G.R. No. L-35250 November 29, 1983
MINERVA C. GUERRERO, ET AL., petitioners, vs. COURT OF APPEALS and NORTHERN THEATRICAL ENTERPRISES, INC., respondents.

FACTS

The petitioners, heirs of Andres Castro, filed a complaint for reconveyance and/or damages against Northern Theatrical Enterprises, Inc. They alleged that Lot No. 9316 in Laoag, Ilocos Norte, originally owned by their predecessor, was fraudulently registered in the name of “La Sociedad Filantropica Progresiva de Laoag” during cadastral proceedings in 1934. The petitioners, having failed to file an answer in those proceedings, lost the lot. The Sociedad was later judicially dissolved, and its receiver-liquidator sold the lot to Baltazara Pre. Subsequently, Pre sold the lot to the respondent corporation, which constructed a building and has been in exclusive possession since 1939.
The parties submitted a stipulation of facts confirming the chain of title. The petitioners argued that the sales from the Sociedad to Pre and from Pre to the corporation were fraudulent, noting that Pre, a relative of a Sociedad stockholder, bought the lot for P5,500 and sold it a month later to the corporation for P10,000 worth of its stocks. They contended the corporation’s incorporators were substantially the same individuals as the Sociedad’s members, warranting the piercing of the corporate veil.

ISSUE

Whether the respondent corporation acquired the subject property through fraud, thereby holding it in trust for the petitioners, and whether the corporate veil should be pierced.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ dismissal of the complaint. On the issue of fraud, the Court found no evidence to support the petitioners’ allegations. The sale by the court-appointed receiver-liquidator of the judicially dissolved Sociedad to Pre was a legitimate liquidation act. The subsequent sale by Pre to the respondent corporation, documented in a notarized deed acknowledging a P10,000 consideration paid in corporate shares, was a valid transaction. The mere fact of payment in shares of stock and a quick resale at a higher nominal value does not, by itself, establish fraud or simulation, absent clear proof of bad faith. The notarized deed’s recital of consideration carries evidentiary weight.
Regarding piercing the corporate veil, the Court held the petitioners failed to prove the corporation was used to commit a fraud or wrongdoing in acquiring the property. The Sociedad was a separate entity that was lawfully dissolved. The formation of a new corporation by some former members to purchase an asset from a third-party vendor (Pre) does not, under these circumstances, justify disregarding the corporation’s separate juridical personality. The legal fiction of separate corporate identity is upheld when, as here, the preponderance of evidence shows the transaction was regular and no fraud was committed by the corporation or its predecessors-in-interest. Consequently, the action for reconveyance, filed decades after the corporation’s open and continuous possession, was correctly dismissed.