G.R. No. 129459, 29 September 1998
Plaintiff-appellant entered into an agreement with Motorich Sales Corporation (MSC) for the transfer to it of a parcel of land located in Quezon City. As stipulated in the Agreement of 14 February 1989, SJSSFI paid the downpayment in the sum of P100,000.00, the balance to be paid on or before 2 March 1989. On 1 March 1989, Mr. Andres T. Co, SJSSFI president, wrote a letter to MSC requesting for a computation of the balance to be paid. On 2 March 1989, SJSSFI was ready with the amount corresponding to the balance. SJSSFI and MSC were supposed to meet in the office of SJSSFI but MSC’s treasurer, Nenita Lee Gruenberg, did not appear. MSC, 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.
On 6 April 1989, ADC and MSC entered into a Deed of Absolute Sale whereby the former transferred to the latter the subject property. SJSSFI filed the complaint for damages against MSC, and Nenita Lee Gruenberg, as a result of the latter’s alleged bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment. It impleaded ADC and JNM Realty & Development Corp. (JRDC) as necessary parties, since Transfer Certificate of Title (362909) 2876 was in the name of ADC, and that JRDC is the transferor of right in favor of MDC. In its answer, MSC and Nenita Lee Gruenberg interposed as affirmative defense that the President and Chairman of Motorich did not sign the agreement adverted to; that Mrs. Gruenberg’s signature on the agreement is inadequate to bind MSC as the other signature, that of Mr. Reynaldo Gruenberg, President and Chairman of MSC, is required; that SJSSFI knew this from the very beginning as it was presented a copy of the Transfer of Rights at the time the Agreement was signed; that SJSSFI itself drafted the Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as earnest money; that granting, without admitting, the enforceability of the agreement, SJSSFI nonetheless failed to pay in legal tender within the stipulated period (up to 2 March 1989); that it was the understanding between Mrs. Gruenberg and SJSSFI that the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash payment; thus they agreed that if the payment be in check, they will meet at a bank designated by SJSSFI where they will encash the check and sign the Transfer of Rights/Deed, but that SJSSFI informed Mrs. Gruenberg of the alleged availability of the check, by phone, only after banking hours.
On the basis of the evidence, the Regional Trial Court of Makati, Metro Manila rendered judgment, dismissing SJSSFI’s complaint, finding that Nenita Lee Gutenberg was not authorized by the corporation to dispose of the property as such disposition is governed by the requirements of Section 40, Corporation Code; and that Nenita Lee Gutenberg did not in anyway misrepresent herself to be authorized by the corporation to sell the property to SJSSFI. The Court of Appeals modified the decision of the trial court by ordering Nenita Lee Gutenberg to refund or return to SJSSFI the downpayment of P100,000.00 which she received from the latter. SJSSFI moved for reconsideration, which was denied. Hence this petition.
1. Whether or not the corporation’s treasurer act can bind the corporation.
2. Whether or not the doctrine of piercing the veil of corporate entity is applicable.
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. 0Because 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.
*Case Digest by Stephanie C. Castillo, JD-IV, Andres Bonifacio College, SY: 2019-2020