91

4. Due Process

01. McConnel vs. Court of Appeals 1 SCRA 722 , March 17, 1961 — While the mere
ownership of all or nearly all of the capital stock of a corporation is a mere business
conduit of the stockholder, that conclusion is amply justified where it is shown, as
in the case before us, that the operations of the corporation were so merged with
those of the stockholders as to be practically indistinguishable from them.

— To hold the latter liable for the corporation's obligations is not to ignore the
corporation's separate entity, but merely to apply the established principle that such
entity can not be invoked or used for purposes that could not have been intended
by the law that created that separate personality.

Facts: Park Rite Co., Inc., a Philippine corporation, was originally organized on or about
April 15, 1947, with a capital stock of 1,500 shares at Pl.OO a share. The .corporation
leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan Luna street (Manila)
which it used for parking motor vehicles for a consideration. It turned out that in operating
its parking business, the corporation occupied and used not only the Samanillo lot it had
leased but also an adjacent lot belonging to the respondents-appellees Padilla, without the
owners' knowledge and consent. When the latter discovered the truth around October of
1947, they demanded payment for the use and occupation of the lot. The corporation
(then controlled by petitioners Cirilo Paredes and Ursula Tolentino, who had purchased
and held 1,496 of its 1,500 shares) disclaimed liability, blaming the original incorporators,
McConnel, Rodriguez and Cochrane. Whereupon, the lot owners filed against it a
complaint for forcible entry in the Municipal Court of Manila. Judgment was rendered in
due course on 13 November 1947, ordering the Park Rite Co., Inc. to pay P7.410.00 plus
legal interest as damages from April 15, 1947 until return of the lot. Restitution not having
been made until 31 January 1948, the entire judgment amounted to P11,-732.50. Upon
execution, the corporation was found without any assets other than P550.00 deposited in
Court. After their application to the judgment credit, there remained a balance of
P11,182.50 outstanding and unsatisfied.

The judgment creditors then filed suit in the Court of First Instance of Manila against the
corporation and its past and present stockholders, to recover from them, jointly and
severally, the unsatisfied balance of the judgment, plus legal interest and costs. The Court
of First Instance denied recovery; but on .appeal, the Court of Appeals (CA-G.R. No. 8434-
R reversed, finding that the corporation was a mere alter ego or business conduit of the
principal stockholders that controlled it for their own benefit, and adjudged them
responsible for the amounts due the lot owners Cirilo Paredes and Ursula Tolentino then
resorted to this Court. We granted certiorari.

Issue: Whether or not the individual stockholders may be held liable for obligations
contracted by the corporation

Ruling: Yes. This Court has already answered the question in the affirmative
wherever circumstances have shown that the corporate entity is being used as an
alter ego or business conduit for the sole benefit of the stockholders, or else to
defeat public convenience, justify wrong, protect fraud, or defend crime. There is no
question that a wrong has been committed by the so-called Park Rite Co., Inc., upon the
plaintiffs when it occupied the lot of the latter without its prior knowledge and consent and
without paying the reasonable rentals for the occupation of said lot. There is also no doubt
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in our mind that the corporation was a mere alter ego or business conduit of the
defendants Cirilo Paredes and Ursula Tolentino, and before them·the defendants M.
McConnel, W. P. Cochrane, and Ricardo Rodriguez. The evidence clearly shows that
these persons completely dominated and coniroUed the corporation and that the functions
of the corporation were solely for their benefits. When it was originally organized on or
about April 15, 1947, the original incorporators were M. McConnel, W. P. Cochrane,
Ricardo Rodriguez, Benedicto M. Dario and Aurea Ordrecio with a capital stock of
P1,500.00 divided into 1,500 shares at P1.00 a share. McConnel and Cochrane each
owned 500 shares, Ricardo Rodriguez 408 shares, and Dario and Ordrecio 1 share each.
It is obvious that the shares of the last two named persons were merely qualifying shares.
Then or about August 22, 1947 the defendants Cirilo Paredes and Ursula Tolentino
purchased 1,496 shares of the said corporation and the remaining four shares were
acquired by Bienvenido J. Claudio, Quintin C, Paredes, Segundo Tarictican, and Paulino
Marquez at one share each. It is obvious that the last four shares bought by these four
persons were merely qualifying shares and that to all intents and purposes the spouses
Cirilo Paredes and Ursula Tolentino composed the co-called Park Rite Co., Inc. That the
corporation was a mere extension of their personality is shown by the fact that the office of
Cirilo Paredes and that of Park Rite Co., Inc. were located in the same building, in the
same floor and in the same room at 507 Wilson Building. This is further shown by the fact.
that the funds of the corporation were kept by Cirilo Paredes in his own name. The
corporation itself had no visible assets, as correctly found by the trial court, except perhaps
the toll house, the wire fence around the lot and the signs thereon. It was for this reason
that the judgment against it could not be fully satisfied.

The facts thus found can not be varied by us, and conclusively show that the corporation is
a mere instrumentality of the individual stockholders, hence the latter must individually
answer for the corporate obligations. While the mere ownership of all or nearly all of
the capital stock of a corporation is a mere business conduit of the stockholder, that
conclusion is amply justified where it is shown, as in the case before us, that the
operations of the corporation were so merged with those of the stockholders as to
be practically indistinguishable from them. To hold the latter liable for the
corporation's obligations is not to ignore the corporation's separate entity, but
merely to apply the established principle that such entity can not be invoked or
used for purposes that could not have been intended by the law that created that
separate personality.

02. Emilio Cano Enterprises, Inc. vs. Court of Industrial Relations 13 SCRA 290 ,
February 26, 1965 — Here is an instance where the corporation and its members can
be considered as one. And to hold such entity liable for the acts of its members is
not to ignore the legal fiction but merely to give meaning to the principle that such
fiction cannot be invoked if its purpose is to use it as a shield to further an end
subversive of justice.

Facts: In a complaint for unfair labor practice filed before the Court of Industrial Relations
on June 6, 1956 by a prosecutor of the latter court, Emilio, Ariston and Rodolfo, all
surnamed Cano, were made respondents in their capacity as president and proprietor,
field supervisor and manager, respectively, of Emilio Cano Enterprises, Inc. After trial,
Presiding Judge Jose S. Bautista rendered decision finding Emilio Cano and Rodolfo Cano
guilty of the unfair labor practice charge, but absolved Ariston for insufficiency of evidence.
As a consequence, the two were ordered, jointly and severally, to reinstate Honorata Cruz,
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to her former position with payment of backwages from the time of her dismissal up to her
reinstatement, together with all other rights and privileges thereunto appertaining.
Meanwhile, Emilio Cano died on November 14, 1958, and the attempt to have the case
dismissed against him having failed, the case was appealed to the court en banc. which in
due course affirmed the decision of Judge Bautista. An order of execution was issued on
August 23, 1961 the dispositive part of which reads: (1) to reinstate Honorata Cruz to her
former position as ordered in the decision; and (2) to deposit with the court the amount of
P7,222.58 within ten days from receipt of the order, failing which the court will order either
a levy on respondents' properties or the filing of an action for contempt of court.

The order of execution having been directed against the properties of Emilio Cano
Enterprises, Inc. instead of those of the respondents named in the decision, said
corporation filed an ex parte motion to quash the writ on the ground that the judgment
sought to be enforced was not rendered against it which is a juridical entity separate and
distinct from its officials. This motion was denied. And having failed to have it
reconsidered, the corporation interposed the present petition for certiorari.

Issue: Whether or not the judgment can be rendered against Emilio and Rodolfo Cano in
their capacity as officials of the corporation Emilio Cano Enterprises, Inc.

Ruling: Yes. While it is an undisputed rule that a corporation has a personality

separate and distinct from its members or stockholders because of a fiction of the
law, here we should not lose sight of the fact that the Emilio Cano Enterprises, Inc.
is a closed family corporation where the incorporators and directors belong to one
single family. Thus, the following are its incorporators: Emilio Cano, his wife Juliana, his
sons Rodolfo and Carlos, and his daughter-in-law Ana D. Cano. Here is an instance
where the corporation and its members can be considered as one. And to hold such
entity liable for the acts of its members is not to ignore the legal fiction but merely
to give meaning to the principle that such fiction cannot be invoked if its purpose is
to use it as a shield to further an end subversive of justice. And so it has been held
that while a corporation is a legal entity existing separate and apart from the persons
composing it, that concept cannot be extended to a point beyond its reason and policy,
and when invoked in support of an end subversive of this policy it should be disregarded
by the courts

A factor that should not be overlooked is that Emilio and Rodolfo Cano are here
indicted, not in their private capacity, but as president and manager, respectively, of
Emilio Cano Enterprises, Inc. Having been sued officially their connection with the
case must be deemed to be impressed with the representation of the corporation. In
fact, the court's order is for them to reinstate Honoraria Cruz to her former position in the
corporation and incidentally pay her the wages she had been deprived of during her
separation. Verily, the order against them is in effect against the corporation.

03. Namarco vs. Associated Finance Co., Inc. 19 SCRA 962 , April 27, 1967 —
Through false representations he succeeded in inducing NAMARCO to enter into
the aforesaid exchange agreement, with full knowledge, on his part, of the fact that
ASSOCIATED whom he represented and over whose business and affairs he had
absolute control, was in no position to comply with the obligation it bad assumed.

— It is settled law in this and other jurisdictions that when the corporation is the
mere alter ego of a person, the corporate fiction may be disregarded; the same
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being true when the corporation is controlled, and its affairs are so conducted as to
make it merely an instrumentality, agency or conduit of another.

Facts: On March 25, 1958, Associated Finance Company, Inc (ASSOCIATED), a

domestic corporation, through its President, appellee Francisco Sycip, entered into an
agreement to exchange sugar with National Marketing Corporation (NAMARCO),
represented by its then General Manager, Benjamin Estrella, whereby the former would
deliver to the latter 22,516 bags (each weighing 100 pounds) of "Victorias" and/or
"National" refined sugar in exchange for 7,722.71 bags of "Busilak" and 17,285.08 piculs
of "Pasumil" raw sugar belonging to NAMARCO, both agreeing to pay liquidated damages
equivalent to 20% of the contractual value of the sugar should either party fail to comply
with the terms and conditions stipulated. Pursuant thereto, on May 19, 1958, NAMARCO
delivered to ASSOCIATED 7,732.71 bags of "Busilak" and 17,285.08 piculs of "Pasumil"
domestic raw sugar. As ASSOCIATED failed to deliver to NAMARCO the 22,516 bags of
"Victoria" and/or "National" refined sugar agreed upon, the latter, on January 12, 1959,
demanded in writing from the ASSOCIATED either (a) immediate delivery thereof before
January 20, or (b) payment of its equivalent cash value amounting to P372,639.80.

On January 19, 1959, ASSOCIATED, through Sycip, offered to pay NAMARCO the value
of 22,516 bags of refined sugar at the rate of P15.30 per bag, but the latter rejected the
offer. Instead, on January 21 of the same year, it demanded payment of the 7,732.71 bags
of "Busilak" raw sugar at P15.30 per bag, amounting to P118,-310.40, and of the
17,285.08 piculs of "Pasumil" raw sugar at P16.50 per picul, amounting to P285,203.82, or
a total price of P403,514.28 for both kinds of sugar, based on the sugar quotations (Exh.
H) as of March 20, 1958·the date when the exchange agreement was entered into. As
ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar delivered to it,
inspite of repeated demands therefore, NAMARCO instituted the present action in the
lower court to recover the sum of P403,514.28 in payment of the raw sugar received by
defendants from it; P80,702.86 as liquidated damages; P10,-000.00 as attorney's fees,
expenses of litigation and exemplary damages, with legal interest thereon from the filing of
the complaint until fully paid. In their amended answer defendants, by way of affirmative
defenses, alleged that the correct value of the sugar delivered by NAMARCO to them was
P259,451.09 or P13.30 per bag of 100 Ibs. weight (quedan basis) and not P403,514.38 as
claimed by NAMARCO. After due trial the court rendered the appealed judgment. The
appeal was taken to the Court of Appeals, but on January 15, 1963 the latter certified the
case to us for final adjudication.

Issue: Whether Francisco Sycip may be held liable, jointly and severally with his co-
defendant, for the sums of money adjudged in favor of NAMARCO.

Ruling: Yes. The evidence of record shows that, of the capital stock of ASSOCIATED,
Sycip owned P60 000.00 worth of shares. while his wife·the second biggest
stockholder·owned P20,000.00 worth of shares; that the par value of the subscribed
capital stock of ASSOCIATED was only P105,000.00; that negotiations that lead to the
execution of the exchange agreement in question were conducted exclusively by Sycip on
behalf of ASSOCIATED; that, as a matter of fact, in the course of his testimony, Sycip
referred to himself as the one who contracted or transacted the business in his personal
capacity, and asserted that the exchange agreement was his personal contract; that it was
Sycip who made personal representations and gave assurances that ASSOCIATED was in
actual possession of the 22,516 bags of "Victorias" and/or "National" refined sugar which
the latter had agreed to deliver to NAMARCO, and that the same was ready for delivery;
that, as a matter of fact, ASSOCIATED was at that time already insolvent; that when
 95

NAMARCO made demands upon ASSOCIATED to deliver the 22,516 bags of refined
sugar it was under obligation to deliver to the former, ASSOCIATED and Sycip, instead of
making delivery of the sugar, offered to pay its value at the rate of P15.30 per bag·a clear
indication that they did not have the sugar contracted f or.

The foregoing facts, fully established by the evidence, can lead to no other
conclusion than that Sycip was guilty of fraud because through false
representations he succeeded in inducing NAMARCO to enter into the aforesaid
exchange agreement, with full knowledge, on his part, of the fact that ASSOCIATED
whom he represented and over whose business and affairs he had absolute control,
was in no position to comply with the obligation it had assumed. Consequently, he
can not now seek refuge behind the general principle that a corporation has a personality
distinct and separate from that of its stockholders and that the latter are not personally
liable for the corporate obligations. To the contrary, upon the proven facts, We feel
perfectly justified in "piercing the veil of corporate fiction" and in holding Sycip personally
liable, jointly and severally with his co-defendant, for the sums of money adjudged in favor
of appellant. It is settled law in this and other jurisdictions that when the corporation
is the mere alter ego of a person, the corporate fiction may be disregarded; the
same being true when the corporation is controlled, and its affairs are so conducted
as to make it merely an instrumentality, agency or conduit of another.

04. Jacinto vs. Court of Appeals 198 SCRA 211 , June 06, 1991 — Indeed, a
painstaking examination of the records show that there is no clear-cut delimitation
between the personality of Roberto Jacinto as an individual and the personality of
Inland Industries, Inc. as a corporation. The circumstances aforestated lead Us to
conclude that the corporate veil that en-shrouds defendant Inland Industries, Inc.
could be validly pierced.

Facts: Roberto A. Jacinto, President and General Manager of the corporation and a
substantial stockholder of Inland Industries, Inc., signed the Trust Receipts of Metropolitan
Bank and Trust Co. Roberto Jacinto, tried to escape liability and shift the entire blame
under the trust receipts solely and exclusively on defendant-appellant corporation. He
asserted that he cannot be held solidarily liable with the latter (defendant corporation)
because he just signed said instruments in his official capacity as president of Inland
Industries, Inc. and the latter (defendant corporation) has a juridical personality distinct and
separate from its officers and stockholders. Upon the other hand, plaintiff-appellee
reiterated its allegation in the complaint that defendant corporation is just a mere alter ego
of defendant Roberto Jacinto who is its President and General Manager, while the wife of
the latter owns a majority of its shares of stock

The Regional Trial Court of Manila ordered Inland Industries, Inc. and Roberto A. Jacinto
and I to pay, jointly and severally, the plaintiff Metropolitan Bank and Trust Co., the
principal obligation of P382,015.80, with interest/ charges thereon at the rate of 16% per
annum from January 1, 1979 up to the time the said amount is fully paid. The Court of
Appeals affirmed in toto. Hence, petitioner submits the following issue:

Issue: Whether or not the respondent Court of Appeals can validly pierce the fiction of
corporate identity of the defendant corporation Inland Industries, Inc.

Ruling: Yes. The issues are basically factual and a careful scrutiny of the decisions of
both courts below reveals that their findings and conclusions on the matter of piercing the
 96

veil of corporate fiction and on the liability of herein petitioner are overwhelmingly
supported by the evidence. This is shown by the undisputed fact that Roberto Jacinto even
admitted that he and his wife own 52% of the stocks of defendant corporation. We cannot
accept as true the assertion of defendant Jacinto that he only acted in his official capacity
as President and General Manager of Inland Industries, Inc. when he signed the aforesaid
trust receipts. To Our mind the same is just a clever ruse and a convenient ploy to thwart
his personal liability therefor by taking refuge under the protective mantle of the separate
corporate personality of defendant corporation. As could be expected, Roberto Jacinto in
his direct testimony presented a different corporate scenario regarding Inland Industries,
Inc. and vehemently declared that it is Bienvenido Catabas who is its President, while
Aurora Heresa is its Chairman of the Board. His assertion on this point, however, is not
convincing in view of his admission in the same breath, that his wife, Hedy U. Jacinto, own
(sic) with him 52% of the shares of stock of said corporation.

The conflicting statements by defendant Jacinto place in extreme doubt his credibility
anent his alleged participation in said transactions and We are thus persuaded to agree
with the findings of the lower court that the latter (Roberto Jacinto) was practically the
corporation itself. Indeed, a painstaking examination of the records show that there is
no clear-cut delimitation between the personality of Roberto Jacinto as an individual
and the personality of Inland Industries, Inc. as a corporation. The circumstances
aforestated lead Us to conclude that the corporate veil that en-shrouds defendant
Inland Industries, Inc. could be validly pierced, and a host of cases decided by our
High Court is supportive of this view. Thus it held that when the veil of corporate fiction
is made as a shield to perpetuate fraud and/or confuse legitimate issues, the same should
be pierced. Where a corporation is merely an adjunct, business conduit or alter ego, the
fiction of separate and distinct corporate entity should be disregarded.

05. Arcilla vs. Court of Appeals 215 SCRA 120 , October 23, 1992 — Even if We are to
assume arguendo that the obligation was incurred in the name of the corporation,
the petitioner would still be personally liable therefor because for all legal intents
and purposes, he and the corporation are one and the same. Csar Marine
Resources, Inc. is nothing more than his business conduit and alter ego.

Facts: From late 1981 up to early 1983, the defendant CALVIN S. ARCILLA, taking
advantage of his close friendship with the plaintiff EMILIO RODULFO, succeeded in
securing on credit from the plaintiff, various items, cash and checks which the defendant
encashed, in the total amount of P93,358.51, which the plaintiff willingly extended because
of the representations of the defendant that he was a successful financial consultant of
local and international businessmen. The plaintiff had made numerous demands for
payment but the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim. That the plaintiff is left without any
recourse other than to enforce his claim in court and had to secure the services of the
undersigned counsel. In his Answer, petitioner does not deny having had business
transactions with the private respondent but alleges that the professional relationship
began only in August of 1982 when he was looking for a “pro-forma” invoice to support his
loan with the Kilusang Kabuyahan at Kaunlaran (KKK for short) under the Ministry of
Human Settlement. He explicitly admits that his loan was in the name of his family
corporation, CSAR Marine Resources, Inc.
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Analyzing the evidence adduced by both parties, and considering that the "vales"
remained in the possession of the private respondent, they are presumed to remain
unpaid; in fact, private respondent so testified that they were not paid at all. The court
therefore ordered petitioner to pay private respondent the total amount of P92,358.43
covered by the “vales”, plus interest thereon at the rate of twelve (12%) per cent per
annum from June 4, 1985 when the complaint was filed. The public respondent affirmed
the trial court's decision. Petitioner filed a motion to reconsider the aforesaid decision. on
the basis of a newly discovered evidence which consists of a letter categorically stating
that the account of CSAR Marine Resources, Inc. c/o Atty. Calvin Arcilla is only
P23,639.33; and the subject account is in the name of CSAR MARINE RESOURCES,
INC., a corporation separate and distinct from the appellant. Thereafter, the public
respondent promulgated an Amended Decision ordering defendant-appellant to pay
plaintiff-appellee in his capacity as President of Csar Marine Resources, Inc. the
outstanding balance of P23,639.33 to Universal Enterprises, owned and operated by
plaintiff-appellee.

Issue: Whether or not appellant is not liable since he ceased to become President of the
Corporation.

Ruling: No. Moreover, by no stretch of even the most fertile imagination may one be able
to conclude that the challenged Amended Decision directed Csar Marine Resources, Inc.
to pay the amounts adjudged. By its clear and unequivocal language, it is the petitioner
who was declared liable therefor and consequently made to pay. That the latter was
ordered to do so as president of the corporation would not free him from the
responsibility of paying the due amount simply because according to him, he had
ceased to be corporate president; such conclusion stems from the fact that the
public respondent, in resolving his motion for clarificatory judgment, pierced the
veil of corporate fiction and cast aside the contention that both he and the
corporation have separate and distinct personalities.

In short, even if We are to assume arguendo that the obligation was incurred in the
name of the corporation, the petitioner would still be personally liable therefor
because for all legal intents and purposes, he and the corporation are one and the
same. Csar Marine Resources, Inc. is nothing more than his business conduit and
alter ego. The fiction of a separate juridical personality conferred upon such corporation
by law should be disregarded. Significantly, petitioner does not seriously challenge the
public respondent's application of the doctrine which permits the piercing of the corporate
veil and the disregarding of the fiction of a separate juridical personality; this is because he
knows only too well that from the very beginning, he merely used the corporation for his
personal purposes.

06. A.C. Ransom Labor Union—CCLU vs. NLRC 142 SCRA 269 , June 10, 1986 —
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. The corporation, only in the technical sense, is the employer. The
responsible officer of an employer corporation can be held personally, not to say
even criminally, liable for non-payment of back wages. That is the policy of the law.

Facts: Respondent A. C. Ransom (Philippines) Corporation (RANSOM, for short) was

established in 1933 by Maximo C. Hernandez, Sr. It was a "family" corporation, the
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stockholders of which were/are members of the Hernandez family. It has a compound in

Las Piñas, Rizal, where it has been engaged in the manufacture mainly of ink and articles
associated with ink. On June 6, 1961, employees of RANSOM, most of them being
members of petitioner Labor UNION, went on strike and established a picket line which,
however, was lifted on June 21st with most of the strikers returning and being allowed to
resume their work by RANSOM. Twenty-two (22) strikers were refused reinstatement by
the Company. During 1969, the same Hernandez family organized another corporation,
Rosario Industrial Corporation (ROSARIO, for short) which also engaged, in the RANSOM
Compound, in the business of manufacture of ink and products associated with ink. On
December 19, 1972, ordered RANSOM "its officers and agents", to reinstate the 22
strikers with back wages from July 25, 1969. On April 2, 1973, RANSOM filed an
application for clearance to close or cease operations effective May 1, 1973, which was
granted by the Ministry of Labor and Employment in its Order of June 7, 1973, without
prejudice to the right of employees to seek redress of grievance, if any. 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. Back wages of the 22 strikers were
subsequently computed at P164,984.00, probably in early 1974. Up to September 9,
1976, petitioner UNION had filed about ten (10) motions for execution against RANSOM;
but all of them could not be implemented, presumably for failure to find leviable assets of
RANSOM; although it appears that, in 1975, RANSOM had sold machineries and
equipment for P2 million to Revelations Manufacturing Corporation.

Directly related to this case is the last Motion for Execution, dated December 18, 1978,
filed by petitioner UNION wherein it asked that officers and agents of RANSOM be held
personally liable for payment of the back wages. That Motion was granted by Labor
Arbiter, Tito F. Genilo, on March 11, 1980 (The GENILO ORDER), wherein he expressly
authorized a Writ of Execution to be issued for P164,984.00 (the back wages) against
RANSOM and seven officers and directors of the Company who are the named individual
respondents herein. RANSOM took an appeal to NLRC which affirmed the GENILO
ORDER, except as modified in the body of its decision of July 31, 1984. The NLRC ruling
as to the liability of the respondent's officers and agents, in the absence of evidence
showing that the officers mentioned in the Order of the Labor Arbiter dated March 11, 1980
have exceeded their authority, the writ of execution can not be enforced against them,
especially so since they were not given a chance to be heard.

Issue: Whether or not the writ of execution can not be enforced against RANSOM officers
and agents.

Ruling: No. 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. The corporation, only in the technical sense, is the employer. The
responsible officer of an employer corporation can be held personally, not to say
even criminally, liable for non-payment of back wages. That is the policy of the law.
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.
If the policy of the law were otherwise, the corporation employer can have devious ways
for evading payment of back wages. In the instant case, it would appear that
RANSOM, in 1969, foreseeing the possibility or probability of payment of back
wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to
be eventually phased out if the 22 strikers win their case. RANSOM actually ceased
 99

operations on May 1, 1973, after the December 19, 1972 Decision of the Court of
Industrial Relations was promulgated against RANSOM.

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, we believe it should be presumed that the responsible officer is
the President of the corporation who can be deemed the chief operation officer
thereof. Thus, in RA 602, criminal responsibility is with the "Manager or in his
default, the person acting as such." In RANSOM, the President appears to be the
Manager. Considering that non-payment of the back wages of the 22 strikers has been a
continuing situation, it is our opinion that the personal liability of the RANSOM President,
at the time the back wages were ordered to be paid should also be a continuing joint and
several personal liabilities of all who may have thereafter succeeded to the office of
president; otherwise,the 22 strikers may be deprived of their rights by the electionof a
president without leviable assets.

07. Lim vs. National Labor Relations Commission 171 SCRA 328 , March 16, 1989 —
The mere fact that Lim is part of the family corporation does not mean that all its
acts are imputable to him directly and personally. His acts were official acts, done in
his capacity as Vice President of Sweet Lines and on its behalf. There is no showing
that he acted without or in excess of his authority or was motivated by personal ill-
will toward Calsado

Facts: Victoria Calsado was hired by Sweet Lines, Inc. on March 5, 1981, as Senior
Branch Officer of its International Accounts Department for a fixed salary and a stipulated
5% commission on sales production. On December 1, 1983, after tendering her
resignation to accept another offer of employment, she was persuaded to remain with an
offer of her promotion to Manager of the Department with corresponding increase in
compensation, which she accepted. She was also allowed to buy a second-hand Colt
Lancer pursuant to a liberal car plan under which one-half of the cost was to be paid by the
company and the other half was to be deducted from her salary. Relations began to sour
later, however, when she repeatedly asked for payment of her commissions, which had
accumulated and were long overdue. She also complained of the inordinate demands on
her time even when she was sick and in the hospital. Finally, on July 16, 1985, she was
served with a letter from Samuel Casas Lim, the other petitioner, informing her that her
"employment with Sweet Lines" would terminate on August 5, 1985. Efforts were also
taken by Sweet Lines to forcibly take the car from her, culminating in an action for replevin
against her in the regional trial court of Manila.

On August 14, 1985, Calsado filed a complaint against both petitioners for illegal dismissal,
illegal deduction, and unpaid wages and commissions plus moral and exemplary
damages, among other claims. There followed an extended hearing where she testified on
the details of her employment, emphasizing her unsatisfactory treatment by the
management of Sweet Lines and especially the termination of her services without the
required notice and hearing and without valid cause. She also presented four other
witnesses to corroborate her charges. The respondents' defenses were based mainly on
the claim that Calsado was not an employee of Sweet Lines but an independent contractor
and that therefore their dispute with her came under the jurisdiction of the civil courts and
not of the Labor Arbiter. On December 29, 1986, decision was rendered against the two
petitioners by the Labor Arbiter, who held them liable in solidum to the complainant. The
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decision was appealed to the National Labor Relations Commission and affirmed in toto.
Both Sweet Lines and Lim then came to us in separate petitions to raise the above-stated
issues.

Issue: Whether or not the petitioner Lim could be held solidarily liable with Sweet Lines,
Inc. to the private respondent.

Ruling: No. Petitioner Lim that he cannot be held personally liable with Sweet Lines for
merely having signed the letter informing Calsado of her separation. There is no evidence
that he acted with malice or bad faith. The letter, in fact, informed her not only of her
separation but also of the benefits due her as a result of the termination of her services. It
is true that Lim has raised this matter rather tardily and also that he belongs to a closed
corporation controlled by the members of one family only. But these circumstances should
not be allowed to operate against him if he is to be accorded substantial justice in the
resolution of the private respondent's claim.

The mere fact that Lim is part of the family corporation does not mean that all its
acts are imputable to him directly and personally. His acts were official acts, done in
his capacity as Vice President of Sweet Lines and on its behalf. There is no showing
that he acted without or in excess of his authority or was motivated by personal ill-
will toward Calsado. The applicable decision is Sunio v. NLRC, where it was held: “It is
basic that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it as well as from that of any other entity to which it may
be related. Mere ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality. The case of Ransom v. NLRC is not
in point because there the debtor corporation actually ceased operations after the decision
of the Court of Industrial Relations was promulgated against it, making it necessary to
enforce it against its former president. Sweet Lines is still existing and able to satisfy the
judgment in favor of the private respondent.

The Solicitor General, invoking equity rather than law, observes that making Lim solidarily
liable with Sweet Lines will ensure payment of Calsado's claim. But this precaution, even
assuming it to be valid, is really unnecessary. in fact, as a condition for the issuance of our
temporary restraining order of October 14, 1987, Sweet Lines posted as required a bond in
the amount of P850,000.00, which should cover the amounts awarded to the private
respondent.

08. De Guzman vs. National Labor Relations Commission 211 SCRA 723 , July 23,
1992 — Considering that Respondent A. de Guzman is guilty of bad faith in
appropriating for himself the properties of Respondent AMAL to the prejudice of
Complainants herein whose claims are known to Respondent at the time he made
the disposition of AMAL’s properties, he is held jointly and severally liable with
Respondent AMAL for the award of unpaid wages, separation pay, back wages for
one month, 13th month pay and cash value of unused vacation leave.

Facts: Arturo de Guzman was the general manager of the Manila office of the Affiliated
Machineries Agency, Ltd., which was based in Hongkong. On June 30, 1986, he received
a telex message from Leo A. Fialla, managing director of AMAL in its main office, advising
him of the closure of the company due to financial reverses. This message triggered the
series of events that are the subject of this litigation. Immediately upon receipt of the
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advise, De Guzman notified all the personnel of the Manila office. The employees then
sent a letter to AMAL accepting its decision to close, subject to the payment to them of
their current salaries, severance pay, and other statutory benefits. De Guzman joined them
in these representations. These requests were, however, not heeded. Consequently, the
employees, now herein private respondents, lodged a complaint with the NLRC against
AMAL, through Leo A. Fialla and Arturo de Guzman, for illegal dismissal, unpaid wages or
commissions, separation pay, sick and vacation leave benefits, 13th month pay, and
bonus. For his part, the petitioner began selling some of AMAL's assets and applied the
proceeds thereof, as well as the remaining assets, to the payment of his claims against the
company. He also organized Susarco, Inc., with himself as its president and his wife as
one of the incorporators and a member of the board of directors. This company is engaged
in the same line of business and has the same clients as that of the dissolved AMAL.

With this development, Susarco and its officers were impleaded in the amended complaint
of the private respondents. Later, William Quasha and/or Cirilo Asperilla were also
included in the suit as the resident agents of AMAL in the Philippines. On November 7,
1986, the petitioner filed his own complaint with the NLRC against AMAL for his remaining
unsatisfied claims. On May 29, 1987, Labor Arbiter Eduardo G. Magno, to whom the
petitioner's complaint was assigned, rendered a decision ordering AMAL to pay the
petitioner the amount of P371,469.59 as separation pay, unpaid salary and commissions,
after deducting the value of the assets earlier appropriated by the petitioner. On
September 30, 1987, Labor Arbiter Ma. Lourdes A. Sales, who tried the private
respondents' complaint, rendered a decision ordering Respondents AMAL and Arturo de
Guzman to pay jointly and severally to each Complainant separation pay. This decision
was on appeal affirmed in toto by the NLRC, which is now faulted for grave abuse of
discretion in this petition for certiorari. The petitioner does not dispute the jurisdiction of
the Labor Arbiter and NLRC over the complaint of the private respondents against AMAL in
view of their previous employment relationship. He argues, however, that the public
respondents acted without or in excess of jurisdiction in holding him jointly and severally
liable with AMAL as he was not an employer of the private respondents. The Solicitor
General and the private respondents disagree. They maintain that the petitioner, being
AMAL's highest local representative in the Philippines, may be held personally answerable
for the private respondents' claims because he is included in the term "employer" under
Art. 212 (c), (now e) of the Labor Code.

Issue: Whether or not De Guzman can be held him jointly and severally liable with AMAL

Ruling: Yes. In the case at bar, the petitioner, while admittedly the highest ranking
local representative of AMAL in the Philippines, is nevertheless not a stockholder
and much less a member of the board of directors or an officer thereof. He is at
most only a managerial employee under Art. 212 (m) of the Labor Code. As such, the
petitioner cannot be held directly responsible for the decision to close the business that
resulted in his separation and that of the private respondents. That decision came directly
and exclusively from AMAL. The petitioner's participation was limited to the enforcement of
this decision in line with his duties as general manager of the company. Even in a normal
situation, in fact, he would not be liable, as a managerial employee of AMAL, for the
monetary claims of its employees. There should be no question that the private
respondents' recourse for such claims cannot be against the petitioner but against
AMAL and AMAL alone.

The judgment in favor of the private respondents could have been enforced against the
properties of AMAL located in this country except for one difficulty. The problem is that
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these properties have already been appropriated by the petitioner to satisfy his own
claims against the company. By so doing, has the petitioner incurred liability to the
private respondents? The Labor Arbiter believed he had because of his bad faith
and ruled as follows: Considering that Respondent A. de Guzman is guilty of bad faith in
appropriating for himself the properties of Respondent AMAL to the prejudice of
Complainants herein whose claims are known to Respondent at the time he made the
disposition of AMAL’s properties, he is held jointly and severally liable with
Respondent AMAL for the award of unpaid wages, separation pay, back wages for
one month, 13th month pay and cash value of unused vacation leave. In Velayo v.
Shell Co. of the Philippines, Commercial Air Lines, Inc. (CALI), knowing that it did not have
enough assets to pay off its liabilities, called a meeting of its creditors where it announced
that in case of non-agreement on a pro-rata distribution of its assets, including the C-54
plane in California, it would file insolvency proceedings. Shell Company of the Philippines,
one of its creditors, took advantage of this information and immediately made a telegraphic
assignment of its credits in favor of its sister corporation in the United States. The latter
thereupon promptly attached the plane in California and disposed of the same, thus
depriving the other creditors of their proportionate share in its value. The Court declared
that Shell had acted in bad faith and betrayed the trust of the other creditors of CALI. The
said company was ordered to pay them compensatory damages in a sum equal to the
value of the C-54 plane at the time it assigned its credit and exemplary damages in the
sum of P25,000.00.

We quote with approval the following observations of Labor Arbiter Sales in her decision:
— While the legitimacy of Respondent A. de Guzman's claims against AMAL is not
questioned, it must be stated that the manner and the means by which he satisfied such
claims are evidently characterised by bad faith on his part. For one, Respondent A. de
Guzman took advantage of his position as General Manager and arrogated to himself the
right to retain possession and ownership of all properties owned and left by AMAL in the
Philippines, even if he knew that Complainants herein have similar valid claims for unpaid
wages and other employee benefits from the Respondent AMAL.

It is not disputed that the petitioner in the case at bar had his own claims against AMAL
and consequently had some proportionate right over its assets. However, this right ceased
to exist when, knowing fully well that the private respondents had similarly valid claims, he
took advantage of his position as general manager and applied AMAL's assets in payment
exclusively of his own claims.
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5. Anti- Trust Issues

01. Garcia vs. Corona 321 SCRA 218 , December 17, 1999 — Our ruling in Tatad is
categorical that the Constitution's Article XII, Section 19, is anti-trust in history and
spirit. It espouses competition. We have stated that only competition which is fair
can release the creative forces of the market.

— Deregulation means the lifting of control, governance and direction through rule
or regulation. It means that the regulated industry is freed from the controls,
guidance, and restrictions to which it used to be subjected.

Facts: On November 5, 1997, this Court in Tatad v. Secretary of the Department of

Energy and Lagman, et al. v. Hon. Ruben Torres, et al., declared Republic Act No. 8180,
entitled "An Act Deregulating the Downstream Oil Industry and For Other Purposes,"
unconstitutional, and its implementing Executive Order No. 392 void. R.A. 8180 was struck
down as invalid because three key provisions intended to promote free competition were
shown to achieve the opposite result. As a result of the Tatad decision, Congress enacted
Republic Act No. 8479, a new deregulation law without the offending provisions of the
earlier law. Petitioner Enrique T. Garcia, a member of Congress, has now brought this
petition seeking to declare Section 19 thereof, which sets the time of full deregulation,
unconstitutional.

Petitioner contends that Section 19 of R.A. 8479, which prescribes the period for the
removal of price control on gasoline and other finished products and for the full
deregulation of the local downstream oil industry, is patently contrary to public interest and
therefore unconstitutional because within the short span of five months, the market is still
dominated and controlled by an oligopoly of the three (3) private respondents, namely,
Shell, Caltex and Petron. The objective of the petition is deceptively simple. It states that if
the constitutional mandate against monopolies and combinations in restraint of trade is to
be obeyed, there should be indefinite and open-ended price controls on gasoline and other
oil products for as long as necessary. This will allegedly prevent the "Big 3"·Shell, Caltex
and Petron·from price-fixing and overpricing. Petitioner calls the indefinite retention of price
controls as "partial deregulation."

Issue: Whether or not there should be indefinite and open-ended price controls on
gasoline and other oil products for as long as necessary

Ruling: No. The most important part of deregulation is freedom from price control.
Petitioner wants the setting of prices to be done by Government instead of being
determined by free market forces. R.A. 8479, the present deregulation law, was enacted to
implement Article XII, Section 19 of the Constitution which provides: “The State shall
regulate or prohibit monopolies when the public interest so requires. No combinations in
restraint of trade or unfair competition shall be allowed.” This is so because the
Government believes that deregulation will eventually prevent monopoly. The
simplest form of monopoly exists when there is only one seller or producer of a
product or service for which there are no substitutes. In its more complex form,
monopoly is defined as the joint acquisition or maintenance by members of a conspiracy,
formed for that purpose, of the power to control and dominate trade and commerce in a
commodity to such an extent that they are able, as a group, to exclude actual or potential
competitors from the field, accompanied with the intention and purpose to exercise such
power. Where two or three or a few companies act in concert to control market
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prices and resultant profits, the monopoly is called an oligopoly or cartel. It is a

combination in restraint of trade. The perennial shortage of oil supply in the Philippines
is exacerbated by the further fact that the importation, refining, and marketing of this
precious commodity are in the hands of a cartel, local but made up of foreign-owned
corporations. Before the start of deregulation, the three private respondents controlled the
entire oil industry in the Philippines.

It bears reiterating at the outset that the deregulation of the oil industry is a policy
determination of the highest order. It is unquestionably a priority program of Government.
The Department of Energy Act of 1992 expressly mandates that the development and
updating of the existing Philippine energy program "shall include a policy direction towards
deregulation of the power and energy industry.” Be that as it may, we are not concerned
with whether or not there should be deregulation. This is outside our jurisdiction. The
judgment on the issue is a settled matter and only Congress can reverse it. Rather, the
question that we should address here is/are the method and the manner chosen by
Government to accomplish its cherished goal offensive to the Constitution? Is indefinite
price control in the manner proposed by petitioner the only feasible and legal way to
achieve it?

Our ruling in Tatad is categorical that the Constitution's Article XII, Section 19, is
anti-trust in history and spirit. It espouses competition. We have stated that only
competition which is fair can release the creative forces of the market. We ruled that
the principle which underlies the constitutional provision is competition. Thus:

Section 19. Article XII of our Constitution is anti-trust in history and in spirit. It
espouses competition. The desirability of competition is the reason for the
prohibition against restraint of trade, the reason for the interdiction of unfair
competition, and the reason for regulation of unmitigated monopolies. Competition
is thus the underlying principle of section 19, Article XII of our Constitution which
cannot be violated by R.A. No. 8180. We subscribe to the observation of Prof.
Gellhorn that the objective of anti-trust law is "to assure a competitive economy,
based upon the belief that through competition producers will strive to satisfy
consumer wants at the lowest price with the sacrifice of the fewest resources.
Competition among producers allows consumers to bid for goods and services, and
thus matches their desires with society’s opportunity costs." He adds with
appropriateness that there is a reliance upon "the operation of the ‘market' system
(free enterprise) to decide what shall be produced, how resources shall be
allocated in the production process, and to whom the various products will be
distributed. The market system relies on the consumer to decide what and how
much shall be produced, and on competition, among producers to determine who
will manufacture it.

The Court respects the legislative finding that deregulation is the policy answer to the
problems. It bears stressing that R.A. 8180 was declared invalid not because deregulation
is unconstitutional. The law was struck down because, as crafted, three key provisions
plainly encouraged the continued existence if not the proliferation of the constitutionally
proscribed evils of monopoly and restraint of trade.

Petitioner overlooks the fact that Congress enacted the deregulation law exactly because
of the monopoly evils he mentions in his petition. Congress instituted the lifting of price
controls in the belief that free and fair competition was the best remedy against
monopoly power. In other words, petitioner's facts are also the reasons why Congress
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lifted price controls and why the President accelerated the process. The facts adduced in
favor of continued and indefinite price control are the same facts which supported what
Congress believes is an exercise of wisdom and discretion when it chose the path of
speedy deregulation and rejected Congressman Garcia's economic theory.

Petitioner may call the industry subject to price controls as deregulated. In enacting the
challenged provision, Congress, on the other hand, has declared that any industry whose
prices and profits are fixed by government authority remains a highly regulated one.
Petitioner, therefore, engages in a legal paradox. He fails to show how there can be
deregulation while retaining government price control. Deregulation means the lifting of
control, governance and direction through rule or regulation. It means that the
regulated industry is freed from the controls, guidance, and restrictions to which it
used to be subjected. The use of the word "partial" to qualify deregulation is sugar-
coating. Petitioner is really against deregulation at this time.

The argument that price control is not the villain in the intrusion and growth of monopoly
appears to be pure theory not validated by experience. There can be no denying the fact
that the evils mentioned in the petition arose while there was price control. The dominance
of the so-called "Big 3" became entrenched during the regime of price control. More
importantly, the ascertainment of the cause and the method of dismantling the oligopoly
thus created are a matter of legislative and executive choice. The judicial process is
equipped to handle legality but not wisdom of choice and the efficacy of solutions.

Petitioner engages in another contradiction when he puts forward what he calls a self-
evident truth. He states that a truly competitive market and fair prices cannot be legislated
into existence. However, the truly competitive market is not being created or fashioned by
the challenged legislation. The market is simply freed from legislative controls and allowed
to grow and develop free from government interference. R.A. 8479 actually allows the free
play of supply and demand to dictate prices. Petitioner wants a government official or
board to continue performing this task. Indefinite and open-ended price control as
advocated by petitioner would be to continue a regime of legislated regulation where free
competition cannot possibly flourish. Control is the antithesis of competition. To grant
the petition would mean that the Government is not keen on allowing a free market
to develop. Petitioner's "self-evident truth" thus supports the validity of the provision of law
he opposes. New players in the oil industry intervened in this case. According to them, it is
the free market policy and atmosphere of deregulation which attracted and brought the
new participants, themselves included, into the market.

02. Standard Oil Co. of New Jersey v. United States : 221 U.S. 1 (1911) : Justia US
Supreme Court Center — Relating to legislation preventing or controlling trusts or
other monopolies, with the intention of promoting competition in business.

The Anti-Trust Act of July 2, 1890 prohibits all contracts and combination which amount to
an unreasonable or undue restraint of trade in interstate commerce.

The Anti-Trust Act of 1890 was enacted in the light of the then existing practical conception
of the law against restraint of trade, and the intent of Congress was not to restrain the right
to make and enforce contracts, whether resulting from combinations or otherwise, which
do not unduly restrain interstate or foreign commerce, but to protect that commerce from
contracts or combinations by methods, whether old or new, which would constitute an
interference with, or an undue restraint upon, it.
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The word "person" in § 2 of the Anti-Trust Act, as construed by reference to § 8 thereof,

implies a corporation as well as an individual. Freedom to contract is the essence of
freedom from undue restraint on the right to contract. The Anti-Trust Act generically
enumerates the character of the acts prohibited and the wrongs which it intends to
prevent, and is susceptible of being enforced without any judicial exertion of legislative
power. The unification of power and control over a commodity such as petroleum and its
products by combining in one corporation the stocks of many other corporations
aggregating a vast capital gives rise, of itself, to the prima facie presumption of an intent
and purpose to dominate the industry connected with, and gain perpetual control of the
movement of, that commodity and its products in the channels of interstate commerce in
violation of the Anti-Trust Act of 1890, and that presumption is made conclusive by proof of
specific acts such as those in the record of this case. The fact that a combination over the
products of a commodity such as petroleum does not include the crude article itself does
not take the combination outside of the Anti-Trust Act when it appears that the
monopolization of the manufactured products necessarily controls the crude article.

Penalties which are not authorized by the law cannot be inflicted by judicial authority. The
remedy to be administered in case of a combination violating the Anti-Trust Act is two-fold:
first, to forbid the continuance of the prohibited act, and second, to so dissolve the
combination as to neutralize the force of the unlawful power. The constituents of an
unlawful combination under the Anti-Trust Act should not be deprived of power to make
normal and lawful contracts, but should be restrained from continuing or recreating the
unlawful combination by any means whatever, and a dissolution of the offending
combination should not deprive the constituents of the right to live under the law, but
should compel them to obey it.