G.R. No. 127181 – 416 Phil. 774 – 364 SCRA 375 – Mercantile Law – Corporation Law – Veil of Corporate Fiction – Corporate Name
In 1980, ECO Management Corporation (ECO) obtained loans amounting to about P26 million from Land Bank. ECO defaulted in its payment but in 1981, ECO submitted a Payment Plan with the hope of restructuring its loan. The plan was rejected and Land Bank sued ECO. It impleaded Emmanuel C. Oñate, the majority stockholder of ECO who is serving as the Chairman and treasurer of ECO.
The trial court ruled in favor of Land Bank but Oñate was absolved from liabilities. The Court of Appeals affirmed the decision of the trial court.
Land Bank appealed as it wanted Oñate to be personally liable on the following grounds (among others): a) ECO stands for Emmanuel C. Oñate, b) Oñate is the majority stockholder, c) ECO was formed ostensibly to allow Oñate to acquire loans from Land Bank which he used for his personal advantage, d) Oñate holds two positions in the corporation, and e) ECO never held any board meeting which just shows only Oñate was in control of the corporation.
ISSUE: Whether or not Oñate should be held personally.
HELD: No. Land Bank was not able to produce sufficient evidence to prove its claim. 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 corporate fiction is only disregarded when the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate deception or otherwise circumvent the law. This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. None of the foregoing was proved by Land Bank.
The mere fact that Oñate owned the majority of the shares of ECO is not a ground to conclude that Oñate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate personalities.
Anent the issue of the corporate name, the fact that Oñate’s initials coincide with the corporate name ECO is not sufficient to disregard the corporate fiction. Even if ECO does stand for “Emmanuel C. Oñate”, it does not mean that the said corporation is merely a dummy of Oñate. A corporation may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders.
