Atillo III vs. Court of Appeals

A judicial admission in a pleading is not conclusive when the alleged admission is taken out of context or when no such admission was in fact made; the court may consider the entire pleading and other evidence, especially where the parties stipulated to resolve liability based on designated agreements. Likewise, a corporate officer or shareholder who signs an agreement as agent of the corporation does not incur personal liability absent an express stipulation and clear and convincing evidence, and the corporate veil may not be pierced absent fraud, illegality, injustice, or necessity for equity or creditor protection.

AMANCOR, Inc. was a corporation then owned and controlled by Florentino L. Atillo III. Michell Lhuillier later acquired shares in AMANCOR under a Memorandum of Agreement, after which Atillo and Lhuillier each owned 47% of the outstanding shares while the officers owned the remaining 6%. The parties’ subsequent agreements addressed Lhuillier’s additional capital investment in AMANCOR and the repayment of a corporate bank loan secured by Atillo’s real properties. The case turns on Section 4, Rule 129 of the Rules of Court on judicial admissions and on the separate personality of corporations.

AMANCOR, Inc. was a corporation then owned and controlled by Florentino L. Atillo III. On August 15, 1985, AMANCOR contracted a loan of P1,000,000.00 with Metropolitan Bank and Trust Company, secured by real estate properties owned by Atillo. Before the loan could be paid, Atillo entered into a Memorandum of Agreement dated June 14, 1988 with Michell Lhuillier, whereby Lhuillier bought shares of stock in AMANCOR. As a consequence, Atillo and Lhuillier each became owner of 47% of the outstanding shares of stock of AMANCOR, while the officers of the corporation owned the remaining 6%.

In view of the urgent and immediate need for fresh capital to support AMANCOR’s business operations, Atillo and Lhuillier executed another Memorandum of Agreement on February 13, 1989, by virtue of which Lhuillier undertook to invest additional capital in AMANCOR. As an addendum, a Supplemental Memorandum of Agreement was entered into by Atillo and Lhuillier on March 11, 1989. Relevant to the case was a stipulation in the Supplemental Memorandum of Agreement providing that F.L. Atillo III may dispose of his properties at P. del Rosario St., Cebu City, which may involve pre-payment of AMANCOR’s mortgage loan to the bank estimated at P300,000.00, and that while AMANCOR may not yet be in a position to repay said amount to him, it shall pay the interests to him equivalent to the prevailing bank rate.

Pursuant to this stipulation, Atillo assumed AMANCOR’s outstanding loan balance of P300,000.00 with Metropolitan Bank and Trust Company. After offsetting the amount of P300,000.00 with some of the accounts that Atillo had with AMANCOR, the amount which remained due to him was P199,888.89. Because AMANCOR failed to satisfy its obligation to repay Atillo, the latter filed a complaint for collection of a sum of money against AMANCOR and Lhuillier before Branch 7 of the Regional Trial Court of Cebu City.

At the pre-trial conference, the parties stipulated on the due execution and genuineness of the Memorandum of Agreement dated June 14, 1988 (Annex A), the Memorandum of Agreement dated February 13, 1989 (Annex B), and the Supplemental Agreement dated March 11, 1989 (Annex C). The defendants admitted that the claim of the plaintiff amounted to P199,888.89 as of October 1, 1990. The parties submitted for the trial court’s resolution the issues of whether Michell J. Lhuillier was personally liable to Atillo and what rate of interest should be paid.

The lower courts found that the P199,888.89 indebtedness was incurred by AMANCOR alone; that Lhuillier signed the Memorandum of Agreement only as an officer or agent of the corporation; and that there was no express stipulation making him jointly and severally liable and no clear and convincing evidence of personal liability.

• Judicial Admission: Petitioner argued that Lhuillier made a judicial admission of personal liability in his Answer, particularly in paragraphs 3.11 and 3.14, by stating that all the subject dealings were between petitioner and Lhuillier personally without the official participation of AMANCOR, and that the board of AMANCOR did not formally ratify or accede to the personal agreement between petitioner and Lhuillier. Under Section 4, Rule 129 of the Rules of Court, such admission required no proof and could be contradicted only by showing palpable mistake or that no such admission was made.
• Joint and Several Liability: Petitioner maintained that because Lhuillier signed the Memorandum of Agreement without the official participation or ratification of AMANCOR, Lhuillier should have been declared jointly and severally liable with AMANCOR.
• Conclusiveness of Pleadings: Petitioner invoked the consistent pronouncement that an admission made in the pleadings cannot be controverted by the party making it and is conclusive as to him, and that all proofs submitted contrary thereto or inconsistent therewith should be ignored.

• No Personal Undertaking: Lhuillier maintained in his Answer that under paragraph 12 of Annex B and paragraph 4 of Annex C, he did not engage to personally pay the corporate loans secured by petitioner’s property; at most, he agreed that AMANCOR would repay petitioner the amount of the pre-terminated corporate loans and, pending improvement of AMANCOR’s finances, that AMANCOR would pay interest at the prevailing bank rate.
• Corporate Obligor: Lhuillier asserted that the indebtedness was incurred by AMANCOR alone and that he acted only as an officer or agent of the corporation when he signed the Memorandum of Agreement.
• No Piercing of Corporate Veil: Lhuillier argued that the separate personality of AMANCOR could not be disregarded absent fraud, illegality, injustice, or necessity for equity or creditor protection, and that petitioner failed to show that Lhuillier acted otherwise than as an agent of the corporation.

• Judicial Admission: Whether Lhuillier’s statements in his Answer constituted a judicial admission of personal liability that was conclusive under Section 4, Rule 129 of the Rules of Court, despite the context of the entire pleading and his denial of personal liability.
• Personal Liability / Joint and Several Liability: Whether Lhuillier should be held jointly and severally liable with AMANCOR for the P199,888.89 obligation because he signed the Memorandum of Agreement without official participation or ratification by AMANCOR.
• Piercing the Corporate Veil: Whether the separate personality of AMANCOR should be disregarded to hold Lhuillier personally liable for the corporate debt.

• Judicial Admission: No. The alleged admission was taken out of context and Lhuillier denied personal liability; Section 4, Rule 129 permits contradiction by showing that no such admission was made.
• Personal Liability / Joint and Several Liability: No. Lhuillier signed as an officer or agent of AMANCOR, and no express stipulation or clear and convincing evidence established his personal liability.
• Piercing the Corporate Veil: No. The corporate veil may be pierced only for fraud, illegality, injustice, equity, or protection of creditors, none of which was shown.

• Judicial Admission: Under Section 4, Rule 129 of the Rules of Court, the general rule is that a judicial admission is conclusive upon the party making it and does not require proof, but the rule admits of two exceptions: when the admission was made through palpable mistake, and when no such admission was in fact made. The second exception allows a party to contradict an admission by showing that he made no such admission or that his admission was taken out of context. Petitioner isolated paragraph 3.11 of Lhuillier’s Answer from the preceding paragraphs. A careful scrutiny of the Answer in its entirety showed that paragraph 3.11 was part of the affirmative allegations recounting how Lhuillier was persuaded to invest in AMANCOR, which was previously owned and managed by petitioner, and that it referred to investments made through stock purchases where only petitioner and Lhuillier dealt with each other. It had nothing to do with AMANCOR’s obligation to petitioner, which was the subject of the case. Lhuillier categorically denied personal liability in succeeding paragraphs 3.12 and 3.13, asserting that he did not engage to personally pay the corporate loans and that, at most, he agreed for the corporation to repay petitioner and to pay interest at the prevailing bank rate. Petitioner was also aware that Lhuillier had never admitted personal liability, since both parties submitted for the trial court’s determination the question of whether Lhuillier was personally liable. Moreover, petitioner offset his accounts with those of AMANCOR, indicating that he recognized AMANCOR and not Lhuillier as the obligor. Even granting arguendo that Lhuillier had made the alleged admission, such admission was not conclusive upon him. The Court applied by analogy its ruling in Gardner vs. Court of Appeals, which allowed a party’s testimony in open court to override admissions made in his answer; an answer is a mere statement of fact which the party filing it expects to prove, but it is not evidence. Since the parties agreed to submit the issue of Lhuillier’s liability based on the evidence and specifically on Annexes A, B, and C, the trial court correctly relied on the provisions of the Memoranda of Agreement when it absolved Lhuillier of personal liability. The Court of Appeals’ factual findings, supported by substantial evidence, were also final and conclusive.
• Personal Liability / Joint and Several Liability: The indebtedness of P199,888.89 was incurred by AMANCOR alone. The provisions of the Memoranda of Agreement, particularly paragraph 4 of Annex C, stated that AMANCOR shall pay the interests to petitioner equivalent to the prevailing bank rate. Lhuillier did not engage to personally pay the corporate loans. He signed the Memorandum of Agreement only as an officer or agent of the corporation. There was no express stipulation making him jointly and severally liable with AMANCOR, and there was no clear and convincing evidence of his personal liability. Thus, the Court of Appeals correctly absolved Lhuillier of personal liability.
• Piercing the Corporate Veil: The separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, only when the corporation is used as a cloak or cover for fraud or illegality, to work an injustice, or where necessary to achieve equity or to protect creditors. This situation did not obtain in the case. Petitioner failed to show that Lhuillier acted otherwise than as required of him as an agent of the corporation. It did not appear that Lhuillier was jointly and severally liable with AMANCOR absent an express stipulation to that effect and without clear and convincing evidence of personal liability. The Court of Appeals therefore did not err in refusing to pierce the veil of corporate fiction.

• Judicial Admissions under Section 4, Rule 129 — An admission, verbal or written, made by a party in the course of the proceedings in the same case does not require proof. It may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. The “no such admission” exception covers an admission cited out of context; the pleader may show that he made no such admission or that it was taken out of context, meaning not in the sense in which the proponent makes it appear. The Court applied this doctrine by finding that paragraph 3.11 of Lhuillier’s Answer was isolated from the rest of the pleading and concerned stock investments, not AMANCOR’s debt.
• Admissions in Pleadings Are Not Absolute — An answer is a mere statement of fact which the party filing it expects to prove, but it is not evidence. A party’s testimony or other evidence may override admissions made in the answer. The Court applied this doctrine by analogy from Gardner vs. Court of Appeals and because the parties stipulated to submit Lhuillier’s liability based on Annexes A, B, and C.
• Separate Corporate Personality and Piercing the Veil — A corporation has a personality separate and distinct from its officers and shareholders. The veil may be pierced only when the corporation is used as a cloak or cover for fraud or illegality, to work an injustice, or when necessary to achieve equity or protect creditors. A corporate officer or agent who signs an agreement does not become personally liable absent an express stipulation and clear and convincing evidence. The Court found no basis to pierce the veil because Lhuillier acted only as an officer or agent and petitioner failed to show personal liability.
• Finality of Court of Appeals Factual Findings — Factual findings of the Court of Appeals supported by substantial evidence are final and conclusive and may not be reviewed on appeal. The Court applied this doctrine to uphold the lower courts’ findings on Lhuillier’s non-liability.

• "As provided for in Section 4 of Rule 129 of the Rules of Court, the general rule that a judicial admission is conclusive upon the party making it and does not require proof admits of two exceptions: 1) when it is shown that the admission was made through palpable mistake, and 2) when it is shown that no such admission was in fact made." — This passage states the two exceptions to the general rule on judicial admissions, which became the analytical framework for rejecting petitioner’s argument.
• "For instance, if a party invokes an "admission" by an adverse party, but cites the admission "out of context", then the one making the admission may show that he made no "such" admission, or that his admission was taken out of context. This may be interpreted as to mean "not in the sense in which the admission is made to appear." That is the reason for the modifier "such"." — This passage defines the “no such admission” exception and explains why an admission cited out of context is not conclusive.
• "An answer is a mere statement of fact which the party filing it expects to prove, but it is not evidence." — Quoted from Gardner vs. Court of Appeals, this passage supports the ruling that admissions in an answer are not absolute and may be overridden by other evidence.
• "Granting arguendo that LHUILLIER had in fact made the alleged admission of personal liability in his Answer, We hold that such admission is not conclusive upon him." — This is the ratio decidendi on the judicial admission issue, holding that even assuming an admission was made, it did not bind Lhuillier conclusively under the circumstances.

• Gardner vs. Court of Appeals, 131 SCRA 585, 600 — Cited and applied by analogy for the rule that a party’s testimony in open court may override admissions made in his answer; an answer is not evidence.
• Elayda vs. Court of Appeals, 199 SCRA 349, 353 — Cited for the general rule that admissions in pleadings are conclusive upon the party making them; the Court found petitioner’s reliance misplaced because the alleged admission was taken out of context.
• Guinsatao vs. Court of Appeals, 218 SCRA 708 — Cited for the rule that factual findings of the Court of Appeals supported by substantial evidence are final and conclusive and may not be reviewed on appeal. The Court also cited Bustamante vs. Court of Appeals, 193 SCRA 603; Coca-Cola Bottlers Philippines, Inc. vs. Court of Appeals, 235 SCRA 39; and Tan Chun Suy vs. Court of Appeals, 229 SCRA 151 for the same rule.

• Section 4, Rule 129, Rules of Court — An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. The Court applied the second exception, holding that the alleged admission was taken out of context and that Lhuillier had denied personal liability.

Narvasa, C.J., Davide, Jr., Melo and Panganiban, JJ., concur.