GREGORIO ARANETA, INC. V TUAZON G.R. No.

L-2886, 22 AUGUST 1952 FACTS: Defendant Paz Tuzaon de Paterno is the registered owner of approximately 40,703 sqm. parcel of land situated in Sta Mesa, Manila. Most of the these lots were occupied by lessees who had contract of lease whish were to expire on 31 December 1953 with provision of right of first refusal. In 1940 and 1941, Paz Tuazon obtained several loans from Jose Vidal and was secured by the lot in question. In 1943, defendant decided to sell the entire property to plaintiff Gregorio Araneta Inc. the controversy arose when plaintiff corporation filed a complaint to compel defendant Tuazon to deliver to the plaintiff a clear title of the lots free from all lien and encumbrances which defendant Tuazon failed to comply because the mortgage she executed in favor of Vidal is still annotated in the title. Defendant in her defense claims that the sale between her and plaintiff corporation is not valid on the ground that Jose Araneta was her agent and at the same time the President of plaintiff corporation. ISSUE: WON Jose Araneta is an agent of defendant Tuazon and WON there was a valid sale between defendant and plaintiff corporation. RULING: The Court rules that corporate fiction will not be disregarded because the corporate entity was not used to perpetuate fraud nor circumvent the law and the disregard of the technicality would pave the way for the evasion of a legitimate and binding commitment, especially since defendant was fully aware of the position of Jose Araneta in the corporation at the time of the sale. Jose Araneta was not an agent within the meaning as provided for by Article 1459 of the Civil Code. He was nothing more that a go between or middleman between the defendant and the purchaser, bringing them together to make the contract themselves. The rule that the piercing doctrine cannot be applied in favor of a party who was not a victim of any alleged fraud committed, being fully aware of the circumstances that are being ventilated to show fraud. Gregorio Palacio vs Fely Transportation Facts: Alfredo Carillo was hired by the defendant corp. To be a driver of ac-787 owned and operated by defendant corp. On December 24, 1952, Carillo run over Mario Palacio (the son of herein plaintiff).

Gregorio Palacio suffered moral damages because of the incident, according to him he used to earn more on his welding business but because of the incident he was forced to look upon his son in the hospital and he was forced to sell his equipments to support the hospital expenses. On the other hand, the Fely Transportation alleged that they do not own the AC787 at the time of the incident happened, it was owned by Isabelo Calingasan and that the claim was already barred because there was already a judgment on the criminal case. Plaintiff Gregorio Palacio alleged that Calingasan was the president of the Fely Transportation Company together with other officers which is his wife and son, and that he is only hiding under the name of Fely Transporation Company. Issue: Whether or not piercing the veil of corporate fiction may be use in the instant case in order to determine if Calingasan is subsidiary liable. Held: The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and defendant Fely Transportation may be regarded as one and the same person. It is evident that Isabelo Calingasan's main purpose in forming the corporation was to evade his 1 subsidiary civil liability resulting from the conviction of his driver, Alfredo Carillo. This conclusion is borne out by the fact that the incorporators of the Fely Transportation are Isabelo Calingasan, his wife, his son, Dr. Calingasan, and his two daughters. We believe that this is one case where the defendant corporation should not be heard to say that it has a personality separate and distinct from its members when to allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to further an end subversive of justice. (La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., G.R. No. L-5677, May 25, 1953) Furthermore, the failure of the defendant corporation to prove that it has other property than the jeep (AC-687) strengthens the conviction that its formation was for the purpose above indicated. And while it is true that Isabelo Calingasan is not a party in this case, yet, is held in the case of Alonso v. Villamor, 16 Phil. 315, this Court can substitute him in place of the defendant corporation as to the real party in interest. This is so in order to avoid multiplicity of suits and thereby save the parties unnecessary expenses and delay. (Sec. 2, Rule 17, Rules of Court; Cuyugan v. Dizon. 79 Phil. 80; Quison v. Salud, 12 Phil. 109.)

Panay Inc. and Albert Onstott vs Clave (Pres. EA, NHA) Facts: Petitioner Palay Inc. through its President Albert Onstott executed a contract to sell of a parcel of land in favor of private respondent Nazario Dumpit. Their contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of the 1 month grace period, w/o need of notice and with forfeiture of all installments paid. Respondent defaulted in payment and so when petitioner Palay Inc. rescinded their contract and resold the subject lot. NHA found the rescission void in the absence of either judicial or notarial demand. It ordered Palay Inc. and Onstott to jointly and severally refund the amount paid by private respondents. The Office of the Pres. affirmed the said decision. Issue: W/N petitioners were justified in cancelling the contract to sell w/o prior notice or demand upon respondent. Held: SC ruled the rescission of the contract was ineffective and inoperative for lack of notice of resolution. The law provides 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 the act of a party in treating a contract as cancelled should be made know to the other. It further held that Onstott cannot be held jointly and severally liable with Palay Inc for the refund of the amount paid by private respondent since no sufficient proof exists that Onstott used the corporation to defraud private respondent. Onstott cannot 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 the separate corporate personality. PABALAN vs. NLRC G.R. No. 89879 April 20, 1990 FACTS: Eighty-four (84) workers of the Philippine Inter-Fashion, Inc. (PIF) filed a complaint against the latter for illegal transfer simultaneous with illegal dismissal without justifiable cause and in violation of the provision of the Labor Code on security of tenure as well as the provisions of Batas Pambansa Blg. 130. After conducting the hearings and submitting all the necessary pleadings, the labor arbiter ordered the Philippine Inter-Fashion and its officers Mr. Jaime

Pabalan and Mr. Eduardo Lagdameo to reinstate the workers to their former or equivalent position without loss of seniority rights and privileges and pay, jointly and severally, their back wages and other benefits from the time they were dismissed up to the time they are actually reinstated. ISSUE: W/N Petitioners, as officers of the corporation could be jointly and severally held liable with the corporation in this case. HELD: As a general rule, Corporation is vested by law with a personality separate and distinct from the persons composing it, including its officers as well as from that of any other legal entity to which it may be related. However, the legal fiction that a corporation has a personality separate and distinct from stockholders and members may be disregarded on the following instance: a) deliberately and maliciously designed to evade financial obligations to employees; b) used as a means to perpetrate fraud or an illegal act or c) circumvention of statutes. In this case, the dismissed workers did not allege or show that petitioners, as officers of the corporation, did the instances mentioned above. Thus, Petitioners cannot be held jointly and severally liable with the PIF Corporation. NOTE: A.C. Ransom Labor Union-CCLU vs. NLRC case is not applicable in this case. A.C. Ransom was a family corporation and that during the strike the members of the family organized another corporation which was the Rosario Industrial Corporation to which all the assets of the A.C. Ransom Corporation were transferred to continue its business which acts of such officers and agents of A.C. Ransom Corporation were intended to avoid payment of its obligations to its employees. FRANCISCO V. DEL ROSARIO vs. NLRC & LEONARDO V. ATIENZA FACTS: The Philippine Overseas Employment Administration (POEA) promulgated a decision dismissing the complaint for money claims for lack of merit. It was appealed to the NLRC which reversed the POEA decision and ordered Philsa Construction and Trading Co., Inc. (the recruiter) and Arieb Enterprises (the foreign employer) to jointly and severally pay private respondent his salary differentials and vacation leave benefits. The case was elevated to the Supreme Court, but the petition was dismissed and entry of judgment was made.

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. Private respondent moved for the issuance of an alias writ against the officers of Philsa. This motion was opposed by the officers, led by petitioner, the president and general manager of the corporation. The POEA issued a resolution which ordered that an alias of execution be issued against the properties of petitioner and if insufficient, against the cash and/or surety bond of Bonding Company concerned for the full satisfaction of the judgment awarded. Petitioner appealed to the NLRC. The NLRC dismissed the appeal on the theory that the corporate personality of Philsa should be disregarded because under the findings of POEA, it appeared that Philsa Construction & Trading Co., Inc., represented by Francisco V. del Rosario, President and General Manager, was formerly a registered construction contractor whose authority was originally issued on July 21, 1978 but was already delisted from the list of agencies/entities on August 15, 1986 for inactivity. And that another corporation, Philsa International Placement & Services Corp., composed of practically the same set of incorporators/stockholders, was registered as a licensed private employment agency whose license was issued on November 5, 1981, represented by the same Mr. Francisco V. del Rosario as its President/ General Manager. Hence, this petition, alleging that the NLRC gravely abused its discretion. The Court issued a TRO enjoining the enforcement of the NLRC's decision. ISSUE: W/N the corporate personality of Philsa should be disregarded. HELD: The NLRC's reliance on the findings of the POEA and the ruling in A. C. Ransom is totally misplaced. 1. Under the law a corporation is bestowed juridical personality, separate and distinct from its stockholders [Civil Code, Art. 44; Corporation Code, sec. 2]. 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. 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 we find the NLRC's decision 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. Consider the following undisputed facts: (1) Private respondent filed his complaint with the POEA on June 4, 1985; (2) The last renewal of Philsa's license expired on October 12, 1985; (3) The POEA dismissed private complaint on February 4, 1986; respondent's

(4) Philsa was delisted for inactivity on August 15, 1986; * (5) The dismissal of the complaint was appealed to the NLRC and it was only on April 30, 1987 that the judgment awarding differentials and benefits to private respondent was rendered. Thus, 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 private respondent. 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 private respondent filed his complaint with the POEA in 1985. The creation of the second corporation could not therefore have been in anticipation of private respondent'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.

2. We also find that, contrary to the NLRC'S holding, the ruling in A. C. Ransom is inapplicable to this case. The distinguishing marks of fraud were therefore clearly apparent in A. C. Ransom. A new corporation was created, owned by the same family, engaging in the same business and operating in the same compound. In the case now before us, not only has there been a failure to establish fraud, but it has also not been shown that petitioner is the corporate officer responsible for private respondent'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. At this juncture, the Court finds it appropriate to point out that a judgment against a recruiter should initially be enforced against the cash and surety bonds filed with the POEA. As provided in the POEA Rules and Regulations ... The bonds shall answer for all valid and legal claims arising from violations of the conditions for the grant and use of the license or authority and contracts of employment. The bonds shall likewise guarantee compliance with the provisions of the Labor Code and its implementing rules and regulations relating to recruitment and placement, the rules of the Administration and relevant issuances of the Ministry and all liabilities which the Administration may impose. ... [Rule II, see. 4.] VillaReyTransitvs.Ferrer 25SCRA845 Facts: Jose M. Villarama was an operator of bus transportation, under the business name of Villa Rey Transit. Villarama sold the two certificates of public convenience to the Pangasinan Transportation Company, Inc. (PANTRANCO) with the condition that Villarama shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer. Three monthsafterthesaleacorporationcalledVillaReyTransit, Inc. was organized wherein thewife, brother and sisterin law of Villarama were officer and subscribers of the corporation. In less than a month after its registration in

SEC fivecertificate of public convenience were bought from Valentin Fernando. Valentine owed Ferrer sum of money and the 2 out of 5 certificates of public convenience sold to Villarama was subjected to auction salebysheriffinthecaseofcollectionofsumofmoney. Before the PSC approval of the sale, the sheriff sold the two certificates of public convenience in favor of Ferrer as thehighestbidderwhichsoldbythelattertoPantranco. Pantranco, filed a thirdparty complaint against Jose M. Villarama, alleging that Villarama and the Corporation, are one and the same; that Villarama and/or the Corporation was disqualified from operating the two certificates in questionbyvirtueoftheagreement. Issues: 1. Whether or not the stipulation between the parties for thesaleoftwocertificatesisvalid? 2. Considering the agreement is valid, whether or not the stipulationbindstheCorporation? Held: Taking account of the evidence, together with testimony, it would appear that Villarama supplied the organization expensesandtheassetsoftheCorporation,suchastrucks and equipment. Villarama himself admitted that he mingledthecorporatefundswithhisownmoney. The Court find that although it is in the nature of an agreementsuppressingcompetition,itis,however,merely ancillaryorincidental to themainagreement which is that of sale. The suppression or restraint is only partial or limited: first, in scope, it refers only to application for TPU by the seller in competition with the lines sold to the buyer;second,induration,itisonlyforten(10)years;and third, with respect to situs or territory, the restraint is only along the lines covered by the certificates sold. The disputed stipulation is only incidental to a main agreement, the same is reasonable and it is not harmful nor obnoxious to public service. It does not appear that theultimateresultoftheclauseorstipulationwouldbeto leave solely to Pantranco the right to operate along the lines in question, thereby establishing monopoly or predominance approximating thereto. We believe the mainpurposeoftherestraintwastoprotectforalimited timethebusinessofthebuyer.

The stipulation is valid and reasonable. Having arrived at this conclusion, and considering that the preponderance of the evidence have shown that Villa Rey Transit, Inc. is itselfthealteregoofVillarama,thatthesaidCorporation should, until the expiration of the 1year period abovementioned, be enjoined from operating the line subject of the prohibition. For the rules is that a seller or promissory may not make use of a corporate entity as a meansofevadingtheobligationofhiscovenant. Arnoldvs.WillitsandPatterson,Ltd.(AlterEgoCase) 44Phil634(1923) Facts: G.C.ArnoldwasintheemployoftheInternationalBanking Corporation of Manila. On July 31, 1916, C.D. Willits and I.L. Patterson were partners doing business in San Francisco, California under the name of Willits and Patterson. They entered into a written contract into which G.C. Arnold was employed as the agent of the firm in the PhilippineIslands. The business of the firm in the Philippines very rapidly increased. A dispute arose between the plaintiff and the firm as to the construction of the contract as to the amountwhichplaintiffshouldreceiveforhisservices. Meanwhile, Patterson retired from the firm and Willits became the sole owner of his assets. A short time after that Willits came to Manila and organized a corporation knownasWillitsandPatterson,Ltd.Inlegaleffect,theSan Francisco Corporation took over and acquired all of the assetsandliabilitiesoftheManilaCorporation. Another instrument was made between G.C. Arnold and Willits which defined and specified the compensation which the plaintiff received for his services. Willits received and confirmed this letter by signing the name of WillitsandPatterson,ByC.D.Willits. The creditors committee of the corporation opposed the paymentofcompensationduetheplaintiff,Arnoldundera contract letter signed by Willits, the controlling stockholder, without board approval. The signing President was the controlling stockholder of the corporation. Issue: Whetherornotthecontractletterwasvalid?

Ruling: The Court held the validity of the contract and although theplaintiffwasthepresidentofthelocalcorporation,the testimony is conclusive that both of them were what is knownasaonemancorporation,andWillits,astheowner ofallthestocks,wastheforceanddominantpowerwhich controlledthem. The Court found that there was no fraud or collusion between plaintiff and Willits, and it is very apparent that the contract letter was to the mutual interests of both parties. La Campana Coffee Factory, Inc. vs. Kaisahan ng mga ManggagawasaLaCampana(KKM)(Alteregocase) 93PHIL160(1953) Facts: Petitioner Tan Tong since 1932 has been engaged in buying and selling gaugau under the trade name La Campana Gaugau Packing. On July 6, 1950, Tan Tong and his family as sole incorporators and stockholders, organizedtheLaCampanaCoffeeFactoryCo.,Inc.,withits principal office located in the same place as that of La CampanaGaugauPacking. A year before the formation of the corporation, Tan Tong entered into a collective bargaining agreement with the Philippine Legion of Organized Workers (PLOW), to which the union of Tan Tongs employees headed by Manuel E. Sadde was then affiliated. Seceding, however, from the PLOW, Tan Tongs employees later formed their own organization known as Kaisahan ng mga Manggagawa sa LaCampana. OnJuly19,1951,Kaisahan,which,asofthatdate,counted with 66 members workers all of them both La Campana Gaugau Packingand La Campana Coffee FactoryCo., Inc. presentedademandforhigherwagesandmoreprivileges, the demand being addressed to La Campana Starch and Coffee factory, by which name they sought to designate, so it appears, the La Campana Gaugau Packing and La CampanaCoffeeFactoryCo.,Inc. As the demand was not granted, the Department of labor certified the dispute to the Court of Industrial Relations. TanTongallegesthattheCRhadnojurisdictionofthecase because petitioner La Campana Coffee Factory, Inc. has only 14 employees, only 5 of whom are members of the

respondent union and therefore the absence of the jurisdictional number (300 of workers as provided by sections1and4ofCommonwealthActNo.103. Issue: WhetherornottheCIRhasjurisdiction? Ruling:

Petitiondenied. YUTIVO SONS HARDWARE COMPANY, petitioner, vs. COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, respondents FACTS:

Tan Tong obviously do not question the fact that the number of employees of the La Campana Gaugau Packing involved in the case is more than the jurisdiction number (31) required by law, but they do contend that the CIR has no jurisdiction to try the case as against La Campana Coffee Factory, Inc. because the latter has allegedly only 14 laborers and only five of these are members of the respondentKaisahan. This contention loses force when it is noted that, as found bytheindustrialcourtandthisfindingisconclusiveupon us La Campana Gaugau Packing and La Campana Coffee Factory, Inc. are operating under one single management, that is, as one business though with two trade names. True, the coffee factory is a corporation and, by legal fiction, an entity existing separate and apart from the persons composing it, that is, Tan Tong and his family. But it is settled that this fiction of law, which has been introducedasamatterofconvenienceandtosubservethe ends of justice cannot be invoked to further an end subversiveofthatpurpose. In the present case, Tan Tong appears to be the owner of the gaugau factory. And the coffee factory, though an incorporated business, is in reality owned exclusively by Tan Tong and his family. As found by the CIR, the two factories have but one office, one management and one payroll,exceptafterJuly17,thedaythecasewascertified to the CIR, when they began preparing separate payrolls forthetwo. And above all, it should not be overlooked that, as also found by the CIR, the laborers of the gaugau factory and the coffee factory were interchangeable, that is, the laborers from the gaugau factory mere sometimes transferredtothecoffeefactoryandviceversa.Inviewof all these, the attempt to make the two factoriesappear as twoseparate businesses, when in reality they are butone, is but a device to defeat the ends of the law (the Act governing capital and labor relations)and should not be permittedtoprevail.

This is a petition for review of a decision of the Court of Tax Appeals ordering petitioner to pay to respondent Collector of Internal Revenue the sum of P1,266,176.73 as sales tax deficiency for the third quarter of 1947 to the fourth quarter of 1950; inclusive, plus 75% surcharge thereon, equivalent to P349,632.54, or a sum total of P2,215,809.27, plus costs of the suit. Yutivo Sons and Hardware Co. engaged in business of importation of cars and trucks, which sold to Southern Motors Inc. Sales taxes were paid by Yutivo on this first sale. Southern Motors sold the vehicles to the Public. The Collecot of CIR sought to impose sales to Southern Motors but on Southern Motorss higher sales to the public. Lower Court agreed, hence the appeal. ISSUE: Whether or not Yutivo and Southern Motors Inc. are alter ego to avoid tax collections so as to prejudice the Government. RULINGS: 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. All cash assets of SM were handled by Yutivo and all cash transactions of SM were actually maintained thru Yutivo. Any and all receipts of cash by SM including its branches were transmitted or transferred immediately and directly to Yutivo in Manila upon receipt thereof. Likewise, all expenses, purchases or other obligations incurred by SM are referred to Yutivo which in turn prepares the

corresponding disbursement vouchers and payments in relation there, the payment being made out of the cash deposits of SM with Yutivo, if any, or in the absence thereof which occurs generally, a corresponding charge is made against the account of SM in Yutivo's books. The payments for and charges against SM are made by Yutivo as a matter of course and without need of any further request, the latter would advance all such cash requirements for the benefit of SM. Any and all payments and cash vouchers are made on Yutivo stationery and made under authority of Yutivo's corporate officers, without any copy thereof being furnished to SM. All detailed records such as cash disbursements, such as expenses, purchases, etc. for the account of SM, are kept by Yutivo and SM merely keeps a summary record thereof on the basis of information received from Yutivo. All the above 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. Consideration of various other circumstances, especially when taken together, indicates that Yutivo treated SM merely as its department or adjunct. For one thing, the accounting system maintained by Yutivo shows that it maintained a high degree of control over SM accounts. All transactions between Yutivo and SM are recorded and effected by mere debit or credit entries against the reciprocal account maintained in their respective books of accounts and indicate the dependency of SM as branch upon Yutivo. Apart from the accounting system, 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. These correspondences were actually received by Yutivo and the reference to Yutivo as the head or home office is obvious from the fact that all cash collections of the SM's branches are remitted directly to Yutivo. Added to this fact, is that SM may freely use forms or stationery of Yutivo 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. Southern Motors 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. Lidell Co. v. Collector of Internal Revenue Facts: The case is an appeal from the decision of the Court of Tax Appeals imposing a tax deficiency liability of P1,317,629.61 on Liddell & Co., Inc. The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation establish in the Philippines on February 1, 1946. 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. illustrate: a car with engine motor No. 212381 was sold by Liddell & Co. Inc. to Liddell Motors, Inc. on January 17, 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 11 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. The Collector of Internal Revenue argued that the Lidell Motors, Inc. was but an alter ego of Liddell & Co. and 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. (LIDELL Motors then does not pay sales taxes) hence the imposition of tax deficiency. Issue: Whether or not Lidell Motors, Inc. is an alter ego of Lidell & Co. making it liable for the said tax deficiency? Held: The Court held that Lidell Motors, Inc. is an alter ego of Lidell & Co. hence makin it liable for tax deficiency based on the principle that to allow a taxpayer to deny tax liability on the ground that the sales were made through an other 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 which is consistent with the view of the US Supreme Court stating in one case that "a taxpayer may gain advantage of doing business thru a corporation if he pleases,

but the revenue officers in proper cases, may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take the benefits of the transactions as the person accordingly taxable." Liddell Motors, Inc. was the medium created by Liddell & Co. to reduce the price and the tax liability. (where a corporation is a dummy and serves no business purpose and is intended only as a blind, the corporate form may be ignored). Since Lidell Motors inc. was created to evade sales taxes it was considered as an alter ego of lidell & Co. Ramirez Telephone Corporation vs. Bank of America (Pasensya na sa digest kasi most of the facts are in Spanish language and here is what i understand about the case) Facts: Ruben Ramirez was held liable in a civil case where he indebted money from Bank of America. He lost the case and a writ of garnishment of his property was ordered. However Ramirez has or might have deposit funds in Ramirez Telephone Inc. and such fund is sufficient to cover the amount owed to the bank. Ramirez, as a defense alleged that such fund cannot be garnished because he and the corporation has a separate and distinct personality. Issue: Whether or not the fund may be garnished to satisfy the debts of Ramirez to the Bank. Held: Corporate personality may be disregarded where the defendant stockholder holds 75% of the stock corporation together with his wife. While respect for the corporate personality as such is the general rule, the veil of corporate fiction may be pierced and the funds of the corporation may be garnished to satisfy debts of a principal stockholder, TO ADMINISTER THE ENDS OF JUSTICE.

GuatsonvsNLRC
Jolly M. Almoradie was first employed by Mercury Express International Courier Service, Inc. (MEREX Represented by its Vice-president and Manager Mr. Henry Ociers) in October, 1983 as Messenger receiving a monthly salary of P800.00. When it closed its operations, Almoradie was absorbed by MEREX's sister company Philippine Integrated Labor

Assistance Corp. (Philac), likewise as Messenger with an increased salary of P1,200.00. In September, 1986, Almoradie was transferred to Guatson Travel, allegedly also a sister company of MEREX and Philac, as Liaison Officer with a salary of P1,864.00. Thereafter, he was promoted to the position of Sales Representative sometime in April, 1988. On April 30, 1988, Almoradie received three separate memoranda requiring him to explain why he refused to act as salesman and for other different reasons. He filed his reply to said allegations, however Henry Ocier summon Almoradie to his office and ask him to resign, if not Ocier will file a case against him and that he has a very good lawyer to litigate the case. Almoradie was force to execute a resignation letter on his own handwriting. Thereafter, he filed an illegal dismissal case. He won the case, the NLRC decided that his resignation was not voluntary. However petitioner contends that Guatson Travel Company, Philac Merex have separate and distinct legal personalities such that the latter companies should not be held liable; assuming, for the sake of argument that private respondent was illegally dismissed. Issue Whether or not Piercing the Veil of the Corporate existence can be used in this case in order to determine if the three corporation is liable to Almoradie? Held: The three companies are owned by one family, such that majority of the officers of the companies are the same. The companies are located in one building and use the same messengerial service. Moreover, there was no showing that private respondent was paid separation pay when he was absorbed by Philac upon closure of Merex; nor was there evidence that he resigned from Philac when he transferred to Guatson Travel. Under the doctrine of piercing the veil of corporate fiction, when valid ground exists, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. (Guatson is Alter Ego of Merex and Philac). Concept builders inc vs NLRC Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers. private respondents were served individual written notices of termination of employment by petitioner, effective on November 30, 1981. It was stated in the individual notices that their

contracts of employment had expired and the project in which they were hired had been completed. Public respondent found it to be, the fact, however, that at the time of the termination of private respondent's employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors whose workers performed the functions of private respondents. Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner. The private respondents won the case and concept builders was order to pay the sum of P199,800.00. the amount was partially paid and when the Concept Builders was pursued for the remaining balance, the sheriff was surprised that the address of the Concept Builders was now under Hydro Phils under Dennis Cuyegkeng. Cuyegkeng opposed the break open order by the NLRC. Private respondents alleged that Concept Builders and Hydro Phils has the same incorporators and stockholders evidenced by general information sheet of the two corporations. Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioner's construction business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, the same President and the same set of officers and subscribers. Issue: whether or not petitioner allegation is correct? Held: It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation. (HPPI is an Alter Ego of Concept builders).

Telephone Engineering & Services Company Inc. (TESCO) vs. Workmen's Compensation Commission (WCC) Facts: Petitioner is a domestic corporation engaged in the business of manufacturing telephone equipment. It has a sister company Utilities Mngt. Corporation (UMACOR). Both corporations were under the mngt of Jose Luis Santiago. UMACOR employed Pacifico Gatus as purchasing agent. The latter contracted illness and thereafter died of liver cirrhosis. His widow filed a notice and claim for compensation. UMACOR did not controvert the said claim and admitted that the deceased employee contracted illness in regular occupation. Death benefits was awarded on the basis of the Employer's report. Several days after, TESCO through Santiago, informed WCC that it would avail of the 15days-notice given to it to state its non-conformity to the award and contended that the cause of the illness contracted by Gatus was in no way aggravated by the nature of his work. In its petition to set aside the award, it alleged that the admission made in the "Employer's Report of Accident or Sickness" was due to honest mistake and/or excusable negligence on its part, and that the illness for which compensation is sought is not an occupational disease, hence, not compensable under the law. Issue:W/N petitioner is estopped from claiming lack of employer-employee relationship. Held: SC ruled that petitioner already admitted in its position papers the existence of employee-employer relationship and so it is estopped from denying the same. TESCO'S denial at this stage that it is the employer of the deceased is obviously an afterthought, a devise to defeat the law and evade its obligations. This denial also constitutes a change of theory on appeal which is not allowed in this jurisdiction. Moreover, issues not raised before the Workmen's Compensation Commission cannot be raised for the first time on appeal. A factual question may not be raised for the first time on appeal to the Supreme Court except where: 1.)public welfare and the advancement of public policy so dictate, 2.)the broader interests of justice so require, or 3.)where the Orders complained of were found to be completely null and void or that the appeal was not considered the appropriate remedy; the case at bar does not fan within any of these exceptions.

A.D. Santos, Inc. vs. Vasquez March 20, 1968 FACTS: Respondent Ventura Vasquez, a Taxi Driver, filed a suit for workmens compensation against petitioner AD Santos, Inc. Respondent testified that Amador Santos was his employer, thus, petitioner contended that Amador Santos is the one liable. ISSUE: Who shall be liable for the claim for compensation, Amador Santos or A.D. Santos, Inc? HELD: A.D. Santos, Inc. is liable.

Indeed, at one time, Amador Santos was the sole owner and operator of City Cab. It was subsequently transferred to petitioner A.D. Santos, Inc. in which Amador Santos was an officer. The mention by respondent of Amador Santos as his employer in the course of the testimony 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.

M. MC CONNEL, W. P. COCHRANE, RICARDO RODRIGUEZ, ET AL. vs. CA & DOMINGA DE LOS REYES, assisted by her husband, SABINO PADILLA FACTS: The Park Rite Co., Inc., a Philippine corporation, was originally organized on or about April 15, 1947. The corporation leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan Luna street (Manila) which it used for parking motor vehicles for a consideration. It turned out that in operating its parking business, the corporation occupied and used not only the Samanillo lot it had leased but also an adjacent lot belonging to the respondents-appellees Padilla, without the owners' knowledge and consent. When the latter discovered the truth (around October1947), they demanded payment for the use and occupation of the lot. The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino, who had purchased and held 1,496 of its 1,500 shares) disclaimed liability, blaming the original incorporators, McConnel, Rodriguez and

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Cochrane. Whereupon, the lot owners filed against it a complaint for forcible entry in the Municipal Court of Manila on 7 October 1947. Judgment was rendered ordering the Park Rite Co., Inc. to pay (P7,410.00) plus legal interest as damages from April 15, 1947 until return of the lot. Restitution not having been made until 31 January 1948, the entire judgment amounted to P11,732.50. Upon execution, the corporation was found without any assets other than P550.00 deposited in Court. After their application to the judgment credit, there remained a balance of P11,182.50 outstanding and unsatisfied. The judgment creditors then filed suit in the CFI of Manila against the corporation and its past and present stockholders, to recover from them, jointly and severally, the unsatisfied balance of the judgment, plus legal interest and costs. The CFI denied recovery; but on appeal, the CA, reversed, finding that the corporation was a mere alter ego or business conduit of the principal stockholders that controlled it for their own benefit, and found petitioners personally responsible for the amounts demanded by the lot owners. ISSUE: W/N the individual stockholders maybe held liable for obligations contracted by the corporation. HELD: The Court of Appeals has made express findings to the following effect: There is no question that a wrong has been committed by the so-called Park Rite Co., Inc., upon the plaintiffs when it occupied the lot of the latter without its prior knowledge and consent and without paying the reasonable rentals for the occupation of said lot. There is also no doubt in our mind that the corporation was a mere alter ego or business conduit of the defendants Cirilo Paredes and Ursula Tolentino, and before them the defendants M. McConnel, W. P. Cochrane, and Ricardo Rodriguez. The evidence clearly shows that these persons completely dominated and controlled the corporation and that the functions of the corporation were solely for their benefits. When it was originally organized on or about April 15, 1947, the original incorporators were M. McConnel, W. P. Cochrane, Ricardo Rodriguez, Benedicto M. Dario and Aurea Ordrecio with a capital stock of P1,500.00 divided into 1,500 shares at P1.00 a share. McConnel and Cochrane each owned 500 shares,

Ricardo Rodriguez 408 shares, and Dario and Ordrecio 1 share each. It is obvious that the shares of the last two named persons were merely qualifying shares. Then or about August 22, 1947 the defendants Cirilo Paredes and Ursula Tolentino purchased 1,496 shares of the said corporation and the remaining four shares were acquired by Bienvenido J. Claudio, Quintin C. Paredes, Segundo Tarictican, and Paulino Marquez at one share each. It is obvious that the last four shares bought by these four persons were merely qualifying shares and that to all intents and purposes the spouses Cirilo Paredes and Ursula Tolentino composed the so-called Park Rite Co., Inc. That the corporation was a mere extension of their personality is shown by the fact that the office of Cirilo Paredes and that of Park Rite Co., Inc. were located in the same building, in the same floor and in the same room at 507 Wilson Building. This is further shown by the fact that the funds of the corporation were kept by Cirilo Paredes in his own name (p. 14, November 8, 1950, T.S.N.) The corporation itself had no visible assets, as correctly found by the trial court, except perhaps the toll house, the wire fence around the lot and the signs thereon. It was for this reason that the judgment against it could not be fully satisfied. (Emphasis supplied). SC ruling - the facts thus found can not be varied by us, and conclusively show that the corporation is a mere instrumentality of the individual stockholder's, hence the latter must individually answer for the corporate obligations. While the mere ownership of all or nearly all of the capital stock of a corporation is a mere business conduit of the stockholder, that conclusion is amply justified where it is shown, as in the case before us, that the operations of the corporation were so merged with those of the stockholders as to be practically indistinguishable from them. To hold the latter liable for the corporation's obligations is not to ignore the corporation's separate entity, but merely to apply the established principle that such entity can not be invoked or used for purposes that could not have been intended by the law that created that separate personality. Emilio Cano Enterprises, Inc. vs. CIR 13 SCRA 291 Facts: Emilio Cano and Rodolofo Cano as President and proprietor and Manager respectively of Emilio Cano Enterprises Inc., are found guilty of unfair labor practice charged by Honorata Cuz and ordered jointly and severally liable and to reinstate Honorata. Emilio Cano died while the case is appealed in court en

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banc, which in due course affirmed the decision of the lower court. The order of execution having been directed against the properties of Emilio Cano Enterprises, Inc. instead of those of the respondents named in the decision, said corporation 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 its officials. This motion was denied. And having failed to have it reconsidered, the corporation interposed the present petition for certiorari.

Associated Finance company, Inc. to pay NAMARCO certain amounts but dismissing the complaint insofar as defendant Francisco Sycip was concerned, as well as the latters counterclaim. The appeal is only from that portion of the decision dismissing the case as against Francisco Sycip. On March 25, 1958, ASSOCIATED, through its President, Sycip, entered into an agreement to exchange sugar with NAMARCO, represented by its General Manager, Benjamin Estrella, whereby the former would deliver to the latter 22,516 bags (each weighing 100 pounds) of Victorias and/or National refined sugar in exchange for 7,732.71 bags of Busilak and 17,285.08 piculs of Pasumil raw sugar belonging to NAMARCO. Pursuant thereto, on May 19, 1958, NAMARCO delivered to ASSOCIATED 7,731.71 bags of Busilak and 17,285.08 piculs of Pasumil domestic raw sugar. ASSOCIATED failed to deliver to NAMARCO the 22,516 bags of Victoria and/or National refined sugar agreed upon. As ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar delivered to it, inspite of repeated demands therefor, NAMARCO instituted the present action in the lower court. Issue: Whether Sycip may be held liable, jointly and severally with Associated, for the sums of money adjudged in favor of NAMARCO. Ruling: The evidence on record shows that, of the capital stock of ASSOCIATED, Sycip owned Php 60,000.00 worth of shares, while his wife the second biggest stockholder owned Php 20,000.00 worth of shares; that the par value of the subscribed capital stock of ASSOCIATED was only Php 105,000.00; that negotiations that led to the execution of the exchange agreement in question were conducted exclusively by Sycip on behalf of ASSOCIATED. In the course of his testimony, Sycip referred to himself as the one who contracted or transacted the business in his personal capacity, and asserted that the exchange agreement was his personal contract; that it was Sycip who made personal representations and gave assurances that ASSOCIATED was in actual possession of the 22,516 bags of Victorias and/ or National refined sugar which the latter had agreed to deliver to NAMARCO, and that the same was ready for delivery.

Issue: Whether or not the judgment against Emilio and Rodolfo Cano can be made effective against the property of the latter which was not a party to the case? Held: The answer must be in the affirmative. 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. 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. NAMARCO vs. Associated Finance Co., Inc. (Due process) 19 SCRA 962 (1967) Facts: Appeal taken by the National Marketing Corporation from the decision of the CFI of Manila ordering the

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ASSOCIATED was at that time already insolvent. When later NAMARCO made demands upon ASSOCIATED to make delivery, ASSOCIATED and Sycip, instead of making delivery, offered to pay its value at Php 15.30 per bag a clear indication that they did not have sugar contacted for. The foregoing facts, fully established by the evidence, can lead to no other conclusion than that Sycip was guilty of fraud because through false representations he succeeded in inducing NAMARCO on his part, of the fact that ASSOCIATED whom he represented and over whose business and affairs he had absolute control was in no position to comply with the obligation it had assumed. Consequently, he can not now seek refuge behind the general principle that a corporation has a personality distinct and separate from that of its stockholders and that the latter are not personally liable for corporate obligations. To the contrary, we feel perfectly justified in piercing the veil of corporate fiction and in holding Sycip personally liable, jointly and severally with his co-defendant. It is settled law in this and other jurisdictions that when the corporation is the mere alter ego of a person, the corporate fiction may be disregarded; the same being true when the corporation is controlled, and its affairs are so conducted as to make it merely an instrumentality, agency or conduit of another. (Yutivo Sons vs. CTA, 1 SCRA 160). Wherefore, the decision appealed from is modified by sentencing Francisco Sycip to pay, jointly and severally with ASSOCIATED, the sum of money which the trial court sentenced the latter to pay to NAMARCO. Decision modified.

corporation is formed. Upon the other hand, plaintiffappellee reiterated its allegation in the complaint that defendant corporation is just a mere alter ego of defendant Roberto Jacinto who is its President and General Manager, while the wife of the latter owns a majority of its shares of stock. Issue: Whether or not the Court of Appeals can validly pierce the fiction of corporate identity of the defendant Inland Industries, Inc. even if absolutely no proof was presented in court to serve as legal justification for the same. Ruling: The conflicting statements by defendant Jacinto place in extreme doubt his credibility anent his alleged participation in said transactions and we are thus persuaded to agree with the findings of the lower court that the latter (Roberto Jacinto) was practically the corporation itself. Indeed, a painstaking examination of the records show that there is no clear-cut delimitation between the personality of Roberto Jacinto as an individual and the personality of Inland Industries, Inc. as a corporation. The circumstance aforestated lead us to conclude that the corporate veil that enshrouds defendant Inland Industries, Inc. could be validly pierced, and a host of cases decided by our High Court is supportive of this view. Thus it held that when the veil of corporate fiction is made as a shield to perpetrate fraud and/or confuse legitimate issues, the same should be pierced. Where a corporation is merely an adjunct, business conduit or alter ego, the fiction of separate and distinct corporate entity should be disregarded. ARCILLA

Jacinto vs. CA (Due Process) AC Ransom Labor Union v. NLRC 198 SCRA 211 (1992) Facts: Defendant Roberto Jacinto, tried to escape liability and shift the entire blame under the trust receipts solely and exclusively on defendant-appellant corporation. He asserted that her cannot be held solidarily liable with the latter (defendant corporation) because he just signed said instruments in his official capacity as president of Inland Industries, Inc. and the latter has a juridical separate and distinct from its officers and stockholders. The principle of piercing the fiction of corporate entity should be applied with great caution and not precipitately, because a dual personality by a corporation and its stockholders would defeat the principal purpose for which a Facts: AC Ransom Labor Union is claiming unfair labor practice against AC Ransom. The CIR and the Labor Arbiter ruled in favor of the labor union stating that the strike was legal and justified thereby requiring the company to pay for backwages and to immediately reinstate the members of the union which the NLRC reversed the decision. Hence the special civil action of certiorari filed by the Union moving for the Officers of AC Ransom and ROSARIO Company to be held liable because although RANSOM had assumed a posture of suffering from business reverse, its officers and principal stockholders had organized a new corporation, the Rosario Industrial Corporation (thereinafter called ROSARIO), using the same equipment, personnel, business stocks and the same place of business. AC

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Ransom used as a defense the clearance given by SEC to cease to operate due to financial difficulties in order to lessen the award given by the court. It also declared that ROSARIO is a distinct and separate corporation, which was organized long before these instant cases were decided adversely against RANSOM. Issue #1: Whether or not ROSARIO Company should be held liable for the claims of AC Ransom Labor Union? Issue #2: Whether or not the officers and directors of AC Ransom should be held liable for backwages? Held: The questioned Decision of the National Labor Relations Commission is SET ASIDE, and the Order of Labor Arbiter Tito F. Genilo of March 11, 1980 is reinstated with the modification that Rosario Industrial Corporation and its officers and agents are hereby held jointly and severally liable with the surviving private respondents for the payment of the backwages due the 22 union members. Rosario Industrial Corporation is hereby ordered to reinstate the 22 union members or, if this is not possible, to award them separation pay equivalent at least to one (1) month pay or to one (1) month salary for every year of service actually rendered by them with A.C. Ransom (Phils). Corporation, whichever is higher. Rosario Company is held liable because the organization of a "run-away corporation," ROSARIO, in 1969 at the time the unfair labor practice case was pending before the CIR (Difference from PABALAN CASE) by the same persons who were the officers and stockholders of RANSOM, engaged in the same line of business as RANSOM, producing the same line of products, occupying the same compound, using the same machineries, buildings, laboratory, bodega and sales and accounts departments used by RANSOM, and which is still in existence. Both corporations were closed corporations owned and managed by members of the same family. Its organization proved to be a convenient instrument to avoid payment of backwages and the reinstatement of the 22 workers. This is another instance where the fiction of separate and distinct corporate entities should be disregarded. 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.... When a 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. As to the officers and agents The inclusion of the officers and agents was but proper since a corporation, as an artificial being, can act only through them.

lim vs. nlrc

FACTS: Private respondent Victoria Calsado was hired by Sweet Lines Inc. on March 05, 1981, as Senior Branch officer and then later on was promoted as Manager of the Department with corresponding increase in compensation. Due to some circumstances, she was served with a letter from petitioner Samuel Casa Lim, informing her that her employment with Sweet Lines would terminate on August 05, 1985. On August 14, 1985, Calsado filed a complaint against both petitioners for illegal dismissal, illegal deduction, and unpaid wages and commissions plus moral and exemplary damages, among other claims. That she was terminated without the required notice and hearing and without valid cause. That petitioner failed to present any single evidence, testimonial or documentary, to controvert private respondent's evidence. All that they presented were their unsubstantiated pleadings not one of which was under oath, not even their position paper which, under the NLRC rules (Sec. 2, Rule 7, Revised Rules of the NLRC), have to be verified. Thus, a decision was rendered by the Labor Arbiter making petitioner as solidarily liable with the Sweet Lines Inc. ISSUE: Whether or not petitioner must be held solidarily liable with the Sweet Lines Inc.? RULING: We agree with petitioner Lim that he cannot be held personally liable with Sweet Lines for merely having signed the letter informing Calsado of her separation. There is no evidence that he acted with malice or bad faith. The letter, in fact, informed her not only of her separation but also of the benefits due her as a result of the termination of her services. It is true that Lim has raised this matter rather tardily and also that he belongs to a closed corporation controlled by the members of one family only. But these circumstances should not be allowed to operate against him if he is to be accorded substantial justice in the resolution of

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the private respondent's claim. As we said in Ortigas vs. Lufthansa German Airlines, the Court is "clothed with ample authority to review matters, even if they are not assigned as errors in the appeal, if it finds that its consideration is necessary in arriving at a just decision of the case." As for the second charge, the mere fact that Lim is part of the family corporation does not mean that all its acts are imputable to him directly and personally. His acts were official acts, done in his capacity as Vice President of Sweet Lines and on its behalf. There is no showing that he acted without or in excess of his authority or was motivated by personal ill-will toward Calsado. The case of Ransom v. NLRC is not in point because there the debtor corporation actually ceased operations after the decision of the Court of Industrial Relations was promulgated against it, making it necessary to enforce it against its former president. Sweet lines is still existing and able to satisfy the judgment in favor of the private respondent. DE GUZMANvs. nlrc FACTS: Arturo de Guzman was the general manager of the Manila office of the Affiliated Machineries Agency, Ltd., which was based in Hongkong. On June 30, 1986, he received a telex message from Leo A. Fialla, managing director of AMAL in its main office, advising him of the closure of the company due to financial reverses. This message triggered the series of events that are the subject of this litigation. Immediately upon receipt of the advise, De Guzman notified all the personnel of the Manila office. The employees then sent a letter to AMAL accepting its decision to close, subject to the payment to them of their current salaries, severance pay, and other statutory benefits. De Guzman joined them in these representations. These requests were, however, not heeded. Consequently, the employees, now herein private respondents, lodged a complaint with the NLRC against AMAL, through Leo A. Fialla and Arturo de Guzman, for illegal dismissal, unpaid wages or commissions, separation pay, sick and vacation leave benefits, 13th month pay, and bonus. For his part, the petitioner began selling some of AMAL's assets and applied the proceeds thereof, as well as the remaining assets, to the payment of his claims against the company. He also organized Susarco, Inc., with himself as its president and his wife as one of the incorporators and a member of the board of directors. This company is engaged in the same line of business and has the same clients as that of the dissolved AMAL. On November 7, 1986, the petitioner filed his own complaint with the NLRC against AMAL for his remaining unsatisfied claims. On May 29, 1987, Labor Arbiter Eduardo G. Magno, to whom the petitioner's complaint was assigned, rendered a decision ordering AMAL to pay the petitioner the amount of P371,469.59 as separation pay, unpaid salary and commissions, after deducting the value of the assets earlier appropriated by the petitioner. On September 30, 1987,

Labor Arbiter Ma. Lourdes A. Sales, who tried the private respondents' complaint, rendered a decision, ordering Respondents AMAL and Arturo de Guzman to pay jointly and severally to each Complainant separation pay computed at one-half month pay for every year of service, backwages for one month, unpaid salaries for June 16-30, 1986, 13th month pay from January to June 30, 1986 and incentive leave pay equivalent to two and-a-half days pay. ISSUE: Whether or not petitioner must be held solidarily liable with AMAL? RULING: In the case at bar, the petitioner, while admittedly the highest ranking local representative of AMAL in the Philippines, is nevertheless not a stockholder and much less a member of the board of directors or an officer thereof. He is at most only a managerial employee under Art. 212 (m) of the Labor Code. Therefore, he must not be held solidarily liable with the AMAL. HOWEVER, the manner and the means by which he satisfied his claims against AMAL are evidently characterized by BAD FAITH. For one, Respondent A. de Guzman took advantage of his position as General Manager and arrogated to himself the right to retain possession and ownership of all properties owned and left by AMAL in the Philippines, even if he knew that Complainants herein have similar valid claims for unpaid wages and other employee benefits from the Respondent AMAL. Another strong indication of bad faith on the part of Respondent A. de Guzman is his filing of a separate complaint against AMAL before the NLRC Arbitration Branch about four (4) months after the filing of the instant case without informing this Office about the existence of said case during the proceedings in the instant case. This case was deemed submitted for decision on May 18, 1987 but it was only on June 2, 1987 that Respondent A. de Guzman formally notified this Office through his Supplemental Position Paper of his pending complaint before Arbiter Eduardo Magno docketed as NLRC Case No. 11-4441-86. Under Rule V, Section 4 of the revised rules of the NLRC, it is provided that: Sec. 4. CONSOLIDATION OF CASES where there are two or more cases pending before different Labor Arbiters in the same Regional Arbitration Branch involving the same employer and issues or the same parties with different issues, the case which was filed last shall be consolidated with the first to avoid unnecessary costs or delay. Such cases shall be disposed of by the Labor Arbiter to whom the first case was assigned. (Emphasis supplied). Had Respondent A. de Guzman given timely notice of his complaint, his case could have been consolidated with this case and the issues in both cases could have been resolved

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in a manner that would give due consideration to the rights and liabilities of all parties in interest at the least, in case consolidation is objected to or no longer possible, the Complainants herein could have been given a chance to intervene in the other case so that whatever disposition might be rendered by Arbiter Magno would include consideration of Complainants' claims herein. It is not disputed that the petitioner in the case at bar had his own claims against AMAL and consequently had some proportionate right over its assets. However, this right ceased to exist when, knowing fully well that the private respondents had similarly valid claims, he took advantage of his position as general manager and applied AMAL's assets in payment exclusively of his own claims. WHEREFORE, the questioned decision is AFFIRMED but with the modification that the petitioner shall not be held jointly and severally liable with AMAL for the private respondents' money claims against the latter. However, for his bad faith in arrogating to himself AMAL's properties to the prejudice of the private respondents, the petitioner is ordered: 1) to pay the private respondents moral damages in the sum of P20,00.00 and exemplary damages in the sum of P20,00.00; and 2) to return the assets of AMAL that he has appropriated, or the value thereof, with legal interests thereon from the date of the appropriation until they are actually restored, these amounts to be proportionately distributed among the private respondents in satisfaction of the judgment rendered in their favor against AMAL. It is a fundamental principle of law and human conduct that a person "must, in the exercise of his rights and in the performance of his duties, act with justice, give every one his due, and observe honesty and good faith." This is the principle we shall apply in the case at bar to gauge the petitioner's motives in his dealings with the private respondents.

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