
for the debts and liabilities of the transferor; and
(c) In an "equity transfer," the transferee is not liable for the debts
and liabilities of the traisferor, except where the transferee expressly
or impliedly agrees to assume such debts.
It is logical in an "assets only" transfer that the transferee would
not be liable for the debts and liabilities of his transferor, for indeed,
there is no privity of contract over the debt obligations between the
transferee and the transferor's creditors. Indeed, modification of an
obligation with the substitution of a new debtor, would necessarily
require the consent of the person who is sought to be substituted as
the new debtor. The law governing the transfer of liabilities in an "asset
only" transfer is the Law on Contracts.
In a "business enterprise" transfer, by jurisprudential decree, the
transferee is liable for the debts and liabilities of his transferor. Indeed,
the purpose of the jurisprudential doctrine is to protect the creditors
of the business by allowing them a remedy against the new controller
or owner of the business. Otherwise, creditors would be left holding
the empty bag since they may note able to recover from the transferor
who has "disappeared with the loot," nor against the transferee who
can claim that he is a purchaser in good faith and for value. The
doctrine recognizes the reality in the business world that, although
no formal mortgage contract is executed, creditors and suppliers extend
credit to the business because they see the business enterprise's earning
capacity and assets as a "security" that they will be repaid. The doctrine,
therefore, places the burden on the shoulder of the person who is in
the best position to protect himself, namely, the transferee, who can
obtain certain guarantees and protection from his transferor. The doctrine
also finds support in the Bulk Sales Law'0 which declares as void and
fraudulent the bulA sale without applying the proceeds of the purchase
1es AcT 3952, as amended by Rep. Act No. 111.

to the pro-rata payment of bona fide claims of the creditors of the

vendor.
The "business enterprise" transfer doctrine was also enunciated
in Laguna Trans. Co., Inc. v. Social Security System'0 6 where the Supreme
Court held:
Finally, the weight of authority supports the view that where the
corporation was formed by, and consisted of members of a part-
nership whose business and property was conveyed-and trans-
ferred to the corporation for the purpose of continuing its business,
in payment for which corporate stock was issued, such corporation
is presumed to have assumed partnership debts, and is prima facie
liable therefor (Stowell v. Garden City News Corps. 57 P.2d 12; Chicago
Smelting & Refining Corp. v. Sullivan, 246 IU, App. 538; Ball v. Bros.
83 June 19, N.Y. Supp. 692). The reason for the rule is that members
of the partnership may be said to have simply put on a new coat,
or taken on a corporate cloak, and the corporation is a mere
continuation of the partnershipY?
The logic of the "equity transfer" finds support in the main doctrine
of separate juridical personality, that by purchasing the shares in a
corporation that owns a business, the stockholder does not, by that
reason alone, become the owner directly of the business assets and
does not, therefore, become personally liable for the debts and liabili-
ties of the business.
In Philippine Veterans Investment Development Corporation v. Court
ofAppeals,'m PHIVIDEC was held liable for the obligations of its subsidiary
(which had sold its holdings to PHILSUCOM) mainly because it executed
an agreement to hold PHILSUCOM free and harmless against claims
arising before the transfer.
Thus, in Edward J. Nell, the creditor sought to make the transfefee
corporation liable for the corporate obligations on the ground that it
was a mere alter ego of the corporation that had been purchased,
"because [the transferee corporation] had purchased all or substan-
tially all of.the shares of stock, as well as the real and personal properties
of the [subject corporation]." The Supreme Court held that since "there
* 107 Phil. 833 (1960).

0 Id. at 838-839 citing 8 FLETCHER, CYCLOPEDIA ON CORPORATIONs 402-11.
S 181 SCRA 669 (1990).

is neither proof nor allegation that appellee expressly or impliedly

agreed to assume the debt [of the subject corporation] or that the sale
of either the shares of stock or the assets of [the subject corporation]
to the appellee has been entered into fraudulently, in order to escape
liability for the debt of the [subject corporation]," then whether it is
an "assets only" purchase or an "equity transfer," there is no b4sis
to hold the transferee corporation liable for the debts and liabilities
of the subject corporation.
C. Disturbing Developments Adopting the Umali Doctrine
Under fraud cases, Umali v. Court of Appeals09 held that piercing

the veil\of corporate fiction is available only if it is sought to hold
the officers and stockholders directly liable for a corporate debt or
obligation.
The doctrine in Umali which is a fraud case, seems to have

followed the doctrine in Diatagon Labor Federationv. Oplen0 where the
Supreme Court struck down the holding of the Director of Labor Relations
treating two corporations as a single bargaining unit "because the two
companies are indubitably distinct entities with separate juridical
personAlities," despite clear showing of a close relationship between
them, which in many other cases decided by the Supreme Court would
have been enough basis to pierce."' We can only surmise that such
refusal to pierce was because the issue involved was not money or
damage claims, nor did it seek to hold any corporate officer or stock-
holder liable, but merely "whether two companies should be regarded
2
as a single' collective bargaining' unit."ll
3
Lately, in the case of Indophil Textile Mill Workers Union v. Calica,"
the finding that two corporations business are related, that some of
the employees of the two corporations are interchanged, and that the
physical plants, offices, and facilities are situated in the same com-
pound were not considered bases to pierce the veil of corporate fiction
'" 189 SCRA 529, 542 (199).

101 SCRA 535 (1980).
The employees were formerly employees of one of the corporations transferred to the other;
even after the transfer, the affected employees continued to use the pay envelopes and identification
cards of their former employer; the two companies had common management and represented
by the same lawyers.
nz 101 SCRA 535.
"' 205 SCRA 697 (1992).

in order to treat the two corporations as one bargaining unit. In arriving

at this conclusion, the Supreme Court relied not only upon Diatagon
Labor Federation, but also on the doctrine in Umali that "the legal
corporate entity is disregarded only if it is sought to hold the officers
and stockholders directly liable for a corporate debt or obligation."
However, Umali is a fraud case and the doctrine enunciated there
finds rational support, because piercing in fraud cases is resorted to
in order to enforce liability on the persons employing fraud. But both
Diatagon Labor Federationand Indophil Textile Mill are merely alter ego
cases, and the requirement that a monetary claim should be interposed
should not have been made applicable, especially in the light of other
alter ego cases decided by the Supreme Court applying the piercing
doctrine even when the issue involved merely one on jurisdiction.
D. In Summary
From all the foregoing, there seems to be four policy bases for
piercing the veil f- corporate fiction in alter ego cases:
Firstly, even when the controlling stockholder or managing of-
ficers intend consciously to do no evil, the use of the corporation as
an alter ego and, in some cases, as the private checkbooks of the
controlling stockholders, is in direct violation of the central principle
in Corporation Law of treating the corporation as a separate juridical
entity from its members and stockholders. Thus, those whose acts and
actuations directly violate this central doctrine make themselves personally
liable for having themselves been the ones to cast off the protective
characteristic of limited liability of the separate juridical personality.
Secondly, and more importantly, by not respecting the separate
juridical personality of the corporation, then others who deal with the
corporation are also not expected to be bound by the separate juridical
personality of the corporation and may treat the interests of both the
controlling stockholder or officer and the corporation as the same. This
is justified by the fact that the lack of respect for the separate affairs
of the corporation makes it difficult for the public to monitor exactly
which properties and funds pertain to the corporation and those which
pertain separately to the stockholders or officers; and that to allow
such random interchange of assets and funds would probably lead to
the defraudation of the creditors who deal with the corporation. Although
no actual fraud is committed, unless the alter ego cases are upheld,
then it is up to the dealing public to carefully keep tab or close accounting
of what assets do pertain to the corporation.

50 ATENEo LAW JOURNAL VOL. 37 NO. 2
Such a situation would increase overseeing transaction costs to

those who deal with corporate entities if the burden is placed on their
shoulders, and in fact would make the corporate entity a less attractive
medium with which to transact business. The application of the piercing
doctrine to alter ego cases, therefore, does provide for a more efficient
mechanism, because it throws the burden on the person or perspns
who are in the best position to account properly and treat at arms-
length corporate properties and affairs.
Thirdly, piercing in alter ego cases may avail even when no monetary
claim is sought to be enforced against the stockholders or officers of
the Corporation. Note must be taken of the disturbing developments
in DiatagFon Labor Federation and Indophil Textile adopting the 11mali
doctrine in fraud cases to alter ego cases.
Fourthly, when the underlying business enterprise does not really
change and only the medium by which that business enterprise is
changed, then there would be occasion to pierce the veil of corporate
fiction to allow the business creditors to recover from whoever has
actual control of the business enterprise.
V. EQUITY CASES
Equity cases applying the piercing doctrine is what I have termed

as the "dumping ground," where no fraud or alter ego circumstances
can be culled by the Supreme Court to warrant piercing. The main
feature of equity cases is the nqed to render justice in the situation
at hand or to brush aside merely technical defenses. Often, equity cases
of piercing appear in combination with other types of piercing.
In Telephone Engineering and Service Co., Inc. v. Workmen's
Compensation Commission,"' the veil of corporate fiction could not be
availed of, and piercing was allowed when the corporate fiction was
but a mere scheme to confuse legitimate issues, such as when the
defense of separate juridical personality is interposed for the first time
on appeal.
In Emilio Cano Enterprises v. Court of Industrial Relations"' where
a suit for reinstatement was filed against the corporate officers in such
'" 104 SCRA 354 (1981).

13 SCRA 291 (1965).

capacities, but which did not include the corporation, the judgment
debt was sought to be enforced against the corporate assets. Although
Emilio Cano Enterprises is essentially an alter ego case, the Supreme
Court had occasion to apply the rationale for equity cases of piercing,
thus:
x x x Verily, the order against them [the corporate officers] is in
effect against the corporation. No benefit can be attained if this
case were to be remanded to the court a quo merely in response
to a technical substitution of parties for such would onlycause an
unwarranted delay that would work to Honorata's prejudice. This
is contrary to the spirit of the law which enjoins a speedy adju-
dication of labor cases disregarding as much as possible the tech-
nicalities of the procedure. We, therefore, find unmeritorious the
relief herein prayed for." 6
In A.D. Santos v. Vasquez,' a suit for workmen's compensation
was filed by taxi driver Vasquez against A.D. Santos, Inc. Vasquez
testified that Amador Santos was his employer. A.D. Santos, Inc.
contended that Amador is the only one liable. The Court, however,
held A.D. Santos, Inc. liable. Indeed, Amador was, at one time, the
sole owner and operator of the taxi business that employed Vasquez,
which was later transfefred to A.D. Santos, Inc. But such testimony
should not be allowed to confuse the facts relating to employer-employee
relationship, for when the veil of corporate fiction is used to "confuse
legitimate issues," the same should be pierced.
VII. THE PIERCING DOCTRINE

AND THE DUE PROCESS CLAUSE
The final item that will be discussed is the procedural aspect of

applying the piercing doctrine in conjunction with the due process
clause. Often, the piercing doctrine is sought against the controlling'
stockholders or officers after a judgment debt against the corporation
cannot be enforced, because the corporation is found to be without
sufficient assets. It has been rightly argued in several cases that to
enforce a writ of execution to a judgment rendered against the stock-
holders or officers would be in violation of the due process clause in
"' Id. at 293.

"'22 SCRA 1158 (1968).

52 ATENEO LAW JOURNAL VOL. 37 NO., 2
cases where such stockholders or officers were not even summoned

as parties to the case brought against the corporation.
Thus, in McConnel v. Court of Appeals,"' when the judgment debt
could not be satisfied from corporate assets, an entirely new case was
filed by the judgment creditor against both the corporation and the
controlling stockholders, and pleaded therein the application of the
piercing doctrine to make the stockholders liable for the judgment debt
of the corporation.
In Emilio Cano Enterprises v. Court of Industrial Relations,"9 a suit
for reinstatement was filed against Emilio Cano and Rodolfo Cano in
their capacities as officers of Emilio Cano Enterprises, Inc., which did
not include the corporation as defendant. The Court rendered judg-
ment against the two for reinstatement, due to the fact that the stock-
holders belong to a single family. A writ of execution of the judgment
debt was issued and was directed against the properties of the cor-
poration, instead of against properties belonging to the respondent
officers. The Supreme Court denied the action to quash the writ of
execution on the ground that the judgment sought to be enforced was
not rendered against the corporation which has a juridical personality
separate and distinct from its officers. The Supreme Court held that
a factor that should not be overlooked is that the officers were sued,
not in their private capacities, but as officers of the corporation, and
"[hiaving been sued officially their connection with the case must be
deemed to be impressed with the representation of the corporation." 20
As a corporation is a fiction, it can only act through its officers, so
there would be no denial of due process in this case even if the corporation
was not made a party defendant.
In Namarco v. Associated Finance Co., Inc.,121 where corporate li-
ability was sought to be enforced against the President who fraudu-
lently entered into a contract in the name of the corporation, the piercing
of the veil of corporate fiction was sought with the President being
already made a defendant at the onset, together with the corporation.
In Jacinto v. Court of Appeals,12 it was held that the piercing doctrine
may be applied by the courts even when the complaint does not seek
11 1 SCRA 723 (1961).
119 13 SCRA 291 (1965).

no Id. at 292.
1' 19 SCRA 962 (1967).
'2 198 SCRA 211 (1991).

its enforcement, so long as evidence is adduced during trial as the

basis for its application can be had. In other words, there must be
evidential basis for the application of the piercing doctrine during the
trial on the merits.
Again, in the field of labor, the doctrine takes a different twist
when invoking the piercing doctrine to make stockholders and officers
liable for corporate debts at the point of execution.
This issue was raised in A.C. Ransom Labor Union-CCLUv. National
Labor Relations Commission,123 where corporate officers were sought to
be made personally liable for a judgment for back wages rendered
against the corporation. In allowing judgment to be executed against
officers who were not parties to the case filed against the corporation,
the Supreme Court relied upon the provisions of the Labor Code that
defined the liable "employer" to "include any person acting in the
interest of an employer, directly or indirectly." 12 4 The Court held:
x x x Since RANSOM is an artificial person, it must have an officer
who can be presumed to be the employer, being the person acting
in the interest of the employer RANSOM. The corporation, only
in the technical sense, is the employer.
The responsible officer of an employer corporation can be held
personally, not to say even criminally, liable for a non-payment
of back wages. That is the policy of the law. x x x 121
The reasoning on this issue in A.C. Ransom still fails to answer

how a party, even when he is indicated by statutory language to be
responsible for an act, can be held liable when he has not even been
given his day in court under the due process clause.
That is the reason why subsequently Del Rosario v. National Labor
Relations Commission'26 refused to apply the A.C. Ransom pronouncq-
ment and denied enforcement of a writ of execution because it found
that "filn the case before us, not only has there been failure to establish
fraud, but it has also not been shown that petitioner is the corporate
12 142 SCRA 269 (1986).

'1 Id. at 273, citing Article 212(c) of Presidential Decree No. 442, as amended, LABOR CODE OF
THE PHILIPPINES.
`n Id. at 273-274.
22 187 SCRA 777 (1990).

54 ATENEO LAW JOURNAL VOL. 37 NO.,2
officer responsible for private respondent's predicament." 2 7 In other

words, to warrant application of the piercing doctrine in order to hold
a corporate officer or stockholder liable for corporate debts or obli-
gations, evidence must be shown that such officer or stockholder was
responsible for the corporate act, and that stage can only come during
the hearing on the merits.
In Western Agro Industrial Corporation v. Court of Appeals 128 where
the corporate officer was sued with the corporation to enforce a corporate
obligation, the Supreme Court.refused to apply the piercing doctrine
to make the corporate officer liable for the corporate obligation since
"[i]n this case there is no showing that [the corporate officer] was not
authori ed by the corporation to enter into purchase contracts x x x
[and] [mloreover, the respondent corporation has not shown any
circumstances which would necessitate the piercing of the corporate
veil so as to make [the corporate officer] personally liable for the
obligations incurred by the petitioner." 29 The conclusion is clear. If
in a clear case were a corporate officer or stockholder is made a party
jointly with the corporation to enforce corporate debts and obligations,
such corpotate officer or stockholder cannot be made personally liable
without evidence adduced to warrant the piercing, such as fraud, then
all the more can corporate officers and stockholders not be belatedly
made personally liable for a corporate judgment debt at the point of
execution. For, indeed, the tribunal is, at that point, without further
jurisdiction to receive evidence on the merits.
This very issue was raised in Pabalan v. National Labor Relations
Commission 3 o where the corporate officers sought to be made person-
ally liable for a judgment rendered against the corporation argued that
no jurisdiction was acquired over them "as they have not been served
with summons and thus they where deprived of due process." 3' In
addressing this issue, the Supreme Court held:
The Court finds these grounds to be de .oid of merit. As the record
shows while originally it was PIF which was impleaded as respon-
dent before the labor arbiter, petitioners also appeared in their
a Id. at 782.
l2' 188 SCRA 709 (1990).

129 Id. at 718.
1" 184 SCRA 495 (1990).
"' Id. at 498.

behalf through counsel. Thereafter when the supplemental position

paper was filed by complainants, petitioners were impleaded
respondents to which they filed an opposition in as much as they
filed their own supplemental position papers. They were therefore
properly served with summons and they were not deprived of due
process. 13 2
In other words, when confronted with the issue of due process,

the Supreme Court would consider it a legitimate and serious issue
and would determine, as it did in Pabalan, whether suchtconstitutional
guarantee has been violated.
VIII. FINAL OBSERVATIONS
Of the three types of piercing cases, it would seem, therefore, that

the most restrictive one are the fraud cases, since the Supreme Court
has required, first, that allegations of fraud must be clearly proven
to make a stockholder or officer liable for corporate debts, second, and
that piercing is available only when there is a claim for recovery against
such stockholders or officers. The alter ego cases of the piercing doctrine
tend to have wider latitude in their application and even without
intending to do malice or just by being practical in costing by taking
shortcuts, such as housing together two or more corporate businesses
under closely inter-related operations, the controlling stockholders or
officers may find themselves liable personally for corporate debts. The
most unwieldy class, of course, are the equity cases, when often, in
a fit of laziness, the courts may just pierce and without carefully going
through the facts of the case to rely on other doctrines to do justice.
Fortunately, the equity cases often are resorted to as additional grounds
(supportive roles) in fraud and alter ego cases; however, the tendency
to abuse this type of piercing cases is there.
But all three types of piercing have an underlying theme that often
does not catch one's attention. In all of the cases discussed, the effect
of piercing has always been to make the active or intervening stock-
holder or officer liable for corporate debts and obligations. Therefore,
what is clear, especially for publicly-listed companies, is that the main
doctrine of separate juridical personality, and all its ancillary attributes,
including limited liability, remains firm and formidable to mere passive
investors in a corporation.
mn Id. at 498-499.

56 ATENEo LAW JOURNAL VOL_ 37 NCI 2
This just proves a point often pointed out in my lectures that the
corporate entity is meant primarily to attract investors to place their
money in the hands of professional managers (a divorcing of own-
ership from control) and that most corporate doctrines were intended
for such a set-up. Close supervision of one's investment should be
more compatible with other forms of media such as partnership and
sole proprietorship, In fact, the Corporation Code has given a special
type of vehicle for investors who wish to actively manage their in-
vestments: the close corporations, which have been termed as incor-
porated partnership and for which intervening stockholders are made
personal ly liable for corporate debts and obligations."'
See Sec. 100, cORPORATION CODE.

Restatement of The Doctrine of Piercing

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RESTATEMENT OF THE DOCTRINE OF

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When dealing with piercing cases, it is always important to note

I. THE MAIN DOCTRINE OF

Since its introduction in the Philippines in 1906, the corporation

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The granting of a separate juridical personality to the corporate

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of the corporation's property, or the right to share in its proceeds to

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being equitable and beneficial in nature. Shareholders are in no legal

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of a corporation does not by itself make one's property also that of

II. APPLICATION OF THE PIERCING DOCTRINE

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Umali has held that when the piercing doctrine is applied in a

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Since the piercing doctrine was fashioned to prevent fraud, or

The application of the piercing doctrine is not a contravention of

n .189 SCRA 529 (1990).

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possessed such separate juridical personality in any other case. It therefore

III. CLASSIFICATION OF THE PIERCING CASES

A review of the piercing cases decided by the Supreme Court

37 192 SCRA 487 (1987).

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(c) When the piercing the corporate fiction is necessary to achieve

IV. FRAUD CASES

Gregorio Araneta, Inc. v. Tuason de Paternoand Vidale held that the

" SCRA 700 (1964).

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47 19 SCRA 962 (1967).

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Other than having entered into a fraudulent contract in the name

* 5 SCRA 1011 (1962).

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related x x x [and an officer] acting in good faith within the scope

" Id. at p. 499.

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61 187 SCRA 777 (1990).

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Two months after Del Rosario, the Supreme Court, in Maglutac v.

" 189 SCRA 767 (1990).

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