Adigested Corpo Cases II

8/13/2019 Adigested Corpo Cases II

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THIRD DIVISION

G.R. No. 58168 December 19, 1989

CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA,

LUISA MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz,FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners,

vs.

THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, SpecialAdministratrix of the Estate of the late Genaro F. Magsaysay respondents.

A deed of assignment was executed by the late Sen. GenaroMagsaysay in favor of SUBIC and was issued a new TCT in the latters name.

SUBIC later mortgaged the said property in favour of FILMANBANK.

Contending that the Deed of Assignment was void because it was secured by

mistake, violence and intimidation, and that the property is a conjugal

property and her marital consent was not obtained, Adelaida filed for the

annulment of Deed of Assignment and the Deed of Mortgage and cancellation

of the TCT issued in favour of SUBIC and issuance of a new TCT in her favour.

Petitioners, the sisters of the late senator, filed for a motion forintervention alleging that they have a legal interest in the subject matter and

in the success of the suit since their brother conveyed to them half of the total

outstanding shares of stocks of SUBIC.

The trial court denied the motion because SUBIC has a personality

separate and distinct from its shareholders thus petitioners cannot claim they

can legally intervene.

The CA, as well, denied their motion on appeal stating that theclaims of the petitioners against the senator can be ventilated in a separate

proceeding. A MR was likewise denied hence this recourse before the SC.

ISSUE: WON the denial of the motion to intervene by the petitioners is

correct.

RULING:

Invoking the principle enunciated in the case of PNB v. Phil. Veg. OilCo. petitioners strongly argue that their ownership of 41.66% of the entire

outstanding capital stock of SUBIC entitles them to a significant vote in the

corporate affairs that it appears that they are more vitally interested in the

outcome of the case than SUBIC.


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To allow intervention, [a] it must be shown that the movant has

legal interest in the matter in litigation, or otherwise qualified; and [b]

consideration must be given as to whether the adjudication of the rights of

the original parties may be delayed or prejudiced, or whether the intervenor's

rights may be protected in a separate proceeding or not. Both requirements

must concur as the first is not more important than the second.

Here, the interest, if it exists at all, of petitioners-movants is indirect,

contingent, remote, conjectural, consequential and collateral, and att the very

least, their interest is purely inchoate.

While a share of stock represents a proportionate or aliquot interest

in the property of the corporation, it does not vest the owner thereof with any

legal right or title to any of the property, his interest in the corporate property

being equitable or beneficial in nature. Shareholders are in no legal sense theowners of corporate property, which is owned by the corporation as a distinct

legal person.

The petitioners cannot claim the right to intervene on the strength

of the transfer of shares allegedly executed by the late Senator. The

corporation did not keep books and records. 11 Perforce, no transfer was ever

recorded, much less effected as to prejudice third parties. The transfer must

be registered in the books of the corporation to affect third persons. The law

on corporations is explicit. Section 63 of the Corporation Code provides, thus:

"No transfer, however, shall be valid, except as between the parties, until the

transfer is recorded in the books of the corporation showing the names of the

parties to the transaction, the date of the transfer, the number of the

certificate or certificates and the number of shares transferred."

And even assuming arguendo that there was a valid transfer,

petitioners are nonetheless barred from intervening inasmuch as their rights

can be ventilated and amply protected in another proceeding.WHEREFORE,

the instant petition is hereby DENIED. Costs against petitioners.SO ORDERED.


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SECOND DIVISIONA.M. No. P-01-1464 March 13, 2001

(Formerly OCA IPI. No. 99-730-P)SALVADOR O. BOOC, complainant,vs.

MALAYO B. BANTUAS, SHERIFF IV, RTC, BRANCH 3, ILIGAN CITY, respondent.

Pursuant to a Writ of Execution issued in a civil case, respondent

Bantuas filed a Notice of Levy with the Registrar of Deeds of Iligan City.

Petitioner opposed the levy as the property is owned by the corporation

which is not a party to the case.

The corporation filed a complaint before the OCA and demanded

the sheriff to cancel the notice of levy as it is the true owner of the property.However, respondent did not heed the corporations demand, a Notice of Sale

on execution of Real Property was issued and scheduled the public auction.

Thus the corporation filed an action for Quieting of Title with the RTC.

Respondent, in his answer, said that he filed a Notice of Levy with

the Register of Deeds on the share, rights, interest and participation of Booc in

the parcel of land owned by the corporation since Booc is an owner of around

200 shares of stocks in the said corp.

RULING:

OCA found respondent liable stating that respondent acted in bad

faith when he overstepped his authority when he disregarded the distinct and

separate personality of the corporation from that of Booc as a stockholder and

officer of the corporation.

It is settled that a corporation is clothed with a personality separate

and distinct from that of its stockholders. It may not be held liable for the

personal indebtedness of its stockholders. In the case of Del Rosaio v. Bascar,the SC reiterated the principle that the mere fact that one is a president of the

corporation does not render the property he owns or possesses the property

of the corporation since the president, as an individual, and the corporation

are separate entities.

Based on the foregoing, respondent Sheriff Bantuas has clearly acted

beyond his authority when he levied the property of Five Star Marketing

Corporation.


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PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENTCORPORATION, petitioners,

vs.

ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent.

The case is a Petition for Review assailing the decision of the CA.

FACTS:

PASUMIL engaged the services of herein defendant for electrical

rewinding and repair, most of which were partially paid by the PASUMIL,

leaving several unpaid accounts with the defendant. On October 29, 1971,

PASUMIL and the defendant entered into a contract for the defendant for

several constructions as well as supply of electrical equipment. Out of 700K+

only P250,000 was paid by PASUMIL.

Defendant demanded the President of PNB, who is also the VP of

NASUDECO because PNB and NASUDECO now owned and possessed the

assets of the defendant PASUMIL, and that both benefited from the works,

and the electrical, engineering and repairs performed by the defendant.

PNB and NASUDECO filed a joint motion to dismiss the complaint on

the ground that the complaint failed to state sufficient allegations to establisha cause of action against both defendants citing Article 1311 of the New Civil

Code, and the case law ruling in Salonga v. Warner Barnes & Co.

The motion to dismiss was by the court a quo denied and directed

the defendants to file their answer to the complaint within 15 days.

The trial court rendered its judgment in favor of the defendant and

held PNB, NASUDECO and PASUMIL jointly and severally liable.

The CA affirmed the decision of the trial court holding that it was

offensive to the basic tenets of justice and equity for a corporation to take

over and operate the business of another corporation, while disavowing or

repudiating any responsibility, obligation or liability arising therefrom.

ISSUE: WON PNB is liable for the unpaid debts of PASUMIL to respondent.

RULING:

The petition is meritorious.

As a rule, a corporation that purchases the assets of another will not

be liable for the debts of the selling corporation, provided the former acted in


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good faith and paid adequate consideration for such assets, exceptwhen anyof the following circumstances is present: (1) where the purchaser expressly or

impliedly agrees to assume the debts, (2) where the transaction amounts to a

consolidation or merger of the corporations, (3) where the purchasing

corporation is merely a continuation of the selling corporation, and (4) where

the transaction is fraudulently entered into in order to escape liability forthose debts.

Piercing the Corporate Veil Not Warranted

A corporation is an artificial being created by operation of law. It

possesses the right of succession and such powers, attributes, and properties

expressly authorized by law or incident to its existence.[12] It has a personality

separate and distinct from the persons composing it, as well as from any other

legal entity to which it may be related.[13] This is basic.

Equally well-settled is the principle that the corporate mask may be

removed or the corporate veil pierced when the corporation is just an alter

ego of a person or of another corporation.[14] For reasons of public policy and

in the interest of justice, the corporate veil will justifiably be impaled[15] only

when it becomes a shield for fraud, illegality or inequity committed against

third persons.

Piercing the veil of corporate fiction may be allowed only if the

following elements concur: (1) control -- not mere stock control, but complete

domination -- not only of finances, but of policy and business practice in

respect to the transaction attacked, must have been such that the corporate

entity as to this transaction had at the time no separate mind, will or existence

of its own; (2) such control must have been used by the defendant to commit

a fraud or a wrong to perpetuate the violation of a statutory or other positive

legal duty, or a dishonest and an unjust act in contravention of plaintiffs legal

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

caused the injury or unjust loss complained of.

In the absence of the foregoing elements in the present case

precludes the piercing of the corporate veil. First, there is no showing that

their control over it warrants the disregard of corporate personalities. Second,

there is no evidence that their juridical personality was used to commit a

fraud or to do a wrong. Third, respondent was not defrauded or injured when

petitioners acquired the assets of PASUMIL.

In the instant case, the CA erred in affirming the trial courts lifting

of the corporate mask.

No Merger or Consolidation


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The merger, however, does not become effective upon the mere

agreement of the constituent corporations. Since a merger or consolidation

involves fundamental changes in the corporation, as well as in the rights of

stockholders and creditors, there must be an express provision of law

authorizing them. For a valid merger or consolidation, the approval by the

Securities and Exchange Commission (SEC) of the articles of merger orconsolidation is required. These articles must likewise be duly approved by a

majority of the respective stockholders of the constituent corporations.

WHEREFORE, the Petition is hereby GRANTED and the assailed

Decision SET ASIDE.


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JARDINE DAVIES, INC.,

Vs.

JRB REALTY, INC.,

Respondent JRB Realty, Inc. built a nine-storey building, named

Blanco Center, on its parcel of land in Makati City. Respondent entered into a

contract with Mr. A.G. Morrison, Pres of Aircon and Refrigeration Industries,

INC. (AIRCON) for the installation of 2 aircon system at Blanco Law Firm.

When the units were installed, they could not deliver the desired

temperature. AIRCON agreed to replace the defective unit at the soonest

possible time but it could not specify a date when delivery could be effected.

Tempcontrol, a subsidiary of AIRCON, undertook the maintenance of

the aircon units. Later, respondent learned that MAXIM was the new and

exclusive licensee of FEDDERS in the Philippines for the manufacture,

distribution, sale, installation and maintenance of FEDDERS aircons. MAXIM

refused to honor the obligation of AIRCON when requested by the

respondent.

The respondent thus instituted an action for specific performance

with damages against Aircon & Refrigeration Industries, Inc., Fedders Air

Conditioning USA, Inc., Maxim Industrial & Merchandising Corporation and

petitioner Jardine Davies, Inc. The latter was impleaded as defendant,

considering that Aircon was a subsidiary of the petitioner.

Of the four defendants, only the petitioner filed its Answer. The

court did not acquire jurisdiction over Aircon because the latter ceased

operations.

RTC RULING: defendants Jardine Davies, Inc., Fedders Air Conditioning USA,

Inc. and Maxim Industrial and Merchandising Corporation are jointly and

severally liable.

CA RULING: the CA affirmed the trial courts ruling in toto; hence, this petition.

ISSUE: WON JArdine be held jointly and solidarily liable with the other 2

defendants.

We find merit in the petition.


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It is an elementary and fundamental principle of corporation law that acorporation is an artificial being invested by law with a personality

separate and distinct from its stockholders and from other corporations

to which it may be connected.

While a corporation is allowed to exist solely for a lawful purpose, the

law will regard it as an association of persons or in case of twocorporations, merge them into one, when this corporate legal entity is

used as a cloak for fraud or illegality.

This is the doctrine of piercing the veil of corporate fictionwhich appliesonly when such corporate fiction is used to defeat public convenience,

justify wrong, protect fraud or defend crime.

The rationale behind piercing a corporations identity is to remove thebarrier between the corporation from the persons comprising it to thwart

the fraudulent and illegal schemes of those who use the corporate

personality as a shield for undertaking certain proscribed activities. Note that AIRCON is a subsidiary of petitioner and a subsidiary has an

independent and separate juridical personality, distinct from that of its

parent company; hence, any claim or suit against the latter does not bind

the former, and vice versa.

So that the corporations cloak may be lifted the ff. must concur:1. control, not merely majority or complete stock control;2. such control must have been used by the defendant to commit fraud

or wrong, to perpetuate the violation of a statutory or other positive

legal duty, or dishonest acts in contravention of plaintiffs legalrights; and

3. the aforesaid control and breach of duty must proximately cause theinjury or unjust loss complained of

The existence of interlocking directors, corporate officers andshareholders, which the respondent court considered, is not enough

justification to pierce the veil of corporate fiction, in the absence of fraud

or other public policy considerations

It bears stressing that the petitioner was never a party to the contract.

Privity of contracts take effect only between parties, their successors-in-interest, heirs and assigns.[32] The petitioner, which has a separate and

distinct legal personality from that of Aircon, cannot, therefore, be held

liable


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G.R. No. 154975 January 29, 2007

GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCECORPORATION), Petitioner,

vs.

ALSONS DEVELOPMENT and INVESTMENT CORPORATION and CCC EQUITYCORPORATION, Respondents.

Shortly after its incorporation in 1957 as a finance and investmentcompany, petitioner General Credit Corporation (GCC, for short), then

known as Commercial Credit Corporation (CCC), established CCC

franchise companies in different urban centers of the country. It later on

engaged in quasi-banking as well.

Respondent CCC Equity Corporation (EQUITY, for brevity) was organizedfor the purpose of taking over the operations and management of the

various franchise companies.

Respondent ALSONS and ALCANTARA FAMILY each owned, just like GCC,shares in the aforesaid GCC franchise companies.

ALSONS and the Alcantara family, for a consideration of P2,000,000.00Pesos, sold their shareholdings in the CCC franchise companies to

EQUITY.

EQUITY issued ALSONS et al., a "bearer" promissory note forP2,000,000.00 with a one-year maturity date, at 18% interest per annum,

with provisions for damages and litigation costs in case of default.

the Alcantara family assigned its rights and interests over the bearer noteto ALSONS. But even before the execution of the assignment deal letters

of demand for interest payment were already sent to EQUITY, through its

President, Wilfredo Labayen, who pleaded inability to pay the stipulated

interest, EQUITY no longer then having assets or property to settle its

obligation nor being extended financial support by GCC.

ALSONS, having failed to collect on the bearer note aforementioned, fileda complaint for a sum of money8 against EQUITY and GCC.

TRIAL COURT: the trial court, on its finding that EQUITY was but an

instrumentality or adjunct of GCC and considering the legal consequences and

implications of such relationship, came out with its decision on November 8,

1990, rendering judgment for ALSONS, and made EQUITY and GCC jointly and

severally liable.

The CA affirmed the trial courts decision.

ISSUE: WON there is absolutely no basis for piercing GCCs veil of corporate

identity.


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RULING:

A corporation is an artificial being vested by law with a personalitydistinct and separate from those of the persons composing it as well as

from that of any other entity to which it may be related.

The first consequence of the doctrine of legal entity of the separatepersonality of the corporation is that a corporation may not be made to

answer for acts and liabilities of its stockholders or those of legal entities

to which it may be connected or vice versa.

The notion of separate personality, however, may be disregarded underthe doctrine"piercing the veil of corporate fiction"

Another formulation of this doctrine is that when two (2) businessenterprises are owned, conducted and controlled by the same parties,

both law and equity will, when necessary to protect the rights of third

parties, disregard the legal fiction that two corporations are distinctentities and treat them as identical or one and the same.

at least three (3) basic areas where piercing the veilis allowed.These are:1. defeat of public convenience, as when the corporate fiction is

used as vehicle for the evasion of an existing obligation;

2. fraud cases or when the corporate entity is used to justify awrong, protect fraud, or defend a crimeor

3. alter ego cases, where a corporation is merely a farce since it isa mere alter ego or business conduit of a person, or where the

corporation is so organized and controlled and its affairs are soconducted as to make it merely an instrumentality, agency,

conduit or adjunct of another corporation.

The Court agrees with the disposition of the appellate court on theapplication of the piercing doctrine to the transaction subject of this

case thus provides a justifying ground to pierce petitioners

corporate existence as to ALSONS claim in question.

The trial court enumerated no less than 20 documentedcircumstances and transactions, which, taken as a package, indeed

strongly supported the conclusion that respondent EQUITY was butan adjunct, an instrumentality or business conduit of petitioner GCC.

Further, EQUITY and GCC had common directors and/or officers aswell as stockholders.

Thus the doctrine of piercing the veil of corporate fiction isapplicable in this case.


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G.R. No. 182729 September 29, 2010

KUKAN INTERNATIONAL CORPORATION, Petitioner,

vs.

HON. AMOR REYES, in her capacity as Presiding Judge of the Regional TrialCourt of Manila, Branch 21, and ROMEO M. MORALES, doing business underthe name and style "RM Morales Trophies and Plaques," Respondents.

Kukan, Inc. conducted a bidding for the supply and installation ofsignages in a building being constructed in Makati City.

Morales was awarded the P5M contract but the contract was laterreduced to P3M+ due to the exclusions of some of the items in the

contract.

Morales was only paid the amount of PhP 1,976,371.07, leaving a balanceof PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands

Thus Morales filed a complaint against Kukan for sum of money.

The trial court held in favor of Morales and ordered Kukan, Inc. to pay thebalance with 12% interest, plus moral damages, attorneys fees and

litigation expenses.

After the decision became final and executor, and after a writ ofexecution had been issued against Kukan Inc., the sheriff levied various

personal properties found at Kukans office in Makati City.

Alleging that it owned the properties thus levied and that it was adifferent corporation from Kukan, Inc., Kukan International Corporation

(KIC) filed an Affidavit of Third-Party Claim.

Morales contended in an omnibus motion filed that the principle ofpiercing the veil of corporate fiction must be applied so that an order be

issued for the satisfaction of the judgment debt of Kukan, Inc. with the

property owned and possessed by KIC since both corporation are one and

the same entity. BUT the motion was denied by the court.

Morales filed a Motion to Pierce the Veil of Corporate Fiction to declareKIC as having no existence separate from Kukan, Inc. which this time was

granted by the RTC and declared KUKAN, INC and KIC one and the same

corporation and the levy valid, thus making KIC and Chan jointly and

severally liable.

CA affirmed the RTCs decision.

ISSUE: WON CA correctly applied the principle of piercing the veil of corporate

fiction.

RULING:

Morales contention is untenable. The principle of piercing the veil of corporate fiction, and the resulting

treatment of two related corporations as one and the same juridical


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person with respect to a given transaction, is basically applied only to

determine established liability; it is not available to confer on the court a

jurisdiction it has not acquired over a party not impleaded in a case.

The trial court did not acquire jurisdiction over KIC as it was neverimpleaded as a party defendant in the civil suit for sum of money filed by

Morales. A corporation not impleaded in a suit cannot be subject to the courts

process of piercing the veil of its corporate fiction. The doctrine ofpiercing the veil of corporate fiction comes to play only during the trialof the case after the court has already acquired jurisdiction over thecorporation. Hence, before this doctrine can be applied, based on theevidence presented, it is imperative that the court must first havejurisdiction over the corporation.

The implication of the above comment is twofold: (1) the court must first

acquire jurisdiction over the corporation or corporations involved beforeits or their separate personalities are disregarded; and (2) the doctrine of

piercing the veil of corporate entity can only be raised during a full-blown

trial over a cause of action duly commenced involving parties duly

brought under the authority of the court by way of service of summons

or what passes as such service.

The principle of piercing the veil of corporate fiction finds no applicationto the instant case.

Morales adverted motion to pierce the veil of corporate stated a new

cause of action which should be properly ventilated in another complaintand subsequent trial where the doctrine of piercing the corporate veil

can, if appropriate, be applied, based on the evidence adduced.

Equally well-settled is the principle that the corporate mask may beremoved or the corporate veil pierced when the corporation is just an

alter ego of a person or of another corporation.

To justify the piercing of the veil of corporate fiction, it must be shown byclear and convincing proof that the separate and distinct personality of

the corporation was purposefully employed to evade a legitimate and

binding commitment and perpetuate a fraud or like wrongdoings. Factors when the Court pierced the veil of corporate fiction of two

corporations:

1. A first corporation is dissolved;2. The assets of the first corporation is transferred to a second

corporation to avoid a financial liability of the first corporation;

and

3. Both corporations are owned and controlled by the samepersons such that the second corporation should be considered

as a continuation and successor of the first corporation.The second and third factors are conspicuously absent.

While it is true that a corporation has a separate and distinct personalityfrom its stockholder, director and officers, the law expressly provides for

an exception. Having been guilty of bad faith in the management of


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corporate matters the corporate trustee, director or officer may be held

personally liable.

The RTC brushed aside the separate corporate existence of Kukan, Inc.and KIC on the main argument that Michael Chan owns 40% of the

common shares of both corporations, obviously oblivious that

overlapping stock ownership is a common business phenomenon. Mere ownership by a single stockholder or by another corporation of a

substantial block of shares of a corporation does not, standing alone,

provide sufficient justification for disregarding the separate corporate

personality.

Those who seek to pierce the veil must clearly establish that the separateand distinct personalities of the corporations are set up to justify a

wrong, protect fraud, or perpetrate a deception. In the concrete and on

the assumption that the RTC has validly acquired jurisdiction over the

party concerned, Morales ought to have proved by convincing evidencethat Kukan, Inc. was collapsed and thereafter KIC purposely formed and

operated to defraud him. Morales has not to us discharged his burden.


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RAYMUNDO ODANI SECOSA, EL BUENASENSO SY and DASSADWAREHOUSING and PORT SERVICES, INCORPORATED, petitioners,

vs.

HEIRS OF ERWIN SUAREZ FRANCISCO, respondents.

Francisco was riding a motorcycle along Radial 10 Avenue, Manila City.Behind the motorcycle driven by Francisco was a sand and gravel truck

which was also tailed by an Isuzu truck driven by Secosa.

When Secosa overtook the sand and gravel truck, he bumped themotorcycle causing Francisco to fall. The rear wheels of the Isuzu truck

then ran over Francisco, which resulted in his instantaneous death.

Fearing for his life, petitioner Secosa left his truck and fled the scene of

the collision.

Respondents, the parents of Erwin Francisco, thus filed an action fordamages against Raymond Odani Secosa, Dassad Warehousing and Port

Services, Inc. and Dassads president, El Buenasucenso Sy.

The court a quo rendered a decision in favor of herein respondents andmade the herein petitioners jointly and severally liable.

The CA affirmed the trial courts ruling.

ISSUE: WON EL BUENASENSO SY IS SOLIDARILY LIABLE WITH PETITIONERS

DASSAD AND SECOSA.

RULING:

we find that petitioner El Buenasenso Sy cannot be held solidarily liablewith his co-petitioners. While it may be true that Sy is the president of

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

itself sufficient to hold him solidarily liable for the liabilities adjudged

against his co-petitioners.

It is a settled precept in this jurisdiction that a corporation is invested bylaw with a personality separate from that of its stockholders or members.

It has a personality separate and distinct from those of the persons

composing it as well as from that of any other entity to which it may be

related. Mere ownership by a single stockholder or by another

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

in itself sufficient ground for disregarding the separate corporate

personality. A corporations authority to act and its liability for its actions

are separate and apart from the individuals who own it.

As a general rule, a corporation will be looked upon as a legal entity,unless and until sufficient reason to the contrary appears. When the

notion of legal entity is used to defeat public convenience, justify wrong,

protect fraud, or defend crime, the law will regard the corporation as an

association of persons.


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The records of this case are bereft of any evidence tending to showthe presence of any grounds enumerated above that will justify the

piercing of the veil of corporate fiction such as to hold the president

of Dassad Warehousing and Port Services, Inc. solidarily liable with

it.

The Isuzu cargo truck which ran over Erwin Francisco was registeredin the name of Dassad Warehousing and Port Services, Inc., and not

in the name of El Buenasenso Sy. Raymundo Secosa is an employee

of Dassad Warehousing and Port Services, Inc. and not of El

Buenasenso Sy. All these things, when taken collectively, point

toward El Buenasenso Sys exclusion from liability for damages

arising from the death of Erwin Francisco.


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G.R. No. 142616 July 31, 2001

PHILIPPINE NATIONAL BANK,petitioner,vs.RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and

DADASAN GENERAL MERCHANDISE,respondents.

PNB International Finance Ltd. (PNB-IFL) a subsidiary company ofPNB, organized and doing business in Hong Kong, extended aletter of credit in favor of the respondents.

As of April 30, 1998, their outstanding obligations stood atUS$1,497,274.70.

PNB-IFL, through its attorney-in-fact PNB, notified the respondentsof the foreclosure of all the real estate mortgages and that the

properties subject thereof were to be sold at a public auction at theMakati City Hall. Respondents filed a complaint for injunction with prayer for the

issuance of a writ of preliminary injunction and/or temporaryrestraining order.

Petitioner filed a motion to dismiss on the grounds of failure to statea cause of action and the absence of any privity between thepetitioner and respondents.

The motion to dismiss was denied by the trial court judge for lack ofmerit, hence this petition for certiorari and prohibition before the SC

assailing the issuance of the writ of preliminary injuction. respondents argue that even assuming arguendo that petitioner

and PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application for preliminary injunction because it istasked to commit acts of foreclosing respondents' properties.

respondents justified the act of the court a quo in applying thedoctrine of "Piercing the Veil of Corporate Identity" by stating thatpetitioner is merely an alter ego or a business conduit of PNB-IFL.

The petition is impressed with merit. The contract questioned is one entered into between respondent

and PNB-IFL, not PNB.. Respondents admit that petitioner is a mere attorney-in-fact for the

PNB-IFL with full power and authority to foreclose on the propertiesmortgaged to secure their loan obligations with PNB-IFL.

Yet, despite the recognition that petitioner is a mere agent, therespondents prayed that the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them inaccordance with the terms and conditions in the documents

evidencing the credit facilities, and crediting the amount previouslypaid to PNB by herein respondents.

The issue of the validity of the loan contracts is a matter betweenPNB-IFL, the petitioner's principal and the party to the loancontracts, and the respondents.


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Clearly, petitioner not being a part to the contract has no power tore-compute the interest rates set forth in the contract. Respondents,therefore, do not have any cause of action against petitioner.

The general rule is that as a legal entity, a corporation has apersonality distinct and separate from its individual stockholders ormembers, and is not affected by the personal rights, obligationsand transactions of the latter.

The mere fact that a corporation owns all of the stocks of anothercorporation, taken alone is not sufficient to justify their being treatedas one entity.

If used to perform legitimate functions, a subsidiary's separateexistence may be respected, and the liability of the parentcorporation as well as the subsidiary will be confined to thosearising in their respective business.

In the case at bar, respondents fail to show any cogent reason why the

separate entities of the PNB and PNB-IFL should be disregarded. the circumstances which may be useful in the determination of whether

the subsidiary is but a mere instrumentality of the parent-corporation:

a. The parent corporation owns all or most of the capital stock of thesubsidiary.

b. The parent and subsidiary corporations have common directors orofficers.

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 parentcorporation 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 itsofficers, the subsidiary is described as a department or division of

the parent corporation, or its business or financial responsibility isreferred to as the parent corporation's own.

i. The parent corporation uses the property of the subsidiary as itsown.

j. The directors or executives of the subsidiary do not actindependently in the interest of the subsidiary but take their orders

from the parent corporation.

k. The formal legal requirements of the subsidiary are not observed. the test in determining the applicability of the doctrine of piercing the

veil of corporate fiction are:a. the test in determining the applicability of the doctrine of

piercing the veil of corporate fiction

b. Control, not mere majority or complete control, but completedomination,


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c. The aforesaid control and breach of duty must proximatelycause the injury or unjust loss complained of.

d. Such control must have been used by the defendant to commitfraud 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. Aside from the fact that PNB-IFL is a wholly owned subsidiary of

petitioner PNB, there is no showing of the indicative factors that the

former corporation is a mere instrumentality of the latter are

present. Neither is there a demonstration that any of the evils

sought to be prevented by the doctrine of piercing the corporate veil

exists. Inescapably, therefore, the doctrine of piercing the corporate

veil based on the alter ego or instrumentality doctrine finds no

application in the case at bar.

the parent-subsidiary relationship between PNB and PNB-IFL is notthe significant legal relationship involved in this case since the

petitioner was not sued because it is the parent company of PNB-

IFL.

A suit against an agent cannot without compelling reasons beconsidered a suit against the principal.

the petition is hereby GRANTED. Respondents do not have a cause of action against the petitioner as

the latter is not privy to the contract the provisions of which

respondents seek to declare void. Accordingly, the case before theRegional Trial Court must be dismissed and the preliminary

injunction issued in connection therewith, must be lifted.


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CONCEPT BUILDERS, INC., petitioner,

vs.

THE NATIONAL LABOR RELATIONS COMMISSION,

This special civil action ostensibly raises the question of whether theNational Labor Relations Commission committed grave abuse of

discretion when it issued a "break-open order" to the sheriff to be

enforced against personal property found in the premises of petitioner's

sister company.

Concept Builders, Inc., a domestic corporation, is engaged in theconstruction business.

Private respondents were employed by said company as laborers,carpenters and riggers. Private respondents dismissed the services of the private respondents

and sub-contract the functions performed by said private respondents.

private respondents filed a complaint for illegal dismissal, unfair laborpractice and non-payment of their legal holiday pay, overtime pay and

thirteenth-month pay against petitioner.

LA ruled in favor or private respondents and ordered their reinstatement. the National Labor Relations Commission (NLRC) dismissed the motion

for reconsideration filed by petitioner on the ground that the saiddecision had already become final and executory.

the National Labor Relations Commission (NLRC) dismissed the motionfor reconsideration filed by petitioner, order had become final and

executor.

the Labor Arbiter issued a writ of execution directing the sheriff toexecute the Decision.

Since the writ was only partially served and LA issued an alias writ ofexecution.

A break open order was issued, upon appeal, by sheriff to enter thepetitioners premises. 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.

Petitioners alleged that HPPI and petitioner corporation were owned bythe same incorporator/stockholders.

In support of their claim against HPPI, private respondents presented

duly certified copies of the General Informations Sheet submitted bypetitioner to the Securities Exchange Commission (SEC) and the General

Information Sheet, submitted by HPPI to the Securities and Exchange

Commission.


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LA dismissed the 3rd

Party claim. MR was likewise denied by the NLRC,

hence this petition.

RULING:

Petitioner contends, that the doctrine of piercing the corporate veil

should not have been applied, in this case, in the absence of any showingthat it created HPPI in order to evade its liability to private respondents.

We find petitioner's contention to be unmeritorious. It is a fundamental principle of corporation law that a corporation is an

entity separate and distinct from its stockholders and from other

corporations to which it may be connected.

But, this separate and distinct personality of a corporation is merely afiction created by law for convenience and to promote justice.

When the notion of separate juridical personality is used to defeat public

convenience, justify wrong, protect fraud or defend crime, or is used as adevice to defeat the labor laws, this separate personality of the

corporation may be disregarded or the veil of corporate fiction pierced.

This is true likewise when the corporation is merely an adjunct, a

business conduit or an alter ego of another corporation.

probative factors of identity that will justify the application of thedoctrine of piercing the corporate veil:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.4. Methods of conducting the business.

SEC explained instrumentality rule: Where one corporation is soorganized and controlled and its affairs are conducted so that it is, in fact,

a mere instrumentality or adjunct of the other, the fiction of the

corporate entity of the "instrumentality" may be disregarded. The control

necessary to invoke the rule is not majority or even complete stock

control but such domination of instances, policies and practices that the

controlled corporation has, so to speak, no separate mind, will or

existence of its own, and is but a conduit for its principal. It must be keptin mind that the control must be shown to have been exercised at the

time the acts complained of took place. Moreover, the control and

breach of duty must proximately cause the injury or unjust loss for which

the complaint is made.

The test in determining the applicability of the doctrine of piercingthe veil of corporate fiction is as follows:

1. Control, not mere majority or complete stock control, butcomplete domination, not only of finances but of policy and business

practice in respect to the transaction attacked so that the corporateentity 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 commitfraud or wrong, to perpetuate the violation of a statutory or other


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positive legal duty or dishonest and unjust act in contravention of

plaintiff's legal rights; and

3. The aforesaid control and breach of duty must proximately causethe injury or unjust loss complained of.

The absence of any one of these elements prevents "piercing the

corporate veil." In applying the "instrumentality" or "alter ego"doctrine, the courts are concerned with reality and not form, with

how the corporation operated and the individual defendant's

relationship to that operation.

the NLRC noted that, while petitioner claimed that it ceased itsbusiness operations, it filed an Information Sheet with the Securities

and Exchange Commission stating that its office address is at 355

Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI,

the third-party claimant, submitted on the same day, a similar

information sheet stating that its office address is at 355 MaysanRoad, Valenzuela, Metro Manila.

Both information sheets were filed by the same Virgilio O. Casio asthe corporate secretary of both corporations. It would also not be

amiss to note that both corporations had the same president,

thesame board of directors, the same corporate officers, and

substantially the same subscribers.

Under this circumstances, it cannot be said that the property leviedupon by the sheriff were not of respondents.

Clearly, petitioner ceased its business operations in order to evadethe payment to private respondents of back wages and to bar their

reinstatement to their former positions. HPPI is obviously a business

conduit of petitioner corporation and its emergence was skillfully

orchestrated to avoid the financial liability that already attached to

petitioner corporation.

In the case at bar, to effect a levy upon the property subject of theexecution, private respondents had no other recourse but to apply

for a break-open order after the third-party claim of HPPI was

dismissed for lack of merit by the NLRC. This is in consonance withSection 3, Rule VII of the NLRC Manual of Execution of Judgment.

Hence, the NLRC did not commit any grave abuse of discretion whenit affirmed the break-open order issued by the Labor Arbiter.

WHEREFORE, the petition is DISMISSED


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KOPPEL (PHILIPPINES), INC., plaintiff-appellant,vs.ALFREDO L. YATCO, Collector of Internal Revenue, defendant-appellee.

Plaintiff Koppel, Phils. is a corporation duly organized and existing under

and by virtue of the laws of the Philippines, whose capital stock wasdivided into 1,000 shares. 995 of which is owned by Koppel Industrial Car

and Equipment Co., a foreign corp organized and existing under the laws

of Pen., USA, not engaged to do business in the Phils. And the remaining

five (5) shares only were and are owned one each by officers of the

plaintiff corporation.

Plaintiff is duly licensed to engage in business as a merchant andcommercial broker was and is the holder of the corresponding

merchant's and commercial broker's privilege tax receipts.

Sometime in February, 1929, Miguel J. Ossorio, of Manila, Philippines,placed an option with Koppel Industrial Car and Equipment Company,

through plaintiff, to purchase within three months a pair of Atlas-Diesel

Marine Engines.

Koppel Industrial purchased said diesel engines for $16,508.32. Mr.Miguel J. Ossorio, called the deal off, and as Koppel Industrial Car and

Equipment Company could not ship to or draw on said it in turn drew

another draft on plaintiff for the same amount at six months sight, with

the understanding that Koppel Industrial Car and Equipment Company

would reimburse plaintiff when said engines were disposed of. Plaintiffhonored the draft and debited the said sum of $16,508.32 to

merchandise account.

A new local buyer, Mr. Cesar Barrios, of Iloilo, Philippines, was found andthe same engines were sold to him for $21,000. A draft for $21,000 was

drawn by Koppel Industrial Car and Equipment Company on Mr. Cesar

Barrios. After the draft was fully paid by Mr. Barrios, Koppel Industrial Car

and Equipment Company reimbursed plaintiff with cost price of

$16,508.32 and credited it with $1,152.95 as its share of the profit on the

transaction. Defendant demanded of the plaintiff the sum of P64,122.51 as the

merchants' sales tax of 1% per cent on the amount of P3,772,403.82,

representing the total gross value of the sales including the 25 per cent

surcharge for the late payment of the said tax, which tax and surcharge

were determined after the amount of P5,288.05 mentioned in paragraph

VI hereof was deducted.

Plaintiff, on October 30, 1936, paid under protest said sum of P64,122.51in order to avoid further penalties, levy and distraint proceedings.

Defendant overruled plaintiff's protest, and defendant fails and refuses,notwithstanding demands by plaintiff, to return to the plaintiff said sum

of P64,122.51 or any part thereof.

The lower court found and held that Koppel (Philippines), Inc. is a meredummy or brach ("hechura") of Koppel industrial Car and Equipment


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Company. The lower court did not deny legal personality to Koppel

(Philippines), Inc. for any and all purposes, but in effect its conclusion was

that, in the transactions involved herein, the public interest and

convenience would be defeated and what would amount to a tax evasion

perpetrated, unless resort is had to the doctrine of "disregard of the

corporate fiction."

RULING:

Appellant submits that the trial court erred in not holding that it is adomestic corporation distinct and separate from and not a mere branch

of Koppel Industrial Car and Equipment Company. It contends that its

corporate existence as Philippine corporation can not be collaterally

attacked and that the Government is estopped from so doing.

The lower court is correct in holding that in the interest of the public andconvenience, it is correct to resort to the doctrine of disregard of the

corporate fiction so as to avoid tax evasion.

In other words, in the particular transactionsinvolved in the case thecourt did so in order to prevent the contravention of the local internal

revenue laws, and the perpetration of what would amount to a tax

evasion, that appellant Koppel (Philippines), Inc. was a mere branch or

agency or dummy ("hechura") of Koppel Industrial Car and Equipment Co.

The court did not hold that the corporate personality of Koppel

(Philippines), Inc., would also be disregarded in other cases or for otherpurposes. It would have had no power to so hold.

The courts' action in this regard must be confined to the transactionsinvolved in the case at bar "for the purpose of adjudging the rights and

liabilities of the parties in the case. They have no jurisdiction to do more."

SC find that, in so far as the sales involved herein are concerned, Koppel(Philippines), Inc., and Koppel Industrial Car and Equipment company are

to all intents and purposes one and the same; or, to use another mode of

expression, that, as regards those transactions, the former corporation is

a mere branch, subsidiary or agency of the latter


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24

G.R. No. 127181 September 4, 2001

LAND BANK OF THE PHILIPPINES, petitioner,

vs.

THE COURT OF APPEALS, ECO MANAGEMENT CORPORATION andEMMANUEL C. OATE, respondents.

appellant LBP extended a series of credit accommodations to appelleeECO, using the trust funds of the Philippine Virginia Tobacco

Administration (PVTA) in amount of P26,109,000.00. The proceeds of the

credit accommodations were received on behalf of ECO by appellee

Oate.

When the loan falls due, ECO failed to pay the amount despite repeateddemands.

A Plan of Payment was submitted by ECO to LBP where the formerwould set up a financing company which would absorb the loan

obligations and LBP would participate in the scheme through the

conversion of P9,000,000.00 which was part of the total loan, into equity.

LBP advised Eco that they may proceed with the plan but LBP shall notparticipate in the undertaking in any manner whatsoever.

The Trust Committee however rejected the Plan of Payment. LBP thensent a letter to the PVTA for the latters comments which also statesthat

if LBP did not hear from PVTA within five (5) days from the latters receipt

of the letter, such silence would be construed to be an approval of LBPs

intention to file suit against ECO and its corporate officers. PVTA did not

respond to the letter.

Landbank filed a complaint for Collection of Sum of Money against ECOand Emmanuel C. Oate before the Regional Trial Court of Manila which

rendered a judgment in favor of LBP but absolved Onate from the liability

due to insufficiency of funds.

Both parties filed their respective MRs.

ISSUE:

(1) whether or not the corporate veil of ECO Management Corporation should

be pierced; and

(2) whether or not Emmanuel C. Oate should be held jointly and severally

liable with ECO Management Corporation for the loans incurred from Land

Bank.

RULING:

A corporation, upon coming into existence, is invested by law with apersonality separate and distinct from those persons composing it as well

as from any other legal entity to which it may be related. By this


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attribute, a stockholder may not, generally, be made to answer for acts

or liabilities of the said corporation, and vice versa.

This separate and distinct personality is, however, merely a fictioncreated by law for convenience and to promote the ends of justice. It

may not be used when the fiction is used to defeat public convenience,

justify wrong, protect fraud, defend crime, confuse legitimate legal orjudicial issues, perpetrate deception or otherwise circumvent the law.

This is likewise true where the corporate entity is being used as an alterego, adjunct, or business conduit for the sole benefit of the stockholders

or of another corporate entity.

In all these cases, the notion of corporate entity will be pierced ordisregarded with reference to the particular transaction involved.

The mere fact that Oate owned the majority of the shares of ECO is not

a ground to conclude that Oate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital

stock of a corporation is not by itself sufficient reason for disregarding

the fiction of separate corporate personalities.

That respondent corporation in this case was being used as a mere alterego of Oate to obtain the loans had not been shown. Bad faith or fraud

on the part of ECO and Oate was not also shown.

Oate volunteered to pay a portion of the corporations debt.26 Thisoffer demonstrated good faith on his part to ease the debt of the

corporation of which he was a part. the petition is DENIED for lack of merit.


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26

G. C. ARNOLD, plaintiff-appellant,vs.WILLITS & PATTERSON, LTD., defendant-appellee.

-, the plaintiff was in the employ of the International Banking Corporation of

Manila, and it is conceded that he is a competent and experienced businessman.

- C. D. Willits and I. L. Patterson were partners doing business in SanFrancisco, California, under the name of Willits & Patterson

- The plaintiff was then in San Francisco, and as a result of negotiations theplaintiff and the firm entered into a written contract by which the plaintiff was

employed as the agent of the firm in the Philippine Islands for certain purposes

for the period of five years

- A dispute arose between the plaintiff and the firm as to the amount whichplaintiff should receive for his services.

- Meanwhile Patterson retired from the firm and Willits became the sole owner

of its assets. For convenience of operation and to serve his own purpose, Willitsorganized a corporation under the laws of California with its principal office at

San Francisco, in and by which he subscribed for, and became the exclusive

owner of all the capital stock except a few shares for organization purposesonly, and the name of the firm was used as the name of the corporation.

- A short time after that Willits came to Manila and organized a corporation

here known as Willits & Patterson, Ltd., in and to which he again subscribedfor 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.


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27

YUTIVO SONS HARDWARE CO vs CTA

- Yutivo is a domestic corporation engaged in importation and sale of hardwaresupplies and equipment. After the liberation in 1946, resumed its business and

until 1946 bought a number of cards and trucks from General Motors, an

American Corp doing business in the Phil. As importer, GM paid sales taxprescribed by the Tax Code on the basis of its selling price to Yutivo. Yutivopaid no further sales tax on its sales to the public

- In June 1946, Southern Motors organized to engage in the business of selling

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

founder of Yutivo. After the incorporation of SM and until the withdrawal ofGM from the Phil, the cars and trucks were purchased by Yutivo from GM thensold 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 salesto public

- CIR made an assessment and charged YUtivo 1.8M deficiency tax plus

surcharge. Petitioner contested it before CTA. CTA ruled that SM is a mere

subsidiary or instrumentality of Yutivo, hence, its separate corporate existencemust be disregarded

DECISION of the SC

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

corporation is an entity separate and distinct from its stockholders and fromother 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 anassociation of persons, or in the case of two corporations merge them into one.

- After going over the voluminous record of the present case, we are inclined torule 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 whenit 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 andtrucks. The sales tax liability of Yutivo did not arise until July 1, 1947 when itbecame 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 taxevasion device runs counter to the fact that there was no tax to evade.


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- At this juncture, it should be stated that the intention to minimize taxes, when

used in the context of fraud, must be proved to exist by clear and convincing

evidence amounting to more than mere preponderance, and cannot be justifiedby a mere speculation. This is because fraud is never lightly to be presumed.

- We are, however, inclined to agree with the court below that SM was actuallyowned and controlled by petitioner as to make it a mere subsidiary or branch of

the latter created for the purpose of selling the vehicles at retail and maintainingstores for spare parts as well as service repair shops. It is not disputed that the

petitioner, which is engaged principally in hardware supplies and equipment, iscompletely controlled by the Yutivo, Young or Yu family.

- 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 vehiclesallegedly sold by Yutivo to SM as well as advances or loans for the expenses of

the latter when the capital had been exhausted.

- SM being a mere instrumentality or adjunct of Yutivo, the CTA correctlydisregarded the technical defense of separate corporate entity in order to arriveat the true tax liability of Yutivo.


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29

LIDDELL vs CIR

corporate entity was used to evade the payment of higher taxes

The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic

corporation. Out of the 200 authorized stocks, 196 were owned by FrankLiddell wile the other 4 shares were subscribed and paid by Charles Kurz, EJ

Darras, Angel Manzano and Julian Serrano at one share each.

The company is engaged in the importing and retailing of Oldsmobile and

Chevrolet passenger cars and GMC and Chevrolet trucks.

The purpose clause of the Articles of Incorporation of Liddell & Co. Inc., was

then amended so as to limit its business activities to importations of

automobiles and trucks.

Later, Liddell Motors, Inc. was organized where Frank Liddells wife owned19,996 shares out of the 20,000 capital stocks 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 vehiclesto 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 itsoriginal sales.

Upon review of the transactions between Liddell & Co. and Liddell Motors,

Inc. the Collector of Internal Revenue determined that the latter was but an alter

ego of Liddell & Co. Wherefore, he concluded, that for sales tax purposes,those sales made by Liddell Motors, Inc. to the public were considered as theoriginal sales of Liddell & Co.

The Collector of Internal Revenue assessed against Liddell & Co. a sales taxdeficiency, including surcharges, in the amount of P1,317,629.61.

The Court of Tax Appeals upheld the position taken by the Collector of Internal

Revenue.

ISSUE: whether or not Liddell Motors, Inc. is the alter ego of Liddell & Co.

Inc.

RULING:

The court found as regards to Liddell and Co. that: (1) that Frank Liddell had

the authority to designate in the future the employee who could receive


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earnings of the corporation; to apportion among the stock holders the share in

the profits; (2) that all certificates of stock in the names of the employees

should be deposited with Frank Liddell duly indorsed in blank by the

employees concerned; (3) that each employee was required to sign an

agreement with the corporation to the effect that, upon his death or upon hisretirement or separation for any cause whatsoever from the corporation, the

said corporation should, within a period of sixty days therefor, have the

absolute and exclusive option to purchase and acquire the whole of the stockinterest of the employees so dying, resigning, retiring or separating.

As to Liddell Motors, Inc. The SC is fully persuaded that Frank Liddell alsoowned 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 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.

Thus SC said that to allow a taxpayer to deny tax liability on the ground thatthe 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 oneand the same is to sanction a circumvention of our tax laws.

Wherefore in filing its return on the basis of its sales to Liddell Motors, Inc.

and not on those by the latter to the public, it cannot be held that the Liddell &Co., Inc. deliberately made a false return for the purpose of defrauding the

government of its revenue, and should suffer a 50% surcharge. But instead paya penalty of 25% for late payment.

The decision appealed from is hereby modified: Liddell & Co., Inc. is declared

liable only for the amount of P426,811.67 with 25% surcharge for late paymentand 6% interest thereon from the time the judgment becomes final.


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MARIANO vs PETRON CORPO

- ESSO Standard Eastern, Inc., (ESSO Eastern), a foreign corporation doingbusiness in the country through its subsidiary ESSO Standard Philippines, Inc.

(ESSO Philippines) leased a parcel of land located in Tagaytay City for 90

years owned by the AURE Group

- The lease contract (Contract) contained an assignment veto clause barring the

parties from assigning the lease without prior consent of the other. Excludedfrom the prohibition were certain corporations to whom ESSO Eastern mayunilaterally assign its leasehold right.8

- ESSO Eastern sold ESSO Philippines to the Philippine National OilCorporation (PNOC).

- AUre group was not informed of such sale

- ESSO Philippines, whose corporate name was successively changed to

Petrophil Corporation then to Petron Corporation (Petron), took possession ofsaid property.

- Romeo D. Mariano (petitioner) bought the Property from the Aure Group andobtained title to the Property issued in his name bearing an annotation of ESSOEasterns lease

- Five years after he bought the property, petitioner sent Petron a notice tovacate the property but the latter remained in the property

- Petitioner sued Petron to rescind the contrat and recovery of possession

- In its Answer, Petron countered that the Contract was not breached because

PNOC merely acquired ESSO Easterns shares in ESSO Philippines, a separatecorporate entity.

- RTC ordered the rescission of contract and for petron to vacate the property

- CA found merit in petron's appeal, set aside the trial court's ruling

- The Court of Appeals found no reason to pierce ESSO Philippines corporate

veil, treating PNOCs buy-out of ESSO Philippines as mere change in ESSOPhilippines stockholding.

DECISION of the SC


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- SC sustained the ruling of the CA

- PNOCs buy-out of ESSO Philippines was total and unconditional, leaving noresidual rights to ESSO Eastern. Logically, this change of ownership carried

with it the transfer to PNOC of any proprietary interest ESSO Eastern may hold

through ESSO Philippines, including ESSO Easterns lease over the Property.

- As the Aure Group gave no prior consent to the transaction between ESSO

Eastern and PNOC, ESSO Eastern violated the Contracts assignment vetoclause.

- Petrons objection to this conclusion, sustained by the Court of Appeals, isrooted on its reliance on its separate corporate personality and on the unstated

assumption that ESSO Philippines (not ESSO Eastern) initially held the

leasehold right over the Property. Petron is wrong on both counts.

- Courts are loathe to pierce the fictive veil of corporate personality, cognizantof the core doctrine in corporation law vesting on corporations legal personality

distinct from their shareholders (individual or corporate) thus facilitating theconduct of corporate business. However, fiction gives way to reality when the

corporate personality is foisted to justify wrong, protect fraud, or defend crime,

thwarting the ends of justice.21 The fiction even holds lesser sway forsubsidiary corporations whose shares are wholly if not almost wholly owned by

its parent company. The structural and systems overlap inherent in parent andsubsidiary relations often render the subsidiary as mere local branch, agency oradjunct of the foreign parent corporation

- Here, the facts compel the conclusion that ESSO Philippines was a merebranch of ESSO Eastern in the execution and breach of the Contract.

- The breach of contract notwithstanding, we hold that the Contract subsists.

- the continued receipt of lease payments by the Aure Group (and later bypetitioner) despite the contractual breach amounted to a waiver of their optionto eject the lessee.

Documents

Adigested Corpo Cases II