OTHER CASES
The mere fact
Buenaflor Umali VS CA (Regalado, J)
189 SCRA 529 – Business Organization – Corporation Law – Piercing the
Veil of Corporate Fiction
Mauricia Castillo was the administratrix in charge over a parcel of land left
by Felipe Castillo. Said land was mortgaged to the Development Bank of
the Philippines and was about to be foreclosed but then Mauricia’s
nephew, Santiago Rivera, proposed that they convert the land into 4
subdivisions so that they can raise the necessary money to avoid
foreclosure. Mauricia agreed. Rivera sought to develop said land through
his company, Slobec Realty Corporation (SRC), of which he was also the
president. SRC then contracted with Bormaheco, Inc. for the purchase of
one tractor. Bormaheco agreed to sell the tractor on an installment basis.
At the same time, SRC mortgaged said tractor to Bormaheco as security
just in case SRC will default. As additional security, Mauricia and other
family members executed a surety agreement whereby in case of default
in paying said tractor, the Insurance Corporation of the Philippines (ICP)
shall pay the balance. The surety bond agreement between Mauricia and
ICP was secured by Mauricia’s parcel of land (same land to be developed).
SRC defaulted in paying said tractor. Bormaheco foreclosed the tractor
but it wasn’t enough hence ICP paid the deficiency. ICP then foreclosed
the property of Mauricia. ICP later sold said property to Philippine
Machinery Parts Manufacturing Corporation (PMPMC). PMPMC then
demanded Mauricia et al to vacate the premises of said property.
While all this was going on, Mauricia died. Her successor-administratrix,
Buenaflor Umali, questioned the foreclosure made by ICP. Umali alleged
that all the transactions are void and simulated hence they were
defrauded; that through Bormaheco’s machinations, Mauricia was fooled
into entering into a surety agreement with ICP; that Bormaheco even
made the premium payments to ICP for said surety bond; that the
president of Bormaheco is a director of PMPMC; that the counsel who
assisted in all the transactions, Atty. Martin De Guzman, was the legal
counsel of ICP, Bormaheco, and PMPMC.
ISSUE: Whether or not the veil of corporate fiction should be pierced.
HELD: No. There is no clear showing of fraud in this case.
that Bormaheco paid said premium payments to ICP does not constitute
fraud per se. As it turned out, Bormaheco is an agent of ICP. SRC, through
Rivera, agreed that part of the payment of the mortgage shall be paid for
the insurance. Naturally, when Rivera was paying some portions of the
mortgage to Bormaheco, Bormaheco is applying some parts thereof for
the payment of the premium – and this was agreed upon beforehand.
Further, piercing the veil of corporate fiction is not the proper remedy in
order that the foreclosure conducted by ICP be declared a nullity. The
nullity may be attacked directly without disregarding the separate identity
of the corporations involved. Further still, Umali et al are not enforcing a
claim against the individual members of the corporations. They are not
claiming said members to be liable. Umali et al are merely questioning the
validity of the foreclosure.
The veil of corporate fiction can’t be pierced also by the simple reason
that the businesses of two or more corporations are interrelated, absent
sufficient showing that the corporate entity was purposely used as a shield
to defraud creditors and third persons of their rights. In this case, there is
no justification for disregarding their separate personalities.
In the first place, the legal corporate entity is disregarded only if it is sought to
hold the officers and stockholders directly liable for a corporate debt or
obligation. In the instant case, petitioners do not seek to impose a claim against
the individual members of the three corporations involved; on the contrary, it is
these corporations which desire to enforce an alleged right against petitioners.
Assuming that petitioners were indeed defrauded by private respondents in the
foreclosure of the mortgaged properties, this fact alone is not, under the
circumstances, sufficient to justify the piercing of the corporate fiction, since
petitioners do not intend to hold the officers and/or members of respondent
corporations personally liable therefor. Petitioners are merely seeking the
declaration of the nullity of the foreclosure sale, which relief may be obtained
without having to disregard the aforesaid corporate fiction attaching to
respondent corporations. Secondly, petitioners failed to establish by clear and
convincing evidence that private respondents were purposely formed and
operated, and thereafter transacted with petitioners, with the sole intention of
defrauding the latter.
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, Rogello Salut, Emilio Garcia, Jr.,
Mariano Rio, Paulina Basea, Aifredo Albera, Paquito Salut, Domingo
Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino
Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and
Ruben Robalos, respondents.
DECISION
HERMOSISIMA, JR., J.:
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.
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 respondents 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 judgment1 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
Back wages amounted to a total of P199,800.00.3
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 petitioners 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;
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, however, 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.
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.
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 break-open 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.
Issue: WON the piercing of the corporate veil should not have been applied
Ruling:
No, petitioner’s contention is unmeritorious. 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
corporations 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.
he 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 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 defendants 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
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.
R. F. SUGAY and CO., INC., petitioner,
vs.
PABLO C. REYES, CESAR CURATA, PACIFIC PRODUCTS, INC., and
WORKMEN'S COMPENSATION COMMISSION, respondents.
PAREDES, J.:
The Whole Story (charing) ahahhahah
This is a Workmen's Compensation Case, the compensability of the injuries
suffered by the claimants, Pablo C. Reyes, and Cesar Curata, being admitted by
all the parties. The only issue requiring determination is, who among the three
(3) persons (Romulo Sugay, R. F. Sugay & Co., Inc., and Pacific Products, Inc.) is
the statutory employer of said claimants and who should be liable for their
disability compensation.
In the evening of January 13, 1961, respondents Pablo Reyes and Cesar Curata
suffered burns of various degrees, while painting the building of the Pacific
Products, Inc., caused by a fire of accidental origin, resulting in their temporary
disability from work. For said injuries they filed claims for disability and medical
expenses against the R. F. Sugay & Co., Inc., Romulo F. Sugay and the Pacific
Products, Inc. The R. F. Sugay & Co., Inc., answered the claim, alleging that the
corporation was not the employer of the claimants but it was the Pacific
Products, Inc., which had an administration and supervision job contract with
Romulo F. Sugay, who, aside from being the President of the corporation, bearing
his name, had also a business of his own, distinct and separate from said
corporation; and that the Regional Office of the Department of Labor had no
jurisdiction over the subject matter. Romulo F. Sugay did not file an Answer, but
voluntarily appeared during the hearing and disclaimed liability. The Answer of
Pacific Products, Inc., contained the customary admissions and denials, and
averred that its business was mainly in the manufacture and sale of lacquer and
other painting materials. As defenses, it stated that the claimants were the
employees of respondents R. F. Sugay Construction Co., Inc., and/or Romulo F.
Sugay that as a result of the, fire, it incurred a loss of P2,000,000.00, occasioned
by the employment of incompetent men in the painting of its factory by the
Sugays.
Pacific Products, Inc., appealed the above decision to the Commission. On August
24, 1962, Commissioner Jose Sanchez rendered judgment affirming the
compensability of the injuries and the amounts due them, but modified the
decision of the Hearing Officer, by finding that R. F. Sugay & Co., Inc., was the
statutory employer of the claimants and should be liable to them. Pacific
Products, Inc., was absolved from all responsibility.
The evidence adduced by the parties indicates rather clearly that, except for the
fact that the Pacific Products, Inc. supplied the paint, it did not exercise any of
the above-enumerated powers. The claimants were hired by one Rodolfo Babatid
pursuant to the instruction received by the latter from Romulo Sugay. They were
paid by Eduardo Sugay, brother of Romulo and Secretary of R. F. Sugay & Co., and
were under the control of these persons during the time they were painting the
office of Pacific Products, Inc.
There was a faint attempt by the petitioning corporation, to evade liability, by
advancing the theory that Romulo P. Sugay, its President, was the one who
entered into a contract of administration and supervision for the painting of the
factory of the Pacific Products, Inc., and making it appear that said Romulo F.
Sugay acted as an agent of the Pacific Products, Inc., and as such, the latter should
be made answerable to the compensation due to the claimants. We, however,
agree with the Commission that "the dual roles of Romulo F. Sugay should not be
allowed to confuse the facts relating to employer-employee relationship." It is a
legal truism that 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. Verily the R. F. Sugay & Co.,
Inc. is a business conduit of R. F. Sugay.
LA CAMPANA FACTORY, INC., and TAN TONG doing business under the
trial name "LA CAMPANA GAUGAU PACKING", petitioners,
vs.
KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA (KKM) and THE
COURT OF INDUSTRIAL RELATIONS, respondents.
REYES, J.:
The Whole Story:
Tan Tong, one of the herein petitioners, has since 1932 been engaged in the
business of buying and selling gaugau under the trade name La Campana
Gaugau Packing with an establishment in Binondo, Manila, which was later
transferred to España Extension, Quezon City. But on July 6, 1950, Tan Tong,
with himself and members of his family corporation known as La Campana
Factory Co., Inc., with its principal office located in the same place as that of
La Campana Gaugau Packing.
About a year before the formation of the corporation, or on July 11, 1949,
Tan Tong had entered into a collective bargaining agreement with the
Philippine Legion of Organized Workers, known as PLOW for short, to which
the union of Tan Tong's employees headed by Manuel E. Sadde was then
affiliated. Seceding, however, from the PLOW, Tan Tong's employees later
formed their own organization known as Kaisahan Ng Mga Manggagawa Sa
La Campana, one of the herein respondents, and applied for registration in
the Department of Labor as an independent entity. Pending consideration of
this application, the Department gave the new organization legal standing by
issuing it a permit as an affiliate to the Kalipunan Ng Mga Manggagawa.
On July 19, 1951, the Kaisahan Ng Mga Manggagawa Sa La Campana,
hereinafter to be referred to as the respondent Kaisahan, which, as of that
date, counted with 66 members — workers all of them of both La Campana
Gaugau Packing and La Campana Coffee Factory Co., Inc. — presented a
demand for higher wages and more privileges, the demand being addressed
to La Campana Starch and Coffee Factory, by which name they sought to
designate, so it appears, the La Campana Gaugau Packing and the La
Campana Coffee Factory Co., Inc. As the demand was not granted and an
attempt at settlement through the mediation of the Conciliation Service of
the Department of Labor had given no result, the said Department certified
the dispute to the Court of Industrial Relations on July 17, 1951, the case
being there docketed as Case No. 584-V.
With the case already pending in the industrial court, the Secretary of Labor,
on September 5, 1951, revoked the Kalipunan Ng Mga Kaisahang
Manggagawa's permit as a labor union on the strength of information
received that it was dominated by subversive elements, and, in consequence,
on the 20th of the same month, also suspended the permit of its affiliate, the
respondent Kaisahan.
Several hearings were held on the above motions, in the course of which
ocular inspections were also made, and on the basis of the evidence received
and the facts observed in the ocular inspections, the Court of Industrial
Relations denied the said motions in its order of January 14, 1952, because if
found as a fact that:
A. While the coffee corporation is a family corporation with Mr. Tan
Tong, his wife, and children as the incorporations and stockholders
the La Campana Gaugau Packing is merely a business name (Exhibit
4).
B. According to the contract of lease (Exhibit 23), Mr. Tan Tong.,
propriety and manager of the Ka Campana Gaugau Factory, leased a
space of 200 square meters in the bodega housing the gaugau factory
to his son Tan Keng Lim, manager of the La Campana Coffee Factory.
But the lease was executed only on September 1, 1951, while the
dispute between the parties was pending before the Court.
C. There is only one entity La Campana Starch and Coffee Factory, as
shown by the signboard (Exhibit 1), the advertisement in the delivery
trucks (Exhibit I-1), the packages of gaugau(Exhibit K), and delivery
forms (Exhibits J, J-1, and J-2).
D. All the laborers working in the gaugau or in the coffee factory
receive their pay from the same person, the cashier, Miss Natividad
Garcia, secretary of Mr. Tan Tong; and they are transferred from the
gaugau to the coffee and vice-versa as the management so requires.
E. There has been only one payroll for the entire La Campana
personnel and only one person preparing the same — Miss Natividad
Garcia, secretary of Mr. Tan Tong. But after the case at bar was
certified to this Court on July 17, 1951, the company began making
separate payrolls for the coffee factory and for the gaugau factory
As to the first ground, petitioners obviously do not question the fact that the
number of employees of the La Campana Gaugau Packing involved in the case
is more than the jurisdictional number (31) required bylaw, but they do
contend that the industrial court has no jurisdiction to try the case as against
La Campana Coffee Factory, Inc. because the latter has allegedly only 14
laborers and only of these are members of the respondent Kaisahan. This
contention loses force when it is noted that, as found by the industrial court
— and this finding is conclusive upon us — La Campana Gaugau Packing and
La Campana Coffee Factory Co. Inc., are operating under one single
management, that is, as one business though with two trade names. True,
the coffee factory is a corporation and, by legal fiction, an entity existing
separate and apart fro the persons composing it, that is, Tan Tong and his
family. But it is settled that this fiction of law, which has been introduced as
a matter of convenience and to subserve the ends of justice cannot be
invoked to further an end subversive of that purpose.
Disregarding Corporate Entity. — The doctrine that a corporation is a
legal entity existing separate and apart from the person composing it
is a legal theory introduced for purposes of convenience and to
subserve the ends of justice. The concept cannot, therefore, be
extended to a point beyond its reason and policy, and when invoked
in support of an end subversive of this policy, will be disregarded by
the courts. Thus, in an appropriate case and in furtherance of the
ends of justice, a corporation and the individual or individuals owning
all its stocks and assets will be treated as identical, the corporate
entity being disregarded where used as a cloak or cover for fraud or
illegality. (13 Am. Jur., 160-161.)
. . . A subsidiary or auxiliary corporation which is created by a parent
corporation merely as an agency for the latter may sometimes be
regarded as identical with the parent corporation, especially if the
stockholders or officers of the two corporations are substantially the
same or their system of operation unified. (Ibid. 162; see Annotation
1 A. L. R. 612, s. 34 A. L. R. 599.)
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 Court of industrial
Relations, the two factories have but one office, one management and one
payroll, except after July 17, the day the case was certified to the Court of
Industrial Relations, when the person who was discharging the office of
cashier for both branches of the business began preparing separate payrolls
for the two. And above all, it should not be overlooked that, as also found by
the industrial court, the laborers of the gaugau factory and the coffee factory
were interchangeable, that is, the laborers from the gaugau factory were
sometimes transferred to the coffee factory and vice-versa. In view of all
these, the attempt to make the two factories appears 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 COMPANY, petitioner,
vs.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL
REVENUE, respondents.
GUTIERREZ DAVID, J.:
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 Dasmariñas 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
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 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.
he 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.
fter 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 PHILIPPINE NATIONAL BANK, petitioner,
Court that SM was organized purposely as a tax evasion device runs vs.
counter to the fact that there was no tax to evade. RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN
SM was organized and it operated, under circumstance that belied any GENERAL MERCHANDISE,respondents.
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 KAPUNAN, J.:
the open, embodied in private and public documents, constantly subject to
inspection by the tax authorities. As a matter of fact, after Yutivo became FACTS:
the importer of GM cars and trucks for Visayas and Mindanao, it merely  May 29, 1996: PNB International Finance Ltd. (PNB-IFL) a
continued the method of distribution that it had initiated long before GM subsidiary company of PNB, organized and doing business in
withdrew from the Philippines. Hong Kong, extended a letter of credit in favor of the Ritratto
Group, Inc. (Ritartto) in the amount of US$300K secured by
We are, however, inclined to agree with the court below that SM was real estate mortgages constituted over 4 parcels of land in
actually owned and controlled by petitioner as to make it a mere subsidiary Makati City
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.  September 1996: increased successively to
It is not disputed that the petitioner, which is engaged principally in US$1,140,000.00
hardware supplies and equipment, is completely controlled by the Yutivo,
Young or Yu family. The founders of the corporation are closely related to  November 1996: to US$1,290,000.00
each other either by blood or affinity, and most of its stockholders are
members of the Yu (Yutivo or Young) family.  February 1997: US$1,425,000.00
SM is under the management and control of Yutivo by virtue of a
management contract entered into between the two parties. In fact, the
 April 1998: decreased to US$1,421,316.18
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
 Ritratto Group, Inc. made repayments of the loan incurred by
officers of both corporations are identical. In addition both corporations
have a common comptroller in the person of Simeon Sy, who is a brother- remitting those amounts to their loan account with PNB-IFL
in-law of Yutivo's president, Yu Khe Thai. There is therefore no doubt that in Hong Kong.
by virtue of such control, the business, financial and management policies
of both corporations could be directed towards common ends.  April 30, 1998: outstanding amounted to US$1,497,274.70

Consideration of various other circumstances, especially when taken  PNB-IFL, through its attorney-in-fact PNB, notified them of
together, indicates that Yutivo treated SM merely as its department or the foreclosure of all the real estate mortgages and that the
adjunct. properties subjected

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

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

 RTC and CA: dismissed motion to dismiss

 PNB-IFL, is a wholly owned subsidiary of defendant Philippine
National Bank, the suit against the defendant PNB is a suit
against PNB-IFL
 Rittratto: entire credit facility is void as it contains stipulations
in violation of the principle of mutuality of contracts
ISSUE: W/N PNB is an alter ego of PNB-IFL
HELD: NO. Petition is granted
 PNB is an agent with limited authority and specific duties
under a special power of attorney incorporated in the real
estate mortgage.
 not privy to the loan contracts entered into by PNB-IFL.
 mere fact that a corporation owns all of the stocks of another
corporation, taken alone is not sufficient to justify their being
treated as one entity.
 If used to perform legitimate functions, a subsidiary's
separate existence may be respected, and the liability of the
parent corporation as well as the subsidiary will be confined
to those arising in their respective business.
 general rule the stock ownership alone by one corporation of
the stock of another does not thereby render the dominant
corporation liable for the torts of the subsidiary unless the
separate corporate existence of the subsidiary is a mere
sham, or unless the control of the subsidiary is such that it is
but an instrumentality or adjunct of the dominant
corporation.
 The Circumstance rendering the subsidiary an
instrumentality (common circumstances)
(a) The parent corporation owns all or most of the capital stock
of the subsidiary.
(b) The parent and subsidiary corporations have common
directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of
the subsidiary or otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses
or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the
parent corporation or no assets except those conveyed to or by
the parent corporation.
(h) In the papers of the parent corporation or in the statements
of its officers, the subsidiary is described as a department or
division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as
its own.
(j) The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary but take their
orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not
observed.
G.R. No. L-69494 May 29, 1987
A.C. RANSOM LABOR UNION-CCLU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, First Division A.C.
RANSOM (PHIIS.) CORPORATION RUBEN HERNANDEZ, MAXIMO C.
HERNANDEZ, SR., PORFIRIO R. VALENCIA, LAURA H. CORNEJO,
FRANCISCO HERNANDEZ, CELESTINO C. HERNANDEZ and MA.
ROSARIO HERNANDEZ, respondents.
RESOLUTION
MELENCIO-HERRERA, J.:
In a joint Decision in two earlier cases rendered by the then Court of Industrial
Relations (CIR) on August 19, 1972, it declared in the dispositive portion
thereof:
IN VIEW OF ALL THE FOREGOING, ... the A.C. Ransom
Philippine Corporation is guilty of unfair labor practice of
interference and discrimination herein above held and
specified; ordering said corporation, its officers and
agents to cease and desist from committing the same:
finding the strike legal and justified; and to reinstate
immediately ... , to their respective positions with
backwages from July 25, 1969 until actually reinstated,
without loss of seniority rights and other privileges
appurtenant to their employment. (Emphasis supplied). 1
This Court affirmed that Decision when it denied the Petition for Review filed
by RANSOM on February 26, 1973 in G.R. Nos. L-36226-68.
The backwages due the 22 employees having been computed at P 199,276.00
by the (CIR) Examiner, successive Motions for Execution were filed by the
UNION on January 27, 1973 and March 1, 1973, all of which RANSOM
opposed stressing its "precarious financial position if immediate execution of
the backwages would be ordered." Upon the UNION's Motion of April 22,
1973 asking the CIR that RANSOM be ordered to deposit with the Court the
backwages due them. RANSOM manifested that it did not have the necessary
funds to deposit and asked that the employees' earnings elsewhere during
this suspension be deducted. After several hearings, a recomputation was
made and the award of P199,276.00 was reduced to P 164,984.00. 2
The records show that, upon application filed by RANSOM on April 2, 1973, it
was granted clearance by the Secretary of Labor on June 7, 1973 to cease
operation and terminate employment effective May 1, 1973, without
prejudice to the right of subject employees to seek redress of grievances
under existing laws and decrees. 3 The reasons given by RANSOM for the
clearance application were financial difficulties on account of obligations
incurred prior to 1966.
On January 21, 1974, the UNION filed another Motion for Execution alleging
that 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. For its part, RANSOM declared that ROSARIO is a
distinct and separate corporation, which was organized long before these
instant cases were decided adversely against RANSOM.
It appears that sometime in 1969, ROSARIO, a closed corporation, was, in
fact, established. It was engaged in the same line of business as RANSOM with
the same Hernandez family as the owners, the same officers, the same
President, the same counsel and the same address at 555 Quirino Avenue,
Paranaque, Rizal. The compound, building, plant, equipment, machinery,
laboratory and bodega were the same as those occupied and used by
RANSOM. The UNION claims that ROSARIO thrives to this day.
Writs of execution were issued successively against RANSOM on June 23,
1976, and February 17, 1977, to no avail.
On December 18, 1978, the UNION again filed an ex-parte Motion for Writ of
Execution and Garnishment praying that the Writ issue against the
Officers/Agents of RANSOM personally and or their estates, as the case may
be, considering their success in hiding or shielding the assets of said company.
RANSOM countered that the CIR Decision, dated August 19, 1972, could no
longer be enforced by mere Motion because more than five (5) years had
already lapsed.
Acting on the Motion, Labor Arbiter Tito F. Genilo issued, on March 11, 1980,
an Order, the pertinent part of which reads:
Under the circumstances and pursuant to the decision
aforementioned, especially that portion holding the
respondent corporation's officers and agents liable, the
following officers of the respondent corporation — as
appears in the record-are hereby deemed included parties
respondents in their official capacity:
 a) Ruben Hernandez (President, per his testimony on August
21, 1974);
b) Maximo C. Hernandez, Jr. (Director);
c) Porfirio N. Valencia (Director);
d) Laura H. Cornejo (Director);
e) Francisco Hernandez (Chairman of the Board);
f) Celestino C. Hernandez (Director); and
g) Ma. Rosario Hernandez (Director).
Consequently, let a writ of execution be issued for P
164,984.00 against respondent corporation and its
officers/agents enumerated above.
SO ORDERED. (Emphasis supplied) 4
It appears that among the persons named in the aforequoted Order, Ma.
Rosario Hernandez died in 1971; Francisco Hernandez died in 1977: and
Celestino C. Hernandez passed away in 1979. And Maximo Hernandez who
was named in the CIR Decision, died in 1966. 5
The NLRC, on appeal, modified the Decision by relieving the officers and
agents of liability as follows:
As to the liability of the respondent's officers and agents, we
agree with the contention of the respondent-appellant that
there is nothing in the order dated March 11, 1980 that
would justify the holding of the individual officers and agents
of respondent in their personal capacity. As a general rule,
officers of the corporation are not liable personally for the
official acts unless they have exceeded the scope of their
authority. In the absence of evidence showing that the
officers mentioned in the Order of the Labor Arbiter dated
March 11, 1980 have exceeded their authority, the writ of
execution can not be enforced against them, especially' so
since they were not given a chance to be heard.
WHEREFORE, the Order appealed from is hereby affirmed,
except as modified above.
SO ORDERED. 6
Reconsideration sought by the UNION from the NLRC was denied, hence this
special civil action of Certiorari.
On June 10, 1986, this Court promulgated its Decision, the dispositive portion
of which decrees:
WHEREFORE, the questioned Decision of the National Labor
Relations Commission is SET ASIDE, and the Order of the
Labor Arbiter Tito F. Genilo of March 11, 1980 is reinstated
with the modification that personal liability for the
backwages due the 22 strikers shall be limited to Ruben
Hernandez, who was President of RANSOM in 1974, jointly
and severally with other Presidents of the same corporation
who had been elected as such after 1972 or up to the time
the corporate life was terminated.
Both parties have moved for reconsideration. Private respondents point out
that they were never impleaded as parties in the Trial Court, and that their
personal liabilities were never at issue; that judgment holding Ruben
Hernandez personally liable is tantamount to deprivation of property without
due process of law; and that he was not an officer of the corporation at the
time the unfair labor practices were committed.
The UNION on the other hand, in its own Motion for Reconsideration, prays
that the veil of corporate fiction be pierced and that the Decision be modified,
in that all the individual private respondents and not only the President,
should be held jointly and severally liable with RANSOM. On November 4,
1986, it further filed an Urgent Motion for Preliminary Mandatory Injunction
"directing private respondents to deposit the amount of P 199,276.00 or to
put up a supersedeas bond of the same sum."
Incontrovertible is the fact that RANSOM was found guilty by the CIR, in its
Decision of August 19, 1972, of unfair labor practice; that its officers and
agents were ordered to cease and desist from further committing acts
constitutive of the same, and to reinstate immediately the 22 union members
to their respective positions with backwages from July 25, 1969 until actually
reinstated.
The CIR Decision became final, conclusive, and executory after this Court
denied the RANSOM petition for review in 1973. In other words, this Court
upheld that portion of the judgment ordering the officers and agents of
RANSOM to reinstate the laborers concerned, with backwages. The inclusion
of the officers and agents was but proper since a corporation, as an artificial
being, can act only through them. It was also pursuant to the CIR Act (CA No.
103 ), 7 the Industrial Peace Act (R.A. 875) 8 the Minimum Wage Law (R.A.
602). 9 Consequently, when, in resolving the UNION's Motion for Writ of
Execution and Garnishment in the Order of March 11, 1980, Labor Arbiter
Genilo named the seven (17) private respondents herein as the RANSOM
officers and agents, who should be held liable (supra), he merely
implemented the already final and executory CIR decision of August 19, 1972.
The NLRC, on appeal to it by RANSOM, could not have modified the CIR
Decision, as affirmed by this Court, by relieving RANSOM's officers and
agents of liability. It is also for that reason that in our Decision of June 10,
1986 we set aside said NLRC Decision and reinstated the Order of Labor
Arbiter Genilo, with modification, in that we limited liability for backwages
due the 22 UNION members to the President of RANSOM in 1974 jointly and
severally with other Presidents of the same corporation who had been
elected as such after 1972 or up to the time the corporation life was
terminated, since the President should also be deemed included in the term
"employer. "
The foregoing, however, limits the scope of liability and deviates from the CIR
Decision, affirmed by this Court in 1973, holding the officers and agents of
RANSOM liable. In other words, the officers and agents listed in the Genilo
Order except for those who have since passed away, should, as affirmed by
this Court, be held jointly and severally liable for the payment of backwages
to the 22 strikers.
This finding does not ignore the legal fiction that a corporation has a
personality separate and distinct from its stockholders and members, for, as
this Court had held "where the incorporators and directors belong to a single
family, the corporation and its members can be considered as one in order to
avoid its being used as an instrument to commit injustice," 10 or to further
an end subversive of justice. 11 In the case of Claparols vs. CIR 12 involving
almost similar facts as in this case, it was also held that the shield of corporate
fiction should be pierced when it is deliberately and maliciously designed to
evade financial obligations to employees. To the same effect was this Court's
rulings in still other cases:
When the notion of legal entity is used as a means to
perpetrate fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of
statutes, and or confuse legitimate issues the veil which
protects the corporation will be lifted (Villa Rey Transit, Inc.
vs. Ferrer, 25 SCRA 846 [1968]; Republic vs. Razon, 20 SCRA
234 [1967]; A.D. Santos, Inc. vs. Vasquez, 22 SCRA 1156
[1968]; Telephone Eng'g. & Service Company, Inc. vs. WCC,
104 SCRA 354 [1981]).
The alleged bankruptcy of RANSOM furnishes no justification for non-
payment of backwages to the employees concerned taking into consideration
Article 110 of the Labor Code, which provides:
ART. 110. Worker preference in case of bankruptcy. - In the
event of bankruptcy or liquidation of an employer's business,
his workers shall enjoy first preference as regards wages due
them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the
contrary notwithstanding. Unpaid wages shag be paid in full
before other creditors may establish any claim to a share in
the assets of the employer.
The term "wages" refers to all remunerations, earnings and other benefits in
terms of money accruing to the employees or workers for services rendered.
They are to be paid in full before other creditors may establish any claim to a
share in the assets of the employer.
Section 10. Payment of wages in case of bankruptcy.-Unpaid
wages earned by the employees before the declaration of
bankruptcy or judicial liquidation of the employer's business
shall be given first preference and shall be paid in full before
other creditors may establish any claim to a share in the
assets of the employer. 13
The foregoing provisions are but in consonance with the principles of social
justice and protection to labor guaranteed by past and present Constitutions
and are not really being given any retroactive effect when applied herein.
The Decision of the CIR was rendered on August 19, 1972. Clearance to
RANSOM to cease operations and terminate employment granted by the
Secretary of Labor was made effective on May 1, 1973. The right of the
employees concerned to backwages awarded them, therefore, had already
vested at the time and even before clearance was granted. Note should also
be taken of the fact that the clearance was without prejudice to the right of
subject employees to seek redress of grievances under existing laws and
decrees.
The worker preference applies even if the employer's properties are
encumbered by means of a mortgage contract, as in this case. So that, when
machinery and equipment of RANSOM were sold to Revelations
Manufacturing Corporation for P 2M in 1975, the right of the 22 laborers to
be paid from the proceeds should have been recognized, even though it is
claimed that those proceeds were turned over to the Commercial Bank and
Trust Company (Comtrust) in payment of RANSOM obligations, since the
workers' preference is over and above the claim of other creditors.
The contention, therefore, of the heirs of the late Maximo C. Hernandez, Sr.
that since they paid from their own personal funds the balance of the amount
owing by RANSOM to Comtrust they are the "preferential creditors" of
RANSOM, is clearly without merit. Workers are to be paid in full before other
creditors may establish any claim to a share in the assets of the employer.
... even if the employer's properties are encumbered by
means of a mortgage contract, still the workers' wages which
enjoy first preference in case of bankruptcy or liquidation are
 duly protected by an automatic first lien over and above all
other earlier encumbrances on the said properties.
Otherwise, workers' wages may be imperilled by foreclosure
of mortgages, and as a consequence, the aforecited provision
of the New Labor Code would be rendered meaningless. 14
Aggravating RANSOM's clear evasion of payment of its financial obligations is
the organization of a "run-away corporation," ROSARIO, in 1969 at the time
the unfair labor practice case was pending before the CIR 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. 15
The corporation will be treated merely as an aggregation of
individuals or, where there are two corporations, they will be
merged as one, the one being merely regarded as part of the
instrumentality of the other. 16
The UNION's plea, therefore, for the reinstatement of the 22 strikers in
ROSARIO should be favorably heard. However, ROSARIO shall have the option
to award them separation pay equivalent to one-half month for every year of
service actually rendered by the 22 strikers.
The plea of the UNION for the restoration of the original computation of
P199,276.00 or to grant the 22 Union members three (3) years backwages is
rejected. It is the amount of P164,984.00 as backwages, which was the
subject of the Writ of Execution issued by the Labor Arbiter pursuant to the
CIR Decision of 1972.
With the conclusions arrived at, the UNION's Urgent Motion for a Writ of
Preliminary Mandatory Injunction directing private respondents to deposit
the amount due as backwages in the meantime, need no longer be acted on.
A final and executory Decision in favor of the UNION obtained in 1972 and
affirmed by this Court in 1973 has remained unsatisfied to this date despite
no less than ten (10) Motions for Execution over a period of fourteen (14)
years, not to mention the fact that this is the second time that this case is
before this Court. The detriment and prejudice caused the employees
concerned is subversive of the ends of justice. This protracted litigation must
end and labor should now enjoy the just deserts of its legal victory.
ACCORDINGLY, private respondents' Motion for Reconsideration is hereby
denied with FINALITY; the Motion for Reconsideration filed by petitioner is
granted in part; and the dispositive portion of the Decision, dated June 10,
1986, is hereby amended to read as follows:
WHEREFORE, 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.
This decision is immediately executory.