G.R. No. 220926, 5 July 2017

FACTS:

Wincorp extended a credit line to Power Merge and allowed the latter to make drawdowns despite signs that would show Power Merge’s inability to pay. To secure the Credit Line Agreement and the Amendment to Credit Line Agreement, Power Merge executed promissory notes obliging itself to pay Wincorp, for itself or as agent for and on behalf of certain investors the amount of the drawdowns with interest on the maturity of the promissory note. However, unknown to Ng Wee, the promissory notes were rendered useless by the Side Agreements, simultaneously executed by Ong and Reyes with the Credit Line Agreement and the Amendment to Credit Line Agreement, which virtually exonerated Power Merge of its liability on the promissory notes.

ISSUE:

Considering Power Merge’s receipt of the said amount, whether it would be iniquitous and immoral to require Santos-Tan and her co­directors in Wincorp to reimburse Virata of whatever the latter would be required to pay Ng Wee.

RULING:

It is well-settled that the juridical personality of a corporation may be removed or its corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. When the corporation becomes a shield for fraud, illegality or inequity committed against third persons, the corporate veil will, as a result, be disregarded for the interest of justice.

On the basis of fraud, the Court pierced the corporate veil of Wincorp and held the directors and officers of the latter as personally liable to Ng Wee. The basis of their liability was grounded on Section 31 of the Corporation Code when they assented to the grant of the Credit Line Agreement and Amendment to the Credit Line Agreement to Power Merge.

Section 31 of the Corporation Code expressly states:

Section 31. Liability of directors, trustees or officers. – Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. xxx

*Case digest by Teonilo M. Bagalanon Jr., JD – 4, Andres Bonifacio College, SY 2019 – 2020