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BUSINESS ORGANIZATION 2 CORPORATION LAW ATTY. MIP ROMERO SY 2015-‐2016 OUTLINE 1

I. DEFINITIONS/ATTRIBUTES OF A CORPORATION a. Artificial Being

i. Section 2 of The Corporation Code Sec. 2. Corporation defined. -‐ A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.

ii. Article 44 (3) of The New Civil Code

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member.

Commencement of Juridical Personality

Corporation From the date of issuance of the Certificate of Incorporation by the Securities and Exchange Commission

Partnership From the moment of execution of the contract of partnership Unregistered Associations Sole Proprietors Register through the Bureau of Trade Regulation and Consumer

Protection of the Department of Trade and Industry (DTI)

Mangila vs CA (GR no. 125027, August 12, 2002)

A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the enterprise. The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual and requires its proprietor or owner to secure licenses and permits, register its business name, and pay taxes to the national government. The law does not vest a separate legal personality on the sole proprietorship or empower it to file or defend an action in court. Thus, not being vested with legal personality to file this case, the sole proprietorship is not the plaintiff in this case but rather Loreta Guina in her personal capacity. Excellent Quality Apparel vs Win Multiple Rich Builders (578 SCRA 272; 2009) A sole proprietorship is the oldest, simplest, and most prevalent form of business enterprise. It is an unorganized business owned by one person. The sole proprietor is personally liable for all the debts and obligations of the business.

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A) Rights of a Juridical Person

Constitutional Rights Corporations are entitled to certain Constitutional rights:

A. Due Process A corporation is considered a person under the due process clause pursuant to Section 1 Article III of the 1987 Constitution (Sundiang & Aquino, Commercial Law 2006)

B. Equal Protection of the Law (Smith, Bell & Co. vs Natividad, GR no. 15574, 1919)

C. Equal Protection against unreasonable searches and seizures (Stonehill vs Diokno, GR no. L-‐19550, 1967)

Note: It is not entitled to certain Constitutional right (e.g. right against self incrimination particularly production of corporate documents) Three reasons why the right against self incrimination is not given to a corporation:

1. Right against self incrimination refers only to testimonial compulsion 2. A corporate cannot testify 3. The State can freely open the books of the corporation to ensure it does not exceed its powers

Bache & Co. (Phils.) Inc. vs Ruiz (37 SCRA 823; 1971)

A corporation is but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. In Stonehill vs. Diokno, this Court implied recognized the right of a corporation to object against unreasonable searches and seizures. “It is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity.”

In the case at bar, the corporation to whom the seized documents belong, and whose rights have thereby been impaired, is itself a petitioner. Bataan Shipyard vs PCGG (150 SCRA 181; 1987) The right against self-‐incrimination has no application to juridical persons. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse of such privileges.

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Good Shepherd Foundation, Inc. (AM No. 09-‐6-‐9 SC; August 19, 2009) The provisions of the Rules of Court indicate that only a natural party litigant may be regarded as an indigent litigant. The Good Shepherd Foundation, Inc., being a corporation invested by the State with a juridical personality separate and distinct from that of its members, is a juridical person. Among others, it has the power to acquire and possess property of all kinds as well as incur obligations and bring civil or criminal actions, in conformity with the laws and regulations of their organization. As a juridical person, therefore, it cannot be accorded the exemption from legal and filing fees granted to indigent litigants. B) Criminal Liability General Rule: The Corporation itself cannot be held liable for a crime committed by its officers since it does not have malice. Exception: The corporation is held criminally liable by express provision of law (e.g. Anti-‐ Money Laundering Act, Anti-‐Dummy Law, Trust Receipts Law). In such case, the responsible officers would be criminally liable. Note: Corporate officers or employees, through whose act, default, or omission, the corporation commits a crime, are themselves individually guilty of the crime. The officers of the corporation may be held liable. It is settled that an officer of a corporation can be held criminally liable for acts or omissions done in behalf of the corporation only where the law directly requires the corporation to do an act in a given manner and the same law makes the person who fails to perform thact in the prescribed manner criminally liable. This principle applies to corporate agents who themselves commit the crime to those, who, by virtue of their managerial positions or other similar relation to the corporation, could not be deemed responsible for its commission, if by virtue of their relationship to the corporation, they had the power to prevent the act. Ching vs Sec. of Justice (Feb. 6, 2006) If the State, by statute, defines a crime that may be committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or employees of such corporation or other persons responsible for the offense, only such individuals will suffer such penalty. Corporate officers or employees, through whose act, default or omission the corporation commits a crime, are themselves individually guilty of the crime. In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself behind a corporation where he is the actual, present and efficient actor.

Tupaz IV vs CA (475 SCRA 398; 2005) A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they represent. As an exception, directors or officers are personally liable for the corporations debts only if they so contractually agree or stipulate.

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C) Civil Liability Liability for Torts

A corporation is liable whenever a tortious act is committed by an officer or agent under the express direction or authority of the stockholders or members acting as a body or generally, from the directors as the governing body. The corporation without prejudice to a derivative suit being filed by the stockholders to recover from the responsible board members and officers the damages suffers the tort liability of the corporation. Doctrine of Corporate Negligence Regardless of its relationship with the doctor, the hospital may be held directly liable to the patient for its own negligence or failure to follow established standard of conduct to which it should conform as a corporation PNB vs CA (83 SCRA 238; 1978) A corporation is civilly liable in the same manner as natural persons for torts, because “generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which it expressly directs or authorizes, and this is just as true of a corporation as of a natural person, a corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing body. Secosa vs Heirs of Francisco (433 SCRA 273; 2004) The President of the corporation which becomes liable for the accident caused by its truck driver cannot be held solidarily liable for the judgment obligation arising from quasi-‐delict, since the fact alone of being President is not sufficient to hold him solidarily liable for the liabilities adjudged against the corporation and its employee. Prof. Services Inc. vs CA (611 SCRA 282; 2010)

There was insufficient evidence that PSI exercised the power of control or wielded such power over the means and the details of the specific process by which Dr. Ampil applied his skills in the treatment of Natividad. Consequently, PSI cannot be held vicariously liable for the negligence of Dr. Ampil under the principle of respondeat superior.

However, ample evidence was presented that the hospital (PSI) held out to the patient (Natividad) that the doctor (Dr. Ampil) was its agent. Present are the two factors that determine apparent authority: first, the hospital's implied manifestation to the patient which led the latter to conclude that the doctor was the hospital's agent; and second, the patient's reliance upon the conduct of the hospital and the doctor, consistent with ordinary care and prudence.

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D) Moral Damages General Rule: A corporation is not entitled to moral damages because it has no feelings, no emotions, no senses Exception: When a corporation has a good reputation that is debased, resulting in its humiliation in the business realm Note: The award of moral damages to corporations is not a hard and fast rule. Indeed, while the court may allow the grant of moral damages to corporations, it is not automatically granted; there must still be proof of the existence of the factual basis of the damage and its causal relation to the defendant’s acts. A judicial person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. Article 2219 (7) does not qualify whether the plaintiff is a natural or a juridical person. ABS CBN Corp. vs CA (361 Phil 499; 1999) NO. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only by one having a nervous system. Jardine Davies vs CA (GR no. 128066; 2000) A perfected contract can not be unilaterally cancel by one party. FEMSCO, a juridical person or an artificial person or a corporation, can be awarded moral damages whose reputation has been besmirched. Crystal, et. al. vs BPI (GR no. 172428; 2008) BPI is not entitled to moral damages. A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.

A corporation may have good reputation which, if besmirched may also be a ground for the award of moral damages. Indeed, while the Court may allow the grant of moral damages to corporations, it is not automatically granted; there must still be proof of the existence of the factual basis of the damage and its causal relation to the defendant’s acts.

Mambulao Lumber vs PNB (130 Phil 366; 1968) Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. A corporation may have a good reputation, which, if besmirched, may also be a ground for the award of moral damages. PP vs Manero, Jr. (GR no. 86883-‐85; 1993) The award of moral damages in the amount of P100,000.00 to the congregation, the Pontifical Institute of Foreign Mission (PIME) Brothers, is not proper. There is nothing on record which indicates that the

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deceased effectively severed his civil relations with his family, or that he disinherited any member thereof, when he joined his religious congregation. Besides, as We already held,a juridical person is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. It is only when a juridical person has a good reputation that is debased, resulting in social humiliation, that moral damages may be awarded. Filipinas Broadcasting Networl vs AMEC-‐BCCM (GR no. 141994; 2005) A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. Nevertheless, AMEC’s claim, or moral damages fall under item 7 of Art – 2219 of the NCC. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Art 2219 (7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. b. Created by Operation of Law

Article XII, Section 16 of The 1987 Constitution

Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-‐owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.

A corporation is created by law or by operation of law. This means that corporations cannot come into existence by mere agreement of the parties as in case of business partnerships. In the Philippines, the general law, which governs the creation of private corporations, is Batas Pambansa Bilang 68. Special laws, often referred to as “charters”, can only create private corporations owned and controlled by the government. An exception to the rule that legislative grant or authority is necessary for the creation of a corporation obtains with respect to corporations by prescription.

1. Private Corporations vs Public Corporations a. Private Corporations

Those formed for some private purpose, benefit, or, end; it may be either a stock or non-‐stock corporation, government owned or –controlled corporation or quasi-‐public corporation.

b. Public Corporations

Those formed or organized for the government of a portion of the State for the general good and welfare.

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Distinctions between Public and Private Corporations Governmental Control

Public corporations, being mere instrumentalities of the State, are subject to governmental visitation and control, whereas the charter of a private corporation is a contract between the State and the corporation or incorporators, which, under the provision of the Constitution prohibiting laws impairing the obligation of the contracts, renders such corporations not subject to visitation, control or change by the State, except in the exercise of the police power.

Consent Public corporation may be created without the consent of the locality to be affected, whereas the consent of incorporators is necessary to the creation of a private corporation.

Taxation, Liability for the torts or negligence of officers and agents, and to various other questions

2. Government Owned and Controlled Corporations (GOCCs)

Those created or organized by the government or of which the government is the majority stockholder Examples: Government Service Insurance System, National Power Corporation, Philippine National Railways, etc.

3. Others a. Government Instrumentalities b. Corporation Sui Generis c. Corporation by Prescription

One which has exercised corporate powers for an indefinite period without interference on the part of the sovereign power and which by fiction of law is given the status of a corporation (e.g. Roman Catholic Church)

Manila International Airport vs CA (GR no. 155650; 2006) MIAA is not a government-‐owned and controlled corporation but a government instrumentality. MIAA is not a government-‐owned or controlled corporation under Section 2(13) of the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-‐stock corporation. Neither is MIAA a government-‐owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. c. Right of Succession

Rationale: A corporation has a capacity of continuous existence irrespective of the death, withdrawal, insolvency, or incapacity of the individual stockholders or members and regardless of the transfer of their interest or shares of stock. It is the capacity to have continuity of existence despite the change of stockholders, members, board members or officers. Corporations created by special laws have the right of succession for the term provided in the laws creating them.

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Distinguish from Partnership and Sole Proprietorship Partnership has no right of succession Sole Proprietorship

d. Express/Implied/Incidental Powers A corporation, being purely a creation of law may exercise only such powers as are granted by the law of its creation. An express grant is not necessary. All powers, which may be implied, grant from those expressly provided law and those, which are, may also exercise incidental or essential to the corporation’s existence. The corporation exercises its powers through its board of directors and or its duly authorized officers and agents. The test to be applied is whether the act of corporation is in direct and immediate furtherance of its business, fairly incidental to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not. Section 45 Sec. 45. Ultra vires acts of corporations. -‐ No corporation under this Code shall possess or exercise any corporate powers except those conferred by this Code or by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred. *It refers to acts done by a corporation outside of the express and implied powers vested in it by its charter and by the law *Ultra Vires act is one not within the express, implied and incidental powers of the corporation conferred by the Corporation Code or articles of incorporation. It is an act, which is not positively forbidden but impliedly forbidden because not expressly or impliedly authorized, or necessary or incidental in the exercise of the powers so conferred. Acts or transactions within the legitimate powers of a corporation or are related to its purposes are said to be intra vires. Sections 36-‐44 *check Codal Sec. 36. Corporate powers and capacity. -‐ Every corporation incorporated under this Code has the power and capacity: 1. To sue and be sued in its corporate name; 2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation; 3. To adopt and use a corporate seal; 4. To amend its articles of incorporation in accordance with the provisions of this Code; 5. To adopt by-‐laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a non-‐stock corporation; 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject

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to the limitations prescribed by law and the Constitution; 8. To enter into merger or consolidation with other corporations as provided in this Code; 9. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan

political activity; 10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and 11. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation.

Sec. 37. Power to extend or shorten corporate term Sec. 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. Sec. 39. Power to deny pre-‐emptive right. Sec. 40. Sale or other disposition of assets Sec. 41. Power to acquire own shares. Sec. 42. Power to invest corporate funds in another corporation or business or for any other purpose Sec. 43. Power to declare dividends Sec. 44. Power to enter into management contract.

II. COMPARISONS/DISTINCTIONS

Corporations vs Partnerships vs Sole Proprietorship SOLE PROP. PARTNERSHIP CORPORATION Definition A form of

business organization with only one proprietary owner; a single individual conducts business under his own name

Two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves

An artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence

As to creation Can operate under the name of its owner or it can do business under a fictitious name, or simply a trade name

Created by mere agreement of the parties

Created by law or by operation of law

As to number of organizers

One May be organized by at least 2 persons

Requires at least 5 incorporators (except a corporation sole)

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As to commencement of juridical personality

Register through the Bureau of Trade Regulation and Consumer Protection of the Department of Trade and Industry (DTI)

From the moment of execution of the contract of partnership

From the date of issuance of the certificate of incorporation by the Securities and Exchange Commission

As to powers Sole proprietors have full control over every aspect of their business

May exercise any power authorized by the partners (provided it is not contrary to law, morals, good customs, public order, public policy)

Can exercise only the powers expressly granted by law or implied from those granted or incident to its existence

As to management When management is not agreed upon, every partner is an agent of the partnership

The power to do business and manage its affairs is vested in the board of directors or trustees

As to effect of management

A partner as such can sue a co-‐partner who mismanages

The suit against a member of the board of directors or trustees who mismanages must be in the name of the corporation

As to right of succession No right of succession Has right of succession As to extent of liability to third persons

Owner is personally liable for its debts, unlimited liability

Partners are liable personally and subsidiarily (sometimes solidarily) for partnership debts to third persons

Stockholders are liable only to the extent of the shares subscribed by them (limited liability feature)

As to transfer of interest Partner cannot transfer his interest in the partnership so as to make the transferee a partnership without the unanimous consent of all the existing partners because the partnership is based on the principle of delectus personarum

Stockholder has generally the right to transfer his shares without prior consent of the other stockholders because corporation is not based on this principle

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As to term of existence May be established for any period of time stipulated by the partners

May not be formed for a termed for a term in excess of 50 years extendible to not more than 50 years in any one instance

As to firm name Limited partnership is required by law to add the word “Ltd.” to its name

Corporation may adopt any name provided it is not the same as or similar to any registered firm name

As to dissolution May be dissolved at any time by any or all of the partners

Can only be dissolved with the consent of the State

As to governing law Not encumbered by the strict regulatory laws and rules

The New Civil Code The Corporation Code

III. DOCTRINE OF CORPORATE ENTITY (Doctrine of Separate Personality) A corporation is a legal or juridical person with a personality separate and apart from its individual

stockholders or members and from any other legal entity to which it may be connected Consequences:

1. Liability for acts or contracts -‐Obligiations incurred by a corporation, acting through its authorized agents are its sole liabilities. Similarly, a corporation may not generally, be made to answer for acts or liabilities of its stockholders or membrs or those of legal entities which it may be connected and vice versa

2. Right to bring actions -‐It may be civil and criminal actions in its own name in the same manner as natural persons

3. Acquisition by court of Jurisdiction -‐Service of Summons may be made on the President, General Manager, Corporate Secretary, Treasurer or In-‐house counsel

4. Changes in individual membership -‐Corporation remains unchanged and unaffected in its identity by changes in its individual membership

5. Separate Properties -‐The properties of the corporation are not the properties of the shareholders, members or officers. In the same manner, properties of its shareholders, members or officers are not the properties of the corporation.

b. Doctrine/ Effects

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Gallagher vs Germania Brewing Co. (54 NW 115; 1893) The right of equitable set-‐off is not derived from or dependent upon statue, but rests upon a distinctly equitable doctrine, which courts of equity have applied on certain well-‐recognized equitable grounds, the object being to effect a clear equity and prevent irremediable injustice; To allow the set-‐off here, it is necessary to wholly ignore the legal doctrine or fiction that a corporation is an entity separate and distinct from the body of its stockholders, and to treat it as a mere association of individuals who are the real parties in interest. Magsaysay-‐Labrador vs CA (180 SCRA 266; 1989) Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person. San Juan Structural vs CA (296 SCRA 631) Corporate fiction should be set aside when it becomes a shield against liability for fraud, illegality or inequity committed on third persons Tramat Mercantile vs CA (238 SCRA 14; 1994) Personal liability of a corporate director, trustee or officer along with the corporation may so validly attach, as a rule, only when 1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; 4 2. 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; 5 3. He agrees to hold himself personally and solidarily liable with the corporation; 6 or 4. He is made, by a specific provision of law, to personally answer for his corporate action Palay, Inc. vs Clave (124 SCRA 640; 1983) As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or defend crime; or to perpetuate fraud or confuse legitimate issues; or to circumvent the law or perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders.

c. Piercing the Corporate Veil General Rule: A corporation has a separate personality distinct from its stockholders and members Exception: The court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. The concept of corporate entity was not meant to promote unfair objectives.

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The corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons. Nature of Piercing the Corporate Veil Doctrine

a. It has no res judicata effect b. To prevent fraud or wrong and not available for other purposes c. Essentially a judicial prerogative only d. It must be shown to be necessary and with factual basis

Areas where Doctrine of Piercing the Veil of Corporate Entity may be applied:

i. Fraud Cases ii. Alter Ego Cases iii. Equity cases

*Check memaid or book for discussion Villa Rey Transit vs Ferrer (25 SCRA 845; 1968) These circumstances are strong persuasive evidence showing that Villarama has been too much involved in the affairs of the Corporation to altogether negative the claim that he was only a part-‐time general manager. They show beyond doubt that the Corporation is his alter ego. The interference of Villarama in the complex affairs of the corporation, and particularly its finances, are much too inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to separate personal responsibilities from corporate undertakings. Hence, the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and binding against the said Corporation. Marvel Bldg. vs David (94 Phil 376; 1954) Yes. The CIR presented evidence to prove his claim that Maria B. Castro the sole and true owner of the share of stock Marvel Building Corp., this was the supposed endorsement in blank of the shares of stock in the name of other incorporators. This evidence was testified by Aquino, Internal Revenue examiner, Mariano, examiner and Crispin Llamado, undersecretary of Finance. Julio Llamado who was at that time the bookkeeper of Marvel Building Corp also testified that he was the one who had prepared the original certificates which was given by Maria for comparison with the Articles of Incorporation and that he also prepared a stock certificates which was copied in the Photostat presented in evidence. Cease vs CA (93 SCRA 483; 1979) This separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice. This is particularly true where the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate deception or otherwise circumvent the law. This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. Secosa vs Heirs of Francisco (433 SCRA 273; 2004)

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A corporation has a personality separate from that of its stockholders or members. The doctrine of ‘veil of corporation’ treats as separate and distinct the affairs of a corporation and its officers and stockholders. As a rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud that may work inequities among members of the corporation internally, involving no rights of the public or third persons. In both instances, there must have been fraud and proof of it. Concept Builders vs NLRC (257 SCRA 149; 1996) This separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit: (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; and (4) Methods of conducting the business. Claparols vs CIR (65 SCRA 613; 1965) When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or in the case of two persons, will merge them into one. Thus, where a corporation is a dummy and serves no business purpose and is intended only as a blind, the corporate fiction may be ignored. And where a corporation is merely an adjunct, business conduct or alter ego of another corporation the fiction of separate and distinct corporate entities should be disregarded. La Campana Coffee Factory vs Kaisahan (93 Phil 160; 1953) The principle requiring the piercing of the corporate veil mandates courts to see through the protective shroud that distinguishes one corporation from a seemingly separate one. The corporate mask may be removed and the corporate veil pierced when a corporation is the mere alter ego of another. Where badges of fraud exist, where public convenience is defeated, where a wrong is sought to be justified thereby, or where a separate corporate identity is used to evade financial obligations to employees or to third parties, the notion of separate legal entity should be set aside and the factual truth upheld. When that happens, the corporate character is not necessarily abrogated. It continues for other legitimate objectives. However, it may be pierced in any of the instances cited in order to promote substantial justice. Pamplona Plantation vs Tinghil (450 SCRA 421; 2005) The principle requiring the piercing of the corporate veil mandates courts to see through the protective shroud that distinguishes one corporation from a seemingly separate one. The corporate mask may be removed and the corporate veil pierced when a corporation is the mere alter ego of another. Where badges of fraud exist, where public convenience is defeated, where a wrong is sought to be justified thereby, or where a separate corporate identity is used to evade financial obligations to employees or to third parties,

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the notion of separate legal entity should be set aside and the factual truth upheld. When that happens, the corporate character is not necessarily abrogated. It continues for other legitimate objectives. However, it may be pierced in any of the instances cited in order to promote substantial justice. Yu vs NLRC (245 SCRA 134; 1995) The use of a similar sounding or almost identical name is an obvious device to capitalize on the goodwill which Tanduay Rum has built over the years. Twin Ace or Tanduay Distillers, on one hand, and Tanduay Distillery Inc. (TDI), on the other, are distinct and separate corporations. There is nothing to suggest that the owners of TDI, have any common relationship as to identify it with Allied Bank Group which runs Tanduay Distillers. Indo-‐Phil Textile Mills vs Calica (205 SCRA 598; 1992) Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, 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 of the corporation will be considered as the corporation, that is liability will attach directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. Umali vs CA (189 SCRA 529; 1990) Piercing the veil of corporate entity is not the proper remedy in order that the foreclosure proceeding may be declared a nullity. 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 First Phil International Bank (252 SCRA 259) Yes. There is a perfected contract of sale because the bank manager, Rivera, entered into the agreement with apparent authority. This apparent authority has been duly proved by the evidence presented which showed that in all the dealings and transactions, Rivera participated actively without the opposition of the conservator. In fact, in the advertisements and announcements of the bank, Rivera was designated as the go-‐to guy in relation to the disposition of the Bank’s assets. Almocera vs Ong (546 SCRA 164; 2008) This issue of piercing the veil of corporate fiction was never raised before the trial court. The same was raised for the first time before the Court of Appeals which ruled that it was too late in the day to raise the same. To allow petitioner to pursue such a defense would undermine basic considerations of due process. Points of law, theories, issues and arguments not brought to the attention of the trial court will not be and ought not to be considered by a reviewing court, as these cannot be raised for the first time on appeal. It would be unfair to the adverse party who would have no opportunity to present further evidence material to the new theory not ventilated before the trial court. Uy vs Villanueva (526 SCRA 73; 2007)

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The doctrine of piercing the veil of corporate fiction finds no application in the case. Piercing the veil of corporate fiction may only be done when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. The general rule is that a corporation will be looked upon as a separate legal entity, unless and until sufficient reason to the contrary appears. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed.

d. Parent-‐Subsisdiary Relationship Yutive vs CTA (1 SCRA 160; 1961) However, SC agreed with the respondent court that SM was actually owned and controlled by petitioner. Consideration of various circumstances indicate that Yutivo treated SM merely as its department or adjunct: a. The founders of the corporation are closely related to each other by blood and affinity. b. The object and purpose of the business is the same; both are engaged in sale of vehicles, spare parts, hardware supplies and equipment. c. The accounting system maintained by Yutivo shows that it maintained high degree of control over SM accounts. d. Several correspondences have reference to Yutivo as the head office of SM. SM may even freely use forms or stationery of Yutivo. e. All cash collections of SM’s branches are remitted directly to Yutivo. f. The controlling majority of the Board of Directors of Yutivo is also the controlling majority of SM. g. The principal officers of both corporations are identical. Both corporations have a common comptroller in the person of Simeon Sy, who is a brother-‐in-‐law of Yutivo’s president, Yu Khe Thai. h. Yutivo, financed principally the business of SM and actually extended all the credit to the latter not only in the form of starting capital but also in the form of credits extended for the cars and vehicles allegedly sold by Yutivo to SM. Koppel vs Yatco (77 Phil 496; 1946) A corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. The corporate entity is disregarded where it is so organized and controlled, and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. CIR vs Norton and Harrison (11 SCRA 714) Y Corporation may be held liable for the debts of X Corporation. The doctrine of piercing the veil of corporation fiction applies to this case. The two corporations have the same board of directors and Y Corporation owned substantially all of the stocks of X Corporation, which facts justify the conclusion that the latter is merely an extension of the personality of the former, and that the former controls the policies

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of the latter. Added to this is the fact that Y Corporation controls the finances of X Corporation which is merely an adjunct, business conduit or alter ego of Y Corporation. Jardine Davis Inc. vs JRD Realty (463 SCRRA 555; 2005) Court categorically held 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, andvice 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 plaintiffs legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. PNB vs Ritratto Group (362 SCRA 216; 2001) * The Circumstance rendering the subsidiary an instrumentality (common circumstances) (a) The parent corporation owns all or most of the capital stock of the subsidiary. (b) The parent and subsidiary corporations have common directors or officers. (c) The parent corporation finances the subsidiary. (d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation. (e) The subsidiary has grossly inadequate capital. (f) The parent corporation pays the salaries and other expenses or losses of the subsidiary. (g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation. (h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own. (i) The parent corporation uses the property of the subsidiary as its own. (j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation. (k) The formal legal requirements of the subsidiary are not observed. Pantranco vs NLRC (GR no. 170689; March 17, 2009) The general rule remains that PNB-‐Madecor (subsidiary) has a personality and distinct from PNB (parent). The mere fact that a corporation owns all of the stocks of another corporation, taken alone, is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate existence shall be respected. Garrett vs Southern Railways (173 F. Supplement 915) The general rule is that stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation.

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