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    Umali Vs CA Digest

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    Sarah Jane Fabricante Behiga
    The Castillo family owned land that was mortgaged to a bank. To raise funds and prevent foreclosure, they agreed to subdivide the land. However, they failed to repay equipment purchased for the project. This led to foreclosure by the Insurance Corporation of the Philippines (ICP), who had provided a surety bond, and sale of the land to another company. The Castillos sued to annul the agreements and foreclosure. The court found no evidence the corporate entities of the involved companies were formed solely to defraud the Castillos, so it could not pierce the corporate veil to grant the requested relief.

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    Umali Vs CA Digest

    Uploaded by

    Sarah Jane Fabricante Behiga
    1K views2 pages
    The Castillo family owned land that was mortgaged to a bank. To raise funds and prevent foreclosure, they agreed to subdivide the land. However, they failed to repay equipment purchased for the project. This led to foreclosure by the Insurance Corporation of the Philippines (ICP), who had provided a surety bond, and sale of the land to another company. The Castillos sued to annul the agreements and foreclosure. The court found no evidence the corporate entities of the involved companies were formed solely to defraud the Castillos, so it could not pierce the corporate veil to grant the requested relief.

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    Umali vs CA Digest

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    The Castillo family owned land that was mortgaged to a bank. To raise funds and prevent foreclosure, they agreed to subdivide the land. However, they failed to repay equipment purchased for the project. This led to foreclosure by the Insurance Corporation of the Philippines (ICP), who had provided a surety bond, and sale of the land to another company. The Castillos sued to annul the agreements and foreclosure. The court found no evidence the corporate entities of the involved companies were formed solely to defraud the Castillos, so it could not pierce the corporate veil to grant the requested relief.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    1K views2 pages

    Umali Vs CA Digest

    Uploaded by

    Sarah Jane Fabricante Behiga
    The Castillo family owned land that was mortgaged to a bank. To raise funds and prevent foreclosure, they agreed to subdivide the land. However, they failed to repay equipment purchased for the project. This led to foreclosure by the Insurance Corporation of the Philippines (ICP), who had provided a surety bond, and sale of the land to another company. The Castillos sued to annul the agreements and foreclosure. The court found no evidence the corporate entities of the involved companies were formed solely to defraud the Castillos, so it could not pierce the corporate veil to grant the requested relief.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 2

    BUENAFLOR C. UMALI vs.

    court of appeals

    BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M.


    CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAEZ, LEOVINA C.
    JALBUENA and SANTIAGO M. RIVERA vs. COURT OF APPEALS,
    BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING
    CO., INC.

    G.R. No. 89561 September 13, 1990

    Facts:

    The Castillo family are the owners of a parcel of lands which was given as
    security for a loan from the DBP. Mauricia Castillo was the administratrix in
    charge over a parcel of land left by Felipe Castillo. For their failure to pay the
    amortization, foreclosure of the said property was about to be foreclosed. This
    problem was made known to Rivera, (Plaintiff Santiago Rivera is the nephew of
    plaintiff Mauricia Meer Vda. de Castillo.) who proposed to them the conversion
    into subdivision of the four parcels of land adjacent to the mortgaged property to
    raise the necessary fund. The Idea was accepted by the Castillo family and to
    carry out the project, a Memorandum of Agreement was executed by and
    between Slobec Realty and Development, Inc., represented by its President
    Rivera and the Castillo family.

    Rivera, armed with the agreement, approached Mr. Modesto Cervantes,


    President of defendant Bormaheco, and proposed to purchase from Bormaheco
    tractors.

    Slobec, through Rivera, executed in favor of Bormaheco a Chattel Mortgage over


    the said equipment as security. As further security of the aforementioned unpaid
    balance, Slobec obtained from Insurance Corporation of the Phil. a Surety Bond,
    with ICP (Insurance Corporation of the Phil.) as surety and Slobec as principal, in
    favor of Bormaheco. The aforesaid surety bond was in turn secured by an
    Agreement of Counter-Guaranty with Real Estate Mortgage executed by Rivera
    as president of Slobec and Castillo family, as mortgagors and ICP as mortgagee.
    In giving the bond, ICP required that the Castillos mortgage to them the four
    parcels of land.

    For violation of the terms and conditions of the Counter-Guaranty Agreement, the
    properties of the Castillos were foreclosed by ICP - the highest bidder. The
    mortgagors had one year to redeem the property, but they failed to do so.
    Consequently, ICP consolidated its ownership. ICP sold to PM Parts the four
    parcels of land. Thereafter, PM Parts, through its President, Mr. Modesto
    Cervantes, sent a letter addressed to plaintiff Mrs. Mauricia Meer Castillo
    requesting her and her children to vacate the subject property.

    The heirs of the late Felipe Castillo filed an action for annulment of title.

    CFI: Judgment is hereby rendered in favor of the plaintiffs agreements etc - null
    and void for being fictitious, spurious and without consideration.

    CA: reversed

    Hence this petition.


    Issue:

    Whether or not there is necessity to pierce the veil of corporate entity of


    Bormaheco, ICP and PM Parts, to determine whether they employed fraud in
    causing the foreclosure and subsequent sale of the real properties belonging to
    petitioners

    Ruling:

    Under the doctrine of piercing the veil of corporate entity, when valid grounds
    therefore exist, the legal fiction that a corporation is an entity with a juridical
    personality separate and distinct from its members or stockholders may be
    disregarded. In such cases, the corporation will be considered as a mere
    association of persons. The members or stockholders of the corporation will be
    considered as the corporation, that is, liability will attach directly to the officers
    and stockholders. 12 The doctrine applies when the corporate fiction is used to
    defeat public convenience, justify wrong, protect fraud, or defend crime, 13 or
    when it is made as a shield to confuse the legitimate issues 14 or where a
    corporation is the mere alter ego or business conduit of a person, or where the
    corporation is so organized and controlled and its affairs are so conducted as to
    make it merely an instrumentality, agency, conduit or adjunct of another
    corporation.

    While we do not discount the possibility of the existence of fraud in the


    foreclosure proceeding, neither are we inclined to apply the doctrine invoked by
    petitioners in granting the relief sought. It is our considered opinion that piercing
    the veil of corporate entity is not the proper remedy in order that the foreclosure
    proceeding may be declared a nullity under the circumstances obtaining in the
    legal case at bar.

    In the first place, the legal corporate entity is disregarded only if it is sought to
    hold the officers and stockholder directly liable for a corporate debt or obligation.
    In the instant case, petitioners do not seek to impose a claim against the
    individual members of the three corporations involved; on the contrary, it is these
    corporations which desire to enforce an alleged right against petitioners.
    Assuming that petitioners were indeed defrauded by private respondents in the
    foreclosure of the mortgaged properties, this fact alone is not, under the
    circumstances, sufficient to justify the piercing of the corporate fiction, since
    petitioners do not intend to hold the officers and/or members of respondent
    corporations personally liable therefor. Petitioners are merely seeking the
    declaration of the nullity of the foreclosure sale, which relief may be obtained
    without having to disregard the aforesaid corporate fiction attaching to
    respondent corporations.

    Secondly, petitioners failed to establish by clear and convincing evidence that


    private respondents were purposely formed and operated, and thereafter
    transacted with petitioners, with the sole intention of defrauding the latter.

    The mere fact, therefore, that the businesses of two or more corporations are
    interrelated is not a justification for disregarding their separate personalities,
    absent sufficient showing that the corporate entity was purposely used as a
    shield to defraud creditors and third persons of their rights.

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