G.R. No. 186433, 27 November 2013
The respondent granted a loan to NSI. The loan was made pursuant to the Memorandum of Agreement and Promissory Note (MOA) between the respondent and NSI, represented by Nuccio. The petitioners received a total amount of ₱300,000.00 and certain machineries intended for their fertilizer processing plant business (business). The proposed business, however, failed to materialize.
On several occasions, Nuccio made personal payments amounting to ₱600,000.00. However, the petitioners allegedly had an outstanding balance. When the petitioners defaulted in the payment of the loan, the respondent filed a collection suit with the RTC.
The petitioners refuted the respondent’s allegation and insisted that they have already paid the loan, evidenced by the respondent’s receipt for the amount of ₱600,000.00.
The RTC thus ruled in favor of the respondents and found that the application of the doctrine of piercing the veil of corporate fiction was proper.
The petitioners appealed the RTC ruling to the CA. The CA rendered a decisiondeclaring the petitioners jointly and severally liable for the amount that the respondent sought.
The CA also affirmed the RTC ruling that petitioners are one and the same for the following reasons:
(1) Nuccio owned forty percent (40%) of NSI;
(2) Nuccio personally entered into the loan contract with the respondent because there was no board resolution from NSI;
(3) the petitioners were represented by the same counsel;
(4) the failure of NSI to object to Nuccio’s acts shows the latter’s control over the corporation; and
(5) Nuccio’s control over NSI was used to commit a wrong or fraud. It further adopted the RTC’s findings of bad faith and willful breach of obligation on the petitioners’ part, and affirmed its award of attorney’s fees.
Thus, this instant petition.
Whether the CA committed a reversible error in affirming the RTC’s decision holding the petitioners jointly and severally liable for the amount claimed.
YES, Piercing the veil of corporate fiction is not justified. The petitioners are not one and the same.
The rule is settled that a corporation is vested by law with a personality separate and distinct from the persons composing it. Following this principle, a stockholder, generally, is not answerable for the acts or liabilities of the corporation, and vice versa. The obligations incurred by the corporate officers, or other persons acting as corporate agents, are the direct accountabilities of the corporation they represent, and not theirs. A director, officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation and while there may be instances where solidary liabilities may arise, these circumstances are exceptional.
Incidentally, we have ruled that mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of the corporation is not, by itself, a sufficient ground for disregarding the separate corporate personality. Other than mere ownership of capital stocks, circumstances showing that the corporation is being used to commit fraud or proof of existence of absolute control over the corporation have to be proven. In short, before the corporate fiction can be disregarded, alter-ego elements must first be sufficiently established.
In Hi-Cement Corporation v. Insular Bank of Asia and America (later PCI-Bank, now Equitable PCI-Bank),we ruled that in order for the ground of corporate ownership to stand, the following circumstances should also be established:
(1) that the stockholders had control or complete domination of the corporation’s finances and that the latter had no separate existence with respect to the act complained of;
(2) that they used such control to commit a wrong or fraud; and
(3) the control was the proximate cause of the loss or injury.
Applying these principles to the present case, we opine and so hold that the attendant circumstances do not warrant the piercing of the veil of NSI’s corporate fiction.
The records of the case, however, do not show that Nuccio had control or domination over NSI’s finances. The mere fact that it was Nuccio who, in behalf of the corporation, signed the MOA is not sufficient to prove that he exercised control over the corporation’s finances. Neither the absence of a board resolution authorizing him to contract the loan nor NSI’s failure to object thereto supports this conclusion.
These may be indicators that, among others, may point the proof required to justify the piercing the veil of corporate fiction, but by themselves, they do not rise to the level of proof required to support the desired conclusion. It should be noted in this regard that while Nuccio was the signatory of the loan and the money was delivered to him, the proceeds of the loan were unquestionably intended for NSI’s proposed business plan. That the business did not materialize is not also sufficient proof to justify a piercing, in the absence of proof that the business plan was a fraudulent scheme geared to secure funds from the respondent for the petitioners’ undisclosed goals.
Considering that the basis for holding Nuccio liable for the payment of the loan has been proven to be insufficient, we find no justification to hold him jointly and solidarily liable for NSI’s unpaid loan.
With these points firmly in mind, we hold that NSI’s liability should not attach to Nuccio.
*Case digest by Doreena Pauline V. Aranal, JD – 4, Andres Bonifacio College, SY 2019 – 2020