G.R. No. 185024 April 4, 2017
JOSELITO HERNAND M. BUSTOS, Petitioner, vs. MILLIANS SHOE, INC., SPOUSES FERNANDO AND AMELIA CRUZ, and the REGISTER OF DEEDS OF MARIKINA CITY, Respondents.

FACTS

Spouses Fernando and Amelia Cruz owned a parcel of land in Marikina. For non-payment of real estate taxes, the City Government levied and auctioned the property on October 14, 2004, with petitioner Joselito Bustos as the winning bidder. The spouses had a one-year redemption period until October 15, 2005. Meanwhile, Millians Shoe, Inc. (MSI), a corporation where the spouses were stockholders/officers, underwent corporate rehabilitation. The rehabilitation court issued a Stay Order on October 25, 2004, suspending all claims against MSI and its assets. A notice of lis pendens for this rehabilitation case was annotated on the title on February 9, 2005. Petitioner, after obtaining a final court order for the issuance of a new title in his name in July 2006, moved to exclude the property from the Stay Order, arguing it was owned by the spouses, not MSI, and was auctioned before the lis pendens annotation.

ISSUE

Whether the subject property owned by the Spouses Cruz can be considered an asset of MSI and thus properly included in the Stay Order issued in MSI’s rehabilitation proceedings.

RULING

No. The Supreme Court reversed the Court of Appeals and ruled that the property was not an asset of MSI and should be excluded from the Stay Order. The CA erroneously concluded that the Spouses Cruz, as stockholders/officers of MSI, were personally liable for corporate debts, thereby making their personal assets answerable. This conclusion was based on an incorrect characterization of MSI as a “close corporation.” The Court clarified that a corporation is deemed a close corporation only if its articles of incorporation contain the specific requirements under Section 96 of the Corporation Code. There was no evidence presented that MSI’s articles contained such provisions. Absent this classification, the fundamental principle of separate corporate personality applies. The Spouses Cruz, as mere stockholders, are not personally liable for corporate obligations unless grounds for piercing the corporate veil are established, which were not present here. The property remained the spouses’ personal asset. Consequently, the Stay Order in MSI’s rehabilitation could not validly encompass it. The Court also found petitioner’s motion to exclude was not time-barred, as he was not a creditor of MSI required to oppose the rehabilitation petition.