In Philippine Commercial and International Bank v. Custodio, the Supreme Court addressed the critical issue of corporate liability and the circumstances under which a corporate officer can be held personally liable for the debts of a corporation. The Court emphasized that while a corporation possesses a distinct legal personality separate from its owners, this separation is not absolute. The corporate veil can be pierced when the corporate entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. This ruling protects creditors and ensures that individuals cannot hide behind a corporation to evade their obligations, reinforcing the principle that corporate identity should not be a shield for wrongdoing.

When Does a Director’s Signature Bind More Than Just the Corporation?

This case revolves around a dispute over a dollar remittance gone awry. Dennis Custodio, engaged in the dollar remittance business, and Wilfredo D. Gliane, his agent in Saudi Arabia, utilized the Express Padala service of Philippine Commercial and International Bank (PCIB), now Banco de Oro-EPCI, Inc., through Al Rahji Bank in Saudi Arabia. They remitted dollars through Rolando Francisco, a PCIB client with favorable exchange rates, who maintained joint accounts with his wife and Erlinda Chua. Francisco, purportedly representing ROL-ED Traders Group Corporation (ROL-ED), secured a Foreign Bills Purchase Line Agreement (FBPLA) with PCIB-Greenhills. This agreement allowed Francisco to deposit checks, including dollar checks, which would be quickly cleared by the bank.

However, Francisco deposited four dollar checks totaling US$651,000, which were initially cleared but subsequently dishonored due to insufficient funds. Chase Manhattan Bank debited the amount from PCIB-Greenhills’ account. PCIB-Greenhills then debited US$85,000 from Francisco’s joint account as partial payment. In the midst of this, Gliane remitted US$42,300 to Francisco’s joint account. Custodio, aware of PCIB-Greenhills’ higher exchange rates, had previously instructed Gliane to cease remittances to Francisco. Seeking to redirect the remittance, Custodio requested an amendment of the beneficiary to Belarmino Cortez and/or Rhodora Cruz. By the time this request reached PCIB-Greenhills, the bank had already set off the US$42,300 against Francisco’s outstanding FBPLA obligation.

Custodio and Gliane filed a complaint against PCIB, Marilyn Tan (PCIB’s Area Manager), and Francisco, seeking to recover the US$42,300, damages, and attorney’s fees. They argued that PCIB failed to deliver the remitted funds to the intended beneficiaries, and Francisco improperly appropriated the remittance for his loan with the bank. PCIB, in turn, filed a cross-claim against Francisco. The trial court found PCIB negligent and held PCIB and Francisco jointly and severally liable. PCIB appealed, and Francisco sought reconsideration, arguing he was not negligent and did not benefit from PCIB’s actions. Custodio and Gliane also sought reconsideration for legal interest and increased damages. The trial court modified its decision, holding PCIB solely liable but granting it the right to reimbursement from Francisco.

The Court of Appeals (CA) initially reversed the trial court, absolving PCIB and holding Francisco solely liable, deleting the awards for exemplary damages and attorney’s fees. However, upon reconsideration, the CA reversed itself again, crediting Francisco’s argument that ROL-ED, not him personally, was party to the FBPLA, and reinstated the trial court’s amended decision. PCIB then elevated the case to the Supreme Court, arguing that the CA erred in considering Francisco’s new argument about his separate personality from ROL-ED and in ruling that PCIB was negligent.

The Supreme Court, in its analysis, underscored the importance of procedural rules, particularly the principle that issues not raised before the trial court cannot be raised for the first time on appeal. The Court found that Francisco’s claim that he was acting solely as a representative of ROL-ED was a belated attempt to evade liability. “Points of law, theories, issues and arguments not adequately brought to the attention of the trial court ordinarily will not be considered by a reviewing court as they cannot be raised for the first time on appeal because this would be offensive to the basic rules of fair play, justice, and due process.” This principle ensures fairness and prevents parties from ambushing the opposing side with new arguments late in the proceedings.

Building on this principle, the Court highlighted Francisco’s prior admissions in his pleadings, where he claimed he never authorized the bank to apply the remittances to his loan obligation. This admission contradicted his later assertion that the loan was ROL-ED’s, not his. The Supreme Court cited the principle that a party cannot subsequently take a position contrary to, or inconsistent with, his pleadings, emphasizing that judicial admissions are generally incontrovertible unless a palpable mistake is alleged. Given these admissions, the Court concluded that the set-off of the US$42,300 remittance against Francisco’s loan was valid.

Moreover, the Court addressed the issue of corporate personality, reiterating that while a corporation has a distinct legal existence, this veil can be pierced under certain circumstances. The Supreme Court stated, “At all events, while a corporation is clothed with a personality separate and distinct from the persons composing it, the veil of separate corporate personality may be lifted when it is used as a shield to confuse legitimate issues, or where lifting the veil is necessary to achieve equity or for the protection of the creditors.” In this case, the Court found that Francisco was attempting to use ROL-ED’s separate identity to evade his liability to PCIB.

Furthermore, the Court addressed the claim of negligence against PCIB for failing to comply with the request to amend the beneficiary. It found that Gliane and Custodio failed to prove that the amendatory request was communicated to PCIB within a reasonable time, before the set-off occurred. The testimonies of PCIB’s employees indicated that the request was received after the set-off, and Gliane and Custodio did not sufficiently refute this evidence. The Court also emphasized that PCIB acted expeditiously in crediting the funds, in line with the nature of the Express Padala service, which prioritizes speed and efficiency.

The decision highlights the importance of adhering to procedural rules, the binding nature of judicial admissions, and the circumstances under which the corporate veil can be pierced. The Supreme Court ultimately ruled in favor of PCIB, reversing the Court of Appeals’ amended decision and reinstating its original decision, holding Francisco solely liable for the US$42,300. This ruling reinforced the principle that corporate identity should not be used as a shield to evade legitimate obligations, ensuring fairness and protecting the interests of creditors.

FAQs

What was the key issue in this case?	The key issue was whether Rolando Francisco could be held personally liable for a debt purportedly belonging to ROL-ED Traders Group Corporation, and whether PCIB was negligent in applying a remittance to Francisco’s debt.
Under what circumstances can a corporate veil be pierced?	A corporate veil can be pierced when the corporate entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. This allows courts to hold individuals liable for corporate obligations.
Why did the Supreme Court hold Francisco liable in this case?	The Supreme Court held Francisco liable because he had previously admitted in court pleadings that the loan in question was his, not ROL-ED’s. This admission prevented him from later claiming he was not personally liable.
What is the significance of judicial admissions in court proceedings?	Judicial admissions are considered binding on the party making them, and they cannot be controverted unless a palpable mistake is alleged. They play a crucial role in defining the issues and claims in a case.
Why was PCIB not held liable for failing to amend the beneficiary?	PCIB was not held liable because the request to amend the beneficiary was received after the bank had already applied the remittance to Francisco’s outstanding debt. The court found that the request was not made within a reasonable time.
What is the Express Padala service, and how did it affect the Court’s decision?	The Express Padala service is a bank service designed for fast money transfers. The Court noted that PCIB acted in accordance with the nature of this service by quickly crediting the remittance, emphasizing efficiency and speed.
What procedural rule did the Supreme Court emphasize in this case?	The Supreme Court emphasized that issues not raised before the trial court cannot be raised for the first time on appeal. This ensures fairness and prevents parties from introducing new arguments late in the proceedings.
What was the outcome of the case in the Supreme Court?	The Supreme Court reversed the Court of Appeals’ amended decision and reinstated its original decision, holding Rolando Francisco solely liable for the US$42,300 remittance.

This case serves as a reminder of the importance of transparency and accountability in corporate dealings. The ruling ensures that individuals cannot hide behind corporate structures to evade their obligations, reinforcing the integrity of financial transactions and the banking system. By upholding the principle of piercing the corporate veil, the Supreme Court has provided a safeguard against abuse and injustice in the realm of corporate law.

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: PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK (now BANCO DE ORO–EPCI, INC.) vs. DENNIS CUSTODIO, WILFREDO D. GLIANE, and ROLANDO FRANCISCO, G.R. No. 173207, February 14, 2008