Case Digest on San Juan Structural and Steel Fabricators vs.

CA July 27, 2010 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.