Case No. 19. 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
G.R. No. 129459 September 29, 1998

Facts:
Plaintiff-appellant San Juan Structural (San Juan) entered into an agreement with defendant-appellee
Motorich Sales Corporation (Motorich) for the transfer to it of a 414 sqm parcel of land in Quezon City.
San Juan paid the down payment of P100k, with the understanding that the balance is to be paid on March
2, 1989. On March 1, 1989, Mr. Andres T. Co, president of San Juan, wrote a letter to Motorich 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. On March 2, 1989, plaintiff-appellant
was ready with the amount corresponding to the balance covered by a check payable to Motorich. The
parties were supposed to meet at the office of Motorich, however, the meeting did not materialize due
to the failure of Motorich’s treasurer, Nenita Gruenberg, to appear. Despite repeated demands, Motorich
refused to execute the transfer of rights/deed of assignemt in favor of San Juan, prompting San Juan to
file a case against Motorich.

In its answer, Motorich interposed as affirmative defense that the President and Chairman of Motorich
did not sign the agreement. The signature of the treasurer, Nenita Gruenberg, on the agreement is
inadequate to bind Motorich because the signature of Reynaldo Gruenberg, President and Chairman of
Motorich, is required. Motorich further alleges that the San Juan this from the very beginning as it was
presented a copy of the Transfer of Rights at the time the agreement was signed.

RTC
Issue:
(1) W/N San Juan had the right to compel defendants to execute a deed of absolute sale in accordance
with the agreement?

Held:
No.
There is no evidence to show that defendant Nenita Lee Gruenberg was indeed authorized by defendant
corporation, Motorich Sales, to dispose of that property. 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.
CA
Issue:
Same with RTC.
Held:
Ca affirmed RTC decisions.

Supreme Court
Issues:
(1) W/N there is a valid contract of sale between San Juan and Motorich?
(2) W/N the doctrince of piercing the veil of corporate fiction be applied to Motorich?

Held:
No to the first issue.
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 corporation’s 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. 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. 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.
No to the second issue.

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.