18. SAN JUAN VS. CA
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18. SAN JUAN STRUCTURAL AND STEEL FABRICATORS VS. COURT OF APPEALS G.R. No. 129459 September 29, 1998 296 SCRA 631 May the Corporate Treasurer, by herself and without any authorization from the board of directors, validly sell a parcel of land owned by the corporation? May the veil of corporate fiction be pierced on the mere ground that almost all of the shares of stock of the corporation are owned by said treasurer and her husband? FACTS: The herein Plaintiff-Appellant, San Juan Structural and Steel Fabricators (San Juan) alleges that it entered into an agreement with Plaintiff-Appellee, Motorich Sales Corporation (Motorich) for a transfer of a parcel of land located in Quezon City in its favor. That as alleged by San Juan, it has already paid a down payment in the amount of 100,000 and the balance to be paid on or before March 2, 1989. That on May 2, 1989, San Juan was ready with the remaining balance for the full the payment of the parcel of land, and was supposed to meet with Motorich’s treasurer, Nenita Lee Gruenberg in the former’s office. However, Nenita Lee Gruenberg did not appear. And despite repeated demands refuse to execute the transfer of rights/deed of assignment in favor of San Juan. Hence, San Juan filed a case against Motorich. In its defense, Motorich alleged that it’s President and Chairman did not sign the agreement, thus, Mrs. Gruenberg’s signature does not bind Motorich. Because the signature of her husband, Reynaldo Gruenberg, President and Chairman of Motorich is required to bind the corporation. San Juan on the other hand argues that Motorich is a close corporation, and being principal stock holders, they do not need any authorization from the corporate board, hence, the doctrine of piercing of the veil may be applied. ISSUES: 1. WON there’s a valid agreement between San Juan and Motorich considering that the only signatory is the latter’s treasurer? 2. WON the doctrine of piercing of the veil of corporate fiction be applied to Motorich? HELD: The petition is devoid of merit. 1. The agreement entered into by San Juan and Nenita Lee Gruenberg cannot bind Motorich because it never authorized nor ratified the 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 the stockholders or members and may not be sold by the latter without express authorization from the corporation’s board of directors. Sec. 23 of BP 68 provides: Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all properties of such corporations controlled and held by the board of directors or
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Transcript of 18. SAN JUAN VS. CA
18. SAN JUAN STRUCTURAL AND STEEL FABRICATORS VS. COURT OF APPEALSG.R. No. 129459 September 29, 1998296 SCRA 631
May the Corporate Treasurer, by herself and without any authorization from the board of directors, validly sell a parcel of land owned by the corporation? May the veil of corporate fiction be pierced on the mere ground that almost all of the shares of stock of the corporation are owned by said treasurer and her husband?
FACTS:The herein Plaintiff-Appellant, San Juan Structural and Steel Fabricators
(San Juan) alleges that it entered into an agreement with Plaintiff-Appellee, Motorich Sales Corporation (Motorich) for a transfer of a parcel of land located in Quezon City in its favor. That as alleged by San Juan, it has already paid a down payment in the amount of 100,000 and the balance to be paid on or before March 2, 1989.
That on May 2, 1989, San Juan was ready with the remaining balance for the full the payment of the parcel of land, and was supposed to meet with Motorich’s treasurer, Nenita Lee Gruenberg in the former’s office. However, Nenita Lee Gruenberg did not appear. And despite repeated demands refuse to execute the transfer of rights/deed of assignment in favor of San Juan. Hence, San Juan filed a case against Motorich.
In its defense, Motorich alleged that it’s President and Chairman did not sign the agreement, thus, Mrs. Gruenberg’s signature does not bind Motorich. Because the signature of her husband, Reynaldo Gruenberg, President and Chairman of Motorich is required to bind the corporation.
San Juan on the other hand argues that Motorich is a close corporation, and being principal stock holders, they do not need any authorization from the corporate board, hence, the doctrine of piercing of the veil may be applied.
ISSUES:
1. WON there’s a valid agreement between San Juan and Motorich considering that the only signatory is the latter’s treasurer?
2. WON the doctrine of piercing of the veil of corporate fiction be applied to Motorich?
HELD: The petition is devoid of merit.
1. The agreement entered into by San Juan and Nenita Lee Gruenberg cannot bind Motorich because it never authorized nor ratified the 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 the stockholders or members and may not be sold by the latter without express authorization from the corporation’s board of directors.
Sec. 23 of BP 68 provides:
Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all properties of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for 1 year and until their successors are elected and qualified.
Hence, a corporation may only act through its board of directors or, when authorized either by its bylaws or by its board resolution, through its officers or agents in the course of its regular business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, bylaws or relevant provisions of the law.
2. The statutorily granted privilege of corporate veil may be used only for legitimate purposes. On equitable considerations, 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.
The court consistently ruled that when the fiction is used as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of
a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals.
In the present case, the court finds no reason to pierce the corporate veil of Motorich because San Juan 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.
The court also ruled that Motorich is not a close corporation as defined in Section 96 of the BP68. And although Nenita and Reynaldo controls the majority stock of Motorich, the subject parcel of land would then be treated as a conjugal property because the same was acquired during their marriage. Neither spouse can alienate in favor of another his or her interest in the partnership or any property belonging to it.
In addition, San Juan only raised this issue belatedly or only when it filed its sur-rejoinder before the Court of Appeals. Thus, this court cannot entertain such issue at this stage of the proceedings.
