SECOND DIVISION

[G.R. No. L-56076. September 21, 1983.]

PALAY, INC. and ALBERT ONSTOTT, petitioner, vs. JACOBO C. CLAVE,
Presidential Executive Assistant, NATIONAL HOUSING AUTHORITY
and NAZARIO DUMPIT, respondents.

Santos, Calcetas-Santos & Geronimo Law Office for petitioner.

Wilfredo E. Dizon for private respondent.
SYLLABUS
1.
CIVIL LAW; CONTRACTS; WRITTEN NOTICE STILL REQUIRED THOUGH
JUDICIAL ACTION NOT NECESSARY FOR RESCISSION. Well settled is the rule, as
held in previous jurisprudence Torralba vs. de Los Angeles, 96 SCRA 69) that judicial
action for the rescission of a contract is not necessary where the contract provides
that it may be revoked and canceled for violation of any of its terms and conditions.
However, even in the cited case, there was at least a written notice sent to the
defaulter informing him of the rescission. As stressed in University of the Philippines
vs. Walfrido de los Angeles, 33 SCRA 102 (1970) the act of a party in treating a
contract as cancelled should be made known to the other.
2.
ID.; ID.; EXTRAJUDICIAL RESCISSION; EFFECTIVE IF NOT OPPOSED. A
stipulation entitling one party to take possession of the land and building if the
other party violates the contract does not ex proprio vigore confer upon the former
the right to take possession thereof if objected to without judicial intervention and
determination (Nera vs. Vacante, 3 SCRA 505 (1961]). This was reiterated in
Zulueta vs. Mariano (111 SCRA 206 [1982]) where we held that extrajudicial
rescission has legal eect where the other party does not oppose it (Tolentino, Civil
Code of the Philippines, Vol. IV, 1962 ed., p. 168, citing Magdalena Estate vs. Myrick,
71 Phil. 344). In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in Court. If the debtor impugns the
declaration, it shall be subject to judicial determination (UP vs. de los Angeles,
supra).
3.
ID.; ID.; ID.; WAIVER OF RIGHT TO BE NOTIFIED; VALID ONLY WHERE
LIBERTY OF CHOICE FULLY ACCORDED. The indispensability of notice of
cancellation to the buyer was to be later underscored in Republic Act No. 6551
entitled "An Act to Provide Protection to Buyers of Real Estate on Installment
Payments" which took eect on September 14, 1972. The contention that private
respondent had waived his right to be notied under paragraph 6 of the contract is
neither meritorious because it was a contract of adhesion, a standard form of
petitioner corporation, and private respondent had no freedom to stipulate. A waiver
must be certain and unequivocal, and intelligently made; such waiver follows only

where liberty of choice has been fully accorded (Chavez vs. Court of Appeals, 24
SCRA 663, 682-683(1968]). Moreover, it is a matter of public policy to protect
buyers of real estate on installment payments against onerous and oppressive
conditions. Waiver of notice is one such onerous and oppressive condition to buyers
of real estate on installment payments.
4.
ID.; ID.; ID.; RIGHT ACCORDED DEFAULTER. As a consequence of the
resolution by petitioners, tights to the lot should be restored to private respondent
or the same should be replaced by another acceptable lot. However, considering that
the property had already been sold to a third person and there is no evidence on
record that other lots are still available, private respondent is entitled to the refund
of installments paid plus interest at the legal rate of 12% computed from the date of
the institution of the action. (Vercelus vs. Edano, 46 Phil. 801 [1924]). It would be
most inequitable if petitioners were to be allowed to retain private respondent's
payments and at the same time appropriate the proceeds of the second sale to
another.
5.
CORPORATION
LAW;
CORPORATION;
SEPARATE
AND
DISTINCT
PERSONALITY; PIERCING OF CORPORATE FICTION. It is basic 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 (Yutivo Sons Hardware Co. vs. Court of Tax Appeals, 1 SCRA 160 [1961]). 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 ction may be pierced when it is used as a
shield to further an end subversive of justice (Emilio Cano Enterprises, Inc. vs. CIR,
13 SCRA 290 [1965]); or for purposes that could not have been intended by the law
that created it (McConnel vs. CA, 1 SCRA 722, 726 [1961]); or to defeat public
convenience, justify wrong, protect fraud, or defend crime (Yutivo Sons Hardware
Co. vs. CTA, supra; McConnel vs. CA, supra); or to perpetuate fraud or confuse
legitimate issues (R.F. Sugay & Co., Inc. vs. Reyes, 12 SCRA 700 [1964]) or to
circumvent the law or perpetuate deception; (Gregorio Araneta, Inc. vs. De Paterno
& Vidal, 91 Phil. 786 [1952]) or as an alter ego, adjunct or business conduit for the
sole benet of the stockholders (McConnel vs. CA, supra; Commissioner of Internal
Revenue vs. Norton Harrison Co., 120 Phil. 684 [1964]).
6.
ID.; ID.; ID.; MERE OWNERSHIP OF ALL CAPITAL STOCK; NOT GROUND FOR
DISREGARDING CORPORATE PERSONALITY. In this case, petitioner Onstott was
made liable because he was then the President of the corporation and he appeared
to be the controlling stockholder. No sucient 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 of
all or nearly all of the capital stock of a corporation is not of itself sucient ground
for disregarding the separate corporate personality (Liddel & Co. vs. Collector of
Internal Revenue, 2 SCRA 632, 640 [1961]).

DECISION
MELENCIO-HERRERA, J :
p

The Resolution, dated May 2, 1980, issued by Presidential Executive Assistant

Jacobo Clave in O.P. Case No. 1459, directing petitioners Palay, Inc. and Alberto
Onstott, jointly and severally, to refund to private respondent, Nazario Dumpit, the
amount of P13,722.50 with 12% interest per annum, as resolved by the National
Housing Authority in its Resolution of July 10, 1979 in Case No. 2167, as well as the
Resolution of October 28, 1980 denying petitioners' Motion for Reconsideration of
said Resolution of May 2, 1980, are being assailed in this petition.
LLphil

On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott,
executed in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel
of Land (Lot No. 8, Block IV) of the Crestview Heights Subdivision in Antipolo, Rizal,
with an area of 1,165 square meters, covered by TCT No. 90454, and owned by said
corporation. The sale price was P23,300.00 with 9% interest per annum, payable
with a downpayment of P4,660.00 and monthly installments of P246.42 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.
Respondent Dumpit paid the downpayment and several installments amounting to
P13,722.50. The last payment was made on December 5, 1967 for installments up
to September 1967.
On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner
oering to update all his overdue accounts with interest, and seeking its written
consent to the assignment of his rights to a certain Lourdes Dizon. He followed this
up with another letter dated June 20, 1973 reiterating the same request. Replying,
petitioners informed respondent that his Contract to Sell had long been rescinded
pursuant to paragraph 6 of the contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent led a letter
complaint with the National Housing Authority (NHA) for reconveyance with an
alternative prayer for refund (Case No. 2167). In a Resolution, dated July 10, 1979,
the NHA, nding the rescission void in the absence of either judicial or notarial
demand, ordered Palay, Inc. and Alberto Onstott, in his capacity as President of the
corporation, jointly and severally, to refund immediately to Nazario Dumpit the
amount of P13,722.50 with 12% interest from the ling of the complaint on
November 8, 1974. Petitioners' Motion for Reconsideration of said Resolution was
denied by the NHA in its Order dated October 23, 1979. 1
On appeal to the Oce of the President, upon the allegation that the NHA
Resolution was contrary to law (O.P. Case No. 1459), respondent Presidential
Executive Assistant, on May 2, 1980, armed the Resolution of the NHA.

Reconsideration sought by petitioners was denied for lack of merit. Thus, the
present petition wherein the following issues are raised:
LibLex

I
"Whether notice or demand is not mandatory under the circumstances and,
therefore, may be dispensed with by stipulation in a contract to sell.
II
Whether petitioners may be held liable for the refund of the installment
payments made by respondent Nazario M. Dumpit.
III
Whether the doctrine of piercing the veil of corporate ction has application
to the case at bar.
IV
"Whether respondent Presidential Executive Assistant committed grave
abuse of discretion in upholding the decision of respondent NHA holding
petitioners solidarily liable for the refund of the installment payments made
by respondent Nazario M. Dumpit thereby denying substantial justice to the
petitioners, particularly petitioner Onstott."

We issued a Temporary Restraining Order on February 11, 1981 enjoining the

enforcement of the questioned Resolutions and of the Writ of Execution that had
been issued on December 2, 1980. On October 28, 1981, we dismissed the petition
but upon petitioners' motion, reconsidered the dismissal and gave due course to the
petition on March 15, 1982.

On the rst issue, petitioners maintain that it was justied in cancelling the contract
to sell without prior notice or demand upon respondent in view of paragraph 6
thereof which provides:
"6.
That in case the BUYER fails to satisfy any monthly installment, or any
other payments herein agreed upon, the BUYER shall be granted a month of
grace within which to make the payment of the account in arrears together
with the one corresponding to the said month of grace. It shall be
understood, however, that should the month of grace herein granted to the
BUYER expire, without the payments corresponding to both months having
been satised, an interest of ten (10%) per cent per annum shall be charged
on the amounts the BUYER should have paid; it is understood further, that
should a period of NINETY (90) DAYS elapse to begin from the expiration of
the month of grace hereinbefore mentioned, and the BUYER shall not have
paid all the amounts that the BUYER should have paid with the
corresponding interest up to the date, the SELLER shall have the right to
declare this contract cancelled and of no eect without notice, and as a

consequence thereof, the SELLER may dispose of the lot/lots covered by

this Contract in favor of other persons, as if this contract had never been
entered into. In case of such cancellation of this Contract, all the amounts
which may have been paid by the BUYER in accordance with the agreement,
together with all the improvements made on the premises, shall be
considered as rents paid for the use and occupation of the above mentioned
premises and for liquidated damages suered by virtue of the failure of the
BUYER to fulll his part of this agreement: and the BUYER hereby renounces
his right to demand or reclaim the return of the same and further obligates
himself peacefully to vacate the premises and deliver the same to the
SELLER."

Well settled is the rule, as held in previous jurisprudence, 2 that judicial action for
the rescission of a contract is not necessary where the contract provides that it may
be revoked and cancelled for violation of any of its terms and conditions. However,
even in the cited cases, there was at least a written notice sent to the defaulter
informing him of the rescission. As stressed in University of the Philippines vs.
Walfrido de los Angeles 3 the act of a party in treating a contract as cancelled should
be made known to the other. We quote the pertinent excerpt:
LLpr

"Of course, it must be understood that the act of a party in treating a

contract as cancelled or resolved in account of infractions by the other
contracting party must be made known to the other and is always
provisional being ever subject to scrutiny and review by the proper court. If
the other party denies that rescission is justied it is free to resort to judicial
action in its own behalf, and bring the matter to court. Then, should the
court, after due hearing, decide that the resolution of the contract was not
warranted, the responsible party will be sentenced to damages; in the
contrary case, the resolution will be armed, and the consequent indemnity
awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the nal judgment of the
corresponding court that will conclusively and nally settle whether the
action taken was or was not correct in law. But the law denitely does not
require that the contracting party who believes itself injured must rst le
suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of the
suit until the nal judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize its own damages
(Civil Code, Article 2203).
We see no conict between this ruling and the previous jurisprudence of this
Court invoked by respondent declaring that judicial action is necessary for
the resolution of a reciprocal obligation (Ocejo, Perez & Co., vs. International
Banking Corp., 37 Phil. 631; Republic vs. Hospital de San Juan De Dios, et al.,
84 Phil 820) since in every case where the extrajudicial resolution is
contested only the nal award of the court of competent jurisdiction can

conclusively settle whether the resolution was proper or not. It is in this

sense that judicial action will be necessary, as without it, the extrajudicial
resolution will remain contestable and subject to judicial invalidation unless
attack thereon should become barred by acquiescence, estoppel or
prescription.
Fears have been expressed that a stipulation providing for a unilateral
rescission in case of breach of contract may render nugatory the general
rule requiring judicial action (v. Footnote, Padilla, Civil Law, Civil Code Anno.,
1967 ed. Vol. IV, page 140) but, as already observed, in case of abuse or
error by the rescinder, the other party is not barred from questioning in
court such abuse or error, the practical effect of the stipulation being merely
to transfer to the defaulter the initiative of instituting suit, instead of the
rescinder." (Emphasis ours).

Of similar import is the ruling in Nera vs. Vacante 4 , reading:

"A stipulation entitling one party to take possession of the land and building if
the other party violates the contract does not ex proprio vigore confer upon
the former the right to take possession thereof if objected to without judicial
intervention and determination."

This was reiterated in Zulueta vs. Mariano 5 where we held that extrajudicial
rescission has legal eect where the other party does not oppose it. 6 Where it is
objected to, a judicial determination of the issue is still necessary.
LLjur

In other words, resolution of reciprocal contracts may be made extrajudicially unless

successfully impugned in Court. If the debtor impugns the declaration, it shall be
subject to judicial determination. 7
In this case, private respondent has denied that rescission is justied and has
resorted to judicial action. It is now for the Court to determine whether resolution of
the contract by petitioners was warranted.
We hold that resolution by petitioners of the contract was ineective and
inoperative against private respondent for lack of notice of resolution, as held in the
U.P. vs. Angeles case, supra.
Petitioner relies on Torralba vs. De los Angeles 8 where it was held that "there was
no contract to rescind in court because from the moment the petitioner defaulted in
the timely payment of the installments, the contract between the parties was
deemed ipso facto rescinded." However, it should be noted that even in that case
notice in writing was made to the vendee of the cancellation and annulment of the
contract although the contract entitled the seller to immediate repossessing of the
land upon default by the buyer.
The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 6551 entitled "An Act to Provide Protection to
Buyers of Real Estate on Installment Payments." which took eect on September
14, 1972, when it specifically provided:

"Sec. 3(b) . . . the actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer." (Emphasis supplied).

The contention that private respondent had waived his right to be notied under
paragraph 6 of the contract is neither meritorious because it was a contract of
adhesion, a standard form of petitioner corporation, and private respondent had no
freedom to stipulate. A waiver must be certain and unequivocal, and intelligently
made; such waiver follows only where liberty of choice has been fully accorded. 9
Moreover, it is a matter of public policy to protect buyers of real estate on
installment payments against onerous and oppressive conditions. Waiver of notice is
one such onerous and oppressive condition to buyers of real estate on installment
payments.
Regarding the second issue on refund of the installment payments made by private
respondent. Article 1385 of the Civil Code provides:
"ART. 1385.
Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with
its interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.
"Neither shall rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act in
bad faith.
"In this case, indemnity for damages may be demanded from the person
causing the loss."

As a consequence of the resolution by petitioners, rights to the lot should be

restored to private respondent or the same should be replaced by another
acceptable lot. However, considering that the property had already been sold to a
third person and there is no evidence on record that other lots are still available,
private respondent is entitled to the refund of installments paid plus interest at the
legal rate of 12% computed from the date of the institution of the action. 10 It
would be most inequitable if petitioners were to be allowed to retain private
respondent's payments and at the same time appropriate the proceeds of the
second sale to another.
cdphil

We come now to the third and fourth issues regarding the personal liability of
petitioner Onstott, who was made jointly and severally liable with petitioner
corporation for refund to private respondent of the total amount the latter had paid
to petitioner company. It is basic 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. 11 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 ction may be pierced when it is used as a shield to further an

end subversive of justice 12 ; or for purposes that could not have been intended by
the law that created it 13 ; or to defeat public convenience, justify wrong, protect
fraud, or defend crime 14 ; or to perpetuate fraud or confuse legitimate issues; 15 or
to circumvent the law or perpetuate deception; 16 or as an alter ego, adjunct or
business conduit for the sole benefit of the stockholders. 17

We nd no badges of fraud on petitioners part. They had literally relied, albeit

mistakenly, on paragraph 6 (supra) of its contract with private respondent when it
rescinded the contract to sell extrajudicially and had sold it to a third person.
In this case, petitioner Onstott was made liable because he was then the President
of the corporation and he appeared to be the controlling stockholder. No sucient
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 of all or nearly all of the capital stock of a corporation is
not of itself sucient ground for disregarding the separate corporate personality. 18
In this respect then, a modification of the Resolution under review is called for.
WHEREFORE, the questioned Resolution of respondent public ocial, dated May 2,
1980, is hereby modied. Petitioner Palay, Inc. is directed to refund to respondent
Nazario M. Dumpit the amount of P13,722.50, with interest at twelve (12%)
percent per annum from November 8, 1974, the date of the ling of the Complaint.
The temporary Restraining Order heretofore issued is hereby lifted.
No costs.
SO ORDERED.
Plana, Relova and Gutierrez, Jr., JJ., concur.
Teehankee, J., concurs in the result.
Footnotes
1.

pp. 103-104, Rollo.

2.

Torralba vs. De los Angeles, 96 SCRA 69; Luzon Brokerage Co., Inc. vs. Maritime
Building Co., 43 SCRA 93 and 86 SCRA 305; Lopez vs. Commissioner of Customs,
37 SCRA 327; U.P. vs. De los Angeles, 35 SCRA 102; Ponce Enrile vs. CA, 29 SCRA
504; Froilan vs. Pan Oriental Shipping Co., 12 SCRA 276; Taylor vs. Uy Tieng Piao,
43 Phil. 873.

3.

35 SCRA 102 (1970).

4.

3 SCRA 505 (1961).

5.

111 SCRA 206 (1982).

6.

Tolentino, Civil Code of the Philippines, Vol. IV, 1962 ed., p. 168, citing Magdalena
Estate vs. Myrick, 71 Phil. 344 (1941).

7.

U.P. vs. De los Angeles, supra.

8.

96 SCRA 69 (1980).

9.

Chavez vs. Court of Appeals, 24 SCRA 663, 682-683 (1968).

10.

Verceluz vs. Edano. 46 Phil. 801 (1924).

11.

Yutivo Sons Hardware Co. vs. Court of Tax Appeals, 1 SCRA 160 (1961).

12.

Emilio Cano Enterprises, Inc. vs. CIR, 13 SCRA 290 (1965).

13.

McConnel vs. CA, 1 SCRA 722, 726 (1961).

14.

Yutivo Sons Hardware Co. vs. CTA, supra; McConnel vs. CA, supra.

15.

R. F. Sugay & Co., Inc. vs. Reyes, 12 SCRA 700 (1964).

16.

Gregorio Araneta, Inc. vs. De Paterno & Vidal, 91 Phil. 786 (1952).

17.
18.

McConnel vs. CA, supra, Commissioner of Internal Revenue vs. Norton Harrison
Co., 120 Phil. 684 (1964).
Liddel & Co. vs. Collector of Internal Revenue, 2 SCRA 632, 640 (1961).