Construction Development Corporation of the Phils. v.

CUENCA
G.R. No. 163981. August 12, 2005 (466 SCRA 714)

NOW: Philippine National Construction Corporation (PSE: PNC) or PNCC is a government-

owned and controlled corporation (GOCC) in the Philippines. It is the largest construction company
in the Philippines and in Southeast Asia.

Manila Bay Reclamation; San Juanico Bridge;  Manila North and South Luzon
Expressways

FACTS: This is a petition for review on certiorari of the Decision of the Court of Appeals
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(CA) in CA-G.R. CV No. 44660 and its Resolution denying a motion for reconsideration
thereof.

Ultra International Trading Corporation (UITC) applied for a surety bond from Malayan
Insurance Co., Inc. (MICI), to guarantee its credits, indebtedness, obligations and
liabilities of any kind to Goodyear Tire and Rubber Company of the Philippines
(Goodyear). MICI approved the application and issued MICO Bond. The surety bond
was valid for 12 months, and was renewed several times. To protect MICI’s interests,
UITC, Edilberto Cuenca, and Rodolfo Cuenca, herein respondent, executed an
Indemnity Agreement in favor of MICI. Edilberto was then the President, while Rodolfo
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was a member of the Board of Directors of UITC. Edilberto signed the indemnity
agreement in his official and personal capacity, while Rodolfo signed in his personal
capacity only. In the said agreement, UITC, Edilberto and Rodolfo bound themselves
jointly and severally to indemnify MICI of any payment it would make under the surety
bond.

When UITC defaulted on its obligation, Goodyear requested MICI to pay ₱600,000.00
under the surety bond, which MICI acceded. MICI sent a demand letter to UITC,
Edilberto and Rodolfo for reimbursement of the payment it made to Goodyear, plus
legal interest. UITC replied that Construction & Development Corporation of the
 

Philippines (CDCP), now Philippine National Construction Corporation (PNCC), had

initiated a complete review of UITC’s financial plans to enable it to pay its creditors, like
MICI. UITC was a subsidiary of petitioner PNCC, with the latter owning around 78% of
   

the former’s shares of stock. UITC requested MICI to delay the filing of any suit against
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it, to give it time to work out an acceptable repayment plan. However, UITC, Edilberto
 

and Rodolfo still failed to pay MICI, thus it filed a Complaint for sum of money against
 

UITC, Edilberto and Rodolfo. Rodolfo filed motion for leave to file a third-party complaint
which the trial court granted. The third-party complaint against CDCP alleged that it had
   

assumed Rodolfo’s liability under the indemnity agreement as indicated in a board

resolution.

On January 6, 1994, the RTC of Manila, rendered a decision holding UITC and CDCP
(PNCC), jointly and solidarily liable to MICI under the indemnity agreement. The trial
court ruled that UITC was bound by the indemnity agreement entered into by its two
officers, even though there was no board resolution specifically authorizing them to do
so because it had, in effect, ratified the acts of the said officers. Moreover, UITC has
acknowledged its obligation to MICI in the letters it sent to the latter, and when it had
remitted ₱150,000.00 as partial payment. It also held CDCP (PNCC) solidarily liable
with UITC on the basis of the board resolution attesting to the fact that CDCP
(PNCC) had assumed all liabilities arising from the guarantees made by its
officers in other affiliated corporations. The trial court dismissed the complaint as
 

against the Cuencas. UITC and CDCP (PNCC) appealed the decision to the CA, but
MICI did not. On October 28, 2003, the CA affirmed in toto the appealed decision.
ISSUE: WON the petitioner CDCP (PNCC) is jointly and solidarily liable with UITC, a
subsidiary corporation, to respondent MICI under the indemnity agreement for
reimbursement, attorney’s fees and costs.

HELD:

No.The Court held that the CDCP cannot be made directly liable to MICI under the
indemnity agreement on the ground that it is UITC’s majority stockholder. It bears
stressing that CDCP was not a party defendant in the main action.

MICI did not assert any claim against the CDCP, nor was CDCP impleaded in the third-
party complaint on the ground of its direct liability to MICI. In the latter case, it would be
as if the third-party defendant was itself directly impleaded by the plaintiff as a
defendant.  

In the present case, petitioner CDCP (PNCC) was brought into the action by respondent
Cuenca simply for a "remedy over." No cause of action was asserted by MICI against it.
 

The CDCP’s liability could only be based on its alleged assumption of respondent
Cuenca’s liability under the indemnity agreement.

In any case, petitioner PNCC, as majority stockholder, may not be held liable for UITC’s
obligation. A corporation, upon coming into existence, is invested by law with a
personality separate and distinct from those persons composing it as well as
from any other legal entity to which it may be related.

The veil of corporate fiction may only be disregarded in cases where the corporate
vehicle is being used to defeat public convenience, justify a wrong, protect fraud, or
defend a crime. Mere ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.

To disregard the separate juridical personality of a corporation, the wrongdoing must be

clearly and convincingly established.