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EN BANC G.R. No. L-20214 March 17, 1923

G. C. ARNOLD, plaintiff-appellant, vs. WILLITS & PATTERSON, LTD., defendant-appellee. Fisher, DeWitt, Perkins and Brady for appellant. Ross and Lawrence for appellee. STATEMENT For a number of years prior to the times alleged in the complaint, the plaintiff was in the employ of the International Banking Corporation of Manila, and it is conceded that he is a competent and experienced business man. July 31, 1916, C. D. Willits and I. L. Patterson were partners doing business in San Francisco, California, under the name of Willits & Patterson. The plaintiff was then in San Francisco, and as a result of negotiations the plaintiff and the firm entered into a written contract, known in the record as Exhibit A, by which the plaintiff was employed as the agent of the firm in the Philippine Islands for certain purposes for the period of five years at a minimum salary of $200 per month and travelling expenses. The plaintiff returned to Manila and entered on the discharge of his duties under the contract. As a result of plaintiff's employment and the world war conditions, the business of the firm in the Philippines very rapidly increased and grew beyond the fondest hopes of either party. A dispute arose between the plaintiff and the firm as to the construction of Exhibit A as to the amount which plaintiff should receive for his services. Meanwhile Patterson retired from the firm and Willits became the sole owner of its assets. For convenience of operation and to serve his own purpose, Willits organized a corporation under the laws of California with its principal office at San Francisco, in and by which he subscribed for, and became the exclusive owner of all the capital stock except a few shares for organization purposes only, and the name of the firm was used as the name of the corporation. A short time after that Willits 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. At the time that Willits was in Manila and while to all intents and purposes he was the sole owner of the stock of corporations, there was a conference between him and the plaintiff over the disputed construction of Exhibit A. As a result of which another instrument, known in the record as Exhibit B, was prepared in the form of a letter which the plaintiff addressed to Willits at Manila on November 10, 1919, the purpose of which was to more clearly define and specify the compensation which the plaintiff was to receive for his services. Willits received and confirmed this letter by signing the name of Willits & Patterson, By C.d. Willits. At the time both corporations were legally organized, and there is nothing in the corporate minutes to show that Exhibit B was ever formally ratified or approved by either corporation. After its organization, the Manila corporation employed a regular accountant whose duty it was to audit the accounts of the company and render financial statements both for the use of the local banks and the local and parent corporations at San Francisco. From time to time and in the ordinary course of business such statements of account were prepared by the accountant and duly forwarded to the home office, and among other things was a statement of July 31, 1921, showing that there was due and owing the plaintiff under Exhibit B the sum of P106,277.50. A short time previous to that date, the San Francisco corporation became involved in financial trouble, and all of its assets were turned over to a "creditors' committee." When this statement was received, the "creditors' committee" immediately protested its allowance. An attempt was made without success to adjust the matter on a friendly basis and without litigation. January 10, 1922, the plaintiff brought this action to recover from the defendant the sum of P106,277.50 with legal interest and costs, and written instruments known in the record as Exhibits A and B were attached to, and made a part of, the complaint. For answer, the defendant admits the formal parts of the complaint, the execution of Exhibit A and denies each and every other allegation, except as specifically admitted, and alleges that what is known as Exhibit B was signed by Willits without the authority of the defendant corporation or the firm of Willits & Patterson, and that it is not an agreement which was ever entered into with the plaintiff by the defendant or the firm, and, as a separate defense and counterclaim, it alleges that on the 30th of June, 1920, there was a balance due and owing the plaintiff from the defendant under the contract Exhibit A of the sum of P8,741.05. That his salary from June 30, 1920, to July 31, 1921, under Exhibit A was $400 per month, or a total of P10,400. That about July 6, 1921, the plaintiff wrongfully took P30,000 from the assets of the firm, and that he is now indebted to the firm in the sum of P10,858.95, with interest and costs, from which it prays judgement. The plaintiff admits that he withdrew the P30,000, but alleges that it was with the consent and authority of the defendant, and denies all other new matter in the answer. Upon such issues a trial was had, and the lower court rendered judgment in favor of the defendant as prayed for in its counterclaim, from which the plaintiff appeals, contending that the trial court erred in not holding that the contract between the parties is that which is embodied in Exhibits A and B, and that the defendant assumed all partnership obligations, and in failing to render judgment for the plaintiff, as prayed for, and in dismissing his complaint, and denying plaintiff's motion for a new trial.

JOHNS, J.:

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In their respective briefs opposing counsel agree that the important questions involved are "what was the contract under which the plaintiff rendered services for five years ending July 31, 1921," and "what is due the plaintiff under that contract." Plaintiff contends that his services were performed under Exhibits A and B, and that the defendant assumed all of the obligations of the original partnership under Exhibit A, and is now seeking to deny its liability under, and repudiate, Exhibit B. The defendant admits that Exhibit A was the original contract between Arnold and the firm of Willits & Patterson by which he came to the Philippine Islands, and that it was therein agreed that he was to be employed for a period of five years as the agent of Willits & Patterson in the Philippine Islands to operate a certain oil mill, and to do such other business as might be deemed advisable for which he was to receive, first, the travelling expenses of his wife and self from San Francisco to Manila, second, the minimum salary of $200 per month, third, a brokerage of 1 per cent upon all purchases and sales of merchandise, except for the account of the coconut oil mill, fourth, one-half of the profits on any transaction in the name of the firm or himself not provided for in the agreement. That the agreement also provided that if it be found that the business was operated at a loss, Arnold should receive a monthly salary of $400 during such period. That the business was operated at a loss from June 30, 1920, to July 31, 1921, and that for such reason, he was entitled to nothing more than a salary of $400 per month, or for that period P10,400. Adding this amount to the P8,741.05, which the defendant admits he owed Arnold on June 30, 1920, makes a total of P19,141.05, leaving a balance due the defendant as set out in the counterclaim. In other words, that the plaintiff's compensation was measured by, and limited to, the above specified provisions in the contract Exhibit A, and that the defendant corporation is not bound by the terms or provisions of Exhibit B, which is as follows: WILLITS & PATTERSON, LTD. MANILA, P. I., Nov. 10, 1919. CHAS. D. WILLITS, Esq., Present. DEAR MR. WILLITS: My understanding of the intent of my agreement with Willits & Patterson is as under: Commissions. Willits & Patterson, San Francisco, pay me a commission of one per cent on all purchases made for them in the Philippines or sales made to them by Manila and one per cent on all sales made for them in the Philippines, or purchases made from them by Manila. If such purchases or sales are on an f. o. b. basis the commission is on the f. o. b. price; if on a c. i. f. basis the commission is computed on the c. i. f. price These commissions are credited to me in San Francisco. I do not participate in any profits on business transacted between Willits & Patterson, San Francisco, and Willits & Patterson, Ltd., Manila. Profits. On all business transacted between Willits & Patterson, Ltd. and others than Willits & Patterson, San Francisco, half the profits are to be credited to my account and half to the Profit & Loss account of Willits & Patterson, Ltd., Manila. On all other business, such as the Cooperative Coconut Products Co. account, or any other business we may undertake as agents or managers, half the profits are to be credited to my account and half to the Profit & Loss account of Willits & Patterson, Ltd., Manila. Where Willits & Patterson, San Francisco, or Willits & Patterson, Ltd., Manila, have their own funds invested in the capital stock or a corporation, I of course do not participate in the earnings of such stock, any more than Willits & Patterson would participate in the earnings of stock held by me on my account. If the foregoing conforms to your understanding of our agreement, please confirm below. Yours faithfully, (Sgd.) G. C. ARNOLD Confirmed: WILLITS & PATTERSON By (Sgd.) CHAS. D. WILLITS

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There is no dispute about any of the following facts: That at the inception C.D. Willits and I. L. Patterson constituted the firm of Willits & Patterson doing business in the City of San Francisco; that later Patterson retired from the firm, and Willits acquired all of his interests and thereafter continued the business under the name and style of Willits & Patterson; that the original contract Exhibit A was made between the plaintiff and the old firm at San Francisco on July 31, 1916, to cover a period of five years from that date; that plaintiff entered upon the discharged of his duties and continued his services in the Philippine Islands to someone for the period of five years; that on November 10, 1919, and as a result of conferences between Willits and the plaintiff, Exhibit B was addressed and signed in the manner and form above stated in the City of Manila. A short time prior to that date Willits organized a corporation in San Francisco, in the State of California, which took over and acquired all of the assets of the firm's business in California then being conducted under the name and style of Willits & Patterson; that he subscribed for all of the capital stock of the corporation, and that in truth and in fact he was the owner of all of its capital stock. After this was done he caused a new corporation to be organized under the laws of the Philippine Islands with principal office at Manila, which took over and acquired all the business and assets of the firm of Willits & Patterson in the Philippine Islands, in and to which, in legal effect, he subscribed for all of its capital stock, and was the owner of all of its stock. After both corporations were organized the above letter was drafted and signed. The plaintiff contends that the signing of Exhibit B 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. It will be noted that Exhibit B was executed in Manila, and that at the time it was signed by Willits, he was to all intents and purposes the legal owner of all the stock in both corporations. It also appears from the evidence that the parent corporation at San Francisco took over and acquired all of the assets and liabilities of the local corporation at Manila. That after it was organized the Manila corporation kept separate records and account books of its own, and that from time to time financial statements were made and forwarded to the home office, from which it conclusively appears that plaintiff was basing his claim for services upon Exhibit A, as it was modified by Exhibit B. That at no time after Exhibit B was signed was there ever any dispute between plaintiff and Willits as to the compensation for plaintiff's services. That is to say, as between the plaintiff and Willits, Exhibit B was approved, followed and at all times in force and effect, after it was signed November 10, 1919. It appears from an analysis of Exhibit B that it was for the mutual interest of both parties. From a small beginning, the business was then in a very flourishing conditions and growing fast, and the profits were very large and were running into big money. Among other things, Exhibit A provided: "(a) That the net profits from said coconut oil business shall be divided in equal shares between the said parties hereto; (b) that Arnold should receive a brokerage of 1 per cent from all purchases and sales of merchandise, except for the account of the coconut mills; (c) that the net profits from all other business should be divided in equal half shares between the parties hereto." Under the above provisions, the plaintiff might well contend that he was entitled to one-half of all the profits and a brokerage of 1 per cent from all purchases and sales, except those for the account of the coconut oil mills, which under the volume of business then existing would run into a very large sum of money. It was for such reason and after personal conferences between them, and to settle all disputed questions, that Exhibit B was prepared and signed. The record recites that "the defendant admits that from July 31, 1916 to July 31, 1921, the plaintiff faithfully performed all the duties incumbent upon him under his contract of employment, it being understood, however, that this admission does not include an admission that the plaintiff placed a proper interpretation upon his right to remuneration under said contract of employment." It being admitted that the plaintiff worked "under his contract of employment" for the period of five years, the question naturally arises, for whom was he working? His contract was made with the original firm of Willits & Patterson, and that firm was dissolved and it ceased to exist, and all of its assets were merged in, and taken over by, the parent corporation at San Francisco. In the very nature of things, after the corporation was formed, the plaintiff could not and did not continue to work for the firm, and, yet, he continued his employment for the full period of five years. For whom did he work after the partnership was merged in the corporation and ceased to exist? It is very apparent that, under the conditions then existing, the signing of Exhibit B was for the mutual interests of both parties, and that if the contract Exhibit A was to be enforced according to its terms, that Arnold might well contend for a much larger sum of money for his services. In truth and in fact Willits and both corporations recognized his employment and accepted the benefits of his services. He continued his employment and rendered his services after the corporation were organized and Exhibit B was signed just the same as he did before, and both corporations recognized and accepted his services. Although the plaintiff was president of the local corporation, the testimony is conclusive that both of them were what is known as a one man corporation, and Willits, as the owner of all of the stock, was the force and dominant power which controlled them. After Exhibit B was signed it was recognized by Willits that the plaintiff's services were to be performed and measured by its term and provisions, and there never was any dispute between plaintiff and Willits upon that question. The controversy first arose after the corporation was in financial trouble and the appointment of what is known in the record as a "creditors' committee." There is no claim or pretense that there was any fraud or collusion between plaintiff and Willits, and it is very apparent that Exhibit B was to the mutual interest of both parties. It is elementary law that if Exhibit B is a binding contract between the plaintiff and Willits and the corporations, it is equally binding upon the creditors' committee. It would not have any higher or better legal right than the corporation itself, and could not make any defense which it could not make. It is very significant that the claim or defense which is now interposed by the creditors' committee was never made or asserted at any previous time by the defendant, and that it never was made by Willits, and it is very apparent that if he had remained in control of the corporation, it would never have made the defense which is now made by the creditors' committee. The record is conclusive that at the time he

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signed Exhibit B, Willits was, in legal effect, the owner and holder of all the stock in both corporations, and that he approved it in their interest, and to protect them from the plaintiff having and making a much larger claim under Exhibit A. As a matter of fact, it appears from the statement of Mr. Larkin, the accountant, in the record that if plaintiff's cause of action was now founded upon Exhibit A, he would have a claim for more than P160,000. Thompson on Corporations, 2d ed., vol. I, section 10, says: The proposition that a corporation has an existence separate and distinct from its membership has its limitations. It must be noted that this separate existence is for particular purposes. It must also be remembered that there can be no corporate existence without persons to compose it; there can be no association without associates. This separate existence is to a certain extent a legal fiction. Whenever necessary for the interests of the public or for the protection or enforcement of the rights of the membership, courts will disregard this legal fiction and operate upon both the corporation and the persons composing it. In the same section, the author quotes from a decision in 49 Ohio State, 137 ; 15 L. R. A., 145, in which the Supreme Court of Ohio says: "So long as a proper use is made of the fiction that a corporation is an entity apart from its shareholders, it is harmless, and, because convenient, should not be called in question; but where it is urged to an end subversive of its policy, or such is the issue, the fiction must be ignored, and the question determined whether the act in question, though done by shareholders, that is to say, by the persons uniting in one body, was done simply as individuals, and with respect to their individual interest as shareholders, or was done ostensibly as such, but, as a matter of fact, to control the corporation, and affect the transaction of its business, in the same manner as if the act had been clothed with all the formalities of a corporate act. This must be so, because, the stockholders having a dual capacity, and capable of acting in either, and a possible interest to conceal their character when acting in their corporate capacity, the absence of the formal evidence of the character of the act cannot preclude judicial inquiry on the subject. If it were otherwise, then in that department of the law fraud would enjoy an immunity awarded to it in no other." 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. (U. S. Gypsum Co. vs. Mackay Wall Plaster Co., 199 Pac., 249.) Ruling Case Law, vol. 7, section 663, says: While of course a corporation cannot ratify a contract which is strictly ultra vires, and which it in the first instance could not have made, it may by ratification render binding on it a contract, entered into on its behalf by its officers or agents without authority. As a general rule such ratification need not be manifested by any voted or formal resolution of the corporation or be authenticated by the corporate seal; no higher degree of evidence is requisite in establishing ratification on the part of a corporation, than is requisite in showing an antecedent authorization. xxx xxx xxx
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SEC. 666. The assent or approval of a corporation to acts done on its account may be inferred in the same manner that the absent of a natural person may be, and it is well settled that where a corporation with full knowledge of the unauthorized act of its officer or agents acquiesces in and consents to such acts, it thereby ratifies them, especially where the acquiescence results in prejudice to a third person. xxx xxx xxx

SEC. 669. So, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affair, his authority to represent the corporation may be inferred from the manner in which he has been permitted by the directors to transact its business. SEC. 656. In accordance with a well-known rule of the law of agency, notice to corporate officers or agents within the scope or apparent scope of their authority is attributed to the corporation. SEC. 667. As a general rule, if a corporation with knowledge of its agents unauthorized act received and enjoys the benefits thereof, it impliedly ratifies the unauthorized act if it is one capable of ratification by parol. In its article on corporations, Corpus Juris, in section 2241 says: Ratification by a corporation of a transaction not previously authorized is more easily inferred where the corporation receives and retains property under it, and as a general rule where a corporation, through its proper officers or board, takes and retains the benefits of the unauthorized act or contract of an officer or agent, with full knowledge of all the material facts, it thereby ratifies and becomes bound by such act of contract, together with all the liabilities and burdens resulting

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therefrom, and in some jurisdiction this rule is, in effect, declared by statute. Thus the corporation is liable on the ground of ratification where, with knowledge of the facts, it accepts the benefit of services rendered under an unauthorized contract of employment . . . . Applying the law to the facts. Mr. Larkin, an experienced accountant, was employed by the local corporation, and from time to time and in the ordinary course of business made and prepared financial statements showing its assets and liabilities, true copies of which were sent to the home office in San Francisco. It appears upon their face that plaintiff's compensation was made and founded on Exhibit B, and that such statements were made and prepared by the accountant on the assumption that Exhibit B was in full force and effect as between the plaintiff and the defendant. In the course of business in the early part of 1920, plaintiff, as manager of the defendant, sold 500 tons of oil for future delivery at P740 per ton. Due to break in the market, plaintiff was able to purchase the oil at P380 per ton or a profit of P180,000. It appears from Exhibit B under the heading of "Profits" that: On all the business transacted between Willits & Patterson, Ltd. and others than Willits & Patterson, San Francisco, half the profit are to be credited to may account and half to the Profit & Loss account Willits & Patterson, Ltd., Manila. The purchasers paid P105,000 on the contracts and gave their notes for P75,000, and it was agreed that all of the oil purchased should be held as security for the full payment of the purchase price. As a result, the defendant itself received the P105,000 in cash, P75,000 in notes, and still holds the 500 tons of oil as security for the balance of the purchase price. This transaction was shown in the semi-annual financial statement for the period ending December 31, 1920. That is to say, the business was transacted by and through the plaintiff, and the defendant received and accepted all of the profits on the deal, and the statement which was rendered gave him a credit for P90,737.88, or half the profit as provided in the contract Exhibit B, with interest. Although the previous financial statements show upon their face that the account of plaintiff was credit with several small items on the same basis, it was not until the 23d of March, 1921, that any objection was ever made by anyone, and objection was made for the first time by the creditors' committee in a cable of that date. As we analyze the facts Exhibit B was, in legal effect, ratified and approved and is now binding upon the defendant corporation, and the plaintiff is entitled to recover for his services on that writing as it modified the original contract Exhibit A. It appears from the statement prepared by accountant Larkin founded upon Exhibit B that the plaintiff is entitled to recover P106,277.50. It is very apparent that his statement was based upon the assumption that there was a net profit of P180,000 on the 500 tons of oil, of which the plaintiff was entitled to one-half. In the absence of any other proof, we have the right to assume that the 500 tons of oil was worth the amount which the defendant paid for them at the time of the purchase or P380 per ton, and the record shows that the defendant took and now has the possession of all of the oil secure the payment of the price at which it was sold. Hence, the profit on the deal to the defendant at the time of the sale would amount to the difference between what the defendant paid for the oil and the amount which it received for the oil at the time it sold the oil. It appears that at the time of the sale the defendant only received P105,000 in cash, and that it took and accepted the promissory notes of Cruz & Tan Chong Say, the purchasers, for P75,000 more which have been collected and may never be. Hence, it must follow that the amount evidence by the notes cannot now be deemed or treated as profits on the deal and cannot be until such times as the notes are paid. The judgment of the lower court is reversed, and a money judgment will be entered here in favor of the plaintiff and against the defendant for the sum of P68,527.50, with thereon at the rate of 6 per cent per annum from the 10th day of January, 1922. In addition thereto, judgment will be rendered against the defendant in substance and to the effect that the plaintiff is the owner of an undivided one-half interest in the promissory notes for P75,000 which were executed by Cruz & Tan Chong Say, as a part of the purchase price of the oil, and that he is entitled to have and receive one-half of all the proceeds from the notes or either of them, and that also he have judgment against the defendant for costs. So ordered. Araullo, C. J., Street, Malcolm, Avancea, Ostrand, and Romualdez, JJ., concur. Arnold vs. Willits and Patterson 1916. The Firm Willits & Patterson in San Francisco entered into a contract with Arnold whereby Arnold was to be employed for a period of five years as the agent of the firm here in the PI to operate an oil mill for which he was to receive a minimum salary of $200/mth, a 1% brokerage fee from all purchases and sales of merchandise, and half of the profits of the oil business and other businesses. provided if the business was at a loss, Arnold would receive $400/mth. Later, Patterson retired and Willits acquired all interests of the business.

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Willits organized a new Corp in San Francisco which took over and acquired all assets of the Firm Willits & Patterson. Willits was the owner of all the capital stock. New corp had the same name. After, Willits, organized a new Corporation here in the PI to take over all the business and assets of the firm here in the PI. Willits was the owner of all the capital stock. Later, there was dispute with regard to the construction of the contract as a result, a new contract in the form of a letter was entered into. Willits signed this. The statements of account showed that 106K was due and owing to Arnold. W&P Corp was in financial trouble and all assets were turned over to a creditors committee. 1922. Arnold filed this complaint to recover 106K from W&P. W&P argues that the 2 contract was signed without authority. And as counterclaim alleged that Arnold took 30K from the Corp but only 19.1K was due to him thus he owed 10.1K to W&P. CFI ordered Arnold to return the 10.1K. SC reverses. Arnold entitled to 68K plus half of 75K, representing PNs. Both Corps organized by Willits were a One Man Corporation. After the 2 contract was signed it was recognized by Willits that Arnolds services were to be performed by its terms and there never was any dispute between Arnold and Willits. Although a new corp was created, the new corp dealt with and treated Arnold as its agent in the same manner as the previous corp had, thus the new corp is bound by the contract which the old firm made. In fact, the 2 contract protected Willits from a larger claim, which the accountant said, would be over 160K. Where a stock of a corporation is owned by one person whereby the corp functions only for the benefit of such individual owner, the corp and the individual should be deemed to be the same. Thus the corp is bound by the contract.
nd nd nd

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

LA CAMPANA FACTORY, INC., and TAN TONG doing business under the trial name "LA CAMPANA GAUGAU PACKING", petitioners, vs. KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA (KKM) and THE COURT OF INDUSTRIAL RELATIONS, respondents. Ceferino de los Santos, R., Ceferino de los Santos, Jr. and Manuel V. Roxas for petitioners. Carlos E. Santiago for respondent union. REYES, J.: Tan Tong, one of the herein petitioners, has since 1932 been engaged in the business of buying and selling gaugau under the trade name La Campana Gaugau Packing with an establishment in Binondo, Manila, which was later transferred to Espaa Extension, Quezon City. But on July 6, 1950, Tan Tong, with himself and members of his family corporation known as La Campana Factory Co., Inc., with its principal office located in the same place as that of La Campana Gaugau Packing. About a year before the formation of the corporation, or on July 11, 1949, Tan Tong had entered into a collective bargaining agreement with the Philippine Legion of Organized Workers, known as PLOW for short, to which the union of Tan Tong's employees headed by Manuel E. Sadde was then affiliated. Seceding, however, from the PLOW, Tan Tong's employees later formed their own organization known as Kaisahan Ng Mga Manggagawa Sa La Campana, one of the herein respondents, and applied for registration in the Department of Labor as an independent entity. Pending consideration of this application, the Department gave the new organization legal standing by issuing it a permit as an affiliate to the Kalipunan Ng Mga Manggagawa. On July 19, 1951, the Kaisahan Ng Mga Manggagawa Sa La Campana , hereinafter to be referred to as the respondent Kaisahan, which, as of that date, counted with 66 members workers all of them of both La Campana Gaugau Packing and La Campana Coffee Factory Co., Inc. presented a demand for higher wages and more privileges, the demand being addressed to La Campana Starch and Coffee Factory, by which name they sought to designate, so it appears, the La Campana Gaugau Packing and the La

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Campana Coffee Factory Co., Inc. As the demand was not granted and an attempt at settlement through the mediation of the Conciliation Service of the Department of Labor had given no result, the said Department certified the dispute to the Court of Industrial Relations on July 17, 1951, the case being there docketed as Case No. 584-V. With the case already pending in the industrial court, the Secretary of Labor, on September 5, 1951, revoked the Kalipunan Ng Mga Kaisahang Manggagawa's permit as a labor union on the strength of information received that it was dominated by subversive elements, and, in consequence, on the 20th of the same month, also suspended the permit of its affiliate, the respondent Kaisahan. We have it from the court's order of January 15, 1952, which forms one of the annexes to the present petition, that following the revocation of the Kaisahan's permit, "La Campana Gaugau and Coffee Factory" (obviously the combined name of La Campana Gaugau Packing and La Campana Coffee Factory Co., Inc,) and the PLOW, which had been allowed to intervene as a party having an interest in the dispute, filed separate motions for the dismissal of the case on the following grounds: 1. That the action is directed against two different entities with distinct personalities, with "La Campana Starch Factory" and the "La Campana Coffee Factory, Inc."; 2. That the workers of the "La Campana Coffee Factory, Inc." are less than thirty-one; 3. That the petitioning union has no legal capacity to sue, because its registration as an organized union has been revoked by the Department of Labor on September 5, 1951; and 4. That there is an existing valid contract between the respondent "La Campana Gaugau Packing" and the intervenor PLOW, where-in the petitioner's members are contracting parties bound by said contract. Several hearings were held on the above motions, in the course of which ocular inspections were also made, and on the basis of the evidence received and the facts observed in the ocular inspections, the Court of Industrial Relations denied the said motions in its order of January 14, 1952, because if found as a fact that: A. While the coffee corporation is a family corporation with Mr. Tan Tong, his wife, and children as the incorporations and stockhelders (Exhibit 1), the La Campana Gaugau Packing is merely a business name (Exhibit 4). B. According to the contract of lease (Exhibit 23), Mr. Tan Tong., propriety and manager of the Ka Campana Gaugau Factory, leased a space of 200 square meters in the bodega housing the gaugau factory to his son Tan Keng Lim, manager of the La Campana Coffee Factory. But the lease was executed only on September 1, 1951, while the dispute between the parties was pending before the Court. C. There is only one entity La Campana Starch and Coffee Factory, as shown by the signboard (Exhibit 1), the advertisement in the delivery trucks (Exhibit I-1), the packages of gaugau(Exhibit K), and delivery forms (Exhibits J, J-1, and J-2). D. All the laborers working in the gaugau or in the coffee factory receive their pay from the same person, the cashier, Miss Natividad Garcia, secretary of Mr. Tan Tong; and they are transferred from the gaugau to the coffee and vice-versa as the management so requires. E. There has been only one payroll for the entire La Campana personnel and only one person preparing the same Miss Natividad Garcia, secretary of Mr. Tan Tong. But after the case at bar was certified to this Court on July 17, 1951, the company began making separate payrolls for the coffee factory (Exhibits M-2 and M-3, and for the gaugau factory (Exhibits O-2, O-3 and O-4). It is to be noted that before July 21, 1951, the coffee payrolls all began with number "41-Maria Villanueva" with 24 or more laborers (Exhibits M and M-1), whereas beginning July 21, 1951, the payrolls for the coffee factory began with No. 1-Loreta Bernabe with only 14 laborers (Exhibits M-2 and M-3). F. During the ocular inspection made in the factory on August 26, 1951 the Court has found the following: In the ground floor and second floor of the gaugau factory there were hundreds of bags of raw coffee behind the pile of gaugau sacks. There were also women employees working paper wrappers for gaugau, and, in the same place there were about 3,000 cans to be used as containers for coffee. The Court found out also that there were 16 trucks used both for the delivery of coffee and gaugau. To show that those trucks carried both coffee and gaugau, the union president invited the Court to examine the contents of delivery truck No. T-582 parked in a garage between the gaugau building and the coffee factory, and upon examination, there were found inside the said truck boxes of gaugau and cans of coffee, and held that:

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. . . there is only one management for the business of gaugau and coffee with whom the laborers are dealing regarding their work. Hence, the filing of action against the Ka Campana Starch and Coffee Factory is proper and justified. With regards to the alleged lack of personality, it is to be noted that before the certification of the case to this Court on July 17, 1951, the petitioner Kaisahan Ng Mga Manggagawa Sa La Campana , had a separate permit from the Department of Labor. This permit was suspended on September 30, 1951. (Exhibit M-Intervenor, page 55, of the record). It is not true that, on July 17, 1951, when this case forwarded to this Court, the petitioner's permit, as an independent union, had not yet been issued, for the very Exhibit MM-Intervenor regarding the permit, conclusively shows the preexistence of said permit. (Annex G.) Their motion for reconsideration of the above order having been denied, Tan Tong and La Campana Coffee Factory, Inc. (same as La Campana Coffee Factory Co., Inc.), later joined by the PLOW, filed the present petition for certiorari on the grounds that the Court of Industrial Relations had no jurisdiction to take cognizance of the case, for the reason, according to them, "(1) that the petitioner La Campana Coffee Factory, Inc. has only 14 employees, only 5 of whom are members of the respondent union and therefore the absence of the jurisdictional number (30) as provided by sections 1 and 4 of Commonwealth Act No. 103; and, (2) that the suspension of respondent union's permit by the Secretary of Labor has the effect of taking away the union's right to collective bargaining under section 2 of Commonwealth Act No. 213 and consequently, its personality to sue for ad in behalf of its members." As to the first ground, petitioners obviously do not question the fact that the number of employees of the La Campana Gaugau Packing involved in the case is more than the jurisdictional number (31) required bylaw, but they do contend that the industrial court has no jurisdiction to try the case as against La Campana Coffee Factory, Inc. because the latter has allegedly only 14 laborers and only of these are members of the respondent Kaisahan. This contention loses force when it is noted that, as found by the industrial court and this finding is conclusive upon us La Campana Gaugau Packing and La Campana Coffee Factory Co. Inc., are operating under one single management, that is, as one business though with two trade names. True, the coffee factory is a corporation and, by legal fiction, an entity existing separate and apart fro the persons composing it, that is, Tan Tong and his family. But it is settled that this fiction of law, which has been introduced as a matter of convenience and to subserve the ends of justice cannot be invoked to further an end subversive of that purpose. Disregarding Corporate Entity. The doctrine that a corporation is a legal entity existing separate and apart from the person composing it is a legal theory introduced for purposes of convenience and to subserve the ends of justice. The concept cannot, therefore, be extended to a point beyond its reason and policy, and when invoked in support of an end subversive of this policy, will be disregarded by the courts. Thus, in an appropriate case and in furtherance of the ends of justice, a corporation and the individual or individuals owning all its stocks and assets will be treated as identical, the corporate entity being disregarded where used as a cloak or cover for fraud or illegality. (13 Am. Jur., 160-161.) . . . A subsidiary or auxiliary corporation which is created by a parent corporation merely as an agency for the latter may sometimes be regarded as identical with the parent corporation, especially if the stockholders or officers of the two corporations are substantially the same or their system of operation unified. (Ibid. 162; see Annotation 1 A. L. R. 612, s. 34 A. L. R. 599.) In the present case Tan Tong appears to be the owner of the gaugau factory. And the coffee factory, though an incorporated business, is in reality owned exclusively by Tan Tong and his family. As found by the Court of industrial Relations, the two factories have but one office, one management and one payroll, except after July 17, the day the case was certified to the Court of Industrial Relations, when the person who was discharging the office of cashier for both branches of the business began preparing separate payrolls for the two. And above all, it should not be overlooked that, as also found by the industrial court, the laborers of the gaugau factory and the coffee factory were interchangeable, that is, the laborers from the gaugau factory were sometimes transferred to the coffee factory and vice-versa. In view of all these, the attempt to make the two factories appears as two separate businesses, when in reality they are but one, is but a device to defeat the ends of the law (the Act governing capital and labor relations) and should not be permitted to prevail. The second point raised by petitioners is likewise with-out merit. In the first place, there being more than 30 laborers involved and the Secretary of Labor having certified the dispute to the Court of Industrial Relations, that court duly acquired jurisdiction over the case (International Oil Factory vs. NLU, Inc. 73 Phil., 401; section 4, C. A. 103). This jurisdiction was not when the Department of Labor suspended the permit of the respondent Kaisahan as a labor organization. For once jurisdiction is acquired by the Court of Industrial Relations it is retained until the case is completely decided. (Manila Hotel Employees Association vs. Manila Hotel Co. et al., 73 Phil., 374.) In view of the foregoing, the petition is denied, with costs against the petitioner. Paras, C.J., Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo, Bautista Angelo and Labrador, JJ., concur. La Compana Coffee Factory Inc. vs. Kaisahan ng mga manggagawa sa La Campana

9
Tan Tong has been engaged in the business of buying and selling guagua under the trade name La Campana Guagua Packing. Later, Tan Tong and his family organized a family corporation known as La Campana Coffee Factory Co. Inc, with its principal office located in the same place as that of La Campana Guagua Packing.

A year before the formation of the corporation, Tan Tong had entered into a CBA with the Phil. Legion of Organized Workers (PLOW) to which th e union of Tan Tongs employees was affiliated. Said employees later formed their organization known as Kaisahan Ng Mga Manggagawa sa La Campana and applied for registration in the Dept. of Labor as an independent entity.

The Kaisahan Ng Mga Manggagawa Sa La Campana, composed of 66 members consisting of both members of LCGP and LCCF, presented a demand for higher wages and more privileges addressed to La Campana Starch and Coffee Factory, by which name they sought to designate the LCGP and the LCCF. However, the demand was not granted and the attempt to settle the matter through mediation had given no result. So the Dept. of Labor certified the dispute to the Court of Industrial Relations.

The 2 corpos as combined and the PLOW moved for the dismissal of the case which includes the ground, among others, that the action is directed against 2 different entities with distinct personalities the La Campana Starch Factory and the La Campana Coffee Factory Inc. CIR denied. MR was filed on the grounds that CIR had no jurisdiction to take cognizance of the case for the reason, among others, that the petitioner La Campana Coffee Factory, has only 14 employees, only 5 of whom are members of the respondent union and therefore the absence of the jurisdictional number of 30.

ISSUE

WON THE CIR HAS JURISDICTION

HELD

YES. CIR HAS JURISDICTION bec the number of employees of the La Campana Gaugau Packing involved in the

case is more than the jurisdictional number (31) required by law.

La Campana Gaugau Packing and La Campana Coffee Factory are operating under one single mgt, that is, as one business though with 2 trade names. It is true that the coffee factory is a corpo and, by legal fiction, an entity existing separate and apart from the persons composing it, that is, Tan Tong and his family. But it is settled that this fiction of law, which has been introduced as a matter of convenience and to subserve the ends of justice cannot be invoked to further an end subversive of that purpose.

In the present case, Tan Tong appears to be the owner of the gaugau factory. And the coffee factory, though an incorporated business, is in reality owned exclusively by Tan Tong and his family. As found by the CIR:

The 2 factories have only 1 office, 1 mgt and 1 payroll The laborers of the gaugau factory and the coffee factory were interchangeable laborers from the gaugau factory were sometimes transferred to the coffee factory and vice-versa

Thus, the attempt to make the 2 factories appear as 2 separate businesses, when in reality they are but one, is but a device to defeat the ends of the law (the Act governing capital and labor relations) and shld not be permitted to prevail. Yutivo Sons Hardware Co. vs. CTA Post under case digests, Commercial Law at Wednesday, March 07, 2012 Posted by Schizophrenic Mind Facts: Yutivo, a domestic corporation incorporated in 1916 under Philippine laws, was engaged in the importation and sale ofhardware supplies and equipment. 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.

10
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 Yutivos founders.

After SMs 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.

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.

An assessment was made upon Yutivo for deficiency sales tax. 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.

The assessment was disputed by petitioner. 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.

Issue: Whether or not the corporate personality of SM could be disregarded.

Held: Yes. 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. Yutivos liability arose only until July 1, 1947 when it became the importer. Hence, there was no tax to evade.

However, SC agreed with the respondent court that SM was actually owned and controlled by petitioner. Consideration of various circumstances indicate that Yutivo treated SM merely as its department or adjunct:

a. The founders of the corporation are closely related to each other by blood and affinity.

b. The object and purpose of the business is the same; both are engaged in sale of vehicles, spare parts, hardware supplies and equipment.

c. The accounting system maintained by Yutivo shows that it maintained high degree of control over SM accounts.

d. Several correspondences have reference to Yutivo as the head office of SM. SM may even freely use forms or stationery of Yutivo.

11
e. All cash collections of SMs branches are remitted directly to Yutivo.

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

g. 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 Yutivos president, Yu Khe Thai.

h. 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. Lidell Co. v. Collector of Internal Revenue Facts: The case is an appeal from the decision of the Court of Tax Appeals imposing a tax deficiency liability of P1,317,629.61 on Liddell & Co., Inc. The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation establish in the Philippines on February 1, 1946. 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. 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. The Collector of Internal Revenue argued that the Lidell Motors, Inc. was but an alter ego of Liddell & Co. and 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. hence the imposition of tax deficiency. Issue: Whether or not Lidell Motors, Inc. is an alter ego of Lidell& Co. making it liable for the said tax deficiency? Held: The Court held that Lidell Motors, Inc. is an alter ego of Lidell& Co. hence makin it liable for tax deficiency based on the principle that to allow a taxpayer to deny tax liability on the ground that the sales were made through an other and distinct corporation when it is proved that the latter is virtually owned by the former or that they are practically one and the same is to sanction a circumvention of our tax laws which is consistent with the view of the US Supreme Court stating in one case 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." 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. The mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other. There is, however, in this instant case, a peculiar consequence of the organization and activities of Liddell Motors, Inc.

12
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. In Lidell& Co.: (1) Frank Liddell had the authority to designate in the future the employee who could receive earnings of the corporation; to apportion among the stock holders the share in the profits; (2) that all certificates of stock in the names of the employees should be deposited with Frank Liddell duly indorsed in blank by the employees concerned; (3) that each employee was required to sign an agreement with the corporation to the effect that, upon his death or upon his retirement or separation for any cause whatsoever from the corporation, the said corporation should, within a period of sixty days therefor, have the absolute and exclusive option to purchase and acquire the whole of the stock interest of the employees so dying, resigning, retiring or separating. As to Liddell Motors, Inc Frank Lidell also owned it. He supplied the original capital funds. It is not proven that his wife Irene, ostensibly the sole incorporator of Liddell Motors, Inc. had money of her own to pay for her P20,000 initial subscription. Her income in the United States in the years 1943 and 1944 and the savings therefrom could not be enough to cover the amount of subscription, much less to operate an expensive trade like the retail of motor vehicles. The alleged sale of her property in Oregon might have been true, but the money received therefrom was never shown to have been saved or deposited so as to be still available at the time of the organization of the Liddell Motors, Inc. The evidence at hand also shows that Irene Liddell had scant participation in the affairs of Liddell Motors, Inc. She could hardly be said to possess business experience. The income tax forms record no independent income of her own. As a matter of fact, the checks that represented her salary and bonus from Liddell Motors, Inc. found their way into the personal account of Frank Liddell. Her frequent absences from the country negate any active participation in the affairs of the Motors company.

EN BANC G.R. No. L-22614 August 29, 1969

RAMIREZ TELEPHONE CORPORATION, petitioner, vs. BANK OF AMERICA, E.F. HERBOSA, THE SHERIFF OF MANILA and THE COURT OF APPEALS, respondents. Quijano and Arroyo, for petitioner. Lichauco, Picazo and Agcaoili for respondent Bank of America. Vicente M. Magpoc for respondent E.F. Herbosa. Fiscal Eulogio S. Serrano for respondent Sheriff of Manila. CAPISTRANO, J.: This is a petition for review on certiorari of a decision of the Court of Appeals of February 27, 1964, wherein the judgment of the lower court was reversed and another entered dismissing the complaint of plaintiff, now petitioner, Ramirez Telephone Corporation, and ordering it to pay to defendant, now respondent, Bank of America, the sum of P500.00 and to the third-party defendant E.F. Herbosa, now likewise respondent, the same amount, both in the concept of attorney's fees, the costs being adjudged likewise 1 against petitioner. The judgment of the Court of First Instance which was reversed by the Court of Appeals reads as follows: In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiff and against the defendant Bank of America ordering the latter to pay the former the sum of P3,000.00 in the form of actual damages, and to pay the costs of these proceedings.

13
Likewise, judgment is hereby rendered sentencing the third-party defendant, E.F. Herbosa, to indemnify or reimburse the third-party plaintiff, Bank of America, any sum or sums which the latter may pay the plaintiff by virtue of this judgment. The third-party complaint against the Sheriff of Manila as well as the counterclaim of defendant Bank of America and thirdparty defendant E.F. Herbosa are hereby ordered dismissed. The facts as found by the Court of Appeals, which we cannot review are set forth in its decision, thus:
2

Resultando: Que los hechos al parecer, no son muy embrollados; el demandado, Herbosa era y es dueno del edificio No. 612, Int. 3 Sta. Mesa; se lo habia dado en arrendamiento a 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, 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, Herbosa pudo conseguir decision favorable alli el 14 de Octubre, 1950, pero en la vispera de la promulgacion de la sentencia a su favor habia ya conseguido mandamiento de embargo preventivo contra Ramirez, Exh. A, y el mismo, servido al Bank of America el 13 de Octubre, 1950, Exh. 2, lease como sigue: Civil Case No. 10620 E.F. Herbosa, Plaintiff -- versus -GARNISHMENT

Ruben R. Ramirez, Defendant To: Bank of America Manila Greetings: You and each of you are hereby notified that, by virtue of an order of attachment issued by the Court of First Instance of Manila, copy of which is hereto attached, levy is hereby made (or attachment is hereby levied) upon all the goods, effects, interests, credits, money, stocks, shares, any interests in stocks and shares and all debts owing by you to the defendant, Ruben R. Ramirez ---------, in the above entitled case, and any other personal property in your possession or under your control, belonging to the said defendant --------- on this date, to cover the amount of P2,400.00 and specially the ... . xxx 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; xxx xxx

14
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; ... ." 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; ... .

15
The aforestated facts notwithstanding, which must be considered conclusive and binding on us, plaintiff in the lower court, now 4 petitioner, Ramirez Telephone Corporation, as noted, appealed, assigning the following alleged errors: 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 5 have in the corporation." 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 6 corporation. 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 7 8 Instance reaffirming a 1965 resolution in Albert v. University Publishing Co., Inc. 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. 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. SECOND DIVISION

G.R. No. 100322 March 9, 1994 GUATSON INTERNATIONAL TRAVEL AND TOURS, INC., PHILIPPINE INTEGRATED LABOR ASSISTANCE CORPORATION, MERCURY EXPRESS INTERNATIONAL COURIER SERVICES, INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION AND JOLLY ALMORADIE, respondents. Generosa R. Jacinto for petitioners.

16
Donato H. De Castro and Rolando P. Rotairo for private respondent.

NOCON, J.: 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 in Case No. NLRC-NCR-00-11-0451-88 entitled "Jolly M. Almoradie v. Guatson's Travel Company, Philac and MEREX," dated March 21, 1991 and its Resolution, dated May 31, 1991, denying the petitioners' Motion for Reconsideration. In the questioned decision, the NLRC found that Mr. Henry Ocier's (Vice-President and General Manager of petitioner Guatson Travel) actuation of threatening and forcing private respondent, Jolly M. Almoradie, to resign amounted to illegal dismissal and thus ordered petitioners to pay private respondent backwages, computed from the date of his dismissal on November 1988, until the decision was rendered on February 28, 1991 or the amount of P50,328.00; and to pay separation pay equivalent to one-half (1/2) month for every year of service, for seven (7) years or the amount of P6,524.00. From the records it appears that Jolly M. Almoradie was first employed by Mercury Express International Courier Service, Inc. (MEREX) in October, 1983 as Messenger receiving a monthly salary of P800.00. When it closed its operations, Almoradie was absorbed by MEREX's sister company Philippine Integrated Labor Assistance Corp. (Philac), likewise as Messenger with an increased salary of P1,200.00. In September, 1986, Almoradie was transferred to Guatson Travel, allegedly also a sister company of MEREX and Philac, as Liaison Officer with a salary of P1,864.00. Thereafter, he was promoted to the position of Sales Representative sometime in April, 1988. On April 30, 1988, Almoradie was issued three separate memoranda as follows: IOM/88-70 Please explain in writing within 24 hrs. or not later than Monday morning the reason why you 1 don't want to sell. IOM/88-71 Please explain in writing why did you went (sic) to BEMIL and who sent you there. IOM-88 Explain in writing not later than Monday the following: 1. The reason why you want to be a messenger and no more a sales representative; 2. That I'm always confronting (sic) you, as what you've told me personally; 3. Why you will not answer in writing the memo issued to you by Lou Cantara on 30 Apr; xxx xxx xxx 5. Why when you were asked last Friday to join the Sales Blitz to Sta. Ana you said yes and you change (sic) your mind when you were asked again last Saturday; xxx xxx xxx 7. Why you have forgotten the situation wherein you refuse ( sic) to sell a certain product recommended by Myrna; 8. The meaning of "You pirated me from Philac . . .
3 2

Within the time frame specified, Almoradie responded to each of the charges, the essence of which are as follows: 1. It is not true that I do not want to sale (sic) the rates & package tour of Our Company as imputed and charge (sic), because since April, 1988 (sic) when I was transferred from Accounting to sales department of our Company I was able to sale (sic) almost 110 dollars to 21 passengers. The truth however is that, I am hampered in my sales promotion and solicitation of customer, due to financial constraint considering that the kind and nature of work entails much expenses for which I shouldered (sic) with my personal money. As a matter of fact I have brought this

17
matter to the Vice President and General Manager if only an appropriation be set aside for the expenses in going around, meeting people and soliciting prospective clients. 2. Bemil is a customer of our company. With respect to the ticketing and booking of Bemil passengers, undertaking (sic) by the sales department of our company, I used to go Bemil ( sic) to inquire whether they have passengers for booking and ticketing. As a matter of fact, I went to Bemil to pick-up their ticketing and booking for their passengers last Monday, April 29, 1988 (sic) and then returned the following day, Saturday April 30, 1988, to deliver the ticket. xxx xxx xxx 3.1. Considering that the job of sales representative entails so much expense in the performance thereof ( sic), as I have stated in my number one (1) explanation and I have to use my own personal money to promote and solicit customer without any funding of our company (sic), I have taught (sic) it better that I like my position as messenger, that (sic) as sales representative, although the later ( sic) position is more dignified, hence I prefer to be entered to my messenger position. 3.2. That I admit of the often confrontation conducted (sic) by Vice President/General Manager, even in the absence of my error or fault (sic) . . . 3.3. It is not true that I did not or fail to answer the memo issued by Lou Cantara, since I was given until May 2, 1988 to answer the same . . . xxx xxx xxx 3.5. As scheduled, I said yes to the sales blitz to Sta. Ana, because in truth I am very interested in such sales business attack since it is in connection with my function as a sales representative that will surely enhance and sharpen my sales acumen, but if I was not able to join it is not the reason my change of mind ( sic), but because the Vice-President/General Manager of Our Company, Henry Ocier summoned me to his office and had a very lengthy confrontation of me (sic), and when I go out (sic) after the confrontation to join the sales blitz-krieg to Sta. Ana last Saturday, April 30, 1988, Mr. Oscar Vanderlipe who heads the sales Group ( sic) were (sic) already gone. xxx xxx xxx 3.7. I deny vehemently that I refuse to sale (sic) a certain product recommended by Myrna de Vera because the same is totally false. Since April 1, 1988 when I was transferred to the sales department of our company where from the very beginning I was briefed and taught and learned about the nature of my job and the product to sale (sic) by Myrna (sic) de Vera herself, I have ever since until now ventured and performed the selling of rates and package tour which are every products (sic) for sales department of our company. If sometimes I make no sales, which all sales representative suffer and are beset such (sic), however, cannot be considered as refusal to sale (sic). The only product of our Company that Myrna briefed, taught and required as to (sic) our rates and Package Tours which I've been selling since April 1, 1988 up to present. (sic) xxx xxx xxx
4

On May 4, 1988, Almoradie was reverted to the position of Messenger, yet sometime in September, 1988, he was again given the position of Account Executive, the nature of work of which is similar to that of a sales representative. Almoradie accepted the transfer with the understanding that he will solely discharge the duties of an account executive and will no longer be required to do messengerial work. In the morning of October 1, 1988, Almoradie was allegedly summoned by Henry Ocier to his office and was there and then forced by the latter to resign. Ocier taunted Almoradie with threats that 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 5 wrote and signed the resignation letter dictated by Ocier himself. On that same day, Almoradie sought the help of a friend, Isagani Mallari, who advised him to report the matter to the Barangay 6 Captain. Subsequently, Almoradie filed a complaint for illegal Dismissal on November 14, 1988. The Labor Arbiter, however dismissed his case based on the following conclusions: In examining the facts and the arguments, it is difficult to abide by the impression that complainant was forced to resign. Apart from the averment of respondent Guatson that Mr. Ocier was out of town when the resignation 7 letter was executed that he just saw the resignation letter when he arrived. There is reason to believe that complainant apparently defied the order for his transfer or designation as account executive earlier before he executed his resignation letter.

18
It must be concluded that his designation as account executive is a management prerogative which under the circumstance is untainted with any unfair labor practice. Apparently, complainant resented his resignation without any plausible or cogent reason as he had earlier resented to be a sales representative for which he was made to explain the reasons why. The only graceful exit to the complainant was to execute his letter of resignation. As his 8 letter of resignation shows, it was executed in his own handwriting spontaneously out of his own free will. Upon Almoradie's appeal, the NLRC reversed the decision of the Labor Arbiter on his finding that complainant was not forced to resign, anchoring its conclusion to the fact that Almoradie was a permanent employee who has been working for the Ocier's for five long years; that he was receiving a fairly good salary considering that he is single; that he had no potential employer at the time of his resignation; that there was no evidence to show that Mr. Henry Ocier was indeed not in town on October 1, 1988, when he allegedly forced Almoradie to resign; and his reaction immediately after his forced resignation by seeking the assistance of a friend who was placed in a similar situation before and in reporting the incident to the Barangay Chairman to seek redress. The issue therefore, boils down to the question of whether Jolly Almoradie was indeed illegally dismissed by being forced to resign in the manner narrated by him. From a synthesis of the evidence on record, we fully agree with the finding of the NLRC that Jolly Almoradie's resignation was NOT voluntary. The NLRC did not err in disregarding the conclusions reached by the Labor Arbiter because the latter's findings are not supported by substantial evidence. It appears that as early as April, 1988, when Almoradie was promoted as Sales Representative he had caught the ire of management, so much so that he was issued no less than three memoranda on 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 on sales. On the other hand, it would be difficult to dismiss him while being a messenger since he is a permanent employee and there would not be enough basis to make him resign. We do not agree with petitioners' proposition that Mr. Ocier's mere utterances of the words "I will file charges against you," and "I have a very good lawyer," do not constitute force or coercion as to vitiate the free will of Almoradie in writing his resignation letter. Intimidation may vitiate consent when the following requisites are present: (1) that the intimidation caused the consent to be given; 2) that the threatened act be unjust or unlawful; 3) that the threat be real or serious, there being evident disproportion between the evil and the resistance which all man can offer, leading to the choice of doing that act which is forced on the person to do as the lesser evil; and 4) that it produces a well-grounded fear from the fact that the person from whom it comes has the necessary means 9 or ability to inflict the threatened injury to his person or property. The moment that a person by whom respect and reverence are due should wrongly exert pressure upon his subordinates, amounting to intimidation in the manner stated in the Lichauco de Leon case, supra, in order to exact from said subordinates an act against their will, the same is enough to vitiate consent. Henry Ocier did not only say that he will file charges against Almoradie and that he has a good lawyer but he even threatened to block his future employment should the latter not file his resignation. This threat is not farfetched. Almoradie is not even a college 10 graduate. With his limited skills and the scarcity of employment opportunities it would really be difficult for him to find a job. Considering further the influence of Mr. Henry Ocier and his capacity to make good his threat by refusing to give a favorable recommendation on Almoradie's performance, the latter is helpless in not complying with the former's demand for his resignation. Anent NLRC's grant of separation pay and backwages to private respondent Jolly M. Almoradie, petitioners argues that the companies, Guatson Travel Company, Philac Merex have separate and distinct legal personalities such that the latter companies should not be held liable; assuming, for the sake of argument that private respondent was illegally dismissed. We uphold the NLRC. The three companies are owned by one family, such that majority of the officers of the companies are the same. The companies are located in one building and use the same messengerial service. Moreover, there was no showing that private respondent was paid separation pay when he was absorbed by Philac upon closure of Merex; nor was there evidence that he resigned from Philac when he transferred to Guatson Travel. Under the doctrine of piercing the veil of corporate fiction, when valid ground exists, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. We have applied this doctrine in the case of "Philippine Scout Veterans Security and Investigation Agency (PSVSIA), et al. v. The Hon. Secretary of Labor," G.R. No. 92357, July 21, 1993. Where there is a finding of illegal dismissal, the employee is entitled to both reinstatement and award of backwages from the time 11 the compensation was withheld, in this case in 1988, up to a maximum of three years, applying the Mercury Drug Rule. Reinstatement, however, will not be required not only for the reason that it was not prayed for by the respondent, but also because the relationship between Almoradie and Ocier had become strained as to preclude a harmonious working relationship. In lieu of 12 reinstatement, separation pay is awarded. As the term suggests, separation pay is the amount that an employee receives at the

19
time of his severance from the service and is designed to provide the employee with the wherewithal during the period that he is 13 looking for another employment. However the award of separation pay should be, as we have consistently ruled, equivalent to one (1) month for every year of 14 service, instead of one-half (1/2) month as awarded by the NLRC. In the computation of separation pay, the three (3) year period 15 wherein backwages are awarded, must be included. WHEREFORE, the decision of the NLRC is hereby MODIFIED to the extent that the award of backwages should be computed based on a three-year period, while the separation pay of one month for every year of service should be computed from the time petitioner was employed by Merex and should include the three-year period as backwages. The petition is hereby DISMISSED for lack of merit. SO ORDERED. Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur. FIRST DIVISION

G.R. No. 108734 May 29, 1996 CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.

HERMOSISIMA, JR., J.:p The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into one. Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play. This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave abuse of discretion when it issued a "break-open order" to the sheriff to be enforced against personal property found in the premises of petitioner's sister company. Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers. On November, 1981, private respondents were served individual written notices of termination of employment by petitioner, effective on November 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the project in which they were hired had been completed. Public respondent found it to be, the fact, however, that 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. Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner. On December 19, 1984, the Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year or three hundred working days. On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by 2 petitioner on the ground that the said decision had already become final and executory.
1

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On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents' back wages 3 amounted to P199,800.00. On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC. On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former positions. On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises. On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution. The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989: 1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent; 2. Levy was made upon personal properties he found in the premises; 3. Security guards with high-powered guns prevented him from removing the properties he had levied upon.
4

The said special sheriff recommended that a "break-open order" be issued to enable him to enter petitioner's premises so that he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989. On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President. On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and petitioner corporation were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order. In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities Exchange Commission (SEC) and the General Information Sheet, dated May 25, 1987, submitted by HPPI to the Securities and Exchange Commission. The General Information Sheet submitted by the petitioner revealed the following: 1. Breakdown of Subscribed Capital Name of Stockholder Amount Subscribed HPPI P 6,999,500.00 Antonio W. Lim 2,900,000.00 Dennis S. Cuyegkeng 300.00 Elisa C. Lim 100,000.00 Teodulo R. Dino 100.00 Virgilio O. Casino 100.00 2. Board of Directors Antonio W. Lim Chairman Dennis S. Cuyegkeng Member

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Elisa C. Lim Member Teodulo R. Dino Member Virgilio O. Casino Member 3. Corporate Officers Antonio W. Lim President Dennis S. Cuyegkeng Assistant to the President Elisa O. Lim Treasurer Virgilio O. Casino Corporate Secretary 4. Principal Office 355 Maysan Road Valenzuela, Metro Manila.
5

On the other hand, the General Information Sheet of HPPI revealed the following: 1. Breakdown of Subscribed Capital Name of Stockholder Amount Subscribed Antonio W. Lim P 400,000.00 Elisa C. Lim 57,700.00 AWL Trading 455,000.00 Dennis S. Cuyegkeng 40,100.00 Teodulo R. Dino 100.00 Virgilio O. Casino 100.00 2. Board of Directors Antonio W. Lim Chairman Elisa C. Lim Member Dennis S. Cuyegkeng Member Virgilio O. Casino Member Teodulo R. Dino Member 3. Corporate Officers Antonio W. Lim President Dennis S. Cuyegkeng Assistant to the President Elisa C. Lim Treasurer Virgilio O. Casino Corporate Secretary

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4. Principal Office 355 Maysan Road, Valenzuela, Metro Manila.
6

On February 1, 1990, HPPI filed an Opposition to private respondents' motion for issuance of a break-open order, contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction. On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion for break-open order. Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter, issued a breakopen order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit. Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3, 1992. Hence, the resort to the present petition. Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a thirdparty claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioner's construction business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, 7 the same President and the same set of officers and subscribers. We find petitioner's contention to be unmeritorious. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from 8 other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction 9 created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat 10 public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate 11 personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the 12 corporation is merely an adjunct, a business conduit or an alter ego of another corporation. The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit: 1. Stock ownership by one or common ownership of both corporations. 2. Identity of directors and officers. 3. The manner of keeping corporate books and records. 4. Methods of conducting the business.
13

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 fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of instances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as 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;

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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 14 and the individual defendant's relationship to that operation. Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely 15 one of fact. In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. Furthermore, the NLRC stated that: Both information sheets were filed by the same Virgilio O. Casio as the corporate secretary of both corporations. It would also not be amiss to note that both corporations had the same president, thesame 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 third-party claimant shared the same address and/or premises. Under this circumstances, (sic) it cannot be said that the 16 property levied upon by the sheriff were not of respondents. Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wages 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 financial liability that already attached to petitioner corporation. The facts in this case are analogous to Claparols v. Court of Industrial Relations, 7 where we had the occasion to rule: Respondent court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioner. It is very clear that the latter corporation was a continuation and successor of the first entity . . . . Both predecessors and successor were owned and controlled by petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was owned by respondent . . . Claparols himself, and all the assets of the dissolved Claparols Steel and Nail plant were turned over to the emerging Claparols Steel Corporation. 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 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. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that: Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place where the property subject of execution is located or kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open order. Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim. Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter. Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by substantial 18 evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion.
1

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WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are AFFIRMED. SO ORDERED. Padilla, Bellosillo, Vitug and Kapunan, JJ., concur. Concept Builders Inc. vs. National Labor Relations Commission [GR 108734, 29 May 1996] Facts: Concept Builders, Inc., (CBI) a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business while Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos were employed by said company as laborers, carpenters and riggers. On November 1981, Marabe, et. al. were served individual written notices of termination of employment by CBI, effective on 30 November 1981. It was stated in the individual notices that their contracts of employment had expired and the project in which they were hired had been completed. The National Labor Relations Commission (NLRC) found it to be, the fact, however, that at the time of the termination of Marabe, et.al.'s employment, the project in which they were hired had not yet been finished and completed. CBI had to engage the services of sub-contractors whose workers performed the functions of Marabe, et. al. Aggrieved, Marabe, et. al. filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against CBI. On 19 December 1984, the Labor Arbiter rendered judgment ordering CBI to reinstate Marabe et. al. and to pay them back wages equivalent to 1 year or 300 working days. On 27 November 1985, the NLRC dismissed the motion for reconsideration filed by CBI on the ground that the said decision had already become final and executory. On 16 October 1986, the NLRC Research and Information Department made the finding that Marabe, et. al.'s back wages amounted to P199,800.00. On 29 October 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated 19 December 1984. The writ was partially satisfied through garnishment of sums from CBI's debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC. On 1 February 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from CBI the sum of P117,414.76, representing the balance of the judgment award, and to reinstate Marabe, et. al. to their former positions. On 13 July 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the security guard on duty but the service was refused on the ground that CBI no longer occupied the premises. On 26 September 1986, upon motion of Marabe, et. al., the Labor Arbiter issued a second alias writ of execution. The said writ had not been enforced by the special sheriff because, as stated in his progress report dated 2 November 1989, that all the employees inside CBI's premises claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by CBI; that levy was made upon personal properties he found in the premises; and that security guards with high-powered guns prevented him from removing the properties he had levied upon. The said special sheriff recommended that a "break-open order" be issued to enable him to enter CBI's premises so that he could proceed with the public auction sale of the aforesaid personal properties on 7 November 1989. On 6 November 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by HPPI, of which he is the Vice-President. On 23 November 1989, Marabe, et. al. filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and CBI were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that Marabe, et. al. were willing to post an indemnity bond to answer for any damages which CBI and HPPI may suffer because of the issuance of the break-open order. On 2 March 1990, the Labor Arbiter issued an Order which denied Marabe, et. al.'s motion for break-open order. Marabe, et. al. then appealed to the NLRC. On 23 April 1992, the NLRC set aside the order of the Labor Arbiter, issued a break-open order and directed Marabe, et. al. to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit. CBI moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated 3 December 1992. Hence, the petition. Issue: Whether the NLRC was correct in issuing the break-open order to levy the HPPI properties located at CBI amd/or HPPIs premises at 355 Maysan Road, Valenzuela, Metro Manila. Held: It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation. The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit: (1) Stock ownership by one or common ownership of both corporations; (2) Identity of directors and officers; (3) The manner of keeping corporate books and records; and (4) Methods of conducting the business. The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the separate juridical personality of corporations as "Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may be disregarded. The control necessary to invoke the rule is not

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majority or even complete stock control but such domination of instances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made." The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as (1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to that operation. Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely one of fact. Here, while CBI claimed that it ceased its business operations on 29 April 1986, it filed an Information Sheet with the Securities and Exchange Commission on 15 May 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. Further, both information sheets were filed by the same Virgilio O. Casio as the corporate secretary of both corporations. Both corporations had the same president, the same board of directors, the same corporate officers, and substantially the same subscribers. From the foregoing, it appears that, among other things, the CBI and the HPPI shared the same address and/or premises. Under these circumstances, it cannot be said that the property levied upon by the sheriff were not of CBI's. Clearly, CBI ceased its business operations in order to evade the payment to Marabe, et. al. of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of CBI and its emergence was skillfully orchestrated to avoid the financial liability that already attached to CBI. FIRST DIVISION G.R. No. L-28694 May 13, 1981 TELEPHONE ENGINEERING & SERVICE COMPANY, INC., petitioner, vs. WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF RIZAL and LEONILA SANTOS GATUS, for herself and in behalf of her minor children, Teresita, Antonina and Reynaldo, all surnamed GATUS, respondents.

MELENCIO-HERRERA, J.:1wph1.t These certiorari proceedings stem from the award rendered against petitioner Telephone Engineering and Services, Co., Inc. (TESCO) on October 6, 1967 by the Acting Referee of Regional Office No. 4, Quezon City Sub-Regional Office, Workmen's Compensation Section, in favor of respondent Leonila S. Gatus and her children, dependents of the deceased employee Pacifico L. Gatus. The principal contention is that the award was rendered without jurisdiction as there was no employer-employee relationship between petitioner and the deceased. Petitioner is a domestic corporation engaged in the business of manufacturing telephone equipment with offices at Sheridan Street, Mandaluyong, Rizal. Its Executive Vice-President and General Manager is Jose Luis Santiago. It has a sister company, the Utilities Management Corporation (UMACOR), with offices in the same location. UMACOR is also under the management of Jose Luis Santiago. On September 8, 1964, UMACOR employed the late Pacifica L. Gatus as Purchasing Agent. On May 16, 1965, Pacifico L. Gatus was detailed with petitioner company. He reported back to UMACOR on August 1, 1965. On January 13, 1967, he contracted illness and although he retained to work on May 10, 1967, he died nevertheless on July 14, 1967 of "liver cirrhosis with malignant degeneration." On August 7, 1967, his widow, respondent Leonila S. Gatus, filed a "Notice and Claim for Compensation" with Regional Office No. 4, Quezon City Sub-Regional Office, Workmen's Compensation Section, alleging therein that her deceased husband was an employee 1 of TESCO, and that he died of liver cirrhosis. On August 9, 1967, and Office wrote petitioner transmitting the Notice and for Compensation, and requiring it to submit an Employer's Report of Accident or Sickness pursuant to Section 37 of the Workmen's 2 Compensation Act (Act No. 3428). An "Employer's Report of Accident or Sickness" was thus submitted with UMACOR indicated as the employer of the deceased. The Report was signed by Jose Luis Santiago. In answer to questions Nos. 8 and 17, the employer stated that it would not controvert the claim for compensation, and admitted that the deceased employee contracted illness "in 3 regular occupation." On the basis of this Report, the Acting Referee awarded death benefits in the amount of P5,759.52 plus burial 4 expenses of P200.00 in favor of the heirs of Gatus in a letter-award dated October 6, 1967 against TESCO. Replying on October 27, 1967, TESCO, through Jose Luis Santiago, informed the Acting Referee that it would avail of the 15-daysnotice given to it to state its non-conformity to the award and contended that the cause of the illness contracted by Gatus was in no 5 way aggravated by the nature of his work.

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On November 6, 1967, TESCO requested for an extension of ten days within which to file a Motion for Reconsideration, and on 7 November 15, 1967, asked for an additional extension of five days. TESCO filed its "Motion for Reconsideration and/or Petition to Set Aside Award" on November 18, 1967, alleging as grounds therefor, that the admission made in the "Employer's Report of Accident or Sickness" was due to honest mistake and/or excusable negligence on its part, and that the illness for which 8 compensation is sought is not an occupational disease, hence, not compensable under the law. The extension requested was denied. The Motion for Reconsideration was likewise denied in an Order issued by the Chief of Section of the Regional Office dated 9 December 28, 1967 predicated on two grounds: that the alleged mistake or negligence was not excusable, and that the basis of the award was not the theory of direct causation alone but also on that of aggravation. On January 28, 1968, an Order of execution was issued by the same Office. On February 3, 1968, petitioner filed an "Urgent Motion to Compel Referee to Elevate the Records to the Workmen's Compensation 10 Commission for Review." Meanwhile, the Provincial Sheriff of Rizal levied on and attached the properties of TESCO on February 17, 1968, and scheduled the sale of the same at public auction on February 26, 1968. On February 28, 1968, the Commission issued an Order requiring petitioner to submit verified or true copies of the Motion for Reconsideration and/or Petition to Set Aside Award and Order of December 28, 1967, and to show proof that said Motion for Reconsideration was filed within the reglementary period, with the warning that failure to comply would result in the dismissal of the Motion. However, before this Order could be released, TESCO filed with this Court, on February 22, 1968, The present petition for "Certiorari with Preliminary Injunction" seeking to annul the award and to enjoin the Sheriff from levying and selling its properties at public auction. On February 29, 1968, this Court required respondents to answer the Petition but denied Injunction. TESCO'S Urgent Motion dated April 2, 1968, for the issuance of a temporary restraining order to enjoin the Sheriff from proceeding with the auction sale of its properties was denied in our Resolution dated May 8, 1968. TESCO asserts: 1wph1.t I. That the respondent Workmen's Compensation Commission has no jurisdiction nor authority to render the award (Annex 'D', Petition) against your petitioner there being no employer-employee relationship between it and the deceased Gatus; II. That petitioner can never be estopped from questioning the jurisdiction of respondent commission especially considering that jurisdiction is never conferred by the acts or omission of the parties; III. That this Honorable Court has jurisdiction to nullify the award of respondent commission. TESCO takes the position that the Commission has no jurisdiction to render a valid award in this suit as there was no employeremployee relationship between them, the deceased having been an employee of UMACOR and not of TESCO. In support of this contention, petitioner submitted photostat copies of the payroll of UMACOR for the periods May 16-31, 1967 and June 1-15, 12 1967 showing the name of the deceased as one of the three employees listed under the Purchasing Department of UMACOR. It also presented a photostat copy of a check of UMACOR payable to the deceased representing his salary for the period June 14 to 13 July 13, 1967. Both public and private respondents contend, on the other hand, that TESCO is estopped from claiming lack of employer employee relationship. To start with, a few basic principles should be re-stated the existence of employer-employee relationship is the jurisdictional 14 foundation for recovery of compensation under the Workmen's Compensation Law. The lack of employer-employee relationship, however, is a matter of defense that the employer should properly raise in the proceedings below. The determination of this 15 relationship involves a finding of fact, which is conclusive and binding and not subject to review by this Court. Viewed in the light of these criteria, we note that it is only in this Petition before us that petitioner denied, for the first time, the employer-employee relationship. In fact, in its letter dated October 27, 1967 to the Acting Referee, in its request for extension of time to file Motion for Reconsideration, in its "Motion for Reconsideration and/or Petition to Set Aside Award," and in its "Urgent Motion to Compel the Referee to Elevate Records to the Commission for Review," petitioner represented and defended itself as the employer of the deceased. Nowhere in said documents did it allege that it was not the employer. Petitioner even admitted that TESCO 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 16 fiction may be pierced as when the same is made as a shield to confuse the legitimate issues. While, indeed, jurisdiction cannot be conferred by acts or omission of the parties, TESCO'S denial at this stage that it is the employer 17 of the deceased is obviously an afterthought, a devise to defeat the law and evade its obligations. This denial also constitutes a 18 change of theory on appeal which is not allowed in this jurisdiction. Moreover, issues not raised before the Workmen's 19 Compensation Commission cannot be raised for the first time on appeal. For that matter, a factual question may not be raised for 20 the first time on appeal to the Supreme Court.
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This certiorari proceeding must also be held to have been prematurely brought. Before a petition for certiorari can be instituted, all 21 remedies available in the trial Court must be exhausted first. certiorari cannot be resorted to when the remedy of appeal is 22 present. What is sought to be annulled is the award made by the Referee. However, TESCO did not pursue the remedies available to it under Rules 23, 24 and 25 of the Rules of the Workmen's Compensation Commission, namely, an appeal from the award of the Referee, within fifteen days from notice, to the Commission; a petition for reconsideration of the latter's resolution, if adverse, to the Commission en banc; and within ten days from receipt of an unfavorable decision by the latter, an appeal to this Court. As petitioner had not utilized these remedies available to it, certiorari win not he, it being prematurely filed. As this Court ruled in the case of Manila Jockey Club, Inc. vs. Del Rosario, 2 SCRA 462 (1961). 1wph1.t An aggrieved party by the decision of a Commissioner should seek a reconsideration of the decision by the Commission en banc. If the decision is adverse to him, he may appeal to the Supreme Court. An appeal brought to the Supreme Court without first resorting to the remedy referred to is premature and may be dismissed. Although this rule admits of exceptions, as where public welfare and the advancement of public policy so dictate, the broader interests of justice so require, or where the Orders complained of were found to be completely null and void or that the appeal was 23 not considered the appropriate remedy, the case at bar does not fan within any of these exceptions. WHEREFORE, this Petition is hereby dismissed. SO ORDERED. Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.1wph1.t G.R. No. L-28694 May 13, 1981 TELEPHONE ENGINEERING & SERVICE COMPANY, INC., petitioner, vs. WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF RIZAL and LEONILA SANTOS GATUS, for herself and in behalf of her minor children, Teresita, Antonina and Reynaldo, all surnamed GATUS, respondents. MELENCIO-HERRERA, J. FACTS: Petitioner is a domestic corporation engaged in the business of manufacturing telephone equipment. It has a sister company, the Utilities Management Corporation (UMACOR), with offices in the same location. UMACOR is also under the management of Jose Luis Santiago. UMACOR employed the late Pacifica L. Gatus as Purchasing Agent. Then was detailed with petitioner company. He reported back to UMACOR and after 2 years he contracted illness and died of "liver cirrhosis with malignant degeneration." Respondent Leonila S. Gatus, filed a "Notice and Claim for Compensation" with Workmen's Compensation Commission sub-office, alleging therein that her deceased husband was an employee of TESCO, and that he died of liver cirrhosis. On August 9, 1967, and Office wrote petitioner transmitting the Notice and for Compensation, and requiring it to submit an Employer's Report of Accident or Sickness pursuant to Section 37 of the Workmen's Compensation Act (Act No. 3428). An "Employer's Report of Accident or Sickness" was thus submitted with UMACOR indicated as the employer of the deceased. The Report was signed by Jose Luis Santiago. In answer, the employer stated that it would not controvert the claim for compensation, and admitted that the deceased employee contracted illness "in regular occupation." On the basis of this Report, the Acting Referee awarded death benefits plus burial expenses in favor of the heirs of Gatus. TESCO filed its "Motion for Reconsideration and/or Petition to Set Aside Award" alleging as grounds therefor, that the admission made in the "Employer's Report of Accident or Sickness" was due to honest mistake and/or excusable negligence on its part, and that the illness for which compensation is sought is not an occupational disease, hence, not compensable under the law. The Motion for Reconsideration was denied. Meanwhile, the Provincial Sheriff of Rizal levied on and attached the properties of TESCO and scheduled the sale of the same at public auction. Thus petition for "Certiorari with Preliminary Injunction" seeking to annul the award and to enjoin the Sheriff from levying and selling its properties at public auction. ISSUE: Whether or not TESCO is liable for the death claim of the deceased. HELD: Viewed in the light of these criteria, we note that it is only in this Petition before us that petitioner denied, for the first time, the employer-employee relationship. 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. While, indeed, jurisdiction cannot be conferred by acts or omission of the parties, TESCO'S denial at this stage that it is the employer of the deceased is obviously an afterthought, a devise to defeat the law and evade its obligations. This denial also constitutes a

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change of theory on appeal which is not allowed in this jurisdiction.Moreover, issues not raised before the Workmen's Compensation Commission cannot be raised for the first time on appeal. For that matter, a factual question may not be raised for 20 the first time on appeal to the Supreme Court. WHEREFORE, this Petition is hereby dismissed.

EN BANC 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. 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 2 failure is an admission that the claim is compensable.
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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. 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. 1wph1.t Costs against petitioner. So ordered. Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Castro, Angeles and Fernando, JJ., concur. EN BANC G.R. No. L-10510 March 17, 1961

M. MC CONNEL, W. P. COCHRANE, RICARDO RODRIGUEZ, ET AL., petitioners, vs. THE COURT OF APPEALS and DOMINGA DE LOS REYES, assisted by her husband, SABINO PADILLA, respondents. Jesus B. Santos and Cornelio Antiquera for petitioners. Teodoro Padilla for respondents. REYES, J.B.L., J.: 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. 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). Judgment was rendered in due course on 13 November 1947, ordering the Park Rite Co., Inc. to pay P7,410.00 plus legal interest as damages from April 15, 1947 until return of the lot. Restitution not having been made until 31 January 1948, the entire judgment amounted to P11,732.50. Upon execution, the corporation was found without any assets other than P550.00 deposited in Court. After their application to the judgment credit, there remained a balance of P11,182.50 outstanding and unsatisfied. The judgment creditors then filed suit in the Court of First Instance of Manila against the corporation and its past and present stockholders, to recover from them, jointly and severally, the unsatisfied balance of the judgment, plus legal interest and costs. The Court of First Instance denied recovery; but on appeal, the Court of Appeals (CA-G.R. No. 8434-R) reversed, finding that the corporation was a mere alter ego or business conduit of the principal stockholders that controlled it for their own benefit, and adjudged them responsible for the amounts demanded by the lot owners, as follows: WHEREFORE, premises considered, the decision appealed from is reversed. Defendants-appellees Cirilo Paredes and Ursula Tolentino are hereby declared liable to the plaintiffs-appellants for the rentals due on the lot in question from August 22, 1947 to January 31, 1948 at the rate of P1,235.00 a month, with legal interest thereon from the time of the filing of the complaint. Deducting the P550.00 which was paid at the time when the corporation was already acquired by the said defendants-appellees Cirilo Paredes and Ursula Tolentino, they are hereby ordered to pay to plaintiffs-appellants Dominga

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de los Reyes and Sabino Padilla the sum of P6,036.66 with legal interest therein from the time of the filing of the complaint until fully paid. 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. IT IS SO ORDERED. Cirilo Paredes and Ursula Tolentino then resorted to this court. We granted certiorari. On the main 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 corporationwas 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 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. Finding no error in the judgment appealed from, the same is hereby affirmed, with costs against petitioners-appellants Cirilo Paredes and Ursula Tolentino. Bengzon, Actg. C.J., Bautista, Angelo, Labrador, Barrera and Dizon, JJ., concur. Concepcion and Paredes, JJ., took no part. EN BANC G.R. No. L-20502 February 26, 1965

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EMILIO CANO ENTERPRISES, INC., petitioner, vs. COURT OF INDUSTRIAL RELATIONS, ET AL., respondents. D. T. Reyes and Associates for petitioner. Mariano B. Tuason for respondent Court of Industrial Relations. C. E. Santiago for respondent Honorata Cruz. BAUTISTA ANGELO, J.: In a complaint for unfair labor practice filed before the Court of Industrial Relations on June 6, 1956 by a prosecutor of the latter court, Emilio, Ariston and Rodolfo, all surnamed Cano, were made respondents in their capacity as president and proprietor, field supervisor and manager, respectively, of Emilio Cano Enterprises, Inc. After trial, Presiding Judge Jose S. Bautista rendered decision finding Emilio Cano and Rodolfo Cano guilty of the unfair labor practice charge, but absolved Ariston for insufficiency of evidence. As a consequence, the two were ordered, jointly and severally, to reinstate Honorata Cruz, to her former position with payment of backwages from the time of her dismissal up to her reinstatement, together with all other rights and privileges thereunto appertaining. Meanwhile, Emilio Cano died on November 14, 1958, and the attempt to have the case dismissed against him having failed, the case was appealed to the court en banc, which in due course affirmed the decision of Judge Bautista. An order of execution was issued on August 23, 1961 the dispositive part of which reads: (1) to reinstate Honorata Cruz to her former position as ordered in the decision; and (2) to deposit with the court the amount of P7,222.58 within ten days from receipt of the order, failing which the court will order either a levy on respondents' properties or the filing of an action for contempt of court. The order of execution having been directed against the properties of Emilio Cano Enterprises, Inc. instead of those of the respondents named in the decision, said corporation filed an ex parte motion to quash the writ on the ground that the judgment sought to be enforced was not rendered against it which is a juridical entity separate and distinct from its officials. This motion was denied. And having failed to have it reconsidered, the corporation interposed the present petition for certiorari.1wph1.t The issue posed before us is: 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? The answer must be in the affirmative. While it is an undisputed rule that a corporation has a personality separate and distinct from its members or stockholders because of a fiction of the law, here we should not lose sight of the fact that the Emilio Cano Enterprises, Inc. is a closed family corporation where the incorporators and directors belong to one single family. Thus, the following are its incorporators: Emilio Cano, his wife Juliana, his sons Rodolfo and Carlos, and his daughter-in-law Ana D. Cano. Here is an instance where the corporation and its members can be considered as one. And to hold such entity liable for the acts of its members is not to ignore the legal fiction but merely to give meaning to the principle that such fiction cannot be invoked if its purpose is to 1 use it as a shield to further an end subversive of justice. And so it has been held that while a corporation is a legal entity existing separate and apart from the persons composing it, that concept cannot be extended to a point beyond its reason and policy, and when invoked in support of an end subversive of this policy it should be disregarded by the courts (12 Am. Jur. 160-161). A factor that should not be overlooked is that Emilio and Rodolfo Cano are here indicted, not in their private capacity, but as president and manager, respectively, of Emilio Cano Enterprises, Inc. Having been sued officially their connection with the case must be deemed to be impressed with the representation of the corporation. In fact, the court's order is for them to reinstate 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. We, therefore, find unmeritorious the relief herein prayed for. WHEREFORE, petition is dismissed, with costs. Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.

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 ECEIs propert y. 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.

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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. EN BANC G.R. No. L-20886 April 27, 1967

NATIONAL MARKETING CORPORATION (NAMARCO), plaintiff-appellant, vs. ASSOCIATED FINANCE COMPANY, INC., and FRANCISCO SYCIP, defendants. FRANCISCO SYCIP, defendant-appellee. Tomas P. Matic, Jr,. for plaintiff and appellant. Francisco Sycip in his behalf as defendant and appellee. DIZON, J.: Appeal by the National Marketing Corporation hereinafter referred to as NAMARCO, from the decision of the Court of First Instance of Manila in Civil Case No. 45770 ordering the Associated Finance Company, Inc. hereinafter referred to as the ASSOCIATED to pay the NAMARCO the sum of P403,514.28, with legal interest thereon from the date of filing of the action until fully paid, P80,702.26 as liquidated damages, P5,000.00 as attorney's fees, plus costs, but dismissing the complaint insofar as defendant Francisco Sycip was concerned, as well as the latter's counterclaim. The appeal is only from that portion of the decision dismissing the case as against Francisco Sycip. On March 25, 1958, ASSOCIATED, a domestic corporation, through its President, appellee Francisco Sycip, entered into an agreement to exchange sugar with NAMARCO, represented by its then General Manager, Benjamin Estrella, whereby the former would deliver to the latter 22,516 bags (each weighing 100 pounds) of "Victorias" and/or "National" refined sugar in exchange for 7,732.71 bags of "Busilak" and 17,285.08 piculs of "Pasumil" raw sugar belonging to NAMARCO, both agreeing to pay liquidated damages equivalent to 20% of the contractual value of the sugar should either party fail to comply with the terms and conditions stipulated (Exhibit A). Pursuant thereto, on May 19,1958, NAMARCO delivered to ASSOCIATED 7,732.71 bars of "Busilak" and 17,285.08 piculs of "Pasumil" domestic raw sugar. As ASSOCIATED failed to deliver to NAMARCO the 22,516 bags of "Victoria" and/or "National" refined sugar agreed upon, the latter, on January 12, 1959, demanded in writing from the ASSOCIATED either (a) immediate delivery thereof before January 20, or (b) payment of its equivalent cash value amounting to P372,639.80. On January 19, 1959, ASSOCIATED, through Sycip, offered to pay NAMARCO the value of 22,516 bags of refined sugar at the rate of P15.30 per bag, but the latter rejected the offer. Instead, on January 21 of the same year it demanded payment of the 7,732.71 bags of "Busilak" raw sugar at P15.30 per bag, amounting to P118,310.40. and of the 17,285.08 piculs of "Pasumil" raw sugar at P16.50 per picul, amounting, to P285.203.82, or a total price of P403,514.28 for both kinds of sugar, based on the sugar quotations (Exh. H) as of March 20, 1958 the date when the exchange agreement was entered into. As ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar delivered to it, inspite of repeated demands therefore, NAMARCO instituted the present action in the lower court to recover the sum of P403,514.28 in payment of the raw sugar received by defendants from it; P80,702.86 as liquidated damages; P10,000.00 as attorney's fees, expenses of litigation and exemplary damages, with legal interest thereon from the filing of the complaint until fully paid. In their amended answer defendants, by way of affirmative defenses, alleged that the correct value of the sugar delivered by NAMARCO to them was P259,451.09 or P13.30 per bag of 100 lbs. weight (quedan basis) and not P403,514.38 as claimed by NAMARCO. As counterclaim they prayed for the award of P500,000.00 as moral damages, P100,000.00 as exemplary damages and P10,000.00 as attorney's fees. After due trial court rendered the appealed judgment. The appeal was taken to the Court of Appeals, but on January 15, 1963 the latter certified the case to us for final adjudication pursuant to sections 17 and 31 of the Judiciary Act of 1948, as amended, the amount involved being more than P200,000.00, exclusive of interests and cost. The only issue to be resolved is whether, upon the facts found by the trial court, which, in our opinion, are fully supported by the evidence Francisco Sycip may be held liable, jointly and severally with his co-defendant, for the sums of money adjudged in favor of NAMARCO.

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The evidence of record shows that, of the capital stock of ASSOCIATED, Sycip owned P60,000.00 worth of shares, while his wife the second biggest stockholder owned P20,000.00 worth of shares; that the par value of the subscribed capital stock of ASSOCIATED was only P105,000.00; that negotiations that lead to the execution of the exchange agreement in question were conducted exclusively by Sycip on behalf of ASSOCIATED; that, as a matter of fact, in the course of his testimony, Sycip referred to himself as the one who contracted or transacted the business in his personal capacity, and asserted that the exchange agreement was his personal contract; that it was Sycip who made personal representations and gave assurances that ASSOCIATED was in actual possession of the 22,516 bags of "Victorias" and/or "National" refined sugar which the latter had agreed to deliver to NAMARCO, and that the same was ready for delivery; that, as a matter of fact, ASSOCIATED was at that time already insolvent; that when NAMARCO made demands upon ASSOCIATED to deliver the 22,516 bags of refined sugar it was under obligation to deliver to the former, ASSOCIATED and Sycip, instead of making delivery of the sugar, offered to pay its value at the rate of P15.30 per bag a clear indication that they did not have the sugar contracted for. 1wph1.t The foregoing facts, fully established by the evidence, can lead to no other conclusion than that Sycip was guilty of fraud because through false representations he succeeded in inducing NAMARCO to enter into the aforesaid exchange agreement, with full knowledge, on his part, on the fact that ASSOCIATED whom he represented and over whose business and affairs he had absolute control, was in no position to comply with the obligation it had assumed. Consequently, he can not now seek refuge behind the general principle that a corporation has a personality distinct and separate from that of its stockholders and that the latter are not personally liable for the corporate obligations. To the contrary, upon the proven facts, We feel perfectly justified in "piercing the veil of corporate fiction" and in holding Sycip personally liable, jointly and severally with his co-defendant, for the sums of money adjudged in favor of appellant. It is settled law in this and other jurisdictions that when the corporation is the mere alter ego of a person, the corporate fiction may be disregarded; the same being true when the corporation is controlled, and its affairs are so conducted as to make it merely an instrumentality, agency or conduit of another (Koppel Phils., etc. vs. Yatco, etc., 43 O.G. No. 11. Nov. 1947; Yutivo Sons, etc. vs. Court of Tax Appeals, etc., G.R. No. L-13203, promulgated on January 28, 1961). Wherefore, the decision appealed from is modified by sentencing defendant-appellee Francisco Sycip to pay, jointly and severally with the Associated Finance Company, Inc., the sum of money which the trial court sentenced the latter to pay to the National Marketing Corporation, as follows: the sum of FOUR HUNDRED THREE THOUSAND FIVE HUNDRED FOURTEEN PESOS, and TWENTYEIGHT CENTAVOS P403,514.28), with interest at the legal rate from the date of the filing of the action until fully paid plus an additional amount of EIGHTY THOUSAND SEVEN HUNDRED TWO PESOS and EIGHTY-SIX CENTAVOS (P80,702.86) as liquidated damages and P5,000.00 as attorney's fees and further to pay the costs. With costs. Concepcion, C.J., Reyes, J.B.L., Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez JJ., concur. Castro, J., took no part. 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. Syci ps 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.