058 Liddell & Co Inc v CIR

G.R. No. L-9687

June 30, 1961

Topic: Disregarding the corporate entity

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

Issue:
W/N LMI is the alter ego of LC YES

Ruling:
The mere fact LC and LMI are corporations owned by FL is not by itself sufficient to
justify the disregard of the separate corporate identity of one from the other
o However, LMI was a medium created by LC to reduce tax liability, given the
progressive rate of sales tax (higher price, higher tax rate)
It is lawful to obtain a corporation charter, even with a single substantial stockholder, to
engage in a specific activity, and such activities may co-exist with other private activities
of the stockholder
o GR: Respect separate identity if it is conducted lawfully
o Exc: Fraud
Where a corporation is a dummy, 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 mischievous fiction
o Corporation must not be a medium for tax evasion by an individual

Held: LC is declared liable for P420k tax deficiency