Yutivo Sons Hardware Co vs CTA

 Yutivo  Yu tivo Sons Hardware Co vs CTA

Yutivo is a domestic corporation engaged in importation and sale of hardware supplies and equipment. After After the liberation in 1946, resumed its business and until 1946 bout a number of cars and trucks from eneral !otors "!#, an American corporation doing business in the $hilippines. As importer, ! paid sales ta% prescribed b& the 'a% (ode on the basis of its selling price to Yutivo. Yutivo paid no further sales ta% on its sales to the public. )n *une 1946, +outhern !otors "+!# organied to engage in the business of selling cars, trucks and spare parts. -ne of its maor subscribers is Yu 'iong Yee, a founder of  Yutivo. After the incorporation of +! and until the withdrawal of ! from $hil, the cars and trucks were purchased b& Yutivo from ! then sold b& Yutivo to +m and then +! sold these to the public. 'he same wa& that ! used to pa& ta%es on the basis of its sales to Yutivo, Yutivo paid ta%es on the basis of its sales to +!. +! paid no ta%es on its sales to the public. ()/ made an assessment and charged Yutivo 1.0! as deficienc& ta% plus surcharge. $eti $e titi tion oner er co cont ntes este ted d be befo fore re (' ('A A. (' ('A A ru rule led d th that at +! is a me mere re su subs bsid idia iar& r& or  instrumentalit& of Yutivo, hence, its separate corporate e%istence must be disregarded. )ssue 2-3 Yutivo and +! are two separate entities. eld Yes. )t is an elementar& and fundamental principle principle of corporat corporation ion law that a corporation is an entit& separate and distinct from its stockho stockholders lders and from other corporation corporation petitions to which it ma& be connected. owever, 5when the notion of legal entit& is used to defeat public convenience, ustif& wrong, protect fraud, or defend crime,5 the law will regard the corporation as an association of persons, or in the case of two corporations merge them into one. Another rule is that, when the corporation is the 5mere alter ego or business conduit of a person, it ma& be disregarded. owever, the (ourt here held that the& are inclined to rule that the (ourt of 'a% Appeals was not ustified in finding that +! was organied for no other purpose than to defraud the overnment of its lawful revenues. )n the first place, this corporation was organied in *une, 1946 when it could not have caused Yutivo Yutivo an& ta% savings. rom that date up to *une 78, 194, or a period of more than one &ear, ! was the importer of the cars and trucks sold to Yutivo, which, in turn resold them to +!. :uring that period, it is not disputed that ! as importer, was the one solel& liable for sales ta%es. 3either Yutivo or 

+! was subect to the sales ta%es on their sales of cars and trucks. 'he sales ta% liabilit& of Yutivo did not arise until *ul& 1, 194 when it became the importer and simpl& continued its practice of selling to +!. 'he decision, therefore, of the 'a% (ourt that +! was organied purposel& as a ta% evasion device runs counter to the fact that there was no ta% to evade. GOOD EARTH vs.HONORA"E INC., respondents.

EMPORIUM COURT O#

INC., and APPEAS

IM and

petitioners, !A PING, ROCES$REYES REATY

A('+  A ;ease (ontract, dated -ctober 16, 1901, was entered into b& and between /-(<+= /!, )3(., as lessee, for  a term of three &ears beginning 3ovember 1, 1901 and ending -ctober 71, 1904 at a monthl& rental of $6?,888.88. 'he building which was the subect of the contract of  lease is a five=store& building located at the corner of /ial Avenue and @ustos +treet in +ta. (ru, !anila. rom !arch 1907, up to the time the complaint was filed, the lessee had defaulted in the pa&ment of rentals, as a consequence of which, private respondent /-(<+=/nlawful :etainer# against herein petitioners, --: !, )3(. and ;)! A $)3.  After the latter had tendered their responsive pleading, the lower court "!'(, !anila# on motion of /oces rendered udgment on the pleadings in favor of /-(<+.  A writ of e%ecution was issued b& the lower court. !eanwhile, the appeal was assigned to the /egional 'rial (ourt "!anila# @ranch B;C). owever << thru counsel filed with the /egional 'rial (ourt of !anila, a motion to withdraw appeal citing as reason that the& are satisfied with the decision of the !etropolitan 'rial (ourt of !anila, @ranch BBC))), which said court granted in its -rder of August D, 1904 and the records were remanded to the trial court. >pon an ex-parte !otion of /-(<+, the trial court issued an  Alias 2rit of <%ecution. << thru counsel filed a motion to quash the writ of e%ecution and notice of lev& and an urgent Ex-parte +upplemental !otion for the issuance of a restraining order. 'he lower  court issued a restraining order to the sheriff to hold the e%ecution of the udgment pending hearing on the motion to quash the writ of e%ecution 'he /egional 'rial (ourt of !anila, finding that the amount of $1 million evidenced b& <%hibit 5)5 and another $1 million evidenced b& the  pacto de retro sale instrument were

in full satisfaction of the udgment obligation, reversed the decision of the !unicipal 'rial (ourt. -n further appeal, the (ourt of Appeals reversed the decision of the /egional 'rial (ourt and reinstated the /esolution of the !etropolitan 'rial (ourt of !anila. << )s the pa&ment of $1 !illion, as evidenced b& the pacto de retro sale, to the !arcos /e&es and *esus !arcos /e&es satisf& the udgment obligationF 3o.  Article 1D48 of the (ivil (ode of the $hilippines provides that $a&ment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or an& person authoried to receive it. )n the case at bar, the supposed pa&ments were not made to /oces=/e&es /ealt&, )nc. or to its successor in interest nor is there positive evidence that the pa&ment was made to a person authoried to receive it. 3o such proof was submitted but merel& inferred b& the /egional 'rial (ourt from !arcos /oces having signed the ;ease (ontract as $resident which was witnessed b& *esus !arcos /oces. 'he latter, however, was no longer $resident or even an officer of /oces=/e&es /ealt&, )nc. at the time he received the mone& and signed the sale with pacto de retro. e, in fact, denied being in possession of authorit& to receive pa&ment for the respondent corporation nor does the receipt show that he signed in the same capacit& as he did in the ;ease (ontract at a time when he was $resident for respondent corporation. *esus !arcos /oces testified that the amount of $1 million evidenced b& the receipt is the pa&ment for a loan e%tended b& him and !arcos /oces in favor of ;im a $ing. 'he assertion is home b& the receipt itself whereb& the& acknowledged pa&ment of the loan in their names and in no other capacit&.  A corporation has a personalit& distinct and separate from its individual stockholders or  members. @eing an officer or stockholder of a corporation does not make oneEs propert& also of the corporation, and vice=versa, for the& are separate entities. +hareowners are in no legal sense the owners of corporate propert& "or credits# which is owned b& the corporation as a distinct legal person. As a consequence of the separate uridical personalit& of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholderEs debt or credit that of the corporation. 'he fact that at the time pa&ment was made to the two /oces brothers, << was also indebted to respondent corporation for a larger amount, is not supportive of the /egional 'rial (ourtEs conclusions that the pa&ment was in favor of the latter, especiall& in the case at bar where the amount was not receipted for b& respondent corporation

and there is absolutel& no indication in the receipt from which it can be reasonabl& inferred, that said pa&ment was in satisfaction of the udgment debt. ;ikewise, no such inference can be made from the e%ecution of the  pacto de retro  sale which was not made in favor of respondent corporation but in favor of the two /oces brothers in their  individual capacities without an& reference to the udgment obligation in favor of  respondent corporation. !auricia (astillo was the administratri% in charge over a parcel of land left be elipe (astillo. +aid land was mortgaged to the :evelopment @ank of the $hilippines and was about to be foreclosed but then !auriciaGs nephew, +antiago /ivera, proposed that the& convert the land into 4 subdivisions so that the& can raise the necessar& mone& to avoid foreclosure. !auricia agreed. /ivera sought to develop said land through his compan&, +lobec /ealt& (orporation "+/(#, of which he was also the president. +/( then contracted with @ormaheco, )nc. for the purchase of one tractor. @ormaheco agreed to sell the tractor on an installment basis. At the same time, +/( mortgaged said tractor to @ormaheco as securit& ust in case +/( will default. As additional securit&, !auricia and other famil& members e%ecuted a suret& agreement whereb& in case of default in pa&ing said tractor, the )nsurance (orporation of the $hilippines ")($# shall pa& the balance. 'he suret& bond agreement between !auricia and )($ was secured b& !auriciaGs parcel of land "same land to be developed#. +/( defaulted in pa&ing said tractor. @ormaheco foreclosed the tractor but it wasnGt enough hence )($ paid the deficienc&. )($ then foreclosed the propert& of !auricia. )($ later sold said propert& to $hilippine !achiner& $arts !anufacturing (orporation "$!$!(#. $!$!( then demanded !auricia et al to vacate the premises of said propert&. 2hile all this was going on, !auricia died. er successor=administratri%, @uenaflor  >mali, questioned the foreclosure made b& )($. >mali alleged that all the transactions are void and simulated hence the& were defraudedH that through @ormahecoGs machinations, !auricia was fooled into entering into a suret& agreement with )($H that @ormaheco even made the premium pa&ments to )($ for said suret& bondH that the president of @ormaheco is a director of $!$!(H that the counsel who assisted in all the transactions, Att&. !artin :e uman, was the legal counsel of )($, @ormaheco, and $!$!(. ISSUE% 2hether or not the veil of corporate fiction should be pierced. HED% 3o.

>nder the doctrine of piercing the veil of corporate entit&, when valid grounds therefore e%ist, the legal fiction that a corporation is an entit& with a uridical personalit& separate and distinct from its members or stockholders ma& be disregarded. )n such cases, the

corporation will be considered as a mere association of persons. 'he members or  stockholders of the corporation will be considered as the corporation, that is, liabilit& will attach directl& to the officers and stockholders. &' 'he doctrine applies when the corporate fiction is used to defeat public convenience, ustif& wrong, protect fraud, or  defend crime, &( or when it is made as a shield to confuse the legitimate issues &) or  where a corporation is the mere  alter ego or business conduit of a person, or where the corporation is so organied and controlled and its affairs are so conducted as to make it merel& an instrumentalit&, agenc&, conduit or adunct of another corporation. )n the case at bar, petitioners seek to pierce the C6D1 -f corporate entit& of @ormaheco, )($ and $! $arts, alleging that these corporations emplo&ed fraud in causing the foreclosure and subsequent sale of the real properties belonging to petitioners 2hile we do not discount the possibilit& of the e%istence of fraud in the foreclosure proceeding, neither are we inclined to appl& the doctrine invoked b& petitioners in granting the relief  sought. )t is our considered opinion that piercing the veil of corporate entit& is not the proper remed& in order that the foreclosure proceeding ma& be declared a nullit& under  the circumstances obtaining in the legal case at bar. )n the first place, the legal corporate entit& is disregarded onl& if it is sought to hold the officers and stockholders directl& liable for a corporate debt or obligation. )n the instant case, petitioners do not seek to impose a claim against the individual members of the three corporations involvedH on the contrar&, it is these corporations which desire to enforce an alleged right against petitioners. Assuming that petitioners were indeed defrauded b& private respondents in the foreclosure of the mortgaged properties, this fact alone is not, under the circumstances, sufficient to ustif& the piercing of the corporate fiction, since petitioners do not intend to hold the officers andIor members of  respondent corporations personall& liable therefor. $etitioners are merel& seeking the declaration of the nullit& of the foreclosure sale, which relief ma& be obtained without having to disregard the aforesaid corporate fiction attaching to respondent corporations. +econdl&, petitioners failed to establish b& clear and convincing evidence that private respondents were purposel& formed and operated, and thereafter transacted with petitioners, with the sole intention of defrauding the latter. 'he mere fact, therefore, that the businesses of two or more corporations are interrelated is not a ustification for disregarding their separate personalities, absent sufficient showing that the corporate entit& was purposel& used as a shield to defraud creditors and third persons of their rights. MAMBULAO LUMBER COMPANY, plaintif-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provinia! "#eri$ o% Ca&arine' Norte, deendants-appellees. ()R) No) L*++-., /anuary .0, 123 4ACT"5 On May 5, 1956 the plaintif applied or an industrial loan o P155,000 (approved or a loan o P100,000 only) ith the !a"a #ran$h o deendant P!#. %o se$ure pay&ent, the plaintif &ort"a"ed a par$el o land, to"ether ith the

'uildin"s and i&prove&ents eistin" thereon, situated in the po'la$ion o ose Pan"ani'an (or&erly Ma&'ulao), provin$e o *a&arines !orte. %he P!# released ro& the approved loan the su& o P+,500, and another release o P15,500.  %he plaintif ailed to pay the a&ortiation on the a&ounts released to and re$eived 'y it. t as ound that the plaintif had already stopped operation a'out the end o  195 or early part o 195/.  %he unpaid o'li"ation o the plaintif as o epte&'er ++, 1961, a&ounted to P5,66.59, e$ludin" attorney2s ees. 3 ore$losure sale o the par$el o land, to"ether ith the 'uildin"s and i&prove&ents thereon as, held on !ove&'er +1, 1961, and the said property as sold to the P!# or the su& o P56,90/.00, su'4e$t to the ri"ht o the plaintif to redee& the sa&e ithin a period o one year.  %he plaintif sent a letter reiteratin" its reuest that the ore$losure sale o the &ort"a"ed $hattels 'e dis$ontinued on the "rounds that the &ort"a"ed inde'tedness had 'een ully paid and that it $ould not 'e le"ally efe$ted at a pla$e other than the *ity o Manila.  %he trial $ourt senten$ed the Ma&'ulao u&'er *o&pany to pay to the deendant P!# the su& o P7,5/+.5+ ith interest thereon at the rate o 68 per annu&. %he plaintif on appeal advan$ed that its total inde'tedness to the P!# as o !ove&'er +1, 1961, as only P56,/5./ and not P5/,+17.51 as $on$luded 'y the $ourt a uo hen$e, the pro$eeds o the ore$losure sale o its real property alone in the a&ount o P56,90/.00 on that date, added to the su& o P7/.59 it re&itted to the P!# thereater as &ore than su:$ient to liuidate its o'li"ation, there'y renderin" the su'seuent ore$losure sale o its $hattels unlaul  %hat or the a$ts o the P!# in pro$eedin" ith the sale o the $hattels, in utter disre"ard o plaintif2s vi"orous opposition thereto, and in ta;in" possession thereo  ater the sale thru or$e, inti&idation, $oer$ion, and 'y detainin" its <&an-in$har"e< o said properties, t#e PNB i' !ia6!e to p!ainti$ %or da&a7e' and attorney8' %ee')

I""UE5 =hether or not P!# &ay 'e held lia'le to plaintif *orporation or da&a"es and attorney>s ees. HELD5 ?erein appellant2s $lai& or &oral da&a"es, see&s to have no le"al or a$tual 'asis. O'viously, an arti9ia! per'on !i:e #erein appe!!ant orporation annot e;periene p#y'ia! 'u$erin7', &enta! an7ui'#, %ri7#t, 'eriou' an;iety,
or 'usiness standin" ould undou'tedly 'e the sa&e hether the sale as $ondu$ted at ose Pan"ani'an, *a&arines !orte, or in Manila hi$h is the pla$e a"reed upon 'y the parties in the &ort"a"e $ontra$t. #ut or the ron"ul a$ts o herein appellee 'an; and the deputy sherif o  *a&arines !orte in pro$eedin" ith the sale in utter disre"ard o the a"ree&ent to have the $hattels sold in Manila as provided or in the &ort"a"e $ontra$t, to hi$h their attentions ere ti&ely $alled 'y herein appellant, and in disposin" o the $hattels in "ross or the &isera'le a&ount o P,+00.00, herein appellant should 'e aarded ee&plary da&a"es in the su& o P10,000.00. %he $ir$u&stan$es o the $ase also arrant the aard o P7,000.00 as attorney2s ees or herein appellant.

MAMBULAO LUMBER COMPANY, plaintif-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provinia! "#eri$ o% Ca&arine' Norte, deendants-appellees. ()R) No) L*++-., /anuary .0, 123 4ACT"5 On May 5, 1956 the plaintif applied or an industrial loan o P155,000 (approved or a loan o P100,000 only) ith the !a"a #ran$h o deendant P!#. %o se$ure pay&ent, the plaintif &ort"a"ed a par$el o land, to"ether ith the 'uildin"s and i&prove&ents eistin" thereon, situated in the po'la$ion o ose Pan"ani'an (or&erly Ma&'ulao), provin$e o *a&arines !orte. %he P!# released ro& the approved loan the su& o P+,500, and another release o P15,500.  %he plaintif ailed to pay the a&ortiation on the a&ounts released to and re$eived 'y it. t as ound that the plaintif had already stopped operation a'out the end o  195 or early part o 195/.  %he unpaid o'li"ation o the plaintif as o epte&'er ++, 1961, a&ounted to P5,66.59, e$ludin" attorney2s ees. 3 ore$losure sale o the par$el o land, to"ether ith the 'uildin"s and i&prove&ents thereon as, held on !ove&'er +1, 1961, and the said property as sold to the P!# or the su& o P56,90/.00, su'4e$t to the ri"ht o the plaintif to redee& the sa&e ithin a period o one year.  %he plaintif sent a letter reiteratin" its reuest that the ore$losure sale o the &ort"a"ed $hattels 'e dis$ontinued on the "rounds that the &ort"a"ed inde'tedness had 'een ully paid and that it $ould not 'e le"ally efe$ted at a pla$e other than the *ity o Manila.  %he trial $ourt senten$ed the Ma&'ulao u&'er *o&pany to pay to the deendant P!# the su& o P7,5/+.5+ ith interest thereon at the rate o 68 per annu&. %he plaintif on appeal advan$ed that its total inde'tedness to the P!# as o !ove&'er +1, 1961, as only P56,/5./ and not P5/,+17.51 as $on$luded 'y the $ourt a uo hen$e, the pro$eeds o the ore$losure sale o its real property alone in the a&ount o P56,90/.00 on that date, added to the su& o P7/.59 it re&itted to the P!# thereater as &ore than su:$ient to liuidate its o'li"ation, there'y renderin" the su'seuent ore$losure sale o its $hattels unlaul

 %hat or the a$ts o the P!# in pro$eedin" ith the sale o the $hattels, in utter disre"ard o plaintif2s vi"orous opposition thereto, and in ta;in" possession thereo  ater the sale thru or$e, inti&idation, $oer$ion, and 'y detainin" its <&an-in$har"e< o said properties, t#e PNB i' !ia6!e to p!ainti$ %or da&a7e' and attorney8' %ee')

I""UE5 =hether or not P!# &ay 'e held lia'le to plaintif *orporation or da&a"es and attorney>s ees. HELD5 ?erein appellant2s $lai& or &oral da&a"es, see&s to have no le"al or a$tual 'asis. O'viously, an arti9ia! per'on !i:e #erein appe!!ant orporation annot e;periene p#y'ia! 'u$erin7', &enta! an7ui'#, %ri7#t, 'eriou' an;iety,