Francisco Motors Corporation vs

Court of Appeals
309 SCRA 72 – Business Organization – 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.