6. MARTINEZ vs CA Topic: D. 1. What is a corporation and what is the role of the state in its creation?

Nature: petition for review on certiorari of the decision of the court of appeals Facts: PERSONALITIES o BPI International Finance (respondent) - a foreign deposit-taking company organized under the laws of HongKong. o CCL (Cintas Largas, Ltd)- also a foreign corporation with a paid-up capital of HK$10,000. Its shareholders were mainly nominee shareholders in HK but it was also equally owned by Wilfredo Martinez and Miguel Lacson, Ramon Siy, and Ricardo Lopa. Its business was mainly the importation of molasses from the Philippines and selling it in the international market. It imported the molasses from Mar Tierra Corporation. o Mar Tierra Corporation- Its President was Wilfredo Martinez and Executive VP was Blamar Gonzales. o RJL Fishing Corp- owned 42% of the stocks of Mar Tierra. One of its majority stockholders is Ruben Martinez, father of Wilfredo Martinez. The business operations of CLL and Mar Tierra were run by Wilfredo Martinez and Gonzales. 68% of Ruben Martinezs assets were in RJL. BPI International Finance (respondent) granted CLL a letter of credit for US$3,000,000. In January 1979 and March 1980, CLL opened a money market placement with the respondent bearing MMP No. 063 with an initial placement of US$390,000, and MMP No. 084 with an initial placement of US$68,768, transferred from MMP No. 063. Wilfredo Martinez was the authorized signatory in both accounts but the two signature cards also bore Ruben Martinez, and Miguel Lacsons signatures. The three of them became the joint account holders of the said money market placements. At times, the funds in these MMPs were transferred to CLLs deposit account and vice versa. To resolve this, Wilfredo Matrinez and the respondent executed a back-to-back credit facility. Wilfredo Martinez, aand the other owners of CLL executed a suretyship agreement where they obliged themselves solidarily with CLL in order to pay for CLLs credit facility. The CLL deposit account, MMP 063, and MMP 084 had subsisting balances. Blamar Gonzales requested the respondent to transfer US$340,000 to an account registered to Mar Tierra as payee. The respondent confirmed that US$340,000 was the account available considering the CLL deposit account and money market placements. Months later Wilfredo Martinez also made the same request for the transfer. The respondent complied but instead of deducting the funds from either of the three accounts mentioned, it posted the US$340,000 as account receivable of CLL since the money market placements hadnt matured yet. When these have matured, they just allowed Wilfredo to make withdrawals and did not collect the US$340,000 so it failed to secure its reimbursement. Later problems came up regarding these three accounts and the respondent pressured Wilfredo and Blamar Gonzales to pay the US$340,000. Wilfredo and Martinez had CLLs account audited and it was confirmed that the corporation owed the respondent this amount. Despite the respondents demands, Wilfredo, Gonzales, Lacson and ruben Martinez did not make any remittance. Ruben Martinez even denied having knowledge of such liability. The respondent then filed a suit to recover the sum stating that the CLL was merely a paper company or an alter ego of Wilfredo and Ruben. The RTC and CA ruled in its favor. Issue: WON the liability incurred by CLL can be attributed to Ruben Martinez because CLL is merely their alter ego Held: NO. Rationale: The general rule is that a corporation is clothed with a personality separate and distinct from the persons composing itthis separate and distinct personality of a corporation is a fiction created by law for convenience and to prevent injustice. Such corporation cannot be liable for the obligations of the persons composing it and vice versa. There are valid grounds though to pierce this veil of corporate entity. The test to determine whether this can be done is as follows:

1. Control, and not mere majority stock control, of policy and business practice in respect to the
transaction attacked. 2. Such control must have been used by the defendant to commit fraud or wrong. 3. The said control and breach of duty must proximately cause injury or unjust loss complained of. The absence of any one of these three elements prevents the piercing of the corporate veil. In this case, the respondent failed to prove complete control by the petitioners. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground separate corporate personality. The mere fact that the majority stockholder of Mar Tierra is RJL and that Ruben Martinez owned about 42% of the capital stocks of RJL do not constitute sufficient evidence that the latter corporation, had complete control of Mar Tierra. They also failed to prove that Mar Tierra and RJL were organized as an instrument of Wilfredo Martinez and Blamar Gonzales.mthere is also no evidence that the petitioner had any involvement in the transaction between Wilfredo and the respondent.