ASJ CORPORATION and ANTONIO SAN JUAN, Petitioners, vs. SPS. EFREN & MAURA EVANGELISTA, Respondents.

ASJ Corporation versus Evangelista

The Case

This is a petition for review on certiorari brought by ASJ Corporation and its controlling stockholder, Antonio San Juan, against the spouses Efren and Maura Evangelista. The Evangelistas, who traded as R.M. Sy Chicks, delivered broiler eggs to the ASJ hatchery for incubation and hatching at an agreed service fee, and they sued for damages when San Juan refused to release the chicks and egg by-products covered by several setting reports. The case matters because the Supreme Court separates two things the lower courts had lumped together: a lawful retention grounded on the reciprocity of obligations, and an unlawful abuse of right committed through threats and intimidation. It is also a clean illustration of piercing the veil of corporate fiction and of the rule that the creditor cannot be compelled to accept partial payment.

Procedural History

The Evangelistas filed an action for damages with the Regional Trial Court of Malolos, Bulacan, Branch 9. On July 8, 1996, the trial court ruled for the Evangelistas. It found that as of Setting Report No. 107 the spouses still owed 102,336 pesos and 80 centavos in service fees; that the petitioners withheld the chicks and by-products covered by Setting Report Nos. 108 to 113; and that the retention was unjustified and accompanied by threats and intimidation. The trial court disregarded the corporate fiction of ASJ Corporation and held it and San Juan solidarily liable for 529,644 pesos and 80 centavos as actual damages, 100,000 pesos as moral damages, 50,000 pesos as attorney's fees, plus interest and costs.

Both sides appealed to the Court of Appeals. The Evangelistas asked for additional actual damages and unrealized profits; the petitioners asked for a complete reversal. On April 30, 2003, the Court of Appeals denied both appeals for lack of merit and affirmed the trial court, adding an award of 10,000 pesos in exemplary damages. Applying the doctrine of piercing the veil of corporate fiction, the appellate court treated ASJ Corporation and San Juan as one entity. The petitioners then came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

The Evangelistas bought broiler eggs in bulk, had them hatched, and sold the chicks and egg by-products in Bulacan and Nueva Ecija. For the incubation they used the hatchery of ASJ Corporation, registered in the name of San Juan and his family. Each delivery was covered by a Setting Report stating the number of eggs, the date of setting, the date of candling, and the date of hatching, which was also the pick-up date. The service fee was 80 centavos per egg, whether the egg hatched or not. At first the fees were paid upon release of the eggs and by-products, but the spouses' delays were tolerated and the balance was simply carried over to the next delivery out of goodwill.

From January 13 to February 3, 1993, the spouses delivered a total of 101,350 eggs under Setting Report Nos. 108 to 113. On February 3, 1993, Efren came to pick up the chicks and by-products under Setting Report No. 108, but San Juan refused to release them because of unpaid service fees accruing from Setting Report No. 90 onward. San Juan nonetheless accepted 10,245 eggs under Setting Report No. 113 and 15,000 pesos in cash as partial payment. On February 10, 1993, Efren returned for Setting Report No. 109 and was again refused unless the accounts were fully settled. That afternoon Maura tendered another 15,000 pesos, explained that she had been hospitalized, and promised to settle only after a proper accounting, since in her view the value of the eggs delivered exceeded the outstanding balance. San Juan accepted the money but insisted on full settlement and threatened to impound their vehicle and detain them at the hatchery compound.

On February 11, 1993, the spouses sent their errand boy, Allan Blanco, to claim the chicks and by-products under Setting Report No. 110 and to test whether an amicable settlement was still possible. San Juan was firm in his refusal and repeated his threats. Fearing him, the spouses never returned to the hatchery. Attempts at settlement before the police failed, and they sued.

Issues

• Whether or not the Court of Appeals erred in ruling that the petitioners withheld the chicks and by-products covered by Setting Report Nos. 108 and 109, in admitting Maura's testimony, and in not finding that it was the respondents who failed to return for the produce under Setting Report Nos. 110 to 113.
• Whether or not the Court of Appeals erred in piercing the veil of corporate fiction and treating ASJ Corporation and Antonio San Juan as one entity.
• Whether or not the petitioners' retention of the chicks and by-products was justified, and whether or not they are solidarily liable for the damages awarded.
• Whether or not the petitioners are liable for moral damages, exemplary damages, and attorney's fees under Article 19 of the Civil Code.

Applicable Provisions

Article 1248 of the Civil Code provides:

Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments.

This defeats the spouses' claim that their partial tenders extinguished or reduced the obligation and entitled them to the produce.

Article 19 of the Civil Code provides:

Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

This is the basis for the award of damages despite the lawfulness of the retention itself.

Article 2208 of the Civil Code provides, in its relevant portion:

In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except: (1) When exemplary damages are awarded.

This makes the attorney's fees proper once exemplary damages are granted.

Ruling

On the first issue, the Court held that the matter was factual. Only errors of law are reviewable under Rule 45, and the factual findings of the trial court, when supported by the evidence and affirmed by the appellate court, bind the Supreme Court. The records and the parties' own admissions established three things: the debt of 102,336 pesos and 80 centavos as of Setting Report No. 107; that San Juan admitted not releasing the produce under Setting Report Nos. 108 and 109 for non-payment; and that the spouses never returned for the rest because of his threats.

On the second issue, the Court sustained the piercing of the corporate veil. San Juan and his wife owned the bulk of the shares; the hatchery lot belonged to the spouses; the corporation had no other assets; San Juan was in complete control; there was no bona fide intention to treat the corporation as a separate entity; and the fiction was used to insulate him from legitimate claims. These are findings of fact that both lower courts shared.

On the third issue, the Court drew the decisive distinction. The retention had legal basis; the threats had none. The obligation to deliver corresponded to the hatching date, the pick-up date, and the date of payment, and the spouses repeatedly failed to pay. Their partial offers could not compel acceptance, for under Article 1248 the creditor cannot be compelled to receive partial prestations. Neither could they apply the expected value of the chicks as payment, since application of payment requires debts of the same kind. The spouses breached a reciprocal obligation, and from the moment one party performs, delay begins on the other. They were therefore liable to the petitioners for 183,416 pesos and 80 centavos in actual damages, being the unpaid balance plus the service fees for Setting Report Nos. 108 to 113.

On the fourth issue, the Court held that while the petitioners had the right to withhold, their high-handed and oppressive threats were an abuse of right under Article 19, which requires a legal right exercised in bad faith for the sole intent of injuring another. Since the exact loss could not be ascertained, temperate damages of 408,852 pesos and 10 centavos were proper, covering only Setting Report Nos. 109 to 113 because the threats began on February 10 and 11, 1993. Moral and exemplary damages and attorney's fees were affirmed.

Doctrine

First, a creditor cannot be compelled to accept partial payment absent an express stipulation, and the debtor cannot substitute the expected value of goods for money owed. Second, in reciprocal obligations, performance by one party marks the beginning of delay by the other, and the aggrieved party may lawfully withhold his own prestation. Third, a lawful right may still be exercised in an abusive manner; when a right is exercised in bad faith for the sole purpose of injuring another, Article 19 is violated and damages lie. Fourth, the corporate veil may be pierced where the corporation is a mere alter ego, used to insulate a controlling stockholder from legitimate claims.

Disposition

The petition was partly granted: the respondents were ordered to pay the petitioners 183,416 pesos and 80 centavos in actual damages with interest, the award of actual damages to the respondents was reduced to 408,852 pesos and 10 centavos, and the awards of moral damages, exemplary damages, and attorney's fees were affirmed.

Remember This

Memorize the line that decides the case: the retention had legal basis, but the threats had none. Examiners use this case to test the distinction between a lawful exercise of a right and an abuse of right under Article 19, and to test the rule against partial payment under Article 1248.