52 SCRA 482 - Business Organization Corporation Law Piercing the Veil of Corporate Fiction Exercised by the Wrong Person

In 1984, the National Labor Relations Commission issued an order against Qualitrans Limousine Service, Inc. (QLSI) ordering the latter to reinstate the employees it terminated and to pay them backwages. Quiterio Dalisay, Deputy Sheriff of the court, to satisfy the backwages, then garnished the bank account of Adelio Cruz. Dalisay justified his act by averring that Cruz was the owner and president of QLSI. Further, he claimed that the counsel for the discharged employees advised him to garnish the account of Cruz. ISSUE: Whether or not the action of Dalisay is correct. HELD: No. What Dalisay did is tantamount to piercing the veil of corporate fiction. He actually usurped the power of the court. He also overstepped his duty as a deputy sheriff. His duty is merely ministerial and it is incumbent upon him to execute the decision of the court according to its tenor and only against the persons obliged to comply. In this case, the person judicially named to comply was QLSI and not Cruz. It is a well-settled doctrine both in law and in equity that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members. The mere fact that one is president of a corporation does not render the property he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate entities.

Luxuria Homes Inc. vs. CA [302 SCRA 315 (Jan 28 1999)] Ownership in Capital Stock not sufficient to Pierce Veil of Corporate Fiction Facts: Posadas and her 2 minors co-owned a 1.6 hectare property in Sucat which was occupied by squatters. Posadas negotiated with Bravo regarding the development of said property into a residential subdivision. She authorized Bravo to negotiate with the squatters. Meanwhile, Posadas assigned the property to Luxuria Homes via a deed of assignment. Relations with Bravo turned sour. Bravor demanded payment for services rendered. Posadas refused to pay. Bravo instituted a complaint for specific performance with the RTC. He included Luxuria Homes, Inc. as respondent since he alleged that Posadas surreptitiously formed said corporation and transferred the parcel of land to it to evade payment and defraud creditors. RTC adjudged in favor of Bravo. CA affirmed. Hence, this petition for review. Issue: Whether or not Luxuria Homes, Inc. was a party to the transactions entered into by Posadas and Bravo and thus could be held jointly and severally liable with Posadas. Held: No. It is evident from the records that Bravo sent demand letters more than a year and a half after the execution of the Deed of Assignment in favor of Luxuria and the issuance of AoI of Luxuria. The transfer was made at the time the relationship between Posadas and Bravo was still very pleasant. Furthermore, Posadas is not the majority stockholder of Luxuria. The AOI shows that Posadas owns approximately 33% only of the capital stock. Hence, Posadas cannot be considered as an alter ego of Luxuria Homes. To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed. The separate personality of the corproation may be disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary for the protection of the creditors. In the case at bar, Bravo failed to show proof that Posadas was acting in bad faith.

Sulo ng Bayan vs. Araneta Case Digest

Sulo ng Bayan vs. Araneta

[GR L-31061, 17 August 1976] Facts: On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against Gregorio Araneta Inc. (GAI), Paradise Farms Inc., National Waterworks & Sewerage Authority (NAWASA), Hacienda Caretas Inc., and the Register of Deeds of Bulacan to recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan, containing an area of 27,982,250 sq. ms., more or less, registered under the Torrens System in the name of GAI, et. al.'s predecessors-in-interest (who are members of the corporation). On 2 September 1966, GAI filed a motion to dismiss the amended complaint on the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds. NAWASA did not file any motion to dismiss. However, it pleaded in its answer as special and affirmative defenses lack of cause of action by Sulo ng Bayan Inc. and the barring of such action by prescription and laches. On 24 January 1967, the trial court issued an Order dismissing the (amended) complaint. On 14 February 1967, Sulo ng Bayan filed a motion to reconsider the Order of dismissal, arguing among others that the complaint states a sufficient cause of action because the subject matter of the controversy in one of common interest to the members of the corporation who are so numerous that the present complaint should be treated as a class suit. The motion was denied by the trial court in its Order dated 22 February 1967. Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, the Court of Appeals, upon finding that no question of fact was involved in the appeal but only questions of law and jurisdiction, certified the case to the Supreme Court for resolution of the legal issues involved in the controversy. Issue: 1. Whether the corporation (non-stock) may institute an action in behalf of its individual members for the recovery of certain parcels of land allegedly owned by said members, among others. 2. Whether the complaint filed by the corporation in behalf of its members may be treated as a class suit Held: 1. It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. The property of the corporation is its property and not that of the stockholders, as owners, although they have equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. Conversely, a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, "even in the case of a one-man corporation." The mere fact that one is president of a corporation does not render the property which he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate similarities. Similarly, stockholders in a corporation engaged in buying and dealing in real estate whose certificates of stock entitled the holder thereof to an allotment in the distribution of the land of the corporation upon surrender of their stock certificates were considered not to have such legal or equitable title or interest in the land, as would support a suit for title, especially against parties other than the corporation. It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of justice. This separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. It has not been claimed that the members have assigned or transferred whatever rights they may have on the land

in question to the corporation. Absent any showing of interest, therefore, a corporation, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal capacities. 2. In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of the controversy is one of common or general interest to many persons; and (2) that the parties are so numerous that it is impracticable to bring them all before the court. Here, there is only one party plaintiff, and the corporation does not even have an interest in the subject matter of the controversy, and cannot, therefore, represent its members or stockholders who claim to own in their individual capacities ownership of the said property. Moreover, a class suit does not lie in actions for the recovery of property where several persons claim partnership of their respective portions of the property, as each one could alleged and prove his respective right in a different way for each portion of the land, so that they cannot all be held to have identical title through acquisition/prescription.

Magsaysay-Labrador vs CA Case Digest

Magsaysay-Labrador, et. al. vs. Court of Appeals [GR 58168, 19 December 1989] Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulment of the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of which TCT 3258 was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the Deed of Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the amount of P 2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the latter to issue a new title in her favor. On 7 March 1979, Concepcion Magsaysay-Labrador, Soledad MagsaysayCabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late senator, filed a motion for intervention on the ground that on 20 June 1978, their brother conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC. On 26 July 1979, the trial court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders. On appeal, the Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The appellate court further stated that whatever claims the Magsaysay sisters have against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding. The motion for reconsideration of the Magsaysay sisters was denied. Hence, the petition for review on certiorari. Issue: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested parties in a case where corporate properties are in dispute. Held: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay sisters have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings. To be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof . Here, the interest, if it exists at all, of the Magsaysay

sisters is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person.