Xiamen Academy of International Law

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KOPPEL VS. ALFREDO L. YATCO, COLLECTOR OF INTERNAL REVENUE,

G.R. No. L-47673             October 10, 1946

Facts:

·          Koppel Philippines Inc. (KPI) has a capital stock divided into thousand (1,000) shares of P100 each.

·          The Koppel Industrial Car and Equipment Company (KICEC) owns 995 shares of the total capital stock. KICEC is organized under US laws and not licensed to do business in the Philippines. The remaining five (5) shares only were and are owned one each by officers of the KPI.

·          They have the following business process:

o    (1) "When a local buyer was interested in the purchase of railway materials, machinery, and supplies, it asked for price quotations from KPI";

o    (2) "KPI then cabled for the quotation desired from Koppel Industrial Car and Equipment Company";

o    (3) "KPI, however, quoted to the purchaser a selling price above the figures quoted by Koppel Industrial Car and Equipment Company";

o    (4) "On the basis of these quotations, orders were placed by the local purchasers

·          KPI paid under protest the P64,122.51 demanded by the CIR.

Total profit	Php 3,772,403,82
KPI Share	Php 132,201.30
KPI paid commercial broker’s tax (4% of KPI Share)	Php 5,288.05
CIR demanded (1% of Total Profit) + 25% surcharge for late payment – Paid tax	Php 64,122.51

·          It appears that KICEC is the only foreign principal of KPI.

·          The KPI corporation bore alone incidental expenses - as, for instance, cable expenses-not only those of its own cables but also those of its "principal" .

·          The KPI's "share in the profits" realized from the transactions in which it intervened was left virtually in the hands of KICEC

·          Where drafts were not paid by the purchasers, the local banks were instructed not to protest them but to refer them to KPI which was fully empowered by KICEC to instruct the banks with regards to disposition of the drafts and documents

·          Where the goods were European origin, consular invoices, bill of lading, and, in general, the documents necessary for clearance were sent directly to KPI

·          If the KPI had in stock the merchandise desired by local buyers, it immediately filled the orders of such local buyers and made delivery in the Philippines without the necessity of cabling its principal in America either for price quotations or confirmation or rejection of that agreed upon between it and the buyer 

·          Whenever the deliveries made by KICEC were incomplete or insufficient to fill the local buyer's orders, KPI used to make good the deficiencies by deliveries from its own local stock, but in such cases it charged its principal only the actual cost of the merchandise thus delivered by it from its stock and in such transactionsKPI did not realize any profit #fluffypeaches

·          CFI:

o    KPI is a mere dummy or branch ("hechura") of KICEC.

o    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."

Issues/Ruling:

1. WON KPI is a domestic corporation distinct and separate from, and not a mere branch of KICEC

KPI:

·          Its corporate existence as cannot be collaterally attacked and that the Government is estopped from so doing.

SC:

·          Koppel (Philippines), Inc. was a mere branch or agency or dummy ("hechura") of Koppel Industrial Car and Equipment Co. The lower court did not hold that the corporate personality of KPI 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."  <3 peaches

·          United States vs. Milwaukee Refrigeration Transit

o    General Rule: a corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears;

o    Exception: Wthe 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.

·          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)." 

·          Where it appears that 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 two corporations are distinct entities, and treat them as identical. (Abney vs. Belmont Peaches Country Club Properties, Inc., 279 Pac., 829.)  #bebegurrpeaches

·          The fact that KPI is a mere branch is conclusively borne out by the fact, among others, that the amount of the so-called "share in the profits" of KPIwas ultimately left to the sole, unbridled control of KICEC. If KPI was intended to function as a bona fide separate corporation, we cannot conceive how this arrangement could have been adopted.

·          No group of businessmen could be expected to organize a mercantile corporation if the amount of that profit were to be subjected to such a unilateral control of another corporation, unless indeed the former has previously been designed by the incorporators to serve as a mere subsidiary, branch or agency of the latter. 

·          KPI charged the parent corporation no more than actual cost - without profit whatsoever - for merchandise allegedly of its own to complete deficiencies of shipments made by said parent corporation.

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Manuel Dulay Enterprises, Inc. v. CA, Torres [Aug 27, 1993]

Facts:

·         Manuel R. Dulay Enterprises, Inc, a domestic corporation obtained various loans for the construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel).  

·         Manuel Dulay by virtue of Board Resolution No 18  sold the subject property to spouses Maria Theresa and Castrense Veloso.

·         Maria Veloso (buyer), without the knowledge of Manuel Dulay, mortgaged the subject property to private respondent Manuel A. Torres. #fluffypeaches Upon the failure of Maria Veloso to pay Torres, the property was sold to Torres in an extrajudicial foreclosure sale.

·         Torres filed an action against the corporation, Virgilio Dulay and against the tenants of the apartment. 

·         RTC ordered the corporation and the tenants to vacate the building. 

·         Petitioners: RTC had acted with GAD when it applied the doctrine of piercing the veil of corporate entity considering that the sale has no binding effect on corporation as Board Resolution No. 18 which authorized the sale of the subject property was resolved without the approval of all the members of the board of directors and said Board Resolution was prepared by a person not designated by the corporation to be its secretary.

Issue:

·         WON the sale to Veloso is valid notwithstanding that it was resolved without the approval of all the members of the board of directors. (YES)

Ruling

·         Section 101 of the Corporation Code of the Philippines provides:

Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if:

1. Before or after such action is taken, written consent thereto is signed by all the directors, or

2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or

3. The directors are accustomed to take informal action with the express or implied acquiese of all the stockholders, or

4. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing.

If a directors' meeting is held without call or notice, an action taken therein within the corporate powers is deemed ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof.

·         Dulay Inc. is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage is not necessary to bind the corporation for the action of its president. #fluffypeaches At any rate, corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in his case, Virgilio Dulay failed to do.

·         Although a corporation is an entity which has a personality distinct and separate from its individual stockholders or members,  the veil of corporate fiction may be pierced when it is used to defeat public convenience justify wrong, protect fraud or defend crime.

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Union Bank v. SEC [June 6, 2001]

Facts:

·         Union Bank sought the opinion of SEC as to the applicability and coverage of the Full Material Disclosure Rule on banks, contending that said rules, in effect, amend Section 5 (a) (3) of the Revised Securities Act which exempts securities issued or guaranteed by banking institutions from the registration requirement.

·         Because its securities are exempt from the registration requirements under Section 5(a)(3) of the Revised Securities Act, petitioner argues that it is not covered by RSA Implementing Rulels:

o    Rule 11(a)-1, which requires the filing of annual, quarterly, current predecessor and successor reports;

o    Rule 34(a)-1, which mandates the filing of proxy statements and forms of proxy;

o    Rule 34(c)-1, which obligates the submission of information statements.

·         SEC’s reply: While the requirements of registration do not apply to securities of banks, banks with a class of securities listed for trading on the Philippine Stock Exchange, Inc. are covered by certain Revised Securities Act Rules governing the filing of various reports.

·         Unionbank was fined for failure for failure to file SEC Form 11-A.

·         CA affirmed the decision of SEC. #fluffypeaches

Issues:

·         WON the RSA Implementing Rules 11(a)-1, 34(a)-1 and 34(c)-1 applies to Union Bank (YES)

Ruling:

·         NO, petitioner is not exempted from the RSA implementing rules.

·         Section 5(a)(3) of RSA exempts from registration the securities issued by banking or financial institutions.  Nowhere does it state or even imply that petitioner, as a listed corporation, is exempt from complying with the reports required by the assailed RSA Implementing Rules.  

·         The exemption from the registration requirement enjoyed by petitioner does not necessarily connote that [it is] exempted from the other reportorial requirements.  

·         The full disclosure Rules do not amend Section 5(a)(3) of the Revised Securities Act, because they do not revoke or amend the exemption from registration of the securities enumerated. They are reasonable regulations imposed upon petitioner as a banking corporation trading its securities in the stock market. #fluffypeaches

·         The mere fact that in regard to its banking functions, petitioner is already subject to the supervision of the BSP does not exempt the former from reasonable disclosure regulations issued by the SEC.  These regulations are meant to assure full, fair and accurate disclosure of information for the protection of investors in the stock market.  Imposing such regulations is a function within the jurisdiction of the SEC.

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Lee (President of Philinterlife and FLAG) v. RTC, Enderes [Feb 23, 2004]

Facts:

·         Dr. Juvencio P. Ortañez incorporated the Philippine International Life Insurance Company, Inc. on 1956. At the time of the company’s incorporation, Dr. Ortañez owned ninety percent (90%) of the subscribed capital stock.

·         On July 21, 1980, Dr. Ortañez died. He left behind a wife (Juliana Salgado Ortañez), three legitimate children (Rafael, Jose and Antonio Ortañez) and five illegitimate children by Ligaya Novicio (herein private respondent Ma. Divina Ortañez-Enderes and her siblings Jose, Romeo, Enrico Manuel and Cesar, all surnamed Ortañez).  <3 Peaches <3

·         Special administrators Rafael and Jose Ortañez submitted an inventory of the estate of their father which included 2,029 shares of stock in Philippine International Life Insurance Company, representing 50.725% of the company’s outstanding capital stock.

·         Juliana (wife) and Jose (legit child) sold 1,014 and 1,011 shares respectively to FLAG.  

·         The legal family entered into an extrajudicial settlement of the estate of Dr. Juvencio Ortañez, partitioning the estate among themselves. This was the basis of the number of shares separately sold by them.

·         The lower court declared the shares of stock as null and void. CA affirmed.

·         Meanwhile, the FLAG-controlled board of directors, increased the authorized capital stock of Philinterlife, diluting in the process the 50.725% controlling interest Dr. Juvencio Ortañez, in the insurance company. Enderes filed an action at the SEC. The SEC hearing officer dismissed the case acknowledging the jurisdiction of the civil courts.

·         Jose Lee and Alma Aggabao as president and secretary of Philinterlife ignored the orders nullifying the sales of the shares of stock.  <3 Peaches <3

Issue:

·         WON the sale of the shares of stock of Philinterlife is void. (YES)

Ruling:

·         YES. Our jurisprudence is clear that

o    (1) any disposition of estate property by an administrator or prospective heir pending final adjudication requires court approval and

o    (2) any unauthorized disposition of estate property can be annulled by the probate court, there being no need for a separate action to annul the unauthorized disposition.

·         An heir can sell his right, interest, or participation in the property under administration under NCC 533 which provides that possession of hereditary property is deemed transmitted to the heir without interruption from the moment of death of the decedent. However, an heir can only alienate such portion of the estate that may be allotted to him in the division of the estate by the probate or intestate court after final adjudication, that is, after all debtors shall have been paid or the devisees or legatees shall have been given their shares. This means that an heir may only sell his ideal or undivided share in the estate, not any specific property therein.  <3 Peaches <3

·         It goes without saying that the increase in Philinterlife’s authorized capital stock, approved on the vote of petitioners’ non-existent shareholdings and obviously calculated to make it difficult for Dr. Ortañez’s estate to reassume its controlling interest in Philinterlife, was likewise void ab initio.

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Lorenzo vs. Posadas Jr. [June 18, 1937]

Lorenzo vs. Posadas Jr. [June 18, 1937]

<3 Fluffy Peaches <3

Facts:

·         Thomas Hanley died, leaving a will and a considerable amount of real and personal properties. Proceedings for the probate of his will and the settlement and distribution of his estate were begun in the CFI of Zamboanga. The will was admitted to probate.

·         The CFI considered it proper for the best interests of the estate to appoint a trustee to administer the real properties which, under the will, were to pass to nephew Matthew ten years after the two executors named in the will was appointed trustee. Moore acted as trustee until he resigned and the plaintiff Lorenzo herein was appointed in his stead.

·         During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue (Posadas) assessed against the estate an inheritance tax, together with the penalties for deliquency in payment. Lorenzo paid said amount under protest, notifying Posadas at the same time that unless the amount was promptly refunded suit would be brought for its recovery. Posadas overruled Lorenzo’s protest and refused to refund the said amount. Plaintiff went to court. The CFI dismissed Lorenzo’s complaint and Posadas’ counterclaim. Both parties appealed to this court.

Issues and Ruling:

1. When does the inheritance tax accrue and when must it be satisfied?

·         The accrual of the inheritance tax is distinct from the obligation to pay the same.

·         NCC 657: “the rights to the succession of a person are transmitted from the moment of his death.” “In other words... the heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death.”

·         Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any event at the moment of the decedent’s death. The time when the heirs legally succeed to the inheritance may differ from the time when the heirs actually receive such inheritance. ” Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date.

<3 Fluffy Peaches <3

·         From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. — The following shall not be taxed: x x x

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor. xx

SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into possession of the property.

·         The instant case fall under subsection (b), of section 1544, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been paid before the delivery of the properties in question to Moore as trustee.

2. Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator’s death, or on its value ten years later?

·         If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of the decedent’s death, regardless of any subsequent contingency value of any subsequent increase or decrease in value

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