SECOND DIVISION

[G.R. No. L-56076. September 21, 1983.]

PALAY, INC. and ALBERT ONSTOTT , petitioner, vs. JACOBO C. CLAVE,

Presidential Executive Assistant, NATIONAL HOUSING AUTHORITY and
NAZARIO DUMPIT , respondents.

Santos, Calcetas-Santos & Geronimo Law Office for petitioner.

Wilfredo E. Dizon for private respondent.

SYLLABUS

1. CIVIL LAW; CONTRACTS; WRITTEN NOTICE STILL REQUIRED THOUGH

JUDICIAL ACTION NOT NECESSARY FOR RESCISSION. — Well settled is the rule, as held
in previous jurisprudence Torralba vs. de Los Angeles, 96 SCRA 69) that judicial action
for the rescission of a contract is not necessary where the contract provides that it may
be revoked and canceled for violation of any of its terms and conditions. However, even
in the cited case, there was at least a written notice sent to the defaulter informing him
of the rescission. As stressed in University of the Philippines vs. Walfrido de los
Angeles, 33 SCRA 102 (1970) the act of a party in treating a contract as cancelled
should be made known to the other.
2. ID.; ID.; EXTRAJUDICIAL RESCISSION; EFFECTIVE IF NOT OPPOSED. — A
stipulation entitling one party to take possession of the land and building if the other
party violates the contract does not ex proprio vigore confer upon the former the right
to take possession thereof if objected to without judicial intervention and
determination (Nera vs. Vacante, 3 SCRA 505 (1961]). This was reiterated in Zulueta vs.
Mariano (111 SCRA 206 [1982]) where we held that extrajudicial rescission has legal
effect where the other party does not oppose it (Tolentino, Civil Code of the Philippines,
Vol. IV, 1962 ed., p. 168, citing Magdalena Estate vs. Myrick, 71 Phil. 344). In other
words, resolution of reciprocal contracts may be made extrajudicially unless
successfully impugned in Court. If the debtor impugns the declaration, it shall be
subject to judicial determination (UP vs. de los Angeles, supra).
3. ID.; ID.; ID.; WAIVER OF RIGHT TO BE NOTIFIED; VALID ONLY WHERE
LIBERTY OF CHOICE FULLY ACCORDED. — The indispensability of notice of cancellation
to the buyer was to be later underscored in Republic Act No. 6551 entitled "An Act to
Provide Protection to Buyers of Real Estate on Installment Payments" which took effect
on September 14, 1972. The contention that private respondent had waived his right to
be noti ed under paragraph 6 of the contract is neither meritorious because it was a
contract of adhesion, a standard form of petitioner corporation, and private respondent
had no freedom to stipulate. A waiver must be certain and unequivocal, and intelligently
made; such waiver follows only where liberty of choice has been fully accorded (Chavez
vs. Court of Appeals, 24 SCRA 663, 682-683(1968]). Moreover, it is a matter of public
policy to protect buyers of real estate on installment payments against onerous and
oppressive conditions. Waiver of notice is one such onerous and oppressive condition
to buyers of real estate on installment payments.
4. ID.; ID.; ID.; RIGHT ACCORDED DEFAULTER. — As a consequence of the
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 resolution by petitioners, tights to the lot should be restored to private respondent or
the same should be replaced by another acceptable lot. However, considering that the
property had already been sold to a third person and there is no evidence on record that
other lots are still available, private respondent is entitled to the refund of installments
paid plus interest at the legal rate of 12% computed from the date of the institution of
the action. (Vercelus vs. Edano, 46 Phil. 801 [1924]). It would be most inequitable if
petitioners were to be allowed to retain private respondent's payments and at the same
time appropriate the proceeds of the second sale to another.
5. CORPORATION LAW; CORPORATION; SEPARATE AND DISTINCT
PERSONALITY; PIERCING OF CORPORATE FICTION. — It is basic that a corporation is
invested by law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it may be related
(Yutivo Sons Hardware Co. vs. Court of Tax Appeals, 1 SCRA 160 [1961]). As a general
rule, a corporation may not be made to answer for acts or liabilities of its stockholders
or those of the legal entities to which it may be connected and vice versa. However, the
veil of corporate ction may be pierced when it is used as a shield to further an end
subversive of justice (Emilio Cano Enterprises, Inc. vs. CIR, 13 SCRA 290 [1965]); or for
purposes that could not have been intended by the law that created it (McConnel vs.
CA, 1 SCRA 722, 726 [1961]); or to defeat public convenience, justify wrong, protect
fraud, or defend crime (Yutivo Sons Hardware Co. vs. CTA, supra; McConnel vs. CA,
supra); or to perpetuate fraud or confuse legitimate issues (R.F. Sugay & Co., Inc. vs.
Reyes, 12 SCRA 700 [1964]) or to circumvent the law or perpetuate deception;
(Gregorio Araneta, Inc. vs. De Paterno & Vidal, 91 Phil. 786 [1952]) or as an alter ego,
adjunct or business conduit for the sole bene t of the stockholders (McConnel vs. CA,
supra; Commissioner of Internal Revenue vs. Norton Harrison Co., 120 Phil. 684
[1964]).
6. ID.; ID.; ID.; MERE OWNERSHIP OF ALL CAPITAL STOCK; NOT GROUND
FOR DISREGARDING CORPORATE PERSONALITY. — In this case, petitioner Onstott was
made liable because he was then the President of the corporation and he appeared to
be the controlling stockholder. No su cient proof exists on record that said petitioner
used the corporation to defraud private respondent. He cannot, therefore, be made
personally liable just because he "appears to be the controlling stockholder." Mere
ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself su cient ground for disregarding the
separate corporate personality (Liddel & Co. vs. Collector of Internal Revenue, 2 SCRA
632, 640 [1961]).

DECISION

MELENCIO-HERRERA , J : p

The Resolution, dated May 2, 1980, issued by Presidential Executive Assistant

Jacobo Clave in O.P. Case No. 1459, directing petitioners Palay, Inc. and Alberto
Onstott, jointly and severally, to refund to private respondent, Nazario Dumpit, the
amount of P13,722.50 with 12% interest per annum, as resolved by the National
Housing Authority in its Resolution of July 10, 1979 in Case No. 2167, as well as the
Resolution of October 28, 1980 denying petitioners' Motion for Reconsideration of said
Resolution of May 2, 1980, are being assailed in this petition.LLphil

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 On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott,
executed in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel of
Land (Lot No. 8, Block IV) of the Crestview Heights Subdivision in Antipolo, Rizal, with
an area of 1,165 square meters, covered by TCT No. 90454, and owned by said
corporation. The sale price was P23,300.00 with 9% interest per annum, payable with a
downpayment of P4,660.00 and monthly installments of P246.42 until fully paid.
Paragraph 6 of the contract provided for automatic extrajudicial rescission upon
default in payment of any monthly installment after the lapse of 90 days from the
expiration of the grace period of one month, without need of notice and with forfeiture
of all installments paid.
Respondent Dumpit paid the downpayment and several installments amounting
to P13,722.50. The last payment was made on December 5, 1967 for installments up to
September 1967.
On May 10, 1973, or almost six (6) years later, private respondent wrote
petitioner offering to update all his overdue accounts with interest, and seeking its
written consent to the assignment of his rights to a certain Lourdes Dizon. He followed
this up with another letter dated June 20, 1973 reiterating the same request. Replying,
petitioners informed respondent that his Contract to Sell had long been rescinded
pursuant to paragraph 6 of the contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent led a letter
complaint with the National Housing Authority (NHA) for reconveyance with an
alternative prayer for refund (Case No. 2167). In a Resolution, dated July 10, 1979, the
NHA, nding the rescission void in the absence of either judicial or notarial demand,
ordered Palay, Inc. and Alberto Onstott, in his capacity as President of the corporation,
jointly and severally, to refund immediately to Nazario Dumpit the amount of
P13,722.50 with 12% interest from the ling of the complaint on November 8, 1974.
Petitioners' Motion for Reconsideration of said Resolution was denied by the NHA in its
Order dated October 23, 1979. 1
On appeal to the O ce of the President, upon the allegation that the NHA
Resolution was contrary to law (O.P. Case No. 1459), respondent Presidential Executive
Assistant, on May 2, 1980, a rmed the Resolution of the NHA. Reconsideration sought
by petitioners was denied for lack of merit. Thus, the present petition wherein the
following issues are raised: LibLex

I
"Whether notice or demand is not mandatory under the circumstances and,
therefore, may be dispensed with by stipulation in a contract to sell.
II

Whether petitioners may be held liable for the refund of the installment
payments made by respondent Nazario M. Dumpit.
III

Whether the doctrine of piercing the veil of corporate ction has

application to the case at bar.

IV
"Whether respondent Presidential Executive Assistant committed grave
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 abuse of discretion in upholding the decision of respondent NHA holding
petitioners solidarily liable for the refund of the installment payments made by
respondent Nazario M. Dumpit thereby denying substantial justice to the
petitioners, particularly petitioner Onstott."

We issued a Temporary Restraining Order on February 11, 1981 enjoining the

enforcement of the questioned Resolutions and of the Writ of Execution that had been
issued on December 2, 1980. On October 28, 1981, we dismissed the petition but upon
petitioners' motion, reconsidered the dismissal and gave due course to the petition on
March 15, 1982.

On the rst issue, petitioners maintain that it was justi ed in cancelling the
contract to sell without prior notice or demand upon respondent in view of paragraph 6
thereof which provides:
"6. That in case the BUYER fails to satisfy any monthly installment, or
any other payments herein agreed upon, the BUYER shall be granted a month of
grace within which to make the payment of the account in arrears together with
the one corresponding to the said month of grace. It shall be understood, however,
that should the month of grace herein granted to the BUYER expire, without the
payments corresponding to both months having been satis ed, an interest of ten
(10%) per cent per annum shall be charged on the amounts the BUYER should
have paid; it is understood further, that should a period of NINETY (90) DAYS
elapse to begin from the expiration of the month of grace hereinbefore mentioned,
and the BUYER shall not have paid all the amounts that the BUYER should have
paid with the corresponding interest up to the date, the SELLER shall have the
right to declare this contract cancelled and of no effect without notice, and as a
consequence thereof, the SELLER may dispose of the lot/lots covered by this
Contract in favor of other persons, as if this contract had never been entered into.
In case of such cancellation of this Contract, all the amounts which may have
been paid by the BUYER in accordance with the agreement, together with all the
improvements made on the premises, shall be considered as rents paid for the
use and occupation of the above mentioned premises and for liquidated
damages suffered by virtue of the failure of the BUYER to ful ll his part of this
agreement: and the BUYER hereby renounces his right to demand or reclaim the
return of the same and further obligates himself peacefully to vacate the
premises and deliver the same to the SELLER."

Well settled is the rule, as held in previous jurisprudence, 2 that judicial action for
the rescission of a contract is not necessary where the contract provides that it may be
revoked and cancelled for violation of any of its terms and conditions. However, even in
the cited cases, there was at least a written notice sent to the defaulter informing him
of the rescission. As stressed in University of the Philippines vs. Walfrido de los
Angeles 3 the act of a party in treating a contract as cancelled should be made known
to the other. We quote the pertinent excerpt: LLpr

"Of course, it must be understood that the act of a party in treating a

contract as cancelled or resolved in account of infractions by the other
contracting party must be made known to the other and is always provisional
being ever subject to scrutiny and review by the proper court. If the other party
denies that rescission is justi ed it is free to resort to judicial action in its own
behalf, and bring the matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not warranted, the responsible party
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 will be sentenced to damages; in the contrary case, the resolution will be a rmed,
and the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action, but it
proceeds at its own risk. For it is only the nal judgment of the corresponding
court that will conclusively and nally settle whether the action taken was or was
not correct in law. But the law definitely does not require that the contracting party
who believes itself injured must rst le suit and wait for a judgment before
taking extrajudicial steps to protect its interest. Otherwise, the party injured by the
other's breach will have to passively sit and watch its damages accumulate
during the pendency of the suit until the nal judgment of rescission is rendered
when the law itself requires that he should exercise due diligence to minimize its
own damages (Civil Code, Article 2203).
We see no con ict between this ruling and the previous jurisprudence of
this Court invoked by respondent declaring that judicial action is necessary for the
resolution of a reciprocal obligation (Ocejo, Perez & Co., vs. International Banking
Corp., 37 Phil. 631; Republic vs. Hospital de San Juan De Dios, et al., 84 Phil 820)
since in every case where the extrajudicial resolution is contested only the nal
award of the court of competent jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that judicial action will be
necessary, as without it, the extrajudicial resolution will remain contestable and
subject to judicial invalidation unless attack thereon should become barred by
acquiescence, estoppel or prescription.

Fears have been expressed that a stipulation providing for a unilateral

rescission in case of breach of contract may render nugatory the general rule
requiring judicial action (v. Footnote, Padilla, Civil Law, Civil Code Anno., 1967 ed.
Vol. IV, page 140) but, as already observed, in case of abuse or error by the
rescinder, the other party is not barred from questioning in court such abuse or
error, the practical effect of the stipulation being merely to transfer to the
defaulter the initiative of instituting suit, instead of the rescinder." (Emphasis
ours).

Of similar import is the ruling in Nera vs. Vacante 4 , reading:

"A stipulation entitling one party to take possession of the land and
building if the other party violates the contract does not ex proprio vigore confer
upon the former the right to take possession thereof if objected to without judicial
intervention and determination."

This was reiterated in Zulueta vs. Mariano 5 where we held that extrajudicial
rescission has legal effect where the other party does not oppose it. 6 Where it is
objected to, a judicial determination of the issue is still necessary. LLjur

In other words, resolution of reciprocal contracts may be made extrajudicially

unless successfully impugned in Court. If the debtor impugns the declaration, it shall be
subject to judicial determination. 7
In this case, private respondent has denied that rescission is justi ed and has
resorted to judicial action. It is now for the Court to determine whether resolution of the
contract by petitioners was warranted.
We hold that resolution by petitioners of the contract was ineffective and
inoperative against private respondent for lack of notice of resolution, as held in the
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 U.P. vs. Angeles case, supra.
Petitioner relies on Torralba vs. De los Angeles 8 where it was held that "there
was no contract to rescind in court because from the moment the petitioner defaulted
in the timely payment of the installments, the contract between the parties was deemed
ipso facto rescinded." However, it should be noted that even in that case notice in
writing was made to the vendee of the cancellation and annulment of the contract
although the contract entitled the seller to immediate repossessing of the land upon
default by the buyer.
The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 6551 entitled "An Act to Provide Protection to Buyers
of Real Estate on Installment Payments." which took effect on September 14, 1972,
when it specifically provided:
"Sec. 3(b) . . . the actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of cancellation or the demand
for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer." (Emphasis supplied).

The contention that private respondent had waived his right to be noti ed under
paragraph 6 of the contract is neither meritorious because it was a contract of
adhesion, a standard form of petitioner corporation, and private respondent had no
freedom to stipulate. A waiver must be certain and unequivocal, and intelligently made;
such waiver follows only where liberty of choice has been fully accorded. 9 Moreover, it
is a matter of public policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions. Waiver of notice is one such onerous and
oppressive condition to buyers of real estate on installment payments.
Regarding the second issue on refund of the installment payments made by
private respondent. Article 1385 of the Civil Code provides:
"ART. 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the price with
its interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.
"Neither shall rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act in bad
faith.

"In this case, indemnity for damages may be demanded from the person
causing the loss."

As a consequence of the resolution by petitioners, rights to the lot should be

restored to private respondent or the same should be replaced by another acceptable
lot. However, considering that the property had already been sold to a third person and
there is no evidence on record that other lots are still available, private respondent is
entitled to the refund of installments paid plus interest at the legal rate of 12%
computed from the date of the institution of the action. 1 0 It would be most inequitable
if petitioners were to be allowed to retain private respondent's payments and at the
same time appropriate the proceeds of the second sale to another. cdphil

We come now to the third and fourth issues regarding the personal liability of
petitioner Onstott, who was made jointly and severally liable with petitioner corporation
for refund to private respondent of the total amount the latter had paid to petitioner
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 company. It is basic that a corporation is invested by law with a personality separate
and distinct from those of the persons composing it as well as from that of any other
legal entity to which it may be related. 1 1 As a general rule, a corporation may not be
made to answer for acts or liabilities of its stockholders or those of the legal entities to
which it may be connected and vice versa. However, the veil of corporate ction may be
pierced when it is used as a shield to further an end subversive of justice 1 2 ; or for
purposes that could not have been intended by the law that created it 1 3 ; or to defeat
public convenience, justify wrong, protect fraud, or defend crime 1 4 ; or to perpetuate
fraud or confuse legitimate issues; 1 5 or to circumvent the law or perpetuate deception;
1 6 or as an alter ego, adjunct or business conduit for the sole bene t of the
stockholders. 1 7
We nd no badges of fraud on petitioners part. They had literally relied, albeit
mistakenly, on paragraph 6 (supra) of its contract with private respondent when it
rescinded the contract to sell extrajudicially and had sold it to a third person.
In this case, petitioner Onstott was made liable because he was then the
President of the corporation and he appeared to be the controlling stockholder. No
su cient proof exists on record that said petitioner used the corporation to defraud
private respondent. He cannot, therefore, be made personally liable just because he
"appears to be the controlling stockholder". Mere ownership by a single stockholder or
by another corporation of all or nearly all of the capital stock of a corporation is not of
itself su cient ground for disregarding the separate corporate personality. 1 8 In this
respect then, a modification of the Resolution under review is called for.
WHEREFORE, the questioned Resolution of respondent public o cial, dated May
2, 1980, is hereby modi ed. Petitioner Palay, Inc. is directed to refund to respondent
Nazario M. Dumpit the amount of P13,722.50, with interest at twelve (12%) percent per
annum from November 8, 1974, the date of the ling of the Complaint. The temporary
Restraining Order heretofore issued is hereby lifted.
No costs.
SO ORDERED.
Plana, Relova and Gutierrez, Jr., JJ., concur.
Teehankee, J., concurs in the result.

Footnotes
1. pp. 103-104, Rollo.
2. Torralba vs. De los Angeles, 96 SCRA 69; Luzon Brokerage Co., Inc. vs. Maritime Building
Co., 43 SCRA 93 and 86 SCRA 305; Lopez vs. Commissioner of Customs, 37 SCRA 327;
U.P. vs. De los Angeles, 35 SCRA 102; Ponce Enrile vs. CA, 29 SCRA 504; Froilan vs. Pan
Oriental Shipping Co., 12 SCRA 276; Taylor vs. Uy Tieng Piao, 43 Phil. 873.
3. 35 SCRA 102 (1970).

4. 3 SCRA 505 (1961).

5. 111 SCRA 206 (1982).
6. Tolentino, Civil Code of the Philippines, Vol. IV, 1962 ed., p. 168, citing Magdalena Estate
vs. Myrick, 71 Phil. 344 (1941).
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 7. U.P. vs. De los Angeles, supra.
8. 96 SCRA 69 (1980).

9. Chavez vs. Court of Appeals, 24 SCRA 663, 682-683 (1968).

10. Verceluz vs. Edano. 46 Phil. 801 (1924).
11. Yutivo Sons Hardware Co. vs. Court of Tax Appeals, 1 SCRA 160 (1961).
12. Emilio Cano Enterprises, Inc. vs. CIR, 13 SCRA 290 (1965).
13. McConnel vs. CA, 1 SCRA 722, 726 (1961).

14. Yutivo Sons Hardware Co. vs. CTA, supra; McConnel vs. CA, supra.
15. R. F. Sugay & Co., Inc. vs. Reyes, 12 SCRA 700 (1964).
16. Gregorio Araneta, Inc. vs. De Paterno & Vidal, 91 Phil. 786 (1952).
17. McConnel vs. CA, supra, Commissioner of Internal Revenue vs. Norton Harrison Co., 120
Phil. 684 (1964).
18. Liddel & Co. vs. Collector of Internal Revenue, 2 SCRA 632, 640 (1961).

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