KUENZLE & STREIFF, INC. vs.

THE COMMISSIONER OF INTERNAL REVENUE

FACTS:
 Petitioner filed its income tax returns for the years 1953, 1954 and 1955, declaring net losses. Respondent
assessed against it the deficiency income taxes in question.
o For 1953, by disallowing as deductions all amounts paid by the petitioner as bonus to its officers and
staff-members;
o For 1954 and 1955, the similar disallowance as deductions of a portion of the bonuses paid by
petitioner in said years to its officers and staff-members.
 Petitioner filed with the Court of Tax Appeals a petition for review contesting the aforementioned
assessments. Said court affirmed the decision.
 Petitioner moved for a reconsideration
o In this connection it construed Section 30(a) (1) of the Revenue Code as allowing the deduction from
gross income of all the ordinary and necessary expenses incurred, including a reasonable allowance
for salaries or other compensation for personal services actually rendered, that the bonuses in
question were not reasonable considering all material and relevant factors.

ISSUE:
 Whether or not the tax court acted erred in not considering individually the total compensation paid to each
of petitioner's officers and staff members in determining the reasonableness of the bonuses in question.

HELD:
 No, the Court of Tax Appeal did not err.
 It is a general rule that `Bonuses to employees made in good faith and as additional compensation for the
services actually rendered by the employees are deductible, provided such payments, when added to the
stipulated salaries, do not exceed a reasonable compensation for the services rendered'.
 The condition precedents to the deduction of bonuses to employees are:
o the payment of the bonuses is in fact compensation;
o it must be for personal services actually rendered; and
o bonuses, when added to the salaries, are `reasonable ... when measured by the amount and quality
of the services performed with relation to the business of the particular taxpayer'.
 Here it is admitted that the bonuses are in fact compensation and were paid for services actually rendered.
The only question is whether the payment of said bonuses is reasonable.
 There is no fixed test for determining the reasonableness of a given bonus as compensation. This depends
upon many factors, one of them being
o 'the amount and quality of the services performed with relation to the business'.
 Other tests suggested are: payment must be
o 'made in good faith';
o 'the character of the taxpayer's business, the volume and amount of its net earnings, its locality, the
type and extent of the services rendered, the salary policy of the corporation';
o 'the size of the particular business';
o 'the employees' qualifications and contributions to the business venture'; and
o 'general economic conditions’.
 However, 'in determining whether the particular salary or compensation payment is reasonable, the situation
must be considered as a whole. Ordinarily, no single factor is decisive.
 It is important to keep in mind that it seldom happens that the application of one test can give a satisfactory
answer, and that ordinarily it is the interplay of several factors, properly weighted for the particular case,
which must furnish the final answer
 As far as petitioner's contention that as employer it has the right to fix the compensation of its officers and
employees and that it was in the exercise of such right that it deemed proper to pay the bonus in question,
all that We need say is this: that right maybe conceded, but for income tax purposes the employer cannot
legally claim such bonuses as deductible expenses unless they are shown to be reasonable. To hold
otherwise would open the gate to rampant tax evasion.
 Lastly, We must not lose sight of the fact that the question of allowing or disallowing as deductible expenses
the amounts paid to corporate officers by way of bonus is determined by respondent exclusively for income
tax purposes. Concededly, he has no authority to fix the amounts to be paid to corporate officers by way of
 basic salary, bonus or additional remuneration — a matter that lies more or less exclusively within the sound
discretion of the corporation itself. But this right of the corporation is, of course, not absolute. It cannot
exercise it for the purpose of evading payment of taxes legitimately due to the State.

MERCY VDA. DE ROXAS, represented by ARLENE C. ROXAS-CRUZ, vs. OUR LADY'S FOUNDATION, INC.

FACTS:
 Salve Dealca Latosa filed a Complaint for the recovery of ownership of a portion of her residential land
According to her, Atty. Henry Amado Roxas (Roxas), encroached her property by extending his concrete
fence beyond the correct limits.
 Roxas imputed the blame to respondent Our Lady’s Village Foundation, Inc., now Our Lady’s Foundation,
Inc. (OLFI). He then filed a Third-Party Complaint against respondent and claimed that he only occupied the
portion in order to get the equivalent area of what he had lost when OLFI trimmed his property for the
subdivision road.
 The trial court found that Roxas occupied a total of 112 square meters of Latosa’s lots, and that, in turn,
OLFI trimmed his property by 92 square meters.
 The RTC issued a Writ of Execution ordering OLFI to reimburse Roxas. The trial court then approved the
Sheriff’s Bill, which valued the subject property at ₱2,500 per square meter or a total of ₱230,000. Adding
the legal interest of 12% per annum for 10 years, respondent’s judgment obligations totaled ₱506,000.
 Opposing the valuation of the subject property, OLFI filed a Motion to Quash the Sheriff’s Bill and a Motion
for Inhibition of the RTC judge. It insisted that it should reimburse Roxas only at the rate of ₱40 per square
meter, the same rate that Roxas paid when the latter first purchased the property.
 RTC denied both the Motion for Inhibition and the Motion to Quash the Sheriff’s Bill. However, the trial court
approved an Amended Sheriff’s Bill, which reduced the valuation to ₱1,800 per square meter.
 To collect the aforementioned amount, Notices of Garnishment were then issued to the managers of the
Development Bank of the Philippines and the United Coconut Planters Bank to garnish the account of
Bishop Robert Arcilla-Maullon (Arcilla-Maullon), OLFI’s general manager.
 CA reversed the decision.

ISSUE:
 Whether or not the Notices of Garnishment against the bank accounts of Arcilla-Maullon as OLFI’s general
manager is proper.

HELD:
 No, the notice of garnishment is not proper.
 The appellate court appreciated that in the main case for the recovery of ownership, only OLFI was named
as respondent corporation, and that its general manager was never impleaded in the proceedings a quo.
 This Court holds that since OLFI’s general manager was not a party to the case, the CA correctly ruled that
Arcilla-Maullon cannot be held personally liable for the obligation of the corporation.
 In Santos v. NLRC, this Court upholds the doctrine of separate juridical personality of corporate entities. The
case emphasizes that a corporation is a juridical entity with a legal personality separate and distinct from
those acting for and on its behalf and, in general, of the people comprising it. Hence, the obligations incurred
by the corporation, acting through its officers such as in this case, are its sole liabilities.
 To hold the general manager of OLFI liable, petitioner claims that it is a mere business conduit of Arcilla-
Maullon, hence, the corporation does not maintain a bank account separate and distinct from the bank
accounts of its members. This argument does not persuade us, for any piercing of the corporate veil has to
be done with caution. Save for its rhetoric, petitioner fails to adduce any evidence that would prove OLFI's
status as a dummy corporation. In this regard, we recently explained in Sarona v. NLRC as follows:
o A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate
1âwphi1

fiction was misused to such an extent that injustice, fraud, or crime was committed against another,
in disregard of 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.
 In any event, in order for us to hold Arcilla-Maullon personally liable alone for the debts of the corporation
and thus pierce the veil of corporate fiction, we have required that the bad faith of the officer must first be
established clearly and convincingly.
IGNACIO VICENTE and MOISES ANGELES, vs. HON. AMBROSIO M. GERALDEZ,

FACTS:
 Hi Cement Corporation filed a complaint for injunction and damages against Juan Bernabe, Ignacio Vicente
and Moises Angeles. Hi Cement alleged that it had acquired a Placer Lease Contract from the Banahaw
Shale Mining Association, that the said Placer Lease Contract was for a period of 25 years and covered two
mining claims (Red Star VIII & IX);
o that within the limits of Placer Mining Claim Red Star VIII are three parcels of land claimed by the
defendants Juan Bernabe, Ignacio Vicente, and Moises Angeles;
o that Hi Cement had requested the defendants to allow its workers to enter the area for exploration as
well as for extraction of minerals, promising to pay defendants reasonable amounts as damages, but
defendants refused to allow entry of Hi Cement representatives;
o that defendants were threatening Hi Cement’s workers with bodily harm if they entered the premises.
 The trial court issued a restraining order. The defendants filed their respective answers,
o that they are rightful owners of portions of the land covered by the supposed mining claims;
o that it was Hi Cement and its workers who had committed acts of force and violence when they
entered into and intruded upon the defendants' lands; and
o that the complaint failed to state a cause of action.
 The respective counsels of the parties then conferred on terminating the case by compromise, the
defendants having previously signified their willingness to sell their properties at reasonable prices.
Counsels to the party executed and submitted a Compromise Agreement which was approved by the trial
court.
 Juan Bernabe filed an urgent motion for execution of judgment anchored on the proposition that the
judgment, being based on a compromise agreement, is not appealable and is, on the other hand,
immediately executory. The other two defendants, likewise filed their respective motions for execution.
These motions were granted by the court
 Hi Cement filed a motion for reconsideration, alleging that it had an opposition to the defendants' motions for
execution, and that the Compromise Agreement had been repudiated by the plaintiff corporation through its
Vice President, as earlier manifested by the plaintiff.
 Hi Cement filed a motion for new trial on the ground that the decision is null and void because it was based
on the Compromise Agreement which was itself null and void for want of a special authority by Hi Cement’s
lawyers to enter into the said agreement.
 Juan Bernabe filed an opposition on the grounds that the decision is in accordance with law, Atty. Cardenas,
was an official representative of plaintiff corporation, hence, when he signed the Compromise Agreement,
he did so in the dual capacity of lawyer and representative of the management of the corporation

ISSUE:
 Whether the respondent court, in setting aside its decision and denying the motions for execution of said
decision, had acted without or in excess of its jurisdiction or with grave abuse of discretion.

HELD:
 No, there was no grave abuse of discretion.
 Special powers of attorney are necessary to compromise and to renounce the right to appeal from a
judgment.
o Attorneys have authority to bind their clients in any case by any agreement in relation thereto made
in writing, and in taking appeals, and in all matters of ordinary judicial procedure, but they cannot,
without special authority, compromise their clients' litigation, or receive anything in discharge of their
clients' claims but the full amount in cash.
o The Compromise Agreement was signed only by the lawyers for petitioners and by the lawyers for
respondent corporation. It is not disputed that the lawyers of Hi Cement had not submitted to the
Court any written authority from their client to enter into a compromise.
 The law specifically requires that "juridical persons may compromise only in the form and with the requisites
which may be necessary to alienate their property."
 Under the corporation law the power to compromise or settle claims in favor of or against the corporation is
ordinarily and primarily committed to the Board of Directors. The right of the Directors "to compromise a
disputed claim against the corporation rests upon their right to manage the affairs of the corporation
 according to their honest and informed judgment and discretion as to what is for the best interests of the
corporation." This power may however be delegated either expressly or impliedly to other corporate officials
or agents. Thus it has been stated, that as a general rule an officer or agent of the corporation has no power
to compromise or settle a claim by or against the corporation, except to the extent that such power is given
to him either expressly or by reasonable implication from the circumstances.
 It is therefore necessary to ascertain whether from the relevant facts it could be reasonably concluded that
the Board of Directors of the HI Cement Corporation had authorized its lawyers to enter into the said
compromise agreement.
 Whatever authority the officers or agents of a corporation may have is derived from the board of directors, or
other governing body, unless conferred by the charter of the corporation. A corporation officer's power as an
agent of the corporation must therefore be sought from the statute, the charter, the by-laws, or in a
delegation of authority to such officer, from the acts of board of directors, formally expressed or implied from
a habit or custom of doing business.
 In the case at bar no provision of the charter and by-laws of the corporation or any resolution or any other
act of the board of directors of HI Cement Corporation has been cited, from which We could reasonably infer
that the administrative manager had been granted expressly or impliedly the power to bind the corporation
or the authority to compromise the case.
 Absent such authority to enter into the compromise, the signature of Atty. Cardenas on the agreement would
be legally ineffectual.

SALOME PABON and VICENTE CAMONAYAN, vs. NATIONAL LABOR RELATIONS COMMISSION and
SENIOR MARKETING CORPORATION

FACTS:
 Complaints for illegal dismissal and non-payment of benefits were filed by Salome Pabon and Vicente
Camonayan against Senior Marketing Corporation (SMC) and its Field Manager, R-Jay Roxas.
 Labor Arbiter rendered a judgment by default after finding that private respondent tried to evade all the
summons and orders of hearing by refusing to claim all the registered mail addressed to it.
 Instead of appealing the Labor Arbiter's decision to the National Labor Relations Commission (NLRC),
private respondent filed a motion for reconsideration/new trial before the Labor Arbiter. It was only after the
said ten-day period had lapsed that private respondent appealed to the NLRC.
 NLRC reversed.
 Petitioners elevated the case to the Supreme Court via petition for certiorari.
o They alleged that private respondent was properly served with summons through its bookkeeper at
its provincial office address. That by virtue of said service of summons, the Labor Arbiter acquired
jurisdiction over private respondent and that the latter, by deliberately failing to present evidence,
cannot now cry transgression of its right to due process simply because the Labor Arbiter's decision
is based solely on petitioners' evidence.
 Private respondent contends that it was not validly served with summons, since its bookkeeper cannot be
considered as an agent under Section 13, Rule 14 of the old Rules of Court upon whom valid service can be
made.

ISSUE:
 Whether or not private respondent was properly served with summons.

HELD:
 Yes, summons are properly served.
 In the case at bar, although as a rule, modes of service of summons are strictly followed in order that the
court may acquire jurisdiction over the person of a defendant, such procedural modes, however, are liberally
construed in quasi-judicial proceedings, as in this case, substantial compliance with the same being
considered adequate.
 We are of the view that a bookkeeper can be considered as an agent of private respondent corporation
within the purview of Section 13, Rule 14 of the old Rules of Court.
 The rationale of all rules with respect to service of process on a corporation is that such service must be
made to an agent or a representative so integrated with the corporation sued as to make it a
 priori supposable that he will realize his responsibilities and know what he should do with any legal papers
served on him.
 The bookkeeper's task is one under consideration. The job of a bookkeeper is so integrated with the
corporation that his regular recording of the corporation's "business accounts" and "essential facts about the
transactions of a business or enterprise" safeguards the corporation from possible fraud being committed
adverse to its own corporate interest.
 Although it may be true that the service of summons was made on a person not authorized to receive the
same in behalf of the petitioner, nevertheless since it appears that the summons and complaint were in fact
received by the corporation through its said clerk, the Court finds that there was substantial compliance with
the rule on service of summons. Indeed the purpose of said rule as above stated to assure service of
summons on the corporation had thereby been attained. The need for speedy justice must prevail over
technicality
 Black's Law Dictionary defines an "agent" as "a business representative, whose function is to bring about,
modify, affect, accept performance of, or terminate contractual obligations between principal and third
person." To this extent, an "agent" may also be shown to represent his principal in some one or more of his
relations to others, even though he may not have the power to enter into contracts.
 The rules on service of process make service on "agent" sufficient. It does not in any way distinguish
whether the "agent" be general or special, but is complied with even by a service upon an agent having
limited authority to represent his principal. As such, it does not necessarily connote an officer of the
corporation. However, though this may include employees other than officers of a corporation, this does not
include employees whose duties are not so integrated to the business that their absence or presence will not
toll the entire operation of the business.