Magsaysay-Labrador vs CA Case Digest

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

[GR 58168, 19 December 1989]
Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay,
widow and special administratix of the estate of the late
Senator Genaro Magsaysay, brought before the then Court of
First Instance of Olongapo an action against Artemio
Panganiban, Subic Land Corporation (SUBIC), Filipinas
Manufacturer's Bank (FILMANBANK) and the Register of
Deeds of Zambales, for the annulment of the Deed of
Assignment executed by the late Senator in favor of SUBIC
(as a result of which TCT 3258 was cancelled and TCT 22431
issued in the name of SUBIC), for the annulment of the Deed
of Mortgage executed by SUBIC in favor of FILMANBANK
(dated 28 April 1977 in the amount of P 2,700,000.00), and
cancellation of TCT 22431 by the Register of Deeds, and for
the latter to issue a new title in her favor. On 7 March 1979,
Concepcion Magsaysay-Labrador, Soledad MagsaysayCabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and
Mercedes Magsaysay-Diaz, sisters of the late senator, filed a
motion for intervention on the ground that on 20 June 1978,
their brother conveyed to them 1/2 of his shareholdings in
SUBIC or a total of 416,566.6 shares and as assignees of
around 41 % of the total outstanding shares of such stocks of
SUBIC, they have a substantial and legal interest in the subject
matter of litigation and that they have a legal interest in the
success of the suit with respect to SUBIC. On 26 July 1979,
the trial court denied the motion for intervention, and ruled
that petitioners have no legal interest whatsoever in the matter
in litigation and their being alleged assignees or transferees of
certain shares in SUBIC cannot legally entitle them to
intervene because SUBIC has a personality separate and
distinct from its stockholders.
On appeal, the Court of Appeals found no factual or legal
justification to disturb the findings of the lower court. The
appellate court further stated that whatever claims the
Magsaysay sisters have against the late Senator or against
SUBIC for that matter can be ventilated in a separate
proceeding. The motion for reconsideration of the Magsaysay
sisters was denied. Hence, the petition for review on
certiorari.
Issue: Whether the Magsaysay sister, allegedly stockholders
of SUBIC, are interested parties in a case where corporate
properties are in dispute.
Held: Viewed in the light of Section 2, Rule 12 of the Revised
Rules of Court, the Magsaysay sisters have no legal interest in
the subject matter in litigation so as to entitle them to
intervene in the proceedings. To be permitted to intervene in a
pending action, the party must have a legal interest in the
matter in litigation, or in the success of either of the parties or
an interest against both, or he must be so situated as to be
adversely affected by a distribution or other disposition of the
property in the custody of the court or an officer thereof .
Here, the interest, if it exists at all, of the Magsaysay sisters is
indirect, contingent, remote, conjectural, consequential and
collateral. At the very least, their interest is purely inchoate, or
in sheer expectancy of a right in the management of the

corporation and to share in the profits thereof and in the

properties and assets thereof on dissolution, after payment of
the corporate debts and obligations. While a share of stock
represents a proportionate or aliquot interest in the property of
the corporation, it does not vest the owner thereof with any
legal right or title to any of the property, his interest in the
corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate
property, which is owned by the corporation as a distinct legal
person.
Booc vs Bantuas
An affidavit-complaint dated August 31, 1999 was filed
before the Office of the Court Administrator (OCA) by
Salvador Booc charging Malayo B. Bantuas, Sheriff IV of the
Regional Trial Court (RTC), Branch 3, Iligan City with Gross
Ignorance of the Law and Grave Abuse of Authority relative to
Civil Case No. 1718 entitled, Felipe G. Javier, Jr. vs. Rufino
Booc.
Complainant is the President of five Star Marketing
Corporation. On August 22, 1994 herein respondent Sheriff
Malayo B. Bantuas, pursuant to a Writ of Execution issued in
Civil Case No. 1718 filed a Notice of Levy with the Register
of Deeds, Iligan City over a parcel of land covered by TCT
No. T-19209 and owned by Five Star Marketing
Corporation. Complainant alleged that respondent sheriff, at
the instance of plaintiff, former Judge Felipe Javier, proceeded
to file the Notice of Levy despite respondent sheriffs
knowledge that the property is owned by the corporation
which was not a party to the civil case.
On July 31, 1995, the corporation through the
complainant reiterated to respondent sheriff that it was the
owner of the property and Rufino Booc had no share or
interest in the corporation. Hence, the corporation demanded
that respondent sheriff cancel the notice of levy, otherwise the
corporation would take the appropriate legal steps to protect
its interest.
Respondent sheriff, however, did not heed the
corporations demand inasmuch as on August 20, 1999 the
corporation received a Notice of Sale on Execution of Real
Property, dated August 11, 1999, covering the subject
property. Respondent sheriff scheduled the public auction on
August 31, 1999. Consequently, the corporation, to protect its
rights and interests, was compelled to file an action for
Quieting of Title with the RTC, Branch 4 of Iligan City.
Respondent sheriff, in his answer to the complaint filed
against him before the OCA, said that he filed a Notice of
Levy with the Register of Deeds of Iligan City on the share,
rights, interest and participation of Rufino Booc in the parcel

of
land
owned
by
Five
Star
Marketing
Corporation. Respondent sheriff claimed that Rufino Booc is
the owner of around 200 shares of stock in said corporation
according to a document issued by the Securities and
Exchange Commission.
Respondent sheriff stressed that the levy was made on
the share, rights and/or interest and participation which Rufino
Booc, as president and stockholder, may have in the parcel of
land owned by Five Star Marketing Corporation. Claiming
that he was only acting pursuant to his duties as sheriff,
respondent cited Section 15, Rule 39 of the Rules of Court
which states that
x x x The officer must enforce an execution of a money
judgment by levying on all the property, real and personal of
every name and nature whatsoever, and which may be
disposed of for value of the judgment debtor not exempt from
execution.
Real property stocks, shares, debts, credits, and other
personal property, or any interest in either real or personal
property, may be levied upon in like manner and with like
effect as under a writ of execution.
Respondent sheriff said that while complainant Salvador
Booc made a demand for the cancellation of levy made, the
former deemed it wise to have the judgment satisfied in
accordance with Section 39 of the Rules of Court. Respondent
sheriff added that the trial court where the case for Quieting of
Title filed by the corporation was pending ordered the auction
sale of the shares of stock of Rufino Booc. The corporation
allegedly never questioned said order of the RTC.
Finally, respondent sheriff averred that the corporation is
merely a dummy of Rufino Booc and his brother Sheikding
Booc. Respondnet sheriff submitted as an exhibit an affidavit
executed by Sheikding Booc wherein the latter admitted that
when Judge Felipe Javier won in the civil case against Rufino
Booc, the latter simulated a transfer of his shares of stock in
Five Star Marketing Corporation so that the property may not
be levied upon.[1]

faith when he auctioned the subject property inasmuch as

Judge Mangotara had already warned him that the public
auction should pertain only to shares of stock owned by
Rufino Booc in Five Star Marketing Corporation. Respondent
sheriff, however, in violation of the order issued by Judge
Mangotara and in disregard of the manifestation filed by
plaintiffs counsel that the sale should involve only the shares
of stock, proceeded to auction the subject property. The OCA,
thus, made the recommendation that:
1) The instant case be RE-DOCKETED as a
regular administrative matter; and
2) Respondent Sheriff Malayo B. Bantuas be
FINED in the amount of Ten Thousand Pesos
(P10,000.00) for conducting the auction sale in
violation of the terms of the order issued by
Acting Presiding Judge Mamindiara P.
Mangotara with a STERN WARNING that a
commission of the same or similar acts in the
future shall be dealt with more severely.
A careful scrutiny of the records shows that respondent
sheriff, in filing a notice of levy on the subject property as
well as in the certificate of sale, did not fail to mention that
what was being levied upon and sold was whatever shares,
rights, interests and participation Rufino Booc, as president
and stockholder in Five Star Marketing Corporation may have
on
subject
property. Respondent
sheriff,
however,
overstepped his authority when he disregarded the distinct and
separate personality of the corporation from that of Rufino
Booc as stockholder of the corporation by levying on the
property of the corporation. Respondent sheriff should not
have made the levy based on mere conjecture that since
Rufino Booc is a stockholder and officer of the corporation,
then he might have an interest or share in the subject property.

Complainant, in his reply to respondent sheriffs

comment belied the latters allegation that the corporation
never questioned the auction sale. Complainant averred that
contrary to the respondent sheriffs assertion, the trial court in
fact issued a restraining order which was withdrawn after
plaintiffs counsel manifested that the respondent sheriff
would only auction Rufino Boocs shares of stock in the
corporation and not the subject property.

It is settled that a corporation is clothed with a

personality separate and distinct from that of its
stockholders. It may not be held liable for the personal
indebtedness of its stockholders. In the case of Del Rosario
vs. Bascar, Jr.,[2] we imposed the fine of P5,000.00 on
respondent sheriff Bascar for allocating unto himself the
power of the court to pierce the veil of corporate entity and
improvidently assuming that since complainant Esperanza del
Rosario is the treasurer of Miradel Development Corporation,
they are one and the same. In the said case we reiterated the
principle that the mere fact that one is a president of the
corporation does not render the property he owns or possesses
the property of the corporation since the president, as an
individual, and the corporation are separate entities.

The OCA found respondent sheriff liable for the charges

filed against him, stating that respondent sheriff acted in bad

Based on the foregoing, respondent Sheriff Bantuas has

clearly acted beyond his authority when he levied the property

of Five Star Marketing Corporation. The fact, however, that

respondent sheriff, in levying said property, had stated in the
notice of levy as well as in the certificate of sale that what was
being levied upon and sold was whatever rights, shares
interest and/or participation Rufino Booc, as stockholder and
president in the corporation, may have on the subject property,
shows that respondent sheriffs conduct was impelled partly
by ignorance of Corporation Law and partly by mere
overzealousness to comply with his duties and not by bad faith
or blatant disregard of the trial courts order. Hence, we deem
that the penalty of a fine of Five Thousand Pesos (P5,000.00)
to be imposed on respondent sheriff would suffice.
WHEREFORE, respondent Malayo B. Bantuas, Sheriff
IV of the RTC of Iligan City , Branch 3, is hereby FINED in
the sum of Five Thousand Pesos (P5,000.00) with the STERN
WARNING that a repetition of the same or similar acts in the
future will be dealt with more severely.
SO ORDERED.

Jardine Davies vs JRB realty

JRB Realty ordered the installation of two aircons from Aircon
and Refrigeration Industries, Inc. The aircons were delivered
and installed but they could not deliver the desired
temperature. The aircon company undertook to replace the
aircons but it did not specify a date when.
- JRB later learned that there was a new company that was
licensed to manufacture, distribute and install the same brand
of aircons that were installed in their building. The name of
the coporation was Maxim Industrial and Merchandising
Corp. The president of JRB requested Maxim to honor the
obligation as regards the aircon but Maxim refused.
Subsequently, Maxim was impleaded as a subsidiary of the
first aircon company, which had ceased operations.
- RTC and CA decided in favor of JRB.
- SC said: It is an elementary and fundamental principle of
corporation law that a corporation is an artificial being
invested by law with a personality separate and distinct from
its stockholders and from other corporations to which it may
be connected. While a corporation is allowed to exist solely
for a lawful purpose, the law will regard it as an association of
persons or in case of two corporations, merge them into one,
when this corporate legal entity is used as a cloak for fraud or
illegality. This is the doctrine of piercing the veil of
corporate fiction which applies only when such corporate
fiction is used to defeat public convenience, justify wrong,
protect fraud or defend crime. The rationale behind piercing a
corporations identity 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.
- While it is true that Aircon is a subsidiary of the petitioner, it
does not necessarily follow that Aircons corporate legal
existence can just be disregarded. In Velarde v. Lopez,
Inc., the Court categorically held that a subsidiary has an
independent and separate juridical personality, distinct from
that of its parent company; hence, any claim or suit against the
latter does not bind the former, and vice versa.
- In applying the doctrine, the following requisites must be
established: (1) control, not merely majority or complete stock
control; (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 acts in
contravention of plaintiffs legal rights; and (3) the aforesaid
control and breach of duty must proximately cause the injury
or unjust loss complained of.
- The records bear out that Aircon is a subsidiary of the
petitioner only because the latter acquired Aircons majority of
capital stock. It, however, does not exercise complete control
over Aircon; nowhere can it be gathered that the petitioner
manages the business affairs of Aircon. Indeed, no
management agreement exists between the petitioner and
Aircon, and the latter is an entirely different entity from the
petitioner.
General Credit Corp v. Alsons Dev. and Investment Corp
FACTS: Petitioner General Credit Corporation (GCC), then
known as Commercial Credit Corporation (CCC), established
CCC franchise companies in different urban centers of the
country. In furtherance of its business, GCC was able to secure
license from Central Bank (CB) and SEC to engage also in
quasi-banking activities. On the other hand, respondent CCC
Equity Corporation (EQUITY) was organized in by GCC for
the purpose of, among other things, taking over the operations
and management of the various franchise companies. At a time
material hereto, respondent Alsons Development and
Investment Corporation (ALSONS) and the Alcantara family,
each owned, just like GCC, shares in the aforesaid GCC
franchise companies, e.g., CCC Davao and CCC Cebu.
ALSONS and the Alcantara family, for a consideration of
P2M, sold their shareholdings (101,953 shares), in the CCC
franchise companies to EQUITY. EQUITY issued ALSONS
et al., a "bearer" promissory note for P2M with a one-year
maturity date.
4 years later, the Alcantara family assigned its rights and
interests over the bearer note to ALSONS which became the
holder thereof. But even before the execution of the
assignment deal aforestated, letters of demand for interest
payment were already sent to EQUITY. EQUITY no longer
then having assets or property to settle its obligation nor being
extended financial support by GCC, pleaded inability to pay.

ALSONS, having failed to collect on the bearer note

aforementioned, filed a complaint for a sum of money8 against
EQUITY and GCC. GCC is being impleaded as partydefendant for any judgment ALSONS might secure against
EQUITY and, under the doctrine of piercing the veil of
corporate fiction, against GCC, EQUITY having been
organized as a tool and mere conduit of GCC.
According to EQUITY (cross-claim against GCC): it acted
merely as intermediary or bridge for loan transactions and
other dealings of GCC to its franchises and the investing
public; and is solely dependent upon GCC for its funding
requirements. Hence, GCC is solely and directly liable to
ALSONS, the former having failed to provide EQUITY the
necessary funds to meet its obligations to ALSONS.
GCC filed its ANSWER to Cross-claim, stressing that it is a
distinct and separate entity from EQUITY.
RTC, finding that EQUITY was but an instrumentality or
adjunct of GCC and considering the legal consequences and
implications of such relationship, rendered judgment for
Alson. CA affirmed.
ISSUE: WON the doctrine of "Piercing the Veil of Corporate
Fiction" should be applied in the case at bar.
HELD: YES.
The notion of separate personality, however, may be
disregarded under the doctrine "piercing the veil of
corporate fiction" as in fact the court will often look at the
corporation as a mere collection of individuals or an
aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the
corporation unifying the group. Another formulation of this
doctrine is that when two (2) business enterprises are owned,
conducted and controlled by the same parties, both law and
equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are
distinct entities and treat them as identical or one and the
same.
Authorities are agreed on at least three (3) basic areas where
piercing the veil, with which the law covers and isolates the
corporation from any other legal entity to which it may be
related, is allowed. These are: 1) defeat of public convenience,
as when the corporate fiction is used as vehicle for the evasion
of an existing obligation; 2) fraud cases or when the corporate
entity is used to justify a wrong, protect fraud, or defend a
crime; or 3) alter ego cases, where a corporation is merely a
farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of another
corporation.
The Court agrees with the disposition of the CA on the
application of the piercing doctrine to the transaction subject
of this case. Per the Courts count, the trial court enumerated
no less than 20 documented circumstances and transactions,
which, taken as a package, indeed strongly supported the
conclusion that respondent EQUITY was but an adjunct, an
instrumentality or business conduit of petitioner GCC. This
relation, in turn, provides a justifying ground to pierce
petitioners corporate existence as to ALSONS claim in
question. Foremost of what the trial court referred to as
"certain circumstances" are the commonality of directors,
officers and stockholders and even sharing of office between
petitioner GCC and respondent EQUITY; certain financing

and management arrangements between the two, allowing the

petitioner to handle the funds of the latter; the virtual
domination if not control wielded by the petitioner over the
finances, business policies and practices of respondent
EQUITY; and the establishment of respondent EQUITY by
the petitioner to circumvent CB rules.
Verily, indeed, as the relationships binding herein [respondent
EQUITY and petitioner GCC] have been that of "parentsubsidiary corporations" the foregoing principles and doctrines
find suitable applicability in the case at bar; and, it having
been satisfactorily and indubitably shown that the said
relationships had been used to perform certain functions not
characterized with legitimacy, this Court feels amply
justified to "pierce the veil of corporate entity" and disregard
the separate existence of the parent and subsidiary the latter
having been so controlled by the parent that its separate
identity is hardly discernible thus becoming a mere
instrumentality or alter ego of the former.

KUKAN INTERNATIONAL CORPORATION vs. REYES

G.R. No. 182729

September 29, 2010

FACTS: Sometime in March 1998, Kukan, Inc. conducted

bidding for the supply and installation of signages in a
building being constructed in Makati City. Romeo Morales
tendered the winning bid and was awarded the PhP 5 million
contract. Short changed, Morales filed a Complaint with the
RTC against Kukan, Inc. for a sum of money. The RTC
rendered a Decision in favor of Morales and against Kukan,
Inc. After the decision became final and executory, Morales
moved for and secured a writ of execution against Kukan, Inc.
The sheriff then levied upon various personal properties of
Kukan International Corporation (KIC). KIC then filed an
Affidavit of Third-Party Claim. Notably, KIC was
incorporated in August 2000, or shortly after Kukan, Inc. had
stopped participating in Civil Case. In reaction to the third
party claim, Morales interposed an Omnibus Motion dated
April 30, 2003. In it, Morales prayed, applying the principle of
piercing the veil of corporate fiction, that an order be issued
for the satisfaction of the judgment debt of Kukan, Inc. with
the properties under the name or in the possession of KIC, it
being alleged that both corporations are but one and the same
entity. By Order of May 29, 2003 as reiterated in a subsequent
order, the court denied the omnibus motion. In a bid to
establish the link between KIC and Kukan, Inc., and thus
determine the true relationship between the two, Morales filed
a Motion for Examination of Judgment Debtors dated May 4,
2005. In this motion Morales sought that subpoena be issued
against the primary stockholders of Kukan, Inc., among them
Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the
trial court in an Order dated May 24, 2005. Morales then
sought the inhibition of the presiding judge, Eduardo B.
Peralta, Jr., who eventually granted the motion. The case was

re-raffled to Branch 21, presided by public respondent Judge

Amor Reyes. Before the Manila RTC, Branch 21, Morales
filed a Motion to Pierce the Veil of Corporate Fiction to
declare KIC as having no existence separate from Kukan, Inc.
This time around, the RTC, by Order dated March 12, 2007,
granted the motion. KIC moved but was denied
reconsideration in another Order dated June 7, 2007. On
petition for certiorari before CA, the same was denied. The
CA later denied KICs motion for reconsideration in the
assailed resolution. Hence, the instant petition for review.
ISSUE: Whether the trial and appellate courts correctly
applied, under the premises, the principle of piercing the veil
of corporate fiction.
RULING: Piercing the veil of corporate entity apllies only:
(1) the court must first acquire jurisdiction over the
corporation or corporations involved before its or their
separate personalities are disregarded; and (2) the doctrine of
piercing the veil of corporate entity can only be raised during a
full-blown trial over a cause of action duly commenced
involving parties duly brought under the authority of the court
by way of service of summons or what passes as such service.
Mere ownership by a single stockholder or by another
corporation of a substantial block of shares of a corporation
does not, standing alone, provide sufficient justification for
disregarding the separate corporate personality. For this
ground to hold sway in this case, there must be proof that
Chan had control or complete dominion of Kukan and KICs
finances, policies, and business practices; he used such control
to commit fraud; and the control was the proximate cause of
the financial loss complained of by Morales. The absence of
any of the elements prevents the piercing of the corporate
veil. And indeed, the records do not show the presence of
these elements.
In fine, there is no showing that the incorporation, and the
separate and distinct personality, of KIC was used to defeat
Morales right to recover from Kukan, Inc. Judging from the
records, no serious attempt was made to levy on the properties
of Kukan, Inc. Morales could not, thus, validly argue that
Kukan, Inc. tried to avoid liability or had no property against
which to proceed.
The suggestion that KIC is but a continuation and successor of
Kukan, Inc., owned and controlled as they are by the same
stockholders, stands without factual basis. It is true that
Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the
outstanding capital stock of both corporations. But such
circumstance, standing alone, is insufficient to establish
identity. There must be at least a substantial identity of
stockholders for both corporations in order to consider this
factor to be constitutive of corporate identity.

Evidently, the aforementioned case relied upon by Morales

cannot justify the application of the principle of piercing the
veil of corporate fiction to the instant case. As shown by the
records, the name Michael Chan, the similarity of business
activities engaged in, and incidentally the word "Kukan"
appearing in the corporate names provide the nexus between
Kukan, Inc. and KIC. As illustrated, these circumstances are
insufficient to establish the identity of KIC as the alter ego or
successor of Kukan, Inc.
Secosa vs Heirs of Erwin suarez Fransisco

Facts: Francisco, an 18 year old 3rd year physical therapy

student was riding a motorcycle. A sand and gravel truck was
traveling behind the motorcycle, which in turn was being
tailed by the Isuzu truck driven by Secosa. The Isuzu cargo
truck was owned by Dassad Warehousing and Port Services,
Inc.. The three vehicles were traversing the southbound lane at
a fairly high speed. When Secosa overtook the sand and
gravel truck, he bumped the motorcycle causing Francisco to
fall. The rear wheels of the Isuzu truck then ran over
Francisco, which resulted in his instantaneous death. Secosa
left his truck and fled the scene of the collision.
The parents of Francisco, respondents herein, filed an action
fordamages against Secosa, Dassad Warehousing and Port
Services, Inc. and Dassads president, El Buenasucenso Sy.
The court a quo rendered a decision in favor of herein
respondents; thus petitioners appealed the decision to the
Court of Appeals, which unfortunately affirmed the appealed
decision in toto. Hence, the present petition.
Issues:
(1) Whether or not Dassad Warehousing and Port Services,
Inc. exercised the diligence of a good father of a family in the
selection and supervision of its employees; hence it cannot be
held solidary liable with the negligence of its employee.
(2) Whether or not Dassads president, El Buenasucenso Sy,
can be held solidary liable with co-petitioners.
Held:
(1) No. Dassad Warehousing and Port Services, Inc. did not
exercise the required diligence of a good father of a family

in the selection and supervision of its employees. Hence, it

to obviate the biased nature of the employers testimony or

cannot be held solidary liable with the negligence of its

that of his witnesses.

employee.
In the case at bar, Dassad Warehousing and Port Services, Inc.
Article 2176 of the Civil Code provides:

failed to conclusively prove that it had exercised the requisite

diligence of a good father of a family in the selection and

Whoever by act or omission causes damage to another, there

supervision of its employees. Dassad Warehousing and Port

being fault or negligence, is obliged to pay for the damage

Services, Inc. failed to support the testimony of its lone

done. Such fault or negligence, if there is no pre-existing

witness, Edilberto Duerme, with documentary evidence which

contractual relation between the parties, is called a quasi-delict

would have strengthened its claim of due diligence in the

and is governed by the provisions of this Chapter.

selection and supervision of its employees. Such an omission

is fatal on account of which, Dassad can be rightfully held

On the other hand, Article 2180, in pertinent part, states:

solidarily

liable

with

its

co-petitioner

Secosa

for

thedamages suffered by the heirs of Francisco.

The obligation imposed by article 2176 is demandable not

(2) No. Sy cannot be held solidarily liable with his co-

only for ones own acts or omissions, but also for those of

petitioners. While it may be true that Sy is the president of

persons for whom one is responsible x x x.

Dassad Warehousing and Port Services, Inc., such fact is not

by itself sufficient to hold him solidarily liable for the

Employers shall be liable for the damages caused by their

liabilities adjudged against his co-petitioners.

employees and household helpers acting within the scope of

A corporation has a personality separate from that of its

their assigned tasks, even though the former are not engaged

stockholders or members. The doctrine of veil of corporation

in any business or industry x x x.

treats as separate and distinct the affairs of a corporation and

its officers and stockholders. As a rule, a corporation will be

The responsibility treated of in this article shall cease when

looked upon as a legal entity, unless and until sufficient reason

the persons herein mentioned prove that they observed all the

to the contrary appears. When the notion of legal entity is used

diligence of a good father of a family to prevent damage.

to defeat public convenience, justify wrong, protect fraud, or

defend crime, the law will regard the corporation as an

Based on the foregoing provisions, when an injury is caused

association of persons. Also, the corporate entity may be

by the negligence of an employee, there instantly arises a

disregarded in the interest of justice in such cases as fraud that

presumption that there was negligence on the part of the

may work inequities among members of the corporation

employer, which however, may be rebutted by a clear

internally, involving no rights of the public or third persons. In

evidence showing on the part of the employer that it exercised

both instances, there must have been fraud and proof of it.

the care and diligence of a good father of a family in the

The records of the case does not point toward the presence of

selection and supervision of his employee.

any grounds enumerated above that will justify the piercing of

the veil of corporate entity such as to hold Sy, the president of

In the selection of prospective employees, employers are

Dassad Warehousing and Port Services, Inc., solidarily liable

required to examine them as to their qualifications,

with it.

experience, and service records. On the other hand, with

Furthermore, the Isuzu cargo truck which ran over Francisco

respect to the supervision of employees, employers should

was registered in the name of Dassad and not in the name of

formulate standard

their

Sy. Secosa is an employee of Dassad and not of Sy. These

implementation, and impose disciplinary measures for

facts showed Sys exclusion from liability for damages arising

breaches thereof. To establish these factors in a trial involving

from the death of Francisco.

operating

procedures,

monitor

the issue of explicit liability, employers must submit concrete

proof, including documentary evidence. The reason for thisis

PNB vs Ritratto

Lessons Applicable: Dealings with Corp. and Stockholders

(Corporate Law)
FACTS:

May 29, 1996: PNB International Finance Ltd. (PNBIFL) a subsidiary company of PNB, organized and
doing business in Hong Kong, extended a letter of credit
in favor of the Ritratto Group, Inc. (Ritartto) in the
amount of US$300K secured by real estate mortgages
constituted over 4 parcels of land in Makati City

If used to perform legitimate functions, a subsidiary's

separate existence may be respected, and the liability of
the parent corporation as well as the subsidiary will be
confined to those arising in their respective business.

general rule the stock ownership alone by one

corporation of the stock of another does not thereby
render the dominant corporation liable for the torts of the
subsidiary unless the separate corporate existence of the
subsidiary is a mere sham, or unless the control of the
subsidiary is such that it is but an instrumentality or
adjunct of the dominant corporation.

The Circumstance rendering the subsidiary an

instrumentality (common circumstances)

September 1996: increased successively to

US$1,140,000.00

November 1996: to US$1,290,000.00

February 1997: US$1,425,000.00

April 1998: decreased to US$1,421,316.18

Ritratto Group, Inc. made repayments of the loan

incurred by remitting those amounts totheir loan account
with PNB-IFL in Hong Kong.

April 30, 1998:

US$1,497,274.70

PNB-IFL, through its attorney-in-fact PNB,

notified them of the foreclosure of all the real estate
mortgages and that the properties subjected

May 25, 1999: Ritratto Group, Inc filed a complaint

for injunction with prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining order
before the RTC. -granted 72-hour TRO

outstanding

amounted

to

RTC and CA: dismissed motion to dismiss

PNB-IFL, is a wholly owned subsidiary of

defendant Philippine National Bank, the suit against the
defendant PNB is a suit against PNB-IFL

Rittratto: entire credit facility is

void as it contains stipulations in violation of the
principle of mutuality of contracts

ISSUE: W/N PNB is an alter ego of PNB-IFL

HELD: NO. Petition is granted
PNB is an agent with limited authority and specific duties
under a special power of attorneyincorporated in the real estate
mortgage.

not privy to the loan contracts entered into

by PNB-IFL.

mere fact that a corporation owns all of the stocks of

another corporation, taken alone is not sufficient to justify
their being treated as one entity.

(a) The parent corporation owns all or most of the capital

stock of the subsidiary.
(b) The parent and subsidiary corporations have common
directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of
the subsidiary or otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses
or losses of the subsidiary.
(g) The subsidiary has substantially no business except with
the parent corporation or no assets except those conveyed to or
by the parent corporation.
(h) In the papers of the parent corporation or in the statements
of its officers, the subsidiary is described as a department or
division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary
as its own.
(j) The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary but take their
orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not
observed.
CONCEPT BUILDERS, INC vs. NLRC
G.R. No. 108734 May 29, 1996
FACTS: 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. On November 1981, private
respondents were served individual written notices of
termination of employment by petitioner. 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. It was found, 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 subcontractors 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. On December 19, 1984, the Labor Arbiter
rendered judgment ordering petitioner to reinstate private
respondents and to pay them back wages equivalent to one
year or three hundred working days. On Motion for
reconsideration, the same was denied by NLRC on the ground
that the said decision had already become final and executory.
When the writ of execution was issued, it was however
partially satisfied thru garnishment of sums from petitioners
debtor, Metropolitan Waterworks and Sewerage Authority. On
February 1, 1989, an Alias Writ of Execution was issued by
the Labor Arbiter directing the sheriff to collect from herein
petitioner the balance due of the judgment award and to
reinstate private respondents to their former positions. When
the Alias Writ of Execution was served, it was found that the
petitioner no longer occupied the premises. A second Alias
Writ of Execution then was issued upon motion of private
respondents. On November 6, 1989, a certain Dennis
Cuyegkeng filed a third-party claim with the Labor Arbiter
alleging that the properties sought to be levied upon by the
sheriff were owned by Hydro (Phils.), Inc. of which he is the
Vice-President. On November 23, 1989, private respondents
filed a "Motion for Issuance of a Break-Open Order," alleging
that HPPI and petitioner corporation were owned by the same
incorporator/stockholders. They also alleged that petitioner
temporarily suspended its business operations in order to
evade its legal obligations to them and that private respondents
were willing to post an indemnity bond to answer for any
damages which petitioner and HPPI may suffer because of the
issuance of the break-open order. HPPI filed an Opposition to
private respondents' motion for issuance of a break-open
order, contending that HPPI is a corporation which is separate
and distinct from petitioner. HPPI also alleged that the two
corporations are engaged in two different kinds of
businesses, i.e., HPPI is a manufacturing firm while petitioner
was then engaged in construction. The Labor Arbiter issued an
Order which denied private respondents' motion for breakopen order. On appeal to NLRC, applying the doctrine of
piercing the corporate veil, it set aside the order of the Labor
Arbiter and issued a break-open order. Motion for
reconsideration was denied. Hence this petition.
ISSUE: Whether or not the veil of corporate fiction must be
pierced to hold petitioner liable.
RULING: 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 plaintiff's
legal rights; and
3. The aforesaid control and breach of duty
must proximately cause the injury or unjust
loss complained of.
The absence of any one of these elements
prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter
ego" doctrine, the courts are concerned with
reality and not form, with how the
corporation operated and the individual
defendant's relationship to that operation.
Thus the question of whether a corporation is a mere alter ego,
a mere sheet or paper Corporation, a sham or a subterfuge is
purely one of fact.
In this case, the NLRC noted that, while petitioner claimed
that it ceased its business operations on April 29, 1986, it filed
an Information Sheet with the Securities and Exchange
Commission on May 15, 1987, stating that its office address is
at 355 Maysan Road, Valenzuela, Metro Manila. On the other
hand, HPPI, the third-party claimant, submitted on the same
day, a similar information sheet stating that its office address
is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by
the same Virgilio O. Casio as the corporate
secretary of both corporations. It would also
not be amiss to note that both corporations
had the same president, the same board of
directors, the same corporate officers, and
substantially the same subscribers.
From the foregoing, it appears that, among
other things, the respondent (herein
petitioner) and the third-party claimant
shared the same address and/or premises.

Under this circumstances, it cannot be said

that the property levied upon by the sheriff
were not of respondents.
Clearly, petitioner ceased its business operations in order to
evade the payment to private respondents of back wages and
to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of Petitioner Corporation and its
emergence was skilfully orchestrated to avoid the financial
liability that already attached to Petitioner Corporation.

Koppel vs Yatco

o
o
o
o

Facts:
Koppel Philippines Inc. (KPI) has a capital stock divided
into thousand (1,000) shares of P100 each.
The Koppel Industrial Car and Equipment Company
(KICEC) owns 995 shares of the total capital stock. KICEC is
organized under US laws and not licensed to do business in
the Philippines. The remaining five (5) shares only were and
are owned one each by officers of the KPI.
They have the following business process:
(1) "When a local buyer was interested in the purchase of
railway materials, machinery, and supplies, it asked for price
quotations from KPI";
(2) "KPI then cabled for the quotation desired from Koppel
Industrial Car and Equipment Company";
(3) "KPI, 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
KPI paid under protest the P64,122.51 demanded by the
CIR.
Total profit

o
o

If the KPI had in stock the merchandise desired by local

buyers, it immediately filled the orders of such local
buyersand made delivery in the Philippines without the
necessity of cabling its principal in America either for price
quotations or confirmation or rejection of that agreed upon
between it and the buyer
Whenever the deliveries made by KICEC were incomplete
or insufficient to fill the local buyer's orders, KPI used to
make good the deficiencies by deliveries from its own local
stock, but in such cases it charged its principal only the actual
cost of the merchandise thus delivered by it from its stock
and in such transactionsKPI did not realize any
profit#fluffypeaches
CFI:
KPI is a mere dummy or branch ("hechura") of KICEC.
did not deny legal personality to Koppel (Philippines), Inc. for
any and all purposes, but in effect its conclusion was that, in
the transactions involved herein, 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."
Issues/Ruling:
1. WON KPI is a domestic corporation distinct and separate
from, and not a mere branch of KICEC

KPI:
Its corporate existence as cannot be collaterally attacked and
that the Government is estopped from so doing.
SC:

Koppel (Philippines), Inc. was a mere branch or agency or

dummy ("hechura") of Koppel Industrial Car and Equipment
Co. The lower court did not hold that the corporate personality
of KPI 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 "for the purpose of adjudging the
rights and liabilities of the parties in the case. They have no
jurisdiction to do more." <3 peaches

United States vs. Milwaukee Refrigeration Transit

KPI Share
o General Rule: a corporation will be looked upon as a legal
entity as a general rule, and until sufficient reason to the
KPI paid commercial brokers tax (4% of KPI Share)
contrary appears;
o Exception: Wthe notion of legal entity is used to defeat public
convenience,
justify wrong,
CIR demanded (1% of Total Profit) + 25% surcharge
for late payment
Paidprotect fraud, or defend crime, the
law
will
regard
the
corporation
as an association of persons.
tax

Manifestly, the principle is the same whether the "person"

be natural or artificial.
It appears that KICEC is the only foreign principal of KPI.

A very numerous and growing class of cases wherein the

The KPI corporation bore alone incidental expenses - as, for
corporate entity is disregarded is that (it is so organized and
instance, cable expenses-not only those of its own cables but
controlled, and its affairs are so conducted, as to make it
also those of its "principal" .
merely an instrumentality, agency, conduit or adjunct of
The KPI's "share in the profits" realized from the
another corporation)."
transactions in which it intervened was left virtually in the

Where it appears that two business enterprises are owned,

hands of KICEC
conducted and controlled by the same parties, both law and
Where drafts were not paid by the purchasers, the local
equity will, when necessary to protect the rights of third
banks were instructed not to protest them but to refer them to
persons, disregard the legal fiction that two corporations are
KPI which was fully empowered by KICEC to instruct the
distinct entities, and treat them as identical. (Abney vs.
banks with regards to disposition of the drafts and documents
Belmont Country Club Properties, Inc., 279 Pac., 829.)
Where the goods were European origin, consular invoices,
#bebegurrpeaches
bill of lading, and, in general, the documents necessary for

The fact that KPI is a mere branch is conclusively borne out

clearance were sent directly to KPI
by the fact, among others, that the amount of the so-called
"share in the profits" of KPIwas ultimately left to the sole,

unbridled control of KICEC. If KPI was intended to

function as a bona fide separate corporation, we cannot
conceive how this arrangement could have been adopted.
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, branch or agency
of the latter.
KPI charged the parent corporation no more than actual cost
- without profit whatsoever - for merchandise allegedly of its
own to complete deficiencies of shipments made by said
parent corporation.

1922. Arnold filed this complaint to recover 106K

from W&P.
W&P argues that the 2nd contract was signed without
authority. And as counterclaim alleged that Arnold
took 30K from the Corp but only 19.1K was due to

him thus he owed 10.1K to W&P.

CFI ordered Arnold to return the 10.1K.
SC reverses. Arnold entitled to 68K plus half of 75K,

representing PNs.
Both Corps organized by Willits were a One Man
Corporation. After the 2nd contract was signed it was
recognized by Willits that Arnolds services were to

Land Bank vs CA

Arnold vs. Willits and Patterson

be performed by its terms and there never was any

1916. The Firm Willits & Patterson in San Francisco

with and treated Arnold as its agent in the same

entered into a contract with Arnold whereby Arnold

manner as the previous corp had, thus the new corp is

was to be employed for a period of five years as the

agent of the firm here in the PI to operate an oil mill

$200/mth, a 1% brokerage fee from all purchases and

160K.
Where a stock of a corporation is owned by one

sales of merchandise, and half of the profits of the oil

person whereby the corp functions only for the

business and other businesses. provided if the

benefit of such individual owner, the corp and the

business was at a loss, Arnold would receive

$400/mth.
Later, Patterson retired and Willits acquired all

interests of the business.

Willits organized a new Corp in San Francisco which
took over and acquired all assets of the Firm Willits
& Patterson. Willits was the owner of all the capital
stock. New corp had the same name.
After, Willits, organized a new Corporation here in
the PI to take over all the business and assets of the
firm here in the PI. Willits was the owner of all the

bound by the contract which the old firm made.

In fact, the 2nd contract protected Willits from a larger
claim, which the accountant said, would be over

for which he was to receive a minimum salary of

dispute between Arnold and Willits.

Although a new corp was created, the new corp dealt

capital stock.
Later, there was dispute with regard to the
construction of the contract as a result,a new contract
in the form of a letter was entered into. Willits signed

this.
The statements of account showed that 106K was due

and owing to Arnold.

W&P Corp was in financial trouble and all assets
were turned over to a creditors committee.

individual should be deemed to be the same.

Thus the corp is bound by the contract.

Yutivo Sons Hardware vs CTA

Facts: Yutivo, a domestic corporation incorporated in 1916
under Philippine laws, was engaged in the importation and
sale of hardware supplies and equipment. After the first world
war, it resumed its business and bought a number of cars and
trucks from General Motors(GM), an American Corporation
licensed to do business in the Philippines.
On June 13, 1946, the Southern Motors Inc,(SM) was
organized to engage in the business of selling cars, trucks and
spare parts. One of the subscribers of stocks during its
incorporation was Yu Khe Thai, Yu Khe Siong and Hu Kho
Jin, who are sons of Yu Tiong Yee, one of Yutivos founders.
After SMs incorporation and until the withdrawal of GM
from the Philippines, the cars and trucks purchased by Yutivo
from GM were sold by Yutivo to SM which the latter sold to
the public.
Yutivo was appointed importer for Visayas and Mindanao by
the US manufacturer of cars and trucks sold by GM. Yutivo
paid the sales tax prescribed on the basis of selling price to
SM. SM paid no sales tax on its sales to the public.

An assessment was made upon Yutivo for deficiency sales tax.

The Collector of Internal Revenue, contends 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 a
subsidiary of the latter.
The assessment was disputed by petitioner. After
reinvestigation, a second assessment was made, sustaining the
validity of the first assessment. Yutivo contested the second
assessment, alleging that there is no valid ground to disregard
the corporate personality of SM and to hold that it is an
adjunct of petitioner.
Issue: Whether or not the corporate personality of SM could
be disregarded.
Held: Yes. A corporation is an entity separate and distinct
from its stockholders and from other corporations 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. When the corporation is a mere alter ego
or business conduit of a person, it may be disregarded.
SC ruled that CTA was not justified in finding that SM was
organized to defraud the Government. SM was organized in
June 1946, from that date until June 30, 1947, GM was the
importer of the cars and trucks sold to Yutivo, which in turn
was sold to SM. GM, as importer was the one solely liable for
sales taxes. Neither Yutivo nor SM was subject to the sales
taxes. Yutivos liability arose only until July 1, 1947 when it
became the importer. Hence, there was no tax to evade.
However, SC agreed with the respondent court that SM was
actually owned and controlled by petitioner. Consideration of
various circumstances indicate that Yutivo treated SM merely
as its department or adjunct:
a. The founders of the corporation are closely related to each
other by blood and affinity.
b. The object and purpose of the business is the same; both are
engaged in sale of vehicles, spare parts, hardware supplies and
equipment.
c. The accounting system maintained by Yutivo shows that it
maintained high degree of control over SM accounts.
d. Several correspondences have reference to Yutivo as the
head office of SM. SM may even freely use forms or
stationery of Yutivo.
e. All cash collections of SMs branches are remitted directly
to Yutivo.
f. The controlling majority of the Board of Directors of Yutivo
is also the controlling majority of SM.
g. The principal officers of both corporations are identical.
Both corporations have a common comptroller in the person of

Simeon Sy, who is a brother-in-law of Yutivos president, Yu

Khe Thai.
h. Yutivo, financed principally 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.

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.
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. 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."
The bulk of the business of Liddell & Co. was
channeled through Liddell Motors, Inc. On the other hand,
Liddell Motors, Inc. pursued no activities except to secure
cars, trucks, and spare parts from Liddell & Co. Inc. and then
sell them to the general public. These sales of vehicles by
Liddell & Co. to Liddell Motors, Inc. for the most part were
shown to have taken place on the same day that Liddell
Motors, Inc. sold such vehicles to the public. We may even say
that the cars and trucks merely touched the hands of Liddell
Motors, Inc. as a matter of formality.
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.
In Lidell& Co.:
(1) Frank Liddell had the authority to designate in the future
the employee who could receive earnings of the corporation;
to apportion among the stock holders the share in the profits;
(2) that all certificates of stock in the names of the employees
should be deposited with Frank Liddell duly indorsed in blank
by the employees concerned;
(3) that each employee was required to sign an agreement
with the corporation to the effect that, upon his death or upon
his retirement or separation for any cause whatsoever from the
corporation, the said corporation should, within a period of
sixty days therefor, have the absolute and exclusive option to
purchase and acquire the whole of the stock interest of the
employees so dying, resigning, retiring or separating.

As to Liddell Motors, Inc Frank Lidell 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. had money of her own to pay for her
P20,000 initial subscription. Her income in the United States
in the years 1943 and 1944 and the savings therefrom could
not be enough to cover the amount of subscription, much less
to operate an expensive trade like the retail of motor vehicles.
The alleged sale of her property in Oregon might have been
true, but the money received therefrom was never shown to
have been saved or deposited so as to be still available at the
time of the organization of the Liddell Motors, Inc.
The evidence at hand also shows that Irene Liddell
had scant participation in the affairs of Liddell Motors, Inc.
She could hardly be said to possess business experience. The
income tax forms record no independent income of her own.
As a matter of fact, the checks that represented her salary and
bonus from Liddell Motors, Inc. found their way into the
personal account of Frank Liddell. Her frequent absences from
the country negate any active participation in the affairs of the
Motors company.
Mariano vs Petron Corp
PNB vs Hydro Resources Contractors Corp
G.R. No. 160545 March 9, 2010PRISMA CONSTRUCTION
& DEVELOPMENT CORPORATION and ROGELIO
S. PANTALEON,Petitioners,vs.ARTHUR F. MENCHAVEZ,
Respondent
FACTS:
On December 8,1993 PRISMA obtained a 1 million
loan from respondent with a monthlyinterest of
40,000.00 and is payable for six months which is
secured by a promissory note issuedby Rogelio S
Pantaleon, President and Chairman of the Board of PRISMA.
Its total obligation is1,240,000.00 to be paid under the
following schedule of payments:
January 8, 1994......40,000.00
February 8, 1994.....40,000.00
March 8, 1994.........40,000.00
April 8, 1994............40,000.00
May 8, 1994.............40,000.00
June 8,1994.............1,040,000.00
The petitioners failed to completely pay the loan within the
stipulated 6 month period. FromSeptember 8, 1994 to January
4, 1997, the petitioners paid a total of 1,108,772.00. However,
therespondent found that the petitioners still had an
outstanding balance of 1,364,151.00 as of January 4,
1997 to which it applied a 4% monthly interest.On August 28,
1997, respondent filed a complaint for sum of money with the
RTC to enforcethe unpaid balance plus 4% monthly
interest.The RTC ordered the petitioners to jointly

and severally pay the respondent the amount

of 3,526,117.00 plus 4% per month interest from
February 11,1999 until fully paid.CA affirmed the
RTCDecision by imposing a 12% per annum interest,
computed from the filling of the complaint untilfinality of
judgment and thereafter.
ISSUE:
Whether or not the parties agreed to the 4% monthly interest
on the loan? If so, does the rateof interest apply to the 6-month
payment period only or until full payment of the loan?
RULING: NO.
The parties did not agree to the 4% monthly interest
on the loan. Interest due should be stipulated in writing;
otherwise, 12% per annum. Obligations arising from
contracts have the force of law between the
contracting parties and should be complied with in
good faith. When the terms of a contract are clear
and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations governs In such
cases, courts have no authority to alter the contract by
construction or to make a new contract for the parties; a
court's duty is confined to the interpretation of the
contract the parties made for themselves without
regard to its wisdom or folly, as the court
cannot supply material stipulations or read into
the contract words the contract does not contain. It is
only when the contract is vague and ambiguous that
courts are permitted to resort to the interpretation of its terms
to determine the parties intent. The 1 million loan with
40,000.00 per month interest for six months having a total
obligation f 1,240,000.00 for the total six month
period is an agreed sum which can be computed
at 4% interest per month, but no such rate of interest was
stipulated in the promissory note; rather a fixed sum
equivalent to this fixed rate was agreed upon Article 1956 of
the Civil Code specifically mandates that "no interest shall be

due unless it has been expressly stipulated in writing." Under

this provision, the payment of interest in loans
or forbearance of money is allowed only if: (1) there
was an
express stipulation
for
the
payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The
concurrence of the two conditions is required for the
payment of interest at a stipulated rate. Applying this
provision, we find that the interest of P40, 000.00
per month corresponds only to the six (6)-month
period of the loan, or from January 8, 1994 to June
8, 1994, as agreed upon by the parties in the
promissory note. Thereafter, the interest on the loan
should be at the legal interest rate of 12% per annum.
It is a familiar doctrine in obligations and contracts that the
parties are bound by the stipulations, clauses, terms and
conditions they have agreed to, which is the law between
them, the only limitation being that these stipulations, clauses,
terms and conditions are not contrary to law, morals, public
order or public policy.
The payment of the specific sum of money of P 40,000.00
per month was voluntarily agreed upon by the
petitioners and the respondent. There is nothing from
the records and, in fact, there is no allegation
showing that petitioners were victims of fraud when
they entered into the agreement with the respondent.
Therefore, as agreed by the parties, the loan of
P1,000,000.00 shall earn P 40,000.00 per month for a
period of six (6) months, or from December 8, 1993
to June 8, 1994, for a total principal and interest
amount of P1,240,000.00. Thereafter, interest at the
rate of 12% per annum shall apply. The amounts
already paid by the petitioners during the pendency
of the suit, amounting toP1,228,772.00 as of
February12, 1999 should be deducted from the total
amount due, computed as indicated above.