Corporate Law Case Digest: Stockholders Of F. Guanzon And Sons, Inc V. Register Of Deeds Of Manila (1962) G.R. No.

L-18216 October 30, 1962 Lessons Applicable: Strong Juridical Personality (Corporate Law) FACTS: Sept 19, 1960: 5 stockholders of the F. Guanzon and Sons, Inc. executed a certificate ofliquidation of the assets of the corporation, dissolution and distribution among themselves in proportion to their shareholdings, as liquidating dividends, corporate assets, including real properties Register of Deeds of Manila denied the registration of the certificate of liquidation on seven grounds, of which the following were disputed by the stockholders:: 3. The number of parcels not certified to in the acknowledgment; 5. P430.50 Reg. fees need be paid; 6. P940.45 documentary stamps need be attached to the document; 7. The judgment of the Court approving the dissolution and directing the disposition of the assets of the corporation need be presented Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6. Stockholders appealed.
As correctly stated by the Commissioner of Land Registration, the propriety or impropriety of the three grounds on which the denial of the registration of the certificate of liquidation was predicated hinges on whether or not that certificate merely involves a distribution of the corporation's assets or should be considered a transfer or conveyance.

contend 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 ISSUE: W/N certificate merely involves a distribution of the corporation's assets (or should be considered a transfer or conveyance) HELD: NO. affirm the resolution appealed from
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 real estate A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity, but its holder is not the owner of any part of the capital of the corporation. Nor is he entitled to the possession of any definite portion of its property or assets (). The stockholder is not a co-owner or tenant in common of the corporate property. On the basis of the foregoing authorities, it is clear that the act of liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of the latter's assets 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. Indeed, since the purpose of the liquidation, as well as the distribution of the assets of the corporation, is to transfer their title from the corporation to the stockholders in proportion to their shareholdings, and this is in effect the purpose which they seek to obtain from the Register of Deeds of Manila, that transfer cannot be effected without the corresponding deed of conveyance from the corporation to the stockholders. It is, therefore, fair and logical to consider the certificate
WEST COAST LIFE INSURANCE CO.vs GEO N. HURD, Judge of Court of First Instance (G.R. No. L-8527 March 30, 1914) MORELAND, J.: FACTS: This is an action for the issuance of a writ of prohibition against the defendant "commanding the defendant to desist or refrain from further proceedings in a criminal action pending in that court." Antecedent Facts:

1. The petitioner is a foreign life-insurance corporation, duly organized under and by virtue of the laws of the State of California, doing business regularly and legally in the Philippine Islands pursuant to its laws. 2. The assistant prosecuting attorney of the city of Manila filed an information in a criminal action in the Court of First Instance of that city against the plaintiff, said corporation, and also against John Northcott and Manuel C. Grey, charging said corporation and said individuals with the crime of libel. 3. The libelous act is as follows: "First. For some time past various rumors are current to the effect that the Insular Life Insurance Company is not in as good a condition as i should be at the present time, and that really it is in bad shape. Nevertheless, the investigations made by the representative of the "Bulletin" have failed fully to confirm these rumors. It is known that the Insular Auditor has examined the books of the company and has found that its capital has diminished, and that by direction of said official the company has decided to double the amount of its capital, and also to pay its reserve fund. All this is true." 4. Plaintiff, together with the other persons named as accused in said process through their attorneys, served upon the prosecuting attorney and filed with the clerk of the court a motion to quash said summons and the service thereof, on the ground that the court had no jurisdiction over the said company, there being no authority in the court for the issuance of the process, Exhibit B, the order under which it was issued being void. ISSUE: The question remains as to whether or not he court may, of itself and on its own motion, create not only a process but a procedure by which the process may be made effective. HELD: We do not believe that the authority of the courts of the Philippine Islands extends so far. While having the inherent powers which usually go with courts of general jurisdiction, we are of the opinion that, under the circumstances of their creation, they have only such authority in criminal matters as is expressly conferred upon them by statute or which it is necessary to imply from such authority in order to carry out fully and adequately the express authority conferred. We do not feel that Courts of First Instance have authority to create new procedure and new processes in criminal law. The exercise of such power verges too closely on legislation. It is undoubted that, under the Spanish criminal law and procedure, a corporation could not have been proceeded against criminally, as such, if such an entity as a corporation in fact existed under the Spanish law, and as such it could not have committed a crime in which a willful purpose or a malicious intent was required. THE PEOPLE OF THE PHILIPPINE ISLANDS vs TAN BOON KONG G.R. No. L-35262 March 15, 1930 OSTRAND, J.: Facts: This is an appeal from an order of the Judge of the Twenty-third Judicial District sustaining to demurrer to an information charging the defendant Tan Boon Kong with the violation of section 1458 of Act No. 2711, or for wrongfully declaring the its gross sales. Apparently, the court below based the appealed ruling on the ground that the offense charged must be regarded as committed by the corporation and not by its officials or agents. ISSUE: WON the information sets forth facts rendering the defendant, as manager of the corporation liable criminally under section 2723 of Act No. 2711 for violation of section 1458 of the same act for the benefit of said corporation. HELD: In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold that the manager of a diary corporation was criminally liable for the violation of a statute by the corporation through he was not present when the offense was committed.In the present case the information or complaint alleges that he defendant was the manager of a corporation which was engaged in business as a merchant, and as such manager, he made a false return, for purposes of taxation, of the total amount of sale made by said false return constitutes a violation of law, the defendant, as the author of the illegal act, must necessarily answer for its consequences, provided that the allegation are proven. The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will be returned to said court for further proceedings not inconsistent with our view as hereinafter stated. JOSE O. SIA vs People of the Philippines (G.R. No. L-30896 April 28, 1983) DE CASTRO, J.: Facts: Petition for review of the decision of the Court of Appeals affirming the decision of the Court of First Instance of Manila convicting the appellant of estafa. INFORMATION: That in, about or during the period comprised' between July 24, 1963 and December 31, 1963, both dates inclusive, in the City of Manila, Philippines, the said accused did then and there willfully, unlawfully and feloniously defraud the Continental Bank, a banking institution duly organized and doing business in the City of Manila, in the following manner, to wit: the said accused, in his capacity as president and general manager of the Metal Manufacturing of the Philippines, Inc. (MEMAP) and on behalf of said company, obtained delivery of 150 M/T Cold Rolled Steel Sheets valued at P 71,023.60 under a trust receipt agreement under L/C No. 63/109, which cold rolled steel sheets were consigned to the Continental Bank, under the express obligation on the part of said accused of holding the said steel sheets in trust and selling them and turning over the proceeds of the sale to the Continental Bank; but the said accused, once in possession of the said goods, far from complying with his aforesaid obligation and despite demands made upon him to do so, with intent to defraud, failed and refused to return the said cold rolled sheets or account for the proceeds thereof, if sold, which the said accused willfully, unlawfully and feloniously misappropriated, misapplied and converted to his own personal use and benefit, to the damage and prejudice of the said Continental Bank in the total amount of P146,818.68, that is the balance including the interest after deducting the

sum of P28,736.47 deposited by the said accused with the bank as marginal deposit and forfeited by the said from the value of the said goods, in the said sum of P71,023.60. REVIEW OF THE FACTS:Accussed sometime prior to 24 May, 1963, was General Manager of the Metal Manufacturing Company of the Philippines, Inc. engaged in the manufacture of steel office equipment; on 31 May, 1963, because his company was in need of raw materials to be imported from abroad, he applied for a letter of credit to import steel sheets from Mitsui Bussan Kaisha, Ltd. of Tokyo, Japan, the application being directed to the Continental Bank, herein complainant, Exhibit B and his application having been approved, the letter of credit was opened on 5 June, 1963 in the amount of $18,300, Exhibit D; and the goods arrived sometime in July, 1963 according to accused himself, tsn. II:7; now from here on there is some debate on the evidence; according to Complainant Bank, there was permitted delivery of the steel sheets only upon execution of a trust receipt, Exhibit A; while according to the accused, the goods were delivered to him sometime before he executed that trust receipt in fact they had already been converted into steel office equipment by the time he signed said trust receipt, tsn. II:8; but there is no question - and this is not debated - that the bill of exchange issued for the purpose of collecting the unpaid account thereon having fallen due (see Exh. B) neither accused nor his company having made payment thereon notwithstanding demands, Exh. C and C-1, dated 17 and 27 December, 1963, and the accounts having reached the sum in pesos of P46,818.68 after deducting his deposit valued at P28,736.47; that was the reason why upon complaint by Continental Bank, the Fiscal filed the information after preliminary investigation as has been said on 22 October, 1964. ISSUE: Whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal Manufacturing Company of the Philippines (Metal Company, for short) as President thereof in dealing with the complainant, the Continental Bank, (Bank for short) he may be liable for the crime charged. HELD: The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case, supra-may however not be squarely applicable to the instant case in that the corporation was directly required by law to do an act in a given manner, and the same law makes the person who fails to perform the act in the prescribed manner expressly liable criminally. The performance of the act is an obligation directly imposed by the law on the corporation. Since it is a responsible officer or officers of the corporation who actually perform the act for the corporation, they must of necessity be the ones to assume the criminal liability; otherwise this liability as created by the law would be illusory, and the deterrent effect of the law, negated. In the present case, a distinction is to be found with the Tan Boon Kong case in that the act alleged to be a crime is not in the performance of an act directly ordained by law to be performed by the corporation. The act is imposed by agreement of parties, as a practice observed in the usual pursuit of a business or a commercial transaction. The offense may arise, if at all, from the peculiar terms and condition agreed upon by the parties to the transaction, not by direct provision of the law. The intention of the parties, therefore, is a factor determinant of whether a crime was committed or whether a civil obligation alone intended by the parties. With this explanation, the distinction adverted to between the Tan Boon Kong case and the case at bar should come out clear and meaningful. In the absence of an express provision of law making the petitioner liable for the criminal offense committed by the corporation of which he is a president as in fact there is no such provisions in the Revised Penal Code under which petitioner is being prosecuted, the existence of a criminal liability on his part may not be said to be beyond any doubt. In all criminal prosecutions, the existence of criminal liability for which the accused is made answerable must be clear and certain. The maxim that all doubts must be resolved in favor of the accused is always of compelling force in the prosecution of offenses. This Court has thus far not ruled on the criminal liability of an officer of a corporation signing in behalf of said corporation a trust receipt of the same nature as that involved herein. In the case of Samo vs. People, L-1760304, May 31, 1962, the accused was not clearly shown to be acting other than in his own behalf, not in behalf of a corporation. SECOND ISSUE: The next question is whether the violation of a trust receipt constitutes estafa under Art. 315 (1-[2]) of the Revised Penal Code, as also raised by the petitioner. We now entertain grave doubts, in the light of the promulgation of P.D. 115 providing for the regulation of trust receipts transaction, which is a very comprehensive piece of legislation, and includes an express provision that if the violation or offense is committed by a corporation, partnership, association or other juridical entities the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to civil liabilities arising from the criminal offense. It is worthy of note that the civil liability imposed by the trust receipt is exclusively on the Metal Company. Speaking of such liability alone, as one arising from the contract, as distinguished from the civil liability arising out of a crime, the petitioner was never intended to be equally liable as the corporation. Without being made so liable personally as the corporation is, there would then be no basis for holding him criminally liable, for any violation of the trust receipt. This is made clearly so upon consideration of the fact that in the violation of the trust agreement and in the absence of positive evidence to the contrary, only the corporation benefited, not the petitioner personally, yet, the allegation of the information is to effect that the misappropriation or conversion was for the personal use and benefit of the petitioner, with respect to which there is variance between the allegation and the evidence. It is worthy of note that the civil liability imposed by the trust receipt is exclusively on the Metal Company. Speaking of such liability alone, as one arising from the contract, as distinguished from the civil liability arising out of a crime, the petitioner was never intended to be equally liable as the corporation. Without being made so liable personally as

the corporation is, there would then be no basis for holding him criminally liable, for any violation of the trust receipt. This is made clearly so upon consideration of the fact that in the violation of the trust agreement and in the absence of positive evidence to the contrary, only the corporation benefited, not the petitioner personally, yet, the allegation of the information is to effect that the misappropriation or conversion was for the personal use and benefit of the petitioner, with respect to which there is variance between the allegation and the evidence. FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals and hereby acquit the petitioner. ABS-CBN BROADCASTING CORPORATION vs HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO (G.R. No. 128690 January 21, 1999) DAVIDE, JR., CJ.: FACTS: In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and set aside the decision of the CA which affirmed the decision of the regional trial court of Quezon City. Antecedent Facts: 1. ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave ABSCBN an exclusive right to exhibit some Viva films. 2. Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement. 3. ABS-CBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from the list) "we can purchase"and therefore did not accept said list. The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film ''Maging Sino Ka Man." 4. defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list consisting of 52 original movie titles (i.e. not yet aired on television) including the 14 titles subject of the present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots. 5. (In short)There were negotiations on the Films which are to be aired by plaintiffs. 6. ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting Corporation RBS, VIVA and del ROSARIO. 7. RTC issued a restraining order enjoining RBC to air the said tv shows, starting with the film Maging Sino Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said date. 8. Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorney's fees. 9. (the Main issue in the STORY) Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had suffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages were correctly imposed by way of example or correction for the public good in view of the filing of the complaint despite petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2 million, exemplary damages to P2 million, and attorney's fees to P500, 000.00. THE CONTENTIONS: ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint, An award of moral and exemplary damages is not warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. RBS asserts that ABS-CBN filed the case and secured injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino,damages may be awarded in cases of abuse of rights even if the act done is not illicit and there is abuse of rights were plaintiff institutes and action purely for the purpose of harassing or prejudicing the defendant. RULING: However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved.

The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action.Neither could ABSCBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond. Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not to impose a penalty on the wrongdoer. The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate then moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental anguish, which call be experienced only by one having a nervous system. There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could not have meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a right, it is damnumabsqueinjuria. REYNALDO T. COMETA and STATE INVESTMENT TRUST, INC. vs COURT OF APPEALS, et al [G.R. No. 124062. January 21, 1999] MENDOZA, J.: FACTS: This is a petition for review of the decision of the CA ffirming the trial courts order denying petitioners Motion to Dismissfor alleged failure of private respondents to stat e in their complaint a cause of action against petitioners. Antecedent Facts: 1. Petitioner State Investment Trust, Inc. (SITI), formerly State Investment House, Inc. (SIHI), is an investment house engaged in quasi-banking activities. Petitioner Reynaldo Cometa is its president. 2. Private respondent Honeycomb Builders, Inc. (HBI), on the other hand, is a corporation engaged in the business of developing, constructing, and selling townhouses and condominium units. Private respondent Reynaldo Guevara is president of HBI and chairman of the board of directors of Guevent Industrial Development Corp. (GIDC). 3. SITI extended loans in various amounts to GIDC which the latter failed to pay on the dates they became due.For this reason, a rehabilitation plan was agreed upon for GIDC under which it mortgaged several parcels of land to petitioner SITI. One of the Parcel of Land in Mandaluyong was foreclosed by SITI and sold the said land to the highest bidder. 4. Due to irregularities in the foreclosure, the GIDC filed a civil case for the annulment of the foreclosure sale and damages with the RTC of Pasig. 5. The parties in the case,however, reached a compromised agreement which was the basis of the court to render a judgment on the compromise. 6. However, there was a dispute on the interpretation of the compromise which was related to the court. 7.The Court directed petitioner SITI to accept the offer of respondent HBI to purchase the property covered by TCT No. 462855 (20510). Petitioner SITI appealed the order to the Court of Appeals which affirmed the same. 8. Petitioner Cometa denied, however, that he ever executed the affidavit. He asked the National Bureau of Investigation for assistance to determine the authenticity of the signature on the affidavit. The NBI found Cometas signature on the Affidavit of Undertaking to be a forgery on the basis of which a complaint for falsification of public document was filed against HBI president Guevara. 9. An information for Falsification of Public Document was thus filed against private respondent Guevara in the Regional Trial Court of Makati, however, due to the demurrer to evidence, the said information was dismissed. 10. Following the dismissal of the criminal case against him, private respondents Reynaldo S. Guevara and HBI filed a complaint for malicious prosecution against petitioners Cometa and SITI in the Regional Trial Court of Quezon City. 11. Acting on the MOTION TO DISMISS With Alternative Motion to Drop Honeycomb Builders, Inc. as Party Plaintiff filed by Defendants Reynaldo T. Cometa and State Investment House, Inc. (SIHI) thru counsel, together with the OPPOSITION filed by Plaintiffs thru counsel, after a thorough perusal of the contents embodied in said pleadings, the Court in the exercise of its sound judicial discretion finds that there are sufficient allegations of cause of action in the Complaint, and in the interest of justice, the Plaintiff thru counsel should be given an opportunity to introduce proof in support of his allegations, which could at best be attained thru a full blown hearing on the merits of the case. The defense of lack of cause of action, and that defendants are not the real parties in interest, in the considered opinion of this Court, are matters of defense, which will be considered, after the contending parties thru counsel shall have rested their cases, and the case submitted for Decision. ISSUES: The principal question for decision is whether the complaint filed by private respondents against petitioners in the Regional Trial Court states a cause of action. First, petitioners maintain it does not as the allegations in the

complaint are insufficient and indispensable parties were not impleaded in the case. Secondly, they contend that private respondent HBI should have been dropped as a party plaintiff upon petitioners motion therefor. HELD: Both contentions are without merit. It is thus alleged that petitioners instigated the prosecution of private respondents.The second requisite, namely, that the criminal case terminated in plaintiffs (private respondent Guevara) acquittal is thus alleged. A court, dealing with a motion to dismiss an action for malicious prosecution, has only to determine whether the allegations of the complaint, assuming them to be true, entitle the plaintiff to a judgment. The trial court is not to inquire into the truth of the allegations. It is hardly necessary to say that to allow the present action to proceed is not to impose a penalty on the right to litigate. For trial is still to be conducted and liability is not automatic. It is true that a criminal case can only be filed against the officers of a corporation and not against the corporation itself.It does not follow from this, however, that the corporation cannot be a real-party-in-interest for the purpose of bringing a civil action for malicious prosecution. Lastly, the statement of the judge in the assailed order of May 30, 1994 that [t]he defense of lack of cause of action and that the defendants are not the real parties in interest .... are matters of defense was correctly held by the appellate court as mere dictum, said judge having earlier stated in the same order that there are sufficient allegations of causes of action in the Complaint. THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC. vs THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF DAVAO CITY (G.R. No. L-8451 December 20, 1957) FELIX, J.:FACTS: Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of sale of a parcel of land located in the same city covered by Transfer Certificate No. 2263, in favor of the Roman Catholic Apostolic Administrator of Davao Inc. 1. Petitioner is a corporation sole organized and existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent. 2. When the deed of sale was presented to Register of Deeds of Davao for registration,required said corporation sole to submit a similar affidavit declaring that 60 per cent of the members thereof were Filipino citizens. 3. Petitioner expressed willingness to submit an affidavit, both not in the same tenor as that made the Progress of the Carmelite Nuns because the two cases were not similar, for whereas the congregation of the Carmelite Nuns had five incorporators, the corporation sole has only one; that according to their articles of incorporation, the organization of the Carmelite Nuns became the owner of properties donated to it, whereas the case at bar, the totality of the Catholic population of Davao would become the owner of the property bought to be registered. 4. The case was decided in EN CUNSULTA proceeding.RD denied the registration of the said parcel of land in the name of the corporation. 5. Hence, the plaintiff raise a mandamus case in the courts. CONTENTIONS: Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is not prohibited or disqualified to acquire and hold real properties. It was their stand that the theory that properties registered in the name of the corporation sole are held in true for the benefit of the Catholic population of a place, as of Davao in the case at bar should be sustained because a conglomeration of persons cannot just be pointed out as the cestuique trust or recipient of the benefits from the property allegedly administered in their behalf. Neither can it be said that the mass of people referred to as such beneficiary exercise ant right of ownership over the same. That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporation's sole are merely administrators of the church properties that come to their possession, in which they hold in trust for the church. It can also be said that while it is true that church properties could be administered by a natural persons, problems regarding succession to said properties can not be avoided to rise upon his death. Through this legal fiction, however, church properties acquired by the incumbent of a corporation sole pass, by operation of law, upon his death not his personal heirs but to his successor in office. It could be seen, therefore, that a corporation sole is created not only to administer the temporalities of the church or religious society where he belongs but also to hold and transmit the same to his successor in said office. If the ownership or title to the properties do not pass to the administrators, who are the owners of church properties?. We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every Roman Catholic Church in different countries, if it exercises its mission and is lawfully incorporated in accordance with the laws of the country where it is located, is considered an entity or person with all the rights and privileges granted to such artificial being under the laws of that country, separate and distinct from the personality of the Roman Pontiff or the Holy See, without prejudice to its religious relations with the latter which are governed by the Canon Law or their rules and regulations. Roman Catholic Apostolic Administrator of Davao, Inc., which was registered with the Securities and Exchange Commission on September 12, 1950, and succeeded in the administrative for all the "temporalities" of the Roman Catholic Church existing in Davao.t can be also maintained without fear of being gainsaid that the Roman Catholic Apostolic Church in the Philippines has no nationality and that the framers of the Constitution, as will be hereunder

explained, did not have in mind the religious corporations sole when they provided that 60 per centum of the capital thereof be owned by Filipino citizens. There could be no controversy as to the fact that a duly registered corporation sole is an artificial being having the right of succession and the power, attributes, and properties expressly authorized by law or incident to its existence (section 1, Corporation Law). There is a reason to believe that when the specific provision of the Constitution invoked by respondent Commissioner was under consideration, the framers of the same did not have in mind or overlooked this particular form of corporation. It is undeniable that the naturalization and conservation of our national resources was one of the dominating objectives of the Convention and in drafting the present Article XII of the Constitution, the delegates were goaded by the desire (1) to insure their conservation for Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the extension into the country of foreign control through peaceful economic penetration; and (3) to prevent making the Philippines a source of international conflicts with the consequent danger to its internal security and independence. It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which are formed by no less than 5 incorporators, is composed of only one persons, usually the head or bishop of the diocese, a unit which is not subject to expansion for the purpose of determining any percentage whatsoever; (2) the corporation sole is only the administrator and not the owner of the temporalities located in the territory comprised by said corporation sole; (3) such temporalities are administered for and on behalf of the faithful residing in the diocese or territory of the corporation sole; and (4) the latter, as such, has no nationality and the citizenship of the incumbent Ordinary has nothing to do with the operation, management or administration of the corporation sole, nor effects the citizenship of the faithful connected with their respective dioceses or corporation sole. In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of the Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under consideration, the framers of the same did not have in mind or overlooked this particular form of corporation. If this were so, as the facts and circumstances already indicated tend to prove it to be so, then the inescapable conclusion would be that this requirement of at least 60 per cent of Filipino capital was never intended to apply to corporations sole, and the existence or not a vested right becomes unquestionably immaterial. All these authorities uphold our conviction that the framers of the Constitution had not in mind the corporations sole, nor intended to apply them the provisions of section 1 and 5 of said Article XIII when they passed and approved the same. And if it were so as We think it is, herein petitioner, the Roman Catholic Apostolic Administrator of Davao, Inc., could not be deprived of the right to acquire by purchase or donation real properties for charitable, benevolent and educational purposes, nor of the right to register the same in its name with the Register of Deeds of Davao, an indispensable requisite prescribed by the Land Registration Act for lands covered by the Torrens system. JUDGMENT Wherefore, the resolution of the respondent Land Registration Commission of September 21, 1954, holding that in view of the provisions of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee (petitioner) is not qualified to acquire lands in the Philippines in the absence of proof that at least 60 per centum of the capital, properties or assets of the Roman Catholic Apostolic Administrator of Davao, Inc. is actually owned or controlled by Filipino citizens, and denying the registration of the deed of sale in the absence of proof of compliance with such requisite, is hereby reversed. Consequently, the respondent Register of Deeds of the City of Davao is ordered to register the deed of sale executed by Mateo L. Rodis in favor of the Roman Catholic Apostolic Administrator of Davao, Inc., which is the subject of the present litigation. No pronouncement is made as to costs. It is so ordered.

Ppvs WILLIAM H. QUASHA (G.R. No. L-6055 June 12, 1953) REYES, J.:FACTS: 1. William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of Manila with the crime of falsification of a public and commercial document in that, having been entrusted with the preparation and registration of the article of incorporation of the Pacific Airways Corporation(PAC). 2. PAC is adomestic corporation organized for the purpose of engaging in business as a common carrier. 3. Respondent caused it to appear in said article of incorporation that one ArsenioBaylon, a Filipino citizen, had subscribed to and was the owner of 60.005 per cent of the subscribed capital stock of the corporation when in reality, as the accused well knew, such was not the case, the truth being that the owner of the portion of the capital stock subscribed to by Baylon and the money paid thereon were American citizen whose name did not appear in the article of incorporation. 4. The purpose for making this false statement was to circumvent the constitutional mandate that no corporation shall be authorize to operate as a public utility in the Philippines unless 60 per cent of its capital stock is owned by Filipinos. 5. The respondents was found guilty of the said crime.

6. Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed capital stock of the corporation, Baylon nevertheless did not have the controlling vote because of the difference in voting power between the preferred shares and the common shares 7. Still, with the capital structure as it was, the article of incorporation were accepted for registration and a certificate of incorporation was issued by the SEC. THE ADMISSION OF THE ACCUSSED: There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock of the corporation. But it is admitted that the money paid on his subscription did not belong to him but to the Americans subscribers to the corporate stock. In explanation, the accused testified, without contradiction, that in the process of organization Baylon was made a trustee for the American incorporators, and that the reason for making Baylon such trustee ISSUE: WON the accused can be held guilty of FALSIFICATION, and that the CORP is a dummy of an americancorp which owns 60.005 percent of the stocks in the said corp, RULING:If the Constitution does not prohibit the mere formation of a public utility corporation with the alien capital, then how can the accused be charged with having wrongfully intended to circumvent that fundamental law by not revealing in the articles of incorporation that Baylon was a mere trustee of his American co-incorporation and that for that reason the subscribed capital stock of the corporation was wholly American? For the mere formation of the corporation such revelation was not essential, and the Corporation Law does not require it. Defendant was, therefore, under no obligation to make it. In the absence of such obligation and of the allege wrongful intent, defendant cannot be legally convicted of the crime with which he is charged. It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock appearing in the name of Baylon was an indispensable preparatory step to the subversion of the constitutional prohibition and the laws implementing the policy expressed therein. This view is not correct. For a corporation to be entitled to operate a public utility it is not necessary that it be organized with 60 per cent of its capital owned by Filipinos from the start. A corporation formed with capital that is entirely alien may subsequently change the nationality of its capital through transfer of shares to Filipino citizens. conversely, a corporation originally formed with Filipino capital may subsequently change the national status of said capital through transfer of shares to foreigners. What need is there then for a corporation that intends to operate a public utility to have, at the time of its formation, 60 per cent of its capital owned by Filipinos alone? That condition may anytime be attained thru the necessary transfer of stocks. The moment for determining whether a corporation is entitled to operate as a public utility is when it applies for a franchise, certificate, or any other form of authorization for that purpose. And that can be done after the corporation has already come into being and not while it is still being formed. And at that moment, the corporation must show that it has complied not only with the requirement of the Constitution as to the nationality of its capital, but also with the requirements of the Civil Aviation Law if it is a common carrier by air, the Revised Administrative Code if it is a common carrier by water, and the Public Service Law if it is a common carrier by land or other kind of public service.

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON vs HON. JESUS B. GARCIA, JR(DTC) and and EDSA LRT CORPORATION, LTD.(G.R. No. 114222 April 6, 1995) Facts:This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993. Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine Senate and are suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the Department of Transportation and Communications (DOTC), while private respondent EDSA LRT Corporation, Ltd. is a private corporation organized under the laws of Hongkong. EDSA LRT Consortium, a foreign corporation, was awarded with the construction of Light RailTransit III (LRT III) as the only bidder who has qualified with the requirements provided by the PBAC.The said foreign corporation will construct the LRT III in a Built -Lease-Transfer agreement that suchpublic utility will be leased by the government through the Department of Transportation andCommunication (DOTC) and then it would be

subsequently sold by the corporation to the government.An objection was raised by the petitioner stating that the awarding of the bid to the said corporation isagainst the Constitution. It was provided in the Constitution that only Filipinos are entitled to operate apublic utility such as the LRT III. 1. Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law. However, Secretary Prado, thereafter, requested presidential approval of the contract. 2. Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and approval. In a Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements. AGREEMENT: According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150 million a year to be achieved-through 54 such vehicles operating simultaneously. The EDSA LRT III will run at grade, or street level, on the mid-section of EDSA for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will have its own power facility.It will also have thirteen (13) passenger stations and one depot in 16-hectare government property at North Avenue. THE LAW: R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and for Other Purposes" was signed into law by the President. MAIN ISSUE: Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public utility? RULING: In law, there is a clear distinction between the "operation" of a public utility and the ownership of the facilities and equipment used to serve the public. Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely subjected to his will in everything not prohibited by law or the concurrence with the rights of another. The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the facilities used to serve the public. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof. THE MEAT OF THE CASE: While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits that it is not enfranchised to operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC agreed that on completion date, private respondent will immediately deliver possession of the LRT system by way of lease for 25 years, during which period DOTC shall operate the same as a common carrier and private respondent shall provide technical maintenance and repair services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of providing (1) repair and maintenance facilities for the depot and rail lines, services for routine clearing and security; and (2) producing and distributing maintenance manuals and drawings for the entire system (Revised and Restated Agreement, Annex F). Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and repair of the rolling stock, power plant, substations, electrical, signaling, communications and all other equipment as supplied in the agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Fees for private respondent' s services shall be included in the rent, which likewise includes the project cost, cost of replacement of plant equipment and spare parts, investment and financing cost, plus a reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54). In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no dealings with the public and the public will have no right to demand any services from it. It is well to point out that the role of private respondent as lessor during the lease period must be distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint venture agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the lessor obligated itself to build, at its own expense, all the facilities necessary to operate and maintain a nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the same. Upon due examination of the contract, the Court found that PGMC's participation was not confined to the construction and setting up of the on-line lottery system. It spilled over to the actual operation thereof, becoming indispensable to the pursuit, conduct, administration and control of the highly technical and sophisticated lottery system. In effect, the PCSO leased out its franchise to PGMC which actually operated and managed the same. Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one operating a public utility. The moment for determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or any other form of authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]). The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the proper administrative agencies and officials who have acquired expertise, specialized skills and knowledge in the performance of their functions should be accorded respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]).

Government officials are presumed to perform their functions with regularity and strong evidence is necessary to rebut this presumption. Petitioners have not presented evidence on the reasonable rentals to be paid by the parties to each other. The matter of valuation is an esoteric field which is better left to the experts and which this Court is not eager to undertake. That the grantee of a government contract will profit therefrom and to that extent the government is deprived of the profits if it engages in the business itself, is not worthy of being raised as an issue. In all cases where a party enters into a contract with the government, he does so, not out of charity and not to lose money, but to gain pecuniarily. 5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its governmental function. DOTC is the primary policy, planning, programming, regulating and administrative entity of the Executive branch of government in the promotion, development and regulation of dependable and coordinated networks of transportation and communications systems as well as in the fast, safe, efficient and reliable postal, transportation and communications services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in particular that has the power, authority and technical expertise determine whether or not a specific transportation or communication project is necessary, viable and beneficial to the people. The discretion to award a contract is vested in the government agencies entrusted with that function. WHEREFORE, the petition is DISMISSED. FILIPINAS COMPAIA DE SEGUROS vs CHRISTERN CO., INC.(G.R. No. L-2294 May 25, 1951) PARAS, C.J.:FACTS: 1. The respondent corporation, after payment of corresponding premium, obtained from the petitioner ,Filipinas Cia. deSeguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building located at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the Japanese military occupation, the building and insured merchandise were burned. 2. The respondent filed a claim againts the insurer, however, the said claim was rejected. 3. The petitioner reasoned out in its rejection that during the war on the date the United States declared war against Germany, the respondent Corporation (though organized under and by virtue of the laws of the Philippines) being controlled by the German subjects and the petitioner being a company under American jurisdiction when said policy. ISSUE: WON the said CORP is of GERMAN citizen, rendering the claim of the petitioner invalid, due to the fact that the RESPONDENT would become an ENEMY CORP. THE RULING OF THE CA: The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy when the United States declared war against Germany, relying on English and American cases which held that a corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected the theory that nationality of private corporation is determine by the character or citizenship of its controlling stockholders. RULING OF THE SC: The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner. Since World War I, the determination of enemy nationality of corporations has been discussion in many countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by enemies, namely managed under the influence of individuals or corporations, themselves considered as enemies. It was the English courts which first the Daimler case applied this new concept of "piercing the corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after the First World War. The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as did other legislations the applications of the control test and again, as in World War I, courts refused to apply this concept whereby the enemy character of an American or neutral-registered corporation is determined by the enemy nationality of the controlling stockholders. PEDRO R. PALTING vs SAN JOSE PETROLEUM INCORPORATED (G.R. No. L-14441 December 17, 1966) BARRERA, J.:FACTS: This is a petition for review of the orderlater supplemented and amplified by another of the SECdenying the opposition to, and instead, granting the registration, and licensing the sale in the Philippines, of 5,000,000 shares of the capital stock of the respondent-appellee San Jose Petroleum, Inc. Antecedent Facts: 1. Respondent a corporation organized and existing in the Republic of Panama. 2. Respondent filed with the SEC sworn registration statement, for the registration and licensing for sale in the Philippines Voting Trust Certificates representing 2,000,000 shares of its capital stock of a par value of $0.35 a share, at P1.00 per share. It was alleged that the entire proceeds of the sale of said securities will be devoted or used exclusively to finance the operations of San Jose Oil Company, Inc. (a domestic mining corporation hereafter to be referred to as SAN JOSE OIL) which has 14 petroleum exploration concessions covering an area of a little less than 1,000,000 hectares, located in the provinces of Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and Agusan.

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3. Pedro R. Palting and others, allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed with the Securities and Exchange Commission an opposition to registration and licensing of the securities on the grounds that (1) the tie-up between the issuer, respondentviolates the Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949; (2) the issuer has not been licensed to transact business in the Philippines; (3) the sale of the shares of the issuer is fraudulent, and works or tends to work a fraud upon Philippine purchasers; and (4) the issuer as an enterprise, as well as its business, is based upon unsound business principles. ISSUE: Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign corporation, and SAN JOSE OIL COMPANY, INC., a domestic mining corporation, is violative of the Constitution, the Laurel-Langley Agreement, the Petroleum Act of 1949, and the Corporation Law. HELD: We now come to the meat of the controversy the "tie-up" between SAN JOSE OIL on the one hand, and the respondent SAN JOSE PETROLEUM and its associates, on the other. The relationship of these corporations involved or affected in this case is admitted and established through the papers and documents which are parts of the records: SAN JOSE OIL, is a domestic mining corporation, 90% of the outstanding capital stock of which is owned by respondent SAN JOSE PETROLEUM, a foreign (Panamanian) corporation, the majority interest of which is owned by OIL INVESTMENTS, Inc., another foreign (Panamanian) company. This latter corporation in turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A., both organized and existing under the laws of Venezuela. As of September 30, 1956, there were 9,976 stockholders of PANCOASTAL PETROLEUM found in 49 American states and U.S. territories, holding 3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL COMPANY was said to have 3,077,916 shares held by 12,373 stockholders scattered in 49 American state. In the two lists of stockholders, there is no indication of the citizenship of these stockholders,7 or of the total number of authorized stocks of each corporation, for the purpose of determining the corresponding percentage of these listed stockholders in relation to the respective capital stock of said corporation. Re-stated, the privilege to utilize, exploit, and develop the natural resources of this country was granted, by Article XIII of the Constitution, to Filipino citizens or to corporations or associations 60% of the capital of which is owned by such citizens. With the Parity Amendment to the Constitution, the same right was extended to citizens of the United States and business enterprises owned or controlled directly or indirectly, by citizens of the United States. In view of the conclusions we have already arrived at, we deem it not indispensable for us to pass upon this legal question, especially taking into account the statement of the respondent (SAN JOSE PETROLEUM) that it is essentially a holding company, and as found by the Securities and Exchange Commissioner, its principal activity is limited to the financing and giving technical assistance to SAN JOSE OIL. These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American business enterprise entitled to parity rights in the Philippines? The answer must be in the negative, for the following reasons: Firstly It is not owned or controlled directly by citizens of the United States, because it is owned and controlled by a corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation. Secondly Neither can it be said that it is indirectly owned and controlled by American citizens through the OIL INVESTMENTS, for this latter corporation is in turn owned and controlled, not by citizens of the United States, but still by two foreign (Venezuelan) corporations, the PANTEPEC OIL COMPANY and PANCOASTAL PETROLEUM. Thirdly Although it is claimed that these two last corporations are owned and controlled respectively by 12,373 and 9,979 stockholders residing in the different American states, there is no showing in the certification furnished by respondent that the stockholders of PANCOASTAL or those of them holding the controlling stock, are citizens of the United States. Fourthly Granting that these individual stockholders are American citizens, it is yet necessary to establish that the different states of which they are citizens, allow Filipino citizens or corporations or associations owned or controlled by Filipino citizens, to engage in the exploitation, etc. of the natural resources of these states (see paragraph 3, Article VI of the Laurel-Langley Agreement, supra). Respondent has presented no proof to this effect. Fifthly But even if the requirements mentioned in the two immediately preceding paragraphs are satisfied, nevertheless to hold that the set-up disclosed in this case, with a long chain of intervening foreign corporations, comes within the purview of the Parity Amendment regarding business enterprises indirectly owned or controlled by citizens of the United States, is to unduly stretch and strain the language and intent of the law. For, to what extent must the word "indirectly" be carried? Must we trace the ownership or control of these various corporations ad infinitum for the purpose of determining whether the American ownership-control-requirement is satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL which are allegedly owned or controlled directly by citizens of the United States, are traded in the stock exchange in New York, and you have a situation where it becomes a practical impossibility to determine at any given time, the citizenship of the controlling stock required by the law. In the circumstances, we have to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is not a business enterprise that is authorized to exercise the parity privileges under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal. FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal, is denied and the orders of the Securities and Exchange Commissioner, allowing the registration of Respondent's securities and licensing their sale in the Philippines are hereby set aside. The case is remanded to the Securities and Exchange

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Commission for appropriate action in consonance with this decision. With costs. Let a copy of this decision be furnished the Solicitor General for whatever action he may deem advisable to take in the premises.

NATIONAL MARKETING CORPORATION (NAMARCO) vs ASSOCIATED FINANCE COMPANY, INC., and FRANCISCO SYCIP (G.R. No. L-20886 April 27, 1967) DIZON, J.: FACTS: 1. This is an appeal by NAMARCO for the decision of the CFI of Manila orderinf the ASSOCIATED to pay NAMARCO a sum of money with legal interest but dismissing the complaint againts SYCIP as well as the counter-claim. 2. The said appeal is questioning the dismissal of the case againts SYCIP. 3.SYCIP is the PRESIDENT of ASSOCIATE while BENJAMINE ESTRELLA is the GEN MGR. 4. Through the abovementioned persons the corps entered into a compromise agreement, wherein the ASSOCIATED would deliver to NAMARCO 22,516 bags (each weighing 100 pounds) of "Victorias" and/or "National" refined sugar in exchange for 7,732.71 bags of "Busilak" and 17,285.08 piculs of "Pasumil" raw sugar belonging to NAMARCO, both agreeing to pay liquidated damages equivalent to 20% of the contractual value of the sugar should either party fail to comply with the terms and conditions stipulated. 5. Pursuant thereto, on May 19,1958, NAMARCO delivered to ASSOCIATED 7,732.71 bars of "Busilak" and 17,285.08 piculs of "Pasumil" domestic raw sugar. As ASSOCIATED failed to deliver to NAMARCO the 22,516 bags of "Victoria" and/or "National" refined sugar agreed upon. 6. So NAMARCO demanded its compliance and/or payment of the said agreement. 7. Sycip, offered to pay NAMARCO the value of 22,516 bags of refined sugar at the rate of P15.30 per bag, but the latter rejected the offer. 8. ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar delivered to it, inspite of repeated demands therefore, NAMARCO instituted the present action. ISSUE: WON Francisco Sycip may be held liable, jointly and severally with his co-defendant, for the sums of money adjudged in favor of NAMARCO. HELD: In the course of his testimony, Sycip referred to himself as the one who contracted or transacted the business in his personal capacity, and asserted that the exchange agreement was his personal contract; that it was Sycip who made personal representations and gave assurances that ASSOCIATED was in actual possession of the 22,516 bags of "Victorias" and/or "National" refined sugar which the latter had agreed to deliver to NAMARCO, and that the same was ready for delivery; that, as a matter of fact, ASSOCIATED was at that time already insolvent; that when NAMARCO made demands upon ASSOCIATED to deliver the 22,516 bags of refined sugar it was under obligation to deliver to the former, ASSOCIATED and Sycip, instead of making delivery of the sugar, offered to pay its value at the rate of P15.30 per bag a clear indication that they did not have the sugar contracted for. The foregoing facts, fully established by the evidence, can lead to no other conclusion than that Sycip was guilty of fraud because through false representations he succeeded in inducing NAMARCO to enter into the aforesaid exchange agreement, with full knowledge, on his part, on the fact that ASSOCIATED whom he represented and over whose business and affairs he had absolute control, was in no position to comply with the obligation it had assumed. Consequently, he cannot now seek refuge behind the general principle that a corporation has a personality distinct and separate from that of its stockholders and that the latter are not personally liable for the corporate obligations.

GREGORIO PALACIO, in his own behalf and in behalf of his minor child, MARIO PALACIO vs FELY TRANSPORTATION COMPANY (G.R. No. L-15121 August 31, 1962)

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REGALA, J.:FACTS: This is an appeal by the plaintiffs from the decision of the Court of First Instance of Manila which dismissed their complaint. Antecedent Facts: 1. A complaint for reckless imprudence was filed againts the DEFENDANT CO. Alleging amongst others that the company hired Alfredo Carillo as driver of AC-787 (687) (a registration for 1952) owned and operated by the said defendant company. That the said driver in his capacity as an employee run over the child of the defendant. Thus, the said action was for the DAMAGES suffered due to the accident. 2. Defendant CO filed a Motion to Dismiss on the grounds (1) that there is no cause of action against the defendant company, and (2) that the cause of action is barred by prior judgment. 3. The motion to dismiss was deferred. Thereafter, the company in its answer alleged the following (1) that complaint states no cause of action against defendant, and (2) that the sale and transfer of the jeep AC-687 by IsabeloCalingasan to the Fely Transportation was made on December 24, 1955, long after the driver Alfredo Carillo of said jeep had been convicted and had served his sentence in Criminal Case No. Q-1084 of the Court of First Instance of Quezon City, in which both the civil and criminal cases were simultaneously tried by agreement of the parties in said case. In the Counterclaim of the Answer, defendant alleges that in view of the filing of this complaint which is a clearly unfounded civil action merely to harass the defendant, it was compelled to engage the services of a lawyer for an agreed amount of P500.00. 4. During the trial of the criminal case against the driver of the jeep in the Court of First Instance of Quezon City (Criminal Case No. Q-1084) an attempt was unsuccessfully made by the prosecution to prove moral damages allegedly suffered by herein plaintiff Gregorio Palacio. Likewise an attempt was made in vain by the private prosecutor in that case to prove the agreed attorney's fees between him and plaintiff Gregorio Palacio and the expenses allegedly incurred by the herein plaintiffs in connection with that case. During the trial of this case, plaintiff Gregorio Palacio testified substantially to the same facts. 5. On the basis of these facts, the lower court held action is barred by the judgment in the criminal case and, that under Article 103 of the Revised Penal Code, the person subsidiarily liable to pay damages is Isabel Calingasan, the employer, and not the defendant corporation. MAIN CONTENTION OF THE PLAINTIFFS: That the defendant corporate 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 No. Q-1084 of the Court of First Instance of Quezon City was merely an attempt on the part of IsabeloCalingasan its president and general manager, to evade his subsidiary civil liability. RULING: The Court agrees with this contention of the plaintiffs. It is evident that IsabeloCalingasan'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 IsabeloCalingasan, his wife, his son, Dr. Calingasan, and his two daughters. We believe 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 defendant corporation to prove that it has other property than the jeep (AC-687) strengthens the conviction that its formation was for the purpose above indicated. And while it is true that IsabeloCalingasan is not a party in this case, yet, is held in the case of Alonso v. Villamor, 16 Phil. 315, 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. (Sec. 2, Rule 17, Rules of Court; Cuyugan v. Dizon. 79 Phil. 80; Quison v. Salud, 12 Phil. 109.) AS TO THE DEFENSE OF RES JUDICATA: While there seems to be some confusion on part of the plaintiffs as to the theory on which the is based whether ex-delito or quasi ex-delito (culpa aquiliana) We are convinced, from the discussion prayer in the brief on appeal, that they are insisting the subsidiary civil liability of the defendant.As a matter of fact, the record shows that plaintiffs merely presented the transcript of the stenographic notes (Exhibit "A") taken at the hearing of the criminal case, which Gregorio Palacio corroborated, in support of their claim for damages. This rules out the defense of res judicata, because such liability proceeds precisely from the judgment in the criminal action, where the accused was found guilty and ordered to pay an indemnity in the sum P500.00.

VILLA REY TRANSIT, INC.vs EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC. and PUBLIC SERVICE COMMISSION (G.R. No. L-23893 October 29, 1968)

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PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff vs JOSE M. VILLARAMA, third-party defendant ANGELES, J.:FACTS: This is a tri-party appeal from the decision of the Court of First Instance of Manila declaring null and void the sheriff's sale of two certificates of public convenience in favor of defendant Eusebio E. Ferrer and the subsequent sale thereof by the latter to defendant Pangasinan Transportation Co., Inc.; declaring the plaintiff Villa Rey Transit, Inc., to be the lawful owner of the said certificates of public convenience; and ordering the private defendants, jointly and severally, to pay to the plaintiff, the sum of P5,000.00 as and for attorney's fees. The case against the PSC was dismissed. Antecedent Facts: 1.Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant to certificates of public convenience granted him by the PSC which authorized him to operate a total of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and vice-versa. 2. He sold the aforementioned two certificates of public convenience to the Pangasinan Transportation Company, Inc.(PANTRANCO) with the condition, among others, that the seller (Villarama) "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer. 3. 3 mos later, Villa Ray Transit inc was formed. Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators, and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and sister-in-law of Jose M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation, who was Natividad R. Villarama. 4. A month after its registration five certificates of public convenience, forty-nine buses, tools and equipment from one ValentinFernandowas paid upon the signing of the contract; P50,000.00 was payable upon the final approval of the sale by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by the BUYER to the different suppliers of the SELLER." 5. Upon registration in the PSC, the latter granted the provisional permit prayed for, upon the condition that "it may be modified or revoked by the Commission at any time, shall be subject to whatever action that may be taken on the basic application and shall be valid only during the pendency of said application." THE MEAT OF THE CASE: Before the PSC could take final action on said application for approval of sale, however, the Sheriff of Manila, on July 7, 1959, levied on two of the five certificates of public convenience involved therein, namely, those issued under PSC cases Nos. 59494 and 63780, pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil Case No. 13798, in favor of EusebioFerrer, plaintiff, judgment creditor, against Valentin Fernando, defendant, judgment debtor. The Sheriff made and entered the levy in the records of the PSC. On July 16, 1959, a public sale was conducted by the Sheriff of the said two certificates of public convenience. Ferrer was the highest bidder, and a certificate of sale was issued in his name. Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval their corresponding contract of sale to the PSC. Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that Villarama and the Corporation, are one and the same; that Villarama and/or the Corporation was disqualified from operating the two certificates in question by virtue of the aforementioned agreement between said Villarama and Pantranco, which stipulated that Villarama "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer." ISSUES: 1) Does the stipulation between Villarama and Pantranco, as contained in the deed of sale, that the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER," apply to new lines only or does it include existing lines?; (2) Assuming that said stipulation covers all kinds of lines, is such stipulation valid and enforceable?; (3) In the affirmative, that said stipulation is valid, did it bind the Corporation?

RULING: A. The finances of the Corporation which, under all concepts in the law, are supposed to be under the control and administration of the treasurer keeping them as trust fund for the Corporation, were, nonetheless, manipulated and disbursed as if they were the private funds of Villarama, in such a way and

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extent that Villarama appeared to be the actual owner-treasurer of the business without regard to the rights of the stockholders. B. The evidence further shows that the initial cash capitalization of the corporation of P105,000.00 was mostly financed by Villarama. The testimonies of Alfonso Sancho and Joaquin Amansec,both employees of said bank, have proved that the drawer of the check was Jose Villarama himself. C. Another witness, Celso Rivera, accountant of the Corporation, testified that while in the books of the corporation there appears an entry that the treasurer received P95,000.00 as second installment of the paid-in subscriptions, and, subsequently, also P100,000.00 as the first installment of the offer for second subscriptions worth P200,000.00 from the original subscribers, yet Villarama directed him (Rivera) to make vouchers liquidating the sums. D. Further, the evidence shows that when the Corporation was in its initial months of operation, Villarama purchased and paid with his personal checks Ford trucks for the Corporation.

Taking account of the foregoing evidence, together with Celso Rivera's testimony,it would appear that: Villarama supplied the organization expenses and the assets of the Corporation, such as trucks and equipment;there was no actual payment by the original subscribers of the amounts of P95,000.00 and P100,000.00 as appearing in the books;Villarama made use of the money of the Corporation and deposited them to his private accounts;and the Corporation paid his personal accounts. The foregoing circumstances are strong persuasive evidence showing that Villarama has been too much involved in the affairs of the Corporation to altogether negative the claim that he was only a part-time general manager. They show beyond doubt that the Corporation is his alter ego. It is significant that not a single one of the acts enumerated above as proof of Villarama's oneness with the Corporation has been denied by him. On the contrary, he has admitted them with offered excuses. Upon the foregoing considerations, Our conclusion is that the stipulation prohibiting Villarama for a period of 10 years to "apply" for TPU service along the lines covered by the certificates of public convenience sold by him to Pantranco is valid and reasonable. Having arrived at this conclusion, and considering that the preponderance of the evidence have shown that Villa Rey Transit, Inc. is itself the alter ego of Villarama, We hold, as prayed for in Pantranco's third party complaint, that the said Corporation should, until the expiration of the 1-year period abovementioned, be enjoined from operating the line subject of the prohibition. It is clear, therefore, that the requisite approval of the PSC is not a condition precedent for the validity and consummation of the sale. Villa Rey Transit, Inc. claims that by virtue of the "tortious acts" of defendants (Pantranco and Ferrer) in acquiring the certificates of public convenience in question, despite constructive and actual knowledge on their part of a prior sale executed by Fernando in favor of the said corporation, which necessitated the latter to file the action to annul the sheriff's sale to Ferrer and the subsequent transfer to Pantranco, it is entitled to collect actual and compensatory damages, and attorney's fees in the amount of P25,000.00. The evidence on record, however, does not clearly show that said defendants acted in bad faith in their acquisition of the certificates in question. They believed that because the bill of sale has yet to be approved by the Public Service Commission, the transaction was not a consummated sale, and, therefore, the title to or ownership of the certificates was still with the seller. The award by the lower court of attorney's fees of P5,000.00 in favor of Villa Rey Transit, Inc. is, therefore, without basis and should be set aside.

COMMISSIONER OF INTERNAL REVENUE vs NORTON and HARRISON COMPANY (G.R. No. L-17618 August 31, 1964) PAREDES, J.:FACTS: 1. Defendant CO is organized to (1) to buy and sell at wholesale and retail, all kinds of goods, wares, and merchandise; (2) to act as agents of manufacturers in the United States and foreign 15

countries; and (3) to carry on and conduct a general wholesale and retail mercantile establishment in the Philippines. 2. JACKBILT is a corp organized for the purpose of primarily for the purpose of making, producing and manufacturing concrete blocks. 3. THE MEAT OF THE STORY: Norton and Jackbilt entered into an agreement whereby Norton was made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt. Pursuant to this agreement, whenever an order for concrete blocks was received by the Norton & Harrison Co. from a customer, the order was transmitted to Jackbilt which delivered the merchandise direct to the customer. Payment for the goods is, however, made to Norton, which in turn pays Jackbilt the amount charged the customer less a certain amount, as its compensation or profit. 4. As per records of Jackbilt, the transaction was considered a sale to Norton. 5. During the said agreement Norton & Harrison acquired by purchase all the outstanding shares of stock of Jackbilt. 6. THus, the Commissioner of Internal Revenue, after conducting an investigation, assessed the respondent Norton & Harrison for deficiency sales tax and surcharges in the amount of P32,662.90, making as basis thereof the sales of Norton to the Public. CONTENTION OF THE COM OF BIR: The Commissioner of Internal Revenue contends that since Jackbilt was owned and controlled by Norton & Harrison, the corporate personality of the former (Jackbilt) should be disregarded for sales tax purposes, and the sale of Jackbilt blocks by petitioner to the public must be considered as the original sales from which the sales tax should be computed. ISSUE: (1) whether the acquisition of all the stocks of the Jackbilt by the Norton & Harrison Co., merged the two corporations into a single corporation; (2) whether the basis of the computation of the deficiency sales tax should be the sale of the blocks to the public and not to Norton. RULING/HELD: It has been settled that the ownership of all the stocks of a corporation by another corporation does not necessarily breed an identity of corporate interest between the two companies and be considered as a sufficient ground for disregarding the distinct personalities (Liddell & Co., Inc. v. Coll. of Int. Rev. L-9687, June 30, 1961). However, in the case at bar, we find sufficient grounds to support the theory that the separate identities of the two companies should be disregarded. Among these circumstances, which we find not successfully refuted by appellee Norton are: (a) Norton and Harrison owned all the outstanding stocks of Jackbilt; of the 15,000 authorized shares of Jackbilt on March 31, 1958, 14,993 shares belonged to Norton and Harrison and one each to seven others; (b) Norton constituted Jackbilt's board of directors in such a way as to enable it to actually direct and manage the other's affairs by making the same officers of the board for both companies. For instance, James E. Norton is the President, Treasurer, Director and Stockholder of Norton. He also occupies the same positions in Jackbilt corporation, the only change being, in the Jackbilt, he is merely a nominal stockholder. The same is true with Mr. Jordan, F. M. Domingo, Mr. Mantaring, Gilbert Golden and 16

Gerardo Garcia, while they are merely employees of the North they are Directors and nominal stockholders of the Jackbilt (c) Norton financed the operations of the Jackbilt, and this is shown by the fact that the loans obtained from the RFC and Bank of America were used in the expansion program of Jackbilt, to pay advances for the purchase of equipment, materials rations and salaries of employees of Jackbilt and other sundry expenses. There was no limit to the advances given to Jackbilt so much so that as of May 31, 1956, the unpaid advances amounted to P757,652.45, which were not paid in cash by Jackbilt, but was offset by shares of stock issued to Norton, the absolute and sole owner of Jackbilt; (d) Norton treats Jackbilt employees as its own. Evidence shows that Norton paid the salaries of Jackbilt employees and gave the same privileges as Norton employees, an indication that Jackbilt employees were also Norton's employees. Furthermore service rendered in any one of the two companies were taken into account for purposes of promotion; (e) Compensation given to board members of Jackbilt, indicate that Jackbilt is merely a department of Norton. The income tax return of Norton for 1954 shows that as President and Treasurer of Norton and Jackbilt, he received from Norton P56,929.95, but received from Jackbilt the measly amount of P150.00, a circumstance which points out that remuneration of purported officials of Jackbilt are deemed included in the salaries they received from Norton. The same is true in the case of Eduardo Garcia, an employee of Norton but a member of the Board of Jackbilt. His Income tax return for 1956 reveals that he received from Norton in salaries and bonuses P4,220.00, but received from Jackbilt, by way of entertainment, representation, travelling and transportation allowances P3,000.00. However, in the withholding statement (Exh. 28-A), it was shown that the total of P4,200.00 and P3,000.00 (P7,220.00) was received by Garcia from Norton, thus portraying the oneness of the two companies. The Income Tax Returns of Albert Golden and Dioscoro Ramos both employees of Norton but board members of Jackbilt, also disclose the game method of payment of compensation and allowances. The offices of Norton and Jackbilt are located in the same compound. Payments were effected by Norton of accounts for Jackbilt and vice versa. Payments were also made to Norton of accounts due or payable to Jackbilt and vice versa. Thus, net income of P120,101.59, on which the income tax due was computed at P25,628.00. The total of these liabilities is P50,764.84. On the other hand, if the net taxable earnings of both corporations are combined, during the same taxable year, the tax due on their total which is P281,303.90 would be P70,764.00. So that, even on the question of income tax alone, it would be to the advantages of Norton that the corporations should be regarded as separate entities.

TOMAS LAO CONSTRUCTION, LVM CONSTRUCTION CORPORATION, THOMAS and JAMES DEVELOPERS (PHIL.), INC. vs nlrc,ET AL [G.R. No. 116781. September 5, 1997] BELLOSILLO, J.: FACTS: 1. Private respondents filed an illegal dismissal case againts petitioners. 2. Alleging that they were hired for various periods as construction workers in different capacities they described their contractual terms 3. N.B.Within the periods of their respective employments, they alternately worked for petitioners Tomas Lao Corporation (TLC), Thomas and James Developers (T&J) and LVM Construction Corporation 17

(LVM), altogether informally referred to as the Lao Group of Companies, the three (3) entities comprising a business conglomerate exclusively controlled and managed by members of the Lao family. 4. The said companies were engage in the construction of bridges. 5. THIS IS IT. Under joint venture agreements they entered into among each other, they would undertake their projects either simultaneously or successively so that, whenever necessary, they would lease tools and equipment to one another. Each one would also allow the utilization of their employees by the other two (2). With this arrangement, workers were transferred whenever necessary to ongoing projects of the same company or of the others, or were rehired after the completion of the project or project phase to which they were assigned. Soon after, however, TLC ceased its operationswhile T&J and LVM stayed on. 6. NLRC disregarded the veil of corporate fiction and treated the three (3) corporations as forming only one entity on the basis of the admission of petitioners that the three (3) operated as one (1), intermingling and commingling all its resources, including manpower facility. CONTENTION OF THE PETITIONERS: The main thrust of petitioners expostulation is that respondents have no valid cause to complain about their employment contracts since these documents merely formalized their status as project employees. Thus, the employment of the EE is co-terminus with the project. RULING: We agree with the NLRC that the execution of the project employment contracts was farcical. Finally, public respondent NLRC did not err in disregarding the veil of separate corporate personality and holding petitioners jointly and severally liable for private respondents back wages and separation pay. The records disclose that the three (3) corporations were in fact substantially owned and controlled by members of the Lao family composed of Lao Hian Beng alias Tomas Lao, Chiu Siok Lian (wife of Tomas Lao), Andrew C. Lao, Lao Y. Heng, Vicente Lao Chua, Lao E. Tin, Emmanuel Lao and Ismaelita Maluto. A majority of the outstanding shares of stock in LVM and T&J is owned by the Lao family. T&J is 100% owned by the Laos as reflected in its Articles of Incorporation. The Lao Group of Companies therefore is a closed corporation where the incorporators and directors belong to a single family. Lao Hian Beng is the same Tomas Lao who owns Tomas Lao Corporation and is the majority stockholder of T&J. Andrew C. Lao is the Managing Director of LVM Construction, and President and Managing Director of the Lao Group of Companies. Petitioners are engaged in the same line of business under one management and use the same equipment including manpower services. Where it appears that [three] business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that the [three] corporations are distinct entities, and treat them as identical. Consonant with our earlier ruling, [31] we hold that the liability of petitioners extends to the responsible officers acting in the interest of the corporations. In view of the peculiar circumstances of this case, we disregard the separate personalities of the three (3) corporations and at the same time declare the members of the corporations jointly and severally liable with the corporations for the monetary awards 18

due to private respondents. It should always be borne in mind that the fiction of law that a corporation as a juridical entity has a distinct and separate personality was envisaged for convenience and to serve justice; therefore it should not be used as a subterfuge to commit injustice and circumvent labor laws.

G. C. ARNOLD vs WILLITS & PATTERSON, LTD.(G.R. No. L-20214 March 17, 1923) JOHNS, J.: FACTS: 1. 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. 2.C. D. Willits and I. L. Patterson were partners doing business in San Francisco, California, under the name of Willits & Patterson. 3. The plaintiff was then in San Francisco, and as a result of negotiations the plaintiff and the firm entered into a written contract, by which the plaintiff was employed as the agent of the firm in the Philippine Islands for certain purposes for the period of five years at a minimum salary of $200 per month and travelling expenses. 4. 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. 5. 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. 6. San Francisco corporation took over and acquired all of the assets and liabilities of the Manila corporation. 7. 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." N.B. C.D. 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 19

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 California then being 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 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? THEE WHOLE SORY IS SUMMARIZED AS FOLLOWS: 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? ISSUE: WON the San Francisco and Manila Corp is the same. HELD: 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 ton or a profit of P180,000. It appears from Exhibit B under the heading of "Profits" that:

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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. 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 onehalf.

YUTIVO SONS HARDWARE COMPANY vs CTA and COLLECTOR OF INTERNAL REVENUE (G.R. No. L-13203 January 28, 1961) GUTIERREZ DAVID, J.: FACTS: This is a petition for review of the decision of the CTA ordering petitioner to pay to respondent Collector of Internal Revenue the sum of P1,266,176.73 as sales tax deficiency for the third quarter of 1947 to the fourth quarter of 1950; inclusive, plus 75% surcharge thereon, equivalent to P349,632.54, or a sum total of P2,215,809.27, plus costs of the suit. 1. Yotivo is a domestic corporation, organized under the laws of the Philippines, with principal office at 404 Dasmarias St., Manila. Incorporated in 1916, it was engaged, prior to the last world war, in the importation and sale of hardware supplies and equipment. 2. fter the liberation, it resumed its business and until June of 1946 bought a number of cars and trucks from General Motors Overseas Corporation (hereafter referred to as GM for short), an American corporation licensed to do business in the Philippines.

3. As importer, GM paid sales tax prescribed by sections 184, 185 and 186 of the Tax Code on the basis of its selling price to Yutivo. Said tax being collected only once on original sales, Yutivo paid no further sales tax on its sales to the public.

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4. Southern Motors, Inc. (hereafter referred to as SM) was organized to engage in the business of selling cars, trucks and spare parts. 5. N.B. At the time of its incorporation 2,500 shares worth P250,000 appear to have been subscribed into equal proportions by Yu Khe Thai, Yu Khe Siong, Hu Kho Jin, Yu Eng Poh, and Washington Sycip. The first three named subscribers are brothers, being sons of Yu Tiong Yee, one of Yutivo's founders. The latter two are respectively sons of Yu Tiong Sin and Albino Sycip, who are among the founders of Yutivo. 6. AFTER THE WITHDRAWAL OF GM FROM THE AGREEMENT U.S. manufacturer of GM cars and trucks appointed Yutivo as importer for the Visayas and Mindanao, and Yutivo continued its previous arrangement of selling exclusively to SM. 7. THE CASE: Collector of Internal Revenue made an assessment upon Yutivo and demanded from the latter P1,804,769.85 as deficiency sales tax plus surcharge claiming that the taxable sales were the retail sales by SM to the public and not the sales at wholesale made by, Yutivo to the latter inasmuch as SM and Yutivo were one and the same corporation, the former being the subsidiary of the latter. CONTENTION: The second assesstment was contested by YOTIVO in the CTA alleging that there is no valid ground to disregard the corporate personality of SM and to hold that it is an adjunct of petitioner Yutivo. RULING: After going over the voluminous record of the present case, we are inclined to rule that the Court of Tax Appeals was not justified in finding that SM was organized for no other purpose than to defraud the Government of its lawful revenues.In the first place, this corporation was organized in June, 1946 when it could not have caused Yutivo any tax savings. From that date up to June 30, 1947, or a period of more than one year, GM was the importer of the cars and trucks sold to Yutivo, which, in turn resold them to SM. During that period, it is not disputed that GM as importer, was the one solely liable for sales taxes. Neither Yutivo or SM was subject to the sales taxes on their sales of cars and trucks. The sales tax liability of Yutivo did not arise until July 1, 1947 when it became the importer and simply continued its practice of selling to SM. The decision, therefore, of the Tax Court that SM was organized purposely as a tax evasion device runs counter to the fact that there was no tax to evade. HOWEVER FRAUD CAN NEVER BE PRESUMED, In the second place, SM was organized and it operated, under circumstance that belied any intention to evade sales taxes. "Tax evasion" is a term that connotes fraud thru the use of pretenses and forbidden devices to lessen or defeat taxes. The transactions between Yutivo and SM, however, have always been in the open, embodied in private and public documents, constantly subject to inspection by the tax authorities. As a matter of fact, after Yutivo became the importer of GM cars and trucks for Visayas and Mindanao, it merely continued the method of distribution that it had initiated long before GM withdrew from the Philippines. In the third place, sections 184 to 186 of the said Code provides that the sales tax shall be collected "once only on every original sale, barter, exchange . . , to be paid by the manufacturer, producer or importer." The use of the word "original" and the express provision that the tax was collectible "once only" evidently has made the provisions susceptible of different interpretations. In this connection, it 22

should be stated that a taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits. THE MERE UNDERSTATEMENT OF TAXES CANNOT CONSTITUTE FRAUD. REASONS WHY YOTIVO IS AN ALTER EGO: t is not disputed that the petitioner, which is engaged principally in hardware supplies and equipment, is completely controlled by the Yutivo, Young or Yu family. The founders of the corporation are closely related to each other either by blood or affinity, and most of its stockholders are members of the Yu (Yutivo or Young) family. It is, likewise, admitted that SM was organized by the leading stockholders of Yutivo headed by Yu Khe Thai. At the time of its incorporation 2,500 shares worth P250,000.00 appear to have been subscribed in five equal proportions by Yu Khe Thai, Yu Khe Siong, Yu Khe Jin, Yu Eng Poh and Washington Sycip. The first three named subscribers are brothers, being the sons of Yu Tien Yee, one of Yutivo's founders. Yu Eng Poh and Washington Sycip are respectively sons of Yu Tiong Sing and Alberto Sycip who are co-founders of Yutivo. According to the Articles of Incorporation of the said subscriptions, the amount of P62,500 was paid by the aforenamed subscribers, but actually the said sum was advanced by Yutivo. The transactions were made solely by and between SM and Yutivo. In effect, it was Yutivo who undertook the subscription of shares, employing the persons named or "charged" with corresponding account as nominal stockholders. Of course, Yu Khe Thai, Yu Khe Jin, Yu Khe Siong and Yu Eng Poh were manifestly aware of these subscriptions, but considering that they were the principal officers and constituted the majority of the Board of Directors of both Yutivo and SM, their subscriptions could readily or easily be that of Yutivo's Moreover, these persons were related to death other as brothers or first cousins. There was every reason for them to agree in order to protect their common interest in Yutivo and SM. The shareholders in SM are mere nominal stockholders holding the shares for and in behalf of Yutivo, so even conceding that the original subscribers were stockholders bona fide Yutivo was at all times in control of the majority of the stock of SM and that the latter was a mere subsidiary of the former. True, petitioner and other recorded stockholders transferred their shareholdings, but the transfers were made to their immediate relatives, either to their respective spouses and children or sometimes brothers or sisters. Yutivo's shares in SM were transferred to immediate relatives of persons who constituted its controlling stockholders, directors and officers. Despite these purported changes in stock ownership in both corporations, the Board of Directors and officers of both corporations remained unchanged and Messrs. Yu Khe Thai, Yu Khe Siong Hu Khe Jin and Yu Eng Poll (all of the Yu or Young family) continued to constitute the majority in both boards. All these, as observed by the Court of Tax Appeals, merely serve to corroborate the fact that there was a common ownership and interest in the two corporations. At the same time the principal officers of both corporations are identical. In addition both corporations have a common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivo's president, Yu Khe Thai. All cash assets of SM were handled by Yutivo and all cash transactions of SM were actually maintained thru Yutivo. 23

Even the branches of SM in Bacolod, Iloilo, Cebu, and Davao treat Yutivo Manila as their "Head Office" or "Home Office" as shown by their letters of remittances or other correspondences.

LA CAMPANA FACTORY, INC., and TAN TONG doing business under the trial name "LA CAMPANA GAUGAU PACKING" vs KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA (KKM) and CIR (G.R. No. L5677 May 25, 1953) REYES, J.: FACTS: 1. TONG has been engaged in the business of buying and selling gaugau under the trade name La Campana Gaugau Packing with an establishment in Binondo, Manila, which was later transferred to Espaa Extension, Quezon City. 2. Tong, with himself and members of his family corporation known as La Campana Factory Co., Inc., with its principal office located in the same place as that of La Campana Gaugau Packing. 3. N.B. Tong had entered into a collective bargaining agreement with PLOW, a union. However, , from the PLOW, Tan Tong's employees later formed their own organization AKA KKM. 4. Kaisahan Ng Mga Manggagawa Sa La Campana, hereinafter to be referred to as the respondent Kaisahan, which, as of that date, counted with 66 members workers all of them of both La Campana Gaugau Packing and La Campana Coffee Factory Co., Inc. presented a demand for higher wages and more privileges, the demand being addressed to La Campana Starch and Coffee Factory, by which name they sought to designate, so it appears, the La Campana Gaugau Packing and the La Campana Coffee Factory Co., Inc. 5. While, the mediation proceeding was going on the SOL revoked the Kalipunan Ng Mga Kaisahang Manggagawa's permit as a labor union on the strength of information received that it was dominated by subversive elements, and, in consequence, on the 20th of the same month, also suspended the permit of its affiliate, the respondent Kaisahan. ISSUE: The SOL is justified in revoking the license and finding that the two firms are operating as one. HELD: Disregarding Corporate Entity. The doctrine that a corporation is a legal entity existing separate and apart from the person composing it is a legal theory introduced for purposes of convenience and to subserve the ends of justice. The concept cannot, therefore, be extended to a point beyond its reason and policy, and when invoked in support of an end subversive of this policy, will be disregarded by the courts. Thus, in an appropriate case and in furtherance of the ends of justice, a corporation and the individual or individuals owning all its stocks and assets will be treated as identical, the corporate entity being disregarded where used as a cloak or cover for fraud or illegality. (13 Am. Jur., 160-161.) . . . A subsidiary or auxiliary corporation which is created by a parent corporation merely as an agency for the latter may sometimes be regarded as identical with the parent corporation, especially if the stockholders or officers of the two corporations are substantially the same or their system of operation unified. (Ibid. 162; see Annotation 1 A. L. R. 612, s. 34 A. L. R. 599.) 24

In the present case Tan Tong appears to be the owner of the gaugau factory. And the coffee factory, though an incorporated business, is in reality owned exclusively by Tan Tong and his family. As found by the Court of industrial Relations, the two factories have but one office, one management and one payroll, except after July 17, the day the case was certified to the Court of Industrial Relations, when the person who was discharging the office of cashier for both branches of the business began preparing separate payrolls for the two. And above all, it should not be overlooked that, as also found by the industrial court, the laborers of the gaugau factory and the coffee factory were interchangeable, that is, the laborers from the gaugau factory were sometimes transferred to the coffee factory and vice-versa. In view of all these, the attempt to make the two factories appears as two separate businesses, when in reality they are but one, is but a device to defeat the ends of the law (the Act governing capital and labor relations) and should not be permitted to prevail.

CONCEPT BUILDERS, INC vs NLRC, et al [G.R. No. 108734. May 29, 1996] HERMOSISIMA, JR., J.:FACTS: 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 petitioners sister company. 1. Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. 2. Private respondents were employed by said company as laborers, carpenters and riggers. 3. At the time of the termination of private respondents employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of subcontractors whose workers performed the functions of private respondents. 4. NLRC ruled in favor of the Laborers. Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision. The writ was partially satisfied through garnishment of sums from petitioners 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. 5. Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former positions. 6. The Arbiter issued a second ALIAs WRIT OF EXECUTION. The said special sheriff recommended that a break-open order be issued to enable him to enter petitioners premises so that he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989.

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7. 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 VicePresident. 8. Motion for Issuance of a Break-Open Order, alleging that HPPI and petitioner corporation were owned by the same incorporator! stockholders. CONTENTION OF THE PETITIONER: Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioners construction business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, the same President and the same set of officers and subscribers. RULING:The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into one.

Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play.

We find petitioners contention to be unmeritorious. The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit: 1. 2. 3. 4. Stock ownership by one or common ownership of both corporations. Identity of directors and officers. The manner of keeping corporate books and records. Methods of conducting the business.

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The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents piercing the corporate veil. in applying the instrumentality or alter ego doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendants relationship to that operation. In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.

YUTIVO SONS HARDWARE COMPANY vs CTA and COLLECTOR OF INTERNAL REVENUE (G.R. No. L13203 January 28, 1961) GUTIERREZ DAVID, J.: FACTS: This is a petition for review of the decision of the CTA ordering petitioner to pay to respondent Collector of Internal Revenue the sum of P1,266,176.73 as sales tax deficiency for the third quarter of 1947 to the fourth quarter of 1950; inclusive, plus 75% surcharge thereon, equivalent to P349,632.54, or a sum total of P2,215,809.27, plus costs of the suit. 1. Yotivo is a domestic corporation, organized under the laws of the Philippines, with principal office at 404 Dasmarias St., Manila. Incorporated in 1916, it was engaged, prior to the last world war, in the importation and sale of hardware supplies and equipment. 2. fter the liberation, it resumed its business and until June of 1946 bought a number of cars and trucks from General Motors Overseas Corporation (hereafter referred to as GM for short), an American 27

corporation licensed to do business in the Philippines.

3. As importer, GM paid sales tax prescribed by sections 184, 185 and 186 of the Tax Code on the basis of its selling price to Yutivo. Said tax being collected only once on original sales, Yutivo paid no further sales tax on its sales to the public. 4. Southern Motors, Inc. (hereafter referred to as SM) was organized to engage in the business of selling cars, trucks and spare parts. 5. N.B. At the time of its incorporation 2,500 shares worth P250,000 appear to have been subscribed into equal proportions by Yu Khe Thai, Yu Khe Siong, Hu Kho Jin, Yu Eng Poh, and Washington Sycip. The first three named subscribers are brothers, being sons of Yu Tiong Yee, one of Yutivo's founders. The latter two are respectively sons of Yu Tiong Sin and Albino Sycip, who are among the founders of Yutivo. 6. AFTER THE WITHDRAWAL OF GM FROM THE AGREEMENT U.S. manufacturer of GM cars and trucks appointed Yutivo as importer for the Visayas and Mindanao, and Yutivo continued its previous arrangement of selling exclusively to SM. 7. THE CASE: Collector of Internal Revenue made an assessment upon Yutivo and demanded from the latter P1,804,769.85 as deficiency sales tax plus surcharge claiming that the taxable sales were the retail sales by SM to the public and not the sales at wholesale made by, Yutivo to the latter inasmuch as SM and Yutivo were one and the same corporation, the former being the subsidiary of the latter. CONTENTION: The second assesstment was contested by YOTIVO in the CTA alleging that there is no valid ground to disregard the corporate personality of SM and to hold that it is an adjunct of petitioner Yutivo. RULING: After going over the voluminous record of the present case, we are inclined to rule that the Court of Tax Appeals was not justified in finding that SM was organized for no other purpose than to defraud the Government of its lawful revenues.In the first place, this corporation was organized in June, 1946 when it could not have caused Yutivo any tax savings. From that date up to June 30, 1947, or a period of more than one year, GM was the importer of the cars and trucks sold to Yutivo, which, in turn resold them to SM. During that period, it is not disputed that GM as importer, was the one solely liable for sales taxes. Neither Yutivo or SM was subject to the sales taxes on their sales of cars and trucks. The sales tax liability of Yutivo did not arise until July 1, 1947 when it became the importer and simply continued its practice of selling to SM. The decision, therefore, of the Tax Court that SM was organized purposely as a tax evasion device runs counter to the fact that there was no tax to evade. HOWEVER FRAUD CAN NEVER BE PRESUMED, In the second place, SM was organized and it operated, under circumstance that belied any intention to evade sales taxes. "Tax evasion" is a term that connotes fraud thru the use of pretenses and forbidden devices to lessen or defeat taxes. The transactions between Yutivo and SM, however, have always been in the open, embodied in private and public documents, constantly subject to inspection by the tax authorities. As a matter of fact, after Yutivo 28

became the importer of GM cars and trucks for Visayas and Mindanao, it merely continued the method of distribution that it had initiated long before GM withdrew from the Philippines. In the third place, sections 184 to 186 of the said Code provides that the sales tax shall be collected "once only on every original sale, barter, exchange . . , to be paid by the manufacturer, producer or importer." The use of the word "original" and the express provision that the tax was collectible "once only" evidently has made the provisions susceptible of different interpretations. In this connection, it should be stated that a taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits. THE MERE UNDERSTATEMENT OF TAXES CANNOT CONSTITUTE FRAUD. REASONS WHY YOTIVO IS AN ALTER EGO: t is not disputed that the petitioner, which is engaged principally in hardware supplies and equipment, is completely controlled by the Yutivo, Young or Yu family. The founders of the corporation are closely related to each other either by blood or affinity, and most of its stockholders are members of the Yu (Yutivo or Young) family. It is, likewise, admitted that SM was organized by the leading stockholders of Yutivo headed by Yu Khe Thai. At the time of its incorporation 2,500 shares worth P250,000.00 appear to have been subscribed in five equal proportions by Yu Khe Thai, Yu Khe Siong, Yu Khe Jin, Yu Eng Poh and Washington Sycip. The first three named subscribers are brothers, being the sons of Yu Tien Yee, one of Yutivo's founders. Yu Eng Poh and Washington Sycip are respectively sons of Yu Tiong Sing and Alberto Sycip who are co-founders of Yutivo. According to the Articles of Incorporation of the said subscriptions, the amount of P62,500 was paid by the aforenamed subscribers, but actually the said sum was advanced by Yutivo. The transactions were made solely by and between SM and Yutivo. In effect, it was Yutivo who undertook the subscription of shares, employing the persons named or "charged" with corresponding account as nominal stockholders. Of course, Yu Khe Thai, Yu Khe Jin, Yu Khe Siong and Yu Eng Poh were manifestly aware of these subscriptions, but considering that they were the principal officers and constituted the majority of the Board of Directors of both Yutivo and SM, their subscriptions could readily or easily be that of Yutivo's Moreover, these persons were related to death other as brothers or first cousins. There was every reason for them to agree in order to protect their common interest in Yutivo and SM. The shareholders in SM are mere nominal stockholders holding the shares for and in behalf of Yutivo, so even conceding that the original subscribers were stockholders bona fide Yutivo was at all times in control of the majority of the stock of SM and that the latter was a mere subsidiary of the former. True, petitioner and other recorded stockholders transferred their shareholdings, but the transfers were made to their immediate relatives, either to their respective spouses and children or sometimes brothers or sisters. Yutivo's shares in SM were transferred to immediate relatives of persons who constituted its controlling stockholders, directors and officers. Despite these purported changes in stock ownership in both corporations, the Board of Directors and officers of both corporations remained unchanged and Messrs. Yu Khe Thai, Yu Khe Siong Hu Khe Jin and Yu Eng Poll (all of the Yu or Young family) continued to constitute the majority in both boards. All these, as observed by the Court of Tax

29

Appeals, merely serve to corroborate the fact that there was a common ownership and interest in the two corporations. At the same time the principal officers of both corporations are identical. In addition both corporations have a common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivo's president, Yu Khe Thai. All cash assets of SM were handled by Yutivo and all cash transactions of SM were actually maintained thru Yutivo. Even the branches of SM in Bacolod, Iloilo, Cebu, and Davao treat Yutivo Manila as their "Head Office" or "Home Office" as shown by their letters of remittances or other correspondences.

TELEPHONE ENGINEERING & SERVICE COMPANY, INC.(TESCO) vs WCC, et al( G.R. No. L-28694 May 13, 1981) MELENCIO-HERRERA, J.:FACTSL: 1. Petitioner is a domestic corporation engaged in the business of manufacturing telephone equipment with offices at Sheridan Street, Mandaluyong, Rizal. Its Executive Vice-President and General Manager is Jose Luis Santiago. 2. It has a sister company, the Utilities Management Corporation (UMACOR), with offices in the same location. UMACOR is also under the management of Jose Luis Santiago. 3. UMACOR employed the late Pacifica L. Gatus as Purchasing Agent.He contracted illness and although he retained to work on May 10, 1967, he died nevertheless on July 14, 1967 of "liver cirrhosis with malignant degeneration." His widow, respondent Leonila S. Gatus, filed a "Notice and Claim for Compensation" with Regional Office No. 4, Quezon City Sub-Regional Office, Workmen's Compensation Section, alleging therein that her deceased husband was an employee of TESCO, and that he died of liver cirrhosis. 4. An "Employer's Report of Accident or Sickness" was thus submitted with UMACOR indicated as the employer of the deceased. The Report was signed by Jose Luis Santiago. 5. Office wrote petitioner transmitting the Notice and for Compensation, and requiring it to submit an Employer's Report of Accident or Sickness pursuant to Section 37 of the Workmen's Compensation Act (Act No. 3428). 6. An "Employer's Report of Accident or Sickness" was thus submitted with UMACOR indicated as the employer of the deceased. The Report was signed by Jose Luis Santiago. 7. TESCO, through Jose Luis Santiago, informed the Acting Referee that it would avail of the 15-daysnotice given to it to state its non-conformity to the award and contended that the cause of the illness contracted by Gatus was in no way aggravated by the nature of his work. 8. The present petition for "Certiorari with Preliminary Injunction" seeking to annul the award and to enjoin the Sheriff from levying and selling its properties at public auction. CONTENTION: TESCO takes the position that the Commission has no jurisdiction to render a valid award in this suit as there was no employer-employee relationship between them, the deceased having been an employee of UMACOR and not of TESCO. RULING: Both public and private respondents contend, on the other hand, that TESCO is estopped from claiming lack of employer employee relationship. Viewed in the light of these criteria, we note that it is only in this Petition before us that petitioner denied, for the first time, the employer-employee relationship. In fact, in its letter dated October 27, 1967 to the Acting Referee, in its request for extension of time to file Motion for Reconsideration, in its "Motion for Reconsideration and/or Petition to Set Aside Award," and in its "Urgent Motion to Compel the Referee to Elevate Records to the Commission for Review," petitioner represented and defended itself as the employer of the deceased. Nowhere in said documents did it allege that it was not the employer. Petitioner even admitted that TESCO and UMACOR are sister companies operating under one single management and housed in the same building. Although respect for the corporate personality as such, is

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the general rule, there are exceptions. In appropriate cases, the veil of corporate fiction may be pierced as when the same is made as a shield to confuse the legitimate issues. While, indeed, jurisdiction cannot be conferred by acts or omission of the parties, TESCO'S denial at this stage that it is the employer of the deceased is obviously an afterthought, a devise to defeat the law and evade its obligations. This denial also constitutes a change of theory on appeal which is not allowed in this jurisdiction.Moreover, issues not raised before the Workmen's Compensation Commission cannot be raised for the first time on appeal.For that matter, a factual question may not be raised for the first time on appeal to the Supreme Court.

EMILIO CANO ENTERPRISES, INC. vs COURT OF INDUSTRIAL RELATIONS, ET AL G.R. No. L20502 February 26, 1965) BAUTISTA ANGELO, J.: FACTS: In a complaint for unfair labor practice filed before the Court of Industrial Relations on June 6, 1956 by a prosecutor of the latter court, Emilio, Ariston and Rodolfo, all surnamed Cano, were made respondents in their capacity as president and proprietor, field supervisor and manager, respectively, of Emilio Cano Enterprises, Inc. 1. After the hearing of the case the court rendered a decision finding Emilio Cano and Rodolfo Cano guilty of the unfair labor practice charge, but absolved Ariston for insufficiency of evidence. As a consequence, the two were ordered, jointly and severally, to reinstate Honorata Cruz, to her former position with payment of backwages from the time of her dismissal up to her reinstatement, together with all other rights and privileges thereunto appertaining. 2. THE MEAT: The order of execution having been directed against the properties of Emilio Cano Enterprises, Inc. instead of those of the respondents named in the decision, said corporation filed an ex parte motion to quash the writ on the ground that the judgment sought to be enforced was not rendered against it which is a juridical entity separate and distinct from its officials. CONTENTION: The issue posed before us is: Can the judgment rendered against Emilio and Rodolfo Cano in their capacity as officials of the corporation Emilio Cano Enterprises, Inc. be made effective against the property of the latter which was not a party to the case? RULING: The answer must be in the affirmative. While it is an undisputed rule that a corporation has a personality separate and distinct from its members or stockholders because of a fiction of the law, here we should not lose sight of the fact that the Emilio Cano Enterprises, Inc. is a closed family corporation where the incorporators and directors belong to one single family. Thus, the following are its incorporators: Emilio Cano, his wife Juliana, his sons Rodolfo and Carlos, and his daughter-in-law Ana D. Cano. Here is an instance where the corporation and its members can be considered as one. And to hold such entity liable for the acts of its members is not to ignore the legal fiction but merely to give meaning to the principle that such fiction cannot be invoked if its purpose is to use it as a shield to further an end subversive of justice. And so it has been held that while a corporation is a legal entity existing separate and apart from the persons composing it, that concept cannot be extended to a point beyond its reason and policy, and when invoked in support of an end subversive of this policy it should be disregarded by the courts (12 Am. Jur. 160-161). A factor that should not be overlooked is that Emilio and Rodolfo Cano are here indicted, not in their private capacity, but as president and manager, respectively, of Emilio Cano Enterprises, Inc. Having been sued officially their connection with the case must be deemed to be impressed with the representation of the corporation. In fact, the court's order is for them to reinstate Honorata Cruz to her former position in the corporation and incidentally pay her the wages she had been deprived of during her separation. Verily, the order against them is in effect against the corporation. No benefit can be attained if this case were to be remanded to the court a quo merely in response to a technical substitution of parties for such would only cause an unwarranted delay that would work to Honorata's prejudice. This is contrary to the spirit of the law which enjoins a speedy adjudication of labor cases disregarding as much as possible the technicalities of procedure. We, therefore, find unmeritorious the relief herein prayed for. WHEREFORE, petition is dismissed.

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ROBERTO A. JACINTO vs HONORABLE COURT OF APPEALS and METROPOLITAN BANK AND TRUST COMPANY (G.R. No. 80043 June 6, 1991) FACTS: This is an appeal on the decision of the CA which affirms the decision of the RTC MANILA. The decision of the court a qou is as follows: WHEREFORE, judgment is hereby rendered ordering defendants to pay, jointly and severally, the plaintiff, the principal obligation of P382,015.80 (Annex J-1 to J-3 of Stipulation), with interest/charges thereon at the rate of 16 % per annum from January 1, 1979 up to the time the said amount is fully paid, plus the sum of P20,000.00 as attorney's fees. Said defendants are further ordered to pay in solidum the costs of this suit. ISSUES: Petitioner submits the following issues: 1. Whether or not the respondent Court of Appeals can validly pierce the fiction of corporate identity of the defendant corporation Inland Industries, Inc. even if there is no allegation in the complaint regarding the same, nor is there anything in the prayer demanding the piercing of the corporate veil of the corporation Inland Industries, Inc.; 2. Whether or not the Court of Appeals can validly pierce the fiction of corporate identity of the defendant Inland Industries, Inc. even if absolutely no proof was presented in court to serve as legal justification for the same. RULING: We find this petition to be bereft of merit. The issues are basically factual and a careful scrutiny of the decisions of both courts below reveals that their findings and conclusions on the matter of piercing the veil of corporate fiction and on the liability of herein petitioner are overwhelmingly supported by the evidence. Defendants-appellants' assertion is plainly without legal basis. This is shown by the undisputed fact that Roberto Jacinto even admitted that he and his wife own 52% of the stocks of defendant corporation (TSN, April 22, 1985, p. 6). We cannot accept as true the assertion of defendant Jacinto that he only acted in his official capacity as President and General Manager of Inland Industries, Inc. when he signed the aforesaid trust receipts. To Our mind the same is just a clever ruse and a convenient ploy to thwart his personal liability therefor by taking refuge under the protective mantle of the separate corporate personality of defendant corporation. Furthermore, a cursory perusal of the Stipulation of facts clearly shows that defendant Roberto Jacinto acted in his capacity as President and General Manager of Inland Industries, Inc. when he signed said trust receipts. AS TO THE ACT OF INFORMING THE CORP OF THE CASE BASED ON THE ALLEGATION IN THE COMPLAINT. Petitioner, however, faults the courts below for piercing the veil of corporate fiction despite the absence of any allegation in the complaint questioning the separate identity and existence of Inland Industries, Inc. This is not accurate. While on the face of the complaint there is no specific allegation that the corporation is a mere alter ego of petitioner, subsequent developments, from the stipulation of facts up to the presentation of evidence and the examination of witnesses, unequivocally show that respondent Metropolitan Bank and Trust Company sought to prove that petitioner and the corporation are one or that he is the corporation. No serious objection was heard from petitioner. Pursuant thereto, "when evidence is presented by one party, with the express or implied consent of the adverse party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards those issues, which shall be considered as if they have been raised in the pleadings. There is implied consent to the evidence thus presented when the adverse party fails to object thereto.

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