Remo, Jr. v. Intermediate Appellate Court
REITERATIONFacts
The Antecedents: The board of directors of Akron Customs Brokerage Corporation (Akron), including petitioner Jose Remo, Jr., authorized the purchase of thirteen (13) trucks to be paid from a corporate loan. Feliciano Coprada, as President and Chairman of Akron, purchased the trucks from E.B. Marcha Transport Company, Inc. for P525,000.00. A side agreement stipulated that the P50,000.00 downpayment would accrue as rentals, and failure to pay the P475,000.00 balance within sixty (60) days would constitute a chattel mortgage lien on the trucks. The obligation was secured by a promissory note executed by Coprada, stating payment would come from a DBP loan within sixty (60) days. After ninety (90) days, the balance remained unpaid. Two trucks were sold under pacto de retro by Akron, authorized by a board resolution. Private respondent discovered no DBP loan application was filed by Akron. Akron paid daily rentals from April 27, 1978, to May 31, 1978, but no further payments were made. Coprada repeatedly sought grace periods for payment and made assurances regarding loan applications and the return of some trucks. Ultimately, Akron passed a resolution confirming the assignment of P475,000.00 from a loan from State Investment House, Inc. to private respondent. Procedural History: Private respondent filed a complaint for recovery of P525,000.00 or the return of the trucks with damages against Akron and its officers, including petitioner. Petitioner denied participation, asserting Akron's distinct corporate personality, but was declared in default for failing to attend pre-trial. The trial court rendered a decision ordering the defendants jointly and severally to pay the purchase price, rentals, attorney's fees, and costs. Petitioner's motion for new trial was denied. He appealed to the Intermediate Appellate Court (IAC), which initially set aside the trial court's decision regarding him. However, upon motion for reconsideration, the IAC reversed its earlier decision and affirmed the trial court's ruling, holding petitioner personally liable. The Petition: Petitioner seeks review of the IAC's resolution, arguing that the IAC erred in disregarding the corporate fiction and holding him personally liable for corporate debts, which he contends is contrary to law and jurisprudence.
Issue(s)
Whether the Intermediate Appellate Court erred in disregarding the corporate fiction and holding the petitioner personally liable for the obligation of the Corporation. Whether the Intermediate Appellate Court committed grave error of law in sanctioning the merger of the personality of the corporation with that of the petitioner when the latter was held liable for the corporate debts.
Ruling
The petition is GRANTED. The resolution of the Intermediate Appellate Court dated February 8, 1984, is set aside, and its decision dated June 30, 1983, setting aside the decision of the trial court dated October 28, 1980, insofar as petitioner is concerned, is reinstated and affirmed.
Ratio Decidendi
On the issue of disregarding the corporate fiction and holding the petitioner personally liable: The Court held that there was no cogent basis to pierce the corporate veil of Akron and hold petitioner personally liable. While petitioner was a member of the board of directors and participated in authorizing the purchase of trucks, this resolution was not intended to defraud anyone. It was Feliciano Coprada, as President and Chairman of Akron, who negotiated the purchase, signed the promissory note, and made representations regarding a DBP loan. The word "WE" in the promissory note referred to the corporation, not its stockholders or directors. Petitioner did not sign the promissory note and therefore cannot be personally bound. If there was any fraud or misrepresentation regarding the DBP loan, Coprada should be accountable, not petitioner. The sale of two trucks under pacto de retro was authorized by a board resolution, and while petitioner asserts he did not sign it, the sale itself was not inherently fraudulent as Akron, the owner, was free to dispose of the units. The amendment of Akron's articles of incorporation and change of name to Akron Transport International, Inc., which assumed the liability, did not indicate an attempt to evade payment. Petitioner's sale of his shares in Akron to Coprada during the pendency of the case was his right as a stockholder, as he had no personal obligation to private respondent. The alleged "dumping" of trucks did not prove fraud and appeared to be an attempt by Akron to address its obligations. The Court emphasized that fraud must be established by clear and convincing evidence, and if any fraud occurred, the principal character to be blamed was Feliciano Coprada, against whom a final and executory judgment had already been rendered. On the issue of sanctioning the merger of corporate personality with the petitioner: The Court found no basis for the IAC's decision to merge the personality of the corporation with that of the petitioner. The principles governing the disregard of the corporate fiction were not met in this case. The actions of Coprada, the president, in negotiating the purchase, securing loans, and making representations, were attributed to him personally and to the corporation he represented, not to the petitioner as an individual. The petitioner's participation was limited to a board resolution authorizing a corporate action, which is a standard corporate procedure. There was no evidence presented to show that petitioner used the corporation as his alter ego or business conduit to perpetrate fraud or commit wrong. Therefore, holding him personally liable for the corporate debts was an error on the part of the IAC.
Main Doctrine
The corporate fiction may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is the mere alter ego or business conduit of a person. However, fraud must be established by clear and convincing evidence, and the principal character on whom fault should be attributed is Feliciano Coprada, not the petitioner, who had no part in the alleged perpetration of fraud.