Case title: International Academy of Management and Economics v Litton and Company, Inc.
Citation: G.R. No. 191525 December 13, 2017
Facts:
Atty. Emmanuel T. Santos, a lessee to two (2) buildings owned by Litton, owed the latter rental arrears
as well as his share of the payment of realty taxes. Litton filed a complaint for unlawful detainer
against Santos before the MeTC of Manila. The MeTC ruled in Litton’s favor and ordered Santos to
vacate A.I.D. Building and Litton Apartments and to pay various sums of money.
The decision became final and the sheriff of the MeTC of Manila levied on a piece of real property and
registered in the name of International Academy of Management and Economics Incorporated (I/AME),
in order to execute the judgment against Santos. I/AME filed a motion to lift or remove annotations,
claiming that it has a separate and distinct personality from Santos; hence, its properties should not be
made to answer for the latter’s liabilities. Upon motion for reconsideration of I/AME, the Me TC
reversed its earlier ruling and ordered the cancellation of the
annotations of levy as well as the writ of execution. Litton appealed to RTC, which in turn reversed the
order granting I/AME’s motion. On appeal, the CA upheld the order of the RTC. The CA concluded that
Santos merely used I/ AME as a shield to protect his property from the coverage of the writ of
execution; therefore, piercing the veil of corporate fiction is proper. I/AME argues that the doctrine of
piercing the corporate veil applies only to stock corporations, and not to
non-stock
Issue:
Whether or not it was proper for the court to pierce the veil of I/AME and its property was made to
answer for the liability of Santos.
Ruling:
No.
In general, corporations, whether stock or non-stock, are treated as separate and distinct legal entities
from the natural persons composing them. The privilege of being considered a distinct and separate
entity is confined to legitimate uses, and is subject to equitable limitations to prevent its being
exercised for fraudulent, unfair or illegal purposes. However, once equitable limitations are breached
using the coverture of the corporate veil, courts may step in to pierce the same.
The piercing of the corporate veil is premised on the fact that the corporation concerned must have
been properly served with summons or properly subjected to the jurisdiction of the court a quo.
Corollary thereto, it cannot be subjected to a writ of execution meant for another in violation of its
right to due process.
There exists, however, an exception to this rule: if it is shown "by clear and convincing proof that the
separate and distinct personality of the corporation was purposefully employed to evade a legitimate
and binding commitment and perpetuate a fraud or like wrongdoings. "
The resistance of the Court to offend the right to due process of a corporation that is a nonparty in a
main case, may disintegrate not only when its director, officer, shareholder, trustee or member is a
party to the main case, but when it finds facts which show that piercing of the corporate veil is
merited. Thus, as the Court has already ruled, a party whose corporation is vulnerable to piercing of its
corporate veil cannot argue violation of due process.
In determining the propriety of applicability of piercing the veil of corporate fiction, this Court, in a
number of cases, did not put in issue whether a corporation is a stock or non-stock corporation.
The piercing of the corporate veil may apply to corporations as well as natural persons involved with
corporations. This Court has held that the "corporate mask may be lifted and the corporate veil may be
pierced when a corporation is just but the alter ego of a person or of another corporation."
This Court agrees with the CA that I/AME is the alter ego of Santos and Santos - the natural person - is
the alter ego of I/AME. Santos falsely represented himself as President of I/AME in the Deed of
Absolute Sale when he bought the Makati real property, at a time when I/ AME had not yet existed.
Uncontroverted facts in this case also reveal the findings of Me TC showing Santos and I/ AME as being
one and the same person.
"Reverse-piercing flows in the opposite direction (of traditional corporate veil-piercing) and makes the
corporation
liable for the debt of the shareholders."
It has two (2) types: outsider reverse piercing and insider reverse piercing. Outsider reverse piercing
occurs when a party with a claim against an individual or corporation attempts to be repaid with assets
of a corporation owned or substantially controlled by the defendant. In contrast, in insider reverse
piercing, the controlling members will attempt to ignore the corporate fiction in order to take
advantage of a benefit available to the corporation, such as an interest in a lawsuit or protection of
personal assets.
Outsider reverse veil-piercing is applicable in the instant case. Litton, as judgment creditor, seeks the
Court's intervention to pierce the corporate veil of I/AME in order to make its Makati real property
answer for a judgment against Santos, who formerly owned and still substantially controls I/AME.
Reverse corporate piercing is an equitable remedy which if utilized cavalierly, may lead to disastrous
consequences for both stock and non-stock corporations.
In the instant case, it may be possible for this Court to recommend that Litton run after the other
properties of Santos that could satisfy the money judgment - first personal, then other real properties
other than that of the school. However, if we allow this, we frustrate the decades-old yet valid MeTC
judgment which levied on the real property now titled under the name of the school. Moreover, this
Court will unwittingly condone the action of Santos in hiding all these years behind the corporate form
to evade paying his obligation under the judgment in the court a quo. This we cannot countenance
without being a party to the injustice.
