1. LANUZA VS BF CORP. G.R. NO.

174938
FACTS:
In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against
Shangri-La and the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco,
Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos.
BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it
entered into agreements with Shangri-La wherein it undertook to construct for Shangri-La a
mall and a multilevel parking structure along EDSA.Shangri-La had been consistent in
paying BF Corporation in accordance with its progress billing statements. However, by
October 1991, Shangri-La started defaulting in payment. BF Corporation alleged that
Shangri-La induced BF Corporation to continue with the construction of the buildings using
its own funds and credit despite Shangri-La’s default. According to BF Corporation,
Shangri-La misrepresented that it had funds to pay for its obligations with BF Corporation,
and the delay in payment was simply a matter of delayed processing of BF Corporation’s
progress billing statements. BF Corporation eventually completed the construction of the
buildings. Shangri-La allegedly took possession of the buildings while still owing BF
Corporation an outstanding balance. BF Corporation alleged that despite repeated demands,
Shangri-La refused to pay the balance owed to it.It also alleged that the Shangri-La’s
directors were in bad faith in directing Shangri-La’s affairs. Therefore, they should be held
jointly and severally liable with Shangri-La for its obligations as well as for the damages that
BF Corporation incurred as a result of Shangri-La’s default. On August 3, 1993, Shangri-La,
Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and Benjamin C. Ramos filed
a motion to suspend the proceedings in view of BF Corporation’s failure to submit its
dispute to arbitration, in accordance with the arbitration clause provided in its contract.
Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that
they be excluded from the arbitration proceedings for being non-parties to Shangri-La’s and
BF Corporation’s agreement.

ISSUE: Whether or not petitioners as directors of Shangri-La is personally liable for the
contractual obligations entered into by the corporation.

HELD:
No. Because a corporation’s existence is only by fiction of law, it can only exercise its rights
and powers through its directors, officers, or agents, who are all natural persons. A
corporation cannot sue or enter into contracts without them.

A consequence of a corporation’s separate personality is that consent by a corporation

through its representatives is not consent of the representative, personally. Its obligations,
incurred through official acts of its representatives, are its own. A stockholder, director, or
representative does not become a party to a contract just because a corporation executed a
contract through that stockholder, director or representative. Hence, a corporation’s
representatives are generally not bound by the terms of the contract executed by the
corporation. They are not personally liable for obligations and liabilities incurred on or in
behalf of the corporation.

A submission to arbitration is a contract. As such, the Agreement, containing the stipulation

on arbitration, binds the parties thereto, as well as their assigns and heirs.
When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons and
the corporation should be treated as one. Without a trial, courts and tribunals have no basis
for determining whether the veil of corporate fiction should be pierced. Courts or tribunals
do not have such prior knowledge. Thus, the courts or tribunals must first determine whether
circumstances exist to warrant the courts or tribunals to disregard the distinction between the
corporation and the persons representing it. The determination of these circumstances must
be made by one tribunal or court in a proceeding participated in by all parties involved,
including current representatives of the corporation, and those persons whose personalities
are impliedly the same as the corporation. This is because when the court or tribunal finds
that circumstances exist warranting the piercing of the corporate veil, the corporate
representatives are treated as the corporation itself and should be held liable for corporate
acts. The corporation’s distinct personality is disregarded, and the corporation is seen as a
mere aggregation of persons undertaking a business under the collective name of the
corporation.

A corporation is an artificial entity created by fiction of law. This means that while it is not a
person, naturally, the law gives it a distinct personality and treats it as such. A corporation,
in the legal sense, is an individual with a personality that is distinct and separate from other
persons including its stockholders, officers, directors, representatives, and other juridical
entities. The law vests in corporations’ rights, powers, and attributes as if they were natural
persons with physical existence and capabilities to act on their own. For instance, they have
the power to sue and enter into transactions or contracts. Section 36 of the Corporation Code
enumerates some of a corporation’s powers, thus:

Section 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 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 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 its articles of incorporation.
2. PACIFIC REHOUSE CORP VS CA, G.R. NO. 199687

FACTS
A complaint was instituted with the Makati City Regional Trial Court (RTC), Branch 66,
against EIB Securities Inc. (E–Securities) for unauthorized sale of 32,180,000 DMCI shares
of Pacific Rehouse Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc.,
Forum Holdings Corporation, and East Asia Oil Company, Inc. In its October 18, 2005
Resolution, the RTC rendered judgment on the pleadings, directing the E–Securities to
return to the petitioners 32,180,000 DMCI shares, as of judicial demand. On the other hand,
petitioners are directed to reimburse the defendant the amount of [P]10,942,200.00,
representing the buy back price of the 60,790,000 KPP shares of stocks at [P]0.18 per share.
The Resolution was ultimately affirmed by the Supreme Court and attained finality.

When the Writ of Execution was returned unsatisfied, petitioners moved for the issuance of
an alias writ of execution to hold Export and Industry Bank, Inc. liable for the judgment
obligation as E–Securities is “a wholly–owned controlled and dominated subsidiary of
Export and Industry Bank, Inc., and is[,] thus[,] a mere alter ego and business conduit of the
latter. E–Securities opposed the motion[,] arguing that it has a corporate personality that is
separate and distinct from the respondent.

The RTC eventually concluded that E–Securities is a mere business conduit or alter ego of
petitioner, the dominant parent corporation, which justifies piercing of the veil of corporate
fiction, and issued an alias writ of summons directing defendant EIB Securities, Inc.,
and/or Export and Industry Bank, Inc., to fully comply therewith. It ratiocinated that being
one and the same entity in the eyes of the law, the service of summons upon EIB Securities,
Inc. (E–Securities) has bestowed jurisdiction over both the parent and wholly–owned
subsidiary.

Export and Industry Bank, Inc. (Export Bank) filed before the Court of Appeals a petition
for certiorari with prayer for the issuance of a temporary restraining order (TRO) seeking the
nullification of the RTC Order. The Court of Appeals reversed the RTC Order and explained
that the alter ego theory cannot be sustained because ownership of a subsidiary by the parent
company is not enough justification to pierce the veil of corporate fiction. There must be
proof, apart from mere ownership, that Export Bank exploited or misused the corporate
fiction of E–Securities. The existence of interlocking incorporators, directors and officers
between the two corporations is not a conclusive indication that they are one and the
same. The records also do not show that Export Bank has complete control over the business
policies, affairs and/or transactions of E–Securities. It was solely E–Securities that
contracted the obligation in furtherance of its legitimate corporate purpose; thus, any fall out
must be confined within its limited liability.

ISSUE: Whether or not E-Securities is merely an alter ego of Export Bank so that “piercing
the veil of corporate fiction” is proper.

RULING
NO. An alter ego exists where one corporation is so organized and controlled and its affairs
are conducted so that it is, in fact, a mere instrumentality or adjunct of the other. The control
necessary to invoke the alter ego doctrine is not majority or even complete stock control but
 such domination of finances, policies and practices that the controlled corporation has, so to
speak, no separate mind, will or existence of its own, and is but a conduit for its principal.

The Court has laid down a three–pronged control test to establish when the alter ego doctrine
should be operative:
 Control, not mere majority or complete stock control, but complete domination, not only of
finances but 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;
 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; and
 The aforesaid control and breach of duty must [have] proximately caused 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. Hence, all three elements should concur for the alter ego doctrine to be applicable.
In this case, the alleged control exercised by Export Bank upon its subsidiary E–Securities,
by itself, does not mean that the controlled corporation is a mere instrumentality or a
business conduit of the mother company. Even control over the financial and operational
concerns of a subsidiary company does not by itself call for disregarding its corporate
fiction. There must be a perpetuation of fraud behind the control or at least a fraudulent or
illegal purpose behind the control in order to justify piercing the veil of corporate fiction.
Such fraudulent intent is lacking in this case.

While the courts have been granted the colossal authority to wield the sword which pierces
through the veil of corporate fiction, concomitant to the exercise of this power, is the
responsibility to uphold the doctrine of separate entity, when rightly so; as it has for so long
encouraged businessmen to enter into economic endeavors fraught with risks and where only
a few dared to venture.

The decision of the Court of Appeals in favor of Export Bank (reversing the RTC Order) is
affirmed.
3. GENERAL CREDIT CORP VS ALSON DEVELOPMENT AND
INVESTMENT CORP. G.R. NO. 154975
FACTS:
Petitioner General Credit Corporation (GCC), then known as Commercial Credit
Corporation (CCC), established CCC franchise companies in different urban centers of the
country. In furtherance of its business, GCC was able to secure license from Central Bank
(CB) and SEC to engage also in quasi-banking activities.
On the other hand, respondent CCC Equity Corporation (EQUITY) was organized in by
GCC for the purpose of, among other things, taking over the operations and management of
the various franchise companies. At a time material hereto, respondent Alsons Development
and Investment Corporation (ALSONS) and the Alcantara family, each owned, just like
GCC, shares in the aforesaid GCC franchise companies, e.g., CCC Davao and CCC Cebu.
ALSONS and the Alcantara family, for a consideration of P2M, sold their shareholdings
(101,953 shares), in the CCC franchise companies to EQUITY. EQUITY issued ALSONS et
al., a “bearer” promissory note for P2M with a one-year maturity date.
4 years later, the Alcantara family assigned its rights and interests over the bearer note to
ALSONS which became the holder thereof. But even before the execution of the assignment
deal aforestated, letters of demand for interest payment were already sent to EQUITY.
EQUITY no longer then having assets or property to settle its obligation nor being extended
financial support by GCC, pleaded inability to pay.
ALSONS, having failed to collect on the bearer note aforementioned, filed a complaint for a
sum of money against EQUITY and GCC. GCC is being impleaded as party-defendant for
any judgment ALSONS might secure against EQUITY and, under the doctrine of piercing
the veil of corporate fiction, against GCC, EQUITY having been organized as a tool and
mere conduit of GCC.
According to EQUITY (cross-claim against GCC): it acted merely as intermediary or bridge
for loan transactions and other dealings of GCC to its franchises and the investing public;
and is solely dependent upon GCC for its funding requirements. Hence, GCC is solely and
directly liable to ALSONS, the former having failed to provide …EQUITY the necessary
funds to meet its obligations to ALSONS. GCC filed its ANSWER to Cross-claim, stressing
that it is a distinct and separate entity from EQUITY.
RTC, finding that EQUITY was but an instrumentality or adjunct of GCC and considering
the legal consequences and implications of such relationship, rendered judgment for Alson.
CA affirmed.
ISSUE: Whether or not the doctrine of “Piercing the Veil of Corporate Fiction” should be
applied in the case at bar.
RULING:
YES. The notion of separate personality, however, may be disregarded under the doctrine –
“piercing the veil of corporate fiction” – as in fact the court will often look at the corporation
as a mere collection of individuals or an aggregation of persons undertaking business as a
group, disregarding the separate juridical personality of the corporation unifying the group.
Another formulation of this doctrine is that when two (2) business enterprises are owned,
conducted and controlled by the same parties, both law and equity will, when necessary to
protect the rights of third parties, disregard the legal fiction that two corporations are distinct
entities and treat them as identical or one and the same.
Authorities are agreed on at least three (3) basic areas where piercing the veil, with which
the law covers and isolates the corporation from any other legal entity to which it may be
related, is allowed. These are:
1) defeat of public convenience, as when the corporate fiction is used as vehicle for the
evasion of an existing obligation;
2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or
3) alter ego cases, where a corporation is merely a farce since it is a 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.
The Court agrees with the disposition of the CA on the application of the piercing doctrine to
the transaction subject of this case. Per the Court’s count, the trial court enumerated no less
than 20 documented circumstances and transactions, which, taken as a package, indeed
strongly supported the conclusion that respondent EQUITY was but an adjunct, an
instrumentality or business conduit of petitioner GCC. This relation, in turn, provides a
justifying ground to pierce petitioner’s corporate existence as to ALSONS’ claim in
question.
Foremost of what the trial court referred to as “certain circumstances” are the commonality
of directors, officers and stockholders and even sharing of office between petitioner GCC
and respondent EQUITY; certain financing and management arrangements between the two,
allowing the petitioner to handle the funds of the latter; the virtual domination if not control
wielded by the petitioner over the finances, business policies and practices of respondent
EQUITY; and the establishment of respondent EQUITY by the petitioner to circumvent CB
rules.
Verily, indeed, as the relationships binding herein [respondent EQUITY and petitioner
GCC] have been that of “parent-subsidiary corporations” the foregoing principles and
doctrines find suitable applicability in the case at bar; and, it having been satisfactorily and
indubitably shown that the said relationships had been used to perform certain functions not
characterized with legitimacy, this Court … feels amply justified to “pierce the veil of
corporate entity” and disregard the separate existence of the parent and subsidiary the latter
having been so controlled by the parent that its separate identity is hardly discernible thus
becoming a mere instrumentality or alter ego of the former.
 4. INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO VS CALICA G.R.
NO. 96490

FACTS:
Indophil Textile Mill Workers Union-PTGWO is a legitimate labor organization and the
exclusive bargaining agent of all the rank-and-file employees of Indophil Textile Mills,
Incorporated. Teodorico P. Calica is the Voluntary Arbitrator of the National Conciliation and
Mediation Board of the Department of Labor and Employment, while Indophil Textile Mills,
Inc. is a corporation engaged in the manufacture, sale and export of yarns of various counts and
kinds and of materials of kindred character.
Indophil Textile Mill Workers Union-PTGWO and Indophil Textile Mills, Inc. executed a
collective bargaining agreement.7 months later, Indophil Acrylic Manufacturing Corporation
was formed and registered with the Securities and Exchange Commission (different from
above Indophil Textile). Acrylic applied for registration with the Board of Investments for
incentives under the 1987 Omnibus Investments Code. The application was approved on a
preferred non-pioneer status.
Acrylic became operational and hired workers according to its own criteria and standards. The
workers of Acrylic unionized and a duly certified collective bargaining agreement was
executed. A year after, the union claimed that the plant facilities built and set up by Acrylic
should be considered as an extension or expansion of the facilities of Indophil Textile
Mills pursuant to Section 1(c), Article I of the CBA. In other words, it is the Union’s contention
that Acrylic is part of the Indophil bargaining unit. The union alleged that:
1. Both corporations are engaged in the same line of business.
2. Both have their physical plants, offices and facilities in the same compound.
3. Many of Indophil Textile’s machines were transferred and installed and were being used in
Acrylic.
4. Services of a number of units, departments and sections were being provided to Acrylic.
5. Employees of Indophil Textile were the same persons manning and servicing Acrylic.
Indophil Textile opposed, saying it was a juridical entity separate and distinct from Acrylic. It
argued through the SolGen that Acrylic was not an alter ego or an adjunct or business conduit
of Indophil Textile Mills because it had a separate business purpose. Indophil Textile engaged
in the business of manufacturing yarns of various counts and kinds and textiles., while Acrylic
manufactured, bough, sold, at wholesale basis, bartered, imported, exported and otherwise dealt
in yarns of various counts and kinds. Acrylic cannot manufacture textiles while Indophil cannot
buy or import yarns.
The existing impasse led the parties to enter into a submission agreement. The parties jointly
requested Calica to act as voluntary arbitrator in the resolution of the pending labor dispute
pertaining to the proper interpretation of the CBA provision. Calica ruled that the proper
interpretation and application of Sec. 1, (c), Art. I of the 1987 CBA does not extend to the
employees of Acrylic as an extension or expansion of Indophil Textile Mills, Inc.
ISSUE:
Whether or not the operations in Indophil Acrylic Corporation an extension or expansion of
Indophil Textile Mills.
RULING:
NO, they were separate corporations. The CBA did not apply to Acrylic.
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.
o In such cases, the corporation will be considered as a mere association of persons.
o The members or stockholders or 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.
In the case at bar, the union seeks to pierce the veil of corporate entity of Acrylic, alleging that
the creation of the corporation is a devise to evade the application of the CBA between the
Union and Indophil Textile. While the Court does not discount the possibility of the similarities
of the businesses of Indophil Textile Mills and Acrylic, neither is it inclined to apply the
doctrine invoked by the union in granting the relief sought.
The fact that the businesses of Indophil Textile and Acrylic are related, that some of the
employees of Indophil Textile are the same persons manning and providing for auxiliary
services to the units of Acrylic, and that the physical plants, offices and facilities are situated in
the same compound, it is the Court’s opinion that these facts are not sufficient to justify the
piercing of the corporate veil of Acrylic.
Although it was shown that the two corporations’ businesses are related, that some of the
employees of the two corporations are interchanged, and that the physical plants, offices, and
facilities, are situated in the same compound, were not considered sufficient bases to pierce the
veil in order to treat the two corporations as one bargaining unit. 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.
 5. FRANCISCO MOTORS VS CA, G.R. NO. 100812

FACTS:
Francisco Motors filed a complaint against Spouses Gregorio and Librada Manuel to
collect the balance of the jeep body purchased by the Manuels from petitioner, and the unpaid
balance for the cost of repair of the vehicle.
Respondent interpose a counterclaim of an unpaid legal services by Gregorio which was not
paid by the incorporators, directors and officers of petitioner corporation. He alleged as an
affirmative defense that, while he was petitioners Assistant Legal Officer, he represented
members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad.
However, even after the termination of the proceedings, his services were not paid. Said family
members, he said, were also incorporators, directors and officers of petitioner. Hence to counter
petitioner’s collection suit, he filed a permissive counterclaim for the unpaid attorneys’ fees.
As to the issue of attorney’s fees, corporation argued that being a corporation, it should
not be held liable for the fees owned by its incorporators, directors and officers in their personal
capacity as heirs of Benita Trinidad. The personality of corporation is separate and distinct from
its officers.
ISSUE: Whether there is valid ground to pierce the veil of the corporate fiction
HELD:
No. Piercing the veil of corporate fiction has no application in this case. In the present
case, it appeared that the corporation is being held liable for the responsibilities of individuals
or persons. It is the petitioner as a corporation which is being ordered to answer for the personal
liability of certain individual directors, officers and incorporators concerned. Hence, it appears
to us that the doctrine has been turned upside down because of its erroneous invocation. Note
that according to private respondent Gregorio Manuel his services were solicited as counsel for
members of the Francisco family to represent them in the intestate proceedings over Benita
Trinidads estate. These estate proceedings did not involve any business of petitioner.
Manuels’ move to recover unpaid legal fees through a counterclaim against Francisco
Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body
could only result from an obvious misapprehension that petitioners corporate assets could be
used to answer for the liabilities of its individual directors, officers, and incorporators. Such
result if permitted could easily prejudice the corporation, its own creditors, and even other
stockholders; hence, clearly inequitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever obligation said
incorporators, directors and officers of the corporation had incurred, it was incurred in their
personal capacity. When directors and officers of a corporation are unable to compensate a
party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating
fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate veil.
6. INTERNATIONAL ACADEMY OF MANAGEMENT AND ECONOMICS
(I/AME), PETITIONER, V. LITTON AND COMPANY, INC. GR No. 191525
FACTS:
Atty. Emmanuel T. Santos (Santos), a lessee to two buildings owned by Litton, owed the
latter rental arrears as well as his share of the payment of realty taxes. Consequently, Litton
filed a complaint for unlawful detainer against Santos before the MeTC of Manila. The
MeTC ordered Santos to vacate A.I.D. Building and Litton Apartments and to pay various
sums of money.
It appears however that the judgment was not executed. Litton subsequently filed an action
for revival of judgment, which was granted by the RTC. Santos then appealed the RTC
decision to the CA, which nevertheless affirmed the RTC. The said CA decision became
final and executory.
The sheriff of the MeTC of Manila levied on a piece of real property registered in the name
of International Academy of Management and Economics Incorporated (I/AME), in order to
execute the judgment against Santos. The annotations on said property indicated that such
was “only up to the extent of the share of Emmanuel T. Santos.”
I/AME filed with MeTC a Motion to Lift or Remove Annotations. I/AME claimed that it has
a separate and distinct personality from Santos; hence, its properties should not be made to
answer for the latter’s liabilities. The motion was denied.
Upon motion for reconsideration of I/AME, the MeTC reversed its earlier ruling and ordered
the cancellation of the annotations of levy as well as the writ of execution. Litton then
elevated the case to the RTC, which in turn reversed the Order granting I/AME’s motion for
reconsideration.
I/AME then filed a petition with the CA to contest the judgment of the RTC, which was
eventually denied by the appellate court.

ISSUE: Whether it is proper for the court to pierce the corporate veil of I/AME and its
property to answer for the liability of Santos.

RULING:
Piercing the corporate veil may apply to non-stock corporations.
In the United States, from which we have adopted our law on corporations, non-profit
corporations are not immune from the doctrine of piercing the corporate veil. Their courts
view piercing of the corporation as an equitable remedy, which justifies said courts to
scrutinize any organization however organized and in whatever manner it operates.
Piercing the corporate veil may apply to natural persons:
a) When the corporation is the alter ego of a natural person
The piercing of the corporate veil may apply to natural persons involved with corporations.
Corporate mask may be lifted and the corporate veil may be pierced when a corporation is
just but the alter ego of a person or of another corporation.
b) Reverse piercing of the corporate veil
In a reverse piercing action, the plaintiff seeks to reach the assets of a corporation to satisfy
claims against a corporate insider. Reverse-piercing flows in the opposite direction of
traditional corporate veil-piercing and makes the corporation liable for the debt of the
shareholders.
It has two types: outsider reverse piercing and insider reverse piercing. Outsider reverse
piercing occurs when a party with a claim against an individual or corporation attempts to be
repaid with assets of a corporation owned or substantially controlled by the defendant. In
contrast, in insider reverse piercing, the controlling members will attempt to ignore the
corporate fiction in order to take advantage of a benefit available to the corporation, such as
an interest in a lawsuit or protection of personal assets.
7. PNB VS RITRATTO GROUP, G.R. NO. 142616

FACTS:
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL), a subsidiary company of
PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the
respondents in the amount of US$300,000.00 secured by real estate mortgages constituted
over four (4) parcels of land in Makati City. This credit facility was later increased
successively to US$1,140,000.00 in September 1996; to S$1,290,000.00 in November 1996;
to US$1,425,000.00 in February 1997; and decreased to  S$1,421,316.18 in April 1998.
Respondents made repayments of the loan incurred by remitting those amounts to their loan
account with PNB-IFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70.
Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact
PNB, notified the respondents of the foreclosure of all the real estate mortgages and that the
properties subject thereof was to be sold at a public auction on May 27, 1999 at the Makati
City Hall.
On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance
of a writ of preliminary injunction and/or temporary restraining order before the Regional
Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati issued a
72-hour temporary restraining order.
PNB-IFL is a wholly owned subsidiary of defendant Philippine National Bank, the suit
against the defendant PNB is a suit against PNB-IFL. 

ISSUE:
Whether or not respondents justified the act of the court a quo in applying the doctrine of
"Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a
business conduit of PNB-IFL?

HELD:
No.
Herein petitioner is an agent with limited authority and specific duties under a special power
of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts
entered into by respondents and PNB-IFL.
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 may be respected, and the liability of the parent
corporation as well as the subsidiary will be confined to those arising in their respective
business.
As a general rule the 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.
8. ARANETA VS PAZ TUASON DE PATERNO, G.R. NO. L-2886
9. TRADERS ROYAL BANK VS CA, G.R. NO. 93397

FACTS:
Nature of the Case: Petition for Review on Certiorari. CA affirmed the nullity of the transfer
of Central Bank Certificate of Indebtedness (CBCI) No. D891,2 with a face value of Php
500,000.00 from the Philippine Underwriters Finance Corporation (Phil Finance) to
Petitioner Trader's Royal Bank (TRB) under a Repurchase Agreement and a Detached
Assignment. Filriters Guaranty Assurance Corporation (filters) is the owner of the Central
Bank Certificate of Indebtednes (CBCI) No. D891 worth Php500, 000.00 which was
transferred to Philippine Underwriters Finance Corporation (PhilFinance) through a Deed of
Assignment. Subsequently Phil finance transferred the said instrument (still registered under
the name of flirters) to Traders Royal Bank (TRB). It was made through a Repurchase
Agreement. Phil finance defaulted in its obligation to TRB. It then executed a Deed of
Assignment to TRB. TRB then notified the Central Bank (Security Servicing Department) to
cause the transfer and registration of the CBCI No. D891 under its name. It was however
refused to do so in lieu of an adverse claim filed by Filters. The Court of Appeals held that
the CBCI is not a negotiable instrument. It is clearly stated that it was payable to flirters. The
certificate lacked the words of negotiability which serve as an expression of consent that the
instrument may be transferred by negotiation. The assignment of Filters to Phil finance was
also null and void because it was made without consideration. It also did not conform to the
Central Bank Circular No. 769, series of 1980 - Rules and Regulations Governing Central
Bank Certificates of Indebtedness. It provides that any assignment of registered certificates
shall not be valid unless made by the registered owner thereof in person or by his
representative duly authorized in writing. Alfredo O. Banaria (who signed the deed of
assignment) did not have the necessary written authorization from the Board of Directors of
flirters. For lack of such authority, the assignment did not bind flirters and violated the
Central Bank Circular (No. 769) which has the force and effect of a law. For such violations,
Phil finance acquired no title or rights under CBCI No. D891 which it could assign or
transfer to TRB, and which TRB can register with the Central Bank. On petition, TRB
argued that Phil finance owns 90% of Flirter’s equity and the two corporations have identical
corporate officers, thus demanding the application of piercing the veil of corporate fiction to
give validity to the transfer of the CBCI from filters to TRB.

ISSUE:
Was the transfer of the CBCI from Filriters to PhilFinance and subsequently from
PhilFinance to TRB, in accordance with existing law, so as to entitle TRB to have the CBCI
registered in its name with the Central Bank?
RULING:
Corporation Law; Piercing the Veil of Corporate Fiction; Piercing the veil of corporate
entity requires the court to see through the protective shroud which exempts its stockholders
from liabilities that ordinarily, they could be subject to, or distinguishes one corporation
from a seemingly separate one, were it not for the existing corporate fiction.—Petitioner
cannot put up the excuse of piercing the veil of corporate entity, as this is merely an
equitable remedy, and may be awarded only in cases when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a person. Piercing the veil of corporate
entity requires the court to see through the protective shroud which exempts its stockholders
from liabilities that ordinarily, they could be subject to, or distinguishes one corporation
from a seemingly separate one, were it not for the existing corporate fiction. But to do this,
the court must be sure that the corporate fiction was misused, to such an extent that injustice,
fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is
the protection of the interests of innocent third persons dealing with the corporate entity
which the law aims to protect by this doctrine. Filriters and PhilFinance remains separate.
Same; Same; Mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities.—Though it is true that when
valid reasons exist, the legal fiction that a corporation is an entity with a juridical personality
separate from its stockholders and from other corporations may be disregarded, in the
absence of such grounds, the general rule must be upheld. The fact that Philfinance owns
majority shares in Filriters is not by itself a ground to disregard the independent corporate
status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, the mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself a sufficient reason for disregarding the fiction of
separate corporate personalities. TRB was not defrauded at all when it acquired the CBCI
from PhilFinance. Same; Same; An entity which deals with corporate agents within
circumstances showing that the agents are acting in excess of corporate authority may not
hold the corporation liable.—Petitioner, being a commercial bank, cannot feign ignorance of
Central Bank Circular 769, and its requirements. An entity which deals with corporate
agents within circumstances showing that the agents are acting in excess of corporate
authority, may not hold the corporation liable. This is only fair, as everyone must, in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith. TRB knew that PhilFinance is not the registered
owner of CBCI No. D891. The fact that a non-owner is disposing of the registered CBCI
owned by another entity was a good reason for the petitioner to verify or inquire as to the
title of Philfinance to dispose of the CBCI. Moreover the said instrument is governed by the
rules and regulations of the Central Bank. Alfredo O. Banaria did not have the necessary
authorization from the Board of Directors of Filriters to bind it. Lastly, Filriters acquired the
CBCI to form part of its legal and capital reserves required by law. Insurance companies are
required to put up a legal reserve equivalent to 40 percent of the premiums receipt. The
Insurance Commission requires this reserve to be invested preferably in government
securities or government bonds. Therefore, the said CBCI cannot be taken out of the said
fund, without violating the requirements of the law. The unauthorized use or distribution of
the same by a corporate officer of Filriters, cannot bind the corporation, not without the
approval of its Board of Directors, and the maintenance of the required reserve fund.
Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld
over the claimed interest of TRB.
10. BOYER-ROXAS VS CA, G.R. NO. 100866