Sibagat Timber Corporation vs. Garcia

The veil of corporate fiction may be pierced where a corporation is a mere alter ego, business conduit, or instrumentality of another corporation, such that both entities are treated as one agency or instrumentality — and the real ownership of the levied properties becomes unimportant in that event.

USIPHIL, Inc. had obtained a judgment against Del Rosario & Sons Logging Enterprises, Inc. in Civil Case No. 7180 before the Regional Trial Court, Branch 147, Makati, Metro Manila. To enforce that judgment, a writ of execution was issued, and respondent Sheriff Adolfo B. Garcia was tasked with its implementation. Sibagat Timber Corporation claimed ownership of the machinery targeted for execution, asserting it had acquired the equipment through deeds of sale executed by Del Rosario & Sons. The dispute centered on whether Sibagat was a legitimate third-party claimant or merely an extension of the judgment debtor, thereby subjecting its properties to execution.

On August 30, 1988, Sheriff Adolfo B. Garcia, tasked with implementing the writ of execution issued by the Regional Trial Court, Branch 147, Makati in Civil Case No. 7180 ("USIPHIL, Inc. vs. Del Rosario and Sons Logging Enterprises, Inc."), levied on several pieces of personal property belonging to Del Rosario & Sons, Inc., including a CAT Grader, generating sets, an engine block, and yarder equipment. The sheriff scheduled the auction sale of these items for September 7, 1988. He likewise levied on two logging trucks not in running condition, set for auction on September 8, 1988.

On the same day as the levy, Sibagat Timber Corporation, through Mariano Rana, filed a third-party claim asserting lawful ownership of the levied machinery and equipment by virtue of deeds of sale executed in its favor by Del Rosario & Sons Logging Enterprises, Inc. Pursuant to Section 17, Rule 39 of the Rules of Court, the judgment creditor USIPHIL, Inc. posted an indemnity bond to indemnify the sheriff against the third-party claim. On September 6, 1988, Sibagat filed a petition for certiorari, prohibition and injunction with a prayer for a temporary restraining order and writ of preliminary injunction before the Regional Trial Court of Butuan City (Special Civil Case No. 548). A temporary restraining order was issued that same day by the Executive Judge.

When court employees deputized to serve the restraining order arrived at the auction site at 11:10 A.M. on September 7, 1988, Sheriff Garcia informed them that the sale had already been concluded at 10:30 A.M. and that certificates of sale had been issued to USIPHIL, Inc. as the sole bidder and purchaser. After the hearing on the application for preliminary injunction on September 15, 1988, the parties were directed to submit simultaneous memoranda, and the case was deemed submitted for resolution. USIPHIL filed a formal motion to dismiss, which the trial court granted on February 28, 1990. Sibagat appealed to the Court of Appeals, which dismissed the appeal on February 15, 1991 and denied the motion for reconsideration.

Both the trial court and the Court of Appeals found that Sibagat Timber Corporation was not a separate and distinct entity from Del Rosario & Sons Logging Enterprises, Inc. Mariano Rana testified that he served as office manager of Sibagat and, in a concurrent capacity, as administrative manager of Del Rosario & Sons. The officers of both corporations were substantially the same: Policarpio C. Del Rosario served as President and General Manager of both entities, while Conchita C. Del Rosario held the position of Vice-President and General Manager in both. The directors of both corporations were likewise drawn from the Del Rosario family. The two corporations held office in the same building, and the Del Rosarios had assumed management and control of Sibagat, acting for and managing its business.

• Piercing the Corporate Veil: Petitioner contended that the Court of Appeals erred in piercing the veil of corporate entity and in holding that Sibagat Timber Corporation is not a separate and distinct entity from the judgment debtor, Del Rosario & Sons Logging Enterprises, Inc.
• Prior Supreme Court Ruling on Ownership: Petitioner argued that the Court of Appeals erroneously disregarded the Supreme Court's decision in G.R. No. 84497 (Escovilla vs. Court of Appeals), wherein the Court held that Sibagat and Conchita del Rosario were the actual owners of the properties subject of execution by virtue of a sale in their favor by Del Rosario & Sons Logging Enterprises, Inc.

• Piercing the Corporate Veil: Whether the Court of Appeals erred in piercing the veil of corporate entity and holding that Sibagat Timber Corporation is not a separate and distinct entity from the judgment debtor, Del Rosario & Sons Logging Enterprises, Inc.
• Effect of Prior Ruling on Ownership: Whether the prior Supreme Court ruling in G.R. No. 84497, which allegedly recognized Sibagat as owner of the levied properties, precludes the piercing of the corporate fiction.

• Piercing the Corporate Veil: No. The Court of Appeals correctly pierced the corporate veil, Sibagat being merely an alter ego or conduit of Del Rosario & Sons, as shown by the identity of officers, directors, office premises, and management control exercised by the Del Rosario family over both corporations.
• Effect of Prior Ruling on Ownership: No. The issue in G.R. No. 84497 was a procedural question — whether prohibition lies as a remedy for acts already accomplished — not the ownership of the properties. Even assuming arguendo that Sibagat was declared owner therein, that would not prevent piercing the corporate fiction where the corporation is merely an instrumentality or adjunct of another.

• Piercing the Corporate Veil: The Court found that the circumstances established by the record — (1) both corporations holding office in the same building, (2) the officers and directors of both being practically the same, and (3) the Del Rosarios having assumed management and control of Sibagat and conducting its business — bolstered the conclusion that Sibagat was an alter ego of Del Rosario & Sons. The rule is that the veil of corporate fiction may be pierced when used as a shield to perpetrate fraud or confuse legitimate issues. Where two business enterprises are owned, conducted, and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that the two corporations are distinct entities and treat them as identical. The corporate entity is disregarded where a corporation is the mere alter ego or business conduit of another, or where it is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit, or adjunct of another corporation.

• Effect of Prior Ruling on Ownership: The Court held that the issue raised in G.R. No. 84497 was "whether or not an action for prohibition will prosper as a remedy for acts already accomplished" — a procedural question, not one of ownership. The ownership issue now raised by petitioner involves a factual question requiring assessment of evidence, which is not reviewable in a petition under Rule 45, as the Court's jurisdiction is limited to reviewing errors of law. Assuming arguendo that the Court in G.R. No. 84497 held that petitioner owned the levied properties, that circumstance would not constitute a legal obstacle to piercing the corporate fiction. As found by both lower courts, Sibagat was just a conduit, if not an adjunct, of Del Rosario & Sons, and in such a case the real ownership becomes unimportant, for the two entities may be treated as only one agency or instrumentality.

• Doctrine of Piercing the Veil of Corporate Fiction — The veil of corporate fiction may be pierced when the corporate entity is used as a shield to perpetrate fraud and/or confuse legitimate issues, or where it appears that two business enterprises are owned, conducted, and controlled by the same parties. The corporate entity is disregarded where a corporation is the mere alter ego, business conduit, or instrumentality of a person or another corporation, or where it is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit, or adjunct of another. In this case, the Court applied the doctrine because Sibagat and Del Rosario & Sons shared the same office building, had practically identical officers and directors (all members of the Del Rosario family), and the Del Rosarios had assumed management and control of Sibagat. Once the corporate veil is pierced, real ownership of the levied properties becomes unimportant, as the two entities are treated as one.

• Limitation of Rule 45 Review to Questions of Law — In a petition for review under Rule 45, the Supreme Court's jurisdiction is limited to reviewing errors of law; the Court will not examine or weigh evidence already considered in the proceedings below. The issue of ownership of the levied properties was held to be a factual question requiring assessment of evidence, and thus not cognizable under Rule 45.

• "The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues." — This passage states the controlling principle justifying the disregard of the corporate fiction, anchoring the Court's ruling on the alter ego doctrine.

• "The corporate entity is disregarded 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." — This is the canonical formulation of the alter ego doctrine as applied in this case, frequently cited in subsequent Philippine corporate law jurisprudence.

• "Assuming arguendo that this Court in G.R. No. 84497 held that petitioner is the owner of the properties levied under execution, that circumstance will not be a legal obstacle to the piercing of the corporate fiction." — This passage clarifies that a prior ruling on ownership does not preclude piercing the corporate veil, reinforcing the primacy of the alter ego doctrine over bare assertions of title.

• Jacinto vs. CA, 198 SCRA 211 — Cited for the proposition that the veil of corporate fiction may be pierced when used as a shield to perpetrate fraud and/or confuse legitimate issues.
• Villanueva vs. Adre, 172 SCRA 876 — Cited for the principle that the theory of corporate entity was not meant to promote unfair objectives or shield them.
• Philippine Veterans Investment Development Corp. vs. CA, 181 SCRA 669 — Cited for the rule that where two business enterprises are owned, conducted, and controlled by the same parties, law and equity will disregard the legal fiction that the two corporations are distinct entities and treat them as identical, when necessary to protect the rights of third persons.
• Navarra vs. CA, 204 SCRA 850 — Cited for the principle that the Supreme Court's jurisdiction in a Rule 45 petition is limited to reviewing errors of law, not examining or weighing evidence.

• Section 17, Rule 39, Rules of Court — Governs the remedy of a third-party claimant when property levied on execution is claimed by a person other than the judgment debtor. Applied when USIPHIL posted an indemnity bond to indemnify the sheriff against Sibagat's third-party claim.

Cruz, Padilla, and Bellosillo, JJ., concurred.