Sulo ng Bayan v Araneta

Facts: On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of
First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants-appellees to recover the
ownership and possession of a large tract of land in San Jose del Monte, Bulacan.
The complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a corporation organized and
existing under the laws of the Philippines, with its principal office and place of business at San Jose del Monte,
Bulacan; that its membership is composed of natural persons residing at San Jose del Monte, Bulacan; that the
members of the plaintiff corporation, through themselves and their predecessors-in-interest, had pioneered in the
clearing of the fore-mentioned tract of land, cultivated the same since the Spanish regime and continuously
possessed the said property openly and public under concept of ownership adverse against the whole world; that
defendant-appellee
Gregorio Araneta, Inc., sometime in the year 1958, through force and intimidation, ejected the members of the
plaintiff corporation fro their possession of the aforementioned vast tract of land; that upon investigation conducted
by the members and officers of plaintiff corporation, they found out for the first time in the year 1961 that the land
in question "had been either fraudelently or erroneously included, by direct or constructive fraud, in Original
Certificate of Title No. 466 of the Land of Records of the province of Bulacan", issued on May 11, 1916, which title
is fictitious, non-existent and devoid of legal efficacy due to the fact that "no original survey nor plan whatsoever"
appears to have been submitted as a basis thereof and that the Court of First Instance of Bulacan which issued the
decree of registration did not acquire jurisdiction over the land registration case because no notice of such
proceeding was given to the members of the plaintiff corporation who were then in actual possession of said
properties; that as a consequence of the nullity of the original title, all subsequent titles derived therefrom, such as
Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and Carmen Zaragoza, which was
subsequently cancelled by Transfer Certificate of Title No. 7573 in the name of Gregorio Araneta, Inc., Transfer
Certificate of Title No. 4988 issued in the name of, the National Waterworks & Sewerage Authority (NWSA),
Transfer Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc., and another transfer certificate
of title in the name of Paradise Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that
Original Certificate of Title No. 466, as well as all transfer certificates of title issued and derived therefrom, be
nullified; (2) that "plaintiff's members" be declared as absolute owners in common of said property and that the
corresponding certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio Araneta, Inc. be
ordered to pay to plaintiff the damages therein specified.
Held: It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal
entity to be considered as separate and apart from the individual stockholders or members who compose it, and is
not affected by the personal rights, obligations and transactions of its stockholders or members. 4 The property of the
corporation is its property and not that of the stockholders, as owners, although they have equities in it. Properties
registered in the name of the corporation are owned by it as an entity separate and distinct from its members. 5
Conversely, a corporation ordinarily has no interest in the individual property of its stockholders unless transferred
to the corporation, "even in the case of a one-man corporation. 6 The mere fact that one is president of a corporation
does not render the property which he owns or possesses the property of the corporation, since the president, as
individual, and the corporation are separate similarities. 7 Similarly, stockholders in a corporation engaged in buying
and dealing in real estate whose certificates of stock entitled the holder thereof to an allotment in the distribution of
the land of the corporation upon surrender of their stock certificates were considered not to have such legal or
equitable title or interest in the land, as would support a suit for title, especially against parties other than the
corporation. 8
It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons
composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of justice. 9
This separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases
where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve
equity. 10
It has not been claimed that the members have assigned or transferred whatever rights they may have on the land in
question to the plaintiff corporation. Absent any showing of interest, therefore, a corporation, like plaintiff-appellant

herein, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of
recovering property which belongs to said stockholders or members in their personal capacities.
Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, ... the law will regard the corporation as an association of persons, or in the case of two corporations, merge
them into one, the one being merely regarded as part or instrumentality of the other. 11 The same is true where a
corporation is a dummy and serves no business purpose and is intended only as a blind, or an alter ego or business
conduit for the sole benefit of the stockholders. 12 This doctrine of disregarding the distinct personality of the
corporation has been applied by the courts in those cases when the corporate entity is used for the evasion of taxes 13
or when the veil of corporate fiction is used to confuse legitimate issue of employer-employee relationship, 14 or
when necessary for the protection of creditors, in which case the veil of corporate fiction may be pierced and the
funds of the corporation may be garnished to satisfy the debts of a principal stockholder. 15 The aforecited principle
is resorted to by the courts as a measure protection for third parties to prevent fraud, illegality or injustice. 16
International Express Travel v CA
Facts: On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing
director, wrote a letter to the Philippine Football Federation (Federation), through its president private respondent
Henri Kahn, wherein the former offered its services as a travel agency to the latter. The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East
Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane. The
total cost of the tickets amounted to P449,654.83. For the tickets received, the Federation made two partial
payments, both in September of 1989, in the total amount of P176,467.50.
On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for
the amount of P265,894.33. On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount
of P31,603.00.
On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the
outstanding balance of the Federation. Thereafter, no further payments were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in
his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant.
Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the
ground that Henri Kahn allegedly guaranteed the said obligation.
Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the
amount P207,524.20, representing the unpaid balance for the plane tickets, he averred that the petitioner has no
cause of action against him either in his personal capacity or in his official capacity as president of the Federation.
He maintained that he did not guarantee payment but merely acted as an agent of the Federation which has a
separate and distinct juridical personality.
On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial court.
In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn
personally liable for the unpaid obligation of the Federation.
Issue:

Whether the Philippine Football Federation has a corporate existence of its own.
Whether Kahn should be made personally liable for the unpaid obligations of the Philippine Football
Federation.
Whether the appellate court properly applied the doctrine of corporation by estoppel.

Held: As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical
existence of national sports associations. This may be gleaned from the powers and functions granted to these
associations.

The powers and functions granted to national sports associations clearly indicate that these entities may acquire a
juridical personality. The power to purchase, sell, lease and encumber property are acts which may only be done by
persons, whether natural or artificial, with juridical capacity. However, while we agree with the appellate court that
national sports associations may be accorded corporate status, such does not automatically take place by the mere
passage of these laws.
It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent
either in the form of a special law or a general enabling act. We cannot agree with the view of the appellate court and
the private respondent that the Philippine Football Federation came into existence upon the passage of these laws.
Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These
laws merely recognized the existence of national sports associations and provided the manner by which these
entities may acquire juridical personality.
Section 11 of RA 3135 and Section 7 of PD 604 require that before an entity may be considered as a national sports
association, such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic
Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This fact of
recognition, however, Henri Kahn failed to substantiate.In attempting to prove the juridical existence of the
Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the constitution
and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said Federation has
indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of
Youth and Sports Development. Accordingly, we rule that the Philippine Football Federation is not a national sports
association within the purview of the aforementioned laws and does not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of
the unincorporated Philippine Football Federation. It is a settled principal in corporation law that any person acting
or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes
personally liable for contract entered into or for other acts performed as such agent. [14] As president of the
Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the
Federation. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation
was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had
contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. The
doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application
of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has
benefited on the irrelevant ground of defective incorporation. In the case at bar, the petitioner is not trying to escape
liability from the contract but rather is the one claiming from the contract.