168578198 corpo-digests

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Lozano vs. De Los Santos
Petitioner Lozano filed for damages against Adda before the MCTC in Pampanga. Lozano is the
president of KAMAJDA while Anda was the president of SAMAJODA. With the request of the
Sangguniang Bayan of Mabalacat, Lozano and Anda agreed to CONSOLIDATE their respective
associations and from a unified jeepney operators association UMAJODA.
They agreed to elect one set of officers who shall be given the SOLE authority to collect the daily
dues from the members of the consolidated assoc.
Lozano won as president and Anda protested alleging fraud and refused to recognize the results
of the election. He also continued to collect the dues from the members of his assoc despite
demands to resist.
Anda claims that the jurisdiction was lodged with SEC. MCTC denied the motion.
RTC: Intracorporate – SEC.
ISSUE: Jurisdiction
Held: MCTC
There is no intracorporate nor partnership relation between the petitioner and priv resp.
Dispute arose of just a plan to consolidate into a single common assoc and is still a PROPOSAL.
Not approved by SEC and had not submitted its articles nor its officers and members.
CONSOLIDATION becomes effective not upon mere agreement but only UPON ISSUANCE OF
THE CERTIFICATE OF CONSOLIDATION OF SEC.
Consolidation must not be against the provisions of the Corpo Code.
The dispute is not among the members of the KAMAJDA or SAMAJODA but
between members of separate and distinct associations.
Sec. 5 of the PD 902-A sets forth the jurisdiction of SEC. The jurisdiction is determined by a
concurrence of two elements:
1) status or relationship of the parties- relationship must arise our of intracorporate of
partnership releations between and amoing stockholders, members or assoc etc.
2) nature of the question that is the subject of their controversy – requires that the dispute
be INTRINSICALLY CONNECTED WITH THE REGULATION OF THE CORPO,
PARTN, ASSOC. and deal with the internal affairs of the corpo.
Corporation by estoppel is founded on principles of equity and is designed to prevent injustice
and unfairness. It applies when persons assume to form a corporation and exercises corporate
functions and enter into business relations with third persons. Where there is no third person
involved and the conflict arises only among those assuming the form of a
corporation, who therefore know that it has not been registered, there is no
corporation by estoppel.
Lim Tong Lim vs. Phil Fishing Gear Industries

A partnership may be deemed to exist among parties who agree to borrow money to pursue a
business and to divide the profits or losses that may arise therefrom, even if it is shown that they
have not contributed any capital of their won to a “common fund”.
Their contribution may be in the form of credit of industry, not necessarily cash or fixed assets.
By being partners, they are liable fro debts incurred by or on behalf of the partnership.
The liability for a contract entered into on behalf of an unincorporated association
or ostensible corporation may lie in a person who may not have directly transacted
on its behalf but reaped benefits from that contract.
FACTS:
Chua and Yao entered into a contract for the purchase of fishing nets on behalf of Ocean Quest
Fishing Corpo from Phil Fishing Gear Industries.
C and Y claimed that they were engaged in a business with Lim Tong Lim but who was not a
signatory to the agreement.
Failed to pay thus PFGI filed collection suit against the three: Chua, Yao and Lim as general
partners because Ocean Quest is a non-existing corpo as shown by a cert from SEC.
Lim filed for the lift of the Writ of Attachment but RTC maintained the write and ordered the sale of
the nets.
RTC: There is partnership.
There is a compromise agreement among the 3 which stated that they will have the 4 vessels
sold for 5.7M including the fishing net and that this amount shall be applied in full payment in
favor of JL Holdings and Lim and that if these 4 vessels be sold higher that 5.7M, the excess shall
be divided among the three. If deficient, shall also be divided among the 3.
RTC: Compromise Agreement silent as to the nature of their obligations but presumption is that
equal distribution of the profit and loss.
CA: Affirmed.
ISSUE: WON Lim may be regarded as a partner when the sole basis is the Compromise
Agreement and not considering the fact that he has not signed any transaction nor met any of the
rep of the Phil Fishing Gears. WON it is just a lease.
HELD: There is partnership.
It is clear in the factual findings that they have decided to engage in a fishing business where they
bought boats from the loan they got from JLim who is Lim’s borther.
The partnership extended not only to the boats but also to the nets and the floats.
Lim is not a lessor because in effect he would like the Court to believe that he consented to the
sale of his own boats to pay the debt or Chua and Yao with the excess of the proceeds to be
divided among the three of them. No lessor would do that.
F/B Lourdes, although under his name, is not his own but an asset of the partnership. Not
uncommon to register the properties acquired from a loan in the name of the person the lender
trusts.
Corporation by Estoppel
The doctrine may apply to the alleged corporation and to a third party. In the first instance, the
unincorporated association which represented itself to be a corporation will be estopped from
DENYING its corpo capacity in a suit against it by a third person who RELIED ON GOOD FAITH
on such representation.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received benefits from
it, may be barred from denying its corporate existence in a suit brought against
the alleged corporation.
IN SUCH CASE, all those who benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be held liable for
contracts they impliedly assented to or took advantage of.
ISSUE: WON Lim shall be JOINTLY liable with Chua and Yao.
Held: No, he shall be jointly liable. He has benefited from the USE OF THE NETS found inside
F/B Lourdes which is an asset of the partnership.

Under the law on estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable as general
partners.
Having reaped the benefits of the contract entered into by persons with whom he
previously had an existing relationship, he is deemed to be part of said
association and is covered by the scope of the doctrine of corporation by
estoppel.
Concurring Opinion of J. Vitug:
Partners can be held SOLIDARILY liable with the partnership specifically in these instances:
1) where, by any wrongful act or omission of any partner acting in the ordinary course of
the business of the partnership or with the authority of his co-partners, LOSS OR
INJURY is cause to any person, NOT BEING A PARTNER in the partnership, or nay
penalty incurred, the partnership is liable therefore to the same extent as the
partner so acting or omitting to act.
2) Where on partner acting within the scope of his apparent authority receives money or
property of a third person and misapplies it.
3) Where the partnership in the course of its business receives money or property of a
third person and the money or property so received is misapplied by any partner while it
is in the custody of the partnership.
International Express Travel & Tour Services vs CA
FACTS: In June 1989, Express Travel wrote a letter to the Phil Football Federation thru the
president Henry Kahn offering its services to the latter and Kahn accepted this.
The federation consisting of athletes and officials, went to the South East Asian Games in
Malaysia and other trips to other countries. Federation incurred expenses and made two partial
payments.
In Dec 1989, Kahn issued a personal check as a partial payment then no more payment.
ET sued HK in his personal capacity and as president and impleaded the federation as an
alternative defendant.
HK: No cause of action against in his personal cap or official cap and that he did not guarantee
the payment and merely acted as an agent.
RTC: HK personally liable. No proof that the federation has a corporate existence.
CA: reversed. Juridical existence of the Fed.
ISSUE: WON the Federation is a juridical person.
CA: RA 3135 Revised Charter of the Phil Amateur Athletic Fed and PD 604: where the fed
derives its existence. These laws recognize the juridical existence of NATIONAL SPORTS
ASSOC.
SC: But the mere passage of these laws DOES NOT AUTOMATICALLY vest the associations a
CORPORATE STATUS.
RULE: The State must give its consent: in the form of a special law of a general enabling act.
These laws merely recognized the existence of national sports associations.
Before an entity may be considered a national sports assoc, the Phil Amateur Athletic Fed and
Dept of Youth and Sports Dev must recognize them as such.
HK shall be held liable for the unpaid obligations of the unincorporated Fed.
Settled rule: Any person acting or purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent.
It cannot be held that ET is estopped because: The doctrine of corporation by estoppel is
mistakenly applied by the responded court to the petitioner. The application of the
doctrine applies to a third party only when he tries to escape liability on a contract
from which he has benefited on the irrelevant ground of defective corporation.
ET is not trying to escape liability but is the one claiming from the contract.
Loyola Grand Villas Homeowners (SOUTH) Assoc vs. CA
Issue: Does the failure of a corporation to file its by-laws within one month from the date of its
incorporation result in its automatic dissolution?
HIGC (Guaranty Corp), a quasi-judicial body, recognized LGVHA as the SOLE homeowners’
assoc in Loyola Grand Villas in Marikina and QC. HIGC revoked the cert of North Assoc and
South Assoc.

North is registered with HIGC and has submitted its by-laws.
Soliven inquired about the status of the LGV and he was told by the legal counsel of HIGC that
LGV has been AUTOMATICALLY dissolved because it did not submit its by-laws and that it has
been a non-user of the corporate charter because HIGC did not receive any report on the assoc
activities.
South registered wit the HIGC and filed its by-laws.
ISSUE: WON automatic dissolution because of failure to submit by-laws.
HELD: No.
Proper notice and hearing are cardinal components of due process in any democratic institution,
agency or society.
CA: The code is silent on the result of the failure to adopt and file the by-laws within the required
period. Also there is no showing that the cert of LGV has been revoked.
PD 902-A, it clear that the failure to file by-laws within the required period is only a ground for
suspension or revocation of the certificate of registration of corporations.
There must be a hearing to determine the existence of the ground and assuming that there is
such finding, the penalty is not revocation but may be only suspension of the charter.
Administrative fine only.
Hall vs Piccio
Facts: In May 1947, the Halls with resp Brown, Chapman and Abella sighed and acknowledge in
Leyte, the articles of incoraporation of the Far Estern Lumber and Commercial Co organized to
engaged in a general lumber business  general contractors, operators and managers.
Attached in the articles are affidavit by the treasurer the number of shares of stocks and what has
been subscribed and fully paid.
After, adoption of by-laws and election of officers. In Dec 1947, filed in SEC for the cert of
incorporation.
In March 1942, resp filed for the dissolution of the FELC because it was an unregistered
partnership and that there is a bitter dissension among members.
Judge Piccio ordered for the dissolution of the company and appointed Capuciong, at the request
of the pet, as receiver of the properties.
Pet claims that it bec it is a de facto corpo, the dissolution may only be ordered in a quo warranto
proceeding. Browns and the resp are estopped from claiming that it is not a corporation but only a
partnership.
ISSUE: WON corporation or partnership
Held: Partnership.
Not having obtained the cert of incorporation, FELC may not claim corporation in good faith.
Immunity of collateral attack is granted to corporations claiming in good faith to be a corporation
under this act.
The complaining assoc have not represented to the others that they were incorporated any more
than the latter had made similar rep to them. And as nobody was led to believe anything to his
prejudice and damage, the principle of estoppel does not apply.
This suit is not one in which the corporation is a party. This is a litigation between
the stockholders of the alleged corporation. Even the existence of a de jure corp
may be terminated in a private suit for dissolution bet SH WITHOUT the
intervention of the State.
Pau: In the present Code, the appointment of a receiver would suspend all proceedings and
would make SEC have the jurisdiction over the case.
ABC vs Standard Products
Facts: Recovery of the balance by the bank against corporation.
RTC: Bank was not able to prove corporate existence of both parties.

HELD: Gen rule: in the absence of fraud, a person who has contracted or otherwise
dealt with an association in such a ways as to recognize and in effect admit its
legal existence as a corporate body is thereby estopped to deny its corporate
existence
The defendant corp having recognized the corporate existence of the plaintiff byu making a
promissory note it its favor and making partial payments is estopped to deny said plaintiff’s
corporate existence. It is also estopped from denying its own corpo existence.
Cranson vs. IBM
FACTS:
Cranson was asked to be an investor in a new business corporation and after he acceded, there
are other people who had formed the corporation with him. A stiock cert evidencing his ownership
of shares in the corporation was given to him. The transactions were done as if it were a
corporation and eventually Cranson was elected president and all the dealings with IBM were
conducted by him for the corporation.
At no time did he assume personal obligation or pledge his individual credit to IBM.
But the lawyers of the corpo made an oversight of not filing the certificate of incorporation and
when claim for payment were charged against the Bureau, IBM charged Cranson in his personal
capacity.
ISSUE: Won a defectively incorporated association would warrant a charge against officers in
their personal capacity.
Held: No.
There are two doctrines which the courts use to clothe a defectively incorporated association:
1) Doctrine of de facto corporation
Elements:
a. existence of law authorizing incorporation
b. effort in good faith to incorporate under the existing law
c. actual use or exercise of corporate powers
2) Doctrine of estoppel: employed when the person seeking to hold the officer personally
liable has contracted or otherwise dealt with the assoc in such a manner as to
recognize and in effect admit its existence as a corporate bdy.
When there is a concurrence of the three elements necessary for the application of the de facto
corporation doctrine, there exists an entity which is a corporation de jure against all persons BUT
THE STATE. On the other hand, the estoppel theory is applied only to the facts of each particular
case and may be invoked even when there is no corporation de facto.
IBM, having dealth with the Bureau as if it were a corporation and relied on its credit rather than
that of Cranson, is estopped to assert that the Bureau was not incorporated at the time the
typewriters were franchised.
Where one has recognized the corporate existence of an association, he is
estopped to assert the contrary with respect to claim arising out of such dealings.
IBM estopped=Cranson not liable.
Salvatierra vs. Garlitos
Facts:
Manuela Salvatierra-owner of a parcel of land in Leyte. MS entered into a contract of lease with
the Phil Fibers Producers Co allegedly a coporation “duly organized and existing under the laws
of the Phils and represented by Refuerzo, the President.
Lease Contract:
• 10 years
• land would be planted to kenaf, ramie, or other crops suitable to the soil
• lessor would be entit;ed to 30% of the net income accruing from the harvest
of any crop without being responsible for the cost of production
• after every harvest, the lessee was bound to declare at the earlies possible
time the income derived and deliver the said share to the lessor.
Not complied so MS filed with CFI for accounting, rescission and damages.
CFI: granted—render complete accounting and to deliever with legal interest.
Failure to abide by the said req, the gross income would be fixed at P4300 or a net income of
3200 after deducting the expenses for production, 30% or 960.

SRefuerzo: should be declared null nd void with respect to him-no allegation pointing to his
personal liability. Court granted and ordered the release of properties belonging the him.
He claims he should be exonerated because: no allegation which would hold him liable
personally, for while it was stated that he was a signatory to the lease contract, he did so in his
capacity as president of the corporation.
MS: Her failure to specify the def personal liability was due to the fact that all the time she was
under the impression that the Phil Fibers rep by resp was a duly registered corpo as appearing in
the contract but a subsequent inquiry form the SEC proved otherwise.
ISSUE: WON SRefuerzo can be held personally liable to MS.
HELD: SRefuerzo liable.
Gen rule: a person who has contracted or dealt with an association in such a way as to recognize
its existence as a coporate body is ESTOPPED from denying the same in an action arising out of
such transaction or dealing.
EXCEPTION: Where there is fraud in the transaction.
In the present case, SR no confirmation nor denial thus, may be concluded that MS was really
made to believe that it was a corporation duly organized.
Doctrine: xxx A stockholder or member cannot be held personally liable for any
financial obligation by the corporation in excess of his unpaid subscription.  BUT
THIS RULE IS UNDERSTOOD TO REFER MERELY TO REGISTERED
CORPORATIONS and cannot be made applicable to the liability of members of an
unincorporated association.
Ration of the Doctrine: organization before the law  non-existent = has no personality and
would be incompetent as a corporation, IT CANNOT CREATE AGENTS OR CONFER
AUTHORITY ON ANOTHER TO ACT IN ITS BEHALF. It’s at their own risk.
“A person who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the rights and subject to all the liabilities of a
principal, a person acting or purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent. “
Fleischer vs. Botanica Nolasco
Against the BOD of BN. Fleischer prayed that said BOD be ordered to register in the books of the
corporation FIVE SHARES of its stock in the name of Fleischer and to pay him for damages
sustained from the refusal of said body to register.
Fleischer purchased said stock from original owner Manual Gonzales, fully paid.
Judge Capistrano held that article 12 of the by-laws of the corpo which gives it (the
CORPO) PREFERENTIAL RIGHT to buy its shares from retiring stockholder, is in
CONFLICT with the Corpo Law.
In March 1923 Gonzales assigned and delivered said five shares to HF. In the same month, Dr.
Miciano-sec-treasurer Offered to buy from HF the said shares at their par value.
MG, two days after his assignment, revoked the sale and requested that the sale be not
transferred to HF. But after 6 months, MG withdrew and cancelled this request but BN declined
because the letter was in conformity of the by-laws.
ISSUE: WON art. 12 of the by-laws is in conflict with the Corpo Law.
Sec. 13 of the Corpo law which talks about the power of a orporation, states that this section
empowers a corpo to make by-laws, NOT INCONSISTENT WITH ANY EXISTING LAW, FOR
THE TRANSFERRING OF ITS STOCKS. By-law should be in harmony with the law on the
subject of transfer of stock.
SHARES OF STOCKS: personal property
The holder of shares as owner of personal prop is at liberty under said section to dispose of them
in favor of whomsoever he pleases, without any other limitation in this respect that the general
provisions of law.
Adoption of the by-law specified has made the corpo transcend the limits fixed by law.
XXX Restriction upon the traffic in stock must have their source in legislative enactment, as the
corporation itself cannot create such impediments.
BY-LAWS: intended for the protection of the corporation and prescrie regulation and not
restriction.

The corporation, in the absence of such power, cannot ordinarily inquire into or
pass upon the legality of the transaction by which it stock passes from one person
to another, nor can it take away or abridge the substantial rights of stockholders.
Under a statute authorizing by-laws for the transfer of stock, a corporation can do no more than
prescribe an general mode of transfer on the corporate books and cannot justify an unreasonable
restriction upon the right of sale.
The only restraint by Corpo Law upon transfer of shares is found in sec 35, “No transfer, however,
shall be valid, except as between the parties, until the transfer is entered and noted upon the
books of the corporation so as to show the names of the parties to the transaction, the date of the
transfer, the number of the certificate, and the number of shares transferred.
A by-law of a corpo which provides that transfers of stocks shall not be valid UNLESS approved
by the board of directors, while it may be enforced as a reasonable regulation for the protection of
the corporation against worthless stockholders, cannot be made available to defeat the right of
third person.
NOTE: The Corpo Code allows reasonable transfer restriction in close
corporations.
Government of the Phil vs. El Hogar
Facts:
The Phil gov’t instituted a quo warranto proceeding against EL Hogar for the purpose of depriving
it of its corporate franchise, excluding it from all corporate rights anf privileges and effecting a final
dissolution of the corpo.
March 1906-Corpo law came into effect. Sec 171 to 190 are on building and loan association.
El Hogar-first corpo in the Phil. Under the law then, the capital of an association was not
permitted to exceed 3M but then amended to 10M.
The by-laws of the corpo states a provision that: the BOD, by vote of an absolute majority of its
members, is empowered to CANCEL SHARES AND RETURN TO THE OWNER thereof the
balance resulting from the liquidation thereof, whenever, by reason of their conduct of any other
motive, the continuation as members of the owners of such shares is not desirable.
The govt questioned the validity because it conflicts with the Corpo Law which declares that the
BOARD SHALL NOT HAVE THE POWER TO FORCE THE SURRENDER AND WITHRAWAL
OF UNMATURED STOCK EXCEPT IN CASE OF LIQUIDATION OF THE CORPORATION OR
OF FORFEITURE OF THE STOCK FOR DELINQUENCY.
The govt asserts that because of the existence of the provision in the by-law, it justifies its
dissolution.
There is also a provision in the by-laws that the directors shall elect from amoing the shareholder
members to fill the vacancies that may occur in the BOD until the election at the general meeting.
Another cause of action of the govt was based on the BOD’s failure to hold annual meetings and
fill vacancies.
Third cause of action is the fact the directors of El Hogar have been receiving large compensation
because the by-laws provide a 5% of the net profit shown by the annual balance sheet to be
distributed to the directors in proportion to their attendance at meetings of the board.
Fourth cause of action: Procedures to adopt when one is elected as a BOD=P5000 pay-up of
shares as security—only the rich can be BOD and the waiver to receive loans form the corpo
ISSUE: WON El Hogar may be dissolved on such grounds.
HELD: NO. The by-law (1
st
) is a mere nullity and could not be enforced if the directors attempt to
do so.
In the second cause of action, unless the law or the charter of the corporation
expressly provides that an office shall become at the expiration of the term of
office for which the officer was elected, the general rule is to allow the officier to
hold over until his successor is duly qualified. MERE FAILURE OF A CORPO TO
ELECT OFFICERS DOES NOT TERMINATE THE TERM OF EXISTING OFFICERS
AND DISSOLVE THE CORPORATION.
On the third cause of action as to the compensation of the BOD=the question must be of the
validity of the measure and not the propriety and wisdom of the measure adopted.
The power to fix the compensation they shall receive, if any, is left to the
corporation to be determined by the by-laws. The remedy is in the hands of the
stockholders.

On the fourth cause of action: The Corpo Law expressly gives the power to the corporation to
provide in its by-laws for the qualifications of directors and the requirement of security from them
for the proper discharge of the duties of their offce.
Stockholders of Guanzon vs Register of Deeds of Manila
Facts:
In September 1960, 5 stockholders of the F.Guanzon and Sons executed a certificate of
liquidation of the assets of the corpo because of the resolution of the SH which they adopted
dissolving the corporation.
They have distributed among themselves in propoertion to their shareholdings, as liquidating
dividends, the assets of said corporation, including real properties.
The certificate of liquidation was presented to the Register of Deeds of Mla but WAS DENIED.
Grounds for denial:
1) number of parcels not certified to in the acknowledgement
2) fees not paid
3) documentary stamps weren’t attached to the documents
4) judgment of the court approving the dissolution and directing the disposition of the
assets of the corpo need to be presented
ISSUE: Commissioner of Land Registration=the issues hinged on WON the certificate of
liquidation merely involves a distribution on the corporation assets or a transfer or conveyance.
If it were a conveyance, there would be a need to reflect on the certificate a statement of the
numbers of parcels of land involved in the distribution in the acknowledgement appearing therein.
Documentary stamps are more expensive if it’s a transfer rather than distribution.
CLR held that it is a transfer or conveyance.
HELD: SC: Agree with the CLR.
A corporation is a juridical person distinct from the members composing it.
Properties registered in the name of the corporation are owned by it as an entity
separate and distinct from its members. While shares of stock constitute personal
property, they do not represent property of the corporation. The corporation has
property of its own which consists chiefly of real estate.
The share of stock only typifies an aliquot part of the corpo property, and it only gives the extent
of the proceeds when it is distributed AND ITS HOLDER IS NOT THE OWNER OF ANY PART
OF THE CAPITAL OF THE CORPO.
When the purpose of the liquidation is to transfer the title from the corporation to the stockholders
in proportion to their shareholdings, this transfer cannot be effected without the corresponding
deed of conveyance from the corporation to stockholders.
Caram vs. CA
Facts:
The plaintiff filed a claim for the payment of the preparation of the project study and his technical
services that led to the organization of the defendant corporation. He demands the solidary
liability of the petitioners and their co-defendants.
The petitioners contend that they had no contract with the private resp and that their position was
that they are mere subsequent investors in the corporation that was later created. Caram et al
asserted that they shouldn’t be held solidary liable with the Filipinas Orient Airways, a separate
juridical entity, and with Barretto and Garcia.
ISSUE: WON the petitioners themselves are ALSO and PERSONALLY liable for such expenses
and if so to what extent (solidary or jointly?)
CA held: Yes they should be jointly and severally liable for the said amount. Not only the
defendant corporation but all other def who were involved in the preparatory stages of the
incorporation (those who caused the preparation and/or benefited from the project study and the
technical services) must be liable.
SC: Not liable.
There was no showing that the Filipinas Orient Airways was a fictitious corporation and did not
have a separate juridical personality, to justify making the petitioners, as principal stockholders
thereof responsible. Bona fide corporation=the corporation should alone be liable for its corporate
acts as duly authorized by its officers and directors.

The Carams did not contract with the plaintiff. It is only the result of such services that they were
persuaded to invest in the proposed airline. Even if they have benefited, there is no justification to
hold them personally liable. Otherwise, all other stockholders of the corpo including those who
came in later, and regardless of the amoung of their shareholdings, would be equally and
personally liable.
(The Carams are willing to be liable but that they are only questioning total liability.
The petitioners are not liable at all, jointly or jointly and severally.
Pau: So for acts done before the incorporation, who shall be liable?
Palay Inc. vs. Clave
Facts: Presidential Executive Assistant Clave directed petitioners Palay and Onstott (the
president) to refund jointly and severally Dumpit as resolved by the National Housing Authority
because the corporation extrajudically foreclosed the parcel of land which Dumpit contracted with
them under a Contract to Sell. DP was paid, installments were done. Par. 6 of the contract
provided for an automatic foreclosure upon default in payment of any monthly installment after the
lapse of 90 days from the expiration of the grace period, WITHOUT THE NEED OF NOTICE AND
WITH FORFEITURE OF ALL INSTALLMENTS PAID.
Dumpit (presumably) defaulted thus the foreclosure and thus the charge because he was not
even notified. He wrote after 6 yrs and asking for an update of his account and request that his
rights be assigned to Lourdes Dizon.
Long been rescinded and has already been resold.
NHA found them jointly and severally liable to refund Dumpit because the rescission is void in the
absence of any judicial or notarial demand.
ISSUES raised:
1) Is demand mandatory or may be dispensed with by stipulation?
2) May pet be held liable for the refund for the installments made?
3) Doctrine of piercing the veil of corporate fiction has application
4) Pres Exec Asst committed grave abuse of discretion
HELD:
1) Judicial action for the rescission is not necessary when it is provided in the contract that
it may be revoked and cancelled for violation of any of its terms and conditions. BUT in
the cited cases, there was at least A WRITTEN NOTICE sent to the defaulter informing
him of the rescission.
RULE: Resolution of reciprocal contracts may be made extrajudicially unless successfully
impugned in Court. If the debtor impugns, then subject to judicial determination. Rescission
is ineffective and inoperative because of the lack of notice of resolution (UP vs Angeles)
2) and 3) No. There is no badge of fraud on pet’s part. They had relied, albeit mistakenly,
on par 6 of its contract. There was no proof that the petitioner used the corporation to
defraud private responded.
RULE: Mere ownership by a single stockholder or by another corporation or all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personality.
Disposition: Corpo is directed to refund Dumpit.
Marvel Building Corpo vs. David
Facts: (happened around 1950)
Plaintiffs brought this action as stockholders of Marvel enjoining the CIR from selling at public
auction various properties, three lands with buildings, which were under the name of the
corporation.
Seized by CIR and detained for the collection of war profits taxes assessed against Maria
Castro. Plaintiffs assert that these properties belong to the corpo and not to Maria.
RTC: CIR failed to prove that Maria is the true owner of all the stock certificates of the corpo. An
evidence susceptible of two interpretations, the interpretation which would deprive one of property
without the due process of the law should not be made.
Sec. of Finance: considered the report of a special committee assigned to study the war profit
taxes of Mrs. Castro recommended the collection of war profits taxes and instructed the CIR to
collect the same.

ISSUE: WON the properties were owned by the corporation or by Maria? (Why does Maria want
to assert the existence of a corporation? Because of the limited liability which shall be the shares
of the relatives and not all).
HELD: Not the corpo’s but Maria’s as the true sole owner.
Evidence:
1) Endorsement in blank of the shares of stock issued in the name of the other incorporators, and
the possession thereof by Marai. All of the certificates EXCEPT that in the name of Maria were
endorsed in blank by the subscribers. (witnesses Auino as IR examiner, Mariano as examiner,
and Llamado, USec of Finance).
Plaintiffs are claiming that these endorsement could have been superimposed however the court
said that it is a mere possibility and the circumstances prove that they were not superimposed.
2) The stockholders did not have incomes in such amounts during the time of the organization or
immediately thereto as to enable them to pay in full for their supposed subscriptions. Proved by
their tax return or the absence thereof.
There was a prima facie case that Castro had furnished all the money that the Marvel Building
Corpo had.
3) If they really wanted to prove that they paid for the subscription, they could have just
showed receipts to testify their payments. But they refused to do so.
There was evidence that there were 25 certificates which were signed by the president. There is
evidence of the motive of Castro to evade taxes.
IF YOU ARE THE TRUE OWNERS OF THE SHARES, YOU WILL ALWAYS ASK FOR
RECEIPTS AS PROOF OF PAYMENT FOR YOUR SUBSCRIPTION.
Claparols vs CIR
Facts:
CIR ordered the petitioners Claparols et al to pay back wages and bonuses to private
respondents for its unfair labor practices which was filed by Allied Workers Association because
of the dismissal from the Claparols Steel and Nail Plant.
CIR found Mr. Claparols guilty of union busting and of having dismissed the complainants
because of their union activities.
Records show that the Claparols Steel Corporation was established on July 1, 1957 succeeding
the Claparols Steel and Nail Plant which ceased operations on June 30, 1957 and that the
Claparols Steel Corp stopped operations on Dec. 7, 1962.
Corp cannot reinstate the workers and that if they are entitled to back wages, only limited to 3
months based on Sta Cecilia Sawmills vs CIR and since Claparols stopped operations in 1962,
reemployment cannot go beyond that date.
ISSUE: WON
The Claparols Steel and Nail Plant was SUCCEEDED by the Claparols Steel Corporation. It is
very clear that the latter corporation was a continuation and successor of the first entity, and its
emergence was skillfully timed to avoid the financial liability that already attached to its
predecessor, the CSNP. Both predecessor and successor were owned and controlled by Eduardo
Claparols and there was no break in the succession.
AVOID-THE-LIABILITY scheme: very patent. 90% of the subscribed shares of stocks of the 2
nd
corp was owned by the Claparols himself and ALL assets of the dissolved Claparols Steel and
Nail Plant were turned over to the emerging CSC.(Conveyance? There must be a notarized
conveyance and proof of tax payment?)
Pierce the veil of corporation. Adjunt, business conduit or alter ego, fiction of separate and distinct
corporate entities should be disregarded.
Cease et al vs. CA
Facts:
1908-one Forrest L Cease, one predecessor in interest of the parties together with 5 other
American citizens organized the Tiaong Milling and Plantation Company but in the course of its
existence, Cease was able to buy out all other original incorporators but in the name of his
children Ernest, Cecilia, Teresita, Benjamin, Florence and Bonifacia Tirante.
Charter lapsed in June 1958 but there were no showing that there was a liquidation process. In
1959, Cease died and an extrajudicial partition of was disposed but this is exactly the problem
because two of his children wanted actual division while the other wanted reincorporation.

Those opposing incorporated the FL Cease Plantation Co. and registed it with the SEC but the
the two sons wanted settlement of the estate and filed that the two corporations be declared as
one.
Plaintiffs wanted the properties to be placed under receivership but the defendants filed a bond so
that these properties remain in their possession.
On the eve of the expiration of the 3-year period provided by law for the liquidation of
corporations, the BOARD OF LIQUIDATORS of Tianong Milling executed an assignment and
conveyance of properties and trust agreement in favor of FL Cease as Trustee of the Tianong
Milling so that during the motion, the judge ordered that the trustee be included as party
defendant.
RTC: Divide the properties. The properties of the TMPC are also properties of the FLC and thus
the estate should be divided among the heirs. Transfer and Conveyance with Trust Agreement is
null and void. FLC is removed as trustee.
Thus the petition to the Supreme Court, on mandamus.
Petitioners argue that no evidence has been found to support the conclusion that the registered
properties of Tiaong Milling are also properties of the estate of Cease and that for 50 years these
properties were registered under Act No. 496 in the name of Tiaong.
ISSUE: WON Cease and Tiaong just have one personality.
HELD: Yes. Evidence show that after Cease has bought out the other incorporators, it has
developed into a close corporation, Cease having the majority of stocks and hence the control
and management of its affairs.
There has been no account under the corpo name and the transactions were carried out in the
bank account of FL Cease. Thus there is truth that the corporation is only a business conduit of
the father and an extension of his personality, they are the one and the same thing.
Assets of the corporation are also estate of FL Cease. This case would warrant the application of
the doctrine of disregarding or piercing the veil of corporate fiction.
It’s a personal venture of FL Cease. Not an evidence that the children were subscribers or
purchasers of the stocks they own. Participation is only as nominal shareholders—gratuitous dole
out of the father.
The use of the corpo personality shall only delay and ultimately deprive and defraud the resp of
their successional rights to the estate.
Delpher Trades vs. IAC
Facts: Delfin Pacheco and Pelagia Pacheco owned a land and leased it to Construction
Components Internation Inc and in their contract with the Pacheco’s, it was stipulated that the
Construction Components has the right of first refusal. The CC assigned its rights and obligations
under the contract of lease to Hydro Pipes with the signed conformity of the Pachecos. The
contract of lease and the assignment was annotated at the back of the title.
Two years after the assignment, the Pachecos executed a deed of exchange in favor Delpher
Corporation conveying to the latter the land leased and in return acquiring 2,500 shares of stock
of defendant corporation issued at no par value.
Hydro filed complaint for reconveyance in its favor under the conditions similar those whereby
Delpher acquired the property.
RTC: For Hydro. Exercise right of first refusal. Offer the same at the rate of P14.00 per square
meter, similar to what they have offered Delpher.
CA: Affirmed RTC.
Pachecos filed a motion for reconsideration alleging that there will be great injustice in that Hydro
will be allowed to buy an industrial land for 14 per sqm when its price in the market is 300 per
sqm. That there was no sale or transfer of actual ownership thus, there is no right of first refusal
to exercise, and that if they shall be allowed to purchase the land, not under the same conditions
given to Delpher.
ISSUE: WON there was contract of sale or just a deed of exchange. WON Hydro could exercise
the right of first refusal.
HELD: The Deed of Exchange cannot be considered a contract of sale. There was no transfer of
actual ownership interests.
The Pachecos merely changed their owdership from one from to another. The ownership
remained in the same hands thus, HYDRO has no basis for its claim of a right of first refusal
under the lease contract (which is in fact saying that there must be first a purported sale before
this right can be exercised?)

It was shown that the Delpher Corporation is a family corporation and that this was organized by
the children of the two Pachecos and that they transferred to the corporation to avoid taxes. They
used the scheme estate planning.
By transferring the land to Delpher and acquiring 55% of the majority of the shares of stock, they
are the ones who control the corp.Pet claim that there was no transfer of ownership because the
control remained in the Pachecos.
After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing
stock directly from the corporation or from individual owners thereof.
A nor par value share does not purport to represent any stated proportionate
interest in the capital stock measured by value, but only an aliquot part of the
whole number of such shares of the issuing corporation. The holder of no-par
shares may see from the certificate itself that he is only an aliquot sharer in the
assets of the corporation. But this character of proportionate interest in not hidden
beneath a false appearance of a given sum in money, as in the case of par value
shares.
The capital stock of a corporation issuing only no-par value shares is not set forth
by a stated amount of money, but instead, is expressed to be divided into a stated
number of shares, such as 1000 shares.
By removing the par value of shares, the attention of persons interested in the
financial condition of a corporation is focused upon the value of assets and the
amount of its debts.
DELPHER TRADES CORP OIS A BUSINESS CONDUIT OF THE PACHECOS AND WHAT
THEY DID WAS TO INVEST THEIR PROPERTIES AND CHANGE THE NATRE OF THEIR
OWNERSHIP FROM UNINCORPORATED FORM BY ORGANIZING DELPHER TRADES
CORPORATION TO TAKE CONTROL OF THEIR PROPERTIES AND AT THE SAME TIME
SAVE ON INHERITANCE TAXES.
Villa Rey Transit vs. Eusebio Ferrer
Facts:
Villarama was an operator of a bus transportation under Villa Rey Transit pursuant to certificates of
public convenience granted to him by the PSC which authorized to operate 32 buses in various routes
from Pangasinan to Mla and vice-versa.
He sold 2 certs to Pantranco with the condition that Villarama shall not apply for 10 years for any
TPU service identical or competing with Pantranco.
Three months after, Villa Rey Transit INC (CORPO) was organized and Natividad Villarama was the
treasurer and one of the incorporators and Natividad subscribed to 1,000 of its stocks.
After a month CORPO bought 5 certs of Public convenience, 49 buses, tools and equip from
VALENTIN FERNANDO. On the day of the execution of the contract, the parties applied to PSC for its
approval with a prayer for the issuance of provisional authority in favor of the CORPO to operate the
service. PSC granted with a condition that it may be modified or revoked by the Commission. But before
PSC could make a final action on the application, the Sheriff levied two of the five certs of public
convenience pursuant to a write of execution issued by the RTC of Pangasinan in favor of Eusebio
Ferrer against VALENTIN FERNANDO. Public bidding was executed and highest bidder is Ferrer.
FERRER SOLD the two certs to Pantranco and jointly submitted to PSC the approval of the sale.
Pantranco then prayed for provisional auth to operate the service involved in the said certs.
TWO SALES are therefore before the PSC, FERNANDO-CORPO (VILLA REY) and FERRER-
PANTRANCO. PSC orders, during pendency and before final resolution, PANTRANCO shall be the one
to operate provisionally the services under the two certs. CORPO questioned.
Villarey filed for the annulment of the sheriff’s sale. Ferrer and Pantranco averred that the CORPO had
no valid title to the certs because the contract where they acquired the certs from Fernando was subject
to a suspensive condition—the approval of the PSC which had not been fulfilled. Thus sheriff levy and
sale, then Ferrer sale to Pantranco were valid.
Pantranco filed a third-party complaint against Mr. Jose Villarama, alleging that the corporation and
Villarama are the same and that they were disqualified from operating the two cers because of the
stipulation that Villarama shall not apply for a TPU service identical with Pantranco for 10 years.
The decision of the RTC were: (which Pantranco questions)
a) Villarey and Jose Villarama are two distinct and separate personalities and entities
b) Restriction in the contract between Villa Rey and Pantranco was null and void
c) Sheriff sale was null and void
d) No damages awarded to Pantranco against Villarama
ISSUES:

a) “Shall not apply for 10 years for any TPU service identical to the buyer” valid? To existing or
only to new lines?
b) If yes, does it bind the corporation?
HELD:
Villarama and the Villa Rey Transit Inc is one and the same.
Villarama made it appear that he was not an incorporator nor a stockholder and that he did not have a
sufficient fund to invest. That it was his wife who was an incorporator with the least subscribed shares
and was elected treasurer. But the funds were managed by the treasurer in such a way and extent that
Villarama appeared to be the actual owner-treasurer of the business without regard to the rights of the
stockholder.
Evidence:
• Initial cash capitalization of the corporation was mostly financed by Villarama. The
initial 105K, the 85K of it was covered by VIllarama’s personal check. Employees
of the bank testified that the drawer of the check was Jose Villarama himself.
• Accountant of the corpo testified that the first and second installment for the
subscriptions from the original subscribers were received but he was directed by
JV to make vouchers liquidating the sums and it was made to appear that a part of
the installment was payment to Villarama for an equipment purchased from him
and that 100,000 was loaned as advances to the stockholders.
• There were no amount of money that had actually passed hands among the
parties involved.
• Initial months of the operation, JV purchased and paid with his personal checks
Ford trucks for the Corpo, the checks being drawn by JV.
• It appeared that JV supplied the organization’s expenses and assets and there
was no actual payment by the subscribers.
• JV used the corpo’s money and deposited them in his personal accounts and that
the corpo has paid his personal accounts.
• He even admitted that he mingled the corpo funds with his own money.
• Gasoline purchases of the corpo were made in his name and his reason was that
he wanted the corpo to benefit from the rebates that he receives.
• No coard of Resolution allowing him to hold the corpo’s fund when he is not
treasurer and was only a part-time manager.
•
With all the foregoing evidence, he cannot just be a part-time general manager. The corpo is his alter
ego. He did not deny any of the abovementioned allegations, he just offered excuses. Management and
disposition of funds were controlled by JV and it is impossible to segregate and identify which money
belonged to whom.
Corpo law-acts and conduct of the corporation be carried out in its own corporate name because it has
its own personality. The veil with which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of
individuals.
VILLA REY TRANSIT IS AN ALTER EGO OF JV AND THAT THE RESTRICTIVE CLAUSE IN THE
CONTRACT ENTERED INTO BY THE LATTER AND PANTRANCO IS ALSO ENFORCEABLE AND
BINDING AGAINST THE CORPO.
RULE: SELLER OR PROMISSOR MAY NOT MAKE USE OF A CORPORATE ENTITY AS
A MEANS OF EVADING THE OBLIGATION OF THIS OWN COVENANT. WHERE THE
CORPORATION IS SUBSTANTIALLY THE ALTER EGO OF THE COVENANT OR TO
THE RESTRICTIVE AGREEMENT, IT CAN BE ENJOINED FROM COMPETING WITH
THE COVENANTEE.
Intention of the restriction:
To eliminate the seller as a competitor of the buyer for ten years along the lines of operation covered by
the certificate or public convenience. “APPLY” (shall not apply), was broadly used. Prior
authorization is needed before any one can operate a TPU service, whether the service
consists in a new line or an old one acquired from a previous operator.
The seller cannot compete with the buyer and he has bound himself not to do so.
JG Summit vs. CA
Facts:
NIDC (govt corp) entered into a JVA with Kawasaki for the construction, operation and
management of the SNS (Subic Natl Shipyard) which became PHILSECO. Under the contract,
NIDC and Kawasaki shall contribute 330M for the capitalization of the PHILSECO in the
proportion of 60-40 respectively.
Contract states to grant the right of first refusal should either of them decide to sell, assign or
transfer its interest.
In the provision it states that right of the first refusal shall be given EXCEPT when the transferee
is a corporation owned or controlled by the government or by Kawasaki affiliates.

NIDC transferred its rights to PNB and subsequently was transferred to the National Govt
pursuant to AO No. 14.
Pres Aquino established COP (comm on privatization) and APT (asset privatization trust) to take
title to and possession of, conserve, manage, and dispose of non-performing assets of the
National Govt. Trust agreement was entered into by the National Govt and APT where the latter is
the trustee in the Govt’s share in PHILSECO. Because of a quasi-reorganization of PHILSECO to
settle its huge obligation to PNB, govt’s shareholdings increased to 97% reducing Kawasaki’s
shareholdings.
In the interest of the national economy, COP and APT deemed it best to sell the gov’t’s share to
private entities.
Negotiations insued bet APT and Kawasaki and they agreed that the latter’s right to first refusal
be exchanged for the right to top by 5% the highest bid for the said shares.
Kawasaki would be entitled to name a company in which it was a stockholder,
which could exercise the RIGHT TO TOP. It elected Philayards Holdings (PHI).
From ABSR (rules for the bidding), it was stipulated that from the moment the highest bid
becomes acceptable to the govt, Philyards shall have 30 days to top the highest which is to top
5%.
They need to notify APT if they will exercise such right and deposit 10% of the highest bid plus
5% within 30 days. They shall be sent a notice as a preferred bidder and would have 90 days to
pay the balance.
JG Summit bid for 2B with an acknowledgment of Kawasaki’s right to top. PHILYARDS exercised
its right to top and fully paid the balance.
JG Summit questioned the offer of PHI to top its bid on the ff grounds:
a. Kawasaki/PHI consortium was composed of Kawasaki, mitsui,
Keppel, SM Group, ICTSI, and Insular Life and this violated the
ASBR bec the last 4 companies were the losing bidder
b. ONLY Kawasaki could exercise the right to top
c. Giving right to top to PHI constituted unwarranted benefit to a
third part
d. No right of first refusal can be exercised in a public bidding or
auction sale
e. JG Summit consortium was not estopped from questioning the
proceedings.
CA: JG is estopped from questioning because it knew from the start the right to top granted to
Kawasaki/philyards.
SC: Philseco shipyard is a public utility whose capitalization must be 60% Filipino-owned. That
the right to top granted to Kawasaki was illegal not only because it violates the rules on
competitive bidding, but more so, because it allows foreign corporations to own more than 40%
equity in the shipyard. And that even when JG had the opportunity to review the ASBR, it cannot
be estopped to question an illegal and inequitable provision thereof.
Thus SC voided the transfer of the national gov’t share in Philseco to Philyard and upheld the
right of JG Summit.
Reconsideration was filed by Philyard to SC on three basic issues:
a. Is Philseco a public utility?
b. WON under the 1977 JVA, Kawasaki can exercise right of first refusal only up to 40% of
the total capitalization
c. WON right to top granted to Kawasaki violates the principles of competitive bidding.
THE SC HELD: (which reverses its previous ruling)
a. Philseco is not a public utility because a shipyard is not a public utility. No law declares
it to be.
b. Nothing in the JVA prevents Kawasi from acquiring more than 40% of PHILSECO
c. Exchange for right to top did not violate the principles of competitive bidding
JG Summit filed the case to SC en banc claiming that there was executive interference when
Camacho forwarded to Davide the case to be part of the Court’s agenda for resolution.
HELD by SC on en banc:
a. The right to top was an express reservation. It is a well-settled rule that were such reservation
is made in an Invitation to Bid, the higest or lowest bidder, as the case may be,
is not entitled to an award as a matter of right.
b. The right to top was a condition imposed on all bidders equally, based on APT’s exercise of its
discretion in deciding on how best to privatize the govt’s shares in PHILSECO.
c. There is no executive interference since the memorandum was merely “noted” to acknowledge
its filing and no further legal significance.
d. The decision of the Court should be based on contract law and not on policy considerations.
e. Right of first refusal or right to top cannot be exercised by a consortium which is not the proper
party granted such right.

f. The 60-40 arises from contract and constitution and need not be a public utility to exercise such
partition.
There is nothing in the ASBR that bars the losing bidders from joining either the
winning bidder (should the right to top is not exercised) or Kawasaki/PHI (should it
exercise its right to top as it did), to raise the purchase price. There was no proof
of fraud. The main goal of the case is to dispose the shares of a corporation which
the govt sought to privatize.
HELD by SC on Reconsideration:
a. Mutual rights of first refusal under the JVA bet Kawasaki and NIDC is valid. Right of first
refusal is a property right of PHILSECO. It is even valid to allow PHILSECO’s equity be
owned by Kawasaki by more than 40% because what would be affected would not be
the foreign corporation’s stockholder’s ownership but the capacity of the corporation to
own land—it is disqualified to own land.
Right of first refusal pertains to the shareholders while the capacity to own land
pertains to the corporation. No law disqualifies a person from purchasing shares
in a landholding corporation even if the latter will exceed the allowed foreign
equity, what the law disqualifies is the corporation from owning land.
What was transferred was the right of first refusal (and subsequently the right to top) as to the
shares, which are immovable property, and not as to the land which PHILSECO owns or holds,
which are movable. The prohibition is only to the acquisition of the land and not to the acquisition
of the shares.
Tramat Mercantile vs. CA
Facts:
Melchor dela Cuesta doing business under Farmers Machineries sold a tractor to Tramat
Mercantile whose president is David Ong. In payment, Ong issued a check which replaced an
earlier postdated check.
Tramat sold the tractor, together with a lawn mower fabricated by it, to Nawasa.
David Ong caused a stop payment of the check when NAWASA refused to pay the tractor and
lawn mover after discovering that aside from stated defects of the lawn mover, the engine sold by
de la Cuesta was a reconditioned unit.
Dela Cuesta filed for recovery and atty’s fees. Ong answered that dela Cuesta has no cause of
action and that the questioned transaction was between Tramat and Farmers and that they
payment was stopped because the tractor had been priced as brand new and not as a
reconditioned unit.
Pau’s version: Dela Cuesta sold a tractor with a 1.3 engine to Tramat and the latter sold this same
tractor to MWSS together with a fabricated lawn mower. Tramat caused a stop payment bec
Nawasa refused to pay Tramat because it found out that the lawn mower had defects and that the
tractor’s engine was reconditioned and not brand new. Dela Cuesta filed for recovery. The reason
why the lawn mower was defective was because Tramat fabricated it and it was shown that it had
no experience in fabricating one. It’s competitor Alpha Machinery had stopped manufacturing the
same. It was the fabrication of Tramat that was the root of all the problems. The engine did not
function not because it was reconditioned but because it was made to do what it cannot.
RTC: ordered defendants Ong and Tramat to pay Dela Cuesta the sum with interest and pay the
atty’s fees, jointly and severally.
CA: affirmed RTC’s decision in toto.
SC held:
The contract between dela Cuesta and Tramat was ABSOLUTE SALE and not conditional and
that dela Cuesta did not violate any warranty on the sale of the tractor.
If it was conditioned on the acceptance of MWSS then why did it issue a check in payment of the
item and even long after MWSS had complained about the defect, why did it still draw a check to
an increased amount?
But it was an error to hold Ong jointly and severally liable to dela Curste because ong had acted
not in his personal capacity but as an officer of a corporation, but as an officer of Tramat.
Personal liability of a corporate director, trustee, or officer, along (although not
necessarily) with the corporation may so validly attach, as a rule, only when—
a. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to
the corporation, its stockholders or other persons.
b. He consents to the issuance of watered stocks or who, having knowledge thereof, does
not forthwith file with the corporate secretary his written objection thereto.

c. He agrees to hold himself personally and solidarily liable with the corporation or
d. He is made, by a specific provision of law, to personally answer for his corporate action
(Article 144, Corpo Code and Trust Receipts Law Sec. 13).
Magsaysay-Labrador vs. CA
Facts:
Adelaida Rodriguez-Magsaysay, widow and special administratix of the late Sen. Magsaysay,
brought against Panganiban, SUBIC, FILMANBANK and the Register of Deeds of Zambales an
action.
She alleged that she and her husband acquired thru conjugal funds a parcel of land with
improvement known as Pequena Island and that after the death of her husband, she discovered
an annotation at the back of the TCT that the land was acquired thru his husband’s separate
capital.
Her husband executed an assignment to SUBIC and SUBIC executed a mortgage in favor of
FILMANBANK.
She questions the validity of the acts and alleged that these were done in an attempt to defraud
the conjugal partnership considering that the land is conjugal, her marital consent to the
annotation was not obtained, and that the change made by the Register of Deeds of the
titleholders was effected without the approval of the Commissioner of Land Registration and that
her husband executed the Deed of Assignment by mistake, violence or intimidation. And that the
assignment in favor of SUBIC was without consideration and consequently null and void.
The sisters of the senator filed for intervention of the ground that their brother conveyed to them
½ of his shareholdings in SUBIC and as assignees of 41% of the total outstanding shares of such
stocks, they have a substantial and legal interest in the subject matter.
RTC: denied motion for intervention because they don’t have legal interest and that SUBIC
cannot legally entitle them to intervene because SUBIC has a personality separate and distinct
from its stockholders.
CA: did not disturb the findings of RTC.
The interest of the petitioners here are purely inchoate, at the very least, or in sheer expectancy
of a right in the management of the corporation and to share in the profits thereofd and in the
properties and assets thereof on dissolution, after payment of the corporate debts and
obligations.
The share of stock represents a proportionate or aliquot interest in the property of the corporation
but it does not vest the owner thereof with any legal right or title to any of the property, his interest
in the corporate property being equitable or beneficial in nature. Shareholders are in no legal
sense the owners of corporate property, which is owned by the corporation as a
distinct person.
The petitioners cannot claim the right to intervene on the strength of the transfer of shares
allegedly executed by the senator. The corporation did not keep books and records. No transfer
was ever recorded, much less effected as to prejudice third parties.
The transfer must be registered in the books of the corporation to affect third
persons. The law on corporations is explicit. Sec 63 of the Corpo Code provides:
“No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation showing the names of the
parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.”
Pau: Senator made the assignment to subscribe to the stocks of SUBIC. But was this recorded?
Indophil Textile Mill Workers Union vs Calica
Facts:
Indophil Textile Mill Workers Union-PTGWO is a labor organization duly registered with DOLE
and is the exclusive bargaining agent of all the rank-and-file employees of Indophil Textile Mills
Inc. Calica is the Voluntary Arbiter or the NCMB of DOLE while Indophil is a corporation engaged
in the manufacture, sale, and export of yarns or various kinds and of materials of kindred
character and its plants are in Bulacan.
The corporation and the union executed a CBA.
Indophil Acrylic Manufacturing Corp was formed and registered with SEC. Acrylic applied for
incentives with the BOI under the Omnibus Investments Code. Application was approved on a
preferred non-pioneer status.

Workers of Acrylic unionize and a CBA was executed. However, the petitioner union claimed that
the plant facilities build and set up by Acrylic should be considered as an extension or expansion
of the facilities of resp Company based on the CBA which states that “the agreement shall apply
to the company’s facilities and installations and to any extension and expansion thereat”. In other
words, they are claiming that they are part of the Indophil agreement unit.
Pet: Both corp are engaged in the same line of business i.e. manufacture and sale of yarns of
various counts and kinds of of other materials of kindred character or nature.
Resp: Thru SolGen argues that Acrylic is not an alter ego or an adjunct or business conduit of
private resp because it has a separate business purpose.
INDOPHIL: engage in the business of manufacturing yarns of various counts and kinds and
textiles.
ACRYLIC: manufacture, buy, sell, at wholesale basis, barter, import, export and otherwise deal in
yarns of various counts and kinds.
Acrylic cannot manufacture textiles while Indophil cannot buy or import yarns.
Petitioners alleged that:
a. the two corp have their physical plants, offices and facilities in the same compound
b. many of Indo’s machines were transferred and installed and being used in Acrylic.
c. Services of a number of units, departments and sections are being provided to Acrylic.
d. Employees of private resp are the same persons manning and servicing Acrylic.
ISSUE: WON the operations in Indophil are an extension or expansion of Acrylic and thus WON
the RF employees working at Indophil Acrylic should be reorganized as part of and/or within the
scope of the bargaining unit.
HELD: They are separate corporations. CBA does not extend to Acrylic.
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 separate and distinct from its
members or stockholders may be disregarded. In such cases, the corporation will be considered
as a mere association of persons. The members or stockholders or the corporation will be
considered as the corporation, that is liability will attach directly to the officers and stockholders.
In Umali vs. CA, it was emphasized that “the legal corporate entity is disregarded
only if it is sought to hold the officers and stockholders directly liable for a
corporate debt or obligation.
Jacinto vs CA
Facts:
Jacinto is the President and General Manager of Inland Industries and under the Trust Receips,
applied for a Letter of Credit and paid this loan under the Bills of Exchange to Metropolitan Bank
and Trust Co. The company failed to pay thus the charge against him and the company to pay
jointly and severally the plaintiff. In the reconsideration, Inland chose not to join him in this appeal.
The allegation of the bank is that Inland and Jacinto are one and the same. There was nothing in
the transactions that states that he was doing the transactions in his official capacity.
RTC: He is in fact the corporation itself. No mention that he did transactions in his official
capacity.
CA: dismissed Jacinto’s appeal. Although Jacinto asserted that the principles of piercing the
fiction of corporate entity should be applied with great caution and not precipitately, because a
dual personality by a corporation and its stockholders would defeat the principal purpose which a
corporation is formed. It is not undisputed that Jacinto and his wife own the major shares of
stocks which is 52%.
Jacinto even asserts that he is not the President of the Corporation and that there are different
officers. But in the evidence, he was the one who sighed the trust receipts as president and
manager.
ISSUE: WON the piercing of the veil was valid even when it was not alleged in the complaint.
HELD: Yes. While on the face of the complaint, there is no specific allegation that the corporation
is a mere alter ego of petitioner, subsequent developments, from the stipulation of facts up to the
present of evidence and the examination of witnesses, unequivocably prove that petitioner and
the corporation are one of that he is the corporation. No serious objection was heard from
petitioner.
Sec. 5 or Rule 10 of Rules of Court states that when evidence is presented by one party with the
express or implied consent of the adverse party, as to issues not alleged in the pleadings,
judgment may be rendered validly as regards those issues, which shall be considered as if they

have been raised in the pleadings. There is implied consent to the evidence thus presented when
the adverse party fails to object thereto.
Concept Builders Inc vs. NLRC
Facts:
Concept Builders Inc is a domestic corporation engaged in the construction business and the
respondents were employed as laborers, carpenters and riggers.
The resp were served individual written notices of termination of employement by pet and igt was
stated that the contracts of employment had expired and the project in which they were hired had
been completed.
But the resp found out that the corp engaged the services of sub-contractors whose workers
performed the functions of priv resp. They thus filed a complaint for illegal dismissal, unfair labor
practice and non-payment of some sums.
LA: Reinstate private resp and pay them back wages. Thus the reconsideration to NLRC by the
corpo.
NLRC: Dismissed the recon and made a finding as to the amount of the back wages.
LA issued a write of execution directing the sheriff to execute decision and partial satisfaction of
the amoung was garnished from the corp’s debtor MWSS. Said amount was turned to NLRC
cashier.
Alias writ of execution was issued by LA but the guards of the petitioner refused to let the alias be
served on the ground that the corporation no longer occupy the premises. The corporation
occupying the premises is Hydro Pipes Phil Inc (HPPI) and not by Concept Builders.
Sheriff recommended a break-open be issued to enable him to enter petitioner’s premises so that
he could proceed with an auction sale.
The day before the scheduled auction, the vice-president Cuyegkeng filed a third-party claim with
the LA alleging that the properties sought to be levied were properties of HPPI.
Resp filed motion for the issuance of Break-Order alleging the HPPI and Concept Buildiers were
owned by the same incorporator/stockholders. They also alleged that the pet temporarily
suspended the business operations in order to evade its legal obligations to them.
In support of their claim against HPPI, the private resp presented copies of the GIS which HPPI
submitted to SEC.
Pet claims that HPPI and Concept are two separate corporations and are engaged in two different
kinds of businesses. HPPImanufacturing CBI construction. LA still issued the order and
ordered sheriff to proceed with the auction sale. NLRC denied reconsideration.
ISSUE: WON the NLRC committed grave abuse of discretion despite the fact that no evidence to
prove that CBI created HPPI to evade its liability.
HELD: HPPI is liable. Conduit or alter ego of CBI.
Probative Factors of identity that will justify the application of the doctrine of piercing the
corporate veil:
1. Stock ownership by one or common ownership of both corporations
2. Identity of directors and officers
3. The manner of keeping corporate books and records
4. Methods of conducting the business
SEC explained the instrumentality rule which courts have applied in disregarding the separate
juridical personality of corporations:
The test in determining the said doctrine:
1. Control, not mere majority or complete stock control, but complete domination, not only
of finances by of policy and business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the time no separate mind, will, or
existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiff’s legal right.
3. The aforesaid control and breach of duty must proximately cause the injury or unjust
loss complained of.
The absence of any one of these elements prevents piercing the corporate veil. In
applying the instrumentality or alter ego doctrine, the courts are concerned with reality and not
form, with how the corporation operated and the individual defendant’s relationship to that
operation.

This case cited Claparols vs CIR on the avoid-the-liability scheme 90% of the second corp is
owned by the first corp.
Twin requirements of due notice and hearing were complied with. Third-party and pet claimants
were given the opportunity to submit evidence.
Garnett v Southern Railway
Garrett is a wheel molder employed by Lenoir Car Works who claims and sues for Workmen’s
Compensation under the Federal Employer’s Liability Act because of injuries contracted from
silica dust which permeated the foundry. He contends that since Southern Railway acquired the
entire capital stock of Lenoir and so completely dominated it that it was merely an instrumentality
or subsidiary of Southern, he is considered an employee of Southern and thus entitled under the
Act mentioned for recovery.
He cites the ff facts:
— All directors and officers of Lenoir are employees of southern
— Southern owns all stock of Lenoir except 5 shares
— All profits of Lenoir went to Southern
— Claims of Lenoir employees for accidents are handled by Southern
— Litigation against Lenoir is handled by Southern
— General accounting of Lenoir is handled by Southern
— Lenoir sold to Southern $30M of its products compared to $4.5M to other buyers
Southern, countered with the ff facts in support of its contention that it is not the parent of Lenoir:
— Management of Lenoir is vested in its manager, Henry Marius, who is in the
payroll of Lenoir and has no other connection with Southern except holding and
proxy voting for Southern
— Marius establishes the pricing of Lenoir products and all Lenoir sales are the
result of his business judgment
— Lenoir does not sell to Southern exclusively, and Southern does not buy from
Lenoir exclusively or substantially, and that it buys from Lenoir just as it buys
from other sellers
— Lenoir’s corporate and accounting offices are in Washington DC in a building
owned by Southern; but it is still based in Tennessee
— Lenoir is a specialty business and Southern has not in any way been in a
position to direct or supervise the operations of Lenoir
— Lenoir is a duly qualified employer under the Tennessee Workmen’s
Compensation Act and suits and claims similar to Garretts have been covered by
that law
— Lenoir maintains a separate bank account and has never intermingled its funds
with Southern
— Lenoir and Southern keep separate books and pay their own taxes
— Lenoir’s general accounting and legal is handled by its own departments in
Lenoir City
H: The Court finds the existence of two distinct companies. There is no evidence that Southern
dictated the management of Lenoir. In fact, Marius the manager was in full control of its
operations. He established prices, handled all negotiations in CBAs. It paid local taxes, had local
legal counsel, maintained Workmen’s Compensation.
Neither was Lenoir an instrumentality or subsidiary of Southern. Policy decisions and pricing
remained in the hands of Marius and was not dictated by Southern. Marius operated the business
as a going concern.
The facts do not reveal the intimacy and inseparability of control which would lead one to believe
that Southern and Lenoir are one and the same. It was also not an agent of Southern because it
was not a common carrier by railroad to make it liable under the Federal Act. It was not an
operator of a terminal, performed no switching or transportation functions at all. It was a
manufacturer and Garrett was one of its employees.
There are certain circumstances which if present in the proper combination, would render the
subsidiary an instrumentality:
(1) parent owns all or most of the capital stock
(2) parent and subsidiary have common directors or officers
(3) parent finances the subsidiary
(4) parent subscribes to all capital stock of the subsidiary or causes its incorporation
(5) subsidiary has grossly inadequate capital
(6) parent pays salaries and other expenses or losses of subsidiary
(7) subsidiary has substantially no business except with the parent or no assets except
those conveyed to the parent
(8) the subsidiary is described as a department in the books of the parent
(9) parent uses the property of the subsidiary
(10) directors of the subsidiary do not act independently but take orders from the parent
(11) formal legal requirements of the subsidiary are not met

Since only two of the 11 indicia occur—the ownership of most of capital stock and subscription by
Southern to capital stock of Lenoir—Lenoir is not a subsidiary and is a separate corporation. Thus
there is no basis for the claim of Garrett with Southern under the Federal Act
Jardine Davies Inc v JRB Realty Inc.
In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building, named Blanco Center, on
its parcel of land located at 119 Alfaro St., Salcedo Village, Makati City. An air conditioning
system was needed for the Blanco Law Firm housed at the second floor of the building. On March
13, 1980, the respondent's Executive Vice-President, Jose R. Blanco, accepted the contract
quotation of Mr. A.G. Morrison, President of Aircon and Refrigeration Industries, Inc. (Aircon), for
two (2) sets of Fedders Adaptomatic 30,000 kcal air conditioning equipment with a net total selling
price of P99,586.00.
Thereafter, two (2) brand new packaged air conditioners of 10 tons capacity each to deliver
30,000 kcal or 120,000 BTUH were installed by Aircon. When the units with rotary compressors
were installed, they could not deliver the desired cooling temperature. Despite several
adjustments and corrective measures, the respondent conceded that Fedders Air Conditioning
USA's technology for rotary compressors for big capacity conditioners like those installed at the
Blanco Center had not yet been perfected.
The parties thereby agreed to replace the units with reciprocating/semi-hermetic compressors
instead. In a Letter dated March 26, 1981, Aircon stated that it would be replacing the units
currently installed with new ones using rotary compressors, at the earliest possible time.
Regrettably, however, it could not specify a date when delivery could be effected.
TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the maintenance of the
units, inclusive of parts and services. In October 1987, the respondent learned, through
newspaper ads, that Maxim Industrial and Merchandising Corporation (Maxim, for short) was the
new and exclusive licensee of Fedders Air Conditioning USA in the Philippines for the
manufacture, distribution, sale, installation and maintenance of Fedders air conditioners.
The respondent requested that Maxim honor the obligation of Aircon, but the latter refused.
Considering that the ten-year period of prescription was fast approaching, to expire on March 13,
1990, the respondent then instituted, on January 29, 1990, an action for specific performance with
damages against Aircon & Refrigeration Industries, Inc., Fedders Air Conditioning USA, Inc.,
Maxim Industrial & Merchandising Corporation and petitioner Jardine Davies, Inc. The latter was
impleaded as defendant, considering that Aircon was a subsidiary of the petitioner. The trial court
ruled that Aircon was a subsidiary of the petitioner, and concluded that:
at the time it contracted with Aircon on March 13, 1980 and on the date the revised agreement
was reached on March 26, 1981, Aircon was a subsidiary of Jardine. The phrase "A subsidiary of
Jardine Davies, Inc." was printed on Aircon's letterhead of its March 13, 1980 contract with
plaintiff as well as the Aircon's letterhead of Jardine's Director and Senior Vice-President A.G.
Morrison and Aircon's President in his March 26, 1981 letter to plaintiff confirming the revised
agreement. Aircon's newspaper ads of April 12 and 26, 1981 and a press release on August 30,
1982 also show that defendant Jardine publicly represented Aircon to be its subsidiary.
Records from the Securities and Exchange Commission (SEC) also reveal that as per Jardine's
December 31, 1986 and 1985 Financial Statements that "The company acts as general manager
of its subsidiaries". Jardine's Consolidated Balance Sheet as of December 31, 1979 filed with the
SEC listed Aircon as its subsidiary by owning 94.35% of Aircon. Also, Aircon's reportorial General
Information Sheet as of April 1980 and April 1981 filed with the SEC show that Jardine was
94.34% owner of Aircon and that out of seven members of the Board of Directors of Aircon, four
(4) are also of Jardine. Jardine's witness, Atty. Fe delos Santos-Quiaoit admitted that defendant
Aircon, renamed Aircon & Refrigeration Industries, Inc. "is one of the subsidiaries of Jardine
Davies" and that Jardine nominated, elected, and appointed the controlling majority of the Board
of Directors and the highest officers of Aircon.
H: It is an elementary and fundamental principle of corporation law that a corporation is an
artificial being invested by law with a personality separate and distinct from its stockholders and
from other corporations to which it may be connected. While a corporation is allowed to exist
solely for a lawful purpose, the law will regard it as an association of persons or in case of two
corporations, merge them into one, when this corporate legal entity is used as a cloak for fraud or
illegality.
This is the doctrine of piercing the veil of corporate fiction which applies only when such corporate
fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. The
rationale behind piercing a corporation's identity is to remove the barrier between the corporation
from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the
corporate personality as a shield for undertaking certain proscribed activities.
While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that
Aircon's corporate legal existence can just be disregarded. The Court categorically held in
another case that a subsidiary has an independent and separate juridical personality, distinct from

that of its parent company; hence, any claim or suit against the latter does not bind the former,
and vice versa.
In applying the doctrine, the following requisites must be established: (1) control, not merely
majority or complete stock control; (2) such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or
dishonest acts in contravention of plaintiff's legal rights; and (3) the aforesaid control and breach
of duty must proximately cause the injury or unjust loss complained of.
The records bear out that Aircon is a subsidiary of the petitioner only because the latter acquired
Aircon's majority of capital stock. It, however, does not exercise complete control over Aircon;
nowhere can it be gathered that the petitioner manages the business affairs of Aircon. Indeed, no
management agreement exists between the petitioner and Aircon, and the latter is an entirely
different entity from the petitioner. In the instant case, there is no evidence that Aircon was
formed or utilized with the intention of defrauding its creditors or evading its contracts and
obligations.
There was nothing fraudulent in the acts of Aircon in this case. Aircon, as a manufacturing firm of
air conditioners, complied with its obligation of providing two air conditioning units for the second
floor of the Blanco Center in good faith, pursuant to its contract with the respondent.
Unfortunately, the performance of the air conditioning units did not satisfy the respondent despite
several adjustments and corrective measures.
Koppel v Yatco
(the subsidiary was so controlled by the parent that its separate identity was hardly discernible,
and became a mere alter ego of the parent and was used to evade taxes). Koppel Industrial and
Car Company is a corporation organized and existing under the laws of the State of
Pennsylvania. They are not licensed to do business in the RP, but do business through Koppel
Phils, Inc, owning 995 out of 1000 shares of stock of the said company (the remaining 5 were
owned by the 5 officers of Koppel Phils). Koppel Phils cabled Koppel Industrial for quotation
desired by a prospective client.
Koppel Phils however quoted a higher price for the buyer than that quoted by Koppel Industrial.
Koppel Phils then cabled to ship the merchandise to Manila. Koppel Phils received a %age of the
profits realized or its share of the losses on the transactions. Koppel also returned a sum allotted
as payment of commercial broker’s tax of 4%. Koppel Industrial demanded from Koppel Phils the
sum of P64,122.51 as merchant’s sales tax of 1 ½% of the share of Koppel Phils in the profits.
H: The Court said that the virtual control of the shareholdings of a corporation would lead to
certain legal conclusions. It could not overlook the fact that in the practical working of corporate
organizations of the class to which the two entities belonged, the holder or holders of the
controlling part of the capital stock of the corporation, particularly where the control is determined
by the virtual ownership of the totality of the shares, dominate not only the selection of the board
of directors but more often than not, also the action of that board.
It held that applying this to the case, it cannot be conceived how the Koppel Phils could effectively
go against the policies, decisions, and desires of the American corporation… Neither can it be
conceived how the Phil corporation could avoid following the directions of the American
corporation in every other transaction where they had both to intervene, in view of the fact that the
American corporation held 99.5% of the capital stock of the Phil corporation… In so far as the
sales are concerned, Koppel Phils and Koppel Industrial are for all intents and purposes one and
the same, and the former is a mere branch, subsidiary, or agency of the latter. The ff are facts
which led to the Court to conclude the above:
— share in the profits of Koppel Phils was left to the sole, unbridled control of Koppel
Industrial
— shares of stock of Koppel Phils are all owned by Koppel Industrial (overwhelming
majority)
— Koppel Phils acted as agent and representative of Koppel Industrial
— Koppel Phils alone bore the incidental expenses for transactions, such as cable
expenses
— Koppel Phils was fully empowered to instruct banks it deals with, if purchasers
were not able to pay the bank drafts to the bank as payment for the purchases
— Koppel Phils makes good any deficiencies by deliveries from its own stock
The application of the piercing doctrine is not a contravention of the principle that the corporate
personality of a corporation cannot be collaterally attacked. When the piercing doctrine is applied
against a corporation in a particular case, the court does not deny legal personality… for any and
all purposes. The application of the piercing doctrine is therefore within the ambit of the principle
of res judicata that binds only the parties to the case and only to the matters actually resolved
therein.
— GR: separate personality
— Exception: cases where veil may be pierced
o There was a violation of rights or injury in all these cases where veil was pierced
o Elements of ownership, control, mgt in the corporate entity
 Inevitable that these will exist
 All elements have to be satisfied so the corporate veil can be pierced
o What determines pierceability?

 Motive/intention
 Liability arising
 Injury or damage or loss
— Estate planning:
o No impediment to use corporate as vehicle for estate planning
o Corporation can be put up by a single person
o Nothing prevents an individual from funding a corporation
o To meet requirements of code, assign nominal shares to persons
o If it is money, can be used to acquire assets; still corporate-owned
o Even a 99.9% owner cannot distribute the property, only the shares
— Cease: ideal, but there was a dispute
— Marvel had no compulsory heirs
— Delpher ruling on transfer is obiter
— Just defer: use corporate as a vehicle to distribute what appears to be the estate
o But: you still have to distribute the shares (dispose or donate)
o Mechanism to ensure that once you die, corporation is dissolved
 Otherwise: Cease case
 Exit mechanism for those who want out
Liddel v CIR
(corporate entity was used to evade the payment of higher taxes)
Liddell & Co was engaged in importing and retailing cars and trucks. Frank Liddell owned 98% of
the stocks. Later Liddell Motors Inc was organized to do retailing for Liddell & Co. Frank’s wife
owned almost all of that corporation’s stocks. Since then, Liddell & Co paid sales tax on the basis
of its sales to Liddell Motors. But the CIR considered the sales by Liddell Motors to the public as
the basis for the original sales tax.
H: The Court, agreeing with the CIR, held that Frank Liddell owned both corporations as his wife
could not have had the money to pay her subscriptions. Such fact alone though not sufficient to
warrant piercing, but under the proven facts alone, Liddel Motors was the medium created by
Liddel & Co to reduce its tax liability. A taxpayer has the legal right to decrease, by means which
the law permits, the amount of what otherwise would be his taxes or altogether avoid them; but a
dummy corporation serving no business purposes other than as a blind, will be disregarded. A
taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue
officers in the proper cases may disregard the separate corporate entity where it serves but as a
shield for tax evasion and treat the person who actually may take the benefits of the transaction
as the person accordingly taxable.
Mere ownership by a single stockholder or by another corporation of all or nearly all capital stocks
of the corporation is not by itself a sufficient ground for disregarding the separate corporate
personality. Substantial ownership in the capital stock of a corporation entitling the shareholder a
significant vote in the corporate affairs allows them no standing or claims pertaining to corporate
affairs. Where a corporation is a dummy and serves no business purpose and is intended only as
a blind, the corporate fiction may be ignored.
Substantial ownership in the capital stock of a corporation entitling the SH to a significant vote in
corporate affairs allows then no standing or claims pertaining to corporate affairs. Mere ownership
by a single SH or by another corporation of all or nearly all capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate personality
La Campana Coffee Factory v Kaisahan.
Tan Tong and family owned and controlled 2 corporations: one engaged in the sale of coffee and
the other in starch. Both corporations had one office, one management, and one payroll, and the
laborers of both corporations were interchangeable. The 60 members of the labor association in
the coffee and starch factories demanded higher wages addressed to La Campania Starch and
Coffee Factory. La Campania Coffee sought dismissal on the ground that the starch and coffee
factory are two distinct juridical persons.
I: W/N the Court of Industrial Relations had jurisdiction over the case
H: the Court disregarded the fiction of corporate existence and treated the two companies as one.
In alter ego cases, no pecuniary claim need be involved to allow the courts to apply the piercing
doctrine.
La Campana Coffee Factory vs Kaisahan ng mga Manggagawa sa La Campana

Facts:
Tan Tong had been in the business of buying and selling gaugau under the tradename La
Campana Gaugau Packing in BInondo and was transferred to QC since 1932. In 1950, Tan Tong
and his family as sole incorporators and stockholders, organized a family corporation known as
the La Campana Coffee Factory Co. with its office located in the same place.
Tan Ton entered into a CBA with the PLOW union but Tan Tong’s employees later formed their
own organization know as the KMLC (see above). The members of the union, 66 members,
demanded for higher wages and more privileges and the demand addressed to La Campana
Starch and Coffee Factory which this union just designated to the company.
CIR found that they are just one and the same. That La Campana Gaugau Packing is just a
business name. And that even when Tan Tong leased the land to his son the manager of the
coffee company, he did so only when the case was already pending, and that the advertisements
in delivery trucks states that it is just one entity and that the employees or laborers of gaugau
company receive their pay from the same persons which are also holding the coffee factory and
there is only one payroll and they separate the payrolls only when the case was filed. One office,
all trucks are used by both companies.
It is to be noted that they questioned CIR’s jurisdiction because the number of the Coffee factory
is below 31, the jurisdictional number, however this loses it’s force when we hold that the two
companies are just one business.
A subsidiary or auxiliary corporation which is created by a parent corporation merely as an
agency for the latter may sometimes be regarded as identical with the parent corporation,
especially if the stockholders or officers of the two corporations are substantially the same or their
system of operation unified.
McArthur vs Times Printing Co
Facts:
Times Printing has Nimocks and others as promoters. Through the latter, McArthur was
contracted for his services as advertising solicitor for one year. In 1890, he was discharged in
violation of the contract, thus the filing of the complaint for damages for break of contract.
Defenses of Time:
a. Not for any stated time but from week to week.
b. He was discharged for a good cause
He was contracted on and after October 1, when the company would be organized but in fact it
was actually organized in October 16 but the corporation has commenced operations from
October 1 when the publication of the paper was stared by the promoters. But on April or in 6
months time, he was discharged.
The BOD never took any formal action with reference to his contract but the shareholders,
directors and officers of the corporation knew of this contract at the time of the organization or
were inform of it and none of them objected but on the contrary, retained plaintiff in the
employment of the company without other or new contract as to his services.
ISSUE:
WON the corporation can be made liable for transactions or contracts made before its
incorporation which is inline of its projected incorporation by adoption or ratification.
HELD:
While a corporation is not bound by engagements made on its behalf by its promotres before its
organization, it may, after its organization, make such engagements its own contracts.
The BOD’s formal action would only be necessary where there would be any similar original
contract but not a requisite in such adoption or acceptance, which may be expressed or implied. It
may be inferred from the acts or acquiescence on the part of the corporation, or its authorized
agents, as any similar original contract might be shown.
The right of the corporation to adopt an agreement originally made by promoters depends upon
the purposes of the corporation and the nature of the agreement. The agreement must be
one which the corporation itself could make and one which the usual agents of the
company have express or implied authority to make.
Statute of Frauds would not apply, for terms not to be performed within one year from the making
of the contract because the liability of the corporation under the circumstances does not rest upon
any principle of the law of agency but upon the immediate and voluntary acts of the company.
The promoters act of “ratifying” in behalf of the corporation, is loosely applied because, ratification
implies an existing person, on whose behalf the contract might have been made.

There cannot, in law be a ratification of a contract which could not have been made binding on
the ratifier at the time it ws made, because the ratifier was not then in existence.
In this case, adoption is what ruled because adoption is the making of a contract as of the date of
the adoption and not as of some former date.
Cagayan Fishing Development Co. vs Teodoro Sandiko
Facts:
Manuel Tabora is the registered owner of four parcels of land in Linao, Aparri, Cagayan, and he
wanted to build a Fishery. He loaned from PNB P8,000 and to guarantee, it mortgaged the said
parcels of land.
In May 1930, he sold the parcels to Cagayan Fishing Development which was only in the process
of incorporation, in consideration of P1 and making the corporation assume the mortgages in
favor of PNB and Severina Buzon and that the title of the land shall not be transferred to the
company until the company has fully paid Tabora’s indebtedness.
The articles of incorporation were filed on Oct. 22, 1930 or 5 months after the sale and after 6
days after, the company sold the parcels of land to Sandiko for 42,000 on the reciprocal obligation
that Sandiko will shoulder the three mortgages. He executed a promissory note that he shall be
25,300 after a year with interest and on the promissory notes, the parcels were mortgage as
security.
Sandiko defaulted, thus the action for payment. The lower court held that deed of sale was invalid
because of vice in consent and repugnancy to law.
The corporation filed a motion for reconsideration.
ISSUE: WON Sandiko should be made liable for the sale and thus should pay Cagayan Fishing
Dev’t.
HELD:
Sandiko is not made to pay the corporation because at the moment the corporation sold the
parcels of land, it was not duly incorporated, thus has not acquired juridical existence.
Before a corporation may be said to be lawfully organized, many things have to be done. Filing of
articles of incorporation is one which in this case was not complied with at the time of the sale. It
was not even a de facto corporation at the time.
A corporation, until organized, has no being, franchises or faculties. Until organized as authorized
by the charter, there is not a corporation, nor does possess franchises or faulties for it or others to
exercise, until it requires a complete existence.
REAL ISSUE IS: Who shall be liable for transactions or operations prior to the incorporation? Did
Cagayan ratified or adopted? If yes, then shouldn’t it be deemed valid? Supposing the
corporation was not incorporated, wouldn’t the Court hold Tabora as the one who sold the parcels
thus, the sale is valid?
The contract here was entered into not only between Tabora and a non-existent corporation but
between Manuel Tabora as owner of four parcels of land on the one hand and the same Manuel
Tabora, his wife and others, as mere promoters of a corporation on the other hand. (PAU: Which
in such case, the corporation must be adjudged as an alter ego of Manuel Tabora).
The court did not apply ratification because it would result in the commission of injustice or fraud
to the candid and unwary.
The bank, Sandiko had always regarded him as the owner of the parcels of land and that even
when a certain Jose Ventura was made to sign as president of the corporation, he is only a
signatory of the contract.
The promissory note was made payable to the corporation so that it may not be attached by
Tabora’s creditors, two of whom had obtained writs of attachment against the land.
Since the corporation could not and did not acquire the four parcels of land, it
follows that it did not posses any resultant right to dispose of them by sale to the
defendant Sandiko.
Campos:
Could not the court have treated Tabora and the plaintiff as one and the same and hold the sale
of the land to defendant valid? Or was the sale no in fraud of creditors, and if so void? If PNB had
intervened in the action, would the result have been the same?

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