STOCKHOLDERS OF F. GUANZON AND SONS, INC. VS Barretto, and the Carams.
Barretto, and the Carams. Arellano claims that he was not paid for
REGISTER OF DEEDS
Lessons Applicable: Strong Juridical Personality (Corporate Law)
FACTS:
Sept 19, 1960: 5 stockholders of the F. Guanzon and
Sons, Inc. executed a certificate of liquidation of the
assets of the corporation, dissolution and distribution
among themselves in proportion to their shareholdings, as
liquidating dividends, corporate assets, including real
properties
Register of Deeds of Manila denied the registration of the
certificate of liquidation:
1. The number of parcels not certified to in the
acknowledgment;
2. P430.50 Reg. fees need be paid;
3. P940.45 documentary stamps need be attached to the
document;
4. The judgment of the Court approving the dissolution and
directing the disposition of the assets of the corporation
need be presented
Commissioner of Land Registration overruled ground No.
7 and sustained requirements Nos. 3, 5 and 6.
Stockholders appealed
o contend that the certificate of liquidation is not a
conveyance or transfer but merely a distribution
of the assets of the corporation which has
ceased to exist for having been dissolved
ISSUE: W/N certificate merely involves a distribution of the
corporation's assets (or should be considered a transfer or
conveyance)
HELD: NO. affirm the resolution appealed from
Corporation - juridical person distinct from the members
composing it.
o Properties registered in the name of the
corporation are owned by it as an entity
separate and distinct from its members.
o While shares of stock constitute personal
property they do not represent property of the
corporation.
A share of stock only typifies an
aliquot part 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 entitled to possession
The stockholder is not a co-owner or
tenant in common of the corporate
property
FERMIN CARAM JR. VS COURT OF APPEALS
Business Organization Corporation Law Separate and Distinct
Personality
A certain Barretto initiated the incorporation of a company called
Filipinas Orient Airways (FOA). Barretto was referred to as the
moving spirit of said corporation because it was through his effort
that it was created. Before FOAs creation though, Barretto
contracted with a third party, Alberto Arellano, for the latter to
prepare a project study for the feasibility of creating a corporation
like FOA. The project study was then presented to the would-be
incorporators and investors. On the basis of said project study,
Fermin Caram, Jr. and Rosa Caram agreed to be incorporators of
FOA. Later however, Arellano filed a collection suit against FOA,
his work on the project study.
ISSUE: Whether or not the Carams are personally and solidarily
liable considering that the project study was contracted before FOA
became a corporation.
HELD: No. The Carams cannot be solidarily liable with FOA. The
FOA is now a bona fide corporation. As such, FOA alone should be
liable for its corporate acts as duly authorized by its officers and
directors. This includes acts which ultimately led to its incorporation
i.e., the project study made by Arellano. FOA has a separate and
distinct personality from its incorporators. It is not justified to make
the Carams, as principal stockholders, to be responsible for FOAs
obligations.
Palay Inc. v. Clave
G.R. No. L-56076 September 21, 1983
Facts:
1. On March 28, 1965, petitioner Palay, Inc., through its President,
Albert Onstott sold a parcel of land owned by the corporation to the
private respondent, Nazario Dumpit, by virtue of a Contract to Sell.
The sale price was P23,300.00 with 9% interest per annum,
payable with a down payment of P4,660.00 and monthly
instalments of P246.42 until fully paid. Paragraph 6 of the contract
provided for automatic extrajudicial rescission upon default in
payment of any monthly instalment after the lapse of 90 days from
the expiration of the grace period of one month, without need of
notice and with forfeiture of all instalments paid.
2. Respondent Dumpit paid the down payment and several
instalments amounting to P13,722.50 with the last payment was
made on December 5, 1967 for instalments up to September 1967.
Almost six (6) years later, private respondent wrote petitioner
offering to update all his overdue accounts and sought consent to
the assignment of his rights to a certain Lourdes Dizon. Petitioners
informed respondent that his Contract to Sell had long been
rescinded pursuant to paragraph 6 of the contract, and that the lot
had already been resold.
3. Respondent filed a letter complaint with the National Housing
Authority (NHA) questioning the validity of the rescission. The NHA
held that the rescission is void in the absence of either judicial or
notarial demand. Palay, Inc. and Onstott in his capacity as
President of the corporation, jointly and severally, was ordered to
refund Dumpit the amount paid plus 12% interest from the filing of
the complaint. Petitioners' MR was denied by the
NHA. Respondent Presidential Executive Assistant, on May 2,
1980, affirmed the Resolution of the NHA. Reconsideration sought
by petitioners was denied for lack of merit. Thus, the present
petition.
Issue: W/N demand is necessary to rescind a contract
Ruling: As held in previous jurisprudence, the judicial action for the
rescission of a contract is not necessary where the contract provides
that it may be revoked and cancelled for violation of any of its terms
and conditions. However, even in the cited cases, there was at least
a written notice sent to the defaulter informing him of the rescission.
A written notice is indispensable to inform the defaulter of the
rescission. Hence, the resolution by petitioners of the contract was
ineffective and inoperative against private respondent for lack of
notice of resolution (as held in the U.P. vs. Angeles case). The act of
a party in treating a contract as cancelled should be made known to
the other.
Later, RA 6551 6551 entitled "An Act to Provide Protection to Buyers
of Real Estate on Instalment Payments, emphasized the
indispensability of notice of cancellation to the buyer when it
specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial
act and upon full payment of the cash surrender value to the buyer.
(Emphasis supplied).
Moreover, there was no waiver on the part of the private respondent
of his right to be notified under paragraph 6 of the contract since it
was a contract of adhesion, a standard form of petitioner corporation,
and private respondent had no freedom to stipulate. Finally, it is a
matter of public policy to protect buyers of real estate on instalment
payments against onerous and oppressive conditions. Waiver of
notice is one such onerous and oppressive condition to buyers of real
estate on instalment payments.
As a consequence of the resolution by petitioners, rights to the lot
should be restored to private respondent or the same should be
replaced by another acceptable lot but since the property had already
been sold to a third person and there is no evidence on record that
other lots are still available, private respondent is entitled to the refund
of instalments paid plus interest at the legal rate of 12% computed
from the date of the institution of the action. It would be most
inequitable if petitioners were to be allowed to retain private
respondent's payments and at the same time appropriate the
proceeds of the second sale to another.
Onstott not personally liable
Onstott was made liable because he was then the President of the
corporation and the controlling stockholder but there was no sufficient
proof that he used the corporation to defraud private respondent. He
cannot, therefore, be made personally liable just because he "appears
to be the controlling stockholder". Mere ownership by a single
stockholder or by another corporation is not of itself sufficient ground
for disregarding the separate corporate personality.
Finally, there are no badges of fraud on the petitioners' part. They had
literally relied, albeit mistakenly, on paragraph 6 (supra) of the
contract when it rescinded the contract to sell extrajudicially and had
sold it to a third person.
Petitioner Palay, Inc. is liable to refund to respondent Dumpit the
amount of P13,722.50, with interest at twelve (12%) p.a. from
November 8, 1974, the date of the filing of the Complaint.
TRAMAT MERCANTILE V. CA
Dela Cuesta sold a tractor to Tramat corporation. David Ong
(president of Tramat) paid dela Cuesta via a check. Tramat modified
the tractor and made it into a lawn mower and subsequently sold the
same to NAWASA. NAWASA refused to pay Tramat for the tractor
saying that it had defects and that the tractor engine is reconditioned.
Tramat through David ong subsequently caused a stop payment of
the check paid to Dela Cuesta (lesson, take cash or cash in ASAP).
Dela Cuesta ofcourse sued Tramat for non-payment and asked that
Tramat and David Ong be solidarily held liable. The RTC granted this
and asked the above mentioned to pay jointly and severally (aka
solidarily). The CA said the same.
The Supreme Court generally agreed that Tramat should pay however
in the case of David Ong being merely the President of the company
corporation, he should not be held personally liable for transactions
carried in the name of the corporation. It must be remembered that
the corporation has a separate and distinct personality from its officers
(even its president) and the liability incurred by the corporation is to
be born by the corporation. The court said essentially the same:
Ong had there so acted, not in his personal
capacity, but as an officer of a corporation,
TRAMAT, with a distinct and separate
personality. As such, it should only be the
corporation, not the person acting for and on its
behalf, that properly could be made liable
thereon.
The case however said that the above is not a hard and fast
rule. In certain circumstance the corporate officers may be
held liable in cases of:
1. He assents (a) to a patently unlawful act of the
corporation, or
(b) for bad faith, or gross negligence in directing
its affairs, or (c) for conflict of interest, resulting in
damages to the corporation, its stockholders or
other persons; 4
2. He consents to the issuance of watered stocks
or who, having knowledge thereof, does not
forthwith file with the corporate secretary his
written objection thereto; 5
3. He agrees to hold himself personally and
solidarily liable with the corporation; 6 or
4. He is made, by a specific provision of law, to
personally answer for his corporate action.
Clearly Ong has not committed any of the above mentioned
and shouldnt be held personally liable.
MARVEL BUILDING CORPORATION ET AL. V DAVID
Facts: Plaintiffs, as stockholders of Marvel Building Corp (corp) wants
to enjoin from selling at public auction properties in the complaint that
included 3 parcels of land, namely the Aguinaldo Building, Wise
Building, and Dewey Boulevard-Padre Faura Mansion, all registered
in the name of the corp. Said properties were seized to collect war
profit taxes against plaintiff Maria Castro. Plaintiffs allege that the 3
properties belong to the Corp and not to Maria Castro while defendant
claims that Castro is the true and exclusive owner of the said
properties. In the Articles of Incorporation (AI) of the corp, the capital
stock was at P2M but what was only subscribed and paid was
P1.025M by 11 stockholders. Maria Castro was the president of the
corp. Of the 11 stockholders, it appears that Castro was related to
almost all of them (half brothers, half sisters, brother-in-law, husband
of Maria CAstro). The stockholders never held any business
meetings, the by-laws of the corp was never presented, and no
reports of the affairs of the corporation has been made, either of its
transactions or its accounts. From the books, advances were made
by Maria Castro to the corp 3 times amounting to almost P400K.
Issue: WON Maria Castro is the sole and exlclusive owner of all
the shares of stock of Marvel Building Corp and that the other
partners are her mere dummies
Held: Yes.
1. Maria Castro had endorsements in blank of the shares of
stock issued in the name of the other incorporators, and she
has possession of them. She signed 25 stock certificates
but only 11 were issued.
2. The stockholders did not have that much income to pay the
amounts corresponding to their shares. It was found that
Castro profited a lot in her business. This shows that Castro
furnished all the money that the Corp had.
3. It is also significant that the plaintiffs, the supposed
subscribers, should have come to court to assert that they
actually paid for their subscriptions and that they are not
mere dummies. They never did. They could have rebutted
the charges, but they kept slent.
4. Stockholders never met to discuss business matters.
5. The books of account were kept as if they belonged to
Castro alone.
6. Castro advanced a big amount of money for the
corporation.
All these show that Castro was the sole and exclusive owner of the
shares and that the subscribers were her mere dummies.
G.R. No. L-15121, August 31, 1962
GREGORIO PALACIO AND MARIO PALACIO (MINOR) VS FELY
TRANSPORTATION COMPANY
Ponente: Regala
Facts:
In their complaint, the Palacio alleged that Fely hired Alfredo Canillo
as driver who negligently run over a child (Mario). Gregorio , the father
of Mario is a welder and in the account of his child's injuries has
abandoned his shop which is the family's source of income.
Fely filed a motion to dismiss on the grounds that there is no cause of
action against the company and that the cause of action is barred by
prior judgment. But the court deferred the determination of the
grounds alleged in the motion to dismiss until the trial of the case.
The defendant then alleges (1) that complaint states no cause of
action against defendant, and (2) that the sale and transfer of the jeep
AC-687 by Isabelo Calingasan to the Fely Transportation was made
on December 24, 1955, long after the driver Alfredo Carillo of said
jeep had been convicted and had served his sentence.
In view of the evidence presented, the lower court barred the
judgment in the criminal case and held that the person subsidiarily
liable to pay damages is Isabel Calingasan, the employer.
Issue: Whether Fely Transportation can be held liable for the
damages.
Ruling:
The Court agrees with this contention of the plaintiffs. Isabelo
Calingasan and defendant Fely Transportation may be regarded as
one and the same person. It is evident that Isabelo Calingasan's main
purpose in forming the corporation was to evade his subsidiary civil
liability resulting from the conviction of his driver, Alfredo Carillo. This
conclusion is borne out by the fact that the incorporators of the Fely
Transportation are Isabelo Calingasan, his wife, his son, Dr.
Calingasan, and his two daughters.
Accordingly, defendants Fely Transportation and Isabelo Calingasan
should be held subsidiarily liable for P500.00 which Alfredo Carillo
was ordered to pay in the criminal case and which amount he could
not pay on account of insolvency.
NATIONAL MARKETING CORPORATION VS ASSOCIATED
FINANCE COMPANY, INC.
19 SCRA 962 Business Organization Corporation Law Piercing
the Veil of Corporate Fiction Fraud Case
In 1958, National Marketing Corporation (NAMARCO) entered into
an agreement with Associated Finance Company, Inc. (AFCI).
NAMARCO was represented by its general manager Benjamin
Estrella. AFCI was represented by its president Francisco Sycip.
The agreement was that NAMARCO will deliver raw sugar to AFCI.
In exchange, AFCI will deliver refined sugar to NAMARCO.
NAMARCO delivered the raw sugar but AFCI failed to comply with
its obligation. NAMARCO then demanded AFCI to comply or if not
pay the amount of the raw sugar delivered which was at
P403,514.28. AFCI was not able to do either hence NAMARCO
sued AFCI and Sycip was impleaded.
ISSUE: Whether or not Sycip should be held jointly and severally
liable with Associated Finance Company, Inc.
HELD: Yes. In this case, it is proper to pierce the veil of corporate
fiction. It was proven that during the time of the agreement, AFCI
was already insolvent. Such fact was already known to Sycip. He
knew that AFCI was not in a position to transact with NAMARCO
because it could not possibly comply with its obligations. Sycips
assurances that AFCI can deliver said refined sugar products is
obviously fashioned to defraud NAMARCO into delivering the raw
sugar to AFCI. Consequently, Sycip cannot now seek refuge behind
the general principle that a corporation has a personality distinct and
separate from that of its stockholders and that the latter are not
personally liable for the corporate obligations. He is therefore liable
jointly and severally with AFCI to pay the amount claim for the raw
sugar delivered plus other damages claimed by NAMARCO with
interest.
TAN BOON BEE & CO. VS HILARION JARENCIO
163 SCRA 205 Business Organization Corporation Law
Piercing the Veil of Corporate Fiction Alter Ego Case
In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee, entered
into a contract of sale with Graphic Publishing Inc. (GPI) whereby
ASC shall deliver paper products to GPI. GPI paid a down payment
but defaulted in paying the rest despite demand from ASC. ASC
sued GPI and ASC won. To satisfy the indebtedness, the trial court,
presided by Judge Hilarion Jarencio, ordered that one of the printing
machines of GPI be auctioned. But before the auction can be had,
Philippine American Drug Company (PADCO) notified the sheriff
that PADCO is the actual owner of said printing machine.
Notwithstanding, the sheriff still went on with the auction sale where
Tan Boon Bee was the highest bidder.
Later, PADCO filed with the same court a motion to nullify the sale
on execution. The trial court ruled in favor of PADCO and it nullified
said auction sale. Tan Boon Bee assailed the order of the trial court.
Tan Boon Bee averred that PADCO holds 50% of GPI; that the
board of directors of PADCO and GPI is the same; that the veil of
corporate fiction should be pierced based on the premises. PADCO
on the other hand asserts ownership over the said printing machine;
that it is merely leasing it to GPI.
ISSUE: Whether or not the veil of corporate fiction should be
pierced.
HELD: Yes. PADCO, as its name suggests, is a drug company not
engaged in the printing business. So it is dubious that it really owns
the said printing machine regardless of PADCOs title over it.
Further, the printing machine, as shown by evidence, has been in
GPIs premises even before the date when PADCO alleged that it
acquired ownership thereof. Premises considered, the veil of
corporate fiction should be pierced; PADCO and GPI should be
considered as one. When a corporation is merely an adjunct,
business conduit or alter ego of another corporation the fiction of
separate and distinct corporation entities should be disregarded.
MAGSAYSAY-LABRADOR vs. COURT OF APPEALS
G.R. No. 58168. December 19, 1989.
Fernan, C.J.
FACTS: Private respondent Adelaida Rodriguez Magsaysay filed an
action against Subic Land Corporation (SUBIC), among others, to
annul the deed of assignment and deed of mortgage executed in favor
of the latter by her late husband. Private respondent alleged that the
subject land of the two deeds was acquired through conjugal funds.
Since her consent to the disposition of the same was not obtained,
she claimed that the acts of assignment and mortgage were done to
defraud the conjugal partnership. She further contended that the
same were done without consideration and hence null and void.
Petitioners, sisters of the deceased husband of the private
respondent, filed a motion for intervention on the ground that their
brother conveyed to them one-half of his shareholdings in SUBIC, or
about 41%. The trial court denied the motion for intervention ruling
that petitioners have no legal interest because SUBIC has a
personality separate and distinct from its stockholders. The CA
confirmed the denial on appeal. Hence, this petition.
ISSUE: Whether petitioners, as stockholders of SUBIC, have a legal
interest in the action for annulment of the deed of assignment and
deed of mortgage in favor of the corporation.
HELD: NO. The Court noted that the interest which entitles person to
intervene in a suit between other parties must be in the matter in
litigation and of such direct and immediate character that the
intervenor will either gain or lose by the direct legal operation and
effect of the judgment. In the instant petition, it was said that the
interest, if it exists at all, of petitioners-movants is indirect, contingent,
remote, conjectural, consequential and collateral. At the very least,
their interest is purely inchoate, or in sheer expectancy of a right in
the management of the corporation and to share in the profits thereof
and in the properties and assets thereof on dissolution, after payment
of the corporate debts and obligations. 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 being
equitable or 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.
INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO, petitioner,
vs.
VOLUNTARY ARBITRATOR TEODORICO P. CALICA and
INDOPHIL TEXTILE MILLS, INC., respondents.
FACTS: In 1987, Petitioner Indophil Textile Mill Workers Union-
PTGWO and private respondent Indophil Textile Mills, Inc. executed
a collective bargaining agreement effective from April 1, 1987 to
March 31, 1990.
Meanwhile, Indophil Acrylic Manufacturing Corporation was formed
and registered with the Securities and Exchange Commission.
In 1988, Acrylic became operational and hired workers according to
its own criteria and standards. Sometime in July, 1989, the workers of
Acrylic unionized and a duly certified collective bargaining agreement
was executed.
In 1990 or a year after the workers of Acrylic have been unionized and
a CBA executed, the petitioner union claimed that the plant facilities
built and set up by Acrylic should be considered as an extension or
expansion of the facilities of private respondent Company pursuant
the CBA. In other words, it is the petitioner's contention that Acrylic is
part of the Indophil bargaining unit.
The petitioner's contention was opposed by private respondent which
submits that it is a juridical entity separate and distinct from Acrylic.
Voluntary Arbitrator ruled in favour of Indophil.
ISSUE: WHETHER OR NOT INDOPHIL ACRYLIC IS A SEPARATE
AND DISTINCT ENTITY FROM RESPONDENT COMPANY FOR
PURPOSES OF UNION REPRESENTATION.
Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exist, the legal fiction that a corporation is an entity
with a juridical personality separate and distinct from its members or
stockholders may be disregarded. In such cases, the corporation will
be considered as a mere association of persons. The members or
stockholders of the corporation will be considered as the corporation,
that is liability will attach directly to the officers and stockholders. The
doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it
is made as a shield to confuse the legitimate issues, or where a
corporation is the mere alter ego or business conduit of a person, or
where the corporation is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.
In the case at bar, petitioner seeks to pierce the veil of corporate entity
of Acrylic, alleging that the creation of the corporation is a devise to
evade the application of the CBA between petitioner Union and private
respondent Company. While we do not discount the possibility of the
similarities of the businesses of private respondent and Acrylic,
neither are we inclined to apply the doctrine invoked by petitioner in
granting the relief sought. The fact that the businesses of private
respondent and Acrylic are related, that some of the employees of the
private respondent are the same persons manning and providing for
auxilliary services to the units of Acrylic, and that the physical plants,
offices and facilities are situated in the same compound, it is our
considered opinion that these facts are not sufficient to justify the
piercing of the corporate veil of Acrylic.
In the same case of Umali, et al. v. Court of Appeals (supra), We
already emphasized 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." In the instant case, petitioner does
not seek to impose a claim against the members of the Acrylic.
Furthermore, We already ruled in the case of Diatagon Labor
Federation Local 110 of the ULGWP v. Ople (supra) that it is grave
abuse of discretion to treat two companies as a single bargaining unit
when these companies are indubitably distinct entities with separate
juridical personalities.
Hence, the Acrylic not being an extension or expansion of private
respondent, the rank-and-file employees working at Acrylic should not
be recognized as part of, and/or within the scope of the petitioner, as
the bargaining representative of private respondent.
CONCEPT BUILDERS INC. VS NATIONAL LABOR RELATIONS
COMMISSION
257 SCRA 149 [G.R. NO. 108734. MAY 29, 1996]
Facts: Petitioner Concept Builders Inc., a domestic corporation with
principal office at 355 Maysan Road, Valenzuela, Metro Manila is
engaged in the construction business. Private respondents were
employed by said company as laborers, carpenters, and niggers. On
November 1981, private respondents were served with individual
written notices of termination of employment by petitioner, effective
on November 30, 1981. It was stated in the individual notices that their
contracts of employment had expired and the project in which they
were hired had been completed. Public respondent found it to be the
fact, however, at the time of the termination of private respondents
employment, the project in which they were hired had not yet been
finished and completed. Petitioner had to engage the services of the
subcontractors whose workers performed the functions of private
respondents. Aggrieved, private respondents filed a complaint for
illegal dismissal, unfair labor practices and non-payment of their
holiday pay, overtime pay, and 13th month pay against petitioners.
The labor arbiter rendered decision in favor of the private
respondents. When the same became final and executory, a writ of
execution was issued, however, the same was refused by the security
guard on duty on the ground that the petitioners no longer occupied
the premises. A break-open order was then recommended.
Issue: Whether or not the alias writ of execution can be issued against
the sister company of the petitioners, HPPI.
Held: Yes. It is a fundamental principle of corporation law that a
corporation is an entity separate and distinct from its stockholders and
from other corporations to which it may be connected. But, this
separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice. So, when the
notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or is used
as a device to defeat labor laws, this separate personality of the
corporation may be disregarded or the veil of corporate fiction pierced.
This is true likewise when the corporation is merely an adjunct, a
business conduit or an alter ego of another corporation.
The conditions under which the juridical entity may be disregarded
vary according to the peculiar facts and in circumstances laid down,
but certainly there are some probative factors of identity that will justify
the application of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both
corporations.
2. Identity of directors and officers.
3. The names of keeping corporate books and records
4. Methods of conducting the business.
Where one corporation is so organized and controlled and its affairs
are conducted so that, it is in fact, a mere instrumentality or adjunct of
the other, the fiction of the corporate entity of the instrumentality may
be disregarded. The control necessary to invoke the rule is not
majority or even complete stock control but such domination of
instances, policies and practices that the controlled corporation has,
so to speak, no separate mind, will or existence of its own and is but
a conduit for its principal. It must be kept in mind that the control must
be shown to have been exercised at the time the acts complained of
took place. Moreover, the control and breach of duty must proximately
cause the injury or unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the
veil of corporate fiction as follows:
1. Control, not mere majority or complete stock control but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the
time no separate mind, will on exercise of its own;
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 and unjust
act in contravention of plaintiffs legal rights.
3. The aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of.
The absence of any of these elements prevents piercing the
corporate veil of the corporation. In applying the instrumentality or
alter ego doctrine, the courts are concerned with reality and not form,
with how the corporation operated and the individual defendants
relationship to that operation.
EDUARDO CLAPAROLS VS. CIR, ALLIED WORKERS
ASSOCIATION, ET. AL.
JULY 31, 1975
Makasiar, J.
Topic and Relevant Provision: The Corporate Entity Disregarding
Corporate Entity (Piercing the Corporate Veil)
FACTS
Petition for certiorari.
On August 6, 1956, a ULP complaint was filed by private respondent
(AWA) on account of dismissal of respondent workers from the
CLAPAROLS STEEL AND NAIL PLANT.
On September 16, 1963, CIR found Mr. Claparols guilty of union
busting and of having dismissed complainants because of Union
Activities, and ordered him to pay the workers backwages and their
reinstatement. However, petitioners averred that Claparols could not
personally reinstate the workers and that assuming the workers are
entitled to backwages, the same should be limited to three months
only pursuant to Sta. Cecilia Sawmills vs. CIR; and that since
CLAPAROLS STEEL CORPORATION ceased to operate on
December 7, 1962, re-employment of the workers cannot go beyond
said date.
Workers allege that CLAPAROLS STEEL AND NAIL PLANT and
CLAPAROLS STEEL CORPORATION, are one and the same
corporation controlled by Eduardo Claparols; the latter corporation
succeeding the former. CIR for workers. Thus this Petition for
Certiorari to the SC. (St. Martins case not yet decided)
ISSUE
WON the CLAPAROLS STEEL AND NAIL PLANT is the same entity
as CLAPAROLS STEEL CORPORATION (should the corporate veil
be pierced?)
HELD
YES.
Dispositive: WHEREFORE, PETITION IS HEREBY DENIED WITH
TREBLE COSTS AGAINST PETITIONERS TO BE PAID BY THEIR
COUNSEL.
RATIO
Respondent Court's findings that indeed the Claparols Steel
and Nail Plant, which ceased operation of June 30, 1957, was
SUCCEEDED by the Claparols Steel Corporation effective the
next day, July 1, 1957 up to December 7, 1962, when the latter
finally ceased to operate, were not disputed by petitioners.
It is very clear that the latter corporation was a continuation and
successor of the first entity, and its emergence was skillfully timed to
avoid the financial liability that already attached to its predecessor,
the Claparols Steel and Nail Plant. Both predecessors and
successor were owned and controlled by the petitioner Eduardo
Claparols and there was no break in the succession and continuity
of the same business. This "avoiding-the-liability" scheme is very
patent, considering that 90% of the subscribed shares of stocks of
the Claparols Steel Corporation (the second corporation) was owned
by respondent (herein petitioner) Claparols himself, and all the
assets of the dissolved Claparols Steel and Nail Plant were turned
over to the emerging Claparols Steel Corporation.
It is very obvious that the second corporation seeks the
protective shield of a corporate fiction whose veil in the present
case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its
employees.
VILLA REY TRANSIT vs. FERRER
This is a corporation law case. A fraud piercing case with an alter-ego
issue. No not the Batman-Bruce Wayne type. And 'fraud piercing'
meaning, in order to get into the bottom of it all and expose the
corporate fraud the court decides to pierce its veil of corporate fiction
of what it seems to be.
Question: Is the DOCTRINE THAT A CORPORATION IS A LEGAL
ENTITY DISTINCT AND SEPARATE FROM THE MEMBERS AND
STOCKHOLDERS A hard fast rule? Well not all the time.
It's kinda bit complicated when you read this case. But here's what's
its all about. It's all about FOUR CONTRACTS OF SALE:
1. Villarama PANTRANCO (Conditional Sale - 2 Certificates)
2. CORPORATION Fernando ( 5 Certificates)
3. SHERIFF Ferrer (Public Bidding - 2 Certificates)
4. Ferrer PANTRANCO (Subsequent Sale - 2 Certificates)
Just pay attention to the first one, co'z the crux of this case lies in it.
Let me give you an overview of this case:
Jose Villarama was a bus operator, under the business name of Villa
Rey Transit. He operated 32 bus units on various route lines from
Pangasinan to Manila, vice-versa, by virtue of 2 certificates of public
convenience granted him by the Public Service Commission (PSC).
Now, he sold the 2 certificates of public convenience to the
Pangasinan Transportation Company, Inc. (PANTRANCO), for P350
grand. PANTRANCO? remember? Fisherman's Mall? (NOW TAKE
NOTE) this is a conditional sale with a stipulated condition that the
seller (Villarama) "shall not for a period of 10 years from the date of
this sale, apply for any TPU service identical or competing with the
buyer." This simply means NO COMPETITION WITH BUYER FOR
10 YEARS.
But barely 3 months thereafter, a corporation called VILLA REY
TRANSIT INC. (let's call this 'the Corporation' as differentiated from
the previous Villa Rey Transit ) was organized with a capital stock of
P500,000.00 where Natividad Villarama (wife of JoseVillarama) was
one of the incorporators other than the brother and sister-in-law of
Jose Villarama.
And in less than a month after its registration with the SEC the
Corporation, bought 5 certificates of public convenience, 49 buses,
tools and equipment from one Valentin Fernando, for the sum of P249
grand. Wow. So there you go, sold at high bought at low. The guy
really knows what he's doing.
So, the very same day the contract of sale was executed, the parties
to the sale immediately applied with the PSC for approval of the sale
coupled with a permit to operate provisionally while the case is
pending. (Q: Why approval of the sale? A: Because public transport
involves public interest therefore the government must come in to
regulate)
But before PSC could take final action on said application for
approval, however, the Sheriff of Manila, pursuant to a writ of
execution issued by the CFI of Pangasinan, levied on 2 of the 5
certificates of public convenience in favor of Eusebio Ferrer
(respondent in this case) against Valentin Fernando (vendor of 5
certificates). So.. simply, the 2 of 5 certificates sold by Fernando to
the Corporation was under litigation in a pending case which was
newly decided and now executed. (Bummer huh? Too bad for
Villarama).
So consequently the Sheriff conducted a public sale for the said 2
certificates of public convenience. And Ferrer was the highest bidder,
therefore a certificate of sale was issued in his name.
And here's what Ferrer did. He sold the 2 certificates of public
convenience to none other than PANTRANCO.
So.. nagsabay ngayon... the applications for approval of sale, filed
before the PSC, by Fernando and the Corporation, for the supposed
5 certificates and that of Ferrer and Pantranco, for the subsequent 2
certificate sale, and both were scheduled for a joint hearing.
And here's what irked Villarama. In the meantime during the pendency
of the case the PSC issued an order disposing that before a final
resolution on the aforesaid applications, PANTRANCO shall be the
one to operate provisionally the service under the two certificates
embraced in the contract between Ferrer and Pantranco.
The Corporation took issue with this particular ruling of the PSC and
elevated the matter to the Supreme Court, which decreed, that until
the issue on the ownership of the disputed certificates shall have been
finally settled by the proper court, the CORPORATION should be the
one to operate the lines provisionally.
So the PSC was pro-PANTRANCO and the SC was pro-
CORPORATION.
Now to get an upper-hand on this case, the Corporation filed in the
CFI of Manila, a complaint praying for the annulment of the :
1. sheriff's sale of the aforesaid two certificates of public convenience
in favor of Ferrer,
2. the subsequent sale thereof by the latter to Pantranco.
3. that all the orders of the PSC relative to the parties' dispute over
the said certificates
And BOOM! The CFI of Manila declared the sheriff's sale of two
certificates of public convenience in favor of Ferrer and the
subsequent sale thereof by the latter to Pantranco NULL AND VOID;
declared the Corporation to be the lawful owner of the said certificates
of public convenience; and ordered Ferrer and Pantranco, jointly and
severally, to pay the Corporation, the sum of P5,000.00 as and for
attorney's fees.
The case against the PSC was dismissed. All parties appealed. And
PANTRANCO rested it's defense on the very first contract of sale
zeroing in on the 10 year prescriptive period of competition between
vendor and vendee stipulated in the very first conditional sale,
assailing the DISTINCT AND SEPARATE PERSONALITY and
therefore LIMITED LIABILITY of the members and stockholders of
the corporation from the corporation it self, since the seller of the 2
certificates in the conditional sale are one and the same with their
competitor CORPORATION (Villa Rey Transit Inc.)
So clearly this is an alter-ego issue. And Villarama committed fraud
by creating another company which is merely a fictional corporation
in order to evade the 10 year prescriptive period stipulated in the
conditional sale.
Issue:
Whether the stipulation, "SHALL NOT FOR A PERIOD OF 10 YEARS
FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE
IDENTICAL OR COMPETING WITH THE BUYER" in the contract
between Villarama and Pantranco, binds the Corporation (the Villa
Rey Transit, Inc.).
Held:
The court answered YES. And therefore PIERCED THE VEIL OF
CORPORATE FICTION.
1. Villarama supplied the organization expenses and the assets of the
Corporation, where he himself made use of the money of the
Corporation and deposited them to his private accounts. The
Corporation furthermore paid his personal accounts.
Villarama himself admitted that HE MINGLED THE CORPORATE
FUNDS WITH HIS OWN MONEY. These circumstances are strong
persuasive evidence showing that Villarama has been too much
involved in the affairs of the Corporation to altogether negative the
claim that he was only a part-time general manager.
2. They show beyond doubt that the Corporation is his alter ego. The
interference of Villarama in the complex affairs of the corporation, and
particularly its finances, are much too inconsistent with the ends and
purposes of the Corporation law, which, precisely, seeks to separate
personal responsibilities from corporate undertakings.
3. It is the very essence of incorporation that the acts and conduct of
the corporation be carried out in its own corporate name because it
has its own personality. The doctrine that a corporation is a legal entity
distinct and separate from the members and stockholders who
compose it is recognized and respected in all cases which are within
reason and the law.

4. When the fiction is urged as a means of perpetrating a fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime, the veil
with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.
5. Hence, the Villa Rey Transit, Inc. is an alter ego of Jose Villarama,
and that the restrictive clause in the contract entered into by the latter
and Pantranco is also enforceable and binding against the said
Corporation.
SECOSA VS. HEIRS OF FRANCISCO, [G.R. NO. 160039. JUNE
29, 2004]
Facts: Francisco, an 18 year old 3rd year physical therapy student
was riding a motorcycle. A sand and gravel truck was traveling behind
the motorcycle, which in turn was being tailed by the Isuzu truck driven
by Secosa. The Isuzu cargo truck was owned by Dassad
Warehousing and Port Services, Inc.. The three vehicles were
traversing the southbound lane at a fairly high speed. When Secosa
overtook the sand and gravel truck, he bumped the motorcycle
causing Francisco to fall. The rear wheels of the Isuzu truck then ran
over Francisco, which resulted in his instantaneous death. Secosa left
his truck and fled the scene of the collision.
The parents of Francisco, respondents herein, filed an action for
damages against Secosa, Dassad Warehousing and Port Services,
Inc. and Dassads president, El Buenasucenso Sy.
The court a quo rendered a decision in favor of herein respondents;
thus petitioners appealed the decision to the Court of Appeals, which
unfortunately affirmed the appealed decision in toto. Hence, the
present petition.
Issues:
(1) Whether or not Dassad Warehousing and Port Services, Inc.
exercised the diligence of a good father of a family in the selection
and supervision of its employees; hence it cannot be held solidary
liable with the negligence of its employee.
(2) Whether or not Dassads president, El Buenasucenso Sy, can be
held solidary liable with co-petitioners.
Held:
(1) No. Dassad Warehousing and Port Services, Inc. did not exercise
the required diligence of a good father of a family in the selection and
supervision of its employees. Hence, it cannot be held solidary liable
with the negligence of its employee.
Article 2176 of the Civil Code provides:
Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault
or negligence, if there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed by the provisions
of this Chapter.
On the other hand, Article 2180, in pertinent part, states:
The obligation imposed by article 2176 is demandable not only for
ones own acts or omissions, but also for those of persons for whom
one is responsible x x x.
Employers shall be liable for the damages caused by their employees
and household helpers acting within the scope of their assigned tasks,
even though the former are not engaged in any business or industry
x x x.
The responsibility treated of in this article shall cease when the
persons herein mentioned prove that they observed all the diligence
of a good father of a family to prevent damage.
Based on the foregoing provisions, when an injury is caused by the
negligence of an employee, there instantly arises a presumption that
there was negligence on the part of the employer, which however,
may be rebutted by a clear evidence showing on the part of the
employer that it exercised the care and diligence of a good father of a
family in the selection and supervision of his employee.
In the selection of prospective employees, employers are required to
examine them as to their qualifications, experience, and service
records. On the other hand, with respect to the supervision of
employees, employers should formulate standard operating
procedures, monitor their implementation, and impose disciplinary
measures for breaches thereof. To establish these factors in a trial
involving the issue of explicit liability, employers must submit concrete
proof, including documentary evidence. The reason for this is to
obviate the biased nature of the employers testimony or that of his
witnesses.
In the case at bar, Dassad Warehousing and Port Services, Inc. failed
to conclusively prove that it had exercised the requisite diligence of a
good father of a family in the selection and supervision of its
employees. Dassad Warehousing and Port Services, Inc. failed to
support the testimony of its lone witness, Edilberto Duerme, with
documentary evidence which would have strengthened its claim of
due diligence in the selection and supervision of its employees. Such
an omission is fatal on account of which, Dassad can be rightfully held
solidarily liable with its co-petitioner Secosa for the damages suffered
by the heirs of Francisco.
(2) No. Sy cannot be held solidarily liable with his co-petitioners. While
it may be true that Sy is the president of Dassad Warehousing and
Port Services, Inc., such fact is not by itself sufficient to hold him
solidarily liable for the liabilities adjudged against his co-petitioners.
A corporation has a personality separate from that of its stockholders
or members. The doctrine of veil of corporation treats as separate
and distinct the affairs of a corporation and its officers and
stockholders. As a rule, a corporation will be looked upon as a legal
entity, unless and until sufficient reason to the contrary appears.
When the notion of legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons. Also, the corporate entity
may be disregarded in the interest of justice in such cases as fraud
that may work inequities among members of the corporation
internally, involving no rights of the public or third persons. In both
instances, there must have been fraud and proof of it.
The records of the case does not point toward the presence of any
grounds enumerated above that will justify the piercing of the veil of
corporate entity such as to hold Sy, the president of Dassad
Warehousing and Port Services, Inc., solidarily liable with it.
Furthermore, the Isuzu cargo truck which ran over Francisco was
registered in the name of Dassad and not in the name of Sy. Secosa
is an employee of Dassad and not of Sy. These facts showed Sys
exclusion from liability for damages arising from the death of
Francisco.