2025 Bar Chair's Cases Bar Q and A Mercantile Law - Q2

Edgardo Lim (Lim), as President of Tyreplus Industrial Sales, Inc. (Tyreplus), entered into a Commercial Distributorship Agreement with Total Petroleum Philippines Corporation (Total). The agreement was for 12 months, subject to renewal, and granted Tyreplus "non-exclusive and non-transferable" authority to distribute and sell Total’s petroleum products.

During the business relationship, Total delivered products to Tyreplus. Lim acquired six (6) vehicles for product distribution. However, after Tyreplus’ General Manager Brigido Tan (Tan) resigned, Lim discovered that Tan had used Tyreplus' name for personal gain. To dissociate from this negative reputation, Tyreplus changed its corporate name to Superpro Industrial Sales Corporation (Superpro). Lim, using Superpro's letterhead, informed Total that Superpro was the new trade name of Tyreplus. The Articles of Incorporation of Superpro stated its primary purpose as buying, selling, and dealing in automotive parts and lubricants.

Subsequently, Philippine Savings Bank (PSBank) issued a Letter of Undertaking to Total, stating that Lim had assigned a ₱500,000.00 bank guarantee to cover the obligations of Superpro and its predecessor, Tyreplus. Later, Total served Tyreplus with a notice of pre-termination of the Distributorship Agreement, demanding payment for outstanding deliveries. Total also sent a similar termination notice to Superpro. Tyreplus, alleging severe business losses, filed a complaint for damages.

Lim, in response, ordered a stop-payment of PSBank checks issued to Total. Tyreplus argued that Total had no valid grounds for pre-termination, while Total countered that Tyreplus committed a contractual breach by assigning its distributorship rights to Superpro, a separate corporate entity, without Total’s consent. Lim, however, maintained that there was no assignment, only a name change, and that Superpro assumed Tyreplus’ obligations.

The Regional Trial Court (RTC) ruled in favor of Total, holding that the pre-termination was valid. However, the Court of Appeals (CA) reversed the decision, ruling that Total was estopped from pre-terminating the agreement since it was fully aware that Superpro was a newly registered corporation and not merely a name change.

Is Lim personally liable for Tyreplus’ obligations in his capacity as President?

Ans:

Yes, Lim is personally liable for Tyreplus’ obligations in his capacity as President because he was guilty of gross negligence or bad faith.

In one of the cases decided by the Supreme Court, the court ruled that to hold a director or officer personally liable for corporate obligations, two requisites must concur: (1) complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith. 

Here, Lim dealt in bad faith when he knowingly misled Total into executing the new Agreement with Superpro. Lim falsely declared to Total that Tyreplus' name was merely changed to Superpro, albeit he subsequentlyassertedthat infact thecompaniesaretwo(2) distinct andseparate. Hence, Lim’s misuse of Tyreplus as a corporation to perpetuate breach of contractual obligations renders Lim personally liable.