1.) Santos vs.

National Labor Relations Commission

Facts: Melvin D. Millena, on 1 October 1985, was hired to be the project accountant for Mana
Mining and Development Corporation's (MMDC) mining operations in Gatbo, Bacon, Sorsogon.
On 12 August 1986, Millena sent to Mr. Gil Abaño, the MMDC corporate treasurer, a
memorandum calling the latter's attention to the failure of the company to comply with the
withholding tax requirements of, and to make the corresponding monthly remittances to, the
Bureau of Internal Revenue (BIR) on account of delayed payments of accrued salaries to the
company's laborers and employees. In a letter, dated 8 September 1986, Abaño advised Millena
that it was the board's decision that it stop production (operation) in Sorsogon due to the upcoming
rainy seasons and the deterioration of the peace and order in the said area; that the corporation will
undertake only necessary maintenance and repair work and will keep overhead down to the
minimum manageable level; and that the corporation will not need a project accountant until the
corporation resumes full-scale operations. Millena expressed "shock" over the termination of his
employment. He complained that he would not have resigned from the Sycip, Gores & Velayo
accounting firm, where he was already a senior staff auditor, had it not been for the assurance of a
"continuous job" by MMDC's Eng. Rodillano E. Velasquez. Millena requested that he be
reimbursed the "advances" he had made for the company and be paid his "accrued salaries/claims."
The claim was not heeded. On October 1986, Millena filed with the NLRC Regional Arbitration,
Branch No. V, in Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13th month pay,
overtime pay, separation pay and incentive leave pay against MMDC and its two top officials,
namely, Benjamin A Santos (the President) and Rodillano A. Velasquez (the executive vice-
president). In his complaint-affidavit (position paper), submitted on 27 October 1986, Millena
alleged, among other things, that his dismissal was merely an offshoot of his letter of 12 August
1986 to Abaño about the company's inability to pay its workers and to remit withholding taxes to
the BIR. On 27 July 1988, Labor Arbiter Fructouso T. Aurellano, finding no valid cause for
terminating complaint's employment, ruled that a partial closure of an establishment due to losses
was a retrenchment measure that rendered the employer liable for unpaid salaries and other
monetary claims. The Labor Arbiter ordered Santos, et. al. to pay Millena the amount of
P37,132.25 corresponding to the latter's unpaid salaries and advances: P5,400.00 for petitioner's
13th month pay; P3,340.95 as service incentive leave pay; and P5, 400.00 as separation pay.
Santos, et. al. were further ordered to pay Millena 10% of the monetary awards as attorney's fees.
Alleging abuse of discretion by the Labor Arbiter, the company and its co-respondents filed a
"motion for reconsideration and /or appeal." 8 The motion/appeal was forthwith indorsed to the
Executive Director of the NLRC in Manila. In a resolution, dated 04 September 1989, the NLRC
affirmed the decision of the Labor Arbiter. A writ of execution correspondingly issued; however,
it was returned unsatisfied for the failure of the sheriff to locate the offices of the corporation in
the addressed indicated. Another writ of execution and an order of garnishment was thereupon
served on Santos at his residence. Contending that he had been denied due process, Santos filed a
motion for reconsideration of the NLRC's resolution along with a prayer for the quashal of the writ
of execution and order of garnishment. He averred that he had never received any notice, summons
or even a copy of the complaint; hence, he said, the Labor Arbiter at no time had acquired
jurisdiction over him. On 16 August 1991, the NLRC dismissed the motion for reconsideration.
Santos filed the petition for certiorari.

Issue: Whether Santos should be made solidarily liable with MMDC.

Held: A corporation is a judicial entity with legal personality separated and distinct from those
acting for and, in its behalf, and, in general, from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its directors, officers and employees, are
its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds
can exist to warrant, albeit done sparingly, the disregard of its independent being and the lifting of
the corporate veil. As a rule, this situation might arise a corporation is used to evade a just and due
obligation or to justify a wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable
aims or intentions, or as a subterfuge to commit injustice and so circumvent the law. Without
necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully
attach to a corporate director, trustee or officer; to wit: When (1) He assents (a) to a patently
unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or
(b) for conflict of interest, resulting in damages to the corporation, its stockholders or other
persons; (2) He consents to the issuance of watered stocks or who, having knowledge thereof, does
not forthwith file with the corporate secretary his written objection thereto; (3) He agrees to hold
himself personally and solidarily liable with the corporation; or (4) He is made, by a specific
provision of law, to personally answer for his corporate action. The case of Santos is way of these
exceptional instances. It is not even shown that Santos has had a direct hand in the dismissal of
Millena enough to attribute to Santos a patently unlawful act while acting for the corporation.
Neither can Article 289 of the Labor Code be applied since this specifically refers only to the
imposition of penalties under the Code. It is undisputed that the termination of Millena's
employment has, instead, been due, collectively, to the need for a further mitigation of losses, the
onset of the rainy season, the insurgency problem, in Sorsogon and the lack of funds to further
support the mining operation in Gatbo. It is basic that a corporation is invested by law with a
personally separate and distinct from those of the persons composing it as well as from that of any,
other legal entity to which it may be related. Mere ownership by a single stockholder or by another
corporation of all nearly all of the capital stock of a corporation is not of itself sufficient ground
for disregarding the separate corporate personally. Similar to the case of Sunio vs. National Labor
Relations Commission, Santos should not have been made personally answerable for the payment
of Millena's back salaries.

2.) F. Guanzon & Sons Inc. vs. Register of Deeds

Facts: Five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of
the assets of the corporation reciting that by virtue of a resolution of the stockholders dissolving
the corporation, they have distributed among themselves in proportion to their shareholdings, as
liquidating dividends, the assets of said corporation, including real properties located in Manila.

The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied
registration on several grounds. Deciding the consulta elevated by the stockholders, the
Commissioner of Land Registration overruled ground No. 7:“The judgment of the Court approving
the dissolution and directing the disposition of the assets of the corporation need be presented
(Rules of Court, Rule 104, Sec.3).” and sustained the other requirements.

The stockholders interposed the present appeal. Appellants contend that the certificate of
liquidation is not a conveyance or transfer but merely a distribution of the assets of the corporation
which has ceased to exist for having been dissolved. Hence the amount of documentary stamps to
be affixed thereon should only beP0.30 and not P940.45, as required by the register of deeds.
Neither is it correct to require appellants to pay the amount of P430.50 as registration fee.

The Commissioner of Land Registration concurred in the view expressed by the register of deed
to the effect that the certificate of liquidation in question, though it involves a distribution of the
corporation's assets, in the last analysis represents a transfer of said assets from the corporation to
the stockholders. Hence, in substance it is a transfer or conveyance. The LRA states that the
distribution of the corporate assets upon dissolution of the corporation, is ultimately a
transfer/conveyance of property to the stockholders.

Issue: W/N the certificate of liquidation involves a mere distribution of corporate assets or a
transfer or conveyance of property.

Held: It is a transfer/conveyance of property. A corporation is a juridical person separate and

distinct from the stockholders. Properties registered in the name of the corporation are owned by
it as a separate entity. The shares held by stockholders are their personal property and not the
corporation, and it only typifies an aliquot part of the corporation’s property or the right to share
in the proceeds. The holder of such share is not the owner of any part of the capital of the
corporation, nor is he entitled to possession of any definite portion of its assets, neither is he a co-
owner.
Liquidation by stockholders after a corporation’s dissolution is not mere partitioning of community
property, but already a conveyance or transfer of title to them from the corporation. The
distribution of the corporate properties to the stockholders was deemed not in the nature of a
partition among co-owners, but rather a disposition by the corporation to the stockholders as
opposite parties to a contract Properties registered in the name of the corporation are owned by it
as an entity separate and distinct from its members; shares of stock are personal property, and NOT
corporate property. Share of stock typifies an aliquot part of the corporation’s property, or the right
to share in the proceeds to that extent when distributed holder of shares is not the owner of any
part of the capital of the corporation, nor is he entitled to the possession of any definite portion of
its property or assets.

3.) Manila Gas vs CIR (1936)

Facts: This is an action brought by the Manila Gas Corporation against the Collector of Internal
Revenue for the recovery of P56,757.37, which the plaintiff was required by the defendant to
deduct and withhold from the various sums paid it to foreign corporations as dividends and interest
on bonds and other indebtedness and which the plaintiff paid under protest.

Issue: Won the Collector of Internal Revenue was justified in withholding income taxes on interest
on bonds and other indebtedness paid to nonresident corporations

Held: YES. The approved doctrine is that no state may tax anything not within its jurisdiction
without violating the due process clause of the constitution. The taxing power of a state does not
extend beyond its territorial limits, but within such it may tax persons, property, income, or
business. If an interest in property is taxed, the situs of either the property or interest must be found
within the state. If an income is taxed, the recipient thereof must have a domicile within the state
or the property or business out of which the income issues must be situated within the state so that
the income may be said to have a situs therein. Personal property may be separated from its owner,
and he may be taxed on its account at the place where the property is although it is not the place
of his own domicile and even though he is not a citizen or resident of the state which imposes the
tax. But debts owing by corporations are obligations of the debtors, and only possess value in the
hands of the creditors. The Manila Gas Corporation operates its business entirely within the
Philippines. Its earnings, therefore come from local sources. The place of material delivery of the
interest to the foreign corporations paid out of the revenue of the domestic corporation is of no
particular moment. The place of payment even if conceded to be outside of the country cannot
alter the fact that the income was derived from the Philippines. The word "source" conveys only
one idea, that of origin, and the origin of the income was the Philippines. Taxation Law Case
Digest

The Collector of Internal Revenue was justified in withholding income taxes on interest on bonds
and other indebtedness paid to non-resident corporations because this income was received from
sources within the Philippine Islands as authorized by the Income Tax Law

4.) Magsaysay-Labrador, et. al. vs. Court of Appeals

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 Magsaysay-Cabrera, 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.

5.) Good Earth Emporium Inc. vs Court of Appeals

Facts: A lease contract, dated October 16, 1981, was entered into by and between Roces-Reyes
Realty Inc. as lessor, and Good Earth Emporium Inc. (GEE) as lessee for a term of three years
beginning November 1, 1981 and ending October 31, 1984 at a monthly rental of Php65,000. The
building which was the subject of the contract of lease is a five story building located at the corner
of Rizal Avenue and Bustos Street in Sta. Cruz, Manila. From March 1983 up to the complaint
was filed, the lessee had defaulted in the payment of rentals, as a consequence of which, private
respondent Roces-Reyes Realty Inc. filed on October 14, 1984 an ejectment case against herein
petitioners, Good Earth Emporium Inc. and Lim Ka Ring. After the latter had tendered their
responsive pleading, the lower court on motion of Roces rendered judgement on the pleadings
dated April 17, 1984 to which petitioners were ordered to vacate the premises and surrender the
same to the plaintiffs. On May 16, 1984, Roces filed a motion for execution which was opposed
by petitioners on May 28, 1984 simultaneous with the latter’s filing of a notice of appeal. However,
on August 15, 1984, GEE thru counsel filed a motion to withdraw said appeal citing as reason that
they are satisfied with the decision of the lower court.

Issue: Whether or not the payment made by GEE to the Roces brothers constitute payment to
private respondent corporation which would result to the extinguishment of the obligation.

Held: No. Under article 1240 of the civil code of the Philippines – Payment shall be made to the
person in whose favor the obligation has been constituted, on his successor in interest or any person
authorized to receive it.
In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its
successors in interest nor is there positive evidence that payment was made to a person authorized
to receive it. No such proof was submitted but merely inferred by the RTC from Marcos Roces
having signed the lease contract as President which was witnessed by Jesus Marcos Roces. The
later, however, was no longer President or even an officer of the Roces-Realty Inc at the time he
received the money and signed the sale with pacto de retro. He, in fact denied being in possession
of authority to receive payment for the respondent corporation nor does the receipt show that he
signed in the same capacity as he did in the lease contract at a time when he was President for
respondent corporation.

A corporation has a personality distinct and separate from its individual stockholders or members.
Being an officer or stockholder of a corporation does not make one’s property also of the
corporation, and vice-versa, for they are separate entities. Share owners are in no legal sense the
owners corporate property which is owned by the corporation as a distinct legal person. As a
consequence of the separate juridical personality of a corporation, the corporate debt or credit is
not the debt or credit of the stockholder, nor is the stockholder’s debt or credit that of the
corporation.

6.) Development Bank of the Philippines vs National Labor Relations Commission

Facts: Philippine Smelters Corporation (PSC), a corporation registered under Philippine law,
obtained a loan in 1983 from the Development Bank of the Philippines (DBP), a government-
owned financial institution created and operated in accordance with Executive Order No. 81, to
finance its iron smelting and steel manufacturing business. To secure said loan, PSC mortgaged to
DBP real properties with all the buildings and improvements thereon and chattels, with its
president, Jose T. Marcelo Jr. as co-obligor. By virtue of the said loan agreement, DBP became
the majority stockholder of PSC, with stock holdings in the amount of Php31,000,000 of the total
Php80,226,000 subscribed and paid up capital stock. Subsequently, it took over the management
of PSC. When PSC failed to pay its obligations with DBP, which amounted to Php75,752,445.83
as of March 31, 1986, DBP foreclosed and acquired the mortgaged real properties and chattels of
PSC in the auction sale held on February 25, 1987 and March 4, 1987. PSC’s employees filed a
petition against herein petitioner for the unpaid wages and other benefits to which the labor arbiter
ordered DBP to pay.

Issue: Whether or not DBP, as foreclosing creditor can be held liable for the unpaid wages, 13th
moth pay, incentive leave pay, and separation pay of the employees of PSC.

Held: No. A preference of credit bestows upon the preferred creditor an advantage of having his
credit satisfied first ahead of other claims which may be established against the debtor. Logically,
it becomes material only when the properties and assets of the debtors are insufficient to pay his
debts in full; for if the debtor is amply able to pay his various creditors, if full, how can the
necessity exist to determine which of his creditors shall be paid first or whether they shall be paid
out of the proceeds of the sale of the debtor’s specific property? Indubitably, the preferential right
of credit attains significance only after the properties of the debtor have been inventoried and
liquidated, and the claims held by his various creditors have been established.

A distinction should be made between a preference of credit and a lien. A preference applies only
to claims which do not attach to specific properties. A lien creates a charge on a particular property.
The right of first preference as regards unpaid wages recognized by article 110 does not constitute
a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in
their favor, a preference in application. It is a method adopted to determine and specify the order
in which credits should be paid in the final distribution of the proceeds of the insolvent’s assets. It
is a right to a preference in the discharge of funds of the judgement debtor.

Article 110 of the labor code does not purport to create a lien in favor of workers or on employees
for unpaid wages either upon all of the properties or upon any particular property owned by their
employer. Claims for unpaid wages do not therefore fall within the category of specially preferred
claims established under articles 2241 and 2242 of the civil code, except to the extent that such
claims for unpaid wages are already covered by article 2241 number 6; claims for laborer’s wages,
on the goods manufactured or the work done; or by article 2242 number 3; claims of laborers and
other workers engaged in the construction, reconstruction or repair of buildings, canals and other
works, upon said buildings, canals or other works. To the extent that claims for unpaid wages fall
outside the scope of article 2241, number 6 and article 2242 number 3, they would come within
the ambit of the category of ordinary preferred credits under article 2244.

7.) Robledo vs. NLRC 238 S 52 (1994)

Facts: Robledo ET. Al. filed a Petition for Review of the Decision of NLRC, setting aside the
decision of the Labor Arbiter, which held private respondents jointly and severally liable to the
petitioners for overtime and legal holiday pay.

Petitioners were former employees of Bacani Security and Protective Agency (BPSA). They were
employed as security guards at different times during the period 1969 to December 1989 when
BPSA ceased to operate. BPSA was a single proprietorship owned, managed, and operated by the
late Felipe Bacani. On December 31, 1989, Felipe Bacani retired the business name and BSPA
ceased to operate effective on that day. On Jan. 15, 1990 Felipe Bacani died. An intestate
proceeding was instituted for the settlement of his estate before Pasig-RTC. Earlier, on Oct. 26,
1989, respondent Bacani Security and Allied Services Co., Inc. (BASEC) had been organized and
registered as a corporation with SEC. The following were the incorporators with their respective
shareholdings:

ALICIA BACANI — 25,250 shares

LYDIA BACANI — 25,250 shares

AMADO P. ELEDA — 25,250 shares

VICTORIA B. AURIGUE — 25,250 shares

FELIPE BACANI — 20,000 shares

On July 5, 1990, the petitioners filed a complaint with the DOLE for underpayment of wages and
nonpayment of overtime pay and other accrued benefits, and for the return of their cash bond,
which they posted, with BPSA. Made respondents were BSPA and BASEC. On March 1, 1992,
the Labor Arbiter rendered a decision upholding the right of petitioners, finding the complainants
entitled to their money claims to be paid by all the respondents’ solidarily. On appeal, the NLRC
reversed the decision declaring that the Labor Arbiter is without jurisdiction and instead suggested
that petitioners file their claims with Pasig-RTC where an intestate proceeding of Bacani’s estate
was pending. Petitioners moved for reconsideration but their motion was denied for lack of merit.
The case was elevated to the SC and was treated as a special civil action of certiorari to determine
whether the NLRC committed a grave abuse of discretion in reversing the Labor Arbiter’s
decision.

Issue: Whether Bacani Security and Allied Services, Inc. (BASEC) can be held liable for claims
of petitioners against Bacani Security and Protective Agency (BSPA).

Held: No. Petitioners contend that public respondent, NLRC, erred in setting aside the Labor
Arbiter’s judgment on the ground that BASEC is the same entity as BSPA the latter being owned
and controlled by one and the same family, the Bacani family. For this reason they urge that
corporate fiction should be disregarded and BASEC should be held liable for the obligations of
the defunct BSPA. As correctly found by the NLRC, BASEC is an entity separate and distinct
from that of BSPA. BSPA is a single proprietorship owned and operated by Felipe Bacani. Hence,
its debts and obligations were the personal obligations of its owner. Petitioner’s claims, which are
based on these debts and personal obligations, did not survive the death of Felipe Bacani on Jan.
15, 1990 and should have been filed instead in the intestate proceedings involving his estate.

The rule is settled that unless expressly assumed labor contracts are not enforceable against the
transferee of an enterprise. The reason for this is that labor contracts are in personam.
Consequently, it has been held that claims for backwages earned from the former employer cannot
be filed against the new owners of an enterprise. 3Nor is the new operator of a business liable for
claims for retirement pay of employees.

It is apparent, therefore, that the doctrine of piercing the corporate veil has no application to this
case where the purpose is not to hold the individual stockholders liable for the obligations of the
corporation but, on the contrary, to hold the corporation liable for the obligations of a stockholder
or stockholders. Piercing the veil of corporate entity means looking through the corporate form to
the individual stockholders composing it. Here there is no reason to pierce the veil of corporate
entity because there is no question that petitioners' claims, assuming them to be valid, are the
personal liability of the late Felipe Bacani. It is immaterial that he was also a stockholder of
BASEC.

Indeed, the doctrine is stood on its head when what is sought is to make a corporation liable for
the obligations of a stockholder. But there are several reasons why BASEC is not liable for the
personal obligations of Felipe Bacani. For one, BASEC came into existence before BSPA was
retired as a business concern. BASEC was incorporated on October 26, 1989 and its license to
operate was released on May 28, 1990, while BSPA ceased to operate on December 31, 1989.
Before, BSPA was retired, BASEC already existed. It is, therefore, not true that BASEC is a mere
continuity of BSPA.

8.) Francisco Motors Corporation vs. Court of Appeals

Facts: On 23 January 1985, Francisco Motors Corp. filed a complaint against Spouses Gregorio
and Librada Manuel to recover P3,412.06, representing the balance of the jeep body purchased by
the Manuels from Francisco Motors; an additional sum of P20,454.80 representing the unpaid
balance on the cost of repair of the vehicle; and P6,000.00 for cost of suit and attorney's fees. To
the original balance on the price of jeep body were added the costs of repair. In their answer, the
Manuel spouses interposed a counterclaim for unpaid legal services by Gregorio Manuel in the
amount of P50,000 which was not paid by the incorporators, directors and officers of Francisco
Motors. The trial court decided the case on 26 June 1985, in favor of Francisco Motors in regard
to its claim for money, but also allowed the counter-claim of the Manuel spouses. Both parties
appealed. On 15 April 1991, the Court of Appeals sustained the trial court's decision. Hence, the
present petition for review on certiorari.

Issue: Whether the Francisco Motors Corporation should be liable for the legal services of
Gregorio Manuel rendered in the intestate proceedings over Benita Trinidad’s estate (of the
Francisco family).

Held: Basic in corporation law is the principle that a corporation has a separate personality distinct
from its stockholders and from other corporations to which it may be connected. However, under
the doctrine of piercing the veil of corporate entity, the corporation's separate juridical personality
may be disregarded, for example, when the corporate identity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime. Also, where the corporation is a 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, then its distinct personality may be ignored. In these circumstances, the courts will
treat the corporation as a mere aggrupation of persons and the liability will directly attach to them.
The legal fiction of a separate corporate personality in those cited instances, for reasons of public
policy and in the interest of justice, will be justifiably set aside. Herein, however, given the facts
and circumstances of this case, the doctrine of piercing the corporate veil has no relevant
application. The rationale behind piercing a corporation's identity in a given case is to remove the
barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal
schemes of those who use the corporate personality as a shield for undertaking certain proscribed
activities. In the present case, instead of holding certain individuals or persons responsible for an
alleged corporate act, the situation has been reversed. It is the Francisco Motors Corporation
(FMC) as a corporation which is being ordered to answer for the personal liability of certain
individual directors, officers and incorporators concerned. Hence, the doctrine has been turned
upside down because of its erroneous invocation. In fact, the services of Gregorio Manuel were
solicited as counsel for members of the Francisco family to represent them in the intestate
proceedings over Benita Trinidad's estate. These estate proceedings did not involve any business
of FMC. Manuel's move to recover unpaid legal fees through a counterclaim against FMC, to offset
the unpaid balance of the purchase and repair of a jeep body could only result from an obvious
misapprehension that FMC's corporate assets could be used to answer for the liabilities of its
individual directors, officers, and incorporators. Such result if permitted could easily prejudice the
corporation, its own creditors, and even other stockholders; hence, clearly inequitous to FMC.
Furthermore, considering the nature of the legal services involved, whatever obligation said
incorporators, directors and officers of the corporation had incurred, it was incurred in their
personal capacity. When directors and officers of a corporation are unable to compensate a party
for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or
promoting injustice, and be thereby held liable therefor by piercing its corporate veil. While there
are no hard and fast rules on disregarding separate corporate identity, we must always be mindful
of its function and purpose. A court should be careful in assessing the milieu where the doctrine
of piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may
result from its erroneous application. The personality of the corporation and those of its
incorporators, directors and officers in their personal capacities ought to be kept separate in this
case. The claim for legal fees against the concerned individual incorporators, officers and directors
could not be properly directed against the corporation without violating basic principles governing
corporations. Moreover, every action — including a counterclaim — must be prosecuted or
defended in the name of the real party in interest. It is plainly an error to lay the claim for legal
fees of private respondent Gregorio Manuel at the door of FMC rather than individual members of
the Francisco family.

9.) Concept Builders Inc. vs. National Labor Relations Commission (NLRC, First Division)

Facts: Concept Builders, Inc., (CBI) a domestic corporation, with principal office at 355 Maysan
Road, Valenzuela, Metro Manila, is engaged in the construction business while Norberto Marabe;
Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto
Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera,
Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino
Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos were employed
by said company as laborers, carpenters and riggers. On November 1981, Marabe, et. al. were
served individual written notices of termination of employment by CBI, effective on 30 November
1981. It was stated in the individual notices that their contracts of employment had expired and
the project in which they were hired had been completed. The National Labor Relations
Commission (NLRC) found it to be, the fact, however, that at the time of the termination of
Marabe, et.al.'s employment, the project in which they were hired had not yet been finished and
completed. CBI had to engage the services of sub-contractors whose workers performed the
functions of Marabe, et. al. Aggrieved, Marabe, et. al. filed a complaint for illegal dismissal, unfair
labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay
against CBI. On 19 December 1984, the Labor Arbiter rendered judgment ordering CBI to reinstate
Marabe et. al. and to pay them back wages equivalent to 1 year or 300 working days. On 27
November 1985, the NLRC dismissed the motion for reconsideration filed by CBI on the ground
that the said decision had already become final and executory.

On 16 October 1986, the NLRC Research and Information Department made the finding that
Marabe, et. al.'s back wages amounted to P199,800.00. On 29 October 1986, the Labor Arbiter
issued a writ of execution directing the sheriff to execute the Decision, dated 19 December 1984.
The writ was partially satisfied through garnishment of sums from CBI's debtor, the Metropolitan
Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over
to the cashier of the NLRC. On 1 February 1989, an Alias Writ of Execution was issued by the
Labor Arbiter directing the sheriff to collect from CBI the sum of P117,414.76, representing the
balance of the judgment award, and to reinstate Marabe, et. al. to their former positions. On 13
July 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on
petitioner through the security guard on duty but the service was refused on the ground that CBI
no longer occupied the premises. On 26 September 1986, upon motion of Marabe, et. al., the Labor
Arbiter issued a second alias writ of execution. The said writ had not been enforced by the special
sheriff because, as stated in his progress report dated 2 November 1989, that all the employees
inside CBI's premises claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI)
and not by CBI; that levy was made upon personal properties he found in the premises; and that
security guards with high-powered guns prevented him from removing the properties he had levied
upon. The said special sheriff recommended that a "break-open order" be issued to enable him to
enter CBI's premises so that he could proceed with the public auction sale of the aforesaid personal
properties on 7 November 1989. On 6 November 1989, a certain Dennis Cuyegkeng filed a third-
party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the
sheriff were owned by HPPI, of which he is the Vice-President. On 23 November 1989, Marabe,
et. al. filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and CBI were
owned by the same incorporator/stockholders. They also alleged that petitioner temporarily
suspended its business operations in order to evade its legal obligations to them and that Marabe,
et. al. were willing to post an indemnity bond to answer for any damages which CBI and HPPI
may suffer because of the issuance of the break-open order. On 2 March 1990, the Labor Arbiter
issued an Order which denied Marabe, et. al.'s motion for break-open order.

Marabe, et. al. then appealed to the NLRC. On 23 April 1992, the NLRC set aside the order of the
Labor Arbiter, issued a break-open order and directed Marabe, et. al. to file a bond. Thereafter, it
directed the sheriff to proceed with the auction sale of the properties already levied upon. It
dismissed the third-party claim for lack of merit. CBI moved for reconsideration but the motion
was denied by the NLRC in a Resolution, dated 3 December 1992. Hence, the petition.

Issue: Whether the NLRC was correct in issuing the break-open order to levy the “HPPI
properties” located at CBI amd/or HPPI’s premises at 355 Maysan Road, Valenzuela, Metro
Manila.

Held: It is a fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it may be connected. But, this
separate and distinct personality of a corporation is merely a fiction created by law for convenience
and to promote justice. So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an
alter ego of another corporation. The conditions under which the juridical entity may be
disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast
rule can be accurately laid down, but certainly, there are some probative factors of identity that
will justify the application of the doctrine of piercing the corporate veil, to wit: (1) Stock ownership
by one or common ownership of both corporations; (2) Identity of directors and officers; (3) The
manner of keeping corporate books and records; and (4) Methods of conducting the business. The
SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding
the separate juridical personality of corporations as "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. The
control necessary to invoke the rule is not majority or even complete stock control but such
domination of instances, policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in
mind that the control must be shown to have been exercised at the time the acts complained of
took place. Moreover, the control and breach of duty must proximately cause the injury or unjust
loss for which the complaint is made." The test in determining the applicability of the doctrine of
piercing the veil of corporate fiction is as (1) 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 this transaction had at the time no separate
mind, will or existence of its own; (2) Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or
dishonest and unjust act in contravention of plaintiff's legal rights; and (3) The aforesaid control
and breach of duty must proximately cause the injury or unjust loss complained of. The absence
of any one of these elements prevents "piercing the corporate veil." In applying the
"instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendant's relationship to that operation. Thus
the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham
or a subterfuge is purely one of fact. Here, while CBI claimed that it ceased its business operations
on 29 April 1986, it filed an Information Sheet with the Securities and Exchange Commission on
15 May 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On
the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information
sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. Further,
both information sheets were filed by the same Virgilio O. Casiño as the corporate secretary of
both corporations. Both corporations had the same president, the same board of directors, the same
corporate officers, and substantially the same subscribers. From the foregoing, it appears that,
among other things, the CBI and the HPPI shared the same address and/or premises. Under these
circumstances, it cannot be said that the property levied upon by the sheriff were not of CBI's.
Clearly, CBI ceased its business operations in order to evade the payment to Marabe, et. al. of back
wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit
of CBI and its emergence was skillfully orchestrated to avoid the financial liability that already
attached to CBI.

10.) General Credit Corp. vs. Alsons Dev’t and Invest Corp. 513 S 225 (2007)

Facts: Petitioner General Credit Corporation (GCC), formerly known as Commercial Credit
Corporation (CCC), established CCC franchise companies in urban areas around the country. To
further its business, it secured a license before the Central Bank (CB) and the Securities and
Exchange Commission (SEC) to also engage in quasi-banking activities. On the other hand,
respondent CCC Equity Corporation (Equity) was established by GCC to take over the operations
of their franchises.

Meanwhile, respondent Alsons Development (Alsons) and the Alcantara family owned a total of
101,953 shares of GCC franchises. Four years later, Alcantara family assigned its rights and
interests of its shares to Alsons, making the latter the sole owner of the total shares. Eventually,
Alsons decided to sell these shares for a consideration of P2,000,000.00, in the CCC frachise
companies to Equity. Equity issued Alsons a “bearer” promissory note for P2,000,000.00 with a
one-year maturity date, which the Equity promised to pay. Because of Equity’s failure to pay,
Alsons then filed a complaint for sums of money against Equity and GCC. Equity claims that GCC
should be liable for the payment of shares since it has always been dependent on GCC on its
business operations. However, GCC claims that it has no liability on the payment of stocks, being
a separate entity from Equity.

Issue: The issue in this case is whether or not the doctrine of piercing the veil of corporate fiction
be applied to Equity Corporation?

Held: The Court held that the corporate veil of Equity Corporation be pierced.

The Court cites three basic areas where piercing the veil of corporate fiction is allowed. First, when
it is used to defeat public convenience to evade existing operations or “equity piercing”; second,
in fraud cases where it is used to justify a wrong or “fraud piercing” and third, in alter ego cases
where the corporation is organized as to make it merely an instrumentality agency.
In this case, the Court has the right to pierce GCC’s corporate veil because evidence point to the
following facts: first, Equity is but an instrumentality of GCC and has always been dependent on
the latter for its operations, second, the commonality of directors, stockholders and sharing of
office between the two companies shows that they should clearly be regarded merely as an
aggregate of persons in a business enterprise; third, the establishment of Equity is primarily for
GCC to circumvent Central Bank rules specifically the Anti-Usury Law, using it as a conduit to
its non-quasi bank affiliates; and lastly, the funds invested by Equity to GCC franchises are from
GCC funds as well.

Applying the three basic areas of corporate veil piercing, GCC clearly defeated public convenience
when it established Equity to extend credit to its investors which in turn is not allowed by the law;
it justified a wrong by fraudulently evading the Anti-Usury Law established by the Central Bank
to quasi-banking businesses, and lastly, Equity was but a mere instrumentality of GCC for it to get
away with its obligations.

11.) RF Sugay and Co. Inc. vs. Reyes GR No. 20451 December 28, 1964

Facts: Respondents Pablo Reyes and Cesar Curata suffered burns of various degrees, while
painting the building of the Pacific Products, Inc., caused by a fire of accidental origin, resulting
in their temporary disability from work. For said injuries they filed claims for disability and
medical expenses against the R. F. Sugay & Co., Inc., Romulo F. Sugay and thePacific Products,
Inc. The R. F. Sugay & Co., Inc., answered the claim, alleging that the corporation was not the
employer of the claimants but it was the Pacific Products, Inc., which had an administration and
supervision job contract with Romulo F. Sugay, who, aside from being the President of the
corporation, bearing his name, had also a business of his own, distinct and separate from said
corporation; and that the Regional Office of the Department of Labor had no jurisdiction over the
subject matter. Romulo Sugay voluntary appeared during the scheduled hearings and denied the
liabilities. Pacific Products, Inc. on the other hand averred that its business was mainly in the
manufacture and sale of lacquer and other painting materials. As defenses, it stated that the
claimants were the employees of respondents R. F. Sugay Construction Co., Inc., and/or Romulo
F. Sugay. The Hearing Officer dismissed the case and exempted R. F. Sugay Construction Co.,
Inc., and Romulo F. Sugay from any liability for lack of employer-employee relationship with the
claimants. The officer ordered Pacific Products to pay the injured workers. Pacific Products, Inc.,
appealed the above decision to the Commission and Commissioner Jose Sanchez rendered
judgment affirming the compensability of the injuries and the amounts due them, but modified the
decision of the Hearing Officer, by finding that R. F. Sugay & Co., Inc., was the statutory employer
of the claimants and should be liable to them. Pacific Products, Inc., was absolved from all
responsibility. R. F. Sugay Construction Co., Inc. filed a motion of reconsideration but the
Commission en banc denied the motion.

Issue: Is R.F. Sugay construction Co., Inc. the employer of the injured workers, liable?

Held: The Supreme Court ruled that R.F. Sugay construction Co., Inc. is the employer of the
workers. The Court find that the findings of facts made by the Commissioner and concurred in by
the Commission en banc are fully supported by the evidence on record which clearly points out
that R. F. Sugay & Co., is the statutory employer of the claimants. The decisive elements showing
that it is the employer, are present, such as selection and engagement; payment of wages; power
of dismissal, and control.

There was a faint attempt by the petitioning corporation, to evade liability, by advancing the theory
that Romulo P. Sugay, its President, was the one who entered into a contract of administration and
supervision for the painting of the factory of the Pacific Products, Inc., and making it appear that
said Romulo F. Sugay acted as an agent of the Pacific Products, Inc., and as such, the latter should
be made answerable to the compensation due to the claimants. We, however, agree with the
Commission that "the dual roles of Romulo F. Sugay should not be allowed to confuse the facts
relating to employer-employee relationship." It is a legal truism that when the veil of corporate
fiction is made as a shield to perpetrate a fraud and/or confuse legitimate issues (here, the relation
of employer-employee), the same should be pierced. Verily the R. F. Sugay & Co., Inc. is a
business conduit of R. F. Sugay.

12.) Namarco vs. Associated Finance Co. 19 S 962 (1967)

Facts: ASSOCIATED, a domestic corporation, through its President, appellee Francisco Sycip,
entered into an agreement to exchange sugar with NAMARCO, represented by its then General
Manager, Benjamin Estrella, whereby the former would deliver to the latter 22,516 bags (each
weighing 100 pounds) of "Victorias" and/or "National" refined sugar in exchange for 7,732.71
bags of "Busilak" and 17,285.08 piculs of "Pasumil" raw sugar belonging to NAMARCO, both
agreeing to pay liquidated damages equivalent to 20% of the contractual value of the sugar should
either party fail to comply with the terms and conditions stipulated (Exhibit A). Pursuant thereto,
on May 19,1958, NAMARCO delivered to ASSOCIATED 7,732.71 bars of "Busilak" and
17,285.08 piculs of "Pasumil" domestic raw sugar. As ASSOCIATED failed to deliver to
NAMARCO the 22,516 bags of "Victoria" and/or "National" refined sugar agreed upon, the latter,
on January 12, 1959, demanded in writing from the ASSOCIATED either (a) immediate delivery
thereof before January 20, or (b) payment of its equivalent cash value amounting to P372,639.80.

As ASSOCIATED refused to deliver the raw sugar or pay for the refund sugar delivered to it,
inspite of repeated demands therefore, NAMARCO instituted the present action in the lower court
to recover the sum of P403,514.28 in payment of the raw sugar received by defendants from it;
P80,702.86 as liquidated damages; P10,000.00 as attorney’s fees, expenses of litigation and
exemplary damages, with legal interest thereon from the filing of the complaint until fully paid.

In their amended answer defendants, by way of affirmative defenses, alleged that the correct value
of the sugar delivered by NAMARCO to them was P259,451.09 or P13.30 per bag of 100 lbs.
weight (quedan basis) and not P403,514.28 as claimed by NAMARCO. As counterclaim they
prayed for the award of P500,000.00 as moral damages, P100,000.00 as exemplary damages and
P10,000.00 as attorney’s fee.

Issue: Whether or not, upon the facts found by the trial court, Francisco Sycip may be held liable,
jointly and severally with his co-defendant, for the sums of money adjudged in favor of
NAMARCO

Held: Yes. In this case, it is proper to pierce the veil of corporate fiction. It was proven that during
the time of the agreement, AFCI was already insolvent. Such fact was already known to Sycip. He
knew that AFCI was not in a position to transact with NAMARCO because it could not possibly
comply with its obligations. Sycip’s assurances that AFCI can deliver said refined sugar products
is obviously fashioned to defraud NAMARCO into delivering the raw sugar to AFCI.

The foregoing facts, fully established by the evidence, can lead to no other conclusion than that
Sycip was guilty of fraud because through false representations he succeeded in including
NAMARCO to enter into the aforesaid exchange agreement, with full knowledge, on his part, of
the fact that ASSOCIATED whom he represented and over whose business and affairs he had
absolute control, was in no position to comply with the obligation it had assumed. Consequently,
he cannot now seek refuge behind the general principle that a corporation has a personality distinct
and separate from that of its stockholders and that the latter are not personally liable for the
corporate obligations. To the contrary, upon the proven facts, we feel perfectly justified in
“piercing the veil of corporate fiction” and in holding Sycip personally liable, jointly and severally
with his co-defendant, for the sums of money adjudged in favor of appellant. It is settled law in
this and other jurisdictions that when the corporation is the mere alter ego of a person, the corporate
fiction may be disregarded; the same being true when the corporation is controlled, and its affairs
are so conducted as to make it merely an instrumentality, agency or conduit of another.
13.) Palacio vs. Fely Transportation Co. 5 S 1011 (1962)

Facts: About December, 1952, the Fely Transportaton hired Alfredo Carillo as a driverof jeep
owned and operated by the said defendant company. That on December 24, 1952, at about 11:30
a.m., while the driver Carillo was driving the jeep at Halcon Street, Quezon City, wilfully,
unlawfully and feloniously and in a negligent, reckless and imprudent manner, run over Mario
Palacio, child of the herein plaintiff Gregorio Palacio. That on account of the aforesaid injuries.
Mario Palacio suffered a simple fracture of the right tenor (sic), complete third, thereby
hospitalizing him at the Philippine Orthopedic Hospital from December 24, 1952, up to January
8, 1953, and continued to be treated for a period of five months thereafter; that the plaintiff
Gregorio Palacio herein is a welder by occupation and owner of a small welding shop and because
of the injuries of his child he has abandoned his shop where he derives income of P10.00 a day for
the support of his big family; that during the period that the plaintiff's (Gregorio Palacio's) child
was in the hospital and who said child was under treatment for five months in order to meet the
needs of his big family, he was forced to sell one air compressor (heavy duty) and one heavy duty
electric drill, for a sacrifice sale of P150.00 which could easily sell at P350.00; that as a
consequence of the negligent and reckless act of the driver Alfredo Carillo of the herein defendant
company, the herein plaintiffs were forced to litigate this case in Court for an agreed amount of
P300.00 for attorney's fee; that the herein plaintiffs have now incurred the amount of P500.00
actual expenses for transportation, representation and similar expenses for gathering evidence and
witnesses; and that because of the nature of the injuries of plaintiff Mario Palacio and the fear that
the child might become a useless invalid, the herein plaintiff Gregorio Palacio has suffered moral
damages which could be conservatively estimated at P1,200.00. Fely filed a motion to dismiss on
the grounds that there is no cause of action against the company and that the cause of action is
barred by prior judgment. But the court deferred the determination of the grounds alleged in the
motion to dismiss until the trial of the case. The defendant then alleges (1) that complaint states
no cause of action against defendant, and (2) that the sale and transfer of the jeep AC-687 by
Isabelo Calingasan to the Fely Transportation was made on December 24, 1955, long after the
driver Alfredo Carillo of said jeep had been convicted and had served his sentence. In view of the
evidence presented, the lower court barred the judgment in the criminal case and held that the
person subsidiarily liable to pay damages is Isabelo Calingasan, the employer. Thus the petition.

Issue: Whether or not Fely Transportation can be held liable for the damages.

Held: The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and defendant
Fely Transportation may be regarded as one and the same person. It is evident that Isabelo
Calingasan's main purpose in forming the corporation was to evade his subsidiary civil liability1
resulting from the conviction of his driver, Alfredo Carillo. This conclusion is borne out by the
fact that the incorporators of the Fely Transportation are Isabelo Calingasan, his wife, his son, Dr.
Calingasan, and his two daughters.:

14.) Villa Rey Transit vs. Ferrer

Facts: [preceding case] Prior to 1959, Jose M. Villarama was an operator of a bus transportation,
under the business name of Villa Rey Transit, pursuant to certificates of public convenience
granted him by the Public Service Commission (PSC) in Cases 44213 and 104651, which
authorized him to operate a total of 32 units on various routes or lines from Pangasinan to Manila,
and vice-versa. On 8 January 1959, he sold the two certificates of public convenience to the
Pangasinan Transportation Company, Inc. (Pantranco), for P350,000.00 with the condition, among
others, that the seller (Villarama) "shall not for a period of 10 years from the date of this sale, apply
for any TPU service identical or competing with the buyer." Barely 3 months thereafter, or on 6
March 1959: a corporation called Villa Rey Transit, Inc. (the Corporation) was organized with a
capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each;
P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was
one of the incorporators, and she subscribed for P1,000.00; the balance of P199,000.00 was
subscribed by the brother and sister-in-law of Jose M. Villarama; of the subscribed capital stock,
P105,000.00 was paid to the treasurer of the corporation, who was Natividad R. Villarama. In less
than a month after its registration with the Securities and Exchange Commission (10 March 1959),
the Corporation, on 7 April 1959, bought 5 certificates of public convenience, 49 buses, tools and
equipment from one Valentin Fernando, for the sum of P249,000.00, of which P100,000.00 was
paid upon the signing of the contract; P50,000.00 was payable upon the final approval of the sale
by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of P50,000.00
"shall be paid by the BUYER to the different suppliers of the SELLER." The very same day that
the contract of sale was executed, the parties thereto immediately applied with the PSC for its
approval, with a prayer for the issuance of a provisional authority in favor of the vendee
Corporation to operate the service therein involved. On 19 May 1959, the PSC granted the
provisional permit prayed for, upon the condition that "it may be modified or revoked by the
Commission at any time, shall be subject to whatever action that may be taken on the basic
application and shall be valid only during the pendency of said application." Before the PSC could
take final action on said application for approval of sale, however, the Sheriff of Manila, on 7 July
1959, levied on 2 of the five certificates of public convenience involved therein, namely, those
issued under PSC cases 59494 and 63780, pursuant to a writ of execution issued by the Court of
First Instance of Pangasinan in Civil Case 13798, in favor of Eusebio E. Ferrer against Valentin
Fernando. The Sheriff made and entered the levy in the records of the PSC. On 16 July 1959, a
public sale was conducted by the Sheriff of the said two certificates of public convenience. Ferrer
was the highest bidder, and a certificate of sale was issued in his name. Thereafter, Ferrer sold the
two certificates of public convenience to Pantranco, and jointly submitted for approval their
corresponding contract of sale to the PSC. Pantranco therein prayed that it be authorized
provisionally to operate the service involved in the said two certificates. The applications for
approval of sale, filed before the PSC, by Fernando and the Corporation, Case 124057, and that of
Ferrer and Pantranco, Case 126278, were scheduled for a joint hearing. In the meantime, to wit,
on 22 July 1959, the PSC issued an order disposing that during the pendency of the cases and
before a final resolution on the aforesaid applications, the Pantranco shall be the one to operate
provisionally the service under the two certificates embraced in the contract between Ferrer and
Pantranco. The Corporation took issue with this particular ruling of the PSC and elevated the
matter to the Supreme Court, which decreed, after deliberation, that until the issue on the
ownership of the disputed certificates shall have been finally settled by the proper court, the
Corporation should be the one to operate the lines provisionally.

[present case] On 4 November 1959, the Corporation filed in the Court of First Instance of Manila,
a complaint for the annulment of the sheriff's sale of the aforesaid two certificates of public
convenience (PSC Cases 59494 and 63780) in favor of Ferrer, and the subsequent sale thereof by
the latter to Pantranco, against Ferrer, Pantranco and the PSC. The Corporation prayed therein that
all the orders of the PSC relative to the parties' dispute over the said certificates be annulled. The
CFI of Manila declared the sheriff's sale of two certificates of public convenience in favor of Ferrer
and the subsequent sale thereof by the latter to Pantranco null and void; declared the Corporation
to be the lawful owner of the said certificates of public convenience; and ordered Ferrer and
Pantranco, jointly and severally, to pay the Corporation, the sum of P5,000.00 as and for attorney's
fees. The case against the PSC was dismissed. All parties appealed.

Issue: Whether the stipulation, "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE
DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING
WITH THE BUYER" in the contract between Villarama and Pantranco, binds the Corporation (the
Villa Rey Transit, Inc.).

Held: Although Villarama was not a stockholder or an incorporator, his wife was an incorporator
and also the treasurer of the Corporation. The evidence proved that Villarama had actual control
of the funds of the Corporation and appeared as the actual owner and treasurer. Villarama supplied
the organization expenses and the assets of the Corporation, such as trucks and equipment; there
was no actual payment by the original subscribers of the amounts of P95,000.00 and P100,000.00
as appearing in the books; Villarama made use of the money of the Corporation and deposited
them to his private accounts; and the Corporation paid his personal accounts. Villarama himself
admitted that he mingled the corporate funds with his own money. These circumstances are strong
persuasive evidence showing that Villarama has been too much involved in the affairs of the
Corporation to altogether negative the claim that he was only a part-time general manager. They
show beyond doubt that the Corporation is his alter ego. The interference of Villarama in the
complex affairs of the corporation, and particularly its finances, are much too inconsistent with the
ends and purposes of the Corporation law, which, precisely, seeks to separate personal
responsibilities from corporate undertakings. It is the very essence of incorporation that the acts
and conduct of the corporation be carried out in its own corporate name because it has its own
personality. The doctrine that a corporation is a legal entity distinct and separate from the members
and stockholders who compose it is recognized and respected in all cases which are within reason
and the law. When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which
the law covers and isolates the corporation from the members or stockholders who compose it will
be lifted to allow for its consideration merely as an aggregation of individuals. Hence, the Villa
Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract
entered into by the latter and Pantranco is also enforceable and binding against the said
Corporation. For the rule is that a seller or promisor may not make use of a corporate entity as a
means of evading the obligation of his covenant. Where the Corporation is substantially the alter
ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the
covenantee.

15.) Mc Connel vs. CA 1 S 722 (1961)

Facts: Park Rite Co. (PRC) leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan
Luna which it used for parking motor vehicles for a consideration. It turned out that in operating
its parking business, PRC occupied and used not only the lot it had leased but also an adjacent lot
belonging to the respondents Padilla, without the owners' knowledge and consent. When the latter
discovered the truth around October of 1947, they demanded payment for the use and occupation
of the lot. A judgment was rendered ordering the Park Rite Co., Inc. to pay P7,410.00 plus legal
interest as damages from April 15, 1947 until return of the lot. As restitution was not made until
31 January 1948, the entire judgment amounted to P11,732.50. Upon execution, the corporation
was found without any assets other than P550.00 deposited in Court. After their application to the
judgment credit, there remained a balance of P11,182.50 outstanding and unsatisfied. The
judgment creditors then filed suit in the Court of First Instance of Manila against the corporation
and its past and present stockholders, to recover from them, jointly and severally, the unsatisfied
balance of the judgment, plus legal interest and costs. The Court of First Instance denied recovery;
but on appeal, the Court of Appeals reversed, finding that the corporation was a mere alter ego or
business conduit of the principal stockholders, Cirilo Paredes and Ursula Tolentino, [as they hold
1,496 out of the 1,500 stocks] that controlled it for their own benefit, and adjudged them
responsible for the amounts demanded by the lot owners.
Issue: Whether the individual stockholders may be held liable for obligations contracted by PRC,
disregarding its corporate entity.
Held: Yes. Wherever circumstances have shown that the corporate entity is being used as an alter
ego or business conduit for the sole benefit of the stockholders, or else to defeat public
convenience, justify wrong, protect fraud, or defend crime.
In the case at bar, the SC summarized the expressed findings of the CA which is as follows:
 On or about August 22, 1947 the defendants Cirilo Paredes and Ursula Tolentino
purchased 1,496 shares of the said corporation from the original incorporators [M.
McConnel, W. P. Cochrane, Ricardo Rodriguez, Benedicto M. Dario and Aurea
Ordrecio]. The remaining four shares were acquired by Bienvenido J. Claudio, Quintin C.
 Paredes, Segundo Tarictican, and Paulino Marquez at one share each. It is obvious that
the last four shares bought by these four persons were merely qualifying shares. It is
Tolentino and Paredes who composed the so-called Park Rite Co., Inc.
 That the corporation was a mere extension of their personality is shown by the fact that
the office of Cirilo Paredes and that of Park Rite Co., Inc. were located in the same
building, in the same floor and in the same room — at 507 Wilson Building.
 The fact that the funds of the corporation were kept by Cirilo Paredes in his own name.
The corporation itself had no visible assets, except perhaps the toll house, the wire fence
around the lot and the signs thereon.
Based on such facts, the corporation is a mere instrumentality of the individual stockholder's, hence
the latter must individually answer for the corporate obligations. To hold the stockholder’s
[Tolentino and Parades] liable for the corporation's obligations is not to ignore the corporation's
separate entity, but merely to apply the established principle that such entity cannot be invoked or
used for purposes that could not have been intended by the law that created that separate
personality.

16.) CIR vs. Norton and Harrison 11 SCRA 704 (1964)

Facts: Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at wholesale
and retail, all kinds of goods, wares, and merchandise; (2) to act as agents of manufacturers in the
United States and foreign countries; and (3) to carry on and conduct a general wholesale and retail
mercantile establishment in the Philippines. Jackbilt is, likewise, a corporation organized on
February 16, 1948 primarily for the purpose of making, producing and manufacturing concrete
blocks. Under date of July 27, 1948. Norton and Jackbilt entered into an agreement whereby
Norton was made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt.
Pursuant to this agreement, whenever an order for concrete blocks was received by the Norton &
Harrison Co. from a customer, the order was transmitted to Jackbilt which delivered the
merchandise direct to the customer. Payment for the goods is, however, made to Norton, which in
turn pays Jackbilt the amount charged the customer less a certain amount, as its compensation or
profit. To exemplify the sales procedures adopted by the Norton and Jackbilt, the following may
be cited. In the case of the sale of 420 pieces of concrete blocks to the American Builders on April
1, 1952, the purchaser paid to Norton the sum of P189.00 the purchase price. Out of this amount
Norton paid Jackbilt P168.00, the difference obviously being its compensation. As per records of
Jackbilt, the transaction was considered a sale to Norton. It was under this procedure that the sale
of concrete blocks manufactured by Jackbilt was conducted until May 1, 1953, when the agency
agreement was terminated and a management agreement between the parties was entered into. The
management agreement provided that Norton would sell concrete blocks for Jackbilt, for a fixed
monthly fee of P2,000.00, which was later increased to P5,000.00. During the existence of the
distribution or agency agreement, or on June 10, 1949, Norton & Harrison acquired by purchase
all the outstanding shares of stock of Jackbilt. Apparently, due to this transaction, the
Commissioner of Internal Revenue, after conducting an investigation, assessed the respondent
Norton & Harrison for deficiency sales tax and surcharges in the amount of P32,662.90, making
as basis thereof the sales of Norton to the Public. In other words, the Commissioner considered the
sale of Norton to the public as the original sale and not the transaction from Jackbilt.

Issue: Whether or not the doctrine of piercing the corporate veil should be applied in order to make
respondent corporation liable for the sales deficiency tax.

Held: Yes. Jackbilt is merely an adjunct, business conduit or alter ego, of Norton and Harrison and
that the fiction of corporate entities, separate and distinct from each, should be disregarded. This
is a case where the doctrine of piercing the veil of corporate fiction, should be made to apply.
Where a corporation is a dummy, is unreal or a sham and serves no business purpose and is
intended only as a blind, the corporate form may be ignored for the law cannot countenance a form
that is bald and a mischievous fictions.

A taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue
officers in proper cases, may disregard the separate corporate entity where it serves but as a shield
for tax evasion and treat the person who actually may take benefits of the transactions as the person
accordingly taxable

It has been settled that the ownership of all the stocks of a corporation by another corporation does
not necessarily breed an identity of corporate interest between the two companies and be
considered as a sufficient ground for disregarding the distinct personalities (Liddell & Co., Inc. v.
Coll. of Int. Rev. L-9687, June 30, 1961). However, in the case at bar, we find sufficient grounds
to support the theory that the separate identities of the two companies should be disregarded.
Among these circumstances, which we find not successfully refuted by appellee Norton are: (a)
Norton and Harrison owned all the outstanding stocks of Jackbilt; of the 15,000 authorized shares
of Jackbilt on March 31, 1958, 14,993 shares belonged to Norton and Harrison and one each to
seven others; (b) Norton constituted Jackbilt’s board of directors in such a way as to enable it to
actually direct and manage the other’s affairs by making the same officers of the board for both
companies. For instance, James E. Norton is the President, Treasurer, Director and Stockholder of
Norton. He also occupies the same positions in Jackbilt corporation, the only change being, in the
Jackbilt, he is merely a nominal stockholder. The same is true with Mr. Jordan, F. M. Domingo,
Mr. Mantaring, Gilbert Golden and Gerardo Garcia, while they are merely employees of the North
they are Directors and nominal stockholders of the Jackbilt (c) Norton financed the operations of
the Jackbilt, and this is shown by the fact that the loans obtained from the RFC and Bank of
America were used in the expansion program of Jackbilt, to pay advances for the purchase of
equipment, materials rations and salaries of employees of Jackbilt and other sundry expenses.
There was no limit to the advances given to Jackbilt so much so that as of May 31, 1956, the unpaid
advances amounted to P757,652.45, which were not paid in cash by Jackbilt, but was offset by
shares of stock issued to Norton, the absolute and sole owner of Jackbilt; (d) Norton treats Jackbilt
employees as its own. Evidence shows that Norton paid the salaries of Jackbilt employees and
gave the same privileges as Norton employees, an indication that Jackbilt employees were also
Norton’s employees. Furthermore, service rendered in any one of the two companies were taken
into account for purposes of promotion; (e) Compensation given to board members of Jackbilt,
indicate that Jackbilt is merely a department of Norton. The income tax return of Norton for 1954
shows that as President and Treasurer of Norton and Jackbilt, he received from Norton P56,929.95,
but received from Jackbilt the measly amount of P150.00, a circumstance which points out that
remuneration of purported officials of Jackbilt are deemed included in the salaries they received
from Norton. The same is true in the case of Eduardo Garcia, an employee of Norton but a member
of the Board of Jackbilt. His Income tax return for 1956 reveals that he received from Norton in
salaries and bonuses P4,220.00, but received from Jackbilt, by way of entertainment,
representation, travelling and transportation allowances P3,000.00. However, in the withholding
statement (Exh. 28-A), it was shown that the total of P4,200.00 and P3,000.00 (P7,220.00) was
received by Garcia from Norton, thus portraying the oneness of the two companies. The Income
Tax Returns of Albert Golden and Dioscoro Ramos both employees of Norton but board members
of Jackbilt, also disclose the game method of payment of compensation and allowances. The
offices of Norton and Jackbilt are located in the same compound. Payments were effected by
Norton of accounts for Jackbilt and vice versa. Payments were also made to Norton of accounts
due or payable to Jackbilt and vice versa.

It may not be amiss to state in this connection, the advantages to Norton in maintaining a semblance
of separate entities. If the income of Norton should be considered separate from the income of
Jackbilt, then each would declare such earning separately for income tax purposes and thus pay
lesser income tax. The combined taxable Norton-Jackbilt income would subject Norton to a higher
tax. Based upon the 1954-1955 income tax return of Norton and Jackbilt, and assuming that both
of them are operating on the same fiscal basis and their returns are accurate, we would have the
following result: Jackbilt declared a taxable net income of P161,202.31 in which the income tax
due was computed at P37,137.00; whereas Norton declared as taxable, a net income of
P120,101.59, on which the income tax due was computed at P25,628.00. The total of these
liabilities is P50,764.84. On the other hand, if the net taxable earnings of both corporations are
combined, during the same taxable year, the tax due on their total which is P281,303.90 would be
P70,764.00. So that, even on the question of income tax alone, it would be to the advantages of
Norton that the corporations should be regarded as separate entities.

17.) Arnold vs. Willets and Paterson Ltd. 44 P 623 (1923)

Facts: Arnold, the plaintiff and the firm, Willits & Patterson in San Francisco entered into a (1st)
written contract by which the plaintiff was employed as the agent of the firm in the Philippine
Islands for the operation of an oil mill for the period of five years at a minimum salary of $200 per
month and travelling expenses. Aside from his minimum salary, it was also stated in the contract
that he will receive a brokerage fee from all his sales and other profits. Also, if the business was
at a loss, Arnold would receive $400 per month. When Patterson retired, Willits became the sole
owner of its assets. Willits organized a new corporation by the same name in San Francisco. The
new firm acquired all the assets of the former firm. He came to Manila and organized a corporation
here known as Willits & Patterson, Ltd., in and to which he again subscribed for all of the capital
stock except the nominal shares necessary to qualify the directors. In legal effect, the San Francisco
corporation took over and acquired all of the assets and liabilities of the Manila corporation. Willits
signed a (2nd) new contract in the form of a letter. The purpose of which was to more clearly
define and specify the compensation which the plaintiff was to receive for his services. An
accounting was done and it showed that the corporation was due and owing the plaintiff under
Exhibit B the sum of P106, 277.50. The San Francisco corporation became involved in financial
trouble, and all of its assets were turned over to a "creditors' committee." Arnold filed a complaint
and contended that the signing of the second contract in the manner and under the conditions in
which it was signed, and through the subsequent acts and conduct of the parties, was ratified and,
in legal effect, became and is now binding upon the defendant. Defendant contended that the
second contract was signed but without authority. It also alleged that Arnold owed them some
money. The Court of First Instance rendered a decision ordering Arnold to return the money to the
corporation.

Issue: Whether or not the corporation is bound by the contracts, or simply, whether plaintiff may
collect from defendant corporation.

Held: Yes. The proposition that a corporation has an existence separate and distinct from its
membership has its limitations. It must be noted that this separate existence is for particular
purposes. It must also be remembered that there can be no corporate existence without persons to
compose it; there can be no association without associates. This separate existence is to a certain
extent a legal fiction. Whenever necessary for the interests of the public or for the protection or
enforcement of the rights of the membership, courts will disregard this legal fiction and operate
upon both the corporation and the persons composing it.

In the case at bar, the corporations are under Willits. When the second contract was signed,
Willits recognized that Arnold’s services were to be performed by its terms. When the new
corporation was organized and created, it still treated Arnold as its agent in the same manner as
the first one. It was a one-man corporation, and Willits, as the owner of all of the stock, was the
force and dominant power which controlled them. After the document was signed it was
recognized by Willits that the plaintiff's services were to be performed and measured by its term
and provisions, and there never was any dispute between plaintiff and Willits upon that question.
Where a contract is made with A by W in his own name, and W is the owner of all of the capital
stock of the corporation, and the corporation deals with A as its agent under the contract, the
contract which W made with A becomes a contract between A and the corporation, and the
corporation is thus bound by the contract.
18.) La Campana Coffee Factory vs. Kaisahan 93 P 160 (1953)

Facts: Tan Tong, one of the herein petitioners, has since 1932 been engaged in the business of
buying and selling gaugau under the trade name La Campana Gaugau Packing with an
establishment in Binondo, Manila, which was later transferred to España Extension, Quezon City.
About a year before the formation of the corporation, or on July 11, 1949, Tan Tong had entered
into a collective bargaining agreement with the Philippine Legion of Organized Workers, known
as PLOW for short, to which the union of Tan Tong's employees headed by Manuel E. Sadde was
then affiliated. Seceding, however, from the PLOW, Tan Tong's employees later formed their own
organization known as Kaisahan Ng Mga Manggagawa Sa La Campana, one of the herein
respondents, and applied for registration in the Department of Labor as an independent entity.
Pending consideration of this application, the Department gave the new organization legal standing
by issuing it a permit as an affiliate to the Kalipunan Ng Mga Manggagawa. On July 19, 1951, the
Kaisahan Ng Mga Manggagawa Sa La Campana, presented a demand for higher wages and more
privileges. As the demand was not granted and an attempt at settlement through the mediation of
the Conciliation Service of the Department of Labor had given no result, the said Department
certified the dispute to the Court of Industrial Relations on July 17, 1951, the case being there
docketed as Case No. 584-V. With the case already pending in the industrial court, the Secretary
of Labor, on September 5, 1951, revoked the Kalipunan Ng Mga Kaisahang Manggagawa's permit
as a labor union on the strength of information received that it was dominated by subversive

elements, and, in consequence, on the 20th of the same month, also suspended the permit of its
affiliate, the respondent Kaisahan. La Campana filed a motion to dismiss alleging that the action
was directed against two different entities with distinct personalities. However, the CIR denied the
said motion after it found out that, during the ocular inspection made in the factory on August 26,
1951, there is only one management for the business of gaugau and coffee with whom the laborers
are dealing regarding their work. Hence, the filing of action against the La Campana Starch and
Coffee Factory is proper and justified. CIR dismissed their motion for reconsideration, thus the
petition.

Issue: Whether or not CIR has jurisdiction over the case.

Held: Yes. La Compana Gawgaw and La Campana Factory are operating under one single
management or as one business though with two trade names. The coffee factory is a corporation
and by legal fiction, an entity separate and apart from the persons composing it namely, Tan Tong
and his family. However, the concept of separate corporate personality cannot be extended to a
point beyond reason and policy when invoked in support of an end subversive of this policy and
will be disregarded by the courts. A subsidiary company which is created merely as an agent for
the latter may sometimes be regarded as identical with the parent corporation especially if the
stockholders or officers of the two corporations are substantially the same or their systems of
operation unified. The facts showed that they had one management, one payroll prepared by the
same person, laborers were interchangeable, there is only one entity as shown by the signboard ad
in trucks, packages and delivery forms and the same place of business. The attempt to make the
two factories appear as two separate businesses when in reality they are but one, is but a device to
defeat the ends of the law and should not be permitted to prevail. WHY PIERCE? So that La
Campana cannot evade the jurisdiction of CIR since La Campana Gawgaw has only 14 employees
and only 5 are members of Kaisahan.

19.) Yutivo Sons Hardware vs. CTA 1 S 160 (1961)

Facts: Yutivo is a domestic corporation engaged in importation and sale of hardware supplies and
equipment. After the liberation in 1946, resumed its business and until 1946 bout a number of cars
and trucks from General Motors (GM), an American corporation doing business in the Philippines.
As importer, GM paid sales tax prescribed by the Tax Code on the basis of its selling price to
Yutivo. Yutivo paid no further sales tax on its sales to the public. In June 1946, Southern Motors
(SM) organized to engage in the business of selling cars, trucks and spare parts. One of its major
subscribers is Yu Tiong Yee, a founder of Yutivo. After the incorporation of SM and until the
withdrawal of GM from Phil, the cars and trucks were purchased by Yutivo from GM then sold
by Yutivo to SM and then SM sold these to the public. The same way that GM used to pay taxes
on the basis of its sales to Yutivo, Yutivo paid taxes on the basis of its sales to SM. SM paid no
taxes on its sales to the public. CIR made an assessment and charged Yutivo 1.8M as deficiency
tax plus surcharge. Petitioner contested before CTA. CTA ruled that SM is a mere subsidiary or
instrumentality of Yutivo, hence, its separate corporate existence must be disregarded.

Issue: Whether or not Yutivo and Southern Motors are two separate entities.

Held: No. It is an elementary and fundamental principle of corporation law that a corporation is
an entity separate and distinct from its stockholders and from other corporation petitions to which
it may be connected. However, "when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime," the law will regard the corporation as
an association of persons, or in the case of two corporations merge them into one. Another rule is
that, when the corporation is the "mere alter ego or business conduit of a person, it may be
disregarded. However, the Court here held that they are inclined to rule that the Court of Tax
Appeals was not justified in finding that SM was organized for no other purpose than to defraud
the Government of its lawful revenues. In the first place, this corporation was organized in June,
1946 when it could not have caused Yutivo any tax savings. From that date up to June 30, 1947,
or a period of more than one year, GM was the importer of the cars and trucks sold to Yutivo,
which, in turn resold them to SM. During that period, it is not disputed that GM as importer, was
the one solely liable for sales taxes. Neither Yutivo or SM was subject to the sales taxes on their
sales of cars and trucks. The sales tax liability of Yutivo did not arise until July 1, 1947 when it
became the importer and simply continued its practice of selling to SM. The decision, therefore,
of the Tax Court that SM was organized purposely as a tax evasion device runs counter to the fact
that there was no tax to evade.It should be stated that the intention to minimize taxes, when used
in the context of fraud, must be proved to exist by clear and convincing evidence amounting to
more than mere preponderance, and cannot be justified by a mere speculation. This is because
fraud is never lightly to be presumed. Fraud is never imputed and the courts never sustain findings
of fraud upon circumstances which, at the most, create only suspicion

20.) Liddell and Co. vs. Collector 2 S 632 (1961)

Facts: The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation
establish in the Philippines on February 1, 1946, with an authorized capital of P100,000 divided
into 1000 share at P100 each. Of this authorized capital, 196 shares valued at P19,600 were
subscribed and paid by Frank Liddell while the other four shares were in the name of Charles Kurz,
E.J. Darras, Angel Manzano and Julian Serrano at one shares each. Its purpose was to engage in
the business of importing and retailing Oldsmobile and Chevrolet passenger cars and GMC and
Chevrolet trucks. After its incorporation, Lidell & Co. was able to declare stock dividends, thereby
increasing the issued capital stock of the said corporation, which were duly approved by the
Securities and Exchange Commission. There has also been an agreement executed by Frank Lidell
on one hand, and Messrs. Kurz, Darras, Manzano and Serrano on the other, which was further
supplemented by two other agreements wherein Frank Liddell transferred to various employees of
Liddell & Co. shares of stock. On the basis of the agreement, "40%" of the earnings available for
dividends accrued to Frank Liddell although at the time of the execution of said instrument, Frank
Liddell owned all of the shares in said corporation. From 1946 until November 22, 1948, when the
purpose clause of the Articles of Incorporation of Liddell & Co. Inc., was amended so as to limit
its business activities to importations of automobiles and trucks, Liddell & Co. was engaged in
business as an importer and at the same time retailer of Oldsmobile and Chevrolet passenger cars
and GMC and Chevrolet trucks. On December 20, 1948, the Liddell Motors, Inc. was organized
and registered with the Securities and Exchange Commission with an authorized capital stock of
P100,000 of which P20,000 was subscribed and paid for as follows: Irene Liddell wife of Frank
Liddell 19,996 shares and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del Rosario and
Esmenia Silva, 1 share each. At about the end of the year 1948, Messrs. Manzano, Kurz and Kernot
resigned from their respective positions in the Retail Dept. of Liddell & Co. and they were taken
in and employed by Liddell Motors, Inc. Beginning January, 1949, Liddell & Co. stopped retailing
cars and trucks; it conveyed them instead to Liddell Motors, Inc. which in turn sold the vehicles to
the public with a steep mark-up. Since then, Liddell & Co. paid sales taxes on the basis of its sales
to Liddell Motors Inc. considering said sales as its original sales.

PETITIONER-APPELLANT: Petitioner filed an appeal on the decision of the Court of Tax

Appeals affirming the position taken by the Collector of Internal Revenue.

RESPONDENT-APPELLEE: Upon review of the transactions between Liddell & Co. and Liddell
Motors, Inc. the Collector of Internal Revenue determined that the latter was but an alter ego of
Liddell & Co. Wherefore, he concluded, that for sales tax purposes, those sales made by Liddell
Motors, Inc. to the public were considered as the original sales of Liddell & Co. Accordingly, the
Collector of Internal Revenue assessed against Liddell & Co. a sales tax deficiency, including
surcharges. In the computation, the gross selling price of Liddell Motors, Inc. to the general public
from January 1, 1949 to September 15, 1950, was made the basis without deducting from the
selling price, the taxes already paid by Liddell & Co. in its sales to the Liddell Motors Inc.

Issue: Whether or not Liddell Motors, Inc. is the alter ego of Liddell & Co. Inc.?

Held: There are quite a series of conspicuous circumstances that militate against the separate and
distinct personality of Liddell Motors, Inc. from Liddell & Co. We notice that the bulk of the
business of Liddell & Co. was channeled through Liddell Motors, Inc. On the other hand, Liddell
Motors, Inc. pursued no activities except to secure cars, trucks, and spare parts from Liddell & Co.
Inc. and then sell them to the general public. These sales of vehicles by Liddell & Co. to Liddell
Motors, Inc. for the most part were shown to have taken place on the same day that Liddell Motors,
Inc. sold such vehicles to the public. We may even say that the cars and trucks merely touched the
hands of Liddell Motors, Inc. as a matter of formality.

It is of course accepted that the mere fact that one or more corporations are owned and controlled
by a single stockholder is not of itself sufficient ground for disregarding separate corporate entities.
Authorities support the rule that it is lawful to obtain a corporation charter, even with a single
substantial stockholder, to engage in a specific activity, and such activity may co-exist with other
private activities of the stockholder. If the corporation is a substantial one, conducted lawfully and
without fraud on another, its separate identity is to be respected. Accordingly, the mere fact that
Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell
directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate
identity of one from the other. There is, however, in this instant case, a peculiar consequence of
the organization and activities of Liddell Motors, Inc.

Under the law in force at the time of its incorporation the sales tax on original sales of cars (sections
184, 185 and 186 of the National Internal Revenue Code), was progressive, i.e. 10% of the selling
price of the car if it did not exceed P5000, and 15% of the price if more than P5000 but not more
than P7000, etc. This progressive rate of the sales tax naturally would tempt the taxpayer to employ
a way of reducing the price of the first sale. And Liddell Motors, Inc. was the medium created by
Liddell & Co. to reduce the price and the tax liability.

As opined in the case of Gregory v. Helvering, "the legal right of a taxpayer to decrease the amount
of what otherwise would be his taxes, or altogether avoid them by means which the law permits,
cannot be doubted." But, as held in another case, "where a corporation is a dummy, is unreal or a
sham and serves no business purpose and is intended only as a blind, the corporate form may be
ignored for the law cannot countenance a form that is bald and a mischievous fiction." Consistently
with this view, the United States Supreme Court held that "a taxpayer may gain advantage of doing
business thru a corporation if he pleases, but the revenue officers in proper cases, may disregard
the separate corporate entity where it serves but as a shield for tax evasion and treat the person
who actually may take the benefits of the transactions as the person accordingly taxable."
Thus, we repeat: to allow a taxpayer to deny tax liability on the ground that the sales were made
through another and distinct corporation when it is proved that the latter is virtually owned by the
former or that they are practically one and the same is to sanction a circumvention of our tax laws.

21.) Lipat vs. Pacific Banking Corporation

Facts: The spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading"
(BET), a single proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon
City. BET was engaged in the manufacture of garments for domestic and foreign consumption.
The Lipats also owned the "Mystical Fashions" in the United States, which sells goods imported
from the Philippines through BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to
manage BET in the Philippines while she was managing "Mystical Fashions" in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed on 14 December
1978, a special power of attorney appointing Teresita Lipat as her attorney-in-fact to obtain loans
and other credit accommodations from Pacific Banking Corporation (Pacific Bank). She likewise
authorized Teresita to execute mortgage contracts on properties owned or co-owned by her as
security for the obligations to be extended by Pacific Bank including any extension or renewal
thereof. Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to
secure for and in behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting
to P583,854.00 to buy fabrics to be manufactured by BET and exported to "Mystical Fashions" in
the United States. As security therefor, the Lipat spouses, as represented by Teresita, executed a
Real Estate Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon City.
Said property was likewise made to secure other additional or new loans, etc. On 5 September
1979, BET was incorporated into a family corporation named Bela's Export Corporation (BEC) in
order to facilitate the management of the business. BEC was engaged in the business of
manufacturing and exportation of all kinds of garments of whatever kind and description and
utilized the same machineries and equipment previously used by BET. Its incorporators and
directors included the Lipat spouses who owned a combined 300 shares out of the 420 shares
subscribed, Teresita Lipat who owned 20 shares, and other close relatives and friends of the Lipats.
Estelita Lipat was named president of BEC, while Teresita became the vice-president and general
manager. Eventually, the loan was later restructured in the name of BEC and subsequent loans
were obtained by BEC with the corresponding promissory notes duly executed by Teresita on
behalf of the corporation. A letter of credit was also opened by Pacific Bank in favor of A. O.
Knitting Manufacturing Co., Inc., upon the request of BEC after BEC executed the corresponding
trust receipt therefor. Export bills were also executed in favor of Pacific Bank for additional
finances. These transactions were all secured by the real estate mortgage over the Lipats' property.
The promissory notes, export bills, and trust receipt eventually became due and demandable.
Unfortunately, BEC defaulted in its payments. After receipt of Pacific Bank's demand letters,
Estelita Lipat went to the office of the bank's liquidator and asked for additional time to enable her
to personally settle BEC's obligations. The bank acceded to her request but Estelita failed to fulfill
her promise. Consequently, the real estate mortgage was foreclosed and after compliance with the
requirements of the law the mortgaged property was sold at public auction. On 31 January 1989,
a certificate of sale was issued to respondent Eugenio D. Trinidad as the highest bidder. On 28
November 1989, the spouses Lipat filed before the Quezon City RTC a complaint for annulment
of the real estate mortgage, extrajudicial foreclosure and the certificate of sale issued over the
property against Pacific Bank and Eugenio D. Trinidad. The complaint alleged, among others, that
the promissory notes, trust receipt, and export bills were all ultra vires acts of Teresita as they were
executed without the requisite board resolution of the Board of Directors of BEC. The Lipats also
averred that assuming said acts were valid and binding on BEC, the same were the corporation's
sole obligation, it having a personality distinct and separate from spouses Lipat. It was likewise
pointed out that Teresita's authority to secure a loan from Pacific Bank was specifically limited to
Mrs. Lipat's sole use and benefit and that the real estate mortgage was executed to secure the Lipats'
and BET's P583,854.00 loan only. In their respective answers, Pacific Bank and Trinidad alleged
in common that petitioners Lipat cannot evade payments of the value of the promissory notes, trust
receipt, and export bills with their property because they and the BEC are one and the same, the
latter being a family corporation. Trinidad further claimed that he was a buyer in good faith and
for value and that the Lipat spouses are estopped from denying BEC's existence after holding
themselves out as a corporation. After trial on the merits, the RTC dismissed the complaint. The
Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV 41536. Said
appeal, however, was dismissed by the appellate court for lack of merit. The Lipats then moved
for reconsideration, but this was denied by the appellate court in its Resolution of 23 February
2000. The Lipat spouses filed the petition for review on certiorari.

Issue: Whether BEC and BET are separate business entities, and thus the Lipt spouses can isolate
themselves behind the corporate personality of BEC.

Held: When the corporation is the mere alter ego or business conduit of a person, the separate
personality of the corporation may be disregarded. This is commonly referred to as the
"instrumentality rule" or the alter ego doctrine, which the courts have applied in disregarding the
separate juridical personality of corporations. As held in one case, 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. The control necessary to invoke the rule is not majority or even complete stock control
but such domination of finances, policies and practices that the controlled corporation has, so to
speak, no separate mind, will or existence of its own, and is but a conduit for its principal. The
evidence on record shows BET and BEC are not separate business entities. (1) Estelita and Alfredo
Lipat are the owners and majority shareholders of BET and BEC, respectively; (2) both firms were
managed by their daughter, Teresita; 19 (3) both firms were engaged in the garment business,
supplying products to "Mystical Fashion," a U.S. firm established by Estelita Lipat; (4) both firms
held office in the same building owned by the Lipats; (5) BEC is a family corporation with the
Lipats as its majority stockholders; (6) the business operations of the BEC were so merged with
those of Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds were
held by Estelita Lipat and the corporation itself had no visible assets; (8) the board of directors of
BEC was composed of the Burgos and Lipat family members; (9) Estelita had full control over the
activities of and decided business matters of the corporation; and that (10) Estelita Lipat had
benefited from the loans secured from Pacific Bank to finance her business abroad and from the
export bills secured by BEC for the account of "Mystical Fashion." It could not have been
coincidental that BET and BEC are so intertwined with each other in terms of ownership, business
purpose, and management. Apparently, BET and BEC are one and the same and the latter is a
conduit of and merely succeeded the former. The spouses' attempt to isolate themselves from and
hide behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank is
precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and
remedy. BEC is a mere continuation and successor of BET, and the Lipat spouses cannot evade
their obligations in the mortgage contract secured under the name of BEC on the pretext that it
was signed for the benefit and under the name of BET.