corpo case ass

7/28/2019 Corpo Case Ass

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RICARDO TANTONGCO, petitioner, v. KAISAHAN NG MGA

MANGGAGAWA SA LA CAMPANA (KKM) and THE

HONORABLE COURT OF INDUSTRIAL RELATIONS,

respondents

GR No. L-13119 || September 22, 1959

The present case is a petition for Certiorari and prohibition

with prayer for the issuance of a writ of preliminary

injunction to prohibit the respondent Court of Industrial

Relations from proceeding with the hearing of the contempt

proceedings.

FACTS:

La Campana Starch Factory and La Campana Coffee Factory

(La Campana for Brevity) are two separate entities run by a

single management under the leadership of Ramon

Tantongco. Kaisahan ng mga Manggagawa sa La Campana

(Kaisahan for brevity), on the other hand, is a labor union

with members from the two companies. Sometime in June,

1951, representatives of Kaisahan approached the

management of La Campana to demand higher wages and

more benefits. A deadlock ensued since none of the parties is

willing to give concessions. The dispute was certified to the

Court of Industrial Relations (CIR). La Campana filed a motion

to dismiss before the CIR claiming that the CIR has no

jurisdiction because only those from the coffee factory were

presenting the demands there were only 14 employees in

said factory. This was done in light of the requirement that at

least 31 employees should present the demands. The motion

was denied by the CIR. According to the CIR, the Kaisahan

was the one that presented the demands and not just the

workers in the coffee factory. The Supreme Court affirmed

the order of the CIR citing that although the two entities are

separate, there is only one management. The entire

membership of the Kaisahan is therefore to be counted and

not simply those employed in the coffee factory. Additional

incidental cases were filed by Kaisahan before the CIR

including a petition for the reinstatement of some

employees. Ramon Tantongco died some time in 1956. The

administrator of the estate of Ramon Tantongco, herein

petitioner Ricardo Tantongco, was ordered included as

respondent in the cases pending before the CIR. The CIR

rendered a decision on the incidental cases and ordered the

reinstatement of the dismissed employees. When the

employees reported to work, the management refused them

admittance. Kaisahan then filed a petition to cite the

management in contempt before the CIR. Hence this petition.

CONTENTIONS Petitioner: The two companies ceased to exist

upon the death of Ramon Tantongco. The Supreme Court

held in GR No. L-5677 that La Campana and Ramon

Tantongco are one based on the doctrine of piercing the veil

of corporate existence. Therefore, the death of Ramon

Tantongco meant the death of La Campana. Since La

Campana already ceased to exist, the CIR no longer has

jurisdiction over it. The claims should have been filed with the

probate court.

Defendant: La Campana continues to exist despite the deathof Ramon Tantongco. The CIR therefore has jurisdiction when

it rendered its decision on the incidental cases. The non-

compliance by La Campana therefore amounted to contempt

of court.

ISSUE:

1. WON La Campana ceased to exist upon the death of

Ramon Tantongco;

2. WON the Doctrine of Piercing the Veil of Corporate

Existence applies to the present case; and

3. WON the contempt of court proceedings in the CIR

should proceed.

RULING:

The Supreme Court DENIED the Petition for Certiorari and

Prohibition. It ruled that La Camapana continued to exist

despite the death of Ramon Tantongco. It further ruled that

the Doctrine of Piercing the Veil of Corporate Existence is not

applicable in the present case. Finally, it allowed the CIR to

proceed with the contempt hearing.

1 and 2

The death of Ramon Tantongco did not end the existence of

La Campana. The Supreme Court applied the Doctrine of

Piercing the Veil of Corporate Existence in GR no. L-5677 to

avoid the use of technicality to defeat the jurisdiction of the

CIR. In the said case, the Court determined that although La

Campana are two separate companies, they are being

managed by only one management. Furthermore, the

workers of both factories were interchangeably assigned. Inthe present case, however, the Court ruled that despite the

obvious fact that La Campana was run by the same people,

they still are two different companies with separate

personalities from Ramon Tantongco. La Campana was

owned not only by Ramon but others as well including

Ricardo Tantongco. Lastly, the Court ruled that petitioner is

under estoppel and cannot claim that La Campana and

Ramon are one and the same since he has represented La

Campana as separate entities in numerous dealings.


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3. Ricardo Tantongco should still face the contempt

proceedings because under Section 6 of Commonwealth Act

No. 143, In case the employer (or landlord) committing any

such violation or contempt is an association or corporation,

the manager or the person who has the charge of the

management of the business of the association or

corporation and the officers of directors thereof who have

ordered or authorized the violation of contempt shall be

liable. . . . Since Tantongco is the General Manager of La

Campana, he is still obliged to appear at the contempt

proceedings.

REBECCA BOYER-ROXAS and GUILLERMO ROXAS,

petitioners, vs.

HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS,

INC., respondents.

Petition to review the decision and resolution of the Court of

Appeals affirming the earlier decision of the RTC-Laguna in

the consolidated civil cases involving petitioners and private

respondent Heirs of Eugenia V. Roxas, Inc. (HEIRS), a

corporation.

FACTS: HEIRS filed two separate complaints for recovery of

possession with the RTC-Laguna against herein petitioners,

praying for the ejectment of petitioners from buildings inside

the Hidden Valley Springs Resort, allegedly owned by

respondent corporation. HEIRS alleged that (1) Rebecca

Roxas is in possession of two houses built at the expense of

HEIRS, and that her occupancy on the said houses was only

upon the tolerance of the corporation; and (2) Guillermo

Roxas occupies a house which was built at the expense of the

corporation during the time when Guillermos father was still

living and was the general manager of the corporation, and

that Guillermos possession over the house and lot was only

upon the tolerance of the corporation. In their separate

answers, petitioners traversed the allegations stating that

they are heirs of Eugenia V. Roxas, and therefore, co-owners

of the Hidden Valley Springs Resort; and as co-owners of the

property, they have the right to stay within its premises.

RTC-Laguna decided in favor of HEIRS. On appeal,the decision of the RTC was affirmed. Hence, the petition.

ISSUE:Did the CA err when it refused to pierce the veil of

corporate fiction over HEIRS and maintain the petitioners in

their possession and/or occupancy of the subject premises

considering that petitioners are owners of aliquot part of the

properties of HEIRS?

HELD:NO. The petitioners maintain that their possession of

the questioned properties must be respected in view of their

ownership of an aliquot portion of all the properties of the

respondent corporation being stockholders thereof. They

propose that the veil of corporate fiction be pierced,

considering the circumstances under which the respondent

corporation was formed.

Originally, the questioned properties belonged to Eugenia V.

Roxas. After her death, the heirs of Eugenia V. Roxas, among

them the petitioners herein, decided to form a corporation Heirs of Eugenia V. Roxas, Incorporated (private respondent

herein) with the inherited properties as capital of the

corporation. The corporation was incorporated on December

4, 1962 with the primary purpose of engaging in agriculture

to develop the inherited properties. The Articles of

Incorporation of the respondent corporation were amended

in 1971 to allow it to engage in the resort business.

Accordingly, the corporation put up a resort known as Hidden

Valley Springs Resort where the questioned properties are

located. These facts, however, do not justify the position

taken by the petitioners.

The respondent is a bona fide corporation. As such, it has a

juridical personality of its own separate from the members

composing it. There is no dispute that title over the

questioned land where the Hidden Valley Springs Resort is

located is registered in the name of the corporation. The

records also show that the staff house being occupied by

petitioner Rebecca Boyer-Roxas and the recreation hall which

was later on converted into a residential house occupied by

petitioner Guillermo Roxas are owned by the respondent

corporation. Regarding properties owned by a corporation,we stated in the case ofStockholders of F. Guanzon and Sons,

Inc. v. Register of Deeds of Manila, (6 SCRA 373 [1962]):

xxx xxx xxx

. . . Properties registered in the name of the corporation are

owned by it as an entity separate and distinct from its

members. While shares of stock constitute personal property,

they do not represent property of the corporation. The

corporation has property of its own which consists chiefly of

real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow

v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only

typifies an aliquot part of the corporation's property, or the

right to share in its proceeds to that extent when distributed

according to law and equity (Hall & Faley v. Alabama

Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the

owner of any part of the capital of the corporation (Bradley v

Bauder, 36 Ohio St., 28). Nor is he entitled to the possession

of any definite portion of its property or assets (Gottfried V.

Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The

stockholder is not a co-owner or tenant in common of the


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corporate property (Harton v. Johnston, 166 Ala., 317, 51 So.

992). (at pp. 375-376)

The petitioners point out that their occupancy of the staff

house which was later used as the residence of Eriberto

Roxas, husband of petitioner Rebecca Boyer-Roxas and the

recreation hall which was converted into a residential house

were with the blessings of Eufrocino Roxas, the deceased

husband of Eugenia V. Roxas, who was the majority andcontrolling stockholder of the corporation. In his lifetime,

Eufrocino Roxas together with Eriberto Roxas, the husband of

petitioner Rebecca Boyer-Roxas, and the father of petitioner

Guillermo Roxas managed the corporation. The Board of

Directors did not object to such an arrangement. The

petitioners argue that . . . the authority thus given by

Eufrocino Roxas for the conversion of the recreation hall into

a residential house can no longer be questioned by the

stockholders of the private respondent and/or its board of

directors for they impliedly but no leas explicitly delegated

such authority to said Eufrocino Roxas. (Rollo, p. 12)

Again, we must emphasize that the respondent corporation

has a distinct personality separate from its members. The

corporation transacts its business only through its officers or

agents. (Western Agro Industrial Corporation v. Court of

Appeals, supra). Whatever authority these officers or agents

may have is derived from the board of directors or other

governing body unless conferred by the charter of the

corporation. An officer's power as an agent of the

corporation must be sought from the statute, charter, the by-

laws or in a delegation of authority to such officer, from theacts of the board of directors, formally expressed or implied

from a habit or custom of doing business. (Vicente v.

Geraldez, 52 SCRA 210 [1973])

In the present case, the record shows that Eufrocino V. Roxas

who then controlled the management of the corporation,

being the majority stockholder, consented to the petitioners'

stay within the questioned properties. Specifically, Eufrocino

Roxas gave his consent to the conversion of the recreation

hall to a residential house, now occupied by petitioner

Guillermo Roxas. The Board of Directors did not object to the

actions of Eufrocino Roxas. The petitioners were allowed to

stay within the questioned properties until August 27, 1983,

when the Board of Directors approved a Resolution ejecting

the petitioners.

We find nothing irregular in the adoption of the Resolution

by the Board of Directors. The petitioners' stay within the

questioned properties was merely by tolerance of the

respondent corporation in deference to the wishes of

Eufrocino Roxas, who during his lifetime, controlled and

managed the corporation. Eufrocino Roxas' actions could not

have bound the corporation forever. The petitioners have not

cited any provision of the corporation by-laws or any

resolution or act of the Board of Directors which authorized

Eufrocino Roxas to allow them to stay within the company

premises forever. We rule that in the absence of any existing

contract between the petitioners and the respondent

corporation, the corporation may elect to eject the

petitioners at any time it wishes for the benefit and interest

of the respondent corporation.

The petitioners' suggestion that the veil of the corporate

fiction should be pierced is untenable. The separate

personality of the corporation may be disregarded only when

the corporation is used "as a cloak or cover for fraud or

illegality, or to work injustice, or where necessary to achieve

equity or when necessary for the protection of the creditors."

(Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited

in Tan Boon Bee & Co., Inc., v. Jarencio, supraand Western

Agro Industrial Corporation v. Court of Appeals, supra) Thecircumstances in the present cases do not fall under any of

the enumerated categories.

Philippine National Bank vs. Andrada Electric & Engineering

Co.

[GR 142936, 17 April 2002]

Third Division, Panganiban (J): 3 concur, 1 on official leave

Facts: On 26 August 1975, the Philippine national Bank (PNB)

acquired the assets of the Pampanga Sugar Mills (PASUMIL)that were earlier foreclosed by the Development Bank of the

Philippines (DBP) under LOI 311. The PNB organized the

ational Sugar Development Corporation (NASUDECO) in

September 1975, to take ownership and possession of the

assets and ultimately to nationalize and consolidate its

interest in other PNB controlled sugar mills. Prior to 29

October 1971, PASUMIL engaged the services of the Andrada

Electric & Engineering Company (AEEC) for electrical

rewinding and repair, most of which were partially paid by

PASUMIL, leaving several unpaid accounts with AEEC. On 29

October 1971, AEEC and PASUMIL entered into a contract forAEEC to perform the (a) Construction of a power house

building; 3 reinforced concrete foundation for 3 units 350 KW

diesel engine generating sets, 3 reinforced concrete

foundation for the 5,000 KW and 1,250 KW turbo generator

sets, among others. Aside from the work contract, PASUMIL

required AEEC to perform extra work, and provide electrical

equipment and spare parts. Out of the total obligation of

P777,263.80, PASUMIL had paid only P250,000.00, leaving an

unpaid balance, as of 27 June 1973, amounting to


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P527,263.80. Out of said unpaid balance of P527,263.80,

PASUMIL made a partial payment to AEEC of P14,000.00, in

broken amounts, covering the period from 5 January 1974 up

to 23 May 1974, leaving an unpaid balance of P513,263.80.

PASUMIL and PNB, and now NASUDECO, allegedly failed and

refused to pay AEEC their just, valid and demandable

obligation (The President of the NASUDECO is also the Vice-

President of the PNB. AEEC besought said official to pay the

outstanding obligation of PASUMIL, inasmuch as PNB and

NASUDECO now owned and possessed the assets of

PASUMIL, and these defendants all benefited from the works,

and the electrical, as well as the engineering and repairs,

performed by AEEC). Because of the failure and refusal of

PNB, PASUMIL and/or NASUDECO to pay their obligations,

AEEC allegedly suffered actual damages in the total amount

of P513,263.80; and that in order to recover these sums,

AEEC was compelled to engage the professional services of

counsel, to whom AEEC agreed to pay a sum equivalent to

25% of the amount of the obligation due by way of attorney's

fees. PNB and NASUDECO filed a joint motion to dismiss on

the ground that the complaint failed to state sufficient

allegations to establish a cause of action against PNB and

NASUDECO, inasmuch as there is lack or want of privity of

contract between the them and AEEC. Said motion was

denied by the trial court in its 27 November order, and

ordered PNB nad NASUDECO to file their answers within 15

days. After due proceedings, the Trial Court rendered

judgment in favor of AEEC and against PNB, NASUDECO and

PASUMIL; the latter being ordered to pay jointly and severally

the former (1) the sum of P513,623.80 plus interest thereon

at the rate of 14% per annum as claimed from 25 September

1980 until fully paid; (2) the sum of P102,724.76 as attorney's

fees; and, (3) Costs. PNB and NASUDECO appealed. The Court

of Appeals affirmed the decision of the trial court in its

decision of 17 April 2000 (CA-GR CV 57610. PNB and

NASUDECO filed the petition for review.

Issue: Whether PNB and NASUDECO may be held liable for

PASUMILs liability to AEEC.

Held: Basic is the rule that a corporation has a legal

personality distinct and separate from the persons andentities owning it. The corporate veil may be lifted only if it

has been used to shield fraud, defend crime, justify a wrong,

defeat public convenience, insulate bad faith or perpetuate

injustice. Thus, the mere fact that the Philippine National

Bank (PNB) acquired ownership or management of some

assets of the Pampanga Sugar Mill (PASUMIL), which had

earlier been foreclosed and purchased at the resulting public

auction by the Development Bank of the Philippines (DBP),

will not make PNB liable for the PASUMIL's contractual debts

to Andrada Electric & Engineering Company (AEEC). Piercing

the veil of corporate fiction may be allowed only if the

following elements concur: (1) control not mere stock

control, but complete domination not only of finances, but

of policy and business practice in respect to the transaction

attacked, must have been such 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 a fraud or a wrong to perpetuate

the violation of a statutory or other positive legal duty, or a

dishonest and an unjust act in contravention of plaintiff's

legal right; and (3) the said control and breach of duty must

have proximately caused the injury or unjust loss complained

of. The absence of the foregoing elements in the present case

precludes the piercing of the corporate veil. First, other than

the fact that PNB and NASUDECO acquired the assets of

PASUMIL, there is no showing that their control over it

warrants the disregard of corporate personalities. Second,

there is no evidence that their juridical personality was used

to commit a fraud or to do a wrong; or that the separate

corporate entity was farcically used as a mere alter ego,

business conduit or instrumentality of another entity or

person. Third, AEEC was not defrauded or injured when PNB

and NASUDECO acquired the assets of PASUMIL. Hence,

although the assets of NASUDECO can be easily traced to

PASUMIL, the transfer of the latter's assets to PNB and

NASUDECO was not fraudulently entered into in order to

escape liability for its debt to AEEC. Neither was there any

merger or consolidation with respect to PASUMIL and PNB.

The procedure prescribed under Title IX of the Corporation

Code 59 was not followed. In fact, PASUMIL's corporate

existence had not been legally extinguished or terminated.

Further, prior to PNB's acquisition of the foreclosed assets,

PASUMIL had previously made partial payments to AEEC for

the former's obligation in the amount of P777,263.80. As of

27 June 1973, PASUMIL had paid P250,000 to AEEC and, from

5 January 1974 to 23 May 1974, another P14,000. Neither did

PNB expressly or impliedly agree to assume the debt of

PASUMIL to AEEC. LOI 11 explicitly provides that PNB shall

study and submit recommendations on the claims of

PASUMIL's creditors. Clearly, the corporate separateness

between PASUMIL and PNB remains, despite AEEC's

insistence to the contrary.

Gochan vs. Young

[GR 131889, 12 March 2001]

Facts: Felix Gochan and Sons Realty Corporation (Gochan

Realty) was registered with the SEC on June 1951, with Felix

Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan, Tomasa

Gochan, Esteban Gochan and Crispo Gochan as its


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incorporators. Felix Gochan Sr.'s daughter, Alice inherited 50

shares of stock in Gochan Realty from the former. Alice died

in 1955, leaving the 50 shares to her husband, John Young, Sr.

In 1962, the Regional Trial Court of Cebu adjudicated 6/14 of

these shares to her children, Richard Young, David Young,

Jane Young Llaban, John Young Jr., Mary Young Hsu and

Alexander Thomas Young (the Youngs). Having earned

dividends, these stocks numbered 179 by 20 September

1979. 5 days later (25 September), at which time all the

children had reached the age of majority, their father John

Sr., requested Gochan Realty to partition the shares of his

late wife by cancelling the stock certificates in his name and

issuing in lieu thereof, new stock certificates in the names of

the Youngs. On 17 October 1979, Gochan Realty refused,

citing as reason, the right of first refusal granted to the

remaining stockholders by the Articles of Incorporation. In

1990, John, Sr. died, leaving the shares to the Youngs. On 8

February 1994, Cecilia Gochan Uy and Miguel Uy filed a

complaint with the SEC for issuance of shares of stock to the

rightful owners, nullification of shares of stock, reconveyance

of property impressed with trust, accounting, removal of

officers and directors and damages against Virginia Gochan,

et. al. (Gochans) A Notice of Lis Pendens was annotated to

the real properties of the corporation. On 16 March 1994, the

Gochans moved to dismiss the complaint alleging that: (1) the

SEC had no jurisdiction over the nature of the action; (2) the

the Youngs were not the real parties-in-interest and had no

capacity to sue; and (3) the Youngs' causes of action were

barred by the Statute of Limitations. The motion was

opposed by the Youngs. On 29 March 1994, the Gochans filed

a Motion for cancellation of Notice of Lis Pendens. The

Youngs opposed the said motion. On 9 December 1994, the

SEC, through its Hearing Officer, granted the motion to

dismiss and ordered the cancellation of the notice of lis

pendens annotated upon the titles of the corporate lands;

holding that the Youngs never been stockholders of record of

FGSRC to confer them with the legal capacity to bring and

maintain their action, and thus, the case cannot be

considered as an intra-corporate controversy within the

jurisdiction of the SEC; and that on the allegation that the

Youngs brought the action as a derivative suit on their own

behalf and on behalf of Gochan Realty, rhe failure to comply

with the jurisdictional requirement on derivative action

necessarily result in the dismissal of the complaint. The

Youngs filed a Petition for Review with the Court of Appeals.

On 28 February 1996, the Court of Appeals ruled that the SEC

had no jurisdiction over the case as far as the heirs of Alice

Gochan were concerned, because they were not yet

stockholders of the corporation. On the other hand, it upheld

the capacity of Cecilia Gochan Uy and her spouse Miguel Uy.

It also held that the Intestate Estate of John Young Sr. was an

indispensable party. The appellate court further ruled that

the cancellation of the notice of lis pendens on the titles of

the corporate real estate was not justified. Moreover, it

declared that the Youngs' Motion for Reconsideration before

the SEC was not pro forma; thus, its filing tolled the appeal

period. The Gochans moved for reconsideration but were

denied in a Resolution dated 18 December 1997. The

Gochans filed the Petition for Review on Certiorari.

Issue: Whether the action filed by the Spouses Uy was not a

derivative suit, because the spouses and not the corporation

were the injured parties.

Held: The following portions of the Complaint shows

allegations of injury to the corporation itself, to wit: "That on

information and belief, in further pursuance of the said

conspiracy and for the fraudulent purpose of depressing the

value of the stock of the Corporation and to induce the

minority stockholders to sell their shares of stock for an

inadequate consideration as aforesaid, respondent Esteban TGochan . . ., in violation of their duties as directors and

officers of the Corporation . . ., unlawfully and fraudulently

appropriated [for] themselves the funds of the Corporation

by drawing excessive amounts in the form of salaries and

cash advances . . . and by otherwise charging their purely

personal expenses to the Corporation"; and "That the

payment of P1,200,000.00 by the Corporation to complainant

Cecilia Gochan Uy for her shares of stock constituted an

unlawful, premature and partial liquidation and distribution

of assets to a stockholder, resulting in the impairment of the

capital of the Corporation and prevented it from otherwiseutilizing said amount for its regular and lawful business, to

the damage and prejudice of the Corporation, its creditors,

and of complainants as minority stockholders." As early as

1911, the Court has recognized the right of a single

stockholder to file derivative suits. "Where corporate

directors have committed a breach of trust either by their

frauds, ultra vires acts, or negligence, and the corporation is

unable or unwilling to institute suit to remedy the wrong, a

single stockholder may institute that suit, suing on behalf of

himself and other stockholders and for the benefit of the

corporation, to bring about a redress of the wrong donedirectly to the corporation and indirectly to the

stockholders." Herein, the Complaint alleges all the

components of a derivative suit. The allegations of injury to

the Spouses Uy can coexist with those pertaining to the

corporation. The personal injury suffered by the spouses

cannot disqualify them from filing a derivative suit on behalf

of the corporation. It merely gives rise to an additional cause

of action for damages against the erring directors. This cause

of action is also included in the Complaint filed before the


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SEC. The Spouses Uy have the capacity to file a derivative suit

in behalf of and for the benefit of the corporation. The reason

is that the allegations of the Complaint make them out as

stockholders at the time the questioned transaction occurred,

as well as at the time the action was filed and during the

pendency of the action.

San Juan Structural and Steel Fabricators

[GR 129459, 29 September 1998]

Facts: On 14 February 1989, San Juan Structural and Steel

Fabricators, Inc. (SJSSFI) entered into an agreement with

Motorich Sales Corporation (MSC) for the transfer to it of a

parcel of land identified as Lot 30, Block 1 of the Acropolis

Greens Subdivision located in the District of Murphy, Quezon

City, Metro Manila, containing an area of 414 square meters,

covered by TCT (362909) 2876 (the lot was still registered in

the name of ACL Development Corporation [ADC] at that

time). As stipulated in the Agreement of 14 February 1989,

SJSSFI paid the downpayment in the sum of P100,000.00, the

balance to be paid on or before 2 March 1989. On 1 March

1989, Mr. Andres T. Co, SJSSFI president, wrote a letter to

MSC requesting for a computation of the balance to be paid.

Said letter was coursed through MSC's broker, Linda Aduca,

who wrote the computation of the balance. On 2 March

1989, SJSSFI was ready with the amount corresponding to the

balance, covered by Metrobank Cashier's Check 004223,

payable to MSC. SJSSFI and MSC were supposed to meet in

the office of SJSSFI but MSC's treasurer, Nenita Lee

Gruenberg, did not appear. MSC, despite repeated demands

and in utter disregard of its commitments had refused to

execute the Transfer of Rights/Deed of Assignment which is

necessary to transfer the certificate of title. On 6 April 1989,

ADC and MSC entered into a Deed of Absolute Sale whereby

the former transferred to the latter the subject property. By

reason of said transfer, the Registry of Deeds of Quezon City

issued a new title in the name of MSC, represented by Nenita

Lee Gruenberg and Reynaldo L Gruenberg, under Transfer

Certificate of Title 3571. SJSSFI filed the complaint for

damages against MSC, and Nenita Lee Gruenberg, as a result

of the latters alleged bad faith in refusing to execute a formal

Transfer of Rights/Deed of Assignment. It impleaded ADC and

JNM Realty & Development Corp. (JRDC) as necessary parties,

since Transfer Certificate of Title (362909) 2876 was in the

name of ADC, and that JRDC is the transferor of right in favor

of MDC. In its answer, MSC and Nenita Lee Gruenberg

interposed as affirmative defense that the President and

Chairman of Motorich did not sign the agreement adverted

to; that Mrs. Gruenberg's signature on the agreement is

inadequate to bind MSC as the other signature, that of Mr.

Reynaldo Gruenberg, President and Chairman of MSC, is

required; that SJSSFI knew this from the very beginning as it

was presented a copy of the Transfer of Rights at the time the

Agreement was signed; that SJSSFI itself drafted the

Agreement and insisted that Mrs. Gruenberg accept the

P100,000.00 as earnest money; that granting, without

admitting, the enforceability of the agreement, SJSSFI

nonetheless failed to pay in legal tender within the stipulated

period (up to 2 March 1989); that it was the understanding

between Mrs. Gruenberg and SJSSFI that the Transfer of

Rights/Deed of Assignment will be signed only upon receipt

of cash payment; thus they agreed that if the payment be in

check, they will meet at a bank designated by SJSSFI where

they will encash the check and sign the Transfer of

Rights/Deed, but that SJSSFI informed Mrs. Gruenberg of the

alleged availability of the check, by phone, only after banking

hours. On the basis of the evidence, and on 18 June 1994, the

Regional Trial Court of Makati, Metro Manila, Branch 63 (Civil

Case 89-3511) rendered judgment, dismissing SJSSFI's

complaint, finding that Nenita Lee Gutenberg was not

authorized by the corporation to dispose of the property as

such disposition is governed by the requirements of Section

40, Corporation Code; and that Nenita Lee Gutenberg did not

in anyway misrepresent herself to be authorized by the

corporation to sell the property to SJSSFI. The trial court also

dismissed the counterclaim. SJSSFI appealed. On 18 March

1997, the Court of Appeals (CA GR CV 46801) modified the

decision of the trial court by ordering Nenita Lee Gutenberg

to refund or return to SJSSFI the downpayment of

P100,000.00 which she received from the latter. SJSSFI

moved for reconsideration, which was denied by the

appellate court on 10 June 1997. SJSSFI filed the Petition for

Review on Certiorari. SJSSFI argues, among others, that the

veil of corporate fiction of MSC should be pierced, because

the latter is a close corporation. Since "Spouses Reynaldo L.

Gruenberg and Nenita R. Gruenberg owned all or almost all

or 99.866% to be accurate, of the subscribed capital stock" 25

of Motorich, petitioner argues that Gruenberg needed no

authorization from the board to enter into the subject

contract. It adds that, being solely owned by the Spouses

Gruenberg the company can be treated as a close corporation

which can be bound by the acts of its principal stockholder

who needs no specific authority.

Issue: Whether MSC is a close corporation, based on the fact

that almost all of the shares of stock of the corporation are

owned by said treasurer and her husband.

Held: Section 96 of the Corporation Code defines a close

corporation provides that "A close corporation, within the

meaning of this Code, is one whose articles of incorporation

provide that: (1) All of the corporation's issued stock of all


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classes, exclusive of treasury shares, shall be held of record

by not more than a specified number of persons, not

exceeding twenty (20); (2) All of the issued stock of all classes

shall be subject to one or more specified restrictions on

transfer permitted by this Title; and (3) The corporation shall

not list in any stock exchange or make any public offering of

any of its stock of any class. Notwithstanding the foregoing, a

corporation shall be deemed not a close corporation when at

least two-thirds (2/3) of its voting stock or voting rights is

owned or controlled by another corporation which is not a

close corporation within the meaning of this Code." The

articles of incorporation of MSC does not contain any

provision stating that (1) the number of stockholders shall not

exceed 20, or (2) a preemption of shares is restricted in favor

of any stockholder or of the corporation, or (3) listing its

stocks in any stock exchange or making a public offering of

such stocks is prohibited. From its articles, it is clear that MSC

is not a close corporation. MSC does not become one either,

just because Spouses Reynaldo and Nenita Gruenberg owned

99.866% of its subscribed capital stock. The mere ownership

by a single stockholder or by another corporation of all or

nearly all of the capital stock of a corporation is not of itself

sufficient ground for disregarding the separate corporate

personalities. So, too, a narrow distribution of ownership

does not, by itself, make a close corporation.

Secosa vs heirs of Erwin suarez

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 beingtailed 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

for damages 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

cannot be held solidary liable with the negligence of its

employee. Article 2176 of the Civil Code provides:

Whoever by act or omission causes damage to another, there

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

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

contractual relation between the parties, is called a quasi-

delict and is governed by the provisions of this Chapter.

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

The obligation imposed by article 2176 is demandable not

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

persons for whom one is responsible x x x.

Employers shall be liable for the damages caused by

theiremployees and household helpers acting within the

scope of their assigned tasks, even though the former are not

engaged in any business or industry x x x.

The responsibility treated of in this article shall cease when

the persons herein mentioned prove that they observed allthe diligence of a good father of a family to prevent damage.

Based on the foregoing provisions, when an injury is caused

by the negligence of an employee, there instantly arises a

presumption that there was negligence on the part of the

employer, which however, may be rebutted by a clear

evidence showing on the part of the employer that it

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

in the selection and supervision of his employee.

In the selection of prospective employees, employers are

required to examine them as to their qualifications,

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

respect to the supervision ofemployees, employers should

formulate standard operating procedures, monitor their

implementation, and impose disciplinary measures for

breaches thereof. To establish these factors in a trial involving

the issue of explicit liability, employers must submit concrete

proof, including documentary evidence. The reason for this is


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to obviate the biased nature of the employers testimony or

that of his witnesses.

In the case at bar, Dassad Warehousing and Port Services, Inc.

failed to conclusively prove that it had exercised the requisite

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

supervision of its employees. Dassad Warehousing and Port

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

witness, Edilberto Duerme, with documentary evidencewhich would have strengthened its claim of due diligence in

the selection and supervision of its employees. Such an

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

held solidarily liable with its co-petitioner Secosa for the

damages suffered by the heirs of Francisco.

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

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

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

by itself sufficient to hold him solidarily liable for the liabilities

adjudged against his co-petitioners.

A corporation has a personality separate from that of its

stockholders or members. The doctrine of veil of

corporation treats as separate and distinct the affairs of a

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

corporation will be looked upon as a legal entity, unless and

until sufficient reason to the contrary appears. 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. Also, the

corporate entity may be disregarded in the interest of justice

in such cases as fraud that may work inequities among

members of the corporationinternally, involving no rights of

the public or third persons. In both instances, there must

have been fraud and proof of it.

The records of the case does not point toward the presence

of anygrounds enumerated above that will justify the piercing

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

president of Dassad Warehousing and Port Services, Inc.,

solidarily liable with it.

Furthermore, the Isuzu cargo truck which ran over Franciscowas registered in the name of Dassad and not in the name of

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

facts showed Sys exclusion from liability for damages arising

from the death of Francisco.

Dbp vs nlrc

Facts:Philippine Smelter Corporation obtained a loan in 1983

from DBP to finance its iron smeltingand steel manufacturing

business. To secure the loan, PSC mortgaged to DBP real

propertiesand chattels with its President Marcelo as co-

obligor Because of this DBP became the majoritystockholder

of PSC with stockholdings of P 31M out of P 60 M subscribed

and paid up capitalstock and took over PSCs management.

PSC failed to pay and DBP foreclosed on themortgaged

realties and chattels. 40 alleged unpaid employees filed a

petition for involuntaryinsolvency in the RTC against PSC and

DBP. Said employees were employed by OlecramMining

Corp., Jose Panganiban Ice Plant and Cold Storage, Inc. all

impleaded as co-respondent. They filed another complaint

with the DOLE against PSC for non-payment of salaries, 13th

month pay, incentive leave and separation pay. DBP was

impleaded because theemployees considered DBP as the

parent company of PSC. Since the DBP was the

biggestcreditor of PSC, it held majority of stock and involved

in management through Board of Directors, DBP was

considered to be by the employees as their employer. DBP

was invokedabsence of E-E relationship in its Answer. The

labor arbiter held DBP as liable for unpaidwages due to PSCs

foreclosure which it caused as foreclosing creditor. NLRC

sustained this,hence, this petition

.Held:DBP as foreclosing creditor could not be held liable for

unpaid wages, etc. of the employees of PSC. The fact that

DBP is a majority stockholder of PSC and PSC are from DBP

does notsufficiently indicate the existence of an E-E

relationship between the terminated employees of PSC and

DBP. Said workers have no cause of action against DBP and

the labor arbiter doesnot have jurisdiction to take cognizance

of said case.Hence, ownership of a majority of capital stock

and the fact the majority of directors of acorporation are thedirectors of another corporation creates no E-E relationship

with thelatters employees.Mere ownership by a single

stockholder or by another corporation of all or nearlyall of

the capital stock of a corporation is not of itself sufficient

ground for disregardingthe separate corporate personality.

UMALI v. COURT OF APPEALS

Facts: The Castillo family is the owner of a parcel of land

which was given as security for a loan from theDBP. For

failure to pay the amortization, foreclosure of the property

was initiated. This was madeknown to Santiago Rivera, the

nephew of plaintiff Mauricia Meer vda. De Castillo and

president of Slobec Realty Dev. Corp. Rivera proposed to

them the conversion into a subdivision lot of the fourparcels

of land adjacent to the mortgaged property to raise the

money. The Castillos agreed so aMOA was executed between

Slobec represented by Rivera and the Castillos. Rivera obliged

himself to pay the Castillos P70T after the execution of the

contract and P400T after the property had beenconverted

into a subdivision. Rivera armed with the agreement


9/14

approached Cervantes, president of Bormaheco and bought a

Caterpillar Tractor with P50T down payment and the balance

of P180Tpayable in installments. Slobec through Rivera

executed in favor of Bormaheco a chattel mortgageover the

said equipment as security for the unpaid balance. As further

security, Slobec obtainedhrough the Insurance Corporation of

the Philippines a Surety Bond in favor of Counter-Guaranty

withREM executed by Rivera as president of Slobec and the

Castillos as mortgagors and ICP asmortgagee. The Caterpillar

Tractorwas delivered to Slobec.Meanwhile for violation of the

terms and the conditions of the Counter-Guaranty

Agreement, theproperties of the Castillos was foreclosed by

ICP. As the highest bidder, a Certificate of Sale wasissued in

its favor and TCTs over the parcels of land were issued by the

Register of Deeds in favor of ICP. The mortgagors had one

year from the registration of the sale to redeem the property

but theyfailed to do so. ICP consolidated its ownership over

the parcels of land. Later on ICP sold to PhilippineMachinery

Parts Mfg. Co. the parcels of land and by virtue of said sale,

PM transferred unto itself thetitle of the lots. PM parts

through its President, Cervantes sent a letter to the Castillos

to vacate theproperty. The Castillos refused to do so.

Subsequently, Umali the administratix of the properties of

Castillos filed an action for annulment of titles. They

countered that all the transaction starting fromthe

Agreement of Counter-Guaranty with REM are void for being

entered into in fraud. They seek topierce the veil of corporate

entity of Bormaheco, ICP and PM Parts alleging that these

corporationsemployed fraud in causing the foreclosure and

subsequent sale of their land. The lower court ruled infavor of

Umali. This was reversed by the CA.

Held: The SC is not convinced that the contract entered into

by the parties are fraudulent.Under the doctrine of piecing

the veil of corporate entity, when valid ground exists , the

followingeffects would be produced: (1) legal fiction that a

corporation is an entity with a juridical personalityseparate

and distinct from its members or stockholders may be

disregarded (2) in such cases, thecorporation will be

considered as a mere association of person (3) the members

or stockholders of the corporation will be considered as the

corporation, making them liable directly. It is onlyapplicable

when corporate fiction is: (1) used to defeat public

convenience, justify wrong, protectfraud, or defend crime (2)

made as a shield to confuse legitimate issued (3) where a

corporation isthe mere alter ego or business conduit of a

person (4) where the corporation is so organized

andcontrolled and its affairs are so conducted as to make it

merely an instrumentality., agency , conduitor adjunct of

another corporation. The SC is of the opinion that piecing the

veil is not the proper remedy in order that the

foreclosureproceedings may be declared a nullity under the

circumstances in the case at bar. Petitioners aremerely

seeking the declaration of the nullity of the foreclosure sale,

which relief may be obtainedwithout having to disregard the

aforesaid corporate fiction attaching to the respondent

corporations.Petitioners also fail to establish by clear and

convincing evidence that private respondents werepurposely

formed and operated, with the sole intention of defrauding

the latter. The facts showedthat the surety of ICP is good only

for 12 months therefore the surety had already expired.

Thefailure of ICP to give notice renders ICP to have no right to

foreclosure. In this case, piercing need notbe resorted to.

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 inby GCC for

the purpose of, among other things, taking over the

operations and management of thevarious franchise

companies. At a time material hereto, respondent Alsons

Development andInvestment Corporation (ALSONS) and the

Alcantara family, each owned, just like GCC, shares in

theaforesaid GCC franchise companies, e.g., CCC Davao and

CCC Cebu.ALSONS and the Alcantara family, for a

consideration of P2M, sold their shareholdings

(101,953shares), in the CCC franchise companies to EQUITY.

EQUITY issued ALSONS et a., 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 ALSONSwhich 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 havingassets

or property to settle its obligation nor being extended

financial support by GCC, pleadedinability to pay.ALSONS,

having failed to collect on the bearer note aforementioned,

filed a complaint for a sum of money 8against EQUITY and

GCC. GCC is being impleaded as party-defendant for any

judgmentALSONS 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

loantransactions and other dealings of GCC to its franchises

and the investing public; and is solelydependent upon GCC


10/14

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 legalconsequences 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 atbar.

HELD:

YES. The notion of separate personality, however, may be

disregarded under the doctrine "piercing theveil 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 thatwhen two (2) business enterprises are owned,

conducted and controlled by the same parties, both lawand

equity will, when necessary to protect the rights of third

parties, disregard the legal fiction thattwo 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 lawcovers 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 theevasion 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 isa mere alter ego or

business conduit of a person, or where the corporation is so

organized andcontrolled and its affairs are so conducted as to

make it merely an instrumentality, agency, conduit oradjunct

of another corporation. The Court agrees with the disposition

of the CA on the application of the piercing doctrine to

thetransaction subject of this case. Per the Courts count, the

trial court enumerated no less than 20documented

circumstances and transactions, which, taken as a package,

indeed strongly supportedthe 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 corporateexistence as

to ALSONS claim in question. Foremost of what the trial

court referred to as "certaincircumstances" are the

commonality of directors, officers and stockholders and even

sharing of officebetween petitioner GCC and respondent

EQUITY; certain financing and management

arrangementsbetween the two, allowing the petitioner to

handle the funds of the latter; the virtual domination if

notcontrol wielded by the petitioner over the finances,

business policies and practices of respondentEQUITY; 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

beenthat of "parent-subsidiary corporations" the foregoing

principles and doctrines find suitableapplicability 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 identityis hardly discernible thus

becoming a mere instrumentality or alter ego of the former.

Jardine Davies Inc v JRB Realty Inc.

In 1979-1980, respondent JRB Realty, Inc. built a nine-storey

building, named BlancoCenter, on its parcel of land located at

119 Alfaro St., Salcedo Village, Makati City. Anair conditioning

system was needed for the Blanco Law Firm housed at the

secondfloor of the building. On March 13, 1980, the

respondent's Executive Vice-President, Jose R. Blanco,

accepted the contract quotation of Mr. A.G. Morrison,

President of Aircon and Refrigeration Industries, Inc. (Aircon),

for two (2) sets of FeddersAdaptomatic 30,000 kcal airconditioning equipment with a net total selling price of

P99,586.00. Thereafter, two (2) brand new packaged air

conditioners of 10 tons capacity each todeliver 30,000 kcal or

120,000 BTUH were installed by Aircon. When the units

withrotary compressors were installed, they could not deliver

the desired coolingtemperature. Despite several adjustments

and corrective measures, the respondentconceded that

Fedders Air Conditioning USA's technology for rotary

compressors forbig capacity conditioners like those installed

at the Blanco Center had not yet beenperfected. The parties

thereby agreed to replace the units with reciprocating/semi-hermeticcompressors instead. In a Letter dated March 26,

1981, Aircon stated that it would bereplacing the units

currently installed with new ones using rotary compressors,

at theearliest possible time. Regrettably, however, it could

not specify a date when deliverycould be effected.

TempControl Systems, Inc. (a subsidiary of Aircon until 1987)

undertook themaintenance of the units, inclusive of parts and

services. In October 1987, therespondent learned, through

newspaper ads, that Maxim Industrial andMerchandising


11/14

Corporation (Maxim, for short) was the new and exclusive

licensee of Fedders Air Conditioning USA in the Philippines for

the manufacture, distribution, sale,installation and

maintenance of Fedders air conditioners. The respondent

requested that Maxim honor the obligation of Aircon, but the

latterrefused. Considering that the ten-year period of

prescription was fast approaching, toexpire on March 13,

1990, the respondent then instituted, on January 29, 1990,

anaction for specific performance with damages against

Aircon & RefrigerationIndustries, Inc., Fedders Air

Conditioning USA, Inc., Maxim Industrial &

MerchandisingCorporation and petitioner Jardine Davies, Inc.

The latter was impleaded asdefendant, considering that

Aircon was a subsidiary of the petitioner. The trial courtruled

that Aircon was a subsidiary of the petitioner, and concluded

that:at the time it contracted with Aircon on March 13, 1980

and on the date the revisedagreement was reached on March

26, 1981, Aircon was a subsidiary of Jardine. Thephrase "A

subsidiary of Jardine Davies, Inc." was printed on Aircon's

letterhead of itsMarch 13, 1980 contract with plaintiff as well

as the Aircon's letterhead of Jardine'sDirector and Senior

Vice-President A.G. Morrison and Aircon's President in his

March26, 1981 letter to plaintiff confirming the revised

agreement. Aircon's newspaper adsof April 12 and 26, 1981

and a press release on August 30, 1982 also show

thatdefendant Jardine publicly represented Aircon to be its

subsidiaryRecords from the Securities and Exchange

Commission (SEC) also reveal that as per Jardine's December

31, 1986 and 1985 Financial Statements that "The company

actsas general manager of its subsidiaries". Jardine's

Consolidated Balance Sheet as of December 31, 1979 filed

with the SEC listed Aircon as its subsidiary by owning94.35%

of Aircon. Also, Aircon's reportorial General Information

Sheet as of April 1980and April 1981 filed with the SEC show

that Jardine was 94.34% owner of Aircon andthat out of

seven members of the Board of Directors of Aircon, four (4)

are also of Jardine. Jardine's witness, Atty. Fe delos Santos-

Quiaoit admitted that defendantAircon, renamed Aircon &

Refrigeration Industries, Inc. "is one of the subsidiaries of

Jardine Davies" and that Jardine nominated, elected, and

appointed the controllingmajority of the Board of Directors

and the highest officers of Aircon.H: It is an elementary and

fundamental principle of corporation law that a corporationis

an artificial being invested by law with a personality separate

and distinct from itsstockholders and from other corporations

to which it may be connected. While acorporation is allowed

to exist solely for a lawful purpose, the law will regard it as

anassociation of persons or in case of two corporations,

merge them into one, when thiscorporate 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 whensuch

corporate fiction is used to defeat public convenience, justify

wrong, protectfraud or defend crime. The rationale behind

piercing a corporation's identity is toremove the barrier

between the corporation from the persons comprising it to

thwartthe fraudulent and illegal schemes of those who use

the corporate personality as ashield for undertaking certain

proscribed activities.While it is true that Aircon is a subsidiary

of the petitioner, it does not necessarilyfollow that Aircon's

corporate legal existence can just be disregarded. The

Courtcategorically held in another case that a subsidiary has

an independent and separate juridical personality, distinct

from that of its parent company; hence, any claim or

suitagainst the latter does not bind the former, and vice

versa.In applying the doctrine, the following requisites must

be established: (1) control, notmerely majority or complete

stock control; (2) such control must have been used bythe

defendant to commit fraud or wrong, to perpetuate the

violation of a statutory orother positive legal duty, or

dishonest acts in contravention of plaintiff's legal rights;and

(3) the aforesaid control and breach of duty must proximately

cause the injury orunjust loss complained of. The records

bear out that Aircon is a subsidiary of the petitioner only

because thelatter acquired Aircon's majority of capital stock.

It, however, does not exercisecomplete control over Aircon;

nowhere can it be gathered that the petitionermanages the

business affairs of Aircon. Indeed, no management

agreement existsbetween the petitioner and Aircon, and the

latter is an entirely different entity fromthe petitioner. In the

instant case, there is no evidence that Aircon was formed

orutilized with the intention of defrauding its creditors or

evading its contracts andobligations. There was nothing

fraudulent in the acts of Aircon in this case. Aircon, as

amanufacturing firm of air conditioners, complied with its

obligation of providing twoair conditioning units for the

second floor of the Blanco Center in good faith, pursuantto its

contract with the respondent. Unfortunately, the

performance of the airconditioning units did not satisfy the

respondent despite several adjustments andcorrective

measures

Liddel v CIR

(corporate entity was used to evade the payment of higher

taxes)

Liddell & Co was engaged in importing and retailing cars and

trucks. Frank Liddellowned 98% of the stocks. Later Liddell

Motors Inc was organized to do retailing forLiddell & Co.

Franks wife owned almost all of that corporations stocks.

Since then,Liddell & Co paid sales tax on the basis of its sales

to Liddell Motors. But the CIRconsidered the sales by Liddell

Motors to the public as the basis for the original salestax.H:


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The Court, agreeing with the CIR, held that Frank Liddell

owned both corporationsas his wife could not have had the

money to pay her subscriptions. Such fact alonethough not

sufficient to warrant piercing, but under the proven facts

alone, LiddelMotors was the medium created by Liddel & Co

to reduce its tax liability. A taxpayerhas the legal right to

decrease, by means which the law permits, the amount of

whatotherwise would be his taxes or altogether avoid them;

but a dummy corporationserving no business purposes other

than as a blind, will be disregarded. A taxpayermay gain

advantage of doing business thru a corporation if he pleases,

but therevenue officers in the proper cases may disregard the

separate corporate entitywhere it serves but as a shield for

tax evasion and treat the person who actually maytake the

benefits of the transaction as the person accordingly

taxable.Mere ownership by a single stockholder or by

another corporation of all or nearly allcapital stocks of the

corporation is not by itself a sufficient ground for

disregardingthe separate corporate personality. Substantial

ownership in the capital stock of acorporation entitling the

shareholder a significant vote in the corporate affairs

allowsthem no standing or claims pertaining to corporate

affairs. Where a corporation is adummy and serves no

business purpose and is intended only as a blind,

thecorporate fiction may be ignored.Substantial ownership in

the capital stock of a corporation entitling the SH to

asignificant vote in corporate affairs allows then no standing

or claims pertaining tocorporate affairs. Mere ownership by a

single SH or by another corporation of all ornearly all capital

stock of a corporation is not of itself sufficient ground

fordisregarding the separate corporate personality

Polytechnic University of the Philippines vs Court of Appeals

Facts:

Petitioner National Development Corp., a government owned

and controlled corporation, had in its disposal a 10 hectares

property. Sometime in May 1965, private respondent

Firestone Corporation manifested its desire to lease a portion

of it for ceramic manufacturing business. On August 24, 1965,

both parties entered into a contract of lease for a term of 10

years renewable for another 10 years. Prior to the expiration

of the aforementioned contract, Firestone wrote NDC

requesting for an extension of their lease agreement. It was

renewed with an express grant to Firestone of the first option

to purchase the leased premise in the event that it was

decided "to dispose and sell the properties including the

lot..."

Cognizant of the impending expiration of the leased

agreement, Firestone informed NDC through letters and calls

that it was renewing its lease. No answer was given.

Firestone's predicament worsened when it learned of NDC's

supposed plans to dispose the subject property in favor of

petitioner Polytechnic University of the Philippines. PUP

referred to Memorandum Order No. 214 issued by then

President Aquino ordering the transfer of the whole NDC

compound to the National Government. The order of

conveyance would automatically result in the cancellation of

NDC's total obligation in favor of the National Government.

Firestone instituted an action for specific performance to

compel NDC to sell the leased property in its favor.

Issue:

1. Whether or not there is a valid sale between NDC and PUP.

Ruling

A contract of sale, as defined in the Civil Code, is a contract

where one of the parties obligates himself to transfer theownership of and to deliver a determinate thing to the other

or others who shall pay therefore a sum certain in money or

its equivalent. It is therefore a general requisite for the

existence of a valid and enforceable contract of sale that it be

mutually obligatory, i.e., there should be a concurrence of the

promise of the vendor to sell a determinate thing and the

promise of the vendee to receive and pay for the property so

delivered and transferred. The Civil Code provision is, in

effect, a "catch-all" provision which effectively brings within

its grasp a whole gamut of transfers whereby ownership of a

thing is ceded for a consideration.

All three (3) essential elements of a valid sale, without which

there can be no sale, were attendant in the "disposition" and

"transfer" of the property from NDC to PUP - consent of the

parties, determinate subject matter, and consideration

therefor.

Consent to the sale is obvious from the prefatory clauses of

Memorandum Order No. 214 which explicitly states the

acquiescence of the parties to the sale of the property.

Furthermore, the cancellation of NDC's liabilities in favor of

the National Government constituted the "consideration" for

the sale.

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


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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. wasorganized 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 thebasis 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 therevenue 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 directlyor 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 thanP7000, 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 orseparating.

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


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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 taxforms 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.

corpo case ass

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