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CAGAYAN FISHING DEVELOPMENT CO., INC., vs. TEODORO SANDIKO G.R. No.

43350 ISSUE:
December 23, 1937 Corporation, Incorporation, Promoters of Corporation
1.Whether Cagayan Fishing Dev’t. has juridical capacity to enter into the contract.
OCTOBER 14, 2017
2. Can promoters of a corporation act as agents of a corporation?
FACTS:
RULING:
Manuel Tabora is the registered owner of four parcels of land and he wanted to build a
The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein,
Fishery. He loaned from PNB P8,000 and to guarantee the payment of the loan, he mortgaged
was effected on May 31, 1930 and the actual incorporation of said company was effected
the said parcels of land. Three subsequent mortgages were executed in favor of the same
later on October 22, 1930. In other words, the transfer was made almost five months before
bank and to Severina Buzon, whom Tabora is indebted to.
the incorporation of the company.
Tabora sold the four parcels of land to the plaintiff company, said to be under process of
A duly organized corporation has the power to purchase and hold such real property as the
incorporation, in consideration of one peso (P1) subject to the mortgages in favor of PNB and
purposes for which such corporation was formed may permit and for this purpose may enter
Severina Buzon and, to the condition that the certificate of title to said lands shall not be
into such contracts as may be necessary. But before a corporation may be said to be lawfully
transferred to the name of the plaintiff company until the latter has fully and completely paid
organized, many things have to be done. Among other things, the law requires the filing of
Tabora’s indebtedness to PNB.
articles of incorporation. Although there is a presumption that all the requirements of law
Tahe articles of incorporation were filed and the company sold the parcels of land to Sandiko have been complied with, in the case before us it can not be denied that the plaintiff was not
on the reciprocal obligation that Sandiko will shoulder the three mortgages. A deed of sale yet incorporated when it entered into the contract of sale.
executed before a notary public by the terms of which the plaintiff sold, ceded and transferred
The contract itself referred to the plaintiff as “una sociedad en vias de incorporacion.” It was
to the defendant all its rights, titles and interest in and to the four parcels of land.
not even a de facto corporation at the time. Not being in legal existence then, it did not
He executed a promissory note that he shall be 25,300 after a year with interest and on the possess juridical capacity to enter into the contract.
promissory notes, the parcels were mortgage as security.
“Corporations are creatures of the law, and can only come into existence in the manner
A promissory note for P25,300 was drawn by the defendant in favor of the plaintiff, payable prescribed by law. As has already been stated, general laws authorizing the formation of
after one year from the date thereof. Further, a deed of mortgage executed before a notary corporations are general offers to any persons who may bring themselves within their
public in accordance with which the four parcels of land were given as security for the provisions; and if conditions precedent are prescribed in the statute, or certain acts are
payment of the said promissory note. All these three instruments were dated February 15, required to be done, they are terms of the offer, and must be complied with substantially
1932. before legal corporate existence can be acquired.”

Sandiko failed to pay, thus the action for payment. The lower court held that deed of sale was “That a corporation should have a full and complete organization and existence as an entity
invalid. before it can enter into any kind of a contract or transact any business, would seem to be self
evident. . . . A corporation, until organized, has no being, franchises or faculties. Nor do those
The corporation filed a motion for reconsideration.
engaged in bringing it into being have any power to bind it by contract, unless so authorized McQuillin: “The fact that a company is not completely incorporated at the time the grant is
by the charter. Until organized as authorized by the charter there is not a corporation, nor made to it by a municipality to use the streets does not, in most jurisdictions, affect the
does it possess franchises or faculties for it or others to exercise, until it acquires a complete validity of the grant. But such grant cannot take effect until the corporation is organized…”
existence.”
Fletcher: “While a franchise cannot take effect until the grantee corporation is organized, the
The contract here was entered into not only between Manuel Tabora and a non-existent franchise may, nevertheless, be applied for before the company is fully organized. A grant of
corporation but between Manuel Tabora as owner of four parcels of land on the one hand a street franchise is valid although the corporation is not created until afterwards.”
and the same Manuel Tabora, his wife and others, as mere promoters of a corporation on the
Thompson (explains reason for these rules^): “…an ordinance granting a privilege to a
other hand. For reasons that are self-evident, these promoters could not have acted as agents
corporation is not void because the beneficiary of the ordinance is not fully organized at the
for a projected corporation since that which had no legal existence could have no agent. A
time of the introduction of the ordinance. It is enough that organization is complete prior to
corporation, until organized, has no life and therefore no faculties. It is, as it were, a child in
the passage and acceptance of the ordinance.
ventre sa mere. This is not saying that under no circumstances may the acts of promoters of
a corporation be ratified by the corporation if and when subsequently organized. There are, The reason is that a privilege of this character is a mere license to the corporation until it
of course, exceptions , but under the peculiar facts and circumstances of the present case we accepts the grant and complies with its terms and conditions.
decline to extend the doctrine of ratification which would result in the commission of injustice
or fraud to the candid and unwary. ”xxx [IMPT] The ruling that a corporation should have a full and complete organization and
existence as an entity before it can enter into any kind of a contract or transact any business
The transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null is NOT ABSOLUTE.
because at the time it was effected the corporation was non-existent, we deem it unnecessary
to discuss this point. Under American jurisprudence, a contract made by the promoters of a corporation on its
behalf may be adopted, accepted or ratified by the corporation when organized.

FACTS
25 SCRA 285 - RIZAL LIGHT & ICE CO., INC. vs. PSC and Morong Elec. Co. (1968)
Morong Electric applied for a CPCN with the PSC to provide for electric service in Morong,
ZALDIVAR, J.: PSC granted Morong Electric’s application for a CPCN. Rizal Light, a prior Rizal. 2. In May 1962, Morong Electric was granted a franchise.
operator contested this decision stating that such grant was invalid considering SEC issued
Morong Electrics certificate of incorporation months after the decision. SC held that while a PSC found that “Morong Electric is a corporation duly organized and existing under the laws
franchise cannot take effect until the grantee corporation is organized, the franchise may, of the Philippines, the stockholders of which are Filipino citizens, that it is financially capable
nevertheless, be applied for before the company is fully organized; a grant of a franchise is of operating an electric light, heat and power service, and that at the time the decision was
valid although the corporation is not created until afterwards. rendered there was absence of electric service in Morong, Rizal”

DOCTRINE It was only on October 17 of the same year that the SEC issued Morong Electric’s certificate
of incorporation. 4. Rizal Light, a prior operator, contends that Morong should not have been
granted the CPCN because:
o it did not have a corporate personality at the time it was granted a franchise and when it had no corporate existence on the day the franchise was granted in its name does not render
applied for said certificate the franchise invalid, because later Morong Electric obtained its certificate of incorporation
and then accepted the franchise in accordance with the terms and conditions thereof. This
o it is not financially capable of undertaking an electric service
view is sustained by eminent
o petitioner was rendering efficient service before its electric plant was burned, and
American authorities (see doctrine)
therefore, being a prior operator its investment should be protected and no new party should
be granted a franchise and certificate of public convenience and necessity to operate an Thus, the incorporation of Morong Electric on October 17, 1962 and its acceptance of the
electric service in the same locality.
franchise as shown by its action in prosecuting the application filed with the Commission for
ISSUE the approval of said franchise 1) perfected a contract between the respondent municipality
and Morong Electric and 2) cured the deficiency pointed out by the petitioner in the
WON the franchise granted to Morong Electric is valid despite the fact that such was granted application of Morong EIectric.
before Morong Electric’s certificate of incorporation was issued by the SEC.
The conclusion regarding the validity of the franchise granted to Morong Electric is not
incompatible with the holding of this Court in Cagayan Fishing Development Co., Inc. vs.
RULING Teodoro Sandiko wherein Court held that a corporation should have a full and complete
VALID organization and existence as an entity before it can enter into any kind of a contract or
transact any business.

o this Court did not say in that case that the rule is absolute or that under no circumstances
Petitioner: may the acts of promoters of a corporation be ratified or accepted by the corporation if and
when subsequently organized
until a corporation has come into being, in this jurisdiction, by the issuance of a certificate of
incorporation by the SEC, it cannot enter into any contract as a corporation. The franchise o there are exceptions such as the fact that American courts generally hold that a contract
was granted to Morong Electric when it was not yet in esse is null and void made by the promoters of a corporation on its behalf may be adopted, accepted or ratified
by the corporation when organized
SC:

Petitioner's contention that Morong Electric did not yet have a legal personality when a
municipal franchise was granted to it is correct. The juridical personality and legal existence
of Morong Electric began only when its certificate of incorporation was issued by the SEC.

O Before that date, or pending the issuance of said certificate of incorporation, the
incorporators cannot be considered as de facto corporation, but the fact that Morong Electric
1963, cannot be availed of by the said corporation, for the reason that its term of existence
had already expired when the said law took effect in short, said law has no retroactive effect.”
ALHAMBRA CIGAR VS SEC (G.R. NO. L-23606 JULY 29, 1968)

Alhambra Cigar & Cigarette Manufacturing Company Inc. vs Securities and Exchange
Commission Issue: Whether or not the corporate life of a corporation be extended during the period of
winding up or after it’s charter has already expired.
G.R. No. L-23606 July 29, 1968

Held:
Facts:
No. The common law rule, at the beginning, was rigid and inflexible in that upon its
Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred
dissolution, a corporation became legally dead for all purposes. Statutory authorizations had
to simply as Alhambra) was duly incorporated under Philippine laws on January 15, 1912. By
to be provided for its continuance after dissolution “for limited and specified purposes
its corporate articles it was to exist for fifty (50) years from incorporation. Its term of existence
incident to complete liquidation of its affairs”. Thus, the moment a corporation’s right to exist
expired on January 15, 1962. On that date, it ceased transacting business, entered into a state
as an “artificial person” ceases, its corporate powers are terminated “just as the powers of a
of liquidation. Thereafter, a new corporation. — Alhambra Industries, Inc. — was formed to
natural person to take part in mundane affairs cease to exist upon his death”. There is nothing
carry on the business of Alhambra. On May 1, 1962, Alhambra’s stockholders, by resolution
left but to conduct, as it were, the settlement of the estate of a deceased juridical person.
named Angel S. Gamboa trustee to take charge of its liquidation. On June 20, 1963 — within
Alhambra’s three-year statutory period for liquidation – Republic Act 3531 was enacted into
law. It amended Section 18 of the Corporation Law; it empowered domestic private
From July 15 to October 28, 1963, when Alhambra made its attempt to extend its corporate
corporations to extend their corporate life beyond the period fixed by the articles of
existence, its original term of fifty years had already expired (January 15, 1962); it was in the
incorporation for a term not to exceed fifty years in any one instance. Previous to Republic
midst of the three-year grace period statutorily fixed in Section 77 of the Corporation Law,
Act 3531, the maximum non-extendible term of such corporations was fifty years. On July 15,
thus: .
1963, at a special meeting, Alhambra’s board of directors resolved to amend paragraph
“Fourth” of its articles of incorporation to extend its corporate life for an additional fifty years,
or a total of 100 years from its incorporation. On August 26, 1963, Alhambra’s stockholders,
representing more than two-thirds of its subscribed capital stock, voted to approve the SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by
foregoing resolution. On October 28, 1963, Alhambra’s articles of incorporation as so forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any
amended certified correct by its president and secretary and a majority of its board of other manner, shall nevertheless be continued as a body corporate for three years after the
directors, were filed with respondent Securities and Exchange Commission (SEC). On time when it would have been so dissolved, for the purpose of prosecuting and defending
November 18, 1963, SEC, however, returned said amended articles of incorporation to suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of
Alhambra’s counsel with the ruling that Republic Act 3531 “which took effect only on June 20, and convey its property and to divide its capital stock, but not for the purpose of continuing
the business for which it was established.
Plain from the language of the provision is its meaning: continuance of a “dissolved”
corporation as a body corporate for three years has for its purpose the final closure of its
ASUNCION VS DE YRIARTE28 PHIL 67
affairs, and no other; the corporation is specifically enjoined from “continuing the business
for which it was established”. The liquidation of the corporation’s affairs set forth in Section (Discretionary Powers)
77 became necessary precisely because its life had ended. For this reason alone, the corporate
existence and juridical personality of that corporation to do business may no longer be FACTS:
extended. This is an action to obtain a writ of mandamus to compel the chief of the division of archives
of the Executive Bureau to file certain articles of incorporation. The chief of the division of
archives, the respondent, refused to file the articles of incorporation, hereinafter referred to,
Silence of the law on the matter is not hard to understand. Specificity is not really necessary. upon the ground that the object of the corporation, as stated in the articles, was not lawful
The authority to prolong corporate life was inserted by Republic Act 3531 into a section of the and that, in pursuance of Section 6 of Act No. 1459, they were not registerable. It is strongly
law that deals with the power of a corporation to amend its articles of incorporation. (For, the urged on the part of the appellants that the duties of the defendant are purely ministerial and
manner of prolongation is through an amendment of the articles.) And it should be clearly that he has no authority to pass upon the lawfulness of the object for which the incorporators
evident that under Section 77 no corporation in a state of liquidation can act in any way, much propose to organize.
less amend its articles, “for the purpose of continuing the business for which it was
established”. ISSUES:

Whether or not the chief of the division of archives has authority, under the Corporation Law,
on being presented with articles of incorporation for registration, to decide not only as to the
All these dilute Alhambra’s position that it could revivify its corporate life simply because sufficiency of the form of the articles, but also as to the lawfulness of the purposes of the
when it attempted to do so, Alhambra was still in the process of liquidation. It is surely proposed corporation.
impermissible for us to stretch the law — that merely empowers a corporation to act in
liquidation — to inject therein the power to extend its corporate existence. Whether or not the chief of the division of archives, who is the representative thereof and
clothed by it with authority to deal with articles of incorporation ordered for registration, is
subject to mandamus in the performance of his duties.
The pari materia rule of statutory construction, in fact, commands that statutes must be HELD: The division of archives, through its officials, has authority to determine not only the
harmonized with each other. So harmonizing, the conclusion is clear that Section 18 of the sufficiency as to form of the articles of incorporation offered for registration, but also the
Corporation Law, as amended by Republic Act 3531 in reference to extensions of corporate lawfulness of the purpose of the corporation as stated in those articles.
existence, is to be read in the same light as Republic Act 1932. Which means that domestic
corporations in general, as with domestic insurance companies, can extend corporate
existence only on or before the expiration of the term fixed in their charters.
Simply because the duties of an official happens to be ministerial, it does not whether or not the objects of a proposed corporation are lawful is one that can be decided
necessarily follow that he may not, in the administration of his office, determine questions of one way only.
law.
If he err in the determination of that question and refuse to file articles which should
We are of the opinion that it is the duty of the division of archives, when articles of be filed under the law, that decision is subject to review and correction and, upon proper
incorporation are presented for registration, to determine whether the objects of the showing, he will be ordered to file the articles.
corporation as expressed in the articles are lawful.

We do not believe that, simply because articles of incorporation presented for


Loyola Grand Villas vs. CA, GR No. 117188 [07 August 1997]
registration are perfect in form, the division of archives must accept and register them and
issue the corresponding certificate of incorporation no matter what the purpose of the Facts: Loyola Grand Villas Homeowners Associatio, Inc. was organized on February 8, 1983
corporation may be as expressed in the articles. We do not believe it was intended that the as the registered sole homeowner’s association for Loyola Grand Villas with the Home
division of archives should issue a certificate of incorporation to, and thereby put the seal of Financing Corporation, which later became Home Insurance Guarantee Corporation (HIGC).
approval of the government upon a corporation which was organized for base or immoral However, the association was not able to file its corporate by-laws in the prescribed date as
purposes. That such corporation might later, if it sought to carry out such purposes, be stated in the Corporation Code Sec. 46, Adoption of by-laws, “Every corporation formed under
dissolved, or its officials imprisoned or itself heavily fined furnishes no reason why it should this code MUST within 1 month after receipt of official notice of the issuance of its certificate
have been created in the first instance. It seems to us to be not only the right but the duty of of incorporation by SEC, adopt a code of by-laws for its government not inconsistent with this
the division of archives to determine the lawfulness of the objects and purposes of the Code.”
corporation before it issues a certificate of incorporation.
They then discovered that there were other homeowners’ organization within the
He may be subject to mandamus if he acted in violation of law or if he refuses, unduly, subdivision – the North and South Association, and upon inquiry by the LGVHAI to HIGC, it
to comply with the law. was discovered that LGVHAI was dissolved for its failure to submit its by-laws within the
period required by the Corporation Code. These paved the way for the formation of the two
While we have held that defendant has power to pass upon the lawfulness of the
other associations. LGVHAI then lodged a complaint and questioned the revocation with the
purposes of the proposed corporation and that he may, in the fulfillment of his duties,
HIGC Hearing Officer Javier. Hearing Officer Javier ruled in favor of LGVHAI and revoked the
determine the question of law whether or not those purposes are lawful and embraced within
registration of the North and South Associations.
that class concerning which the law permits corporations to be formed, this does not
necessarily mean, as we have already intimated, that his duties are not ministerial. Petitioner South Association appealed the ruling contending that LGVHAI failure to
file automatically dissolved the corporation.
On the contrary, there is no incompatibility in holding, as we do hold, that his duties
are ministerial and that he has no authority to exercise discretion in receiving and registering Issue:
articles of incorporation. He may exercise judgement - that is, the judicial function - in the
determination of the question of law referred to, but he may not use discretion. The question Is the failure to file LGVHAI’s by-laws within the period prescribed by Sec. 46 of the
Corporation Code had the effect of automatically dissolving the said corporation.
Decision: ISSUE: WON Galvan’s employment contract is void.

No, ordinarily the word “must” connotes imposition of duty which must be enforced however,
the word “must” in a statute, (like “shall”) is not always imperative. It may be consistent with
RULING: No. PMI College never presented a copy of the by-laws to prove the existence of such
an exercise of discretion. If the language of a statute, considered as a whole with due regard
provision. Even if it did, the employment contract cannot be rendered invalid just because it
to its nature and object, reveals that the legislature intended to use the words “shall” and
does not bear the signature of the Chairman. By-laws operate merely as internal rules among
“must” to be directory, they should be given that meaning.
the stockholders, they cannot affect or prejudice third persons who deal with the corporation,
By-Laws are indispensable to corporations, since they are required by law for an orderly unless they have knowledge of the same. In this case PMI was not able to prove that Galvan
management of corporations. However, failure to file them within the period prescribed does had knowledge of the said provision in the by-laws when he was hired by PMI.
not equate to the automatic dissolution of a corporation.

Case Digest: Peña v. CA

ROSITA PEÑA petitioner, vs. THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA
YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES, SALVADOR
BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO A. ZABAT, respondents.
277 SCRA 462 – Business Organization – Corporation Law – By-laws and Innocent Third
Persons G.R. No. 91478 February 7, 1991

PMI College vs. NLRC 277 SCRA 462 (1997) GANCAYCO, J.:

In 1991, PMI College hired Alejandro Galvan for the latter to teach in the said Antecedents facts:
institution. However, for unknown reasons PMI defaulted from paying the remunerations due
PAMPANGA BUS CO., INC. (PAMBUSCO) is the owner of the three lots in dispute.
to Galvan. Galvan made demands but was ignored by PMI. Galvan then filed a labor case
PAMBUSCO mortgaged the lots to the Development Bank of the Philippines (DBP), which were
against PMI.
later on foreclosed.
The Labor Arbiter ruled in favor of Galvan, and was affirmed by NLRC. On appeal, PMI
Rosita Peña was awarded the lots in a foreclosure sale for being the highest bidder.
reiterated that Galvan’s employment was void because it did not comply with its by-laws.
The certificate of sale was later issued to her and registered in her name.
Apparently, the by-laws require that an employment contract must be signed by the Chairman
of the Board of PMI. And PMI asserts that Galvan’s employment was not signed by the Subsequently, the Board of Directors of PAMBUSCO, through three out of its five
Chairman. directors, issued a resolution to assign its right of redemption over the lots in favor of any
interested party. The right of redemption was later on assigned to Marcelino Enriquez, who The by-laws of a corporation are its own private laws which substantially have the
redeemed the property. same effect as the laws of the corporation. They are in effect, written, into the charter. In this
sense they become part of the fundamental law of the corporation with which the
Enriquez then sold the lots to spouses Rising T. Yap and Catalina Lugue-Yap.
corporation and its directors and officers must comply.
Meanwhile, a case involving the validity of the sale to the spouses Yap was pending,
Apparently, only three (3) out of five (5) members of the board of directors of
and despite the protestations of Peña as to validity of the PAMBUSCO's assignment of the
respondent PAMBUSCO convened by virtue of a prior notice of a special meeting. There was
right of redemption, the lots were somehow registered in the name of spouses Yap. Despite
no quorum to validly transact business since it is required under its by-laws that at least four
the registration of the lots to spouses Yap, Peña retained possession of the property.
(4) members must be present to constitute a quorum in a special meeting of the board of
directors.

Main Case: Under Section 25 of the Corporation Code of the Philippines, the articles of
incorporation or by-laws of the corporation may fix a greater number than the majority of the
Spouses Yap sought to recover the possession of the lots from Peña. The latter number of board members to constitute the quorum necessary for the valid transaction of
countered that she is now the legitimate owner of the subject lands for having purchased the business. Any number less than the number provided in the articles or by-laws therein cannot
same in a foreclosure proceeding instituted by the DBP against PAMBUSCO and no valid constitute a quorum and any act therein would not bind the corporation; all that the attending
redemption having been effected within the period provided by law. directors could do is to adjourn.
The defense was that since the deed of assignment executed by PAMBUSCO in favor Moreover, the records show that respondent PAMBUSCO ceased to operate for
of Enriquez was void ab initio for being an ultra vires act of its board of directors and for being about 25 years prior to the board meeting. Being a dormant corporation for several years, it
without any valuable consideration, it could not have had any legal effect. was highly irregular, for a group of three (3) individuals representing themselves to be the
(It should be noted that the by-laws of PAMBUSCO provide that four out of five directors must directors of respondent PAMBUSCO to pass a resolution disposing of the only remaining asset
be present in a special meeting of the board to constitute a quorum, and that the corporation of the corporation in favor of a former corporate officer.
has already ceased to operate.) As a matter of fact, the three (3) alleged directors who attended the special meeting
CFI ruled in favor of Petitioner Peña, but the same was overturned by the CA. on November 19, 1974 were not listed as directors of respondent PAMBUSCO in the latest
general information sheet. Similarly, the latest list of stockholders of respondent PAMBUSCO
on file with the SEC does not show that the said alleged directors were among the
Issue: W/N there Peña is entitled to the lots. stockholders of respondent PAMBUSCO, in contravention of the rule requiring a director to
own one (1) share in their to qualify as director of a corporation.

Further, under the Corporation Law, the sale or disposition of any and/or substantially
Ruling: Yes. all properties of the corporation requires, in addition to a proper board resolution, the
affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in
the corporation in a meeting duly called for that purpose. This was not complied with in the withholding tax requirements of, and to make the corresponding monthly remittances to, the
case at bar. Bureau of Internal Revenue (BIR) on account of delayed payments of accrued salaries to the
company's laborers and employees.
At the time of the passage of the questioned resolution, respondent PAMBUSCO was
insolvent and its only remaining asset was its right of redemption over the subject properties. In a letter, dated 8 September 1986, Abaño advised Millena that it was the board's
Since the disposition of said redemption right of respondent PAMBUSCO by virtue of the decision that it stop production (operation) in Sorsogon due to the upcoming rainy seasons
questioned resolution was not approved by the required number of stockholders, the said and the deterioration of the peace and order in the said area; that the corporation will
resolution, as well as the subsequent assignment and sale, were null and void. undertake only necessary maintenance and repair work and will keep overhead down to the
minimum manageable level; and that the corporation will not need a project accountant until
Lastly, for lack of consideration, the assignment should be construed as a donation.
the corporation resumes full-scale operations. Millena expressed "shock" over the
Under Article 725 of the Civil Code, in order to be valid, such a donation must be made in a
termination of his employment. He complained that he would not have resigned from the
public document and the acceptance must be made in the same or in a separate instrument.
Sycip, Gores & Velayo accounting firm, where he was already a senior staff auditor, had it not
In the latter case, the donor shall be notified of the acceptance in an authentic form and such
been for the assurance of a "continuous job" by MMDC's Eng. Rodillano E. Velasquez. Millena
step must be noted in both instruments. Since assignment to Enriquez shows that there was
requested that he be reimbursed the "advances" he had made for the company and be paid
no acceptance of the donation in the same and in a separate document, the said deed of
his "accrued salaries/claims." The claim was not heeded.
assignment is thus void ab initio.
On October 1986, Millena filed with the NLRC Regional Arbitration, Branch No. V, in
Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13th month pay, overtime pay,
separation pay and incentive leave pay against MMDC and its two top officials, namely,
Benjamin A Santos (the President) and Rodillano A. Velasquez (the executive vice-president).

In his complaint-affidavit (position paper), submitted on 27 October 1986, Millena


alleged, among other things, that his dismissal was merely an offshoot of his letter of 12
Santos vs. National Labor Relations Commission August 1986 to Abaño about the company's inability to pay its workers and to remit
withholding taxes to the BIR. On 27 July 1988, Labor Arbiter Fructouso T. Aurellano, finding
[GR 101699, 13 March 1996] no valid cause for terminating complaint's employment, ruled that a partial closure of an
establishment due to losses was a retrenchment measure that rendered the employer liable
for unpaid salaries and other monetary claims.
Facts:
The Labor Arbiter ordered Santos, et. al. to pay Millena the amount of P37,132.25
Melvin D. Millena, on 1 October 1985, was hired to be the project accountant for corresponding to the latter's unpaid salaries and advances: P5,400.00 for petitioner's 13th
Mana Mining and Development Corporation's (MMDC) mining operations in Gatbo, Bacon, month pay; P3,340.95 as service incentive leave pay; and P5, 400.00 as separation pay.
Sorsogon. On 12 August 1986, Millena sent to Mr. Gil Abaño, the MMDC corporate treasurer, Santos, et. al. were further ordered to pay Millena 10% of the monetary awards as attorney's
a memorandum calling the latter's attention to the failure of the company to comply with the fees. Alleging abuse of discretion by the Labor Arbiter, the company and its co-respondents
filed a "motion for reconsideration and /or appeal." 8 The motion/appeal was forthwith answer for his corporate action. The case of Santos is way of these exceptional instances. It is
indorsed to the Executive Director of the NLRC in Manila. In a resolution, dated 04 September not even shown that Santos has had a direct hand in the dismissal of Millena enough to
1989, the NLRC affirmed the decision of the Labor Arbiter. A writ of execution correspondingly attribute to Santos a patently unlawful act while acting for the corporation. Neither can Article
issued; however, it was returned unsatisfied for the failure of the sheriff to locate the offices 289 of the Labor Code be applied since this specifically refers only to the imposition of
of the corporation in the addressed indicated. Another writ of execution and an order of penalties under the Code. It is undisputed that the termination of Millena's employment has,
garnishment was thereupon served on Santos at his residence. Contending that he had been instead, been due, collectively, to the need for a further mitigation of losses, the onset of the
denied due process, Santos filed a motion for reconsideration of the NLRC's resolution along rainy season, the insurgency problem, in Sorsogon and the lack of funds to further support
with a prayer for the quashal of the writ of execution and order of garnishment. He averred the mining operation in Gatbo. It is basic that a corporation is invested by law with a
that he had never received any notice, summons or even a copy of the complaint; hence, he personally separate and distinct from those of the persons composing it as well as from that
said, the Labor Arbiter at no time had acquired jurisdiction over him. On 16 August 1991, the of any, other legal entity to which it may be related. Mere ownership by a single stockholder
NLRC dismissed the motion for reconsideration. Santos filed the petition for certiorari. or by another corporation of all nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personally. Similar to the case of
Sunio vs. National Labor Relations Commission, Santos should not have been made personally
Issue: Whether Santos should be made solidarily liable with MMDC. answerable for the payment of Millena's back salaries.

Held: A corporation is a judicial entity with legal personality separated and distinct from
those acting for, and in its behalf and, in general, from the people comprising it. The rule is
that obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations
or valid grounds can exist to warrant, albeit done sparingly, the disregard of its independent
Corporate Law Case Digest: Stockholders Of F. Guanzon And Sons, Inc V. Register Of Deeds
being and the lifting of the corporate veil. As a rule, this situation might arise a corporation is
Of Manila (1962)
used to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to
carry out similar other unjustifiable aims or intentions, or as a subterfuge to commit injustice G.R. No. L-18216 October 30, 1962
and so circumvent the law. Without necessarily piercing the veil of corporate fiction, personal
civil liability can also be said to lawfully attach to a corporate director, trustee or officer; to Lessons Applicable: Strong Juridical Personality (Corporate Law)
wit: 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 (b) for conflict of interest, resulting in damages
to the corporation, its stockholders or other persons; (2) He consents to the issuance of FACTS:
watered stocks or who, having knowledge thereof, does not forthwith file with the corporate Sept 19, 1960: 5 stockholders of the F. Guanzon and Sons, Inc. executed a certificate of
secretary his written objection thereto; (3) He agrees to hold himself personally and solidarily liquidation of the assets of the corporation, dissolution and distribution among themselves in
liable with the corporation; or (4) He is made, by a specific provision of law, to personally
proportion to their shareholdings, as liquidating dividends, corporate assets, including real Properties registered in the name of the corporation are owned by it as an entity separate
properties and distinct from its members.

While shares of stock constitute personal property they do not represent property of the
corporation.
Register of Deeds of Manila denied the registration of the certificate of liquidation:
A share of stock only typifies an aliquot part of the corporation's property, or the right to
share in its proceeds to that extent when distributed according to law and equity but its holder
The number of parcels not certified to in the acknowledgment; is NOT the owner of any part of the capital of the corporation nor entitled to possession

P430.50 Reg. fees need be paid; The stockholder is not a co-owner or tenant in common of the corporate property

P940.45 documentary stamps need be attached to the document;

The judgment of the Court approving the dissolution and directing the disposition of the Manila Gas vs. Collector
assets of the corporation need be presented
FACTS:
Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos.
This is an action brought by the Manila Gas Corporation against the Collector of Internal
3, 5 and 6.
Revenue for the recovery of P56,757.37, which the plaintiff was required by the defendant to
Stockholders appealed contend that the certificate of liquidation is not a conveyance or deduct and withhold from the various sums paid it to foreign corporations as dividends and
transfer but merely a distribution of the assets of the corporation which has ceased to exist interest on bonds and other indebtedness and which the plaintiff paid under protest.
for having been dissolved

ISSUES: Won the Collector of Internal Revenue was justified in withholding income taxes on
ISSUE: W/N certificate merely involves a distribution of the corporation's assets (or should be interest on bonds and other indebtedness paid to nonresident corporations
considered a transfer or conveyance)

RULING: YES.
HELD: NO. affirm the resolution appealed from
The approved doctrine is that no state may tax anything not within its jurisdiction without
Corporation - juridical person distinct from the members composing it. violating the due process clause of the constitution. The taxing power of a state does not
extend beyond its territorial limits, but within such it may tax persons, property, income, or
business. If an interest in property is taxed, the situs of either the property or interest must
be found within the state. If an income is taxed, the recipient thereof must have a domicile
within the state or the property or business out of which the income issues must be situated she claimed that the acts of assignment and mortgage were done to defraud the conjugal
within the state so that the income may be said to have a situs therein. Personal property may partnership. She further contended that the same were done without consideration and
be separated from its owner, and he may be taxed on its account at the place where the hence null and void.
property is although it is not the place of his own domicile and even though he is not a citizen
Petitioners, sisters of the deceased husband of the private respondent, filed a motion
or resident of the state which imposes the tax. But debts owing by corporations are
for intervention on the ground that their brother conveyed to them one-half of his
obligations of the debtors, and only possess value in the hands of the creditors. The Manila
shareholdings in SUBIC, or about 41%. The trial court denied the motion for intervention
Gas Corporation operates its business entirely within the Philippines. Its earnings, therefore
ruling that petitioners have no legal interest because SUBIC has a personality separate and
come from local sources. The place of material delivery of the interest to the foreign
distinct from its stockholders. The CA confirmed the denial on appeal. Hence, this petition.
corporations paid out of the revenue of the domestic corporation is of no particular moment.
The place of payment even if conceded to be outside of the country cannot alter the fact that ISSUE:
the income was derived from the Philippines. The word "source" conveys only one idea, that
of origin, and the origin of the income was the Philippines. Whether petitioners, as stockholders of SUBIC, have a legal interest in the action for
annulment of the deed of assignment and deed of mortgage in favor of the corporation.

HELD:

NO. The Court noted that the interest which entitles person to intervene in a suit
between other parties must be in the matter in litigation and of such direct and immediate
character that the intervenor will either gain or lose by the direct legal operation and effect
of the judgment. In the instant petition, it was said that the interest, if it exists at all, of
petitioners-movants is indirect, contingent, remote, conjectural, consequential and collateral.
At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the
MAGSAYSAY-LABRADOR vs. COURT OF APPEALS
management of the corporation and to share in the profits thereof and in the properties and
G.R. No. 58168. December 19, 1989.Fernan, assets thereof on dissolution, after payment of the corporate debts and obligations. While a
share of stock represents a proportionate or aliquot interest in the property of the
C.J. 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
FACTS: Private respondent Adelaida Rodriguez Magsaysay filed an action against Subic Land corporation as a distinct legal person.
Corporation (SUBIC), among others, to annul the deed of assignment and deed of mortgage
executed in favor of the latter by her late husband.

Private respondent alleged that the subject land of the two deeds was acquired
through conjugal funds. Since her consent to the disposition of the same was not obtained,
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.
Good Earth Emporium Inc. vs Court of Appeals 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
194 SCRA 544 [GR No. 82797 February 27, 1991] from Marcos Roces having signed the lease contract as President which was witnessed by
Facts: Jesus Marcos Roces. The later, however, was no longer President or even an officer of the
Roces-Realty Inc at the time he received the money and signed the sale with pacto de retro.
A lease contract, dated October 16, 1981, was entered into by and between Roces- He, in fact denied being in possession of authority to receive payment for the respondent
Reyes Realty Inc. as lessor, and Good Earth Emporium Inc. (GEE) as lessee for a term of three corporation nor does the receipt show that he signed in the same capacity as he did in the
years beginning November 1, 1981 and ending October 31, 1984 at a monthly rental of lease contract at a time when he was President for respondent corporation.
Php65,000. The building which was the subject of the contract of lease is a five story building
located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila. From March 1983 A corporation has a personality distinct and separate from its individual stockholders
up to the complaint was filed, the lessee had defaulted in the payment of rentals, as a or members. Being an officer or stockholder of a corporation does not make one’s property
consequence of which, private respondent Roces-Reyes Realty Inc. filed on October 14, 1984 also of the corporation, and vice-versa, for they are separate entities. Share owners are in no
an ejectment case against herein petitioners, Good Earth Emporium Inc. and Lim Ka Ring. legal sense the owners corporate property which is owned by the corporation as a distinct
After the latter had tendered their responsive pleading, the lower court on motion of Roces legal person. As a consequence of the separate juridical personality of a corporation, the
rendered judgement on the pleadings dated April 17, 1984 to which petitioners were ordered corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder’s
to vacate the premises and surrender the same to the plaintiffs. On May 16, 1984, Roces filed debt or credit that of the corporation.
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 FELIPE TAYKO vs. NICOLAS CAPISTRANO
the lower court.
G.R. No. L-30188, October 2, 1928 OSTRAND,

THE CASE:
Issue: Whether or not the payment made by GEE to the Roces brothers constitute payment
This is a petition for a writ of prohibition enjoining the respondent judge from making
to private respondent corporation which would result to the extinguishment of the obligation.
cognizance of certain civil and criminal election cases in which the petitioners are parties.

THE FACTS:
The petitioners allege that Capistrano was appointed judge of the CFI of Oriental differs, on the one hand, from a mere usurper who undertakes to act officially without any
Negros, to hold office during good behavior and until he should reach the age of 65 years; color of right, and on the other hand, from a judge de jure who is in all respects legally
that he now has reached that age and, therefore, under the provisions of section 148 of the appointed and qualified and whose term of office has not expired (State vs. Carroll, 38 Conn.,
Administrative Code as amended, is disqualified from acting as a judge of the Court of First 449; Denny vs. Matton, 2 Allen [Mass.], 361; Van Slyke vs. Farmers' Mut. Fire Ins. Co., 39 Wis.,
Instance. The petitioners further allege that in view of the many election protests and criminal 390). Apart from any constitutional or statutory regulation on the subject there seems to be
cases for violation of the election law filed in the CFI of Oriental Negros arising from the last a general rule of law that an incumbent of an office will hold over after the conclusion of his
election, de la Costa was duly designated and acted as auxiliary judge. There was an term until the election and qualification of a successor (22 R. C. L., pp. 554-5). When a judge
understanding that de la Costa would hear and take cognizance of all election protests and in good faith remains in office after his title has ended, he is a de facto officer (Sheehan's Case,
criminal actions then pending or to filed arising from the said last general election, and that 122 Mass., 445).
Capistrano would try and hear the ordinary cases pending. Notwithstanding the
Applying the principles stated to the facts set forth in the petition before us, we
understanding, Capistrano tried and is still trying to take cognizance of the election protests
cannot escape the conclusion that, on the assumption that said facts are true, the respondent
and criminal actions in said court; declared in open court that he will try the criminal cases for
judge must be considered a judge de facto. His term of office may have expired, but his
the reason that de la Costa refused to try the same on the ground that the preliminary
successor has not been appointed, and as good faith is presumed, he must be regarded as
investigations were held before him, when, in truth and in fact, the de la Costa did not make
holding over in good faith. The contention of counsel for the petitioners that the auxiliary
the statement imputed to him and was and is still willing to try the election protests and
judge present in the district must be considered the regular judge seems obviously erroneous.
criminal cases for violation of the election law pending in the court. Additionally that
Accordingly, it is a well-established principle, dating from the earliest period and repeatedly
Capistrano, in spite of the fact that he was holding and is now pretending to hold the office
confirmed by an unbroken current of decisions, that the official acts of a de facto judge are
of judge took great interest and active part in the filing of criminal charges against the
just as valid for all purposes as those of a de jure judge, so far as the public or third persons
petitioners to the unjustifiable extent of appointing a deputy fiscal, who then filed the proper
who are interested therein are concerned. The principle is one founded in policy and
information, when the provincial fiscal refused to file criminal charges against the petitioners
convenience, for the right of no one claiming a title or interest under or through the
for violation of the election law for lack of sufficient evidence to sustain the same. Finally, that
proceedings of an officer having an apparent authority to act would be safe, if it were
Capistrano is neither a judge de jure nor de facto, but that he continues to hold the office of
necessary in every case to examine the legality of the title of such officer up to its original
judge and pretends to be duly qualified and acting judge of the said province; and that he has
source, and the title or interest of such person were held to be invalidated by some accidental
tried, and continues to try, to act as such judge. Hence this petition.
defect or flaw in the appointment, election or qualification of such officer, or in the rights of
THE ISSUE: those from whom his appointment or election emanated; nor could the supremacy of the
laws be maintained, or their execution enforced, if the acts of the judge having a colorable,
Whether or not Capistrano, upon reaching the age of 65, can still continue public
but not a legal title, were to be deemed invalid. As in the case of judges of courts of record,
office? Is he considered a de facto judge?
the acts of a justice de facto cannot be called in question in any suit to which he is not a party.
THE RULING:
Petition is sustained.
Briefly defined, a de facto judge is one who exercises the duties of a judicial office
under color of an appointment or election thereto (Brown vs. O'Connell, 36 Conn., 432). He
Umali vs Court of Appeals

189 SCRA 529 [GR No. 89561 September 13, 1990]

Facts:

Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Mur Vda. de Castillo. The Castillo
family are the owners of parcel of land located in Lucena City which was given as security for
a loan from the development Bank of the Philippines (DBP) for their failure to pay the
amortization, foreclosure of the said property was about to be initiated. This problem was
made known to Santiago Rivera, who proposed to them the conversion into subdivision of
the four parcels of land adjacent to the mortgaged property to raise the necessary fund. The
idea was accepted by the Castillo family and to carry out the project, a memorandum of
agreement was executed by and between Slobec Realty and Development Inc. represented
by its president Santiago Rivera and Castillo family. In this agreement, Santiago Rivera obliged
himself to pay the Castillo family the sum of P70,000 immediately after the execution of the
agreement and to pay additional amount of P40,000 after the property has been converted
into a subdivision. Rivera, with agreement approached Mr. Modesto Cervantes, president of
defendant Bormaheco and proposed to purchase from Bormaheco two tractors model D7 and
D8 subsequently a sales agreement was executed on December 28, 1970. On January 3, 1971,
Slobec, through Rivera, executed in favor of Bormaheco a chattel mortgage over the said
equipment as security for the payment of the aforesaid balance of P180,000. As further
security of the aforementioned unpaid balance, Slobec obtained from insurance corporation
of the Philippines a security bond, with Insurance Corporation of the Philippines (ICP) as
surety and Slobec as principal, in favor of Bormaheco, as borne out of by Exhibit 8. The
aforesaid surety bond was in turn secured by an agreement of counter-guaranty with real
estate mortgage executed by Rivera as President of Slobec and Mauricia Mur Vda. de Castillo,
Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and Leovina
Castillo Jalbuena as mortgagors and insurance corporation of the Philippines as mortgagee.
In this agreement, ICP guaranteed the obligation of Slobec with Bormaheco in the amount of
UMALI VS CA (189 SCRA 529) P180,000. In giving the bond, ICP required that the Castillos mortgage to them the properties
in question, namely, four parcels of land covered by TCT in the name of the aforementioned
mortgagors, namely TCT no. 13114, 13115, 13116, and 13117 all of the Register of Deeds of The mere fact, therefore, that the business of two or more corporations are interrelated is
Lucena City. Meanwhile, for violation of the terms and conditions of the counter-guaranty not a justification for disregarding their separate personalities, absent sufficient showing that
agreement, the properties of the Castillos were foreclosed by ICP as the highest bidder with the corporate entity was purposely used as a shield to defraud creditors and third persons of
a bid of P285,212, a certificate of sale was issued by the provincial sheriff of Lucena City and their rights.
TCT over the subject parcels of land were issued.

Issue: Whether or not the foreclosure is proper so as to apply the doctrine of piercing the veil
Koppel vs Yatco
of corporate entity.
G.R. No. L-47673 October 10, 1946

Facts:
Held: No. Under the doctrine of piercing the veil of corporate entity, when valid grounds
therefore exists, the legal fiction that a corporation is an entity with a juridical personality · Koppel Philippines Inc. (KPI) has a capital stock divided into thousand (1,000) shares of
separate and distinct from its members or stockholders may be disregarded. In such cases, P100 each.
the corporation will be considered as a mere association of persons. The members or
stockholders of the corporation will be considered as the corporation, that is, liability will · The Koppel Industrial Car and Equipment Company (KICEC) owns 995 shares of the total
attach directly to the officers and stockholders. The doctrine applies when the corporate capital stock. KICEC is organized under US laws and not licensed to do business in the
fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, on Philippines. The remaining five (5) shares only were and are owned one each by officers of
when it is made as a shield to confuse the legitimate issues or where a corporation is the mere the KPI.
alter ego or business conduit of a person, or where the corporation is so organized and · They have the following business process:
controlled and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation. o (1) "When a local buyer was interested in the purchase of railway materials, machinery,
and supplies, it asked for price quotations from KPI";
In the case at bar, petitioners seek to pierce the veil of corporate entity of Bormaheco, ICP
and PM parts, alleging that these corporations employed fraud in causing the foreclosure and o (2) "KPI then cabled for the quotation desired from Koppel Industrial Car and Equipment
subsequent sale of the real properties belonging to petitioners while we do not discount the Company";
possibility of existence of fraud in the foreclosure proceeding, neither are we inclined to apply o (3) "KPI, however, quoted to the purchaser a selling price above the figures quoted by
the doctrine invoked by petitioners in granting the relief sought. It is our considered opinion Koppel Industrial Car and Equipment Company";
that piercing the veil of corporate entity is not the proper remedy in order that the foreclosure
proceeding may be declared a nullity under the circumstances obtaining in the legal case at o (4) "On the basis of these quotations, orders were placed by the local purchasers
bar.
· KPI paid under protest the P64,122.51 demanded by the CIR.
Total profit but in such cases it charged its principal only the actual cost of the merchandise thus delivered
by it from its stock and in such transactionsKPI did not realize any profit #fluffypeaches
Php 3,772,403,82
· CFI:
KPI Share
o KPI is a mere dummy or branch ("hechura") of KICEC.
Php 132,201.30
o did not deny legal personality to Koppel (Philippines), Inc. for any and all purposes, but in
KPI paid commercial broker’s tax (4% of KPI Share)
effect its conclusion was that, in the transactions involved herein, the public interest and
Php 5,288.05 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."
CIR demanded (1% of Total Profit) + 25% surcharge for late payment – Paid tax
Issues/Ruling:
Php 64,122.51
1. WON KPI is a domestic corporation distinct and separate from, and not a mere branch of
· It appears that KICEC is the only foreign principal of KPI. KICEC
· The KPI corporation bore alone incidental expenses - as, for instance, cable expenses-
not only those of its own cables but also those of its "principal" .
KPI:
· The KPI's "share in the profits" realized from the transactions in which it intervened was
left virtually in the hands of KICEC · Its corporate existence as cannot be collaterally attacked and that the Government is
estopped from so doing.
· Where drafts were not paid by the purchasers, the local banks were instructed not to
protest them but to refer them to KPI which was fully empowered by KICEC to instruct the SC:
banks with regards to disposition of the drafts and documents
· Koppel (Philippines), Inc. was a mere branch or agency or dummy ("hechura") of Koppel
· Where the goods were European origin, consular invoices, bill of lading, and, in general, Industrial Car and Equipment Co. The lower court did not hold that the corporate personality
the documents necessary for clearance were sent directly to KPI of KPI would also be disregarded in other cases or for other purposes. It would have had no
power to so hold. The courts' action in this regard must be confined to the transactions
· If the KPI had in stock the merchandise desired by local buyers, it immediately filled the involved in the case at bar "for the purpose of adjudging the rights and liabilities of the parties
orders of such local buyers and made delivery in the Philippines without the necessity of in the case. They have no jurisdiction to do more." <3 peaches
cabling its principal in America either for price quotations or confirmation or rejection of that
agreed upon between it and the buyer · United States vs. Milwaukee Refrigeration Transit

· Whenever the deliveries made by KICEC were incomplete or insufficient to fill the local o General Rule: a corporation will be looked upon as a legal entity as a general rule, and
buyer's orders, KPI used to make good the deficiencies by deliveries from its own local stock, until sufficient reason to the contrary appears;
o Exception: Wthe notion of legal entity is used to defeat public convenience, justify wrong, GR No. L-13119 || September 22, 1959
protect fraud, or defend crime, the law will regard the corporation as an association of
The present case is a petition for Certiorari and prohibition with prayer for the issuance of a
persons.
writ of preliminary injunction to prohibit the respondent Court of Industrial Relations from
· Manifestly, the principle is the same whether the "person" be natural or artificial. proceeding with the hearing of the contempt proceedings.

· A very numerous and growing class of cases wherein the corporate entity is disregarded
is that (it is so organized and controlled, and its affairs are so conducted, as to make it merely
FACTS
an instrumentality, agency, conduit or adjunct of another corporation)."
La Campana Starch Factory and La Campana Coffee Factory (La Campana forBrevity) are two
· Where it appears that two business enterprises are owned, conducted and controlled
separate entities run by a single management under the leadership of Ramon Tantongco.
by the same parties, both law and equity will, when necessary to protect the rights of third
Kaisahan ng mga Manggagawa sa La Campana (Kaisahan for brevity), onthe other hand, is a
persons, disregard the legal fiction that two corporations are distinct entities, and treat them
labor union with members from the two companies. Sometime in June,
as identical. (Abney vs. Belmont Peaches Country Club Properties, Inc., 279 Pac., 829.)
#bebegurrpeaches 1951, representatives of Kaisahan approached the management of La Campana to demand
higher wages and more benefits. A deadlock ensued since none of the parties is willing togive
· The fact that KPI is a mere branch is conclusively borne out by the fact, among others,
concessions. The dispute was certified to the Court of Industrial Relations (CIR). LaCampana
that the amount of the so-called "share in the profits" of KPIwas ultimately left to the sole,
filed a motion to dismiss before the CIR claiming that the CIR has no jurisdiction because only
unbridled control of KICEC. If KPI was intended to function as a bona fide separate
those from the coffee factory were presenting the demands there were only14 employees in
corporation, we cannot conceive how this arrangement could have been adopted.
said factory. This was done in light of the requirement that at least 31employees should
· No group of businessmen could be expected to organize a mercantile corporation if the present the demands. The motion was denied by the CIR. According tothe CIR, the Kaisahan
amount of that profit were to be subjected to such a unilateral control of another corporation, was the one that presented the demands and not just the workers inthe coffee factory. The
unless indeed the former has previously been designed by the incorporators to serve as a Supreme Court affirmed the order of the CIR citing that althoughthe two entities are separate,
mere subsidiary, branch or agency of the latter. there is only one management. The entire membership of the Kaisahan is therefore to be
counted and not simply those employed in the coffeefactory. Additional incidental cases were
filed by Kaisahan before the CIR including a petition for the reinstatement of some employees.
· KPI charged the parent corporation no more than actual cost - without profit whatsoever Ramon Tantongco died some time in1956. The administrator of the estate of Ramon
- for merchandise allegedly of its own to complete deficiencies of shipments made by said Tantongco, herein petitioner Ricardo Tantongco, was ordered included as respondent in the
parent corporation. cases pending before the CIR. The CIR rendered a decision on the incidental cases and ordered
the reinstatement of the dismissed employees. When the employees reported to work, the
management refused them admittance. Kaisahan then filed a petition to cite the
RICARDO TANTONGCO, petitioner, v. KAISAHAN NG MGA MANGGAGAWA SA LACAMPANA management in contempt before the CIR. Hence this petition.
(KKM) and THE HONORABLE COURT OF INDUSTRIAL RELATIONS, respondents
CONTENTIONS

Petitioner: The two companies ceased to exist upon the death of Ramon Tantongco. The 1 and 2
Supreme Court held in GR No. L-5677 that La Campana and Ramon Tantongco are one based
The death of Ramon Tantongco did not end the existence of La Campana. The Supreme Court
on the doctrine of piercing the veil of corporate existence. Therefore, the death of Ramon
applied the Doctrine of Piercing the Veil of Corporate Existence in GR no. L-5677 to avoid the
Tantongco meant the death of La Campana. Since La Campana already ceased to exist, the
use of technicality to defeat the jurisdiction of the CIR. In the said case, the Court determined
CIR no longer has jurisdiction over it. The claims should have been filed with the probate
that although La Campana are two separate companies, they are being managed by only one
court.
management. Furthermore, the workers of both factories were interchangeably assigned. In
the present case, however, the Court ruled that despite the obvious fact that La Campana was
run by the same people, they still are two different companies with separate personalities
Defendant: La Campana continues to exist despite the death of Ramon Tantongco. The CIR
from Ramon Tantongco. La Campana was owned not only by Ramon but others as well
therefore has jurisdiction when it rendered its decision on the incidental cases. The non-
including Ricardo Tantongco. Lastly, the Court ruled that petitioner is under estoppel and
compliance by La Campana therefore amounted to contempt of court.
cannot claim that La Campana and Ramon are one and the same since he has represented La
Campana as separate entities in numerous dealings.

ISSUE

1.WON La Campana ceased to exist upon the death of Ramon Tantongco; 3. Ricardo Tantongco should still face the contempt proceedings because under Section 6 of
Commonwealth Act No. 143, “In case the employer (or landlord) committing any such
2.WON the Doctrine of Piercing the Veil of Corporate Existence applies to the present violation or contempt is an association or corporation, the manager or the person who has
case;and the charge of the management of the business of the association or corporation and the
3.WON the contempt of court proceedings in the CIR should proceed. officers of directors thereof who have ordered or authorized the violation of contempt shall
be liable. . . .” Since Tantongco is the General Manager of La Campana, he is still obliged to
appear at the contempt proceedings.
RULING

The Supreme Court

DENIED ROBLEDO VS.NLRC(G.R. No. 110358, Nov. 9, 1994)


the Petition for Certiorari and Prohibition. It ruled that La Camapana continued to exist FACT OF THE CASE
despite the death of Ramon Tantongco. It further ruled that the Doctrine of Piercing the Veil
of Corporate Existence is not applicable in the present case. Finally, it allowed the CIR to Robledo ET. Al. filed a Petition for Review of the Decision of NLRC, setting aside the decision
proceed with the contempt hearing. of the Labor Arbiter, which held private respondents jointly and severally liable to the
petitioners for overtime and legal holiday pay. Petitioners were former employees of Bacani urge that corporate fiction should be disregarded and BASEC should be held liable for the
Security and Protective Agency (BPSA). They were employed as security guards at different obligations of the defunct BSPA.As correctly found by the NLRC, BASEC is an entity separate
times during the period 1969 to December 1989 when BPSA ceased to operate. BPSA was a and distinct from that of BSPA. BSPA is a single proprietorship owned and operated by Felipe
single proprietorship owned, managed, and operated by the late Felipe Bacani. On December Bacani. Hence, its debts and obligations were the personal obligations of its owner.
31, 1989, Felipe Bacani retired the business name and BSPA ceased to operate effective on Petitioner’s claims, which are based on these debts and personal obligations, did not survive
that day. On Jan. 15, 1990 Felipe Bacani died. An intestate proceeding was instituted for the the death of Felipe Bacani on Jan. 15, 1990 and should have been filed instead in the intestate
settlement of his estate before Pasig-RTC. Earlier, on Oct. 26, 1989, respondent Bacani proceedings involving his estate.
Security and Allied Services Co., Inc. (BASEC) had been organized and registered as a
corporation with SEC. Several of the incorporator (3) surnamed Bacani, and that includes the
daughter of the late Felipe Bacani.On July 5, 1990, the petitioners filed a complaint with the G.R. No. L-15121 Case Digest
DOLE for underpayment of wages and nonpayment of overtime pay and other accrued G.R. No. L-15121, August 31, 1962
benefits, and for the return of their cash bond, which they posted, with BPSA. Made Gregorio Palacio and Mario Palacio (minor)
respondents were BSPA and BASEC.On March 1, 1992, the Labor Arbiter rendered a decision vs Fely Transportation Company
upholding the right of petitioners, finding the complainants entitled to their money claims to Ponente: Regala
be paid by all the respondents’ solidarily.On appeal, the NLRC reversed the decision declaring
that the Labor Arbiter is without jurisdiction and instead suggested that petitioners file their
claims with Pasig-RTC where an intestate proceeding of Bacani’s estate was Facts:
pending.Petitioners moved for reconsideration but their motion was denied for lack of In their complaint, the Palacio alleged that Fely hired Alfredo Canillo as driver who negligently
merit.The case was elevated to the SC and was treated as a special civil action of certiorari to run over a child (Mario). Gregorio , the father of Mario is a welder and in the account of his
determine whether the NLRC committed a grave abuse of discretion in reversing the Labor child's injuries has abandoned his shop which is the family's source of income.
Arbiter’s decision.

Fely filed a motion to dismiss on the grounds that there is no cause of action against the
ISSUE: Whether Bacani Security and Allied Services, Inc. (BASEC) can be held liable for claims company and that the cause of action is barred by prior judgment. But the court deferred the
of petitioners against Bacani Security and Protective Agency (BSPA). determination of the grounds alleged in the motion to dismiss until the trial of the case.

RULING: The defendant then alleges (1) that complaint states no cause of action against defendant,
No. Petitioners contend that public respondent, NLRC, erred in setting aside the Labor and (2) that the sale and transfer of the jeep AC-687 by Isabelo Calingasan to the Fely
Arbiter’s judgment on the ground that BASEC is the same entity as BSPA the latter being Transportation was made on December 24, 1955, long after the driver Alfredo Carillo of said
owned and controlled by one and the same family, the Bacani family. For this reason they jeep had been convicted and had served his sentence.
On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott executed in
favor of private respondent, Nazario Dumpit, a Contract to sell a parcel of Land in Antipolo,
In view of the evidence presented, the lower court barred the judgment in the criminal case
Rizal owned by said corporation. The sale price was P23, 300.00 with 9% interest per annum,
and held that the person subsidiarily liable to pay damages is Isabel Calingasan, the employer.
payable. with a down payment of P4, 660.00 and monthly installments of P246.42 until fully
paid. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default
in payment of any monthly installment after the lapse of 90 days from the expiration of the
Issue: Whether Fely Transportation can be held liable for the damages. grace period of one month, without need of notice and with forfeiture of all installments paid.
Respondent Dumpit paid the downpayment and several installments amounting to P13,
722.50. The last payment was made on December 5, 1967 for installments up to September
Ruling: 1967. On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner
The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and defendant Fely offering to update all his overdue accounts with interest, and seeking its written consent to
Transportation may be regarded as one and the same person. It is evident that Isabelo the assignment of his rights to a certain Lourdes Dizon. In response, petitioners informed
Calingasan's main purpose in forming the corporation was to evade his subsidiary civil liability respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the
resulting from the conviction of his driver, Alfredo Carillo. This conclusion is borne out by the contract, and that the lot had already been resold. A complaint was filed by the respondent
fact that the incorporators of the Fely Transportation are Isabelo Calingasan, his wife, his son, with the NHA for conveyance with an alternative prayer for refund. The NHA, in its resolution,
Dr. Calingasan, and his two daughters. ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly
and severally, to refund immediately to respondent the amount paid with 12% interest from
the filing of complaint. Respondent Presidential Executive Assistant Clave affirmed the NHA
resolution.

ISSUE
Accordingly, defendants Fely Transportation and Isabelo Calingasan should be held
subsidiarily liable for P500.00 which Alfredo Carillo was ordered to pay in the criminal case
and which amount he could not pay on account of insolvency.
1. Whether the doctrine of piercing the veil of corporate fiction has application to the case. 2.
Whether petitioner On Stott can be held solidarity liable with petitioner Corporation for the
refund of the installment payments made by respondent Dumpit.
PALAY, INC. Vs. CLAVE G.R.No. L-56076
RULING

The doctrine of piercing the veil of corporate fiction has no application to the case.
FACTS OF THE CASE
Consequently, petitioner Onstott cannot be held solidarity liable with petitioner Corporation
for the refund of the installment payments made by respondent Dumpit. A corporation is
invested by law with a personality separate and distinct from those of the persons composing
it. As a general rule, a corporation may not be made to answer for acts or liabilities of its Arbiter ruled in favor of workers holding petitioners-officers jointly and severally liable with
stockholders or those of the legal entities to which it may be connected and vice versa. PIF to pay them their benefits. Petitioners’ appeal was dismissed.

Issue:

However, the veil of corporate fiction may be pierced when: it is used as a shield to further Whether or not petitioners as officers may be held jointly and severally liable with the
an end subversive of justice; or for purposes that could not have been intended by the law corporation for its liability.
that created it; or to defeat public convenience, justify wrong, protect fraud, or defend crime;
or to perpetrate fraud or con fuse 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 Ruling: NO.
stockholders. In this case however, there are no badges of fraud on the part of the petitioners.
They had literally relied, although mistakenly, on paragraph 6 of the contract with respondent
when they rescinded the contract to sell extra judicially. Although Onstott appears to be the The settled rule is that the corporation is vested by law with a personality separate and
controlling stockholder, there being no fraud, he cannot be made personally liable. distinct from the persons composing it, including its officers as well as from that of any other
legal entity to which it may be related. Thus, a company manager acting in good faith within
the scope of his authority in terminating the services of certain employees cannot be held
Pabalan and Lagdameo v. NLRC (G.R. No. 89879) personally liable for damages. However, the legal fiction that a corporation has a personality
separate and distinct from stockholders and members may be disregarded when the notion
Date: June 4, 2016Author: jaicdn
of legal entity is used as a means to perpetrate fraud or an illegal act or as a vehicle for the
0 Comments evasion of an existing obligation, the circumvention of statutes, and or (to) confuse legitimate
issues the veil which protects the corporation will be lifted.
Facts:

In this particular case complainants did not allege or show that petitioners, as officers of the
84 workers of the Philippine Inter-Fashion (PIF) filed a complaint against the latter for illegal
corporation deliberately and maliciously designed to evade the financial obligation of the
transfer simultaneous with illegal dismissal in violation of the Labor Code. PIF was notified
corporation to its employees, or used the transfer of the employees as a means to perpetrate
about the complaint and summons but hearings were continually re-set for failure of its
an illegal act or as a vehicle for the evasion of existing obligations, the circumvention of
officers (petitioners herein) to appear. Complainant workers thus moved to implead
statutes, or to confuse the legitimate issues.
petitioners as officers of PIF in the complaint for their illegal transfer to a new firm. The Labor
Not one of the above circumstances has been shown to be present. Hence petitioners cannot considered as a mere association of persons and its responsible officers and/or stockholders
be held jointly and severally liable with the PIF corporation under the questioned decision and shall be individually liable. For the same reasons, a corporation shall be liable for obligations
resolution of the public respondent. of a stockholder or a corporation and its successor-in-interest shall be considered as one and
the liability of the former shall attach to the latter.

DEL ROSARIO VS NLRC (187 SCRA 777)


But for the separate juridical personality of a corporation to be disregarded, the wrong doing
Del Rosario vs National Labor Relations Commission
must be clearly and convincingly established. It cannot be presumed.
187 SCRA 777 [GR No. 85416 July 24, 1990]

Thus, at the time Philsa allowed its license to lapse in 1985 and even at the time it was
Facts: In POEA case no. 85-06-0394, the Philippine Overseas Employment Administration delivered in 1986, there was yet no judgement in favor of private respondent. An intent to
(POEA) promulgated a decision on February 4,1986 dismissing the complaint for money claims evade payment of his claims cannot therefore be implied from the expiration of Phila’s license
for lack of merit. The decision was appealed to the NLRC, which on April 30, 1987 reversed and its delisting.
the POEA decision and ordered Philsa Construction and Trading Co.Ind and Ariel Enterprises
(the foreign employer) to jointly and severally pay private respondent the peso equivalent of
$16,039,000 salary differentials and $2,420.03 as vacation leave benefits. A writ of execution Neither will the organization of Philsa International Placement and Services Corp. and its
was issued by the POEA but it was returned unsatisfied incapable of satisfying the judgement. registration with the POEA as a private employment agency imply fraud since it was organized
Private respondent moved for the issuance of an alias writ against the officers of Philsa. This and registered in 1981, several years before private respondent filed his complaint with the
motion was opposed by the officers led by petitioners, the president and general manager of POEA in 1985. The creation of the second anticipation of private respondent’s money claims
the corporation. However, POEA issued a resolution ordering the sheriff to execute against and the consequent adverse judgement against Philsa.
the properties of the petitioner and if insufficient, against the cash and/or surety bond of
bonding company concerned for the full satisfaction of the judgement awarded.
Likewise, substantially identity of the incorporators of the two corporations does not
necessarily imply fraud.
Issue: Whether or not the POEA resolution is proper.

VILLA REY TRANSIT, INC.,


Held: No. Under the law, a corporation is bestowed juridical personality, separate and distinct
plaintiff-appellant
from its stockholders. But when the juridical personality of the corporation is used to defeat
public convenience, justify wrong, protect or defend crime, the corporation shall be vs. FERRER, PANTRANCO and PSC,
defendants-appellants. certificates to Pantranco.The Corporation filed a complaint against Ferrer, Pantranco and the
PSC for the annulment of thesheriff's sale. Pantranco, on its part, filed a third-party complaint
PANTRANCO, third-party plaintiff-appellant, vs. VILLARAMA, third-party defendant-
against Villarama, alleging that Villaramaand/or the Corporation was disqualified from
appellee.G.R. No. L-23893 October 29, 1968 ANGELES,
operating the two certificates in question by virtue of theprevious agreement. The trial court
declared null and void the sheriff's sale of

J.: two

certificates of publicconvenience in favor of Ferrer and the subsequent sale thereof by the
latter to Pantranco and declaringVilla Rey Transit, Inc., to be the lawful owner of the said
FACTS: certificates of public convenience.Pantranco disputes the correctness of the decision insofar
Jose Villarama was an operator of a bus transportation pursuant to two certificates of as it holds that Villa Rey Transit, Inc.(Corporation) is a distinct and separate entity from
publicconvenience granted him by the Public Service Commission (PSC). Later, he sold the Villarama. Ferrer, for his part, challenges the decisioninsofar as it holds that the sheriff's sale
certificates to thePangasinan Transportation Company, Inc. (Pantranco) with the condition is null and void.
that the seller (Villarama) "shallnot for a period of 10 years, apply for any TPU service identical ISSUE:
or competing with the buyer."Barely three months thereafter, a corporation called Villa Rey
Transit, Inc. (the Corporation) wasorganized with a capital stock of P500,000.00 divided into Whether the stipulation between Villarama and Pantranco binds Villa Rey Transit, Inc.
5,000 shares of the par value of P100.00 each;P200,000.00 was the subscribed stock;
HELD:
Natividad Villarama (wife of Jose Villarama) was one of theincorporators, and she subscribed
for P1,000.00; the balance of P199,000.00 was subscribed by thebrother and sister-in-law of
Jose Villarama; of the subscribed capital stock, P105,000.00 was paid to thetreasurer of the
YES.
corporation, Natividad.In less than a month after its registration with the SEC, the Corporation
bought The restrictive clause in the contract entered into by the Villarama and Pantranco is
alsoenforceable and binding against the said Corporation. The rule is that a seller or promisor
five
may not makeuse of a corporate entity as a means of evading the obligation of his covenant.
certificates of public convenience and 49 buses from one Valentin Fernando. Later, the Sheriff The evidence hasdisclosed that Villarama, albeit was not an incorporator or stockholder of
of Manila levied on the Corporation, his wife,however, was an incorporator and was elected treasurer of the
Corporation. The evidence further showsthat the initial cash capitalization of the corporation
2 of the 5 certificates
was mostly financed by Villarama; he supplied theorganization expenses and the assets of the
, in favor of Eusebio Ferrer, judgment creditor, against Fernando, judgment debtor. Apublic Corporation, such as trucks and equipment;
sale was conducted. Ferrer was the highest bidder. Ferrer sold the

two
there was noactual payment by the original subscribers of the amounts of P95,000.00 and convenience to the Pangasinan Transportation Company, Inc. (Pantranco), for P350,000.00
P100,000.00 as appearingin the books; Villarama made use of the money of the Corporation with the condition, among others, that the seller (Villarama) "shall not for a period of 10 years
and deposited them to his privateaccounts; and the Corporation paid his personal accounts. from the date of this sale, apply for any TPU service identical or competing with the buyer."

The foregoing circumstances are strongpersuasive evidence showing that Villarama has been Barely 3 months thereafter, or on 6 March 1959: a corporation called Villa Rey Transit, Inc.
too much involved in the affairs of the Corporationto altogether negate the claim that he was (the Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares
only a part-time general manager. They show beyond doubtthat the Corporation is his of the par value of P100.00 each; P200,000.00 was the subscribed stock; Natividad R.
Villarama (wife of Jose M. Villarama) was one of the incorporators, and she subscribed for
alter ego
P1,000.00; the balance of P199,000.00 was subscribed by the brother and sister-in-law of Jose
.The doctrine that a corporation is a legal entity distinct and separate from the members M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the treasurer of the
andstockholders who compose it is recognized and respected in all cases which are within corporation, who was Natividad R. Villarama. In less than a month after its registration with
reason and thelaw. When the fiction is urged as a means of perpetrating a fraud or an illegal the Securities and Exchange Commission (10 March 1959), the Corporation, on 7 April 1959,
act or as a vehicle for theevasion of an existing obligation, the circumvention of statutes, the bought 5 certificates of public convenience, 49 buses, tools and equipment from one Valentin
achievement or perfection of amonopoly or generally the perpetration of knavery or crime, Fernando, for the sum of P249,000.00, of which P100,000.00 was paid upon the signing of the
the veil with which the law covers andisolates the corporation from the members or contract; P50,000.00 was payable upon the final approval of the sale by the PSC; P49,500.00
stockholders who compose it will be lifted to allow for itsconsideration merely as an one year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by
aggregation of individuals. the BUYER to the different suppliers of the SELLER."

Villa Rey Transit vs. Ferrer Case Digest The very same day that the contract of sale was executed, the parties thereto immediately
applied with the PSC for its approval, with a prayer for the issuance of a provisional authority
Villa Rey Transit vs. Ferrer in favor of the vendee Corporation to operate the service therein involved. On 19 May 1959,
[GR L-23893, 29 October 1968] the PSC granted the provisional permit prayed for, upon the condition that "it may be
modified or revoked by the Commission at any time, shall be subject to whatever action that
may be taken on the basic application and shall be valid only during the pendency of said
Facts: [preceding case] Prior to 1959, Jose M. Villarama was an operator of a bus application." Before the PSC could take final action on said application for approval of sale,
transportation, under the business name of Villa Rey Transit, pursuant to certificates of public however, the Sheriff of Manila, on 7 July 1959, levied on 2 of the five certificates of public
convenience granted him by the Public Service Commission (PSC) in Cases 44213 and 104651, convenience involved therein, namely, those issued under PSC cases 59494 and 63780,
which authorized him to operate a total of 32 units on various routes or lines from Pangasinan pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil Case
to Manila, and vice-versa. On 8 January 1959, he sold the two certificates of public 13798, in favor of Eusebio E. Ferrer against Valentin Fernando. The Sheriff made and entered
the levy in the records of the PSC. On 16 July 1959, a public sale was conducted by the Sheriff
of the said two certificates of public convenience. Ferrer was the highest bidder, and a Issue: Whether the stipulation, "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF
certificate of sale was issued in his name. Thereafter, Ferrer sold the two certificates of public THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER" in the
convenience to Pantranco, and jointly submitted for approval their corresponding contract of contract between Villarama and Pantranco, binds the Corporation (the Villa Rey Transit, Inc.).
sale to the PSC. Pantranco therein prayed that it be authorized provisionally to operate the
service involved in the said two certificates.
Held: Villarama supplied the organization expenses and the assets of the Corporation, such as
trucks and equipment; there was no actual payment by the original subscribers of the
The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, amounts of P95,000.00 and P100,000.00 as appearing in the books; Villarama made use of
Case 124057, and that of Ferrer and Pantranco, Case 126278, were scheduled for a joint the money of the Corporation and deposited them to his private accounts; and the
hearing. In the meantime, to wit, on 22 July 1959, the PSC issued an order disposing that Corporation paid his personal accounts. Villarama himself admitted that he mingled the
during the pendency of the cases and before a final resolution on the aforesaid applications, corporate funds with his own money. These circumstances are strong persuasive evidence
the Pantranco shall be the one to operate provisionally the service under the two certificates showing that Villarama has been too much involved in the affairs of the Corporation to
embraced in the contract between Ferrer and Pantranco. The Corporation took issue with this altogether negative the claim that he was only a part-time general manager. They show
particular ruling of the PSC and elevated the matter to the Supreme Court, which decreed, beyond doubt that the Corporation is his alter ego. The interference of Villarama in the
after deliberation, that until the issue on the ownership of the disputed certificates shall have complex affairs of the corporation, and particularly its finances, are much too inconsistent
been finally settled by the proper court, the Corporation should be the one to operate the with the ends and purposes of the Corporation law, which, precisely, seeks to separate
lines provisionally. personal responsibilities from corporate undertakings. It is the very essence of incorporation
that the acts and conduct of the corporation be carried out in its own corporate name because
it has its own personality. The doctrine that a corporation is a legal entity distinct and separate
[present case] On 4 November 1959, the Corporation filed in the Court of First Instance of from the members and stockholders who compose it is recognized and respected in all cases
Manila, a complaint for the annulment of the sheriff's sale of the aforesaid two certificates of which are within reason and the law. When the fiction is urged as a means of perpetrating a
public convenience (PSC Cases 59494 and 63780) in favor of Ferrer, and the subsequent sale fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
thereof by the latter to Pantranco, against Ferrer, Pantranco and the PSC. The Corporation circumvention of statutes, the achievement or perfection of a monopoly or generally the
prayed therein that all the orders of the PSC relative to the parties' dispute over the said perpetration of knavery or crime, the veil with which the law covers and isolates the
certificates be annulled. The CFI of Manila declared the sheriff's sale of two certificates of corporation from the members or stockholders who compose it will be lifted to allow for its
public convenience in favor of Ferrer and the subsequent sale thereof by the latter to consideration merely as an aggregation of individuals. Hence, the Villa Rey Transit, Inc. is an
Pantranco null and void; declared the Corporation to be the lawful owner of the said alter ego of Jose M. Villarama, and that the restrictive clause in the contract entered into by
certificates of public convenience; and ordered Ferrer and Pantranco, jointly and severally, to the latter and Pantranco is also enforceable and binding against the said Corporation. For the
pay the Corporation, the sum of P5,000.00 as and for attorney's fees. The case against the rule is that a seller or promisor may not make use of a corporate entity as a means of evading
PSC was dismissed. All parties appealed. the obligation of his covenant. Where the Corporation is substantially the alter ego of the
covenantor to the restrictive agreement, it can be enjoined from competing with the
covenantee.

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