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

written by Howard

G.R. No. 129459 – 357 Phil. 631 – 296 SCRA 631 – Mercantile Law – Corporation Law – Piercing the Veil of Corporate Fiction 

In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan) alleged that it entered into a contract of sale with Motorich Sales Corporation (Motorich) through the latter’s treasurer, Nenita Gruenberg. The subject of the sale was a parcel of land owned by Motorich. San Juan advanced P100k to Nenita as earnest money.

On the day agreed upon on which Nenita was supposed to deliver the title of the land to Motorich, Nenita did not show up. Nenita and Motorich did not heed the subsequent demand of San Juan to comply with the contract hence San Juan sued Motorich. Motorich, in its defense, argued that it is not bound by the acts of its treasurer, Nenita, since her act in contracting with San Juan was not authorized by the corporate board.

San Juan raised the issue that Nenita was actually the wife of the President of Motorich; that Nenita and her husband owns 98% of the corporation’s capital stocks; that as such, it is a close corporation and that makes Nenita and the President as principal stockholders who do not need any authorization from the corporate board; that in this case, the corporate veil may be properly pierced.

ISSUE: Whether or not San Juan is correct.

HELD: No. Motorich is right in invoking that it is not bound by the acts of Nenita because her act in entering into a contract with San Juan was not authorized by the board of directors of Motorich. Nenita is however ordered to return the P100k.

There is no merit in the contention that the corporate veil should be pierced even though it is true that Nenita and her husband own 98% of the capital stocks of Motorich. The corporate veil can only be pierced if the corporate fiction is merely used by the incorporators to shield themselves against liability for fraud, illegality or inequity committed on third persons. It is incumbent upon San Juan to prove that Nenita or her husband is merely using Motorich to defraud San Juan. In this case however, San Juan utterly failed to establish that Motorich 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 San Juan.

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