Gregorio Araneta v de Paterno

Paz Tuason de Paterno is the registered owner of

certain portions (~40k sqm) of a big block of
residential land in Sta. Mesa. The land was subdivided
into city lots, occupied by lessees whose contracts
were to expire on December 31, 1952. An important
stipulation in the contracts was that in the event the
owner and lessor should decide to sell the property the
lessees were to be given priority over other buyers,
should they want to buy their leaseholds. Smaller lots
were occupied w/o formal contract.
In 1940 & 1941 Paz De Paterno obtained from Jose
Vidal several loans amounting to P90K and constituted
a first mortgage on the aforesaid property to secure
the debt. In January and April, 1943, she obtained
additional loans of P30K and P20K upon the same
security.
In each of these two, the previous contract of
mortgage was renewed and the amounts received
were consolidated. In the 1
st
novated contract the
time of payment was fixed at 2Y & the last at 4Y.
1943-Paz decided to sell the entire property for P400K
negotiated with Gregorio Araneta, Inc. They
executed a contract called "Promesa deCompra y
Venta" or Promise to Buy and Sell (Exhibit 1).
The contract indicated that subject to the preferred
right of the lessees and that of Jose Vidal as
mortgagee, Paterno would sell to ARANETA, Inc. for
the said amount of P400,000 the entire estate under
these terms. Letters were sent the lessees giving them
until August 31, 1943, an option to buy the lots they
occupied. Some of the lessees bought their part of the
property and were given their deeds of conveyance. De
Paterno and Araneta executed a deed of absolute deed
of sale (Exhibit A)over Lots 1, 8-16 and 18 which have
an aggregate area of 14,810.20 square meters with
theexclusion of the lots sold to tenants and those
which were mortgaged to Vidal.
A day before the execution of the said deed of absolute
sale, a day after the signing of the agreement to buy
and sell between De Paterno and Araneta, De Paterno
had offered to Vidal the check for P143,150 to settle
her mortgage obligation. Vidal refused to receive that
check or to cancel the mortgage, contending that by
the separate agreement before, payment of mortgage
was not to be effected totally or partially before the
end of four years from April, 1943. This prompted De
Paterno to file an action against Vidal but this never
came to trial and the record and the checks were
destroyed during the war operations.
Araneta then, filed an action against De Paterno to
compel the latter to deliver to him a clear title to the
lots and a deed of cancellation of Vidals mortgage.
Vidal filed a cross-claim against De Paterno for the
foreclosure of the mortgage.
ISSUE:
HELD: The trial court admitting the existence of the
relation of principal and agent between Paz Tuason and
Jose Araneta, pointed out that not Jose Araneta but
Gregorio Araneta, Inc. was the purchaser, and the
well-known distinction between the corporation and its
stockholders. The court opined that the sale to
Gregorio Araneta, Inc. was not a sale to Jose Araneta
the agent or broker. Gregorio Araneta, Inc. had long
been organized and engaged in real estate business.
The corporate entity was not used to circumvent the
law or perpetrate deception. There is no denying that
Gregorio Araneta, Inc. entered into the contract for
itself and for its benefit as a corporation. The contract
and the roles of the parties who participated therein
were exactly as they purported to be and were fully
revealed to the seller. There is no pretense, nor is
there reason to suppose, that if Paz Tuason had known
Jose Araneta to Gregorio Araneta, Inc's president,
which she knew, she would not have gone ahead with
the deal. From her point of view and from the point of
view of public interest, it would have made no
difference, except for the brokerage fee, whether
Gregorio Araneta, Inc. or Jose Araneta was the
purchaser. Under these circumstances the result of the
suggested disregard of a technicality would be, not to
stop the commission of deceit by the purchaser but to
pave the way for the evasion of a legitimate and
binding commitment buy the seller. The principle
invoked by the defendant is resorted to by the courts
as a measure or protection against deceit and not to
open the door to deceit.
Piercing doctrine is meant to prevent fraud, and cannot
be employed to perpetrate fraud or a wrong.














UMALI v CA
Mauricia Castillo was the administratrix in charge over
a parcel of land left be Felipe Castillo. Said land was
mortgaged to DBP and was about to be foreclosed but
then Mauricias nephew, Santiago Rivera, proposed
that they convert the land into 4 subdivisions so that
they can raise the necessary money to avoid
foreclosure. Mauricia agreed.
Rivera sought to develop said land through his
company, Slobec Realty Corporation (SLOBEC), of
which he was also the president. Slobec then
contracted with Bormaheco, Inc. for the purchase of
one tractor. Bormaheco agreed to sell the tractor on an
installment basis. At the same time, Slobec mortgaged
said tractor to Bormaheco as security just in case
SLOBEC will default. As additional security, Mauricia
and other family members executed a surety
agreement whereby in case of default in paying said
tractor, the Insurance Corporation of the Philippines
(ICP) shall pay the balance. The surety bond
agreement between Mauricia and ICP was secured by
Mauricias parcel of land (same land to be developed).
SLOBEC defaulted in paying said tractor. Bormaheco
foreclosed the tractor but it wasnt enough hence ICP
paid the deficiency. ICP then foreclosed the property of
Mauricia. ICP later sold said property to Philippine
Machinery Parts Manufacturing Corporation (PMPMC).
PMPMC then demanded Mauricia et al to vacate the
premises of said property.
While all this was going on, Mauricia died. Her
successor-administratrix, Buenaflor Umali, questioned
the foreclosure made by ICP. Umali alleged that all the
transactions are void and simulated hence they were
defrauded; that through Bormahecos machinations,
Mauricia was fooled into entering into a surety
agreement with ICP; that Bormaheco even made the
premium payments to ICP for said surety bond; that
the president of Bormaheco is a director of PMPMC;
that the counsel who assisted in all the transactions,
Atty. Martin De Guzman, was the legal counsel of ICP,
Bormaheco, and PMPMC.
ISSUE: Whether or not the veil of corporate fiction
should be pierced.
HELD: No. There is no clear showing of fraud in this
case. The mere fact that Bormaheco paid said
premium payments to ICP does not constitute fraud
per se. As it turned out, Bormaheco is an agent of ICP.
SLOBEC, through Rivera, agreed that part of the
payment of the mortgage shall be paid for the
insurance. Naturally, when Rivera was paying some
portions of the mortgage to Bormaheco, Bormaheco is
applying some parts thereof for the payment of the
premium and this was agreed upon beforehand.
Further, piercing the veil of corporate fiction is not the
proper remedy in order that the foreclosure conducted
by ICP be declared a nullity. The nullity may be
attacked directly without disregarding the separate
identity of the corporations involved. Further still,
Umali et al are not enforcing a claim against the
individual members of the corporations. They are not
claiming said members to be liable. Umali et al are
merely questioning the validity of the foreclosure.
The veil of corporate fiction cant be pierced also by
the simple reason that the businesses of two or more
corporations are interrelated, absent sufficient showing
that the corporate entity was purposely used as a
shield to defraud creditors and third persons of their
rights. In this case, there is no justification for
disregarding their separate personalities.
MARVEL v DAVID
Upon consideration of the report with regards to the
war profit tax case of Maria B. Castro, the Secretary of
Finance recommended the collection of war profit taxes
from the latter. Pursuant thereto, various properties
including the Aguinaldo Building, Wise Building and
Dewey Boulevard Padre Faura Mansion were seized by
the CIR. An action was filed by the plaintiffs enjoining
the defendant CIR from selling at public auction the
three properties since it belong to Marvel Corporation
and not to Maria B. Castro. Defendant claims that
Maria B. Castro is the sole and true owner of all the
subscribed stocks of the Marvel Corporation including
those appearing to have been subscribed and paid for
by other members. CFI of Manila rendered judgment
ordering the release of properties and enjoined CIR
from selling the same. CIR appealed.

Issue: Whether or not Maria B. Castro is the owner of
the share of stock of Marvel Building Corp.

Held: Yes. The CIR presented evidence to prove his
claim that Maria B. Castro the sole and true owner of
the share of stock Marvel Building Corp., this was the
supposed endorsement in blank of the shares of stock
in the name of other incorporators. This evidence was
testified by Aquino, Internal Revenue examiner,
Mariano, examiner and Crispin Llamado,
undersecretary of Finance. Julio Llamado who was at
that time the bookkeeper of Marvel Building Corp also
testified that he was the one who had prepared the
original certificates which was given by Maria for
comparison with the Articles of Incorporation and that
he also prepared a stock certificates which was copied
in the Photostat presented in evidence.

CIR was also able to submit an evidence, is the fact
that the other stockholder did not have incomes in
such amounts during the time of the organization of
the corporation in 1947 or immediately thereto, as to
enable them to pay full for their supposed subscription
and that this supposed subscribers fail to come to
court to assert that they actually paid for their
subscription and are not mere dummies.





CIR v NORTON and HARRISON

Norton and Harrison is a corp organized in 1911,
engaged in wholesale retail, as agents of US manufact.

Jackbilt is likewise, a corporation organized on 2/16/48
primarily purpose of manufacturing concrete blocks.

7/27/48 Norton and Jackbilt entered an agreement
where Norton was made the sole and exclusive
distributor of concrete blocks manufactured by Jackbilt.
Pursuant to this, whenever an order for concrete
blocks was received by Norton, the order was
transmitted to Jackbilt which delivered the
merchandise direct to the customer.

Payment = NORTON gets paid. NORTON pays Jackbilt,
but minus a certain fee as its compensation or profit.
As per records of Jackbilt, the transaction was
considered a sale to Norton.
May 1, 1953, when the agency agreement was
terminated and a management agreement between
the parties was entered into. The management
agreement provided that Norton would sell concrete
blocks for Jackbilt, for a fixed monthly fee of
P2,000.00, which was later increased to P5,000.00.
During the existence of the distribution or agency
agreement, or on June 10, 1949, Norton & Harrison
acquired by purchase all the outstanding shares of
stock of Jackbilt. Apparently, due to this transaction,
the CIR investigation assessed NORTON for deficiency
sales tax of 32K, based on Nortons sales to public. In
other words, the Commissioner considered the sale of
Norton to the public as the original sale and not the
transaction from Jackbilt.
The CIR contends that since Jackbilt was owned and
controlled by Norton & Harrison, the corporate
personality of the former (Jackbilt) should be
disregarded for sales tax purposes, and the sale of
Jackbilt blocks by petitioner to the public must be
considered as the original sales Norton contended
otherwise that is, the transaction subject to tax is
the sale from Jackbilt to Norton.
[[CTA =]] favored Norton. Based on Sec 186 of NIRC,
which imposes a percentage tax of 7% on every
original sale of goods, wares or merchandise, such tax
to be based on the gross selling price of such goods,
wares or merchandise. The term "original sale" has
been defined as the first sale by every manufacturer,
producer or importer. (Sec. 5, Com. Act No. 503.)
Subsequent sales by persons other than the
manufacturer, producer or importer are not subject to
the sales tax.
Petitioner merely acted as agent for JACKBILT in the
marketing of its products. This is shown by the fact
that petitioner merely accepted orders from the public
for the purchase of JACKBILT blocks. The purchase
orders were transmitted to JACKBILT which delivered
the blocks to the purchaser directly. There was no
instance in which the blocks ordered by the purchasers
were delivered to the petitioner. Petitioner never
purchased concrete blocks from JACKBILT so that it
never acquired ownership of such concrete blocks.
CIR appealed. Issue: (1) whether the acquisition of all
the stocks of the Jackbilt by the Norton & Harrison Co.,
merged the two corporations into a single corporation;
It has been settled that the ownership of all
the stocks of a corporation by another corporation
does not necessarily breed an identity of corporate
interest between the two companies and be considered
as a sufficient ground for disregarding the distinct
personalities (Liddell).
SC finds separate identities of the two
companies should be disregarded. (a) Norton and
Harrison owned all the outstanding stocks of Jackbilt;
of the 15,000 authorized shares of Jackbilt on March
31, 1958, 14,993 shares belonged to Norton and
Harrison and one each to seven others; (b) Norton
constituted Jackbilt's board = same officers of the
board for both companies. For instance, James E.
Norton is the President, Treasurer, Director and
Stockholder of Norton. He also occupies the same
positions in Jackbilt corporation, the only change
being, in the Jackbilt, he is merely a nominal
stockholder. Mantaring, Golden, Garcia = while they
are merely employees of the Norton they are Directors
and nominal stockholders of the Jackbilt (c) Norton
financed the operations of the Jackbilt, shown by loans
obtained from the RFC and Bank of America were used
in the expansion program of Jackbilt, to pay advances
for the purchase of equipment, materials rations and
salaries of employees of Jackbilt and other sundry
expenses. There was no limit to the advances given to
Jackbilt so much so that as of May 31, 1956, the
unpaid advances amounted to P757,652.45, which
were not paid in cash by Jackbilt, but was offset by
shares of stock issued to Norton, the absolute and sole
owner of Jackbilt; (d) Norton treats Jackbilt employees
as its own. Evidence shows that Norton paid the
salaries of Jackbilt employees and gave the same
privileges as Norton employees, an indication that
Jackbilt employees were also Norton's employees.
"where a corporation is a dummy, is unreal or a sham
and serves no business purpose and is intended only
as a blind, the corporate form may be ignored for the
law cannot countenance a form that is bald and a
mischievous fictions".
NAMARCO vs. Associated Finance Co.
1.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 100 pounds of Victorias refined
sugar in exchange for 7,732.71 bags of Busilak and 17,
285.08 piculs of Pasumil raw sugar belonging to
NAMARCO.
2.Pursuant thereto, on May 19, 1958, NAMARCO
delivered to Associated 7,732.71 bags of Busilak and
17,285.08 piculs of Pasumil domestic raw sugar.
3.Associated failed to deliver to NAMARCO the agreed
100 pounds of Victoria and/or National refined sugar
agreed upon, the latter, on January 12, 1959,
demanded in writing from Associate either (a)
immediate delivery thereof before January 20, or (b)
payment of its equivalent cash value amounting to
P372,639.80.4.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.
Issue: Whether upon the facts found by the trial court,
Francisco Sycip, may beheld liable, jointly and
severally with his co-defendant for the sums of money
adjudged in favor of NAMARCO?
The Court Held: The foregoing facts, fully established
by the can lead to no other conclusion than that Sycip
was guilty of fraud because through false
representations he succeeded in inducing NAMARCO to
enter into the aforesaid exchange agreement, with full
knowledge, on his part, of the fact that Associated
whom he represented and over whose business and
affairs he had absolute control, was in no position to
comply with the obligation it had assumed.The court
feels perfectly justified in piercing the veil of corporate
fiction andin holding Sycip personally liable jointly and
severally with his co-defendant.It is settled that when
the corporation is the mere alter ego of a person,
thecorporate 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




PALACIO v FELY TRANSPORT
FELY transport hired Alfredo Carillo as driver of jeep
AC-687.
On Dec 24, 1952, at ~11:30 a.m., while Carillo was
driving at Halcon Street, QC, wilfully, unlawfully and
feloniously ran over a child Mario Palacio of herein
plaintiff Gregorio Palacio. Because of the injuries, Mario
Palacio suffered a simple fracture of the right tenor;
and hospitalized at the Philippine Orthopedic Hospital
from Dec. to Jan. 1953, and continued treatment 5
months after. Gregorio as welder, had to abandon his
welding shop where he derives income of P10 for the
support of his big family. During said time, he was
forced to sell one heavy duty air compressor and one
heavy duty electric drill, for a sacrifice sale of P150.00
which could easily sell at P350. // P300.00 for
attorney's fee, P500.00 actual expenses for
transportation, representation, etc. and for fear that
the child might become a useless invalid, herein
plaintiff Gregorio Palacio has suffered moral damages
estimated at P1,200.00.
CFI QC found Carillo guilty; but but by Article 103 of
the Revised Penal Code, held that the person
subsidiarily liable to pay damages is Isabel
Calingasan, the employer, and not the defendant
corporation. Hence appeal.
ISSUE: W/N FELY transport or Isabelo Calingasan is
liable?
Isabelo Calingasan and defendant Fely Transportation
may be regarded as one and the same person. It is
evident that Isabelo Calingasan's main purpose in
forming the corporation was to evade his subsidiary
civil liability
1
resulting from the conviction of his driver,
Alfredo Carillo. This conclusion is borne out by the fact
that the incorporators of the Fely Transportation are
Isabelo Calingasan, his wife, his son, Dr. Calingasan,
and his two daughters. This case, defendant
corporation should not be allowed to say that it has a
personality separate and distinct from its members
when to allow it to do so would be to sanction the use
of the fiction of corporate entity as a shield to further
an end subversive of justice. (La Campana case)
And while it is true that Isabelo Calingasan is not a
party in this case, Court can substitute him in place of
the defendant corporation as to the real party in
interest. = to avoid multiplicity of suits and thereby
save the parties unnecessary expenses and delay.





Villa Rey Transit vs. Ferrer
Jose M. Villarama was an operator of a bus transportation,
under the business name of Villa Rey Transit, pursuant
tocertificates of public convenience granted him by the
Public Service Commission which authorized him to
operate atotal of thirty-two (32) units on various routes or
lines from Pangasinan to Manila, and vice-versa.
On January 8, 1959, he sold the aforementioned two
certificates of public convenience to the
PangasinanTransportation Company, Inc. for P
350,000.00 with the condition, among others, that the
seller "shall not for a period of 10 years from the date of
this sale, apply for any TPU service identical or competing
with the buyer."
Barely three months thereafter, or on March 6, 1959, a
corporation called Villa Rey Transit, Inc. was organized.
Natividad R. Villarama (wife of Jose M. Villarama) was one
of the incorporators and treasurer as well.
In less than a month after its registration with the
Securities and Exchange Commission the Corporation, on
April 7,1959, bought 5 CPCs, forty-nine buses, tools and
equipment from one ValentinFernando.
The very same day that the aforementioned contract of
sale was executed, the parties thereto immediately
appliedwith the PSC for its approval, with a prayer for the
issuance of a provisional authority in favor of the vendee
Corporation to operate the service therein involved.
PSC granted the provisional permit prayed for, upon the
condition that "it may be modified or revoked by the
Commission at any time, shall be subject to whatever
action that may be taken on the basicapplication and shall
be valid only during the pendency of said application."
Before the PSC could take final action on said application
for approval of sale, however, the Sheriff of Manila,levied
on 2/ 5 CPC involved therein, pursuant to a writ of
execution issued by CFI Pangasinan in Civil Case No.
13798, in favor of Eusebio Ferrer, plaintiff, judgment
creditor, against Valentin Fernando, defendant, judgment
debtor. A public sale was conducted by the Sheriff of the
said two CPCs and Ferrer was the highest bidder, and a
certificate of sale was issued inhis name.
Thereafter, Ferrer sold the 2 CPCs to Pantranco, and
jointly submitted for approvaltheir corresponding contract
of sale to the PSC.
Issue: If such stipulation is valid, did it bind the corp
Held:1.The clear intention of the parties was to prevent
the seller from conducting any competitive line for 10
years since,anyway, he has bound himself not to apply for
authorization to operate along such lines for the duration
of such period. If the prohibition is to be applied only to
the acquisition of new certificates of public convenience
thru anapplication with the Public Service Commission,
this would, in effect, allow the seller just the same to
compete withthe buyer as long as his authority to operate
is only acquired thru transfer or sale from a previous
operator, thusdefeating the intention of the parties.
2.The 10-year restrictive clause in the contract between
Villarama and Pantranco, while in thenature of an
agreement suppressing competition, it is, however,
merely ancillary orincidental to the main agreement which
is that of sale. The suppression or restraint is onlypartial
or limited: first, in scope, it refers only to application for
TPU by the seller incompetition with the lines sold to the
buyer; second, in duration, it is only for ten (10)
years;and third, with respect to situs or territory, the
restraint is only along the lines covered bythe certificates
sold.
3.Preponderance of evidence shows Villa Rey Transit is an
alter ego of Jose M. Villarama, and that the restrictive
clause in the contract entered into by the latter &
Pantranco is also binding against said corp
EMILIO CANO v CIR
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 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 property. ECEI filed
an ex parte motion to quash the writ as ECEI avers that it
is a corporation with a separate and distinct personality
from the Canos. Their motion was denied and ECEI filed a
petition for certiorari with the Supreme Court.
ISSUE: W/N CIR correct?
HELD: Yes. This is an instance where the corporation and
its members can be considered as one. ECEI is a close
family corporation the incorporators are members of the
Cano family. Further, the Canos were sued in their
capacity as officers of ECEI not in their private capacity.
Having been sued officially their connection with the case
must be deemed to be impressed with the representation
of the corporation. The judgment against the Canos has a
direct bearing to ECEI. Verily, the order against them is in
effect against the corporation. Further still, even if this
technicality be strictly observed, what will simply happen
is for this case to be remanded, change the name of the
party, but the judgment will still be the same there can
be no real benefit and will only subversive to the ends of
justice. In this case, to hold ECEI liable is not to ignore
the legal fiction but merely to give meaning to the
principle that such fiction cannot be invoked if its purpose
is to use it as a shield to further an end subversive of
justice.
Palay v Clave
1. On March 28, 1965, petitioner Palay, Inc.,
through its President, Albert Onstott sold a parcel of
land owned by the corporation to the private
respondent, Nazario Dumpit, thru a Contract to Sell.
The sale price was P23K with 9% interest per annum,
payable with a down payment of P4,660.00 and
monthly instalments of P246.42 until fully paid.
Paragraph 6 of the contract provided for automatic
extrajudicial rescission upon default in payment of any
monthly instalment after the lapse of 90 days from the
expiration of the grace period of1 month, without need
of notice and with forfeiture of all instalments paid.
2. Respondent Dumpit paid the down payment and
several instalments amounting to P13,722.50 with the
last payment was made on December 5, 1967 for
instalments up to September 1967. Almost six (6)
years later, private respondent wrote petitioner
offering to update all his overdue accounts and sought
consent to the assignment of his rights to a certain
Lourdes Dizon. Petitioners informed respondent that
his Contract to Sell had long been rescinded pursuant
to paragraph 6 of the contract, and that the lot had
already been resold.
3. Respondent filed a letter complaint with the
National Housing Authority (NHA) questioning the
validity of the rescission. The NHA held that the
rescission is void in the absence of either judicial or
notarial demand. Palay, Inc. and Onstott in his
capacity as President of the corporation, jointly and
severally, was ordered to refund Dumpit the amount
paid plus 12% interest from the filing of the
complaint. Petitioners' MR was denied by the NHA.
Respondent Presidential Executive Assistant, on May 2,
1980, affirmed the Resolution of the NHA.
Reconsideration sought by petitioners was denied for
lack of merit. Thus, the present petition.
Issue: W/N demand is necessary to rescind a contract
Ruling: As held in previous jurisprudence, the judicial
action for the rescission of a contract is not necessary
where the contract provides that it may be revoked
and cancelled for violation of any of its terms and
conditions. However, even in the cited cases, there
was at least a written notice sent to the defaulter
informing him of the rescission. A written notice is
indispensable to inform the defaulter of the rescission.
Hence, the resolution by petitioners of the contract
was ineffective and inoperative against private
respondent for lack of notice of resolution (as held in
the U.P. vs. Angeles case). The act of a party in
treating a contract as cancelled should be made known
to the other.
PARADISE SAUNA v NG
The disputed letter-contract signed by petitioner
Juanito Uy in his capacity as corp president:
Letter to MR. NG:
That by authority of the board of directors, MR. NG is
appointed to MANAGE and ADMINISTER the PARADISE
SAUNA w/ commission of P8K, remitted not later than
the first 5 days of each month.
Also other terms: 1) Remit 16k as guarantee bond,
returned if terminated but forfeited for non-
compliance. 2) All licenses, renovations etc on MR NGs
account 3) Sole control belongs to MR NG, not
responsible but to JUANITO UY alone
(Sgd) JUANITO A. UY President/Director
NG was terminated as manager-admin, due to alleged
failure to comply with terms and conditions. NG filed
CFI Manila for SPECIFIC PERFORMANCE. He amended
instead to breach of contract w/ damages.
As lessee, NG assumed control and management and
tried his best to operate. However, petitioner refused
to accept the rental for January 1977 and asked the
private respondent to vacate and leave the premises
instead thereby terminating his services and forfeiting
his guarantee bond of P16K. Assisted by Metrocom
soldiers, entered the private respondent's office and
through intimidations, forcibly ejected him from the
premises, and placed another person
That for having breached their contract, NG suffered
damages in the amount of not less than P100K from
unrealized profits, forfeiture of the guarantee bond,
etc. PARADISEs defense was that NG failed to pay his
dues, and managed the Rajah Sauna Bath in Ermita,
Manila simultaneously with PARADISE and that he
pushed his customers to said Rajah Sauna Bath
instead of PARADISE.
Lower Court favored NG, IAC affirmed.
ISSUE: W/N Corporate entity theory applies
The claim of the petitioners that respondent Ng is their
manager-administrator is untenable since it fails to
pass the control test pertinent to the existence of an
employer-employee relationship. The control test asks
whether the employer controls or has reserved the
right to control the employee not only as to the result
of the work but also as to the means and methods by
which the said work is to be accomplished. Such
control by the petitioners over respondent Ng is
lacking. Exhibit A is in the nature of a lease contract
under Art. 1643
We find no reason to disturb the findings of the two
courts below that the disputed contract is a lease
contract. The reasons given are:
(1) NG paid the petitioners a fixed P8,000.00 monthly
even when the business suffers a loss..
(2) The receipts for November and December
substitute the word "commission" for "rental".
(3) NG was responsible for all licenses, permits,
utilities, etc. He had sole control and management and
did not report to anybody.
Anent the argument that the respondent Court, in
holding petitioner Uy severally liable with the petitioner
corporation, departed from the rule that a stockholder
or officer of a corporation has a personality distinct
from the corporation, we hold that the corporate
entity theory cannot apply in the instant case
where it is being invoked as a cloak or shield for
illegality. Thus, being a party to a simulated contract
of management, petitioner Uy cannot be permitted to
escape liability under the said contract by using the
corporate entity theory. This is one instance when the
veil of corporate entity has to be pierced to avoid
injustice and inequity.
RUSTAN PULP v IAC and ILIGAN DIVERSIFIED
Issue: W/N court erred in holding TANTOCO personally
liable, who merely signed as representative of RUSTAN
Sometime in 1966, petitioner Rustan established a
pulp and paper mill in Baloi, Lano del Norte. Lluch, who
is a holder of a forest products license, transmitted a
letter to Rustan for the supply of raw materials by the
Lluch to Rustan. Rustan replied:
Contract of sale was executed; undertook to pay the
price of P30.00 per cubic meter of pulp wood raw
materials to be delivered at the buyer's plant in Baloi.
Important stipulations:
3. That BUYER shall have the option to
buy from other SELLERS ; but BUYER shall
not buy from any other seller whose wood
emanated from the SELLER'S lumber and/or
firewood concession. . . .
7. That the BUYER shall have the right to stop
delivery of the said raw materials when supply
of the same shall become sufficient ; but
SELLER should be given sufficient notice.
But during the test run of the pulp mill, the machinery
line thereat had major defects while deliveries of the
raw materials piled up, which prompted the Japanese
supplier of the machinery to recommend the stoppage
of the deliveries. They wrote a letter that SUPPLY WAS
SUFFICIENT.
Romeo Lluch sought to clarify the tenor of the letter;
whether stoppage of delivery or termination of the
contract of sale was intended, but the query was not
answered by petitioners. This alleged ambiguity
notwithstanding, Lluch and the other suppliers
resumed deliveries after the series of talks between
Vergara (from RUSTAN) and Lluch. Court found it
ironic that RUSTAN never really stopped accepting
deliveries from private respondents until December
23, 1968.
Iligan sued for breach. Court dismissed but enjoined
Rustans to respect the contract of sale if circumstances
warrant the full operation in a commercial scale of
petitioners' Baloi plant and to continue accepting and
paying for deliveries of pulp wood products from
Romeo Lluch. On appeal to IAC affirmed and modified
the judgment by ordering moral damages.
ISSUE: w/n Tantoco and Vergara are liable to pay
damages
Petitioners argue next that Tantoco and Vergara should
not have been adjudged to pay moral damages and
attorney's fees because Tantoco merely represented
the interest of Rustan Pulp and Paper Mills, Inc. while
Romeo S. Vergara was not privy to the contract of
sale. On this score, We have to agree with petitioners'
citation of authority to the effect that the President and
Manager of a corporation who entered into and signed
a contract in his official capacity, cannot be made liable
thereunder in his individual capacity in the absence of
stipulation to that effect due to the personality of the
corporation being separate and distinct from the
person composing it Because of this precept, Vergara's
supposed non-participation in the contract of sale
although he signed the letter dated September 30,
1968 is completely immaterial. The two exceptions
contemplated by Article 1897 of the New Civil Code
where agents are directly responsible are absent and
wanting.
Only petitioner Rustan Pulp and Paper Mills is ordered
to pay moral damages and attorney's fees as awarded
by respondent Court.

The President and General Manager of a corporation
who entered into and signed a contract in his official
capacity cannot be made liable thereunder in his
individual capacity in the absence of stipulation to that
effect due to the personality of the corporation being
separate and distinct from the persons composing it.




MAGLUTAC v NLRC
JOSE Maglutac, was employed by COMMART (Phils.),
Inc. and rose to become Manager of its Energy
Equipment Sales. Eventually, he received a notice of
termination signed by Joaquin Cenzon, VP-GM of CMS
International, a corporation controlled by Commart.
Thereafter, Jose Maglutac filed a complaint for
illegal dismissal against Commart and Jesus T.
Maglutac, PRES-Chair of Commart. The
complainant alleged that his dismissal was part of a
vendetta drive against his parents who dared to
expose the massive and fraudulent diversion of
company funds to the company presidents private
accounts, stressing that complainants efficiency and
effectiveness were never put to question when very
suddenly he received his notice of termination.
Commart and Jesus T. Maglutac justified the
dismissal for lack of trust and confidence cos of Jose
and familys establishment of a company, MM
International, in direct competition with Commart.
Labor Arbiter = found Jose illegally dismissed
and ordered reinstatement and full backwages
Upon NLRC appeal = affirmed BUT deleted the
award for moral and exemplary damages and
absolved Jesus T. Maglutac from any personal
liability.
ISSUE: W/N President, Jesus can be held
personally liable for non-payment of back wages.
HELD: YES. LA was right in ruling Jesus T. Maglutac
as jointly and severally liable with Commart.
The Vice President of a corporation who was
the most ranking officer of the corporation can be held
jointly and severally liable with the corporation for the
payment of the unpaid wages of its president.
The president or presidents of the corporation
may be held liable for the corporations obligations to
its workers. The responsible officer of an employer
corporation can be held personally, not to say even
criminally, liable for non-payment of backwages.
Not only was Jesus T. Maglutac the most
ranking officer of Commart at the time of the
termination of the complainant, it was likewise found
that he had a direct hand in the latters dismissal.
Only the responsible officer of a corporation
who had a hand in illegally dismissing an employee
should be held personally liable for the corporate
obligations arising from such act.



CONCEPT BUILDERS INC. v NLRC
Concept Builders Inc. is engaged in the construction
business. Private respondents were employed by
Concept as laborers, carpenters and riggers. On
November 1981, private respondents were served
written notices of termination of employment by
petitioner. It was stated in the individual notices that
their contracts of employment had expired and their
project completed. But it was found that such was not
the case at their time of termination. Petitioner had to
engage the services of sub-contractors whose workers
performed the functions of private respondents.
Aggrieved, respondents filed a complaint for illegal
dismissal, unfair labor practice and non-payment of
wages. LA ordered reinstatement and backwages.
Upon NLRC appeal, denied for being final and exec.
When the writ of execution was issued, it was however
partially satisfied thru garnishment from petitioners
debtor, Metropolitan Waterworks. When the Alias Writ
of Execution was served, it was found that the
petitioner no longer occupied the premises. A 2
nd
Alias
writ of execution was served. Then, a certain Dennis
Cuyegkeng filed a third-party claim with LA alleging
that the properties sought to be levied were owned by
Hydro (Phils.), Inc. of which he is the Vice-President.
Private respondents filed a "Motion for Issuance of a
Break-Open Order," alleging that HYDRO and petitioner
corporation were owned by the same
incorporator/stockholders. CONCEPT allegedly
suspended its operations to evade its legal obligations
; even 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. HPPI
opposed; alleging that the 2 corporations are engaged
in two different kinds of businesses, i.e., HPPI is a
manufacturing firm while petitioner was then engaged
in construction.
LA issued order denying break open order. On NLRC
appeal, piercing doctrine was applied and break open
order was issued, hence this appeal by CONCEPT.
ISSUE: w/n Piercing doctrine applies
RULING: The test in determining the applicability of
the doctrine of piercing the veil of corporate fiction is
as follows:
1. Control, not mere majority or complete stock
control, but complete domination, not only of finances
but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will
or existence of its own;
2. Such control must have been used by the defendant
to commit fraud or wrong, to perpetuate the violation
of a statutory or other positive legal duty or dishonest
and unjust act in contravention of plaintiff's legal
rights; and
3 The aforesaid control and breach of duty must
proximately cause 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.
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 a similar address.
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,
the same board of directors, the same corporate officers, and
substantially the same subscribers.
From the foregoing, it appears that, among other things, the
respondent (herein petitioner) and the third-party claimant shared
the same address and/or premises. Under this circumstances, it
cannot be said that the 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
skilfully orchestrated to avoid the financial liability that
already attached to Petitioner Corporation.
ARNOLD v WILLITS & PATTERSON
Willits and Patterson were partners doing business in
SF, California, under the name of Willits & Patterson.
Arnold was then in SF, and as a result of negotiations
the plaintiff and the firm entered into a written
contract, (Exhibit A), by which Arnold was employed as
the agent of the firm in the Phils for five years at a
salary of $200 per month and travelling expenses.
Arnold returned to Manila and did his duties under the
contract. Meanwhile Patterson retired from the firm
and Willits became sole owner. For convenience of
operation and to serve his own purpose, Willits
organized a corporation under the laws of California
with its principal office SF, 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.
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.
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.
The San Francisco corporation became
involved in financial trouble, and all of its assets were
turned over to a "creditors' committee." 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, defendant
admits the formal parts of the complaint, the
execution of Exhibit A and denies 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. 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.

Issue: Is the contract entered into by the firm or by
Willits with the plaintiff binds the corporation?

YES Where the plaintiff entered upon the discharge of
his duties under a contract with the firm of Willits &
Patterson, and the firm organized a corporation, which
took over all of its assets and continued to conduct the
business of the firm as a corporation and which dealt
with and treated the plaintiff as its agent, the
corporation is bound by the contract which the firm
made with the plaintiff.

Where the plaintiff entered into a contract made by
Willits in his own name, and Willits is the owner of all
the capital stock of the corporation, and the
corporation deals with the plaintiff as its agent under
the contract, the contract which Willits made with the
plaintiff becomes a contract between the plaintiff and
the corporation, and the corporation is bound by the
contract.