Doctrine of Piercing the Veil of Corporate Fiction
fraud and not available for other purposes;
What is it?
 EXCEPTION to the application of the corporate
separate legal personality.
 Disregarding the separate personality of a
corporation.
 Considering the corp as an aggregation of
persons undertaking a business.
 Ascribing personal liability to the members
constituting it.
 Shredding of corporate legal veil and regarding
it as a mere association of persons.
GENERAL RULE:
The fact that related corps may be engaged in
the same business or that they share the same address
or have interlocking incorporators, directors and
officers, in the absence of fraud or other public policy
consideration, which must be clearly proven, does not
warrant piercing.
Corporate Piercing must be done with caution.
PNB vs. Andrada Electric & Engineering Company, G.R.
No. 142936, April 17, 2002
Many application of the doctrine of PCV should
be done with caution. A court should be mindful of the
milieu where it is to be applied. It must be certain that
the corporate fiction was misused to such an extent that
injustice, fraud or crime was committed against
another, in disregard of its rights. The wrongdoing must
be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never
unintended may result from an erroneous application.
Sarona vs. NLRC, 663 SCRA 394, January 18, 2012
Any piercing of the corporate veil has to be
done with caution, albeit courts will not hesitate to
disregard the corporate veil when it is misused or when
necessary in the interest of justice. After all, the concept
of corporate entity was not meant to promote unfair
objectives.
Pantranco Employees Association vs. NLRC
Whether the separate personality of the
corporation should be pierced hinges on obtaining facts
appropriately pleaded or proved.
The doctrine of piercing the veil of corporate entity:
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a) Has only res judicata effect to prevent wrong or
b) Judicial prerogatives only and;
c) Must be with necessary and factual basis
Objective of the Doctrine
For the protection of the interests of innocent
third persons dealing with the corporate entity.
Heirs of Fe Tan Uy, represented by her heir, Mauling Uy
Lim vs, International Exchange Bank, G.R. No. 166282 &
83, February 13, 2013
Under the variation of the doctrine of piercing
the veil of corporate fiction, when two business
enterprises are owned, conducted and controlled by the
same parties, both law and equity will, when necessary
to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and
treat them as identical or one and the same.
Q: How does one pierce the veil of corporate fiction?
(2004 Bar)
A: The veil of corporate fiction may be pierced by
proving in court that the notion of legal entity is being
used to defeat public convenience, justify wrong,
protect fraud, or defend crime or the entity is just an
instrument or alter ego or adjunct of another entity or
person.
How does one pierce the veil of corporate fiction?
Upon showing that grounds exist, the corporate
fiction may be pierced through any of the following:
1. By disregarding the separate personality of the
corp.
2. By holding the corporate officer liable for the
corporate obligation.
3. By regarding the corp as an association of
persons or in case of two corps, treate them as
one and hold them liable as such.
Mercy Vda. De Roxas, represented by Arlene C. Roxas-
Cruz, in her capacity as substitute appellant-petitioner
vs. Our Lady’s Foundation, Inc. G.R. No. 182378, March
6, 2013
In order for the Court to hold the officer of the
corporation personally liable alone for the debts of the
corporation and thus pierce the veil of corporate
fiction, the Court has required that the bad faith of the
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officer must first be established clearly and
convincingly.
Petitioner, however, has failed to include any
submission pertaining to any wrongdoing of the
general manager. Necessarily, it would be unjust to
hold the latter personally liable. Moreso, if the general
manager was never impleaded as a party to the case.
Prince Transport vs. Garcia, G.R. No. 167291, January
12, 2011
The doctrine of piercing the veil of corporate
fiction is applicable not only to corps but also to a single
proprietorship as when the corp transferred its
employees to the company owned by the controlling SH
of the corp and yet despite the transfer, the employees’
daily time records, reports, daily income remittances
and schedule of work were all made, performed filed
and kept in the corp. The corp is clearly hiding behind
the supposed separate and distinct personality of the
company. As such, the corp and the company should be
solidarily liable for the claims of the illegally dismissed
employees.
Grounds for Application of Doctrine / Basic Areas where
Piercing is Allowed
1. Public Convenience
2. Fraud
3. Alter Ego / Instrumentality
Development Bank of the Philippines vs. Hydro
Resources Contractors Corporation, G.R. No. 167603,
March 13, 2013
The DPCV applies only in three (3) basic areas, namely:
1) Defeat of public convenience as when the
corporate fiction is used as a vehicle for the
evasion of an existing obligation;
2) Fraud cases or when the corporate entity is used
to justify a wrong, protect fraud, or defend a
crime; or
3) Alter ego cases, where corp is merely a farce
since it is a mere alter ego or business conduit
of a person, or where the corp is so organized
and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency,
conduit or adjunct of another corp.
Grounds for Application of Doctrine
1. PUBLIC CONVENIENCE – “Equity Piercing”
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Where necessary to achieve equity or for the
protection of the creditors
Ex. Vehicle for the evasion of an existing legal
obligation
 In taxation to minimize payment of tax
 In agrarian cases
 To ward off a judgment credit, to avoid
inclusion of corporate assets as part of the
estate of the decedent, to escape liability arising
from debt
Requirement: The corporate fiction was the very tool
used to evade obligation
Illustration: (Labor Claims)
The attempt to make the security agencies appear as
two separate entities, when reality they were but one, as
a devise to avoid labor claims.
2. FRAUD – “Fraud Piercing”
Ex. Justify wrong, protect fraud, defend crime
In FRAUD PIERCING:
Even control over the financial and operational
concerns of a subsidiary company does not of itself call
for disregarding its corporate fiction – there must be a
perpetuation of fraud behind the control or at least a
fraudulent or illegal purpose behind the control in
order to justify the doctrine.
FRAUD PIERCING CASES:
a. When it is proven that the corporate officer has used
the corporate fiction to defraud a third party, or that he
has acted negligently, maliciously or in bad faith, the
corporate fiction may be pierced to make both the corp
and the officer liable
b. When corporate officers do fraudulent or illegal acts
in the name of the corp, such as illegal dismissal or
unfair labor practices, they become personally liable for
the consequences of their fraudulent or illegal acts done
in behalf of the corp
c. When one tries to evade civil liability by
incorporating the properties or the business to insulate
them from judgment creditors and employing the
doctrine of limited liability
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d. Inadequate capitalization as to constitute fraud on
the investing public
e. Tax Fraud
3. ALTER EGO / INSTRUMENTALITY – “alter ego
piercing” / “ instrumentality test”
Ex. Corp is a farce, business conduit of a person, an
adjunct, an alter ego of another corp or where the corp
is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corp.
Development Bank of the Philippines vs, Hydro
Resources Contractors Corporation, G.R. No. 167603,
March 13, 2013
In this connection, case law lays down a
THREE-PRONGED TEST to determine the application of
the alter ego theory, which is also known as the
instrumentality theory namely: (C-F-A Analysis)
PNB vs. Ritratto Group, Inc. (2001)
In this case, the Court has outlined the
circumstances that are useful in the determination of
whether a subsidiary is a mere instrumentality of the
parent-corporation.
a) 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 transcation attacked so that the corporate entity
as to this transaction had at the time no separate mind,
will or existence of its own;
b) 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 acts in contravention of plaintiff’s
legal rights; and
c) The aforesaid CONTROL and breach of duty must
proximately cause the injury or unjust loss complained
of.
Test/s in Determining Applicability (C-F-H Analysis)
 CONTROL TEST (First Prong: aka Instrumentality
Test)
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Refers not to paper or formal control by majority or
even complete stock control BUT ACTUAL CONTROL
which amounts to such domination of finances,
policies, and practices that the controlled corps has no
separate mind, will or existence of its own.
In addition, the control must be shown to have been
exercised at the time the acts complained of took place.
WPM International Trading Inc. vs. Labayen, G.R. No.
182770. September 17, 2014
When an officer owns almost all of the stocks of
a corp, it does not ipso facto warrant the application of
the principle of piercing the corporate veil unless it is
proven that the officer has COMPLETE DOMINION
over the corp.
 FRAUD TEST (Second Prong)
- Requires that the actor’s conduct in using the
corporate fiction be UNJUST, FRAUDULENT or
WRONGFUL
- Requires a showing of an element of injustice or
fundamental unfairness
- Examines the relationship of the plaintiff to the
corporation
- Recognizes that piercing is appropriate only if the
parent corp uses the subsidiary in a way that harms the
plaintif creditor
 HARM TEST (Third Prong)
- Requires the plaintiff to show that the defendant’s
control, exerted in a fraudulent, illegal or otherwise
unfair manner toward it, CAUSED the HARM
SUFFERED.
The Objective Test
Umali vs. Court of Appeals, G.R. No. 89561, September
13, 1990
Where the end result in piercing the veil of
corporate fiction is to make the stockholders liable for
debts and obligations of the Corporation NOT to make
the Corporation liable for the debts and obligations of
the stockholders.
Specific Reasons from Jurisprudence / Rundowns of
Applications of the Doctrine
When the fiction or notion of legal entity is used to
1. Defeat public convenience (EP)
2. Justify wrong or work injustice (EP)
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3. Perpetuate fraud or illegality (FP)
4. Defend crime (FP)
5. As a shield to confuse the legitimate issues (FP)
6. To cover up blatant violation of the prohibition
against forum shopping (FP)
7. To promote unfair objectives or otherwise shield
them (EP)
8. Rectify circumvention of the Statutes (FP)
9. Achievement or perfection of monopoly (FP)
10. To ward off a judgment credit (EP)
11. To avoid inclusion of corporate assets as part of the
estate of the decedent (AEP)
12. To escape liability arising from a debt (EP)
2001 Bar
Q: Plaintiffs filed a collection action against “X” Corp.
Upon execution of the court’s decision. “X” Corp was
found to be without assets. Thereafter plaintiffs filed an
action against its present and past stockholder “Y” Corp
which owned substantially all of the stocks “X” Corp.
The two corps have the same board of directors and “Y”
Corp financed the operations of “X” Corp. May “Y” Corp
be held liable for the debts of “X’ Corp? Why?
Suggested Answer:
Yes, “Y” Corp may be held liable for the debts of X Corp.
The doctrine of piercing the veil of corporate fiction
applies to this case. The two corps have the same board
of directors and Y Corp owned substantially all of the
stocks of X Corp, 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 Corp controls the
finances of X Corp which is merely an adjunct, business
conduit or alter ego of Y Corp.
Q: P, a rich merchant in his early forties, was a
defendant in a lawsuit which could be subject him to
substantial damages. A year before the court rendered
judgement, P sought his lawyer’s advice on how to plan
his estate to avoid taxes. His lawyer suggested that he
should form a corp with himself, his wife and his
children (all students and still unemployed) as SHs and
then transfer all his assets and liabilities to this corp. P
and the plaintiff sought to enforce this judgment. The
sheriff, however, could not locate any property in the
name of P and therefore returned the writ of execution
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unsatisfied. What remedy, if any, is available to the
plaintiff?
Suggested Answer:
The plaintiff can avail himself of the doctrine of
piercing the veil of corporate fiction which can be
invoked when a corp is formed or used in avoiding a
just obligation. While it is true that a family corp may
be organized to pursue an estate tax planning, which is
not per se illegal or unlawful, the factual settings,
however, indicate the existence of a lawsuit that could
subject P to a substantial amount of damages. It would
thus be difficult for P to convincingly assert that the
incorporation of the family corp was intended merely a
case of “estate tax planning”.
Concept Builders vs. NLRC
The SC enumerated the possible probative
factors of identity which could justify the application of
the doctrine of PCV. These are:
1. Stock ownership by one or common ownership of
both corps
2. Identity of directors and officers
3. The manner of keeping corporate books and records
4. Methods of conducting the business
The burden of proving the presence of any of
these probative factors lies with the one alleging it.
Who have Legal Standing to Invoke Piercing Doctrine?
1. Among members of the corp internally
2. Public or third persons affected by the questioned
acts
-There must be fraud and proof of it
-Look Out for Probative Factors
Cannot be availed of by one who is NOT a “victim” or
by one who cannot claim innocence (bad faith)
Kukan International Corporation vs. Hon. Judge Amor
Reyes, G.R. No. 182729, September 29, 2010
The court must first acquire jurisdiction over
the corporation or corps involved before its ore their
separate personalities are disregarded; and the DPCV
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.
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True or False
Piercing the veil of corporate entity applies to
determination of liability NOT of jurisdiction.
TRUE. The Doctrine of piercing the veil of corporate
fiction comes to play only during the trial of the case
after the court has already acquired jurisdiction over
the corp. Hence, before the doctrine can be applied,
based on the evidence presented, it is imperative that
the court must first have the jurisdiction over the corp.
When to Invoke Piercing Doctrine? (Special)
Gold Line Tours vs. Heirs of Maria Concepcion Lacsa,
G.R. No. 159108, June 18, 2012
However, in another case involving an action
for breach of carriage resulting to death of one of the
passengers, SC ruled that if the RTC had sufficient
factual basis to conclude that the two corps are one and
the same entity as when they have the same President
and controlling shareholder and it is generally known
in the place where they do business that both
transportation companies are one, the third party claim
filed by the other corp was set aside and the levy on its
property held valid even though the latter was not
made a party to the case. The judgment may be
enforced against the corp to prevent multiplicity of suits
and save the parties unnecessary expenses and delay.
Doctrine Not Available
- To save oneself/itself from transactions which he/it
knew to be defective or contrary to the law applicable
to its industry.
- When a corporate officers and directors are sued
merely as nominal parties in their official capacities as
such
- To establish a right for the first time or theorize
Ex. To justify a theory of co-ownership to allow the
stockholder the continued personal use and possession
of corporate properties.
- When the personal obligations of an individual are
sought to be enforced against the corp vs. making
corporate actors personally liable for corporate debts
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- When the corp employed fraud in the foreclosure
proceedings, where the remedy of annulment based on
vice of consent is still available
- When the wrongdoing is just alleged or presumed.
The wrong doing must be proven clearly and
convincingly – burden is on the party who seeks its
application
- To dislodge from SEC’s Jurisdiction a petition for
suspension of payments filed under PD 902-A
Doctrine Cannot be Employed
- To allow fraud
Ex. Seller of RP wishes to avoid the consequences of a
sale to a corporate of a sale to a corporate entity by
claiming that the broker through whom the seller
transacted the sale was also the President of the
corporate buyer, when such fact was known to her
from the beginning
Nature of the Remedy
 Only an equitable remedy
-A remedy of last resort
-Awarded only in cases where
corporate fiction is misused to the
extent of previously mentioned grounds
 A JUDICIAL POWER and cannot be assumed
improvidently by a Sheriff
PNB vs. Ritratto Group, Inc. (2001)
The circumstances rendering the subsidiary an
instrumentality which are important and which, if
present in the proper combination, are controlling.
These are as follows:
a) The parent corp owns all or most of the capital stock
of the subsidiary.
b) The parent and the subsidiary corps have common
directors or officers.
c) The parent corp finances the subsidiary.
d) The parent corp subscribes to all capital stock of the
subsidiary or otherwise causes its incorporation.
e) The subsidiary has grossly inadequate capital.
f) The parent corp pays the salaries and other expenses
or losses of the subsidiary.
g) The subsidiary has substantially no business except
with the parent corp or no assets except those conveyed
to or by the parent corp.
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h) In the papers of the parent corp or in the statements
of its officers, the subsidiary is described as a
department or division of the parent corp, or its
business or financial responsibility is referred to as the
parent corp’s own.
i) The parent corp uses the property of the subsidiary as
its own.
j) The directors or executives of the subsidiary do not
act independently in the interest of the subsidiary but
take their orders from the parent corp.
k) The formal legal requirement of the subsidiary are
not observed.
Commissioner of Customs vs. Oilink International Corp.,
G.R. No. 161759, July 2, 2014
In applying the “instrumentality” or “alter ego”
doctrine, the courts are concerned with reality, not
form, and with how the corp operated and the
individual defendant’s relationship to the operation.
Consequently, the absence of any one of the
foregoing elements disauthorizes the piercing of the
corporate fiction.
Dutch Movers, Inc. vs. Edilberto Lequin, G.R. No.
210032, April 25, 2017
Doctrine:
Piercing the veil of corporate fiction is allowed
where a corporation is a mere alter ego or a conduit of
a person, or another corporation.
Held:
In this case, the veil of corporate fiction must be
pierced because the peculiarity of the situation shows
that Sps. Lee controlled DMI and they actively
participated in its operation such that DMI existed not
as a separate entity but only as business conduit of Sps.
Lee. They controlled DMI making it appear to have no
mind of its own and used DMI as a shield in evading
legal liabilities, including payment of the judgement
awards in favour of Lequin et al.
The Court considered the following circumstances:
- Sps. Lee along with DMI collectively raised
arguments on the illegal dismissal case against
them.
- They were aware of and disclosed the
circumstances surrounding Lequin’s
employment, and propounded arguments
refuting that they were illegally dismissed.
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- They revealed the annual compensation of
Lequin et al. and their length of service.
- They also set up the defense that Lequin et al.
were merely project employees and were not
terminated but that DMI’s contract with its
client was discontinued resulting in the absence
of hauling projects.
Halley vs. Printwell, Inc. (2011)
Where the corp was under the control of its
stockholders who ran-up quite a high obligation with
the printing company knowing fully well that their
corp was not in the position in a position to pay
accounts, and where in fact they benefitted from the
operations of the company to which they never paid
subscription in full, would constitute piercing the veil
to allow the creditor to be able to collect what
otherwise were debts owed by the company which has
no visible assets and has ceased all operations.
Arco Pulp & Paper Co. Inc. vs. Lim, G.R. No. 206806,
June 25, 2014
In the case at bar, when petitioner Arco Pulp
and Paper’s obligation to Lim became due and
demandable, she (petitioner Santos) not only issued an
unfunded check but also contracted with a third party
in an effort to shift petitioner Arco Pulp and Paper’s
liability. She unjustifiably refused to honor petitioner
corp’s obligations to respondent. These acts clearly
amount to bad faith.
In this instance, the corporate veil may be
pierced, and petitioner Santos may be held solidarily
liable with petitioner Arco Pulp and Paper.
Livesay vs. Binswanger Philippines, G.R. No. 177493,
March 19, 2014
Piercing the veil of corporate fiction is
warranted when a corp ceased to exist only in name as
it re-emerged in the person of another corp, for the
purpose of evading its unfulfilled financial obligation
under a compromise agreement.
Thus, if the judgment for money claim could
not be enforced against the employer corp, an alias writ
may be obtained against the other corp considering the
indubitable link between the closure of the first corp
and incorporation of the other.
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Hacienda Luisita, Inc. vs. PARC, 660 SCRA 525,
November 2011
Absent any allegation or proof of fraud or other public
policy considerations, the existence of interlocking
directors, officers and stockholders is not enough
justification to pierce the veil of corporate fiction.

Effect of Positive Finding

Solidary liability among the corp and its officers and
directors.

Extent of Legal Effects When Piercing Applied

The application of the piercing doctrine to a particular
case does not deny the corp of legal personality for any
and all purposes but only for the particular transaction
or instance for which it was applied.

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