LA CAMPANA COFFEE FACTORY v KAISAHAN NG MANGGAGAWA G.R.

L-5677, May 25, 1953

Facts: Tan Tong since 1932 has been engaged in the buying and selling gawgaw under the trade name
La Campana Gawgaw Packing. In 1950, Tan Tong and members of his family organized the family
corporation. La Campana Coffee Factory with its principal office located in Gawgaw Packing. Prior to said
information, Tan Tong entered into a CBA with the labor union of La Campana Gawgaw. Later on, his
employees formed Kaisahan ng mga Manggagawa ng La Campana with an authorization from the DOLE
to become an affiliate of the larger union. Kaisahan with 66 members presented a demand for higher
wages and more privileges to La Campana Starch and Coffee Factory. The demand was not granted and
the DOLE certified the issue to the CIR. La Campana filed a motion to dismiss alleging that the action was
directed against two different entities with distinct personalities. This was denied, hence this petition.

Issue: W/N the CIR has jurisdiction over the case.

Held: YES. La Compana Gawgaw and La Campana Factory are operating under one single management
or as one business though with two trade names. The coffee factory is a corporation and by legal fiction,
an entity separate and apart from the persons composing it namely, Tan Tong and his family. However,
the concept of separate corporate personality cannot be extended to a point beyond reason and policy
when invoked in support of an end subversive of this policy and will be disregarded by the courts. A
subsidiary company which is created merely as an agent 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 systems of operation unified. The facts showed that they had one
management, one payroll prepared by the same person, laborers were interchangeable, there is only
one entity as shown by the signboard ad in trucks, packages and delivery forms and the same place of
business. 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 and should not be permitted to prevail. WHY
PIERCE? So that La Campana cannot evade the jurisdiction of CIR since La Campana Gawgaw has only 14
employees and only 5 are members of Kaisahan.
Yutivo Sons Hardware Co vs CTA

Yutivo is a domestic corporation engaged in importation and sale of hardware supplies

and equipment. After the liberation in 1946, resumed its business and until 1946 bout a

number of cars and trucks from General Motors (GM), an American corporation doing

business in the Philippines. As importer, GM paid sales tax prescribed by the Tax Code

on the basis of its selling price to Yutivo. Yutivo paid no further sales tax on its sales to

the public.

In June 1946, Southern Motors (SM) organized to engage in the business of selling

cars, trucks and spare parts. One of its major subscribers is Yu Tiong Yee, a founder of

Yutivo. After the incorporation of SM and until the withdrawal of GM from Phil, the cars

and trucks were purchased by Yutivo from GM then sold by Yutivo to Sm and then SM

sold these to the public.

The same way that GM used to pay taxes on the basis of its sales to Yutivo, Yutivo paid

taxes on the basis of its sales to SM. SM paid no taxes on its sales to the public.

CIR made an assessment and charged Yutivo 1.8M as deficiency tax plus surcharge.

Petitioner contested before CTA. CTA ruled that SM is a mere subsidiary or

instrumentality of Yutivo, hence, its separate corporate existence must be disregarded.

Issue: WON Yutivo and SM are two separate entities.

Held: Yes.

It is an elementary and fundamental principle of corporation law that a corporation is an

entity separate and distinct from its stockholders and from other corporation petitions to

which it may be connected. However, "when the notion of legal entity is used to defeat

public convenience, justify wrong, protect fraud, or defend crime," the law will regard the

corporation as an association of persons, or in the case of two corporations merge them

into one. Another rule is that, when the corporation is the "mere alter ego or business
conduit of a person, it may be disregarded.

However, the Court here held that they 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

SM was subject to the sales taxes on their sales of cars and trucks. The sales tax

liability of Yutivo did not arise until July 1, 1947 when it became the importer and simply

continued its practice of selling to SM. The decision, therefore, of the Tax Court that SM

was organized purposely as a tax evasion device runs counter to the fact that there was

no tax to evade.
Lidell Co. v. Collector of Internal Revenue June 30, 1961 Facts:The case is an appeal from the decision of
the Court of Tax Appeals imposing a tax deficiencyliability of P1,317,629.61 on Liddell & Co., Inc.The
petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation establish inthe
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
toimportations of automobiles and trucks, Liddell & Co. was engaged in business as an importer and at
thesame 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 Securitiesand
Exchange Commission with an authorized capital stock of P100,000 of which P20,000 wassubscribed and
paid for as follows: Irene Liddell wife of Frank Liddell 19,996 shares and Messrs. MarcialP. 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 theminstead to Liddell Motors, Inc. which in turn sold the
vehicles to the public with a steep mark-up. Sincethen, Liddell & Co. paid sales taxes on the basis of its
sales to Liddell Motors Inc. considering said sales asits original sales.The Collector of Internal Revenue
argued that the Lidell Motors, Inc. was but an alter ego of Liddell & Co. and concluded that for sales tax
purposes, those sales made by Liddell Motors, Inc. to thepublic were considered as the original sales of
Liddell & Co. hence the imposition of tax deficiency. The CTA upheld the position taken by the Collector.
Hence, this petition

Issue:Whether or not Lidell Motors, Inc. is an alter ego of Lidell& Co. making it liable for the said
taxdeficiency?

Held: AFFIRMATIVE The Court held that Lidell Motors, Inc. is an alter ego of Lidell& Co. hence making it
liable for tax deficiency .Liddell & Co. is wholly owned by Frank Liddell. As of the time of its organization,
98% of the capital stock belonged to Frank Liddell. The 20% paid-up subscription with which the
company began its business was paid by him. The subsequent subscriptions to the capital stock were
made by him and paid with his own money. As to Liddell Motors, Inc. SC is fully persuaded that Frank
Liddell also owned it. He supplied the original capital funds. It is not proven that his wife Irene,
ostensibly the sole incorporator of Liddell Motors, Inc. had money of her own to pay for her P20,000
initial subscription. Her income in the United States in the years 1943 and 1944 and the savings
therefrom could not be enough to cover the amount of subscription, much less to operate an expensive
trade like the retail of motor vehicles. The alleged sale of her property in Oregon might have been true,
but the money received therefrom was never shown to have been saved or deposited so as to be still
available at the time of the organization of the Liddell Motors, Inc.The evidence at hand also shows that
Irene Liddell had scant participation in the affairs of Liddell Motors, Inc. There are quite a series of
conspicuous circumstances that militate against the separate and distinct personality of Liddell Motors,
Inc. from Liddell & Co.8 SC notice that the bulk of the business of Liddell & Co. was channeled through
Liddell Motors, Inc. On the other hand, Liddell Motors, Inc. pursued no activities except to secure cars,
trucks, and spare parts from Liddell & Co. Inc. and then sell them to the general public. These sales of
vehicles by Liddell & Co. to Liddell Motors, Inc. for the most part were shown to have taken place on the
same day that Liddell Motors, Inc. sold such vehicles to the public. We may even say that the cars and
trucks merely touched the hands of Liddell Motors, Inc. as a matter of formality. During the first six
months of 1949, Liddell & Co. issued ten (10) checks payable to Frank Liddell which were deposited by
Frank Liddell in his personal account with the Philippine National Bank. During this time also, he issued
in favor of Liddell Motors, Inc. six (6) checks drawn against his personal account with the same bank. The
checks issued by Frank Liddell to the Liddell Motors, Inc. were significantly for the most part issued on
the same day when Liddell & Co. Inc. issued the checks for Frank Liddell9 and for the same amounts. It
is of course accepted that the mere fact that one or more corporations are owned and controlled by a
single stockholder is not of itself sufficient ground for disregarding separate corporate entities.
Authorities10 support

the rule that it is lawful to obtain a corporation charter, even with a single substantial stockholder, to
engage in a specific activity, and such activity may co-exist with other private activities of the
stockholder. If the corporation is a substantial one, conducted lawfully and without fraud on another, its
separate identity is to be respected. Accordingly, the mere fact that Liddell & Co. and Liddell Motors,
Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient
to justify the disregard of the separate corporate identity of one from the other. There is, however, in
this instant case, a peculiar consequence of the organization and activities of Liddell Motors, Inc.
Consistently with this view, the United States Supreme Court held that "a taxpayer may gain advantage
of doing business thru a corporation if he pleases, but the revenue officers in proper cases, may
disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the
person who actually may take the benefits of the transactions as the person accordingly taxable."
Thus, 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. The decision appealed is
modified. Lidell& Co. is declared liable only for the amount of Php 426, 811.67 with 25% surcharge for
late payment and 6% interest thereon from the time the judgment becomes final. As it appears that,
during the pendency of this litigation, appellant paid under protest the Govt, the total amount assessed
by the Collector, the latter is hereby required to return the excess to the petitioner. Regarding tax
computation, kindly refer to the original thanks =)