Corpo Case Digest

FRANCISCO MOTORS CORPORATION VS. COURT OF APPEALS

G.R. No. 100812

FACTS OF THE CASE

Petitioner filed a complaint against private respondents to recover an amount representing the balance of the jeep body purchased by the Manuels from petitioner; an additional sum representing the unpaid balance on the cost of repair of the vehicle; and the cost of suit and attorney's fees. To the original balance on the price of jeep body were added the costs of repair.

In their answer, private respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel which was not paid by the incorporators, directors and officers of the petitioner. Private respondent alleged as an affirmative defense that, while he was petitioner's Assistant Legal Officer, he represented members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad. However, even after the termination of the proceedings, his services were not paid. Said family members, he said, were also incorporators, directors and officers of petitioner.

The trial court decided the case in favor of petitioner in regard to the petitioner's claim for money, but also allowed the counter-claim of private respondents. Both parties appealed. The Court of Appeals sustained the trial court's decision.

Hence, the present petition for review on certiorari under Rule 45 of the Rules of Court.

ISSUE

Whether or not the personality of the corporation, vis-a-vis the individual persons who hired the services of private respondent, is separate and distinct, in that the liability of said individuals did not become an obligation chargeable against petitioner.

RULING

Basic incorporation law is the principle that a corporation has a separate personality distinct from its stockholders and from other corporations to which it may be connected. However, under the doctrine of piercing the veil of corporate entity, the corporation's separate juridical personality may be disregarded, for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be ignored. In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to them. The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of justice, will be justifiably set aside.

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant application here. Respondent court erred in permitting the trial court's resort to this doctrine. The rationale behind piercing a corporation's identity in a given case is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities. However, in the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneous invocation. Note that according to private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidad's estate. These estate proceedings did not involve any business of petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefore by piercing its corporate veil. While there are no hard and fast rules on disregarding separate corporate identity, we must always be mindful of its function and purpose. A court should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may result from its erroneous application.

The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be kept separate in this case. The claim for legal fees against the concerned individual incorporators, officers and directors could not be properly directed against the corporation without violating basic principles governing corporations. Moreover, every action — including a counterclaim — must be prosecuted or defended in the name of the real party in interest. It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than individual members of the Francisco family. Wherefore, the petition is granted and the assailed decision is reversed insofar only as it held Francisco Motors Corporation liable for the legal obligation owing to private respondent Gregorio Manuel; but without prejudice to his filing the proper suit against the concerned members of the Francisco family in their personal capacity.