CASE 2017-0016: CALIFORNIA MANUFACTURING COMPANY NC. VS. ADVANCED SYSTEM, INC. (G.R. NO. 202454, 25 APRIL 2017, SERENO, J.)  (PIERCING THE VEIL OF CORPORATE FICTION) (BRIEF TITLE: CALIFORNIA MANUFACTURING VS. ADVANCED SYSTEM)

 

DISPOSITIVE:

 

“WHEREFORE, the Decision dated 25 August 2011 and Resolution dated 21 June 2012 issued by the Court of Appeals in CA-G.R. CV No. 94409 are AFFIRMED. The instant Petition is DENIED for lack of merit.

 

SO ORDERED.”

 

SUBJECTS/DOCTRINES/DIGEST:

 

ADVANCED TECHNOLOGY FILED COLLECTION CASE AGAINST CALIFORNIA MANUFACTURING FOR BALANCE OF COST OF MACHINE IT DELIVERED. CALIFORNIA MANUFACTURING SAID SUCH BALANCE MUST BE OFFSET BY THE DEBT TO THEM OF PPPC WHICH IS ONE AND THE SAME WITH ADVANCED SYSTEM BECAUSE THE CELONES SPOUSES  WHO AGREED TO SUCH OFFSETTING ARE OFFICERS AND MAJOR STOCKHOLDERS OF THE TWO CORPORATIONS: PPPC AND ADVANCED TECHNOLGY. IN OTHER WORDS THE VEIL OF CORPORATE FICTION MUST BE PIERCED. IS CALIFORNIA MANUFACTURING CORRECT?

 

WRONG.

 

CALIFORNIA MANUFACTURING HAS ONLY PROVEN THAT SPOUSES  CELONES ARE INCORPORATORS, DIRECTORS, AND MAJORITY STOCKHOLDERS OF THE ADVANCED SYSTEM  AND PPPC. THERE IS NO PROOF THAT PPPC CONTROLLED THE FINANCIAL POLICIES AND BUSINESS PRACTICES OF ADVANCED SYSTEM.

 

“Without question, the Spouses Celones are incorporators, directors, and majority stockholders of the ATSI and PPPC. But that is all that CMCI has proven. There is no proof that PPPC controlled the financial policies and business practices of ATSI either in July 2001 when Felicisima proposed to set off the unpaid P3.2 million mobilization fund with CMCI’s rental of Prodopak machines; or in August 2001 when the lease agreement between CMCI and ATSI commenced. Assuming arguendo that Felicisima was sufficiently clothed with authority to propose the offsetting of obligations, her proposal cannot bind ATSI because at that time the latter had no transaction yet with CMCI. Besides, CMCI had leased only one Prodopak machine. Felicisima’s reference to the Prodopak machines in its letter in July 2001 could only mean that those were different from the Prodopak machine that CMCI had leased from A TSI.”

  

WHAT IS THE RULE IN PIERCING THE CORPORATE VEIL OF FICTION?

 

IT MUST BE DONE WITH CAUTION.

 

IT 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 RIGHTS. MOREOVER, THE WRONGDOING MUST BE CLEARLY AND CONVINCINGLY ESTABLISHED.

 

WHEN WILL THE DOCTRINE OF PIERCING THE CORPORATE VEIL APPLIES?

 

 ONLY IN THREE (3) BASIC AREAS, NAMELY:

 

1) DEFEAT OF PUBLIC CONVENIENCE AS WHEN THE CORPORATE FICTION IS USED AS A VEHICLE FOR THE EVASION OF AN EXISTING OBLIGATION;

 

2) FRAUD CASES OR WHEN THE CORPORATE ENTITY IS USED TO JUSTIFY A WRONG, PROTECT FRAUD, OR DEFEND A CRIME; OR

 

3) ALTER EGO CASES, WHERE A CORPORATION IS MERELY 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 ARE SO CONDUCTED AS TO MAKE IT MERELY AN INSTRUMENTALITY, AGENCY, CONDUIT OR ADJUNCT OF ANOTHER CORPORATION.

 

TO READ THE DECISION, JUST CLICK/DOWNLOAD THE FILE BELOW.

 

SCD-2017-0016-CALIFORNIA MANUF CASE

 

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