CORPORATION LAW CLV Chapter 3 Summary
CORPORATION LAW CLV Chapter 3 Summary
CORPORATION LAW CLV Chapter 3 Summary
(1) Main doctrine: A corporation has a Ownership of a majority of capital stock and
personality separate and distinct from its the fact that majority of directors of a
directors or trustees, officers, its corporation are the directors of another
shareholders or members. Article 44, corporation creates no employer-employee
section 2, NCC) relationship with the latter’s employees.
Freyssinet v Lapuz
Assets: assets of shareholders are not assets
of the corporation (Situs v Asiatrust) Majority of the stockholders cannot be held
personally liable for the attorney’s fees
Liabilities: corporation will not answer charged by a lawyer for representing the
liabilities of its shareholders and vice versa. corporation. Laperal v CA
(General Credit Corp v Alsons)
Having interlocking directors, corporate
Purpose of legal fiction: officers and shareholders is not enough
For convenience and to subserve the ends of justification to pierce the veil of corporate
justice fiction in the absence of fraud or other public
policy considerations. Velarde v Lopez
a. Doctrines emanating from the primary
attribute of separate juridical personality 2. On being a corporate officer or shareholder:
Piercing will be applied if there is indubitable a. Using the corporation as a mere conduit or
link between a CBB’s cosure and re-emerging alter ego
in the person of Binswanger. Livesey v
Binswanger Capital stock is owned by one person and functions
only for the benefit of such individual owner, the
Courts has the responsibility to uphold the corporation and the individual is deemed the same.
doctrine of separate entity, concomitant to Arnold v Willets
piercing. Hence, the application of piercing
should be done with caution. Pacific v CA When the corporation is merely an adjunct, business
conduit or alter ego of another corporation, the
b. Shell or Fictitious company fiction of separate and distinct corporation entities
should be disregarded. Tan Boon Bee v Jarencio
Fraudulent or may also sere as fronts for
government officials: Corrupt government Alter ego piercing does not require establishing fraud
officials creating a fictitious company that will or wrongdoing, but only that the corporate
serve as a vehicle to secure contract awards. personality has been used as an instrumentality for
Republic v Mega Pacific the personal agenda of its controlling shareholder.
Lipat v Pacific Banking Corp.
b. Xxx Probative factors in Alter Ego Piercing:
c. Mixing-up operations of two companies;
disrespect to the corporate entity Instrumentality or Control Test requires mere
majority or complete stock control, but
Employment of same workers, single place of compete domination of finances, policy and
business, etc. may indicate alter ego situation and business practices with respect to the
justify the Court of Industrial Relations to retain transaction in question. California v Advanced
jurisdiction over the labor case. La Campana v Tech System
Kaisahan ng Manggagawa
Mere existence of a parent-subsidiary
Mixing of personal accounts with corporate bank relationship between two corporation or that
accounts would authorize piercing. Ramirez v Bank of one corporation is affiliated with another
America does not by itself allow alter ego piercing.
Koppel v Yatco
Where two business enterprises are owned,
conducted and controlled by the same parties, both Just because two foreign companies came
law and equity will, when necessary to protect the from the same country and closely worked
rights of third persons, disregard their separate legal together on certain projects would the
fictions and treat the as identical. Sibagat v Garcia conclusion arise that one was the conduit of
the other, thus piercing the veil of corporate
When a foreign parent company leased a large parcel fiction. Marubeni v Lirag
of land purposely for the benefit of its subsidiary,
which took over possession of the leased premises, Use of a controlling shareholder’s initials in
the subsidiary was a mere alter ego. Mariano v Petron the corporate name is not sufficient reason to
pierce, since by that practice alone does it
When a corporation lawfully terminates its employees mean that the said corporation is merely a
based on ceasing of operations, the terminated dummy of the individual shareholder,
employees cannot make a sister company liable for provided such act is lawful. LBP v CA
their claims. Ownership of one corporation of all or a
great majority of stocks of another corporation and If used to perform legitimate functions, a
their interlocking directorates may serve indicia of subsidiary’s separate existence shall be
control, by themselves and without more, they are respected, and the liabilities of the parent
insufficient to establish an alter ego relationship that corporation and the subsidiary will be
will justify the puncturing of the latter’s corporate confined to those arising in their respective
cover. Zambrano v PCMC business. Even when the parent corporation
agreed to the terms to support a standby
A subsidiary company’s separate corporate credit agreement in favor of the subsidiary,
personality may be disregarded only when the does not mean that its personality has
evidence shows that such separate personality was merged with that of the subsidiary. MR
used by its parent or holding corporation to Holdings v Bajar
perpetrate fraud or evade an existing obligation.
Maricalum v Florentino (5) EQUITY PIERCING: “Defeat of Public
Convenience”
d. Guiding Principles in Alter Ego Cases
a. Corporate fiction is raised to confuse
• Doctrine applies even in the absence of evil legitimate issues
intent, because of the direct violation of a Where employee in the mother company was
central corporate law principle of separating detailed/assigned to a sister company
ownership from management. whereat the employee died by reason of
• Doctrine in such cased is based on estoppel: if work-related illness, and workmen’s
shareholders do not respect the separate compensation benefits were sought against
entity, others also cannot also be expected to the sister company, there would be proper
be bound by the separate juridical entity. basis to pierce the veil of corporate fiction to
• Piercing in alter ego cases may prevail even treat the two companies as one to allow
when no monetary claims are sought to be jurisdiction over the case to be retained by
enforced against the shareholders or officers. the Workmen’s Compensation Commission to
rule on the defense of the lack of employer-
employee relationship. The separate juridical shareholders, and corporation has no visible
personality should not be used to confuse assets
legitimate issues. Telephone Engineering v
WCC b. Fraud Piercing: false pretense, fraudulent act
or fraudulent means perpetrated upon the
b. Raise Lega Technicalities investing public; made to believe that the
corporation has financial capacity
A complaint for unfair labor practice filed
against the President and controlling
shareholder and the judgment for c. Equity Piercing: corporation is under the
reinstatement and damages was in the name control of the shareholders who ran-up a
of company. The judgment can be enforced printing company who is in no position to pay
against the company and its properties on the for the accounts ; personally benefited from
ground of equity piercing. Cannot be the operations of the company which they
remanded for it is contrary to speedy never paid subscription in full; company has
adjudication of labor cases disregarding such no visible assets
technicalities. Emilio Cano v CIR
(7) Evasion, Avoidance or Minimization of
Where the main purpose in forming the Taxes
corporation was to evade one’s subsidiary civil
liability for damages in a criminal case, the
corporation may not be heard to say that it Alter ego piercing: use of dummies for the benefit of
has a personality separate and distinct from the shareholder to avoid payment of war profit taxes;
its members, because to allow it to do so allows tax authorities to levy upon corporate
would be a shield to further an end subversive properties to enforce the tax assessment against the
justice. Palacio v Fely controlling shareholder Marvel v David
Where a debtor registers his residence to a A taxpayer has the legal right to decrease the amount
family corporation in exchange of shares, and of what otherwise would be his taxes or altogether
continues to live therein, then the separate avoid them by means which the law permits, which
juridical personality may be disregarded. therefore would only constitute tax avoidance which
PBCom v CA would allow piercing even in the absence of fraud
under the guise that the use of corporate separate
Where corporate fiction was used to corporate veil was a means to defeat public
perpetrate social injustice or as a vehicle to convenience.
evade obligations or confuse legitimate issues,
the two corporations would be merge as one. However, when the maintenance of the separate
Azcor v NLRC juridical entities serve only to minimize the collective
taxes that the corporation are paying, whereas in their
In cases where the employees are put in a operations they are operated by overlapping and
disadvantageous position as a result of the informal manner, would justify the piercing based on
employer’s separate juridical personalities, alter ego considerations for purposes of collecting the
pursuant to the fundamental doctrine that proper taxes. Yutivo v CTA
corporate fiction should not be used as a
subterfuge to commit injustice and To avoid payment by the incorporating spouses of the
circumvent labor laws, piercing applies. Lee v estate taxes on the properties transferred to the
Samahang Manggagawa ng Super Lamination corporation. Piercing applies. Gala v Ellice
(6) The Case for Thinly-Capitalized Where the corporation is merely an adjunct, business
Corporations: conduit or alter ego of another corporation or when
they practice fraud on internal revenue laws, the
fiction of their separate and distinct corporate
a. Alter Ego Piercing: corporation has no existing identities shall be disregarded, and both entities
assets of its own and the operation of the treated as one taxable person, subject to assessment
corporation was so merged with those of the for the same taxable transaction. CIR c Menguito
shareholders as to be practically
indistinguishable; same office, funds held by
(8) Due Process Clause Considerations in basis has been adduced during trial to apply the
Piercing Cases piercing doctrine. Jacinto v CA
Failure to implead the corporation is a violation of due The elements of control laid down in Concept Builders
process for it would be disregarding the distinct to allow the application of the piercing doctrine must
separate personality without a hearing. PCGG v be properly pleaded and proved during the hearing on
Sandiganbayan the merits, and cannot be merely raised for the first
time in the motion for the issuance of an alias writ of
No summon means not acquiring jurisdiction over the execution. Pacific House c CA
person. The general principle is that no person shall
be affected by any proceedings to which he is a
stranger, and strangers to a case are not bound by the
judgment rendered by the court. Padilla v CA