Manuela Vda.

De Salvatierra vs Lorenzo Garlitos

Corporation Law Separate and Distinct Personality When Not Applicable

Facts:
In 1954, Manuela Vda. De Salvatierra entered into a lease contract with Philippine Fibers
Producers Co., Inc. (PFPC). PFPC was represented by its president Segundino Refuerzo. It
was agreed that Manuela shall lease her land to PFPC in exchange of rental payments plus
shares from the sales of crops. However, PFPC failed to comply with its obligations and so in
1955, Manuela sued PFPC and she won. An order was issued by Judge Lorenzo Garlitos of CFI
Leyte ordering the execution of the judgment against Refuerzos property (there being no
property under PFPC). Refuerzo moved for reconsideration on the ground that he should not be
held personally liable because he merely signed the lease contract in his official capacity as
president of PFPC. Garlitos granted Refuerzos motion.
Manuela assailed the decision of the judge on the ground that she sued PFPC without
impleading Refuerzo because she initially believed that PFPC was a legitimate corporation.
However, during trial, she found out that PFPC was not actually registered with the Securities
and Exchange Commission (SEC) hence Refuerzo should be personally liable.

ISSUE: Whether or not Manuela is correct.

HELD: Yes.
It is true that as a general rule, the corporation has a personality separate and distinct from its
incorporators and as such the incorporators cannot be held personally liable for the obligations
of the corporation. However, this doctrine is not applicable to unincorporated associations. The
reason behind this doctrine is obvious-since an organization which before the law is nonexistent 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. In this case, Refuerzo
was the moving spirit behind PFPC. As such, his liability cannot be limited or restricted that
imposed upon [would-be] 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.

SALVATIERRA VS GARLITOS (103 Phil. 757; 1958)

Salvatierra leased his land to the corporation. He filed a suit for accounting, rescission
and damages against the corporation and its president for his share of the produce. Judgment
against both was obtained. President complains for being held personally liable.
He is liable. An agent who acts for a non-existent principal is himself the principal. In
acting on behalf of a corporation which he knew to be unregistered, he assumed the risk arising
from the transaction.