SECTION 2 shock.

[40] The Court of Appeals cites Mambulao Lumber

Co. v. PNB, et al.[41] to justify the award of moral damages. 
ARTIFICIAL PERSON
However, the Court’s statement in Mambulao that “a
FILIPINAS BROADCASTING NETWORK, corporation may have a good reputation which, if
INC., petitioner, vs. AGO MEDICAL AND besmirched, may also be a ground for the award of moral
EDUCATIONAL CENTER-BICOL CHRISTIAN damages” is an obiter dictum.
COLLEGE OF MEDICINE, (AMEC-BCCM) and
Nevertheless, AMEC’s claim for moral damages falls
ANGELITA F. AGO, respondents.
under item 7 of Article 2219[43] of the Civil Code.  This
Facts: provision expressly authorizes the recovery of moral
damages in cases of libel, slander or any other form of
“Exposé” is a radio documentary program hosted (“Rima”)
defamation. Article 2219(7) does not qualify whether the
and (“Alegre”). Exposé is aired every morning which is
plaintiff is a natural or juridical person. Therefore, a
owned by Filipinas Broadcasting Network, Inc. 15
juridical person such as a corporation can validly complain
December 1989, Rima and Alegre exposed various alleged
for libel or any other form of defamation and claim for
complaints from students, teachers and parents against Ago
moral damages
Medical and Educational Center-Bicol Christian College of
Medicine (“AMEC”) and its administrators.  Claiming that Moreover, where the broadcast is libelous per se, the
the broadcasts were defamatory, AMEC and Angelita Ago law implies damages.
(“Ago”), as Dean of AMEC’s College of Medicine, filed a
complaint for damages[7] against FBNI, Rima and Alegre 
The complaint further alleged that AMEC is a reputable
learning institution.  With the supposed exposés, FBNI,
Rima and Alegre “transmitted malicious imputations, and
as such, destroyed plaintiffs’ (AMEC and Ago) reputation.
Rima and Alegre, through Atty. Rozil Lozares, filed an
Answer[10] alleging that the broadcasts against AMEC were
fair and true.  FBNI, Rima and Alegre claimed that they
were plainly impelled by a sense of public duty to report
the “goings-on in AMEC, [which is] an institution imbued
with public interest.”
The Court of Appeals upheld the trial court’s ruling that the
questioned broadcasts are libelous per se and that FBNI,
Rima and Alegre failed to overcome the legal presumption
of malice.
Issue:
Whether AMEC is entitled to moral damages
Held: Petition denied
There is no question that the broadcasts were made public
and imputed to AMEC defects or circumstances tending to
cause it dishonor, discredit and contempt. Every
defamatory imputation is presumed malicious. [25] Rima and
Alegre failed to show adequately their good intention and
justifiable motive in airing the supposed gripes of the
students. Hearing the students’ alleged complaints a month
before the exposé,[27] they had sufficient time to verify their
sources and information.  However, Rima and Alegre
hardly made a thorough investigation of the students’
alleged gripes.
FBNI contends that AMEC is not entitled to moral
damages because it is a corporation.[39]
A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or moral
SEPARATE JURIDICAL PERSONALITY according to law and equity. The stockholder is not a co-
owner or tenant in common of the corporate property.
STOCKHOLDERS OF F. GUANZON & SONS, INC.
v. REGISTER OF DEEDS
It is clear that the act of liquidation made by the
Doctrine: A corporation is a juridical person distinct from
stockholders of the Petitioner is not and cannot be
the members composing it. Properties registered in the
considered a partition of community property, but rather a
name of the corporation are owned by it as an entity
transfer or conveyance of the title of its assets to the
separate and distinct from its members.
individual stockholders.
Facts:
Five stockholders of the F. Guanzon and Sons Inc.,
executed a certificate of liquidation of the assets, dissolving
the corporation and distributed among themselves in
proportion to their shareholdings, the assets of said
corporation, including the real properties. The certificate of
liquidation, when presented to the Register of Deeds was
denied on 7 grounds of which the ff. were disputed by the
stockholders; 3. no. of parcels of land not certified, 5.
registration fees need be paid 6. documentary stamp need
be attached 7. the judgment of the Court approving the
dissolution and directing the disposition of the assets need
be presented. The Commissioner of Land Registration
overruled the ground no. 7 and sustained the others.

Issue:
Whether or not the certificate merely involves a distribution
of the corporation's assets or should be considered a
transfer of conveyance

Appellants' argument: that the certificate of liquidation is

not a conveyance or transfer but merely a distribution of the
assets of the corporation which has ceased to exist for
having been dissolved. Not being a conveyance, the
certificate need not contain the number of parcel of land
involved in the distribution in the acknowledgment
appearing therein. That they are not required to pay the
amount of registration fees.
Respondent's argument: the Commission of Land
Registration concurred with the view of the RD that the
certificate of liquidation in question, though it involves a
distribution of the assets, in the last analysis represents a
transfer of said assets from the corporation to the
stockholders. Hence, in substance it is a transfer or
conveyance.

Court's ruling:
A corporation is a juridical person distinct from the
members composing it. Properties registered in the name of
the corporation are owned by it as an entity separate and
distinct from its members. while shares of stock constitute
personal property they do not represent property of the
corporation. the corporation has property of its own which
consists chiefly of a real estate. A share of stock only
typifies an aliquot part of the corporation's property, or the
right to share its proceeds to that extent when distributed
LAPERAL DEVELOPMENT CORPORATION and
SUNBEAMS CONVENIENCE FOOD
CORPORATION, VS. CA
Facts:
On May 19, 1987, Banzon filed a complaint against
Oliverio Laperal. Laperal Development Corporation.
Imperial Development Corporation, Sunbeams
Convenience Foods, Inc. and Vicente Acsay for: 1) the
annulment of the portion of the Compromise Agreement; 2)
the collection of attorney's fees for his services in the cases
of: a) Imperial Development Corporation vs. Añover, b)
Republic vs. Sunbeams Convenience Foods, Inc., et al.,
The Regional Trial Court of Quezon City, dismissed on the
ground that the trial court had no jurisdiction to annul the
Compromise Agreement as approved by an equal and
coordinate court. It was held that the issue was cognizable
by the Court of Appeals
On appeal, the decision was affirmed on the issue of
jurisdiction. The Court of Appeals held, however, that
attorney's fees were due the private respondent in the cases
of Laperal Development Corporation v. Ascario Tuazon
and Ascario Tuazon v. Judge Maglalang and Republic v.
Sunbeams Convenience Foods. Inc
The petitioners are now challenging the decision insofar as
it orders them to pay Banzon attorney's fees for his legal
services in the aforementioned cases.
stockholder, director and officer of Sunbeams, that status
alone does not make him answerable for the liabilities of
the said corporation. Such liabilities include Banzon's
attorney's fees for representing it in the case of Republic v.
Sunbeams Convenience Foods, Inc.
The Compromise Agreement upon which the decision of the
court was based was between plaintiff Atty. Banzon and the
defendants represented by Oliverio Laperal. To repeat,
Sunbeams was not a party to this agreement and so could
not be affected by it. (compromise agreement is about the
waiving of attorney’s fees)
The private respondent's claim for attorney's fees in the
Sunbeam case was waived by him not by virtue of the
Compromise Agreement to which Sunbeams, not being a
defendant in Civil Case No. Q-34907, could not have been
a party. What militates against his claim is his own judicial
admission that he had waived his attorney's fees for the
cases he had handled from 1974 to 1981 for Oliverio
Laperal and his corporations, including those not
impleaded in his complaint in Civil Case No. Q-34907.

Issue:
Whether or not the Petitioners are liable to pay Banzon his
attorney’s fees as his legal compensation

Held:
Banzon's claim for attorney's fees in the said case was also
among those enumerated in his complaint in Civil Case No.
Q-34907 against Oliverio Laperal, Laperal Development
Corporation, and Imperial Development Corporation.
Notably, Sunbeams Convenience Foods, Inc. (Sunbeams,
for brevity), referred to in the complaint as "Mr. Laperal's
Corporation," was not joined by name as a party-defendant.
Apparently, the private respondent believed that Oliverio
Laperal, being the president of the said company, was
directly obligated to him for the attorney's fees due him for
his handling of the case for Sunbeams.
It is settled that a corporation is clothed with a personality
separate and distinct from that of the persons composing it.
It may not generally be held liable for the personal
indebtedness of its stockholders or those of the entities
connected with it. Conversely, a stockholder cannot be
made to answer for any of its financial obligations even if
he should be its president.
There is no evidence that Sunbeams and Laperal are one
and the same person. While it is true that Laperal is a
OFFICE OF THE COURT ADMINISTRATOR,
COMPLAINANT, VS.JUDGE SALVADOR P. DE
GUZMAN, JR., RESPONDENT.
A.M. No. RTJ-93-1021, January 31, 1997
DOCTRINE: properties registered in the name of the
corporation are owned by it as an entity separate and
distinct from its members.
Norvic Incorporated (Norvic) was the principal
stockholder of Overseas Superintendence Corporation
(OSC) which was the registered owner of a parcel of land
(Yakal property) situated in Makati. On August 1, 1986,
Atty. Santos, acting as president of Norvic, entered with St.
Michael International Institute of Technology (SMIIT),
represented by its president Penaloza, into a contract to sell
the OSC shares of stock and the Yakal property.
Subsequently, OSC conveyed the Yakal property to St.
Michael International Realty and Management Corporation
(SMIRM) pursuant to the Deed of Conveyance and
Exchange.
Two years later, Norvic filed this subject case
whicb was asigned to the sala of Judge Cosico for the
annulment of the Deed of Conveyance and Exchange dated
December 21, 1989 on the ground that the transfer of the
Yakal property was fraudulent. Due to the filing of this
case, Norvic caused the annotation of lis pendens on the
title of SMIRM. SMIIT and SMIRM filed a motion to
cancel the notice of lis pendens but the same was denied by
Judge Cosico.[8] As a result of Judge Cosico’s resignation
from judicial service, Norvic filed a motion to re-raffle the
case which was granted. Thus, the case was referred to
respondent Judge De Guzman following the re-raffling.
Later on, defendants SMIIT and SMIRM filed a motion for
reconsideration of the order of denial of then Judge Cosico
and for the cancellation of notice of lis pendens contending,
inter alia, that Norvic was not the proper party whose rights
might be protected by the annotation of lis pendens because
it was not the registered owner of the Yakal property before
and after it was transferred to defendant SMIRM. On
August 5, 1992, respondent De Guzman reconsidered the
order of denial dated June 26, 1991 of then Judge Cosico
and ordered the cancellation of the notice of lis pendens, A
year later the parties reached a compromise settlement,
thus, a joint motion was filed by both parties praying for the
dismissal of the case which was granted by respondent De
Guzman.
pendens as it is neither the previous registered owner nor
the present registered owner of the property.
Under Section 24, Rule 14 of the Rules of Court,
the notice of lis pendens may be cancelled only upon order
of the court, after proper showing that the notice is for the
purpose of molesting the adverse party, or that it is not
necessary to protect the rights of the party who caused it to
be recorded. The cancellation order of respondent was
issued pursuant to the second ground. A cautious reading of
the records of the instant case reveals that never was Norvic
the owner of the Yakal property. It was Overseas
Superintendence Corporation (OSC) that owned the Yakal
property prior to its transfer to SMIRM. The fact that
Norvic was the majority stockholder of OSC would not
legally clothe it (Norvic) with personality to cause the
notice of lis pendens affecting the property of the
corporation (OSC) specially so when the corporation was
not even one of the parties to the case. The property owned
by the plaintiff subject matter of its transaction with the
defendants are plaintiff’s shares of stock in Overseas
Superintendence Corporation. Well settled is the rule that
properties registered in the name of the corporation are
owned by it as an entity separate and distinct from its
members. A stockholder is not the owner of any part of
the capital of the corporation, nor is he entitled to the
possession of any definite portion of its property or
assets; he is not a co-owner or tenant in common of the
corporate property.
Nota Bene: This is an administrative case against Judge De
Guzman for allegedly approaching Judge Cosico and
requesting him to lift the notice of lis pendens when the
latter was still the presiding judge over the case between
Norvic and SMIRM. Judge De Guzman was found guilty of
serious misconduct for influencing the course of litigation
in the said case. Nonetheless, the Court found no fraud,
dishonesty, corruption or bad faith on the part of Judge De
Guzman in issuing the order lifting the notice of lis
pendens.

ISSUE: Was the lifting of the notice of lis pendens proper?

RULING: YES. Norvic is manifestly not the proper party

whose rights may be protected by the annotation of lis
STRONGHOLD INSURANCE COMPANY, INC.,
PETITIONER, VS. TOMAS CUENCA, MARCELINA
CUENCA, MILAGROS CUENCA, BRAMIE T.
TAYACTAC, AND MANUEL D. MARAÑON, JR.,
RESPONDENTS.
G.R. No. 173297, March 06, 2013
DOCTRINE: The personality of a corporation is distinct
and separate from the personalities of its stockholders.
Hence, its stockholders are not themselves the real parties
in interest to claim and recover compensation for the
damages arising from the wrongful attachment of its
assets. Only the corporation is the real party in interest for
that purpose.
Marañon filed a complaint in the RTC against the
respondents Cuencas for the collection of a sum of money
and damages which includes an application for the issuance
of a writ of preliminary attachment. Thereafter, the RTC
granted the application for the issuance of the writ of
preliminary attachment conditioned upon the posting of a
bond executed in favor of the Cuencas. Tayactac was
subsequently impleaded.
After Marañon posted the bond which was issued
by petitioner Stronghold Insurance, the RTC issued the writ
of preliminary attachment. The sheriff levied upon the
equipment, supplies, materials and various other personal
property belonging to Arc Cuisine, Inc. that were found in
the leased corporate office-cum-commissary or kitchen of
the corporation. Later on, the respondents presented in the
RTC a Motion to Dismiss and to Quash Writ of
Preliminary Attachment for lack of jurisdiction which was
denied by the latter court. On appeal, the CA dismissed the
case for lack of jurisdiction. To comply with the Resolution
of the CA ordering the delivery of the attached properties to
the defendants, the sheriff discovered that the properties
were all gone and missing from the place where it was
stored.
Subsequently, the Cuencas and Tayactac filed
a Motion to Require Sheriff to Deliver Attached Properties
and to Set Case for Hearing praying to have the attached
property immediately delivered to them and have
Stronghold Insurance and Maranon pay them damages. The
RTC ruled in favor of the respondents. On appeal, the CA
affirmed the lower court’s judgment.
ISSUE: Are respondents, not being the owners of the
properties attached, the proper parties in this case?
RULING: NO. The Cuencas and Tayactac were clearly not
vested with any direct interest in the personal properties
coming under the levy on attachment by virtue alone of
their being stockholders in Arc Cuisine, Inc.
Under the Rules of Court, a real party in interest is
one who stands to be benefited or injured by the judgment
in the suit, or one who is entitled to the avails of the suit.
Accordingly, a person, to be a real party in interest in
whose name an action must be prosecuted, should appear to
be the present real owner of the right sought to be enforced,
that is, his interest must be a present substantial interest, not
a mere expectancy, or a future, contingent, subordinate, or
consequential interest. Where the plaintiff is not the real
party in interest, the ground for the motion to dismiss is
lack of cause of action.
There is no dispute that the properties subject to
the levy on attachment belonged to Arc Cuisine, Inc. alone,
not to the Cuencas and Tayactac in their own right. They
were only stockholders of Arc Cuisine, Inc., which had a
personality distinct and separate from that of any or all
of them. The damages occasioned to the properties by the
levy on attachment, wrongful or not, prejudiced Arc
Cuisine, Inc., not them. As such, only Arc Cuisine, Inc. had
the right under the substantive law to claim and recover
such damages. This right could not also be asserted by
the Cuencas and Tayactac unless they did so in the
name of the corporation itself. But that did not happen
herein, because Arc Cuisine, Inc. was not even joined in the
action either as an original party or as an intervenor.
The Cuencas and Tayactac were clearly not vested
with any direct interest in the personal properties coming
under the levy on attachment by virtue alone of their being
stockholders in Arc Cuisine, Inc. Their stockholdings
represented only their proportionate or aliquot interest
in the properties of the corporation, but did not vest in
them any legal right or title to any specific properties of
the corporation. Without doubt, Arc Cuisine, Inc.
remained the owner as a distinct legal person.
Given the separate and distinct legal personality of
Arc Cuisine, Inc., the Cuencas and Tayactac lacked the
legal personality to claim the damages sustained from the
levy of the former’s properties. According to Asset
Privatization Trust v. Court of Appeals,[44] even when the
foreclosure on the assets of the corporation was wrongful
and done in bad faith the stockholders had no standing to
recover for themselves moral damages; otherwise, they
would be appropriating and distributing part of the
corporation’s assets prior to the dissolution of the
corporation and the liquidation of its debts and liabilities.
That Marañon knew that Arc Cuisine, Inc. owned
the properties levied on attachment but he still excluded
Arc Cuisine, Inc. from his complaint was of no
consequence now. The Cuencas and Tayactac still had no
right of action even if the affected properties were then
under their custody at the time of the attachment,
considering that their custody was only incidental to the
operation of the corporation.
PIERCING CORPORATE VEIL distinct from that of its stockholders and from that of other
corporations to which it may be connected.
PNB vs. HYRDO RESOURCES CONTRACTORS
CORPORATION As a consequence, a corporation incurs its own liabilities
and is legally responsible for payment of its obligations.
Facts:
Hence, the corporate debt or credit is not the debt or credit
Petitioners DBP and PNB foreclosed on mortgages made of the stockholder. This protection from liability for
on the properties of MMIC. As a result of the foreclosure, shareholders is the principle of limited liability.
DBP and PNB acquired substantially all the assets of
The corporate mask may be removed or the corporate veil
MMIC and resumed the business operations of the defunct
pierced when the corporation is just an alter ego of a person
MMIC by organizing NMIC.
or of another Corporation. For reasons of public policy and
DPB and PNB owned 57% and 43% of the shares of in the interest of justice, the corporate veil will justifiably
NMIC, respectively, except for five qualifying shares. be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.
The members of the Board of Directors of NMIC were
either from DBP or PNB. The SC further held that any application of the doctrine of
piercing the corporate veil should be done with caution. A
NMIC engaged the services of Hercon, Inc. for NMIC’s
court should be mindful of the milieu where it is to be
Mine Striping and Road Construction Program for a
applied. It must be certain that the corporate fiction was
contract price of P35m. after computing the payments
misused to such an extent that injustice, fraud, or crime was
already made by NMIC under the program and crediting
committed against another, in disregard of its rights. The
the NMIC’s recievables from Hercon, the latter found that
wrongdoing must be clearly and convincingly established;
the former still has an unpaid balance of P8M. Hercon
it cannot be presumed.
made several demands on NMIC including a letter of final
demand and when these were not heeded, a complaint for There are three tests that must be applied in order to
sum of money was filed in the RTC seeking to hold NMIC, determine the application of the alter ego theory: first is the
DBP and PNB solidarily liable for the amount owing to instrumentality or control test, second is the fraud test, and
Hercon. third is the harm test
Subsequent to the filing of the complaint, Hercon, was The absence of any of these elements prevents piercing the
acquired by HRCC in a merger. The complaint was then corporate veil. Here, the SC finds that none of the tests has
amended by substituting HRCC for Hercon. been satisfactorily met in this case. The Court further held
that the existence of interlocking directors, corporate
Proclamation No. 50 was issued creating the APT for the
officers and shareholders is not enough justification to
expeditious disposition and privatization nof certain
pierce the veil of corporate fiction in the absence of fraud
government corporations and/or the assets thereof.
or other public policy considerations.
Pursuant to the said proclamation, DBP and PNB executed
their respective deeds of transfer in favor of the National
Government transferring and conveying certain assets and
liabilities in NMIC. The National Government transferred
the said assets and liabilities to the APT as trustee under a
Trust Agreement. The complaint was then amended for the
second time to implead the APT as a defendant
RTC, ruled in favor of HRCC. It pierced the corporate veil
of NMIC and held DBP and PNB solidarily liable with
NMIC
On appeal, the Court of Appeals, affirmed the RTC’s
ruling.
Issue:
WON that NMIC is a corporate entity with a juridical
personality separate and distinct from both PNB and DBP.
Held:
A corporation is an artificial entity created by operation of
law. It possesses the right of succession and such powers,
attributes, and properties expressly authorized by law or
incident to its existence. It has a personality separate and
APEX MINING v. SOUTHEAST MINDANAO GOLD
MINING CORP.
Facts:
Diwalwal Gold Rush Area is a rich tract of land located in
Davao. It has been stormed by conflicts brought about by
numerous mining claims over the same. On March
10, 1986, Marcopper Mining Corporation (MMC) was
granted an Exploration Permit No. 133 (EP 133) by the
Bureau of Mines and Geo-Sciences (BMG). A long battle
ensued between Apex and MMC with the latter seeking the
cancellation of the mining claims of Apex on the ground
that suchmining claims were within a forest reservation
(Agusan-Davao-Surigao Forest Reserve) and thus the
acquisition on mining rights should have been through an
application for a permit to prospect with the Bureau of
Forest and Development (BFD) and not through
registration of a Declaration of Location with the BMG.
When it reached the SC in 1991, the Court ruled against
Apex holding that the area is a forest reserve and thus it
should have applied for a permit to prospect with the BFD.
On February 16 1994,
MMC assigned all its rights to EP 133 to Southeast
Mindanao Gold Mining Corporation (SEM), a domestic
corporation which is alleged to be a 100%-owned
subsidiary of MMC. Subsequently, BMG registered SEM’s
Mineral Production Sharing Agreement (MPSA)
application and the Deed of Assignment. Several
oppositions were filed.
When the case reached the CA, the appellate court held that
the transfer of EP 133 was valid on the premise that SEM is
the agent of MMC, stressing that SEM is just a business
conduit of MMC, hence, the distinct legal personality of the
two entities should not be recognized.
Issue:
WON the subsequent transfer of Examination Permit 133
from MMC to SEM is valid applying the doctrine of
piercing the corporate veil.
Held: NO.
The Court of Appeals pathetically invokes the doctrine of
piercing the corporate veil to legitimize the prohibited
transfer or assignment of EP 133.
Only in cases where the corporate fiction was used as a
shield for fraud, illegality or inequity may the veil be
pierced and removed. The doctrine of piercing the
corporate veil cannot therefore be used as a vehicle to
commit prohibited acts. The assignment of the permit in
favor of SEM is utilized to circumvent the condition of
non-transferability of the exploration permit. To allow
SEM to avail itself of this doctrine and to approve the
validity of the assignment is tantamount to sanctioning an
illegal act which is what the doctrine precisely seeks to
forestall.

PALAY INC. vs. CLAVE
Facts:
Petitioner Palay, Inc., through its President, Albert
Onstott executed in favor of private respondent, Nazario
Dumpit, a Contract to Sell a parcel of Land of the
Crestview Heights Subdivision in Antipolo, Rizal and
owned by said corporation. The sale price was P23,300.00.
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.
Respondent Dumpit paid the downpayment and
several installments amounting to P13,722.50. Almost six
(6) years later, private respondent wrote petitioner offering
to update all his overdue accounts with interest. Petitioner
then informed respondent 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
National Housing Authority (NHA) for reconveyance with
an altenative prayer for refund. The NHA, finding the
rescission void in the absence of either judicial or
notarial demand, ordered Palay, Inc. and Alberto Onstott
in his capacity as President of the corporation, jointly
and severally, to refund immediately to Nazario Dumpit
the amount of P13,722.50 with 12% interest from the filing
of the complaint. Thus, the present petition.
Issues:
1. Whether the petitioners may be held liable for
refund.
2. Whether the doctrine of piercing the veil of
corporate fiction has application to the case at bar.
Held:
1. YES.
We hold that resolution by petitioners of the
contract was ineffective and inoperative against private
respondent for lack of notice of resolution.
As stressed in University of the Philippines vs.
Walfrido de los Angeles, the act of a party in treating a
contract as cancelled should be made known to the other.
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.
2. NO.
It is basic that a corporation is invested by law
with a personality separate and distinct from those of the
persons composing it as well 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 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 15 ; 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
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.
LIDDELL & Co., Inc., v. COLLECTOR OF
INTERNAL REVENUE
Facts:
Liddell & Co. Inc. is a domestic corporation establish in the
Philippines on February 1, 1946, with an authorized capital
of P100,000 divided into 1000 share at P100 each. Of this
authorized capital, 196 shares valued at P19,600 were
subscribed and paid by Frank Liddell while the other four
shares were in the name of Charles Kurz, E.J. Darras,
Angel Manzano and Julian Serrano at one shares each. Its
purpose was to engage in the business of importing and
retailing Oldsmobile and Chevrolet passenger cars and
GMC and Chevrolet trucks.
On December 20, 1948, the Liddell Motors, Inc. was
organized and registered with the Securities and Exchange
Commission with an authorized capital stock of P100,000
of which P20,000 was subscribed and paid for as follows:
Irene Liddell wife of Frank Liddell 19,996 shares and
Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del
Rosario and Esmenia Silva, 1 share each.
At about the end of the year 1948, Messrs. Manzano, Kurz
and Kernot resigned from their respective positions in the
Retail Dept. of Liddell & Co. and they were taken in and
employed by Liddell Motors, Inc.
Beginning January, 1949, Liddell & Co. stopped retailing
cars and trucks; it conveyed them instead to Liddell
Motors, Inc. which in turn sold the vehicles to the public
with a steep mark-up. Since then, Liddell & Co. paid sales
taxes on the basis of its sales to Liddell Motors Inc.
considering said sales as its original sales.
Upon review of the transactions between Liddell & Co. and
Liddell Motors, Inc. the Collector of Internal Revenue
determined that the latter was but an alter ego of Liddell &
Co. The Court of Tax Appeals upheld the position taken by
the Collector of Internal Revenue.
Issue:
Whether or not Liddell & Co. Inc., and the Liddell Motors,
Inc. are identical corporations, the latter being merely the
alter ego of the former
Held:
YES.
As of the time of its organization, 98% of the capital stock
belonged to Frank Liddell. The 20% paid-up subscription
with which the company began its business was paid by
him. The subsequent subscriptions to the capital stock were
made by him and paid with his own money.
As to Liddell Motors, Inc. the court is fully persuaded that
Frank Liddell also owned it. He supplied the original
capital funds. It is not proven that his wife Irene, ostensibly
the sole incorporator of Liddell Motors, Inc. had money of
her own to pay for her P20,000 initial subscription. Her
income in the United States in the years 1943 and 1944 and
the savings therefrom could not be enough to cover the
amount of subscription, much less to operate an expensive
trade like the retail of motor vehicles. The alleged sale of
her property in Oregon might have been true, but the
money received therefrom was never shown to have been
saved or deposited so as to be still available at the time of
the organization of the Liddell Motors, Inc.
The Court noticed that the bulk of the business of Liddell &
Co. was channeled through Liddell Motors, Inc. On the
other hand, Liddell Motors, Inc. pursued no activities
except to secure cars, trucks, and spare parts from Liddell
& Co. Inc. and then sell them to the general public. These
sales of vehicles by Liddell & Co. to Liddell Motors, Inc.
for the most part were shown to have taken place on the
same day that Liddell Motors, Inc. sold such vehicles to the
public. We may even say that the cars and trucks merely
touched the hands of Liddell Motors, Inc. as a matter of
formality.
Accordingly, the mere fact that Liddell & Co. and Liddell
Motors, Inc. are corporations owned and controlled by
Frank Liddell directly or indirectly is not by itself sufficient
to justify the disregard of the separate corporate identity of
one from the other. There is, however, in this instant case, a
peculiar consequence of the organization and activities of
Liddell Motors, Inc.
Under the law in force at the time of its incorporation the
sales tax on original sales of cars, was progressive, i.e. 10%
of the selling price of the car if it did not exceed P5000, and
15% of the price if more than P5000 but not more than
P7000, etc. This progressive rate of the sales tax naturally
would tempt the taxpayer to employ a way of reducing the
price of the first sale. And Liddell Motors, Inc. was the
medium created by Liddell & Co. to reduce the price and
the tax liability.
As opined in the case of Gregory v. Helvering, "the legal
right of a taxpayer to decrease the amount of what
otherwise would be his taxes, or altogether avoid them by
means which the law permits, cannot be doubted." But, as
held in another case, "where a corporation is a dummy, is
unreal or a sham and serves no business purpose and is
intended only as a blind, the corporate form may be ignored
for the law cannot countenance a form that is bald and a
mischievous fiction."
GREGORIO PALACIO v. FELY Accordingly, defendants Fely Transportation and
TRANSPORTATION COMPANY Isabelo Calingasan should be held subsidiarily liable for
P500.00 which Alfredo Carillo was ordered to pay in the
Facts:
criminal case and which amount he could not pay on
Fely Transportation Company hired Alfredo account of insolvency.
Carillo as driver of a jeep owned and operated by the
corporation. One time, while Carillo was driving the
vehicle, he run over the child of Gregorio Palacio who
suffered injuries and was hospitalized.
Palacio then filed a criminal complaint for reckless
imprudence and damages against Carillo and Fely
Transportation Company. When Carillo was convicted in
the criminal case, Dr. Calingasan, the owner of the said
corporation sold the jeep to the corporation.
When Carillo was not able to pay damages because
of insolvency. Hence, Palacio sought to collect from the
corporation and Isabelo Calingasan, its president. The
corporation then filed a Motion to Dismiss on the ground
that there is no cause of action against the defendant
company.
Palacio contends that the corporation 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 Alfred Carillo in Criminal Case was merely
an attempt on the part of Calingasan to evade his subsidiary
civil liability.
ISSUE:
Whether or not Isabelo Calingasan, the president of the
corporation should be held subsidiarily liable with the
corporation
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
liability 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. The Court believes that 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
corporation to prove that it has other property than the jeep
strengthens the conviction that its formation was for the
purpose above indicated.
And while it is true that Isabelo Calingasan is not a
party in this case, yet, is held that this 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.
MARVEL BUILDING CORPORATION, ET This practice could not have been unknown to Maria B.
AL., plaintiffs-appellees,  Castro, who apparently had been able to evade the payment
vs. of her war profits taxes. ;the fact that two sets of certificates
SATURNINO DAVID, in his capacity as Collector, were issued; the principal stockholder had made enormous
Bureau of Internal Revenue, defendant-appellant. profits; the fact that other subscribers had no income of
sufficient magnitude to justify their big subscription; the
Circumstantial evidence showing one-man corporation
fact that she advanced big sums of money without
FACTS: accounting; and the fact that the books of accounts were
kept as if they belong only to her.
This action was brought by plaintiffs as stockholders of the
Marvel Building Corporation to enjoin the defendant What are their necessary implications? Maria B. Castro
Collector of Internal Revenue from selling at public auction would not have asked them to endorse their stock
various properties described in the complaint, including certificates, or be keeping these in her possession, if they
three parcels of land, Said properties were seized and were really the owners. They never would have consented
distrained by defendant to collect war profits taxes assessed that Maria B. Castro keep the funds without receipts or
against plaintiff Maria B. Castro (Exhibit B). Plaintiffs accounting, nor that she manages the business without their
allege that the said three properties (lands and buildings) knowledge or concurrence, were they owners of the stocks
belong to Marvel Building Corporation and not to Maria B. in their own rights. Each and every one of the facts all set
Castro, while the defendant claims that Maria B. Castro is forth above, in the same manner, is inconsistent with the
the true and sole owner of all the subscribed stock of the claim that the stockholders, other than Maria B. Castro,
Marvel Building Corporation, including those appearing to own their shares in their own right. On the other hand, each
have been subscribed and paid for by the other members, and every one of them, and all of them, can point to no
and consequently said Maria B. Castro is also the true and other conclusion than that Maria B. Castro was the sole and
exclusive owner of the properties seized.  exclusive owner of the shares and that they were only her
dummies. 
the Court of First Instance of Manila rendered judgment
ordering the release of the properties mentioned, and
enjoined the Collector of Internal Revenue from selling the
same. The Articles of Incorporation of the Marvel Building
Corporation is dated February 12, 1947 and according to it
the capital stock is P2,000,000, of which P1,025,000 was
(at the time of incorporation) subscribed and paid for by the
following incorporators: (most of the incorporators are half
brothers and sisters neither did they file any war profits.)
It does not appear that the stockholders or the board of
directors of the Marvel Building Corporation have ever
held a business meeting, for no books thereof or minutes
meeting were ever mentioned by the officers thereof or
presented by them at the trial. The by-laws of the
corporation, if any had ever been approved, has not been
presented. Neither does it appear that any report of the
affairs of the corporation has been made, either of its
transactions or accounts.
ISSUE:  

WON Maria B. Castro the owner of all the shares of stocks

of Marvel Building Corporation and the other stockholders
mere dummies of hers?
HELD:
Important evidence presented by the collector of internal
revenue to prove his claim that Maria Castro is the sole
owner is supposed endorsement in blank of the shares of
stock issued in the name of the other incorporators, and the
possession thereof by Maria B. Castro; It is to be
remembered also, that it is a common practice among
unscrupulous merchants to carry two sets of books, one set
for themselves and another to be shown to tax collectors.
ARCILLA v. CA The pleadings lead the Court to the inescapable conclusion
that the petitioner, who is himself a lawyer, is merely
Facts:
taking advantage of the use of the innocuous phrase "in his
Private respondent filed with the Regional Trial Court capacity as President" making the same a sanctuary for a
(RTC) of Catanduanes a complaint for a sum of money defense; had long since abandoned or waived either
against petitioner. It is alleged therein that the defendant, deliberately or through his obliviscence. His sole purpose is
succeeded in securing on credit from the plaintiff, various to avoid complying with the liability adjudged against him
items, cash and checks which the defendant encashed, in by the public respondent.
the total amount of P93,358.51 which the plaintiff willingly
Moreover, by no stretch of even the most fertile
extended because of the representations of the defendant
imagination may one be able to conclude that the
that he was a successful financial consultant of local and
challenged Amended Decision directed Csar Marine
international businessmen; that the defendant's
Resources, Inc. to pay the amounts adjudge. By its clear
indebtedness referred is shown and described in thirty (30)
and unequivocal language, it is the petitioner who was
"vales" signed by him or by persons authorized by him; that
declared liable therefor and consequently made to pay. That
the plaintiff had made numerous demands for payment but
the latter was ordered to do so as president of the
the respondent acted in gross and evident bad faith in
corporation would not free him from the responsibility of
refusing to satisfy the plaintiff's plainly valid, just and
paying the due amount simply because according to him, he
demandable claim; That the plaintiff is left without any
had ceased to be corporate president; such conclusion stems
recourse other than to enforce his claim in court. In
from the fact that the public respondent, in resolving his
petitioner’s answer, he did not deny that he had business
motion for clarificatory judgment, pierced the veil of
transactions with the private respondent but he alleges that
corporate fictional and cast aside the contention that both
"as President of CSAR Marine Resources, he "was looking
he and the corporation have separate and distinct
for a "pro-forma" invoice to support his loan with the
personalities. In short, even if the Court is to assume
Kilusang Kabuhayan at Kaunlaran (KKK for short). He
arguendo that the obligation was incurred in the name of
explicitly admits that "(H)is loan was in the same (name)
the corporation, the petitioner would still be personally
of his family corporation, CSAR Marine Resources,
liable therefor because for all legal intents and purposes, he
however, the "vales",were liquidated in the bank loan
and the corporation are one and the same. Csar Marine
releases. Thus his main defense is payment.
Resources, Inc. is nothing more than his business
The trial court ordered petitioner to pay the private conduit and alter ego. The fiction of a separate juridical
respondent. Petitioner appealed the decision before the personality conferred upon such corporation by law
Court of Appeals and the latter affirmed the trial court’s should be disregarded.
decision. Petitioner filed a motion for reconsideration were
the Court of Appeals promulgated an amended decision
ordering the petitioner to pay the private respondent in his
capacity as President of Csar marine Resources, Inc.
Petitoner then filed a motion for Clarificatroy Judgment
alleging therein that Petitioner Arcilla never had any
personal business transaction with the private respondent
and that Csar Marine Resources is not a party in the case.
Respondent denied the motion on these grounds: (a) the
veil of corporate fiction should be pierced in this case; (b)
since petitioner did not raise the issue of separate corporate
identity he cannot raise it for the first time in a Motion for
Clarificatory Judgment;

ISSUE:

Whether or not the court of appeals erred in holding Csar

marine Resources, Inc., a domestic corporation duly
organized according to law, where petitioner the president,
liable to the private respondent in the amount awarded in
the appealed decision.

RULING:
SECTION 6 YES, the Purchase Agreement is a debt instrument. Its
terms and conditions unmistakably show that the parties
LIRAG TEXTILE MILLS vs. SSS
intended the repurchase of the preferred shares on the
Facts: respective scheduled dates to be an absolute obligation
which does not depend upon the financial ability of
SSS (respondent) and Lirag Textile Mills (Petitioner)
petitioner corporation. This absolute obligation on the part
entered into a Purchase Agreement which Respondent
of petitioner corporation is made manifest by the fact that a
agreed to purchase preferred stocks of Petitioner worth P1
surety was required to see to it that the obligation is
million subject to conditions that Petitioner should
fulfilled in the event of the principal debtor's inability to do
repurchase the shares of stocks at a regular interval of one
so. The unconditional undertaking of petitioner corporation
year and to pay dividends and failure to redeem and pay the
to redeem the preferred shares at the specified dates
dividend, the entire obligation shall become due and
constitutes a debt which is defined "as an obligation to pay
demandable and it shall be liable for an amount equivalent
money  at some fixed future time, or at a time which
to 12% of the amount then outstanding as liquidated
becomes definite and fixed by acts of either party and
damages.
which they expressly or impliedly, agree to perform in the
Basilio Lirag (Basilio) as President of Lirag Textile Mills contract.
signed the Agreement as a surety to guarantee the
It cannot be said that SSS is a preferred stockholder. The
redemption of the stocks, the payment of dividends and
rights given by the Purchase Agreement to SSS are not
other obligations.
rights enjoyed by ordinary stockholders. Since there was a
Pursuant to the Agreement, Respondent paid Petitioner condition that failure to repurchase the stocks on the
P500,000 on two occasions and the latter issued 5,000 scheduled dates renders the entire obligation due and
preferred stocks with a par value of P100 demandable with interest. These features clearly show that
intent of the parties to be bound therein as debtor and
To guarantee the redemption of the stocks purchased by the
creditor and not as a corporation and stockholder.
respondent, the payment of dividends, as well as the other
obligations of the Lirag Textile Mills, Inc., defendants The SC futher held Basilio L. Lirag cannot deny liability
Basilio L. Lirag signed the Purchase Agreement not only as for petitioner corporation's default. As surety, Basilio L.
president of the defendant corporation, but also as surety so Lirag is bound immediately to pay respondent SSS the
that should the Lirag Textile Mills, Inc. fail to perform any amount then outstanding.
of its obligations in the said Purchase Agreement, the
The award of liquidated damages represented by 12% of
surety shall immediately pay to the vendee the amounts
the amount then outstanding is correct, considering that the
then outstanding.
petitioners in the given facts admitted having failed to
Lirag failed to redeem the certificates of stock fulfill their obligations under the Agreement. The grant of
liquidated damages is expressly provided for the Purchase
After sending Respondent sent demand letters, Petitioner
Agreement in case of contractual breach.
and Basilio still made no redemption nor made dividend
payments. Since Lirag did not deny its failure to redeem the preferred
shares and the non-payment of dividends which are
Respondent filed an action for specific performance and
overdue, they are bound to earn legal interest from the time
damages against Petitioner
of demand, in this case, judicial i.e. the time of filing the
The lower court ruled in favor of SSS action.
Petitioner contends that there is no obligation on their part
to redeem the stock certificates since Respondent is still a
preferred stock holder of the company and such redemption
is dependent upon the financial ability of the company.
On the part of Basilio, he contends that his liability only
arises only if the company is liable and does not perform its
obligations under the Agreement.

Issue:
Whether or not the Purchase Agreement entered into by the
Parties is a debt instrument

Held:
SECTION 8 The Central Bank made a finding that the Bank has been
suffering from chronic reserve deficiency, and that such
REPUBLIC PLANTERS BANK V. AGANA
finding resulted in a directive, issued on 31 January 1973
FACTS: by then Gov. G. S. Licaros of the Central Bank, to the
President and Acting Chairman of the Board of the bank
On 18 September 1961, the Robes-Francisco Realty &
prohibiting the latter from redeeming any preferred share,
Development Corporation (RFRDC) secured a loan from
on the ground that said redemption would reduce the assets
the Republic Planters Bank in the amount of P120,000.00.
of the Bank to the prejudice of its depositors and creditors.
As part of the proceeds of the loan, preferred shares of
Redemption of preferred shares was prohibited for a just
stocks were issued to RFRDC through its officers
and valid reason. The directive issued by the Central Bank
then, Adalia F. Robes and one Carlos F. Robes (the Bank
Governor was obviously meant to preserve the status quo,
lent such amount partially in the form of money and
and to prevent the financial ruin of a banking institution
partially in the form of stock certificates).
that would have resulted in adverse repercussions, not only
Said stock certificates were in the name of Adalia F. Robes to its depositors and creditors, but also to the banking
and Carlos F. Robes, who subsequently, however, endorsed industry as a whole. The directive, in limiting the exercise
his shares in favor of Adalia F. Robes. Said certificates of of a right granted by law to a corporate entity, may thus be
stock bear the following terms and conditions: considered as an exercise of police power.
"The Preferred Stock shall have the following rights,
preferences, qualifications and limitations, to wit: 1. Of the
right to receive a quarterly dividend of 1%, cumulative and
participating. xxx 2. That such preferred shares may be
redeemed, by the system of drawing lots, at any time after
2years from the date of issue at the option of the
Corporation."
Later, RFRDC and Robes proceeded against the Bank and
filed a complaint anchored on their alleged rights to collect
dividends under the preferred shares in question and to
have the bank redeem the same under the terms and
conditions of the stock certificates.
The trial court ruled in favor of RFRDC ordering the bank
to pay it and Robes the face value of the stock certificates
as redemption price plus 1%quarterly interest thereon until
full payment.
ISSUE: WON the bank can be compelled to redeem the
preferred shares issued to RFRDC and Robes.
HELD:
Redeemable shares – are shares usually preferred, which
by their terms are redeemable at a fixed date or at the
option of either the issuing corporation or the stockholder
or both at a certain redemption price.
While the stock certificate does allow redemption, the
option to do so was clearly vested in the bank.
The redemption therefore is clearly the type known as
"optional". Thus, except as otherwise provided in the stock
certificate, the redemption rests entirely with the
corporation and the stockholder is without right to either
compel or refuse the redemption of its stock.
Furthermore, the terms and conditions set forth therein use
the word "may". It is a settled doctrine in statutory
construction that the word "may" denotes discretion, and
cannot be construed as having a mandatory effect. The
redemption of said shares cannot be allowed.

SECTION 9
CIR vs MANNING
Facts:
Reese, the majority stockholder of Mantrasco,
executed a trust agreement between him, Mantrasco, Ross,
Selph, carrascoso & Janda law firm and the minority
stockholders, Manning, McDonald and Simmons. Said
agreement was entered into because of Reese’s desire that
Mantrasco and Mantrasoc’s two subsidiaries, Mantrasco
Guamand Port Motors, to continue under the management
of Manning, McDonald and Simmons upon his [Reese]
death. When Reese died, Mantrasco paid Reese’s estate the
value of his shares.
When said purchase price has been fully paid,
the24, 700 shares, which were declared as dividends, were
proportionately distributed to Manning, McDonald and
Simmons. Because of this, the BIR issued assessments on
Manning, McDonald and Simmons for deficiency income
tax for 1958. Manning et al, opposed this assessment but
the BIR still found them liable. Manning et al. appealed to
the CTA, which absolved them from any liability.
paid, the declaration of said shares as treasury stock
dividend was a complete nullity and plainly violative of
public policy.
A stock dividend, being one payable in capital
stock, cannot be declared out of outstanding corporate
stock, but only from retained earnings.
YES. Where by the use of a trust instrument as a
convenient technical device, respondents bestowed unto
themselves the full worth and value of a deceased
stockholder’s corporate holding acquired with the very
earnings of the companies, such package device which
obviously is not designed to carry out the usual stock
dividend purpose of corporate expansion reinvestment, e.g.,
the acquisition of additional facilities and other capital
budget items, but exclusively for expanding the capital base
of the surviving stockholders in the company, cannot be
allowed to deflect the latter’s responsibilities toward our
income tax laws. The conclusion is ineluctable that
whenever the company parted with a portion of its earnings
"to buy" the corporate holdings of the deceased
stockholders, it was in ultimate effect and result making a
distribution of such earnings to the surviving stockholders.
All these amounts are consequently subject to income tax
as being, in truth and in fact, a flow of cash benefits to the
surviving stockholders.

Issues:
WON the shares are treasury shares.
WON Manning, McDonald & Simmons should pay for
deficiency income taxes.

Held:
NO. Treasury shares are stocks issued and fully
paid for and re-acquired by the corporation either by
purchase, donation, forfeiture or other means. They are
therefore issued shares, but being in the treasury they do
not have the status of outstanding shares. Consequently,
although a treasury share, not having been retired by the
corporation re-acquiring it, may be re-issued or sold again,
such share, as long as it is held by the corporation as a
treasury share, participates neither in dividends, because
dividends cannot be declared by the corporation to itself,
nor in the meetings of the corporations as voting stock, for
otherwise equal distribution of voting powers among
stockholders will be effectively lost and the directors will
be able to perpetuate their control of the corporation though
it still represent a paid — for interest in the property of the
corporation.
Where the manifest intention of the parties to the
trust agreement was, in sum and substance, to treat the
shares of a deceased stockholder as absolutely outstanding
shares of said stockholder’s estate until they were fully