Bustos v. Cruz
REITERATIONFacts
The Antecedents: Spouses Fernando and Amelia Cruz, mere stockholders and officers of Millians Shoe, Inc. (MSI), owned a 464-square-meter lot in Marikina City covered by TCT No. N-126668. Due to nonpayment of real estate taxes, the City Government of Marikina levied the property on 6 January 2004, with the Notice of Levy annotated on the title on 8 January 2004. On 14 October 2004, the City Treasurer auctioned the property at public bidding, where petitioner Joselito Hernand M. Bustos emerged as the highest bidder. Meanwhile, MSI filed rehabilitation proceedings before the RTC (SEC Corp. Case No. 036-04), resulting in a Stay Order dated 25 October 2004 that purportedly included the subject property, with lis pendens notices annotated on the title on 9 February 2005. Petitioner applied for cancellation of the old title and issuance of a new one in his name, which the RTC-Marikina, Branch 273 granted via a final and executory Decision on 13 July 2006, with entry of judgment on 24 August 2006. The one-year redemption period for the tax delinquency sale extended until 15 October 2005, meaning ownership had not fully vested in petitioner at the time of the Stay Order issuance. Procedural History: On 26 September 2006, petitioner filed a Motion to Exclude the subject property from the Stay Order before the RTC-Imus, Branch 21 (handling the rehabilitation case), arguing the lot belonged to the Cruz Spouses, not MSI, and was auctioned before the lis pendens annotation. The RTC denied the motion on 18 January 2007, ruling that the redemption period had not lapsed by the Stay Order date (25 October 2004), so ownership remained with the Spouses. Petitioner's Motion for Reconsideration filed on 13 February 2007 was denied on 27 June 2007. Petitioner then filed a Petition for Certiorari (SP Proc. No. 100298) before the Court of Appeals, which dismissed it on 12 June 2008, holding the Spouses' property includable as they were officers/stockholders of MSI (a close corporation) personally liable for its debts, and deeming petitioner's opposition time-barred under the Interim Rules. Reconsideration was denied on 27 October 2008. The Petition: Before the Supreme Court via Rule 45 Petition filed 28 November 2008, petitioner argued: (1) the Cruz Spouses, as mere stockholders/officers, are not personally liable for MSI's debts under general corporate principles; (2) the Stay Order undermines Marikina City's taxing powers; and (3) the 10-day opposition period under Rule 4, Sec. 6 of the Interim Rules does not apply as he is not an MSI creditor but a claimant against the Spouses' property.
Issue(s)
Whether the Court of Appeals correctly ruled that the properties of Spouses Cruz, as stockholders and officers of MSI, are answerable for MSI's obligations and thus included in the rehabilitation Stay Order. Whether petitioner is a creditor of MSI subject to the 10-day opposition period in rehabilitation proceedings.
Ruling
The Petition is GRANTED. The CA Decision (12 June 2008) and Resolution (27 October 2008) in CA-G.R. SP No. 100298 are REVERSED and SET ASIDE. The subject property is excluded from the Stay Order as it belongs to the Cruz Spouses, not MSI.
Ratio Decidendi
On Issue 1 (Properties of Spouses Cruz not answerable for MSI obligations): The CA erred in classifying MSI as a close corporation without basis, as Section 96 of the Corporation Code requires explicit provisions in the articles of incorporation limiting stockholders to 20, imposing transfer restrictions, and prohibiting public offerings or stock exchange listing; narrow ownership alone is insufficient per San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals (357 Phil. 631, 1998). Neither the RTC nor CA examined MSI's articles, relying solely on Spouses' allegations, which are not proof (De Jesus v. Guerrero III, 614 Phil. 520, 2009). Section 97 subjects close corporation stockholders to directors' liabilities but not automatically to corporate debts; Section 100(5) imposes personal liability only for corporate torts where stockholders actively manage without insurance, requisites unproven here (Naguiat v. NLRC, 336 Phil. 545, 1997). Applying the separate juridical personality doctrine, corporations are distinct from stockholders, shielding personal properties from corporate debts (Heirs of Tan Uy v. International Exchange Bank, 703 Phil. 477, 2013; PNB v. Hydro Resources, 706 Phil. 297, 2013). Analogous to Situs Development Corp. v. Asiatrust Bank (691 Phil. 707, 2012), stockholders' mortgaged lands are not corporate assets for rehabilitation. Stay orders cover only debtor corporation's properties or solidary guarantors, excluding accommodation mortgagors (Siochi Fishery v. BPI, 675 Phil. 916, 2011; Pacific Wide Realty v. Puerto Azul, 620 Phil. 520, 2009). On Issue 2 (Petitioner not an MSI creditor): As the property owner is the Spouses, not MSI, petitioner holds a claim against them, not the corporation, per Interim Rules Rule 2, Sec. 1 limiting rehabilitation claims to those against the debtor or its property. Thus, Rule 4, Sec. 6's 10-day opposition period does not bind him, allowing exclusion motion beyond that timeframe.
Main Doctrine
A corporation is a close corporation only if its articles of incorporation explicitly provide that all issued stock is held by not more than 20 persons, subject to transfer restrictions, and not listed or publicly offered, as mandated by Section 96 of the Corporation Code; mere narrow ownership or allegations do not suffice, requiring courts to examine the articles. Stockholders in close corporations are subject to directors' liabilities under Section 97 but not automatically personally liable for general corporate debts. Personal liability for corporate torts arises under Section 100(5) only if stockholders are actively engaged in management without adequate liability insurance. The doctrine of separate juridical personality dictates that corporate assets exclude properties merely owned by stockholders, even if mortgaged for corporate loans, preventing inclusion in rehabilitation stay orders. Thus, third parties claiming against stockholders' properties, like tax sale purchasers, are not creditors of the corporation subject to the 10-day opposition period in rehabilitation proceedings.