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Case digest · Piercing the corporate veil; liability of corporate officers
Heirs of Fe Tan Uy vs. International Exchange Bank
One case, two endings: the sister company was liable, but the president’s wife was not.
Facts
1997
International Exchange Bank (iBank) lent Hammer Garments about P24.9 million. The loan was secured by a P9-million mortgage on properties of Goldkey Development and by a surety signed in the names of Hammer’s president, Manuel Chua, and his wife, Fe Tan Uy.
Default
Hammer defaulted. The foreclosure raised P12 million and left a P13.4-million deficiency, and iBank sued everyone.
The trial court
It found Fe Tan Uy’s signature on the surety forged, but held her liable anyway as an officer and stockholder of Hammer. It also held Goldkey liable as Hammer’s alter ego.
Goldkey and Hammer
The RTC found, and the Court adopted, that both were family corporations with Chua as president, sharing one office, with their assets mixed together. The proceeds of at least two loans financed a manager’s check payable to Goldkey, and Goldkey stopped operating when Chua disappeared.
Issue
Can the bank collect the deficiency from Goldkey, a sister company, and from Fe Tan Uy, Hammer’s treasurer and a stockholder, whose signature on the surety was forged?
Ruling
Split. The veil was pierced as to Goldkey, which was held solidarily liable with Hammer and Chua. Fe Tan Uy was released.
For Goldkey, the probative factors of identity were present, together with commingled assets and diverted loan proceeds. For Fe Tan Uy, the complaint never alleged, and the bank never proved, that she assented to unlawful acts or acted in bad faith or with gross negligence. To make a director or officer personally liable, the complaint must allege, and the plaintiff must clearly and convincingly prove, assent to patently unlawful acts, gross negligence or bad faith (see Sec. 31 of the Corporation Code, now Sec. 30 of the Revised Corporation Code). The only basis for holding her liable was a surety agreement on which her signature had been forged; at most she was negligent as treasurer, which falls short of gross negligence.
“The Court cannot give credence to the simplistic declaration of the RTC that liability would attach directly to Uy for the sole reason that she was an officer and stockholder of Hammer.”
Doctrine
The Court weighed each party separately. A related company may be held liable when “it was apparent that Goldkey was merely an adjunct of Hammer,” but a director or officer is not personally liable for corporate debts merely because of that position.
Compare: not pierced
In Kukan International Corporation vs. Reyes, G.R. No. 182729, September 29, 2010, a similar name, a similar business and a 40% common shareholder were not enough to pierce the veil.
Bar tip
Answer piercing questions party by party. For a director or officer, look for an allegation and clear and convincing proof of assent to patently unlawful acts, gross negligence or bad faith. Being an officer and stockholder is not enough.
Hear it explained
Piercing the Corporate Veil, Podcast Ep. 1, at 7:05
This digest is general legal information for education, not legal advice, and it is not a substitute for reading the decision. Quoted passages are taken word for word from the full text.