CORPO LAW – SEC 89 2022-2023
CASE TITLE G.R. NO.
PALAY, INC. and ALBERT ONSTOTT petitioner, vs. L-56076
JACOBO C. CLAVE, Presidential Executive
Assistant,NATIONAL HOUSING AUTHORITY and
NAZARIO DUMPIT respondents.
PONENTE DATE September 21, 1983
MELENCIO-HERRERA, J.:
DOCTRINE
FACTS Palay Inc. through its president Albert Onstott sold a parcel of land owned by the corporation to the private
respondent, Nazario Dumpit, by virtue of a Contract to Sell . Paragraph 6 of the contract provided for
automatic extrajudicial rescission upon default in payment of any monthly instalment 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
instalments paid. Dumpit failed to pay some installments and later offered to update all his overdue account
but was informed that the contract has already been rescinded.
Dumpit filed a letter of complaint with the National Housing Authority (NHA) questioning the validity of the
rescission. The NHA held that the rescission is void in the absence of either judicial or notarial demand. Palay,
Inc. and Onstott in his capacity as President of the corporation, jointly and severally, was ordered to refund
Dumpit the amount paid plus 12% interest from the filing of the complaint. Petitioners' MR was denied by
the NHA.
ISSUE/S Whether or not Albert Onstott, as president of Palay Inc, is liable to refund the amount stated in the NHA
ruling.
RULING No. There was no sufficient proof that he 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.
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;1or as an alter ego, adjunct or business conduit for the sole
benefit of the stockholders.
There are no badges of fraud on the petitioners' part. They had literally relied, albeit mistakenly, on paragraph
6 (supra) of the contract when it rescinded the contract to sell extrajudicially and had sold it to a third person.
Petitioner Palay, Inc. is liable to refund to respondent Dumpit the amount of P13,722.50, with interest at
twelve (12%) p.a. from November 8, 1974, the date of the filing of the Complaint.
