Palay, Inc. vs.

Clave
Facts:
- Albert Onstott as President of Palay, Inc., executed a contract to sell a parcel of
land located in Crestview Heights Subdivision in Antipolo, Rizal in favor of
Nazario Dumpit.
- 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 forfeiture of
installments paid.
- Nazario Dumpit paid the downpayment and several installments but defaulted
later however.
- Almost 6 years later, Dumpit wrote the petitioner offering to update all his
overdue accounts with interest and seeking its written consent to the assignment
of his rights to a certain Lourdes Dizon.
- Petitioner replied informing Dumpit that his contract to sell had long been
rescinded pursuant to the automatic extrajudicial rescission provision of the
contract and that the lot had already been resold.
- Thereafter, Dumpit filed a complaint with the national Housing Authority
questioning the validity of the rescission and for reconveyance.
- National Housing Authority found the rescission void in the absence of either
judicial or notarial demand and ordered petitioner and Albert Onstott, in his
capacity as the President of corporation to jointly and severally be liable for
refund.
- On appeal to the Office of the President, Presidential Executive Assistant Jacobo
Clave, respondent, affirmed the resolution of NHA.
- Hence, this petititon.
ISSUE:
1. Whether or not the contract was validly rescinded? NO.
2. Whether or not the president of the corporation can be made jointly and severally
liable with the corporation? No.
HELD:
When a real estate corporation extrajudicially rescinded a contract to sell but failed to
fulfill its obligation under the same contract to deliver a substitute lot or refund the
purchase price, the president of the corporation cannot be held liable even where he
appears to be the controlling stockholder absent sufficient proof that he used the
corporation to defraud defaulting lot buyer. Mere ownership by a single stockholder or
by another corporation of all or nearly all capital stock of corporation not sufficient
ground for disregarding corporate personality.
Although it is true that judicial action for rescission of contract to sell is not necessary
where contract provides for its revocation and cancellation for violation of any of its

terms and conditions, it shall be with a written notice sent to defaulter informing hi, of
the rescission.
- No notice was sent to Dumpit.
No badges of Fraud was found on the part of Albert Onstott.
- He did not use the corporation to defraud private respondent.