Case Summary (G.R. No. 185024)
Key Dates
• 6 January 2004 – City Government of Marikina levies property for unpaid real estate taxes.
• 8 January 2004 – Annotation of Notice of Levy on Transfer Certificate of Title (TCT) No. N-126668.
• 14 October 2004 – Tax-sale auction; petitioner emerges as winning bidder.
• 25 October 2004 – Regional Trial Court (RTC) issues Stay Order covering MSI’s assets.
• 9 February 2005 – Annotation of lis pendens on TCT reflecting stay order.
• 13 July 2006 – RTC, Marikina City, renders final judgment canceling the Cruz spouses’ title and directing issuance of a new title in petitioner’s favor.
• 26 September 2006 – Petitioner moves to exclude the property from the stay order.
• 12 June 2008 – Court of Appeals (CA) denies petitioner’s certiorari relief.
• 24 April 2017 – Supreme Court decision on the Rule 45 petition.
Applicable Law
• 1987 Philippine Constitution (as the case decision postdates 1990).
• Corporation Code of the Philippines (Batas Pambansa Blg. 68), specifically Sections 96, 97, and 100(5).
• Interim Rules of Procedure on Corporate Rehabilitation (A.M. No. 00-8-10-SC), Rule 4, Section 6.
• Doctrine of Separate Juridical Personality and Limited Liability.
Factual Background
Spouses Fernando and Amelia Cruz held title to a 464 sqm lot (TCT No. N-126668). Marikina City levied and auctioned the lot in January and October 2004, respectively, for unpaid real estate taxes. Joselito Bustos won the auction and sought cancellation of the original title, obtaining an RTC decision in July 2006. Meanwhile, in October 2004 the RTC in SEC Case No. 036-04 placed MSI’s assets under a stay order, and lis pendens were annotated on February 9, 2005, before the Cruz spouses’ redemption period had lapsed.
Procedural History
Petitioner moved on 26 September 2006 to exclude the lot from MSI’s stay order, arguing that the Cruz spouses were merely officers and shareholders of MSI and that his ownership vested upon bidding. The RTC denied exclusion, holding that legal ownership remained with the Cruz spouses during the redemption period. Petitioner’s reconsideration was denied, prompting a certiorari petition to the CA. The CA upheld the RTC, treating the Cruz spouses’ lot as an MSI asset on the theory of close-corporation liability and dismissing petitioner’s tax-power argument. Petitioner then filed a Rule 45 petition before the Supreme Court.
Issue
Whether the properties of Spouses Cruz are properly considered answerable for the obligations of MSI, thereby justifying inclusion of the lot in the RTC’s stay order; and whether petitioner, as holder of a tax-sale title, should have been subject to the 10-day time bar for opposing the rehabilitation plan under Rule 4, Section 6.
Legal Analysis
- Close Corporation Status
To classify MSI as a close corporation, its articles of incorporation must expressly (a) limit stockholders to 20, (b) impose transfer restrictions, and (c) prohibit public offerings or stock exchange listings (Corp. Code, Sec. 96). Neither the RTC nor the CA identified any such provision in MSI’s articles. An allegation in the rehabilitation petition cannot substitute for evidence of these statutory requirements. - Stockholder Liability
Section 97 subjects stockholders to director liabilities but does not impose automatic liability for corporate debts. Only Section 100(5) extends personal liability to stockholders actively managing a close corporation for corporate torts—and only upon specific factual findings (e.g., lack of adequate liability insurance). No such findings or allegations appear in the records. - Separate Juridical Personality and Limited Liability
Under settled jurisprudence, a corporation’s legal personality is distinct from that of its stockholders or officers. Corporate debts do not attach to personal assets absent express statutory or contractual grounds. Accommodation mortgagors and unrelated creditors enjoy protection from rehabilitation stay orders. MSI’s rehabilitation stay thus should
Case Syllabus (G.R. No. 185024)
Facts of the Case
- Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by Transfer Certificate of Title (TCT) No. N-126668.
- On 6 January 2004, Marikina City levied the property for unpaid real estate taxes; the Notice of Levy was annotated on 8 January 2004.
- The lot was auctioned on 14 October 2004; petitioner Joselito Hernand M. Bustos was the highest bidder and applied for cancellation of the existing title.
- On 13 July 2006, the RTC of Marikina City, Branch 273, rendered a final and executory decision canceling the old title and directing issuance of a new title in petitioner’s name.
- Notices of lis pendens were annotated on TCT No. N-126668 on 9 February 2005, indicating inclusion in the Stay Order of the MSI rehabilitation proceedings dated 25 October 2004.
- Petitioner moved on 26 September 2006 to exclude the lot from the Stay Order, arguing the lot belonged to Spouses Cruz as stockholders/officers of MSI and that his bid preceded the lis pendens annotation.
- The RTC denied exclusion, ruling the redemption period (until 15 October 2005) had not lapsed when the Stay Order was issued, so legal ownership remained with Spouses Cruz.
Procedural History
- Petitioner’s motion for reconsideration before the RTC was denied on 27 June 2007.
- He filed a petition for certiorari with the Court of Appeals (CA), challenging the Stay Order as undermining Marikina City’s taxing power and reasserting ownership and auction arguments.
- On 12 June 2008, the CA dismissed his challenge, holding that:
• Spouses Cruz remained owners within the redemption period when the Stay Order was issued and annotated.
• As stockholders/officers of a close corporation, they were personally liable for MSI’s obligations.
• Petitioner’s request to exclude the lot was time-barred under Rule 4, Sec. 6 of the Interim Rules of Procedure on Corporate Rehabilitation. - Petitioner’s motion for reconsideration at the CA was denied by resolution dated 27 October 2008.
- He elevated the case to the Supreme Court via Rule 45 petiti