A firm cannot change its corporate name to evade obligations – SC

 A firm cannot change its corporate name to evade obligations – SC

Can a company simply change its corporate name -- with almost the same set of incorporators, the same address, the same line of business, and even the same website -- to evade payment of its obligations?

No, said the Supreme Court (SC) in its resolution that affirmed the ruling of the Court of Appeals (CA) in the case of Nextphase International, Inc. (Nextphase) which challenged the 2018 order of the National Labor Relations Commission (NLRC).

As ruled in Prince Transport, Inc. v. Garcia, it is the act of hiding behind the separate and distinct personalities of juridical entities to perpetuate fraud, commit illegal acts and evade one's obligations, that the equitable piercing doctrine was formulated to address and prevent. Thus: 

“xx x A settled formulation of the doctrine of piercing the corporate veil is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that these two entities are distinct and treat them as identical or as one and the same, x x x However, petitioners' attempt to isolate themselves from and hide behind the supposed separate and distinct personality of Lu bas so as to evade their liabilities is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy.(Emphasis supplied)”

Here, the Court of Appeals found that the incorporation of NPPET was resorted to by the petitioner to evade its obligations to the respondent. 

Here, the petitioner miserably failed to support its denial of the commission of fraud to evade liability to private respondents or of the fact that it created NGII at around the same time as the conclusion of the case before the CA where being made to pay for P2,735,722.82 was likely. The deceitful purpose for which the second company was created was made clear by the fact that the sheriff was barred from serving the writ of execution to the petitioner because its official address was suddenly under new management whereas the banks to which he had sent notices of garnishment had all but refused. If the two companies were, indeed, separate and distinct from one another, the execution of the judgment would not have encountered a hitch, which it did. Thankfully, the private respondents inquired into the problem that led to the discovery of the surreptitious change in name cum creation of NGII for the purpose of thwarting the enforcement of the judgment award. 

In view thereof, there is no doubt that the petitioner's attempt to hide behind a new identity constitutes fraud within the meaning of the law. 

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