Cruz v.

Dalisay (1987)
152 SCRA 482 Business Organization Corporation Law Piercing the Veil
of Corporate Fiction Exercised by the Wrong Person
In 1984, the National Labor Relations Commission issued an order against
Qualitrans Limousine Service, Inc. (QLSI) ordering the latter to reinstate the
employees it terminated and to pay them backwages. Quiterio Dalisay,
Deputy Sheriff of the court, to satisfy the backwages, then garnished the
bank account of Adelio Cruz. Dalisay justified his act by averring that Cruz
was the owner and president of QLSI. Further, he claimed that the counsel
for the discharged employees advised him to garnish the account of Cruz.
ISSUE: Whether or not the action of Dalisay is correct.
HELD: No. What Dalisay did is tantamount to piercing the veil of corporate
fiction. He actually usurped the power of the court. He also overstepped his
duty as a deputy sheriff. His duty is merely ministerial and it is incumbent
upon him to execute the decision of the court according to its tenor and only
against the persons obliged to comply. In this case, the person judicially
named to comply was QLSI and not Cruz. It is a well-settled doctrine both in
law and in equity that as a legal entity, a corporation has a personality
distinct and separate from its individual stockholders or members. The mere
fact that one is president of a corporation does not render the property he
owns or possesses the property of the corporation, since the president, as
individual, and the corporation are separate entities.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 112702 September 26, 1997

NATIONAL POWER CORPORATION, petitioner,
vs.
COURT OF APPEALS and CAGAYAN ELECTRIC POWER AND LIGHT CO., INC.
(CEPALCO), respondents.
G.R. No. 113613 September 26, 1997
PHIVIDEC INDUSTRIAL AUTHORITY, petitioner,
vs.
COURT OF APPEALS and CAGAYAN ELECTRIC POWER AND LIGHT CO., INC.
(CEPALCO), respondents.

ROMERO, J.:
Offered for resolution in these consolidated petitions for review on certiorari is the issue of whether
or not the National Power Corporation (NPC) has jurisdiction to determine whether it may supply
electric power directly to the facilities of an industrial corporation in areas where there is an existing
and operating electric power franchisee.
On June 17, 1961, the Cagayan Electric and power Light Company (CEPALCO) was enfranchised
by Republic Act No. 3247 "to construct, maintain and operate an electric light, heat and power
system for the purpose of generating and/or distributing electric light, heat and/or power for sale
within the City of Cagayan de Oro and its suburbs" for fifty (50) years. Republic Act No. 3570,
approved on June 21, 1963, expanded the area of coverage of the franchise to include the
municipalities of Tagoloan and Opol, both in the Province of Misamis Oriental. On August 4, 1969,
Republic Act No. 6020 further amended the same franchise to include in the areas of CEPALCO's
authority of "generating and distributing electric light and power for sale," the municipalities of
Villanueva and Jasaan, also of the said province.
Presidential Decree No. 243, issued on July 12, 1973, created a "body corporate and politic" to be
known as the Philippine Veterans Investment Development Corporation (PHIVIDEC) vested with
authority to engage in "commercial, industrial, mining, agricultural and other enterprises" among
other powers 1 and "to allow the full and continued employment of the productive capabilities of and
investment of the veterans and retirees of the Armed Forces of the Philippines." On August 13, 1974,
Presidential Decree No. 538 was promulgated to create the PHIVIDEC Industrial Authority (PIA), a
subsidiary of PHIVIDEC, to carry out the government policy "to encourage, promote and sustain the
economic and social growth of the country and that the establishment of professionalized management of
well-planned industrial areas shall further this objective." 2 Under Sec. 3 of P.D. No. 538, the first area for
development shall be located in the municipalities of Tagoloan and Villanueva. 3 This area forms part of
the PHIVIDEC Industrial Estate Misamis Oriental (PIE-MO).

As manager of PIE-MO, PIA granted the Ferrochrome Philippines, Inc. (FPI) and Metal Alloys
Corporation (MAC) authority to operate in its area of development. On July 6, 1979, PIA granted
CEPALCO a temporary authority to retail electric power to the industries operating within the PIEMO. 4 The Agreement executed by PIA and CEPALCO authorized CEPALCO "to operate, administer,
construct and distribute electric power within the PHIVIDEC Industrial Estate, Misamis Oriental, such
authority to be co-extensive with the territorial jurisdiction of PHIVIDEC Industrial Estate, as defined in
Sec. 3 of P.D. No. 538 and shall be for a period of five (5) years, renewable for another five (5) years at
the option of CEPALCO." The parties provided further that:

9. At the end of the fifth year, or at the end of the 10th year, should this Agreement be thus
renewed, PIA has the option to take over the operation of the electric service and acquire by
purchase CEPALCO's assets within PIE-MO. This option shall be communicated to
CEPALCO in writing at least 24 months before the date of acquisition of assets and takeover
of operation by PIA. Should PIA exercise its option to purchase the assets of CEPALCO in
PIE-MO, PIA shall respect the right of ownership of and maintenance by CEPALCO of those
assets inside PIE-MO not covered by such purchase. . . .
According to PIA, 5 CEPALCO proved no match to the power demands of the industries in PIE-MO that
most of these companies operating therein closed shop. 6 Impelled by a "desire to provide cheap power
costs to power-intensive industries operating within the Estate," PIA applied with the National Power
Corporation (NPC) for direct power connection which the latter in due course approved. 7 One of the
companies which entered into an agreement with the NPC for a direct sale and supply of power was the
Ferrochrome Phils., Inc. (FPI).

Contending that the said agreement violated its right as the authorized operator of an electric light
and power system in the area and the national electrification policy, CEPALCO filed Civil Case No.
Q-35945, a petition for prohibition, mandamus and injunction before the Regional Trial Court of
Quezon City against the NPC. Notwithstanding NPC's claim that it was authorized by its Charter to
sell electric power "in bulk" to industrial enterprises, the lower court rendered a decision on May 2,
1984, restraining the NPC from supplying power directly to FPI upon the ground that such direct
sale, supply and delivery of electric power by the NPC to FPI was violative of the rights of CEPALCO
under its legislative franchise. Hence, the lower court ordered the NPC to "permanently desist" from
effecting direct supply of power to the FPI and "from entering into and/or implementing any
agreement or arrangement for such direct power connection, unless coursed through the power line"
of CEPALCO.
Eventually, the case reached this Court through G.R. No. 72085. 8 On December 28, 1989, the Court
denied the appeal interposed by NPC on the ground that the statutory authority given to the NPC as
regards direct supply of power to BOI-registered enterprises "should always be subordinate to the 'totalelectrification-of-the-entire-country-on-an-area-coverage basis policy' enunciated in P. D. No. 40," 9 We
held further that:

Nor should we lose sight of the factual findings of the court a quo that petitioner-appellee
CEPALCO had not only been authorized by the Phividec Industrial Authority to provide
electrical power to the Phividec Industrial Estate within which the FPI plant is located, but
that petitioner-appellee CEPALCO had in fact, supplied the latter's power requirements for
the construction of its plant, upon FPI's application therefor as early as October 17, 1980.
It bears emphasis then that "it is only after a hearing (or an opportunity for such a hearing)
where it is established that the affected private franchise holder is incapable or unwilling to
match the reliability and rates of NPC that direct connection with NPC may be granted."
Here, petitioner-appellee's reliability as a power supplier and ability to match the NPC rates
were never put in issue.

It is immaterial that petitioner-appellee's franchise was not exclusive. A privilege to sell within
specified territory, even if not exclusive, is a valuable property right entitled to protection
against unauthorized competition. 10
Notwithstanding said decision, in September 1990, FPI filed a new application for the direct supply of
electric power from NPC. The Hearing Committee of the NPC had started hearing the application but
CEPALCO filed with the Regional Trial Court of Quezon City a petition for contempt against NPC
officials led by Ernesto Aboitiz. On August 10, 1992, the trial court found the respondents in direct
contempt of court and accordingly imposed upon them a fine of P500.00 each.
The respondent NPC officials challenged before this Court the judgment holding them in contempt of
court through G.R. No. 107809, (Aboitiz v. Regino). 11 In the Decision of July 5, 1993, the Court upheld
the contempt ruling and, after quoting the lower court's decision of May 2, 1984 which the Court upheld in
G.R. No. 72085, said:

These directives show that the lower court (and this Court) intended the arrangement
between FPI and CEPALCO to be permanent and free from NAPOCOR's influence or
intervention. Any attempt on the part of NAPOCOR or its officers and/or employees to strike
a deal with FPI would be a clear and direct disobedience to a lawful order and therefore
contemptuous.
The petitioners call the attention of the Court to the statement of CEPALCO that "NAPOCOR
has already implemented in full" the May 2, 1984 decision of the lower court as affirmed by
this Court. They suggest that in view of this, the decision no longer has any binding effect
upon the parties, or to put it another way, has become functus officio. Consequently, when
they entertained the re-application of FPI for direct power connection to NAPOCOR, they
were not disobeying the May 2, 1984 order of the trial court and so should not be held in
contempt.
This argument must be rejected in view of our finding of the permanence and
comprehensiveness of the challenged order of the trial court. "Permanent" is not a difficult
word to understand. It means "lasting or intended to last indefinitely without change." As for
the scope of the order, NAPOCOR was directed to "desist from effecting, causing, and
continuing the direct supply, sale and delivery of electricity from its power line to the plant of
Ferrochrome Philippines, Inc., and from entering into and/or implementing any agreement or
arrangement for such direct power connection, unless coursed through the power line of
petitioner." (Emphasis supplied.)
Meanwhile, the NPC Hearing Committee 12 proceeded with its hearings. CEPALCO was duly notified
thereof but it opted to question the committee's jurisdiction. It did not submit any evidence. Consequently,
in its Report and Recommendation dated September 27, 1991, the committee gave weight to the
evidence presented by FPI that CEPALCO charged higher rates than what the NPC would if allowed to
supply power directly to FPI. Although the committee considered as unfounded FPI's claim of
CEPALCO's unreliability as a power supplier, 13 it nonetheless held that:

Form (sic) the foregoing and on the basis of the decision of the Supreme Court in the case
of National Power Corporation and Fine Chemicals (Phils.) Inc. v. The Court of Appeals and
the Manila Electric Company, G.R. No. 84695, May 8, 1990, FPI is entitled to a direct
connection to NPC as applied for considering that CEPALCO is unwilling to match the rates
of NPC for directly serving FPI and that FPI is a duly registered BOI registered enterprises
(sic). The Supreme Court in the aforestated case has ruled as follows:

As consistently ruled by the Court pursuant to P.D. No. 380 as amended by

P.D. No. 395, NPC is statutorily empowered to directly service all the
requirements of a BOI registered enterprise provided that, first, any affected
private franchise holder is afforded an opportunity to be heard on the
application therefor and second, from such a hearing, it is established that
said private franchise holder is incapable or unwilling to match the reliability
and rates of NPC for directly serving the latter (National Power Corporation v.
Jacinto, 134 SCRA 435 [1985]. National Power Corporation v. Court of
Appeals, 161 SCRA 103 [1988]). 14
However, considering the "better and priority right" of PIA, the committee recommended that instead
of a direct power connection by the NPC to FPI, the connection should be made to PIA "as a utility
user for its industrial Estate at Tagoloan, Misamis Oriental." 15
For its part, on November 3, 1989, CEPALCO filed with the Energy Regulatory Board (ERB) a
petition praying that the ERB "order the discontinuance of all existing direct supply of power by the
NPC within petitioner's franchise area" (ERB Case No. 89-430). On July 17, 1992, the ERB ruled
that CEPALCO "is relatively efficient and reliable as manifested by its very low system losses (far
from the 14% standard) and very high power factors" and therefore CEPALCO is technically capable
"to distribute power to its consumers within its franchise area, particularly the industrial customers." It
disposed of the petition as follows:
WHEREFORE, in view of the foregoing premises, when the petitioner has been proven to be
capable of distributing power to its industrial consumers and having passed the secondary
considerations with a passing mark of 85%, judgment is hereby rendered granting the relief
prayed for. Accordingly, it is hereby declared that all direct connection of industries to NPC
within the franchise area of CEPALCO is no longer necessary. Therefore, all existing NPC
direct supply of power to industrial consumers within the franchise area of CEPALCO is
hereby ordered discontinued. . . . . 16
However, during the pendency of the Aboitiz case in this Court or on August 3, 1992, PIA contracted
the NPC for the construction of a 138 kilovolt (KV) transmission line from Namutulan substation to
the receiving and/or substation of PIA. 17
As expected, on February 17, 1993, CEPALCO filed in the Regional Trial Court of Pasig (Branch
68), a petition forcertiorari, prohibition, mandamus and injunction against the NPC and some officials
of both the NPC and PIA. 18Docketed as SCA No. 290, the petition specifically sought the issuance of a
temporary restraining order. However, after hearing, the prayer for the temporary restraining order was
denied by the court in its order of March 12, 1993. 19 CEPALCO filed a motion for the reconsideration of
said order while NPC and PIA moved for the dismissal of the petition. 20

On June 23, 1993, noting the cases filed by CEPALCO all seeking exclusivity in the distribution of
electric power to areas covered by its franchise, the court 21 ruled that "the right of petitioner to supply
electric power in the aforesaid area to the exclusion of other entities had been settled once and for all by
the Regional Trial Court of Quezon City wherein petitioner obtained a favorable judgment." Hence, the
petition was dismissed on the ground of res judicata. 22

Forthwith, CEPALCO elevated the case to this Court through a petition for certiorari, prohibition and
injunction with prayer for the issuance of a preliminary injunction or a temporary restraining order.
The petition was docketed as G.R. No. 110686 but on August 18, 1993, the Court referred it to the
Court of Appeals pursuant to Sec. 9, paragraph 1 of B.P. Blg. 129 conferring upon the appellate

court original jurisdiction to issue writs of prohibition and certiorari and auxiliary writs. 23 In the Court of
Appeals, the petition was docketed as CA-G.R. No. 31935-SP.

On September 10, 1993, the Fifteenth Division of the Court of Appeals issued a resolution 24 denying
the prayer for the issuance of a temporary restraining order on the strength of Sec. 1 of P.D. No. 1818. It
ruled that since the NPC is a public utility, it "enjoys the protective mantle" of said decree prohibiting
courts from issuing restraining orders or preliminary injunctions in cases involving infrastructure and
natural resource development projects of, and operated by, the government. 25

However, on September 17, 1993, upon a motion for reconsideration filed by CEPALCO and a reevaluation of the provisions of P.D. No. 1818, the Court of Appeals set aside its resolution of
September 10, 1993 and held that:
. . . the project intended by respondent NPC, which is the construction, completion and
operation of the 138-kv line, is not in consonance with the intendment of said Decree which
is to protect public utilities and their projects and activities intended for public convenience
and necessity. The project of respondent NPC is intended to serve exclusively the needs of
private entities, Metal Alloys Corporation and Ferrochrome Philippine in Tagoloan, Misamis
Oriental.
Accordingly, the Court of Appeals issued a temporary restraining order directing the private
respondents therein "to immediately cease and desist from proceeding with the construction,
completion and operation of the 138-kv line subject of the petition." The NPC, PIA and the officers of
both were directed to explain why the preliminary injunction prayed for should not issue. 26
In due course, the Court of Appeals rendered the decision 27 of November 15, 1993 assailed herein.
After ruling that the lower court gravely abused its discretion in dismissing the petition below on the
grounds of res judicata and litis pendentia, the Court of Appeals confronted squarely the issue of whether
or not "the NPC itself has the power to determine the propriety of direct power connection from its lines to
any entity located within the franchise area of another public utility." 28

Elucidating that the ruling of this Court in both G.R. No. 78609 (NPC v. Court of Appeals) 29 and G.R.
No. 87697 (Del Monte [Philippines], Inc. v. Hon. Felix M. de Guzman, etc., etc., et al.) 30 categorically held
that before a direct connection to the NPC maybe granted, a proper administrative body must conduct a
hearing "to determine which entity, the franchise holder or the NPC, has the right to supply electric power
to the entity applying for direct connection," the Court of Appeals declared:

We have no doubt that the ERB, and not the NPC, is the administrative body referred to by
the Supreme Court where the hearing is to be conducted to determine the propriety of direct
connection. The charter of the ERB (PD 1206 in relation to EO 172) is clear on this:
The Board shall, after due notice and hearing, exercise the following powers
and functions, among others:
xxx xxx xxx
e. Issue Certificate of Public Convenience for the operation of electric power
utilities and services, . . . including the establishment and regulation of areas
of operation of particular operators of public power utilities and services, the
fixing of standards and specifications in all cases related to the issued
Certificate of Public Convenience . . .

Moreover, NPC is not an administrative body as jurisprudentially defined, and that the NPC
cannot usurp a power it has never been conferred by its charter or by other law the power
to determine the validity of direct connection agreement it enters into in violation of a power
distributor's franchise.
Thus, considering that PIA professes to be and intends to engage in the business of a public
power utility, it must first apply for a public convenience and necessity (conferment of
operating authority) with the ERB. This may have been the opportune time for ERB to
determine whether to allow PIA to directly connect with NPC, with notice and opportunity for
CEPALCO considering that, as the latter alleges, this new line which NPC is installing
duplicates that existing Cepalco 138 kv line which NPC itself turned over to Cepalco and for
which it was paid in full.
Consequently, the Court of Appeals affirmed the dismissal of the petition, annulled and set aside the
decision of the Hearing Committee of the NPC on direct connection with PIA, and ordered the NPC
"to desist from continuing the construction of that NPC-Natumulan-Phividec 138 kv transmission
line." 31
Without filing a motion for the reconsideration of said Decision, NPC filed in this Court on December
9, 1993, a motion for an extension of time within which to file "the proper petition." The motion which
was docketed as G.R. No. 112702, was granted on December 20, 1993 with warning that no further
extension would be granted. Thereafter, NPC filed a motion praying that it be excused from filing the
petition on account of the filing by PIA in the Court of Appeals of a motion for the reconsideration of
the Decision of November 15, 1993. In the Resolution of February 2, 1994, the Court noted and
granted petitioner' s motion and considered the case "closed and terminated." 32 This resolution was
withdrawn in the Resolution of February 8, 1995 33 in view of the "inadvertent clerical error" terminating the
case, after the NPC had mailed its petition for review on certiorari on February 21, 1994. 34

In the meantime, PIA filed a motion for reconsideration of the appellate court's Decision of November
15, 1993 arguing in the main that, not being a party to previous cases between CEPALCO and NPC,
it was not bound by decisions of this Court. The Court of Appeals denied the motion on January 28,
1994 on the basis of stare decisiswhere once the court has laid down a principle of law as applicable
to a certain state of facts, it will adhere to and apply the principle to all future cases where the facts
are substantially the
same. 35 Hence, PIA filed a petition for review on certiorari which was docketed as G.R. No. 113613.
G.R. Nos. 112702 and 113613 were consolidated on June 15, 1994. 36
In G.R. No. 112702, petitioner NPC contends that private respondent CEPALCO is not entitled to
relief because it has been forum-shopping. Private respondent had filed Civil Case No. Q-93-14597
in the Regional Trial Court of Quezon City which had been forwarded to it by the Regional Trial
Court of Pasig. Said case and the instant case (SCA No. 290) deal with the same issue of restoring
CEPALCO' s right to supply power to FPI and MAC. Petitioner thus contends that because the
principle of litis pendentia applies, although other parties are involved in the case before the Quezon
City court, there is no basis for granting relief to private respondent CEPALCO "(s)ince the dismissal
for lack of jurisdiction was affirmed by the respondent court." 37 Corollarily, petitioner asserts that
because the main case herein was dismissed "without trial," the respondent appellate court should not
have accorded private respondent affirmative relief. 38

Petitioner NPC's contention is based on the fact that on October 6, 1992, private respondent
CEPALCO filed against the NPC in the Regional Trial Court of Pasig, Civil Case No. 62490, an
action for specific performance and damages with prayer for preliminary mandatory injunction

directing the NPC to immediately restore to CEPALCO the distribution of power pertaining to MAC's
consumption. 39 However, no summons was served and the ex-parte writ prayed for was not issued.
Nevertheless, the case was forwarded to the Regional Trial Court of Quezon City where it was docketed
as Civil Case No. 93-14597. That case was pending when SCA No. 290 was filed before the Regional
Trial Court of Pasig.

The Court of Appeals affirmed the lower court's dismissal of the case neither on the grounds of res
judicata norligis pendentia but on the "only one unresolved issue, which is whether the NPC itself
has the power to determine the propriety of direct power connection from its lines to any entity
located within the franchise area of another public utility." 40 The Court of Appeals opined that the
effects of litis pendentia could not have resulted in the dismissal of SCA No. 290 because Civil Case
No. Q-35945 which became G.R. No. 72085 was based on facts totally different from that of SCA No.
290.

In invoking litis pendentia, however, petitioner NPC refers to this case, SCA No. 290, and Civil Case
No. 93-14597. SCA No. 290 and Civil Case No. 93-14597 may both have the same objective, the
restoration of CEPALCO's right to distribute power to PIE-MO areas under its franchise aside from
the fact that the cases involve practically the same parties. However, litis pendentia may not be
successfully invoked to cause the dismissal of SCA No. 290.
In order to constitute a ground for the abatement or dismissal of an action, litis pendentia must
exhibit the concurrence of the following requisites: (a) identity of parties, or at least such as
representing the same interest in both actions; (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts, and (c) identity in the two (2) cases should be such that the
judgment that may be rendered in the pending case would, regardless of which party is successful,
amount to res judicata in the other. 41 As a rule, the second case filed should be abated under the
maxim qui prior est tempore, potior est jure. However, this rule is not a hard and fast one. The "priority-intime rule" may give way to the criterion of "more appropriate action." More recently, the criterion used was
the "interest of justice rule." 42

We hold that the last criterion should be the basis for resolving this case, although it was filed later
than Civil Case No. 62490 which, upon its transfer, became Civil Case No. 93-14795. In so doing,
we shall avoid multiplicity of suits which is the matrix upon which litis pendentia is anchored and
eventually bring about the final settlement of the recurring issue of whether or not the NPC may
supply power directly to the industries within PIE-MO, notwithstanding the operation of franchisee
CEPALCO in the same area.
It should be noted that there is yet pending another case, namely, Civil Case No. 91-383, instituted
by PIA against CEPALCO in the Regional Trial Court of Misamis Oriental which apparently deals
with a related issue PIA' s franchise or authority to provide power to enterprises within the PIEMO. 43 Hence, the principle of litis pendentiawhich ordinarily demands the dismissal of an action filed later
than another, should be considered under the primordial concept of "interest of justice," in order that a
recurrent issue common to all cases may be definitively resolved.

The principal and common question raised in these consolidated cases is: whether or not the NPC
may supply power directly to PIA in the PIE-MO area where CEPALCO has a directly franchise.
Petitioner PIA in G.R. No. 113613 asserts that it may receive power directly from the NPC because it
is a public utility. It avers that P.D. No. 538, as amended, empowers PIA "as and to be a public utility
to operate and serve the power needs within PIE-MO, i.e., a specific area constituting a small portion
of petitioner's franchise coverage," without, however, specifying the particular provision which so
empower PIA. 44

A "public utility" is a business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water, transportation,
telephone or telegraph service. 45 The term implies public use and service. 46
Petitioner PIA is a subsidiary of the PHIVIDEC with "governmental and proprietary functions." 47 Sec.
4 of P.D. No. 538 specifically confers upon it the following powers:

a. To operate, administer and manage the PHIVIDEC Industrial Areas and other areas which
shall hereafter be proclaimed, designated and specified in subsequent Presidential
Proclamation; to construct acquire, own, lease, operate and maintain infrastructure facilities,
factory buildings, warehouses, dams, reservoirs, water distribution, electric light and power
systems, telecommunications and transportation networks, or such other facilities and
services necessary or useful in the conduct of industry and commerce or in the attainment of
the purposes and objectives of this Decree; (Emphasis supplied.)
Clearly then, the PIA is authorized to render indirect service to the public by its administration of the
PHIVIDEC industrial areas like the PIE-MO and may, therefore, be considered a public utility. As it is
expressly authorized by law to perform the functions of a public utility, a certificate of public
convenience, as suggested by the Court of Appeals, is not necessary for it to avail of a direct power
connection from the NPC. However, such authority to be a public utility may not be exercised in such
a manner as to prejudice the rights of existing franchisees. In fact, by its actions, PIA recognized the
rights of the franchisees in the area.
Accordingly, in pursuit of its powers "to grant such franchise for and to operate and maintain within
the Areas electric light, heat or power systems," etc. under Sec. 4 (i) of P.D. No. 538 and its rulemaking power under Sec. 4 (1) of the same law, on July 20, 1979, the PIA Board of Directors
promulgated the "Rules and Regulations To Implement the Intent and Provisions of Presidential
Decree No. 538." 48 Rule XI thereof on "Utilities and Services" provides as follows:
Sec. 1. Utilities It is the responsibility of the Authority to provide all required utilities and
services inside the Estate:
xxx xxx xxx
a) Contracts for the purchase of public utilities and/or services
shall be subject to the prior approval of the
Authority; Provided, however, that similar contract(s) existing
prior to the effectivity of this Rules and Regulations shall
continue to be in full force and effect.
xxx xxx xxx
(Emphasis supplied.)
It should be noted that the Rules and Regulations took effect thirty (30) days after its publication in
the Official Gazette on September 24, 1979 or more than three (3) months after the July 6, 1979
contract between PIA and CEPALCO was entered into. As such, the Rules and Regulations itself
allowed the continuance of the supply of electric power to PIE-MO by CEPALCO.
That the contract of July 6, 1979 was not renewed by the parties after the expiration of the five-year
period stipulated therein did not change the fact that within that five-year period, in violation of both

the contract and its Rules and Regulations, PIA applied with the NPC for direct power connection.
The
matter was aggravated by NPC's favorable action on the application, totally unmindful of the extent
of its powers under the law which, in National Power Corporation v. Court of Appeals, 49 the Court
delimits as follows:

. . . . It is immaterial whether the direct connection is merely an improvement or an increase

in existing voltage, as alleged by petitioner, or a totally new and separate electric service as
claimed by private respondent. The law on the matter is clear. PD 40 promulgated on 7
November 1972 expressly provides that the generation of electric power shall be undertaken
solely by the NPC. However Section 3 of the same decree also provides that the distribution
of electric power shall be undertaken by cooperatives, private utilities (such as the
CEPALCO), local governments and other entities duly authorized, subject to state regulation.
( Emphasis supplied.)
The same case ruled that "(i)t is only after a hearing (or an opportunity for such a hearing) where it is
established that the affected private franchise holder is incapable or unwilling to match the reliability
and rates of NPC that a direct connection with NPC may be granted." 50 As earlier stated, the Court
arrived at the same ruling in the later cases of G.R. Nos. 72085, 84695 and 87697.

Petitioner NPC attempted to abide by these rulings when it conducted a hearing to determine
whether it may supply power directly to PIA. While it notified CEPALCO of the hearing, the NPC
is not the proper authority referred to by this Court in the aforementioned earlier decisions, not only
because the subject of the hearing is a matter involving the NPC itself, but also because the law has
created the proper administrative body vested with authority to conduct a hearing.
CEPALCO shares the view of the Court of Appeals that the Energy Regulatory Board (ERB) is the
proper administrative body for such hearings. However, a recent legislative development has
overtaken said view.
The ERB, which used to be the Board of Energy, is tasked with the following powers and functions
by Executive Order No. 172 which took effect immediately after its issuance on May 8, 1987:
Sec. 3. Jurisdiction, Powers and Functions of the Board. When warranted and only when
public necessity requires, the Board may regulate the business of importing, exporting, reexporting, shipping, transporting, processing, refining, marketing and
importing, distributing energy resources. . . .
The Board shall, upon prior notice and hearing, exercise the following, among other powers
and functions:
(a) Fix and regulate the prices of petroleum products;
(b) Fix and regulate the rate schedule or prices of piped gas to be charged by
duly franchised gas companies which distribute gas by means of
underground pipe system;
(c) Fix and regulate the rates of pipeline concessionaires under the
provisions of Republic Act No. 387, as amended, otherwise known as the
"Petroleum Act of 1949," as amended by Presidential Decree No. 1700;

(d) Regulate the capacities of new refineries or additional capacities of

existing refineries and license refineries that may be organized after the
issuance of this Executive Order, under such terms and conditions as are
consistent with the national interest;
(e) Whenever the Board has determined that there is a shortage or any
petroleum product, or when public interest so requires, it may take such
steps as it may consider necessary, including the temporary adjustment of
the levels of prices of petroleum products and the payment to the Oil Price
Stabilization Fund created under Presidential Decree No. 1956 by persons or
entities engaged in the petroleum industry of such amounts as may be
determined by the Board, which will enable the importer to recover its cost of
importation.
As may be gleaned from said provisions, the ERB is basically a price or rate-fixing agency.
Apparently recognizing this basic function, Republic Act No. 7638 (An Act Creating the Department
of Energy, Rationalizing the Organization and Functions of Government Agencies Related to
Energy, and for Other Purposes), 51 which was approved on December 9, 1992 and which took effect
fifteen days after its complete publication in at least two (2) national newspapers of general circulation,
specifically provides as follows:

Sec. 18. Rationalization or Transfer of Functions of Attached or Related Agencies. The

non-price regulatory jurisdiction, powers, and functions of the Energy Regulatory Board as
provided for in Section 3 of Executive Order No. 172 are hereby transferred to the
Department.
The foregoing transfer of powers and functions shall include all applicable funds and
appropriations, records, equipment, property, and such personnel as may be
necessary. Provided, That only such amount of funds and appropriations of the Board as
well as only the personnel thereof which are completely or primarily involved in the exercise
by said Board of its non-price regulatory powers and functions shall be affected by such
transfer.
The power of the NPC to determine, fix, and prescribe the rates being charged to its
customers under Section 4 of Republic Act No. 6395, as amended, as well as the power of
electric cooperatives to fix rates under Section 16 (o), Chapter II of Presidential Decree No.
269, as amended, are hereby transferred to the Energy Regulatory Board. The Board shall
exercise its new powers only after due notice and hearing and under the same procedure
provided for in Executive Order No. 172.
Upon the effectivity of Republic Act No. 7638, then Acting Chairman of the Energy Coordinating
Council Delfin Lazaro transmitted to the Department of Justice the query of whether or not the "nonpower rate powers and functions" of the ERB are included in the "jurisdiction, powers and functions
transferred to the Department of Energy." Answering the query in the affirmative, the Department of
Justice rendered Opinion No. 22 dated February 12, 1993 the pertinent portion of which states:
. . . we believe that since the provision of Section 18 on the transfer of certain powers and
functions from ERB to DOE is clear and unequivocal, and devoid of any ambiguity, in the
sense that it categorically refers to "non-price jurisdiction, powers and functions" of ERB
under Section 3 of E.O. No. 172, there is no room for interpretation, but only for application,
of the law. This is a cardinal rule of statutory construction.

Clearly, the parameters of the transfer of functions from ERB to DOE pursuant to Section 18,
are circumscribed by the provision of Section 3 of E.O. No. 172 alone so that, if there are
other "related" functions of ERB under other provisions of E.O. No. 172 or other energy laws,
these "related" functions, which may conceivably refer to what you call "non-power rate
powers and functions" of ERB, are clearly not contemplated by Section 18 and are,
therefore, not to be deemed included in the transfer of functions from ERB to DOE under the
said provision.
It may be argued that Section 26 of R.A. No. 7638 contains a repealing clause which
provides that:
All laws, presidential decrees, executive orders, rules and regulations or
parts thereof, inconsistent with the provisions of this Act, are hereby repealed
or modified accordingly. . . .
and, therefore, all provisions of E.O. No. 172 and related laws which are inconsistent with the
policy, purpose and intent of R.A. No. 7638 are deemed repealed. It has been said, however,
that a general repealing clause of such nature does not operate as an express repeal
because it fails to identify or designate the act or acts that are intended to be repealed.
Rather, it is a clause which predicates the intended repeal upon the condition that a
substantial conflict must be found on existing and prior acts of the same subject matter. Such
being the case, the presumption against implied repeals and the rule on strict construction
regarding implied repeals shall apply ex propio vigore. For the legislature is presumed to
know the existing laws so that, if repeal of particular or specific laws is intended, the proper
step is to so express it. The failure to add a specific repealing clause particularly mentioning
the statute to be repealed indicates that the intent was not to repeal any existing law on the
matter, unless an irreconcilable inconsistency and repugnancy exists in the terms of the new
and the old laws (Iloilo Palay and Corn Planters Association, Inc. vs. Feliciano, 13 SCRA
377; City of Naga vs. Agna, 71 SCRA 176, cited in Agpalo, Statutory Construction, 1990
Edition, pp. 191-192).
In view of the foregoing, it is our opinion that only the non-price regulatory functions of ERB
under Section 3 of E.O. 172 are transferred to the DOE. All other powers of ERB which are
not within the purview of its "non-price regulatory jurisdiction, powers and functions" as
defined in Section 3 are not so transferred to DOE and accordingly remain vested in ERB.
The determination of which of two public utilities has the right to supply electric power to an area
which is within the coverage of both is certainly not a rate-fixing function which should remain with
the ERB. It deals with the regulation of the distribution of energy resources which, under Executive
Order No. 172, was expressly a function of ERB. However, with the enactment of Republic Act No.
7638, the Department of Energy took over such function. Hence, it is this Department which shall
then determine whether CEPALCO or PIA should supply power to PIE-MO.
Clearly, petitioner NPC's assertion that its "authority to entertain and hear direct connection
applications is a necessary incident of its express authority to sell electric power in bulk" is now
baseless. 52 Even without the new legislation affecting its power to conduct hearings, it is certainly
irregular, if not downright anomalous for the NPC itself to determine whether it should supply power
directly to the PIA or the industries within the PIE-MO. It simply cannot arrogate unto itself the authority to
exercise non-rate fixing powers which now devolves upon the Department of Energy and to hear and
eventually grant itself the right to supply power in bulk. 53

On the other hand, ventilating the issue in a public hearing would not unduly prejudice CEPALCO
although it was enfranchised by law earlier than the PIA. Exclusivity of any public franchise has not
been favored by this Court such that in most, if not all, grants by the government to private
corporations, the interpretation of rights, privileges or franchises is taken against the grantee. Thus
in Alger Electric, Inc. v. Court of Appeals, 54 the Court said.
. . . Exclusivity is given by law with the understanding that the company enjoying it is selfsufficient and capable of supplying the needed service or product at moderate or reasonable
prices. It would be against public interest where the firm granted a monopoly is merely an
unnecessary conduit of electric power, jacking up prices as a superfluous middleman or an
inefficient producer which cannot supply cheap electricity to power intensive industries. It is
in the public interest when industries dependent on heavy use of electricity are given reliable
and direct power at the lower costs thus enabling the sale of nationally marketed products at
prices within the reach of the masses. . . .
WHEREFORE, both petitions in G.R. No. 112702 and 113613 are hereby DENIED. The Department
of Energy is directed to conduct a hearing with utmost dispatch to determine whether it is the
Cagayan Electric Power and Light Co., Inc. or the National Power Corporation, through the
PHIVIDEC Industrial Authority, which should supply electric power to the industries in the PHIVIDEC
Industrial Estate-Misamis Oriental.
This Decision is immediately executory.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-9687

June 30, 1961

LIDDELL & CO., INC., petitioner-appellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.
Ozaeta, Lichauco and Picazo for petitioner-appellant.
Office of the Solicitor General for respondent-appellee.
BENGZON, C.J.:
Statement. This is an appeal from the decision of the Court of Tax Appeals imposing a tax deficiency
liability of P1,317,629.61 on Liddell & Co., Inc.
Said Company lists down several issues which may be boiled to the following:
(a) Whether or not Judge Umali of the Tax Court below could validly participate in the making
of the decision;
(b) Whether or not Liddell & Co. Inc., and the Liddell Motors, Inc. are (practically) identical
corporations, the latter being merely .the alter ego of the former;
(c) Whether or not, granting the identical nature of the corporations, the assessment of tax
liability, including the surcharge thereon by the Court of Tax Appeals, is correct.
Undisputed Facts. The parties submitted a partial stipulation of facts, each reserving the right to
present additional evidence.
Said undisputed facts are substantially as follows:
The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation establish
in the Philippines on February 1, 1946, with an authorized capital of P100,000 divided into
1000 share at P100 each. Of this authorized capital, 196 shares valued at P19,600 were
subscribed and paid by Frank Liddell while the other four shares were in the name of Charles
Kurz, E.J. Darras, Angel Manzano and Julian Serrano at one shares each. Its purpose was
to engage in the business of importing and retailing Oldsmobile and Chevrolet passenger
cars and GMC and Chevrolet trucks..
On January 31, 1947, with the limited paid-in capital of P20,000, Liddell & Co. was able to
declare a 90% stock dividend after which declaration on, Frank Liddells holding in the
Company increased to 1,960 shares and the employees, Charles Kurz E.J. Darras, Angel
Manzano and Julian Serrano at 10 share each. The declaration of stock dividend was
followed by a resolution increasing the authorized capital of the company to P1,000.000
which the Securities & Exchange Commission approved on March 3, 1947. Upon such

approval, Frank Liddell subscribed to 3,000 additional shares, for which he paid into the
corporation P300,000 so that he had in his own name 4,960 shares.
On May 24, 1957, Frank Liddell, on one hand and Messrs. Kurz, Darras, Manzano and
Serrano on the other, executed an agreement (Exhibit A) which was further supplemented by
two other agreements (Exhibits B and C) dated May 24, 1947 and June 3, 1948, wherein
Frank Liddell transferred (On June 7, 1948) to various employees of Liddell & Co. shares of
stock.
At the annual meeting of stockholders of Liddell & Co. held on March 9, 1948, a 100% stock
dividend was declared, thereby increasing the issued capital stock of aid corporation from
P1,000.000 to P 3,000,000 which increase was duly approved by the Securities and
Exchange Commission on June 7, 1948. Frank Liddell subscribed to and paid 20% of the
increase of P400,000. He paid 25% thereof in the amount of P100,000 and the balance of
P3,000,000 was merely debited to Frank Liddell-Drawing Account and credited to
Subscribed Capital Stock on December 11, 1948.
On March 8, 1949, stock dividends were again issued by Liddell & Co. and in accordance
with the agreements, Exhibits A, B, and C, the stocks of said company stood as follows:
Name
Frank Liddell

No. of
Shares

Amount

13,688 P1,368,800

Per Cent
72.00%

Irene Liddell

100

.01%

Mercedes Vecin

100

.01%

Charles Kurz

1,225

122,500

6.45%

E.J. Darras

1,225

122,500

6.45%

Angel Manzano

1,150

115,000

6.06%

Julian Serrano

710

71,000

3.74%

E. Hasim

500

50,000

2.64%

G. W. Kernot

500

50,000

2.64%

19,000 P1,900,000 100.00%

On November 15, 1948, in accordance with a resolution of a special meeting of the Board of
Directors of Liddell & Co., stock dividends were again declared. As a result of said declaration and in
accordance with the agreements, Exhibits, A, B, and C, the stockholdings in the company appeared
to be:
Name
Frank Liddell

No. of
Shares

Amount

Per Cent

19,738 P1,973,800 65.791%

Irene Liddell

100

.003%

Mercedes Vecin

100

.003%

Charles Kurz

2,215

221,500

7.381%

E.J. Darras

2,215

221,500

7.381%

Angel Manzano

1,810

181,000

6.031%

Julian Serrano
E. Hasim
G. W. Kernot

1,700

170,000

5.670%

830

83,000

2.770%

1,490

149,000

4.970%

30,000 P3,000,000 100.000%

On the basis of the agreement Exhibit A, (May, 1947) "40%" of the earnings available for dividends
accrued to Frank Liddell although at the time of the execution of aid instrument, Frank Liddell owned
all of the shares in said corporation. 45% accrued to the employees, parties thereto; Kurz 12-1/2%;
Darras 12-1/2%; A. Manzano 12-1/2% and Julian Serrano 7-1/2%. The agreement Exhibit A was
also made retroactive to 1946. Frank Liddell reserved the right to reapportion the 45% dividends
pertaining to the employees in the future for the purpose of including such other faithful and efficient
employees as he may subsequently designate. (As a matter of fact, Frank Liddell did so designate
two additional employees namely: E. Hasim and G. W. Kernot). It was for such inclusion of future
faithful employees that Exhibits B-1 and C were executed. As per Exhibit C, dated May 13, 1948, the
45% given by Frank Liddell to his employees was reapportioned as follows: C. Kurz 12,%; E. J.
Darras 12%; A. Manzano l2%; J. Serrano 3-1/2%; G. W. Kernot 2%.
Exhibit B contains the employees' definition in detail of the manner by which they sought to prevent
their share-holdings from being transferred to others who may be complete strangers to the business
on Liddell & Co.
From 1946 until November 22, 1948 when the purpose clause of the Articles of Incorporation of
Liddell & Co. Inc., was amended so as to limit its business activities to importations of automobiles
and trucks, Liddell & Co. was engaged in business as an importer and at the same time retailer of
Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks.
On December 20, 1948, the Liddell Motors, Inc. was organized and registered with the Securities
and Exchange Commission with an authorized capital stock of P100,000 of which P20,000 was
subscribed and paid for as follows: Irene Liddell wife of Frank Liddell 19,996 shares and Messrs.
Marcial P. Lichauco, E. K. Bromwell, V. E. del Rosario and Esmenia Silva, 1 share each.
At about the end of the year 1948, Messrs. Manzano, Kurz and Kernot resigned from their respective
positions in the Retail Dept. of Liddell & Co. and they were taken in and employed by Liddell Motors,
Inc.: Kurz as Manager-Treasurer, Manzano as General Sales Manager for cars and Kernot as
General Sales Manager for trucks.
Beginning January, 1949, Liddell & Co. stopped retailing cars and trucks; it conveyed them instead
to Liddell Motors, Inc. which in turn sold the vehicles to the public with a steep mark-up. Since then,
Liddell & Co. paid sales taxes on the basis of its sales to Liddell Motors Inc. considering said sales
as its original sales.
Upon review of the transactions between Liddell & Co. and Liddell Motors, Inc. the Collector of
Internal Revenue determined that the latter was but an alter ego of Liddell & Co. Wherefore, he
concluded, that for sales tax purposes, those sales made by Liddell Motors, Inc. to the public were
considered as the original sales of Liddell & Co. Accordingly, the Collector of Internal Revenue
assessed against Liddell & Co. a sales tax deficiency, including surcharges, in the amount of
P1,317,629.61. In the computation, the gross selling price of Liddell Motors, Inc. to the general
public from January 1, 1949 to September 15, 1950, was made the basis without deducting from the
selling price, the taxes already paid by Liddell & Co. in its sales to the Liddell Motors Inc.

The Court of Tax Appeals upheld the position taken by the Collector of Internal Revenue.
A. Judge Umali: Appellant urges the disqualification on of Judge Roman M. Umali to participate in
the decision of the instant case because he was Chief of the Law Division, then Acting Deputy
Collector and later Chief Counsel of the Bureau of Internal Revenue during the time when the
assessment in question was made.1 In refusing to disqualify himself despite admission that had held
the aforementioned offices, Judge Umali stated that he had not in any way participated, nor
expressed any definite opinion, on any question raised by the parties when this case was presented
for resolution before the said bureau. Furthermore, after careful inspection of the records of the
Bureau, he (Judge Umali as well as the other members of the court below), had not found any
indication that he had expressed any opinion or made any decision that would tend to disqualify him
from participating in the consideration of the case in the Tax Court.
At this juncture, it is well to consider that petitioner did not question the truth of Judge Umali's
statements. In view thereof, this Tribunal is not inclined to disqualify said judge. Moreover, in
furtherance of the presumption of the judge's moral sense of responsibility this Court has adopted,
and now here repeats, the ruling that the mere participation of a judge in prior proceedings relating
to the subject in the capacity of an administrative official does not necessarily disqualify him from
acting as judge.2
Appellant also contends that Judge Umali signed the said decision contrary to the provision of
Section 13, Republic Act No. 1125;3 that whereas the case was submitted for decision of the Court of
Tax Appeals on July 12, 1955, and the decision of Associate Judge Luciano and Judge Nable were
both signed on August 11, 1955 (that is, on the last day of the 30-day period provided for in Section
13, Republic Act No. 1125), Judge Umali signed the decision August 31, 1955 or 20 days after the
lapse of the 30-day period allotted by law.
By analogy it may be said that inasmuch as in Republic Act No. 1125 (law creating the Court of Tax
Appeals) like the law governing the procedure in the court of Industrial Relations, there is no
provision invalidating decisions rendered after the lapse of 30 days, the requirement of Section 13,
Republic Act No. 1125 should be construed as directory.4
Besides as pointed out by appellee, the third paragraph of Section 13 of Republic Act No. 1125
(quoted in the margin)5 confirms this view; because in providing for two thirty-day periods, the law
means that decision may still be rendered within the second period of thirty days (Judge Umali
signed his decision within that period).
B. Identity of the two corporations: On the question whether or not Liddell Motors, Inc. is the alter
ego of Liddell & Co. Inc., we are fully convinced that Liddell & Co. is wholly owned by Frank Liddell.
As of the time of its organization, 98% of the capital stock belonged to Frank Liddell. The 20% paidup subscription with which the company began its business was paid by him. The subsequent
subscriptions to the capital stock were made by him and paid with his own money.
These stipulations and conditions appear in Exhibit A: (1) that Frank Liddell had the authority to
designate in the future the employee who could receive earnings of the corporation; to apportion
among the stock holders the share in the profits; (2) that all certificates of stock in the names of the
employees should be deposited with Frank Liddell duly indorsed in blank by the employees
concerned; (3) that each employee was required to sign an agreement with the corporation to the
effect that, upon his death or upon his retirement or separation for any cause whatsoever from the
corporation, the said corporation should, within a period of sixty days therefor, have the absolute and
exclusive option to purchase and acquire the whole of the stock interest of the employees so dying,
resigning, retiring or separating.

These stipulations in our opinion attest to the fact that Frank Liddell also owned it. He supplied the
original his complete control over the corporation.
As to Liddell Motors, Inc. we are fully persuaded that Frank Liddell also owned it. He supplied the
original capital funds.6 It is not proven that his wife Irene, ostensibly the sole incorporator of Liddell
Motors, Inc. had money of her own to pay for her P20,000 initial subscription.7 Her income in the
United States in the years 1943 and 1944 and the savings therefrom could not be enough to cover
the amount of subscription, much less to operate an expensive trade like the retail of motor vehicles.
The alleged sale of her property in Oregon might have been true, but the money received therefrom
was never shown to have been saved or deposited so as to be still available at the time of the
organization of the Liddell Motors, Inc.
The evidence at hand also shows that Irene Liddell had scant participation in the affairs of Liddell
Motors, Inc. She could hardly be said to possess business experience. The income tax forms record
no independent income of her own. As a matter of fact, the checks that represented her salary and
bonus from Liddell Motors, Inc. found their way into the personal account of Frank Liddell. Her
frequent absences from the country negate any active participation in the affairs of the Motors
company.
There are quite a series of conspicuous circumstances that militate against the separate and distinct
personality of Liddell Motors, Inc. from Liddell & Co.8 We notice that the bulk of the business of
Liddell & Co. was channeled through Liddell Motors, Inc. On the other hand, Liddell Motors, Inc.
pursued no activities except to secure cars, trucks, and spare parts from Liddell & Co. Inc. and then
sell them to the general public. These sales of vehicles by Liddell & Co. to Liddell Motors, Inc. for the
most part were shown to have taken place on the same day that Liddell Motors, Inc. sold such
vehicles to the public. We may even say that the cars and trucks merely touched the hands of Liddell
Motors, Inc. as a matter of formality.
During the first six months of 1949, Liddell & Co. issued ten (10) checks payable to Frank Liddell
which were deposited by Frank Liddell in his personal account with the Philippine National Bank.
During this time also, he issued in favor of Liddell Motors, Inc. six (6) checks drawn against his
personal account with the same bank. The checks issued by Frank Liddell to the Liddell Motors, Inc.
were significantly for the most part issued on the same day when Liddell & Co. Inc. issued the
checks for Frank Liddell9 and for the same amounts.
It is of course accepted that the mere fact that one or more corporations are owned and controlled
by a single stockholder is not of itself sufficient ground for disregarding separate corporate entities.
Authorities10 support the rule that it is lawful to obtain a corporation charter, even with a single
substantial stockholder, to engage in a specific activity, and such activity may co-exist with other
private activities of the stockholder. If the corporation is a substantial one, conducted lawfully and
without fraud on another, its separate identity is to be respected.
Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and
controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the
separate corporate identity of one from the other. There is, however, in this instant case, a peculiar
consequence of the organization and activities of Liddell Motors, Inc.
Under the law in force at the time of its incorporation the sales tax on original sales of cars (sections
184, 185 and 186 of the National Internal Revenue Code), was progressive, i.e. 10% of the selling
price of the car if it did not exceed P5000, and 15% of the price if more than P5000 but not more
than P7000, etc. This progressive rate of the sales tax naturally would tempt the taxpayer to employ

a way of reducing the price of the first sale. And Liddell Motors, Inc. was the medium created by
Liddell & Co. to reduce the price and the tax liability.
Let us illustrate: a car with engine motor No. 212381 was sold by Liddell & Co. Inc. to Liddell Motors,
Inc. on January 17, 1948 for P4,546,000.00 including tax; the price of the car was P4,133,000.23,
the tax paid being P413.22, at 10%. And when this car was later sold (on the same day) by Liddell
Motors, Inc. to P.V. Luistro for P5500, no more sales tax was paid.11 In this price of P5500 was
included the P413.32 representing taxes paid by Liddell & Co. Inc. in the sale to Liddell Motors, Inc.
Deducting P413.32 representing taxes paid by Liddell & Co., Inc. the price of P5500, the balance of
P5,087.68 would have been the net selling price of Liddell & Co., Inc. to the general public (had
Liddell Motors, Inc. not participated and intervened in the sale), and 15% sales tax would have been
due. In this transaction, P349.68 in the form of taxes was evaded. All the other transactions
(numerous) examined in this light will inevitably reveal that the Government coffers had been
deprived of a sizeable amount of taxes.
As opined in the case of Gregory v. Helvering,12 "the legal right of a taxpayer to decrease the amount
of what otherwise would be his taxes, or altogether avoid them by means which the law permits,
cannot be doubted." But, as held in another case,13 "where a corporation is a dummy, is unreal or a
sham and serves no business purpose and is intended only as a blind, the corporate form may be
ignored for the law cannot countenance a form that is bald and a mischievous fiction."
Consistently with this view, the United States Supreme Court14 held that "a taxpayer may gain
advantage of doing business thru a corporation if he pleases, but the revenue officers in proper
cases, may disregard the separate corporate entity where it serves but as a shield for tax evasion
and treat the person who actually may take the benefits of the transactions as the person
accordingly taxable."
Thus, we repeat: to allow a taxpayer to deny tax liability on the ground that the sales were made
through an other and distinct corporation when it is proved that the latter is virtually owned by the
former or that they are practically one and the same is to sanction a circumvention of our tax laws.15
C. Tax liability computation: In the Yutivo case16 the same question involving the computation of the
alleged deficiency sales tax has been raised. In accordance with our ruling in said case we hold as
correctly stated by Judge Nable in his concurring and dissenting opinion on this case, that the
deficiency sales tax should be based on the selling price obtained by Liddell Motors, Inc. to the
public AFTER DEDUCTING THE TAX ALREADY PAID BY LIDDELL & CO., INC. in its sales to
Liddell Motors, Inc.
On the imposition of the 50% surcharge by reason of fraud, we see that the transactions between
Liddell Motors Inc. and Liddell & Co., Inc. have always been embodied in proper documents,
constantly subject to inspection by the tax authorities. Liddell & Co., Inc. have always made a full
report of its income and receipts in its income tax returns.
Paraphrasing our decision in the Yutivo case, we may now say, in filing its return on the basis of its
sales to Liddell Motors, Inc. and not on those by the latter to the public, it cannot be held that the
Liddell & Co., Inc. deliberately made a false return for the purpose of defrauding the government of
its revenue, and should suffer a 50% surcharge. But penalty for late payment (25%) should be
imposed.
In view of the foregoing, the decision appealed from is hereby modified: Liddell & Co., Inc. is
declared liable only for the amount of P426,811.67 with 25% surcharge for late payment and 6%
interest thereon from the time the judgment becomes final.

As it appears that, during the pendency of this litigation appellant paid under protest to the
Government the total amount assessed by the Collector, the latter is hereby required to return the
excess to the petitioner. No costs.
Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, De Leon and Natividad,
JJ., concur.

PNB vs. Andrada Electric & Engineering Co.Case Digest

Philippine National Bank vs. Andrada Electric & Engineering Co.
[GR 142936, 17 April 2002]
Facts: On 26 August 1975, the Philippine national Bank (PNB) acquired the
assets of the Pampanga Sugar Mills (PASUMIL) that were earlier foreclosed
by the Development Bank of the Philippines (DBP) under LOI 311. The PNB
organized the ational Sugar Development Corporation (NASUDECO) in
September 1975, to take ownership and possession of the assets and
ultimately to nationalize and consolidate its interest in other PNB controlled
sugar mills. Prior to 29 October 1971, PASUMIL engaged the services of the
Andrada Electric & Engineering Company (AEEC) for electrical rewinding and
repair, most of which were partially paid by PASUMIL, leaving several unpaid
accounts with AEEC. On 29 October 1971, AEEC and PASUMIL entered into a
contract for AEEC to perform the (a) Construction of a power house building;
3 reinforced concrete foundation for 3 units 350 KW diesel engine generating
sets, 3 reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo
generator sets, among others. Aside from the work contract, PASUMIL
required AEEC to perform extra work, and provide electrical equipment and
spare parts. Out of the total obligation of P777,263.80, PASUMIL had paid
only P250,000.00, leaving an unpaid balance, as of 27 June 1973,
amounting to P527,263.80. Out of said unpaid balance of P527,263.80,
PASUMIL made a partial payment to AEEC of P14,000.00, in broken
amounts, covering the period from 5 January 1974 up to 23 May 1974,
leaving an unpaid balance of P513,263.80. PASUMIL and PNB, and now
NASUDECO, allegedly failed and refused to pay AEEC their just, valid and
demandable obligation (The President of the NASUDECO is also the VicePresident of the PNB. AEEC besought said official to pay the outstanding
obligation of PASUMIL, inasmuch as PNB and NASUDECO now owned and
possessed the assets of PASUMIL, and these defendants all benefited from
the works, and the electrical, as well as the engineering and repairs,
performed by AEEC).
Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to
pay their obligations, AEEC allegedly suffered actual damages in the total
amount of P513,263.80; and that in order to recover these sums, AEEC was
compelled to engage the professional services of counsel, to whom AEEC
agreed to pay a sum equivalent to 25% of the amount of the obligation due
by way of attorney's fees. PNB and NASUDECO filed a joint motion to
dismiss on the ground that the complaint failed to state sufficient allegations
to establish a cause of action against PNB and NASUDECO, inasmuch as
there is lack or want of privity of contract between the them and AEEC. Said
motion was denied by the trial court in its 27 November order, and ordered
PNB nad NASUDECO to file their answers within 15 days. After due

proceedings, the Trial Court rendered judgment in favor of AEEC and against
PNB, NASUDECO and PASUMIL; the latter being ordered to pay jointly and
severally the former (1) the sum of P513,623.80 plus interest thereon at the
rate of 14% per annum as claimed from 25 September 1980 until fully paid;
(2) the sum of P102,724.76 as attorney's fees; and, (3) Costs. PNB and
NASUDECO appealed. The Court of Appeals affirmed the decision of the trial
court in its decision of 17 April 2000 (CA-GR CV 57610. PNB and NASUDECO
filed the petition for review.
Issue: Whether PNB and NASUDECO may be held liable for PASUMILs
liability to AEEC.
Held: Basic is the rule that a corporation has a legal personality distinct and
separate from the persons and entities owning it. The corporate veil may be
lifted only if it has been used to shield fraud, defend crime, justify a wrong,
defeat public convenience, insulate bad faith or perpetuate injustice. Thus,
the mere fact that the Philippine National Bank (PNB) acquired ownership or
management of some assets of the Pampanga Sugar Mill (PASUMIL), which
had earlier been foreclosed and purchased at the resulting public auction by
the Development Bank of the Philippines (DBP), will not make PNB liable for
the PASUMIL's contractual debts to Andrada Electric & Engineering Company
(AEEC). Piercing the veil of corporate fiction may be allowed only if the
following elements concur: (1) control not mere stock control, but
complete domination not only of finances, but of policy and business
practice in respect to the transaction attacked, must have been such that
the corporate entity as to this transaction had at the time no separate mind,
will or existence of its own; (2) such control must have been used by the
defendant to commit a fraud or a wrong to perpetuate the violation of a
statutory or other positive legal duty, or a dishonest and an unjust act in
contravention of plaintiff's legal right; and (3) the said control and breach of
duty must have proximately caused the injury or unjust loss complained of.
The absence of the foregoing elements in the present case precludes the
piercing of the corporate veil. First, other than the fact that PNB and
NASUDECO acquired the assets of PASUMIL, there is no showing that their
control over it warrants the disregard of corporate personalities. Second,
there is no evidence that their juridical personality was used to commit a
fraud or to do a wrong; or that the separate corporate entity was farcically
used as a mere alter ego, business conduit or instrumentality of another
entity or person. Third, AEEC was not defrauded or injured when PNB and
NASUDECO acquired the assets of PASUMIL. Hence, although the assets of
NASUDECO can be easily traced to PASUMIL, the transfer of the latter's
assets to PNB and NASUDECO was not fraudulently entered into in order to
escape liability for its debt to AEEC. Neither was there any merger or
consolidation with respect to PASUMIL and PNB. The procedure prescribed

under Title IX of the Corporation Code 59 was not followed. In fact,

PASUMIL's corporate existence had not been legally extinguished or
terminated. Further, prior to PNB's acquisition of the foreclosed assets,
PASUMIL had previously made partial payments to AEEC for the former's
obligation in the amount of P777,263.80. As of 27 June 1973, PASUMIL had
paid P250,000 to AEEC and, from 5 January 1974 to 23 May 1974, another
P14,000. Neither did PNB expressly or impliedly agree to assume the debt of
PASUMIL to AEEC. LOI 11 explicitly provides that PNB shall study and submit
recommendations on the claims of PASUMIL's creditors. Clearly, the
corporate separateness between PASUMIL and PNB remains, despite AEEC's
insistence to the contrary.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 154975

January 29, 2007

GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCE

CORPORATION), Petitioner,
vs.
ALSONS DEVELOPMENT and INVESTMENT CORPORATION and CCC EQUITY
CORPORATION,Respondents.
DECISION
GARCIA, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner General Credit
Corporation, now known as Penta Capital Finance Corporation, seeks to annul and set aside the
Decision1 and Resolution2dated April 11, 2002 and August 20, 2002, respectively, of the Court of
Appeals (CA) in CA-G.R. CV No. 31801,affirming the November 8, 1990 decision of the Regional
Trial Court (RTC) of Makati City in its Civil Case No. 12707, an action for a sum of money thereat
instituted by the herein respondent Alsons Development and Investment Corporation against the
petitioner and respondent CCC Equity Corporation.
The facts:
Shortly after its incorporation in 1957 as a finance and investment company, petitioner General
Credit Corporation (GCC, for short), then known as Commercial Credit Corporation (CCC),
established CCC franchise companies in different urban centers of the country.3 In furtherance of its
business, GCC had, as early as 1974, applied for and was able to secure license from the then
Central Bank (CB) of the Philippines and the Securities and Exchange Commission (SEC) to engage
also in quasi-banking activities.4 On the other hand, respondent CCC Equity Corporation (EQUITY,
for brevity) was organized in November 1994 by GCC for the purpose of, among other things, taking
over the operations and management of the various franchise companies. At a time material hereto,
respondent Alsons Development and Investment Corporation (ALSONS, hereinafter) and Conrado,
Nicasio, Editha and Ladislawa, all surnamed Alcantara, and Alfredo de Borja (hereinafter the
Alcantara family, for convenience), each owned, just like GCC, shares in the aforesaid GCC
franchise companies, e.g., CCC Davao and CCC Cebu.
In December 1980, ALSONS and the Alcantara family, for a consideration of Two Million
(P2,000,000.00) Pesos, sold their shareholdings a total of 101,953 shares, more or less in the
CCC franchise companies to EQUITY.[5] On January 2, 1981, EQUITY issued ALSONS et al., a
"bearer" promissory note for P2,000,000.00 with a one-year maturity date, at 18% interest per
annum, with provisions for damages and litigation costs in case of default.6
Some four years later, the Alcantara family assigned its rights and interests over the bearer note to
ALSONS which thenceforth became the holder thereof.7 But even before the execution of the
assignment deal aforestated, letters of demand for interest payment were already sent to EQUITY,
through its President, Wilfredo Labayen, who pleaded inability to pay the stipulated interest, EQUITY

no longer then having assets or property to settle its obligation nor being extended financial support
by GCC.
What happened next, as narrated in the assailed Decision of the CA, may be summarized, as
follows:
1. On January 14, 1986, before the RTC of Makati, ALSONS, having failed to collect on the
bearer note aforementioned, filed a complaint for a sum of money8 against EQUITY and
GCC. The case, docketed as Civil Case No. 12707, was eventually raffled to Branch 58 of
the court. As stated in par. 4 of the complaint, GCC is being impleaded as party-defendant
for any judgment ALSONS might secure against EQUITY and, under the doctrine of piercing
the veil of corporate fiction, against GCC, EQUITY having been organized as a tool and
mere conduit of GCC.
2. Answering with a cross-claim against GCC, EQUITY stated by way of special and
affirmative defenses that it (EQUITY):
a) was purposely organized by GCC for the latter to avoid CB Rules and Regulations
on DOSRI (Directors, Officers, Stockholders and Related Interest) limitations, and
that it acted merely as intermediary or bridge for loan transactions and other dealings
of GCC to its franchises and the investing public; and
b) is solely dependent upon GCC for its funding requirements, to settle, among
others, equity purchases made by investors on the franchises; hence, GCC is solely
and directly liable to ALSONS, the former having failed to provide EQUITY the
necessary funds to meet its obligations to ALSONS.
3. GCC filed its ANSWER to Cross-claim, stressing that it is a distinct and separate entity
from EQUITY and alleging, in essence that the business relationships with each other were
always at arms length. And following the denial of its motion to dismiss ALSONS complaint,
on the ground of lack of jurisdiction and want of cause of action, GCC filed its Answer thereto
and set up affirmative defenses with counterclaim for exemplary damages and attorneys
fees.
Issues having been joined, trial ensued. Presented by ALSONS, but testifying as adverse witnesses,
were CB and GCC officers. Among other things, ALSONS evidence, which included the EQUITYissued "bearer" promissory note marked as Exhibit "K" and over sixty (60) other marked and
subsequently admitted documents,9 were to the effect that five (5) incorporators, each
contributing P100,000.00 as the initial paid up capital of the company, organized EQUITY to
manage, as it did manage, various GCC franchises through management contracts. Before
EQUITYs incorporation, however, GCC was already into the financing business as it was in fact
managing and operating various CCC franchises. Presented in evidence, too, was the September
29, 1982 letter-reply of one G. Villanueva, then GCC President, to EQUITY President Wilfredo
Labayen, bearing on the sale of EQUITY shares to third parties, part of the proceeds of which the
Alcantaras wanted applied to liquidate the promissory note in question. In said letter, Mr. Villanueva
explained that the GCC Board denied the Alcantaras request to be paid out of such proceeds, but
nonetheless authorized EQUITY to pay them interest out of EQUITYs operation income, in
preference over what was due GCC.10
Albeit EQUITY presented its president, it opted to adopt the testimony of some of ALSONS
witnesses, inclusive of the documentary exhibits testified to by each of them, as its evidence.

For its part, GCC called only Wilfredo Labayen to testify. It stuck to its underlying defense of
separateness and presented documentary evidence detailing the organizational structures of both
GCC and EQUITY. And in a bid to negate the notion that it was conducting its business illegally,
GCC presented CB and SEC-issued licenses authoring it to engage in financing and quasi-banking
activities. It also adduced evidence to prove that it was never a party to any of the actionable
documents ALSONS and its predecessors-in-interest had in their possession and that the November
27, 1985 deed of assignment of rights over the promissory note was unenforceable.
Eventually, the trial court, on its finding that EQUITY was but an instrumentality or adjunct of GCC
and considering the legal consequences and implications of such relationship, came out with its
decision on November 8, 1990, rendering judgment for ALSONS, to wit:
WHEREFORE, the foregoing premises considered, judgment is hereby rendered in favor of plaintiff
[ALSONS] and against the defendants [EQUITY and GCC] who are hereby ordered, jointly and
severally, to pay plaintiff:
1. the principal sum of Two Million Pesos (P2,000,000.00) together with the interest due
thereon at the rate of eighteen percent (18%) annually computed from Jan. 2, 1981 until the
obligation is fully paid;
2. liquidated damages due thereon equivalent to three percent (3%) monthly computed from
January 2, 1982 until the obligation is fully paid;
3. attorneys fees in an amount equivalent to twenty four percent (24%) of the total obligation
due; and
4. the costs of suit.
IT IS SO ORDERED. (Words in brackets added.)
Therefrom, GCC went on appeal to the CA where its appellate recourse was docketed as CA-G.R.
CV No. 31801, ascribing to the trial court the commission of the following errors:
1. In holding that there is a "Parent-Subsidiary" corporate relationship between EQUITY and
GCC;
2. In not holding that EQUITY and GCC are distinct and separate corporate entities;
3. In applying the doctrine of "Piercing the Veil of Corporate Fiction" in the case at bar; and
4. In not holding ALSONS in estoppel to question the corporate personality of EQUITY.
On April 11, 2002, the appellate court rendered the herein assailed Decision,11 affirming that of the
trial court, thus:
WHEREFORE, premises considered, the Decision of the Regional Trial Court, Branch 58, Makati in
Civil Case No. 12707 is hereby AFFIRMED.
SO ORDERED.

In time, GCC moved for reconsideration followed by a motion for oral argument, but both motions
were denied by the CA in its equally assailed Resolution of August 20, 2002.12
Hence, GCCs present recourse anchored on the following arguments, issues and/or submissions:
1. The motion for oral argument with motion for reconsideration and its supplement were
perfunctorily denied by the CA without justifiable basis;
2. There is absolutely no basis for piercing the veil of corporate fiction;
3. Respondent Alsons is not a real party-in-interest as the promissory note payable to bearer
subject of the collection suit is but a simulated document and/or refers to another party.
Moreover, the subject promissory note is not admissible in evidence because it has not been
duly authenticated and it is an altered document;
4. The fact of full payment stated in the ten (10) deeds of sale of the shares of stock is
conclusive on the sellers, and by the patrol evidence rule, the alleged fact of its non-payment
cannot be introduced in evidenced; and
5. The counter-claim filed by GCC against Alsons should be granted in the interest of justice.
The petition and the arguments and/or issues holding it together are without merit. The desired
reversal of the assailed decision and resolution of the appellate court is accordingly DENIED.
Instead of raising distinctly formulated questions of law, as is expected of one seeking a review
under Rule 45 of the Rules of Court of a final CA judgment,13 petitioner GCC starts off by voicing
disappointment over the "perfunctory" denial by the CA of its twin motions for reconsideration and
oral argument. Petitioner, to be sure, cannot plausibly expect a reversal action premised on the
cursory way its motions were denied, if such indeed were the case. Such manner of denial, while
perhaps far from ideal, is not even a recognized ground for appeal by certiorari, unless a denial of
due process ensues, which is not the case here. And lest it be overlooked, the CA prefaced its
assailed denial resolution with the clause: "[F]inding no reversible error committed to warrant the
modification and/or reversal of the April 11, 2002 Decision," suggesting that the appellate court gave
the petitioners motion for reconsideration the attention it deserved. At the very least, the petitioner
was duly apprised of the reasons why reconsideration could not be favorably considered. An
extended resolution was not really necessary to dispose of the motion for reconsideration in
question.
Petitioners lament about being deprived of procedural due process owing to the denial of its motion
for oral argument is simply specious. Under the CA Internal Rules, the appellate court may tap any
of the three (3) alternatives therein provided to aid the court in resolving appealed cases before it. It
may rely on available records alone, require the submission of memoranda or set the case for oral
argument. The option the Internal Rules thus gives the CA necessarily suggests that the appellate
court may, at its sound discretion, dispense with a tedious oral argument exercise. Rule VI, Section
6 of the 2002 Internal Rules of the CA, provides:
SEC. 6 Judicial Action on Certain Petitions.- (a) In petitions for review, after the receipt of the
respondents comment on the petition, the Court [of Appeals] may dismiss the petition if it finds
the same to be patently without merit , otherwise, it shall give due course to it.
xxx xxx xxx

If the petition is given due course, the Court may consider the case submitted for decision or require
the parties to submit their memorandum or set the case for oral argument. xxx. After the oral
argument or upon submission of the memoranda the case shall be deemed submitted for
decision.
In the case at bench, records reveal that the appellate court, in line with the prescription of its own
rules, required the parties to just submit, as they did, their respective memoranda to properly
ventilate their separate causes. Under this scenario, the petitioner cannot be validly heard, having
been deprived of due process.
Just like the first, the last three (3) arguments set forth in the petition will not carry the day for the
petitioner. In relation therewith, the Court notes that these arguments and the issues behind them
were not raised before the trial court. This appellate maneuver cannot be allowed. For, well-settled is
the rule that issues or grounds not raised below cannot be resolved on review in higher
courts.14 Springing surprises on the opposing party is antithetical to the sporting idea of fair play,
justice and due process; hence, the proscription against a party shifting from one theory at the trial
court to a new and different theory in the appellate level. On the same rationale, points of law,
theories, issues not brought to the attention of the lower court or, in fine, not interposed during the
trial cannot be raised for the first time on appeal.15
There are, to be sure, exceptions to the rule respecting what may be raised for the first time on
appeal. Lack of jurisdiction over when the issues raised present a matter of public policy16 comes
immediately to mind. None of the well-recognized exceptions obtain in this case, however.
Lest it be overlooked vis--vis the same last three arguments thus pressed, both the trial court and
the CA, based on the evidence adduced, adjudged the petitioner and respondent EQUITY jointly and
severally liable to pay what respondent ALSONS is entitled to under the "bearer" promissory note.
The judgment argues against the notion of the note being simulated or altered or that respondent
ALSONS has no standing to sue on the note, not being the payee of the "bearer" note. For, the
declaration of liability not only presupposes the duly established authenticity and due execution of
the promissory note over which ALSONS, as the holder in due course thereof, has interest, but also
the untenability of the petitioners counterclaim for attorneys fees and exemplary damages against
ALSONS. At bottom, the petitioner predicated such counter-claim on the postulate that respondent
ALSONS had no cause of action, the supposed promissory note being, according to the petitioner,
either a simulated or an altered document.
In net effect, the definitive conclusion of the appellate court affirmatory of that of the trial court
was that the bearer promissory note (Exh. "K") was a genuine and authentic instrument payable to
the holder thereof. This factual determination, as a matter of long and sound appellate practice,
deserves great weight and shall not be disturbed on appeal, save for the most compelling
reasons,17 such as when that determination is clearly without evidentiary support or when grave
abuse of discretion has been committed.18 This is as it should be since the Court, in petitions for
review of CA decisions under Rule 45 of the Rules of Court, usually limits its inquiry only to
questions of law. Stated otherwise, it is not the function of the Court to analyze and weigh all over
again the evidence or premises supportive of the factual holdings of lower courts.19
As nothing in the record indicates any of the exceptions adverted to above, the factual conclusion of
the CA that the P2 Million promissory note in question was authentic and was issued at the first
instance to respondent ALSONS and the Alcantara family for the amount stated on its face, must be
affirmed. It should be stressed in this regard that even the issuing entity, i.e., respondent EQUITY,
never challenged the genuineness and due execution of the note.

This brings us to the remaining but core issue tendered in this case and aptly raised by the
petitioner, to wit: whether there is absolutely no basis for piercing GCCs veil of corporate identity.
A corporation is an artificial being vested by law with a personality distinct and separate from those
of the persons composing it20 as well as from that of any other entity to which it may be related.21 The
first consequence of the doctrine of legal entity of the separate personality of the corporation is that a
corporation may not be made to answer for acts and liabilities of its stockholders or those of legal
entities to which it may be connected or vice versa.22
The notion of separate personality, however, may be disregarded under the doctrine "piercing the
veil of corporate fiction" as in fact the court will often look at the corporation as a mere collection of
individuals or an aggregation of persons undertaking business as a group, disregarding the separate
juridical personality of the corporation unifying the group. Another formulation of this doctrine is that
when two (2) business enterprises are owned, conducted and controlled by the same parties, both
law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction
that two corporations are distinct entities and treat them as identical or one and the same.23
Whether the separate personality of the corporation should be pierced hinges on obtaining facts,
appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with
caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when
necessary in the interest of justice.24 After all, the concept of corporate entity was not meant to
promote unfair objectives.
Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the law
covers and isolates the corporation from any other legal entity to which it may be related, is
allowed.25 These are: 1) defeat of public convenience,26 as when the corporate fiction is used as
vehicle for the evasion of an existing obligation;27 2) fraud cases or when the corporate entity is used
to justify a wrong, protect fraud, or defend a crime;28 or 3) alter ego cases, where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation
is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.29
The CA found valid grounds to pierce the corporate veil of petitioner GCC, there being justifiable
basis for such action. When the appellate court spoke of a justifying factor, the reference was to
what the trial court said in its decision, namely: the existence of "certain circumstances [which],
taken together, gave rise to the ineluctable conclusion that [respondent] EQUITY is but an
instrumentality or adjunct of [petitioner] GCC."
The Court agrees with the disposition of the appellate court on the application of the piercing
doctrine to the transaction subject of this case. Per the Courts count, the trial court enumerated no
less than 20 documented circumstances and transactions, which, taken as a package, indeed
strongly supported the conclusion that respondent EQUITY was but an adjunct, an instrumentality or
business conduit of petitioner GCC. This relation, in turn, provides a justifying ground to pierce
petitioners corporate existence as to ALSONS claim in question. Foremost of what the trial court
referred to as "certain circumstances" are the commonality of directors, officers and stockholders
and even sharing of office between petitioner GCC and respondent EQUITY; certain financing and
management arrangements between the two, allowing the petitioner to handle the funds of the latter;
the virtual domination if not control wielded by the petitioner over the finances, business policies and
practices of respondent EQUITY; and the establishment of respondent EQUITY by the petitioner to
circumvent CB rules. For a perspective, the following are some relevant excerpts from the trial
courts decision setting forth in some detail the tipping circumstances adverted to therein:

It must be noted that as characterized by their business relationship, [respondent] EQUITY and
[petitioner] GCC had common directors and/or officers as well as stockholders. This is revealed by
the proceedings recorded in SEC Case No. 25-81 entitled "Avelina Ramoso, et al., vs. GCC, et al.,
where it was established, thru the testimony of EQUITYs own President that more than 90% of
the stockholders of EQUITY were also stockholders of GCC .. Disclosed likewise is the fact
that when [EQUITYs President] Labayen sold the shareholdings of EQUITY in said franchise
companies, practically the entire proceeds thereof were surrendered to GCC, and not received by
EQUITY (EXHIBIT "RR") xxx.
It was likewise shown by a preponderance of evidence that not only had GCC financed
EQUITY and that the latter was heavily indebted to the former but EQUITY was, in fact, a wholly
owned subsidiary of GCC. Thus, as affirmed by EQUITYs President, the funds invested by
EQUITY in the CCC franchise companies actually came from CCC Phils. or GCC (Exhibit "Y-5").
that, as disclosed by the Auditors report for 1982, past due receivables alone of GCC exceeded
P101,000,000.00 mostly to GCC affiliates especially CCC EQUITY. ; that [CBs] Report of
Examination dated July 14, 1977 shows that EQUITY which has a paid-up capital of only
P500,000.00 was the biggest borrower of GCC with a total loan of P6.70 Million .
xxx xxx xxx
It has likewise been amply substantiated by [respondent ALSONS] evidence that not only did
GCC cause the incorporation of EQUITY, but, the latter had grossly inadequate capital for the
pursuit of its line of business to the extent that its business affairs were considered as GCCs own
business endeavors. xxx.
xxx xxx xxx
ALSONS has likewise shown that the bonuses of the officers and directors of EQUITY was
based on its total financial performance together with all its affiliates both firms were sharing one
and the same office when both were still operational and that the directors and executives of
EQUITY never acted independently but took their orders from GCC.
The evidence has also indubitably established that EQUITY was organized by GCC for the
purpose of circumventing [CB] rules and regulations and the Anti-Usury Law. Thus, as disclosed by
the Advance Report on the result of Central Banks Operations Examination conducted on
GCC as of March 31, 1977 (EXHIBITS "FFF" etc.), the latter violated [CB] rules and regulations by :
(a) using as a conduit its non-quasi bank affiliates . (b) issuing without recourse facilities to enable
GCC to extend credit to affiliates like EQUITY which go beyond the single borrowers limit without
the need of showing outstanding balance in the book of accounts. (Emphasis over words in brackets
added.)
It bears to stress at this point that the facts and the inferences drawn therefrom, upon which the two
(2) courts below applied the piercing doctrine, stand, for the most part, undisputed. Among these is,
to reiterate, the matter of EQUITY having been incorporated to serve, as it did serve, as an
instrumentality or adjunct of GCC. With the view we take of this case, GCC did not adduce any
evidence, let alone rebut the testimonies and documents presented by ALSONS, to establish the
prevailing circumstances adverted to that provided the justifying occasion to pierce the veil of
corporate fiction between GCC and EQUITY. We quote the trial court:
Verily, indeed, as the relationships binding herein [respondent EQUITY and petitioner GCC] have
been that of "parent-subsidiary corporations" the foregoing principles and doctrines find suitable
applicability in the case at bar; and, it having been satisfactorily and indubitably shown that the said

relationships had been used to perform certain functions not characterized with legitimacy, this Court
feels amply justified to "pierce the veil of corporate entity" and disregard the separate existence of
the percent (sic) and subsidiary the latter having been so controlled by the parent that its separate
identity is hardly discernible thus becoming a mere instrumentality or alter ego of the former.
Consequently, as the parent corporation, [petitioner] GCC maybe (sic) held responsible for the acts
and contracts of its subsidiary [respondent] EQUITY - most especially if the latter (who had
anyhow acknowledged its liability to ALSONS) maybe (sic) without sufficient property with which to
settle its obligations. For, after all, GCC was the entity which initiated and benefited immensely from
the fraudulent scheme perpetrated in violation of the law. (Words in parenthesis in the original;
emphasis and bracketed words added).
Given the foregoing considerations, it behooves the petitioner, as a matter of law and equity, to
assume the legitimate financial obligation of a cash-strapped subsidiary corporation which it virtually
controlled to such a degree that the latter became its instrument or agent. The facts, as found by the
courts a quo, and the applicable law call for this kind of disposition. Or else, the Court would be
allowing the wrong use of the fiction of corporate veil.
WHEREFORE, the instant petition is DENIED and the appealed Decision and Resolution of the
Court of Appeals are accordingly AFFIRMED.
Costs against the petitioner.

Traders Royal Bank v. CA (1997)

G.R. No. 93397 March 3, 1997
Lessons Applicable: Requisites of negotiability to antedated and postdated
instruments (Negotiable Instrument Law)
FACTS:
Filriters (assigned) > Philfinance (still under the name of Filriters
assigned) > Traders Royal Bank = ? (valid or not)
November 27, 1979: Filriters Guaranty Assurance Corporation
(Filriters) executed a "Detached Assignment whereby Filriters, as
registered owner, sold, transferred, assigned and delivered unto
Philippine Underwriters Finance Corporation (Philfinance) all its rights
and title to Central Bank Certificates of Indebtedness (CBCI) of P500k
and having an aggregate value of P3.5M

The Detached Assignment contains an express authorization executed

by the transferor intended to complete the assignment through the
registration of the transfer in the name of PhilFinance

February 4, 1981: Traders Royal Bank (Traders) entered into a

Repurchase Agreement w/ PhilFinance whereby in consideration of the
sum of P500,000.00, PhilFinance sold, transferred and delivered a
CBCI w/ a face value of P500K which CBCI was among those
previously acquired by PhilFinance from Filriters

PhilFinance failed to repurchase on the agreed date of maturity, April

27, 1981, when the checks it issued in favor of petitioner were
dishonored for insufficient funds

Philfinance transferred and assigned all, its rights and title in the CBCI
to Traders

Respondent failed and refused to register the transfer as requested,

and continues to do so notwithstanding petitioner's valid and just title
over the same and despite repeated demands in writing

Traders prayed for the registration by the Central Bank of the subject
CBCI in its name.

CA affirmed RTC: subsequent assignment in favor of Traders Royal

Bank null and void and of no force and effect.

Philfinance acquired no title or rights under CBCI which it could assign

or transfer to Traders and which it can register with the Central Bank

instrument is payable only to Filriters, the registered owner

ISSUE: W/N the CBCI is a negotiable instrument

HELD: NO. Petition is dismissed. CA affirmed.

CBCI is not a negotiable instrument in the absence of words of

negotiability within the meaning of the negotiable instruments law (Act
2031)

certificate of indebtedness

= certificates for the creation and maintenance of a permanent

improvement revolving fund

similar to a "bond"

properly understood as acknowledgment of an obligation to pay a fixed

sum of money

usually used for the purpose of long term loans

Philfinance merely borrowed the CBCI from Filriters, a sister

corporation.

lack of any consideration = assignment is a complete nullity

Filriters to Philfinance did not conform to the "Rules and Regulations

Governing Central Bank Certificates of Indebtedness" (Central Bank
Circular No. 769, series of 1980) under which the note was issued.

Published in the Official Gazette on November 19, 1980, Section 3

thereof provides that any assignment of registered certificates shall
not be valid unless made . . . by the registered owner thereof in
person or by his representative duly authorized in writing

Alfredo O. Banaria, who signed the deed of assignment purportedly for

and on behalf of Filriters, did not have the necessary written
authorization from the BOD

Traders, being a commercial bank, cannot feign ignorance of Central

Bank Circular 769, and its requirements.

The fact that Filfinance owns majority shares in Filriters is not by itself
a ground to disregard the independent corporate status of Filriters.

Traders knew that Philfinance is not registered owner of the CBCI.

The fact that a non-owner was disposing of the registered CBCI owned
by another entity was a good reason for petitioner to verify of inquire
as to the title Philfinance to dispose to the CBCI.

Nemo potest nisi quod de jure potest no man can do anything

except what he can do lawfully.

Concept Builders Inc. vs. National Labor Relations Commission

[GR 108734, 29 May 1996]
Facts: Concept Builders, Inc., (CBI) a domestic corporation, with principal
office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the
construction business while Norberto Marabe; Rodolfo Raquel, Cristobal
Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto
Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea,
Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres,
Felipe Basilan, and Ruben Robalos were employed by said company as
laborers, carpenters and riggers. On November 1981, Marabe, et. al. were
served individual written notices of termination of employment by CBI,
effective on 30 November 1981. It was stated in the individual notices that
their contracts of employment had expired and the project in which they
were hired had been completed. The National Labor Relations Commission
(NLRC) found it to be, the fact, however, that at the time of the termination
of Marabe, et.al.'s employment, the project in which they were hired had not
yet been finished and completed. CBI had to engage the services of subcontractors whose workers performed the functions of Marabe, et. al.
Aggrieved, Marabe, et. al. filed a complaint for illegal dismissal, unfair labor
practice and non-payment of their legal holiday pay, overtime pay and
thirteenth-month pay against CBI. On 19 December 1984, the Labor Arbiter
rendered judgment ordering CBI to reinstate Marabe et. al. and to pay them
back wages equivalent to 1 year or 300 working days. On 27 November
1985, the NLRC dismissed the motion for reconsideration filed by CBI on the
ground that the said decision had already become final and executory.
On 16 October 1986, the NLRC Research and Information Department made
the finding that Marabe, et. al.'s back wages amounted to P199,800.00. On
29 October 1986, the Labor Arbiter issued a writ of execution directing the
sheriff to execute the Decision, dated 19 December 1984. The writ was
partially satisfied through garnishment of sums from CBI's debtor, the
Metropolitan Waterworks and Sewerage Authority, in the amount of
P81,385.34. Said amount was turned over to the cashier of the NLRC. On 1
February 1989, an Alias Writ of Execution was issued by the Labor Arbiter
directing the sheriff to collect from CBI the sum of P117,414.76,
representing the balance of the judgment award, and to reinstate Marabe,
et. al. to their former positions. On 13 July 1989, the sheriff issued a report
stating that he tried to serve the alias writ of execution on petitioner through
the security guard on duty but the service was refused on the ground that
CBI no longer occupied the premises. On 26 September 1986, upon motion
of Marabe, et. al., the Labor Arbiter issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated

in his progress report dated 2 November 1989, that all the employees inside
CBI's premises claimed that they were employees of Hydro Pipes Philippines,
Inc. (HPPI) and not by CBI; that levy was made upon personal properties he
found in the premises; and that security guards with high-powered guns
prevented him from removing the properties he had levied upon. The said
special sheriff recommended that a "break-open order" be issued to enable
him to enter CBI's premises so that he could proceed with the public auction
sale of the aforesaid personal properties on 7 November 1989. On 6
November 1989, a certain Dennis Cuyegkeng filed a third-party claim with
the Labor Arbiter alleging that the properties sought to be levied upon by the
sheriff were owned by HPPI, of which he is the Vice-President. On 23
November 1989, Marabe, et. al. filed a "Motion for Issuance of a Break-Open
Order," alleging that HPPI and CBI were owned by the same
incorporator/stockholders. They also alleged that petitioner temporarily
suspended its business operations in order to evade its legal obligations to
them and that Marabe, et. al. were willing to post an indemnity bond to
answer for any damages which CBI and HPPI may suffer because of the
issuance of the break-open order. On 2 March 1990, the Labor Arbiter issued
an Order which denied Marabe, et. al.'s motion for break-open order.
Marabe, et. al. then appealed to the NLRC. On 23 April 1992, the NLRC set
aside the order of the Labor Arbiter, issued a break-open order and directed
Marabe, et. al. to file a bond. Thereafter, it directed the sheriff to proceed
with the auction sale of the properties already levied upon. It dismissed the
third-party claim for lack of merit. CBI moved for reconsideration but the
motion was denied by the NLRC in a Resolution, dated 3 December 1992.
Hence, the petition.
Issue: Whether the NLRC was correct in issuing the break-open order to levy
the HPPI properties located at CBI amd/or HPPIs premises at 355 Maysan
Road, Valenzuela, Metro Manila.
Held: It is a fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded or the
veil of corporate fiction pierced. This is true likewise when the corporation is
merely an adjunct, a business conduit or an alter ego of another corporation.
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) Stock ownership by one or common ownership
of both corporations; (2) Identity of directors and officers; (3) The manner
of keeping corporate books and records; and (4) Methods of conducting the
business. The SEC en banc explained the "instrumentality rule" which the
courts have applied in disregarding the separate juridical personality of
corporations as "Where one corporation is so organized and controlled and
its affairs are conducted so that it is, in fact, a mere instrumentality or
adjunct of the other, the fiction of the corporate entity of the
"instrumentality" may be disregarded. The control necessary to invoke the
rule is not majority or even complete stock control but such domination of
instances, policies and practices that the controlled corporation has, so to
speak, no separate mind, will or existence of its own, and is but a conduit for
its principal. It must be kept in mind that the control must be shown to have
been exercised at the time the acts complained of took place. Moreover, the
control and breach of duty must proximately cause the injury or unjust loss
for which the complaint is made." The test in determining the applicability of
the doctrine of piercing the veil of corporate fiction is as (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 plaintiff's 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 defendant's relationship to that operation. Thus
the question of whether a corporation is a mere alter ego, a mere sheet or
paper corporation, a sham or a subterfuge is purely one of fact. Here, while
CBI claimed that it ceased its business operations on 29 April 1986, it filed
an Information Sheet with the Securities and Exchange Commission on 15
May 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. Further, both information
sheets were filed by the same Virgilio O. Casio as the corporate secretary
of both corporations. Both corporations had the same president, the same
board of directors, the same corporate officers, and substantially the same
subscribers. From the foregoing, it appears that, among other things, the
CBI and the HPPI shared the same address and/or premises. Under these

circumstances, it cannot be said that the property levied upon by the sheriff
were not of CBI's. Clearly, CBI ceased its business operations in order to
evade the payment to Marabe, et. al. of back wages and to bar their
reinstatement to their former positions. HPPI is obviously a business conduit
of CBI and its emergence was skillfully orchestrated to avoid the financial
liability that already attached to CBI.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 127181

September 4, 2001

LAND BANK OF THE PHILIPPINES, petitioner,

vs.
THE COURT OF APPEALS, ECO MANAGEMENT CORPORATION and EMMANUEL C.
OATE, respondents.
QUISUMBING, J.:
This petition for review on certiorari seeks to reverse and set aside the decision1 promulgated on
June 17, 1996 in CA-GR No. CV-43239 of public respondent and its resolution2 dated November 29,
1996 denying petitioners motion for reconsideration.3
The facts of this case as found by the Court of Appeals and which we find supported by the records
are as follows:
On various dates in September, October, and November, 1980, appellant Land Bank of the
Philippines (LBP) extended a series of credit accommodations to appellee ECO, using the
trust funds of the Philippine Virginia Tobacco Administration (PVTA) in the aggregate amount
of P26,109,000.00. The proceeds of the credit accommodations were received on behalf of
ECO by appellee Oate.
On the respective maturity dates of the loans, ECO failed to pay the same. Oral and written
demands were made, but ECO was unable to pay. ECO claims that the company was in
financial difficulty for it was unable to collect its investments with companies which were
affected by the financial crisis brought about by the Dewey Dee scandal.
xxx
On October 20, 1981, ECO proposed and submitted to LBP a "Plan of Payment" whereby
the former would set up a financing company which would absorb the loan obligations. It was
proposed that LBP would participate in the scheme through the conversion of P9,000,000.00
which was part of the total loan, into equity.
On March 4, 1982, LBP informed ECO of the action taken by the formers Trust Committee
concerning the "Plan of Payment" which reads in part, as follows:
xxx
Please be informed that the Banks Trust Committee has deliberated on the plan of
payment during its meetings on November 6, 1981 and February 23, 1982. The
Committee arrived at a decision that you may proceed with your Plan of Payment
provided Land Bank shall not participate in the undertaking in any manner
whatsoever.

In view thereof, may we advise you to make necessary revision in the proposed Plan
of Payment and submit the same to us as soon as possible. (Records, p. 428)
On May 5, 1982, ECO submitted to LBP a "Revised Plan of Payment" deleting the latters
participation in the proposed financing company. The Trust Committee deliberated on the
"Revised Plan of Payment" and resolved to reject it. LBP then sent a letter to the PVTA for
the latters comments. The letter stated that if LBP did not hear from PVTA within five (5)
days from the latters receipt of the letter, such silence would be construed to be an approval
of LBPs intention to file suit against ECO and its corporate officers. PVTA did not respond to
the letter.
On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money against ECO
and Emmanuel C. Oate before the Regional Trial Court of Manila, Branch 50.
After trial on the merits, a judgment was rendered in favor of LBP; however, appellee Oate
was absolved from personal liability for insufficiency of evidence.
Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP claimed that
there was an error in computation in the amounts to be paid. LBP also questioned the
dismissal of the case with regard to Oate.
On the other hand, ECO questioned its being held liable for the amount of the loan. Upon
order of the court, both parties submitted Supplemental Motions for Reconsideration and
their respective Oppositions to each others Motions.
On February 3, 1993, the trial court rendered an Amended Decision, the dispositive portion
of which reads as follows:
ACCORDINGLY, the Decision, dated December 3, 1990, is hereby modified to read
as follows:
WHEREFORE, judgment is rendered ordering defendant Eco Management
Corporation to pay plaintiff Land Bank of the Philippines:
A. The sum of P26,109,000.00 representing the total amount of the ten (10) loan
accommodations plus 16% interest per annum computed from the dates of their
respective maturities until fully paid, broken down as follows:
1. the principal amount of P4,000,000.00 with interest at 16% computed from
September 18, 1981;
2. the principal amount of P5,000,000.00 with interest at 16% computed from
September 21, 1981;
3. the principal amount of P1,000,000.00 with interest rate at 16% computed
from September 28, 1981;
4. the principal amount of P1,000,000.00 with interest at 15% computed from
October 5, 1981;

5. the principal amount of P2,000,000.00 with interest rate at of 16%

computed from October 8, 1981;
6. the principal amount of P2,000,000.00 with interest rate at of 16% from
October 23, 1981;
7. the principal amount of P814,000.00 with interest rate at of 16% computed
from November 1, 1981;
8. the principal amount of P2,295,000.00 with interest rate at of 16%
computed from November 6, 1981;
9. the principal amount of P3,000,000.00 with interest rate at of 16%
computed from November 7, 1981;
10. the principal amount of P5,000,000.00 with interest rate at 16% computed
from November 9, 1981;
B. The sum of P260,000.00 as attorneys fees; and
C. The costs of the suit.
The case as against defendant Emmanuel Oate is dismissed for insufficiency of
evidence.
SO ORDERED. (Records, p. 608)4
The Court of Appeals affirmed in toto the amended decision of the trial court.5
On June 9, 1996, petitioner filed a motion for reconsideration, which was denied in a resolution
dated November 29, 1996. Hence, this present petition, assigning the following errors allegedly
committed by the Court of Appeals:
A
THE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT BASED ON THE
FACTS AS ESTABLISHED BY EVIDENCE, THERE EXISTS A SUBSTANTIAL AND
JUSTIFIABLE GROUND UPON WHICH THE LEGAL NOTION OF THE CORPORATE
FICTION OF RESPONDENT ECO MANAGEMENT CORPORATION MAY BE PIERCED.
B
THE COURT OF APPEALS GRAVELY ERRED IN NOT A[T]TACHING LIABILITY TO
RESPONDENT EMMANUEL C. OATE JOINTLY AND SEVERALLY WITH RESPONDENT
ECO MANAGEMENT CORPORATION FOR THE PRINCIPAL SUM OF P26 M PLUS
INTEREST THEREON.
C

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE

LOWER COURT THE SAME NOT BEING SUPPORTED BY THE EVIDENCE AND
APPLICABLE LAWS AND JURISPRUDENCE.6
The primary issues for resolution here are (1) whether or not the corporate veil of ECO Management
Corporation should be pierced; and (2) whether or not Emmanuel C. Oate should be held jointly
and severally liable with ECO Management Corporation for the loans incurred from Land Bank.
Petitioner contends that the personalities of Emmanuel Oate and of ECO Management Corporation
should be treated as one, for the particular purpose of holding respondent Oate liable for the loans
incurred by corporate respondent ECO from Land Bank. According to petitioner, the said corporation
was formed ostensibly to allow Oate to acquire loans from Land Bank which he used for his
personal advantage.
Petitioner submits the following arguments to support its stand: (1) Respondent Oate owns the
majority of the interest holdings in respondent corporation, specifically during the crucial time when
appellees applied for and obtained the loan from LANDBANK, sometime in September to November,
1980. (2) The acronym ECO stands for the initials of Emmanuel C. Oate, which is the logical,
sensible and concrete explanation for the name ECO, in the absence of evidence to the contrary. (3)
Respondent Oate has always referred to himself as the debtor, not merely as an officer or a
representative of respondent corporation. (4) Respondent Oate personally paid P1 Million taken
from trust accounts in his name. (5) Respondent Oate made a personal offering to pay his personal
obligation. (6) Respondent Oate controlled respondent corporation by simultaneously holding two
(2) corporate positions, viz., as Chairman and as treasurer, beginning from the time of respondent
corporations incorporation and continuously thereafter without benefit of election. (7) Respondent
corporation had not held any meeting of the stockholders or of the Board of Directors, as shown by
the fact that no proceeding of such corporate activities was filed with or borne by the record of the
Securities and Exchange Commission (SEC). The only corporate records respondent corporation
filed with the SEC were the following: Articles of Incorporation, Treasurers Affidavit, Undertaking to
Change Corporate Name, Statement of Assets and Liabilities.7
Private respondents, in turn, contend that Oates only participation in the transaction between
petitioner and respondent ECO was his execution of the loan agreements and promissory notes as
Chairman of the corporations Board of Directors. There was nothing in the loan agreement nor in
the promissory notes which would indicate that Oate was binding himself jointly and severally with
ECO. Respondents likewise deny that ECO stands for Emmanuel C. Oate. Respondents also note
that Oate is no longer a majority stockholder of ECO and that the payment by a third person of the
debt of another is allowed under the Civil Code. They also alleged that there was no fraud and/or
bad faith in the transactions between them and Land Bank. Hence, private respondents conclude,
there is no legal ground to pierce the veil of respondent corporations personality.8
At the outset, we find the matters raised by petitioner in his argumentation are mainly questions of
fact which are not proper in a petition of this nature.9 Petitioner is basically questioning the evaluation
made by the Court of Appeals of the evidence submitted at the trial. The Court of Appeals had found
that petitioners evidence was not sufficient to justify the piercing of ECOs corporate
personality.10 Petitioner contended otherwise. It is basic that where what is being questioned is the
sufficiency of evidence, it is a question of fact.11 Nevertheless, even if we regard these matters as
tendering an issue of law, we still find no reason to reverse the findings of the Court of Appeals.
A corporation, upon coming into existence, is invested by law with a personality separate and distinct
from those persons composing it as well as from any other legal entity to which it may be
related.12 By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities

of the said corporation, and vice versa.13This separate and distinct personality is, however, merely a
fiction created by law for convenience and to promote the ends of justice.14 For this reason, it may
not be used or invoked for ends subversive to the policy and purpose behind its creation15 or which
could not have been intended by law to which it owes its being.16 This is particularly true when the
fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime,17 confuse
legitimate legal or judicial issues,18 perpetrate deception or otherwise circumvent the law.19 This is
likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit
for the sole benefit of the stockholders or of another corporate entity.20 In all these cases, the notion
of corporate entity will be pierced or disregarded with reference to the particular transaction
involved.21
The burden is on petitioner to prove that the corporation and its stockholders are, in fact, using the
personality of the corporation as a means to perpetrate fraud and/or escape a liability and
responsibility demanded by law. In order to disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established.22 In the absence of any
malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for
corporate liabilities.23
The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude that
Oate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of
the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of
separate corporate personalities.24Neither is the fact that the name "ECO" represents the first three
letters of Oates name sufficient reason to pierce the veil. Even if it did, it does not mean that the
said corporation is merely a dummy of Oate. A corporation may assume any name provided it is
lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of
one of its shareholders.
That respondent corporation in this case was being used as a mere alter ego of Oate to obtain the
loans had not been shown. Bad faith or fraud on the part of ECO and Oate was not also shown. As
the Court of Appeals observed, if shareholders of ECO meant to defraud petitioner, then they could
have just easily absconded instead of going out of their way to propose "Plans of
Payment."25 Likewise, Oate volunteered to pay a portion of the corporations debt.26 This offer
demonstrated good faith on his part to ease the debt of the corporation of which he was a part. It is
understandable that a shareholder would want to help his corporation and in the process, assure
that his stakes in the said corporation are secured. In this case, it was established that the P1 Million
did not come solely from Oate. It was taken from a trust account which was owned by Oate and
other investors.27It was likewise proved that the P1 Million was a loan granted by Oate and his codepositors to alleviate the plight of ECO.28 This circumstance should not be construed as an
admission that he was really the debtor and not ECO.
In sum, we agree with the Court of Appeals conclusion that the evidence presented by the petitioner
does not suffice to hold respondent Oate personally liable for the debt of co-respondent ECO. No
reversible error could be attributed to respondent courts decision and resolution which petitioner
assails.
WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of the Court of
Appeals in CA-G.R. CV No. 43239 are AFFIRMED. Costs against petitioner.
SO ORDERED.

Araneta, Inc. v. Del Paterno (1952)

Tuason, J.
FACTS:
Defendant Paz Tuason de Paterno (Tuason) was the registered owner
of several parcels of land in Sta. Mesa, Manila.
The lots were subdivided and were occupied by tenants who had lease
contracts. It was stipulated that in the event the owner and lessor
should decide to sell the property, the lessees were to be given priority
over other buyers if they should desire to buy their leaseholds, all
things being equal.
In 1940 and 1941, Tuason obtained several loans from Jose Vidal
(Vidal) amounting to P90,098. The loans were secured by mortgages
executed over the subject property.
In 1943, Tuason obtained additional loans amounting to P50,000 upon
the same security. The mortgage contracts were renewed.
It was alleged that there was another agreement (Agreement), all
copies of which were destroyed during the war. This contained
stipulations as to the manner and time of payment, as well as the
corresponding penalties.
Tuason later decided to sell her property to plaintiff Gregorio Araneta,
Inc. (Araneta, Inc).
o They executed an agreement to buy and sell (Exhibit 1). This
contract provided that subject to the preferred right of the
lessees and that of Jose Vidal as mortgagee, Paz Tuason would
sell to Gregorio Araneta, Inc. and the latter would buy for the
said amount of P400,000 the entire estate.
o Some of the lessees exercised their right to purchase their
respective leaseholds.
o An absolute deed of sale was then executed by the parties over
the remaining lots (Exhibit A). The total amount to be paid was
P190k, broken down as follows:
P13,476.62 Paz Tuason;
P3,373.38 City Treasurer of Manila
P30,000 Jose Vidal
P143,150 Jose Vidal1
o The deed of sale contained a stipulation that should the vendor
lose the checks issued, the vendee shall not be held liable for
such loss.
The day after the consummation of the sale, Tuason tendered payment
to Vidal by offering the check drawn by Araneta, Inc. Vidal refused to
accept the payment, alleging that according to the Agreement,
1

Both checks issued in order to satisfy the mortgage obligation.

payment of the mortgage was not to be effected totally or partially

before the end of four years from April, 1943.
Thus, Tuason, with the help of her attorney Ponce Enrile, commenced
an action against Vidal to compel the latter to accept payment. The
checks were deposited with the clerk of court.
The action was never tried and all the records, including the checks,
were lost during the war.
After the war, the value of the property increased tremendously.
Tuason is now repudiating Exhibits 1 and A.
Araneta, Inc. filed the present action to compel Tuason to deliver clear
title to the lots subject of the sale free from all liens and
encumbrances. It also seeks the cancellation of the mortgage to Vidal.
The latter filed a cross-claim against Tuason to foreclose the
mortgage.
TC ruled in favor of defendant; it declared Exhibit A void.

ISSUES + RULING:
Is Exhibit A (absolute deed of sale) valid? YES.
Trial court based its decision on the alleged variance between the
terms of Exhibit 1 (agreement to buy and sell) and Exhibit A. It is the
SCs submission that the lower courts interpretation of Exhibit 1 was
wrong.
o One of the conditions in Exhibit 1 is that the deed of sale is to be
executed only when Tuason has already determined which lots
she can validly dispose of. After the lessees exercised their right
to repurchase, she was already in a position to sell the remaining
lots.
Tuason claims that the sale was effected through fraud as the
document was written in English, a language she did not understand.
Had she known how one-sided its provisions were, she would not have
affixed her signature thereto.
o Court finds this hard to believe. She had an able attorney who
assisted her throughout the proceedings. Further, her suit
against Vidal was instituted precisely to enforce the provisions of
the sale.
o Also, she had a son who was a leading citizen and
businessman. He took active part in the negotiations that led to
the execution of the sale.
o Court doubts the defendants veracity. She as probably gambling
on the chance that no signed copy of the document had been
saved from the war.

ON THE ISSUE OF AGENCY: It is argued that the sale is invalid

because Jose Araneta was both the defendants agent and the
President of Araneta, Inc.
o Trial court simply disposed of the issue by saying that he was
not an agent. However, this is contrary to the clear weight of the
evidence.
In Exhibit 1, Jose Araneta was referred to as defendants
agent or broker who acts in this transaction, entitled to a
commission of 5%.
o The trial court, hypothetically admitting the agency relationship,
pointed out that it was the Corporation (Araneta, Inc.) and not
the person (Jose Araneta) who purchased the property, thus it
does not come within the prohibition of the old Civil Code.
o Tuason would have the SC pierce the veil of corporate fiction in
this case. There is, however, no basis for the application of the
rule.
Araneta, Inc. had long been engaged in the real estate
business. Clearly, it was not constituted merely to
circumvent the prohibition of the old CC.
The principle invoked by defendant is applicable only as a
measure of protection against deceit and not to open the
door to deceit.
o The corporate theory aside, granting that the two entities are in
fact identical, the relation between Tuason and Araneta still did
not fall within the prohibition found in Art. 14592, Old Civil Code.
Citing the commentaries of Scaevola, the Court said that
the rationale behind the prohibition rests in the fact that
both the agent and the principal form one juridical person.
In American jurisprudence, commentators are of the
opinion that the law does not trust human nature to resist
the temptations likely to arise out of antagonism between
the interst of the seller and the buyer.
Par. 2 connotes the idea of trust and confidence; where
the relationship does not involve considerations of good
faith and integrity, the prohibition should not apply.
Using the test of trust and confidence, it can be seen that
Jose Araneta was nothing more than a middleman between
the defendant and purchaser.

Art. 1459. The following persons cannot take by purchase, even at a public or judicial auction, either in person or through the

mediation of another:
2. An agent, any property of which the management or sale may have been intrusted to him;

He was not to sell and did not sell the property. He was
not authorized to enter into a contract on behalf of Tuason.
Defendant also claims that there was a conflict of interest as the
attorneys who represented her in the sale negotiations were the Attys.
Araneta.
o Not likely. Ponce Enrile was already representing her in the case
against Vidal so it would be reasonable to assume that it was
also he who assisted her in negotiating the sale.
o Assuming arguendo that they were in fact lawyers of Tuason,
such fact would not bar them from purchasing her property.
What is prohibited is the sale of property under litigation, and in
this case the sale was effected even before the present action.

Should Tuason be held liable for the loss of the certified checks lost in the
war? NO.
While Exhibit A is valid, the provision relieving the vendee (Araneta,
Inc.) for liability arising from Vidals failure to collect the checks is
VOID.
o Prevailing bank regulations: checks have to be encashed within
90 days otherwise they will be considered void (EO 49).
o The stipulation in Exhibit A that the defendant or seller shall not
hold the vendee responsible for any loss of these checks was
unconscionable, void and unenforceable insofar as the said
stipulation would stretch the defendants liability for these
checks beyond 90 days.
o Tuason cannot be held liable for the checks after they expired
and became absolutely useless.
Is Vidal entitled to payment in fulfillment of the mortgage obligation? YES.
Tuason offered to pay the loans before they fell due, but Vidal refused
to accept payment because he wanted interest to accrue.
The question then is: Did Tuasons offer to pay before the due date
operate to suspend the accrual of interest?
o The Court is of the opinion that it did.
o Two checks were tendered to Vidalone for P143,150 (covering
the principal) and P30,000 (penalty).
o Penalty clause embodied in the Agreement: such penalty takes
the place of interest in the event the mortgagor chooses to pay
before the due date.
o To say, as Vidal says, that the debtor could not pay the
mortgage within four years and, at the same time, that there
would be penalty if she paid after that period, would be a
contradiction. Moreover, adequate remedy was provided for
failure to pay on or after the expiration of the mortgage:

increased rate of interest, foreclosure of the mortgage, and

attorneys fees.
DISPOSITION: Judgment modified.

Yutivo v. CTA
(Tax avoidance)
Facts:
Yutivo Sons Hardware Co. bought a number of cars and trucks from General
Motors Overseas Corporation. As importer, GM paid sales tax prescribed by
sections 184, 185and 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. Southern Motors, Inc. was
organized to engage in the business of selling cars, trucks and spare parts.
After the incorporation of SM and until the withdrawal of GM from the
Philippines in the middle of 1947, the cars and trucks purchased by Yutivo
from GM were sold by Yutivo to SM which, in turn, sold them to the public in
the Visayas and Mindanao.
Issue:
Whether or not Southern Motors, Inc. was organized as a tax evasion
device.
Held/Ratio:
NO. SM 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.

AC Ransom Labor Union v. NLRC (1986)

Doctrines:
Since a corporate employer is an artificial person, it must have an officer
who can be presumed to be the employer, being the person acting in the
interest of the employer.
Facts: On June 6, 1961, employees of AC Ransom, most being members of
the AC Ransom Labor Union, went on strike. The said strike was lifted on
June 21 with most of the strikers being allowed to resume their work.
However, twenty two strikers were refused reinstatement.
During 1969, the Hernandez family (owners of AC RANSOM) organized
another corporation under the name of Rosario Industrial Corporation. The
said company dealt in the same type of business as AC Ransom.
The issue of back wages was brought before the Court of Industrial Relations
which rendered a decision on December 19, 1972 ordering the twenty two
strikers to be reinstated with back wages. On April 2, 1973, RANSOM filed an
application for clearance to close or cease operations.
The same was granted by the Ministry of Labor and Employment. Although it
has stopped operations, RANSOM has continued its personality as a
corporation. For practical purposes, reinstatement of the 22 strikers has
been precluded. As a matter of fact, reinstatement is not an issue in this
case. A motion of execution was filed by the Union against AC Ransom but
the former was unable to collect due to the inability to find leviable assets of
the company.
The Union subsequently asked the officers of Ransom to be personally liable
for payment of the back wages.
The motion was granted by the Labor Arbiter but was subsequently reversed
by the NLRC.
Issue:
1. W/N the officers of the corporation should be held personally liable to pay
for the back wages.
Held:
1. YES. Under Article 212 (c) of the Labor Code, Employee includes any
person acting in the interest of an employer, directly or indirectly.

Since Ransom is an artificial person, it must have an officer who can be

presumed to be the employer, being the person acting in the interest of the
employer (Ransom).In PD 525, where a corporation fails to pay the
emergency allowance therein provided, the prescribed penalty shall be
imposed upon the guilty officer or officers of the corporation.
In the instant case, RANSOM, in foreseeing the possibility or probability of
payment of back wages to the 22strikers, organized ROSARIO to replace
RANSOM, with the latter to be eventually phased out if the 22 strikers win
their case. The record does not clearly identify the officer or officers of
RANSOM directly responsible for failure to pay the back wages of the 22
strikers.
In the absence of definite proof in that regard, it should be presumed that
the responsible officer is the President of the corporation who can be
deemed the chief operation officer thereof.