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The corporate mask may be lifted and the corporate veil may be pierced when a
corporation is just but the alter ego of a person or of another corporation. Where
Republic of the Philippines
badges of fraud exist; where public convenience is defeated; where a wrong is sought
SUPREME COURT to be justified thereby, the corporate fiction or the notion of legal entity should come
to naught. The law in these instances will regard the corporation as a mere association
Manila of persons and, in case of two corporations, merge them into one.

FIRST DIVISION Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary
liability for damages, the corporation may not be heard to say that it has a personality
separate and distinct from the other corporation. The piercing of the corporate veil
comes into play.

G.R. No. 108734 May 29, 1996 This special civil action ostensibly raises the question of whether the National Labor
Relations Commission committed grave abuse of discretion when it issued a "break-
open order" to the sheriff to be enforced against personal property found in the
CONCEPT BUILDERS, INC., petitioner, premises of petitioner's sister company.

vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355
Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business.
Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Private respondents were employed by said company as laborers, carpenters and
Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, riggers.
Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares,
Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.
On November, 1981, private respondents were served individual written notices of
termination of employment by petitioner, effective on November 30, 1981. It was
stated in the individual notices that their contracts of employment had expired and the
project in which they were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of the termination
of private respondent's employment, the project in which they were hired had not yet
been finished and completed. Petitioner had to engage the services of sub-contractors
whose workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor
practice and non-payment of their legal holiday pay, overtime pay and thirteenth-
month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment1 ordering petitioner to
reinstate private respondents and to pay them back wages equivalent to one year or
three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed
the motion for reconsideration filed by petitioner on the ground that the said decision
had already become final and executory.2
On October 16, 1986, the NLRC Research and Information Department made the
finding that private respondents' back wages amounted to P199,800.00.3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff
to execute the Decision, dated December 19, 1984. The writ was partially satisfied
through garnishment of sums from petitioner's debtor, the Metropolitan Waterworks
and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over
to the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter
directing the sheriff to collect from herein petitioner the sum of P117,414.76,
representing the balance of the judgment award, and to reinstate private respondents
to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ
of execution on petitioner through the security guard on duty but the service was
refused on the ground that petitioner no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued
a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated in his
progress report, dated November 2, 1989:
1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela,
Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc.
(HPPI) and not by respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the
properties he had levied upon.4
The said special sheriff recommended that a "break-open order" be issued to enable HPPI P 6,999,500.00
him to enter petitioner's premises so that he could proceed with the public auction sale
of the aforesaid personal properties on November 7, 1989.
Antonio W. Lim 2,900,000.00

On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the
Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were Dennis S. Cuyegkeng 300.00
owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.

Elisa C. Lim 100,000.00

On November 23, 1989, private respondents filed a "Motion for Issuance of a
Break-Open Order," alleging that HPPI and petitioner corporation were owned
by the same incorporator/stockholders. They also alleged that petitioner temporarily Teodulo R. Dino 100.00
suspended its business operations in order to evade its legal obligations to them and
that private respondents were willing to post an indemnity bond to answer for any
damages which petitioner and HPPI may suffer because of the issuance of the break-
Virgilio O. Casino 100.00
open order.

2. Board of Directors
In support of their claim against HPPI, private respondents presented duly certified
copies of the General Informations Sheet, dated May 15, 1987, submitted by petitioner
to the Securities Exchange Commission (SEC) and the General Information Sheet,
dated May 25, 1987, submitted by HPPI to the Securities and Exchange Commission. Antonio W. Lim Chairman

The General Information Sheet submitted by the petitioner revealed the following: Dennis S. Cuyegkeng Member

1. Breakdown of Subscribed Capital Elisa C. Lim Member

Name of Stockholder Amount Subscribed Teodulo R. Dino Member

Virgilio O. Casino Member Name of Stockholder Amount Subscribed

3. Corporate Officers Antonio W. Lim P 400,000.00

Antonio W. Lim President Elisa C. Lim 57,700.00

Dennis S. Cuyegkeng Assistant to the President AWL Trading 455,000.00

Elisa O. Lim Treasurer Dennis S. Cuyegkeng 40,100.00

Virgilio O. Casino Corporate Secretary Teodulo R. Dino 100.00

4. Principal Office Virgilio O. Casino 100.00

355 Maysan Road 2. Board of Directors

Valenzuela, Metro Manila.5 Antonio W. Lim Chairman

On the other hand, the General Information Sheet of HPPI revealed the following: Elisa C. Lim Member

1. Breakdown of Subscribed Capital Dennis S. Cuyegkeng Member

 that the two corporations are engaged in two different kinds of businesses, i.e., HPPI
is a manufacturing firm while petitioner was then engaged in construction.
Virgilio O. Casino Member

On March 2, 1990, the Labor Arbiter issued an Order which denied private
Teodulo R. Dino Member
respondents' motion for break-open order.

3. Corporate Officers
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set
aside the order of the Labor Arbiter, issued a break-open order and directed private
respondents to file a bond. Thereafter, it directed the sheriff to proceed with the
Antonio W. Lim President auction sale of the properties already levied upon. It dismissed the third-party claim
for lack of merit.

Dennis S. Cuyegkeng Assistant to the President

Petitioner moved for reconsideration but the motion was denied by the NLRC in
a Resolution, dated December 3, 1992.
Elisa C. Lim Treasurer

Hence, the resort to the present petition.

Virgilio O. Casino Corporate Secretary

4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila.6
On February 1, 1990, HPPI filed an Opposition to private respondents'
motion for issuance of a break-open order, contending that HPPI is a
corporation which is separate and distinct from petitioner. HPPI also alleged
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered
the execution of its decision despite a third-party claim on the levied property.
Petitioner further contends, that the doctrine of piercing the corporate veil
should not have been applied, in this case, in the absence of any showing that it
created HPPI in order to evade its liability to private respondents. It also contends that
HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a
business which is distinct and separate from petitioner's construction business. Hence,
it is of no consequence that petitioner and HPPI shared the same premises, the same
President and the same set of officers and subscribers.7
We find petitioner's contention to be unmeritorious.
 Where one corporation is so organized and controlled and its affairs are conducted so
that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the
It is a fundamental principle of corporation law that a corporation is an entity separate
corporate entity of the "instrumentality" may be disregarded. The control necessary to
and distinct from its stockholders and from other corporations to which it may be
invoke the rule is not majority or even complete stock control but such domination of
connected.8 But, this separate and distinct personality of a corporation is merely a
instances, policies and practices that the controlled corporation has, so to speak, no
fiction created by law for convenience and to promote justice.9 So, when the notion
separate mind, will or existence of its own, and is but a conduit for its principal. It
of separate juridical personality is used to defeat public convenience, justify wrong,
must be kept in mind that the control must be shown to have been exercised at the
protect fraud or defend crime, or is used as a device to defeat the labor laws,10 this
time the acts complained of took place. Moreover, the control and breach of duty must
separate personality of the corporation may be disregarded or the veil of corporate
proximately cause the injury or unjust loss for which the complaint is made.
fiction pierced.11 This is true likewise when the corporation is merely an adjunct, a
business conduit or an alter ego of another corporation.12
The test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows:
The conditions under which the juridical entity may be disregarded vary according to
the peculiar facts and circumstances of each case. No hard and fast rule can be
accurately laid down, but certainly, there are some probative factors of identity that
1. Control, not mere majority or complete stock control, but complete domination, not
will justify the application of the doctrine of piercing the corporate veil, to wit:
only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own;
1. Stock ownership by one or common ownership of both corporations.

2. Such control must have been used by the defendant to commit fraud or wrong, to
2. Identity of directors and officers.
perpetuate the violation of a statutory or other positive legal duty or dishonest and
unjust act in contravention of plaintiff's legal rights; and

3. The manner of keeping corporate books and records.

3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
4. Methods of conducting the business.13

The absence of any one of these elements prevents "piercing the corporate veil." In
The SEC en banc explained the "instrumentality rule" which the courts have applied applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with
in disregarding the separate juridical personality of corporations as follows: reality and not form, with how the corporation operated and the individual defendant's
relationship to that operation.14
Thus the question of whether a corporation is a mere alter ego, a mere sheet or
paper corporation, a sham or a subterfuge is purely one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business
operations on April 29, 1986, it filed an Information Sheet with the Securities and
Exchange Commission on May 15, 1987, stating that its office address is at 355
Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party
claimant, submitted on the same day, a similar information sheet stating that its office
address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casiño as the corporate
secretary of both corporations. It would also not be amiss to note that both
corporations had the same president, the same board of directors, the same corporate
officers, and substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein
petitioner) and the third-party claimant shared the same address and/or premises.
Under this circumstances, (sic) it cannot be said that the property levied upon by the
sheriff were not of respondents.16
Clearly, petitioner ceased its business operations in order to evade the payment to
private respondents of back wages and to bar their reinstatement to their former
positions. HPPI is obviously a business conduit of petitioner corporation and its
emergence was skillfully orchestrated to avoid the financial liability that already
attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial Relations, 17
where we had the occasion to rule:
Respondent court's findings that indeed the Claparols Steel and Nail Plant, which
ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel
Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the
latter finally ceased to operate, were not disputed by petitioner. It is very clear that the
latter corporation was a continuation and successor of the first entity . . . . Both
predecessors and successor were owned and controlled by petitioner Eduardo
Claparols and there was no break in the succession and continuity of the same
business. This "avoiding-the-liability" scheme is very patent, considering that 90% of
the subscribed shares of stock of the Claparols Steel Corporation (the second
corporation) was owned by respondent . . . Claparols himself, and all the assets of the
dissolved Claparols Steel and Nail plant were turned over to the emerging Claparols
Steel Corporation.
It is very obvious that the second corporation seeks the protective shield of a corporate
fiction whose veil in the present case could, and should, be pierced as it was
deliberately and maliciously designed to evade its financial obligation to its
employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property
subject of the execution, private respondents had no other recourse but to apply for a
break-open order after the third-party claim of HPPI was dismissed for lack of merit
by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual
of Execution of Judgment which provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or
his representative entry to the place where the property subject of execution is located
or kept, the judgment creditor may apply to the Commission or Labor Arbiter
concerned for a break-open order.
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Furthermore, our perusal of the records shows that the twin requirements of due notice
and hearing were complied with. Petitioner and the third-party claimant were given
the opportunity to submit evidence in support of their claim.

Republic of the Philippines

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed SUPREME COURT
the break-open order issued by the Labor Arbiter.
Manila

Finally, we do not find any reason to disturb the rule that factual findings of quasi-
judicial agencies supported by substantial evidence are binding on this Court and are FIRST DIVISION
entitled to great respect, in the absence of showing of grave abuse of a discretion.18

G.R. No. 154975 January 29, 2007

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC,
dated April 23, 1992 and December 3, 1992, are AFFIRMED.
GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCE
CORPORATION), Petitioner,
SO ORDERED. vs.
ALSONS DEVELOPMENT and INVESTMENT CORPORATION and CCC
Padilla, Bellosillo, Vitug and Kapunan, JJ., concur. EQUITY CORPORATION, Respondents.

Footnotes DECISION

1 GARCIA, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner
General Credit Corporation, now known as Penta Capital Finance Corporation, seeks
to annul and set aside the Decision1 and Resolution2 dated April 11, 2002 and August
20, 2002, respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 31801,
affirming the November 8, 1990 decision of the Regional Trial Court (RTC) of Makati
City in its Civil Case No. 12707, an action for a sum of money thereat instituted by
the herein respondent Alsons Development and Investment Corporation against the
petitioner and respondent CCC Equity Corporation.
The facts:
Shortly after its incorporation in 1957 as a finance and investment company, petitioner
General Credit Corporation (GCC, for short), then known as Commercial Credit
Corporation (CCC), established CCC franchise companies in different urban centers
of the country.3 In furtherance of its business, GCC had, as early as 1974, applied for
and was able to secure license from the then Central Bank (CB) of the Philippines and
the Securities and Exchange Commission (SEC) to engage also in quasi-banking
activities.4 On the other hand, respondent CCC Equity Corporation (EQUITY, for
brevity) was organized in November 1994 by GCC for the purpose of, among other
things, taking over the operations and management of the various franchise
companies. At a time material hereto, respondent Alsons Development and
Investment Corporation (ALSONS, hereinafter) and Conrado, Nicasio, Editha and
Ladislawa, all surnamed Alcantara, and Alfredo de Borja (hereinafter the Alcantara
family, for convenience), each owned, just like GCC, shares in the aforesaid GCC
franchise companies, e.g., CCC Davao and CCC Cebu.
In December 1980, ALSONS and the Alcantara family, for a consideration of Two
Million (P2,000,000.00) Pesos, sold their shareholdings – a total of 101,953 shares,
more or less – in the CCC franchise companies to EQUITY.[5] On January 2, 1981,
EQUITY issued ALSONS et al., a "bearer" promissory note for P2,000,000.00 with a
one-year maturity date, at 18% interest per annum, with provisions for damages and
litigation costs in case of default.6
Some four years later, the Alcantara family assigned its rights and interests over the
bearer note to ALSONS which thenceforth became the holder thereof.7 But even
before the execution of the assignment deal aforestated, letters of demand for interest
payment were already sent to EQUITY, through its President, Wilfredo Labayen, who
pleaded inability to pay the stipulated interest, EQUITY no longer then having assets
or property to settle its obligation nor being extended financial support by GCC.
What happened next, as narrated in the assailed Decision of the CA, may be
summarized, as follows:
1. On January 14, 1986, before the RTC of Makati, ALSONS, having failed to collect
on the bearer note aforementioned, filed a complaint for a sum of money8 against
EQUITY and GCC. The case, docketed as Civil Case No. 12707, was eventually
raffled to Branch 58 of the court. As stated in par. 4 of the complaint, GCC is being
impleaded as party-defendant for any judgment ALSONS might secure against
EQUITY and, under the doctrine of piercing the veil of corporate fiction, against
GCC, EQUITY having been organized as a tool and mere conduit of GCC.
2. Answering with a cross-claim against GCC, EQUITY stated by way of special and
affirmative defenses that it (EQUITY):
a) was purposely organized by GCC for the latter to avoid CB Rules and Regulations
on DOSRI (Directors, Officers, Stockholders and Related Interest) limitations, and
that it acted merely as intermediary or bridge for loan transactions and other dealings
of GCC to its franchises and the investing public; and
 Albeit EQUITY presented its president, it opted to adopt the testimony of some of
ALSONS’ witnesses, inclusive of the documentary exhibits testified to by each of
b) is solely dependent upon GCC for its funding requirements, to settle, among others,
them, as its evidence.
equity purchases made by investors on the franchises; hence, GCC is solely and
directly liable to ALSONS, the former having failed to provide …EQUITY the
necessary funds to meet its obligations to ALSONS.
For its part, GCC called only Wilfredo Labayen to testify. It stuck to its underlying
defense of separateness and presented documentary evidence detailing the
organizational structures of both GCC and EQUITY. And in a bid to negate the notion
3. GCC filed its ANSWER to Cross-claim, stressing that it is a distinct and separate
that it was conducting its business illegally, GCC presented CB and SEC-issued
entity from EQUITY and alleging, in essence that the business relationships with each
licenses authoring it to engage in financing and quasi-banking activities. It also
other were always at arm’s length. And following the denial of its motion to dismiss
adduced evidence to prove that it was never a party to any of the actionable documents
ALSONS’ complaint, on the ground of lack of jurisdiction and want of cause of action,
ALSONS and its predecessors-in-interest had in their possession and that the
GCC filed its Answer thereto and set up affirmative defenses with counterclaim for
November 27, 1985 deed of assignment of rights over the promissory note was
exemplary damages and attorney’s fees.
unenforceable.

Issues having been joined, trial ensued. Presented by ALSONS, but testifying as
Eventually, the trial court, on its finding that EQUITY was but an instrumentality or
adverse witnesses, were CB and GCC officers. Among other things, ALSONS’
adjunct of GCC and considering the legal consequences and implications of such
evidence, which included the EQUITY-issued "bearer" promissory note marked as
relationship, came out with its decision on November 8, 1990, rendering judgment for
Exhibit "K" and over sixty (60) other marked and subsequently admitted documents,9
ALSONS, to wit:
were to the effect that five (5) incorporators, each contributing P100,000.00 as the
initial paid up capital of the company, organized EQUITY to manage, as it did
manage, various GCC franchises through management contracts. Before EQUITY’s
WHEREFORE, the foregoing premises considered, judgment is hereby rendered in
incorporation, however, GCC was already into the financing business as it was in fact
favor of plaintiff [ALSONS] and against the defendants [EQUITY and GCC] who are
managing and operating various CCC franchises. Presented in evidence, too, was the
hereby ordered, jointly and severally, to pay plaintiff:
September 29, 1982 letter-reply of one G. Villanueva, then GCC President, to
EQUITY President Wilfredo Labayen, bearing on the sale of EQUITY shares to third
parties, part of the proceeds of which the Alcantaras wanted applied to liquidate the
promissory note in question. In said letter, Mr. Villanueva explained that the GCC 1. the principal sum of Two Million Pesos (P2,000,000.00) together with the interest
Board denied the Alcantaras’ request to be paid out of such proceeds, but nonetheless due thereon at the rate of eighteen percent (18%) annually computed from Jan. 2, 1981
authorized EQUITY to pay them interest out of EQUITY’s operation income, in until the obligation is fully paid;
preference over what was due GCC.10

2. liquidated damages due thereon equivalent to three percent (3%) monthly computed
from January 2, 1982 until the obligation is fully paid;
3. attorney’s fees in an amount equivalent to twenty four percent (24%) of the total
obligation due; and
4. the costs of suit.
IT IS SO ORDERED. (Words in brackets added.)
Therefrom, GCC went on appeal to the CA where its appellate recourse was docketed
as CA-G.R. CV No. 31801, ascribing to the trial court the commission of the following
errors:
1. In holding that there is a "Parent-Subsidiary" corporate relationship between
EQUITY and GCC;
2. In not holding that EQUITY and GCC are distinct and separate corporate entities;
3. In applying the doctrine of "Piercing the Veil of Corporate Fiction" in the case at
bar; and
4. In not holding ALSONS in estoppel to question the corporate personality of
EQUITY.
On April 11, 2002, the appellate court rendered the herein assailed Decision,11
affirming that of the trial court, thus:
WHEREFORE, premises considered, the Decision of the Regional Trial Court,
Branch 58, Makati in Civil Case No. 12707 is hereby AFFIRMED.
SO ORDERED.
In time, GCC moved for reconsideration followed by a motion for oral argument, but
both motions were denied by the CA in its equally assailed Resolution of August 20,
2002.12
Hence, GCC’s present recourse anchored on the following arguments, issues and/or
submissions:
1. The motion for oral argument with motion for reconsideration and its supplement
were perfunctorily denied by the CA without justifiable basis;
2. There is absolutely no basis for piercing the veil of corporate fiction;
3. Respondent Alsons is not a real party-in-interest as the promissory note payable to
bearer subject of the collection suit is but a simulated document and/or refers to
another party. Moreover, the subject promissory note is not admissible in evidence
because it has not been duly authenticated and it is an altered document;
4. The fact of full payment stated in the ten (10) deeds of sale of the shares of stock is
conclusive on the sellers, and by the patrol evidence rule, the alleged fact of its non-
payment cannot be introduced in evidenced; and
5. The counter-claim filed by GCC against Alsons should be granted in the interest of
justice.
The petition and the arguments and/or issues holding it together are without merit.
The desired reversal of the assailed decision and resolution of the appellate court is
accordingly DENIED.
Instead of raising distinctly formulated questions of law, as is expected of one seeking
a review under Rule 45 of the Rules of Court of a final CA judgment,13 petitioner
GCC starts off by voicing disappointment over the "perfunctory" denial by the CA of
its twin motions for reconsideration and oral argument. Petitioner, to be sure, cannot
plausibly expect a reversal action premised on the cursory way its motions were
denied, if such indeed were the case. Such manner of denial, while perhaps far from
ideal, is not even a recognized ground for appeal by certiorari, unless a denial of due
process ensues, which is not the case here. And lest it be overlooked, the CA prefaced
its assailed denial resolution with the clause: "[F]inding no reversible error committed
to warrant the modification and/or reversal of the April 11, 2002 Decision,"
suggesting that the appellate court gave the petitioner’s motion for reconsideration the
attention it deserved. At the very least, the petitioner was duly apprised of the reasons
why reconsideration could not be favorably considered. An extended resolution was
not really necessary to dispose of the motion for reconsideration in question.
Petitioner’s lament about being deprived of procedural due process owing to the denial
of its motion for oral argument is simply specious. Under the CA Internal Rules, the
appellate court may tap any of the three (3) alternatives therein provided to aid the
court in resolving appealed cases before it. It may rely on available records alone,
require the submission of memoranda or set the case for oral argument. The option
the Internal Rules thus gives the CA necessarily suggests that the appellate court may,
at its sound discretion, dispense with a tedious oral argument exercise. Rule VI,
Section 6 of the 2002 Internal Rules of the CA, provides:
SEC. 6 Judicial Action on Certain Petitions.- (a) In petitions for review, after the
receipt of the respondent’s comment on the petition, … the Court [of Appeals] may
dismiss the petition if it finds the same to be patently without merit …, otherwise, it
shall give due course to it.
xxx xxx xxx
If the petition is given due course, the Court may consider the case submitted for
decision or require the parties to submit their memorandum or set the case for oral
argument. xxx. After the oral argument or upon submission of the memoranda … the
case shall be deemed submitted for decision.
In the case at bench, records reveal that the appellate court, in line with the prescription
of its own rules, required the parties to just submit, as they did, their respective
memoranda to properly ventilate their separate causes. Under this scenario, the
petitioner cannot be validly heard, having been deprived of due process.
Just like the first, the last three (3) arguments set forth in the petition will not carry
the day for the petitioner. In relation therewith, the Court notes that these arguments
and the issues behind them were not raised before the trial court. This appellate
maneuver cannot be allowed. For, well-settled is the rule that issues or grounds not
raised below cannot be resolved on review in higher courts.14 Springing surprises on
the opposing party is antithetical to the sporting idea of fair play, justice and due
process; hence, the proscription against a party shifting from one theory at the trial
court to a new and different theory in the appellate level. On the same rationale, points
of law, theories, issues not brought to the attention of the lower court or, in fine, not
interposed during the trial cannot be raised for the first time on appeal.15
There are, to be sure, exceptions to the rule respecting what may be raised for the first
time on appeal. Lack of jurisdiction over when the issues raised present a matter of
public policy16 comes immediately to mind. None of the well-recognized exceptions
obtain in this case, however.
Lest it be overlooked vis-à-vis the same last three arguments thus pressed, both the
trial court and the CA, based on the evidence adduced, adjudged the petitioner and
respondent EQUITY jointly and severally liable to pay what respondent ALSONS is
entitled to under the "bearer" promissory note. The judgment argues against the notion
of the note being simulated or altered or that respondent ALSONS has no standing to
sue on the note, not being the payee of the "bearer" note. For, the declaration of
liability not only presupposes the duly established authenticity and due execution of
the promissory note over which ALSONS, as the holder in due course thereof, has
interest, but also the untenability of the petitioner’s counterclaim for attorney’s fees
and exemplary damages against ALSONS. At bottom, the petitioner predicated such
counter-claim on the postulate that respondent ALSONS had no cause of action, the
supposed promissory note being, according to the petitioner, either a simulated or an
altered document.
In net effect, the definitive conclusion of the appellate court – affirmatory of that of
the trial court – was that the bearer promissory note (Exh. "K") was a genuine and
authentic instrument payable to the holder thereof. This factual determination, as a
matter of long and sound appellate practice, deserves great weight and shall not be
disturbed on appeal, save for the most compelling reasons,17 such as when that
determination is clearly without evidentiary support or when grave abuse of discretion
has been committed.18 This is as it should be since the Court, in petitions for review
of CA decisions under Rule 45 of the Rules of Court, usually limits its inquiry only to
questions of law. Stated otherwise, it is not the function of the Court to analyze and
weigh all over again the evidence or premises supportive of the factual holdings of
lower courts.19
As nothing in the record indicates any of the exceptions adverted to above, the factual
conclusion of the CA that the P2 Million promissory note in question was authentic
and was issued at the first instance to respondent ALSONS and the Alcantara family
for the amount stated on its face, must be affirmed. It should be stressed in this regard
that even the issuing entity, i.e., respondent EQUITY, never challenged the
genuineness and due execution of the note.
This brings us to the remaining but core issue tendered in this case and aptly
raised by the petitioner, to wit: whether there is absolutely no basis for piercing
GCC’s veil of corporate identity.
A corporation is an artificial being vested by law with a personality distinct and
separate from those of the persons composing it20 as well as from that of any other
entity to which it may be related.21 The first consequence of the doctrine of legal
entity of the separate personality of the corporation is that a corporation may not be
made to answer for acts and liabilities of its stockholders or those of legal entities to
which it may be connected or vice versa.22
The notion of separate personality, however, may be disregarded under the doctrine –
"piercing the veil of corporate fiction" – as in fact the court will often look at the
corporation as a mere collection of individuals or an aggregation of persons
undertaking business as a group, disregarding the separate juridical personality of the
corporation unifying the group. Another formulation of this doctrine is that when two
(2) business enterprises are owned, conducted and controlled by the same parties, both
law and equity will, when necessary to protect the rights of third parties, disregard the
legal fiction that two corporations are distinct entities and treat them as identical or
one and the same.23
Whether the separate personality of the corporation should be pierced hinges on
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.24 After all, the concept of corporate entity was not meant to promote unfair
objectives.
Authorities are agreed on at least three (3) basic areas where piercing the veil, with
which the law covers and isolates the corporation from any other legal entity to which
it may be related, is allowed.25 These are: 1) defeat of public convenience,26 as when
the corporate fiction is used as vehicle for the evasion of an existing obligation;27 2)
fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime;28 or 3) alter ego cases, where a corporation is merely a farce since it
is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.29
The CA found valid grounds to pierce the corporate veil of petitioner GCC, there
being justifiable basis for such action. When the appellate court spoke of a justifying
factor, the reference was to what the trial court said in its decision, namely: the
existence of "certain circumstances [which], taken together, gave rise to the
ineluctable conclusion that … [respondent] EQUITY is but an instrumentality or
adjunct of [petitioner] GCC."
The Court agrees with the disposition of the appellate court on the application of the
piercing doctrine to the transaction subject of this case. Per the Court’s count, the trial
court enumerated no less than 20 documented circumstances and transactions, which,
taken as a package, indeed strongly supported the conclusion that respondent
EQUITY was but an adjunct, an instrumentality or business conduit of petitioner
GCC. This relation, in turn, provides a justifying ground to pierce petitioner’s
corporate existence as to ALSONS’ claim in question. Foremost of what the trial court
referred to as "certain circumstances" are the commonality of directors, officers and
stockholders and even sharing of office between petitioner GCC and respondent
EQUITY; certain financing and management arrangements between the two, allowing
the petitioner to handle the funds of the latter; the virtual domination if not control
wielded by the petitioner over the finances, business policies and practices of
respondent EQUITY; and the establishment of respondent EQUITY by the petitioner
to circumvent CB rules. For a perspective, the following are some relevant excerpts
from the trial court’s decision setting forth in some detail the tipping circumstances
adverted to therein:
It must be noted that as characterized by their business relationship, [respondent]
EQUITY and [petitioner] GCC had common directors and/or officers as well as
stockholders. This is revealed by the proceedings recorded in SEC Case No. 25-81
entitled "Avelina Ramoso, et al., vs. GCC, et al., where it was established, thru the
testimony of EQUITY’s own President … that more than 90% of the stockholders of
… EQUITY were also stockholders of … GCC ….. Disclosed likewise is the fact that
when [EQUITY’s President] Labayen sold the shareholdings of EQUITY in said
franchise companies, practically the entire proceeds thereof were surrendered to GCC,
and not received by EQUITY (EXHIBIT "RR") xxx.
It was likewise shown by a preponderance of evidence that not only had …GCC
financed … EQUITY and that the latter was heavily indebted to the former but
EQUITY was, in fact, a wholly owned subsidiary of …GCC. Thus, as affirmed by
EQUITY’s President, … the funds invested by EQUITY in the CCC franchise
companies actually came from CCC Phils. or GCC (Exhibit "Y-5")…. that, as
disclosed by the Auditor’s report for 1982, past due receivables alone of GCC
exceeded P101,000,000.00 mostly to GCC affiliates especially CCC EQUITY. …;
that [CB’s] Report of Examination dated July 14, 1977 shows that … EQUITY which
has a paid-up capital of only P500,000.00 was the biggest borrower of GCC with a
total loan of P6.70 Million ….
xxx xxx xxx
It has likewise been amply substantiated by [respondent ALSONS’] evidence that not
only did … GCC cause the incorporation of … EQUITY, but, the latter had grossly
inadequate capital for the pursuit of its line of business to the extent that its business
affairs were considered as GCC’s own business endeavors. xxx.
xxx xxx xxx
ALSONS has likewise shown …that the bonuses of the officers and directors of …
EQUITY was based on its total financial performance together with all its affiliates…
both firms were sharing one and the same office when both were still operational …
and that the directors and executives of … EQUITY never acted independently … but
took their orders from … GCC….
The evidence has also indubitably established that … EQUITY was organized by …
GCC for the purpose of circumventing [CB] rules and regulations and the Anti-Usury
Law. Thus, as disclosed by the Advance Report … on the result of Central Bank’s
Operations Examination conducted on … GCC as of March 31, 1977 (EXHIBITS
"FFF" etc.), the latter violated [CB] rules and regulations by : (a) using as a conduit
its non-quasi bank affiliates …. (b) issuing without recourse facilities to enable GCC
to extend credit to affiliates like … EQUITY which go beyond the single borrower’s
limit without the need of showing outstanding balance in the book of accounts.
(Emphasis over words in brackets added.)
It bears to stress at this point that the facts and the inferences drawn therefrom, upon
which the two (2) courts below applied the piercing doctrine, stand, for the most part,
undisputed. Among these is, to reiterate, the matter of EQUITY having been
incorporated to serve, as it did serve, as an instrumentality or adjunct of GCC. With
the view we take of this case, GCC did not adduce any evidence, let alone rebut the
testimonies and documents presented by ALSONS, to establish the prevailing
circumstances adverted to that provided the justifying occasion to pierce the veil of
corporate fiction between GCC and EQUITY. We quote the trial court:
Verily, indeed, as the relationships binding herein [respondent EQUITY and
petitioner GCC] have been that of "parent-subsidiary corporations" the foregoing
principles and doctrines find suitable applicability in the case at bar; and, it having
been satisfactorily and indubitably shown that the said relationships had been used to
perform certain functions not characterized with legitimacy, this Court … feels amply
justified to "pierce the veil of corporate entity" and disregard the separate existence of
the percent (sic) and subsidiary the latter having been so controlled by the parent that
its separate identity is hardly discernible thus becoming a mere instrumentality or alter
ego of the former. Consequently, as the parent corporation, [petitioner] GCC maybe
(sic) held responsible for the acts and contracts of its subsidiary – [respondent]
EQUITY - most especially if the latter (who had anyhow acknowledged its liability
to ALSONS) maybe (sic) without sufficient property with which to settle its
obligations. For, after all, GCC was the entity which initiated and benefited
immensely from the fraudulent scheme perpetrated in violation of the law. (Words in
parenthesis in the original; emphasis and bracketed words added).
Given the foregoing considerations, it behooves the petitioner, as a matter of law and
equity, to assume the legitimate financial obligation of a cash-strapped subsidiary
corporation which it virtually controlled to such a degree that the latter became its
instrument or agent. The facts, as found by the courts a quo, and the applicable law
call for this kind of disposition. Or else, the Court would be allowing the wrong use
of the fiction of corporate veil.
WHEREFORE, the instant petition is DENIED and the appealed Decision and
Resolution of the Court of Appeals are accordingly AFFIRMED.
Costs against the petitioner.
 SECOND DIVISION
SO ORDERED.
G.R. No. 147993 July 21, 2006
CANCIO C. GARCIA
Associate Justice ENRIQUEZ SECURITY SERVICES, INC., petitioner,
vs.
WE CONCUR: VICTOR A. CABOTAJE, respondent.

REYNATO S. PUNO DECISION

Chief Justice
Chairperson CORONA, J.:

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice RENATO C. CORONA
Asscociate Justice
Sometime in January 1979, respondent Victor A. Cabotaje was employed as a security
guard by Enriquez Security and Investigation Agency (ESIA). On November 13,
1985, petitioner Enriquez Security Services, Inc. (ESSI) was incorporated.
Respondent continued to work as security guard in petitioner’s agency.

On reaching the age of 60 in July 1997,1 respondent applied for retirement.

Today is Tuesday, December 10, 2019home

Custom Search Petitioner acknowledged that respondent was entitled to retirement benefits but
opposed his claim that the computation of such benefits must be reckoned from
January 1979 when he started working for ESIA. It claimed that the benefits must be
computed only from November 13, 1985 when ESSI was incorporated.
Respondent consequently filed a complaint in the National Labor Relations On appeal, the NLRC set aside the labor arbiter’s award of one-month salary for every
Commission (NLRC) seeking the payment of retirement benefits under Republic Act year of service for being excessive. It ruled that under RA 7641, respondent Cabotaje
No. (RA) 7641, otherwise known as the Retirement Pay Law.2 was entitled to retirement pay equivalent only to one-half month salary for every year
of service. Thus:

On January 15, 1999, labor arbiter Eduardo Carpio decided in respondent’s favor:
WHEREFORE, the assailed decision is hereby set aside and a new one entered
ordering respondents to pay complainant the amount of P76,710.60 representing his
Complainant is entitled to retirement pay. This entitlement was not denied by retirement benefits.
respondents. xxx The computation of this benefits shall cover the entire period of his
employment from January 1979 up to July 16, 1997 based on his latest monthly salary
of P5,383.15 per the payroll sheet submitted by respondents. While respondents claim SO ORDERED.4
that respondent corporation was merely registered with the DOTC on November 13,
1985, they did not deny however that complainant was an employee of the then
Enriquez Security and Investigation Agency, and that complainant’s services with the On March 15, 2000, the NLRC denied petitioner’s motion for reconsideration.5
said security agency up to the present respondent corporation was uninterrupted. The
obligation of the new company involves not only to absorb the workers of the
dissolved company, but also to include the length of service earned by the absorbed On May 25, 2000, petitioner filed a special civil action for certiorari6 with the
employee with their former employer as well. To rule otherwise would be manifestly Court of Appeals.
less than fair, certainly less than just and equitable.

On September 26, 2000, the appellate court affirmed the NLRC decision.7 It also
xxx xxx xxx denied the motion for reconsideration on May 8, 2001.8

WHEREFORE, judgment is hereby rendered ordering respondents to pay Hence, this petition for review on certiorari9 on the following issues:
complainant the grand total amount of P228,581.00 representing his retirement
benefits and other money claims.
1. [w]hether or not the Retirement [Pay] Law has retroactive effect.

SO ORDERED.3
2. [w]hether the whole 5 days service incentive leave or just a portion thereof
equivalent to 1/12 should be included in the ½ month salary for purposes of computing
Second. Petitioner’s insistence that only 1/12 of the service incentive leave (SIL)
the retirement pay.
should be included in the computation of the retirement benefit has no basis. Section
1, RA 7641 provides:
3. [w]hether or not the length of service of a retired employee in a dissolved company
(his former employer) should be included in his length of service with his last
x x x Unless the parties provide for broader inclusions, the term one-half (1/2) month
employer for purposes of computing the retirement pay.10
salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and
the cash equivalent of not more than five (5) days of service incentive leave. x x x
We find no merit in the petition.
Section 5.2, Rule II of the Implementing Rules of Book VI of the Labor Code further
clarifies what comprises the "1/2 month salary" due a retiring employee:
First. Petitioner’s contention that RA 7641 cannot be applied retroactively has long
been settled in the Guidelines for Effective Implementation of RA 7641 issued on
October 24, 1996 by the Department of Labor and Employment. Paragraph B of the
5.2 Components of One-half (1/2) Month Salary. – For the purpose of determining the
guidelines provides:
minimum retirement pay due an employee under this Rule, the term "one-half month
salary" shall include all the following:
In reckoning the length of service, the period of employment with the same employer
before the effectivity date of the law on January 7, 1993 should be included.
(a) Fifteen (15) days salary of the employee based on his latest salary rate. x x x;

Thus, in Rufina Patis Factory v. Lucas, Sr.,11 we held:

(b) The cash equivalent of not more than five (5) days of service incentive leave;

RA 7641 is undoubtedly a social legislation. The law has been enacted as a labor
(c) One-twelfth of the 13th month pay due an employee;
protection measure and as a curative statute that – absent a retirement plan devised
by, an agreement with, or a voluntary grant from, an employer – can respond, in part
at least, to the financial well-being of workers during their twilight years soon
following their life of labor. There should be little doubt about the fact that the law (d) All other benefits that the employer and employee may agree upon that should be
can apply to labor contracts still existing at the time the statute has taken effect, and included in the computation of the employee’s retirement pay.
that its benefits can be reckoned not only from the date of the law’s enactment but
retroactively to the time said employment contracts have started. (emphasis ours)
The foregoing rules are clear that the whole 5 days of SIL are included in the
computation of a retiring employees’ pay.
SO ORDERED.

Third. It is a well-entrenched doctrine that the Supreme Court does not pass upon
Puno, Chairperson, Sandoval-Gutierrez, Azcuna, Garcia, J.J., concur.
questions of fact in an appeal by certiorari under Rule 45.12 It is not our function
to assess and evaluate the evidence all over again13 where the findings of the quasi-
judicial agency and the appellate court on the matter coincide.

The consistent rulings of the labor arbiter, the NLRC and the appellate court should
be respected and petitioner’s veil of corporate fiction should likewise be pierced.
These are based on the following uncontroverted facts: (1) respondent worked with Today is Tuesday, December 10, 2019home
ESIA and petitioner ESSI; (2) his employment with both security agencies was
continuous and uninterrupted; (3) both agencies were owned by the Enriquez family Custom Search
and (4) petitioner ESSI maintained its office in the same place where ESIA previously
held office.14

Republic of the Philippines

The attempt to make the security agencies appear as two separate entities, when in
reality they were but one, was a devise to defeat the law and should not be permitted. SUPREME COURT
Although respect for corporate personality is the general rule, there are exceptions. In
appropriate cases, the veil of corporate fiction may be pierced as when it is used as a
means to perpetrate a social injustice or as a vehicle to evade obligations. Petitioner THIRD DIVISION
was thus correctly ordered to pay respondent’s retirement under RA 7641, computed
from January 1979 up to the time he applied for retirement in July 1997.
G.R. No. 140923. September 16, 2005

WHEREFORE, the petition is hereby DENIED. Theassailed decision and resolution

of the Court of Appeals are AFFIRMED.
MANUEL M. MENDOZA and EDGARDO A. YOTOKO, Petitioners,
vs.
Costs against petitioner.
BANCO REAL DEVELOPMENT BANK (now LBC Development Bank),
Respondent.

DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari1, assailing the Decision2 of the Court
of Appeals dated September 21, 1998 in CA-G.R. No. 41544, entitled "Banco Real
Development Bank, plaintiff, versus, Technica Video Inc., et. al., Manuel M.
Mendoza, et. al., defendants" and Resolution dated December 3, 1999.
The petition alleges inter alia that on August 7, 1985, the Board of Directors of
Technical Video, Inc. (TVI) passed a Resolution authorizing its President, Eduardo
A. Yotoko, petitioner, or its General Manager-Secretary-Treasurer, Manuel M.
Mendoza, also a petitioner, to apply for and secure a loan from the Pasay City Banco
Real Development Bank (now LBC Development Bank), herein respondent.
On September 11, 1985, respondent bank extended a loan of ₱500,000.00 to TVI. In
his capacity as General Manager, petitioner Mendoza executed a promissory note and
chattel mortgage over 195 units of Beta video machines and their equipment and
accessories belonging to TVI in favor of respondent bank.
On October 3, 1986, TVI and two other video firms, Fox Video and Galactica Video,
organized a new corporation named FGT Video Network Inc. (FGT). It was registered
with the Securities and Exchange Commission.3 Petitioner Mendoza was the
concurrent President of FGT and Operating General Manager of TVI. Thus, the office
of TVI had to be transferred to the building of FGT for easier monitoring of the
distribution and marketing aspects of the business.
For TVI’s failure to pay its loan upon maturity, respondent bank, on January 26, 1987,
filed with the Office of the Clerk of Court of the Regional Trial Court (RTC), Pasay
City, a petition for Extra Judicial Foreclosure and Sale of Chattel Mortgage.
However, the Sheriff’s Report/Return4 dated January 27, 1987 shows that TVI is no
longer doing business at its given address; that its General Manager, Mr. Manuel M.
Mendoza, is presently employed at FGT Video Network with offices at the
Philcemcor Bldg., No. 4 Edsa cor. Connecticut St., Greenhills, San Juan, Metro
Manila; that when asked about the whereabouts of the video machines, in the presence
of the representative of respondent bank and its counsel, Mr. Mendoza denied any
knowledge of their whereabouts; and that action on respondent’s petition is
indefinitely postponed until further notice from the bank.
Respondent then wrote TVI demanding the surrender of the video machines. In his
letter dated February 19, 1987, petitioner Mendoza requested the bank to give him
"additional time to enable us to pay our total obligations" and proposed a repayment
scheme to start not later than March 10, 1987.5 Still, no payment was received by the
bank. TVI simply refused and ignored the demand and kept silent as to the
whereabouts of the video machines.
Meanwhile, in a case entitled "Republic of the Philippines, plaintiff vs. FGT Video
Network Inc., Manuel Mendoza, Alfredo C. Ongyangco, Eric Apolonio, Susan Yang
ang Eduardo A. Yotoko, defendants," the RTC, Branch 167, Pasig City issued a search
warrant. The agents of the National Bureau of Investigation (NBI) confiscated at the
offices of FGT 638 machines and equipment including the 195 Beta machines
mortgaged with respondent bank.
On May 29, 1987, upon motion of FGT and herein petitioners, the same court issued
another Order directing the NBI to release and return the said machines to them.
However, Columbia Pictures Inc., Orion Pictures Corp., Paramount Pictures Corp.,
Universal City Studios Inc., The Walt Disney Company and Warner Bros. filed with
The dispositive portion of the trial court’s Decision reads:
this Court a petition for certiorari6 assailing the Order of the lower court.

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against

On June 18, 1987, this Court issued a temporary restraining order enjoining the RTC
defendants TECHNICA VIDEO, INC., Mendoza and Yotoko, ordering them,
from enforcing its assailed order. The machines and equipment were left in the
custody of the NBI until the petition for certiorari shall have been resolved with
finality.
1) to pay plaintiff the sum of ₱500,000.00 plus interests, charges and penalties as
agreed upon in the promissory note of September 11, 1985, until the same is fully
paid;
On July 13, 1990, respondent bank filed with the RTC, Branch 110, Pasig City,7 a
complaint for collection of a sum of money8 against TVI, FGT and petitioners. Only
petitioners filed their joint answer to the complaint.
2) to pay plaintiff the sum equivalent to ten (10%) of the total unpaid obligation as
and for attorney’s fees, and
In their joint answer, petitioners specifically denied the allegations in the
complaint, raising the defense that the loan is purely a corporate
3) to pay the costs.
indebtedness of TVI.

SO ORDERED."
On April 29, 1991, the trial court rendered a Decision, holding that:

Upon appeal by herein petitioners, the Court of Appeals rendered its Decision dated
"As by these considerations, the Court finds that TVI was the mere alter ego or
September 21, 1998, affirming in toto the Decision of the trial court. Petitioners’
business conduit of Yotoko and Mendoza, and additionally considering 1) that
motion for reconsideration was denied in its Resolution dated December 3, 1999.
Mendoza disclaimed knowledge of the whereabouts of the TVI mortgaged property
at the time plaintiff’s petition for extrajudicial foreclosure was being effected, and 2)
that Mendoza and Yotoko transferred the mortgaged property to FGT without first
securing plaintiff’s consent despite their awareness that under the chattel mortgage, Hence, the instant petition.
such consent was necessary, the doctrine of corporate entity must be pierced and the
two must be held personally liable for TVI’s obligation to plaintiff for said doctrine
cannot be used to defeat public convenience, justify wrong, protect fraud or avoid a The basic issue for our resolution is whether herein petitioners are personally
legal obligation." liable for TVI’s indebtedness of ₱500,000.00 with respondent bank.
 In fine, we hold that the Appellate Court, in affirming the Decision of the trial court,
correctly ruled that petitioners, not TVI, are the ones personally liable to
Both the trial court and the Appellate Court found that the petitioners transferred the
Beta video machines from TVI to FGT without the consent of respondent bank. Also,
respondent bank for the payment of the loan.
upon inquiry of the sheriff, petitioner Mendoza declined knowledge of the
whereabouts of the mortgaged video machines. Moreover, the fact that the NBI seized
the video machines from FGT glaringly shows that petitioners transferred the same WHEREFORE, the petition is DENIED. Costs against petitioners.
from TVI. More importantly, a comparison of the list of video machines in the Chattel
Mortgage Contract and the list of video machines seized by the NBI from FGT shows
that they have the same serial numbers. SO ORDERED.

The courts below also found that TVI is petitioners’ mere alter ego or business Panganiban, (Chairman), Corona, Carpio-Morales, and Garcia, JJ., concur.
conduit. They control the affairs of TVI. Among its stockholders or directors, they
were the only ones who became incorporators of FGT. They transferred the assets of
TVI to FGT.

Footnotes
The general rule is that obligations incurred by a corporation, acting through its
directors, officers or employees, are its sole liabilities. However, the veil with which
the law covers and isolates the corporation from its directors, officers or employees 1 Under Rule 45, Section 1 of the 1997 Revised Rules of Civil Procedure, as amended.
will be lifted when the corporation is used by any of them as a cloak or cover for fraud
or illegality or injustice.9 Here, the fraud was committed by petitioners to the
prejudice of respondent bank. It bears emphasis that as reported by the sheriff, TVI is 2 Penned by Justice Bernardo P. Abesamis and concurred in by Justice G.R. No. L-
no longer doing business at its given address and its whereabouts cannot be 47673. October 10, 1946.]
established as yet.

KOPPEL (PHILIPPINES), INC., Plaintiff-Appellant, v. ALFREDO L. YATCO,

Both the trial court and the Court of Appeals thus concluded that petitioners succeeded Collector of Internal Revenue, Defendant-Appellee.
to hide the chattels, preventing the sheriff to foreclose the mortgage. Obviously, they
acted in bad faith to defraud respondent bank.
Padilla, Carlos & Fernando, for Appellant.
Solicitor General Ozaeta, First Assistant Solicitor General Reyes and Solicitor
Cañizares, for Appellee.
SYLLABUS
1. CORPORATIONS; DISREGARD OF CORPORATE FICTION. — A corporation
will be looked upon as a legal entity as a general rule, and until sufficient reason to
the contrary appears; but, when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons.
2. ID.; ID.; CONTROL BY ANOTHER CORPORATION. — The corporate entity is
disregard where it is so organized and controlled, and its affairs are so conducted, as
to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.
3. OBLIGATIONS AND CONTRACTS; SALE PERFECTION OF CONSENSUAL
CONTRACT; LOCATION OF PROPERTY AND PLACE OF DELIVERY
IMMATERIAL; CASE AT BAR. — While it is true that when the contract was
perfected in the Philippines the pair of Atlas-Diesel Marine Engines were in Sweden
and the agreement was to deliver them C. I. F. Hongkong, the contract of sale being
consensual — perfected by mere consent — (Civil Code, article 1445; 10 Manresa,
4th ed., p. 11), the location of the property and the place of delivery did not matter in
the question of where the agreement was perfected.
4. ID.; ID.; PERFECTION OF, WHEN EXECUTED THROUGH
CORRESPONDENCE. — Contracts executed through correspondence are completed
from the time an answer is made accepting the proposition or the conditions by which
the latter may be modified.
5. STATUTORY CONSTRUCTION; INTERPRETATION BY OFFICERS OF
ADMINISTRATIVE BRANCHES NOT BINDING ON COURTS; "STARE
DECISIS" ; CASE AT BAR. — The ruling of the Secretary of Finance, Exhibit M,
was not binding upon the trial court, much less upon this tribunal, since the duty and
power of interpreting the laws is primarily a function of the judiciary. Plaintiff cannot
be excused from abiding by this legal principle, nor can it properly be heard to say
that it relied on the Secretary’s ruling and that, therefore, the courts should not now
apply an interpretation at variance therewith. The rule of stare decisis is undoubtedly
entitled to more respect in the construction of statutes than the interpretations given
by officers of the administrative branches of the government, even those entrusted
with the administration of particular laws; and yet in Philippine Trust Co. and Smith,
Bell & Co. v. Mitchell (59 Phil., 30), this court refused to follow its own doctrine laid
down in a former case, saying: "More important than anything else is that the court
should be right."
DECISION
HILADO, J.:
This is an appeal by Koppel (Philippines), Inc., from the judgment of the Court of
First Instance of Manila in civil case No. 51218 of said court dismissing said
corporation’s complaint for the recovery of the sum of P64,122.51 which it had paid
under protest to the Collector of Internal Revenue on October 30, 1936, as merchant
sales tax. The main facts of the case were stipulated in the court below as
follows:jgc:chanrobles.com.ph

"AGREED STATEMENT OF FACTS
"Now come the plaintiff by attorney Eulogio P. Revilla and the defendant by the
Solicitor General and undersigned Assistant Attorney of the Bureau of Justice and,
with leave of this Honorable Court, hereby respectfully stipulated and agree to the
following facts, to wit:jgc:chanrobles.com.ph
"I. That plaintiff is a corporation duly organized and existing under and by virtue of
the laws of the Philippines, with principal office therein at the City of Manila, the
capital stock of the which is divided into one thousand (1,000) shares of P100 each.
The Koppel Industrial Car and Equipment Company, a corporation organized and
existing under the laws of the State of Pennsylvania, United States of America, and
not licensed to do business in the Philippines, owned nine hundred and ninety-five
(995) shares of the total capital stock of the plaintiff from the year 1928 up to and
including the year 1936, and the remaining five (5) shares only were and are owned
one each by officers of the plaintiff corporation.
"II. That plaintiff, at all times material to this case, was and now is duly licensed to
engage in business as a merchant and commercial broker in the Philippines; and was
and is the holder of the corresponding merchant’s and commercial broker’s privilege
tax receipts.
"III. That the defendant Collector of Internal Revenue is now Mr. Bibiano L. Meer in
lieu of Mr. Alfredo L. Yatco.
"IV. That during the period from January 1, 1929, up to and including December 31,
1932, plaintiff transacted business in the Philippines in the following manner, with
the exception of the transactions which are described in paragraphs V and VI of this
stipulation:jgc:chanrobles.com.ph
"‘When a local buyer was interested in the purchase of railway materials, machinery,
and supplies, it asked for price quotations from plaintiff. A typical form of such
request is attached hereto and made a part hereof as Exhibit A. (Exhibit A represents
typical transactions arising from written for quotations, while Exhibit B to G,
inclusive, are typical transactions arising from verbal requests for quotation.) Plaintiff
then cabled for the quotation desired from Koppel Industrial Car and Equipment
Company. A small of the pertinent cable is hereto attached and made a part hereof as
Exhibit B. Koppel Industrial Car and Equipment Company answered by cable quoting
its cost price, usually A. C. I. F. manila cost price, which was latter followed by a
letter of confirmation. A sample of the said cable quotation and of the letter of
confirmation are hereto attached and made a part hereof as Exhibits C and C-1.
Plaintiff, however, quoted to the purchaser a selling price above the figures quoted by
Koppel Industrial Car and Equipment Company and made a part hereof as Exhibit D.
On the basis of these quotations, orders were placed by the local purchasers, copies of
which orders are hereto attached as Exhibits E and E-1.
"‘A cable then sent to Koppel Industrial Car and Equipment Company giving
instructions to ship the merchandise to Manila forwarding the customer’s order.
Sample of said cable is hereto attached as Exhibit F. The bills of lading were usually
made to ’order’ and indorsed in blank with notation to the effect that the buyer be
notified of the shipment of the goods covered in the bills of lading; commercial
invoices were issued by Koppel Industrial Car and Equipment Company in the names
of the purchasers and certificates of insurance were likewise issued in their names, or
in the name of Koppel Industrial Car and Equipment Company but indorsed in blank
and attached to drafts drawn by Koppel Industrial Car and Equipment Company on
the purchasers, which were forwarded through foreign blanks to local. Samples of the
bills of lading are hereto attached as Exhibits F-1, I-1, I-2 and I-3. Bills of lading,
Exhibits I-1, I-2 and I-3, may equally have been employed, but said Exhibits I-1, I-2
and I-3 have no connection with the transaction covered by Exhibits B to G, inclusive.
The purchasers secured the shipping papers by arrangement with the banks, and
thereupon received and cleared the shipments. If the merchandise were of European
origin, and if there was not sufficient time to forward the documents necessary for
clearance, through foreign banks to local banks, to the purchasers, the Koppel
Industrial Car and Equipment Company did, in many cases, send the documents
directly from Europe to plaintiff with instructions to turn these documents over to the
purchasers. In many cases where sale was effected on the basis of C. I. F. Manila, duty
paid, plaintiff advanced the sums required for the payment of the duty, and these sums,
so advanced, were in every case reimbursed to plaintiff by Koppel Industrial Car and
Equipment Company. The price were payable by drafts agreed upon in each case and
drawn by Koppel Industrial Car and Equipment Company on the respective
purchasers through local banks, and payments were made to the banks by the
purchasers on presentation and delivery to them of the above-mentioned shipping
documents or copies thereof. a sample of said drafts is hereto attached as Exhibit G.
Plaintiff received by way of compensation a percentage of the profits realized on the
above transactions as fixed in paragraph 6 of the plaintiff’s contract with Koppel
Industrial Car and Equipment Company, which contract is hereto attached as Exhibit
H, and suffered its corresponding share in the losses resulting from some of the
transactions.
"‘That the total gross sales from January 1, 1929, up to and including December 31,
1932, effected in the foregoing manner and under the above specified conditions,
amount to P3,596,438.84.’
"V. That when a local sugar central was interested in the purchase of railway materials,
machinery and supplies, it secured quotations from, and placed the corresponding
orders with, the plaintiff in substantially the same manner as outlined in paragraph IV
of this stipulation, with the only difference that the purchase orders which were agreed
to by the central and the plaintiff are similar to the sample hereto attached and made
a part hereof as Exhibit I. Typical samples of the bills of lading covering the herein
transaction are hereto attached and made a part hereto as Exhibits I-1, I-2 and I-3. The
value of the sales carried out in the manner mentioned in this paragraph is
P133,964.98.
"VI. That sometime in February, 1929, Miguel J. Ossorio, of Manila, Philippines,
placed an option with Koppel Industrial Car and Equipment Company, through
plaintiff, to purchase within three months a pair of Atlas-Diesel Marine Engines.
Koppel Industrial Car and Equipment Company purchased said Diesel engines in
Stockholm, Sweden, for $16,508.32. The supplies drew a draft for the amount of
$16,508.32 on the Koppel Industrial Car Equipment Company, which paid the amount
covered by the draft. Later, Miguel J. Ossorio definitely called the deal off, and as
Koppel Industrial Car and Equipment Company could not ship to or draw on said Mr.
Miguel J. Ossorio, it in turn drew another draft on plaintiff for the same amount at six
months, with the understanding that Koppel Industrial Car Equipment Company
would reimburse plaintiff when said engines were disposed of. Plaintiff honored the
draft and debited the said sum of $16,508.32 to merchandise account. the engines were
left stored at Stockholm, Sweden. On April 1, 1930, a new local buyer, Mr. Cesar
Barrios, of for $21.000 (P42,000) C. I. F. Hongkong. The engines were shipped to
Hongkong and a draft for $21,000 was drawn by Koppel Industrial Car and Equipment
Company on Mr. Cesar Barrios. After the draft was fully by Mr. Barrios, Koppel
Industrial Car and Equipment Company reimbursed plaintiff with cost price of
$16,508.32 and credited it with $1,152.95 as its share of the profit on the transaction.
Exhibits J and J-1 are herewith attached and made integral parts of this stipulation
with particular reference to paragraph VI hereof.
"VIII. That plaintiff’s share in the profits realized out of these transaction ascribed in
paragraphs IV, V and VI hereof totaling P3,772,403.82, amounts to P132,201.30; and
that plaintiff within the time provided by law returned the aforesaid amount of
P132,201.30 for the purpose of the commercial broker’s 4 per cent tax and paid
thereon the sum of P5,288.05 as such tax.
"VIII. That defendant demanded of the plaintiff the sum of P664,122.51 as the (Sgd.) "ANTONIO CAÑIZARES
merchants’ sales tax of 1 1/2 per cent on the amount of P3,772,403.82, representing
the total gross value of the sales mentioned in paragraphs IV, V and VI hereof,
including the 25 per cent surcharge for the late payment of the said tax, which tax and "Assistant Attorney
surcharge were determined after the amount of P5,288.05 mentioned in paragraph VI
hereof was deducted.
(Sgd.) "E. P. REVILLA

"IX. That plaintiff, on October 30,1936, paid under protest said sum of P64,122.51 in
order to avoid further penalties, levy and distraint proceedings. "Attorney for the Plaintiff

"X. That defendant, on November 10, 1936, overruled plaintiff’s protest, and "3rd Floor Perez Samanillo Bldg., Manila"
defendant has failed and refused and still fails and refuses, notwithstanding demands
by plaintiff, to return to the plaintiff said sun of p64,122.51 or any part thereof.
Both parties adduced some oral evidence in clarification of or additional to their
agreed statement of facts. A preponderance of evidence has established, besides the
x x x facts thus stipulated, the following:chanrob1es virtual 1aw library

(a) The shares of stock of plaintiff corporation were and are all owned by Koppel
"That the penalties hereby reserve the right to present additional evidence in support Industrial Car and Equipment Company of Pennsylvania, U. S. A., except five which
of their respective contentions. were necessary to qualify the Board of Directors of said plaintiff corporation;

"Manila, Philippines, December 26, 1939. (b) In the transactions involved herein plaintiff corporation acted as the representative
of Koppel Industrial Car and Equipment Company only, and not as the agent of both
(Sgd.) "ROMAN OZAETA the latter company and the respective local purchasers — plaintiff’s principal witness,
A. H. Bishop, its resident Vice-President, in his testimony invariably referred to
Koppel Industrial Car and Equipment Co. as "our principal" (t. s. n., pp. 10, 11, 12,
"Solicitor General 19, 75), except that at the bottom of page 10 to the top of page 11, the witness stated
that they had "several principals" abroad but that "our principal abroad was, for the
years in question, Koppel Industrial Car and Equipment Company," and on page 68,
he testified that what he actually said was." . . but our principal principal abroad" and
not "our principal abroad" — as to which it is very significant that neither witness nor
any other gave the name of even a single other principal abroad of the plaintiff
corporation;
(c) The plaintiff corporation bore alone incidental expenses as, for instance, cable
expenses — not only those of its own cables but also those of its "principal" (t.s.n.,
pp. 52, 53);
(d) The plaintiff’s "share in the profits" realized from the transactions in which it
intervened was left virtually in the hands of Koppel Industrial Car and Equipment
Company (t.s.n., P. 51);
(e) Where drafts were not paid by the purchasers, the local banks were instructed not
to protest them but to refer them to plaintiff which was fully empowered by Koppel
Industrial Car and Equipment Company to instruct the banks with regards to
disposition of the drafts and documents (t.s.n., p. 50; Exhibit G);
(f) Where the goods were of European origin consular invoices, bill of lading, and, in
general, the documents necessary for clearance were sent directly to plaintiff (t.s.n.,
p. 14);
(g) If plaintiff had in stock the merchandise desired by local buyers, it immediately
filled the orders of such local buyers and made delivery in the Philippines without the
necessity of cabling its principal in America either for price quotations or confirmation
of rejection of that agreed upon between it and the buyer (t.s.n., pp. 39-43);
(h) Whenever the deliveries made by Koppel Industrial Car and Equipment Company
were incomplete or insufficient to fill the local buyers’ orders, plaintiff used to make
good the deficiencies by deliveries from its own local stock, but in such cases it
charged its principal only the actual costs of the merchandise thus delivered by it from
its stock and in such transactions plaintiff did not realize any profit (t.s.n., pp. 53-54);
(i) The contracts of sale involved herein were all perfected in the Philippines.
Those described in paragraph IV of the agreed statement of facts went through the
following process: (1) "When a local buyer was interested in the purchase of railway
materials, machinery, and supplies, it asked for price quotations from plaintiff" ; (2)
"Plaintiff then cabled for the quotation desired from Koppel Industrial Car and
Equipment Company" ; (3) "Plaintiff, however, quoted to the purchaser a selling price
above the figures quoted by Koppel Industrial Car and Equipment Company" ; (4)
"On the basis of these quotations, orders were placed by the local purchasers . . .
."cralaw virtua1aw library
Those described in paragraph V of said agreed statement of facts were translated "in
substantially the same manner as outlined in paragraph IV."cralaw virtua1aw library
As to the single transaction described in paragraph VI of the same agreed statement
of facts, discarding the Ossorio option which anyway was called off, "On April 1,
1930, a new local buyer, Mr. Cesar Barrios, of Iloilo, Philippines, was found and the
same engines were sold to him for $21,000 (P42,000) C. I. F. Hongkong." (Emphasis
supplied.)
(j) Exhibit H contains the following paragraph:jgc:chanrobles.com.ph
"It is clearly understood that the intent of this contract is that the broker shall perform
only the functions of a broker a set forth above, and shall not take possession on any
of the materials or equipment applying to said orders or perform any acts or duties
outside the scope of a broker; and in no sense shall this contract be construed as
granting to the broker the power to represent the principal as its agent or to make
commitments on its behalf."cralaw virtua1aw library
The Court of First Instance held for the defendant and dismissed plaintiff’s complaint
with costs to it.
Upon this appeal, seven errors are signed to said judgment as
follows:jgc:chanrobles.com.ph
"1. That the court a quo erred in not holding that appellant is a domestic corporation
distinct and separate from, and not a mere branch of Koppel Industrial Car and
Equipment Co.;
"2. The court a quo erred in ignoring the ruling of the Secretary of Finance, dated
January 31, 193 l, Exhibit M;
"3. The court a quo erred in not holding that the character of a broker is determined
by the nature of the transaction and not by the basis or measure of his compensation;
"4. The court a quo erred in not holding that appellant acted as a commercial broker
in the transactions covered under paragraph IV of the agreed statement of facts;
"5. The court a quo erred in not holding that appellant acted as a commercial broker
in the transactions covered under paragraph V of the agreed statement of facts;
"6. The court a quo erred in not holding that appellant acted as a commercial broker
in the sole transaction covered under paragraph VI of the agreed statement of facts;
"7. The court a quo erred in dismissing appellant’s complaint."cralaw virtua1aw
library
The lower court found and held that Koppel; (Philippines), Inc. is a mere dummy or
branch ("hechura") of Koppel Industrial Car and Equipment Company. The lower
court did not deny legal personality to Koppel (Philippines), Inc. for any and all
purposes, but in effect its conclusion was that, in the transactions involved herein, the
public interest and convenience would be defeated and what would amount to a tax
evasion perpetrated, unless resort is had to the doctrine of "disregard of the corporate
fiction."cralaw virtua1aw library
I. In its first assignment of error appellant submits that the trial court erred in not
holding that it is a domestic corporation distinct and separate from and not a mere
branch of Koppel Industrial Car and Equipment Company. It contends that its
corporate existence as a Philippine corporation can not be collaterally attacked and
that the Government is estopped from so doing. As stated above, the lower court did
not deny legal personality to appellant for any and all purposes, but held in effect that
in the transactions involved in this case the public interest and convenience would be
defeated and what would amount to tax evasion perpetrated, unless resort is had to the
doctrine of "disregard of the corporate fiction." In other words, in looking through the
corporate form to the ultimate person or corporation behind that form, in the particular
transactions which were involved in the case submitted to its determination and
judgment, the court did so in order to prevent the contravention of the local internal
revenue laws, and the perpetration of what would to a play evasion, inasmuch as it
considered — and in our opinion, correctly — that appellant Koppel (Philippines) Inc.
u as a mere branch or agency or dummy ("hechura") of Koppel Industrial Car and
Equipment Co. The court did not hold that the corporate personality of Koppel
(Philippines), Inc., would also be disregarded in other cases or for other purposes. It
would have had no power to so hold. The courts’ action in this regard must be confined
"Another rule is that, when the corporation is the mere alter ego, or business conduit
to the transactions involved in the case at bar "for the purpose of adjudging the rights
of a person, it may be disregarded." (1 Fletcher, Cyclopedia of Corporation,
and liabilities of the parties in the case. They have no jurisdiction to do more." (1
Permanent Edition, p. 136.)
Fletchel, Cyclopedia of Corporation, Permanent ed., p. 134, section 41.)

Manifestly, the principle is the same whether the "person" be natural or artificial.
A leading and much cited case puts it as follows:jgc:chanrobles.com.ph

"A very numerous and growing class of cases wherein the corporate entity is
"If any general rule can be laid down, in the present state of authority, it is that a
disregarded is that wherein (it is so organized and controlled, and its affairs are so
corporation will be looked upon as a legal entity as a general rule, and until sufficient
conducted, as to make it merely an instrumentality, agency, conduit or adjunct of
reason to the contrary appears, but, when the notion of legal entity is used to defeat
another corporation)." (1 Fletcher, Cyclopedia of Corporation, Permanent ed., pp. 154,
public convenience, justify wrong, protect fraud, or defend crime, the law will regard
155.)
the corporation as an association of persons." (1 Fletcher Cyclopedia of Corporation
[Permanent Edition], pp. 135, 136; United States v. Miwaukee Refrigeration Transit
Co., 142 Fed., 247, 255, per Sanborn, J.)
"While we recognize the legal principle that a corporation does not lose its entity by
the ownership of the bulk or even the whole of its stock, by another corporation
(Monongahela Co. v. Pittsburg Co., 196 Pa., 25; 46 Atl., 99; 79 Am. St. Rep., 685)
In his second special defense appellee alleges "that the plaintiff as and is in fact a
yet it is equally well settled courts will look beyond the mere artificial personality
branch or subsidiary of Koppel Industrial Car and Equipment Co., a Pennsylvania
which incorporation confers, and if necessary to work out equitable ends, will ignore
corporation not licensed to do business in the Philippines but actually doing business
corporate forms." (Colonial Trust Co. v. Montello Brick Works, 172 Fed., 310.)
here through the plaintiff; that the said foreign corporation holds 995 of the 1,000
shares of the plaintiff’s capital stock, the remaining five shares being held by the
officers of the plaintiff herein in order to permit the incorporation thereof and to enable
its aforesaid officers to act as directors of the plaintiff corporation; and that plaintiff "Where it appears that two business enterprises are owned, conducted and controlled
was organized as a Philippine corporation for the purpose of evading the payment by by the same parties, both law and equity will, when necessary to protect the rights of
its parent foreign corporation of merchants’ sales tax on the transactions involved in third persons, disregard the legal fiction that two corporations are distinct entities, and
this case and others of similar nature."cralaw virtua1aw library treat them as identical.’; (Abney v. Belmonb Country Club Properties, Inc., 279 Pac.,
829.)

"By most courts the entity is normally regarded but is disregarded to prevent injustice,
or the distortion or hiding of the truth, or to let in a defense." (1 Fletcher, Cyclopedia ". . . the legal fiction of distinct corporate existence will be disregarded in a case where
of Corporation, Permanent Edition, pp. 139 140; Emphasis supplied.) a corporation is so organized and controlled and its affairs are so conducted, as to
make it merely an instrumentality or adjunct of another corporation." (Hanter v. Baker
Motor Vehicle Co., 190 Fed., 665.)
In United States v. Lehigh Valley R. Co. (220 U. S., 257; 55 Law. ed., 458, 464), the
Supreme Court of the United States disregarded the artificial personality of the
subsidiary coal company in order to avoid that the parent corporation, the Lehigh
Valley R. Co., should be able, through the fiction of that personality, to evade the
prohibition of the Hepburn Act against the transportation by railroad companies of the
articles and commodities described therein.
Chief Justice White, speaking for the court, said:jgc:chanrobles.com.ph
". . . Coming to discharge this duty is follows, in view of the express prohibitions of
the commodities clause, it must be held that while the right of a railroad company as
a stockholder to use its stock ownership for the purpose of a bona fide separate
administration of the affairs of a corporation in which it has a stock interest may not
be denied, the use of such stock ownership in substance for the purpose of destroying
the entity of a producing, etc., corporation, and of commingling its affairs in
administration with the affairs of the railroad company, so as to make the two
corporations virtually one, brings the railroad company so voluntarily acting as to such
producing, etc., corporation within the prohibitions of the commodities clause. In
other words, that by operation and effect of the commodities clause there is a duty cast
upon a railroad company proposing to carry in interstate the product of a producing,
etc., corporation in which is has a stock interest, not to clause such power so as
virtually to do by indirection that which the commodities clause prohibits, — a duty
which plainly would be violated by the unnecessary commingling of the affairs of the
producing company with its own, so as to cause them to be one and
inseparable."cralaw virtua1aw library
Corroborative authorities can be cited in support of the same proposition, which we
deem unnecessary to mention here.
From the facts hereinabove stated, as established by a preponderance of the evidence,
particularly those narrated in paragraphs (a), (b), (c), (d), (e), (f), (h), (i), and (j) after
the agreed statement of facts, we find that, in so far as the sales involved herein are
concerned, Koppel (Philippines), Inc., and Koppel Industrial Car and Equipment
Company are to all intents and purposes one and the same; or, to use another mode of
expression, that, as regards those transaction s, the former corporation is a mere
branch, subsidiary or agency of the latter. To our mind this is conclusively borne out
by the fact, among others, that the amount of the so-called "share in the profits of
Koppel (Philippines) Inc., was ultimately left to the sole, underlined control of Koppel
Industrial Car and Equipment Company. If, in their relations with each other, Koppel
(Philippines), Inc., was considered and intended to function as a bona fide separate
corporation, we can not conceive how this arrangement could have been adopted, for
if there was any factor in its business as to which it would in that case naturally have
been opposed to being thus controlled, it must have been precisely the amount of profit
which it could endeavor and hope to earn. No group of businessmen could be expected
to organize a mercantile corporation — the ultimate end of which could only be profit
— if the amount of the profit were to be subjected to such a unilateral control of
another corporation, unless indeed the former has previously been designed by the
incorporates to serve as a mere subsidiary, branch or agency of the latter. Evidently,
Koppel Industrial Car and Equipment Company made use of its ownership of the
overwhelming majority — 99.5% — of the capital stock of the local corporation to
control the operations of the latter to such an extent that it had the final say even as to
how much should be allotted to said local entity in the so-called sharing in the profits.
We can not overlook the fact t at in the practical working of corporate organizations
of the class to which these two entities belong the holder or holders of the controlling
part of the capital stock of the corporation, particularly where the control is determined
by the virtual ownership of the totality of the shares, dominate not only the selection
of the Board of Directors but, more often than not, also the action of that board.
Applying this to the instant case, we can not conceive how the Philippine corporation
could effectively go against the policies, decisions, and desires of the American
corporation with regard to the scheme which was devised through the instrumentality
of the contract Exhibit H, as well as all the other details of the system which was
adopted in order to avoid paying the 1 1/2 per cent merchants’ sales tax. Neither can
we conceive how the Philippine corporation could avoid following the directions of
the American corporation in every other transaction where they had both to intervene,
in view of the fact that the American corporation held 99.5 per cent of the capital stock
of the Philippine corporation. In the present instance, we note that Koppel
(Philippines), Inc., was represented in the Philippines by its "resident Vice-President."
This fact necessarily leads to the inference that the corporation had at least a Vice-
President, and presumably also a President, who were not resident in the Philippines
but in America, where the parent corporation is domiciled. If Koppel (Philippines),
Inc., had been intended to operate as a regular domestic corporation in the Philippines,
where it was formed, the record and the evidence do not disclose any reason why all
its officers should not reside and perform their functions in the Philippines.
Other facts appearing from the evidence, and presently to be stated, strengthen our
conclusion, because they can only be explained if the local entity is considered as a
mere subsidiary, branch or agency of the parent organization. Plaintiff charged the
parent corporation no more than actual cost — without profit whatsoever — for
merchandise allegedly of its own to complete deficiencies of shipments made by said
parent corporation (t. s. n., pp. 53, 54) — a fact which could not conceivably have
been the case if plaintiff had acted in such transactions as an entirely independent
entity doing business — for profit, of course — with the American concern. There has
been no attempt even to explain, if the latter situation really obtained, why these two
corporations should have thus departed from the ordinary course of business. Plaintiff
was charged by the American corporation with the cost even of the latter’s cable
quotations — from ought that appears from the evidence, this can only be
comprehended by considering plaintiff as such a subsidiary, branch or agency of the
parent entity in which case it would be perfectly understandable that for convenient
accounting purposes and the easy determination of the profits or losses of the parent
corporation’s Philippine business, all expenses of its business in the Philippines
should be charged against the Philippine office and set off against its receipts, thus,
separating the accounts of said branch from those which the central organization might
have, for instance, in Sweden, and those which it might have in other countries. The
reference to plaintiff by local banks, under a standing instruction of the parent
corporation, of unpaid drafts drawn on Philippine customers by said parent
corporation, whenever said customers dishonored the drafts, and the fact that the
American corporation had previously advised said banks that plaintiff in those cases
was "fully empowered to instruct (the banks) with regard to the disposition of the
drafts and documents" (t.s.n., p. 50), in the absence of any other satisfactory
explanation naturally give rise to the inference that plaintiff was a subsidiary, branch
or agency of the American concern, rather than an independent corporation acting as
a broker. For, without such positive explanation, this delegation of power is indicative
of the relations between central and branch offices of the same business enterprise,
with the latter acting under instructions already given by the former. Far from
disclosing a real separation between the two entities, particularly in regard to the
transactions in question, the evidence reveals such a coming and interlacing of their
activities as to render even incomprehensible certain accounting operations between
them, except upon the basis that the Philippine corporation was to all intents and
purposes a mere subsidiary, branch, or agency o the American parent entity. Only
upon this basis can it be comprehended why it seems not to matter at all how much
profit would be allocated to plaintiff, or even that no profit at all be so allocated to it,
at any given time or after any given period.
As already stated above, under the evidence the sales in the Philippines of the railway
materials, machinery and supplies imported here by Koppel Industrial Car and
Equipment Company could have been as conveniently and efficiently transacted and
handled — if not more so — had said corporation merely established a branch or
agency in the Philippines and obtained license to do business locally; and if it had
done so and said sales had been effected by such branch or agency, there seems to be
no dispute that the 1 1/2 per cent merchants’ sales tax then in force would have been
collectible. So far as we can discover, there would be only one, but very important,
difference between the two schemes — a difference in tax liability amounting to the
respectable sum of P64, 122.51 in this case. To allow the taxpayer now to deny this
tax liability on the ground that the sales were made through another and distinct
corporation, as alleged broker, when we have seen that this latter corporation is
virtually owned by the former, or that they are practically one and the same, is to
sanction a circumvention of our laws, and permit a tax evasion of no mean proportions
and the consequent commission of a grave injustice to the Government. Not only this;
it would allow the taxpayer to do by indirection what the tax laws prohibited to be
done directly (nonpayment of legitimate taxes), paraphrasing the United States
Supreme Court in United States v. Lehigh Valley R. Co., supra.
The act of one corporation crediting or debiting the other for certain items, expenses
or even merchandise sold or disposed of, is perfectly compatible with the idea of the
domestic entity being or acting as a mere branch, agency or subsidiary of the parent
organization. Such operations were called for any way by the exigencies or
convenience of the entire business. Indeed, accounting operations such as these are
inevitable, and have to be effected in the ordinary course of business, wherever the
home office of a business enterprise extends its trade to another land through a branch
office, or through another scheme amounting to the same thing.
If plaintiff were to act as broker in the Philippines for any other corporation, entity or
person, distinct from Koppel Industrial Car and Equipment Company, an entirely
different question will arise, which, however, we are not called upon, nor in a position,
to decide.
As stated above, Exhibit H contains the following paragraph:jgc:chanrobles.com.ph
"It is clearly understood that the intent of this contract is that the broker shall perform
only the functions of a broker as set forth above, and shall not take possession of any
of the materials or equipment applying to said orders or perform any acts or duties
outside the scope of a broker; and in no sense shall this contract be construed as
granting to the broker the power to represent the principal as it agent or to make
commitments on its behalf."cralaw virtua1aw library
The foregoing paragraph, construed in the light of other facts noted elsewhere in this
decision, betrays, we think, a deliberate intent, through the medium of a scheme
devised; with great care, to avoid the payment of precisely the 1 1/2 per cent
merchants’ sales tax in force in the Philippines before, at the time of, and after, the
making of the said contract Exhibit H. If this were to be allowed, the payment of a
tax, which directly could not have been avoided, could be evaded by indirection,
consideration being had of the aforementioned peculiar relations between the said
American and local corporations. Such evasion, involving as it would, a violation of
the former Internal Revenue Law, would even fall within the penal sanction of section
2741 o the Revised Administrative Code. which only goes to show the illegality of
the whole scheme. We are not here concerned with the impossibility. We are not here
concerned with the impossibility of collecting the merchants’ sales tax, as a mere
incidental consequence of transactions legal in themselves and innocent in their
purpose. We are dealing with a scheme the primary, not to say the sole, object of
which is the evasion of the payment of such tax. If is this aim of the scheme that makes
it illegal.
We have said above that the contracts of the sale involved herein were all perfected
in the Philippines. From the facts stipulated in paragraph IV of the agreed statement
of facts, it clearly appears that the Philippine purchasers had to wait for Koppel
Industrial Car and Equipment Company to communicate its cost prices to Koppel
(Philippines), Inc., and for the latter to make the definite price quotations, before
placing their orders, whenever such price quotations from the American corporation
were required. It is obvious that in those cases the contracts involved in the orders
thus placed by the said purchasers with Koppel (Philippines), Inc., were perfected in
the Philippines. In those cases where no such price quotations from the American
corporation were needed, of course, the sales were immediately perfected locally. The
sales effected in those cases described in paragraph V of the agreed statement of facts
were, as expressed therein, transacted "in substantially the same manner as outlined
in paragraph IV." Even the single transaction described in paragraph VI of the agreed
statement of facts was also perfected in the Philippines, because the contracting parties
were here and the consent of each was given here. While it is true that when the
contract was thus perfected in the Philippines the pair of Atlas-Diesel Marine Engines
were in Sweden and the agreement was to deliver them C.I.F. Hongkong, the contract
of sale being consensual — perfected by mere consent — (Civil Code, article 1445;
10 Manresa, 4th ed., p. 11), the location of the property and the place of delivery did
not matter in the question of where the agreement was perfected.
In said paragraph VI, we read the following, as indicating where the contract was
perfected, considering beforehand that one party, Koppel (Philippines) Inc., which in
contemplation of law, as to that transaction, was the same Koppel Industrial Car
Equipment Co., was in the Philippines
". . . on April 1, 1930, a new local buyer, Mr. Cesar Barrios, of Iloilo, Philippines, was
found and the same engines were sold to him for $21,000 (42,000) C.I.F. Hongkong .
. ." (Emphasis supplied.)
Under the revenue law in force when the sales in question took place, the merchants’
sales tax attached upon the happening of the respective sales of the "commodities,
goods, wares, and merchandise" involved, and we are clearly of opinion that such
"sales" took place upon the perfection of the corresponding contracts. If such
perfection took place in the Philippines, the merchants’ sales tax then in force here
attached to the transactions.
Even if we should consider that the Philippine buyers in the cases covered by
paragraphs VI and V of the agreed statement of facts, contracted with Koppel
Industrial Car and Equipment Company, we will arrive at the same final result. It can
not be denied in that case that said American Corporation contracted through Koppel
(Philippines), Inc., which was in the Philippines. The real transaction in each case of
sale, in final effect, began with an offer of sale from the seller, said American
Corporation, through its agent, the local corporation, of the railway materials,
machinery, and supplies at the prices quoted, and perfected or completed by the
acceptance of that offer by the local buyers when latter, accepting those prices, placed
their orders. The offer could not correctly be said to have been made by the local
buyers when they asked to have bound themselves to buy before knowing the prices.
And even if we should take into consideration the fact that the American corporation
contracted, at least partly, through correspondence, according to article 54 of the Code
of Commerce, the respective contracts were completed from the time of the
acceptance by the local buyers, which happened in the Philippines.
"Contracts executed through correspondence shall be completed from the time an
answer is made accepting the proposition or the conditions by which the latter may be
modified." (Code of Commerce, article 54; Emphasis supplied.)
"A contract is as a rule considered as entered into at the place where the offer is
accepted, or where the last act necessary to complete it is performed. So where
delivery is regarded as essential to the completion of the contract it is regarded as
made at the place of delivery." (13 C. J., 580-81., section 581.)
"(In the consensual contract of sale delivery is not needed for its perfection.)"
II. Appellant’s second assignment of error can be summarily disposed of. It is clear
that the ruling of the Secretary of Finance, Exhibit M, was not binding upon the trial
court, much less upon this tribunal the duty and power of interpreting the laws is
primarily a function of the judiciary. (Ortua v. Singson Encarnacion, 59 Phil., 440,
444.) Plaintiff cannot be excused from abiding by this legal principle, nor it properly
be heard to say that it relied on the Secretary’s ruling and that, therefore, the courts
should not now apply an interpretation at variance therewith. The rule of stare decisis
is undoubtedly entitled to more respect in the construction of statutes than the
interpretations given by officers of the administrative branches of the government,
even those entrusted with the administration of particular laws. But this court, in
Philippine Trust Company and Smith, Bell & Co. v. Mitchell (59 Phil., 30, 36),
said:jgc:chanrobles.com.ph
". . . The rule of stare decisis is entitled to respect. Stability in the law, particularly in Custom Search
the business field, is desirable. But idolatrous reverence for precedent, simply as
precedent, no longer rules. More Important than anything else is that the court should
be right. . . ."cralaw virtua1aw library

III. In the view we take of the case, and after the disposition made above of the first THIRD DIVISION
assignment of error, it becomes unnecessary to make any specific ruling on the third,
fourth, fifth, sixth, and seventh assignments of error, all of which are necessarily
disposed of adversely to appellant’s contention. G.R. No. 138104 April 11, 2002

Wherefore, the judgment appealed from is affirmed, with costs of both instances MR HOLDINGS, LTD., petitioner,
against appellant. So ordered.
vs.
SHERIFF CARLOS P. BAJAR, SHERIFF FERDINAND M. JANDUSAY,
SOLIDBANK CORPORATION, AND MARCOPPER MINING CORPORATION,
respondents.

SANDOVAL-GUTIERREZ, J.:

In the present Petition for Review on Certiorari, petitioner MR Holdings, Ltd. assails
the a) Decision1 dated January 8, 1999 of the Court of Appeals in CA-G.R. SP No.
49226 finding no grave abuse of discretion on the part of Judge Leonardo P. Ansaldo
of the Regional Trial Court (RTC), Branch 94, Boac, Marinduque, in denying
petitioner’s application for a writ of preliminary injunction;2 and b) Resolution3 dated
March 29, 1999 denying petitioner’s motion for reconsideration.

The facts of the case are as follows:

Today is Tuesday, December 10, 2019home
Under a "Principal Loan Agreement"4 and "Complementary Loan Agreement,"5 both
dated November 4, 1992, Asian Development Bank (ADB), a multilateral
Land and Mining Rights
development finance institution, agreed to extend to Marcopper Mining Corporation
(Marcopper) a loan in the aggregate amount of US$40,000,000.00 to finance the
latter’s mining project at Sta. Cruz, Marinduque. The principal loan of US$
15,000,000.00 was sourced from ADB’s ordinary capital resources, while the Building and Other Structures
complementary loan of US$ 25,000,000.00 was funded by the Bank of Nova Scotia,
a participating finance institution.
Other Land Improvements

On even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign corporation
which owns 40% of Marcopper, executed a "Support and Standby Credit Agreement" Machineries & Equipment, and Warehouse Inventory
whereby the latter agreed to provide Marcopper with cash flow support for the
payment of its obligations to ADB.
Mine/Mobile Equipment

To secure the loan, Marcopper executed in favor of ADB a "Deed of Real Estate and
Chattel Mortgage"6 dated November 11, 1992, covering substantially all of its Transportation Equipment and Furniture & Fixtures
(Marcopper’s) properties and assets in Marinduque. It was registered with the Register
of Deeds on November 12, 1992.
Meanwhile, it appeared that on May 7, 1997, Solidbank Corporation (Solidbank)
obtained a Partial Judgment9 against Marcopper from the RTC, Branch 26, Manila,
When Marcopper defaulted in the payment of its loan obligation, Placer Dome, in in Civil Case No. 96-80083 entitled "Solidbank Corporation vs. Marcopper Mining
fulfillment of its undertaking under the "Support and Standby Credit Agreement," and Corporation, John E. Loney, Jose E. Reyes and Teodulo C. Gabor, Jr.," the decretal
presumably to preserve its international credit standing, agreed to have its subsidiary portion of which reads:
corporation, petitioner MR Holding, Ltd., assumed Marcopper’s obligation to ADB
in the amount of US$ 18,453,450.02. Consequently, in an "Assignment Agreement"7
dated March 20, 1997, ADB assigned to petitioner all its rights, interests and "WHEREFORE, PREMISES CONSIDERED, partial judgment is hereby rendered
obligations under the principal and complementary loan agreements, ("Deed of Real ordering defendant Marcopper Mining Corporation, as follows:
Estate and Chattel Mortgage," and "Support and Standby Credit Agreement"). On
December 8, 1997, Marcopper likewise executed a "Deed of Assignment"8 in favor
of petitioner. Under its provisions, Marcopper assigns, transfers, cedes and conveys
1. To pay plaintiff Solidbank the sum of Fifty Two Million Nine Hundred Seventy
to petitioner, its assigns and/or successors-in-interest all of its (Marcopper’s)
Thousand Pesos Seven Hundred Fifty Six and 89/100 only (PHP 52,970,756.89), plus
properties, mining equipment and facilities, to wit:
interest and charges until fully paid;
2. To pay an amount equivalent to Ten Percent (10%) of above-stated amount as
attorney’s fees; and
3. To pay the costs of suit.
"SO ORDERED."
Upon Solidbank’s motion, the RTC of Manila issued a writ of execution pending
appeal directing Carlos P. Bajar, respondent sheriff, to require Marcopper "to pay the
sums of money to satisfy the Partial Judgment."10 Thereafter, respondent Bajar issued
two notices of levy on Marcopper’s personal and real properties, and over all its stocks
of scrap iron and unserviceable mining equipment.11 Together with sheriff Ferdinand
M. Jandusay (also a respondent) of the RTC, Branch 94, Boac, Marinduque,
respondent Bajar issued two notices setting the public auction sale of the levied
properties on August 27, 1998 at the Marcopper mine site.12
Having learned of the scheduled auction sale, petitioner served an "Affidavit of
Third-Party Claim"13 upon respondent sheriffs on August 26, 1998, asserting its
ownership over all Marcopper’s mining properties, equipment and facilities by
virtue of the "Deed of Assignment."
Upon the denial of its "Affidavit of Third–Party Claim" by the RTC of Manila,14
petitioner commenced with the RTC of Boac, Marinduque, presided by Judge
Leonardo P. Ansaldo, a complaint for reivindication of properties, etc., with prayer
for preliminary injunction and temporary restraining order against respondents
Solidbank, Marcopper, and sheriffs Bajar and Jandusay.15 The case was docketed as
Civil Case No. 98-13.
In an Order16 dated October 6, 1998, Judge Ansaldo denied petitioner’s application
for a writ of preliminary injunction on the ground that a) petitioner has no legal
capacity to sue, it being a foreign corporation doing business in the Philippines
without license; b) an injunction will amount "to staying the execution of a final
judgment by a court of co-equal and concurrent jurisdiction;" and c) the validity of
the "Assignment Agreement" and the "Deed of Assignment" has been "put into serious
question by the timing of their execution and registration."
Unsatisfied, petitioner elevated the matter to the Court of Appeals on a Petition for
Certiorari, Prohibition and Mandamus, docketed therein as CA-G.R. SP No. 49226.
On January 8, 1999, the Court of Appeals rendered a Decision holding that Judge
Ansaldo did not commit grave abuse of discretion in denying petitioner’s prayer for a
writ of preliminary injunction, ratiocinating as follows:
"Petitioner contends that it has the legal capacity to sue and seek redress
from Philippine courts as it is a non-resident foreign corporation not doing
business in the Philippines and suing on isolated transactions.
xxx xxx
"We agree with the finding of the respondent court that petitioner is not suing on an
isolated transaction as it claims to be, as it is very obvious from the deed of assignment
and its relationships with Marcopper and Placer Dome, Inc. that its unmistakable
intention is to continue the operations of Marcopper and shield its properties/assets
from the reach of legitimate creditors, even those holding valid and executory court
judgments against it. There is no other way for petitioner to recover its huge financial
investments which it poured into Marcopper’s rehabilitation and the local situs where
the Deeds of Assignment were executed, without petitioner continuing to do business
in the country.
xxx xxx
"While petitioner may just be an assignee to the Deeds of Assignment, it may still fall
within the meaning of "doing business" in light of the Supreme Court ruling in the
case of Far East International Import and Export Corporation vs. Nankai Kogyo Co.,
6 SCRA 725, that:
‘Where a single act or transaction however is not merely incidental or casual but
indicates the foreign corporation’s intention to do other business in the Philippines,
said single act or transaction constitutes doing or engaging in or transacting business
in the Philippines.’
"Furthermore, the court went further by declaring that even a single act may constitute
doing business if it is intended to be the beginning of a series of transactions. (Far East
International Import and Export Corporation vs. Nankai Kogyo Co. supra).
"On the issue of whether petitioner is the bona fide owner of all the mining facilities
and equipment of Marcopper, petitioner relies heavily on the Assignment Agreement
allegedly executed on March 20, 1997 wherein all the rights and interest of Asian
Development Bank (ADB) in a purported Loan Agreement were ceded and transferred
in favor of the petitioner as assignee, in addition to a subsequent Deed of Assignment
dated December 28, 1997 conveying absolutely all the properties, mining equipment
and facilities of Marcopper in favor of petitioner.
"The Deeds of Assignment executed in favor of petitioner cannot be binding on the
judgment creditor, private respondent Solidbank, under the general legal principle that
contracts can only bind the parties who had entered into it, and it cannot favor or
prejudice a third person (Quano vs. Court of Appeals, 211 SCRA 40). Moreover, by
express stipulation, the said deeds shall be governed, interpreted and construed in
accordance with laws of New York.1âwphi1.nêt
"The Deeds of Assignment executed by Marcopper, through its President, Atty.
Teodulo C. Gabor, Jr., were clearly made in bad faith and in fraud of creditors,
particularly private respondent Solidbank. The first Assignment Agreement
purportedly executed on March 20, 1997 was entered into after Solidbank had filed
on September 19, 1996 a case against Marcopper for collection of sum of money
before Branch 26 of the Regional Trial Court docketed as Civil Case No. 96-80083.
The second Deed of Assignment purportedly executed on December 28, 1997 was
entered into by President Gabor after Solidbank had filed its Motion for Partial
Summary Judgment, after the rendition by Branch 26 of the Regional Trial Court of
Manila of a Partial Summary Judgment and after the said trial court had issued a writ
of execution, and which judgment was later affirmed by the Court of Appeals. While
the assignments (which were not registered with the Registry of Property as required
by Article 1625 of the new Civil Code) may be valid between the parties thereof, it
produces no effect as against third parties. The purported execution of the Deeds of
Assignment in favor of petitioner was in violation of Article 1387 of the New Civil
Code x x x." (Emphasis Supplied)
Hence, the present Petition for Review on Certiorari by MR Holdings, Ltd. moored
on the following grounds:
"A. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN COMPLETELY DISREGARDING AS A MATERIAL FACT OF THE
CASE THE EXISTENCE OF THE PRIOR, REGISTERED 1992 DEED OF REAL
ESTATE AND CHATTEL MORTGAGE CREATING A LIEN OVER THE
LEVIED PROPERTIES, SUBJECT OF THE ASSIGNMENT AGREEMENT
DATED MARCH 20, 1997, THUS, MATERIALLY CONTRIBUTING TO THE
SAID COURT’S MISPERCEPTION AND MISAPPRECIATION OF THE MERITS
OF PETITIONER’S CASE.
B. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN MAKING A FACTUAL FINDING THAT THE SAID ASSIGNMENT
AGREEMENT IS NOT REGISTERED, THE SAME BEING CONTRARY TO THE
FACTS ON RECORD, THUS, MATERIALLY CONTRIBUTING TO THE SAID
COURT’S MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF
PETITIONER’S CASE.
C. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN MAKING A FACTUAL FINDING ON THE EXISTENCE OF AN
ATTACHMENT ON THE PROPERTIES SUBJECT OF INSTANT CASE, THE
SAME BEING CONTRARY TO THE FACTS ON RECORD, THUS,
MATERIALLY CONTRIBUTING TO THE SAID COURT’S MISPERCEPTION
AND MISAPPRECIATION OF THE MERITS OF PETITIONER’S CASE.
D. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING THAT THE SAID ASSIGNMENT AGREEMENT AND
THE DEED OF ASSIGNMENT ARE NOT BINDING ON RESPONDENT
SOLIDBANK WHO IS NOT A PARTY THERETO, THE SAME BEING
CONTRARY TO LAW AND ESTABLISHED JURISPRUDENCE ON PRIOR
REGISTERED MORTGAGE LIENS AND ON PREFERENCE OF CREDITS.
E. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN FINDING THAT THE AFOREMENTIONED ASSIGNMENT
AGREEMENT AND DEED OF ASSIGNMENT ARE SHAM, SIMULATED, OF
DUBIOUS CHARACTER, AND WERE MADE IN BAD FAITH AND IN FRAUD
OF CREDITORS, PARTICULARLY RESPONDENT SOLIDBANK, THE SAME
BEING IN COMPLETE DISREGARD OF, VIZ: (1) THE LAW AND
ESTABLISHED JURISPRUDENCE ON PRIOR, REGISTERED MORTGAGE
LIENS AND ON PREFERENCE OF CREDITS, BY REASON OF WHICH THERE
EXISTS NO CAUSAL CONNECTION BETWEEN THE SAID CONTRACTS AND
THE PROCEEDINGS IN CIVIL CASE NO. 96-80083; (2) THAT THE ASIAN
DEVELOPMENT BANK WILL NOT OR COULD NOT HAVE AGREED TO A
SHAM; SIMULATED, DUBIOUS AND FRAUDULENT TRANSACTION; AND
(3) THAT RESPONDENT SOLIDBANK’S BIGGEST STOCKHOLDER, THE
BANK OF NOVA SCOTIA, WAS A MAJOR BENEFICIARY OF THE
ASSIGNMENT AGREEMENT IN QUESTION.
F. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING THAT PETITIONER IS WITHOUT LEGAL CAPACITY
TO SUE AND SEEK REDRESS FROM PHILIPPINE COURTS, IT BEING THE
CASE THAT SECTION 133 OF THE CORPORATION CODE IS WITHOUT
APPLICATION TO PETITIONER, AND IT BEING THE CASE THAT THE SAID
COURT MERELY RELIED ON SURMISES AND CONJECTURES IN OPINING
THAT PETITIONER INTENDS TO DO BUSINESS IN THE PHILIPPINES.
G. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING THAT RESPONDENT MARCOPPER, PLACER DOME,
INC., AND PETITIONER ARE ONE AND THE SAME ENTITY, THE SAME
BEING WITHOUT FACTUAL OR LEGAL BASIS.
H. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING PETITIONER GUILTY OF FORUM SHOPPING, IT
BEING CLEAR THAT NEITHER LITIS PENDENTIA NOR RES JUDICATA
MAY BAR THE INSTANT REIVINDICATORY ACTION, AND IT BEING
CLEAR THAT AS THIRD-PARTY CLAIMANT, THE LAW AFFORDS
PETITIONER THE RIGHT TO FILE SUCH REIVINDICATORY ACTION.

I. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN RENDERING A DECISION WHICH IN EFFECT SERVES AS
JUDGMENT ON THE MERITS OF THE CASE.
J. THE SHERIFF’S LEVY AND SALE, THE SHERIFF’S CERTIFICATE OF SALE
DATED OCTOBER 12, 1998, THE RTC-MANILA ORDER DATED FEBRUARY
12, 1999, AND THE RTC-BOAC ORDER DATED NOVEMBER 25, 1998 ARE
NULL AND VOID.
In its comment, Solidbank avers that: a) petitioner is "doing business" in the
Philippines and this is evidenced by the "huge investment" it poured into the
assignment contracts; b) granting that petitioner is not doing business in the
Philippines, the nature of its transaction reveals an "intention to do business" or "to
begin a series of transaction" in the country; c) petitioner, Marcopper and Placer Dome
are one and the same entity, petitioner being then a wholly-owned subsidiary of Placer
Dome, which, in turn, owns 40% of Marcopper; d) the timing under which the
assignments contracts were executed shows that petitioner’s purpose was to defeat
any judgment favorable to it (Solidbank); and e) petitioner violated the rule on forum
shopping since the object of Civil Case No. 98-13 (at RTC, Boac, Marinduque) is
similar to the other cases filed by Marcopper in order to forestall the sale of the levied
properties.

K. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE

ERROR IN AFFIRMING THE DENIAL BY THE RTC-BOAC OF PETITIONER’S Marcopper, in a separate comment, states that it is merely a nominal party to the
APPLICATION FOR PRELIMINARY INJUNCTION, THE SAME BEING IN present case and that its principal concerns are being ventilated in another case.
TOTAL DISREGARD OF PETITIONER’S RIGHT AS ASSIGNEE OF A PRIOR,
REGISTERED MORTGAGE LIEN, AND IN DISREGARD OF THE LAW AND
JURISPRUDENCE ON PREFERENCE OF CREDIT."
The petition is impressed with merit.

In its petition, petitioner alleges that it is not "doing business" in the Philippines and
Crucial to the outcome of this case is our resolution of the following issues: 1) Does
characterizes its participation in the assignment contracts (whereby Marcopper’s
petitioner have the legal capacity to sue? 2) Was the Deed of Assignment between
assets where transferred to it) as mere isolated acts that cannot foreclose its right to
Marcopper and petitioner executed in fraud of creditors? 3) Are petitioner MR
sue in local courts. Petitioner likewise maintains that the two assignment contracts,
Holdings, Ltd., Placer Dome, and Marcopper one and the same entity? and 4) Is
although executed during the pendency of Civil Case No. 96-80083 in the RTC of
petitioner guilty of forum shopping?
Manila, are not fraudulent conveyances as they were supported by valuable
considerations. Moreover, they were executed in connection with prior transactions
that took place as early as 1992 which involved ADB, a reputable financial institution.
We shall resolve the issues in seriatim.
Petitioner further claims that when it paid Marcopper’s obligation to ADB, it stepped
into the latter’s shoes and acquired its (ADB’S) rights, titles, and interests under the
"Deed of Real Estate and Chattel Mortgage." Lastly, petitioner asserts its existence as
a corporation, separate and distinct from Placer Dome and Marcopper. I
The Court of Appeals ruled that petitioner has no legal capacity to sue in the
Philippine courts because it is a foreign corporation doing business here without
license. A review of this ruling does not pose much complexity as the principles
governing a foreign corporation’s right to sue in local courts have long been settled
by our Corporation Law.17 These principles may be condensed in three statements,
to wit: a) if a foreign corporation does business in the Philippines without a license, it
cannot sue before the Philippine courts;18 b) if a foreign corporation is not doing
business in the Philippines, it needs no license to sue before Philippine courts on an
isolated transaction19 or on a cause of action entirely independent of any business
transaction;20 and c) if a foreign corporation does business in the Philippines
with the required license, it can sue before Philippine courts on any
transaction. Apparently, it is not the absence of the prescribed license but the "doing
(of) business" in the Philippines without such license which debars the foreign
corporation from access to our courts.21
The task at hand requires us to weigh the facts vis-à-vis the established principles. The
question whether or not a foreign corporation is doing business is dependent
principally upon the facts and circumstances of each particular case, considered in the
light of the purposes and language of the pertinent statute or statutes involved and of
the general principles governing the jurisdictional authority of the state over such
corporations.22
Batas Pambansa Blg. 68, otherwise known as "The Corporation Code of the
Philippines," is silent as to what constitutes doing" or "transacting" business in the
Philippines. Fortunately, jurisprudence has supplied the deficiency and has held that
the term "implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some
of the functions normally incident to, and in progressive prosecution of, the purpose
and object for which the corporation was organized."23 In Mentholatum Co. Inc., vs.
Mangaliman,24 this Court laid down the test to determine whether a foreign company
is "doing business," thus:
" x x x The true test, however, seems to be whether the foreign corporation is
continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to another.
(Traction Cos. vs. Collectors of Int. Revenue [C.C.A., Ohio], 223 F. 984,987.) x x x."
The traditional case law definition has metamorphosed into a statutory definition,
having been adopted with some qualifications in various pieces of legislation in our
jurisdiction. For instance, Republic Act No. 7042, otherwise known as the "Foreign
Investment Act of 1991," defines "doing business" as follows:
"d) The phrase ‘doing business’ shall include soliciting orders, service contracts,
opening offices, whether called ‘liaison’ offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totalling one hundred eight(y) (180)
days or more; participating in the management, supervision or control of any domestic
business, firm, entity, or corporation in the Philippines; and any other act or acts that
imply a continuity of commercial dealings or arrangements, and contemplate to that
extent the performance of acts or works; or the exercise of some of the functions
normally incident to, and in progressive prosecution of, commercial gain or of the
purpose and object of the business organization; Provided, however, That the phrase
‘doing business’ shall not be deemed to include mere investment as a shareholder by
a foreign entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor, nor having a nominee director or officer to
represent its interests in such corporation, nor appointing a representative or
distributor domiciled in the Philippines which transacts business in its own name and
for its own account." (Emphasis supplied)25
Likewise, Section 1 of Republic Act No. 5455,26 provides that:
"SECTION. 1. Definition and scope of this Act. - (1) x x x the phrase ‘doing business’
shall include soliciting orders, purchases, service contracts, opening offices, whether
called ‘liaison’ offices or branches; appointing representatives or distributors who are
domiciled in the Philippines or who in any calendar year stay in the Philippines for a
period or periods totaling one hundred eighty days or more; participating in the
management, supervision or control of any domestic business firm, entity or
corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance
of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the
business organization."
There are other statutes27 defining the term "doing business" in the same tenor as
those above-quoted, and as may be observed, one common denominator among them
all is the concept of "continuity."
In the case at bar, the Court of Appeals categorized as "doing business" petitioner’s
participation under the "Assignment Agreement" and the "Deed of Assignment." This
is simply untenable. The expression "doing business" should not be given such a
strict and literal construction as to make it apply to any corporate dealing whatever.28
At this early stage and with petitioner’s acts or transactions limited to the assignment
contracts, it cannot be said that it had performed acts intended to continue the business
for which it was organized. It may not be amiss to point out that the purpose or
business for which petitioner was organized is not discernible in the records. No effort
was exerted by the Court of Appeals to establish the nexus between petitioner’s
business and the acts supposed to constitute "doing business." Thus, whether the
assignment contracts were incidental to petitioner’s business or were continuation
thereof is beyond determination. We cannot apply the case cited by the Court of
Appeals, Far East Int’l Import and Export Corp. vs. Nankai Kogyo Co., Ltd.,29 which
held that a single act may still constitute "doing business" if "it is not merely incidental
or casual, but is of such character as distinctly to indicate a purpose on the part of the
foreign corporation to do other business in the state." In said case, there was an express
admission from an official of the foreign corporation that he was sent to the
Philippines to look into the operation of mines, thereby revealing the foreign
corporation’s desire to continue engaging in business here. But in the case at bar, there
is no evidence of similar desire or intent. Unarguably, petitioner may, as the Court of
Appeals suggested, decide to operate Marcopper’s mining business, but, of course, at
this stage, that is a mere speculation. Or it may decide to sell the credit secured by the
mining properties to an offshore investor, in which case the acts will still be isolated
transactions. To see through the present facts an intention on the part of petitioner to
start a series of business transaction is to rest on assumptions or probabilities falling
short of actual proof. Courts should never base its judgments on a state of facts so
inadequately developed that it cannot be determined where inference ends and
conjecture begins.
Indeed, the Court of Appeals’ holding that petitioner was determined to be "doing
business" in the Philippines is based mainly on conjectures and speculation. In
concluding that the "unmistakable intention" of petitioner is to continue Marcopper’s
business, the Court of Appeals hangs on the wobbly premise that "there is no other
way for petitioner to recover its huge financial investments which it poured into
Marcopper’s rehabilitation without it (petitioner) continuing Marcopper’s business in
the country."30 This is a mere presumption. Absent overt acts of petitioner from which
we may directly infer its intention to continue Marcopper’s business, we cannot give
our concurrence. Significantly, a view subscribed upon by many authorities is that the
mere ownership by a foreign corporation of a property in a certain state,
unaccompanied by its active use in furtherance of the business for which it was
formed, is insufficient in itself to constitute doing business.31 In Chittim vs. Belle
Fourche Bentonite Products Co.,32 it was held that even if a foreign corporation
purchased and took conveyances of a mining claim, did some assessment work
thereon, and endeavored to sell it, its acts will not constitute the doing of business so
as to subject the corporation to the statutory requirements for the transacting of
business. On the same vein, petitioner, a foreign corporation, which becomes the
assignee of mining properties, facilities and equipment cannot be automatically
considered as doing business, nor presumed to have the intention of engaging in
mining business.
One important point. Long before petitioner assumed Marcopper’s debt to ADB and
became their assignee under the two assignment contracts, there already existed a
"Support and Standby Credit Agreement" between ADB and Placer Dome whereby
the latter bound itself to provide cash flow support for Marcopper’s payment of its
obligations to ADB. Plainly, petitioner’s payment of US$ 18,453,450.12 to ADB was
more of a fulfillment of an obligation under the "Support and Standby Credit
Agreement" rather than an investment. That petitioner had to step into the shoes of
ADB as Marcopper’s creditor was just a necessary legal consequence of the
transactions that transpired. Also, we must hasten to add that the "Support and Standby
Credit Agreement" was executed four (4) years prior to Marcopper’s insovency,
hence, the alleged "intention of petitioner to continue Marcopper’s business" could
have no basis for at that time, Marcopper’s fate cannot yet be determined.
In the final analysis, we are convinced that petitioner was engaged only in isolated
acts or transactions. Single or isolated acts, contracts, or transactions of foreign
corporations are not regarded as a doing or carrying on of business. Typical examples
of these are the making of a single contract, sale, sale with the taking of a note and
mortgage in the state to secure payment therefor, purchase, or note, or the mere
commission of a tort.33 In these instances, there is no purpose to do any other business
within the country.
II
Solidbank contends that from the chronology and timing of events, it is evident that
there existed a pre-set pattern of response on the part of Marcopper to defeat whatever
court ruling that may be rendered in favor of Solidbank.
We are not convinced.
While it may appear, at initial glance, that the assignment contracts are in the nature
of fraudulent conveyances, however, a closer look at the events that transpired prior
to the execution of those contracts gives rise to a different conclusion. The obvious
flaw in the Court of Appeals’ Decision lies in its constricted view of the facts obtaining
in the case. In its factual narration, the Court of Appeals definitely left out some
events. We shall see later the significance of those events.
Article 1387 of the Civil Code of the Philippines provides:
"Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous
title are presumed to have been entered into in fraud of creditors, when the donor did
not reserve sufficient property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons
against whom some judgment has been rendered in any instance or some writ of
attachment has been issued. The decision or attachment need not refer to the property
alienated, and need not have been obtained by the party seeking rescission.
In addition to these presumptions, the design to defraud creditors may be proved in
any other manner recognized by law and of evidence.
This article presumes the existence of fraud made by a debtor. Thus, in the absence of
satisfactory evidence to the contrary, an alienation of a property will be held
fraudulent if it is made after a judgment has been rendered against the debtor making
the alienation.34 This presumption of fraud is not conclusive and may be rebutted by
satisfactory and convincing evidence. All that is necessary is to establish affirmatively
that the conveyance is made in good faith and for a sufficient and valuable
consideration.35
It is said that the test as to whether or not a conveyance is fraudulent is -- does it
prejudice the rights of creditors?38 We cannot see how Solidbank’s right was
prejudiced by the assignment contracts considering that substantially all of
The "Assignment Agreement" and the "Deed of Assignment" were executed for
Marcopper’s properties were already covered by the registered "Deed of Real Estate
valuable considerations. Patent from the "Assignment Agreement" is the fact that
and Chattel Mortgage" executed by Marcopper in favor of ADB as early as November
petitioner assumed the payment of US$ 18,453,450.12 to ADB in satisfaction of
11, 1992. As such, Solidbank cannot assert a better right than ADB, the latter being a
Marcopper’s remaining debt as of March 20, 1997.36 Solidbank cannot deny this fact
preferred creditor. It is basic that mortgaged properties answer primarily for the
considering that a substantial portion of the said payment, in the sum of US$
mortgaged credit, not for the judgment credit of the mortgagor’s unsecured creditor.
13,886,791.06, was remitted in favor of the Bank of Nova Scotia, its major
Considering that petitioner assumed Marcopper’s debt to ADB, it follows that
stockholder.37
Solidbank’s right as judgment creditor over the subject properties must give way to
that of the former.1âwphi1.nêt

The facts of the case so far show that the assignment contracts were executed in good
faith. The execution of the "Assignment Agreement" on March 20, 1997 and the
III
"Deed of Assignment" on December 8,1997 is not the alpha of this case. While the
execution of these assignment contracts almost coincided with the rendition on May
7, 1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila RTC,
The record is lacking in circumstances that would suggest that petitioner corporation,
however, there was no intention on the part of petitioner to defeat Solidbank’s claim.
Placer Dome and Marcopper are one and the same entity. While admittedly, petitioner
It bears reiterating that as early as November 4, 1992, Placer Dome had already bound
is a wholly-owned subsidiary of Placer Dome, which in turn, which, in turn, was then
itself under a "Support and Standby Credit Agreement" to provide Marcopper with
a minority stockholder of Marcopper, however, the mere fact that a corporation owns
cash flow support for the payment to ADB of its obligations. When Marcopper ceased
all of the stocks of another corporation, taken alone is not sufficient to justify their
operations on account of disastrous mine tailings spill into the Boac River and ADB
being treated as one entity. If used to perform legitimate functions, a subsidiary’s
pressed for payment of the loan, Placer Dome agreed to have its subsidiary, herein
separate existence shall be respected, and the liability of the parent corporation as well
petitioner, paid ADB the amount of US $18,453,450.12. Thereupon, ADB and
as the subsidiary will be confined to those arising in their respective business.39
Marcopper executed, respectively, in favor of petitioner an "Assignment Agreement"
and a "Deed of Assignment." Obviously, the assignment contracts were connected
with transactions that happened long before the rendition in 1997 of the Partial
Judgment in Civil Case No. 96-80083 by the Manila RTC. Those contracts cannot be The recent case of Philippine National Bank vs. Ritratto Group Inc.,40 outlines the
viewed in isolation. If we may add, it is highly inconceivable that ADB, a reputable circumstances which are useful in the determination of whether a subsidiary is but a
international financial organization, will connive with Marcopper to feign or simulate mere instrumentality of the parent-corporation, to wit:
a contract in 1992 just to defraud Solidbank for its claim four years thereafter. And it
is equally incredible for petitioner to be paying the huge sum of US $ 18,453,450.12
to ADB only for the purpose of defrauding Solidbank of the sum of ₱52,970,756.89. (a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the
subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or
no assets except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or its
business or financial responsibility is referred to as the parent corporation’s own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest
of the subsidiary, but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
In this catena of circumstances, what is only extant in the records is the matter of stock
ownership. There are no other factors indicative that petitioner is a mere
instrumentality of Marcopper or Placer Dome. The mere fact that Placer Dome agreed,
under the terms of the "Support and Standby Credit Agreement" to provide Marcopper
with cash flow support in paying its obligations to ADB, does not mean that its
personality has merged with that of Marcopper. This singular undertaking, performed
by Placer Dome with its own stockholders in Canada and elsewhere, is not a sufficient
ground to merge its corporate personality with Marcopper which has its own set of
shareholders, dominated mostly by Filipino citizens. The same view applies to
petitioner’s payment of Marcopper’s remaining debt to ADB.
With the foregoing considerations and the absence of fraud in the transaction of the
three foreign corporations, we find it improper to pierce the veil of corporate fiction
– that equitable doctrine developed to address situations where the corporate
personality of a corporation is abused or used for wrongful purposes.
IV
On the issue of forum shopping, there could have been a violation of the rules thereon
if petitioner and Marcopper were indeed one and the same entity. But since petitioner
has a separate personality, it has the right to pursue its third-party claim by filing the
independent reivindicatory action with the RTC of Boac, Marinduque, pursuant to
Rule 39, Section 16 of the 1997 Rules of Civil Procedures. This remedy has been
recognized in a long line of cases decided by this Court.41 In Rodriguez vs. Court of
Appeals,42 we held:
". . . It has long been settled in this jurisdiction that the claim of ownership of a third
party over properties levied for execution of a judgment presents no issue for
determination by the court issuing the writ of execution.
. . .Thus, when a property levied upon by the sheriff pursuant to a writ of execution is
claimed by third person in a sworn statement of ownership thereof, as prescribed by
the rules, an entirely different matter calling for a new adjudication arises. And dealing
as it does with the all important question of title, it is reasonable to require the filing
of proper pleadings and the holding of a trial on the matter in view of the requirements
of due process.
. . . In other words, construing Section 17 of Rule 39 of the Revised Rules of Court
(now Section 16 of the 1997 Rules of Civil Procedure), the rights of third-party
claimants over certain properties levied upon by the sheriff to satisfy the judgment
may not be taken up in the case where such claims are presented but in a separate and
independent action instituted by the claimants." (Emphasis supplied)
This "reivindicatory action" has for its object the recovery of ownership or possession
of the property seized by the sheriff, despite the third party claim, as well as damages
resulting therefrom, and it may be brought against the sheriff and such other parties
as may be alleged to have connived with him in the supposedly wrongful execution
proceedings, such as the judgment creditor himself. Such action is an entirely separate
and distinct action from that in which execution has been issued. Thus, there being no
identity of parties and cause of action between Civil Case No. 98-13 (RTC, Boac) and
those cases filed by Marcopper, including Civil Case No. 96-80083 (RTC, Manila) as
to give rise to res judicata or litis pendentia, Solidbank’s allegation of forum-shopping
cannot prosper.43
All considered, we find petitioner to be entitled to the issuance of a writ of preliminary
injunction. Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides:
"SEC. 3 Grounds for issuance of preliminary injunction. – A preliminary injunction
may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such
relief consists in restraining the commission or continuance of the act or acts
complained of, or in requiring the performance of an act or acts, either for a limited
period or perpetually;
(b) That the commission, continuance or non-performance of the acts or acts
complained of during the litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do,
or is procuring or suffering to be done, some act or acts probably in violation of the
rights of the applicant respecting the subject of the action or proceeding, and tending
to render the judgment ineffectual."
Petitioner’s right to stop the further execution of the properties covered by the
assignment contracts is clear under the facts so far established. An execution can be
issued only against a party and not against one who did not have his day in court.44
The duty of the sheriff is to levy the property of the judgment debtor not that of a third
person. For, as the saying goes, one man’s goods shall not be sold for another man's
debts.45 To allow the execution of petitioner’s properties would surely work injustice
to it and render the judgment on the reivindicatory action, should it be favorable,
ineffectual. In Arabay, Inc., vs. Salvador,46 this Court held that an injunction is a
proper remedy to prevent a sheriff from selling the property of one person for the
purpose of paying the debts of another; and that while the general rule is that no court
has authority to interfere by injunction with the judgments or decrees of another court
of equal or concurrent or coordinate jurisdiction, however, it is not so when a third-
party claimant is involved. We quote the instructive words of Justice Querube C.
Makalintal in Abiera vs. Court of Appeals,47 thus:
Footnotes

"The rationale of the decision in the Herald Publishing Company case48 is peculiarly
1 Rollo, pp. 10-29. Former Justice Demetrio S. Demetria wrote the ponencia with
applicable to the one before Us, and removes it from the general doctrine enunciated
Justices Ramon A. Barcelona (Ret.) and Rodrigo V. Cosico concurring.
in the decisions cited by the respondents and quoted earlier herein.

2 See Order dated October 6, 1998, Rollo, pp. 247-256.

1. Under Section 17 of Rule 39 a third person who claims property levied upon on
execution may vindicate such claim by action. Obviously a judgment rendered in his
favor, that is, declaring him to be the owner of the property, would not constitute
interference with the powers or processes of the court which rendered the judgment 3 Rollo, p.31.
to enforce which the execution was levied. If that be so – and it is so because the
property, being that of a stranger, is not subject to levy – then an interlocutory order
such as injunction, upon a claim and prima facie showing of ownership by the 4 Ibid., pp. 534-575.
claimant, cannot be considered as such interference either."

5 Ibid., pp. 576-602.

WHEREFORE, the petition is GRANTED. The assailed Decision dated January 8,
1999 and the Resolution dated March 29, 1999 of the Court of Appeals in CA G.R.
No. 49226 are set aside. Upon filing of a bond of ₱1,000,000.00, respondent sheriffs 6 Rollo, pp. 119-156.
are restrained from further implementing the writ of execution issued in Civil Case
No. 96-80083 by the RTC, Branch 26, Manila, until further orders from this Court.
The RTC, Branch 94, Boac, Marinduque, is directed to dispose of Civil Case No. 98- 7 Ibid., pp. 157-172.
13 with dispatch.

8 Ibid., pp. 173-174.

SO ORDERED.

9 Penned by Guillermo L. Loja, Sr.

Melo, Vitug, Panganiban, and Carpio, JJ., concur.

10 Rollo, pp. 182-183.

 FRANCISCO MOTORS CORPORATION, petitioner,
11 1. Notice of Levy on Personal Property/ies Pursuant to Writ of Execution Pending vs.
Appeal dated July 6, 1998, Rollo, p. 187.
COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL,
respondents.
2. Notice of Levy Upon Chattels/Personal Properties Pursuant to Writ of Execution
Pending Appeal dated August 17, 1998, Rollo, p. 189.

QUISUMBING, J.:

Today is Tuesday, December 10, 2019home

This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to
Custom Search annul the decision 1 of the Court of Appeals in C.A. G.R. CV No. 10014 affirming
the decision rendered by Branch 135, Regional Trial Court of Makati, Metro Manila.
The procedural antecedents of this petition are as follows:

Republic of the Philippines

On January 23, 1985, petitioner filed a complaint 2 against private respondents to
SUPREME COURT recover three thousand four hundred twelve and six centavos (P3,412.06),
representing the balance of the jeep body purchased by the Manuels from petitioner;
Manila an additional sum of twenty thousand four hundred fifty-four and eighty centavos
(P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and
six thousand pesos (P6,000.00) for cost of suit and attorney's fees. 3 To the original
SECOND DIVISION balance on the price of jeep body were added the costs of repair. 4 In their answer,
private respondents interposed a counterclaim for unpaid legal services by Gregorio
Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the
incorporators, directors and officers of the petitioner. The trial court decided the case
on June 26, 1985, in favor of petitioner in regard to the petitioner's claim for money,
but also allowed the counter-claim of private respondents. Both parties appealed. On
G.R. No. 100812 June 25, 1999 April 15, 1991, the Court of Appeals sustained the trial court's decision. 5 Hence, the
present petition.

For our review in particular is the propriety of the permissive counterclaim which
private respondents filed together with their answer to petitioner's complaint for a sum
of money. Private respondent Gregorio Manuel alleged as an affirmative defense that,
while he was petitioner's Assistant Legal Officer, he represented members of the
Francisco family in the intestate estate proceedings of the late Benita Trinidad.
However, even after the termination of the proceedings, his services were not paid.
Said family members, he said, were also incorporators, directors and officers of
petitioner. Hence to petitioner's collection suit, he filed a counter permissive
counterclaim for the unpaid attorney's fees. 6
For failure of petitioner to answer the counterclaim, the trial court declared petitioner
in default on this score, and evidence ex-parte was presented on the counterclaim. The
trial court ruled in favor of private respondents and found that Gregorio Manuel
indeed rendered legal services to the Francisco family in Special Proceedings Number
7803 — "In the Matter of Intestate Estate of Benita Trinidad". Said court also found
that his legal services were not compensated despite repeated demands, and thus
ordered petitioner to pay him the amount of fifty thousand (P50,000.00) pesos. 7
Dissatisfied with the trial court's order, petitioner elevated the matter to the Court of
Appeals, posing the following issues:
I.
WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS
NULL AND VOID AS IT NEVER ACQUIRED JURISDICTION OVER THE
PERSON OF THE DEFENDANT.
II.
WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN
THE ALLEGED PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE
TO THE CLAIM OF DEFENDANT-APPELLEES.
III.
WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-
APPELLANT TO ANSWER THE ALLEGED PERMISSIVE COUNTERCLAIM. 8
Petitioner contended that the trial court did not acquire jurisdiction over it because no
summons was validly served on it together with the copy of the answer containing the
permissive counterclaim. Further, petitioner questions the propriety of its being made
party to the case because it was not the real party in interest but the individual
members of the Francisco family concerned with the intestate case.
In its assailed decision now before us for review, respondent Court of Appeals held
that a counterclaim must be answered in ten (10) days, pursuant to Section 4, Rule 11,
of the Rules of Court; and nowhere does it state in the Rules that a party still needed
to be summoned anew if a counterclaim was set up against him. Failure to serve
summons, said respondent court, did not effectively negate trial court's jurisdiction
over petitioner in the matter of the counterclaim. It likewise pointed out that there was
no reason for petitioner to be excused from answering the counterclaim. Court records
showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer
with counterclaim two (2) days prior to his withdrawal as counsel for petitioner.
Moreover when petitioner's new counsel, Jose N. Aquino, entered his appearance,
three (3) days still remained within the period to file an answer to the counterclaim.
Having failed to answer, petitioner was correctly considered in default by the trial
court. 9 Even assuming that the trial court acquired no jurisdiction over petitioner,
respondent court also said, but having filed a motion for reconsideration seeking relief
from the said order of default, petitioner was estopped from further questioning the
trial court's jurisdiction. 10
On the question of its liability for attorney's fees owing to private respondent Gregorio
Manuel, petitioner argued that being a corporation, it should not be held liable therefor
because these fees were owed by the incorporators, directors and officers of the
corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed
that the personality of the corporation, vis-a-vis the individual persons who hired the
services of private respondent, is separate and distinct, 11 hence, the liability of said
individuals did not become an obligation chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:
However, this distinct and separate personality is merely a fiction created by law for
convenience and to promote justice. Accordingly, this separate personality of the
corporation may be disregarded, or the veil of corporate fiction pierced, in cases where
it is used as a cloak or cover for found (sic) illegality, or to work an injustice, or where
necessary to achieve equity or when necessary for the protection of creditors. (Sulo
ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of
natural persons and the legal fiction of a separate corporate personality is not a
shield for the commission of injustice and inequity. (Chemplex Philippines, Inc. vs.
Pamatian, 57 SCRA 408).
In the instant case, evidence shows that the plaintiff-appellant Francisco Motors
Corporation is composed of the heirs of the late Benita Trinidad as directors and
incorporators for whom defendant Gregorio Manuel rendered legal services in the
intestate estate case of their deceased mother. Considering the aforestated principles
and circumstances established in this case, equity and justice demands plaintiff-
appellant's veil of corporate identity should be pierced and the defendant be
compensated for legal services rendered to the heirs, who are directors of the plaintiff-
appellant corporation. 12
Now before us, petitioner assigns the following errors:
I.
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF
PIERCING THE VEIL OF CORPORATE ENTITY.
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS
JURISDICTION OVER PETITIONER WITH RESPECT TO THE
COUNTERCLAIM. 13
Petitioner submits that respondent court should not have resorted to piercing the veil
of corporate fiction because the transaction concerned only respondent Gregorio
Manuel and the heirs of the late Benita Trinidad. According to petitioner, there was
no cause of action by said respondent against petitioner; personal concerns of the heirs
should be distinguished from those involving corporate affairs. Petitioner further
contends that the present case does not fall among the instances wherein the courts
may look beyond the distinct personality of a corporation. According to petitioner, the
services for which respondent Gregorio Manuel seeks to collect fees from petitioner
are personal in nature. Hence, it avers the heirs should have been sued in their personal
capacity, and not involve the corporation. 14
 instances, they aver, the corporation should be treated merely as an association of
individual persons. 16
With regard to the permissive counterclaim, petitioner also insists that there was no
proper service of the answer containing the permissive counterclaim. It claims that the
counterclaim is a separate case which can only be properly served upon the opposing
Private respondents dispute petitioner's claim that its right to due process was violated
party through summons. Further petitioner states that by nature, a permissive
when respondents' counterclaim was granted due course, although no summons was
counterclaim is one which does not arise out of nor is necessarily connected with the
served upon it. They claim that no provision in the Rules of Court requires service of
subject of the opposing party's claim. Petitioner avers that since there was no service
summons upon a defendant in a counterclaim. Private respondents argue that when
of summons upon it with regard to the counterclaim, then the court did not acquire
the petitioner filed its complaint before the trial court it voluntarily submitted itself to
jurisdiction over petitioner. Since a counterclaim is considered an action independent
the jurisdiction of the court. As a consequence, the issuance of summons on it was no
from the answer, according to petitioner, then in effect there should be two
longer necessary. Private respondents say they served a copy of their answer with
simultaneous actions between the same parties: each party is at the same time both
affirmative defenses and counterclaim on petitioner's former counsel, Nicanor G.
plaintiff and defendant with respect to the other, 15 requiring in each case separate
Alvarez. While petitioner would have the Court believe that respondents served said
summonses.
copy upon Alvarez after he had withdrawn his appearance as counsel for the
petitioner, private respondents assert that this contention is utterly baseless. Records
disclose that the answer was received two (2) days before the former counsel for
In their Comment, private respondents focus on the two questions raised by petitioner.
petitioner withdrew his appearance, according to private respondents. They maintain
They defend the propriety of piercing the veil of corporate fiction, but deny the
that the present petition is but a form of dilatory appeal, to set off petitioner's
necessity of serving separate summonses on petitioner in regard to their permissive
obligations to the respondents by running up more interest it could recover from them.
counterclaim contained in the answer.
Private respondents therefore claim damages against petitioner. 17

Private respondents maintain both trial and appellate courts found that respondent
To resolve the issues in this case, we must first determine the propriety of piercing
Gregorio Manuel was employed as assistant legal officer of petitioner corporation,
the veil of corporate fiction.
and that his services were solicited by the incorporators, directors and members to
handle and represent them in Special Proceedings No. 7803, concerning the Intestate
Estate of the late Benita Trinidad. They assert that the members of petitioner
Basic in corporation law is the principle that a corporation has a separate personality
corporation took advantage of their positions by not compensating respondent
distinct from its stockholders and from other corporations to which it may be
Gregorio Manuel after the termination of the estate proceedings despite his repeated
connected. 18 However, under the doctrine of piercing the veil of corporate entity, the
demands for payment of his services. They cite findings of the appellate court that
corporation's separate juridical personality may be disregarded, for example, when the
support piercing the veil of corporate identity in this particular case. They assert that
corporate identity is used to defeat public convenience, justify wrong, protect fraud,
the corporate veil may be disregarded when it is used to defeat public convenience,
or defend crime. Also, where the corporation is a mere alter ego or business conduit
justify wrong, protect fraud, and defend crime. It may also be pierced, according to
of a person, or where the corporation is so organized and controlled and its affairs are
them, where the corporate entity is being used as an alter ego, adjunct, or business
so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
conduit for the sole benefit of the stockholders or of another corporate entity. In these
another corporation, then its distinct personality may be ignored. 19 In these
circumstances, the courts will treat the corporation as a mere aggrupation of persons
and the liability will directly attach to them. The legal fiction of a separate corporate
personality in those cited instances, for reasons of public policy and in the interest of
justice, will be justifiably set aside.
In our view, however, given the facts and circumstances of this case, the doctrine
of piercing the corporate veil has no relevant application here. Respondent court
erred in permitting the trial court's resort to this doctrine. The rationale behind
piercing a corporation's identity in a given case is to remove the barrier between the
corporation from the persons comprising it to thwart the fraudulent and illegal
schemes of those who use the corporate personality as a shield for undertaking certain
proscribed activities. However, in the case at bar, instead of holding certain
individuals or persons responsible for an alleged corporate act, the situation has been
reversed. It is the petitioner as a corporation which is being ordered to answer for the
personal liability of certain individual directors, officers and incorporators concerned.
Hence, it appears to us that the doctrine has been turned upside down because of its
erroneous invocation. Note that according to private respondent Gregorio Manuel his
services were solicited as counsel for members of the Francisco family to represent
them in the intestate proceedings over Benita Trinidad's estate. These estate
proceedings did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family
members but also from petitioner corporation on the claims that its management had
requested his services and he acceded thereto as an employee of petitioner from whom
it could be deduced he was also receiving a salary. His move to recover unpaid legal
fees through a counterclaim against Francisco Motors Corporation, to offset the
unpaid balance of the purchase and repair of a jeep body could only result from an
obvious misapprehension that petitioner's corporate assets could be used to answer for
the liabilities of its individual directors, officers, and incorporators. Such result if
permitted could easily prejudice the corporation, its own creditors, and even other
stockholders; hence, clearly inequitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever
obligation said incorporators, directors and officers of the corporation had incurred, it
was incurred in their personal capacity. When directors and officers of a corporation
are unable to compensate a party for a personal obligation, it is far-fetched to allege
that the corporation is perpetuating fraud or promoting injustice, and be thereby held
liable therefor by piercing its corporate veil. While there are no hard and fast rules on
disregarding separate corporate identity, we must always be mindful of its function
and purpose. A court should be careful in assessing the milieu where the
doctrine of piercing the corporate veil may be applied. Otherwise an
injustice, although unintended, may result from its erroneous application.
The personality of the corporation and those of its incorporators, directors and officers
in their personal capacities ought to be kept separate in this case. The claim for legal
fees against the concerned individual incorporators, officers and directors could not
be properly directed against the corporation without violating basic principles
governing corporations. Moreover, every action — including a counterclaim — must
be prosecuted or defended in the name of the real party in interest. 20 It is plainly an
error to lay the claim for legal fees of private respondent Gregorio Manuel at the door
of petitioner (FMC) rather than individual members of the Francisco family.
However, with regard to the procedural issue raised by petitioner's allegation, that it
needed to be summoned anew in order for the court to acquire jurisdiction over it, we
agree with respondent court's view to the contrary. Section 4, Rule 11 of the Rules of
Court provides that a counterclaim or cross-claim must be answered within ten (10)
days from service. Nothing in the Rules of Court says that summons should first be
served on the defendant before an answer to counterclaim must be made. The purpose
of a summons is to enable the court to acquire jurisdiction over the person of the
defendant. Although a counterclaim is treated as an entirely distinct and independent
action, the defendant in the counterclaim, being the plaintiff in the original complaint,
has already submitted to the jurisdiction of the court. Following Rule 9, Section 3 of
the 1997 Rules of Civil Procedure, 21 if a defendant (herein petitioner) fails to answer
the counterclaim, then upon motion of plaintiff, the defendant may be declared in Bellosillo, Puno, Mendoza and Buena, JJ., concur.
default. This is what happened to petitioner in this case, and this Court finds no
procedural error in the disposition of the appellate court on this particular issue.
Moreover, as noted by the respondent court, when petitioner filed its motion seeking Footnotes
to set aside the order of default, in effect it submitted itself to the jurisdiction of the
court. As well said by respondent court:
1 Dated April 15, 1991. Rollo, pp. 31-35. Reconsideration thereof was denied on July
1, 1991. Rollo, pp. 28-29.
Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show
that upon its request, plaintiff-appellant was granted time to file a motion for
reconsideration of the disputed decision. Plaintiff-appellant did file its motion for 2 Civil Case No. 9542. Records, RTC, pp. 1-3.
reconsideration to set aside the order of default and the judgment rendered on the
counterclaim.
3 Rollo, p. 31.

Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the

counterclaim, as it vigorously insists, plaintiff-appellant is considered to have
4 Id., at 9.
submitted to the court's jurisdiction when it filed the motion for reconsideration
seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped
from assailing the jurisdiction of a court after voluntarily submitting himself to its
jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar against any 5 Id., at 11.
claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37). 22

6 Supra, note 4.
WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby
REVERSED insofar only as it held Francisco Motors Corporation liable for the legal
obligation owing to private respondent Gregorio Manuel; but this decision is without 7 Supra note 5.
prejudice to his filing the proper suit against the concerned members of the Francisco
family in their personal capacity. No pronouncement as to costs.1âwphi1.nêt
8 Rollo, pp. 32-33.

SO ORDERED.
9 Id. at 32.
10 Id. at 34. 20 Sec. 2, Rule 3 of the RULES OF COURT; See also, De Leon vs. Court of Appeals,
277 SCRA 478, 486 (1997).

11 Ibid.
21 In the Court of Appeals Decision, Section 3 of Rule 9 was still under Section 1 of
Rule 18 of the Rules of Court.
12 Rollo, pp. 34-35.

22 Rollo, p. 34.
13 Id. at 12.

14 Id. at 12-16.
The Lawphil Project - Arellano Law Foundation

15 Id. at 18-21; See also Golden Ribbon Lumber Co., Inc. vs. Salvador S. Santos and
Rafaela M. Santos, C.A. — G. R. No. 12935 November 15, 1955.

Constitution Statutes Executive Issuances Judicial Issuances Other Issuances

16 Id. at 47-51.
Jurisprudence International Legal Resources AUSL Exclusive

17 Id. at 52-60.

18 Concept Builder's Inc. vs. NLRC 257 SCRA 149, 157 (1996); See also Emilio
Cano Enterprises, Inc. vs. CIR, 13 SCRA 290 (1965) and Yutivo Sons Hardware Co.
vs. CTA, 1 SCRA 160(1961).

19 Indophil Textile Mill Workers Union vs. Calica, 205 SCRA 697, 704 (1992); See
also Umali et al vs. CA, 189 SCRA 529, 542 (1990).