Case Summary (G.R. No. L-10510)
Background of the Case
Park Rite Co., Inc. was organized around April 15, 1947, with a capitalization of 1,500 shares priced at P1.00 each. The corporation leased a lot from Rafael Perez Rosales y Samanillo for its parking operations but also occupied an adjacent lot belonging to Padilla without consent. Upon discovering this unauthorized occupation, Padilla demanded payment, which led to a legal complaint for forcible entry in October 1947.
Legal Proceedings and Initial Judgments
The Municipal Court of Manila rendered a judgment on November 13, 1947, requiring Park Rite Co., Inc. to compensate the Padillas for unauthorized usage of their property, culminating in a judgment amounting to P11,732.50 after interest. However, upon execution of the judgment, it was found that Park Rite had minimal assets, with only P550.00 deposited in court, leaving a substantial balance unsatisfied. Consequently, a suit was filed in the Court of First Instance to hold current and former stockholders of the corporation liable for the outstanding debt.
Court of Appeals’ Findings
The Court of First Instance initially denied the claim, but on appeal, the Court of Appeals reversed this decision. The Appeals Court concluded that the corporation acted solely as an “alter ego” or business conduit for its controlling stockholders, thereby holding them personally liable for corporate debts. The court's rationale was based on the finding that the actions of Park Rite Co., Inc. were indistinguishable from those of Paredes and Tolentino, who had acquired the majority of the shares and controlled the corporation's finances and operations.
Liability of Stockholders
The critical issue addressed in the judgment is whether the individual stockholders can be held liable for the corporation's obligations. The Supreme Court affirmed the principle that where a corporation is merely an instrumentality for the personal business of its stockholders, those stockholders may be held personally liable for debts incurred by the corporation. The previous ruling noted that no separate corporate identity can be maintained when an entity is essentially a facade for the individuals behind it.
Conclusion and Affirm
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Case Citation
- G.R. No. L-10510
- Date of Decision: March 17, 1961
- Reported in: 111 Phil. 310
Parties Involved
- Petitioners: M. McConnel, W.P. Cochrane, Ricardo Rodriguez, et al.
- Respondents: The Court of Appeals and Dominga De Los Reyes, assisted by her husband Sabino Padilla.
Background of the Case
- Corporate Formation: The Park Rite Co., Inc. was organized on April 15, 1947, with a capital stock of 1,500 shares at P1.00 each.
- Lease Agreement: The corporation leased a vacant lot from Rafael Perez Rosales y Samanillo for parking motor vehicles.
- Unauthorized Occupation: The corporation also occupied an adjacent lot belonging to the Padillas without their knowledge or consent.
- Discovery and Demand: The lot owners discovered the unauthorized use in October 1947 and demanded payment for the occupation.
Legal Proceedings
- Initial Complaint: The Padillas filed a complaint for forcible entry against the Park Rite Co., Inc. in the Municipal Court of Manila on October 7, 1947.
- Judgment Rendered: On November 13, 1947, the court ordered the corporation to pay damages amounting to P11,732.50, following the delay in restitution of the lot.
- Execution of Judgment: Upon execution, it was revealed that the corporation had minimal assets, leading to an outstanding balance of