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SUPREME
Manila
of
the
Philippines
COURT
EN BANC
G.R. No. L-13203
YUTIVO
SONS
HARDWARE
COMPANY,
petitioner,
vs.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE,
respondents.
Sycip,
Quisumbing,
Salazar
&
Office of the Solicitor General for respondents.
Associates
for
petitioner.
original authorized capital stock was P1,000,000 divided into 10,000 shares
with a par value of P100 each.
At the time of its incorporation 2,500 shares worth P250,000 appear to have
been subscribed into equal proportions by Yu Khe Thai, Yu Khe Siong, Hu Kho
Jin, Yu Eng Poh, and Washington Sycip. The first three named subscribers are
brothers, being sons of Yu Tiong Yee, one of Yutivo's founders. The latter two
are respectively sons of Yu Tiong Sin and Albino Sycip, who are among the
founders of Yutivo.
After the incorporation of SM and until the withdrawal of GM from the
Philippines in the middle of 1947, the cars and tracks purchased by Yutivo
from GM were sold by Yutivo to SM which, in turn, sold them to the public in
the Visayas and Mindanao.
When GM decided to withdraw from the Philippines in the middle of 1947, the
U.S. manufacturer of GM cars and trucks appointed Yutivo as importer for the
Visayas and Mindanao, and Yutivo continued its previous arrangement of
selling exclusively to SM. In the same way that GM used to pay sales taxes
based on its sales to Yutivo, the latter, as importer, paid sales tax prescribed on
the basis of its selling price to SM, and since such sales tax, as already stated,
is collected only once on original sales, SM paid no sales tax on its sales to the
public.
On November 7, 1950, after several months of investigation by revenue officers
started in July, 1948, the Collector of Internal Revenue made an assessment
upon Yutivo and demanded from the latter P1,804,769.85 as deficiency sales
tax plus surcharge covering the period from the third quarter of 1947 to the
fourth quarter of 1949; or from July 1, 1947 to December 31, 1949, claiming
that the taxable sales were the retail sales by SM to the public and not the
sales at wholesale made by, Yutivo to the latter inasmuch as SM and Yutivo
were one and the same corporation, the former being the subsidiary of the
latter.
The assessment was disputed by the petitioner, and a reinvestigation of the
case having been made by the agents of the Bureau of Internal Revenue, the
respondent Collector in his letter dated November 15, 1952 countermanded his
demand for sales tax deficiency on the ground that "after several investigations
conducted into the matter no sufficient evidence could be gathered to sustain
the assessment of this Office based on the theory that Southern Motors is a
mere instrumentality or subsidiary of Yutivo." The withdrawal was subject,
however, to the general power of review by the now defunct Board of Tax
Appeals. The Secretary of Finance to whom the papers relative to the case were
endorsed, apparently not agreeing with the withdrawal of the assessment,
returned them to the respondent Collector for reinvestigation.
After another investigation, the respondent Collector, in a letter to petitioner
dated December 16, 1954, redetermined that the aforementioned tax
assessment was lawfully due the government and in addition assessed
deficiency sales tax due from petitioner for the four quarters of 1950; the
respondents' last demand was in the total sum of P2,215,809.27 detailed as
follows:
Deficiency
Sales Tax
75%
Surcharge
Total Amount
Due
Assessment (First)
of November 7, 1950
for deficiency sales
Tax for the period
from 3rd Qrtr 1947
to 4th Qrtr 1949
P773,473.4
inclusive
P1,031,296.60 5
P1,804,769.05
Additional
Assessment
for
period from 1st to
4th
Qrtr
1950,
inclusive
234,880.13
176,160.09 411,040.22
Total
amount
demanded per letter
of December 16,
P949,632.5
1954
P1,266,176.73 4
P2,215,809.27
This second assessment was contested by the petitioner Yutivo before the Court
of Tax Appeals, alleging that there is no valid ground to disregard the corporate
personality of SM and to hold that it is an adjunct of petitioner Yutivo; (2) that
assuming the separate personality of SM may be disregarded, the sales tax
already paid by Yutivo should first be deducted from the selling price of SM in
computing the sales tax due on each vehicle; and (3) that the surcharge has
been erroneously imposed by respondent. Finding against Yutivo and
sustaining the respondent Collector's theory that there was no legitimate or
bona fide purpose in the organization of SM the apparent objective of its
organization being to evade the payment of taxes and that it was owned (or
the majority of the stocks thereof are owned) and controlled by Yutivo and is a
mere subsidiary, branch, adjunct, conduit, instrumentality or alter ego of the
latter, the Court of Tax Appeals with Judge Roman Umali not taking part
disregarded its separate corporate existence and on April 27, 1957, rendered
the decision now complained of. Of the two Judges who signed the decision,
one voted for the modification of the computation of the sales tax as
determined by the respondent Collector in his decision so as to give allowance
for the reduction of the tax already paid (resulting in the reduction of the
assessment to P820,509.91 exclusive of surcharges), while the other voted for
affirmance. The dispositive part of the decision, however, affirmed the
assessment made by the Collector. Reconsideration of this decision having been
denied, Yutivo brought the case to this Court thru the present petition for
review.
It is an elementary and fundamental principle of corporation law that a
corporation is an entity separate and distinct from its stockholders and from
other corporation petitions to which it may be connected. However, "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, or in the case of two corporations merge them into one. (Koppel [Phil.],
Inc. vs. Yatco, 77 Phil. 496, citing I Fletcher Cyclopedia of Corporation, Perm
Ed., pp. 135 136; United States vs. Milwaukee Refrigeration Transit Co., 142
Fed., 247, 255 per Sanborn, J.) Another rule is that, when the corporation is
the "mere alter ego or business conduit of a person, it may be disregarded."
(Koppel [Phil.], Inc. vs. Yatco, supra.)
After going over the voluminous record of the present case, we are inclined to
rule that the Court of Tax Appeals was not justified in finding that SM was
organized for no other purpose than to defraud the Government of its lawful
revenues. In the first place, this corporation was organized in June, 1946 when
it could not have caused Yutivo any tax savings. From that date up to June 30,
1947, or a period of more than one year, GM was the importer of the cars and
trucks sold to Yutivo, which, in turn resold them to SM. During that period, it
is not disputed that GM as importer, was the one solely liable for sales taxes.
Neither Yutivo or SM was subject to the sales taxes on their sales of cars and
trucks. The sales tax liability of Yutivo did not arise until July 1, 1947 when it
became the importer and simply continued its practice of selling to SM. The
decision, therefore, of the Tax Court that SM was organized purposely as a tax
evasion device runs counter to the fact that there was no tax to evade.
Making the observation from a newspaper clipping (Exh. "T") that "as early as
1945 it was known that GM was preparing to leave the Philippines and
terminate its business of importing vehicles," the court below speculated that
Yutivo anticipated the withdrawal of GM from business in the Philippines in
June, 1947. This observation, which was made only in the resolution on the
motion for reconsideration, however, finds no basis in the record. On the other
hand, GM had been an importer of cars in the Philippines even before the war
and had but recently resumed its operation in the Philippines in 1946 under
an ambitious plan to expand its operation by establishing an assembly plant
here, so that it could not have been expected to make so drastic a turnabout of
not merely abandoning the assembly plant project but also totally ceasing to do
business as an importer. Moreover, the newspaper clipping, Exh. "T", was
published on March 24, 1947, and clipping, merely reported a rumored plan
that GM would abandon the assembly plant project in the Philippines. There
was no mention of the cessation of business by GM which must not be
confused with the abandonment of the assembly plant project. Even as respect
the assembly plant, the newspaper clipping was quite explicit in saying that the
Acting Manager refused to confirm that rumor as late as March 24, 1947,
almost a year after SM was organized.
At this juncture, it should be stated that the intention to minimize taxes, when
used in the context of fraud, must be proved to exist by clear and convincing
evidence amounting to more than mere preponderance, and cannot be justified
by a mere speculation. This is because fraud is never lightly to be presumed.
(Vitelli & Sons vs. U.S 250 U.S. 355; Duffin vs. Lucas, 55 F (2d) 786; Budd vs.
Commr., 43 F (2d) 509; Maryland Casualty Co. vs. Palmette Coal Co., 40 F (2d)
374; Schoonfield Bros., Inc. vs. Commr., 38 BTA 943; Charles Heiss vs. Commr
36 BTA 833; Kerbaugh vs. Commr 74 F (2d) 749; Maddas vs. Commr., 114 F.
(2d) 548; Moore vs. Commr., 37 BTA 378; National City Bank of New York vs.
Commr., 98 (2d) 93; Richard vs. Commr., 15 BTA 316; Rea Gane vs. Commr.,
19 BTA 518). (See also Balter, Fraud Under Federal Law, pp. 301-302, citing
numerous authorities: Arroyo vs. Granada, et al., 18 Phil. 484.) Fraud is never
imputed and the courts never sustain findings of fraud upon circumstances
which, at the most, create only suspicion. (Haygood Lumber & Mining Co. vs.
Commr., 178 F (2d) 769; Dalone vs. Commr., 100 F (2d) 507).
In the second place, SM was organized and it operated, under circumstance
that belied any intention to evade sales taxes. "Tax evasion" is a term that
connotes fraud thru the use of pretenses and forbidden devices to lessen or
defeat taxes. The transactions between Yutivo and SM, however, have always
been in the open, embodied in private and public documents, constantly
subject to inspection by the tax authorities. As a matter of fact, after Yutivo
became the importer of GM cars and trucks for Visayas and Mindanao, it
merely continued the method of distribution that it had initiated long before
GM withdrew from the Philippines.
On the other hand, if tax saving was the only justification for the organization
of SM, such justification certainly ceased with the passage of Republic Act No.
594 on February 16, 1951, governing payment of advance sales tax by the
importer based on the landed cost of the imported article, increased by markups of 25%, 50%, and 100%, depending on whether the imported article is
taxed under sections 186, 185 and 184, respectively, of the Tax Code. Under
Republic Act No. 594, the amount at which the article is sold is immaterial to
the amount of the sales tax. And yet after the passage of that Act, SM
continued to exist up to the present and operates as it did many years past in
the promotion and pursuit of the business purposes for which it was organized.
In the third place, sections 184 to 186 of the said Code provides that the sales
tax shall be collected "once only on every original sale, barter, exchange . . , to
be paid by the manufacturer, producer or importer." The use of the word
"original" and the express provision that the tax was collectible "once only"
evidently has made the provisions susceptible of different interpretations. In
this connection, it should be stated that a taxpayer has the legal right to
decrease the amount of what otherwise would be his taxes or altogether avoid
them by means which the law permits. (U.S. vs. Isham 17 Wall. 496, 506;
Gregory vs. Helvering 293 U.S. 465, 469; Commr. vs. Tower, 327 U.S. 280;
Lawton vs. Commr 194 F (2d) 380). Any legal means by the taxpayer to reduce
taxes are all right Benry vs. Commr. 25 T. Cl. 78). A man may, therefore,
perform an act that he honestly believes to be sufficient to exempt him from
taxes. He does not incur fraud thereby even if the act is thereafter found to be
insufficient. Thus in the case of Court Holding Co. vs. Commr. 2 T. Cl. 531, it
was held that though an incorrect position in law had been taken by the
corporation there was no suppression of the facts, and a fraud penalty was not
justified.
The evidence for the Collector, in our opinion, falls short of the standard of
clear and convincing proof of fraud. As a matter of fact, the respondent
Collector himself showed a great deal of doubt or hesitancy as to the existence
of fraud. He even doubted the validity of his first assessment dated November
7, 1959. It must be remembered that the fraud which respondent Collector
imputed to Yutivo must be related to its filing of sales tax returns of less taxes
than were legally due. The allegation of fraud, however, cannot be sustained
without the showing that Yutivo, in filing said returns, did so fully knowing
that the taxes called for therein called for therein were less than what were
legally due. Considering that respondent Collector himself with the aid of his
legal staff, and after some two years of investigation and duty of investigation
and study concluded in 1952 that Yutivo's sales tax returns were correct
only to reverse himself after another two years it would seem harsh and
unfair for him to say in 1954 that Yutivo fully knew in October 1947 that its
sales tax returns were inaccurate.
On this point, one other consideration would show that the intent to save taxes
could not have existed in the minds of the organizers of SM. The sales tax
imposed, in theory and in practice, is passed on to the vendee, and is usually
billed separately as such in the sales invoice. As pointed out by petitioner
Yutivo, had not SM handled the retail, the additional tax that would have been
payable by it, could have been easily passed off to the consumer, especially
since the period covered by the assessment was a "seller's market" due to the
post-war scarcity up to late 1948, and the imposition of controls in the late
1949.
It is true that the arrastre charges constitute expenses of Yutivo and its noninclusion in the selling price by Yutivo cost the Government P4.00 per vehicle,
but said non-inclusion was explained to have been due to an inadvertent
accounting omission, and could hardly be considered as proof of willful
channelling and fraudulent evasion of sales tax. Mere understatement of tax in
itself does not prove fraud. (James Nicholson, 32 BTA 377, affirmed 90 F. (2)
978, cited in Merten's Sec. 55.11 p. 21) The amount involved, moreover, is
extremely small inducement for Yutivo to go thru all the trouble of organizing
SM. Besides, the non-inclusion of these small arrastre charges in the sales tax
cousins. There was every reason for them to agree in order to protect their
common interest in Yutivo and SM.
The issued capital stock of SM was increased by additional subscriptions made
by various person's but except Ng Sam Bak and David Sycip, "payments"
thereof were effected by merely debiting 'or charging the accounts of said
stockholders and crediting the corresponding amounts in favor of SM, without
actually transferring cash from Yutivo. Again, in this instance, the "payments"
were Yutivo, by effected by the mere unilateral act of Yutivo a accounts of the
virtue of its control over the individual persons charged, would necessarily
exercise preferential rights and control directly or indirectly, over the shares, it
being the party which really undertook to pay or underwrite payment thereof.
The shareholders in SM are mere nominal stockholders holding the shares for
and in behalf of Yutivo, so even conceding that the original subscribers were
stockholders bona fide Yutivo was at all times in control of the majority of the
stock of SM and that the latter was a mere subsidiary of the former.
True, petitioner and other recorded stockholders transferred their
shareholdings, but the transfers were made to their immediate relatives, either
to their respective spouses and children or sometimes brothers or sisters.
Yutivo's shares in SM were transferred to immediate relatives of persons who
constituted its controlling stockholders, directors and officers. Despite these
purported changes in stock ownership in both corporations, the Board of
Directors and officers of both corporations remained unchanged and Messrs.
Yu Khe Thai, Yu Khe Siong Hu Khe Jin and Yu Eng Poll (all of the Yu or Young
family) continued to constitute the majority in both boards. All these, as
observed by the Court of Tax Appeals, merely serve to corroborate the fact that
there was a common ownership and interest in the two corporations.
SM is under the management and control of Yutivo by virtue of a management
contract entered into between the two parties. In fact, the controlling majority
of the Board of Directors of Yutivo is also the controlling majority of the Board
of Directors of SM. At the same time the principal officers of both corporations
are identical. In addition both corporations have a common comptroller in the
person of Simeon Sy, who is a brother-in-law of Yutivo's president, Yu Khe Thai.
There is therefore no doubt that by virtue of such control, the business,
financial and management policies of both corporations could be directed
towards common ends.
Another aspect relative to Yutivo's control over SM operations relates to its cash
transactions. All cash assets of SM were handled by Yutivo and all cash
transactions of SM were actually maintained thru Yutivo. Any and all receipts
of cash by SM including its branches were transmitted or transferred
immediately and directly to Yutivo in Manila upon receipt thereof. Likewise, all
expenses, purchases or other obligations incurred by SM are referred to Yutivo
which in turn prepares the corresponding disbursement vouchers and
payments in relation there, the payment being made out of the cash deposits of
SM with Yutivo, if any, or in the absence thereof which occurs generally, a
corresponding charge is made against the account of SM in Yutivo's books. The
payments for and charges against SM are made by Yutivo as a matter of course
and without need of any further request, the latter would advance all such
cash requirements for the benefit of SM. Any and all payments and cash
vouchers are made on Yutivo stationery and made under authority of Yutivo's
corporate officers, without any copy thereof being furnished to SM. All detailed
records such as cash disbursements, such as expenses, purchases, etc. for the
account of SM, are kept by Yutivo and SM merely keeps a summary record
thereof on the basis of information received from Yutivo.
All the above plainly show that cash or funds of SM, including those of its
branches which are directly remitted to Yutivo, are placed in the custody and
control of Yutivo, resources and subject to withdrawal only by Yutivo. SM's
being under Yutivo's control, the former's operations and existence became
dependent upon the latter.
Consideration of various other circumstances, especially when taken together,
indicates that Yutivo treated SM merely as its department or adjunct. For one
thing, the accounting system maintained by Yutivo shows that it maintained a
high degree of control over SM accounts. All transactions between Yutivo and
SM are recorded and effected by mere debit or credit entries against the
reciprocal account maintained in their respective books of accounts and
indicate the dependency of SM as branch upon Yutivo.
Apart from the accounting system, other facts corroborate or independently
show that SM is a branch or department of Yutivo. Even the branches of SM in
Bacolod, Iloilo, Cebu, and Davao treat Yutivo Manila as their "Head Office" or
"Home Office" as shown by their letters of remittances or other
correspondences. These correspondences were actually received by Yutivo and
the reference to Yutivo as the head or home office is obvious from the fact that
all cash collections of the SM's branches are remitted directly to Yutivo. Added
to this fact, is that SM may freely use forms or stationery of Yutivo
The fact that SM is a mere department or adjunct of Yutivo is made more
patent by the fact that arrastre conveying, and charges paid for the "operation
of receiving, loading or unloading" of imported cars and trucks on piers and
wharves, were charged against SM. Overtime charges for the unloading of cars
and trucks as requested by Yutivo and incurred as part of its acquisition cost
thereof, were likewise charged against and treated as expenses of SM. If Yutivo
were the importer, these arrastre and overtime charges were Yutivo's expenses
in importing goods and not SM's. But since those charges were made against
SM, it plainly appears that Yutivo had sole authority to allocate its expenses
even as against SM in the sense that the latter is a mere adjunct, branch or
department of the former.
Proceeding to another aspect of the relation of the parties, the management
fees due from SM to Yutivo were taken up as expenses of SM and credited to
the account of Yutivo. If it were to be assumed that the two organizations are
separate juridical entities, the corresponding receipts or receivables should
have been treated as income on the part of Yutivo. But such management fees
were recorded as "Reserve for Bonus" and were therefore a liability reserve and
not an income account. This reserve for bonus were subsequently distributed
directly to and credited in favor of the employees and directors of Yutivo,
thereby clearly showing that the management fees were paid directly to Yutivo
officers and employees.
Briefly stated, Yutivo financed principally, if not wholly, the business of SM and
actually extended all the credit to the latter not only in the form of starting
capital but also in the form of credits extended for the cars and vehicles
allegedly sold by Yutivo to SM as well as advances or loans for the expenses of
the latter when the capital had been exhausted. Thus, the increases in the
capital stock were made in advances or "Guarantee" payments by Yutivo and
credited in favor of SM. The funds of SM were all merged in the cash fund of
Yutivo. At all times Yutivo thru officers and directors common to it and SM,
exercised full control over the cash funds, policies, expenditures and
obligations of the latter.
Southern Motors being but a mere instrumentality, or adjunct of Yutivo, the
Court of Tax Appeals correctly disregarded the technical defense of separate
corporate entity in order to arrive at the true tax liability of Yutivo.
Petitioner contends that the respondent Collector had lost his right or authority
to issue the disputed assessment by reason of prescription. The contention, in
our opinion, cannot be sustained. It will be noted that the first assessment was
made on November 7, 1950 for deficiency sales tax from 1947 to 1949. The
corresponding returns filed by petitioner covering the said period was made at
the earliest on October 1, as regards the third quarter of 1947, so that it
cannot be claimed that the assessment was not made within the five-year
period prescribed in section 331 of the Tax Code invoked by petitioner. The
assessment, it is admitted, was withdrawn by the Collector on insufficiency of
evidence, but November 15, 1952 due to insufficiency of evidence, but the
withdrawal was made subject to the approval of the Secretary of Finance and
the Board of Tax Appeals, pursuant to the provisions of section 9 of Executive
Order No. 401-A, series of 1951. The decision of the previous assessment of
November 7, Collector countermanding the as 1950 was forwarded to the
Board of Tax Appeals through the Secretary of Finance but that official,
apparently disagreeing with the decision, sent it back for re-investigation.
Consequently, the assessment of November 7, 1950 cannot be considered to
have been finally withdrawn. That the assessment was subsequently reiterated
in the decision of respondent Collector on December 16, 1954 did not alter the
fact that it was made seasonably. In this connection, it would appear that a
warrant of distraint and levy had been issued on March 28, 1951 in relation
with this case and by virtue thereof the properties of Yutivo were placed under
constructive distraint. Said warrant and constructive distraint have not been
lifted up to the present, which shows that the assessment of November 7, 1950
has always been valid and subsisting.
Anent the deficiency sale tax for 1950, considering that the assessment thereof
was made on December 16, 1954, the same was assessed well within the
prescribed five-year period.
Petitioner argues that the original assessment of November 7, 1950 did not
extend the prescriptive period on assessment. The argument is untenable, for,
as already seen, the assessment was never finally withdrawn, since it was not
approved by the Secretary of Finance or of the Board of Tax Appeals. The
authority of the Secretary to act upon the assessment cannot be questioned,
for he is expressly granted such authority under section 9 of Executive Order
No. 401-And under section 79 (c) of the Revised Administrative Code, he has
"direct control, direction and supervision over all bureaus and offices under his
jurisdiction and may, any provision of existing law to the contrary not
We find merit, however, in petitioner's contention that the Court of Tax Appeals
erred in the imposition of the 5% fraud surcharge. As already shown in the
early part of this decision, no element of fraud is present.
Pursuant to Section 183 of the National Internal Revenue Code the 50%
surcharge should be added to the deficiency sales tax "in case a false or
fraudulent return is willfully made." Although the sales made by SM are in
substance by Yutivo this does not necessarily establish fraud nor the willful
filing of a false or fraudulent return.
The case of Court Holding Co. v. Commissioner of Internal Revenue (August 9,
1943, 2 TC 531, 541-549) is in point. The petitioner Court Holding Co. was a
corporation consisting of only two stockholders, to wit: Minnie Miller and her
husband Louis Miller. The only assets of third husband and wife corporation
consisted of an apartment building which had been acquired for a very low
price at a judicial sale. Louis Miller, the husband, who directed the company's
business, verbally agreed to sell this property to Abe C. Fine and Margaret
Fine, husband and wife, for the sum of $54,000.00, payable in various
installments. He received $1,000.00 as down payment. The sale of this property
for the price mentioned would have netted the corporation a handsome profit
on which a large corporate income tax would have to be paid. On the afternoon
of February 23, 1940, when the Millers and the Fines got together for the
execution of the document of sale, the Millers announced that their attorney
had called their attention to the large corporate tax which would have to be
paid if the sale was made by the corporation itself. So instead of proceeding
with the sale as planned, the Millers approved a resolution to declare a
dividend to themselves "payable in the assets of the corporation, in complete
liquidation and surrender of all the outstanding corporate stock." The building,
which as above stated was the only property of the corporation, was then
transferred to Mr. and Mrs. Miller who in turn sold it to Mr. and Mrs. Fine for
exactly the same price and under the same terms as had been previously
agreed upon between the corporation and the Fines.
The return filed by the Court Holding Co. with the respondent Commissioner of
Internal Revenue reported no taxable gain as having been received from the
sale of its assets. The Millers, of course, reported a long term capital gain on
the exchange of their corporate stock with the corporate property. The
Commissioner of Internal Revenue contended that the liquidating dividend to
stockholders had no purpose other than that of tax avoidance and that,
therefore, the sale by the Millers to the Fines of the corporation's property was
before us, that that position was taken fraudulently. The determination
of the fraud penalties is reversed."
When GM was the importer and Yutivo, the wholesaler, of the cars and trucks,
the sales tax was paid only once and on the original sales by the former and
neither the latter nor SM paid taxes on their subsequent sales. Yutivo might
have, therefore, honestly believed that the payment by it, as importer, of the
sales tax was enough as in the case of GM Consequently, in filing its return on
the basis of its sales to SM and not on those by the latter to the public, it
cannot be said that Yutivo deliberately made a false return for the purpose of
defrauding the government of its revenues which will justify the imposition of
the surcharge penalty.
We likewise find meritorious the contention that the Tax Court erred in
computing the alleged deficiency sales tax on the selling price of SM without
previously deducting therefrom the sales tax due thereon. The sales tax
provisions (sees. 184.186, Tax Code) impose a tax on original sales measured
by "gross selling price" or "gross value in money". These terms, as interpreted
by the respondent Collector, do not include the amount of the sales tax, if
invoiced separately. Thus, General Circular No. 431 of the Bureau of Internal
Revenue dated July 29, 1939, which implements sections 184.186 of the Tax
Code provides: "
. . .'Gross selling price' or gross value in money' of the articles sold,
bartered, exchanged, transferred as the term is used in the aforecited
sections (sections 184, 185 and 186) of the National Internal Revenue
Code, is the total amount of money or its equivalent which the purchaser
pays to the vendor to receive or get the goods. However, if a
manufacturer, producer, or importer, in fixing the gross selling price of
an article sold by him has included an amount intended to cover the
sales tax in the gross selling price of the articles, the sales tax shall be
based on the gross selling price less the amount intended to cover the
tax, if the same is billed to the purchaser as a separate item.
General Circular No. 440 of the same Bureau reads:
Amount intended to cover the tax must be billed as a separate em so as
not to pay a tax on the tax. On sales made after he third quarter of
1939, the amount intended to cover the sales tax must be billed to the
purchaser as separate items in the, invoices in order that the reduction
thereof from the gross ailing price may be allowed in the computation of
Sales
Taxes
Rates Gross Sales of Due
and
of
Vehicles
Computed
Sales Exclusive
of under
Gen.
Tax
Sales Tax
Cir Nos. 431
& 400
Total
Gross
Selling
Price
Charged to the
Public
5%
P11,912,219.5
7
P595,610.98
P12,507,8305
5
7%
909,559.50
973,228.66
63,669.16
10%
2,618,695.28
261,869.53
2,880,564.81
15%
3,602,397.65
540,359.65
4,142,757.30
20%
267,150.50
53,430.10
320,580.60
30%
837,146.97
251,114.09
1,088,291.06
50%
74,244.30
37,122.16
111,366.46
75%
8,000.00
6,000.00
14,000.00
TOTA P20,220,413.7
P22,038,619.4
L
7
P1,809,205.67 4
Deficiency
still due
Tax P820,549.9
1
This is the exact amount which, according to Presiding Judge Nable of the
Court of Tax Appeals, Yutivo would pay, exclusive of the surcharges.
Petitioner finally contends that the Court of Tax Appeals erred or acted in
excess of its jurisdiction in promulgating judgment for the affirmance of the
decision of respondent Collector by less than the statutory requirement of at
least two votes of its judges. Anent this contention, section 2 of Republic Act
No. 1125, creating the Court of Tax Appeals, provides that "Any two judges of
the Court of Tax Appeals shall constitute a quorum, and the concurrence of
two judges shall be necessary to promulgate decision thereof. . . . " It is on
record that the present case was heard by two judges of the lower court. And
while Judge Nable expressed his opinion on the issue of whether or not the
amount of the sales tax should be excluded from the gross selling price in
computing the deficiency sales tax due from the petitioner, the opinion,
apparently, is merely an expression of his general or "private sentiment" on the
particular issue, for he concurred the dispositive part of the decision. At any
rate, assuming that there is no valid decision for lack of concurrence of two
judges, the case was submitted for decision of the court below on March 28,
1957 and under section 13 of Republic Act 1125, cases brought before said
court hall be decided within 30 days after submission thereof. "If no decision is
rendered by the Court within thirty days from the date a case is submitted for
decision, the party adversely affected by said ruling, order or decision, may file
with said Court a notice of his intention to appeal to the Supreme Court, and if
no decision has as yet been rendered by the Court, the aggrieved party may file
directly with the Supreme Court an appeal from said ruling, order or decision,
notwithstanding the foregoing provisions of this section." The case having been
brought before us on appeal, the question raised by petitioner as become
purely academic.
IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals under
review is hereby modified in that petitioner shall be ordered to pay to
respondent the sum of P820,549.91, plus 25% surcharge thereon for late
payment.
So ordered without costs.
Bengzon, Labrador, Concepcion, Reyes, J.B.L., Barrera and Paredes, JJ., concur.
Padilla, J., took no part.
Republic
SUPREME
Manila
of
the
Philippines
COURT
SECOND DIVISION
EARTH
EMPORIUM
INC.,
and
LIM
KA
PING,
petitioners,
vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC.,
respondents.
A.E. Dacanay for petitioners.
Antonio Quintos Law Office for private respondent.
PARAS, J.:p
This is a petition for review on certiorari of the December 29, 1987 decision * of
the Court of Appeals in CA-G.R. No. 11960 entitled "ROCES-REYES REALTY,
INC. vs. HONORABLE JUDGE REGIONAL TRIAL COURT OF MANILA, BRANCH
44, GOOD EARTH EMPORIUM, INC. and LIM KA PING" reversing the decision
of respondent Judge ** of the Regional Trial Court of Manila, Branch 44 in Civil
Case No. 85-30484, which reversed the resolution of the Metropolitan Trial
Court Of Manila, Branch 28 in Civil Case No. 09639, *** denying herein
petitioners' motion to quash the alias writ of execution issued against them.
As gathered from the records, the antecedent facts of this case, are as follows:
A Lease Contract, dated October 16, 1981, was entered into by and between
ROCES-REYES REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC.,
as lessee, for a term of three years beginning November 1, 1981 and ending
October 31, 1984 at a monthly rental of P65,000.00 (Rollo, p. 32; Annex "C" of
Petition). The building which was the subject of the contract of lease is a five-
storey building located at the corner of Rizal Avenue and Bustos Street in Sta.
Cruz, Manila.
From March 1983, up to the time the complaint was filed, the lessee had
defaulted in the payment of rentals, as a consequence of which, private
respondent ROCES-REYES REALTY, INC., (hereinafter designated as ROCES
for brevity) filed on October 14, 1984, an ejectment case (Unlawful Detainer)
against herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM KA PING,
hereinafter designated as GEE, (Rollo, p. 21; Annex "B" of the Petition). After
the latter had tendered their responsive pleading, the lower court (MTC,
Manila) on motion of Roces rendered judgment on the pleadings dated April 17,
1984, the dispositive portion of which states:
Judgment
is
hereby
rendered
ordering
defendants
(herein
petitioners) and all persons claiming title under him to vacate the
premises and surrender the same to the plaintiffs (herein
respondents); ordering the defendants to pay the plaintiffs the
rental of P65,000.00 a month beginning March 1983 up to the
time
defendants
actually
vacate
the
premises
and
deliver
Branch XLVI. However, on August 15, 1984, GEE thru counsel filed with the
Regional Trial Court of Manila, a motion to withdraw appeal citing as reason
that they are satisfied with the decision of the Metropolitan Trial Court of
Manila, Branch XXVIII, which said court granted in its Order of August 27,
1984 and the records were remanded to the trial court (Rollo, p. 32; CA
Decision). Upon an ex-parte Motion of ROCES, the trial court issued an Alias
Writ of Execution dated February 25, 1985 (Rollo, p. 104; Annex "D" of
Petitioner's Memorandum), which was implemented on February 27, 1985.
GEE thru counsel filed a motion to quash the writ of execution and notice of
levy and an urgent Ex-parte Supplemental Motion for the issuance of a
restraining order, on March 7, and 20, 1985, respectively. On March 21, 1985,
the lower court issued a restraining order to the sheriff to hold the execution of
the judgment pending hearing on the motion to quash the writ of execution
(Rollo, p. 22; RTC Decision). While said motion was pending resolution, GEE
filed a Petition for Relief from judgment before another court, Regional Trial
Court of Manila, Branch IX, which petition was docketed as Civil Case No. 8030019, but the petition was dismissed and the injunctive writ issued in
connection therewith set aside. Both parties appealed to the Court of Appeals;
GEE on the order of dismissal and Roces on denial of his motion for indemnity,
both docketed as CA-G.R. No. 15873-CV. Going back to the original case, the
Metropolitan Trial Court after hearing and disposing some other incidents,
promulgated the questioned Resolution, dated April 8, 1985, the dispositive
portion of which reads as follows:
Premises considered, the motion to quash the writ is hereby denied
for lack of merit.
The restraining orders issued on March 11 and 23, 1985 are
hereby recalled, lifted and set aside. (Rollo, p. 20, MTC Decision)
GEE appealed and by coincidence. was raffled to the same Court, RTC Branch
IX. Roces moved to dismiss the appeal but the Court denied the motion. On
certiorari, the Court of Appeals dismissed Roces' petition and remanded the
case to the RTC. Meantime, Branch IX became vacant and the case was reraffled to Branch XLIV.
On April 6, 1987, the Regional Trial Court of Manila, finding that the amount
of P1 million evidenced by Exhibit "I" and another P1 million evidenced by the
pacto de retro sale instrument (Exhibit "2") were in full satisfaction of the
judgment obligation, reversed the decision of the Municipal Trial Court, the
dispositive portion of which reads:
Premises considered, judgment is hereby rendered reversing the
Resolution appealed from quashing the writ of execution and
ordering the cancellation of the notice of levy and declaring the
judgment debt as having been fully paid and/or Liquidated. (Rollo,
p. 29).
On further appeal, the Court of Appeals reversed the decision of the Regional
Trial Court and reinstated the Resolution of the Metropolitan Trial Court of
Manila, the dispositive portion of which is as follows:
WHEREFORE, the judgment appealed from is hereby REVERSED
and the Resolution dated April 8, 1985, of the Metropolitan Trial
Court of Manila Branch XXXIII is hereby REINSTATED. No
pronouncement as to costs. (Rollo, p. 40).
GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43).
Hence, this petition.
The main issue in this case is whether or not there was full satisfaction of the
judgment debt in favor of respondent corporation which would justify the
quashing of the Writ of Execution.
A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that
nowhere in any of said exhibits was there any writing alluding to or referring to
any settlement between the parties of petitioners' judgment obligation (Rollo,
pp. 45-48).
Moreover, there is no indication in the receipt, Exhibit "1", that it was in
payment, full or partial, of the judgment obligation. Likewise, there is no
indication in the pacto de retro sale which was drawn in favor of Jesus Marcos
Roces and Marcos V. Roces and not the respondent corporation, that the
obligation embodied therein had something to do with petitioners' judgment
obligation with respondent corporation.
Finding that the common exhibit, Exhibit 1/A had been signed by persons
other than judgment creditors (Roces-Reyes Realty, Inc.) coupled with the fact
that said exhibit was not even alleged by GEE and Lim Ka Ping in their original
motion to quash the alias writ of execution (Rollo, p. 37) but produced only
during the hearing (Ibid.) which production resulted in petitioners having to
claim belatedly that there was an "overpayment" of about half a million pesos
(Rollo, pp. 25-27) and remarking on the utter absence of any writing in Exhibits
"1/A" and "2/B" to indicate payment of the judgment debt, respondent
Appellate Court correctly concluded that there was in fact no payment of the
judgment debt. As aptly observed by the said court:
What immediately catches one's attention is the total absence of
any writing alluding to or referring to any settlement between the
parties of private respondents' (petitioners') judgment obligation. In
moving for the dismissal of the appeal Lim Ka Ping who was then
assisted
by
counsel
simply
stated
that
defendants
(herein
In the case at bar, the supposed payments were not made to Roces-Reyes
Realty, Inc. or to its successor in interest nor is there positive evidence that the
payment was made to a person authorized to receive it. No such proof was
submitted but merely inferred by the Regional Trial Court (Rollo, p. 25) from
Marcos Roces having signed the Lease Contract as President which was
witnessed by Jesus Marcos Roces. The latter, however, was no longer President
or even an officer of Roces-Reyes Realty, Inc. at the time he received the money
(Exhibit "1") and signed the sale with pacto de retro (Exhibit "2"). He, in fact,
denied being in possession of authority to receive payment for the respondent
corporation nor does the receipt show that he signed in the same capacity as
he did in the Lease Contract at a time when he was President for respondent
corporation (Rollo, p. 20, MTC decision).
On the other hand, Jesus Marcos Roces testified that the amount of P1 million
evidenced by the receipt (Exhibit "1") is the payment for a loan extended by him
and Marcos Roces in favor of Lim Ka Ping. The assertion is home by the receipt
itself whereby they acknowledged payment of the loan in their names and in no
other capacity.
A corporation has a personality distinct and separate from its individual
stockholders or members. Being an officer or stockholder of a corporation does
not make one's property also of the corporation, and vice-versa, for they are
separate entities (Traders Royal Bank v. CA-G.R. No. 78412, September 26,
1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in no legal sense the
owners of corporate property (or credits) which is owned by the corporation as
a distinct legal person (Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168,
December 19, 1989). As a consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt or credit of the
stockholder, nor is the stockholder's debt or credit that of the corporation (Prof.
Jose Nolledo's "The Corporation Code of the Philippines, p. 5, 1988 Edition,
citing Professor Ballantine).
The absence of a note to evidence the loan is explained by Jesus Marcos Roces
who testified that the IOU was subsequently delivered to private respondents
(Rollo, pp. 97-98). Contrary to the Regional Trial Court's premise that it was
Petitioners' averments that the respondent court had gravely abused its
discretion in arriving at the assailed factual findings as contrary to the
evidence and applicable decisions of this Honorable Court are therefore,
patently unfounded. Respondent court was correct in stating that it "cannot go
beyond what appears in the documents submitted by petitioners themselves
(Exhibits "1" and "2") in the absence of clear and convincing evidence" that
would support its claim that the judgment obligation has indeed been fully
satisfied which would warrant the quashal of the Alias Writ of Execution.
It has been an established rule that when the existence of a debt is fully
established by the evidence (which has been done in this case), the burden of
proving that it has been extinguished by payment devolves upon the debtor
who offers such a defense to the claim of the plaintiff creditor (herein
respondent corporation) (Chua Chienco v. Vargas, 11 Phil. 219; Ramos v.
Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30 Phil. 365). For indeed, it is wellentrenched in Our jurisprudence that each party in a case must prove his own
affirmative allegations by the degree of evidence required by law (Stronghold
Insurance Co. v. CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache & Co. v.
Insurance Commission, 158 SCRA 366).
The appellate court cannot, therefore, be said to have gravely abused its
discretion in finding lack of convincing and reliable evidence to establish
payment of the judgment obligation as claimed by petitioner. The burden of
evidence resting on the petitioners to establish the facts upon which their
action is premised has not been satisfactorily discharged and therefore, they
have to bear the consequences.
PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of
the Respondent court is hereby AFFIRMED, reinstating the April 8, 1985
Resolution of the Metropolitan Trial Court of Manila.
SO ORDERED.
Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.
Footnotes
* Penned by Associate Justice Oscar M. Herrera and concurred in
by Associate Justices Leonor Ines Luciano and Justo P. Torres, Jr.
** Judge Marcelo R. Obien.
*** Penned by Judge Alicia G. Decano.
Republic
of
the
SUPREME
Philippines
COURT
Manila
SECOND DIVISION
G.R. No. 89561 September 13, 1990
BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M.
CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAEZ, LEOVINA C.
JALBUENA
and
SANTIAGO
M.
RIVERA,
petitioners,
vs.
COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY
PARTS MANUFACTURING CO., INC., respondents.
Edmundo T. Zepeda for petitioners.
Martin M. De Guzman for respondent BORMAHECO, Inc.
Renato J. Robles for P.M. Parts Manufacturing Co., Inc.
REGALADO, J.:
the
Ordering
plaintiffs-appellees
to
pay
upon
defendants'
counterclaims:
a) To defendant-appellant PM Parts: (i) damages
consisting of the value of the fruits in the subject
parcels of land of which they were deprived in the sum
of P26,000.00 and (ii) attorney's fees of P15,000.00
b) To defendant-appellant Bormaheco: (i) expenses of
litigation in the amount of P5,000.00 and (ii) attorney's
fees of P15,000.00.
SO ORDERED.
The original complaint for annulment of title filed in the court a quo by herein
petitioners included as party defendants the Philippine Machinery Parts
Manufacturing Co., Inc. (PM Parts), Insurance Corporation of the Philippines
(ICP), Bormaheco, Inc., (Bormaheco) and Santiago M. Rivera (Rivera). A Second
Amended Complaint was filed, this time impleading Santiago M. Rivera as
party plaintiff.
During the pre-trial conference, the parties entered into the following
stipulation of facts:
between
Insurance
Corporation
of
the
Inc.,
later
Executive
Vice-President
to
Slobec
Realty
and
Development,
Inc.,
Tractor
D-7
with
Serial
No.
281114
Victoria
Castillo,
Marietta
Castillo
and
Nos.
T-13114,
T13115,
Meer
about
its
ownership
and
the
between
plaintiffs
and
Corporation
executed
in
favor
of
document
was
superseded
by
the
Sales
That
on
23
January
1971,
Slobec
Realty
PM
Parts,
through
its
President,
Mr.
Modesto
Record).
They
contended
that
all
the
aforementioned
After trial, the court a quo rendered judgment, with the following
decretal portion:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against the defendants, declaring the following
documents:
Agreement of Counter-Guaranty with Chattel-Real
Estate Mortgage dated October 24,1970 (Exhibit 1);
Sales Agreement dated December 28, 1970 (Exhibit J)
and
void
for
being
fictitious,
spurious
and
without
Agreement,
as yet been executed, aside from the fact that it was Bormaheco, and not
Rivera, which paid the premium for the surety bond issued by ICP
At the outset, it will be noted that petitioners submission under the first
assigned error hinges purely on questions of fact. Respondent Court of Appeals
made several findings to the effect that the questioned documents are valid and
binding upon the parties, that there was no fraud employed by private
respondents in the execution thereof, and that, contrary to petitioners'
allegation, the evidence on record reveals that petitioners had every intention to
be bound by their undertakings in the various transactions had with private
respondents. It is a general rule in this jurisdiction that findings of fact of said
appellate court are final and conclusive and, thus, binding on this Court in the
absence of sufficient and convincing proof, inter alia, that the former acted with
grave abuse of discretion. Under the circumstances, we find no compelling
reason to deviate from this long-standing jurisprudential pronouncement.
In addition, the alleged failure of Rivera to pay the consideration agreed upon
in the Sales Agreement, which clearly constitutes a breach of the contract,
cannot be availed of by the guilty party to justify and support an action for the
declaration of nullity of the contract. Equity and fair play dictates that one who
commits a breach of his contract may not seek refuge under the protective
mantle of the law.
The evidence of record, on an overall calibration, does not convince us of the
validity of petitioners' contention that the contracts entered into by the parties
are either absolutely simulated or downright fraudulent.
There is absolute simulation, which renders the contract null and void, when
the parties do not intend to be bound at all by the same.
The basic
characteristic of this type of simulation of contract is the fact that the apparent
contract is not really desired or intended to either produce legal effects or in
any way alter the juridical situation of the parties. The subsequent act of
Rivera in receiving and making use of the tractor subject matter of the Sales
Agreement and Chattel Mortgage, and the simultaneous issuance of a surety
bond in favor of Bormaheco, concomitant with the execution of the Agreement
of Counter-Guaranty with Chattel/Real Estate Mortgage, conduce to the
10
case at bar.
The fact that it was Bormaheco which paid the premium for the surety bond
issued by ICP does not per se affect the validity of the bond. Petitioners
themselves admit in their present petition that Rivera executed a Deed of Sale
with Right of Repurchase of his car in favor of Bormaheco and agreed that a
part of the proceeds thereof shall be used to pay the premium for the bond.
11
12
used to defeat public convenience, justify wrong, protect fraud, or defend crime,
13
14
or where a
corporation is the mere alter ego or business conduit of a person, or where the
15
In the case at bar, petitioners seek to pierce the V621 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 the 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.
In the first place, the legal corporate entity is disregarded only if it is sought to
hold the officers and stockholders directly liable for a corporate debt or
obligation. In the instant case, petitioners do not seek to impose a claim against
the individual members of the three corporations involved; on the contrary, it is
these corporations which desire to enforce an alleged right against petitioners.
Assuming that petitioners were indeed defrauded by private respondents in the
foreclosure of the mortgaged properties, this fact alone is not, under the
circumstances, sufficient to justify the piercing of the corporate fiction, since
petitioners do not intend to hold the officers and/or members of respondent
corporations personally liable therefor. Petitioners are merely seeking the
declaration of the nullity of the foreclosure sale, which relief may be obtained
without having to disregard the aforesaid corporate fiction attaching to
respondent corporations. Secondly, petitioners failed to establish by clear and
convincing evidence that private respondents were purposely formed and
operated, and thereafter transacted with petitioners, with the sole intention of
defrauding the latter.
The mere fact, therefore, that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate personalities,
16
absent sufficient showing that the corporate entity was purposely used as a
shield to defraud creditors and third persons of their rights.
III. The main issue for resolution is whether there was a valid foreclosure of the
mortgaged properties by ICP Petitioners argue that the foreclosure proceedings
should be declared null and void for two reasons, viz.: (1) no written notice was
furnished by Bormaheco to ICP anent the failure of Slobec in paying its
obligation with the former, plus the fact that no receipt was presented to show
the amount allegedly paid by ICP to Bormaheco; and (b) at the time of the
foreclosure of the mortgage, the liability of ICP under the surety bond had
already expired.
Respondent court, in finding for the validity of the foreclosure sale, declared:
Now to the question of whether or not the foreclosure by the ICP of
the real estate mortgage was in the exercise of a legal right, We
agree with the appellants that the foreclosure proceedings
instituted by the ICP was in the exercise of a legal right. First, ICP
has in its favor the legal presumption that it had indemnified
Bormaheco by reason of Slobec's default in the payment of its
obligation
under
the
Sales
Agreement,
especially
because
17
The
liability
of
INSURANCE
CORPORATION
OF
THE
18
The surety bond was dated October 24, 1970. However, an annotation on
the upper part thereof states: "NOTE: EFFECTIVITY DATE OF THIS
BOND SHALL BE ON JANUARY 22, 1971."
19
On the other hand, the Sales Agreement dated January 23, 1971 provides that
the balance of P180,000.00 shall be payable in eighteen (18) monthly
installments.
20
21
22
Fundamental likewise is the rule that, except where required by the provisions
of the contract, a demand or notice of default is not required to fix the surety's
liability.
23
principal's default be given to the surety, generally the failure to comply with
the condition will prevent recovery from the surety. There are certain instances,
however, when failure to comply with the condition will not extinguish the
surety's liability, such as a failure to give notice of slight defaults, which are
waived by the obligee; or on mere suspicion of possible default; or where, if a
default exists, there is excuse or provision in the suretyship contract exempting
the surety for liability therefor, or where the surety already has knowledge or is
chargeable with knowledge of the default.
24
In the case at bar, the suretyship contract expressly provides that ICP shag not
be liable for any claim not filed in writing within thirty (30) days from the
expiration of the bond. In its decision dated May 25 1987, the court a quo
categorically stated that '(n)o evidence was presented to show that Bormaheco
demanded payment from ICP nor was there any action taken by Bormaheco on
the bond posted by ICP to guarantee the payment of plaintiffs obligation. There
is nothing in the records of the proceedings to show that ICP indemnified
Bormaheco for the failure of the plaintiffs to pay their obligation. "
25
The
default
released
ICP
from
liability
under
its
surety
bond.
Consequently, ICP could not validly foreclose that real estate mortgage executed
by petitioners in its favor since it never incurred any liability under the surety
bond. It cannot claim exemption from the required written notice since its case
does not fall under any of the exceptions hereinbefore enumerated.
Furthermore, the allegation of ICP that it has paid Bormaheco is not supported
by any documentary evidence. Section 1, Rule 131 of the Rules of Court
provides that the burden of evidence lies with the party who asserts an
affirmative allegation. Since ICP failed to duly prove the fact of payment, the
disputable presumption that private transactions have been fair and regular, as
erroneously relied upon by respondent Court of Appeals, finds no application to
the case at bar.
2. The liability of a surety is measured by the terms of his contract, and, while
he is liable to the full extent thereof, such liability is strictly limited to that
assumed by its terms.
26
27
This is
an exception to the general rule that the obligation of the surety continues for
the same period as that of the principal debtor.
28
It is possible that the period of suretyship may be shorter than that of the
principal obligation, as where the principal debtor is required to make payment
by installments.
29
expire on January 22, 1972, twelve (1 2) months from its effectivity date,
whereas Slobec's installment payment was to end on July 23, 1972. Therefore,
while ICP guaranteed the payment by Slobec of the balance of P180,000.00,
such guaranty was valid only for and within twelve (1 2) months from the date
of effectivity of the surety bond, or until January 22, 1972. Thereafter, from
January 23, 1972 up to July 23, 1972, the liability of Slobec became an
unsecured obligation. The default of Slobec during this period cannot be a valid
basis for the exercise of the right to foreclose by ICP since its surety contract
had already been terminated. Besides, the liability of ICP was extinguished
when Bormaheco failed to file a written claim against it within thirty (30) days
from the expiration of the surety bond. Consequently, the foreclosure of the
mortgage, after the expiration of the surety bond under which ICP as surety
has not incurred any liability, should be declared null and void.
3. Lastly, it has been held that where The guarantor holds property of the
principal as collateral surety for his personal indemnity, to which he may resort
only after payment by himself, until he has paid something as such guarantor
neither he nor the creditor can resort to such collaterals.
30
31
is issued for the personal indemnity of ICP Considering that the fact of
payment by ICP has never been established, it follows, pursuant to the doctrine
above adverted to, that ICP cannot foreclose on the subject properties,
IV. Private respondent PM Parts posits that it is a buyer in good faith and,
therefore, it acquired a valid title over the subject properties. The submission is
without merit and the conclusion is specious
We have stated earlier that the doctrine of piercing the veil of corporate fiction
is not applicable in this case. However, its inapplicability has no bearing on the
good faith or bad faith of private respondent PM Parts. It must be noted that
Modesto N. Cervantes served as Vice-President of Bormaheco and, later, as
President of PM Parts. On this fact alone, it cannot be said that PM Parts had
no
knowledge
of
the
aforesaid
several
transactions
executed
between
Corporation of the Philippines; (2) Transfer Certificates of Title Nos. T-23705, T23706, T-23707 and T-23708 issued in the name of the Insurance Corporation
of the Philippines; (3) the sale by Insurance Corporation of the Philippines in
favor of Philippine Machinery Parts Manufacturing Co., Inc. of the four (4)
parcels of land covered by the aforesaid certificates of title; and (4) Transfer
Certificates of Title Nos. T-24846, T-24847, T-24848 and T24849 subsequently
issued by virtue of said sale in the name of the latter corporation.
The Register of Deeds of Lucena City is hereby directed to cancel Transfer
Certificates of Title Nos. T-24846, T-24847, T24848 and T-24849 in the name of
Philippine Machinery Parts Manufacturing Co., Inc. and to issue in lieu thereof
the corresponding transfer certificates of title in the name of herein petitioners,
except Santiago Rivera.
The foregoing dispositions are without prejudice to such other and proper legal
remedies as may be available to respondent Bormaheco, Inc. against herein
petitioners.
SO ORDERED.
Melencio-Herrera (Chairman), Paras and Padilla, JJ., concur.
Sarmiento, J., is on leave.
Republic
SUPREME
Manila
of
the
Philippines
COURT
EN BANC
G.R. No. L-22973
MAMBULAO
vs.
COMPANY,
plaintiff-appellant,
5. That for the acts of the PNB in proceeding with the sale of the chattels,
in utter disregard of plaintiff's vigorous opposition thereto, and in taking
possession thereof after the sale thru force, intimidation, coercion, and
by detaining its "man-in-charge" of said properties, the PNB is liable to
plaintiff for damages and attorney's fees.
The antecedent facts of the case, as found by the trial court, are as follows:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000
with the Naga Branch of defendant PNB and the former offered real
estate, machinery, logging and transportation equipments as collaterals.
The application, however, was approved for a loan of P100,000 only. To
secure the payment of the loan, the plaintiff mortgaged to defendant PNB
a parcel of land, together with the buildings and improvements existing
thereon, situated in the poblacion of Jose Panganiban (formerly
Mambulao), province of Camarines Norte, and covered by Transfer
Certificate of Title No. 381 of the land records of said province, as well as
various sawmill equipment, rolling unit and other fixed assets of the
plaintiff, all situated in its compound in the aforementioned municipality.
On August 2, 1956, the PNB released from the approved loan the sum of
P27,500, for which the plaintiff signed a promissory note wherein it
promised to pay to the PNB the said sum in five equal yearly installments
at the rate of P6,528.40 beginning July 31, 1957, and every year
thereafter, the last of which would be on July 31, 1961.
On October 19, 1956, the PNB made another release of P15,500 as part
of the approved loan granted to the plaintiff and so on the said date, the
latter executed another promissory note wherein it agreed to pay to the
former the said sum in five equal yearly installments at the rate of
P3,679.64 beginning July 31, 1957, and ending on July 31, 1961.
The plaintiff failed to pay the amortization on the amounts released to
and received by it. Repeated demands were made upon the plaintiff to
pay its obligation but it failed or otherwise refused to do so. Upon
inspection and verification made by employees of the PNB, it was found
that the plaintiff had already stopped operation about the end of 1957 or
early part of 1958.
On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of
Camarines Norte requesting him to take possession of the parcel of land,
Manila. In said letter to the Naga Branch of the PNB, it was intimated
that if the public auction sale would be suspended and the plaintiff
would be given an extension of ninety (90) days, its obligation would be
settled satisfactorily because an important negotiation was then going on
for the sale of its "whole interest" for an amount more than sufficient to
liquidate said obligation.
The letter of the plaintiff to the Naga Branch of the PNB was construed
by the latter as a request for extension of the foreclosure sale of the
mortgaged chattels and so it advised the Sheriff of Camarines Norte to
defer it to December 21, 1961, at the same time and place. A copy of said
advice was sent to the plaintiff for its information and guidance.
The foreclosure sale of the parcel of land, together with the buildings and
improvements thereon, covered by Transfer Certificate of Title No. 381,
was, however, held on November 21, 1961, and the said property was
sold to the PNB for the sum of P56,908.00, subject to the right of the
plaintiff to redeem the same within a period of one year. On the same
date, Deputy Provincial Sheriff Heraldo executed a certificate of sale in
favor of the PNB and a copy thereof was sent to the plaintiff.
In a letter dated December 14, 1961 (but apparently posted several days
later), the plaintiff sent a bank draft for P738.59 to the Naga Branch of
the PNB, allegedly in full settlement of the balance of the obligation of the
plaintiff after the application thereto of the sum of P56,908.00
representing the proceeds of the foreclosure sale of parcel of land
described in Transfer Certificate of Title No. 381. In the said letter, the
plaintiff reiterated its request that the foreclosure sale of the mortgaged
chattels be discontinued on the grounds that the mortgaged
indebtedness had been fully paid and that it could not be legally effected
at a place other than the City of Manila.
In a letter dated December 16, 1961, the plaintiff advised the Provincial
Sheriff of Camarines Norte that it had fully paid its obligation to the
PNB, and enclosed therewith a copy of its letter to the latter dated
December 14, 1961.
On December 18, 1961, the Attorney of the Naga Branch of the PNB,
wrote to the plaintiff acknowledging the remittance of P738.59 with the
advice, however, that as of that date the balance of the account of the
plaintiff was P9,161.76, to which should be added the expenses of
the Rules of Court, the Sheriff's fees would be P1 for advertising the sale
(par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his
commission for the sale (par. n, Sec. 7, Rule 130 of the Old Rules) or a
total of P298.54.
There is really no evidence of record to support the conclusion that the PNB is
entitled to the amount awarded as expenses of the extra-judicial foreclosure
sale. The court below committed error in applying the provisions of the Rules of
Court for purposes of arriving at the amount awarded. It is to be borne in mind
that the fees enumerated under paragraphs k and n, Section 7, of Rule 130
(now Rule 141) are demandable, only by a sheriff serving processes of the court
in connection with judicial foreclosure of mortgages under Rule 68 of the new
Rules, and not in cases of extra-judicial foreclosure of mortgages under Act
3135. The law applicable is Section 4 of Act 3135 which provides that the
officer conducting the sale is entitled to collect a fee of P5.00 for each day of
actual work performed in addition to his expenses in connection with the
foreclosure sale. Admittedly, the PNB failed to prove during the trial of the case,
that it actually spent any amount in connection with the said foreclosure sale.
Neither may expenses for publication of the notice be legally allowed in the
absence of evidence on record to support it. 1 It is true, as pointed out by the
appellee bank, that courts should take judicial notice of the fees provided for by
law which need not be proved; but in the absence of evidence to show at least
the number of working days the sheriff concerned actually spent in connection
with the extra-judicial foreclosure sale, the most that he may be entitled to,
would be the amount of P10.00 as a reasonable allowance for two day's work
one for the preparation of the necessary notices of sale, and the other for
conducting the auction sale and issuance of the corresponding certificate of
sale in favor of the buyer. Obviously, therefore, the award of P298.54 as
expenses of the sale should be set aside.
But the claim of the appellant that the real estate mortgage does not provide for
attorney's fees in case the same is extra-judicially foreclosed, cannot be
favorably considered, as would readily be revealed by an examination of the
pertinent provision of the mortgage contract. The parties to the mortgage
appear to have stipulated under paragraph (c) thereof, inter alia:
. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby
appoints the Mortgagee his attorney-in-fact to sell the property
mortgaged under Act 3135, as amended, to sign all documents and to
perform all acts requisite and necessary to accomplish said purpose and
the note here in suit to judgment, it would not have been enforced
against him had he seen fit to oppose it, as such a fee is obviously far
greater than is necessary to remunerate the attorney for the work
involved and is therefore unreasonable. In order to enable the court to
ignore an express contract for an attorney's fees, it is not necessary to
show, as in other contracts, that it is contrary to morality or public policy
(Art. 1255, Civil Code). It is enough that it is unreasonable or
unconscionable. 4
Since then this Court has invariably fixed counsel fees on a quantum meruit
basis whenever the fees stipulated appear excessive, unconscionable, or
unreasonable, because a lawyer is primarily a court officer charged with the
duty of assisting the court in administering impartial justice between the
parties, and hence, the fees should be subject to judicial control. Nor should it
be ignored that sound public policy demands that courts disregard stipulations
for counsel fees, whenever they appear to be a source of speculative profit at
the expense of the debtor or mortgagor. 5 And it is not material that the present
action is between the debtor and the creditor, and not between attorney and
client. As court have power to fix the fee as between attorney and client, it must
necessarily have the right to say whether a stipulation like this, inserted in a
mortgage contract, is valid. 6
In determining the compensation of an attorney, the following circumstances
should be considered: the amount and character of the services rendered; the
responsibility imposed; the amount of money or the value of the property
affected by the controversy, or involved in the employment; the skill and
experience called for in the performance of the service; the professional
standing of the attorney; the results secured; and whether or not the fee is
contingent or absolute, it being a recognized rule that an attorney may properly
charge a much larger fee when it is to be contingent than when it is not. 7 From
the stipulation in the mortgage contract earlier quoted, it appears that the
agreed fee is 10% of the total indebtedness, irrespective of the manner the
foreclosure of the mortgage is to be effected. The agreement is perhaps fair
enough in case the foreclosure proceedings is prosecuted judicially but, surely,
it is unreasonable when, as in this case, the mortgage was foreclosed extrajudicially, and all that the attorney did was to file a petition for foreclosure with
the sheriff concerned. It is to be assumed though, that the said branch
attorney of the PNB made a study of the case before deciding to file the petition
for foreclosure; but even with this in mind, we believe the amount of P5,821.35
is far too excessive a fee for such services. Considering the above
Principal Loan
(a) Promissory note dated August 2, 1956
P27,500.00
P15,500.00
10.00
1,000.00
P57,495.86
B. I.
II.
738.59
P57,646.59
P57,495.86
P
150.73
========
said deputy sheriff sold all the chattels (among which were a skagit with
caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and Sawmill
equipment consisting of a 150 HP Murphy Engine, plainer, large circular saws
etc.) as a single lot in violation of the requirement of the law to sell the same
article by article. The PNB has resold the chattels to another buyer with whom
it appears to have actively cooperated in subsequently taking possession of and
removing the chattels from appellant compound by force, as shown by the
circumstance that they had to take along PC soldiers and municipal policemen
of Jose Panganiban who placed the chief security officer of the premises in jail
to deprive herein appellant of its possession thereof. To exonerate itself of any
liability for the breach of peace thus committed, the PNB would want us to
believe that it was the subsequent buyer alone, who is not a party to this case,
that was responsible for the forcible taking of the property; but assuming this
to be so, still the PNB cannot escape liability for the conversion of the
mortgaged chattels by parting with its interest in the property. Neither would
its claim that it afterwards gave a chance to herein appellant to repurchase or
redeem the chattels, improve its position, for the mortgagor is not under
obligation to take affirmative steps to repossess the chattels that were
converted by the mortgagee. 15 As a consequence of the said wrongful acts of
the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to
declare that herein appellant is entitled to collect from them, jointly and
severally, the full value of the chattels in question at the time they were illegally
sold by them. To this effect was the holding of this Court in a similar situation.
16
The effect of this irregularity was, in our opinion to make the plaintiff
liable to the defendant for the full value of the truck at the time the
plaintiff thus carried it off to be sold; and of course, the burden is on the
defendant to prove the damage to which he was thus subjected. . . .
This brings us to the problem of determining the value of the mortgaged
chattels at the time of their sale in 1961. The trial court did not make any
finding on the value of the chattels in the decision appealed from and denied
altogether the right of the appellant to recover the same. We find enough
evidence of record, however, which may be used as a guide to ascertain their
value. The record shows that at the time herein appellant applied for its loan
with the PNB in 1956, for which the chattels in question were mortgaged as
part of the security therefore, herein appellant submitted a list of the chattels
together with its application for the loan with a stated value of P107,115.85. An
official of the PNB made an inspection of the chattels in the same year giving it
was grossly unfair to the mortgagor. Considering, however, the facts that the
appraised value of P42,850.00 and the market value of P85,700.00 originally
given by the PNB official were admittedly conservative; that two 6 x 6 trucks
subsequently bought by the appellant company had thereafter been added to
the chattels; and that the real value thereof, although depreciated after several
years of inoperation, was in a way maintained because the depreciation is offset by the marked increase in the cost of heavy equipment in the market, it is
our opinion that the market value of the chattels at the time of the sale should
be fixed at the original appraised value of P42,850.00.
Herein appellant's claim for moral damages, however, seems to have no legal or
factual basis. Obviously, an artificial person like herein appellant corporation
cannot experience physical sufferings, mental anguish, fright, serious anxiety,
wounded feelings, moral shock or social humiliation which are basis of moral
damages. 21 A corporation may have a good reputation which, if besmirched,
may also be a ground for the award of moral damages. The same cannot be
considered under the facts of this case, however, not only because it is
admitted that herein appellant had already ceased in its business operation at
the time of the foreclosure sale of the chattels, but also for the reason that
whatever adverse effects of the foreclosure sale of the chattels could have upon
its reputation or business standing would undoubtedly be the same whether
the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila
which is the place agreed upon by the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of
Camarines Norte in proceeding with the sale in utter disregard of the
agreement to have the chattels sold in Manila as provided for in the mortgage
contract, to which their attentions were timely called by herein appellant, and
in disposing of the chattels in gross for the miserable amount of P4,200.00,
herein appellant should be awarded exemplary damages in the sum of
P10,000.00. The circumstances of the case also warrant the award of
P3,000.00 as attorney's fees for herein appellant.
WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision
appealed from should be, as hereby, it is set aside. The Philippine National
Bank and the Deputy Sheriff of the province of Camarines Norte are ordered to
pay, jointly and severally, to Mambulao Lumber Company the total amount of
P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB,
P42,850.00 the value of the chattels at the time of the sale with interest at the
rate of 6% per annum from December 21, 1961, until fully paid, P10,000.00 in