YUTIVO & SONS CO. vs. COURT OF TAX APPEALS
(p. 106-108)
FACTS:
1. Petitioner YUTIVO is a domestic corporation incorporated
in 1916. It was engaged, prior to the last world war, in the
importation and sale of hardware supplies and
equipment.
2. After the liberation it resumed its business. And on June
1946 bought a number of cars and trucks from General
Motors Overseas Corporation (GM).
3. GM paid the sales tax once on original sales, so Yutivo no
longer paid sales tax on its sales to the public.
4. Later no, GM withdrew from the Philippines and
appointed Yutivo as importer.
5. Yutivo in turn exclusively sold to Southern Motors, Inc.
(SM), a corporation where the incorporators are sons of
the founders of Yutivo.
6. Under this arrangement, Yutivo paid the sales tax on
original sale, while SM did not subject to sales tax its sales
to the public.
7. The Collector of Internal Revenue assessed Yutivo for
deficiency sales taxes which the CTA affirmed.
ISSUE:
WON Yutivo is liable for the deficiency taxes?
HELD:
- No. It is elementary rule and 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. 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 case of two corporations
merge them into one. Another rule is that, when the
corporation is a mere alter-ego or business conduit of a
person, it may disregarded.
- The sales tax liability of Yutivo did not arise until it
became the importer and simply continued its practice of
selling to SM. The decision, therefore, of the Tax Court
that SM was organized purposely as a tax evasion device
PAGE 1
 runs counter to the fact that there was no tax to evade.
- We are, however, inclined to agree with the court below
that SM was actually owned and controlled by petitioner
as to make it a mere subsidiary or branch of the latter
created for the purpose of selling the vehicles at retail
and maintaining stores for spare parts as well as service
repair shops. It is not disputed that the petitioner, which
is engaged principally in hardware supplies and
equipment, is completely controlled by the Yutivo, Young
and Yu family. The founders of the corporation are closely
related to each other either by blood or affinity and most
of its stockholders are members of the Yu (Yutivo or
Young) family.
- According to the AOI, the amount of P62,500 was actually
advanced by Yutivo. The additional subscriptions to SM
were paid by Yutivo. The shareholders in SM are mere
nominal stockholders holding the share for and in behalf
of Yutivo, so even conceding that the original subscribers
were bona fide stockholders, Yutivo was at all tie in
control of the stock of SM and that the latter was a mere
subsidiary of the former.
- SM is under the management control of Yutivo by virtue
of the management contract entered into between the
two parties. In fact, the controlling majority of the BOD of
Yutivo is also the controlling majority of the Board of SM.
At the same time, the principal officers of both
corporations are identical. In addition, both corporations
have a common comptroller. There is therefore no doubt
that by virtue of such control, the business, financial and
management policies of both corporations would be
directed towards common ends. Likewise, cash or funds
of SM, including those of its branches which are directly
remitted to Yutivo, and subject to withdrawal only by
Yutivo, SM’s being under Yutivo’s control, the former’s
operations and existence became dependent upon the
latter.
- SM, being but a mere instrumentality or adjunct of
Yutivo, the CTA correctly disregarded the technical
defense of separate corporate entity to arrive at the true
tax liability of Yutivo.
PAGE 2
COMMISSIONER OF INTERNAL REVENUE vs. NORTON &
HARRISON CO. (p. 109-110)
FACTS:
1. Norton & Harrison is a corporation organized in 1911:
a. To buy and sell at wholesale and retail, all kinds of
goods, wares and merchandize;
b. To act as agent of manufacturers in US and foreign
countries;
c. To carry on and conduct a general wholesale and
retail mercantile establishment in the Philippines.
2. Jackbilt, likewise, is a corporation organized in 1948
primarily for the purpose of making, producing and
manufacturing concrete blocks.
3. Norton & Harrison and Jackbilt entered into an
agreement where Norton & Harrison was made the sole
and exclusive distributor of concrete blocks
manufactured by Jackbilt and accordingly every order of
a customer of Norton was transmitted to Jackbilt which
delivered the merchandise directly to the customer.
4. Payment of the goods, however, is made to Norton,
which in turn pays Jackbilt the amount charged the
customer less a certain amount, as its compensation or
profit.
5. During the existence of the agreement, Norton acquired
by purchase all the outstanding stocks of Jackbilt.
6. Due to this, the Commissioner of Internal Revenue,
assess respondent Norton for deficiency taxes making
the basis of sales tax the sales of Norton to the public,
which is the higher price compare to the sale of Jackbilt
to Norton. The CTA decided in favor of Norton.
ISSUE:
WON the two corporations may be merged into a single
corporation?
HELD:
- Yes. 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 distinct personalities.
- However, in the case at bar, we find sufficient grounds
PAGE 3
 to support the theory that the separate identities of the
two companies should be disregarded.

a. Norton owned all the outstanding stocks of Jackbilt;

b. Norton constituted Jackbilt’s directors;
c. Norton financed the operations of Jackbilt;
d. Norton treats Jackbilt’s employees as its own;
e. Compensation given to board members of Jackbilt
indicate that Jackbilt is merely a department of
Norton;
f. The offices of Norton and Jackbilt are located in the
same compound;
g. Payments were effected by Norton of accounts for
Jackbilt and vice versa;
h. Payments were also made to Norton of accounts
due or payable to Jackbilt and vice versa.

- The circumstances presented by the facts of the case,

yields to the conclusion that Jackbilt is merely an
adjunct, business conduit or alter-ego of Norton and
that the fiction of corporate entities, separate and
distinct from each other should be disregarded.
PAGE 4
LA CAMPANA COFFEE FACTORY, INC. vs. KAISAHAN NG
MGA MANGGAGAWA SA LA CAMPANA [KKM] (p. 110-112)
FACTS:
1. Tan Tong, one of herein petitioners, is engaged in the
buying and selling of guagua under the trade name La
Campana Guagua Packing.
2. Later on, Tong and his family organized a family
corporation known as La Campana Coffee Factory Co,
Inc. with its principal office located at the same place as
that of La Campana Guagua Packing.
3. Tan Tong’s employees later on formed a union (herein
respondent) through which they demanded (from both
companies) higher salaries and more privileges.
4. As the demand was not granted and an attempt at a
settlement through mediation had given no result, the
Department of Labor certified the dispute to the Court
of Industrial Relations (CIR).
5. La Campana then filled a motion to dismiss which was
denied. Hence, this present petition for certiorari.
ISSUE:
WON the corporate entity of La Campana Coffee Factory,
Inc. may be disregarded?
HELD:
- Yes. La Campana Guagua Packing and La Campana
Coffee Factory, Inc. are operating under on 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 from the
person composing it, that 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 as to further and
end subversive of that purpose.
- In the present case, Tan Tong appears to be the owner
of the Guagua factory. And the factory, though an
PAGE 5
 incorporated business, is in reality owned exclusively by
Tan Tong and his family.

- As found by the CIR, one payroll, except after July 17,

the day the case was certified to the CIR, 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 guagua
factory and the coffee factory were interchangeable.

- In view of all these, the attempt to make the two

factories appear as two separate businesses, when in
reality they are but one, is but a device to defeat the
ends of the law and should not be permitted to prevail.

PAGE 6
EMILIO CANO ENTERPRSES, INC. vs. COURT OF INDUSTRIAL
RELATIONS (p. 112-113)
FACTS:
1. In a complaint for unfair labor practice filed before the
CIR, Emilio Ariston and Rodolfo, all surnamed CANO,
were made respondents in their capacity as president
and proprietor, fielf supervisors and manager of Emilio
Cano Enterprises, Inc.
2. The Court of Industrial Relations rendered a decision in
favor of Honorata Cruz, ordering Emilio and Rodolfo
Cano, officials of herein petitioner corporation, to
reinstate Cruz.
3. Meanwhile, Emilio Cano died so the attempted to
dismiss the case against him was appealed to court en
banc, which in due course affirmed the decision of CIR.
4. An order of execution was issued directed against the
properties of herein petitioner.
5. Hence, this petition.
ISSUE:
WON order of execution may be had on the properties of
the corporation?
HELD:
- Yes. We should not lose sight of the fact that Emilio
Cano Enterprises, Inc. is a closed family corporation
where the incorporators and directors belong to one
single family. Here is an instance where the corporation
and its members are 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 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 person
composing it, that concept cannot be extended to a
point beyond it reason and policy, and when invoked in
support of an end subversive of this policy it should be
PAGE 7
 disregarded by the courts.

- Emilio and Rodlfo Cano were indicted in the case, not in

their personal capacity, but as president and manager of
the corporation.

- 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.
PAGE 8
TELEPHONE ENGINEERING SERVICES CO. vs. WCC (p. 114-
115)
FACTS:
1. Petitioner Telephone Engineering Services Co. is a
domestic corporation engaged in the business of
manufacturing telephone equipment.
2. The late Pacifico Gatus was an employee of Utilities
Management Corporation (UMACOR), a sister company
of herein Petitioner TESCO.
3. He was later on detailed with Petitioner Company and
returned back to UMACOR. But he contracted illness and
later on died of “liver cirrhosis with malignant
degeneration”.
4. His wife, respondent Leonila Gatus filed a Notice and
Claim for Compensation with the Workmen’s
Compensation Commission (WCC) alleging Pacifico to be
an employee of TESCO.
5. An employer’s report was submitted to WCC where
UMACOR was indicated as the employer of the deceased
and stated that it would not contravert the claim and
admitted that Pacifico contracted illness “in regular
occupation”.
6. The sheriff levied on and attached the property of TESCO
and scheduled the sale of the same at public auction.
7. Thus, the present petition for certiorari with preliminary
injunction.
ISSUE:
WON the award may be rendered against TESCO?
HELD:
- Yes. We note that it is only in this Petition that petitioner
denied, for the first time, the employer-employee
relationship.
- In fact, in the letters it submitted to the Acting Referee
and to the Commission, petitioner represented and
defended itself as the employer of the deceased.
- Petitioner even admitted that TESCO and UMACOR are
sister companies operating under one single
management and housed in the same building.
PAGE 9
- 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 change of theory on appeal

which is not allowed in this jurisdiction.

PAGE 10
CLAPAROLS vs. COURT OF INDUSTRIAL RELATIONS
(p. 115-116)
FACTS:
1. A complaint for unfair labor practice was filed by private
respondents Allied Workers Association, Garlitos, and 10
respondent workers against CLAPAROLS on account of
the dismissal of respondent workers from Clarapols
Steel and Nail Plant.
2. A decision was rendered by the court, finding CLAPAROL
guilty of union busting and dismissing the workers
because of their union activities.
ISSUE:
WON the corporate fiction should be pierced?
HELD:
- Yes. It very clear that the latter corporation was a
continuation and successor of the first entity, and its
emergence was skilfully timed to avoid financial liability
that already attached to its predecessor, Clarapols Steel
and Nail Plant.
- (1) Both predecessor and successor were owned and
controlled by the petitioner Eduardo Clarapols; and
- (2) There was no break in the succession and continuity
in the same business.
- This avoiding-the-liability scheme is very patent,
considering that (3) 90% of the subscribed shares of
stock of the second corporation was owned by Clarapols
himself, and (4) all assets of the dissolved Clarapols Steel
and Nail Plant were turned over to the emerging
Clarapols 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 obligations to its employees.
PAGE 11
As a general rule, therefore, a corporation’s representative
who did not personally bind himself or herself to an
arbitration agreement cannot be forced to participate in
arbitration proceedings made pursuant to an agreement
entered into by the corporation. He or she is generally not
considered a party to that agreement.
However, there are instances when the distinction between
personalities of directors, officers,and representatives, and
of the corporation, are disregarded. We call this piercing the
veil of corporate fiction.
instrumentality, agency, conduit or adjunct of another
corporation."
When corporate veil is pierced, the corporation and persons
who are normally treated as distinct from the corporation
are treated as one person, such that when the corporation is
adjudged liable, these persons, too, become liable as if they
were the corporation.

Piercing the corporate veil is warranted when "[the separate

personality of a corporation] is used as a means to
perpetrate fraud or an illegal act, or as a vehicle for the
evasion of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues." It is also warranted
in alter ego cases "where a corporation is merely a farce
since it is a mere alter ego or business conduit of a person,
or where the corporation is so organized and controlled and
its affairs are so conducted as to make it merely an

PAGE 12
NATIONAL FEDERATION OF LABOR UNION [NAFLU] vs.
OPLE (p. 116-117)
FACTS:
1. NAFLU requested for conciliation before the Bureau of
Labor Relations requesting for the intervention in its
dispute with management involving certain claims and
refusal of the company to conclude collective agreement
and run-away shop undertaken by management.
2. In the course of the negotiation, management
unilaterally declared a temporary shutdown.
3. But it was discovered that the actual partial shutdown
begun a month before and that the machines of
Lawman were transferred to a different location and the
name of the company was changed to Libra Garments,
upon discovery of this, the name was further changed to
DOLPHIN garments.
4. For failure of the company to resume operations in
January 1983 (as promised) a complaint for unfair labor
practice was filed.
ISSUE:
WON the corporate fiction of LIBRA (now DOLPHIN)
garments should be pierced?
HELD:
- Yes. It is very obvious from the above findings that the
second corporation seeks the protective shield of a
corporate fiction to achieve illegal purpose.
- As enunciated in Clarapols vs. CIR, its view in the present
case should, therefore be pierced as it was deliberately
and maliciously designed to evade its financial
obligations to it employees.
- It is an established principle that when the veil of
corporate fictions is made as a shield to perpetrate a
fraud or to confuse legitimate issues (here, the relation
of employer-employee), the same should be pierced.
- After finding that Lawman Industrial Corporation had
transferred business operations to Libra Garments,
which later changed to Dolphin Garments, the public
PAGE 13
 respondent cannot deny reinstatement to the
petitioners simply because Lawman has ceased its
operation.

- As Libra Garments is but an alter-ego of the old

employer, Lawman Industrial, the former must bear the
consequences of the latter’s unfair act by reinstating
petitioners to their former positions without loss of
seniority rights.

PAGE 14
A.C. RANSON LABOR UNION – CCLU vs. NLRC
(p. 117-119)
FACTS:
1. A decision was rendered by the CIR and affirmed by this
Court against AC Ransom for unfair labor practice. Writ
of execution were issued successively against Ransom to
no avail.
2. The Union filed an ex-parte motion for a Writ of
Execution and Garnishment against the officers/agents
of AC Ransom personally and on their estates, as the
case may be, which the Labor Arbiter granted.
3. On appeal, the NLRC reversed the Labor Arbiter relieving
the officers of personal liability.
ISSUE:
WON the officers may be liable?
HELD:
- Yes. The NLRC, on appeal, could not have modified the
CIR decision as affirmed by this Court, by relieving AC
Ransom’s officers and agent of liability which were held
to be jointly and severally liable to the 22 employees for
unfair labor practice.
- This finding does not ignore the legal fiction that a
corporation has a personality separate and distinct from
its stockholders and members for, as this Court had held
“where the incorporators belong to a single family, the
corporation and its members can be considered as one
in order to avoid it being used as an instrument to
commit injustice,” or to further an end subversive of
justice.
- In the case of Clarapols vs. CIR involving almost similar
facts as in this case, it was also held that the shield of
corporate fiction should be pierced when it is
deliberately and maliciously designed to evade financial
obligations to employees.
- Aggravating AC Ransom’s clear evasion of payment of its
financial obligations is the organization of a “run-away”
corporation, ROSARIO Industrial Corporation, in 1969 at
PAGE 15
 the time the unfair labor practice case was proceeding
before the CIR by the same person who were the
officers and stockholders of AC Ransom, engaged in the
same line of business, producing the same line of
product, occupying the same compound, using the same
machineries, buildings, factories, bodega and sales and
accounts departments used by AC Ransom, and which is
still in existence.

- Both corporations were closed corporations owned and

managed by members of the same family.

- Its organization proved to be a convenient instrument to

avoid payment of backwages and the reinstatement of
22 workers.

- This is another instance where the fiction of separate

and distinct corporate entities should be disregarded.

PAGE 16
CONCEPT BUILDERS INC. vs. NLRC (p. 119-122)
FACTS:
1. Petitioner Concept Builders, Inc., is a corporation, with
principal office Valenzuela, Metro Manila, which is
engaged in the construction business.
2. Private respondents were employees of petitioner
Concept Builders, Inc., (laborerss, carpenters, and
riggers) who were served termination letters stating that
the project for which they were hired was already
completed and that their contracts have already
expired.
3. Finding that the project was not actually completed yet,
and that petitioner employed a subcontractor whose
employees performed the duties of private respondents,
the latter filed a complaint for illegal dismissal with the
Labor Arbiter who held that the dismissal was illegal.
4. A writ of execution was issued but was partially satisfied
only.
5. The sheriff sought levy upon the properties in the head
office of Concept Builders, Inc. but was not allowed to
do so on the ground that it was occupied by Hydro Pipes
Philippines, Inc. and not concept builders.
6. Unable to remove the personal properties he found
thereat, the Sheriff asked for a “break-open” order
which was denied by the Labor Arbiter after a third party
claim was filed by Hydro, which was reversed by the
NLRC on appeal.
ISSUE:
WON the break-open order should be issued?
HELD:
- Yes. The conditions under which the juridical entity may
be disregarded vary according to the particular 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 veil of corporate veil, to wit:
1. Stock ownership by one or common ownership of
both corporations;
PAGE 17
 2. Identity of directors and officers;
3. The manner of keeping corporate books and
records;
4. Methods of conducting the business.
- The SEC en banc explained the “instrumentality rule”
which the courts have applied in disregarding separate
juridical personality of corporations as follows:
“Where on 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 finances, policies, and practices that the
controlled corporation has, so to speak, no
separate mind, will or existence of its own
and is a business conduit of 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 piercing the
veil of corporate fictions is as follows:
1. Control, not mere majority or complete stock
control, but complete domination, not only in
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 los
complained of.
PAGE 18
- The absence of one of the 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 mere
alter-ego, a mere sheet of paper corporation, a sham or
a subterfuge is purely one of fact.
- In this case, while petitioner claimed that it ceased on
operations on April 29, 1986, it filed an information
sheet with the SEC on May 15, 1987 stating that its
office address is at 355 Maysan Road, Valenzuela Metro
Manila.
- Both companies have the same president, the same
BOD, the same corporate officers and substantially the
same subscribers.
- 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 position.
- Hydro is obviously a business conduit of petitioner
corporation and its emergence was skilfully orchestrated
to avoid the financial liability attached to petitioner
corporation.

- On the other hand, third-party claimant Hydro, on the

same day, filed an information sheet with the same
address, both information sheets filed by the same
Virgilio O. Casino.
PAGE 19
MCCONNEL vs. COURT OF APPEALS (p. 122-124)
FACTS:
1. Park Rite Co. Inc., leased from Samanillo a vacant lot on
Juan Luna street in Manila which it used for parking
motor vehicles for a consideration.
2. 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
respondent-appellees Padilla, without the owners’
knowledge and consent.
3. Park Rite disclaimed liability, blaming the original
incorporators Mcconnel, Rodriguez and Cochrane.
4. A complaint for forcible entry was filed by the lot
owners then.
5. Judgment was rendered ordering Park Rite to pay
damages.
6. Judgment creditors filed a suit in CFI manila against the
corporation and its past and present stockholders.
7. CFI denied recovery.
8. But on appeal, CA reversed the decision.
ISSUE:
WON the incorporators may be held liable for obligations of
the corporation?
HELD:
- Yes. The Court has already answered the question in the
affirmative wherever the 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.
- The evidence shows that Cirilio Paredes and Ursula
Tolentino (present stockholders) and M. McConnel, WP
Cochrane and Ricardo Rodriguez (previous stockholders)
completely dominated and controlled the corporation
and that the functions of the corporation were solely for
their benefit, as shown that the other shareholders were
merely qualifying shares.
- This is strengthened by the fact that the office of Cirilio
Paredes and that of Park Rite Co., Inc. were located in
PAGE 20
 the same building, in the same floor, and in the same
room.
- This is further shown by the fact that the funds of the
corporation were kept by Cirilio Paredes in his own
name.
- 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
cannot be invoked or used for purposes that could not
have been intended by the law that created the
separate personality.

- 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.

- While the mere ownership of all or nearly all of the

capital stock of a corporation does not necessarily
mean that it is a mere business conduit of the
stockholder, that conclusion is amply unjustified where
it is shown, as in this case before us, that the
operations of the corporation were so merged with the
stockholders as to be practically indistinguishable from
them.

PAGE 21
TAN BOON BEE & CO. vs. JARENCIO (p. 124-125)
FACTS:
1. Petitioner Tan Boon Bee, doing business under the name
and style of Anchor Supply Co., sold on credit to private
respondent Graphic Publishing, Inc. paper products.
2. For failure of private respondent Graphic Publishing Inc.
to pay paper products purchased from Tan Boon Bee,
the latter then filed a complaint in the CFI of Manila.
3. A writ of Execution was issued levying a printing
machine which private respondent Philippine American
Drug Company claimed as its own.
4. PADCO filed a third party claim and asked the court to
nullify the auction sale already conducted, which herein
respondent judge granted.
ISSUE:
WON the respondent judge should be upheld?
HELD:
- No. It is true that a corporation, upon coming into being,
is invested by law with a personality separate and
distinct from that of the persons composing it as well as
from any other legal entity to which it may be related.
- As a matter of fact, the doctrine that a corporation is a
legal entity distinct and separate from the members and
stockholders who compose it is recognized and
respected in all cases which are within reason and the
law.
- However, this separate and distinct personality is
merely a fiction created by law for convenience and to
promote justice.
- Accordingly, this separate personality of the
corporation may be disregarded, or the veil of
corporate fiction pierced, in cases where it is used as a
cloak or cover for fraud or illegality, or to work an
injustice, or where necessary to achieve equity or when
necessary for the protection of creditors. Corporations
are composed of natural persons and the legal fiction
PAGE 22
 of a separate corporate personality is not a shield for
the commission of injustice and inequity.

- Likewise, this is true when the corporation is merely an

adjunct, business conduit or alter-ego of another
corporation. In such case, the fiction of separate and
distinct corporate entities should be disregarded.

- In the instant case, petitioner’s evidence established

that PADCO never engaged in the printing business; that
the BOD and the officers of PADCO and Graphic are the
same; and that PADCO holds 50% share of stock of
Graphic.

- The printing machine in question was in the premises of

Graphic, long before PADCO even acquired its alleged
title from Capitol Publishing.

- Considering the above, respondent judge should have

pierced PADCO’s veil of corporate identity.

PAGE 23
CEASE vs. COURT OF APPEALS (p. 126-129)
FACTS:
1. Forrest L. Cease is the common predecessor-in-interest
of the parties.
2. He and other American citizens organized the Tiaong
Milling and Plantation Company and in the course of its
corporate existence all other incorporators were bought
out by Cease and his children.
3. The corporation’s charter expired but there were no
records as to its liquidation. Upon Cease’s death,
Ernesto, Teresita, Cecilia (3 of the 5 children) and
Bonifacia Terante re-incorporated under FL Cease
Plantation Company, to the objection of Benjamin and
Florence who wanted actual division of Forrest Cease’s
shares.
4. The latter two filed a civil case asking to declare the
corporation identical to FL Cease and that its properties
be divided among Fl Cease’s children as his intestate
heirs which was granted by the trial court.
ISSUE:
WON the assets of the corporation are also the properties of
Forrest L. Cease?
HELD:
- Yes. In sustaining respondent’s theory of “merger of
Forrest Cease and the Tiaong Milling as one personality”,
or that “the company is only the business conduit and
alter-ego of the deceased FL Cease and the registered
properties of Tiaong Milling are actually properties of FL
Cease and should be divided equally among his
children”, the trial court did aptly apply the familiar
exception to the general rule by disregarding the legal
fiction of distinct and separate corporate personality
and regarding the corporation and the individual
members one and the same.
- In shredding the fictitious corporate veil, the trial judge
narrated the undisputed factual premise:
“While the records show that originally, the
incorporators were aliens, friends or third-parties
PAGE 24
in relation of one to another, in the course of its
existence, it developed into a close family
corporation. The BOD and stockholders belong to
one family the head of which FL Cease always
retained the majority and hence, the control and
management of its affairs. In fact, during the
reconstruction of its records before the SEC, only
9 nominal shares out of 300 appear in the name
of his 3 eldest children then and another person
close to them (Ternate). It is likewise noteworthy
to observe that as his children increase or
perhaps become of age, he continued
distributing his shares among them adding
Florence, Teresa and Marion until at the time of
his death, only 190 were left to his name.
Definitely, only the members of his family
benefited from the corporation.
The accounts of the corporation and therefore its
operation, as well as that of the family appears
to be indistinguishable and apparently joined
together. As admitted by the defendants, the
corporation “never” had any account with any
banking institution or if any account was carried
in a bank on its behalf, it was in the name of FL
Cease. In brief, the operation of the Corporation
is merged with those of the majority
stockholders, the latter using the former as his
instrumentality and for the exclusive benefit of
all his family. From the foregoing indication,
therefore, there is truth in plaintiffs’ allegation
that the corporation is only a business conduit of
his father and an extension of his personality,
they are once and the same thing. Thus, the
assets of the corporation are also the estate of FL
Cease, the father of the parties herein who are al
legitimate children of full blood”
- Were we to sustain petitioners, the legal fiction of
separate corporate personality shall have been used to
delay and ultimately deprive and defraud the
respondents of their successional right to the estate of
their deceased father.
PAGE 25
WHEN PIERCING THE CORPORATE FICTION IS NOT
JUSTIFIED
1. Absent any of the following circumstances, the courts
will not be justified in disregarding the corporate entity;
a. The corporation is used or being used to defeat
public convenience;
b. Justify wrong;
c. Protect fraud;
d. Defend crime;
e. Confuse legitimate issues;
f. Circumvent the law;
g. Perpetuate deception; or
h. An alter-ego, adjunct or business conduit for the
sole benefit of a stockholder or a group of
stockholders or another corporation.
2. The wrong doing must be clearly and convincingly
established. It cannot be justified by speculation and can
never be presumed.
3. The petitioner must seek to impose a claim against the
stockholders or officers directly liable, otherwise
piercing the veil of corporate fiction would not be
available nor justified.
READ AGAIN: CRUZ vs. DALISAY
- It is well-settled doctrine, both in law and in equity that
as a legal entity, a corporation has a personality
distinct and separate from its individual stockholders
or members. The mere fact that one is president of a
corporation does not render the property he owns or
possesses the property of the corporation, since the
president, as individual, and the corporation are
separate entities
PAGE 26
REMO, JR. vs. INTERMEDIATE APPELLATE COURT
(p. 129-131)
FACTS:
1. The BOD of Akron adopted a resolution authorizing the
purchase of 13 trucks from private respondent (EB
Marcha Transport Co., Inc.) for and in consideration of
P525,000 as evidenced by a deed of absolute sale.
2. In a side agreement, the parties agreed on a down
payment of P50,000 and the balance to be paid within
60 days.
3. They further agreed that until the balance is paid, the
down payment shall accrue as rentals for the 13 trucks;
and in case of failure to pay the balance shall constitute
a chattel mortgage lien; and the parties may allow 30
day extension; and private respondent may ask for the
revocation of the contract and re-conveyance of the said
trucks.
4. The obligation is further secured by a promissory note
executed by Coprada, where it is stated that the balance
shall be paid from the proceeds of a loan from DBP
which was never applied for.
5. A complaint was later on filed by private respondent for
the recovery of the P525, 000 or the return of the 13
trucks against Akron and its officers and directors
including herein petitioner which was granted by the CFI
of Rizal.
4. Petitioner denied any participation the transaction and
alleging that Akron has distinct corporate personality. He
was, however, declared in default for failure to attend
pre-trial.
ISSUE:
WON Petitioner Remo, Jr. is jointly and severally liable?
HELD:
- No. The facts of the case show that there is no cogent
basis to pierce the corporate veil of Akron and hold
petitioner personally liable for its obligation to private
respondent.
- While it is true that he is a member of the board at the
time the resolution to purchase the trucks were
PAGE 27
 adopted, it does not appear that said resolution was
intended to defraud anyone.

- It was Coprada who negotiated with respondent and the

one who signed the promissory note.

- The word “We” in the said promissory note must refer

to the corporation and Coprada and not of its
stockholders and directors. Petitioner did not sign such
note so he cannot be personally bound thereby.

- Thus, if there was any fraud or misrepresentation that

was foisted on private respondent in that there was
forthcoming loan from the DBP when in fact there as
none, it is Coprada who should account for the same
and not the petitioner.

PAGE 28
DEL ROSARIO vs. NATIONAL LABOR COMMISSION
(p. 131-134)
FACTS:
1. POEA promulgated a decision dismissing the complaint
for money claims which is then appealed to NLRC.
2. NLRC then reversed the decision of POEA and ordered
PHILSA Construction and Trading Co. (recruiter) and
Arieb Enterprises (employer) to jointly and severally pay
the respondent Atienza salary differentials and vacation
leaves.
3. A writ of execution was issued by the POEA which was
returned unsatisfied as PHILSA was no longer operating
and was financially incapable of satisfying the judgment.
4. At the motion of private respondent, an alias writ was
issued against the properties of Mr. Francisco del
Rosario and if insufficient, against the cash and/or surety
bond of the Bonding Company concerned.
5. Petitioner appealed to the NLRC which was denied
together with his MR.
ISSUE:
WON the writ of execution must be upheld?
HELD:
- No. Under the law, a corporation is bestowed juridical
personality, separate and distinct from its stockholders.
But when the juridical personality of the corporation is
used to defeat public convenience, justify wrong,
protect fraud or defend crime, the corporation shall be
considered as a mere association of persons, and its
responsible officers and/or stockholders shall be held
individually liable.
- For the same reasons, a corporation shall be liable for
the obligation of a stockholder or a corporation and its
successor-in-interest shall be considered as one and the
liability of the former shall attach to the latter.
- But for the separate juridical personality of a
corporation to be disregarded, the wrongdoing must be
clearly and convincingly established.
PAGE 29
- It cannot be presumed. In this regard, we find the NLRC
decision wanting.
1. PHILSA allowed its license to expire so as to evade
payment of private respondent’s claim – not supported
by facts. The license expired in 1985, it was delisted in
1986, there was no judgment yet in favour of PR. An
intent to evade payment of his claims cannot therefore
be implied from the expiration of PHILSA’s license and
its delisting.
2. Organization of PHILSA International Placemen and
Services Corp. and its registration with POEA implies
fraud – it was organized and registered in 1981, several
years before private respondent filed his complaint with
the POEA in 1985. The creation of the second
corporation could not therefore have been in
anticipation of PR’s money claims and the consequent
adverse judgment against PHILSA.
3. Substantial identity of the incorporators of the two
corporations – does not necessarily imply fraud.
*DISTINGUISHED FROM OTHER CASES*
LA CAMPANA – the two companies were substantially
owned by the same person. They had one office, one
management, and a single payroll for both businesses. The
laborers were also interchangeable.
CLARAPOLS – Both corporations were substantially owned
and controlled by the same person and there was no break
or cessation in operations. Moreover, all the assets of the
old were transferred to the new corporation.
AC RANSOM – The distinguishing mark of fraud were clearly
apparent in AC Ransom, when such corporation ceased
operation after the decision of the CIR and new one
replacing it which was owned by the same family, engaging
in the same business and operating in the same compound.
In the present case, not only has there been failure to
establish fraud, but it has also not been shown that
petitioner is the corporation officer responsible for PR’s
predicament. It must be emphasized that the claims were
actually directed against the employer, PHILSA became liable
only because of its undertaking to be jointly and severally
bound with the foreign employer, as required by POEA rules.
PAGE 30
INDOPHIL TEXTILE MILL WORKERS UNION vs. CALICA
(p. 134-135)
FACTS:
1. Petitioner Indophil is a legitimate labor organization duly
registered in the Department of Labor and exclusive
bargaining agent of all the rank-and-file employees of
Indophil.
2. Respondent Calica is impleaded in his official capacity as
the Voluntary Arbitrator of the Department of Labor.
3. While the petitioner Indophil is a corporation engaged in
the manufacture, sale, and exports of yarns and has its
plants at Bulacan.
4. Petitioner Union-PTGWO and Indophil Textile Mills, Inc.
then executed a CBA.
5. On 1987, Indophil ACRYLIC MANUFACTURING CORP was
formed and registered with the SEC and in 1988 became
operation and hired workers according to its own
criteria and standards.
6. The workers of ACRYLIC unionized and a CBA was
executed.
7. Petitioner union claimed that the plant facilities build
and set up by ACRYLIC should be considered an
extension or expansion of the facilities of TEXTILE MILLS,
to make ACRYLIC part of the TEXTILE MILLS bargaining
unit.
8. Public respondent voluntary arbitrator Calica declared
that the CBA of petitioner DOES NOT extend to
employees of ACRYLIC.
ISSUE:
WON the veil of corporate entity should be pierced?
HELD:
- No. Under the doctrine of piercing the veil of corporate
entity, when valid grounds therefore exist, the legal
fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or
stockholders may be disregarded.
- In such cases, the corporation will be considered as a
mere association of persons. The members or
stockholders of a corporation will be considered as the
PAGE 31
 corporation, that is, liability will attach directly to the UMALI VS. CA – “the legal corporate entity is disregarded
officers and stockholders. only if it’s sought to hold the officers and stockholders
directly liable for a corporate debt or obligation”. In the
- In the case at bar, petitioner alleges that the creation of instant case, petitioner does not seek to impose a claim
the ACRYLIC is a devise to evade the application of the against the members of ACRILYC.
CBA between petitioner and TEXTILE MILL. While we do
not discount the possibility of the similarities of the
businesses of the two corporations, neither are we
inclined to apply the doctrine invoked by petitioner.
1. The fact that the business of Indophil Textile Mills
and Indphil Acrylic Manufacturing are related;
2. That some of the employees of PR are the same
persons manning and providing for auxilliary
services to the units of ACRILYC, and that;
3. The physical plants, offices and facilities are situated
in the same compound.

- It is our considered opinion that these facts are not

sufficient to justify piercing the corporate veil of
ACRILYC.

PAGE 32
PNB vs. RITRATTO GROUP, INC. ET.AL (p. 135-138)
FACTS:
1. Petitioner PNB is a domestic corporation and organized
and existing under the Philippine Law.
2. Meanwhile, respondents Ritratto and Dadason are
domestic corporations, likewise organized and existing
under the Philippine Law.
3. PNB International Finance Ltd. (IFL), a wholly-owned
subsidiary of PNB, organized and doing business in HK,
extended a letter of credit in favor of respondent
RITRATTO in the amount of US$300K , later increased to
1.14M, to 1.29M, to 1.425M and decreased to
1,421,316.18, secured by a real estate mortgage
constituted in 4 parcels of land in Makati City.
4. Then as of April 1998, the outstanding obligation of
respondents stood at US$1,497,274.70.
5. Pursuant to the terms of the mortgages, IFL, through its
attorney-in-fact PNB, notified respondents of the
foreclosure of all the real estate mortgages and that the
properties would be sold at a public auction.
6. Respondents filed a complaint for injunction for which a
TRO was issued and later on a writ of preliminary
injunction, which petitioner assailed with the CA through
petition for certiorari.
7. The CA dismissed the petition.
ISSUE:
WON the corporate entity of IFL may be disregarded?
HELD:
- No. Respondents, therefore, do not have any cause of
action against it. The trial court erred in disregarding the
corporate entity by saying that IFL is a wholly owned
subsidiary of PNB and that it is a mere alter-ego or
business conduit of the latter.
- The mere fact that a corporation owns all of the stocks
of another corporation, taken alone is not sufficient to
justify their being treated as one entity.
- If used to perform legitimate functions, a subsidiary’s
separate existence may be respected, and the liability
PAGE 33
 of the parent corporation as well as the subsidiary will
be confined to those arising in their respective
businesses.
- KOPPEL PHIL VS. YATCO – this Court disregarded the
separate existence of the parent and subsidiary on the
ground that the latter was formed merely for the
purpose of evading the payment of higher taxes. In the
case at bar, respondents failed to show any cogent
reason why the separate entities of PNB and IFL should
be disregarded.
- While there exists no definite test of general application
in determining when a subsidiary may be treated as a
mere instrumentality of the parent corporation some
factors have been identified that will justify the
application of the treatment of the doctrine of piercing
the corporate veil:
1. As a general rule, the stock ownership alone by one
corporation of the stock of another does not
thereby render the dominant corporation liable for
the torts of the subsidiary unless the separate
corporate existence of the subsidiary is a mere
sham, or unless the control of the subsidiary is such
that it is by an instrumentality or adjunct of the
dominant corporation (Garrett vs. Southern Railway
Co.; Tennessee SC);
2. The doctrine of piercing the corporate veil is an
equitable doctrine developed to address situations
where the separate corporate personality of a
corporation is abused or used for wrongful purpose.
The doctrine applies when the corporate fiction is
used to defeat public convenience, justify wrong,
protect fraud or defend crime, or when it is used as
a shield to confuse legitimate issues or where the
corporation is so organized and controlled and its
affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of
another corporation;
PAGE 34
3. The test in determining the doctrine of piercing the
veil of corporation fiction:
a. Control, not mere majority of complete control,
but complete domination, not only of finances,
but of policy and business practices 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;
b. 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 to plaintiff’s legal rights; and
c. 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 the operation. (Concept Builders, Inc. vs.
NLRC)
- Aside from the fact that IFL is a wholly owned subsidiary,
there is no showing of the indicative factors that the it is
a mere instrumentality of PNB. Neither is there a
demonstration that any of the evils sought to be
prevented by the doctrine of piercing the corporate veil
based on the alter-ego or instrumentality doctrine finds
application in the case at bar.
- The injunction suit was directed against PNB, as agent of
IFL and not as parent. A suit against an agent, cannot,
without compelling reasons be considered a suit against
the principal, for he is not the real party in interest
provided under the Rules of Court.
PAGE 35