G.R. No.

L-48930 February 23, 1944

ANTONIO VAZQUEZ, petitioner, vs. FRANCISCO DE BORJA, respondent.
x---------------------------------------------------------x
G.R. No. L-48931 February 23, 1944
FRANCISCO DE BORJA, petitioner, vs. ANTONIO VAZQUEZ, respondent.
OZAETA, J.:
This action was commenced in the Court of First Instance of Manila by Francisco de Borja against Antonio
Vazquez and Fernando Busuego to recover from them jointly and severally the total sum of P4,702.70 upon
three alleged causes of action, to wit: First, that in or about the month of January, 1932, the defendants
jointly and severally obligated themselves to sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan,
to be delivered during the month of February, 1932, the said defendants having subsequently received from
the plaintiff in virtue of said agreement the sum of P8,400; that the defendants delivered to the plaintiff
during the months of February, March, and April, 1932, only 2,488 cavans of palay of the value of
P5,224.80 and refused to deliver the balance of 1,512 cavans of the value of P3,175.20 notwithstanding
repeated demands. Second, that because of defendants' refusal to deliver to the plaintiff the said 1,512
cavans of palay within the period above mentioned, the plaintiff suffered damages in the sum of P1,000.
And, third, that on account of the agreement above mentioned the plaintiff delivered to the defendants
4,000 empty sacks, of which they returned to the plaintiff only 2,490 and refused to deliver to the plaintiff
the balance of 1,510 sacks or to pay their value amounting to P377.50; and that on account of such refusal
the plaintiff suffered damages in the sum of P150.
The defendant Antonio Vazquez answered the complaint, denying having entered into the contract
mentioned in the first cause of action in his own individual and personal capacity, either solely or together
with his codefendant Fernando Busuego, and alleging that the agreement for the purchase of 4,000 cavans
of palay and the payment of the price of P8,400 were made by the plaintiff with and to the Natividad-
Vasquez Sabani Development Co., Inc., a corporation organized and existing under the laws of the
Philippines, of which the defendant Antonio Vazquez was the acting manager at the time the transaction
took place. By way of counterclaim, the said defendant alleged that he suffered damages in the sum of
P1,000 on account of the filing of this action against him by the plaintiff with full knowledge that the said
defendant had nothing to do whatever with any and all of the transactions mentioned in the complaint in his
own individual and personal capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the plaintiff the sum
of P3,175.20 plus the sum of P377.50, with legal interest on both sums, and absolving the defendant
Fernando Busuego (treasurer of the corporation) from the complaint and the plaintiff from the defendant
Antonio Vazquez' counterclaim. Upon appeal to the Court of Appeals, the latter modified that judgment by
reducing it to the total sum of P3,314.78, with legal interest thereon and the costs. But by a subsequent
resolution upon the defendant's motion for reconsideration, the Court of Appeals set aside its judgment and
ordered that the case be remanded to the court of origin for further proceedings. The defendant Vazquez,
not being agreeable to that result, filed the present petition for certiorari (G.R. No. 48930) to review and
reverse the judgment of the Court of Appeals; and the plaintiff Francisco de Borja, excepting to the
resolution of the Court of Appeals whereby its original judgment was set aside and the case was ordered
remanded to the court of origin for further proceedings, filed a cross-petition for certiorari (G.R. No.
48931) to maintain the original judgment of the Court of Appeals.
The original decision of the Court of Appeals and its subsequent resolutions on reconsideration read as
follows:
Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante vendio al demandante
4,000 cavanes de palay al precio de P2.10 el cavan, de los cuales, dicho demandante solamente recibio
2,583 cavanes; y que asimismo recibio para su envase 4,000 sacos vacios. Esta provbado que de dichos
4,000 sacos vacios solamente se entregaron, 2,583 quedando en poder del demandado el resto, y cuyo valor
es el de P0.24 cada uno. Presentada la demanda contra los demandados Antonio Vazquez y Fernando
Busuego para el pago de la cantidad de P4,702.70, con sus intereses legales desde el 1.o de marzo de 1932
hasta su completo pago y las costas, el Juzgado de Primera Instancia de Manila el asunto condenando a
Antonio Vazquez a pagar al demandante la cantidad de P3,175.20, mas la cantidad de P377.50, con sus
intereses legales, absolviendo al demandado Fernando Busuego de la demanda y al demandante de la
reconvencion de los demandados, sin especial pronunciamiento en cuanto a las costas. De dicha decision
apelo el demandado Antonio Vazquez, apuntado como principal error el de que el habia sido condenado
personalmente, y no la corporacion por el representada.
Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a favor de Francisco de Borja
de los 4,000 cavanes de palay fue en su capacidad de Presidente interino y Manager de la corporacion
Natividad-Vazquez Sabani Development Co., Inc. Asi resulta del Exh. 1, que es la copia al carbon del
recibo otorgado por el demandado Vazquez, y cuyo original lo habia perdido el demandante, segun el. Asi
tambien consta en los libros de la corporacion arriba mencionada, puesto que en los mismos se ha asentado
tanto la entrada de los P8,400, precio del palay, como su envio al gobierno en pago de los alquileres de la
Hacienda Sabani. Asi mismo lo admitio Francisco de Borja al abogado Sr. Jacinto Tomacruz, posterior
presidente de la corporacion sucesora en el arrendamiento de la Sabani Estate, cuando el solicito sus buenos
oficios para el cobro del precio del palay no entregado. Asi igualmente lo declaro el que hizo entrega de
parte del palay a Borja, Felipe Veneracion, cuyo testimonio no ha sido refutado. Y asi se deduce de la
misma demanda, cuando se incluyo en ella a Fernando Busuego, tesorero de la Natividad-Vazquez Sabani
Development Co., Inc.
Siendo esto asi, la principal responsable debe ser la Natividad-Vazquez Sabani Development Co., Inc., que
quedo insolvente y dejo de existir. El Juez sentenciador declaro, sin embargo, al demandado Vazquez
responsable del pago de la cantidad reclamada por su negligencia al vender los referidos 4,000 cavanes de
palay sin averiguar antes si o no dicha cantidad existia en las bodegas de la corporacion.
Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a Francisco de Borja, el mismo
demandado vendio a Kwong Ah Phoy 1,500 cavanes al precio de P2.00 el cavan, y decimos 'despues'
porque esta ultima venta aparece asentada despues de la primera. Segun esto, el apelante no solamente obro
con negligencia, sino interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902
del Codigo Civil, el debe ser responsable subsidiariamente del pago de la cantidad objecto de la demanda.
En meritos de todo lo expuesto, se confirma la decision apelada con la modificacion de que el apelante
debe pagar al apelado la suma de P2,295.70 como valor de los 1,417 cavanes de palay que dejo de entregar
al demandante, mas la suma de P339.08 como importe de los 1,417 sacos vacios, que dejo de devolver, a
razon de P0.24 el saco, total P3,314.78, con sus intereses legales desde la interposicion de la demanda y las
costas de ambas instancias.
Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de 1942, y alegandose en la
misma que cuando el apelante vendio los 1,500 cavanes de palay a Ah Phoy, la corporacion todavia tenia
bastante existencia de dicho grano, y no estando dicho extremo suficientemente discutido y probado, y
pudiendo variar el resultado del asunto, dejamos sin efecto nuestra citada decision, y ordenamos la
devolucion de la causa al Juzgado de origen para que reciba pruebas al efecto y dicte despues la decision
correspondiente.
Upon consideration of the motion of the attorney for the plaintiff-appellee in case CA-G.R. No. 8676,
Francisco de Borja vs. Antonio Vasquez et al., praying, for the reasons therein given, that the resolution of
December 22, 1942, be reconsidered: Considering that said resolution remanding the case to the lower
court is for the benefit of the plaintiff-appellee to afford him opportunity to refute the contention of the
defendant-appellant Antonio Vazquez, motion denied.
The action is on a contract, and the only issue pleaded and tried is whether the plaintiff entered into the
contract with the defendant Antonio Vazquez in his personal capacity or as manager of the Natividad-
Vazquez Sabani Development Co., Inc. The Court of Appeals found that according to the preponderance of
the evidence "the sale made by Antonio Vazquez in favor of Francisco de Borja of 4,000 cavans of palay
was in his capacity as acting president and manager of the corporation Natividad-Vazquez Sabani
Development Co., Inc." That finding of fact is final and, it resolving the only issue involved, should be
determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be remanded to the court of origin for further
trial to determine whether the corporation had sufficient stock of palay at the time appellant sold, 1500
cavans of palay to Kwong Ah Phoy. First, if that point was material to the issue, it should have been proven
during the trial; and the statement of the court that it had not been sufficiently discussed and proven was no
justification for ordering a new trial, which, by the way, neither party had solicited but against which, on
the contrary, both parties now vehemently protest. Second, the point is, in any event, beside the issue, and
this we shall now discuss in connection with the original judgment of the Court of Appeals which the
plaintiff cross-petitioner seeks to maintain.
The action being on a contract, and it appearing from the preponderance of the evidence that the party
liable on the contract is the Natividad-Vazquez Sabani Development Co., Inc. which is not a party herein,
the complaint should have been dismissed. Counsel for the plaintiff, in his brief as respondent, argues that
altho by the preponderance of the evidence the trial court and the Court of Appeals found that Vazquez
celebrated the contract in his capacity as acting president of the corporation and altho it was the latter, thru
Vazquez, with which the plaintiff had contracted and which, thru Vazquez, had received the sum of P8,400
from Borja, and altho that was true from the point of view of a legal fiction, "ello no impede que tambien
sea verdad lo alegado en la demanda de que la misma persona de Vasquez fue la que contrato con Borja y
que la misma persona de Vasquez fue quien recibio la suma de P8,400." But such argument is invalid and
insufficient to show that the president of the corporation is personally liable on the contract duly and
lawfully entered into by him in its behalf.
It is well known that a corporation is an artificial being invested by law with a personality of its own,
separate and distinct from that of its stockholders and from that of its officers who manage and run its
affairs. The mere fact that its personality is owing to a legal fiction and that it necessarily has to act thru its
agents, does not make the latter personally liable on a contract duly entered into, or for an act lawfully
performed, by them for an in its behalf. The legal fiction by which the personality of a corporation is
created is a practical reality and necessity. Without it no corporate entities may exists and no corporate
business may be transacted. Such legal fiction may be disregarded only when an attempt is made to use it
as a cloak to hide an unlawful or fraudulent purpose. No such thing has been alleged or proven in this case.
It has not been alleged nor even intimated that Vazquez personally benefited by the contract of sale in
question and that he is merely invoking the legal fiction to avoid personal liability. Neither is it contended
that he entered into said contract for the corporation in bad faith and with intent to defraud the plaintiff. We
find no legal and factual basis upon which to hold him liable on the contract either principally or
subsidiarily.
The trial court found him guilty of negligence in the performance of the contract and held him personally
liable on that account. On the other hand, the Court of Appeals found that he "no solamente obro con
negligencia, sino interveniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del
Codigo Civil, el debe ser responsable subsidiariamente del pago de la cantidad objeto de la demanda." We
think both the trial court and the Court of Appeals erred in law in so holding. They have manifestly failed
to distinguish a contractual from an extracontractual obligation, or an obligation arising from contract from
an obligation arising from culpa aquiliana. The fault and negligence referred to in articles 1101-1104 of the
Civil Code are those incidental to the fulfillment or nonfullfillment of a contractual obligation; while the
fault or negligence referred to in article 1902 is the culpa aquiliana of the civil law, homologous but not
identical to tort of the common law, which gives rise to an obligation independently of any contract. (Cf.
Manila R.R. Co. vs. Cia. Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. Manila R.R. Co., 38 Phil. 768.)
The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the
fulfillment of the contract, did not make Vazquez principally or even subsidiarily liable for such
negligence. Since it was the corporation's contract, its nonfulfillment, whether due to negligence or fault or
to any other cause, made the corporation and not its agent liable.
On the other hand if independently of the contract Vazquez by his fault or negligence cause damaged to the
plaintiff, he would be liable to the latter under article 1902 of the Civil Code. But then the plaintiff's cause
of action should be based on culpa aquiliana and not on the contract alleged in his complaint herein; and
Vazquez' liability would be principal and not merely subsidiary, as the Court of Appeals has erroneously
held. No such cause of action was alleged in the complaint or tried by express or implied consent of the
parties by virtue of section 4 of Rule 17. Hence the trial court had no jurisdiction over the issue and could
not adjudicate upon it (Reyes vs. Diaz, G.R. No. 48754.) Consequently it was error for the Court of
Appeals to remand the case to the trial court to try and decide such issue.
It only remains for us to consider petitioner's second assignment of error referring to the lower courts'
refusal to entertain his counterclaim for damages against the respondent Borja arising from the bringing of
this action. The lower courts having sustained plaintiff's action. The finding of the Court of Appeals that
according to the preponderance of the evidence the defendant Vazquez celebrated the contract not in his
personal capacity but as acting president and manager of the corporation, does not warrant his contention
that the suit against him is malicious and tortious; and since we have to decide defendant's counterclaim
upon the facts found by the Court of Appeals, we find no sufficient basis upon which to sustain said
counterclaim. Indeed, we feel that a a matter of moral justice we ought to state here that the indignant
attitude adopted by the defendant towards the plaintiff for having brought this action against him is in our
estimation not wholly right. Altho from the legal point of view he was not personally liable for the
fulfillment of the contract entered into by him on behalf of the corporation of which he was the acting
president and manager, we think it was his moral duty towards the party with whom he contracted in said
capacity to see to it that the corporation represented by him fulfilled the contract by delivering the palay it
had sold, the price of which it had already received. Recreant to such duty as a moral person, he has no
legitimate cause for indignation. We feel that under the circumstances he not only has no cause of action
against the plaintiff for damages but is not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby dismissed, without any
finding as to costs.
Yulo, C.J., Moran, Horrilleno and Bocobo, JJ., concur.

Separate Opinions
PARAS, J., dissenting:
Upon the facts of this case as expressly or impliedly admitted in the majority opinion, the plaintiff is
entitled to a judgment against the defendant. The latter, as acting president and manager of Natividad-
Vazquez Sabani Development Co., Inc., and with full knowledge of the then insolvent status of his
company, agreed to sell to the plaintiff 4,000 cavans of palay. Notwithstanding the receipt from the plaintiff
of the full purchase price, the defendant delivered only 2,488 cavans and failed and refused to deliver the
remaining 1,512 cavans and failed and refused to deliver the remaining 1,512 cavans and a quantity of
empty sacks, or their value. Such failure resulted, according to the Court of First Instance of Manila and the
Court of Appeals, from his fault or negligence.
It is true that the cause of action made out by the complaint is technically based on a contract between the
plaintiff and Natividad-Vazquez Sabani Development Co., Inc. which is not a party to this case.
Nevertheless, inasmuch as it was proven at the trial that the defendant was guilty of fault in that he
prevented the performance of the plaintiff's contract and also of negligence bordering on fraud which cause
damage to the plaintiff, the error of procedure should not be a hindrance to the rendition of a decision in
accordance with the evidence actually introduced by the parties, especially when in such a situation we may
order the necessary amendment of the pleadings, or even consider them correspondingly amended.
As already stated, the corporation of which the defendant was acting president and manager was, at the
time he made the sale of the plaintiff, known to him to be insolvent. As a matter of fact, said corporation
was soon thereafter dissolved. There is admitted damage on the part of the plaintiff, proven to have been
inflicted by reason of the fault or negligence of the defendant. In the interest of simple justice and to avoid
multiplicity of suits I am therefore impelled to consider the present action as one based on fault or
negligence and to sentence the defendant accordingly. Otherwise, he would be allowed to profit by his own
wrong under the protective cover of the corporate existence of the company he represented. It cannot be
pretended that any advantage under the sale inured to the benefit of Natividad-Vazquez Sabani
Development Co., Inc. and not of the defendant personally, since the latter undoubtedly owned a
considerable part of its capital.

G.R. No. 129459 September 29, 1998
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs. COURT OF
APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents.

PANGANIBAN, J.:
May corporate treasurer, by herself and without any authorization from he 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?
The Case
These questions are answered in the negative by this Court in resolving the Petition for Review on
Certiorari before us, assailing the March 18, 1997 Decision
1
of the Court of Appeals
2
in CA GR CV No.
46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court of Makati, Metro
Manila, Branch 63
3
in Civil Case No. 89-3511. The RTC dismissed both the Complaint and the
Counterclaim filed by the parties. On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH MODIFICATION
ordering defendant-appellee Nenita Lee Gruenberg to REFUND or return to plaintiff-appellant the
downpayment of P100,000.00 which she received from plaintiff-appellant. There is no pronouncement as
to costs.
4

The petition also challenges the June 10, 1997 CA Resolution denying reconsideration.
5

The Facts
The facts as found by the Court of Appeals are as follows:
Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended complaint alleged that on 14
February 1989, plaintiff-appellant entered into an agreement with defendant-appellee Motorich Sales
Corporation for the transfer to it of a parcel of land identified as Lot 30, Block 1 of the Acropolis Greens
Subdivision located in the District of Murphy, Quezon City. Metro Manila, containing an area of Four
Hundred Fourteen (414) square meters, covered by TCT No. (362909) 2876: that as stipulated in the
Agreement of 14 February 1989, plaintiff-appellant paid the downpayment in the sum of One Hundred
Thousand (P100,000.00) Pesos, the balance to be paid on or before March 2, 1989; that on March 1, 1989.
Mr. Andres T. Co, president of plaintiff-appellant corporation, wrote a letter to defendant-appellee
Motorich Sales Corporation requesting for a computation of the balance to be paid: that said letter was
coursed through defendant-appellee's broker. Linda Aduca, who wrote the computation of the balance: that
on March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the balance, covered by
Metrobank Cashier's Check No. 004223, payable to defendant-appellee Motorich Sales Corporation; that
plaintiff-appellant and defendant-appellee Motorich Sales Corporation were supposed to meet in the office
of plaintiff-appellant but defendant-appellee's treasurer, Nenita Lee Gruenberg, did not appear; that
defendant-appellee Motorich Sales Corporation 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; that defendant ACL Development Corp. is impleaded as a necessary party
since Transfer Certificate of Title No. (362909) 2876 is still in the name of said defendant; while defendant
JNM Realty & Development Corp. is likewise impleaded as a necessary party in view of the fact that it is
the transferor of right in favor of defendant-appellee Motorich Sales Corporation: 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-appellee Nenita Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer
Certificate of Title No. 3571; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich
Sales Corporation's bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment,
plaintiff-appellant suffered moral and nominal damages which may be assessed against defendants-
appellees in the sum of Five Hundred Thousand (500,000.00) Pesos; that as a result of defendants-appellees
Nenita Lee Gruenberg and Motorich Sales Corporation's unjustified and unwarranted failure to execute the
required Transfer of Rights/Deed of Assignment or formal deed of sale in favor of plaintiff-appellant,
defendants-appellees should be assessed exemplary damages in the sum of One Hundred Thousand
(P100,000.00) Pesos; that by reason of defendants-appellees' bad faith in refusing to execute a Transfer of
Rights/Deed of Assignment in favor of plaintiff-appellant, the latter lost the opportunity to construct a
residential building in the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a consequence
of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to
execute a deed of sale in favor of plaintiff-appellant, it has been constrained to obtain the services of
counsel at an agreed fee of One Hundred Thousand (P100,000.00) Pesos plus appearance fee for every
appearance in court hearings.
In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg interposed as
affirmative defense that the President and Chairman of Motorich did not sign the agreement adverted to in
par. 3 of the amended complaint; that Mrs. Gruenberg's signature on the agreement (ref: par. 3 of Amended
Complaint) is inadequate to bind Motorich. The other signature, that of Mr. Reynaldo Gruenberg, President
and Chairman of Motorich, is required: that plaintiff knew this from the very beginning as it was presented
a copy of the Transfer of Rights (Annex B of amended complaint) at the time the Agreement (Annex B of
amended complaint) was signed; that plaintiff-appellant itself drafted the Agreement and insisted that Mrs.
Gruenberg accept the P100,000.00 as earnest money; that granting, without admitting, the enforceability of
the agreement, plaintiff-appellant nonetheless failed to pay in legal tender within the stipulated period (up
to March 2, 1989); that it was the understanding between Mrs. Gruenberg and plaintiff-appellant that the
Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash payment; thus they agreed
that if the payment be in check, they will meet at a bank designated by plaintiff-appellant where they will
encash the check and sign the Transfer of Rights/Deed. However, plaintiff-appellant informed Mrs.
Gruenberg of the alleged availability of the check, by phone, only after banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed from[,] dismissing plaintiff-
appellant's complaint, ruling that:
The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a deed of
absolute sale in accordance with the agreement of February 14, 1989: and if so, whether plaintiff is entitled
to damage.
As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg was indeed
authorized by defendant corporation. Motorich Sales, to dispose of that property covered by T.C.T. No.
(362909) 2876. Since the property is clearly owned by the corporation. Motorich Sales, then its disposition
should be governed by the requirement laid down in Sec. 40. of the Corporation Code of the Philippines, to
wit:
Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on illegal combination
and monopolies, a corporation may by a majority vote of its board of directors . . . sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or substantially all of its property and assets including its
goodwill . . . when authorized by the vote of the stockholders representing at least two third (2/3) of the
outstanding capital stock . . .
No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[;] neither was there
evidence to show that the supposed transaction was ratified by the corporation. Plaintiff should have been
on the look out under these circumstances. More so, plaintiff himself [owns] several corporations (tsn dated
August 16, 1993, p. 3) which makes him knowledgeable on corporation matters.
Regarding the question of damages, the Court likewise, does not find substantial evidence to hold
defendant Nenita Lee Gruenberg liable considering that she did not in anyway misrepresent herself to be
authorized by the corporation to sell the property to plaintiff (tsn dated September 27, 1991, p. 8).
In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint at instance for
lack of merit.
"Defendants" counterclaim is also DISMISSED for lack of basis. (Decision, pp. 7-8; Rollo, pp. 34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by virtue of
Philippine Laws, with principal office address at 5510 South Super Hi-way cor. Balderama St., Pio del
Pilar. Makati, Metro Manila, represented herein by its Treasurer, NENITA LEE GRUENBERG, hereinafter
referred to as the TRANSFEROR;
and
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing under
and by virtue of the laws of the Philippines, with principal office address at Sumulong Highway, Barrio
Mambungan, Antipolo, Rizal, represented herein by its President, ANDRES T. CO, hereinafter referred to
as the TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of the
ACROPOLIS GREENS SUBDIVISION located at the District of Murphy, Quezon City, Metro Manila,
containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS, covered by a
TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp.
as the Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed as
follows:
1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5,200.00) per square
meter; subject to the following terms:
a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will be paid upon
the execution of this agreement and shall form part of the total purchase price;
b. Balance shall be payable on or before March 2, 1989;
2. That the monthly amortization for the month of February 1989 shall be for the account of the Transferor;
and that the monthly amortization starting March 21, 1989 shall be for the account of the Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described property and that there [are]
no existing liens and/or encumbrances of whatsoever nature;
In case of failure by the Transferee to pay the balance on the date specified on 1, (b), the earnest money
shall be forfeited in favor of the Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF
RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February, 1989 at
Greenhills, San Juan, Metro Manila, Philippines.
MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL FABRICATORS
TRANSFEROR TRANSFEREE
[SGD.] [SGD.]
By. NENITA LEE GRUENBERG By: ANDRES T. CO
Treasurer President
Signed In the presence of:
[SGD.] [SGD.]

6

In its recourse before the Court of Appeals, petitioner insisted:
1. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale in accordance with the
Agreement of February 14, 1989,
2. Plaintiff is entitled to damages.
7

As stated earlier, the Court of Appeals debunked petitioner's arguments and affirmed the Decision of the
RTC with the modification that Respondent Nenita Lee Gruenberg was ordered to refund P100,000 to
petitioner, the amount remitted as "downpayment" or "earnest money." Hence, this petition before us.
8

The Issues
Before this Court, petitioner raises the following issues:
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 note[s].
V. Whether or not respondents are liable for damages and attorney's fees
9

The Court synthesized the foregoing and will thus discuss them seriatim as follows:
1. Was there a valid contract of sale between petitioner and Motorich?
2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich?
3. Is the alleged alteration of Gruenberg's testimony as recorded in the transcript of stenographic notes
material to the disposition of this case?
4. Are respondents liable for damages and attorney's fees?
The Court's Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it entered
through its president, Andres Co, into the disputed Agreement with Respondent Motorich Sales
Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee Gruenberg. Petitioner
insists that "[w]hen Gruenberg and Co affixed their signatures on the contract they both consented to be
bound by the terms thereof." Ergo, petitioner contends that the contract is binding on the two corporations.
We do not agree.
True, Gruenberg and Co signed on February 14, 1989, 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.
10
Section
23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides;
Sec. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected from
among the holders of stocks, or where there is no stock, from among the members of the corporation, who
shall hold office for one (1) year and until their successors are elected and qualified.
Indubitably, 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.
11
Thus, this Court has held that "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."
12

Furthermore, the Court has also recognized the rule that "persons dealing with an assumed agent, whether
the assumed agency be a general or special one 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 (Harry Keeler v. Rodriguez, 4 Phil. 19)."
13

Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its
assets.
14

In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its
treasurer, to sell the subject parcel of land.
15
Consequently, petitioner had the burden of proving that
Nenita Gruenberg was in fact authorized to represent and bind Motorich in the transaction. Petitioner failed
to discharge this burden. Its offer of evidence before the trial court contained no proof of such authority.
16

It has not shown any provision of said respondent's articles of incorporation, bylaws or board resolution to
prove that Nenita Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of
ascertaining the extent of her authority to represent the corporation. 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."
17

Neither was such real estate sale shown to be a normal business activity of Motorich. The primary purpose
of Motorich is marketing, distribution, export and import in relation to a general merchandising business.
18

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.
Art. 1874 and 1878 of the Civil Code of the Philippines provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the
latter shall be in writing: otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the following case:
xxx xxx xxx
(5) To enter any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
xxx xxx xxx.
Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its
"acceptance of benefits," as evidenced by the receipt issued by Respondent Gruenberg.
19
Petitioner is
clutching at straws.
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."
20

In this case, 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. Petitioner rests its argument
on the receipt which, however, does not prove the fact of ratification. The document is a hand-written one,
not a corporate receipt, and it bears only Nenita Gruenberg's signature. Certainly, this document alone does
not prove that her acts were authorized or ratified by Motorich.
Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; (3) cause of the obligation
which is established." As found by the trial court
21
and affirmed by the Court of Appeals,
22
there is no
evidence that Gruenberg was authorized to enter into the contract of sale, or that the said contract was
ratified by Motorich. This factual finding of the two courts is binding on this Court.
23
As the consent of the
seller was not obtained, no contract to bind the obligor was perfected. Therefore, there can be no valid
contract of sale between petitioner and Motorich.
Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of
land, we hold that the February 14, 1989 Agreement entered into by the latter with petitioner is void under
Article 1874 of the Civil Code. Being inexistent and void from the beginning, said contract cannot be
ratified.
24

Second Issue: Piercing the Corporate Veil Not Justified
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"
25
of Motorich, petitioner argues that Gruenberg
needed no authorization from the board to enter into the subject contract.
26
It adds that, being solely owned
by the Spouses Gruenberg, the company can treated as a close corporation which can be bound by the acts
of its principal stockholder who needs no specific authority. The Court is not persuaded.
First, petitioner itself concedes having raised the issue belatedly,
27
not having done so during the trial, but
only when it filed its sur-rejoinder before the Court of Appeals.
28
Thus, this Court cannot entertain said
issue at this late stage of the proceedings. It is well-settled the points of law, theories and arguments not
brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing
court, as they cannot be raised for the first time on appeal.
29
Allowing petitioner to change horses in
midstream, as it were, is to run roughshod over the basic principles of fair play, justice and due process.
Second, even if the above mentioned argument were to be addressed at this time, the Court still finds no
reason to uphold it. True, one of the advantages of a corporate form of business organization is the
limitation of an investor's liability to the amount of the investment.
30
This feature flows from the legal
theory that a corporate entity is separate and distinct from its stockholders. However, the statutorily granted
privilege of a corporate veil may be used only for legitimate purposes.
31
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.
32

Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of perpetrating a fraud or
an illegal act or as vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from the members or stockholders who compose it will
be lifted to allow for its consideration merely as an aggregation of individuals."
33

We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud,
illegality or inequity committed on third persons. The question of piercing the veil of corporate fiction is
essentially, then, a matter of proof. 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.
Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the Corporation
Code defines a close corporation as follows:
Sec. 96. Definition and Applicability of Title. A close corporation, within the meaning of this Code, is
one whose articles of incorporation provide that: (1) All of the corporation's 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 by this Title; 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 within the meaning of this
Code. . . . .
The articles of incorporation
34
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.
35
Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg
owned 99.866% of its subscribed capital stock. The "[m]ere ownership by a single stockholder or by
another corporation of all or capital stock of a corporation is not of itself sufficient ground for disregarding
the separate corporate personalities."
36
So, too, a narrow distribution of ownership does not, by itself, make
a close corporation.
Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals
37
wherein the Court ruled that ". . .
petitioner corporation is classified as a close corporation and, consequently, a board resolution authorizing
the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its
president."
38
But the factual milieu in Dulay is not on all fours with the present case. In Dulay, the sale of
real property was contracted by the president of a close corporation with the knowledge and acquiescence
of its board of directors.
39
In the present case, Motorich is not a close corporation, as previously discussed,
and the agreement was entered into by the corporate treasurer without the knowledge of the board of
directors.
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."
40
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.
41
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.
42
As a consequence, Nenita Gruenberg
could not have effected a sale of the subject lot because "[t]here 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 interest in the partnership or in any property belonging to it; neither spouse can ask for a partition of
the properties before the partnership has been legally dissolved."
43

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 he authority of the court without which the disposition or
encumbrance is void."
44
Both requirements are manifestly absent in the instant case.
Third Issue: Challenged Portion of TSN Immaterial
Petitioner calls our attention to the following excerpt of the transcript of stenographic notes (TSN):
Q Did you ever represent to Mr. Co that you were authorized by the corporation to sell the property?
A Yes, sir.
45

Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No" with an initial
scribbled above it.
46
This, however, is insufficient to prove that Nenita Gruenberg was authorized to
represent Respondent Motorich in the sale of its immovable property. Said excerpt be understood in the
context of her whole testimony. During her cross-examination. Respondent Gruenberg testified:
Q So, you signed in your capacity as the treasurer?
[A] Yes, sir.
Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.
Q You stated on direct examination that you did not represent that you were authorized to sell the property?
A Yes, sir.
Q But you also did not say that you were not authorized to sell the property, you did not tell that to Mr. Co,
is that correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the corporation and it [was] also the president who [was] also
authorized to sign on behalf of the corporation.
Q You did not say that you were not authorized nor did you say that you were authorized?
A Mr. Co was very interested to purchase the property and he offered to put up a P100,000.00 earnest
money at that time. That was our first meeting. 47
Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property. On the
other hand, her testimony demonstrates that the president of Petitioner Corporation, in his great desire to
buy the property, threw caution to the wind by offering and paying the earnest money without first
verifying Gruenberg's authority to sell the lot.
Fourth Issue: Damages and Attorney's Fees
Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of malice and
bad faith, respondents attempted and succeeded in impressing on the trial court and [the] Court of Appeals
that Gruenberg did not represent herself as authorized by Respondent Motorich despite the receipt issued
by the former specifically indicating that she was signing on behalf of Motorich Sales Corporation.
Respondent Motorich likewise acted in bad faith when it claimed it did not authorize Respondent
Gruenberg and that the contract [was] not binding, [insofar] as it [was] concerned, despite receipt and
enjoyment of the proceeds of Gruenberg's act."
48
Assuming that Respondent Motorich was not a party to
the alleged fraud, petitioner maintains that Respondent Gruenberg should be held liable because she "acted
fraudulently and in bad faith [in] representing herself as duly authorized by [R]espondent [C]orporation."
49

As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing
allegations lack factual bases. Hence, an award of damages or attorney's fees cannot be justified. The
amount paid as "earnest money" was not proven to have redounded to the benefit of Respondent Motorich.
Petitioner claims that said amount was deposited to the account of Respondent Motorich, because "it was
deposited with the account of Aren Commercial c/o Motorich Sales Corporation."
50
Respondent
Gruenberg, however, disputes the allegations of petitioner. She testified as follows:
Q You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the check was
encashed.
A Yes. sir, the check was paid in my name and I deposit[ed] it.
Q In your account?
A Yes, sir.
51

In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale did not push through."
52

Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the
president of Petitioner Corporation for more than ten years and has also served as chief executive of two
other corporate entities.
53
Co cannot feign ignorance of the scope of the authority of a corporate treasurer
such as Gruenberg. Neither can he be oblivious to his duty to ascertain the scope of Gruenberg's
authorization to enter into a contract to sell a parcel of land belonging to Motorich.
Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the Court.
Indubitably, petitioner appears to be the victim of its own officer's negligence in entering into a contract
with and paying an unauthorized officer of another corporation.
As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return to
petitioner the amount she received as earnest money, as "no one shall enrich himself at the expense of
another."
54
a principle embodied in Article 2154 of Civil Code.
55
Although there was no binding relation
between them, petitioner paid Gruenberg on the mistaken belief that she had the authority to sell the
property of Motorich.
56
Article 2155 of Civil Code provides that "[p]ayment by reason of a mistake in the
contruction or application of a difficult question of law may come within the scope of the preceding
article."
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
SO ORDERED.