Other Cases: 189 SCRA 529 - Business Organization - Corporation Law - Piercing The Veil of Corporate Fiction
Other Cases: 189 SCRA 529 - Business Organization - Corporation Law - Piercing The Veil of Corporate Fiction
Other Cases: 189 SCRA 529 - Business Organization - Corporation Law - Piercing The Veil of Corporate Fiction
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
Pacific Products, Inc., appealed the above decision to the Commission. On August LA CAMPANA FACTORY, INC., and TAN TONG doing business under the
24, 1962, Commissioner Jose Sanchez rendered judgment affirming the trial name "LA CAMPANA GAUGAU PACKING", petitioners,
compensability of the injuries and the amounts due them, but modified the vs.
decision of the Hearing Officer, by finding that R. F. Sugay & Co., Inc., was the KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA (KKM) and THE
statutory employer of the claimants and should be liable to them. Pacific COURT OF INDUSTRIAL RELATIONS, respondents.
Products, Inc., was absolved from all responsibility.
The evidence adduced by the parties indicates rather clearly that, except for the REYES, J.:
fact that the Pacific Products, Inc. supplied the paint, it did not exercise any of
The Whole Story:
the above-enumerated powers. The claimants were hired by one Rodolfo Babatid
pursuant to the instruction received by the latter from Romulo Sugay. They were Tan Tong, one of the herein petitioners, has since 1932 been engaged in the
paid by Eduardo Sugay, brother of Romulo and Secretary of R. F. Sugay & Co., and business of buying and selling gaugau under the trade name La Campana
were under the control of these persons during the time they were painting the Gaugau Packing with an establishment in Binondo, Manila, which was later
office of Pacific Products, Inc. transferred to España Extension, Quezon City. But on July 6, 1950, Tan Tong,
with himself and members of his family corporation known as La Campana
There was a faint attempt by the petitioning corporation, to evade liability, by
Factory Co., Inc., with its principal office located in the same place as that of
advancing the theory that Romulo P. Sugay, its President, was the one who
La Campana Gaugau Packing.
entered into a contract of administration and supervision for the painting of the
About a year before the formation of the corporation, or on July 11, 1949,
factory of the Pacific Products, Inc., and making it appear that said Romulo F.
Tan Tong had entered into a collective bargaining agreement with the
Sugay acted as an agent of the Pacific Products, Inc., and as such, the latter should
be made answerable to the compensation due to the claimants. We, however, Philippine Legion of Organized Workers, known as PLOW for short, to which
agree with the Commission that "the dual roles of Romulo F. Sugay should not be the union of Tan Tong's employees headed by Manuel E. Sadde was then
allowed to confuse the facts relating to employer-employee relationship." It is a affiliated. Seceding, however, from the PLOW, Tan Tong's employees later
legal truism that when the veil of corporate fiction is made as a shield to formed their own organization known as Kaisahan Ng Mga Manggagawa Sa
perpetrate a fraud and/or confuse legitimate issues (here, the relation of La Campana, one of the herein respondents, and applied for registration in
employer-employee), the same should be pierced. Verily the R. F. Sugay & Co., the Department of Labor as an independent entity. Pending consideration of
Inc. is a business conduit of R. F. Sugay. this application, the Department gave the new organization legal standing by
issuing it a permit as an affiliate to the Kalipunan Ng Mga Manggagawa.
On July 19, 1951, the Kaisahan Ng Mga Manggagawa Sa La Campana,
hereinafter to be referred to as the respondent Kaisahan, which, as of that
date, counted with 66 members — workers all of them of both La Campana
Gaugau Packing and La Campana Coffee Factory Co., Inc. — presented a
demand for higher wages and more privileges, the demand being addressed
to La Campana Starch and Coffee Factory, by which name they sought to
designate, so it appears, the La Campana Gaugau Packing and the La
Campana Coffee Factory Co., Inc. As the demand was not granted and an
attempt at settlement through the mediation of the Conciliation Service of
the Department of Labor had given no result, the said Department certified
the dispute to the Court of Industrial Relations on July 17, 1951, the case
being there docketed as Case No. 584-V.
With the case already pending in the industrial court, the Secretary of Labor,
on September 5, 1951, revoked the Kalipunan Ng Mga Kaisahang
Manggagawa's permit as a labor union on the strength of information La Campana Coffee Factory Co. Inc., are operating under one single
received that it was dominated by subversive elements, and, in consequence, management, that is, as one business though with two trade names. True,
on the 20th of the same month, also suspended the permit of its affiliate, the the coffee factory is a corporation and, by legal fiction, an entity existing
respondent Kaisahan. separate and apart fro the persons composing it, that is, Tan Tong and his
Several hearings were held on the above motions, in the course of which family. But it is settled that this fiction of law, which has been introduced as
ocular inspections were also made, and on the basis of the evidence received a matter of convenience and to subserve the ends of justice cannot be
and the facts observed in the ocular inspections, the Court of Industrial invoked to further an end subversive of that purpose.
Relations denied the said motions in its order of January 14, 1952, because if Disregarding Corporate Entity. — The doctrine that a corporation is a
found as a fact that: legal entity existing separate and apart from the person composing it
A. While the coffee corporation is a family corporation with Mr. Tan is a legal theory introduced for purposes of convenience and to
Tong, his wife, and children as the incorporations and stockholders subserve the ends of justice. The concept cannot, therefore, be
the La Campana Gaugau Packing is merely a business name (Exhibit extended to a point beyond its reason and policy, and when invoked
4). in support of an end subversive of this policy, will be disregarded by
B. According to the contract of lease (Exhibit 23), Mr. Tan Tong., the courts. Thus, in an appropriate case and in furtherance of the
propriety and manager of the Ka Campana Gaugau Factory, leased a ends of justice, a corporation and the individual or individuals owning
space of 200 square meters in the bodega housing the gaugau factory all its stocks and assets will be treated as identical, the corporate
to his son Tan Keng Lim, manager of the La Campana Coffee Factory. entity being disregarded where used as a cloak or cover for fraud or
But the lease was executed only on September 1, 1951, while the illegality. (13 Am. Jur., 160-161.)
dispute between the parties was pending before the Court. . . . A subsidiary or auxiliary corporation which is created by a parent
C. There is only one entity La Campana Starch and Coffee Factory, as corporation merely as an agency for the latter may sometimes be
shown by the signboard (Exhibit 1), the advertisement in the delivery regarded as identical with the parent corporation, especially if the
trucks (Exhibit I-1), the packages of gaugau(Exhibit K), and delivery stockholders or officers of the two corporations are substantially the
forms (Exhibits J, J-1, and J-2). same or their system of operation unified. (Ibid. 162; see Annotation
D. All the laborers working in the gaugau or in the coffee factory 1 A. L. R. 612, s. 34 A. L. R. 599.)
receive their pay from the same person, the cashier, Miss Natividad In the present case Tan Tong appears to be the owner of the gaugau factory.
Garcia, secretary of Mr. Tan Tong; and they are transferred from the And the coffee factory, though an incorporated business, is in reality owned
gaugau to the coffee and vice-versa as the management so requires. exclusively by Tan Tong and his family. As found by the Court of industrial
E. There has been only one payroll for the entire La Campana Relations, the two factories have but one office, one management and one
personnel and only one person preparing the same — Miss Natividad payroll, except after July 17, the day the case was certified to the Court of
Garcia, secretary of Mr. Tan Tong. But after the case at bar was Industrial Relations, when the person who was discharging the office of
certified to this Court on July 17, 1951, the company began making cashier for both branches of the business began preparing separate payrolls
separate payrolls for the coffee factory and for the gaugau factory for the two. And above all, it should not be overlooked that, as also found by
As to the first ground, petitioners obviously do not question the fact that the the industrial court, the laborers of the gaugau factory and the coffee factory
number of employees of the La Campana Gaugau Packing involved in the case were interchangeable, that is, the laborers from the gaugau factory were
is more than the jurisdictional number (31) required bylaw, but they do sometimes transferred to the coffee factory and vice-versa. In view of all
contend that the industrial court has no jurisdiction to try the case as against these, the attempt to make the two factories appears as two separate
La Campana Coffee Factory, Inc. because the latter has allegedly only 14 businesses, when in reality they are but one, is but a device to defeat the ends
laborers and only of these are members of the respondent Kaisahan. This of the law (the Act governing capital and labor relations) and should not be
contention loses force when it is noted that, as found by the industrial court permitted to prevail.
— and this finding is conclusive upon us — La Campana Gaugau Packing and
sales tax prescribed on the basis of its selling price to SM, and since such
YUTIVO SONS HARDWARE COMPANY, petitioner, sales tax, as already stated, is collected only once on original sales, SM
vs. paid no sales tax on its sales to the public.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL
REVENUE, respondents. On November 7, 1950, after several months of investigation by revenue
GUTIERREZ DAVID, J.: officers started in July, 1948, the Collector of Internal Revenue made an
assessment upon Yutivo and demanded from the latter P1,804,769.85 as
It appears that petitioner Yutivo Sons Hardware Co. (hereafter referred to deficiency sales tax plus surcharge covering the period from the third
as Yutivo) is a domestic corporation, organized under the laws of the quarter of 1947 to the fourth quarter of 1949; or from July 1, 1947 to
Philippines, with principal office at 404 Dasmariñas St., Manila. December 31, 1949, claiming that the taxable sales were the retail sales
Incorporated in 1916, it was engaged, prior to the last world war, in the by SM to the public and not the sales at wholesale made by, Yutivo to the
importation and sale of hardware supplies and equipment. After the latter inasmuch as SM and Yutivo were one and the same corporation, the
liberation, it resumed its business and until June of 1946 bought a number former being the subsidiary of the latter.
of cars and trucks from General Motors Overseas Corporation (hereafter
referred to as GM for short), an American corporation licensed to do he assessment was disputed by the petitioner, and a reinvestigation of the
business in the Philippines. As importer, GM paid sales tax prescribed by case having been made by the agents of the Bureau of Internal Revenue,
Tax Code on the basis of its selling price to Yutivo. Said tax being collected the respondent Collector in his letter dated November 15, 1952
only once on original sales, Yutivo paid no further sales tax on its sales to countermanded his demand for sales tax deficiency on the ground that
the public. "after several investigations conducted into the matter no sufficient
evidence could be gathered to sustain the assessment of this Office based
on the theory that Southern Motors is a mere instrumentality or subsidiary
On June 13, 1946, the Southern Motors, Inc. (hereafter referred to as SM) of Yutivo." The withdrawal was subject, however, to the general power of
was organized to engage in the business of selling cars, trucks and spare review by the now defunct Board of Tax Appeals. The Secretary of Finance
parts. Its original authorized capital stock was P1,000,000 divided into to whom the papers relative to the case were endorsed, apparently not
10,000 shares with a par value of P100 each. agreeing with the withdrawal of the assessment, returned them to the
respondent Collector for reinvestigation.
At the time of its incorporation 2,500 shares worth P250,000 appear to
have been subscribed into equal proportions by Yu Khe Thai, Yu Khe After another investigation, the respondent Collector, in a letter to petitioner
Siong, Hu Kho Jin, Yu Eng Poh, and Washington Sycip. The first three dated December 16, 1954, redetermined that the aforementioned tax
named subscribers are brothers, being sons of Yu Tiong Yee, one of assessment was lawfully due the government and in addition assessed
Yutivo's founders. The latter two are respectively sons of Yu Tiong Sin and deficiency sales tax due from petitioner for the four quarters of 1950; the
Albino Sycip, who are among the founders of Yutivo. respondents' last demand was in the total sum of P2,215,809.27.
After the incorporation of SM and until the withdrawal of GM from the fter going over the voluminous record of the present case, we are inclined
Philippines in the middle of 1947, the cars and tracks purchased by Yutivo to rule that the Court of Tax Appeals was not justified in finding that SM
from GM were sold by Yutivo to SM which, in turn, sold them to the public was organized for no other purpose than to defraud the Government of its
in the Visayas and Mindanao. lawful revenues. In the first place, this corporation was organized in June,
1946 when it could not have caused Yutivo any tax savings. From that date
When GM decided to withdraw from the Philippines in the middle of 1947, up to June 30, 1947, or a period of more than one year, GM was the
the U.S. manufacturer of GM cars and trucks appointed Yutivo as importer importer of the cars and trucks sold to Yutivo, which, in turn resold them to
for the Visayas and Mindanao, and Yutivo continued its previous SM. During that period, it is not disputed that GM as importer, was the one
arrangement of selling exclusively to SM. In the same way that GM used solely liable for sales taxes. Neither Yutivo or SM was subject to the sales
to pay sales taxes based on its sales to Yutivo, the latter, as importer, paid taxes on their sales of cars and trucks. The sales tax liability of Yutivo did
not arise until July 1, 1947 when it became the importer and simply
continued its practice of selling to SM. The decision, therefore, of the Tax PHILIPPINE NATIONAL BANK, petitioner,
Court that SM was organized purposely as a tax evasion device runs vs.
counter to the fact that there was no tax to evade. RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN
SM was organized and it operated, under circumstance that belied any GENERAL MERCHANDISE,respondents.
intention to evade sales taxes. "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 KAPUNAN, J.:
the open, embodied in private and public documents, constantly subject to
inspection by the tax authorities. As a matter of fact, after Yutivo became FACTS:
the importer of GM cars and trucks for Visayas and Mindanao, it merely May 29, 1996: PNB International Finance Ltd. (PNB-IFL) a
continued the method of distribution that it had initiated long before GM subsidiary company of PNB, organized and doing business in
withdrew from the Philippines. Hong Kong, extended a letter of credit in favor of the Ritratto
Group, Inc. (Ritartto) in the amount of US$300K secured by
We are, however, inclined to agree with the court below that SM was real estate mortgages constituted over 4 parcels of land in
actually owned and controlled by petitioner as to make it a mere subsidiary Makati City
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. September 1996: increased successively to
It is not disputed that the petitioner, which is engaged principally in US$1,140,000.00
hardware supplies and equipment, is completely controlled by the Yutivo,
Young or Yu family. The founders of the corporation are closely related to November 1996: to US$1,290,000.00
each other either by blood or affinity, and most of its stockholders are
members of the Yu (Yutivo or Young) family. February 1997: US$1,425,000.00
SM is under the management and control of Yutivo by virtue of a
management contract entered into between the two parties. In fact, the
April 1998: decreased to US$1,421,316.18
controlling majority of the Board of Directors of Yutivo is also the controlling
majority of the Board of Directors of SM. At the same time the principal
Ritratto Group, Inc. made repayments of the loan incurred by
officers of both corporations are identical. In addition both corporations
have a common comptroller in the person of Simeon Sy, who is a brother- remitting those amounts to their loan account with PNB-IFL
in-law of Yutivo's president, Yu Khe Thai. There is therefore no doubt that in Hong Kong.
by virtue of such control, the business, financial and management policies
of both corporations could be directed towards common ends. April 30, 1998: outstanding amounted to US$1,497,274.70
Consideration of various other circumstances, especially when taken PNB-IFL, through its attorney-in-fact PNB, notified them of
together, indicates that Yutivo treated SM merely as its department or the foreclosure of all the real estate mortgages and that the
adjunct. properties subjected