NUCCIO SAVERIO and NS International, Inc. v.

ALFONSO PUYAT
Nov. 27, 2013 | Brion, J. | Petition for Review on Certiorari | Piercing the Corporate Veil

PETITIONER: Nuccio Saverio and NS International Inc.

RESPONDENT: Alfonso G. Puyat
SUMMARY: NSI allegedly owed Puyat a P460k balance from a MOA that Nuccio signed on behalf of NSI. RTC and CA ruled in
favor of Puyat, piercing the corporate veil. SC held that first, the "Breakdown of Account" (basis for the P460k balance) was not
supported by the evidence Puyat presented. Second, the corporate veil should not be pierced because Puyat failed to prove that
alter-ego elements were present. The indicators that the RTC and CA appreciated in the case were not sufficient to pierce the
corporate veil. Hence, the SC ruled in favor of Nuccio and NSI, and the case was remanded to the RTC.
DOCTRINE: Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of the
corporation is not, by itself, a sufficient ground for disregarding the separate corporate personality. Other than mere ownership of
capital stocks, circumstances showing that the corporation is being used to commit fraud or proof of existence of absolute control
over the corporation have to be proven. In short, before the corporate fiction can be disregarded, alter-ego elements must first
be sufficiently established. Mere ownership by a stockholder of all or nearly all of the capital stocks of a corporation does
not, by itself, justify the disregard of the separate corporate personality. In order for the ground of corporate ownership to
stand, the following circumstances should also be established: (1) that the stockholders had control or complete domination of the
corporations finances and that the latter had no separate existence with respect to the act complained of; (2) that they used such
control to commit a wrong or fraud; and (3) the control was the proximate cause of the loss or injury.

FACTS: 4) NSI did not object to Nuccio's acts, showing

1. Respondent Puyat granted a loan to Petitioner NS
International Inc. (NSI), pursuant to the Memorandum of
Agreement and Promissory Note (MOA) between NSI and
Puyat. During the signing of the MOA, NSI was represented
by Co-Petitioner Nuccio.
Puyat would extend a credit line with a limit of
P500k to NSI, to be paid within 30 days of signing
the document
Loan carried an interest rate fo 17% per annum, or at
an adjusted rate of 25% per annum if the payment is
beyond the stipulated period.
NSI received P300k and machineries for their
fertilizer processing business, but it failed to
materialize.
2. Nuccio made personal payments to Puyat amounting to
P600k. But Nuccio allegedly had an outstanding balance of
P460k, and when Nuccio defaulted, Puyat filed a collection
suit with the RTC because Nuccio still allegedly owed Puyat
for the value of the machineries as shown by the Breakdown
of Account that Puyat presented in court.
3. Nuccio contends that Puyat's allegation isn't true because
they've already paid the loan as evidenced by the receipt for
P600k, and further submit that their remaining obligation to
pay for the machineries was extinguished because their
business failed to materialize.
4. RTC ruled for Puyat. The P600k didn't completely
extinguish the loan. Further, RTC said that Nuccio and NSI
are one and the same because of the ff. indicators [henced they
applied the doctrine of piercing the corporate veil]:
1) Nuccio's act of entering a loan with Puyat for
financing NSI's business
2) The "NS" in "NSI" stands for "Nuccio Saverio"
5. CA affirmed RTC. Nuccio and NSI are one and the same
because of the ff.:
1) Nuccio owned 40% of NSI
2) Nuccio personally entered into the MOA with
Puyat
3) Nuccio and NSI were represented by the same
counsel
Nuccio's control over the corporation
5) Nuccio's control over NSI was used to commit a
wrong/fraud.
6. NUCCIO AND NSI'S ARGUMENTS:
The Breakdown of Account was hearsay because
Ramoncito Puyat, the one who prepared it, was not
presented in court to authenticate it.
The award is not in the RTC's ruling, and the specific
amount is hence undetermined
There is a need for proper accounting to determine
the exact liability
There was no showing that corporate fiction was used
to defeat public convenience, justify a wrong, protect
fraud, or defend a crime
Nuccio's mere ownership of 40% doesn't justify
piercing the separate and distinct personality of NSI
7. ALFONSO PUYAT'S ARGUMENTS:
These are factual issues, so it's beyond the ambit of a
Rule 45 petition (present case) as to the documentary
and testimonial evidence presented in the RTC and
affirmed by the CA.
ISSUES: WON RTC and CA were correct in applying the
piercing of the corporate veil doctrine and in holding Nuccio
and NSI solidarily liable for the P460k allegedly owed to
Puyat?- NO
RULING: Petition GRANTED in favor of Nuccio and
NSI. RTC and CA rulings are reversed and set aside. The case
is remanded to RTC for proper accounting and reception of
evidence to determine NSI's indebtedness to Puyat.
RATIO: [AS TO PIERCING THE CORPORATE VEIL]
1. Piercing the veil of corporate fiction is not justified. Nuccio
and NSI are NOT one and the same.
2. The rule is settled that a corporation is vested by law
with a personality separate and distinct from the persons
composing it. Following this principle, a stockholder,
generally, is not answerable for the acts or liabilities of the
corporation, and vice versa. The obligations incurred by the
corporate officers, or other persons acting as corporate agents,
are the direct accountabilities of the corporation they
represent, and not theirs. A director, officer or employee of a
corporation is generally not held personally liable for
obligations incurred by the corporation and while there may be
instances where solidary liabilities may arise, these
circumstances are exceptional.
3. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stocks of the
corporation is not, by itself, a sufficient ground for
disregarding the separate corporate personality. Other than
mere ownership of capital stocks, circumstances showing that
the corporation is being used to commit fraud or proof of
existence of absolute control over the corporation have to be
proven. In short, before the corporate fiction can be
disregarded, alter-ego elements must first be sufficiently
established.
4. Hi-Cement Corporation v. Insular Bank of Asia and
America: SC did NOT apply piercing the veil doctrine on the
ground that the corporation was a mere alter ego because
mere ownership by a stockholder of all or nearly all of the
capital stocks of a corporation does not, by itself, justify
the disregard of the separate corporate personality. In
order for the ground of corporate ownership to stand, the
following circumstances should also be established: (1) that
the stockholders had control or complete domination of the
corporations finances and that the latter had no separate
existence with respect to the act complained of; (2) that they
used such control to commit a wrong or fraud; and (3) the
control was the proximate cause of the loss or injury.
5. IN THIS CASE: The circumstances do not warrant the
piercing of the veil of NSIs corporate fiction. Aside from
the undisputed fact of Nuccios 40% shareholdings with NSI,
the RTC applied the piercing the veil doctrine based on the
following reasons:
1) There was no board resolution authorizing Nuccio
to enter into a contract of loan.
2) Nuccio and NSI were represented by one and the
same counsel.
3) NSI did not object to Nuccios act of contracting
the loan.
4) The control over NSI was used to commit a wrong
or fraud.
5) Nuccios admission that "NS" in the corporate
name "NSI" means "Nuccio Saverio."
6. SC is NOT convinced of the sufficiency of these above
cited reasons. RTC failed to provide a clear and convincing
explanation why the doctrine was applied. It merely declared
that its application of the doctrine of piercing the veil of
corporate fiction has a basis, specifying for this purpose the
act of Nuccios entering into a contract of loan with the
respondent and the reasons stated above.
7. The records of the case, however, do not show that Nuccio
had control or domination over NSIs finances. The mere fact
that it was Nuccio who, in behalf of the corporation, signed
the MOA is not sufficient to prove that he exercised
control over the corporations finances. Neither the
absence of a board resolution authorizing him to contract
the loan nor NSIs failure to object thereto supports this
conclusion. These may be indicators that, among others, may
point the proof required to justify the piercing the veil of
corporate fiction, but by themselves, they do not rise to the
level of proof required to support the desired conclusion.
8. It should be noted in this regard that while Nuccio was the
signatory of the loan and the money was delivered to him, the
proceeds of the loan were unquestionably intended for NSIs
proposed business plan. That the business did not materialize
is not also sufficient proof to justify a piercing, in the absence
of proof that the business plan was a fraudulent scheme geared
to secure funds from the respondent for the petitioners
undisclosed goals.
9. Considering that the basis for holding Nuccio liable for the
payment of the loan has been proven to be insufficient, we
find no justification for the RTC to hold him jointly and
solidarily liable for NSIs unpaid loan. Similarly, we find that
the CA ruling is wanting in sufficient explanation to justify the
doctrines application and affirmation of the RTCs ruling.
With these points firmly in mind, we hold that NSIs liability
should not attach to Nuccio.
(just in case itanong) RATIO AS TO SC REFUTING THE
RTC'S BASIS IN AWARDING THE P460k IN FAVOR
OF PUYAT:
1. RTC principally relied on the Breakdown of Account.
HOWEVER, the Breakdown of Account and their
corresponding amounts are not supported by the respondents
presented evidence. The itemized expenses, as repeatedly
pointed out by the petitioners, were not proven, and the
remaining indebtedness, after the partial payment of
P600,000.00, was merely derived by the RTC from the
Breakdown of Account.
2. Significantly, the RTC ruling neither showed how the award
was computed nor how the interest and penalty were
calculated. In fact, it merely declared the petitioners liable for
the amount claimed by the respondent and adopted the
breakdown of liability in the Breakdown of Account. This
irregularity is even aggravated by the RTCs explicit refusal to
explain why the payment of P600,000.00 did not extinguish
the debt. While it may be true that the petitioners
indebtedness, aside from the cash loan of P300,000.00,
undoubtedly covered the value of the machineries, the RTC
decision was far from clear and instructive on the actual
remaining indebtedness (inclusive of the machineries
value, penalties and interests) after the partial payment was
made and how these were all computed.
3. We, therefore, hold it inescapable that the prayer for proper
accounting to determine the petitioners actual remaining
indebtedness should be granted. As this requires presentation
of additional evidence, a remand of the case is only proper and
in order.