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G.R. No.


January 17, 1936

MANILA GAS CORPORATION, plaintiff-appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee. DeWitt, Perkins and Ponce Enrile for appellant. Office of the Solicitor-General Hilado for appellee. MALCOLM, J.: This is an action brought by the Manila Gas Corporation against the Collector of Internal Revenue for the recovery of P56,757.37, which the plaintiff was required by the defendant to deduct and withhold from the various sums paid it to foreign corporations as dividends and interest on bonds and other indebtedness and which the plaintiff paid under protest. On the trial court dismissing the complaint, with costs, the plaintiff appealed assigning as the principal errors alleged to have been committed the following: 1. The trial court erred in holding that the dividends paid by the plaintiff corporation were subject to income tax in the hands of its stockholders, because to impose the tax thereon would be to impose a tax on the plaintiff, in violation of the terms of its franchise, and would, moreover, be oppressive and inequitable. 2. The trial court erred in not holding that the interest on bonds and other indebtedness of the plaintiff corporation, paid by it outside of the Philippine Islands to corporations not residing therein, were not, on the part of the recipients thereof, income from Philippine sources, and hence not subject to Philippine income tax. The facts, as stated by the appellant and as accepted by the appellee, may be summarized as follows: The plaintiff is a corporation organized under the laws of the Philippine Islands. It operates a gas plant in the City of Manila and furnishes gas service to the people of the metropolis and surrounding municipalities by virtue of a franchise granted to it by the Philippine Government. Associated with the plaintiff are the Islands Gas and Electric Company domiciled in New York, United States, and the General Finance Company domiciled in Zurich, Switzerland. Neither of these last mentioned corporations is resident in the Philippines. For the years 1930, 1931, and 1932, dividends in the sum of P1,348,847.50 were paid by the

plaintiff to the Islands Gas and Electric Company in the capacity of stockholders upon which withholding income taxes were paid to the defendant totalling P40,460.03 For the same years interest on bonds in the sum of P411,600 was paid by the plaintiff to the Islands Gas and Electric Company upon which withholding income taxes were paid to the defendant totalling P12,348. Finally for the stated time period, interest on other indebtedness in the sum of P131,644,90 was paid by the plaintiff to the Islands Gas and Electric Company and the General Finance Company respectively upon which withholding income taxes were paid to the defendant totalling P3,949.34. Some uncertainty existing regarding the place of payment, we will not go into this factor of the case at this point, except to remark that the bonds and other tokens of indebtedness are not to be found in the record. However, Exhibits E, F, and G, certified correct by the Treasurer of the Manila Gas Corporation, purport to prove that the place of payment was the United States and Switzerland. The appeal naturally divides into two subjects, one covered by the first assigned error, and the other by the second assigned error. We shall discuss these subjects and errors in order. 1. Appellant first contends that the dividends paid by it to its stockholders, the Islands Gas and Electric Company , were not subject to tax because to impose a tax thereon would be to do so on the plaintiff corporation, in violation of the terms of its franchise and would, moreover, be oppressive and inequitable. This argument is predicated on the constitutional provision that no law impairing the obligation of contracts shall be enacted. The particular portion of the franchise which is invoked provides: The grantee shall annually on the fifth day of January of each year pay to the City of Manila and the municipalities in the Province of Rizal in which gas is sold, two and one half per centum of the gross receipts within said city and municipalities, respectively, during the preceding year. Said payment shall be in lieu of all taxes, Insular, provincial and municipal, except taxes on the real estate, buildings, plant, machinery, and other personal property belonging to the grantee.

The trial judge was of the opinion that the instant case was governed by our previous decision in the case of Philippine Telephone and Telegraph Co., vs. Collector of Internal Revenue ([1933], 58 Phil. 639). In this view we concur. It is true that the tax exemption provision relating to the Manila Gas Corporation hereinbefore quoted differs in phraseology from the tax exemption provision to be found in the franchise of the Telephone and Telegraph Company, but the ratio decidendi of the two cases is substantially the same. As there held and as now confirmed, a corporation has a personality distinct from that of its stockholders, enabling the taxing power to reach the latter when they receive dividends from the corporation. It must be considered as settled in this jurisdiction that dividends of a domestic corporation, which are paid and delivered in cash to foreign corporations as stockholders, are subject to the payment in the income tax, the exemption clause in the charter of the corporation notwithstanding. For the foreign reasons, we are led to sustain the decision of the trial court and to overrule appellant's first assigned error. 2. In support of its second assignment of error, appellant contends that, as the Islands Gas and Electric Company and the General Finance Company are domiciled in the United States and Switzerland respectively, and as the interest on the bonds and other indebtedness earned by said corporations has been paid in their respective domiciles, this is not income from Philippine sources within the meaning of the Philippine Income Tax Law. Citing sections 10 (a) and 13 (e) of Act No. 2833, the Income Tax Law, appellant asserts that their applicability has been squarely determined by decisions of this court in the cases of Manila Railroad Co. vs. Collector of Internal Revenue (No. 31196, promulgated December 2, 1929, nor reported), and Philippine Railway Co. vs. Posadas (No. 38766, promulgated October 30, 1933 [58 Phil., 968]) wherein it was held that interest paid to non-resident individuals or corporations is not income from Philippine sources, and hence not subject to the Philippine Income Tax. The SolicitorGeneral answers with the observation that the cited decisions interpreted the Income Tax Law before it was amended by Act No. 3761 to cover the interest on bonds and other obligations or securities paid "within

or without the Philippine Islands." Appellant rebuts this argument by "assuming, for the sake of the argument, that by the amendment introduced to section 13 of Act No. 2833 by Act No. 3761 the Legislature intended the interest from Philippine sources and so is subject to tax," but with the necessary sequel that the amendatory statute is invalid and unconstitutional as being the power of the Legislature to enact. Taking first under observation that last point, it is to be observed that neither in the pleadings, the decision of the trial court, nor the assignment of errors, was the question of the validity of Act No. 3761 raised. Under such circumstances, and no jurisdictional issue being involved, we do not feel that it is the duty of the court to pass on the constitutional question, and accordingly will refrain from doing so. (Cadwaller-Gibson Lumber Co. vs. Del Rosario [1913], 26 Phil., 192; Macondray and Co. vs. Benito and Ocampo, P. 137, ante; State vs. Burke [1912], 175 Ala., 561.) As to the applicability of the local cases cited and of the Porto Rican case of Domenech vs. United Porto Rican Sugar co. ([1932], 62 F. [2d], 552), we need only observe that these cases announced good law, but that each he must be decided on its particular facts. In other words, in the opinion of the majority of the court, the facts at bar and the facts in those cases can be clearly differentiated. Also, in the case at bar there is some uncertainty concerning the place of payment, which under one view could be considered the Philippines and under another view the United States and Switzerland, but which cannot be definitely determined without the necessary documentary evidence before, us. The approved doctrine is that no state may tax anything not within its jurisdiction without violating the due process clause of the constitution. The taxing power of a state does not extend beyond its territorial limits, but within such it may tax persons, property, income, or business. If an interest in property is taxed, the situs of either the property or interest must be found within the state. If an income is taxed, the recipient thereof must have a domicile within the state or the property or business out of which the income issues must be situated within the state so that the income may be said to have a situs therein. Personal property may be separated from its owner, and he may be taxed on its account at the place where the property is although it is not the place of his own domicile and even though he is not a citizen or resident of the state which imposes the tax. But debts owing by corporations are obligations of the debtors, and only possess

value in the hands of the creditors. (Farmers Loan Co. vs. Minnesota [1930], 280 U.S., 204; Union Refrigerator Transit Co. vs. Kentucky [1905], 199 U.S., 194 State Tax on Foreign held Bonds [1873, 15 Wall., 300; Bick vs. Beach [1907], 206 U. S., 392; State ex rel. Manitowoc Gas Co. vs. Wig. Tax Comm. [1915], 161 Wis., 111; United States Revenue Act of 1932, sec. 143.) These views concerning situs for taxation purposes apply as well to an organized, unincorporated territory or to a Commonwealth having the status of the Philippines. Pushing to one side that portion of Act No. 3761 which permits taxation of interest on bonds and other indebtedness paid without the Philippine Islands, the question is if the income was derived from sources within the Philippine Islands. In the judgment of the majority of the court, the question should be answered in the affirmative. The Manila Gas Corporation operates its business entirely within the Philippines. Its earnings, therefore come from local sources. The place of material delivery of the interest to the foreign corporations paid out of the revenue of the domestic corporation is of no particular moment. The place of payment even if conceded to be outside of tho country cannot alter the fact that the income was derived from the Philippines. The word "source" conveys only one idea, that of

origin, and the origin of the income was the Philippines. In synthesis, therefore, we hold that conditions have not been provided which justify the court in passing on the constitutional question suggested; that the facts while somewhat obscure differ from the facts to be found in the cases relied upon, and that the Collector of Internal Revenue was justified in withholding income taxes on interest on bonds and other indebtedness paid to non-resident corporations because this income was received from sources within the Philippine Islands as authorized by the Income Tax Law. For the foregoing reasons, the second assigned error will be overruled. Before concluding, it is but fair to state that the writer's opinion on the first subject and the first assigned error herein discussed is accurately set forth, but that his opinion on the second subject and the second assigned error is not accurately reflected, because on this last division his views coincide with those of the appellant. However, in the interest of the prompt disposition of this case, the decision has been written up in accordance with instructions received from the court. Judgment affirmed, with the cost of this instance assessed against the appellant. Hull, Vickers, Imperial, Butte, and Recto, JJ., concur.

G.R. No. 116781 September 5, 1997 TOMAS LAO CONSTRUCTION, LVM CONSTRUCTION CORPORATION, THOMAS and JAMES DEVELOPERS (PHIL.), INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, MARIO O. LABENDIA, SR., ROBERTO LABENDIA, NARCISO ADAN, FLORENCIO GOMEZ, ERNESTO BAGATSOLON, SALVADOR BABON, PATERNO BISNAR, CIRPRIANO BERNALES, ANGEL MABUHAY, SR., LEO SURIGAO, and ROQUE MORILLO, respondents. BELLOSILLO, J.: From October to December 1990 private respondents individually filed complaints for illegal dismissal against petitioners with the National Labor Relations Commission Regional Arbitration Branch No. VIII (NLRC RAB VIII), Tacloban City. Alleging that they were hired for various periods as construction workers in different capacities they described their contractual terms as follows: (a) Roberto Labendia, general construction foreman, from 1971 to 17 October 1990 at P3,700/month; (b) Narciso Adan, tireman, from October 1981 to November 1990 at P75.00/day; (c) Florencio Gomez, welder, from July 1983 to July 1990 at P260.00/day; (d) Ernesto Bagatsolon leadman/checker, from June 1982 to October 1990 at P2,800/month; (e) Salvador Babon, clerk/timekeeper/paymaster, from June 1982 to October 1990 at P3,200/month; (f) Paterno Bisnar, road grader operator, from January 1979 to October 1990 at 105/day; (g) Cipriano Bernales, instrument man, from February 1980 to November 1990 at P3,200/month; (h) Angel Mabulay, Sr., dump truck driver, from August 1974 to October 1990 at P90/day; (I) Leo Surigao, payloader operator, from March 1975 to January 1978 at

P100/day; (J) Mario Labendia, Sr. surveyor/foreman, from August 1971 to July 1990 at P2,900/month; and, (k) Roque Morillo, company watchman, from August 1983 to October 1990 at P3,200/month. 1 Within the periods of their respective employments, they alternately worked for petitioners Tomas Lao Corporation (TLC), Thomas and James Developers (T&J) and LVM Construction Corporation (LVM), altogether informally referred to as the "Lao Group of Companies," the three (3) entities comprising a business conglomerate exclusively controlled and managed by members of the Lao family. TLC, T&J and LVM are engaged in the construction of public roads and bridges. Under joint venture agreements they entered into among each other, they would undertake their projects either simultaneously or successively so that, whenever necessary, they would lease tools and equipment to one another. Each one would also allow the utilization of their employees by the other two (2). With this arrangement, workers were transferred whenever necessary to on-going projects of the same company or of the others, or were rehired after the completion of the project or project phase to which they were assigned. Soon after, however, TLC ceased its operations 2 while T&J and LVM stayed on. Sometime in 1989 Andres Lao, Managing Director of LVM and President of T&J, 3 issued a memorandum 4 requiring all workers and company personnel to sign employment contract forms and clearances which were issued on 1 July 1989 but antedated 10 January 1989. These were to be used allegedly for audit purposes pursuant to a joint venture agreement between LVM and T&J. To ensure compliance with the directive, the

company ordered the withholding of the salary of any employee who refused to sign. Quite notably, the contracts expressly described the construction workers as project employees whose employments were for a definite period, i.e., upon the expiration of the contract period or the completion of the project for which the workers was hired. Except for Florencio Gomez 5 all private respondents refused to sign contending that this scheme was designed by their employer to downgrade their status from regular employees to mere project employees. Resultantly, their salaries were withheld. They were also required to explain why their services should not be terminated for violating company rules and warned that failure to satisfactorily explain would be construed as "disinterest" in continued employment with the company. Since the workers stood firm in their refusal to comply with the directives their services were terminated. NLRC RAB VIII dismissed the complaints lodged before it, finding that private respondents were project employees whose employments could be terminated upon completion of the projects or project phase for which they were hired. It upheld petitioners' contention that the execution of their employment contracts was to forestall the eventuality of being compelled to pay the workers their salaries even if there was no more work to be done due to the completion of the projects or project phases. The labor court however granted each employee a separation pay of P6,435.00 computed at one-half (1/2) month salary for every year of service, uniformly rounded at five (5) years. 6 The decision of Labor Arbiter Gabino A. Velasquez, Jr., was reversed on appeal by the Fourth Division of the National Labor Relations Commission (NLRC) of Cebu City which found that private respondents were regular employees who were dismissed without just cause and denied due process. The NLRC also overruled the fixing by the Labor Arbiter of the term of employment of complainants uniformly at five (5) years since the periods of employment of the construction workers as alleged in their complaints were never refuted by petitioners. In granting monetary awards to complainants, NLRC disregarded the veil of corporate fiction and treated the three (3) corporations as forming only one entity on the basis of the admission of petitioners that "the three (3) operated as one (1), intermingling and commingling all its resources, including manpower facility." 7 Petitioners now lay their cause before us and assign the following errors: (a) NLRC erred in

classifying the employees as regular instead of project employees; (b) assuming that the workers were regular employees, NLRC failed to consider that they were terminated for cause; (c) assuming further that the employees were illegally dismissed, NLRC erred in awarding back wages in excess of three (3) years; and, (d) assuming finally that the decision is correct, NLRC erred when it pierced the veil of corporate personality of petitioner-corporations. The main thrust of petitioners' expostulation is that respondents have no valid cause to complain about their employment contracts since these documents merely formalized their status as project employees. They cite Policy Instruction No. 20 of the Department of Labor which defines project employees as those employed in connection with a particular construction project, adding that the ruling in Sandoval Shipyards, Inc. v. NLRC 8 applies squarely to the instant case because there the Court declared that the employment of project employees is co-terminous with the completion of the project regardless of the number of projects in which they have worked. And as their employment is one for a definite period, they are not entitled to separation pay nor is their employer required to obtain clearance from the Secretary of Labor in connection with their termination. Petitioners thus argue that their dismissal from the service of private respondents was legal since the projects for which they were hired had already been completed. As additional ground, they claim that Mario Labendia and Roberto Labendia had absented themselves without leave giving management no choice but to sever their employment. We are not convinced. The principal test in determining whether particular employees are "project employees" distinguished from "regular employees" is whether the "project employees" are assigned to carry out "specific project or undertaking," the duration (and scope) of which are specified at the time the employees are engaged for the project. "Project" in the realm of business and industry refers to a particular job or undertaking that is within the regular or usual business of employer, but which is distinct and separate and identifiable as such from the undertakings of the company. Such job or undertaking begins and ends at determined or determinable times. 9 While it may be allowed that in the instant case the workers were initially hired for specific projects or undertakings of the company and hence can be classified as project employees, the repeated rehiring and the continuing need for their services over a long span of time (the shortest, at seven [7] years) have undeniably made them regular

employees. Thus, we held that where the employment of project employees is extended long after the supposed project has been finished, the employees are removed from the scope of project employees and considered regular employees. 10 While length of time may not be a controlling test for project employment, it can be a strong factor in determining whether the employee was hired for a specific undertaking or in fact tasked to perform functions which are vital, necessary and indispensable to the usual business or trade of the employer. In the case at bar, private respondents had already gone through the status of project employees. But their employments became noncoterminous with specific projects when they started to be continuously re-hired due to the demands of petitioners' business and were reengaged for many more projects without interruption. We note petitioners' own admission [t]hese construction projects have been prosecuted by either of the three petitioners, either individually or in a joint venture with one another. Likewise, these construction projects have been prosecuted by either of the three petitioners, either simultaneously, one construction project overlapping another and/or one project commencing immediately after another project has been completed or terminated. Perhaps because of their capacity to prosecute government projects and their good record and performance, at least one of the three petitioners had an on-going construction project and/or one of the three petitioners' construction project overlapped that of another. 11 The denial by petitioners of the existence of a work pool in the company because their projects were not continuous is amply belied by petitioners themselves who admit that All the employees of either of the three petitioners were actually assigned to a particular project to remain in said project until the completion or termination of that project. However, after the completion of that particular project or when their services are no longer needed in the project or particular phase of the project where they were assigned, they were transferred and rehired in another on-going project. 12

A work pool may exist although the workers in the pool do not receive salaries and are free to seek other employment during temporary breaks in the business, provided that the worker shall be available when called to report for a project. Although primarily applicable to regular seasonal workers, this set-up can likewise be applied to project workers insofar as the effect of temporary cessation of work is concerned. This is beneficial to both the employer and employee for it prevents the unjust situation of "coddling labor at the expense of capital" and at the same time enables the workers to attain the status of regular employees. Clearly, the continuous rehiring of the same set of employees within the framework of the Lao Group of Companies is strongly indicative that private respondents were an integral part of a work pool from which petitioners drew its workers for its various projects. In a final attempt to convince the Court that private respondents were indeed project employees, petitioners point out that the workers were not regularly maintained in the payroll and were free to offer their services to other companies when there were no on-going projects. This argument however cannot defeat the workers' status of regularity. We apply by analogy the case of Industrial-Commercial-Agricultural Workers Organization v. CIR 13 which deals with regular seasonal employees. There we held That during the temporary layoff the laborers are free to seek other employment is natural, since the laborers are not being paid, yet must find means of support. A period during which the Central is forced to suspend or cease operation for a time . . . should not mean starvation for employees and their families (emphasis supplied). Truly, the cessation of construction activities at the end of every project is a foreseeable suspension of work. Of course, no compensation can be demanded from the employer because the stoppage of operations at the end of a project and before the start of a new one is regular and expected by both parties to the labor relations. Similar to the case of regular seasonal employees, the employment relation is not severed by merely being suspended. 14 The employees are, strictly speaking, not separated from services but merely on leave of absence without pay until they are reemployed. 15 Thus we cannot affirm the argument that non-payment of salary or noninclusion in the payroll and the opportunity to seek other employment denote project employment. Contrary to petitioners' assertion, our ruling in Sandoval Shipyards is inapplicable considering the

special circumstances attendant to the present case. In Sandoval, the hiring of construction workers, unlike in the instant case, was intermittent and not continuous for the "shipyard merely accepts contracts for shipbuilding or for repair of vessels from third parties and, only on occasions when it has work contract of this nature that it hires workers to do the job which, needless to say, lasts only for less than a year or longer." 16 Moreover, if private respondents were indeed employed as "project employees," petitioners should have submitted a report of termination to the nearest public employment office every time their employment was terminated due to completion of each construction project. 17 The records show that they did not. Policy Instruction No. 20 is explicit that employers of project employees are exempted from the clearance requirement but not from the submission of termination report. We have consistently held that failure of the employer to file termination reports after every project completion proves that the employees are not project employees. 18 Nowhere in the New Labor Code is it provided that the reportorial requirement is dispensed with. The fact is that Department Order No. 19 superseding Policy Instruction No. 20 expressly provides that the report of termination is one of the indicators of project employment. 19 We agree with the NLRC that the execution of the project employment contracts was "farcical." 20 Obviously, the contracts were a scheme of petitioners to prevent respondents' from being considered as regular employees. It imposed time frames into an otherwise flexible employment period of private respondents some of whom were employed as far back as 1969. Clearly, here was an attempt to circumvent labor laws on tenurial security. Settled is the rule that when periods have been imposed to preclude the acquisition of tenurial security by the employee, they should be struck down as contrary to public morals, good customs or public order. 21 Worth noting is that petitioners had engaged in various joint venture agreements in the past without having to draft project employment contracts. That they would require execution of employment contracts and waivers at this point, ostensibly to be used for audit purposes, is a suspect excuse, considering that petitioners enforced the directive by withholding the salary of any employee who spurned the order. We likewise reject petitioners' justification in rehiring private respondents i.e., that it is much cheaper and economical to re-hire or re-employ the same workers than to train a new set of employees. It is precisely because of this costsaving benefit to the employer that the law deems

it fair that the employees be given a regular status. We need not belabor this point. The NLRC was correct in finding that the workers were illegally dismissed. The rule is that in effecting a valid dismissal, the mandatory requirements of substantive and procedural due process must be strictly complied with. These were wanting in the present case. Private respondents were dismissed allegedly because of insubordination or blatant refusal to comply with a lawful directive of their employer. But willful disobedience of the employer's lawful orders as a just cause for the dismissal of the employees envisages the concurrence of at least two (2) requisites: (a) the employee's assailed conduct must have been willful or intentional, the willfulness being characterized by a wrongful and perverse attitude; and, (b) the order violated must have been reasonable, lawful, made known to the employee and must pertain to the duties which he has been engaged to discharge. 22 The refusal of private respondents was willful but not in the sense of plain and perverse insubordination. It was dictated by necessity and justifiable reasons for what appeared to be an innocent memorandum was actually a veiled attempt to deny them their rightful status as regular employees. The workers therefore had no option but to disobey the directive which they deemed unreasonable and unlawful because it would result in their being downsized to mere project workers. This act of self-preservation should not merit them the extreme penalty of dismissal. The allegation of petitioners that private respondents are guilty of abandonment of duty is without merit. The elements of abandonment are: (a) failure to report for work or absence without valid or justifiable reason, and, (b) a clear intention to sever the employer-employee relationship, with the second element as the more determinative factor manifested by some overt acts. 23 In this case, private respondents Roberto Labendia and Mario Labendia were forced to leave their respective duties because their salaries were withheld. They could not simply sit idly and allow their families to starve. They had to seek employment elsewhere, albeit temporarily, in order to survive. On the other hand, it would be the height of injustice to validate abandonment in this particular case as a ground for dismissal of respondents thereby making petitioners benefit from a gross and unjust situation which they themselves created. 24 Private respondents did not intend to sever ties with petitioner and permanently abandon their jobs; otherwise, they would not have filed this complaint for illegal dismissal. 25

Petitioners submit that since private respondents were only project employees, they are not entitled to security of tenure. This is incorrect. In Archbuild Masters and Construction, Inc. v. NLRC 26 we held . . . a project employee hired for a specific task also enjoys security of tenure. A termination of his employment must be for a lawful cause and must be done in a manner which affords him the proper notice and hearing . . . . To allow employers to exercise their prerogative to terminate a project worker's employment based on gratuitous assertions of project completion would destroy the constitutionally protected right of labor to security of tenure (emphasis supplied). The burden of proving that an employee has been lawfully dismissed therefore lies with the employer. In the case at bar, the assertions of petitioners were self-serving and insufficient to substantiate their claim of proximate project completion. The services of the employees were terminated not because of contract expiration but as sanction for their refusal to sign the project employment forms and quitclaims. Finding that the dismissal was without just cause, we find it unnecessary to dwell on the nonobservance of procedural due process. Suffice it to state that private respondents were not priorly notified of their impending dismissal and that they were not provided ample opportunity to defend themselves. Petitioners charge as erroneous the grant to private respondents by NLRC of back wages in excess of three (3) years or, in the alternative, to an award of separation pay if reinstatement is no longer feasible. We disagree. Since the illegal dismissal was made in 1990 or after the effectivity of the amendatory provision of RA No. 6715 on 21 March 1989, private respondents' back wages should be computed on the basis of Art. 279 of the Labor Code which states that "(a)n employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full back wages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement." Conformably with our ruling in Bustamante v. NLRC 27 the illegally dismissed employees are entitled to full back wages, undiminished by

earnings derived elsewhere during the period of their illegal dismissal. In the event that reinstatement is no longer feasible, back wages shall be computed from the time of illegal termination until the time of the finality of the decision. 28 The award shall be based on the documents submitted by private respondents, i.e. affidavits, SSS and Medicare documents, since petitioners failed to adduce competent evidence to the contrary. The separation pay shall be equivalent to "at least one (1) month salary or to one (1) month salary for every year of service, whichever is higher, a fraction of at least six (6) months being considered as one whole year." 29 Finally, public respondent NLRC did not err in disregarding the veil of separate corporate personality and holding petitioners jointly and severally liable for private respondents' back wages and separation pay. The records disclose that the three (3) corporations were in fact substantially owned and controlled by members of the Lao family composed of Lao Hian Beng alias Tomas Lao, Chiu Siok Lian (wife of Tomas Lao), Andrew C. Lao, Lao Y. Heng, Vicente Lao Chua, Lao E. Tin, Emmanuel Lao and Ismaelita Maluto. A majority of the outstanding shares of stock in LVM and T&J is owned by the Lao family. T&J is 100% owned by the Laos as reflected in its Articles of Incorporation. The Lao Group of Companies therefore is a closed corporation where the incorporators and directors belong to a single family. Lao Hian Beng is the same Tomas Lao who owns Tomas Lao Corporation and is the majority stockholder of T&J. Andrew C. Lao is the Managing Director of LVM Construction, and President and Managing Director of the Lao Group of Companies. Petitioners are engaged in the same line of business under one management and use the same equipment including manpower services. Where it appears that [three] 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 the [three] corporations are distinct entities, and treat them as identical. 30 Consonant with our earlier ruling, 31 we hold that the liability of petitioners extends to the responsible officers acting in the interest of the corporations. In view of the peculiar circumstances of this case, we disregard the separate personalities of the three (3) corporations and at the same time declare the members of the corporations jointly and severally liable with the corporations for the monetary awards due to private respondents. It should always be borne in mind that the fiction of law that a corporation as a juridical entity has a distinct and separate personality was envisaged for convenience and to serve justice; therefore it should not be used as a

subterfuge to commit injustice and circumvent labor laws. WHEREFORE, the petition is DENIED and the decision of the National Labor Relations Commission dated 05 August 1994 is AFFIRMED. Petitioners are ordered to reinstate private respondents to their former positions without loss of seniority rights and other privileges with full back wages, inclusive of allowances, computed from the time compensation was withheld up to the time of actual reinstatement. In the event that

reinstatement is no longer feasible, petitioners are directed to pay private respondents separation pay equivalent to one month salary for every year of service, a fraction of at least six (6) months being considered one (1) year in the computation thereof, and full back wages computed from the time compensation was withheld until the finality of this decision. All other claims of the parties are DISMISSED for lack of merit. Costs against petitioners. SO ORDERED.

1. Manila Gas Corporation Vs. THE

COLLECTOR OF INTERNAL REVENUE On Privileges Enjoyed: The tax exemption clause in the charter of a corporation cannot be extended to nor enjoyed by even its controlling stockholders. Manila Gas Corp. v. Collector of Internal Revenue, 62 Phil. 895 (1936).

2. Silverio, Jr. v. Filipino Business Consultants,

Inc., 466 SCRA 584 (2005)G.R. No. 143312 Majority Equity Ownership and Interlocking Directorship: A corporate defendant in a case, against whom a writ of possession has been issued, cannot use the fact that it has obtained controlling equities in the corporate plaintiffs to suspend enforcement of the writ, for their separate juridical personality, and thus their separate business and proprietary interests remain. Silverio, Jr. v. Filipino Business Consultants, Inc., 466 SCRA 584 (2005).

Ownership of a majority of capital stock and the fact that majority of directors of a corporation are the directors of another corporation creates no employeremployee relationship with the latter's employees. DBP v. NLRC, 186 SCRA 841 (1990). Also Suldao v. Cimech System Construction, Inc., 506 SCRA 256 (2006); Union Bank of the Philippines v. Ong, 491 SCRA 581 (2006). Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Sunio v. NLRC , 127 SCRA 390 (1984); Asionics Philippines, Inc. v. NLRC, 290 SCRA 164 (1998); Francisco v. Mejia, 362 SCRA 738 (2001); Matutina Integrated Wood Products, Inc. v. CA, 263 SCRA 490 (1996); Manila Hotel Corp. v. NLRC, 343 SCRA 1 (2000); Secosa v. Heirs of Erwin Suarez Fancisco, 433 SCRA 273 (2004).

3. Traders Royal Bank v. Court of Appeals,

177 SCRA 789 (1989).

Dealings Between Corporation and Stockholders: Obligations and Debts: Corporate debt or credit is not the debt or credit of the stockholder nor is the stockholder's debt or credit that of the corporation. Traders Royal Bank v. Court of Appeals, 177 SCRA 789 (1989). A corporation has no legal standing to file a suit for recovery of certain parcels of land owned by its members in their individual capacity, even when the corporation is organized for the benefit of the members. Sulo ng Bayan v. Araneta, Inc., 72 SCRA 347 (1976). Stockholders have no personality to intervene in a collection case covering the loans of the corporation since the interest of shareholders in corporate property is purely inchoate. Saw v. CA, 195 SCRA 740 (1991); and vice-versa Francisco Motors Corp. v. Court of Appeals, 309 SCRA 72 (1999). The majority stockholder cannot be held personality liable for the attorneys fees charged by a lawyer for representing the corporation. Laperal Dev. Corp. v. Court of Appeals, 223 SCRA 261 (1993). Even when the foreclosure on the corporate assets was wrongful done, stockholders have no standing to recover for themselves moral damages; otherwise, it would amount to the appropriation by, and the distribution to, such stockholders of part of the corporations assets before the dissolution of the corporation and the liquidation of its debts and liabilities. APT v. Court of Appeals, 300 SCRA 579 (1998). The obligations of a stockholder in one corporation cannot be offset from the obligation of the stockholder in a second corporation, since the corporation has a separate juridical personality. CKH Industrial and Dev. Corp v. Court of Appeals, 272 SCRA 333 (1997).

Limited Liability to Investors and Officers One of the advantages of the corporation is the limitation of an investors liability to the amount of investment, which flows from the legal theory that a corporate entity is separate and distinct from its stockholders. San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631 (1998). It is hornbook law that corporate personality is a shield against personal liability of its officersa corporate officer and his spouse cannot be made personally liable under a trust receipt where he entered into and signed the contract clearly in his official capacity. Consolidated Bank and Trust Corp. v. Court of Appeals, 356 SCRA 671 (2001). Obligations incurred by the corporation acting through its directors, officers and employees, are its sole liabilities. Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos, 357 SCRA 77 (2001). Other Powers Sell Land and Other Properties When the corporations primary purpose is to market, distribute, export and import merchandise, the sale of land is not within the actual or apparent authority of the corporation acting through its officers, much less when acting through the treasurer. Likewise Articles 1874 and 1878 of Civil Code requires that when land is sold through an agent, the agents authority must be in writing, otherwise the sale is void. San Juan Structural v. CA, 296 SCRA 631 (1998); AF Realty & Dev., Inc. v. Dieselman Freight Services Co., 373 SCRA 385 (2002); Firme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003). Corporate Treasurer A corporate treasurers function have generally been described as to receive and keeps funds of the corporation, and to disburse them in accordance with the authority given him by the board or the properly authorized officers. Unless duly authorized, a treasurer, whose power are limited, cannot bind the corporation in a sale of its assets, which obviously is foreign

4. San Juan Structural and Steel Fabricators,

Inc. v. Court of Appeals, 296 SCRA 631 (1998).

to a corporate treasurers function. San Juan Structural v. Court of Appeals, 296 SCRA 631, 645 (1998). A corporate treasurer whose negligence in signing a confirmation letter for rediscounting of crossed checks, knowing fully well that the checks were strictly endorsed for deposit only to the payees account and not to be further negotiated, may be personally liable for the damaged caused the corporation. Atrium Management Corp. v. Court of Appeals, 353 SCRA 23 (2001).

right of a stockholder to transfer his shares, but merely authorizes the adoption of regulations as to the formalities and procedure to be followed in effecting transfer. Thomson v. Court of Appeals, 298 SCRA 280 (1998). (c) Dealings Between Corporation and Stockholders: The mere fact that a stockholder sells his shares of stock in the corporation during the pendency of a collection case against the corporation, does not make such stockholder personally liable for the corporate debt, since the disposing stockholder has no personal obligation to the creditor, and it is the inherent right of the stockholder to dispose of his shares of stock anytime he so desires. Remo, Jr. v. IAC, 172 SCRA 405 (1989); PNB v. Ritratto Group, Inc., 362 SCRA 216 (2001). The fact that the majority stockholder had used his own money to pay part of the loan of the corporation cannot be used as the basis to pierce. It is understandable that a shareholder would want to help his corporation and in the process, assure that his stakes in the said corporation are secured. LBP v. Court of Appeals, 364 SCRA 375 (2001). Use of a controlling stockholders initials in the corporate name is not sufficient reason to pierce the corporate veil, since by that practice alone does it mean that the said corporation is merely a dummy of the individual stockholder. A corporation may assume any name provided it is lawful, and there is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders. LBP v. Court of Appeals, 364 SCRA 375 (2001). Equitable Remedy: The doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. aPNB v. Ritratto Group, Inc., 362 SCRA 216 (2001). Whether the separate personality of the corporation should be pierced hinges

5. PNB v. Andrada Electric & Engineering Co.,

381 SCRA 244 (2002). Basis Must Be Clear Evidence: The party seeking for the piercing of the corporate veil has the burden of presenting clear and convincing evidence to justify the setting aside of the separate corporate personality rule. PNB v. Andrada Electric & Engineering Co., 381 SCRA 244 (2002). Application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application. PNB v. Andrada Electric & Engineering Co., 381 SCRA 244 (2002).

6. PNB v. Ritratto Group, Inc., 362 SCRA 216

(2001). Free Transferability of Units of Ownership for Investors It is the inherent right of the stockholder to dispose of his shares of stock anytime he so desires. Remo, Jr. v. IAC, 172 SCRA 405 (1989); PNB v. Ritratto Group, Inc., 362 SCRA 216 (2001). Authority granted to corporations to regulate the transfer of its stock does not empower the corporation to restrict the

on the obtaining facts, appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not mean to promote unfair objectives. General Credit Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225 (2007). 7. Tomas Lao Construction vs. NLRC 278 SCRA 716

corporate officers are indispensable parties in the litigation, the original inclusion of the corporation in the suit does not thereby allow the denial of a specific counter-claim being filed to make the corporate officers personally liable. A corporation has a legal personality entirely separate and distinct from that of its officers and cannot act for and on their behalf, without being so authorized. Lafarge Cement Phils., Inc. v. Continental Cement Corp., 443 SCRA 522 (2004). Fraud Cases: Fraud and bad faith on the part of certain corporate officers or stockholders may warrant the piercing of the veil of corporate fiction so that the said individual may not seek refuge therein, but may be held individually and personally liable for his or her actions. Lafarge Cement Phils., Inc. v. Continental Cement Corp., 443 SCRA 522 (2004).

8. Lafarge Cement Phils., Inc. v. Continental

Cement Corp., 443 SCRA 522 (2004). Being Corporate Officer: When the compulsory counterclaim filed against corporate officers for their alleged fraudulent act indicate that such

PRESCRIPTIVE PERIOD 113. What is the prescriptive period for offenses penalized under the Labor Code? General rule. - The prescriptive period of all criminal offenses penalized under the Labor Code and the Rules to Implement the Labor Code is three (3) years from the time of commission thereof. Exception. - Criminal cases arising from ULP which prescribe within one (1) year from the time the acts complained of were committed; otherwise, they shall be forever barred. The running of the 1 year period, however, is interrupted during the pendency of the labor case. 114. What is the prescriptive period for money claims? Prescriptive period is three (3) years from accrual of cause of action

Time to reckon prescription; date of filing of complaint. As a general rule, the date of filing of the complaint should be the determining factor in reckoning the prescriptive period. However, in case the complaint is amended, the date of filing should be reckoned on the date said amended pleading is filed. Thus, in the case of Philippine Industrial Security Agency Corporation vs. Dapiton, [G. R. No. 127421, December 8, 1999], it was held that respondent-employee filed his money claims only on June 15, 1994 when he filed his Amended Complaint and Position Paper. As a consequence thereof, his money claims from November 2, 1990 to June 14, 1992, are already barred by prescription pursuant to Article 291 of the Labor Code. Apparently, the Labor Arbiter mistakenly relied on the date of filing of the original complaint of respondent. It is true that said complaint was filed on April 22, 1994, however, at that time, respondent merely accused petitioner of illegal dismissal and has not yet charged petitioner with underpayment of wages or non-payment of overtime pay, 13th month pay, etc.
115. What is the prescriptive period for illegal dismissal?

116. What is the prescriptive period for actions involving the funds of the union?

Any action involving the funds of a labor organization shall prescribe after three (3) years from the date of submission of the annual financial report to the Department of Labor and Employment or from the date the same should have been submitted as required by law, whichever comes earlier.
117. What is the prescriptive period for illegal recruitment?

Generally, an illegal recruitment case prescribes in 5 years. The exception is in case of illegal recruitment involving economic sabotage which prescribes in 20 years.
118. What is the prescriptive period for SSS violations?

In cases involving refusal or neglect by the employer in the remittance of contributions to the SSS, prescriptive period is twenty (20) years from the time the delinquency is known or the assessment is made by the SSS, or from the time the benefit accrues, as the case may be. In Chua vs. CA, [G. R. No. 125837, Oct. 6, 2004], where only eight (8) years had passed from the time delinquency was discovered or the proper assessment was made, the Supreme Court ruled that the claim has not yet prescribed because Republic Act No. 1161, as amended, (now Republic Act No. 8282, otherwise known as the Social Security Act of 1997), prescribes a period of twenty (20) years, from the time the delinquency is known or assessment is made by the SSS, within which to file a claim for non- remittance against employers. (Section 22(b), R.A. 1161).
119. What is the prescriptive period for employees compensation claims?

An action for illegal dismissal prescribes in 4 years from accrual of cause of action.

Three (3) years from accrual of cause of action