Rufina Lim vs Court of Appeals

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Rufina Lim vs Court of Appealson November 28, 2012323 SCRA 102 Business Organization Corporation Law Piercing the Veil of Corporate

Fiction

In 1994, Pastor Lim died. His wife, Rufina Lim petitioned with the lower court, acting as a probate court, for the inclusion of 5 corporations into the

inventory of the estate of Pastor Lim. The 5 corporations were: Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing, Inc., Active

Distributing, Inc. and Action Company. Rufina alleged that the assets of these corporations were owned wholly by Pastor; that these corporations

themselves are owned by Pastor and they are mere dummies of Pastor. The corporations filed a motion for exclusion from the estate. They presented

proof (Torrens Titles) showing that the assets of the corporations are in their respective names and titles. The probate court denied their motion. The

Court of Appeals reversed the decision of the probate court.

ISSUE: Whether or not the corporations and/or their assets should be included in the inventory of the estate.

HELD: No. As regards the assets, the corporations were able to present their respective Torrens Titles over the disputed assets. It is true that a probatecourt may pass upon the question ownership albeit in a provisional manner but still, a Torrens Title cannot be attacked collaterally in a probate

proceeding, it must be attacked directly in a separate proceeding.

As regards the corporations, to include them in the inventory is tantamount to the piercing of the veil of corporate fiction because the probate cour

effectively adopted the theory of Rufina. This cannot be done. Firstly, the probate court is sitting in a limited capacity. Secondly, Rufina was not able to

present sufficient evidence that indeed the corporations are mere conduits of Pastor. Mere ownership by a single stockholder or by another corporation

of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities

The veil cant be pierced without any showing that indeed the corporation is being used merely as a dummy. To disregard the separate juridica

personality of a corporation, the wrong-doing must be clearly and convincingly established. It cannot be presumed.

Case Digest on Reynoso IV vs. CA & General Credit Corporation (345 SCRA 335)

Separate Juridical Entity

Sufficiency of Proof to Pierce the Veil of Corporate Fiction

Facts: Commercial Credit Corporation (CCC), a financing & investment firm, decided to organize franchise companies in different parts of the country

wherein it shall hold 30% equity. Employees of CCC were designated as resident managers of the franchise companies Bibiano Reynoso IV wasresident manager in CCC-QC

Due to the DOSRI Rule prohibiting lending of funds by a corporation to its directors, officers, Share Holders & other persons with related interests

therein, CCC decided to form CCC Equity Corporation, a wholly-owned subsidiary to which CCC transferred its 30% equity in CCC-QC together with 2

seats on the BoD. In the new set-up, several employees of CCC became employees of CCC-Equity

A complaint for a sum of money was later field by CCC-QC against Reynoso, who in the meantime was dismissed from CCC-Equity, & wife fo

embezzlement of funds which were used to buy a house in Valle Verde. Reynoso claims the money he used represented his money placements in CCC

QC shown by 23 checks he issued to CCC-QC

RTC dismissed the case against Reynoso and found his counterclaim for damages to be meritorious hence granted it. For failing to pay the docket fees

CCC-QCs appeal to the IAC was dismissed hence the RTC decision became final & executory. However, the judgment became remained unsatisfied

prompting Reynoso to file a Motion for Alias Writ of Execution. CCC-QC opposed saying that its premises & records had been taken over by CCC

CCC meanwhile became known as General Credit Corporation. So, when the RTC ordered GCC to file its comment on the petition of Reynoso, i

claimed that it was not a party to the case & Reynoso should direct his claim against CCC-QC. Reynoso replied saying that CCC-QC is in adjunc

instrumentality, conduit & agency of CCC & invoked the ruling in Ramoso v. GCC where the SC declared that GCC, CCC-Equity & other franchised

companies including CCC-QC were declared as 1 corp. Reynoso claimed that GCC is just the new name of CCC hence both should be treated as 1

entity. Cases were filed in the RTC of Pasig & QC to levy on the properties of GCC. CA on the other hand enjoins the auction sale of the properties.

Issue: (1) WON the piercing the veil of corporate fiction was proper.

Held: CA decision reversed and set aside. Injunction against levying on properties of GCC & their auction sale lifted. The use by CCC-QC of the same

name of Commercial Credit Corporation was intended to publicly identify it as a component of the CCC group of companies engaged in one & the same

business: investment & financing. When the mother corporation & its subsidiary corporations cease to act in good faith and honest business judgment

when the corporate fiction is used to perpetuate fraud or promote injustice, the law steps in to remedy the injustice. The corporate character is no

necessarily abrogated. It continues for legitimate objectives; however pierced, to remedy injustices

A court judgment becomes useless & ineffective if the employer, in this case CCC as a mother corporation, is placed beyond the legal reach of the

judgment creditor who after protracted litigation, has been found entitled to positive relief. Courts have been organized to put an end to

controversy. This should not be negated by an inapplicable and wrong use of the fiction of the corporate vei

The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to

the extent that it becomes an instrument or agent of its parent. But even when there us dominance over the affairs of the subsidiary, the doctrine o

piercing the veil of corporate fiction applies only when used to defeat public convenience, justify wrong, protect fraud, or defend crime

Factually & legally, CCC had dominant control of the business operations of CCC-QC

a. the exclusive management contract insured that CCC-QC would be managed & controlled by CCC & not deviate from the commands of the mothecorp

b. CCC appointed its own employee as the resident manager of CCC-QC

c. Salaries, pensions, benefits, etc were from CCC, which later became GCC

d. Unity of interest, management, control, intensive auditing function of CCC over CCC-QC, sharing of office space

e. Lawyers of the CCC-QC case were all in-house counsels of CCC

Jardine Davies Inc v JRB Realty Inc.

In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building, named BlancoCenter, on its parcel of land located at 119 Alfaro St., Salcedo

Village, Makati City. Anair conditioning system was needed for the Blanco Law Firm housed at the secondfloor of the building. On March 13, 1980, the

respondent's Executive Vice-President, Jose R. Blanco, accepted the contract quotation of Mr. A.G. Morrison, President of Aircon and Refrigeration


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Industries, Inc. (Aircon), for two (2) sets of FeddersAdaptomatic 30,000 kcal air conditioning equipment with a net total selling price

of P99,586.00. Thereafter, two (2) brand new packaged air conditioners of 10 tons capacity each todeliver 30,000 kcal or 120,000 BTUH were installed

by Aircon. When the units withrotary compressors were installed, they could not deliver the desired coolingtemperature. Despite several adjustments

and corrective measures, the respondentconceded that Fedders Air Conditioning USA's technology for rotary compressors forbig capacity conditioners

like those installed at the Blanco Center had not yet beenperfected. The parties thereby agreed to replace the units with reciprocating/semi

hermeticcompressors instead. In a Letter dated March 26, 1981, Aircon stated that it would bereplacing the units currently installed with new ones using

rotary compressors, at theearliest possible time. Regrettably, however, it could not specify a date when deliverycould be effected. TempContro

Systems, Inc. (a subsidiary of Aircon until 1987) undertook themaintenance of the units, inclusive of parts and services. In October 1987, theresponden

learned, through newspaper ads, that Maxim Industrial andMerchandising Corporation (Maxim, for short) was the new and exclusive licensee of Fedders

Air Conditioning USA in the Philippines for the manufacture, distribution, sale,installation and maintenance of Fedders air conditioners

The respondent requested that Maxim honor the obligation of Aircon, but the latterrefused. Considering that the ten-year period of prescription was fas

approaching, toexpire on March 13, 1990, the respondent then instituted, on January 29, 1990, anaction for specific performance with damages agains

Aircon & RefrigerationIndustries, Inc., Fedders Air Conditioning USA, Inc., Maxim Industrial & MerchandisingCorporation and petitioner Jardine Davies

Inc. The latter was impleaded asdefendant, considering that Aircon was a subsidiary of the petitioner. The trial courtruled that Aircon was a subsidiary o

the petitioner, and concluded that:at the time it contracted with Aircon on March 13, 1980 and on the date the revisedagreement was reached on March

26, 1981, Aircon was a subsidiary of Jardine. Thephrase "A subsidiary of Jardine Davies, Inc." was printed on Aircon's letterhead of itsMarch 13, 1980

contract with plaintiff as well as the Aircon's letterhead of Jardine'sDirector and Senior Vice-President A.G. Morrison and Aircon's President in his

March26, 1981 letter to plaintiff confirming the revised agreement. Aircon's newspaper adsof April 12 and 26, 1981 and a press release on August 30

1982 also show thatdefendant Jardine publicly represented Aircon to be its subsidiaryRecords from the Securities and Exchange Commission (SEC)

also reveal that as per Jardine's December 31, 1986 and 1985 Financial Statements that "The company actsas general manager of its subsidiaries"

Jardine's Consolidated Balance Sheet as of December 31, 1979 filed with the SEC listed Aircon as its subsidiary by owning94.35% of Aircon. Also,

Aircon's reportorial General Information Sheet as of April 1980and April 1981 filed with the SEC show that Jardine was 94.34% owner of Aircon andtha

out of seven members of the Board of Directors of Aircon, four (4) are also of Jardine. Jardine's witness, Atty. Fe delos Santos-Quiaoit admitted

that defendantAircon, renamed Aircon & Refrigeration Industries, Inc. "is one of the subsidiaries of Jardine Davies" and that Jardine nominated, elected

and appointed the controllingmajority of the Board of Directors and the highest officers of Aircon.H: It is an elementary and fundamental principle of

corporation law that a corporationis an artificial being invested by law with a personality separate and distinct from itsstockholders and from other

corporations to which it may be connected. While acorporation is allowed to exist solely for a lawful purpose, the law will regard it as anassociation opersons or in case of two corporations, merge them into one, when thiscorporate legal entity is used as a cloak for fraud or illegality. This is the doctrine

of piercing the veil of corporate fiction which applies only whensuch corporate fiction is used to defeat public convenience, justify wrong, protectfraud o

defend crime. The rationale behind piercing a corporation's identity is toremove the barrier between the corporation from the persons comprising it to

thwartthe fraudulent and illegal schemes of those who use the corporate personality as ashield for undertaking certain proscribed activities.While it is

true that Aircon is a subsidiary of the petitioner, it does not necessarilyfollow that Aircon's corporate legal existence can just be disregarded. The

Courtcategorically held in another case that a subsidiary has an independent and separate juridical personality, distinct from that of its parent company

hence, any claim or suitagainst the latter does not bind the former, and vice versa.In applying the doctrine, the following requisites must be established

(1) control, notmerely majority or complete stock control; (2) such control must have been used bythe defendant to commit fraud or wrong, to perpetuate

the violation of a statutory orother positive legal duty, or dishonest acts in contravention of plaintiff's legal rights;and (3) the aforesaid control and breach

of duty must proximately cause the injury orunjust loss complained of. The records bear out that Aircon is a subsidiary of the petitioner only because

thelatter acquired Aircon's majority of capital stock. It, however, does not exercisecomplete control over Aircon; nowhere can it be gathered that the

petitionermanages the business affairs of Aircon. Indeed, no management agreement existsbetween the petitioner and Aircon, and the latter is

an entirely different entity fromthe petitioner. In the instant case, there is no evidence that Aircon was formed orutilized with the intention of defrauding

its creditors or evading its contracts andobligations. There was nothing fraudulent in the acts of Aircon in this case. Aircon, as amanufacturing firm of ai

conditioners, complied with its obligation of providing twoair conditioning units for the second floor of the Blanco Center in good faith, pursuantto itscontract with the respondent. Unfortunately, the performance of the airconditioning units did not satisfy the respondent despite several adjustments

andcorrective measures.

Business Organization Corporation Law Piercing the Veil of Corporate Fiction

Reynoso was the branch manager of Commercial Credit Corporation Quezon City (CCC-QC), a branch of Commercial Credit Corporation (CCC). I

was alleged that Reynoso was opposed to certain questionable commercial practices being facilitated by CCC which caused its branches, like CCC-QC

to rack up debts. Eventually, Reynoso withdrew his own funds from CCC-QC. This prompted CCC-QC to file criminal cases for estafa and qualified thef

against Reynoso. The criminal cases were dismissed and Reynoso was exonerated and at the same time CCC- QC was ordered to pay Reynosos

counterclaims which amounted to millions. A writ of execution was issued against CCC-QC. The writ was opposed by CCC-QC as it now claims that i

has already closed and that its assets were taken over by the mother company, CCC.

Meanwhile, CCC changed its name to General Credit Corporation (GCC).

Reynoso then filed a petition for an alias writ of execution. GCC opposed the writ as it argued that it is a separate and distinct corporation from CCC and

CCC-QC, in short, it raises the defense of corporate fiction.

ISSUE: Whether or not GCC is correct.

HELD: No. The veil of corporate fiction must be pierced. It is obvious that CCCs change of name to GCC was made in order to avoid liability. CCC-QC

willingly closed down and transferred its assets to CCC and thereafter changed its name to GCC in order to avoid its responsibilities from its creditors

GCC and CCC are one and the same; they are engaged in the same line of business and single transaction process, i.e. finance and investment. When

the mother corporation and its subsidiary cease to act in good faith and honest business judgment, when the corporate device is used by the parent to

avoid its liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice, the law steps

in to remedy the problem. When that happens, the corporate character is not necessarily abrogated. It continues for legitimate objectives. However,

is pierced in order to remedy injustice, such as that inflicted in this case.

Republic vs. Sandiganbayan


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FACTS:

Private respondent, Danding Cojuangco, filed a case to compel the PCGG to allowhim to inspect corporate books of SMC and UCPB.

ISSUE:

Is this a suit against the state requiring the PCGG to allow Mr. Cojuangco to inspectthe books of corporations in which he has shares of being

a stockholder.

HELD:

This is not a suit against the state. This is only an exercise of his right as astockholder. The stocks or his shares of sticks which have been sequestered

have notautomatically become stocks of the government. The test of suit against the state: If itrequires an affirmative act on the part of the state todisburse public funds or loss of government property. In this petition, these are not attendant. Besides, in the corporatebooks, the stocks are still in the

name of Cojuangco.

Republic vs. Sandiganbayan

FACTS:Private respondent, Danding Cojuangco, filed a case to compel the PCGG to allowhim to inspect corporate books of SMC and UCPB.

ISSUE:Is this a suit against the state requiring the PCGG to allow Mr. Cojuangco to inspectthe books of corporations in which he has shares of being

a stockholder.

HELD:This is not a suit against the state. This is only an exercise of his right as astockholder. The stocks or his shares of sticks which have been

sequestered have notautomatically become stocks of the government. The test of suit against the state: If itrequires an affirmative act on the part of the

state to disburse public funds or loss of government property. In this petition, these are not attendant. Besides, in the corporatebooks, the stocks are stil

in the name of Cojuangco.

Avelina Ramoso et al vs Court of Appeals

on December 12, 2012

Business Organization Corporation Law Piercing the Veil of Corporate Fiction When Not Applicable

Avelina Ramoso and several others are investors and majority stock holders of the franchise branches of Commercial Credit Corporation (CCC).

CCC is a lending and investment firm. CCC contracted with its franchise branches for the latter to assign its receivables to CCC. But this practice was

discontinued due to a prohibition (DOSRI rule) issued by the Central Bank where corporations are prohibited from lending funds to pe rsons with related

interests, among others. To circumvent this, CCC incorporated CCC Equity, a wholly owned subsidiary to manage the franchise branches. CCC later

changed its name to General Credit Corporation (GCC).

In 1981, Ramoso et al alleged that they discovered several bad business practices being conducted by GCC; that such questionable practices divested

GCC of its assets thereby placing the franchise branches at a disadvantage; that GCC, through CCC Equity mismanaged the franchise branches

thereby causing imminent losses to the investors.

Ramoso et al then sued GCC before the Securities and Exchange Commission. The hearing officer ruled in favor of Ramoso et al. He pierced the veil ocorporate fiction and he declared that the franchise branches, GCC, and CCC equity are one and the same corporation; that as such, the franchise

branches, in whom Ramoso et al invested, are not liable to the obligations incurred by GCC. The SEC en banc however reversed the ruling of the

hearing officer. The Court of Appeals affirmed the SEC en banc.

ISSUE: Whether or not the veil of corporate fiction should be pierced.

HELD: No. Ramoso et al did not properly plead their cause. They merely alleged that CCC Equity is a conduit of GCC. As found by the SEC en banc

Ramoso et al were not able to prove that CCC Equity was incorporated in order to perpetrate fraud against them. Whether the existence of the

corporation should be pierced depends on questions of facts, appropriately pleaded. Mere allegation that a corporation is the alter ego of the individua

stockholders is insufficient. The presumption is that the stockholders or officers and the corporation are distinct entities. The burden of proving otherwise

is on the party seeking to have the court pierce the veil of the corporate entity. It was not shown that the debts incurred by GCC were actually incurred in

bad faith. Further, there is a pending case relating to the liability of Ramoso et al as guarantors that will be the proper forum to raise their respective

liability as regards said debts

Documents

Rufina Lim vs Court of Appeals