n – Corporation Law – Piercing the Veil of Corporate Fiction (Upside Down)

In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio Manuel to recover
from a him a sum of money in the amount of P23,000.00+. Said amount was allegedly
owed to them by Manuel for the purchase of a jeep body plus repairs thereto. Manuel
filed a counterclaim in the amount of P50,000.00. In his counterclaim, Manuel alleged
that he was the Assistant Legal Officer for FMC; that the Francisco Family, owners of
FMC, engaged his services for the intestate estate proceedings of one Benita Trinidad;
that he was not paid for his legal services; that he is filing the counterclaim against FMC
because said corporation was merely a conduit of the Francisco Family. The trial court
as well as the Court of Appeals granted Manuel’s counterclaim on the ground that the
legal fees were owed by the incorporators of FMC (an application of the doctrine of
piercing the veil of corporation fiction in a reversed manner).
ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction was properly
used by the Court of Appeals.
HELD: No. In the first place, the doctrine is to be used in disregarding corporate fiction
and making the incorporators liable in appropriate circumstances. In the case at bar, the
doctrine is applied upside down where the corporation is held liable for the personal
obligations of the incorporators – such was uncalled for and erroneous. It must be noted
that that Atty. Manuel’s legal services were secured by the Francisco Family to represent
them in the intestate proceedings over Benita Trinidad’s estate. The indebtedness was
incurred by the Francisco Family in their separate and personal capacity. These estate
proceedings did not involve any business of FMC. The proper remedy is for Manuel to
sue the concerned members of the Francisco Family in their individual capacity.