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INTERNATIONAL ACADEMY OF MANAGEMENT v. LITTON

FACTS:

The case involves a dispute between Litton and Company, Inc. (Litton) and Atty. Emmanuel T. Santos (Santos) regarding rental arrears and unpaid realty taxes. Litton filed a complaint for unlawful detainer against Santos before the Metropolitan Trial Court (MeTC) of Manila, which ruled in Litton's favor. However, the judgment was not executed and Litton filed an action for revival of judgment, which was granted by the Regional Trial Court (RTC). Santos appealed the RTC decision to the Court of Appeals (CA), but the CA affirmed the RTC decision. A piece of real property owned by International Academy of Management and Economics Incorporated (I/AME) was levied by the sheriff of the MeTC in order to execute the judgment against Santos. I/AME filed a motion to remove the annotations on the title of the property, claiming that it was a separate and distinct entity from Santos and should not be held liable for his liabilities. The MeTC initially denied the motion but later reversed its ruling upon motion for reconsideration. Litton appealed to the RTC, which reinstated the original order. I/AME then filed a petition with the CA, but it was denied. The CA upheld the RTC decision to pierce the corporate veil of I/AME and hold it liable for Santos' liabilities. The issues in the case pertain to alleged denial of due process and the propriety of piercing the corporate veil of I/AME. The Supreme Court denied the petition, holding that there was no violation of due process against I/AME, and the piercing of the corporate veil was proper based on the facts presented.

The case involves a dispute between the Littons and Santos regarding an existing obligation based on a court judgment. Santos owed monthly rentals and unpaid realty taxes under a lease contract with the Littons. Santos failed to comply with this obligation and refused to do so. In order to evade his obligation, Santos used I/AME, a corporation he controlled, as a means to defeat judicial processes. Although I/AME was not directly implicated in the main case, it was named in a writ of execution to satisfy the court judgment against Santos. The lower courts found that Santos used I/AME to evade his liability and pierce its corporate veil. I/AME argued that the doctrine of piercing the corporate veil only applies to stock corporations and not to non-stock, nonprofit corporations like itself. However, the Court agreed with the lower courts and ruled that there is no distinction between stock and non-stock corporations when it comes to the applicability of piercing the corporate veil.

ISSUES:

  1. Whether a non-stock non-profit corporation can institute a class suit on behalf of its members.

  2. Whether the corporate veil can be pierced for a non-stock non-profit corporation.

  3. Whether the doctrine of piercing the corporate veil can be applied to natural persons.

  4. Whether Santos and I/AME are alter egos of each other.

  5. Whether reverse piercing of the corporate veil is applicable in this case.

  6. Whether the president and general manager of Fely Transportation can be held jointly and severally liable with the private respondent company for the payment of damages.

  7. Whether reverse corporate piercing is an equitable remedy that can be applied in this case.

RULING:

  1. The non-stock non-profit corporation does not have the personality to institute a class suit on behalf of its members.

  2. The corporate veil of a non-stock non-profit corporation cannot be pierced, as it is not an assignee or transferee of the property in question and does not have an identity that is one and the same as its members.

  3. The doctrine of piercing the corporate veil can be applied to natural persons if the corporation is the alter ego of that person or if the person is involved with the corporation.

  4. The Supreme Court ruled that Santos and I/AME are alter egos of each other. Santos represented himself as the President of I/AME even before it existed, and uncontroverted facts show that Santos is the conceptualizer and majority contributor of I/AME. The Court also considered the admission of I/AME in its pleadings that it is the alter ego of Santos.

  5. The Court held that reverse piercing of the corporate veil is applicable in this case. Litton, as a judgment creditor, seeks to pierce the corporate veil of I/AME to make its assets answer for a judgment against Santos, who formerly owned and still controls the corporation. The Court noted that reverse piercing has been applied in previous cases to include corporate assets in an estate and to escape a judgment to pay a debt.

  6. Yes, the president and general manager of Fely Transportation can be held jointly and severally liable with the private respondent company for the payment of damages.

  7. Yes, reverse corporate piercing is an equitable remedy that can be applied in this case.

PRINCIPLES:

  • The doctrine of piercing the corporate veil allows the court to disregard the separate legal personality of a corporation and hold individuals responsible for acts done in the name of the corporation.

  • Non-stock non-profit corporations can be scrutinized for purposes of piercing the corporate veil, even though they are formed for non-profit purposes.

  • The doctrine of piercing the corporate veil may apply to natural persons who misuse a corporation for wrongful or inequitable purposes.

  • The concept of equitable ownership may be considered in piercing the corporate veil scenarios, regardless of whether the corporation is stock or non-stock.

  • The corporate veil may be pierced when a corporation is used as a shield to avoid compliance with liabilities.

  • Alter ego doctrine may be applied when there is evidence that the corporation and its owners are one and the same.

  • Reverse piercing of the corporate veil is a legal concept that allows a party with a claim against an individual or corporation to reach the assets of a corporation owned or controlled by the defendant.

  • An outsider-plaintiff may pierce the corporate veil of a company to run after its corporate assets and hold its president and general manager personally liable.

  • Reverse corporate piercing is an equitable remedy that should not be utilized cavalierly to avoid the use of other legal remedies available.

  • Ordinary judgment collection procedures and other legal remedies are preferred over reverse corporate piercing to protect the interests of innocent stockholders and voluntary creditors.

  • The 1997 Rules on Civil Procedure on Enforcement of Judgments should be applied in satisfaction by levy, allowing the judgment obligor to choose which property may be levied upon to satisfy the judgment.

  • Reverse piercing of the corporate veil can be applied when a judgment debtor hides behind the corporate form to evade paying his obligations.