WPM INTERNATIONAL TRADING, INC. and WARLITO P. MANLAPAZ, Petitioners, vs. FE CORAZON LABAYEN, Respondent.

G.R. No. 182770 | September 17, 2014

FACTS:

WPM entered into a management agreement with the respondent wherein the latter was authorized to operate, manage and rehabilitate Quickbite, a restaurant owned and operated by WPM. As part of her tasks, respondent looked for a contractor who would renovate the two existing Quickbite outlets in Divisoria, Manila and Lepanto St., University Belt, Manila.

Respondent engaged the services of CLN Engineering Services (CLN) to renovate Quickbite-Divisoria at the cost of ₱432,876.02. When the renovation of the Divisoria outlet was completed, only the amount of ₱320,000.00 was paid to CLN. As such, CLN sued for the balance before the RTC. The RTC found the respondent liable.

Thereafter, the respondent instituted in a separate case a complaint for damages against the petitioners. She alleged that she entered into a contract for and in behalf of the petitioners, to which she should be entitled to reimbursement; that her participation in the management agreement was limited only to introducing Manlapaz to Engineer Carmelo Neri (Neri), CLN’s general manager; that it was actually Manlapaz and Neri who agreed on the terms and conditions of the agreement; that when the complaint for damages was filed against her, she was abroad; and that she did not know of the case until she returned to the Philippines and received a copy of the decision of the RTC.

In his defense, Manlapaz claims that it was his fellow incorporator/director Edgar Alcansaje who was in-charge with the daily operations of the Quickbite outlets; that when Alcansaje left WPM, the remaining directors were compelled to hire the respondent as manager; that the respondent had entered into the renovation agreement with CLN in her own personal capacity; that when he found the amount quoted by CLN too high, he instructed the respondent to either renegotiate for a lower price or to look for another contractor; that since the respondent had exceeded her authority as agent of WPM, the renovation agreement should only bind her; and that since WPM has a separate and distinct personality, Manlapaz cannot be made liable for the respondent’s claim.

The RTC declared WPM in default for its failure to file a responsive pleading. In its decision, the RTC held that the respondent is entitled to indemnity from Manlapaz. It considered WPM and Manlapaz as one and the same. It also found that Manlapaz had complete control over WPM considering that he is its chairman, president and treasurer at the same time. The RTC thus concluded that Manlapaz is liable in his personal capacity to reimburse the respondent the amount she paid to CLN inconnection with the renovation agreement.

The petitioners appealed the RTC decision to the CA. The CA affirmed the ruling of the RTC. Hence, this present petition for review on certiorari under Rule 45 of the Rules of Court.

ISSUE:

Whether WPM is a mere instrumentality, alter-ego, and business conduit of Manlapaz.

COURT’S RULING:

No. The doctrine of piercing the corporate veil applies only in three instances, namely: 

a. when the separate and distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 

b. in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or 

c. is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements, namely:

a. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business 

practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;

b. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right; and

c. The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of.

The absence of any of these elements prevents piercing the corporate veil.

Here, the records do not show that WPM was organized and controlled, and its affairs conducted in a manner that made it merely an instrumentality, agency, conduit or adjunct of Manlapaz. Likewise, the records do not support the lower courts’ finding that Manlapaz had control or domination over WPM or its finances. That Manlapaz concurrently held the positions of president, chairman and treasurer, or that the residence of Manlapaz is the registered principal office of WPM, are insufficient considerations to prove that he had exercised absolute control over WPM.