Corpo Mar 2

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-5677 May 25, 1953
LA CAMPANA FACTORY, INC., and TAN TONG doing business under the trial name "LA
CAMPANA GAUGAU PACKING", petitioners,
vs.
KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA (KKM) and THE COURT OF
INDUSTRIAL RELATIONS, respondents.
Ceferino de los Santos, R., Ceferino de los Santos, Jr. and Manuel V. Roxas for petitioners.
Carlos E. Santiago for respondent union.
REYES, J.:
Tan Tong, one of the herein petitioners, has since 1932 been engaged in the business of buying and
selling gaugau under the trade name La Campana Gaugau Packing with an establishment in
Binondo, Manila, which was later transferred to España Extension, Quezon City. But on July 6,
1950, Tan Tong, with himself and members of his family corporation known as La Campana Factory
Co., Inc., with its principal office located in the same place as that of La Campana Gaugau Packing.
About a year before the formation of the corporation, or on July 11, 1949, Tan Tong had entered into
a collective bargaining agreement with the Philippine Legion of Organized Workers, known as
PLOW for short, to which the union of Tan Tong's employees headed by Manuel E. Sadde was then
affiliated. Seceding, however, from the PLOW, Tan Tong's employees later formed their own
organization known as Kaisahan Ng Mga Manggagawa Sa La Campana, one of the herein
respondents, and applied for registration in the Department of Labor as an independent entity.
Pending consideration of this application, the Department gave the new organization legal standing
by issuing it a permit as an affiliate to the Kalipunan Ng Mga Manggagawa.
On July 19, 1951, the Kaisahan Ng Mga Manggagawa Sa La Campana, hereinafter to be referred to

as the respondent Kaisahan, which, as of that date, counted with 66 members — workers all of them
of both La Campana Gaugau Packing and La Campana Coffee Factory Co., Inc. — presented a
demand for higher wages and more privileges, the demand being addressed to La Campana Starch
and Coffee Factory, by which name they sought to designate, so it appears, the La Campana
Gaugau Packing and the La Campana Coffee Factory Co., Inc. As the demand was not granted and
an attempt at settlement through the mediation of the Conciliation Service of the Department of
Labor had given no result, the said Department certified the dispute to the Court of Industrial
Relations on July 17, 1951, the case being there docketed as Case No. 584-V.
With the case already pending in the industrial court, the Secretary of Labor, on September 5, 1951,
revoked the Kalipunan Ng Mga Kaisahang Manggagawa's permit as a labor union on the strength of
information received that it was dominated by subversive elements, and, in consequence, on the
20th of the same month, also suspended the permit of its affiliate, the respondent Kaisahan.
We have it from the court's order of January 15, 1952, which forms one of the annexes to the
present petition, that following the revocation of the Kaisahan's permit, "La Campana Gaugau and
Coffee Factory" (obviously the combined name of La Campana Gaugau Packing and La Campana
Coffee Factory Co., Inc,) and the PLOW, which had been allowed to intervene as a party having an
interest in the dispute, filed separate motions for the dismissal of the case on the following grounds:
1. That the action is directed against two different entities with distinct personalities, with "La
Campana Starch Factory" and the "La Campana Coffee Factory, Inc.";
2. That the workers of the "La Campana Coffee Factory, Inc." are less than thirty-one;
3. That the petitioning union has no legal capacity to sue, because its registration as an
organized union has been revoked by the Department of Labor on September 5, 1951; and
4. That there is an existing valid contract between the respondent "La Campana Gaugau
Packing" and the intervenor PLOW, where-in the petitioner's members are contracting
parties bound by said contract.
Several hearings were held on the above motions, in the course of which ocular inspections were
also made, and on the basis of the evidence received and the facts observed in the ocular
inspections, the Court of Industrial Relations denied the said motions in its order of January 14,
1952, because if found as a fact that:
A. While the coffee corporation is a family corporation with Mr. Tan Tong, his wife, and
children as the incorporations and stockhelders (Exhibit 1), the La Campana Gaugau
Packing is merely a business name (Exhibit 4).
B. According to the contract of lease (Exhibit 23), Mr. Tan Tong., propriety and manager of
the Ka Campana Gaugau Factory, leased a space of 200 square meters in the bodega
housing the gaugau factory to his son Tan Keng Lim, manager of the La Campana Coffee
Factory. But the lease was executed only on September 1, 1951, while the dispute between
the parties was pending before the Court.
C. There is only one entity La Campana Starch and Coffee Factory, as shown by the
signboard (Exhibit 1), the advertisement in the delivery trucks (Exhibit I-1), the packages of
gaugau(Exhibit K), and delivery forms (Exhibits J, J-1, and J-2).
D. All the laborers working in the gaugau or in the coffee factory receive their pay from the
same person, the cashier, Miss Natividad Garcia, secretary of Mr. Tan Tong; and they are
transferred from the gaugau to the coffee and vice-versa as the management so requires.
E. There has been only one payroll for the entire La Campana personnel and only one
person preparing the same — Miss Natividad Garcia, secretary of Mr. Tan Tong. But after
the case at bar was certified to this Court on July 17, 1951, the company began making
separate payrolls for the coffee factory (Exhibits M-2 and M-3, and for the gaugau factory
(Exhibits O-2, O-3 and O-4). It is to be noted that before July 21, 1951, the coffee payrolls all
began with number "41-Maria Villanueva" with 24 or more laborers (Exhibits M and M-1),
whereas beginning July 21, 1951, the payrolls for the coffee factory began with No. 1-Loreta
Bernabe with only 14 laborers (Exhibits M-2 and M-3).
F. During the ocular inspection made in the factory on August 26, 1951 the Court has found
the following:
In the ground floor and second floor of the gaugau factory there were hundreds of bags of
raw coffee behind the pile of gaugau sacks. There were also women employees working
paper wrappers for gaugau, and, in the same place there were about 3,000 cans to be used
as containers for coffee.
The Court found out also that there were 16 trucks used both for the delivery of coffee and
gaugau. To show that those trucks carried both coffee and gaugau, the union president
invited the Court to examine the contents of delivery truck No. T-582 parked in a garage
between the gaugau building and the coffee factory, and upon examination, there were
found inside the said truck boxes of gaugau and cans of coffee,
and held that:
. . . there is only one management for the business of gaugau and coffee with whom the
laborers are dealing regarding their work. Hence, the filing of action against the Ka Campana
Starch and Coffee Factory is proper and justified.
With regards to the alleged lack of personality, it is to be noted that before the certification of
the case to this Court on July 17, 1951, the petitioner Kaisahan Ng Mga Manggagawa Sa La
Campana, had a separate permit from the Department of Labor. This permit was suspended
on September 30, 1951. (Exhibit M-Intervenor, page 55, of the record). It is not true that, on
July 17, 1951, when this case forwarded to this Court, the petitioner's permit, as an
independent union, had not yet been issued, for the very Exhibit MM-Intervenor regarding
the permit, conclusively shows the preexistence of said permit. (Annex G.)
Their motion for reconsideration of the above order having been denied, Tan Tong and La Campana
Coffee Factory, Inc. (same as La Campana Coffee Factory Co., Inc.), later joined by the PLOW, filed
the present petition for certiorari on the grounds that the Court of Industrial Relations had no
jurisdiction to take cognizance of the case, for the reason, according to them, "(1) that the petitioner
La Campana Coffee Factory, Inc. has only 14 employees, only 5 of whom are members of the
respondent union and therefore the absence of the jurisdictional number (30) as provided by
sections 1 and 4 of Commonwealth Act No. 103; and, (2) that the suspension of respondent union's
permit by the Secretary of Labor has the effect of taking away the union's right to collective
bargaining under section 2 of Commonwealth Act No. 213 and consequently, its personality to sue
for ad in behalf of its members."
As to the first ground, petitioners obviously do not question the fact that the number of employees of
the La Campana Gaugau Packing involved in the case is more than the jurisdictional number (31)
required bylaw, but they do contend that the industrial court has no jurisdiction to try the case as
against La Campana Coffee Factory, Inc. because the latter has allegedly only 14 laborers and only
of these are members of the respondent Kaisahan. This contention loses force when it is noted that,
as found by the industrial court — and this finding is conclusive upon us — La Campana Gaugau
Packing and La Campana Coffee Factory Co. Inc., are operating under one single management, that
is, as one business though with two trade names. True, the coffee factory is a corporation and, by
legal fiction, an entity existing separate and apart fro the persons composing it, that is, Tan Tong and
his family. But it is settled that this fiction of law, which has been introduced as a matter of
convenience and to subserve the ends of justice cannot be invoked to further an end subversive of
that purpose.
Disregarding Corporate Entity. — The doctrine that a corporation is a legal entity existing
separate and apart from the person composing it is a legal theory introduced for purposes of
convenience and to subserve the ends of justice. The concept cannot, therefore, be
extended to a point beyond its reason and policy, and when invoked in support of an end
subversive of this policy, will be disregarded by the courts. Thus, in an appropriate case and
in furtherance of the ends of justice, a corporation and the individual or individuals owning all
its stocks and assets will be treated as identical, the corporate entity being disregarded
where used as a cloak or cover for fraud or illegality. (13 Am. Jur., 160-161.)
. . . A subsidiary or auxiliary corporation which is created by a parent corporation merely as

an agency for the latter may sometimes be regarded as identical with the parent corporation,
especially if the stockholders or officers of the two corporations are substantially the same or
their system of operation unified. (Ibid. 162; see Annotation 1 A. L. R. 612, s. 34 A. L. R.
599.)
In the present case Tan Tong appears to be the owner of the gaugau factory. And the coffee factory,
though an incorporated business, is in reality owned exclusively by Tan Tong and his family. As
found by the Court of industrial Relations, the two factories have but one office, one management
and one payroll, except after July 17, the day the case was certified to the Court of Industrial
Relations, when the person who was discharging the office of cashier for both branches of the
business began preparing separate payrolls for the two. And above all, it should not be overlooked
that, as also found by the industrial court, the laborers of the gaugau factory and the coffee factory
were interchangeable, that is, the laborers from the gaugau factory were sometimes transferred to
the coffee factory and vice-versa. In view of all these, the attempt to make the two factories appears
as two separate businesses, when in reality they are but one, is but a device to defeat the ends of
the law (the Act governing capital and labor relations) and should not be permitted to prevail.
The second point raised by petitioners is likewise with-out merit. In the first place, there being more
than 30 laborers involved and the Secretary of Labor having certified the dispute to the Court of
Industrial Relations, that court duly acquired jurisdiction over the case (International Oil
Factory vs. NLU, Inc. 73 Phil., 401; section 4, C. A. 103). This jurisdiction was not when the
Department of Labor suspended the permit of the respondent Kaisahan as a labor organization. For
once jurisdiction is acquired by the Court of Industrial Relations it is retained until the case is
completely decided. (Manila Hotel Employees Association vs. Manila Hotel Co. et al., 73 Phil., 374.)
In view of the foregoing, the petition is denied, with costs against the petitioner.
Paras, C.J., Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo, Bautista Angelo and Labrador,
JJ., conc
Yutivo Sons Hardware Co. vs. Court of Tax Appeals

No. L-13203. January 28, 1961.
YUTIVO SONS HARDWARE COMPANY, petitioner, vs. COURT OF TAX APPEALS
and COLLECTOR OF INTERNAL REVENUE, respondents.
Corporations; Piercing the veil of corporate fiction.—A corporation is an entity
separate and distinct from its stockholders and from other corporations to which it
may be connected. However, when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons, or, in the case of two corporations, merge
them into one. When the corporation is the mere alter ego or business conduit of a
person, it may be disregarded.
Same; Taxation; Sales tax; Tax evasion.—A corporation cannot be said to have
been organized as a tax evasion device when there was no tax to evade.
Same; Evidence; Fraudulent tax evasion.—The intention to minimize taxes,
when used in the context of fraud, must be
161

VOL. 1, JANUARY 28, 1961 161

proven by clear and convincing evidence amounting to more than mere
preponderance. It cannot be justified by mere speculation. This is because fraud is
never lightly to be presumed.
Same; Fraud; Evidence on fraud.—Fraud is never imputed and the courts never
sustain findings of fraud upon circumstances which, at most, create only suspicion.
Same; Concept of tax cvasion.—Tax evasion connotes fraud through the use of
pretenses and forbidden devices to lessen or defeat taxes.
Same; Tax avoidance.—A taxpayer has the legal right to decrease the amount
of what otherwise would be his taxes or altogether avoid them by means which the
law permits. Any legal means used by the taxpayer to reduce taxes are all right.
Therefore, a man may perform an act that he honestly believes to be sufficient to
exempt him from taxes. He does not incur fraud thereby even if the act is thereafter
found to be insufficient.
Same.—Mere understatement of tax in itself does not prove fraud.
Same; Where two corporations were treated as one for tax purposes.—Where it
appears that SM was a mere subsidiary, instrumentality or department of Yutivo,
the Tax Court correctly disregarded the alleged separate corporate personality of
SM in order to arrive at the true tax liability of Yutivo.
Taxation: Sales tax; Prescription.—Deficiency sales taxes for 1947 to 1949,
which were assessed on November 7, 1950, were assessed within the five-year
period prescribed in section 331 of the Tax Code. The deficiency sales tax for 1950,
which was assessed on December 16, 1954, was likewise assessed within the five-
year period.
Same; When the taxpayer is estopped to invoke prescription.—Estoppel has
been employed to prevent the application of the statute of limitations against the
government in certain instances in which the taxpayer has taken some affirmative
action to prevent the collection of the tax within the statutory period. It is generally
held that a taxpayer is estopped to repudiate waivers of the statute of limitations
upon which the government relied. Where the taxpayer made several requests for
reinvestigation of a tax assessment, it may be considered to have waived the
defense of presCription.
Same; Fraud surcharge.—Where no element of fraud is present, the imposition
of the 50% surcharge on the deficiency sales tax is improper. The circumstance that
the sales made by the taxpayer's subsidiary should be considered as sales of the
taxpayer 'does not necessarily establish fraud nor the willful filing of a false or
fraudulent return.
162
162 SUPREME COURT REPORTS ANNOTATED

Same; Gross selling price does not include the sales tax billed as a separate
item.—lf a manufacturer, producer, or importer, in fixing the gross selling price of
an article sold by him, has included an amount intended to cover the sales tax in
the gross selling price of the articles, the sales tax should be based on the gross
selling price less the amount intended to cover the tax, if the same is billed as a
separate item. Unless billed to the purchaser as a separate item in the invoice, the
amounts intended to cover the sales tax shall be considered as part of the gross
selling price of the articles sold, and deduction thereof will not be allowed.
Court of Tax Appeals; Decisions.—The issue of whether the decision of the Tax
Court was concurred in by at least two judges becomes academic in view of the
elevation of the case to the Supreme Court.
PETITION for review of a decision of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.

Sycip, Quisumbing, Salazar & Associates for petitioner.
Solicitor General for respondents.
GUTIERREZ DAVID, J.:
This is a petition for review of a decision of the Court of Tax Appeals ordering
petitioner to pay to respondent Collector of Internal Revenue the sum of
Pl.266,176.73 as sales tax deficiency for the third quarter of 1947 to the
fourth quarter of 1950; inclusive, plus 75% surcharge thereon, equivalent to
P349,632.54, or a sum total of P2,215,809.27, plus costs of the suit.
From the stipulation of facts and the evidence adduced by both parties, it
appears that petitioner Yutivo Sons Hardware Co. (hereafter referred to as
Yutivo) is a domestic corporation, organized under the laws of the
Philippines, with principal office at 404 Dasmariñas St., Manila. Incorporated
in 1916, it was engaged, prior to the last world war, in the importation and
sale of hardware supplies and equipment. After the liberation, it resumed its
business and until June of 1946 bought a number of cars and trucks from
General Motors Overseas Corporation (hereafter referred to as GM for short),
an American corporation licensed to do business in the Philippines. As
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VOL. 1, JANUARY 28, 1961 163
importer, GM paid sales tax prescribed by sections 184, 185 and 186 of the
Tax Code on the basis of its selling price to Yutivo. Said tax being collected
only once on original sales, Yutivo paid no further sales tax on its sales to the
public.
On June 13, 1946, the Southern Motors, Inc. (hereafter referred to as SM)
was organized to engage in the business of selling cars, trucks and spare
parts. Its original authorized capital stock was Pl,000,000 divided into 10,000
shares with a par value of P100 each.
At the time of its incorporation 2,500 shares worth P250,000 appear to
have been subscribed into equal proportions by Yu Khe Thai, Yu Khe Siong,
Hu Kho Jin, Yu Eng Poh, and Washington Sycip. The first three named
subscribers are brothers, being sons of Yu Tiong Yee, one of Yutivo's
founders. The latter two are respectively sons of Yu Tiong Sin and Albino
Sycip, who are among the founders of Yutivo.
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.
When GM decided to withdraw from the Philippines in the middle of 1947,
the U.S. manufacturer of GM cars and trucks appointed Yutivo as importer for
the Visayas and Mindanao, and Yutivo continued its previous arrangement of
selling exclusively to SM. In the same way that GM used to pay sales taxes
based on its sales to Yutivo, the latter, as importer, paid sales tax prescribed
on the basis of its selling price to SM, and since such sales tax, as already
stated, is collected only once on original sales, SM paid no sales tax on its
sales to the public.
On November 7, 1950, after several months of investigation by revenue
officers started in July, 1948, the Collector of Internal Revenue made an
assessment upon Yutivo and demanded -from the latter Pl,804,769.85 as
deficiency sales tax plus surcharge covering the period from the third
quarter of 1947 to the fourth quarter of 1949;
164
or from July 1, 1947 to December 31, 1949, claiming that the taxable sales
were the retail sales by SM to the public and not the sales at wholesale made
by Yutivo to the latter inasmuch as SM and Yutivo were one and the same
corporation, the former being the subsidiary of the latter,
The assessment was disputed by the petitioner, and a reinvestigation of
the case having been made by the agents of the Bureau of Internal Revenue,
the respondent Collector in his letter dated November 15, 1952
countermanded his demand for sales tax deficiency on the ground that "after
several investigations conducted into the matter no sufficient evidence could
be gathered to sustain the assessment of this Office based on the theory
that Southern Motors is a mere instrumentality or subsidiary of Yutivo." The
withdrawal was subject, however, to the general power of review by the now
defunct Board of Tax Appeals. The Secretary of Finance to whom the papers
relative to the case were endorsed, apparently not agreeing with the
withdrawal of the assessment, returned them to the respondent Collector for
reinvestigation.
After another investigation, the respondent Collector, in a letter to
petitioner dated December 16, 1954, redetermined that the aforementioned
tax assessment was lawfully due the government and in addition assessed
deficiency sales tax due from petitioner for the four quarters of 1950; the
respondents' last demand was in the total sum of P2,215,809.27 detailed as
follows:
Deficiency 75% Total
Sales Tax Surcharge Amount Due
Assessment (First) of
November 7, 1950
for deficiency sales
Tax for the period
from 3rd Qrtr. 1947
to 4th Qrtr. 1949
inclusive.................... P1,031,296.60 P773.473.45 P1,804,769.05
Additional Assessment
for period from 1st
to 4th Qrtr, 1950,
inclusive ................ 224,880.13 176,160,09 411,040.22
Total amount derRand
ed per letter of De
165
VOL. 1, JANUARY 28, 1961 165
cember 16, Pl,266,176.73 P949,632.54 P2,215,809.27
1954 ..............
This second assessment was contested by the petitioner Yutivo before the
Court of Tax Appeals, alleging that there is 110 valid ground to disregard the
corporate personality of SM and to hold that it is an adjunct of petitioner
Yutivo; (2) that assuming the separate personality of SM may be
disregarded, the sales tax already paid by Yutivo should first be deducted
from the selling price of SM in computing the sales tax due on each vehicle;
and (3) that the surcharge has been erroneously imposed by respondent.
Finding against Yutivo and sustaining the respondent Collector's theory that
there was no legitimate or bona fide purpose in the organization of SM—the
apparent objective of its organization being to evade the payment of taxes-
—and that it was owned (or the majority of the stocks thereof are owned)
and controlled by Yutivo and is a mere subsidiary, branch, adjunct conduit,
instrumentality or alter ego of the latter, the Court of Tax Appeals—with
Judge Roman Umali not taking part—disregarded its separate corporate
existence and on April 27, 1957, rendered the decision now complained of.
Of the two Judges who signed the decision, one voted for the modification of
the computation of the sales tax as determined by the respondent Collector
in his decision so as to give allowance for the reduction of the tax already
paid (resulting in the reduction of the assessment to P820,509.91 exclusive
of surcharges), while the other voted for affirmance. The dispositive part of
the decision, however, affirmed the assessment made by the Collector.
Reconsideration of this decision having been denied, Yutivo brought the case
to this Court thru the present petition for review.
It is an elementary and 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. However, "when the notion
of legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime," the law will regard the corporation as an association
of persons, or in the case of two corporations merge them into one. (Koppel
[Phil. Inc. vs. Yatco, 77 Phil. 496, citing 1 Fletcher Cyclopedia of Corporation,
Perm. Ed., pp. 135-
166
136; United States vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247,
255 per Sanborn, J.) Another rule is that, when the corporation is the "mere
alter ego or business conduit of a person, it may be disregarded." (Koppel
[Phil.], Inc. vs. Yatco, supra.)
After going over the voluminous record of the present case, we are
inclined to rule that the Court of Tax Appeals was not justified in finding that
SM was organized for no other purpose than to defraud the Government of
its lawful revenues. In the first place, this corporation was organized in June,
1946 when it could not have caused Yutivo any tax savings. From that date
up to June 30, 1947, or a period of more than one year, GM was the importer
of the cars and trucks sold to Yutivo, which, in turn resold them to SM.
During that period, it is not disputed that GM, as importer, was the one solely
liable for sales taxes. Neither Yutivo or SM was subject to the sales taxes on
their sales of cars and trucks. The sales tax liability of Yutivo did not arise
until July 1, 1947 when it became the importer and simply continued its
practice of selling to SM. The decision, therefore, of the Tax Court that SM
was organized purposely as a tax evasion device runs counter to the fact
that there was no tax to evade.
Making the observation from a newspaper clipping (Exh. "T") that "as early
as 1945 it was known that GM was preparing to leave the Philippines and
terminate its business of importing vehicles," the court below speculated
that Yutivo anticipated the withdrawal of GM from business in the Philippines
in June, 1947. This observation, which was made only in the resolution on the
motion for reconsideration, however, finds no basis in the record. On the
other hand, GM had been an importer of cars in the Philippines even bef ore
the war and had but recently resumed its operation in the Philippines in 1946
under an ambitious plan to expand its operation by establishing an assembly
plant here, so that it could not have been expected to make so drastic a
turnabout of not merely abandoning the assembly plant project but also
totally ceasing to do business as an importer. Moreover, the newspaper
167
VOL. 1, JANUARY 28, 1961 167
clipping, Exh. "T", was published on March 24, 1947, and merely reported a
rumored plan that GM would abandon the assembly plant project in the
Philippines. There was no mention of the cessation of business by GM, which
must not be confused with the abandonment of the assembly plant project.
Even as respect the assembly plant, the newspaper clipping was quite
explicit in saying that the Acting Manager refused to confirm that rumor as
late as March 24, 1947, almost a year after SM was organized.
At this juncture, it should be stated that the intention to minimize taxes,
when used in the context of fraud, must be proved to exist by clear and
convincing evidence amounting to more than mere preponderance, and
cannot be justified by a mere speculation. This is because fraud is never
lightly to be presumed. (Vitelli & Sons vs. U.S., 250 U.S. 355; Duffin vs.
Lucas, 55 F (2d) 786; Budd vs. Commr., 43 F (2d) 509; Maryland Casualty Co.
vs. Palmette Coal Co., 40 F (2d) 374; Schoonfield Bros., Inc. vs. Commr., 38
BTA 943; Charles Heiss vs. Commr., 38 BTA 833; Kerbaugh vs. Commr., 74 F
(2d) 749; Maddas vs. Commr., 114 F. (2d) 548; Moore vs. Commr... 37 BTA
378; National City Bank of New York vs. Commr., 98 F (2d) 93; Richard vs.
Commr., 15 BTA 316; Rea Gane vs. Commr., 19 BTA 518). (See also Balter,
Fraud Under Federal Law, pp. 301-302, citing numerous authorities: Arroyo
vs. Granada, et al., 18 Phil. 484.) Fraud is never imputed and the courts
never sustain findings of fraud upon circumstances which, at the most,
create only suspicion. (Haygood Lumber & Mining Co. vs. Commr., 178 F (2d)
769; Dalone vs. Commr., 100 F (2d) 507).
In the second place, SM was organized and it operated, under
circumstance that belied any intention to evade sales taxes, "Tax evasion" is
a term that connotes fraud thru the use of pretenses and forbidden devices
to lessen or defeat taxes. The transactions between Yutivo and SM, however,
have always been in the open, embodied in private and public documents,
constantly subject to inspection by the tax authorities. As a matter of fact,
after Yutivo became the importer of GM cars and trucks for Visayas and
Mindanao, it merely continued the method of
168
distribution that it had initiated long before GM withdrew from the
Philippines.
On the other hand, if tax saving was the only justification for the
organization of SM, such justification certainly ceased with the passage of
Republic Act No. 594 on February 16, 1951, governing payment of advance
sales tax by the importer based on the landed cost of the imported article,
increased by mark-ups of 25%, 50% and 100%, depending on whether the
imported article is taxed under sections 186, 185 and 184, respectively, of
the Tax Code, Under Republic Act No. 594, the amount at which the article is
sold is immaterial to the amount of the sales tax. And yet after the passage
of that Act, SM continued to exist up to the present and operates as it did
many years past in the promotion and pursuit of the business purposes for
whicK it was organized.
In the third place, sections 184 to 186 of the said Code provides that the
sales tax shall be collected "once only on every original sale, barter,
exchange x x x, to be paid by the manufacturer, producer or importer." The
use of the word "original" and the express provision that the tax was
collectible "once only" evidently has made the provisions susceptible of
different interpretations. In this connection, it should be stated that a
taxpayer has the legal right to decrease the amount of what otherwise would
be his taxes or altogether avoid them by means which the law permits. (U.S.
vs. Isham, 17 Wall. 496, 506; Gregory vs. Helvering, 293 U.S. 465,
469; Commr. vs. Tower, 327 U.S. 280; Lawton vs. Commr., 194 F (2d) 380).
Any legal means used by the taxpayer to reduce taxes are all right (Benny
vs. Commr., 25 T. Cl. 78). A man may, therefore, perform an act that he
honestly believes to be sufficient to exempt him from taxes. He does not
incur fraud thereby even if the act is thereafter found to be insufficient. Thus
in the case of Court Holding Co. vs. Commr., 2 T. Cl. 531, it was held that
though an incorrect position in law had been taken by the corporation there
was no suppression of the facts, and a fraud penalty was not justified.
The evidence for the Collector, in our opinion, falls short
169
VOL. 1, JANUARY 28, 1961 169
of the standard of clear and convincing proof of fraud. As a matter of fact,
the respondent Collector himself showed a great deal of doubt or hesitancy
as to the existence of fraud. He even doubted the validity of his first
assessment dated November 7, 1959. It must be remembered that the fraud
which respondent Collector imputed to Yutivo must be related to its filing of
sales tax returns for less taxes than were legally due. The allegation of fraud,
however, cannot be sustained without the showing that Yutivo, in filing said
returns, did so fully knowing that the taxes called for therein were less than
what were legally due. Considering that respondent Collector himself with
the aid of his legal staff, and after some two years of investigation and study
concluded in 1952 that Yutivo's sales tax returns were correct—only to
reverse himself after another two years—it would seem harsh and unfair for
him to say in 1954 that Yutivo fully knew in October 1947 that its sales tax
returns were inaccurate.
On this point, one other consideration would show that the intent to save
taxes could not have existed in the minds of the organizers of SM. The sales
tax imposed, in theory and in practice, is passed on to the vendee, and is
usually billed separately as such in the sales invoice. As pointed out by
petitioner Yutivo, had not SM handled the retail, the additional tax that would
have been payable by it, could have been easily passed off to the consumer,
especially since the period covered by the assessment was a "seller's
market" due to the post-war scarcity up to late 1948, and the Imposition of
controls in late 1949.
It is true that the arrastre charges constitute expenses of Yutivo and its
non-inclusion in the selling price by Yutivo cost the Government P4.00 per
vehicle, but said non-inclusion was explained to have been due to an
inadvertent accounting omission, and could hardly be considered as proof of
willful channelling and fraudulent evasion of sales tax. Mere understatement
of tax in itself does not prove fraud. (James Nicholson, 32 BTA 377, affirmed
90 F. (2) 978, cited in Merten's Sec. 55.11 p. 21.) The amount involved,
moreover, is extremely small
170
inducement for Yutivo to go thru all the trouble of organizing SM. Besides,
the non-inclusion of these small arrastre charges in the sales tax returns of
Yutivo is clearly shown in the records of Yutivo, which is uncharacteristic of
fraud (See Insular Lumber Co. vs. Collector, G.R. No. L-719, April 28, 1956.)
We are, however, inclined to agree with the court below that SM was
actually owned and controlled by petitioner as to make it a mere subsidiary
or branch of the latter created for the purpose of selling the vehicles at retail
and maintaining stores for spare parts as well as service repair shops. It is
not disputed that the petitioner, which is engaged principally in hardware
supplies and equipment, is completely controlled by the Yutivo, Young or Yu f
amily. The founders of the corporation are closely related to each other
either by blood or affinity, and most of its stockholders are members of the
Yu (Yutivo or Young) family, It is, likewise, admitted that SM was organized
by the leading stockholders of Yutivo headed by Yu Khe Thai. At the time of
its incorporation, 2,500 shares worth P250,000.00 appear to have been
subscribed in five equal pro-portions by Yu.Khe Thai, Yu Khe Siong, Yu Khe
Jin, Yu Eng Poh and Washington Sycip. The first three named subscribers are
brothers, being the sons of Yu Tien Yee, one of Yutivo's founders. Yu Eng Poh
and Washington Sycip are respectively sons of Yu Tiong Sing and Alberto
Sycip who are co-founders of Yutivo. According to the Articles of
Incorporation of the said subscriptions, the amount of P62.500 was paid by
the aforenamed subscribers, but actually the said sum was advanced by
Yutivo. The additional subscriptions to the capital stock of SM and
subsequent transfers thereof were paid by Yutivo itself. The payments were
made, however, without any transfer of funds from Yutivo to SM. Yutivo
simply charged the accounts of the subscribers for the amount allegedly
advanced by Yutivo in payment of the shares. Whether a charge was to be
made against the accounts of the subscribers or said subscribers were to
subscribe shares appears to constitute a unilateral act on the part of Yutivo,
there being no showing that the f ormer initiated the subscription.
171
VOL. 1, JANUARY 28, 1961 171
The transactions were made solely by and between SM and Yutivo. In effect,
it was Yutivo who undertook the subscription of shares, employing the
persons named or "charged" with corresponding account as nominal
stockholders. Of course, Yu Khe Thai, Yu Khe Jin, Yu Khe Siong and Yu Eng
Poh were manifestly aware of these subscriptions, but considering that they
were the principal officers and constituted the majority of the Board o€
Directors of both Yutivo and SM, their subscriptions could readily or easily be
that of Yutivo's. Moreover, these persons were related to each other as
brothers or first cousins. There was every reason for them to agree in order
to protect their common interest in Yutivo and SM.
The issued capital stock of SM was increased by additional subscriptions
made by various persons, but except Ng Sam Bak and David Sycip,
"payments" thereof were effected by merely debiting or charging the
accounts of said stockholders and crediting the corresponding amounts in
favor of SM, without actually transferring cash. from Yutivo. Again, in this
instance, the "payments" were effected by the mere unilateral act of Yutivo.
Yutivo, by virtue of its control over the individual accounts of the persons
charged, would necessarily exercise preferential rights and control, directly
or indirectly, over the shares, it being the party which really undertook to
pay or underwrite payment thereof.
The shareholders in SM are mere nominal stockholders holding the shares
for and in behalf of Yutivo, so even conceding that the original subscribers
were stockholders bona fide, Yutivo was at all times in control of the majority
of the stock of SM and that the latter was a mere subsidiary of the former.
True, petitioner and other recorded stockholders transferred their
shareholdings, but the transfers were made to their immediate relatives,
either to their respective spouses and children or sometimes brothers or
sisters. Yutivo's shares in SM were transferred to immediate relatives of
persons who constituted its controlling stockholders, directors and officers.
Despite these purported changes in stock ownership in both corporations,
the Board of
172
Directors and officers of both corporations remained unchanged and Messrs.
Yu Khe Thai, Yu Khe Siong Hu Khe Jin and Yu Eng Poh (all of the Yu or Young
family) continued to constitute the majority in both boards. All these, as
observed by the Court of Tax Appeals, merely serve to corroborate the fact
that there was a common ownership and interest in the two corporations.
SM is under the management and control of Yutivo by virtue of a
management contract entered into between the two parties. In fact, the
controlling majority of the Board of Directors of Yutivo is also the controlling
majority of the Board of Directors of SM. At the same time the principal
officers of both corporations are identical. In addition both corporations have
a common comptroller in the person of Simeon Sy, who is a brother-in-law of
Yutivo's president, Yu Khe Thai. There is therefore no doubt that by virtue of
such control, the business, f inancial and management policies of both
corporations could be directed towards common ends.
Another aspect relative to Yutivo's control over SM operations relates to its
cash transactions. All cash assets of SM were handled by Yutivo and all cash
transactions of SM were actually maintained thru Yutivo. Any and all receipts
of cash by SM including its branches were transmitted or transferred
immediately and directly to Yutivo in Manila upon receipt thereof. Likewise,
all expenses, purchases or other obligations incurred by SM are referred to
Yutivo which in turn prepares the corresponding disbursement vouchers and
payments in relation thereto, the payment being made out of the cash
deposits of SM with Yutivo, if any, or in ,the absence thereof which occurs
generally, a corresponding charge is made against the account of SM in
Yutivo's books. The payments for and charges against SM are made by
Yutivo as a matter of course and without need of any further request, the
latter would advance all such cash requirements for the benefit of SM. Any
and all payments and cash vouchers are made on Yutivo stationery and
made under authority of Yutivo's corporate officers, without any copy thereof
being furnished to SM. All detailed records such as cash
173
VOL. 1, JANUARY 23, 1961 173
disbursements, such as expenses, purchases, etc. for the account of SM, are
kept by Yutivo and SM merely keeps a summary record thereof on the basis
of information received from Yutivo.
All the above plainly show that cash or funds of SM, including those of its
branches which are directly remitted to Yutivo, are placed in the custody and
control of Yutivo, and subject to withdrawal only by Yutivo. SM's resources
being under Yutivo's control, the former's operations and existence became
dependent upon the latter.
Consideration of various other circumstances, especially when taken
together, indicates that Yutivo treated SM merely as its department or
adjunct. For one thing, the accounting system maintained by Yutivo shows
that it maintained a high degree of control over SM accounts. All transactions
between Yutivo and SM are recorded and effected by mere debit or credit
entries against the reciprocal account maintained in their respective books of
accounts and indicate the dependency of SM as branch upon Yutivo.
Apart from the 'accounting system, other facts corroborate or
independently show that SM is a branch or department of Yutivo. Even the
branches, of SM in Bacolod. Iloilo, Cebu, and Davao treat Yutivo-Manila as
their "Head Office" or "Home Office" as shown" by their letters of remittances
or other correspondences. These correspondences were actually received by
Yutivo and the reference to Yutivo as the head or home office is obvious from
the fact that all cash collections of the SM's branches are remitted directly to
Yutivo. Added to this fact, is that SM may freely use forms or stationery of
Yutivo.
The fact that SM is a mere department or adjunct of Yutivo is made more
patent by the fact that arrastre charges paid for the "operation of receiving,
conveying, and loading or unloading" of imported cars and trucks on piers
and wharves, were charged against SM. Overtime charges for the unloading
of cars and trucks as requested by Yutivo and incurred as part of its
acquisition cost thereof, were likewise charged against and treated as
expenses of 5M. If Yutivo were the importer, these arrastre and
174
overtime charges were Yutivo's expenses in importing goods and not SM's.
But since those charges were made against SM, it plainly appears that Yutivo
had sole authority to allocate its expenses even as against SM in the sense
that the latter is a mere adjunct, branch or department of the former.
Proceeding to another aspect of the relation of the parties, the
management fees due from SM to Yutivo were taken up as expenses of SM
and credited to the account of Yutivo. If it were to be assumed that the two
organizations are separate juridical entities, the corresponding receipts or
receivables should have been treated as income on the part of Yutivo. But
such management fees were recorded as "Reserve for Bonus" and were
therefore a liability reserve and not an income account. This reserve for
bonus were subsequently distributed directly to and credited in favor of the
employees and directors of Yutivo, thereby clearly showing that the
management fees were paid directly to Yutivo officers and employees.
Briefly stated, Yutivo financed principally, if not wholly, the business of SM
and actually extended all the credit to the latter not only in the form of
starting capital but also in the form of credits extended for the cars and
vehicles allegedly sold by Yutivo to SM as well as advances or loans for the
expenses of the latter when the capital had been exhausted. Thus, the
increases in the capital stock were made in advances or "Guarantee"
payments by Yutivo and credited in favor of SM. The funds of SM were all
merged in the cash f und of Yutivo. At all times Yutivo thru officers and
directors common to it and SM, exercised full control over the cash funds,
policies, expenditures and obligations of the latter.
Southern Motors being but a mere instrumentality or adjunct of Yutivo, the
Court of Tax Appeals correctly disregarded the technical defense of separate
corporate entity in order to arrive at the true tax liability of Yutivo.
Petitioner contends that the respondent Collector had lost his right or
authority to issue the disputed assessment by reason of prescription. The
contention, in our opinion, cannot be sustained. It will be noted that the first
assess-
175
VOL. 1, JANUARY 28, 1961 175
ment was made on November 7, 1950 for deficiency sales tax from 1947 to
1949. The corresponding returns filed by petitioner covering the said period
was made at the earliest on October 1, as regards the third quarter of 1947,
so that it cannot be claimed that the assessment was not made within the
five-year period prescribed in section 331 of the Tax Code invoked by
petitioner. The assessment, it is admitted, was withdrawn by the Collector on
November 15, 1952 due to insufficiency of evidence, but the withdrawal was
made subject to the approval of the Secretary of Finance and the Board of
Tax Appeals, pursuant to the provisions of section 9 of Executive Order No.
401-A, series of 1951. The decision of the previous Collector counter-
manding the assessment of November 7, 1950 was forwarded to the Board
of Tax Appeals through the Secretary of Finance but that official, apparently
disagreeing with the decision, sent it back for re-investigation. Consequently,
the assessment of November 7, 1950 cannot be considered to have been
finally withdrawn. That the assessment was subsequently reiterated in the
decision of respondent Collector on December 16, 1954 did not alter the fact
that it was made seasonably. In this connection, it would appear that a
warrant of distraint and levy had been issued on March 28, 1951 in relation
with this case and by virtue thereof the properties of Yutivo were placed
under constructive distraint. Said warrant and constructive distraint have not
been lifted up to the present, which shows that the assessment of November
7, 1950 has always been valid and subsisting.
Anent the deficiency sales tax for 1950, considering that the assessment
thereof was made on December 16, 1954, the same was assessed well
within the prescribed five-year period.
Petitioner argues that the original assessment of November 7, 1950 did
not extend the prescriptive period on assessment. The argument is
untenable, for, as already seen, the assessment was never finally withdrawn,
since it was.not approved by the Secretary of Finance or of the Board of Tax
Appeals. The authority of the Secretary to act upon the assessment cannot
be questioned, for he is expressly granted such authority under section 9 of
Exec-
176
utive Order No. 401-A and under section 79 (c) of the Revised Administrative
Code, he has "direct control, direction and supervision over all bureaus and
offices under his jurisdiction and may, any provision of existing law to the
contrary notwithstanding, repeal or modify the decision of the chief of said
Bureaus or offices when advisable in public interest."
It should here also be stated that the assessment in question was
consistently protested by petitioner, making several requests for
reinvestigation thereof. Under the circumstances, petitioner may be
considered to have waived the defense of prescription.
"Estoppel has been employed to prevent the application of the statute of limitations
against the government in certain instances in which the taxpayer has taken some
affirmative action to prevent the collection of the tax within the statutory period. It
is generally held that a taxpayer is estopped to repudiate waivers of the statute of
limitations upon which the government relied. The cases frequently involve
dissolved corporations. If no waiver has been given, the cases usually show some
conduct directed to a postponement of collection, such, for example, as some
variety of request to apply an over assessment. The taxpayer has 'benefited' and 'is
not in a position to contest' his tax liability. A def inite representation of implied
authority may be involved, and in many cases the taxpayer has received the
'benefit' of being saved from the inconvenience, if not hardship of immediate
collection.
"Conceivably even in these cases a fully informed Commissioner may err to the
sorrow of the revenues, but generally speaking, the cases present a strong
combination of equities against 'the taxpayer, and few will seriously quarrel with
their application of the doctrine of estoppel." (Mertens Law of Federal Income
Taxation, Vol. 10-A, pp. 159-160.)
It is also claimed that section 9 of Executive Order No. 401-A, series of 1951
—requiring the approval of the Secretary of Finance and the Board of Tax
Appeals in cases involving an original assessment of more than P5,000—
refers only to "compromises and refunds of taxes, but not to total withdrawal
of the assessment, The contention is without merit. A careful examination of
the provisions of both sections 8 and 9 of Executive Order No. 401-A, series
of 1961, reveals the procedure prescribed therein is
177
VOL. 1, JANUARY 28, 1961 177
intended as a check or control upon the powers of the Collector of Internal
Revenue in respect to assessment and refunds of taxes. If it be conceded
that a decision of the Collector of Internal Revenue on partial remission of
taxes is subject to review by the Secretary of Finance and the Board of Tax
Appeals, then with more reason should the power of the Collector to
withdraw totally an assessment be subject to such review.
We find merit, however, in petitioner's contention that the Court of Tax
Appeals erred in the imposition of the 50% fraud surcharge. As already
shown in the early part of this decision, no element of fraud is present.
Pursuant to Section 183 of the National Internal Revenue Code the 50%
surcharge should be added to the deficiency sales tax "in case a false or
fraudulent return is willfully made." Although the sales made by SM are in
substance by Yutivo this does not necessarily establish fraud nor the willful
filing of a false or fraudulent return.
The case of Court Holding Co. v. Commissioner of Internal
Revenue (August 9, 1943, 2 T.C. 531, 541-549) is in point, The petitioner
Court Holding Co. was a corporation consisting of only two stockholders, to
wit: Minnie Miller and her husband Louis Miller. The only assets of this
husband and wife corporation consisted of an apartment building which had
been acquired for a very low price at a judicial sale. Louis Miller, the
husband, who directed the company's business, verbally agreed to sell this
property to Abe C. Fine and Margaret Fine, husband and wife, for the sum of
$54,000.00, payable in various installments. He received $1,000.00 as down
payment. The sale of this property for the price mentioned would have
netted the corporation a handsome profit on which a large corporate income
tax would have to be paid. On the afternoon of February 23, 1940, when the
Millers and the Fines got together for the execution of the document of sale,
the Millers announced that their attorney had called their attention to the
large corporate tax which would have to be paid if the sale was made by the
corporation itself. So instead of proceeding with the sale as planned, the
Millers
178
approved a resolution to declare a dividend to themselves "payable in the
assets of the corporation, in complete liquidation and surrender of all the
outstanding corporate stock." The building, which as above stated was the
only property of the corporation, was then transferred to Mr. and Mrs. Miller
who in turn sold it to Mr. and Mrs. Fine for exactly the same price and under
the same terms as had been previously agreed upon between the
corporation and the Fines.
The return filed by the Court Holding Co. with the respondent
Commissioner of Internal Revenue reported no taxable gain as having been
received from the sale of its assets. The Millers, of course, reported a long
term capital gain on the exchange of their corporate stock with the corporate
property. The Commissioner of Internal Revenue contended that the
liquidating dividend to stockholders had no purpose other than that of tax
avoidance and that, therefore, the sale by the Millers to the Fines of the
corporation's property was in substance a sale by the corporation itself, for
which the corporation is subject to the taxable profit thereon. In requiring the
corporation to pay the taxable profit on account of the sale, the
Commissioner of Internal Revenue, imposed a surcharge of 25% for
delinquency, plus an additional surcharge as fraud penalties.
The U. S. Court of Tax Appeals held that the sale by the Millers was for no
other purpose than to avoid the tax and was, in substance, a sale by the
Court Holding Co., and that, therefore, the said corporation should be liable
for the assessed taxable profit thereon. The Court of Tax Appeals also
sustained the Commissioner of Internal Revenue on the delinquency penalty
of 25%. However, the Court of Tax Appeals disapproved the fraud penalties.
holding that an attempt to avoid a tax does not necessarily establish fraud;
that it is a settled principle that a taxpayer may diminish his tax liability by
means which the law permits; that if the petitioner,the Court Holding Co.,
was of the opinion that the method by which it attempted to effect the sale
in question was legally sufficient to avoid the imposition of a tax upon it, its
adoption of that method is not subject to censure; and that in taking a
position with respect to a question of law, the substance of which
179
VOL. 1, JANUARY 28, 1961 179
was disclosed by the statement indorsed on its return, it may not be said
that that position was taken fraudulently. We quote in full the pertinent
portion of the decision of the Court of Tax Appeals:
"x x x The respondent's answer alleges that the petitioner's failure to report as
income the taxable profit on the real estate sale was fraudulent and with intent to
evade the tax. The petitioner filed a reply denying fraud and averring that the loss
reported on its return was correct to the best of its knowledge and belief. We think
the respondent has not sustained the burden of proving a fraudulent intent. We
have concluded that the sale of the petitioner's property was in substance a sale by
the petitioner, and that the liquidating dividend to stockholders had no purpose
other than that of tax avoidance. But the attempt to avoid tax does not necessarily
establish f raud. It is a settled principle that a taxpayer may diminish his liability by
any means which the law permits. United States v. Isham, 17 Wall. 496; Gregory v.
Helvering, supra; Chrisholm v. Commissioner, 79 Fed. (2d) 14. If the petitioner here
was of the opinion that the method by which it attempted to effect the sale in
question was legally sufficient to avoid the imposition of tax upon it, its adoption of
that method is not subject to censure. Petitioner took a position with respect to a
question of law, the substance of which was disclosed by the statement endorsed
on its return. We can not say, under the record before us, that that position was
taken fraudulently. The determination of the fraud penalties is reversed."
When GM was the importer and Yutivo, the wholesaler, of the cars and
trucks, the sales tax was paid only once and on the original sales by the
former and neither the latter nor SM paid taxes on their subsequent sales.
Yutivo might have, therefore, honestly believed that the payment by it, as
importer, of the sales tax was enough as in the case of GM. Consequently, in
filing its return on the basis of its sales to SM and not on those by the latter
to the public, it cannot be said that Yutivo deliberately made a false return
for the purpose of defrauding the government of its revenues which will
justify the imposition of the surcharge penalty.
We likewise find meritorious the contention that the Tax Court erred in
computing the alleged deficiency sales tax on the selling price of SM without
previously deducting therefrom the sales tax due thereon. The sales tax pro-
180
visions (secs. 184-186, Tax Code) impose a tax on original sales measured
by "gross selling price" or "gross value in money". These terms, as
interpreted by the respondent Collector, do not include the amount of the
sales tax, if invoiced separately. Thus, General Circular No. 431 of the
Bureau of Internal Revenue dated July 29, 1939, which implements sections
184-186 of the Tax Code provides:
"x x x 'Gross selling price' or gross value in money' of the articles sold, bartered,
exchanged, transferred as the term is used in the aforecited sections (sections 184,
185 and 186) of the National Internal Revenue Code, is the total amount of money
or its equivalent which the purchaser pays to the vendor to receive or get the
goods. However, if a manufacturer, producer, or importer, in fixing the gross selling
price of an article sold by him has included an amount intended to cover the sales
tax in the gross selling price of the articles, the sales tax shall be based on the gross
selling price less the amount intended to cover the tax, if the same is billed to the
purchaser as a separate item.
General Circular No. 440 of the same Bureau reads:
"Amount intended to cover the tax must be billed as a separate item so as not to
pay a tax on the tax.—On sales made after the third quarter of 1939, the amount
intended to cover the sales tax must be billed to the purchaser as separate items in
the invoices in order that the reduction thereof from the gross selling price may be
allowed in the computation of the merchants' percentage tax on the sales. Unless
billed to the purchaser as a separate item in the invoice, the amounts intended to
cover the sales tax shall be considered as part of the gross selling price of the
articles sold, and deductions thereof will not be allowed." (Cited in Dalupan, Nat. Int.
Rev. Code, Annotated, Vol. II, pp. 52-53.)
Yutivo compHed with the above circulars' on its sales to SM, and as
separately billed, the sales taxes did not form part of the "gross selling price"
as the measure of the tax. Since Yutivo had previously billed the sales tax
separately in its sales invokes to SM, General Circulars Nos. 431 and 440
should be deemed to have been complied with. Respondent Collector's
method of computation, as opined by Judge Nable in the decision complained
of—
"x x x is unfair, because x x x (it is) practically imposing a tax on a tax already paid.
Besides, the adoption of the pro-
181
VOL. 1, JANUARY 28, 1961 181
cedure would in certain cases elevate the bracket under which the tax is based. The
late payment is already penalized, thru the imposition of surcharges, by adopting
the theory of the Collector, we will be creating an additional penalty not
contemplated by law."
If the taxes based on the sales of SM are computed in accordance with Gen.
Circulars Nos. 431 and 440, the total deficiency sales taxes, exclusive of the
25% and 50 % surcharges for late payment and for fraud, would amount only
to P820,549.91 as shown in the following computation:
Rate Gross Sales Sales Taxes Total Gross
of sales of Vehicles Due Selling Price
Tax Exclusives of and Computed Charged to
Sales Tax under Gen. the Public
Cir.
Nos. 431 &
400
5% P11,912,219.57 P 595,610.98 P12,507,830.G5
1% 909,559.50 63,669.16 973,228.66
10% 2,618,695.28 261,869.53 2,880,564.81
15% 3,602,397.65 540,359.65 4,142,757.30
20% 267,150.50 53,430.10 320,580.60
30% 837,146.97 251,114.09 1,088,291.06
50% 74,244.30 37,122.16 111,366.46
75% 8,000.00 6,000.00 14,000.00
TOTAL P20,220,413.77 P1,809,205.67 P22,038,619.44
Less Taxes
Paid
by 988,655.76
Yutivo
Deficiency
tax
still due P 820,549.91
This is the exact amount which, according to Presiding Judge Nable of the
Court of Tax Appeals, Yutivo would pay, exclusive of the surcharges.
Petitioner f inally contends that the Court of Tax Appeals erred or acted in
excess of its jurisdiction in promulgating judgment for the affirmance of the
decision of respondent Collector by less than the statutory requirement of at
least two votes of its judges. Anent this contention, section 2 of Republic Act
No. 1125, creating the Court of Tax Appeals, provides that "Any two judges
of the Court of Tax Appeals shall constitute a quorum, and the concurrence
of two judges shall be necessary to promulgate any decision thereof. x x x."
It is on record that the
182
Phil. Manufacturing Co. vs. Collector of Internal Revenue
present case was heard by two judges of the lower court. And while Judge
Nable expressed his opinion on the issue of whether or not the amount of the
sales tax should be excluded from the gross selling price in computing the
deficiency sales tax due from the petitioner, the opinion, apparently, is
merely an expression of his general or "private sentiment" on the particular
issue, for he concurred in the dispositive part of the decision. At any rate,
assuming that there is no valid decision for lack of concurrence of two
judges, the case was submitted for decision to the court below on March 28,
1957 and under section 13 of Republic Act 1125, cases brought before said
court shall be decided within 30 days after submission thereof. "If no
decision is rendered by the Court within thirty days from the date a case is
submitted for decision, the party adversely affected by said ruling, order or
decision may file with said Court a notice of his intention to appeal to the
Supreme Court, and if no- decision has as yet been rendered by the Court,
the aggrieved party may file directly with the Supreme Court an appeal from
said ruling, order or decision, notwithstanding the foregoing provisions of this
section." The case having been brought before us on appeal, the question
raised by petitioner has become purely academic.
IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals
under review is hereby modified in that petitioner shall be ordered to pay to
respondent the sum of P820, 549.91, plus 25% surcharge thereon for late
payment. So ordered without costs.
No. L-9687. June 30, 1961.
LIDDELL & Co., INC., petitioner-appellant, vs. THE COLLECTOR OF
INTERNAL REVENUE, respondent-appellee.
Judges; Disqualification; Participation in prior proceedings as administrative
official.—The mere participation of a judge in prior proceeding relating to the
subject in the capacity of an administrative official does not disqualify him from
acting as judge.
Court of Tax Appeals; Decision signed after 30 days from submission of case,
valid.—The requirement that cases brought before the Tax Court shall be decided
within 30 days after the submission thereof for decision is merely directory. Hence,
decisions signed after the lapse of said period are valid.
Corporation Law; When corporate form may be ignored.—Where a corporation
is a dummy and serves no business purpose and is intended only as a blind, the
corporate form may be ignored.
Taxation; Sales Tax; When taxpayer may not deny tax liability.—A taxpayer
may not deny tax liability on the ground that the sales were made through another
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 corporation.
Same; Surcharge when not imposable.—Where, as in the case at bar, the sales
made by the taxpayer to the corporation had been embodied in proper documents
subject to inspection by the tax authorities, the return filed on the basis of such
sales and not on those to the public, cannot be said a false return and subject the
taxpayer to a surcharge. But penalty for late payment should be imposed.
Same; Deficiency sales tax, how computed.—Deficiency sales tax should be
based on the selling price to the public after deducting the tax paid on the original
sales.
APPEAL from a decision of the Court of Tax Appeals.

Ozaeta, Lichauco & Picazo for petitioner-appellant.
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:
633
VOL. 2, JUNE 30, 1961 633
Liddell & Co., Inc. vs. Collector of Internal Revenue
1. (a)Whether or not Judge Umali of the Tax Court below could validly
participate in the making of the decision;
2. (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;
3. (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 established in the Philippines on February 1, 1946, with an authorized
capital of P100,000 divided into 1000 shares at P100 each. Of this authorized
capital, 196 shares valued at P19,600 were subscribed and paid by Frank Liddel
while the other four shares were in the name of Charles Kurz, E.J. Darras, Angel
Manzano and Julian Serrano at one share 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, Frank Liddell’s
holding in the company increased to 1,960 shares and the employees, Charles Kurz,
E.J. Darras, Angel Manzano and Julian Serrano at 10 shares 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
said corporation from P1,000,000 to P3,000,000 which increase was duly approved
by
634
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 31, 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 No. of Shares Amount Per Cent

Frank Liddell 13,688 P1,368,800 72.00%
Irene Lidell 1 100 .01%
Mercedes Vecin 1 100 .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 No. of Shares Amount Per Cent

Frank Liddell 19,738 P1,973,800 65.791%
Irene Liddell 1 100 .003%
Mercedes Vecin 1 100 .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 1,700 170,000 5.670%
E. Hasim 830 83,000 2.770%
G. W. Kernot 1,490 149,000 4.970%
30,000 P3,000,000 100,000%
On the basis of the agreement Exhibit A, (May, 1947) 55% of the earnings
available for dividends accrued to Frank Liddell although at the time of the
execution of said 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 agree-
635
VOL. 2, JUNE 30, 1961 635
ment 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—12%; 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 of 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
636
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 Pl,317,-029.61. In the computation,
the gross selling price of Liddell Motors, Inc. to the general public from
Januray 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 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. In refusing to disqualify himself despite admission that
1
he 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
_______________
Section 5, Rep. Act No. 1125: “Judges of the said Court shall be disqualified from sitting in
1
any case on the same grounds provided under Rule One Hundred Twenty-six of the Rules of
Court for the disqualification of judicial offices.”
637
VOL. 2, JUNE 30, 1961 637
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 a 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; that whereas the case
3
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) confirms this view; because in
5
providing for two

_______________
2
Gov’t. of the Phil. v. Heirs of Abella, 49 Phil. 374.
3
Sec. 13, Republic Act No. 1125. Decision. Cases brought before the Court shall be decided
within thirty days after the submission thereof for decision.
4
See case of Permanent Concrete Products, Inc., and Santiago v. Juan Frivalden, L-14179,
September 10, 1960.
5
“If no decision is rendered by the Court within thirty days from the date a case is submitted
for decision, the party adversely affected by said ruling, order or decision, may file
638
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%
paid-up subscription with which the company began its business was paid by
him. The subsequent subscriptions to the capital stock were made by him
and paid with his own money.
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 stockholders 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. It is not proven that his wife
6
Irene, ostensibly the sole incorporator of Liddell Motors, Inc.

_______________
with said Court a notice of intention to appeal, and if, within thirty days from the filing of said
notice, no decision has as yet been rendered by the Court, the aggrieved party may file directly
with the Supreme Court an appeal from said decision, ruling or order, notwithstanding the
foregoing provisions of this section.” (Italics ours).
6
In fact it was paid by her husband’s personal check.
639
VOL. 2, JUNE 30, 1961 639
had money of her own to pay for her P20,000 initial subscription. Her income 7
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 Liddel. 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. We notice that the bulk of the business of Liddell & Co. was
8
channelled 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
_______________
The other four owned only one share each.

7
Appellee’s brief describes several. We mention only a few.

8
640
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
Liddell and for the same amounts.
9
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. Authorities support the
10
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,
_______________
See Exhibits 2 to 17.

9
Burnet, Commissioner v. Clarke, 287 U.S. 410, 53 S. Ct. 207, 77 L. Ed. 397; Burnet,

10
Commissioner v. Commonwealth Improvement Co., 287 U.S. 415, 53 S Ct. 198, 77 L. ed.
641
VOL. 2, JUNE 30, 1961 641
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. In this 11
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, “the legal right of a
12
taxpayer to decrease the amount of what otherwise would be his taxes, or

altogether avoid them, by means which the law permits, cannot be
doubted.” But, as held in another case, “where a corporation is a dummy, is
13
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 Court held that “a
14
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 another and distinct corporation when it is
proved that the
_______________
11
At this price sales tax of 15% would have represented P825.00.
12
293 U.S. 465, 7 L. ed. 596, 599, 55 S. Ct.
13
Higgins v. Smith, 1940, 308 U.S. 406, 84 L. ed.
14
Higgins v. Smith (supra).
642
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 case, the same question 16
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.
_______________
15
Cf. Koppel v. Yatco, 77 Phil. 496.
16
Yutivo Sons Hardware Co. v. The Collector of Internal Revenue, L-13203, January 28, 1961.
643
VOL. 2, JUNE 30, 1961 643
National Rice & Corn Corporation vs. Antonio
Padilla, Labrador, Concepcion, Reyes,
J.B.L., Barrera, Paredes, Dizon, De Leon and Natividad, JJ., concur.
Decision modified.
Notes.—To the same effect is Yutivo & Sons Hardware Co. v. Court of Tax
Appeals, L-13203, Jan. 28, 1961, where it was held that Southern Motors
being but a mere instrumentality or adjunct of Yutivo, the Court of Tax
Appeals correctly disregarded the technical defense of separate corporate
entity in order to arrive at the true tax liability of Yutivo.
The veil of corporate fiction may also be pierced where the corporation is
used: (a) to commit a fraud or wrong (McConnel, et al. v. Court of Tax
Appeals, et al., L-10519, Mar. 17, 1961; Koppel [Phil.], Inc. v. Yatco, 77 Phil.
496; Arnold v. Willits, etc., 44 Phil. 364); (b) to fraudulently circumvent the
law requiring compulsory coverage under the Social Security System (San
Teodoro Dev. Enterprises, Inc. v. Social Security System, L-17662, May 30,
1963); and (c) to defeat the administration or ends of justice (Albert v.
University Publishing Co., Inc., L-19118, Jan. 30, 1965).
Ramirez Telephone Corp. vs. Bank of America
No. L-22614. August 29, 1969.
RAMIREZ TELEPHONE CORPORATION, petitioner, vs. BANK OF AMERICA, E. F.
HERBOSA, THE SHERIFF OF MANILA and THE COURT OF APPEALS,
respondents.
Corporation law; Corporate personality; When corporate personality may be
disregarded; Where defendant stockholder holds 75% of the stock of the
corporation together with his wife. While respect for the corporate personality as
such is the general rule, the veil of corporate fiction may be pierced and the funds
of the corporation may be garnished to satisfy the debts of a principal stockholder,
to administer the ends of justice.
Remedial law; Appeal from Court of Appeals to Supreme Court; Findings of fact
of Court of Appeals.—Factual findings of the Court of Appeals are not subject to
review in appealed cases to ,the Supreme Court.
PETITION for review on certiorari of a decision of the Court of Appeals.

Quijano & Arroyo, for petitioner.
Lichauco, Picazo & Agcaoili for respondent Bank of America.
Vicente M. Magpoc for respondent E. F. Herbosa.
Fiscal Eulogio S. Serrano for respondent Sheriff of Manila.
CAPISTRANO, J.:
This is a petition for review on certiorari of a decision of the Court of Appeals

of February 27, 1964, wherein the judgment of the lower court was reversed
and another entered dismissing the complaint of plaintiff, now petitioner,
Ramirez Telephone Corporation, and ordering it to pay to defendant, now
respondent, Bank of America, the sum of P500.00 and to the third-party
defendant E. F. Herbosa, now likewise respondent, the same amount, both in
the concept of attorney's fees, the costs being adjudged likewise against
petitioner. The judgment of the Court of First Instance which was reversed by
the Court of Appeals reads as follows: 1
________________
Statement of the Case, Brief for the Petitioner, p. 2.

1
192
"In view of the foregoing considerations, judgment is hereby rendered in favor of
the plaintiff and against the defendant Bank of America ordering the latter to pay
the former the sum of P3,000.00 in the form of actual damages, and to pay the
costs of these proceedings.
"Likewise, judgment is hereby rendered sentencing the third-party defendant, E.
F. Herbosa, to indemnify ,or reimburse the third-party plaintiff, Bank of America, any
sum or sums which the latter may pay the plaintiff by virtue of this
"The third-party complaint against the Sheriff of Manila as well as the
counterclaim of defendant Bank of America and third-party defendant E. F. Herbosa
are hereby ordered dismissed."
The facts as found by the Court of Appeals, which we cannot review are set
forth in its decision, thus: 2
"Resultando: Que los hechos al parecer, no son muy em brollados; el demandado,

Herbosa era y es dueño del edificio No. 612, Int. 3 Sta. Mesa; se lo había dado en
arrendamiento a Ruben R. Ramirez, y como este era el presidente de la Ramirez
Telephone Corporation, el taller de la corporación aunque su oficina central estaba
en la Escolta, Natividad Building, Exh. D. fué trasladado al local: pero habiéndose
amontonado los alquilares sin pagar, Herbosa presentó demanda de desahucio
contra Ramirez en el Juzgado Municipal de Manila. el 10 de Noviembre, 1949, y
elevada la causa al Juzgado del 1.a Instancia, Herbosa pudo conseguir decisión
favorable alli el 14 de Octubre, 1950, pero en Ia vispera de la promulgación de la
sentencia a su favor había ya conseguido mandamiento de embargo preventivo
contra Ramirez, Exh. A, y el mismo, servido al Bank of America el 13 de Octubre,
1950, Exh. 2, lease como sigue:
Civil Case No. 10620
E. F. Herbosa, Plaintiff
—versus— GARNISHMENT
Ruben R. Ramirez, Defendant
To: Bank of America
Manila
'Greetings:
You and each of you are hereby notified that, by virtue of an order of attachment issued by
the Court of
________________
Ibid., pp. 25-31.
2
193
VOL. 29, AUGUST 29, 1989 193
First Instance of Manila, copy of which ' is hereto attached, levy is hereby made (or
attachment is-- hereby levied) upon all ,the goods, effects, interests, credits, money, stocks,
shares, any interests in stocks and shares' and all debts owing by you to the defendant,
Ruben R. Ramirez , in the above entitled case, and any other personal property' in your
possession or under your control, belonging' to the said defendant—on this date, to cover
the amount of P2,400.00 and specially the x x x
x x x x x x x x x
'Manila, Philippines, October 18, 1950.
'MACARIO M., OFILADA
Sheriff of Manila'
(Exh. 2);
y fué contestado por el banco el mismo dia de la siguiente manera:
'Dear Sir:
In reply to your Garnishment of October 13, 1950, issued under the above-subject case we
wish to inform you that we do not hold any fund in the name of the defendant, Ruben R.
Ramirez,
Yours very truly,' (Exh. 3) ;
pero el Sheriff reiteró el embargo el 17 de Octubre, 1950, Exh. B. notificando al
Bank of America de que quedaba embargado,
'x x x the interest or participation which the defendant Ruben R. Ramirez may or might have
in the deposit of the Ramirez Telephone, Inc., with that Bank sufficient to cover the said
amount of P2,400.00' ; Exh, B; y
la institución bancaria en contetación al Sheriff, de fecha 17 de Octubre, 1950 6
sea el mismo dia, hizo constar que:
'x x x we are holding the amount of P2,400.00 in the name of the Ramirez Telephone, Inc.
subject to your further orders,' Exh. G;
es decir acató la notificación del embargo de los fondos de la Ramirez Telephone;
ahora bien, recuerdase de que en aquella fecha, 17 de Octubre, 1950, es Ramirez
Telephone tenia en deposito con el Bank of America, la suma de P4,789.53, Exh. 9;
de manera que con el embargo, se redujo los fondos libres a la cantidad de
P2,389.53; pero el dia siguiente, el Ramirez Tele
194
Ramirez Telephone Corp. vs, Bank of America
phone retiró la suma de P1,500.00, quedándo por tanto como ultimo balance, nada
más que unos P889.00; de esto surgio la presente contienda, pués, el 19 de
Octubre, 1950, !a Ramirez Telephone por medio de su presidente, el mismo
demandado, Ruben Ramirez, ya mencionado, habiendo expedido el 19 de Octubre,
1950, otro cheque en la suma de P2,320.00 a favor de la Ray Electronics, en pago
de ciertos equipos vendidos por este ultimo, Exhs. 15, 17, L, el cheque Exh. N, este
cheque al ser presentado a la Bank of America, fue rechazado por lo que el abogado
de la Ramirez Telephone el 23 de Octubre, 1950, envio carta de requerimiento a!
Bank of America, Exh. 14, manifestando que su cliente había sufrido 'considerable
damage and embarrassment,' y advirtiendole que si no se le diera completa
satisfacción el dia siguiente, el presentaria !a demanda correspondiente, 'without
further notice," Exh. 14; esta carta la contestó la institución bancaria el 24 de
Octubre, 1950, alegando que,
'With reference to your letter dated October 23, 1950, in which you are writing in behalf of
the Ramirez Telephone Corporation, it is suggested that you obtain a release from the Court
on Civil Case No. 10620, Ruben E. Ramirez, defendant.
'This Bank is acting only in accordance with the garnishment and has no interest
whatsoever in the funds held,' Exh. 15;
pero conforme con su advertencia, el abogado de la Ramirez Telephone, Inc.,
incoo esta acción el 28 de Octubre, cuatro dias despues; y el motivo de acción se
hace consistir en que el banco,
'x x x knows or should have known that Ruben N. Ramirez the defendant in said Civil Case
and whose property or fund was ordered attached has no personal deposit in that bank and
that the Ramirez Telephone Corporation is entirely a distinct and separate entity regardless
of the fact that Ruben R. Ramirez happens to be its President and General Manager.' par. 4,
demanda;
y alegando que con motivo de ello y la siguiente devolución de su cheque a favor
de la Ray Electronics sin pagar, esta había cancelado su pedido para los equipos
necesarios en la construcción de sus lineas telefonicas en la region bicolana, asi que
todas sus operaciones se habían quedado paralizadas, par. 5, id.; la demandada
Bank of America, emplazada de la demandada, presento moción de sobresimiento,
que denegada, el 4 de Deciembre, 1950, el banco sometio su contestación el 28 de
Di
195
VOL. 29, AUGUST 29, 1969 195
Ramirez Telephone Corp. vs. Bank of America,
iembre, 1950 con reconvención para despues presentar denanda contra el Sheriff,
el 25 de Agosto, 1953, y contra Herbosa, el 16 de Agosto, 1955; y este ultimo a su
vez en contestación, presento contra reclamación o mejor
dicho, reconvención contra la misma demandante, Ramirez Telephone, y tambien
contra el Bank of America, el 10 de Septiembre, 1955, y el Juzgado Inferior, despues
de la vista, como ya se ha dicho, dictamino en favor de la demandante contra el
Bank of America en. In contra-demanda de este contra aquel; x x x."
It was further found by the Court of Appeals: 3
"Considerando: Que el testimonio de Estanislao Herbosa al efecto de que; si bien

Ruben R, Ramirez era su inquilino al principio, pero es que mas tarde, este lo había
manifestado que 'the shop of company was established downstairs,' es decir que la
Ramirez Telephone Corporation a la verdad ocupaba el local alquilado, tanto que
Ruben R. Ramirez solia pagar el alquilar en cheques de la Ramirez Telephone
Corporation, y esta declaración, t.n. 10 y 11, 26 June 1956, estando Corroborada no
solamente por el Exh, 12, en donde Ruben R. Ramirez, en papel con el embrete de
la Ramirez Telephone, habia enviado el abogado de Herbosa, el cheque No. C-
78900, manifestando en !a carta de que:
'In accordance with your agreement yesterday with my attorney, Mr. Jose L. de Leon, I am
sending you herewith check No. C-78900 for the amount of P812.60, rentals for the premises
I am occupying at the rate of P161.00 a month for the period from February 1, 1949 to June
30. 1949, both dates, inclusive, plus P7.00 for the court costs.' Exh. 12;
y esta carta, leida en relación con el Exh. 3, en donde se ve que Ruben R.
Ramirez y tenía fondos depositados en el banco mencionado, Bank of America, asi
que resulta evidente que los fondos de la Ramirez Telephone los eran a la verdad,
fondos de que buenasanta podia disponer su Presidente, Ruben R. Ramirez, para el
pago de los alquilares por el debidos a Herbosa, y luego, tambien resulta evidente
de que la casa por el alquilada Ramirez Telephone, y estos hechos agregados el
otro hecho tambien probado, de que el 75% de las acciones de la compañia per
tenecia a Ruben Ramirez y su esposa, Rizalina P. de Ramirez, Exh, E, todos estos no
pueden menos de justificar la conclusion de que el embargo de los fondos de !a
Ramirez Telephone por
________________
Ibid., pp. 36-37.

3
196
Ramirez Telephone Corp, vs, Bank of America
y en virtud de un mandamiento judicial de embargo contra Ruben R. Ramirez,
especialmente teniendo en cuenta que el em bargo solo abarcaba,
The interest or participation which. the defendant Ruben R. Ramirez may or might have in
the deposit of the Ramirez Telephone, Inc., in the amount of P2,400.00' Exh. B; cuando
entonces estaba depositada la cantidad de P4,857.28.
Exh. 9, era un acto de justicia a favor del acreedor Herbosa y a la verdad, de no
haberse permitido el mencionado embargo, este se hubiera visto en igual situación
que aquel pobre agraviado que como se dice vulgarmente, tras de cornudo, fue
apaleado; x x x,"
The aforestated facts notwithstanding, which must be considered conclusive
and binding on us, plaintiff in the lower court, now petitioner, Ramirez
Telephone Corporation, as noted, appealed, assigning' the following alleged
errors: 4
"I
"The Court of Appeals erred in not applying the settled legal principle that a
corporation has a personality separate and distinct from that of its stockholders
and, therefore, the funds of a corporation cannot be reached to satisfy the debt of
its stockholders.
"II
"The Court of Appeals erred in not taking into account the significant fact that
when the events that gave rise to this case took place, the lawyer of both
respondents, i.e., the Bank of America and E. F. Herbosa, was one and the same.
"III
"The Court of Appeals erred in not granting petitioner damages as awarded by

the lower court; likewise, the Court of Appeals erred in declaring instead that it is
petitioner that should pay respondents attorneys' fees."
Petitioner's main grievance in the first assigned error is that the Court of
Appeals disregarded its corporate personality; it relies on the general
principle "that the cor-
________________
Assignment of Errors, Brief for the Petitioner.

4
197
VOL. 29, AUGUST 29, 1969 197
Ramirez Telephone Corp. vs, Bank of America
porate entity will not be disregarded no matter how large the holding a
particular stockholder may have in the corporation." Petitioner would thus
5
maintain that the personality as an entity separate and. distinct from its
major stockholders, Ruben R. Ramirez and his wife, was not to be
disregarded even if they did own 75% of the stock of the corporation. The 6
conclusion that would thus emerge, in petitioner's opinion, is that its funds as
a corporation cannot be garnished to satisfy the debts of a principal
stockholder.
While respect for the corporate personality as such is the general rule,
there are exceptions. In appropriate cases, the veil of corporate fiction may
be pierced. From the "facts as found which must remain undisturbed, this is
such a case. This assignment of error has no merit, in view of a number of
cases decided by this Court, the latest of which is Albert v. Court of First
Instance reaffirming a 1965 resolution in Albert v, University Publishing Co.,
7
Inc. In that resolution, the principle is restated thus: "Even with regard to
8
corporations duly organized and existing under the law, we have in many a

case pierced the veil of corporate fiction to administer the ends of justice." In
support of the above principle, the following cases were cited: Arnold vs.
Willits & Patterson, Ltd., 44 Phil. 634; Koppel (Phil.), Inc. vs. Yatco, 77 Phil.
496; La Campana Coffee Factory, Inc. vs. Kaisahan ng mga Manggagawa sa
La Campana, 93 Phil, 160; Marvel Building Corporation vs. David, 94 Phil.
376; Madrigal Shipping Co., Inc. vs. Ogilvie, L-8431, Oct. 30, 1958; Laguna
Transportation Co., Inc. vs. S.S.S., L-14606, April 28, 1960; McConnel vs.
C.A., L-10510, March 17, 1961; Liddel & Co., Inc. vs. Collector of Internal
Revenue, L9687, June 80, 1961; Palacio vs. Fely Transportation Co.,
________________
Statement of Facts, Brief for the Petitioner, p. 10.

5
Ibid., p, 12.
6
23 SCRA 948 (1968).

7
L-19118, January 30, 1965.

8
198
Anduiza vs. Dy-Kia
L-15121, August 31, 1962. Hence, to repeat, the first assigned error cannot
be sustained.
The next two errors assigned likewise fail to call for a reversal of the
judgment now on appeal. The second alleged error would find fault with the
decision because the Court of Appeals allegedly did not take into account a
significant fact, namely, that only one lawyer represented both' the
respondent Bank of America and respondent E. F. Herbosa, We are not called
upon to consider this particular assignment of error as it is essentially
factual, which is a matter for the Court of Appeals, not for us, to determine.
The last assigned error would in effect seek a restatement of the damages
awarded petitioner on the theory that the Court of Appeals decided the
matter erroneously. Since, as we made clear in ' the foregoing, the decision
of the Court of Appeals is in accordance with law 011 the facts as found, this
alleged error likewise is not meritorious.
PREMISES CONSIDERED, the judgment of the Court of Appeals of February
27, 1964 is affirmed, with costs against petitioner Ramirez Telephone
Corporation.
Concepcion,
C.J., Dizon, Makalintal, Sanchez, Castro, Fernando, Teehankee and Barredo,
JJ., concur,
Reyes, J.B.L., and Zaldivar, JJ., are on leave.
Judgment affirmed.
Note.—See the annotation on "Piercing the Veil of Corporate Fiction," 22
SCRA 1159-1163.
G.R. No. 100322. March 9, 1994. *
GUATSON INTERNATIONAL TRAVEL AND TOURS, INC., PHILIPPINE

INTEGRATED LABOR ASSISTANCE CORPORATION, MERCURY EXPRESS
INTERNATIONAL COURIER SERVICES, INC., petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION AND JOLLY ALMORADIE, respondents.
Labor Law; Illegal Dismissal; An employee who is forced to resign is considered
to have been illegally dismissed.—The issue therefore, boils down to the question of
whether Jolly Almoradie was indeed illegally dismissed by being forced to resign in
the manner narrated by him. From a synthesis of the evidence on record, we fully
agree with the finding of the NLRC that Jolly Almoradie’s resignation was NOT
voluntary. The NLRC did not err in disregarding the conclusions reached by the
Labor Arbiter because the latter’s findings are not supported by substantial
evidence.
Same; Same; An employer’s threat that he will file charges against an
employee and that he has a very good lawyer could constitute force or coercion
that vitiates the free will of said employee in writing his resignation letter.—We do
not agree with petitioners’ proposition that Mr. Ocier’s mere utterances of the words
“I will file charges against you,” and “I have a very good lawyer,” do not constitute
force or coercion as to vitiate the free will of Almoradie in writing his resignation
letter. Intimidation may vitiate consent when the following requisites are present: 1)
that the intimidation caused the consent to be given; 2) that the threatened act be
unjust or unlawful; 3) that the threat be real or serious, there being evident
disproportion between the evil and the resistance which all man can offer, leading
to the choice of doing that act which is forced on the person to do as the lesser evil;
and 4) that it produces a well-grounded fear from the fact that the person from
whom it comes has the necessary means or ability to inflict the threatened injury to
his person or property.
Same; Same; Corporations; Piercing the Veil of Corporate Fiction; When valid
ground exists, the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or stockholders may be
disregarded.—Anent NLRC’s grant of separation pay and backwages to private
respondent Jolly M. Almoradie, petition-
_________________
SECOND DIVISION.
*
816
Guatson International Travel and Tours, Inc. vs. NLRC
ers argue that the companies, Guatson Travel Company, Philac and Merex have
separate and distinct legal personalities such that the two latter companies should
not be held liable, assuming, for the sake of argument that private respondent was
illegally dismissed. We uphold the NLRC. The three companies are owned by one
family, such that majority of the officers of these companies are the same. The
companies are located in one building and use the same messengerial service.
Moreover, there was no showing that private respondent was paid separation pay
when he was absorbed by Philac upon closure of Merex; nor was there evidence
that he resigned from Philac when he transferred to Guatson Travel. Under the
doctrine of piercing the veil of corporate fiction, when valid ground exists, the legal
fiction that a corporation is an entity with a juridical personality separate and
distinct from its members or stockholders may be disregarded. We have applied this
doctrine in the case of “Philippine Scout Veterans Security and Investigation Agency
(PSVSIA), et al. v. The Hon. Secretary of Labor,” G.R. No. 92357, July 21, 1993.
Same; Same; Reinstatement; Separation pay awarded in lieu of reinstatement
since employee did not pray for the latter relief, and also because the relationship
between the parties had become strained as to preclude a harmonious working
relationship.—Where there is a finding of illegal dismissal, the employee is entitled
to both reinstatement and award of backwages from the time the compensation
was withheld, in this case in 1988, up to a maximum of three years, applying the
Mercury Drug Rule. Reinstatement, however, will not be required not only for the
reason that it was not prayed for by the respondent, but also because the
relationship between Almoradie and Ocier had become strained as to preclude a
harmonious working relationship. In lieu of reinstatement, separation pay is
awarded. As the term suggests, separation pay is the amount that an employee
receives at the time of his severance from the service and is designed to provide
the employee with the wherewithal during the period that he is looking for another
employment.
Same; Same; Same; Separation pay computed at the rate of one month’s pay
for every year of service, to include the three-year period wherein backwages are
awarded.—However the award of separation pay should be, as we have consistently
ruled, equivalent to one (1) month for every year of service, instead of one-half
(1/2) month as awarded by the NLRC. In the computation of separation pay, the
three (3) year period wherein backwages are awarded, must be included.
817
VOL. 230, MARCH 9, 1994 817
PETITION for certiorari to set aside a decision of the National Labor Relations
Commission.

Generoso R. Jacinto for petitioners.
Donato H. De Castro and Rolando P. Rotairo for private respondent.
NOCON, J.:
Petitioners Guatson Travel and Tours, Inc. (herein after referred to as

Guatson Travel), Philippine Integrated Labor Assistance Corp. (Philac) and
Mercury Express International Courier Services, Inc. (MEREX) assail the
Decision, rendered by the National Labor Relations Commission in Case No.
NLRC-NCR-00-11-0451-88 entitled “Jolly M. Almoradie v. Guatson’s Travel
Company, Philac and MEREX,” dated March 21, 1991 and its Resolution,
dated May 31, 1991, denying the petitioners’ Motion for Reconsideration.
In the questioned decision, the NLRC found that Mr. Henry Ocier’s (Vice-
President and General Manager of petitioner Guatson Travel) actuation of
threatening and forcing private respondent, Jolly M. Almoradie, to resign
amounted to illegal dismissal and thus ordered petitioners to pay private
respondent backwages, computed from the date of his dismissal on
November 1988, until the decision was rendered on February 28, 1991 or the
amount of P50,328.00; and to pay separation pay equivalent to one-half
(1/2) month for every year of service, for seven (7) years or the amount of
P6,524.00.
From the records it appears that Jolly M. Almoradie was first employed by
Mercury Express International Courier Service, Inc. (MEREX) in October, 1983
as Messenger receiving a monthly salary of P800.00. When it closed its
operations, Almoradie was absorbed by MEREX’s sister company Philippine
Integrated Labor Assistance Corp. (Philac), likewise as Messenger with an
increased salary of P1,200.00.
In September, 1986, Almoradie was transferred to Guatson Travel,
allegedly also a sister company of MEREX and Philac, as Liaison Officer with a
salary of P1,864.00. Thereafter, he was promoted to the position of Sales
Representative sometime in
818
April, 1988. On April 30, 1988, Almoradie was issued three separate
memoranda as follows:
“IOM/88-70
“Please explain in writing within 24 hrs. or not later than Monday morning the
reason why you don’t want to sell.1
“IOM/88-71
“Please explain in writing why did you went (sic) to BEMIL and who sent you
there.
2
“IOM-88
“Explain in writing not later than Monday the following:

1. “1.The reason why you want to be a messenger and no more a sales
representative;
2. “2.That I’m always confronting (sic) you, as what you’ve told me personally;
3. “3.Why you will not answer in writing the memo issued to you by Lou
Cantara on 30 Apr;
x x x
4. “5.Why when you were asked last Friday to join the Sales Blitz to Sta. Ana
you said yes and you change (sic) your mind when you were asked again
last Saturday;
x x x
5. “7.Why you have forgotten the situation wherein you refuse (sic) to sell a
certain product recommended by Myrna;
6. “8.The meaning of “You pirated me from Philac . . .”3
Within the time frame specified, Almoradie responded to each of the

charges, the essence of which are as follows:
1. “1.It is not true that I do not want to sale (sic) the rates & package tour of
our Company as imputed and charge (sic), because since April, 1988 (sic)
when I was transferred from Accounting to sales department of our
Company I was able to sale (sic) almost 110 dollars to 21 passengers. The
truth however is that, I am hampered in my sales promotion and solicitation
of customer, due to financial constraint
__________________
Original Record, p. 75.

1

2

3
819
VOL. 230, MARCH 9, 1994 819
1. considering that the kind and nature of work entails much expenses for
which I shouldered (sic) with my personal money. As a matter of fact I have
brought this matter to the Vice President and General Manager if only an
appropriation be set aside for the expenses in going around, meeting people
and soliciting prospective clients.
2. “2.Bemil is a customer of our company. With respect to the ticketing and
booking of Bemil passengers, undertaking (sic) by the sales department of
our company, I used to go Bemil (sic) to inquire whether they have
passengers for booking and ticketing. As a matter of fact, I went to Bemil to
pick-up their ticketing and booking for their passengers last Monday, April
29, 1988 (sic) and then returned the following day, Saturday April 30, 1988,
to deliver the ticket.
x x x
3. “3.1.Considering that the job of sales representative entails so much
expense in the performance thereof (sic), as I have stated in my number one
(1) explanation and I have to use my own personal money to promote and
solicit customer without any funding of our company (sic), I have taught (sic)
it better that I like my position as messenger, that (sic) as sales
representative, although the later (sic) position is more dignified, hence I
prefer to be returned to my messenger position.
4. “3.2.That I admit of the often confrontation conducted (sic) by Vice
President/General Manager, even in the absence of error or fault (sic) . . .
5. “3.3.It is not true that I did not or fail to answer the memo issued by Lou
Cantara, since I was given until May 2, 1988 to answer the same . . .
x x x
6. “3.5.As scheduled, I said yes to the sales blitz to Sta. Ana, because in truth I
am very interested in such sales business attack since it is in connection
with my function as a sales representative that will surely enhance and
sharpen my sales acumen, but if I was not able to join it is not the reason
my change of mind (sic), but because the Vice President/General Manager of
our Company, Henry Ocier summoned me to his office and had a very
lengthy confrontation of me (sic), and when I go out (sic) after the
confrontation to join the sales blitz-krieg to Sta. Ana last Saturday, April 30,
1988, Mr. Oscar Vanderlipe who heads the sales Group (sic) were (sic)
already gone.
x x x
7. “3.7.I deny vehemently that I refuse to sale (sic) a certain product
recommended by Myrna de Vera because the same is totally false. Since
April 1, 1988 when I was transferred to the sales department of our
company where from the very beginning I was briefed and taught and
learned about the nature of my job and the product to sale (sic) by Mryna
(sic) de Vera herself, I have ever since until now
820
1. ventured and performed the selling of rates and package tour which are
every products (sic) for sales department of our company. If sometimes I
make no sales, which all sales representative suffer and are beset such (sic),
however, cannot be considered as refusal to sale (sic). The only product of
our Company that Myrna briefed, taught and required as to sales (sic) our
rates and Package Tours which I’ve been selling since April 1, 1988 up to
present. (sic)
x x x”
4
On May 4, 1988, Almoradie was reverted to the position of Messenger, yet

sometime in September, 1988, he was again given the position of Account
Executive, the nature of work of which is similar to that of a sales
representative. Almoradie accepted the transfer with the understanding that
he will solely discharge the duties of an account executive and will no longer
be required to do messengerial work.
In the morning of October 1, 1988, Almoradie was allegedly summoned by
Henry Ocier to his office and was there and then forced by the latter to
resign. Ocier taunted Almoradie with threats that if he will not resign, he will
file charges against him which would adversely affect his chances of getting
employed in the future. Ocier allegedly even provided the pen and paper on
which Almoradie wrote and signed the resignation letter dictated by Ocier
himself. 5
On that same day, Almoradie sought the help of a friend, Isagani Mallari,
who advised him to report the matter to the Barangay
Captain. Subsequently, Almoradie filed a complaint for Illegal Dismissal on
6
November 14, 1988. The Labor Arbiter, however, dismissed his case based
on the following conclusions:
“In examining the facts and the arguments, it is difficult to abide by the impression
that complainant was forced to resign. Apart from the averment of respondent
Guatson that Mr. Ocier was out of town when the resignation letter was executed
that he just saw the resignation letter when he arrived. There is reason to believe
7
that complain-
_________________
4
Annex “B,” Original Record, pp. 78-79.
5
Annex “4,” Original Record, p. 81.
6
TSN of April 10, 1989, p. 18.
7
This finding was based on the position paper of petitioners submitted to the Labor Arbiter. Mr.
Ocier himself was not put on the
821
VOL. 230, MARCH 9, 1994 821
ant apparently defied the order for his transfer or designation as account executive
earlier before he executed his resignation letter.
“It must be concluded that his designation as account executive is a
management prerogative which under the circumstance is untainted with any unfair
labor practice. Apparently, complainant resented his resignation without any
plausible or cogent reason as he had earlier resented to be a sales representative
for which he was made to explain the reasons why. The only graceful exit to the
complainant was to execute his letter of resignation. As his letter of resignation
shows, it was executed in his own handwriting spontaneously out of his own free
will.” 8
Upon Almoradie’s appeal, the NLRC reversed the decision of the Labor
Arbiter on his finding that complainant was not forced to resign, anchoring its
conclusion to the fact that Almoradie was a permanent employee who has
been working for the Ocier’s for five long years; that he was receiving a fairly
good salary considering that he is single; that he had no potential employer
at the time of his resignation; that there was no evidence to show that Mr.
Henry Ocier was indeed not in town on October 1, 1988, when, he allegedly
forced Almoradie to resign; and his reaction immediately after his forced
resignation by seeking the assistance of a friend who was placed in a similar
situation before and in reporting the incident to the Barangay Chairman to
seek redress.
The issue therefore, boils down to the question of whether Jolly Almoradie
was indeed illegally dismissed by being forced to resign in the manner
narrated by him.
From a synthesis of the evidence on record, we fully agree with the finding
of the NLRC that Jolly Almoradie’s resignation was NOT voluntary. The NLRC
did not err in disregarding the conclusions reached by the Labor Arbiter
because the latter’s findings are not supported by substantial evidence.
It appears that as early as April, 1988, when Almoradie was promoted as
Sales Representative he had caught the ire of management, so much so that
he was issued no less than three memoranda in one day ordering him to
answer certain charges.
_________________
witness stand and crossed examined.

Rollo, pp. 128-129; Labor Arbiter’s Decision, pp. 3-4.
8
822
Why he was again promoted to the position of Account Executive after he
was reverted back to the rank of a messenger from being a Sales
Representative is rather intriguing, unless it was a scheme of management
to really rid him from the company. Apparently, Almoradie is not cut out for a
sales job, and hence could be dismissed or forced to resign for failing to
make good on his job in sales. On the other hand, it would be difficult to
dismiss him while being a messenger since he is a permanent employee and
there would not be enough basis to make him resign.
We do not agree with petitioners’ proposition that Mr. Ocier’s mere
utterances of the words “I will file charges against you,” and “I have a very
good lawyer,” do not constitute force or coercion as to vitiate the free will of
Almoradie in writing his resignation letter.
Intimidation may vitiate consent when the following requisites are
present: 1) that the intimidation caused the consent to be given; 2) that the
threatened act be unjust or unlawful; 3) that the threat be real or serious,
there being evident disproportion between the evil and the resistance which
all men can offer, leading to the choice of doing that act which is forced on
the person to do as the lesser evil; and 4) that it produces a wellgrounded
fear from the fact that the person from whom it comes has the necessary
means or ability to inflict the threatened injury to his person or property.
9
The moment that a person by whom respect and reverence are due
should wrongly exert pressure upon his subordinates, amounting to
intimidation in the manner stated in the Lichauco de Leon case, supra, in
order to exact from said subordinates an act against their will, the same is
enough to vitiate consent.
Henry Ocier did not only say that he will file charges against Almoradie
and that he has a good lawyer but he even threatened to block his future
employment should the latter not file his resignation. This threat is not
farfetched. Almoradie is not even a college graduate. With his limited skills
10
and the scarcity of employment opportunities it would really be difficult for

him to
__________________
Lichauco de Leon v. Court of Appeals, G.R. No. 80965, 186 SCRA 345 (1990).

9
TSN of April 24, 1989, p. 17.

10
823
VOL. 230, MARCH 9, 1994 823
find a job. Considering further the influence of Mr. Henry Ocier and his
capacity to make good his threat by refusing to give a favorable
recommendation on Almoradie’s performance, the latter is helpless in not
complying with the former’s demand for his resignation.
Anent NLRC’s grant of separation pay and backwages to private
respondent Jolly M. Almoradie, petitioners argue that the companies,
Guatson Travel Company, Philac and Merex have separate and distinct legal
personalities such that the two latter companies should not be held liable,
assuming, for the sake of argument that private respondent was illegally
dismissed.
We uphold the NLRC. The three companies are owned by one family, such
that majority of the officers of these companies are the same. The
companies are located in one building and use the same messengerial
service. Moreover, there was no showing that private respondent was paid
separation pay when he was absorbed by Philac upon closure of Merex; nor
was there evidence that he resigned from Philac when he transferred to
Guatson Travel. Under the doctrine of piercing the veil of corporate fiction,
when valid ground exists, the legal fiction that a corporation is an entity with
a juridical personality separate and distinct from its members or stockholders
may be disregarded. We have applied this doctrine in the case of “Philippine
Scout Veterans Security and Investigation Agency (PSVSIA), et al. v. The
Hon. Secretary of Labor,” G.R. No. 92357, July 21, 1993.
Where there is a finding of illegal dismissal, the employee is entitled to
both reinstatement and award of backwages from the time the
compensation was withheld, in this case in 1988, up to a maximum of three
years, applying the Mercury Drug Rule. 11
Reinstatement, however, will not be required not only for the reason that
it was not prayed for by the respondent, but also because the relationship
between Almoradie and Ocier had be-
__________________
11
It should be noted that private respondent was illegally dismissed on October 1, 1988, such
that the applicable rule in computing the amount of backwages is that enunciated in the case
of Mercury Drug Co., Inc., et al. v. Court of Industrial Relations, et al., G.R. No. L-23357, 56 SCRA
694 (1974) and instituted in the case of Feati University Faculty Club (PAFLU) v. Feati University,
et al., G.R. No. L-31503, 58 SCRA 395 (1974).
824
come strained as to preclude a harmonious working relationship. In lieu of
reinstatement, separation pay is awarded. As the term suggests, separation
12
pay is the amount that an employee receives at the time of his severance
from the service and is designed to provide the employee with the
wherewithal during the period that he is looking for another employment. 13
However the award of separation pay should be, as we have consistently

ruled, equivalent to one (1) month for every year of service, instead of one-
14
half (1/2) month as awarded by the NLRC. In the computation of separation

pay, the three (3) year period wherein backwages are awarded, must be
included. 15
WHEREFORE, the decision of the NLRC is hereby MODIFIED to the extent

that the award of backwages should be computed based on a three-year
period, while the separation pay of one month for every year of service
should be computed from the time petitioner was employed by Merex and
should include the three-year period as backwages. The petition is hereby
DISMISSED for lack of merit.
SO ORDERED.
Narvasa (C.J., Chairman), Padilla, Regalado and Puno, JJ., concur.
Petition dismissed; Assailed decision modified.
Notes.—Under the spirit of Wage Order No. 6, it is the actual ability of a
firm to spend for its current needs and costs and not how the assets and
liabilities of a firm may appear in the
_________________
Quezon Electric Cooperative v. NLRC, et al., G.R. Nos. 79718-22, 172 SCRA 89 (1989); De

12
Vera, et al. v. NLRC, et al., G.R. No. 93212, 191 SCRA 632 (1990).

Torillo v. Leogardo, Jr., G.R. No. 77205, 197 SCRA 471 (1991); Sealand Services, Inc. v.
13
NLRC, G.R. No. 90500, 190 SCRA 347.

Hernandez v. NLRC, G.R. No. 84302, 176 SCRA 269 (1989); Asphalt & Cement Pavers, Inc. v.
14
Vicente Leogardo, Jr., G.R. No. 74563, 162 SCRA 312 (1988); Pepsi-Cola Bottling Co. v. NLRC, G.R.
No. 101900, 210 SCRA 277 (1992).
Grolier International, Inc. v. Amansec, G.R. No. 83523, 177 SCRA 196 (1989); Torillo, supra.
15
825
VOL. 230, MARCH 9, 1994 825
Aldovino vs. Alunan III
technical jargon of higher accounting principles which is important (Radio
Communications of the Philippines, Inc. (RCPI) vs. National Wages
Council, 207 SCRA 581 [1992]).
The employee having established her case, which public respondents
correctly sustained, is entitled to the salary corresponding to the unexpired
portion of her contract (Teknika Skills and Trade Services, Inc. vs. National
Labor Relations Commission, 212 SCRA 132 [1992]).

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Republic of the Philippines

G.R. No. L-5677 May 25, 1953

On July 19, 1951, the Kaisahan Ng Mga Manggagawa Sa La Campana, hereinafter to be referred to

and held that:

. . . A subsidiary or auxiliary corporation which is created by a parent corporation merely as

Yutivo Sons Hardware Co. vs. Court of Tax Appeals

VOL. 1, JANUARY 28, 1961 161

162 SUPREME COURT REPORTS ANNOTATED

PETITION for review of a decision of the Court of Tax Appeals.

The facts are stated in the opinion of the Court.

APPEAL from a decision of the Court of Tax Appeals.

The facts are stated in the opinion of the Court.

Statement. This is an appeal from the decision of the Court of Tax Appeals

Undisputed Facts. The parties submitted a partial stipulation of facts, each

Name No. of Shares Amount Per Cent

Name No. of Shares Amount Per Cent

Besides as pointed out by appellee, the third paragraph of Section 13 of

providing for two

Irene, ostensibly the sole incorporator of Liddell Motors, Inc.

The other four owned only one share each.

Appellee’s brief describes several. We mention only a few.

rule that it is lawful to obtain a corporation charter, even with a single

See Exhibits 2 to 17.

Burnet, Commissioner v. Clarke, 287 U.S. 410, 53 S. Ct. 207, 77 L. Ed. 397; Burnet,

Commissioner v. Commonwealth Improvement Co., 287 U.S. 415, 53 S Ct. 198, 77 L. ed.

taxpayer to decrease the amount of what otherwise would be his taxes, or

unreal or a sham and serves no business purpose and is intended only as a

taxpayer may gain advantage of doing business thru a corporation if he

C. Tax liability computation: In the Yutivo case, the same question 16

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

This is a petition for review on certiorari of a decision of the Court of Appeals

Statement of the Case, Brief for the Petitioner, p. 2.

"Resultando: Que los hechos al parecer, no son muy em brollados; el demandado,

"Considerando: Que el testimonio de Estanislao Herbosa al efecto de que; si bien

Ibid., pp. 36-37.

"The Court of Appeals erred in not granting petitioner damages as awarded by

Assignment of Errors, Brief for the Petitioner.

corporations duly organized and existing under the law, we have in many a

Statement of Facts, Brief for the Petitioner, p. 10.

23 SCRA 948 (1968).

L-19118, January 30, 1965.

G.R. No. 100322. March 9, 1994. *

GUATSON INTERNATIONAL TRAVEL AND TOURS, INC., PHILIPPINE

The facts are stated in the opinion of the Court.

Petitioners Guatson Travel and Tours, Inc. (herein after referred to as

“Explain in writing not later than Monday the following:

Within the time frame specified, Almoradie responded to each of the

Original Record, p. 75.

Original Record, p. 76.

Original Record, p. 77.

On May 4, 1988, Almoradie was reverted to the position of Messenger, yet

witness stand and crossed examined.

and the scarcity of employment opportunities it would really be difficult for

Lichauco de Leon v. Court of Appeals, G.R. No. 80965, 186 SCRA 345 (1990).

TSN of April 24, 1989, p. 17.

However the award of separation pay should be, as we have consistently

half (1/2) month as awarded by the NLRC. In the computation of separation

WHEREFORE, the decision of the NLRC is hereby MODIFIED to the extent

Quezon Electric Cooperative v. NLRC, et al., G.R. Nos. 79718-22, 172 SCRA 89 (1989); De

Vera, et al. v. NLRC, et al., G.R. No. 93212, 191 SCRA 632 (1990).

NLRC, G.R. No. 90500, 190 SCRA 347.

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