Cease vs.

Court of Appeals

G.R. No. L-33172 October 18, 1979

Facts:

Sometime in June 1908, one Forrest L. Cease common predecessor in interest of the parties
together with five (5) other American citizens organized the Tiaong Milling and Plantation
Company and in the course of its corporate existence the company acquired various properties
but at the same time all the other original incorporators were bought out by Forrest L. Cease
together with his children namely Ernest, Cecilia, Teresita, Benjamin, Florence and one
Bonifacia Tirante also considered a member of the family; the charter of the company lapsed in
June 1958; but whether there were steps to liquidate it, the record is silent; on 13 August 1959,
Forrest L. Cease died and by extrajudicial partition of his shares, among the children, this was
disposed of on 19 October 1959; it was here where the trouble among them came to arise
because it would appear that Benjamin and Florence wanted an actual division while the other
children wanted reincorporation; and proceeding on that, these other children Ernesto, Teresita
and Cecilia and aforementioned other stockholder Bonifacia Tirante proceeded to incorporate
themselves into the F.L. Cease Plantation Company and registered it with the Securities and
Exchange Commission on 9 December, 1959; apparently in view of that, Benjamin and
Florence for their part initiated a Special Proceeding No. 3893 of the Court of First Instance of
Tayabas for the settlement of the estate of Forest L. Cease on 21 April, 1960 and one month
afterwards on 19 May 1960 they filed Civil Case No. 6326 against Ernesto, Teresita and Cecilia
Cease together with Bonifacia Tirante asking that the Tiaong Milling and Plantation Corporation
be declared Identical to F.L. Cease and that its properties be divided among his children as his
intestate heirs; this Civil Case was resisted by aforestated defendants and notwithstanding
efforts of the plaintiffs to have the properties placed under receivership, they were not able to
succeed because defendants filed a bond to remain as they have remained in possession; after
that and already, during the pendency of Civil Case No. 6326 specifically on 21 May, 1961
apparently on the eve of the expiry of the three (3) year period provided by the law for the
liquidation of corporations, the board of liquidators of Tiaong Milling executed an assignment
and conveyance of properties and trust agreement in favor of F.L. Cease Plantation Co. Inc. as
trustee of the Tiaong Milling and Plantation Co. so that upon motion of the plaintiffs trial Judge
ordered that this alleged trustee be also included as party defendant; now this being the
situation, it will be remembered that there were thus two (2) proceedings pending in the Court of
First Instance of Quezon namely Civil Case No. 6326 and Special Proceeding No. 3893 but
both of these were assigned to the Honorable Respondent Judge Manolo L. Maddela p. 43 and
the case was finally heard and submitted upon stipulation of facts pp, 34-110, rollo; and trial
Judge by decision dated 27 December 1969 held for the plaintiffs Benjamin and Florence.

Issue:

Whether or not the properties of the Tiaong Milling and Plantation Company forms part of the
estate of the deceased Forrest L. Cease.

Ruling:

Yes. The theory of “merger of Forrest L. Cease and The Tiaong Milling as one personality”, or
that “the company is only the business conduit and alter ego of the deceased Forrest L. Cease
and the registered properties of Tiaong Milling are actually properties of Forrest L. Cease and
should be divided equally, share and share alike among his six children, … “, the trial court did
aptly apply the familiar exception to the general rule by disregarding the legal fiction of distinct
and separate corporate personality and regarding the corporation and the individual member
one and the same.

It must be remembered that when Tiaong Milling adduced its defense and raised the issue of
ownership, its corporate existence already terminated through the expiration of its charter. It is
clear in Section 77 of Act No. 1459 (Corporation Law) that upon the expiration of the charter
period, the corporation ceases to exist and is dissolved ipso facto except for purposes
connected with the winding up and liquidation. The provision allows a three year, period from
expiration of the charter within which the entity gradually settles and closes its affairs, disposes
and convey its property and to divide its capital stock, but not for the purpose of continuing the
business for which it was established. At this terminal stage of its existence, Tiaong Milling may
no longer persist to maintain adverse title and ownership of the corporate assets as against the
prospective distributees when at this time it merely holds the property in trust, its assertion of
ownership is not only a legal contradiction, but more so, to allow it to maintain adverse interest
would certainly thwart the very purpose of liquidation and the final distribute loll of the assets to
the proper, parties.

While the records showed that originally its incorporators were aliens, friends or third-parties in
relation of one to another, in the course of its existence, it developed into a close family
corporation. The Board of Directors and stockholders belong to one family the head of which
Forrest L. Cease always retained the majority stocks and hence the control and management of
its affairs. In fact, during the reconstruction of its records in 1947 before the Security and
Exchange Commission only 9 nominal shares out of 300 appears in the name of his 3 eldest
children then and another person close to them. It is likewise noteworthy to observe that as his
children increase or perhaps become of age, he continued distributing his shares among them
adding Florence, Teresa and Marion until at the time of his death only 190 were left to his name.
Definitely, only the members of his family benefited from the Corporation.

The accounts of the corporation and therefore its operation, as well as that of the family appears
to be indistinguishable and apparently joined together. As admitted by the defendants
corporation ‘never’ had any account with any banking institution or if any account was carried in
a bank on its behalf, it was in the name of Mr. Forrest L. Cease. In brief, the operation of the
Corporation is merged with those of the majority stockholders, the latter using the former as his
instrumentality and for the exclusive benefits of all his family. From the foregoing indication,
therefore, there is truth in plaintiff’s allegation that the corporation is only a business conduit of
his father and an extension of his personality, they are one and the same thing. Thus, the
assets of the corporation are also the estate of Forrest L. Cease, the father of the parties herein
who are all legitimate children of full blood.

A rich store of jurisprudence has established the rule known as the doctrine of disregarding or
piercing the veil of corporate fiction. Generally, a corporation is invested by law with a
personality separate and distinct from that of the persons composing it as well as from that of
any other legal entity to which it may be related. By virtue of this attribute, a corporation may
not, generally, be made to answer for acts or liabilities of its stockholders or those of the legal
entities to which it may be connected, and vice versa. This separate and distinct personality is,
however, merely a fiction created by law for convenience and to promote the ends of justice. For
this reason, it may not be used or invoked for ends subversive of the policy and purpose behind
its creation. This is particularly true where the fiction is used to defeat public convenience, justify
wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues , perpetrate
deception or otherwise circumvent the law. This is likewise true where the corporate entity is
being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders
or of another corporate entity.