(1) Yutivo Sons Hardware Co. vs.

Court of Tax Appeals

1 SCRA 160

Gutierrez-David, J.:

FACTS: Yutivo Sons Hardware Co. (Yutivo for brevity) is a domestic corporation incorporated in 1916
and was engaged in the importation of hardware supplies and equipment prior to the last world war. After
liberation, it resumed its business and until June of 1946 bought a number of cars and trucks from General
Motors Overseas Corporation (GM for short), an American corporation licensed to do business in the
Philippnes. As importer, GM paid sales tax on the basis of its selling price to Yutivo. Said tax being
collected only once on original sales, Yutivo paid not further sales tax on its sales to the public. On June
13, 1946, the Southern Motors, Inc. (SM) was organized to engage in the business of selling cars, trucks,
and spare parts. Its original authorized capital stock was P1,000,000 divided into 10,000 shares with a par
value of P100 each. At the time of its incorporation 2,500 shares worth P250,000 appear to have been
subscribed into equal proportions by Yu Khe Thai, Yu Khe Siong, Hu Kho Jin, Yu Eng Poh, and
Washington Sycip. The first three named subscribers are brothers, being sons of Yu Tiong Yee, one of
Yutivo's founders. The latter two are respectively sons of Yu Tiong Sin and Albino Sycip, who are among
the founders of Yutivo.

After the incorporation of SM and until the withdrawal of GM from the Philippines in the middle
of 1947, the cars and tracks purchased by Yutivo from GM were sold by Yutivo to SM which, in turn,
sold them to the public in the Visayas and Mindanao. When GM decided to withdraw from the
Philippines in the middle of 1947, the U.S. manufacturer of GM cars and trucks appointed Yutivo as
importer for the Visayas and Mindanao, and Yutivo continued its previous arrangement of selling
exclusively to SM. In the same way that GM used to pay sales taxes based on its sales to Yutivo, the
latter, as importer, paid sales tax prescribed on the basis of its selling price to SM, and since such sales
tax, as already stated, is collected only once on original sales, SM paid no sales tax on its sales to the
public.

On November 7, 1950, after several months of investigation by revenue officers started in July,
1948, the Collector of Internal Revenue made an assessment upon Yutivo and demanded from the latter
P1,804,769.85 as deficiency sales tax plus surcharge covering the period from the third quarter of 1947 to
the fourth quarter of 1949; or from July 1, 1947 to December 31, 1949, claiming that the taxable sales
were the retail sales by SM to the public and not the sales at wholesale made by, Yutivo to the latter
inasmuch as SM and Yutivo were one and the same corporation, the former being the subsidiary of the
latter. Thereafter, the Collector countermanded his demand for sales tax deficiency on the ground that no
sufficient evidence could be gathered to sustain the assessment based on the theory that SM is a mere
instrumentality or subsidiary of Yutivo. However, after another investigation, Collector redetermined that
the tax assessment was lawfully due to the government and the additional assessed sales deficiency tax
due. This second assessment was contested by Yutivo before the Court of Tax Appeals (CTA) but the
latter found against the former sustaining the Collector’s theory that there was no legitimate or bonafide
purpose in the organization of SM – the apparent objective of its organization being to evade the payment
of taxes — and that it was owned (or the majority of the stocks thereof are owned) and controlled by
Yutivo and is a mere subsidiary, branch, adjunct, conduit, instrumentality or alter ego of the latter, the
Court of Tax Appeals — with Judge Roman Umali not taking part — disregarded its separate corporate
existence.

ISSUES: (1.) Whether or not SM was organized to defraud the government in the payment of taxes.
(2.) Whether or not SM is a mere subsidiary of Yutivo.
HELD: (1.) No. The evidence for the Collector falls short of the standard of clear and convincing proof
of fraud. In the first place, this corporation (SM) 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.

If tax saving was the only justification for the organization of SM, such justification certainly
ceased with the passage of Republic Act No. 594 on February 16, 1951, governing payment of advance
sales tax by the importer based on the landed cost of the imported article, increased by mark-ups of 25%,
50%, and 100%, depending on whether the imported article is taxed under sections 186, 185 and 184,
respectively, of the Tax Code. Under Republic Act No. 594, the amount at which the article is sold is
immaterial to the amount of the sales tax. And yet after the passage of that Act, SM continued to exist up
to the present and operates as it did many years past in the promotion and pursuit of the business purposes
for which it was organized.

Moreover, the use of the word "original" and the express provision that the tax was collectible
"once only" in Sections 184 to 186 of the Tax Code evidently has made the provisions susceptible of
different interpretations. A taxpayer has the legal right to decrease the amount of what otherwise would
be his taxes or altogether avoid them by means which the law permits.

(2.) Yes. SM being but a mere instrumentality, or adjunct of Yutivo, the Court of Tax Appeals
correctly disregarded the technical defense of separate corporate entity in order to arrive at the true tax
liability of Yutivo. SM was actually owned and controlled by Yutivo as to make it a mere subsidiary or
branch of the latter created for the purpose of selling the vehicles at retail and maintaining stores for spare
parts as well as service repair shops.
It is not disputed that the petitioner, which is engaged principally in hardware supplies and
equipment, is completely controlled by the Yutivo, Young or Yu family. The founders of the corporation
are closely related to each other either by blood or affinity, and most of its stockholders are members of
the Yu (Yutivo or Young) family. It is, likewise, admitted that SM was organized by the leading
stockholders of Yutivo headed by Yu Khe Thai. The transactions were made solely by and between SM
and Yutivo. In effect, it was Yutivo who undertook the subscription of shares, employing the persons
named or "charged" with corresponding account as nominal stockholders. The shareholders in SM are
mere nominal stockholders holding the shares for and in behalf of Yutivo, so even conceding that the
original subscribers were stockholders bonafide Yutivo was at all times in control of the majority of the
stock of SM and that the latter was a mere subsidiary of the former.
True, Yutivo and other recorded stockholders transferred their shareholdings, but the transfers
were made to their immediate relatives, either to their respective spouses and children or sometimes
brothers or sisters. Yutivo's shares in SM were transferred to immediate relatives of persons who
constituted its controlling stockholders, directors and officers. Despite these purported changes in stock
ownership in both corporations, the Board of Directors and officers of both corporations remained
unchanged and Messrs. Yu Khe Thai, Yu KheSiong Hu Khe Jin and Yu Eng Poll (all of the Yu or Young
family) continued to constitute the majority in both boards. All these, as observed by the Court of Tax
Appeals, merely serve to corroborate the fact that there was a common ownership and interest in the two
corporations.
SM is under the management and control of Yutivo by virtue of a management contract entered
into between the two parties. In fact, the controlling majority of the Board of Directors of Yutivo is also
the controlling majority of the Board of Directors of SM. At the same time the principal officers of both
corporations are identical. In addition both corporations have a common comptroller in the person of
Simeon Sy, who is a brother-in-law of Yutivo's president, Yu Khe Thai. There is therefore no doubt that
by virtue of such control, the business, financial and management policies of both corporations could be
directed towards common ends. Another aspect relative to Yutivo's control over SM operations relates to
its cash transactions which plainly show that cash or funds of SM, including those of its branches which
are directly remitted to Yutivo, are placed in the custody and control of Yutivo, resources and subject to
withdrawal only by Yutivo. SM's being under Yutivo's control, the former's operations and existence
became dependent upon the latter. Also, the accounting system maintained by Yutivo shows that it
maintained a high degree of control over SM accounts.
Other facts corroborate or independently show that SM is a branch or department of Yutivo. Even
the branches of SM in Bacolod, Iloilo, Cebu, and Davao treat Yutivo — Manila as their "Head Office" or
"Home Office" as shown by their letters of remittances or other correspondences.
The fact that SM is a mere department or adjunct of Yutivo is made more patent by the fact that
arrastre conveying, and charges paid for the "operation of receiving, loading or unloading" of imported
cars and trucks on piers and wharves, were charged against SM. Overtime charges for the unloading of
cars and trucks as requested by Yutivo and incurred as part of its acquisition cost thereof, were likewise
charged against and treated as expenses of SM. If Yutivo were the importer, these arrastre and overtime
charges were Yutivo's expenses in importing goods and not SM's. But since those charges were made
against SM, it plainly appears that Yutivo had sole authority to allocate its expenses even as against SM
in the sense that the latter is a mere adjunct, branch or department of the former.
Proceeding to another aspect of the relation of the parties, the management fees due from SM to
Yutivo were taken up as expenses of SM and credited to the account of Yutivo. If it were to be assumed
that the two organizations are separate juridical entities, the corresponding receipts or receivables should
have been treated as income on the part of Yutivo. But such management fees were recorded as "Reserve
for Bonus" and were therefore a liability reserve and not an income account. This reserve for bonus were
subsequently distributed directly to and credited in favor of the employees and directors of Yutivo,
thereby clearly showing that the management fees were paid directly to Yutivo officers and employees.
Briefly stated, Yutivo financed principally, if not wholly, the business of SM and actually
extended all the credit to the latter not only in the form of starting capital but also in the form of credits
extended for the cars and vehicles allegedly sold by Yutivo to SM as well as advances or loans for the
expenses of the latter when the capital had been exhausted. Thus, the increases in the capital stock were
made in advances or "Guarantee" payments by Yutivo and credited in favor of SM. The funds of SM
were all merged in the cash fund of Yutivo. At all times Yutivo thru officers and directors common to it
and SM, exercised full control over the cash funds, policies, expenditures and obligations of the latter.
NOTES: 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."

(2) Emilio Cano Enterprises, Inc. (ECEI) vs. Court of Industrial Relations (CIR)
13 SCRA 290
Bautista Angelo, J.:

FACTS: Emilio, Ariston, and Rodolfo (all surnamed Cano), president and proprietor, field supervisor
and manager respectively of Emiliano Cano Enterprises, Inc. (ECEI) were charged for unfair labor
practice before the CIR. After trial, Presiding Judge Jose S. Bautista found Emilio and Rodolfo guilty of
the charge and absolved Ariston for insufficiency of evidence. Hence, the two were ordered, jointly and
severally, to reinstate Honorata Cruz, to her former position with payment of backwages from the time of
her dismissal up to her reinstatement, together with all other rights and privileges thereunto appertaining.
Thereafter, Emilio died and the attempt to have the case against him dismissed failed, thus, an appeal to
the court en banc was made but the latter affirmed the decision of Judge Bautista. Subsequently, an order
of execution was issued against the properties of ECEI instead of the respondents named in the decision.
Hence, ECEI filed an ex parte motion to quash the writ on the ground that the judgment sought to be
enforced was not rendered against it which is a juridical entity separate and distinct from it is officials.
However, the motion was denied as well as the subsequent motion for reconsideration. Thus, the case
reached the SC via petition for certiorari.

ISSUE: Whether or not piercing the veil of corporate entity is proper in this case.

HELD. Yes. While it is an undisputed rule that a corporation has a personality separate and distinct
from its members or stockholders because of a fiction of the law, here we should not lose sight of the fact
that the Emilio Cano Enterprises, Inc. is a closed family corporation where the incorporators and directors
belong to one single family. Thus, the following are its incorporators: Emilio Cano, his wife Juliana, his
sons Rodolfo and Carlos, and his daughter-in-law Ana D. Cano. Here is an instance where the corporation
and its members can be considered as one. And to hold such entity liable for the acts of its members is not
to ignore the legal fiction but merely to give meaning to the principle that such fiction cannot be invoked
if its purpose is to use it as a shield to further an end subversive of justice. And so it has been held that
while a corporation is a legal entity existing separate and apart from the persons composing it, that
concept cannot be extended to a point beyond its reason and policy, and when invoked in support of an
end subversive of this policy it should be disregarded by the courts.

A factor that should not be overlooked is that Emilio and Rodolfo Cano are here indicted, not in
their private capacity, but as president and manager, respectively, of Emilio Cano Enterprises, Inc.
Having been sued officially their connection with the case must be deemed to be impressed with the
representation of the corporation. In fact, the court's order is for them to reinstate Honorata Cruz to her
former position in the corporation and incidentally pay her the wages she had been deprived of during her
separation. Verily, the order against them is in effect against the corporation.

(3.) Claparols vs. Court of Industrial Relations

65 SCRA 613
Makasiar, J.:

FACTS: A complaint for unfair labor practice was filed before the Court of Industrial Relations (CIR)
by Allied Workers’ Association (AWA) and Demetrio Garlitos et al. on account of the dismissal of the
workers from Claparols Steel and Nail Plant (CSNP). The CIR ruled in favor of AWA and Garlitos et al.
by finding Claparols guilty of union busting for having dismissed the complainants due to union
activities. The CIR sitting en banc denied the motion for reconsideration subsequently filed. Thereafter,
the workers’ counsel filed a motion for execution which the court granted. However, two attempts to
reinstate the workers failed despite the fact that the workers were accompanied by the Chief of Police of
Talisay Negros Occidental when they went to the compound of CSNP on the ground that there was no
order from Eduardo Claparols nor from his lawyer to reinstate the workers. Thereafter, CIR Chief
Examiner submitted to the court three computations. Subsequently, Claparols filed an opposition filed an
opposition alleging that under the circumstances presently engulfing the company, Claparols could not
personally reinstate respondent workers; that assuming the workers are entitled to back wages, the same
should only be limited to three months pursuant to the court ruling in the case of Sta. Cecilia Sawmills vs.
CIR (L-19273-74, February 20, 1964); and that since Claparols Steel Corporation ceased to operate on
December 7, 1962, re-employment of respondent workers cannot go beyond December 7, 1962. A reply
to petitioner's opposition was filed by respondent workers, alleging among others, that Claparols Steel
and Nail Plant and Claparols Steel and Nail Corporation are one and the same corporation controlled by
petitioner Claparols, with the latter corporation succeeding the former.

Then, the CIR after conducting series of hearings on the report of the examiner issued an order
approving the same and denied the subsequent motion for reconsideration of Claparols. When the case
reached the SC, the latter denied the petition for certiorari of Claparols. Thereafter, CIR ordered the
recomputation of the worker’s backwages and the Examiner came out with his report. Despite vigorous
objection of Claparols, the CIR approved the Examiner’s Report. Hence, the case again reached the SC.
One of the contentions of Claparols is that, the Sta. Cecilia Sawmills case wherein the recoverable back
wages were limited to only three (3) months should be adopted; because as in the Sta. Cecilia Sawmills
case, the CSNP ceased operations due to enormous business reverses.

ISSUE: Whether or not Claparols’ contention is correct.

HELD: No. CIR’s findings that indeed CSNP, which ceased operation of June 30, 1957, was
SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957 up to December 7,
1962, when the latter finally ceased to operate, were not disputed by petitioners. It is very clear that the
latter corporation was a continuation and successor of the first entity, and its emergence was skillfully
timed to avoid the financial liability that already attached to its predecessor, CSNP. Both predecessors
and successor were owned and controlled by the petitioner Eduardo Claparols and there was no break in
the succession and continuity of the same business. This "avoiding-the-liability" scheme is very patent,
considering that 90% of the subscribed shares of stocks of the Claparols Steel Corporation (the second
corporation) was owned by respondent (herein petitioner) Claparols himself, and all the assets of the
dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction
whose veil in the present case could, and should, be pierced as it was deliberately and maliciously
designed to evade its financial obligation to its employees.

It is well remembering that in Yutivo & Sons Hardware Company vs. Court of Tax Appeals, the
SC held that 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 or persons, or, in the case of
two corporations, will merge them into one. Also, in Liddel & Company, Inc. vs. Collector of Internal
Revenue, the SC held that where a corporation is a dummy and serves no business purpose and is intended
only as a blind, the corporate fiction may be ignored. In Commissioner of Internal Revenue vs. Norton
and Harrison Company, the SC ruled that where a corporation is merely an adjunct, business conduit or
alter ego of another corporation, the fiction of separate and distinct corporate entities should be
disregarded. To the same uniform effect are the decisions in the cases of Republic vs. Razon and A.D.
Santos, Inc. vs. Vasquez.

(4.) Republic vs. Razon

20 SCRA 234
Dizon, J.:

FACTS: These are consolidated cases i.e. G.R. No. L-17462 (Republic vs. Razon and Jai-Alai
Corporation) and G.R. No. L-17472 (Jai-Alai Corporation vs. Republic, CTA, and Razon) which
originated from an action instituted by the Republic of the Philippines to collect from defendant
Jose Razon the amount of P73,522.62, as alleged income tax due from Haig Assadourian (an
Egyptian citizen) for the year 1946, including surcharges and interests up to December 31, 1951,
and from defendant Jose Razon and Jai-Alai Corporation, jointly and severally, the sum of
P30,080.00 exclusive of penalties, surcharges and interests, as income taxes due from Haig
Assadourian, for the years 1947 and 1948. The original complaint was filed with the Court of
First Instance of Manila on January 8, 1952 solely against defendant Jose Razon. On January 16,
1953, the plaintiff amended its complaint, including the Jai-Alai Corporation as party defendant,
and asserting two (2) causes of action. Under the first cause of action, the plaintiff seeks to
recover from defendant Jose Razon as attorney-in-fact of Haig Assadourian, the amount of
P73,522.62 as the latter's income tax liability for the year 1946, computed as of December 31,
1951; And,under the second cause of action the plaintiff seeks to recover jointly and severally
from defendants Jose Razon and Jai-Alai Corporation as withholding agents, the 12%
withholding tax amounting to P30,080.00, exclusive of penalties, surcharges and interests, due
on the income received by Haig Assadourian for the years 1947 and 1948 pursuant to the
provisions of Section 53 (b) and (c) of the National Internal Revenue Code. In addition,
defendant Jose Razon is sought to be held liable for the payment of the said sum of P30,080.00
for being the attorney-in-fact of Haig Assadourian.

In G.R. No. L-17462, the Republic imputed to the CTA the following errors: firstly, in
not holding the Jai-Alai liable, under Section 53 (b) of the National Internal Revenue Code, for
the payment of withholding tax on the amount of P120,000.00 paid by Madrigal & Co., Inc. or
by Vicente Madrigal to Assadourian; secondly, in not holding Jose Razon, similarly liable, under
the same legal provision, for the tax due on sum of P160,000.00 paid to the same party, and
lastly, in not awarding 1% interests monthly on the amount the Court found due from the Jai-
Alai to the Republic, in accordance with Section 51 (e) of the National Internal Revenue Code.

In G.R. No. L-17472, Jai-Alais claimed that that the Court of Tax Appeals erred firstly, in
holding that the money paid to Assadourian by Jai-Alai was salary, emolument, remuneration or
determinable profit or income within the purview of Section 53 (b) of the National Internal
Revenue Code, instead of declaring that it was the consideration of a contract of purchase and
sale of an inchoate or contingent interest pertaining to Assadourian, and erred, consequently in
finding the Jai-Alai liable as withholding agent for the payment of the total sum of P12,000.00
representing the alleged withholding tax on the amount of P80,000.00 it paid to Assadourian;
secondly, in holding the aforesaid provision of the National Internal Revenue Code applicable to
the Jai-Alai inspite of the fact that Assadourian — to whom the amount aforesaid was paid —
was not and could not be considered as a non-resident alien not engaged in trade or business in
the Philippines within the purview of the tax code; thirdly, in finding that when the payments in
question were made to, and accepted by Jose Razon, the latter, as Vice-President of the Jai-Alai,
was but an extension of the latter's personality, and finally, in not holding that the right to
recover said withholding tax from the Jai-Alai had already prescribed.
ISSUE: Whether or not Jai-Alai is liable Jai-Alai liable, under Section 53 (b) of the National
Internal Revenue Code, for the payment of withholding tax on the amount of P120,000.00 paid
by Madrigal & Co., Inc. or by Vicente Madrigal to Assadourian.

HELD: Yes. In relation to the different amounts of P20,000.00 each paid to Jose Razon under
similar circumstances on December 17 and December 24, 1947, and on February 11, March 11,
April 10 and June 2, of the year 1948, it is claimed that they were not payments made by the Jai-
Alai but by Madrigal & Company, Inc., and that inasmuch as the former did not have the control
over said amounts and did not dispose of or pay them to Assadourian or his representative, the
legal provision already referred to does not apply to it. This could be true, indeed, if the record
did not sufficiently disclose that Vicente Madrigal was the controlling stockholder of the
Madrigal & Company, Inc. and of the Jai-Alai Corporation up to the time of the trial below. In
fact, the payments of P20,000.00 each made in the name of Madrigal & Company, Inc. were
charged to the personal account of Vicente Madrigal. Therefore, piercing the veil of corporate
fiction, it can be said that said payments, albeit made in the name of Madrigal & Company, Inc.
and later charged to the personal account of Vicente Madrigal, were really payments made by the
Jai-Alai.

(5) A.D. Santos, Inc. (ADSI) vs. Vasquez

22 SCRA 1156

Sanchez, J.:

FACTS: Ventura Vasquez was ADSI’s taxi driver. One time, while driving ADSI’s taxicab, Vasquez
vomited blood. Aside from his hemoptysis, he suffered back pains, fever and headache. He reported to
petitioner the fact of his having vomited blood. He was sent to ADSI company's physician, Dr. Roman,
who treated him and sent him to Sto. Tomas Hospital where he was confined for six days. Thereafter, he
was admitted at the Quezon Institute. There he stayed until March 19, 1962 under the medical care of Dr.
Mario Lirag. Dr. Lirag diagnosed his ailment as pulmonary tuberculosis, moderately advanced in both
lungs. Upon his discharge on March 19, 1962, he was clinically improved. His X-ray examination,
however, showed the same finding, i.e., PTB, moderately advanced. He has not resumed work. As a
result, Vasquez filed a claim with the Workmen’s Compensation Commission and the latter affirmed the
decision of the hearing officer in favor of Vasquez. ADSI felt aggrieved and brought the case before the
SC. One of ADSI’s contentions is that, the claim for compensation is directed against Amador Santos not
against ADSI. Thus, Vasquez has no cause of action against ADSI.

ISSUE: Whether or not ADSI’s contention is correct.

HELD: No. Vasquez's claim for compensation herein is directed against ADSI. ADSI, in answer to the
claim, categorically admitted that the claimant was its taxi driver. Add to this is the fact that the claimant
contracted pulmonary tuberculosis by reason of his said employment. Vaquez's cause of action against
petitioner is complete.

ADSI cites the fact that Vasquez, in the course of his testimony, mentioned that he worked for the
City Cab operated by Amador Santos. This will not detract from the validity of Vasquez's right to
compensation. For, the truth is that really at one time Amador Santos was the sole owner and operator of
the City Cab. It was subsequently transferred to petitioner A.D. Santos, Inc. in which Amador Santos was
an officer. The mention by Vasquez of Amador Santos as his employer in the course of his testimony, in
the words of SC in Sugay vs. Reyes, L-20451, December 28, 1964, "should not be allowed to confuse the
facts relating to employer-employee relationship" for "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."

(6) LIDDELL & CO., INC. vs. THE COLLECTOR OF INTERNAL REVENUE
2 SCRA 632

FACTS: 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. 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.

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.

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. The Court of Tax Appeals upheld the
position taken by the Collector of Internal Revenue.

ISSUE: Whether or not Liddell & Co. Inc., and the Liddell Motors, Inc. are identical
corporations, the latter being merely the alter ego of the former.

RULING: 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."

(7) LIM vs. COURT OF APPEALS

323 SCRA 102

FACTS: On 11 June 1994, Pastor Y. Lim died intestate. Rufina Luy Lim, as surviving spouse and duly
represented by her nephew George Luy, filed on 17 March 1995, a joint petition for the administration of
the estate of Pastor Y. Lim before the Regional Trial Court of Quezon City. Auto Truck Corporation,
Alliance Marketing Corporation, Speed Distributing, Inc., Active Distributing, Inc. and Action Company
Private respondent corporations, whose properties were included in the inventory of the estate of Pastor
Y. Lim, then filed a motion for the lifting of lis pendens and motion for exclusion of certain properties
from the estate of the decedent. Rufina Luy Lim averred that the late Pastor Y. Lim personally owned
during his lifetime the above-mentioned business entities. Although the above business entities dealt and
engaged in business with the public as corporations, all their capital, assets and equity were however,
personally owned by the late Pastor Y Lim. Hence the alleged stockholders and officers appearing in the
respective articles of incorporation of the above business entities were mere dummies of Pastor Y. Lim,
and they were listed therein only for purposes of registration with the Securities and Exchange
Commission. Further, the real properties registered in the name of the above entities were actually
acquired by Pastor Y. Lim during his marriage her.

ISSUE: Whether or not the properties registered under the corporation be included in the estate of the
deceased.

RULING: Inasmuch as the real properties included in the inventory of the estate of the late Pastor Y. Lim
are in the possession of and are registered in the name of private respondent corporations, which under the
law possess a personality separate and distinct from their stockholders, and in the absence of any cogency
to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of private
respondents should stand undisturbed.

It is settled that a corporation is clothed with personality separate and distinct from that of the persons
composing it. It may not generally be held liable for that of the persons composing it. It may not be held
liable for the personal indebtedness of its stockholders or those of the entities connected with it.

Nonetheless, the shield is not at all times invincible. Piercing the veil of corporate entity requires the court
to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they
could be subject to, or distinguishes one corporation from a seemingly separate one, were it not for the
existing corporate fiction.

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the
alter ego of a person or of another corporation. Where badges of fraud exist, where public convenience is
defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity
should come to naught.

Further, the test in determining the applicability of the doctrine of piercing the veil of corporate fiction is
as follows: 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 plaintiffs legal right; and (3)
The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absences of any of these elements prevent "piercing the corporate veil".

(8) Del Rosario vs. NLRC

187 SCRA 777

Cortes, J.:

FACTS: A complaint for money claims was dismissed by POEA for lack of merit. Upon appeal to
NLRC, the latter reversed the decision and ordered Philsa Construction and Trading Co., Inc. (recruiter)
and Arieb Enterprises (foreign employer) to jointly and severally pay Leonardo Atienza the salary
differentials and vacations leave benefits. When the case was elevated to SC, the latter dismissed the
petition and an entry of judgment was made. Thereafter, a writ of execution was issued by the POEA but
it was returned unsatisfied as Philsa was no longer operating and was financially incapable of satisfying
the judgment. Hence, Atienza moved for the issuance of an alias writ against the officers of Philsa but it
was opposed by the latter. POE ruled in favor of Atienza by issuing the alias writ of execution against the
properties of Francisco V. Del Rosario. Upon appeal to NLRC, the latter dismissed the appeal as well as
the subsequent motion for reconsideration. Hence, the case reached the SC via Del Rosario’s petition
imputing grave abuse of discretion to NLRC in disregarding the corporate personality of Philsa.

ISSUE: Whether or not NLRC’s act of disregarding Philsa’s corporate personality is tantamount to grave
of abuse of discretion.

HELD: Yes. Under the law a corporation is bestowed juridical personality, separate and distinct from its
stockholders. But when the juridical personality of the corporation is used to defeat public convenience,
justify wrong, protect fraud or defend crime, the corporation shall be considered as a mere association of
persons and its responsible officers and/or stockholders shall be held individually liable. For the same
reasons, a corporation shall be liable for the obligations of a stockholder or a corporation and its
successor-in-interest shall be considered as one and the liability of the former shall attach to the latter.

But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must
be clearly and convincingly established. It cannot be presumed. In this regard, NLRC's decision is
wanting. The conclusion that Philsa allowed its license to expire so as to evade payment of private
respondent's claim is not supported by the facts. Philsa's corporate personality therefore remains
inviolable.

At the time Philsa allowed its license to lapse in 1985 and even at the time it was delisted in 1986,
there was yet no judgment in favor of Atienza. An intent to evade payment of his claims cannot therefore
be implied from the expiration of Philsa's license and its delisting. Neither will the organization of Philsa
International Placement and Services Corp. and its registration with the POEA as a private employment
agency imply fraud since it was organized and registered in 1981, several years before Atienza filed his
complaint with the POEA in 1985. The creation of the second corporation could not therefore have been
in anticipation of Atienza's money claims and the consequent adverse judgment against Philsa. Likewise,
substantial identity of the incorporators of the two corporations does not necessarily imply fraud.

In this case, not only has there been a failure to establish fraud, but it has also not been shown that
Del Rosario is the corporate officer responsible for Atienza's predicament. It must be emphasized that the
claim for differentials and benefits was actually directed against the foreign employer. Philsa became
liable only because of its undertaking to be jointly and severally bound with the foreign employer, an
undertaking required by the rules of the POEA [Rule II, sec. 1(d) (3)], together with the filing of cash and
surety bonds [Rule 11, sec. 4], in order to ensure that overseas workers shall find satisfaction for awards
in their favor. Hence, it is appropriate to point out that a judgment against a recruiter should initially be
enforced against the cash and surety bonds filed with the POEA.

(9) MATUGUINA INTEGRATED WOOD PRODUCTS, INC., vs CA and DAVAO

ENTERPRISES CORPORATION and the MIMISTRY OF NATURAL RESOURCES
AND PHILLIP CO
G.R. No. 98310. October 24, 1996
TORRES, JR., J.:

Facts: In 1973, Provisional Timber License (PLT) was issued to Milagros Matuguina to operate logging
businesses under her group Matuguina Logging Enterprises (MLE). Matuguina Integrated Wood Products
Inc. (MIWPI) was established in 1974 with 7 stockholders. Milagros Matuguina became the majority
stockholder after a year. Milagros later petitioned to have MLE be transferred to MIWPI. Pending
approval of MLE’s petition, Davao Enterprises Corporation (DAVENCOR) filed a complaint against
MLE before the District Forester alleging that MLE has encroached upon the area allotted for
DAVENCOR’s timber concession. The Investigating Committee found MLE guilty as charged and had
recommended the Director to declare that MLE has done so. MLE appealed the case to the Ministry of
Natural Resources (MNR). During pendency, Milagrosa withdrew her shares from MIWPI.

Later, MNR Minister Ernesto Maceda found MLE guilty as charged. Pursuant to the finding,
DAVENCOR and Philip Co requested Maceda to order MLE and/or MIWPI to comply with the ruling to
pay the value in pesos of 2352.04 m3 worth of timbers. The Minister then issued a writ of execution
against MIWPI. MIWPI filed a petition for prohibition before the Davao RTC. The RTC ruled in favor of
MIWPI and has ordered to enjoin the Minister from pursuing the execution of the writ. DAVENCOR
appealed and the CA reversed the ruling of the RTC. MIWPI averred that it is not a party to the original
case as it was MLE that was sued, a separate entity. And granting arguendo that there was an effective
transfer of license from MLE to petitioner, the transfer could not make petitioner liable for the
encroachment since said transfer cover only forestry charges and other government fees and did not
include the personal liability of Milagros/MLE that arose from the encroachment of the timber concession
of the DAVENCOR.

Issue: Whether the petitioner (MIWPI) a transferee as to make it liable for the illegal logging in
DAVENCOR’s timber concession or is it possible to pierce the veil of MWPI’s corporate existence
making it a mere conduit or successor of MLE?

Held: No. the writ of execution issued by the Minister of Natural Resources only mentions Milagros
Matuguina/MLE. There is no basis for the issuance of the order against the petitioner as this action of the
Minister disregards the most basic tenets of due process and elementary fairness because it was issued
without due opportunity to defend itself. The issue of whether or not petitioner is an alter ego of Milagros
Matuguina/MLE, is one of fact, and which should have been threshed out in the administrative
proceedings, and not in the prohibition proceedings in the trial court, where it is precisely the failure of
the respondent Minister of Natural Resources to proceed as mandated by law in the execution of its order
which is under scrutiny. It is settled that a corporation is clothed with personality separate and distinct
from that of the persons composing it. It may not be generally held liable for the personal indebtedness of
its stockholders or those entities connected to it. For a separate judicial personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed. In the
case at bar, there is insufficient basis for the CA’s ruling against the MIWPI. The alleged control of the
plaintiff corporation was not evident in any particular corporate acts of the plaintiff corporation wherein
Milagros Matuguina Logging Enterprises using plaintiff corporation, executed acts or powers directly
involving plaintiff corporation. Neither was there any evidence of defendants that Matuguina/MLE, using
the facilities and resources of plaintiff corporation, involved itself in transaction using both single
proprietorship and plaintiff corporation in such particular line of business undertakings. What matters
most was the control of Matuguina/MLE of plaintiff corporation in 1974 and 1975, when the
administrative case was pending, this circumstance alone without formally including plaintiff in said case
will not create any valid and sufficient justification for plaintiff corporation, to have been supposedly
included in the suit against defendants and Matuguina/MLE in the administrative case.

The change of name and transfer of management of the license does not itself prove that the
plaintiff corporation was the alter ego of Matuguina/MLE. This only signifies transfer of authority from
MLE to MIWPI, to conduct logging operations in the area covered by the license. It does not show
indubitable proof that MIWPI was a mere conduit or successor of Milagros Matuguina/MLE as far as the
latter’s liability for the encroachment upon DAVENCOR’s concession is concerned. Even if it is in the
provision that “the transferee shall assume all the obligations of the transferor”* this does not mean that
all obligations are assumed, indiscriminately. The obligations which MIWPI are to assume as transferee
of Matuguina/MLE are those obligations in favor of the government only and not to any other entity.

(10) COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA) represented by its

union president CECILIA TALAVERA, GEORGE ARSOLA, MARIO DIAGO AND
SOCORRO BONCAYAO, petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, COMPLEX ELECTRONICS
CORPORATION, IONICS CIRCUIT, INC., LAWRENCE QUA, REMEDIOS DE JESUS,
MANUEL GONZAGA, ROMY DELA ROSA, TERESITA ANDINO, ARMAN
 CABACUNGAN, GERRY GABANA, EUSEBIA MARANAN and BERNADETH
GACAD,respondents.
G.R. No. 122136 July 19, 1999
COMPLEX ELECTRONICS CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, COMPLEX ELECTRONICS
EMPLOYEES ASSOCIATION (CEEA), represented by Union President, CECILIA
TALAVERA, respondents.

KAPUNAN, J.:
Facts: Complex Electronics Corporation (Complex) was engaged in the manufacture of electronic
products, a subcontractor where its customers gave their job orders, sent their own materials and
consigned their equipment to it. The customers were foreign-based companies with different product lines
and specifications requiring the employment of workers with specific skills for each product line. The
rank and file workers of Complex were organized into a union known as the Complex Electronics
Employees Association, (Union).
Complex received message from Lite-On Philippines requiring it to lower its price by 10%.Complex
informed that such request was not feasible as they were already incurring losses then Complex
regretfully informed the employees that it was left with no alternative but to close down the operations of
the Lite-On Line.
Complex filed a notice of closure of the Lite-On Line with the (DOLE) but the Union filed a notice of
strike with the National Conciliation and Mediation Board (NCMB) and two days thereafter conducted
which resulted in a "yes" vote. In the evening, machinery, equipment and materials being used for
production at Complex were pulled-out from the company premises and transferred to the premises of
Ionics Circuit. The following day, a total closure of company operation was effected at Complex. Union
filed a case an one of the issue is that Lawrence Qua is both the president of Complex and Ionics and that
both companies have the same set of Board of Directors. It claims that business has not ceased at
Complex but was merely transferred to Ionics, a runaway shop. Thus, according to the Union, there is a
clear ground to pierce the veil of corporate fiction.
Issue: WON the claim of union will prosper.
Held: No. The Union's contentions are untenable. A "runaway shop" is a relocation motivated by anti-
unionanimus rather than for business reasons. At the time the labor dispute arose at Complex, Ionics was
already existing as an independent company. The mere fact that one or more corporations are owned or
controlled by the same or single stockholder is not a sufficient ground for disregarding separate corporate
personalities.This fiction of corporate entity can only be disregarded in certain cases such as when it is
used to defeat public convenience, justify wrong, protect fraud, or defend crime. 19 To disregard said
separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly
established which the union failed to do so absent any other evidence.
Labor: We perceive no intention on the part of Lawrence Qua and the other officers of Complex to
defraud the employees and the Union. They were compelled to act upon the instructions of their
customers who were the real owners of the equipment, materials and machinery. WHEREFORE,
premises considered, the assailed decision of the NLRC is AFFIRMED.

*Section 61 of PD 705

(11) FRANCISCO MOTORS CORPORATION vs. COURT OF APPEALS

309 SCRA 72
FACTS: On January 23, 1985, francisco Motors Corporation filed a complaint against SPOUSES
GREGORIO and LIBRADA MANUEL to recover three thousand four hundred twelve and six centavos
(P3,412.06), representing the balance of the jeep body purchased by the Manuels from the firm; an
additional sum of twenty thousand four hundred fifty-four and eighty centavos (P20,454.80) representing
the unpaid balance on the cost of repair of the vehicle; and six thousand pesos (P6,000.00) for cost of suit
and attorney's fees. In their answer, Spouses Manuel interposed a counterclaim for unpaid legal services
by Gregorio Manuel, through permissive counterclaim, in the amount of fifty thousand pesos (P50,000)
which was not paid by the incorporators, directors and officers of the petitioner.
Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was
validly served on it together with the copy of the answer containing the permissive counterclaim. Further,
petitioner questions the propriety of its being made party to the case because it was not the real party in
interest but the individual members of the Francisco family concerned with the intestate case. Petitioner
argued that being a corporation, it should not be held liable therefor because these fees were owed by the
incorporators, directors and officers of the corporation in their personal capacity as heirs of Benita
Trinidad. Petitioner stressed that the personality of the corporation, vis-a-vis the individual persons who
hired the services of private respondent, is separate and distinct, hence, the liability of said individuals did
not become an obligation chargeable against petitioner. Respondent, on the other hand, defend the
propriety of piercing the veil of corporate fiction, but deny the necessity of serving separate summonses
on petitioner in regard to their permissive counterclaim contained in the answer.
ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction applicable in the instant case.
RULING: Given the facts and circumstances of this case, the doctrine of piercing the corporate veil has
no relevant application here. Respondent court erred in permitting the trial court's resort to this doctrine.
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. However, in the case at
bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation
has been reversed. It is the petitioner as a corporation which is being ordered to answer for the personal
liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that
the doctrine has been turned upside down because of its erroneous invocation. Note that according to
private respondent Gregorio Manuel his services 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 petitioner.
However, with regard to the procedural issue raised by petitioner's allegation, that it needed to be
summoned anew in order for the court to acquire jurisdiction over it, we agree with respondent court's
view to the contrary. The purpose of a summons is to enable the court to acquire jurisdiction over the
person of the defendant. Although a counterclaim is treated as an entirely distinct and independent action,
the defendant in the counterclaim, being the plaintiff in the original complaint, has already submitted to
the jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure, if a
defendant (herein petitioner) fails to answer the counterclaim, then upon motion of plaintiff, the defendant
may be declared in default. This is what happened to petitioner in this case, and this Court finds no
procedural error in the disposition of the appellate court on this particular issue. Moreover, as noted by
the respondent court, when petitioner filed its motion seeking to set aside the order of default, in effect it
submitted itself to the jurisdiction of the court.

(13) KOPPEL (PHILIPPINES), INC., plaintiff-appellant, vs.

ALFREDO L. YATCO, Collector of Internal Revenue, defendant-appellee.
G.R. No. L-47673 October 10, 1946

HILADO, J.:
Facts: Koppel (Philippines), Inc. is a corporation duly organized and existing under the laws of the
Philippines, with principal office at City of Manila capital stock of which is divided into (1,000) and
Koppel Industrial Car and Equipment company, a corporation organized and existing under the laws of
America, and not licensed to do business in the Philippines, owned (995) shares out of the total capital
stock of the plaintiff. Transactions went through the following process: (1) "When a local buyer was
interested in the purchase of railway materials, machinery, and supplies, it asked for price quotations from
plaintiff"; (2) "Plaintiff then cabled for the quotation desired from Koppel Industrial Car and Equipment
Company"; (3) "Plaintiff, however, quoted to the purchaser a selling price above the figures quoted by
Koppel Industrial Car and Equipment Company"; (4) "On the basis of these quotations, orders were
placed by the local purchasers . . ."
The plaintiff's share in the profits realized out of these transactions totaling P3,772,403.82, amounts to
P132,201.30; and that plaintiff within the time provided by law returned the aforesaid amount
P132,201.30 for the purpose of the commercial broker's 4 % tax and paid thereon the sum P5,288.05 as
such tax. Defendant asked for the sum of P64,122.51 as the merchants' sales tax of 1% per cent on the
amount of P3,772,403.82, the total gross value of the sales. That plaintiff, paid under protest. Lower court
did not deny legal personality to appellant for any and all purposes, but held in effect that in the
transaction involved in this case the public interest and convenience would be defeated and what would
amount to a tax evasion perpetrated, unless resort is had to the doctrine of "disregard of the corporate
fiction.The Court of First Instance held for the defendant and dismissed plaintiff's claim.
Appellant submits that the trial court erred in not holding that it is a domestic corporation distinct and
separate from and not a mere branch of Koppel Industrial Car and Equipment Company. Appellee
contended that that plaintiff was organized as a Philippine corporation for the purpose of evading the
payment by its parent foreign corporation of merchants' sales tax on the transactions involved in this case
Issue: WON court a quo erred in not holding that appellant is a domestic corporation distinct and separate
from, and not a mere branch of Koppel Industrial Car and Equipment Co.
Held: No. Koppel (Philippines), Inc. was a mere branch or agency or dummy of Koppel Industrial Car
and Equipment Co. The court did not hold that its corporate personality would also be disregarded in
other cases or for other purposes. It would have had no power to so hold. The courts' action in this regard
must be confined to the transactions involved in the case at bar.
Where it appears that two business enterprises are owned, and controlled by the same parties, both law
and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that two
corporations are distinct entities, and treat them as identical. In so far as the sales involved herein are
concerned, Koppel (Philippines), Inc., and Koppel Industrial Car and Equipment company are to all
intents and purposes one and the same; or, to use another mode of expression, former is a mere branch,
subsidiary or agency of the latter. To our mind, this is conclusively borne out by so-called "share in the
profits" No group of businessmen could be expected to organize a mercantile corporation if the amount of
that profit were to be subjected to such a unilateral control of another corporation, unless indeed the
former has previously been designed by the incorporators to serve as a mere subsidiary. Koppel Industrial
Car and Equipment Company made us of its ownership of the overwhelming majority — 99.5% — of the
capital stock of the local corporation to control the operations of the latter and how the Philippine
corporation could effectively go against the policies, decisions, and desires of the American corporation
Thus we think a deliberate intent, through the medium of a scheme devised with great care, to avoid the
payment of precisely the 1½ per cent merchants' sales tax in force in the Philippines before, at the time of,
and after, the making of the said contract If this were to be allowed, the payment of a tax, which directly
could not have been avoided, could be evaded by indirection, consideration being had of the
aforementioned peculiar relations between the said American and local corporations. Such evasion,
involving as it would, a violation of the former Internal Revenue Law. Wherefore, judgment appealed
from is affirmed.

(14) ERNESTO CEASE, CECILIA CEASE, MARION CEASE, TERESA CEASE-LACEBAL

and the F.L. CEASE PLANTATION CO., INC. as Trustee of properties of the defunct
TIAONG MILLING & PLANTATION CO., petitioners,
vs.
HONORABLE COURT OF APPEALS, (Special Seventh Division), HON. MANOLO L.
MADDELA, Presiding Judge, Court of First Instance of Quezon, BENJAMIN CEASE and
FLORENCE CEASE, respondents.
 G.R. No. L-33172 October 18, 1979

GUERRERO, J:
Facts: Forrest L. Cease common predecessor in interest of the parties together with five other American
citizens organized the Tiaong Milling and Plantation Company and in the course of its corporate existence
the company acquired various properties but at the same time all the other original incorporators were
bought out by Forrest L. Cease together with his children namely Ernest, Cecilia, Teresita, Benjamin,
Florence and one Bonifacia Tirante also considered a member of the family; the charter of the company
lapsed in June 1958.On 1959, Forrest L. Cease died and by extrajudicial partition of his shares, among the
children trouble among them arise because it would appear that Benjamin and Florence wanted an actual
division while the other children wanted reincorporation; and proceeding on that, these other children
Ernesto, Teresita and Cecilia and Tirante proceeded to incorporate themselves into the F.L. Cease
Plantation Company and registered it with the Securities and Exchange Commission. Benjamin and
Florence for their part initiated a Special Proceeding for the settlement of the estate of Forest L. Cease
and filed Civil Case against Ernesto, Teresita and Cecilia Cease and Bonifacia asking that the Tiaong
Milling and Plantation Corporation be declared Identical to F.L. Cease and that its properties be divided
among his children as his intestate heirs which was resisted by defendants and apparently on the eve of
the expiry of the three year period provided by the law for the liquidation of corporations, the board of
liquidators of Tiaong Milling executed an assignment and conveyance of properties and trust agreement
in favor of F.L. Cease Plantation Co. Inc. as trustee of the Tiaong Milling and Plantation Co. so alleged
trustee were also included as party defendant. Trial Judge held in favor of plaintiffs. CA dismissed the
appeal.
Issue: WON PROPERTIES OF TIAONG MILLING AND PLANTATION COMPANY, DURING ALL
THE 50 YEARS OF ITS CORPORATE EXISTENCE ARE ALSO PROPERTIES OF THE ESTATE OF
FOREST L. CEASE AND THUS CAN BE DIVIDED AMONG HEIRS.
Held: Yes. The accounts of the corporation and its operation, as well as that of the family appears to be
indistinguishable and apparently joined together. It corporation 'never' had any account with any banking
institution and was in the name of Mr. Forrest L. Cease. In brief, the operation of the Corporation is
merged with those of the majority stockholders, the latter using the former as his instrumentality and for
the exclusive benefits of all his family. The truth is that the corporation is only a business conduit of his
father and an extension of his personality, they are one and the same thing. Thus, the assets of the
corporation are also the estate of Forrest L. Cease, the father of the parties herein who are all legitimate
children of full blood. Generally, a corporation is invested by law with a personality separate and distinct
from that of the persons composing it but there is the doctrine of piercing the veil of corporate fiction. The
separate identity may not be used to invoke to defeat public convenience, justify wrong, protect fraud,
defend crime. This is likewise true where the corporate entity is being used as an alter ego, adjunct, or
business conduit for the sole benefit of the stockholders or of another corporate entity. In effect, notion of
corporate entity will be pierced and the corporation will be treated merely as an association of persons or,
where there are two corporations, they will be merged as one. So must the case at bar add to this
jurisprudence.
In this case children participated as as nominal shareholders emanated solely from Forrest L. Cease's
gratuitous dole out of his own shares to the benefit of his children and ultimately his family. If we treated
F. L. Cease Plantation Company as Trustee are distinct and separate from the estate of Forrest L. Cease to
which petitioners and respondents as legal heirs of said Forrest L. Cease are equally entitled share and
share alike, then that legal fiction of separate corporate personality shall have been used to delay and
ultimately deprive and defraud the respondents of their successional rights to the estate of their deceased
father. Hence, it becomes necessary and imperative to pierce that corporate veil.

SpecPro:If there were a valid genuine claim of Exclusive ownership of the inherited properties then the
general rule of partition that an appeal will not lie until the partition or distribution proceedings are
terminated will not apply where appellant claims. WHEREFORE, IN VIEW OF THE FOREGOING, the
judgment appealed from is hereby AFFIRMED.
SO ORDERED.

(15) Republic vs Sandiganbayan and Africa et al.

266 SCRA 515
Bellosillo, J.:

Facts: The Government through the PCGG filed before the Sandiganbayan and OSG a complaint for
sequestration of the private respondents Africa et al and Eastern Telecommunications Philippines, Inc.
(ETPI). It alleged that said respondents manipulated under the guise of expanding Philippine
Communication Satellite Corporation (PHILCOMSAT) in the purchase of major shareholdings a London-
based telecommunications company in ETPI which it beneficially held for the Marcoses. Africa et al were
not impleaded in the civil case and were denied dividends pertaining to their shares. The Sandiganbayan
ruled in favor of the respondents on the ground that since no judicial proceeding was ever commenced
against them within six months which is mandated of the 1987 Constitution (Art 18, Sec 26), the writ of
sequestration issued over their shares of stock is deemed to have been automatically lifted.

On the other hand, petitioners contend that although private respondents have neither been
formally impleaded as private parties nor have been served with summons, there being a finding that the
subject shares were being held merely on behalf of the already impleaded defendants in a civil case before
Sandiganbayan, there is no doubt that there is no doubt that there is a judicial action involving the private
respondents.

Issue: Whether the Sandiganbayan is correct

Held: Yes. The government is seeking to recover the shares of stock of private respondents through an
action where the named defendants are different from private respondents herein. The companies were
not themselves impleaded as defendants but merely enumerated in its list annexed to the complaints
against the named individuals.

The doctrine of “piercing the veil of corporate fiction” states that in action against a person,
whether natural or a corporation, that wholly owns or control another corporation to evade his or its
obligation or liability, to hide ill-gotten wealth of any or all of the persons impleaded therein, a judgment
against any or all of the said corporations even if these corporations have not been formally impleaded as
defendants in the case. But even if we disregard the corporate fiction of ETPI, still the private respondents
cannot be divested of their shares of stock unless in a proper forum they have shown to have committed
some wrongdoing in acquiring them. when this fiction is used to justify wrong, protect fraud or defend
crime, the law will disregard the existence of the corporation as a distinct legal entity and view the latter
merely a an association of persons. Accordingly, the equitable owners of the corporation shall be
personally liable and the acts of the real parties will be dealt with as though no corporation had been
formed. In the civil case, only the named defendants are being accused of the wrongdoing in acquiring
their shares of stock in ETPI. Thus, only their identified shares of stock in ETPI should be subject to the
claims of the Government.

(16) Soriano et al. vs CA and Gervacio Cu

174 SCRA 195
Sarmiento, J.:
Facts: The private respondent entered into a “deal” of delivering a truck load of Virginia tobacco with the
Association, Bacarra (I.N.) FACoMa, Inc. A check was issued representing the payments. However, the
private respondent Cu was not paid; prompting him to file for the collection of money against all the
signatories to the receipt. The trial court adjudged for the plaintiff holding the petitioners jointly and
severally liable. The Court of Appeals affirmed in toto the decision trial court. It held that the fact that the
petitioners signed their respective positions in Bacarra (I.N.) FaCaMa, Inc. was of no moment as there
was no showing that the document was signed by them for and on behalf of the corporation. Further, the
petitioners failed to present any evidence to the failure of the petitioners to present any evidence that they
were authorized to enter into the transaction.

Issue: Whether or not the respondent appellate court erred in holding the petitioners solidarily liable in
their personal capacity?

Held: No. it is quite plain and the SC is convinced that “Association” is none other than the Bacarra
(I.N.) FACoMa. The receipt and invoices used in transporting the private respondent’s tobacco were in
the name of the said association and not in the names of the signatories to the document. If it were, it
would have been prepared in the name of the petitioners.

It is clear that the liability of the petitioners under the document subject of the case is not personal
but coporate and therefore attached to the Bacarra (I.N.) FACoMa Inc. which being a corporation has a
personality distinct and separate from that of the petitioners who are only its officers. There is no proof
whatsoever that the majority of the directors used the distinct and separate personality of Bacarra (I.N.)
FACoMa Inc. as a protective shield from any wrongdoing. Therefore, the general rule on corporate
liability which states that the corporation has a personality separate and distinct would not apply. This
case falls in the exception.

(17) Boyer-Roxas and Guillermo Roxas vs CA and Heirs of Eugenia Roxas

211 SCRA 470
Guttierez, J.:

Facts: This petition for review comprises of two separate complaints for the recovery of possession
against petitioners Boyer-Roxas and Gillermo Roxas. The respondent corporation prayed for ejectment of
the said petitioners from the buildings inside the premises of Hidden Valley Springs Resort alleged owned
by the respondent corporation. Respondent alleges that Boyer-Roxas’ possession of the two houses built
at the expense of the corporation was only upon tolerance of the said corporation. And in case of
Guillermo Roxas, the house which was built at the expense of the respondent corporation (during the time
when Guillermo’s father Eriberto Roxas was still living and was the general manager of the said
corporation) was originally intended as a recreation hall but was converted for residential use of
Guillermo and possession was also for mere tolerance of the respondent corporation. The conversion was
allegedly within the knowledge of Eufrocino Roxas (who has the biggest share) and was not objected by
any of the Board of Directors. They never paid rentals and ignored the demand to vacate the premises.

The petitioners alleged that they are heirs and therefore, co-owners of the Hidden Valley Springs
Resort and as co-owners of the property they have the right to stay within its premises.

The trial court rendered decision in favor of the respondent corporation, the CA affirmed such
decision. The motion for reconsideration was likewise denied. Hence this petition

Issue: Whether petitioners are legally authorized to pierce the veil of corporate fiction and interpose the
same as a defense in an accion publiciana
Held: No. The respondent is a bona fide corporation. As such, it has a juridical personality of its own
separate from the members composing it. Properties registered in the name of the corporation are owned
by it as an entity separate and distinct from its members. A share of stock only typifies an aliquot part of
the corporation’s property or the right to share in its proceeds to that extent distributed according to law
and equity but its holder is not the owner of any part of the capital of the corporation. Nor he is entitled to
the possession of any definite portion of its property or assets. The stockholder is not a co-owner or tenant
in common of the corporate property.

Whatever these officers or agents may have is derived from the board of directors or other
governing body unless conferred by the character of the corporation. Nothing is irregular in the adoption
of resolution by the Board of Directors. The petitioners’ stay within the questioned properties was merely
by tolerance of the respondent. Petitioners have not cited any provision of the corporation by-laws or any
resolution or act of the Board of Directors which authorized Eufrocino Roxas to allow them to stay within
the company premises forever. The SC ruled that in the absence of any existing contract between the
petitioners at any time it wishes for the benefit and interest of the respondent corporation.

The petitioners’ suggestion that the veil of corporate fiction should be pierced is untenable. The
separate personality of the corporation may be disregarded only when the corporation is used as a cloak or
cover for fraud or illegality, or to work injustice or when necessary for the protection of the creditors. The
circumstances in the present case do not fall under any of the enumerated categories.

(18) MARVEL BUILDING CORPORATION, ET AL., vs.

SATURNINO DAVID, in his capacity as Collector, Bureau of Internal Revenue
G.R. No. L-5081 February 24, 1954
LABRADOR, J.:

Facts: This action was brought by plaintiffs as stockholders of the Marvel Building Corporation to
enjoin the defendant Collector of Internal Revenue from selling at public auction various properties all
registered in the name of the said corporation. Such properties were seized and distrained by defendant to
collect war profits taxes assessed against plaintiff Maria B. Castro who is claimed by the defendant to be
the true and sole owner of all the subscribed stock of the Marvel Building Corporation, including those
appearing to have been subscribed and paid for by the other members. It does not appear that the
stockholders or the board of directors of the Marvel Building Corporation have ever held a business
meeting, for no books thereof or minutes meeting were ever mentioned by the officers thereof or
presented by them at the trial. The by-laws of the corporation, if any had ever been approved, has not
been presented. Neither does it appear that any report of the affairs of the corporation has been made,
either of its transactions or accounts. After the trial, the Court of First Instance ruled in favor of the
plaintiff. Hence, this petition

Issue: Whether Maria B. Castro is the owner of all the shares of stocks of the corporation and the other
stockholders are mere dummies?

Held: Yes. The fact that the other stockholders did not have incomes in such amounts, during the time of
the organization of the corporation in 1947, or immediately thereto, as to enable them to pay in full for
their supposed subscriptions is in importance among the evidence submitted by the defendant to prove
that Maria B. Castro is the sole owner of the shares of stock of Marvel Building Corporation. This fact is
proved by their income tax returns, or the absence thereof. Further, if the alleged stockholders (e.g.
Gonzales) had really been a stockholder and Maria B. Castro, the agreement between them should have
been put in writing, the amount advanced being quite considerable (P80,000), and it appearing further that
Gonzales is no close relative or confidant of Castro. Further, the non production of evidence that would
naturally have been produced by an honest and fearless claimant permits the inference that its tenor is
unfavorable to the party's cause. Moreover, the fact that the other subscribers had no incomes of sufficient
magnitude to justify their big subscriptions, the fact that the subscriptions were not receipted for and
deposited by the treasurer in the name of the corporation but were kept by Maria B. Castro herself, the
fact that the stockholders or the directors never appeared to have ever met to discuss the business of the
corporation, the fact that Maria B. Castro advanced big sums of money to the corporation without any
previous arrangement or accounting, and the fact that the books of accounts were kept as if they belonged
to Maria B. Castro alone — these facts are of patent and potent significance. They never would have
consented that Maria B. Castro keep the funds without receipts or accounting, nor that she manages the
business without their knowledge or concurrence, were they owners of the stocks in their own rights.

The facts and circumstances have been proved conclusively and beyond reasonable doubt that
Maria B. Castro is the sole and exclusive owner of all the shares of stock of the Marvel Building
Corporation and that the other partners are her dummies.

(19) Collector of Internal Revenue vs University of Visayas

12 SCRA 193
JBL, J.:

Facts: Commissioner of Internal Revenue moved for reconsideration for the decision of the CTA
declaring that University of Visayas as exempted from income tax. It alleges that its net income inures to
the benefit of any stockholder or individual. It further argues that the undistributed dividends necessarily
increase the value of the stockholders’ equity and it is not denied that the market value of the shares of
University has increased considerably hence the undistributed dividends actually inured to the benefit of
the private stockholders. Thus coming within the purview of taxability.

On the other hand, the University alleges that CIR’s position is merely intended to safeguard or remedy
against tax evasion without expressing the intent to withdraw the exemption from income tax of the
corporations enumerated. Moreover, the phrase “net income inures to the benefit of any private
stockholder or individual” is the disposition is channeling of income of the corporation to the benefit of
the stockholder or individual in an indirect or manipulative manner.

Issue: Whether University of Visayas is not exempted from tax as its net income inured to the benefit of
the stockholders

Held: Yes. The facts of the case proves that the corporation is under absolute control of the president and
his immediate family to the extent that it warrants the conclusion that the corporate entity is but an alter
ego or a business conduit for the said stockholders, therefore, a disregard of the corporate fiction is
justified, and the net income of the corporation may well be viewed as that of the controlling group. The
operation of the educational enterprise was indeed limited to educational purpose however, the net
income intended for the operating expenses were invested in the purchase of real property and have been
placed under the name of the president alone or in the name of his wife or both. It is very obvious that the
net income inured to the benefit of the president and his family. Hence, the university is entitled to the
exemption.

(20) National Marketing Corporation (NAMARCO) vs.

Associated Finance Company Inc. and Sycip
19 SCRA 962
 Dizon, J.:

Facts: The defendant corporation through its president,Sycip, entered into an agreement to exchange
sugar with plaintiff NAMARCO by its General Manager Estrella whereby the former would deliver
refined sugar in the rate of P13.30 per bag in exchange for the bags of raw sugar belonging to
NAMARCO. Associated failed to deliver to the plaintiff refined sugar and was demanded in writing to
either deliver such immediately or pay the equivalent cash value. After 10 months, Associated through
Sycip, offered to pay plaintiff refined sugar at the rate of P15.30 but the latter rejected the offer and
instead demanded payment at the rate of P15.30. NAMARCO instituted an action as Associated refused
to deliver the raw sugar or pay the refined sugar inspite of repeated demands.

The defendants alleged that the correct value of the sugar deliver by NAMARCO should be based
on P13.30 per bag and not P15.30. The trial court rendered a decision in favor of the plaintiff. This appeal
is only form that portion of the decision dismissing the case against Sycip.

Issue: Whether or not Francisco Sycip may be held jointly and severally with his co-defendant for the
sums of money adjudge in favor of NAMARCO

Held: Yes. Sycip was guilty of fraud because of false representations he succeeded in inducing
NAMARCO to enter into the exchange agreement with full knowledge on his part of the fact that
Associated (whom he represents and over whose business and affairs he had absolute control) had no
means to comply with the obligation it had assumed. Sycip referred to himself as the one who contracted
the business in his personal capacity and gave assurances although at that time Associated was already
insolvent.

He cannot now seek refuge behind the general principle that a corporation has a personality distinct and
separate from that of the stockholders. It is indeed 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.

(21) COMMISSIONER OF INTERNAL REVENUE vs. NORTON and HARRISON

COMPANY
11 SCRA 714

FACTS: Norton & Harrison Co. is a corporation organized (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 primarily for the purpose of making,
producing and manufacturing concrete blocks. 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. 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, for the period covered from July 1, 1949 to May
31, 1953 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. The
Commissioner of Internal Revenue contends that since Jackbilt was owned and controlled by Norton &
Harrison, the corporate personality of the former (Jackbilt) should be disregarded for sales tax purposes,
and the sale of Jackbilt blocks by Norton & Harrison to the public must be considered as the original
sales from which the sales tax should be computed. The Norton & Harrison Company contended
otherwise — that is, the transaction subject to tax is the sale from Jackbilt to Norton.
ISSUE: Whether or not distinct personalities of Jackbilt and Norton & Harrison Co. be disregarded.
RULING: 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; (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; (c) Norton financed the operations of the Jackbilt, (d) Norton treats Jackbilt employees
as its own; (e) Compensation given to board members of Jackbilt, indicate that Jackbilt is merely a
department of Norton; (f)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.

(22) MANUEL R. DULAY ENTERPRISES, INC vs. COURT OF APPEALS

225 SCRA 678
FACTS: Manuel R. Dulay Enterprises, Inc, a close corporation, through its president, Manuel Dulay,
obtained various loans for the construction of its hotel project, Dulay Continental Hotel (now Frederick
Hotel). It even had to borrow money from petitioner Virgilio Dulay to be able to continue the hotel
project. As a result of said loan, petitioner Virgilio Dulay occupied one of the unit apartments of the
subject property since 1973 while at the same time managing the Dulay Apartment at his shareholdings in
the corporation was subsequently increased by his father. On December 23, 1976, Manuel Dulay by
virtue of Board Resolution No 18, the corporation sold the subject property to spouses Maria Theresa and
Castrense Veloso. Subsequently, Manuel Dulay and spouses Veloso executed a Memorandum to the Deed
of Absolute Sale of December 23, 1976 dated December 9, 1977 giving Manuel Dulay within (2) years or
until December 9, 1979 to repurchase the subject property. However, not annotation either in TCT No.
17880 or TCT No. 23225 was made.On December 24, 1976, Maria Veloso, without the knowledge of
Manuel Dulay, mortgaged the subject property to private respondent Manuel A. Torres for a loan of
P250,000.00 which was duly annotated as Entry No. 68139 in TCT No. 23225. Upon the failure of Maria
Veloso to pay Torres, the subject property was sold on April 5,1978, Torres was the highest bidder in an
extrajudicial foreclosure sale. Maria Veloso executed a Deed of Absolute Assignment of the Right to
Redeem in favor of Manuel Dulay assigning her right to repurchase the subject property. As neither Maria
Veloso nor her assignee Manuel Dulay was able to redeem the subject property within the one year
statutory period for redemption. Then, Torres filed a petition for the issuance of a writ of possession
against spouses Veloso and Manuel Dulay. However, when petitioner Manuel Dulay was never
authorized by the corporation to sell or mortgage the subject property, the trial court that the corporation
be impleaded as an indispensable party but the latter moved for the dismissal of his petition which was
granted in an Order dated April 8, 1980.
ISSUE: Whether or not the doctrine of piercing the veil of corporate entity applies in the instant case.
RULING: Section 101 of the Corporation Code of the Philippines provides:
Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise,
any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of the action and make no prompt objection
thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied acquiesce of all the
stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of them makes
prompt objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken therein within the corporate powers is
deemed ratified by a director who failed to attend, unless he promptly files his written objection with the
secretary of the corporation after having knowledge thereof.
In the instant case, petitioner corporation is classified as a close corporation and consequently a board
resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation
for the action of its president. At any rate, corporate action taken at a board meeting without proper call or
notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his
written objection with the secretary of the corporation after having knowledge of the meeting which, in
his case, petitioner Virgilio Dulay failed to do.
It is relevant to note that although a corporation is an entity which has a personality distinct and separate
from its individual stockholders or members, the veil of corporate fiction may be pierced when it is used
to defeat public convenience justify wrong, protect fraud or defend crime. The privilege of being treated
as an entity distinct and separate from its stockholder or members is therefore confined to its legitimate
uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act.
When the corporation is used merely as an alter ego or business conduit of a person, the law will regard
the corporation as the act of that person. The Supreme Court had repeatedly disregarded the separate
personality of the corporation where the corporate entity was used to annul a valid contract executed by
one of its members.

(23) CARMELCRAFT CORPORATION &/OR CARMEN V. YULO, President and General

Manager, petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION, CARMELCRAFT EMPLOYEES
UNION, PROGRESSIVE FEDERATION OF LABOR, represented by its Local President
GEORGE OBANA, respondents
G.R. No. 90634-35 June 6, 1990

CRUZ, J.:
Facts: After its registration as a labor union, the Camelcraft Employees Union sought but did not get
recognition from the petitioners. Consequently, it filed a petition for certification election in June 1987.
On July 13, 1987, Camelcraft Corporation, through its president and general manager, Carmen Yulo,
announced in a meeting with the employees that it would cease operations on August 13, 1987, due to
serious financial losses. Operations did cease as announced. On August 17, 1987, the union filed a
complaint with the Department of Labor against the petitioners for illegal lockout, unfair labor practice
and damages and the Labor Arbiter declared the shutdown illegal and violative of the employees' right to
self-organization. NLRC affirmed. Carmen Yulo contended that she is not liable for the acts of the
petitioner company, assuming it had acted illegally, because the Carmelcraft Corporation is a distinct and
separate entity with a legal personality of its own. Yulo claims she is only an agent of the company
carrying out the decisions of its board of directors.
Issue: WON Carmen is liable?
Held: Yes, Our finding is that she is in fact and legal effect the corporation, being not only its president
and general manager but also its ownerMoreover, and this is a no less important consideration, she is
raising this issue only at this tardy hour, when she should have invoked this argument earlier, when the
case was being heard before the labor arbiter and later m the NLRC. It is too late now to shunt these
responsibilities to the company after she herself had been found liable.
Labor/Constitution issue: The Court is appalled by the degree of bad faith that has characterized the
petitioners' treatment of their employees and they now have the temerity to seek from us a relief to which
they are clearly not entitled. The petition must be dismissed. It was apparently unwelcome to the
corporation, which would rather shut down than deal with the union. The act of the petitioners was an
unfair labor practice prohibited by Article 248 of the Labor Code, to wit: ART. 248. Unfair labor
practices of employers.-It shall be unlawful for an employer to commit any of the following unfair labor
practice:
(a) To interfere with, restrain or coerce employees in the exercise of their right to self-organization;
More importantly, it was a defiance of the constitutional provision guaranteeing to workers the right to
self-organization and to enter into collective bargaining with management through the labor union of their
own choice and confidence.
WHEREFORE, the petition is DISMISSED and the challenged decision is AFFIRMED, with costs
against the petitioner. It is so ordered.

(24) LIDDELL & CO., INC., petitioner-appellant, vs.

THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.
G.R. No. L-9687 June 30, 1961

BENGZON, C.J.:
Facts: Liddell & Co. for short is a domestic corporation establish in the hilippines which majority of
shares were subscribed and paid by Frank Liddell while the other 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. Several declaration of dividends took place which increases the shares subscribed to by Liddel and
the others.
On 1948, the Liddell Motors, Inc. was organized and registered with the Securities and Exchange
Commission with an authorized capital stock subscribed and paid for by Irene Liddell wife of Frank
Liddell and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del Rosario and Esmenia Silva. At about
the end of the year, 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. Beginning 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.
With this kind of transactions, 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 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 the doctrine of piercing the veil of corporate identity finds application in this case.
Held: Yes. We may disregard the separate corporate entity or pierce the veil 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.
We are fully convinced that Liddell & Co. is wholly owned by Frank Liddel. As of the time of its
organization, majority of the capital stock belonged to Frank Liddell. The subsequent subscriptions to the
capital stock were made by him and paid with his own money. As to Liddell Motors, Inc. we are fully
persuaded that Frank Liddell also owned it. He supplied the original capital funds.It is not proven that his
wife Irene, ostensibly the sole incorporator of Liddell Motors, Inc. Her income in the United States could
not be enough to cover the amount of subscription, much less to operate an expensive trade like the retail
of motor vehicles.The evidence at hand also shows that Irene Liddell had scant participation in the affairs
of Liddell Motors, Inc. Her frequent absences from the country negate any active participation in the
affairs of the Motors company.
There are quite a series of conspicuous circumstances that militate against the separate and distinct
personality of Liddell Motors like 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. 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. 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.
Let us illustrate: a car with engine motor No. 1 was sold by Liddell & Co. Inc. to Liddell Motors, Inc. on
January 2, 1948 for P4,546,000.00 including tax; the price of the car was P4,133,000.23, the tax paid
being P413.22, at 10%. And when this car was later sold (on the same day) by Liddell Motors, Inc. to
P.V. Luistro for P5500, no more sales tax was paid. In this price of P5500 was included the P413.32
representing taxes paid by Liddell & Co. Inc. in the sale to Liddell Motors, Inc. Deducting P413.32
representing taxes paid by Liddell & Co., Inc. the price of P5500, the balance of P5,087.68 would have
been the net selling price of Liddell & Co., Inc. to the general public (had Liddell Motors, Inc. not
participated and intervened in the sale), and 15% sales tax would have been due. In this transaction,
P349.68 in the form of taxes was evaded. All the other transactions (numerous) examined in this light will
inevitably reveal that the Government coffers had been deprived of a sizeable amount of taxes.
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.
Tax liability computation: Deficiency sales tax should be based on the selling price obtained by Liddell
Motors, Inc. to the public AFTER DEDUCTING THE TAX ALREADY PAID BY LIDDELL & CO.,
INC. in its sales to Liddell Motors, Inc.

(25) PALAY, INC. and ALBERT ONSTOTT, petitioner,

vs.
JACOBO C. CLAVE, Presidential Executive Assistant NATIONAL HOUSING
AUTHORITY and NAZARIO DUMPIT respondents.
G.R. No. L-56076 September 21, 1983

MELENCIO-HERRERA, J.:
Facts: Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario
Dumpit, a Contract to Sell a parcel of Land of the Crestview Heights Subdivision in Antipolo, Rizal.
Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any
monthly installment after the lapse of 90 days from the expiration of the grace period of one month,
without need of notice and with forfeiture of all installments paid. The last payment was made on
December 5, 1967 for installments up to September 1967. On May 10, 1973, or almost six (6) years later,
private respondent wrote petitioner offering to update all his overdue accounts with interest, and seeking
its written consent to the assignment of his rights to a certain Lourdes Dizon. He followed this up with
another letter Replying petitioners informed respondent that his Contract to Sell had long been rescinded
pursuant to paragraph 6 of the contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the
National Housing Authority (NHA) for reconveyance with an altenative prayer for refund and the NHA,
finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and
Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund
immediately to Nazario Dumpit On appeal to the Office of the President, respondent Presidential
Executive Assistant affirmed the Resolution of the NHA.
Issue: Whether the doctrine of piercing the veil of corporate fiction has application to the case at bar,
meaning Onstott will be personally liable.
Held: No because there is no sufficient proof exists on record that said petitioner used the corporation to
defraud private respondent. He cannot, therefore, be made personally liable just because he "appears to be
the controlling stockholder". Mere ownership by a single stockholder or by another corporation is not of
itself sufficient ground for disregarding
As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or
those of the legal entities to which it may be connected and vice versa. However, the veil of corporate
fiction may be pierced when it is used as a shield to further an end subversive of justice 12 ; or for
purposes that could not have been intended by the law that created it 13 ; or to defeat public convenience,
justify wrong, protect fraud, or defend crime. 14 ; or to perpetuate fraud or confuse legitimate issues 15 ;
or to circumvent the law or perpetuate deception 16 ; or as an alter ego, adjunct or business conduit for
the sole benefit of the stockholders. 17
We find no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on paragraph
6 (supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and
had sold it to a third person.
Issue on Sales: Well settled is the rule, as held in previous jurisprudence, 2 that judicial action for the
rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled
for violation of any of its terms and conditions. However, even in the cited cases, there was at least a
written notice sent to the defaulter informing him of the rescission.
Petitioner Palay, Inc. is directed to refund to respondent Nazario M. Dumpit. SO ORDERED.