San Juan Structural Fabricators vs CA (296 SCRA 631)

San Juan Structural and Steel Fabricators, Inc. vs Court of Appeals
296 SCRA 631 [GR No. 129459 September 29, 1998]

Facts: Plaintiff-appellant San Juan structural and steel fabricators Inc.’s amended complaint alleged that on February 14, 1989, plaintiff-appellant entered into an agreement with defendant-appellee Motorich Sales Corporation for the transfer to it of a parcel of land identified as lot 30, Block 1 of the Acropolis Greens Subdivision located in the district of Murphy, Quezon City, Metro Manila containing an area of 414 sqm, covered by TCT no. 362909; that as stipulated in the agreement of February 14, 1i989, plaintiff-appellant paid the down payment in the sum of P100,000, the balance to be paid on or before March 2, 19889; that on March 1, 1989,Mr. Andres T. Co, president of Plaintiff-appellant corporation, wrote a letter to defendant-appellee Motorich Sales Corporation requesting a computation for the balance to be paid; that said letter was coursed through the defendant-appellee’s broker. Linda Aduca who wrote the computation of the balance; that on March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the balance, covered by Metrobank cashier’s check no. 004223 payable to defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and defendant-appellee were supposed to meet in the plaintiff-appellant’s office but defendant-appellee’s treasurer, Nenita Lee Gruenbeg did not appear; that defendant-appelle despite repeated demands and in utter disregard of its commitments had refused to execute the transfer of rights/deed of assignment which is necessary to transfer the certificate of title; that defendant ACL development corporation is impleaded as a necessary party since TCT no. 362909 is still in the name of said defendant; while defendant VNM Realty and Development Corporation is likewise impleaded as a necessary party in view of the fact that it is the transferor of the right in favor of defendant-appellee Motorich Sales Corporation; that on April 6, 1989 defendant ACL Development Corporation and Motorich Sales Corporation entered into a deed of absolute sale whereby the former transferred to the latter the subject property; that by reason of said transfer; the registry of deeds of Quezon City issued a new title in the name of Motorich Sales Corporation, represented by defendant-appellee Nenita Lee Gruenbeg and Reynaldo L. Gruenbeg, under TCT no. 3751; that as a result of defendants-appellees Nenita and Motorich’s bad faith in refusing to execute a formal transfer of rights/deed of assignment, plaintiff-appellant suffered moral and nominal damages which may be assessed against defendant-appellees in the sum of P500,000; that as a result of an unjustified and unwarranted failure to execute the required transfer or formal deed of sale in favor of plaintiff-appellant, defendant-appellees should be assessed exemplary damages in the sum of P100,000; that by reason of the said bad faith in refusing to execute a transfer in favor of plaintiff-appellant the latter lost opportunity to construct a residential building in the sum of P100,000 and that as a consequence of such bad faith, it has been constrained to obtain the services of counsel at an agreed fee of P100,000 plus appearance fee of for every appearance in court hearings.

Issues: Whether or not the corporation’s treasurer act can bind the corporation.

Whether or not the doctrine of piercing the veil of corporate entity is applicable.

Held: No. Such contract cannot bind Motorich, because it never authorized or ratified such sale.

A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation’s board of directors.

Section 23 of BP 68 provides the Board of Directors or Trustees – Unless otherwise provided in this code, the corporate powers of all corporations formed under this code shall be exercised, all business conducted, and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the stockholders of stocks, or where there is no stock, from among the members of the corporations, who shall hold office for 1 year and until their successors are elected and qualified.

As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation. But when these officers exceed their authority, their actions, cannot bind the corporation, unless it has ratified such acts as is estopped from disclaiming them.

Because Motorich had never given a written authorization to respondent Gruenbeg to sell its parcel of land, we hold that the February 14, 1989 agreement entered into by the latter with petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the beginning, said contract cannot be ratified.

The statutorily granted privilege of a corporate veil may be used only for legitimate purposes. On equitable consideration,the veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity, defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another corporation.

We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud, or an illegal act on inequity committed on third person. The question of piercing the veil of corporate fiction is essentially, then a matter of proof. In the present case, however, the court finds no reason to pierce the corporate veil of respondent Motorich. Petitioner utterly failed to establish the said corporation was formed, or that it is operated for the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third persons like petitioner.

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