Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-2598 June 29, 1950

C. ARNOLD HALL and BRADLEY P. HALL, petitioners, vs. EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and Commercial Co., Inc.,respondents. Claro M. Recto for petitioners. Ramon Diokno and Jose W. Diokno for respondents. BENGZON, J.: 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 counterbond 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 ade 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 AttorneyGeneral. 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. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.) 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. Whkch 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. Ozaeta, Pablo, Tuason, Montemayor, and Reyes, JJ., concur.

SECOND DIVISION

[G.R. No. 125221. June 19, 1997]

REYNALDO M. LOZANO, petitioner, vs. HON. ELIEZER R. DE LOS SANTOS, Presiding Judge, RTC, Br. 58, Angeles City; and ANTONIO ANDA,respondents. DECISION PUNO, J.: This petition for certiorari seeks to annul and set aside the decision of the Regional Trial Court, Branch 58, Angeles City which ordered the Municipal Circuit Trial Court, Mabalacat and Magalang, Pampanga to dismiss Civil Case No. 1214 for lack of jurisdiction. The facts are undisputed. On December 19, 1995, petitioner Reynaldo M. Lozano filed Civil Case No. 1214 for damages against respondent Antonio Anda before the Municipal Circuit Trial Court (MCTC), Mabalacat and Magalang, Pampanga. Petitioner alleged that he was the president of the Kapatirang Mabalacat-Angeles Jeepney Drivers' Association, Inc. (KAMAJDA) while respondent Anda was the president of the Samahang Angeles-Mabalacat Jeepney Operators' and Drivers' Association, Inc. (SAMAJODA); in August 1995, upon the request of the Sangguniang Bayan of Mabalacat, Pampanga, petitioner and private respondent agreed to consolidate their respective associations and form the Unified Mabalacat-Angeles Jeepney Operators' and Drivers' Association, Inc. (UMAJODA); petitioner and private respondent also agreed to elect one set of officers who shall be given the sole authority to collect the daily dues from the members of the consolidated association; elections were held on October 29, 1995 and both petitioner and private respondent ran for president; petitioner won; private respondent protested and, alleging fraud, refused to recognize the results of the election; private respondent also refused to abide by their agreement and continued collecting the dues from the members of his association despite several demands to desist. Petitioner was thus constrained to file the complaint to restrain private respondent from collecting the dues and to order him to pay damages in the amount ofP25,000.00 and attorney's fees of P500.00.[1]

Private respondent moved to dismiss the complaint for lack of jurisdiction, claiming that jurisdiction was lodged with the Securities and Exchange Commission (SEC). The MCTC denied the motion on February 9, 1996.[2] It denied reconsideration on March 8, 1996.[3] Private respondent filed a petition for certiorari before the Regional Trial Court, Branch 58, Angeles City.[4] The trial court found the dispute to be intracorporate, hence, subject to the jurisdiction of the SEC, and ordered the MCTC to dismiss Civil Case No. 1214 accordingly.[5] It denied reconsideration on May 31, 1996.[6] Hence this petition. Petitioner claims that: "THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND SERIOUS ERROR OF LAW IN CONCLUDING THAT THE SECURITIES AND EXCHANGE COMMISSION HAS JURISDICTION OVER A CASE OF DAMAGES BETWEEN HEADS/PRESIDENTS OF TWO (2) ASSOCIATIONS WHO INTENDED TO CONSOLIDATE/MERGE THEIR ASSOCIATIONS BUT NOT YET [SIC] APPROVED AND REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION."[7] The jurisdiction of the Securities and Exchange Commission (SEC) is set forth in Section 5 of Presidential Decree No. 902-A. Section 5 reads as follows: "Section 5. x x x [T]he Securities and Exchange Commission [has] original and exclusive jurisdiction to hear and decide cases involving: (a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission. (b) Controversies arising out of intracorporate or partnership relations, between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members, or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity.

(c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnerships or associations. (d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respect very fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree." The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law.[8] This jurisdiction is determined by a concurrence of two elements: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy.[9] The first element requires that the controversy must arise out of intracorporate or partnership relations between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State in so far as it concerns their individual franchises.[10] The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation, partnership or association or deal with the internal affairs of the corporation, partnership or association.[11] After all, the principal function of the SEC is the supervision and control of corporations, partnerships and associations with the end in view that investments in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development.[12] There is no intracorporate nor partnership relation between petitioner and private respondent. The controversy between them arose out of their plan to consolidate their respective jeepney drivers' and operators' associations into a single common association. This unified association was, however, still a proposal. It had not been approved by the SEC, neither had its officers and members submitted their articles of consolidation in accordance with Sections 78 and 79 of the Corporation Code. Consolidation becomes effective not upon mere agreement of the members but only upon issuance of the certificate of consolidation by the SEC.[13] When the SEC, upon processing and examining the articles of

consolidation, is satisfied that the consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues a certificate of consolidation which makes the reorganization official.[14] The new consolidated corporation comes into existence and the constituent corporations dissolve and cease to exist.[15] The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly registered with the SEC, but these associations are two separate entities. The dispute between petitioner and private respondent is not within the KAMAJDA nor the SAMAJODA. It is between members of separate and distinct associations. Petitioner and private respondent have no intracorporate relation much less do they have an intracorporate dispute. The SEC therefore has no jurisdiction over the complaint. The doctrine of corporation by estoppel[16] advanced by private respondent cannot override jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties. [17] It cannot be acquired through or waived, enlarged or diminished by, any act or omission of the parties, neither can it be conferred by the acquiescence of the court.[18] Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness.[19] It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. Where there is no third person involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been registered, there is no corporation by estoppel.[20] IN VIEW WHEREOF, the petition is granted and the decision dated April 18, 1996 and the order dated May 31, 1996 of the Regional Trial Court, Branch 58, Angeles City are set aside. The Municipal Circuit Trial Court of Mabalacat and Magalang, Pampanga is ordered to proceed with dispatch in resolving Civil Case No. 1214. No costs. SO ORDERED. Regalado, (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. L-53820 June 15, 1992 YAO KA SIN TRADING, owned and operated by YAO KA SIN, petitioner, vs. HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION, represented by its President-Chairman, CONSTANCIO B. MALAGNA, respondents.

DAVIDE, JR., J.: Assailed in this petition for review is the decision of the respondent Court of Appeals in C.A.-G.R. No. 61072-R, 1 promulgated on 21 December 1979, reversing the decision 2 of the then Court of First Instance (now Regional Trial Court) of Leyte dated 20 November 1975 in Civil Case No. 5064 entitled "Yao Ka Sin Trading versus Prime White Cement Corporation." The root of this controversy is the undated letter-offer of Constancio B. Maglana, President and Chairman of the Board of private respondent Prime White Cement Corporation, hereinafter referred to as PWCC, to Yao Ka Sin Trading, hereinafter referred to as YKS, which describes itself as "a

business concern of single proprietorship," 3 and is represented by its manager, Mr. Henry Yao; the letter reads as follows: PRIME WHITE CEMENT CORPORATION 602 Cardinal Life Building Herran Street, Manila Yao Ka Sin Tacloban City Gentlemen: We have the pleasure to submit hereby our firm offer to you under the following quotations, terms, and conditions, to wit: 1). Commodity Prime White Cement 2). Price At your option: a) P24.30 per 94 lbs. bag net, FOB Cebu City; and b) P23.30 per 94 lbs. bag net, FOB Asturias Cebu. 3). Quality As fully specified in certificate No. 224-73 by Bureau of Public Works, Republic of the Philippines. 4). Quantity Forty-five Thousand (45,000) bags at 94 lbs. net per bag withdrawable in guaranteed monthly quantity of Fifteen Thousand (15,000) bags minimum effective from June, 1973 to August 1973. 5). Delivery Schedule Shipment be made within four (4) days upon receipt of your shipping instruction. 6). Bag/Container a) All be made of Standard Kraft (water resistant paper, 4 ply, with bursting strength of 220 pounds, and b) Breakage allowance additional four percent (4%) over the quantity of each shipment.

7). Terms of Payment Down payment of PESOS: TWO HUNDRED FORTY THREE THOUSAND (P243,000.00) payable on the signing of this contract and the balance to be paid upon presentation of corresponding shipping documents. It is understood that in the event of a delay in our shipment, you hold the option to discount any price differential resulting from a lower market price vis-a-vis the contract price. In addition, grant (sic) you the option to extend this contract until the complete delivery of Forty Five Thousand (45,000) bags of 94 lbs. each is made by us. You are also hereby granted the option to renew this contract under the same price, terms and conditions. Please countersign on the space provided for below as your acknowledgement and confirmation of the above transaction. Thank You. Very truly yours, PRIME WHITE CEMENT CORPORATION BY: (SGD) CONSTANCIO B. MAGLANA President & Chairman CONFORME: YAO KA SIN TRADING BY: (SGD) HENRY YAO WITNESSES: (SGD) T. CATINDIG (SGD) ERNESTO LIM RECEIVED from Mr. Henry Yao of Yao Ka Sin Trading, in pursuance of the above offer, the sum of Pesos: TWO

HUNDRED FORTY THREE THOUSAND ONLY (P243,000.00) in the form of Producers' Bank of the Philippines Check No. C153576 dated June 7, 1973. PRIME WHITE CEMENT CORPORATION BY: (SGD) CONSTANCIO B. MAGLANA President & Chairman 4 This letter-offer, hereinafter referred to as Exhibit "A", was prepared, typed and signed on 7 June 1973 in the office of Mr. Teodoro Catindig, Senior Vice-President of the Consolidated Bank and Trust Corporation (Solid Bank). 5 The principal issue raised in this case is whether or not the aforesaid letteroffer, as accepted by YKS, is a contract that binds the PWCC. The trial court rule in favor of the petitioner, but the respondent Court held otherwise. The records disclose the following material operative facts: In its meeting in Cebu City on 30 June 1973, or twenty-three (23) days after the signing of Exhibit "A", the Board of Directors of PWCC disapproved the same; the rejection is evidenced by the following Minutes (Exhibit "10"): the 10,000 bags of white cement sold to Yao Ka Sin Trading is sold not because of the alledged letter-contract adhered to by them, but must be understood as a new and separate contract, and has in no way to do with the letter-offer which they (sic) as consummated is by this resolution totally disapproved and is unacceptable to the corporation. On 5 July 1973, PWCC wrote a letter (Exhibit "1") to YKS informing it of the disapproval of Exhibit "A". Pursuant, however, to its decision with respect to the 10,000 bags of cement, it is issued the corresponding Delivery Order

(Exhibit "4") and Official Receipt No. 0394 (Exhibit "5") for the payment of the same in the amount of P243,000.00 This is the same amount received and acknowledged by Maglana in Exhibit "A". YKS accepted without protest both the Delivery and Official Receipts. While YKS denied having received a copy of Exhibit "1", it was established that the original thereof was shown to Mr. Henry Yao; since no one would sign a receipt for it, the original was left at the latter's office and this fact was duly noted in Exhibit "1" (Exhibit "l-A"). On 4 August 1973, PWCC wrote a letter (Exhibit "2") to YKS in answer to the latter's 4 August 1973 letter stating that it is "withdrawing or taking delivery of not less than 10,000 bags of white cement on August 6-7, 1973 at Asturias, Cebu, thru M/V Taurus." In said reply, PWCC reminded YKS of its (PWCC's) 5 July 1973 letter (Exhibit "1") and told the latter that PWCC "only committed to you and which you correspondingly paid 10,000 bags of white cement of which 4,150 bags were already delivered to you as of August 11, 1973. 6 Unfortunately, no copy of the said 4 August 1973 letter of YKS was presented in evidence. On 21 August 1973, PWCC wrote another letter (Exhibit "3") 7 to YKS in reply to the latter's letter of 15 August 1973. Enclosed in the reply was a copy of Exhibit "2". While the records reveal that YKS received this reply also on 21 August 1973 (Exhibit "3" "A"), 8 it still denied having received it. Likewise, no copy of the so-called 15 August 1973 letter was presented in evidence. On 10 September 1973, YKS, through Henry Yao, wrote a letter 9 to PWCC as a follow-up to the letter of 15 August 1973; YKS insisted on the delivery of 45,030 bags of white cement. 10 On 12 September 1973, Henry Yao sent a letter (Exhibit "G") to PWCC calling the latter's attention to the statement of delivery dated 24 August 1973, particularly the price change from P23.30 to P24.30 per 94 lbs. bag net FOB Asturias, Cebu. 11 On 2 November 1973, YKS sent a telegram (Exhibit "C") 12 to PWCC insisting on the full compliance with the terms of Exhibit "A" and informing the latter that it is exercising the option therein stipulated.

On 3 November 1973, YKS sent to PWCC a letter (Exhibit "D") as a followup to the 2 November 1973 telegram, but this was returned to sender as unclaimed. 13 As of 7 December 1973, PWCC had delivered only 9,775 bags of white cement. On 9 February 1974, YKS wrote PWCC a letter (Exhibit "H") requesting, for the last time, compliance by the latter with its obligation under Exhibit "A". 14 On 27 February 1974, PWCC sent an answer (Exhibit "7") to the aforementioned letter of 9 February 1974; PWCC reiterated the unenforceability of Exhibit "A". 15 On 4 March 1974, YKS filed with the then Court of First Instance of Leyte a complaint for Specific Performance with Damages against PWCC. The complaint 16 was based on Exhibit "A" and was docketed as Civil Case No. 5064. In its Answer with Counterclaim 17 filed on 1 July 1974, PWCC denied under oath the material averments in the complaint and alleged that: (a) YKS "has no legal personality to sue having no legal personality even by fiction to represent itself;" (b) Mr. Maglana, its President and Chairman, was lured into signing Exhibit "A"; (c) such signing was subject to the condition that Exhibit "A" be approved by the Board of Directors of PWCC, as corporate commitments are made through it; (d) the latter disapproved it, hence Exhibit "A" was never consummated and is not enforceable against PWCC; (e) it agreed to sell 10,000 bags of white cement, not under Exhibit "A", but under a separate contract prepared by the Board; (f) the rejection by the Board of Exhibit "A" was made known to YKS through various letters sent to it, copies of which were attached to the Answer as Annexes 1, 2 and 3; 18 (g) YKS knew, per Delivery Order 19 and Official Receipt 20 issued by PWCC, that only 10;000 bags were sold to it without any terms or conditions, at P24.30 per bag FOB Asturias, Cebu; (h) YKS is solely to blame for the failure to take complete delivery of 10,000 bags for it did not send its boat or truck to PWCC's plant; and (i) YKS has, therefore, no cause of action.

In its Counterclaim, PWCC asks for moral damages in the amount of not less than P10,000.00, exemplary damages in the sum of P500,000.00 and attorney's fees in the sum of P10,000.00. On 24 July 1974, YKS filed its Answer to the Counterclaim.
21

Issues having been joined, the trial court conducted a pre-trial. 22 On that occasion, the parties admitted that according to the By-Laws of PWCC, the Chairman of the Board, who is also the President of the corporation, "has the power to execute and sign, for and in behalf of the corporation, all contracts or agreements which the corporation enters into," subject to the qualification that "all the president's actuations, prior to and after he had signed and executed said contracts, shall be given to the board of directors of defendant Corporation." Furthermore, it was likewise stated for the record "that the corporation is a semi-subsidiary of the government because of the NIDC participation in the same, and that all contracts of the corporation should meet the approval of the NIDC and/or the PNB Board because of an exposure and financial involvement of around P10 million therein. 23 During the trial, PWCC presented evidence to prove that Exhibit "A" is not binding upon it because Mr. Maglana was not authorized to make the offer and sign the contract in behalf of the corporation. Per its By-Laws (Exhibit "8"), only the Board of Directors has the power . . . (7) To enter into (sic) agreement or contract of any kind with any person in the name and for and in behalf of the corporation through its President, subject only to the declared objects and purpose of the corporation and the existing provisions of law. 24 Among the powers of the President is "to operate and conduct the business of the corporation according to his own judgment and discretion, whenever the same is not expressly limited by such orders, directives or resolutions." 25 Per standard practice of the corporation, contracts should first pass through the marketing and intelligence unit before they are finalized. Because of its interest in the PWCC, the NIDC, through its comptroller, goes over contracts involving funds of and white cement produced by the PWCC. Finally, among the duties of its legal counsel is to review proposed contracts before they are submitted to the Board. While the president. may be tasked with the preparation of a contract, it must first pass through the legal counsel and the comptroller of the corporation. 26

On 20 November 1975, after trial on the merits, the court handed down its decision in favor of herein petitioner, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered: (1) Ordering defendant: to complete the delivery of 45,000 bags of prime white cement at 94 lbs. net per bag at the price agreed, with a breakage allowance of empty bags at 4% over the quantity agreed; (2) Ordering defendant to pay P50,000.00, as moral damages; P5,000.00 as exemplary damages; P3,000.00 as attorney's fees; and the costs of these proceedings. SO ORDERED. 27 In disregarding PWCC's theory, the trial court interpreted the provision of the By-Laws granting its Board of Directors the power to enter into an agreement or contract of any kind with any person through the President, to mean that the latter may enter into such contract or agreement at any time and that the same is not subject to the ratification of the board of directors but "subject only to the declared objects and purpose of the corporation and existing laws." It then concluded: It is obvious therefore, that it is not the whole membership of the board of directors who actually enters into any contract with any person in the name and for and in behalf of the corporation, but only its president. It is likewise crystal clear that this automatic representation of the board by the president is limited only by the "declared objects and purpose of the corporation and existing provisions of law." 28 It likewise interpreted the provision on the power of the president to "operate and conduct the business of the corporation according to the orders, directives or resolutions of the board of directors and according to his own judgment and discretion whenever the same is not expressly limited by such orders, directives and resolutions," to mean that the president can operate and conduct the business of the corporation

according to his own judgment and discretion as long as it is not expressly limited by the orders, directives or resolutions of the board of directors. 29 The trial court found no evidence that the board had set a prior limitation upon the exercise of such judgment and discretion; it further ruled that the By-Laws, does not require that Exhibit "A" be approved by the Board of Directors. Finally, in the light of the Chairman's power to "execute and sign for and in behalf of the corporation all contracts or agreements which the corporation may enter into" (Exhibit "I-1"), it concluded that Mr. Maglana merely followed the By-Laws "presumably both as president and chairman of the board thereof." 30 Hence, Exhibit "A" was validly entered into by Maglana and thus binds the corporation. The trial court, however, ruled that the option to sell is not valid because it is not supported by any consideration distinct from the price; it was exercised before compliance with the original contract by PWCC; and the repudiation of the original contract by PWCC was deemed a withdrawal of the option before acceptance by the petitioner. Both parties appealed from the said decision to the respondent Court of Appeals before which petitioner presented the following Assignment of Errors: I THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION TO RENEW THE CONTRACT OF SALE IS NOT ENFORCEABLE BECAUSE THE OPTION WAS MADE EVEN BEFORE THE COMPLIANCE OF (sic) THE ORIGINAL CONTRACT BY DEFENDANT AND THAT DEFENDANT'S PROMISE TO SELL IS NOT SUPPORTED BY ANY CONSIDERATION DISTINCT FROM THE PRICE. II THE TRIAL COURT ERRED IN NOT AWARDING TO THE PLAINTIFF ACTUAL DAMAGES, SUFFICIENT EXEMPLARY DAMAGES AND ATTORNEY'S FEES AS ALLEGED IN THE COMPLAINT AND PROVEN DURING THE TRIAL." 31 while the private respondent cited the following errors:

I THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT "A" IS A VALID CONTRACT OR PLAINTIFF CAN CLAIM THAT THE PROPOSED LETTER-CONTRACT, EXHIBIT "A" IS LEGALLY ENFORCEABLE, AS THE SAME IS A MERE UNACCEPTED PROPOSAL, NOT HAVING BEEN PREVIOUSLY AUTHORIZED TO BE ENTERED INTO OR LATER ON RATIFIED BY THE DEFENDANTS BOARD OF DIRECTORS; IN FACT EXHIBIT "A" WAS TOTALLY REJECTED AND DISAPPROVED IN TOTO BY THE DEFENDANT'S BOARD OF DIRECTORS IN CLEAR, PLAIN LANGUAGE AND DULY INFORMED AND TRANSMITTED TO PLAINTIFF. II THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF CAN LEGALLY UTILIZE THE COURTS AS THE FORUM TO GIVE LIFE AND VALIDITY TO A TOTALLY UNENFORCEABLE OR NON-EXISTING CONTRACT. III THE TRIAL COURT ERRED IN ALLOWING YAO KA SIN TO IMPUGN AND CONTRADICT HIS VERY OWN ACTUATIONS AND REPUDIATE HIS ACCEPTANCE AND RECEIPTS OF BENEFITS FROM THE COUNTER-OFFER OF DEFENDANT FOR 10,000 BAGS OF CEMENT ONLY, UNDER THE PRICE, TERMS AND CONDITIONS TOTALLY FOREIGN TO AND WHOLLY DIFFERENT FROM THOSE WHICH APPEAR IN EXHIBIT "A". IV THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S COUNTER-CLAIMS AS THE SAME ARE DULY SUPPORTED BY CLEAR AND INDUBITABLE EVIDENCE. 32 In its decision 33 promulgated on 21 December 1979, the respondent Court reversed the decision of the trial court, thus:

WHEREFORE, the judgment appealed from is REVERSED and set aside, Plaintiff's complaint is dismissed with costs. Plaintiff is ordered to pay defendant corporation P25,000.00 exemplary damages, and P10,000.00 attorney's fees. SO ORDERED. Such conclusion is based on its findings, to wit: Before resolving the issue, it is helpful to bring out some preliminary facts. First, the defendant corporation is supervised and principally financed by the National Investment and Development Corporation (NIDC), a subsidiary investment of the Philippine National Bank (PNB), with cash financial exposure of some P10,000,000.00. PNB is a government financial institution whose Board is chairmaned (sic) by the Minister of National Defense. This fact is very material to the issue of whether defendant corporations president can bind the corporation with his own act. Second, for failure to deny under oath the following actionable documents in support of defendant's counterclaim: 1. The resolution contained in defendant's letter to plaintiff dated July 5, 1973, on the 10,000 bags of white cement delivered to plaintiff was not by reason of the letter contract, Exhibit "A", which was totally disapproved by defendant corporation's board of directors, clearly stating that "If within ten (10) days from date hereof, we will not hear from you but you will withdraw cement at P24.30 per bag from our plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by the Producers Bank of the Philippines, per instruction of the Board." (Annex "I" to defendant's Answer). 2. Letter of defendant to plaintiff dated August 4, 1973 that defendant "only committed to you and which you accordingly paid 10,000 bags of white cement of which 4,150 bags were already delivered

to you as of August 1, 1973" (Annex "2" of defendant's Answer). 3. Letter dated August 21, 1973 to plaintiff reiterating defendant's letter of August 4, 1973 (Annex "3" to defendant's Answer). 4. Letter to stores dated August 21, 1973, 5. Receipt from plaintiff (sic) P243,000.00 in payment of 10,000 bags of white cement at P24.30 per bag (Annex "5", to defendant's Answer). plaintiff is deemed to have admitted, not only the due execution and genuiness (sic) of said documents, (Rule 8 Sec. 8, Rules of Court) but also the allegations therein (Rule 9, Sec. 1, Rules of Court). All of the foregoing documents tend to prove that the letter-offer, Exhibit "A", was rejected by defendant corporation's Board of Directors and plaintiff was duly notified thereof and that the P243,000.00 check was considered by both parties as payment of the 10,000 bags of cement under a separate transaction. As proof of which plaintiff did not complain nor protest until February 9, 1974, when he threatened legal action. Third, Maglana's signing the letter-offer prepared for him in the Solidbank was made clearly upon the condition that it was subject to the approval of the board of directors of defendant corporation. We find consistency herein because according to the Corporation Law, and the By-Laws of defendant corporation, all corporate commitments and business are conducted by, and contracts entered into through, the express authority of the Board of Directors (Sec. 28. Corp. Law, Exh "I" or "8"). Fourth, What Henry Yao and Maglana agreed upon as embodied in Exhibit "A", insofar as defendant corporation is concerned, was an unauthorized contract (Arts. 1317 and 1403 (1), Civil Code). And because Maglana was not authorized by the Board of Directors of defendant corporation nor was his, actuation ratified by the Board, the agreement is unenforceable

(Art. 1403 (1), Civil Code; Raquiza et al. vs. Lilles et al., 13 CA Rep. 343; Gana vs. Archbishop of Manila, 43 O-G. 3224). While it may be true that Maglana is President of defendant corporation nowhere in the Articles of Incorporation nor in the By-Laws of said corporation was he empowered to enter into any contract all by himself and bind the corporation without first securing the authority and consent of the Board of Directors. Whatever authority Maglana may have must be derived from the Board of Directors of defendant corporation. A corporate officers power as an agent must be sought from the law, the articles of incorporation and the By-Laws or from a resolution of the Board (Vicente vs. Geraldez, 52 SCRA 227, Board of Liquidators vs. Kalaw, 20 SCRA 987). It clearly results from the foregoing that the judgment appealed from is untenable. Having no cause of action against defendant corporation, plaintiff is not entitled to any relief. We see no justification, therefore, for the court a quo's awards in its favor. . . . 34 Its motion for reconsideration having been denied by the respondent Court in its resolution 35 dated 15 April 1980, petitioner filed the instant petition based on the following grounds: 1. That the contract (Exh. "A") entered into by the President and Chairman of the Board of Directors Constancio B. Maglana in behalf of the respondent corporation binds the said corporation. 2. That the contract (Exh. "A") was never novated nor superceded (sic) by a subsequent contract. 3. That the option to renew the contract as contained in Exhibit "A" is enforceable. 4. That Sec. 8, Rule 8 of the Rules of Court only applies when the adverse party appear (sic) to be a party to the instrument but not to one who is not a party to the instrument and Sec. 1, Rule 9 of the said Rules with regards (sic) to denying under oath refers only to allegations of usury. 36

We gave due course 37 to the petition after private respondent filed its Comment 38 and required the parties to submit simultaneously their Memoranda, which the parties subsequently complied with. 39 Before going any further, this Court must first resolve an issue which, although raised in the Answer of private respondent, was neither pursued in its appeal before the respondent Court nor in its Comment and Memorandum in this case. It also eluded the attention of the trial court and the respondent Court. The issue, which is of paramount importance, concerns the lack of capacity of plaintiff/petitioner to sue. In the caption of both the complaint and the instant petition, the plaintiff and the petitioner, respectively, is: YAO KA SIN TRADING, owned and operated by YAO KA SIN. 40 and is described in the body thereof as "a business concern of single proprietorship owned and operated by Yao Ka Sin." 41 In the body of the petition, it is described as "a single proprietorship business concern." 42 It also appears that, as gathered from the decision of the trial court, no Yao Ka Sin testified. Instead, one Henry Yao took the witness stand and testified that he is the "manager of Yao Ka Sin Trading" and "it was in representation of the plaintiff" that he signed Exhibit "A"43 Under Section 1, Rule 3 of the Rules of Court, only natural or juridical persons or entities authorized by law may be parties in a civil action. In Juasing Hardware vs. Mendoza, 44 this Court held that a single proprietorship is neither a natural person nor a juridical person under Article 44 of the Civil Code; it is not an entity authorized by law to bring suit in court: The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual, and requires the proprietor or owner thereof to secure licenses and permits, register the business name, and pair taxes to the national government. It does not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an action in court. 45 Accordingly, the proper party plaintiff/petitioner should be YAO KA SIN. 46

The complaint then should have been amended to implead Yao Ka Sin as plaintiff in substitution of Yao Ka Sin Trading. However, it is now too late in the history of this case to dismiss this petition and, in effect, nullify all proceedings had before the trial court and the respondent Court on the sole ground of petitioner's lack of capacity to sue. Considering that private respondent did not pursue this issue before the respondent Court and this Court; that, as We held in Juasing, the defect is merely formal and not substantial, and an amendment to cure such defect is expressly authorized by Section 4, Rule 10 of the Rules of Court which provides that "[a] defect in the designation of the parties may be summarily corrected at any stage of the action provided no prejudice is caused thereby to the adverse party;" and that "[a] sole proprietorship does not, of coarse, possess any juridical personality separate and apart from the personality of the owner of the enterprise and the personality of the persons acting in the name of such proprietorship," 47 We hold and declare that Yao Ka Sin should be deemed as the plaintiff in Civil Case No. 5064 and the petitioner in the instant case. As this Court stated nearly eighty (80) years ago in Alonso vs. Villamor: 48 No one has been misled by the error in the name of the party plaintiff. If we should by reason of this error send this case back for amendment and new trial, there would be on the retrial the same complaint, the same answer, the same defense, the same interests, the same witnesses, and the same evidence. The name of the plaintiff would constitute the only difference between the old trial and the new. In our judgment there is not enough in a name to justify such action. And now to the merits of the petition. The respondent Court correctly ruled that Exhibit "A" is not binding upon the private respondent. Mr. Maglana, its President and Chairman, was not empowered to execute it. Petitioner, on the other hand, maintains that it is a valid contract because the Maglana has the power to enter into contracts for the corporation as implied from the following provisions of the By-Laws of private respondent: a) The power of the Board of Directors to . . . enter into (sic) agreement or contract of any kind with any person in the name and for and in behalf of the corporation through its President, subject only to the declared objects and purpose of the

corporation and the existing provisions of law. (Exhibit "8-A"); and b) The power of the Chairman of the Board of Directors to "execute and sign, for and in behalf of the corporation, all contracts or agreements which the corporation may enter into" (Exhibit "I-1"). And even admitting, for the sake of argument, that Mr. Maglana was not so authorized under the By-Laws, the private respondent, pursuant to the doctrine laid down by this Court in Francisco vs. Government Service Insurance System 49 and Board of Liquidators vs. Kalaw, 50 is still bound by his act for clothing him with apparent authority. We are not persuaded. Since a corporation, such as the private respondent, can act only through its officers and agents, "all acts within the powers of said corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of individuals and private persons." 51 Moreover, " . . . a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred. 52 While there can be no question that Mr. Maglana was an officer the President and Chairman of private respondent corporation at the time he signed Exhibit "A", the above provisions of said private respondent's ByLaws do not in any way confer upon the President the authority to enter

into contracts for the corporation independently, of the Board of Directors. That power is exclusively lodged in the latter. Nevertheless, to expedite or facilitate the execution of the contract, only the President and not all the members of the Board, or so much thereof as are required for the act shall sign it for the corporation. This is the import of the words through the president in Exhibit "8-A" and the clear intent of the power of the chairman "to execute and sign for and in behalf of the corporation all contracts and agreements which the corporation may enter into" in Exhibit "I-1". Both powers presuppose a prior act of the corporation exercised through the Board of Directors. No greater power can be implied from such express, but limited, delegated authority. Neither can it be logically claimed that any power greater than that expressly conferred is inherent in Mr. Maglana's position as president and chairman of the corporation. Although there is authority "that if the president is given general control and supervision over the affairs of the corporation, it will be presumed that he has authority to make contract and do acts within the course of its ordinary business," 53 We find such inapplicable in this case. We note that the private corporation has a general manager who, under its By-Laws has, inter alia, the following powers: "(a) to have the active and direct management of the business and operation of the corporation, conducting the same accordingly to the order, directives or resolutions of the Board of Directors or of the president." It goes without saying then that Mr. Maglana did not have a direct and active and in the management of the business and operations of the corporation. Besides, no evidence was adduced to show that Mr. Maglana had, in the past, entered into contracts similar to that of Exhibit "A" either with the petitioner or with other parties. Petitioner's last refuge then is his alternative proposition, namely, that private respondent had clothed Mr. Maglana with the apparent power to act for it and had caused persons dealing with it to believe that he was conferred with such power. The rule is of course settled that "[a]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for a considerable time." 54 Also, "if a private corporation intentionally or

negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that such apparent authority in real, as to innocent third persons dealing in good faith with such officers or agents." 55 This "apparent authority may result from (1) the general manner, by which the corporation holds out an officer or agent as having power to act or, in other words, the apparent authority with which it clothes him to act in general or (2) acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or without the scope of his ordinary powers. 56 It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. Maglana with the apparent power to execute Exhibit "A" or any similar contract. This could have been easily done by evidence of similar acts executed either in its favor or in favor of other parties. Petitioner miserably failed to do that. Upon the other hand, private respondent's evidence overwhelmingly shows that no contract can be signed by the president without first being approved by the Board of Directors; such approval may only be given after the contract passes through, at least, the comptroller, who is the NIDC representative, and the legal counsel. The cases then of Francisco vs. GSIS and Board of Liquidators vs. Kalaw are hopelessly unavailing to the petitioner. In said cases, this Court found sufficient evidence, based on the conduct and actuations of the corporations concerned, of apparent authority conferred upon the officer involved which bound the corporations on the basis of ratification. In the first case, it was established that the offer of compromise made by plaintiff in the letter, Exhibit "A", was validly accepted by the GSIS. The terms of the trial offer were clear, and over the signature of defendant's general manager Rodolfo Andal, plaintiff was informed telegraphically that her proposal had been accepted. It was sent by the GSIS Board Secretary and defendant did not disown the same. Moreover, in a letter remitting the payment of P30,000 advanced by her father, plaintiff quoted verbatim the telegram of acceptance. This was in itself notice to the corporation of the terms of the allegedly unauthorized telegram. Notwithstanding this notice, GSIS pocketed the amount and kept silent about the telegram. This Court then ruled that: This silence, taken together with the unconditional acceptance of three other subsequent remittances from plaintiff, constitutes

in itself a binding ratification of the original agreement (Civil Code, Art. 1393). Art. 1393. Ratification may be effected expressly or tactly it is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right In the second case, this Court found: In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the bylaws requirement of prior approval. Under the given circumstances, the Kalaw contracts are valid corporate acts. The inevitable conclusion then is that Exhibit "A" is an unenforceable contract under Article 1317 of the Civil Code which provides as follows: Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it, has been execrated, before it is revoked by the other contracting party. The second ground is based on a wrong premise. It assumes, contrary to Our conclusion above, that Exhibit "A" is a valid contract binding upon the

private respondent. It was effectively disapproved and rejected by the Board of Directors which, at the same time, considered the amount of P243,000.00 received Mr. Maglana as payment for 10,000 bags of white cement, treated as an entirely different contract, and forthwith notified petitioner of its decision that "If within ten (10) days from date hereof we will not hear from you but you will withdraw cement at P24.30 per bag from our plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by the Producers Bank of the Philippines, per instruction of the Board." 57Petitioner received the copy of this notification and thereafter accepted without any protest the Delivery Receipt covering the 10,000 bags and the Official Receipt for the P243,000.00. The respondent Court thus correctly ruled that petitioner had in fact agreed to a new transaction involving only 10,000 bags of white cement. The third ground must likewise fail. Exhibit "A" being unenforceable, the option to renew it would have no leg to stand on. The river cannot rise higher than its source. In any event, the option granted in. this case is without any consideration Article 1324 of the Civil Code expressly provides that: When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. while Article 1749 of the same Code provides: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. Accordingly, even if it were accepted, it can not validly bind the private respondent. 58 The fourth ground is, however, meritorious. Section 8, Rule 8 of the Rules of Court provides:

Sec. 8. How to contest genuineness of such documents When an action or defense is founded upon a written instrument, copied in or attached in the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but this provision does not apply when the adverse party does not appear, to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused. It is clear that the petitioner is not a party to any of the documents attached to the private respondent's Answer. Thus, the above quoted rule is not applicable. 59 While the respondent Court, erred in holding otherwise, the challenged decision must, nevertheless, stand in view of the above disquisitions on the first to the third grounds of the petition. WHEREFORE, judgment is hereby rendered AFFIRMING the decision of respondent Court of Appeals in C.A. G.R. No. 61072-R promulgated on 21 December 1979. Cost against the petitioner. Gutierrez, Jr., Feliciano, Bidin and Romero, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-43350 December 23, 1937 CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant, vs. TEODORO SANDIKO, defendant-appellee. Arsenio P. Dizon for appellant. Sumulong, Lavides and Sumulong for appellee. LAUREL, J.: This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the plaintiff's complaint. Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of Aparri, Province of Cagayan, as evidenced by transfer certificate of title No. 217 of the land records of Cagayan, a copy of which is in evidence as Exhibit 1. To guarantee the payment of a loan in the sum of P8,000, Manuel Tabora, on August 14, 1929, executed in favor of the Philippine National Bank a first mortgage on the four parcels of land above-mentioned. A second mortgage in favor of the same bank was in April of 1930 executed by Tabora over the same lands to guarantee the payment of another loan amounting to P7,000. A third mortgage on the same lands was executed on April 16, 1930 in favor of Severina Buzon to whom Tabora was indebted in the sum of P2,9000. These mortgages were registered and annotations thereof appear at the back of transfer certificate of title No. 217. On May 31, 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, in consideration of one peso (P1) subject to the mortgages in favor of the Philippine National Bank and Severina Buzon and, to the condition that the certificate of title to said lands shall not be

transferred to the name of the plaintiff company until the latter has fully and completely paid Tabora's indebtedness to the Philippine National Bank. The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry on October 22, 1930 (Exhibit 2). A year later, on October 28, 1931, the board of directors of said company adopted a resolution (Exhibit G) authorizing its president, Jose Ventura, to sell the four parcels of lands in question to Teodoro Sandiko for P42,000. Exhibits B, C and D were thereafter made and executed. Exhibit B is a deed of sale executed before a notary public by the terms of which the plaintiff sold ceded and transferred to the defendant all its right, titles, and interest in and to the four parcels of land described in transfer certificate in turn obligated himself to shoulder the three mortgages hereinbefore referred to. Exhibit C is a promisory note for P25,300. 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 before a notary public in accordance with which the four parcels of land were given a security for the payment of the promissory note, Exhibit C. All these three instrument were dated February 15, 1932. The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934, brought this action in the Court of First Instance of Manila praying that judgment be rendered against the defendant for the sum of P25,300, with interest at legal rate from the date of the filing of the complaint, and the costs of the suits. After trial, the court below, on December 18, 1934, rendered judgment absolving the defendant, with costs against the plaintiff. Plaintiff presented a motion for new trial on January 14, 1935, which motion was denied by the trial court on January 19 of the same year. After due exception and notice, plaintiff has appealed to this court and makes an assignment of various errors. In dismissing the complaint against the defendant, the court below, reached the conclusion that Exhibit B is invalid because of vice in consent and repugnancy to law. While we do not agree with this conclusion, we have however voted to affirm the judgment appealed from the reasons which we shall presently state. 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 (sec. 13, pars. 5 and 9, and sec. 14, Act No. 1459). 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 (secs. 6 et seq., Act. No. 1459). Although there is a presumption that all the requirements of law have been complied with (sec. 334, par. 31 Code of Civil Procedure), 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. The contract itself referred to the plaintiff as "una sociedad en vias de incorporacion." It was not even a de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to enter into the contract. Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As has already been stated, general law authorizing the formation of corporations are general offers to any persons who may bring themselves within their provisions; and if conditions precedent are prescribed in the statute, or certain acts are required to be done, they are terms of the offer, and must be complied with substantially before legal corporate existence can be acquired. (14 C. J., sec. 111, p. 118.) That 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. (Gent vs. Manufacturers and Merchant's Mutual Insurance Company, 107 Ill., 652, 658.) 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 selfevident, 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. It is, as it were, a child in ventre sa mere. 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 (Fletcher Cyc. of Corps., permanent edition, 1931, vol. I, secs. 207 et seq.), 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.(Massachusetts rule, Abbott vs. Hapgood, 150 Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing English cases; Koppel vs. Massachusetts Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope Co., vs. U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) It should be observed that Manuel Tabora was the registered owner of the four parcels of land, which he succeeded in mortgaging to the Philippine National Bank so that he might have the necessary funds with which to convert and develop them into fishery. He appeared to have met with financial reverses. He formed a corporation composed of himself, his wife, and a few others. From the articles of incorporation, Exhibit 2, it appears that out of the P48,700, amount of capital stock subscribed, P45,000 was subscribed by Manuel Tabora himself and P500 by his wife, Rufina Q. de Tabora; and out of the P43,300, amount paid on subscription, P42,100 is made to appear as paid by Tabora and P200 by his wife. Both Tabora and His wife were directors and the latter was treasurer as well. In fact, to this day, the lands remain inscribed in Tabora's name. The defendant always regarded Tabora as the owner of the lands. He dealt with Tabora directly. Jose Ventura, president of the plaintiff corporation, intervened only to sign the contract, Exhibit B, in behalf of the plaintiff. Even the Philippine National Bank, mortgagee of the four parcels of land, always treated Tabora as the owner of the same. (See Exhibits E and F.) Two civil suits (Nos. 1931 and 38641) were brought against Tabora in the Court of First Instance of Manila and in both cases a writ of attachment against the four parcels of land was issued. The Philippine National Bank threatened to foreclose its mortgages. Tabora approached the defendant Sandiko and succeeded in the making him sign Exhibits B, C, and D and in making him, among other things, assume the payment of Tabora's indebtedness to the Philippine National Bank. The promisory note, Exhibit C, was made

payable to the plaintiff company so that it may not attached by Tabora's creditors, two of whom had obtained writs of attachment against the four parcels of land. If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it did not possess any resultant right to dispose of them by sale to the defendant, Teodoro Sandiko. Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan Fishing Development Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition precedent (condicion suspensiva), namely, the payment of the mortgage debt of said Tabora to the Philippine National Bank, and that this condition not having been complied with by the Cagayan Fishing Development Company, Inc., the transfer was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696; Manresa, vol. 8, p. 141.) However, having arrived at the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null because at the time it was affected the corporation was non-existent, we deem it unnecessary to discuss this point.lawphil.net The decision of the lower court is accordingly affirmed, with costs against the appellant. So Ordered. Villa-Real, Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.