OUTLINE 2
He consents to the issuance of watered stocks or who, having
IV. DOCTRINE OF CORPORATE ENTITY
 A corporation has a personality separate and distinct from that of its
stockholders and members and is not affected by the personal rights,
obligations, and transactions of the latter.
 Since corporate property is owned by the corporation as a juridical
person, the stockholders have no claim on it as owners, but have
merely an expectancy or inchoate right to the same should any of it
remain upon dissolution of the corporation after all corporate creditors
have been paid.
 Such right is limited only to their equity interest (doctrine of limited
liability). Although stockholder’s interest in the corp may be attached by
his personal creditor, corp. property cannot be used to satisfy his claim
 GENERAL RULE: Separate personality is vested to a corporate entity
when it is issued the certificate of incorporation by the SEC.
 The exceptions are:
a. de facto corporation
b. corporation by estoppel
 As a separate juridical personality, a corporation can be held liable for
torts committed by its officers for corporate purpose
 Corporate entities are entitled to the following constitutional rights: due
process, equal protection, and protection against unreasonable
searches and seizures.
 However, a corp is not entitled to the privilege against self-incrimination
 Juridical personality of the corporation ends when liquidation ends
(payment of debts and distribution of assets) and inchoate rights or
expectancies of stockholders are realized. Until such conveyance is
made, title over the assets remains with the corporation.
 **Personal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly
attach, as a rule, only when—
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;
2.
knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the
corporation; or
4. He is made, by a specific provision of law, to personally answer for
his corporate action.
A. Doctrine/ Effects:
1. Magsaysay-Labrador v. CA. (1989) 180 SCRA 266
Corporations; A share of stock in a corporation does not vest the owner
thereof with any legal right or title to any of the property.—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.
That movant’s interest which may be protected in a separate proceeding is a
factor to be considered in allowing or disallowing a motion for intervention.—
We cannot give credit to such averment. As earlier stated, that the movant’s
interest may be protected in a separate proceeding is a factor to be
considered in allowing or disallowing a motion for intervention.
Transfer of shares in a corporation must be registered in the books of the
corporation to affect third persons.—The factual findings of the trial court are
clear on this point. The petitioners cannot claim the right to intervene on the
strength of the transfer of shares allegedly executed by the late Senator. The
corporation did not keep books and records. Perforce, no transfer was ever
recorded, much less effected as to prejudice third parties. The transfer must
be registered in the books of the corporation to affect third persons. The law
on corporations is explicit. Section 63 of the Corporation Code provides,
thus: “No transfer, however, shall be valid except as between the parties,
until the transfer is recorded in the books of the corporation showing the
names of the parties to the transaction, the date of the transfer, the number
of the certificate or certificates and the number of shares transferred.”
2. Stockholders of Guanzon v. RD (1962) 6 SCRA 373
Corporations; Liquidation and distribution of assets for transfer to
stockholders; Certificate of liquidation in the nature of transfer or
conveyance.—Where the purpose of the liquidation, as well as the
distribution of the assets of the corporation, is to transfer their title from the
corporation to the stockholders in proportion to their shareholdings, that
transfer cannot be effected without the corresponding deed of conveyance
from the corporation to the stockholders, and the certificate should be
considered as one in the nature of a transfer or conveyance.
3. Tramat Mercantile v. CA (1994) 238 SCRA 14
Corporation Law; Civil Law; Sale; There is no reason to reverse the factual
findings of both the trial court and the appellate court, particularly in holding
that the contract between de la Cuesta and TRAMAT was one of absolute,
not conditional sale.—We could find no reason to reverse the factual findings
of both the trial court and the appellate court, particularly in holding that the
contract between de la Cuesta and TRAMAT was one of absolute, not
conditional, sale of the tractor and that de la Cuesta did not violate any
warranty on the sale of the tractor to TRAMAT.
It should only be the corporation, not the person acting for and on its behalf,
that properly could be made liable under the questioned transaction.—It was,
nevertheless, an error to hold David Ong jointly and severally liable with
TRAMAT to de la Cuesta under the questioned transaction. 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.
Instances when personal liability of a corporate director, trustee or officer
along with the corporation may so validly attach.—Personal liability of a
corporate director, trustee or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when—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; 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; 3. He agrees to hold himself personally and solidarily liable
with the corporation; or 4. He is made, by a specific provision of law, to
personally answer for his corporate action.
4. Palay, Inc. V. Clave (1983) 124 SCRA 640
Corporation Law; General rule that a corporation may not be made to answer
for acts or liabilities of its stockholders or those of legal entities to which it
may be connected and vice versa; Exceptions to rule that veil of corporate
fiction may not be pierced.—It is basic that a Corporation is invested by law
with a personality separate and distinct from those of the persons composing
it as well as from that of any other legal entity to which it may be related. As a
general rule, a corporation may not be made to answer for acts or liabilities of
its stockholders or those of the legal entities to which it may be connected
and vice versa. However, the veil of corporate fiction may be pierced when it
is used as a shield to further an end subversive of justice; or for purposes
that could not have been intended by the law that created it; or to defeat
public convenience, justify wrong, protect fraud, or defend crime; or to
perpetuate fraud or confuse legitimate issues; or to circumvent the law or
perpetuate deception; or as an alter ego, adjunct or business conduit for the
sole benefit of the stockholders.
Absence of badges of fraud of subdivision owner when it rescinded a
contract to sell extrajudicially and sold the property to a third person.—We
find no badges of fraud on petitioners’ part. They had literally relied, albeit
mistakenly, on paragraph 6 (supra) of its contract with private respondent
when it rescinded the contract to sell extrajudicially and had sold it to a third
person.
President of real estate corporation cannot be held personally liable where
he appears to be controlling stockholder absent sufficient proof that he used
the corporation to defraud defaulting lot buyer; Mere ownership by a single
stockholder or by another corporation of all or nearly all capital stock of
corporation not sufficient ground for disregarding corporate personality; Case
at bar.—In this case, petitioner Onstott was made liable because he was
then the President of the corporation and he appeared to be the controlling
stockholder. No sufficient proof exists on record that said petitioner 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 of all or
nearly all of the capital stock of a corporation is not of itself sufficient ground
for disregarding the separate corporate personality.
5. JG Summit Holdings v. CA (2005) 450 SCRA 169
Commercial Law; Estoppel; Right of First Refusal; Contractual obligations
arising from rights of first refusal are not new in this jurisdiction and have
been recognized in numerous cases, and estoppel is too known a civil law
concept to require an elongated discussion.—We reject petitioner’s argument
that the present case may be considered under the Supreme Court
Resolution dated February 23, 1984 which included among en banc cases
those involving a novel question of law and those where a doctrine or
principle laid down by the court en banc or in division may be modified or
reversed. The case was resolved based on basic principles of the right of first
refusal in commercial law and estoppel in civil law. Contractual obligations
arising from rights of first refusal are not new in this jurisdiction and have
been recognized in numerous cases. Estoppel is too known a civil law
concept to require an elongated discussion. Fundamental principles on public
bidding were likewise used to resolve the issues raised by the petitioner. To
be sure, petitioner leans on the right to top in a public bidding in arguing that
the case at bar involves a novel issue. We are not swayed. The right to top
was merely a condition or a reservation made in the bidding rules which was
fully disclosed to all bidding parties.
Separation of Powers; There is no “executive interference” in the functions of
the Supreme Court by the mere filing of a memorandum by the Secretary of
Finance, which memorandum was merely “noted” to acknowledge its filing—
it had no further legal significance.—There is no “executive interference” in
the functions of this Court by the mere filing of a memorandum by Secretary
of Finance Jose Isidro Camacho. The memorandum was merely “noted” to
acknowledge its filing. It had no further legal significance. Notably too, the
assailed Resolution dated September 24, 2003 was decided unanimously by
the Special First Division in favor of the respondents.
Bids and Bidding; Infrastructure Projects; There is nothing inherently illegal
on a corporation’s act in seeking funding from parties who were losing
bidders—this is a purely commercial decision over which the State should
not interfere absent any legal infirmity; A case involving the disposition of
shares in a corporation which the government seeks to privatize, in which the
persons with whom it desires to enter into business with in order to raise
funds to purchase the shares are basically its business, differs from a case
involving a contract for the operation or construction of a government
infrastructure where the identity of the buyer/bidder or financier constitutes
an important consideration.—We see no inherent illegality on PHILYARDS’
act in seeking funding from parties who were losing bidders. This is a purely
commercial decision over which the State should not interfere absent any
legal infirmity. It is emphasized that the case at bar involves the disposition of
shares in a corporation which the government sought to privatize. As such,
the persons with whom PHILYARDS desired to enter into business with in
order to raise funds to purchase the shares are basically its business. This is
in contrast to a case involving a contract for the operation of or construction
of a government infrastructure where the identity of the buyer/bidder or
financier constitutes an important consideration. In such cases, the
government would have to take utmost precaution to protect public interest
by ensuring that the parties with which it is contracting have the ability to
satisfactorily construct or operate the infrastructure.
Right of First Refusal; The agreement of co-shareholders to mutually grant
the right of first refusal to each other, by itself, does not constitute a violation
of the provisions of the Constitution limiting land ownership to Filipinos and
Filipino corporations; If the foreign shareholdings of a landholding corporation
exceeds 40%, it is not the foreign stockholders’ ownership of the shares
which is adversely affected but the capacity of the corporation to own land—
that is, the corporation becomes disqualified to own land. We uphold the
validity of the mutual rights of first refusal under the JVA between
KAWASAKI and NIDC. First of all, the right of first refusal is a property right
of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their
JVA. This right allows them to purchase the shares of their co-shareholder
before they are offered to a third party. The agreement of co-shareholders to
mutually grant this right to each other, by itself, does not constitute a violation
of the provisions of the Constitution limiting land ownership to Filipinos and
Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still
owns land, the right of first refusal can be validly assigned to a qualified
Filipino entity in order to maintain the 60%-40% ratio. This transfer, by itself,
does not amount to a violation of the Anti-Dummy Laws, absent proof of any
fraudulent intent. The transfer could be made either to a nominee or such
other party which the holder of the right of first refusal feels it can comfortably
do business with. Alternatively, PHILSECO may divest of its landholdings, in
which case KAWASAKI, in exercising its right of first refusal, can exceed
40% of PHILSECO’s equity. In fact, it can even be said that if the foreign
shareholdings of a landholding corporation exceeds 40%, it is not the foreign
stockholders’ ownership of the shares which is adversely affected but the
capacity of the corporation to own land—that is, the corporation becomes
disqualified to own land. This finds support under the basic corporate law
principle that the corporation and its stockholders are separate juridical
entities. In this vein, the right of first refusal over shares pertains to the
shareholders whereas the capacity to own land pertains to the corporation.
Hence, the fact that PHILSECO owns land cannot deprive stockholders of
their right of first refusal. No law disqualifies a person from purchasing shares
in a landholding corporation even if the latter will exceed the allowed foreign
equity, what the law disqualifies is the corporation from owning land.
Constitutional Law; National Economy and Patrimony; Statutory
Construction; The prohibition under Section 7, Article XII of the Constitution
applies only to ownership of land—it does not extend to immovable or real
property as defined under Article 415 of the Civil Code.—As correctly
observed by the public respondents, the prohibition in the Constitution
applies only to ownership of land. It does not extend to immovable or real
property as defined under Article 415 of the Civil Code. Otherwise, we would
have a strange situation where the ownership of immovable property such as
trees, plants and growing fruit attached to the land would be limited to
Filipinos and Filipino corporations only.
6. San Juan Structural v. CA (1998) 296 SCRA 631
Corporation Law; Sales; The property of the corporation is not the property of
its stockholders or members and may not be sold by the stockholders or
members without express authorization from the corporation’s board of
directors.—A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the corporation is not
the property of its stockholders or members and may not be sold by the
stockholders or members without express authorization from the
corporation’s board of directors.
Agency; The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation,
bylaws, or relevant provisions of law.—Indubitably, a corporation may act
only through its board of directors or, when authorized either by its bylaws or
by its board resolution, through its officers or agents in the normal course of
business. The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation,
bylaws, or relevant provisions of law. Thus, this Court has held that “ ‘a
corporate officer or agent may represent and bind the corporation in
transactions with third persons to the extent that the authority to do so has
been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the
particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually
pertaining to the particular officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or agent to believe
that it has conferred.’ ”
Corporate Treasurers; Unless duly authorized, a treasurer, whose powers
are limited, cannot bind the corporation in a sale of its assets.—The Court
has also recognized the rule that “persons dealing with an assumed agent,
whether the assumed agency be a general or special one, are bound at their
peril, if they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it (Harry Keeler v.
Rodriguez, 4 Phil. 19).” Unless duly authorized, a treasurer, whose powers
are limited, cannot bind the corporation in a sale of its assets.
Selling is obviously foreign to a corporate treasurer’s function, which
generally has been described as “to receive and keep the funds of the
corporation, and to disburse them in accordance with the authority given him
by the board or the properly authorized officers.”—That Nenita Gruenberg is
the treasurer of Motorich does not free petitioner from the responsibility of
ascertaining the extent of her authority to represent the corporation.
Petitioner cannot assume that she, by virtue of her position, was authorized
to sell the property of the corporation. Selling is obviously foreign to a
corporate treasurer’s function, which generally has been described as “to
receive and keep the funds of the corporation, and to disburse them in
accordance with the authority given him by the board or the properly
authorized officers.”
When the corporate officers exceed their authority, their actions “cannot bind
the corporation, unless it has ratified such acts or is estopped from
disclaiming them.”—As a general rule, the acts of corporate officers within
the scope of their authority are binding on the corporation. But when these
officers exceed their authority, their actions “cannot bind the corporation,
unless it has ratified such acts or is estopped from disclaiming them.”
Contracts; Requisites of a Valid and Perfected Contract.—Article 1318 of the
Civil Code lists the requisites of a valid and perfected contract: “(1) consent
of the contracting parties; (2) object certain which is the subject matter of the
contract; (3) cause of the obligation which is established.” As found by the
trial court and affirmed by the Court of Appeals, there is no evidence that
Gruenberg was authorized to enter into the contract of sale, or that the said
contract was ratified by Motorich. This factual finding of the two courts is
binding on this Court. As the consent of the seller was not obtained, no
contract to bind the obligor was perfected. Therefore, there can be no valid
contract of sale between petitioner and Motorich.
Where a corporation never gave a written authorization to its treasurer to sell
a parcel of land it owns, any agreement to sell entered into by the latter with
a third party is void.—Because Motorich had never given a written
authorization to Respondent Gruenberg to sell its parcel of land, we hold that
the February 14, 1989 Agreement entered into by the latter with petitioner is
void under Article 1874 of the Civil Code. Being inexistent and void from the
beginning, said contract cannot be ratified.
Appeals; Pleadings and Practice; It is well-settled that points of law, theories
and arguments not brought to the attention of the trial court need not be, and
ordinarily will not be, considered by a reviewing court, as they cannot be
raised for the first time on appeal—allowing a party to change horses in
midstream, as it were, is to run roughshod over the basic principles of fair
play, justice and due process.—Petitioner itself concedes having raised the
issue belatedly, not having done so during the trial, but only when it filed its
surrejoinder before the Court of Appeals. Thus, this Court cannot entertain
said issue at this late stage of the proceedings. It is well-settled that points of
law, theories and arguments not brought to the attention of the trial court
need not be, and ordinarily will not be, considered by a reviewing court, as
they cannot be raised for the first time on appeal. Allowing petitioner to
change horses in midstream, as it were, is to run roughshod over the basic
principles of fair play, justice and due process.
Piercing the Veil of Corporate Fiction Doctrine; On equitable considerations,
the corporate veil can be disregarded when it is utilized as a shield to commit
fraud, illegality or inequity; defeat public convenience; confuse legitimate
issues; or serve as a mere alter ego or business conduit of a person or an
instrumentality, agency or adjunct of another corporation.—True, one of the
advantages of a corporate form of business organization is the limitation of
an investor’s liability to the amount of the investment. This feature flows from
the legal theory that a corporate entity is separate and distinct from its
stockholders. However, the statutorily granted privilege of a corporate veil
may be used only for legitimate purposes. On equitable considerations, the
veil can be disregarded when it is utilized as a shield to commit fraud,
illegality or inequity; defeat public convenience; confuse legitimate issues; or
serve as a mere alter ego or business conduit of a person or an
instrumentality, agency or adjunct of another corporation.
Evidence; The question of piercing the veil of corporate fiction is essentially a
matter of proof.—We stress that the corporate fiction should be set aside
when it becomes a shield against liability for fraud, illegality or inequity
committed on third persons. The question of piercing the veil of corporate
fiction is essentially, then, a matter of proof. In the present case, however,
the Court finds no reason to pierce the corporate veil of Respondent
Motorich. Petitioner utterly failed to establish that said corporation was
formed, or that it is operated, for the purpose of shielding any alleged
fraudulent or illegal activities of its officers or stockholders; or that the said
veil was used to conceal fraud, illegality or inequity at the expense of third
persons like petitioner.
Close Corporations; Words and Phrases; “Close Corporation,” Defined.—
Petitioner claims that Motorich is a close corporation. We rule that it is not.
Section 96 of the Corporation Code defines a close corporation as follows:
“SEC. 96. Definition and Applicability of Title.—A close corporation, within the
meaning of this Code, is one whose articles of incorporation provide that: (1)
All of the corporation’s issued stock of all classes, exclusive of treasury
shares, shall be held of record by not more than a specified number of
persons, not exceeding twenty (20); (2) All of the issued stock of all classes
shall be subject to one or more specified restrictions on transfer permitted by
this Title; and (3) The corporation shall not list in any stock exchange or
make any public offering of any of its stock of any class. Notwithstanding the
foregoing, a corporation shall be deemed not a close corporation when at
least two-thirds (2/3) of its voting stock or voting rights is owned or controlled
by another corporation which is not a close corporation within the meaning of
this Code. x x x.”
A corporation does not become a close corporation just because a man and
his wife owns 99.866% of its subscribed capital stock; So, too, a narrow
distribution of ownership does not, by itself, make a close corporation.—The
articles of incorporation of Motorich Sales Corporation does not contain any
provision stating that (1) the number of stockholders shall not exceed 20, or
(2) a preemption of shares is restricted in favor of any stockholder or of the
corporation, or (3) listing its stocks in any stock exchange or making a public
offering of such stocks is prohibited. From its articles, it is clear that
Respondent Motorich is not a close corporation. Motorich does not become
one either, just because Spouses Reynaldo and Nenita Gruenberg owned
99.866% of its subscribed capital stock. The “[m]ere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of
a corporation is not of itself sufficient ground for disregarding the separate
corporate personalities.” So, too, a narrow distribution of ownership does not,
by itself, make a close corporation.
In exceptional cases, “an action by a director, who singly is the controlling
stockholder, may be considered as a binding corporate act and a board
action as nothing more than a mere formality.”—The Court is not unaware
that there are exceptional cases where “an action by a director, who singly is
the controlling stockholder, may be considered as a binding corporate act
and a board action as nothing more than a mere formality.” The present
case, however, is not one of them. As stated by petitioner, Spouses
Reynaldo and Nenita Gruenberg own “almost 99.866%” of Respondent
Motorich. Since Nenita is not the sole controlling stockholder of Motorich, the
aforementioned exception does not apply.
Marriage; Husband and Wife; Conjugal Partnership; Co-Ownership; There is
no co-ownership between the spouses in the properties of the conjugal
partnership of gains.—Granting arguendo that the corporate veil of Motorich
is to be disregarded, the subject parcel of land would then be treated as
conjugal property of Spouses Gruenberg, because the same was acquired
during their marriage. There being no indication that said spouses, who
appear to have been married before the effectivity of the Family Code, have
agreed to a different property regime, their property relations would be
governed by conjugal partnership of gains. As a consequence, Nenita
Gruenberg could not have effected a sale of the subject lot because “[t]here
is no co-ownership between the spouses in the properties of the conjugal
partnership of gains. Hence, neither spouse can alienate in favor of another
his or her interest in the partnership or in any property belonging to it; neither
spouse can ask for a partition of the properties before the partnership has
been legally dissolved.”
Absolute Community of Property; Under the regime of absolute community of
property, “alienation of community property must have the written consent of
the other spouse or the authority of the court without which the disposition or
encumbrance is void.”—Assuming further, for the sake of argument, that the
spouses’ property regime is the absolute community of property, the sale
would still be invalid. Under this regime, “alienation of community property
must have the written consent of the other spouse or the authority of the
court without which the disposition or encumbrance is void.” Both
requirements are manifestly absent in the instant case.
B. Piercing the Corporate Veil:
 Piercing the veil of corporate entity requires the court to see through
the protective shroud which exempts its stockholders from liabilities
that ordinarily they could be subject to, or distinguishes one
corporation from a seemingly separate one, were it not for the existing
corporate fiction
 the court must be sure that the corporate fiction was misused, to such
an extent that injustice, fraud or crime was committed upon another,
disregarding, their, his, her or its rights. It is the protection of the
interests of innocent third persons dealing with the corporate entity
which the law seeks to protect by this doctrine.
 The presumption is that the stockholders or officers are distinct
entities. The burden of proving otherwise is on the party seeking to
have the court pierce the veil of corporate entity.
 Piercing the veil of corporate entity is merely an equitable remedy,
and may be awarded only in cases when the corporate fiction is used
to defeat public convenience, justify wrong, protect fraud or defend
crime or where the corporation is a mere alter ego or business conduit
of a person
 In case of wholly-owned corporations, corporations with common
stockholders, or corporations having a parent-subsidiary relationship,
the following are the “inevitable consequences”:
 a) Control and management of the corporation;
 b) Interlocking directors;
 c) Common access to the use of resources, services, and 3rd-party
providers; and
 d) Intra-corporate dealings.
 In the above consequences, there is no necessity for applying
the doctrine of piercing the corporate veil unless there is a
particular act by the corporation, stockholder, or BOD that
gives rise to a liability. If there’s a liability to speak of, such
consequences may be considered as a means of evading
such thus the need for the piercing.
 In applying the doctrine, determine:
1. the rights and obligations of the parties.
2. the possibility of non-enforcement of such rights and obligations
because of the shield or veil.
3. look into the circumstances and underlying purpose of putting up the
corporation
 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 manner of keeping corporate books and records.
4. Methods of conducting the business.”
 **When corp veil may be pierced
1. used to defeat public convenience,
2. justify wrong,
3. protect fraud or defend crime, or is
4. used as a device to defeat the labor laws, this separate
personality of the corporation may be disregarded or the veil
of corporate fiction pierced.
7.Villa Rey Transit v. Ferrer (1968) 25 SCRA 845
Corporation law; Corporation separate and distinct from members thereof;
Piercing the corporate veil, when necessary.—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. 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.
Contracts; Validity of stipulations in restraint of trade.—The 10-year
restrictive clause in the contract between Villarama and Pantranco while in
the nature of an agreement suppressing competition, is nevertheless
reasonable and not harmful or obnoxious to public interest. The disputed
stipulation is only incidental to the main agreement which is that of sale, the
restraint is only partial: first, in scope, it refers only to application for TPU by
the seller in competition with the lines sold to the buyer; second, in duration,
it is only for ten (10) years; and, third, with respect to situs or territory, the
restraint is only along the lines covered by the certif icates sold. It does not
appear that the ultimate result of the clause or stipulation would leave solely
to Pantranco the right to operate along the lines in question, thereby
establishing a monopoly. The main purpose of the restraint is to protect for a
limited time the business of the buyer. The rule is that a contract in restraint
of trade is valid provided there is a limitation upon either time or place.
Contracts; Purchaser in good faith; Rule of caveat emptor.—The 10-year
prohibition upon Villarama is not against his application f or, or purchase of,
certif icates of public convenience, but merely the operation of TPU along the
lines covered by the certificates sold by him to Pantranco. Consequently, the
sale between Fernando and the Corporation is valid, such that the rightful
ownership of the disputed certificates still belongs to the plaintiff being the
purchaser in good faith and for value thereof. In view of the rule of caveat
emptor, what was acquired by Ferrer in the sheriff's sale was only the right
which Fernando had in the certificates of public convenience on the day of
the sale. Of the same principle is the provision of Article 1544. of the Civil
Code, that "If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith. if it should be movable property."
8.Marvel Bldg. v. David (1954) 94 Phil. 376
CORPORATIONS; CIRCUMSTANTIAL EVIDENCE SHOWING ONE-MAN
CORPORATION.—The existence of endorsed certificates discovered by
internal revenue agents between 1948 and 1949 in the possession of the
Secretary-Treasurer of a supposed corporation; the fact that twenty-five
certificates were signed by its president for no justifiable reason; the fact that
two sets of certificates were issued; the undisputed fact that its principal
stockholder had made enormous profits and, therefore, had a motive to hide
them to evade the payment of taxes; the fact that the other subscribers had
no incomes of sufficient magnitude to justify their big subscriptions; the fact
that the subscriptions were not receipted for and deposited by the treasurer
in the name of the alleged corporation but were kept by the principal
stockholder herself; the fact that the stockholders or the directors never
appeared to have ever met to discuss the business of the corporation; the
fact that she advanced big sums of money to the corporation without any
previous arrangement or accounting; and the fact that the books of accounts
were kept as if they belonged to her alone—are circumstantial evidence
which are not only convincing but conclusive that she is the sole and
exclusive owner of all the shares of stock of the corporation and that the
other partners are her dummies.
9.Concept Builders v. NLRC (1996) 257 SCRA 149
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; The
separate and distinct personality of a corporation is merely a fiction created
by law for convenience and to promote justice; 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 the labor laws,
this separate personality of the corporation may be disregarded or the veil of
corporate fiction pierced.—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 the 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.
probative factors of identity that will justify the application of the doctrine of
piercing the corporate veil.—The conditions under which the juridical entity
may be disregarded vary according to the peculiar facts and circumstances
of each case. No hard and fast rule can be accurately 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 manner of keeping corporate books and
records. 4. Methods of conducting the business.”
“Instrumentality Rule,” Explained.—The SEC en banc explained the
“instrumentality rule” which the courts have applied in disregarding the
separate juridical personality of corporations as follows: “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 finances, 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.”
Test in determining the applicability of the doctrine of piercing the veil of
corporate fiction.—The test in determining the applicability of the doctrine of
piercing the veil of corporate fiction is 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 or existence 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 plaintiff’s legal rights; and 3. The aforesaid control and
breach of duty must proximately cause the injury or unjust loss complained
of. The absence of any one of these elements prevents ‘piercing the
corporate veil.’ 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 defendant’s relationship to that operation.”
Same; Same; The question of whether a corporation is a mere alter ego, a
mere sheet or paper corporation, a sham or a subterfuge is purely one of
fact.—Thus, the question of whether a corporation is a mere alter ego, a
mere sheet or paper corporation, a sham or a subterfuge is purely one of
fact.
10.Claparols v. CIR (1965) 65 SCRA 613
Employer and employee; Conditions of employment; Bonus; Bonus
demandable and enforceable when made part of wages or salary.—A bonus
is not a demandable and enforceable obligation, except when it in made part
of the wage or salary compensation. Whether or not bonus forms part of
wages depends upon the condition or circumstance for its payment. If it is an
additional compensation which the employer promised and agreed to give
without any condition imposed for its payment x x x then it is part of the
wage.
Same; Same; Same; Bonus demandable and enforceable when given by the
employer regularly or periodically.—An employee is not entitled to bonus
where there is no showing that it had been granted by the employer to its
employees periodically or regularly as to become part of their wages or
salaries. The clear implication is that bonus is recoverable as part of the
wage or salary where the employer regularly or periodically gives it to
employees.
Corporation law; Piercing the veil of corporate entity; Dissolution of
corporation and transfer of its assets to another to avoid financial liability
attached to the first corporation; Case at bar.—The second corporation seeks
the protective shield of a corporate fiction whose veil could, and should, be
pierced as it was deliberately and maliciously designed to evade its financial
obligation to its employees. 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 or persons, or, in the case of two
corporations, will merge them into one.
C. Parent-Subsidiary Relationship:
 A subsidiary has an independent and separate juridical personality,
distinct from that of its parent company; hence, any claim or suit
against the latter does not bind the former, and vice versa.
 **In applying the doctrine, the following requisites must be
established:
(1) control, not merely majority or complete stock control;
(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 acts in contravention of plaintiffs
legal rights; and
(3) the aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of.
 Circumstances which if present in the proper combination renders
the subsidiary an instrumentality:
a. The parent corporation owns all or most of the capital stock of the
subsidiary.
b. The parent and subsidiary corporations have common directors or
officers.
c. The parent corporation finances the subsidiary.
d. The parent corporation subscribes to all the capital stock of the
subsidiary or otherwise causes its incorporation.
e. The subsidiary has grossly inadequate capital.
f. The parent corporation pays the salaries and other expenses or
losses of the subsidiary.
g. The subsidiary has substantially no business except with the
parent corporation or no assets except those conveyed to it by the
parent corporation.
h. In the papers of the parent corporation or in the statements of its
officers, the subsidiary is described as a department or division of
the parent corporation, or its business or financial responsibility is
referred to as the parent corporation's own.
 i. The parent corporation 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 corporation in the latter's interest.
k. The formal legal requirements of the subsidiary are not observed.'"
11.Yutivo v. CTA (1961) 1 SCRA 160
Corporations; Piercing the veil of corporate fiction.—A corporation is an entity
separate and distinct from its stockholders and from other corporations to
which it may be connected. 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. When the corporation is the
mere alter ego or business conduit of a person, it may be disregarded.
Taxation; Sales tax; Tax evasion.—A corporation cannot be said to have
been organized as a tax evasion device when there was no tax to evade.
12.Jardine Davis Inc. v. JRB Realty (2005) 463 SCRA 555
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; A
corporation is an artificial being invested by law with a personality separate
and distinct from its stockholders and from other corporations to which it may
be connected; The doctrine applies only when such corporate fiction is used
to defeat public convenience, justify wrong, protect fraud or defend crime.—It
is an elementary and fundamental principle of corporation law that a
corporation is an artificial being invested by law with a personality separate
and distinct from its stockholders and from other corporations to which it may
be connected. While a corporation is allowed to exist solely for a lawful
purpose, the law will regard it as an association of persons or in case of two
corporations, merge them into one, when this corporate legal entity is used
as a cloak for fraud or illegality. This is the doctrine of piercing the veil of
corporate fiction which applies only when such corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend crime. The
rationale behind piercing a corporation’s identity is to remove the barrier
between the corporation from the persons comprising it to thwart the
fraudulent and illegal schemes of those who use the corporate personality as
a shield for undertaking certain proscribed activities.
A subsidiary has an independent and separate juridical personality, distinct
from that of its parent company, hence, any claim or suit against the latter
does not bind the former and vice versa.—While it is true that Aircon is a
subsidiary of the petitioner, it does not necessarily follow that Aircon’s
corporate legal existence can just be disregarded. In Velarde v. Lopez, Inc.,
the Court categorically held that a
**subsidiary has an independent and separate juridical personality,
distinct from that of its parent company; hence, any claim or suit
against the latter does not bind the former, and vice versa. In applying
the doctrine, the following requisites must be established:
(1) control, not merely majority or complete stock control;
(2) such control must have been used by the defendant to com mit
fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest acts in contravention of plaintiff’s legal
rights; and
(3) the aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.
The existence of interlocking directors, corporate officers and shareholders
which the respondent court considered, is not enough justification to pierce
the veil of corporate fiction, in the absence of fraud or other public policy
considerations; Even when there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate fiction applies only
when such fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime; The wrongdoing must be clearly and convincingly
established, it cannot just be presumed.—The existence of interlocking
directors, corporate officers and shareholders, which the respondent court
considered, is not enough justification to pierce the veil of corporate fiction, in
the absence of fraud or other public policy considerations. But even when
there is dominance over the affairs of the subsidiary, the doctrine of piercing
the veil of corporate fiction applies only when such fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime. To warrant
resort to this extraordinary remedy, there must be proof that the corporation
is being used as a cloak or cover for fraud or illegality, or to work injustice.
Any piercing of the corporate veil has to be done with caution. The
wrongdoing must be clearly and convincingly established. It cannot just be
presumed.
Civil Law; Damages; To justify a grant of actual or compensatory damages, it
is necessary to prove with a reasonable degree of certainty, premised upon
competent proof and on the best evidence obtainable by the injured party,
the actual amount of loss.—It was reversible error to award the respondent
the amount of P556,551.55 representing the alleged 30% unsaved electricity
costs and P185,951.67 as maintenance cost without showing any basis for
such award. To justify a grant of actual or compensatory damages, it is
necessary to prove with a reasonable degree of certainty, premised upon
competent proof and on the best evidence obtainable by the injured party,
the actual amount of loss. The respondent merely based its cause of action
on Aircon’s alleged representation that Fedders air conditioners with rotary
compressors can save as much as 30% on electricity compared to other
brands. Offered in evidence were newspaper advertisements published on
April 12 and 26, 1981.
13.PNB v. Ritratto Group (2001) 362 SCRA 216
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; The mere
fact that a corporation owns all of the stocks of another corporation, taken
alone is not sufficient to justify their being treated as one entity.—The general
rule is that as a legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members, and is not affected by
the personal rights, obligations and transactions of the latter. The mere fact
that a corporation owns all of the stocks of another corporation, taken alone
is not sufficient to justify their being treated as one entity. If used to perform
legitimate functions, a subsidiary’s separate existence may be respected,
and the liability of the parent corporation as well as the subsidiary will be
confined to those arising in their respective business. The courts may in the
exercise of judicial discretion step in to prevent the abuses of separate entity
privilege and pierce the veil of corporate entity.
The doctrine of piercing the corporate veil of corporate fiction is an equitable
doctrine developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful purposes.—In this
jurisdiction, we have held that the doctrine of piercing the corporate veil is an
equitable doctrine developed to address situations where the separate
corporate personality of a corporation is abused or used for wrongful
purposes. 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.
Test in Determining Applicability of the Doctrine of Piercing the Veil of
Corporate Fiction.—In Concept Builders, Inc. v. NLRC, we have laid the test
in determining the applicability of the doctrine of piercing the veil of corporate
fiction, to wit: 1. Control, not mere majority or complete 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 or existence 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 plaintiff’s legal rights; and, 3.
The aforesaid control and breach of duty must proximately cause the injury
or unjust loss complained of. The absence of any one of these elements
prevents “piercing the corporate veil.” 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 defendant’s relationship to
the operation.
Agency; A suit against an agent cannot without compelling reasons be
considered a suit against the principal.—In any case, the parent-subsidiary
relationship between PNB and PNB-IFL is not the significant legal
relationship involved in this case since the petitioner was not sued because it
is the parent company of PNB-IFL. Rather, the petitioner was sued because
it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure
proceedings. A suit against an agent cannot without compelling reasons be
considered a suit against the principal. Under the Rules of Court, every
action must be prosecuted or defended in the name of the real party-in-
interest, unless otherwise authorized by law or these Rules. In mandatory
terms, the Rules require that “parties-in-interest without whom no final
determination can be had, an action shall be joined either as plaintiffs or
defendants.” In the case at bar, the injunction suit is directed only against the
agent, not the principal.
Preliminary Injunction; A writ of preliminary injunction is an ancillary or
preventive remedy that may only be resorted to by a litigant to protect or
preserve his rights or interests and for no other purpose during the pendency
of the principal action—the dismissal of the principal action thus results in the
denial of the prayer for the issuance of the writ.—Anent the issuance of the
preliminary injunction, the same must be lifted as it is a mere provisional
remedy but adjunct to the main suit. A writ of preliminary injunction is an
ancillary or preventive remedy that may only be resorted to by a litigant to
protect or preserve his rights or interests and for no other purpose during the
pendency of the principal action. The dismissal of the principal action thus
results in the denial of the prayer for the issuance of the writ.
An injunctive remedy may only be resorted to when there is a pressing
necessity to avoid injurious consequences which cannot be remedied under
any standard compensation.—An injunctive remedy may only be resorted to
when there is a pressing necessity to avoid injurious consequences which
cannot be remedied under any standard compensation. Respondents do not
deny their indebtedness. Their properties are by their own choice
encumbered by real estate mortgages. Upon the non-payment of the loans,
which were secured by the mortgages sought to be foreclosed, the
mortgaged properties are properly subject to a foreclosure sale. Moreover,
respondents questioned the alleged void stipulations in the contract only
when petitioner initiated the foreclosure proceedings. Clearly, respondents
have failed to prove that they have a right protected and that the acts against
which the writ is to be directed are violative of said right. The Court is not
unmindful of the findings of both the trial court and the appellate court that
there may be serious grounds to nullify the provisions of the loan agreement.
However, as earlier discussed, respondents committed the mistake of filing
the case against the wrong party, thus, they must suffer the consequences of
their error. Philippine National Bank vs. Ritratto Group, Inc., 362 SCRA 216,
G.R. No. 142616 July 31, 2001
14.Pantranco v. NLRC. (GR 170689) 3/17/2009
Corporation Law; Piercing the Veil of Corporate Fiction; The general rule is
that a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected, a fiction
created by law for convenience and to prevent injustice; Settled is the rule
that where one corporation sells or otherwise transfers all its assets to
another corporation for value, the latter is not, by that fact alone, liable for the
debts and liabilities of the transferor.—The general rule is that a corporation
has a personality separate and distinct from those of its stockholders and
other corporations to which it may be connected. This is a fiction created by
law for convenience and to prevent injustice. Obviously, PNB, PNB-Madecor,
Mega Prime, and PNEI are corporations with their own personalities. The
“separate personalities” of the first three corporations had been recognized
by this Court in PNB v. Mega Prime Realty and Holdings Corporation/Mega
Prime Realty and Holdings Corporation v. PNB (567 SCRA 633 [2008])
where we stated that PNB was only a stockholder of PNB-Madecor which
later sold its shares to Mega Prime; and that PNB-Madecor was the owner of
the Pantranco properties. Moreover, these corporations are registered as
separate entities and, absent any valid reason, we maintain their separate
identities and we cannot treat them as one. Neither can we merge the
personality of PNEI with PNB simply because the latter acquired the former.
Settled is the rule that where one corporation sells or otherwise transfers all
its assets to another corporation for value, the latter is not, by that fact alone,
liable for the debts and liabilities of the transferor.
Words and Phrases; Under the doctrine of “piercing the veil of corporate
fiction,” the court looks at the corporation as a mere collection of individuals
or an aggregation of persons undertaking business as a group, disregarding
the separate juridical personality of the corporation unifying the group; Any
piercing of the corporate veil has to be done with caution, albeit the Court will
not hesitate to disregard the corporate veil when it is misused or when
necessary in the interest of justice.—Under the doctrine of “piercing the veil
of corporate fiction,” the court looks at the corporation as a mere collection of
individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the
group. Another formulation of this doctrine is that 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 as one and the same. Whether the separate personality
of the corporation should be pierced hinges on obtaining facts appropriately
pleaded or proved. However, any piercing of the corporate veil has to be
done with caution, albeit the Court 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.
Labor Law; It was clarified in Carag v. National Labor Relations Commission
(520 SCRA 28 [2007]), and McLeod v. National Labor Relations Commission
(512 SCRA 222 [2007]), that Article 212(e) of the Labor Code, by itself, does
not make a corporate officer personally liable for the debts of the
corporation—the governing law on personal liability of directors or officers for
debts of the corporation is still Section 31 of the Corporation Code.—In the
recent cases Carag v. National Labor Relations Commission (520 SCRA 28
[2007]), and McLeod v. National Labor Relations Commission (512 SCRA
222 [2007]), the Court explained the doctrine laid down in AC Ransom
relative to the personal liability of the officers and agents of the employer for
the debts of the latter. In AC Ransom, the Court imputed liability to the
officers of the corporation on the strength of the definition of an employer in
Article 212(c) (now Article 212[e]) of the Labor Code. Under the said
provision, employer includes any person acting in the interest of an
employer, directly or indirectly, but does not include any labor organization or
any of its officers or agents except when acting as employer. It was clarified
in Carag and McLeod that Article 212(e) of the Labor Code, by itself, does
not make a corporate officer personally liable for the debts of the corporation.
It added that the governing law on personal liability of directors or officers for
debts of the corporation is still Section 31 of the Corporation Code. More
importantly, as aptly observed by this Court in AC Ransom, it appears that
Ransom, foreseeing the possibility or probability of payment of backwages to
its employees, organized Rosario to replace Ransom, with the latter to be
eventually phased out if the strikers win their case. The execution could not
be implemented against Ransom because of the disposition posthaste of its
leviable assets evidently in order to evade its just and due obligations.
Hence, the Court sustained the piercing of the corporate veil and made the
officers of Ransom personally liable for the debts of the latter.
The doctrine of piercing the corporate veil 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 a corporation is merely a farce
since it is a 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.—What can be inferred from the earlier cases is that the doctrine
of piercing the corporate veil 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 a corporation is merely a farce since it is a 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 absence of malice, bad faith, or a specific provision of law making a
corporate officer liable, such corporate officer cannot be made personally
liable for corporate liabilities.
The mere fact that a corporation owns all of the stocks of another
corporation, taken alone, is not sufficient to justify their being treated as one
entity—if used to perform legitimate functions, a subsidiary’s separate
existence shall be respected, and the liability of the parent corporation as
well as the subsidiary will be confined to those arising in their respective
businesses.—For the sake of argument, that PNB may be held liable for the
debts of PNEI, petitioners still cannot proceed against the Pantranco
properties, the same being owned by PNB-Madecor, notwithstanding the fact
that PNB-Madecor was a subsidiary of PNB. The general rule remains that
PNB-Madecor has a personality separate and distinct from PNB. The mere
fact that a corporation owns all of the stocks of another corporation, taken
alone, is not sufficient to justify their being treated as one entity. If used to
perform legitimate functions, a subsidiary’s separate existence shall be
respected, and the liability of the parent corporation as well as the subsidiary
will be confined to those arising in their respective businesses.
Circumstances which are useful in the determination of whether a subsidiary
is but a mere instrumentality of the parent-corporation.—In PNB v. Ritratto
Group, Inc. (362 SCRA 216 [2001]), we outlined the
which are useful in the determination of whether a subsidiary is but a
mere instrumentality of the parent-corporation, to wit:
1. The parent corporation owns all or most of the capital stock of the
subsidiary;
2. The parent and subsidiary corporations have common directors or
officers;
3. The parent corporation finances the subsidiary;
4. The parent corporation subscribes to all the capital stock of the
subsidiary or otherwise causes its incorporation;
5. The subsidiary has grossly inadequate capital;
6. The parent corporation pays the salaries and other expenses or
losses of the subsidiary;
7. The subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to or by the parent
corporation;
8. In the papers of the parent corporation or in the statements of its
officers, the subsidiary is described as a department or division of the
parent corporation, or its business or financial responsibility is
referred to as the parent corporation’s own;
9. The parent corporation uses the property of the subsidiary as its
own;
10. The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary, but take their orders
from the parent corporation;
11. The formal legal requirements of the subsidiary are not observed.
D. OTHERS:
15.Almocera v. Ong Feb. 18, 2008
Sales; Contracts to Sell; Words and Phrases; A contract to sell is akin to a
conditional sale where the efficacy or obligatory force of the vendor’s
obligation to transfer title is subordinated to the happening of a future and
uncertain event, so that if the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never existed.—It
cannot be disputed that the contract entered into by the parties was a
contract to sell. The contract was denominated as such and it contained the
provision that the unit shall be conveyed by way of an Absolute Deed of Sale,
together with the attendant documents of Ownership—the Transfer
Certificate of Title and Certificate of Occupancy—and that the balance of the
contract price shall be paid upon the completion and delivery of the unit, as
well as the acceptance thereof by respondent. All these clearly indicate that
ownership of the townhouse has not passed to respondent. In Serrano v.
Caguiat, 517 SCRA 57 (2007) we explained: A contract to sell is akin to a
conditional sale where the efficacy or obligatory force of the vendor’s
obligation to transfer title is subordinated to the happening of a future and
uncertain event, so that if the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never existed. The
suspensive condition is commonly full payment of the purchase price.
Reciprocal Obligations; Where one of the parties to a contract did not
perform the undertaking to which he was bound by the terms of the
agreement to perform, he is not entitled to insist upon the performance of the
other party.—The contract subject of this case contains reciprocal obligations
which were to be fulfilled by the parties, i.e., to complete and deliver the
townhouse within six months from the execution of the contract to sell on the
part of petitioner and FBMC, and to pay the balance of the contract price
upon completion and delivery of the townhouse on the part of the
respondent. In the case at bar, the obligation of petitioner and FBMC which is
to complete and deliver the townhouse unit within the prescribed period, is
determinative of the respondent’s obligation to pay the balance of the
contract price. With their failure to fulfill their obligation as stipulated in the
contract, they incurred delay and are liable for damages. They cannot insist
that respondent comply with his obligation. Where one of the parties to a
contract did not perform the undertaking to which he was bound by the terms
of the agreement to perform, he is not entitled to insist upon the performance
of the other party.
Delay; Demand would be useless where there would be impossibility of the
other party complying with its obligation due to its fault.—Demand is not
necessary in the instant case. Demand by the respondent would be useless
because the impossibility of complying with their (petitioner and FBMC)
obligation was due to their fault. If only they paid their loans with the LBP, the
mortgage on the subject townhouse would not have been foreclosed and
thereafter sold to a third person.
For failure of one party to assume and perform the obligation imposed on
him, the other party does not incur delay.—The obligation of respondent to
pay the balance of the contract price was conditioned on petitioner and
FBMC’s performance of their obligation. Considering that the latter did not
comply with their obligation to complete and deliver the townhouse unit within
the period agreed upon, respondent could not have incurred delay. For
failure of one party to assume and perform the obligation imposed on him,
the other party does not incur delay.
Doctrine of Unjust Enrichment; Elements; The fundamental doctrine of unjust
enrichment is the transfer of value without just cause or consideration.—
Under the circumstances obtaining in this case, we find that respondent is
justified in refusing to pay the balance of the contract price. He was never in
possession of the townhouse unit and he can no longer be its owner since
ownership thereof has been transferred to a third person who was not a party
to the proceedings below. It would simply be the height of inequity if we are
to require respondent to pay the balance of the contract price. To allow this
would result in the unjust enrichment of petitioner and FBMC. The
fundamental doctrine of unjust enrichment is the transfer of value without just
cause or consideration. The elements of this doctrine which are present in
this case are: enrichment on the part of the defendant; impoverishment on
the part of the plaintiff; and lack of cause. The main objective is to prevent
one to enrich himself at the expense of another. It is commonly accepted that
this doctrine simply means a person shall not be allowed to profit or enrich
himself inequitably at another’s expense. Hence, to allow petitioner and
FBMC keep the down payment made by respondent amounting to
P1,060,000.00 would result in their unjust enrichment at the expense of the
respondent. Thus, said amount should be returned.
Pleadings and Practice; Due Process; Points of law, theories, issues and
arguments not brought to the attention of the trial court will not be and ought
not to be considered by a reviewing court, as these cannot be raised for the
first time on appeal—it would be unfair to the adverse party who would have
no opportunity to present further evidence material to the new theory not
ventilated before the trial court.—This issue of piercing the veil of corporate
fiction was never raised before the trial court. The same was raised for the
first time before the Court of Appeals which ruled that it was too late in the
day to raise the same. The Court of Appeals declared: In the case below, the
pleadings and the evidence of the defendants are one and the same and
never had it made to appear that Almocera is a person distinct and separate
from the other defendant. In fine, we cannot treat this error for the first time
on appeal. We cannot in good conscience, let the defendant Almocera raise
the issue of piercing the veil of corporate fiction just because of the adverse
decision against him. x x x. To allow petitioner to pursue such a defense
would undermine basic considerations of due process. Points of law,
theories, issues and arguments not brought to the attention of the trial court
will not be and ought not to be considered by a reviewing court, as these
cannot be raised for the first time on appeal. It would be unfair to the adverse
party who would have no opportunity to present further evidence material to
the new theory not ventilated before the trial court.