SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC. vs. COURT OF APPEALS

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC. vs. COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP.

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

Facts:

1.      Plaintiff entered into an agreement with defendant Motorich Sales Corporation for the transfer to it of a parcel of land.

2.      As stipulated in the Agreement, plaintiff paid the downpayment in the sum of P100,000.00.

3.      On March 2, 1989, plaintiffwas ready with the amount corresponding to the balance.

4.      Plaintiffand defendant were supposed to meet in the officeof plaintiff but defendant treasurer, Nenita Lee Gruenberg, did not appear.

5.      Defendant 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.

6.      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 Nenita Lee Gruenberg and Reynaldo L. Gruenberg.

7.      In its answer, defendantsinterposed as affirmative defense that the President and Chairman of Motorich did not sign the agreement and that Mrs. Gruenbergs signature on the agreement is inadequate to bind Motorich.

Issue:

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?

Ruling:

First issue:

            True, Gruenberg and Co signed 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.

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. Thus, 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.

In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of land. Consequently, petitioner had the burden of proving thatNenita Gruenberg was in fact authorized to represent and bind Motorich in the transaction. Petitioner failedto discharge this burden. Its offer of evidence before the trial court contained no proof of such authority.It has not shown any provision of said respondent’s articles of incorporation, bylaws or board resolution toprove that Nenita Gruenberg possessed such power.

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 treasurer’s 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.

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. 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.

Second Issue:

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 of Motorich, petitioner argues that Gruenberg needed no authorization from the board to enter into the subject contract.

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.

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.

A close corporation, 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; 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

The articles of incorporation 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. Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. 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. So too, a narrow distribution of ownership does not, by itself, make a close corporation.

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. 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. 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. As a consequence, Nenita Gruenberg could not have effected a sale of the subject lot because there 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 nor in any property belonging to it; neither spouse can ask for a partition of the properties before the partnership has been legally dissolved.

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. Both requirements are manifestly absent in the instant case.