Case Summary (G.R. No. 182770)
Key Dates and Procedural Posture
Renovation completed June 13, 1990; CLN filed a complaint for sum of money on October 19, 1990 (Civil Case No. Q-90-7013); RTC decision in that case dated January 28, 1991. Respondent subsequently filed a complaint for damages against WPM and Manlapaz (Civil Case No. Q-92-13446). RTC ruled for respondent; Court of Appeals (CA) affirmed with modification on September 28, 2007. Petitioners sought review under Rule 45; the Supreme Court modified the CA decision and absolved Manlapaz of liability.
Applicable Law and Legal Standards
Governing law includes the Corporation Code principles on separate juridical personality, the alter-ego/instrumentality doctrine (piercing the corporate veil), and Article 2220 of the New Civil Code on moral damages for breaches of contract in bad faith. The Court applied the 1987 Constitution as the constitutional framework for cases decided after 1990.
Factual Background — Management Agreement and Renovation
In 1990 WPM entered a management agreement authorizing the respondent to operate and rehabilitate Quickbite outlets. The respondent engaged CLN to renovate Quickbite-Divisoria at a contract price of P432,876.02; CLN received only P320,000, leaving a balance of P112,876.02. Possession of the renovated outlet was delivered to the respondent on June 13, 1990.
Civil Case No. Q-90-7013 — CLN v. Respondent
CLN sued for the unpaid balance and damages, initially naming Manlapaz but later excluding him. The respondent defaulted for failure to answer. The RTC found the respondent liable to CLN for P112,876.02 with 12% per annum interest from June 18, 1990 and 20% attorney’s fees.
Civil Case No. Q-92-13446 — Respondent’s Claim for Indemnity
The respondent sued WPM and Manlapaz for indemnification of the amount she paid to CLN, alleging she entered into the renovation contract for and on behalf of WPM and was thus entitled to reimbursement. She asserted limited agency role (introducing CLN’s general manager) and lack of knowledge of the CLN case while abroad. She sought reimbursement of P112,876.02 plus interest and attorney’s fees, and separately claimed moral damages and attorney’s fees. Petitioners defended on grounds that the respondent exceeded her authority and that WPM’s separate corporate personality precludes personal liability of Manlapaz.
RTC Ruling on Indemnity and Piercing the Veil
The RTC declared WPM in default and ruled that Manlapaz was personally liable to reimburse the respondent. The RTC concluded WPM was a mere instrumentality or business conduit of Manlapaz, reasoning that (a) he was the principal stockholder; (b) he held multiple offices with complete control; (c) some stockholders were his employees; (d) his residence was the registered principal office; and (e) WPM’s name derived from his initials.
Court of Appeals’ Ruling
The CA affirmed the RTC with modification on attorney’s fees. It held petitioners were estopped from challenging the respondent’s authority because of tacit ratification and applied the alter-ego/instrumentality doctrine, concluding WPM and Manlapaz were one and the same based on the factors cited by the RTC. Consequently, the CA upheld joint and several liability.
Issues Presented on Review
The Supreme Court identified the principal issues as (1) whether WPM was a mere instrumentality, alter ego, or business conduit of Manlapaz, and (2) whether Manlapaz should be held jointly and severally liable with WPM for reimbursement, damages and interest.
Standard for Piercing the Corporate Veil
The Court reiterated established doctrine: corporate personality is distinct and disregarded only in limited instances — to defeat public convenience, in fraud cases, or in alter-ego situations where a corporation is essentially a façade. Piercing based on alter-ego requires concurrence of three elements: (1) complete domination of the corporation’s finances, policy and business practice such that it had no separate will in respect to the challenged transaction; (2) such control was used to commit fraud, violate a duty, or effect a dishonest/unjust act; and (3) the control and breach of duty proximately caused the plaintiff’s injury or loss.
Supreme Court’s Analysis on Piercing the Veil
Applying the three-element test, the Court found the respondent failed to present clear and convincing proof that WPM was merely Manlapaz’s alter ego. Ownership or majority stockholding alone is insufficient. The Court found the lower courts’ reliance on Manlapaz’s concurrent offices, residence as registered office, and the company’s name derivation inadequate to establish the requisite domination and misuse of corporate form. There was no showing of fraud, bad faith, formation of WPM to defraud CLN or the respondent, or that WPM had no assets or attempted to evade liability. The Court emphasized that piercing the corporate veil is disfavored and requires clear proof.
Causation and Proximate Injury
The Court observed that the required element of proximate causation was not satisfied: no evidence showed
...continue readingCase Syllabus (G.R. No. 182770)
Citation and Procedural Posture
- Supreme Court decision: G.R. No. 182770, September 17, 2014; reported at 743 Phil. 192; 111 O.G. No. 13, 2050 (April 13, 2015), Second Division.
- Petition for review on certiorari under Rule 45 of the Rules of Court from:
- Decision of the Court of Appeals dated September 28, 2007 and resolution dated April 28, 2008 in CA-G.R. CV No. 68289 (affirmed with modification the RTC decision).
- Decision of the Regional Trial Court (RTC), Branch 77, Quezon City, dated April 19, 2000 (penalized respondent and later formed basis for indemnity claim).
- Supreme Court opinion authored by Justice Brion; decision concurred in by Carpio (Chairperson), Del Castillo, Villarama, Jr.* and Leonen, JJ.
- Footnote: Villarama, Jr. designated as Acting Member in lieu of Associate Justice Jose C. Mendoza per Special Order No. 1767 dated August 27, 2014.
Parties
- Petitioners: WPM International Trading, Inc. (WPM), a domestic corporation engaged in the restaurant business; and Warlito P. Manlapaz (Manlapaz), president of WPM.
- Respondent: Fe Corazon Labayen, owner of H.B.O. Systems Consultants, a management and consultant firm; manager and rehabilitator of Quickbite outlets pursuant to a management agreement with WPM.
Factual Background
- Circa 1990, WPM entered into a management agreement with respondent, authorizing her to operate, manage and rehabilitate Quickbite, a restaurant owned and operated by WPM.
- As part of her duties, respondent engaged a contractor to renovate two Quickbite outlets: Divisoria, Manila and Lepanto St., University Belt, Manila.
- Respondent engaged CLN Engineering Services (CLN) to renovate Quickbite-Divisoria at a contract price of P432,876.02.
- Renovation of Quickbite-Divisoria was completed and possession delivered to respondent on June 13, 1990.
- CLN received P320,000.00 of the agreed renovation cost, leaving an unpaid balance of P112,876.02.
Civil Case No. Q-90-7013 (CLN v. respondent)
- On October 19, 1990, CLN filed a complaint for sum of money and damages against respondent and Manlapaz, docketed as Civil Case No. Q-90-7013.
- CLN later amended the complaint to exclude Manlapaz as defendant.
- Respondent defaulted by failing to file a responsive pleading.
- RTC Decision dated January 28, 1991: respondent found liable to pay CLN actual damages of P112,876.02 with 12% interest per annum from June 18, 1990 (date of first demand), and 20% of the amount recoverable as attorney’s fees.
Civil Case No. Q-92-13446 (respondent’s indemnity action)
- Respondent filed a complaint for damages against petitioners WPM and Manlapaz (Civil Case No. Q-92-13446), alleging:
- The RTC had adjudged her liable for a contract entered into for and on behalf of WPM; she should be entitled to reimbursement.
- Her participation under the management agreement was limited to introducing Manlapaz to Engineer Carmelo Neri (CLN's general manager).
- It was Manlapaz and Neri who agreed on terms of the renovation contract.
- She was abroad when CLN’s complaint was filed and only learned of the case upon return and receipt of the RTC decision.
- Remedies prayed for by respondent included:
- Indemnification in the amount of P112,876.60 plus 12% interest per annum from June 18, 1990 until fully paid, and 20% of the award as attorney’s fees.
- Separate prayers for P100,000.00 as moral damages and P20,000.00 as attorney’s fees.
Petitioners’ Defenses and Counterclaims at RTC
- Manlapaz’s defenses:
- Edgar Alcansaje (co-incorporator/director) was in charge of daily Quickbite operations; respondent was hired as manager only after Alcansaje left.
- Respondent entered the renovation agreement with CLN in her personal capacity and exceeded her authority as WPM’s agent; hence the contract should bind only her.
- WPM has separate and distinct personality; Manlapaz cannot be made personally liable for corporate obligations.
- Manlapaz’s counterclaim sought P350,000.00 as moral and exemplary damages and P50,000.00 attorney’s fees.
- RTC declared WPM in default for failure to file a responsive pleading by order dated March 2, 1993.
RTC Decision in the Indemnity Case (Civil Case No. Q-92-13446)
- RTC held respondent entitled to indemnity from Manlapaz.
- RTC findings included:
- WPM was a mere instrumentality or business conduit of Manlapaz.
- Manlapaz had complete control over WPM, concurrently holding positions of chairman, president and treasurer.
- Conclusion: Manlapaz personally liable to reimburse respondent the amount she paid CLN in connection with the renovation agreement.
- Petitioners appealed the RTC decision to the Court of Appeals.
Court of Appeals Ruling and Rationale
- CA decision dated September 28, 2007 affirmed the RTC decision with modification on attorney’s fees.
- CA held petitioners barred from raising the defense of respondent’s alleged lack of authority to enter into the renovation agreement due to petitioners’ tacit ratification of the contract.
- CA affirmed RTC’s conclusion that WPM and Manlapaz were one and the same on the following bases:
- Manlapaz was the principal stockholder of WPM.
- Manlapaz concurrently held positions of president, chairman and treasurer, in violation of the Corporatio