Wednesday, March 07, 2012

Palay, Inc. v. Clave [No. L – 56076. Sept. 21, 1983. 124 SCRA 638]

Facts: That Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel of Land payable with a downpayment and monthly installments 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. Private respondent Dumpit paid the downpayment and several installments. However, Dumpit failed to continue paying the installments for almost 6 years. Thereafter, Dumpit 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. Petitioners replied that the Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold. Consequently, Dumpit filed a complaint questioning the validity of the rescission with the National Housing Authority (NHA) for reconveyance with an alternative prayer for refund. The NHA found the rescission void in the absence of either judicial or notarial demand. Thus, it ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund immediately to Dumpit the amount paid with 12% interest from the filing of the complaint. On appeal, respondent Clave, the Presidential Executive Assistant affirmed. Hence, this petition. 

(1) Whether or not the doctrine of piercing the veil of corporate fiction applies. 

(2) Whether or not petitioner Onstott is solidarily liable with Palay, Inc. for the refund. 

(1) No. The SC held 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. 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 fiction may be pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or defend crime; or to perpetuate fraud or confuse legitimate issues; or to circumvent the law or perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders. 

In this case, there was no finding of fraud on petitioners' part. They had literally relied, although mistakenly, on paragraph 6 of its contract with private respondent when it rescinded the contract to sell extrajudicially and had sold it to a third person. 

(2) No. The SC held that no sufficient 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 is not of itself sufficient ground for disregarding the separate corporate personality. 

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