Municipality of Malabang v.
Pangandapun Benito corporation, as, independently of the Administrative Code
FACTS:
Petitioner Amer Balindong is the mayor of Malabang, Lanao del
Sur while the respondents include the mayor and councilors of
Balabagan, Lanao del Sur. On March 15, 1960, Balabagan was
created under EO 386 by then President Carlos Garcia.
Petitioners, however, brought an action for prohibition to nullify
said executive order and to restrain respondents from
performing the functions of their respective office.
Respondents countered that the municipality of Balabagan is at
least a
de facto corporation, having been organized under color of a
statute before this was declared unconstitutional, its officers
having been either elected or appointed, and the municipality
itself having discharged its corporate functions for the past 5
years before the institution of this action. It contended that as a
de facto corporation, its existence cannot be collaterally
attacked, althought it may be inquired into directly in an action
for quo warranto at the instance of the State and not of an
individual, like Balindong.
The method of challenging the existence of a municipal
corporation is reserved to the State in a proceeding for quo
warranto or other direct proceeding. But the rule disallowing
collateral attacks applies only where the municipal corporation
is at least a de facto corporation. For where it is neither a
corporation de jure nor de facto, but a nullity, the rule is that its
existence may be questioned collaterally or directly in any
action or proceeding by anyone whose rights or interests are
affected thereby, including the citizens of the territory
incorporated unless they are estopped by their conduct from
doing so.
ISSUE: WON the municipality of Balabagan is a de facto
corporation considering that it was organized under a statute
subsequently declared void.
HELD:
No. A corporation organized under a statute subsequently
declared invalid cannot acquire the status of a de facto
corporation unless there is some other statute under which the
supposed corporation may be validly organized. The mere fact
that Balabagan was organized at a time when the statute had
not been invalidated cannot conceivably make it a de facto
provision in question, there is no other valid statute to give
color of authority to its creation.
An unconstitutional act is not a law; it confers no rights; it
imposes no duties; it affords no protection; it creates no office;
it is, in legal contemplation, as inoperative as though it had
never been passed." Accordingly, bonds issued by a board of
commissioners created under an invalid statute are
unenforceable.
Executive Order 386 "created no office." This is not to say,
however, that the acts done by the municipality of Balabagan in
the exercise of its corporate powers are a nullity because the
executive order "is, in legal contemplation, as inoperative as
though it had never been passed."
Pioneer Insurance vs. CA
G.R. No. 84197; July 28, 1989
FACTS:
Lim is an owner-operator of Southern Airlines (SAL). Japan
Domestic Airlines (JDA) and Lim entered into a sales contract.
Pioneer Insurance and Surety Corp. as surety executed its
surety bond in favor of JDA on behalf of its principal Lim. Border
Machinery and Heacy Equipment Co, Inc., Francisco and
Modesto Cervantes, and Constancio Maglana contributed funds
based on the misrepresentation of Lim that they will form a new
corporation to expand his business. They executed two
separate indemnity agreements in favor of Pioneer, one signed
by Maglana and the other jointly signed by Lim for SAL,
Bormaheco and the Cervanteses. The indemnity agreements
stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold and save
Pioneer from and against any/all damages, losses, etc. of
whatever kind and nature may incur in consequence of having
become surety.
Lim executed in favor of Pioneer a deed of chattel mortgage as
security. Upon default on the payments, Pioneer paid for him
and filed a petition for the foreclosure of chattel mortgage as
security. Maglana, Bormaheco and the Cervantess filed cross
-claims against Lim alleging that they were not privies to the
contracts signed by Lim and for recovery of the sum of money
they advanced to Lim for the purchase of the aircrafts. The
decision was rendered holding Lim liable to pay.
ISSUE:
Whether failure to incorporate automatically resulted to de
facto partnership.
HELD:
NO. Partnership inter se does not necessarily exist, for ordinarily
persons cannot be made to assume the relation of partners as
between themselves, when their purpose is that no partnership
shall exist and it should be implied only when necessary to do
justice between the parties; thus, one who takes no part except
to subscribe for stock in a proposed corporation which is never
legally formed does not become a partner with other
subscribers who engage in business under the name of the
pretended corporation, so as to be liable as such in an action for
settlement of the alleged partnership and contribution.
HALL vs. PICCIO
(FULL TEXT)
This is petition to set aside all the proceedings had in civil case
No. 381 of the Court of First Instance of Leyte and to enjoin the
respondent judge from further acting upon the same.
Facts:
(1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley
P. Hall, and the respondents Fred Brown, Emma Brown, Hipolita
D. Chapman and Ceferino S. Abella, signed and acknowledged
in Leyte, the article of incorporation of the Far Eastern Lumber
and Commercial Co., Inc., organized to engage in a general
lumber business to carry on as general contractors, operators
and managers, etc. Attached to the article was an affidavit of
the treasurer stating that 23,428 shares of stock had been
subscribed and fully paid with certain properties transferred to
the corporation described in a list appended thereto.
(2) Immediately after the execution of said articles of
incorporation, the corporation proceeded to do business with
the adoption of by-laws and the election of its officers.
(3) On December 2, 1947, the said articles of incorporation
were filed in the office of the Securities and Exchange
Commissioner, for the issuance of the corresponding certificate
of incorporation.
(4) On March 22, 1948, pending action on the articles of
incorporation by the aforesaid governmental office, the
respondents Fred Brown, Emma Brown, Hipolita D. Chapman
and Ceferino S. Abella filed before the Court of First Instance of
Leyte the civil case numbered 381, entitled "Fred Brown et al.
vs. Arnold C. Hall et al.", alleging among other things that the
Far Eastern Lumber and Commercial Co. was an unregistered
partnership; that they wished to have it dissolved because of
bitter dissension among the members, mismanagement and
fraud by the managers and heavy financial losses.
(5) The defendants in the suit, namely, C. Arnold Hall and
Bradley P. Hall, filed a motion to dismiss, contesting the court's
jurisdiction and the sufficiently of the cause of action.
(6) After hearing the parties, the Hon. Edmund S. Piccio ordered
the dissolution of the company; and at the request of plaintiffs,
appointed of the properties thereof, upon the filing of a P20,000
bond.
(7) The defendants therein (petitioners herein) offered to file a
counter-bond for the discharge of the receiver, but the
respondent judge refused to accept the offer and to discharge
the receiver. Whereupon, the present special civil action was
instituted in this court. It is based upon two main propositions,
to wit:
(a) The court had no jurisdiction in civil case No. 381 to decree
the dissolution of the company, because it being a de facto
corporation, dissolution thereof may only be ordered in a quo
warranto proceeding instituted in accordance with section 19 of
the Corporation Law.
(b) Inasmuch as respondents Fred Brown and Emma Brown had
signed the article of incorporation but only a partnership.
Discussion: The second proposition may at once be dismissed.
All the parties are informed that the Securities and Exchange
Commission has not, so far, issued the corresponding certificate
of incorporation. All of them know, or sought to know, that the
personality of a corporation begins to exist only from the
moment such certificate is issued not before (sec. 11,
Corporation Law). The complaining associates have not
represented to the others that they were incorporated any more
than the latter had made similar representations to them. And
as nobody was led to believe anything to his prejudice and
damage, the principle of estoppel does not apply. Obviously this
is not an instance requiring the enforcement of contracts with
the corporation through the rule of estoppel.
The first proposition above stated is premised on the theory
that, inasmuch as the Far Eastern Lumber and Commercial Co.,
is a de facto corporation, section 19 of the Corporation Law
applies, and therefore the court had not jurisdiction to take
cognizance of said civil case number 381. Section 19 reads as
follows:
. . . The due incorporation of any corporations claiming in good
faith to be a corporation under this Act and its right to exercise
corporate powers shall not be inquired into collaterally in any
private suit to which the corporation may be a party, but such
inquiry may be had at the suit of the Insular Government on
information of the Attorney-General.
There are least two reasons why this section does not govern
the situation. Not having obtained the certificate of
incorporation, the Far Eastern Lumber and Commercial Co.
even its stockholders may not probably claim "in good faith"
to be a corporation.
Under our statue it is to be noted (Corporation Law, sec. 11)
that it is the issuance of a certificate of incorporation by the
Director of the Bureau of Commerce and Industry which calls a
corporation into being. The immunity if collateral attack is
granted to corporations "claiming in good faith to be a
corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or
substantial disregard of the law. Unless there has been an
evident attempt to comply with the law the claim to be a
corporation "under this act" could not be made "in good faith."
(Fisher on the Philippine Law of Stock Corporations, p. 75.
Second, this is not a suit in which the corporation is a party. This
is a litigation between stockholders of the alleged corporation,
for the purpose of obtaining its dissolution. Even the existence
of a de jure corporation may be terminated in a private suit for
its dissolution between stockholders, without the intervention of
the state.
There might be room for argument on the right of minority
stockholders to sue for dissolution;1 but that question does not
affect the court's jurisdiction, and is a matter for decision by the
judge, subject to review on appeal. Which brings us to one
principal reason why this petition may not prosper, namely: the
petitioners have their remedy by appealing the order of
dissolution at the proper time.
There is a secondary issue in connection with the appointment
of a receiver. But it must be admitted that receivership is proper
in proceedings for dissolution of a company or corporation, and
it was no error to reject the counter-bond, the court having
declared the dissolution. As to the amount of the bond to be
demanded of the receiver, much depends upon the discretion of
the trial court, which in this instance we do not believe has
been clearly abused.
Judgment: The petition will, therefore, be dismissed, with
costs. The preliminary injunction heretofore issued will be
dissolved.
CAGAYAN FISHING vs. SANDIKO
FACTS:
Manuel Tabora is the registered owner of four parcels of land. To
guarantee the payment of two loans, Manuel Tabora, executed
in favor of PNB two mortgages over the four parcels of land
between August, 1929, and April 1930. Later, a third mortgage
on the same lands was executed also on April, 1930 in favor of
Severina Buzon to whom Tabora was indebted.
On May, 1930, Tabora executed a public document entitled
"Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by
virtue of which the four parcels of land owned by him was sold
to the plaintiff company, said to under process of incorporation.
The plaintiff company filed its article incorporation with the
Bureau of Commerce and Industry only on October, 1930
(Exhibit 2).
A year later, the board of directors of said company adopted a
resolution authorizing its president to sell the four parcels of
lands in question to Teodoro Sandiko. Exhibits B, C and D were
thereafter made and executed. Exhibit B is a deed of sale where
the plaintiff sold ceded and transferred to the defendant all its
right, titles, and interest in and to the four parcels of land.
Exhibit C is a promissory note drawn by the defendant in favor
of the plaintiff, payable after one year from the date thereof.
Exhibit D is a deed of mortgage executed where the four parcels
of land were given a security for the payment of the promissory
note, Exhibit C.
The defendant having failed to pay the sum stated in the
promissory note, plaintiff, brought this action in the Court of
First Instance of Manila praying that judgment be rendered
against the defendant for the sum stated in the promissory
note. After trial, the court rendered judgment absolving the
defendant. Plaintiff presented a motion for new trial, which
motion was denied by the trial court. After due exception and
notice, plaintiff has appealed to this court and makes an
assignment of various errors.
ISSUE:
Whether or not the sale made by the corporation is valid.
HELD:
NO. The transfer made by Tabora to the Cagayan fishing
Development Co., Inc., plaintiff herein, was affected on May 31,
1930 (Exhibit A) and the actual incorporation of said company
was affected later on October 22, 1930 (Exhibit 2). In other
words, the transfer was made almost five months before the
incorporation of the company.
Unquestionably, a duly organized corporation has the power to
purchase and hold such real property as the purposes for which
such corporation was formed may permit and for this purpose
may enter into such contracts as may be necessary. But before
a corporation may be said to be lawfully organized, many things
have to be done. Among other things, the law requires the filing
of articles of incorporation.
In the case before us it can not be denied that the plaintiff was
not yet incorporated when it entered into a contract of sale,
Exhibit A. Not being in legal existence then, it did not possess
juridical capacity to enter into the contract.
Boiled down to its naked reality, the contract here (Exhibit A)
was entered into not between Manuel Tabora and a non-existent
corporation but between the Manuel Tabora as owner of the four
parcels of lands on the one hand and the same Manuel Tabora,
his wife and others, as mere promoters of a corporations on the
other hand.
For reasons that are self-evident, these promoters could not
have acted as agent for a projected corporation since that
which no legal existence could have no agent. A corporation,
until organized, has no life and therefore no faculties.
This is not saying that under no circumstances may the acts of
promoters of a corporation be ratified by the corporation if and
when subsequently organized.
There are, of course, exceptions, but under the peculiar facts
and circumstances of the present case we decline to extend the
doctrine of ratification which would result in the commission of
injustice or fraud to the candid and unwary.
Corporations are creatures of the law, and can only come into
existence in the manner prescribed by law. A corporation should
have a full and complete organization and existence as an
entity before it can enter into any kind of a contract or transact
any business, would seem to be self-evident. A corporation,
until organized, has no being, franchises or faculties. Nor do
those engaged in bringing it into being have any power to bind
it by contract, unless so authorized by the charter there is not a
corporation nor does it possess franchise or faculties for it or
others to exercise, until it acquires a complete existence.
HARILL vs. DAVIS
4 Defendants, after having agreed to form a corporation
ordered goods from the plaintiff even before they filed their AOI.
And after they filed such AOI in one of the two public offices
required by law, they ordered additional goods. This is an action
to recover the purchase price of said goods form the defendants
as partners. Lower court held for defendants, plaintiff appeals
FACTS:
From June 1902December 22, 1902, 4 defendants associated
themselves and engaged in the following activities:
purchased lumber, material and labor from Harill
construct cotton gin under The Coweta Gin Company
 buying, selling and ginning cotton for profit under The
Coweta Cotton and Milling Company
incurred more than $4,700 of the indebtedness of
$5,145.48
Dec 22, 1902, made first real attempt to incorporate and first
time took color of a corporation They filed AOI with clerk of
Court of Appeals but never filed any duplicate with the clerk of
judicial district in which their place of business was located as
required by the statutes.
Defendants argue that they became corporation de facto but
cited authorities where AOI had been filed under a general
enabling act or charter issued and had been using a franchise.
ISSUE: WON there is a corporation de facto.
RATIO:
Parties who actively engage in business for profit under
the name and pretense of a corporation which they know
neither exists nor has any color of existence may not
escape individual liability because strangers are led by
their pretense to contract with their pretended entity as
a corporation.
Neither the hope, the belief, nor the statement by
parties that they were incorporated, nor the signing of
AOI which were not filed, where filing is requisite to
create the corporation, nor the user of the pretended
franchise of such a nonexistent corporation, will
constitute such a corpo de facto as will exempt those
who actively and knowingly use its name to incur
obligations from their individual liability to pay them.
COLOR of LEGALORGANIZATION as a corporation under
such charter or law and user of the supposed corporate
franchise in good faith are indispensable to such
exemption.
General Law of Arkansas: Filing of AOI with CA was a sine
qua non of any color of Legal Corporation.
On the argument that Harill is stopped, not applicable
since it means stopped from denying its existence on
the ground that it was not legally incorporated .
Elements of estoppels in pais not present (ignorance of
the truth
and absence of equal means of knowledge of it by the
party who claims the estoppel and action y the latter
induced by the misrepresentation of a party against
whom the estoppel is invoked. Defendants represented
themselves as a corporation and had better knowledge
than Harill.
Court held that corporators or stockeholders remain
individually liable under statute unless and until their
AOI are filed in
both offices
ASIA BANKING CORP vs. STANDARD PRODUCTS CO.
(FULLTEXT)
This action is brought to recover the sum of P24,736.47, the
balance due on promissory notes.
The court below rendered judgment in favor of the plaintiff for
the sum demanded in the complaint, with interest on the sum of
P24,147.34 from November 1, 1923, at the rate of 10 per cent
per annum, and the costs. From this judgment the defendant
appeals to this court.
At the trial of the case the plaintiff failed to prove affirmatively
the corporate existence of the parties and the appellant insists
that under these circumstances the court erred in finding that
the parties were corporations with juridical personality and
assigns same as reversible error.
There is no merit whatever in the appellant's contention. The
general rule is that in the absence of fraud a person who has
contracted or otherwise dealt with an association in such a way
as to recognize and in effect admit its legal existence as a
corporate body is thereby estopped to deny its corporate
existence in any action leading out of or involving such contract
or dealing, unless its existence is attacked for cause which have
arisen since making the contract or other dealing relied on as
an estoppel and this applies to foreign as well as to domestic
corporations. (14 C. J., 227; Chinese Chamber of Commerce vs.
Pua Te Ching, 14 Phil., 222.)

The defendant having recognized the corporate existence of the
plaintiff by making a promissory note in its favor and making
partial payments on the same is therefore estopped to deny
said plaintiff's corporate existence. It is, of course, also
estopped from denying its own corporate existence. Under
these circumstances it was unnecessary for the plaintiff to
present other evidence of the corporate existence of either of
the parties. It may be noted that there is no evidence showing
circumstances taking the case out of the rules stated.
The judgment appealed from is affirmed, with the costs against
the appellant. So ordered.
Cranson v. IBM p. 84-95: Appellee was granted summary
judgment in the lower court on the theory that a defectively-
formed corporation was neither a de jure nor a de facto
corporation, and that appellant, as a partner, was personally
liable for its debts, namely, the balance due on electric
typewriters purchased by the corporation. After examining the
doctrine of de facto corporations, the court reversed, holding
that, even though one or more of the requisites of a de facto
corporation were absent, application of the estoppel doctrine
was not precluded. Neglect in defective formation could not be
used by a corporation as a defense to an action to enforce its
liabilities, and, since estoppel was based upon the inequity of
permitting the denial of corporate existence by those dealing
with it as such, appellee was estopped from denying the legality
of that which was not even a corporation de facto. Judgment
reversed because, although appellant lacked one of the
requisite factors of a de facto corporation, appellee, who had
dealt with the corporation as such, was estopped from denying
its existence.
1. De Facto Corporation
Existence of law authorizing incorporation
Good Faith Effort - to incorporate under the existing law
Failure to file papers all together is not good faith, would
be if you left off seal or forgot to pay a fee.
Actual Use or exercise of Corporation Powers would not
occur if before a corporation began to operate there was
a lawsuit of some sort to prohibit its incorporation (?)
2. Corporation by Estoppel employed where the person
seeking to hold
the officer personally liable has contracted or otherwise dealt
with the
association in such a manner as to recognize and in effect admit
its
existence as a corporate body
requires someone to treat you as if you were validly
incorporated;
correspondence or checks addressed to incorporated
Frequently invoked in contracts cases because outside
party has
capacity for self help
Almost never works in tort (in contrast to self-help)
Refection of how cherished doctrine is for inspiring
economic activity
Corporations inspire employment, higher levels of
economic development
Corporations are often validly incorporated and they
will be
challenged
SALVATIERRA vs. GARLITOS
FACTS:
Manuela T. Vda. de Salvatierra appeared to be the owner of a
parcel of land located at Maghobas, Poblacion, Burauen, Teyte.
The said landholder entered into a contract of lease with the
Philippine Fibers Producers Co., Inc., allegedly a corporation
"duly organized and existing under the laws of the Philippines,
domiciled at Burauen, Leyte, Philippines, and with business
address therein, represented in this instance by Mr. Segundino
Q. Refuerzo, the President". It was provided in said contract
among other things:
lease would be for a period of 10 years
that the land would be planted to kenaf, ramie or other
crops suitable to the soil
that the lessor would be entitled to 30 per cent of the
net income accruing from the harvest of any, crop
without being responsible for the cost of production
thereof
and that after every harvest, the lessee was bound to
declare at the earliest possible time the income derived
 therefrom and to deliver the corresponding share due
the lessor.
obligations imposed on the alleged corporation were not
complied with because on April 5, 1955, Alanuela T. Vda, de
Salvatierra filed with the Court of First Instance of Leyte a
complaint against the Philippine Fibers Producers Co., Inc., and
Segundino Q. Refuerzo, for accounting, rescission and damages.
She averred that sometime in April, 1954, defendants planted
kenaf on 3 hectares of the leased property which crop was, at
the time of the commencement of the action, already
harvested, processed and sold by defendants; that
notwithstanding that fact, defendants refused to render an
accounting of the income derived therefrom and to deliver the
lessor's share; that the estimated gross income was P4,500, and
the deductible expenses amounted to P1,000; that as
defendants' refusal to undertake such task was in violation of
the terms of the covenant entered into between the plaintiff
and defendant corporation, a rescission was but proper.
As defendants apparently failed to file their answer to the
complaint, of which they were allegedly notified, the Court
declared them in default and proceeded to receive plaintiff's
evidence. The lower Court rendered judgment granting
plaintiff's prayer.
No appeal therefrom having been perfected within the
reglementary period, the Court, upon motion of plaintiff, issued
a writ of execution, in virtue of which the Provincial Sheriff of
Leyte caused the attachment of 3 parcels of land registered in
the name of Segundino Refuerzo. No property of the Philippine
Fibers Producers Co., Inc., was found available for attachment.
Defendant Segundino Refuerzo filed a motion (beyond the
reglementary period) claiming that the decision rendered in
said Civil Case was null and void with respect to him, there
being no allegation in the complaint pointing to his personal
liability and thus prayed that an order be issued limiting such
liability to Defendant Corporation. the Court a quo granted the
same and ordered the Provincial Sheriff of Leyte to release all
properties belonging to the movant that might have already
been attached, after finding that the evidence on record made
no mention or referred to any fact which might hold movant
personally liable therein.
RULING:
(The remedy allowed by Rule 38 to a party adversely affected
by a decision or order is certainly an alert of grace or
benevolence intended to afford said litigant a penultimate
opportunity to protect his interest. Considering the nature of
such relief and the purpose behind it, the periods fixed by said
rule are not non-extendible and never interrupted; nor could it
be subjected to any condition or contingency because it is of
itself devised to meet a condition or contingency. The petition
for a writ of certiorari filed herein may be granted.)
Decision on the merits of the case:
Refuerzo, in praying for his exoneration from any liability
resulting from the non-fulfillment of the obligation imposed on
defendant Philippine Fibers Producers Co., Inc., interposed the
defense that the complaint filed with the lower court contained
no allegation which would hold him liable personally, for while it
was stated therein that he was a signatory to the lease
contract, he did so in his capacity as president of the
corporation. And this allegation was found by the Court a quo to
be supported by the records. Plaintiff on the other hand tried to
refute this averment by contending that her failure to specify
defendant's personal liability was due to the fact that all the
time she was under the impression that the Philippine Fibers
Producers Co., Inc., represented by Refuerzo was a duly
registered corporation as appearing in the contract, but a
subsequent inquiry from the Securities and Exchange
Commission yielded otherwise. While as a general rule a person
who has contracted or dealt with an association in such a way
as to recognize its existence as a corporate body is estopped
from denying the same in an action arising out of such
transaction or dealing, yet this doctrine may not be held to be
applicable where fraud takes a part in the said transaction.
In the instant case, on plaintiff's charge that she was unaware
of the fact that the Philippine Fibers Producers Co., Inc., had no
juridical personality, defendant Refuerzo gave no confirmation
or denial and the circumstances surrounding the execution of
the contract lead to the inescapable conclusion that plaintiff
Manuela T. Vda. de Salvatierra was really made to believe that
such corporation was duly organized in accordance with law.
There can be no question that a corporation with registered has
a juridical personality separate and distinct from its component
members or stockholders and officers such that a corporation
cannot be held liable for the personal indebtedness of a
stockholder even if he should be its president and conversely, a
stockholder or member cannot be held personally liable for any
financial obligation be, the corporation in excess of his unpaid
subscription. But this rule is understood to refer merely to
registered corporations and cannot be made applicable to the
liability of members of an unincorporated association. The
reason behind this doctrine is obvious-since an organization
which before the law is non-existent has no personality and
would be incompetent to act and appropriate for itself the
powers and attribute of a corporation as provided by law; it
cannot create agents or confer authority on another to act in its
behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their
own risk. And as it is an elementary principle of law that a
person who acts as an agent without authority or without a
principal is himself regarded as the principal, possessed of all
the rights and subject to all the liabilities of a principal, a person
acting or purporting to act on behalf of a corporation which has
no valid existence assumes such privileges and obligations and
comes personally liable for contracts entered into or for other
acts performed as such, agent.
Considering that defendant Refuerzo, as president of the
unregistered corporation Philippine Fibers Producers Co., Inc.,
was the moving spirit behind the consummation of the lease
agreement by acting as its representative, his liability cannot be
limited or restricted that imposed upon corporate shareholders.
In acting on behalf of a corporation which he knew to be
unregistered, he assumed the risk of reaping the consequential
damages or resultant rights, if any, arising out of such
transaction.
Wherefore, the order of the lower Court of March 21, 1956,
amending its previous decision on this matter and ordering the
Provincial Sheriff of Leyte to release any and all properties of
movant therein which might have been attached in the
execution of such judgment, is hereby set aside and nullified as
if it had never been issued. With costs against respondent
Segundino Refuerzo. It is so ordered.
ALBERT vs. University Publishing Co., Inc.
(MEJO FULLTEXT)
Fifteen years ago, on September 24, 1949, Mariano A. Albert
sued University Publishing Co., Inc. Plaintiff alleged inter alia
that defendant was a corporation duly organized and existing
under the laws of the Philippines; that on July 19, 1948,
defendant, through Jose M. Aruego, its President, entered into a
contract with plaintifif; that defendant had thereby agreed to
pay plaintiff P30,000.00 for the exclusive right to publish his
revised Commentaries on the Revised Penal Code and for his
share in previous sales of the book's first edition; that
defendant had undertaken to pay in eight quarterly installments
of P3,750.00 starting July 15, 1948; that per contract failure to
pay one installment would render the rest due; and that
defendant had failed to pay the second installment.
Defendant admitted plaintiff's allegation of defendant's
corporate existence; admitted the execution and terms of the
contract dated July 19, 1948; but alleged that it was plaintiff
who breached their contract by failing to deliver his manuscript.
Furthermore, defendant counterclaimed for
damages.1wph1.t
Plaintiff died before trial and Justo R. Albert, his estate's
administrator, was substituted for him.
CFI of MANILA: the Court renders judgment in favor of the
plaintiff and against the defendant the University Publishing Co.,
Inc.
Thereafter, on July 22, 1961, the court a quo ordered issuance
of an execution writ against University Publishing Co., Inc.
Plaintiff, however, on August 10, 1961, petitioned for a writ of
execution against Jose M. Aruego, as the real defendant,
stating, "plaintiff's counsel and the Sheriff of Manila discovered
that there is no such entity as University Publishing Co., Inc."
Plaintiff annexed to his petition a certification from the
securities and Exchange Commission dated July 31, 1961,
attesting: "The records of this Commission do not show the
registration of UNIVERSITY PUBLISHING CO., INC., either as a
corporation or partnership." "University Publishing Co., Inc."
countered by filing, through counsel (Jose M. Aruego's own law
firm), a "manifestation" stating that "Jose M. Aruego is not a
party to this case," and that, therefore, plaintiff's petition should
be denied.
Parenthetically, it is not hard to decipher why "University
Publishing Co., Inc.," through counsel, would not want Jose M.
Aruego to be considered a party to the present case: should a
separate action be now instituted against Jose M. Aruego, the
plaintiff will have to reckon with the statute of limitations.

The court a quo denied the petition by order of September 9,
1961, and from this, plaintiff has appealed.
The fact of non-registration of University Publishing Co., Inc. in
the Securities and Exchange Commission has not been
disputed. Defendant would only raise the point that "University
Publishing Co., Inc.," and not Jose M. Aruego, is the party
defendant; thereby assuming that "University Publishing Co.,
Inc." is an existing corporation with an independent juridical
personality. Precisely, however, on account of the non-
registration it cannot be considered a corporation, not even a
corporation de facto. It has therefore no personality separate
from Jose M. Aruego; it cannot be sued independently.
The corporation-by-estoppel doctrine has not been invoked. At
any rate, the same is inapplicable here. Aruego represented a
non-existent entity and induced not only the plaintiff but even
the court to believe in such representation. He signed the
contract as "President" of "University Publishing Co., Inc.,"
stating that this was "a corporation duly organized and existing
under the laws of the Philippines," and obviously misled plaintiff
(Mariano A. Albert) into believing the same. One who has
induced another to act upon his wilful misrepresentation that a
corporation was duly organized and existing under the law,
cannot thereafter set up against his victim the principle of
corporation by estoppel.
"University Publishing Co., Inc." purported to come to court,
answering the complaint and litigating upon the merits. But as
stated, "University Publishing Co., Inc." has no independent
personality; it is just a name. Jose M. Aruego was, in reality, the
one who answered and litigated, through his own law firm as
counsel. He was in fact, if not, in name, the defendant.
in Salvatiera vs. Garlitos, supra, p. 3073, we ruled: "A person
acting or purporting to act on behalf of a corporation which has
no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other
acts performed as such agent." Had Jose M. Aruego been
named as party defendant instead of, or together with,
"University Publishing Co., Inc.," there would be no room for
debate as to his personal liability. Since he was not so named,
the matters of "day in court" and "due process" have arisen.
It must be realized that parties to a suit are "persons who have
a right to control the proceedings, to make defense, to adduce
and cross-examine witnesses, and to appeal from a decision"
and Aruego was, in reality, the person who had and exercised
these rights. Clearly, then, Aruego had his day in court as the
real defendant; and due process of law has been substantially
observed.
The evidence is patently clear that Jose M. Aruego, acting as
representative of a non-existent principal, was the real party to
the contract sued upon; that he was the one who reaped the
benefits resulting from it, so much so that partial payments of
the consideration were made by him; that he violated its terms,
thereby precipitating the suit in question; and that in the
litigation he was the real defendant. Perforce, in line with the
ends of justice, responsibility under the judgment falls on him.
PREMISES CONSIDERED, the order appealed from is hereby set
aside and the case remanded ordering the lower court to hold
supplementary proceedings for the purpose of carrying the
judgment into effect against University Publishing Co., Inc.
and/or Jose M. Aruego. So ordered.
CHIANG KAI SHEK vs. CA
FACTS:
An unpleasant surprise awaited Fausta F. Oh when she reported
for work at the Chiang Kai Shek School in Sorsogon on the first
week of July, 1968. She was told she had no assignment for the
next semester. Oh was shocked. She had been teaching in the
school since 1932 for a continuous period of almost 33 years.
And now, out of the blue, and for no apparent or given reason,
this abrupt dismissal.
Oh sued. She demanded separation pay, social security
benefits, salary differentials, maternity benefits and moral and
exemplary damages.
The Court of First Instance of Sorsogon dismissed the complaint.
On appeal, its decision was set aside by the respondent court,
which held the school suable and liable while absolving the
other defendants. The motion for reconsideration having been
denied, the school then came to this Court in this petition for
review on certiorari.
The issues raised in the petition are:
1. Whether or not a school that has not been incorporated may
be sued by reason alone of its long continued existence and
recognition by the government,
2. Whether or not a complaint filed against persons associated
under a common name will justify a judgment against the
association itself and not its individual members.
We hold against the petitioner on the first question. It is true
that Rule 3, Section 1, of the Rules of Court clearly provides that
"only natural or juridical persons may be parties in a civil
action." It is also not denied that the school has not been
incorporated. However, this omission should not prejudice the
private respondent in the assertion of her claims against the
school.
As a school, the petitioner was governed by Act No. 2706 as
amended by C.A. No. 180, which provided as follows:
Unless exempted for special reasons by the Secretary of Public
Instruction, any private school or college recognized by the
government shall be incorporated under the provisions of Act
No. 1459 known as the Corporation Law, within 90 days after
the date of recognition, and shall file with the Secretary of
Public Instruction a copy of its incorporation papers and by-
laws.
Having been recognized by the government, it was under
obligation to incorporate under the Corporation Law within 90
days from such recognition. It appears that it had not done so at
the time the complaint was filed notwithstanding that it had
been in existence even earlier than 1932. The petitioner cannot
now invoke its own non-compliance with the law to immunize it
from the private respondent's complaint.
There should also be no question that having contracted with
the private respondent every year for thirty two years and thus
represented itself as possessed of juridical personality to do so,
the petitioner is now estopped from denying such personality to
defeat her claim against it. According to Article 1431 of the Civil
Code, "through estoppel an admission or representation is
rendered conclusive upon the person making it and cannot be
denied or disproved as against the person relying on it."
As the school itself may be sued in its own name, there is no
need to apply Rule 3, Section 15, under which the persons
joined in an association without any juridical personality may be
sued with such association. Besides, it has been shown that the
individual members of the board of trustees are not liable,
having been appointed only after the private respondent's
dismissal.
It is clear now that a charitable institution is covered by the
labor laws. While it may be that the petitioner was engaged in
charitable works, it would not necessarily follow that those in its
employ were as generously motivated. Obviously, most of them
would not have the means for such charity. The private
respondent herself was only a humble school teacher receiving
a meager salary of Pl80. 00 per month.
At that, it has not been established that the petitioner is a
charitable institution, considering especially that it charges
tuition fees and collects book rentals from its students.
The petitioner says the private respondent had not been
illegally dismissed because her teaching contract was on a
yearly basis and the school was not required to rehire her in
1968. The argument is that her services were terminable at the
end of each year at the discretion of the school. Significantly, no
explanation was given by the petitioner, and no advance notice
either, of her relief after teaching year in and year out for all of
thirty-two years, the private respondent was simply told she
could not teach any more.
The Court holds, after considering the particular circumstance
of Oh's employment that she had become a permanent
employee of the school and entitled to security of tenure at the
time of her dismissal. Since no cause was shown and
established at an appropriate hearing, and the notice then
required by law had not been given, such dismissal was invalid.
Parenthetically, R.A. No. 4670, otherwise known as the Magna
Carta for Public School Teachers, confers security of tenure on
the teacher upon appointment as long as he possesses the
required qualification
It is easy to imagine the astonishment and hurt she felt when
she was fatly and without warning told she was dismissed.
There was not even the amenity of a formal notice of her
replacement, with perhaps a graceful expression of thanks for
her past services. She was simply informed she was no longer in
the teaching staff. To put it bluntly, she was fired.
For the wrongful act of the petitioner, the private respondent is
entitled to moral damages.
WHEREFORE, the petition is DENIED.
LIM TONG LIM vs. Phil. Fishing Gear Industries Inc.
A partnership may be deemed to exist among parties who
agree to borrow money to pursue a business and to divide the
profits or losses that may arise therefrom, even if it is shown
that they have not contributed any capital of their own to a
"common fund." Their contribution may be in the form of credit
or industry, not necessarily cash or fixed assets. Being partners,
they are all liable for debts incurred by or on behalf of the
partnership. The liability for a contract entered into on behalf of
an unincorporated association or ostensible corporation may lie
in a person who may not have directly transacted on its behalf,
but reaped benefits from that contract.
FACTS:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua
and Peter Yao entered into a Contract for the purchase of fishing
nets of various sizes from the Philippine Fishing Gear Industries,
Inc. They claimed that they were engaged in a business venture
with Petitioner Lim Tong Lim, who however was not a signatory
to the agreement. The total price of the nets amounted to
P532,045. Four hundred pieces of foats worth P68,000 were
also sold to the Corporation.
The buyers, however, failed to pay for the fishing nets and the
foats; hence, private respondent filed a collection suit against
Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of
preliminary attachment. The suit was brought against the three
in their capacities as general partners, on the allegation that
Ocean Quest Fishing Corporation was a nonexistent corporation
as shown by a Certification from the SEC. The lower court
issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B Lourdes
docked in Manila.
Instead of answering the Complaint, Chua filed a Manifestation
admitting his liability and requesting a reasonable time within
which to pay. He also turned over to respondent some of the
nets which were in his possession. Peter Yao filed an Answer,
after which he was deemed to have waived his right to cross-
examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim
Tong Lim, on the other hand, filed an Answer with Counterclaim
and Crossclaim and moved for the lifting of the Writ of
Attachment. The trial court maintained the Writ, and upon
motion of private respondent, ordered the sale of the fishing
nets at a public auction. Philippine Fishing Gear Industries won
the bidding.
The trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of Attachment
and that Chua, Yao and Lim, as general partners, were jointly
liable to pay respondent.
The trial court ruled that a partnership among Lim, Chua and
Yao existed based on: TESTIMONIES, Compromise Agreement
executed by the three which Chua and Yao had brought against
Lim in the RTC of Malabon.
The trial court noted that the Compromise Agreement was silent
as to the nature of their obligations, but that joint liability could
be presumed from the equal distribution of the profit and loss.
CA: affirmed RTC decision.
The evidence establishes that all the defendants including
herein appellant Lim Tong Lim undertook a partnership for a
specific undertaking, that is for commercial fishing. Obviously,
the ultimate undertaking of the defendants was to divide the
profits among themselves which is what a partnership
essentially is.
ISSUE: Whether by their acts, Lim, Chua and Yao could be
deemed to have entered into a partnership.
RULING: PETITION WITHOUT MERIT.
Whether Partnership existed:
We are not persuaded by the arguments of petitioner. The facts
as found by the two lower courts clearly showed that there
existed a partnership among Chua, Yao and him.
From the factual findings of both lower courts, it is clear that
Chua, Yao and Lim had decided to engage in a fishing business,
which they started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim who was petitioners
brother. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the
sale of the boats, and to divide equally among them the excess
or loss. These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term common
fund under Article 1767. The contribution to such fund need not
be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the
sale and operation of the boats would be divided equally among
them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to
the purchase of the boat, but also to that of the nets and the
foats. The fishing nets and the foats, both essential to fishing,
were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so
much in buying the boat but not in the acquisition of the
aforesaid equipment, without which the business could not have
proceeded.
Given the preceding facts, it is clear that there was, among
petitioner, Chua and Yao, a partnership engaged in the fishing
business. They purchased the boats, which constituted the main
assets of the partnership, and they agreed that the proceeds
from the sales and operations thereof would be divided among
them.
CORPORATION BY ESTOPPEL:
Petitioner argues that under the doctrine of corporation by
estoppel, liability can be imputed only to Chua and Yao, and not
to him. Again, we disagree.
Sec. 21. Corporation by estoppel. - All persons who assume to
act as a corporation knowing it to be without authority to do so
shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on
any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as
such, cannot resist performance thereof on the ground that
there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be
legally nonexistent, a party may be estopped from denying its
corporate existence. The reason behind this doctrine is obvious
- an unincorporated association has no personality and would
be incompetent to act and appropriate for itself the power and
attributes of a corporation as provided by law; it cannot create
agents or confer authority on another to act in its behalf; thus,
those who act or purport to act as its representatives or agents
do so without authority and at their own risk. And as it is an
elementary principle of law that a person who acts as an agent
without authority or without a principal is himself regarded as
the principal, possessed of all the right and subject to all the
liabilities of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence assumes
such privileges and obligations and becomes personally liable
for contracts entered into or for other acts performed as such
agent.
The doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in good
faith on such representation. It cannot allege lack of personality
to be sued to evade its responsibility for a contract it entered
into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to
be unincorporated, nonetheless treated it as a corporation and
received benefits from it, may be barred from denying its
corporate existence in a suit brought against the alleged
corporation. In such case, all those who benefited from the
transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts
they impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear
Industries, is entitled to be paid for the nets it sold. The only
question here is whether petitioner should be held jointly[18]
liable with Chua and Yao. Petitioner contests such liability,
insisting that only those who dealt in the name of the ostensible
corporation should be held liable. Since his name does not
appear on any of the contracts and since he never directly
transacted with the respondent corporation, ergo, he cannot be
held liable.
Unquestionably, petitioner benefited from the use of the nets
found inside F/B Lourdes, the boat which has earlier been
proven to be an asset of the partnership. He in fact questions
the attachment of the nets, because the Writ has effectively
stopped his use of the fishing vessel.
Technically, it is true that petitioner did not directly act on
behalf of the corporation. However, having reaped the benefits
of the contract entered into by persons with whom he
previously had an existing relationship, he is deemed to be part
of said association and is covered by the scope of the doctrine
of corporation by estoppel.
PETITION DENIED.
International Express Travel & Tour Services, Inc. vs. Court of
Appeals
[GR 119002, 19 October 2000]
Facts: On 30 June 1989, the International Express Travel and
Tour Services, Inc. (IETTSI), through its managing director, wrote
a letter to the Philippine Football Federation (Federation),
through its president, Henri Kahn, wherein the former offered its
services as a travel agency to the latter. The offer was
accepted. IETTSI secured the airline tickets for the trips of the
athletes and officials of the Federation to the South East Asian
Games in Kuala Lumpur as well as various other trips to the
People's Republic of China and Brisbane. The total cost of the
tickets amounted to P449,654.83. For the tickets received, the
Federation made two partial payments, both in September of
1989, in the total amount of P176,467.50. On 4 October 1989,
IETTSI wrote the Federation, through Kahn a demand letter
requesting for the amount of P265,894.33. On 30 October 1989,
the Federation, through the Project Gintong Alay, paid the
amount of P31,603.00. On 27 December 1989, Henri Kahn
issued a personal check in the amount of P50,000 as partial
payment for the outstanding balance of the Federation.
Thereafter, no further payments were made despite repeated
demands. This prompted IETTSI to file a civil case before the
Regional Trial Court of Manila. IETTSI sued Henri Kahn in his
personal capacity and as President of the Federation and
impleaded the Federation as an alternative defendant. IETTSI
sought to hold Henri Kahn liable for the unpaid balance for the
tickets purchased by the Federation on the ground that Henri
Kahn allegedly guaranteed the said obligation. Kahn filed his
answer with counterclaim, while the Federation failed to file its
answer and was declared in default by the trial court. In due
course, the trial court rendered judgment and ruled in favor of
IETTSI and declared Henri Kahn personally liable for the unpaid
obligation of the Federation. The complaint of IETTSI against the
Philippine Football Federation and the counterclaims of Henri
Kahn were dismissed, with costs against Kahn. Only Henri Kahn
elevated the decision to the Court of Appeals. On 21 December
1994, the appellate court rendered a decision reversing the trial
court. IETTSI filed a motion for reconsideration and as an
alternative prayer pleaded that the Federation be held liable for
the unpaid obligation. The same was denied by the appellate
court in its resolution of 8 February 1995. IETTSI filed the
petition with the Supreme Court.
Issue
Whether the Philippine Football Federation has a corporate
existence of its own.
Whether Kahn should be made personally liable for the unpaid
obligations of the Philippine Football Federation.
Whether the appellate court properly applied the doctrine of
corporation by estoppel.
Held
1. Both RA 3135 (the Revised Charter of the Philippine Amateur
Athletic Federation) and PD 604 recognized the juridical
existence of national sports associations. This may be gleaned
from the powers and functions granted to these associations
(See Section 14 of RA 3135 and Section 8 of PD 604). The
powers and functions granted to national sports associations
indicate that these entities may acquire a juridical personality.
The power to purchase, sell, lease and encumber property are
acts which may only be done by persons, whether natural or
artificial, with juridical capacity. However, while national sports
associations may be accorded corporate status, such does not
automatically take place by the mere passage of these laws. It
is a basic postulate that before a corporation may acquire
juridical personality, the State must give its consent either in
the form of a special law or a general enabling act. The
Philippine Football Federation did not come into existence upon
the passage of these laws. Nowhere can it be found in RA 3135
or PD 604 any provision creating the Philippine Football
Federation. These laws merely recognized the existence of
national sports associations and provided the manner by which
these entities may acquire juridical personality. Section 11 of RA
3135 and Section 8 of PD 604 require that before an entity may
be considered as a national sports association, such entity must
be recognized by the accrediting organization, the Philippine,
Amateur Athletic Federation under RA 3135, and the
Department of Youth and Sports Development under PD 604.
This fact of recognition, however, Henri Kahn failed to
substantiate. A copy of the constitution and by-laws of the
Philippine Football Federation does not prove that said
Federation has indeed been recognized and accredited by either
the Philippine Amateur Athletic Federation or the Department of
Youth and Sports Development. Accordingly, the Philippine
Football Federation is not a national sports association within
the purview of the aforementioned laws and does not have
corporate existence of its own.
2. Henry Kahn should be held liable for the unpaid obligations of
the unincorporated Philippine Football Federation. It is a settled
principal in corporation law that any person acting or purporting
to act on behalf of a corporation which has no valid existence
assumes such privileges and becomes personally liable for
contract entered into or for other acts performed as such agent.
As president of the Federation, Henri Kahn is presumed to have
known about the corporate existence or non-existence of the
Federation. We cannot subscribe to the position taken by the
appellate court that even assuming that the Federation was
defectively incorporated, the petitioner cannot deny the
corporate existence of the Federation because it had contracted
and dealt with the Federation in such a manner as to recognize
and in effect admit its existence.
3. The Court cannot subscribe to the position taken by the
appellate court that even assuming that the Federation was
defectively incorporated, IETTSI cannot deny the corporate
existence of the Federation because it had contracted and dealt
with the Federation in such a manner as to recognize and in
effect admit its existence. The doctrine of corporation by
estoppel is mistakenly applied by the appellate court to IETTSI.
The application of the doctrine applies to a third party only
when he tries to escape liabilities on a contract from which he
has benefited on the irrelevant ground of defective
incorporation. Herein, IETTSI is not trying to escape liability from
the contract but rather is the one claiming from the contract.
PRISCILO B. PAZ,* Petitioner, vs. NEW INTERNATIONAL
ENVIRONMENTAL UNIVERSALITY, INC., Respondent.
Principles:
Commercial Law: Section 21 of the Corporation Code explicitly
provides that one who assumes an obligation to an ostensible
corporation, as such, cannot resist performance thereof on the
ground that there was in fact no corporation. (Doctrine of
Estoppel)
Facts:
Petitioner, as officer-in-charge of the Aircraft Hangar at the
Davao International Airport, Davao City, entered into a MOA
with Captain Allan J. Clarke, President of International
Environmental University, whereby for a period of 4 years,
unless pre-terminated by both parties with 6 months advance
notice, the former shall allow the latter to use the aircraft
hangar space at the said Airport "exclusively for company
aircraft/helicopter."
About five months thereafter, petitioner sent a letter to Capt.
Clarke complaining that the hangar space was being used "for
trucks and equipment, vehicles maintenance and fabrication,"
and threatened to cancel the MOA if such were not stopped
immediately. In another letter, he reiterated his threat and
offered a vacant space along the airport road that was available
for Capt. Clarkes operations. Unsatisfied, he again sent three
letters demanding respondent to vacate the premises otherwise
the company will apply for immediate electrical disconnection.
Respondent then filed a complaint against petitioner for breach
of contract before the RTC claiming that: (a) petitioner had
disconnected its electric and telephone lines; (b) upon
petitioners instruction, security guards prevented its
employees from entering the leased premises by blocking the
hangar space with barbed wire; and (c) petitioner violated the
terms of the MOA when he took over the hangar space without
giving respondent the requisite six (6)-month advance notice of
termination.
In his defense, petitioner alleged that: (a) respondent had no
cause of action against him as the MOA was executed between
him and Capt. Clarke in the latters personal capacity; (b) there
was no need to wait for the expiration of the MOA because
Capt. Clarke performed highly risky works in the leased
premises that endangered other aircrafts within the vicinity; and
(c) the six (6)-month advance notice of termination was already
given in the letters he sent to Capt. Clarke.
The RTC issued a Writ of Preliminary Injunction ordering
petitioner to immediately remove all his aircrafts parked within
the leased premises; allow entry of respondent by removing the
steel gate installed thereat; and desist and refrain from
committing further acts of dispossession and/or interference in
respondents occupation of the hangar space. For failure to
comply, respondent filed a petition for indirect contempt
against petitioner.
RTC: Petitioner is guilty of indirect contempt and liable for
breach of contract for illegally terminating the MOA even before
the expiration of the term thereof. The MOA was executed by
the parties not only in their personal capacities but also in
representation of their respective corporations or entities.
CA: Affirmed RTCs finding of petitioners liability for breach of
contract.
The CA ruled that, while there was no corporate entity at the
time of the execution of the MOA on March 1, 2000 when Capt.
Clarke signed as "President of International Environmental
University," petitioner is nonetheless estopped from denying
that he had contracted with respondent as a corporation,
having recognized the latter as the "Second Party" in the MOA
that "will use the hangar space exclusively for company
aircraft/helicopter." Petitioner was likewise found to have issued
checks to respondent from May 3, 2000 to October 13, 2000,
which belied his claim of contracting with Capt. Clarke in the
latters personal capacity.
MR: Petitioner raised an additional issue stating that the death
of Capt. Clarke allegedly warranted the dismissal of the case.
Motion is denied. Capt. Clark is merely an agent of respondent,
thus, his death extinguished only the agency between him and
respondent.
Issues:
1. Whether or not Capt. Clarke is an indispensable party. NO
2. Whether or not respondent is liable for breach of contract.
-YES
Ruling: The petition lacks merit.
1. The CA is correct in denying the motion to dismiss the case
for lack of jurisdiction. Failure to implead Capt. Clarke does not
divest the court of jurisdiction since he is merely an agent of
respondent. While Capt. Clarkes name and signature appeared
on the MOA, his participation was, nonetheless, limited to being
a representative of respondent. As a mere representative, Capt.
Clarke acquired no rights whatsoever, nor did he incur any
liabilities, arising from the contract between petitioner and
respondent. Therefore, he was not an indispensable party to the
case at bar.
2. From the very language itself of the MOA entered into by
petitioner whereby he obligated himself to allow the use of the
hangar space "for company aircraft/helicopter," petitioner
cannot deny that he contracted with respondent. Petitioner
further acknowledged this fact in his final letter dated July 23,
2002, where he reiterated and strongly demanded the former to
immediately vacate the hangar space his "company is
occupying/utilizing."
Section 21 of the Corporation Code explicitly provides that one
who assumes an obligation to an ostensible corporation, as
such, cannot resist performance thereof on the ground that
there was in fact no corporation. Clearly, petitioner is bound by
his obligation under the MOA not only on estoppel but by
express provision of law. As aptly raised by respondent in its
Comment to the instant petition, it is futile to insist that
petitioner issued the receipts for rental payments in
respondents name and not with Capt. Clarkes, whom
petitioner allegedly contracted in the latters personal capacity,
only because it was upon the instruction of an employee.
Indeed, it is disputably presumed that a person takes ordinary
care of his concerns, and that all private transactions have been
fair and regular. Hence, it is assumed that petitioner, who is a
pilot, knew what he was doing with respect to his business with
respondent.
Be that as it may, it is settled that courts have no power to
relieve parties from obligations they voluntarily assumed,
simply because their contracts turn out to be disastrous deals or
unwise investments.
The lower courts, therefore, did not err in finding petitioner
liable for breach of contract for effectively evicting respondent
from the leased premises even before the expiration of the term
of the lease. The Court reiterates with approval the ratiocination
of the RTC that, if it were true that respondent was violating the
terms and conditions of the lease, "[petitioner] should have
gone to court to make the [former] refrain from its 'illegal'
activities or seek rescission of the [MOA], rather than taking the
law into his own hands."