San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals

A corporate treasurer, acting without express authorization from the board of directors, cannot validly bind the corporation in the sale of its real property; furthermore, concentrated ownership of shares (even 99.866%) does not per se establish a "close corporation" status that would eliminate the requirement for board authorization, nor is it sufficient ground for piercing the corporate veil in the absence of fraud, illegality, or inequity.

The dispute arose from an attempted purchase of a 414-square meter residential lot in Acropolis Greens Subdivision, Quezon City, owned by Motorich Sales Corporation. Petitioner San Juan Structural and Steel Fabricators, Inc., represented by its experienced corporate president, dealt with Motorich's treasurer and paid earnest money, believing she had authority to sell. When Motorich refused to execute the transfer documents, litigation ensued regarding the validity of the contract, the applicability of the close corporation doctrine, and the liability for damages.

• On February 14, 1989, San Juan Structural and Steel Fabricators, Inc. (petitioner), represented by its President Andres T. Co, entered into an Agreement with Motorich Sales Corporation (respondent), represented by its Treasurer Nenita Lee Gruenberg, for the sale of a 414-square meter lot in Acropolis Greens Subdivision, Quezon City covered by TCT No. (362909) 2876.
• The purchase price was set at P5,200.00 per square meter, with P100,000.00 paid as earnest money upon execution of the agreement, and the balance due on or before March 2, 1989.
• On March 1, 1989, Andres Co wrote to Motorich requesting computation of the balance, which was provided by Motorich's broker.
• On March 2, 1989, petitioner was ready to pay the balance via Metrobank Cashier's Check No. 004223, but Gruenberg failed to appear at the designated meeting, and Motorich refused to execute the Transfer of Rights/Deed of Assignment.
• On April 6, 1989, ACL Development Corporation executed a Deed of Absolute Sale transferring the subject property to Motorich Sales Corporation, with a new TCT No. 3571 issued in the names of Nenita Lee Gruenberg and Reynaldo L. Gruenberg as representatives of Motorich.
• Spouses Reynaldo and Nenita Gruenberg owned 99.866% of the subscribed capital stock of Motorich Sales Corporation.
• Motorich's primary business purpose was marketing, distribution, export and import of general merchandise, not real estate.
• No board resolution or written authorization from Motorich's board of directors was presented to authorize Gruenberg to sell the subject property.
• Andres T. Co, petitioner's president, had over ten years of experience as a corporate president and was knowledgeable in corporate matters, owning several corporations.

• The Agreement dated February 14, 1989 is valid and binding upon the parties because both presidents signed representing their respective corporations, manifesting mutual consent.
• Motorich Sales Corporation ratified the contract by accepting the earnest money, as evidenced by the receipt issued by Gruenberg.
• The doctrine of piercing the veil of corporate fiction applies because Motorich is a close corporation where the Gruenberg spouses own 99.866% of the shares, effectively making it an alter ego of the spouses, thereby eliminating the need for board authorization.
• Citing Manuel R. Dulay Enterprises, Inc. v. Court of Appeals, petitioner argued that in close corporations, the president (or controlling stockholder) can bind the corporation without specific board resolution.
• Respondents acted in bad faith and fraudulently in refusing to execute the deed of sale after receiving the earnest money, entitling petitioner to moral, exemplary, and actual damages, as well as attorney's fees.

• Nenita Lee Gruenberg, as treasurer, had no authority to sell corporate real property; such authority requires a majority vote of the board of directors and approval by stockholders representing at least two-thirds of the outstanding capital stock under Section 40 of the Corporation Code.
• The president of Motorich (Reynaldo Gruenberg) never signed the agreement, and petitioner knew from the Transfer of Rights document presented that the president's signature was required.
• Motorich is not a close corporation under Section 96 of the Corporation Code because its articles of incorporation do not contain the required provisions limiting stockholders to 20, restricting transfer of shares, or prohibiting public offering.
• Piercing the corporate veil was raised belatedly before the Court of Appeals (only in sur-rejoinder) and should not be entertained for the first time on appeal.
• There was no ratification by the corporation; the receipt issued was personal to Gruenberg and did not redound to the benefit of Motorich.
• Petitioner failed to pay within the stipulated period, and the check was never consummated as payment.
• No fraud or bad faith was committed; rather, petitioner was negligent in failing to verify Gruenberg's authority.

• Procedural Issues:
  • Whether the Court of Appeals may consider the issue of piercing the corporate veil which was raised for the first time in a sur-rejoinder before the appellate court.
  • Whether the alleged alteration in the transcript of stenographic notes (TSN) regarding Gruenberg's testimony on authorization is material to the disposition of the case.
• Substantive Issues:
  • Whether there exists a valid and enforceable contract of sale between petitioner and Motorich Sales Corporation despite the lack of board authorization for the corporate treasurer to sell the property.
  • Whether the doctrine of piercing the veil of corporate fiction is applicable to Motorich Sales Corporation based on the concentrated ownership of shares by the Gruenberg spouses.
  • Whether respondents are liable for damages and attorney's fees.

• Procedural:
  • The Court held that the issue of piercing the corporate veil was raised belatedly before the Court of Appeals and cannot be entertained for the first time on appeal as it violates principles of fair play, justice, and due process.
  • The alleged alteration in the TSN (changing "Yes" to "No" regarding authorization) is immaterial because the totality of Gruenberg's testimony clearly established that she never claimed to have board authorization to sell the property, and petitioner had the burden to prove such authority.
• Substantive:
  • No Valid Contract: The agreement is void under Article 1874 of the Civil Code because the treasurer lacked written authority to sell immovable property. Under Section 23 of the Corporation Code, corporate powers are exercised by the board of directors, and a treasurer's functions are limited to receiving and keeping funds, not selling assets. The sale of substantially all corporate assets requires compliance with Section 40 of the Corporation Code (board and stockholder approval).
  • No Ratification: There was no evidence that Motorich ratified the contract. The receipt was issued personally by Gruenberg and did not prove corporate ratification.
  • Not a Close Corporation: Motorich does not qualify as a close corporation under Section 96 of the Corporation Code because its articles lack the mandatory provisions (limitation to 20 stockholders, restrictions on transfer, prohibition on public offering). Mere ownership of 99.866% of shares by the Gruenberg spouses does not automatically create a close corporation.
  • Piercing the Veil Not Justified: Piercing requires proof that the corporation was used as a shield to commit fraud, illegality, or inequity. Concentrated ownership alone is insufficient. Even if the veil were pierced, the property would be conjugal, requiring both spouses' consent to alienate, which was absent.
  • No Damages: No bad faith or fraud was established. Petitioner, represented by an experienced corporate president, was negligent in failing to verify Gruenberg's authority. However, Gruenberg must return the P100,000.00 earnest money under Article 2154 of the Civil Code (solutio indebiti) as payment made by mistake, to prevent unjust enrichment.

• Separate Corporate Personality — A corporation has a juridical personality separate and distinct from its stockholders; its property is not the property of its stockholders.
• Doctrine of Piercing the Corporate Veil — The corporate fiction may be disregarded only when the corporation is used as a vehicle to commit fraud, illegality, or inequity, or as a mere alter ego to defeat public convenience; mere ownership concentration is insufficient.
• Apparent Authority in Corporate Setting — Third persons dealing with corporate officers bear the burden of ascertaining the nature and extent of the officer's authority; they cannot assume authority exists without verification.
• Close Corporation Requirements — Under Section 96 of the Corporation Code, a close corporation must have specific provisions in its articles: (1) limitation of stockholders to not more than 20, (2) restrictions on transfer of shares, and (3) prohibition on stock exchange listing or public offering.
• Solutio Indebiti — Under Articles 2154 and 2155 of the Civil Code, payment made by mistake, when there is no right to demand it, creates an obligation to return the amount paid to prevent unjust enrichment.

• "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."
• "Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets."
• "The 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 personalities."
• "No one shall enrich himself at the expense of another."

• Manuel R. Dulay Enterprises, Inc. v. Court of Appeals — Distinguished; involved a true close corporation where the president acted with knowledge and acquiescence of the board, unlike the present case where the treasurer acted without board knowledge.
• Traders Royal Bank v. Court of Appeals — Cited for the principle that a corporation is a juridical person separate from its stockholders.
• Santos v. National Labor Relations Commission — Cited for the rule that mere ownership of nearly all capital stock does not justify piercing the corporate veil.
• Yao Ka Sin Trading v. Court of Appeals — Cited for agency principles governing corporate officers.
• BA Finance Corporation v. Court of Appeals — Cited for the rule that persons dealing with assumed agents bear the burden of proving agency and extent of authority.

• Section 23, Batas Pambansa Blg. 68 (Corporation Code) — Corporate powers are exercised by the board of directors.
• Section 40, Batas Pambansa Blg. 68 (Corporation Code) — Requirements for sale of substantially all corporate assets.
• Section 96, Batas Pambansa Blg. 68 (Corporation Code) — Definition of a close corporation.
• Article 1874, Civil Code — Requirement of written authority for agents selling immovable property.
• Article 1878(5), Civil Code — Special power of attorney required to transmit ownership of immovable property.
• Article 2154, Civil Code — Obligation to return what was received without right (solutio indebiti).
• Article 2155, Civil Code — Payment by mistake in construction or application of difficult question of law.