Corporation Law - Case Doctrines p2

1. Padilla v.
CA / 320 SCRA 208
PKA and Phoenix-Omega are admittedly sister companies, and may be sharing personnel and resources, but we find in
the present case no allegation, much less positive proof, that their separate corporate personalities are being used to
defeat public convenience, justify wrong, protect fraud, or defend crime. "For the separate juridical personality of
a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be
presumed." We find no reason to justify piercing the corporate veil in this instance.
2. Jardine Davies Inc. v. JRB Realty / 463 SCRA 555

 It is an elementary and fundamental principle of corporation law that a corporation is an artificial being invested by
law with a personality separate and distinct from its stockholders and from other corporations to which it may be
connected. While a corporation is allowed to exist solely for a lawful purpose, the law will regard it as an association
of persons or in case of two corporations, merge them into one, when this corporate legal entity is used as a cloak
for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction which applies only when such
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. The
rationale behind piercing a corporation’s identity is to remove the barrier between the corporation from the persons
comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for
undertaking certain proscribed activities.
 In applying the doctrine, the following requisites must be established: (1) control, not merely majority or
complete stock control; (2) such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in contravention of
plaintiff’s legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
 The existence of interlocking directors, corporate officers and shareholders, which the respondent court
considered, is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or other
public policy considerations. But even when there is dominance over the affairs of the subsidiary, the doctrine of
piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime. To warrant resort to this extraordinary remedy, there must be proof that
the corporation is being used as a cloak or cover for fraud or illegality, or to work in justice. Any piercing of
the corporate veil has to be done with caution. The wrongdoing must be clearly and convincingly
established. It cannot just be presumed.
3. San Juan Structural & Steel Fabricators Inc. v. CA / 296 SCRA 631
 A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the
property of the corporation is not the property of its stockholders or members and may not be sold by the
stockholders or members without express authorization from the corporation’s board of directors.
 The Court has also recognized the rule that “persons dealing with an assumed agent, whether the assumed
agency be a general or special one, are bound at their peril, if they would hold the principal liable, to ascertain
not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19).”Unless duly authorized, a
treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets.
 As a general rule, the acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions “cannot bind the corporation,
unless it has ratified such acts or is estopped from disclaiming them.”
 True, one of the advantages of a corporate form of business organization is the limitation of an investor’s
liability to the amount of the investment. This feature flows from the legal theory that a corporate entity is
separate and distinct from its stockholders. However, the statutorily granted privilege of a corporate veil may be
used only for legitimate purposes. On equitable considerations, the veil can be disregarded when it is utilized as
a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or serve as
a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another
corporation.
 We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud,
illegality or inequity committed on third persons. The question of piercing the veil of corporate fiction is
essentially, then, a matter of proof. In the present case, however, the Court finds no reason to pierce the
corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or
that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third persons
like petitioner.

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1. Padilla v.

CA / 320 SCRA 208

2. Jardine Davies Inc. v. JRB Realty / 463 SCRA 555

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