Manila Gas Corporation vs.

Collector of Internal Revenue

G.R. No. L-42780 January 17, 1936

FACTS:

1. The plaintiff, Manila Gas Corporation, is a corporation organized under the laws of the
Philippine Islands. It operates a gas plant in the City of Manila and furnishes gas service to
the people of the metropolis and surrounding municipalities.

2. Associated with the plaintiff are the Islands Gas and Electric Company domiciled in New
York, United States, and the General Finance Company domiciled in Zurich, Switzerland.
Neither of these last mentioned corporations is resident in the Philippines.

3. Manila Gas Corporation filed an action against the Collector of Internal Revenue for the
recovery of P56,757.37, which the plaintiff was required by the defendant to deduct and
withhold from the various sums paid it to foreign corporations as dividends and interest on
bonds and other indebtedness and which the plaintiff paid under protest.

4. For the years 1930, 1931, and 1932, dividends in the sum of P1,348,847.50 were paid by
the plaintiff to the Islands Gas and Electric Company in the capacity of stockholders upon
which withholding income taxes were paid to the defendant totalling P40,460.03 For the same
years interest on bonds in the sum of P411,600 was paid by the plaintiff to the Islands Gas
and Electric Company upon which withholding income taxes were paid to the defendant
totalling P12,348.

5. On the trial court dismissing the complaint, with costs, the plaintiff appealed assigning as
the principal errors alleged to have been committed the following:

1. The trial court erred in holding that the dividends paid by the plaintiff corporation
were subject to income tax in the hands of its stockholders, because to impose the
tax thereon would be to impose a tax on the plaintiff, in violation of the terms of its
franchise, and would, moreover, be oppressive and inequitable.

2. x x x

6. The particular portion of the franchise which is invoked provides:

The grantee shall annually on the fifth day of January of each year pay to the City of
Manila and the municipalities in the Province of Rizal in which gas is sold, two and
one half per centum of the gross receipts within said city and municipalities,
respectively, during the preceding year. Said payment shall be in lieu of all taxes,
Insular, provincial and municipal, except taxes on the real estate, buildings, plant,
machinery, and other personal property belonging to the grantee.

ISSUE:

WON the dividends of the plaintiff which are paid and delivered in cash to foreign
corporations as stockholders are subject to the payment of the income tax.

RULING:

YES.

As there held and as now confirmed, a corporation has a personality distinct from that of
its stockholders, enabling the taxing power to reach the latter when they receive dividends
from the corporation. It must be considered as settled in this jurisdiction that dividends of
a domestic corporation, which are paid and delivered in cash to foreign corporations as
stockholders, are subject to the payment in the income tax, the exemption clause in the
charter of the corporation notwithstanding.

For the foreign reasons, we are led to sustain the decision of the trial court and to overrule
appellant's first assigned error.
Stockholders of F. Guanzon and Sons, Inc. vs. Register of Deeds of Manila

G.R. No. L-18216 October 30, 1962

FACTS:

1. On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc. executed a
certificate of liquidation of the assets of the corporation reciting, among other things, that
by virtue of a resolution of the stockholders adopted on September 17, 1960, dissolving the
corporation, they have distributed among themselves in proportion to their shareholdings,
as liquidating dividends, the assets of said corporation, including real properties located in
Manila.

2. The certificate of liquidation, when presented to the Register of Deeds of Manila, was
denied registration on seven grounds, of which the following were disputed by the
stockholders:

3. The number of parcels not certified to in the acknowledgment;

5. P430.50 Reg. fees need be paid;

6. P940.45 documentary stamps need be attached to the document;

7. The judgment of the Court approving the dissolution and directing the disposition
of the assets of the corporation need be presented (Rules of Court, Rule 104, Sec. 3).

3. Deciding the consulta elevated by the stockholders, the Commissioner of Land

Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.

4. The stockholders interposed the present appeal. Appellants contend that the certificate of
liquidation is not a conveyance or transfer but merely a distribution of the assets of the
corporation which has ceased to exist for having been dissolved.

ISSUE:

WON that certificate merely involves a distribution of the corporation's assets or should be
considered a transfer or conveyance.

RULING:
It should be considered as transfer or conveyance of the properties.

1. The Commissioner of Land Registration concurred in the view expressed by the register of
deed to the effect that the certificate of liquidation in question, though it involves a
distribution of the corporation's assets, in the last analysis represents a transfer of said
assets from the corporation to the stockholders. Hence, in substance it is a transfer or
conveyance.

2. A corporation is a juridical person distinct from the members composing it. Properties
registered in the name of the corporation are owned by it as an entity separate and distinct
from its members. While shares of stock constitute personal property they do not represent
property of the corporation. The corporation has property of its own which consists chiefly
of real estate.

3. A share of stock only typifies an aliquot part of the corporation's property, or the right to
share in its proceeds to that extent when distributed according to law and equity (Hall & Faley
v. Alabama Terminal, 173 Ala 398, 56 So., 235), but its holder is not the owner of any part of
the capital of the corporation (Bradley v. Bauder 36 Ohio St., 28). Nor is he entitled to the
possession of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S., 521;
Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of
the corporate property (Halton v. Hohnston, 166 Ala 317, 51 So 992).

4. On the basis of the foregoing authorities, it is clear that the act of liquidation made
by the stockholders of the F. Guanzon and Sons, Inc. of the latter's assets is not and
cannot be considered a partition of community property, but rather a transfer or
conveyance of the title of its assets to the individual stockholders. Indeed, since the
purpose of the liquidation, as well as the distribution of the assets of the corporation, is to
transfer their title from the corporation to the stockholders in proportion to their
shareholdings, — and this is in effect the purpose which they seek to obtain from the Register
of Deeds of Manila, — that transfer cannot be effected without the corresponding deed of
conveyance from the corporation to the stockholders. It is, therefore, fair and logical to
consider the certificate of liquidation as one in the nature of a transfer or conveyance.

Concepcion Magsaysay-Labrador vs. Court of Appeals

G.R. No. 58168 December 19, 1989

FACTS:

1. On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of

the estate of the late Senator Genaro Magsaysay, brought before the then Court of First
Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC),
Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales.

2. In her complaint, she alleged that in 1958, she and her husband acquired, thru conjugal
funds, a parcel of land with improvements, known as "Pequena Island", covered by TCT No.
3258;

3. that after the death of her husband, she discovered [a] an annotation at the back of TCT
No. 3258 that "the land was acquired by her husband from his separate capital; [b] the
registration of a Deed of Assignment dated June 25, 1976 purportedly executed by the late
Senator in favor of SUBIC, as a result of which TCT No. 3258 was cancelled and TCT No. 22431
issued in the name of SUBIC; and [c] the registration of Deed of Mortgage dated April 28,
1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK;

4. that the foregoing acts were void and done in an attempt to defraud the conjugal
partnership considering that the land is conjugal, her marital consent to the annotation on
TCT No. 3258 was not obtained, the change made by the Register of Deeds of the titleholders
was effected without the approval of the Commissioner of Land Registration and that the late
Senator did not execute the purported Deed of Assignment or his consent thereto, if obtained,
was secured by mistake, violence and intimidation.

5. n March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for
intervention on the ground that on June 20, 1978, their brother conveyed to them one-half
(1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around
41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and
legal interest in the subject matter of litigation and that they have a legal interest in the
success of the suit with respect to SUBIC.

6. On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners
have no legal interest whatsoever in the matter in litigation and their being alleged assignees
or transferees of certain shares in SUBIC cannot legally entitle them to intervene because
SUBIC has a personality separate and distinct from its stockholders.

7. Petitioners' motion for reconsideration was denied. Hence, the instant recourse. Invoking
the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853
(1927), petitioners strongly argue that their ownership of 41.66% of the entire outstanding
capital stock of SUBIC entitles them to a significant vote in the corporate affairs; that they
are affected by the action of the widow of their late brother for it concerns the only tangible
asset of the corporation and that it appears that they are more vitally interested in the
outcome of the case than SUBIC.

ISSUE:

WON petitioners can claim the right to intervene on the strength of the transfer of shares
allegedly executed by the late Senator.

RULING:
NO.

1. Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,

conjectural, consequential and collateral. At the very least, their interest is purely inchoate,
or in sheer expectancy of a right in the management of the corporation and to share in the
profits thereof and in the properties and assets thereof on dissolution, after payment of the
corporate debts and obligations.

2. While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the
property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.

3. The factual findings of the trial court are clear on this point. The petitioners cannot claim
the right to intervene on the strength of the transfer of shares allegedly executed by the late
Senator. The corporation did not keep books and records. 11 Perforce, no transfer was ever
recorded, much less effected as to prejudice third parties. The transfer must be registered
in the books of the corporation to affect third persons. The law on corporations is explicit.
Section 63 of the Corporation Code provides, thus: "No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation
showing the names of the parties to the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares transferred."

San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals, et al.

G.R. No. 129459 September 29, 1998

FACTS:

1. Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended complaint
alleged that on 14 February 1989, plaintiff-appellant entered into an agreement with
defendant-appellee Motorich Sales Corporation for the transfer to it of a parcel of land
identified as Lot 30, Block 1 of the Acropolis Greens Subdivision located in the District of
Murphy, Quezon City. Metro Manila, containing an area of Four Hundred Fourteen (414)
square meters, covered by TCT No. (362909) 2876:

2. On March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the
balance, covered by Metrobank Cashier's Check No. 004223, payable to defendant-appellee
Motorich Sales Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales
Corporation were supposed to meet in the office of plaintiff-appellant but defendant-
appellee's treasurer, Nenita Lee Gruenberg, did not appear;

3. that defendant-appellee Motorich Sales Corporation despite repeated demands and in utter
disregard of its commitments had refused to execute the Transfer of Rights/Deed of
Assignment which is necessary to transfer the certificate of title;

4. that on April 6, 1989, defendant ACL Development Corporation and Motorich Sales
Corporation entered into a Deed of Absolute Sale whereby the former transferred to the latter
the subject property; that by reason of said transfer, the Registry of Deeds of Quezon City
issued a new title in the name of Motorich Sales Corporation, represented by defendant-
appellee Nenita Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate of Title
No. 3571;

5. as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's

bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment, plaintiff-
appellant suffered moral and nominal damages which may be assessed against defendants-
appellees in the sum of Five Hundred Thousand (500,000.00) Pesos and exemplary damages
in the sum of One Hundred Thousand (P100,000.00) Pesos; and the opportunity to construct
a residential building in the sum of One Hundred Thousand (P100,000.00) Pesos
6. In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg
interposed as affirmative defense that the President and Chairman of Motorich did not sign
the agreement adverted to in par. 3 of the amended complaint; that Mrs. Gruenberg's
signature on the agreement (ref: par. 3 of Amended Complaint) is inadequate to bind
Motorich.

7. The other signature, that of Mr. Reynaldo Gruenberg, President and Chairman of Motorich,
is required: that plaintiff knew this from the very beginning as it was presented a copy of
the Transfer of Rights (Annex B of amended complaint) at the time the Agreement (Annex B
of amended complaint) was signed; that plaintiff-appellant itself drafted the Agreement and
insisted that Mrs. Gruenberg accept the P100,000.00 as earnest money.

ISSUE:

WON the veil of corporate fiction be pierced on the mere ground that almost all of the shares
of stock of the corporation are owned by said treasurer and her husband.

RULING:
NO.

1. There is no evidence to show that defendant Nenita Lee Gruenberg was indeed authorized
by defendant corporation. Motorich Sales, to dispose of that property covered by T.C.T. No.
(362909) 2876. Since the property is clearly owned by the corporation. Motorich Sales, then
its disposition should be governed by the requirement laid down in Sec. 40. of the
Corporation Code of the Philippines.

2. Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of
perpetrating a fraud or an illegal act or as vehicle for the evasion of an existing obligation,
the circumvention of statutes, the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals."

3. In the present case, however, the Court finds no reason to pierce the corporate veil of
Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed,
or that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities
of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or
inequity at the expense of third persons like petitioner.