JOSE REMO, JR., PETITIONER, VS. THE HON. INTERMEDIATE APPELLATE COURT AND E.B. MARCHA TRANSPORT COMPANY, INC., REPRESENTED BY APIFANIO B. MARCHA, RESPONDENTS.

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.^[1]

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.”^[2] There are many occasions when this Court pierced the corporate veil because of its use to protect fraud and to
justify wrong.^[3] The herein petition for review of a resolution of the
Intermediate Appellate Court dated
February 8, 1984 seeking the reversal thereof and the reinstatement of its
earlier decision dated June 30,1983 in AC-G.R. No. 68496-R^[4] calls for the application of the foregoing
principles.

In the latter part of December, 1977 the board of directors of
Akron Customs Brokerage Corporation (hereinafter referred to as Akron),
composed of petitioner Jose Remo, Jr., Ernesto Bañares, Feliciano Coprada, Jemina Coprada, and Dario Punzalan with Lucia Lacaste as
Secretary, adopted a resolution authorizing the purchase of thirteen (13)
trucks for use in its business to be paid out of a loan the corporation may
secure from any lending institution.^[5]

Feliciano Coprada, as President
and Chairman of Akron, purchased thirteen trucks from private respondent on January 25,
1978 for and in consideration of P525,000.00 as evidenced by
a deed of absolute sale.^[6]
In a side agreement of the same date, the parties agreed on a downpayment in the amount of P50,000.00 and that the
balance of P475,000.00 shall be paid within sixty (60)  days from the date of the execution of the
agreement.  The parties also agreed that
until said balance is fully paid,
the down payment of P50,000.00 shall accrue as rentals of the 13 trucks; and
that if Akron fails to pay the balance within the period of 60 days, then the
balance shall  constitute as a chattel
mortgage lien covering said cargo trucks and the parties may allow an extension of 30 days and thereafter
private respondent may ask for a revocation of the contract and the reconveyance of all
said trucks.^[7]

The obligation is
further secured by a promissory note executed by Coprada
in favor of Akron.  It is stated in the promissory note that the
balance shall be paid from the proceeds of a loan obtained from the Development
Bank of the Philippines (DBP) within sixty (60) days.^[8]  After the lapse of 90 days, private
respondent tried to collect from Coprada but the
latter promised to pay only upon
the release of the DPB loan.  Private
respondent sent Coprada a letter of demand dated May 10, 1978.^[9]
In his reply to the said letter, Coprada reiterated that he was applying for a
loan from the DBP from the proceeds of which payment of the obligation shall be
made.^[10]

Meanwhile, two of the trucks were sold under a pacto de retro sale to
a certain Mr. Bais of the Perpetual Loans and Savings
Bank at Baclaran. 
The sale was authorized by a board resolution made in a meeting held on March 15, 1978.^[11]

Upon inquiry, private respondent found that no loan application
was ever filed by Akron with DBP.^[12]

In the meantime, Akron
paid rentals of P500.00 a day
pursuant to a subsequent agreement, from April 27, 1978 (the end of the 90-day period to pay the
balance) to May 31, 1978.  Thereafter, no more rental payments were
made.

On July 17, 1978,
Coprada wrote private respondent begging for a grace
period of until the end of the month to pay the balance of the purchase price;
that he will update the rentals within the week; and in case he fails, then he
will return the 13 units should private respondent elect to get back the same.^[13]
Private respondent, through counsel, wrote Akron
on August 1, 1978 demanding
the return of the 13 trucks and the payment
of P25,000.00 back  rentals covering the
period from June 1 to August 1, 1978.^[14]

Again, Coprada wrote private respondent
on August 8, 1978 asking for
another grace period of up to August
31, 1978 to pay the balance, stating as well that he is expecting
the approval of his loan application from a have certain financing company, and
that ten (10) trucks been returned to Bagbag, Novaliches.^[15]
On December 9, 1978, Coprada informed private respondent anew that he had
returned ten (10) trucks to Bagbag and that a
resolution was passed by the board of directors confirming the deed of
assignment to private respondent of P475,000 from the proceeds of a loan obtained by Akron
from the State investment House, Inc.^[16]

In due time, private respondent filed a complaint for the
recovery of P525,000.00 or the return of the 13 trucks with damages against
Akron and its officers and  directors,
Feliciano Coprada, Dario D. Punzalan,
Jemina Coprada, Lucia Lacaste, Wilfredo Layug, Arcadio de la Cruz, Francisco
Clave, Vicente Martinez, Pacifico Dollario
and petitioner with the then Court of First Instance of Rizal.  Only petitioner answered the complaint
denying any participation in the transaction and alleging that Akron
has a distinct corporate personality.  He
was, however, declared in default for his failure to attend the pre-trial.

In the meanwhile, petitioner sold all his shares in Akron
to Coprada.  It
also appears that Akron amended its
articles of incorporation thereby changing its name to Akron Transport
International, Inc. which assumed the liability of Akron
to private respondent.

After an ex parte
reception of the evidence of the private respondent, a decision was rendered on
October 28, 1980, the dispositive part of which reads as follows:

“Finding the evidence sufficient to prove the case of the
plaintiff, judgment is hereby rendered in favor of the plaintiff and against
the defendants, ordering them jointly and severally to pay;

a-          the purchase price of the trucks in the amount of P525,000.00 with x x x legal rate (of interest) from
the filing of the complaint until the full amount is paid;

b-          rentals of Bagbag
property at P1,000.00 a month from August 1978 until the premises is cleared of
the said trucks;

c-          attorney’s fees of P10,000.00, and

d-          costs of suit.

The P50,000.00 given as down payment shall pertain as rentals of
the trucks from June 1 to August 1, 1978 which is P25,000.00 (see demand letter of Atty. Aniano Exhibit “T”)  and the remaining P25,000.00 shall be from
August 1, 1978 until the trucks are removed totally from the place.”^[17]

A motion for new trial filed by
petitioner was denied so he appealed to the then Intermediate Appellate Court
(IAC) wherein in due course a decision was rendered on June 30, 1983 setting aside the said decision as
far as petitioner is concerned.  However,
upon a motion for reconsideration filed by private respondent, the IAC, in a
resolution dated February 8, 1984,
set aside the decision dated June 30,
1983.  The appellate court
entered another decision affirming the appealed decision of the trial court,
with costs against petitioner.

Hence, this petition for review wherein petitioner raises the
following issues:

“I.   The Intermediate Appellate Court (IAC) erred
in disregarding the the corporate fiction and in
holding the petitioner personally liable for the obligation of the Corporation
which decision is patently contrary to law and the applicable decision thereon.

II.    The Intermediate Appellate Court (IAC) committed
grave error of law in its decision by sanctioning the merger of the personality
of the corporation with that of the petitioner when the latter was held liable
for the corporate debts.”^[18]

We reverse.

The environmental facts of this case show that there is no cogent
basis to pierce the corporate veil of Akron
and hold petitioner personally liable for its obligation to private
respondent.  While it is true that in
December, 1977 petitioner was still a member
of the board of directors of Akron and that he participated in the adoption of
a resolution authorizing the purchase of 13 trucks for the use in the brokerage
business of Akron to be paid out of a loan to be secured from a lending
institution, it does not appear that said resolution was intended to defraud
anyone and more particularly private respondent.  It was Coprada,
President and Chairman of Akron, who negotiated with said respondent for the
purchase of 13 cargo trucks on January
25, 1978.  It was Coprada who signed a promissory note to guarantee the
payment of the unpaid balance of the purchase price out of the proceeds of a
loan he supposedly sought from the DBP. 
The word “WE” in the said promissory note must refer to the
corporation which Coprada represented in the
execution of the note and not its stockholders or directors.  Petitioner did not sign the said promissory
note so he cannot be personally bound thereby.

Thus, if there was any fraud or misrepresentation that was
foisted on private respondent in that
there was a forthcoming loan from
the DBP when it fact there was none, it is Coprada
who should account for the same and not petitioner.

As to the sale through pacto de retro of two units
to a third person by the corporation by virtue of a board resolution,
petitioner asserts that he never signed said resolution.  Be that as it may, the sale is not inherently
fraudulent as the 13 units were
sold through a deed of absolute sale to
Akron so that the corporation is
free to dispose of the same.  Of course,
it was stipulated that in case of default in payment to private respondent of
the balance of the consideration, a chattel mortgage lien shall be constituted
on the 13 units.  Nevertheless, said
mortgage is a prior lien as against the pacto de retro sale of the 2 units.

As to the amendment of the articles of incorporation of Akron
thereby changing its name to Akron Transport International, Inc., petitioner
alleges that the change of corporate name was in order to include trucking and container yard operations in its
customs brokerage of which private respondent was duly informed in a letter.^[19]
Indeed, the new corporation confirmed and assumed the obligation of the old
corporation.  There is no indication of
an attempt on the part of Akron to
evade payment of its obligation to private respondent.

There is the fact that petitioner sold his shares in Akron
to Coprada during the pendency
of the case.  Since petitioner has no
personal obligation to private respondent, it is his inherent right as a
stockholder to dispose of his shares of stock anytime he so desires.

Mention is also made of the alleged “dumping” of 10
units in the premises of private respondent a Bagbag,
Novaliches which to the mind of the Court does not
prove fraud and instead appears to be an attempt on the part of Akron
to attend to its obligations as regards the said trucks.  Again petitioner has no part in this.

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 sam Fraud
must be established by clear and convincing evidence.  If at all, the principal character on whom
fault should be attributed is Feliciano Coprada, the
President of Akron, whom private respondent dealt with personally all through
out.  Fortunately, private respondent
obtained a judgment against him from the trial court and the said judgment has
long been final and executory.

WHEREFORE, the petition is GRANTED.  The questioned resolution of the Intermediate
Appellate Court dated February 8, 1984 is hereby 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 hereby reinstated and affirmed,
without costs.

SO ORDERED.

Narvasa, (Chairman), Cruz, Griño-Aquino and Medialdea, JJ., concur.

^[1]
Section 2, Batas Pambansa Blg.
68, the Corporation Code of the Philippines;
1 Fletcher, Cyclopedia of the Law of Private Corporations, pages 19 and 20.

^[2]
Yutivo Sons Hardware Co. vs. Court of Tax
Appeals, 1 SCRA 160 (1961) citing Koppel (Phil.), Inc. vs. Yatco, 77 Phil. 496 (1946) in turn citing 1 Fletcher
Cyclopedia of the Law of Private Corporations, perm. Ed. pages 13 and 135-136.

^[3]Namarco vs. Associated Finance Co. Inc., 19 SCRA 962 (1967); Villa Rey Transit Inc. vs. Ferrer 25 SCRA 845(1968);
Liddel & 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).

^[4]
Justice Ramon G. Gaviola, Jr. was the ponente, with Justices Eduardo P. Caguioa
and Ma. Rosario Quetulio-Losa, concurring.

^[5]
Exhibits C and 7.

^[6]
Exhibit Q.

^[7]
Exhibits R-1 to R-4.

^[8]
Exhibit S.

^[9]
Exhibits T and T-1.

^[10]
Exhibit W.

^[11]
Exhibit X.

^[12]
Exhibit V-1.

^[13]
Exhibit Y.

^[14]
Exhibit X.

^[15]
Exhibit AA.

^[16]
Exhibit BB.

^[17]Annex
C to Petition, pages 24 and 25, Record on Appeal; page 50, Rollo.

^[18]
Page 18, Rollo.

^[19]
Page 10, Record on Appeal; Annex C, Petition.