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Doctrine of Piercing the Veil of Corporate Entity

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Requires the court to see through the protective shroud which exempts its stockholders from liabilities that they ordinarily would be subject to, or distinguishes a corporation from a seemingly separate one, were it not for the existing corporate fiction (Lim vs CA, 323 SCRA 102) Extent: The application of the doctrine to a particular case does not deny the corporation of legal personality for any and all purposes, but only for the particular transaction or instance for which the doctrine was applied (Koppel v. Yatco 77 Phil. 496)

The piercing doctrine has only a res judicata effect. When the defendant corporation’s legal personality has been pierced in one case, such corporation still possesses separate juridical personality in any other case, or with respect to other issues. Rules: has only a res judicata effect to prevent wrong or fraud and not available for other purposes judicial prerogative only must be with necessary and factual basis One-Man Corporation

A Corporation wherein all or substantially all of the stocks is held directly or indirectly by one person. However, it should still follow the formal requirements of a corporation (e. g. number of incorporators, board of directors composed of stockholders owning shares in a nominal capacity) in order to validly enjoy the attributes of the corporation, so as to avoid the application of the doctrine of piercing the veil of corporate entity. 3 Classes of Piercing: Fraud Cases – when a corporation is used as a cloak to cover fraud, or to do wrong.

Alter Ego Cases – when the corporate entity is merely a farce since the corporation is an alter ego business conduit or instrumentality of a person or another corporation. Equity Cases – when piercing the corporate fiction is necessary to achieve justice or equity. Instrumentality/Alter Ego Rule Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the “instrumentality” may be disregarded.

Requisites: There must be control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy, and business practice in respect to the transaction attacked so that the corporate entity as to the transaction had, at that time, no separate mind, will or existence of its own (control); Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive duty, or dishonest and unjust act in contravention of plaintiff’s legal rights (breach of duty); and Such control and breach of duty must proximately cause the injury to the plaintiff.

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