San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioner San Juan Structural and Steel Fabricators, Inc. (San Juan) entered into an Agreement with Motorich Sales Corporation (Motorich) for the transfer of a parcel of land. San Juan paid a downpayment of P100,000.00, with the balance to be paid on or before March 2, 1989. San Juan was ready to pay the balance, but Motorich, through its treasurer Nenita Lee Gruenberg, refused to execute the necessary Transfer of Rights/Deed of Assignment. Motorich's president and chairman, Reynaldo L. Gruenberg, did not sign the agreement, and Motorich claimed that Nenita Gruenberg's signature was insufficient to bind the corporation. Procedural History: The Regional Trial Court (RTC) dismissed both the complaint and the counterclaim, finding no evidence that Nenita Lee Gruenberg was authorized by Motorich to sell the property and that the sale did not comply with Section 40 of the Corporation Code. The Court of Appeals (CA) affirmed the RTC decision with modification, ordering Nenita Lee Gruenberg to refund the P100,000.00 downpayment to San Juan. The Petition: San Juan filed a Petition for Review on Certiorari, assailing the CA decision and raising issues regarding the validity of the contract, the applicability of piercing the corporate veil, the consideration of matters not raised in the lower court, and liability for damages.
Issue(s)
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 notes. V. Whether or not respondents are liable for damages and attorney's fees, and the matter of refund of earnest money.
Ruling
The petition is devoid of merit. The assailed Decision of the Court of Appeals is affirmed.
Ratio Decidendi
On Issue I (Piercing the Corporate Veil): The Court held that the doctrine of piercing the corporate veil was not applicable and that Motorich was not a close corporation. Firstly, the issue was raised belatedly by petitioner before the Court of Appeals and could not be considered for the first time on appeal. Secondly, even if considered, petitioner failed to prove that Motorich was used to shield fraud, illegality, or inequity. The Court clarified that mere ownership of a high percentage of stock by a few individuals does not automatically make a corporation a close corporation; it must meet the specific requirements under Section 96 of the Corporation Code, which Motorich's articles of incorporation did not satisfy. The Court distinguished the case from Dulay Enterprises, Inc. v. Court of Appeals where the corporation was indeed a close corporation and the sale was known to the board. On Issue II (Consideration of Matters Not Raised in Lower Court): While the original text does not explicitly address this issue with a specific ruling, it is implicitly addressed within the context of Issue I. The Court's statement that the issue of piercing the corporate veil was raised belatedly and could not be considered for the first time on appeal serves as the ratio for Issue II. Therefore, the appellate court cannot consider matters which the parties failed to raise in the lower court. On Issue III (Validity of Agreement): The Court ruled that there was no valid contract of sale between petitioner and Motorich. While Nenita Lee Gruenberg, as treasurer, and Andres T. Co, as president, signed the Agreement, the sale of corporate assets requires authorization from the board of directors. Section 23 of the Corporation Code mandates that corporate powers are exercised by the board. Gruenberg, as treasurer, lacked the inherent authority to sell corporate property, and petitioner failed to present proof of such authority, whether actual or apparent. Articles 1874 and 1878 of the Civil Code further require written authority for the sale of immovable property through an agent. The Court found no evidence of ratification by Motorich, as the receipt for the earnest money bore only Gruenberg's signature and was not a corporate receipt. Therefore, the contract was void for lack of consent from the seller, as Gruenberg was not authorized to bind Motorich. On Issue IV (Correction/Substitution of TSN): The Court found the alleged alteration in the transcript of stenographic notes immaterial. Nenita Gruenberg's full testimony, when considered in context, did not establish that she represented herself as authorized to sell the property. Her testimony indicated she informed Mr. Co that she was the treasurer and that the president was also authorized to sign, while Mr. Co, eager to purchase, offered earnest money without verifying her authority. This demonstrated that petitioner's officer acted with negligence. On Issue V (Damages and Attorney's Fees, and Refund of Earnest Money): The Court denied the claim for damages and attorney's fees, finding no factual basis for the allegations of malice and bad faith. The P100,000.00 earnest money was not proven to have benefited Motorich, as Gruenberg testified she deposited it in her personal account and offered to return it when the sale did not push through. The Court noted that Mr. Co, as an experienced corporate officer, should have known the limits of a treasurer's authority and the need to verify it. Petitioner was deemed to be the victim of its own officer's negligence. Although no binding contract existed, the Court affirmed the CA's modification ordering Nenita Gruenberg to refund the P100,000.00 to petitioner. This was based on the principle of unjust enrichment (Article 2154 of the Civil Code), as payment was made under the mistaken belief that Gruenberg had the authority to sell the property. Article 2155 of the Civil Code also supports payment made by reason of a mistake in the construction or application of a difficult question of law.
Main Doctrine
A corporate treasurer, by virtue of their position alone, does not possess the inherent authority to sell corporate assets, particularly real property. Such a sale requires express authorization from the board of directors, and third parties dealing with the corporation are bound to ascertain the extent of the officer's authority. Furthermore, a corporation is not automatically considered a close corporation solely based on a high percentage of stock ownership by a few individuals; it must meet the specific definitional requirements under the Corporation Code.