Title
California Manufacturing Co., Inc. vs. Advanced Technology System, Inc.
Case
G.R. No. 202454
Decision Date
Apr 25, 2017
CMCI leased a machine from ATSI, defaulted on payments, and claimed legal compensation via PPPC's debt. Courts ruled ATSI and PPPC are separate entities; compensation and piercing corporate veil claims failed. SC affirmed lower courts' decisions.
Font Size:

Case Digest (G.R. No. 202454)

Facts:

Parties Involved

  • Petitioner: California Manufacturing Company, Inc. (CMCI), a domestic corporation engaged in food and beverage manufacturing.
  • Respondent: Advanced Technology Systems, Inc. (ATSI), a domestic corporation that fabricates and distributes food processing machinery and equipment.

Lease Agreement

  • In August 2001, CMCI leased a Prodopak machine from ATSI for a monthly rental of P98,000 (exclusive of tax).
  • The machine was delivered to CMCI’s plant in General Trias, Cavite, on 8 August 2001.

Dispute Over Unpaid Rentals

  • ATSI filed a Complaint for Sum of Money in November 2003, claiming that CMCI defaulted on rental payments for June, July, August, and September 2003.
  • ATSI demanded payment of P443,729.39 for unpaid rentals, plus legal interest, attorney’s fees, and litigation costs.

CMCI’s Defense

  • CMCI argued that its obligation to ATSI was extinguished through legal compensation.
  • CMCI claimed that ATSI was related to Processing Partners and Packaging Corporation (PPPC), a toll packer of CMCI’s products.
  • CMCI alleged that PPPC owed it P10,766,272.24 from a P4 million mobilization fund advanced in 2000, which could offset ATSI’s claim.

Trial Court Decision

  • The Regional Trial Court (RTC) ruled in favor of ATSI, ordering CMCI to pay the unpaid rentals, legal interest, attorney’s fees, and litigation costs.
  • The RTC rejected CMCI’s claim of legal compensation, stating that ATSI and PPPC were separate entities, and there was no proof that Felicisima Celones (an officer of both corporations) had authority to bind ATSI.

Court of Appeals Decision

  • The CA affirmed the RTC’s decision but deleted the award of attorney’s fees for lack of factual and legal basis.
  • The CA ruled that legal compensation did not apply because there was no mutuality of parties between ATSI and PPPC.
  • The CA also rejected CMCI’s argument to pierce the corporate veil, finding no evidence of fraud or misuse of corporate personality.

Issue:

  • (Unlock)

Ruling:

  • (Unlock)

Ratio:

  1. Legal Compensation Requirements Not Met:

    • Under Article 1279 of the Civil Code, legal compensation requires that:
      • Both debts must be liquidated and demandable.
      • There must be mutuality of parties (i.e., the same parties must be creditors and debtors of each other).
    • CMCI failed to prove that PPPC’s debt was liquidated and demandable. The amounts claimed by CMCI (P4 million, P3.2 million, and P10 million) were inconsistent and lacked exact computation.
    • ATSI and PPPC are separate juridical entities, and there was no mutuality of parties between them.
  2. Corporate Veil Cannot Be Pierced:

    • The doctrine of piercing the corporate veil applies only in cases of fraud, wrongdoing, or when the corporation is used as a mere alter ego.
    • CMCI failed to provide clear and convincing evidence that ATSI and PPPC were alter egos or that their separate corporate personalities were used to commit fraud or evade obligations.
    • Mere interlocking directorships and stock ownership are insufficient to justify piercing the corporate veil. CMCI did not prove that PPPC controlled ATSI’s finances, policies, or business practices.
  3. No Basis for Attorney’s Fees:

    • The CA correctly deleted the award of attorney’s fees because the RTC failed to provide factual and legal justification for the award.
  4. Jurisdiction Limited to Errors of Law:

    • The Supreme Court emphasized that it does not reevaluate factual findings in petitions for review on certiorari unless they are unsupported by evidence or glaringly erroneous.
    • The factual findings of the RTC and CA were supported by the evidence on record.

Conclusion:

The Supreme Court upheld the rulings of the lower courts, emphasizing the importance of respecting the separate corporate personalities of ATSI and PPPC. CMCI’s claims of legal compensation and piercing the corporate veil were rejected due to lack of evidence and failure to meet the legal requirements.


Jur is an AI-powered legal research platform in the Philippines for case digests, summaries, and jurisprudence. AI-generated content may contain inaccuracies; please verify independently.