G.R. No. 125986 – 361 Phil. 989 – 302 SCRA 315 – Mercantile Law – Corporation Law – Piercing the Veil of Corporate Fiction (upside down piercing)
Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In 1989, she entered into an agreement with Jaime Bravo for the latter to draft a development and architectural design for the said property. The contract price was P450,000.00. Posadas gave a down payment of P25,000.00. Later, Posadas assigned her property to Luxuria Homes, Inc. One of the witnesses to the deed of assignment and articles of incorporation was Jaime Bravo.
In 1992, Bravo finished the architectural design so he proposed that he and his company manage the development of the property. But Posadas turned down the proposal and thereafter the business relationship between the two went sour. Bravo then demanded Posadas to pay them the balance of their agreement as regards the architectural design (P425k). Bravo also demanded payment for some other expenses and fees he incurred i.e., negotiating and relocating the informal settlers then occupying the land of Posadas. Posadas refused to make payment. Bravo then filed a complaint for specific performance against Posadas but he included Luxuria Homes as a co-defendant as he alleged that Luxuria Homes was a mere conduit of Posadas; that the said corporation was created in order to defraud Bravo and avoid the payment of debt.
ISSUE: Whether or not Luxuria Homes should be impleaded.
HELD: No. It was Posadas who entered into a contract with Bravo in her personal capacity. Bravo was not able to prove that Luxuria Homes was a mere conduit of Posadas. Posadas owns just 33% of Luxuria Homes. Further, when Luxuria Homes was created, Bravo was there as a witness. So how can he claim that the creation of said corporation was to defraud him. The eventual transfer of Posadas’ property to Luxuria was with the full knowledge of Bravo. The agreement between Posadas and Bravo was entered into even before Luxuria existed hence Luxuria was never a party thereto. Whatever liability Posadas incurred arising from said agreement must be borne by her solely and not in solidum with Luxuria. To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed.
