G.R. No. 182770, 17 September 2014
FACTS:
Respondent was employed by the petitioner and entered into a contract to manage and rehabilitate one of its stores, however due to the lack of funds given the contractor subsequently sued the respondent and the petitioner for the remainder. Judgement was given in favor of the contractor and both petitioner and respondent were made liable. Respondent now seeks reimbursement from the petitioner company and personally from petitioner Manlapaz himself.
Petitioner Manlapaz counters that he cannot be held personally liable as the petitioner company has a distinct and separate personality from himself. The RTC and the CA ruled in favor of the respondent hence this petition.
ISSUE:
May the petitioner Manlapaz be held personally liable?
RULING:
No, he may not be held liable.
The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely:
a) when the separate and distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation;
b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or
c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements, namely:
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of.
The mere ownership by a single stockholder of even all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate corporate personality. To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established.
Here, the respondent failed to prove that Manlapaz, acting as president, had absolute control over WPM. Even granting that he exercised a certain degree of control over the finances, policies and practices of WPM, in view of his position as president, chairman and treasurer of the corporation, such control does not necessarily warrant piercing the veil of corporate fiction since there was not a single proof that WPM was formed to defraud CLN or the respondent, or that Manlapaz was guilty of bad faith or fraud.
*Case digest by Roger Angielo V. Atenta, JD-IV, Andres Bonifacio College, SY 2019-2020