Strong legal personality – Remo, Jr. v.
IAC, 172 SCRA 405 Meanwhile, two of the trucks were sold under a pacto de retro sale to a certain Mr. Bais of the
G.R. No. L-67626 April 18, 1989
JOSE REMO, JR., petitioner,
vs.
THE HON. INTERMEDIATE APPELLATE COURT and E.B. MARCHA TRANSPORT
COMPANY, INC., represented by APIFANIO B. MARCHA, respondents.
Orbos, Cabusora, Dumlao & Sta. Ana for petitioner.
GANCAYCO, J.:
A corporation is an entity separate and distinct from its stockholders. While not in fact and in reality
a person, the law treats a corporation as though it were a person by process of fiction or by
regarding it as an artificial person distinct and separate from its individual stockholders. 1
However, the corporate fiction or the notion of legal entity may be disregarded when it "is used to
defeat public convenience, justify wrong, protect fraud, or defend crime" in which instances "the
law will regard the corporation as an association of persons, or in case of two corporations, will
merge them into one." The corporate fiction may also be disregarded when it is the "mere alter
ego or business conduit of a person." 2 There are many occasions when this Court pierced the
corporate veil because of its use to protect fraud and to justify wrong. 3 The herein petition for
review of a. resolution of the Intermediate Appellate Court dated February 8, 1984 seeking the
reversal thereof and the reinstatement of its earlier decision dated June 30, 1983 in AC-G.R. No.
68496-R 4 calls for the application of the foregoing principles.
In the latter part of December, 1977 the board of directors of Akron Customs Brokerage
Corporation (hereinafter referred to as Akron), composed of petitioner Jose Remo, Jr., Ernesto
Bañares, Feliciano Coprada, Jemina Coprada, and Dario Punzalan with Lucia Lacaste as
Secretary, adopted a resolution authorizing the purchase of thirteen (13) trucks for use in its
business to be paid out of a loan the corporation may secure from any lending institution. 5
Feliciano Coprada, as President and Chairman of Akron, purchased thirteen trucks from private
respondent on January 25, 1978 for and in consideration of P525,000.00 as evidenced by a deed
of absolute sale. 6 In a side agreement of the same date, the parties agreed on a downpayment
in the amount of P50,000.00 and that the balance of P475,000.00 shall be paid within sixty (60)
days from the date of the execution of the agreement. The parties also agreed that until said
balance is fully paid, the down payment of P50,000.00 shall accrue as rentals of the 13 trucks;
and that if Akron fails to pay the balance within the period of 60 days, then the balance shall
constitute as a chattel mortgage lien covering said cargo trucks and the parties may allow an
extension of 30 days and thereafter private respondent may ask for a revocation of the contract
and the reconveyance of all said trucks. 7
The obligation is further secured by a promissory note executed by Coprada in favor of Akron. It
is stated in the promissory note that the balance shall be paid from the proceeds of a loan obtained
from the Development Bank of the Philippines (DBP) within sixty (60) days. 8 After the lapse of 90
days, private respondent tried to collect from Coprada but the latter promised to pay only upon the
release of the DBP loan. Private respondent sent Coprada a letter of demand dated May 10,
1978. 9 In his reply to the said letter, Coprada reiterated that he was applying for a loan from the
DBP from the proceeds of which payment of the obligation shall be made. 10
Perpetual Loans and Savings Bank at Baclaran. The sale was authorized by a board resolution
made in a meeting held on March 15, 1978. 11
Upon inquiry, private respondent found that no loan application was ever filed by Akron with
DBP. 12
In the meantime, Akron paid rentals of P500.00 a day pursuant to a subsequent agreement, from
April 27, 1978 (the end of the 90-day period to pay the balance) to May 31, 1978. Thereafter, no
more rental payments were made.
On June 17, 1978, Coprada wrote private respondent begging for a grace period of until the end
of the month to pay the balance of the purchase price; that he will update the rentals within the
week; and in case he fails, then he will return the 13 units should private respondent elect to get
back the same. 13 Private respondent, through counsel, wrote Akron on August 1, 1978
demanding the return of the 13 trucks and the payment of P25,000.00 back rentals covering the
period from June 1 to August 1, 1978. 14
Again, Coprada wrote private respondent on August 8, 1978 asking for another grace period of
up to August 31, 1978 to pay the balance, stating as well that he is expecting the approval of his
loan application from a certain financing company, and that ten (10) trucks have been returned to
Bagbag, Novaliches. 15 On December 9, 1978, Coprada informed private respondent anew that
he had returned ten (10) trucks to Bagbag and that a resolution was passed by the board of
directors confirming the deed of assignment to private respondent of P475,000 from the proceeds
of a loan obtained by Akron from the State Investment House, Inc. 16
In due time, private respondent filed a compliant for the recovery of P525,000.00 or the return of
the 13 trucks with damages against Akron and its officers and directors, Feliciano Coprada, Dario
D. Punzalan, Jemina Coprada, Lucia Lacaste, Wilfredo Layug, Arcadio de la Cruz, Francisco
Clave, Vicente Martinez, Pacifico Dollario and petitioner with the then Court of First Instance of
Rizal. Only petitioner answered the complaint denying any participation in the transaction and
alleging that Akron has a distinct corporate personality. He was, however, declared in default for
his failure to attend the pre-trial.
In the meanwhile, petitioner sold all his shares in Akron to Coprada. It also appears that Akron
amended its articles of incorporation thereby changing its name to Akron Transport International,
Inc. which assumed the liability of Akron to private respondent.
After an ex parte reception of the evidence of the private respondent, a decision was rendered on
October 28, 1980, the dispositive part of which reads as follows:
Finding the evidence sufficient to prove the case of the plaintiff, judgment is hereby rendered in
favor of the plaintiff and against the defendants, ordering them jointly and severally to pay;
a — the purchase price of the trucks in the amount of P525,000.00 with ...
legal rate (of interest) from the filing of the complaint until the full amount is
paid;
b — rentals of Bagbag property at P1,000.00 a month from August 1978 until
the premises is cleared of the said trucks;
c — attorneys fees of P10,000.00, and
 d — costs of suit. As to the amendment of the articles of incorporation of Akron thereby changing its name to Akron
Transport International, Inc., petitioner alleges that the change of corporate name was in order to
include trucking and container yard operations in its customs brokerage of which private
The P50,000.00 given as down payment shall pertain as rentals of the trucks from June 1 to
respondent was duly informed in a letter. 19 Indeed, the new corporation confirmed and assumed
August 1, 1978 which is P25,000.00 (see demand letter of Atty. Aniano Exhibit "T") and the
the obligation of the old corporation. There is no indication of an attempt on the part of Akron to
remaining P25,000.00 shall be from August 1, 1978 until the trucks are removed totally from the
evade payment of its obligation to private respondent.
place." 17

There is the fact that petitioner sold his shares in Akron to Coprada during the pendency of the
A motion for new trial filed by petitioner was denied so he appealed to the then Intermediate
case. Since petitioner has no personal obligation to private respondent, it is his inherent right as
Appellate Court (IAC) wherein in due course a decision was rendered on June 30, 1 983 setting
a stockholder to dispose of his shares of stock anytime he so desires.
aside the said decision as far as petitioner is concemed. However, upon a motion for
reconsideration filed by private respondent dent, the IAC, in a resolution dated February 8,1984,
set aside the decision dated June 30, 1983. The appellate court entered another decision affirming Mention is also made of the alleged "dumping" of 10 units in the premises of private respondent
the appealed decision of the trial court, with costs against petitioner. at Bagbag, Novaliches which to the mind of the Court does not prove fraud and instead appears
to be an attempt on the part of Akron to attend to its obligations as regards the said trucks. Again
petitioner has no part in this.
Hence, this petition for review wherein petitioner raises the following issues:

If the private respondent is the victim of fraud in this transaction, it has not been clearly shown that
I. The Intermediate Appellate Court (IAC) erred in disregarding the corporate
petitioner had any part or participation in the perpetration of the same. Fraud must be established
fiction and in holding the petitioner personally liable for the obligation of the
by clear and convincing evidence. If at all, the principal character on whom fault should be
Corporation which decision is patently contrary to law and the applicable
attributed is Feliciano Coprada, the President of Akron, whom private respondent dealt with
decision thereon.
personally all through out. Fortunately, private respondent obtained a judgment against him from
the trial court and the said judgment has long been final and executory.
II. The Intermediate Appellate Court (IAC) committed grave error of law in its
decision by sanctioning the merger of the personality of the corporation with
WHEREFORE, the petition is GRANTED. The questioned resolution of the Intermediate Appellate
that of the petitioner when the latter was held liable for the corporate debts. 18
Court dated February 8,1984 is hereby set aside and its decision dated June 30,1983 setting aside
the decision of the trial court dated October 28, 1980 insofar as petitioner is concemed is hereby
We reverse. reinstated and affirmed, without costs.

The environmental facts of this case show that there is no cogent basis to pierce the corporate SO ORDERED.
veil of Akron and hold petitioner personally liable for its obligation to private respondent. While it
is true that in December, 1977 petitioner was still a member of the board of directors of Akron and
that he participated in the adoption of a resolution authorizing the purchase of 13 trucks for the
Centralized management – Section 23, Corporation Code -
use in the brokerage business of Akron to be paid out of a loan to be secured from a lending
Firme v. Bukal Enterprises, 414 SCRA 190
institution, it does not appear that said resolution was intended to defraud anyone and more
particularly private respondent. It was Coprada, President and Chairman of Akron, who negotiated
[G.R. No. 146608. October 23, 2003]
with said respondent for the purchase of 13 cargo trucks on January 25, 1978. It was Coprada
SPOUSES CONSTANTE FIRME AND AZUCENA E. FIRME, petitioners, vs. BUKAL
who signed a promissory note to guarantee the payment of the unpaid balance of the purchase
ENTERPRISES AND DEVELOPMENT CORPORATION, respondent.
price out of the proceeds of a loan he supposedly sought from the DBP. The word "WE' in the said
promissory note must refer to the corporation which Coprada represented in the execution of the
note and not its stockholders or directors. Petitioner did not sign the said promissory note so he DECISION
cannot be personally bound thereby.
CARPIO, J.:
Thus, if there was any fraud or misrepresentation that was foisted on private respondent in that
there was a forthcoming loan from the DBP when it fact there was none, it is Coprada who should The Case
account for the same and not petitioner.

As to the sale through pacto de retro of the two units to a third person by the corporation by virtue
of a board resolution, petitioner asserts that he never signed said resolution. Be that as it may, the
sale is not inherently fraudulent as the 13 units were sold through a deed of absolute sale to Akron
so that the corporation is free to dispose of the same. Of course, it was stipulated that in case of
default in payment to private respondent of the balance of the consideration, a chattel mortgage
lien shag be constituted on the 13 units. Nevertheless, said mortgage is a prior lien as against
the pacto de retro sale of the 2 units.
This is a petition for review on certiorari of the Decision[1] dated 3 January 2001 of the Court
of Appeals in CA-G.R. CV No. 60747. The Court of Appeals reversed the Decision[2] of the
Regional Trial Court, Branch 223, Quezon City (trial court), which held that there was no perfected
contract of sale since there was no consent on the part of the seller.
The Facts
 Petitioner Spouses Constante and Azucena Firme (Spouses Firme) are the registered
owners of a parcel of land[3] (Property) located on Dahlia Avenue, Fairview Park, Quezon
City. Renato de Castro (De Castro), the vice president of Bukal Enterprises and Development
Corporation (Bukal Enterprises) authorized his friend, Teodoro Aviles (Aviles), a broker, to
negotiate with the Spouses Firme for the purchase of the Property.
On 28 March 1995, Bukal Enterprises filed a complaint for specific performance and
damages with the trial court, alleging that the Spouses Firme reneged on their agreement to sell
the Property. The complaint asked the trial court to order the Spouses Firme to execute the deed
of sale and to deliver the title to the Property to Bukal Enterprises upon payment of the agreed
purchase price.
During trial, Bukal Enterprises presented five witnesses, namely, Aviles, De Castro, Antonio
Moreno, Jocelyn Napa and Antonio Ancheta.
Aviles testified that De Castro authorized him to negotiate on behalf of Bukal Enterprises for
the purchase of the Property. According to Aviles, he met with the Spouses Firme on 23 January
1995 and he presented them with a draft deed of sale[4] (First Draft) dated February 1995. The
First Draft of the deed of sale provides:
DEED OF ABSOLUTE SALE
KNOW ALL MEN BY THESE PRESENTS:
This DEED OF ABSOLUTE SALE made and executed by and between the Spouses
CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age, Filipino citizens and with postal
address at No. 1450 Union, Paco, City of Manila, hereinafter called the VENDOR, and
BUKAL ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly organized and
registered in accordance with Philippine Laws, with business address at Dahlia
Avenue, Fairview Park, Quezon City, herein represented by its PRESIDENT, MRS. ZENAIDA A.
DE CASTRO, hereinafter called the VENDEE.
WITNESSETH:
That the VENDOR is the absolute and registered owner of a certain parcel of land located
at Fairview Park, Quezon City, and more particularly described as follows:
A parcel of land (Lot 4, Block 33 of the consolidation-subdivision plan (LRC) Pcs-8124, Sheet No.
I, being a portion of the consolidation of Lots 41-B-2-A and 41-B-2-C, Psd-1136 and Lot (LRC)
Pcs-2665, (LRC) GLRO) Record. No. 1037), situated in Quezon City, Island of Luzon. Bounded
on the NE., points 2 to 5 by Road Lot 24, of the consolidation-subdivision plan. Beginning at a
point marked 1 on plan, being S. 67 deg. 23W., 9288.80 m. from BLLM I, Mp of Montalban, Rizal;
thence N. 85 deg. 35E., 17.39 m. to point 2; thence S. 54 deg. 22E., 4.00 m. to point 3; thence S.
14 deg. 21E., 17.87 m. to point 4; thence 3 deg. 56E., 17.92 m. to point 5; thence N. 85 deg. 12
W., 23.38 m. to point 6; thence N. 4 deg. 55 W., 34.35 m. to the point of beginning; containing an
area of EIGHT HUNDRED AND SIX (806) SQUARE METERS, more or less.
VENDORS title thereto being evidenced by Transfer Certificate of Title No. 264243 issued by the
Register of Deeds of Quezon City;
That the VENDOR, for and in consideration of the sum of THREE MILLION TWO HUNDRED
TWENTY FOUR THOUSAND PESOS (P3,224,000.00) Philippine Currency, to them in hand paid
and receipt whereof is hereby acknowledged, do hereby SELL, TRANSFER and CONVEY unto
the said VENDEE, its assigns, transferees and successors in interest the above described
property, free from all liens and encumbrances whatsoever;
It is hereby mutually agreed that the VENDEE shall bear all the expenses for the capital gains tax,
documentary stamps, documentation, notarization, removal and relocation of the squatters,
registration, transfer tax and other fees as may be required by law;
That the VENDOR shall pay the real estate tax for the current year and back real estate taxes,
charges and penalties if there are any.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of February,
1995, at Quezon City, Philippines.
CONSTANTE FIRME BUKAL ENTERPRISES AND
DEVELOPMENT
CORP.
BY:
AZUCENA E. FIRME ZENAIDA A. DE CASTRO
VENDOR President
xxx
The Spouses Firme rejected this First Draft because of several objectionable conditions,
including the payment of capital gains and other government taxes by the seller and the relocation
of the squatters at the sellers expense. During their second meeting, Aviles presented to the
Spouses Firme another draft deed of sale[5] (Second Draft) dated March 1995. The Spouses Firme
allegedly accepted the Second Draft in view of the deletion of the objectionable conditions
contained in the First Draft. According to Aviles, the Spouses Firme were willing to sell the
Property at P4,000 per square meter. They then agreed that payment would be made at the Far
East Bank and Trust Company (FEBTC), Padre Faura Branch, Manila. However, the scheduled
payment had to be postponed due to problems in the transfer of funds. The Spouses Firme later
informed Aviles that they were no longer interested in selling the Property.[6]
De Castro testified that he authorized Aviles to negotiate for Bukal Enterprises the purchase
of the Property owned by the Spouses Firme. The Property was located beside the Dahlia
Commercial Complex owned by Bukal Enterprises. Aviles informed him that the Spouses Firme
agreed to sell the Property at P4,000 per square meter, payable in cash for a lump sum
of P3,224,000. Furthermore, Bukal Enterprises agreed to pay the taxes due and to undertake the
relocation of the squatters on the Property. For this purpose, Bukal Enterprises applied for a loan
of P4,500,000 which FEBTC granted. Bukal Enterprises then relocated the four families squatting
on the Property at a cost of P60,000 per family. After the squatters vacated the Property, Bukal
Enterprises fenced the area, covered it with filling materials, and constructed posts and riprap.
Bukal Enterprises spent approximately P300,000 for these improvements. In a letter[7] dated 7
March 1995, Bukal Enterprises offered to pay the purchase price of P3,224,000 to the Spouses
Firme upon execution of the transfer documents and delivery of the owners duplicate copy of TCT
No. 264243. The Spouses Firme did not accept this offer but instead sent Bukal Enterprises a
letter demanding that its workers vacate the Property. Bukal Enterprises then filed a complaint
for specific performance and damages.[8]
Antonio Moreno, one of the alleged squatters on the Property, testified that he constructed
his house on the Property sometime in 1982. On 26 February 1995, he was summoned together
with the other squatters to a meeting with Aviles regarding their relocation. They agreed to
relocate provided they would be given financial assistance of P60,000 per family. Thus, on 6
March 1995, the squatter families were each paid P60,000 in the presence of De Castro
and Aviles. Thereafter, they voluntarily demolished their houses and vacated the Property.[9]
Jocelyn Mapa, the manager of FEBTC, Padre Faura Branch, testified that Bukal Enterprises
has been their client since 1994. According to her, Bukal Enterprises applied for a loan
of P4,500,000 on the third week of February 1995 allegedly to buy a lot in Fairview. FEBTC
approved the loan on the last week of February and released the proceeds on the first week of
March.[10]
Antonio Ancheta (Ancheta), barangay captain of Barangay Fairview, testified that he was
present when one of the officers of Bukal Enterprises, a certain Renato, paid each of the four
squatter families around P60,000 to P100,000. Ancheta informed Dr. Constante Firme that he told
the squatters to leave considering that they already received payment for their relocation.
According to Ancheta, Dr. Constante Firme must have misunderstood him and thought that the
squatters left through Anchetas own efforts.[11]
On the other hand, Dr. Constante Firme (Dr. Firme) was the sole witness for the defendant
spouses.
Dr. Firme testified that on 30 January 1995, he and his wife met with Aviles at the Aristocrat
Restaurant in Quezon City. Aviles arranged the meeting with the Spouses Firme involving their
Property in Fairview. Aviles offered to buy the Property at P2,500 per square meter. The Spouses
Firme did not accept the offer because they were reserving the Property for their children. On 6
February 1995, the Spouses Firme met again with Aviles upon the latters
insistence. Aviles showed the Spouses Firme a copy of a draft deed of sale[12] (Third Draft)
which Aviles prepared. The Third Draft of the deed of sale provides:
CONRACT OF SALE
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, executed this ___ day of February, 1995, by and between the Spouses
CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age, Filipino citizen and with postal
address at __________, Quezon City, hereinafter referred to as the VENDORS, and BUKAL
ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly organized and
registered in accordance with Philippine Laws, with postal address at Fairview Park, Quezon City,
herein represented by its President and Chief Executive Officer, hereinafter referred to as the
VENDEE.
WITNESSETH:
That for and in consideration of the sum of THREE MILLION TWO HUNDRED TWENTY FOUR
THOUSAND PESOS (P3,224,000.00), Philippine Currency, payable in the form hereinafter
expressed, agreed to sell to the VENDEE and the VENDEE has agreed to buy from the
VENDORS, a parcel of land situated at Dahlia Avenue corner Rolex Street, Fairview Park, Quezon
City, containing an area of 806 Square Meters more or less, of which the VENDORS are the
absolute registered owners in accordance with the Land Registration Act, as evidenced by
Transfer Certificate of Title No. 264243 issued by the Register of Deeds of Quezon City, more
particularly described and bounded as follows:
(DESCRIPTION AND BOUNDARIES OF PROPERTY)
THE FURTHER TERMS AND CONDITIONS OF THE CONTRACT ARE AS FOLLOWS:
1. The VENDEE agrees to pay the VENDORS upon execution of this Contract the
sum of ONE MILLION PESOS (P1,000,000.00), Philippine Currency, as
downpayment and agrees to pay the balance of TWO MILLION TWO HUNDRED
TWENTY FOUR THOUSAND PESOS (P2,224,000.00) at the post office address
of the VENDORS in Quezon City, or such other place or Office as the VENDORS
may designate within a period of sixty (60) days counted from the date of this
Contract;
2. The VENDORS have hereunto authorized the VENDEE to mortgage the property
and submit this Contract, together with a certified true copy of the TCT, Tax
Declaration, Tax Clearance and Vicinity/Lot Plan, with their Lending Bank. The
proceeds of the VENDEES Loan shall directly be paid and remitted by the Bank
to the VENDORS;
3. The said parcel of land shall remain in the name of the VENDORS until the Lending
Bank of the VENDEE shall have issued a Letter Guaranty Payment in favor of the
VENDORS, at which time the VENDORS agree to execute a Deed of Absolute
Sale in favor of the VENDEE and cause the issuance of the Certificate of Title in
the name of the latter. The Capital Gains Tax and Documentary Stamps shall be
charged from the VENDORS in accordance with law;
4. The payment of the balance of P2,224,000.00 by the VENDEE to the
VENDORS shall be within a period of sixty (60) days effective from the date of
this Contract. After the lapse of 60 days and the loan has not yet been released
due to fortuitous events the VENDEE shall pay an interest of the balance a
monthly interest based on existing bank rate until said fortuitous event is no longer
present;
5. The VENDEE shall remove and relocate the Squatters, however, such actual,
reasonable and necessary expenses shall be charged to the VENDORS upon
presentation of receipts and documents to support the act;
6. The VENDEE shall be allowed for all legal purposes to take possession of the
parcel of land after the execution of this Contract and payment of the
downpayment;
7. The VENDEE shall shoulder all expenses like the documentation, registration,
transfer tax and relocation of the property.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of February,
1995, at Quezon City, Philippines.
CONSTANTE E. FIRME BUKAL ENTERPRISES DEV. CORP.
VENDOR VENDEE
AZUCENA E. FIRME BY:
VENDOR ________________________
President & Chief Executive Officer
xxx
The Spouses Firme did not accept the Third Draft because they found its provisions one-
sided. The Spouses Firme particularly opposed the provision on the delivery of the Propertys title
to Bukal Enterprises for the latter to obtain a loan from the bank and use the proceeds to pay for
the Property. The Spouses Firme repeatedly told Aviles that the Property was not for sale
when Aviles called on 2 and 4 March 1995 regarding the Property. On 6 March 1995, the Spouses
Firme visited their Property and discovered that there was a hollow block fence on one side,
concrete posts on another side and bunkers occupied by workers of a certain Florante de
Castro. On 11 March 1995, Spouses Firme visited the Property again with a surveyor. Dr. Firme
talked with Ancheta who told him that the squatters had voluntarily demolished their shanties. The
Spouses Firme sent a letter[13] dated 20 March 1995 to Bukal Enterprises demanding removal of
the bunkers and vacation by the occupants of the Property. On 22 March 1995, the
Spouses Firme received a letter[14] dated 7 March 1995 from Bukal Enterprises demanding that
they sell the Property.[15]
On 7 August 1998, the trial court rendered judgment against Bukal Enterprises as follows:
WHEREFORE, in the light of the foregoing premises, the above-entitled case [is] hereby
DISMISSED and plaintiff BUKAL ENTERPRISES DEVELOPMENT CORPORATION is hereby
ordered to pay the defendants Spouses Constante and Azucena Firme:
1. the sum of Three Hundred Thirty Five Thousand Nine Hundred Sixty Four and
90/100 (P335,964.90) as and by way of actual and compensatory damages;
2. the sum of Five Hundred Thousand Pesos (P500,000.00) as and by way of moral
damages;
3. the sum of One Hundred Thousand Pesos (P100,000.00) as and by way of
attorneys fees; and
4. the costs of the suit.
SO ORDERED.[16]
Bukal Enterprises appealed to the Court of Appeals, which reversed and set aside the
decision of the trial court. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the Decision, dated August 7, 1998, is hereby REVERSED
and SET ASIDE. The complaint is granted and the appellees are directed to henceforth execute
the Deed of Absolute Sale transferring the ownership of the subject property to the appellant
immediately upon receipt of the purchase price of P3,224,000.00 and to perform all such acts
necessary and proper to effect the transfer of the property covered by TCT No. 264243 to
appellant. Appellant is directed to deliver the payment of the purchase price of the property within
sixty days from the finality of this judgment. Costs against appellees.
SO ORDERED.[17]
Hence, the instant petition.
The Ruling of the Trial Court
The trial court held there was no perfected contract of sale. Bukal Enterprises failed to
establish that the Spouses Firme gave their consent to the sale of the Property. The parties did
not go beyond the negotiation stage and there was no evidence of meeting of the minds between
the parties. Furthermore, Aviles had no valid authority to bind Bukal Enterprises in the sale
transaction. Under Sections 23 and 36 (No. 7) of the Corporation Code, the corporate power to
purchase a specific property is exercised by the Board of Directors of the corporation. Without an
authorization from the Board of Directors, Aviles could not validly finalize the purchase of the
Property on behalf of Bukal Enterprises. There is no basis to apply the Statute of Frauds since
there was no perfected contract of sale.
The Ruling of the Court of Appeals
The Court of Appeals held that the lack of a board resolution authorizing Aviles to act on
behalf of Bukal Enterprises in the purchase of the Property was cured by ratification. Bukal
Enterprises ratified the purchase when it filed the complaint for the enforcement of the sale.
The Court of Appeals also held there was a perfected contract of sale. The appellate court
ruled that the Spouses Firme revealed their intent to sell the Property when they met
with Aviles twice.The Spouses Firme rejected the First Draft because they considered the terms
unacceptable. When Aviles presented the Second Draft without the objectionable provisions, the
Spouses Firme no longer had any cause for refusing to sell the Property. On the other hand, the
acts of Bukal Enterprises in fencing the Property, constructing posts, relocating the squatters and
obtaining a loan to purchase the Property are circumstances supporting their claim that there was
a perfected contract of sale.
The Spouses Firme allowed Bukal Enterprises to exercise acts of ownership over the
Property when the latter introduced improvements on the Property and evicted the
squatters. These acts constitute partial performance of the contract of sale that takes the oral
contract out of the scope of the Statute of Frauds.
The Issues
The Spouses Firme raise the following issues:
1. WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT THERE WAS
A PERFECTED CONTRACT OF SALE BETWEEN PETITIONERS AND
RESPONDENT DESPITE THE ADDUCED EVIDENCE PATENTLY TO THE
CONTRARY;
2. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE
ALLEGED CONTRACT OF SALE IS ENFORCEABLE DESPITE THE FACT
THAT THE SAME IS COVERED BY THE STATUTE OF FRAUDS;
3. WHETHER THE COURT OF APPEALS ERRED IN DISREGARDING THE FACT
THAT IT WAS NOT LEGALLY AND FACTUALLY POSSIBLE FOR
RESPONDENT TO PERFECT A CONTRACT OF SALE; AND
4. THE COURT OF APPEALS ERRED IN RULING THAT THE AWARD BY THE
TRIAL COURT OF MORAL AND COMPENSATORY DAMAGES TO
PETITIONERS IS IMPROPER.[18]
The Ruling of the Court
The petition is meritorious.
 The fundamental question for resolution is whether there was a perfected contract of sale
between the Spouses Firme and Bukal Enterprises. This requires a review of the factual and legal
issues of this case. As a rule, only questions of law are appealable to this Court under Rule 45[19] of
the Rules of Civil Procedure. The findings of fact by the Court of Appeals are generally conclusive
and binding on the parties and are not reviewable by this Court. [20] However, when the factual
findings of the Court of Appeals are contrary to those of the trial court or when the inference made
is manifestly mistaken, this Court has the authority to review the findings of fact. [21] Likewise, this
Court may review findings of fact when the judgment of the Court of Appeals is premised on a
misapprehension of facts.[22] This is the situation in this case.
Whether there was a perfected contract of sale
We agree with the finding of the trial court that there was no perfected contract of
sale. Clearly, the Court of Appeals misapprehended the facts of the case in ruling otherwise.
First, the records indubitably show that there was no consent on the part of the Spouses
Firme. Aviles did not present any draft deed of sale during his first meeting with the
Spouses Firme on 30 January 1995.[23] Dr. Firme was consistent in his testimony that he and his
wife rejected the provisions of the Third Draft presented by Aviles during their second meeting
on 6 February 1995. The Spouses Firme found the terms and conditions unacceptable and
told Aviles that they would not sell the property.[24] Aviles showed them only one draft deed of sale
(Third Draft) during their second and last meeting on 6 February 1995.[25] When shown a copy of
the First Draft, Dr. Firme testified that it was not the deed of sale shown to them by Aviles during
their second meeting[26] and that the Third Draft was completely different from the First Draft.[27]
On the other hand, Aviles gave conflicting testimony as to what transpired during the two
meetings with the Spouses Firme. In his direct examination, Aviles testified that during his first
meeting with the Spouses Firme on 23 January 1995, he showed them the First Draft which the
Spouses Firme rejected.[28] On their second meeting, Aviles showed the Spouses Firme the
Second Draft, which the Spouses Firme allegedly approved because the objectionable conditions
contained in the First Draft were already deleted. However, a perusal of the First Draft and the
Second Draft would show that both deeds of sale contain exactly the same provisions. The only
difference is that the date of the First Draft is February 1995 while that of the Second Draft is
March 1995.
When Aviles testified again as rebuttal witness, his testimony became more
confusing. Aviles testified that during his first meeting with the Spouses Firme on 30 January
1995, he showed them the Third Draft, which was not acceptable to the latter. [29] However, upon
further questioning by his counsel, Aviles concurred with Dr. Firmes testimony that he presented
the Third Draft (Exh. 5; Exh. L) tothe Spouses Firme only during their second meeting. He also
stated that he prepared and presented to the Spouses Firme the First Draft (Exh. C) and the
Second Draft (Exh. C-1) during their first or second meeting. He testified:
ATTY. MARQUEDA:
Q: On page 11 of the tsn dated August 5, 1997 a question was posed How did you
find this draft the Contract of Sale which was presented to you by Mr. Aviles on
the second meeting? The answer is On the first meeting(sic), we find it totally
unacceptable, sir.[30] What can you say on this? Before that, Mr. Witness, what
is this Contract of Sale that you presented to Mr. Aviles on the second
meeting? Is this different from the Contract of Sale that was marked as Exhibit
5-L?
[31]
Q: May I see the document Exhibit 5 L?
INTERPRETER:
Witness going over the record.
ATTY. MARQUEDA:
Q: Is that the same document that was presented by you to Mr. Firme on the
second meeting or there is a different contract?
A: This is the same document draft of the document that I submitted to them
during our second meeting. That was February. This was the draft.
Q: What about Exhibit C and C-1 [which] were identified by you. When was this
presented to Dr. Firme?
A: This is the same.
Q: Exhibit C and C-1?
A: Yes because I prepared two documents during our meeting. One already with
notarial, the one without notarial page and the other one with notarial page
already, so I prepared two documents but with the same contents both were
dated February of 1995.[32]
Q: So, you are referring now to Exhibit C and C-1 for the plaintiff?
A: C-1 is already in the final form because we agreed already as to the date of the
payment, so I prepared already another document which is dated March
1995.[33] (Emphasis supplied)
In his cross-examination, Aviles again changed his testimony. According to him, he
presented the Third Draft to the Spouses Firme during their first meeting. [34] However, when he
went over the records, he again changed his answer and stated that he presented the Third Draft
during their second meeting.[35]
In his re-direct examination, Aviles gave another version of what he presented to the
Spouses Firme during the two meetings. According to him, he presented the Third Draft during
the first meeting. On their second meeting, he presented the First and the Second Drafts to the
Spouses Firme.[36]
Furthermore, Aviles admitted that the first proposal of Bukal Enterprises was at P2,500 per
square meter for the Property.[37] But the First, Second and Third Drafts of the deed of sale
prepared by Aviles all indicated a purchase price of P4,000 per square meter or a lump sum
of P3,224,000 (P4,000 per sq.m. x 806 sq.m. = P3,224,000) for the Property. Hence, Aviles could
not have presented any of these draft deeds of sale to the Spouses Firme during their first
meeting.
Considering the glaring inconsistencies in Aviles testimony, it was proper for the trial court
to give more credence to the testimony of Dr. Firme.
Even after the two meetings with Aviles, the Spouses Firme were firm in their decision not
to sell the Property. Aviles called the Spouses Firme twice after their last meeting. The Spouses
Firme informed Aviles that they were not selling the Property.[38] Aviles himself admitted this
during his testimony, thus:
Q. Now, the next question which states: But did you not have any occasion to talk to
him after that second meeting? and the answer of Dr. Firme is He called up a
month after, thats March 2, 1995. What can you say on this?
A. I called him to inform him that the loan was already transferred from Makati to
Padre Faura Branch of the Far East Bank, so I scheduled already the payment
of their property.
Q. When?
 A. On March 4, 1995.
Q. And then the next question which also states: What did you talked (sic) about over
the telephone? The answer of Dr. Firme was When I found out that he was
calling, I told him that the property is not for sale.What can you say on this?
A. He mentioned that they are no longer interested to sell their property, perhaps
they would like a higher price of the property. They did not mention to me. I do
not know what was their reason.
Q. The next question So, what happened next? The answer is He called up two days
later, March 4 and my wife answered the telephone and told him that the
property is not for sale, sir. What can you say on this?
A. That is true. That is what Mrs. Firme told me during our conversation on the
telephone that they are no longer interested to sell the property for
obvious reason.
Q. When was that?
A. March 4, 1995, your honor.[39] (Emphasis supplied)
Significantly, De Castro also admitted that he was aware of the Spouses Firmes refusal to
sell the Property.[40]
The confusing testimony of Aviles taken together with De Castros admission that he was
aware of the Spouses Firmes refusal to sell the Property reinforces Dr. Firmes testimony that he
and his wife never consented to sell the Property.
Consent is one of the essential elements of a valid contract. The Civil Code provides:
Art. 1318. There is no contract unless the following requisites concur:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the contract;
3. Cause of the obligation which is established.
The absence of any of these essential elements will negate the existence of a perfected
contract of sale.[41] Thus, where there is want of consent, the contract is non-existent.[42] As held
in Salonga, et al. v. Farrales, et al.:[43]
It is elementary that consent is an essential element for the existence of a contract, and where it
is wanting, the contract is non-existent. The essence of consent is the conformity of the
parties on the terms of the contract, the acceptance by one of the offer made by the
other. The contract to sell is a bilateral contract. Where there is merely an offer by one party,
without the acceptance of the other, there is no consent. (Emphasis supplied)
In this case, the Spouses Firme flatly rejected the offer of Aviles to buy the Property on
behalf of Bukal Enterprises. There was therefore no concurrence of the offer and the acceptance
on the subject matter, consideration and terms of payment as would result in a perfected contract
of sale.[44] Under Article 1475 of the Civil Code, the contract of sale is perfected at the moment
there is a meeting of minds on the thing which is the object of the contract and on the price.
Another piece of evidence which supports the contention of the Spouses Firme that they did
not consent to the contract of sale is the fact they never signed any deed of sale. If the Spouses
Firme were already agreeable to the offer of Bukal Enterprises as embodied in the Second Draft,
then the Spouses Firme could have simply affixed their signatures on the deed of sale, but they
did not.
Even the existence of a signed document purporting to be a contract of sale does not
preclude a finding that the contract is invalid when the evidence shows that there was no meeting
of the minds between the seller and buyer.[45] In this case, what were offered in evidence were
mere unsigned deeds of sale which have no probative value. [46] Bukal Enterprises failed to show
the existence of a perfected contract of sale by competent proof.
Second, there was no approval from the Board of Directors of Bukal Enterprises as would
finalize any transaction with the Spouses Firme. Aviles did not have the proper authority to
negotiate for Bukal Enterprises. Aviles testified that his friend, De Castro, had asked him to
negotiate with the Spouses Firme to buy the Property.[47] De Castro, as Bukal Enterprises vice
president, testified that he authorized Aviles to buy the Property.[48] However, there is no Board
Resolution authorizing Aviles to negotiate and purchase the Property on behalf of Bukal
Enterprises.[49]
It is the board of directors or trustees which exercises almost all the corporate powers in a
corporation. Thus, the Corporation Code provides:
SEC. 23. 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 holders of stock, or where there is no stock, from among the members of
the corporation, who shall hold office for one (1) year and until their successors are elected and
qualified. x x x
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has the
power and capacity:
xxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of a lawful business of the corporation
may reasonably and necessarily require, subject to the limitations prescribed by the
law and the Constitution.
xxx
Under these provisions, the power to purchase real property is vested in the board of
directors or trustees. While a corporation may appoint agents to negotiate for the purchase of real
property needed by the corporation, the final say will have to be with the board, whose approval
will finalize the transaction.[50] A corporation can only exercise its powers and transact its business
through its board of directors and through its officers and agents when authorized by a board
resolution or its by-laws.[51] As held in AF Realty & Development, Inc. v. Dieselman Freight
Services, Co.:[52]
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may authorize
another to do certain acts in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or
acts of a corporation must be made either by the board of directors or by a corporate agent
duly authorized by the board. Absent such valid delegation/authorization, the rule is that
the declarations of an individual director relating to the affairs of the corporation, but not
in the course of, or connected with, the performance of authorized duties of such director,
are held not binding on the corporation. (Emphasis supplied)
In this case, Aviles, who negotiated the purchase of the Property, is neither an officer of
Bukal Enterprises nor a member of the Board of Directors of Bukal Enterprises. There is no Board
Resolution authorizing Aviles to negotiate and purchase the Property for Bukal Enterprises. There
is also no evidence to prove that Bukal Enterprises approved whatever transaction Aviles made
with the Spouses Firme. In fact, the president of Bukal Enterprises did not sign any of the deeds
of sale presented to the Spouses Firme. Even De Castro admitted that he had never met the
Spouses Firme.[53]Considering all these circumstances, it is highly improbable for Aviles to finalize
any contract of sale with the Spouses Firme.
Furthermore, the Court notes that in the Complaint filed by Bukal Enterprises with the trial
court, Aviles signed[54] the verification and certification of non-forum shopping.[55] The verification
and certification of non-forum shopping was not accompanied by proof that Bukal Enterprises
authorized Aviles to file the complaint on behalf of Bukal Enterprises.
The power of a corporation to sue and be sued is exercised by the board of directors. The
physical acts of the corporation, like the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of
directors.[56]
The purpose of verification is to secure an assurance that the allegations in the pleading are
true and correct and that it is filed in good faith.[57] True, this requirement is procedural and not
jurisdictional. However, the trial court should have ordered the correction of the complaint
since Aviles was neither an officer of Bukal Enterprises nor authorized by its Board of Directors to
act on behalf of Bukal Enterprises.
Whether the Statute of Frauds is applicable
The Court of Appeals held that partial performance of the contract of sale takes the oral
contract out of the scope of the Statute of Frauds. This conclusion arose from the appellate courts
erroneous finding that there was a perfected contract of sale. The records show that there was no
perfected contract of sale. There is therefore no basis for the application of the Statute of Frauds.
The application of the Statute of Frauds presupposes the existence of a perfected
contract.[58] Article 1403 of the Civil Code provides:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or some
note or memorandum thereof, be in writing and subscribed by the party charged or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or a secondary
evidence of its contents:
xxx
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property
or of an interest therein;
xxx
Whether Bukal Enterprises is a builder in good faith
Bukal Enterprises is not a builder in good faith. The Spouses Firme did not
accept Aviles offer to purchase the Property. Aviles testified that when he called the
Spouses Firme on 2 March 1995, Dr. Firme informed him that they were no longer interested in
selling the Property. On 4 March 1995, Aviles called again and this time Mrs. Firme told him that
they were not selling the Property. Avilesinformed De Castro of the refusal of the
Spouses Firme to sell the Property. However, Bukal Enterprises still proceeded in relocating the
squatters and constructing improvements on the Property. De Castro testified:
ATTY. EJERCITO:
Q: The truth of the matter, Mr. Witness, is that the post was constructed sometime
late 1994. Is that not correct?
A: No, sir. It is not true.
Q: When was it constructed?
A: That March.
Q: When in March?
A: 1995.
Q: When in March 1995?
A: From the period of March 2, 1995 or two (2) weeks after the removal of the
squatters.
Q: When were the squatters removed?
WITNESS:
A: March 6 and 7 because there were four (4) squatters.
ATTY. EJERCITO:
Q: When did you find out that the Spouses Firme did not want to sell the same?
A: First week of March 1995.
Q: In your Complaint you said you find out on March 3, 1995. Is that not correct?
A: I cannot exactly remember, sir.
ATTY. MARQUEDA:
In the Complaint it does not state March 3. Maybe counsel was thinking of this
Paragraph 6 which states, When the property was rid of the squatters on March
2, 1995 for the documentation and payment of the sale, xxx.
ATTY. EJERCITO:
Q: So, you found out on March 2, 1995 that the defendants were no longer
interested in selling to you the property. Is that correct?
A: Yes, sir, because Mr. Aviles relayed it to me.
Q: Mr. Aviles relayed to you that the Spouses Firme were no longer interested
in selling to you the property in March 2, 1995. Is that correct?
A: Yes, sir. Mr. Aviles told me.
Q: In so many words, Mr. Witness, you learned that the Spouses Firme were no
longer interested in selling the property before you spent allegedly all the
sum of money for the relocation of squatters for all this construction that
you are telling this Court now?
 WITNESS:
A: The refusal to sell is not yet formal and the lawyer sent a letter tendering full
payment of the purchase price.
ATTY. EJERCITO:
Q: You mean to say that you did not believe Mr. Aviles when he told you that the
Spouses Firme were no longer selling the property?
A: No, sir.
Q: Was there anything formal when you say the Spouses Firme agreed to sell
the property?
A: None, sir.
Q: And yet that time you believe Mr. Aviles when he verbally told you that the
Sps. Firme agreed to sell the property? At what point of the transaction
with the Spouses Firme were you advised by your lawyer?
WITNESS:
A: At the time when they refused to sell the lot.
ATTY. EJERCITO:
Q: Was that before the squatters were relocated allegedly by Bukal
Enterprises?
A: Yes, sir.
Q: In fact, it was the lawyer who advised you to relocate the squatters. Is it not true?
A: No, sir.[59] (Emphasis supplied)
Bukal Enterprises is obviously a builder in bad faith. No deed of sale has been executed in
this case. Despite the refusal of the Spouses Firme to sell the Property, Bukal Enterprises still
proceeded to introduce improvements on the Property. Bukal Enterprises introduced
improvements on the Property without the knowledge and consent of the Spouses Firme. When
the Spouses Firme learned about the unauthorized constructions made by Bukal Enterprises on
the Property, they advised the latter to desist from further acts of trespass on their Property. [60]
The Civil Code provides:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right of indemnity.
Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may
demand the demolition of the work, or that the planting or sowing be removed, in order to replace
things in their former condition at the expense of the person who built, planted or sowed; or he
may compel the builder or planter to pay the price of the land, and the owner the proper rent.
Under these provisions the Spouses Firme have the following options: (1) to appropriate
what Bukal Enterprises has built without any obligation to pay indemnity; (2) to ask Bukal
Enterprises to remove what it has built; or (3) to compel Bukal Enterprises to pay the value of the
land.[61] Since the Spouses Firme are undoubtedly not selling the Property to Bukal Enterprises,
they may exercise any of the first two options. They may appropriate what has been built without
paying indemnity or they may ask Bukal Enterprises to remove what it has built at Bukal
Enterprises own expense.
Bukal Enterprises is not entitled to reimbursement for the expenses incurred in relocating
the squatters. Bukal Enterprises spent for the relocation of the squatters even after learning that
the Spouses Firme were no longer interested in selling the Property. De Castro testified that even
though the Spouses Firme did not require them to remove the squatters, they chose to spend for
the relocation of the squatters since they were interested in purchasing the Property. [62]
Whether the Spouses Firme are entitled to
compensatory and moral damages
The Court agrees with the Court of Appeals to delete the award for compensatory and moral
damages. In awarding actual damages, the trial court took into account the traveling expenses
incurred by the Spouses Firme who are already residing in the United States. However, the trial
court failed to consider the testimony of Dr. Firme that they normally travel to the Philippines more
than once a year to visit their children.[63] Thus, the expenses for the roundtrip tickets dated 1996-
1997 could not be attributed solely for the attendance of hearings in the case.
Nevertheless, an award of nominal damages of P30,000 is warranted since Bukal
Enterprises violated the property rights of the Spouses Firme.[64] The Civil Code provides:
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising from any source
enumerated in article 1157, or in every case where any property right has been invaded.
The award of damages is also in accordance with Article 451 of the Civil Code which states
that the landowner is entitled to damages from the builder in bad faith.[65]
WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RENDER a new
one:
1. Declaring that there was no perfected contract of sale;
2. Ordering Bukal Enterprises to pay the Spouses Firme P30,000 as nominal
damages.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Azcuna, JJ., concur.
Ynares-Santiago, J., on official leave.
Limited liablity to investors and officers
San Juan Structural Steels v. CA, 296 SCRA 631
[G.R. No. 129459. September 29, 1998]
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs. COURT OF
APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT
CORP., respondents.
DECISION
PANGANIBAN, J.
May a 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?
The Case
These questions are answered in the negative by this Court in resolving the Petition for
Review on Certiorari before us, assailing the March 18, 1997 Decision[1] of the Court of
Appeals[2] in CA GR CV No. 46801 which, in turn, modified the July 18, 1994 Decision of the
Regional Trial Court of Makati, Metro Manila, Branch 63[3] in Civil Case No. 89-3511. The RTC
dismissed both the Complaint and the Counterclaim filed by the parties. On the other hand, the
Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH
MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or
return to plaintiff-appellant the downpayment of P100,000.00 which she received
from plaintiff-appellant. There is no pronouncement as to costs.[4]
The petition also challenges the June 10, 1997 CA Resolution denying reconsideration. [5]
The Facts
The facts as found by the Court of Appeals are as follows:
Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.s amended
complaint alleged that on 14 February 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
Four Hundred Fourteen (414) square meters, covered by TCT No. (362909) 2876;
that as stipulated in the Agreement of 14 February 1989, plaintiff-appellant paid the
down payment in the sum of One Hundred Thousand (P100,000.00) Pesos, the
balance to be paid on or before March 2, 1989; that on March 1, 1989, Mr. Andres T.
Co, president of plaintiff-appellant corporation, wrote a letter to defendant-appellee
Motorich Sales Corporation requesting for a computation of the balance to be paid;
that said letter was coursed through defendant-appellees 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 Cashiers
Check No. 004223, payable to defendant-appellee Motorich Sales Corporation; that
plaintiff-appellant and defendant-appellee Motorich Sales Corporation were
supposed to meet in the office of plaintiff-appellant but defendant-appellees
treasurer, Nenita Lee Gruenberg, did not appear; that defendant-appellee 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 title; that defendant 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 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 Gruenberg and Reynaldo L.
Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of
defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporations 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
defendants-appellees in the sum of Five Hundred Thousand (500,000.00) Pesos; that
as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales
Corporations unjustified and unwarranted failure to execute the required Transfer of
Rights/Deed of Assignment or formal deed of sale in favor of plaintiff-appellant,
defendants-appellees should be assessed exemplary damages in the sum of One
Hundred Thousand (P100,000.00) Pesos; that by reason of defendants-appellees
bad faith in refusing to execute a Transfer of Rights/Deed of Assignment in favor of
plaintiff-appellant, the latter lost the opportunity to construct a residential building in
the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a consequence
of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporations bad
faith in refusing to execute a deed of sale in favor of plaintiff-appellant, it has been
constrained to obtain the services of counsel at an agreed fee of One Hundred
Thousand (P100,000.00) Pesos plus appearance fee for every appearance in court
hearings.
In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee
Gruenberg interposed as affirmative defense that the President and Chairman of
Motorich did not sign the agreement adverted to in par. 3 of the amended complaint;
that Mrs. Gruenbergs signature on the agreement (ref: par. 3 of Amended Complaint)
is inadequate to bind Motorich. The other signature, that of Mr. Reynaldo Gruenberg,
President and Chairman of Motorich, is required; that plaintiff knew this from the very
beginning as it was presented a copy of the Transfer of Rights (Annex B of amended
complaint) at the time the Agreement (Annex B of amended complaint) was signed;
that plaintiff-appellant 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, plaintiff-appellant nonetheless failed to pay in legal
tender within the stipulated period (up to March 2, 1989); that it was the
understanding between Mrs. Gruenberg and plaintiff-appellant 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
plaintiff-appellant where they will encash the check and sign the Transfer of
Rights/Deed. However, plaintiff-appellant informed Mrs. Gruenberg of the alleged
availability of the check, by phone, only after banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed from[,]
dismissing plaintiff-appellants complaint, ruling that:
'The issue to be resolved is: whether plaintiff had the right to compel
defendants to execute a deed of absolute sale in accordance with the
agreement of February 14, 1989; and if so, whether plaintiff is entitled to
damages.
 As to the first question, there is no evidence to show that defendant Nenita
Lee Gruenberg was indeed authorized by defendant corporation, Motorich
Sales, to dispose of that property covered by T.C.T. No. (362909)
2876. Since the property is clearly owned by the corporation, Motorich
Sales, then its disposition should be governed by the requirement laid
down in Sec. 40, of the Corporation Code of the Philippines, to wit:
Sec. 40, Sale or other disposition of assets. Subject to the
provisions of existing laws on illegal combination and
monopolies, a corporation may by a majority vote of its board of
directors xxx sell, lease, exchange, mortgage, pledge or
otherwise dispose of all or substantially all of its property and
assets, including its goodwill xxx when authorized by the vote of
the stockholders representing at least two third (2/3) of the
outstanding capital stock x x x.
No such vote was obtained by defendant Nenita Lee Gruenberg for that
proposed sale[;] neither was there evidence to show that the supposed
transaction was ratified by the corporation. Plaintiff should have been on
the look out under these circumstances. More so, plaintiff himself [owns]
several corporations (tsn dated August 16, 1993, p. 3) which makes him
knowledgeable on corporation matters.
Regarding the question of damages, the Court likewise, does not find
substantial evidence to hold defendant Nenita Lee Gruenberg liable
considering that she did not in anyway misrepresent herself to be
authorized by the corporation to sell the property to plaintiff (tsn dated
September 27, 1991, p. 8).
In the light of the foregoing, the Court hereby renders judgment
DISMISSING the complaint at instance for lack of merit.
Defendants counterclaim is also DISMISSED for lack of basis. (Decision,
pp. 7-8; Rollo, pp. 34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by
virtue of Philippine Laws, with principal office address at 5510 South Super Hi-way cor. Balderama
St., Pio del Pilar, Makati, Metro Manila, represented herein by its Treasurer, NENITA LEE
GRUENBERG, hereinafter referred to as the TRANSFEROR;
- and --
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing
under and by virtue of the laws of the Philippines, with principal office address at Sumulong
Highway, Barrio Mambungan, Antipolo, Rizal, represented herein by its President, ANDRES T.
CO, hereinafter referred to as the TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of the
ACROPOLIS GREENS SUBDIVISION located at the District of Murphy, Quezon City, Metro
Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS, covered
by a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich
Sales Corp. as the Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed
as follows:
1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED
PESOS (P5,200.00) per square meter; subject to the following terms:
a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS
(P100,000.00), will be paid upon the execution of this agreement
and shall form part of the total purchase price;
b. Balance shall be payable on or before March 2, 1989;
2. That the monthly amortization for the month of February 1989 shall be for the
account of the Transferor; and that the monthly amortization starting March
21, 1989 shall be for the account of the Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described property and that
there [are] no existing liens and/or encumbrances of whatsoever nature;
In case of failure by the Transferee to pay the balance on the date specified on 1. (b), the earnest
money shall be forfeited in favor of the Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF
RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February,
1989 at Greenhills, San Juan, Metro Manila, Philippines.
MOTORICH SALES CORPORATION SAN STRUCTURAL &
TRANSFEROR STEEL FABRICATORS
TRANSFEREE
[SGD.] [SGD.]
By: NENITA LEE GRUENBERG By: ANDRES T. CO
Treasurer President
Signed in the presence of:
[SGD.] [SGD.]
_________________________ _____________________[6]
In its recourse before the Court of Appeals, petitioner insisted:
1. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale
in accordance with the Agreement of February 14, 1989,
 2. Plaintiff is entitled to damages.[7]
As stated earlier, the Court of Appeals debunked petitioners arguments and affirmed the
Decision of the RTC with the modification that Respondent Nenita Lee Gruenberg was ordered to
refund P100,000 to petitioner, the amount remitted as downpayment or earnest money. Hence,
this petition before us.[8]
The Issues
Before this Court, petitioner raises the following issues:
I. Whether or not the doctrine of piercing the veil of corporate fiction is
applicable in the instant case
II. Whether or not the appellate court may consider matters which the parties
failed to raise in the lower court
III. Whether or not there is a valid and enforceable contract between the
petitioner and the respondent corporation
IV. Whether or not the Court of Appeals erred in holding that there is a valid
correction/substitution of answer in the transcript of stenographic
note[s]
V. Whether or not respondents are liable for damages and attorneys fees[9]
The Court synthesized the foregoing and will thus discuss them seriatim as follows:
1. Was there a valid contract of sale between petitioner and Motorich?
2. May the doctrine of piercing the veil of corporate fiction be applied to
Motorich?
3. Is the alleged alteration of Gruenbergs testimony as recorded in the
transcript of stenographic notes material to the disposition of this case?
4. Are respondents liable for damages and attorneys fees?
The Courts Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989,
it entered through its president, Andres Co, into the disputed Agreement with Respondent
Motorich Sales Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee
Gruenberg. Petitioner insists that [w]hen Gruenberg and Co affixed their signatures on the contract
they both consented to be bound by the terms thereof. Ergo, petitioner contends that the contract
is binding on the two corporations. We do not agree.
True, Gruenberg and Co signed on February 14, 1989, the Agreement according to which
a lot owned by Motorich Sales Corporation was purportedly sold. Such contract, however, 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 its stockholders or
members and may not be sold by the stockholders or members without express authorization from
the corporations board of directors.[10] Section 23 of BP 68, otherwise known as the Corporation
Code of the Philippines, provides:
SEC. 23. 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 holders
of stocks, or where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year and until their successors are elected and
qualified.
Indubitably, a corporation may act only through its board of directors, or, when authorized
either by its bylaws or by its board resolution, through its officers or agents in the normal course
of 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
law.[11] Thus, this Court has held that a corporate officer or agent may represent and bind the
corporation in transactions with third 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.[12]
Furthermore, the Court has also recognized the rule that persons dealing with an assumed
agent, whether the assumed agency be a general or special one, are bound at their peril, if they
would hold the principal liable, to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden of proof is upon them to establish
it (Harry Keeler v. Rodriguez, 4 Phil. 19).[13] Unless duly authorized, a treasurer, whose powers
are limited, cannot bind the corporation in a sale of its assets.[14]
In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita
Gruenberg, its treasurer, to sell the subject parcel of land. [15] Consequently, petitioner had the
burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich in
the transaction. Petitioner failed to discharge this burden. Its offer of evidence before the trial court
contained no proof of such authority.[16] It has not shown any provision of said respondents articles
of incorporation, bylaws or board resolution to prove that Nenita Gruenberg possessed such
power.
That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the
responsibility of ascertaining the extent of her authority to represent the corporation. Petitioner
cannot assume that she, by virtue of her position, was authorized to sell the property of the
corporation. Selling is obviously foreign to a corporate treasurers function, which generally has
been described as to receive and keep the funds of the corporation, and to disburse them in
accordance with the authority given him by the board or the properly authorized officers.[17]
Neither was such real estate sale shown to be a normal business activity of Motorich. The
primary purpose of Motorich is marketing, distribution, export and import in relation to a general
merchandising business.[18]Unmistakably, its treasurer is not cloaked with actual or apparent
authority to buy or sell real property, an activity which falls way beyond the scope of her general
authority.
Articles 1874 and 1878 of the Civil Code of the Philippines provides:
 ART. 1874. When a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void.
ART. 1878 Special powers of attorney are necessary in the following case:
xxxxxxxxx
(5) To enter any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration;
x x x x x x x x x.
Petitioner further contends that Respondent Motorich has ratified said contract of sale
because of its acceptance of benefits, as evidenced by the receipt issued by Respondent
Gruenberg.[19] Petitioner is clutching at straws.
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 or is estopped from disclaiming them.[20]
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 Gruenbergs signature. Certainly, this document alone does not prove that her acts
were authorized or ratified by Motorich.
Article 1318 of the Civil Code lists the requisites of a valid and perfected contract: (1)
consent of the contracting parties; (2) object certain which is the subject matter of the contract; (3)
cause of the obligation which is established. As found by the trial court[21] and affirmed by the Court
of Appeals,[22] there is no evidence that Gruenberg was authorized to enter into the contract of
sale, or that the said contract was ratified by Motorich.This factual finding of the two courts is
binding on this Court.[23] As the consent of the seller was not obtained, no contract to bind the
obligor was perfected. Therefore, there can be no valid contract of sale between petitioner and
Motorich.
Because Motorich had never given a written authorization to Respondent Gruenberg 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.[24]
Second Issue:
Piercing the Corporate Veil Not Justified
Petitioner also argues that the veil of corporate fiction of Motorich should be pierced,
because the latter is a close corporation. Since Spouses Reynaldo L. Gruenberg and Nenita R.
Gruenberg owned all or almost all or 99.866% to be accurate, of the subscribed capital stock[25] of
Motorich, petitioner argues that Gruenberg needed no authorization from the board to enter into
the subject contract.[26] It adds that, being solely owned by the Spouses Gruenberg, the company
can be treated as a close corporation which can be bound by the acts of its principal stockholder
who needs no specific authority. The Court is not persuaded.
First, petitioner itself concedes having raised the issue belatedly, [27] not having done so
during the trial, but only when it filed its sur-rejoinder before the Court of Appeals.[28] Thus, this
Court cannot entertain said issue at this late stage of the proceedings. It is well-settled that points
of law, theories and arguments not brought to the attention of the trial court need not be, and
ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time
on appeal.[29] Allowing petitioner to change horses in midstream, as it were, is to run roughshod
over the basic principles of fair play, justice and due process.
Second, even if the above-mentioned argument were to be addressed at this time, the Court
still finds no reason to uphold it. True, one of the advantages of a corporate form of business
organization is the limitation of an investors liability to the amount of the investment.[30] This feature
flows from the legal theory that a corporate entity is separate and distinct from its
stockholders. However, the statutorily granted privilege of a corporate veil may be used only for
legitimate purposes.[31] 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.[32]
Thus, the Court has consistently ruled that [w]hen 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.[33]
We stress that the corporate fiction should be set aside when it becomes a shield against
liability for fraud, illegality or inequity committed on third persons. 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 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.
Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the
Corporation Code defines a close corporation as follows:
SEC. 96. Definition and Applicability of Title. -- A close corporation, within the
meaning of this Code, is one whose articles of incorporation provide that: (1) All of
the corporations issued stock of all classes, exclusive of treasury shares, shall be
held of record by not more than a specified number of persons, not exceeding twenty
(20); (2) All of the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The corporation shall not list in
any stock exchange or make any public offering of any of its stock of any
class. Notwithstanding the foregoing, a corporation shall be deemed not a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned
or controlled by another corporation which is not a close corporation within the
meaning of this Code. xxx.
The articles of incorporation[34] of Motorich Sales Corporation does not contain any provision
stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is
restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock
exchange or making a public offering of such stocks is prohibited. From its articles, it is clear that
Respondent Motorich is not a close corporation.[35]Motorich does not become one either, just
because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital
stock. The [m]ere ownership by a single stockholder or by another corporation of all or nearly all
of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personalities.[36] So too, a narrow distribution of ownership does not, by itself, make a
close corporation.
Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals[37] wherein the Court
ruled that xxx petitioner corporation is classified as a close corporation and, consequently, a board
resolution authorizing the sale or mortgage of the subject property is not necessary to bind the
corporation for the action of its president.[38] But the factual milieu in Dulay is not on all fours with
the present case. In Dulay, the sale of real property was contracted by the president of a close
corporation with the knowledge and acquiescence of its board of directors.[39] In the present case,
Motorich is not a close corporation, as previously discussed, and the agreement was entered into
by the corporate treasurer without the knowledge of the board of directors.
The Court is not unaware that 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.[40] The present case, however, is not one of
them.
As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own almost 99.866% of
Respondent Motorich.[41] Since Nenita is not the sole controlling stockholder of Motorich, the
aforementioned exception does not apply. 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. There being no
indication that said spouses, who appear to have been married before the effectivity of the Family
Code, have agreed to a different property regime, their property relations would be governed by
conjugal partnership of gains.[42] As a consequence, Nenita Gruenberg could not have effected a
sale of the subject lot because [t]here is no co-ownership between the spouses in the properties
of the conjugal partnership of gains. Hence, neither spouse can alienate in favor of another his or
her interest in the partnership or in any property belonging to it; neither spouse can ask for a
partition of the properties before the partnership has been legally dissolved. [43]
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 the authority of the court without
which the disposition or encumbrance is void.[44] Both requirements are manifestly absent in the
instant case.
Third Issue: Challenged Portion of TSN Immaterial
Petitioner calls our attention to the following excerpt of the transcript of stenographic
notes(TSN):
Q Did you ever represent to Mr. Co that you were authorized by the corporation to sell the
property?
A Yes, sir.[45]
Petitioner claims that the answer Yes was crossed out, and, in its place was written a No
with an initial scribbled above it.[46] This, however, is insufficient to prove that Nenita Gruenberg
was authorized to represent Respondent Motorich in the sale of its immovable property. Said
excerpt should be understood in the context of her whole testimony. During her cross-examination,
Respondent Gruenberg testified:
Q So, you signed in your capacity as the treasurer?
[A] Yes, sir.
Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.
Q You stated on direct examination that you did not represent that you were authorized to sell
the property?
A Yes, sir.
Q But you also did not say that you were not authorized to sell the property, you did not tell
that to Mr. Co, is that correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the corporation and it [was] also the president who
[was] also authorized to sign on behalf of the corporation.
Q You did not say that you were not authorized nor did you say that you were authorized?
A Mr. Co was very interested to purchase the property and he offered to put up a P100,000.00
earnest money at that time. That was our first meeting.[47]
Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its
property. On the other hand, her testimony demonstrates that the president of Petitioner
Corporation, in his great desire to buy the property, threw caution to the wind by offering and
paying the earnest money without first verifying Gruenbergs authority to sell the lot.
Fourth Issue:
Damages and Attorneys Fees
Finally, petitioner prays for damages and attorneys fees, alleging that [i]n an utter display of
malice and bad faith, [r]espondents attempted and succeeded in impressing on the trial court and
[the] Court of Appeals that Gruenberg did not represent herself as authorized by Respondent
Motorich despite the receipt issued by the former specifically indicating that she was signing on
behalf of Motorich Sales Corporation. Respondent Motorich likewise acted in bad faith when it
claimed it did not authorize Respondent Gruenberg and that the contract [was] not binding,
[insofar] as it [was] concerned, despite receipt and enjoyment of the proceeds of Gruenbergs
act.[48] Assuming that Respondent Motorich was not a party to the alleged fraud, petitioner
maintains that Respondent Gruenberg should be held liable because she acted fraudulently and
in bad faith [in] representing herself as duly authorized by [R]espondent [C]orporation.[49]
As already stated, we sustain the findings of both the trial and the appellate courts that the
foregoing allegations lack factual bases. Hence, an award of damages or attorneys fees cannot
be justified. The amount paid as earnest money was not proven to have redounded to the benefit
of Respondent Motorich. Petitioner claims that said amount was deposited to the account of
Respondent Motorich, because it was deposited with the account of Aren Commercial c/o Motorich
Sales Corporation.[50] Respondent Gruenberg, however, disputes the allegations of petitioner. She
testified as follows:
Q You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the
check was encashed.
A Yes, sir, the check was paid in my name and I deposit[ed] it . . .
Q In your account?
A Yes, sir. [51]
In any event, Gruenberg offered to return the amount to petitioner xxx since the sale did not push
through.[52]
Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He
has been the president of Petitioner Corporation for more than ten years and has also served as
chief executive of two other corporate entities.[53] Co cannot feign ignorance of the scope of the
authority of a corporate treasurer such as Gruenberg. Neither can he be oblivious to his duty to
ascertain the scope of Gruenbergs authorization to enter into a contract to sell a parcel of land
belonging to Motorich.
Indeed, petitioners claim of fraud and bad faith is unsubstantiated and fails to persuade the
Court. Indubitably, petitioner appears to be the victim of its own officers negligence in entering into
a contract with and paying an unauthorized officer of another corporation.
As correctly ruled by the Court of Appeals, however, 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,[54] a principle embodied in Article 2154 of the Civil Code. [55] Although
there was no binding relation between them, petitioner paid Gruenberg on the mistaken belief that
she had the authority to sell the property of Motorich. [56] Article 2155 of the Civil Code provides
that [p]ayment by reason of a mistake in the construction or application of a difficult question of
law may come within the scope of the preceding article.
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
SO ORDERED.
CBTC v. CA 356 SCRa 671
[G.R. No. 114286. April 19, 2001]
THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner,
vs. THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION,
GREGORY T. LIM and SPOUSE, respondents.
DECISION
YNARES-SANTIAGO, J.:
The instant petition for review seeks to partially set aside the July 26, 1993 Decision[1] of
respondent Court of Appeals in CA-G.R. CV No. 29950, insofar as it orders petitioner to reimburse
respondent Continental Cement Corporation the amount of P490,228.90 with interest thereon at
the legal rate from July 26, 1988 until fully paid. The petition also seeks to set aside the March 8,
1994 Resolution[2] of respondent Court of Appeals denying its Motion for Reconsideration.
The facts are as follows:
On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent
Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner
Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of
P1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of P320,445.00
to petitioner. The letter of credit was used to purchase around five hundred thousand liters of
bunker fuel oil from Petrophil Corporation, which the latter delivered directly to respondent
Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt for the amount
of P1,001,520.93 was executed by respondent Corporation, with respondent Lim as signatory.
Claiming that respondents failed to turn over the goods covered by the trust receipt or the
proceeds thereof, petitioner filed a complaint for sum of money with application for preliminary
attachment[3] before the Regional Trial Court of Manila. In answer to the complaint, respondents
averred that the transaction between them was a simple loan and not a trust receipt transaction,
and that the amount claimed by petitioner did not take into account payments already made by
them. Respondent Lim also denied any personal liability in the subject transactions. In a
Supplemental Answer, respondents prayed for reimbursement of alleged overpayment to
petitioner of the amount of P490,228.90.
At the pre-trial conference, the parties agreed on the following issues:
1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction;
2) Whether or not the interest rates charged against the defendants by the plaintiff are proper
under the letter of credit, trust receipt and under existing rules or regulations of the Central Bank;
3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the
defendant corporation on July 13, 1982 as payment for the latters account; and
4) Whether or not the defendants are personally liable under the transaction sued for in this case.[4]
On September 17, 1990, the trial court rendered its Decision,[5] dismissing the Complaint
and ordering petitioner to pay respondents the following amounts under their
counterclaim: P490,228.90 representing overpayment of respondent Corporation, with interest
thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00 as attorneys fees; and
costs.
Both parties appealed to the Court of Appeals, which partially modified the Decision by
deleting the award of attorneys fees in favor of respondents and, instead, ordering respondent
Corporation to pay petitioner P37,469.22 as and for attorneys fees and litigation expenses.
Hence, the instant petition raising the following issues:
1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY OR
COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE WAS OVERPAYMENT BY
PRIVATE RESPONDENTS TO THE PETITIONER IN THE AMOUNT OF P490,228.90 DESPITE
THE ABSENCE OF ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS
APPLICATION OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW CIVIL CODE.
2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT BY
THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH BANKING PRACTICE.
3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING OF
INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE AND THE RULES AND
REGULATIONS OF THE CENTRAL BANK.
4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN
NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT TRANSACTION ON
THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE RESPONDENTS AND FOR
WHICH RESPONDENTS ARE LIABLE THEREFOR.
5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN
NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE TRUST RECEIPT
TRANSACTION.[6]
The petition must be denied.
 On the first issue respecting the fact of overpayment found by both the lower court and
respondent Court of Appeals, we stress the time-honored rule that findings of fact by the Court of
Appeals especially if they affirm factual findings of the trial court will not be disturbed by this Court,
unless these findings are not supported by evidence.[7]
Petitioner decries the lack of computation by the lower court as basis for its ruling that there
was an overpayment made. While such a computation may not have appeared in the Decision
itself, we note that the trial courts finding of overpayment is supported by evidence presented
before it. At any rate, we painstakingly reviewed and computed the payments together with the
interest and penalty charges due thereon and found that the amount of overpayment made by
respondent Bank to petitioner, i.e., P563,070.13, was more than what was ordered reimbursed by
the lower court. However, since respondents did not file an appeal in this case, the amount
ordered reimbursed by the lower court should stand.
Moreover, petitioners contention that the marginal deposit made by respondent Corporation
should not be deducted outright from the amount of the letter of credit is untenable. Petitioner
argues that the marginal deposit should be considered only after computing the principal plus
accrued interests and other charges. However, to sustain petitioner on this score would be to
countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in
favor of the debtor-depositor, the bank is not only able to use the same for its own purposes,
interest-free, but is also able to earn interest on the money loaned to respondent
Corporation.Indeed, it would be onerous to compute interest and other charges on the face value
of the letter of credit which the petitioner issued, without first crediting or setting off the marginal
deposit which the respondent Corporation paid to it. Compensation is proper and should take
effect by operation of law because the requisites in Article 1279 of the Civil Code are present and
should extinguish both debts to the concurrent amount.[8]
Hence, the interests and other charges on the subject letter of credit should be computed
only on the balance of P681,075.93, which was the portion actually loaned by the bank to
respondent Corporation.
Neither do we find error when the lower court and the Court of Appeals set aside as invalid
the floating rate of interest exhorted by petitioner to be applicable. The pertinent provision in the
trust receipt agreement of the parties fixing the interest rate states:
I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur
after July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the
penalty of 1% per month until the amount/s or installment/s due and unpaid under the trust receipt
on the reverse side hereof is/are fully paid.[9]
We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there
being no reference rate set either by it or by the Central Bank, leaving the determination thereof
at the sole will and control of petitioner.
While it may be acceptable, for practical reasons given the fluctuating economic conditions,
for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent
upon prevailing market conditions, there should always be a reference rate upon which to peg
such variable interest rates. An example of such a valid variable interest rate was found in Polotan,
Sr. v. Court of Appeals.[10] In that case, the contractual provision stating that if there occurs any
change in the prevailing market rates, the new interest rate shall be the guiding rate in
computing the interest due on the outstanding obligation without need of serving notice to the
Cardholder other than the required posting on the monthly statement served to the
Cardholder[11] was considered valid. The aforequoted provision was upheld notwithstanding that it
may partake of the nature of an escalation clause, because at the same time it provides for the
decrease in the interest rate in case the prevailing market rates dictate its reduction. In other
words, unlike the stipulation subject of the instant case, the interest rate involved in
the Polotan case is designed to be based on the prevailing market rate. On the other hand, a
stipulation ostensibly signifying an agreement to any increase or decrease in the interest rate,
without more, cannot be accepted by this Court as valid for it leaves solely to the creditor the
determination of what interest rate to charge against an outstanding loan.
Petitioner has also failed to convince us that its transaction with respondent Corporation is
really a trust receipt transaction instead of merely a simple loan, as found by the lower court and
the Court of Appeals.
The recent case of Colinares v. Court of Appeals[12] appears to be foursquare with the facts
obtaining in the case at bar. There, we found that inasmuch as the debtor received the goods
subject of the trust receipt before the trust receipt itself was entered into, the transaction in
question was a simple loan and not a trust receipt agreement. Prior to the date of execution of the
trust receipt, ownership over the goods was already transferred to the debtor. This situation is
inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods
belong in ownership to the bank and are only released to the importer in trust after the loan is
granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods
subject of the trust receipt occurred long before the trust receipt itself was executed. More
specifically, delivery of the bunker fuel oil to respondent Corporations Bulacan plant commenced
on July 7, 1982 and was completed by July 19, 1982.[13] Further, the oil was used up by respondent
Corporation in its normal operations by August, 1982.[14] On the other hand, the subject trust
receipt was only executed nearly two months after full delivery of the oil was made to respondent
Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a trust receipt transaction was explained
in Colinares, to wit:
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another
regardless of whether the latter is the owner. Here, it is crystal clear that on the part of Petitioners
there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of
PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts
issued by PBC acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the money for
their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a
state of mind was not proved to be present in Petitioners situation. Petitioners employed no artifice
in dealing with PBC and never did they evade payment of their obligation nor attempt to
abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale,
contrary to the express provision embodied in the trust receipt. They are contractors who obtained
the fungible goods for their construction project. At no time did title over the construction materials
pass to the bank, but directly to the Petitioners from CM Builders Centre. This impresses upon the
trust receipt in question vagueness and ambiguity, which should not be the basis for criminal
prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution should they be unable to pay it may be unjust
and inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers
have no option but to sign lest their loan be disapproved. The resort to this scheme leaves poor
and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had happened
in this case. Eventually, PBC showed its true colors and admitted that it was only after collection
of the money, as manifested by its Affidavit of Desistance.
 Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with
petitioner. Neither has it been shown that it has evaded payment of its obligations. Indeed, it
continually endeavored to meet the same, as shown by the various receipts issued by petitioner
acknowledging payment on the loan. Certainly, the payment of the sum of P1,832,158.38 on a
loan with a principal amount of only P681,075.93 negates any badge of dishonesty, abuse of
confidence or mishandling of funds on the part of respondent Corporation, which are the gravamen
of a trust receipt violation. Furthermore, respondent Corporation is not an importer which acquired
the bunker fuel oil for re-sale; it needed the oil for its own operations. More importantly, at no time
did title over the oil pass to petitioner, but directly to respondent Corporation to which the oil was
directly delivered long before the trust receipt was executed. The fact that ownership of the oil
belonged to respondent Corporation, through its President, Gregory Lim, was acknowledged by
petitioners own account officer on the witness stand, to wit:
Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be
personally liable under the subject trust receipt. Petitioners argument that respondent Corporation
and respondent Lim and his spouse are one and the same cannot be sustained. The transactions
sued upon were clearly entered into by respondent Lim in his capacity as Executive Vice President
of respondent Corporation. We stress the hornbook law that corporate personality is a shield
against personal liability of its officers. Thus, we agree that respondents Gregory T. Lim and his
spouse cannot be made personally liable since respondent Lim entered into and signed the
contract clearly in his official capacity as Executive Vice President. The personality of the
corporation is separate and distinct from the persons composing it.[16]
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The
Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.

Q - After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the SO ORDERED.
defendants thereby paying the value of the bunker fuel oil what transpired next after
that? Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.
Pardo J., no part.
A - Upon purchase of the bunker fuel oil and upon the requests of the defendant possession
of the bunker fuel oil were transferred to them. Free Transferability of ownership for investors
Remo Jr. v. IAC, 172 SCRA 405
Q - You mentioned them to whom are you referring to?

A - To the Continental Cement Corp. upon the execution of the trust receipt acknowledging
the ownership of the bunker fuel oil this should be acceptable for whatever disposition
he may make.

Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom?

A - By the Continental Cement Corp.

Q - So by your statement who really owns the bunker fuel oil?

ATTY. RACHON:

Objection already answered.

COURT:

Give time to the other counsel to object.

ATTY. RACHON:

He has testified that ownership was acknowledged in favor of Continental Cement Corp. so
that question has already been answered.

ATTY. BAAGA:

That is why I made a follow up question asking ownership of the bunker fuel oil.

COURT:

Proceed.

ATTY. BAAGA:

Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.?

A - Gregory Lim.[15]

By all indications, then, it is apparent that there was really no trust receipt transaction that
took place. Evidently, respondent Corporation was required to sign the trust receipt simply to
facilitate collection by petitioner of the loan it had extended to the former.