FRANCISCO VS MEJIA CASE DIGEST

Adalia Francisco was the Treasurer of Cardale Financing and Realty

Corporation (Cardale). Cardale, through Francisco, contracted with
Andrea Gutierrez for the latter to execute a deed of sale over certain
parcels of land in favor of Cardale. It was agreed that Gutierrez shall
hand over the titles to Cardale but Cardale shall only give a
downpayment, and later on full payment in installment. As security,
Gutierrez shall retain a lien over the properties by way of mortgage.
Nonetheless, Cardale defaulted in its payment. Gutierrez then filed a
petition with the trial court to have the Deed rescinded.
While the case was pending, Gutierrez died, and Rita Mejia, being the
executrix of the will of Gutierrez took over the affairs of the estate.
The case dragged on for 14 years because Francisco lost interest in
presenting evidence. And while the case was pending, Cardale failed to
pay real estate taxes over the properties in litigation hence, the local
government subjected said properties to an auction sale to satisfy the
tax arrears. The highest bidder in the auction sale was Merryland
Development Corporation (Merryland).
Apparently, Merryland is a corporation in which Francisco was the
President and majority stockholder. Mejia then sought to nullify the
auction sale on the ground that Francisco used the two corporations as
dummies to defraud the estate of Gutierrez especially so that these
circumstances are present:
1.

Francisco did not inform the lower court that the properties were
delinquent in taxes;

2.

That there was notice for an auction sale and Francisco did not
inform the Gutierrez estate and as such, the estate was not able to
perform appropriate acts to remedy the same;

3.

That without knowledge of the auction, the Gutierrez estate

cannot exercise their right of redemption;

4.

That Francisco failed to inform the court that the highest bidder
in the auction sale was Merryland, her other company;

5.

That thereafter, Cardale was dissolved and the subject properties

were divided and sold to other people.
ISSUE: Whether or not Merryland and Francisco shall be held solidarily
liable.
HELD: No. Only Francisco shall be held liable to pay the indebtedness
to the Gutierrez estate. What was only proven was that Francisco
defrauded the Gutierrez estate as clearly shown by the dubious
circumstances which caused the encumbered properties to be
auctioned. By not disclosing the tax delinquency, Francisco left
Gutierrez in the dark. She obviously acted in bad faith. Franciscos

elaborate act of defaulting payment, disregarding the case, not paying

realty taxes (since as treasurer of Cardale, shes responsible for paying
the real estate taxes for Cardale), and failure to advise Gutierrez of the
tax delinquencies all constitute bad faith. The attendant fraud and bad
faith on the part of Francisco necessitates the piercing of the veil of
corporate fiction in so far as Cardale and Francisco are concerned.
Cardale and Francisco cannot escape liability now that Cardale has
been dissolved. Francisco shall then pay Guttierez estate the
outstanding balance with interest (total of P4.3 + million).
As regards Merryland however, there was no proof that it is merely an
alter ego or a business conduit of Francisco. Merryland merely bought
the properties from the auction sale and such per se is not a wrongful
act or a fraudulent act. Time and again it has been reiterated that 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 sufficient
ground for disregarding the separate corporate personality. Hence,
Merryland cant be held solidarily liable with Francisco.