VIII.
Close Corporations (Sections 95-
104, Revised Corporation Code)
Case Title and Citation: San Juan Structural Steel Fabricators, Inc. vs. Motorich Sales Corporation, et al., G.R. No. 129459,
September 29, 1998,
Ponente: Panganiban, J.
Petitioner: San Juan Structural Steel Fabricators, Inc.
Respondents: Motorich Sales Corporation, Nenita Gruenberg (Treasurer), Reynaldo Gruenberg, ACL Development Corporation, and
JNM Realty Development Corporation
Case Summary
The case arose from San Juan Structural Steel Fabricators, Inc.’s effort to compel the enforcement of an alleged sale of corporate
land executed by Nenita Gruenberg, the treasurer of Motorich Sales Corporation. The petitioner maintained that because the
Gruenberg spouses practically owned all of Motorich’s shares, the corporation should be treated as a close corporation, thereby
dispensing with the need for a board resolution to authorize the sale. The Supreme Court, however, rejected this contention, ruling
that mere concentration of ownership does not, by itself, render a corporation a close corporation under the Corporation Code, as the
statutory requirements were not satisfied. Consequently, the Court denied the petition and ordered only the refund of the earnest
money paid.
Doctrine/s
• Close Corporation Doctrine (Secs. 95–104, RCC): A corporation does not become a close corporation merely because
its shares are owned by a few persons or even substantially by a family. It must be expressly stated in the Articles of
Incorporation that the entity is a close corporation and comply with statutory requisites.
• Separate Juridical Personality: The corporate veil will not be pierced merely because of stock concentration; piercing
is warranted only when the corporate fiction is used to commit fraud, evade obligations, or justify wrong.
Facts of the Case
• On February 14, 1989, San Juan Structural Steel Fabricators entered into an agreement with Nenita Gruenberg, who signed
as “Treasurer” of Motorich Sales Corporation, for the purchase of a parcel of land. Petitioner paid P100,000 as earnest
money.
• The transaction did not push through because Motorich refused to execute the deed of transfer, claiming that Nenita
Gruenberg had no authority from the board of directors to sell the corporate property.
• Petitioner argued that since the Gruenberg spouses owned almost all of Motorich’s shares, the corporation was effectively
a close corporation, and the sale should bind the corporation.
• The RTC dismissed the complaint for lack of authority; the CA affirmed but ordered Nenita Gruenberg to refund the
P100,000.
• The case was elevated to the Supreme Court.
Issue/s
• Whether or not Motorich Sales Corporation should be treated as a close corporation such that the sale by its treasurer, who
was also a major stockholder, would bind the corporation?
Decision/Ruling and Ratio
• The Supreme Court denied the petition and affirmed the CA ruling with modification that the P100,000 earnest money must
be refunded.
• Motorich was not a close corporation within the contemplation of Sections 95–104 of the Corporation Code because its
Articles of Incorporation did not so provide, nor did it comply with the statutory requirements.
• Mere concentrated ownership of stock, even in the hands of the Gruenberg spouses, does not ipso facto convert a
corporation into a close corporation.
• Even assuming veil piercing, the alienation of the property would still be invalid because the land was conjugal property of
the spouses and unilateral alienation without spousal consent is void.
• Thus, the agreement signed by Nenita Gruenberg was void for lack of corporate authority and absence of compliance with
statutory requirements on agency for sale of immovable property.
Significance
• This case underscores that a corporation cannot be deemed a close corporation unless expressly organized as such in its
Articles of Incorporation. Stock concentration alone is insufficient.
• Corporate personality remains distinct from that of its stockholders unless there is proof of fraud or misuse of the corporate
form.
• The case clarified the limits of invoking the close corporation doctrine and emphasized strict compliance with statutory
requisites under Sections 95–104 of the Revised Corporation Code.
Case Title and Citation: SERGIO F. NAGUIAT, DOING BUSINESS UNDER THE NAME AND STYLE SERGIO F. NAGUIAT ENT.,
INC., & CLARK FIELD TAXI, INC., PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION),
NATIONAL ORGANIZATION OF WORKINGMEN AND ITS MEMBERS, LEONARDO T. GALANG, ET AL., RESPONDENTS.
Citation: G.R. No. 116123, March 13, 1997.
Ponente: PANGANIBAN, J.
Petitioner: Sergio F. Naguiat, Sergio F. Naguiat Enterprises, Inc., & Clark Field Taxi, Inc. (CFTI)
Respondents: National Labor Relations Commission (Third Division), National Organization of Workingmen (NOWM) and its
members
Case Summary:
This case addresses the principle of separate corporate personality and its exceptions, particularly concerning labor debts in a close
family corporation. When Clark Field Taxi, Inc. (CFTI) ceased operations, the NLRC held an affiliated corporation (Naguiat Enterprises)
and the officers (Sergio and Antolin Naguiat) jointly and severally liable. The Supreme Court upheld CFTI’s corporate structure as
distinct from Naguiat Enterprises but pierced the veil to hold the President/managing stockholder of the close corporation pe rsonally
liable for the corporate failure to pay mandatory benefits, treating this failure as a "corporate tort" under the Corporation Code.
Doctrine/s:
• Separate Corporate Personality: Corporations possess a personality separate and distinct from their officers and
stockholders, and corporate debts are generally not personal liabilities of the officers.
• Exception: Close Corporation Liability: Under Section 100, paragraph 5, of the Corporation Code, stockholders actively
engaged in the management or operation of a close corporation shall be held personally liable for corporate torts unless the
corporation has adequate liability insurance.
• Corporate Tort: The failure of a corporation to comply with a legal mandate, such as the required payment of separation
pay under the Labor Code, constitutes a breach of legal duty or a corporate tort.
Facts of the Case:
Clark Field Taxi, Inc. (CFTI), a close family corporation, employed individual respondents as taxi drivers. Their services were
terminated due to the phase-out of Clark Air Base. The drivers sought separation pay. The NLRC found that CFTI and its affiliated
company, Sergio F. Naguiat Enterprises, Inc. (also a family-owned corporation), along with the officers Sergio F. Naguiat (President)
and Antolin T. Naguiat (Vice-President/General Manager), were jointly and severally liable. Petitioners argued that Naguiat Enterpris es
was a distinct juridical entity and that the officers should not be personally liable for CFTI’s corporate debts. Sergio F. N aguiat, the
President, actively managed the business.
Issue/s:
1. Is Sergio F. Naguiat Enterprises, Inc. liable for the obligations of CFTI, violating the principle of separate corporate
personality?
2. Can the officers, specifically Sergio F. Naguiat and Antolin T. Naguiat, be held personally and solidarily liable for the
corporate liability of CFTI, especially since CFTI is a close corporation?
Decision/Ruling and Ratio:
1. Naguiat Enterprises Liability: No. The Court found no substantial basis to disregard the separate corporate personality
between CFTI (taxi services) and Naguiat Enterprises (trading business). Naguiat Enterprises was neither an indirect
employer nor a labor-only contractor.
2. Officers’ Liability: Sergio F. Naguiat is Solidarily Liable; Antolin T. Naguiat is Not.
• Sergio F. Naguiat, as President and actively managing stockholder of the close corporation (CFTI), is personally
and solidarily liable. CFTI’s failure to grant mandated separation pay constituted a corporate tort (violation of a
duty imposed by law). Under Section 100, paragraph 5 of the Corporation Code, actively engaged stockholders
in a close corporation are personally liable for corporate torts.
• Antolin T. Naguiat is absolved because he was not shown to have participated extensively in the management or
operation of the business.
Significance:
This ruling is crucial for defining the scope of corporate tort and applying the piercing the corporate veil doctrine specifically to close
corporations under the Corporation Code. It established that officers/stockholders who actively manage the business of a close
corporation may be held personally liable for labor obligations (considered corporate torts) if the corporation fails to comp ly with
statutory duties.
Case Title and Citation:
Manuel R. Dulay Enterprises, Inc., Virgilio E. Dulay, and Nepomuceno Redovan v. Court of Appeals, Edgardo D. Pabalan, Manuel A. Torres, Jr.,
Maria Theresa V. Veloso, and Castrense C. Veloso,
G.R. No. 91889, August 27, 1993
Ponente:
Justice Nocon
Petitioners:
Manuel R. Dulay Enterprises, Inc., Virgilio E. Dulay, and Nepomuceno Redovan
Respondents:
Court of Appeals, Edgardo D. Pabalan, Manuel A. Torres, Jr., Maria Theresa V. Veloso, and Castrense C. Veloso
Case Summary:
This case involved a family-owned close corporation, Manuel R. Dulay Enterprises, Inc., and the validity of a sale of corporate property made
by its president, Manuel Dulay, to private respondents. Petitioners claimed that the sale was void because the Board of Directors did not
properly authorize it. The Supreme Court upheld the validity of the sale, ruling that in a close corporation, formal board meetings or
resolutions are not always necessary if all directors or stockholders had knowledge of or acquiesced in the corporate act. The Court also upheld
the doctrine of piercing the corporate veil, finding that the corporation and its president acted as one.
Doctrine/s:
1. Close Corporation Rule (Sec. 101, Corporation Code):
Corporate acts taken without a formal board meeting are valid if all directors or stockholders have actual or implied knowledge and do
not object promptly.
2. Piercing the Corporate Veil:
The separate personality of a corporation may be disregarded when it is used to justify wrong, protect fraud, or evade obligations;
in such cases, the corporation is treated as a mere alter ego of its controlling stockholder.
3. Effect of Public Instrument (Art. 1498, Civil Code):
The execution of a deed of sale in a public document is equivalent to delivery of the property sold.
Facts of the Case:
• Manuel R. Dulay Enterprises, Inc., a close family corporation, owned a property known as Dulay Apartments in Pasay City.
• President Manuel Dulay, without a formal board meeting, sold the property to spouses Maria Theresa and Castrense Veloso for
₱300,000, backed by Board Resolution No. 18.
• The Velosos mortgaged the property to Manuel A. Torres for ₱250,000, failed to pay, and Torres later acquired the property through
foreclosure.
• The corporation, led by Virgilio Dulay (the president’s son and vice-president), contested the sale, arguing it was unauthorized and
void.
• The trial court and the Court of Appeals both upheld the sale, finding that Virgilio Dulay knew of and consented to the transactions.
Issue/s:
1. Whether the sale of corporate property made by the president of a close corporation without a formal board resolution is valid
and binding on the corporation.
2. Whether the corporate veil may be pierced to hold the corporation bound by the acts of its president.
Decision/Ruling and Ratio:
Ruling: Petition DENIED; the decision of the Court of Appeals AFFIRMED.
The Supreme Court held that since Manuel R. Dulay Enterprises, Inc. was a close family corporation, the absence of a formal board meeting
or written resolution did not invalidate the sale. Under Section 101 of the Corporation Code, actions taken without a meeting are binding if all
directors have knowledge and do not object. Virgilio Dulay’s prior knowledge and participation in the transaction showed implied consent.
The Court also applied the doctrine of piercing the corporate veil, holding that the corporation and its president were essentially one and
the same, as the entity was used merely as an instrumentality of Manuel Dulay’s personal dealings.
Lastly, the Court ruled that execution of the deed of sale constituted constructive delivery, transferring ownership to the buyer even without
physical possession.
Significance:
This case clarified that in close corporations, strict adherence to formal board procedures is not required when all directors or stockholders
acquiesce to corporate actions. It also reaffirmed that courts may pierce the corporate veil when the corporate entity is misused to commit fraud
or evade responsibility — reinforcing accountability within family or closely held corporations.
Case Title and Citation:
Joselito Hernand M. Bustos vs. Millians Shoe, Inc., Spouses Fernando and Amelia Cruz, and
Register of Deeds of Marikina City, G.R. No. 183404, July 2, 2014
Ponente:
Chief Justice Maria Lourdes P.A. Sereno
Petitioner:
Joselito Hernand M. Bustos
Respondents:
Millians Shoe, Inc. (MSI); Spouses Fernando and Amelia Cruz; Register of Deeds of Marikina
City
Case Summary:
Petitioner Bustos bought a property owned by Spouses Cruz at a tax delinquency sale. However,
the property was later included in a Stay Order issued in the corporate rehabilitation proceedings
of Millians Shoe, Inc. (MSI), where the spouses were stockholders. The RTC and CA ruled that
the property was part of MSI’s assets since the Cruz spouses were personally liable for the
corporation’s debts as stockholders of a close corporation. The Supreme Court reversed, ruling
that MSI was not proven to be a close corporation and that the spouses’ personal property could
not be treated as corporate assets.
Doctrine/s:
1. Doctrine of Separate Juridical Personality – A corporation has a legal personality
separate and distinct from its stockholders; corporate debts are not the personal debts of
stockholders.
2. Close Corporation Definition (Sec. 96, Corporation Code) – A corporation is a close
corporation only if its Articles of Incorporation expressly meet specific requirements,
such as restrictions on shareholding and transfer.
3. Personal Liability in Close Corporations (Sec. 100, Corporation Code) –
Stockholders are personally liable for corporate torts only under specific circumstances,
not automatically.
Facts of the Case:
Spouses Fernando and Amelia Cruz owned a 464-square-meter lot in Marikina. For nonpayment
of real estate taxes, the property was levied and sold at a public auction on October 14, 2004,
where petitioner Bustos was the winning bidder. Meanwhile, MSI, where the spouses were
stockholders, was undergoing corporate rehabilitation, and a Stay Order was issued on October
25, 2004, covering its assets. The RTC refused to exclude the property from the Stay Order,
holding that ownership had not yet transferred to Bustos since the redemption period had not
lapsed. The CA affirmed, treating MSI as a close corporation and holding that the spouses were
personally liable for corporate debts. Bustos elevated the case to the Supreme Court.
Issue/s:
Whether the property owned by the Cruz spouses could be considered part of the corporate assets
of Millians Shoe, Inc., and thus subject to the Stay Order issued in its corporate rehabilitation
proceedings.
Decision/Ruling and Ratio:
Ruling: Petition granted; CA Decision reversed and set aside.
Ratio: The Court held that MSI was not proven to be a close corporation, as no Articles of
Incorporation were presented to support such classification. Merely alleging that a corporation is
“close” does not suffice. Moreover, stockholders are not automatically liable for corporate
debts unless specific legal conditions are met (Sec. 100, Corporation Code). The property in
question was owned personally by the Cruz spouses and therefore could not be treated as a
corporate asset or included in the Stay Order for MSI’s rehabilitation. Petitioner Bustos was not
a creditor of MSI, so the time-bar rule for filing opposition did not apply to him.
Significance:
This case reaffirmed the doctrine of separate corporate personality, emphasizing that a
corporation’s debts and obligations cannot extend to the personal properties of its stockholders
unless clearly warranted by law. It also clarified that a corporation cannot be deemed a “close
corporation” without explicit provisions in its Articles of Incorporation, and that
rehabilitation proceedings cover only the debtor corporation’s assets, not those of its
individual shareholders.