Title
Asbestos Integrated Manufacturing, Inc. vs. Peralta
Case
G.R. No. L-45515
Decision Date
Oct 29, 1987
AIMI contested MWSS's contract award to Sanvar, alleging Sanvar was Eternit's alter ego. SC ruled Sanvar, a 100% Filipino firm, was independent; AIMI's higher bid disqualified it under the Flag Law.
alter ego
contract
laws
A

Case Summary (G.R. No. L-45515)

Antecedents and the Bidding Process

AIMI was a 100% Filipino-owned and controlled corporation engaged in marketing asbestos cement pressure pipes manufactured by Asbestos Cement Products Philippines, Inc. (ACPPI), also described as 100% Filipino-owned and controlled. Eternit was a domestic corporation with 90% of its capital stock owned and controlled by aliens. Sanvar was a domestic corporation described as 100% Filipino-owned and controlled, whose business purposes included general contracting work and, secondarily, trading and dealing in commodities such as those involved in the supply transactions subject of the bids.

MWSS, a government-owned and controlled corporation, conducted a public bidding on 18 May 1976 for its asbestos cement pipe requirements under an interim program of construction, improvement, repair, and expansion to ensure adequate potable water supply. AIMI and Sanvar participated. Sanvar submitted a total bid price of P373,122.30, while AIMI submitted P423,913.96, which was 13.6% higher. An award was not made in that first bidding because the pipes needed for the mentioned projects would be supplied through the pipes to be supplied in a later bidding scheduled for 27 September 1976.

In the public bidding of 27 September 1976, Sanvar submitted P2,653,360.00, while AIMI submitted P3,259,492.00, which was 22.84% higher. As a result, MWSS awarded the contract to Sanvar for the supply of asbestos cement pressure pipes.

Commencement of Civil Action and Initial Restraining Relief

After the award, AIMI contended that Sanvar was, in substance, a mere dealer, distributor, or marketing arm of the alien-owned Eternit. AIMI therefore filed a petition before the Manila Court of First Instance, docked as Civil Case no. 105410, against MWSS, Eternit, and Sanvar, seeking to nullify the award and to restrain the respondents from enforcing it. AIMI anchored its challenge on Rep. Act No. 1180, the Flag Law (CA 138), Com. Act No. 108, and Republic Act No. 5183.

The trial court found AIMI’s petition sufficient in form and substance and concluded that the acts complained of, unless restrained, would cause AIMI “great harm and irreparable injury.” Accordingly, on 12 November 1976, it issued a restraining order prohibiting the respondents from entering into contracts covering the public biddings of 18 May 1976 and 27 September 1976, from making and accepting deliveries under contracts entered into in the meantime, from implementing the MWSS board resolution awarding the bids in favor of Sanvar and/or Eternit, and from otherwise acting upon the award until further orders.

The trial court set the issuance of a writ of preliminary injunction for hearing on 18 November 1976.

Respondents’ Motions and Subsequent Orders in the Trial Court

Meanwhile, the respondents filed separate motions seeking dismissal of the petition, lifting of the restraining order, and denial of the prayer for a writ of preliminary injunction.

On 25 January 1977, the trial court, in reasons stated in its order of even date, lifted the restraining order previously issued on 12 November 1976 and denied the motion for the issuance of a writ of preliminary injunction.

AIMI moved for reconsideration. After hearing the parties on the incident, the trial court issued an order on 28 January 1977 allowing the respondents time to file their comment or opposition, with conditions relating to the commencement or stoppage of deliveries and the withholding of payments until the incident was finally resolved and until the court would issue its order not later than 2 February 1977.

On 2 February 1977, the trial court denied the motion for reconsideration and dismissed the complaint, and AIMI proceeded with the present recourse.

Interim Restraining Order from the Supreme Court

On 7 February 1977, the Court issued a temporary restraining order enjoining the respondents and their representatives from executing the covering contracts for the bids of 18 May 1976 and 27 September 1976, from accepting pipe deliveries under the contract awards if the covering contracts had been concluded precipitately in the meantime, from paying Sanvar and/or Eternit for deliveries if these had been made, and from otherwise implementing MWSS board resolution awarding the two bids to Eternit through Sanvar.

Core Issue: Whether Sanvar Was an Alien Dummy or Alter Ego of Eternit

AIMI maintained that Sanvar functioned as an alter ego or marketing arm of Eternit and therefore was barred by law from entering into contracts with MWSS for the supply of asbestos cement pressure pipes. It thus urged the Court to invalidate the award on the basis of nationalization and anti-dummy or anti-alien participation provisions.

The trial court’s reasoning, which the Court adopted in relevant part, focused on the adequacy of the evidence to establish an alter ego or agency relationship between Eternit and Sanvar sufficient to disregard the corporate separateness of Sanvar.

Evidence and Contract Interpretation on the Alleged Alter Ego or Agency Relationship

The Court held that the evidence presented by AIMI was not sufficient to support the conclusion that Sanvar was an alter ego of Eternit. It quoted the trial court’s discussion that, even on the merits, it was difficult to accept AIMI’s position that Sanvar was Eternit’s alter ego or agent.

The trial court considered AIMI’s evidence on principal-and-agent relationship, including (1) a dealership agreement described as for the operation of a dealer-owned outlet for the sale of Eternit construction materials, and (2) portions of MWSS Form No. E0-4, the Confidential Statement for Determining Prospective Bidder’s Responsibility, accomplished by Sanvar. These included references in the form to “distributor of Eternit products” and similar descriptions, as well as statements identifying Sanvar as a manufacturer’s exclusive agent or distributor, and other indications that materials sold by Sanvar to certain buyers in 1975 were supplied by Eternit.

In interpreting the legal relationship, the trial court invoked principles under the Civil Code on contract interpretation, including that the evident intention of the parties prevails over words that appear contrary (Art. 1370 of the Civil Code). It also treated the essence of the contract as controlling over the parties’ preferred characterization of the relationship. It further considered that, to ascertain a contract’s meaning, the whole agreement and its explicit provisions must be examined rather than isolated portions.

On this basis, it analyzed the dealership arrangement. The Court found the provisions in the agreement to be “clear and distinct” and to show that Sanvar purchased construction materials from Eternit, received them, paid for them, and in turn sold them for its own account, and not on behalf of Eternit. The trial court noted specific contractual provisions showing that the dealer would resell products purchased from the company; would purchase products from the company for resale; bore losses, damage, or deterioration after delivery; and would have delivery deemed complete and title transferred upon delivery to the carrier. It also emphasized provisions disclaiming the company’s right to control the dealer’s conduct or management and vesting “entire control and direction” in the dealer. Finally, it highlighted provisions stating that the dealer had no right or authority to incur debts or liabilities or enter into contracts or transact business in the name of, for, or on behalf of the company.

The Court agreed that the letters presented by AIMI, including letters from Sanvar’s general manager to MWSS Treasurer, from Eternit’s regional manager to MWSS, and from Eternit’s branch manager to Sanvar, which suggested that Sanvar was Eternit’s exclusive distributor of pipes, did not detract from Sanvar’s position as a buyer engaged in reselling what it bought from the manufacturer. The Court reasoned that a buyer engaged in the business of selling what it buys necessarily distributes what it buys, without becoming an agent of the seller merely because the buyer deals exclusively with the seller’s products. It therefore concluded that exclusivity in dealing was not inconsistent with a contract of sale and did not convert such a transaction into one of agency.

Consequence of Lack of Proof of Alter Ego: Inapplicability of Nationalization and Anti-Dummy Restrictions

Because Sanvar was not an alter ego of Eternit, the Court held that Republic Act No. 5183 could not be invoked to bar Sanvar from participating in the biddings. It further held that the Anti-Dummy Act (Com. Act No. 108) and the Retail Trade Nationalization Act (Rep. Act No. 1180) likewise could not be invoked against Sanvar.

The Court also found no support for AIMI’s claim in the Flag Law (Com. Act No. 138). Under its interpretation, the Flag Law affords two types of preference: one based on whether the articles are unmanufactured from Philippine growth or manufactured in the Philippines substantially from Philippine inputs; and the other based on whether the bidder is a domestic entity as defined by the law—namely, a citizen or a Philippine-organized corporation with a specified level of Filipino capital ownership and habitual establishment in the relevant business.

The Court explained that the Flag Law may be invoked against a bidder that is not a domestic entity or against a domestic entity that offers imported articles or goods, or those made or produced in the Philippines from imported materials. It further held that where the materials, goods, and supplies offered are produced, made, and manufactured in the Philippines substantially from Philippine-grown inputs and the bidders are domestic entities—as in the case at bar—the Flag Law finds no application.

The Court’s Reliance on the Secretary of Justice Opinion on the Flag Law’s Application

To reinforce its conclusion, the Court reproduced portions of a Secretary of Justice, Hon. Jose W. Diokno

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