1

Tayag v. Benguet Consolidated

In March 1960, Idonah Perkins died in New York. She left behind properties here and abroad. One
property she left behind were two stock certificates covering 33,002 shares of stocks of the Benguet
Consolidated, Inc (BCI). Said stock certificates were in the possession of the Country Trust Company
of New York (CTC-NY). CTC-NY was the domiciliary administrator of the estate of Perkins (obviously
in the USA). Meanwhile, in 1963, Renato Tayag was appointed as the ancillary administrator (of the
properties of Perkins she left behind in the Philippines).
A dispute arose between CTC-NY and Tayag as to who between them is entitled to possess the stock
certificates. A case ensued and eventually, the trial court ordered CTC-NY to turn over the stock
certificates to Tayag. CTC-NY refused. Tayag then filed with the court a petition to have said stock
certificates be declared lost and to compel BCI to issue new stock certificates in replacement thereof.
The trial court granted Tayags petition.
BCI assailed said order as it averred that it cannot possibly issue new stock certificates because the
two stock certificates declared lost are not actually lost; that the trial court as well Tayag
acknowledged that the stock certificates exists and that they are with CTC-NY; that according to BCIs
by laws, it can only issue new stock certificates, in lieu of lost, stolen, or destroyed certificates of
stocks, only after court of law has issued a final and executory order as to who really owns a
certificate of stock.
ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct.
HELD: No. Benguet Consolidated is a corporation who owes its existence to Philippine laws. It has
been given rights and privileges under the law. Corollary, it also has obligations under the law and
one of those is to follow valid legal court orders. It is not immune from judicial control because it is
domiciled here in the Philippines. BCI is a Philippine corporation owing full allegiance and subject to
the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any
wise as immune from lawful court orders. Further, to allow BCIs opposition is to render the court
order against CTC-NY a mere scrap of paper. It will leave Tayag without any remedy simply because
CTC-NY, a foreign entity refuses to comply with a valid court order. The final recourse then is for our
local courts to create a legal fiction such that the stock certificates in issue be declared lost even
though in reality they exist in the hands of CTC-NY. This is valid. As held time and again, fictions
which the law may rely upon in the pursuit of legitimate ends have played an important part in its
development.
Further still, the argument invoked by BCI that it can only issue new stock certificates in accordance
with its bylaws is misplaced. It is worth noting that CTC-NY did not appeal the order of the court it
simply refused to turn over the stock certificates hence ownership can be said to have been settled in
favor of estate of Perkins here. Also, assuming that there really is a conflict between BCIs bylaws and
the court order, what should prevail is the lawful court order. It would be highly irregular if court
orders would yield to the bylaws of a corporation. Again, a corporation is not immune from judicial
orders.






2

Torres vs Court of Appeals
Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development
Corporation (TRDC). TRDC is a small family owned corporation and other stockholders thereof include
Judge Torres nieces and nephews. However, even though Judge Torres owns the majority of TRDC
and was also the president thereof, he is only entitled to one vote among the 9-seat Board of
Directors, hence, his vote can be easily overridden by minority stockholders. So in 1987, before the
regular election of TRDC officers, Judge Torres assigned one share (qualifying share) each to 5
outsiders for the purpose of qualifying them to be elected as directors in the board and thereby
strengthen Judge Torres power over other family members.
However, the said assignment of shares were not recorded by the corporate secretary, Ma. Christina
Carlos (niece) in the stock and transfer book of TRDC. When the validity of said assignments were
questioned, Judge Torres ratiocinated that it is impractical for him to order Carlos to make the entries
because Carlos is one of his opposition. So what Judge Torres did was to make the entries himself
because he was keeping the stock and transfer book. He further ratiocinated that he can do what a
mere secretary can do because in the first place, he is the president.
Since the other family members were against the inclusion of the five outsiders, they refused to take
part in the election. Judge Torres and his five assignees then decided to conduct the election among
themselves considering that the 6 of them constitute a quorum.
ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the subsequent
election is valid.
HELD: No. The assignment of the shares of stocks did not comply with procedural requirements. It
did not comply with the by laws of TRDC nor did it comply with Section 74 of the Corporation Code.
Section 74 provides that the stock and transfer book should be kept at the principal office of the
corporation. Here, it was Judge Torres who was keeping it and was bringing it with him. Further, his
excuse of not ordering the secretary to make the entries is flimsy. The proper procedure is to order
the secretary to make the entry of said assignment in the book, and if she refuses, Judge Torres can
come to court and compel her to make the entry. There are judicial remedies for this. Needless to
say, the subsequent election is invalid because the assignment of shares is invalid by reason of
procedural infirmity. The Supreme Court also emphasized: all corporations, big or small, must abide
by the provisions of the Corporation Code. Being a simple family corporation is not an exemption.
Such corporations cannot have rules and practices other than those established by law.











3

Philippine Stock Exchange, Inc. v. Court of Appeals

Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI was granted
permission by the Securities and Exchange Commission (SEC) to sell its shares to the public in order
for PALI to develop its properties.
PALI then asked the Philippine Stock Exchange (PSE) to list PALIs stocks/shares to facilitate
exchange. The PSE Board of Governors denied PALIs application on the ground that there were
multiple claims on the assets of PALI. Apparently, the Marcoses, RebeccoPanlilio (trustee of the
Marcoses), and some other corporations were claiming assets if not ownership over PALI.
PALI then wrote a letter to the SEC asking the latter to review PSEs decision. The SEC reversed PSEs
decisions and ordered the latter to cause the listing of PALI shares in the Exchange.
ISSUE: Whether or not it is within the power of the SEC to reverse actions done by the PSE.
HELD: Yes. The SEC has both jurisdiction and authority to look into the decision of PSE pursuant to
the Revised Securities Act and for the purpose of ensuring fair administration of the exchange. PSE,
as a corporation itself and as a stock exchange is subject to SECs jurisdiction, regulation, and control.
In order to insure fair dealing of securities and a fair administration of exchanges in the PSE, the SEC
has the authority to look into the rulings issued by the PSE. The SEC is the entity with the primary say
as to whether or not securities, including shares of stock of a corporation, may be traded or not in the
stock exchange.
HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only reverse
decisions issued by the PSE if such are tainted with bad faith. In this case, there was no showing that
PSE acted with bad faith when it denied the application of PALI. Based on the multiple adverse claims
against the assets of PALI, PSE deemed that granting PALIs application will only be contrary to the
best interest of the general public. It was reasonable for the PSE to exercise its judgment in the
manner it deems appropriate for its business identity, as long as no rights are trampled upon, and
public welfare is safeguarded.













4

Feliciano v. COA, GR No. 147402

Facts: COA assessed Leyte Metropolitan Water District (LMWD) auditing fees. Petitioner Feliciano, as
General Manager of LMWD, contended that the water district could not pay the said fees on the basis
of Sections 6 and 20 of P.D. No. 198 as well as Section 18 of R.A. No. 6758. He primarily claimed that
LMWD is a private corporation not covered by COA's jurisdiction. Petitioner also asked for refund of all
auditing fees LMWD previously paid to COA. COA Chairman denied petitioners requests. Petitioner
filed a motion for reconsideration which COA denied. Hence, this petition.

Issue: Whether a Local Water District (LWD) created under PD 198, as amended, is a government-
owned or controlled corporation subject to the audit jurisdiction of COA or a private corporation which
is outside of COAs audit jurisdiction.

Held: Petition lacks merit. The Constitution under Sec. 2(1), Article IX-D and existing laws mandate
COA to audit all government agencies, including government-owned and controlled corporations with
original charters. An LWD is a GOCC with an original charter.
The Constitution recognizes two classes of corporations. The first refers to private corporations
created under a general law. The second refers to government-owned or controlled corporations
created by special charters. Under existing laws, that general law is the Corporation Code.
Obviously, LWDs are not private corporations because they are not created under the Corporation
Code. LWDs are not registered with the Securities and Exchange Commission. Section 14 of the
Corporation Code states that all corporations organized under this code shall file with the SEC
articles of incorporation x xx. LWDs have no articles of incorporation, no incorporators and no
stockholders or members. There are no stockholders or members to elect the board directors of
LWDs as in the case of all corporations registered with the SEC. The local mayor or the provincial
governor appoints the directors of LWDs for a fixed term of office. The board directors of LWDs are
not co-owners of the LWDs. The board directors and other personnel of LWDs are government
employees subject to civil service laws and anti-graft laws. Clearly, an LWD is a public and not a
private entity, hence, subject to COAs audit jurisdiction.











5

Wilson Gamboa v. Sec. MargaritoTeves

In 1928, the Philippine Long Distance Telephone Company (PLDT) was granted a franchise to engage
in the business of telecommunications. Telecommunications is a nationalized area of activity where a
corporation engaged therein must have 60% of its capital be owned by Filipinos as provided for by
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by
such citizens; xxx
In 1999, First Pacific, a foreign corporation, acquired 37% of PLDT common shares. Wilson Gamboa
opposed said acquisition because at that time, 44.47% of PLDT common shares already belong to
various other foreign corporations. Hence, if First Pacifics share is added, foreign shares will amount
to 81.47% or more than the 40% threshold prescribed by the Constitution.
MargaritoTeves, as Secretary of Finance, and the other respondents argued that this is okay because
in totality, most of the capital stocks of PLDT is Filipino owned. It was explained that all PLDT
subscribers, pursuant to a law passed by Marcos, are considered shareholders (they hold serial
preferred shares). Broken down, preferred shares consist of 77.85% while common shares consist of
22.15%.
Gamboa argued that the term capital should only pertain to the common shares because that is the
share which is entitled to vote and thus have effective control over the corporation.
ISSUE: What does the term capital pertain to? Does the term capital in Section 11, Article XII of
the Constitution refer to common shares or to the total outstanding capital stock (combined total of
common and non-voting preferred shares)?
HELD: Gamboa is correct. Capital only pertains to common shares. It will be absurd for capital to
pertain as inclusive of non-voting shares. This is because a corporation consisting of 1,000,000 capital
stocks, 100 of which are common shares which are foreign owned and the rest (999,900 shares) are
preferred shares which are non-voting shares and are Filipino owned, would seem compliant to the
constitutional requirement here 99.999% is Filipino owned. But if scrutinized, the controlling stock
the voting stock or that miniscule .001% is foreign owned. That is absurd.
In this case, it is true that at least 77.85% of the capital is owned by Filipinos (the PLDT subscribers).
But these subscribers, who hold non-voting preferred shares, have no control over the corporation.
Hence, capital should only pertain to common shares.
Thus, to be compliant with the constitution, 60% of the common shares of PLDT should be Filipino
owned. That is not so in this case as it appears that 81.47% of the common shares are already
foreign owned (split between First Pacific (37%) and a Japanese corporation).
When may preferred shares be considered part of the capital share?
If the preferred shares are allowed to vote like common shares.




6

CEASE VS CA
FACTS:
Forrest Cease and five (5) other American citizens formed Tiaong Milling and Plantation Company.
Eventually, the shares of the other original incorporators were bought out by Cease with his children.
The companys charter lapsed in June 1958. Forrest Cease died in August 1959. There was no
mention whether there were steps to liquidate the company. Some of his children wanted an actual
division while others wanted a reincorporation. Two of his children, Benjamin and Florence, initiated
Special Proceeding No. 3893 with CFI Tayabas asking that the Tiaong Milling and Plantation
Corporation be declared identical to Forrest Cease and that its properties be divided among his
children as intestate heirs. Defendants opposed the same but the CFI ruled in favor of the plaintiffs.
Defendants filed a notice of appeal from the CFIs decision but the same was dismissed for being
premature. The case was elevated to the SC which remanded it to the Court of Appeals. The CA
dismissed the petition.
ISSUE: Whether or not the Court of Appeals erred in affirming the lower courts decision that the
subject properties owned by the corporation are also properties of the estate of Forrest Cease
HELD: NO. The trial court indeed found strong support, one that is based on a well-entrenched
principle of law which is the theory of "merger of Forrest L. Cease and The Tiaong Milling as one
personality", or that "the company is only the business conduit and alter ego of the deceased Forrest
L. Cease and the registered properties of Tiaong Milling are actually properties of Forrest L. Cease
and should be divided equally, share and share alike among his six children, ... ", the trial court aptly
applied the familiar exception to the general rule by disregarding the legal fiction of distinct and
separate corporate personality and regarding the corporation and the individual member one and the
same. In shredding the fictitious corporate veil, the trial judge narrated the undisputed factual
premise, thus:
While the records showed that originally its incorporators were aliens, friends or third-parties in
relation to another, in the course of its existence, it developed into a close family corporation. The
Board of Directors and stockholders belong to one family the head of which Forrest L. Cease always
retained the majority stocks and hence the control and management of its affairs. It must be noted
that as his children increase or become of age, he continued distributing his shares among them
adding Florence, Teresa and Marion until at the time of his death only 190 were left to his name.
Definitely, only the members of his family benefited from the Corporation.
The corporation 'never' had any account with any banking institution or if any account was carried in
a bank on its behalf, it was in the name of Mr. Forrest L. Cease. There is truth in plaintiff's allegation
that the corporation is only a business conduit of his father and an extension of his personality, they
are one and the same thing. Thus, the assets of the corporation are also the estate of Forrest L.
Cease, the father of the parties herein who are all legitimate children of full blood.
A rich store of jurisprudence has established the rule known as the doctrine of disregarding or
piercing the veil of corporate fiction.
GENERAL RULE: a corporation is vested by law with a personality separate and distinct from the
persons composing it as well as any other legal entity to which it may be related. By virtue of this
attribute, a corporation may not, generally, be made to answer for acts or liabilities of its stockholders
or those of the legal entities to which it may be connected, and vice versa. This separate and distinct
personality is, however, merely a fiction created by law for convenience and to promote the ends of
justice

7
EXCEPTIONS: Such rule may not be used or invoked for ends subversive of the policy and purpose
behind its creation or which could not have been intended by law to which it owes its being. This is
particularly true where the fiction is used to defeat public convenience, justify wrong, protect fraud,
defend crime, confuse legitimate legal or judicial issues, perpetrate deception or otherwise circumvent
the law
This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business
conduit for the sole benefit of the stockholders or of another corporate. In any of these cases, the
notion of corporate entity will be pierced or disregarded, and the corporation will be treated merely as
an association of persons or, where there are two corporations, they will be merged as one, the one
being merely regarded as part or the instrumentality of the other.
An indubitable deduction from the findings of the trial court cannot but lead to the conclusion that the
business of the corporation is largely, if not wholly, the personal venture of Forrest L. Cease. There is
not even a shadow of a showing that his children were subscribers or purchasers of the stocks they
own. Their participation as nominal shareholders emanated solely from Forrest L. Cease's gratuitous
dole out of his own shares to the benefit of his children and ultimately his family.
If the Court sustained the theory of petitioners that the trial court acted in excess of jurisdiction or
abuse of discretion amounting to lack of jurisdiction in deciding the civil case as a case for partition,
Tiaong Milling and Plantation Company would have been able to extend its corporate existence
beyond the period of its charter which lapsed in June, 1958 under the guise and cover of F. L, Cease
Plantation Company, Inc. as Trustee which would be against the law, and as Trustee shall have been
able to use the assets and properties for the benefit of the petitioners, to the great prejudice and
defraudation. of private respondents. Hence, it becomes necessary and imperative to pierce that
corporate veil.
The judgment appealed from is AFFIRMED.
















8


CIR v. Norton & Harrison Company

Plaintiffs filed a collection action against X Corporation. Upon execution of the court's decision, X
Corporation was found to be without assets. Thereafter, plaintiffs filed an action against its present
and past stockholder Y Corporation which owned substantially all of the stocks of X corporation. The
two corporations have the same board of directors and Y Corporation financed the operations of X
corporation. May Y Corporation be held liable for the debts of X Corporation? Why?

A: Yes, Y Corporation may be held liable for the debts of X Corporation. The doctrine of piercing the
veil of corporation fiction applies to this case. The two corporations have the same board of directors
and Y Corporation owned substantially all of the stocks of X Corporation, which facts justify the
conclusion that the latter is merely an extension of the personality of the former, and that the former
controls the policies of the latter. Added to this is the fact that Y Corporation controls the finances of
X Corporation which is merely an adjunct, business conduit or alter ego of Y Corporation.




















9


McLeod v NLRC (512 SCRA 222)
That at one time PMI reimbursed McLeod for his and his wifes plane tickets in a vacation to London
could not be deemed as an established practice considering that it happened only once. To be
considered a "regular practice," the giving of the benefits should have been done over a long period,
and must be shown to have been consistent and deliberate.



























10


Solid Bank Corp. vs Mindanao Ferroalloy Corp.
G.R. No. 153535
July 28, 2005

Doctrine: It is axiomatic that solidary liability cannot be lightly inferred. Under Article 1207 of the
Civil Code, "there is a solidary liability only when the obligation expressly so states, or when the law
or the nature of the obligation requires solidarity."

Facts: Private respondents herein secured a loan to the petitioner bank under the name of the
respondent corporation. In the course of the corporations operation, it was not able to pay its
obligation to the petitioner and has to stop its operation. Petitioner bank filed an action against the
corporation together with its principal officers for the collection of the loan they acquired. The RTC
ruled in favor of the bank petitioner and ordering the respondent corporation to pay the amount of
loan plus interest. On appeal, the CA held the decision of the RTC and ruled also that the private
respondents were not solidary liable to the petitioner.

Issue: Whether or not principal officers can be held personally liable upon signing the contract of
loan under the name of the corporation?

Ruling: Basic is the principle that a corporation is vested by law with a personality separate and
distinct from that of each person composing or representing it. Equally fundamental is the general
rule that corporate officers cannot be held personally liable for the consequences of their acts, for as
long as these are for and on behalf of the corporation, within the scope of their authority and in good
faith. The separate corporate personality is a shield against the personal liability of corporate officers,
whose acts are properly attributed to the corporation. Moreover, it is axiomatic that solidary liability
cannot be lightly inferred. Since solidary liability is not clearly expressed in the Promissory Note and
is not required by law or the nature of the obligation in this case, no conclusion of solidary liability
can be made. Furthermore, nothing supports the alleged joint liability of the individual petitioners
because, as correctly pointed out by the two lower courts, the evidence shows that there is only one
debtor: the corporation.








11


RYUICHI YAMAMOTO v. NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO 551
SCRA 447 (2008)

To disregard the separate juridical personality of a corporation, the wrongdoing or unjust act in
contravention of a plaintiffs legal rights must be clearly and convincingly established. Also, without
acceptance, a mere offer produces no obligation.
Ryuichi Yamamoto and Ikuo Nishino agreed to enter into a joint venture wherein Nishino would
acquire such number of shares of stock equivalent to 70% of the authorized capital stock of the
corporation. However, Nishino and his brother Yoshinobu Nishino acquired more than 70% of the
authorized capital stock. Negotiations subsequently ensued in light of a planned takeover by Nishino
who would buy-out the shares of stock of Yamamoto who was advised through a letter that he may
take all the equipment/ machinery he had contributed to the company (for his own use and sale)
provided that the value of such machines is deducted from the capital contributions which will be paid
to him. However, the letter requested that he give his comments on all the above, soonest. On the
basis of the said letter, Yamamoto attempted to recover the machineries but Nishino hindered him to
do so, drawing him to file a Writ of Replevin. The Trial Court issued the writ. However, on appeal,
Nishino claimed that the properties being recovered were owned by the corporation and the above-
said letter was a mere proposal which was not yet authorized by the Board of Directors. Thus, the
Court of Appeals reversed the trial courts decision despite Yamamotos contention that the company
is merely an instrumentality of the Nishinos.

ISSUE:
Whether or not Yamamoto can recover the properties he contributed to the company in view of the
Doctrine of Piercing the Veil of Corporate Fiction and Doctrine of Promissory Estoppel.

HELD:
One of the elements determinative of the applicability of the doctrine of piercing the veil of corporate
fiction is that 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 and unjust act in contravention of
the plaintiffs legal rights. To disregard the separate juridical personality of a corporation, the
wrongdoing or unjust act in contravention of a plaintiffs legal rights must be clearly and convincingly
established; it cannot be presumed. Without a demonstration that any of the evils sought to be
prevented by the doctrine is present, it does not apply. Estoppel may arise from the making of a
promise. However, it bears noting that the letter was followed by a request for Yamamoto to give his
comments on all the above, soonest. What was thus proffered to Yamamoto was not a promise, but
a mere offer, subject to his acceptance. Without acceptance, a mere offer produces no obligation.
Thus, the machineries and equipment, which comprised Yamamotos investment, remained part of
the capital property of the corporation.




12


ASJ CORPORATION, plaintiff-appellant VS. EVANGELISTA, defendant-appellee
February 14, 2008

FACTS: Private respondent Evangelista contracted Petitioner ASJ Corporation for the incubation and
hatching of eggs and by products owned by Evangelista Spouses. The contract includes the scheduled
payments of the service of ASJ Corporation that the amount of installment shall be paid after the
delivery of the chicks. However, the ASJ Corporation detained the chicks because Evangelista Spouses
failed to pay the installment on time.

ISSUE: Whether or not the detention of the alleged chicks valid and recognized under the law?

RULING: No, because ASJ Corporation must give due to the Evangelista Spouses in paying the
installment, thus, it must not delay the delivery of the chicks. Thus, under the law, they are obliged to
pay damages with each other for the breach of the obligation.
Therefore, in a contract of service, each party must be in good faith in the performance of their
obligation, thus when the petitioner had detained the hatched eggs of the respondents spouses, it is
an implication of putting prejudice to the business of the spouses due to the delay of paying
installment to the petitioner.
















13


KUKAN INTERNATIONAL CORPORATION vs. REYES
G.R. No. 182729 September 29, 2010

FACTS: Sometime in March 1998, Kukan, Inc. conducted bidding for the supply and installation of
signages in a building being constructed in Makati City. Romeo Morales tendered the winning bid and
was awarded the PhP 5 million contract. Short changed, Morales filed a Complaint with the RTC
against Kukan, Inc. for a sum of money. The RTC rendered a Decision in favor of Morales and against
Kukan, Inc. After the decision became final and executory, Morales moved for and secured a writ of
execution against Kukan, Inc. The sheriff then levied upon various personal properties of Kukan
International Corporation (KIC). KIC then filed an Affidavit of Third-Party Claim. Notably, KIC was
incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in Civil Case. In
reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30, 2003. In it,
Morales prayed, applying the principle of piercing the veil of corporate fiction, that an order be issued
for the satisfaction of the judgment debt of Kukan, Inc. with the properties under the name or in the
possession of KIC, it being alleged that both corporations are but one and the same entity. By Order
of May 29, 2003 as reiterated in a subsequent order, the court denied the omnibus motion. In a bid
to establish the link between KIC and Kukan, Inc., and thus determine the true relationship between
the two, Morales filed a Motion for Examination of Judgment Debtors dated May 4, 2005. In this
motion Morales sought that subpoena be issued against the primary stockholders of Kukan, Inc.,
among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the trial court in an Order
dated May 24, 2005. Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta,
Jr., who eventually granted the motion. The case was re-raffled to Branch 21, presided by public
respondent Judge Amor Reyes. Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce
the Veil of Corporate Fiction to declare KIC as having no existence separate from Kukan, Inc. This
time around, the RTC, by Order dated March 12, 2007, granted the motion. KIC moved but was
denied reconsideration in another Order dated June 7, 2007. On petition for certiorari before CA, the
same was denied. The CA later denied KICs motion for reconsideration in the assailed resolution.
Hence, the instant petition for review.
ISSUE: Whether the trial and appellate courts correctly applied, under the premises, the principle of
piercing the veil of corporate fiction.
RULING: Piercing the veil of corporate entity apllies only: (1) the court must first acquire jurisdiction
over the corporation or corporations involved before its or their separate personalities are
disregarded; and (2) the doctrine of piercing the veil of corporate entity can only be raised during a
full-blown trial over a cause of action duly commenced involving parties duly brought under the
authority of the court by way of service of summons or what passes as such service.
Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a
corporation does not, standing alone, provide sufficient justification for disregarding the separate
corporate personality. For this ground to hold sway in this case, there must be proof that Chan had
control or complete dominion of Kukan and KICs finances, policies, and business practices; he used
such control to commit fraud; and the control was the proximate cause of the financial loss
complained of by Morales. The absence of any of the elements prevents the piercing of the corporate
veil. And indeed, the records do not show the presence of these elements.
In fine, there is no showing that the incorporation, and the separate and distinct personality, of KIC
was used to defeat Morales right to recover from Kukan, Inc. Judging from the records, no serious

14
attempt was made to levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that
Kukan, Inc. tried to avoid liability or had no property against which to proceed.
The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as
they are by the same stockholders, stands without factual basis. It is true that Michael Chan, a.k.a.
Chan Kai Kit, owns 40% of the outstanding capital stock of both corporations. But such circumstance,
standing alone, is insufficient to establish identity. There must be at least a substantial identity of
stockholders for both corporations in order to consider this factor to be constitutive of corporate
identity.
Evidently, the aforementioned case relied upon by Morales cannot justify the application of the
principle of piercing the veil of corporate fiction to the instant case. As shown by the records, the
name Michael Chan, the similarity of business activities engaged in, and incidentally the word "Kukan"
appearing in the corporate names provide the nexus between Kukan, Inc. and KIC. As illustrated,
these circumstances are insufficient to establish the identity of KIC as the alter ego or successor of
























15



Jaka Investments Corp. v. CIR, GR No. 147629, July 28, 2010
Facts: in 1994, petitioner sought to invest in JAKA Equities Corporation (JEC), which ws then
planning to undertake an initial public offering (IPO) and listing of its shares of stock with the
Philippine Stock Exchange. petitioner proposed to subscribe to Five Hundred Eight Million Eight
Hundred Six Thousand Two Hundred Pesos (P508,806,200.00) out of the increase in the authorized
capital stock of JEC through a tax-free exchange under Section 34(c)(2) of the National Internal
Revenue Code (NIRC) of 1977, as amended, which was effected by the execution of a Subscription
Agreement and Deed of Assignment of Property in Payment of Subscription. Under this Agreement,
as payment for its subscription, petitioner will assign and transfer to JEC shares of stock.
The intended IPO and listing of shares of JEC did not materialize. However, JEC still decided to
proceed with the increase in its authorized capital stock and petitioner agreed to subscribe thereto,
but under different terms of payment.
Thus, petitioner and JEC executed the Amended Subscription Agreement wherein the above-
enumerated RGHC, PGCI, and UCPB shares of stock were transferred to JEC. In lieu of the FEBTC
shares, petitioner paid JEC.
petitioner paid One basic documentary stamp tax inclusive of the 25% surcharge for late payment on
the Amended Subscription Agreement.
Petitioner, after seeing the RDOs certifications, the total amount of which was less than the actual
amount it had paid as documentary stamp tax, concluded that it had overpaid. Petitioner
subsequently sought a refund for the alleged excess documentary stamp tax and surcharges it had
paid.
Petitioners main contention in this claim for refund is that the tax base for the documentary stamp
tax on the Amended Subscription Agreement should have been only the shares of stock in RGHC,
PGCI, and UCPB that petitioner had transferred to JEC as payment for its subscription to the JEC
shares, and should not have included the cash portion of its payment, based on Section 176 of the
National Internal Revenue Code of 1977, as amended by Republic Act No. 7660, or the New
Documentary Stamps Tax Law (the 1994 Tax Code), the law applicable at the time of the transaction.
Petitioner argues that the cash component of its payment for its subscription to the JEC shares,
totaling Three Hundred Seventy Million Seven Hundred Sixty-Six Thousand Pesos (P370,766,000.00)
should not have been charged any documentary stamp tax. Petitioner claims that there was
overpayment because the tax due on the transferred shares was only Five Hundred Ninety-Three
Thousand Five Hundred Twenty-Eight and 15/100 Pesos (P593,528.15), as indicated in the
certifications issued by RDOEsquivias. Petitioner alleges that it is entitled to a refund for the
overpayment, which is the difference in the amount it had actually paid (P1,003,895.65) and the
amount of documentary stamp tax due on the transfer of said shares (P593,528.15), or a total of
Four Hundred Ten Thousand Three Hundred Sixty-Seven Pesos (P410,367.00).
Petitioner explains that in this instance where shares of stock are used as subscription payment, there
are two documentary stamp tax incidences, namely, the documentary stamp tax on the original
issuance of the shares subscribed (the JEC shares), which is imposed under Section 175; and the
documentary stamp tax on the shares transferred in payment of such subscription (the transfer of the
RGHC, PGCI and UCPB shares of stock from petitioner to JEC), which is imposed under Section 176 of
the 1994 Tax Code. Petitioner argues that the documentary stamp tax imposed under Section 175 is
due on original issuances of certificates of stock and is computed based on the aggregate par value of

16
the shares to be issued; and that these certificates of stock are issued only upon full payment of the
subscription price such that under the Bureau of Internal Revenues (BIRs).
Respondent maintains that the documentary stamp tax imposed in this case is on the original issue of
certificates of stock of JEC on the subscription by the petitioner of the P508,806,200.00 shares out of
the increase in the authorized capital stock of the former pursuant to Section 175 of the NIRC. The
documentary stamp tax was not imposed on the shares of stock owned by petitioner in RGHC, PGCI,
and UCPB, which merely form part of the partial payment of the subscribed shares in JEC.
Respondent avers that the amounts indicated in the Certificates of RDOEsquivias are the amounts of
documentary stamp tax representing the equivalent of each group of shares being applied for
payment. Considering that the amount of documentary stamp tax represented by the shares of stock
in the aforementioned companies amounted only to P593,528.15, while the basic documentary stamp
tax for the entire subscription of P508,806,200.00 was computed by respondents revenue officers to
the tune of P803,116.72, exclusive of the penalties, leaving a balance of P209,588.57, is a clear
indication that the payment made with the shares of stock is insufficient.
ISSUE: whether or not petitioner is entitled to a partial refund of the documentary stamp tax and
surcharges it paid on the execution of the Amended Subscription Agreement.
RULING:
In claims for refund, the burden of proof is on the taxpayer to prove entitlement to such refund. It
was thus incumbent upon petitioner to show clearly its basis for claiming that it is entitled to a tax
refund. the petitioner failed to do.
In the case at bar, the rights and obligations between petitioner JAKA Investments Corporation and
JAKA Equities Corporation are established and enforceable at the time the Amended Subscription
Agreement and Deed of Assignment of Property in Payment of Subscription were signed by the
parties and their witness, so is the right of the state to tax the aforestated document evidencing the
transaction. DST is a tax on the document itself and therefore the rate of tax must be determined on
the basis of what is written or indicated on the instrument itself independent of any adjustment which
the parties may agree on in the future x xx. The DST upon the taxable document should be paid at
the time the contract is executed or at the time the transaction is accomplished. The overriding
purpose of the law is the collection of taxes. So that when it paid in cash the amount of
P370,766,000.00 in substitution for, or replacement of the 1,313,176 FEBTC shares, its payment of
P1,003,835.65 documentary stamps tax pursuant to Section 175 of NIRC is in order.
Thus, applying the settled rule in this jurisdiction that, a claim for refund is in the nature of a claim
for exemption, thus, should be construed in strictissimijuris against the taxpayer (Commissioner of
Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332) and since the petitioner failed to
adduce evidence that will show that it is exempt from DST under Section 199 or other provision of
the tax code, the court ruled the focal issue in the negative.
A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the business
transacted but is an excise upon the privilege, opportunity or facility offered at exchanges for the
transaction of the business. It is an excise upon the facilities used in the transaction of the business
separate and apart from the business itself. Documentary stamp taxes are levied on the exercise by
persons of certain privileges conferred by law for the creation, revision, or termination of specific legal
relationships through the execution of specific instruments.
documentary stamp taxes are levied independently of the legal status of the transactions giving rise
thereto. The documentary stamp taxes must be paid upon the issuance of the said instruments,
without regard to whether the contracts which gave rise to them are rescissible, void, voidable, or
unenforceable.

17
The fact that it was petitioner and not JEC that paid for the documentary stamp tax on the original
issuance of shares is of no moment, as Section 173 of the 1994 Tax Code states that the
documentary stamp tax shall be paid by the person making, signing, issuing, accepting or transferring
the property, right or obligation.
petition is DISMISSED.
Ong Yong V. Tiu (2003)

FACTS:
1994: construction of the MasaganaCitimall in Pasay City was threatened with stoppage,
when its owner, the First Landlink Asia Development Corporation (FLADC), owned by the
Tius, became heavily indebted to the Philippine National Bank (PNB) for P190M
To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong
Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo
(the Ongs), to invest in FLADC.
Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in
FLADC
Ongs: subscribe to 1,000,000 shares
Tius: subscribe to an additional 549,800 shares in addition to their already existing
subscription of 450,200 shares
Tius: nominate the Vice-President and the Treasurer plus 5 directors
Ongs nominate the President, the Secretary and 6 directors (including the chairman) to the
board of directors of FLADC and right to manage and operate the mall.
Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land
P30M (for 300K shares) and P49.8M (for 49,800 shares)
Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for
their subscription to 1M shares)
February 23, 1996: Tius rescinded the Pre-Subscription Agreement
February 27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking
confirmation of their rescission of the Pre-Subscription Agreement
SEC: confirmed recission of Tius
Ongs filed reconsideration that their P70M was not a premium on capital stock but an
advance loan
SEC en banc: affirmed it was a premium on capital stock
CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them to
rescission) but, "for practical considerations," that is, their inability to work together, it was
best to separate the two groups by rescinding the Pre-Subscription Agreement, returning the
original investment of the Ongs and awarding practically everything else to the Tius.
ISSUE: W/N Specific performance and NOT recission is the remedy
HELD: YES. Ongs granted.

18
did not justify the rescission of the contract
providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer,
respectively, had no bearing on their obligations under the Pre-Subscription Agreement since
the obligation pertained to FLADC itself
failure of the Ongs to credit shares of stock in favor of the Tius for their property
contributions also pertained to the corporation and not to the Ongs
the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994
was to raise the P190 million
law requires that the breach of contract should be so "substantial or fundamental" as to
defeat the primary objective of the parties in making the agreement
since the cash and other contributions now sought to be returned already belong to FLADC,
an innocent third party, said remedy may no longer be availed of under the law.
Any contract for the acquisition of unissued stock in an existing corporation or a corporation
still to be formed shall be deemed a subscription within the meaning of this Title,
notwithstanding the fact that the parties refer to it as a purchase or some other contract
allows the distribution of corporate capital only in three instances: (1) amendment of the
Articles of Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable
shares by the corporation, regardless of the existence of unrestricted retained earnings,25
and (3) dissolution and eventual liquidation of the corporation.
They want this Court to make a corporate decision for FLADC.
The Ongs' shortcomings were far from serious and certainly less than substantial; they were
in fact remediable and correctable under the law. It would be totally against all rules of
justice, fairness and equity to deprive the Ongs of their interests on petty and tenuous
grounds.














19




Alhambra Cigar & Cigarette Manufacturing Company, Inc. v. SEC, GR No. L-23606, July
29, 1968

On January 15, 1912, Alhambra Cigar & Cigarette Manufacturing Company, Inc. was incorporated. Its
lifespan was for 50 years so on January 15, 1962, it expired. Thereafter, its Board authorized its
liquidation. Under the prevailing law, Alhambra has 3 years to liquidate.
In 1963, while Alhambra was liquidating, Republic Act 3531 was enacted. It amended Section 18 of
the Corporation Law; it empowered domestic private corporations to extend their corporate life
beyond the period fixed by the articles of incorporation for a term not to exceed fifty years in any one
instance. Previous to Republic Act 3531, the maximum non-extendible term of such corporations was
fifty years.
Alhambra now amended its articles of incorporation to extend its lifespan for another 50 years. The
Securities and Exchange Commission (SEC) denied the amended articles of incorporation.
ISSUE: Whether or not a corporation under liquidation may still amend its articles of incorporation to
extend its lifespan.
HELD: No. Alhambra cannot avail of the new law because it has already expired at the time of its
passage. When a corporation is liquidating pursuant to the statutory period of three years to
liquidate, it is only allowed to continue for the purpose of final closure of its business and no other
purposes. In fact, within that period, the corporation is enjoined from continuing the business for
which it was established. Hence, Alhambras board cannot validly amend its articles of incorporation
to extend its lifespan.













20




Seventh Day Adventist Conference Church of Southern Philippines vs. North Eastern
Mindanao Mission of Seventh Day Adventist, Inc.

FACTS:
Spouses Felix Cosio and FelisaCuysona donate a parcel of land to South Philippine [Union] Mission of
Seventh Day Adventist Church, and was received by LiberatoRayos, an elder of the Seventh Day
Adventist Church, on behalf of the donee.
However, twenty years later, the spouses sold the same land to the Seventh Day Adventist Church of
Northeastern Mindanao Mission.
Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over the
property. This was opposed by respondents who argued that at the time of the donation, SPUM-
SDABayugan could not legally be a donee because, not having been incorporated yet, it had no
juridical personality. Neither were petitioners members of the local church then, hence, the donation
could not have been made particularly to them.

ISSUE:
Should the Seventh Day Adventist Church of Northeastern Mindanao Mission's ownership of the lot be
upheld?

HELD:
We answer in the affirmative.
Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership
of a property may be transferred by tradition as a consequence of a sale.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another person who accepts it. The donation could not have been made in favor of an entity yet
inexistent at the time it was made. Nor could it have been accepted as there was yet no one to
accept it.
The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-
SDABayugan (the local church) which, at the time, had neither juridical personality nor capacity to
accept such gift.
(With questions regarding de facto corporation and law of sales.)
Petition Denied.



21




ALBERT VS UNIVERSITY PUBLISHING CO., INC. (Jan. 30, 1965)

Mariano Albert entered into a contract with University Publishing Co., Inc. through
Jose M. Aruego, its President, whereby University would pay plaintiff for the exclusive right
to publish his revised Commentaries on the Revised Penal Code. The contract stipulated that
failure to pay one installment would render the rest of the payments due. When University
failed to pay the second installment, Albert sued for collection and won. However, upon
execution, it was found that University was not registered with the SEC. Albert petitioned for
a writ of execution against Jose M. Aruego as the real defendant. University opposed, on the
ground that Aruego was not a party to the case.

The Supreme Court found that Aruego represented a non-existent entity and induced
not only Albert but the court to believe in such representation. Aruego, acting as
representative of such non-existent principal, was the real party to the contract sued upon, and
thus assumed such privileges and obligations and became personally liable for the contract
entered into or for other acts performed as such agent.

The Supreme Court likewise held that the doctrine of corporation by estoppel cannot
be set up against Albert since it was Aruego who had induced him to act upon his (Aruego's)
willful representation that University had been duly organized and was existing under the
law.