PIERCING THE VEIL OF CORPORATE FICTION simulated hence they were defrauded; that through Bormaheco’s
machinations, Mauricia was fooled into entering into a surety
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
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
applying some parts thereof for the payment of the premium – and
this was agreed upon beforehand.
Further, piercing the veil of corporate fiction is not the proper
remedy in order that the foreclosure conducted by ICP be declared
a nullity. The nullity may be attacked directly without disregarding
the separate identity of the corporations involved. Further still,
Umali et al are not enforcing a claim against the individual members
of the corporations. They are not claiming said members to be
liable. Umali et al are merely questioning the validity of the
foreclosure.
The veil of corporate fiction can’t be pierced also by the simple
reason that the businesses of two or more corporations are
interrelated, absent sufficient showing that the corporate entity was
purposely used as a shield to defraud creditors and third persons of
their rights. In this case, there is no justification for disregarding
their separate personalities.
KOPPEL vs. YATCO
 Koppel Industrial Car and Equipment company (KICE), a
foreign company not doing business in the Philippines,
owned 995 shares out of the 1000 shares that comprise the
capital stock of KPI, a domestic corporation licensed as
commercial broker in the Philippines.
 The remaining 5 shares were owned by each of the officers
of KPI. KICE is in the business of selling railway materials,
machineries and supplies. Buyers in the Philippines, when
interested, asked for price quotations from KPI, and KPI
then cabled for the quotation desired from KICE.
 However, KPI quoted to the purchaser a selling price above
the figures quoted by KICE. On the basis of these
quotations, orders were placed by the local buyers.
Between KICE and KPI, the arrangement nonetheless was
that KICE controls how much share of the profits goes to
KPI. For these transactions, the BIR treated KPI as a
subsidiary of KICE and collected from KPI the merchants’
sales tax, which was a revenue law in force at the time the
sales took place.
 KPI paid the taxes under protest, demanded for refund and
contended that KPI could not be liable for merchants’ sales
tax because it was only acting as broker between KICE and
the local buyers. The lower court dismissed the complaint
and ruled in favor of the government.
ISSUE: WON KPI is a domestic corporation distinct and separate
from, and not a mere branch of KICE
HELD: NO.
 Koppel Philippines is a mere branch, subsidiary or agency of
the latter.A corporation will be looked upon as a legal entity
as a general rule, and until sufficient reason to the contrary
appears; but, when the notion oflegal entity is used to
defeat public convenience, justify wrong, protect fraud, or
defend crime, the lawwill regard the corporation as an
association of persons.
 The corporate entity is disregarded where it is so organized
and controlled, and its affairs are so conducted, as to make
it merely an instrumentality, agency, conduit or adjunct of
another corporation.
 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.
G.R. No. 110358 November 9, 1994
QUINTIN ROBLEDO, MARIO SINLAO, LEONARDO SAAVEDRA,
VICENTE SECAPURI, DANIEL AUSTRIA, ET AL., petitioners, vs. THE
NATIONAL LABOR RELATIONS COMMISSION, BACANI SECURITY
AND ALLIED SERVICES CO., INC., AND BACANI SECURITY AND
PROTECTIVE AGENCY AND/OR ALICIA BACANI, respondents.
Petitioners were former employees of BSPA. They were employed
as security guards at different times during the period 1969 to
December 1989 when BSPA ceased to operate.
BSPA was a single proprietorship owned, managed and operated by
the late Felipe Bacani. It was registered with the Bureau of Trade
and Industry as a business name in 1957. Upon its expiration, the
registration was renewed on July 1, 1987 for a term of five (5) years
ending 1992.
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
LYDIA BACANI — 25,250 shares
AMADO P. ELEDA — 25,250 shares
VICTORIA B. AURIGUE — 25,250 shares
FELIPE BACANI — 20,000 shares
The primary purpose of the corporation was to "engage in the
business of providing security" to persons and entities. This was the
same line of business that BSPA was engaged in. Most of the
petitioners, after losing their jobs in BSPA, were employed in BASEC.
On July 5, 1990, some of the petitioners filed a complaint with the
DOLE for underpayment of wages and nonpayment of overtime pay,
legal holiday pay, separation pay and/or retirement/resignation
benefits, and for the return of their cash bond which they posted
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.
 Isabelo Calingasan and defendant Fely Transportation may
be regarded as one and the same person. It is evident that
Isabelo Calingasan's main purpose in forming the
corporation was to evade his subsidiary civil liability1
resulting from the conviction of his driver, Alfredo Carillo.
This conclusion is borne out by the fact that the
incorporators of the Fely Transportation are Isabelo
Calingasan, his wife, his son, Dr. Calingasan, and his two
 daughters. This is one case where the defendant
corporation should not be heard to say that it has a
personality separate and distinct from its members when 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. Furthermore, the failure of the defendant
corporation to prove that it has other property than the
jeep driven by Alfrredo (AC-687) strengthens the conviction
that its formation was for the purpose above 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.
 NOTE: The present action is not barred by the jugdement in
the criminal case. The plaintiffs are insisting the subsidiary
civil liability of the defendant. As a matter of fact, the record
shows that plaintiffs merely presented the transcript of the
stenographic notestaken at the hearing of the criminal case,
which Gregorio Palacio corroborated, in support of their
claim for damages. 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
P500.00.
 NOTE: Apparently, as a result of the reckless driving of
accused Alfredo Carillo, Gregorio’s child Mario was injured
and hospitalized from December 24, 1952, to January 8,
1953; that before his child was injured, he used to earn
P10.00 a day on ordinary days and on Sundays from P20 to
P50 a Sunday; that to meet his expenses he had to sell his
compressor and electric drill for P150 only; and that they
could have been sold for P300 at the lowest price.
G.R. No. L-56076 September 21, 1983
PALAY, INC. and ALBERT ONSTOTT, petitioner, vs. JACOBO C.
CLAVE, Presidential Executive Assistant NATIONAL HOUSING
AUTHORITY and NAZARIO DUMPIT respondents.
 Palay, Inc., through its President, Albert Onstott executed in
favor of Nazario Dumpit a Contract to Sell a parcel of Land
payable in installments. (Sale price: P23K)
 Paragraph 6 of the contract provided for automatic
extrajudicial rescission upon default in payment of any
monthly installment after the lapse of 90 days from the
expiration of the grace period of one month, without need
of notice and with forfeiture of all installments paid.
 Dumpit paid the downpayment and several installments
amounting to P13,722.50. Almost 6 years later, Heoffered
to update all his overdue accounts with interest, and sought
the written consent of Palay Inc. to the assignment of his
rights to a certain Lourdes Dizon.
 Palay Inc. then informed Dumpit that his Contract to Sell
had long been rescinded pursuant to paragraph 6 of the
contract, and that the lot had already been resold.
  Questioning the validity of the rescission of the contract,
respondent filed a letter complaint with the NHA. The latter
found the rescission void in the absence of either judicial or
notarial demand. It held Palay, Inc. and Alberto Onstott
jointly and severally liable to Dumpit (P13,722.50).
ISSUE: WON it is correct to hold Onsott solidarily liable with Palay
Inc.
HELD: NO.
 As a general rule, a corporation may not be made to answer
for acts or liabilities of its stockholders or those of the legal
entities to which it may be connected and vice versa.
However, the veil of corporate fiction may be pierced when
it is used as a shield to further an end subversive of justice ;
or for purposes that could not have been intended by the
law that created it ; or to defeat public convenience, justify
wrong, protect fraud, or defend crime; or to perpetuate
fraud or confuse legitimate issues; or to circumvent the law
or perpetuate deception; or as an alter ego, adjunct or
business conduit for the sole benefit of the stockholders.
 There are no badges of fraud on the part of Palay Inc. And
Onsott. They had merely relied, albeit mistakenly, on
paragraph 6 of its contract with Dumpit when they
rescinded the contract to sell extrajudicially and had sold it
to a third person.
 No sufficient proof exists that Onsott used the corporation
to defraud Dumpit. 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.
 NOTE: Judicial action for the rescission of a contract is not
necessary where the contract provides that it may be
revoked and cancelled for violation of any of its terms and
conditions. However, even in the cited cases, there was at
least a written notice sent to the defaulter informing him of
the rescission. In other words, the party who deems the
contract violated may consider it resolved or rescinded, and
act accordingly, without previous court action, but it
proceeds at its own risk. For it is only the final judgment of
the corresponding court that will conclusively and finally
settle whether the action taken was or was not correct in
law.
 NOTE: ART. 1385: Rescission creates the obligation to
return the things which were the object of the contract,
together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged
to restore.
G.R. No. 89879 April 20, 1990
JAIME PABALAN AND EDUARDO LAGDAMEO, petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER
AMBROSIO B. SISON, ELIZABETH RODEROS, ET AL., and THE
SHERIFF OF THE NATIONAL LABOR RELATIONS COMMISSION,
respondents.
  On October 20, 1987, 84 workers of the Philippine Inter-
Fashion, Inc. filed a complaint against the latter for illegal
transfer simultaneous with illegal dismissal. Jaime Pabalan
and Eduardo Lagdameo were likewise impleaded as officers
of the PIF.
 The LA ruled in favor of the workers, ordering PFI, Pabalan
and Lagdameo to reinstate the said workers and solidarily
pay their backwages andother benefits. NLRC affirmed.
ISSUE: WON it is correct to hold Pabalan and Lagdameo solidarily
liable with PIF.
HELD: NO.
 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 as a means 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.
 There is no finding as to why petitioners were being held
jointly and severally liable for the liability and obligation of
the corporation except as to invocation of the ruling of this
Court in A.C. Ransom Labor Union-CCLU vs. NLRC in that the
liability in the cases of illegal termination of employees
extends not only to the corporation as a corporate entity
but also to its responsible officers acting in the interest of
the corporation or employer. It must be noted, however,
that i the cited case, the corporation was a family
corporation and that during the strike the members of the
family organized another corporation which was the Rosario
Industrial Corporation to which all the assets of the A.C.
Ransom Corporation were transferred to continue its
business. Ransom Corporation were intended to avoid
payment of its obligations to its employees. Not one of the
above circumstances has been shown to be present in the
case at bar.
 NOTE: When the notion of legal entity is used as a means 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.
G.R. No. 85416 July 24, 1990
FRANCISCO V. DEL ROSARIO, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and LEONARDO V. ATIENZA,
respondents.
 POEA promulgated a decision dismissing the complaint of
Leonardo Atienza for money claims against Philsa, as
recruiter, and Arieb Enterprises, as foreign employer. The
NLRC reversed the POEA decision and ordered Philsa and
Arieb to solidarily pay Atienza the peso equivalent of
$16,039.00, as salary differentials, and $2,420.03, as
vacation leave benefits. The NLRC decision was affirmed
ultimately by the SC.
 A writ of execution was then 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 Fransisco Del Rosario, the president and
general manager of the corporation. The POEA nonetheless
issued a an alias writ against Del Rosario.
 NLRC affirmed. Such decision is founded primarily on the
findings of the POEA that Philsa Construction & Trading Co.,
Inc., represented by Del Rosario, was formerly a registered
construction contractor but was already delisted from the
list of agencies/entities for inactivity. However, it appears
that there is another corporation in the name of Philsa
International Placement & Services Corp., composed of
practically the same set of incorporators/stockholders and
was registered as a licensed private employment agency.
The NLRC also applied in the present case the ruling of the
Court in A.C. Ransom Labor Union-CCLU v. NLRC.
ISSUE: WON there was a grave abuse of discretion on the part of
NLRC when it affirmed the issuance of an alias writ of execution
against Del Rosario.
HELD: NO.
 For the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and
convincingly established. It cannot be presumed.
 In this regard we find the NLRC's decision wanting. The
conclusion that Philsa allowed its license to expire so as to
evade payment of the claim of Alvarez is not supported by
the facts. Philsa's corporate personality therefore remains
inviolable.
 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 Atienza. 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 the second Philsa as a
private employment agency imply fraud since it was
organized and registered in 1981, several years before
Alvarez filed his complaint with the POEA in 1985. The
creation of the second corporation could not therefore have
been in anticipation of Alvarez's money claims and the
consequent adverse judgment against Philsa. Substantial
identity of the incorporators of the two corporations does
not necessarily imply fraud.
 The ruling in A. C. Ransom is also inapplicable to this case.
The distinguishing marks of fraud were therefore clearly
apparent in A. C. Ransom. In the present case, not only has
there been a failure to establish fraud, but it has also not
been shown that petitioner is the corporate officer
responsible for Alvarez's predicament. It must be
emphasized that the claim for differentials and benefits was
actually directed against the foreign employer. Philsa
became liable only because of its undertaking to be
solidarily bound with the foreign employer.
 NOTE: Consider the following undisputed facts:
1. Alvarez filed his complaint with the POEA on June 4,
1985;
2. The last renewal of Philsa's license expired on
October 12, 1985;
 3. The POEA dismissed Alvarez’s complaint on
February 4, 1986;
4. Philsa was delisted for inactivity on August 15,
1986;
5. The dismissal of the complaint was appealed to the
NLRC and it was only on April 30, 1987 that the
judgment awarding differentials and benefits to
Alvarez was rendered.
 NOTE: A judgment against a recruiter should initially be
enforced against the cash and surety bonds filed with the
POEA. These bonds do not answer for a single specific
liability, but for all sorts of liabilities of the recruiter to the
worker and to the POEA. Moreover, the bonds are subject
to replenishment when they are garnished, and failure to
replenish shall cause the suspension or cancellation of the
recruiter's license. Furthermore, a cash bond shall be
refunded to a recruiter who surrenders his license only
upon posting of a surety bond of similar amount valid for 3
years. All these, to ensure recovery from the recruiter.
VILLA REY TRANSIT vs.EUSEBIO E. FERRER
 Jose Villarama was an operator of a bus transportation
pursuant to two certificates of public convenience granted
him by the PSC.
 Later, he sold the certificates to Pantranco with the
condition that the seller (Villarama) "shall not for a period
of 10 years, apply for any TPU service identical or competing
with the buyer."
 Barely three months thereafter, Villa Rey Transit, Inc. was
organized. Natividad Villarama (wife of Jose Villarama) was
one of the incorporators, and she subscribed for P1,000.00;
the balance of P199,000.00 was subscribed by the brother
and sister-in-law of Jose Villarama; of the subscribed capital
stock, P105,000.00 was paid to the treasurer of the
corporation, Natividad.
 In less than a month after its registration with the SEC, the
Corporation bought five certificates of public convenience
and 49 buses from one Valentin Fernando. Later, the Sheriff
of Manila levied on 2 of the 5 certificates, in favor of
Eusebio Ferrer, judgment creditor, against Fernando,
judgment debtor. A public sale was conducted. Ferrer was
the highest bidder. Ferrer sold the two certificates to
Pantranco.
 Villa Rey Transit then filed a complaint against Ferrer,
Pantranco and the PSC for the annulment of the sheriff's
sale. Pantranco, on its part, filed a third-party complaint
against Villarama, alleging that Villarama and/or the
Corporation was disqualified from operating the two
certificates in question by virtue of the previous agreement.
The trial court declared null and void the sheriff's sale of
two certificates of public convenience in favor of Ferrer and
the subsequent sale thereof by the latter to Pantranco and
declaring Villa Rey Transit, Inc., to be the lawful owner of
the said certificates of public convenience.
 Pantranco disputes the correctness of the decision insofar
as it holds that Villa Rey Transit, Inc. (Corporation) is a
distinct and separate entity from Villarama. Ferrer, for his
 part, challenges the decision insofar as it holds that the  The doctrine that a corporation is a legal entity distinct and
sheriff's sale is null and void. separate from the members and stockholders who compose
it is recognized and respected in all cases which are within
ISSUE: WON the stipulation between Villarama and Pantranco binds
reason and the law. When the fiction is urged as a means of
Villa Rey Transit.
perpetrating a fraud or an illegal act or as a vehicle for the
HELD: YES. evasion of an existing obligation, the circumvention of
statutes, the achievement or perfection of a monopoly or
 The restrictive clause in the contract entered into by the generally the perpetration of knavery or crime, the veil with
Villarama and Pantranco is also enforceable and binding which the law covers and isolates the corporation from the
against the said Corporation. The rule is that a seller or members or stockholders who compose it will be lifted to
promisor may not make use of a corporate entity as a allow for its consideration merely as an aggregation of
means of evading the obligation of his covenant. The individuals.
evidence has disclosed that Villarama, albeit was not an
incorporator or stockholder of the Corporation, his wife,
however, was an incorporator and was elected treasurer of
the Corporation. The evidence further shows that the initial
cash capitalization of the corporation was mostly financed
by Villarama; he supplied the organization expenses and the
assets of the Corporation, such as trucks and equipment;
there was no actual payment by the original subscribers of
the amounts of P95,000.00 and P100,000.00 as appearing in
the books; Villarama made use of the money of the
Corporation and deposited them to his private accounts;
and the Corporation paid his personal accounts. The
foregoing circumstances are strong persuasive evidence
showing that Villarama has been too much involved in the
affairs of the Corporation to altogether negate the claim
that he was only a part-time general manager. They show
beyond doubt that the Corporation is his alter ego.