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CEASE VS CA

FACTS: Forrest Cease and five (5) other American citizens formed Tiaong Milling and Plantation Company. Eventually, the shares of the other original incorporators were bought out by Cease with his children. The companys charter lapsed in June 1958. Forrest Cease died in August 1959. There was no mention whether there were steps to liquidate the company. Some of his children wanted an actual division while others wanted a reincorporation. Two of his children, Benjamin and Florence, initiated Special Proceeding No. 3893 with CFI Tayabas asking that the Tiaong Milling and Plantation Corporation be declared identical to Forrest Cease and that its properties be divided among his children as intestate heirs. Defendants opposed the same but the CFI ruled in favor of the plaintiffs. Defendants filed a notice of appeal from the CFIs decision but the same was dismissed for being premature. The case was elevated to the SC which remanded it to the Court of Appeals. The CA dismissed the petition. ISSUE: Whether or not the Court of Appeals erred in affirming the lower courts decision that the subject properties owned by the corporation are also properties of the estate of Forrest Cease HELD: NO. The trial court indeed found strong support, one that is based on a well-entrenched principle of law which is 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 aptly applied 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. In shredding the fictitious corporate veil, the trial judge narrated the undisputed factual premise, thus: While the records showed that originally its incorporators were aliens, friends or third-parties in relation 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. It must be noted that as his children increase or 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 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. 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. GENERAL RULE: a corporation is vested by law with a personality separate and distinct from the persons composing it as well as 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 EXCEPTIONS: Such rule may not be used or invoked for ends subversive of the policy and purpose behind its creation or which could not have been intended by law to which it owes its being. 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. In any of these cases, the notion of corporate entity will be pierced or disregarded, and the corporation will be treated merely as

an association of persons or, where there are two corporations, they will be merged as one, the one being merely regarded as part or the instrumentality of the other. An indubitable deduction from the findings of the trial court cannot but lead to the conclusion that the business of the corporation is largely, if not wholly, the personal venture of Forrest L. Cease. There is not even a shadow of a showing that his children were subscribers or purchasers of the stocks they own. Their participation as nominal shareholders emanated solely from Forrest L. Cease's gratuitous dole out of his own shares to the benefit of his children and ultimately his family. If the Court sustained the theory of petitioners that the trial court acted in excess of jurisdiction or abuse of discretion amounting to lack of jurisdiction in deciding the civil case as a case for partition, Tiaong Milling and Plantation Company would have been able to extend its corporate existence beyond the period of its charter which lapsed in June, 1958 under the guise and cover of F. L, Cease Plantation Company, Inc. as Trustee which would be against the law, and as Trustee shall have been able to use the assets and properties for the benefit of the petitioners, to the great prejudice and defraudation. of private respondents. Hence, it becomes necessary and imperative to pierce that corporate veil. The judgment appealed from is AFFIRMED.

RUFINA LIM VS CA
FACTS: In 1994, Pastor Lim died. His wife, Rufina Lim petitioned with the lower court, acting as a probate court, for the inclusion of 5 corporations into the inventory of the estate of Pastor Lim. The 5 corporations were: Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing, Inc., Active Distributing, Inc. and Action Company. Rufina alleged that the assets of these corporations were owned wholly by Pastor; that these corporations themselves are owned by Pastor and they are mere dummies of Pastor. The corporations filed a motion for exclusion from the estate. They presented proof (Torrens Titles) showing that the assets of the corporations are in their respective names and titles. The probate court denied their motion. The Court of Appeals reversed the decision of the probate court. ISSUE: Whether or not the corporations and/or their assets should be included in the inventory of the estate. HELD: No. As regards the assets, the corporations were able to present their respective Torrens Titles over the disputed assets. It is true that a probate court may pass upon the question ownership albeit in a provisional manner but still, a Torrens Title cannot be attacked collaterally in a probate proceeding, it must be attacked directly in a separate proceeding. As regards the corporations, to include them in the inventory is tantamount to the piercing of the veil of corporate fiction because the probate court effectively adopted the theory of Rufina. This cannot be done. Firstly, the probate court is sitting in a limited capacity. Secondly, Rufina was not able to present sufficient evidence that indeed the corporations are mere conduits of Pastor. 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. The veil cant be pierced without any showing that indeed the corporation is being used merely as a dummy. To disregard the separate juridical personality of a corporation, the wrong-doing must be clearly and convincingly established. It cannot be presumed.

Buenaflor Umali vs Court of Appeals


FACTS: Mauricia Castillo was the administratrix in charge over a parcel of land left be Felipe Castillo. Said land was mortgaged to the Development Bank of the Philippines and was about to be foreclosed but then Mauricias nephew, Santiago Rivera, proposed that they convert the land into 4 subdivisions so that they can raise the necessary money to avoid foreclosure. Mauricia agreed. Rivera sought to develop said land through his company, Slobec Realty Corporation (SRC), of which he was also the president. SRC then contracted with Bormaheco, Inc. for the purchase of one tractor. Bormaheco agreed to sell the tractor on an installment basis. At the same time, SRC mortgaged said tractor to Bormaheco as security just in case SRC will default. As additional security, Mauricia and other family members executed a surety agreement whereby in case of default in paying said tractor, the Insurance Corporation of the Philippines (ICP) shall pay the balance. The surety bond agreement between Mauricia and ICP was secured by Mauricias parcel of land (same land to be developed).

SRC defaulted in paying said tractor. Bormaheco foreclosed the tractor but it wasnt enough hence ICP paid the deficiency. ICP then foreclosed the property of Mauricia. ICP later sold said property to Philippine Machinery Parts Manufacturing Corporation (PMPMC). PMPMC then demanded Mauricia et al to vacate the premises of said property. While all this was going on, Mauricia died. Her successor-administratrix, Buenaflor Umali, questioned the foreclosure made by ICP. Umali alleged that all the transactions are void and simulated hence they were defrauded; that through Bormahecos machinations, Mauricia was fooled into entering into a surety agreement with ICP; that Bormaheco even made the premium payments to ICP for said surety bond; that the president of Bormaheco is a director of PMPMC; that the counsel who assisted in all the transactions, Atty. Martin De Guzman, was the legal counsel of ICP, Bormaheco, and PMPMC. ISSUE: Whether or not the veil of corporate fiction should be pierced. HELD: No. There is no clear showing of fraud in this case. The mere fact that Bormaheco paid said premium payments to ICP does not constitute fraud per se. As it turned out, Bormaheco is an agent of ICP. SRC, through Rivera, agreed that part of the payment of the mortgage shall be paid for the insurance. Naturally, when Rivera was paying some portions of the mortgage to Bormaheco, Bormaheco is applying some parts thereof for the payment of the premium and this was agreed upon beforehand. Further, piercing the veil of corporate fiction is not the proper remedy in order that the foreclosure conducted by ICP be declared a nullity. The nullity may be attacked directly without disregarding the separate identity of the corporations involved. Further still, Umali et al are not enforcing a claim against the individual members of the corporations. They are not claiming said members to be liable. Umali et al are merely questioning the validity of the foreclosure. The veil of corporate fiction cant be pierced also by the simple reason that the businesses of two or more corporations are interrelated, absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights. In this case, there is no justification for disregarding their separate personalities.

Jardine Davies Inc. vs. CA and Far East Mills Supply Corporation; Pure Foods Corporation vs CA (June 19, 2000)
Corporation entitled to Moral Damages (reputation besmirched)

Facts: In 1992 Purefoods decided to install 2 generators in its food processing plant in San Roque, Marikina. A bidding for the supply and installation was held among the bidders was Far East Mills Supply Corporation (FEMSCO). Thereafter, in a letter addressed to FEMSCO president, Purefoods confirmed the award of the contract. Immediately FEMSCO submitted the requirements such as a performance bond and all risk insurance policy as well as purchasing the necessary materials. However, in another letter, Purefoods unilaterally cancelled the award citing significant factors which were uncovered and brought to their attention which dictate the cancellation and warrant a total review and re-bid of the project. FEMSCO protested the cancellation but before the matter could be resolve, Purefoods awarded the project with Jardine Nell, a division of Jardine Davies. FEMSCO sued both Purefoods and Jardine. The RTC granted Jardines demurrer to evidence but found in favor of FEMSCO against Purefoods and order indemnification. FEMSCO appealed the granting of the demurrer filed by Jardine and Purefoods appealed the decision of the court. The CA affirmed the decision of the RTC but ordered Jardine to pay FEMSCO damages for inducing Purefoods to violate the contract as such, Jardine must pay moral damages. In addition, Purefoods was also directed to pay FEMSCO moral damages and exemplary damages Both Purefoods and Jardine filed motions for reconsideration which were denied. Issue: Whether or not moral damages may be granted to a corporation? Held: The Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. (Asset Privatization Trust v. CA, 300 SCRA 379) In this case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the project, only to be canceled later. The Court thus, sustained respondent appellate courts award of moral damages. However, as there is no showing whatsoever that Jardine induced Purefoods, the decision of the CA is modified. The order to Jardine Davies to pay FEMSCO moral damages is reversed and set aside.

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