The Court of First Instance held for the defendant and contravention of the local internal revenue laws,
venue laws, and the
dismissed plaintiff's complaint with costs to it.
Upon this appeal, seven errors are assigned to said
judgment as follows:.
1. That the court a quo erred in not holding that
appellant is a domestic corporation distinct and
separate from, and not a mere branch of Koppel
Industrial Car and Equipment Co.;
2. the court a quo erred in ignoring the ruling
of the Secretary of Finance, dated January 31,
1931, Exhibit M;
3. the court a quo erred in not holding that a
character of a broker is determined by the nature
of the transaction and not by the basis or measure
of his compensation;
4. The court a quo erred in not holding that
appellant acted as a commercial broker in the
transactions covered under paragraph VI of the
agreed statement of facts;
5. The court a quo erred in not holding that
appellant acted as a commercial broker in the
transactions covered under paragraph v of the
agreed statement of facts;
6. The court a quo erred in not holding that
appellant acted as a commercial broker in the sole
transaction covered under paragraph VI of the
agreed statement of facts;
7. the court a quo erred in dismissing appellant's
complaint.
The lower court found and held that Koppel (Philippines),
Inc. is a mere dummy or brach ("hechura") of Koppel
industrial Car and Equipment Company. The lower court did
not deny legal personality to Koppel (Philippines), Inc. for
any and all purposes, but in effect its conclusion was that, in
the transactions involved herein, the public interest and
convenience would be defeated and what would amount to a
tax evasion perpetrated, unless resort is had to the doctrine
of "disregard of the corporate fiction."
I. In its first assignment of error appellant submits that the
trial court erred in not holding that it is a domestic
corporation distinct and separate from and not a mere
branch of Koppel Industrial Car and Equipment Company. It
contends that its corporate existence as Philippine
corporation can not be collaterally attacked and that the
Government is estopped from so doing. As stated above, the
lower court did not deny legal personality to appellant for any
and all purposes, but held in effect that in the transaction
involved in this case the public interest and convenience
would be defeated and what would amount to a tax evasion
perpetrated, unless resort is had to the doctrine of "disregard
of the corporate fiction." In other words, in looking through
the corporate form to the ultimate person or corporation
behind that form, in the particular transactions which were
involved in the case submitted to its determination and
judgment, the court did so in order to prevent the
perpetration of what would amount to a tax evasion,
inasmuch as it considered — and in our opinion, correctly —
that appellant Koppel (Philippines), Inc. was a mere branch
or agency or dummy ("hechura") of Koppel Industrial Car
and Equipment Co. The court did not hold that the corporate
personality of Koppel (Philippines), Inc., would also be
disregarded in other cases or for other purposes. It would
have had no power to so hold. The courts' action in this
regard must be confined to the transactions involved in the
case at bar "for the purpose of adjudging the rights and
liabilities of the parties in the case. They have no jurisdiction
to do more." (1 Flethcer, Cyclopedia of Corporation,
Permanent ed., p. 124, section 41.)
A leading and much cited case puts it as follows:
If any general rule can be laid down, in the present
state of authority, it is that a corporation will be
looked upon as a legal entity as a general rule,
and until sufficient reason to the contrary appears;
but, 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. (1
Fletcher Cyclopedia of Corporation [Permanent
Edition], pp. 135, 136; United States vs.
Milwaukee Refrigeration Transit Co., 142 Fed.,
247, 255, per Sanborn, J.)
In his second special defense appellee alleges "that the
plaintiff was and is in fact a branch or subsidiary of Koppel
Industrial Car and Equipment Co., a Pennsylvania
corporation not licensed to do business in the Philippines but
actually doing business here through the plaintiff; that the
said foreign corporation holds 995 of the 1,000 shares of the
plaintiff's capital stock, the remaining five shares being held
by the officers of the plaintiff herein in order to permit the
incorporation thereof and to enable its aforesaid officers to
act as directors of the plaintiff corporation; and that plaintiff
was organized as a Philippine corporation for the purpose of
evading the payment by its parent foreign corporation of
merchants' sales tax on the transactions involved in this
case and others of similar nature."
By most courts the entity is normally regarded but
is disregarded to prevent injustice, or the distortion
or hiding of the truth, or to let in a just defense. (1
Fletcher, Cyclopedia of Corporation, Permanent
Edition, pp. 139,140; emphasis supplied.)
Another rule is that, when the corporation is the
mere alter ego, or business conduit of a person, it
may de disregarded." (1 Fletcher, Cyclopedia of
Corporation, Permanent Edition, p. 136.)
Manifestly, the principle is the same whether the "person" be
natural or artificial.
A very numerous and growing class of cases
wherein the corporate entity is disregarded is that
(it 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)." (1 Fletcher, Cyclopedia of
Corporation, Permanent ed., pp. 154, 155.)