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McConnel v. CA

The respondents filed a complaint against Park Rite Co. Inc. for occupying their adjacent lot without permission to use as a parking area. The corporation was found liable and ordered to pay but had insufficient assets. The respondents then filed against the corporation and its stockholders to recover the unsatisfied judgment. The Court of Appeals found the corporation was being used as an alter ego of the stockholders for their sole benefit. It held the individual stockholders liable for the corporate obligations as the corporation was under their complete control and domination with indistinguishable operations from the stockholders. Piercing the corporate veil was appropriate to prevent the separate entity being used for unintended purposes.

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94 views1 page

McConnel v. CA

The respondents filed a complaint against Park Rite Co. Inc. for occupying their adjacent lot without permission to use as a parking area. The corporation was found liable and ordered to pay but had insufficient assets. The respondents then filed against the corporation and its stockholders to recover the unsatisfied judgment. The Court of Appeals found the corporation was being used as an alter ego of the stockholders for their sole benefit. It held the individual stockholders liable for the corporate obligations as the corporation was under their complete control and domination with indistinguishable operations from the stockholders. Piercing the corporate veil was appropriate to prevent the separate entity being used for unintended purposes.

Uploaded by

Aaron James Puaso
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Attribute of Separate Juridical Personality

30. M McConnel v. Court of Appeals and Dominga De Los Reyes (G.R. No. L-10510, March 17, 1961)

KEY TAKE-AWAY OR DOCTRINE TO REMEMBER

Application of the piercing doctrine may be made even during the enforcement of the judgment debt of the corporation against the
controlling shareholders.

FACTS

• Park Rite Co., Inc., a Philippine corporation, leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan Luna street
(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 around October of 1947, 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 in the Municipal Court of Manila on 7 October
1947 (Civil Case No. 4031).
• Judgment was rendered in due course and ordered the Park Rite Co. to pay until the return of the lot. 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 of P11,182.50 outstanding and unsatisfied.
• The judgment creditors then filed suit in the Court of First Instance of Manila against the corporation and its past and
present stockholders, to recover from them, jointly and severally, the unsatisfied balance of the judgment, plus legal
interest and costs.
• CA reversed finding that the corporation was a mere alter ego or business conduit of the principal stockholders that
controlled it for their own benefit, and adjudged them responsible for the amounts demanded by the lot owners.

ISSUE/S STATUTES/ARTICLES INVOLVED

Whether the individual stockholders maybe held liable for


obligations contracted by the corporation.

HELD: YES.

Wherever circumstances have shown that the corporate entity is being used as an alter ego or business conduit for the sole benefit
of the stockholders, or else to defeat public convenience, justify wrong, protect fraud, or defend crime.

The Court of Appeals has made express findings to the following effect: 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 Cirilo Paredes and Ursula 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.

The facts thus found cannot be varied by us, and conclusively show that the corporation is a mere instrumentality of the individual
stockholder's, hence the latter must individually answer for the corporate obligations. While the mere ownership of all or nearly all
of the capital stock of a corporation is a mere business conduit of the stockholder, that conclusion is amply justified where it is
shown, as in the case before us, that 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.

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