B. ALTER EGO CASES 2. IMPLIED POWERS (SEC.

36 (11) OF THE CORPORATION CODE)

o ARNOLD V. WILLETS AND PATTERSON LTD., 44 PHIL 634 (1923)
o LA CAMPANA COFFEE V. KAISAHAN, 93 PHIL 160 (1953)
o YULTIVO SONS HARDWARE V. CTA, 1 SCRA 1960 (1961)
o LIDDEL & CO. V. COLLECTOR, 2 SCRA 632 (1961)
o RAMIREZ TELEPHONE V. BANK OF AMERICA 29 SCRA 191
o GUATSON INTERNATIONAL V. NLRC, G.R. NO. 100322 (1994)
o CONCEPT BUILDERS, INC. V. NLRC, G.R. N0. 108734 (1996)
C. EQUITY CASES
o TESCO V. WCC, 104 SCRA 354 (1981)
o AD SANTOS V. VASQUEZ, 22 SCRA 1158 (1968)
3. INCIDENTAL POWERS (SEC. 2 OF THE CORPORATION CODE)
B. SPECIFIED POWERS
1. POWER TO SUE AND BE SUED (SEC. 36 (1) OF THE CORPORATION
CODE)
o BS SAVINGS BANK V. SIA, G.R. NO. 131214, 2000
2. POWER TO EXTEND OR SHORTEN CORPORATE TERM (SEC. 37 AND 81
(1) OF THE CORPORATION CODE)
3. POWER TO INCREASE OR DECREASE CAPITAL STOCK (SEC. 38 AND
16 OF THE CORPORATION CODE)

o MADRIGAL & CO. V. ZAMORA, 151 SCRA 355 (1987)

4. DUE PROCESS

o MCCONNEL V. CA, 1 SCRA 723 (1961)

o EMILIO CANO ENTERPRISES V. CIR, 13 SCRA 291 (1965)
o NAMARCO V. ASSOCIATED FINANCE CO. INC., 19 SCRA 962
o JACINTO V. CA, 198 SCRA 211 (1992)
o ARCILLA V. CA, SCRA 120 (1989)
o DE GUZMAN V. NLRC, 211 SCRA 723 (1992)

5. ANTI TRUST ISSUES

o GARCIA V. EXEC. SEC. (GR NO. 132451, 1999)

o STANDARD OIL CO. V. US, 221 U.S. 1 (1910)

D. CORPORATE POWERS

1. SOURCES OF CORPORATE POWERS

A. CORPORATE POWES AND CAPACITY (ART. 42 OF THE CIVIL CODE)

1. EXPRESS POWERS (SEC. 36 OF THE CORPORATION CODE)

1
Classification of Piercing Cases:
Rundown on Piercing Application: This Court pierced the corporate
veil to ward off a judgment credit, to avoid inclusion of corporate assets as
part of the estate of the decedent, to escape liability arising for a debt, or to
perpetuate fraud and/or confuse legitimate issues either to promote or to
shield unfair objectives to cover up an otherwise blatant violation of the
prohibition against forum shopping. Only is these and similar instances may
the veil be pierced and disregarded. PNB v. Andrada Electric & Engineering
Co., 381 SCRA 244 (2002).
(i) Fraud Piercing: When corporate entity used to commit fraud or do a
wrong
(ii) Alter-ego Piercing: When corporate entity merely a farce since the
corporation is merely the alter ego, business
conduit, or instrumentality of a person or
another entity
(iii) Equity Cases: When piercing the corporate fiction is necessary to
achieve justice or equity.
The three cases may appear together in one application. See R.F. Sugay
& Co., v.
Reyes, 12 SCRA 700 (1964).
B. ALTER EGO CASES
1. Alter Ego Cases (or Conduit Cases)
 Fraud is not an element in these cases but that the stockholders or those who compose
the corporation did not treat the corporation as a separate entity but only as part of the
property or business of an individual or group of individuals or another corporation.
Probative factors
a. Stock ownership by one or common ownership of both corporations;
b. Identity of directors and officers;
c. The manner of keeping corporate books and records; and
d. Methods of conducting the business (Concept Builders, Inc. v. NLRC, 257 SCRA 149
[1996]).
Four Policy Bases in Piercing:
a. Even when the controlling stockholder or managing officer intends
consciously to do no evil, the use of the corporation as an alter ego is in direct violation
of a central corporate law principle of treating the corporation as a separate juridical
entity from its members and stockholders;
b. If the stockholders do not respect the separate entity, others cannot also be expected to
be bound by the separate juridical entity;
c. Applies even when there are no monetary claims sought to be enforced against the
stockholders or officers of the corporation;
d. When the underlying business enterprise does not really change and only the
medium by which that business enterprise is changed.
Instrumentality or Alter Ego Rule
When one corporation is so organized and controlled and its affairs are conducted so that it is
in fact a mere instrumentality or adjunct of the other, the fiction of the corporate entity to the
instrumentality may be disregarded (Concept Builders Inc. vs. NLRC, 257 SCRA 149 [1996]).
Test:
1. Control, not mere majority or complete stock control, but complete dominion, not
only of finances but of policy and business in respect to the transaction attacked so
that the corporate entity as to this transaction had at the time no separate mind, will,
or existence of its own;
Such control must have been used by the defendant to commit fraud or
wrong in contravention of plaintiff’s legal rights; and
2. The aforesaid control and breach of duty must proximately cause the injury or unjust
loss complained of (Concept Builders Inc. vs. NLRC, 257 SCRA 149 [1996]).
(d) Guiding Principles in Fraud Cases:
4Why is there inordinate showing of alter-ego elements?
3
 There must have been fraud or an evil motive
in the affected transaction, and the mere proof of
control of the corporation by itself would not
authorize piercing; and
 The main action should seek for the
enforcement of pecuniary claims pertaining to the
corporation against corporate officers or
stockholders.
2
2. Alter-Ego Cases:
(a) Factual Basis: The question of whether a corporation is a mere alter ego
is a purely one of fact, and the burden is on the party who alleges it. PNB v.
Andrada Electric & Engineering Co., 381 SCRA 244 (2002); MR
Holdings,Ltd. V. Bajar, 380 SCRA 617 (2002); Heirs of Ramon Durano, Sr. v.
Uy, 344 SCRA 238 (2000); Concept Builders, Inc. v. NLRC, 257 SCRA 149
(1996).
(b) Using Corporation as Conduit or Alter Ego:
Where the capital stock is owned by one person and it functions only for
the benefit of such individual owner, the corporation and the individual
should be deemed the same. a Arnold v. Willets and Patterson, Ltd., 44 Phil. 634
(1923).
When corporation is merely an adjunct, business conduit or alter ego
of another corporation, the fiction of separate and distinct corporation
entities should be disregarded. Tan Boon Bee & Co. v. Jarencio, 163 SCRA
205 (1988).
Where a debtor registers his residence to a family corporation in
exchange of shares of stock and continues to live therein, then the
separate juridical personality may be disregarded. PBCom v. CA, 195 SCRA
567 (1991).
Neither has it been alleged or proven that Merryland is so organized and
controlled and its affairs are so conducted as to make it merely an
instrumentality, agency conduit or adjunct of Cardale. Even assuming
that the businesses of Cardale and Merryland are interrelated, this alone
is not justification for disregarding their separate personalities, absent any
showing that Merryland was purposely used as a shield to defraud
creditors and third persons of their rights. Francisco v. Mejia, 362 SCRA 738
(2001).
Use of nominees to man the corporation for the benefit of the controlling
stockholder. Marvel Building v. David, 9 Phil. 376 (1951).

3
 o ARNOLD V. WILLETS AND PATTERSON LTD., 44 PHIL 634
(1923) Held: YES.

ARNOLD VS. WILLITS AND PATTERSON G.R. No. L-20214 March 17, 1923

Facts: Arnold, the plaintiff and the firm, Willits & Patterson in San Francisco entered into a (1 st)
written contract by which the plaintiff was employed as the agent of the firm in the Philippine
Islands for the operation of an oil mill for the period of five years at a minimum salary of $200
per month and travelling expenses.
Aside from his minimum salary, it was also stated in the contract that he will receive a brokerage
fee from all his sales and other profits. Also, if the business was at a loss, Arnold would receive
$400 per month.
Ratio: “Where the stock of a corporation is owned by one person whereby the corporation
functions only for the benefit of such individual owner, the corporation and the individual should
be deemed to be the same.”
In the case at bar, the corporations are under Willits. When the second contract was
signed, Willits recognized that Arnold’s services were to be performed by its terms. When the
new corporation was organized and created, it still treated Arnold as its agent in the same
manner as the first one.
Hence, the new corporation was bound by the contract made under the previous firm.

When Patterson retired, Willits became the sole owner of its assets. Willits organized a new
corporation by the same name in San Francisco. The new firm acquired all the assets of the Dispositive: The judgment of the lower court is reversed.
former firm. He came to Manila and organized a corporation here known as Willits & Patterson,
Ltd., in and to which he again subscribed for all of the capital stock except the nominal shares
necessary to qualify the directors.

In legal effect, the San Francisco corporation took over and acquired all of the assets and
liabilities of the Manila corporation.
Willits signed a (2nd) new contract in the form of a letter. The purpose of which was to more
clearly define and specify the compensation which the plaintiff was to receive for his services.

An accounting was done and it showed that the corporation was due and owing the plaintiff
under Exhibit B the sum of P106, 277.50. The San Francisco corporation became involved in
financial trouble, and all of its assets were turned over to a "creditors' committee."

Arnold filed a complaint and contended that the signing of the second contract in the manner and
under the conditions in which it was signed, and through the subsequent acts and conduct of the
parties, was ratified and, in legal effect, became and is now binding upon the defendant.

Defendant contended that the second contract was signed but without authority. It also alleged
that Arnold owed them some money.
The Court of First Instance rendered a decision ordering Arnold to return the money to the
corporation.

Issue: WON the corporation is bound by the contracts.

4
 o LA CAMPANA COFFEE V. KAISAHAN, 93 PHIL 160 (1953) A subsidiary company which is created merely as an agent for the latter may sometimes be regarded
as identical with the parent corporation especially if the stockholders or officers of the two corporations
LA CAMPANA COFFEE FACTORY v KAISAHAN NG MANGGAGAWA G.R. L-5677, May 25, 1953 are substantially the same or their systems of operation unified.

Facts:
Tan Tong since 1932 has been engaged in the buying and selling gawgaw under the trade name
La Campana Gawgaw Packing. In 1950, Tan Tong and members of his family organized the
family corporation.
La Campana Coffee Factory with its principal office located in Gawgaw Packing. Prior to said
information, Tan Tong entered into a CBA with the labor union of La Campana Gawgaw. Later
on, his employees formed Kaisahan ng mga Manggagawa ng La Campana with an authorization
from the DOLE to become an affiliate of the larger union.
The facts showed that they had one management, one payroll prepared by the same person,
laborers were interchangeable, there is only one entity as shown by the signboard ad in trucks,
packages and delivery forms and the same place of business.
The attempt to make the two factories appear as two separate businesses when in reality they are but
one, is but a device to defeat the ends of the law and should not be permitted to prevail. WHY
PIERCE? So that La Campana cannot evade the jurisdiction of CIR since La Campana Gawgaw has
only 14 employees and only 5 are members of Kaisahan.

Kaisahan with 66 members presented a demand for higher wages and more privileges to La
Campana Starch and Coffee Factory. The demand was not granted and the DOLE certified the
issue to the CIR. La Campana filed a motion to dismiss alleging that the action was directed
against two different entities with distinct personalities.

This was denied, hence this petition.

Issue: W/N the CIR has jurisdiction over the case.

Held: YES.

La Compana Gawgaw and La Campana Factory are operating under one single management or as
one business though with two trade names.

The coffee factory is a corporation and by legal fiction, an entity separate and apart from the persons
composing it namely, Tan Tong and his family.

However, the concept of separate corporate personality cannot be extended to a point beyond
reason and policy when invoked in support of an end subversive of this policy and will be disregarded
by the courts.

5
 o YULTIVO SONS HARDWARE V. CTA, 1 SCRA 1960 (1961) 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.
It should be stated that the intention to minimize taxes, when used in the context of fraud, must be
Yutivo Sons Hardware Co vs CTA
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.
Yutivo is a domestic corporation engaged in importation and sale of hardware supplies and
Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at
equipment. After the liberation in 1946, resumed its business and until 1946 bout a number of cars
the most, create only suspicion.
and trucks from General Motors (GM), an American corporation doing business in the Philippines. As
importer, GM paid sales tax prescribed by the Tax Code on the basis of its selling price to Yutivo.
Tax evasion" is a term that connotes fraud thru the use of pretenses and forbidden devices to lessen
Yutivo paid no further sales tax on its sales to the public.
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. But
In June 1946, Southern Motors (SM) organized to engage in the business of selling cars, trucks and
the attempt to avoid tax does not necessarily establish fraud. It is a settled principle that a taxpayer
spare parts. One of its major subscribers is Yu Tiong Yee, a founder of Yutivo. After the incorporation
may diminish his liability by any means which the law permits (tax avoidance).
of SM and until the withdrawal of GM from Phil, the cars and trucks were purchased by Yutivo from
Southern Motors being but a mere instrumentality, or adjunct of Yutivo, the Court of Tax Appeals
GM then sold by Yutivo to Sm and then SM sold these to the public.
correctly disregarded the technical defense of separate corporate entity in order to arrive at the true
tax liability of Yutivo. But there is no basis for the imposition of the 50% fraud surcharge.
The same way that GM used to pay taxes on the basis of its sales to Yutivo, Yutivo paid taxes on the
Where to impose the tax?
basis of its sales to SM. SM paid no taxes on its sales to the public.
Gross selling price or gross value in money. These terms, do not include the amount of the sales tax,
CIR made an assessment and charged Yutivo 1.8M as deficiency tax plus surcharge. Petitioner
if invoiced separately.
contested before CTA. CTA ruled that SM is a mere subsidiary or instrumentality of Yutivo, hence, its
separate corporate existence must be disregarded.
'Gross selling price' or gross value in money' of the articles sold, bartered, exchanged, transferred as
the term is used in the aforecited sections (of the National Internal Revenue Code, is the total
Issue: WON Yutivo and SM are two separate entities.
amount of money or its equivalent which the purchaser pays to the vendor to receive or get the
goods
Held: No.
It is an elementary and fundamental principle of corporation law that a corporation is an entity
However, if a manufacturer, producer, or importer, in fixing the gross selling price of an article sold by
separate and distinct from its stockholders and from other corporation petitions to which it may be
him has included an amount intended to cover the sales tax in the gross selling price of the articles,
connected. However, "when the notion of legal entity is used to defeat public convenience, justify
the sales tax shall be based on the gross selling price less the amount intended to cover the tax, if
wrong, protect fraud, or defend crime," the law will regard the corporation as an association of
the same is billed to the purchaser as a separate item.
persons, or in the case of two corporations merge them into one. Another rule is that, when the
corporation is the "mere alter ego or business conduit of a person, it may be disregarded.

However, the Court here held that they 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.

6
 Yutivo v CTA
Facts:
1. Yutivo Sons Hardware Co, a domestic corporation incorporated in 1916 under Philippine
laws, was engaged in the importation and sale of hardware supplies and equipment.
2. After the first world war, it resumed its business and bought a number of cars and
trucks from General Motors(GM), an American Corporation licensed to do
business in the Philippines. As importer, GM paid sales tax prescribed by the
Tax Code on the basis of its selling price to Yutivo. Yutivo paid no further sales
tax on its sales to the public.
3. On June 13, 1946, the Southern Motors Inc,(SM) was organized to engage in the
business of selling cars, trucks and spare parts. One of the subscribers of stocks during its
incorporation was Yu Khe Thai, Yu Khe Siong and Hu Kho Jin, who are sons of Yu Tiong
Yee, one of Yutivo’s founders.
4. After SM’s incorporation and until the withdrawal of GM from the Philippines, the cars and
trucks purchased by Yutivo from GM were sold by Yutivo to SM which the latter sold to the
public.
5. Yutivo was appointed importer for Visayas and Mindanao by the US manufacturer of cars
and trucks sold by GM. Yutivo paid the sales tax prescribed on the basis of selling price to
SM. SM paid no sales tax on its sales to the public.
6. An assessment of PhP 1.8 million was made upon Yutivo for deficiency sales tax plus
surcharge. The Collector of Internal Revenue, contends 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 a
subsidiary of the latter.
7.
Yutivo: Disputed the assessment.
After reinvestigation, a second assessment was made, sustaining the validity of the first assessment.
Yutivo contested the second assessment, alleging that there is no valid ground to disregard the
corporate personality of SM and to hold that it is an adjunct of petitioner.
ISSUES:
1. Whether or not the corporate personality of SM could be disregarded for the purposes of
taxation? Yes.
2. WON there was fraud on the part of Yutivo and SM? No, therefore no tax evasion.
RATIO:
General Rule: 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 a mere alter ego or business conduit of a person, it may be disregarded.
SC ruled that CTA was not justified in finding that SM was organized to defraud the Government. SM
was organized in June 1946, from that date until June 30, 1947, GM was the importer of the cars and
trucks sold to Yutivo, which in turn was sold to SM. GM, as importer was the one solely liable for
sales taxes. Neither Yutivo nor SM was subject to the sales taxes. Yutivo’s liability arose only until
July 1, 1947 when it became the importer. Hence, there was no tax to evade.
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.
Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at
the most, create only suspicion.
TAX EVASION vs TAX AVOIDANCE: 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. But the attempt to avoid tax does not necessarily
establish fraud. It is a settled principle that a taxpayer may diminish his liability by any means which
the law permits (tax avoidance).
However, SC agreed with the respondent court that SM was actually owned and controlled by Yutivo.
Indications that Yutivo treated SM merely as its department or adjunct:
The founders of the corporation are closely related to each other by blood and affinity.
The object and purpose of the business is the same; both are engaged in sale of vehicles, spare
parts, hardware supplies and equipment.
The accounting system maintained by Yutivo shows that it maintained high degree of control over
SM accounts.
7
Several correspondences have reference to Yutivo as the head office of SM. SM may even freely
use forms or stationery of Yutivo.

e. All cash collections of SM’s branches are remitted directly to Yutivo.

The controlling majority of the Board of Directors of Yutivo is also the controlling majority of SM.

The principal officers of both corporations are identical. 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.

Yutivo, financed principally 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.

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. But there is no basis for the imposition of the 50% fraud surcharge.

Where to impose the tax?

Gross selling price or gross value in money. These terms, do not include the amount of the sales tax,
if invoiced separately. 'Gross selling price' or gross value in money' of the articles sold, bartered,
exchanged, transferred as the term is used in the aforecited sections (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.

DISPOSITIVE: CTA decision modified in that petitioner shall be ordered to pay to respondent the
sum of P820,549.91, plus 25% surcharge thereon for late payment.

8
 o LIDDEL & CO. V. COLLECTOR, 2 SCRA 632 (1961)
LIDDELL & CO., INC., petitioner-appellant, vs. THE COLLECTOR OF INTERNAL
REVENUE, respondent-appellee.
(G.R. No. L-9687, 30 June 1961)
This is an appeal from the decision of the Court of Tax Appeals imposing a tax deficiency liability on
Liddell & Co., Inc.
FACTS: The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation establish
in the Philippines on February 1, 1946, with an authorized capital of P100,000 divided into 1000
share at P100 each. Of this authorized capital, 196 shares valued at P19,600 were subscribed and
paid by Frank Liddell while the other four shares were in the name of Charles Kurz, E.J. Darras,
Angel Manzano and Julian Serrano at one shares each. Its purpose was to engage in the business of
importing and retailing Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks.
After its incorporation, Lidell & Co. was able to declare stock dividends, thereby increasing the issued
capital stock of the said corporation, which were duly approved by the Securities and Exchange
Commission. There has also been an agreement executed by Frank Lidell on one hand, and Messrs.
Kurz, Darras, Manzano and Serrano on the other, which was further supplemented by two other
agreements wherein Frank Liddell transferred to various employees of Liddell & Co. shares of stock.
On the basis of the agreement, "40%" 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. 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.
Beginning January, 1949, Liddell & Co. stopped retailing cars and trucks; it conveyed them instead to
Liddell Motors, Inc. which in turn sold the vehicles to the public with a steep mark-up. Since then,
Liddell & Co. paid sales taxes on the basis of its sales to Liddell Motors Inc. considering said sales as
its original sales.
PETITIONER-APPELLANT: Petitioner filed an appeal on the decision of the Court of Tax Appeals
affirming the position taken by the Collector of Internal Revenue.
RESPONDENT-APPELLEE: 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 computation, the gross selling price of Liddell Motors, Inc. to the general public
from January 1, 1949 to September 15, 1950, was made the basis without deducting from the selling
price, the taxes already paid by Liddell & Co. in its sales to the Liddell Motors Inc.
ISSUE: Whether or not Liddell Motors, Inc. is the alter ego of Liddell & Co. Inc.?
RULING: 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 channeled through Liddell Motors, Inc. On the other hand, Liddell
Motors, Inc. pursued no activities except to secure cars, trucks, and spare parts from Liddell & Co.
Inc. and then sell them to the general public. These sales of vehicles by Liddell & Co. to Liddell
Motors, Inc. for the most part were shown to have taken place on the same day that Liddell Motors,
Inc. sold such vehicles to the public. We may even say that the cars and trucks merely touched the
hands of Liddell Motors, Inc. as a matter of formality.
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 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
9
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.

As opined in the case of Gregory v. Helvering, "the legal right of a taxpayer to decrease the amount
of what otherwise would be his taxes, or altogether avoid them by means which the law permits,
cannot be doubted." But, as held in another case, "where a corporation is a dummy, is unreal or a
sham and serves no business purpose and is intended only as a blind, the corporate form may be
ignored for the law cannot countenance a form that is bald and a mischievous fiction." Consistently
with this view, the United States Supreme Court held that "a taxpayer may gain advantage of doing
business thru a corporation if he pleases, but the revenue officers in proper cases, may disregard the
separate corporate entity where it serves but as a shield for tax evasion and treat the person who
actually may take the benefits of the transactions as the person accordingly taxable."

Thus, we repeat: to allow a taxpayer to deny tax liability on the ground that the sales were made
through 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 is to sanction a circumvention of our tax laws.

10
 Liddell & Co Inc v CIR  It is lawful to obtain a corporation charter, even with a single substantial stockholder, to
engage in a specific activity, and such activities may co-exist with other private activities of
G.R. No. L-9687 the stockholder
o GR: Respect separate identity if it is conducted lawfully
June 30, 1961 o Exc: Fraud
 Where a corporation is a dummy, and serves no business purpose, and is intended only as
Topic: Disregarding the corporate entity a blind, the corporate form may be ignored for the law cannot countenance a form that is
bald and mischievous fiction
Facts: o Corporation must not be a medium for tax evasion by an individual

 Liddell & Co (LC): domestic corporation

o 98% owned by Frank Liddell Held: LC is declared liable for P420k tax deficiency
o Business of selling Oldsmobile and Chevrolet cars, and GMC and Chevrolet
Trucks
 Liddell Motors Inc (LMI) was organized
o Frank Liddell wife Irene as sole incorporator
 Court found eventually she does not have enough funds, and it is FL
who really owns LMI
 Irene does not really participate in LMI affairs
 Irene salary deposited into FL account
o Former employees of LC resigned from LC to work for LMI
o LC stopped retailing cars to the public
o LC would convey the cars and trucks to LMI, which would in turn sell the vehicles
to the public with a steep mark-up
 LC paid taxes on its sales to LMI, identifying said sales as original sales
 CIR determined LMI was the alter ego of LC
o For sales tax purposes, the sale of LMI to the public should be considered as the
taxable original sale
o Tax deficiency; CIR demanded payment from LMI

Issue:

 W/N LMI is the alter ego of LC – YES

Ruling:

 The mere fact LC and LMI are corporations owned by FL is not by itself sufficient to justify
the disregard of the separate corporate identity of one from the other
o However, LMI was a medium created by LC to reduce tax liability, given the
progressive rate of sales tax (higher price, higher tax rate)
11
 o RAMIREZ TELEPHONE V. BANK OF AMERICA 29 SCRA 191 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.
DOCTRINE: In Ramirez Telephone Corp. v. Bank of America Ramirez had unpaid rents due
Herbosa. The latter sought to garnish Ramirez's bank account, but no such personal account existed,
The facts as found by the Court of Appeals, which we cannot review are set forth in its decision,
and only an account in the name of Ramirez Telephone Company could be found and was
thus:2
garnished. The Court held that the corporate bank account could be garnished despite the fact that
Ramirez himself leased Herbosa's premises because: although Ramirez was the tenant, the Resultando: Que los hechos al parecer, no son muy embrollados; el demandado, Herbosa
company in truth occupied the premises; Ramirez paid the rents with checks of the telephone era y es dueno del edificio No. 612, Int. 3 Sta. Mesa; se lo habia dado en arrendamiento a
company; and 75% of the shares of the company belonged to Ramirez and his wife. Ruben R. Ramirez, y como este era el presidente de la Ramirez Telephone Corporation, el
taller de la corporacion aunque su oficina central estaba en la Escolta, Natividad Building,
G.R. No. L-22614 August 29, 1969 Exh. D. fue trasladado al local: pero habiendose amontonado los alquilares sin pagar,
Herbosa presento 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,
RAMIREZ TELEPHONE CORPORATION, petitioner,
Herbosa pudo conseguir decision favorable alli el 14 de Octubre, 1950, pero en la vispera
vs.
de la promulgacion de la sentencia a su favor habia ya conseguido mandamiento de
BANK OF AMERICA, E.F. HERBOSA, THE SHERIFF OF MANILA and THE COURT OF
embargo preventivo contra Ramirez, Exh. A, y el mismo, servido al Bank of America el 13
APPEALS, respondents.
de Octubre, 1950, Exh. 2, lease como sigue:

Quijano and Arroyo, for petitioner.

Civil Case No. 10620
Lichauco, Picazo and Agcaoili for respondent Bank of America.
E.F. Herbosa, Plaintiff
Vicente M. Magpoc for respondent E.F. Herbosa.
Fiscal Eulogio S. Serrano for respondent Sheriff of Manila.
-- versus -- GARNISHMENT
CAPISTRANO, J.:
Ruben R. Ramirez, Defendant
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 To: Bank of America
of plaintiff, now petitioner, Ramirez Telephone Corporation, and ordering it to pay to defendant, now Manila
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 Greetings:
adjudged likewise against petitioner. The judgment of the Court of First Instance which was reversed
by the Court of Appeals reads as follows:1 You and each of you are hereby notified that, by virtue of an order of attachment
issued by the Court of First Instance of Manila, copy of which is hereto attached,
In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiff levy is hereby made (or attachment is hereby levied) upon all the goods, effects,
and against the defendant Bank of America ordering the latter to pay the former the sum of interests, credits, money, stocks, shares, any interests in stocks and shares and
P3,000.00 in the form of actual damages, and to pay the costs of these proceedings. 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
Likewise, judgment is hereby rendered sentencing the third-party defendant, E.F. Herbosa, control, belonging to the said defendant --------- on this date, to cover the amount
to indemnify or reimburse the third-party plaintiff, Bank of America, any sum or sums which of P2,400.00 and specially the ... .
the latter may pay the plaintiff by virtue of this judgment.
xxx xxx xxx
12
Manila, Philippines, October 13, 1950
MACARIO M. OFILADA
Sheriff of Manila
(Exh. 2);
y fue 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 reitero el embargo el 17 de Octubre, 1950, Exh. B, notificando al
Bank of America de que quedaba embargado,
"... 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 institucion bancaria en contestacion al Sheriff, de fecha 17 de Octubre, 1950 o
sea el mismo dia, hizo constar que:
"... 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 acato la notificacion 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 Telephone retiro la
suma de P1,500.00, quedando por tanto como ultimo balance, nada mas que
unos P889.00; de esto surgio la presente contienda, pues, el 19 de Octubre,
1950, la 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 al Bank of America, Exh. 14, manifestando que su cliente habia
sufrido "considerable damage and embarrassment," y advirtiendole que si no se
le diera completa satisfaccion el dia siguiente, el presentaria la demanda
correspondiente, "without further notice," Exh. 14; esta carta la contesto la
institucion 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 dela Ramirez Telephone, Inc.,
incoo esta accion el 28 de Octubre, cuatro dias despues; y el motivo deaccion se
de hace consistir en que el banco,
"... 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 devolucion de su cheque a favor de la Ray Electronics sin
pagar, esta habia cancelado su pedido para los equipos necesarios en
la construccion de sus lineas telefonicas en la region bicolana, asi que
todas sus operaciones se habian quedado paralizadas, par. 5 id.; la
demandada Bank of America, emplazada de la demandada, presento
mocion de sobresimiento, que denegada, el 4 de Diciembre, 1950, el
banco sometio su contestacion el 23 de Diciembre, 1950 con
reconvencion para despues presentar demanda contra el Sheriff, el 25
de Agosto, 1953, y Contra Herbosa, el 16 de Agosto, 1955; y este
ultimo a su vez en contestacion, presento contra reclamacion o mejor
dicho, reconvencion 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 la
contra-demanda de este contra aquel; ... ."
13
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 habia manifestado que
"the shop of company was established downstairs," e 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 declaracion, t.n.
10 y 11, 25 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 la 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 relacion con el Exh. 3, en donde se ve que Ruben R. Ramirez y tenia
fondos depositados en el banco mencionado, Bank of America, asi que resulta evidente
que lo 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 compania pertenecia 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 la Ramirez Telephone por y en virtud de un mandamiento
judicial de embargo contra Ruben R. Ramirez, especialmente teniendo en cuenta que el
embargo 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 situacion que aquel pobre agraviado
que como se dice vulgarmente, tras de cornudo, fue apaleado; ... .
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 corporate entity will not be
disregarded no matter how large the holding a particular stockholder may have in the
corporation." 5 Petitioner would thus 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. 6 The 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 7 reaffirming a
1965 resolution in Albert v. University Publishing Co., Inc. 8 In that resolution, the principle is restated
thus: "Even with regard to 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, L-9687, June 30, 1961; Palacio vs. Fely Transportation Co., L-15121,
August 31, 1962. Hence, to repeat, the first assigned error cannot be sustained.
14
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 on 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.

15
 o GUATSON INTERNATIONAL V. NLRC, G.R. NO. 100322
(1994)
GUATSON INTERNATIONAL TRAVEL & TOURS INC. v. NATIONAL LABOR RELATIONS
COMMISSION
Where three companies are owned by one family, such that majority of the officers of these
companies are the same, the companies are located in the one building and use the same
messengerial services, and there was no showing that the employee was paid separation pay when
he resigned from one company and then, transferred to the other, the separate juridical personalities
of the 3 companies may be disregarded.
FACTS:
Petitioners Guatson Travel and Tours, Inc. (hereinafter 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 entitled “Jolly M. Almoradie vs. Guatson’s Travel Company, Philac and
MEREX. 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.
Jolly M. Almoradie was first employed by Mercury Express International Courier Service, Inc.
(MEREX) in October, 1983 as Messenger. When it closed its operations, Almoradie was absorbed by
MEREX’s sister company Philippine Integrated Labor Assistance Corp. (Philac), likewise as
Messenger.
In September, 1986, Almoradie was transferred to Guatson Travel, allegedly also a sister company
of MEREX and Philac, as Liaison Officer. Thereafter, he was promoted to the position of Sales
Representative. Almoradie was issued three separate memoranda asking him to explain the reason
why he didn’t want to sell but he answered that it was not true. He said that he was hampered in his
sales promotion and solicitation of customer, due to financial constraint considering that the kind and
nature of work entails much expenses for which he shouldered with his personal money. He also
stated that he liked her position as a messenger and preferred to be returned to his messenger
position.
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.
On 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 it 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. Subsequently, Almoradie filed a complaint for Illegal
Dismissal.
The Labor Arbiter, however Dismissed. 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.
ISSUE:
Whether Jolly Almoradie was indeed illegally dismissed by being forced to resign. YES
HELD:
The petition is hereby DISMISSED for lack of merit.
The SC agreed with the finding of NLRC that Jolly’s resignation was not voluntary.
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. 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 Henry
16
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.

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.

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.

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.

17
 o CONCEPT BUILDERS, INC. V. NLRC, G.R. N0. 108734 (1996) The SEC en banc explained the “instrumentality rule” which the courts have applied in disregarding
the separate juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in
Concept Builders vs NLRC
fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
GR 108734; 29 May 1996
“instrumentality” may be disregarded. The control necessary to invoke the rule is not majority or even
Facts:
complete stock control but such domination of instances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for
Petitioner Concept Builders, Inc., a domestic corporation engaged in the construction business.
its principal. It must be kept in mind that the control must be shown to have been exercised at the
Private respondents were employed by said company as laborers, carpenters and riggers. However,
time the acts complained of took place. Moreover, the control and breach of duty must proximately
they were illegally dismissed.
cause the injury or unjust loss for which the complaint is made.
Aggrieved, private respondents filed a complaint for illegal dismissal. The Labor Arbiter rendered
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
judgment ordering petitioner to reinstate private respondents and to pay them back wages. It became
follows:
final and executory.
Control, not mere majority or complete stock control, but complete domination, not only of finances
The alias Writ of Execution cannot be enforced by the sheriff because all the employees inside
but of policy and business practice in respect to the transaction attacked so that the corporate entity
petitioner’s premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were
as to this transaction had at the time no separate mind, will or existence of its own;
employees of Hydro Pipes Philippines, Inc. (HPPI) and not by petitioner. Thus, NLRC issued a break-
Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
open order against Concept Builders and HPPI.
violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of
plaintiff’s legal rights; and
Issue: Whether the piercing the veil of corporate entity is proper.
The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained
Held: Yes.
of.
The absence of any one of these elements prevents “piercing the corporate veil.” In applying the
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
“instrumentality” or “alter ego” doctrine, the courts are concerned with reality and not form, with how
from its stockholders and from other corporations to which it may be connected. But, this separate
the corporation operated and the individual defendant’s relationship to that operation.
and distinct personality of a corporation is merely a fiction created by law for convenience and to
promote justice. So, when the notion of separate juridical personality is used to defeat public
Clearly, petitioner ceased its business operations in order to evade the payment to private
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
respondents of back wages and to bar their reinstatement to their former positions. HPPI is obviously
laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction
a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the
pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an
financial liability that already attached to petitioner corporation.
alter ego of another corporation.

The conditions under which the juridical entity may be disregarded vary according to the peculiar
facts and circumstances of each case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will justify the application of the doctrine of
piercing the corporate veil, to wit:
Stock ownership by or common ownership of both corporations.
Identity of directors and officers.

The manner of keeping corporate books and records.

Methods of conducting the business.

18
Concept Builders Inc. vs. NLRC (May 29, 1996)
FACTS:
1. Private Respondents were the employees of the Petitioner Corporation. They filed illegal
dismissal, unfair labor practice and claimed for their benefits with the NLRC. They alleged that their
contract of employment had not yet expired and the project in which they were hired were not yet
completed, as stated in the written notices sent by the Company.
2. NLRC, ruled in favor of the Employees. At the time of the termination of private respondent’s
employment, the project in which they were hired had not yet been finished and
completed. Petitioner had to engage the services of sub-contractors whose workers performed the
functions of private respondents.
3. An alias Writ of Execution was issued by the Labor Arbiter to collect the balance of the judgment
award and to reinstate private respondents. However, the sheriff failed to enforce because the
security guard on the premises refused him to enter on the ground that, it is no longer occupied by
the petitioner.
4. A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the
properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which
he is the Vice-President. He alleged that HPPI is a manufacturing firm while petitioner was then
engaged in construction.
5. Private respondents filed a “Motion for Issuance of a Break-Open Order,” alleging that HPPI and
petitioner corporation were owned by the same incorporator and stockholders. NLRC granted the
Motion.
ISSUES:
1. WON the Sister Company (HPPI) has a personality separate and distinct from the petitioner
corporation (CONCEPT BUILDERS)?
2. WON HPPI is used as a shield to evade the corporation’s subsidiary liability for damages?
3. WON NLRC commited a grave abuse of discretion when it issued a break open order?
HELD:
PETITIONER DENIED.
1. The Sister Company has NO separate and distinct personality from the Concept Builders 2. HPPI
is used to Evade Corporations’ liability.
3. NLRC did not commit a grave abuse of discretion when it issued a “break-open order against
HHPI.
RATIONALE:
1. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected.8 But, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to
promote justice.9 So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
laws,10 this separate personality of the corporation may be disregarded or the veil of corporate
fiction pierced.11 This is true likewise when the corporation is merely an adjunct, a business conduit
or an alter ego of another corporation
2. The conditions under which the juridical entity may be disregarded vary according to the peculiar
facts and circumstances of each case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will justify the application of the doctrine of
piercing the corporate veil, to wit:
“1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.”13
3. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows:
“1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention
of plaintiff’s legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements prevents ‘piercing the corporate veil. ‘ in applying the
‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with how
the corporation operated and the individual defendant’s relationship to that operation. “
4. NLRC stated that:
19
“Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of both C. EQUITY CASES
corporations. It would also not be amiss to note that both corporations had the same president, the
same board of directors, the same corporate officers, and substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the Equity cases
third-party claimant shared the same address and/or premises. Under this circumstances, (sic) it
cannot be said that the property levied upon by the sheriff were not of respondents.16 When piercing the corporate fiction is necessary to achieve justice or equity.
 The “dumping ground” where no fraud or alter ego circumstances can be culled to warrant
Clearly, petitioner ceased its business operations in order to evade the payment to private piercing.
respondents of backwages and to bar their reinstatement to their former positions. HPPI is obviously
a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the
When used to confuse legitimate issues. Telephone Engineering and Service Co., Inc. V.
financial liability that already attached to petitioner corporation.
WCC, 104 SCRA 354 (1981).

5. It is very obvious that the second corporation seeks the protective shield of a corporate fiction
whose veil in the present case could, and should, be pierced as it was deliberately and maliciously When used to raise technicalities. Emilio Cano Ent. v. CIR, 13 SCRA 291 (1965).
designed to evade its financial obligation to its employees.”
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the
execution, private respondents had no other recourse but to apply for a break-open order after the
third-party claim of HPPI was dismissed for lack of merit by the NLRC.

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23,
1992 and December 3, 1992, are AFFIRMED.
SO ORDERED

20
 o TESCO V. WCC, 104 SCRA 354 (1981)
TELEPHONE ENGINEERING AND SERVICE CO INC (TESCO) v. WORKMEN’S
COMPENSATION COMMISSION (WCC)
No. L-28694; 13May1981
J. Melencio-Herrera
CORPO – 26 – Piercing the Veil: Juridical personality cannot be employed to confuse the legitimate
issues.
Topic: Piercing the veil of corporate fiction in compensation cases
Case: Petition for certiorari from the award of the Workmen’s Compensation Section
FACTS:
TESCO is a domestic corporation engaged in telephone manufacturing, with sister company, Utilities
Management Corporation (UMACOR). Both companies are under the management of Jose Louis
Santiago, as Exec VP and General Manager.
UMACOR employed Pacifico Gatus as Purchasing Agent in 1964. He was assigned in TESCO for
2.5 months, and reported back to UMACOR. In 1967, he contracted an illness and died eventuall of
“liver cirrhosis with malignant degeneration”.
Pacifico’s widowed wife, Leonila Gatus, filed a Notice and Claim for Compensation with the
Workmen’s Compensation Section alleging the employment of Pacifico under TESCO and his death
of liver cirrhosis. The Notice and Claim was transmitted to TESCO, to which TESCO responded with
an Employer’s Report of Accident or Sickness, signed by Santiago, stating that UMACOR was
Pacifico’s employer, and that employer UMACOR would not controvert the claim for compensation,
and admitted that the deceased employee contracted illness “in regular occupation”. Thus, the Acting
Referee awarded death benefits (5,759) and burial expenses (200) in favor of Pacifico’s heirs.
TESCO filed a Motion for Reconsideration and Petition to Set Aside Award alleging that the
admission in the Employer’s Report was due to honest mistake and excusable negligence, and that
the illness for which compensation is sought is not an occupational disease, hence, not compensable
under the law. The MR was denied.
The Provincial Sheriff levied on and attached the properties of TESCO and scheduled the sale of
such at public auction. Hence, this petition seeking to annul the award and to enjoin the Sheriff from
levying and selling its properties at public auction.
In its Petition, TESCO asserts that there is no employer-employee relationship between it and
Pacifico Gatus.
ISSUE:
Whether TESCO is liable for the compensation claim of Pacifico’s heirs when it claims that it is not
the employer of Pacifico.
HELD/RATIO.
YES, the assertion of lack employer-employee relationship cannot be admitted at the point of the
petition before the Supreme Court anymore; the difference between the corporate personality of
TESCO and UMACOR cannot be admitted anymore to confuse the legitimate issues in this case.
In TESCO’s pertinent documents – letter to Acting Referee, Motion for Reconsideration and Petition
to Set Aside Award, and Urgent Motion to Compel the Referee to Elevate Records to Commission for
Review – it represented and defended itself as the employer of the deceased. Nowhere in the said
documents did it allege that it was not the employer. TESCO even admitted that it and UMACOR are
sister companies operating under one single management and housed in the same building.
Although respect for the corporate personality as such, is the general rule, there are exceptions. In
appropriate cases, the veil of corporate fiction may be pierced as when the same is made as a
shield to confuse the legitimate issues.
21
o AD SANTOS V. VASQUEZ, 22 SCRA 1158 (1968)
DOCTRINE: In A.D. Santos v. Vasquez,where a judgment in suit for workmen's compensation
which was filed against the corporate taxi cab company, despite the testimony of the claimant
that he was employed not by the taxi cab company, but rather by the majority stockholder in the
latter's personal capacity, the Court nevertheless upheld the judgment against the taxi cab
company observing that although in truth the majority stockholder operated the business under
a sole proprietorship scheme, it was subsequently transferred to the taxi cab company.
G.R. No. L-23586 March 20, 1968
A. D. SANTOS, INC., petitioner,
vs.
VENTURA VASQUEZ, respondent.
Emiliano S. Samson and R. Balderrama-Samson for petitioner.
Orlando L. Espinas for respondent.
SANCHEZ, J.:
Respondent Ventura Vasquez was petitioner's taxi driver. Sometime on December 22 or
23, 1961, at about 11:00 a.m., while driving petitioner's taxicab, he vomitted blood. Aside from
his hemoptysis, he suffered back pains, fever and headache. He reported to petitioner the fact
of his having vomitted blood. He was sent to petitioner company's physician, Dr. Roman, who
treated him and sent him to Sto. Tomas Hospital where he was confined for six days.
Thereafter, he was admitted at the Quezon Institute. There he stayed until March 19, 1962
under the medical care of Dr. Mario Lirag. Dr. Lirag diagnosed his ailment as pulmonary
tuberculosis, moderately advanced in both lungs. Upon his discharge on March 19, 1962, he
was clinically improved. His X-ray examination, however, showed the same finding, i.e., PTB,
moderately advanced. He has not resumed work.
Offshoot of the foregoing is respondent's claim filed on May 9, 1962 with the Workmen's
Compensation Commission. 1 In affirming the decision of the Hearing Officer, the Commission
ordered petitioner:
1. To pay the claimant, thru this Commission, the sum of THREE THOUSAND SEVEN
HUNDRED THIRTY-TWO and 30/100 (P3,732.30) PESOS as compensation as of August 11,
1964, and P27.30 thereafter up to a period of 208 weeks, but in no case said amount of
compensation exceed P4,000.00;
2. To reimburse the claimant, thru this Commission, the sum of P53.60 which he had actually
spent for his treatment;
3. To provide claimant continuous medical, surgical and hospital services and supplies as his
illness may warrant;
4. To pay the claimant, also thru this Commission, the sum of P277.92 as Attorney's fees; and
5. To pay the Commission the sum of P43.00 as costs based on the amount of compensation
already due the claimant as of August 11, 1964, and P1.00 for every hundred pesos which may
accrue in his favor as weekly compensation pursuant to Section 55 of the Act.
The case is now before us on review.
Two questions are raised by petitioner: (1) respondent's claim should have been
dismissed for his failure to file the notice of injury and claim for compensation required by
Section 24 of the Workmen's Compensation Act; and (2) the claim for compensation is directed
against Amador Santos, not against petitioner.
1. Sickness manifested itself on December 22 or 23, 1961. Claim was filed on May 9,
1962. Petitioner argues that by Section 24 of the Workmen's Compensation Act, the claim
should be thrown out of court. Because, according to petitioner, such claim was not filed within
two months following illness.
Petitioner's case must fail. Stabilized jurisprudence is that failure of the employer to file
with the Commission notice of controversion set forth in the second paragraph of Section 45 of
the Workmen's Compensation Act is a waiver of the defense that the claim for compensation
was not filed within the statutory period and a forfeiture of the employer's right to controvert the
claim. Petitioner here knew of respondent's illness. Yet, it did not controvert respondent's right to
compensation. Constructively, such failure is an admission that the claim is compensable. 2
2. Petitioner's averment that respondent driver had no cause of action against petitioner is
equally without merit. Respondent's claim for compensation herein is directed against petitioner
A.D. Santos, Inc. Petitioner, in answer to the claim, categorically admitted that claimant was its
taxi driver. Add to this is the fact that the claimant contracted pulmonary tuberculosis by reason
of his said employment. And respondent's cause of action against petitioner is complete.
22
 But petitioner, cites the fact that respondent driver, in the course of his testimony,
mentioned that he worked for the City Cab operated by Amador Santos. This will not detract
from the validity of respondent's right to compensation. For, the truth is that really at one time
Amador Santos was the sole owner and operator of the City Cab. It was subsequently
transferred to petitioner A.D. Santos, Inc. in which Amador Santos was an officer. The mention
by respondent of Amador Santos as his employer in the course of his testimony, in the words of
this Court in Sugay vs. Reyes, L-20451, December 28, 1964, "should not be allowed to confuse
the facts relating to employer-employee relationship" for "when the veil of corporate fiction is
made as a shield to perpetrate a fraud and/or confuse legitimate issues (here, the relation of
employer-employee), the same should be pierced."
For the reasons given, the decision under review is hereby affirmed.1äwphï1.ñët
Costs against petitioner. So ordered.
Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Castro, Angeles and Fernando, JJ.,
concur.
Footnotes
1R04-WC Case 2066, entitled "Ventura Vasquez, Claimant, vs. A.D. Santos, Inc., Respondent."
2A.D. Santos, Inc. vs. De Sapon, L-22220, April 29, 1966; Itemcop vs. Florzo, L-21969, August
31, 1966; Nadeco vs. Rongavilla, L-21963, August 30, 1967; Rio y Compañia. vs. Workmen's
Compensation Commission, L-21467, August 30,1967; Pampanga Sugar Mills vs. Espeleta, L-
24073, January 30, 1968.
4. DUE PROCESS
Due Process Clause
(c) Need to bring a new case against the officer. aPadilla v. Court of Appeals, 370
SCRA 208 (2001); McConnel v. Court of Appeals, 1 SCRA 723 (1961).
A suit against individual shareholders in a corporation is not a suit
against the corporation. Failure to implead the corporations as defendants
and merely annexing a list of such corporations to the complaints is a
violation of due process for it would in effect be disregarding their distinct
and separate personality without a hearing. PCGG
v. Sandiganbayan, 365 SCRA 538 (2001).
Although both lower courts found sufficient basis for the conclusion that
PKA and Phoenix Omega were one and the same, and the former is
merely a conduit of the other the Supreme Court held void the application of
a writ of execution on a judgment held only against PKA, since the RTC
obtained no jurisdiction over the person of Phoenix Omega which was
never summoned as formal party to the case. The general principle is that
no person shall be affected by any proceedings to which he is a
stranger, and strangers to a case are not bound by the judgment
rendered by the court. Padilla v. Court of Appeals, 370 SCRA 208 (2001).
(d) When corporate officers are sued in their official capacity when the
corporation was not made a party, the corporation is not denied due process.
Emilio Cano Enterprises v. CIR, 13 SCRA 291 (1965).
Provided that evidential basis has been adduced during trial to apply the piercing
doctrine. aJacinto v. Court of Appeals, 198 SCRA 211 (1991); Arcilla v. Court of
Appeals, 215 SCRA 120 (1992).
23
 o MCCONNEL V. CA, 1 SCRA 723 (1961)
MCCONNEL VS. CA 1 SCRA 722 (1961)
The issue before us in the correctness of the decision of the Court of Appeals that, under the
circumstances of record, there was justification for disregarding the corporate entity of the Park Rite
Co., Inc., and holding its controlling stockholders personally responsible for a judgment against the
corporation.
FACTS:
The Court of Appeals found that the Park Rite Co., Inc., a Philippine corporation, was originally
organized on or about April 15, 1947, with a capital stock of 1,500 shares at P1.00 a share. The
corporation leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan Luna street
(Manila) which it used for parking motor vehicles for a consideration.
It turned out that in operating its parking business, the corporation occupied and used not only
the Samanillo lot it had leased but also an adjacent lot belonging to the respondents-
appellees Padilla, without the owners' knowledge and consent.
When the latter discovered the truth around October of 1947, they demanded payment for the use
and occupation of the lot.
The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino, who had
purchased and held 1,496 of its 1,500 shares) disclaimed liability, blaming the original
incorporators, McConnel, Rodriguez and Cochrane.
Whereupon, the lot owners filed against it a complaint for forcible entry in the Municipal Court of
Manila on 7 October 1947 (Civil Case No. 4031).
RTC- Judgment was rendered in due course on 13 November 1947, ordering the Park Rite Co., Inc.
to pay P7,410.00 plus legal interest as damages from April 15, 1947 until return of the lot. Restitution
not having been made until 31 January 1948, the entire judgment amounted to P11,732.50. Upon
execution, the corporation was found without any assets other than P550.00 deposited in Court. After
their application to the judgment credit, there remained a balance of P11,182.50 outstanding and
unsatisfied.
Now the judgment creditors then filed suit in the Court of First Instance of Manila against the
corporation and its past and present stockholders, to recover from them, jointly and
severally, the unsatisfied balance of the judgment, plus legal interest and costs.
RTC- The Court of First Instance denied recovery;
CA- Court of Appeals (CA-G.R. No. 8434-R) reversed, finding that the corporation was a mere alter
ego or business conduit of the principal stockholders that controlled it for their own benefit,
and adjudged them responsible for the amounts demanded by the lot owners,
Defendant-appellee RICARDO RODRIGUEZ is hereby ordered to pay to the plaintiffs-appellants
Dominga de los Reyes and Sabino Padilla the sum of P1,742.64 with legal interest thereon from the
time of the filing of the complaint and until it is fully paid. In addition thereto the defendants-appellees
Cirilo Paredes, Ursula Tolentino and Ricardo Rodriguez shall pay the costs proportionately in both
instances.
ISSUE” whether the individual stockholders maybe held liable for obligations contracted by the
corporation.
this Court has already answered the question in the affirmative wherever circumstances have shown
that the corporate entity is being used as an alter ego or business conduit for the sole benefit of the
stockholders, or else to defeat public convenience, justify wrong, protect fraud, or defend crime
(Koppel [Phil.] Inc. vs. Yatco, 77 Phil. 496; Arnold vs. Willits and Patterson, 44 Phil. 364).
The Court of Appeals has made express findings to the following effect:
There is no question that a wrong has been committed by the so-called Park Rite Co., Inc.,
upon the plaintiffs when it occupied the lot of the latter without its prior knowledge and
consent and without paying the reasonable rentals for the occupation of said lot. There is
also no doubt in our mind that the corporation was a mere alter ego or business conduit of
the defendants Cirilo Paredes and Ursula Tolentino, and before them — the defendants M.
McConnel, W. P. Cochrane, and Ricardo Rodriguez. The evidence clearly shows that these
persons completely dominated and controlled the corporation and that the functions of the
corporation were solely for their benefits.
When it was originally organized on or about April 15, 1947, the original incorporators were M.
McConnel, W. P. Cochrane, Ricardo Rodriguez, Benedicto M. Dario and Aurea Ordrecio with a
capital stock of P1,500.00 divided into 1,500 shares at P1.00 a share. McConnel and Cochrane each
24
owned 500 shares, Ricardo Rodriguez 408 shares, and Dario and Ordrecio 1 share each. It is
obvious that the shares of the last two named persons were merely qualifying shares.

Then or about August 22, 1947 the defendants Cirilo Paredes and Ursula Tolentino purchased 1,496
shares of the said corporation and the remaining four shares were acquired by Bienvenido J.
Claudio, Quintin C. Paredes, Segundo Tarictican, and Paulino Marquez at one share each. It is
obvious that the last four shares bought by these four persons were merely qualifying shares and
that to all intents and purposes the spouses Cirilo Paredes and Ursula Tolentino composed the so-
called Park Rite Co., Inc. That the corporation was a mere extension of their personality is shown by
the fact that the office of Cirilo Paredes and that of Park Rite Co., Inc. were located in the same
building, in the same floor and in the same room — at 507 Wilson Building. This is further shown by
the fact that the funds of the corporation were kept by Cirilo Paredes in his own name (p. 14,
November 8, 1950, T.S.N.) The corporation itself had no visible assets, as correctly found by
the trial court, except perhaps the toll house, the wire fence around the lot and the signs
thereon. It was for this reason that the judgment against it could not be fully satisfied.
(Emphasis supplied).

The facts thus found can not be varied by us, and conclusively show that the corporation is a
mere instrumentality of the individual stockholder's, hence the latter must individually answer
for the corporate obligations. While the mere ownership of all or nearly all of the capital stock of a
corporation is a mere business conduit of the stockholder, that conclusion is amply justified where it
is shown, as in the case before us, that the operations of the corporation were so merged with those
of the stockholders as to be practically indistinguishable from them.

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

The petitioners-appellants insist that the Court could have no jurisdiction over an action to enforce a
judgment within five (5) years from its rendition, since the Rules of Court provide for enforcement by
mere motion during those five years. The error of this stand is apparent, because the second action,
originally begun in the Court of First Instance, was not an action to enforce the judgment of
the Municipal Court, but an action to have non-parties to the judgment held responsible for its
payment.

25
 o EMILIO CANO ENTERPRISES V. CIR, 13 SCRA 291 (1965)
Emilio Cano Enterprises, Inc. vs Court of Industrial Relations
13 SCRA 291 – Business Organization – Corporation Law – Principle of the Corporate Fiction –
Equity Case
Honorata Cruz was terminated by Emilio Cano Enterprises, Inc. (ECEI). She then filed a complaint
for unfair labor practice against Emilio Cano, in his capacity as president and proprietor, and Rodolfo
Cano, in his capacity as manager. Cruz won and the Court of Industrial Relations (CIR) ordered the
Canos to reinstate Cruz plus pay her backwages with interest. The Canos appealed to the CIR en
banc but while on appeal Emilio died. The Canos lost on appeal and an order of execution was levied
against ECEI’s property. ECEI filed an ex parte motion to quash the writ as ECEI avers that it is a
corporation with a separate and distinct personality from the Canos. Their motion was denied and
ECEI filed a petition for certiorari with the Supreme Court.
ISSUE: Whether or not the judgment of the Court of Industrial Relations is correct.
HELD: Yes. This is an instance where the corporation and its members can be considered as one.
ECEI is a close family corporation – the incorporators are members of the Cano family. Further, the
Canos were sued in their capacity as officers of ECEI not in their private capacity. Having been sued
officially their connection with the case must be deemed to be impressed with the representation of
the corporation. The judgment against the Canos has a direct bearing to ECEI. Verily, the order
against them is in effect against the corporation. Further still, even if this technicality be strictly
observed, what will simply happen is for this case to be remanded, change the name of the party, but
the judgment will still be the same – there can be no real benefit and will only subversive to the ends
of justice. In this case, to hold ECEI liable is not to ignore the legal fiction but merely to give meaning
to the principle that such fiction cannot be invoked if its purpose is to use it as a shield to further an
end subversive of justice.

26
 EMILIO CANO ENTERPRISES vs. CIR
G.R. No. L-20502 Februaury 26, 1965
FACTS:
Emilio Cano Enterprises, Inc. (ECE) is a closed family corporation where the incorporators and
directors belong to one single family. Its incorporators are Emilio Cano, his wife Juliana, his sons
Rodolfo and Carlos, and his daughter-in-law Ana D. Cano.
A complaint for Illegal Dismissal was filed against it.
Emilio, Ariston and Rodolfo were made respondents in their capacity as president and proprietor,
field supervisor and manager, respectively, of Emilio Cano Enterprises, Inc.
EMILIO and RODOLFO were held guilty of the crime charged while ARISTON was absolved for
insufficiency of evidence.
to further an end subversive of justice. And so it has been held that while a corporation is a legal
entity existing separate and apart from the persons composing it, that concept cannot be extended to
a point beyond its reason and policy, and when invoked in support of an end subversive of this policy
it should be disregarded by the courts.
EMILIO AND RODOLFO CANO are here indicted, not in their private capacity, but as president and
manager, respectively, of Emilio Cano Enterprises, Inc. Having been sued officially their connection
with the case must be deemed to be impressed with the representation of the corporation. In fact, the
court's order is for them to reinstate Honorata Cruz to her former position in the corporation and
incidentally pay her the wages she had been deprived of during her separation. Verily, the order
against them is in effect against the corporation.
No benefit can be attained if this case were to be remanded to the court a quo merely in response to
a technical substitution of parties for such would only cause an unwarranted delay that would work to
Honorata's prejudice. This is contrary to the spirit of the law which enjoins a speedy adjudication of
labor cases disregarding as much as possible the technicalities of procedure.

EMILIO AND RODOLFO were ordered, jointly and severally, to reinstate Honorata Cruz, to her
former position with payment of backwages.

EMILIANO CANO died on November 14, 1958. The attempt to have the case against him dismissed
failed, so it was elevated to the Court of Appeals which affirmed the decision of the trial court.

An order of execution, directed against the properties of EC instead of those of the respondents
named in the decision, was issued.

ECE moved to quash the writ on the ground that the judgment sought to be enforced was not
rendered against it which is a juridical entity separate and distinct from its officials.

ISSUE:

Can the judgment rendered against EMILIO and RODOLFO CANO in their capacity as officials of the
corporation Emilio Cano Enterprises, Inc. be made effective against the property of the latter which
was not a party to the case?

RULING:

It is an undisputed rule that a corporation has a personality separate and distinct from its members or
stockholders because of a fiction of the law. However, ECC is a CLOSED FAMILY CORPORATION.
Here is an instance where the corporation and its members can be considered as one.

To hold such entity liable for the acts of its members is not to ignore the legal fiction but merely to
give meaning to the principle that such fiction cannot be invoked if its purpose is to use it as a shield
27
 o NAMARCO V. ASSOCIATED FINANCE CO. INC., 19 SCRA
962
NAMARCO V. ASSOCIATED FINANCE CO. INC

19 SCRA 962 – Business Organization – Corporation Law – Piercing the Veil of Corporate Fiction –
Fraud Case
In 1958, National Marketing Corporation (NAMARCO) entered into an agreement with Associated
Finance Company, Inc. (AFCI). NAMARCO was represented by its general manager Benjamin
Estrella. AFCI was represented by its president Francisco Sycip. The agreement was that
NAMARCO will deliver raw sugar to AFCI. In exchange, AFCI will deliver refined sugar to
NAMARCO. NAMARCO delivered the raw sugar but AFCI failed to comply with its obligation.
NAMARCO then demanded AFCI to comply or if not pay the amount of the raw sugar delivered
which was at P403,514.28. AFCI was not able to do either hence NAMARCO sued AFCI and Sycip
was impleaded.
ISSUE: Whether or not Sycip should be held jointly and severally liable with Associated Finance
Company, Inc.
HELD: Yes. In this case, it is proper to pierce the veil of corporate fiction. It was proven that during
the time of the agreement, AFCI was already insolvent. Such fact was already known to Sycip. He
knew that AFCI was not in a position to transact with NAMARCO because it could not possibly
comply with its obligations. Sycip’s assurances that AFCI can deliver said refined sugar products is
obviously fashioned to defraud NAMARCO into delivering the raw sugar to AFCI. Consequently,
Sycip cannot now seek refuge behind the general principle that a corporation has a personality
distinct and separate from that of its stockholders and that the latter are not personally liable for the
corporate obligations. He is therefore liable jointly and severally with AFCI to pay the amount claim
for the raw sugar delivered plus other damages claimed by NAMARCO with interest.

28
National Marketing Corporation (NAMARCO) v. Associated Financing Company (AFCI)
April 27, 1967
Topic and Provision: Disregarding Corporate Entity
Facts:
 Domestic corporation AFCI, through its President, Francisco Sycip (Sycip), (herein
defendants) entered into an agreement to exchange sugar with Petitioner NAMARCO:
o Exchange of refined sugar from AFCI and raw sugar from NAMARCO
o Both agreed to pay liquidated damages equivalent to 20% of the contractual
value of the sugar should either party fail to comply with the terms and conditions
stipulated.
 NAMARCO delivered to AFCI 7,732.71 bars of “Busilak” and 17,285.08 piculs of “Pasumil”
domestic raw sugar.
 AFCI failed to deliver to NAMARCO the 22,516 bags of “Victoria” and/or “National” refined
sugar agreed upon.
 NAMARCO demanded in writing from AFCI either:
o immediate delivery thereof before January 20, or
o payment of its equivalent cash value amounting to P372,639.80.
 AFCI, through Sycip, offered to pay NAMARCO the value of 22,516 bags of refined sugar
at the rate of P15.30 per bag, but NAMARCO rejected this offer.
 Instead, NAMARCO demanded: payment of the bags of raw sugar (P15.30 per bag or
amounting to P118,310.40) and of the piculs of raw sugar (P16.50 per picul or amounting
to P285.203.82), or a total price of P403,514.28 for both kinds of sugar, based on the sugar
quotations (as of March 20, 1958 or the date when the exchange agreement was entered
into). AFCI refused in spite of repeated demands.
 NAMARCO instituted the present action in the lower court to recover the said total sum in
payment of the raw sugar received by defendants AFCI and Sycip from it.
 Defendants AFCI and Sycip alleged that the correct value of the sugar delivered by
NAMARCO to them was P259,451.09 and not P403,514.38.
 CFI Manila ordered AFCI to pay NAMARCO liquidated damages but dismissed the
complaint insofar as defendant Sycip was concerned.
 The appeal before the SC is only with regard to the dismissal of the case against Sycip.
Issue: W/N Francisco Sycip may be held liable, jointly and severally with his co-defendant, for
the sums of money adjudged in favor of NAMARCO? YES.
Held: Francisco Sycip may be held liable, jointly and severally with his co-defendant, for the sums of
money adjudged in favor of NAMARCO.
Dispositive: The decision appealed from is modified by sentencing defendant-appellee Francisco
Sycip to pay, jointly and severally with AFCI, the sum of money which the trial court sentenced the
latter to pay to NAMARCO.
Ratio:
 Through false representations Sycip succeeded in inducing NAMARCO to enter into the
aforesaid exchange agreement, with full knowledge, on his part, on the fact that AFCI
whom he represented and over whose business and affairs he had absolute control, was in
no position to comply with the obligation it had assumed.
 The following facts fully establish that Sycip was guilty of fraud:
o Of the capital stock of AFCI, Sycip owned P60,000.00 worth of shares, while his
wife who is the second biggest stockholder owned P20,000.00 worth of shares;
o That the par value of the subscribed capital stock of AFCI was only P105,000.00;
o That negotiations that lead to the execution of the exchange agreement in
question were conducted exclusively by Sycip on behalf of AFCI;
o That in the course of his testimony, Sycip referred to himself as the one who
contracted or transacted the business in his personal capacity, and asserted that
the exchange agreement was his personal contract;
o That it was Sycip who made personal representations and gave assurances that
AFCI was in actual possession of the bags of refined sugar which the latter had
agreed to deliver to NAMARCO, and that the same was ready for delivery;
o That AFCI was at that time already insolvent;
o That when NAMARCO made demands upon AFCI to deliver the bags of refined
sugar it was under obligation to deliver to the former, AFCI and Sycip, instead of
making delivery of the sugar, offered to pay its value at the rate of P15.30 per
bag (a clear indication that they did not have the sugar contracted for).
 Consequently, Sycip cannot now seek refuge behind the general principle that a
corporation has a personality distinct and separate from that of its stockholders and
that the latter are not personally liable for the corporate obligations.
 The SC found it justified to “pierce the veil of corporate fiction.”
 It is settled law that when the corporation is the mere alter ego of a person, the
corporate fiction may be disregarded; the same being true when the corporation is
controlled, and its affairs are so conducted as to make it merely an instrumentality,
agency or conduit of another.
29
 o JACINTO V. CA, 198 SCRA 211 (1992)
JACINTO vs. COURT OF APPEALS, 6 JUNE 1991
NATURE: Petition for certiorari to review the decision of the Court of Appeals
FACTS: Petitioner Roberto Jacinto is the President and General Manager of Inland Industries,
Inc. and a substantial stockholder thereof. In the transactions between the
corporation and private respondent Metrobank, it was Jacinto who received all the
goods covered by the 3 Letters of Credit, and signed, for and in behalf of Inland, 3
separate trust receipts covering the same.
Petitioner’s prayer: That he not be held solidarily liable with Inland Industries
because he acted in his official capacity as president of the corporation and the latter
has a juridical personality distinct and separate from its officers and stockholders
Private respondent’s prayer: That petitioner Jacinto be made solidarily liable with
Inland Industries on the ground that defendant corporation is just a mere alter ego of
defendant Roberto Jacinto who is its President and General Manager
RTC’s ruling: That Jacinto pay Metrobank because Jacinto was practically the
corporation itself
CA’s ruling: RTC affirmed
ISSUE: WON to pierce the veil of corporate entity of Inland Industries and hold its president
liable for its principal obligation to Metrobank
RULING: Petition denied, RTC and CA affirmed.
 INLAND INDUSTRIES IS MERELY AN ADJUNCT, BUSINESS CONDUIT OR ALTER EGO OF
JACINTO TO EVADE PERSONAL LIABILITY. In his own testimony, petitioner admitted
that he and his wife owned 52% of the stocks of the corporation. The stipulation
of facts also shows that it was Jacinto who dealt entirely with Metrobank in its
transactions with Inland Industries.
When the veil of corporate fiction is made as a shield to perpetuate fraud
and/or confuse legitimate issues, the same should be pierced.
PETITIONER DID NOT OBJECT WHEN RESPONDENT METROBANK SOUGHT TO PROVE THAT THE FORMER AND
THE CORPORATION ARE ONE AND THE SAME. When one party, with the express or implied consent of the
adverse party, presents evidence as to issues not alleged in the pleadings, judgment may be
rendered validly as regards those issues, which shall be considered as if they have been raised in
the pleadings. There is implied consent to the evidence thus presented when the adverse party fails
to object thereto.
o ARCILLA V. CA, SCRA 120 (1989)
In Arcilla v. Court of Appeals a judgment rendered against a person "in his capacity as President" of
the corporation was enforceable against the assets of such officer when the decision itself found that
he merely used the corporation as his alter ego or as his business conduit.
Again, in the field of labor the doctrine takes a different twist when invoking the piercing doctrine to
make stockholders and officers liable for corporate debts at the point of execution.
G.R. No. 89804 October 23, 1992
CALVIN S. ARCILLA, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and EMILIO RODULFO, respondents.
DAVIDE, JR., J.:
This petition is a belated attempt to avoid the adverse amended decision of public respondent,
promulgated on 31 May 1989 in C.A.-G.R. No. 11389, 1 on the ground that petitioner is not personally
liable for the amount adjudged since the same constitutes a corporate liability which nevertheless
cannot even bind or be enforced against the corporation because it is not a party in the collection suit
filed before the trial court.
The procedural antecedents are not complicated.
On 4 June 1985, private respondent filed with the Regional Trial Court (RTC) of Catanduanes a
complaint for a sum of money against petitioner. 2 The case was docketed as Civil Case No. 1992
and was assigned to Branch 42 thereof. It is alleged therein:
xxx xxx xxx
3. That from late 1981 up to early 1983, the defendant, taking advantage of his
close friendship with the plaintiff, succeeded in securing on credit from the
plaintiff, various items, cash and checks which the defendant encashed, in the
total amount of P93,358.51, which the plaintiff willingly extended because of the
representations of the defendant that he was a successful financial consultant of
local and international businessmen;
30
 4. That defendant's indebtedness referred to in the next preceding paragraph, is
shown and described in thirty (30) "vales" signed by him or by persons
authorized by him, all of which documents are in the possession of the plaintiff for
being unredeemed or unpaid, xerox copies attached as Annexes "A" to "Z" and
"AA" to "DD" which are hereby made integral parts hereof;
5. That commencing with the summer months of 1983 up to the time immediately
before the filing of this complaint, the plaintiff had made numerous demands for
payment but the respondent acted in gross and evident bad faith in refusing to
satisfy the plaintiff's plainly valid, just and demandable claim;
6. That the plaintiff is left without any recourse other than to enforce his claim in
court and had to secure the services of the undersigned counsel who charged
the plaintiff with P1,000.00 for accepting the case, P200.00 appearance fee for
every appearance before this Court, and attorney's contingent fee of 25% of the
award in favor of the plaintiff; plaintiff shall incur litigation expenses which may
amount to no less than P5,000.00, all of which amounts are recoverable from the
defendant.
In his Answer, 3 petitioner does not deny having had business transactions with the private
respondent but alleges that the professional relationship began only in August of 1982 when he "was
looking for a "pro-forma" invoice to support his loan with the Kilusang Kabuhayan at Kaunlaran (KKK
for short) under the Ministry of Human Settlement (sic)." 4 He explicitly admits that "(H)is loan was in
the same of his family corporation, CSAR Marine Resources,
Inc.;" 5 however, the "vales", more specifically Annexes "A" to "DD" of the complaint, "were liquidated
in the bank loan releases." 6 It is thus clear that his main defense is payment; he did not interpose
any other affirmative defense.
In his Pre-Trial Brief, 7 petitioner reiterated the earlier claim that his first business dealing with the
plaintiff (private respondent herein) was in August of 1982. This time, however, he alleges that "as
President of CSAR Marine Resources, Inc., he requested for a pro-forma Invoice for said corporation
to support the loan application with the Kilusang Kabuhayan at Kaunlaran (KKK for short), with the
Ministry of Human Settlement (sic)." 8
In its Decision of 1 August 1986, 9 the trial court made the following findings of fact:
Defendant admitted the genuineness (sic) and due execution of Exhibits "A" to
"DD" but, according to him, he already paid plaintiff P56,098.00 thru PNB Virac
Branch, per Cash Voucher dated September 28, 1982 (Exh. 3) and then
P42,363.75 also thru PNB Virac Branch, per PNB check No. 628861K dated
December 16, 1982 (Exh. 1).
Analyzing the evidence adduced by both parties, it ruled that since Exhibit "3" is dated 28 September
1982 and the "vales", Exhibits "A" to "DD", with the exception of Exhibits "K" in the amount of
P1,730.00 and "Q" in the amount of P10,765.00, were issued after said date, it could not have been
in payment of the "vales" other than that evidenced by Exhibits "K" and "Q" Considering, however,
that the "vales" remained in the possession of the private respondent, they are presumed to remain
unpaid; in fact, private respondent so testified that they were not paid at all. The court therefore
ordered petitioner to pay private respondent:
(a) the total amount of P92,358.43 covered by the "vales", plus interest thereon
at the rate of twelve (12%) per cent per annum from June 4, 1985 when the
complaint was filed;
(b) P9,000.00 for and as attorney's fees; and
(c) the cost of suit. 10
Petitioner appealed this decision to the public respondent which docketed the case as C.A.-G.R. CV
No. 11389.
The public respondent affirmed the trial court's decision in its Decision of 14 January 1988. 11 As
could be gleaned therefrom, petitioner's assigned errors are as follows:
. . . defendant raised as error of the court a quo in (sic) holding that the "vales"
(Exhs. A to DD) have not been paid; that the presumption in favor of the plaintiff-
appellee that since he was in possession of the "vales" the same have not been
paid, remained undisputed; that the total transaction between the parties amount
to more than P200,000.00; and in rendering a decision in favor of the plaintiff-
appellee plus the award of attorney's fees in his favor. 12
On 5 February 1988, petitioner filed a motion to reconsider the aforesaid decision 13 alleging
therein, inter alia, that (a) the evidence showing payment of the "vales" is "uncontroverted", hence
the presumption that they were not paid simply because they remain in the possession of the creditor
cannot arise; (b) the alleged non-payment of the "vales" could have been further explained if the trial
court gave the appellant the opportunity to present sur-rebuttal witness and documentary evidence;
besides, he has newly discovered evidence — invoked in a prayer for a new trial that was
nevertheless denied by the lower court — which consists of a letter, dated 7 February 1983, signed
by Rafael Rodulfo, General Manager of the private respondent and addressed to Brig. Gen.
Clemente Racela, then KKK General Action Officer, categorically stating that "the account of CSAR
Marine Resources, Inc. c/o Atty. Calvin Arcilla" is only P23,639.33; and (c) the evidence presented by
both parties disclosure that "the subject account are (sic) all in the name of CSAR MARINE
RESOURCES, INC., a corporation separate and distinct from the appellant;" such fact remains
31
"uncontroverted" as shown by Exhibits "1", "3", "A" to "DD" adopted as Exhibits "7" to "25" for the
appellant." 14 He then prays that:
. . . considering that appellees was not able to prove by preponderance of
evidence the alleged unpaid account of appellant, the decision promulgated on
January 14, 1988 be RECONSIDERED and a new one be entered REVERSING
the lower court decision and thereby ordering the DISMISSAL of plaintiff-
appellee's complaint, with damages and costs against appellee.
In the remote possibility, that the appellee's complaint cannot be dismissed
outrightly, it is further prayed that his Honorable Tribunal orders (sic) a new trial
for appellant to present additional evidence he wanted to present in his motion
for new trial. 15
xxx xxx xxx
Reacting to this motion, private respondent, in a "Manifestation dated 7 February 1988, informed the
public respondent that in the interest of justice and fair play, he interposes no objection to the
alternative prayer for a new trial. 16 Hearing was thereafter conducted to receive the petitioner's so-
called newly discovered evidence consisting of the abovementioned letter of Rafael Rodulfo, dated 7
February 1983, to General Clemente A. Racela (Exh. "1"-Motion) wherein the former, as General
Manager of private respondent's Universal Enterprises, informed the latter that:
. . . Csar Marine Resources, Inc. c/o Atty. Calvin Arcilla has an outstanding
obligation of TWENTY THREE THOUSAND SIX PESOS to Universal Enterprises
as a result of various purchases of construction materials.17
Thereafter, on 31 May 1989, the public respondent promulgated an Amended Decision, 18 the
dispositive portion of which reads as follows:
WHEREFORE, the decision of this Court promulgated on January 14, 1988 is
hereby reconsidered and a new one rendered, ordering defendant-appellant to
pay plaintiff-appellee in his capacity as President of Csar Marine Resources, Inc.
the outstanding balance of P23,639.33 to Universal Enterprises, owned and
operated by plaintiff-appellee, plus interest at 12% per annum from June 4, 1985
when the complaint was filed; attorney's fees of P1,000.00, P200.00 per court
appearance of counsel and 25% of the amount awarded; plus the costs of the
suit. 19
On 4 January 1989, petitioner filed a Motion For Clarificatory Judgment 20 alleging therein that:
3. It is very clear from the findings of this Honorable Court contained in the
amended decision promulgated on May 31, 1989 that:
3.1. Defendant Calvin S. Arcilla never had any personal
business transaction (sic) in the plaintiff;
3.2. Csar Marine Resources, Inc. has an outstanding balance
in the amount of P23,636.33 with plaintiff-appellee out of the
KKK loan transaction;
3.3. Csar Marine Resources, Inc. is not a party in this case;
xxx xxx xxx
5. It is rather confusing (sic) that defendant-appellant is ordered to pay plaintiff-
appellee in his capacity as President of Csar Marine Resources, Inc. the said
amount of P23,639.33, when plaintiff-appellee for ulterior motives choose (sic)
not to implead said corporation. It need not be emphasized that the personality
and liability of the defendant-appellant and that of Csar Marine Resources, Inc.,
as a corporation, are separate and distinct from its (sic) other. . . . . 21
He then prays that:
. . . an order be issued clarifying the liability of defendant-appellant in his
personal capacity as regards the amount of P23,639.33, if any, otherwise, the
case be dismissed against him. 22
Public respondent denied this motion in its Resolution of 17 August
1989 23 on these grounds: (a) the veil of corporate fiction should be pierced in this case; (b) since
petitioner did not raise the issue of separate corporate identity in the pleadings in the trial court or in
his Brief, he cannot raise it for the first time in a Motion for Clarificatory Judgment; in his answer to
paragraphs 3 and 4 of the complaint, he admits that it was he and not his corporation who transacted
business with the private respondent; and (c) the "vales" refer not only to construction materials for
which the loan to Csar Marine Resources, Inc. was supposed to be used, but also to consumables
such as salt, rice, food seasoning, cigarettes, coffee, etc.; this indicates that the petitioner himself did
not seriously treat the corporate affairs of Csar Marine Resources, Inc. as separate and distinct from
his own.
Not satisfied with the Resolution, petitioner filed this petition. He alleges therein that respondent
Court of Appeals:
32
 I and cast aside the contention that both he and the corporation have separate and distinct
. . . ERRED IN HOLDING CSAR MARINE RESOURCES, INC., A DOMESTIC
CORPORATION DULY ORGANIZED ACCORDING TO LAW, WHERE
PETITIONER THE PRESIDENT (sic), LIABLE TO THE PRIVATE
RESPONDENT IN THE AMOUNT AWARDED IN THE APPEALED DECISION
WITHOUT BEING IMPLEADED AS A PARTY IN THE CASE IN VIOLATION OF
LAW AND THE APPLICABLE DECISIONS OF THE SUPREME COURT; and
II
. . . IN NOT DISMISSING THE CASE AGAINST THE PETITIONER. 24
After the filing of the Comment, the Reply thereto and the Rejoinder to the latter, this Court gave due
course to the petition and required the parties to submit their respective Memoranda. 25
The records bear nothing to prop up the instant petition. The arguments adduced by the petitioner
breathe no life to it.
On the contrary, the pleadings lead Us to the inescapable conclusion that the petitioner, who is
himself a lawyer, is merely taking advantage of the use of the innocuous phrase "in his capacity as
President" found in the dispositive portion of the challenged Amended Decision — making the same
a sanctuary for a defense which he, as hereinafter discussed, had long since abandoned or waived
either deliberately or through his obliviscence. His sole purpose, of course, is to avoid complying with
the liability adjudged against him by the public respondent; such avoidance is premiered on the so-
called newly discovered evidence offered after the public respondent had bent over backwards to
grant him a new trial despite the availability of such evidence during pendency of the proceedings
before the trial court. It is to be noted that he failed to assign as error in his Brief the denial by the
said court of his motion for new trial on the basis thereof.
The grant of affirmative relief based on the first assigned error would really redound to the benefit of
an entirety which was not made a party in the main case and which did not seek to intervene therein.
Therefore, it has no personality to seek as review of the public respondent's Amended Decision
under Rule 45 of the Rules of Court. Only the original parties to the main case may do
so. 26 Moreover, by no stretch of even the most fertile imagination may one be able to conclude that
the challenged Amended Decision directed Csar Marine Resources, Inc. to pay the amounts
adjudge. By its clear and unequivocal language, it is the petitioner who was declared liable therefor
and consequently made to pay. That the latter was ordered to do so as president of the corporation
would not free him from the responsibility of paying the due amount simply because according to
him, he had ceased to be corporate president; such conclusion stems from the fact that the public
respondent, in resolving his motion for clarificatory judgment, pierced the veil of corporate fictional
personalities. In short, even if We are to assume arguendo that the obligation was incurred in the
name of the corporation, the petitioner would still be personally liable therefor because for all legal
intents and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is
nothing more than his business conduit and alter ego. The fiction of a separate juridical personality
conferred upon such corporation by law should be disregarded. 27 Significantly, petitioner does not
seriously challenge the public respondent's application of the doctrine which permits the piercing of
the corporate veil and the disregarding of the fiction of a separate juridical personality; this is
because he knows only too well that from the very beginning, he merely used the corporation for his
personal purposes.
In his answer to the complaint, petitioner volunteered the information that the pro-forma invoice which
he obtained from the private respondent and which became the source of the obligations reflected in
the "vales" was to support his loan. He states in part:
. . . when defendant was looking for a "pro-forma" invoice to support his loan with
the Kilusang Kabuhayan at Kaunlaran . . . His loan was in the name of his family
corporation, CSAR Marine Resources, Inc. . . . . 28
That it was indeed his loan is further borne out by his allegations therein part:
(a) The accounting between plaintiff and defendant, however, was not closed
because adjustments were needed in the following points: 29
(b) 5. While it is true that plaintiff made demands for payment of an alleged
balance of P23,000.00 in March 1983, which demand was even coursed thru the
KKK Regional and Provincial Offices, after the demand of P23,000.00 defendant
paid additional P5,000.00 cash to plaintiff. 30
In his motion to reconsider the public respondent's original decision, petitioner becomes
more candid in his admissions that indeed, the transaction with the private respondent and
the loan obtained previously were for his personal account. Thus he asserts that:
(a) the first document made between appellee and appellant was the pro-
forma invoice. 31
(b) [c]considering that appellant had already an approved loan and was ready for
release . . . . 32
Moreover, petitioner neglected to set up in his Answer the defense that he is not personally liable to
private respondent because the "vales" were corporate obligations of Csar Marine Resources, Inc..
33
Of course, that defense would have been inconsistent with his volunteered admission that the KKK
loan — which resulted in the procurement of the pro-forma invoice from the private respondent —
was for his benefit. In any case, the failure to set it up as an affirmative defense amounted to a
waiver thereof. Section 2, Rule 9 of the Rules of Court expressly proved that defenses and
objections, other than the failure to state a cause of action and lack of jurisdiction, not pleaded either
in a motion to dismiss or in the answer are deemed waved. Petitioner, as a lawyer, knows or is
supposed to know this rule. Since he prepared the Answer himself, We cannot think of any possible
reason why he failed to set up this defense other than his realization of its inherent weakness or his
outright inexcusable negligence of forgetfulness. And even if it were due to inadvertence, he could
still have subsequently availed of Section 2, Rule 10 of the Rules of Court which allows a party to
amend his answer as a matter of right within the period therein stated. Failing that, he could have
resorted to Section 3 thereof which allows the making of amendments upon leave of court. On the
other hand, if the lapse was due to forgetfulness, it is just unfortunate that he did not exercise due
diligence in the conduct of his won affairs. He can expect no reward for it.

Then too, as correctly noted by the public respondent, petitioner, in his Brief, did not assign as error
the holding of the trial court that he is solely liable for the obligation.

Petitioner's volunteered admission that he procured the pro-forma invoice from the private
respondent in connection with his loan from the KKK, using his family corporation in the process, and
his deliberate waiver of the aforementioned defense provide an insurmountable obstacle to the
viability of this petition.

WHEREFORE, for utter lack of merit, the instant petition is DENIED with costs against petitioner.

This decision is immediately executory.

SO ORDERED.

34
o DE GUZMAN V. NLRC, 211 SCRA 723 (1992)
DOCTRINE: Recently, De Guzman v. National Labor Relations Commissionfurther clarified the
A.C. Ransom doctrine not to be applicable to all types of officers, such as the general manager,
even if he is the highest ranking officer, when such officers is neither a stockholder or a member
of the board of directors.
G.R. No. 90856 July 23, 1992
ARTURO DE GUZMAN, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER MA. LOURDES A.
SALES, AVELINO D. VALLESTEROL, ALEJANDRO Q. FRIAS, LINDA DE LA CRUZ,
CORAZON M. DE LA FUENTE, LILIA F. FLORO, and MARIO F. JAYME, respondents.
CRUZ, J.:
It is a fundamental principle of law and human conduct that a person "must, in the exercise of
his rights and in the performance of his duties, act with justice, give every one his due, and
observe honesty and good faith." 1 This is the principle we shall apply in the case at bar to
gauge the petitioner's motives in his dealings with the private respondents.
Arturo de Guzman was the general manager of the Manila office of the Affiliated Machineries
Agency, Ltd., which was based in Hongkong. On June 30, 1986, he received a telex message
from Leo A. Fialla, managing director of AMAL in its main office, advising him of the closure of
the company due to financial reverses. This message triggered the series of events that are the
subject of this litigation.
Immediately upon receipt of the advise, De Guzman notified all the personnel of the Manila
office. The employees then sent a letter to AMAL accepting its decision to close, subject to the
payment to them of their current salaries, severance pay, and other statutory benefits. De
Guzman joined them in these representations.
These requests were, however, not heeded. Consequently, the employees, now herein private
respondents, lodged a complaint with the NLRC against AMAL, through Leo A. Fialla and Arturo
de Guzman, for illegal dismissal, unpaid wages or commissions, separation pay, sick and
vacation leave benefits, 13th month pay, and bonus.
For his part, the petitioner began selling some of AMAL's assets and applied the proceeds
thereof, as well as the remaining assets, to the payment of his claims against the company. He
also organized Susarco, Inc., with himself as its president and his wife as one of the
incorporators and a member of the board of directors. This company is engaged in the same
line of business and has the same clients as that of the dissolved AMAL.
With this development, Susarco and its officers were impleaded in the amended complaint of
the private respondents. Later, William Quasha and/or Cirilo Asperilla were also included in the
suit as the resident agents of AMAL of the Philippines.
On November 7, 1986, the petitioner filed his own complaint with the NLRC against AMAL for
his remaining unsatisfied claims.
On May 29, 1987, Labor Arbiter Eduardo G. Magno, to whom the petitioner's complaint was
assigned, rendered a decision ordering AMAL to pay the petitioner the amount of P371,469.59
as separation pay, unpaid salary and commissions, after deducting the value of the assets
earlier appropriated by the petitioner. 2
On September 30, 1987, Labor Arbiter Ma. Lourdes A. Sales, who tried the private respondents'
complaint, rendered a decision —
1. Ordering Respondents AMAL and Arturo de Guzman to pay jointly and severally to each
Complainant separation pay computed at one-half month pay for every year of service,
backwages for one month, unpaid salaries for June 16-30, 1986, 13th month pay from January
to June 30, 1986 and incentive leave pay equivalent to two and-a-half days pay;
2. Dismissing the complaint against respondents Leo Fialla, William Quasha, Susarco, Inc. and
its directors Susan de Guzman, Pacita Castaneda, George Estomata and Cynthia Serrano for
lack of basis and/or merit;
3. Dismissing the claims for damages for lack of basis;
4. Ordering respondents AMAL and Arturo de Guzman to pay jointly and severally attorney's
fees to Complainants equivalent to 10% of the monetary awards herein. 3
This decision was on appeal affirmed in toto by the NLRC, which is now faulted for grave abuse
of discretion in this petition for certiorari.
The petitioner does not dispute the jurisdiction of the Labor Arbiter and NLRC over the
complaint of the private respondents against AMAL in view of their previous employment
relationship. He argues, however, that the public respondents acted without or in excess of
35
jurisdiction in holding him jointly and severally liable with AMAL as he was not an employer of
the private respondents.
The Solicitor General and the private respondents disagree. They maintain that the petitioner,
being AMAL's highest local representative in the Philippines, may be held personally
answerable for the private respondents' claims because he is included in the term "employer"
under Art. 212 (c),
(now e) of the Labor Code which provides:
Art. 212. Definitions. —
xxx xxx xxx
c. "Employer" includes any person acting in the interest of an employer, directly or indirectly. . . .
In the leading case of A.C. Ransom Labor Union-CCLU vs. NLRC, 4 as affirmed in the
subsequent cases of Gudez vs. NLRC, 5 and Maglutac vs.
NLRC, this Court treated the president of the employer corporation as an "employer" and held
6 pay, backwages for one month, 13th month pay and cash value of unused vacation leave.
him solidarily liable with the said corporation for the payment of the employees' money claims.
So was the vice-president of the employer corporation in the case of Chua vs. NLRC. 7
The aforecited cases will not apply to the instant case, however, because the persons who were
there made personally liable for the employees' claims were stockholders-officers of the
respondent corporation. In the case at bar, the petitioner, while admittedly the highest ranking
local representative of AMAL in the Philippines, is nevertheless not a stockholder and much less
a member of the board of directors or an officer thereof. He is at most only a managerial
employee under Art. 212 (m) of the Labor Code, which reads in relevant part as follows:
Art 212. Definitions. —
xxx xxx xxx
m. Managerial employee is one who is vested with powers and prerogatives to lay down and
execute management policies and/or to
hire, transfer, suspend, lay off, recall, discharge, assign or discipline employees. . . .
As such, the petitioner cannot be held directly responsible for the decision to close the business
that resulted in his separation and that of the private respondents. That decision came directly
and exclusively from AMAL. The petitioner's participation was limited to the enforcement of this
decision in line with his duties as general manager of the company. Even in a normal situation,
in fact, he would not be liable, as a managerial employee of AMAL, for the monetary claims of
its employees. There should be no question that the private respondents' recourse for such
claims cannot be against the petitioner but against AMAL and AMAL alone.
The judgment in favor of the private respondents could have been enforced against the
properties of AMAL located in this country except for one difficulty. The problem is that these
properties have already been appropriated by the petitioner to satisfy his own claims against the
company.
By so doing, has the petitioner incurred liability to the private respondents?
The Labor Arbiter believed he had because of his bad faith and ruled as follows:
Considering that Respondent A. de Guzman is guilty of bad faith in appropriating for himself the
properties of Respondent AMAL to the prejudice of Complainants herein whose claims are
known to Respondent at the time he made the disposition of AMAL's properties, he is held
jointly and severally liable with Respondent AMAL for the award of unpaid wages, separation
In Velayo v. Shell Co. of the Philippines, 8 Commercial Air Lines, Inc. (CALI), knowing that it did
not have enough assets to pay off its liabilities, called a meeting of its creditors where it
announced that in case of non-agreement on a pro-rata distribution of its assets, including the
C-54 plant in California, it would file insolvency proceedings. Shell Company of the Philippines,
one of its creditors, took advantage of this information and immediately made a telegraphic
assignment of its credits in favor of its sister corporation in the United States. The latter
thereupon promptly attached the plane in California and disposed of the same, thus depriving
the other creditors of their proportionate share in its value. The Court declared that Shell had
acted in bad faith and betrayed the trust of the other creditors of CALI. The said company was
ordered to pay them compensatory damages in a sum equal to the value of the C-54 plane at
the time it assigned its credit and exemplary damages in the sum of P25,000.00.
We quote with approval the following observations of Labor Arbiter Sales in her decision:
While the legitimacy of Respondent A. de Guzman's claims against AMAL is not questioned, it
must be stated that the manner and the means by which he satisfied such claims are evidently
characterized by bad faith on his part. For one, Respondent A. de Guzman took advantage of
his position as General Manager and arrogated to himself the right to retain possession and
ownership of all properties owned and left by AMAL in the Philippines, even if he knew that
Complainants herein have similar valid claims for unpaid wages and other employee benefits
from the Respondent AMAL. . . .
36
Another strong indication of bad faith on the part of Respondent A. de Guzman is his filing of a
separate complaint against AMAL before the NLRC Arbitration Branch about four (4) months
after the filing of the instant case without informing this Office about the existence of said case
during the proceedings in the instant case. This case was deemed submitted for decision on
May 18, 1987 but it was only on June 2, 1987 that Respondent A. de Guzman formally notified
this Office through his Supplemental Position Paper of his pending complaint before Arbiter
Eduardo Magno docketed as NLRC Case No. 11-4441-86. Under Rule V, Section 4 of the
revised rules of the NLRC, it is provided that:
Sec. 4. CONSOLIDATION OF CASES — where there are two or more cases pending before
different Labor Arbiters in the same Regional Arbitration Branch involving the same employer
and issues or the same parties with different issues, the case which was filed last shall be
consolidated with the first to avoid unnecessary costs or delay. Such cases shall be disposed of
by the Labor Arbiter to whom the first case was assigned. (Emphasis supplied).
Had Respondent A. de Guzman given timely notice of his complaint, his case could have been
consolidated with this case and the issues in both cases could have been resolved in a manner
that would give due consideration to the rights and liabilities of all parties in interest at the least,
in case consolidation is objected to or no longer possible, the Complainants herein could have
been given a chance to intervene in the other case so that whatever disposition might be
rendered by Arbiter Magno would include consideration of Complainants' claims herein.
It is not disputed that the petitioner in the case at bar had his own claims against AMAL and
consequently had some proportionate right over its assets. However, this right ceased to exist
when, knowing fully well that the private respondents had similarly valid claims, he took
advantage of his position as general manager and applied AMAL's assets in payment
exclusively of his own claims.
According to Tolentino in his distinguished work on the Civil Code:
The exercise of a right ends when the right disappears, and it disappears when it is abused,
especially to the prejudice of others. The mask of a right without the spirit of justice which gives
it life, is repugnant to the modern concept of social law. It cannot be said that a person exercises
a right when he unnecessarily prejudices another or offends morals or good customs. Over and
above the specific precepts of positive law are the supreme norms of justice which the law
develops and which are expressed in three principles: honeste vivere, alterum non laedre and
just suum quique tribuere; and he who violates them violates the law. For this reason, it is not
permissible to abuse our rights to prejudice others. 9
The modern tendency, he continues, is to depart from the classical and traditional theory, and to
grant indemnity for damages in cases where there is an abuse of rights, even when the act is
not illicit. Law cannot be given an anti-social effect. If mere fault or negligence in one's acts can
make him liable for damages for injury caused thereby, with more reason should abuse or bad
faith make him liable. A person should be protected only when he acts in the legitimate exercise
of his right, that is, when he acts with prudence and in good faith; but not when he acts with
negligence or abuse. 10
The above-mentioned principles are contained in Article 19 of the Civil Code which provides:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.
This is supplemented by Article 21 of the same Code thus:
Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
Applying these provisions, we hold that although the petitioner cannot be made solidarily liable
with AMAL for the monetary demand of its employees, he is nevertheless directly liable to them
for his questionable conduct in attempting to deprive them of their just share in the assets of
AMAL.
Under Art. 2219, (10) of the Civil Code, moral damages may be recovered for the acts referred
to in Art. 21. In Bert Osmeña & Associates vs. Court of Appeals, 11 we held that "fraud and bad
faith having been established, the award of moral damages is in order." And in Pan Pacific
Company (Phil.) vs. Phil. Advertising Corp., 12 moral damages were awarded against the
defendant for its wanton and deliberate refusal to pay the just debt due the plaintiff.
It is settled that the court can grant the relief warranted by the allegation and the proof even if it
is not specifically sought by the injured party. 13 In the case at bar, while the private respondents
did not categorically pray for damages, they did allege that the petitioner, taking advantage of
his position as general manager, had appropriated the properties of AMAL in payment of his
own claims against the company. That was averment enough of the injury they suffered as a
result of the petitioner's bad faith.
The fact that no actual or compensatory damages was proven before the trial court does not
adversely affect the private respondents' right to recover moral damages. We have held that
moral damages may be awarded in the cases referred to in the chapter on Human Relations of
the Civil Code (Articles 19-36) without need of proof that the wrongful act complained of had
caused any physical injury upon the complainant. 14
37
When moral damages are awarded, exemplary damages may also be decreed. 15 Exemplary
damages are imposed by the way of example or correction for the public good, in additional to
moral, temperate, liquidated or compensatory damages. 16 According to the Code Commission,
"exemplary damages are required by public policy, for wanton acts must be suppressed. They
are an antidote so that the poison of wickedness may not run through the body politic." 17 These
damages are legally assessible against him.
The petitioner asserts that, assuming the private respondents to have a cause of action against
him for his alleged bad faith, the civil courts and not the Labor Arbiter have jurisdiction over the
case.
In Associated Citizen Bank, et al. vs. Judge Japson, 18 this Court held:
Primarily, the issue to be resolved is whether or not the respondent court has jurisdiction to hear
and decide an action for damages based on the dismissal of the employee.
On all fours to the above issue is the ruling of this Court in Primero v. Intermediate Appellate
Court(156 SCRA 435 [1987]) which once again reiterated the doctrine that the jurisdiction of the
Labor Arbiter under Article 217 of the Labor Code is broad and comprehensive enough to
include claims for moral and exemplary damages sought to be recovered by an employee
whose services has been illegally terminated by is employer (Ebon v. De Guzman, 113 SCRA
55 [1982]; Aguda v. Vallejos, 113 SCRA 69 [1982]; Getz Corporation v. Court of Appeals, 116
SCRA 86 [1982]).
For the unlawful termination of employment, this Court in Primero v. Intermediate Appellate
Court, supra, ruled that the Labor Arbiter had the exclusive and original jurisdiction over claims
for moral and other forms of damages, so that the employee in the proceedings before the
Labor Arbiter should prosecute his claims not only for reliefs specified under the Labor Code but
also for damages under the Civil Code.
. . . Question of damages which arose out of or connected with the labor dispute should be
determined by the labor tribunal to the exclusion of the regular courts of justice (Limquiaco, Jr. v.
Ramolete, 156 SCRA 162 [1987]). The regular courts have no jurisdiction over claims for moral
and exemplary damages arising from illegal dismissal of an employee (Vargas v. Akai
Philippines, Inc., 156 SCRA 531 [1987]).
Although the question of damages arising from the petitioner's bad faith has not directly sprung
from the illegal dismissal, it is clearly intertwined therewith. The predicament of the private
respondents caused by their dismissal was aggravated by the petitioner's act in the arrogating
to himself all of AMAL's assets to the exclusion of its other creditors, including its employees.
The issue of bad faith is incidental to the main action for illegal dismissal and is thus properly
cognizable by the Labor Arbiter.
We agree that, strictly speaking, the determination of the amount thereof would require a
remand to the Labor Arbiter. However, inasmuch as the private respondents were separated in
1986 and this case has been pending since then, the interests of justice demand the direct
resolution of this motion in this proceeding.
As this Court has consistently declared:
. . . it is a cherished rule of procedure for this Court to always strive to settle the entire
controversy in a single proceeding leaving no root or branch to bear the seeds of future
litigation. No useful purpose will be served if this case is remanded to the trial court only to have
its decision raised again tot the Indeterminate Appellate Court and from there to this Court.
(Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37)
Remand of the case to the lower court for further reception of evidence is not necessary where
the court is in a position to resolve the dispute based on the records before it. On many
occasions, the Court, in the public interest and the expeditious administration of justice, has
resolved actions on the merits instead of remanding them to the trial court for further
proceedings, such as where the ends of justice would not be subserved by the remand of the
case or when public interest demands an early disposition of the case. (Lianga Bay Logging
Co., Inc. v. CA, 157 SCRA 357)
Sound practice seeks to accommodate the theory which avoids waste of time, effort and
expense, both to the parties and the government, not to speak of delay in the disposal of the
case (cf. Fernandez v. Garcia, 92 Phil. 592, 597). A marked characteristics of our judicial set-up
is that where the dictates of justice so demand . . . the Supreme Court should act, and act with
finality. (Li Siu Liat v. Republic, 21 SCRA 1039, 1046, citing Samal v. CA, 99 Phil. 230 and U.S.
v. Gimenez, 34 Phil. 74). In this case, the dictates of justice do demand that this Court act, and
act with finality. (Beautifont, Inc. v. CA, 157 SCRA 481)
It is stressed that the petitioner's liability to the private respondents is a direct liability in the form
of moral and exemplary damages and not a solidary liability with AMAL for the claims of its
employees against the company. He is being held liable not because he is the general manager
of AMAL but because he took advantage of his position by applying the properties of AMAL to
the payment exclusively of his own claims to the detriment of other employees.
WHEREFORE, the questioned decision is AFFIRMED but with the modification that the
petitioner shall not be held jointly and severally liable with AMAL for the private respondents'
money claims against the latter. However, for his bad faith in arrogating to himself AMAL's
38
properties to the prejudice of the private respondents, the petitioner is ordered: 1) to pay the
private respondents moral damages in the sum of P20,00.00 and exemplary damages in the
sum of P20,00.00; and 2) to return the assets of AMAL that he has appropriated, or the value
thereof, with legal interests thereon from the date of the appropriation until they are actually
restored, these amounts to be proportionately distributed among the private respondents in
satisfaction of the judgment rendered in their favor against AMAL.

SO ORDERED.

Griño-Aquino, Medialdea and Bellosillo, JJ., concur.

39
5. ANTI TRUST ISSUES
o GARCIA V. EXEC. SEC. (GR NO. 132451, 1999)
Garcia vs. Executive Secretary
THE FACTS
After years of imposing significant controls over the downstream oil industry in the Philippines, the
government decided in March 1996 to pursue a policy of deregulation by enacting Republic Act No.
8180 (R.A. No. 8180) or the “Downstream Oil Industry Deregulation Act of 1996.”
R.A. No. 8180, however, met strong opposition, and rightly so, as this Court concluded in its
November 5, 1997 decision in Tatad vs. Secretary of Department of Energy.[2][2] We struck down
the law as invalid because the three key provisions intended to promote free competition were shown
to achieve the opposite result; contrary to its intent, R.A. No. 8180’s provisions on tariff differential,
inventory requirements, and predatory pricing inhibited fair competition, encouraged monopolistic
power, and interfered with the free interaction of market forces. We declared:
R.A. No. 8180 needs provisions to vouchsafe free and fair
competition. The need for these vouchsafing provisions cannot be
overstated. Before deregulation, PETRON, SHELL and CALTEX had no
real competitors but did not have a free run of the market because
government controls both the pricing and non-pricing aspects of the oil
industry. After deregulation, PETRON, SHELL and CALTEX remain
unthreatened by real competition yet are no longer subject to control by
government with respect to their pricing and non-pricing decisions. The
aftermath of R.A. No. 8180 is a deregulated market where competition can
be corrupted and where market forces can be manipulated by
oligopolies.[3][3]
Notwithstanding the existence of a separability clause among its provisions, we struck down R.A. No.
8180 in its entirety because its offensive provisions permeated the whole law and were the principal
tools to carry deregulation into effect.
Congress responded to our Decision in Tatad by enacting on February 10, 1998 a new oil
deregulation law, R.A. No. 8479. This time, Congress excluded the offensive provisions found in the
invalidated law. Nonetheless, petitioner Garcia again sought to declare the new oil deregulation law
unconstitutional on the ground that it violated Article XII, Section 19 of the Constitution.[4][4] He
specifically objected to Section 19 of R.A. No. 8479 which, in essence, prescribed the period for
removal of price control on gasoline and other finished petroleum products and set the time for the
full deregulation of the local downstream oil industry. The assailed provision reads:
SEC. 19. Start of Full Deregulation. – Full deregulation of the Industry shall start five
(5) months following the effectivity of this Act: Provided, however, That when the public
interest so requires, the President may accelerate the start of full deregulation upon the
recommendation of the DOE and the Department of Finance (DOF) when the prices of
crude oil and petroleum products in the world market are declining and the value of the
peso in relation to the US dollar is stable, taking into account relevant trends and
prospects: Provided, further, That the foregoing provision notwithstanding, the five (5)-
month Transition Phase shall continue to apply to LPG, regular gasoline and kerosene
as socially-sensitive petroleum products and said petroleum products shall be covered
by the automatic pricing mechanism during the said period
Upon the implementation of full deregulation as provided herein, the Transition Phase
is deemed terminated and the following laws are repealed:
(a) Republic Act No. 6173, as amended;
(b) Section 5 of Executive Order No. 172, as amended;
(c) Letter of Instruction No. 1431, dated October 15, 1984;
(d) Letter of Instruction No. 1441, dated November 20, 1984, as amended;
(e) Letter of Instruction No. 1460, dated May 9, 1985;
(f) Presidential Decree No. 1889; and
(g) Presidential Decree No. 1956, as amended by Executive Order No. 137:
Provided, however, That in case full deregulation is started by the President in the exercise of the
authority provided in this Section, the foregoing laws shall continue to be in force and effect with
respect to LPG, regular gasoline and kerosene for the rest of the five (5)-month period.
Petitioner Garcia contended that implementing full deregulation and removing price control at a time
40
when the market is still dominated and controlled by an oligopoly[5][5] would be contrary to public
interest, as it would only provide an opportunity for the Big 3 to engage in price-fixing and
overpricing. He averred that Section 19 of R.A. No. 8479 is “glaringly pro-oligopoly, anti-competition,
and anti-people,” and thus asked the Court to declare the provision unconstitutional.
On December 17, 1999, in Garcia vs. Corona (1999 Garcia case),[6][6] we denied petitioner Garcia’s
plea for nullity. We declined to rule on the constitutionality of Section 19 of R.A. No. 8479 as we
found the question replete with policy considerations; in the words of Justice Ynares-Santiago, the
ponente of the 1999 Garcia case:
It bears reiterating at the outset that the deregulation of the oil industry is a
policy determination of the highest order. It is unquestionably a priority
program of Government. The Department of Energy Act of 1992 expressly
mandates that the development and updating of the existing Philippine
energy program “shall include a policy direction towards deregulation of
the power and energy industry.”
Be that as it may, we are not concerned with whether or not there
should be deregulation. This is outside our jurisdiction. The
judgment on the issue is a settled matter and only Congress can
reverse it.
xxx xxx xxx
Reduced to its basic arguments, it can be seen that the challenge in this
petition is not against the legality of deregulation. Petitioner does not
expressly challenge deregulation. The issue, quite simply, is the
timeliness or the wisdom of the date when full deregulation should
be effective.
In this regard, what constitutes reasonable time is not for judicial
determination. Reasonable time involves the appraisal of a great variety
of relevant conditions, political, social and economic. They are not within
the appropriate range of evidence in a court of justice. It would be an
extravagant extension of judicial authority to assert judicial notice as the
basis for the determination. [Emphasis supplied.]
Undaunted, petitioner Garcia is again before us in the present petition for certiorari seeking a
categorical declaration from this Court of the unconstitutionality of Section 19 of R.A. No. 8479.
THE PETITION
Petitioner Garcia does not deny that the present petition for certiorari raises the same issue of the
constitutionality of Section 19 of R.A. No. 8479, which was already the subject of the 1999 Garcia
case. He disagrees, however, with the allegation that the prior rulings of the Court in the two oil
deregulation cases[7][7] amount to res judicata that would effectively bar the resolution of the present
petition. He reasons that res judicata will not apply, as the earlier cases did not completely resolve
the controversy and were not decided on the merits. Moreover, he maintains that the present case
involves a matter of overarching and overriding importance to the national economy and to the public
and cannot be sacrificed for technicalities like res judicata.[8][8]
To further support the present petition, petitioner Garcia invokes the following additional grounds to
nullify Section 19 of R.A. No. 8479:
1. Subsequent events after the lifting of price control in 1997 have confirmed the continued
existence of the Big 3 oligopoly and its overpricing of finished petroleum products;
2. The unabated overpricing of finished petroleum products by the Big 3 oligopoly is gravely and
undeniably detrimental to the public interest;
3. No longer may the bare and blatant constitutionality of the lifting of price control be glossed
over through the expediency of legislative wisdom or judgment call in the face of the Big
3 oligopoly’s characteristic, definitive, and continued overpricing;
4. To avoid declaring the lifting of price control on finished petroleum products as unconstitutional
is to consign to the dead letter dustbin the solemn and explicit constitutional command
for the regulation of monopolies/oligopolies.[9][9]
THE COURT’S RULING
We resolve to dismiss the petition.
In asking the Court to declare Section 19 of R.A. No. 8479 as unconstitutional for contravening
Section 19, Article XII of the Constitution, petitioner Garcia invokes the exercise by this Court of its
power of judicial review, which power is expressly recognized under Section 4(2), Article VIII of the
41
Constitution.[10][10] The power of judicial review is the power of the courts to test the validity of
executive and legislative acts for their conformity with the Constitution.[11][11] Through such power,
the judiciary enforces and upholds the supremacy of the Constitution.[12][12] For a court to exercise
this power, certain requirements must first be met, namely:
(1) an actual case or controversy calling for the exercise of judicial power;
(2) the person challenging the act must have “standing” to challenge; he must have a
personal and substantial interest in the case such that he has sustained, or
will sustain, direct injury as a result of its enforcement;
(3) the question of constitutionality must be raised at the earliest possible
opportunity; and
(4) the issue of constitutionality must be the very lis mota of the case.[13][13]
Actual Case Controversy
Susceptible of Judicial Determination
The petition fails to satisfy the very first of these requirements – the existence of an actual case or
controversy calling for the exercise of judicial power. An actual case or controversy is one that
involves a conflict of legal rights, an assertion of opposite legal claims susceptible of judicial
resolution; the case must not be moot or academic or based on extra-legal or other similar
considerations not cognizable by a court of justice. Stated otherwise, it is not the mere
existence of a conflict or controversy that will authorize the exercise by the courts of its power of
review; more importantly, the issue involved must be susceptible of judicial determination. Excluded
from these are questions of policy or wisdom, otherwise referred to as political questions:
As Tañada vs. Cuenco puts it, political questions refer “to those questions
which, under the Constitution, are to be decided by the people in their
sovereign capacity, or in regard to which full discretionary authority has
been delegated to the legislative or executive branch of
government.” Thus, if an issue is clearly identified by the text of the
Constitution as matters for discretionary action by a particular
branch of government or to the people themselves then it is held to
be a political question. In the classic formulation of Justice Brennan in
Baker vs. Carr, “[p]rominent on the surface of any case held to involve a
political question is found a textually demonstrable constitutional
commitment of the issue to a coordinate political department; or a lack of
judicially discoverable and manageable standards for resolving it; or
the impossibility of deciding without an initial policy determination of
a kind clearly for non-judicial discretion; or the impossibility of a court’s
undertaking independent resolution without expressing lack of the respect
due coordinate branches of government; or an unusual need for
unquestioning adherence to a political decision already made; or the
potentiality of embarrassment from multifarious pronouncements by
various departments on the one question.”[14][14] [Emphasis supplied.]
Petitioner Garcia’s issues fit snugly into the political question mold, as he insists that by adopting a
policy of full deregulation through the removal of price controls at a time when an oligopoly still exists,
Section 19 of R.A. No. 8479 contravenes the Constitutional directive to regulate or prohibit
monopolies[15][15] under Article XII, Section 19 of the Constitution. This Section states:
The State shall regulate or prohibit monopolies when the public interest so
requires. No combinations in restraint of trade or unfair competition shall
be allowed.
Read correctly, this constitutional provision does not declare an outright prohibition of monopolies. It
simply allows the State to act “when public interest so requires”; even then, no outright prohibition is
mandated, as the State may choose to regulate rather than to prohibit. Two elements must concur
before a monopoly may be regulated or prohibited:
1. There in fact exists a monopoly or an oligopoly, and
2. Public interest requires its regulation or prohibition.
Whether a monopoly exists is a question of fact. On the other hand, the questions of (1) what public
interest requires and (2) what the State reaction shall be essentially require the exercise of discretion
on the part of the State.
Stripped to its core, what petitioner Garcia raises as an issue is the propriety of immediately and fully
deregulating the oil industry. Such determination essentially dwells on the soundness or wisdom of
the timing and manner of the deregulation Congress wants to implement through R.A. No.
8497. Quite clearly, the issue is not for us to resolve; we cannot rule on when and to what extent
42
deregulation should take place without passing upon the wisdom of the policy of deregulation that
Congress has decided upon. To use the words of Baker vs. Carr,[16][16] the ruling that petitioner
Garcia asks requires “an initial policy determination of a kind clearly for non-judicial discretion”; the
branch of government that was given by the people the full discretionary authority to formulate the
policy is the legislative department.
policy or wisdom of a statute;[21][21] it sits, not to review or revise legislative action, but to enforce the
legislative will.[22][22] For the Court to resolve a clearly non-justiciable matter would be to debase the
principle of separation of powers that has been tightly woven by the Constitution into our republican
system of government.

Directly supporting our conclusion that Garcia raises a political question is his proposal to adopt
instead a system of partial deregulation – a system he presents as more consistent with the
Constitutional “dictate.” He avers that free market forces (in a fully deregulated environment) cannot
prevail for as long as the market itself is dominated by an entrenched oligopoly. In such a situation,
he claims that prices are not determined by the free play of supply and demand, but instead by the
entrenched and dominant oligopoly where overpricing and price-fixing are possible.[17][17] Thus,
before full deregulation can be implemented, he calls for an indefinite period of partial deregulation
through imposition of price controls.[18][18]
Petitioner Garcia’s thesis readily reveals the political,[19][19] hence, non-justiciable, nature of his
petition; the choice of undertaking full or partial deregulation is not for this Court to make. By
enacting the assailed provision – Section 19 – of R.A. No. 8479, Congress already determined that
the problems confronting the local downstream oil industry are better addressed by removing all
forms of prior controls and adopting a deregulated system. This intent is expressed in Section 2 of
the law:
SEC. 2. Declaration of Policy. – It shall be the policy of the State to
liberalize and deregulate the downstream oil industry in order to ensure a
truly competitive market under a regime of fair prices, adequate and
continuous supply of environmentally-clean and high-quality petroleum
products. To this end, the State shall promote and encourage the entry of
new participants in the downstream oil industry, and introduce adequate
measures to ensure the attainment of these goals.
This same line of reasoning was what we used when we dismissed the first Garcia case. The
petitioner correctly noted that this is not a matter of res judicata (as the respondents invoked), as the
application of the principle of res judicata presupposes that there is a final judgment or decree on the
merits rendered by a court of competent jurisdiction. To be exact, we are simply declaring that then,
as now, and for the same reasons, we find that there is no justiciable controversy that would justify
the grant of the petition.
CONCLUSION
To summarize, we declare that the issues petitioner Garcia presented to this Court are non-
justiciable matters that preclude the Court from exercising its power of judicial review. The
immediate implementation of full deregulation of the local downstream oil industry is a policy
determination by Congress which this Court cannot overturn without offending the Constitution and
the principle of separation of powers. That the law failed in its objectives because its adoption
spawned the evils petitioner Garcia alludes to does not warrant its nullification. In the words of Mr.
Justice Leonardo A. Quisumbing in the 1999 Garcia case, “[a] calculus of fear and pessimism xxx
does not justify the remedy petitioner seeks: that we overturn a law enacted by Congress and
approved by the Chief Executive.

In Tatad, we declared that the fundamental principle espoused by Section 19, Article XII of the
Constitution is competition.[20][20] Congress, by enacting R.A. No. 8479, determined that this
objective is better realized by liberalizing the oil market, instead of continuing with a highly regulated
system enforced by means of restrictive prior controls. This legislative determination was a lawful
exercise of Congress’ prerogative and one that this Court must respect and uphold. Regardless of
the individual opinions of the Members of this Court, we cannot, acting as a body, question the
wisdom of a co-equal department’s acts. The courts do not involve themselves with or delve into the

43
 o STANDARD OIL CO. V. US, 221 U.S. 1 (1910)
Standard Oil Co. of New Jersey v. United States was a Supreme Court case that tested the
strength of the Sherman Antitrust Act of 1890. The most contentious business case at the time to
reach the Supreme Court saw the United States government take on the countries largest
corporation (Standard Oil) and John D. Rockefeller, the countries wealthiest businessman.
The court ruled in favor of the United States and held that a business combination was illegal when it
was engaged in unreasonable restraint to trade. This resulted in the breakup of Standard Oil into
separate companies, all in competition with one another, effectively lowering prices.
Background
Former attorney for the Standard Oil Company in Ohio, C.T. Dodd, skirted around existing Ohio anti-
trust (or anti-competition) law by creating a new form of a trust in 1879 in order to allow the growing
corporation to own stock in other corporations. While Standard Oil was the strongest corporation
following these practices at the time, many industries were seeing an increase in mergers,
acquisitions, and trust formations resulting in market dominance being maintained by the few and
influencing many.
The Government alleged that Standard Oil did not solely benefit from the development of the new
trust formation and superior business practice but from “immoral acts – rebate taking, local price-
cutting” which did not evade state or federal regulation.
Issues
Arguments by Petitioner
Frank Kellogg, attorney
The argument was made that Rockefeller had obtained his monopoly through under the table deals,
threats, and bribery with railroad companies in order to receive special rates that would give his
companies and an unsurmountable advantage over his competitors in the regions. In response to the
defense that the profits and success were a result of efficiency and superior businiess tactics,
Kellogg would argue that the savings from the efficient processes were never reflected in the price of
the oil and thus never handed down to the consumer. Consequently, Rockefeller and his partners
continue to make extremely high profits.
Arguments by Respondent
John C. Milburn, attorney
The respondent argued that Rockefeller sought out favorable business agreements that any other
business had the ability to do and never did so with the intention of driving others out of the market.
Milburn also showed that consumers were not hurt in the process and that prices remained the same
for decades, creating a stable market which can not be said for many of the combinations and trusts
being formed at the time.
Witnesses such as Rockefeller’s business partner, Henry Flagler, would testify that there were no
illegal components of the deals made with railroad companies and that other companies received the
same rebates. The case was made that Rockefeller and the Standard Oil Co. made an appealing
offer to the railroad companies by offering continuous and exclusive business partnerships.
Decision
On May 15,1911, Chief Justice Edward White writing for the majority, the Court ruled that Standard
Oil and the listed 33 companies affiliated were participating in “restrain[t to] trade and commerce in
petroleum.” After thorough examination of English contextual meaning of reasonable restraint, Chief
Justice White determined that the attempt to control the free market through fixed pricing,
combinations/monopolies, and seeking to eliminate competition would be classified as unreasonable
and thus illegal.
STATES (1911)
Summary
Standard Oil Co. of New Jersey v. United States was a Supreme Court case that tested the
strength of the Sherman Antitrust Act of 1890. The most contentious business case at the time to
reach the Supreme Court saw the United States government take on the countries largest
corporation (Standard Oil) and John D. Rockefeller, the countries wealthiest businessman.
The court ruled in favor of the United States and held that a business combination was illegal when it
was engaged in unreasonable restraint to trade. This resulted in the breakup of Standard Oil into
separate companies, all in competition with one another, effectively lowering prices.
Background
Former attorney for the Standard Oil Company in Ohio, C.T. Dodd, skirted around existing Ohio anti-
trust (or anti-competition) law by creating a new form of a trust in 1879 in order to allow the growing
corporation to own stock in other corporations. While Standard Oil was the strongest corporation
44
following these practices at the time, many industries were seeing an increase in mergers,
acquisitions, and trust formations resulting in market dominance being maintained by the few and
influencing many.
The Government alleged that Standard Oil did not solely benefit from the development of the new
trust formation and superior business practice but from “immoral acts – rebate taking, local price-
cutting” which did not evade state or federal regulation.
Issues
Arguments by Petitioner
Frank Kellogg, attorney
The argument was made that Rockefeller had obtained his monopoly through under the table deals,
threats, and bribery with railroad companies in order to receive special rates that would give his
companies and an unsurmountable advantage over his competitors in the regions. In response to the
defense that the profits and success were a result of efficiency and superior businiess tactics,
Kellogg would argue that the savings from the efficient processes were never reflected in the price of
the oil and thus never handed down to the consumer. Consequently, Rockefeller and his partners
continue to make extremely high profits.
Arguments by Respondent
John C. Milburn, attorney
The respondent argued that Rockefeller sought out favorable business agreements that any other
business had the ability to do and never did so with the intention of driving others out of the market.
Milburn also showed that consumers were not hurt in the process and that prices remained the same
for decades, creating a stable market which can not be said for many of the combinations and trusts
being formed at the time.
Witnesses such as Rockefeller’s business partner, Henry Flagler, would testify that there were no
illegal components of the deals made with railroad companies and that other companies received the
same rebates. The case was made that Rockefeller and the Standard Oil Co. made an appealing
offer to the railroad companies by offering continuous and exclusive business partnerships.
Decision
On May 15,1911, Chief Justice Edward White writing for the majority, the Court ruled that Standard
Oil and the listed 33 companies affiliated were participating in “restrain[t to] trade and commerce in
petroleum.” After thorough examination of English contextual meaning of reasonable restraint, Chief
Justice White determined that the attempt to control the free market through fixed pricing,
combinations/monopolies, and seeking to eliminate competition would be classified as unreasonable
and thus illegal.
Majority Opinion (White)
Concurring Opinion (Harlan)
Dissenting Opinion (author)
Full Text of Opinions
Majority Opinion (White)
Concurring Opinion (Harlan)
Significance / Impact
Standard Oil was ordered to be broken into 33 different companies. Those who held stock in the
companies were given a percent of stock in each of the companies equal to their hold in Standard
Oil. As a result, Rockefeller’s wealth nearly tripled. His pre-ruling holdings in Standard Oil was
approximately 25% of the company. Rockefeller received 25% of the stock in each of the 33
companies which saw his wealth increase from $300 million to $900 million shortly after the ruling.
The business impact of the Court ordered dismantling of the oil empire underwent several changes
and is representative of some of the major oil corporations in existence today.
 Standard Oil of New Jersey – renamed Exxon, now part of ExxonMobil.
 Standard Oil of New York – renamed Mobil, now part of ExxonMobil.
 Standard Oil of California – renamed Chevron
 Standard Oil of Indiana – renamed Amoco (American Oil Co.) – now part of BP.
 Continental Oil Company – now part of ConocoPhillips.
 Standard Oil of Ohio – acquired by BP in 1987.
 The Ohio Oil Company – renamed Marathon Oil Company.
 South Penn Oil Co. – renamed Pennzoil, now part of Shell.
 Chesebrough Manufacturing – now part of Unilever, this company took the by-products of
the oil refining and reused them to make petroleum jelly a.k.a. vaseline.
45
D. CORPORATE POWERS

1. SOURCES OF CORPORATE POWERS

A. CORPORATE POWERS AND CAPACITY (ART. 42 OF THE
CIVIL CODE)
1. EXPRESS POWERS (SEC. 36 OF THE
CORPORATION CODE)
2. IMPLIED POWERS (SEC. 36 (11) OF THE
CORPORATION CODE)
3. INCIDENTAL POWERS (SEC. 2 OF THE
CORPORATION CODE)
VII. Kinds:
1. Express – those expressly authorized by the Corporation Code and
other laws, and its Articles of Incorporation or Charter.
2. Incidental – those that are incidental to the existence of the corporation.
3. Implied – those that can be inferred from or necessary for the exercise of
the express powers.
Classification of Implied Powers
a. Acts in the usual course of business
b. Acts to protect debts owing to the corporation
c. Acts which involve embarking in a different business usually to collect
debts out of profits
d. Acts to protect or aid employees
e. Acts to increase business (The Corporation Code of the Philippines
Annotated, Hector de Leon, 2002 ed.)

B. SPECIFIED POWERS

1. POWER TO SUE AND BE SUED (SEC. 36 (1) OF

THE CORPORATION CODE)

46
CORPORATE POWERS, AUTHORITY AND ACTIVITIES 9. To make reasonable donations, including those for the public
1. Corporate Power and Capacity (Art. 46, Civil welfare or hospital or charitable, cultural, scientific, civic or
Code; Secs. 36 and 45;
Land Bank of the Philippines v. COA, 190 SCRA 154 similar purposes: Provided, That no corporation, domestic or
[1990]) foreign shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;
Art. 46 Juridical persons may acquire and possess property of all
10. To establish pension, retirement, and other plans for the
kinds, as well as incur obligations and bring civil or criminal actions,
benefit of its directors, trustees, officers and employees; and
in conformity with the laws and regulations of their organization.
11. To exercise such other powers as may be essential or
Sec. 36 Corporate powers and capacity – Every corporation necessary to carry out its purpose or purposes as stated in
incorporated under this Code has the power and capacity: the articles of incorporation.

1. To sue and be sued in its corporate name; ▪ Sec. 45 Ultra vires acts of corporations – No corporation under this
Code shall possess or exercise any corporate powers except those
2. Of succession by its corporate name for the period of time conferred by this Code or by its articles of incorporation and except
stated in the articles of incorporation and the certificate of such as necessary or incidental to the exercise of the powers so
conferred.
incorporation;
3. To adopt and use a corporate seal; A corporation has only such powers as are expressly granted to it
by law and by its articles of incorporation, those which may be
4. To amend its articles of incorporations in accordance with the incidental to such conferred powers, those reasonably necessary to
provisions of this Code; accomplish its purposes and those which may be incident to its
existence. Pilipinas Loan Company v. SEC, 356 SCRA 193 (2001).
5. To adopt by-laws, not contrary to law, morals or public policy,
and to amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to
subscribers and to sell treasury stocks in accordance with the
provisions of this Code; and to admit members to the
corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and
personal property, including securities and bonds of other
corporations, as the transactions of the lawful business of the
corporation may reasonably and necessary require, subject to
the limitations prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as
provided in this Code;
47
 a) Classification of Corporate Powers: Express; Implied; and Incidental

EXPRESS IMPLIED INCIDENTAL

These powers given to a corporation either:
a.) By clear or express provision of the law.
▪ Some of the other powers expressly granted
under Sec. 36 are considered to be inherent
or incidental powers which even if not given
by express grant are
nevertheless deemed to be within the capacity of the
foreign entities (such as the power to adopt by-laws)
b.) By the charter or articles of incorporation.
▪ Express grant of authority from the board of
directors needed to validly bind the corporation.
▪ Thus the SC held that absent any board
resolution authorizing an officer or any person to
exercise express powers given to a corporation
such as filing a suit on its behalf, such an action
is invalid.
▪ The power of a corporation to sue and be sued in
any court is lodged with the board of directors
that exercise its corporate powers.
Those powers that exist as a necessary
consequence of:
a.) the exercise of express powers of the
corporation or
b.) the pursuit of its purpose as provided
for in the article of incorporation
▪ the management of a
corporation, in the absence of
express restrictions, has
discretionary authority to enter into
contracts or
transactions which may be deemed
reasonably necessary or incidental
to its business purpose.
Those powers that:
a.) attach to a corporation at the moment of
its creation
b.) without regard to its express powers or
particular primary purposes and
c.) is said to be inherent in it as a legal entity
or a legal organization.
Powers that go into the very nature and extent of
a corporation’s juridical entity cannot be presumed to be
incidental or inherent powers. This juridical entity is State-
grant and cannot be altered or amended without State

By-laws are not a source of powers.

Art. 46 of the Civil Code expressly provide for the Sub-paragraph 11 of Sec. 36 provide that a Sec. 2 of the Corp. Code provides the corporation as
powers of a corporation as a juridical personality corporation has the power and capacity having “the powers, attributes and properties
possesses to “exercise such powers as may be expressly authorized by law or
essential or necessary to carry out its
Sec. 36 of the Corporation Code expressly enumerates purpose or purposes as stated in its articles
the ten powers which a corporation may exercise incorporation.

Sec. 45 of the Corporation Code recognizes other powers

provided in the Article of Incorporation.
Generally exercised by the Board of Directors with Generally, purely members of the Board of Generally, purely members of the Board of Directors
exception to certain instances where shareholders’ Directors exercise this. exercise this.
assent are needed.

48
 EXCEPTION TO THE GENERAL RULE, in cases where the stockholders consent is
required, majority rules. The consent or dissent of the stockholders is recognized by their majority
▪ Ultra Vires doctrine is connected with ancillary doctrines as of (1) apparent vote or their qualified two-thirds as the case may be which would bind even those who abstained or
authority and of dissented. For those who dissented, there is a way out for them by way of exercising their appraisal
(2) estoppel. right (depending on the issue).
▪ One has to look at the corporation as a person before the law because of the
(1) issue of consent and (2) liability – who commits itself to obligation. The state General Powers and Capacity (Sec. 36)
only gives a corporation limited powers and not general powers as an
individual has because of the consent and liability.
1. To sue and be sued;
(b) Where Corporate Power Lodged 2. Of succession;
A corporation has no power except those expressly conferred on it by 3. To adopt and use of corporate seal;
the Corporation Code and those that are implied or incidental to its 4. To amend its Articles of Incorporation;
existence. In turn, a corporation exercises said powers through its board of 5. To adopt its by-laws;
directors and/or its duly authorized officers and agents. . . In turn, physical
6. For stock corporations: issue and sell stocks to subscribers and treasury stocks; for
acts of the corporation, like the signing of documents, can be performed
non-stock corporations: admit members;
only by natural persons duly authorized for the purpose by corporate by-
laws or by a specific act of the board of directors. Shipside Inc. v. Court of 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and deal
Appeals, 352 SCRA 334 (2001). with real and personal property, securities and bonds
8. To enter into merger or consolidation;
Unless otherwise provided by the Corporation Code, corporate powers
are exercised by the Board of Directors, which they may delegate to 9. To make reasonable donations for public welfare, hospital, charitable, cultural, scientific,
either an executive committee, officers or contracted managers. The civic or similar purposes, provided that no donation is given to any (i) political party, (ii)
delegation, except for the executive committee, must be for specific candidate and (iii) partisan political activity.
purposes, which makes the officers the agents of the corporation, and 10. To establish pension, retirement, and other plans for the benefit of its directors,
accordingly the general rules of agency as to the binding effects of their acts trustees, officers and employees.
would apply. For such officers to be deemed fully clothed by the corporation To exercise other powers essential or necessary to carry out its purposes.
to exercise a power of the Board, the latter must specially authorize them to
do so. ABS-CBN Broadcasting Corp. v. Court of Appeals, 301 SCRA 572 (1999).
▪ PRIMARY RULE: The Board of Directors/Trustees is the repository of all corporate
powers (sec.
23)
▪ The source of power of the board of directors is therefore primary and not
delegated power from the stockholders or members of the corporation. However,
there are specified instances in the Corporation Code where the particular
exercise of power of the corporation by the board, in order to be binding
and effective, requires the consent and ratification of the stockholders or
members, on one hand, and the State, on the other hand.
▪ IN CONSONANCE WITH CONTRACT LAW PRINCIPLES – in conformity with
the principles of contract law, that a party cannot relieve himself from the
contractual terms and conditions, much less amend or alter them, without the
consent or approval of the other party or parties.
49
 o BS SAVINGS BANK V. SIA, G.R. NO. 131214,
2000
BS SAVINGS BANK V. SIA
FACTS: A petition for certiorari filed by petitioner corp. BS Savings Bank was denied by the court of
Appeals on the ground that the Certification on anti-forum shopping incorporated in the petition was
signed not by the duly authorized representative of the petitioner, as required under Supreme Court
Circular No. 28-91, but by its counsel, in contravention of said circular. A Motion for Reconsideration
was subsequently filed by the petitioner corp. attached to it was a BA Savings Bank Corporate
Secretary’s Certificate authorizing the petitioner’s lawyers to represent it in any action or proceeding
before any court, tribunal or agency; and to sign, execute and deliver the Certificate of Non-forum
Shopping, among others. The Motion for Reconsideration was denied by the Court of Appeals on the
ground that Supreme Court Revised Circular No. 28-91 “requires that it is the petitioner, not the
counsel, who must certify under oath to all of the facts and undertakings required therein.” Hence,
this appeal.
vest such persons with the authority to bind the corporation and was specific enough as to the acts
they were empowered to do.
In the case of natural persons, Circular 28-91 requires the parties themselves to sign the certificate of
non-forum shopping. However, such requirement cannot be imposed on artificial persons, like
corporations, for the simple reason that they cannot personally do the task themselves. As already
stated, corporations act only through their officers and duly authorized agents. In fact, physical
actions, like the signing and the delivery of documents, may be performed, on behalf of the corporate
entity, only by specifically authorized individuals.
It is noteworthy that the Circular does not require corporate officers to sign the certificate. More
important, there is no prohibition against authorizing agents to do so.
In fact, not only was BA Savings Bank authorized to name an agent to sign the certificate; it also
exercised its appointing authority reasonably well. For who else knows of the circumstances
required in the Certificate but its own retained counsel. Its regular officers, like its board chairman
and president, may not even know the details required therein.

ISSUE: Whether Supreme Court Revised Circular No. 28-91 allows a corporation to authorize its
counsel to execute a certificate of non-forum shopping for and on its behalf.

RULING: A corporation, such as the petitioner, has no powers except those expressly conferred on
it by the Corporation Code and those that are implied by or are incidental to its existence. In turn, a
corporation exercises said powers through its board of directors and/or its duly authorized officers
and agents. Physical acts, like the signing of documents, can be performed only by natural persons
duly authorized for the purpose by corporate bylaws or by a specific act of the board of directors. “All
acts within the powers of a corporation may be performed by agents of its selection; and, except so
far as limitations or restrictions which may be imposed by special charter, by-law, or statutory
provisions, the same general principles of law which govern the relation of agency for a natural
person govern the officer or agent of a corporation, of whatever status or rank, in respect to his
power to act for the corporation; and agents once appointed, or members acting in their stead, are
subject to the same rules, liabilities and incapacities as are agents of individuals and private
persons.”

In the present case, the corporation’s board of directors issued a Resolution specifically authorizing
its lawyers “to act as their agents in any action or proceeding before the Supreme Court, the Court of
Appeals, or any other tribunal or agency[;] and to sign, execute and deliver in connection therewith
the necessary pleadings, motions, verification, affidavit of merit, certificate of non-forum shopping
and other instruments necessary for such action and proceeding.” The Resolution was sufficient to

50
 2. POWER TO EXTEND OR SHORTEN CORPORATE
Properties to a bond
TERM (SEC. 37 AND 81 (1) OF THE CORPORATION
CODE)
Other Powers
1. Extension /Shortening of Corporate Term (Sec. 37)
Procedure:
a. Approval by a majority vote of the board of directors/trustees.
b. Written notice of the proposed action and the time and place of meeting shall be
served to each stockholder or member either by mail or personal service.
c. Ratification by the stockholders representing at least 2/3 of the outstanding capital
stock or 2/3 of the members in case of non-stock corporations.
Every bond issue usually involve three parties: (1) the debtor – corporation; (2) the creditor –
bondholder; and (3) the trustee.
Bonds classified
Bonds are classified into: coupon or registered bonds, mortgage bonds, debentures,
convertible bonds, participating bonds, collateral trust bands, and
guaranteed bonds.
Power to Increase or Decrease Capital Stock (Sec. 38)
Coupon or registered bonds
Coupon bonds are payable to bearer or to the order of a person, and have attached to them
coupon notes for each instalment of interest as it falls due.

 May be used as a means to voluntarily dissolve a corporation. Such voluntary dissolution

may be effected by amending the articles of incorporation to shorten the corporate term Mortgage bond
(Sec. 120). A mortgage bond is one secured by a mortgage on corporate property.
A dissenting stockholder may exercise his appraisal right.

Sec. 81, not exclusive. Debenture bonds

Debenture bonds are not secured by specific corporate property but rather solely on the issuer’s
Such appraisal right may also be exercised when a stockholder dissents when a corporation or ability to pay the indebtedness.
business or for a purpose other than its main purpose. (Sec. 42)

When a stockholder of a close corporation may for any reason compel the corporation to Convertible bonds
purchase his shares from the par or issued value, when the corporation has sufficient assets in Convertible bonds are those which includes a provision which permits the holder of the bond to
its books to cover its debts and liabilities, exclusive of capital stock. (Sec. 105) convert the bond into a specified number of shares of stock of the corporation at his option
within a period fixed therein.

Participating bonds
3. POWER TO INCREASE OR DECREASE CAPITAL The owners or holders of participating bonds entitle them to participate in earnings of the
STOCK (SEC. 38 AND 16 OF THE CORPORATION corporation above the specified rates of interest fixed.

CODE)
Collateral trust bonds
Bonds – Bonds are in form and effect similar to promissory notes, secured by Collateral trust bonds are secured by a lien on securities deposited with a named trustee
mortgage or trust deed upon specified property of the debtor corporation. constituting the collateral.

51
 Guaranteed bonds g. Filing of the certificate with the SEC; and
Guaranteed bonds are guaranteed or secured by another corporation other than the issuing h. Approval thereof by the SEC.
corporation.

Ways of Increasing Authorized Capital Stock: 2. Power to Incur, Create or Increase Bonded Indebtedness (Sec.
38)
1. By increasing/decreasing the number of shares and retaining the par value;
2. By increasing/decreasing the par value of existing shares without increasing/decreasing Corporate bond - an obligation to pay a definite sum of money at a future time at fixed rate of
the number of shares; interest, whether secured or unsecured, evidenced by a written debt instrument called a bond or
3. By increasing/decreasing the number of shares and increasing/decreasing the par value. debenture.

Reasons for Increasing Capital Stock: Requirements:

a. To generate more working capital Same with the power to increase or decrease capital stock
b. To have more shares with which to pay for acquisition of more assets
c. To have extra shares to meet the requirement for deduction of stock dividend
(Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.).

Tools available to the Stockholders to Replenish Capital

a. Additional subscription to shares of stock of the corporation by stockholders or
by investors;
b. Advances by the stockholders to the corporation;
c. Payment of unpaid subscription by the stockholders; and
d. Loans from third persons.

Requirements:
a. Approval by the majority vote of the board of directors;
b. Ratification by the stockholders holding or representing at least 2/3 of the
outstanding capital stock at a meeting duly called for that purpose;
c. Prior written notice of the proposed increase or decrease of the capital stock
indicating the time and place of meeting addressed to each stockholder must be
made either by mail or personal service;
d. A certificate in duplicate signed by a majority of the directors of the corporation,
countersigned by the chairman and the secretary of the stockholders meeting;
e. In case of increase in capital stock, 25% of such increased capital must be
subscribed and that at least 25% of the amount subscribed must be paid either in
cash or property;
f. In case of decrease in capital stock, the same must not prejudice the right of the
creditors;

52
 o MADRIGAL & CO. V. ZAMORA, 151 SCRA 355 Capital reduction was nothing but a premature and plain distribution of corporate assets to obviate a
just sharing to labor of the vast profits obtained by its joint efforts with capital through the years.
(1987)
Madrigal & Company, Inc. vs. Zamora

Facts: Petitioner and Rizal Cement Co were sister companies. Both were owned by the same
stockholders. Respondent Labor Union (Madrigal Employees Union) sought for the renewal of their
CBA with the petitioner which included a demand for wage increase and other economic benefits.
However, petitioner requested for deferment in the negotiations.

Petitioner reduced its capital stock on two occasions. Such was effected through the distribution of
the marketable securities owned by the petitioner to its stockholders in exchange for their shares in
an equivalent amount in the corporation.

Petitioner's failure to negotiate with the labor union regarding their CBA prompted the latter to file a
complaint for ULP. Petitioner answered alleging that it has ceased operating temporarily because of
the stockholders' desire to phase out the operations of Madrigal & Co due to lack of business
incentives and prospects and in order to prevent further losses it has to reduce its capital stock and
effect retrenchment. LA rendered a decision in favor of the labor union. NLRC affirmed the said
decision.

Issue: W/N petitioner's reduction of its capital stock is justified.

Held: SC held that it was shown in the petitioner company's financial records that it had been making
substantial profits in its operation from 1972-1975. Its act of reducing its capital stock was done to its
responsibility to evade its responsibility towards the employees. The dividends received by the
company are corporate earnings arising from corporate investment." The petitioner company had
entered such earnings in its financial statements as profits, which it would not have done if they were
not in fact profits.

SC further held that it is incorrect to say that such profits — in the form of dividends — are beyond
the reach of the petitioner's creditors since the petitioner had received them as compensation for its
management services in favor of the companies it managed as a shareholder thereof. As such
shareholder, the dividends paid to it were its own money, which may then be available for wage
increments. It is not a case of a corporation distributing dividends in favor of its stockholders, in which
case, such dividends would be the absolute property of the stockholders and hence, out of reach by
creditors of the corporation. Here, the petitioner was acting as stockholder itself, and in that case, the
right to a share in such dividends, by way of salary increases, may not be denied its employees.

53