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CONTINUATION OF LETTER C.

b. ALTER EGO CASES (book)


The oft-repeated statement of the courts in the
application of the piercing doctrine is that the question
of whether a corporation is a mere alter ego is purely
one of fact, and therefore it is not sufficient to allege
that a corporate entity is being used merely as an
instrumentality of another person or entity, but that
the facts and circumstances be clearly shown to
demonstrate such situation. The probative factors
enumerated in Concept Builders present the critical
areas where the underlying circumstances have to be
demonstrated.
Arnold vs. Willits and Patterson, Ltd. (Alter Ego
Case);44 Phil 634 (1923)
Facts: G.C. Arnold was in the employ of the
International Banking Corporation of Manila. On July 31,
1916, C.D. Willits and I.L. Patterson were partners
doing business in San Francisco, California under the
name of Willits and Patterson. They entered into a
written contract into which G.C. Arnold was employed
as the agent of the firm in the Philippine Islands for a
five-year period.

compensation due the plaintiff, Arnold under a contract


letter signed by Willits, the controlling stockholder,
without board approval. The signing President was the
controlling stockholder of the corporation.
Issue: For whom was the plaintiff working for on the
basis that his contract was made with the original firm,
and that the 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.
Held: Arnold still remained the employee of the firm
despite the transfer of ownership. When Willits signed
the contract with Arnold in his own name, it becomes a
contract between Arnold and the corporation.
The Court held the validity of the contract and
although the plaintiff was the president of the local
corporation, the testimony is conclusive that both of
them were what is known as a one man corporation,
and Willits, as the owner of all the stocks, was the force
and dominant power which controlled them.
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.

The business of the firm in the Philippines rapidly


increased. A dispute arose between the plaintiff and
the firm as to the construction of the contract as to the
amount which plaintiff should receive for his services.

The Court found that there was no fraud or collusion


between plaintiff and Willits, and it is very apparent
that the contract letter was to the mutual interests of
both parties.

Meanwhile, Patterson retired from the firm and Willits


became the sole owner of his assets. As a result, a new
corporation was organized by Willits under the laws of
California.

It is elementary law that a contract that is binding to


the corporation is equally binding to the creditors
committee.

A short time after that Willits came to Manila and


organized a corporation known as Willits and Patterson,
Ltd, in which Willits 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.
Another instrument was made between G.C. Arnold
and Willits which defined and specified the
compensation which the plaintiff received for his
services. Willits received and confirmed this letter by
signing the name of Willits and Patterson, By C.D.
Willits.
Thereafter, the San Francisco Coroporation became
involved in financial trouble, and all of the assets were
turned over to a creditors committee. The creditors
committee of the corporation opposed the payment of

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La Campana Coffee Factory, Inc. vs. Kaisahan ng


mga Manggagawa sa La Campana (KKM) (Alter
ego case)
93 PHIL 160 (1953)
FACTS: Petitioner Tan Tong since 1932 has been
engaged in buying and selling gaugau under the trade
name La Campana Gaugau Packing. On July 6, 1950,
Tan Tong and his family as sole incorporators and
stockholders, organized the La Campana Coffee Factory
Co., Inc., with its principal office located in the same
place as that of La Campana Gaugau Packing.
A year before the formation of the corporation, Tan
Tong entered into a collective bargaining agreement
with the Philippine Legion of Organized Workers
(PLOW), to which the union of Tan Tongs employees
headed by Manuel E. Sadde was then affiliated.
Seceding, however, from the PLOW, Tan Tongs

employees later formed their own organization known


as Kaisahan ng mga Manggagawa sa La Campana.
On July 19, 1951, Kaisahan, with 66 members workers
all of them both La Campana Gaugau Packing and La
Campana Coffee Factory Co., Inc. presented a
demand for higher wages and more privileges
addressed to La Campana Starch and Coffee factory,
by which name they sought to designate as the La
Campana Gaugau Packing and La Campana Coffee
Factory Co., Inc.
ISSUE: Whether or not La Campana Gaugau Packing
and La Campana Coffee Factory Co., Inc. are two
separate factories.
HELD: NO. the two factories are operating under one
management. In the present case, Tan Tong appears to
be the owner of the gaugau factory. And the coffee
factory, though an incorporated business, is in reality
owned exclusively by Tan Tong and his family. As found
by the CIR, the two factories have but one office, one
management and one payroll, except after July 17, the
day the case was certified to the CIR, when they began
preparing separate payrolls for the two.
And above all, it should not be overlooked that, as also
found by the CIR, the laborers of the gaugau factory
and the coffee factory were interchangeable, that is,
the laborers from the gaugau factory mere sometimes
transferred to the coffee factory and vice- versa. In
view of all these, the attempt to make the two factories
appear as two separate businesses, when in reality
they are but one, is but a device to defeat the ends of
the law (the Act governing capital and labor relations)
and should not be permitted to prevail.
YUTIVO SONS HARDWARE CO. vs.
COURT OF TAX APPEALS and COLLECTOR OF
INTERNAL REVENUE (Alter ego case)
FACTS: Yutivo Sons and Hardware Co. is a domestic
corporation with principal office in Manila. After the
liberation, it resumed business and until June 1946
bought a number of cars and trucks from General
Motors Overseas Corp. (GM), an American corp.
licensed to do business in the Phil. As importer, GM
paid sales tax on the basis of the selling price of Yutivo.
Said tax being collected only once on original sales,
Yutivo paid no further sales tax on the sale sto public.
On the other hand, Southern Motors, Inc. (SM) was
organized to engaged in the business of selling cars,
trucks and spare parts. The stockholders of the said
corporations were the sons of the founders of Yutivo.

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Page 2

After the incorporation of SM, the cars and trucks


purchased by Yutivo from GM were sold by Yutivo to SM
which, in turn sold them to the public in the Visayas
and Mindanao.
In an investigation by the revenue officers, the
Collector of CIR sought to impose sales tax plus
surcharge to SM, 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.
ISSUE: Whether or not Southern Motors Inc. is an alter
ego of Yutivo & Sons. to avoid tax collections so as to
prejudice the Government.
HELD: YES. 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. 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.
All detailed records such as cash disbursements,
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.
Apart from the accounting system, the branches of SM
in Bacolod , Iloilo , Cebu, and Davao treat Yutivo
Manila as their "Head Office" or "Home Office" as
shown by their letters of remittances or other
correspondences.

The fact that SM is a mere department or adjunct of


Yutivo is made more patent by the fact that arrastre
conveying, and charges paid for the "operation of
receiving, loading or unloading" of imported cars and
trucks on piers and wharves, were charged against SM
by Yutivo. It plainly appears that Yutivo had sole
authority to allocate its expenses even as against SM.
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.
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.
. LIDELL CO. V. COLLECTOR OF INTERNAL
REVENUE (Alter ego case)
FACTS: The case is an appeal from the decision of the
Court of Tax Appeals imposing a tax deficiency liability
of P1,317,629.61 on Liddell & Co., Inc.
Petitioner, Liddell & Co. Inc., is a domestic corporation
established in the Philippines on February 1, 1946.
From 1946 until November 22, 1948 when the purpose
clause of the Articles of Incorporation of Liddell & Co.
Inc., was amended so as to limit its business activities
to importations of automobiles and trucks, Liddell & Co.
was engaged in business as an importer and at the
same time retailer of Oldsmobile and Chevrolet
passenger cars and GMC and Chevrolet trucks.
On December 20, 1948, the Liddell Motors, Inc. was
organized and registered with the Securities and
Exchange Commission with an authorized capital stock
of P100,000 of which P20,000 was subscribed and paid
for as follows: Irene Liddell wife of Frank Liddell 19,996
shares and Messrs. Marcial P. Lichauco, E. K. Bromwell,
V. E. del Rosario and Esmenia Silva, 1 share each.
Beginning January, 1949, Liddell & Co. stopped
retailing cars and trucks; it conveyed them instead to
Liddell Motors, Inc. which in turn sold the vehicles to
the public with a steep mark-up. Since then, Liddell &
Co. paid sales taxes on the basis of its sales to Liddell
Motors Inc. considering said sales as its original sales.
The Collector of Internal Revenue argued that the Lidell
Motors, Inc. was but an alter ego of Liddell & Co. and

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Page 3

concluded that for sales tax purposes, those sales


made by Liddell Motors, Inc. to the public were
considered as the original sales of Liddell & Co. (LIDELL
Motors then does not pay sales taxes) hence the
imposition of tax deficiency.
ISSUE: Whether or not Lidell Motors, Inc. is an alter
ego of Lidell & Co. making it liable for the said tax
deficiency.
HELD: YES. The Court held that Lidell Motors, Inc. is
an alter ego of Lidell & Co. hence making it liable for
tax deficiency based on the principle that to allow a
taxpayer to deny tax liability on the ground that the
sales were made through another and distinct
corporation when it is proved that the latter is virtually
owned by the former or that they are practically one
and the same is to sanction a circumvention of our tax
laws which is consistent with the view of the US
Supreme Court stating in one case that "a taxpayer
may gain advantage of doing business thru a
corporation if he pleases, but the revenue officers in
proper cases, may disregard the separate corporate
entity where it serves but as a shield for tax evasion
and treat the person who actually may take the
benefits of the transactions as the person accordingly
taxable."
Moreover, as of the time of organization of Lidell
Motors, 98% of the capital stock belonged to Frank
Lidell. 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.
Thus, where a corporation is a dummy and serves no
business purpose and is intended only as a blind, the
corporate form may be ignored. Liddell Motors, Inc.
was the medium created by Liddell & Co. to reduce the
price and the tax liability. Since Lidell Motors inc. was
created to evade sales taxes it was considered as an
alter ego of Lidell & Co.
RAMIREZ TELEPHONE CORPORATION VS. BANK
OF AMERICA
G.R. NO. L-22614; AUGUST 29, 1969
(Alter ego case)
FACTS: Ruben Ramirez had unpaid rents due to
Herbosa. A writ of garnishment over Ramirez bank
account was sought, but no such personal account
existed, and only an account in the name of Ramirez
Telephone Company could be found and was garnished.
Ramirez, as a defense alleged that such fund cannot be

garnished because he and the corporation has a


separate and distinct personality.

be held liable; assuming, for the sake of argument that


private respondent was illegally dismissed.

ISSUE: Whether or not the fund may be garnished to


satisfy the debts of Ramirez to the Bank.

ISSUE:
Whether or not Piercing the Veil of the
Corporate existence can be used in this case in order
to determine if the three corporation is liable to
Almoradie?

HELD: YES. Corporate personality may be disregarded


where the defendant stockholder holds 75% of the
stock corporation together with his wife. While respect
for the corporate personality as such is the general
rule, the veil of corporate fiction may be pierced and
the funds of the corporation may be garnished to
satisfy debts of a principal stockholder, to administer
the ends of justice.
Despite the fact that Ramirez himself was the tenant of
Herbosas property, the company in truth occupied the
premises, Ramirez paid the rents with the check of the
telephone company.
GUATSON INTERNATIONAL TRAVEL & TOURS VS
NLRC: G.R. No. 100322
(Alter ego case)
FACTS: Jolly M. Almoradie was first employed by
Mercury Express International Courier Service, Inc.
(MEREX Represented by its Vice-president and Manager
Mr. Henry Ociers) in October, 1983 as Messenger
receiving a monthly salary of P800.00. When it closed
its operations, Almoradie was absorbed by MEREX's
sister company Philippine Integrated Labor Assistance
Corp. (Philac), likewise as Messenger with an increased
salary of P1,200.00.
In September, 1986, Almoradie was transferred to
Guatson Travel, allegedly also a sister company of
MEREX and Philac, as Liaison Officer with a salary of
P1,864.00. Thereafter, he was promoted to the position
of Sales Representative sometime in April, 1988. On
April 30, 1988, Almoradie received three separate
memoranda requiring him to explain why he refused to
act as salesman and for other different reasons. He
filed his reply to said allegations, however Henry Ocier
summon Almoradie to his office and ask him to resign,
if not Ocier will file a case against him and that he has
a very good lawyer to litigate the case.
Almoradie was force to execute a resignation letter on
his own handwriting. Thereafter, he filed an illegal
dismissal case. He won the case, the NLRC decided
that his resignation was not voluntary. However
petitioner contends that Guatson Travel Company,
Philac, and Merex have separate and distinct legal
personalities such that the latter companies should not

Montaos, Heidi Jean I.

Page 4

HELD: YES. The three companies are owned by one


family, such that majority of the officers of the
companies are the same. The companies are located in
one building and use the same messengerial service.
Moreover, there was no showing that private
respondent was paid separation pay when he was
absorbed by Philac upon closure of Merex; nor was
there evidence that he resigned from Philac when he
transferred to Guatson Travel. Under the doctrine of
piercing the veil of corporate fiction, when valid ground
exists, the legal fiction that a corporation is an entity
with a juridical personality separate and distinct from
its members or stockholders may be disregarded.
(Guatson is Alter Ego of Merex and Philac).
CONCEPT BUILDERS INC
108734: (Alter ego case)

VS

NLRC;

G.R.

No.

FACTS: Petitioner Concept Builders, Inc., a domestic


corporation, with principal office at 355 Maysan Road,
Valenzuela, Metro Manila, is engaged in the
construction business. Private respondents were
employed by said company as laborers, carpenters and
riggers. Private respondents were served individual
written notices of termination of employment by
petitioner, effective on November 30, 1981. It was
stated in the individual notices that their contracts of
employment had expired and the project in which they
were hired had been completed.
Public respondent found it to be, the fact, however,
that at the time of the termination of private
respondent's employment, the project in which they
were hired had not yet been finished and completed.
Petitioner had to engage the services of subcontractors whose workers performed the functions of
private respondents. Aggrieved, private respondents
filed a complaint for illegal dismissal, unfair labor
practice and non-payment of their legal holiday pay,
overtime pay and thirteenth-month pay against
petitioner. The private respondents won the case. The
amount was partially paid and when the Concept
Builders was pursued for the remaining balance, the
sheriff was surprised that the address of the Concept
Builders was now under Hydro Pipes Philippines (HPPI)
under Dennis Cuyegkeng. Cuyegkeng opposed the
break open order by the NLRC.

Private respondents alleged that Concept Builders and


HPPI has the same incorporators and stockholders
evidenced by general information sheet of the two
corporations.
Petitioner alleges that the NLRC committed grave
abuse of discretion when it ordered the execution of its
decision despite a third-party claim on the levied
property. Petitioner further contends, that the doctrine
of piercing the corporate veil should not have been
applied, in this case, in the absence of any showing
that it created HPPI in order to evade its liability to
private respondents. It also contends that HPPI is
engaged in the manufacture and sale of steel, concrete
and iron pipes, a business which is distinct and
separate from petitioner's construction business.
Hence, it is of no consequence that petitioner and HPPI
shared the same premises, the same President and the
same set of officers and subscribers.

3. Control and breach of duty must approximately


cause the injury or unjust loss complained of.
c. EQUITY CASES
Equity cases applying the piercing doctrine are what
are termed the dumping ground, where no fraud or
alter ego circumstances can be culled by the Court to
warrant piercing. The main feature of equity cases is
the need to render justice in the situation at hand or to
brush aside merely technical defenses. Often, equity
cases of piercing appear in combination with other
types of piercing, especially the defeat of public
convenience cases.
-

ISSUE: Whether or not HPPI is an alter ego of Concept


Builders Inc.
HELD: YES. Evidence shows that the information
sheets by both companies were filed by the same
Virgilio O. Casio as the corporate secretary. It would
also not be amiss to note that both corporations had
the same president, BOD, corporate officers and
subscribers.
Clearly, petitioner ceased its business operations in
order to evade payment to private respondents. HPPI is
obviously a business conduit of Concept Builders, Inc.
Under the instrumentality rule 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,

In Telephone Engineering and Service Co., Inc.


v. Workmens Compensation Commission, the
veil of corporate fiction was not allowed to be
availed of, and piercing was allowed when the
corporate fiction was made as a scheme to
confuse the legitimate issues, such when the
defense of separate juridical personality in
interposed for the first time on appeal.
In A.D. Santos v. Vasquez, a suit for workmens
compensation was filed by taxi driver Vasquez
against AD Santos, Inc. Vasquez testified that
Amador Santos was his employer. AS Santos,
Inc. contended that Amador is the one liable.
The Court held that AD Santos, Inc. is liable.
Indeed, Amador was at one time, the sole
owner and operator of the taxi business that
employed Vasquez, which was later transferred
to AD Santos, Inc. But such testimony should
not be allowed to confuse the facts relating to
employer-employee relationship, for when the
veil of corporate fiction is used to confuse
legitimate issues, the same should be pierced.

Telephone Engineering & Services Company Inc.


(TESCO)
vs.
Workmen's
Compensation
Commission (WCC)
G.R. No. L-28694: (Equity Case)

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, 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 the
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 the fraud or wrong;

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Page 5

FACTS: Petitioner is a domestic corporation engaged in


the business of manufacturing telephone equipment. It
has a sister company Utilities Mgt. Corporation
(UMACOR). Both corporations were under the
management of Jose Luis Santiago.
UMACOR employed Pacifico Gatus as purchasing agent.
The latter contracted illness and thereafter died of liver
cirrhosis. His widow filed a notice and claim for
compensation. UMACOR did not controvert the said
claim and admitted that the deceased employee
contracted illness in regular occupation. Death

benefits were awarded on the basis of the Employer's


report.
Several days after, TESCO through Santiago, informed
WCC that it would avail of the 15-days-notice given to
it to state its non-conformity to the award and
contended that the cause of the illness contracted by
Gatus was in no way aggravated by the nature of his
work. In its petition to set aside the award, it alleged
that the admission made in the "Employer's Report of
Accident or Sickness" was due to honest mistake
and/or excusable negligence on its part, and that the
illness for which compensation is sought is not an
occupational disease, hence, not compensable under
the law.
ISSUE: Whether or not petitioner is estopped from
claiming lack of employer-employee relationship.
HELD: YES. SC ruled that petitioner already admitted
in its position papers the existence of employeeemployer relationship and so it is estopped from
denying the same. TESCO'S denial at this stage that it
is the employer of the deceased is obviously an
afterthought, a devise to defeat the law and evade its
obligations. This denial also constitutes a change of
theory on appeal which is not allowed in this
jurisdiction. Moreover, issues not raised before the
Workmen's Compensation Commission cannot be
raised for the first time on appeal.
A factual question may not be raised for the first time
on appeal to the Supreme Court except where:
1.) public welfare and the advancement of public policy
so dictate,
2.) broader interests of justice so require, or
3.) where the Orders complained of were found to be
completely null and void or that the appeal was not
considered the appropriate remedy;
The case at bar does not fall within any of these
exceptions.
A.D. Santos, Inc. vs. Ventura Vasquez
G.R. No. L-23586; (Equity Case)

FACTS: Respondent Ventura Vasquez, a Taxi Driver,


contracted pulmonary tuberculosis while working for

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Page 6

City cab operated by Amador Santos. He filed a claim


for workmens compensation against petitioner A.D.
Santos, Inc.

Respondent testified that Amador Santos was his


employer, thus, petitioner contended that Amador
Santos is the one liable.
ISSUE: Who shall be liable for the claim for
compensation, Amador Santos or A.D. Santos, Inc?
HELD:
A.D. Santos, Inc. is liable. Indeed, at one
time, Amador Santos was the sole owner and operator
of City Cab. It was subsequently transferred to
petitioner A.D. Santos, Inc. in which Amador Santos
was an officer. The mention by respondent of Amador
Santos as his employer in the course of the testimony
should not be allowed to confuse the facts relating to
employer employee relationship for when the veil of
corporate fiction is made as a shield to perpetrate a
fraud and/ or confuse legitimate issues (here, the
relation of employer employee), the same should be
pierced.
4. DUE PROCESS
PIERCING DOCTRINE AND THE DUE PROCESS
CLAUSE
The established doctrine in Philippine jurisprudence is
that a person not impleaded in the case cannot be
bound by the decision rendered therein, since no
individual or entity shall be affected by a proceeding to
which he is a stranger, to do otherwise would be a
denial of due process.
Often the piercing doctrine is sought to be applied
against the controlling stockholders or officers after a
judgment debt against the corporation could not be
enforced because the corporation is found to be
without sufficient assets. It has been rightly argued in
several cases, that to enforce a writ of execution to
satisfy a judgment rendered against the corporation on
the separate assets of the stockholders or officers
would be in violation of due process clause in cases
where such stockholders or officers were not even
summoned as parties to the case brought against the
corporation.
M. MC CONNEL, W. P. COCHRANE, RICARDO
RODRIGUEZ, ET AL. vs. COURT OF APPEALS (Due
Process Case)

FACTS: The Park Rite Co., Inc., a Philippine corporation


leased from Rafael Perez Rosales y Samanillo a vacant
lot on Juan Luna street (Manila) which it used for
parking motor vehicles for a consideration. It turned
out that in operating its parking business, the
corporation occupied and used not only the Samanillo
lot it had leased but also an adjacent lot belonging to
the respondents-appellees Padilla, without the owners'
knowledge and consent. When the latter discovered
the truth (around October 1947), they demanded
payment for the use and occupation of the lot.
The corporation (then controlled by petitioners Cirilo
Parades and Ursula Tolentino, who had purchased and
held 1,496 of its 1,500 shares) disclaimed liability,
blaming
the
original
incorporators,
McConnel,
Rodriguez and Cochrane. Whereupon, the lot owners
filed against it a complaint for forcible entry.
Judgment was rendered ordering the Park Rite Co., Inc.
to pay plus legal interest as damages. Restitution not
having been made the entire judgment amounted to
P11,732.50. Upon execution, the corporation was found
without any assets other than P550.00 deposited in
Court. After their application to the judgment credit,
there remained a balance of P11,182.50 outstanding
and unsatisfied.

controlled the corporation and that the functions of the


corporation were solely for their benefits.
That the corporation was a mere extension of their
personality is shown by the fact that the office of Cirilo
Paredes and that of Park Rite Co., Inc. were located in
the same building, in the same floor and in the same
room at 507 Wilson Building. This is further shown
by the fact that the funds of the corporation were kept
by Cirilo Paredes in his own name. The corporation
itself had no visible assets, as correctly found by the
trial court, except perhaps the toll house, the wire
fence around the lot and the signs thereon. It was for
this reason that the judgment against it could not be
fully satisfied.
SC ruling - the facts thus found conclusively show that
the corporation is a mere instrumentality of the
individual stockholder's, in the case before us, the
operations of the corporation were so merged with
those of the stockholders as to be practically
indistinguishable from them. To hold the latter liable for
the corporation's obligations is not to ignore the
corporation's separate entity, but merely to apply the
established principle that such entity can not be
invoked or used for purposes that could not have been
intended by the law that created that separate
personality.

The judgment creditors then filed suit in the CFI of


Manila against the corporation and its past and present
stockholders, to recover from them, jointly and
severally, the unsatisfied balance of the judgment, plus
legal interest and costs. The CFI denied recovery; but
on appeal, the CA, reversed, finding that the
corporation was a mere alter ego or business conduit
of the principal stockholders that controlled it for their
own benefit, and found petitioners personally
responsible for the amounts demanded by the lot
owners.

The petitioners-appellants insist that the Court could


have no jurisdiction over an action to enforce a
judgment within 5 years from its rendition, since the
Rules of Court provide for enforcement by mere motion
during those 5 years. The error of this stand is
apparent, because the second action, originally begun
in the CFI, was not an action to enforce the judgment
of the Municipal Court, but an action to have nonparties to the judgment be held responsible for its
payment.

ISSUE: Whether or not the individual stockholders


maybe held liable for obligations contracted by the
corporation.

Emilio Cano Enterprises, Inc. vs. COURT OF


INDUSTRIAL
RELATIONS
G.R. No. L-20502; (Due Process Case)

HELD: YES. CA found that there is no question that a


wrong has been committed by the so-called Park Rite
Co., Inc., upon the plaintiffs when it occupied the lot of
the latter without its prior knowledge and consent and
without paying the reasonable rentals for the
occupation of said lot. There is also no that the
corporation was a mere alter ego or business conduit
of the defendants Cirilo Paredes and Ursula Tolentino,
and before them the defendants M. McConnel, W. P.
Cochrane, and Ricardo Rodriguez. The evidence clearly
shows that these persons completely dominated and

FACTS: Emilio Cano and Rodolofo Cano as President


and proprietor and Manager respectively of Emilio
Cano Enterprises Inc., are found guilty of unfair labor
practice charged by Honorata Cuz and ordered jointly
and severally liable and to reinstate Honorata. Emilio
Cano died while the case is appealed in court en banc,
which in due course affirmed the decision of the lower
court. The order of execution having been directed
against the properties of Emilio Cano Enterprises, Inc.
instead of those of the respondents named in the
decision, said corporation filed an ex parte motion to

Montaos, Heidi Jean I.

Page 7

quash the writ on the ground that the judgment sought


to be enforced was not rendered against it which is a
juridical entity separate and distinct from its officials.
This motion was denied. And having failed to have it
reconsidered, the corporation interposed the present
petition for certiorari.

with NAMARCO, represented by its General Manager,


Benjamin Estrella, whereby the former would deliver to
the latter 22,516 bags of Victorias and/or National
refined sugar in exchange for 7,732.71 bags of
Busilak and 17,285.08 piculs of Pasumil raw sugar
belonging to NAMARCO.

ISSUE: Whether or not the judgment against Emilio


and Rodolfo Cano can be made effective against the
property of the latter which was not a party to the
case?

Pursuant thereto, on May 19, 1958, NAMARCO


delivered to ASSOCIATED 7,731.71 bags of Busilak
and 17,285.08 piculs of Pasumil domestic raw sugar.
However, ASSOCIATED failed to deliver to NAMARCO
the 22,516 bags of Victoria and/or National refined
sugar agreed upon.

HELD: YES. While it is an undisputed rule that a


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

is a
the
be
and
this

A factor that should not be overlooked is that Emilio


and Rodolfo Cano are here indicted, not in their private
capacity, but as president and manager, respectively,
of Emilio Cano Enterprises, Inc. Having been sued
officially their connection with the case must be
deemed to be impressed with the representation of the
corporation.
NAMARCO vs. Associated Finance Co., Inc. 19
SCRA 962 (1967); (Due process)
Facts: Appeal taken by the National Marketing
Corporation from the decision of the CFI of Manila
ordering the Associated Finance company, Inc. to pay
NAMARCO certain amounts but dismissing the
complaint insofar as defendant Francisco Sycip was
concerned, as well as the latters counterclaim. The
appeal is only from that portion of the decision
dismissing the case as against Francisco Sycip.
On March 25, 1958, ASSOCIATED, through its President,
Sycip, entered into an agreement to exchange sugar

Montaos, Heidi Jean I.

Page 8

As ASSOCIATED refused to deliver the raw sugar or pay


for the refined sugar delivered to it, in spite of repeated
demands therefore, NAMARCO instituted the present
action in the lower court.
Issue: Whether Sycip may be held liable, jointly and
severally with Associated, for the sums of money
adjudged in favor of NAMARCO.
Ruling: YES. The evidence on record shows that, of
the capital stock of ASSOCIATED, Sycip owned Php
60,000.00 worth of shares, while his wife the second
biggest stockholder owned Php 20,000.00 worth of
shares; that the par value of the subscribed capital
stock of ASSOCIATED was only Php 105,000.00; that
negotiations that led to the execution of the exchange
agreement in question were conducted exclusively by
Sycip on behalf of ASSOCIATED.
In the course of his testimony, Sycip referred to himself
as the one who contracted or transacted the business
in his personal capacity, and asserted that the
exchange agreement was his personal contract; that it
was Sycip who made personal representations and
gave assurances that ASSOCIATED was in actual
possession of the 22,516 bags of Victorias and/ or
National refined sugar which the latter had agreed to
deliver to NAMARCO, and that the same was ready for
delivery.
ASSOCIATED was at that time already insolvent. When
later NAMARCO made demands upon ASSOCIATED to
make delivery, ASSOCIATED and Sycip, instead of
making delivery, offered to pay its value at Php 15.30
per bag a clear indication that they did not have
sugar contacted for.
The foregoing facts, leads to the conclusion that Sycip
was
guilty
of
fraud
because
through
false
representations he succeeded in inducing NAMARCO on
his part, of the fact that ASSOCIATED whom he

represented and over whose business and affairs he


had absolute control was in no position to comply with
the obligation it had assumed.
The Court feels perfectly justified in piercing the veil
of corporate fiction and in holding Sycip personally
liable, jointly and severally with his co-defendant.
It is settled law in this and other jurisdictions that when
the corporation is the mere alter ego of a person, the
corporate fiction may be disregarded; the same being
true when the corporation is controlled, and its affairs
are so conducted as to make it merely an
instrumentality, agency or conduit of another.

NOTE: in fraud cases, the alter ego concept pertains


to employing the corporation even for a single
transaction, to do evil, unlike in pure alter ego cases,
where the courts go into findings of systematic
disregard and disrespect of the separate juridical
person of the corporation.

Thus it held that when the veil of corporate fiction is


made as a shield to perpetrate fraud and/or confuse
legitimate issues, the same should be pierced. Where a
corporation is merely an adjunct, business conduit or
alter ego, the fiction of separate and distinct corporate
entity should be disregarded.

NOTE: there was a trust agreement, Spouses Jacinto


owned 52% of the Corporation.

JACINTO vs. COURT OFAPPEALS


198 SCRA 211 (1992) (Due Process)
Facts: Defendant Roberto Jacinto, tried to escape
liability and shift the entire blame under the trust
receipts solely and exclusively on defendant-appellant
corporation. He asserted that he cannot be held
solidarily liable with the latter (defendant corporation)
because he just signed said instruments in his official
capacity as president of Inland Industries, Inc. and the
latter has a juridical personality separate and distinct
from its officers and stockholders. The principle of
piercing the fiction of corporate entity should be
applied with great caution and not precipitately,
because a dual personality by a corporation and its
stockholders would defeat the principal purpose for
which a corporation is formed.
Upon the other hand, plaintiff- appellee reiterated its
allegation in the complaint that defendant corporation
is just a mere alter ego of defendant Roberto Jacinto
who is its President and General Manager, while the
wife of the latter owns a majority of its shares of stock.
Issue: Whether or not the Court of Appeals can validly
pierce the fiction of corporate identity of the defendant
Inland Industries, Inc. even if absolutely no proof was
presented in court to serve as legal justification for the
same.

Montaos, Heidi Jean I.

HELD: YES. The conflicting statements by defendant


Jacinto place in extreme doubt his credibility anent his
alleged participation in said transactions and we are
thus persuaded to agree with the findings of the lower
court that the latter (Roberto Jacinto) was practically
the
corporation
itself.
Indeed,
a
painstaking
examination of the records show that there is no clearcut delimitation between the personality of Roberto
Jacinto as an individual and the personality of Inland
Industries, Inc. as a corporation. The circumstance
aforestated lead us to conclude that the corporate veil
that enshrouds defendant Inland Industries, Inc. could
be validly pierced, and a host of cases decided by our
High Court is supportive of this view.

Page 9

Judgment may be validly rendered on issues not


alleged in the pleadings if evidence thereto is
presented with the express or implied consent of the
adverse party. Since no serious objection on the part of
petitioner when respondent MBTC sought to prove that
the petitioner and corporation are one or that he is the
corporation.
CALVIN S. ARCILLA vs. COURT OF APPEALS: G.R.
No. 89804; (Due Process Case)
FACTS: This petition is a belated attempt to avoid the
adverse decision of public respondent on the ground
that the petitioner is not personally liable for the
amount adjudged since the same constitutes a
corporate liability which nevertheless cannot even bind
or be enforced against the corporation because it is not
a party in the collection suit filed before the trial court.
Facts of the case revealed that the defendant
succeeded in securing on credit from plaintiff various
items in the total sum of P93,358.51 which the plaintiff
extended because of the defendants representations
of being a successful financial consultant.
In the defendants answer, he did not deny having had
business transactions with the plaintiff. He explicitly
admits that (H)is loan was in the name of his family
corporation, CASR Marine Resources, Inc.

The lower court ruled in favor of the plaintiff. CA later


affirmed the decision. Defendant appealed and filed a
Motion for Clarificatory Judgment stating that Calvin
Arcilla never had any personal business transaction
with the plaintiff, CSAR Marine had an outstanding
balance and the corp. is not a party in the case.
Furthermore he emphasized that the personality and
liability of the defendant-appellant and that of CSAR
Marine as a corporation, are separate and distinct from
each other.
CA denied the motion on the ground that since
petitioner did not raise the issue of separate corporate
entity in the pleadings in the trial court or his Brief, he
cannot raise it for the first time in a Motion for
Clarificatory Judgment.
ISSUE: Whether or not the Court erred in holding CASR
Marine Resources, Inc., where the petitioner was the
President, liable to the private respondent without
being impleaded as a party in the case.
HELD: NO. An entity which was not made a party in
the main case and which did not seek to intervene has
no personality to seek a review of the public
respondents amended decision. Defenses and
objections other than the failure to state a cause of
action and lack of jurisdiction not pleaded either in a
motion to dismiss or in the answer are deemed waived.
Furthermore, even if the obligation was incurred in the
name of the corporation, the petitioner would still be
personally liable therefore because for all legal intents
and purposes, he and the corporation are one and the
same.
The contention that the defendant had ceased to be
the president is unavailing to free himself from his
responsibility because in resolving his Motion for
Clarificatorty Judgment, the court had already pierced
the veil of corporate fiction and disregarded the
separate personalities.
AC
Ransom
Labor
Union
v.
G.R. No. L-69494; (Due Process Case)

NLRC:

Facts: AC Ransom Labor Union is claiming unfair labor


practice against AC Ransom. The CIR and the Labor
Arbiter ruled in favor of the labor union stating that the
strike was legal and justified thereby requiring the
company to pay for backwages and to immediately
reinstate the members of the union which the NLRC
reversed the decision. Hence the special civil action of
certiorari filed by the Union moving for the Officers of
AC Ransom and ROSARIO Company to be held liable

Montaos, Heidi Jean I.

Page 10

because although RANSOM had assumed a posture of


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

It is very obvious that the second corporation seeks the


protective shield of a corporate fiction whose veil in the
present case could, and should, be pierced as it was
deliberately and maliciously designed to evade its
financial obligation to its employees.... When a notion
of legal entity is used to. defeat public convenience,
justify wrong, protect fraud, or defend crime, the law
will regard the corporation as an association or
persons, or, in the case of two corporations, will merge
them into one.
As to the officers and agents
The inclusion of the officers and agents was but proper
since a corporation, as an artificial being, can act only
through them.
SAMUEL
CASAS
LIM
vs.
G.R No. 79907;79975 - (Due Process Case)

NLRC;

FACTS: Private respondent Victoria Calsado was hired


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

Montaos, Heidi Jean I.

Page 11

that he belongs to a closed corporation controlled by


the members of one family only. But these
circumstances should not be allowed to operate
against him if he is to be accorded substantial justice in
the resolution of the private respondent's claim. As we
said in Ortigas vs. Lufthansa German Airlines, the Court
is "clothed with ample authority to review matters,
even if they are not assigned as errors in the appeal, if
it finds that its consideration is necessary in arriving at
a just decision of the case." As for the second charge,
the mere fact that Lim is part of the family corporation
does not mean that all its acts are imputable to him
directly and personally. His acts were official acts, done
in his capacity as Vice President of Sweet Lines and on
its behalf. There is no showing that he acted without or
in excess of his authority or was motivated by personal
ill-will toward Calsado. The case of Ransom v. NLRC is
not in point because there the debtor corporation
actually ceased operations after the decision of the
Court of Industrial Relations was promulgated against
it, making it necessary to enforce it against its former
president. Sweet lines is still existing and able to
satisfy the judgment in favor of the private respondent.
ARTURO
DE
GUZMAN
G.R. No. 90856; (Due Process Case)

vs.

NLRC

FACTS: Arturo de Guzman was the general manager of


the Manila office of the Affiliated Machineries Agency,
Ltd., which was based in Hongkong. On June 30, 1986,
he received a telex message from Leo A. Fialla,
managing director of AMAL in its main office, advising
him of the closure of the company due to financial
reverses. This message triggered the series of events
that are the subject of this litigation. Immediately upon
receipt of the advise, De Guzman notified all the
personnel of the Manila office. The employees then
sent a letter to AMAL accepting its decision to close,
subject to the payment to them of their current
salaries, severance pay, and other statutory benefits.
De Guzman joined them in these representations.
These
requests
were,
however,
not
heeded.
Consequently, the employees, now herein private
respondents, lodged a complaint with the NLRC against
AMAL, through Leo A. Fialla and Arturo de Guzman, for
illegal dismissal, unpaid wages or commissions,
separation pay, sick and vacation leave benefits, 13th
month pay, and bonus. For his part, the petitioner
began selling some of AMAL's assets and applied the
proceeds thereof, as well as the remaining assets, to
the payment of his claims against the company. He
also organized Susarco, Inc., with himself as its
president and his wife as one of the incorporators and
a member of the board of directors. This company is
engaged in the same line of business and has the same
clients as that of the dissolved AMAL. On November 7,
1986, the petitioner filed his own complaint with
the NLRC against AMAL for his remaining
unsatisfied claims. On May 29, 1987, Labor Arbiter
Eduardo G. Magno, to whom the petitioner's

complaint was assigned, rendered a decision ordering


AMAL to pay the petitioner the amount of P371,469.59
as separation pay, unpaid salary and commissions,
after deducting the value of the assets earlier
appropriated by the petitioner. On September 30,
1987, Labor Arbiter Ma. Lourdes A. Sales, who
tried the private respondents' complaint, rendered a
decision, ordering Respondents AMAL and Arturo de
Guzman to pay jointly and severally to each
Complainant separation pay computed at one-half
month pay for every year of service, backwages for
one month, unpaid salaries for June 16-30, 1986, 13th
month pay from January to June 30, 1986 and incentive
leave pay equivalent to two and-a-half days pay.
ISSUE:
Whether or not petitioner must be held
solidarily liable with AMAL?
RULING: In the case at bar, the petitioner, while
admittedly the highest ranking local representative of
AMAL in the Philippines, is nevertheless not a
stockholder and much less a member of the board of
directors or an officer thereof. He is at most only a
managerial employee under Art. 212 (m) of the Labor
Code. Therefore, he must not be held solidarily liable
with the AMAL. HOWEVER, the manner and the means
by which he satisfied his claims against AMAL are
evidently characterized by BAD FAITH. For one,
Respondent A. de Guzman took advantage of his
position as General Manager and arrogated to himself
the right to retain possession and ownership of all
properties owned and left by AMAL in the Philippines,
even if he knew that Complainants herein have similar
valid claims for unpaid wages and other employee
benefits from the Respondent AMAL.
Another strong indication of bad faith on the part of
Respondent A. de Guzman is his filing of a separate
complaint against AMAL before the NLRC Arbitration
Branch about four (4) months after the filing of the
instant case without informing this Office about the
existence of said case during the proceedings in the
instant case. This case was deemed submitted for
decision on May 18, 1987 but it was only on June 2,
1987 that Respondent A. de Guzman formally notified
this Office through his Supplemental Position Paper of
his pending complaint before Arbiter Eduardo Magno
docketed as NLRC Case No. 11-4441-86. Under Rule V,
Section 4 of the revised rules of the NLRC, it is provided
that:
Sec. 4. CONSOLIDATION OF CASES where there
are two or more cases pending before different Labor
Arbiters in the same Regional Arbitration Branch
involving the same employer and issues or the same
parties with different issues, the case which was filed
last shall be consolidated with the first to avoid
unnecessary costs or delay. Such cases shall be
disposed of by the Labor Arbiter to whom the first case
was assigned. (Emphasis supplied). Had Respondent A.

Montaos, Heidi Jean I.

Page 12

de Guzman given timely notice of his complaint, his


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