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This case involves a dispute over shares of stock between Ferro Chemicals (Ferro) and Antonio Garcia. Antonio entered into an agreement to purchase shares from Ferro, but the shares were later garnished by Antonio's creditors. Ferro sued Antonio and Chemical Industries, where Antonio served as Chairman, claiming they were solidarily liable. The Supreme Court held that Antonio and Chemical Industries should not be held solidarily liable because (1) a corporation has a separate legal personality from its officers, and (2) Ferro failed to prove Antonio used Chemical Industries to commit fraud or that the corporation benefited from the transaction, which would be required to disregard the separate corporate personalities. The transaction was a personal matter between Ferro and
This case involves a dispute over shares of stock between Ferro Chemicals (Ferro) and Antonio Garcia. Antonio entered into an agreement to purchase shares from Ferro, but the shares were later garnished by Antonio's creditors. Ferro sued Antonio and Chemical Industries, where Antonio served as Chairman, claiming they were solidarily liable. The Supreme Court held that Antonio and Chemical Industries should not be held solidarily liable because (1) a corporation has a separate legal personality from its officers, and (2) Ferro failed to prove Antonio used Chemical Industries to commit fraud or that the corporation benefited from the transaction, which would be required to disregard the separate corporate personalities. The transaction was a personal matter between Ferro and
This case involves a dispute over shares of stock between Ferro Chemicals (Ferro) and Antonio Garcia. Antonio entered into an agreement to purchase shares from Ferro, but the shares were later garnished by Antonio's creditors. Ferro sued Antonio and Chemical Industries, where Antonio served as Chairman, claiming they were solidarily liable. The Supreme Court held that Antonio and Chemical Industries should not be held solidarily liable because (1) a corporation has a separate legal personality from its officers, and (2) Ferro failed to prove Antonio used Chemical Industries to commit fraud or that the corporation benefited from the transaction, which would be required to disregard the separate corporate personalities. The transaction was a personal matter between Ferro and
Ferro Chemicals Incorporated (Ferro) is a domestic corporation duly
authorized by existing law to engage in business in the Philippines. It is represented in this action by its President, Ramon M. Garcia. Chemical Industries of the Philippines Inc. (Chemical), on the other hand, is also a domestic corporation duly organized and existing by virtue of Philippine laws. Antonio Garcia, one of the parties in the instant case, is the Chairman of the Board of Directors (BOD) of Chemical and a brother of Ferro Chemical's President, Ramon Garcia. Antonio Garcia entered into a contract with Ferro for the purchase of the latter of 1,717,678 shares of the latter in Chemical. Antonio, being the judgment creditor of various banks (consortium), entered into a compromise agreement with the consortium involving said shares of stocks.
The consortium was then awarded through a judgment of the court of a
notice of garnishment for said shares of stocks which led to Antonio and Ferro to enter another agreement for the former to have the right to repurchase the said shares of stocks from the latter. Antonio sent written notices to Ferro for him to exercise his right of repurchase of the said shares of stocks; the shares were however already transferred to Chemphil Export, Inc. Subsequently, Antonio was able to recover the shares through an action of Specific Performance against Ferro. The consortium was then able to garnish 1,000,000 of the said shares for partial satisfaction of Antonios obligation with them. Chemphil, feeling aggrieved then filed a collection suit against Ferro for the value of the garnished shares. Ferro then filed an action for recovery of sum of money and damages for the amount of the 1,000,000 shares.
The lower courts then found Chemical and Antonio, solidarily liable for the amount of the 1,000,000 shares in favor of Ferro.
Issue:
Whether or not Antonio and Chemical should be held solidarily liable
for the award of the court in favor of Ferro for damages Held:
A corporation, upon coming to existence, is invested by law with a
personality separate and distinct from those of the persons composing it. Ownership by a single or a small group of stockholders of nearly all of the capital stock of the corroration is not, without more, sufficient to disregard the fiction of separate corporate personality. Thus, obligations incurred by corporate officers, acting as corporate agents, are not theirs, but direct accountabilities of the corporation they represent. Solidary liability on the part of corporate officers may at times attach, but only under exceptional circumstances, such as when they act with malice or in bad faith. Also, in appropriate cases, the veil of corporate fiction shall be disregarded when the separate juridical personality of a corporation is abused or used to commit fraud and perpetrate a social injustice, or used as a vehicle to evade obligations. It must be stressed at the onset that the sale contract was entered by Antonio Garcia in his personal capacity and not as the President of Chemical Industries. The imputation of liability Chemical Industries for the acts of its corporate officer and the consequent shedding of corporate shroud cannot rest on flimsy grounds. The application of the doctrine of piercing the veil of corporate fiction is frowned upon. 66 It can only be done if it has been clearly established that the separate and distinct personality of the corporation is used to justify a wrong, protect fraud, or perpetrate a deception. In the case at bar, Ferro Chemicals failed to adduce satisfactory evidence to prove that Chemical Industries' separate corporate personality was being used by Antonio Garcia to protect fraud or perpetrate deception warranting the shedding of its veil and the consequent imposition of solidary liability upon it.
Antonio Garcia was selling his shares of stocks in the Chemical
Industries, the corporation was neither made a party to the contract nor did the sale redound to its benefit. As a matter of fact, the subject of the purchase agreement was not limited to Antonio Garcia's shares in Chemical Industries, but likewise included his shares in Vision Insurance Consultants, Inc., Alabang Country Club, Inc. and Manila Polo Club, Inc.64 His shares of capital stocks with Chemical lndustries became the subject of controversy because of the allegation that he intentionally withheld the information from Ferro Chemicals that these shares were subject of the Consortium Banks' claim. Notably, the purported misrepresentation was: not alleged to have been authorized or abetted by the corporation. It was a purely personal act of the seller desirous to dispose conveniently his shares in the corporation.
Transamerica Financial Services, Incorporated, Counter-Defendant-Appellee v. Mary E. Sykes, Counter-Plaintiff-Appellant v. Ira T. Nevel, Third-Party, 171 F.3d 553, 3rd Cir. (1999)