G.R. No. L-41337 – 246 Phil. 211 – 163 SCRA 205 – Mercantile Law – Corporation Law – Piercing the Veil of Corporate Fiction – Alter Ego Case
In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee, entered into a contract of sale with Graphic Publishing Inc. (GPI) whereby ASC shall deliver paper products to GPI. GPI paid a down payment but defaulted in paying the rest despite demand from ASC. ASC sued GPI and ASC won. To satisfy the indebtedness, the trial court, presided by Judge Hilarion Jarencio, ordered that one of the printing machines of GPI be auctioned. But before the auction can be had, Philippine American Drug Company (PADCO) notified the sheriff that PADCO is the actual owner of said printing machine. Notwithstanding, the sheriff still went on with the auction sale where Tan Boon Bee was the highest bidder.
Later, PADCO filed with the same court a motion to nullify the sale on execution. The trial court ruled in favor of PADCO and it nullified said auction sale. Tan Boon Bee assailed the order of the trial court. Tan Boon Bee averred that PADCO holds 50% of GPI; that the board of directors of PADCO and GPI is the same; that the veil of corporate fiction should be pierced based on the premises. PADCO on the other hand asserts ownership over the said printing machine; that it is merely leasing it to GPI.
ISSUE: Whether or not the veil of corporate fiction should be pierced.
HELD: Yes. PADCO, as its name suggests, is a drug company not engaged in the printing business. So it is dubious that it really owns the said printing machine regardless of PADCO’s title over it. Further, the printing machine, as shown by evidence, has been in GPI’s premises even before the date when PADCO alleged that it acquired ownership thereof. Premises considered, the veil of corporate fiction should be pierced; PADCO and GPI should be considered as one. When a corporation is merely an adjunct, business conduit or alter ego of another corporation the fiction of separate and distinct corporation entities should be disregarded.
