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Said stockholder cannot seek refuge behind the general principle that a corporation
has a personality distinct and separate from that of its stockholders and that the
latter are not personally liable for the corporate obligations. The court is justified in
piercing the veil of corporate fiction and in holding said stockholder solidarily liable
with the corporation for the sums of money adjudged in favor of the aggrieved
corporation. When the corporation is the mere alter ego of a person, the corporate
fiction may be disregarded; the same being true when the corporation is controlled,
and its affairs are so conducted as to make it merely an instrumentality, agency or
conduit of another.
FACTS:
1. March 25, 1958- Associated Finance Company, Inc. (ASSOCIATED), through its
President, Francisco Sycip, entered into an agreement to exchange sugar with
National Marketing Corporation (NAMARCO) (represented by its then General
Manager, Benjamin Estrella). ASSOCIATED would deliver to NAMARCO 100 pounds of
Victorias and/or National refined sugar in exchange for 7,732.71 bags of Busilak
and 17, 285.08 piculs of Pasumil raw sugar belonging to NAMARCO.
2. May 19, 1958 In compliance with the agreement, NAMARCO delivered to
ASSOCIATED 7,732.71 bags of Busilak and 17,285.08 piculs of Pasumil domestic
raw sugar.
3. January 12, 1959 Because ASSOCIATED failed to deliver to NAMARCO the
agreed 100 pounds of Victoria and/or National refined sugar, NAMARCO demanded
in writing from ASSOCIATED to either: (a) immediately deliver the refined sugar
before January 20 , or (b) pay its equivalent cash value amounting to P372,639.80.
4. Since ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar
NAMARCO delivered to it, NAMARCO instituted the present action in the lower court
to recover the sum of P403,514.28 in payment of the raw sugar received by
defendants.
5. Sycips defense: He cannot be held liable because it is a known principle that a
corporation has a personality distinct and separate from that of its stockholders and
that the latter are not personally liable for the corporate obligations.
ISSUE : Whether or not Francisco Sycip may be held liable, jointly and severally
liable with co-defendant corporation, for the sums of money adjudged in favor of
NAMARCO
HELD : Yes, because when the corporation is the mere alter ego of a person, the
principle of corporate fiction may be disregarded, especially when the person hides
behind the said principle in order to commit acts of fraud against others.
RATIO : 1. Sycip was guilty of fraud because through false representations, he
succeeded in inducing NAMARCO to enter into the exchange agreement, with full
knowledge, on his part, that ASSOCIATED was in no position to comply with the
obligation.
2. Sycip cannot seek refuge behind the general principle that a corporation has a
personality distinct and separate from that of its stockholders and that the latter are
not personally liable for the corporate obligations.
3. The Court felt justified in "piercing the veil of corporate fiction" and holding Sycip
personally liable, jointly and severally with ASSOCIATED, for the sums of money
adjudged in favor of appellant since, when the corporation is the mere alter ego of a
person, the corporate fiction may be disregarded; the same being true when the
corporation is controlled, and its affairs are so conducted as to make it merely an
instrumentality, agency or conduit of another.
Why Sycip should be liable: 1. Sycip owned P60,000 worth of shares in the
defendant corporation, while his wife owned P20,000. The par value of the
subscribed capital stock of ASSOCIATED was only P105,000.00 2. Negotiations
related to the subject exchange agreement were EXCLUSIVELY conducted by Sycip
in behalf of ASSOCIATED
19 SCRA 962 Business Organization Corporation Law Piercing the Veil of Corporate
Fiction Fraud Case