1. 1994, the Regional Trial Court of Makati, Metro Manila,
CORPO: CLOSE CORPORATION Branch 63 (Civil Case 89-3511) rendered judgment,
dismissing SJSSFI's complaint, finding that Nenita Lee
San Juan Structural and Steel Fabricator[GR 129459, Gutenberg was not authorized by the corporation to
29 September 1998] dispose of the property as such disposition is governed by
First Division, Panganiban (J): 4 concur the requirements of Section 40, Corporation Code; and
that Nenita Lee Gutenberg did not in anyway misrepresent
Facts: On 14 February 1989, San Juan Structural and Steel herself to be authorized by the corporation to sell the
Fabricators, Inc. (SJSSFI) entered into an agreement with property to SJSSFI. The trial court also dismissed the
Motorich Sales Corporation (MSC) for the transfer to it of counterclaim. SJSSFI appealed. On 18 March 1997, the
a parcel of land identified as Lot 30, Block 1 of the Court of Appeals (CA GR CV 46801) modified the
Acropolis Greens Subdivision located in the District of decision of the trial court by ordering Nenita Lee
Murphy, Quezon City, Metro Manila, containing an area of Gutenberg to refund or return to SJSSFI the
414 square meters, covered by TCT (362909) 2876 (the lot downpayment of P100,000.00 which she received from the
was still registered in the name of ACL Development latter. SJSSFI moved for reconsideration, which was denied
Corporation [ADC] at that time). As stipulated in the by the appellate court on 10 June 1997. SJSSFI filed the
Agreement of 14 February 1989, SJSSFI paid the Petition for Review on Certiorari. SJSSFI argues, among
downpayment in the sum of P100,000.00, the balance to others, that the veil of corporate fiction of MSC
be paid on or before 2 March 1989. On 1 March 1989, Mr. should be pierced, because the latter is a close
Andres T. Co, SJSSFI president, wrote a letter to MSC corporation. Since "Spouses Reynaldo L. Gruenberg
requesting for a computation of the balance to be paid. and Nenita R. Gruenberg owned all or almost all or
Said letter was coursed through MSC's broker, Linda 99.866% to be accurate, of the subscribed capital
Aduca, who wrote the computation of the balance. On 2 stock" 25 of Motorich, petitioner argues that Gruenberg
March 1989, SJSSFI was ready with the amount needed no authorization from the board to enter into the
corresponding to the balance, covered by Metrobank subject contract. It adds that, being solely owned by
Cashier's Check 004223, payable to MSC. SJSSFI and MSC the Spouses Gruenberg the company can be treated
were supposed to meet in the office of SJSSFI but MSC's as a close corporation which can be bound by the acts
treasurer, Nenita Lee Gruenberg, did not appear. MSC, of its principal stockholder who needs no specific
despite repeated demands and in utter disregard of its authority.
commitments had refused to execute the Transfer of
Rights/Deed of Assignment which is necessary to transfer Issue: Whether MSC is a close corporation, based on the
the certificate of title. On 6 April 1989, ADC and MSC fact that almost all of the shares of stock of the
entered into a Deed of Absolute Sale whereby the former corporation are owned by said treasurer and her husband.
transferred to the latter the subject property. By reason of Held: Section 96 of the Corporation Code defines a close
said transfer, the Registry of Deeds of Quezon City issued corporation provides that "A close corporation, within the
a new title in the name of MSC, represented by Nenita Lee meaning of this Code, is one whose articles of
Gruenberg and Reynaldo L Gruenberg, under Transfer incorporation provide that: (1) All of the corporation's
Certificate of Title 3571. SJSSFI filed the complaint for issued stock of all classes, exclusive of treasury shares,
damages against MSC, and Nenita Lee Gruenberg, as a shall be held of record by not more than a specified
result of the latter’s alleged bad faith in refusing to execute number of persons, not exceeding twenty (20); (2) All of
a formal Transfer of Rights/Deed of Assignment. It the issued stock of all classes shall be subject to one or
impleaded ADC and JNM Realty & Development Corp. more specified restrictions on transfer permitted by this
(JRDC) as necessary parties, since Transfer Certificate of Title; and (3) The corporation shall not list in any stock
Title (362909) 2876 was in the name of ADC, and that exchange or make any public offering of any of its stock
JRDC is the transferor of right in favor of MDC. of any class. Notwithstanding the foregoing, a corporation
In its answer, MSC and Nenita Lee Gruenberg shall be deemed not a close corporation when at least two-
interposed as affirmative defense that the President and thirds (2/3) of its voting stock or voting rights is owned or
Chairman of Motorich did not sign the agreement controlled by another corporation which is not a close
adverted to; that Mrs. Gruenberg's signature on the corporation within the meaning of this Code."
agreement is inadequate to bind MSC as the other The articles of incorporation of MSC does not
signature, that of Mr. Reynaldo Gruenberg, President and contain any provision stating that (1) the number of
Chairman of MSC, is required; that SJSSFI knew this from stockholders shall not exceed 20, or (2) a preemption of
the very beginning as it was presented a copy of the shares is restricted in favor of any stockholder or of the
Transfer of Rights at the time the Agreement was signed; corporation, or (3) listing its stocks in any stock exchange
that SJSSFI itself drafted the Agreement and insisted that or making a public offering of such stocks is prohibited.
Mrs. Gruenberg accept the P100,000.00 as earnest money; From its articles, it is clear that MSC is not a close
that granting, without admitting, the enforceability of the corporation. MSC does not become one either, just
agreement, SJSSFI nonetheless failed to pay in legal tender because Spouses Reynaldo and Nenita Gruenberg
within the stipulated period (up to 2 March 1989); that it owned 99.866% of its subscribed capital stock. The
was the understanding between Mrs. Gruenberg and mere ownership by a single stockholder or by another
SJSSFI that the Transfer of Rights/Deed of Assignment corporation of all or nearly all of the capital stock of
will be signed only upon receipt of cash payment; thus a corporation is not of itself sufficient ground for
they agreed that if the payment be in check, they will meet disregarding the separate corporate personalities. So,
at a bank designated by SJSSFI where they will encash the too, a narrow distribution of ownership does not, by
check and sign the Transfer of Rights/Deed, but that itself, make a close corporation.
SJSSFI informed Mrs. Gruenberg of the alleged availability
of the check, by phone, only after banking hours.
On the basis of the evidence, and on 18 June ruizsharmine