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CORPORATE ENTITY THEORY

FACTS:

1. CRUZ VS. DALISAY Palay Inc., through its PRESIDENT, Albert


Onstott, executed a Contract to Sell with private
ISSUE: respondent Nazario Dumpit. In said contract,
there was a certain provision for "extrajudicial
Whether or not Sheriff Quiterio Dalisay may be recission" whereby the contract shall be
subjected under disciplinary action? automatically rescinded upon respondent's
default in paying the installements of the
RULING: purchase price of a certain parcel of land owned
by the corporation and sold by it to the the
YES; Quiterio may be subjected under respondent. After paying certain sums, Dumpit
disciplinary action. Having executed the NLRC defaulted and stopped paying the installments.
judgment against ADELIO CRUZ instead of Almost six years after, Dumpit asked Palay Inc.
Qualitrans Limousine Services Inc., he did not for the assignment of his rights in favor of a
fulfill what he is duty-bound to do as Sheriff that certain Lourdez Dizon. However, Palay Inc.
amounts to malfeasance on his part as a public refused to comply since, according to it, the
officer, whose duty is connected with the contract to sell has already been rescinded upon
administration of justice and execution of his failure to pay the other installments. Dumpit
judgments. then filed a letter complaint against Palay Inc.
before the National Housing authority, which
The tenor of the NLRC judgment and the declared that the contract provision of
implementing writ is clear enough. It directed extrajudicial rescission is void and ordered that
Qualitrans Limousine Service, Inc. to reinstate Palay Inc. and Onstott must jointly and severally
the discharged employees and pay them full to return Dumpit the amount of installments the
backwages. Respondent, however, chose to latter paid previously. Palay Inc. appealed the
"pierce the veil of corporate entity" usurping a matter before the Office of the PResident, which
power belonging to the court and assumed likewise ruled in favor of Dumpit and affirmed
improvidently that since the complainant is the the NHA award. Aggrieved, Palay Inc. and
owner/president of Qualitrans Limousine Onstott elevated the case to the Supreme Court.
Service, Inc., they are one and the same. It is a For his part, Onstott avers that he must not be
well-settled doctrine both in law and in equity made liable to pay jointly and severally with
that as a legal entity, a corporation has a Palay Inc.; thus, the doctrine of piercing the
personality distinct and separate from its corporate veil is not applicable.
individual stockholders or members. The mere
fact that one is president of a corporation does ISSUE:
not render the property he owns or possesses
the property of the corporation, since the Whether or not Onstott may be made to jointly
president, as individual, and the corporation are and severally liable, to return / pay Dumpit's
separate entities. installment, with Palay Inc.?

RULING:

No. Onstott should not be made liable jointly


and severally with Palay Inc., because the
corporation's personality is distinct and
separate from him. Petitioner Onstott was
made liable because he was then the President
of the corporation and he was the controlling
stockholder. No sufficient proof exists on record
that said petitioner used the corporation to
defraud private respondent. He cannot, therefore,
be made personally liable just because he
"appears to be the controlling stockholder". Mere
ownership by a single stockholder or by another
corporation is not of itself sufficient ground for
2. PALAY INC. VS. CLAVE disregarding the separate corporate personality.
In this respect then, a modification of the
Resolution under review is called for. RULING:

As a general rule, a corporation may not be No; Soriano et. al may not be held liable for such
made to answer for acts or liabilities of its payment, notwithstanding the fact that they
stockholders or those of the legal entities to comprise the majority of the board of directors
which it may be connected and vice versa. who signed under the receipt, since they have a
However, the veil of corporate fiction may be distinct and separate personality from the
pierced when it is used as a shield to further an corporation they represent. In the absence of
end subversive of justice; or for purposes that any showing that they are using said
could not have been intended by the law that corporation in furtherance to and as a conduit to
created it; or to defeat public convenience, any fraudulent, subversive, and illegal motives,
justify wrong, protect fraud, or defend crime. ; or piercing the corporate vein cannot be applied int
to perpetuate fraud or confuse legitimate issues; their case.
or to circumvent the law or perpetuate
deception; or as an alter ego, adjunct or In the light of the foregoing, it is clear that the
business conduit for the sole benefit of the liability of the petitioners under the document
stockholders. subject of the instant case, is not personal but
corporate, and therefore attached to the Bacarra
(I.N.) FaCoMa, Inc. which, being a corporation,
3. SORIANO VS. CA has a personality distinct and separate from that
of the petitioners who are only its officers. It is
FACTS: the general rule that the protective mantle of a
corporation's separate and distinct personality
Soriano, Esperanza, and Macadangdang could only be pierced and liability attached
(hereinafter as Soriano et.al) comprise the directly to its officers and/or
majority of the board of directors of Bacarra members-stockholders, when the same is used
FaComa Inc., which is a farmer cooperative. A for fraudulent, unfair or illegal purpose. 13 In
transaction was made between Bacarra and the case at bar, there is no showing that the
private respondent Gervacio Cu over 160 bales Association entered into the transaction with the
(of fifty kilos each) bales of tobacco. A receipt private respondent for the purpose of defrauding
was executed in favor of Cu, which states that the latter of his goods or the payment thereof.
the corporation received said bales and that Cu More importantly, there is no proof whatsoever
shall be paid according to the tobacco grading by that the majority of the directors used the
the redrying plant. Conflict arose when Cu was distinct and separate personality of Bacarra
not paid for the tobacco he delivered, which (I.N.) FaCoMa, Inc. as a protective shield for any
prompted him to file a case for the collection of wrongdoing. Therefore, the general rule on
sum of money against Soriano et. al. The trial corporate liability, not the exception, should be
court ruled in favor of Cu and ordered that applied in resolving this case. Consequently, the
Soriano et.al, jointly and severally, pay the private respondent's cause of action lies against
former the amount of the tobacco bales. The trial the Bacarra (I.N.) FaCoMa, Inc., and not against
court's decision, when Soriano et.al appealed the petitioners.
against it, was merely affirmed by the CA. It
rationated that Soriano et. al were not
authorized to enter into the transaction and that
their act of signing their positions in the receipt
is not a showing that they were indeed
authorized by the corporation to act for it.
Aggrieved, Soriano et.al elevated the case to the
Supreme Court.

ISSUE:

May Soriano, Esperanza, and Macadangdang, as


board of directors of directors of Bacarra
FaComa Inc., be held liable for the the payment
of tobacco bales sold to the corporation by
Gervacio Cu? PIERCING THE VEIL OF CORPORATE
FICTION liability1 resulting from the conviction of his
driver, Alfredo Carillo. This conclusion is borne
out by the fact that the incorporators of the Fely
1. PALACIO VS. FELY TRANSPORTATION CO. Transportation are Isabelo Calingasan, his wife,
his son, Dr. Calingasan, and his two daughters.
FACTS: We believe that this is one case where the
defendant corporation should not be heard to
Alfredo Carillo is the driver employed by Isabelo say that it has a personality separate and
Calingasan, who happens to be one of the distinct from its members when to allow it to do
incorporators of Fely Transportation Co. One so would be to sanction the use of the fiction of
day, when Carillo was driving, he ran over a corporate entity as a shield to further an end
certain Mario Palacio, a minor. A criminal case subversive of justice. (La Campana Coffee
has been filed against him by the minor's father, Factory, et al. v. Kaisahan ng mga Manggagawa,
Gregorio Palacio, in which he (Carillo) was etc., et al., G.R. No. L-5677, May 25, 1953)
convicted of the crime charged and was ordered Furthermore, the failure of the defendant
to pay the sum of Php 500. Pursuant to the corporation to prove that it has other property
Revised Penal Code, as Carillo's employer, than the jeep (AC-687) strengthens the
Calingasan is subsidiarily liable for the payment conviction that its formation was for the purpose
of such civil liablity. After said conviction, the above indicated.
jeep driven by Carillo was conveyed and
transferred to Fely Transportation, which was And while it is true that Isabelo Calingasan is
incorporated by Isabelo, his wife, and his not a party in this case, yet, is held in the case
children. Then, a civil case was filed against the of Alonso v. Villamor, 16 Phil. 315, this Court
Company, this time by Gregorio Palacio - can substitute him in place of the defendant
together with Mario - as plaintiffs, seeking the corporation as to the real party in interest. This
payment of the civil liability pronounced in the is so in order to avoid multiplicity of suits and
judgment of the previously adjudicated criminal thereby save the parties unnecessary expenses
case. Fely Transportation, by way of defense, and delay. (Sec. 2, Rule 17, Rules of Court;
averred that the plaintiffs have no cause of Cuyugan v. Dizon. 79 Phil. 80; Quison v. Salud,
actiona against it because it is a separate entity 12 Phil. 109.)
from Isabelo Calingasan; and if at all, said cause
of action has already barred by the judgment in Accordingly, defendants Fely Transportation and
the aforesaid criminal case. Isabelo Calingasan should be held subsidiarily
liable for P500.00 which Alfredo Carillo was
ISSUE: ordered to pay in the criminal case and which
amount he could not pay on account of
May Fely Transportation be compelled to pay the insolvency.
damages sought for my Gregorio Palacio, on
behalf of his injured minor child, Mauricio,
instead of Isabelo Calingasan?

RULING:
2. MARVEL BLDG. VS. DAVID
Yes; Fely Transportation may be compelled to
pay such damages even though the involved FACTS:
party in the criminal case is Isabelo Calingasan.
This is because, there is a clear showing that In the conduct of her business, Maria D. Castro
Isabelo Calingasan and Fely Transportation are had been found to have made enormous gains or
one and the same and that the latter was profits in her business. This prompted
incoporated merely to evade the former's civil Saturnino David, BIR collector to arrive at a tax
liability. assessment amounting to P3,000,000. As a
consequence, he proceeded against three parcels
The Court agrees with this contention of the of land namely on which certain buildings have
plaintiffs. Isabelo Calingasan and defendant Fely already been erected. However, Maria D. Castro
Transportation may be regarded as one and the avers that such properties are owned solely by
same person. It is evident that Isabelo petitioner Marvel Bldg. Corporation. Marvel
Calingasan's main purpose in forming the Bldg. Corporation, in which Maria D. Castro is
corporation was to evade his subsidiary civil amongst the stockholders, seeks to enjoin
defendant David from selling at a public auction or concurrence, were they owners of the stocks
the disputed properties. For his part, David in their own rights. Each and every one of the
alleges that said properties are owned solely by facts all set forth above, in the same manner, is
Castro. His assumptions are premised on the inconsistent with the claim that the
facts culled from the assessment done by stockholders, other than Maria B. Castro, own
various internal revenue agents on Marvel Bldg. their shares in their own right. On the other
Corporation. They are: 1) the existence of hand, each and every one of them, and all of
twenty-five certificates signed by the president of them, can point to no other conclusion than that
the corporation, for no justifiable reason; 2) two Maria B. Castro was the sole and exclusive
sets of certificates were issued; 3) the owner of the shares and that they were only her
undisputed fact that Maria B. Castro had dummies.
made enormous profits and, therefore, had a
motive to hide them to evade the payment of In our opinion, the facts and circumstances duly
taxes; 4) the fact that the other subscribers had set forth above, all of which have been proved to
no incomes of sufficient magnitude to justify our satisfaction, prove conclusively and beyond
their big subscriptions; 5) were not receipted reasonable doubt (section 89, Rule 123 of the
for and deposited by the treasurer in the Rules of Court and section 42 of the Provisional
name of the corporation but were kept by law for the application of the Penal Code) that
Maria B. Castro herself; 6) the stockholders Maria B. Castro is the sole and exclusive owner
or the directors never appeared to have ever of all the shares of stock of the Marvel Building
met to discuss the business of the Corporation and that the other partners are her
corporation; 7) Maria B. Castro advanced big dummies.
sums of money to the corporation without
any previous arrangement or accounting; 8)
and the fact that the books of accounts were 3. YUTIVO AND SONS VS. CTA
kept as if they belonged to Maria B. Castro
alone FACTS:

ISSUE: Yutivo is engaged in the importation and sales of


hardware supplies and equipment prior to the
Should the subject properties be sold in a public last world war. When it resumed its business
auction for the satisfaction of Maria D. Castro's thereafter, it bought a number of cars and
assessed 3M worth of tax obligation? trucks from General Motors Overseas
Corporation (GM), which is an American
corporation. In such transactions, GM, as
RULING: importer, was the one that paid sales taxes ( a
tax being collected from original sales). And
Yes; the properties in question may be because of the taxation rule that a tax may only
proceeded against by the CIR Collector for the be collected once, Yutivo did not pay any tax
satisfaction of Castro's revenue obligation for with regard to such transaction. Then, a
such properties, based on the strong corporation called Southerm Motors, Inc. (SM)
circumstantial evidence appreciated by the has been organized for the purpose of selling
court, are owned by her and NOT of Marvel Bldg. cars, trucks, and their spare parts to the
Corporation. public/consumers. Three of SMs incorporators
were actually founders of Yutivo. Yutivo then
Here, in decreeing that the other incorporators sells such cars, trucks, and spare parts to SM
of the alleged Corporation are mere dummies, a practice which continued until the time of the
the Court pierced the corporate veil of Marvel institution of this case. Later, GM withdrew from
Bldg. Corporation. It racionated, thus: the Philippines and instead, assigned Yutivo as
its importer for the Mindanao and Visayas areas.
[Considering the abovementioned findings of Now, as importer, Yutivo paid the sales tax upon
facts,] Maria B. Castro would not have asked its sale of such products to SM. SM, in turn did
them to endorse their stock certificates, or be not pay any tax on the basis of its sales to the
keeping these in her possession, if they were public. After several months of investigation by
really the owners. They never would have revenue officers started in July, 1948, the
consented that Maria B. Castro keep the funds Collector of Internal Revenue made an
without receipts or accounting, nor that she assessment upon Yutivo and demanded from the
manages the business without their knowledge latter P1,804,769.85 as deficiency sales tax plus
surcharge covering the period from the third corporate existence and affirmed the amount of
quarter of 1947 to the fourth quarter of 1949; or tax yielded from the second reassessment.
from July 1, 1947 to December 31, 1949,
claiming that the taxable sales were the retail ISSUE:
sales by SM to the public and not the sales at
wholesale made by, Yutivo to the latter Was the basis of CTAs ruling correct?
inasmuch as SM and Yutivo were one and the
same corporation, the former being the RULING:
subsidiary of the latter. The assessment was
disputed by the petitioner, and a reinvestigation No; Yutivo may be required to pay the retail
of the case having been made by the agents of taxes assessed, not on the basis of the piercing
the Bureau of Internal Revenue, the respondent the corporate veil theory but because of the fact
Collector in his letter dated November 15, 1952 that SM is its subsidiary and adjunct.
countermanded his demand for sales tax
deficiency on the ground that "after several After going over the voluminous record of the
investigations conducted into the matter no present case, we are inclined to rule that the
sufficient evidence could be gathered to sustain Court of Tax Appeals was not justified in finding
the assessment of this Office based on the that SM was organized for no other purpose
theory that Southern Motors is a mere than to defraud the Government of its lawful
instrumentality or subsidiary of Yutivo." The revenues. In the first place, this corporation was
withdrawal was subject, however, to the general organized in June, 1946 when it could not have
power of review by the now defunct Board of Tax caused Yutivo any tax savings. From that date
Appeals. The Secretary of Finance to whom up to June 30, 1947, or a period of more than
the papers relative to the case were one year, GM was the importer of the cars and
endorsed, apparently not agreeing with the trucks sold to Yutivo, which, in turn resold them
withdrawal of the assessment, returned them to SM. During that period, it is not disputed that
to the respondent Collector for GM as importer, was the one solely liable for
reinvestigation. After another investigation, sales taxes. Neither Yutivo or SM was subject to
the respondent Collector, in a letter to the sales taxes on their sales of cars and trucks.
petitioner dated December 16, 1954, The sales tax liability of Yutivo did not arise
redetermined that the aforementioned tax until July 1, 1947 when it became the importer
assessment was lawfully due the government and simply continued its practice of selling to
and in addition assessed deficiency sales tax SM. The decision, therefore, of the Tax Court
due from petitioner for the four quarters of that SM was organized purposely as a tax
1950; the respondents' last demand was in evasion device runs counter to the fact that
the total sum of P2,215,809.27. This second there was no tax to evade.
assessment was contested by the petitioner
Yutivo before the Court of Tax Appeals, alleging It is an elementary and fundamental principle of
that there is no valid ground to disregard the corporation law that a corporation is an entity
corporate personality of SM and to hold that it is separate and distinct from its stockholders and
an adjunct of petitioner Yutivo; (2) that from other corporation petitions to which it may
assuming the separate personality of SM may be be connected. However, "when the notion of legal
disregarded, the sales tax already paid by Yutivo entity is used to defeat public convenience,
should first be deducted from the selling price of justify wrong, protect fraud, or defend crime,"
SM in computing the sales tax due on each the law will regard the corporation as an
vehicle; and (3) that the surcharge has been association of persons, or in the case of two
erroneously imposed by respondent. Finding corporations merge them into one. Another rule
against Yutivo and sustaining the respondent is that, when the corporation is the "mere alter
Collector's theory that there was no legitimate or ego or business conduit of a person, it may be
bona fide purpose in the organization of SM disregarded. At this juncture, it should be stated
the apparent objective of its organization being that the intention to minimize taxes, when used
to evade the payment of taxes and that it was in the context of fraud, must be proved to exist
owned (or the majority of the stocks thereof are by clear and convincing evidence amounting to
owned) and controlled by Yutivo and is a mere more than mere preponderance, and cannot be
subsidiary, branch, adjunct, conduit, justified by a mere speculation. This is because
instrumentality or alter ego of the latter, the fraud is never lightly to be presumed. Fraud is
Court of Tax Appeals with Judge Roman never imputed and the courts never sustain
Umali not taking part disregarded its separate findings of fraud upon circumstances which, at
the most, create only suspicion. or first cousins. There was every reason for them
On the other hand, the Supreme Court is to agree in order to protect their common
inclined to agree with the court below that SM interest in Yutivo and SM.
was actually owned and controlled by petitioner
as to make it a mere subsidiary or branch of the The issued capital stock of SM was increased by
latter created for the purpose of selling the additional subscriptions made by various
vehicles at retail and maintaining stores for person's but except Ng Sam Bak and David
spare parts as well as service repair shops. It is Sycip, "payments" thereof were effected by
not disputed that the petitioner, which is merely debiting 'or charging the accounts of said
engaged principally in hardware supplies and stockholders and crediting the corresponding
equipment, is completely controlled by the amounts in favor of SM, without actually
Yutivo, Young or Yu family. The founders of the transferring cash from Yutivo. Again, in this
corporation are closely related to each other instance, the "payments" were Yutivo, by effected
either by blood or affinity, and most of its by the mere unilateral act of Yutivo a accounts
stockholders are members of the Yu (Yutivo or of the virtue of its control over the individual
Young) family. It is, likewise, admitted that SM persons charged, would necessarily exercise
was organized by the leading stockholders of preferential rights and control directly or
Yutivo headed by Yu Khe Thai. At the time of its indirectly, over the shares, it being the party
incorporation 2,500 shares worth P250,000.00 which really undertook to pay or underwrite
appear to have been subscribed in five equal payment thereof.
proportions by Yu Khe Thai, Yu Khe Siong, Yu
Khe Jin, Yu Eng Poh and Washington Sycip. The The shareholders in SM are mere nominal
first three named subscribers are brothers, stockholders holding the shares for and in
being the sons of Yu Tien Yee, one of Yutivo's behalf of Yutivo, so even conceding that the
founders. Yu Eng Poh and Washington Sycip are original subscribers were stockholders bona fide
respectively sons of Yu Tiong Sing and Alberto Yutivo was at all times in control of the majority
Sycip who are co-founders of Yutivo. According of the stock of SM and that the latter was a mere
to the Articles of Incorporation of the said subsidiary of the former.
subscriptions, the amount of P62,500 was paid
by the aforenamed subscribers, but actually the
said sum was advanced by Yutivo. The
additional subscriptions to the capital stock of 4. COMMISSONER VS. NORTON AND
SM and subsequent transfers thereof were paid HARRISON
by Yutivo itself. The payments were made,
however, without any transfer of funds from NOTES:
Yutivo to SM. Yutivo simply charged the
accounts of the subscribers for the amount 1. The CIR taxed Norton for sales it incurred
allegedly advanced by Yutivo in payment of the from the public upon selling the bricks
shares. Whether a charge was to be made made by JACKBILT since the two entities
against the accounts of the subscribers or said are but one and the same;
subscribers were to subscribe shares appears to 2. CTA ruled otherwise and held that
constitute a unilateral act on the part of Yutivo, JACKBILT and Norton are different
there being no showing that the former initiated entities. The tax must be levied upon only
the subscription. insofar as Jackbilts sales of bricks to
Norton is concerned and not by the latter
The transactions were made solely by and to the general public.
between SM and Yutivo. In effect, it was Yutivo
who undertook the subscription of shares, RULING:
employing the persons named or "charged" with
corresponding account as nominal stockholders. It has been settled that the ownership of all the
Of course, Yu Khe Thai, Yu Khe Jin, Yu Khe stocks of a corporation by another corporation
Siong and Yu Eng Poh were manifestly aware of does not necessarily breed an identity of
these subscriptions, but considering that they corporate interest between the two companies
were the principal officers and constituted the and be considered as a sufficient ground for
majority of the Board of Directors of both Yutivo disregarding the distinct personalities (Liddell &
and SM, their subscriptions could readily or Co., Inc. v. Coll. of Int. Rev. L-9687, June 30,
easily be that of Yutivo's Moreover, these 1961). However, in the case at bar, we find
persons were related to death other as brothers sufficient grounds to support the theory that the
separate identities of the two companies should entertainment, representation, travelling and
be disregarded. Among these circumstances, transportation allowances P3,000.00. However,
which we find not successfully refuted by in the withholding statement (Exh. 28-A), it was
appellee Norton are: (a) Norton and Harrison shown that the total of P4,200.00 and P3,000.00
owned all the outstanding stocks of Jackbilt; of (P7,220.00) was received by Garcia from Norton,
the 15,000 authorized shares of Jackbilt on thus portraying the oneness of the two
March 31, 1958, 14,993 shares belonged to companies. The Income Tax Returns of Albert
Norton and Harrison and one each to seven Golden and Dioscoro Ramos both employees of
others; (b) Norton constituted Jackbilt's board of Norton but board members of Jackbilt, also
directors in such a way as to enable it to disclose the game method of payment of
actually direct and manage the other's affairs by compensation and allowances. The offices of
making the same officers of the board for both Norton and Jackbilt are located in the same
companies. For instance, James E. Norton is the compound. Payments were effected by Norton of
President, Treasurer, Director and Stockholder accounts for Jackbilt and vice versa. Payments
of Norton. He also occupies the same positions were also made to Norton of accounts due or
in Jackbilt corporation, the only change being, payable to Jackbilt and vice versa.
in the Jackbilt, he is merely a nominal
stockholder. The same is true with Mr. Jordan, Norton and Harrison, while not denying the
F. M. Domingo, Mr. Mantaring, Gilbert Golden presence of the set up stated above, tried to
and Gerardo Garcia, while they are merely explain that the control over the affairs of
employees of the North they are Directors and Jackbilt was not made in order to evade
nominal stockholders of the Jackbilt (c) Norton payment of taxes; that the loans obtained by it
financed the operations of the Jackbilt, and this which were given to Jackbilt, were necessary for
is shown by the fact that the loans obtained the expansion of its business in the
from the RFC and Bank of America were used in manufacture of concrete blocks, which would
the expansion program of Jackbilt, to pay ultimately benefit both corporations; that the
advances for the purchase of equipment, transactions and practices just mentioned, are
materials rations and salaries of employees of not unusual and extraordinary, but pursued in
Jackbilt and other sundry expenses. There was the regular course of business and trade; that
no limit to the advances given to Jackbilt so there could be no confusion in the present set
much so that as of May 31, 1956, the unpaid up of the two corporations, because they have
advances amounted to P757,652.45, which were separate Boards, their cash assets are entirely
not paid in cash by Jackbilt, but was offset by and strictly separate; cashiers and official
shares of stock issued to Norton, the absolute receipts and bank accounts are distinct and
and sole owner of Jackbilt; (d) Norton treats different; they have separate income tax returns,
Jackbilt employees as its own. Evidence shows separate balance sheets and profit and loss
that Norton paid the salaries of Jackbilt statements. These explanations notwithstanding
employees and gave the same privileges as an over-all appraisal of the circumstances
Norton employees, an indication that Jackbilt presented by the facts of the case, yields to the
employees were also Norton's employees. conclusion that the Jackbilt is merely an
Furthermore service rendered in any one of the adjunct, business conduit or alter ego, of Norton
two companies were taken into account for and Harrison and that the fiction of corporate
purposes of promotion; (e) Compensation given entities, separate and distinct from each, should
to board members of Jackbilt, indicate that be disregarded. This is a case where the doctrine
Jackbilt is merely a department of Norton. The of piercing the veil of corporate fiction, should be
income tax return of Norton for 1954 shows that made to apply. In the case of Liddell & Co. Inc.
as President and Treasurer of Norton and v. Coll. of Int. Rev., supra, it was held:
Jackbilt, he received from Norton P56,929.95,
but received from Jackbilt the measly amount of There are quite a series of conspicuous
P150.00, a circumstance which points out that circumstances that militates against the
remuneration of purported officials of Jackbilt separate and distinct personality of Liddell
are deemed included in the salaries they Motors Inc., from Liddell & Co. We notice that
received from Norton. The same is true in the the bulk of the business of Liddell & Co. was
case of Eduardo Garcia, an employee of Norton channel Red through Liddell Motors, Inc. On the
but a member of the Board of Jackbilt. His other hand, Liddell Motors Inc. pursued no
Income tax return for 1956 reveals that he activities except to secure cars, trucks, and
received from Norton in salaries and bonuses spare parts from Liddell & Co., Inc. and then sell
P4,220.00, but received from Jackbilt, by way of them to the general public. These sales of
vehicles by Liddell & Co, to Liddell Motors. Inc. subsidiary or branch of the latter created for the
for the most part were shown to have taken purpose of selling the vehicles at retail (here
place on the same day that Liddell Motors, Inc. concrete blocks) ... .
sold such vehicles to the public. We may even
say that the cars and trucks merely touched the It may not be amiss to state in this connection,
hands of Liddell Motors, Inc. as a matter of the advantages to Norton in maintaining a
formality. semblance of separate entities. If the income of
Norton should be considered separate from the
xxx xxx xxx income of Jackbilt, then each would declare
such earning separately for income tax purposes
Accordingly, the mere fact that Liddell & Co. and and thus pay lesser income tax. The combined
Liddell Motors, Inc. are corporations owned and taxable Norton-Jackbilt income would subject
controlled by Frank Liddell directly or indirectly Norton to a higher tax. Based upon the
is not by itself sufficient to justify the disregard 1954-1955 income tax return of Norton and
of the separate corporate identity of one from the Jackbilt (Exhs. 7 & 8), and assuming that both
other. There is however, in this instant case, a of them are operating on the same fiscal basis
peculiar sequence of the organization and and their returns are accurate, we would have
activities of Liddell Motors, Inc. the following result: Jackbilt declared a taxable
net income of P161,202.31 in which the income
As opined in the case of Gregory v. Helvering tax due was computed at P37,137.00 (Exh. 8);
"the legal right of a tax payer to decrease the whereas Norton declared as taxable, a net
amount of what otherwise would be his taxes, or income of P120,101.59, on which the income tax
altogether avoid them, by means which the law due was computed at P25,628.00. The total of
permits, cannot be doubted". But as held in these liabilities is P50,764.84. On the other
another case, "where a corporation is a dummy, hand, if the net taxable earnings of both
is unreal or a sham and serves no business corporations are combined, during the same
purpose and is intended only as a blind, the taxable year, the tax due on their total which is
corporate form may be ignored for the law P281,303.90 would be P70,764.00. So that, even
cannot countenance a form that is bald and a on the question of income tax alone, it would be
mischievous fictions". to the advantages of Norton that the
corporations should be regarded as separate
... a taxpayer may gain advantage of doing entities.
business thru a corporation if he pleases, but
the revenue officers in proper cases, may
disregard the separate corporate entity where it
serves but as a shield for tax evasion and treat
the person who actually may take benefits of the
transactions as the person accordingly taxable.

... to allow a taxpayer to deny tax liability on the


ground that the sales were made through
another and distinct corporation when it is
proved that the latter is virtually owned by the
former or that they are practically one and the
same is to sanction a circumvention of our tax
laws. (and cases cited therein.)

In the case of Yutivo Sons Hardware Co. v. Court


of Tax Appeals, L-13203, Jan. 28, 1961, this
Court made a similar ruling where the
circumstances of unity of corporate identities
have been shown and which are identical to
those obtaining in the case under consideration.
Therein, this Court said:

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