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1. G.R. No. 58168 December 19, 1989 CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners, vs. THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of the Estate of the late Genaro F. Magsaysay respondents. FERNAN, C.J.: In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the decision of the Court of Appeals dated July l3, 1981, 1 affirming that of the Court of First Instance of Zambales and Olongapo City which denied petitioners' motion to intervene in an annulment suit filed by herein private respondent, and [2] its resolution dated September 7, 1981, denying their motion for reconsideration. Petitioners are raising a purely legal question; whether or not respondent Court of Appeals correctly denied their motion for intervention. The facts are not controverted. On February 9, 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. In her complaint, she alleged that in 1958, she and her husband acquired, thru conjugal funds, a parcel of land with improvements, known as "Pequena Island", covered by TCT No. 3258; that after the death of her husband, she discovered [a] an annotation at the back of TCT No. 3258 that "the land was acquired by her husband from his separate capital;" [b] the registration of a Deed of Assignment dated June 25, 1976 purportedly executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of Mortgage dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK; that the foregoing acts were void and done in an attempt to defraud the conjugal partnership considering that the land is conjugal, her marital consent to the annotation on TCT No. 3258 was not obtained, the change made by the Register of Deeds of the titleholders was effected without the approval of the Commissioner of Land Registration and that the late Senator did not execute the purported Deed of Assignment or his consent thereto, if obtained, was secured by mistake, violence and intimidation. She further alleged that the assignment in favor of SUBIC was without consideration and consequently null and void. She prayed that the Deed of Assignment and the Deed of Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT No. 22431 and to issue a new title in her favor. On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for intervention on the ground that on June 20, 1978, their brother conveyed to them one-half (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 July 26, 1979, the 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, respondent 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 petitioners have against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding, such that with the denial of the motion for intervention, they are not left without any remedy or judicial relief under existing law. Petitioners' motion for reconsideration was denied. Hence, the instant recourse. Petitioners anchor their right to intervene on the purported assignment made by the late Senator of a certain portion of his shareholdings to them as evidenced by a Deed of Sale dated June 20, 1978. 2 Such transfer, petitioners posit, clothes them with an interest, protected by law, in the matter of litigation. 3 Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853 (1927), petitioners strongly argue that their ownership of 41.66% of the entire outstanding capital stock of SUBIC entitles them to a significant vote in the corporate affairs; that they are affected by the action of the widow of their late brother for it concerns the only tangible asset of the corporation and that it appears that they are more vitally interested in the outcome of the case than SUBIC. Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the respondent court's holding that petitioners herein have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings below. In the case of Batama Farmers' Cooperative Marketing Association, Inc. v. Rosal, 4 we held: "As clearly stated in Section 2 of Rule 12 of the Rules of Court, 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 ." To allow intervention, [a] it must be shown that the movant has legal interest in the matter in litigation, or otherwise qualified; and [b] consideration must be given as to whether the adjudication of the rights of the original parties may be delayed or prejudiced, or whether the intervenor's rights may be protected in a separate proceeding or not. Both requirements must concur as the first is not more important than the second. 5 The interest which entitles a person to intervene in a suit between other parties must be in the matter in litigation and of such direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if persons not parties of the action could be allowed to intervene, proceedings will become unnecessarily complicated, expensive and 6 interminable. And this is not the policy of the law. The words "an interest in the subject" mean a direct interest in the cause of action as pleaded, and which would put the intervenor in a 7 legal position to litigate a fact alleged in the complaint, without the establishment of which plaintiff could not recover.

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Here, the interest, if it exists at all, of petitioners-movants 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. 8 Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person. Petitioners further contend that the availability of other remedies, as declared by the Court of appeals, is totally immaterial to the availability of the remedy of intervention. We cannot give credit to such averment. As earlier stated, that the movant's interest may be protected in a separate proceeding is a factor to be considered in allowing or disallowing a motion for intervention. It is significant to note at this juncture that as per records, there are four pending cases involving the parties herein, enumerated as follows: [1] Special Proceedings No. 122122 before the CFI of Manila, Branch XXII, entitled "Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et al.", involving the validity of the transfer by the late Genaro Magsaysay of one-half of his shareholdings in Subic Land Corporation; [2] Civil Case No. 2577-0 before the CFI of Zambales, Branch III, "Adelaida Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et al. Intervenors", seeking to annul the purported Deed of Assignment in favor of SUBIC and its annotation at the back of TCT No. 3258 in the name of respondent's deceased husband; [3] SEC Case No. 001770, filed by respondent praying, among other things that she be declared in her capacity as the surviving spouse and administratrix of the estate of Genaro Magsaysay as the sole subscriber and stockholder of SUBIC. There, petitioners, by motion, sought to intervene. Their motion to reconsider the denial of their motion to intervene was granted; [4] SP No. Q26739 before the CFI of Rizal, Branch IV, petitioners herein filing a contingent claim pursuant to Section 5, Rule 86, Revised Rules of 9 Court. Petitioners' interests are no doubt amply protected in these cases. Neither do we lend credence to petitioners' argument that they are more interested in the outcome of the case than the corporationassignee, owing to the fact that the latter is willing to compromise with widow-respondent and since a compromise involves the giving of reciprocal concessions, the only conceivable concession the corporation may give is a total or partial relinquishment of the corporate 10 assets. Such claim all the more bolsters the contingent nature of petitioners' interest in the subject of litigation. The factual findings of the trial court are clear on this point. The petitioners cannot claim the right to intervene on the strength of the transfer of shares allegedly executed by the late Senator. The corporation did not keep books and records. 11 Perforce, no transfer was ever recorded, much less effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect third persons. The law on corporations is explicit. Section 63 of the Corporation Code provides, thus: "No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred." And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barred from intervening inasmuch as their rights can be ventilated and amply protected in another proceeding. WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners. SO ORDERED. 2. A.M. No. P-01-1464 March 13, 2001 (Formerly OCA IPI. No. 99-730-P) SALVADOR O. BOOC, complainant, vs. MALAYO B. BANTUAS, SHERIFF IV, RTC, BRANCH 3, ILIGAN CITY, respondent. RESOLUTION DE LEON, JR., J.: 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 sheriff's 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 corporation's 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

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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 deem ed 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. Respondent 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 1 property may not be levied upon. Complainant, in his reply to respondent sheriffs comment belied the latter's allegation that the corporation never questioned the auction sale. Complainant averred that contrary to the respondent sheriff's assertion, the trial court in fact issued a restraining order which was withdrawn after plaintiff's counsel manifested that the respondent sheriff would only auction Rufino Booc's shares of stock in the corporation and not the subject property. The OCA found respondent sheriff liable for the charges filed against him, stating that respondent sheriff acted in bad 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. 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. 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 sheriff's 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 court's 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. Bellosillo, Mendoza, Quisumbing and Buena, JJ ., concur. 3. G.R. No. 142936 April 17, 2002 PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION, petitioners, vs. ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent. PANGANIBAN, J.: Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities 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 liabl e for the PASUMILs contractual debts to respondent. Statement of the Case Before us is a Petition for Review assailing the April 17, 2000 Decision1 of the Court of Appeals (CA) in CA-GR CV No. 57610. The decretal portion of the challenged Decision reads as follows: "WHEREFORE, the judgment appealed from is hereby AFFIRMED."2

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The Facts The factual antecedents of the case are summarized by the Court of Appeals as follows: "In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly organized, existing, and operating under the laws of the Philippines, with office and principal place of business at Nos. 794-812 Del Monte [A]venue, Quezon City, while the defendant [herein petitioner] Philippine National Bank (herein referred to as PNB), is a semi-government corporation duly organized, existing and operating under the laws of the Philippines, with office and principal place of business at Escolta Street, Sta. Cruz, Manila; whereas, the other defendant, the National Sugar Development Corporation (NASUDECO in brief), is also a semi-government corporation and the sugar arm of the PNB, with office and principal place of business at the 2nd Floor, Sampaguita Building, Cubao, Quezon City; and the defendant Pampanga Sugar Mills (PASUMIL in short), is a corporation organized, existing and operating under the 1975 laws of the Philippines, and had its business office before 1975 at Del Carmen, Floridablanca, Pampanga; that the plaintiff is engaged in the business of general construction for the repairs and/or construction of different kinds of machineries and buildings; that on August 26, 1975, the defendant PNB acquired the assets of the defendant PASUMIL that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI No. 311; that the defendant PNB organized the defendant 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; that prior to October 29, 1971, the defendant PASUMIL engaged the services of plaintiff for electrical rewinding and repair, most of which were partially paid by the defendant PASUMIL, leaving several unpaid accounts with the plaintiff; that finally, on October 29, 1971, the plaintiff and the defendant PASUMIL entered into a contract for the plaintiff to perform the following, to wit (a) Construction of one (1) power house building; (b) Construction of three (3) reinforced concrete foundation for three (3) units 350 KW diesel engine generating set[s]; (c) Construction of three (3) reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets; (d) Complete overhauling and reconditioning tests sum for three (3) 350 KW diesel engine generating set[s]; (e) Installation of turbine and diesel generating sets including transformer, switchboard, electrical wirings and pipe provided those stated units are completely supplied with their accessories; (f) Relocating of 2,400 V transmission line, demolition of all existing concrete foundation and drainage canals, excavation, and earth fillings all for the total amount of P543,500.00 as evidenced by a contract, [a] xerox copy of which is hereto attached as Annex A and made an integral part of this complaint; that aside from the work contract mentioned-above, the defendant PASUMIL required the plaintiff to perform extra work, and provide electrical equipment and spare parts, such as: (a) Supply of electrical devices; (b) Extra mechanical works; (c) Extra fabrication works; (d) Supply of materials and consumable items; (e) Electrical shop repair; (f) Supply of parts and related works for turbine generator; (g) Supply of electrical equipment for machinery; (h) Supply of diesel engine parts and other related works including fabrication of parts. that out of the total obligation of P777,263.80, the defendant PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of June 27, 1973, amounting to P527,263.80, as shown in the Certification of the chief accountant of the PNB, a machine copy of which is appended as Annex C of the complaint; that out of said unpaid balance of P527,263.80, the defendant PASUMIL made a partial payment to the plaintiff of P14,000.00, in broken amounts, covering the period from January 5, 1974 up to May 23, 1974, leaving an unpaid balance of P513,263.80; that the defendant PASUMIL and the defendant PNB, and now the defendant NASUDECO, failed and refused to pay the plaintiff their just, valid and demandable obligation; that the President of the NASUDECO is also the Vice-President of the PNB, and this official holds office at the 10th Floor of the PNB, Escolta, Manila, and plaintiff besought this official to pay the outstanding obligation of the defendant PASUMIL, inasmuch as the defendant PNB and NASUDECO now owned and possessed the assets of the defendant PASUMIL, and these defendants all benefited from the works, and the electrical, as well as the engineering and repairs, performed by the plaintiff; that because of the failure and refusal of the defendants to pay their just, valid, and demandable obligations, plaintiff suffered actual damages in the total amount of P513,263.80; and that in order to recover these sums, the plaintiff was compelled to engage the professional services of counsel, to whom the plaintiff agreed to pay a sum equivalent to 25% of the amount of the obligation due by way of attorneys fees. Accordingly, the plaintiff prayed that judgment be rendered against the defendants PNB, NASUDECO, and PASUMIL, jointly and severally to wit: (1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with annual interest of 14% from the time the obligation falls due and demandable; (2) Condemning the defendants to pay attorneys fees amounting to 25% of the amount claim; (3) Ordering the defendants to pay the costs of the suit. "The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint chiefly on the ground that the complaint failed to state sufficient allegations to establish a cause of action against both defendants, inasmuch as there is lack or want of privity of contract between the plaintiff and the two defendants, the PNB and NASUDECO, said defendants citing Article 1311 of the New Civil Code, and the case law ruling in Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port Service, et al. v. Court of Appeals, et al., 20 SCRA 1214. "The motion to dismiss was by the court a quo denied in its Order of November 27, 1980; in the same order, that court directed the defendants to file their answer to the complaint within 15 days. "In their answer, the defendant NASUDECO reiterated the grounds of its motion to dismiss, to wit:

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That the complaint does not state a sufficient cause of action against the defendant NASUDECO because: (a) NASUDECO is not x x x privy to the various electrical construction jobs being sued upon by the plaintiff under the present complaint; (b) the taking over by NASUDECO of the assets of defendant PASUMIL was solely for the purpose of reconditioning the sugar central of defendant PASUMIL pursuant to martial law powers of the President under the Constitution; (c) nothing in the LOI No. 189-A (as well as in LOI No. 311) authorized or commanded the PNB or its subsidiary corporation, the NASUDECO, to assume the corporate obligations of PASUMIL as that being involved in the present case; and, (d) all that was mentioned by the said letter of instruction insofar as the PASUMIL liabilities [were] concerned [was] for the PNB, or its subsidiary corporation the NASUDECO, to make a study of, and submit [a] recommendation on the problems concerning the same. "By way of counterclaim, the NASUDECO averred that by reason of the filing by the plaintiff of the present suit, which it [labeled] as unfounded or baseless, the defendant NASUDECO was constrained to litigate and incur litigation expenses in the amount of P50,000.00, which plaintiff should be sentenced to pay. Accordingly, NASUDECO prayed that the complaint be dismissed and on its counterclaim, that the plaintiff be condemned to pay P50,000.00 in concept of attorneys fees as well as exemplary damages. "In its answer, the defendant PNB likewise reiterated the grounds of its motion to dismiss, namely: (1) the complaint states no cause of action against the defendant PNB; (2) that PNB is not a party to the contract alleged in par. 6 of the complaint and that the alleged services rendered by the plaintiff to the defendant PASUMIL upon which plaintiffs suit is erected, was rendered long before PNB took possession of the assets of the defendant PASUMIL under LOI No. 189-A; (3) that the PNB take-over of the assets of the defendant PASUMIL under LOI 189-A was solely for the purpose of reconditioning the sugar central so that PASUMIL may resume its operations in time for the 1974-75 milling season, and that nothing in the said LOI No. 189-A, as well as in LOI No. 311, authorized or directed PNB to assume the corporate obligation/s of PASUMIL, let alone that for which the present action is brought; (4) that PNBs management and operation under LOI No. 311 did not refer to any asset of PASUMIL which the PNB had to acquire and thereafter [manage], but only to those which were foreclosed by the DBP and were in turn redeemed by the PNB from the DBP; (5) that conformably to LOI No. 311, on August 15, 1975, the PNB and the Development Bank of the Philippines (DBP) entered into a Redemption Agreement whereby DBP sold, transferred and conveyed in favor of the PNB, by way of redemption, all its (DBP) rights and interest in and over the foreclosed real and/or personal properties of PASUMIL, as shown in Annex C which is made an integral part of the answer; (6) that again, conformably with LOI No. 311, PNB pursuant to a Deed of Assignment dated October 21, 1975, conveyed, transferred, and assigned for valuable consideration, in favor of NASUDECO, a distinct and independent corporation, all its (PNB) rights and interest in and under the above Redemption Agreement. This is shown in Annex D which is also made an integral part of the answer; [7] that as a consequence of the said Deed of Assignment, PNB on October 21, 1975 ceased to managed and operate the above-mentioned assets of PASUMIL, which function was now actually transferred to NASUDECO. In other words, so asserted PNB, the complaint as to PNB, had become moot and academic because of the execution of the said Deed of Assignment; [8] that moreover, LOI No. 311 did not authorize or direct PNB to assume the corporate obligations of PASUMIL, including the alleged obligation upon which this present suit was brought; and [9] that, at most, what was granted to PNB in this respect was the authority to make a study of and submit recommendation on the problems concerning the claims of PASUMIL creditors, under sub-par. 5 LOI No. 311. "In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to incur expenses in this case, hence it is entitled to claim attorneys fees in the amount of at least P50,000.00. Accordingly, PNB prayed that the complaint be dismissed; and that on its counterclaim, that the plaintiff be sentenced to pay defendant PNB the sum of P50,000.00 as attorneys fees, aside from exemplary damages in such amount that the court may seem just and equitable in the premises. "Summons by publication was made via the Philippines Daily Express, a newspaper with editorial office at 371 Bonifacio Drive, Port Area, Manila, against the defendant PASUMIL, which was thereafter declared in default as shown in the August 7, 1981 Order issued by the Trial Court. "After due proceedings, the Trial Court rendered judgment, the decretal portion of which reads: WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant Corporation, Philippine National Bank (PNB) NATIONAL SUGAR DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS (PASUMIL), ordering the latter to pay jointly and severally the former the following: 1. The sum of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from September 25, 1980 until fully paid; 2. The sum of P102,724.76 as attorneys fees; and, 3. Costs. SO ORDERED. Manila, Philippines, September 4, 1986. '(SGD) ERNESTO S. TENGCO Judge"3 Ruling of the Court of Appeals Affirming the trial court, the CA held that it was offensive to the basic tenets of justice and equity for a corporation to take over and operate the business of another corporation, while disavowing or repudiating any responsibility, obligation or liability arising therefrom.4 Hence, this Petition.5 Issues In their Memorandum, petitioners raise the following errors for th e Courts consideration: "I

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The Court of Appeals gravely erred in law in holding the herein petitioners liable for the unpaid corporate debts of PASUMIL, a corporation whose corporate existence has not been legally extinguished or terminated, simply becaus e of petitioners[] takeover of the management and operation of PASUMIL pursuant to the mandates of LOI No. 189-A, as amended by LOI No. 311. "II The Court of Appeals gravely erred in law in not applying [to] the case at bench the ruling enunciated in Edward J. Nell Co. v. 6 Pacific Farms, 15 SCRA 415." Succinctly put, the aforesaid errors boil down to the principal issue of whether PNB is liable for the unpaid debts of PASUMIL to respondent. This Courts Ruling The Petition is meritorious. Main Issue: Liability for Corporate Debts 7 As a general rule, questions of fact may not be raised in a petition for review under Rule 45 of the Rules of Court. To this rule, however, 8 there are some exceptions enumerated in Fuentes v. Court of Appeals. After a careful scrutiny of the records and the pleadings 9 submitted by the parties, we find that the lower courts misappreciated the evidence presented. Overlooked by the CA were certain 10 relevant facts that would justify a conclusion different from that reached in the assailed Decision. Petitioners posit that they should not be held liable for the corporate debts of PASUMIL, because their takeover of the latters foreclosed assets did not make them assignees. On the other hand, respondent asserts that petitioners and PASUMIL should be treated as one entity and, as such, jointly and severally held liable for PASUMILs unpaid obligation. 1wphi1.nt As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and (4) where the 11 transaction is fraudulently entered into in order to escape liability for those debts. Piercing the Corporate Veil Not Warranted A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. 12 It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related.13 This is basic. Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just 14 an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will 15 justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons. 16 Hence, any application of the doctrine of piercing the corporate veil should be done with caution. 17 A court should be mindful of the milieu where it is to be applied.18 It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. 19 The wrongdoing must be clearly and convincingly established; it cannot be presumed.20 Otherwise, an injustice that was never unintended may result from an erroneous application. 21 This Court has pierced the corporate veil to ward off a judgment credit, 22 to avoid inclusion of corporate assets as part of the estate of the decedent,23 to escape liability arising from a debt, 24 or to perpetuate fraud and/or confuse legitimate issues25 either to promote or to shield unfair objectives26 or to cover up an otherwise blatant violation of the prohibition against forum-shopping.27 Only in these and similar instances may the veil be pierced and disregarded. 28 The question of whether a corporation is a mere alter ego is one of fact. 29 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 contravent ion of plaintiffs legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of. 30 We believe that the absence of the foregoing elements in the present case precludes the piercing of the corporate veil. First, other than the fact that petitioners acquired the assets of PASUMIL, there is no showing that their control over it warrants the disregard of corporate personalities.31 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.32 Third, respondent was not defrauded or injured when petitioners acquired the assets of PASUMIL. 33 Being the party that asked for the piercing of the corporate veil, respondent had the burden of presenting clear and convincing evidence 34 35 to justify the setting aside of the separate corporate personality rule. However, it utterly failed to discharge this burden; it failed to 36 establish by competent evidence that petitioners separate corporate veil had been used to conceal fraud, illegality or inequ ity. While we agree with respondents claim that the assets of the National Sugar Development Corporation (NASUDECO) can be easily traced to PASUMIL,37 we are not convinced that the transfer of the latters assets to petitioners was fraudulently entered into in order to 38 escape liability for its debt to respondent. A careful review of the records reveals that DBP foreclosed the mortgage executed by PASUMIL and acquired the assets as the 39 highest bidder at the public auction conducted. The bank was justified in foreclosing the mortgage, because the PASUMIL account had incurred arrearages of more than 20 percent of the total outstanding obligation. 40 Thus, DBP had not only a right, but also a duty 41 under the law to foreclose the subject properties. 42 43 Pursuant to LOI No. 189-A as amended by LOI No. 311, PNB acquired PASUMILs assets that DBP had foreclosed and purchased in the normal course. Petitioner bank was likewise tasked to manage temporarily the operation of such assets either by itself or through 44 a subsidiary corporation. PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets pursuant to Section 6 of Act No. 3135. 45 These assets were later conveyed to PNB for a consideration, the terms of which were embodied in the Redemption Agreement. 46 PNB, as

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successor-in-interest, stepped into the shoes of DBP as PASUMILs creditor. By way of a Deed of Assignment, PNB then transferred to NASUDECO all its rights under the Redemption Agreement. In Development Bank of the Philippines v. Court of Appeals,49 we had the occasion to resolve a similar issue. We ruled that PNB, DBP and their transferees were not liable for Marinduque Minings unpaid obligations to Remington Industrial Sales Corporation (R emington) after the two banks had foreclosed the assets of Marinduque Mining. We likewise held that Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining to justify the piercing of the corporate veil. In the instant case, the CA erred in affirming the trial courts lifting of the corporate mask. 50 The CA did not point to any fact evidencing 51 bad faith on the part of PNB and its transferee. The corporate fiction was not used to defeat public convenience, justify a wrong, 52 53 protect fraud or defend crime. None of the foregoing exceptions was shown to exist in the present case. On the contrary, the lifting of the corporate veil would result in manifest injustice. This we cannot allow. No Merger or Consolidation Respondent further claims that petitioners should be held liable for the unpaid obligations of PASUMIL by virtue of LOI Nos. 189-A and 311, which expressly authorized PASUMIL and PNB to merge or consolidate. On the other hand, petitioners contend that their takeover of the operations of PASUMIL did not involve any corporate merger or consolidation, because the latter had never lost its separate identity as a corporation. A consolidation is the union of two or more existing entities to form a new entity called the consolidated corporation. A merger, on the other hand, is a union whereby one or more existing corporations are absorbed by another corporation that survives and continues the combined business.54 55 The merger, however, does not become effective upon the mere agreement of the constituent corporations. Since a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be an 56 express provision of law authorizing them. For a valid merger or consolidation, the approval by the Securities and Exchange Commission (SEC) of the articles of merger or consolidation is required. 57 These articles must likewise be duly approved by a majority of the respective stockholders of the constituent corporations.58 In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code59 was not followed. In fact, PASUMILs corporate existence, as correctly found by the CA, had not been legally extinguished or terminated. 60 Further, prior to PNBs acquisition of the foreclosed assets, PASUMIL had previously made partial payments to respondent for the formers ob ligation in the amount of P777,263.80. As of June 27, 1973, PASUMIL had paid P250,000 to respondent and, from January 5, 1974 to May 23, 1974, another P14,000. Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to respondent. 61 LOI No. 11 explicitly provides that 62 PNB shall study and submit recommendations on the claims of PASUMILs creditors. Clearly, the corporate separateness between 63 PASUMIL and PNB remains, despite respondents insistence to the contrary. WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No pronouncement as to costs. SO ORDERED. Vitug, Sandoval-Gutierrez, and Carpio, JJ., concur. Melo, J., Abroad, on official leave. 4. G.R. No. 151438 July 15, 2005 JARDINE DAVIES, INC., Petitioners, vs. JRB REALTY, INC., Respondent. DECISION CALLEJO, SR., J.: 1 Before us is a petition for review of the Decision of the Court of Appeals (CA) in CA-G.R. CV No. 54201 affirmingin toto that of the Regional Trial Court (RTC) in Civil Case No. 90-237 for specific performance; and the Resolution dated January 11, 2002 denying the motion for reconsideration thereof. The facts are as follows: In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building, named Blanco Center, on its parcel of land located at 119 Alfaro St., Salcedo Village, Makati City. An air conditioning system was needed for the Blanco Law Firm housed at the second floor of the building. On March 13, 1980, the respondents 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 Fedders Adaptomatic 30,000 kcal (Code: 10TR) air conditioning equipment with a net total selling price of P99,586.00.2 Thereafter, two (2) brand new packaged air conditioners of 3 10 tons capacity each to deliver 30,000 kcal or 120,000 BTUH were installed by Aircon. When the units with rotary compressors were installed, they could not deliver the desired cooling temperature. Despite several adjustments and corrective measures, the respondent conceded that Fedders Air Conditioning USAs technology for rotary compressors for big capacity conditioners like those installed at the Blanco Center had not yet been perfected. The parties thereby agreed to replace the units with reciprocating/semi-hermetic compressors instead. In a Letter dated March 26, 1981, 4 Aircon stated that it would be replacing the units currently installed with new ones using rotary compressors, at the earliest possible time. Regrettably, however, it could not specify a date when delivery could be effected. TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the maintenance of the units, inclusive of parts and services. 5 In October 1987, the respondent learned, through newspaper ads, that Maxim Industrial and Merchandising 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 latter refused. Considering that the ten-year period of prescription was fast approaching, to expire on March 13, 1990, the respondent then instituted, on January 29, 1990, an action for specific performance with damages against Aircon & Refrigeration Industries, Inc., 6 Fedders Air Conditioning USA, Inc., Maxim Industrial & Merchandising Corporation and petitioner Jardine Davies, Inc. The latter was
47 48

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impleaded as defendant, considering that Aircon was a subsidiary of the petitioner. The respondent prayed that judgment be rendered, as follows: 1. Ordering the defendants to jointly and severally at their account and expense deliver, install and place in operation two brand new units of each 10-tons capacity Fedders unitary packaged air conditioners with Fedders USAs technology perfected rotary compressors to always deliver 30,000 kcal or 120,000 BTUH to the second floor of the Blanco Center building at 119 Alfaro St., Salcedo Village, Makati, Metro Manila; 2. Ordering defendants to jointly and severally reimburse plaintiff not only the sums of P415,118.95 for unsaved electricity from 21st October 1981 to 7th January 1990 and P99,287.77 for repair costs of the two service units from 7th March 1987 to 11th January 1990, with legal interest thereon from the filing of this Complaint until fully reimbursed, but also like unsaved electricity costs and like repair costs therefrom until Prayer No. 1 above shall have been complied with; 3. Ordering defendants to jointly and severally pay plaintiffs P150,000.00 attorneys fees and other costs of litigation, as well as exemplary damages in an amount not less than or equal to Prayer 2 above; and 7 4. Granting plaintiff such other and further relief as shall be just and equitable in the premises. Of the four defendants, only the petitioner filed its Answer. The court did not acquire jurisdiction over Aircon because the latter ceased 8 operations, as its corporate life ended on December 31, 1986. Upon motion, defendants Fedders Air Conditioning USA and Maxim 9 were declared in default. On May 17, 1996, the RTC rendered its Decision, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered ordering defendants Jardine Davies, Inc., Fedders Air Conditioning USA, Inc. and Maxim Industrial and Merchandising Corporation, jointly and severally: 1. To deliver, install and place into operation the two (2) brand new units of Fedders unitary packaged airconditioning units each of 10 tons capacity with rotary compressors to deliver 30,000 kcal or 120,000 BTUH to the second floor of the Blanco Center building, or to pay plaintiff the current price for two such units; 2. To reimburse plaintiff the amount of P556,551.55 as and for the unsaved electricity bills from October 21, 1981 up to April 30, 1995; and another amount of P185,951.67 as and for repair costs; 3. To pay plaintiff P50,000.00 as and for attorneys fees; and 4. Cost of suit.10 The petitioner filed its notice of appeal with the CA, alleging that the trial court erred in holding it liable because it was not a party to the contract between JRB Realty, Inc. and Aircon, and that it had a personality separate and distinct from that of Aircon. On March 23, 2000, the CA affirmed the trial courts ruling in toto; hence, this petition. The petitioner raises the following assignment of errors: I. THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE FOR THE ALLEGED CONTRACTUAL BREACH OF AIRCON SOLELY BECAUSE THE LATTER WAS FORMERLY JARDINES SUBSIDIARY. II. ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED IN NOT DECLARING AIRCONS OBLIGATION TO DELIVER THE TWO (2) AIRCONDITIONING UNITS TO JRB AS HAVING BEEN SUBSTANTIALLY COMPLIED WITH IN GOOD FAITH. III. ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED IN NOT DECLARING JRBS CAUSES OF ACTION AS HAVING BEEN BARRED BY LACHES. IV. ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED IN FINDING JRB ENTITLED TO RECOVER ALLEGED UNSAVED ELECTRICITY EXPENSES. V. THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE TO PAY ATTORNEYS FEES. VI. 11 THE COURT OF APPEALS ERRED IN NOT HOLDING JRB LIABLE TO JARDINE FOR DAMAGES. It is the well-settled rule that factual findings of the trial court, as affirmed by the CA, are accorded high respect, even finality at tim es. However, considering that the factual findings of the CA and the RTC were based on speculation and conjectures, unsupported by substantial evidence, the Court finds that the instant case falls under one of the excepted instances. There is, thus, a need to correct the error. The trial court ruled that Aircon was a subsidiary of the petitioner, and concluded, thus: Plaintiffs documentary evidence shows that at the time it contracted with Aircon on March 13, 1980 (Exhibit "D") and on the date the revised agreement was reached on March 26, 1981, Aircon was a subsidiary of Jardine. The phrase "A subsidiary of Jardine Davies, Inc." was printed on Aircons letterhead of its March 13, 1980 contract with plaintiff (Exhibit "D-1"), as well as the Aircons letterhead of Jardines Director and Senior Vice-President A.G. Morrison and Aircons President in his March 26, 1981 letter to plaintiff (Exhibit "J-2") confirming the revised agreement. Aircons newspaper ads of April 12 and 26, 1981 and a press release on August 30, 1982 (Exh ibits "E," "F" and "L") also show that defendant Jardine publicly represented Aircon to be its subsidiary. Records from the Securities and Exchange Commission (SEC) also reveal that as per Jardines December 31, 1986 and 1985 Financi al Statements that "The company acts as general manager of its subsidiaries" (Exhibit "P"). Jardines Consolidated Balance Sheet as of December 31, 1979 filed with the SEC listed Aircon as its subsidiary by owning 94.35% of Aircon (Exhibit "P-1"). Also, Aircons reportorial General Information Sheet as of April 1980 and April 1981 filed with the SEC show that Jardine was 94.34% owner of Aircon (Exhibits "Q" and "R") and that out of seven members of the Board of Directors of Aircon, four (4) are also of Jardine. Defendant Jardines witness, Atty. Fe delos Santos-Quiaoit admitted that defendant Aircon, renamed Aircon & Refrigeration Industries, Inc. "is one of the subsidiaries of Jardine Davies" (TSN, September 22, 1995, p. 12). She also testified that Jardine nominated, elected, and appointed the controlling majority of the Board of Directors and the highest officers of Aircon (Ibid, pp. 10,13-14).

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The foregoing circumstances provide justifiable basis for this Court to disregard the fiction of corporate entity and treat defendant Aircon 12 as part of the instrumentality of co-defendant Jardine. The respondent court arrived at the same conclusion basing its ruling on the following documents, to wit: (a) Contract/Quotation #78-No. 80-1639 dated March 03, 1980 (Exh. D-1); (b) Newspaper Advertisements (Exhs. E-1 and F-1); (c) Letter dated March 26, 1981 of A.G. Morrison, President of Aircon, to Atty. J.R. Blanco (Exh. J); (d) News items of Bulletin Today dated August 30, 1982 (Exh. L); (e) Balance Sheet of Jardine Davies, Inc. as of December 31, 1979 listing Aircon as one of its subsidiaries (Exh. P); (f) Financial Statement of Aircon as of December 31, 1982 and 1981 (Exh. S); (g) Financial Statement of Aircon as of December 31, 1981 (Exh. S-1).13 Applying the doctrine of piercing the veil of corporate fiction, both the respondent and trial courts conveniently held the petitioner liable for the alleged omissions of Aircon, considering that the latter was its instrumentality or corporate alter ego. The petitioner is now before us, reiterating its defense of separateness, and the fact that it is not a party to the contract. We find merit in the petition. 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. 14 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 15 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.16 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.,17 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. 18 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.19 Jardine Davies, Inc., incorporated as early as June 28, 1946, 20 is primarily a financial and trading company. Its Articles of Incorporation states among many others that the purposes for which the said corporation was formed, are as follows: (a) To carry on the business of merchants, commission merchants, brokers, factors, manufacturers, and agents; (b) Upon complying with the requirements of law applicable thereto, to act as agents of companies and underwriters doing and engaging in any and all kinds of insurance business. 21 On the other hand, Aircon, incorporated on December 27, 1952,22 is a manufacturing firm. Its Articles of Incorporation states that its purpose is mainly To carry on the business of manufacturers of commercial and household appliances and accessories of any form, particularly to manufacture, purchase, sell or deal in air conditioning and refrigeration products of every class and description as well as accessories and parts thereof, or other kindred articles; and to erect, or buy, lease, manage, or otherwise acquire manufactories, warehouses, and depots for manufacturing, assemblage, repair and storing, buying, selling, and dealing in the aforesaid appliances, accessories and products. 23 The existence of interlocking directors, corporate officers and shareholders, which the respondent court considered, is not enough 24 justification to pierce the veil of corporate fiction, in the absence of fraud or other public policy considerations. But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used 25 to defeat public convenience, justify wrong, protect fraud or defend crime. To warrant resort to this extraordinary remedy, there must be proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice. 26 Any piercing of the corporate 27 28 veil has to be done with caution. The wrongdoing must be clearly and convincingly established. It cannot just be presumed. In the instant case, there is no evidence that Aircon was formed or utilized with the intention of defrauding its creditors or evading its contracts and obligations. There was nothing fraudulent in the acts of Aircon in this case. Aircon, as a manufacturing firm of air conditioners, complied with its obligation of providing two air conditioning units for the second floor of the Blanco Center in good faith, pursuant to its contract with the respondent. Unfortunately, the performance of the air conditioning units did not satisfy the respondent 29 despite several adjustments and corrective measures. In a Letter dated October 22, 1980, the respondent even conceded that Fedders Air Conditioning USA has not yet perhaps perfected its technology of rotary compressors, and agreed to change the compressors with the semi-hermetic type. Thus, Aircon substituted the units with serviceable ones which delivered the cooling temperature needed for the law office. After enjoying ten (10) years of its cooling power, respondent cannot now complain about the performance of these units, nor can it demand a replacement thereof. Moreover, it was reversible error to award the respondent the amount of P556,551.55 representing the alleged 30% unsaved electricity costs and P185,951.67 as maintenance cost without showing any basis for such award. To justify a grant of actual or compensatory damages, it is necessary to prove with a reasonable degree of certainty, premised upon competent proof and on the best evidence obtainable by the injured party, the actual amount of loss. 30 The respondent merely based its cause of action on Aircons alleged representation that Fedders air conditioners with rotary compressors can save as much as 30% on electricity compared to other

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brands. Offered in evidence were newspaper advertisements published on April 12 and 26, 1981. The respondent then recorded its electricity consumption from October 21, 1981 up to April 3, 1995 and computed 30% thereof, which amounted to P556,551.55. The Court rules that this amount is highly speculative and merely hypothetical, and for which the petitioner can not be held accountable. First. The respondent merely relied on the newspaper advertisements showing the Fedders window-type air conditioners, which are far different from the big capacity air conditioning units installed at Blanco Center. Second. After such print advertisements, the respondent informed Aircon that it was going to install an electric meter to register its electric consumption so as to determine the electric costs not saved by the presently installed units with semi-hermetic compressors. Contrary to the allegations of the respondent that this was in pursuance to their Revised Agreement, no proof was adduced that Aircon agreed to the respondents proposition. It was a unilateral act on the part of the respondent, which Aircon did not oblige or commit itself to pay. Third. Needless to state, the amounts computed are mere estimates representing the respondents self -serving claim of unsaved electricity cost, which is too speculative and conjectural to merit consideration. No other proofs, reports or bases of comparison showing that Fedders Air Conditioning USA could indeed cut down electricity cost by 30% were adduced. Likewise, there is no basis for the award of P185,951.67 representing maintenance cost. The respondent merely submitted a 31 schedule prepared by the respondents accountant, listi ng the alleged repair costs from March 1987 up to June 1994. Such evidence is self-serving and can not also be given probative weight, considering that there are no proofs of receipts, vouchers, etc., which would substantiate the amounts paid for such services. Absent any more convincing proof, the Court finds that the respondents claims are without basis, and cannot, therefore, be awarded. We sustain the petitioners separateness from that of Aircon in this case. It bears stressing that the petitioner was never a party to the 32 contract. Privity of contracts take effect only between parties, their successors-in-interest, heirs and assigns. The petitioner, which has a separate and distinct legal personality from that of Aircon, cannot, therefore, be held liable. IN VIEW OF THE FOREGOING, the petition is GRANTED. The assailed decision of the Court of Appeals, affirming the decision of the Regional Trial Court is REVERSED and SET ASIDE. The complaint of the respondent isDISMISSED. Costs against the respondent. SO ORDERED. 5. G.R. No. 154975 January 29, 2007 GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCE CORPORATION), Petitioner, vs. ALSONS DEVELOPMENT and INVESTMENT CORPORATION and CCC EQUITY CORPORATION, Respondents. DECISION GARCIA, J.: In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner General Credit Corporation, now known as Penta Capital Finance Corporation, seeks to annul and set aside the Decision1 and Resolution2dated April 11, 2002 and August 20, 2002, respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 31801,affirming the November 8, 1990 decision of the Regional Trial Court (RTC) of Makati City in its Civil Case No. 12707, an action for a sum of money thereat instituted by the herein respondent Alsons Development and Investment Corporation against the petitioner and respondent CCC Equity Corporation. The facts: Shortly after its incorporation in 1957 as a finance and investment company, petitioner General Credit Corporation (GCC, for short), then known as Commercial Credit Corporation (CCC), established CCC franchise companies in different urban centers of the country.3 In furtherance of its business, GCC had, as early as 1974, applied for and was able to secure license from the then Central Bank (CB) of the Philippines and the Securities and Exchange Commission (SEC) to engage also in quasi-banking activities.4 On the other hand, respondent CCC Equity Corporation (EQUITY, for brevity) was organized in November 1994 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, hereinafter) and Conrado, Nicasio, Editha and Ladislawa, all surnamed Alcantara, and Alfredo de Borja (hereinafter the Alcantara family, for convenience), each owned, just like GCC, shares in the aforesaid GCC franchise companies, e.g., CCC Davao and CCC Cebu. In December 1980, ALSONS and the Alcantara family, for a consideration of Two Million (P2,000,000.00) Pesos, sold their shareholdings a total of 101,953 shares, more or less in the CCC franchise companies to EQUITY.[5]On January 2, 1981, EQUITY issued ALSONS et al., a "bearer" promissory note for P2,000,000.00 with a one-year maturity date, at 18% interest per annum, with 6 provisions for damages and litigation costs in case of default. Some four years later, the Alcantara family assigned its rights and interests over the bearer note to ALSONS which thenceforth became 7 the holder thereof. But even before the execution of the assignment deal aforestated, letters of demand for interest payment were already sent to EQUITY, through its President, Wilfredo Labayen, who pleaded inability to pay the stipulated interest, EQUITY no longer then having assets or property to settle its obligation nor being extended financial support by GCC. What happened next, as narrated in the assailed Decision of the CA, may be summarized, as follows: 1. On January 14, 1986, before the RTC of Makati, ALSONS, having failed to collect on the bearer note aforementioned, filed 8 a complaint for a sum of money against EQUITY and GCC. The case, docketed as Civil Case No. 12707, was eventually raffled to Branch 58 of the court. As stated in par. 4 of the complaint, GCC is being impleaded as party-defendant 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. 2. Answering with a cross-claim against GCC, EQUITY stated by way of special and affirmative defenses that it (EQUITY): a) was purposely organized by GCC for the latter to avoid CB Rules and Regulations on DOSRI (Directors, Officers, Stockholders and Related Interest) limitations, and that it acted merely as intermediary or bridge for loan transactions and other dealings of GCC to its franchises and the investing public; and

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b) is solely dependent upon GCC for its funding requirements, to settle, among others, equity purchases made by investors on the franchises; 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. 3. GCC filed its ANSWER to Cross-claim, stressing that it is a distinct and separate entity from EQUITY and alleging, in essence that the business relationships with each other were always at arms lengt h. And following the denial of its motion to dismiss ALSONS complaint, on the ground of lack of jurisdiction and want of cause of action, GCC filed its Answer thereto and set up affirmative defenses with counterclaim for exemplary damages and attorneys f ees. Issues having been joined, trial ensued. Presented by ALSONS, but testifying as adverse witnesses, were CB and GCC officers. Among other things, ALSONS evidence, which included the EQUITY-issued "bearer" promissory note marked as Exhibit "K" and over sixty (60) other marked and subsequently admitted documents, 9 were to the effect that five (5) incorporators, each contributing P100,000.00 as the initial paid up capital of the company, organized EQUITY to manage, as it did manage, various GCC franchises through management contracts. Before EQUITYs incorporation, however, GCC was already into the financing business as it was in fact managing and operating various CCC franchises. Presented in evidence, too, was the September 29, 1982 letter-reply of one G. Villanueva, then GCC President, to EQUITY President Wilfredo Labayen, bearing on the sale of EQUITY shares to third parties, part of the proceeds of which the Alcantaras wanted applied to liquidate the promissory note in question. In said letter, Mr. Villanueva explained that the GCC Board denied the Alcantaras request to be paid out of such proceeds, but nonetheless authorized EQUIT Y to pay them interest out of EQUITYs operation income, in preference over what was due GCC. 10 Albeit EQUITY presented its president, it opted to adopt the testimony of some of ALSONS wi tnesses, inclusive of the documentary exhibits testified to by each of them, as its evidence. For its part, GCC called only Wilfredo Labayen to testify. It stuck to its underlying defense of separateness and presented documentary evidence detailing the organizational structures of both GCC and EQUITY. And in a bid to negate the notion that it was conducting its business illegally, GCC presented CB and SEC-issued licenses authoring it to engage in financing and quasi-banking activities. It also adduced evidence to prove that it was never a party to any of the actionable documents ALSONS and its predecessors-in-interest had in their possession and that the November 27, 1985 deed of assignment of rights over the promissory note was unenforceable. Eventually, the trial court, on its finding that EQUITY was but an instrumentality or adjunct of GCC and considering the legal consequences and implications of such relationship, came out with its decision on November 8, 1990, rendering judgment for ALSONS, to wit: WHEREFORE, the foregoing premises considered, judgment is hereby rendered in favor of plaintiff [ALSONS] and against the defendants [EQUITY and GCC] who are hereby ordered, jointly and severally, to pay plaintiff: 1. the principal sum of Two Million Pesos (P2,000,000.00) together with the interest due thereon at the rate of eighteen percent (18%) annually computed from Jan. 2, 1981 until the obligation is fully paid; 2. liquidated damages due thereon equivalent to three percent (3%) monthly computed from January 2, 1982 until the obligation is fully paid; 3. attorneys fees in an amount equivalent to twenty four percent (24%) of the total obligation due; and 4. the costs of suit. IT IS SO ORDERED. (Words in brackets added.) Therefrom, GCC went on appeal to the CA where its appellate recourse was docketed as CA-G.R. CV No. 31801, ascribing to the trial court the commission of the following errors: 1. In holding that there is a "Parent-Subsidiary" corporate relationship between EQUITY and GCC; 2. In not holding that EQUITY and GCC are distinct and separate corporate entities; 3. In applying the doctrine of "Piercing the Veil of Corporate Fiction" in the case at bar; and 4. In not holding ALSONS in estoppel to question the corporate personality of EQUITY. On April 11, 2002, the appellate court rendered the herein assailed Decision,11 affirming that of the trial court, thus: WHEREFORE, premises considered, the Decision of the Regional Trial Court, Branch 58, Makati in Civil Case No. 12707 is hereby AFFIRMED. SO ORDERED. In time, GCC moved for reconsideration followed by a motion for oral argument, but both motions were denied by the CA in its equally 12 assailed Resolution of August 20, 2002. Hence, GCCs present recourse anchored on the following arguments, issues and/or submissions: 1. The motion for oral argument with motion for reconsideration and its supplement were perfunctorily denied by the CA without justifiable basis; 2. There is absolutely no basis for piercing the veil of corporate fiction; 3. Respondent Alsons is not a real party-in-interest as the promissory note payable to bearer subject of the collection suit is but a simulated document and/or refers to another party. Moreover, the subject promissory note is not admissible in evidence because it has not been duly authenticated and it is an altered document; 4. The fact of full payment stated in the ten (10) deeds of sale of the shares of stock is conclusive on the sellers, and by the patrol evidence rule, the alleged fact of its non-payment cannot be introduced in evidenced; and 5. The counter-claim filed by GCC against Alsons should be granted in the interest of justice. The petition and the arguments and/or issues holding it together are without merit. The desired reversal of the assailed decision and resolution of the appellate court is accordingly DENIED. Instead of raising distinctly formulated questions of law, as is expected of one seeking a review under Rule 45 of the Rules of Court of a 13 final CA judgment, petitioner GCC starts off by voicing disappointment over the "perfunctory" denial by the CA of its twin motions for reconsideration and oral argument. Petitioner, to be sure, cannot plausibly expect a reversal action premised on the cursory way its motions were denied, if such indeed were the case. Such manner of denial, while perhaps far from ideal, is not even a recognized ground for appeal by certiorari, unless a denial of due process ensues, which is not the case here. And lest it be overlooked, the CA prefaced its assailed denial resolution with the clause: "[F]inding no reversible error committed to warrant the modification and/or

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reversal of the April 11, 2002 Decision," suggesting that the appellate court gave the petitioners motion for reconsideratio n the attention it deserved. At the very least, the petitioner was duly apprised of the reasons why reconsideration could not be favorably considered. An extended resolution was not really necessary to dispose of the motion for reconsideration in question. Petitioners lament about being deprived of procedural due process owing to the denial of its motion for oral argument is simply specious. Under the CA Internal Rules, the appellate court may tap any of the three (3) alternatives therein provided to aid the court in resolving appealed cases before it. It may rely on available records alone, require the submission of memoranda or set the case for oral argument. The option the Internal Rules thus gives the CA necessarily suggests that the appellate court may, at its sound discretion, dispense with a tedious oral argument exercise. Rule VI, Section 6 of the 2002 Internal Rules of the CA, provides: SEC. 6 Judicial Action on Certain Petitions.- (a) In petitions for review, after the receipt of the respondents comment on the petition, the Court [of Appeals] may dismiss the petition if it finds the same to be patently without merit , otherwise, it shall give due course to it. xxx xxx xxx If the petition is given due course, the Court may consider the case submitted for decision or require the parties to submit their memorandum or set the case for oral argument. xxx. After the oral argument or upon submission of the memoranda the case sha ll be deemed submitted for decision. In the case at bench, records reveal that the appellate court, in line with the prescription of its own rules, required the parties to just submit, as they did, their respective memoranda to properly ventilate their separate causes. Under this scenario, the petitioner cannot be validly heard, having been deprived of due process. Just like the first, the last three (3) arguments set forth in the petition will not carry the day for the petitioner. In relation therewith, the Court notes that these arguments and the issues behind them were not raised before the trial court. This appellate maneuver cannot be 14 allowed. For, well-settled is the rule that issues or grounds not raised below cannot be resolved on review in higher courts. Springing surprises on the opposing party is antithetical to the sporting idea of fair play, justice and due process; hence, the proscription against a party shifting from one theory at the trial court to a new and different theory in the appellate level. On the same rationale, points of law, theories, issues not brought to the attention of the lower court or, in fine, not interposed during the trial cannot be raised for the first time on appeal.15 There are, to be sure, exceptions to the rule respecting what may be raised for the first time on appeal. Lack of jurisdiction over when the issues raised present a matter of public policy 16 comes immediately to mind. None of the well-recognized exceptions obtain in this case, however. Lest it be overlooked vis--vis the same last three arguments thus pressed, both the trial court and the CA, based on the evidence adduced, adjudged the petitioner and respondent EQUITY jointly and severally liable to pay what respondent ALSONS is entitled to under the "bearer" promissory note. The judgment argues against the notion of the note being simulated or altered or that respondent ALSONS has no standing to sue on the note, not being the payee of the "bearer" note. For, the declaration of liability not only presupposes the duly established authenticity and due execution of the promissory note over which ALSONS, as the holder in due course thereof, has interest, but also the untenability of the petitioners counterclaim for attorneys fees and exemplary da mages against ALSONS. At bottom, the petitioner predicated such counter-claim on the postulate that respondent ALSONS had no cause of action, the supposed promissory note being, according to the petitioner, either a simulated or an altered document. In net effect, the definitive conclusion of the appellate court affirmatory of that of the trial court was that the bearer promissory note (Exh. "K") was a genuine and authentic instrument payable to the holder thereof. This factual determination, as a matter of long and sound appellate practice, deserves great weight and shall not be disturbed on appeal, save for the most compelling reasons, 17 such as when that determination is clearly without evidentiary support or when grave abuse of discretion has been committed. 18 This is as it should be since the Court, in petitions for review of CA decisions under Rule 45 of the Rules of Court, usually limits its inquiry only to questions of law. Stated otherwise, it is not the function of the Court to analyze and weigh all over again the evidence or premises supportive of the factual holdings of lower courts. 19 As nothing in the record indicates any of the exceptions adverted to above, the factual conclusion of the CA that the P2 Million promissory note in question was authentic and was issued at the first instance to respondent ALSONS and the Alcantara family for the amount stated on its face, must be affirmed. It should be stressed in this regard that even the issuing entity, i.e., respondent EQUITY, never challenged the genuineness and due execution of the note. This brings us to the remaining but core issue tendered in this case and aptly raised by the petitioner, to wit: whether there is absolutely no basis for piercing GCCs veil of corporate identity. 20 A corporation is an artificial being vested by law with a personality distinct and separate from those of the persons composing it as 21 well as from that of any other entity to which it may be related. The first consequence of the doctrine of legal entity of the separate personality of the corporation is that a corporation may not be made to answer for acts and liabilities of its stockholders or those of legal 22 entities to which it may be connected or vice versa. 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 23 one and the same. Whether the separate personality of the corporation should be pierced hinges on obtaining facts, appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil 24 when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to promote unfair objectives. 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. 25 These are: 1) defeat of public convenience, 26 as when the corporate fiction is used as vehicle for the evasion of an existing obligation;272) fraud cases or when the corporate entity is used to justify a wrong,

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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. 29 The CA found valid grounds to pierce the corporate veil of petitioner GCC, there being justifiable basis for such action. When the appellate court spoke of a justifying factor, the reference was to what the trial court said in its decision, namely: the existence of "certain circumstances [which], taken together, gave rise to the ineluctable conclusion that [respondent] EQUITY is but an instrumentality or adjunct of [petitioner] GCC." The Court agrees with the disposition of the appellate court 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, tak en 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. For a perspective, the following are some relevant excerpts from the trial courts decision setting forth in some detail the tipping circumstances adverted to therein: It must be noted that as characterized by their business relationship, [respondent] EQUITY and [petitioner] GCC had common directors and/or officers as well as stockholders. This is revealed by the proceedings recorded in SEC Case No. 25-81 entitled "Avelina Ramoso, et al., vs. GCC, et al., where it was established, thru the testimony of EQUITYs own President that more than 90% of the stockholders of EQUITY were also stockholders of GCC .. Disclosed likewise is the fact that when [EQUITYs President] Labayen sold the shareholdings of EQUITY in said franchise companies, practically the entire proceeds thereof were surrendered to GCC, and not received by EQUITY (EXHIBIT "RR") xxx. It was likewise shown by a preponderance of evidence that not only had GCC financed EQUITY and that the latter was heavily indebted to the former but EQUITY was, in fact, a wholly owned subsidiary of GCC. Thus, as affirmed by EQUITYs President, the funds invested by EQUITY in the CCC franchise companies actually came from CCC Phils. or GCC (Exhibit "Y-5"). that, as disclosed by the Auditors report for 1982, past due receivables alone of GCC exceeded P101,000,000.00 mostly to GCC affiliates especially CCC EQUITY. ; that [CBs] Report of Examination dated July 14, 1977 shows that EQUITY which has a paid-up capital of only P500,000.00 was the biggest borrower of GCC with a total loan of P6.70 Million . xxx xxx xxx It has likewise been amply substantiated by [respondent ALSONS] evidence that not only did GCC cause the incorporation of EQUITY, but, the latter had grossly inadequate capital for the pursuit of its line of business to the extent that its business affairs were considered as GCCs own business endeavors. xxx. xxx xxx xxx ALSONS has likewise shown that the bonuses of the officers and directors of EQUITY was based on its total financial performance together with all its affiliates both firms were sharing one and the same office when both were still operational and that the directors and executives of EQUITY never acted independently but took their orders from GCC. The evidence has also indubitably established that EQUITY was organized by GCC for the purpose of circumventing [CB] rules and regulations and the Anti-Usury Law. Thus, as disclosed by the Advance Report on the result of Central Banks Operations Examination conducted on GCC as of March 31, 1977 (EXHIBITS "FFF" etc.), the latter violated [CB] rules and regulations by : (a) using as a conduit its non-quasi bank affiliates . (b) issuing without recourse facilities to enable GCC to extend credit to affiliates like EQUITY which go beyond the single borrowers limit without the need of showing outstanding balance in the book of accounts. (Emphasis over words in brackets added.) It bears to stress at this point that the facts and the inferences drawn therefrom, upon which the two (2) courts below applied the piercing doctrine, stand, for the most part, undisputed. Among these is, to reiterate, the matter of EQUITY having been incorporated to serve, as it did serve, as an instrumentality or adjunct of GCC. With the view we take of this case, GCC did not adduce any evidence, let alone rebut the testimonies and documents presented by ALSONS, to establish the prevailing circumstances adverted to that provided the justifying occasion to pierce the veil of corporate fiction between GCC and EQUITY. We quote the trial court: Verily, indeed, as the relationships binding herein [respondent EQUITY and petitioner GCC] have been that of "parent-subsidiary 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, t his Court feels amply justified to "pierce the veil of corporate entity" and disregard the separate existence of the percent (sic) 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. Consequently, as the parent corporation, [petitioner] GCC maybe (sic) held responsible for the acts and contracts of its subsidiary [respondent] EQUITY - most especially if the latter (who had anyhow acknowledged its liability to ALSONS) maybe (sic) without sufficient property with which to settle its obligations. For, after all, GCC was the entity which initiated and benefited immensely from the fraudulent scheme perpetrated in violation of the law. (Words in parenthesis in the original; emphasis and bracketed words added). Given the foregoing considerations, it behooves the petitioner, as a matter of law and equity, to assume the legitimate financial obligation of a cash-strapped subsidiary corporation which it virtually controlled to such a degree that the latter became its instrument or agent. The facts, as found by the courts a quo, and the applicable law call for this kind of disposition. Or else, the Court would be allowing the wrong use of the fiction of corporate veil. WHEREFORE, the instant petition is DENIED and the appealed Decision and Resolution of the Court of Appeals are accordingly AFFIRMED. Costs against the petitioner. SO ORDERED.
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6. G.R. No. 182729 September 29, 2010 KUKAN INTERNATIONAL CORPORATION, Petitioner, vs. HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 21, and ROMEO M. MORALES, doing business under the name and style "RM Morales Trophies and Plaques," Respondents. DECISION VELASCO, JR., J.: The Case 1 This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the January 23, 2008 Decision and the April 16, 2008 2 Resolution rendered by the Court of Appeals (CA) in CA-G.R. SP No. 100152. The assailed CA decision affirmed the March 12, 20073 and June 7, 20074 Orders of the Regional Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 99-93173, entitled Romeo M. Morales, doing business under the name and style RM Morales Trophies and Plaques v. Kukan, Inc. In the said orders, the RTC disregarded the separate corporate identities of Kukan, Inc. and Kukan International Corporation and declared them to be one and the same entity. Accordingly, the RTC held Kukan International Corporation, albeit not impleaded in the underlying complaint of Romeo M. Morales, liable for the judgment award decreed in a Decision dated November 28, 5 2002 in favor of Morales and against Kukan, Inc. The Facts Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and installation of signages in a building being constructed in Makati City. Morales tendered the winning bid and was awarded the PhP 5 million contract. Some of the items in the project award were later excluded resulting in the corresponding reduction of the contract price to PhP 3,388,502. Despite his compliance with his contractual undertakings, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands. Shortchanged, Morales filed a Complaint 6 with the RTC against Kukan, Inc. for a sum of money, the case docketed as Civil Case No. 99-93173 and eventually raffled to Branch 17 of the court. Following the joinder of issues after Kukan, Inc. filed an answer with counterclaim, trial ensued. However, starting November 2000, Kukan, Inc. no longer appeared and participated in the proceedings before the trial court, prompting the RTC to declare Kukan, Inc. in default and paving the way for Morales to present his evidence ex parte. On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc., disposing as follows: WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.: 1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment; 2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages; 3. to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonable attorneys fees; and 4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses. For lack of factual foundation, the counterclaim is DISMISSED. IT IS SO ORDERED.7 After the above decision became final and executory, Morales moved for and secured a writ of execution 8 against Kukan, Inc. The sheriff then levied upon various personal properties found at what was supposed to be Kukan, Inc.s office at Unit 2205, 88 C orporate Center, Salcedo Village, Makati City. Alleging that it owned the properties thus levied and that it was a different corporation from Kukan, Inc., Kukan International Corporation (KIC) 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 No. 99-93173. 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. KIC opposed Morales motion. By Order of May 29, 20039as 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 subponae 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 10 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 reraffled 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, the dispositive portion of which reads: WHEREFORE, premises considered, the motion is hereby GRANTED. The Court hereby declares as follows: 1. defendant Kukan, Inc. and newly created Kukan International Corp. as one and the same corporation; 2. the levy made on the properties of Kukan International Corp. is hereby valid; 3. Kukan International Corp. and Michael Chan are jointly and severally liable to pay the amount awarded to plaintiff pursuant to the decision of November [28], 2002 which has long been final and executory. SO ORDERED. From the above order, KIC moved but was denied reconsideration in another Order dated June 7, 2007. KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007 RTC Orders. On January 23, 2008, the CA rendered the assailed decision, the dispositive portion of which states: WHEREFORE, premises considered, the petition is hereby DENIED and the assailed Orders dated March 12, 2007 and June 7, 2007 of the court a quo are both AFFIRMED. No costs.

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SO ORDERED. The CA later denied KICs motion for reconsideration in the assailed resolution. Hence, the instant petition for review, with the following issues KIC raises for the Courts consideration: 1. There is no legal basis for the [CA] to resolve and declare that petition ers Constitutional Right to Due Process was not violated by the public respondent in rendering the Orders dated March 12, 2007 and June 7, 2007 and in declaring petitioner to be liable for the judgment obligations of the corporation "Kukan, Inc." to private respondent as petitioner is a stranger to the case and was never made a party in the case before the trial court nor was it ever served a summons and a copy of the complaint. 2. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner liable to the judgment obligations of the corporation "Kukan, Inc." to private respondent are valid as said orders of the public respondent modify and/or amend the trial courts final and executory decision rendered on November 28, 2002. 3. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner [KIC] and the corporation "Kukan, Inc." as one and the same, and, therefore, the Veil of Corporate Fiction between them be pierced as the procedure undertaken by public respondent which the [CA] upheld 12 is not sanctioned by the Rules of Court and/or established jurisprudence enunciated by this Honorable Supreme Court. In gist, the issues to be resolved boil down to the question of, first, whether the trial court can, after the judgment against Kukan, Inc. has attained finality, execute it against the property of KIC; second, whether the trial court acquired jurisdiction over KIC; and third, whether the trial and appellate courts correctly applied, under the premises, the principle of piercing the veil of corporate fiction. The Ruling of the Court The petition is meritorious. First Issue: Against Whom Can a Final and Executory Judgment Be Executed The preliminary question that must be answered is whether or not the trial court can, after adjudging Kukan, Inc. liable for a sum of money in a final and executory judgment, execute such judgment debt against the property of KIC. The poser must be answered in the negative. In Carpio v. Doroja,13 the Court ruled that the deciding court has supervisory control over the execution of its judgment: A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are proceedings in the suit. There is no question that the court which rendered the judgment has a general supervisory control over its process of execution, and this power carries with it the right to determine every question of fact and law which may be involved in the execution. 14 We reiterated the above holding in Javier v. Court of Appeals in this wise: "The said branch has a general supervisory control over its processes in the execution of its judgment with a right to determine every question of fact and law which may be involved in the execution." The courts supervisory control does not, however, extend as to authorize the alteration or amendment of a final and executory decision, save for certain recognized exceptions, among which is the correction of clerical errors. Else, the court violates the principle of finality of judgment and its immutability, concepts which the Court, in Tan v. Timbal,15 defined: As we held in Industrial Management International Development Corporation vs. NLRC: It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of a decision or order is the controlling factor as to settlement of rights of the parties. Once a decision or order becomes final and executory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it. It thereby becomes immutable and unalterable and any amendment or alteration which substantially affects a final and executory judgment is null and void for lack of jurisdiction, including the entire proceedings held for that purpose. An order of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity. (Emphasis supplied.) Republic v. Tango16 expounded on the same principle and its exceptions: Deeply ingrained in our jurisprudence is the principle that a decision that has acquired finality becomes immutable and unalterable. As such, it may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land. x x x The doctrine of finality of judgment is grounded on the fundamental principle of public policy and sound practice that, at the risk of occasional error, the judgment of courts and the award of quasi-judicial agencies must become final on some definite date fixed by law. The only exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision which render its execution unjust and inequitable. None of the exceptions obtains here to merit the review sought. (Emphasis added.) So, did the RTC, in breach of the doctrine of immutability and inalterability of judgment, order the execution of its final decision in a manner as would amount to its prohibited alteration or modification? We repair to the dispositive portion of the final and executory RTC decision. Pertinently, it provides: WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.: 1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment; 2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages; 3. to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as reasonable attorneys fees; and 4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses. x x x x (Emphasis supplied.) As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the aforementioned awards to Morales. Thus, making KIC, thru the medium of a writ of execution, answerable for the above judgment liability is a clear case of altering a decision, an
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instance of granting relief not contemplated in the decision sought to be executed. And the change does not fall under any of the recognized exceptions to the doctrine of finality and immutability of judgment. It is a settled rule that a writ of execution must conform to the fallo of the judgment; as an inevitable corollary, a writ beyond the terms of the judgment is a nullity. 17 Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination of the other issues raised by KIC would be proper. Second Issue: Propriety of the RTC Assuming Jurisdiction over KIC The next issue turns on the validity of the execution the trial court authorized against KIC and its property, given that it was neither made a party nor impleaded in Civil Case No. 99-93173, let alone served with summons. In other words, did the trial court acquire jurisdiction over KIC? In the assailed decision, the appellate court deemed KIC to have voluntarily submitted itself to the jurisdiction of the trial court owing to 18 its filing of four (4) pleadings adverted to earlier, namely: (a) the Affidavit of Third-Party Claim; (b) the Comment and Opposition to 19 20 Plaintiffs Omnibus Motion; (c) the Motion for Reconsideration of the RTC Order dated March 12, 2007; and (d) the Motion for Leave 21 to Admit Reply. The CA, citing Section 20, Rule 14 of the Rules of Court, stated that "the procedural rule on service of summons can 22 be waived by voluntary submission to the courts jurisdi ction through any form of appearance by the party or its counsel." We cannot give imprimatur to the appellate courts appreciation of the thrust of Sec. 20, R ule 14 of the Rules in concluding that the trial court acquired jurisdiction over KIC. Orion Security Corporation v. Kalfam Enterprises, Inc. 23 explains how courts acquire jurisdiction over the parties in a civil case: Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint. On the other hand, jurisdiction over the defendants in a civil case is acquired either through the service of summons upon them or through their voluntary appearance in court and their submission to its authority. (Emphasis supplied.) In the fairly recent Palma v. Galvez, 24 the Court reiterated its holding in Orion Security Corporation, stating: "[I]n civil cases, the trial court acquires jurisdiction over the person of the defendant either by the service of summons or by the latters voluntary ap pearance and submission to the authority of the former." The courts jurisdiction over a party-defendant resulting from his voluntary submission to its authority is provided under Sec. 20, Rule 14 of the Rules, which states: Section 20. Voluntary appearance. The defendants voluntary appearance in the actions shall be equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance. To be sure, the CAs ruling that any form of appearance by the party or its counsel is deemed as voluntary appearance finds support in 25 26 the kindred Republic v. Ker & Co., Ltd. and De Midgely v. Ferandos. Republic and De Midgely, however, have already been modified if not altogether superseded 27 by La Naval Drug Corporation v. Court of Appeals,28 wherein the Court essentially ruled and elucidated on the current view in our jurisdiction, to wit: "[A] special appearance before the courtchallenging its jurisdiction over the person through a motion to dismiss even if the movant invokes other grounds is not tantamount to estoppel or a waiver by the movant of his objection to jurisdiction over his person; and such is not constitutive of a voluntary submission to the jurisdiction of the court."29 In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is conceded that it raised affirmative defenses through its aforementioned pleadings, KIC never abandoned its challenge, however implicit, to the RTCs jurisdiction over its person. The challenge was subsumed in KICs primary assertion that it was not the same entity as Kukan, Inc. Pertinently, in its Comment and Opposition to Plaintiffs Omnibus Motion dated May 20, 2003, KIC entered its " special but not voluntary appearance" alleging therein that it was a different entity and has a separate legal personality from Kukan, Inc. And KIC would consistently reiterate this assertion in all its pleadings, thus effectively resisting all along the RTCs jurisdiction of its person. It cann ot be overemphasized that KIC could not file before the RTC a motion to dismiss and its attachments in Civil Case No. 99-93173, precisely because KIC was neither impleaded nor served with summons. Consequently, KIC could only assert and claim through its affidavits, comments, and motions filed by special appearance before the RTC that it is separate and distinct from Kukan, Inc. Following La Naval Drug Corporation,30 KIC cannot be deemed to have waived its objection to the courts lack of jurisdiction over its person. It would defy logic to say that KIC unequivocally submitted itself to the jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are different entities. In the scheme of things obtaining, KIC had no other option but to insist on its separate identity and plead for relief consistent with that position. Third Issue: Piercing the Veil of Corporate Fiction The third and main issue in this case is whether or not the trial and appellate courts correctly applied the principle of piercing the veil of corporate entitycalled also as disregarding the fiction of a separate juridical personality of a corporation to support a conclusion that Kukan, Inc. and KIC are but one and the same corporation with respect to the contract award referred to at the outset. This principle finds its context on the postulate that a corporation is an artificial being invested with a personality separate and distinct from those of the stockholders and from other corporations to which it may be connected or related. 31 32 In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations Commission, the Court revisited the subject principle of piercing the veil of corporate fiction and wrote: Under the doctrine of "piercing the veil of corporate fiction," the court looks 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 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 as one and the same. Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. x x x (Emphasis supplied.)

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The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.: While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the 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. To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot 33 be presumed. (Emphasis supplied.) Now, as before the appellate court, petitioner KIC maintains that the RTC violated its right to due process when, in the execution of its November 28, 2002 Decision, the court authorized the issuance of the writ against KIC for Kuk an, Inc.s judgment debt, albeit KIC has never been a party to the underlying suit. As a counterpoint, Morales argues that KICs specific concern on due process and o n the validity of the writ to execute the RTCs November 28, 2002 Decision would be mooted if it were established that KIC and Kukan, Inc. are indeed one and the same corporation. Morales contention is untenable. The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and the same juridical person with respect to a given transaction, is basically applied only to determine established liability; 34 it is not available to confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a corporation not impleaded in a suit cannot be subject to the courts process of piercing the veil of its corporate fiction. In that situa tion, the court has not acquired jurisdiction over the corporation and, hence, any proceedings taken against that corporation and its property would infringe on its right to due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as much: 23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the evidence presented, it is imperative that the court must first have jurisdiction over the corporation. 35 x x x (Emphasis supplied.) The implication of the above comment is twofold: (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. The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the matter of the time and manner of raising the principle in question, it is undisputed that no full-blown trial involving KIC was had when the RTC disregarded the corporate veil of KIC. The reason for this actuality is simple and undisputed: KIC was not impleaded in Civil Case No. 99-93173 and that the RTC did not acquire jurisdiction over it. It was dragged to the case after it reacted to the improper execution of its properties and veritably hauled to court, not thru the usual process of service of summons, but by mere motion of a party with whom it has no privity of contract and after the decision in the main case had already become final and executory. As to the propriety of a plea for the application of the principle by mere motion, the following excerpts are instructive: Generally, a motion is appropriate only in the absence of remedies by regular pleadings, and is not available to settle important questions of law, or to dispose of the merits of the case. A motion is usually a proceeding incidental to an action, but it may be a wholly distinct or independent proceeding. A motion in this sense is not within this discussion even though the relief demanded is denominated an "order." A motion generally relates to procedure and is often resorted to in order to correct errors which have crept in along the line of the principal actions progress. Generally, where there is a procedural defect in a proceeding and no method under statute or rule of court by which it may be called to the attention of the court, a motion is an appropriate remedy. In many jurisdictions, the motion has replaced the common-law pleas testing the sufficiency of the pleadings, and various common-law writs, such as writ of error coram nobis and audita querela. In some cases, a motion may be one of several remedies available. For example, in some jurisdictions, a motion to vacate an order is a remedy alternative to an appeal therefrom. 36 Statutes governing motions are given a liberal construction. (Emphasis supplied.) The bottom line issue of whether Morales can proceed against KIC for the judgment debt of Kukan, Inc. assuming hypothetically that he can, applying the piercing the corporate veil principleresolves itself into the question of whether a mere motion is the appropriate vehicle for such purpose. Verily, Morales espouses the application of the principle of piercing the corporate veil to hold KIC liable on theory that Kukan, Inc. was out to defraud him through the use of the separate and distinct personality of another corporation, KIC. In net effect, Moral es adverted motion to pierce the veil of corporate fiction dated January 3, 2007 stated a new cause of action, i.e., for the liability of judgment debtor Kukan, Inc. to be borne by KIC on the alleged identity of the two corporations. This new cause of action should be properly ventilated in another complaint and subsequent trial where the doctrine of piercing the corporate veil can, if appropriate, be applied, based on the evidence adduced. Establishing the claim of Morales and the corresponding liability of KIC for Kuka n Inc.s indebtedness could hardly be the subject, under the premises, of a mere motion interposed after the principal action against Kukan, Inc. alone had peremptorily been terminated. After all, a complaint is one where the plaintiff alleges causes of action. In any event, the principle of piercing the veil of corporate fiction finds no application to the instant case. As a general rule, courts should be wary of lifting the corporate veil between corporations, however related. Philippine National Bank v. 37 Andrada Electric Engineering Company explains why: A corporation is an artificial being created by operation of law. x x x It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. This is basic. Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.

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Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application. This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of the decedent, to escape liability arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair objectives or to cover up an otherwise blatant violation of the prohibition against forum-shopping. Only in these and similar instances may the veil be pierced and disregarded. (Emphasis supplied.) In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings. To be sure, the Court has, on numerous occasions, 38applied the principle where a corporation is dissolved and its assets are transferred to another to avoid a financial liability of the first corporation with the result that the second corporation should be considered a continuation and successor of the first entity. In those instances when the Court pierced the veil of corporate fiction of two corporations, there was a confluence of the following factors: 1. A first corporation is dissolved; 2. The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the first corporation; and 3. Both corporations are owned and controlled by the same persons such that the second corporation should be considered as a continuation and successor of the first corporation. In the instant case, however, the second and third factors are conspicuously absent. There is, therefore, no compelling justification for disregarding the fiction of corporate entity separating Kukan, Inc. from KIC. In applying the principle, both the RTC and the CA miserably failed to identify the presence of the abovementioned factors. Consider: The RTC disregarded the separate corporate personalities of Kukan, Inc. and KIC based on the following premises and arguments: While it is true that a corporation has a separate and distinct personality from its stockholder, director and officers, the law expressly provides for an exception. When Michael Chan, the Managing Director of defendant Kukan, Inc. (majority stockholder of the newly formed corporation [KIC]) confirmed the award to plaintiff to supply and install interior signages in the Enterprise Center he (Michael Chan, Managing Director of defendant Kukan, Inc.) knew that there was no sufficient corporate funds to pay its obligation/account, thus implying bad faith on his part and fraud in contracting the obligation. Michael Chan neither returned the interior signages nor tendered payment to the plaintiff. This circumstance may warrant the piercing of the veil of corporation fiction. Having been guilty of bad faith in the management of corporate matters the corporate trustee, director or officer may be held personally liable. x x x Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. x x x [A]nd the circumstances are: the signature of Michael Chan, Managing Director of Kukan, Inc. appearing in the confirmation of the award sent to the plaintiff; signature of Chan Kai Kit, a British National appearing in the Articles of Incorporation and signature of Michael Chan also a British National appearing in the Articles of Incorporation [of] Kukan International Corp. give the impression that they are one and the same person, that Michael Chan and Chan Kai Kit are both majority stockholders of Kukan International Corp. and Kukan, Inc. holding 40% of the stocks; that Kukan International Corp. is practically doing the same kind of business as that of Kukan, Inc.39 (Emphasis supplied.) As is apparent from its disquisition, the RTC brushed aside the separate corporate existence of Kukan, Inc. and KIC on the main argument that Michael Chan owns 40% of the common shares of both corporations, obviously oblivious that overlapping stock ownership is a common business phenomenon. It must be remembered, however, that KICs properties were the ones seized upon levy on execution and not that of Kukan, Inc. or of Michael Chan for that matter. 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.40 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 41 corporate veil. And indeed, the records do not show the presence of these elements. On the other hand, the CA held: In the present case, the facts disclose that Kukan, Inc. entered into a contractual obligation x x x worth more than three million pesos although it had only Php5,000.00 paid-up capital; [KIC] was incorporated shortly before Kukan, Inc. suddenly ceased to appear and participate in the trial; [KICs] purpose is related and somewhat akin to that of Kukan, Inc.; and in [KIC] Michael Chan, a.k .a., Chan Kai Kit, holds forty percent of the outstanding stocks, while he formerly held the same amount of stocks in Kukan Inc. These would lead to the inescapable conclusion that Kukan, Inc. committed fraudulent representation by awarding to the private respondent the contract with full knowledge that it was not in a position to comply with the obligation it had assumed because of inadequate paid-up capital. It bears stressing that shareholders should in good faith put at the risk of the business, unencumbered capital reasonably adequate for its prospective liabilities. The capital should not be illusory or trifling compared with the business to be done and the risk of loss. Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc. Michael Chan, a.k.a. Chan Kai Kit has the largest block of shares in both business enterprises. The emergence of the former was cleverly timed with the hasty withdrawal of the latter during the trial to avoid the financial liability that was eventually suffered by the latter. The two companies have a related business purpose. Considering these circumstances, the obvious conclusion is that the creation of Kukan International Corporation served as a device to evade the obligation incurred by Kukan, Inc. and yet profit from the goodwill attained by the name "Kukan" by continuing to engage in 42 the same line of business with the same list of clients. (Emphasis supplied.) Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and the similarity of the business activities in which both corporations are engaged as a jumping board to its conclusion that the creation of KIC "served as a device to evade the obligation incurred by Kukan, Inc." The appellate court, however, left a gaping hole by failing to demonstrate that Kukan, Inc. and its stockholders defrauded Morales. In fine, there is no showing that the incorporation, and the separate and distinct personality, of KIC was used to

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defeat Morales right to recover from Kukan, Inc. Judging from the records, no serious attempt w as 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. Morales further contends that Kukan, Inc.s closure is evidenced by its failure t o file its 2001 General Information Sheet (GIS) with the Securities and Exchange Commission. However, such fact does not necessarily mean that Kukan, Inc. had altogether ceased operations, as Morales would have this Court believe, for it is stated on the face of the GIS that it is only upon a failure to file the corporate GIS for five (5) consecutive years that non-operation shall be presumed. The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had a paid-up capital of PhP 5,000 is not an indication of the intent on the part of its management to defraud creditors. Paid-up capital is merely seed money to start a corporation or a business entity. As in this case, it merely represented the capitalization upon incorporation in 1997 of Kukan, Inc. Paid-up capitalization of PhP 5,000 is not and should not be taken as a reflection of the firms capacity to meet its recurrent and long -term obligations. It must be borne in mind that the equity portion cannot be equated to the viability of a business concern, for the best test is the working capital which consists of the liquid assets of a given business relating to the nature of the business concern. lawphil Neither should the level of paid-up capital of Kukan, Inc. upon its incorporation be viewed as a badge of fraud, for it is in compliance 43 with Sec. 13 of the Corporation Code, which only requires a minimum paid-up capital of PhP 5,000.1avvphi1 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. 44 45 It would not avail Morales any to rely on General Credit Corporation v. Alsons Development and Investment Corporation. General Credit Corporation is factually not on all fours with the instant case. There, the common stockholders of the corporations represented 90% of the outstanding capital stock of the companies, unlike here where Michael Chan merely represents 40% of the outstanding capital stock of both KIC and Kukan, Inc., not even a majority of it. In that case, moreover, evidence was adduced to support the finding that the funds of the second corporation came from the first. Finally, there was proof in General Credit Corporation of complete control, such that one corporation was a mere dummy or alter ego of the other, which is absent in the instant case. 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. It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those who seek to pierce the veil must clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong, protect fraud, or perpetrate a deception. In the concrete and on the assumption that the RTC has validly acquired jurisdiction over the party concerned, Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed and thereafter KIC purposely formed and operated to defraud him. Morales has not to us discharged his burden. WHEREFORE, the petition is hereby GRANTED. The CAs January 23, 2008 Decision and April 16, 2008 Resolution in CA -G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy placed upon the personal properties of Kukan International Corporation is hereby ordered lifted and the personal properties ordered returned to Kukan International Corporation. The RTC of Manila, Branch 21 is hereby directed to execute the RTC Decision dated November 28, 2002 against Kukan, Inc. with reasonable dispatch. No costs. SO ORDERED. 7. [G.R. No. 160039. June 29, 2004] RAYMUNDO ODANI SECOSA, EL BUENASENSO SY and DASSAD WAREHOUSING and PORT SERVICES, INCORPORATED, petitioners, vs. HEIRS OF ERWIN SUAREZ FRANCISCO, respondents. DECISION YNARES-SANTIAGO, J.: [1] This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the decision of the Court of Appeals [2] dated February 27, 2003 in CA-G.R. CV No. 61868, which affirmed in totothe June 19, 1998 decision of Branch 20 of the Regional Trial Court of Manila in Civil Case No. 96-79554. The facts are as follows: On June 27, 1996, at around 4:00 p.m., Erwin Suarez Francisco, an eighteen year old third year physical therapy student of the Manila Central University, was riding a motorcycle along Radial 10 Avenue, near the Veteran Shipyard Gate in the City of Manila. At the same time, petitioner, Raymundo Odani Secosa, was driving an Isuzu cargo truck with plate number PCU-253 on the same road. The truck was owned by petitioner, Dassad Warehousing and Port Services, Inc. Traveling behind the motorcycle driven by Francisco was a sand and gravel truck, which in turn was being tailed by the Isuzu truck driven by Secosa. 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. Fearing for his life, petitioner Secosa left his truck and fled the scene of the collision.[3] Respondents, the parents of Erwin Francisco, thus filed an action for damages against Raymond Odani Secosa, Dassad Warehousing and Port Services, Inc. and Dassads president, El Buenasucenso Sy. The complaint was docketed as Civil Case No. 96-79554 of the RTC of Manila, Branch 20. On June 19, 1998, after a full-blown trial, the court a quo rendered a decision in favor of herein respondents, the dispositive portion of which states: WHEREFORE, premised on the foregoing, judgment is hereby rendered in favor of the plaintiffs ordering the defendants to pay plaintiffs jointly and severally: 1. The sum of P55,000.00 as actual and compensatory damages; 2. The sum of P20,000.00 for the repair of the motorcycle; 3. The sum of P100,000.00 for the loss of earning capacity;

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4. The sum of P500,000.00 as moral damages; 5. The sum of P50,000.00 as exemplary damages; 6. The sum of P50,000.00 as attorneys fees plus cost of suit. SO ORDERED. [4] Petitioners appealed the decision to the Court of Appeals, which affirmed the appealed decision in toto. Hence the present petition, based on the following arguments: I. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT THAT PETITIONER DASSAD DID NOT EXERCISE THE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES WHICH IS NOT IN ACCORDANCE WITH ARTICLE 2180 OF THE NEW CIVIL CODE AND RELATED JURISPRUDENCE ON THE MATTER. II. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT IN HOLDING PETITIONER EL BUENASENSO SY SOLIDARILY LIABLE WITH PETITIONERS DASSAD AND SECOSA IN VIOLATION OF THE CORPORATION LAW AND RELATED JURISPRUDENCE ON THE MATTER. III. THE JUDGMENT OF THE TRIAL COURT AS AFFIRMED BY THE COURT OF APPEALS AWARDING P500,000.00 AS MORAL DAMAGES IS MANIFESTLY ABSURD, MISTAKEN AND UNJUST. [5] The petition is partly impressed with merit. On the issue of whether petitioner Dassad Warehousing and Port Services, Inc. exercised the diligence of a good father of a family in the selection and supervision of its employees, we find the assailed decision to be in full accord with pertinent provisions of law and established jurisprudence. 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 their employees 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 all the 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 either in the selection of his employee or in the supervision over him after such selection. The presumption, however, may be rebutted by a clear 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. Hence, to evade solidary liability for quasi-delict committed by an employee, the employer must adduce sufficient proof that it exercised such degree of care. [6] How does an employer prove that he indeed exercised the diligence of a good father of a family in the selection and supervision of his employee? The case of Metro Manila Transit Corporation v. Court of Appeals[7] is instructive: In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of presenting at the trial such amount of evidence required by law to obtain a favorable judgment [8] . . . In making proof in its or his case, it is paramount that the best and most complete evidence is formally entered. [9] Coming now to the case at bar, while there is no rule which requires that testimonial evidence, to hold sway, must be corroborated by documentary evidence, inasmuch as the witnesses testimonies dwelt on mere generalities, we cannot consider the same as suffi ciently persuasive proof that there was observance of due diligence in the selection and supervision of employees. Petitioners attempt to prove its deligentissimi patris familias in the selection and supervision of employees through oral evidence must fail as it was unabl e to buttress the same with any other evidence, object or documentary, which might obviate the apparent biased nature of the testimony.[10] Our view that the evidence for petitioner MMTC falls short of the required evidentiary quantum as would convincingly and undoubtedly prove its observance of the diligence of a good father of a family has its precursor in the underlying rationale pronounced in the earlier [11] case of Central Taxicab Corp. vs. Ex-Meralco Employees Transportation Co., et al., set amidst an almost identical factual setting, where we held that: The failure of the defendant company to produce in court any record or other documentary proof tending to establish that it h ad exercised all the diligence of a good father of a family in the selection and supervision of its drivers and buses, notwithstanding the calls therefor by both the trial court and the opposing counsel, argues strongly against its pretensions. We are fully aware that there is no hard-and-fast rule on the quantum of evidence needed to prove due observance of all the diligence of a good father of a family as would constitute a valid defense to the legal presumption of negligence on the part of an employer or master whose employee has by his negligence, caused damage to another. x x x (R)educing the testimony of Albert to its proper proportion, we do not have enough trustworthy evidence left to go by. We are of the considered opinion, therefore, that the believable evidence on the degree of care and diligence that has been exercised in the selection and supervision of Roberto Leon y Salazar, is not legally sufficient to overcome the presumption of negligence against the defendant company. The above-quoted ruling was reiterated in a recent case again involving the Metro Manila Transit Corporation, [12] thus: In the selection of prospective employees, employers are required to examine them as to their qualifications, experience, and service records.[13] On the other hand, with respect to the supervision of employees, employers should formulate standard operating

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procedures, monitor their implementation, and impose disciplinary measures for breaches thereof. To establish these factors in a trial involving the issue of vicarious liability, employers must submit concrete proof, including documentary evidence. In this case, MMTC sought to prove that it exercised the diligence of a good father of a family with respect to the selection of employees by presenting mainly testimonial evidence on its hiring procedure. According to MMTC, applicants are required to submit professional driving licenses, certifications of work experience, and clearances from the National Bureau of Investigation; to undergo tests of their driving skills, concentration, reflexes, and vision; and, to complete training programs on traffic rules, vehicle maintenance, and standard operating procedures during emergency cases. xxx xxx xxx Although testimonies were offered that in the case of Pedro Musa all these precautions were followed, the records of his interview, of the results of his examinations, and of his service were not presented. . . [T]here is no record that Musa attended such training programs and passed the said examinations before he was employed. No proof was presented that Musa did not have any record of traffic violations. Nor were records of daily inspections, allegedly conducted by supervisors, ever presented. . . The failure of MMTC to present such documentary proof puts in doubt the credibility of its witnesses. Jurisprudentially, therefore, the employer must not merely present testimonial evidence to prove that he observed the diligence of a good father of a family in the selection and supervision of his employee, but he must also support such testimonial evidence with concrete or documentary evidence. The reason for this is to obviate the biased nature of the emp loyers testimony or that of his witnesses.[14] Applying the foregoing doctrines to the present case, we hold that petitioner 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. Edilberto Duerme, the lone witness presented by Dassad Warehousing and Port Services, Inc. to support its position that it had exercised the diligence of a good father of a family in the selection and supervision of its employees, testified that he was the one who recommended petitioner Raymundo Secosa as a driver to Dassad Warehousing and Port Services, Inc.; that it was his duty to scrutinize the capabilities of drivers; and that he believed petitioner to be physically and mentally fit for he had undergone rigid training and attended the PPA safety seminar.[15] Petitioner Dassad Warehousing and Port Services, Inc. failed to support the testimony of its lone witness with documentary evidence which would have strengthened its claim of due diligence in the selection and supervision of its employees. Such an omission is fatal to its position, on account of which, Dassad can be rightfully held solidarily liable with its co-petitioner Raymundo Secosa for the damages suffered by the heirs of Erwin Francisco. However, we find that petitioner El Buenasenso Sy cannot be held solidarily liable with his co-petitioners. While it may be true that Sy is the president of petitioner 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. It is a settled precept in this jurisdiction that a corporation is invested by law with a personality separate from that of its stockholders or members.[16] It has a personality separate and distinct from those of the persons composing it as well as from that of any other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not in itself sufficient ground for disregarding the separate corporate personality. [17] A corporations authority to act and its liability for its actions are separate and apart from the individuals who own it. [18] The so-called veil of corporation fiction treats as separate and distinct the affairs of a corporation and its officers and stockholders. As a general 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.[19] 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 corporation internally, involving no rights of the public or third persons. In both instances, there must have been fraud and proof of it. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established.[20] It cannot be presumed.[21] The records of this case are bereft of any evidence tending to show the presence of any grounds enumerated above that will justify the piercing of the veil of corporate fiction such as to hold the president of Dassad Warehousing and Port Services, Inc. solidarily liable with it. The Isuzu cargo truck which ran over Erwin Francisco was registered in the name of Dassad Warehousing and Port Services, Inc., and not in the name of El Buenasenso Sy. Raymundo Secosa is an employee of Dassad Warehousing and Port Services, Inc. and not of El Buenasenso Sy. All these things, when taken collectively, point toward El Buenasenso Sys exclusion from liability for damages arising from the death of Erwin Francisco. Having both found Raymundo Secosa and Dassad Warehousing and Port Services, Inc. liable for negligence for the death of Erwin Francisco on June 27, 1996, we now consider the question of moral damages which his parents, herein respondents, are entitled to recover. Petitioners assail the award of moral damages of P500,000.00 for being manifestly absurd, mistaken and unjust. We are not persuaded. Under Article 2206, the spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish for the death of the deceased. The reason for the grant of moral damages has been expl ained in this wise: . . . the award of moral damages is aimed at a restoration, within the limits possible, of the spiritual status quo ante; and therefore, it must be proportionate to the suffering inflicted. The intensity of the pain experienced by the relatives of the victim is proportionate to the [22] intensity of affection for him and bears no relation whatsoever with the wealth or means of the offender. In the instant case, the spouses Francisco presented evidence of the searing pain that they felt when the premature loss of their son was relayed to them. That pain was highly evident in the testimony of the father who was forever deprived of a son, a son whose untimely death came at that point when the latter was nearing the culmination of every parents wish to educate their childre n. The death of Francis has indeed left a void in the lives of the respondents. Antonio Francisco testified on the effect of the death of his son, Francis, in this manner:

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(Atty. Balanag): What did you do when you learned that your son was killed on June 27, 1996? (ANTONIO FRANCISCO): I boxed the door and pushed the image of St. Nio telling why this happened to us. Mr. Witness, how did you feel when you learned of the untimely death of your son, Erwin Suares (sic)? Masakit po ang mawalan ng anak. Its really hard for me, the thought that my son is dead. xxx xxx xxx Q: How did your family react to the death of Erwin Suarez Francisco? A: All of my family and relatives were felt (sic) sorrow because they knew that my son is (sic) good. Q: We know that it is impossible to put money terms(s) [on] the life of [a] human, but since you are now in court and if you were to ask this court how much would you and your family compensate? (sic) A: Even if they pay me millions, they cannot remove the anguish of my son (sic). [23] Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded to allow the former to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone due to the [24] defendants culpable action and must, perforce, be proportional to the suffering inflicted. We have previously held as proper an award of P500,000.00 as moral damages to the heirs of a deceased family member who died in a vehicular accident. In our 2002 decision [25] in Metro Manila Transit Corporation v. Court of Appeals, et al., we affirmed the award of moral damages of P500,000.00 to the heirs of the victim, a mother, who died from injuries she sustained when a bus driven by an employee of the petitioner hit her. In the case at bar, we likewise affirm the portion of the assailed decision awarding the moral damages. Since the petitioners did not question the other damages adjudged against them by the court a quo, we affirm the award of these damages to the respondents. WHEREFORE, the petition is DENIED. The assailed decision is AFFIRMED with the MODIFICATION that petitioner El Buenasenso Sy is ABSOLVED from any liability adjudged against his co-petitioners in this case. Costs against petitioners. SO ORDERED. 8. G.R. No. 142616 July 31, 2001 PHILIPPINE NATIONAL BANK, petitioner, vs. RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE,respondents. KAPUNAN, J.: In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing a writ of preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's motion to dismiss. The antecedents of this case are as follows: Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations, likewise, organized and existing under Philippine law. On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City. This credit facility was later increased successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998. Respondents made repayments of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong. However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall. On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining order. On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At the hearing of the application for preliminary injunction, petitioner was given a period of seven days to file its written opposition to the application. On June 15, 1999, petitioner filed an opposition to the application for a writ of preliminary injunction to which the respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner and respondents. On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued on July 14, 1999. On October 4, 1999, the motion to dismiss was denied by the trial court judge for lack of merit. Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of preliminary injunction before the Court 1 of Appeals. In the impugned decision, the appellate court dismissed the petition. Petitioner thus seeks recourse to this Court and raises the following errors: 1. THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT. 2. Q: A: Q: A:

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THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2 Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Orders dated June 30, 1999 3 and October 4, 1999 be set aside and the dismissal of the complaint in the instant case. In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents' 4 properties. Respondents maintain that the entire credit facility is void as it contains stipulations in violation of the principle of mutuality 5 of contracts. In addition, respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL.6 The petition is impressed with merit. Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the contract: GROUNDS I THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS. II THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY THE 7 MONETARY BOARD. Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the foreclosure and eventual sale of the property in order to protect their rights to said property by reason of void credit facilities as bases for the real estate mortgage over the 8 said property. The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts entered into by respondents and PNB-IFL. The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them in accordance with the terms and conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to PNB by herein respondents. 9 Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract. Respondents, therefore, do not have any cause of action against petitioner. The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL.10 In justifying its ruling, the trial court, citing the case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the corporate entity may be disregarded where a corporation is the 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. 12 We disagree. The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter. 13The 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. 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. The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity. We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court disregarded the separate existence of the parent and the subsidiary on the ground that the latter was formed merely for the purpose of evading the payment of higher taxes. In the case at bar, respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded. While there exists no definite test of general application in determining when a subsidiary may be treated as a mere instrumentality of the parent corporation, some factors have been identified that will justify the application of the treatment of the doctrine of the piercing 14 of the corporate veil. The case of Garrett vs. Southern Railway Co. is enlightening. The case involved a suit against the Southern Railway Company. Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. He, however, filed a suit against Southern Railway Company on the ground that Southern had acquired the entire capital stock of Lenoir Car Works, hence, the latter corporation was but a mere instrumentality of the former. The Tennessee Supreme Court stated that as a 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. Said Court then outlined the circumstances which may be useful in the determination of whether the subsidiary is but a mere instrumentality of the parent-corporation: The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to catalogue the infinite variations of fact that can arise but there are certain common circumstances which are important and which, if present in the proper combination, are controlling. These are as follows: (a) The parent corporation owns all or most of the capital stock of the subsidiary.

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(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. The Tennessee Supreme Court thus ruled: In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the capital stock of Lenoir by Southern, and possibly subscription to the capital stock of Lenoir. . . The complaint must be dismissed. Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the 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.15 In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of the doctrine of piercing the veil of corporate fiction, to wit: 1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own. 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal 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 the operation.17 Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar. In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or defended in the name of the real party-in-interest, unless otherwise authorized by law or these Rules. 18 In mandatory terms, the Rules require that "parties-in-interest without whom no final determination can be had, an action shall be joined either as plaintiffs or defendants." 19 In the case at bar, the injunction suit is directed only against the agent, not the principal. Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional remedy but adjunct to the main suit.20 A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action. The dismissal of the principal action thus results in the denial of the prayer for the issuance of the writ. Further, there is no showing that respondents are entitled to the issuance of the writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure provides: SECTION 3. Grounds for issuance of preliminary injunction. A preliminary injunction may be granted when it is established: (a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually, (b) That the commission, continuance or non-performance of the acts or acts complained of during the litigation would probably work injustice to the applicant; or (c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual. Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation. 21 Respondents do not deny their indebtedness. Their properties are by their own choice encumbered by real estate mortgages. Upon the non-payment of the loans, which were secured by the mortgages sought to be foreclosed, the mortgaged properties are properly subject to a foreclosure sale. Moreover, respondents questioned the alleged void stipulations in the contract only when petitioner initiated the foreclosure proceedings. Clearly, respondents have failed to prove that they 22 have a right protected and that the acts against which the writ is to be directed are violative of said right. The Court is not unmindful of the findings of both the trial court and the appellate court that there may be serious grounds to nullify the provisions of the loan

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agreement. However, as earlier discussed, respondents committed the mistake of filing the case against the wrong party, thus, they must suffer the consequences of their error. All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith, must be lifted. IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED. SO ORDERED. 9. G.R. No. 108734 May 29, 1996 CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents. HERMOSISIMA, JR., J.:p The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into one. Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play. This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave abuse of discretion when it issued a "break-open order" to the sheriff to be enforced against personal property found in the premises of petitioner's sister company. Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers. On November, 1981, private respondents were served individual written notices of termination of employment by petitioner, effective on November 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the project in which they were hired had been completed. Public respondent found it to be, the fact, however, that at the time of the termination of private respondent's employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors whose workers performed the functions of private respondents. Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner. On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year or three hundred working days. On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on the ground that the said decision had already become final and executory. 2 On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents' back wages amounted to P199,800.00. 3 On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC. On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former positions. On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises. On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution. The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989: 1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent; 2. Levy was made upon personal properties he found in the premises; 4 3. Security guards with high-powered guns prevented him from removing the properties he had levied upon. The said special sheriff recommended that a "break-open order" be issued to enable him to enter petitioner's premises so that he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989. 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. (HPPI) 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.

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In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities Exchange Commission (SEC) and the General Information Sheet, dated May 25, 1987, submitted by HPPI to the Securities and Exchange Commission. The General Information Sheet submitted by the petitioner revealed the following: 1. Breakdown of Subscribed Capital Name of Stockholder Amount Subscribed HPPI P 6,999,500.00 Antonio W. Lim 2,900,000.00 Dennis S. Cuyegkeng 300.00 Elisa C. Lim 100,000.00 Teodulo R. Dino 100.00 Virgilio O. Casino 100.00 2. Board of Directors Antonio W. Lim Chairman Dennis S. Cuyegkeng Member Elisa C. Lim Member Teodulo R. Dino Member Virgilio O. Casino Member 3. Corporate Officers Antonio W. Lim President Dennis S. Cuyegkeng Assistant to the President Elisa O. Lim Treasurer Virgilio O. Casino Corporate Secretary 4. Principal Office 355 Maysan Road Valenzuela, Metro Manila. 5 On the other hand, the General Information Sheet of HPPI revealed the following: 1. Breakdown of Subscribed Capital Name of Stockholder Amount Subscribed Antonio W. Lim P 400,000.00 Elisa C. Lim 57,700.00 AWL Trading 455,000.00 Dennis S. Cuyegkeng 40,100.00 Teodulo R. Dino 100.00 Virgilio O. Casino 100.00 2. Board of Directors Antonio W. Lim Chairman Elisa C. Lim Member Dennis S. Cuyegkeng Member Virgilio O. Casino Member Teodulo R. Dino Member 3. Corporate Officers Antonio W. Lim President Dennis S. Cuyegkeng Assistant to the President Elisa C. Lim Treasurer Virgilio O. Casino Corporate Secretary 4. Principal Office 6 355 Maysan Road, Valenzuela, Metro Manila. On February 1, 1990, 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. On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion for break-open order. Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter, issued a breakopen order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit. Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3, 1992. Hence, the resort to the present petition. Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioner's construction business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, the same President and the same set of officers and subscribers. 7 We find petitioner's contention to be unmeritorious. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. 8 But, this separate and distinct personality of a corporation is merely a fiction created by law

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for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, 10 justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. 11 This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation. 12 The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit: 1. Stock ownership by one or common ownership of both corporations. 2. Identity of directors and officers. 3. The manner of keeping corporate books and records. 4. Methods of conducting the business. 13 The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the separate juridical personality of corporations as follows: Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of instances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as 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. 14 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. 15 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, thesame 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, (sic) it cannot be said that the property levied upon by the sheriff were not of respondents. 16 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 skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation. 1 The facts in this case are analogous to Claparols v. Court of Industrial Relations, 7 where we had the occasion to rule: Respondent court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioner. It is very clear that the latter corporation was a continuation and successor of the first entity . . . . Both predecessors and successor were owned and controlled by petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was owned by respondent . . . Claparols himself, and all the assets of the dissolved Claparols Steel and Nail plant were turned over to the emerging Claparols Steel Corporation. It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees. In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that: Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place where the property subject of execution is located or kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open order.
9

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Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim. Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter. Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by substantial evidence 18 are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion. WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are AFFIRMED. SO ORDERED. 10. G.R. No. L-47673 October 10, 1946 KOPPEL (PHILIPPINES), INC., plaintiff-appellant, vs. ALFREDO L. YATCO, Collector of Internal Revenue, defendant-appellee. Padilla, Carlos and Fernando for appellant. Office of the Solicitor General Ozaeta, First Assistant Solicitor General Reyes and. Office of the Solicitor General Reyes and Solicitor Caizanes for appellee. HILADO, J.: This is an appeal by Koppel (Philippines), Inc., from the judgment of the Court of First Instance of Manila in civil case No. 51218 of said court dismissing said corporation's complaint for the recovery of the sum of P64,122.51 which it had paid under protest to the Collector of Internal Revenue on October 30, 1936, as merchant sales tax. The main facts of the case were stipulated in the court below as follows: AGREED STATEMENT OF FACTS Now come the plaintiff by attorney Eulogio P. Revilla and the defendant by the Solicitor General and undersigned Assistant Attorney of the Bureau of Justice and, with leave of this Honorable Court, hereby respectfully stipulated and agree to the following facts, to wit: I. That plaintiff is a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office therein at the City of Manila, the capital stock of which is divided into thousand (1,000) shares of P100 each. The Koppel Industrial Car and Equipment company, a corporation organized and existing under the laws of the State of Pennsylvania, United States of America, and not licensed to do business in the Philippines, owned nine hundred and ninety-five (995) shares out of the total capital stock of the plaintiff from the year 1928 up to and including the year 1936, and the remaining five (5) shares only were and are owned one each by officers of the plaintiff corporation. II. That plaintiff, at all times material to this case, was and now is duly licensed to engage in business as a merchant and commercial broker in the Philippines; and was and is the holder of the corresponding merchant's and commercial broker's privilege tax receipts. III. That the defendant Collector of Internal revenue is now Mr. Bibiano L. Meer in lieu of Mr. Alfredo L. Yatco. IV. That during the period from January 1, 1929, up to and including December 31, 1932, plaintiff transacted business in the Philippines in the following manner, with the exception of the transactions which are described in paragraphs V and VI of this stipulation: When a local buyer was interested in the purchase of railway materials, machinery, and supplies, it asked for price quotations from plaintiff. Atypical form of such request is attached hereto and made a part hereof as Exhibit A. (Exhibit A represents typical transactions arising from written requests for quotations, while Exhibits B to G, inclusive, are typical transactions arising from verbal requests for quotation.) Plaintiff then cabled for the quotation desired for Koppel Industrial Car and Equipment Company. A sample of the pertinent cable is hereto attached and made a part hereof as Exhibit B. Koppel Industrial Car and Equipment Company answered by cable quoting its cost price, usually A. C. I. F. Manila cost price, which was later followed by a letter of confirmation. A sample of the said cable quotation and of the letter of confirmation are hereto attached and made a part hereof as Exhibits C and C-1. Plaintiff, however, quoted by Koppel Industrial Car and Equipment Company. Copy of the plaintiff's letter to purchaser is hereto attached and made a part hereof as Exhibit D. On the basis of these quotations, orders were placed by the local purchasers, copies of which orders are hereto attached as Exhibits E and E1. A cable was then sent to Koppel Industrial Car and Equipment company giving instructions to ship the merchandise to Manila forwarding the customer's order. Sample of said cable is hereto attached as Exhibit F. The bills of lading were usually made to "order" and indorsed in blank with notation to the effect that the buyer be notified of the shipment of the goods covered in the bills of lading; commercial invoices were issued by Koppel Industrial Car and Equipment Company in the names of the purchasers and certificates of insurance were likewise issued in their names, or in the name of Koppel Industrial Car and Equipment Company but indorsed in blank and attached to drafts drawn by Koppel Industrial Car and Equipment Company on the purchasers, which were forwarded through foreign banks to local banks. Samples of the bills of lading are hereto attached as Exhibits F-1, I-1, I-2 and I-3. Bills of ladings, Exhibits I-1, I-2 and I-3, may equally have been employed, but said Exhibits I-1, I-2 and I-3 have no connection with the transaction covered by Exhibits B to G, inclusive. The purchasers secured the shipping papers by arrangement with the banks, and thereupon received and cleared the shipments. If the merchandise were of European origin, and if there was not sufficient time to forward the documents necessary for clearance, through foreign banks to local banks, to the purchasers, the Koppel Industrial Car and Equipment company did, in many cases, send the documents directly from Europe to plaintiff with instructions to turn these documents over to the purchasers. In many cases, where sales was effected on the basis of C. I. F. Manila, duty paid, plaintiff advanced the sums required for the payment of the duty, and these sums, so advanced, were in every case reimbursed to plaintiff by Koppel Industrial Car and Equipment Company. The price were payable by drafts agreed upon in each case and drawn by Koppel Industrial Car and Equipment Company on respective purchasers through local banks, and payments were made to the banks by the purchasers

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on presentation and delivery to them of the above-mentioned shipping documents or copies thereof. A sample of said drafts is hereto attached as Exhibit G. Plaintiff received by way of compensation a percentage of the profits realized on the above transactions as fixed in paragraph 6 of the plaintiff's contract with Koppel Industrial Car and Equipment Company, which contract is hereto attached as Exhibit H, and suffered its corresponding share in the losses resulting from some of the transactions. That the total gross sales from January 1, 1929, up to and including December 31, 1932, effected in the foregoing manner and under the above specified conditions, amount to P3, 596,438.84. V. That when a local sugar central was interested in the purchase of railway materials, machinery and supplies, it secured quotations from, and placed the corresponding orders with, the plaintiff in substantially the same manner as outlined in paragraph IV of this stipulation, with the only difference that the purchase orders which were agreed to by the central and the plaintiff are similar to the sample hereto attached and made a part hereof as Exhibit I. Typical samples of the bills of lading covering the herein transaction are hereto attached and made a part hereto as Exhibits I-1, I-2 and I-3. The value of the sales carried out in the manner mentioned in this paragraph is P133,964.98. VI. That sometime in February, 1929, Miguel J. Ossorio, of Manila, Philippines, placed an option with Koppel Industrial Car and Equipment Company, through plaintiff, to purchase within three months a pair of Atlas-Diesel Marine Engines. Koppel Industrial Car and Equipment Company purchased said Diesel Engines in Stockholm, Sweden, for $16,508.32. The suppliers drew a draft for the amount of $16,508.32 on the Koppel Industrial Car and Equipment Company, which paid the amount covered by the draft. Later, Miguel J. Ossorio definitely called the deal off, and as Koppel Industrial Car and Equipment Company could not ship to or draw on said Mr. Miguel J. Ossorio, it in turn drew another draft on plaintiff for the same amount at six months sight, with the understanding that Koppel Industrial Car and Equipment Company would reimburse plaintiff when said engines were disposed of. Plaintiff honored the draft and debited the said sum of $16,508.32 to merchandise account. The engines were left stored at Stockholm, Sweden. On April 1, 1930, a new local buyer, Mr. Cesar Barrios, of Iloilo, Philippines, was found and the same engines were sold to him for $21,000 (P42,000) C. I. F. Hongkong. The engines were shipped to Hongkong and a draft for $21,000 was drawn by Koppel Industrial Car and Equipment Company on Mr. Cesar Barrios. After the draft was fully paid by Mr. Barrios, Koppel Industrial Car and Equipment Company reimbursed plaintiff with cost price of $16,508.32 and credited it with $1,152.95 as its share of the profit on the transaction. Exhibits J and J-1 are herewith attached and made integral parts of this stipulation with particular reference to paragraph VI hereof. VII. That plaintiff's share in the profits realized out of these transactions described in paragraphs IV, V and VI hereof totaling P3,772,403.82, amounts to P132,201.30; and that plaintiff within the time provided by law returned the aforesaid amount P132,201.30 for the purpose of the commercial broker's 4 per cent tax and paid thereon the sum P5,288.05 as such tax. VIII. That defendant demanded of the plaintiff the sum of P64,122.51 as the merchants' sales tax of 1% per cent on the amount of P3,772,403.82, representing the total gross value of the sales mentioned in paragraphs IV, V and VI hereof, including the 25 per cent surcharge for the late payment of the said tax, which tax and surcharge were determined after the amount of P5,288.05 mentioned in paragraph VI hereof was deducted. IX. That plaintiff, on October 30, 1936, paid under protest said sum of P64,122.51 in order to avoid further penalties, levy and distraint proceedings. X. That defendant, on November 10, 1936, overruled plaintiff's protest, and defendant has failed and refused and still fails and refuses, notwithstanding demands by plaintiff, to return to the plaintiff said sum of P64,122.51 or any part thereof. xxx xxx xxx That the parties hereby reserve the right to present additional evidence in support of their respective contentions. Manila, Philippines, December 26, 1939 (Sgd.) ROMAN OZAETA Solicitor General (Sgd.) ANTONIO CAIZARES Assistant Attorney (Sgd.) E. P. REVILLA Attorney for the Plaintiff 3rd Floor, Perez Samanillo Bldg., Manila Both parties adduced some oral evidence in clarification of or addition to their agreed statement of facts. A preponderance of evidence has established, besides the facts thus stipulated, the following: (a) The shares of stock of plaintiff corporation were and are all owned by Koppel Industries Car and Equipment Company of Pennsylvania, U. S. A., exceptive which were necessary to qualify the Board of Directors of said plaintiff corporation; (b) In the transactions involved herein the plaintiff corporation acted as the representative of Koppel Industrial Car and Equipment Company only, and not as the agent of both the latter company and the respective local purchasers plaintiff's principal witness, A.H. Bishop, its resident Vice-President, in his testimony invariably referred to Koppel Industrial Car and Equipment Co. as "our principal" 9 t. s. n., pp. 10, 11, 12, 19, 75), except that at the bottom of page 10 to the top of page 11, the witness stated that they had "several principal" abroad but that "our principal abroad was, for the years in question, Koppel Industrial Car and Equipment Company," and on page 68, he testified that what he actually said was ". . . but our principal abroad" and not "our principal abroad" as to which it is very significant that neither this witness nor any other gave the name of even a single other principal abroad of the plaintiff corporation; (c) The plaintiff corporation bore alone incidental expenses as, for instance, cable expenses-not only those of its own cables but also those of its "principal" (t.s.n., pp. 52, 53);

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(d) the plaintiff's "share in the profits" realized from the transactions in which it intervened was left virtually in the hands of Koppel Industrial Car and Equipment Company (t.s.n., p. 51); (e) Where drafts were not paid by the purchasers, the local banks were instructed not to protest them but to refer them to plaintiff which was fully empowered by Koppel Industrial Car and Equipment company to instruct the banks with regards to disposition of the drafts and documents (t.s.n., p. 50; Exhibit G); lawphil.net (f) Where the goods were European origin, consular invoices, bill of lading, and, in general, the documents necessary for clearance were sent directly to plaintiff (t.s.n., p. 14); (g) If the plaintiff had in stock the merchandise desired by local buyers, it immediately filled the orders of such local buyers and 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 (t.s.n., pp. 39-43); (h) Whenever the deliveries made by Koppel Industrial Car and Equipment Company were incomplete or insufficient to fill the local buyer's orders, plaintiff 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 transactions plaintiff did not realize any profit (t.s.n., pp. 53-54); (i) The contract of sale involved herein were all perfected in the Philippines. Those described in paragraph IV of the agreed statement of facts went through the following process: (1) "When a local buyer was interested in the purchase of railway materials, machinery, and supplies, it asked for price quotations from plaintiff"; (2) "Plaintiff then cabled for the quotation desired from Koppel Industrial Car and Equipment Company"; (3) "Plaintiff, however, quoted to the purchaser a selling price above the figures quoted by Koppel Industrial Car and Equipment Company"; (4) "On the basis of these quotations, orders were placed by the local purchasers . . ." Those described in paragraph V of said agreed statement of facts were transacted "in substantially the same manner as outlined in paragraph IV." As to the single transaction described in paragraph VI of the same agreed statement of facts, discarding the Ossorio option which anyway was called off, "On April 1, 1930, a new local buyer, Mr. Cesar Barrios, of Iloilo, Philippines, was found and the same engines were sold to him for $21,000(P42,000) C.I.F. Hongkong." (Emphasis supplied.). (j) Exhibit H contains the following paragraph: It is clearly understood that the intent of this contract is that the broker shall perform only the functions of a broker as set forth above, and shall not take possession of any of the materials or equipment applying to said orders or perform any acts or duties outside the scope of a broker; and in no sense shall this contract be construed as granting to the broker the power to represent the principal as its agent or to make commitments on its behalf. The Court of First Instance held for the defendant and dismissed plaintiff's complaint with costs to it. Upon this appeal, seven errors are assigned to said judgment as follows:. 1. That the court a quo erred in not holding that appellant is a domestic corporation distinct and separate from, and not a mere branch of Koppel Industrial Car and Equipment Co.; 2. the court a quo erred in ignoring the ruling of the Secretary of Finance, dated January 31, 1931, Exhibit M; 3. the court a quo erred in not holding that a character of a broker is determined by the nature of the transaction and not by the basis or measure of his compensation; 4. The court a quo erred in not holding that appellant acted as a commercial broker in the transactions covered under paragraph VI of the agreed statement of facts; 5. The court a quo erred in not holding that appellant acted as a commercial broker in the transactions covered under paragraph v of the agreed statement of facts; 6. The court a quo erred in not holding that appellant acted as a commercial broker in the sole transaction covered under paragraph VI of the agreed statement of facts; 7. the court a quo erred in dismissing appellant's complaint. The lower court found and held that Koppel (Philippines), Inc. is a mere dummy or brach ("hechura") of Koppel industrial Car and Equipment Company. The lower court 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." I. In its first assignment of error appellant submits that the trial court erred in not holding that it is a domestic corporation distinct and separate from and not a mere branch of Koppel Industrial Car and Equipment Company. It contends that its corporate existence as Philippine corporation can not be collaterally attacked and that the Government is estopped from so doing. As stated above, the lower court did not deny legal personality to appellant for any and all purposes, but held in effect that in the transaction involved in this case the public interest and convenience would be defeated and what would amount to a tax evasion perpetrated, unless resort is had to the doctrine of "disregard of the corporate fiction." In other words, in looking through the corporate form to the ultimate person or corporation behind that form, in the particular transactions which were involved in the case submitted to its determination and judgment, the court did so in order to prevent the contravention of the local internal revenue laws, and the perpetration of what would amount to a tax evasion, inasmuch as it considered and in our opinion, correctly that appellant Koppel (Philippines), Inc. was a mere branch or agency or dummy ("hechura") of Koppel Industrial Car and Equipment Co. The court did not hold that the corporate personality of Koppel (Philippines), Inc., 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." (1 Flethcer, Cyclopedia of Corporation, Permanent ed., p. 124, section 41.) A leading and much cited case puts it as follows: If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal entity is used to defeat public convinience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of

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persons. (1 Fletcher Cyclopedia of Corporation [Permanent Edition], pp. 135, 136; United States vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255, per Sanborn, J.) In his second special defense appellee alleges "that the plaintiff was and is in fact a branch or subsidiary of Koppel Industrial Car and Equipment Co., a Pennsylvania corporation not licensed to do business in the Philippines but actually doing business here through the plaintiff; that the said foreign corporation holds 995 of the 1,000 shares of the plaintiff's capital stock, the remaining five shares being held by the officers of the plaintiff herein in order to permit the incorporation thereof and to enable its aforesaid officers to act as directors of the plaintiff corporation; and that plaintiff was organized as a Philippine corporation for the purpose of evading the payment by its parent foreign corporation of merchants' sales tax on the transactions involved in this case and others of similar nature." By most courts the entity is normally regarded but is disregarded to prevent injustice, or the distortion or hiding of the truth, or to let in a just defense. (1 Fletcher, Cyclopedia of Corporation, Permanent Edition, pp. 139,140; emphasis supplied.) Another rule is that, when the corporation is the mere alter ego, or business conduit of a person, it may de disregarded." (1 Fletcher, Cyclopedia of Corporation, Permanent Edition, p. 136.) Manifestly, the principle is the same whether the "person" be natural or artificial. A very numerous and growing class of cases wherein the corporate entity is disregarded is that (it 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)." (1 Fletcher, Cyclopedia of Corporation, Permanent ed., pp. 154, 155.) While we recognize the legal principle that a corporation does not lose its entity by the ownership of the bulk or even the whole of its stock, by another corporation (Monongahela Co. vs. Pittsburg Co., 196 Pa., 25; 46 Atl., 99; 79 Am. St. Rep., 685) yet it is equally well settled and ignore corporate forms." (Colonial Trust Co. vs. Montello Brick Works, 172 Fed., 310.) Where it appears that two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that two corporations are distinct entities, and treat them as identical. (Abney vs. Belmont Country Club Properties, Inc., 279 Pac., 829.) . . . the legal fiction of distinct corporate existence will be disregarded in a case where a corporation is so organized and controlled and its affairs are so conducted, as to make it merely an instrumentality or adjunct of another corporation. (Hanter vs. Baker Motor Vehicle Co., 190 Fed., 665.) In United States vs. Lehigh Valley R. Co. 9220 U.S., 257; 55 Law. ed., 458, 464), the Supreme Court of the United States disregarded the artificial personality of the subsidiary coal company in order to avoid that the parent corporation, the Lehigh Valley R. Co., should be able, through the fiction of that personality, to evade the prohibition of the Hepburn Act against the transportation by railroad companies of the articles and commodities described therein. Chief Justice White, speaking for the court, said: . . . Coming to discharge this duty it follows, in view of the express prohibitions of the commodities clause, it must be held that while the right of a railroad company as a stockholder to use its stock ownership for the purpose of a bona fide separate administration of the affairs of a corporation in which it has a stock interest may not be denied, the use of such stock ownership in substance for the purpose of destroying the entity of a producing, etc., corporation, and commingling its affairs in administration with the affairs of the railroad company, so as to make the two corporations virtually one, brings the railroad company so voluntarily acting as to such producing, etc., corporation within the prohibitions of the commodities clause. In other words, that by operation and effect of the commodities clause there is duty cast upon a railroad company proposing to carry in interstate commerce the product of a producing, etc., corporation in which it has a stock interest, not to abuse such power so as virtually to do by indirection that which the commodities clause prohibits, a duty which plainly would be violated by the unnecessary commingling of the affairs of the producing company with its own, so as to cause them to be one and inseparable. Corrobarative authorities can be cited in support of the same proposition, which we deem unnecessary to mention here. From the facts hereinabove stated, as established by a preponderance of the evidence , particularly those narrated in paragraph (a), (b), (c), (d), (e),(f), (h), (i), and (j) after the agreed statement of facts, we find that, in so far as the sales involved herein are concerned, Koppel (Philippines), Inc., and Koppel Industrial Car and Equipment company are to all intents and purposes one and the same; or, to use another mode of expression, that, as regards those transactions, the former corporation is a mere branch, subsidiary or agency of the latter. To our mind, this is conclusively borne out by the fact, among others, that the amount of he so-called "share in the profits" of Koppel (Philippines), Inc., was ultimately left to the sole, unbridled control of Koppel Industrial Car and Equipment Company. If, in their relations with each other, Koppel (Philippines), Inc., was considered and intended to function as a bona fide separate corporation, we can not conceive how this arrangement could have been adopted, for if there was any factor in its business as to which it would in that case naturally have been opposed to being thus controlled, it must have been precisely the amount of profit which it could endeavor and hope to earn. No group of businessmen could be expected to organize a mercantile corporation the ultimate end of which could only be profit 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. Evidently, Koppel Industrial Car and Equipment Company made us of its ownership of the overwhelming majority 99.5% of the capital stock of the local corporation to control the operations of the latter to such an extent that it had the final say even as to how much should be allotted to said local entity in the so-called sharing in the profits. We can not overlook the fact that in the practical working of corporate organizations of the class to which these two entities belong, the holder or holders of the controlling part of the capital stock of the corporation, particularly where the control is determined by the virtual ownership of the totality of the shares, dominate not only the selection of the Board of Directors but, more often than not, also the action of that Board. Applying this to the instant case, we can not conceive how the Philippine corporation could effectively go against the policies, decisions, and desires of the American corporation with regards to the scheme which was devised through the instrumentality of the contract Exhibit H, as well as all the other details of the system which was adopted in order to avoid paying the 1 per cent merchants sales tax. Neither can we conceive how the Philippine corporation could avoid following the directions of the American corporation held 99.5 per cent of the capital stock of the Philippine corporation. In the present instance, we note that Koppel (Philippines), Inc., was represented in the Philippines by its "resident Vice-President." This fact necessarily leads to the inference that the corporation had at least a Vice-

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President, and presumably also a President, who were not resident in the Philippines but in America, where the parent corporation is domiciled. If Koppel (Philippines), Inc., had been intended to operate as a regular domestic corporation in the Philippines, where it was formed, the record and the evidence do not disclose any reason why all its officers should not reside and perform their functions in the Philippines. Other facts appearing from the evidence, and presently to be stated, strengthen our conclusion, because they can only be explained if the local entity is considered as a mere subsidiary, branch or agency of the parent organization. Plaintiff 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 (t.s.n., pp. 53, 54) a fact which could not conceivably have been the case if plaintiff had acted in such transactions as an entirely independent entity doing business for profit, of course with the American concern. There has been no attempt even to explain, if the latter situation really obtained, why these two corporations should have thus departed from the ordinary course of business. Plaintiff was charged by the American corporation with the cost even of the latter's cable quotations from ought that appears from the evidence, this can only be comprehended by considering plaintiff as such a subsidiary, branch or agency of the parent entity, in which case it would be perfectly understandable that for convenient accounting purposes and the easy determination of the profits or losses of the parent corporation's Philippines should be charged against the Philippine office and set off against its receipts, thus separating the accounts of said branch from those which the central organization might have in other countries. The reference to plaintiff by local banks, under a standing instruction of the parent corporation, of unpaid drafts drawn on Philippine customers by said parent corporation, whenever said customers dishonored the drafts, and the fact that the American corporation had previously advised said banks that plaintiff in those cases was "fully empowered to instruct (the banks) with regard to the disposition of the drafts and documents" (t.s.n., p. 50), in the absence of any other satisfactory explanation naturally give rise to the inference that plaintiff was a subsidiary, branch or agency of the American concern, rather than an independent corporation acting as a broker. For, without such positive explanation, this delegation of power is indicative of the relations between central and branch offices of the same business enterprise, with the latter acting under instructions already given by the former. Far from disclosing a real separation between the two entities, particularly in regard to the transactions in question, the evidence reveals such commongling and interlacing of their activities as to render even incomprehensible certain accounting operations between them, except upon the basis that the Philippine corporation was to all intents and purposes a mere subsidiary, branch, or agency of the American parent entity. Only upon this basis can it be comprehended why it seems not to matter at all how much profit would be allocated to plaintiff, or even that no profit at all be so allocated to it, at any given time or after any given period. As already stated above, under the evidence the sales in the Philippines of the railway materials, machinery and supplies imported here by Koppel Industrial Car and Equipment Company could have been as conviniently and efficiently transacted and handled if not more so had said corporation merely established a branch or agency in the Philippines and obtained license to do business locally; and if it had done so and said sales had been effected by such branch or agency, there seems to be no dispute that the 1 per cent merchants' sales tax then in force would have been collectible. So far as we can discover, there would be only one, but very important, difference between the two schemes a difference in tax liability on the ground that the sales were made through another and distinct corporation, as alleged broker, when we have seen that this latter corporation is virtually owned by the former, or that they practically one and the same, is to sanction a circumvention of our tax laws, and permit a tax evasion of no mean proportions and the consequent commission of a grave injustice to the Government. Not only this; it would allow the taxpayer to do by indirection what the tax laws prohibited to be done directly (non-payment of legitimate taxes), paraphrasing the United States Supreme Court in United States vs. Lehigh Valley R. Co., supra. The act of one corporation crediting or debiting the other for certain items, expenses or even merchandise sold or disposed of, is perfectly compatible with the idea of the domestic entity being or acting as a mere branch, agency or subsidiary of the parent organization. Such operations were called for any way by the exigencies or convenience of the entire business. Indeed, accounting operation such as these are invitable, and have to be effected in the ordinary course of business enterprise extends its trade to another land through a branch office, or through another scheme amounting to the same thing. If plaintiff were to act as broker in the Philippines for any other corporation, entity or person, distinct from Koppel Industrial Car and Equipment company, an entirely different question will arise, which, however, we are not called upon, nor in a position, to decide. As stated above, Exhibit H contains to the following paragraph: It is clearly understood that the intent of this contract is that the broker shall perform only the functions of a broker as set forth above, and shall not take possession of any of the materials or equipment applying to said orders or perform any acts or duties outside the scope of a broker; and in no sense shall this contract be construed as granting to the broker the power to represent the principal as its agent or to make commitments on its behalf. The foregoing paragraph, construed in the light of other facts noted elsewhere in this decision, betrays, we think a deliberate intent, through the medium of a scheme devised with great care, to avoid the payment of precisely the 1 per cent merchants' sales tax in force in the Philippines before, at the time of, and after, the making of the said contract Exhibit H. If this were to be allowed, the payment of a tax, which directly could not have been avoided, could be evaded by indirection, consideration being had of the aforementioned peculiar relations between the said American and local corporations. Such evasion, involving as it would, a violation of the former Internal Revenue Law, would even fall within the penal sanction of section 2741 of the Revised Administrative Code. Which only goes to show the illegality of the whole scheme. We are not here concerned with the impossibility of collecting the merchants' sales tax, as a mere incidental consequence of transactions legal in themselves and innocent in their purpose. We are dealing with a scheme the primary, not to say the sole, object of which the evasion of the payment of such tax. It is this aim of the scheme that makes it illegal. We have said above that the contracts of sale involved herein were all perfected in the Philippines. From the facts stipulated in paragraph IV of the agreed statement of facts, it clearly appears that the Philippine purchasers had to wait for Koppel Industrial Car and Equipment Company to communicate its cost prices to Koppel (Philippines), Inc., were perfected in the Philippines. In those cases where no such price quotations from the American corporation were needed, of course, the sales effected in those cases described in paragraph V of the agreed statement of facts were, as expressed therein, transacted "in substantially the same manner as outlined in paragraph VI." Even the single transaction described in paragraph VI of the agreed statement of facts was also perfected in the Philippines, because the contracting parties were here and the consent of each was given here. While it is true that when the contract

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was thus perfected in the Philippines the pair of Atlas-Diesel Marine Engines were in Sweden and the agreement was to deliver them C.I.F. Hongkong, the contract of sale being consensual perfected by mere consent (Civil Code, article 1445; 10 Manresa, 4th ed., p. 11), the location of the property and the place of delivery did not matter in the question of where the agreement was perfected. In said paragraph VI, we read the following, as indicating where the contract was perfected, considering beforehand that one party, Koppel (Philippines),Inc., which in contemplation of law, as to that transaction, was the same Koppel Industrial Car Equipment Co., was in the Philippines: . . . on April 1, 1930, a new local buyer Mr. Cesar Barrios, of Iloilo, Philippines, was found and the same engines were sold to him for $21,000 (P42,000) C.I.F. Hongkong . . . (Emphasis supplied.) Under the revenue law in force when the sales in question took place, the merchants' sales tax attached upon the happening of the respective sales of the "commodities, goods, wares, and merchandise" involved, and we are clearly of opinion that such "sales" took place upon the perfection of the corresponding contracts. If such perfection took place in the Philippines, the merchants' sales tax then in force here attached to the transactions. Even if we should consider that the Philippine buyers in the cases covered by paragraph IV and V of the agreed statement of facts, contracted with Koppel Industrial Car and Equipment company, we will arrive at the same final result. It can not be denied in that case that said American corporation contracted through Koppel (Philippines), Inc., which was in the Philippines. The real transaction in each case of sale, in final effect, began with an offer of sale from the seller, said American corporation, through its agent, the local corporation, of the railway materials, machinery, and supplies at the prices quoted, and perfected or completed by the acceptance of that offer by the local buyers when the latter, accepting those prices, placed their orders. The offer could not correctly be said to have been made by the local buyers when they asked for price quotations, for they could not rationally be taken to have bound themselves to buy before knowing the prices. And even if we should take into consideration the fact that the american corporation contracted, at least partly, through correspondence, according to article 54 of the Code of Commerce, the respective contracts were completed from the time of the acceptance by the local buyers, which happened in the Philippines. Contracts executed through correspondence shall be completed from the time an answer is madeaccepting the proposition or the conditions by which the latter may be modified." (Code of Commerce, article 54; emphasis supplied.) A contract is as a rule considered as entered into at the place where the place it is performed. So where delivery is regarded as made at the place of delivery." (13 C. J., 580-81, section 581.) (In the consensual contract of sale delivery is not needed for its perfection.) II. Appellant's second assignment of error can be summarily disposed of. It is clear that the ruling of the Secretary of Finance, Exhibit M, was not binding upon the trial court, much less upon this tribunal, since the duty and power of interpreting the laws is primarily a function of the judiciary. (Ortua vs. Singson Encarnacion, 59 Phil., 440, 444.) Plaintiff cannot be excused from abiding by this legal principle, nor can it properly be heard to say that it relied on the Secretary's ruling and that, therefore, the courts should not now apply an interpretation at variance therewith. The rule of stare decisis is undoubtedly entitled to more respect in the construction of statutes than the interpretations given by officers of the administrative branches of the government, even those entrusted with the administration of particular laws. But this court, in Philippine Trust Company and Smith, Bell and Co. vs. Mitchell(59 Phil., 30, 36), said: . . . The rule of stare decisis is entitled to respect. Stability in the law, particularly in the business field, is desirable. But idolatrous reverence for precedent, simply as precedent, no longer rules. More important than anything else is that court should be right. . . . III. In the view we take of the case, and after the disposition made above of the first assignment of error, it becomes unnecessary to make any specific ruling on the third, fourth, fifth, sixth, and seventh assignments of error, all of which are necessarily disposed of adversely to appellant's contention. Wherefore, he judgment appealed from is affirmed, with costs of both instances against appellant. So ordered. 11. G.R. No. 127181 September 4, 2001 LAND BANK OF THE PHILIPPINES, petitioner, vs. THE COURT OF APPEALS, ECO MANAGEMENT CORPORATION and EMMANUEL C. OATE, respondents. QUISUMBING, J.: 1 This petition for review on certiorari seeks to reverse and set aside the decision promulgated on June 17, 1996 in CA-GR No. CV2 43239 of public respondent and its resolution dated November 29, 1996 denying petitioners motion for reconsideration.3 The facts of this case as found by the Court of Appeals and which we find supported by the records are as follows: On various dates in September, October, and November, 1980, appellant Land Bank of the Philippines (LBP) extended a series of credit accommodations to appellee ECO, using the trust funds of the Philippine Virginia Tobacco Administration (PVTA) in the aggregate amount of P26,109,000.00. The proceeds of the credit accommodations were received on behalf of ECO by appellee Oate. On the respective maturity dates of the loans, ECO failed to pay the same. Oral and written demands were made, but ECO was unable to pay. ECO claims that the company was in financial difficulty for it was unable to collect its investments with companies which were affected by the financial crisis brought about by the Dewey Dee scandal. xxx On October 20, 1981, ECO proposed and submitted to LBP a "Plan of Payment" whereby the former would set up a financing company which would absorb the loan obligations. It was proposed that LBP would participate in the scheme through the conversion of P9,000,000.00 which was part of the total loan, into equity. On March 4, 1982, LBP informed ECO of the action taken by the formers Trust Committee concerning the "Plan of Pay ment" which reads in part, as follows: xxx

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Please be informed that the Banks Trust Committee has deliberated on the plan of payment during its meetings on November 6, 1981 and February 23, 1982. The Committee arrived at a decision that you may proceed with your Plan of Payment provided Land Bank shall not participate in the undertaking in any manner whatsoever. In view thereof, may we advise you to make necessary revision in the proposed Plan of Payment and submit the same to us as soon as possible. (Records, p. 428) On May 5, 1982, ECO submitted to LBP a "Revised Plan of Payment" deleting the latters participation in the proposed financing company. The Trust Committee deliberated on the "Revised Plan of Payment" and resolved to reject it. LBP then sent a letter to the PVTA for the latters comments. The letter stated that if LBP did not hear from PVTA within five (5) days from the latters receipt of the letter, such silence would be construed to be an approval of LBPs intention to file suit ag ainst ECO and its corporate officers. PVTA did not respond to the letter. On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money against ECO and Emmanuel C. Oate before the Regional Trial Court of Manila, Branch 50. After trial on the merits, a judgment was rendered in favor of LBP; however, appellee Oate was absolved from personal liability for insufficiency of evidence. Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP claimed that there was an error in computation in the amounts to be paid. LBP also questioned the dismissal of the case with regard to Oate. On the other hand, ECO questioned its being held liable for the amount of the loan. Upon order of the court, both parties submitted Supplemental Motions f or Reconsideration and their respective Oppositions to each others Motions. On February 3, 1993, the trial court rendered an Amended Decision, the dispositive portion of which reads as follows: ACCORDINGLY, the Decision, dated December 3, 1990, is hereby modified to read as follows: WHEREFORE, judgment is rendered ordering defendant Eco Management Corporation to pay plaintiff Land Bank of the Philippines: A. The sum of P26,109,000.00 representing the total amount of the ten (10) loan accommodations plus 16% interest per annum computed from the dates of their respective maturities until fully paid, broken down as follows: 1. the principal amount of P4,000,000.00 with interest at 16% computed from September 18, 1981; 2. the principal amount of P5,000,000.00 with interest at 16% computed from September 21, 1981; 3. the principal amount of P1,000,000.00 with interest rate at 16% computed from September 28, 1981; 4. the principal amount of P1,000,000.00 with interest at 15% computed from October 5, 1981; 5. the principal amount of P2,000,000.00 with interest rate at of 16% computed from October 8, 1981; 6. the principal amount of P2,000,000.00 with interest rate at of 16% from October 23, 1981; 7. the principal amount of P814,000.00 with interest rate at of 16% computed from November 1, 1981; 8. the principal amount of P2,295,000.00 with interest rate at of 16% computed from November 6, 1981; 9. the principal amount of P3,000,000.00 with interest rate at of 16% computed from November 7, 1981; 10. the principal amount of P5,000,000.00 with interest rate at 16% computed from November 9, 1981; B. The sum of P260,000.00 as attorneys fees; and C. The costs of the suit. The case as against defendant Emmanuel Oate is dismissed for insufficiency of evidence. SO ORDERED. (Records, p. 608)4 The Court of Appeals affirmed in toto the amended decision of the trial court. 5 On June 9, 1996, petitioner filed a motion for reconsideration, which was denied in a resolution dated November 29, 1996. Hence, this present petition, assigning the following errors allegedly committed by the Court of Appeals: A THE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT BASED ON THE FACTS AS ESTABLISHED BY EVIDENCE, THERE EXISTS A SUBSTANTIAL AND JUSTIFIABLE GROUND UPON WHICH THE LEGAL NOTION OF THE CORPORATE FICTION OF RESPONDENT ECO MANAGEMENT CORPORATION MAY BE PIERCED. B THE COURT OF APPEALS GRAVELY ERRED IN NOT A[T]TACHING LIABILITY TO RESPONDENT EMMANUEL C. OATE JOINTLY AND SEVERALLY WITH RESPONDENT ECO MANAGEMENT CORPORATION FOR THE PRINCIPAL SUM OF P26 M PLUS INTEREST THEREON. C THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE LOWER COURT THE SAME NOT 6 BEING SUPPORTED BY THE EVIDENCE AND APPLICABLE LAWS AND JURISPRUDENCE. The primary issues for resolution here are (1) whether or not the corporate veil of ECO Management Corporation should be pierced; and (2) whether or not Emmanuel C. Oate should be held jointly and severally liable with ECO Management Corporation for the loans incurred from Land Bank. Petitioner contends that the personalities of Emmanuel Oate and of ECO Management Corporation should be treated as one, for the particular purpose of holding respondent Oate liable for the loans incurred by corporate respondent ECO from Land Bank. According to petitioner, the said corporation was formed ostensibly to allow Oate to acquire loans from Land Bank which he used for his personal advantage. Petitioner submits the following arguments to support its stand: (1) Respondent Oate owns the majority of the interest holdings in respondent corporation, specifically during the crucial time when appellees applied for and obtained the loan from LANDBANK, sometime in September to November, 1980. (2) The acronym ECO stands for the initials of Emmanuel C. Oate, which is the logical, sensible and concrete explanation for the name ECO, in the absence of evidence to the contrary. (3) Respondent Oate has always referred to himself as the debtor, not merely as an officer or a representative of respondent corporation. (4) Respondent Oate personally paid P1 Million taken from trust accounts in his name. (5) Respondent Oate made a personal offering to pay his personal obligation. (6) Respondent Oate controlled respondent corporation by simultaneously holding two (2) corporate positions, viz., as

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Chairman and as treasurer, beginning from the time of respondent corporations incorporation and continuously thereafter with out benefit of election. (7) Respondent corporation had not held any meeting of the stockholders or of the Board of Directors, as shown by the fact that no proceeding of such corporate activities was filed with or borne by the record of the Securities and Exchange Commission (SEC). The only corporate records respondent corporation filed with the SEC were the following: Articles of Incorporation, 7 Treasurers Affidavit, Undertaking to Change Corporate Name, Statement of Assets and Liabilities. Private respondents, in turn, contend that Oates only participation in the transaction between petitioner and respondent EC O was his execution of the loan agreements and promissory notes as Chairman of the corporations Board of Directors. There was nothing i n the loan agreement nor in the promissory notes which would indicate that Oate was binding himself jointly and severally with ECO. Respondents likewise deny that ECO stands for Emmanuel C. Oate. Respondents also note that Oate is no longer a majority stockholder of ECO and that the payment by a third person of the debt of another is allowed under the Civil Code. They also alleged that there was no fraud and/or bad faith in the transactions between them and Land Bank. Hence, private respondents conclude, there 8 is no legal ground to pierce the veil of respondent corporations personality. At the outset, we find the matters raised by petitioner in his argumentation are mainly questions of fact which are not proper in a petition 9 of this nature. Petitioner is basically questioning the evaluation made by the Court of Appeals of the evidence submitted at the trial. The Court of Appeals had found that petitioners evidence was not sufficient to justify the piercing of ECOs corporate 10 personality. Petitioner contended otherwise. It is basic that where what is being questioned is the sufficiency of evidence, it is a question of fact.11 Nevertheless, even if we regard these matters as tendering an issue of law, we still find no reason to reverse the findings of the Court of Appeals. A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it 12 as well as from any other legal entity to which it may be related. By this attribute, a stockholder may not, generally, be made to answer 13 for acts or liabilities of the said corporation, and vice versa. This separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice. 14 For this reason, it may not be used or invoked for ends subversive to the policy and purpose behind its creation15 or which could not have been intended by law to which it owes its being. 16 This is particularly 17 true when the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues,18 perpetrate deception or otherwise circumvent the law.19 This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. 20 In all these cases, the notion of corporate entity will be pierced or disregarded with reference to the particular transaction involved. 21 The burden is on petitioner to prove that the corporation and its stockholders are, in fact, using the personality of the corporation as a means to perpetrate fraud and/or escape a liability and responsibility demanded by law. In order to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. 22 In the absence of any malice or bad faith, a 23 stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities. The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude that Oate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate personalities. 24Neither is the fact that the name "ECO" represents the first three letters of Oates name sufficient reason to pierce the veil. Even if it did, it does not mean that the said corporation is merely a dummy of Oate. A corporation may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders. That respondent corporation in this case was being used as a mere alter ego of Oate to obtain the loans had not been shown. Bad faith or fraud on the part of ECO and Oate was not also shown. As the Court of Appeals observed, if shareholders of ECO meant to defraud petitioner, then they could have just easily absconded instead of going out of their way to propose "Plans of Payment."25 Likewise, Oate volunteered to pay a portion of the corporations debt.26 This offer demonstrated good faith on his part to ease the debt of the corporation of which he was a part. It is understandable that a shareholder would want to help his corporation and in the process, assure that his stakes in the said corporation are secured. In this case, it was established that the P1 Million did not come solely from Oate. It was taken from a trust account which was owned by Oate and other investors. 27 It was likewise proved that 28 the P1 Million was a loan granted by Oate and his co-depositors to alleviate the plight of ECO. This circumstance should not be construed as an admission that he was really the debtor and not ECO. In sum, we agree with the Court of Appeals conclusion that the evidence presented by the petitioner does not suffice to hold respondent Oate personally liable for the debt of co-respondent ECO. No reversible error could be attributed to respondent courts decision and resolution which petitioner assails. WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of the Court of Appeals in CA-G.R. CV No. 43239 are AFFIRMED. Costs against petitioner. SO ORDERED.

12. G.R. No. L-20214 March 17, 1923 G. C. ARNOLD, plaintiff-appellant, vs. WILLITS & PATTERSON, LTD., defendant-appellee. Fisher, DeWitt, Perkins and Brady for appellant. Ross and Lawrence for appellee. STATEMENT For a number of years prior to the times alleged in the complaint, the plaintiff was in the employ of the International Banking Corporation of Manila, and it is conceded that he is a competent and experienced business man. July 31, 1916, C. D. Willits and I. L. Patterson were partners doing business in San Francisco, California, under the name of Willits & Patterson. The plaintiff was then in San Francisco, and as a result of negotiations the plaintiff and the firm entered into a written contract, known in the record as Exhibit A, by

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which the plaintiff was employed as the agent of the firm in the Philippine Islands for certain purposes for the period of five years at a minimum salary of $200 per month and travelling expenses. The plaintiff returned to Manila and entered on the discharge of his duties under the contract. As a result of plaintiff's employment and the world war conditions, the business of the firm in the Philippines very rapidly increased and grew beyond the fondest hopes of either party. A dispute arose between the plaintiff and the firm as to the construction of Exhibit A as to the amount which plaintiff should receive for his services. Meanwhile Patterson retired from the firm and Willits became the sole owner of its assets. For convenience of operation and to serve his own purpose, Willits organized a corporation under the laws of California with its principal office at San Francisco, in and by which he subscribed for, and became the exclusive owner of all the capital stock except a few shares for organization purposes only, and the name of the firm was used as the name of the corporation. A short time after that Willits came to Manila and organized a corporation here known as Willits & Patterson, Ltd., in and to which he again subscribed for all of the capital stock except the nominal shares necessary to qualify the directors. In legal effect, the San Francisco corporation took over and acquired all of the assets and liabilities of the Manila corporation. At the time that Willits was in Manila and while to all intents and purposes he was the sole owner of the stock of corporations, there was a conference between him and the plaintiff over the disputed construction of Exhibit A. As a result of which another instrument, known in the record as Exhibit B, was prepared in the form of a letter which the plaintiff addressed to Willits at Manila on November 10, 1919, the purpose of which was to more clearly define and specify the compensation which the plaintiff was to receive for his services. Willits received and confirmed this letter by signing the name of Willits & Patterson, By C.d. Willits. At the time both corporations were legally organized, and there is nothing in the corporate minutes to show that Exhibit B was ever formally ratified or approved by either corporation. After its organization, the Manila corporation employed a regular accountant whose duty it was to audit the accounts of the company and render financial statements both for the use of the local banks and the local and parent corporations at San Francisco. From time to time and in the ordinary course of business such statements of account were prepared by the accountant and duly forwarded to the home office, and among other things was a statement of July 31, 1921, showing that there was due and owing the plaintiff under Exhibit B the sum of P106,277.50. A short time previous to that date, the San Francisco corporation became involved in financial trouble, and all of its assets were turned over to a "creditors' committee." When this statement was received, the "creditors' committee" immediately protested its allowance. An attempt was made without success to adjust the matter on a friendly basis and without litigation. January 10, 1922, the plaintiff brought this action to recover from the defendant the sum of P106,277.50 with legal interest and costs, and written instruments known in the record as Exhibits A and B were attached to, and made a part of, the complaint. For answer, the defendant admits the formal parts of the complaint, the execution of Exhibit A and denies each and every other allegation, except as specifically admitted, and alleges that what is known as Exhibit B was signed by Willits without the authority of the defendant corporation or the firm of Willits & Patterson, and that it is not an agreement which was ever entered into with the plaintiff by the defendant or the firm, and, as a separate defense and counterclaim, it alleges that on the 30th of June, 1920, there was a balance due and owing the plaintiff from the defendant under the contract Exhibit A of the sum of P8,741.05. That his salary from June 30, 1920, to July 31, 1921, under Exhibit A was $400 per month, or a total of P10,400. That about July 6, 1921, the plaintiff wrongfully took P30,000 from the assets of the firm, and that he is now indebted to the firm in the sum of P10,858.95, with interest and costs, from which it prays judgement. The plaintiff admits that he withdrew the P30,000, but alleges that it was with the consent and authority of the defendant, and denies all other new matter in the answer. Upon such issues a trial was had, and the lower court rendered judgment in favor of the defendant as prayed for in its counterclaim, from which the plaintiff appeals, contending that the trial court erred in not holding that the contract between the parties is that which is embodied in Exhibits A and B, and that the defendant assumed all partnership obligations, and in failing to render judgment for the plaintiff, as prayed for, and in dismissing his complaint, and denying plaintiff's motion for a new trial. JOHNS, J.: In their respective briefs opposing counsel agree that the important questions involved are "what was the contract under which the plaintiff rendered services for five years ending July 31, 1921," and "what is due the plaintiff under that contract." Plaintiff contends that his services were performed under Exhibits A and B, and that the defendant assumed all of the obligations of the original partnership under Exhibit A, and is now seeking to deny its liability under, and repudiate, Exhibit B. The defendant admits that Exhibit A was the original contract between Arnold and the firm of Willits & Patterson by which he came to the Philippine Islands, and that it was therein agreed that he was to be employed for a period of five years as the agent of Willits & Patterson in the Philippine Islands to operate a certain oil mill, and to do such other business as might be deemed advisable for which he was to receive, first, the travelling expenses of his wife and self from San Francisco to Manila, second, the minimum salary of $200 per month, third, a brokerage of 1 per cent upon all purchases and sales of merchandise, except for the account of the coconut oil mill, fourth, one-half of the profits on any transaction in the name of the firm or himself not provided for in the agreement. That the agreement also provided that if it be found that the business was operated at a loss, Arnold should receive a monthly salary of $400 during such period. That the business was operated at a loss from June 30, 1920, to July 31, 1921, and that for such reason, he was entitled to nothing more than a salary of $400 per month, or for that period P10,400. Adding this amount to the P8,741.05, which the defendant admits he owed Arnold on June 30, 1920, makes a total of P19,141.05, leaving a balance due the defendant as set out in the counterclaim. In other words, that the plaintiff's compensation was measured by, and limited to, the above specified provisions in the contract Exhibit A, and that the defendant corporation is not bound by the terms or provisions of Exhibit B, which is as follows: WILLITS & PATTERSON, LTD. MANILA, P. I., Nov. 10, 1919. CHAS. D. WILLITS, Esq., Present. DEAR MR. WILLITS: My understanding of the intent of my agreement with Willits & Patterson is as under: Commissions. Willits & Patterson, San Francisco, pay me a commission of one per cent on all purchases made for them in the Philippines or sales made to them by Manila and one per cent on all sales made for them in the

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Philippines, or purchases made from them by Manila. If such purchases or sales are on an f. o. b. basis the commission is on the f. o. b. price; if on a c. i. f. basis the commission is computed on the c. i. f. price These commissions are credited to me in San Francisco. I do not participate in any profits on business transacted between Willits & Patterson, San Francisco, and Willits & Patterson, Ltd., Manila. Profits. On all business transacted between Willits & Patterson, Ltd. and others than Willits & Patterson, San Francisco, half the profits are to be credited to my account and half to the Profit & Loss account of Willits & Patterson, Ltd., Manila. On all other business, such as the Cooperative Coconut Products Co. account, or any other business we may undertake as agents or managers, half the profits are to be credited to my account and half to the Profit & Loss account of Willits & Patterson, Ltd., Manila. Where Willits & Patterson, San Francisco, or Willits & Patterson, Ltd., Manila, have their own funds invested in the capital stock or a corporation, I of course do not participate in the earnings of such stock, any more than Willits & Patterson would participate in the earnings of stock held by me on my account. If the foregoing conforms to your understanding of our agreement, please confirm below. Yours faithfully, (Sgd.) G. C. ARNOLD Confirmed: WILLITS & PATTERSON By (Sgd.) CHAS. D. WILLITS There is no dispute about any of the following facts: That at the inception C.D. Willits and I. L. Patterson constituted the firm of Willits & Patterson doing business in the City of San Francisco; that later Patterson retired from the firm, and Willits acquired all of his interests and thereafter continued the business under the name and style of Willits & Patterson; that the original contract Exhibit A was made between the plaintiff and the old firm at San Francisco on July 31, 1916, to cover a period of five years from that date; that plaintiff entered upon the discharged of his duties and continued his services in the Philippine Islands to someone for the period of five years; that on November 10, 1919, and as a result of conferences between Willits and the plaintiff, Exhibit B was addressed and signed in the manner and form above stated in the City of Manila. A short time prior to that date Willits organized a corporation in San Francisco, in the State of California, which took over and acquired all of the assets of the firm's business in California then being conducted under the name and style of Willits & Patterson; that he subscribed for all of the capital stock of the corporation, and that in truth and in fact he was the owner of all of its capital stock. After this was done he caused a new corporation to be organized under the laws of the Philippine Islands with principal office at Manila, which took over and acquired all the business and assets of the firm of Willits & Patterson in the Philippine Islands, in and to which, in legal effect, he subscribed for all of its capital stock, and was the owner of all of its stock. After both corporations were organized the above letter was drafted and signed. The plaintiff contends that the signing of Exhibit B in the manner and under the conditions in which it was signed, and through the subsequent acts and conduct of the parties, was ratified and, in legal effect, became and is now binding upon the defendant. It will be noted that Exhibit B was executed in Manila, and that at the time it was signed by Willits, he was to all intents and purposes the legal owner of all the stock in both corporations. It also appears from the evidence that the parent corporation at San Francisco took over and acquired all of the assets and liabilities of the local corporation at Manila. That after it was organized the Manila corporation kept separate records and account books of its own, and that from time to time financial statements were made and forwarded to the home office, from which it conclusively appears that plaintiff was basing his claim for services upon Exhibit A, as it was modified by Exhibit B. That at no time after Exhibit B was signed was there ever any dispute between plaintiff and Willits as to the compensation for plaintiff's services. That is to say, as between the plaintiff and Willits, Exhibit B was approved, followed and at all times in force and effect, after it was signed November 10, 1919. It appears from an analysis of Exhibit B that it was for the mutual interest of both parties. From a small beginning, the business was then in a very flourishing conditions and growing fast, and the profits were very large and were running into big money. Among other things, Exhibit A provided: "(a) That the net profits from said coconut oil business shall be divided in equal shares between the said parties hereto; (b) that Arnold should receive a brokerage of 1 per cent from all purchases and sales of merchandise, except for the account of the coconut mills; (c) that the net profits from all other business should be divided in equal half shares between the parties hereto." Under the above provisions, the plaintiff might well contend that he was entitled to one-half of all the profits and a brokerage of 1 per cent from all purchases and sales, except those for the account of the coconut oil mills, which under the volume of business then existing would run into a very large sum of money. It was for such reason and after personal conferences between them, and to settle all disputed questions, that Exhibit B was prepared and signed. The record recites that "the defendant admits that from July 31, 1916 to July 31, 1921, the plaintiff faithfully performed all the duties incumbent upon him under his contract of employment, it being understood, however, that this admission does not include an admission that the plaintiff placed a proper interpretation upon his right to remuneration under said contract of employment." It being admitted that the plaintiff worked "under his contract of employment" for the period of five years, the question naturally arises, for whom was he working? His contract was made with the original firm of Willits & Patterson, and that firm was dissolved and it ceased to exist, and all of its assets were merged in, and taken over by, the parent corporation at San Francisco. In the very nature of things, after the corporation was formed, the plaintiff could not and did not continue to work for the firm, and, yet, he continued his employment for the full period of five years. For whom did he work after the partnership was merged in the corporation and ceased to exist? It is very apparent that, under the conditions then existing, the signing of Exhibit B was for the mutual interests of both parties, and that if the contract Exhibit A was to be enforced according to its terms, that Arnold might well contend for a much larger sum of money for his services. In truth and in fact Willits and both corporations recognized his employment and accepted the benefits of his services. He continued his employment and rendered his services after the corporation were organized and Exhibit B was signed just the same as he did before, and both corporations recognized and accepted his services. Although the plaintiff was president of the local corporation,

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the testimony is conclusive that both of them were what is known as a one man corporation, and Willits, as the owner of all of the stock, was the force and dominant power which controlled them. After Exhibit B was signed it was recognized by Willits that the plaintiff's services were to be performed and measured by its term and provisions, and there never was any dispute between plaintiff and Willits upon that question. The controversy first arose after the corporation was in financial trouble and the appointment of what is known in the record as a "creditors' committee." There is no claim or pretense that there was any fraud or collusion between plaintiff and Willits, and it is very apparent that Exhibit B was to the mutual interest of both parties. It is elementary law that if Exhibit B is a binding contract between the plaintiff and Willits and the corporations, it is equally binding upon the creditors' committee. It would not have any higher or better legal right than the corporation itself, and could not make any defense which it could not make. It is very significant that the claim or defense which is now interposed by the creditors' committee was never made or asserted at any previous time by the defendant, and that it never was made by Willits, and it is very apparent that if he had remained in control of the corporation, it would never have made the defense which is now made by the creditors' committee. The record is conclusive that at the time he signed Exhibit B, Willits was, in legal effect, the owner and holder of all the stock in both corporations, and that he approved it in their interest, and to protect them from the plaintiff having and making a much larger claim under Exhibit A. As a matter of fact, it appears from the statement of Mr. Larkin, the accountant, in the record that if plaintiff's cause of action was now founded upon Exhibit A, he would have a claim for more than P160,000. Thompson on Corporations, 2d ed., vol. I, section 10, says: The proposition that a corporation has an existence separate and distinct from its membership has its limitations. It must be noted that this separate existence is for particular purposes. It must also be remembered that there can be no corporate existence without persons to compose it; there can be no association without associates. This separate existence is to a certain extent a legal fiction. Whenever necessary for the interests of the public or for the protection or enforcement of the rights of the membership, courts will disregard this legal fiction and operate upon both the corporation and the persons composing it. 1 In the same section, the author quotes from a decision in 49 Ohio State, 137 ; 15 L. R. A., 145, in which the Supreme Court of Ohio says: "So long as a proper use is made of the fiction that a corporation is an entity apart from its shareholders, it is harmless, and, because convenient, should not be called in question; but where it is urged to an end subversive of its policy, or such is the issue, the fiction must be ignored, and the question determined whether the act in question, though done by shareholders, that is to say, by the persons uniting in one body, was done simply as individuals, and with respect to their individual interest as shareholders, or was done ostensibly as such, but, as a matter of fact, to control the corporation, and affect the transaction of its business, in the same manner as if the act had been clothed with all the formalities of a corporate act. This must be so, because, the stockholders having a dual capacity, and capable of acting in either, and a possible interest to conceal their character when acting in their corporate capacity, the absence of the formal evidence of the character of the act cannot preclude judicial inquiry on the subject. If it were otherwise, then in that department of the law fraud would enjoy an immunity awarded to it in no other." Where the stock of a corporation is owned by one person whereby the corporation functions only for the benefit of such individual owner, the corporation and the individual should be deemed to be the same. (U. S. Gypsum Co. vs. Mackay Wall Plaster Co., 199 Pac., 249.) Ruling Case Law, vol. 7, section 663, says: While of course a corporation cannot ratify a contract which is strictly ultra vires, and which it in the first instance could not have made, it may by ratification render binding on it a contract, entered into on its behalf by its officers or agents without authority. As a general rule such ratification need not be manifested by any voted or formal resolution of the corporation or be authenticated by the corporate seal; no higher degree of evidence is requisite in establishing ratification on the part of a corporation, than is requisite in showing an antecedent authorization. xxx xxx xxx SEC. 666. The assent or approval of a corporation to acts done on its account may be inferred in the same manner that the absent of a natural person may be, and it is well settled that where a corporation with full knowledge of the unauthorized act of its officer or agents acquiesces in and consents to such acts, it thereby ratifies them, especially where the acquiescence results in prejudice to a third person. xxx xxx xxx SEC. 669. So, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affair, his authority to represent the corporation may be inferred from the manner in which he has been permitted by the directors to transact its business. SEC. 656. In accordance with a well-known rule of the law of agency, notice to corporate officers or agents within the scope or apparent scope of their authority is attributed to the corporation. SEC. 667. As a general rule, if a corporation with knowledge of its agents unauthorized act received and enjoys the benefits thereof, it impliedly ratifies the unauthorized act if it is one capable of ratification by parol. In its article on corporations, Corpus Juris, in section 2241 says: Ratification by a corporation of a transaction not previously authorized is more easily inferred where the corporation receives and retains property under it, and as a general rule where a corporation, through its proper officers or board, takes and retains the benefits of the unauthorized act or contract of an officer or agent, with full knowledge of all the material facts, it thereby ratifies and becomes bound by such act of contract, together with all the liabilities and burdens resulting therefrom, and in some jurisdiction this rule is, in effect, declared by statute. Thus the corporation is liable on the ground of ratification where, with knowledge of the facts, it accepts the benefit of services rendered under an unauthorized contract of employment . . . . Applying the law to the facts.

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Mr. Larkin, an experienced accountant, was employed by the local corporation, and from time to time and in the ordinary course of business made and prepared financial statements showing its assets and liabilities, true copies of which were sent to the home office in San Francisco. It appears upon their face that plaintiff's compensation was made and founded on Exhibit B, and that such statements were made and prepared by the accountant on the assumption that Exhibit B was in full force and effect as between the plaintiff and the defendant. In the course of business in the early part of 1920, plaintiff, as manager of the defendant, sold 500 tons of oil for future delivery at P740 per ton. Due to break in the market, plaintiff was able to purchase the oil at P380 per ton or a profit of P180,000. It appears from Exhibit B under the heading of "Profits" that: On all the business transacted between Willits & Patterson, Ltd. and others than Willits & Patterson, San Francisco, half the profit are to be credited to may account and half to the Profit & Loss account Willits & Patterson, Ltd., Manila. The purchasers paid P105,000 on the contracts and gave their notes for P75,000, and it was agreed that all of the oil purchased should be held as security for the full payment of the purchase price. As a result, the defendant itself received the P105,000 in cash, P75,000 in notes, and still holds the 500 tons of oil as security for the balance of the purchase price. This transaction was shown in the semiannual financial statement for the period ending December 31, 1920. That is to say, the business was transacted by and through the plaintiff, and the defendant received and accepted all of the profits on the deal, and the statement which was rendered gave him a credit for P90,737.88, or half the profit as provided in the contract Exhibit B, with interest. Although the previous financial statements show upon their face that the account of plaintiff was credit with several small items on the same basis, it was not until the 23d of March, 1921, that any objection was ever made by anyone, and objection was made for the first time by the creditors' committee in a cable of that date. As we analyze the facts Exhibit B was, in legal effect, ratified and approved and is now binding upon the defendant corporation, and the plaintiff is entitled to recover for his services on that writing as it modified the original contract Exhibit A. It appears from the statement prepared by accountant Larkin founded upon Exhibit B that the plaintiff is entitled to recover P106,277.50. It is very apparent that his statement was based upon the assumption that there was a net profit of P180,000 on the 500 tons of oil, of which the plaintiff was entitled to one-half. In the absence of any other proof, we have the right to assume that the 500 tons of oil was worth the amount which the defendant paid for them at the time of the purchase or P380 per ton, and the record shows that the defendant took and now has the possession of all of the oil secure the payment of the price at which it was sold. Hence, the profit on the deal to the defendant at the time of the sale would amount to the difference between what the defendant paid for the oil and the amount which it received for the oil at the time it sold the oil. It appears that at the time of the sale the defendant only received P105,000 in cash, and that it took and accepted the promissory notes of Cruz & Tan Chong Say, the purchasers, for P75,000 more which have been collected and may never be. Hence, it must follow that the amount evidence by the notes cannot now be deemed or treated as profits on the deal and cannot be until such times as the notes are paid. The judgment of the lower court is reversed, and a money judgment will be entered here in favor of the plaintiff and against the defendant for the sum of P68,527.50, with thereon at the rate of 6 per cent per annum from the 10th day of January, 1922. In addition thereto, judgment will be rendered against the defendant in substance and to the effect that the plaintiff is the owner of an undivided one-half interest in the promissory notes for P75,000 which were executed by Cruz & Tan Chong Say, as a part of the purchase price of the oil, and that he is entitled to have and receive one-half of all the proceeds from the notes or either of them, and that also he have judgment against the defendant for costs. So ordered. 13. G.R. No. L-13203 January 28, 1961 YUTIVO SONS HARDWARE COMPANY, petitioner, vs. COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, respondents. Sycip, Quisumbing, Salazar & Associates for petitioner. Office of the Solicitor General for respondents. GUTIERREZ DAVID, J.: This is a petition for review of a decision of the Court of Tax Appeals ordering petitioner to pay to respondent Collector of Internal Revenue the sum of P1,266,176.73 as sales tax deficiency for the third quarter of 1947 to the fourth quarter of 1950; inclusive, plus 75% surcharge thereon, equivalent to P349,632.54, or a sum total of P2,215,809.27, plus costs of the suit. From the stipulation of facts and the evidence adduced by both parties, it appears that petitioner Yutivo Sons Hardware Co. (hereafter referred to as Yutivo) is a domestic corporation, organized under the laws of the Philippines, with principal office at 404 Dasmarias St., Manila. Incorporated in 1916, it was engaged, prior to the last world war, in the importation and sale of hardware supplies and equipment. After the liberation, it resumed its business and until June of 1946 bought a number of cars and trucks from General Motors Overseas Corporation (hereafter referred to as GM for short), an American corporation licensed to do business in the Philippines. As importer, GM paid sales tax prescribed by sections 184, 185 and 186 of the Tax Code on the basis of its selling price to Yutivo. Said tax being collected only once on original sales, Yutivo paid no further sales tax on its sales to the public. On June 13, 1946, the Southern Motors, Inc. (hereafter referred to as SM) was organized to engage in the business of selling cars, trucks and spare parts. Its original authorized capital stock was P1,000,000 divided into 10,000 shares with a par value of P100 each. At the time of its incorporation 2,500 shares worth P250,000 appear to have been subscribed into equal proportions by Yu Khe Thai, Yu Khe Siong, Hu Kho Jin, Yu Eng Poh, and Washington Sycip. The first three named subscribers are brothers, being sons of Yu Tiong Yee, one of Yutivo's founders. The latter two are respectively sons of Yu Tiong Sin and Albino Sycip, who are among the founders of Yutivo. After the incorporation of SM and until the withdrawal of GM from the Philippines in the middle of 1947, the cars and tracks purchased by Yutivo from GM were sold by Yutivo to SM which, in turn, sold them to the public in the Visayas and Mindanao. When GM decided to withdraw from the Philippines in the middle of 1947, the U.S. manufacturer of GM cars and trucks appointed Yutivo as importer for the Visayas and Mindanao, and Yutivo continued its previous arrangement of selling exclusively to SM. In the same way that GM used to pay sales taxes based on its sales to Yutivo, the latter, as importer, paid sales tax prescribed on the basis of

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its selling price to SM, and since such sales tax, as already stated, is collected only once on original sales, SM paid no sales tax on its sales to the public. On November 7, 1950, after several months of investigation by revenue officers started in July, 1948, the Collector of Internal Revenue made an assessment upon Yutivo and demanded from the latter P1,804,769.85 as deficiency sales tax plus surcharge covering the period from the third quarter of 1947 to the fourth quarter of 1949; or from July 1, 1947 to December 31, 1949, claiming that the taxable sales were the retail sales by SM to the public and not the sales at wholesale made by, Yutivo to the latter inasmuch as SM and Yutivo were one and the same corporation, the former being the subsidiary of the latter. The assessment was disputed by the petitioner, and a reinvestigation of the case having been made by the agents of the Bureau of Internal Revenue, the respondent Collector in his letter dated November 15, 1952 countermanded his demand for sales tax deficiency on the ground that "after several investigations conducted into the matter no sufficient evidence could be gathered to sustain the assessment of this Office based on the theory that Southern Motors is a mere instrumentality or subsidiary of Yutivo." The withdrawal was subject, however, to the general power of review by the now defunct Board of Tax Appeals. The Secretary of Finance to whom the papers relative to the case were endorsed, apparently not agreeing with the withdrawal of the assessment, returned them to the respondent Collector for reinvestigation. After another investigation, the respondent Collector, in a letter to petitioner dated December 16, 1954, redetermined that the aforementioned tax assessment was lawfully due the government and in addition assessed deficiency sales tax due from petitioner for the four quarters of 1950; the respondents' last demand was in the total sum of P2,215,809.27 detailed as follows: Deficiency 75% Total Amount Sales Tax Surcharge Due Assessment (First) of November 7, 1950 for deficiency sales Tax for the period from 3rd Qrtr 1947 to 4th Qrtr 1949 inclusive Additional Assessment for period from 1st to 4th Qrtr 1950, inclusive

P1,031,296.60 P773,473.45 P1,804,769.05 234,880.13 176,160.09 411,040.22

Total amount demanded per letter of December 16, 1954 P1,266,176.73 P949,632.54 P2,215,809.27 This second assessment was contested by the petitioner Yutivo before the Court of Tax Appeals, alleging that there is no valid ground to disregard the corporate personality of SM and to hold that it is an adjunct of petitioner Yutivo; (2) that assuming the separate personality of SM may be disregarded, the sales tax already paid by Yutivo should first be deducted from the selling price of SM in computing the sales tax due on each vehicle; and (3) that the surcharge has been erroneously imposed by respondent. Finding against Yutivo and sustaining the respondent Collector's theory that there was no legitimate or bona fide purpose in the organization of SM the apparent objective of its organization being to evade the payment of taxes and that it was owned (or the majority of the stocks thereof are owned) and controlled by Yutivo and is a mere subsidiary, branch, adjunct, conduit, instrumentality or alter ego of the latter, the Court of Tax Appeals with Judge Roman Umali not taking part disregarded its separate corporate existence and on April 27, 1957, rendered the decision now complained of. Of the two Judges who signed the decision, one voted for the modification of the computation of the sales tax as determined by the respondent Collector in his decision so as to give allowance for the reduction of the tax already paid (resulting in the reduction of the assessment to P820,509.91 exclusive of surcharges), while the other voted for affirmance. The dispositive part of the decision, however, affirmed the assessment made by the Collector. Reconsideration of this decision having been denied, Yutivo brought the case to this Court thru the present petition for review. It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporation petitions to which it may be connected. However, "when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime," the law will regard the corporation as an association of persons, or in the case of two corporations merge them into one. (Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 496, citing I Fletcher Cyclopedia of Corporation, Perm Ed., pp. 135 136; United States vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.) Another rule is that, when the corporation is the "mere alter ego or business conduit of a person, it may be disregarded." (Koppel [Phil.], Inc. vs. Yatco, supra.) After going over the voluminous record of the present case, we are inclined to rule that the Court of Tax Appeals was not justified in finding that SM was organized for no other purpose than to defraud the Government of its lawful revenues. In the first place, this corporation was organized in June, 1946 when it could not have caused Yutivo any tax savings. From that date up to June 30, 1947, or a period of more than one year, GM was the importer of the cars and trucks sold to Yutivo, which, in turn resold them to SM. During that period, it is not disputed that GM as importer, was the one solely liable for sales taxes. Neither Yutivo or SM was subject to the sales taxes on their sales of cars and trucks. The sales tax liability of Yutivo did not arise until July 1, 1947 when it became the importer and simply continued its practice of selling to SM. The decision, therefore, of the Tax Court that SM was organized purposely as a tax evasion device runs counter to the fact that there was no tax to evade. Making the observation from a newspaper clipping (Exh. "T") that "as early as 1945 it was known that GM was preparing to leave the Philippines and terminate its business of importing vehicles," the court below speculated that Yutivo anticipated the withdrawal of GM from business in the Philippines in June, 1947. This observation, which was made only in the resolution on the motion for reconsideration, however, finds no basis in the record. On the other hand, GM had been an importer of cars in the Philippines even before the war and had but recently resumed its operation in the Philippines in 1946 under an ambitious plan to expand its operation by establishing an assembly plant here, so that it could not have been expected to make so drastic a turnabout of not merely abandoning the assembly plant project but also totally ceasing to do business as an importer. Moreover, the newspaper clipping, Exh. "T", was published on March 24, 1947, and clipping, merely reported a rumored plan that GM would abandon the assembly plant project in the Philippines. There was no mention of the cessation of business by GM which must not be confused with the abandonment of the assembly plant project. Even as respect the assembly plant, the newspaper clipping was quite explicit in saying that the Acting Manager refused to confirm that rumor as late as March 24, 1947, almost a year after SM was organized.

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At this juncture, it should be stated that the intention to minimize taxes, when used in the context of fraud, must be proved to exist by clear and convincing evidence amounting to more than mere preponderance, and cannot be justified by a mere speculation. This is because fraud is never lightly to be presumed. (Vitelli & Sons vs. U.S 250 U.S. 355; Duffin vs. Lucas, 55 F (2d) 786; Budd vs. Commr., 43 F (2d) 509; Maryland Casualty Co. vs. Palmette Coal Co., 40 F (2d) 374; Schoonfield Bros., Inc. vs. Commr., 38 BTA 943; Charles Heiss vs. Commr 36 BTA 833; Kerbaugh vs. Commr 74 F (2d) 749; Maddas vs. Commr., 114 F. (2d) 548; Moore vs. Commr., 37 BTA 378; National City Bank of New York vs. Commr., 98 (2d) 93; Richard vs. Commr., 15 BTA 316; Rea Gane vs. Commr., 19 BTA 518). (See also Balter, Fraud Under Federal Law, pp. 301-302, citing numerous authorities: Arroyo vs. Granada, et al., 18 Phil. 484.) Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at the most, create only suspicion. (Haygood Lumber & Mining Co. vs. Commr., 178 F (2d) 769; Dalone vs. Commr., 100 F (2d) 507). In the second place, SM was organized and it operated, under circumstance that belied any intention to evade sales taxes. "Tax evasion" is a term that connotes fraud thru the use of pretenses and forbidden devices to lessen or defeat taxes. The transactions between Yutivo and SM, however, have always been in the open, embodied in private and public documents, constantly subject to inspection by the tax authorities. As a matter of fact, after Yutivo became the importer of GM cars and trucks for Visayas and Mindanao, it merely continued the method of distribution that it had initiated long before GM withdrew from the Philippines. On the other hand, if tax saving was the only justification for the organization of SM, such justification certainly ceased with the passage of Republic Act No. 594 on February 16, 1951, governing payment of advance sales tax by the importer based on the landed cost of the imported article, increased by mark-ups of 25%, 50%, and 100%, depending on whether the imported article is taxed under sections 186, 185 and 184, respectively, of the Tax Code. Under Republic Act No. 594, the amount at which the article is sold is immaterial to the amount of the sales tax. And yet after the passage of that Act, SM continued to exist up to the present and operates as it did many years past in the promotion and pursuit of the business purposes for which it was organized. In the third place, sections 184 to 186 of the said Code provides that the sales tax shall be collected "once only on every original sale, barter, exchange . . , to be paid by the manufacturer, producer or importer." The use of the word "original" and the express provision that the tax was collectible "once only" evidently has made the provisions susceptible of different interpretations. In this connection, it should be stated that a taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits. (U.S. vs. Isham 17 Wall. 496, 506; Gregory vs. Helvering 293 U.S. 465, 469; Commr. vs. Tower, 327 U.S. 280; Lawton vs. Commr 194 F (2d) 380). Any legal means by the taxpayer to reduce taxes are all right Benry vs. Commr. 25 T. Cl. 78). A man may, therefore, perform an act that he honestly believes to be sufficient to exempt him from taxes. He does not incur fraud thereby even if the act is thereafter found to be insufficient. Thus in the case of Court Holding Co. vs. Commr. 2 T. Cl. 531, it was held that though an incorrect position in law had been taken by the corporation there was no suppression of the facts, and a fraud penalty was not justified. The evidence for the Collector, in our opinion, falls short of the standard of clear and convincing proof of fraud. As a matter of fact, the respondent Collector himself showed a great deal of doubt or hesitancy as to the existence of fraud. He even doubted the validity of his first assessment dated November 7, 1959. It must be remembered that the fraud which respondent Collector imputed to Yutivo must be related to its filing of sales tax returns of less taxes than were legally due. The allegation of fraud, however, cannot be sustained without the showing that Yutivo, in filing said returns, did so fully knowing that the taxes called for therein called for therein were less than what were legally due. Considering that respondent Collector himself with the aid of his legal staff, and after some two years of investigation and duty of investigation and study concluded in 1952 that Yutivo's sales tax returns were correct only to reverse himself after another two years it would seem harsh and unfair for him to say in 1954 that Yutivo fully knew in October 1947 that its sales tax returns were inaccurate. On this point, one other consideration would show that the intent to save taxes could not have existed in the minds of the organizers of SM. The sales tax imposed, in theory and in practice, is passed on to the vendee, and is usually billed separately as such in the sales invoice. As pointed out by petitioner Yutivo, had not SM handled the retail, the additional tax that would have been payable by it, could have been easily passed off to the consumer, especially since the period covered by the assessment was a "seller's market" due to the post-war scarcity up to late 1948, and the imposition of controls in the late 1949. It is true that the arrastre charges constitute expenses of Yutivo and its non-inclusion in the selling price by Yutivo cost the Government P4.00 per vehicle, but said non-inclusion was explained to have been due to an inadvertent accounting omission, and could hardly be considered as proof of willful channelling and fraudulent evasion of sales tax. Mere understatement of tax in itself does not prove fraud. (James Nicholson, 32 BTA 377, affirmed 90 F. (2) 978, cited in Merten's Sec. 55.11 p. 21) The amount involved, moreover, is extremely small inducement for Yutivo to go thru all the trouble of organizing SM. Besides, the non-inclusion of these small arrastre charges in the sales tax returns of Yutivo is clearly shown in the records of Yutivo, which is uncharacteristic of fraud (See Insular Lumber Co. vs. Collector, G.R. No. L-719, April 28, 1956.) We are, however, inclined to agree with the court below that SM was actually owned and controlled by petitioner as to make it a mere subsidiary or branch of the latter created for the purpose of selling the vehicles at retail and maintaining stores for spare parts as well as service repair shops. It is not disputed that the petitioner, which is engaged principally in hardware supplies and equipment, is completely controlled by the Yutivo, Young or Yu family. The founders of the corporation are closely related to each other either by blood or affinity, and most of its stockholders are members of the Yu (Yutivo or Young) family. It is, likewise, admitted that SM was organized by the leading stockholders of Yutivo headed by Yu Khe Thai. At the time of its incorporation 2,500 shares worth P250,000.00 appear to have been subscribed in five equal proportions by Yu Khe Thai, Yu Khe Siong, Yu Khe Jin, Yu Eng Poh and Washington Sycip. The first three named subscribers are brothers, being the sons of Yu Tien Yee, one of Yutivo's founders. Yu Eng Poh and Washington Sycip are respectively sons of Yu Tiong Sing and Alberto Sycip who are co-founders of Yutivo. According to the Articles of Incorporation of the said subscriptions, the amount of P62,500 was paid by the aforenamed subscribers, but actually the said sum was advanced by Yutivo. The additional subscriptions to the capital stock of SM and subsequent transfers thereof were paid by Yutivo itself. The payments were made, however, without any transfer of funds from Yutivo to SM. Yutivo simply charged the accounts of the subscribers for the amount allegedly advanced by Yutivo in payment of the shares. Whether a charge was to be made against the accounts of the subscribers or said subscribers were to subscribe shares appears to constitute a unilateral act on the part of Yutivo, there being no showing that the former initiated the subscription.

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The transactions were made solely by and between SM and Yutivo. In effect, it was Yutivo who undertook the subscription of shares, employing the persons named or "charged" with corresponding account as nominal stockholders. Of course, Yu Khe Thai, Yu Khe Jin, Yu Khe Siong and Yu Eng Poh were manifestly aware of these subscriptions, but considering that they were the principal officers and constituted the majority of the Board of Directors of both Yutivo and SM, their subscriptions could readily or easily be that of Yutivo's Moreover, these persons were related to death other as brothers or first cousins. There was every reason for them to agree in order to protect their common interest in Yutivo and SM. The issued capital stock of SM was increased by additional subscriptions made by various person's but except Ng Sam Bak and David Sycip, "payments" thereof were effected by merely debiting 'or charging the accounts of said stockholders and crediting the corresponding amounts in favor of SM, without actually transferring cash from Yutivo. Again, in this instance, the "payments" were Yutivo, by effected by the mere unilateral act of Yutivo a accounts of the virtue of its control over the individual persons charged, would necessarily exercise preferential rights and control directly or indirectly, over the shares, it being the party which really undertook to pay or underwrite payment thereof. The shareholders in SM are mere nominal stockholders holding the shares for and in behalf of Yutivo, so even conceding that the original subscribers were stockholders bona fide Yutivo was at all times in control of the majority of the stock of SM and that the latter was a mere subsidiary of the former. True, petitioner and other recorded stockholders transferred their shareholdings, but the transfers were made to their immediate relatives, either to their respective spouses and children or sometimes brothers or sisters. Yutivo's shares in SM were transferred to immediate relatives of persons who constituted its controlling stockholders, directors and officers. Despite these purported changes in stock ownership in both corporations, the Board of Directors and officers of both corporations remained unchanged and Messrs. Yu Khe Thai, Yu Khe Siong Hu Khe Jin and Yu Eng Poll (all of the Yu or Young family) continued to constitute the majority in both boards. All these, as observed by the Court of Tax Appeals, merely serve to corroborate the fact that there was a common ownership and interest in the two corporations. SM is under the management and control of Yutivo by virtue of a management contract entered into between the two parties. In fact, the controlling majority of the Board of Directors of Yutivo is also the controlling majority of the Board of Directors of SM. At the same time the principal officers of both corporations are identical. In addition both corporations have a common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivo's president, Yu Khe Thai. There is therefore no doubt that by virtue of such control, the business, financial and management policies of both corporations could be directed towards common ends. Another aspect relative to Yutivo's control over SM operations relates to its cash transactions. All cash assets of SM were handled by Yutivo and all cash transactions of SM were actually maintained thru Yutivo. Any and all receipts of cash by SM including its branches were transmitted or transferred immediately and directly to Yutivo in Manila upon receipt thereof. Likewise, all expenses, purchases or other obligations incurred by SM are referred to Yutivo which in turn prepares the corresponding disbursement vouchers and payments in relation there, the payment being made out of the cash deposits of SM with Yutivo, if any, or in the absence thereof which occurs generally, a corresponding charge is made against the account of SM in Yutivo's books. The payments for and charges against SM are made by Yutivo as a matter of course and without need of any further request, the latter would advance all such cash requirem ents for the benefit of SM. Any and all payments and cash vouchers are made on Yutivo stationery and made under authority of Yutivo's corporate officers, without any copy thereof being furnished to SM. All detailed records such as cash disbursements, such as expenses, purchases, etc. for the account of SM, are kept by Yutivo and SM merely keeps a summary record thereof on the basis of information received from Yutivo. All the above plainly show that cash or funds of SM, including those of its branches which are directly remitted to Yutivo, are placed in the custody and control of Yutivo, resources and subject to withdrawal only by Yutivo. SM's being under Yutivo's control, the former's operations and existence became dependent upon the latter. Consideration of various other circumstances, especially when taken together, indicates that Yutivo treated SM merely as its department or adjunct. For one thing, the accounting system maintained by Yutivo shows that it maintained a high degree of control over SM accounts. All transactions between Yutivo and SM are recorded and effected by mere debit or credit entries against the reciprocal account maintained in their respective books of accounts and indicate the dependency of SM as branch upon Yutivo. Apart from the accounting system, other facts corroborate or independently show that SM is a branch or department of Yutivo. Even the branches of SM in Bacolod, Iloilo, Cebu, and Davao treat Yutivo Manila as their "Head Office" or "Home Office" as shown by their letters of remittances or other correspondences. These correspondences were actually received by Yutivo and the reference to Yutivo as the head or home office is obvious from the fact that all cash collections of the SM's branches are remitted directly to Yutivo. Added to this fact, is that SM may freely use forms or stationery of Yutivo The fact that SM is a mere department or adjunct of Yutivo is made more patent by the fact that arrastre conveying, and charges paid for the "operation of receiving, loading or unloading" of imported cars and trucks on piers and wharves, were charged against SM. Overtime charges for the unloading of cars and trucks as requested by Yutivo and incurred as part of its acquisition cost thereof, were likewise charged against and treated as expenses of SM. If Yutivo were the importer, these arrastre and overtime charges were Yutivo's expenses in importing goods and not SM's. But since those charges were made against SM, it plainly appears that Yutivo had sole authority to allocate its expenses even as against SM in the sense that the latter is a mere adjunct, branch or department of the former. Proceeding to another aspect of the relation of the parties, the management fees due from SM to Yutivo were taken up as expenses of SM and credited to the account of Yutivo. If it were to be assumed that the two organizations are separate juridical entities, the corresponding receipts or receivables should have been treated as income on the part of Yutivo. But such management fees were recorded as "Reserve for Bonus" and were therefore a liability reserve and not an income account. This reserve for bonus were subsequently distributed directly to and credited in favor of the employees and directors of Yutivo, thereby clearly showing that the management fees were paid directly to Yutivo officers and employees. Briefly stated, Yutivo financed principally, if not wholly, the business of SM and actually extended all the credit to the latter not only in the form of starting capital but also in the form of credits extended for the cars and vehicles allegedly sold by Yutivo to SM as well as advances or loans for the expenses of the latter when the capital had been exhausted. Thus, the increases in the capital stock were

43
made in advances or "Guarantee" payments by Yutivo and credited in favor of SM. The funds of SM were all merged in the cash fund of Yutivo. At all times Yutivo thru officers and directors common to it and SM, exercised full control over the cash funds, policies, expenditures and obligations of the latter. Southern Motors being but a mere instrumentality, or adjunct of Yutivo, the Court of Tax Appeals correctly disregarded the technical defense of separate corporate entity in order to arrive at the true tax liability of Yutivo. Petitioner contends that the respondent Collector had lost his right or authority to issue the disputed assessment by reason of prescription. The contention, in our opinion, cannot be sustained. It will be noted that the first assessment was made on November 7, 1950 for deficiency sales tax from 1947 to 1949. The corresponding returns filed by petitioner covering the said period was made at the earliest on October 1, as regards the third quarter of 1947, so that it cannot be claimed that the assessment was not made within the five-year period prescribed in section 331 of the Tax Code invoked by petitioner. The assessment, it is admitted, was withdrawn by the Collector on insufficiency of evidence, but November 15, 1952 due to insufficiency of evidence, but the withdrawal was made subject to the approval of the Secretary of Finance and the Board of Tax Appeals, pursuant to the provisions of section 9 of Executive Order No. 401-A, series of 1951. The decision of the previous assessment of November 7, Collector countermanding the as 1950 was forwarded to the Board of Tax Appeals through the Secretary of Finance but that official, apparently disagreeing with the decision, sent it back for re-investigation. Consequently, the assessment of November 7, 1950 cannot be considered to have been finally withdrawn. That the assessment was subsequently reiterated in the decision of respondent Collector on December 16, 1954 did not alter the fact that it was made seasonably. In this connection, it would appear that a warrant of distraint and levy had been issued on March 28, 1951 in relation with this case and by virtue thereof the properties of Yutivo were placed under constructive distraint. Said warrant and constructive distraint have not been lifted up to the present, which shows that the assessment of November 7, 1950 has always been valid and subsisting. Anent the deficiency sale tax for 1950, considering that the assessment thereof was made on December 16, 1954, the same was assessed well within the prescribed five-year period. Petitioner argues that the original assessment of November 7, 1950 did not extend the prescriptive period on assessment. The argument is untenable, for, as already seen, the assessment was never finally withdrawn, since it was not approved by the Secretary of Finance or of the Board of Tax Appeals. The authority of the Secretary to act upon the assessment cannot be questioned, for he is expressly granted such authority under section 9 of Executive Order No. 401-And under section 79 (c) of the Revised Administrative Code, he has "direct control, direction and supervision over all bureaus and offices under his jurisdiction and may, any provision of existing law to the contrary not withstanding, repeal or modify the decision of the chief of said Bureaus or offices when advisable in public interest." It should here also be stated that the assessment in question was consistently protested by petitioner, making several requests for reinvestigation thereof. Under the circumstances, petitioner may be considered to have waived the defense of prescription. "Estoppel has been employed to prevent the application of the statute of limitations against the government in certain instances in which the taxpayer has taken some affirmative action to prevent the collection of the tax within the statutory period. It is generally held that a taxpayer is estopped to repudiate waivers of the statute of limitations upon which the government relied. The cases frequently involve dissolved corporations. If no waiver has been given, the cases usually show come conduct directed to a postponement of collection, such, for example, as some variety of request to apply an overassessment. The taxpayer has 'benefited' and 'is not in a position to contest' his tax liability. A definite representation of implied authority may be involved, and in many cases the taxpayer has received the 'benefit' of being saved from the inconvenience, if not hardship of immediate collection. " Conceivably even in these cases a fully informed Commissioner may err to the sorrow of the revenues, but generally speaking, the cases present a strong combination of equities against the taxpayer, and few will seriously quarrel with their application of the doctrine of estoppel." (Mertens Law of Federal Income Taxation, Vol. 10-A, pp. 159-160.) It is also claimed that section 9 of Executive Order No. 401-A, series of 1951 es involving an original assessment of more than P5,000 refers only to compromises and refunds of taxes, but not to total withdrawal of the assessment. The contention is without merit. A careful examination of the provisions of both sections 8 and 9 of Executive Order No. 401-A, series of 1951, reveals the procedure prescribed therein is intended as a check or control upon the powers of the Collector of Internal Revenue in respect to assessment and refunds of taxes. If it be conceded that a decision of the Collector of Internal Revenue on partial remission of taxes is subject to review by the Secretary of Finance and the Board of Tax Appeals, then with more reason should the power of the Collector to withdraw totally an assessment be subject to such review. We find merit, however, in petitioner's contention that the Court of Tax Appeals erred in the imposition of the 5% fraud surcharge. As already shown in the early part of this decision, no element of fraud is present. Pursuant to Section 183 of the National Internal Revenue Code the 50% surcharge should be added to the deficiency sales tax "in case a false or fraudulent return is willfully made." Although the sales made by SM are in substance by Yutivo this does not necessarily establish fraud nor the willful filing of a false or fraudulent return. The case of Court Holding Co. v. Commissioner of Internal Revenue (August 9, 1943, 2 TC 531, 541-549) is in point. The petitioner Court Holding Co. was a corporation consisting of only two stockholders, to wit: Minnie Miller and her husband Louis Miller. The only assets of third husband and wife corporation consisted of an apartment building which had been acquired for a very low price at a judicial sale. Louis Miller, the husband, who directed the company's business, verbally agreed to sell this property to Abe C. Fine and Margaret Fine, husband and wife, for the sum of $54,000.00, payable in various installments. He received $1,000.00 as down payment. The sale of this property for the price mentioned would have netted the corporation a handsome profit on which a large corporate income tax would have to be paid. On the afternoon of February 23, 1940, when the Millers and the Fines got together for the execution of the document of sale, the Millers announced that their attorney had called their attention to the large corporate tax which would have to be paid if the sale was made by the corporation itself. So instead of proceeding with the sale as planned, the Millers approved a resolution to declare a dividend to themselves "payable in the assets of the corporation, in complete liquidation and surrender of all the outstanding corporate stock." The building, which as above stated was the only property of the corporation, was then transferred to Mr.

44
and Mrs. Miller who in turn sold it to Mr. and Mrs. Fine for exactly the same price and under the same terms as had been previously agreed upon between the corporation and the Fines. The return filed by the Court Holding Co. with the respondent Commissioner of Internal Revenue reported no taxable gain as having been received from the sale of its assets. The Millers, of course, reported a long term capital gain on the exchange of their corporate stock with the corporate property. The Commissioner of Internal Revenue contended that the liquidating dividend to stockholders had no purpose other than that of tax avoidance and that, therefore, the sale by the Millers to the Fines of the corporation's property was in substance a sale by the corporation itself, for which the corporation is subject to the taxable profit thereon. In requiring the corporation to pay the taxable profit on account of the sale, the Commissioner of Internal Revenue, imposed a surcharge of 25% for delinquency, plus an additional surcharge as fraud penalties. The U. S. Court of Tax Appeals held that the sale by the Millers was for no other purpose than to avoid the tax and was, in substance, a sale by the Court Holding Co., and that, therefore, the said corporation should be liable for the assessed taxable profit thereon. The Court of Tax Appeals also sustained the Commissioner of Internal Revenue on the delinquency penalty of 25%. However, the Court of Tax Appeals disapproved the fraud penalties, holding that an attempt to avoid a tax does not necessarily establish fraud; that it is a settled principle that a taxpayer may diminish his tax liability by means which the law permits; that if the petitioner, the Court Holding Co., was of the opinion that the method by which it attempted to effect the sale in question was legally sufficient to avoid the imposition of a tax upon it, its adoption of that methods not subject to censure; and that in taking a position with respect to a question of law, the substance of which was disclosed by the statement indorsed on it return, it may not be said that that position was taken fraudulently. We quote in full the pertinent portion of the decision of the Court of Tax Appeals: . ". . . The respondent's answer alleges that the petitioner's failure to report as income the taxable profit on the real estate sale was fraudulent and with intent to evade the tax. The petitioner filed a reply denying fraud and averring that the loss reported on its return was correct to the best of its knowledge and belief. We think the respondent has not sustained the burden of proving a fraudulent intent. We have concluded that the sale of the petitioner's property was in substance a sale by the petitioner, and that the liquidating dividend to stockholders had no purpose other than that of tax avoidance. But the attempt to avoid tax does not necessarily establish fraud. It is a settled principle that a taxpayer may diminish his liability by any means which the law permits. United States v. Isham, 17 Wall. 496; Gregory v. Helvering, supra; Chrisholm v. Commissioner, 79 Fed. (2d) 14. If the petitioner here was of the opinion that the method by which it attempted to effect the sale in question was legally sufficient to avoid the imposition of tax upon it, its adoption of that method is not subject to censure. Petitioner took a position with respect to a question of law, the substance of which was disclosed by the statement endorsed on its return. We can not say, under the record before us, that that position was taken fraudulently. The determination of the fraud penalties is reversed." When GM was the importer and Yutivo, the wholesaler, of the cars and trucks, the sales tax was paid only once and on the original sales by the former and neither the latter nor SM paid taxes on their subsequent sales. Yutivo might have, therefore, honestly believed that the payment by it, as importer, of the sales tax was enough as in the case of GM Consequently, in filing its return on the basis of its sales to SM and not on those by the latter to the public, it cannot be said that Yutivo deliberately made a false return for the purpose of defrauding the government of its revenues which will justify the imposition of the surcharge penalty. We likewise find meritorious the contention that the Tax Court erred in computing the alleged deficiency sales tax on the selling price of SM without previously deducting therefrom the sales tax due thereon. The sales tax provisions (sees. 184.186, Tax Code) impose a tax on original sales measured by "gross selling price" or "gross value in money". These terms, as interpreted by the respondent Collector, do not include the amount of the sales tax, if invoiced separately. Thus, General Circular No. 431 of the Bureau of Internal Revenue dated July 29, 1939, which implements sections 184.186 of the Tax Code provides: " . . .'Gross selling price' or gross value in money' of the articles sold, bartered, exchanged, transferred as the term is used in the aforecited sections (sections 184, 185 and 186) of the National Internal Revenue Code, is the total amount of money or its equivalent which the purchaser pays to the vendor to receive or get the goods. However, if a manufacturer, producer, or importer, in fixing the gross selling price of an article sold by him has included an amount intended to cover the sales tax in the gross selling price of the articles, the sales tax shall be based on the gross selling price less the amount intended to cover the tax, if the same is billed to the purchaser as a separate item. General Circular No. 440 of the same Bureau reads: Amount intended to cover the tax must be billed as a separate em so as not to pay a tax on the tax. On sales made after he third quarter of 1939, the amount intended to cover the sales tax must be billed to the purchaser as separate items in the, invoices in order that the reduction thereof from the gross ailing price may be allowed in the computation of the merchants' percentage tax on the sales. Unless billed to the purchaser as a separate item in the invoice, the amounts intended to cover the sales tax shall be considered as part of the gross selling price of the articles sold, and deductions thereof will not be allowed, (Cited in Dalupan, Nat. Int. Rev. Code, Annotated, Vol. II, pp. 52-53.) Yutivo complied with the above circulars on its sales to SM, and as separately billed, the sales taxes did not form part of the "gross selling price" as the measure of the tax. Since Yutivo had previously billed the sales tax separately in its sales invoices to SM General Circulars Nos. 431 and 440 should be deemed to have been complied. Respondent Collector's method of computation, as opined by Judge Nable in the decision complained of . . . is unfair, because . . .(it is) practically imposing tax on a tax already paid. Besides, the adoption of the procedure would in certain cases elevate the bracket under which the tax is based. The late payment is already penalized, thru the imposition of surcharges, by adopting the theory of the Collector, we will be creating an additional penalty not contemplated by law." If the taxes based on the sales of SM are computed in accordance with Gen. Circulars Nos. 431 and 440 the total deficiency sales taxes, exclusive of the 25% and 50% surcharges for late payment and for fraud, would amount only to P820,549.91 as shown in the following computation: Sales Taxes Due Gross Sales of Total Gross Selling Rates of and Computed under Vehicles Exclusive of Price Charged to the Sales Tax Gen. Cir Nos. 431 & Sales Tax Public 400

45
5% 7% 10% 15% 20% 30% 50% 75% TOTAL P11,912,219.57 909,559.50 2,618,695.28 3,602,397.65 267,150.50 837,146.97 74,244.30 8,000.00 P20,220,413.77 P595,610.98 63,669.16 261,869.53 540,359.65 53,430.10 251,114.09 37,122.16 6,000.00 P1,809,205.67 P12,507,83055 973,228.66 2,880,564.81 4,142,757.30 320,580.60 1,088,291.06 111,366.46 14,000.00 P22,038,619.44

Less Taxes Paid by Yutivo

988,655.76

Deficiency Tax still due P820,549.91 This is the exact amount which, according to Presiding Judge Nable of the Court of Tax Appeals, Yutivo would pay, exclusive of the surcharges. Petitioner finally contends that the Court of Tax Appeals erred or acted in excess of its jurisdiction in promulgating judgment for the affirmance of the decision of respondent Collector by less than the statutory requirement of at least two votes of its judges. Anent this contention, section 2 of Republic Act No. 1125, creating the Court of Tax Appeals, provides that "Any two judges of the Court of Tax Appeals shall constitute a quorum, and the concurrence of two judges shall be necessary to promulgate decision thereof. . . . " It is on record that the present case was heard by two judges of the lower court. And while Judge Nable expressed his opinion on the issue of whether or not the amount of the sales tax should be excluded from the gross selling price in computing the deficiency sales tax due from the petitioner, the opinion, apparently, is merely an expression of his general or "private sentiment" on the particular issue, for he concurred the dispositive part of the decision. At any rate, assuming that there is no valid decision for lack of concurrence of two judges, the case was submitted for decision of the court below on March 28, 1957 and under section 13 of Republic Act 1125, cases brought before said court hall be decided within 30 days after submission thereof. "If no decision is rendered by the Court within thirty days from the date a case is submitted for decision, the party adversely affected by said ruling, order or decision, may file with said Court a notice of his intention to appeal to the Supreme Court, and if no decision has as yet been rendered by the Court, the aggrieved party may file directly with the Supreme Court an appeal from said ruling, order or decision, notwithstanding the foregoing provisions of this section." The case having been brought before us on appeal, the question raised by petitioner as become purely academic. IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals under review is hereby modified in that petitioner shall be ordered to pay to respondent the sum of P820,549.91, plus 25% surcharge thereon for late payment. So ordered without costs. 14. G.R. No. L-9687 June 30, 1961 LIDDELL & CO., INC., petitioner-appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee. Ozaeta, Lichauco and Picazo for petitioner-appellant. Office of the Solicitor General for respondent-appellee. BENGZON, C.J.: Statement. This 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. Said Company lists down several issues which may be boiled to the following: (a) Whether or not Judge Umali of the Tax Court below could validly participate in the making of the decision; (b) Whether or not Liddell & Co. Inc., and the Liddell Motors, Inc. are (practically) identical corporations, the latter being merely .the alter ego of the former; (c) Whether or not, granting the identical nature of the corporations, the assessment of tax liability, including the surcharge thereon by the Court of Tax Appeals, is correct. Undisputed Facts. The parties submitted a partial stipulation of facts, each reserving the right to present additional evidence. Said undisputed facts are substantially as follows: The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation establish in the Philippines on February 1, 1946, with an authorized capital of P100,000 divided into 1000 share at P100 each. Of this authorized capital, 196 shares valued at P19,600 were subscribed and paid by Frank Liddell while the other four shares were in the name of Charles Kurz, E.J. Darras, Angel Manzano and Julian Serrano at one shares each. Its purpose was to engage in the business of importing and retailing Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks.. On January 31, 1947, with the limited paid-in capital of P20,000, Liddell & Co. was able to declare a 90% stock dividend after which declaration on, Frank Liddells holding in the Company increased to 1,960 shares and the employees, Charles Kurz E.J. Darras, Angel Manzano and Julian Serrano at 10 share each. The declaration of stock dividend was followed by a resolution increasing the authorized capital of the company to P1,000.000 which the Securities & Exchange Commission approved on March 3, 1947. Upon such approval, Frank Liddell subscribed to 3,000 additional shares, for which he paid into the corporation P300,000 so that he had in his own name 4,960 shares.

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On May 24, 1957, Frank Liddell, on one hand and Messrs. Kurz, Darras, Manzano and Serrano on the other, executed an agreement (Exhibit A) which was further supplemented by two other agreements (Exhibits B and C) dated May 24, 1947 and June 3, 1948, wherein Frank Liddell transferred (On June 7, 1948) to various employees of Liddell & Co. shares of stock. At the annual meeting of stockholders of Liddell & Co. held on March 9, 1948, a 100% stock dividend was declared, thereby increasing the issued capital stock of aid corporation from P1,000.000 to P 3,000,000 which increase was duly approved by the Securities and Exchange Commission on June 7, 1948. Frank Liddell subscribed to and paid 20% of the increase of P400,000. He paid 25% thereof in the amount of P100,000 and the balance of P3,000,000 was merely debited to Frank Liddell-Drawing Account and credited to Subscribed Capital Stock on December 11, 1948. On March 8, 1949, stock dividends were again issued by Liddell & Co. and in accordance with the agreements, Exhibits A, B, and C, the stocks of said company stood as follows: No. of Name Amount Per Cent Shares Frank Liddell Irene Liddell Mercedes Vecin Charles Kurz E.J. Darras Angel Manzano Julian Serrano E. Hasim G. W. Kernot 13,688 P1,368,800 1 1 1,225 1,225 1,150 710 500 500 100 100 122,500 122,500 115,000 71,000 50,000 50,000 72.00% .01% .01% 6.45% 6.45% 6.06% 3.74% 2.64% 2.64%

19,000 P1,900,000 100.00% On November 15, 1948, in accordance with a resolution of a special meeting of the Board of Directors of Liddell & Co., stock dividends were again declared. As a result of said declaration and in accordance with the agreements, Exhibits, A, B, and C, the stockholdings in the company appeared to be: No. of Name Amount Per Cent Shares Frank Liddell Irene Liddell Mercedes Vecin Charles Kurz E.J. Darras Angel Manzano Julian Serrano E. Hasim G. W. Kernot 19,738 P1,973,800 1 1 2,215 2,215 1,810 1,700 830 1,490 100 100 221,500 221,500 181,000 170,000 83,000 149,000 65.791% .003% .003% 7.381% 7.381% 6.031% 5.670% 2.770% 4.970%

30,000 P3,000,000 100.000% On the basis of the agreement Exhibit A, (May, 1947) "40%" of the earnings available for dividends accrued to Frank Liddell although at the time of the execution of aid instrument, Frank Liddell owned all of the shares in said corporation. 45% accrued to the employees, parties thereto; Kurz 12-1/2%; Darras 12-1/2%; A. Manzano 12-1/2% and Julian Serrano 7-1/2%. The agreement Exhibit A was also made retroactive to 1946. Frank Liddell reserved the right to reapportion the 45% dividends pertaining to the employees in the future for the purpose of including such other faithful and efficient employees as he may subsequently designate. (As a matter of fact, Frank Liddell did so designate two additional employees namely: E. Hasim and G. W. Kernot). It was for such inclusion of future faithful employees that Exhibits B-1 and C were executed. As per Exhibit C, dated May 13, 1948, the 45% given by Frank Liddell to his employees was reapportioned as follows: C. Kurz 12,%; E. J. Darras 12%; A. Manzano l2%; J. Serrano 3-1/2%; G. W. Kernot 2%. Exhibit B contains the employees' definition in detail of the manner by which they sought to prevent their share-holdings from being transferred to others who may be complete strangers to the business on Liddell & Co. From 1946 until November 22, 1948 when the purpose clause of the Articles of Incorporation of Liddell & Co. Inc., was amended so as to limit its business activities to importations of automobiles and trucks, Liddell & Co. was engaged in business as an importer and at the same time retailer of Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks. On December 20, 1948, the Liddell Motors, Inc. was organized and registered with the Securities and Exchange Commission with an authorized capital stock of P100,000 of which P20,000 was subscribed and paid for as follows: Irene Liddell wife of Frank Liddell 19,996 shares and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del Rosario and Esmenia Silva, 1 share each. At about the end of the year 1948, Messrs. Manzano, Kurz and Kernot resigned from their respective positions in the Retail Dept. of Liddell & Co. and they were taken in and employed by Liddell Motors, Inc.: Kurz as Manager-Treasurer, Manzano as General Sales Manager for cars and Kernot as General Sales Manager for trucks.

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Beginning January, 1949, Liddell & Co. stopped retailing cars and trucks; it conveyed them instead to Liddell Motors, Inc. which in turn sold the vehicles to the public with a steep mark-up. Since then, Liddell & Co. paid sales taxes on the basis of its sales to Liddell Motors Inc. considering said sales as its original sales. Upon review of the transactions between Liddell & Co. and Liddell Motors, Inc. the Collector of Internal Revenue determined that the latter was but an alter ego of Liddell & Co. Wherefore, he concluded, that for sales tax purposes, those sales made by Liddell Motors, Inc. to the public were considered as the original sales of Liddell & Co. Accordingly, the Collector of Internal Revenue assessed against Liddell & Co. a sales tax deficiency, including surcharges, in the amount of P1,317,629.61. In the computation, the gross selling price of Liddell Motors, Inc. to the general public from January 1, 1949 to September 15, 1950, was made the basis without deducting from the selling price, the taxes already paid by Liddell & Co. in its sales to the Liddell Motors Inc. The Court of Tax Appeals upheld the position taken by the Collector of Internal Revenue. A. Judge Umali: Appellant urges the disqualification on of Judge Roman M. Umali to participate in the decision of the instant case because he was Chief of the Law Division, then Acting Deputy Collector and later Chief Counsel of the Bureau of Internal Revenue 1 during the time when the assessment in question was made. In refusing to disqualify himself despite admission that had held the aforementioned offices, Judge Umali stated that he had not in any way participated, nor expressed any definite opinion, on any question raised by the parties when this case was presented for resolution before the said bureau. Furthermore, after careful inspection of the records of the Bureau, he (Judge Umali as well as the other members of the court below), had not found any indication that he had expressed any opinion or made any decision that would tend to disqualify him from participating in the consideration of the case in the Tax Court. At this juncture, it is well to consider that petitioner did not question the truth of Judge Umali's statements. In view thereof, this Tribunal is not inclined to disqualify said judge. Moreover, in furtherance of the presumption of the judge's moral sense of responsibility this Court has adopted, and now here repeats, the ruling that the mere participation of a judge in prior proceedings relating to the subject in the capacity of an administrative official does not necessarily disqualify him from acting as judge. 2 Appellant also contends that Judge Umali signed the said decision contrary to the provision of Section 13, Republic Act No. 1125; 3 that whereas the case was submitted for decision of the Court of Tax Appeals on July 12, 1955, and the decision of Associate Judge Luciano and Judge Nable were both signed on August 11, 1955 (that is, on the last day of the 30-day period provided for in Section 13, Republic Act No. 1125), Judge Umali signed the decision August 31, 1955 or 20 days after the lapse of the 30-day period allotted by law. By analogy it may be said that inasmuch as in Republic Act No. 1125 (law creating the Court of Tax Appeals) like the law governing the procedure in the court of Industrial Relations, there is no provision invalidating decisions rendered after the lapse of 30 days, the requirement of Section 13, Republic Act No. 1125 should be construed as directory. 4 5 Besides as pointed out by appellee, the third paragraph of Section 13 of Republic Act No. 1125 (quoted in the margin) confirms this view; because in providing for two thirty-day periods, the law means that decision may still be rendered within the second period of thirty days (Judge Umali signed his decision within that period). B. Identity of the two corporations: On the question whether or not Liddell Motors, Inc. is the alter ego of Liddell & Co. Inc., we are fully convinced that Liddell & Co. is wholly owned by Frank Liddell. As of the time of its organization, 98% of the capital stock belonged to Frank Liddell. The 20% paid-up subscription with which the company began its business was paid by him. The subsequent subscriptions to the capital stock were made by him and paid with his own money. These stipulations and conditions appear in Exhibit A: (1) that 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. These stipulations in our opinion attest to the fact that Frank Liddell also owned it. He supplied the original his complete control over the corporation. 6 As to Liddell Motors, Inc. we are fully persuaded that Frank Liddell also owned it. He supplied the original capital funds. It is not proven that his wife Irene, ostensibly the sole incorporator of Liddell Motors, Inc. had money of her own to pay for her P20,000 initial subscription.7 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. There are quite a series of conspicuous circumstances that militate against the separate and distinct personality of Liddell Motors, Inc. from Liddell & Co.8 We notice that the bulk of the business of Liddell & Co. was channeled through Liddell Motors, Inc. On the other hand, Liddell Motors, Inc. pursued no activities except to secure cars, trucks, and spare parts from Liddell & Co. Inc. and then sell them to the general public. These sales of vehicles by Liddell & Co. to Liddell Motors, Inc. for the most part were shown to have taken place on the same day that Liddell Motors, Inc. sold such vehicles to the public. We may even say that the cars and trucks merely touched the hands of Liddell Motors, Inc. as a matter of formality. During the first six months of 1949, Liddell & Co. issued ten (10) checks payable to Frank Liddell which were deposited by Frank Liddell in his personal account with the Philippine National Bank. During this time also, he issued in favor of Liddell Motors, Inc. six (6) checks drawn against his personal account with the same bank. The checks issued by Frank Liddell to the Liddell Motors, Inc. were

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significantly for the most part issued on the same day when Liddell & Co. Inc. issued the checks for Frank Liddell and for the same amounts. It is of course accepted that the mere fact that one or more corporations are owned and controlled by a single stockholder is not of itself sufficient ground for disregarding separate corporate entities. Authorities10 support the rule that it is lawful to obtain a corporation charter, even with a single substantial stockholder, to engage in a specific activity, and such activity may co-exist with other private activities of the stockholder. If the corporation is a substantial one, conducted lawfully and without fraud on another, its separate identity is to be respected. Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other. There is, however, in this instant case, a peculiar consequence of the organization and activities of Liddell Motors, Inc. Under the law in force at the time of its incorporation the sales tax on original sales of cars (sections 184, 185 and 186 of the National Internal Revenue Code), was progressive, i.e. 10% of the selling price of the car if it did not exceed P5000, and 15% of the price if more than P5000 but not more than P7000, etc. This progressive rate of the sales tax naturally would tempt the taxpayer to employ a way of reducing the price of the first sale. And Liddell Motors, Inc. was the medium created by Liddell & Co. to reduce the price and the tax liability. Let us illustrate: a car with engine motor No. 212381 was sold by Liddell & Co. Inc. to Liddell Motors, Inc. on January 17, 1948 for P4,546,000.00 including tax; the price of the car was P4,133,000.23, the tax paid being P413.22, at 10%. And when this car was later sold (on the same day) by Liddell Motors, Inc. to P.V. Luistro for P5500, no more sales tax was paid. 11 In this price of P5500 was included the P413.32 representing taxes paid by Liddell & Co. Inc. in the sale to Liddell Motors, Inc. Deducting P413.32 representing taxes paid by Liddell & Co., Inc. the price of P5500, the balance of P5,087.68 would have been the net selling price of Liddell & Co., Inc. to the general public (had Liddell Motors, Inc. not participated and intervened in the sale), and 15% sales tax would have been due. In this transaction, P349.68 in the form of taxes was evaded. All the other transactions (numerous) examined in this light will inevitably reveal that the Government coffers had been deprived of a sizeable amount of taxes. 12 As opined in the case of Gregory v. Helvering, "the legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them by means which the law permits, cannot be doubted." But, as held in another case,13 "where a corporation is a dummy, is unreal or a sham and serves no business purpose and is intended only as a blind, the corporate form may be ignored for the law cannot countenance a form that is bald and a mischievous fiction." Consistently with this view, the United States Supreme Court 14 held that "a taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue officers in proper cases, may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take the benefits of the transactions as the person accordingly taxable." Thus, we repeat: to allow a taxpayer to deny tax liability on the ground that the sales were made through 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.15 C. Tax liability computation: In the Yutivo case16 the same question involving the computation of the alleged deficiency sales tax has been raised. In accordance with our ruling in said case we hold as correctly stated by Judge Nable in his concurring and dissenting opinion on this case, that the deficiency sales tax should be based on the selling price obtained by Liddell Motors, Inc. to the public AFTER DEDUCTING THE TAX ALREADY PAID BY LIDDELL & CO., INC. in its sales to Liddell Motors, Inc. On the imposition of the 50% surcharge by reason of fraud, we see that the transactions between Liddell Motors Inc. and Liddell & Co., Inc. have always been embodied in proper documents, constantly subject to inspection by the tax authorities. Liddell & Co., Inc. have always made a full report of its income and receipts in its income tax returns. Paraphrasing our decision in the Yutivo case, we may now say, in filing its return on the basis of its sales to Liddell Motors, Inc. and not on those by the latter to the public, it cannot be held that the Liddell & Co., Inc. deliberately made a false return for the purpose of defrauding the government of its revenue, and should suffer a 50% surcharge. But penalty for late payment (25%) should be imposed. In view of the foregoing, the decision appealed from is hereby modified: Liddell & Co., Inc. is declared liable only for the amount of P426,811.67 with 25% surcharge for late payment and 6% interest thereon from the time the judgment becomes final. As it appears that, during the pendency of this litigation appellant paid under protest to the Government the total amount assessed by the Collector, the latter is hereby required to return the excess to the petitioner. No costs. 15. G.R. No. 169438 January 21, 2010 ROMEO D. MARIANO, Petitioner, vs. PETRON CORPORATION, Respondent. DECISION CARPIO, J.: The Case 1 2 For review is the Decision of the Court of Appeals upholding the lease contract between petitioner Romeo D. Mariano and respondent Petron Corporation. The Facts On 5 November 1968,3 Pacita V. Aure, Nicomedes Aure Bundac, and Zeny Abundo (Aure Group), owners of a 2,064 square meter 4 parcel of land in Tagaytay City (Property), leased the Property to ESSO Standard Eastern, Inc., (ESSO Eastern), a foreign corporation doing business in the country through its subsidiary ESSO Standard Philippines, Inc. (ESSO Philippines). The lease period is 90 years5 and the rent is payable monthly for the first 10 years, and annually for the remaining period. 6 The lease contract (Contract) 7 contained an assignment veto clause barring the parties from assigning the lease without prior consent of the other. Excluded from the prohibition were certain corporations to whom ESSO Eastern may unilaterally assign its leasehold right. 8 On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine National Oil Corporation (PNOC). 9Apparently, the Aure Group was not informed of the sale. ESSO Philippines, whose corporate name was successively changed to Petrophil Corporation then to Petron Corporation (Petron), took possession of the Property.
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On 18 November 1993, petitioner Romeo D. Mariano (petitioner) bought the Property from the Aure Group and obtained title to the 10 Property issued in his name bearing an annotation of ESSO Easterns lease. On 17 December 1998, petitioner sent to Petron a notice to vacate the Property. Petitioner informed Petron that Presidential Decree No. 471 (PD 471),11 dated 24 May 1974, reduced the Contracts duration from 90 to 25 years, ending on 13 November 1993. 12 Despite receiving the notice to vacate on 21 December 1998, Petron remained on the Property. On 18 March 1999, petitioner sued Petron in the Regional Trial Court of Tagaytay City, Branch 18, (trial court) to rescind the Contract and recover possession of the Property. Aside from invoking PD 471, petitioner alternatively theorized that the Contract was terminated on 23 December 1977 when ESSO Eastern sold ESSO Philippines to PNOC, thus assigning to PNOC its lease on the Property, without seeking the Aure Groups prior consent. In its Answer, Petron countered that the Contract was not breached because PNOC merely acquired ESSO Easterns shares in ESSO Philippines, a separate corporate entity. Alternatively, Petron argued that petitioners suit, filed on 18 March 1999, was barred by prescription under Article 1389 and Article 1146(1) of the Civil Code as petitioner should have sought rescission within four years from 13 14 PNOCs purchase of ESSO Philippines on 23 December 1977 or before 23 December 1981. To dispense with the presentation of evidence, the parties submitted a Joint Motion for Judgment (Joint Motion) containing the following stipulation: 5. On December 23, 1977, the Philippine National Oil Co. (PNOC), a corporation wholly owned by the Philippine Government, acquired ownership of ESSO Standard Philippines, Inc., including its leasehold right over the land in question, through the acquisition of its shares of stocks.15 (Emphasis supplied) The Ruling of the Trial Court In its Decision dated 30 May 2000, the trial court ruled for petitioner, rescinded the Contract, ordered Petron to vacate the Property, and 16 cancelled the annotation on petitioners title of Petrons lease. The trial court ruled that ESSO Easterns sale to PNOC of its interest in ESSO Philippines included the assignment to PNOC of ESSO Easter ns lease over the Property, which, for lack of the Aure Groups consent, breached the Contract, resulting in its termination. However, because the Aure Group (and later petitioner) tolerated ESSO Philippines continued use of the Property by receiving rental payments, the law on implied new lease governs the relationship of the Aure Group (and later petitioner) and Petron, creating for them an implied new lease terminating on 21 December 1998 upon Pet rons receipt of petitioners notice to vacate. 17 Petron appealed to the Court of Appeals, distancing itself from its admission in the Joint Motion that in buying ESSO Philippines from ESSO Eastern, PNOC also acquired ESSO Easterns leasehold right over the Property. Petron again invoked its separate corporate personality to distinguish itself from PNOC. The Ruling of the Court of Appeals In its Decision dated 29 October 2004, the Court of Appeals found merit in Petro ns appeal, set aside the trial courts ruling, declared the Contract subsisting until 13 November 205818 and ordered petitioner to pay PetronP300,000 as attorneys fees. The Court of Appeals found no reason to pierce ESSO Philippines corporate veil, treating PNOCs buy-out of ESSO Philippines as mere change in ESSO Philippines stockholding. Hence, the Court of Appeals rejected the trial courts conclusion that PNOC acquired the leasehold right over the Property. Alternatively, the Court of Appeals found petitioners suit barred by the four -year prescriptive period under Article 1389 and Article 1146 (1) of the Civil Code, reckoned from PNOCs buy -out of ESSO Philippines on 23 December 1977 (for Article 1389) or the execution of the Contract on 13 November 1968 19 (for Article 1146 [1]).20 Petitioner sought reconsideration but the Court of Appeals denied his motion in its Resolution of 26 August 2005. Hence, this petition. The Issue The question is whether the Contract subsists between petitioner and Petron. The Ruling of the Court We hold in the affirmative and thus sustain the ruling of the Court of Appeals. ESSO Eastern Assigned to PNOC its Leasehold Right over the Property, Breaching the Contract PNOCs buy-out of ESSO Philippines was total and unconditional, leaving no residual rights to ESSO Eastern. Logically, this change of ownership carried with it the transfer to PNOC of any proprietary interest ESSO Eastern may hold through ESSO Philippines, including ESSO Easterns lease over the Property. This is the import of Petrons admission in the Joint Motion that by PNOCs buy-out of ESSO Philippines "[PNOC], x x x acquired ownership of ESSO Standard Philippines, Inc., including its leasehold right over the land in question, through the acquisition of its shares of stocks." As the Aure Group gave no prior consent to the transaction between ESSO Eastern and PNOC, ESSO Eastern violated the Contracts assignment veto clause. Petrons objection to this conclusion, sustained by the Court of Appeals, is rooted on its reliance on its separate corporate personality and on the unstated assumption that ESSO Philippines (not ESSO Eastern) initially held the leasehold right over the Property. Petron is wrong on both counts. Courts are loathe to pierce the fictive veil of corporate personality, cognizant of the core doctrine in corporation law vesting on corporations legal personality distinct from their shareholders (individual or corporate) thus facilitating the conduct of corporate business. However, fiction gives way to reality when the corporate personality is foisted to justify wrong, protect fraud, or defend crime, thwarting the ends of justice.21 The fiction even holds lesser sway for subsidiary corporations whose shares are wholly if not almost wholly owned by its parent company. The structural and systems overlap inherent in parent and subsidiary relations often render the subsidiary as mere local branch, agency or adjunct of the foreign parent corporation. 22 Here, the facts compel the conclusion that ESSO Philippines was a mere branch of ESSO Eastern in the execution and breach of the Contract. First, by ESSO Easterns admission in the Contract, it is "a foreign corporation organized under the laws of the St ate of Delaware, U.S.A., duly licensed to transact business in the Philippines, and doing business therein under the business name and style of Esso Standard Philippines x x x". In effect, ESSO Eastern was ESSO Philippines for all of ESSO Easterns Philippine business.1avvphi1

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Second, the Contract was executed by ESSO Eastern, not ESSO Philippines, as lessee, with the Aure Group as lessor. ESSO Eastern leased the Property for the use of ESSO Philippines, acting as ESSO Easterns Philippine branch. Consistent with such status, ESSO Philippines took possession of the Property after the execution of the Contract. Thus, for purposes of the Contract, ESSO Philippines was a mere alter ego of ESSO Eastern. The Lessors Continued Acceptance of Lease Payments Despite Breach of Contract Amounted to Waiver The breach of contract notwithstanding, we hold that the Contract subsists. Contrary to the trial courts conclusion that ESSO Easterns 23 violation of the assignment veto clause extinguished the Contract, replaced by a new implied lease with a monthly term, we hold that the breach merely gave rise to a cause of action for the Aure Group to seek the lessees ejectment as provided under Article 1673, paragraph 3 of the Civil Code.24 Although the records do not show that the Aure Group was formally notified of ESSO Philippines sale to PNOC, the successive changes in the lessees name (from ESSO Philippines to Petrophi l Corporation then to Petron) suffice to alert the Aure Group of a likely change in the personality of the lessee, which, for lack of the Aure Groups prior consent, was in obvious breach of the Contract. Thus, the continued receipt of lease payments by the Aure Group (and later by petitioner) despite the contractual breach amounted to a waiver of their option to eject the lessee. Petitioners Suit Barred by Prescription Petitioners waiver of Petrons contractual breach was compounded by his long inaction to seek judicial redress. Petitioner filed his complaint nearly 22 years after PNOC acquired the leasehold rights to the Property and almost six years after petitioner bought the Property from the Aure Group. The more than two decades lapse puts this case well within the territory of the 10 year prescriptive bar to 25 suits based upon a written contract under Article 1144 (1) of the Civil Code. WHEREFORE, we DENY the petition. The Decision dated 29 October 2004 and the Resolution dated 26 August 2005 of the Court of Appeals are AFFIRMED. SO ORDERED.