SECTION 2ARTIFICIAL PERSONFILIPINAS BROADCASTING NETWORK, INC.,petitioner, vs.AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO,respondents.FACTS: Expos is a radio documentary[4]program hosted (Rima) and (Alegre).[5]Expos is aired every morning which is owned by Filipinas Broadcasting Network, Inc.15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for damages[7]against FBNI, Rima and AlegreThe complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation. Rima and Alegre, through Atty. Rozil Lozares, filed an Answer[10]alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the goings-on in AMEC, [which is] an institution imbued with public interest.The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelousper seand that FBNI, Rima and Alegre failed to overcome the legal presumption of malice.ISSUE: Whether AMEC is entitled to moral damagesHELD: Petition deniedThere is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it dishonor, discredit and contempt.Every defamatory imputation is presumed malicious.[25]Rima and Alegre failed to show adequately their good intention and justifiable motive in airing the supposed gripes of the students. Hearing the students alleged complaints a month before the expos,[27]they had sufficient time to verify their sources and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes.FBNI contends that AMEC is not entitled to moral damages because it is a corporation.[39]A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.[40]The Court of Appeals citesMambulao Lumber Co. v. PNB, et al.[41]to justify the award of moral damages. However, the Courts statement inMambulaothat a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages is anobiter dictum.Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219[43]of the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.[44]Moreover, where the broadcast is libelousper se, the law implies damages.

SEPARATE JURIDICAL PERSONALITY1. Stockholders of F. Guanzon & Sons, Inc. v. Register of DeedsDoctrine: A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members.

Facts: Five stockholders of the F. Guanzon and Sons Inc., executed a certificate of liquidation of the assets, dissolving the corporation and distributed among themselves in proportion to their shareholdings, the assets of said corporation, including the real properties. The certificate of liquidation, when presented to the Register of Deeds was denied on 7 grounds of which the ff. were disputed by the stockholders; 3. no. of parcels of land not certified, 5. registration fees need be paid 6. documentary stamp need be attached 7. the judgment of the Court approving the dissolution and directing the disposition of the assets need be presented. The Commissioner of Land Registration overruled the ground no. 7 and sustained the others.

Issue: Whether or not the certificate merely involves a distribution of the corporation's assets or should be considered a transfer of conveyance

Appellants' argument: that the certificate of liquidation is not a conveyance or transfer but merely a distribution of the assets of the corporation which has ceased to exist for having been dissolved. Not being a conveyance, the certificate need not contain the number of parcel of land involved in the distribution in the acknowledgment appearing therein. That they are not required to pay the amount of registration fees.Respondent's argument: the Commission of Land Registration concurred with the view of the RD that the certificate of liquidation in question, though it involves a distribution of the assets, in the last analysis represents a transfer of said assets from the corporation to the stockholders. Hence, in substance it is a transfer or conveyance.

Court's ruling: A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. while shares of stock constitute personal property they do not represent property of the corporation. the corporation has property of its own which consists chiefly of a real estate. A share of stock only typifies an aliquot part of the corporation's property, or the right to share its proceeds to that extent when distributed according to law and equity. The stockholder is not a co-owner or tenant in common of the corporate property.

It is clear that the act of liquidation made by the stockholders of the Petitioner is not and cannot be considered a partition of community property, but rather a transfer or conveyance of the title of its assets to the individual stockholders.

2. LAPERAL DEVELOPMENT CORPORATION and SUNBEAMS CONVENIENCE FOOD CORPORATION, VS. CAFACTS:On May 19, 1987, Banzon filed a complaint against Oliverio Laperal. Laperal Development Corporation. Imperial Development Corporation, Sunbeams Convenience Foods, Inc. and Vicente Acsay for: 1) the annulment of the portion of the Compromise Agreement; 2) the collection of attorney's fees for his services in the cases of: a) Imperial Development Corporation vs. Aover, b) Republic vs. Sunbeams Convenience Foods, Inc., et al., The Regional Trial Court of Quezon City, dismissed on the ground that the trial court had no jurisdiction to annul the Compromise Agreement as approved by an equal and coordinate court. It was held that the issue was cognizable by the Court of AppealsOn appeal, the decision was affirmed on the issue of jurisdiction. The Court of Appeals held, however, that attorney's fees were due the private respondent in the cases of Laperal Development Corporation v. Ascario Tuazon and Ascario Tuazon v. Judge Maglalang and Republic v. Sunbeams Convenience Foods. IncThe petitioners are now challenging the decision insofar as it orders them to pay Banzon attorney's fees for his legal services in the aforementioned cases.

ISSUE: Whether or not the Petitioners are liable to pay Banzon his attorneys fees as his legal compensation

HELD:Banzon's claim for attorney's fees in the said case was also among those enumerated in his complaint in Civil Case No. Q-34907 against Oliverio Laperal, Laperal Development Corporation, and Imperial Development Corporation. Notably, Sunbeams Convenience Foods, Inc. (Sunbeams, for brevity), referred to in the complaint as "Mr. Laperal's Corporation," was not joined by name as a party-defendant. Apparently, the private respondent believed that Oliverio Laperal, being the president of the said company, was directly obligated to him for the attorney's fees due him for his handling of the case for Sunbeams.It is settled that a corporation is clothed with a personality separate and distinct from that of the persons composing it. It may not generally be held liable for the personal indebtedness of its stockholders or those of the entities connected with it. Conversely, a stockholder cannot be made to answer for any of its financial obligations even if he should be its president. There is no evidence that Sunbeams and Laperal are one and the same person. While it is true that Laperal is a stockholder, director and officer of Sunbeams, that status alone does not make him answerable for the liabilities of the said corporation. Such liabilities include Banzon's attorney's fees for representing it in the case of Republic v. Sunbeams Convenience Foods, Inc.

The Compromise Agreement upon which the decision of the court was based was between plaintiff Atty. Banzon and the defendants represented by Oliverio Laperal. To repeat, Sunbeams was not a party to this agreement and so could not be affected by it. (compromise agreement is about the waiving of attorneys fees)

The private respondent's claim for attorney's fees in the Sunbeam case was waived by him not by virtue of the Compromise Agreement to which Sunbeams, not being a defendant in Civil Case No. Q-34907, could not have been a party. What militates against his claim is his own judicial admission that he had waived his attorney's fees for the cases he had handled from 1974 to 1981 for Oliverio Laperal and his corporations, including those not impleaded in his complaint in Civil Case No. Q-34907.

PIERCING CORPORATE VEIL1. PNB vs. Hyrdo Resources Contractors CorporationFacts:Petitioners DBP and PNB foreclosed on mortgages made on the properties of MMIC. As a result of the foreclosure, DBP and PNB acquired substantially all the assets of MMIC and resumed the business operations of the defunct MMIC by organizing NMIC.DPB and PNB owned 57% and 43% of the shares of NMIC, respectively, except for five qualifying shares.The members of the Board of Directors of NMIC were either from DBP or PNB.NMIC engaged the services of Hercon, Inc. for NMICs Mine Striping and Road Construction Program for a contract price of P35m. after computing the payments already made by NMIC under the program and crediting the NMICs recievables from Hercon, the latter found that the former still has an unpaid balance of P8M. Hercon made several demands on NMIC including a letter of final demand and when these were not heeded, a complaint for sum of money was filed in the RTC seeking to hold NMIC, DBP and PNB solidarily liable for the amount owing to Hercon.Subsequent to the filing of the complaint, Hercon, was acquired by HRCC in a merger. The complaint was then amended by substituting HRCC for Hercon.Proclamation No. 50 was issued creating the APT for the expeditious disposition and privatization nof certain government corporations and/or the assets thereof.Pursuant to the said proclamation, DBP and PNB executed their respective deeds of transfer in favor of the National Government transferring and conveying certain assets and liabilities in NMIC. The National Government transferred the said assets and liabilities to the APT as trustee under a Trust Agreement. The complaint was then amended for the second time to implead the APT as a defendantRTC, ruled in favor of HRCC. It pierced the corporate veil of NMIC and held DBP and PNB solidarily liable with NMICOn appeal, the Court of Appeals, affirmed the RTCs ruling.Issue: WON that NMIC is a corporate entity with a juridical personality separate and distinct from both PNB and DBP.Held:A corporation is an artificial entity 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. It has a personality separate and distinct from that of its stockholders and from that of other corporations to which it may be connected.As a consequence, a corporation incurs its own liabilities and is legally responsible for payment of its obligations. Hence, the corporate debt or credit is not the debt or credit of the stockholder. This protection from liability for shareholders is the principle of limited liability.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. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.The SC further held that any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed.There are three tests that must be applied in order to determine the application of the alter ego theory: first is the instrumentality or control test, second is the fraud test, and third is the harm testThe absence of any of these elements prevents piercing the corporate veil. Here, the SC finds that none of the tests has been satisfactorily met in this case. The Court further held that the existence of interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations.

2. APEX MINING v. SOUTHEAST MINDANAO GOLD MINING CORP.FACTS: Diwalwal Gold Rush Area is a rich tract of land located in Davao. It has been stormed by conflicts brought about by numerous mining claims overthe same. On March 10,1986, Marcopper Mining Corporation (MMC) was granted anExploration Permit No. 133 (EP 133) by the Bureau of Mines and Geo-Sciences (BMG). A long battle ensued between Apex and MMC with the latter seeking the cancellation of the mining claims of Apex on the ground that suchmining claims were within a forest reservation (Agusan-Davao-Surigao Forest Reserve) and thus the acquisition on mining rights should have been through an application for a permit to prospect with the Bureau of Forest and Development (BFD) and not through registration of a Declaration of Location with the BMG. When it reached the SC in 1991, the Court ruled against Apex holding that the area is a forest reserve and thus it should have applied for a permit toprospect with the BFD. On February 16 1994,MMC assigned all its rights to EP 133 to Southeast Mindanao Gold Mining Corporation (SEM), a domestic corporation which is alleged to be a 100%-owned subsidiary ofMMC. Subsequently, BMG registered SEMs Mineral Production Sharing Agreement (MPSA) application and the Deed of Assignment. Several oppositions were filed. When the case reached the CA, the appellate court held that the transfer of EP 133 was valid on the premise that SEM is the agent of MMC, stressing that SEM is just a business conduit of MMC, hence, the distinct legal personality of the two entities should not be recognized.ISSUE: WON the subsequent transfer of Examination Permit 133 from MMC to SEM is valid applying the doctrine of piercing the corporate veil.HELD: No.The Court of Appeals pathetically invokes the doctrine of piercing the corporate veil to legitimize the prohibited transfer or assignment of EP 133.Only in cases where the corporate fiction was used as a shield for fraud, illegality or inequity may the veil be pierced and removed. The doctrine of piercing the corporate veil cannot therefore be used as a vehicle to commit prohibited acts. The assignment of the permit in favor of SEM is utilized to circumvent the condition of non-transferability of the exploration permit. To allow SEM to avail itself of this doctrine and to approve the validity of the assignment is tantamount to sanctioning an illegal act which is what the doctrine precisely seeks to forestall.

3. PALAY INC. vs. CLAVEPetitioner Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel of Land of the Crestview Heights Subdivision in Antipolo, Rizal and owned by said corporation. The sale price was P23,300.00. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all installments paid.Respondent Dumpit paid the downpayment and several installments amounting to P13,722.50. Almost six (6) years later, private respondent wrote petitioner offering to update all his overdue accounts with interest. Petitioner then informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold. Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an altenative prayer for refund. The NHA, finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund immediately to Nazario Dumpit the amount of P13,722.50 with 12% interest from the filing of the complaint. Thus, the present petition.Issues: Whether the petitioners may be held liable for refund. Whether the doctrine of piercing the veil of corporate fiction has application to the case at bar.Held: YES. We hold that resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of resolution. As stressed in University of the Philippines vs. Walfrido de los Angeles, the act of a party in treating a contract as cancelled should be made known to the other. The party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law.NO. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or defend crime; or to perpetuate fraud or confuse legitimate issues 15 ; or to circumvent the law or perpetuate deception ; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders. We find no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on paragraph 6 of its contract with private respondent when it rescinded the contract to sell extrajudicially and had sold it to a third person.In this case, petitioner Onstott was made liable because he was then the President of the corporation and the controlling stockholder. No sufficient proof exists on record that said petitioner used the corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he "appears to be the controlling stockholder". Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality.

4. Liddell & Co., Inc., v. Collector of Internal RevenueFacts: Liddell & Co. Inc. is a domestic corporation establish in the Philippines on February 1, 1946, with an authorized capital of P100,000 divided into 1000 share at P100 each. Of this authorized capital, 196 shares valued at P19,600 were subscribed and paid by Frank Liddell while the other four shares were in the name of Charles Kurz, E.J. Darras, Angel Manzano and Julian Serrano at one shares each. Its purpose was to engage in the business of importing and retailing 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.At about the end of the year 1948, Messrs. Manzano, Kurz and Kernot resigned from their respective positions in the Retail Dept. of Liddell & Co. and they were taken in and employed by Liddell Motors, Inc.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.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. The Court of Tax Appeals upheld the position taken by the Collector of Internal Revenue.Issue: Whether or not Liddell & Co. Inc., and the Liddell Motors, Inc. are identical corporations, the latter being merely the alter ego of the formerHeld: YES. As of the time of its organization, 98% of the capital stock belonged to Frank Liddell. The 20% paid-up subscription with which the company began its business was paid by him. The subsequent subscriptions to the capital stock were made by him and paid with his own money.As to Liddell Motors, Inc. the court is fully persuaded that Frank Liddell also owned it. He supplied the original capital funds. It is not proven that his wife Irene, ostensibly the sole incorporator of Liddell Motors, Inc. had money of her own to pay for her P20,000 initial subscription. Her income in the United States in the years 1943 and 1944 and the savings therefrom could not be enough to cover the amount of subscription, much less to operate an expensive trade like the retail of motor vehicles. The alleged sale of her property in Oregon might have been true, but the money received therefrom was never shown to have been saved or deposited so as to be still available at the time of the organization of the Liddell Motors, Inc.The Court noticed that the bulk of the business of Liddell & Co. was channeled through Liddell Motors, Inc. On the other hand, Liddell Motors, Inc. pursued no activities except to secure cars, trucks, and spare parts from Liddell & Co. Inc. and then sell them to the general public. These sales of vehicles by Liddell & Co. to Liddell Motors, Inc. for the most part were shown to have taken place on the same day that Liddell Motors, Inc. sold such vehicles to the public. We may even say that the cars and trucks merely touched the hands of Liddell Motors, Inc. as a matter of formality.Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other. There is, however, in this instant case, a peculiar consequence of the organization and activities of Liddell Motors, Inc.Under the law in force at the time of its incorporation the sales tax on original sales of cars, 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.As opined in the case of Gregory v. Helvering, "the legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them by means which the law permits, cannot be doubted." But, as held in another case, "where a corporation is a dummy, is unreal or a sham and serves no business purpose and is intended only as a blind, the corporate form may be ignored for the law cannot countenance a form that is bald and a mischievous fiction."

5. GREGORIO PALACIO v. FELY TRANSPORTATION COMPANYFely Transportation Company hired Alfredo Carillo as driver of a jeep owned and operated by the corporation. One time, while Carillo was driving the vehicle, he run over the child of Gregorio Palacio who suffered injuries and was hospitalized.Palacio then filed a criminal complaint for reckless imprudence and damages against Carillo and Fely Transportation Company. When Carillo was convicted in the criminal case, Dr. Calingasan, the owner of the said corporation sold the jeep to the corporation. When Carillo was not able to pay damages because of insolvency. Hence, Palacio sought to collect from the corporation and Isabelo Calingasan, its president. The corporation then filed a Motion to Dismiss on the ground that there is no cause of action against the defendant company.Palacio contends that the corporation should be made subsidiarily liable for damages in the criminal case because the sale to it of the jeep in question, after the conviction of Alfred Carillo in Criminal Case was merely an attempt on the part of Calingasan to evade his subsidiary civil liability.ISSUE: Whether or not Isabelo Calingasan, the president of the corporation should be held subsidiarily liable with the corporationHELD: YES.Isabelo Calingasan and defendant Fely Transportation may be regarded as one and the same person. It is evident that Isabelo Calingasan's main purpose in forming the corporation was to evade his subsidiary civil liability resulting from the conviction of his driver, Alfredo Carillo. This conclusion is borne out by the fact that the incorporators of the Fely Transportation are Isabelo Calingasan, his wife, his son, Dr. Calingasan, and his two daughters. The Court believes that this is one case where the defendant corporation should not be heard to say that it has a personality separate and distinct from its members when to allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to further an end subversive of justice. Furthermore, the failure of the corporation to prove that it has other property than the jeep strengthens the conviction that its formation was for the purpose above indicated.And while it is true that Isabelo Calingasan is not a party in this case, yet, is held that this Court can substitute him in place of the defendant corporation as to the real party in interest. This is so in order to avoid multiplicity of suits and thereby save the parties unnecessary expenses and delay. Accordingly, defendants Fely Transportation and Isabelo Calingasan should be held subsidiarily liable for P500.00 which Alfredo Carillo was ordered to pay in the criminal case and which amount he could not pay on account of insolvency.

6. MARVEL BUILDING CORPORATION, ET AL.,plaintiffs-appellees,vs.SATURNINO DAVID, in his capacity as Collector, Bureau of Internal Revenue,defendant-appellant.Circumstantial evidence showing one-man corporationFACTS: This action was brought by plaintiffs as stockholders of the Marvel Building Corporation to enjoin the defendant Collector of Internal Revenue from selling at public auction various properties described in the complaint, including three parcels of land, Said properties were seized and distrained by defendant to collect war profits taxes assessed against plaintiff Maria B. Castro (Exhibit B). Plaintiffs allege that the said three properties (lands and buildings) belong to Marvel Building Corporation and not to Maria B. Castro, while the defendant claims that Maria B. Castro is the true and sole owner of all the subscribed stock of the Marvel Building Corporation, including those appearing to have been subscribed and paid for by the other members, and consequently said Maria B. Castro is also the true and exclusive owner of the properties seized.the Court of First Instance of Manila rendered judgment ordering the release of the properties mentioned, and enjoined the Collector of Internal Revenue from selling the same.The Articles of Incorporation of the Marvel Building Corporation is dated February 12, 1947 and according to it the capital stock is P2,000,000, of which P1,025,000 was (at the time of incorporation) subscribed and paid for by the following incorporators: (most of the incorporators are half brothers and sisters neither did they file any war profits.)It does not appear that the stockholders or the board of directors of the Marvel Building Corporation have ever held a business meeting, for no books thereof or minutes meeting were ever mentioned by the officers thereof or presented by them at the trial. The by-laws of the corporation, if any had ever been approved, has not been presented. Neither does it appear that any report of the affairs of the corporation has been made, either of its transactions or accounts.ISSUE: WON Maria B. Castro the owner of all the shares of stocks of Marvel Building Corporation and the other stockholders mere dummies of hers?HELD: Important evidence presented by the collector of internal revenue to prove his claim that Maria Castro is the sole owner is supposed endorsement in blank of the shares of stock issued in the name of the other incorporators, and the possession thereof by Maria B. Castro; It is to be remembered also, that it is a common practice among unscrupulous merchants to carry two sets of books, one set for themselves and another to be shown to tax collectors. This practice could not have been unknown to Maria B. Castro, who apparently had been able to evade the payment of her war profits taxes.;the fact that two sets of certificates were issued; the principal stockholder had made enormous profits; the fact that other subscribers had no income of sufficient magnitude to justify their big subscription; the fact that she advanced big sums of money without accounting; and the fact that the books of accounts were kept as if they belong only to her.What are their necessary implications? Maria B. Castro would not have asked them to endorse their stock certificates, or be keeping these in her possession, if they were really the owners. They never would have consented that Maria B. Castro keep the funds without receipts or accounting, nor that she manages the business without their knowledge or concurrence, were they owners of the stocks in their own rights. Each and every one of the facts all set forth above, in the same manner, is inconsistent with the claim that the stockholders, other than Maria B. Castro, own their shares in their own right. On the other hand, each and every one of them, and all of them, can point to no other conclusion than that Maria B. Castro was the sole and exclusive owner of the shares and that they were only her dummies.

7. Arcilla v. CAPrivate respondent filed with the Regional Trial Court (RTC) of Catanduanes a complaint for a sum of money against petitioner. It is alleged therein that the defendant, succeeded in securing on credit from the plaintiff, various items, cash and checks which the defendant encashed, in the total amount of P93,358.51 which the plaintiff willingly extended because of the representations of the defendant that he was a successful financial consultant of local and international businessmen; that the defendant's indebtedness referred is shown and described in thirty (30) "vales" signed by him or by persons authorized by him; that the plaintiff had made numerous demands for payment but the respondent acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim; That the plaintiff is left without any recourse other than to enforce his claim in court. In petitioners answer, he did not deny that he had business transactions with the private respondent but he alleges that "as President of CSAR Marine Resources, he "was looking for a "pro-forma" invoice to support his loan with the Kilusang Kabuhayan at Kaunlaran (KKK for short). He explicitly admits that "(H)is loan was in the same (name) of his family corporation, CSAR Marine Resources, however, the "vales",were liquidated in the bank loan releases. Thus his main defense is payment. The trial court ordered petitioner to pay the private respondent. Petitioner appealed the decision before the Court of Appeals and the latter affirmed the trial courts decision. Petitioner filed a motion for reconsideration were the Court of Appeals promulgated an amended decision ordering the petitioner to pay the private respondent in his capacity as President of Csar marine Resources, Inc. Petitoner then filed a motion for Clarificatroy Judgment alleging therein that Petitioner Arcilla never had any personal business transaction with the private respondent and that Csar Marine Resources is not a party in the case. Respondent denied the motion on these grounds: (a) the veil of corporate fiction should be pierced in this case; (b) since petitioner did not raise the issue of separate corporate identity he cannot raise it for the first time in a Motion for Clarificatory Judgment;

ISSUE: Whether or not the court of appeals erred in holding Csar marine Resources, Inc., a domestic corporation duly organized according to law, where petitioner the president, liable to the private respondent in the amount awarded in the appealed decision.

COURTS RULING: The pleadings lead the Court to the inescapable conclusion that the petitioner, who is himself a lawyer, is merely taking advantage of the use of the innocuous phrase "in his capacity as President" making the same a sanctuary for a defense; had long since abandoned or waived either deliberately or through his obliviscence. His sole purpose is to avoid complying with the liability adjudged against him by the public respondent. Moreover, by no stretch of even the most fertile imagination may one be able to conclude that the challenged Amended Decision directed Csar Marine Resources, Inc. to pay the amounts adjudge. By its clear and unequivocal language, it is the petitioner who was declared liable therefor and consequently made to pay. That the latter was ordered to do so as president of the corporation would not free him from the responsibility of paying the due amount simply because according to him, he had ceased to be corporate president; such conclusion stems from the fact that the public respondent, in resolving his motion for clarificatory judgment, pierced the veil of corporate fictional and cast aside the contention that both he and the corporation have separate and distinct personalities. In short, even if the Court is to assume arguendo that the obligation was incurred in the name of the corporation, the petitioner would still be personally liable therefor because for all legal intents and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing more than his business conduit and alter ego. The fiction of a separate juridical personality conferred upon such corporation by law should be disregarded.

8. RAMOSO VS CAFACTS:On March 11, 1957, Commercial Credit Corporation was registered with SEC as a general financing and investment corporation. CCC made proposals to several investors for the organization of franchise companies in different localities. Petitioners herein invested and bought majority shares of stocks, while CCC retained minority holdings.

In 1974, CCC attempted to obtain a quasi-banking license from Central Bank of the Philippines. But there was a hindrance because Section 1326 of CBs Manual of Regulations for Banks and Other Financial Intermediaries, where corporations are prohibited from lending funds to persons with related interests, among others.What CCC did was divest itself of its shareholdings in the franchise companies. It incorporated CCC Equity to take over the administration of the franchise companies under new management contracts.

Upon investigation, petitioners allegedly discovered the dissipation of the assets of their respective franchise companies. Among the alleged fraudulent schemes by GCC involved transfer or assignment of its uncollectible notes and accounts; utilization of spurious commercial papers to generate paper revenues; and release of collateral in connivance with unauthorized loans. Furthermore, GCC allegedly divested itself of its assets through a questionable offset of receivables arrangement with one of its creditors, Resource and Finance Corporation.

Ramoso et al then sued GCC before the Securities and Exchange Commission. The hearing officer ruled in favor of Ramoso et al. He pierced the veil of corporate fiction and he declared that the franchise branches, GCC, and CCC equity are one and the same corporation; that as such, the franchise branches, in whom Ramoso et al invested, are not liable to the obligations incurred by GCC. The SEC en banc however reversed the ruling of the hearing officer.

The Court of Appeals affirmed the SEC en banc.

ISSUE:

Whether or not the veil of corporate fiction should be pierced.

HELD: No. Ramoso et al did not properly plead their cause. They merely alleged that CCC Equity is a conduit of GCC. As found by the SEC en banc, Ramoso et al were not able to prove that CCC Equity was incorporated in order to perpetrate fraud against them. Whether the existence of the corporation should be pierced depends on questions of facts, appropriately pleaded. Mere allegation that a corporation is the alter ego of the individual stockholders is insufficient.

The presumption is that the stockholders or officers and the corporation are distinct entities. The burden of proving otherwise is on the party seeking to have the court pierce the veil of the corporate entity. It was not shown that the debts incurred by GCC were actually incurred in bad faith. Further, there is a pending case relating to the liability of Ramoso et al as guarantors that will be the proper forum to raise their respective liability as regards said debts.

SECTION 6LIRAG TEXTILE MILLS vs. SSSFacts:SSS (respondent) and Lirag Textile Mills (Petitioner) entered into a Purchase Agreement which Respondent agreed to purchase preferred stocks of Petitioner worth P1 million subject to conditions that Petitioner should repurchase the shares of stocks at a regular interval of one year and to pay dividends and failure to redeem and pay the dividend, the entire obligation shall become due and demandable and it shall be liable for an amount equivalent to 12% of the amount then outstanding as liquidated damages.Basilio Lirag (Basilio) as President of Lirag Textile Mills signed the Agreement as a surety to guarantee the redemption of the stocks, the payment of dividends and other obligations. Pursuant to the Agreement, Respondent paid Petitioner P500,000 on two occasions and the latter issued 5,000 preferred stocks with a par value of P100To guarantee the redemption of the stocks purchased by the respondent, the payment of dividends, as well as the other obligations of the Lirag Textile Mills, Inc., defendants Basilio L. Lirag signed the Purchase Agreement not only as president of the defendant corporation, but also as surety so that should the Lirag Textile Mills, Inc. fail to perform any of its obligations in the said Purchase Agreement, the surety shall immediately pay to the vendee the amounts then outstanding.Lirag failed to redeem the certificates of stockAfter sending Respondent sent demand letters, Petitioner and Basilio still made no redemption nor made dividend payments.Respondent filed an action for specific performance and damages against PetitionerThe lower court ruled in favor of SSSPetitioner contends that there is no obligation on their part to redeem the stock certificates since Respondent is still a preferred stock holder of the company and such redemption is dependent upon the financial ability of the company.On the part of Basilio, he contends that his liability only arises only if the company is liable and does not perform its obligations under the Agreement.

Issue: Whether or not the Purchase Agreement entered into by the Parties is a debt instrument

Held: YES, the Purchase Agreement is a debt instrument. Its terms and conditions unmistakably show that the parties intended the repurchase of the preferred shares on the respective scheduled dates to be an absolute obligation which does not depend upon the financial ability of petitioner corporation. This absolute obligation on the part of petitioner corporation is made manifest by the fact that a surety was required to see to it that the obligation is fulfilled in the event of the principal debtor's inability to do so. The unconditional undertaking of petitioner corporation to redeem the preferred shares at the specified dates constitutes a debt which is defined "as an obligation to pay moneyat some fixed future time, or at a time which becomes definite and fixed by acts of either party and which they expressly or impliedly, agree to perform in the contract.It cannot be said that SSS is a preferred stockholder. The rights given by the Purchase Agreement to SSS are not rights enjoyed by ordinary stockholders. Since there was a condition that failure to repurchase the stocks on the scheduled dates renders the entire obligation due and demandable with interest. These features clearly show that intent of the parties to be bound therein as debtor and creditor and not as a corporation and stockholder. The SC futher held Basilio L. Lirag cannot deny liability for petitioner corporation's default. As surety, Basilio L. Lirag is bound immediately to pay respondent SSS the amount then outstanding.The award of liquidated damages represented by 12% of the amount then outstanding is correct, considering that the petitioners in the given facts admitted having failed to fulfill their obligations under the Agreement. The grant of liquidated damages is expressly provided for the Purchase Agreement in case of contractual breach. Since Lirag did not deny its failure to redeem the preferred shares and the non-payment of dividends which are overdue, they are bound to earn legal interest from the time of demand, in this case, judicial i.e. the time of filing the action.

SECTION 8Republic v. AganaOn 18 September 1961, the Robes-Francisco Realty & Development Corporation (RFRDC) secured a loan from theRepublic Planters Bank in the amount of P120,000.00. As part of theproceeds of the loan, preferred shares of stocks were issued to RFRDC through its officers then,Adalia F. Robes and one Carlos F. Robes (the Bank lent such amount partially in the form ofmoney and partially in the form ofstock certificates).Said stock certificates were in the name of Adalia F.Robes and Carlos F. Robes, who subsequently, however, endorsed his shares infavor of Adalia F. Robes. Said certificates of stock bear thefollowing terms and conditions: "The Preferred Stock shall havethe following rights, preferences, qualifications and limitations, to wit: 1.Of the right toreceive a quarterly dividend of 1%, cumulative and participating. xxx 2. That such preferred shares may be redeemed, by the system of drawing lots, atany time after 2years from the date ofissue at the option ofthe Corporation." Later, RFRDC and Robes proceeded against theBank and filed acomplaint anchored on their alleged rights to collect dividends under the preferred shares in question and to have thebank redeem the same under the terms and conditions of the stock certificates. The trial court ruled in favor of RFRDC ordering the bank to pay it and Robes the face value of the stock certificates as redemption price plus 1%quarterly interest thereon until full payment. ISSUE: WON the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes. HELD: Redeemable shares are shares usually preferred, which by their terms are redeemable at a fixed date or at the option of either the issuing corporation or the stockholder or both at a certain redemption price. While the stock certificate does allow redemption, the option to do so was clearly vested in the bank. Theredemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock certificate, the redemption rests entirely with the corporation and the stockholder is without right to either compel or refuse theredemption of its stock. Furthermore, the terms and conditions set forth therein use theword "may". It is a settled doctrine instatutory construction that the word "may" denotes discretion, and cannot be construed as having a mandatory effect. The redemption of said shares cannot be allowed. The Central Bank made a finding that the Bank has been suffering from chronic reserve deficiency, and that such finding resulted in a directive, issued on 31January 1973 by then Gov. G. S. Licaros of theCentral Bank, to the President and Acting Chairman of the Board of the bank prohibiting the latterfrom redeeming any preferred share, on the ground thatsaid redemption would reduce the assets of the Bank tothe prejudice of its depositors and creditors. Redemption ofpreferred shares was prohibited for a just and valid reason. Thedirective issued by the Central Bank Governor was obviously meant to preserve the status quo, and to prevent thefinancial ruin of a banking institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking industry asa whole. The directive, in limiting the exercise of a right granted by law toa corporate entity, may thus be considered as an exercise of police power.

SECTION 9CIR vs ManningReese, the majority stockholder of Mantrasco, executed a trust agreement between him, Mantrasco, Ross, Selph, carrascoso & Janda law firm and the minority stockholders, Manning, McDonald and Simmons. Said agreement was entered into because of Reeses desire that Mantrasco and Mantrasocs two subsidiaries, Mantrasco Guamand Port Motors, to continue under the management of Manning, McDonald and Simmons upon his [Reese] death. When Reese died, Mantrasco paid Reeses estate the value of his shares. When said purchase price has been fully paid, the24, 700 shares, which were declared as dividends, were proportionately distributed to Manning, McDonald and Simmons. Because of this, the BIR issued assessments on Manning, McDonald and Simmons for deficiency income tax for 1958. Manning et al, opposed this assessment but the BIR still found them liable. Manning et al. appealed to the CTA, which absolved them from any liability.

Issues: WON the shares are treasury shares.WON Manning, McDonald & Simmons should pay for deficiency income taxes.

Held: NO. Treasury shares are stocks issued and fully paid for and re-acquired by the corporation either by purchase, donation, forfeiture or other means. They are therefore issued shares, but being in the treasury they do not have the status of outstanding shares. Consequently, although a treasury share, not having been retired by the corporation re-acquiring it, may be re-issued or sold again, such share, as long as it is held by the corporation as a treasury share, participates neither in dividends, because dividends cannot be declared by the corporation to itself, nor in the meetings of the corporations as voting stock, for otherwise equal distribution of voting powers among stockholders will be effectively lost and the directors will be able to perpetuate their control of the corporation though it still represent a paid for interest in the property of the corporation.Where the manifest intention of the parties to the trust agreement was, in sum and substance, to treat the shares of a deceased stockholder as absolutely outstanding shares of said stockholders estate until they were fully paid, the declaration of said shares as treasury stock dividend was a complete nullity and plainly violative of public policy.A stock dividend, being one payable in capital stock, cannot be declared out of outstanding corporate stock, but only from retained earnings.YES. Where by the use of a trust instrument as a convenient technical device, respondents bestowed unto themselves the full worth and value of a deceased stockholders corporate holding acquired with the very earnings of the companies, such package device which obviously is not designed to carry out the usual stock dividend purpose of corporate expansion reinvestment, e.g., the acquisition of additional facilities and other capital budget items, but exclusively for expanding the capital base of the surviving stockholders in the company, cannot be allowed to deflect the latters responsibilities toward our income tax laws. The conclusion is ineluctable that whenever the company parted with a portion of its earnings "to buy" the corporate holdings of the deceased stockholders, it was in ultimate effect and result making a distribution of such earnings to the surviving stockholders. All these amounts are consequently subject to income tax as being, in truth and in fact, a flow of cash benefits to the surviving stockholders.