G.R. No. 182770 - WPM International Trading, Inc. vs. Labayen

Case Summary (G.R. No. 182770)

Key Dates and Procedural History

Renovation of Quickbite-Divisoria completed on June 13, 1990.
CLN filed a complaint for sum of money against the respondent and Manlapaz on October 19, 1990 before the Regional Trial Court (RTC).
RTC declared the respondent liable for unpaid renovation costs on January 28, 1991.
The respondent subsequently filed a complaint for damages against the petitioners.
RTC declared WPM in default on March 2, 1993.
The RTC ruled in favor of the respondent in 2000, holding Manlapaz personally liable.
The Court of Appeals (CA) affirmed with modification the RTC ruling on September 28, 2007.
The Supreme Court ruled on April 13, 2015, reviewing the CA decision.

Applicable Law

The 1987 Philippine Constitution governs this case. The pertinent legal doctrines discussed include the separate juridical personality of corporations under the Corporation Code, the doctrine of piercing the corporate veil, and the conditions under Article 2220 of the New Civil Code regarding moral damages arising from bad faith breaches of contract.

Factual Background and Claims

Labayen, in her capacity under the management agreement, authorized the renovation by engaging CLN. The renovation cost was P432,876.02, but only P320,000 was paid, leaving a balance of P112,876.02 unpaid. CLN filed suit against Labayen for this balance. The RTC ruled Labayen liable for unpaid damages. Subsequently, Labayen sued WPM and Manlapaz for indemnification, claiming she acted on behalf of WPM and should be reimbursed. Manlapaz denied liability, asserting that Labayen acted beyond her authority and that WPM’s separate corporate personality should protect him individually.

RTC’s Findings and Decision

The RTC found that WPM was a mere instrumentality or business conduit of Manlapaz, who was its president, chairman, and treasurer. The court concluded that Manlapaz exercised complete control over WPM and therefore could not evade liability based on the corporation’s separate personality. Consequently, Manlapaz was held personally liable to indemnify Labayen the amount she paid to CLN.

Court of Appeals’ Ruling

The CA affirmed the RTC decision but modified the attorney’s fees award. It held that the petitioners had tacitly ratified the renovation contract, therefore cannot question Labayen’s authority. The CA further agreed that WPM and Manlapaz were one and the same based on substantial facts: Manlapaz’s dominant roles, ownership, control of employment, registered office at his residence, and the corporate name derived from his initials. Applying the piercing of the corporate veil, the CA held Manlapaz personally liable alongside WPM.

Issues on Appeal

The Supreme Court summarized the key issues as: (1) whether WPM is merely an alter ego or instrumentality of Manlapaz; and (2) whether Manlapaz can be held jointly and severally liable with WPM for the respondent’s claims.

Supreme Court’s Analysis on Piercing the Corporate Veil Doctrine

The Court reaffirmed the principle that a corporation is a juridical entity separate from its shareholders and officers, who are generally not personally liable for corporate obligations. The piercing of the corporate veil is an extraordinary remedy requiring clear and convincing evidence of misuse of the corporate form in one of three instances:

a) The corporate personality is being used to evade existing obligations or defeat public convenience;

b) The corporation is used to commit fraud or wrongdoing; or

c) The corporation is an alter ego or mere conduit of another party, lacking independence.

To apply the alter ego doctrine, three elements must concur:

Complete domination and control of the corporation’s finances, policies, and business practices with no separate mind or will;
Such control used to commit a fraud, wrong, or violation of a legal duty;
The control and breach must have proximately caused the complained injury or loss.

The Court found these elements lacking in the present case. Although Manlapaz held multiple key positions and was the principal stockholder, there was no proof that WPM was organized or controlled to defraud or that Manlapaz acted in bad faith. The mere fact that Manlapaz simultaneously held several offices or that the corporate office was at his residence was insufficient to establish domination warranting piercing of the veil.

Further, there was no demonstration that Manlapaz used WPM’s corporate personality to defeat respondent’s rights, evade liabilities, or that WPM was financially incapable of satisfying obligations. The Court emphasized that pierc

Case Syllabus (G.R. No. 182770)

Case Overview and Procedural Posture

The case involves a petition for review on certiorari filed by WPM International Trading, Inc. (WPM), a domestic corporation engaged in the restaurant business, and its president, Warlito P. Manlapaz (Manlapaz), against Fe Corazon Labayen, respondent and owner of H.B.O. Systems Consultants, a management and consultant firm.
The petition challenges the decision dated September 28, 2007, and the resolution dated April 28, 2008, of the Court of Appeals (CA) in CA-G.R. CV No. 68289, which affirmed with modification the decision of the Regional Trial Court (RTC), Branch 77, Quezon City.
The factual controversy emanates from a management agreement executed in 1990, wherein the respondent was authorized to operate, manage, and rehabilitate Quickbite, a restaurant owned by WPM.
The complex litigation history includes two civil cases before the RTC:
1. Civil Case No. Q-90-7013, a complaint for sum of money and damages filed by CLN Engineering Services (CLN) for unpaid renovation costs.
2. Civil Case No. Q-92-13446, a complaint for damages filed by the respondent against the petitioners for indemnification and moral damages.

Factual Background and Contractual Relations

The respondent was engaged under a management agreement to manage Quickbite, including overseeing its renovation.
She contracted CLN Engineering Services for renovation of two Quickbite outlets, agreeing to a renovation cost of P432,876.02.
Only P320,000.00 was paid to CLN, leaving a balance of P112,876.02 unpaid.
CLN filed a complaint against the respondent for the outstanding balance.
The respondent argued that the renovation contract was entered on behalf of WPM and sought indemnification from WPM and Manlapaz for the amount she had to pay CLN.

Legal Claims and Defenses

CLN sought recovery of unpaid renovation costs from respondent (later excluding Manlapaz as defendant).
The respondent was declared in default for failing to file a responsive pleading and was held liable by the RTC to pay CLN the balance with interest and attorney’s fees.
The respondent counterclaimed against petitioners for indemnification, moral damages, and attorney’s fees, alleging limited authority and non-involvement in contract terms.
Manlapaz and WPM denied the respondent’s claims, contending that the respondent exceeded her authority, acted in her personal capacity, and that Manlapaz should not be held liable due to WPM’s separate corporate existence.
Manlapaz filed a counterclaim for moral and exemplary damages and attorney’s fees.

RTC's Decision and Reasoning

The RTC ruled that Manlapaz is personally liable to indemnify the respondent for the amount she paid to CLN.
The court found that WPM was a mere instrumentality or business conduit of Manlapaz, who exercised complete control as president, chairman, and treasurer simultaneously.
The RTC disregarded the corporate personality of WPM based on the close identification between Manlapaz and WPM.

Court of Appeals’ Ruling and Modifications

The CA affirmed the RTC decision with modifications on attorney’s fees.
The CA found that petitioners were barred from challengi