CIR v. Norton & Harrison Company, G.R. No. L-17618, Aug. 31, 1964

Plaintiffs filed a collection action against X Corporation. Upon execution of the court's decision, X Corporation was found to be without assets. Thereafter, plaintiffs filed an action against its present and past stockholder Y Corporation which owned substantially all of the stocks of X corporation. The two corporations have the same board of directors and Y Corporation financed the operations of X corporation. May Y Corporation be held liable for the debts of X Corporation? Why?

A: Yes, Y Corporation may be held liable for the debts of X Corporation. The doctrine of piercing the veil of corporation fiction applies to this case. The two corporations have the same board of directors and Y Corporation owned substantially all of the stocks of X Corporation, which facts justify the conclusion that the latter is merely an extension of the personality of the former, and that the former controls the policies of the latter. Added to this is the fact that Y Corporation controls the finances of X Corporation which is merely an adjunct, business conduit or alter ego of Y Corporation. (CIR v. Norton & Harrison Company, G.R. No. L-17618, Aug. 31, 1964)