Karl Jason C. Josol CORPORATION LAW CASE DIGESTS Atty.

Ferdinand Nicolas Northwestern University Laoag College of Law

STOCKHOLDERS OF F. GUANZON AND SONS, INC. vs. REGISTER OF DEEDS OF

MANILA (G.R. No. L-18216 October 30, 1962)

FACTS:
F .Guanzon and Sons, Inc., a domestic corporation was dissolved in September 17,
1960 which led to the five stockholders, the petitioners-appellants herein, to execute a certificate
of liquidation of the corporation’s assets with the intent to distribute among themselves in
proportion to their shareholdings, as liquidating dividends. However, the Register of Deeds of
Manila denied the stockholder’s intent to register said certificate of liquidation citing seven
grounds, of which some were disputed by the stockholders. When the case was elevated to
Commissioner of Land Registration, it concurred to the Register of Deeds’ standing that
although it involves a distribution of the corporation's assets, in the last analysis it represents a
transfer of said assets from the corporation to the stockholders making it in substance, a
transfer or conveyance. The stockholders contend that the certificate of liquidation is not a
conveyance or transfer but merely a distribution of the assets of the corporation which has
ceased to exist for having been dissolved. Hence, this appeal.

ISSUE:
Whether or not the certificate of liquidation is a conveyance or transfer but merely a
distribution of the assets of the corporation which has ceased to exist for having been dissolved

HELD:
Yes. It is clear that the act of liquidation made by the stockholders of the F. Guanzon and
Sons, Inc. of the latter's assets is not and cannot be considered a partition of community
property, but rather a transfer or conveyance of the title of its assets to the individual
stockholders. Indeed, since 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, — and this is in effect the purpose which they seek to obtain
from the Register of Deeds of Manila, — that transfer cannot be effected without the
corresponding deed of conveyance from the corporation to the stockholders. It is, therefore, fair
and logical to consider the certificate of liquidation as one in the nature of a transfer or
conveyance

ADELIO C. CRUZ vs. QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila (AM No. R-181-P
July 31, 1987)

FACTS:
Quiterio L. Dalisay is a Deputy Sheriff with the territorial jurisdiction covering only the
City of Manila under its own RTC. When the final judgment of NLRC NCR Case No. 8-12389-01
was promulgated which required the duly-registered corporation “Qualitrans Limousine Service,
Inc” to reinstate its discharged employees and pay them full backwages, respondent Sheriff
Dalisay wrongly executed the writ by garnishing instead the Philtrust Bank cash deposit of the
corporation’s President, the complainant herein, Mr. Adelio C. Cruz. Said bank being located in
Pasay City which is outside the sheriff’s jurisdiction, Sheriff Dalisay failed to firstly notify in
writing and in seeking the assistance of the sheriff of the place where execution shall take place.
Though the complainant Cruz executed an affidavit of desistance on the grounds of
misunderstanding prior to the termination of the proceedings, this did not preclude the taking of
disciplinary action against respondent Sheriff from imposing the appropriate corrective sanction.

ISSUE:

Whether or not the personal property of Cruz (president) of the corporation be levied?

HELD:
Karl Jason C. Josol CORPORATION LAW CASE DIGESTS Atty. Ferdinand Nicolas Northwestern University Laoag College of Law

No. The personal property of Cruz was wrongly levied by Sheriff Dalisay as he only relied
on the title of the case and not on the dispositive part of the case. While it is a fact that he is the
Owner/President of the said corporation being named therein as one of the respondents, he is
not the judgment-debtor of the said NLRC case. Respondent Dalisay chose to "pierce the veil of
corporate entity" usurping a power belonging to the court and assumed improvidently the
complainant is the owner/president of Qualitrans Limousine Service, Inc., they are one and the
same. It is a well-settled doctrine both in law and in equity that as a legal entity, a corporation
has a personality distinct and separate from its individual stockholders or membersThe mere
fact that one is president of a corporation does not render the property he owns or possesses
the property of the corporation, since the president, as individual, and the corporation are
separate entities. Considering the ministerial nature of the Sheriff’s duty in enforcing writs of
execution, what is incumbent upon him is to ensure that only that portion of a decision ordained
or decreed in the dispositive part should be the subject of execution. No more, no less.

SULO NG BAYAN INC., vs. GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL
WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS
OF BULACAN (G.R. No. L-31061 17 August 1976)

FACTS:

The plaintiff corporation in this case is Sulo ng Bayan Inc, a domestic corporation organized and
existing under the laws of the Philippines with its principal office, place of business and members all
located at San Jose del Monte, Bulacan. Since the Spanish regime, members of said corporation through
themselves and their predecessors-in-interest had continuously possessed and cultivated a large tract of
land situated in San Jose publicly under the concept of ownership adverse against the whole world.
Sometime in the year 1958, the defendant-appellee Gregorio Araneta, Inc., through force and
intimidation, ejected the members of the plaintiff corporation from their possession of the aforementioned.
Aggrieved, Sulo ng Bayan, Inc. filed an action de reivindicacion at the CFI of Bulacan against Gregorio
Araneta Inc. (GAI), Paradise Farms Inc., National Waterworks & Sewerage Authority (NAWASA),
Hacienda Caretas Inc., and the Register of Deeds of Bulacan to recover the ownership and possession
of said disputed tract of land containing an area of 27,982,250 square meters, registered under the
Torrens system in the name of defendants-appellees’ predecessors-in-interest.
The members and officers of plaintiff corporation averred that upon investigation they found out
that the land in question "had been either fraudulently or erroneously included, by direct or constructive
fraud, in OCT No. 466, which title is fictitious, non-existent and devoid of legal efficacy due to the fact that
"no original survey nor plan whatsoever" appears to have been submitted as a basis thereof and that the
Court of First Instance of Bulacan which issued the decree of registration did not acquire jurisdiction over
the land registration case because no notice of such proceeding was given to the members of the plaintiff
corporation who were then in actual possession of said properties; that as a consequence of the nullity of
the original title, all subsequent titles derived therefrom are therefore void.
The defendant corporations Gregorio Araneta Inc, Paradise Farms, Inc. and Hacienda Caretas,
Inc. filed a motion to dismiss the amended complaint on the grounds that (1) the complaint states no
cause of action; and (2) the cause of action, if any, is barred by prescription and laches. However, it
pleaded in its answer as special and affirmative defenses lack of cause of action by Sulo ng Bayan Inc.
and the barring of such action by prescription and laches. In response, Sulo ng Bayan argued among
others that the complaint states a sufficient cause of action because the subject matter of the controversy
is one of common interest to the members of the corporation who are so numerous that the present
complaint should be treated as a class suit. Subsequently, the motion was denied by the trial court to
which Sulo ng Bayan appealed to the CA. Upon finding that no question of fact was involved in the appeal
but only questions of law and jurisdiction, the Court of Appeals certified the case to the Supreme Court for
resolution of the legal issues involved in the controversy.

ISSUES:
1) Whether or not Sulo ng Bayan Inc, a non-stock corporation may institute an action in
behalf of its individual members for the recovery of certain parcels of land allegedly
owned by said members
2) Whether the complaint filed by the corporation on behalf of its members may be treated as
a class suit.
Karl Jason C. Josol CORPORATION LAW CASE DIGESTS Atty. Ferdinand Nicolas Northwestern University Laoag College of Law

HELD:

1) No. It is a well-established doctrine that a corporation is a distinct legal entity to be considered as

separate and apart from the individual stockholders or members who compose it, and is not
affected by the personal rights, obligations and transactions of its stockholders or members.
Properties registered in the name of the corporation are owned by it as an entity separate and
distinct from its members. Conversely, a corporation ordinarily has no interest in the individual
property of its stockholders unless transferred to the corporation, "even in the case of a one-man
corporation". The mere fact that one is president of a corporation does not render the property
which he owns or possesses the property of the corporation, since the president, as individual,
and the corporation are separate entities. It must be noted, however, that the juridical personality
of the corporation,as separate and distinct from the persons composing it, is but a legal fiction
introduced for the purpose of convenience and to subserve the ends of justice. This separate
personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases
where it is used as a cloak for fraud or illegality, or to work an injustice, or where necessary to
achieve equity. Unfortunately, It has not been claimed that the members have assigned or
transferred whatever rights they may have on the land in question to the plaintiff-corporation.
Absent any showing of interest, therefore, a corporation, like plaintiff-appellant herein, has no
personality to bring an action for and on behalf of its stockholders or members for the purpose of
recovering property which belongs to said stockholders or members in their personal capacities.

2) In order that a class suit may prosper, the following requisites must be present: (1) that the
subject matter of the controversy is one of common or general interest to many persons; and (2)
that the parties are so numerous that it is impracticable to bring them all before court. Here, there
is only one plaintiff, and the plaintiff corporation does not even have an interest in the subject
matter of the controversy, and cannot, therefore, represent its members or stockholders who
claim to own in their individual capacities ownership of the said property. Moreover, a class suit
does not lie in actions for the recovery of property where several persons claim partnership of
their respective portions of the property, as each one could alleged and prove his respective right
in a different way for each portion of the land, so that they cannot all be held to have identical title
through acquisition/prescription.

Good Earth Emporium Inc. vs Court of Appeals 194 SCRA 544 [GR No. 82797 February 27, 1991

FACTS:

In October 14, 1984, an ejectment case (Unlawful Detainer) has been filed at the MTC of Manila
against herein petitioners, GOOD EARTH EMPORIUM, INC (GEE). and LIM KA PING for a breach of the
lease contract in defaulting the monthly rentals of Php65,000. Said building which was the subject of the
contract of lease is a five-storey building owned by herein respondent, ROCES-REALTY INC. (Roces).
After the petitioners had tendered their responsive pleading, the lower court on motion of Roces rendered
judgement on the pleadings dated April 17, 1984 to which petitioners were ordered to vacate the
premises and surrender the same to the plaintiffs. On May 16, 1984, Roces filed a motion for execution
which was opposed by petitioners on May 28, 1984 simultaneous with the latter’s filing of a notice of
appeal. However, on August 15, 1984, GEE thru counsel filed a motion to withdraw said appeal citing as
reason that they are satisfied with the decision of the lower court. GEE's Motion for Reconsideration of
April 5, 1988 was denied (Rollo, p. 43). Hence, this petition.

ISSUE:
Whether or not the payment made by GEE to the Roces brothers constitute payment to private
respondent corporation which would result to the extinguishment of the obligation

HELD:
No. Under article 1240 of the civil code of the Philippines – Payment shall be made to the person
in whose favor the obligation has been constituted, on his successor in interest or any person authorized
to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its
successors in interest nor is there positive evidence that payment was made to a person authorized to
receive it. No such proof was submitted but merely inferred by the RTC from Marcos Roces having signed
the lease contract as President which was witnessed by Jesus Marcos Roces. The latter, however, was
no longer President or even an officer of the Roces-Realty Inc at the time he received the money and
Karl Jason C. Josol CORPORATION LAW CASE DIGESTS Atty. Ferdinand Nicolas Northwestern University Laoag College of Law

signed the sale with pacto de retro. He, in fact denied being in possession of authority to receive payment
for the respondent corporation nor does the receipt show that he signed in the same capacity as he did in
the lease contract at a time when he was President for respondent corporation.

A corporation has a personality distinct and separate from its individual stockholders or members. Being
an officer or stockholder of a corporation does not make one’s property also of the corporation, and
vice-versa, for they are separate entities. Share owners are in no legal sense the owners corporate
property which is owned by the corporation as a distinct legal person. As a consequence of the separate
juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the
stockholder, nor is the stockholder’s debt or credit that of the corporation.

INDOPHIL TEXTILE MILL WORKERS UNION v CALICA G.R. 96490, February 3, 1992

FACTS:

The two SEC-registered corporations involved in this case are Indophil Textile Mills and Indophil Acrylic to
which the Indophil Union, a legitimate DOLE-registered labor oganization and exclusive bargaining unit of
all rank and file employees of Indophil Textile Mills is claiming that the former corporation is but an
expansion and/or extension of the latter because of these following grounds: 1) same primary purpose; 2)
same incorporators, directors, and officers; 3) same place of business; 4) sharing of departments,
machines and employees; and 5) services of a number of units, departments or sections of private
respondents are provided by Indophil Acrylic. Additionally, their contention is that the articles of
incorporation of the two corporation establish that the two entities are engaged in the same kind of
business, which is the manufacture and sale of yarns of various counts and kinds and of other materials
of kindred character or nature. It to this effect which led to both parties submitting the issue to Labor
Arbiter Calica to which he ruled for Indophil Textmile Mills and stated therefrom that Indophil Acrylic is not
extension of Indophil an hence their collective barganing agreement (CBA) does not extend to the
employees of Acrylic.

ISSUES:
1) Whether or not Indophil Acrylic is a separate and distinct entity from Indophil for purposes of
union representation

2) Whether or not the doctrine of ‘piercing the veil of corporate entity” is applicable n the said case
to justify that Indophil Acrylic is but an extension/expansion of Indophil Textile Mills

HELD:
1) Yes. Indophil Acrylic is not an alter ego or an adjunct or a business conduit of Indophil because it
has a separate legitimate business purpose. Indophil engages in the manufacture of yarns while
Acrylic manufactures, buys , and sells at wholesale basis and likewise barter, import, export and
otherwise deal in various kinds of yarns. Two corporations cannot be treated as single bargaining
unit just because they have related businesses or just because they have the same persons
manning and providing for auxiliary services to the units of Acrylic or that the physical plants,
offices, and facilities are situated in the same compound.

2) No. The Court disagreed and ruled that the doctrine of ‘piercing the veil of corporate entity”
does not apply because the fact that their businesses are related and those matters considered by the
Union are not sufficient to justify the said ‘piercing the veil of” Indophil Acrylic. The Court emphasized that
that these two are clearly separate and are distinct juridical entities to which it reiterated that it already
ruled in Umali vs. CA that legal corporate entity is disregarded only of it is is sought to hold the officers
and stockholders directly liable for a corporate debt or obligation. In the said case the Union does not
impose a claim against the members of Indophil Acrylic.
Karl Jason C. Josol CORPORATION LAW CASE DIGESTS Atty. Ferdinand Nicolas Northwestern University Laoag College of Law

Francisco Motors Corporation v. CA and Sps. Manuel (G.R. No. 100812)

FACTS:
Petitioner Francisco Motors Corp filed a complaint to recover from respondent spouses
Manuel the unpaid balance in the amount of P3,412.06 for the jeepney purchased by the latter from them.
As their answer, respondent spouses interposed a counterclaim for unpaid legal services by Gregorio
Manuel which was not paid by petitioner corporation’s directors and officers. Respondent Manuel alleges
that while he was the Assistant Legal Officer, he represented members of the Francisco family who were
directors and officers of herein petitioner corporation in an intestate estate proceeding over Benita
Trinidad’s estate and that even after its termination, his services were not paid. The trial court ruled in
favor of the petitioner but also allowed the respondent spouses’ counterclaim. The Court of Appeals
sustained the trial court’s ruling. For failure of petitioner to answer the counterclaim, the trial court
declared petitioner in default on this score and ruled in favor of private respondents and found that
Gregorio Manuel indeed rendered legal services to the Francisco family and also found that his legal
services were not compensated despite repeated demands, and thus ordered petitioner to pay him the
amount of fifty thousand (P50,000.00) pesos. Dissatisfied with the trial court's order, petitioner elevated
the matter to the Court of Appeals where it ruled still, however in favor of the Spouses Manuel saying “In
the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is
composed of the heirs of the late Benita Trinidad as directors and incorporators for whom defendant
Gregorio Manuel rendered legal services in the intestate estate case of their deceased mother
thereby equity and justice demands plaintiff-appellant's veil of corporate identity should be pierced
and the defendant be compensated for legal services rendered to the heirs, who are directors of the
plaintiff-appellant corporation.

ISSUE:
Whether or not petitioner corporation may be held liable for the liability incurred by its
directors and officers in their personal capacity

HELD:
No. The doctrine of piercing the corporate veil has no relevant application here given the
facts and circumstances surrounding this case. It is clear that respondent court erred in permitting the trial
court’s resort to this doctrine. In the case at bar, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed wherein it is the
petitioner-corporation FMC who were ordered to answer for the personal liability of certain individual
directors, officers and incorporators concerned. Hence, the doctrine has been turned upside down
because of its erroneous invocation. Note that according to private respondent Gregorio Manuel his
services were solicited as counsel for members of the Francisco family to represent them in the intestate
proceedings over Benita Trinidad’s estate. These estate proceedings did not involve any business of the
petitioner FMC..

Furthermore, considering the nature of the legal services involved, whatever obligation said
incorporators, directors and officers of the corporation had incurred, it was incurred in their personal
capacity. When directors and officers of a corporation are unable to compensate a party for a personal
obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice, and
be thereby held liable therefore by piercing its corporate veil.

REBECCA BOYER-ROXAS and GUILLERMO ROXAS vs. HON. COURT OF APPEALS and HEIRS
OF EUGENIA V. ROXAS, INC. (G.R. No. 100866 July 14, 1992)l

FACTS:
Heirs of Eugenia V. Roxas, Incorporated (private respondent herein) is a domestic corporation
incorporated in December 4, 1962 with members, officers and Board of Directors all composed by the
heirs of the late Eugenia V. Roxas with the inherited properties as capital of the corporation with the
primary purpose of engaging in agriculture to develop the inherited properties. The Articles of
Incorporation of the respondent corporation were amended in 1971 to allow it to engage in the resort
business. Accordingly, the corporation put up a resort known as Hidden Valley Springs Resort where the
questioned properties are located.
The petitioners herein are Rebecca Boyer-Roxas and Guillermo Roxas who traversed the
allegations in the complaint by stating that they are also heirs of Eugenia V. Roxas and therefore,
co-owners of the Hidden Valley Springs Resort; and as co-owners of the property and that they have the
Karl Jason C. Josol CORPORATION LAW CASE DIGESTS Atty. Ferdinand Nicolas Northwestern University Laoag College of Law

right to stay within its premises. In both cases, the respondent corporation aver that both are using their
respective properties at the expense of the corporation including the improvements thereof and that their
continued use is only under the tolerance of the said corporation. It also alleged that both petitioners
never paid rentals for the use of the buildings and the lots and that they ignored the demand letters for
them to vacate the buildings. The cases were consolidated and tried jointly. RTC ruled in favor of the
Respondent. The petitioners appealed the decision to the Court of Appeals. However, the appellate court
affirmed the lower court's decision. The petitioners' motion for reconsideration was likewise denied.
Hence, this petition.

ISSUES:

1) Whether or not the petitioners are co-owners of the contested property

2) Whether or not there is basis for piercing the veil of the corporation

HELD:

1) No.There is no dispute that title over the questioned land where the Hidden Valley Springs Resort
is located is registered in the name of the corporation. The respondent is a bona fide corporation.
As such, it has a juridical personality of its own separate from the members composing it. The
records also show that the staff house being occupied by petitioner Rebecca Boyer-Roxas and
the recreation hall which was later on converted into a residential house occupied by petitioner
Guillermo Roxas are owned by the respondent corporation.

The Court has emphasized that “the petitioners have not cited any provision of the corporation
by-laws or any resolution or act of the Board of Directors which authorized Eufrocino Roxas to
allow them to stay within the company premises forever. We rule that in the absence of any
existing contract between the petitioners and the respondent corporation, the corporation may
elect to eject the petitioners at any time it wishes for the benefit and interest of the respondent
corporation.”

2) No. The petitioners’ suggestion that the veil of the corporate fiction should be pierced is
untenable. The separate personality of the corporation may be disregarded only when the
corporation is used “as a cloak or cover for fraud or illegality, or to work injustice, or where
necessary to achieve equity or when necessary for the protection of the creditors.” The
circumstances in the present cases do not fall under any of the enumerated categories.

KOPPEL (PHILIPPINES), INC., vs. ALFREDO L. YATCO, Collector of Internal Revenue (G.R. No.
L-47673 October 10, 1946)

FACTS:
Koppel Industrial Car and Equipment company (KICE), a foreign corporation organized and
existing under the laws of the State of Pennsylvania, United States of America, and not licensed to do
business in the Philippines, owned 995 shares out of the 1000 shares that comprise the capital stock of
Koppel Philippines Inc. (KPI), a domestic corporation duly licensed to engage in business as a
commercial broker in the Philippines. The remaining 5 shares were owned by each of the officers of KPI,
the plaintiff corporation herein.

KICE is in the business of selling railway materials, machineries and supplies to which interested buyers
in the Philippines, when they asked for price quotations from KPI it will then cable the same for the
quotation desired from KICE. However, KPI quoted to the purchaser a selling price above the figures
quoted by KICE. On the basis of these quotations, orders were placed by the local buyers. Between
KICE and KPI, the arrangement nonetheless was that KICE controls how much share of the profits goes
to KPI. Material to this case is that KPI is the holder of the corresponding merchant's and commercial
broker's privilege tax receipts. As such, the BIR treated KPI as a subsidiary of KICE and collected from
KPI the merchants’ sales tax, which was a revenue law in force at the time the sales took place.
Eventually, KPI paid the taxes under protest, demanded for refund and contended that KPI could not be
liable for merchants’ sales tax because it was only acting as broker between KICE and the local buyers.
The lower court dismissed the complaint and ruled in favor of the government reason.ing out that “the
Karl Jason C. Josol CORPORATION LAW CASE DIGESTS Atty. Ferdinand Nicolas Northwestern University Laoag College of Law

public interest and convenience would be defeated and what would amount to a tax evasion perpetrated,
unless resort is had to the doctrine of "disregard of the corporate fiction."

ISSUE/S:

1) Whether or not KPI did business with the local buyers as an agent of KICE and not as broker
2) Whether or not the application of “piercing the corporate veil” doctrine is proper

HELD:

1) Yes. The facts that KICE unilaterally controls the amount of the so-called “share in the profits”
of KPI and that KICE owns an overwhelming majority (99.5%) of the capital stock of the KPI are sufficient
to conclude that the latter is a mere “dummy”, agent or wholly-owned subsidiary of KICE. Such a
conclusion is based on the doctrine that courts may ‘pierce the corporate veil’ to uncover the true
intentions of these corporations. No group of businessmen could be expected to organize a mercantile
corporation if the amount of that profit were to be subjected to such a unilateral control of another
corporation, unless indeed the former has previously been designed by the incorporators to serve as a
mere subsidiary, branch or agency of the latter.

2) Yes. With regards only to the transactions involved, KPI and KICE were treated as one and the
same so that taxes could be rightly collected. The court has to disregard this “corporate fiction” to
prevent KICE / KPI from evading its taxes by contravening the local internal revenue laws. The court did
not deny legal personality to KPI; in fact, it had no power to hold so. The doctrine was used only to
adjudge the rights and liabilities of each parties in these kind of transactions.

R. F. SUGAY and CO., INC., vs. PABLO C. REYES, CESAR CURATA, PACIFIC PRODUCTS, INC., and
WORKMEN'S COMPENSATION COMMISSION (G.R. No. L-20451 December 28, 1964)

FACTS:
The petitioner herein is R.F. Sugay & Co., which is a domestic corporation purposely established
to engage itself in the constructions, repairs, remodeling of all kinds of houses, residences, edifices and
all such other buildings and all kinds of construction works allied thereto while the respondent private
corporation is Pacific Products, Inc. engaged in the manufacture and sale of paints, varnish and other
allied products. In 1961, Pacific Products, Inc. contracted a painting job with R.F. Sugay & Co. to which its
president, Romulo Sugay was tasked with the administration and supervision of the job contract. Painters
were deployed to paint the building/factory of Pacific Products, Inc. and an accident happened which
caused the respondents herein Pablo Reyes and Cesar Curata to have suffered burns of various
degrees, caused by a fire of accidental origin, resulting in their temporary disability from work. For said
injuries they filed claims for disability and medical expenses against the R. F. Sugay & Co., Inc., Romulo
F. Sugay and the Pacific Products, Inc.
In response, the R. F. Sugay & Co., Inc., alleged that the corporation was not the employer of the
claimants but it was the Pacific Products, Inc. while Romulo F. Sugay did not file an Answer, but
voluntarily appeared during the hearing and disclaimed liability. Pacific Products, Inc., averred that the
claimants were the employees of R. F. Sugay Construction Co., Inc., and/or Romulo F. Sugay and that as
a result of the fire, it incurred a loss of P2,000,000.00.
The Hearing Officer dismissed the case with respect to R. F. Sugay & Co., Inc., and Romulo F.
Sugay for want of employer-employee relationship with the claimants, either directly or through an
independent contractor and adjudged Pacific Products, Inc., is to pay claimants for the benefits. Pacific
Products, Inc., appealed the above decision to which the Commissioner Jose Sanchez rendered
judgment affirming the compensability of the injuries and the amounts due them, but modified the decision
of the Hearing Officer, by finding that R. F. Sugay & Co., Inc., was the statutory employer of the claimants
and should be liable to them. Pacific Products, Inc., was absolved from all responsibility. The Commission
en banc denied the motion for reconsideration stating that there was "nothing to warrant a modification
much less a reversal of the decision sought to be reviewed." In the appeal of R. F. Sugay & Co., to this
Court, it is insisted that Pacific Products, Inc. was the employer of the claimants.
Karl Jason C. Josol CORPORATION LAW CASE DIGESTS Atty. Ferdinand Nicolas Northwestern University Laoag College of Law

ISSUE/S: Whether or not Pacific Products is the statutory employer of the claimants

HELD:
No. R. F. Sugay & Co., is the statutory employer of the claimants. The decisive elements showing
that it is the employer are present, such as selection and engagement; payment of wages; power of
dismissal, and control. These powers were lodged in R. F. Sugay & Co. and on this very score alone, the
petition for review should be dismissed. There was a faint attempt by the petitioning corporation, to evade
liability, by advancing the theory that Romulo P. Sugay, its President, was the one who entered into a
contract of administration and supervision for the painting of the factory of the Pacific Products, Inc., and
making it appear that said Romulo F. Sugay acted as an agent of the Pacific Products, Inc., and as such,
the latter should be made answerable to the compensation due to the claimants. The SC agreed with the
Commission that the dual roles of Romulo F. Sugays should not be allowed to confuse the facts relating to
employer-employee relationship." It is a legal truism that when the veil of corporate fiction is made as a
shield to perpetrate a fraud and/or confuse legitimate issues (here, the relation of employer-employee),
the same should be pierced. Verily the R. F. Sugay & Co., Inc. is a business conduit of R. F. Sugay.

TRADERS ROYAL BANK vs. COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE

CORPORATION and CENTRAL BANK of the PHILIPPINES (G.R. No. 93397 March 3, 1997)

FACTS:
Filriters Guaranty Assurance Corporation (Filriters) and Philippine Underwriters Finance
Corporation (Philfinance) are sister companies to which the latter owns 90% of the former’s equity and
the two corporations have identical corporate officers. As Insurance companies they are required to put
up legal reserves under Section 213 of the Insurance Code equivalent to 40 percent of the premiums
receipt and further, the Insurance Commission requires this reserve to be invested preferably in
government securities or government bonds. To this effect, Filriters purchased a Central Bank Certificate
of Indebtedness (CBCI) particularly CBCI No. D891 with a face value of P500,000.00, which is the
instrument subject of dispute in this said case. Filriters executed a “Detached Assignment” with
Repurchase Agreement to Philfinance to which transfer did not conform to Central Bank Circular No. 769,
series of 1980 aka the "Rules and Regulations Governing Central Bank Certificates of Indebtedness".
When Philfinance failed to buy back the note on maturity date, it executed a Deed of Assignment,
conveying to appellant Traders Royal Bank (TRB) all its rights and title to CBCI No. D891. However, TRB
then sought the transfer and registration of CBCI No. D891 in its name before the Security and Servicing
Department of the Central Bank (CB). The Central Bank, however, refused to effect the transfer and
registration in view of an adverse claim filed by defendant Filriters. Having no other recourse, TRB filed a
special civil action for mandamus against the Central Bank in the Regional Trial Court of Manila.
The RTC, however, considered the suit as a case of interpleader when the Central Bank prayed
in its amended answer that Filriters be impleaded as a respondent and the court adjudge which of them is
entitled to the ownership of CBCI No. D891. The Court of Appeals ruled that said CBCI is not a negotiable
instrument, since the instrument clearly stated that it was payable to Filriters, the registered owner lacking
the words of negotiability, which serve as an expression of consent that the instrument may be transferred
by negotiation. Hence, this appeal.

ISSUE:

1. Whether or not the CBCI is a negotiable instrument.

2. Whether or not the doctrine of piercing the veil of corporate entity were to be applied in this case by
the reason that 90% of Filriters shares is owned by Philfinance to justify the said transfer
3. Whether or not the assignment of CBCI in favor of Philfinance and the subsequent assignment of CBCI
by Philfinance in favor of TRB is null and void and of no force and effect

HELD:

1) No. The CBCI is not a negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, and the certificate lacked the words of negotiability which serve as an
expression of consent that the instrument may be transferred by negotiation. Before the
Karl Jason C. Josol CORPORATION LAW CASE DIGESTS Atty. Ferdinand Nicolas Northwestern University Laoag College of Law

instruments become negotiable instruments, the instrument must conform to the requirements
under the Negotiable Instrument Law. Otherwise instrument shall not bind the parties.

2. No. The 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 a sufficient reason for disregarding the fiction of separate
corporate personalities. Petitioner TRB cannot put up the excuse of piercing the veil of corporate entity, as
this 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 a corporation is a mere
alter ego or business conduit of a person. The corporate separateness between Filriters and Philfinance
remains, despite the petitioners insistence on the contrary. For one, other than the allegation that Filriters
is 90% owned by Philfinance, and the identity of one shall be maintained as to the other, there is nothing
else which could lead the court under circumstance to disregard their corporate personalities

3. Null and Void. Obviously the Assignment of certificate from Filriters to Philfinance was null and void.
Since one of the officers who signed the deed of assignment on behalf of Filriters did not have the
necessary written authorization from the Board of Directors of Filriters. For lack of such authority the
assignment is considered null and void. Clearly shown in the record is the fact that Philfinance's title over
CBCI is defective since it acquired the instrument from Filriters fictitiously. Under 1409 of the Civil Code
those contracts which are absolutely simulated or fictitious are considered void and inexistent from the
beginning. Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a
non-owner was disposing of the registered CBCI owned by another entity was a good reason for the
petitioner to verify or inquire as to the title Philfinance to dispose to the CBCI.

BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C.

RADA, MARIETTA C. ABAÑEZ, LEOVINA C. JALBUENA and SANTIAGO M. RIVERA, vs
. COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS
MANUFACTURING CO., INC., (GR. No. 89561 September 13, 1990)

FACTS:
In the case at bar, petitioners herein seek to pierce the veil of corporate entity of Bormaheco, Inc.,
Insurance Corporation of the Philippines (ICP) and Phil. Machinery Parts Manufacturing Co.(PM Parts)
alleging that these corporations have apparently employed fraud in causing the foreclosure and
subsequent sale of the real properties in question belonging to petitioners. Said dispute started when
plaintiff Santiago M. Rivera, proposed to her aunt Mauricia Meer Vda. de Castillo, the administraritx of
said property for its conversion into a subdivision to raise the necessary fund to prevent its foreclosure
from Development Bank of the Philippines to which it was mortgaged. To carry out the project a MOA was
executed between the Castillos and Slobec Realty & Devt. Inc, the company of Rivera. Armed with the
Agreement, Rivera obtained from Bormacheco, Inc. two units of tractors to which he executed a Chattel
Mortgage to secure payments thereof. Additionaly Rivera also obtained a surety bond from Insurance
Corp. of the Philippines. Said bond was in turn secured by an Agreement of Counter-Guaranty with Real
Estate Mortgage executed by and between Rivera as president of Slobec, Mauricia Meer Vda. de
Castillo, and the petitioners herein, as mortgagors and Insurance Corporation of the Philippines (ICP) as
mortgagee. In this agreement, ICP guaranteed the obligation of Slobec with Bormaheco in the amount of
P180,000.00. In giving the bond, ICP required that the Castillos mortgage to them the properties in
question. For violation of the terms and conditions of the Counter-Guaranty Agreement, the properties of
the Castillos were foreclosed by ICP - the highest bidder. The mortgagors had one year to redeem the
property, but they failed to do so. Consequently, ICP consolidated its ownership. ICP sold to Phil.
Machinery Parts Manufacturing Co (PM Parts) the four parcels of land. Thereafter, PM Parts, through its
President, Mr. Modesto Cervantes, sent a letter addressed to plaintiff Mrs. Mauricia Meer Castillo
requesting her and her children to vacate the subject property. The heirs of the late Felipe Castillo filed an
action for annulment of title. The Court of First Instance rendered judgment in favor of the plaintiffs ruling
out that the prior agreements were null and void for being fictitious, spurious and without consideration for
being entered into in fraud and without the consent and approval of the Court of First Instance of Quezon,
(Branch IX) before whom the administration proceedings has been pending. On appeal, the Court of
Appeals reversed said decision. Hence, this petition.

ISSUE:
Whether or not the doctrine invoked by petitioners in granting the relief sought that piercing the
veil of corporate entity is the proper remedy in order that the foreclosure proceeding may be declared a
nullity?
Karl Jason C. Josol CORPORATION LAW CASE DIGESTS Atty. Ferdinand Nicolas Northwestern University Laoag College of Law

HELD:

No. There is no clear showing of fraud in this case. Petitioners seeking to pierce the veil of corporate
entity of Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in causing the
foreclosure and subsequent sale of the real properties belonging to petitioner does not hold water. The
mere fact, therefore, that the businesses of two or more corporations are interrelated is not a justification
for disregarding their separate personalities, absent sufficient showing that the corporate entity was
purposely used as a shield to defraud creditors and third persons of their rights. Assuming that
petitioners were indeed defrauded by private respondents in the foreclosure of the mortgaged properties,
this fact alone is not, under the circumstances, sufficient to justify the piercing of the corporate fiction,
since petitioners do not intend to hold the officers and/or members of respondent corporations personally
liable therefor. Petitioners are merely seeking the declaration of the nullity of the foreclosure sale, which
relief may be obtained without having to disregard the aforesaid corporate fiction attaching to respondent
corporations. Secondly, petitioners failed to establish by clear and convincing evidence that private
respondents were purposely formed and operated, and thereafter transacted with petitioners, with the
sole intention of defrauding the latter. In the instant case, petitioners do not seek to impose a claim
against the individual members of the three corporations involved; on the contrary, it is these corporations
which desire to enforce an alleged right against petitioners.

GREGORIO ARANETA, INC., vs. PAZ TUASON DE PATERNO and JOSE VIDAL G.R. No. L-2886
August 22, 1952.

FACTS:

Paz Tuason de Paterno is the registered owner of the subject lot in question with an area of 40k
sqm., which was later subdivided into city lots which mostly were occupied by lessees who had contracts
bearing a stipulation of rights of first refusal. Tuason obtained from Jose Vidal several loans and
constituted first mortgage on the aforesaid property to secure the debt. She obtained additional loans
upon the same security. Thereafter Paz had negotiations with Gregorio Araneta Inc. in which they agreed
that the latter would purchase the property for P400k. In furtherance of this promise to buy and sell, letters
were sent to the lessees to which others took advantage of their right and purchased the lots they
occupied at the price and terms stated in said letters. A deed of sale was then executed between Paz
and Gregorio Araneta Inc.,taking into account Paz’ loan to Vidal and the conveyance of the land to those
tenant-purchasers. Gregorio Araneta Inc. then demanded Paz to deliver clean titles to the parcels of land
he purchased, and a case was filed against Vidal but the action never materialized for trial and the
record and the checks were destroyed during the war operations of 1945 and thus neither was the
case reconstituted afterward. After liberation, an instant action was begun by Gregorio Araneta, Inc. to
compel Paz Tuason to deliver to the plaintiff a clear title to the lots which should be free from all liens and
encumbrances, and a deed of cancellation of the mortgage to Vidal. Paz refused invoking the fact that
she made the sale to her agent, Jose Araneta, who was also the president of Gregorio Araneta Inc
invoking the principle which states "The courts, at law and in equity, will disregard the fiction of corporate
entity apart from the members of the corporation when it is attempted to be used as a means of
accomplishing a fraud or an illegal act. This forced Vidal to file an action in virtue of a summon issued by
order of thecourt, and filed a cross-claim against Paz Tuazon to foreclose his mortgage. The lower court
rendered the judgment that the deed of sale between Araneta andTuason was invalid until Vidal's
mortgage was cancelled.
Karl Jason C. Josol CORPORATION LAW CASE DIGESTS Atty. Ferdinand Nicolas Northwestern University Laoag College of Law

ISSUE:
1) Whether or not Jose Araneta acted as agent of Paz Tuason de Paterno
2) Wheter of not the doctrine of piercing the veil of corporate entity is applicable

HELD:
1) Jose Araneta did not act as agent of Paz Tuason. Even if Paz Tuason have known that Jose
Araneta is the same as Gregorio Araneta Inc., she would still gowith sale of her property as Jose
Araneta did not by way of being an agentperformed such act of being an agent for the sale was
between the corporationand not that of with Jose. Otherwise, greed would have set in in the heart
of Jose,would Jose have been the agent as well as the purchaser of the property of Paz,than to
respect their trusted and respected relationship as principal and agent.Moreover, Jose Araneta
was not given any authority to make a bindingcontract. He was not given the confidence to
administer, and act in behalf of Pazso there was no betrayal of thrust as Jose acted only as a
middle-man tasked onlyto look for a buyer and not to administer any sale between any
prospectivebuyers. Adding to this, Jose was not to make the terms of payment. Therefore,Jose
Araneta was left with no power or discretion whatsoever, which he couldabuse to his advantage
and to the owner's prejudice. He is not entrusted as anagent for the agent’s incapacity to buy
principal’s property rests in the fact thatthe agent and principal form one juridical person

2) The Court however ruled that such was inapplicable to the case at hand because Araneta Inc. had
been long organized and engaged in real estate business. The corporate entity was not used to
circumvent the law or perpetrate deception. There is no denying that Araneta Inc. entered into the
contract for itself and for its benefit as a corporation. The contract and the roles of the parties who
participated therein were exactly as they purported to be and were fully revealed to the Paz. There is no
pretense, nor is there reason to suppose, that if Paz Tuason had known Jose Araneta to Gregorio
Araneta, Inc's president, which she knew, she would not have gone ahead with the deal. From her point
of view and from the point of view of public interest, it would have made no difference, except for the
brokerage fee, whether Gregorio Araneta, Inc. or Jose Araneta was the purchaser.

Under these circumstances the result of the suggested disregard of a technicality would be, not to stop
the commission of deceit by the purchaser but to pave the way for the evasion of a legitimate and binding
commitment buy the seller. The principle invoked by the defendant is resorted to by the courts as a
measure or protection against deceit and not to open the door to deceit. "The courts," it has been said,
"will not ignore the corporate entity in order to further the perpetration of a fraud." (18 C.J.S. 381.