Case Summary (G.R. No. 182398)
Relevant Dates and Procedural Milestones
Merchant agreements dated 25 August 1994 and 16 November 1994. Overpayments credited May 1997 to January 1999. Partial payment transfer authorized by petitioner by letter dated 31 May 1999. Letter of demand from BPI dated 27 September 1999 (demand presumed received on 4 October 1999 for interest computation). RTC decision dated 24 June 2002 ordering payment. Order on piercing filed/executed dated 30 November 2004. CA Decision dated 31 August 2007 and CA Resolution dated 14 April 2008. Petition for review to the Supreme Court resulted in the present resolution.
Facts
Guess? Footwear entered into two merchant agreements with BPI to accept BPI Express Credit Cards; petitioner signed the agreements in capacities identifying him as owner/manager and later president, and the second agreement refers to Guess? Footwear as B & R Sportswear Enterprises. Between May 1997 and January 1999, BPI mistakenly credited P3,480,427.23 to Guess? Footwear through 352 checks. Upon being informed, petitioner caused a transfer of P963,604.03 from the bank account of his sole proprietorship B & R Sportswear Enterprises to BPI as a “partial settlement of overpayments,” pursuant to his 31 May 1999 letter printed on B & R Footwear Distributors, Inc. letterhead. BPI later demanded the balance (P2,516,826.68 as pleaded; eventual computation reflects P2,516,823.40) but Guess? Footwear did not fully pay, and BPI filed suit naming B & R Sportswear Distributor, Inc. as defendant — a non‑existent corporation. B & R Footwear Distributors, Inc. (the real corporate entity/Guess? Footwear) answered and participated in the trial. The RTC rendered judgment for BPI for the balance with 6% interest from 4 October 1999. Execution was frustrated when it was discovered the named defendant did not exist, prompting BPI to move to pierce the corporate veil and to hold petitioner and others personally liable.
Issues Presented
- Whether execution of the RTC judgment could properly be directed against petitioner by piercing the corporate veil or by other corrective procedures; and 2) Whether lack of personal service of summons upon petitioner rendered the proceedings void for lack of jurisdiction.
RTC and CA Disposition Summarized
The RTC found BPI’s proof of overpayment (checks) adequate, accepted the partial payment, and adjudged the remaining overpayment due. Trials revealed the named defendant did not exist; the RTC ordered piercing of the corporate veil and held petitioner personally liable because he signed the merchant agreements in his personal capacity. The Court of Appeals affirmed the RTC’s order, reasoning that the non‑existence of the named defendant meant no separate corporate personality existed and that petitioner induced belief in such a corporation.
Supreme Court’s Analysis on Corrective Measures and Party Designation
The Supreme Court emphasized that BPI itself caused the confusion by suing the wrong named entity (B & R Sportswear Distributor, Inc.) and by failing to correct this error earlier. Under Section 4, Rule 10 (formal amendments) and Section 5, Rule 10 (amendments to conform to evidence), the court may summarily correct clerical defects in party designation at any stage, even motu proprio, provided no prejudice results. Because B & R Footwear Distributors, Inc. answered and actively participated in the proceedings, and because respondent later requested amendment to substitute the correct defendant name, the Court deemed it proper to correct the defendant’s name. The Court concluded a more complete correction was to designate the defendant as B & R Footwear Distributors, Inc. and Benny Hung, given that petitioner’s sole proprietorship (B & R Sportswear Enterprises) has no juridical personality separate from him and that petitioner had treated the entities as interchangeable in the transactions with BPI.
Supreme Court’s Findings on Piercing the Corporate Veil and Petitioner’s Conduct
Having corrected the party designation to include petitioner, the Court rendered moot extensive reliance on the doctrine of piercing the corporate veil. The Court rejected the CA’s view that petitioner represented a non‑existent corporation to induce belief; the record showed that the real corporate entity (B & R Footwear Distributors, Inc. / Guess? Footwear) existed and had corrected BPI’s error by appearing and answering. The Court also noted that BPI abandoned allegations of deceit, bad faith, or unlawful scheme against petitioner in its motion to pierce, limiting the basis for piercing. The Court nonetheless found petitioner liable on the substantive ground that he signed the merchant agreement in his personal capacity and that he had manifested, in practice and in documents, that Guess?/B & R Footwear and B & R Sportswear Enterprises were the same contracting concern — including authorizing the transfer of sole proprietorship funds under a corporate letterhead as partial settlement.
Analysis on Service of Process and Jurisdictional Objection
Petitioner’s contention that he was never served and therefore the judgment and subsequent orders are void for lack of jurisdiction was addressed by reference to the participation and answer of B & R Footwear Distributors, Inc. The Supreme Court considered that the corporate defendant answered and took part in trial and that respondent’s belated motion to correct the defendant’s name was a permissible procedural remedy. Because the sole proprietorship has no separate juridical personality from petitioner and because petitioner had effectively participated in the dispute through his actions and signatures, he could not successfully invoke lack of personal service to defeat the corrective amendment and the resultant liability.
Interest, Quantum, and Governing Rule
The Court applied the rule from Eastern Shipping Lines, Inc. v. Court of Appeals: for obligations not constituting a loan or forbearance of money, interest may be imposed at the court’s discretion at 6% per annum when the demand is established with reasonable certainty; where demand is reasonably certain extrajudicially, inte
Case Syllabus (G.R. No. 182398)
Procedural Posture
- Petition for review by certiorari to the Supreme Court (G.R. No. 182398) assails:
- Court of Appeals Decision dated 31 August 2007 and Resolution dated 14 April 2008 in CA-G.R. CV No. 84641.
- The Court of Appeals affirmed the Regional Trial Court (RTC) of Makati City Order dated 30 November 2004 in Civil Case No. 99-2040 (BPI Card Finance Corporation v. B & R Sportswear Distributor, Inc.).
- The RTC had earlier rendered a Decision on 24 June 2002 ordering defendant B & R Sportswear Distributor, Inc. to pay plaintiff BPI Card Finance Corporation (BPI) for overpayments.
- Execution of the 2002 judgment was frustrated when it was discovered that the named defendant, B & R Sportswear Distributor, Inc., was a non-existing entity, prompting a motion to pierce the corporate veil and to hold petitioner and others personally liable.
- The RTC, by Order dated 30 November 2004, found petitioner Benny Hung liable for satisfaction of the 2002 judgment because he signed the merchant agreements in his personal capacity.
- The Court of Appeals affirmed the RTC; petitioner appealed to the Supreme Court, which denied the petition for lack of merit in the Decision penned by Justice Perez dated 20 July 2010.
- The Supreme Court ordered payment by B & R Footwear Distributors, Inc. and petitioner Benny Hung to BPI in specified amounts with interest (see Disposition).
Relevant Parties and Roles
- Petitioner: Benny Y. Hung (also appearing as Benny Y. Hung / Benny W. Hung in records).
- Signed merchant agreements: first as owner/manager of Guess? Footwear; second as president of Guess? Footwear, which he referred to as B & R Sportswear Enterprises (a sole proprietorship).
- Respondent: BPI Card Finance Corporation (BPI).
- Named defendant in RTC complaint: B & R Sportswear Distributor, Inc. (non-existent corporation).
- Appearing defendant that answered and participated in trial: B & R Footwear Distributors, Inc. (also referred to as Guess? Footwear).
- Other judicial actors: RTC Judge Sixto Marella, Jr.; Court of Appeals (Associate Justice Monina Arevalo‑Zenarosa, et al.); Supreme Court (Perez, J., with concurring opinions by Corona, C.J., Brion, Del Castillo, and Abad, JJ. as noted).
Facts
- Merchant agreements:
- Two merchant agreements between Guess? Footwear and BPI Express Card Corporation dated 25 August 1994 and 16 November 1994.
- Petitioner signed the first agreement as owner/manager and the second agreement as president of Guess? Footwear, which he also identified as B & R Sportswear Enterprises.
- Overpayments by BPI:
- From May 1997 to January 1999, BPI erroneously credited the account of Guess? Footwear with a total of P3,480,427.23 (credited through 352 checks).
- Partial payment by petitioner:
- Upon notice of the overpayments, petitioner caused a transfer of P963,604.03 from the bank account of B & R Sportswear Enterprises (his sole proprietorship) to BPI’s account as partial settlement.
- A letter dated 31 May 1999, signed by petitioner, authorized the transfer and expressly stated the transfer "shall represent partial settlement of overpayments made by BPI Card Corporation to B & R Sportswear, pending final reconciliation of exact amount of overpayment."
- Demand and suit:
- BPI demanded the balance by letter dated 27 September 1999 in the amount of P2,516,826.68, which Guess? Footwear failed to pay.
- BPI filed a collection suit in the RTC of Makati City naming B & R Sportswear Distributor, Inc. as defendant.
- Appearance and trial:
- Although B & R Sportswear Distributor, Inc. was named, B & R Footwear Distributors, Inc. appeared, answered and participated in the trial.
- RTC decision:
- RTC rendered judgment on 24 June 2002 ordering the (named) defendant to pay P2,516,826.68 with 6% interest from 4 October 1999, concluding that overpayments (P3,480,427.43) were proven and the partial payment (P963,604.03) substantiated the balance due.
- Footnote in record notes mathematical discrepancy: based on the stated figures, the amount payable should be P2,516,823.40 (P3.28 lower).
- Execution impeded:
- During execution it was discovered that B & R Sportswear Distributor, Inc. is a non-existing entity; execution could not proceed.
- Motion to pierce veil:
- Respondent moved to pierce the corporate veil of B & R Footwear Distributors, Inc. to hold stockholders and officers, including petitioner, personally liable.
- RTC Order on piercing and liability:
- On 30 November 2004, the RTC ruled petitioner liable to satisfy the judgment because he signed the merchant agreements in his personal capacity.
- Court of Appeals:
- Affirmed the RTC Order and dismissed petitioner’s appeal, reasoning that B & R Sportswear Distributor, Inc. did not exist and that petitioner induced belief in the corporation’s existence.
- Supreme Court proceedings:
- Petitioner raised two principal grounds: (I) that piercing the corporate veil cannot justify execution against him; and (II) lack of service of summons and lack of jurisdiction because he was not served.
- Supreme Court considered the parties’ contentions, evidence including the letter of partial payment, the SEC certification of non-existence of B & R Sportswear Distributor, Inc., and the procedural posture of the case.
Issues Presented
- Whether petitioner Benny Hung can be held personally liable for satisfaction of the RTC’s 24 June 2002 Decision against B & R Sportswear Distributor, Inc.
- Whether the doctrine of piercing the corporate veil justifies execution against petitioner in the circumstances of this case.
- Whether the absence of service of summons and copy of the complaint upon petitioner renders the decisions of the lower courts null and void for lack of jurisdiction and denial of due process.
- What interest rate(s) apply to the monetary award and the periods for which they should be computed.
Parties’ Contentions
- Petitioner’s contentions:
- He never represented the non-existent corporation B & R Sportswear Distributor, Inc.
- His single proprietorship B & R Sportswear Enterprises is distinct and pre-existed respondent’s suit; it would be unfair to equate his sole proprietorship to the fictitious corporate name.
- He did not defraud BPI and even made a partial payment “in the course of their mutual transactions.”
- Without proof of fraud, piercing the corporate veil is not justified and he cannot be held liable for obligations of any corporation.
- Execution against him was wrong because he was not served with summons nor was he a party to the case.
- B & R Footwear Distributors, Inc. or Guess? Footwear (the appearing party) acknowledged itself as