Under the Topic of Articles of Incorporation

G.R. No. 129552 June 29, 2005

P.C. JAVIER & SONS, INC., SPS. PABLO C. JAVIER, SR. and ROSALINA F. JAVIER,
petitioners,
vs.
HON. COURT OF APPEALS, PAIC SAVINGS & MORTGAGE BANK, INC., SHERIFFS
GRACE BELVIS, SOFRONIO VILLARIN, PIO MARTINEZ and NICANOR BLANCO,
respondents.

FACTS:

Petitioner P.C. Javier Sons. Inc. and spouses Pablo Javier, Sr. and Rosalina Javier filed a
complaint for Annulment of Mortgage and Forclosure against PAIC Savings & Mortgage Bank,
Inc., Grace Belvis acting as Ex-officio, Regional Sheriff of Pasig, and Sofronio Villarin, Deputy
Sheriff-in-charge before RTC of Makati City.

The petitioner corporation applied with first Summa Savings and Mortgage Bank, later on
renamed as PAIC Savings and Mortgage Bank for a loan accommodation under the Industrial
guarantee to loan fund. Pablo Javier was advised that its loan application was approved and
forwarded to the Central Bank for release. The Central Bank released the loan to defendant
bank in tranches. However, the petitioners claimed that the loan release were delayed and were
place under the deposit. Also, the petitioners contented that they were never allowed to withdraw
the proceeds of the time deposit because defendant bank intended the time deposit as
automatic payments on the accrued interest. However, the defendant bank initiated extra-judicial
foreclosure of the real estate mortgage executed by the petitioners and accordingly the auction
sale of the property covered by TCT no. 473216.

The complaint was filed to forestall the extra-judicial foreclosure sale of the property and the
petitioners asked for the nullification of the Real Estate Mortgages it entered into with First
Summa Savings and Mortgage Bank. Several extra-judicial foreclosure of the mortgaged
property were scheduled but were temporarily restrained by the RTC. However, RTC
later ruled that the respondent bank was justified in extra-judicially foreclosing the
mortgaged property because the loans were already due and demandable. The Court of
Appeals affirmed in toto the RTC decision.

Issue

Whether or not the petitioners’ action on withholding their amortization payments to respondent
bank because they were not properly notified of the change in the corporate name of the First
Summa Saving and Mortgage Bank is tenable.

HELD:

After going over the Corporation Code and Banking Laws, as well as the regulations and
circulars of both the SEC and the Bangko Sentral ng Pilipinas (BSP), this Court finds that there
is no such requirement. This Court cannot impose on a bank that changes its corporate name to
notify a debtor of such change absent any law, circular or regulation requiring it. Such act would
be judicial legislation. The formal notification is, therefore, discretionary on the bank. Unless
there is a law, regulation or circular from the SEC or BSP requiring the formal notification of all
debtors of banks of any change in corporate name, such notification remains to be a mere
internal policy that banks may or may not adopt.

This Court finds that petitioners failed to comply with what is incumbent upon them to pay their
loans when they became due. The lame excuse they belatedly advanced for their non-payment
cannot and should not prevent respondent bank from exercising its right to foreclose the real
estate mortgages executed in its favor.

Under the Topic of Defective Corporation

G.R. No. L-11442 May 23, 1958

MANUELA T. VDA. DE SALVATIERRA, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his

capacity Quick notes:

SALVATIERRA VS GARLITOS (103 Phil. 757; 1958)

Salvatierra leased his land to the corporation. He filed a suit for accounting, rescission
and damages against the corporation and its president for his share of the produce. Judgment
against both was obtained. President complains for being held personally liable.

FACTS: Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land. On March 7, 1954,
said landholder entered into a contract of lease with the Philippine Fibers Producers Co., Inc., allegedly a
corporation "duly organized and existing under the laws of the Philippines. Apparently, the aforementioned
obligations imposed on the alleged corporation were not complied with because on April 5, 1955, Alanuela
T. Vda, de Salvatierra filed with the CFI a complaint against the Philippine Fibers Producers Co., Inc., and
Segundino Q. Refuerzo, for accounting, rescission and damages. On June 8, 1955, the lower Court
rendered judgment granting plaintiff's prayer
No appeal therefrom having been perfected within the reglementary period, the Court, upon motion of
plaintiff, issued a writ of execution, in virtue of which the Provincial Sheriff of Leyte caused the attachment
of 3 parcels of land registered in the name of Segundino Refuerzo. No property of the Philippine Fibers
Producers Co., Inc., was found available for attachment. On January 31, 1956, defendant Segundino
Refuerzo filed a motion claiming that the decision rendered in said Civil Case No. 1912 was null and void
with respect to him, there being no allegation in the complaint pointing to his personal liability and thus
prayed that an order be issued limiting such liability to defendant corporation.
Whether or not Rufuerzo, president of an unregistered corporation PFPI, is liable for the
obligations of the said corporation.
RULING: There can be no question that a corporation with registered has a juridical personality separate
and distinct from its component members or stockholders and officers such that a corporation cannot be
held liable for the personal indebtedness of a stockholder even if he should be its president and conversely,
a stockholder or member cannot be held personally liable for any financial obligation be, the corporation in
excess of his unpaid subscription. But this rule is understood to refer merely to registered corporations and
cannot be made applicable to the liability of members of an unincorporated association. The reason
behind this doctrine is obvious-since an organization which before the law is non-existent has no
personality and would be incompetent to act and appropriate for itself the powers and attribute of a
corporation as provided by law; it cannot create agents or confer authority on another to act in its
behalf; thus, those who act or purport to act as its representatives or agents do so without
authority and at their own risk. And as it is an elementary principle of law that a person who acts as an
agent without authority or without a principal is himself regarded as the principal, possessed of all the
rights and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and obligations and comes personally
liable for contracts entered into or for other acts performed as such, agent

Considering that defendant Refuerzo, as president of the unregistered corporation Philippine Fibers
Producers Co., Inc., was the moving spirit behind the consummation of the lease agreement by acting as
its representative, his liability cannot be limited or restricted that imposed upon corporate shareholders. In
acting on behalf of a corporation which he knew to be unregistered, he assumed the risk of reaping the
consequential damages or resultant rights, if any, arising out of such transaction.

Under the Topic of The Corporate Entity

G.R. No. L-5081 February 24, 1954

MARVEL BUILDING CORPORATION, ET AL., plaintiffs-appellees,

vs.
SATURNINO DAVID, in his capacity as Collector, Bureau of Internal Revenue,
defendant-appellant.

Facts:

Marvel Building Corporation was incorporated in February 12, 1947 wherein it’s articles of
incorporation contained a capital stock of P 2,000,000.00 of which majority of its stockholders are
Maria B. Castro(President), Amado A. Yatco, Segundo Esguerra and Maximo
Cristobal(Secretary-Treasurer) from the total of eleven(11) stockholders. During the existence of
the corporation, it acquired assets including buildings, namely, Aguinaldo Building, Wise Building
and Dewey Boulevard-Padre Faura Mansion. Towards the end of year 1948, internal revenue
examiners discovered that from the 11 stock certificates, all of it were endorsed in the bank by
the subscribers, except the one subscribed by Maria B. Castro. They also discovered that there
were no business meeting held by the board of directors, no by-laws and that the corporation
never had any reports of their transactions or affairs. As a result, Secretary of Finance
recommended the collection of war profit taxes assessed against Maria B. Castro in the amount
of P3,593,950.78 and seize the three(3) buildings named above.

Plaintiff(Marvel Building Corporation) filed a complaint for the release of the seized property
contending that said property are owned by the corporation and not solely by Maria Castro. The trial
court ruled in favor of plantiff and enjoin Collector of Internal Revenue from selling the same.
Collector of Internal Revenue appealed, and CA ruled that trial court failed to show that Maria B.
Castro is not the true owner of all the stock certificates of the corporation, therefore confiscation of
the property against the corporation is justified. Hence this petition arise.
Issue: Whether or not Maria B. Castro is the sole owner of all the stocks of Marvel Corporation
and the other stockholders are mere dummies?
Held:

Yes. Maria B. Castro is the sole and exclusive owner of all the shares of stock of the
Marvel Building Corporation and that the other partners are her dummies. Section 89, Rule 123 of
the Rules of Court and section 42 of the Provisional law for the application of the Penal Code,
applies in this case pursuant to circumstantial evidence as the basis of judgment.
In general the evidence offered by the plaintiffs is testimonial and direct evidence, easy
of fabrication; that offered by defendant, documentary and circumstantial, not only difficult of
fabrication but in most cases found in the possession of plaintiffs. The circumstantial evidence is
not only convincing; it is conclusive. The existence of endorsed certificates, discovered by the
internal revenue agents between 1948 and 1949 in the possession of the Secretary-Treasurer,
the fact that twenty-five certificates were signed by the president of the corporation, for no
justifiable reason, the fact that two sets of certificates were issued, the undisputed fact that
Maria B. Castro 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 corporation but were kept by Maria B. Castro
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 Maria B. Castro 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 Maria B. Castro alone — these facts are of
patent and potent significance. This implied that Maria B. Castro would not have asked them to
endorse their stock certificates, or be keeping these in her possession, if they were really the
owners. They never would have consented that Maria B. Castro keep the funds without receipts
or accounting, nor that she manages the business without their knowledge or concurrence, were
they owners of the stocks in their own rights. Each and every one of the facts all set forth above,
in the same manner, is inconsistent with the claim that the stockholders, other than Maria
B. Castro, own their shares in their own right.
On the other hand, each and every one of them, and all of them, can point to no
other conclusion than that Maria B. Castro was the sole and exclusive owner of the shares
and that they were only her dummies.
 Under the Topic of The Corporate Entity

G.R. No. L-33172 October 18, 1979

ERNESTO CEASE, CECILIA CEASE, MARION CEASE, TERESA CEASE-LACEBAL and

the F.L. CEASE PLANTATION CO., INC. as Trustee of properties of the defunct TIAONG
MILLING & PLANTATION CO., petitioners,
vs.
HONORABLE COURT OF APPEALS, (Special Seventh Division), HON. MANOLO L.
MADDELA, Presiding Judge, Court of First Instance of Quezon, BENJAMIN CEASE
and FLORENCE CEASE, respondents.

Facts:

Sometime in June 1908, one Forrest L. Cease common predecessor in interest of the parties together
with five (5) other American citizens organized the Tiaong Milling and Plantation Company and in the
course of its corporate existence the company acquired various properties but at the same time all
the other original incorporators were bought out by Forrest L.Cease together with his children namely
Ernest, Cecilia, Teresita, Benjamin, Florence and one Bonifacia Tirante also considered a member of the
family; the charter of the company lapsed in June 1958; but whether there were steps to liquidate
it, the record is silent; on 13 August 1959, Forrest L. Cease died and by extrajudicial partition of his
shares, among the children, this was disposed of on 19 October 1959; it was here where the
trouble among them came to arise because it would appear that Benjamin and Florence wanted an
actual division while the other children wanted reincorporation; and proceeding on that, these other
children Ernesto, Teresita and Cecilia and aforementioned other stockholder Bonifacia Tirante
proceeded to incorporate themselves into the F.L. Cease Plantation Company and registered it with
the Securities and Exchange Commission on 9 December, 1959; apparently in view of that, Benjamin
and Florence for their part initiated a Special Proceeding No. 3893 of the Court of First Instance of
Tayabas for the settlement of the estate of Forest L. Cease on 21 April, 1960 and one month
afterwards on 19 May 1960 they filed Civil Case No. 6326 against Ernesto, Teresita and Cecilia Cease
together with Bonifacia Tirante asking that the Tiaong Milling and Plantation Corporation
be declared Identica to F.L. Cease and that its properties be divided among his children as his
intestate heirs; this Civil Case was resisted by aforestated defendants and notwithstanding efforts of
the plaintiffs to have the properties placed under receivership, they were not able to
succeed because defendants filed a bond to remain as they have remained in possession; after that and
already, during the pendency of Civil Case No. 6326 specifically on 21 May, 1961
apparently on the eve of the expiry of the three (3) year period provided by the law for the liquidation
of corporations, the board of liquidators of Tiaong Milling executed an assignment and conveyance of
properties and trust agreement in favor of F.L. Cease Plantation Co. Inc. as
trustee of the Tiaong Milling and Plantation Co. so that upon motion of the plaintiffs trial Judge ordered
that this alleged trustee be also included as party defendant; now this being the situation, it will be
remembered that there were thus two (2) proceedings pending in the Court
of First Instance of Quezon namely Civil Case No. 6326 and Special Proceeding No. 3893 but both of
these were assigned to the Honorable Respondent Judge Manolo L. Maddela p. 43 and
the case was finally heard and submitted upon stipulation of facts pp, 34-110, rollo; and trial Judge by
decision dated 27 December 1969 held for the plaintiffs Benjamin and Florence.
 Issue: Whether or not the properties of the Tiaong Milling and Plantation Company
forms p art of the estate of the deceased Forrest L. Cease.

Held: Yes. The theory of “merger of Forrest L. Cease and The Tiaong Milling as one
personality”, or that “the company is only the business conduit and alter ego of the
deceased Forrest L. Cease and the registered properties of Tiaong Milling are actually
properties of Forrest L. Cease and should be divided equally, share and share alike among
his six children, … “, the trial court did aptly apply the familiar exception to the general rule
by disregarding the legal fiction of distinct and separate corporate personality and regarding
the corporation and the individual member one and the same.

It must be remembered that when Tiaong Milling adduced its defense and raised the issue of
ownership, its corporate existence already terminated through the expiration of its charter. It is clear
in Section 77 of Act No. 1459 (Corporation Law) that upon the expiration of the charter period, the
corporation ceases to exist and is dissolved ipso facto except for purposes
connected with the winding up and liquidation. The provision allows a three year, period from
expiration of the charter within which the entity gradually settles and closes its affairs, disposes and
convey its property and to divide its capital stock, but not for the purpose of continuing the
business for which it was established. At this terminal stage of its existence, Tiaong Milling may no
longer persist to maintain adverse title and ownership of the corporate assets as against the
prospective distributees when at this time it merely holds the property in trust, its assertion of
ownership is not only a legal contradiction, but more so, to allow it to maintain adverse interest
would certainly thwart the very purpose of liquidation and the final distribute loll of the assets to
the proper, parties.

While the records showed that originally its incorporators were aliens, friends or third-parties in
relation of one to another, in the course of its existence, it developed into a close family
corporation. The Board of Directors and stockholders belong to one family the head of which Forrest
L. Cease always retained the majority stocks and hence the control and management of its affairs.
In fact, during the reconstruction of its records in 1947 before the Security and Exchange Commission
only 9 nominal shares out of 300 appears in the name of his 3 eldest
children then and another person close to them. It is likewise noteworthy to observe that as his
children increase or perhaps become of age, he continued distributing his shares among them adding
Florence, Teresa and Marion until at the time of his death only 190 were left to his name.
Definitely, only the members of his family benefited from the Corporation.

The accounts of the corporation and therefore its operation, as well as that of the family appears
to be indistinguishable and apparently joined together. As admitted by the defendants corporation
‘never’ had any account with any banking institution or if any account was carried in a bank on its
behalf, it was in the name of Mr. Forrest L. Cease. In brief, the operation of the Corporation is
merged with those of the majority stockholders, the latter using the former as his instrumentality and
for the exclusive benefits of all his family. From the foregoing indication, therefore, there is truth in
plaintiff’s allegation that the corporation is only a business conduit of his father and an extension of
his personality, they are one and the same thing. Thus, the
assets of the corporation are also the estate of Forrest L. Cease, the father of the parties
herein who are all legitimate children of full blood.

A rich store of jurisprudence has established the rule known as the doctrine of disregarding
or
piercing the veil of corporate fiction. Generally, a corporation is invested by law with a personality
separate and distinct from that of the persons composing it as well as from that of any other legal
entity to which it may be related. By virtue of this attribute, a corporation may not, generally, 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. This separate and distinct personality is, however, merely a fiction created by
law for convenience and to promote the ends of justice. For this reason, it may not be used or invoked
for ends subversive of the policy and purpose
behind its creation. This is particularly true where the fiction is used to defeat public convenience, justify
wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues , perpetrate deception or
otherwise circumvent the law. This is likewise true where the corporate entity is being used as an alter
ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity.
Under the Topic of The Corporate Entity

G.R. No. 182729 September 29, 2010

KUKAN INTERNATIONAL CORPORATION, Petitioner,

vs.
HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of
Manila, Branch 21, and ROMEO M. MORALES, doing business under the name and
style "RM Morales Trophies and Plaques,"Respondents.

FACTS: Sometime in March 1998, Kukan, Inc. conducted bidding for the supply and installation of
signages in a building being constructed in Makati City. Romeo Morales tendered the winning bid
and was awarded the PhP million contract. Short changed, Morales filed a Complaint with the
RTC against Kukan, Inc. for a sum of money. The RTC rendered a Decision in favor of Morales
and against Kukan, Inc. After the decision became final and executory, Morales moved for and
secured a writ of execution against Kukan, Inc. The sheriff then levied upon various personal
properties of Kukan International Corporation (KIC). KIC then filed an Affidavit of Third-Party
Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had stopped
participating in Civil Case. In reaction to the third party claim, Morales interposed an Omnibus
Motion dated April 30, 2003. In it, Morales prayed, applying the principle of piercing the veil of
corporate fiction, that an order be issued for the satisfaction of the judgment debt of Kukan, Inc.
with the properties under the name or in the possession of KIC, it being alleged that both
corporations are but one and the same entity. By Order of May 29, 2003 as reiterated in a
subsequent order, the court denied the omnibus motion. In a bid to establish the link between KIC
and Kukan, Inc., and thus determine the true relationship between the two, Morales filed a Motion
for Examination of Judgment Debtors dated May 4, 2005. In this motion Morales sought that
subpoena be issued against the primary stockholders of Kukan, Inc., among them Michael Chan,
a.k.a. Chan Kai Kit. This too was denied by the trial court in an Order dated May 24, 2005. Morales
then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually granted
the motion. The case was re-raffled to Branch 21, presided by public respondent Judge Amor
Reyes. Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate
Fiction to declare KIC as having no existence separate from Kukan, Inc. This time around, the
RTC, by Order dated March 12, 2007, granted the motion. KIC moved but was denied
reconsideration in another Order dated June 7, 2007. On
petition for certiorari before CA, the same was denied. The CA later denied KIC’s motion for
reconsideration in the assailed resolution. Hence, the instant petition for review.

ISSUE: Whether the trial and appellate courts correctly applied, under the premises, the
principle of piercing the veil of corporate fiction.

RULING:

The Supreme Court ruled that the doctrine of piercing the veil of corporate entity finds no
application in this case.

Piercing the veil of corporate entity apllies only: (1) the court must first acquire jurisdiction over
the corporation or corporations involved before its or their separate personalities are disregarded;
and (2) the doctrine of piercing the veil of corporate entity 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.

Mere ownership by a single stockholder or by another corporation of a substantial block of

shares of a corporation does not, standing alone, provide sufficient justification for disregarding
the separate corporate personality. For this ground to hold sway in this case, there must be proof
that Chan had control or complete dominion of Kukan and KIC’s finances, policies, and business
practices; he used such control to commit fraud; and the control was the proximate cause of the
financial loss complained of by Morales. The absence of any of the elements prevents the
piercing of the corporate veil. And indeed, the records do not show the presence of these
elements.

In fine, there is no showing that the incorporation, and the separate and distinct personality, of
KIC was used to defeat Morales’ right to recover from Kukan, Inc. Judging from the records, no
serious attempt was made to levy on the properties of Kukan, Inc. Morales could not, thus,
validly argue that Kukan, Inc. tried to avoid liability or had no property against which to proceed.

The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and
controlled as they are by the same stockholders, stands without factual basis. It is true that
Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the outstanding capital stock of both
corporations. But such circumstance, standing alone, is insufficient to establish identity. There
must be at least a substantial identity of stockholders for both corporations in order to consider
this factor to be constitutive of corporate identity.

Evidently, the aforementioned case relied upon by Morales cannot justify the application of the
principle of piercing the veil of corporate fiction to the instant case. As shown by the records,
the name Michael Chan, the similarity of business activities engaged in, and incidentally the
word "Kukan" appearing in the corporate names provide the nexus between Kukan, Inc. and
KIC. As illustrated, these circumstances are insufficient to establish the identity of KIC as the
alter ego or successor of Kukan, Inc.