7. WPM INTERNATIONAL TRADING INC. VS. LABAYEN Same; Same; Same; Separate Personality; As held in Martinez v.

Court of
Appeals, 438 SCRA 130 (2004), the mere ownership by a single stockholder of even
WPM INTERNATIONAL TRADING, INC. and WARLITO P. all or nearly all of the capital stocks of a corporation is not by itself a sufficient
MANLAPAZ, petitioners, vs.  FE CORAZON LABAYEN, respondent. ground to disregard the separate corporate personality.—Aside from the fact that
Manlapaz was the principal stockholder of WPM, records do not show that WPM was
Remedial Law; Civil Procedure; Appeals; Corporations; The question of organized and controlled, and its affairs conducted in a manner that made it merely
whether a corporation is a mere instrumentality or alter ego of another is purely an instrumentality, agency, conduit or adjunct of Manlapaz. As held in Martinez v.
one of fact.—We note, at the outset, that the question of whether a corporation is a Court of Appeals, 438 SCRA 130 (2004), the mere ownership by a single stockholder
mere instrumentality or alter ego of another is purely one of fact. This is also true with of even all or nearly all of the capital stocks of a corporation is not by itself a sufficient
respect to the question of whether the totality of the evidence adduced by the ground to disregard the separate corporate personality. To disregard the separate
respondent warrants the application of the piercing the veil of corporate fiction juridical personality of a corporation, the wrongdoing must be clearly and
doctrine. Generally, factual findings of the lower courts are accorded the highest convincingly established.
degree of respect, if not finality. When adopted and confirmed by the CA, these Same; Same; Same; The control necessary to invoke the instrumentality or
findings are final and conclusive and may not be reviewed on appeal, save in some alter ego rule is not majority or even complete stock control but such domination of
recognized exceptions among others, when the judgment is based on finances, policies and practices that the controlled corporation has, so to speak, no
misapprehension of facts. separate mind, will or existence of its own, and is but a conduit for its principal.—
Corporations; Separate Personality; The rule is settled that a corporation has We stress that the control necessary to invoke the instrumentality or alter ego rule is
a personality separate and distinct from the persons acting for and in its behalf and, not majority or even complete stock control but such domination of finances, policies
in general, from the people comprising it.—The rule is settled that a corporation has and practices that the controlled corporation has, so to speak, no separate mind, will
a personality separate and distinct from the persons acting for and in its behalf and, in or existence of its own, and is but a conduit for its principal. The control must be
general, from the people comprising it. Following this principle, the obligations shown to have been exercised at the time the acts complained of took place. Moreover,
incurred by the corporate officers, or other persons acting as corporate agents, are the the control and breach of duty must proximately cause the injury or unjust loss for
direct accountabilities of the corporation they represent, and not theirs. Thus, a which the complaint is made.
director, officer or employee of a corporation is generally not held personally liable for Same; Same; The piercing of the veil of corporate fiction is frowned upon and
obligations incurred by the corporation; it is only in exceptional circumstances that thus, must be done with caution.—We emphasize that the piercing of the veil of
solidary liability will attach to them. corporate fiction is frowned upon and thus, must be done with caution. It can only be
Same; Piercing the Corporate Veil; The doctrine of piercing the corporate veil done if it has been clearly established that the separate and distinct personality of the
applies only in three (3) basic instances.—Incidentally, the doctrine of piercing the corporation is used to justify a wrong, protect fraud, or perpetrate a deception. The
corporate veil applies only in three (3) basic instances, namely: a) when the separate court must be certain that the corporate fiction was misused to such an extent that
and distinct corporate personality defeats public convenience, as when the corporate injustice, fraud, or crime was committed against another, in disregard of its rights; it
fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud cases, cannot be presumed.
or when the corporate entity is used to justify a wrong, protect a fraud, or defend a Civil Law; Damages; Moral Damages; Under Article 2220 of the New Civil
crime; or c) is used in alter ego cases, i.e., where a corporation is essentially Code, moral damages may be awarded in cases of a breach of contract where the
a farce, since it is a mere alter ego or business conduit of a person, or defendant acted fraudulently or in bad faith or was guilty of gross negligence
where the corporation is so organized and controlled and its affairs so amounting to bad faith.—On the award of moral damages, we find the same in order
conducted as to make it merely an instrumentality, agency, conduit or in view of WPM’s unjustified refusal to pay a just debt. Under Article 2220 of the New
adjunct of another corporation. Civil Code, moral damages may be awarded in cases of a breach of contract where the
Same; Same; Alter-Ego Theory; Piercing the corporate veil based on the alter defendant acted fraudulently or in bad faith or was guilty of gross negligence
ego theory requires the concurrence of three (3) elements; The absence of any of amounting to bad faith. In the present case, when payment for the balance of the
these elements prevents piercing the corporate veil.—Piercing the corporate veil renovation cost was demanded, WPM, instead of complying with its obligation,
based on the alter ego theory requires the concurrence of three elements, namely: (1) denied having authorized the respondent to contract in its behalf and accordingly
Control, not mere majority or complete stock control, but complete domination, not refused to pay. Such cold refusal to pay a just debt amounts to a breach of contract in
only of finances but of policy and business practice in respect to the transaction bad faith, as contemplated by Article 2220. Hence, the CA’s order to pay moral
attacked so that the corporate entity as to this transaction had at the time no separate damages was in order.
mind, will or existence of its own; (2) Such control must have been used by the PETITION for review on certiorari of the decision and resolution of the Court of
defendant to commit fraud or wrong, to perpetuate the violation of a statutory or Appeals.
other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s The facts are stated in the opinion of the Court.
legal right; and (3) The aforesaid control and breach of duty must have proximately John Alex A. Villena for petitioners.
caused the injury or unjust loss complained of. The absence of any of these elements Carlos Mayorico E. Caliwara for respondent.
prevents piercing the corporate veil. BRION,   J.:

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 We review in this petition for review on certiorari1  the decision2 dated September quoted by CLN too high, he instructed the respondent to either renegotiate for a lower
28, 2007 and the resolution3dated April 28, 2008 of the Court of Appeals (CA)  in price or to look for another contractor; that since the respondent had exceeded her
C.A.-G.R. CV No. 68289 that affirmed with modification the decision 4 of the Regional authority as agent of WPM, the renovation agreement should only bind her; and that
Trial Court (RTC), Branch 77, Quezon City. since WPM has a separate and distinct personality, Manlapaz cannot be made liable
  for the respondent’s claim.
The Factual Background Manlapaz prayed for the dismissal of the complaint for lack of cause of action, and
The respondent, Fe Corazon Labayen, is the owner of H.B.O. Systems by way of counterclaim, for the award of P350,000.00 as moral and exemplary
Consultants, a management and consultant firm. The petitioner, WPM International damages and P50,000.00 attorney’s fees.
Trading, Inc. (WPM), is a domestic corporation engaged in the restaurant business, The RTC, through an order dated March 2, 1993 declared WPM in default for its
while Warlito P. Manlapaz (Manlapaz) is its president. failure to file a responsive pleading.
Sometime in 1990, WPM entered into a management agreement with the The Decision of the RTC
respondent, by virtue of which the respondent was authorized to operate, manage and In its decision, the RTC held that the respondent is entitled to indemnity from
rehabilitate Quickbite, a restaurant owned and operated by WPM. As part of her Manlapaz. The RTC found that based on the records, there is a clear indication that
tasks, the respondent looked for a contractor who would renovate the two existing WPM is a mere instrumentality or business conduit of Manlapaz and as such, WPM
Quickbite outlets in Divisoria, Manila and Lepanto St., University Belt, Manila. and Manlapaz are considered one and the same. The RTC also found that Manlapaz
Pursuant to the agreement, the respondent engaged the services of CLN Engineering had complete control over WPM considering that he is its chairman, president and
Services (CLN) to renovate Quickbite-Divisoria at the cost of P432,876.02. treasurer at the same time. The RTC thus concluded that Manlapaz is liable in his
On June 13, 1990, Quickbite-Divisoria’s renovation was finally completed, and its personal capacity to reimburse the respondent the amount she paid to CLN in
possession was delivered to the respondent. However, out of the P432,876.02 connection with the renovation agreement.
renovation cost, The petitioners appealed the RTC decision with the CA. There, they argued that in
only the amount of P320,000.00 was paid to CLN, leaving a balance of P112,876.02. view of the respondent’s act of entering into a renovation agreement with CLN in
Complaint for Sum of Money (Civil Case No. Q-90-7013) excess of her authority as WPM’s agent, she is not entitled to indemnity for the
On October 19, 1990, CLN filed a complaint for sum of money and damages amount she paid. Manlapaz also contended that by virtue of WPM’s separate and
before the RTC against the respondent and Manlapaz, which was docketed as Civil distinct personality, he cannot be made solidarily liable with WPM.
Case No. Q-90-7013. CLN later amended the complaint to exclude Manlapaz as The Ruling of the Court of Appeals
defendant. The respondent was declared in default for her failure to file a responsive On September 28, 2007, the CA affirmed, with modification on the award of
pleading. attorney’s fees, the decision of the RTC. The CA held that the petitioners are barred
The RTC, in its January 28, 1991 decision, found the respondent liable to pay CLN from raising as a defense the respondent’s alleged lack of authority to enter into the
actual damages in the amount of P112,876.02 with 12% interest per annum from June renovation agreement in view of their tacit ratification of the contract.
18, 1990 (the date of first demand) and 20% of the amount recoverable as attorney’s The CA likewise affirmed the RTC ruling that WPM and Manlapaz are one and the
fees. same based on the following: (1) Manlapaz is the principal stockholder of WPM; (2)
Complaint for Damages (Civil Case No. Q-92-13446) Manlapaz had complete control over WPM because he concurrently held the positions
Thereafter, the respondent instituted a complaint for damages against the of president, chairman of the board and treasurer, in violation of the Corporation
petitioners, WPM and Manlapaz. The respondent alleged that in Civil Case No. Q-90- Code; (3) two of the four other stockholders of WPM are employed by Manlapaz
7013, she was adjudged liable for a contract that she entered into for and in behalf of either directly or indirectly; (4) Manlapaz’s residence is the registered principal office
the petitioners, to which she should be entitled to reimbursement; that her of WPM; and (5) the acronym “WPM” was derived from Manlapaz’s initials. The CA
participation in the management agreement was limited only to introducing applied the principle of piercing the veil of corporate fiction and agreed with the RTC
Manlapaz to Engineer Carmelo Neri (Neri), CLN’s general manager; that it was that Manlapaz cannot evade his liability by simply invoking WPM’s separate and
actually Manlapaz and Neri who agreed on the terms and conditions of the distinct personality.
agreement; that when the complaint for damages was filed against her, she was After the CA’s denial of their motion for reconsideration, the petitioners filed the
abroad; and that she did not know of the case until she returned to the Philippines present petition for review on certiorari  under Rule 45 of the Rules of Court.
and received a copy of the decision of the RTC. The Petition
In her prayer, the respondent sought indemnification in the amount of The petitioners submit that the CA gravely erred in sustaining the RTC’s
P112,876.60 plus interest at 12% per annumfrom June 18, 1990 until fully paid; and application of the principle of piercing the veil of corporate fiction. They argue that
20% of the award as attorney’s fees. She likewise prayed that an award of the legal fiction of corporate personality could only be discarded upon clear and
P100,000.00 as moral damages and P20,000.00 as attorney’s fees be paid to her. convincing proof that the corporation is being used as a shield to avoid liability or to
In his defense, Manlapaz claims that it was his fellow incorporator/director Edgar commit a fraud. Since the respondent failed to establish that any of the circumstances
Alcansaje who was in-charge with the daily operations of the Quickbite outlets; that that would warrant the piercing is present, Manlapaz claims that he cannot be made
when Alcansaje left WPM, the remaining directors were compelled to hire the solidarily liable with WPM to answer for damages allegedly incurred by the
respondent as manager; that the respondent had entered into the renovation respondent.
agreement with CLN in her own personal capacity; that when he found the amount
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 The petitioners further argue that, assuming they may be held liable to reimburse The absence of any of these elements prevents piercing the corporate veil. 12
to the respondent the amount she paid in Civil Case No. Q-90-7013, such liability is  
only limited to the amount of P112,876.02, representing the balance of the obligation In the present case, the attendant circumstances do not establish that WPM is a
to CLN, and should not include the twelve 12% percent interest, damages and mere alter ego of Manlapaz.
attorney’s fees. Aside from the fact that Manlapaz was the principal stockholder of WPM, records
The Issues do not show that WPM was organized and controlled, and its affairs conducted in a
The core issues are: (1) whether WPM is a mere instrumentality, alter ego, and manner that made it merely an instrumentality, agency, conduit or adjunct of
business conduit of Manlapaz; and (2) whether Manlapaz is jointly and severally Manlapaz. As held in Martinez v. Court of Appeals,13 the mere ownership by a single
liable with WPM to the respondent for reimbursement, damages and interest. stockholder of even all or nearly all of the capital stocks of a corporation is not by
Our Ruling itself a sufficient ground to disregard the separate corporate personality. To disregard
We find merit in the petition. the separate juridical personality of a corporation, the wrongdoing must be clearly
We note, at the outset, that the question of whether a corporation is a mere and convincingly established.14
instrumentality or alter ego of another is purely one of fact. 5 This is also true with  
respect to the question of whether the totality of the evidence adduced by the Likewise, the records of the case do not support the lower courts’ finding that
respondent warrants the application of the piercing the veil of corporate fiction Manlapaz had control or domination over WPM or its finances. That Manlapaz
doctrine.6 concurrently held the positions of president, chairman and treasurer, or that the
Generally, factual findings of the lower courts are accorded the highest degree of Manlapaz’s residence is the registered principal office of WPM, are insufficient
respect, if not finality. When adopted and confirmed by the CA, these findings are considerations to prove that he had exercised absolute control over WPM.
final and conclusive and may not be reviewed on appeal, 7 save in some recognized In this connection, we stress that the control necessary to invoke the
exceptions8 among others, when the judgment is based on misapprehension of facts. instrumentality or alter ego rule is not majority or
We have reviewed the records and found that the application of the principle of even complete stock control but such domination of finances, policies and practices
piercing the veil of corporate fiction is unwarranted in the present case. that the controlled corporation has, so to speak, no separate mind, will or existence of
On the Application of the Principle its own, and is but a conduit for its principal. The control must be shown to have been
of Piercing the Veil of Corporate Fiction exercised at the time the acts complained of took place. Moreover, the control and
The rule is settled that a corporation has a personality separate and distinct from breach of duty must proximately cause the injury or unjust loss for which the
the persons acting for and in its behalf and, in general, from the people comprising complaint is made.
it.9Following this principle, the obligations incurred by the corporate officers, or other Here, the respondent failed to prove that Manlapaz, acting as president, had
persons acting as corporate agents, are the direct accountabilities of the corporation absolute control over WPM. Even granting that he exercised a certain degree of
they represent, and not theirs. Thus, a director, officer or employee of a corporation is control over the finances, policies and practices of WPM, in view of his position as
generally not held personally liable for obligations incurred by the corporation; 10 it is president, chairman and treasurer of the corporation, such control does not
only in exceptional circumstances that solidary liability will attach to them. necessarily warrant piercing the veil of corporate fiction since there was not a single
Incidentally, the doctrine of piercing the corporate veil applies only in three (3) proof that WPM was formed to defraud CLN or the respondent, or that Manlapaz was
basic instances, namely: a) when the separate and distinct corporate personality guilty of bad faith or fraud.
defeats public convenience, as when the corporate fiction is used as a vehicle for the On the contrary, the evidence establishes that CLN and the respondent knew and
evasion of an existing obligation; b) in fraud cases, or when the corporate entity is acted on the knowledge that they were dealing with WPM for the renovation of the
used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego latter’s restaurant, and not with Manlapaz. That WPM later reneged on its monetary
cases, i.e., where a corporation is essentially a farce, since it is a mere obligation to CLN, resulting to the filing of a civil case for sum of money against the
alter ego or business conduit of a person, or where the corporation is so respondent, does not automatically indicate fraud, in the absence of any proof to
organized and controlled and its affairs so conducted as to make it merely support it.
an instrumentality, agency, conduit or adjunct of another corporation.11 This Court also observed that the CA failed to demonstrate how the separate and
Piercing the corporate veil based on the alter ego theory requires the concurrence distinct personality of WPM was used by Manlapaz to defeat the respondent’s right
of three elements, namely: for reimbursement. Neither was there any showing that WPM attempted to avoid
(1)  Control, not mere majority or complete stock control, but complete liability or had no property against which to proceed.
domination, not only of finances but of policy and business practice in respect to the Since no harm could be said to have been proximately caused by Manlapaz for
transaction attacked so that the corporate entity as to this transaction had at the time which the latter could be held solidarily liable with WPM, and considering that there
no separate mind, will or existence of its own; was no proof that WPM had insufficient funds, there was no sufficient justification for
(2)  Such control must have been used by the defendant to commit fraud or the RTC and the CA to have ruled that Manlapaz should be held jointly and severally
wrong, to perpetuate the violation of a statutory or other positive legal duty, or liable to the respondent for the amount she paid to CLN. Hence, only WPM is liable to
dishonest and unjust act in contravention of plaintiff’s legal right; and indemnify the respondent.
(3)  The aforesaid control and breach of duty must have proximately caused the Finally, we emphasize that the piercing of the veil of corporate fiction is frowned
injury or unjust loss complained of. upon and thus, must be done with caution. 15 It can only be done if it has been clearly
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established that the separate and distinct personality of the corporation is used to
justify a wrong, protect fraud, or perpetrate a deception. The court must be certain
that the corporate fiction was misused to such an extent that injustice, fraud, or crime
was committed against another, in disregard of its rights; it cannot be presumed.
 
On the Award of Moral Damages
On the award of moral damages, we find the same in order in view of WPM’s
unjustified refusal to pay a just debt. Under Article 2220 of the New Civil
Code,16 moral damages may be awarded in cases of a breach of contract where the
defendant acted fraudulently or in bad faith or was guilty of gross negligence
amounting to bad faith.
In the present case, when payment for the balance of the renovation cost was
demanded, WPM, instead of complying with its obligation, denied having authorized
the respondent to contract in its behalf and accordingly refused to pay. Such cold
refusal to pay a just debt amounts to a breach of contract in bad faith, as
contemplated by Article 2220. Hence, the CA’s order to pay moral damages was in
order.
WHEREFORE, in light of the foregoing, the decision dated September 28, 2007
of the Court of Appeals in C.A.-G.R. CV No. 68289 is MODIFIED and that petitioner
Warlito P. Manlapaz is ABSOLVED from any liability under the renovation
agreement.
SO ORDERED.
Carpio (Chairperson), Del Castillo, Villarama, Jr.**and Leonen, JJ., concur.
Judgment modified, petitioner Warlito P. Manlapaz absolved from liability.
Notes.—A settled formulation of the doctrine of piercing the corporate veil is that
when two business enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the rights of third parties,
disregard the legal fiction that these two entities are distinct and treat them as
identical or as one and the same. (Prince Transport, Inc. vs. Garcia, 639 SCRA 312
[2011])
Since piercing the veil of corporate fiction is frowned upon, those who seek to
pierce the veil must clearly establish that the separate and distinct personalities of the
corporations are set up to justify a wrong, protect a fraud, or perpetrate a deception.
(Prince Transport, Inc. vs. Garcia, 672 SCRA  136 [2012])

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