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.