MCCONNEL VS CA CASE DIGEST

G.R. No. L-10510 March 17, 1961
M. MC CONNEL, W. P. COCHRANE, RICARDO RODRIGUEZ, ET AL., petitioners,
vs.
THE COURT OF APPEALS and DOMINGA DE LOS REYES, assisted by her husband, SABINO PADILLA, respondents.

CORPORATION LAW; ALTER EGO; DUE PROCESS

FACTS:

  • Park Rite Co., Inc., a Philippine corporation, with a capital stock of 1,500 shares at P1.00 a share leased from Samanillo a vacant lot on Manila which it used for parking motor vehicles for a consideration
  • It turned out that in operating its parking business, the corporation occupied and used not only the Samanillo lot it had leased but also an adjacent lot belonging to the respondents-appellees Padilla, without the owners' knowledge and consent. When the latter discovered the truth they demanded payment for the use and occupation of the lot.
  • The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino, who had purchased and held 1,496 of its 1,500 shares) disclaimed liability, blaming the original incorporators, McConnel, Rodriguez and Cochrane. Whereupon, the lot owners filed against it a complaint for forcible entry.
  • Judgment was rendered ordering the Park Rite Co., Inc. Restitution not having been made. Upon execution, the corporation was found without any assets other than P550.00 deposited in Court. After their application to the judgment credit, there remained a balance outstanding.
  • The judgment creditors then filed suit in the CFI against the corporation and its past and present stockholders, to recover from them.
  •  The CFI denied recovery
  • CA reversed, finding that the corporation was a mere alter ego or business conduit of the principal stockholders

ISSUE:

Whether or not the individual stockholders maybe held liable for obligations contracted by the corporation

HELD:

  • YES. There is no question that a wrong has been committed by the so-called Park Rite Co., Inc., upon the plaintiffs when it occupied the lot of the latter without its prior knowledge and consent and without paying the reasonable rentals for the occupation of said lot. There is also no doubt in our mind that the corporation was a mere alter ego or business conduit of the defendants Paredes and Tolentino, and before them — the defendants M. McConnel, W. P. Cochrane, and Ricardo Rodriguez. The evidence clearly shows that these persons completely dominated and controlled the corporation and that the functions of the corporation were solely for their benefits.
  • CA findings:
    • The original incorporators were M. McConnel, W. P. Cochrane, Rodriguez, Dario and Ordrecio with a capital stock of P1,500.00 divided into 1,500 shares at P1.00 a share. McConnel and Cochrane each owned 500 shares, Rodriguez 408 shares, and Dario and Ordrecio 1 share each. It is obvious that the shares of the last two named persons were merely qualifying shares. 
    • The defendants Paredes and Tolentino purchased 1,496 shares of the said corporation and the remaining four shares were acquired by Claudio, Paredes, Tarictican, and Marquez at one share each. It is obvious that the last four shares bought by these four persons were merely qualifying shares and that to all intents and purposes the spouses Paredes and Tolentino composed the so-called Park Rite Co., Inc. 
    • That the corporation was a mere extension of their personality is shown by the fact that the office of Paredes and that of Park Rite Co., Inc. were located in the same building, in the same floor and in the same room
    • This is further shown by the fact that the funds of the corporation were kept by Paredes in his own name 
    • The corporation itself had no visible assets, as correctly found by the trial court, except perhaps the toll house, the wire fence around the lot and the signs thereon. 
    • The operations of the corporation were so merged with those of the stockholders as to be practically indistinguishable from them. 

  • To hold the latter liable for the corporation's obligations is not to ignore the corporation's separate entity, but merely to apply the established principle that such entity can not be invoked or used for purposes that could not have been intended by the law that created that separate personality.

    • As to due process, when the judgment debt could not be satisfied from corporate assets, an entirely new case was filed by the judgment creditor against both the corporation and the controlling stockholders, and pleaded therein the application of the piercing doctrine to make the stockholders liable for the judgment debt of the corporation. 












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