G.R. No. 119053 - Atillo III vs. Court of Appeals

Petitioner: Florentino L. Atillo III (majority owner and controller of Amancor, Inc. prior to sale of shares). Respondents: Court of Appeals (respondent court), Amancor, Inc. (AMANCOR) and Michell J. Lhuillier (LHUILLIER).
This petition for review on certiorari challenges the Court of Appeals decision in CA-G.R. No. 3677 (Aug. 4, 1994) affirming the Regional Trial Court, Branch 7, Cebu City, in Civil Case No. CEB-9801.

On August 15, 1985 AMANCOR contracted a P1,000,000.00 loan with Metropolitan Bank & Trust Company secured by real estate owned by petitioner.
On June 14, 1988 petitioner executed a Memorandum of Agreement (Annex A) by which LHUILLIER bought shares of AMANCOR; after the transaction petitioner and LHUILLIER each owned 47% of outstanding shares and officers owned the remaining 6%.
On February 13, 1989 the parties executed another Memorandum of Agreement (Annex B) for additional capital infusion by LHUILLIER; on March 11, 1989 they signed a Supplemental Memorandum of Agreement (Annex C).

Annex C contained a stipulation permitting petitioner to dispose of his properties at P. del Rosario St., which might involve pre-payment of AMANCOR’s mortgage loan estimated at P300,000.00; while AMANCOR might not yet be in a position to repay that amount, it would pay interests equivalent to the prevailing bank rate.
Petitioner assumed AMANCOR’s outstanding loan balance of P300,000.00 with the bank; after offsetting certain accounts between petitioner and AMANCOR, the remaining amount due to petitioner was P199,888.89.

Petitioner filed a complaint for collection of a sum of money (Civil Case No. CEB-9801) against AMANCOR and LHUILLIER on January 11, 1991 for the P199,888.89 balance.
At pre-trial the parties stipulated: (a) the due execution and genuineness of Annexes A, B and C; and (b) that the claim amounted to P199,888.89 as of October 1, 1990. They submitted the issues whether LHUILLIER is personally liable and what rate of interest should be paid.

Petitioner alleged AMANCOR failed to repay and sought collection from AMANCOR and LHUILLIER. Petitioner argued LHUILLIER signed agreements without AMANCOR’s official participation/ratification and should be personally liable.
LHUILLIER’s Answer contained narrative paragraphs (e.g., par. 3.11) describing dealings between petitioner and LHUILLIER in investments, and express denials of personal liability in subsequent paragraphs (e.g., pars. 3.12–3.13) asserting that he did not undertake to personally pay corporate loans and that Annex C provided AMANCOR would pay interest and eventually repay.

Trial court ruled for petitioner and ordered AMANCOR to pay P199,888.89 with interest at the bank rate prevailing as of March 11, 1989; it absolved LHUILLIER of personal liability.
Court of Appeals affirmed, holding the indebtedness was incurred by AMANCOR alone; LHUILLIER acted as an officer/agent and there was no express stipulation or clear and convincing evidence to impose personal liability on him. The CA also refused to disregard the corporate fiction, finding no use of the corporation as a cloak for fraud or illegality.

Petitioner raised the question whether a party’s judicial admission of personal liability in pleadings may be disregarded by the court absent palpable mistake or a contention that no such admission was made.
Petitioner relied on paragraph 3.11 of LHUILLIER’s Answer as a judicial admission of personal liability and invoked Section 4, Rule 129, Rules of Court, and related jurisprudence to argue that such admissions are conclusive.

The parties had explicitly agreed that LHUILLIER’s liability would be determined from Annexes A, B and C.
Petitioner’s act of offsetting accounts against AMANCOR was noted by the courts as indicating recognition of AMANCOR (not LHUILLIER personally) as the obligor.
The Court of Appeals’ factual findings were supported by the record and deemed final on review.

Whether LHUILLIER is personally liable for AMANCOR’s obligation to petitioner in light of the pleadings and the executed Memoranda (Annexes A, B and C).
Whether LHUILLIER’s alleged judicial admission in his Answer (par. 3.11) as to dealings with petitioner amounted to an admission of personal liability that is conclusive and cannot be contradicted.

Whether the trial court and Court of Appeals correctly refused to pierce the corporate veil and hold the shareholder/officer personally liable absent proof of fraud, illegality or injustice.
What rate of interest should be applied to the recovery (i.e., interest equivalent to prevailing bank rate as of March 11, 1989).