Lex Rex Ph

Palay Inc. vs. Clave

Facts

In 1965, Palay Inc thru its President, executed a Contract to Sell in favor of private respondent Nazario Dumpit, a parcel of land in Antipolo Rizal. Terms include DP and installments. Dumpit delayed in payment, wrote to Palay re assignment of his rights to Lourdes. Palay replied that his CTS has been rescinded pursuant to Par 6 of Contract, and lot has been resold.

Dumpit filed with NHA for reconveyance or refund. NHA favored Dumpit, by ruling that Palay’s rescission was void because notarial or judicial demand was absent, ordered the Corp and President Onsott to jointly and severally refund Dumpit.

Palay Inc appealed to Office of Pres., the latter affirmed NHA Resolution.

Issue

Is Palay Inc President and controlling stockholder Onstott liable for the refund of the installment payments made by Dumpit?

Ruling

No.

A corporation is invested by law with a personality separate and distinct from those of the persons composing it.

In general, a corporation is not liable for the acts of its stockholders and vice versa, but this so called corporate veil may be pierced when used to defraud or as a shield to subvert the ends of justice.

In this case, we find that President Onsott had no badges of fraud on his part because they literally relied on paragraph 6 of the Contract to Sell with Dumpit, however such reliance was erroneous because it was rescinded extrajudicially. 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 a sufficient reason for disregarding the fiction of separate corporate personalities.

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