NATIONAL MARKETING CORPORATION (NAMARCO) vs ASSOCIATED FINANCE COMPANY,

INC., and FRANCISCO SYCIP, FRANCISCO SYCIP

19 SCRA 962 (1967) GR # L-20886

Corporation; Stockholders; When stockholder is guilty of fraud in dealing with

another corporation.
A stockholder is guilty of fraud where, through false representation, he succeeded in
inducing another corporation to enter into an exchange agreement with the
corporation he represented and over whose business he had absolute control and
where it further appears that said stockholder had full knowledge of the fact that his
corporation was in no position to comply with the obligation which he had caused it
to assume. Same; When corporate fiction may be disregarded; Stockholders liability
for corporations obligations.

Said stockholder cannot seek refuge behind the general principle that a corporation
has a personality distinct and separate from that of its stockholders and that the
latter are not personally liable for the corporate obligations. The court is justified in
piercing the veil of corporate fiction and in holding said stockholder solidarily liable
with the corporation for the sums of money adjudged in favor of the aggrieved
corporation. When the corporation is the mere alter ego of a person, the corporate
fiction may be disregarded; the same being true when the corporation is controlled,
and its affairs are so conducted as to make it merely an instrumentality, agency or
conduit of another.

FACTS:
1. March 25, 1958- Associated Finance Company, Inc. (ASSOCIATED), through its
President, Francisco Sycip, entered into an agreement to exchange sugar with
National Marketing Corporation (NAMARCO) (represented by its then General
Manager, Benjamin Estrella). ASSOCIATED would deliver to NAMARCO 100 pounds of
Victorias and/or National refined sugar in exchange for 7,732.71 bags of Busilak
and 17, 285.08 piculs of Pasumil raw sugar belonging to NAMARCO.
2. May 19, 1958 In compliance with the agreement, NAMARCO delivered to
ASSOCIATED 7,732.71 bags of Busilak and 17,285.08 piculs of Pasumil domestic
raw sugar.
3. January 12, 1959 Because ASSOCIATED failed to deliver to NAMARCO the
agreed 100 pounds of Victoria and/or National refined sugar, NAMARCO demanded

in writing from ASSOCIATED to either: (a) immediately deliver the refined sugar
before January 20 , or (b) pay its equivalent cash value amounting to P372,639.80.
4. Since ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar
NAMARCO delivered to it, NAMARCO instituted the present action in the lower court
to recover the sum of P403,514.28 in payment of the raw sugar received by
defendants.
5. Sycips defense: He cannot be held liable because it is a known principle that a
corporation has a personality distinct and separate from that of its stockholders and
that the latter are not personally liable for the corporate obligations.
ISSUE : Whether or not Francisco Sycip may be held liable, jointly and severally
liable with co-defendant corporation, for the sums of money adjudged in favor of
NAMARCO
HELD : Yes, because when the corporation is the mere alter ego of a person, the
principle of corporate fiction may be disregarded, especially when the person hides
behind the said principle in order to commit acts of fraud against others.
RATIO : 1. Sycip was guilty of fraud because through false representations, he
succeeded in inducing NAMARCO to enter into the exchange agreement, with full
knowledge, on his part, that ASSOCIATED was in no position to comply with the
obligation.
2. Sycip cannot seek refuge behind the general principle that a corporation has a
personality distinct and separate from that of its stockholders and that the latter are
not personally liable for the corporate obligations.
3. The Court felt justified in "piercing the veil of corporate fiction" and holding Sycip
personally liable, jointly and severally with ASSOCIATED, for the sums of money
adjudged in favor of appellant since, when the corporation is the mere alter ego of a
person, the corporate fiction may be disregarded; the same being true when the
corporation is controlled, and its affairs are so conducted as to make it merely an
instrumentality, agency or conduit of another.
Why Sycip should be liable: 1. Sycip owned P60,000 worth of shares in the
defendant corporation, while his wife owned P20,000. The par value of the
subscribed capital stock of ASSOCIATED was only P105,000.00 2. Negotiations
related to the subject exchange agreement were EXCLUSIVELY conducted by Sycip
in behalf of ASSOCIATED

19 SCRA 962 Business Organization Corporation Law Piercing the Veil of Corporate
Fiction Fraud Case

In 1958, National Marketing Corporation (NAMARCO) entered into an agreement with

Associated Finance Company, Inc. (AFCI). NAMARCO was represented by its general
manager Benjamin Estrella. AFCI was represented by its president Francisco Sycip. The
agreement was that NAMARCO will deliver raw sugar to AFCI. In exchange, AFCI will
deliver refined sugar to NAMARCO. NAMARCO delivered the raw sugar but AFCI failed to
comply with its obligation. NAMARCO then demanded AFCI to comply or if not pay the
amount of the raw sugar delivered which was at P403,514.28. AFCI was not able to do
either hence NAMARCO sued AFCI and Sycip was impleaded.
ISSUE: Whether or not Sycip should be held jointly and severally liable with Associated
Finance Company, Inc.
HELD: Yes. In this case, it is proper to pierce the veil of corporate fiction. It was proven that
during the time of the agreement, AFCI was already insolvent. Such fact was already known
to Sycip. He knew that AFCI was not in a position to transact with NAMARCO because it
could not possibly comply with its obligations. Sycips assurances that AFCI can deliver said
refined sugar products is obviously fashioned to defraud NAMARCO into delivering the raw
sugar to AFCI. Consequently, Sycip cannot now seek refuge behind the general principle
that a corporation has a personality distinct and separate from that of its stockholders and
that the latter are not personally liable for the corporate obligations. He is therefore liable
jointly and severally with AFCI to pay the amount claim for the raw sugar delivered plus
other damages claimed by NAMARCO with interest.