Magsaysay-Labrador, et. al. vs.

Court of Appeals [GR 58168, 19 December 1989]

NATURE:

Petition for certiorari to review the decision and resolution of CA

Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulment of the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of which TCT 3258 was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the Deed of Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the amount of P 2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the latter to issue a new title in her favor. On 7 March 1979, Concepcion Magsaysay-Labrador, Soledad Magsaysay-Cabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late senator, filed a motion for intervention on the ground that on 20 June 1978, their brother conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC. On 26 July 1979, the trial court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders. On appeal, the Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The appellate court further stated that whatever claims the Magsaysay sisters have against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding. The motion for reconsideration of the Magsaysay sisters was denied. Hence, the petition for review on certiorari. Issue: WON the assignment of shares vests the petitioners a legal interest in the corporate property? Held: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay sisters have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings. To be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof . Here, the interest, if it exists at all, of the Magsaysay sisters is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders ar e in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person. THE VALIDITY OF THE ALLEGED TRANSFER OF SHARES IS QUESTIONABLE. The corporation did not keep books and records. Hence, no transfer was ever recorded, much less effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect third persons in accordance with Section 63 of the Corporation Code. Granting there was a valid transfer, the interest which entitles a person to intervene in a suit must be of such direct and immediate character. Here, THE INTEREST OF PETITIONERS-MOVANTS IS INDIRECT, CONTINGENT, REMOTE, CONJECTURAL, CONSEQUENTIAL AND COLLATERAL. Their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents an aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person.

San Juan Structural and Steel Fabricators Inc. vs. CA [296 SCRA 631 (Sept 29 1998)] Effect of Unauthorized Acts of Corporate Officer Sufficiency of Proof to Pierce Veil of Corporate Fiction Facts: San Juan Structural and Steel Fabricators entered into an agreement with Motorich Sales Corporation through Nenita Gruenberg, corporate treasurer of Motorich, for the transfer to the former a parcel of land upon a P100,000 earnest money, balance to be payable within March 2, 1989. Upon payment of the earnest money, and on March 1, 1989, San Juan allegedly asked to be submitted a computation of the balance due to Motorich. The latter, despite repeated demands, refused to execute the Deed of Assignment of the land. San Juan discovered that Motorich entered into a Deed of Absolute Sale of the land to ACL Development Corporation. Hence, San Juan filed a complaint with the RTC. On the other hand, Motorich contends that since Nenita Gruenberg was only the treasurer of said corporation, and that its president, Reynaldo Gruenberg, did not sign the agreement entered into by San Juan and Motorich, the treasurers signature was inadequate to bind Motorich to the agreement. Furthermore, Nenita contended that since San Juan was not able to pay within the stipulated period, no deed of assignment could be made. The deed was agreed to be executed only after receipt of the cash payment, and since according to Nenita, no cash payment was made on the due date, no deed could have been executed. RTC dismissed the case holding that Nenita Gruenberg was not authorized by Motorich to enter into said contract with San Juan, and that a majority vote of the BoD was necessary to sell assets of the corporation in accordance with Sec. 40 of the Corporation Code. CA affirmed this decision. Hence, this petition with SC. Issues: (1) Whether or not there was a valid contract existing between San Juan and Motorich. (2) Whether or not the veil of corporate fiction could be pierced. Held: (1) No. The contract entered into between Nenita and San Juan cannot bind Motorich, because the latter never authorized nor 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 and may not be sold by them without express authorization from the corporations BoD. This is in accordance with Sec. 23 of the Corporation Code. Indubitably, a corporation can only act through its BoD or, when authorized either by its by laws 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 AoI, by laws, or relevant provisions of law. A corporate officer or agent may represent and bind the corporation in transactions with 3rd 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. Furthermore, persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it. Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets. In the case at bar, San Juan had the responsibility of ascertaining the extent of Nenitas authority to represent the corporation. Selling is obviously foreign to a corporate treasurers function. Neither was real estate sale shown to be a normal business activity of Motorich. The primary purpose of said corporation is marketing, distribution, import and export relating to a general merchandising business. Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell real property, an activity which falls way beyond the scope of her general authority. 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. (2) No. San Juan argues that the veil of corporate fiction should be pierced because the spouses Reynaldo and Nenita Gruenberg own 99.96% of the subscribed capital stock, they needed no authorization from the BoD to enter into the said contract. The veil can only 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. Hence, the question of piercing the veil becomes a matter of proof. In the case at bar, SC found no reason to pierce the veil. San Juan failed to establish that said corporation was formed for the purpose of shielding any fraudulent act of its officers and stockholders.

Philippine National Bank vs. Andrada Electric & Engineering Co. [GR 142936, 17 April 2002] Facts: On 26 August 1975, the Philippine national Bank (PNB) acquired the assets of the Pampanga Sugar Mills (PASUMIL) that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI 311. The PNB organized the ational Sugar Development Corporation (NASUDECO) in September 1975, to take ownership and possession of the assets and ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills. Prior to 29 October 1971, PASUMIL engaged the services of the Andrada Electric & Engineering Company (AEEC) for electrical rewinding and repair, most of which were partially paid by PASUMIL, leaving several unpaid accounts with AEEC. On 29 October 1971, AEEC and PASUMIL entered into a contract for AEEC to perform the (a) Construction of a power house building; 3 reinforced concrete foundation for 3 units 350 KW diesel engine generating sets, 3 reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets, among others. Aside from the work contract, PASUMIL required AEEC to perform extra work, and provide electrical equipment and spare parts. Out of the total obligation of P777,263.80, PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of 27 June 1973, amounting to P527,263.80. Out of said unpaid balance of P527,263.80, PASUMIL made a partial payment to AEEC of P14,000.00, in broken amounts, covering the period

from 5 January 1974 up to 23 May 1974, leaving an unpaid balance of P513,263.80. PASUMIL and PNB, and now NASUDECO, allegedly failed and refused to pay AEEC their just, valid and demandable obligation (The President of the NASUDECO is also the Vice-President of the PNB. AEEC besought said official to pay the outstanding obligation of PASUMIL, inasmuch as PNB and NASUDECO now owned and possessed the assets of PASUMIL, and these defendants all benefited from the works, and the electrical, as well as the engineering and repairs, performed by AEEC). Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay their obligations, AEEC allegedly suffered actual damages in the total amount of P513,263.80; and that in order to recover these sums, AEEC was compelled to engage the professional services of counsel, to whom AEEC agreed to pay a sum equivalent to 25% of the amount of the obligation due by way of attorney's fees. PNB and NASUDECO filed a joint motion to dismiss on the ground that the complaint failed to state sufficient allegations to establish a cause of action against PNB and NASUDECO, inasmuch as there is lack or want of privity of contract between the them and AEEC. Said motion was denied by the trial court in its 27 November order, and ordered PNB nad NASUDECO to file their answers within 15 days. After due proceedings, the Trial Court rendered judgment in favor of AEEC and against PNB, NASUDECO and PASUMIL; the latter being ordered to pay jointly and severally the former (1) the sum of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from 25 September 1980 until fully paid; (2) the sum of P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court of Appeals affirmed the decision of the trial court in its decision of 17 April 2000 (CA-GR CV 57610. PNB and NASUDECO filed the petition for review. Issue: Whether PNB and NASUDECO may be held liable for PASUMILs liability to AEEC. Held: Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting public auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts to Andrada Electric & Engineering Company (AEEC). Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1) control not mere stock control, but complete domination not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of. The absence of the foregoing elements in the present case precludes the piercing of the corporate veil. First, other than the fact that PNB and NASUDECO acquired the assets of PASUMIL, there is no showing that their control over it warrants the disregard of corporate personalities. Second, there is no evidence that their juridical personality was used to commit a fraud or to do a wrong; or that the separate corporate entity was farcically used as a mere alter ego, business conduit or instrumentality of another entity or person. Third, AEEC was not defrauded or injured when PNB and NASUDECO acquired the assets of PASUMIL. Hence, although the assets of NASUDECO can be easily traced to PASUMIL, the transfer of the latter's assets to PNB and NASUDECO was not fraudulently entered into in order to escape liability for its debt to AEEC. Neither was there any merger or consolidation with respect to PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code 59 was not followed. In fact, PASUMIL's corporate existence had not been legally extinguished or terminated. Further, prior to PNB's acquisition of the foreclosed assets, PASUMIL had previously made partial payments to AEEC for the former's obligation in the amount of P777,263.80. As of 27 June 1973, PASUMIL had paid P250,000 to AEEC and, from 5 January 1974 to 23 May 1974, another P14,000. Neither did PNB expressly or impliedly agree to assume the debt of PASUMIL to AEEC. LOI 11 explicitly provides that PNB shall study and submit recommendations on the claims of PASUMIL's creditors. Clearly, the corporate separateness between PASUMIL and PNB remains, despite AEEC's insistence to the contrary.