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EN BANC

G.R. No. L-20214 March 17, 1923

G. C. ARNOLD,plaintiff-appellant,

vs.

WILLITS & PATTERSON, LTD.,defendant-appellee.

Fisher, DeWitt, Perkins and Brady for appellant.

Ross and Lawrence for appellee.

STATEMENT

For a number of years prior to the times alleged in the complaint, the plaintiff was in the employ of the International Banking

Corporation of Manila, and it is conceded that he is a competent and experienced business man. July 31, 1916, C. D. Willits and I. L.

Patterson were partners doing business in San Francisco, California, under the name of Willits & Patterson. The plaintiff was then in

San Francisco, and as a result of negotiations the plaintiff and the firm entered into a written contract, known in the record as

Exhibit A, by which the plaintiff was employed as the agent of the firm in the Philippine Islands for certain purposes for the period of

five years at a minimum salary of $200 per month and travelling expenses. The plaintiff returned to Manila and entered on the

discharge of his duties under the contract. As a result of plaintiff's employment and the world war conditions, the business of the

firm in the Philippines very rapidly increased and grew beyond the fondest hopes of either party. A dispute arose between the

plaintiff and the firm as to the construction of Exhibit A as to the amount which plaintiff should receive for his services. Meanwhile

Patterson retired from the firm and Willits became the sole owner of its assets. For convenience of operation and to serve his own

purpose, Willits organized a corporation under the laws of California with its principal office at San Francisco, in and by which he

subscribed for, and became the exclusive owner of all the capital stock except a few shares for organization purposes only, and the

name of the firm was used as the name of the corporation. A short time after that Willits came to Manila and organized a

corporation here known as Willits & Patterson, Ltd., in and to which he again subscribed for all of the capital stock except the

nominal shares necessary to qualify the directors. In legal effect, the San Francisco corporation took over and acquired all of the

assets and liabilities of the Manila corporation. At the time that Willits was in Manila and while to all intents and purposes he was

the sole owner of the stock of corporations, there was a conference between him and the plaintiff over the disputed construction of

Exhibit A. As a result of which another instrument, known in the record as Exhibit B, was prepared in the form of a letter which the

plaintiff addressed to Willits at Manila on November 10, 1919, the purpose of which was to more clearly define and specify thecompensation which the plaintiff was to receive for his services. Willits received and confirmed this letter by signing the name of

Willits & Patterson, By C.d. Willits. At the time both corporations were legally organized, and there is nothing in the corporate

minutes to show that Exhibit B was ever formally ratified or approved by either corporation. After its organization, the Manila

corporation employed a regular accountant whose duty it was to audit the accounts of the company and render financial statements

both for the use of the local banks and the local and parent corporations at San Francisco. From time to time and in the ordinary

course of business such statements of account were prepared by the accountant and duly forwarded to the home office, and among

other things was a statement of July 31, 1921, showing that there was due and owing the plaintiff under Exhibit B the sum of

P106,277.50. A short time previous to that date, the San Francisco corporation became involved in financial trouble, and all of its

assets were turned over to a "creditors' committee." When this statement was received, the "creditors' committee" immediately

protested its allowance. An attempt was made without success to adjust the matter on a friendly basis and without litigation.

January 10, 1922, the plaintiff brought this action to recover from the defendant the sum of P106,277.50 with legal interest and

costs, and written instruments known in the record as Exhibits A and B were attached to, and made a part of, the complaint.

For answer, the defendant admits the formal parts of the complaint, the execution of Exhibit A and denies each and every other

allegation, except as specifically admitted, and alleges that what is known as Exhibit B was signed by Willits without the authority of

the defendant corporation or the firm of Willits & Patterson, and that it is not an agreement which was ever entered into with the

plaintiff by the defendant or the firm, and, as a separate defense and counterclaim, it alleges that on the 30th of June, 1920, there

was a balance due and owing the plaintiff from the defendant under the contract Exhibit A of the sum of P8,741.05. That his salary

from June 30, 1920, to July 31, 1921, under Exhibit A was $400 per month, or a total of P10,400. That about July 6, 1921, the plaintiff

wrongfully took P30,000 from the assets of the firm, and that he is now indebted to the firm in the sum of P10,858.95, with interest

and costs, from which it prays judgement.

The plaintiff admits that he withdrew the P30,000, but alleges that it was with the consent and authority of the defendant, and

denies all other new matter in the answer.

Upon such issues a trial was had, and the lower court rendered judgment in favor of the defendant as prayed for in its counterclaim,

from which the plaintiff appeals, contending that the trial court erred in not holding that the contract between the parties is that

which is embodied in Exhibits A and B, and that the defendant assumed all partnership obligations, and in failing to render judgment

for the plaintiff, as prayed for, and in dismissing his complaint, and denying plaintiff's motion for a new trial.

JOHNS,J.:

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In their respective briefs opposing counsel agree that the important questions involved are "what was the contract under which the

plaintiff rendered services for five years ending July 31, 1921," and "what is due the plaintiff under that contract." Plaintiff contends

that his services were performed under Exhibits A and B, and that the defendant assumed all of the obligations of the original

partnership under Exhibit A, and is now seeking to deny its liability under, and repudiate, Exhibit B. The defendant admits that

Exhibit A was the original contract between Arnold and the firm of Willits & Patterson by which he came to the Philippine Islands,

and that it was therein agreed that he was to be employed for a period of five years as the agent of Willits & Patterson in the

Philippine Islands to operate a certain oil mill, and to do such other business as might be deemed advisable for which he was to

receive, first, the travelling expenses of his wife and self from San Francisco to Manila, second, the minimum salary of $200 permonth, third, a brokerage of 1 per cent upon all purchases and sales of merchandise, except for the account of the coconut oil mill,

fourth, one-half of the profits on any transaction in the name of the firm or himself not provided for in the agreement. That the

agreement also provided that if it be found that the business was operated at a loss, Arnold should receive a monthly salary of $400

during such period. That the business was operated at a loss from June 30, 1920, to July 31, 1921, and that for such reason, he was

entitled to nothing more than a salary of $400 per month, or for that period P10,400. Adding this amount to the P8,741.05, which

the defendant admits he owed Arnold on June 30, 1920, makes a total of P19,141.05, leaving a balance due the defendant as set out

in the counterclaim. In other words, that the plaintiff's compensation was measured by, and limited to, the above specified

provisions in the contract Exhibit A, and that the defendant corporation is not bound by the terms or provisions of Exhibit B, which is

as follows:

WILLITS & PATTERSON, LTD.

MANILA, P. I., Nov. 10, 1919.

CHAS. D. WILLITS, Esq.,

Present.

DEAR MR. WILLITS: My understanding of the intent of my agreement with Willits & Patterson is as under:

Commissions.Willits & Patterson, San Francisco, pay me a commission of one per cent on all purchases

made for them in the Philippines or sales made to them by Manila and one per cent on all sales made for

them in the Philippines, or purchases made from them by Manila. If such purchases or sales are on an f. o.

b. basis the commission is on the f. o. b. price; if on a c. i. f. basis the commission is computed on the c. i.f. price

These commissions are credited to me in San Francisco.

I do not participate in any profits on business transacted between Willits & Patterson, San Francisco, and

Willits & Patterson, Ltd., Manila.

Profits.On all business transacted between Willits & Patterson, Ltd. and others than Willits & Patterson,

San Francisco, half the profits are to be credited to my account and half to the Profit & Loss account of

Willits & Patterson, Ltd., Manila.

On all other business, such as the Cooperative Coconut Products Co. account, or any other business wemay undertake as agents or managers, half the profits are to be credited to my account and half to the

Profit & Loss account of Willits & Patterson, Ltd., Manila.

Where Willits & Patterson, San Francisco, or Willits & Patterson, Ltd., Manila, have their own funds

invested in the capital stock or a corporation, I of course do not participate in the earnings of such stock,

any more than Willits & Patterson would participate in the earnings of stock held by me on my account.

If the foregoing conforms to your understanding of our agreement, please confirm below.

Yours faithfully,

(Sgd.) G. C. ARNOLD

Confirmed:

WILLITS & PATTERSON

By (Sgd.) CHAS. D. WILLITS

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There is no dispute about any of the following facts: That at the inception C.D. Willits and I. L. Patterson constituted the firm of

Willits & Patterson doing business in the City of San Francisco; that later Patterson retired from the firm, and Willits acquired all of

his interests and thereafter continued the business under the name and style of Willits & Patterson; that the original contract Exhibit

A was made between the plaintiff and the old firm at San Francisco on July 31, 1916, to cover a period of five years from that date;

that plaintiff entered upon the discharged of his duties and continued his services in the Philippine Islands to someone for the period

of five years; that on November 10, 1919, and as a result of conferences between Willits and the plaintiff, Exhibit B was addressed

and signed in the manner and form above stated in the City of Manila. A short time prior to that date Willits organized a corporation

in San Francisco, in the State of California, which took over and acquired all of the assets of the firm's business in Califo rnia thenbeing conducted under the name and style of Willits & Patterson; that he subscribed for all of the capital stock of the corporation,

and that in truth and in fact he was the owner of all of its capital stock. After this was done he caused a new corporation to be

organized under the laws of the Philippine Islands with principal office at Manila, which took over and acquired all the business and

assets of the firm of Willits & Patterson in the Philippine Islands, in and to which, in legal effect, he subscribed for all of its capital

stock, and was the owner of all of its stock. After both corporations were organized the above letter was drafted and signed. The

plaintiff contends that the signing of Exhibit B in the manner and under the conditions in which it was signed, and through the

subsequent acts and conduct of the parties, was ratified and, in legal effect, became and is now binding upon the defendant.

It will be noted that Exhibit B was executed in Manila, and that at the time it was signed by Willits, he was to all intents and purposes

the legal owner of all the stock in both corporations. It also appears from the evidence that the parent corporation at San Francisco

took over and acquired all of the assets and liabilities of the local corporation at Manila. That after it was organized the Manila

corporation kept separate records and account books of its own, and that from time to time financial statements were made andforwarded to the home office, from which it conclusively appears that plaintiff was basing his claim for services upon Exhibit A, as it

was modified by Exhibit B. That at no time after Exhibit B was signed was there ever any dispute between plaintiff and Willits as to

the compensation for plaintiff's services. That is to say, as between the plaintiff and Willits, Exhibit B was approved, followed and at

all times in force and effect, after it was signed November 10, 1919. It appears from an analysis of Exhibit B that it was for the

mutual interest of both parties. From a small beginning, the business was then in a very flourishing conditions and growing fast, and

the profits were very large and were running into big money.

Among other things, Exhibit A provided: "(a) That the net profits from said coconut oil business shall be divided in equal shares

between the said parties hereto; (b) that Arnold should receive a brokerage of 1 per cent from all purchases and sales of

merchandise, except for the account of the coconut mills; (c) that the net profits from all other business should be divided in equal

half shares between the parties hereto."

Under the above provisions, the plaintiff might well contend that he was entitled to one-half of all the profits and a brokerage of 1

per cent from all purchases and sales, except those for the account of the coconut oil mills, which under the volume of business then

existing would run into a very large sum of money. It was for such reason and after personal conferences between them, and to

settle all disputed questions, that Exhibit B was prepared and signed.

The record recites that "the defendant admits that from July 31, 1916 to July 31, 1921, the plaintiff faithfully performed all the duties

incumbent upon him under his contract of employment, it being understood, however, that this admission does not include an

admission that the plaintiff placed a proper interpretation upon his right to remuneration under said contract of employment."

It being admitted that the plaintiff worked "under his contract of employment" for the period of five years, the question naturally

arises, for whom was he working? His contract was made with the original firm of Willits & Patterson, and that firm was dissolved

and it ceased to exist, and all of its assets were merged in, and taken over by, the parent corporation at San Francisco. In the very

nature of things, after the corporation was formed, the plaintiff could not and did not continue to work for the firm, and, yet, he

continued his employment for the full period of five years. For whom did he work after the partnership was merged in the

corporation and ceased to exist?

It is very apparent that, under the conditions then existing, the signing of Exhibit B was for the mutual interests of both parties, a nd

that if the contract Exhibit A was to be enforced according to its terms, that Arnold might well contend for a much larger sum of

money for his services. In truth and in fact Willits and both corporations recognized his employment and accepted the benefits of his

services. He continued his employment and rendered his services after the corporation were organized and Exhibit B was s igned just

the same as he did before, and both corporations recognized and accepted his services. Although the plaintiff was president o f the

local corporation, the testimony is conclusive that both of them were what is known as a one man corporation, and Willits, as the

owner of all of the stock, was the force and dominant power which controlled them. After Exhibit B was signed it was recognized by

Willits that the plaintiff's services were to be performed and measured by its term and provisions, and there never was any dispute

between plaintiff and Willits upon that question.

The controversy first arose after the corporation was in financial trouble and the appointment of what is known in the record as a

"creditors' committee." There is no claim or pretense that there was any fraud or collusion between plaintiff and Willits, and it is

very apparent that Exhibit B was to the mutual interest of both parties. It is elementary law that if Exhibit B is a binding contract

between the plaintiff and Willits and the corporations, it is equally binding upon the creditors' committee. It would not have any

higher or better legal right than the corporation itself, and could not make any defense which it could not make. It is very significant

that the claim or defense which is now interposed by the creditors' committee was never made or asserted at any previous time by

the defendant, and that it never was made by Willits, and it is very apparent that if he had remained in control of the corporation, it

would never have made the defense which is now made by the creditors' committee. The record is conclusive that at the time he

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signed Exhibit B, Willits was, in legal effect, the owner and holder of all the stock in both corporations, and that he approved it in

their interest, and to protect them from the plaintiff having and making a much larger claim under Exhibit A. As a matter of fact, it

appears from the statement of Mr. Larkin, the accountant, in the record that if plaintiff's cause of action was now founded upon

Exhibit A, he would have a claim for more than P160,000.

Thompson on Corporations, 2d ed., vol. I, section 10, says:

The proposition that a corporation has an existence separate and distinct from its membership has its limitations. It must

be noted that this separate existence is for particular purposes. It must also be remembered that there can be no corporate

existence without persons to compose it; there can be no association without associates. This separate existence is to a

certain extent a legal fiction. Whenever necessary for the interests of the public or for the protection or enforcement of the

rights of the membership, courts will disregard this legal fict ion and operate upon both the corporation and the persons

composing it.

In the same section, the author quotes from a decision in 49 Ohio State, 1371; 15 L. R. A., 145, in which the Supreme Court of Ohio

says:

"So long as a proper use is made of the fiction that a corporation is an entity apart from its shareholders, it is harmless, and,

because convenient, should not be called in question; but where it is urged to an end subversive of its policy, or such is the

issue, the fiction must be ignored, and the question determined whether the act in question, though done by shareholders,that is to say, by the persons uniting in one body, was done simply as individuals, and with respect to their individual

interest as shareholders, or was done ostensibly as such, but, as a matter of fact, to control the corporation, and affect the

transaction of its business, in the same manner as if the act had been clothed with all the formalities of a corporate act. This

must be so, because, the stockholders having a dual capacity, and capable of acting in either, and a possible interest to

conceal their character when acting in their corporate capacity, the absence of the formal evidence of the character of the

act cannot preclude judicial inquiry on the subject. If it were otherwise, then in that department of the law fraud would

enjoy an immunity awarded to it in no other."

Where the stock of a corporation is owned by one person whereby the corporation functions only for the benefit of such

individual owner, the corporation and the individual should be deemed to be the same. (U. S. Gypsum Co. vs. Mackay Wall

Plaster Co., 199 Pac., 249.)

Ruling Case Law, vol. 7, section 663, says:

While of course a corporation cannot ratify a contract which is strictly ultra vires, and which it in the first instance could not

have made, it may by ratification render binding on it a contract, entered into on its behalf by its officers or agents without

authority. As a general rule such ratification need not be manifested by any voted or formal resolution of the corporation or

be authenticated by the corporate seal; no higher degree of evidence is requisite in establishing ratification on the part of a

corporation, than is requisite in showing an antecedent authorization.

x x x x x x x x x

SEC. 666. The assent or approval of a corporation to acts done on its account may be inferred in the same manner that the

absent of a natural person may be, and it is well settled that where a corporation with full knowledge of the unauthorizedact of its officer or agents acquiesces in and consents to such acts, it thereby ratifies them, especially where the

acquiescence results in prejudice to a third person.

x x x x x x x x x

SEC. 669. So, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to

manage its affair, his authority to represent the corporation may be inferred from the manner in which he has been

permitted by the directors to transact its business.

SEC. 656. In accordance with a well-known rule of the law of agency, notice to corporate officers or agents within the scope

or apparent scope of their authority is attributed to the corporation.

SEC. 667. As a general rule, if a corporation with knowledge of its agents unauthorized act received and enjoys the benefits

thereof, it impliedly ratifies the unauthorized act if it is one capable of ratification by parol.

In its article on corporations, Corpus Juris, in section 2241 says:

Ratification by a corporation of a transaction not previously authorized is more easily inferred where the corporation

receives and retains property under it, and as a general rule where a corporation, through its proper officers or board, takes

and retains the benefits of the unauthorized act or contract of an officer or agent, with full knowledge of all the material

facts, it thereby ratifies and becomes bound by such act of contract, together with all the liabilities and burdens resulting

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therefrom, and in some jurisdiction this rule is, in effect, declared by statute. Thus the corporation is liable on the ground of

ratification where, with knowledge of the facts, it accepts the benefit of services rendered under an unauthorized contract

of employment . . . .

Applying the law to the facts.

Mr. Larkin, an experienced accountant, was employed by the local corporation, and from time to time and in the ordinary course of

business made and prepared financial statements showing its assets and liabilities, true copies of which were sent to the home

office in San Francisco. It appears upon their face that plaintiff's compensation was made and founded on Exhibit B, and that such

statements were made and prepared by the accountant on the assumption that Exhibit B was in full force and effect as between the

plaintiff and the defendant. In the course of business in the early part of 1920, plaintiff, as manager of the defendant, sold 500 tons

of oil for future delivery at P740 per ton. Due to break in the market, plaintiff was able to purchase the oil at P380 per to n or a profit

of P180,000.

It appears from Exhibit B under the heading of "Profits" that:

On all the business transacted between Willits & Patterson, Ltd. and others than Willits & Patterson, San Francisco, half the

profit are to be credited to may account and half to the Profit & Loss account Willits & Patterson, Ltd., Manila.

The purchasers paid P105,000 on the contracts and gave their notes for P75,000, and it was agreed that all of the oil purchased

should be held as security for the full payment of the purchase price. As a result, the defendant itself received the P105,000 in cash,

P75,000 in notes, and still holds the 500 tons of oil as security for the balance of the purchase price. This transaction was shown in

the semi-annual financial statement for the period ending December 31, 1920. That is to say, the business was transacted by and

through the plaintiff, and the defendant received and accepted all of the profits on the deal, and the statement which was rendered

gave him a credit for P90,737.88, or half the profit as provided in the contract Exhibit B, with interest.

Although the previous financial statements show upon their face that the account of plaintiff was credit with several small items on

the same basis, it was not until the 23d of March, 1921, that any objection was ever made by anyone, and objection was made for

the first time by the creditors' committee in a cable of that date.

As we analyze the facts Exhibit B was, in legal effect, ratified and approved and is now binding upon the defendant corporation, and

the plaintiff is entitled to recover for his services on that writing as it modified the original contract Exhibit A.

It appears from the statement prepared by accountant Larkin founded upon Exhibit B that the plaintiff is entitled to recover

P106,277.50. It is very apparent that his statement was based upon the assumption that there was a net profit of P180,000 on the

500 tons of oil, of which the plaintiff was entitled to one-half.

In the absence of any other proof, we have the right to assume that the 500 tons of oil was worth the amount which the defendant

paid for them at the time of the purchase or P380 per ton, and the record shows that the defendant took and now has the

possession of all of the oil secure the payment of the price at which it was sold. Hence, the profit on the deal to the defendant at the

time of the sale would amount to the difference between what the defendant paid for the oil and the amount which it received for

the oil at the time it sold the oil. It appears that at the time of the sale the defendant only received P105,000 in cash, and that it took

and accepted the promissory notes of Cruz & Tan Chong Say, the purchasers, for P75,000 more which have been collected and may

never be. Hence, it must follow that the amount evidence by the notes cannot now be deemed or treated as profits on the deal andcannot be until such times as the notes are paid.

The judgment of the lower court is reversed, and a money judgment will be entered here in favor of the plaintiff and against the

defendant for the sum of P68,527.50, with thereon at the rate of 6 per cent per annum from the 10th day of January, 1922. In

addition thereto, judgment will be rendered against the defendant in substance and to the effect that the plaintiff is the owner of an

undivided one-half interest in the promissory notes for P75,000 which were executed by Cruz & Tan Chong Say, as a part of the

purchase price of the oil, and that he is entitled to have and receive one-half of all the proceeds from the notes or either of them,

and that also he have judgment against the defendant for costs. So ordered.

Araullo, C. J., Street, Malcolm, Avancea, Ostrand, and Romualdez, JJ., concur.

Arnold vs. Willits and Patterson

1916. The Firm Willits & Patterson in San Francisco entered into a contract with Arnold whereby Arnold was to beemployed for a period of five years as the agent of the firm here in the PI to operate an oil mill for which he was to receive a

minimum salary of $200/mth, a 1% brokerage fee from all purchases and sales of merchandise, and half of the profits of the

oil business and other businesses. provided if the business was at a loss, Arnold would receive $400/mth.

Later, Patterson retired and Willits acquired all interests of the business.

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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 theKalipunan 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.

We have it from the court's order of January 15, 1952, which forms one of the annexes to the present petition, that following the

revocation of the Kaisahan's permit, "La Campana Gaugau and Coffee Factory" (obviously the combined name of La Campana

Gaugau Packing and La Campana Coffee Factory Co., Inc,) and the PLOW, which had been allowed to intervene as a party having an

interest in the dispute, filed separate motions for the dismissal of the case on the following grounds:

1. That the action is directed against two different entities with distinct personalities, with "La Campana Starch Factory" and

the "La Campana Coffee Factory, Inc.";

2. That the workers of the "La Campana Coffee Factory, Inc." are less than thirty-one;

3. That the petitioning union has no legal capacity to sue, because its registration as an organized union has been revoked

by the Department of Labor on September 5, 1951; and

4. That there is an existing valid contract between the respondent "La Campana Gaugau Packing" and the intervenor PLOW,

where-in the petitioner's members are contracting parties bound by said contract.

Several hearings were held on the above motions, in the course of which ocular inspections were also made, and on the basis o f 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

stockhelders (Exhibit 1), 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 (Exhibits M-2 and M-3, and for the gaugau factory (Exhibits

O-2, O-3 and O-4). It is to be noted that before July 21, 1951, the coffee payrolls all began with number "41-Maria

Villanueva" with 24 or more laborers (Exhibits M and M-1), whereas beginning July 21, 1951, the payrolls for the coffee

factory began with No. 1-Loreta Bernabe with only 14 laborers (Exhibits M-2 and M-3).

F. During the ocular inspection made in the factory on August 26, 1951 the Court has found the following:

In the ground floor and second floor of the gaugau factory there were hundreds of bags of raw coffee behind the pile of

gaugau sacks. There were also women employees working paper wrappers for gaugau, and, in the same place there were

about 3,000 cans to be used as containers for coffee.

The Court found out also that there were 16 trucks used both for the delivery of coffee and gaugau. To show that those

trucks carried both coffee and gaugau, the union president invited the Court to examine the contents of delivery truck No.

T-582 parked in a garage between the gaugau building and the coffee factory, and upon examination, there were found

inside the said truck boxes of gaugau and cans of coffee,

and held that:

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. . . there is only one management for the business of gaugau and coffee with whom the laborers are dealing regarding their

work. Hence, the filing of action against the Ka Campana Starch and Coffee Factory is proper and justified.

With regards to the alleged lack of personality, it is to be noted that before the certification of the case to this Court on July

17, 1951, the petitioner Kaisahan Ng Mga Manggagawa Sa La Campana, had a separate permit from the Department of

Labor. This permit was suspended on September 30, 1951. (Exhibit M-Intervenor, page 55, of the record). It is not true that,

on July 17, 1951, when this case forwarded to this Court, the petitioner's permit, as an independent union, had not yet

been issued, for the very Exhibit MM-Intervenor regarding the permit, conclusively shows the preexistence of said permit.

(Annex G.)

Their motion for reconsideration of the above order having been denied, Tan Tong and La Campana Coffee Factory, Inc. (same as La

Campana Coffee Factory Co., Inc.), later joined by the PLOW, filed the present petition for certiorari on the grounds that the Court of

Industrial Relations had no jurisdiction to take cognizance of the case, for the reason, according to them, "(1) that the petitioner La

Campana Coffee Factory, Inc. has only 14 employees, only 5 of whom are members of the respondent union and therefore the

absence of the jurisdictional number (30) as provided by sections 1 and 4 of Commonwealth Act No. 103; and, (2) that the

suspension of respondent union's permit by the Secretary of Labor has the effect of taking away the union's right to collective

bargaining under section 2 of Commonwealth Act No. 213 and consequently, its personality to sue for ad in behalf of its members."

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 industrialcourt 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 ofjustice, 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 gaugaufactory 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.

The second point raised by petitioners is likewise with-out merit. In the first place, there being more than 30 laborers involved and

the Secretary of Labor having certified the dispute to the Court of Industrial Relations, that court duly acquired jurisdiction over the

case (International Oil Factory vs.NLU, Inc. 73 Phil., 401; section 4, C. A. 103). This jurisdiction was not when the Department of

Labor suspended the permit of the respondent Kaisahan as a labor organization. For once jurisdiction is acquired by the Court of

Industrial Relations it is retained until the case is completely decided. (Manila Hotel Employees Association vs.Manila Hotel Co. et

al., 73 Phil., 374.)

In view of the foregoing, the petition is denied, with costs against the petitioner.

Paras, C.J., Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo, Bautista Angelo and Labrador, JJ., concur.

La Compana Coffee Factory Inc. vs. Kaisahan ng mga manggagawa sa La Campana

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Tan Tong has been engaged in the business of buying and selling guagua under the trade name La Campana Guagua

Packing. Later, Tan Tong and his family organized a family corporation known as La Campana Coffee Factory Co. Inc, with its

principal office located in the same place as that of La Campana Guagua Packing.

A year before the formation of the corporation, Tan Tong had entered into a CBA with the Phil. Legion of Organized

Workers (PLOW) to which the union of Tan Tongs employees was affiliated. Said employees later formed their organization known

as Kaisahan Ng Mga Manggagawa sa La Campana and applied for registration in the Dept. of Labor as an independent entity.

The Kaisahan Ng Mga Manggagawa Sa La Campana, composed of 66 members consisting of both members of LCGP and

LCCF, presented a demand for higher wages and more privileges addressed to La Campana Starch and Coffee Factory, by which

name they sought to designate the LCGP and the LCCF. However, the demand was not granted and the attempt to settle the

matter through mediation had given no result. So the Dept. of Labor certified the dispute to the Court of Industrial Relation s.

The 2 corpos as combined and the PLOW moved for the dismissal of the case which includes the ground, among others,

that the action is directed against 2 different entities with distinct personalities the La Campana Starch Factory and the La

Campana Coffee Factory Inc. CIR denied. MR was filed on the grounds that CIR had no jurisdiction to take cognizance of the case

for the reason, among others, that the petitioner La Campana Coffee Factory, has only 14 employees, only 5 of whom are

members of the respondent union and therefore the absence of the jurisdictional number of 30.

ISSUE WON THE CIR HAS JURISDICTION

HELD YES. CIR HAS JURISDICTION bec the number of employees of the La Campana Gaugau Packing involved in thecase is more than the jurisdictional number (31) required by law.

La Campana Gaugau Packing and La Campana Coffee Factory are operating under one single mgt, that is, as one business

though with 2 trade names. It is true that the coffee factory is a corpo and, by legal fiction, an entity existing separate and apart

from 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.

In the present case, Tan Tong appears to be the owner of the gaugau factory. And the coffee factory, though an

incorporated business, is in reality owned exclusively by Tan Tong and his family. As found by the CIR:

The 2 factories have only 1 office, 1 mgt and 1 payroll The laborers of the gaugau factory and the coffee factory were interchangeable laborers from the gaugau factory were

sometimes transferred to the coffee factory and vice-versa

Thus, the attempt to make the 2 factories appear as 2 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 shld not be permitted to prevail.

Yutivo Sons Hardware Co. vs. CTAPost undercase digests,Commercial Law atWednesday, March 07, 2012 Posted by Schizophrenic Mind

Facts:Yutivo, a domestic corporation incorporated in 1916 under Philippine laws, was engaged in the importation and sale

ofhardware supplies and equipment. After the first world war, it resumed its business and bought a number of cars and trucks from

General Motors(GM), an American Corporation licensed to do business in the Philippines.

http://coffeeafficionado.blogspot.com/2012/03/yutivo-sons-hardware-co-vs-cta.htmlhttp://coffeeafficionado.blogspot.com/search/label/case%20digestshttp://coffeeafficionado.blogspot.com/search/label/Commercial%20Lawhttp://coffeeafficionado.blogspot.com/2012/03/yutivo-sons-hardware-co-vs-cta.htmlhttp://coffeeafficionado.blogspot.com/2012/03/yutivo-sons-hardware-co-vs-cta.htmlhttp://coffeeafficionado.blogspot.com/search/label/Commercial%20Lawhttp://coffeeafficionado.blogspot.com/search/label/case%20digestshttp://coffeeafficionado.blogspot.com/2012/03/yutivo-sons-hardware-co-vs-cta.html

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On June 13, 1946, the Southern Motors Inc,(SM) was organized to engage in the business of selling cars, trucks and spare parts. One

of the subscribers of stocks during its incorporation was Yu Khe Thai, Yu Khe Siong and Hu Kho Jin, who are sons of Yu Tiong Yee, one

of Yutivos founders.

After SMs incorporation and until the withdrawal of GM from the Philippines, the cars and trucks purchased by Yutivo from GM

were sold by Yutivo to SM which the latter sold to the public.

Yutivo was appointed importer for Visayas and Mindanao by the US manufacturer of cars and trucks sold by GM. Yutivo paid the

sales tax prescribed on the basis of selling price to SM. SM paid no sales tax on its sales to the public.

An assessment was made upon Yutivo for deficiency sales tax. The Collector of Internal Revenue, contends 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 a subsidiary of the latter.

The assessment was disputed by petitioner. After reinvestigation, a second assessment was made, sustaining the validity of the first

assessment. Yutivo contested the second assessment, alleging that there is no valid ground to disregard the corporate personality of

SM and to hold that it is an adjunct of petitioner.

Issue:Whether or not the corporate personality of SM could be disregarded.

Held: Yes. A corporation is an entity separate and distinct from its stockholders and from other corporations 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.

When the corporation is a mere alter ego or business conduit of a person, it may be disregarded.

SC ruled that CTA was not justified in finding that SM was organized to defraud the Government. SM was organized in June 1946,

from that date until June 30, 1947, GM was the importer of the cars and trucks sold to Yutivo, which in turn was sold to SM. GM, as

importer was the one solely liable for sales taxes. Neither Yutivo nor SM was subject to the sales taxes. Yutivos liability arose only

until July 1, 1947 when it became the importer. Hence, there was no tax to evade.

However, SC agreed with the respondent court that SM was actually owned and controlled by petitioner. Consideration of various

circumstances indicate that Yutivo treated SM merely as its department or adjunct:

a. The founders of the corporation are closely related to each other by blood and affinity.

b. The object and purpose of the business is the same; both are engaged in sale of vehicles, spare parts, hardware supplies and

equipment.

c. The accounting system maintained by Yutivo shows that it maintained high degree of control over SM accounts.

d. Several correspondences have reference to Yutivo as the head office of SM. SM may even freely use forms or stationery of Yutivo.

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e. All cash collections of SMs branches are remitted directly to Yutivo.

f. The controlling majority of the Board of Directors of Yutivo is also the controlling majority of SM.

g. The principal officers of both corporations are identical. Both corporations have a common comptroller in the person of Simeon

Sy, who is a brother-in-law of Yutivos president, Yu Khe Thai.

h. Yutivo, financed principally the business of SM and actually extended all the credit to the latter not only in the form of starting

capital but also in the form of credits extended for the cars and vehicles allegedly sold by Yutivo to SM.

Lidell Co. v. Collector of Internal Revenue

Facts: The case is an appeal from the decision of the Court of Tax Appeals imposing a tax deficiency liability of

P1,317,629.61 on Liddell & Co., Inc.

The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation establish in the Philippines on

February 1, 1946. From 1946 until November 22, 1948 when the purpose clause of the Articles of Incorporation of Liddell & Co.

Inc., was amended so as to limit its business activities to importations of automobiles and trucks, Liddell & Co. was engaged in

business as an importer and at the same time retailer of Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks.

On December 20, 1948, the Liddell Motors, Inc. was organized and registered with the Securities and Exchange

Commission with an authorized capital stock of P100,000 of which P20,000 was subscribed and paid for as follows: Irene Liddell

wife of Frank Liddell 19,996 shares and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del Rosario and Esmenia Silva, 1 share

each.

Beginning January, 1949, Liddell & Co. stopped retailing cars and trucks; it conveyed them instead to Liddell Motors, Inc.

which in turn sold the vehicles to the public with a steep mark-up. Since then, Liddell & Co. paid sales taxes on the basis of its sales

to Liddell Motors Inc. considering said sales as its original sales.

The Collector of Internal Revenue argued that the Lidell Motors, Inc. was but an alter ego of Liddell & Co. and concluded

that for sales tax purposes, those sales made by Liddell Motors, Inc. to the public were considered as the original sales of Liddell &

Co. hence the imposition of tax deficiency.

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

Held: The Court held that Lidell Motors, Inc. is an alter ego of Lidell& Co. hence makin it liable for tax deficiency based on

the principle that to allow a taxpayer to deny tax liability on the ground that the sales were made through an other and distinctcorporation when it is proved that the latter is virtually owned by the former or that they are practically one and the same is to

sanction a circumvention of our tax laws which is consistent with the view of the US Supreme Court stating in one case that "a

taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue officers in proper cases, may

disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take

the benefits of the transactions as the person accordingly taxable."

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.

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.

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Under the law in force at the time of its incorporation the sales tax on original sales of cars (sections 184, 185 and 186 of

the National Internal Revenue Code), was progressive, i.e. 10% of the selling price of the car if it did not exceed P5000, and 15% of

the price if more than P5000 but not more than P7000, etc. This progressive rate of the sales tax naturally would tempt the

taxpayer to employ a way of reducing the price of the first sale. And Liddell Motors, Inc. was the medium created by Liddell & Co.

to reduce the price and the tax liability.

In Lidell& Co.:

(1) Frank Liddell had the authority to designate in the future the employee who could receive earnings of the corporation;

to apportion among the stock holders the share in the profits;

(2) that all certificates of stock in the names of the employees should be deposited with Frank Liddell duly indorsed in

blank by the employees concerned;

(3) that each employee was required to sign an agreement with the corporation to the effect that, upon his death or

upon his retirement or separation for any cause whatsoever from the corporation, the said corporation should, within a period of

sixty days therefor, have the absolute and exclusive option to purchase and acquire the whole of the stock interest of the

employees so dying, resigning, retiring or separating.

As to Liddell Motors, Inc Frank Lidell 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. She couldhardly be said to possess business experience. The income tax forms record no independent income of her own. As a matter of

fact, the checks that represented her salary and bonus from Liddell Motors, Inc. found their way into the personal account of Frank

Liddell. Her frequent absences from the country negate any active participation in the affairs of the Motors company.

EN BANC

G.R. No. L-22614 August 29, 1969

RAMIREZ TELEPHONE CORPORATION,petitioner,vs.

BANK OF AMERICA, E.F. HERBOSA, THE SHERIFF OF MANILA and THE COURT OF APPEALS,respondents.

Quijano and Arroyo, for petitioner.

Lichauco, Picazo and Agcaoili for respondent Bank of America.

Vicente M. Magpoc for respondent E.F. Herbosa.

Fiscal Eulogio S. Serrano for respondent Sheriff of Manila.

CAPISTRANO,J.:

This is a petition for review on certiorariof a decision of the Court of Appeals of February 27, 1964, wherein the judgment of the

lower court was reversed and another entered dismissing the complaint of plaintiff, now petitioner, Ramirez Telephone Corporation,and ordering it to pay to defendant, now respondent, Bank of America, the sum of P500.00 and to the third-party defendant E.F.

Herbosa, now likewise respondent, the same amount, both in the concept of attorney's fees, the costs being adjudged likewise

against petitioner. The judgment of the Court of First Instance which was reversed by the Court of Appeals reads as follows:1

In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiff and against the defendant

Bank of America ordering the latter to pay the former the sum of P3,000.00 in the form of actual damages, and to pay the

costs of these proceedings.

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Likewise, judgment is hereby rendered sentencing the third-party defendant, E.F. Herbosa, to indemnify or reimburse the

third-party plaintiff, Bank of America, any sum or sums which the latter may pay the plaintiff by virtue of this judgment.

The third-party complaint against the Sheriff of Manila as well as the counterclaim of defendant Bank of America and third-

party defendant E.F. Herbosa are hereby ordered dismissed.

The facts as found by the Court of Appeals, which we cannot review are set forth in its decision, thus:2

Resultando: Que los hechos al parecer, no son muy embrollados; el demandado, Herbosa era y es dueno del edificio No.

612, Int. 3 Sta. Mesa; se lo habia dado en arrendamiento a Ruben R. Ramirez, y como este era el presidente de la Ramirez

Telephone Corporation, el taller de la corporacion aunque su oficina central estaba en la Escolta, Natividad Building, Exh. D.

fue trasladado al local: pero habiendose amontonado los alquilares sin pagar, Herbosa presento demanda de desahucio

contra Ramirez en el Juzgado Municipal de Manila el 10 de Noviembre, 1949, y elevada la causa al Juzgado del 1.a Instancia,

Herbosa pudo conseguir decision favorable alli el 14 de Octubre, 1950, pero en la vispera de la promulgacion de la

sentencia a su favor habia ya conseguido mandamiento de embargo preventivo contra Ramirez, Exh. A, y el mismo, servido

al Bank of America el 13 de Octubre, 1950, Exh. 2, lease como sigue:

Civil Case No. 10620

E.F. Herbosa, Plaintiff

-- versus -- GARNISHMENT

Ruben R. Ramirez, Defendant

To: Bank of America

Manila

Greetings:

You and each of you are hereby notified that, by virtue of an order of attachment issued by the Court of First Instance of

Manila, copy of which is hereto attached, levy is hereby made (or attachment is hereby levied) upon all the goods, effects,

interests, credits, money, stocks, shares, any interests in stocks and shares and all debts owing by you to the defendant,

Ruben R. Ramirez ---------, in the above entitled case, and any other personal property in your possession or under your

control, belonging to the said defendant --------- on this date, to cover the amount of P2,400.00 and specially the ... .

x x x x x x x x x

Manila, Philippines, October 13, 1950

MACARIO M. OFILADA

Sheriff of Manila

(Exh. 2);

y fue contestado por el banco el mismo dia de la siguiente manera:

Dear Sir:

In reply to your Garnishment of October 13, 1950, issued under the above-subject case, we wish to inform you that we do

not hold any fund in the name of the defendant, Ruben R. Ramirez.

Yours very truly, (Exh. 3);

pero el Sheriff reitero el embargo el 17 de Octubre, 1950, Exh. B, notificando al Bank of America de que quedaba

embargado,

"... the interest or participation which the defendant Ruben R. Ramirez may or might have in the deposit of the

Ramirez Telephone, Inc., with that Bank sufficient to cover the said amount of P2,400.00"; Exh. B; y

la institucion bancaria en contestacion al Sheriff, de fecha 17 de Octubre, 1950 o sea el mismo dia, hizo constar que:

"... we are holding the amount of P2,400.00 in the name of the Ramirez Telephone, Inc. subject to your further

orders," Exh. G;

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The aforestated facts notwithstanding, which must be considered conclusive and binding on us, plaintiff in the lower court, now

petitioner, Ramirez Telephone Corporation, as noted, appealed, assigning the following alleged errors:4

I

The Court of Appeals erred in not applying the settled legal principle that a corporation has a personality separate and

distinct from that of its stockholders and, therefore, the funds of a corporation cannot be reached to satisfy the debt of its

stockholders.

II

The Court of Appeals erred in not taking into account the significant fact that when the events that gave rise to this case

took place, the lawyer of both respondents, i.e., the Bank of America and E.F. Herbosa, was one and the same.

III

The Court of Appeals erred in not granting petitioner damages as awarded by the lower court; likewise, the Court of

Appeals erred in declaring instead that it is petitioner that should pay respondents attorneys' fees.

Petitioner's main grievance in the first assigned error is that the Court of Appeals disregarded its corporate personality; it relies on

the general principle "that the corporate entity will not be disregarded no matter how large the holding a particular stockholder may

have in the corporation."5Petitioner would thus maintain that the personality as an entity separate and distinct from its major

stockholders, Ruben R. Ramirez and his wife, was not to be disregarded even if they did own 75% of the stock of the

corporation.6

The conclusion that would thus emerge, in petitioner's opinion, is that its funds as a corporation cannot be garnished

to satisfy the debts of a principal stockholder.

While respect for the corporate personality as such is the general rule, there are exceptions. In appropriate cases, the veil of

corporate fiction may be pierced. From the facts as found which must remain undisturbed, this is such a case. This assignment of

error has no merit, in view of a number of cases decided by this Court, the latest of which is Albert v. Court of First

Instance7

reaffirming a 1965 resolution in Albert v. University Publishing Co., Inc.8

In that resolution, the principle is restated thus:

"Even with regard to corporations duly organized and existing under the law, we have in many a case pierced the veil of corporate

fiction to administer the ends of justice." In support of the above principle, the following cases were cited: Arnold vs. Willits &

Patterson, Ltd., 44 Phil. 634; Koppel (Phil.), Inc. vs. Yatco, 77 Phil. 496; La Campana Coffee Factory, Inc. vs. Kaisahan ng mga

Manggagawa sa La Campana, 93 Phil. 160; Marvel Building Corporation vs. David, 94 Phil. 376; Madrigal Shipping Co., Inc. vs. Ogilvie,

L-8431, Oct. 30, 1958; Laguna Transportation Co., Inc. vs. S.S.S., L-14606, April 28, 1960; McConnel vs. C.A., L-10510, March 17, 1961;

Liddel & Co., Inc. vs. Collector of Internal Revenue, L-9687, June 30, 1961; Palacio vs. Fely Transportation Co., L-15121, August 31,

1962. Hence, to repeat, the first assigned error cannot be sustained.

The next two errors assigned likewise fail to call for a reversal of the judgment now on appeal. The second alleged error would find

fault with the decision because the Court of Appeals allegedly did not take into account a significant fact, namely, that only one

lawyer represented both the respondent Bank of America and respondent E.F. Herbosa. We are not called upon to consider this

particular assignment of error as it is essentially factual, which is a matter for the Court of Appeals, not for us, to determine. The last

assigned error would in effect seek a restatement of the damages awarded petitioner on the theory that the Court of Appeals

decided the matter erroneously. Since, as we made clear in the foregoing, the decision of the Court of Appeals is in accordance withlaw on the facts as found, this alleged error likewise is not meritorious.

PREMISES CONSIDERED, the judgment of the Court of Appeals of February 27, 1964 is affirmed, with costs against petitioner Ramirez

Telephone Corporation.

Concepcion, C.J., Dizon, Makalintal, Sanchez, Castro, Fernando, Teehankee and Barredo, JJ., concur.

Reyes, J.B.L., and Zaldivar, JJ., are on leave.

SECOND DIVISION

G.R. No. 100322 March 9, 1994

GUATSON INTERNATIONAL TRAVEL AND TOURS, INC., PHILIPPINE INTEGRATED LABOR ASSISTANCE CORPORATION, MERCURY

EXPRESS INTERNATIONAL COURIER SERVICES, INC., petitioners,

vs.

NATIONAL LABOR RELATIONS COMMISSION AND JOLLY ALMORADIE, respondents.

Generosa R. Jacinto for petitioners.

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Donato H. De Castro and Rolando P. Rotairo for private respondent.

NOCON,J.:

Petitioners Guatson Travel and Tours, Inc. (hereinafter referred to as Guatson Travel), Philippine Integrated Labor Assistance Corp.

(Philac) and Mercury Express International Courier Services, Inc. (MEREX) assail the Decision, rendered by the National Labor

Relations Commission in Case No. NLRC-NCR-00-11-0451-88 entitled "Jolly M. Almoradie v. Guatson's Travel Company, Philac and

MEREX," dated March 21, 1991 and its Resolution, dated May 31, 1991, denying the petitioners' Motion for Reconsideration.

In the questioned decision, the NLRC found that Mr. Henry Ocier's (Vice-President and General Manager of petitioner Guatson

Travel) actuation of threatening and forcing private respondent, Jolly M. Almoradie, to resign amounted to illegal dismissal and thus

ordered petitioners to pay private respondent backwages, computed from the date of his dismissal on November 1988, until the

decision was rendered on February 28, 1991 or the amount of P50,328.00; and to pay separation pay equivalent to one-half (1/2)

month for every year of service, for seven (7) years or the amount of P6,524.00.

From the records it appears that Jolly M. Almoradie was first employed by Mercury Express International Courier Service, Inc.

(MEREX) in October, 1983 as Messenger receiving a monthly salary of P800.00. When it closed its operations, Almoradie was

absorbed by MEREX's sister company Philippine Integrated Labor Assistance Corp. (Philac), likewise as Messenger with an increased

salary of P1,200.00.

In September, 1986, Almoradie was transferred to Guatson Travel, allegedly also a sister company of MEREX and Philac, as Liaison

Officer with a salary of P1,864.00. Thereafter, he was promoted to the position of Sales Representative sometime in April, 1988. On

April 30, 1988, Almoradie was issued three separate memoranda as follows:

IOM/88-70

Please explain in writing within 24 hrs. or not later than Monday morning the reason why you

don't want to sell.1

IOM/88-71

Please explain in writing why did you went (sic) to BEMIL and who sent you there.2

IOM-88

Explain in writing not later than Monday the following:

1. The reason why you want to be a messenger and no more a sales representative;

2. That I'm always confronting (sic) you, as what you've told me personally;

3. Why you will not answer in writing the memo issued to you by Lou Cantara on 30 Apr;

xxx xxx xxx

5. Why when you were asked last Friday to join the Sales Blitz to Sta. Ana you said yes and you

change (sic) your mind when you were asked again last Saturday;

xxx xxx xxx

7. Why you have forgotten the situation wherein you refuse (sic) to sell a certain product

recommended by Myrna;

8. The meaning of "You pirated me from Philac . . .3

Within the time frame specified, Almoradie responded to each of the charges, the essence of which are as follows:

1. It is not true that I do not want to sale (sic) the rates & package tour of Our Company as imputed and charge

(sic), because since April, 1988 (sic) when I was transferred from Accounting to sales department of our Company I

was able to sale (sic) almost 110 dollars to 21 passengers. The truth however is that, I am hampered in my sales

promotion and solicitation of customer, due to financial constraint considering that the kind and nature of work

entails much expenses for which I shouldered (sic) with my personal money. As a matter of fact I have brought this

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matter to the Vice President and General Manager if only an appropriation be set aside for the expenses in going

around, meeting people and soliciting prospective clients.

2. Bemil is a customer of our company. With respect to the ticketing and booking of Bemil passengers, undertaking

(sic) by the sales department of our company, I used to go Bemil (sic) to inquire whether they have passengers for

booking and ticketing. As a matter of fact, I went to Bemil to pick-up their ticketing and booking for their

passengers last Monday, April 29, 1988 (sic) and then returned the following day, Saturday April 30, 1988, to

deliver the ticket.

xxx xxx xxx

3.1. Considering that the job of sales representative entails so much expense in the performance thereof (sic), as I

have stated in my number one (1) explanation and I have to use my own personal money to promote and solicit

customer without any funding of our company (sic), I have taught (sic) it better that I like my position as

messenger, that (sic) as sales representative, although the later (sic) position is more dignified, hence I prefer to be

entered to my messenger position.

3.2. That I admit of the often confrontation conducted (sic) by Vice President/General Manager, even in the

absence of my error or fault (sic) . . .

3.3. It is not true that I did not or fail to answer the memo issued by Lou Cantara, since I was given until May 2,

1988 to answer the same . . .

xxx xxx xxx

3.5. As scheduled, I said yes to the sales blitz to Sta. Ana, because in truth I am very interested in such sales

business attack since it is in connection with my function as a sales representative that will surely enhance and

sharpen my sales acumen, but if I was not able to join it is not the reason my change of mind (sic), but because the

Vice-President/General Manager of Our Company, Henry Ocier summoned me to his office and had a very lengthy

confrontation of me (sic), and when I go out (sic) after the confrontation to join the sales blitz-krieg to Sta. Ana last

Saturday, April 30, 1988, Mr. Oscar Vanderlipe who heads the sales Group (sic) were (sic) already gone.

xxx xxx xxx

3.7. I deny vehemently that I refuse to sale (sic) a certain product recommended by Myrna de Vera because the

same is totally false. Since April 1, 1988 when I was transferred to the sales department of our company where

from the very beginning I was briefed and taught and learned about the nature of my job and the product to sale

(sic) by Myrna (sic) de Vera herself, I have ever since until now ventured and performed the selling of rates and

package tour which are every products (sic) for sales department of our company. If sometimes I make no sales,

which all sales representative suffer and are beset such (sic), however, cannot be considered as refusal to sale (sic).

The only product of our Company that Myrna briefed, taught and required as to (sic) our rates and Package Tours

which I've been selling since April 1, 1988 up to present. (sic)

xxx xxx xxx4

On May 4, 1988, Almoradie was reverted to the position of Messenger, yet sometime in September, 1988, he was again given the

position of Account Executive, the nature of work of which is similar to that of a sales representative. Almoradie accepted the

transfer with the understanding that he will solely discharge the duties of an account executive and will no longer be required to do

messengerial work.

In the morning of October 1, 1988, Almoradie was allegedly summoned by Henry Ocier to his office and was there and then forced

by the latter to resign. Ocier taunted Almoradie with threats that it he will not resign, he will file charges against him which would

adversely affect his chances of getting employed in the future. Ocier allegedly even provided the pen and paper on which Almoradie

wrote and signed the resignation letter dictated by Ocier himself.5

On that same day, Almoradie sought the help of a friend, Isagani Mallari, who advised him to report the matter to the BarangayCaptain.

6Subsequently, Almoradie filed a complaint for illegal Dismissal on November 14, 1988. The Labor Arbiter, however

dismissed his case based on the following conclusions:

In examining the facts and the arguments, it is difficult to abide by the impression that complainant was forced to

resign. Apart from the averment of respondent Guatson that Mr. Ocier was out of town when the resignation

letter was executed that he just saw the resignation letter when he arrived.7

There is reason to believe that

complainant apparently defied the order for his transfer or designation as account executive earlier before he

executed his resignation letter.

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It must be concluded that his designation as account executive is a management prerogative which under the

circumstance is untainted with any unfair labor practice. Apparently, complainant resented his resignation without

any plausible or cogent reason as he had earlier resented to be a sales representative for which he was made to

explain the reasons why. The only graceful exit to the complainant was to execute his letter of resignation. As his

letter of resignation shows, it was executed in his own handwriting spontaneously out of his own free will.8

Upon Almoradie's appeal, the NLRC reversed the decision of the Labor Arbiter on his finding that complainant was not forced to

resign, anchoring its conclusion to the fact that Almoradie was a permanent employee who has been working for the Ocier's for five

long years; that he was receiving a fairly good salary considering that he is single; that he had no potential employer at the time of

his resignation; that there was no evidence to show that Mr. Henry Ocier was indeed not in town on October 1, 1988, when he

allegedly forced Almoradie to resign; and his reaction immediately after his forced resignation by seeking the assistance of a friend

who was placed in a similar situation before and in reporting the incident to the Barangay Chairman to seek redress.

The issue therefore, boils down to the question of whether Jolly Almoradie was indeed illegally dismissed by being forced to resign in

the manner narrated by him.

From a synthesis of the evidence on record, we fully agree with the finding of the NLRC that Jolly Almoradie's resignation was NOT

voluntary. The NLRC did not err in disregarding the conclusions reached by the Labor Arbiter because the latter's findings ar e not

supported by substantial evidence.

It appears that as early as April, 1988, when Almoradie was promoted as Sales Representative he had caught the ire of management,

so much so that he was issued no less than three memoranda on one day ordering him to answer certain charges. Why he was again

promoted to the position of Account Executive after he was reverted back to the rank of a messenger from being a Sales

Representative is rather intriguing, unless it was a scheme of management to really rid him from the company. Apparently,

Almoradie is not cut out for a sales job, and hence could be dismissed or forced to resign for failing to make good on his job on sales.

On the other hand, it would be difficult to dismiss him while being a messenger since he is a permanent employee and there would

not be enough basis to make him resign.

We do not agree with petitioners' proposition that Mr. Ocier's mere utterances of the words "I will file charges against you," and "I

have a very good lawyer," do not constitute force or coercion as to vitiate the free will of Almoradie in writing his resignation letter.

Intimidation may vitiate consent when the following requisites are present: (1) that the intimidation caused the consent to be given;2) that the threatened act be unjust or unlawful; 3) that the threat be real or serious, there being evident disproportion between the

evil and the resistance which all man can offer, leading to the choice of doing that act which is forced on the person to do as the

lesser evil; and 4) that it produces a well-grounded fear from the fact that the person from whom it comes has the necessary means

or ability to inflict the threatened injury to his person or property.9

The moment that a person by whom respect and reverence are due should wrongly exert pressure upon his subordinates,

amounting to intimidation in the manner stated in the Lichauco de Leon case, supra, in order to exact from said subordinates an act

against their will, the same is enough to vitiate consent.

Henry Ocier did not only say that he will file charges against Almoradie and that he has a good lawyer but he even threatened to

block his future employment should the latter not file his resignation. This threat is not farfetched. Almoradie is not even a college

graduate.

10

With his limited skills and the scarcity of employment opportunities it would really be difficult for him to find a job.Considering further the influence of Mr. Henry Ocier and his capacity to make good his threat by refusing to give a favorable

recommendation on Almoradie's performance, the latter is helpless in not complying with the former's demand for his resignation.

Anent NLRC's grant of separation pay and backwages to private respondent Jolly M. Almoradie, petitioners argues that the

companies, Guatson Travel Company, Philac Merex have separate and distinct legal personalities such that the latter companies

should not be held liable; assuming, for the sake of argument that private respondent was illegally dismissed.

We uphold the NLRC. The three companies are owned by one family, such that majority of the officers of the companies are the

same. The companies are located in one building and use the same messengerial service. Moreover, there was no showing that

private respondent was paid separation pay when he was absorbed by Philac upon closure of Merex; nor was there evidence that he

resigned from Philac when he transferred to Guatson Travel. Under the doctrine of piercing the veil of corporate fiction, when valid

ground exists, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or

stockholders may be disregarded. We have applied this doctrine in the case of "Philippine Scout Veterans Security and Investigation

Agency (PSVSIA), et al. v. The Hon. Secretary of Labor," G.R. No. 92357, July 21, 1993.

Where there is a finding of illegal dismissal, the employee is entitled to both reinstatement and award of backwages from the time

the compensation was withheld, in this case in 1988, up to a maximum of three years, applying the Mercury Drug Rule.11

Reinstatement, however, will not be required not only for the reason that it was not prayed for by the respondent, but also because

the relationship between Almoradie and Ocier had become strained as to preclude a harmonious working relationship. In lieu of

reinstatement, separation pay is awarded.12

As the term suggests, separation pay is the amount that an employee receives at the

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time of his severance from the service and is designed to provide the employee with the wherewithal during the period that he is

looking for another employment.13

However the award of separation pay should be, as we have consistently ruled, equivalent to one (1) month for every year of

service,14

instead of one-half (1/2) month as awarded by the NLRC. In the computation of separation pay, the three (3) year period

wherein backwages are awarded, must be included.15

WHEREFORE, the decision of the NLRC is hereby MODIFIED to the extent that the award of backwages should be computed based on

a three-year period, while the separation pay of one month for every year of service should be computed from the time petitioner

was employed by Merex and should include the three-year period as backwages. The petition is hereby DISMISSED for lack of merit.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

FIRST DIVISION

G.R. No. 108734 May 29, 1996

CONCEPT BUILDERS, INC., petitioner,

vs.

THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel

Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea,

Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno

Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.

HERMOSISIMA, JR., J.:p

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or

of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified

thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the

corporation as a mere association of persons and, in case of two corporations, merge them into one.

Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the corporation may not

be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes

into play.

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

discretion when it issued a "break-open order" to the sheriff to be enforced against personal property found in the premises of

petitioner's sister company.

Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is

engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers.

On November, 1981, private respondents were served individual written notices of termination of employment by petitioner,

effective on November 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the

project in which they were hired had been completed.

Public respondent found it to be, the fact, however, that at the time of the termination of private respondent's employment, the

project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors

whose workers performed the functions of private respondents.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday

pay, overtime pay and thirteenth-month pay against petitioner.

On December 19, 1984, the Labor Arbiter rendered 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

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On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents' back wages

amounted to P199,800.00.3

On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December 19,

1984. The writ was partially satisfied through garnishment of sums from petitioner's debtor, the Metropolitan Waterworks and

Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC.

On February 1, 1989, anAlias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner

the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former

positions.

On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the

security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises.

On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution.

The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989:

1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees

of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;

2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the properties he had levied upon.4

The said special sheriff recommended that a "break-open order" be issued to enable him to enter petitioner's premises so that he

could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989.

On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought

to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.

On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and petitioner

corporation were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its

business operations in order to evade its legal obligations to them and that private respondents were willing to post an inde mnity

bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order.

In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet, dated

May 15, 1987, submitted by petitioner to the Securities Exchange Commission (SEC) and the General Information Sheet, dated May

25, 1987, submitted by HPPI to the Securities and Exchange Commission.

The General Information Sheet submitted by the petitioner revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

HPPI P 6,999,500.00

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

Elisa C. Lim 100,000.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member

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Elisa C. Lim Member

Teodulo R. Dino Member

Virgilio O. Casino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer

Virgil