This case clarifies when a corporation’s debts can be directly charged to its principal officers or stockholders. The Supreme Court reiterated that if a corporation is merely an alter ego or business conduit of a person, that person can be held personally liable for the corporation’s obligations, especially when the corporate fiction is used to perpetrate fraud or injustice.

Corporate Shadows: Can a Company’s Debts Follow Its Leader?

The case revolves around Oliverio Laperal, the petitioner, and Pablo Ocampo, the respondent. Ocampo had sold his shares in Offshore Resources and Development Corporation to Industrial Horizons, Inc., with Laperal as president, for P4,000,000. Industrial Horizons made partial payments, then stopped, citing a government lawsuit challenging the ownership of certain properties linked to the shares. Ocampo sued Industrial Horizons and won, but the company couldn’t satisfy the judgment. He then sued Laperal personally, arguing Industrial Horizons was Laperal’s alter ego.

The core legal question is whether Laperal, as the president and controlling stockholder of Industrial Horizons, could be held personally liable for the corporation’s debt to Ocampo. The trial court and the Court of Appeals both found in favor of Ocampo, relying heavily on a previous Court of Appeals decision (CA-G.R. CV No. 65913-R) that had already determined Industrial Horizons was Laperal’s alter ego. The earlier case established that Laperal used his corporations to consolidate ownership and control of Offshore Resources, ultimately benefiting himself at Ocampo’s expense. Allowing Laperal to hide behind the corporate veil would effectively defraud Ocampo of the fruits of his judgment.

The Supreme Court upheld the lower courts’ decisions, emphasizing the principle of res judicata, which prevents parties from relitigating issues already decided in a prior final judgment. The Court found that the issue of whether Industrial Horizons was Laperal’s alter ego had already been conclusively determined in the previous case. This determination justified “piercing the corporate veil,” a legal concept that disregards the separate legal personality of a corporation to hold individuals liable for its actions. The purpose of the doctrine is to prevent the corporate entity from being used as a shield for fraud or injustice.

Building on this principle, the Supreme Court clarified the conditions under which the corporate veil can be pierced. It emphasized that the alter ego doctrine requires a showing that the corporation is a mere instrumentality or adjunct of a person, and that the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime. In this case, the evidence presented showed that Industrial Horizons was indeed Laperal’s alter ego, allowing him to avoid personal responsibility for the debt owed to Ocampo. Crucially, the Supreme Court clarified that an action to revive a judgment, such as this case, is not meant to retry the original case but to enforce the existing judgment.

Furthermore, it is significant to note the checks and cash vouchers made out to Oliverio Laperal personally, which were considered additional evidence that Industrial Horizons, Inc. is indeed an alter ego of Laperal. It showed payment was directly being made to Laperal as payment by Industrial Horizons, substantiating the plaintiff’s claim that it was his alter ego. Thus, it should be proven that the corporation is just a business conduit before any judgment to pierce the veil can be made.

However, the Supreme Court did modify the interest rate imposed by the lower courts. While the lower courts had ordered Laperal to pay 12% interest per annum on the outstanding amount, the Supreme Court reduced the interest rate to 6% per annum from the date of judicial demand, July 23, 1986, until fully paid. This adjustment reflects the legal principle that a 12% interest rate is typically applied only to loans or forbearances of money, while a 6% rate applies to other monetary obligations. The decision serves as a reminder that corporate officers and stockholders cannot use the corporate form to evade their personal obligations when the corporation is merely their alter ego.

FAQs

What is the alter ego doctrine?	The alter ego doctrine allows courts to disregard the separate legal personality of a corporation when it is used as a mere instrument or adjunct of a person to commit fraud or injustice.
What does it mean to “pierce the corporate veil”?	Piercing the corporate veil means disregarding the legal separation between a corporation and its owners or officers, making them personally liable for the corporation’s debts or actions.
What is res judicata?	Res judicata is a legal principle that prevents parties from relitigating issues that have already been decided in a prior final judgment. It promotes stability and efficiency in the judicial system.
When can a corporation’s debts be charged to its officers?	A corporation’s debts can be charged to its officers or stockholders when the corporation is found to be their alter ego and the corporate fiction is used to commit fraud or injustice.
What was the interest rate applied in this case?	The Supreme Court adjusted the interest rate to 6% per annum from the date of judicial demand (July 23, 1986) until fully paid, as the obligation was not a loan or forbearance of money.
Why was Laperal held personally liable in this case?	Laperal was held personally liable because the court found that Industrial Horizons was his alter ego and he used it to consolidate ownership and control of Offshore Resources to defraud Ocampo.
What kind of legal action was Ocampo’s second complaint?	Ocampo’s second complaint against Laperal was actually a motion for revival of judgment, seeking to enforce the earlier judgment against Industrial Horizons by holding Laperal personally liable.
What evidence supported the alter ego claim?	Checks and cash vouchers showed payments made directly to Oliverio Laperal, indicating that the corporate entity was intertwined with Laperal’s personal transactions.

This case underscores the importance of maintaining a clear separation between personal and corporate activities. Ignoring this separation can result in personal liability for corporate debts, especially where the corporate form is used to perpetrate injustice. Furthermore, judgements cannot be simply enforced, evidence needs to be presented substantiating claims and allegations made. It also reminds businesses to keep their dealings and finances separate. This landmark decision in Philippine jurisprudence reiterates the safeguard of the corporate personality, and its parameters of protection.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Oliverio Laperal vs. Pablo V. Ocampo, G.R. No. 140652, September 03, 2003