G.R. No. L-41337 June 30, 1988
TAN BOON BEE & CO., INC., petitioner, vs. THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCH XVIII of the Court of First Instance of Manila, GRAPHIC PUBLISHING, INC., and PHILIPPINE AMERICAN CAN DRUG COMPANY, respondents.

FACTS

Petitioner Tan Boon Bee & Co., Inc. obtained a money judgment against Graphic Publishing, Inc. (GRAPHIC) for unpaid paper supplies. After an alias writ of execution was issued, the sheriff levied upon a “Heidelberg” cylinder press found at GRAPHIC’s premises and sold it at auction to the petitioner as the highest bidder. Prior to the sale, respondent Philippine American Drug Company (PADCO) informed the sheriff by letter that it owned the press, not GRAPHIC. The sheriff proceeded with the sale. Hours after the auction, PADCO filed a third-party claim affidavit and subsequently a Motion to Nullify Sale on Execution in the trial court.
The trial court, presided by respondent Judge Jarencio, granted PADCO’s motion. It set aside the sheriff’s sale and levy, ordering the return of the machinery to PADCO. The court ruled on PADCO’s claim of ownership within the same execution proceedings, despite PADCO not being a party to the original suit between Tan Boon Bee and GRAPHIC.

ISSUE

Whether the respondent judge acted without or in excess of jurisdiction or with grave abuse of discretion in: (1) adjudicating PADCO’s third-party claim in the same execution proceedings instead of requiring a separate independent action; and (2) refusing to pierce the veil of corporate identity between PADCO and GRAPHIC.

RULING

Yes, the Supreme Court annulled the trial court’s order. On the first issue, the Court held the respondent judge gravely exceeded his jurisdiction. Under Section 17, Rule 39 of the Rules of Court, a third-party claim alleging ownership over levied property should be adjudicated in a separate and independent action, not in the very case where the execution is issued. The trial court’s direct resolution of PADCO’s claim was a departure from this established procedure, which is designed to prevent confusion and delay in the main case. This procedural error constituted an act without or in excess of jurisdiction, correctible by certiorari.
On the second issue, the Court found grave abuse of discretion in the judge’s refusal to pierce the corporate veil. Evidence showed PADCO and GRAPHIC had identical boards of directors and officers, with PADCO owning 50% of GRAPHIC’s stock. The printing press had been in GRAPHIC’s possession since 1965, while PADCO’s alleged purchase and a related lease agreement to GRAPHIC were dated in a manner that rendered the claim of separate ownership dubious and sham. The corporate fiction cannot be used to perpetrate injustice or as a shield for inequity, especially when one corporation is merely the alter ego of another. The technical defense that the error was merely of judgment correctible only by appeal was rejected; litigations should be decided on their merits, not on technicalities.