CORPORATION BY ESTOPPEL: RATIONALE Standard Ptoducts, having recognized the corporate existence of
Asia Banking by making a PN in its favor and making partial
G.R. No. 22106 September 11, 1924
ASIA BANKING CORPORATION, plaintiff-appellee, vs. STANDARD
PRODUCTS, CO., INC., defendant-appellant.
 Standard Products issued a PN in favor of Asia Banking. The
former made partial payments but later on failed to full
settle its obligation. Hence, Asia Banking brought an action
to recover the balance due on the said PN in the sum of
P24,736.47.
 At the trial of the case, it appear that Asia Banking failed to
prove affirmatively the corporate existence of the parties.
Nonetheless, the trial court ruled in its favor.
 Standard Products now insists the court erred in finding that
the parties were corporations with juridical personality.
ISSUE: WON SP should be held liable to AB despite the failure of the
latter to prove their corporate existence.
HELD: YES.
As a general rule, in the absence of fraud a person who has
contracted or otherwise dealt with an association in such a way as
to recognize and in effect admit its legal existence as a corporate
body is thereby estopped to deny its corporate existence in any
action leading out of or involving such contract or dealing, unless
its existence is attacked for cause which have arisen since making
the contract or other dealing relied on as an estoppel and this
applies to foreign as well as to domestic corporations.
payments on the same, is therefore estopped to deny said Asia
Banking's corporate existence. It is, of course, also estopped from
denying its own corporate existence. Under these circumstances it
was unnecessary for the plaintiff to present other evidence of the
corporate existence of either of the parties.
G.R. No. L-11442 May 23, 1958
MANUELA T. VDA. DE SALVATIERRA, petitioner, vs. HON. LORENZO
C. GARLITOS, in his capacity as Judge of the Court of First Instance
of Leyte, Branch II, and SEGUNDINO REFUERZO, respondents.
 Philippine Fibers Producers Co., Inc., representing itself as a
duly organized domestic corporation and with Segundino
Refuerzo as the alleged President, entered into a contract of
lease with Manuela Salvatierra over a parcel of land in
Burauen, Leyte owned by the latter.
 It was provided in said contract, among other things, that
that the land would be planted crops suitable to the soil;
that the lessor would be entitled to 30% of the net income
accruing from the harvest; and that after every harvest, the
lessee was bound to declare at the earliest possible time
the income derived therefrom and to deliver the
corresponding share due the lessor.
 On April 5, 1955, Manuela filed a complaint against PFC and
Refuerzo, for accounting, rescission and damages. She
averred that sometime in April, 1954, PFC refused to render
an accounting of the income derived from one of the
harvests made in the subject land and to deliver the lessor's
 share. Considering this violation of the terms of the lease
agreement, a rescission was but proper.
 The trial court later on ruled in favor of Manuela, and
susequently issued issued a writ of execution, in virtue of
which the Provincial Sheriff of Leyte caused the attachment
of 3 parcels of land registered in the name of Segundino
Refuerzo. No property of PFP was found available for
attachment.
 Refuerzo then filed a motion claiming that the said decision
was null and void with respect to him, there being no
allegation in the complaint pointing to his personal liability;
for while it was conceded that he was a signatory to the
lease contract, he did so in his capacity as president of the
corporation.
 Manuela argues on the other hand that her failure to
specify Refuerzo's personal liability was due to the fact that
all the time she was under the impression that PFP was duly
registered corporation as appearing in the contract, but a
subsequent inquiry from the SEC yielded otherwise.
 The Court a quo granted Refuerzo’s motion and ordered for
the release all properties belonging to him that might have
already been attached.
ISSUE: WON Refuerzo should be held liable personally in the
present cse.
HELD: YES.
 While as a general rule a person who has contracted with an
association in such a way as to recognize its existence as a
corporate body is estopped from denying the same in an
action arising out of such transaction, this doctrine may not
be held to be applicable where there was an attendance of
fraud.
 In the instant case, the circumstances surrounding the
execution of the contract lead to the inescapable conclusion
that Manuela was really made to believe that PFP was duly
organized in accordance with law. (NOTE: Refuerzo neither
confirmed nor denied PFP’s corporate existence to
Manuela, leading the latter to believe that PFP is duly
registered.)
 A corporation indeed has a juridical personality separate
and distinct from its component members, stockholders and
officers such that a corporation cannot be held liable for the
personal indebtedness of a stockholder and conversely, a
stockholder cannot be held personally liable for any
financial obligation of 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.
o REASON: Since an organization which before the
law is non-existent has no personality and would be
incompetent to act and appropriate for itself the
powers and attributes of a corporation as provided
by law; it cannot create agents or confer authority
on another to act in its behalf.
o Thus, those who act or purport to act as its
representatives or agents do so without authority
and at their own risk. A person who acts as an agent
 without authority or without a principal is himself
regarded as the principal.
 Considering that Refuerzo, as president of the unregistered
corporation PFP., was the moving spirit behind the
consummation of the lease agreement by acting as its
representative, his liability cannot be limited or restricted to
that imposed upon corporate shareholders. In acting on
behalf of a corporation which he knew to be unregistered,
he assumed the risk of reaping the consequential damages
or resultant rights, if any, arising out of such transaction.
G.R. No. L-19118 January 30, 1965
MARIANO A. ALBERT, plaintiff-appellant, vs. UNIVERSITY
PUBLISHING CO., INC., defendant-appellee.
 On September 24, 1949, Mariano A. Albert sued University
Publishing for failure of the latter to pay the second
installment of its debt. Mariano alleged inter alia that the
company, through Jose M. Aruego, its President, entered
into a contract with him where the company agreed to pay
him in installment P30,000 for the exclusive right to publish
his revised Commentaries on the Revised Penal Code and
for his share in previous sales of the book's first edition.
Further, it was stipulated in the contract that failure to pay
one installment would render the rest due.
 University Publishing admitted such allegation of its
corporate existence and the execution and terms of the
contract, but alleged that it was Mariano who breached
their contract by failing to deliver his manuscript.
 CFI ruled in favor of Mariano, ordering University Publishing
to pay Justo Albert, administrator of Mariano’s estate, the
sum of P23,000. Upon appeal to the SC, the amount was
reduced to P15,000.00, to be executed in full.
 Justo later on petitioned for a writ of execution against Jose
Aruego, as the real defendant. Apparently, it was
discovered that there is no such entity as University
Publishing. He annexed to his petition a certification from
the SEC attesting that Univerity Publishing was never
registered.
 University Publishing countered by filing, through counsel
(Aruego's own law firm), a manifestation stating that Jose
Aruego is not a party to the case.
ISSUE: WON the judgment may be executed against Jose Aruego,
supposed President of University Publishing as the real defendant.
HELD: YES.
 On account of its non-registration, University Publishing
cannot be considered a corporation. It has therefore no
personality separate from Jose M. Aruego; and it cannot be
sued independently.
 The corporation-by-estoppel doctrine is inapplicable here.
Aruego represented a non-existent entity and induced the
plaintiff and the court to believe in such representation. He
signed the contract as "President" of "University Publishing
Co., Inc.," stating that this was "a corporation duly
organized and existing under the laws of the Philippines,"
and obviously misled Mariano into believing the same. One
who has induced another to act upon his wilful
 misrepresentation that a corporation was duly organized
and existing under the law, cannot thereafter set up
against his victim the principle of corporation by estoppel.
 Jose M. Arueg was the real party to the contract sued upon;
that he was the one who reaped the benefits resulting from
it, so much so that partial payments of the consideration
were made by him; that he violated its terms, thereby
precipitating the suit in question; and that in the litigation
he was the real defendant.
 NOTE: Should there be persons who under the law are liable
to Aruego for reimbursement or contribution with respect
to the payment he makes under the judgment in question,
he may proceed against them through proper remedial
measures.
 NOTE: It is not hard to decipher why University Publishing,
through counsel, would not want Jose Aruego to be
considered a party to the present case: should a separate
action be now instituted against Jose M. Aruego, the
plaintiff will have to reckon with the statute of limitations.
G.R. No. 136448. November 3, 1999]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR
INDUSTRIES, INC., respondent.
 It appears that Lim, Chua, and Yao verbally agreed to
acquire two fishing boats from CMF Fishing Corporation.
They subsequently borrowed P3.25 million from Jesus Lim,
brother of Lim Tong Lim, to finance the venture.
 CMF then executed the Deed of Sale in favor of Lim Tong
Lim to serve as security for the loan extended by Jesus Lim;
 Lim, Chua and Yao thereafter agreed that the refurbishing ,
re-equipping, repairing, dry docking and other expenses for
the boats would be shouldered by Chua and Yao.
 Jesus Lim again extended a loan to the partnership in the
amount of P1 million, because of which, Yao and Chua
entrusted the ownership papers of two other boats to Lim.
 In pursuance of the business agreement, Yao and Chua
bought nets from Philippine Fishing Gear, in behalf of
"Ocean Quest Fishing Corporation," their purported
business name.
 The buyers, however, failed to pay for the fishing nets and
the floats; hence, PFG filed a collection suit against Chua,
Yao and Lim.
 The suit was brought against the three in their capacities as
general partners, on the allegation that Ocean Quest Fishing
Corporation was a nonexistent corporation as shown by a
Certification from the SEC.
 The trial court held Chua, Yao and Lim, as general partners,
jointly liable to pay PFG, basing it ruling on the testimonies
of the witnesses presented and on a Compromise
Agreement executed by the three in a separate case filed by
Chua and Yaoagainst Lim. In their Compromise Agreement,
they revealed their intention to pay the loan (from Lim/ JLH
Corporation?) with the proceeds of the sale of the boats,
and to divide equally among them the excess or loss.
 In affirming the trial court, the CA held that Lim was a
partner of Chua and Yao in a fishing business and may thus
be held liable as a such for the fishing nets and floats
purchased by and for the use of the partnership. According
to the CA, it is evident that the ultimate undertaking of the
 defendants was to divide the profits among themselves
which is what a partnership essentially is.
 Among the contentions raised by Lim in insisting that he
should not be held jontly liable with Yao and Chua was that
only those who dealt in the name of the ostensible
corporation should be held liable. Since his name does not
appear on any of the contracts and since he never directly
transacted with PFG, he cannot be held liable.
ISSUE: WON Lim should be held jointly liable with Chua and Yao.
HELD: YES.
It is evident that Lim, Chua and Yao decided to form a corporation.
Although it was never legally formed for unknown reasons, this fact
alone does not preclude the liabilities of the three as contracting
parties in representation of it. Clearly, 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.
Technically, it is true that Lim did not directly act on behalf of the
corporation. However, 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.
Unquestionably, Lim benefited from the use of the nets found inside
F/B Lourdes, the boat which has earlier been proven to be an asset
of the partnership. (He in fact questions the attachment of the nets,
because the Writ issued by the RTC has effectively stopped his use of
the fishing vessel.)
NOTE: A litigation is not a game of technicalities. Technicality, when
it deserts its proper office as an aid to justice and becomes its great
hindrance and chief enemy, deserves scant consideration from
courts. There should be no vested rights in technicalities.
NOTE: The doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in
a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to
evade its responsibility for a contract it entered into and by virtue of
which it received advantages and benefits. 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.
NOTE: it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business.
NOTE: In implying that the lower courts have decided on the basis
of one piece of document alone, Lim fails to appreciate that the CA
and the RTC delved into the history of the document and explored
all the possible consequential combinations in harmony with law,
logic and fairness. Verily, the two lower courts factual findings
mentioned above nullified petitioners argument that the existence
of a partnership was based only on the Compromise Agreement.
NOTE: Lim evidently entered into a business agreement with Chua
and Yao, in which debts were undertaken in order to finance the
acquisition and the upgrading of the vessels which would be used in
their fishing business. The sale of the boats, as well as the division
among the three of the balance remaining after the payment of
their loans, proves that F/B Lourdes, though registered in his name,
was not his own property but an asset of the partnership. It is
absurd for Lim to sell his property to pay a debt he did not incur, if
the relationship among the three of them was merely that of lessor-
lessee, instead of partners.
PIERCING THE VEIL OF CORPORATE FICTION
BUENAFLOR UMALI vs. CA
Mauricia Castillo was the administratrix in charge over a parcel of
land left be Felipe Castillo. Said land was mortgaged to DBP and was
about to be foreclosed but then Mauricia’s nephew, Santiago
Rivera, proposed that they convert the land into 4 subdivisions so
that they can raise the necessary money to avoid foreclosure.
Mauricia agreed. Rivera sought to develop said land through his
company, Slobec Realty Corporation (SRC), of which he was also the
president. SRC then contracted with Bormaheco, Inc. for the
purchase of one tractor. Bormaheco agreed to sell the tractor on an
installment basis. At the same time, SRC mortgaged said tractor to
Bormaheco as security just in case SRC will default. As additional
security, Mauricia and other family members executed a surety
agreement whereby in case of default in paying said tractor, the
Insurance Corporation of the Philippines (ICP) shall pay the balance.
The surety bond agreement between Mauricia and ICP was secured
by Mauricia’s parcel of land (same land to be developed).
SRC defaulted in paying said tractor. Bormaheco foreclosed the
tractor but it wasn’t enough hence ICP paid the deficiency. ICP then
foreclosed the property of Mauricia. ICP later sold said property to
Philippine Machinery Parts Manufacturing Corporation (PMPMC).
PMPMC then demanded Mauricia et al to vacate the premises of
said property.
While all this was going on, Mauricia died. Her successor-
administratrix, Buenaflor Umali, questioned the foreclosure made
by ICP. Umali alleged that all the transactions are void and
simulated hence they were defrauded; that through Bormaheco’s
machinations, Mauricia was fooled into entering into a surety
agreement with ICP; that Bormaheco even made the premium
payments to ICP for said surety bond; that the president of
Bormaheco is a director of PMPMC; that the counsel who assisted in
all the transactions, Atty. Martin De Guzman, was the legal counsel
of ICP, Bormaheco, and PMPMC.
ISSUE: Whether or not the veil of corporate fiction should be
pierced.
HELD: NO.
There is no clear showing of fraud in this case. The mere fact that
Bormaheco paid said premium payments to ICP does not constitute
fraud per se. As it turned out, Bormaheco is an agent of ICP. SRC,
through Rivera, agreed that part of the payment of the mortgage
shall be paid for the insurance. Naturally, when Rivera was paying
some portions of the mortgage to Bormaheco, Bormaheco is interested, asked for price quotations from KPI, and KPI
applying some parts thereof for the payment of the premium – and then cabled for the quotation desired from KICE.
this was agreed upon beforehand.  However, KPI quoted to the purchaser a selling price above
the figures quoted by KICE. On the basis of these
Further, piercing the veil of corporate fiction is not the proper
quotations, orders were placed by the local buyers.
remedy in order that the foreclosure conducted by ICP be declared
Between KICE and KPI, the arrangement nonetheless was
a nullity. The nullity may be attacked directly without disregarding
that KICE controls how much share of the profits goes to
the separate identity of the corporations involved. Further still,
KPI. For these transactions, the BIR treated KPI as a
Umali et al are not enforcing a claim against the individual members
subsidiary of KICE and collected from KPI the merchants’
of the corporations. They are not claiming said members to be
sales tax, which was a revenue law in force at the time the
liable. Umali et al are merely questioning the validity of the
sales took place.
foreclosure.
 KPI paid the taxes under protest, demanded for refund and
The veil of corporate fiction can’t be pierced also by the simple contended that KPI could not be liable for merchants’ sales
reason that the businesses of two or more corporations are tax because it was only acting as broker between KICE and
interrelated, absent sufficient showing that the corporate entity was the local buyers. The lower court dismissed the complaint
purposely used as a shield to defraud creditors and third persons of and ruled in favor of the government.
their rights. In this case, there is no justification for disregarding
ISSUE: WON KPI is a domestic corporation distinct and separate
their separate personalities.
from, and not a mere branch of KICE
KOPPEL vs. YATCO
HELD: NO.
 Koppel Industrial Car and Equipment company (KICE), a
 Koppel Philippines is a mere branch, subsidiary or agency of
foreign company not doing business in the Philippines,
the latter.A corporation will be looked upon as a legal entity
owned 995 shares out of the 1000 shares that comprise the
as a general rule, and until sufficient reason to the contrary
capital stock of KPI, a domestic corporation licensed as
appears; but, when the notion oflegal entity is used to
commercial broker in the Philippines.
defeat public convenience, justify wrong, protect fraud, or
 The remaining 5 shares were owned by each of the officers
defend crime, the lawwill regard the corporation as an
of KPI. KICE is in the business of selling railway materials,
association of persons.
machineries and supplies. Buyers in the Philippines, when
 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.
 SC reasoned that, in so far as the sales involved herein are
concerned, KPI and KICE are to all intents and purposes one
and the same. As regards those transactions, the former
corporation is a mere branch, subsidiary or agency of the
latter. This is conclusively borne out by the fact, among
others, that the amount of the so-called "share in the
profits" of KPI was ultimately left to the sole, unbridled
control of KICE.
 No group of businessmen could be expected to organize a
mercantile corporation — the ultimate end of which could
only be profit — if the amount of that profit were to be
subjected to such a unilateral control of another
corporation, unless indeed the former has previously been
designed by the incorporators to serve as a mere subsidiary,
branch or agency of the latter. Evidently, Koppel Industrial
Car and Equipment Company made use of its ownership of
the overwhelming majority — 99.5% — of the capital stock
of the local corporation to control the operations of the
latter to such an extent that it had the final say even as to
how much should be allotted to said local entity in the so-
called sharing in the profits.
 Further, in the practical working of corporate organizations
of the class to which these two entities belong, the holder
or holders of the controlling part of the capital stock of the
corporation dominate not only the selection of the Board of
Directors but, more often than not, also the action of that
Board. Philippine corporation could not possibly contravene
with the American corporation in this case. This fact
necessarily leads to the inference that the corporation had
at least a Vice-President, and presumably also a President,
who were residing in America, where the parent
corporation is domiciled.
 If KPI had been intended to operate as a regular domestic
corporation in the Philippines, where it was formed, the
record and the evidence do not disclose any reason why all
its officers should not reside and perform their functions in
the Philippines.
G.R. No. L-13119 September 22, 1959
RICARDO TANTONGCO, Petitioner, vs. KAISAHAN NG MGA
MANGGAGAWA SA LA CAMPAN (KKM) AND THE HONORABLE
COURT OF INDUSTRIAL RELATIONS, Respondents.
 In June 1951, members of the Kaisahan ng mga
Manggagawa sa La Campana, a labor union to which were
affiliated workers in the La Campana Starch Factory and La
Campana Coffee Factory (two separate entities but under
the one management) presented demands for higher
wages, and more privileges and benefits in connection with
their work.
 The case was eventually brought to the Court of Industrial
Relations. On the theory that the laborers presenting the
demands were only the ones working in the coffee factory,
La Campana Starch Factory filed a motion to dismiss
claiming that inasmuch as there were only 14 laborers in
the coffee factory, the CIR had no jurisdiction over the case.
The motion was denied.
 Upon appeal, the SC held that the two companies are
operating under one single management, that is, one
business though with two trade names. The
 Upon the return of the case to the CIR, incidental cases
involving the same parties came up. These five cases were
heard jointly.
 In the meantime, Ramon Tantongco supposed to be the
owner and manager of the Starch Factory and the OIC of the
Coffee Factory died. Ricardo Tantongco, as administrator of
Ramon’s estate, filed a motion to dismiss all the cases, on
the ground that said cases involved claims for sums of
money and consequently should be filed before the probate
court having jurisdiction over the estate. CIR denied such
motion.
 CIR then issued an order for the reinstatement of the
dismissed laborers with back wages. The laborers involved
thereafter reported for work, but they were not admitted
by the management. Consequently, the union filed a
petition to hold respondents in said cases for contempt.
 Tantongco now seeks to prohibit the CIR from proceeding
with the trial for contempt and to enjoin respondent CIR
from enforcing its order of reinstatement.
 He contends that in the previous case, the SC already
"pierced the veil of corporate existence", and held that the
La Campana Starch and Coffee Factory and its owner,
Ramon Tantongco, were one; so that with the death of
Ramon, the La Campana entities ceased to exist, resulting in
the loss of jurisdiction of the CIR to enforce its order against
said entities.
ISSUE: WON CIR has jurisdiction over the present case.
HELD: YES.
The death of Ramon Tantongco did not deprive the CIR of its
jurisdiction. Moreover, the money claims of the laborers were
merely incidental to their demands for reinstatement for having
been unjustly dismissed, and for better working conditions.
The reason SC applied the so-called "piercing the veil of corporate
existence" in G.R. No. L-5677 was to avoid the technicality therein
advanced in order to defeat the jurisdiction of the CIR. SC found
therein that although there were ostensibly two separate
companies or entities, they were managed by the same person or
persons and the workers in both were used interchangeably so that
in order to determine whether or not the CIR had jurisdiction, the
number of workers in both entitles, not in only one, was to be
considered. However, we still believe that although the family of
Ramon Tantongco was practically the owner of both the coffee
factory and the starch factory, nevertheless these entities are
separate from the personality of Ramon.
In conclusion, we find and hold that the La Campana Starch and
Food Products Company which stands for the La Campana Starch
and Coffee Factory are entities distinct from the personality of
Ramon Tantongco; that after the death of Ramon these two
entities continued to exist and to operate under the management
of petitioner and that consequently he is the proper person and
official to which the orders of the CIR are addressed and who is in
duty bound to comply with the same. We further find that the CIR
acted with in its jurisdiction in issuing its order of September 30,
1957 and in requiring petitioner to appear to give his evidence if
any in relation with the contempt proceedings instituted against
him.
 NOTE: Petitioner is likewise estopped from claiming that the
two entities in question and Ramon are one, since there
were certain instaces where he admitted the existence of
the two companies.
 NOTE: Any violation of any order, award, or decision of the
Court of Industrial Relations shall, after such order, award
or decision has become final, conclusive, and executory,
constitute contempt of court.
On December 31, 1989, Felipe Bacani retired the business name and
BSPA ceased to operate effective on that day. At that time,
respondent Alicia Bacani, daughter of Felipe Bacani, was BSPA's
Executive Directress.
On January 15, 1990 Felipe Bacani died. An intestate proceeding
was instituted for the settlement of his estate.
Earlier, on October 26, 1989, BASEC had been organized and
registered as a corporation with the SEC. The following were the
incorporators with their respective shareholdings:
ALICIA BACANI — 25,250 shares

G.R. No. 110358 November 9, 1994 LYDIA BACANI — 25,250 shares

QUINTIN ROBLEDO, MARIO SINLAO, LEONARDO SAAVEDRA, AMADO P. ELEDA — 25,250 shares
VICENTE SECAPURI, DANIEL AUSTRIA, ET AL., petitioners, vs. THE
NATIONAL LABOR RELATIONS COMMISSION, BACANI SECURITY VICTORIA B. AURIGUE — 25,250 shares
AND ALLIED SERVICES CO., INC., AND BACANI SECURITY AND
FELIPE BACANI — 20,000 shares
PROTECTIVE AGENCY AND/OR ALICIA BACANI, respondents.
The primary purpose of the corporation was to "engage in the
Petitioners were former employees of BSPA. They were employed
business of providing security" to persons and entities. This was the
as security guards at different times during the period 1969 to
same line of business that BSPA was engaged in. Most of the
December 1989 when BSPA ceased to operate.
petitioners, after losing their jobs in BSPA, were employed in BASEC.
BSPA was a single proprietorship owned, managed and operated by
On July 5, 1990, some of the petitioners filed a complaint with the
the late Felipe Bacani. It was registered with the Bureau of Trade
DOLE for underpayment of wages and nonpayment of overtime pay,
and Industry as a business name in 1957. Upon its expiration, the
legal holiday pay, separation pay and/or retirement/resignation
registration was renewed on July 1, 1987 for a term of five (5) years
benefits, and for the return of their cash bond which they posted
ending 1992.
with BSPA. Made respondents were BSPA and BASEC.
On March 1, 1992, the Labor Arbiter rendered a decision upholding
the right of the petitioners, and further holding both BSPA and
BASEC solidarily liable, except BSPA which has already been retired
from business.
On appeal the NLRC reversed, declaring the LA without jurisdiction
and instead suggested that petitioners file their claims with the RTC,
where an intestate proceeding for the settlement of Bacani's estate
was pending.
Petitioners now contend that the NLRC erred, on the ground that
BASEC is the same entity as BSPA the latter being owned and
controlled by one and the same family, namely the Bacani family.
For this reason they urge that the corporate fiction should be
disregarded and BASEC should be held liable for the obligations of
the defunct BSPA.
ISSUES:
1. WON BASEC and Alicia Bacani can be held liable for claims
of petitioners against BSPA and
2. WON the claims were the personal liability of the late Felipe
Bacani, as owner of BSPA.
HELD:
1. NO.
BASEC is an entity separate and distinct from that of BSPA. BSPA is a
single proprietorship owned and operated by Felipe Bacani. Hence
its debts and obligations were the personal obligations of its owner.
Petitioners' claim which are based on these debts and personal
obligations, did not survive the death of Felipe Bacani on January
15, 1990 and should have been filed instead in the intestate
proceedings involving his estate.
Unless expressly assumed, labor contracts are not enforceable
against the transferee of an enterprise. The reason for this is that
labor contracts are in personam. Consequently, it has been held
that claims for backwages earned from the former employer cannot
be filed against the new owners of an enterprise. Nor is the new
operator of a business liable for claims for retirement pay of
employees.
Petitioners claim, however, that BSPA was intentionally retired in
order to allow expansion of its business and even perhaps an
increase in its capitalization for credit purpose. According to them,
the Bacani family merely continued the operation of BSPA by
creating BASEC in order to avoid the obligations of the former.
Petitioners anchor their claim on the fact that Felipe Bacani, after
having ceased to operate BSPA, became an incorporator of BASEC
together with his wife and daughter. Petitioners urge piercing the
veil of corporate entity in order to hold BASEC liable for BSPA's
obligations.
The doctrine of piercing the veil of corporate entity is used
whenever a court finds that the corporate fiction is being used to
defeat public convenience, justify wrong, protect fraud, or defend
crime, or to confuse legitimate issues, or that 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.5 It is apparent, therefore, that
the doctrine has no application to this case where the purpose is
not to hold the individual stockholders liable for the obligations of
the corporation but, on the contrary, to hold the corporation liable
for the obligations of a stockholder or stockholders. Piercing the veil
of corporate entity means looking through the corporate form to
the individual stockholders composing it. Here there is no reason to
pierce the veil of corporate entity because there is no question that
petitioners' claims, assuming them to be valid, are the personal
liability of the late Felipe Bacani. It is immaterial that he was also a
stockholder of BASEC.
2. NO.
For one, BASEC came into existence before BSPA was retired as a
business concern. BASEC was incorporated on October 26, 1989 and
its license to operate was released on May 28, 1990, while BSPA
ceased to operate on December 31, 1989. Before, BSPA was retired,
BASEC was already existing. It is, therefore, not true that BASEC is a
mere continuity of BSPA.
Second, Felipe Bacani was only one of the five (5) incorporators of
BASEC. He owned the least number of shares in BASEC, which
included among its incorporators persons who are not members of
his family. That his wife Lydia and daughter Alicia were also
incorporators of the same company is not sufficient to warrant the
conclusion that they hold their shares in his behalf.
Third, there is no evidence to show that the assets of BSPA were
transferred to BASEC. If BASEC was a mere continuation of BSPA, all
or at least a substantial part of the latter's assets should have found
their way to BASEC.
Neither can respondent Alicia Bacani be held liable for BSPA's
obligations. Although she was Executive Directress of BSPA, she was
merely an employee of the BSPA, which was a single proprietorship.
Now, the claims of petitioners are actually money claims against the
estate of Felipe Bacani. They must be filed against his estate in
accordance with Sec. 5 of Rule 86.
FRAUD CASES
ARANETA v. TUASON
 Paz Tuason de Paterno was the registered owner of several
parcels of land in Sta. Mesa, Manila. The lots were
subdivided and were occupied by tenants who had lease
contracts where it was stipulated that in the event the
owner and lessor should decide to sell the property, the
lessees were to be given priority over other buyers if they
should desire to buy their leaseholds, all things being equal.
The properties were also mortgaged to Jose Vidal.
 Tuason later decided to sell the subject property to plaintiff
Gregorio Araneta, Inc. They executed an agreement to buy
and sell. This contract provided that subject to the
preferred right of the lessees and that of Jose Vidal as
mortgagee, Paz Tuason would sell to Gregorio Araneta, Inc.
and the latter would buy for the said amount of P400,000
the entire estate.
 Some of the lessees exercised their right to purchase their
respective leaseholds. An absolute deed of sale was then
executed by the parties over the remaining lots.
  The day after the consummation of the sale, Tuason
tendered payment to Vidal by offering the check drawn by
Araneta, Inc. Vidal refused to accept the payment, alleging
that according to the Agreement, payment of the mortgage
was not to be effected totally or partially before the end of
four years from April, 1943.
 Thus, Tuason, with the help of her attorney Ponce Enrile,
commenced an action against Vidal to compel the latter to
accept payment.
 The action was never tried and all the records, including the
checks, were lost during the war.
 After the war, the value of the property increased
tremendously. Tuason is now repudiating the agreement to
buy and sell amd the absolute deed of sale.
 Araneta, Inc. filed the present action to compel Tuason to
deliver clear title to the lots subject of the sale free from all
liens and encumbrances. It also seeks the cancellation of
the mortgage to Vidal.
 In ruling in favor of Tuason, the trial court based its decision
on the alleged variance between the terms of the
agreement to buy and sell and the absolute deed of sale.
ISSUE: WON the sale to Araneta Inc. is valid.
HELD: YES.
 It is argued that the sale is invalid because Jose Araneta was
both the defendant’s agent and the President of Araneta,
Inc. Evidence show that Jose Araneta was referred to as
“defendant’s agent or broker ‘who acts in this transaction’”,
entitled to a commission of 5%. Tuason would have the SC
pierce the veil of corporate fiction in this case. There is,
however, no basis for the application of the rule.
 Araneta, Inc. had long been engaged in the real estate
business. Clearly, it was not constituted merely to
circumvent the prohibition of the old CC. The principle
invoked by defendant is applicable only as a measure of
protection against deceit and not to open the door to
deceit.
 The corporate theory aside, granting that the two entities
are in fact identical, the relation between Tuason and
Araneta still did not fall within the prohibition found in Art.
1459, Old Civil Code.
o The rationale behind the prohibition rests in the
fact that both the agent and the principal form one
juridical person.
o Using the test of trust and confidence, it can be
seen that Jose Araneta was nothing more than a
middleman between the defendant and purchaser.
o He was not to sell and did not sell the property. He
was not authorized to enter into a contract on
behalf of Tuason.
 Tuason likewise claims that the sale was effected through
fraud as the document was written in English, a language
she did not understand. Had she known how one-sided its
provisions were, she would not have affixed her signature
thereto. Court finds this hard to believe as she had an able
attorney who assisted her throughout the proceedings.
Further, her suit against Vidal was instituted precisely to
enforce the provisions of the sale. Also, she had a son who
 was “a leading citizen and businessman.” He took active
part in the negotiations that led to the execution of the sale.
 NOTE: One of the conditions in the agreement to buy and
sell is that the deed of sale is to be executed only when
Tuason has already determined which lots she can validly
dispose of. After the lessees exercised their right to
repurchase, she was already in a position to sell the
remaining lots.
 NOTE: Tuason offered to pay the loans before they fell due,
but Vidal refused to accept payment because he wanted
interest to accrue. Two checks were tendered to Vidal—one
for P143,150 (covering the principal) and P30,000 (penalty).
Penalty clause embodied in the Agreement: such penalty
takes the place of interest in the event the mortgagor
chooses to pay before the due date. To say, as Vidal says,
that the debtor could not pay the mortgage within four
years and, at the same time, that there would be penalty if
she paid after that period, would be a contradiction.
G.R. No. L-15121 August 31, 1962
GREGORIO PALACIO, in his own behalf and in behalf of his minor
child, MARIO PALACIO, plaintiffs-appellants, vs. FELY
TRANSPORTATION COMPANY, defendant-appellee.
 On December 1952, a child, Mario Palacio, got run over by
Alfredo Carillo, a driver of Fely Transportation, causing the
child to sustain simple fracture.
o NOTE: Alfredo was hired sometime December,
1952; the accident happened on December 24,
1952.
 As such, Mario’s father, Gregorio Palacio, filed a complaint
for moral damages against Fely Transportation. Alfredo
meanwhile got convicted and had served his sentence prior
to the institution of the case against Fely Transportation.
 Fely Transportation, on its part, alleged that (1) that
complaint states no cause of action against defendant, and
(2) that the sale and transfer of the jeep AC-687 by Isabelo
Calingasan to Fely Transportation was made on December
24, 1955, long after Alfredo Carillo of said jeep had been
convicted and had served his sentence, in which both the
civil and criminal cases were simultaneously tried by
agreement of the parties in said case.
 It appears that during the trial of the criminal case against
Alfredo, an attempt was unsuccessfully made by the
prosecution to prove moral damages allegedly suffered by
Gregorio Palacio.
 On the basis of these facts, the lower court held action is
barred by the judgment in the criminal case and, that under
Article 103 of the RPC, the person subsidiarily liable to pay
damages is Isabel Calingasan, the employer, and not the
defendant corporation.
 The Palacios now contend that Fely Transportation should
be made subsidiarily liable for damages in the criminal case
because the sale to it of the jeep in question, after the
conviction of Alfredo was merely an attempt on the part of
Isabelo Calingasan its president and general manager, to
evade his subsidiary civil liability.
ISSUE: WON Fely Transportation should be held subsidiarily liable to
the Palacios.
HELD: YES.  NOTE: The present action is not barred by the jugdement in
the criminal case. The plaintiffs are insisting the subsidiary
 Isabelo Calingasan and defendant Fely Transportation may civil liability of the defendant. As a matter of fact, the record
be regarded as one and the same person. It is evident that shows that plaintiffs merely presented the transcript of the
Isabelo Calingasan's main purpose in forming the stenographic notestaken at the hearing of the criminal case,
corporation was to evade his subsidiary civil liability1 which Gregorio Palacio corroborated, in support of their
resulting from the conviction of his driver, Alfredo Carillo. claim for damages. This rules out the defense of res
This conclusion is borne out by the fact that the
judicata, because such liability proceeds precisely from the
incorporators of the Fely Transportation are Isabelo judgment in the criminal action, where the accused was
Calingasan, his wife, his son, Dr. Calingasan, and his two found guilty and ordered to pay an indemnity in the sum
daughters. We believe that this is one case where the
P500.00.
defendant corporation should not be heard to say that it
 NOTE: Apparently, as a result of the reckless driving of
has a personality separate and distinct from its members
accused Alfredo Carillo, Gregorio’s child Mario was injured
when to allow it to do so would be to sanction the use of
and hospitalized from December 24, 1952, to January 8,
the fiction of corporate entity as a shield to further an end
1953; that before his child was injured, he used to earn
subversive of justice. Furthermore, the failure of the
P10.00 a day on ordinary days and on Sundays from P20 to
defendant corporation to prove that it has other property
P50 a Sunday; that to meet his expenses he had to sell his
than the jeep driven by Alfrredo (AC-687) strengthens the
compressor and electric drill for P150 only; and that they
conviction that its formation was for the purpose above
could have been sold for P300 at the lowest price.
indicated.
 While it is true that Isabelo Calingasan is not a party in this
case, yet,the Court can substitute him in place of the
defendant corporation as to the real party in interest. This is
so in order to avoid multiplicity of suits and thereby save
the parties unnecessary expenses and delay.
 Accordingly, defendants Fely Transportation and Isabelo
Calingasan should be held subsidiarily liable for P500.00
which Alfredo Carillo was ordered to pay in the criminal
case and which amount he could not pay on account of
insolvency.