Spouses Lipat vs Pacific Banking Corporation

GR No. 142435

Facts:

Teresita Lipat, by virtue of the special power of attorney appointing her as an attorney-
in-fact of Belas Export Trading (BET), owned by her mother, Estelita Lipat, was able to
secure a loan before Pacific Banking Corporation and execute mortgage contracts in the
latter’s behalf. After BET was incorporated into a family corporation named Belas Export
Corporation (BEC), the previous loans of Teresita were restructured to BEC. Subsequent
loans were further obtained by BEC with corresponding promissory notes, trust receipts
and export bills secured by Estelita’s real property in Aurora, Cubao. After a numerous
default to pay the loans, the mortgaged was foreclosed and was sold in a public auction
to a certain Eugenio Trinidad. A complaint for annulment of the real estate mortgage,
extrajudicial foreclosure and the certificate of sale was filed by Estelita and her spouse
contending that the promissory notes, trust receipt, and export bills were all ultra
vires acts of Teresita as they were executed without the requisite board resolution of the
Board of Directors of BEC. The Lipats also averred that assuming said acts were valid and
binding on BEC, the same were the corporation’s sole obligation, it having a personality
distinct and separate from spouses Lipat. RTC denied the complaint and CA affirned the
decision against the Spouses Lipats on the ground of the doctrine of piercing the veil of
corporate fiction, holding BEC and the Lipats are one and the same. Pacific Bank had
transacted business with both BET and BEC on the supposition that both are one and the
same. Hence, the Lipats were estopped from disclaiming any obligations on the theory of
separate personality of corporations, which is contrary to principles of reason and good
faith.

Issue:

Whether or not CA erred in holding the Doctrine of Piercing the Veil of Corporate Fiction

Held:

No, CA did not err in holding the Doctrine of Piercing the Veil of Corporate Fiction. A
careful reading of the judgment of the RTC and the resolution of the appellate court
show that in finding petitioners mortgaged property liable for the obligations of BEC,
both courts below relied upon the alter ego doctrine or instrumentality rule, rather than
fraud in piercing the veil of corporate fiction. When the corporation is the mere alter ego
or business conduit of a person, the separate personality of the corporation may be
disregarded. However, Petitioners attempt to isolate themselves from and hide behind
the corporate personality of BEC so as to evade their liabilities to Pacific Bank is
precisely what the classical doctrine of piercing the veil of corporate entity seeks to
prevent and remedy. In our view, BEC is a mere continuation and successor of BET, and
petitioners cannot evade their obligations in the mortgage contract secured under the
name of BEC on the pretext that it was signed for the benefit and under the name of
BET. Thus, we are constrained to rule that the Court of Appeals did not err when it
applied the instrumentality doctrine in piercing the corporate veil of BEC.
Times Transportation vs Santos Sotelo
GR No. 163786

Facts:

Times Transportation is a corporation engaged in the business of land transportation.

Prior to its closure, the Times Employees Union (TEU) was formed. TEU later on
exercised strikes alleging Times’ commission of unfair labor practice after its
management implemented a retrenchment program. After the closure of Times, the
retrenched employees filed cases for illegal dismissal, money claims and unfair labor
practices against Times. The Labor Arbiter ruled that Times and Rondaris, the majority
stockholder of times, are liable for unfair labor practice. This decision was reinstated by
the Court of Appeals in its view that the doctrine of piercing the veil of corporate fiction
is applicable in this case, finding Times co-petitioners liable for its former obligations.
Times, however, claims that to drag Rondaris into the picture on the purported ground
that a fictitious sale of Times assets in their favor was consummated with the end in
view of frustrating the ends of justice and for purposes of evading compliance with the
judgment is the height of judicial arrogance. The Court of Appeals believes otherwise
and reckons that Times and Rondaris failed to adduce evidence to refute allegations of
collusion between them.

Issue:

Whether or not the honourable court of appeals properly applied the doctrine of piercing
the veil of corporate action in this case.

Held:

Yes, the Doctrine of piercing the corporate veil is properly applied in this case. This
Doctrine happens when separate legal entities is used to defeat public convenience,
justify wrong, protect fraud, or defend crime. Its elements are as follows: (1) control,
not mere stock control, but complete domination, not only of finances, but of policy and
business practice in respect to the transaction attacked; (2) such control must have
been used to commit a fraud or a wrong to perpetuate the violation of a statutory or
other positive legal duty, or a dishonest and an unjust act in contravention of a legal
right; and (3) the said control and breach of duty must have proximately caused the
injury or unjust loss complained of. The sale of Times’ franchise as well as most of its
bus units to a company owned by Rondaris’ daughter and family members, right in the
middle of a labor dispute, is highly suspicious. It is evident that the transaction was
made in order to remove Times’ remaining assets from the reach of any judgment that
may be rendered in the unfair labor practice cases filed against it. Hence, the petition
was denied.
William Yao, Sr. vs People of the Philippines
GR No. 168306

Facts:

William Yao, Sr. and several others were incorporators and officers of Masagana Gas
Corporation. In 2003, the NBI, acting on reports that petitioners unlawfully and in
violation of intellectual property rights of Petron Corporation and Pilipinas Shell, produce,
sell, distribute LPG products using LPG cylinders owned by Petron and Shell and by
virtue of search warrants, raided the premises of Masagana and confiscated, among
other things, the motor compressor and refilling machine owned by Masagana.
Masagana Corporation intervened in the case and asked for the return of said pieces of
equipment. It argued that even if the same was being used by petitioners in their
unlawful activity, the equipment cannot be confiscated because having a personality
separate and distinct from that of its incorporators, directors and officers, said properties
are owned by the corporation and not by the petitioners.The court denied Masagana’s
motion.

Issue:

Whether or not the doctrine of piercing the veil of corporate entity is applicable in the
case.

Held:

Yes, the Doctrine of piercing the corporate veil applies in this case. The Supreme Court
reiterated that it is a fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stockholders, directors or officers. However, 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 or
in the case of two corporations merge them into one. The findings of the Court show
that petitioners, as director and officers of Masagana were utilizing the corporation in
violating the intellectual property rights of Petron and Pilipinas Shell. As such, the
doctrine of piercing the veil of corporate entity applies. Hence, in this case, liability will
attach personally or directly to the officers and stockholders.