Remo vs. Intermediate Appellate Court

A corporation’s separate personality will not be disregarded, and its directors or stockholders will not be held personally liable for corporate obligations, unless there is clear and convincing evidence that the corporate fiction was used to defeat public convenience, justify wrong, protect fraud, defend crime, or that the corporation is a mere alter ego or business conduit of the individual. Mere participation as a director in a board resolution authorizing a corporate transaction — without proof of personal involvement in fraudulent acts or misrepresentations — does not justify piercing the corporate veil.

In late December 1977, the board of directors of Akron Customs Brokerage Corporation adopted a resolution authorizing the purchase of thirteen trucks for the corporation’s brokerage business, with payment to come from a loan the corporation might secure. Petitioner Jose Remo, Jr. was a board member at that time. On January 25, 1978, Feliciano Coprada, the corporation’s president and chairman, purchased thirteen trucks from private respondent E.B. Marcha Transport Company, Inc. for P525,000.00. A side agreement required a P50,000.00 downpayment, with the balance of P475,000.00 payable within 60 days; failure to pay would convert the downpayment into rentals and create a chattel mortgage lien on the trucks. Coprada executed a promissory note promising payment from a forthcoming Development Bank of the Philippines (DBP) loan. No loan application was ever filed with DBP. The balance remained unpaid, and only a few rental payments were made. Private respondent thereafter sued the corporation and its officers/directors for recovery of the purchase price or return of the trucks.

• The Corporate Transaction: In late December 1977, Akron Customs Brokerage Corporation’s board of directors adopted a resolution authorizing the purchase of thirteen trucks for its brokerage business, with the purchase price to be paid from a loan the corporation might secure from any lending institution. Petitioner Jose Remo, Jr. participated in that board resolution as a director. On January 25, 1978, Feliciano Coprada, as president and chairman of Akron, purchased thirteen trucks from private respondent E.B. Marcha Transport Company, Inc. for P525,000.00, evidenced by a deed of absolute sale.
• The Side Agreement and Promissory Note: On the same date, the parties executed a side agreement providing for a P50,000.00 downpayment and the balance of P475,000.00 payable within sixty days. The agreement stipulated that until full payment, the downpayment would be applied as rentals; if Akron failed to pay the balance within 60 days, the balance would be treated as a chattel mortgage lien on the trucks, with a possible 30‑day extension, after which private respondent could revoke the contract and seek reconveyance. Coprada also executed a promissory note in favor of private respondent, stating that the balance would be paid from the proceeds of a loan to be obtained from the Development Bank of the Philippines (DBP) within sixty days. Petitioner did not sign the promissory note.
• Default and Subsequent Events: The 60‑day period lapsed without payment. After 90 days, private respondent tried to collect from Coprada; Coprada replied that he would pay only upon release of the DBP loan. Private respondent sent a letter of demand on May 10, 1978. Coprada again cited the pending DBP loan application. Meanwhile, Akron sold two of the trucks under a pacto de retro sale to a third person, authorized by a board resolution dated March 15, 1978. Private respondent later discovered that no loan application was ever filed by Akron with the DBP. Akron paid rentals of P500.00 a day from April 27 to May 31, 1978, but thereafter ceased rental payments. On June 17, 1978, Coprada wrote private respondent requesting an extension until the end of the month to pay the balance, promising to update rentals within the week, and offering to return the 13 units if he failed. Through counsel, private respondent demanded return of the trucks and payment of P25,000.00 back rentals on August 1, 1978. Coprada again sought an extension up to August 31, 1978, mentioning an expected loan approval from a financing company, and reported that ten trucks had been returned to Bagbag, Novaliches. On December 9, 1978, Coprada informed private respondent that ten trucks had been returned and that a board resolution confirmed an assignment to private respondent of P475,000 from a loan obtained from the State Investment House, Inc.
• The Lawsuit and Trial: Private respondent filed a complaint in the then Court of First Instance of Rizal against Akron and its officers/directors, including petitioner, for recovery of P525,000.00 or the return of the 13 trucks with damages. Only petitioner answered, denying any personal liability and invoking the separate corporate personality of Akron. He was declared in default for failing to attend pre-trial. The trial court, after ex parte reception of evidence, rendered a decision on October 28, 1980, ordering all defendants jointly and severally to pay the purchase price of P525,000.00 with legal interest, rentals of P1,000.00 monthly from August 1978 until the premises were cleared, attorney’s fees of P10,000.00, and costs; the P50,000.00 downpayment was treated as rentals already applied.
• Acts During Pendency: During the pendency of the case, petitioner sold all his shares in Akron to Coprada. Akron also amended its articles of incorporation, changing its corporate name to Akron Transport International, Inc., which expressly assumed the liability to private respondent.

• Disregard of Corporate Fiction: Petitioner argued that the Intermediate Appellate Court erred in disregarding the separate corporate personality of Akron and holding him personally liable for its corporate debt. He maintained that he was merely a director who participated in a board resolution authorizing the purchase; he did not negotiate the sale, did not sign the promissory note, and was not involved in any misrepresentation regarding the DBP loan.
• Merger of Personalities: Petitioner contended that the appellate court committed a grave error of law by sanctioning the merger of his personality with that of the corporation, thereby imposing personal liability for corporate obligations without proof that the corporate fiction was used to perpetrate fraud or injustice. He emphasized that his subsequent acts — selling his shares and the corporate name change — were legitimate and did not indicate fraud.

• Piercing the Corporate Veil: Private respondent argued that the corporate veil should be pierced because the corporation, under the control of its officers/directors including petitioner, was used as an instrument to defraud it. The authorization of the purchase and the subsequent misrepresentation that a DBP loan would cover the balance constituted a scheme to obtain the trucks without payment.
• Personal Participation: Private respondent maintained that petitioner, as a director who voted for the resolution authorizing the purchase and who was part of the board that approved the pacto de retro sale and other corporate acts, was personally responsible for the corporation’s failure to pay. The subsequent "dumping" of trucks, the corporate name change, and petitioner’s sale of shares were further indicia of fraud warranting personal liability.

• Piercing of Corporate Veil: Whether the Intermediate Appellate Court erred in disregarding the separate corporate personality of Akron and holding petitioner personally liable for the corporation’s debt despite the absence of clear and convincing evidence that petitioner used the corporation to commit fraud or perpetrate a wrong.
• Personal Liability for Corporate Obligation: Whether petitioner, as a mere director who participated in authorizing the purchase but who did not negotiate the transaction or sign the promissory note, could be held jointly and severally liable for the unpaid purchase price of the trucks.

• Piercing of Corporate Veil: The corporate veil was maintained. Petitioner’s participation in the board resolution authorizing the purchase of thirteen trucks did not, by itself, evince fraud. The resolution was adopted for the legitimate corporate purpose of acquiring vehicles for the brokerage business, with payment to be sourced from a loan — a transaction that on its face was not a scheme to defraud. Even if fraud attended the representation about the DBP loan, that misrepresentation emanated solely from Feliciano Coprada, who negotiated the sale and signed the promissory note. The word “WE” in the promissory note referred to the corporation Coprada represented, not to individual directors. No evidence showed that petitioner had knowledge of or participation in the false statement regarding the loan. The corporate fiction may be disregarded only when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when the corporation is a mere alter ego of the individual — circumstances not established by clear and convincing evidence. The sale of two units via pacto de retro, the amendment of the articles of incorporation, and the return of trucks did not constitute fraudulent acts attributable to petitioner. The new corporation expressly assumed the old corporation’s liability, and petitioner’s sale of his shares was an exercise of a legal right.
• Personal Liability for Corporate Obligation: Petitioner incurred no personal liability for the corporate debt. The promissory note bound the corporation, not its directors personally. Petitioner did not sign the note and was not a party to the undertakings made by Coprada. The obligor was Akron, not its board members. Since the corporate fiction was not successfully pierced, petitioner’s separate juridical personality protected him from personal liability. Consequently, the trial court’s judgment holding him jointly and severally liable could not stand.

• Doctrine of Piercing the Corporate Veil — A corporation possesses a juridical personality separate and distinct from its stockholders and directors. This legal fiction will be disregarded only when the corporate personality is “used to defeat public convenience, justify wrong, protect fraud, or defend crime,” or when the corporation is a “mere alter ego or business conduit of a person.” The burden of proving grounds to pierce the veil rests on the party alleging it, and fraud must be established by clear and convincing evidence. In this case, the doctrine was not applied because there was no proof that petitioner used the corporate form to perpetrate fraud; any misrepresentation was attributable to the corporate president alone, and petitioner’s mere directorship did not justify holding him personally liable.

• “A corporation is an entity separate and distinct from its stockholders. While not in fact and in reality a person, the law treats a corporation as though it were a person by process of fiction or by regarding it as an artificial person distinct and separate from its individual stockholders.” — This articulation of the basic corporate principle anchors the Court’s refusal to hold petitioner liable.
• “However, the corporate fiction or the notion of legal entity may be disregarded when it ‘is used to defeat public convenience, justify wrong, protect fraud, or defend crime’ in which instances ‘the law will regard the corporation as an association of persons, or in case of two corporations, will merge them into one.’ The corporate fiction may also be disregarded when it is the ‘mere alter ego or business conduit of a person.’” — The Court sets out the narrow exceptions that were not proven.
• “If the private respondent is the victim of fraud in this transaction, it has not been clearly shown that petitioner had any part or participation in the perpetration of the same. Fraud must be established by clear and convincing evidence.” — The central evidentiary standard that led to the reversal.

• Yutivo and Sons Hardware Co. vs. Court of Tax Appeals, 1 SCRA 160 (1961) — Cited as authority for the rule that piercing the corporate veil is proper when the corporation is used to protect fraud or as a mere alter ego. Followed but distinguished because the facts did not warrant piercing.
• Koppel (Phil.), Inc. vs. Yatco, 77 Phil. 496 (1946) — Relied upon in Yutivo, this case is cited in the same vein for the general principle on disregarding corporate fiction.
• Namarco vs. Associate Finance Co. Inc., 19 SCRA 962 (1967); Villa Rey Transit Inc. vs. Ferrer, 25 SCRA 845 (1968); Liddell & Co., Inc. vs. Collector of Internal Revenue, 2 SCRA 632 (1961); Emilio Cano Enterprises Inc. vs. Court of Industrial Relations, 13 SCRA 290 (1965); McConnel vs. Court of Appeals, 1 SCRA 722 (1961) — These cases illustrate occasions when the Court pierced the corporate veil because of its use to protect fraud or justify wrong; they provide the doctrinal backdrop against which the present case was distinguished as one lacking sufficient proof of fraud.

• Section 2, Batas Pambansa Blg. 68 (Corporation Code of the Philippines) — Codifies the rule that a corporation is an artificial being created by operation of law, possessing a juridical personality separate and distinct from the persons composing it. The Court relied on this provision as the starting point for its analysis and as the foundation for the separate-entity presumption that the private respondent failed to overcome.

Narvasa, Cruz, Griño-Aquino, and Medialdea, JJ., concurred.