15. Tan Boon Bee & Co. v.

Jarencio, 163 SCRA 205

Piercing the Veil of Corporate Fiction Alter Ego Case
FACTS: Petitioner herein, doing business under the name and style of Anchor Supply Co., sold
on credit to herein private respondent raphic Publishing, !nc. "#AP$!C for short% paper
products. !n &'(), Anchor Supply Co. "ASC%, through *an +oon +ee, entered into a contract of
sale ,ith raphic Publishing !nc. "P!% ,hereby ASC shall deliver paper products to P!. P!
paid a do,n payment but defaulted in paying the rest despite demand from ASC. ASC sued P!
and ASC ,on. *o satisfy the indebtedness, the trial court, presided by -udge $ilarion -arencio,
ordered that one of the printing machines of P! be auctioned. +ut before the auction can be had,
Philippine American .rug Company "PA.C/% notified the sheriff that PA.C/ is the actual
o,ner of said printing machine. 0ot,ithstanding, the sheriff still ,ent on ,ith the auction sale
,here *an +oon +ee ,as the highest bidder.
1ater, PA.C/ filed ,ith the same court a motion to nullify the sale on e2ecution. *he trial
court ruled in favor of PA.C/ and it nullified said auction sale. *an +oon +ee assailed the order
of the trial court. *an +oon +ee averred that PA.C/ holds 345 of P!6 that the board of
directors of PA.C/ and P! is the same6 that the veil of corporate fiction should be pierced
based on the premises. PA.C/ on the other hand asserts o,nership over the said printing
machine6 that it is merely leasing it to P!.
ISSUE7 8hether or not the veil of corporate fiction should be pierced9
RULI!7 :es. PA.C/, as its name suggests, is a drug company not engaged in the printing
business. So it is dubious that it really o,ns the said printing machine regardless of PA.C/;s
title over it. Further, the printing machine, as sho,n by evidence, has been in P!;s premises
even before the date ,hen PA.C/ alleged that it ac<uired o,nership thereof. Premises
considered the veil of corporate fiction should be pierced6 PA.C/ and P! should be considered
as one. 8hen a corporation is merely an ad=unct, business conduit or alter ego of another
corporation the fiction of separate and distinct corporation entities should be disregarded.
!t is true that a corporation, upon coming into being, is invested by la, ,ith a personality
separate and distinct from that of the persons composing it as ,ell as from any other legal entity
to ,hich it may be related. As a matter of fact, the doctrine that a corporation is a legal entity
distinct and separate from the members and stoc>holders ,ho compose it is recogni?ed and
respected in all cases ,hich are ,ithin reason and the la,. $o,ever, this separate and distinct
personality is merely a fiction created by la, for convenience and to promote =ustice.
Accordingly, this separate personality of the corporation may be disregarded, or the veil of
corporate fiction pierced, in cases ,here it is used as a cloa> or cover for fraud or illegality, or to
,or> an in=ustice, or ,here necessary to achieve e<uity or ,hen necessary for the protection of
creditors. 1i>e,ise, this is true ,hen the corporation is merely an ad=unct, business conduit or
alter ego of another corporation. !n such case, the fiction of separate and distinct corporation
entities should be disregarded.
3". #a$% Ta&oranao Beni$o v. SEC, 123 SCRA '22
FACTS: /n February @, &'3', the Articles of !ncorporation of respondent -amiatul PhilippineA
Al !slamia, !nc. "originally Bamilol !slam !nstitute, !nc.% ,ere filed ,ith the Securities and
E2change Commission "SEC% and ,ere approved on .ecember &C, &'@). *he corporation had
an authori?ed capital stoc> of P)44,444.44 divided into )4,444 shares at a par value of P&4.44
each. /f the authori?ed capital stoc>, D,43D shares ,orth PD4,3D4.44 ,ere subscribed and fully
paid for. $erein petitioner .atu *agoranao +enito subscribed to C@4 shares ,orth PC,@44.44. /n
/ctober )D, &'(3, the respondent corporation filed a certificate of increase of its capital
stoc> from P)44,444.44 to P&,444,444.44. !t ,as sho,n in said certificate that P&'&,3@4.44
,orth of shares ,ere represented in the stoc>holdersE meeting held on 0ovember )3, &'(3 at
,hich time the increase ,as approved. *hus, P&&4,'D4.44 ,orth of shares ,ere subse<uently
issued by the corporation from the unissued portion of the authori?ed capital stoc> of
P)44,444.44. /f the increased capital stoc> of P&,444,444.44, P&@4,444.44 ,orth of shares ,ere
subscribed by Frs. Fatima A. #amos, Frs. *arhata A. 1ucman and Frs. Fo>iAin Alonto. /n
0ovember &D, &'(@, petitioner .atu *agoranao filed ,ith respondent Securities and E2change
Commission a petition alleging that the additional issue ",orth P&&4,'D4.44% of previously
subscribed shares of the corporation ,as made in violation of his preAemptive right to said
additional issue and that the increase in the authori?ed capital stoc> of the corporation from
P)44,444.44 to P&,444,444.44 ,as illegal considering that the stoc>holders of record ,ere not
notified of the meeting ,herein the proposed increase ,as in the agenda. Petitioner prayed that
the additional issue of shares of previously authori?ed capital stoc> as ,ell as the shares issued
from the increase in capital stoc> of respondent corporation be cancelled6 that the secretary of
respondent corporation be ordered to register the ),3C4 shares ac<uired by him "petitioner% from
.omocao Alonto and Fo>iAin Alonto6 and that the corporation be ordered to render
an accounting of funds to the stoc>holders.
ISSUE7 8hether or not the issuance of the &&,4'D shares ,ithout the consent of the stoc>holders
or of the +oard of .irectors, and in the absence of consideration and the increase in the
authori?ed capital stoc> from P)44,444.44 to P&,444,444.44 ,ithout the consent or e2press
,aiver of the stoc>holders, is null and void9
RULI!: *he po,er to issue shares of stoc>s in a corporation is lodged in the board of
directors and no stoc>holdersE meeting is necessary to consider it because additional issuance of
shares of stoc>s does not need approval of the stoc>holders. *he byAla,s of the corporation itself
states that Ethe +oard of *rustees shall, in accordance ,ith la,, provide for the issue and transfer
of shares of stoc> of the !nstitute and shall prescribe the form of the certificate of stoc> of the
!nstitute.
*he general rule is that preAemptive right is recogni?ed only ,ith respect to ne, issue of shares,
and not ,ith respect to additional issues of originally authori?ed shares. *his is on the theory that
,hen a corporation at its inception offers its first shares, it is presumed to have offered all of
those ,hich it is authori?ed to issue. An original subscriber is deemed to have ta>en his shares
>no,ing that they form a definite proportionate part of the ,hole number of authori?ed shares.
8hen the shares left unsubscribed are later reAoffered, he cannot therefore claim a dilution of
interest.
8ellAsettled is the rule that the findings of facts of administrative bodies ,ill not be interfered
,ith by the courts in the absence of grave abuse of discretion on the part of said agencies, or
unless the aforementioned findings are not supported by substantial evidence. !t ,as the finding
of the Securities and E2change Commission that a stoc>holdersE meeting ,as held on 0ovember
)3,&'(3, presided over by Fr. Ahmad .omocao Alonto, Chairman of the +oard of *rustees and,
among the many items ta>en up then ,ere the change of name of the corporation from Bamilol
!slam !nstitute !nc. to -amiatul PhilippineAAl !slamia, !nc., the increase of its capital stoc> from
P)44,444.44 to P&,444,444.44, and the increase of the number of its +oard of *rustees from five
to nine. *he Commission is inclined to believe that there ,as a stoc>holdersE meeting on
0ovember )3, &'(3 ,hich approved the increase.
56. C(%a !%an v. Sa)a(an& *a&+a+a,a, Inc., 62 -(i.. /'3
FACTS7 *he complaint alleges that the defendant Samahang Fagsasa>a, !nc., is a corporation
duly organi?ed under the la,s of the Philippine !slands ,ith principal office in Cabanatuan,
0ueva Eci=a, and that the individual defendants are the president, secretary and treasurer
respectively of the same.
/n -une &D, &'G&, on?alo $. Co *oco ,as the o,ner of 3,D'C shares of the capital stoc> of the
said corporation represented by nine certificates having a par value of P3 per share. on?alo $.
Co *oco, mortgaged said 3,D'C shares to Chua Chiu to guarantee the payment of a debt of
P)4,444 due on or before -une &', &'G). *he said certificates of stoc> ,ere delivered ,ith the
mortgage to the mortgagee, Chua Chiu and ,as duly registered in the office of the register of
deeds of Fanila and in the office of the said corporation.
Chua Chiu assigned all his right and interest in the said mortgage to the plaintiff and the
assignment ,as registered in the office of the register of deeds in the City of Fanila and in the
office of the said corporation. *he debtor, on?alo $. Co *oco, having defaulted in the payment
of said debt at maturity, the plaintiff foreclosed said mortgage and delivered the certificates of
stoc> and copies of the mortgage and assignment to the sheriff of the City of Fanila in order to
sell the said shares at public auction. *he sheriff auctioned said 3,D'C shares of stoc> and the
plaintiff having been the highest bidder for the sum of P&C,G'4, the sheriff e2ecuted in his favor
a certificate of sale of said shares.
*he plaintiff tendered the certificates of stoc> standing in the name of on?alo $. Co *oco to the
proper officers of the corporation for cancellation and demanded that they issue ne, certificates
in the name of the plaintiff. *he said officers "the individual defendants% refused and still refuse
to issue said ne, shares in the name of the plaintiff. *he prayer is that a ,rit of mandamus be
issued re<uiring the defendants to transfer the said 3,D'C shares of stoc> to the plaintiff by
cancelling the old certificates and issuing ne, ones in their stead.
ISSUE7 .id the registration of said chattel mortgage in the registry of chattel mortgages in the
office of the register of deeds of Fanila, under date of -uly )G, &'G&, give constructive notice to
the said attaching creditors9
RULI!7 !n passing, let it be noted that the registration of the said chattel mortgage in the
office of the corporation ,as not necessary and had no legal effect. !t has been doubted ,hether
shares of stoc> in a corporation are chattels in the sense in ,hich that ,ord is used chattel
mortgage statutes. !n the case of Fua Cun vs. Summers and China +an>ing Corporation "CC Phil.,
(43%, an e<uity in shares of stoc> is of such an intangible character that it is some,hat difficult to
see ho, it can be treated as a chattel and mortgaged in such a manner that the recording of the
mortgage ,ill furnish constructive notice to third parties..H
!t is a general rule that for purposes of e2ecution, attachment and garnishment, it is not the
domicile of the o,ner of a certificate but the domicile of the corporation ,hich is
decisive. considering the o,nership of shares in a corporation as property distinct from the
certificates ,hich are merely the evidence of such o,nership, it seems to us a reasonable
construction of section C of Act 0o. &34D to hold that the property in the shares may be deemed
to be situated in the province in ,hich the corporation has its principal office or place of
business. !f this province is also the province of the o,nerEs domicile, a single registration
sufficient. !f not, the chattel mortgage should be registered both at the o,nerEs domicile and in
the province ,here the corporation has its principal office or place of business. !n this sense the
property mortgaged is not the certificate but the participation and share of the o,ner in the assets
of the corporation.
*he only safe ,ay to accomplish the hypothecation of share of stoc> of a Philippine corporation
is for the creditor to insist on the assignment and delivery of the certificate and to obtain the
transfer of the legal title to him on the boo>s of the corporation by the cancellation of the
certificate and the issuance of a ne, one to him. *he attaching creditors are entitled to priority
over the defectively registered mortgage of the appellant. 8e are fully conscious of the fact
that at present there are uncertain and unsatisfactory states of our la, applicable to pledges and
chattel mortgages of shares of stoc> of Philippine corporations. *he remedy lies ,ith the
legislature.
'". Faci.i$ie+ *ana&e)en$ Cor0ora$ion v. Leonar1o 1e .a 2+a, "3 SCRA 131
FACTS: Petittioner ,as employed by respondents as follo,s7 "&% painter ,ith an hourly rate of
I&.)3 from Farch, &'@C to 0ovember, &'@C, inclusive6 ")% houseboy ,ith an hourly rate of
I&.)@ from .ecember, &'@C to 0ovember, &'@3, inclusive6 "G% houseboy ,ith an hourly rate of
I&.GG from .ecember, &'@3 to August, &'@@, inclusive6 and "C% cashier ,ith an hourly rate of
I&.C4 from August, &'@@ to Farch )(, &'@(, inclusive. $e further averred that from .ecember,
&'@3 to August, &'@@, inclusive, he rendered overtime services daily and that this entire period
,as divided into s,ing and graveyard shifts to ,hich he ,as assigned, but he ,as not paid both
overtime and night shift premiums despite his repeated demands from respondents.
#espondents filed their letterA ans,er ,ithout substantially denying the material allegations of
the basic petition but interposed the follo,ing special defenses, namely7 *hat
respondents Facilities Fanagement Corporation and -. S. .reyer are domiciled in 8a>e !sland
,hich is beyond the territorial =urisdiction of the Philippine overnment6 that respondent -. V.
Catuira, though an employee of respondent corporation presently stationed in Fanila, is ,ithout
po,er and authority of legal representation6 and that the employment contract bet,een petitioner
and respondent corporation carries Athe approval of the .epartment of 1abor of the Philippines.
ISSUE: !s the mere act by a nonAresident foreign corporation of recruiting Filipino ,or>ers for
its o,n use abroad, in la, doing business in the Philippines considering the fact that it has no
license to transact business in the Philippines as a foreign corporation9
RULI!: Petitioner may be considered as doing busuness un the Philippines ,ithin the the
scope of Section &C, #ule &C of the #ules of the Court ,hich provide7 SEC &C. Service upon
private foreign corporations. !f the defendant is a foreign corporation or a nonAresident =oint
stoc> company or association7 doing business in the Philippines, service may be made on its
resident agent designated in accordance ,ith la, for that purpose or, if there be no such agent,
on the government official designated by la, to that effect, or on any of its officers or agents
,ithin the Philippines.
*he ob=ect of Sections @D and @' of the Corporation 1a, ,as not to prevent the foreign
corporation from performing single acts, but to prevent it from ac<uiring a domicile for the
purpose of business ,ithout ta>ing the steps necessary to render it amenable to suit in the local
courts. !t ,as never the purpose of the 1egislature to e2clude a foreign corporation ,hich
happens to obtain an isolated order for business from the Philippines, from securing redress in
the Philippine courts.
8hat constitutes EdoingE or Eengaging inE or EtransactingE business implies a continuity of
commercial dealings and arrangements, and contemplates, to that e2tent, the performance of acts
or ,or>s or the e2ercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and ob=ect of its organi?ation. 8hile plaintiff is a foreign corporation
,ithout license to transact business in the Philippines, it does not follo, that it has no capacity to
bring the present action. Such license is not necessary because it is not engaged in business in the
Philippines.
!ndeed, if a foreign corporation, not engaged in business in the Philippines, is not banned from
see>ing redress from courts in the Philippines, a fortiori, that same corporation cannot claim
e2emption from being sued in Philippine courts for acts done against a person or persons in the
Philippines.