San Juan Structural and Steel Fabricators, Inc., petitionerv.

Court of Appeals, Motorich Sales Corporation, Nenita Lee Gruenberg, ACL Development Corp. and JNM Realty and Development Corp., respondents

GR no 129459 September 29, 1998

Panganiban, J.

SV: San Juan and Motorich entered into a contract wherein Motorich (through its treasurer, Nenita Gruenberg, wife of the president and chairman of motorich) was to transfer its rights over a parcel of land to San Juan. San Juan paid a downpayment of P100,000 and when it was ready to pay the remaining balance, Motorich did not respond to the demands of San Juan push through with the contract. One of the allegations of San Juan is that since the spouses practically owns all the subscribed capital stock of Motorich, no board resolution is needed for the contract to valid.

SC: Wrong. Cannot pierce corporate veil if theres no proof that it was used to commit fraud etc. just because the spouses own almost all of the stocks, piercing should be allowed. Also the articles of corporation of Motorich clearly show that it was not intended to be a close corporation (no limit on number of stockholders, no restriction on transfer of stocks and that public offering of stocks is prohibited.) 1. San Juan allegedly entered into an agreement with Motorich Sales for the transfer to San Juan a parcel of land in Murphy, Quezon City. San Juan paid the downpayment of P100,000, while the balance will be paid on or before March 2, 1989

2. Andres Co, president of San Juan wrote a letter to Motorich requesting for a computation of the balance to be paid. This was coursed through the broker of Motorich who wrote the computation of the balance.

3. San Juan was ready with the balance covered by a Metrobank Cashiers check payable to motorich4. The 2 were supposed to meet at the office of San Juan but Motorichs treasurer Nenita Lee Gruenberg did not appear.

5. Motorich Sales Corporation 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 titlea. ACL Development Corp. is impleaded as a necessary party since Transfer Certificate of Title No. (362909) 2876 is still in the name of said defendant; while defendant JNM Realty & Development Corp. is likewise impleaded as a necessary party in view of the fact that it is the transferor of right in favor of defendant-appellee Motorich Sales Corporation6. ACL and Motorich entered into a deed of absolute sale where ACL transferred the property to Motorich. A new title in the name of Motorich was issued

7. As a result of Nenita and Motorichs bad faith in refusing to execute a transfer of Rights/deed of assignment, San Juan suffered moral and nominal damages (500,000), exemplary damages (100,000), and by reason of Motorichs bad faith in refusing to execute a transfer of rights/deed of assignment in favor of San Juan, it lost the opportunity to construct a residential building in the sum of P100,000.

8. Motorich and Nenitas answer

a. President and chairman of Motorich did not sign the agreement

b. That Nenitas signature is inadequate to bind Motorich, Mr. Gruenbergs signature is required (President and Chairman)

c. San Juan knew this from the beginning.

d. They agreed that if the payment was in check, they will meet at a bank designated by San Juan where they will encash the check and sign the Transfer of Rights/ Deed. But Nenita only informed them of the availability of the check after banking hours

9. RTC dismissed the complaint. No evidence to show that Nenita had authority to sign the contract. Nor was there evidence to show that the corporation ratified the act. 10. CA affirmed with modification. Refund the P100,000 paid as downpayment to San Juan.

ISSUES

1. Was there a valid contract of sale between San Juan and Motorich?

2. May the doctrine of piercing the veil of corporate fiction be applied to motorich? (the only relevant issue)3. Is the alleged alteration of Gruenbergs testimony as recorded in the transcript of stenographic notes material to the disposition of the case?

4. Are respondents liable for damages and Attorneys fees?

1. No. True there was an agreement signed by Gruenberg and Co but it 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. The property of the corporation is not the property of its stockholders or members and may not be sold by the stockholder or members without express authorization from the corporations board of directors

a corporate officer or agent may represent and bind the corporation in transactions with 3rd persons to the extent that the authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred persons dealing with an assumed agent, whether the assumed agency be a general or special one bound at their peril Motorich categorically denies that it ever authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of land San Juan had the burden of proving that Nenita was in fact authorized to represent and bind Motorich in the transaction. IT failed to do so.

San Juan cannot assume that by virtue of her position, she was authorized to sell the property of the corporation. Selling is obviously foreign to a corporate treasurer's function.

San Juan also alleged that Motorich ratified the act of Nenita

In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it appear to any third person that she had the authority, to sell its land or to receive the earnest money. Neither was there any proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests its argument on the receipt which, however, does not prove the fact of ratification. The document is a hand-written one, not a corporate receipt, and it bears only Nenita Gruenberg's signature. Certainly, this document alone does not prove that her acts were authorized or ratified by Motorich.2. No.

San Juan also argues that the veil of corporate fiction of Motorich should be pierced because Motorich is a close corporation. (sps. Reynaldo Gruenberg and Nenita owned all or almost all or 99.866% of subscribed capital stock). Nenita needed no authorization from theboard to enter into the contract. That the company can be treated as a close corporation which can be bound by the acts of its principal stockholder who need no specific authority.

SC: issue was raised belatedly

Even if it wasnt, the court still finds no reason to uphold the argument.

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 San Juan utterly failed to establish that 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. It alleged that Motorich is a close corporation (see sec. 96)

But there was no showing that the number of stockholders shall not exceed 20, or a preemption of shares is restricted in favor of any stockholder or of the corporation or listing its stocks in any exchange or making a public offering is prohibited. From its articles, it is clear that Respondent Motorich is not a close corporation Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. San Juan cited Manuel Dulay enterprises v. CA wherein the court held that a board resolution authorizing the sale executed by the president is necessary. But the case is different in the case at bar since it was Nenita the treasurer who entered into the contract.

there are exceptional cases where "an action by a director, who singly is the controlling stockholder, may be considered as a binding corporate act and a board action as nothing more than a mere formality. In this case Nenita is not the sole controlling stockholder of Motorich.

Granting arguendo that the corporate veil of Motorich is to be disregarded, the subject parcel of land would then be treated as conjugal property of Spouses Gruenberg, because the same was acquired during their marriage. Nenita Gruenberg could not have effected a sale of the subject lot because there is no co-ownership between the spouses in the properties of the conjugal partnership of gains. Assuming further, for the sake of argument, that the spouses' property regime is the absolute community of property, the sale would still be invalid. Under this regime, "alienation of community property must have the written consent of the other spouse or he authority of the court without which the disposition or encumbrance is void3. Challenged portion of the transcript of stenographic notes immaterial

Nenita Gruenberg did not testify that Motorich had authorized her to sell its property.4. Damages and Attys fees

an award of damages or attorney's fees cannot be justified. The allegations of San Juan lacks basis.

Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the Court. Indubitably, petitioner appears to be the victim of its own officer's negligence in entering into a contract with and paying an unauthorized officer of another corporation. Nenita Gruenberg should be ordered to return to petitioner the amount she received as earnest money, as "no one shall enrich himself at the expense of another."Petition DENIED. Assailed Decision AFFIRMED

Justin Benedict A. Moreto