Arco Pulp And Paper Co., Inc. And Candida A.

Santos
v.
Dan T. Lim, Doing Business Under The Name And Style Of Quality
Papers & Plastic Products Enterprises
G.R. No. 206806
June 25, 2014

Facts:

Lim owns Quality Paper and Plastic Products Enterprises which supplies scrap papers,
cartons, and other raw materials to Arco Pulp and Paper Company, Inc. (Arco Pulp) through its
Chief Executive Officer and President Candida A. Santos. On the day that Arco Pulp issued a
post-dated check to Lim, it entered into another agreement with another corporation owned by
Eric Sy, where Arco Pulp bound themselves to deliver their finished products to Eric Sy’s
company, and that the raw materials would be supplied by Lim. The check issued by Arco Pulp
to Lim bounced for lack of funds. To demand payment, Lim filed a collection suit against Arco
Pulp which was dismissed by the RTC due to novation because of the Arco Pulp’s agreement
with Sy which named Lim as a party. On appeal, CA reversed the RTC decision and held Arco
Pulp solidarily liable with its president, Santos to Lim for the payment of the indebted amont
plus interest. Hence, this petition.

Issue: Whether or not Candida Santos can be held solidarily liable with Arco Pulp.

Ruling:

The corporate existence may be disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to shield
or perpetrate fraud or to carry out similar or inequitable considerations, other unjustifiable
aims or intentions, in which case, the fiction will be disregarded and the individuals composing
it and the two corporations will be treated as identical. In this case, when Arco Pulp’s obligation
to Lim became due and demandable, petitioner Santos not only issued an unfunded check but
also contracted with a third party in an effort to shift Arco Pulp’s liability. She unjustifiably
refused to honor Arco Pulp’s obligations to respondent. These acts clearly amount to bad faith
which would justify the piercing the veil of corporate entity and holding Santos and Arco Pulp
solidarily liable.