G.R. No.

98185 December 11, 1992

SIBAGAT TIMBER CORPORATION, petitioner,

vs.
ADOLFO B. GARCIA, USIPHIL, INC. and STRONGHOLD INSURANCE CO., INC., respondents.

 FACTS

Respondent Sheriff Adolfo B. Garcia, was entrusted with the implementation of the writ of execution issued by the
Regional Trial Court, Makati, Metro Manila in Civil Case No. 7180 entitled which levied on the personal properties of
Del Rosario & Sons.

On the same date (August 30, 1988) that levy was made, the petitioner herein, through Mariano Rana, filed a third-
party claim alleging that it is the lawful owner of the levied machinery and equipment, by virtue of deeds of sale
executed in its favor by Del Rosario & Sons Logging Enterprises, Inc.

On September 6, 1988, petitioner filed in the RTC of Butuan City, a petition for "Certiorari, Prohibition and Injunction
with Restraining Order & Writ of Preliminary Injunction and Damages" and the preceding judge issued a temporary
restraining order in favor of the petitioner.

While the court deputies were about to serve the restraining order where the auction was about to be held, they
were informed by herein respondent Garcia that the auction was already finished and that a sale was executed in
favor of USIPHIL INC.

Petitioner filed an appeal to the CA but was denied.

ISSUE:

WON THE CA ERRED IN PIERCING THE VEIL OF CORPORATE ENTITY AND HOLDING THE SIBAGAT
TIMBER CORPORATION AS NOT A SEPARATE ENTITY FROM DEL ROSARIO & SONS LOGGGING
ENTERPRISE

HELD:

NO. CA DID NOT COMMIT ANY ERROR

The court herein reinstated the findings of the CA

Mariano Rana, the third-party claimant for and in behalf of petitioner testified, that he is the office manager of
Sibagat Timber Corporation, also he is the administrative manager of Del Rosario and Sons Logging Enterprises,
Inc. in a concurrent capacity.

Further the officers, the general manager and the president of Sibagat are also the directors of Del Rosario and
Sons logging.

Hence, the court ruled that the circumstances that: (1) petitioner and Del Rosario & Sons Logging Enterprises, Inc.
hold office in the same building; (2) the officers and directors of both corporations are practically the same; and (3)
the Del Rosarios assumed management and control of Sibagat and have been acting for and managing its business
bolster the conclusion that petitioner is an alter ego of the Del Rosario & Sons Logging Enterprises, Inc.

The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or
confuse legitimate. The theory of corporate entity was not meant to promote unfair objectives or otherwise, to shield
them. Likewise, where it appears that two business enterprises are owned, conducted, and controlled by the same
parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that
two corporations are distinct entities, and treat them as identical.
G.R. No. 193136, July 10, 2019

ABS-CBN BROADCASTING CORPORATION, PETITIONER, v. HONORATO C. HILARIO,

SUBSTITUTED BY GLORIA Z. HILARIO, AND DINDO B. BANTING, RESPONDENTS.

FACTS

Petitioner is a domestic corporation primarily engaged in the business of international and local
broadcasting of television and radio content. petitioner engaged independent contractors to create,
provide and construct its different sets and props requirements. One of the independent contractors
engaged by petitioner was Mr. Edmund Ty.

In 1995, CCI was formed and incorporated by Ty together with some officers of petitioner, It was
organized to engage in the business of conceptualizing, designing and constructing sets and props for
use in television programs, theater presentations, concerts, conventions and/or commercial
advertising. Ty became the Vice-President and Managing Director of CCI. On or about the time of
CCI's incorporation, the Scenic Department of petitioner was abolished and CCI was engaged by
petitioner to provide props and set design for its shows and programs.

Respondents herein were employees of CIC, both of them were assigned as a Set Controller and an
Assistant Set controller.

In June 2003, Ty decided to retire as Managing Director of CCI. His decision was prompted by his
intention to organize and create his own company. Without Ty to manage and lead CCI, and
considering that CCI was not generating revenue but was merely "breaking even", the Board of
Directors of CCI decided to close the company down by shortening its corporate term up to October
31, 2003.

In August 2003, Ty organized and created Dream Weaver Visual Exponents, Inc. (DWVEI). Like CCI,
DWVEI is primarily engaged in the business of conceptualizing, designing and constructing sets and
props for use in television programs and similar projects. With the incorporation of DWVEI, petitioner
engaged the services of DWVEI.

On September 2003 both respondents Banting and Hilario were served their respective notices of the
closure of CCI effective October 5, 2003.

On September 24, 2003, respondents filed a complaint for illegal dismissal, illegal deduction, non-
payment of meal allowances, with prayer for damages against CCI and petitioner before the National
Labor Relations Commission (NLRC). In their position paper, respondents claimed that the closure of
CCI was not due to any of the authorized causes provided by law but was done in bad faith for the
purpose of circumventing the provisions of the Labor Code, as CCI was still conducting operations
under the guise of DWVEI.

Petitioner and CCI, represented by the same counsel, submitted their position paper claiming that
they are separate and distinct corporations. Petitioner and CCI maintained that an employer may
close its business even if it is not suffering from losses or financial reverses, as long as it pays its
employees their termination pay. 

The labor arbiter ruled in favor of the respondents and ordered the petitioner to pay. When the case
was elevated to the NLRC it affirmed the decision of the Labor Arbiter and held the petitioner to be
jointly and severally liable. The NLRC agreed with the LA that the creation and abolition of CCI was
done with the direct participation of, and with sole dependence on petitioner, hence, petitioner and
CCI should be treated as a singular entity since petitioner controlled the affairs of CCI. 

Petitioner appealed to the CA but was dismissed, hence now in this petition the petitioner maintains
that ABS-CBN and CCI are separate and distinct corporations and that there was no factual and legal
basis to disregard their separate corporate personalities and that the fact that CCI was a subsidiary
of ABS-CBN prior to its closure and that former CCI officers are the incorporators and officers of
DWVEI cannot be used as a justification to pierce the separate corporate fiction of these companies,
much more to consider petitioner and DWVEI as one and the same entity.

ISSUE

whether petitioner was correctly held jointly and severally liable with CCI for payment of monetary
award to respondents.

HELD:

YES.
The present case falls under the third instance where a corporation is merely a farce since it is a
mere alter ego or business conduit of person or in this case a corporation.

"The corporate mask may be removed or the corporate veil pierced when the corporation is just an
alter ego of a person or of another corporation."By looking at the circumstances surrounding the
creation, incorporation, management and closure and cessation of business operations of CCI, it
cannot be denied that CCI's existence was dependent upon Ty and petitioner.

First, the internal Scenic Department which initially handled the props and set designs of petitioner
was abolished and shut down and CCI was incorporated to cater to the props and set design
requirements of petitioner, thereby transferring most of its personnel to CCI. Notably, CCI was a
subsidiary of petitioner and was incorporated through the collaboration of Ty and the other major
stockholders and officers of petitioner. CCI provided services mainly to petitioner and its other
subsidiaries.

When Edmund Ty organized his own company, petitioner hired him as consultant and eventually
engaged the services of his company DWVEI. As a result of which CCI decided to close its business
operations as it no longer carried out services for the design and construction of sets and props for
use in the programs and shows of petitioner, thereby terminating respondents and other employees
of CCI. Petitioner clearly exercised control and influence in the management and closure of CCI's
operations, which justifies the ruling of the appellate court and labor tribunals of disregarding their
separate corporate personalities and treating them as a single entity.
G.R. No. 202454

CALIFORNIA MANUFACTURING COMPANY, INC., Petitioner,

vs.
ADVANCED TECHNOLOGY SYSTEM, INC., Respondent.

FACTS:

CMCI is a domestic corporation engaged in the food and beverage manufacturing business. Respondent ATSI is
also a domestic corporation that fabricates and distributes food processing machinery and equipment, spare parts,
and its allied products.

CMCI leased from ATSI a Prodopak machine which was used to pack products in 20-ml. pouches. In November
2003, ATSI filed a Complaint for Sum of Money against CMCI to collect unpaid rentals for the months of June, July,
August, and September 2003. ATSI alleged that CMCI was consistently paying the rents until June 2003 when the
latter defaulted on its obligation without just cause. ATSI also claimed that CMCI ignored all the billing statements
and its demand letter. 

CMCI moved for the dismissal of the complaint on the ground of extinguishment of obligation through legal
compensation. CMCI averred that ATSI was one and the same with Processing Partners and Packaging
Corporation (PPPC), which was a toll packer of CMCI products.

CMCI alleged that in 2000, PPPC agreed to transfer the processing of CMCI's product line from its factory, Upon the
request of PPPC, through its Executive Vice President Felicisima Celones, CMCI advanced ₱4 million as
mobilization fund. PPPC President and Chief Executive Officer Francis Celones allegedly committed to pay the
amount in 12 equal instalments deductible from PPPC's monthly invoice to CMCI beginning in October 2000. 11
CMCI likewise claims that in a letter dated 30 July 2001,  Felicisima proposed to set off PPPC's obligation to pay the
mobilization fund with the rentals for the Prodopak machine.

CMCI argued that the proposal was binding on both PPPC and A TSI because Felicisima was an officer and a
majority stockholder of the two corporations. Moreover, in a letter dated 16 September 2003,   she allegedly
13

represented to the new management of CMCI that she was authorized to request the offsetting of PPPC's obligation
with ATSI's receivable from CMCI.

CMCl argued that legal compensation had set in and that ATSI was even liable for the balance of PPPC's unpaid
obligation after deducting the rentals for the Prodopak machine.

The trial court ruled that legal compensation did not apply because PPPC had a separate legal personality from its
individual stockholders, the Spouses Celones, and ATSI. Moreover, there was no board resolution or any other
proof showing that Felicisima's proposal to set-off the unpaid mobilization fund with CMCI 's rentals to A TSI for the
Prodopak Machine had been authorized by the two corporations, such judgement was affirmed by the CA.

NOW IN THIS APPEAL CMCI argues that both the RTC and the CA overlooked the circumstances that it has
proven to justify the piercing of corporate veil in this case, i.e., (1) the interlocking board of directors, incorporators,
and majority stockholder of PPPC and ATSI; (2) control of the two corporations by the Spouses Celones; and (3) the
two corporations were mere alter egos or business conduits of each other. CMCI now asks us to disregard the
separate corporate personalities of A TSI and PPPC based on those circumstances and to enter judgment in favor
of the application of legal compensation.

ISSUE:

whether the CA erred in affirming the ruling of the RTC that legal compensation between ATSI's claim against CMCI
on the one hand, and the latter's claim against PPPC on the other hand, has not set in.

HELD:

NO. THE CA DID NOT COMMIT ANY ERRO.

THE COURT UPHELD THE RULING OF THE CA IN THIS CASE.

The court have reviewed the evidence on record and have found no cogent reason to disturb the findings of the co
mis a quo that A TSI is distinct and separate from PPPC, or from the Spouses Celones. As the CA had correctly
observed, it must be ce11ain that the corporate fiction was misused to such an extent that injustice, fraud, or crime
was committed against another, in disregard of rights. 

CMCI 's alter ego theory rests on the alleged interlocking boards of directors and stock ownership of the two
corporations. The CA, however, rejected this theory based on the settled rule that mere ownership by a single
stockholder of even all or nearly all of the capital stocks of a corporation, by itself, is not sufficient ground to
disregard the corporate veil. 

The instrumentality or control test of the alter ego doctrine requires not mere majority or complete stock control, but
complete domination of finances, policy and business practice with respect to the transaction in question. The
corporate entity must be shown to have no separate mind, will, or existence of its own at the time of the transaction.
Without question, the Spouses Celones are incorporators, directors, and majority stockholders of the ATSI and
PPPC. But that is all that CMCI has proven. There is no proof that PPPC controlled the financial policies and
business practices of ATSI either in when Felicisima proposed to set off the unpaid ₱3.2 million mobilization fund
with CMCI's rental of Prodopak machines; when the lease agreement between CMCI and ATSI commenced.

Assuming arguendo that Felicisima was sufficiently clothed with authority to propose the offsetting of obligations,
her proposal cannot bind ATSI because at that time the latter had no transaction yet with CMCI. Besides, CMCI had
leased only one Prodopak machine. Felicisima's reference to the Prodopak machines in its letter in July 2001 could
only mean that those were different from the Prodopak machine that CMCI had leased from A TSI.

In all its pleadings, CMCI averred that the P4 million mobilization fund was in furtherance of its agreement with
PPPC in 2000.  Prior thereto, PPPC had been a toll packer of its products as early as 1996. Clearly, CMCI had
1awp++i1

been dealing with PPPC as a distinct juridical person acting through its own corporate officers from 1996 to 2003.

CMCI's dealing with ATSI began only in August 2001. It appears, however, that CMCI now wants the Court to gloss
over the separate corporate existence ATSI and PPPC notwithstanding the dearth of evidence showing that either
PPPC or ATSI had used their corporate cover to commit fraud or evade their respective obligations to CMCI. It even
appears that CMCI faithfully discharged its obligation to ATSI for a good two years without raising any concern
about its relationship to PPPC.

The fraud test, which is the second of the three-prong test to determine the application of the alter ego doctrine,
requires that the parent corporation's conduct in using the subsidiary corporation be unjust, fraudulent or wrongful.
Under the third prong, or the harm test, a causal connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff has to be established.
None of these elements have been demonstrated in this case. Hence, we can only agree with the CA and RTC in
ruling out mutuality of parties to justify the application of legal compensation in this case.
G.R. No. L-28694 May 13, 1981

TELEPHONE ENGINEERING & SERVICE COMPANY, INC., petitioner,

vs.
WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF RIZAL and LEONILA SANTOS
GATUS, for herself and in behalf of her minor children, Teresita, Antonina and Reynaldo, all surnamed
GATUS, respondents.

FACTS:

Petitioner is a domestic corporation engaged in the business of manufacturing telephone equipment. Its Executive
Vice-President and General Manager is Jose Luis Santiago. It has a sister company, the Utilities Management
Corporation (UMACOR), with offices in the same location. UMACOR is also under the management of Jose Luis
Santiago.

On September 1964, UMACOR employed the late Pacifica L. Gatus as Purchasing Agent. On May 1965 he, was
detailed with petitioner company. He reported back to UMACOR on August 1965. On January 1967, he contracted
illness and although he retained to work on May 10, 1967, he died nevertheless on July 14, 1967 of "liver cirrhosis
with malignant degeneration."

His widow, respondent Leonila S. Gatus, filed a "Notice and Claim for Compensation" alleging therein that her
deceased husband was an employee of TESCO, and that he died of liver cirrhosis.

On August 9, 1967, and Office wrote petitioner transmitting the Notice and for Compensation, and requiring it to
submit an Employer's Report of Accident or Sickness pursuant to Section 37 of the Workmen's Compensation Act
(Act No. 3428). 

 An "Employer's Report of Accident or Sickness" was thus submitted with UMACOR indicated as the employer of the
deceased. The Report was signed by Jose Luis Santiago. In answer to questions Nos. 8 and 17, the employer
stated that it would not controvert the claim for compensation, and admitted that the deceased employee contracted
illness "in regular occupation."

TESCO, through Jose Luis Santiago, informed the Acting Referee that it would avail of the 15-days-notice given to it
to state its non-conformity to the award and contended that the cause of the illness contracted by Gatus was in no
way aggravated by the nature of his work.  TESCO filed its "Motion for Reconsideration and/or Petition to Set Aside
Award" on November 18, 1967, alleging as grounds therefor, that the admission made in the "Employer's Report of
Accident or Sickness" was due to honest mistake and/or excusable negligence on its part, and that the illness for
which compensation is sought is not an occupational disease, hence, not compensable under the law.

On February 3, 1968, petitioner filed an "Urgent Motion to Compel Referee to Elevate the Records to the Workmen's
Compensation Commission for Review."  Meanwhile, the Provincial Sheriff of Rizal levied on and attached the
properties of TESCO and scheduled the sale of the same at public auction on.

On February 28, 1968, the Commission issued an Order requiring petitioner to submit verified or true copies of the
Motion for Reconsideration and/or Petition to Set Aside Award and Order of December 28, 1967, and to show proof
that said Motion for Reconsideration was filed within the reglementary period, with the warning that failure to comply
would result in the dismissal of the Motion.

However, before this Order could be released, TESCO filed with this Court, on February 22, 1968, The present
petition for "Certiorari with Preliminary Injunction" seeking to annul the award and to enjoin the Sheriff from levying
and selling its properties at public auction.

TESCO takes the position that the Commission has no jurisdiction to render a valid award in this suit as there was
no employer-employee relationship between them, the deceased having been an employee of UMACOR and not of
TESCO. 

ISSUE:

WON THE PIERCING OF THE VEIL CAN BE APPLIED IN THIS CASE AND MAKE TESCO LIABLE TO PAY THE
DECEASED UNDER TGE WORKMEN’S COMPENSATION ACT.

HELD:

YES.

To start with, a few basic principles should be re-stated the existence of employer-employee relationship is the
jurisdictional foundation for recovery of compensation under the Workmen's Compensation Law.  The lack of
employer-employee relationship, however, is a matter of defense that the employer should properly raise in the
proceedings below. The determination of this relationship involves a finding of fact, which is conclusive and binding
and not subject to review by this Court. 

The court note that it is only in this Petition before us that petitioner denied, for the first time, the employer-employee
relationship. In fact, in its letter dated October 27, 1967 to the Acting Referee, in its request for extension of time to
file Motion for Reconsideration, in its "Motion for Reconsideration and/or Petition to Set Aside Award," and in its
"Urgent Motion to Compel the Referee to Elevate Records to the Commission for Review," petitioner represented
and defended itself as the employer of the deceased.

Nowhere in said documents did it allege that it was not the employer. Petitioner even admitted that TESCO and
UMACOR are sister companies operating under one single management and housed in the same building. Although
respect for the corporate personality as such, is the general rule, there are exceptions. In appropriate cases, the veil
of corporate 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. 
G.R. No. L-20502             February 26, 1965

EMILIO CANO ENTERPRISES, INC., petitioner,

vs.
COURT OF INDUSTRIAL RELATIONS, ET AL., respondents.

FACTS:

A complaint for unfair labor practice filed before the Court of Industrial Relations by a prosecutor of the latter court,
Emilio, Ariston and Rodolfo, all surnamed Cano, were made respondents in their capacity as president and
proprietor, field supervisor and manager, respectively, of Emilio Cano Enterprises, Inc.

After trial, the presiding judge rendered decision finding Emilio Cano and Rodolfo Cano guilty of the unfair labor
practice charge, but absolved Ariston for insufficiency of evidence. As a consequence, the two were ordered, jointly
and severally, to reinstate Honorata Cruz, to her former position with payment of backwages from the time of her
dismissal up to her reinstatement, together with all other rights and privileges thereunto appertaining.

Emilio Cano died on November 14, 1958, and the attempt to have the case dismissed against him having failed, the
case was appealed to the court en banc, which in due course affirmed the decision of Judge Bautista

The order of execution having been directed against the properties of Emilio Cano Enterprises, Inc. instead of those
of the respondents named in the decision, said corporation filed an ex parte motion to quash the writ on the ground
that the judgment sought to be enforced was not rendered against it which is a juridical entity separate and distinct
from its officials. This motion was denied. And having failed to have it reconsidered, the corporation interposed the
present petition for certiorari.

ISSUE:

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

HELD:

YES.

While it is an undisputed rule that a corporation has a personality separate and distinct from its members or
stockholders because of a fiction of the law, here we should not lose sight of the fact that the Emilio Cano
Enterprises, Inc. is a closed family corporation where the incorporators and directors belong to one single family.

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 persons
composing it, that concept cannot be extended to a point beyond its reason and policy, and when invoked in support
of an end subversive of this policy it should be disregarded by the courts

A factor that should not be overlooked is that Emilio and Rodolfo Cano are here indicted, not in their private
capacity, but as president and manager, respectively, of Emilio Cano Enterprises, Inc. Having been sued officially
their connection with the case must be deemed to be impressed with the representation of the corporation. In fact,
the court's order is for them to reinstate Honorata Cruz to her former position in the corporation and incidentally pay
her the wages she had been deprived of during her separation. Verily, the order against them is in effect against the
corporation.
G.R. No. L-10510             March 17, 1961

M. MC CONNEL, W. P. COCHRANE, RICARDO RODRIGUEZ, ET AL., petitioners,

vs.
THE COURT OF APPEALS and DOMINGA DE LOS REYES, assisted by her husband, SABINO
PADILLA, respondents.

FACTS:

Park Rite Co., Inc., a Philippine corporation,  leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan
Luna street (Manila) which it used for parking motor vehicles for a consideration.

It turned out that in operating its parking business, the corporation occupied and used not only the Samanillo lot it
had leased but also an adjacent lot belonging to the respondents-appellees Padilla, without the owners' knowledge
and consent. When the latter discovered the truth around October of 1947, they demanded payment for the use and
occupation of the lot.

The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino, who had purchased and held
1,496 of its 1,500 shares) disclaimed liability, blaming the original incorporators, McConnel, Rodriguez and
Cochrane.

Judgment was rendered in due course on 13 November 1947, ordering the Park Rite Co., Inc. to pay P7,410.00
plus legal interest as damages from April 15, 1947 until return of the lot. 

ISSUE:

Whether the individual stockholders maybe held liable for obligations contracted by the corporation?

HELD:

YES.

Wherever circumstances have shown that the corporate entity is being used as an alter ego or business conduit for
the sole benefit of the stockholders, or else to defeat public convenience, justify wrong, protect fraud, or defend
crime

There is no question that a wrong has been committed by the so-called Park Rite Co., Inc., upon the plaintiffs when
it occupied the lot of the latter without its prior knowledge and consent and without paying the reasonable rentals for
the occupation of said lot. There is also no doubt in our mind that the corporation was a mere alter ego or business
conduit of the defendants Cirilo Paredes and Ursula Tolentino, and before them — the defendants M. McConnel, W.
P. Cochrane, and Ricardo Rodriguez. The evidence clearly shows that these persons completely dominated and
controlled the corporation and that the functions of the corporation were solely for their benefits.

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

To hold the latter liable for the corporation's obligations is not to ignore the corporation's separate entity, but merely
to apply the established principle that such entity can not be invoked or used for purposes that could not have been
intended by the law that created that separate personality.
G.R. No. 157549               May 30, 2011

DONNINA C. HALLEY, Petitioner,
vs.
PRINTWELL, INC., Respondent.

FACTS:

The petitioner wasan incorporator and original director of Business Media Philippines, Inc. (BMPI), Printwell
engaged in commercial and industrial printing. BMPI commissioned Printwell for the printing of the magazine
Philippines, Inc. (together with wrappers and subscription cards) that BMPI published and sold. For that purpose,
Printwell extended 30-day credit accommodations to BMPI.

In the period from October 11, 1988 until July 12, 1989, BMPI placed with Printwell several orders on credit,
evidenced by invoices and delivery receipts totaling. Considering that BMPI paid only ₱25,000.00,Printwell sued
BMPIon for the collection of the unpaid balance in the RTC.

On February 8, 1990, Printwell amended the complaint in order to implead as defendants all the original
stockholders and incorporators to recover on their unpaid subscriptions.

The defendants filed a consolidated answer, averring that they all had paid their subscriptions in full; that BMPI had
a separate personality from those of its stockholders.

The RTC rendered a decision in favor of Printwell, rejecting the allegation of payment in full of the subscriptions in
view of an irregularity in the issuance of the ORs and observing that the defendants had used BMPI’s corporate
personality to evade payment and create injustice. The decision was also affirmed by the CA.

Hence in this petition the petitioner submits that she had no participation in the transaction between BMPI and
Printwell; that BMPI acted on its own; and that she had no hand in persuading BMPI to renege on its obligation to
pay. Hence, she should not be personally liable.

ISSUE:

WON THERE WAS AN ERROR IN APPLYING THE PIERCING OF VEIL OF CORPORATE FICTION IN THIS
CASE

WON THERE WAS AN ERROR IN APPLYING THE TRUST FUND DOCTRINE

HELD:

NO. THERE WAS NO ERROR

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the
unpaid subscriptions because it appeared that such subscriptions were the remaining visible assets of BMPI; and
(b) to avoid multiplicity of suits.

Although a corporation has a personality separate and distinct from those of its stockholders, directors, or officers,
1\

such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote
the ends of justice. The corporate personality may be disregarded, and the individuals composing the corporation
will be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality; as a
justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders.

Although nowhere in Printwell’s amended complaint or in the testimonies Printwell offered can it be read or inferred
from that the petitioner was instrumental in persuading BMPI to renege on its obligation to pay; or that she induced
Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI to Printwell, her personal
liability, together with that of her co-defendants, remained because the CA found her and the other defendant
stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and
incurred.

In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its
right can collect from the appellants stockholders regarding their unpaid subscriptions. To deny appellee from
recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since
the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its
obligations.

NO.

The trust fund doctrine enunciates a –

xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property can be called
a trust fund ‘only by way of analogy or metaphor.’ As between the corporation itself and its creditors it is a simple
debtor, and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts.
The court clarified that the trust fund doctrineis not limited to reaching the stockholder’s unpaid subscriptions. The
scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also other
property and assets generally regarded in equity as a trust fund for the payment of corporate debts.

All assets and property belonging to the corporation held in trust for the benefit of creditors that were distributed or
in the possession of the stockholders, regardless of full payment of their subscriptions, may be reached by the
creditor in satisfaction of its claim.

Also, under the trust fund doctrine,a corporation has no legal capacity to release an original subscriber to its capital
stock from the obligation of paying for his shares, in whole or in part, without a valuable consideration, or
fraudulently, to the prejudice of creditors. The creditor is allowed to maintain an action upon any unpaid
subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt.

Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor,we still cannot
sustain the petitioner’s defense of full payment of her subscription.

In civil cases, the party who pleads payment has the burden of proving it, that even where the plaintiff must allege
nonpayment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff
to prove nonpayment. In other words, the debtor bears the burden of showing with legal certainty that the obligation
has been discharged by payment.

The petitioner’s ORNo. 227,presentedto prove the payment of the balance of her subscription, indicated that her
supposed payment had beenmade by means of a check. Thus, to discharge theburden to prove payment of her
subscription, she had to adduce evidence satisfactorily proving that her payment by check wasregardedas payment
under the law.

Payment is defined as the delivery of money. Yet, because a check is not money and only substitutes for money,
the delivery of a check does not operate as payment and does not discharge the obligation under a judgment. The
delivery of a bill of exchange only produces the fact of payment when the bill has been encashed.

Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot
constitute a valid tender of payment. Because of this failure of the respondents to present sufficient proof of
payment, it was no longer necessary for the petitioner to prove non-payment, particularly proof that the checks were
dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce
preponderant evidence to prove its claim.
G.R. No. L-13203             January 28, 1961

YUTIVO SONS HARDWARE COMPANY, petitioner,

vs.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, respondents.

 Facts:

1. Yutivo Sons Hardware Co, a domestic corporation incorporated in 1916 under Philippine laws, was engaged
in the importation and sale of hardware supplies and equipment.

2. After the first world war, it resumed its business and bought a number of cars and trucks from General
Motors(GM), an American Corporation licensed to do business in the Philippines. As importer, GM paid sales
tax prescribed by the Tax Code on the basis of its selling price to Yutivo. Yutivo paid no further sales tax on its
sales to the public.

3. On June 13, 1946, the Southern Motors Inc,(SM) was organized to engage in the business of selling cars,
trucks and spare parts. One of the subscribers of stocks during its incorporation was Yu Khe Thai, Yu Khe
Siong and Hu Kho Jin, who are sons of Yu Tiong Yee, one of Yutivo’s founders.

4. After SM’s incorporation and until the withdrawal of GM from the Philippines, the cars and trucks purchased
by Yutivo from GM were sold by Yutivo to SM which the latter sold to the public.

5. Yutivo was appointed importer for Visayas and Mindanao by the US manufacturer of cars and trucks sold by
GM. Yutivo paid the sales tax prescribed on the basis of selling price to SM. SM paid no sales tax on its sales
to the public.

6. An assessment of PhP 1.8 million was made upon Yutivo for deficiency sales tax plus surcharge. The
Collector of Internal Revenue, contends that the taxable sales were the retail sales by SM to the public and not
the sales at wholesale made by Yutivo to the latter inasmuch as SM and Yutivo were one and the same
corporation, the former being a subsidiary of the latter.

7. Yutivo: Disputed the assessment.

8. After reinvestigation, a second assessment was made, sustaining the validity of the first assessment.

9. Yutivo contested the second assessment, alleging that there is no valid ground to disregard the corporate
personality of SM and to hold that it is an adjunct of petitioner.

ISSUES: 1. Whether or not the corporate personality of SM could be disregarded for the purposes of taxation?
Yes. 2. WON there was fraud on the part of Yutivo and SM? No, therefore no tax evasion.

RATIO:

1. General Rule: A corporation is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. However, when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association
of persons, or, in the case of two corporations, merge them into one. When the corporation is a mere alter ego
or business conduit of a person, it may be disregarded.

2. SC ruled that CTA was not justified in finding that SM was organized to defraud the Government. SM was
organized in June 1946, from that date until June 30, 1947, GM was the importer of the cars and trucks sold to
Yutivo, which in turn was sold to SM. GM, as importer was the one solely liable for sales taxes. Neither Yutivo
nor SM was subject to the sales taxes. Yutivo’s liability arose only until July 1, 1947 when it became the
importer. Hence, there was no tax to evade.

3. It should be stated that the intention to minimize taxes, when used in the context of fraud, must be proved to
exist by clear and convincing evidence amounting to more than mere preponderance, and cannot be justified
by a mere speculation. This is because fraud is never lightly to be presumed. Fraud is never imputed and the
courts never sustain findings of fraud upon circumstances which, at the most, create only suspicion.

4. TAX EVASION vs TAX AVOIDANCE: Tax evasion" is a term that connotes fraud thru the use of pretenses
and forbidden devices to lessen or defeat taxes. The transactions between Yutivo and SM, however, have
always been in the open, embodied in private and public documents, constantly subject to inspection by the tax
authorities. But the attempt to avoid tax does not necessarily establish fraud. It is a settled principle that a
taxpayer may diminish his liability by any means which the law permits (tax avoidance).

5. However, SC agreed with the respondent court that SM was actually owned and controlled by Yutivo.
Indications that Yutivo treated SM merely as its department or adjunct: a. The founders of the corporation are
closely related to each other by blood and affinity. b. The object and purpose of the business is the same; both
are engaged in sale of vehicles, spare parts, hardware supplies and equipment. c. The accounting system
maintained by Yutivo shows that it maintained high degree of control over SM accounts. d. Several
correspondences have reference to Yutivo as the head office of SM. SM may even freely use forms or
stationery of Yutivo. e. All cash collections of SM’s branches are remitted directly to Yutivo. f. The controlling
majority of the Board of Directors of Yutivo is also the controlling majority of SM.

g. The principal officers of both corporations are identical. Both corporations have a common comptroller in the
person of Simeon Sy, who is a brother-in-law of Yutivo’s president, Yu Khe Thai. h. Yutivo, financed principally
the business of SM and actually extended all the credit to the latter not only in the form of starting capital but
also in the form of credits extended for the cars and vehicles allegedly sold by Yutivo to SM.

6. Southern Motors being but a mere instrumentality, or adjunct of Yutivo, the Court of Tax Appeals correctly
disregarded the technical defense of separate corporate entity in order to arrive at the true tax liability of
Yutivo. But there is no basis for the imposition of the 50% fraud surcharge.

7. Where to impose the tax? Gross selling price or gross value in money. These terms, do not include the
amount of the sales tax, if invoiced separately. 'Gross selling price' or gross value in money' of the articles
sold, bartered, exchanged, transferred as the term is used in the aforecited sections (of the National Internal
Revenue Code, is the total amount of money or its equivalent which the purchaser pays to the vendor to
receive or get the goods. However, if a manufacturer, producer, or importer, in fixing the gross selling price of
an article sold by him has included an amount intended to cover the sales tax in the gross selling price of the
articles, the sales tax shall be based on the gross selling price less the amount intended to cover the tax, if the
same is billed to the purchaser as a separate item.

DISPOSITIVE: CTA decision modified in that petitioner shall be ordered to pay to respondent the sum of
P820,549.91, plus 25% surcharge thereon for late payment.
äwphï1.ñët