Benny Y. Hung vs. BPI Card Finance Corp.

A formal correction of the designation of the defendant party may be made at any stage of the action, including on appeal, under Section 4, Rule 10 of the Rules of Court, where the named defendant is a non-existent entity and the real contracting party has voluntarily appeared and participated in the trial. Where the real contracting party includes a sole proprietorship, the individual owner is the proper defendant because a sole proprietorship has no juridical personality apart from its proprietor.

Respondent BPI Card Finance Corporation entered into two merchant agreements with Guess? Footwear, dated 25 August 1994 and 16 November 1994, under which Guess? Footwear agreed to honor validly issued BPI Express Credit Cards. Petitioner Benny Hung signed the first agreement as owner and manager of Guess? Footwear and the second as president of Guess? Footwear, which he also referred to as B & R Sportswear Enterprises — his sole proprietorship. A separate corporation, B & R Footwear Distributors, Inc., also figured in the dealings, its letterhead having been used by Hung in directing a partial repayment to BPI. The overlapping use of these trade names by Hung — interchangeably referring to Guess? Footwear, B & R Sportswear Enterprises, and B & R Footwear Distributors, Inc. — forms the backdrop of the confusion over the proper party-defendant.

Guess? Footwear and BPI Express Card Corporation entered into two merchant agreements, dated 25 August 1994 and 16 November 1994, under which Guess? Footwear agreed to honor validly issued BPI Express Credit Cards presented by cardholders in the purchase of goods and services. Petitioner Benny Hung signed the first agreement as owner and manager of Guess? Footwear and the second as president of Guess? Footwear, which he also referred to as B & R Sportswear Enterprises — a sole proprietorship registered in his name.

From May 1997 to January 1999, BPI mistakenly credited, through 352 checks, the amount of ₱3,480,427.23 to the account of Guess? Footwear. When informed of the overpayments, Hung authorized the transfer of ₱963,604.03 from the bank account of B & R Sportswear Enterprises to BPI's account as partial settlement. His letter dated 31 May 1999, written on the letterhead of B & R Footwear Distributors, Inc., stated that the amount represented "partial settlement of overpayments made by BPI Card Corporation to B & R Sportswear, pending final reconciliation of exact amount of overpayment." In a letter dated 27 September 1999, BPI demanded the balance of ₱2,516,826.68, but Guess? Footwear failed to pay.

BPI filed a collection suit before the RTC of Makati City, naming as defendant "B & R Sportswear Distributor, Inc." Although the case was filed against that entity, it was B & R Footwear Distributors, Inc. that filed an answer, appeared, and participated in the trial. On 24 June 2002, the RTC rendered judgment ordering B & R Sportswear Distributor, Inc. to pay BPI ₱2,516,826.68 with 6% interest from 4 October 1999. During execution, it was discovered that B & R Sportswear Distributor, Inc. is a non-existing entity, rendering the judgment unenforceable. BPI then moved to pierce the corporate veil of B & R Footwear Distributors, Inc. to hold its stockholders and officers, including Hung, personally liable. The RTC granted the motion in its 30 November 2004 Order, finding that Hung signed the merchant agreements in his personal capacity. The Court of Appeals affirmed, reasoning that the non-existent corporation had no personality separate from Hung.

• Piercing the Corporate Veil: Petitioner maintained that piercing the veil of corporate fiction cannot justify execution against him, arguing that without fraud he cannot be held liable for the obligations of B & R Footwear Distributors, Inc. or B & R Sportswear Distributor, Inc. He claimed he never represented B & R Sportswear Distributor, Inc., the non-existent corporation sued by respondent, and that it would be unfair to treat his single proprietorship B & R Sportswear Enterprises as that entity.
• Confusing Similarity of Names: Petitioner argued that the confusing similarity in the names should not be taken against him because he established his single proprietorship long before respondent sued, and that he did not defraud respondent, having even made partial payment in the course of their mutual transactions.
• Real Party in Interest: Petitioner asserted that B & R Footwear Distributors, Inc. or Guess? Footwear was the "real corporation" and "real contracting party," having acknowledged itself as the "real defendant" by answering the complaint and participating in the trial; respondent should have executed the judgment against it.
• Lack of Jurisdiction and Due Process: Petitioner contended that execution against him was improper because he was not served with summons nor was he a party to the case, rendering the lower courts' decisions null and void for lack of jurisdiction and due process.

• Misleading Silence: Respondent countered that petitioner's initial silence on the non-existence of B & R Sportswear Distributor, Inc. was intended to mislead, and that the evidence showed petitioner treats B & R Footwear Distributors, Inc. and his sole proprietorship B & R Sportswear Enterprises as one and the same entity.
• Commingling of Entities: Respondent argued that petitioner ordered the partial payment using the letterhead of B & R Footwear Distributors, Inc. while the fund transferred belonged to his sole proprietorship B & R Sportswear Enterprises, justifying piercing the corporate veil to hold petitioner personally liable.
• Amendment of Party Name: Citing Sections 4 and 5, Rule 10 of the Rules of Court, respondent prayed that the name of the inexistent defendant be amended and changed to Benny Hung and/or B & R Footwear Distributors, Inc.
• Service of Summons: Respondent averred that petitioner cannot claim non-service of summons because it was served at his address and the building standing thereon is registered in his name per the tax declaration.

• Piercing the Corporate Veil: Whether piercing the veil of corporate fiction can justify execution against petitioner Benny Hung.
• Jurisdiction and Due Process: Whether lack of service of summons and a copy of the complaint upon petitioner renders the assailed decisions null and void for lack of jurisdiction.

• Piercing the Corporate Veil: Rendered moot. The formal correction of the defendant's name under Section 4, Rule 10 of the Rules of Court obviated the need to pierce the corporate veil, no fraud or bad faith having been proven to justify piercing.
• Jurisdiction and Due Process: No. Petitioner cannot complain of non-service of summons because B & R Footwear Distributors, Inc. or Guess? Footwear — which is also B & R Sportswear Enterprises — had answered the summons and complaint and participated in the trial, and the formal correction of the defendant's name is permissible at any stage of the action.

• Piercing the Corporate Veil: The correction of the defendant's name from B & R Sportswear Distributor, Inc. to B & R Footwear Distributors, Inc. and Benny Hung rendered moot any discussion on piercing the corporate veil. In any event, whether the separate personality of a corporation should be pierced hinges on facts pleaded and proved. Respondent had complained of "deceit, bad faith and illegal scheme/maneuver" in seeking to pierce the veil, but abandoned that accusation before the Supreme Court. The SEC certification attesting to the non-existence of B & R Sportswear Distributor, Inc. proved no more than the inexistence of that corporation — a name that surfaced because of respondent's own error in naming the defendant. The Court could not agree with the Court of Appeals that petitioner represented a non-existing corporation and induced respondent and the RTC to believe in such representation. The evidence did show that petitioner treated B & R Footwear Distributors, Inc. or Guess? Footwear as B & R Sportswear Enterprises, but respondent did not rely on this ground in filing the motion to pierce. Accordingly, the piercing doctrine was unavailing on the facts and grounds actually pleaded.

• Jurisdiction and Due Process: The Court found that respondent should have named petitioner as a defendant from the outset, given his admission that B & R Sportswear Enterprises is his sole proprietorship and respondent's own belated prayer for correction. Under Section 4, Rule 10 of the Rules of Court, a defect in the designation of parties may be summarily corrected at any stage of the action, at the court's initiative or on motion, provided no prejudice is caused to the adverse party. The correction from B & R Sportswear Distributor, Inc. to B & R Footwear Distributors, Inc. and Benny Hung only confirmed the voluntary correction already made by B & R Footwear Distributors, Inc., which answered the complaint and participated in the trial. No prejudice resulted. Petitioner was the proper defendant because his sole proprietorship has no juridical personality apart from him. Petitioner could not complain of non-service of summons because the entity that appeared and participated — B & R Footwear Distributors, Inc. or Guess? Footwear, which is also B & R Sportswear Enterprises — had answered the summons and complaint. The Court affirmed the RTC's finding that Hung signed the second merchant agreement in his personal capacity.

• Formal Amendment of Party Designation (Section 4, Rule 10, Rules of Court) — A defect in the designation of the parties and other clearly clerical or typographical errors may be summarily corrected by the court at any stage of the action, at its initiative or on motion, provided no prejudice is caused to the adverse party. The Court applied this rule to correct the defendant's name from a non-existent corporation to the real contracting parties, noting that such correction may be made even on appeal and even motu proprio by the court.

• Sole Proprietorship Lacks Juridical Personality — A sole proprietorship has no juridical personality separate and distinct from its owner; accordingly, the proprietor is the proper defendant in any action arising from the sole proprietorship's transactions. The Court held that because B & R Sportswear Enterprises is Hung's sole proprietorship, Hung himself is the proper party-defendant for obligations arising from that entity's dealings.

• Piercing the Corporate Veil — Whether the separate personality of a corporation should be pierced hinges on facts pleaded and proved; fraud, bad faith, or illegal scheme must be established. The Court declined to pierce the veil of B & R Footwear Distributors, Inc. because respondent abandoned its allegations of deceit and bad faith, and the only evidence — the SEC certification — proved merely the non-existence of the named defendant, not fraud attributable to petitioner.

• Legal Interest Rates under Eastern Shipping Lines, Inc. vs. Court of Appeals — For obligations not constituting a loan or forbearance of money, the applicable interest rate is 6% per annum from the time the demand is established with reasonable certainty. Upon finality of the judgment awarding a sum of money, the rate of 12% per annum shall apply from such finality until satisfaction, this interim period being deemed equivalent to a forbearance of credit.

• "A defect in the designation of the parties and other clearly clerical or typographical errors may be summarily corrected by the court at any stage of the action, at its initiative or on motion, provided no prejudice is caused thereby to the adverse party." — This is the text of Section 4, Rule 10 as quoted in the decision, establishing the procedural basis for the Court's correction of the defendant's name and a key rule for bar review on amendment of pleadings.

• "Petitioner is the proper defendant because his sole proprietorship B & R Sportswear Enterprises has no juridical personality apart from him." — This passage states the ratio decidendi for holding Hung personally liable without need of piercing the corporate veil, grounded in the nature of a sole proprietorship.

• "whether the separate personality of a corporation should be pierced hinges on facts pleaded and proved." — This formulation restates the controlling standard for piercing the corporate veil, emphasizing that the remedy is fact-dependent and cannot be granted on unpleaded or unproven grounds.

• Eastern Shipping Lines, Inc. vs. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78 — Controlling precedent on the computation of legal interest. Applied to determine that the 6% per annum rate governs the obligation (not a loan or forbearance of money) from the date of demand, and the 12% per annum rate applies from finality of judgment until satisfaction.

• Yao Ka Sin Trading vs. Court of Appeals, G.R. No. 53820, 15 June 1992, 209 SCRA 763 — Cited in support of the proposition that formal correction of a defect in the designation of parties may be made at any stage of the action, even on appeal.

• General Credit Corporation vs. Alsons Development and Investment Corporation, G.R. No. 154975, 29 January 2007, 413 SCRA 225 — Cited for the principle that piercing the corporate veil hinges on facts pleaded and proved.

• Section 4, Rule 10, Rules of Court — Allows summary correction of defects in the designation of parties and clerical or typographical errors at any stage of the action, at the court's initiative or on motion, provided no prejudice is caused to the adverse party. Applied to correct the defendant's name from the non-existent B & R Sportswear Distributor, Inc. to B & R Footwear Distributors, Inc. and Benny Hung.

• Section 5, Rule 10, Rules of Court — Allows amendments to conform to or authorize presentation of evidence when issues not raised by the pleadings are tried with express or implied consent of the parties. Cited by respondent in support of its belated prayer to amend the defendant's name.

• Article 1169, Civil Code — Cited in connection with the Eastern Shipping Lines doctrine on when interest begins to run, specifically from the time the demand is established with reasonable certainty.

Chief Justice Renato C. Corona (Chairperson), Associate Justice Arturo D. Brion, Associate Justice Mariano C. del Castillo, and Associate Justice Roberto A. Abad concurred. No separate concurring opinions were written.