G.R. No.

101699 March 13, 1996

BENJAMIN A. SANTOS, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER FRUCTUOSO
T. AURELLANO and MELVIN D. MILLENA, respondents.

VITUG, J.:p
In a petition for certiorari under Rule 65 of the Rules of Court, petitioner Benjamin A.
Santos, former President of the Mana Mining and Development Corporation ("MMDC"),
questions the resolution of the National Labor Relations Commission ("NLRC") affirming
the decision of Labor Arbiter Fructuoso T. Aurellano who, having held illegal the
termination of employment of private respondent Melvin D. Millena, has ordered petitioner
MMDC, as well as its president (herein petitioner) and the executive vice-president in their
personal capacities, to pay Millena his monetary claims.
Private respondent, on 01 October 1985, was hired to be the project accountant for
MMDC's mining operations in Gatbo, Bacon, Sorsogon. On 12 August 1986, private
respondent sent to Mr. Gil Abao, the MMDC corporate treasurer, a memorandum calling
the latter's attention to the failure of the company to comply with the withholding tax
requirements of, and to make the corresponding monthly remittances to, the Bureau of
Internal Revenue ("BIR") on account of delayed payments of accrued salaries to the
company's laborers and employees. 1
In a letter, dated 08 September 1986, Abao advised private respondent thusly:
Regarding Gatbo operations, as you also are aware, the rainy season is
now upon us and the peace and order condition in Sorsogon has
deteriorated. It is therefore, the board's decision that it would be useless
for us to continue operations, especially if we will always be in the
"hole," so to speak. Our first funds receipts will be used to pay all our
debts. We will stop production until the advent of the dry season, and
until the insurgency problem clears. We will undertake only necessary
maintenance and repair work and will keep our overhead down to the
minimum manageable level. Until we resume full-scale operations, we
will not need a project accountant as there will be very little paper work
at the site, which can be easily handled at Makati.
We appreciate the work you have done for Mana and we will not
hesitate to take you back when we resume work at Gatbo. However it
would be unfair to you if we kept you in the payroll and deprive you of
the opportunity to earn more, during this period of Mana's crisis. 2

Private respondent expressed "shock" over the termination of his employment. He

complained that he would not have resigned from the Sycip, Gorres & Velayo accounting
firm, where he was already a senior staff auditor, had it not been for the assurance of a
"continuous job" by MMDC's Engr. Rodillano E. Velasquez. Private respondent requested
that he be reimbursed the "advances" he had made for the company and be paid his
"accrued salaries/claims. 3
The claim was not heeded; on 20 October 1986, private respondent filed with the NLRC
Regional Arbitration, Branch No. V, in Legazpi City, a complaint for illegal dismissal,
unpaid salaries, 13th month pay, overtime pay, separation pay and incentive leave pay
against MMDC and its two top officials, namely, herein petitioner Benjamin A. Santos (the
President) and Rodillano A. Velasquez (the executive vice-president). in his complaintaffidavit (position paper), submitted on 27 October 1986, Millena alleged, among other
things, that his dismissal was merely an offshoot of his letter of 12 August 1986 to Abao
about the company's inability to pay its workers and to remit withholding taxes to the
BIR. 4
A copy of the notice and summons was served on therein respondents (MMDC, Santos and
Velasquez) on 29 October 1986. 5 At the initial hearing on 14 November 1986 before the
Labor Arbiter, only the complainant, Millena, appeared; however, Atty. Romeo Perez, in
representation of the respondents, requested by telegram that the hearing be reset to 01
December 1986. Although the request was granted by the Labor Arbiter, private
respondent was allowed, nevertheless, to present his evidence ex parte at that initial
hearing.
The scheduled 01st December 1986 hearing was itself later reset to 19 December 1986.
On 05 December 1986, the NLRC in Legazpi City again received a telegram from Atty.
Perez asking for fifteen (15) days within which to submit the respondents' position paper.
On 19 December 1986, Atty. Perez sent yet another telegram seeking a further
postponement of the hearing and asking for a period until 15 January 1987 within which to
submit the position paper.
On 15 January 1987, Atty. Perez advised the NLRC in Legazpi City that the position paper
had finally been transmitted through the mail and that he was submitting the case for
resolution without further hearing. The position paper was received by the Legazpi City
NLRC office on 19 January 1987. Complainant Millena filed, on 26 February 1987, his
rejoinder to the position paper.
On 27 July 1988, Labor Arbiter Fructuoso T. Aurellano, finding no valid cause for
terminating complainant's employment, ruled, citing this Court's pronouncement
in Construction & Development Corporation of the Philippines vs. Leogardo, Jr. 6 that a
partial closure of an establishment due to losses was a retrenchment measure that
rendered the employer liable for unpaid salaries and other monetary claims. The Labor
Arbiter adjudged

WHEREFORE, the respondents are hereby ordered to pay the petitioner

the amount of P37,132.25 corresponding to the latter's unpaid salaries
and advances; P5,400.00 for petitioner's 13th month pay; P3,340.95 as
service incentive leave pay; and P5,400.00 as separation pay. The
respondents are further ordered to pay the petitioner 10% of the
monetary awards as attorney's fees.

longer existing and unable to satisfy the judgment in favor of the employee, the officer
should be liable for acting on behalf of the corporation.
In the instant petition for certiorari, petitioner Santos reiterates that he should not have
been adjudged personally liable by public respondents, the latter not having validly
acquired jurisdiction over his person whether by personal service of summons or by
substituted service under Rule 19 of the Rules of Court.

All other claims are dismissed for lack of sufficient evidence.

SO ORDERED. 7
Alleging abuse of discretion by the Labor Arbiter, the company and its co-respondents
filed a "motion for reconsideration and/or appeal. 8 The motion/appeal was forthwith
indorsed to the Executive Director of the NLRC in Manila.
In a resolution, dated 04 September 1989, the NLRC 9 affirmed the decision of the Labor
Arbiter. It held that the reasons relied upon by MMDC and its co-respondents in the
dismissal of Millena, i.e., the rainy season, deteriorating peace and order situation and
little paperwork, were "not causes mentioned under Article 282 of the Labor Code of the
Philippines" and that Millena, being a regular employee, was "shielded by the tenurial
clause mandated under the law. 10
A writ of execution correspondingly issued; however, it was returned unsatisfied for the
failure of the sheriff to locate the offices of the corporation in the address indicated.
Another writ of execution and an order of garnishment was thereupon served on petitioner
at his residence.
Contending that he had been denied due process, petitioner filed a motion for
reconsideration of the NLRC's resolution along with a prayer for the quashal of the writ of
execution and order of garnishment. He averred that he had never received any notice,
summons or even a copy of the complaint; hence, he said, the Labor Arbiter at no time
had acquired jurisdiction over him.
On 16 August 1991, the NLRC 11 dismissed the motion for reconsideration. Citing Section
2, Rule 13, 12 and Section 13, Rule 14, 13 of the Rules of Court, it ruled that the Regional
Arbitration office had not, in fact, been remiss in the observance of the legal processes for
acquiring jurisdiction over the case and over the persons of the respondents therein. The
NLRC was also convinced that Atty. Perez had been the authorized counsel of MMDC and
its two most ranking officers.
In holding petitioner personally liable for private respondent's claim, the NLRC cited Article
289 14 of the Labor Code and the ruling in A.C. Ransom Labor Union-CCLU vs. NLRC 15 to
the effect that "(t)he responsible officer of an employer corporation (could) be held
personally, not to say even criminally, liable for non-payment of backwages," and that
of Gudez vs. NLRC 16 which amplified that "where the employer corporation (was) no

Petitioner's contention is unacceptable. The fact that Atty. Romeo B. Perez has been able
to timely ask for a deferment of the initial hearing on 14 November 1986, coupled with his
subsequent active participation in the proceedings, should disprove the supposed want of
service of legal process. Although as a rule, modes of service of summons are strictly
followed in order that the court may acquire jurisdiction over the person of a
defendant, 17such procedural modes, however, are liberally construed in quasijudicial proceedings, substantial compliance with the same being considered
adequate. 18 Moreover, jurisdiction over the person of the defendant in civil cases is
acquired not only by service of summons but also by voluntary appearance in court and
submission to its authority. 19 "Appearance" by a legal advocate is such "voluntary
submission to a court's jurisdiction." 20 It may be made not only by actual physical
appearance but likewise by the submission of pleadings in compliance with the order of
the court or tribunal.
To say that petitioner did not authorize Atty. Perez to represent him in the case 21 is to
unduly tax credulity. Like the Solicitor General, the Court likewise considers it unlikely that
Atty. Perez would have been so irresponsible as to represent petitioner if he were not, in
fact, authorized. 22 Atty. Perez is an officer of the court, and he must be presumed to have
acted with due propriety. The employment of a counsel or the authority to employ an
attorney, it might be pointed out, need not be proved in writing; such fact could be
inferred from circumstantial evidence. 23 Petitioner was not just an ordinary official of the
MMDC; he was the President of the company.
Petitioner, in any event, argues that public respondents have gravely abused their
discretion "in finding petitioner solidarily liable with MMDC even (in) the absence of bad
faith and malice on his part." 24 There is merit in this plea.
A corporation is a juridical entity with legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. Nevertheless, being a mere fiction of law, peculiar
situations or valid grounds can exist to warrant, albeit done sparingly, the disregard of its
independent being and the lifting of the corporate veil. 25 As a rule, this situation might
arise when a corporation is used to evade a just and due obligation or to justify a
wrong, 26 to shield or perpetrate fraud, 27 to carry out similar other unjustifable aims or
intentions, or as a subterfuge to commit injustice and so circumvent the law. 28 In Tramat
Mercantile, Inc., vs. Court of Appeals, 29 the Court has collated the settled instances when,
without necessarily piercing the veil of corporate fiction, personal civil liability can also be
said to lawfully attach to a corporate director, trustee or officer; to wit: When

(1) He assents (a) to a patently unlawful act of the corporation, or (b) for
bad faith or gross negligence in directing its affairs, or (c) for conflict of
interest, resulting in damages to the corporation, its stockholders or
other persons;

to extreme personal animosity that resulted, evidently in bad faith, in the easing out from
the company of one of the brothers by the other.
The basic rule is still that which can be deduced from the Court's pronouncement in Sunio
vs. National Labor Relations Commission; 33 thus:

(2) He consents to the issuance of watered stocks or who, having

knowledge thereof, does not forthwith file with the corporate secretary
his written objection thereto;

We come now to the personal liability of petitioner, Sunio, who was

made jointly and severally responsible with petitioner company and CIPI
for the payment of the backwages of private respondents. This is
reversible error. The Assistant Regional Director's Decision failed to
disclose the reason why he was made personally liable. Respondents,
however, alleged as grounds thereof, his the being owner of one-half
(1/2) interest of said corporation, and his alleged arbitrary dismissal of
private respondents.

(3) He agrees to hold himself personally and solidarily liable with the
corporation; or
(4) He is made, by a specific provision of law, to personally answer for
his corporate action.

Petitioner Sunio was impleaded in the Complaint in his capacity as

General Manager of petitioner corporation. There appears to be no
evidence on record that he acted maliciously or in bad faith in
terminating the services of private respondents. His act, therefore, was
within the scope of his authority and was a corporate act.

The case of petitioner is way off these exceptional instances. It is not even shown
that petitioner has had a direct hand in the dismissal of private respondent
enough to attribute to him (petitioner) a patently unlawful act while acting for
the corporation. Neither can Article 289 30 of the Labor Code be applied since this
law specifically refers only to the imposition of penalties under the Code. It is
undisputed that the termination of petitioner's employment has, instead, been
due, collectively, to the need for a further mitigation of losses, the onset of the
rainy season, the insurgency problem in Sorsogon and the lack of funds to further
support the mining operation in Gatbo.
It is true, there were various cases when corporate officers were themselves held by the
Court to be personally accountable for the payment of wages and money claims to its
employees. In A.C. Ransom Labor Union-CCLU vs. NLRC, 31 for instance, the Court ruled
that under the Minimum Wage Law, the responsible officer of an employer corporation
could be held personally liable for nonpayment of backwages for "(i)f the policy of the law
were otherwise, the corporation employer (would) have devious ways for evading
payment of back wages." In the absence of a clear identification of the officer directly
responsible for failure to pay the backwages, the Court considered the President of the
corporation as such officer. The case was cited in Chua vs. NLRC 32 in holding personally
liable the vice-president of the company, being the highest and most ranking official of
the corporation next to the President who was dismissed, for the latter's claim for unpaid
wages.
A review of the above exceptional cases would readily disclose the attendance of facts
and circumstances that could rightly sanction personal liability an the part of the company
officer. In A.C. Ransom, the corporate entity was a family corporation and execution
against it could not be implemented because of the disposition posthaste of its leviable
assets evidently in order to evade its just and due obligations. The doctrine of "piercing
the veil of corporate fiction" was thus clearly appropriate. Chua likewise involved another
family corporation, and this time the conflict was between two brothers occupying the
highest ranking positions in the company. There were incontrovertible facts which pointed

It is basic that a corporation is invested by law with a personality

separate and distinct from those of the persons composing it as well as
from that of any other legal entity to which it may be related. Mere
ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality. Petitioner
Sunio, therefore, should not have been made personally answerable for
the payment of private respondents' back salaries.
The Court, to be sure, did appear to have deviated somewhat in Gudez
vs. NLRC; 34 however, it should be clear from our recent pronouncement in Mam Realty
Development Corporation and Manuel Centeno vs. NLRC 35 that the Sunio doctrine still
prevails.
WHEREFORE, the instant petition for certiorari is given DUE COURSE and the decision of
the Labor Arbiter, affirmed by the NLRC, is hereby MODIFIED insofar as it holds herein
petitioner Benjamin Santos personally liable with Mana Mining and Development
Corporation, which portion of the questioned judgment is now SET ASIDE. In all other
respects, the questioned decision remains unaffected. No costs.
SO ORDERED.

G.R. No. L-18216

October 30, 1962

STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-appellants,

vs.
REGISTER OF DEEDS OF MANILA, respondent-appellee.
Ramon C. Fernando for petitioners-appellants.
Office of the Solicitor General for respondent-appellee.
BAUTISTA ANGELO, J.:
On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc. executed a
certificate of liquidation of the assets of the corporation reciting, among other things, that
by virtue of a resolution of the stockholders adopted on September 17, 1960, dissolving
the corporation, they have distributed among themselves in proportion to their
shareholdings, as liquidating dividends, the assets of said corporation, including real
properties located in Manila.
The certificate of liquidation, when presented to the Register of Deeds of Manila, was
denied registration on seven grounds, of which the following were disputed by the
stockholders:
3. The number of parcels not certified to in the acknowledgment;
5. P430.50 Reg. fees need be paid;
6. P940.45 documentary stamps need be attached to the document;
7. The judgment of the Court approving the dissolution and directing the
disposition of the assets of the corporation need be presented (Rules of Court,
Rule 104, Sec. 3).
Deciding the consulta elevated by the stockholders, the Commissioner of Land
Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.
The stockholders interposed the present appeal.
As correctly stated by the Commissioner of Land Registration, the propriety or impropriety
of the three grounds on which the denial of the registration of the certificate of liquidation

was predicated hinges on whether or not that certificate merely involves a distribution of
the corporation's assets or should be considered a transfer or conveyance.
Appellants contend that the certificate of liquidation is not a conveyance or transfer but
merely a distribution of the assets of the corporation which has ceased to exist for having
been dissolved. This is apparent in the minutes for dissolution attached to the document.
Not being a conveyance the certificate need not contain a statement of the number of
parcel of land involved in the distribution in the acknowledgment appearing therein.
Hence the amount of documentary stamps to be affixed thereon should only be P0.30 and
not P940.45, as required by the register of deeds. Neither is it correct to require
appellants to pay the amount of P430.50 as registration fee.
The Commissioner of Land Registration, however, entertained a different opinion. He
concurred in the view expressed by the register of deed to the effect that the certificate of
liquidation in question, though it involves a distribution of the corporation's assets, in the
last analysis represents a transfer of said assets from the corporation to the stockholders.
Hence, in substance it is a transfer or conveyance.
We agree with the opinion of these two officials. A corporation is a juridical person distinct
from the members composing it. Properties registered in the name of the corporation are
owned by it as an entity separate and distinct from its members. While shares of stock
constitute personal property they do not represent property of the corporation. The
corporation has property of its own which consists chiefly of real estate (Nelson v. Owen,
113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock
only typifies an aliquot part of the corporation's property, or the right to share in its
proceeds to that extent when distributed according to law and equity (Hall & Faley v.
Alabama Terminal, 173 Ala 398, 56 So., 235), but its holder is not the owner of any part of
the capital of the corporation (Bradley v. Bauder 36 Ohio St., 28). Nor is he entitled to the
possession of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S.,
521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in
common of the corporate property (Halton v. Hohnston, 166 Ala 317, 51 So 992).
On the basis of the foregoing authorities, it is clear that the act of liquidation made by the
stockholders of the F. Guanzon and Sons, Inc. of the latter's assets is not and cannot be
considered a partition of community property, but rather a transfer or conveyance of the
title of its assets to the individual stockholders. Indeed, since the purpose of the
liquidation, as well as the distribution of the assets of the corporation, is to transfer their
title from the corporation to the stockholders in proportion to their shareholdings, and
this is in effect the purpose which they seek to obtain from the Register of Deeds of
Manila, that transfer cannot be effected without the corresponding deed of conveyance
from the corporation to the stockholders. It is, therefore, fair and logical to consider the
certificate of liquidation as one in the nature of a transfer or conveyance.

G.R. No. L-42780

January 17, 1936

MANILA GAS CORPORATION, plaintiff-appellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
MALCOLM, J.:
This is an action brought by the Manila Gas Corporation against the Collector of Internal
Revenue for the recovery of P56,757.37, which the plaintiff was required by the defendant
to deduct and withhold from the various sums paid it to foreign corporations as dividends
and interest on bonds and other indebtedness and which the plaintiff paid under protest.
On the trial court dismissing the complaint, with costs, the plaintiff appealed assigning as
the principal errors alleged to have been committed the following:
1. The trial court erred in holding that the dividends paid by the plaintiff
corporation were subject to income tax in the hands of its stockholders, because
to impose the tax thereon would be to impose a tax on the plaintiff, in violation
of the terms of its franchise, and would, moreover, be oppressive and
inequitable.
2. The trial court erred in not holding that the interest on bonds and other
indebtedness of the plaintiff corporation, paid by it outside of the Philippine
Islands to corporations not residing therein, were not, on the part of the
recipients thereof, income from Philippine sources, and hence not subject to
Philippine income tax.

The facts, as stated by the appellant and as accepted by the appellee, may be
summarized as follows: The plaintiff is a corporation organized under the laws of the
Philippine Islands. It operates a gas plant in the City of Manila and furnishes gas service to
the people of the metropolis and surrounding municipalities by virtue of a franchise
granted to it by the Philippine Government. Associated with the plaintiff are the Islands
Gas and Electric Company domiciled in New York, United States, and the General Finance
Company domiciled in Zurich, Switzerland. Neither of these last mentioned corporations is
resident in the Philippines.
For the years 1930, 1931, and 1932, dividends in the sum of P1,348,847.50 were paid by
the plaintiff to the Islands Gas and Electric Company in the capacity of stockholders upon
which withholding income taxes were paid to the defendant totalling P40,460.03 For the
same years interest on bonds in the sum of P411,600 was paid by the plaintiff to the
Islands Gas and Electric Company upon which withholding income taxes were paid to the
defendant totalling P12,348. Finally for the stated time period, interest on other
indebtedness in the sum of P131,644,90 was paid by the plaintiff to the Islands Gas and
Electric Company and the General Finance Company respectively upon which withholding
income taxes were paid to the defendant totalling P3,949.34.
Some uncertainty existing regarding the place of payment, we will not go into this factor
of the case at this point, except to remark that the bonds and other tokens of
indebtedness are not to be found in the record. However, Exhibits E, F, and G, certified
correct by the Treasurer of the Manila Gas Corporation, purport to prove that the place of
payment was the United States and Switzerland.
The appeal naturally divides into two subjects, one covered by the first assigned error,
and the other by the second assigned error. We shall discuss these subjects and errors in
order.
1. Appellant first contends that the dividends paid by it to its stockholders, the
Islands Gas and Electric Company , were not subject to tax because to impose a
tax thereon would be to do so on the plaintiff corporation, in violation of the
terms of its franchise and would, moreover, be oppressive and inequitable. This
argument is predicated on the constitutional provision that no law impairing the
obligation of contracts shall be enacted. The particular portion of the franchise
which is invoked provides:
The grantee shall annually on the fifth day of January of each year pay
to the City of Manila and the municipalities in the Province of Rizal in
which gas is sold, two and one half per centum of the gross receipts
within said city and municipalities, respectively, during the preceding
year. Said payment shall be in lieu of all taxes, Insular, provincial and
municipal, except taxes on the real estate, buildings, plant, machinery,
and other personal property belonging to the grantee.

The trial judge was of the opinion that the instant case was governed by our
previous decision in the case of Philippine Telephone and Telegraph Co., vs.
Collector of Internal Revenue ([1933], 58 Phil. 639). In this view we concur. It is
true that the tax exemption provision relating to the Manila Gas Corporation
hereinbefore quoted differs in phraseology from the tax exemption provision to
be found in the franchise of the Telephone and Telegraph Company, but the ratio
decidendi of the two cases is substantially the same. As there held and as now
confirmed, a corporation has a personality distinct from that of its stockholders,
enabling the taxing power to reach the latter when they receive dividends from
the corporation. It must be considered as settled in this jurisdiction that
dividends of a domestic corporation, which are paid and delivered in cash to
foreign corporations as stockholders, are subject to the payment in the income
tax, the exemption clause in the charter of the corporation notwithstanding.
For the foreign reasons, we are led to sustain the decision of the trial court and to
overrule appellant's first assigned error.
2. In support of its second assignment of error, appellant contends that, as the
Islands Gas and Electric Company and the General Finance Company are
domiciled in the United States and Switzerland respectively, and as the interest
on the bonds and other indebtedness earned by said corporations has been paid
in their respective domiciles, this is not income from Philippine sources within the
meaning of the Philippine Income Tax Law. Citing sections 10 (a) and 13 (e) of Act
No. 2833, the Income Tax Law, appellant asserts that their applicability has been
squarely determined by decisions of this court in the cases of Manila Railroad Co.
vs. Collector of Internal Revenue (No. 31196, promulgated December 2, 1929,
nor reported), and Philippine Railway Co. vs. Posadas (No. 38766, promulgated
October 30, 1933 [58 Phil., 968]) wherein it was held that interest paid to nonresident individuals or corporations is not income from Philippine sources, and
hence not subject to the Philippine Income Tax. The Solicitor-General answers
with the observation that the cited decisions interpreted the Income Tax Law
before it was amended by Act No. 3761 to cover the interest on bonds and other
obligations or securities paid "within or without the Philippine Islands." Appellant
rebuts this argument by "assuming, for the sake of the argument, that by the
amendment introduced to section 13 of Act No. 2833 by Act No. 3761 the
Legislature intended the interest from Philippine sources and so is subject to
tax," but with the necessary sequel that the amendatory statute is invalid and
unconstitutional as being the power of the Legislature to enact.
Taking first under observation that last point, it is to be observed that neither in the
pleadings, the decision of the trial court, nor the assignment of errors, was the question of
the validity of Act No. 3761 raised. Under such circumstances, and no jurisdictional issue
being involved, we do not feel that it is the duty of the court to pass on the constitutional
question, and accordingly will refrain from doing so. (Cadwaller-Gibson Lumber Co. vs. Del
Rosario [1913], 26 Phil., 192; Macondray and Co. vs. Benito and Ocampo, P. 137, ante;
State vs. Burke [1912], 175 Ala., 561.)

As to the applicability of the local cases cited and of the Porto Rican case of
Domenech vs. United Porto Rican Sugar co. ([1932], 62 F. [2d], 552), we need only
observe that these cases announced good law, but that each he must be decided on its
particular facts. In other words, in the opinion of the majority of the court, the facts at bar
and the facts in those cases can be clearly differentiated. Also, in the case at bar there is
some uncertainty concerning the place of payment, which under one view could be
considered the Philippines and under another view the United States and Switzerland, but
which cannot be definitely determined without the necessary documentary evidence
before, us.

sources within the Philippine Islands as authorized by the Income Tax Law. For the
foregoing reasons, the second assigned error will be overruled.

The approved doctrine is that no state may tax anything not within its jurisdiction without
violating the due process clause of the constitution. The taxing power of a state does not
extend beyond its territorial limits, but within such it may tax persons, property, income,
or business. If an interest in property is taxed, the situs of either the property or interest
must be found within the state. If an income is taxed, the recipient thereof must have a
domicile within the state or the property or business out of which the income issues must
be situated within the state so that the income may be said to have a situs therein.
Personal property may be separated from its owner, and he may be taxed on its account
at the place where the property is although it is not the place of his own domicile and
even though he is not a citizen or resident of the state which imposes the tax. But debts
owing by corporations are obligations of the debtors, and only possess value in the hands
of the creditors. (Farmers Loan Co. vs. Minnesota [1930], 280 U.S., 204; Union Refrigerator
Transit Co. vs. Kentucky [1905], 199 U.S., 194 State Tax on Foreign held Bonds [1873, 15
Wall., 300; Bick vs. Beach [1907], 206 U. S., 392; State ex rel. Manitowoc Gas Co. vs. Wig.
Tax Comm. [1915], 161 Wis., 111; United States Revenue Act of 1932, sec. 143.)

Judgment affirmed, with the cost of this instance assessed against the appellant.

These views concerning situs for taxation purposes apply as well to an organized,
unincorporated territory or to a Commonwealth having the status of the Philippines.
Pushing to one side that portion of Act No. 3761 which permits taxation of interest on
bonds and other indebtedness paid without the Philippine Islands, the question is if the
income was derived from sources within the Philippine Islands.
In the judgment of the majority of the court, the question should be answered in the
affirmative. The Manila Gas Corporation operates its business entirely within the
Philippines. Its earnings, therefore come from local sources. The place of material delivery
of the interest to the foreign corporations paid out of the revenue of the domestic
corporation is of no particular moment. The place of payment even if conceded to be
outside of tho country cannot alter the fact that the income was derived from the
Philippines. The word "source" conveys only one idea, that of origin, and the origin of the
income was the Philippines.
In synthesis, therefore, we hold that conditions have not been provided which justify the
court in passing on the constitutional question suggested; that the facts while somewhat
obscure differ from the facts to be found in the cases relied upon, and that the Collector of
Internal Revenue was justified in withholding income taxes on interest on bonds and other
indebtedness paid to non-resident corporations because this income was received from

Before concluding, it is but fair to state that the writer's opinion on the first subject and
the first assigned error herein discussed is accurately set forth, but that his opinion on the
second subject and the second assigned error is not accurately reflected, because on this
last division his views coincide with those of the appellant. However, in the interest of the
prompt disposition of this case, the decision has been written up in accordance with
instructions received from the court.

to defraud the conjugal partnership considering that the land is conjugal, her marital
consent to the annotation on TCT No. 3258 was not obtained, the change made by the
Register of Deeds of the titleholders was effected without the approval of the
Commissioner of Land Registration and that the late Senator did not execute the
purported Deed of Assignment or his consent thereto, if obtained, was secured by
mistake, violence and intimidation. She further alleged that the assignment in favor of
SUBIC was without consideration and consequently null and void. She prayed that the
Deed of Assignment and the Deed of Mortgage be annulled and that the Register of Deeds
be ordered to cancel TCT No. 22431 and to issue a new title in her favor.

G.R. No. 58168 December 19, 1989

CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA
MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P.
MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special
Administratrix of the Estate of the late Genaro F. Magsaysay respondents.
FERNAN, C.J.:
In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the
decision of the Court of Appeals dated July l3, 1981, 1 affirming that of the Court of First
Instance of Zambales and Olongapo City which denied petitioners' motion to intervene in
an annulment suit filed by herein private respondent, and [2] its resolution dated
September 7, 1981, denying their motion for reconsideration.
Petitioners are raising a purely legal question; whether or not respondent Court of Appeals
correctly denied their motion for intervention.
The facts are not controverted.
On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of
the estate of the late Senator Genaro Magsaysay, brought before the then Court of First
Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation
(SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of
Zambales. In her complaint, she alleged that in 1958, she and her husband acquired, thru
conjugal funds, a parcel of land with improvements, known as "Pequena Island", covered
by TCT No. 3258; that after the death of her husband, she discovered [a] an annotation at
the back of TCT No. 3258 that "the land was acquired by her husband from his separate
capital;" [b] the registration of a Deed of Assignment dated June 25, 1976 purportedly
executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was
cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of
Deed of Mortgage dated April 28, 1977 in the amount of P 2,700,000.00 executed by
SUBIC in favor of FILMANBANK; that the foregoing acts were void and done in an attempt

On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for
intervention on the ground that on June 20, 1978, their brother conveyed to them one-half
(1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of
around 41 % of the total outstanding shares of such stocks of SUBIC, they have a
substantial and legal interest in the subject matter of litigation and that they have a legal
interest in the success of the suit with respect to SUBIC.
On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners
have no legal interest whatsoever in the matter in litigation and their being alleged
assignees or transferees of certain shares in SUBIC cannot legally entitle them to
intervene because SUBIC has a personality separate and distinct from its stockholders.
On appeal, respondent Court of Appeals found no factual or legal justification to disturb
the findings of the lower court. The appellate court further stated that whatever claims
the petitioners have against the late Senator or against SUBIC for that matter can be
ventilated in a separate proceeding, such that with the denial of the motion for
intervention, they are not left without any remedy or judicial relief under existing law.
Petitioners' motion for reconsideration was denied. Hence, the instant recourse.
Petitioners anchor their right to intervene on the purported assignment made by the late
Senator of a certain portion of his shareholdings to them as evidenced by a Deed of Sale
dated June 20, 1978. 2 Such transfer, petitioners posit, clothes them with an interest,
protected by law, in the matter of litigation.
Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862
& 853 (1927), 3petitioners strongly argue that their ownership of 41.66% of the entire
outstanding capital stock of SUBIC entitles them to a significant vote in the corporate
affairs; that they are affected by the action of the widow of their late brother for it
concerns the only tangible asset of the corporation and that it appears that they are more
vitally interested in the outcome of the case than SUBIC.
Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms
the respondent court's holding that petitioners herein have no legal interest in the subject
matter in litigation so as to entitle them to intervene in the proceedings below. In the case
of Batama Farmers' Cooperative Marketing Association, Inc. v. Rosal, 4 we held: "As clearly

stated in Section 2 of Rule 12 of the Rules of Court, to be permitted to intervene in a

pending action, the party must have a legal interest in the matter in litigation, or in the
success of either of the parties or an interest against both, or he must be so situated as to
be adversely affected by a distribution or other disposition of the property in the custody
of the court or an officer thereof ."
To allow intervention, [a] it must be shown that the movant has legal interest in the
matter in litigation, or otherwise qualified; and [b] consideration must be given as to
whether the adjudication of the rights of the original parties may be delayed or
prejudiced, or whether the intervenor's rights may be protected in a separate proceeding
or not. Both requirements must concur as the first is not more important than the
second. 5
The interest which entitles a person to intervene in a suit between other parties must be
in the matter in litigation and of such direct and immediate character that the intervenor
will either gain or lose by the direct legal operation and effect of the judgment. Otherwise,
if persons not parties of the action could be allowed to intervene, proceedings will become
unnecessarily complicated, expensive and interminable. And this is not the policy of the
law. 6
The words "an interest in the subject" mean a direct interest in the cause of action as
pleaded, and which would put the intervenor in a legal position to litigate a fact alleged in
the complaint, without the establishment of which plaintiff could not recover. 7
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely
inchoate, or in sheer expectancy of a right in the management of the corporation and to
share in the profits thereof and in the properties and assets thereof on dissolution, after
payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the
property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by
the corporation as a distinct legal person. 8

Land Corporation; [2] Civil Case No. 2577-0 before the CFI of Zambales, Branch III,
"Adelaida Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et al.
Intervenors", seeking to annul the purported Deed of Assignment in favor of SUBIC and its
annotation at the back of TCT No. 3258 in the name of respondent's deceased husband;
[3] SEC Case No. 001770, filed by respondent praying, among other things that she be
declared in her capacity as the surviving spouse and administratrix of the estate of
Genaro Magsaysay as the sole subscriber and stockholder of SUBIC. There, petitioners, by
motion, sought to intervene. Their motion to reconsider the denial of their motion to
intervene was granted; [4] SP No. Q-26739 before the CFI of Rizal, Branch IV, petitioners
herein filing a contingent claim pursuant to Section 5, Rule 86, Revised Rules of
Court. 9 Petitioners' interests are no doubt amply protected in these cases.
Neither do we lend credence to petitioners' argument that they are more interested in the
outcome of the case than the corporation-assignee, owing to the fact that the latter is
willing to compromise with widow-respondent and since a compromise involves the giving
of reciprocal concessions, the only conceivable concession the corporation may give is a
total or partial relinquishment of the corporate assets. 10
Such claim all the more bolsters the contingent nature of petitioners' interest in the
subject of litigation.
The factual findings of the trial court are clear on this point. The petitioners cannot claim
the right to intervene on the strength of the transfer of shares allegedly executed by the
late Senator. The corporation did not keep books and records. 11 Perforce, no transfer was
ever recorded, much less effected as to prejudice third parties. The transfer must be
registered in the books of the corporation to affect third persons. The law on corporations
is explicit. Section 63 of the Corporation Code provides, thus: "No transfer, however, shall
be valid, except as between the parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the transaction, the date of the transfer,
the number of the certificate or certificates and the number of shares transferred."
And even assuming arguendo that there was a valid transfer, petitioners are nonetheless
barred from intervening inasmuch as their rights can be ventilated and amply protected in
another proceeding.
WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners.

Petitioners further contend that the availability of other remedies, as declared by the
Court of appeals, is totally immaterial to the availability of the remedy of intervention.
We cannot give credit to such averment. As earlier stated, that the movant's interest may
be protected in a separate proceeding is a factor to be considered in allowing or
disallowing a motion for intervention. It is significant to note at this juncture that as per
records, there are four pending cases involving the parties herein, enumerated as follows:
[1] Special Proceedings No. 122122 before the CFI of Manila, Branch XXII, entitled
"Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et al.", involving the validity
of the transfer by the late Genaro Magsaysay of one-half of his shareholdings in Subic

SO ORDERED.

This is a petition for review on certiorari of the December 29, 1987 decision * of the Court
of Appeals in CA-G.R. No. 11960 entitled "ROCES-REYES REALTY, INC. vs. HONORABLE
JUDGE REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD EARTH EMPORIUM, INC.
and LIM KA PING" reversing the decision of respondent Judge ** of the Regional Trial Court
of Manila, Branch 44 in Civil Case No. 85-30484, which reversed the resolution of the
Metropolitan Trial Court Of Manila, Branch 28 in Civil Case No. 09639, *** denying herein
petitioners' motion to quash the alias writ of execution issued against them.
As gathered from the records, the antecedent facts of this case, are as follows:
A Lease Contract, dated October 16, 1981, was entered into by and between ROCESREYES REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a term of
three years beginning November 1, 1981 and ending October 31, 1984 at a monthly
rental of P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The building which was the
subject of the contract of lease is a five-storey building located at the corner of Rizal
Avenue and Bustos Street in Sta. Cruz, Manila.
From March 1983, up to the time the complaint was filed, the lessee had defaulted in the
payment of rentals, as a consequence of which, private respondent ROCES-REYES REALTY,
INC., (hereinafter designated as ROCES for brevity) filed on October 14, 1984, an
ejectment case (Unlawful Detainer) against herein petitioners, GOOD EARTH EMPORIUM,
INC. and LIM KA PING, hereinafter designated as GEE, (Rollo, p. 21; Annex "B" of the
Petition). After the latter had tendered their responsive pleading, the lower court (MTC,
Manila) on motion of Roces rendered judgment on the pleadings dated April 17, 1984, the
dispositive portion of which states:
Judgment is hereby rendered ordering defendants (herein petitioners) and all
persons claiming title under him to vacate the premises and surrender the same
to the plaintiffs (herein respondents); ordering the defendants to pay the
plaintiffs the rental of P65,000.00 a month beginning March 1983 up to the time
defendants actually vacate the premises and deliver possession to the plaintiff;
to pay attorney's fees in the amount of P5,000.00 and to pay the costs of this
suit. (Rollo, p. 111; Memorandum of Respondents)
On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May
28, 1984 simultaneous with the latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On
June 13, 1984, the trial court resolved such motion ruling:
After considering the motion for the issuance of a writ of execution filed by
counsel for the plaintiff (herein respondents) and the opposition filed in relation
thereto and finding that the defendant failed to file the necessary supersedeas
bond, this court resolved to grant the same for being meritorious. (Rollo, p. 112)

GOOD EARTH EMPORIUM INC., and LIM KA PING vs. HONORABLE COURT OF
APPEALS and ROCES-REYES REALTY INC. (G.R. No. 82797)
PARAS, J.:

On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the
appeal was assigned to the Regional Trial Court (Manila) Branch XLVI. However, on August
15, 1984, GEE thru counsel filed with the Regional Trial Court of Manila, a motion to
withdraw appeal citing as reason that they are satisfied with the decision of the
Metropolitan Trial Court of Manila, Branch XXVIII, which said court granted in its Order of
August 27, 1984 and the records were remanded to the trial court (Rollo, p. 32; CA
Decision). Upon an ex-parte Motion of ROCES, the trial court issued an Alias Writ of
Execution dated February 25, 1985 (Rollo, p. 104; Annex "D" of Petitioner's
Memorandum), which was implemented on February 27, 1985. GEE thru counsel filed a

motion to quash the writ of execution and notice of levy and an urgent Exparte Supplemental Motion for the issuance of a restraining order, on March 7, and 20,
1985, respectively. On March 21, 1985, the lower court issued a restraining order to the
sheriff to hold the execution of the judgment pending hearing on the motion to quash the
writ of execution (Rollo, p. 22; RTC Decision). While said motion was pending resolution,
GEE filed a Petition for Relief from judgment before another court, Regional Trial Court of
Manila, Branch IX, which petition was docketed as Civil Case No. 80-30019, but the
petition was dismissed and the injunctive writ issued in connection therewith set aside.
Both parties appealed to the Court of Appeals; GEE on the order of dismissal and Roces on
denial of his motion for indemnity, both docketed as CA-G.R. No. 15873-CV. Going back to
the original case, the Metropolitan Trial Court after hearing and disposing some other
incidents, promulgated the questioned Resolution, dated April 8, 1985, the dispositive
portion of which reads as follows:
Premises considered, the motion to quash the writ is hereby denied for lack of
merit.
The restraining orders issued on March 11 and 23, 1985 are hereby recalled,
lifted and set aside. (Rollo, p. 20, MTC Decision)
GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces
moved to dismiss the appeal but the Court denied the motion. On certiorari, the Court of
Appeals dismissed Roces' petition and remanded the case to the RTC. Meantime, Branch
IX became vacant and the case was re-raffled to Branch XLIV.
On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million
evidenced by Exhibit "I" and another P1 million evidenced by the pacto de retro sale
instrument (Exhibit "2") were in full satisfaction of the judgment obligation, reversed the
decision of the Municipal Trial Court, the dispositive portion of which reads:
Premises considered, judgment is hereby rendered reversing the Resolution
appealed from quashing the writ of execution and ordering the cancellation of
the notice of levy and declaring the judgment debt as having been fully paid
and/or Liquidated. (Rollo, p. 29).
On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court
and reinstated the Resolution of the Metropolitan Trial Court of Manila, the dispositive
portion of which is as follows:
WHEREFORE, the judgment appealed from is hereby REVERSED and the
Resolution dated April 8, 1985, of the Metropolitan Trial Court of Manila Branch
XXXIII is hereby REINSTATED. No pronouncement as to costs. (Rollo, p. 40).
GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this
petition.
The main issue in this case is whether or not there was full satisfaction of the judgment
debt in favor of respondent corporation which would justify the quashing of the Writ of
Execution.

A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any
of said exhibits was there any writing alluding to or referring to any settlement between
the parties of petitioners' judgment obligation (Rollo, pp. 45-48).
Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or
partial, of the judgment obligation. Likewise, there is no indication in the pacto de
retro sale which was drawn in favor of Jesus Marcos Roces and Marcos V. Roces and not
the respondent corporation, that the obligation embodied therein had something to do
with petitioners' judgment obligation with respondent corporation.
Finding that the common exhibit, Exhibit 1/A had been signed by persons other than
judgment creditors (Roces-Reyes Realty, Inc.) coupled with the fact that said exhibit was
not even alleged by GEE and Lim Ka Ping in their original motion to quash the alias writ of
execution (Rollo, p. 37) but produced only during the hearing (Ibid.) which production
resulted in petitioners having to claim belatedly that there was an "overpayment" of about
half a million pesos (Rollo, pp. 25-27) and remarking on the utter absence of any writing in
Exhibits "1/A" and "2/B" to indicate payment of the judgment debt, respondent Appellate
Court correctly concluded that there was in fact nopayment of the judgment debt. As aptly
observed by the said court:
What immediately catches one's attention is the total absence of any writing
alluding to or referring to any settlement between the parties of private
respondents' (petitioners') judgment obligation. In moving for the dismissal of the
appeal Lim Ka Ping who was then assisted by counsel simply stated that
defendants (herein petitioners) are satisfied with the decision of the Metropolitan
Trial Court (Records of CA, p. 54).
Notably, in private respondents' (petitioners') Motion to Quash the Writ of
Execution and Notice of Levy dated March 7, 1985, there is absolutely no
reference to the alleged payment of one million pesos as evidenced by Exhibit 1
dated September 20, 1984. As pointed out by petitioner (respondent corporation)
this was brought out by Linda Panutat, Manager of Good Earth only in the course
of the latter's testimony. (Rollo, p. 37)
Article 1240 of the Civil Code of the Philippines provides that:
Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it.
In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or
to its successor in interest nor is there positive evidence that the payment was made to a
person authorized to receive it. No such proof was submitted but merely inferred by the
Regional Trial Court (Rollo, p. 25) from Marcos Roces having signed the Lease Contract as
President which was witnessed by Jesus Marcos Roces. The latter, however, was no longer
President or even an officer of Roces-Reyes Realty, Inc. at the time he received the money
(Exhibit "1") and signed the sale with pacto de retro (Exhibit "2"). He, in fact, denied being
in possession of authority to receive payment for the respondent corporation nor does the
receipt show that he signed in the same capacity as he did in the Lease Contract at a time
when he was President for respondent corporation (Rollo, p. 20, MTC decision).

On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced
by the receipt (Exhibit "1") is the payment for a loan extended by him and Marcos Roces
in favor of Lim Ka Ping. The assertion is home by the receipt itself whereby they
acknowledged payment of the loan in their names and in no other capacity.
A corporation has a personality distinct and separate from its individual stockholders or
members. Being an officer or stockholder of a corporation does not make one's property
also of the corporation, and vice-versa, for they are separate entities (Traders Royal Bank
v. CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners
are in no legal sense the owners of corporate property (or credits) which is owned by the
corporation as a distinct legal person (Concepcion Magsaysay-Labrador v. CA-G.R. No.
58168, December 19, 1989). As a consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is
the stockholder's debt or credit that of the corporation (Prof. Jose Nolledo's "The
Corporation Code of the Philippines, p. 5, 1988 Edition, citing Professor Ballantine).
The absence of a note to evidence the loan is explained by Jesus Marcos Roces who
testified that the IOU was subsequently delivered to private respondents (Rollo, pp. 9798). Contrary to the Regional Trial Court's premise that it was incumbent upon respondent
corporation to prove that the amount was delivered to the Roces brothers in the payment
of the loan in the latter's favor, the delivery of the amount to and the receipt thereof by
the Roces brothers in their names raises the presumption that the said amount was due to
them.1wphi1 There is a disputable presumption that money paid by one to the other was
due to the latter (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and Lim Ka Ping to prove
otherwise. In other words, it is for the latter to prove that the payments made were for the
satisfaction of their judgment debt and not vice versa.
The fact that at the time payment was made to the two Roces brothers, GEE was also
indebted to respondent corporation for a larger amount, is not supportive of the Regional
Trial Court's conclusions that the payment was in favor of the latter, especially in the case
at bar where the amount was not receipted for by respondent corporation and there is
absolutely no indication in the receipt from which it can be reasonably inferred, that said
payment was in satisfaction of the judgment debt. Likewise, no such inference can be
made from the execution of the pacto de retro sale which was not made in favor of
respondent corporation but in favor of the two Roces brothers in their individual capacities
without any reference to the judgment obligation in favor of respondent corporation.
In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of
the sale with pacto de retro(Exhibit "2/B") all in the sum of P2 million, far exceeds
petitioners' judgment obligation in favor of respondent corporation in the sum of
P1,560,000.00 by P440,000.00, which militates against the claim of petitioner that the
aforesaid amount (P2M) was in full payment of the judgment obligation.
Petitioners' explanation that the excess is interest and advance rentals for an extension of
the lease contract (Rollo, pp. 25-28) is belied by the absence of any interest awarded in
the case and of any agreement as to the extension of the lease nor was there any such
pretense in the Motion to Quash the Alias Writ of Execution.
Petitioners' averments that the respondent court had gravely abused its discretion in
arriving at the assailed factual findings as contrary to the evidence and applicable
decisions of this Honorable Court are therefore, patently unfounded. Respondent court
was correct in stating that it "cannot go beyond what appears in the documents submitted

by petitioners themselves (Exhibits "1" and "2") in the absence of clear and convincing
evidence" that would support its claim that the judgment obligation has indeed been fully
satisfied which would warrant the quashal of the Alias Writ of Execution.
It has been an established rule that when the existence of a debt is fully established by
the evidence (which has been done in this case), the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such a defense to the
claim of the plaintiff creditor (herein respondent corporation) (Chua Chienco v. Vargas, 11
Phil. 219; Ramos v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30 Phil. 365). For indeed, it
is well-entrenched in Our jurisprudence that each party in a case must prove his own
affirmative allegations by the degree of evidence required by law (Stronghold Insurance
Co. v. CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache & Co. v. Insurance Commission,
158 SCRA 366). The appellate court cannot, therefore, be said to have gravely abused its
discretion in finding lack of convincing and reliable evidence to establish payment of the
judgment obligation as claimed by petitioner. The burden of evidence resting on the
petitioners to establish the facts upon which their action is premised has not been
satisfactorily discharged and therefore, they have to bear the consequences. PREMISES
CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent court is
hereby AFFIRMED, reinstating the April 8, 1985 Resolution of the Metropolitan Trial Court
of Manila. SO ORDERED.
G.R. No. L-30188

October 2, 1928

FELIPE TAYKO, EDUARDO BUENO, BAUTISTA TAYKO, BERNARDO SOLDE and

VICENTE ELUM,petitioners,
vs.
NICOLAS CAPISTRANO, acting as Judge of First Instance of Oriental Negros.
ALFREDO B. CACNIO, as Provincial Fiscal of Oriental Negros, and JUAN
GADIANI, respondents.
OSTRAND, J.:
This is a petition for a writ of prohibition enjoining the respondent judge from making
cognizance of certain civil and criminal election cases in which the petitioners are parties.
The petitioners allege that the respondent judge, previous to this date, was appointed
judge of the Court of First Instance of Oriental Negros, to hold office during good behavior
and until he should reach the age of 65 years; that he now has reached that age and,
therefore, under the provisions of section 148 of the Administrative Code as amended, is
disqualified from acting as a judge of the Court of First Instance. The petitioners further
allege that in view of the many election protests and criminal cases for violation of the
election law filed in the Court of First Instance of Oriental Negros arising in the Court of
First Instance of Oriental Negros arising from the last election of June 5, 1928, the
Honorable Sixto de la Costa was duly designated and acted as auxiliary judge of the
Province of Oriental Negros; that between the auxiliary judge and the respondent judge
herein there was an understanding, and the assignment of the said auxiliary judge was
made with this understanding, that the said auxiliary judge so designated would hear and
take cognizance of all election protests and criminal actions then pending or to filed
arising from the said last general election, and that the respondent Honorable Nicolas

Capistrano would try and hear the ordinary cases pending in the said court, but,
notwithstanding this understanding or agreement, the respondent judge tried and is still
trying to take cognizance of the election protests an criminal actions in said court; that
the respondent judge declared in open court that he will try the criminal cases herein
mentioned for the reason that the auxiliary judge refused to try the same on the ground
that the preliminary investigations were held before him, when, in truth and in fact, the
said auxiliary judge did not make the statement imputed to him and was and is still willing
to try the election protests and criminal cases for violation of the election law pending in
the court of the Province of Oriental Negros; that the respondent Honorable Nicolas
Capistrano, in spite of the fact that he was holding and is now pretending to hold the
office of judge of the Court of First Instance of Oriental Negros, took great interest and
active part in the filing of criminal charges against the petitioners herein to the
unjustifiable extent of appointing a deputy fiscal, who then filed the proper informations,
when the provincial fiscal refused to file criminal charges against the petitioners for
violation of the election law for lack of sufficient evidence to sustain the same; that said
respondent is neither a judge de jure nor de facto, but that, notwithstanding this fact, he
continues to hold the office of judge of the Court of First Instance of Oriental Negros and
pretends to be duly qualified and acting judge of the said province; and that he has tried,
and continues to try, to act as such judge and that there is reasonable ground to believe
that he will take cognizance of the cases in question unless he be restrained by order of
this court; that in acting as a duly qualified judge notwithstanding the facts alleged in the
fifth, sixth, and seventh paragraphs hereof, the respondent judge acted and is about to
act without and in excess of jurisdiction and also after the loss of jurisdiction.
To this petition the respondents demur on the ground that the facts stated in that (1) none
of the facts alleged in the petition divest the respondent judge of his jurisdiction to take
cognizance of the cases referred to in the complaint, and (2) even admitting as true, for
the sake of this demurrer, the facts alleged in paragraph 7 of the petition, the respondent
judge is still a de facto judge and his title to the office and his jurisdiction to hear the
cases referred to in the petition cannot be questioned by prohibition, as this writ, even
when directed against persons acting as judges, cannot be treated as a substitute for quo
warranto, or be rightfully called upon to perform any of the functions of that writ.
The ground upon which the petition rests may be reduced to three propositions. (1) That
the assignment of the Auxiliary Judge, Sixto de la Costa, to Dumaguete was made with the
understanding that the he was to hear and take cognizance of all election contests and
criminal causes for violation of the election law and that the respondent judge was to take
cognizance of the ordinary cases and that there was an understanding between them that
this arrangement was to be followed.
(2) That the respondent judge took great interest and an active part in the filing
of the criminal charges against the petitioners herein to the unjustifiable extent
of appointing a deputy fiscal who filed the proper informations when the regular
provincial fiscal refused to file them for lack of sufficient evidence.

(3) That the respondent judge is already over 65 years of age and has, therefore,
automatically ceased as judge of the Court of First Instance of Oriental Negros
and that he is neither a judge de jure nor de facto.
(a) But little need be said as to the first proposition. A writ of prohibition
to a judge of an interior court will only lie in cases where he acts without
or in excess of his jurisdiction (section 226, Code of Civil Procedure), and
it is obvious that a mere "understanding" as to the distribution of cases
for trial did not deprive the respondent judge of the jurisdiction
conferred upon him by law. It may be noted that it is not alleged that
another judge had taken cognizance of the cases in question or that
they had been definitely assigned to trial before such other judge.
(b) The second proposition is equally untenable.1awph!l.net That the
respondent judge took great interest and an active part in the filing of
the criminal charges against the petitioners to the extent of appointing
a deputy fiscal when the regular provincial fiscal refused to file the
proper informations, did not disqualify him from trying the case in
question. Section 1679 of the Administrative Code provides that "when
a provincial fiscal shall be disqualified by personal interest to act in a
particular case or when for any reason he shall be unable, or shall fail,
to discharge any of the duties of his position, the judge of the Court of
First Instance of the province shall appoint an acting provincial
fiscal, . . . ." (Emphasis ours.)
The determination of the question as to whether the fiscal has failed to
discharge his duty in the prosecution of a crime must necessarily, to a
large extent, lie within the sound discretion of the presiding judge, and
there is no allegation in the petition that such discretion was abused in
the present instance. It is true that it is stated that the appointment of
the acting fiscal was "unjustifiable," but that is only a conclusion of law
and not an allegation of facts upon which such a conclusion can be
formed and may, therefore, be disregarded. It follows that in appointing
an acting fiscal, the respondent judge was well within his jurisdiction.
(c) The third ground upon which the petition is based is the most
important and merits some consideration. It is well settled that the title
to the office of a judge, whether de jure or de facto, can only be
determined in a proceeding in the nature of quo warranto and cannot be
tested by prohibition. But counsel for the petitioners maintains that the
respondent judge is neither a judge de jure nor de facto and that,
therefore, prohibition will lie. In this, counsel is undoubtedly mistaken.
The respondent judge has been duly appointed to the office of Judge of the Court of First
Instance of Oriental Negros, but section 148 of the Administrative Code, as amended,
provides that "Judges of the Court of First Instance and auxiliary judges shall be appointed
to serve until they shall reach the age of sixty-five years." In view of this provision and

assuming, as we must, that the allegations of the petition are true, it is evident that the
respondent is no longer a judge de jure, but we do not think that it can be successfully
disputed that he is still a judge de facto.
Briefly defined, a de facto judge is one who exercises the duties of a judicial office under
color of an appointment or election thereto (Brown vs. O'Connell, 36 Conn., 432). He
differs, on the one hand, from a mere usurper who undertakes to act officially without any
color of right, and on the other hand, from a judge de jure who is in all respects legally
appointed and qualified and whose term of office has not expired (State vs. Carroll, 38
Conn., 449; Denny vs. Matton, 2 Allen [Mass.], 361; Van Slyke vs. Farmers' Mut. Fire Ins.
Co., 39 Wis., 390).
Apart from any constitutional or statutory regulation on the subject there seems
to be a general rule of law that an incumbent of an office will hold over after the
conclusion of his term until the elction and qualification of a successor (22 R. C.
L., pp. 554-5). When a judge in good faith remains in office after his title has
ended, he is a de facto officer (Sheehan's Case, 122 Mass., 445).
Applying the principles stated to the facts set forth in the petition before us, we cannot
escape the conclusion that, on the assumption that said facts are true, the respondent
judge must be considered a judge de facto. His term of office may have expired, but his
successor has not been appointed, and as good faith is presumed, he must be regarded as
holding over in good faith. The contention of counsel for the petitioners that the auxiliary
judge present in the district must be considered the regular judge seems obviously
erroneous.
In these circumstances the remedy prayed for cannot be granted. "The rightful authority
of a judge, in the full exercise of his public judicial function, cannot be questioned by any
merely private suitor, nor by any other, excepting in the form especially provided by law.
A judge de facto assumes the exercise of a part of the prerogative of sovereignty, and the
legality of that assumption is open to the attack of the sovereign power alone.
Accordingly, it is a well established principle, dating from the earliest period and
repeatedly confirmed by an unbroken current of decisions, that the official acts of a de
facto judge are just as valid for all purposes as those of a de jure judge, so far as the
public or third persons who are interested therein are concerned. The rule is the same in
civil criminal cases. The principle is one founded in policy and convenience, for the right of
no one claiming a title or interest under or through the proceedings of an officer having an
apparent authority to act would be safe, if it were necessary in every case to examine the
legality of the title of such officer up to its original source, and the title or interest of such
person were held to be invalidated by some accidental defect or flaw in the appointment,
election or qualification of such officer, or in the rights of those from whom his
appointment or election emanated; nor could the supremacy of the laws be maintained,
or their execution enforced, if the acts of the judge having a colorable, but not a legal
title, were to be deemed invalid. As in the case of judges of courts of record, the acts of a
justice de facto cannot be called in question in any suit to which he is not a party. The
official acts of a de facto justice cannot b attacked collaterally. An exception to the general
rule that the title of a person assuming to act as judge cannot be questioned in a suit

before him is generally recognized in the case of a special judge, and it is held that a
party to an action before a special judge may question his title to the office of a judge on
the proceedings before him, and that the judgment will be reversed on appeal, where
proper exceptions are taken, if the person assuming to act as special judge is not a
judge de jure. The title of a de facto officer cannot be indirectly questioned in a
proceeding to obtain a writ of prohibition to prevent him from doing an official act nor in a
suit to enjoin the collection of a judgment rendered by him. Having at least colorable right
to the office his title can be determined only in a quo warranto proceeding or information
in the nature of a quo warranto at suit of the sovereign." (15 R. C. L., pp. 519-521.)
The demurrer to the petition is sustained, and inasmuch as it is evident that the weakness
of the petition cannot be cured by amendment the present proceedings are hereby
dismissed with the costs against the petitioners jointly and severally. The preliminary
injunction hereinbefore issued is dissolved. So ordered.

respectively the subject matter of the first, second and third causes of action of the
complaint.

G.R. No. L-21114

November 28, 1967

FEDERICO FERNANDEZ, plaintiff-appellant,

vs.
P. CUERVA and CO., defendant-appellee.
Gerardo P. Moreno, Jr. for plaintiff-appellant.
N.O. Bueno for defendant-appellee.
ZALDIVAR, J.:
This is an appeal from the order of the Court of First Instance of Manila, dated January 29,
1963, in its Civil Case No. 52946, dismissing the complaint upon the ground that the
action in the first two causes of action had prescribed and that it had no jurisdiction over
the third cause of action.
It appears that plaintiff Federico Fernandez was employed as salesman by defendant P.
Cuerva & Co. from March, 1949 to October, 1959. After his separation from the service,
plaintiff filed a claim, on July 26, 1960, before Regional Office No. 4 of the Department of
Labor,1 docketed as L. S. Case No. 2940, to recover unpaid salaries and commissions, and
separation pay.
During the pendency of said case, or on December 17, 1962, plaintiff again instituted a
similar complaint against the same defendant with the Court of First Instance of Manila
(Civil Case No. 52946) alleging, among others, that he was employed by defendant
company as salesman in March, 1949 with a salary of P200.00 per month that beginning
June, 1955 until the termination of his services in October, 1959, his salary was increased
to, P300.00 monthly and was given, in addition, a commission of 10% on his sales; that
the increase of P100.00 a month and the 10% commission were not actually received by
him as there was a verbal understanding between him and defendant company that the
same would be retained by the latter as bond or deposit for the goods being handled by
the former; and that because plaintiff was separated from the service in October, 1959,
he sought to recover the sum of P5,300.00 representing the P100.00 monthly deductions
from his salary; P4,770.00 corresponding to his 10% commissions that were withheld, and
P1,500.00 as separation pay, or the total sum of P11,570.00. These three items were

On January 2, 1963, defendant filed a motion to dismiss the complaint upon the grounds
that the actions had prescribed and that the court had no jurisdiction over the case. The
court below, after allowing the parties to submit their respective memorandum on the
questions of prescription and jurisdiction, dismissed the case, in an order issued on
January 29, 1963, holding that because the claim of plaintiff in the first two causes of
action amounting to P10,070.00 represented the sum total of unauthorized deductions
from his salaries and withheld commissions, under Section 10, paragraph (f) of Republic
Act No. 602, otherwise known as the Minimum Wage Law, the action to recover the same
was already barred under Section 17 of said Act inasmuch as it was not brought within
three years from the time the right of action accrued; and that because the remaining
claim of plaintiff was limited to his separation pay amounting only to P1,500.00, the action
to collect the same was not within the original jurisdiction of the court.
On February 1, 1963, plaintiff moved to reconsider the above-mentioned order, advancing
as his main argument the fact that his having filed a similar claim with Regional Office No.
4 of the Department of Labor had suspended the running of the prescriptive period insofar
as his claim for refund of unauthorized deductions and withheld commissions was
concerned which were the subject matters of the first and second causes of action that
were dismissed by the court. The defendant filed an opposition to the motion for
reconsideration. In an order dated February 15, 1963, the court denied plaintiff's motion
for reconsideration. Hence this appeal by the plaintiff direct to this Court on purely
questions of law.
We are in accord with the court a quo that the law applicable to the case at bar is Republic
Act 602 because the bond or deposit sought to be recovered by appellant was actually the
sum total of the unauthorized deductions from his salaries and withheld commissions
under Section 10 thereof. Under Section 17 of said law, "any action . . . to enforce any
cause of action under this Act may be commenced within three years after the cause of
action accrued, and every such action shall be forever barred unless commenced within
three years after the cause of action accrued." Since a right of action accrues only from
the moment the right to commence the action comes into existence, and prescription
begins to run from that time,2 the question to be resolved is: When did the right of action
of plaintiff accrue?
To answer the foregoing query, it is meet to recall that while the amounts withheld by
defendant were actually deductions from plaintiff's salaries and unpaid commissions, they
were, however, constituted as a bond or a deposit to answer for any liability that he might
incur in connection with the goods handled by him. The bond and/or deposit was thus
answerable for merchandise entrusted to plaintiff during the period of his employment
with defendant. It was, therefore, not feasible for plaintiff to demand every month or
every payday, or during the period of his employment with the company the return or
refund of those amounts withheld as contended by defendant, because the undertaking
for which the bond or deposit was constituted was still subsisting. And so the right of
plaintiff to commence an action for the return or refund of the amounts representing such

bond or deposit would accrue only when the same was no longer needed, and the time
when it was no longer needed only came in October 1959 when plaintiff was separated
from the service. Having ceased to be employed by the defendant, the bond put up by
plaintiff thereby became unnecessary or useless.
It would seem, however, that even if We count from October, 1959 in computing the
prescriptive period, plaintiff's action to recover the amount held by defendant as bond is
already barred because more than three years had elapsed by the time plaintiff instituted
the present case in the court below on December 17, 1962. The record, however, shows
that on July 26, 1960, plaintiff filed a similar claim against the defendant with Regional
Office No. 4 of the Department of Labor.
At this juncture, the question posed is: Did the filing by plaintiff of that claim with the
regional office of the Department of Labor suspend the running of the period of
prescription?
Defendant answers the question in the negative. While defendant does not question the
applicability to the case at bar of Article 1155 of the Civil Code, which provides that the
"prescription of actions is interrupted when they are filed before the Court," nevertheless,
it contends that inasmuch as plaintiff's claim was lodged with the regional office of the
Department of Labor, which is not a court, the same could not be considered a judicial
demand that would suspend the running of the prescriptive period.
We do not agree with defendant. It is true that the claim filed by plaintiff with the regional
office of the Department of Labor is not a judicial demand in the same sense of the term
"judicial demand" because the same was not instituted in a court of justice. Judicial notice,
however, should be taken that on December 10, 1956, Reorganization Plan No. 20-A was
promulgated pursuant to Republic Act 997, and under Section 25 of said reorganization
plan each regional office of the Department of Labor was vested with original and
exclusive jurisdiction over all cases affecting all money claims arising from violations of
labor standards on working conditions such as unpaid wages, underpayment, overtime
and separation pay, etc., to the exclusion of courts.3Consequently, when plaintiff wanted
to enforce his claim after his dismissal from the service in October, 1959, he had no
choice but to file the same with Regional Office No. 4 of the Department of Labor which
was the agency then empowered to take cognizance of the claim. He could not institute
the action to recover his claim in the court of justice because of the provisions of
Reorganization Plan No. 20-A. At least it may be said that on July 26, 1960, when plaintiff
filed his claim with Regional Office. No. 4 of the Department of Labor, he acted in
accordance with the procedure that was then prescribed under authority of law. Under the
circumstances, We believe that the filing by plaintiff of his claim before the regional office
of the Department of Labor had the attributes of a judicial demand. And We say this
because under the provisions of Section 25 of Reorganization Plan No. 20-A each regional
office of the Department of Labor was invested with jurisdiction, similar to that of a court,
to receive, determine, and adjudicate claims arising out of employer-employee relations
as specified in said section. We quote Section 25 of Reorganization Plan No. 20-A:

Each Regional Office shall have original and exclusive jurisdiction over all cases
affecting all money claims arising from violations of labor standards on working
conditions, including but not restrictive to: unpaid wages, underpayment,
overtime, separation pay, and maternity leave of employees/laborers and unpaid
wages, overtime, separation pay, vacation pay, and payment for medical
services of domestic held. (Emphasis supplied)
It can be gathered from a reading of the above-quoted Section 25 of Reorganization Plan
No. 20-A that some sort of judicial powers was conferred upon the regional offices of the
Department of Labor over money claims mentioned in said section. Certainly, it can be
considered that filing a money claim before a regional office of the Department of Labor
pursuant to Section 25 of Reorganization Plan No. 20-A is like filing a complaint in court to
enforce said money claim. We believe that the filing of a claim before an administrative
agency which is vested with authority to decide said claim would produce the effect of a
judicial demand for the purpose of interrupting the running of the period of prescription.
The purpose of the law on prescription and the statute of limitations is to protect the
person who is diligent and vigilant in asserting his right, and conversely to punish the
person who sleeps on his right.4 Indeed, it cannot be said that in the case before Us the
plaintiff had slept on his right, because shortly after he was separated from the service by
the defendant he filed his claim before the agency of the government that was at the time
clothed with exclusive authority to pass upon his claim.
We have taken note of the fact that on June 30, 1961, Section 25 of Reorganization Plan
No. 20-A had been declared unconstitutional by this Court in the case of Corominas, et al.
v. The Labor Standards Commission, et al., supra. It appears, however, that the plaintiff
had filed his claim before Regional Office No. 4 of the Department of Labor on July 26,
1960, or about one year before said Section 25 had been declared unconstitutional. The
circumstance that Section 25 of Reorganization Plan No. 20-A had been declared
unconstitutional should not be counted against the defendant in the present case. In the
case of Manila Motor Co., Inc. v. Flores, 99 Phil., 738, this Court upheld the right of a party
under the Moratorium Law which had accrued in his favor before said law was declared
unconstitutional by this Court in the case of Rutter v. Esteban, 93 Phil., 68. This Court, in
its decision in the Manila Motor case, quoted the following doctrine:
[t]here are several instances wherein courts, out of equity, have relaxed its
operation (cf. note in Cooley's Constitutional Limitations 8th ed., p. 383 and
Notes 53 A.L.R., 273) or qualified its effects "since the actual existence of a
statute prior to such declaration is an operative fact, and may have
consequences which cannot justly be ignored" (Chicot County vs. Baster, 308
U.S., 371) and a realistic approach is eroding the general doctrine (Warring vs.
Colpoys 136 Am. Law Rep., 1025, 1030).
We believe that it is only fair and just that the foregoing doctrine should be applied in
favor of the plaintiff in the present case.
We have noted in the record that it was precisely because Section 25 of Reorganization
Plan No. 20-A was declared unconstitutional by this Court on June 30, 1961 that the

plaintiff, without awaiting the action of Regional Office No. 4 of the Department of Labor
on the claim that he filed on July 26, 1960, instituted his action in the present case in the
court below on December 17, 1962. The move of plaintiff was precisely intended to
protect his right of action from the adverse effect of the decision of this Court. The
Regional Office No. 4 of the Department of Labor dismissed plaintiff's claim on January 16,
1963 upon the ground that it had no more jurisdiction to pass upon the claim as a result of
the ruling of this Court in the Corominas case.
Considering that from October, 1959 when plaintiff was separated from the service up to
July 26, 1960 when he filed his claim with Regional Office No. 4 of the Department of
Labor only eight months had elapsed, and that since July 26, 1960 until the filing of the
complaint in the court below on December 17, 1962 the running of prescriptive period
was deemed interrupted, it is clear that plaintiff's action to enforce his claim was not yet
barred by the statute of limitations when he filed his complaint in the court below.
Plaintiff's action may be considered as brought before the court still within the period of
three years from the time his right of action accrued in accordance with the provisions of
Section 17 of Republic Act 602 (Minimum Wage Law). Only about nine months of the
three-year period provided in Section 17 of Republic Act 602 may be considered as having
lapsed when plaintiff commenced his action in the court below. And considering further
that the amount sought to be recovered in the complaint is more than P10,000.00, it
follows that the court a quo has the exclusive and original jurisdiction to entertain the
action of the plaintiff. The lower court, therefore, erred when it dismissed plaintiff's
complaint.
WHEREFORE, the order appealed from is set aside, and this case is remanded to the court
below for further proceedings, with costs against the defendant-appellee. It is so ordered.

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.
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 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 ade facto corporation, dissolution thereof may only be ordered
in a quo warranto proceeding instituted in accordance with section 19 of the Corporation
Law.

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.

(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of
incorporation but only a partnership.

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.

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.

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.

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:

G.R. No. 22106

. . . 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.

Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction
heretofore issued will be dissolved.
September 11, 1924

ASIA BANKING CORPORATION, plaintiff-appellee,

vs.
STANDARD PRODUCTS, CO., INC., defendant-appellant.
Charles C. De Selms for appellant.
Gibbs & McDonough and Roman Ozaeta for appellee.
OSTRAND, J.:
This action is brought to recover the sum of P24,736.47, the balance due on the following
promissory note:

P37,757.22

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.
MANILA, P. I.,

Nov. 28, 1921.

MANILA, P. I., Nov. 28, 1921.

On demand, after date we promise to pay to the Asia Banking Corporation, or
order, the sum of thirty-seven thousand seven hundred fifty-seven and 22/100
pesos at their office in Manila, for value received, together with interest at the
rate of ten per cent per annum.
No. ________ Due __________

THE STANDARD PRODUCTS CO., INC.

By
(Sgd.) GEORGE H. SEAVER

By

President

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

The judgment appealed from is affirmed, with the costs against the appellant. So ordered.

G.R. No. L-11442

May 23, 1958

MANUELA T. VDA. DE SALVATIERRA, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First
Instance of Leyte, Branch II, and SEGUNDINO REFUERZO, respondents.
Jimenez, Tantuico, Jr. and Tolete for petitioner.
Francisco Astilla for respondent Segundino Refuerzo.
FELIX, J.:
This is a petition for certiorari filed by Manuela T. Vda. de Salvatierra seeking to nullify the
order of the Court of First Instance of Leyte in Civil Case No. 1912, dated March 21, 1956,
relieving Segundino Refuerzo of liability for the contract entered into between the former
and the Philippine Fibers Producers Co., Inc., of which Refuerzo is the president. The facts
of the case are as follows:
Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at
Maghobas, Poblacion, Burauen, Teyte. On March 7, 1954, 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, that the lifetime of the 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.
Apparently, the aforementioned 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 (Civil Case No.
1912). 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. On June 8, 1955, the lower Court rendered judgment granting plaintiff's prayer,
and required defendants to render a complete accounting of the harvest of the land
subject of the proceeding within 15 days from receipt of the decision and to deliver 30 per
cent of the net income realized from the last harvest to plaintiff, with legal interest from
the date defendants received payment for said crop. It was further provide that upon
defendants' failure to abide by the said requirement, the gross income would be fixed at
P4,200 or a net income of P3,200 after deducting the expenses for production, 30 per cent
of which or P960 was held to be due the plaintiff pursuant to the aforementioned contract
of lease, which was declared rescinded.
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. On January 31, 1956, defendant Segundino Refuerzo filed a motion claiming
that the decision rendered in said Civil Case No. 1912 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. Over
plaintiff's opposition, 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. As plaintiff's petition for relief from
said order was denied, Manuela T. Vda. de Salvatierra instituted the instant action
asserting that the trial Judge in issuing the order complained of, acted with grave abuse of
discretion and prayed that same be declared a nullity.
From the foregoing narration of facts, it is clear that the order sought to be nullified was
issued by tile respondent Judge upon motion of defendant Refuerzo, obviously pursuant to
Rule 38 of the Rules of Court. Section 3 of said Rule, however, in providing for the period
within which such a motion may be filed, prescribes that:
SEC. 3. WHEN PETITION FILED; CONTENTS AND VERIFICATION. A petition
provided for in either of the preceding sections of this rule must be verified,
filed within sixty days after the petitioner learns of the judgment, order, or other
proceeding to be set aside, and not more than six months after such judgment or
order was entered, or such proceeding was taken; and must be must be
accompanied with affidavit showing the fraud, accident, mistake, or excusable
negligence relied upon, and the facts constituting the petitioner is good and
substantial cause of action or defense, as the case may be, which he may prove
if his petition be granted". (Rule 38)
The aforequoted provision treats of 2 periods, i.e., 60 days after petitioner learns of the
judgment, and not more than 6 months after the judgment or order was rendered, both of
which must be satisfied. As the decision in the case at bar was under date of June 8, 1955,
whereas the motion filed by respondent Refuerzo was dated January 31, 1956, or after the
lapse of 7 months and 23 days, the filing of the aforementioned motion was clearly made
beyond the prescriptive period provided for by the rules. 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 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
(Palomares vs. Jimenez,* G.R. No. L-4513, January 31, 1952). On this score alone,
therefore, the petition for a writ of certiorari filed herein may be granted. However, taking
note of the question presented by the motion for relief involved herein, We deem it wise
to delve in and pass upon the merit of the same.
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, (Asia Banking Corporation vs. Standard Products Co., 46
Phil., 114; Compania Agricola de Ultramar vs. Reyes, 4 Phil., 1; Ohta Development Co.; vs.
Steamship Pompey, 49 Phil., 117), 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 (Walter A. Smith Co. vs. Ford, SC-G.R. No. 42420) 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 (Fay vs. Noble, 7 Cushing [Mass.] 188.
Cited in II Tolentino's Commercial Laws of the Philippines, Fifth Ed., P. 689-690).
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.

No less than three times have the parties here appealed to this Court.
In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff
entitled to damages (for breach of contract) but reduced the amount from P23,000.00 to
P15,000.00.
Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that
the judgment for P15,000.00 which had become final and executory, should be executed
to its full amount, since in fixing it, payment already made had been considered.
Now we are asked whether the judgment may be executed against Jose M. Aruego,
supposed President of University Publishing Co., Inc., as the real defendant.
Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing
Co., Inc. Plaintiff allegedinter 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.
The Court of First Instance of Manila, after trial, rendered decision on April 26, 1954,
stating in the dispositive portion
G.R. No. L-19118

January 30, 1965

MARIANO A. ALBERT, plaintiff-appellant,

vs.
UNIVERSITY PUBLISHING CO., INC., defendant-appellee.
Uy & Artiaga and Antonio M. Molina for plaintiff-appellant.
Aruego, Mamaril & Associates for defendant-appellees.
BENGZON, J.P., J.:

IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the
plaintiff and against the defendant the University Publishing Co., Inc., ordering
the defendant to pay the administrator Justo R. Albert, the sum of P23,000.00
with legal [rate] of interest from the date of the filing of this complaint until the
whole amount shall have been fully paid. The defendant shall also pay the costs.
The counterclaim of the defendant is hereby dismissed for lack of evidence.
As aforesaid, we reduced the amount of damages to P15,000.00, to be executed in full.
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 (Hall vs. Piccio, 86
Phil. 603). 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
(Salvatiera vs. Garlitos, 56 O.G. 3069).
"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.
Even with regard to corporations duly organized and existing under the law, we have in
many a case pierced the veil of corporate fiction to administer the ends of justice. * And
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.
In this connection, 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" (67 C.J.S. 887) 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.
By "due process of law" we mean " "a law which hears before it condemns; which
proceeds upon inquiry, and renders judgment only after trial. ... ." (4 Wheaton, U.S. 518,
581.)"; or, as this Court has said, " "Due process of law" contemplates notice and
opportunity to be heard before judgment is rendered, affecting one's person or property"
(Lopez vs. Director of Lands, 47 Phil. 23, 32)." (Sicat vs. Reyes, L-11023, Dec. 14, 1956.)
And it may not be amiss to mention here also that the "due process" clause of the
Constitution is designed to secure justice as a living reality; not to sacrifice it by paying
undue homage to formality. For substance must prevail over form. It may now be trite, but
none the less apt, to quote what long ago we said in Alonso vs. Villamor, 16 Phil. 315,
321-322:
A litigation is not a game of technicalities in which one, more deeply schooled
and skilled in the subtle art of movement and position, entraps and destroys the
other. It is, rather, a contest in which each contending party fully and fairly lays
before the court the facts in issue and then, brushing side as wholly trivial and
indecisive all imperfections of form and technicalities of procedure, asks that
Justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a
rapier's thrust. Technicality, when it deserts its proper office as an aid to justice
and becomes its great hindrance and chief enemy, deserves scant consideration
from courts. There should be no vested rights in technicalities.
The evidence is patently clear that Jose M. Aruego, acting as representative of a nonexistent 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.
We need hardly state that should there be persons who under the law are liable to Aruego
for reimbursement or contribution with respect to the payment he makes under the
judgment in question, he may, of course, proceed against them through proper remedial
measures.
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.

LIM

TONG LIM, petitioner,

INC., respondent.

vs. PHILIPPINE

FISHING

GEAR

INDUSTRIES,

DECISION
PANGANIBAN, J.:
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.
The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26,
1998 Decision of the Court of Appeals in CA-GR CV 41477, [1] which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is
hereby affirmed.[2]

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was
affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on
September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to the
modifications as hereinafter made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by
the Agreement plus P68,000.00 representing the unpaid price of the floats not covered by
said Agreement;
b. 12% interest per annum counted from date of plaintiffs invoices and computed on their
respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9,
1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February
13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19,
1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per
appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets
counted from September 20, 1990 (date of attachment) to September 12, 1991 (date of
auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the
unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00,
respectively, or for the total amount ofP600,045.00, this Court noted that these items
were attached to guarantee any judgment that may be rendered in favor of the plaintiff
but, upon agreement of the parties, and, to avoid further deterioration of the nets during
the pendency of this case, it was ordered sold at public auction for not less
than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of
the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00

replaced the attached property as a guaranty for any judgment that plaintiff may be able
to secure in this case with the ownership and possession of the nets and floats awarded
and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It
has also been noted that ownership of the nets [was] retained by the plaintiff until full
payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached
its own properties. It [was] for this reason also that this Court earlier ordered the
attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and
for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of
defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be
entitled to in this case will have to be satisfied from the amount of P900,000.00 as this
amount replaced the attached nets and floats. Considering, however, that the total
judgment obligation as computed above would amount to only P840,216.92, it would be
inequitable, unfair and unjust to award the excess to the defendants who are not entitled
to damages and who did not put up a single centavo to raise the amount of P900,000.00
aside from the fact that they are not the owners of the nets and floats. For this reason, the
defendants are hereby relieved from any and all liabilities arising from the monetary
judgment obligation enumerated above and for plaintiff to retain possession and
ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited
by it with the Clerk of Court.
SO ORDERED. [3]
The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered
into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes
from the Philippine Fishing Gear Industries, Inc. (herein respondent). 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 floats worth P68,000 were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; 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 Securities and
Exchange Commission.[5] On September 20, 1990, the lower court issued a Writ of
Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro 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.[6] 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 and deposited with the said court the sales
proceeds of P900,000.[7]

x. Obviously, the ultimate undertaking of the defendants was to divide the profits among
themselves which is what a partnership essentially is x x x. By a contract of partnership,
two or more persons bind themselves to contribute money, property or industry to a
common fund with the intention of dividing the profits among themselves (Article 1767,
New Civil Code).[13]
Hence, petitioner brought this recourse before this Court.[14]

On November 18, 1992, 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.[8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1)
on the testimonies of the witnesses presented and (2) on a Compromise Agreement
executed by the three[9] in Civil Case No. 1492-MN which Chua and Yao had brought
against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial
documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats;
(d) an injunction and (e) damages.[10] The Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the
amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as
full payment forP3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price
than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim;
1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the
deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao.[11]

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision
on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT
THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A
PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST
FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE
COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats
purchased from respondent, the Court must resolve this key issue: whether by their acts,
Lim, Chua and Yao could be deemed to have entered into a partnership.
This Courts Ruling

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.[12]

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the
RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao
in a fishing business and may thus be held liable as a such for the fishing nets and floats
purchased by and for the use of the partnership. The appellate court ruled:
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 x x

In arguing that he should not be held liable for the equipment purchased from
respondent, petitioner controverts the CA finding that a partnership existed between him,
Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise
Agreement alone. Furthermore, he disclaims any direct participation in the purchase of
the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he
has not even met the representatives of the respondent company. Petitioner further
argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease"
dated February 1, 1990, showed that he had merely leased to the two the main asset of
the purported partnership -- the fishing boat F/B Lourdes. The lease was for six months,
with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.

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,
pursuant to Article 1767 of the Civil Code which provides:
Article 1767 - By the contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing
the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed
based on the following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial
fishing to join him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two
fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to
finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of
Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security
for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the
partnership in the amount of P1 million secured by a check, because of which, Yao and
Chua entrusted the ownership papers of two other boats, Chuas FB Lady Anne Mel and
Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets
from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation,"
their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by
Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of contracts; (c) declaration of ownership of
fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.

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 floats. The fishing nets and the floats, 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.
We stress that under Rule 45, a petition for review like the present case should
involve only questions of law. Thus, the foregoing factual findings of the RTC and the CA
are binding on this Court, absent any cogent proof that the present action is embraced by
one of the exceptions to the rule. [16] In assailing the factual findings of the two lower
courts, petitioner effectively goes beyond the bounds of a petition for review under Rule
45.
Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a
partnership was the Compromise Agreement. He also claims that the settlement was
entered into only to end the dispute among them, but not to adjudicate their preexisting
rights and obligations. His arguments are baseless. The Agreement was but an
embodiment of the relationship extant among the parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and
thoroughly appraise all relevant facts. Both lower courts have done so and have found,
correctly, a preexisting partnership among the parties. In implying that the lower courts
have decided on the basis of one piece of document alone, petitioner fails to appreciate
that the CA and the RTC delved into the history of the document and explored all the
possible consequential combinations in harmony with law, logic and fairness. Verily, the
two lower courts factual findings mentioned above nullified petitioners argument that the
existence of a partnership was based only on the Compromise Agreement.

Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of the
boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly finds
support in the Contract of Lease and the registration papers showing that he was the
owner of the boats, including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he
consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess of
the proceeds to be divided amongthe three of them. No lessor would do what petitioner
did. Indeed, his consent to the sale proved that there was a preexisting partnership
among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement
with Chua and Yao, in which debts were undertaken in order to finance the acquisition and
the upgrading of the vessels which would be used in their fishing business. The sale of the
boats, as well as the division among the three of the balance remaining after the payment
of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was
not his own property but an asset of the partnership. It is not uncommon to register the
properties acquired from a loan in the name of the person the lender trusts, who in this
case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his
property to pay a debt he did not incur, if the relationship among the three of them was
merely that of lessor-lessee, instead of partners.
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.
Section 21 of the Corporation Code of the Philippines provides:
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.

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.[17]
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.

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.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to
form a corporation. Although it was never legally formed for unknown reasons, this fact
alone does not preclude the liabilities of the three as contracting parties in representation
of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable as general
partners.

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

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. We
reiterate the ruling of the Court in Alonso v. Villamor:[19]
A litigation is not a game of technicalities in which one, more deeply schooled and skilled
in the subtle art of movement and position , entraps and destroys the other. It is, rather, a
contest in which each contending party fully and fairly lays before the court the facts in
issue and then, brushing aside as wholly trivial and indecisive all imperfections of form
and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike
duels, are not to be won by a rapiers thrust. Technicality, when it deserts its proper office
as an aid to justice and becomes its great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested rights in technicalities.
Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against
the nets. We agree with the Court of Appeals that this issue is now moot and academic. As
previously discussed, F/B Lourdes was an asset of the partnership and that it was placed
in the name of petitioner, only to assure payment of the debt he and his partners
owed. The nets and the floats were specifically manufactured and tailor-made according
to their own design, and were bought and used in the fishing venture they agreed
upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the
invoices is proper. Besides, by specific agreement, ownership of the nets remained with
Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.

SO ORDERED.