FRANCISCO vs.
MEJIA auction so that Merryland could
G.R. No. 141617 | August 14, 2001
FACTS: Andrea Vda. De Gutierrez owned a parcel of
land. A portion of the land was purchased by
Cardale Financing and Realty Corporation (Cardale)
which was secured by a REM. Cardale failed to play
its mortgage obligation, which prompted Gutierrez
to file a case for rescission. Gutierrez died and was
substituted by his executor, Rita C. Mejia.
In the rescission case, Cardale was represented
by its VP and Treasurer, Adalia B. Francisco. The
case prolonged for 14 years because Francisco did
not complete the presentation of evidence.
In the meantime, the mortgaged properties became
delinquent in the payment of real estate taxes
which led to their levy and auction sale. The highest
bidder was Merryland Corporation, the President
and Majority Stockholder of Merryland was also
Adalia Francisco.
Francisco, however, did not inform the estate of
Gutierrez of the fact that the mortgaged properties
were already sold at a public auction and that it was
Merryland Corporation which purchased the
properties.
It was only after the expiration of the redemption
period and after title had already been consolidated
in the name of Merryland that Francisco informed
the Court and the estate of Gutierrez that the
properties had already been purchased and is now
transferred in the name of Merryland.
In the certificate of title of Merryland, it was already
free of all encumbrances. This prompted the estate
of Gutierrez to file an action for damages against
Francisco and Merryland
Mejia, representing the estate of Gutierrez, is
claiming that Francisco owned both Cardale and
Merryland and employed fraud by intentionally
causing Cardale to fail in paying the balance of the
purchase price and failed to pay the tax
delinquencies so that it will be sold in a public
eventually
purchase it in a tax delinquency sale.
ISSUE #1: Whether or not Francisco is in bad
faith, thus, would justify the piercing of the
corporate veil fiction.
HELD: YES. Francisco acted in bad faith. Thus, the
piercing of the corporate veil is justified.
A corporation is a juridical person with a separate
and distinct personality from that of the
stockholders or members who compose it.
However, when the legal fiction of the separate
corporate personality is abused, such as when the
same is used for fraudulent or wrongful ends, the
courts have not hesitated to pierce the corporate
veil.
With specific regard to corporate officers, the
general rule is that the officer cannot be held
personally liable with the corporation, whether
civilly or otherwise, for the consequences of his
acts, if he acted for and in behalf of the
corporation, within the scope of his authority and in
good faith. In such cases, the officers’ acts are
properly attributed to the corporation.
However, if it is proven that the officer has used the
corporate fiction to defraud a third party, or that he
has acted negligently, maliciously or in bad faith,
then the corporate veil shall be lifted and he shall
be held personally liable for the particular
corporate obligation involved.
IN THIS CASE: Francisco acted in bad faith.
The totality of Francisco’s actions clearly betray an
intention to conceal the tax delinquencies, levy and
public auction of the subject properties from the
estate of Gutierrez and the trial court in the
Rescission Case until after the expiration of the
redemption period when the remotest possibility
for the recovery of the properties would be
extinguished.
Consequently, Francisco had effectively deprived
the estate of Gutierrez of its rights as mortgagee
over the three parcels of land which were sold to
Cardale. If Francisco was acting in good faith, then
she should have disclosed the status of the
mortgaged properties to the trial court in the
Rescission Case.

Francisco acted in bad faith. Thus, the piercing of

the corporate veil is justified. Francisco should be
held personally liable for the damages.

ISSUE #2: Whether or not Merryland may be

held solidarily liable with Francisco.

HELD: NO. We cannot agree, however, with the

Court of Appeals' decision to hold Merryland
solidarily liable with Francisco. The only act
imputable to Merryland in relation to the
mortgaged properties is that it purchased the same
and this by itself is not a fraudulent or wrongful act.
No evidence has been adduced to establish that
Merryland was a mere alter ego or business conduit
of Francisco.

Time and again it has been reiterated that mere

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 personality.

Neither has it been alleged or proven that

Merryland is so organized and controlled and its
affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of
Cardale.

Even assuming that the businesses of Cardale and

Merryland are interrelated, this alone is not
justification for disregarding their separate
personalities, absent any showing that Merryland
was purposely used as a shield to defraud creditors
and third persons of their rights. Thus, Merryland's
separate juridical personality must be upheld.
 REPUBLIC PLANTERS BANK vs. AGANA
G.R. No. 51765 | March 3, 1997
FACTS: Robes-Francisco Realty & Development
Corporation secured a loan from Republic Planter’s
Bank (RPB). RPB lent partially in money and partially
in the form of two stock certificates. Each for 400
preferred shares of stock with par value of P10
each, a total of P8,000.
The stock certificates indicated that the preferred
stocks in the hands of ROBES-FRANCISCO shall
have the right to receive quarterly dividends of 1%,
cumulative and participating and that such
preferred shares may be redeemed by RPB at the
option of ROBES-FRANCISCO at any time after two
(2) years from the date of issue at the option of the
Corporation.
ROBES-FRANCISCO filed a complaint against RPB
anchored on its alleged rights to collect dividends
under the preferred shares in question and to have
RPB redeem said shares under the terms and
conditions of the stock certificate.
ISSUE #1: Whether or not ROBES-FRANCISCO have
the right to collect dividends pursuant to the stock
certificates. – NO. There has to be a dividend
declaration.
ISSUE #2: Whether or not RPB can be compelled to
redeem the shares. – NO. The redemption is merely
optional. More so, the bank is suffering from
reverses.
Note: Issues are not relevant to the topic. The SC
merely discussed preferred and redeemable
shares in its ruling.
HELD: The Supreme Court first discussed the
nature of preferred shares and redeemable shares.
A preferred share of stock, is one which entitles
the holder thereof to certain preferences over the
holders of common stock. The preferences are
designed to induce persons to subscribe for shares
of a corporation.
Preferred shares take a multiplicity of forms. The
most common forms may be classified into two:
1. Preferred shares as to assets; and
2. Preferred shares as to dividends.
 The former is a share which gives the holder
thereof preference in the distribution of the
assets of the corporation in case of liquidation;
 The latter is a share the holder of which is
entitled to receive dividends on said share to
the extent agreed upon before any dividends at
all are paid to the holders of common stock.
There is no guaranty, however, that the share
will receive any dividends. There has to be
unrestricted retained earnings.
Redeemable shares, on the other hand, are shares
usually preferred, which by their terms are
redeemable at a fixed date, or at the option of
either issuing corporation, or the stockholder, or
both at a certain redemption price. A redemption
by the corporation of its stock is, in a sense, a
repurchase of it for cancellation.
The present Code allows redemption of shares even
if there are no unrestricted retained earnings on the
books of the corporation. This is a new provision
which in effect qualifies the general rule that the
corporation cannot purchase its own shares except
out of current retained earnings.
However, while redeemable shares may be
redeemed regardless of the existence of
unrestricted retained earnings, this is subject to the
condition that the corporation has, after such
redemption, assets in its books to cover debts and
liabilities inclusive of capital stock.
Redemption, therefore, may not be made where
the corporation is insolvent or if such
redemption will cause insolvency or inability of
the corporation to meet its debts as they
mature.
 SAN JUAN STRUCTURAL FABRICATORS vs. CA
G.R. No. 129459 | September 29, 1998
296 SCRA 631
FACTS: Plaintiff-appellant San Juan Structural and
Steel Fabricators Inc. (SAN JUAN) entered into an
agreement with Motorich Sales Corporation (MSC)
for the transfer to it of a parcel of land located in
Quezon City.
As stipulated in the Agreement of February 14,
1989, SAN JUAN paid the downpayment in the sum
of P100K, the balance to be paid on or before
March 2, 1989.
On March 1, 1989, Mr. Andres T. Co, SAN JUAN’s
president, wrote a letter to MSC requesting for a
computation of the balance to be paid.
On March 2, 1989, SAN JUAN was ready with the
amount corresponding to the balance. SAN JUAN
and MSC were supposed to meet in the office of
SAN JUAN but MSC’s treasurer, Nenita Lee
Gruenberg, did not appear.
MSC, despite repeated demands and in utter
disregard of its commitments had refused to
execute the Transfer of Rights/Deed of Assignment
which is necessary to transfer the certificate of title.
On April 6, 1989, ACL Devt. Corp. (ADC) and MSC
entered into a Deed of Absolute Sale whereby
the former transferred to the latter the subject
property.
SAN JUAN filed the complaint for damages
against MSC, and Nenita Lee Gruenberg, as a
result of the latter’s alleged bad faith in refusing to
execute a formal Transfer of Rights/Deed of
Assignment. It impleaded ADC and JNM Realty &
Development Corp. (JRDC) as necessary parties,
since TCT No. (362909) 2876 was in the name of
ADC, and that JRDC is the transferor of right in
favor of MDC.
In its answer, MSC and Nenita Lee Gruenberg
interposed as affirmative defense, among
others, that the President and Chairman of
Motorich did not sign the agreement adverted
to; and that Mrs. Gruenberg’s signature on the
agreement is inadequate to bind MSC as the other
signature, that of Mr. Reynaldo Gruenberg,
President and Chairman of MSC, is required.
 The RTC dismissed SAN JUAN’s complaint. The
RTC found that Nenita Lee Gutenberg was not
authorized by the Corporation to dispose of the
property as such disposition is governed by the
requirements of Section 40, Corporation Code.
It also found that and that Nenita Lee
Gutenberg did not, in any way, misrepresent
herself to be authorized by the corporation to
sell the property to SJSSFI.
 The Court of Appeals modified the decision of
the trial court by ordering Nenita Lee
Gutenberg to refund or return to SAN JUAN the
downpayment of P100,000.00 which she
received from the latter.
SAN JUAN moved for reconsideration, which
was denied. Hence this petition.
ISSUE: Whether or not the corporation’s treasurer
act can bind the corporation.
HELD: NO. Such contract cannot bind Motorich,
because it never authorized or ratified such sale.
A corporation is a juridical person separate and
distinct from its stockholders or members.
Accordingly, the property of the corporation is not
the property of the corporation is not the property
of its stockholders or members and may not be
sold by the stockholders or members without
express authorization from the corporation’s board
of directors.
Section 23 of BP 68 (Corporation Code) provides
the Board of Directors or Trustees – Unless
otherwise provided in this code, the corporate
powers of all corporations formed under this code
shall be exercised, all business conducted, and all
property of such corporations controlled and held
by the board of directors or trustees to be elected formed, or that it is operated for the purpose of
from among the stockholders of stocks, or where shielding any alleged fraudulent or illegal activities
there is no stock, from among the members of the of its officers or stockholders; or that the said veil
corporations, who shall hold office for 1 year and was used to conceal fraud, illegality or inequity at
until their successors are elected and qualified. the expense of third persons like petitioner SAN
JUAN.
As a general rule, the acts of corporate officers
within the scope of their authority are binding on
the corporation. But when these officers exceed
their authority, their actions, cannot bind the
corporation, unless it has ratified such acts as is
estopped from disclaiming them.

IN THIS CASE: Because Motorich had never given a

written authorization to respondent Gruenbeg to
sell its parcel of land, the SC held that the February
14, 1989 agreement entered into by Gruenbeg with
SAN JUAN is void under Article 1874 of the Civil
Code.

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. (n)

Being inexistent and void from the beginning, said

contract cannot be ratified.

ISSUE #2: Whether or not the doctrine of piercing

the veil of corporate entity is applicable.

HELD: NO. The statutorily granted privilege of a

corporate veil may be used only for legitimate
purposes. On equitable consideration, the veil can
be disregarded when it is utilized as a shield to
commit fraud, illegality or inequity, defeat public
convenience; confuse legitimate issues; or serve as
a mere alter ego or business conduit of a person or
an instrumentality, agency or adjunct of another
corporation.

The question of piercing the veil of corporate

fiction is essentially a matter of proof.

In the present case, however, the court finds no

reason to pierce the corporate veil of
respondent Motorich. Petitioner SAN JUAN utterly
failed to establish that the said corporation was