Facts:

The case revolves around petitioners Benito Aratea and Ponciana Canonigo, who are the controlling stockholders of Samar Mining Development Corporation (SAMDECO), involved in mining operations in San Isidro, Wright, Western Samar. The private respondent, Esmeraldo P. Suico, is a businessman engaged in export and general merchandise. In 1989, Suico entered into a Memorandum of Agreement (MOA) with SAMDECO, represented by the petitioners with a valid board resolution, which allowed Suico to extend loans and cash advances to the corporation. In exchange, he was granted the exclusive right to market fifty percent (50%) of the coal produced by SAMDECO. Suico was promised that his loans would be repayable from the profits of his coal share, and to further entice him, he was appointed Vice-President for Administration of SAMDECO.

Beginning in 1989, Suico disbursed several loans and cash advances to SAMDECO, which then began its mining operations. However, Aratea and Canonigo obstructed

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Facts:

Parties and Corporate Structure

• Petitioners Benito Aratea and Ponciana Canonigo are the controlling stockholders and duly authorized representatives of Samar Mining Development Corporation (SAMDECO), a domestic corporation engaged in mining operations in San Isidro, Wright, Western Samar.
• Respondent Esmeraldo P. Suico is a businessman involved in export and general merchandise, who entered into a financing and marketing arrangement with SAMDECO.

The Memorandum of Agreement (MOA) and Transactional Background

• In 1989, Suico entered into a MOA with SAMDECO whereby he agreed to extend loans and cash advances to the corporation in exchange for:
• The exclusive right to market 50% of the total coal extracted from SAMDECO’s mining sites.
• A promise of an assured monthly interest of 5% on the money lent, backed by the profits from the sale of coal.
• As part of the arrangement, Suico was appointed Vice-President for Administration of SAMDECO, positioning him to supervise the financial transactions and the mining operations.
• The MOA also granted Suico the right of first priority to operate the mining facilities should SAMDECO become incapable of handling its operations.

Performance and Breach of the MOA

• Suico commenced the release of loans and cash advances to SAMDECO pursuant to the MOA.
• SAMDECO initiated coal mining operations, and under the agreement, 50% of the produced coal was to be marketed by Suico for competitive prices.
• Petitioners, acting through their authority as representatives of SAMDECO, obstructed the full implementation of the marketing arrangement by:
• Rejecting competitive and fair price offers presented by Suico’s buyers, merely stating the prices were “too low.”
• Failing to establish any objective pricing criteria or standard for evaluating offers.
• As a result, Suico could not close any sale to realize profits from his share, thus failing to source payments adequate to settle the loans and advances.

Procedural History and Further Allegations

• Suico filed a complaint for a Sum of Money and Damages in the Regional Trial Court (RTC) of Cebu City, Branch 24, against SAMDECO, Aratea, Canonigo, and other corporate defendants.
• On January 5, 1998, the RTC rendered a judgment in Suico’s favor, holding all defendants liable to pay the principal amount, interest, moral and exemplary damages, attorney’s fees, and litigation expenses.
• The Court of Appeals (CA) in Cebu City affirmed the RTC judgment on May 5, 2005, and subsequently denied the petitioners’ motion for reconsideration on September 23, 2005.
• Petitioners ultimately filed a petition for review on certiorari, contesting their personal and solidary liability by asserting that the loans and advances were the sole obligation of SAMDECO, and that they were merely acting as authorized representatives without personal benefit.

Issue:

• Whether petitioners Aratea and Canonigo, as controlling stockholders and corporate officers, can be held personally and solidarily liable for the unpaid loans and advances extended by Suico to SAMDECO.
• Whether the circumstances warrant piercing the corporate veil to impose personal liability on the petitioners despite the general rule of separate corporate personality.

Whether the evidence supports that the petitioners acted in bad faith by:

• Preventing the implementation of the marketing agreement for Suico’s 50% share of the coal produce.
• Illegitimately transferring their shares and mining rights without Suico’s consent, thereby depriving him of opportunities to recover his funds.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)