MR Holdings v.

Bajar

FACTS:
Marcopper Mining Corporation was unable to pay its loans from the Asian
Development Bank (ADB). Later, ADB transferred all its rights to collect from
Marcopper to MR Holdings, Ltd. In order to pay MR Holdings, Marcopper
assigned all its assets to MR Holdings and executed therefor a Deed of
Assignment in MR Holdings favor.
Meanwhile, another creditor of Marcopper, Solidbank Corporation, won a case
against Marcopper. The court then issued a writ of execution directing Sheriff
Carlos Bajar to levy Marcopper’s assets.
MR Holdings then filed an opposition asserting that it is now the owner of
Marcopper’s assets hence, Bajar cannot levy them. The lower court denied MR
Holdings on the ground that the Deed of Assignment was made in bad faith
and that MR Holdings was a foreign corporation doing business without a
license in the Philippines (by virtue of the Deed of Assignment) and as such
cannot sue in the Philippines.
ISSUE: Whether or not MR Holdings may sue on this particular transaction.
HELD: Yes. The Supreme Court emphasized the following rules when it comes
to foreign corporations doing business here in the Philippines:

1. if a foreign corporation does business in the Philippines without a license,

it cannot sue before the Philippine courts;
2. if a foreign corporation is not doing business in the Philippines, it needs no
license to sue before Philippine courts on an isolated transaction or on a
cause of action entirely independent of any business transaction;
3. if a foreign corporation does business in the Philippines with the required
license, it can sue before Philippine courts on any transaction.

Being a mere assignee does not constitute “doing business” in the Philippines.
MR Holdings, a foreign corporation, cannot be said to be doing business simply
because it became an assignee of Marcopper. MR Holdings was not doing
anything else other than being a mere assignee. The only time that MR
Holdings is considered to be doing business here is that if it continues the
business of Marcopper – which it did not.
Therefore, since it is not doing business here, pursuant to the rules above, it
can sue without any license before Philippine courts on an isolated transaction
or on a cause of action entirely independent of any business transaction.
Anent the issue of bad faith, the same was not proven. It appears that the deed
of assignment was an earlier agreement incidental to the loan agreement
between ADB and Marcopper which precedes the action brought by Solidbank
against Marcopper.
General Credit Corporation vs. Alsons Development and Investment
Corporation (513 SCRA 225)

Facts:
General Credit Corporation (GCC) was incorporated in 1957 as a finance
and investment company then known as Commercial Credit Corporation (CCC).
It established CCC franchise companies in different urban centers in the
country. GCC was able to secure a license from Central Bank of the Philippines
and SEC to engage in quasi-banking activities. GCC organized CCC Equity
Corporation (EQUITY) in 1994 for the purpose of taking over the operations
and management of the various franchise companies. At a time material
hereto, respondent Alsons Development and Investment Corporation (ALSONS)
and Conrado, Nicasio, Editha and LadislawaAlcantara and Alfredo de Borja
(Alcantara Family) each owned shares in the aforesaid GCC franchise
companies,e.g., CCC Davao and CCC Cebu.
In December 1980, ALSONS and the Alcantara Family sold their
shareholdings---101,953 shares---in the CCC franchise companies to EQUITY
for Php2million. On January 2, 1981, EQUITY issued ALSONS et.al. a “bearer”
promissory note for Php2million with a one year maturity date and 18%
interest per annum. Some four years later, the Alcantara Family assigned its
rights and interests over the bearer note to ALSONS which became the holder
thereof. Even before the execution of the assignment deal, letters for demand
for interest payment were already sent to EQUITY through its President,
WilfredoLabayen, who pleaded inability to pay the stipulated interest, EQUITY
no longer having assets or property neither to settle its obligation nor being
extended financial support by GCC.
On January 14, 1986, ALSONS filed a complaint for a sum of money
against EQUITY and GCC. GCC was 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.
EQUITY stated that (1) it was purposely organized by GCC for the latter
to avoid CB Rules and Regulations on DOSRI limitations, and that it merely
acted as intermediary or bridge for loan transactions and other dealings of GCC
to its franchises and the investing public, and (2) it is solely dependent upon
GCC for its funding requirements; 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.
GCC stressed that it is a distinct and separate entity from EQUITY and
that the business relationships with each other are always at arm’s length.
The trial court found that EQUITY was an instrumentality or adjunct of
GCC and ruled in favour of ALSONS ordering GCC to pay the principal sum
with interest, damages and attorney’s fees. The appellate court affirmed the
decision of the trial court.
Issue: Whether there is basis for piercing GCC’s veil of corporate entity

Held: The Court agrees with the disposition of the appellate court on applying
the piercing doctrine to the transaction subject of this case. The trial court
enumerated no less than 20 documented circumstances and transactions,
which, taken as a whole, strongly supported the conclusion that EQUITY was
an adjunct, an instrumentality or business conduit of petitioner GCC. This
relation provides a justifying ground to pierce petitioner’s corporate existence
as to ALSONS’ claim. 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
petitioner to handle 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.

Umali vs Court of Appeals

189 SCRA 529 [GR No. 89561 September 13, 1990]
(Application)

Facts: Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Mur Vda. de
Castillo. The Castillo family are the owners of parcel of land located in Lucena
City which was given as security for a loan from the development Bank of the
Philippines (DBP) for their failure to pay the amortization, foreclosure of the
said property was about to be initiated. This problem was made known to
Santiago Rivera, who proposed to them the conversion into subdivision of the
four parcels of land adjacent to the mortgaged property to raise the necessary
fund. The idea was accepted by the Castillo family and to carry out the project,
a memorandum of agreement was executed by and between Slobec Realty and
Development Inc. represented by its president Santiago Rivera and Castillo
family. In this agreement, Santiago Rivera obliged himself to pay the Castillo
family the sum of P70,000 immediately after the execution of the agreement
and to pay additional amount of P40,000 after the property has been converted
into a subdivision. Rivera, with agreement approached Mr. Modesto Cervantes,
president of defendant Bormaheco and proposed to purchase from Bormaheco
two tractors model D7 and D8 subsequently a sales agreement was executed
on December 28, 1970. On January 3, 1971, Slobec, through Rivera, executed
in favor of Bormaheco a chattel mortgage over the said equipment as security
for the payment of the aforesaid balance of P180,000. As further security of the
aforementioned unpaid balance, Slobec obtained from insurance corporation of
the Philippines a security bond, with Insurance Corporation of the Philippines
(ICP) as surety and Slobec as principal, in favor of Bormaheco, as borne out of
by Exhibit 8. The aforesaid surety bond was in turn secured by an agreement
of counter-guaranty with real estate mortgage executed by Rivera as President
of Slobec and Mauricia Mur Vda. de Castillo, Buenaflor Castillo Umali, Bertilla
Castillo-Rada, Victoria Castillo, Marietta Castillo and Leovina Castillo Jalbuena
as mortgagors and insurance corporation of the Philippines as mortgagee. In
this agreement, ICP guaranteed the obligation of Slobec with Bormaheco in the
amount of P180,000. In giving the bond, ICP required that the Castillos
mortgage to them the properties in question, namely, four parcels of land
covered by TCT in the name of the aforementioned mortgagors, namely TCT no.
13114, 13115, 13116, and 13117 all of the Register of Deeds of Lucena City.
Meanwhile, for violation of the terms and conditions of the counter-guaranty
agreement, the properties of the Castillos were foreclosed by ICP as the highest
bidder with a bid of P285,212, a certificate of sale was issued by the provincial
sheriff of Lucena City and TCT over the subject parcels of land were issued.

Issue: Whether or not the foreclosure is proper so as to apply the doctrine of

piercing the veil of corporate entity.

Held: No. Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exists, the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its members or stockholders
may be disregarded. In such cases, the corporation will be considered as a
mere association of persons. The members or stockholders of the corporation
will be considered as the corporation, that is, liability will attach directly to the
officers and stockholders. The doctrine applies when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud, or defend
crime, on 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 organized and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.

In the case at bar, petitioners seek to pierce the veil of corporate entity of
Bormaheco, ICP and PM parts, alleging that these corporations employed fraud
in causing the foreclosure and subsequent sale of the real properties belonging
to petitioners while we do not discount the possibility of existence of fraud in
the foreclosure proceeding, neither are we inclined to apply the doctrine
invoked by petitioners in granting the relief sought. It is our considered opinion
that piercing the veil of corporate entity is not the proper remedy in order that
the foreclosure proceeding may be declared a nullity under the circumstances
obtaining in the legal case at bar.

The mere fact, therefore, that the business of two or more corporations are
interrelated is not a justification for disregarding their separate personalities,
absent sufficient showing that the corporate entity was purposely used as a
shield to defraud creditors and third persons of their rights.

Umalis v. CA

FACTS:
Mauricia Castillo was the administratrix in charge over a parcel of land left be
Felipe Castillo. Said land was mortgaged to the Development Bank of the
Philippines and was about to be foreclosed but then Mauricia’s nephew,
Santiago Rivera, proposed that they convert the land into 4 subdivisions so
that they can raise the necessary money to avoid foreclosure. Mauricia agreed.
Rivera sought to develop said land through his company, Slobec Realty
Corporation (SRC), of which he was also the president. SRC then contracted
with Bormaheco, Inc. for the purchase of one tractor. Bormaheco agreed to sell
the tractor on an installment basis. At the same time, SRC mortgaged said
tractor to Bormaheco as security just in case SRC will default. As additional
security, Mauricia and other family members executed a surety agreement
whereby in case of default in paying said tractor, the Insurance Corporation of
the Philippines (ICP) shall pay the balance. The surety bond agreement between
Mauricia and ICP was secured by Mauricia’s parcel of land (same land to be
developed).
SRC defaulted in paying said tractor. Bormaheco foreclosed the tractor but it
wasn’t enough hence ICP paid the deficiency. ICP then foreclosed the property
of Mauricia. ICP later sold said property to Philippine Machinery Parts
Manufacturing Corporation (PMPMC). PMPMC then demanded Mauricia et al to
vacate the premises of said property.
While all this was going on, Mauricia died. Her successor-administratrix,
Buenaflor Umali, questioned the foreclosure made by ICP. Umali alleged that
all the transactions are void and simulated hence they were defrauded; that
through Bormaheco’s machinations, Mauricia was fooled into entering into a
surety agreement with ICP; that Bormaheco even made the premium payments
to ICP for said surety bond; that the president of Bormaheco is a director of
PMPMC; that the counsel who assisted in all the transactions, Atty. Martin De
Guzman, was the legal counsel of ICP, Bormaheco, and PMPMC.
ISSUE: Whether or not the veil of corporate fiction should be pierced.
HELD: No. There is no clear showing of fraud in this case. The mere fact that
Bormaheco paid said premium payments to ICP does not constitute fraud per
se. As it turned out, Bormaheco is an agent of ICP. SRC, through Rivera,
agreed that part of the payment of the mortgage shall be paid for the
insurance. Naturally, when Rivera was paying some portions of the mortgage to
Bormaheco, Bormaheco is applying some parts thereof for the payment of the
premium – and this was agreed upon beforehand.
Further, piercing the veil of corporate fiction is not the proper remedy in order
that the foreclosure conducted by ICP be declared a nullity. The nullity may be
attacked directly without disregarding the separate identity of the corporations
involved. Further still, Umali et al are not enforcing a claim against the
individual members of the corporations. They are not claiming said members to
be liable. Umali et al are merely questioning the validity of the foreclosure.
The veil of corporate fiction can’t be pierced also by the simple reason that the
businesses of two or more corporations are interrelated, absent sufficient
showing that the corporate entity was purposely used as a shield to defraud
creditors and third persons of their rights. In this case, there is no justification
for disregarding their separate personalities.

CIR v. Menguito

FACTS:
Dominador Menguito and his wife are the owners of Copper Kettle Catering
Services, Inc. (CKCSI). They also operate several restaurant branches in the
Philippines. One such branch was the Copper Kettle Cafeteria Specialist
(CKCS) in Club John Hay, Baguio City. The branch was registered as a sole
proprietorship. In September 1997, a formal assessment notice (FAN) was
issued against the spouses and they were adjudged to pay P34 million in
deficiency taxes for the years 1991 to 1993. The Bureau of Internal Revenue
found that in order for CKCS to operate in Club John Hay, a contract was
entered into by CKCSI and Club John Hay; hence, CKCS and CKCSI are one
and the same.
Mrs. Menguito then sent a letter to the BIR acknowledging receipt of the
assessment notice. She asked for more time to sort the issue. Later, when
Menguito eventually filed a protest, he denied, through his witness (Ma.
Therese Nalda, CKCS employee), receiving the FAN; that the FAN was
addressed to the wrong person because it was addressed to CKCSI not CKCS.
He presented as evidence a photocopy of the articles of incorporation (AOI) of
CKCSI.
On the other hand, the Commissioner of Internal Revenue (CIR) presented
proof of the due mailing of the FAN. It however was not able to prove that it
issued a pre-assessment notice (PAN) or a post-assessment notice.
ISSUE: Whether or not due process was observed by the Commissioner of
Internal Revenue.
HELD: Yes. The veil of corporate fiction is pierced because it was proven that
CKCSI is actively managing CKCS. Further, CKCS is more known as CKCSI.
Also, the photocopy of the AOI presented by Menguito is not a conclusive proof
of the separate personality of CKCSI and CKCS.
More importantly, Menguito and his wife are in estoppel because they already
acknowledged the receipt of the FAN through the letter sent by Mrs. Menguito
to the BIR. They cannot later on deny the receipt of the FAN. Worse, it should
be Menguito who should be directly denying the receipt and not through an
employee (Nalda) who was not even an employee of the spouses when the FAN
was issued and received in 1997. It was only in 1998 that Nalda was employed
by CKCS. Since Menguito did not legally deny the receipt of the FAN, the
presumption that he actually received it still subsists. Further, based on the
records, Menguito, in the stipulation of facts, acknowledged the receipt of the
FAN.
Anent the issue of the non-issuance of the PAN, the same is not vital to due
process. The Supreme Court ruled that the strict requirement of proving that
an assessment is sent and received by the taxpayer is only applicable to FANs
and to PANs. The issuance of a valid formal assessment is a substantive
prerequisite to tax collection, for it contains not only a computation of tax
liabilities but also a demand for payment within a prescribed period, thereby
signaling the time when penalties and interests begin to accrue against the
taxpayer and enabling the latter to determine his remedies therefor. A PAN or a
post-assessment notice does not bear the gravity of a FAN. Neither notice
contains a declaration of the tax liability of the taxpayer or a demand for
payment thereof. Hence, the lack of such notices inflicts no prejudice on the
taxpayer for as long as the latter is properly served a formal assessment notice.
NOTE: In the case of CIR vs Metro Star Superama (December 2010), the Supreme
Court held that the due issuance of the PAN is part of due process. Hence, this
superseded the ruling in this case as regards the issuance of PANs. (CIR vs
Menguito is a September 2008 case).