G.R. No. 184666, 27 June 2016
Petitioner entered into a contract with the respondent for the latter to provide the means for the automation of the 2004 elections. However, such contract was declared null and void as the respondent was not the winning bidder, and likewise failed to meet the standards stated in RA 8436, which provided for such automated elections.
To recoup its losses petitioner seeks to attach not only the properties of the respondent but also those of the private respondents.
The private respondents contend that such attachment is improper as they were not parties to the proceeding in which the contract was declared void.
May the properties of the private respondents be subject to attachment?
Yes, they may be subject to attachment.
Veil-piercing in fraud cases requires that the legal fiction of separate juridical personality is used for fraudulent or wrongful ends.
For reasons discussed below, We see red flags of fraudulent schemes in public procurement, all of which were established in the 2004 Decision, the totality of which strongly indicate that MPEI was a sham corporation formed merely for the purpose of perpetrating a fraudulent scheme.
The red flags are as follows: (1) overly narrow specifications; (2) unjustified recommendations and unjustified winning bidders; (3) failure to meet the terms of the contract; and (4) shell or fictitious company
1. We identified a red flag of rigged bidding in the form of overly narrow specifications. As already discussed, the accuracy requirement of 99.9995 percent was set up by COMELEC bidding rules.
This Court recognized that this rating was “too high and was a sure indication of fraud in the bidding, designed to eliminate fair competition.”
Indeed, “the essence of public bidding is violated by the practice of requiring very high standards or unrealistic specifications that cannot be met. . . only to water them down after the bid has been award(ed).
2. The red flags of questionable recommendation and unjustified awards are raised in this case. As earlier discussed, the project was awarded to MPC, which proved to be a nonentity.
It was MPEI that actually participated in the bidding process, but it was not qualified to be a bidder in the first place.
Moreover, its ACMs failed the accuracy requirement set by COMELEC. Yet, MPC – the nonentity – obtained a favorable recommendation from the BAC, and the automation contract was awarded to the former.
3. Failure to meet contract terms. As mentioned earlier, this Court already found the ACMs to be below the standards set by the COMELEC.
4. Shell companies have no significant assets, staff or operational capacity. They pose a serious red flag as a bidder on public contracts, because they often hide the interests of project or government officials, concealing a conflict of interest and opportunities for money laundering. Also, by definition, they have no experience.
MPEI qualifies as a shell or fictitious company. It was nonexistent at the time of the invitation to bid; to be precise, it was incorporated only 11 days before the bidding. It was a newly formed corporation and, as such, had no track record to speak of.
The totality of the red flags found in this case leads Us to the inevitable conclusion that MPEI was nothing but a sham corporation formed for the purpose of defrauding petitioner.
We have consistently held that when the 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.
Thus, considering that We find it justified to pierce the corporate veil in the case before Us, MPEI must, perforce, be treated as a mere association of persons whose assets are unshielded by corporate fiction.
*Case digest by Roger Angielo V. Atenta, JD-IV, Andres Bonifacio College, SY 2019-2020