Output

in Law 3
China-Banking vs. Dyne-Sem Electronics
June 11, 2006, GR No. 149237

Oberes, Marianne Dell. S

Paquibot, Maria Claudine
Quiroy, Judy-An
TTh 4:00 5:30 pm
I. Party

CHINA BANKING CORPORATION, petitioner, vs. DYNE-SEM

ELECTRONICS CORPORATION, respondent.

II. Fact/s

On 1985, Dynetics, Inc. and Elipidio Lim borrowed an amount of P 8,939,000

from petitioner China Banking Corporation which was evidenced by six
promissory notes. When the borrowers failed to pay the obligations when they
became due, these instances prompted China Bank to file a complaint for sum
of money. However, summons were not served on Dynetics because it had
already closed down. On the other hand, Lim also denied the fact that he
promised to pay the obligation jointly and severally with Dynetics.

Furthermore, an amended complaint was filed impleading Dyne Sem and

its stockholders, Vicente Chuidian, Antonio Garcia and Jacob Ratinoff, on the
ground that Dyne Sem was allegedly formed to be Dyneticss alter ego. The
argument was supported by the fact that they are both engaged in the same
line of business, they both have the same principal office and factory site and
lastly, by the acquisition of some of the machineries of Dynetics by Dyne Sem.

III. Issue/s

1. Whether or not the doctrine of piercing the veil of corporate fiction is

applicable in the case
2. Whether or not the acquisition of Dyne-Sem of some machineries and
equipment of Dynetics was to defraud the creditor

IV. Ruling

1. No. The doctrine of piercing the veil of corporate fiction is not applicable
because it may only be lifted when such personality is merely a business
conduit or an alter ego of another corporation 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; or when the corporation is used as a cloak or cover for fraud
or illegality, or to work injustice, or where necessary to achieve equity or
for the protection of the creditors.

It was not proven that Dyne-Sem was organized and controlled, and its
affairs conducted, in a manner that made it merely an instrumentality,
agency, conduit or adjunct of Dynetics, or that it was established to defraud
Dynetics creditors, including China Bank. Furthermore, the similarity of
business of Dyne-Sem and Dynetics does not certify that the former was an
agent of the latter. All facts must be proven clearly and convincingly to
disregard the separate juridical personality of a corporation.

2. No. Dyne-Sems acquisition of some of the machineries and equipment of

Dynetics was not a proof that the former was formed to defraud the
creditor, China Bank. There was no merger that took place between Dyne-
Sem and Dynetics, and the transaction was merely a sale of the assets of the
former to the latter. When one corporation sells or otherwise transfers all
its assets to another corporation for value, the latter is not, by the fact alone,
liable for the debts and liabilities of the transferor.

Dyne-Sem admitted that it had acquired machineries and equipment

indirectly rom Dynetics through an auction sale of various corporations.
The machineries and equipment were transferred and disposed of by the
winning bidders in their capacity as owners. The sales were therefore valid
and the transfers of the properties to respondent legal and not in any way
in contravention of petitioners rights as Dynetics creditor.