Piercing the Corporate Veil (2008)

X
Nelson owned and controlled Sonnel Construction Company. Acting for the
company, Nelson contracted the construction of a building. Without first installing a
protective net atop the sidewalks adjoining the construction site, the company
proceeded with the construction work. One day a heavy piece of lumber fell from the
building. It smashed a taxicab which at that time had gone offroad and onto the
sidewalk in order to avoid the traffic. The taxicab passenger died as a result.
a. Assume that the company had no more account and property in its name. As
counsel for the heirs of the victim, whom will you sue for damages, and what
theory will you adopt? (3%)
SUGGESTED ANSWER:
a. As counsel for the heirs of the victim, I will sue Nelson as owner of Sonnel
Construction Company using the Doctrine of Piercing the Veil of Corporate
Fiction.
As a general rule, the liability of a corporation is separate and distinct from that of
the persons comprising it. However, as an exception to the rule, the veil of
corporate fiction may be pierced when the separate personality of the corporation
is used as a shield to avoid a clear legal obligation. In such an event, it is treated
as a mere association of persons upon whom liability attaches.
In the given case, Sonnel Construction Company has a clear legal obligation to
the heirs of the victim for its negligence in not installing a protective net atop the
sidewalk before beginning construction. Nelson, as owner of the company,
cannot use the separate entity rule in order to avoid liability. This is especially
true when the company had no more account and property under its name.
Piercing the Corporate Veil (2006)
1.(1)What is the doctrine of "piercing the veil of corporate entity?" Explain.
SUGGESTED ANSWER:
The doctrine of "piercing the veil of corporate entity," is the doctrine that allows the
courts to look behind the
separate juridical personality of a corporation and treat the corporation as an
association of persons and thereby make

the individual actors personally liable for corporate liabilities. The fiction of corporate
identity is disregarded
and the individuals comprising it can be treated identically. The stockholders can be
held directly liable for corporate
obligations, even to the extent of their personal assets. (Concept Builders v. NLRC,
Marabe, et al,
G.R. No. 108734, May 29, 1996).
(2)To what circumstances will the doctrine apply? (2.5%)
The doctrine is applicable when the notion of legal entity is used to
1) Defeat public convenience.
2) Justify wrong.
3) Protect fraud.
4) Defend crime (PNB v. Andrada Electric, G.R. No. 142936, April 17, 2002).
5) Shield a violation of the proscription againstforum shopping (First Philippine
International Bank v. Court of
Appeals, G.R. No. 137537, January 24, 1996).
6) Work inequities among members of the corporation internally, involving no rights of
the public or third persons (Secosa v. Heirs ofErwin Suarez Francisco, G.R. No.156104,
June 29, 2004).
7) Evade the lawful obligations of the corporation like a judgment credit (Sibagat Timber
Corp. v. Garcia,
G.R. No. 112546, December 11, 1992).
8) Escape liability arising from a debt (Arcilla v. Court of Appeals, G.R. No. 88113,
October
23, 1992).
9) Avoid inclusion of corporate assets as part of the estate of the decedent (Cease v.
Court of Appeals, G.R. No.
L-35861, October 18, 1979).
10) To promote or to shield unfair objectives.
Corporation Sole; Definition (2004)
3 (A). What is a corporation sole?
SUGGESTED ANSWER:
Section 110 of the Corporation Code defines a "corporation sole" as one formed for the
purpose of administering and managing, as trustee, the affairs, property and
temporalities of any religious denomination, sect or church. It is formed by the chief
archbishop, bishop, priest, minister, rabbi or other presiding elder of such religious
denomination, sect or church.

Piercing the Corporate Veil (2001)

10. Plaintiffs filed a collection action against X Corporation. Upon execution of the
courts decision, X Corporation was found to be without assets. Thereafter plaintiffs
filed an action against its present and past stockholder Y Corporation which
owned substantially all of the stocks of X Corporation. The two corporations have
the same board of directors and Y Corporation financed the operations of X
Corporation. May Y Corporation be held liable for the debts of X Corporation? Why?
(5%)
SUGGESTED ANSWER:
Yes, Y Corporation may be held liable for the debts of X Corporation. The doctrine of
piercing the veil of corporation fiction applies to this case. The two corporations have
the same board of directors and Y Corporation owned substantially all of the stocks of X
Corporation, which facts justify the conclusion that the latter is merely an extension of
the personality of the former, and that the former controls the policies of the latter.
Added to this is the fact that Y Corporation controls the finances of X Corporation which
is merely an adjunct, business conduit or alter ego of Y Corporation (CIR v Norton &
Harrison Co 11 S 714 (1964))
Derivative Suit
Atlantis Realty Corporation (ARC), a local firm engaged in real estate development,
plans to sell one of its prime assets --- a three-hectare land valued at about P100million. For this purpose, the board of directors of ARC unanimously passed a
resolution approving the sale of the property for P75-million to Shangrila Real
Estate Ventures (SREV), a rival realty firm. The resolution also called for a special
stockholders meeting at which the proposed sale would be up for ratification.
Atty. Edric, a stockholder who owns only one (1) share in ARC, wants to stop
the sale. He then commences a derivative suit for and in behalf of the corporation, to
enjoin the board of directors and the stockholders from approving the sale.
[a] Can Atty. Edric, who owns only one (1) share in the company, initiate a derivative
suit? Why or why not? (2%)
[b] If such a suit is commenced, would it constitute an intra-corporate dispute? If so,
why and where would such a suit be filed? If not, why not? (2%)
[c] Will the suit prosper? Why or why not? (3%)

[a] No, Atty. Edric, who owns only one (1) share in the company, cannot initiate a
derivative suit.
The following are the requisites of a derivative suit:
a) the party bringing suit should be a shareholder as of the time of the act or
transaction complained of, the number of his shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand
on the board of directors for the appropriate relief but the latter has failed or
refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the wrongdoing or
harm having been, or being caused to the corporation and not to the particular
stockholder bringing the suit. ( Filipinas Port Services, Inc. v. Go, G.R. No.
161886, March 16, 2007, 518 SCRA 453)
Gleaning from the facts, there is no showing that Atty. Edric has complied with
the second requirement, that he has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the board of directors for the appropriate
relief but the latter has failed or refused to heed his plea Thus of one of the
requisites is missing, Atty. Edric cannot initiate a derivative suit.
[b] Yes, it would it constitute an intra-corporate dispute.
So what are intra-corporate controversies? R.A. No. 8799 refers to Section 5 of
Presidential Decree (P.D.) No. 902-A (or The SEC Reorganization Act) for a
description of such controversies:
a) Devices or schemes employed by or any acts, of the board of directors,
business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholder, partners, members of associations or
organizations registered with the Commission;
b) Controversies arising out of intra-corporate or partnership relations, between
and among stockholders, members, or associates; between any or all of them
and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation, partnership
or association and the state insofar as it concerns their individual franchise or
right to exist as such entity;

c) Controversies in the election or appointments of directors, trustees, officers or

managers of such corporations, partnerships or associations. ( VITALIANO N.
AGUIRRES II vs FQB+7, INC. GR No. 170770)

An intra-corporate controversy is one which pertains to any of the following

relationships:
(1) between the corporation, partnership or association and the public;
(2) between the corporation, partnership or association and the State in so far as
its franchise, permit or license to operate is concerned;
(3) between the corporation, partnership or association and its stockholders,
partners, members or officers; and
(4) among the stockholders, partners or associates themselves.
There is thus no dispute the case involves an intra-corporate controversy, the
contending parties being stockholders and officers of a corporation.(Yujuico vs.
Quiambao, 513 SCRA 243)
The case should be filed before the Regional Trial Court where the principal
office of the corporation is located. R.A. No. 8799 conferred jurisdiction over
intra-corporate controversies on courts of general jurisdiction or RTCs, to be
designated by the Supreme Court. Thus, as long as the nature of the controversy
is intra-corporate, the designated RTCs have the authority to exercise jurisdiction
over such cases.
[c] The suit will not prosper on the ground of failure to state a cause of action.
Atty. Edric has not complied with all the requisites of a derivative suit,
specifically he has tried to exhaust intra-corporate remedies. It is
elementary in statutory construction and remedial law, since he has not yet
complied with one of the requisites; he still has no cause of action accruing in his
favor. Thus, the derivative suit will not prosper.