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UMALI VS CA

Mauricia Castillo was the administratrix in charge over a parcel of land left be Felipe
Castillo. Said land was mortgaged to the Development Bank of the Philippines and was
about to be foreclosed but then Mauricias nephew, Santiago Rivera, proposed that they
convert the land into 4 subdivisions so that they can raise the necessary money to avoid
foreclosure. Mauricia agreed. Rivera sought to develop said land through his company,
Slobec Realty Corporation (SRC), of which he was also the president. SRC then contracted
with Bormaheco, Inc. for the purchase of one tractor. Bormaheco agreed to sell the tractor
on an installment basis. At the same time, SRC mortgaged said tractor to Bormaheco as
security just in case SRC will default. As additional security, Mauricia and other family
members executed a surety agreement whereby in case of default in paying said tractor, the
Insurance Corporation of the Philippines (ICP) shall pay the balance. The surety bond
agreement between Mauricia and ICP was secured by Mauricias parcel of land (same land
to be developed).
SRC defaulted in paying said tractor. Bormaheco foreclosed the tractor but it wasnt enough
hence ICP paid the deficiency. ICP then foreclosed the property of Mauricia. ICP later sold
said property to Philippine Machinery Parts Manufacturing Corporation (PMPMC). PMPMC
then demanded Mauricia et al to vacate the premises of said property.
While all this was going on, Mauricia died. Her successor-administratrix, Buenaflor Umali,
questioned the foreclosure made by ICP. Umali alleged that all the transactions are void and
simulated hence they were defrauded; that through Bormahecos machinations, Mauricia
was fooled into entering into a surety agreement with ICP; that Bormaheco even made the
premium payments to ICP for said surety bond; that the president of Bormaheco is a
director of PMPMC; that the counsel who assisted in all the transactions, Atty. Martin De
Guzman, was the legal counsel of ICP, Bormaheco, and PMPMC.
ISSUE: Whether or not the veil of corporate fiction should be pierced.
HELD: No. There is no clear showing of fraud in this case. The mere fact that Bormaheco
paid said premium payments to ICP does not constitute fraud per se. As it turned out,
Bormaheco is an agent of ICP. SRC, through Rivera, agreed that part of the payment of the
mortgage shall be paid for the insurance. Naturally, when Rivera was paying some portions
of the mortgage to Bormaheco, Bormaheco is applying some parts thereof for the payment
of the premium and this was agreed upon beforehand.

Further, piercing the veil of corporate fiction is not the proper remedy in order that the
foreclosure conducted by ICP be declared a nullity. The nullity may be attacked directly
without disregarding the separate identity of the corporations involved. Further still, Umali et
al are not enforcing a claim against the individual members of the corporations. They are
not claiming said members to be liable. Umali et al are merely questioning the validity of the
foreclosure.
The veil of corporate fiction cant be pierced also by the simple reason that the businesses
of two or more corporations are interrelated, absent sufficient showing that the corporate
entity was purposely used as a shield to defraud creditors and third persons of their rights.
In this case, there is no justification for disregarding their separate personalities.