GREGORIO ARANETA, INC. vs.

PAZ TUASON DE PATERNO and JOSE VIDAL

SUMMARY: Gregorio Araneta Inc filed an action to compel Paz Tuason to deliver to it, a clear title to the
lots described in Exhibit A free from all liens and encumbrances, and a deed of cancellation of the
mortgage. Paz Tuason argues that the Deed of Absolute Sale (Exhibit A) executed between her, and
Gregorio Araneta Inc. is not valid as it is in violation of Article 1459 which provides that an agent cannot
buy property under his management. She avers that Jose Araneta, Araneta Inc’s President is her agent;
that Gregorio Araneta Inc. and Jose Araneta are identical invoking the principle of equity to disregard
the fiction of corporate entity; and thus, Gregorio Araneta Inc. cannot validly purchase her property. SC:
Jose Araneta is not Tuason’s agent but is a broker.

DOCTRINE: [A broker] is “nothing more than a go-between or middleman between the defendant and
the purchaser, bringing them together to make the contract themselves. There was no confidence to be
betrayed [since the broker] was not authorized to make a binding contract for the [purported principal].
He was not to sell, and he did not sell the property. He was to look for a buyer and the owner herself
was to make, and did make, the sale. He was not to fix the price of the sale because the price had been
already fixed in his commission. He was not to make the terms of payment because these, too, were
clearly specified in his commission. In fine, [the broker] was left no power or discretion whatsoever,
which he could abuse to his advantage and to the owner's prejudice.

PARTIES:

• Paz Tuason: Mortgagor, Seller, Alleged Principal

• Jose Vidal: Mortgagee

• Jose Araneta: Alleged Agent, President of Gregorio Araneta Inc.

• Gregorio Araneta Inc.: Buyer

FACTS:

• Paz Tuason de Paterno is the registered owner of a 40,703 sq.m. big block of residential land in the
district of Santa Mesa, Manila which was subdivided into city lots.

• Most of these lots were occupied by lessees who had contracts of lease which were to expire on Dec.
31,1952 and carried a stipulation 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.

• Paz Tuason obtained from Jose Vidal several loans totaling P90,098 and constituted a first mortgage on
the aforesaid property to secure the debt. She obtained additional loans of P30,000 and P20,000 upon
the same security.

o Each time, the previous contract of mortgage was renewed, and the amounts received were
consolidated.

o in the first novated contract (Jan. 1943), the time of payment was fixed at 2 years and in the second
(April 1943) at 4 years.
o There was also a separate written agreement entitled "Penalidad del Documento de Novacion de Esta
Fecha" ("Penalty Document Novation of This Date) which, unlike the principal contracts, was not
registered.

• Paz Tuason decided to sell the entire property for the net amount of P400,000 and entered
negotiations with Gregorio Araneta, Inc. for this purpose.

• Oct. 19, 1943: Contract called "Promesa de Compra y Venta" ("Promise to Buy and Sell" also Exhibit 1)
was executed. It is 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 under these terms.

• For the Tenants:

o 40% paid together with the letter of acceptance of the tenant

o 20 % at the execution of deed of sale agreement (Contract to Sell??)

o 40% at the execution of deed of final sale, which will be granted after the mortgage has been canceled

o Par. 8: 5% commission corresponding to Jose Araneta will be paid at the execution of the deed of sale
agreement

He was referred to as defendant's agent or broker "who acts in this transaction" and who as such was
to receive a commission of 5 per cent, although the commission was to be charged to the purchasers

o Par. 13: Paz Tuason promised, in consideration of Jose Araneta's services rendered to her, to assign to
him all her right, title and interest to and in certain lots not embraced in the sales to Gregorio Araneta,
Inc. or the tenants

o at the expiry of the period (Dec. 31,1952), Paz Tuason will grant the corresponding deeds of sale to
tenants who have decided to buy their lots.

o Any tenant who decides to buy the lot may choose to order the immediate execution in his favor of
Deed of Final Sale if 50% of the price besides the 40% included in his letter of acceptance was paid and
the remaining 10% paid immediately after mortgage was canceled

• For Gregorio Araneta Inc:

o Paz Tuason, acknowledges receipt of P190, 000 as an advance of the sale price from Gregorio Araneta,
Inc.

o the amount that Paz Tuason receives in this act will be applied to pay her debt to Jose Vidal

o the lots which were not bought by the lessees will immediately be sold in favor of Gregorio Araneta,
Inc.

o Gregorio Araneta, Inc., to pay the sale price as follows: 90% of upon execution of Deed of Final Sale
discounting

P190,000 already paid at the Execution of this Contract. Remaining 10% will be paid once the mortgage
over property was canceled
o If P190, 000 exceeds the 90% of the price to be paid by Gregorio Araneta Inc., the balance will be paid
immediately by Paz Tuazon, taking it from the amounts received from tenants on the sale of the lots

• Letters were sent the lessees giving them until Aug. 31, 1943, an option to buy the lots they occupied,
at the price and terms stated in said letters. Most took advantage of the opportunity and after making
the stipulated payments were given their deeds of conveyance.

• In the end, Lots 1, 8-16 and 18 (aggregate area of 14,810.20 sq.m.) remained unencumbered, except
for the mortgage to Jose Vidal.

• Dec. 2, 1943: Paz Tuason and Gregorio Araneta, Inc. executed about these lots an ABSOLUTE?? DEED
OF SALE (Exhibit A) the terms of which, except in two respects, were like those of the sale to the lessees

o Price: P139,083.32 (90% is P125,174.99)

o Paz (Vendor) having received P190,000 from Gregorio, Inc (Vendee) upon the execution of "Promesa
de Compra y Venta, returned the excess balance of P64,825.01

 P190,000 was delivered by the Vendee to the Vendor by virtue of 4 checks issued by the Gregorio Inc.
against BPI – 1 in favor of Paz (P13,476.62), 2 in favor of Jose Vidal (P143,150 + 30,000), 1 in favor of City
Treasurer (3,373.38)

 Nov. 2, 1943: The return of P64,825.01 was made by Paz to Gregorio Inc. liquidated as follows:
Payments from tenants Dumas, Sycip, Pabalan, del Rosario amounted to P68,563.21 from which 5%
commissions of de Pabalan, Tuason, Dumas amounting to 3,244.97 and check to Paz amounting to
493.23 were deducted

o in view of the foregoing liquidation, the vendor acknowledges fully and unconditionally, having
received P125,174.99 of the present legal currency and hereby expressly declares that she will not hold
the Vendee responsible for any loss that she might suffer since 2 of the checks paid to her by the
Vendee were issued in favor of Jose Vidal and the latter has, up to the present time, not yet collected
the same.

o 10% balance of the purchase price (P13,908.33) not yet paid will be paid by the Vendee to the Vendor
when the existing mortgage over the property sold by the Vendor to the Vendee is duly cancelled in the
office of the Register of Deeds, or sooner at the option of the Vendee.

• Oct. 20, 1943: Before the execution of this Absolute deeds of Sale, Paz Tuason had already offered to
Vidal the check for P143,150 mentioned in Exhibit A, in full settlement of her mortgage obligation

o Vidal refused to receive that check or to cancel the mortgage, contending that by the separate
agreement before mentioned payment of the mortgage was not to be affected totally or partially before
the end of 4 years from April 1943.

• Oct.-Nov. 1943: Paz Tuason, through Atty. Enrile, commenced an action against Vidal but the record of
that case was destroyed, and no copy of the complaint was presented in evidence.

o They deposited with the clerk of court a check for P143,150 previously turned down by Vidal, another
certified check for P12,932.61, also drawn by Gregorio Araneta, Inc., in favor of Vidal, and one ordinary
check for P30,000 issued by Paz Tuazon.
o 3 checks were supposed to cover the whole indebtedness to Vidal including the principal and interest
up to that time and the penalty provided in the separate agreement.

o the action against Vidal never came on for trial and the record and the checks were destroyed during
the war operations in Jan. or Feb. 1945; and neither was the case reconstituted afterward.

• This failure of the suit for the cancellation of Vidal's mortgage, coupled with the destruction of the
checks tendered to the mortgagee, the nullification of the bank deposit on which those checks had been
drawn, and the tremendous rise of real estate value following the termination of the war, gave occasion
to the breaking off the schemes outlined in Exhibits 1 and A

• Paz Tuason, after liberation, repudiated them for certain reasons. She alleges that Exhibit A is not valid
because:

o There are discrepancies between the Promise to Buy and Sell (Exhibit 1) and Absolute Deed of Sale
(Exhibit A)

 Exhibit 1, under par. 8, there was to be no absolute sale to Gregorio Araneta, Inc., unless Vidal's
mortgage was cancelled.

 Exhibit A had no counterpart in Exhibit 1 by which Gregorio Araneta Inc. would hold Paz Tuason liable
for the lost checks. No person in his or her right senses would knowingly have agreed to a covenant so
iniquitous and unreasonable.

o There was undue rush on the part of Gregorio Inc., to push across the sale.

o Paz Tuason was deceived into signing

 Attys. Salvador Araneta and J. Antonio Araneta of Araneta & Araneta, who had drawn Exhibit A, did
not inform her about its contents

 Being English, she had not read the deed of sale; that if she had not trusted the said attorneys, she
would not have been so foolish as to affix her signature to a contract so one-sided.

o technical objections are made against the deed of sale.

 Jose Araneta, since deceased, was defendant's agent and at the same time the president of Gregorio
Araneta, Inc.

 The law firm of Araneta & Araneta who represent Gregorio Araneta, Inc. were her attorneys also.

• Gregorio Araneta, Inc. thus filed an action to compel Paz Tuason to deliver to the plaintiff a clear title
to the lots described in Exhibit A free from all liens and encumbrances, and a deed of cancellation of the
mortgage to Vidal.

• Vidal was summoned by order of the court and filed a crossclaim against Paz Tuazon to foreclose his
mortgage.

MAIN ISSUE 1: Whether the deed of sale (Exhibit A) is valid despite:

c) Being a sale between the agent and his principal? (Jose Araneta is not an agent of Tuason but a
BROKER, Deed of Sale valid)
RULING

JOSE ARANETA: NOT AGENT BUT BROKER

• Paz Tuazon: Gregorio Inc.’s President, Jose Araneta is Tuazon’s agent and applying the principle stated
in 18 C.J.S. 380: "The courts, at law and in equity, will disregard the fiction of corporate entity apart from
the members of the corporation when it is attempted to be used as a means of accomplishing a fraud or
an illegal act”, Jose Araneta and Gregorio Inc. is one and the same.

Thus, Gregorio cannot buy Tuazon’s property.

• TC: Jose Araneta, Gregorio Inc’s President, was not Paz Tuason's agent or broker. However,
hypothetically admitting the existence of an agency relation between Paz Tuason and Jose Araneta,
Gregorio Araneta, Inc. was the purchaser and not Jose Araneta citing the well-known distinction
between the corporation and its stockholders. The sale to Gregorio Araneta, Inc. was not a sale to Jose
Araneta, the agent or broker.

• SC as to TC Ruling: TC disregarded evidence. In par. 8 of Exhibit 1, Jose Araneta was referred to as

Tuason’s agent or broker "who acts in this transaction" and who as such was to receive a commission of
5 %, while in par. 13, Tuason promised, in consideration of Jose Araneta's services rendered to her, to
assign to him all her right, title and interest to and in certain lots not embraced in the sales to Gregorio
Araneta, Inc. or the tenants.

• SC as to Corporate Theory: This principle does not fit in with the facts of the case. Gregorio Araneta,
Inc. entered the contract for itself and for its benefit as a corporation. The contract and the roles of the
parties who participated therein were exactly as they purported to be and were fully revealed to the
seller. There is no pretense, nor is there reason to suppose that if Paz Tuason had known Jose Araneta to
be Araneta, Inc's president, she would not have gone ahead with the deal. It would have made no
difference, except for the brokerage fee, whether Gregorio Araneta, Inc. or Jose Araneta was the
purchaser.

• SC Relation bet. Tuason & Araneta: Not w/n Art. 1459: Granting Jose & G.A. Inc. were identical and
that the acts of one where the acts of the other, the relation between Tuason and Jose Araneta did not
fall within the purview of article 1459 of the Spanish Civil Code.

o Art. 1459. The following persons cannot take by purchase, even at a public or judicial auction, either in
person or through the mediation of another: An agent, any property of which the management or sale
may have been entrusted to him

• Agency is defined in article 1709 in broad terms, and we have not come across any commentary or
decision dealing directly with the precise meaning of agency as employed in article 1459.

o Manresa’s Opinion: Agent, in the sense there used, is one who accepts another's representation to
perform in his name certain acts of transcendency.

o Scaevola’s Opinion: The agent's incapacity to buy his principal's property rests in the fact that the
agent and the principal form one juridical person. In this connection, the fear that greed might get the
better of the sentiments of loyalty and disinterestedness which should animate an administrator or
agent, is the reason underlying various classes of incapacity enumerated in article 1459.
o American Courts: The law does not trust human nature to resist the temptations likely to arise of
antagonism between the interest of the seller and the buyer.

• The ban of par. 2 of Art. 1459 connotes the idea of trust and confidence; and so, where the
relationship does not involve considerations of good faith and integrity the prohibition should not and
does not apply. To come under the prohibition, the agent must be in a fiduciary with his principal.

CASE AT BAR (Parang what is a broker):

• Tested by this standard, Jose Araneta was not an agent within the meaning of article 1459. He was to
be nothing more than a go-between or middleman between the defendant and the purchaser, bringing
them together to make the contract themselves. There was no confidence to be betrayed.

• Jose Araneta was not authorized to make a binding contract for the defendant. He was not to sell, and
he did not sell the defendant's property. He was to look for a buyer and the owner herself was to make,
and did make, the sale.

• He was not to fix the price of the sale because the price had been already fixed in his commission. He
was not to make the

terms of payment because these, too, were clearly specified in his commission.

• In fine, Jose Araneta was left no power or discretion whatsoever, which he could abuse to his
advantage and to the owner's prejudice.
+
 Palacio v. Fely Transportation Company
Subject Matter: The Corporate Entity; Piercing the Corporate Veil

Summary: Isabelo Calingasan, with his family, incorporated Fely Transportation Company. Their driver,
Alfredo Carillo, ran over and caused injuries to Mario Palacio. Carrillo was convicted and sentenced with
civil liability in a criminal case. Gregorio Palacio, Mario’s father, sued Fely separately for civil liability. CFI
dismissed the complaint and the appeal to the CA was certified to SC since it raises purely questions of
law. Fely contended that at the time of the accident, Calingasan was the owner of the jeep thus the
complaint for civil liability should be dismissed. SC held that in this case, Calingasan & Fely can be
regarded as one and same person as it appears that Calingasan incorporated Fely in order to evade his
subsidiary liability as Carrillo’s employer. CFI decision reversed and Calingasan and Fely were ordered to
pay civil liability to the Palacios.

Doctrines: Fiction of corporate entity not to be used to evade liability. –Where the main purpose in
forming the corporation was to evade one's subsidiary liability for damages in a criminal case, the
corporation may not be heard to say that it has a personality separate and distinct from its members,
because to allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to
further an end subversive of justice.

Parties:

Plaintiff-appellants Gregorio Palacio, in his own behalf and on behalf of his minor child, Mario Palacio

Defendant-appellee Fely Transportation Company

Facts:

Appeal by the plaintiffs from the CFI’s dismissal of their complaint. Originally taken to the CA, this appeal
was certified to this Court on the ground that it raises purely questions of law.

1. December 1952–Fely Transportation Company (Fely) hired Alfredo Carillo as driver of jeep AC-687
owned & operated by Fely.

2. Dec. 24, 1952, 11:30am–Carrillo ran over Mario Palacio in a negligent, reckless, and imprudent
manner while he was driving at Halcon Street, QC.

3. Mario Palacio suffered a simple fracture of the right tremor, hospitalizing him at the Philippine
Orthopedic Hospital from Dec. 24, 1952, to Jan. 8, 1953, and continued to be treated for a period of 5
months after.

4. Gregorio Palacio is a welder and owns a small welding shop and had to abandon his shop because of
the injuries of his child (income of P10.00/ordinary day & P20 to P50 on Sundays). During the treatment
of Mario, in order to support his family, Gregorio was forced to sell one air compressor (heavy duty) &
one heavy duty electric drill for a sacrifice sale of P150.00 which could easily sell at P350.00.
5. May 19, 1954, complaint -Damages: Because of the negligent act of Carillo, plaintiffs were forced to
litigate for an agreed amount of P300.00 for attorney’s fee; and plaintiffs incurred the amount of
P500.00 for actual expenses for transportation, representation, and gathering evidence & witnesses.
And that because of the nature of the injuries of plaintiff Mario, and the fear that the child might
become a useless invalid, the herein plaintiff Gregorio Palacio has suffered moral damages which could
be conservatively estimated at P1,200.00.

6.May 23, 1956–Fely filed a Motion to Dismiss on the ff. grounds:

(1) that there is no cause of action against the defendant company, and

(2) that the cause of action is barred by prior judgment. The court deferred judgment on the Motion to
Dismiss until the trial of the case.

7.Answer of Fely (June 20, 1956):

a. complaint states no cause of action against defendant

b. sale & transfer of jeep by Isabelo Calingasan to Fely was made on Dec. 24, 1955, long after driver
Carillo was convicted and served his sentence in a criminal case (CFI QC), where both civil and criminal
cases were simultaneously tried by agreement of the parties in said case.

c. Fely also alleges that filing of this complaint was clearly meant to harass it and thus it was forced to
engage the services of a lawyer for P500.00.

8.Transcript of the trial of the criminal case show that plaintiffs were unsuccessful in proving the moral
damages incurred and the actual damages in connection with the case.

Dispositive of the criminal case:

Carillo guilty beyond reasonable doubt of the crime charged in the information and he is hereby
sentenced to suffer imprisonment for a period of 2 Months & 1 Day of Arresto Mayor; to indemnify the
offended party, by way of consequential damages, in the sum of P500.00 which the Court deems
reasonable; with subsidiary imprisonment in case of insolvency but not to exceed 1/3 of the principal
penalty imposed; and to pay the costs.

9.CFI–held that action is barred by the judgment in the criminal case and, that under RPC Art. 103, the
person subsidiarily liable to pay damages is Isabel Calingasan, the employer, and not the defendant
corporation (Fely).

10. It appears that Isabelo Calingasan is both the president and general manager of Fely Transportation
Company. Palacio claims that Calingasan merely incorporated Fely in order to evade his civil liability. The
incorporators of Fely are Isabelo Calingasan, his wife, his son, and his two daughters.

Issue: WON Isabelo Calingasan and Fely Transportation Company may be regarded as one and the same
person in this suit for damages? (YES) [See Others/Notes for the other issue tackled by the SC.]
Ratio:

Yes, the SC agrees with the plaintiffs’ contention that Isabelo Calingasan and defendant Fely
Transportation may be regarded as one and the same person.

1.It is evident that Calingasan's main purpose in forming the corporation was to evade his subsidiary civil
liability resulting from the conviction of his driver, Carillo. The incorporators of Fely are Calingasan’s
family members.

2. Allowing Fely to claim a personality separate and distinct from its members would be to sanction the
use of the fiction of corporate entity as a shield to further an end subversive of justice.

3. Furthermore, the failure of the defendant corporation to prove that it has other property than the
jeep (AC-687) strengthens the conviction that its formation was for the purpose above indicated.

4. Even though Calingasan is not a party in this case, it has been previously held by the Court in Alonso v.
Villamor, that it is possible to 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.

5. 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.

Dispositive: CFI QC decision REVERSED, and defendants Fely & Isabelo Calingasan are ordered to pay,
jointly and severally, the plaintiffs the amount of P500.00 and the costs.

Others/Notes:

Another issue: WON the present action is barred by the judgment of the CFI QC in the criminal case?
(NO)-While there seems to be some confusion on the part of the plaintiffs as to the theory on which the
case is based—whether ex-delito or quasi ex-delito (culpa aquiliana), the Court is convinced, from the
discussion and prayer in the brief on appeal, that they are insisting on the subsidiary civil liability of the
defendant.-This rules out the defense of res judicata, because such liability proceeds precisely from the
judgment in the criminal action, where the accused was found guilty and ordered to pay an indemnity in
the sum of P500.00.
 Palay, Inc. v Clave
Petitioner: Palay, Inc and Albert Onstott

Respondents: Jacobo Clave, National Housing Authority, and Nazario Dumpit

Concept: The Corporate Entity

Brief Facts:

Palay Inc and its President Onstott executed a Contract to Sell a Parcel of Land in favor of respondent
Dumpit. Par 6 thereof provides for the automatic extrajudicial rescission upon default of payment of the
monthly installments. Dumpit defaulted. 6 years later, he wrote Palay that he is planning to update all
his overdue accounts, but the latter informed him that the contract was rescinded and that the land was
already sold to a third party. Dumpit filed a complaint, questioning the validity of the rescission. The
NHA and the Office of the President ruled that such was void for lack of judicial or notarial demand.

Doctrine:

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. Mere ownership by a single
stockholder or by another corporation is not of itself sufficient ground for disregarding the separate
corporate personality.

FACTS:

1. March 28, 1965 – Palay Inc through its President Albert Onstott, executed a “Contract to Sell a Parcel
of Land” in favor of Nazario Dumpit.

- Sale price was P23,300 with 9% interest per annum, payable with a down payment of P4,660
and monthly installments of P246.42 until fully paid.

2.Par 6 of their contract provided for automatic extrajudicial rescission upon default in payment of any
monthly instalment after the lapse of 90 days from the expiration of the grace period of one month,
without the need of notice and with forfeiture of all instalments paid.

3. Dumpit paid the down payment and several installments amounting to P13, 722.50. The last payment
he made was on December 5, 1967, for installments up to September 1967.

4. May 10, 1973, or 6 years later, Dumpit wrote Palay Inc, offering to update all its overdue accounts
with interest and seeking its written consent to the assignment of his rights to Lourdes Dizon.

5. June 20, 1973 – Dumpit wrote Palay again, reiterating the same request.

6. Palay replied that their Contract to Sell had already been rescinded pursuant to Par 6 of their
contract, and that the lot had already been resold to a 3rdparty.

7.Dumpit filed a letter complaint questioning the validity of the rescission of the contract with the
National Housing Authority (NHA) for reconveyance with an alternative prayer of refund.
8. NHA: found the rescission void in the absence of either judicial or notarial demand. Ordered Palay and
Onstott to refund to Dumpit P13,722.50 with12% interest from the filing of the complaint on November
8, 1974.

- Palay’s Motion for Reconsideration was denied

9. On appeal to the Office of the President: Presidential Executive Assistant affirmed the NHA
Resolution.

10. SC issued a TRO enjoining the enforcement of the resolution. On Oct 28, 1981, the SC dismissed the
petition. However, upon Palay’s motion, the SC reconsidered and gave due course to the petition.

ISSUES:

WON petitioner Onstott may be held jointly and severally liable with Palay (NO)

4. In this case, petitioner Onstott was made liable because he was then the President of the corporation
and he a to be the controlling stockholder. No sufficient proof exists on record that said petitioner used
the corporation to defraud private respondent.

-It is basic that a corporation is invested by law with a personality separate and distinct from those of
the persons composing it as wen as from that of any other legal entity to which it may be related. As a
general rule, a corporation may not be made to answer for acts or liabilities of its stockholders orthose
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.

-We find no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on
paragraph 6 of its contract with private respondent when it rescinded the contract to sell extrajudicially
and had sold it to a third person.

-In this case, petitioner Onstott was made liable because he was then the President of the corporation
and he appeared to be the controlling stockholder. No sufficient proof exists on record that said
petitioner used the corporation to defraud private respondent.

-He cannot, therefore, be made personally liable just because he "appears to be the controlling
stockholder".

-Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for
disregarding the separate corporate personality.

DISPOSITIVE: WHEREFORE, the questioned Resolution of respondent public official, dated May 2, 1980,
is hereby modified. Petitioner Palay, Inc. is directed to refund to respondent Nazario M. Dumpit the
amount ofP13,722.50, with interest at twelve (12%) percent per annum from November 8, 1974, the
date of the filing of the Complaint. The temporary Restraining Order heretofore issued is hereby lifted.
 Pabalan and Lagdameo v. NLRC
Facts:

84 workers of the Philippine Inter-Fashion (PIF) filed a complaint against the latter for illegal transfer
simultaneous with illegal dismissal in violation of the Labor Code. PIF was notified about the complaint
and summons but hearings were continually re-set for failure of its officers (petitioners herein) to
appear. Complainant workers thus moved to implead petitioners as officers of PIF in the complaint for
their illegal transfer to a new firm. The Labor Arbiter ruled in favor of workers holding petitioners-
officers jointly and severally liable with PIF to pay them their benefits. Petitioners’ appeal was dismissed.

Issue:

Whether or not petitioners as officers may be held jointly and severally liable with the corporation for its
liability.

Ruling: NO.

The settled rule is that the corporation is vested by law with a personality separate and distinct from the
persons composing it, including its officers as well as from that of any other legal entity to which it may
be related. Thus, a company manager acting in good faith within the scope of his authority in
terminating the services of certain employees cannot be held personally liable for damages. However,
the legal fiction that a corporation has a personality separate and distinct from stockholders and
members may be disregarded when the notion of legal entity is used to perpetrate fraud or an illegal act
or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, and or (to)
confuse legitimate issues the veil which protects the corporation will be lifted.

In this case complainants did not allege or show that petitioners, as officers of the corporation
deliberately and maliciously designed to evade the financial obligation of the corporation to its
employees or used the transfer of the employees to perpetrate an illegal act or as a vehicle for the
evasion of existing obligations, the circumvention of statutes, or to confuse the legitimate issues.

Not one of the above circumstances has been shown to be present. Hence petitioners cannot be held
jointly and severally liable with the PIF corporation under the questioned decision and resolution of the
public respondent.
 Del Rosario v. NLRC – G.R. No. 85416 July 24, 1990
Fact:
For a complaint of Salary differential, the private respondent filed a case against its Recruiter Petitioner
and his foreign employer. POEA dismissed the said complaint. On Appeal, the NLRC reversed the
decision of the POEA and found Recruiter Petitioner the foreign employer liable and order to pay the
said award. The case was elevated to the SC to which it affirmed the decision of the NLRC.

A writ of execution was issued by the POEA, but it was returned unsatisfied as Philsa was no longer
operating and was financially incapable of satisfying the judgment. Private respondent moved for the
issuance of an alias writ against the officers of Philsa. This motion was opposed by the officers, led by
petitioner, the president and general manager of the corporation. POEA issued a resolution issuing alias
writ of Execution against the properties of Petitioner and if insufficient, against the cash and/or surety
bond of Bonding Company concerned for the full satisfaction of the judgment awarded.
Petitioner appealed the writ to the NLRC which it denied. Petitioner when to the SC alleging that the
NLRC gravely abused its discretion. The petition was given due course.

Respondent alleged that Petitioner has 2 licenses in POEA.

1 is the Philsa Construction & Trading Co., Inc. that expired August 15, 1986 due to inactivity and
2 Philsa International Placement & Services Corp which the license was issued November 5, 1981.
NLRC conclusion that Philsa allowed its license to expire so as to evade payment of private respondent’s
claim.

Issue:
Whether the Petitioner committed fraud to evade payment which the Piercing of Veil of Corporate
fiction maybe rendered.

Held:
No, at the time Philsa allowed its license to lapse in 1985 and even at the time it was delisted in 1986,
there was yet no judgment in favor of private respondent. An intent to evade payment of his claims
cannot therefore be implied from the expiration of Philsa’s license and its delisting. Neither will the
organization of Philsa International Placement and Services Corp. and its registration with the POEA as a
private employment agency imply fraud since it was organized and registered several years before
private respondent filed his complaint with the POEA. The creation of the second corporation could not
therefore have been in anticipation of private respondent’s money claims and the consequent adverse
judgment against Philsa. Likewise, substantial identity of the incorporators of the two corporations does
not necessarily imply fraud.

In Comparison,
In La Campana has 2 Corporation with the ownership were identical to each other and the employees
were interchangeable.
In Claparols the corporation ceased to exist to avoid paying its employees an a new corporation was
created the next day which the asset of the old corporation was transferred to the new.
In Ransom, the corporation ceased to operate after a judgement was promulgated

ilide.info-corporation-law-digest-villa-rey-transit-v-ferrer-pr_b5a090214addb7ded25e51f53efebd32.pdf

Villa Rey Transit vs. Ferrer 25 SCRA 845 (1968) - PDFCOFFEE.COM

ARNOLD VS. WILLITS AND PATTERSON

Facts:

Arnold, the plaintiff and the firm, Willits & Patterson in San Francisco entered a (1st) written contract by
which the plaintiff was employed as the agent of the firm in the Philippine Islands for the operation of
an oil mill for the period of five years at a minimum salary of $200 per month and travelling expenses.
Aside from his minimum salary, it was also stated in the contract that he will receive a brokerage fee
from all his sales and other profits. Also, if the business was at a loss, Arnold would receive $400 per
month.

When Patterson retired, Willits became the sole owner of its assets. Willits organized a new corporation
by the same name in San Francisco. The new firm acquired all the assets of the former firm. He came to
Manila and organized a corporation here known as Willits & Patterson, Ltd., in and to which he again
subscribed for all the capital stock except the nominal shares necessary to qualify the directors. In legal
effect, the San Francisco corporation took over and acquired all the assets and liabilities of the Manila
corporation. Willits signed a (2nd) new contract in the form of a letter. The purpose of which was to
more clearly define and specify the compensation which the plaintiff was to receive for his services. An
accounting was done, and it showed that the corporation was due and owing the plaintiff under Exhibit
B the sum of P106, 277.50. The San Francisco corporation became involved in financial trouble, and all
its assets were turned over to a "creditors' committee." Arnold filed a complaint and contended that the
signing of the second contract in the manner and under the conditions in which it was signed, and
through the subsequent acts and conduct of the parties, was ratified and, in legal effect, became and is
now binding upon the defendant. Defendant contended that the second contract was signed but
without authority. It also alleged that Arnold owed them some money. The Court of First Instance
rendered a decision ordering Arnold to return the money to the corporation.

Issue:

WON the corporation is bound by the contracts.

Held: YES.
“Where the stock of a corporation is owned by one person whereby the corporation functions only for
the benefit of such individual owner, the corporation and the individual should be deemed to be the
same. “In the case at bar, the corporations are under Willits. When the second contract was signed,
Willits recognized that Arnold’s services were to be performed by its terms. When the new corporation
was organized and created, it still treated Arnold as its agent in the same manner as the first one. Hence,
the new corporation was bound by the contract made under the previous firm.

Dispositive: The judgment of the lower court is reversed