EN BANC

G.R. No. 73002 December 29, 1986

THE DIRECTOR OF LANDS, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and ACME PLYWOOD & VENEER CO. INC.,
ETC., respondents.

D. Nacion Law Office for private respondent.

NARVASA, J.:

The Director of Lands has brought this appeal by certiorari from a judgment of the Intermediate
Appellate Court affirming a decision of the Court of First Instance of Isabela, which ordered
registration in favor of Acme Plywood & Veneer Co., Inc. of five parcels of land measuring 481,
390 square meters, more or less, acquired by it from Mariano and Acer Infiel, members of the
Dumagat tribe.

The registration proceedings were for confirmation of title under Section 48 of Commonwealth
Act No. 141 (The Public Land Act). as amended: and the appealed judgment sums up the
findings of the trial court in said proceedings in this wise:

1. That Acme Plywood & Veneer Co. Inc., represented by Mr. Rodolfo Nazario is a
corporation duly organized in accordance with the laws of the Republic of the Philippines
and registered with the Securities and Exchange Commission on December 23, 1959;

2. That Acme Plywood & Veneer Co. Inc., represented by Mr. Rodolfo Nazario can
acquire real properties pursuant to the provisions of the Articles of Incorporation
particularly on the provision of its secondary purposes (paragraph (9), Exhibit 'M-l');

3. That the land subject of the Land Registration proceeding was ancestrally acquired by
Acme Plywood & Veneer Co., Inc., on October 29, 1962, from Mariano Infiel and Acer
Infiel, both members of the Dumagat tribe and as such are cultural minorities;

4. That the constitution of the Republic of the Philippines of 1935 is applicable as the sale
took place on October 29, 1962;

5. That the possession of the Infiels over the land relinquished or sold to Acme Plywood
& Veneer Co., Inc., dates back before the Philippines was discovered by Magellan as the
ancestors of the Infiels have possessed and occupied the land from generation to
generation until the same came into the possession of Mariano Infiel and Acer Infiel;
 6. That the possession of the applicant Acme Plywood & Veneer Co., Inc., is continuous,
adverse and public from 1962 to the present and tacking the possession of the Infiels who
were granted from whom the applicant bought said land on October 29, 1962, hence the
possession is already considered from time immemorial.

7. That the land sought to be registered is a private land pursuant to the provisions of
Republic Act No. 3872 granting absolute ownership to members of the non-Christian
Tribes on land occupied by them or their ancestral lands, whether with the alienable or
disposable public land or within the public domain;

8. That applicant Acme Plywood & Veneer Co. Inc., has introduced more than Forty-Five
Million (P45,000,000.00) Pesos worth of improvements, said improvements were seen by
the Court during its ocular investigation of the land sought to be registered on September
18, 1982;

9. That the ownership and possession of the land sought to be registered by the applicant
was duly recognized by the government when the Municipal Officials of Maconacon,
Isabela, have negotiated for the donation of the townsite from Acme Plywood & Veneer
Co., Inc., and this negotiation came to reality when the Board of Directors of the Acme
Plywood & Veneer Co., Inc., had donated a part of the land bought by the Company from
the Infiels for the townsite of Maconacon Isabela (Exh. 'N') on November 15, 1979, and
which donation was accepted by the Municipal Government of Maconacon, Isabela (Exh.
'N-l'), during their special session on November 22, 1979.

The Director of Lands takes no issue with any of these findings except as to the applicability of
the 1935 Constitution to the matter at hand. Concerning this, he asserts that, the registration
proceedings have been commenced only on July 17, 1981, or long after the 1973 Constitution
had gone into effect, the latter is the correctly applicable law; and since section 11 of its Article
XIV prohibits private corporations or associations from holding alienable lands of the public
domain, except by lease not to exceed 1,000 hectares (a prohibition not found in the 1935
Constitution which was in force in 1962 when Acme purchased the lands in question from the
Infiels), it was reversible error to decree registration in favor of Acme Section 48, paragraphs (b)
and (c), of Commonwealth Act No. 141, as amended, reads:

SEC. 48. The following described citizens of the Philippines, occupying lands of the
public domain or claiming to own any such lands or an interest therein, but whose titles
have not been perfected or completed, may apply to the Court of First Instance of the
province where the land is located for confirmation of their claims, and the issuance of a
certificate of title therefor, under the Land Registration Act, to wit:

xxx xxx xxx

(b) Those who by themselves or through their predecessors-in-interest have been in open,
continuous, exclusive and notorious possession and occupation of agricultural lands of
the public domain, under a bona fide claim of acquisition or ownership, for at least thirty
years immediately preceding the filing of the application for confirmation of title except
 when prevented by war or force majeure. These shall be conclusively presumed to have
performed all the conditions essential to a Government grant and shall be entitled to a
certificate of title under the provisions of this chapter.

(c) Members of the National Cultural minorities who by themselves or through their
predecessors-in-interest have been in open. continuous, exclusive and notorious
possession and occupation of lands of the public domain suitable to agriculture, whether
disposable or not, under a bona fide claim of ownership for at least 30 years shall be
entitled to the rights granted in subsection (b) hereof.

The Petition for Review does not dispute-indeed, in view of the quoted findings of the trial court
which were cited and affirmed by the Intermediate Appellate Court, it can no longer controvert
before this Court-the fact that Mariano and Acer Infiel, from whom Acme purchased the lands in
question on October 29, 1962, are members of the national cultural minorities who had, by
themselves and through their progenitors, possessed and occupied those lands since time
immemorial, or for more than the required 30-year period and were, by reason thereof, entitled to
exercise the right granted in Section 48 of the Public Land Act to have their title judicially
confirmed. Nor is there any pretension that Acme, as the successor-in-interest of the Infiels, is
disqualified to acquire and register ownership of said lands under any provisions of the 1973
Constitution other than Section 11 of its Article XIV already referred to.

Given the foregoing, the question before this Court is whether or not the title that the Infiels had
transferred to Acme in 1962 could be confirmed in favor of the latter in proceedings instituted by
it in 1981 when the 1973 Constitution was already in effect, having in mind the prohibition
therein against private corporations holding lands of the public domain except in lease not
exceeding 1,000 hectares.

The question turns upon a determination of the character of the lands at the time of institution of
the registration proceedings in 1981. If they were then still part of the public domain, it must be
answered in the negative. If, on the other hand, they were then already private lands, the
constitutional prohibition against their acquisition by private corporations or associations
obviously does not apply.

In this regard, attention has been invited to Manila Electric Company vs. Castro-Bartolome, et
al, 1 where a similar set of facts prevailed. In that case, Manila Electric Company, a domestic
corporation more than 60% of the capital stock of which is Filipino-owned, had purchased in
1947 two lots in Tanay, Rizal from the Piguing spouses. The lots had been possessed by the
vendors and, before them, by their predecessor-in-interest, Olimpia Ramos, since prior to the
outbreak of the Pacific War in 1941. On December 1, 1976, Meralco applied to the Court of First
Instance of Rizal, Makati Branch, for confirmation of title to said lots. The court, assuming that
the lots were public land, dismissed the application on the ground that Meralco, a juridical
person, was not qualified to apply for registration under Section 48(b) of the Public Land Act
which allows only Filipino citizens or natural persons to apply for judicial confirmation of
imperfect titles to public land. Meralco appealed, and a majority of this Court upheld the
dismissal. It was held that:
 ..., the said land is still public land. It would cease to be public land only upon the
issuance of the certificate of title to any Filipino citizen claiming it under section 48(b).
Because it is still public land and the Meralco, as a juridical person, is disqualified to
apply for its registration under section 48(b), Meralco's application cannot be given due
course or has to be dismissed.

Finally, it may be observed that the constitutional prohibition makes no distinction

between (on the one hand) alienable agricultural public lands as to which no occupant has
an imperfect title and (on the other hand) alienable lands of the public domain as to which
an occupant has on imperfect title subject to judicial confirmation.

Since section 11 of Article XIV does not distinguish, we should not make any distinction
or qualification. The prohibition applies to alienable public lands as to which a Torrens
title may be secured under section 48(b). The proceeding under section 48(b)
'presupposes that the land is public' (Mindanao vs. Director of Lands, L-19535, July 30,
1967, 20 SCRA 641, 644).

The present Chief Justice entered a vigorous dissent, tracing the line of cases beginning
with Carino in 1909 2 thru Susi in 1925 3 down to Herico in 1980, 4 which developed, affirmed
and reaffirmed the doctrine that open, exclusive and undisputed possession of alienable public
land for the period prescribed by law creates the legal fiction whereby the land, upon completion
of the requisite period ipso jure and without the need of judicial or other sanction, ceases to be
public land and becomes private property. That said dissent expressed what is the better — and,
indeed, the correct, view-becomes evident from a consideration of some of the principal rulings
cited therein,

The main theme was given birth, so to speak, in Carino involving the Decree/Regulations of
June 25, 1880 for adjustment of royal lands wrongfully occupied by private individuals in the
Philippine Islands. It was ruled that:

It is true that the language of articles 4 and 5 5 attributes title to those 'who may prove'
possession for the necessary time and we do not overlook the argument that this means
may prove in registration proceedings. It may be that an English conveyancer would have
recommended an application under the foregoing decree, but certainly it was not
calculated to convey to the mind of an Igorot chief the notion that ancient family
possessions were in danger, if he had read every word of it. The words 'may prove'
(acrediten) as well or better, in view of the other provisions, might be taken to mean
when called upon to do so in any litigation. There are indications that registration was
expected from all but none sufficient to show that, for want of it, ownership actually
gained would be lost. The effect of the proof, wherever made, was not to confer title, but
simply to establish it, as already conferred by the decree, if not by earlier law. ...

That ruling assumed a more doctrinal character because expressed in more categorical language,
in Susi:
 .... In favor of Valentin Susi, there is, moreover, the presumption juris et de
jure established in paragraph (b) of section 45 of Act No. 2874, amending Act No. 926,
that all the necessary requirements for a grant by the Government were complied with,
for he has been in actual and physical possession, personally and through his
predecessors, of an agricultural land of the public domain openly, continuously,
exclusively and publicly since July 26, 1984, with a right to a certificate of title to said
land under the provisions of Chapter VIII of said Act. So that when Angela Razon
applied for the grant in her favor, Valentin Susi had already acquired, by operation of
law not only a right to a grant, but a grant of the Government, for it is not necessary that
a certificate of title should be issued in order that said grant may be sanctioned by the
courts, an application therefore is sufficient, under the provisions of section 47 of Act
No. 2874. If by a legal fiction, Valentin Susi had acquired the land in question by a grant
of the State, it had already ceased to be of the public domain and had become private
property, at least by presumption, of Valentin Susi, beyond the control of the Director of
Lands. Consequently, in selling the land in question of Angela Razon, the Director of
Lands disposed of a land over which he had no longer any title or control, and the sale
thus made was void and of no effect, and Angela Razon did not thereby acquire any
right. 6

Succeeding cases, of which only some need be mentioned, likeof Lacaste vs. Director of
Lands, 7 Mesina vs. Vda. de Sonza, 8 Manarpac vs. Cabanatuan, 9 Miguel vs. Court of
Appeals 10 and Herico vs. Dar, supra, by invoking and affirming the Susi doctrine have firmly
rooted it in jurisprudence.

Herico, in particular, appears to be squarely affirmative: 11

.... Secondly, under the provisions of Republic Act No. 1942, which the respondent Court
held to be inapplicable to the petitioner's case, with the latter's proven occupation and
cultivation for more than 30 years since 1914, by himself and by his predecessors-in-
interest, title over the land has vested on petitioner so as to segregate the land from the
mass of public land. Thereafter, it is no longer disposable under the Public Land Act as
by free patent. ....

xxx xxx xxx

As interpreted in several cases, when the conditions as specified in the foregoing

provision are complied with, the possessor is deemed to have acquired, by operation of
law, a right to a grant, a government grant, without the necessity of a certificate of title
being issued. The land, therefore, ceases to be of the public domain and beyond the
authority of the Director of Lands to dispose of. The application for confirmation is mere
formality, the lack of which does not affect the legal sufficiency of the title as would be
evidenced by the patent and the Torrens title to be issued upon the strength of said
patent. 12

Nothing can more clearly demonstrate the logical inevitability of considering possession of
public land which is of the character and duration prescribed by statute as the equivalent of an
express grant from the State than the dictum of the statute itself 13 that the possessor(s) "... shall
be conclusively presumed to have performed all the conditions essential to a Government grant
and shall be entitled to a certificate of title .... " No proof being admissible to overcome a
conclusive presumption, confirmation proceedings would, in truth be little more than a formality,
at the most limited to ascertaining whether the possession claimed is of the required character
and length of time; and registration thereunder would not confer title, but simply recognize a title
already vested. The proceedings would not originally convert the land from public to private
land, but only confirm such a conversion already affected by operation of law from the moment
the required period of possession became complete. As was so well put in Carino, "... (T)here are
indications that registration was expected from all, but none sufficient to show that, for want of
it, ownership actually gained would be lost. The effect of the proof, wherever made, was not to
confer title, but simply to establish it, as already conferred by the decree, if not by earlier law."

If it is accepted-as it must be-that the land was already private land to which the Infiels had a
legally sufficient and transferable title on October 29, 1962 when Acme acquired it from said
owners, it must also be conceded that Acme had a perfect right to make such acquisition, there
being nothing in the 1935 Constitution then in force (or, for that matter, in the 1973 Constitution
which came into effect later) prohibiting corporations from acquiring and owning private lands.

Even on the proposition that the land remained technically "public" land, despite immemorial
possession of the Infiels and their ancestors, until title in their favor was actually confirmed in
appropriate proceedings under the Public Land Act, there can be no serious question of Acmes
right to acquire the land at the time it did, there also being nothing in the 1935 Constitution that
might be construed to prohibit corporations from purchasing or acquiring interests in public land
to which the vendor had already acquired that type of so-called "incomplete" or "imperfect" title.
The only limitation then extant was that corporations could not acquire, hold or lease public
agricultural lands in excess of 1,024 hectares. The purely accidental circumstance that
confirmation proceedings were brought under the aegis of the 1973 Constitution which forbids
corporations from owning lands of the public domain cannot defeat a right already vested before
that law came into effect, or invalidate transactions then perfectly valid and proper. This Court
has already held, in analogous circumstances, that the Constitution cannot impair vested rights.

We hold that the said constitutional prohibition 14 has no retroactive application to the
sales application of Binan Development Co., Inc. because it had already acquired a vested
right to the land applied for at the time the 1973 Constitution took effect.

That vested right has to be respected. It could not be abrogated by the new Constitution.
Section 2, Article XIII of the 1935 Constitution allows private corporations to purchase
public agricultural lands not exceeding one thousand and twenty-four hectares. Petitioner'
prohibition action is barred by the doctrine of vested rights in constitutional law.

xxx xxx xxx

The due process clause prohibits the annihilation of vested rights. 'A state may not impair
vested rights by legislative enactment, by the enactment or by the subsequent repeal of a
 municipal ordinance, or by a change in the constitution of the State, except in a legitimate
exercise of the police power'(16 C.J.S. 1177-78).

xxx xxx xxx

In the instant case, it is incontestable that prior to the effectivity of the 1973 Constitution
the right of the corporation to purchase the land in question had become fixed and
established and was no longer open to doubt or controversy.

Its compliance with the requirements of the Public Land Law for the issuance of a patent
had the effect of segregating the said land from the public domain. The corporation's right
to obtain a patent for the land is protected by law. It cannot be deprived of that right
without due process (Director of Lands vs. CA, 123 Phil. 919).<äre||anº•1àw> 15

The fact, therefore, that the confirmation proceedings were instituted by Acme in its own name
must be regarded as simply another accidental circumstance, productive of a defect hardly more
than procedural and in nowise affecting the substance and merits of the right of ownership
sought to be confirmed in said proceedings, there being no doubt of Acme's entitlement to the
land. As it is unquestionable that in the light of the undisputed facts, the Infiels, under either the
1935 or the 1973 Constitution, could have had title in themselves confirmed and registered, only
a rigid subservience to the letter of the law would deny the same benefit to their lawful
successor-in-interest by valid conveyance which violates no constitutional mandate.

The Court, in the light of the foregoing, is of the view, and so holds, that the majority ruling
in Meralco must be reconsidered and no longer deemed to be binding precedent. The correct
rule, as enunciated in the line of cases already referred to, is that alienable public land held by a
possessor, personally or through his predecessors-in-interest, openly, continuously and
exclusively for the prescribed statutory period (30 years under The Public Land Act, as
amended) is converted to private property by the mere lapse or completion of said period, ipso
jure. Following that rule and on the basis of the undisputed facts, the land subject of this appeal
was already private property at the time it was acquired from the Infiels by Acme. Acme thereby
acquired a registrable title, there being at the time no prohibition against said corporation's
holding or owning private land. The objection that, as a juridical person, Acme is not qualified to
apply for judicial confirmation of title under section 48(b) of the Public Land Act is technical,
rather than substantial and, again, finds its answer in the dissent in Meralco:

6. To uphold respondent judge's denial of Meralco's application on the technicality that

the Public Land Act allows only citizens of the Philippines who are natural persons to
apply for confirmation of their title would be impractical and would just give rise to
multiplicity of court actions. Assuming that there was a technical error not having filed
the application for registration in the name of the Piguing spouses as the original owners
and vendors, still it is conceded that there is no prohibition against their sale of the land to
the applicant Meralco and neither is there any prohibition against the application being
refiled with retroactive effect in the name of the original owners and vendors (as such
natural persons) with the end result of their application being granted, because of their
indisputable acquisition of ownership by operation of law and the conclusive
 presumption therein provided in their favor. It should not be necessary to go through all
the rituals at the great cost of refiling of all such applications in their names and adding to
the overcrowded court dockets when the Court can after all these years dispose of it here
and now. (See Francisco vs. City of Davao)

The ends of justice would best be served, therefore, by considering the applications for
confirmation as amended to conform to the evidence, i.e. as filed in the names of the
original persons who as natural persons are duly qualified to apply for formal
confirmation of the title that they had acquired by conclusive presumption and mandate
of the Public Land Act and who thereafter duly sold to the herein corporations (both
admittedly Filipino corporations duly qualified to hold and own private lands) and
granting the applications for confirmation of title to the private lands so acquired and sold
or exchanged.

There is also nothing to prevent Acme from reconveying the lands to the Infiels and the latter
from themselves applying for confirmation of title and, after issuance of the certificate/s of title
in their names, deeding the lands back to Acme. But this would be merely indulging in empty
charades, whereas the same result is more efficaciously and speedily obtained, with no prejudice
to anyone, by a liberal application of the rule on amendment to conform to the evidence
suggested in the dissent in Meralco.

While this opinion seemingly reverses an earlier ruling of comparatively recent vintage, in a real
sense, it breaks no precedent, but only reaffirms and re-established, as it were, doctrines the
soundness of which has passed the test of searching examination and inquiry in many past cases.
Indeed, it is worth noting that the majority opinion, as well as the concurring opinions of Chief
Justice Fernando and Justice Abad Santos, in Meralco rested chiefly on the proposition that the
petitioner therein, a juridical person, was disqualified from applying for confirmation of an
imperfect title to public land under Section 48(b) of the Public Land Act. Reference to the 1973
Constitution and its Article XIV, Section 11, was only tangential limited to a brief paragraph in
the main opinion, and may, in that context, be considered as essentially obiter. Meralco, in short,
decided no constitutional question.

WHEREFORE, there being no reversible error in the appealed judgment of the Intermediate
Appellate Court, the same is hereby affirmed, without costs in this instance.

SO ORDERED.
 EN BANC

G.R. Nos. L-48195 and 48196 May 1, 1942

SOFRONIO T. BAYLA, ET AL., petitioners,

vs.
SILANG TRAFFIC CO., INC., respondent.
SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET AL., respondents.

E. A. Beltran for petitioners.

Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for respondent.

OZAETA, J.:

Petitioners in G.R. No. 48195 instituted this action in the Court of First Instance of Cavite
against the respondent Silang Traffic Co., Inc. (cross-petitioner in G.R. No. 48196), to recover
certain sums of money which they had paid severally to the corporation on account of shares of
stock they individually agreed to take and pay for under certain specified terms and conditions,
of which the following referring to the petitioner Josefa Naval, is typical:

AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE "SILANG

TRAFFIC COMPANY, INC.,"

Silang, Cavite, P. I.

THIS AGREEMENT, made and entered into between Mrs. Josefa Naval, of legal age,
married and resident of the Municipality of Silang, Province of Cavite, Philippine
Islands, party of the First Part, hereinafter called the subscriber, and the "Silang Traffic
Company, Inc.," a corporation duly organized and existing by virtue of and under the
laws of the Philippine Islands, with its principal office in the Municipality of Silang,
Province of Cavite, Philippine Islands, party of the Second Part, hereinafter called the
seller,

WITNESSETH:

That the subscriber promises to pay personally or by his duly authorized agent to the
seller at the Municipality of Silang, Province of Cavite, Philippine Islands, the sum of
one thousand five hundred pesos (P1,500), Philippine currency, as purchase price of
FIFTEEN (15) shares of capital stock, said purchase price to be paid as follows, to wit:
five (5%) per cent upon the execution of the contract, the receipt whereof is hereby
acknowledged and confessed, and the remainder in installments of five per cent, payable
within the first month of each and every quarter thereafter, commencing on the 1st day of
July, 1935, with interest on deferred payments at the rate of SIX (6%) per cent per annum
until paid.
 That the said subscriber further agrees that if he fails to pay any of said installment when
due, or to perform any of the aforesaid conditions, or if said shares shall be attached or
levied upon by creditors of the said subscriber, then the said shares are to revert to the
seller and the payments already made are to be forfeited in favor of said seller, and the
latter may then take possession, without resorting to court proceedings.

The said seller upon receiving full payment, at the time and manner hereinbefore
specified, agrees to execute and deliver to said subscriber, or to his heirs and assigns, the
certificate of title of said shares, free and clear of all encumbrances.

In testimony whereof, the parties have hereunto set their hands in the Municipality of
Silang, Province of Cavite, Philippine Islands, this 30th day of March, 1935.

(Sgd.) JOSEFA NAVAL

SILANG TRAFFIC COMPANY, INC.
Subscriber

By (Sgd.) LINO GOMEZ

President.

(Exhibit 1. Notarial acknowledgment omitted.)

The agreements signed by the other petitioners were of the same date (March 30, 1935) and in
identical terms as the foregoing except as to the number of shares and the corresponding
purchase price. The petitioners agreed to purchase the following number of shares and, up to
April 30, 1937, had paid the following sums on account thereof:

Sofronio T. 8 shares P360

Bayla.......

Venancio 8 shares 375

Toledo........

Josefa 15 shares 675

Naval..............

Paz 15 shares 675

Toledo................

Petitioners' action for the recovery of the sums above mentioned is based on a resolution by the
board of directors of the respondent corporation on August 1, 1937, of the following tenor:

A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro Bayla, que para el
bien de la corporacion y la pronta terminacion del asunto civil No. 3125 titulado "Vicente
F. Villanueva et al. vs. Lino Gomez et al.," en el Juzgado de Primera Instancia de Cavite,
 donde se gasto y se gastara no poca cantidad de la Corporacion, se resolvio y se aprobo
por la Junta Directiva los siguientes:

(a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art.
11, sec. 162, sobre las cobranzas que se haran por el Secretario Tesorero de la
Corporacion a los accionistas que habian tomado o suscrito nuevas acciones y que se
permitia a estos pagar 20% del valor de las acciones suscritas en un año, con interes de
6% y el pago o jornal que se hara por trimestre.

(b) Se dejara sin efecto, en vista de que aun no esta pagado todo el valor de las 123
acciones, tomadas de las acciones no expedidas (unissued stock) de la Corporacion y que
fueron suscritas por los siguienes:

Lino 10 Acciones
Gomez.....................

Venancio 8 Acciones
Toledo.............

Melchor P. 17 Acciones
Benitez........

Isaias 14 Acciones
Videña.................

Esteban 10 Acciones
Velasco............

Numeriano S. 15 Acciones
Aldaba....

Inocencio 8 Acciones
Cruz.................

Josefa Naval 15 Acciones

..................

Sofronio 8 Acciones
Bayla.................

Dionisio 3 Acciones
Dungca.............

y devolver a las personas arriba descritas toda la cantidad que estas habian pagado por las 123
acciones.

(c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 marzo, 1935, art. V.
sec. 165, sobre el cambio o trueque de las 31 acciones del Treasury Stock, contra las 32
 acciones del Sr. Numeriano Aldaba, en la corporacion Northern Luzon Transportation
Co. y que se devuelva al Sr. Numeriano Aldaba las 32 acciones mencionadas despues que
el haya devuelto el certificado de las 31 acciones de la Silang Traffic Co., Inc.

(d) Permitir al Tesorero de la Corporacion para que devuelva a las personas arriba
indicadas, las cantidades pagadas por las 123 acciones. (Exhibit A-1.)

The respondent corporation set up the following defenses: (1) That the above-quoted resolution
is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on
the date thereof "their subscribed shares of stock had already automatically reverted to the
defendant, and the installments paid by them had already been forfeited"; and (2) that said
resolution of August 1, 1937, was revoked and cancelled by a subsequent resolution of the board
of directors of the defendant corporation dated August 22, 1937.

The trial court absolved the defendant from the complaint and declared canceled (forfeited) in
favor of the defendant the shares of stock in question. It held that the resolution of August 1,
1937, was null and void, citing Velasco vs. Poizat (37 Phil., 802), wherein this Court held that "a
corporation has no legal capacity to release an original subscriber to its capital stock from the
obligation to pay for shares; and any agreement to this effect is invalid" Plaintiffs below
appealed to the Court of Appeals, which modified of the trial court as follows:

That part of the judgment dismissing plaintiff's complaint is affirmed, but that part
thereof declaring their subscription canceled is reversed. Defendant is directed to grant
plaintiffs 30 days after final judgment within which to pay the arrears on their
subscription. Without pronouncement as to costs.

Both parties appealed to this Court by petition and cross-petition for certiorari. Petitioners insist
that they have the right to recover the amounts involved under the resolution of August 1, 1937,
while the respondent and cross-petitioner on its part contends that said amounts have been
automatically forfeited and the shares of stock have reverted to the corporation under the
agreement hereinabove quoted.

The parties litigant, the trial court, and the Court of Appeals have interpreted or considered the
said agreement as a contract of subscription to the capital stock of the respondent corporation. It
should be noted, however, that said agreement is entitled "Agreement for Installment Sale of
Shares in the Silang Traffic Company, Inc.,"; that while the purchaser is designated as
"subscriber," the corporation is described as "seller"; that the agreement was entered into on
March 30, 1935, long after the incorporation and organization of the corporation, which took
place in 1927; and that the price of the stock was payable in quarterly installments spread over a
period of five years. It also appears that in civil case No. 3125 of the Court of First Instance of
Cavite mentioned in the resolution of August 1, 1937, the right of the corporation to sell the
shares of stock to the person named in said resolution (including herein petitioners) was
impugned by the plaintiffs in said case, who claimed a preferred right to buy said shares.

Whether a particular contract is a subscription or a sale of stock is a matter of construction and

depends upon its terms and the intention of the parties (4 Fletcher, Cyclopedia of Corporation
[permanent edition], 29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the
Unson case just cited, this Court held that a subscription to stock in an existing corporation is, as
between the subscriber and the corporation, simply a contract of purchase and sale.

It seems clear from the terms of the contracts in question that they are contracts of sale and not of
subscription. The lower courts erred in overlooking the distinction between subscription and
purchase "A subscription, properly speaking, is the mutual agreement of the subscribers to take
and pay for the stock of a corporation, while a purchase is an independent agreement between the
individual and the corporation to buy shares of stock from it at stipulated price." (18 C. J. S.,
760.) In some particulars the rules governing subscriptions and sales of shares are different. For
instance, the provisions of our Corporation Law regarding calls for unpaid subscription and
assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that
corporation has no legal capacity to release an original subscriber to its capital stock from the
obligation to pay for his shares, is inapplicable to a contract of purchase of shares.

The next question to determine is whether under the contract between the parties the failure of
the purchaser to pay any of the quarterly installments on the purchase price automatically gave
rise to the forfeiture of the amounts already paid and the reversion of the shares to the
corporation. The contract provides for interest of the rate of six per centum per annum on
deferred payments. It is also provides that if the purchaser fails to pay any of said installments
when due, the said shares are to revert to the seller and the payments already made are to be
forfeited in favor of said seller. The respondent corporation contends that when the petitioners
failed to pay the installment which fell due on or before July 31, 1937, forfeiture automatically
took place, that is to say, without the necessity of any demand from the corporation, and that
therefore the resolution of August 1, 1937, authorizing the refund of the installments already paid
was inapplicable to the petitioners, who had already lost any and all rights under said contract.
The contention is, we think, untenable. The provision regarding interest on deferred payments
would not have been inserted if it had been the intention of the parties to provide for automatic
forfeiture and cancelation of the contract. Moreover, the contract did not expressly provide that
the failure of the purchaser to pay any installment would give rise to forfeiture and cancelation
without the necessity of any demand from the seller; and under article 1100 of the Civil Code
persons obliged to deliver or do something are not in default until the moment the creditor
demands of them judicially or extrajudicially the fulfillment of their obligation, unless (1) the
obligation or the law expressly provides that demand shall not be necessary in order that default
may arise, (2) by reason of the nature and circumstances of the obligation it shall appear that the
designation of the time at which that thing was to be delivered or the service rendered was the
principal inducement to the creation of the obligation.

Is the resolution of August 1, 1937, valid? The contract in question being one of purchase and
not subscription as we have heretofore pointed out, we see no legal impediment to its rescission
by agreement of the parties. According to the resolution of August 1, 1937, the recission was
made for the good of the corporation and in order to terminate the then pending civil case
involving the validity of the sale of the shares in question among others. To that rescission the
herein petitioners apparently agreed, as shown by their demand for the refund of the amounts
they had paid as provided in said resolution. It appears from the record that said civil case was
subsequently dismissed, and that the purchasers of shares of stock, other than the herein
petitioners, who were mentioned in said resolution were able to benefit by said resolution. It
would be an unjust discrimination to deny the same benefit to the herein petitioners.

We may add that there is no intimation in this case that the corporation was insolvent, or that the
right of any creditor of the same was in any way prejudiced by the rescission.

The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it
not having been agreed to by the petitioners.

Wherefore, the judgment of the court of appeals is hereby reversed and another judgment will be
entered against the defendant Silang Traffic Co., Inc., ordering it to pay to the plaintiffs Sofronio
T. Bayla, Venancio Toledo, Josefa Naval, and Paz Toledo, the sums of P360, P375, P675, and
P675, respectively, with legal interest on each of said sums from May 28, 1938, the date of the
filing of the complaint, until the date of payment, and with costs in the three instances. So
ordered.
 FIRST DIVISION

June 30, 1987

G.R. No. L-48627

FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners

vs.
THE HONORABLE COURT OF APPEALS and ALBERTO V. ARELLANO, respondents.

CRUZ, J.:

We gave limited due course to this petition on the question of the solidary liability of the
petitioners with their co-defendants in the lower court 1 because of the challenge to the following
paragraph in the dispositive portion of the decision of the respondent court: *

1. Defendants are hereby ordered to jointly and severally pay the plaintiff the amount of
P50,000.00 for the preparation of the project study and his technical services that led to
the organization of the defendant corporation, plus P10,000.00 attorney's fees; 2

The petitioners claim that this order has no support in fact and law because they had no contract
whatsoever with the private respondent regarding the above-mentioned services. Their position is
that as mere subsequent investors in the corporation that was later created, they should not be
held solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with
Barretto and Garcia, their co-defendants in the lower court, ** who were the ones who requested
the said services from the private respondent. 3

We are not concerned here with the petitioners' co-defendants, who have not appealed the
decision of the respondent court and may, for this reason, be presumed to have accepted the
same. For purposes of resolving this case before us, it is not necessary to determine whether it is
the promoters of the proposed corporation, or the corporation itself after its organization, that
shall be responsible for the expenses incurred in connection with such organization.

The only question we have to decide now is whether or not the petitioners themselves
are also and personally liable for such expenses and, if so, to what extent.

The reasons for the said order are given by the respondent court in its decision in this wise:

As to the 4th assigned error we hold that as to the remuneration due the plaintiff for the
preparation of the project study and the pre-organizational services in the amount of
P50,000.00, not only the defendant corporation but the other defendants including
defendants Caram should be jointly and severally liable for this amount. As we above
related it was upon the request of defendants Barretto and Garcia that plaintiff handled
 the preparation of the project study which project study was presented to defendant
Caram so the latter was convinced to invest in the proposed airlines. The project study
was revised for purposes of presentation to financiers and the banks. It was on the basis
of this study that defendant corporation was actually organized and rendered operational.
Defendants Garcia and Caram, and Barretto became members of the Board and/or
officers of defendant corporation. Thus, not only the defendant corporation but all the
other defendants who were involved in the preparatory stages of the incorporation, who
caused the preparation and/or benefited from the project study and the technical services
of plaintiff must be liable. 4

It would appear from the above justification that the petitioners were not really involved in the
initial steps that finally led to the incorporation of the Filipinas Orient Airways. Elsewhere in the
decision, Barretto was described as "the moving spirit." The finding of the respondent court is
that the project study was undertaken by the private respondent at the request of Barretto and
Garcia who, upon its completion, presented it to the petitioners to induce them to invest in the
proposed airline. The study could have been presented to other prospective investors. At any
rate, the airline was eventually organized on the basis of the project study with the petitioners as
major stockholders and, together with Barretto and Garcia, as principal officers.

The following portion of the decision in question is also worth considering:

... Since defendant Barretto was the moving spirit in the pre-organization work of
defendant corporation based on his experience and expertise, hence he was logically
compensated in the amount of P200,000.00 shares of stock not as industrial partner but
more for his technical services that brought to fruition the defendant corporation. By the
same token, We find no reason why the plaintiff should not be similarly compensated not
only for having actively participated in the preparation of the project study for several
months and its subsequent revision but also in his having been involved in the pre-
organization of the defendant corporation, in the preparation of the franchise, in inviting
the interest of the financiers and in the training and screening of personnel. We agree that
for these special services of the plaintiff the amount of P50,000.00 as compensation is
reasonable. 5

The above finding bolsters the conclusion that the petitioners were not involved in the initial
stages of the organization of the airline, which were being directed by Barretto as the main
promoter. It was he who was putting all the pieces together, so to speak. The petitioners were
merely among the financiers whose interest was to be invited and who were in fact persuaded, on
the strength of the project study, to invest in the proposed airline.

Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation
and did not have a separate juridical personality, to justify making the petitioners, as principal
stockholders thereof, responsible for its obligations. As a bona fide corporation, the Filipinas
Orient Airways should alone be liable for its corporate acts as duly authorized by its officers and
directors.
In the light of these circumstances, we hold that the petitioners cannot be held personally liable
for the compensation claimed by the private respondent for the services performed by him in the
organization of the corporation. To repeat, the petitioners did not contract such services. It was
only the results of such services that Barretto and Garcia presented to them and which persuaded
them to invest in the proposed airline. The most that can be said is that they benefited from such
services, but that surely is no justification to hold them personally liable therefor. Otherwise, all
the other stockholders of the corporation, including those who came in later, and regardless of
the amount of their share holdings, would be equally and personally liable also with the
petitioners for the claims of the private respondent.

The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. Our
impression is that it is opposed to the imposition of solidary responsibility upon the Carams but
seems to be willing, in a vague, unexpressed offer of compromise, to accept joint liability. While
it is true that it does here and there disclaim total liability, the thrust of the petition seems to be
against the imposition of solidary liability only rather than against any liability at all, which is
what it should have categorically argued.

Categorically, the Court holds that the petitioners are not liable at all, jointly or jointly and
severally, under the first paragraph of the dispositive portion of the challenged decision. So
holding, we find it unnecessary to examine at this time the rules on solidary obligations, which
the parties-needlessly, as it turns out have belabored unto death.

WHEREFORE, the petition is granted. The petitioners are declared not liable under the
challenged decision, which is hereby modified accordingly. It is so ordered.
 EN BANC

G.R. No. L-2598 June 29, 1950

C. ARNOLD HALL and BRADLEY P. HALL, petitioners,

vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN,
EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern
Lumber and Commercial Co., Inc.,respondents.

Claro M. Recto for petitioners.

Ramon Diokno and Jose W. Diokno for respondents.

BENGZON, J.:

This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First
Instance of Leyte and to enjoin the respondent judge from further acting upon the same.

Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the
respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed
and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and
Commercial Co., Inc., organized to engage in a general lumber business to carry on as general
contractors, operators and managers, etc. Attached to the article was an affidavit of the treasurer
stating that 23,428 shares of stock had been subscribed and fully paid with certain properties
transferred to the corporation described in a list appended thereto.

(2) Immediately after the execution of said articles of incorporation, the corporation proceeded to
do business with the adoption of by-laws and the election of its officers.

(3) On December 2, 1947, the said articles of incorporation were filed in the office of the
Securities and Exchange Commissioner, for the issuance of the corresponding certificate of
incorporation.

(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid
governmental office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and
Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case numbered 381,
entitled "Fred Brown et al. vs. Arnold C. Hall et al.", alleging among other things that the Far
Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished to have it
dissolved because of bitter dissension among the members, mismanagement and fraud by the
managers and heavy financial losses.

(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to
dismiss, contesting the court's jurisdiction and the sufficiently of the cause of action.
(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company;
and at the request of plaintiffs, appointed of the properties thereof, upon the filing of a P20,000
bond.

(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of
the receiver, but the respondent judge refused to accept the offer and to discharge the receiver.
Whereupon, the present special civil action was instituted in this court. It is based upon two main
propositions, to wit:

(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company,
because it being a de facto corporation, dissolution thereof may only be ordered in a quo
warranto proceeding instituted in accordance with section 19 of the Corporation Law.

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

Discussion: The second proposition may at once be dismissed. All the parties are informed that
the Securities and Exchange Commission has not, so far, issued the corresponding certificate of
incorporation. All of them know, or sought to know, that the personality of a corporation begins
to exist only from the moment such certificate is issued — not before (sec. 11, Corporation
Law). The complaining associates have not represented to the others that they were incorporated
any more than the latter had made similar representations to them. And as nobody was led to
believe anything to his prejudice and damage, the principle of estoppel does not apply.
Obviously this is not an instance requiring the enforcement of contracts with the
corporation through the rule of estoppel.

The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern
Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law
applies, and therefore the court had not jurisdiction to take cognizance of said civil case number
381. Section 19 reads as follows:

. . . The due incorporation of any corporations claiming in good faith to be a corporation

under this Act and its right to exercise corporate powers shall not be inquired into
collaterally in any private suit to which the corporation may be a party, but such inquiry
may be had at the suit of the Insular Government on information of the Attorney-General.

There are least two reasons why this section does not govern the situation. Not having obtained
the certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its
stockholders — may not probably claim "in good faith" to be a corporation.

Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a
certificate of incorporation by the Director of the Bureau of Commerce and Industry
which calls a corporation into being. The immunity if collateral attack is granted to
corporations "claiming in good faith to be a corporation under this act." Such a claim is
compatible with the existence of errors and irregularities; but not with a total or
substantial disregard of the law. Unless there has been an evident attempt to comply with
 the law the claim to be a corporation "under this act" could not be made "in good faith."
(Fisher on the Philippine Law of Stock Corporations, p. 75. See also Humphreys vs.
Drew, 59 Fla., 295; 52 So., 362.)

Second, this is not a suit in which the corporation is a party. This is a litigation between
stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the
existence of a de jure corporation may be terminated in a private suit for its dissolution between
stockholders, without the intervention of the state.

There might be room for argument on the right of minority stockholders to sue for
dissolution;1 but that question does not affect the court's jurisdiction, and is a matter for decision
by the judge, subject to review on appeal. Whkch brings us to one principal reason why this
petition may not prosper, namely: the petitioners have their remedy by appealing the order of
dissolution at the proper time.

There is a secondary issue in connection with the appointment of a receiver. But it must be
admitted that receivership is proper in proceedings for dissolution of a company or corporation,
and it was no error to reject the counter-bond, the court having declared the dissolution. As to the
amount of the bond to be demanded of the receiver, much depends upon the discretion of the trial
court, which in this instance we do not believe has been clearly abused.

Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction
heretofore issued will be dissolved.
 FIRST DIVISION

[G.R. No. 119002. October 19, 2000]

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES,

INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN,
PHILIPPINE FOOTBALL FEDERATION, respondents.

DECISION
KAPUNAN, J.:

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.[1] 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.[2]
On 4 October 1989, petitioner wrote the Federation, through the private
respondent a demand letter requesting for the amount of P265,894.33.[3] On
30 October 1989, the Federation, through the Project Gintong Alay, paid the
amount of P31,603.00.[4]
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.[5] 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.[6]
 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.[7]
On the other hand, the Federation failed to file its answer, hence, was
declared in default by the trial court.[8]
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. In arriving at the said ruling, the trial court rationalized:

Defendant Henri Kahn would have been correct in his contentions had it been duly
established that defendant Federation is a corporation. The trouble, however, is that
neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving
the corporate existence of the defendant Federation. In paragraph 2 of its complaint,
plaintiff asserted that "Defendant Philippine Football Federation is a sports
association xxx." This has not been denied by defendant Henri Kahn in his Answer.
Being the President of defendant Federation, its corporate existence is within the
personal knowledge of defendant Henri Kahn. He could have easily denied
specifically the assertion of the plaintiff that it is a mere sports association, if it were a
domestic corporation. But he did not.

xxx

A voluntary unincorporated association, like defendant Federation has no power to

enter into, or to ratify, a contract. The contract entered into by its officers or agents on
behalf of such association is not binding on, or enforceable against it. The officers or
agents are themselves personally liable.

x x x[9]
The dispositive portion of the trial court's decision reads:

WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the

plaintiff the principal sum of P207,524.20, plus the interest thereon at the legal rate
computed from July 5, 1990, the date the complaint was filed, until the principal
obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees.
The complaint of the plaintiff against the Philippine Football Federation and the
counterclaims of the defendant Henri Kahn are hereby dismissed.

With the costs against defendant Henri Kahn.[10]

Only Henri Kahn elevated the above decision to the Court of Appeals. On
21 December 1994, the respondent court rendered a decision reversing the
trial court, the decretal portion of said decision reads:

WHEREFORE, premises considered, the judgment appealed from is hereby

REVERSED and SET ASIDE and another one is rendered dismissing the complaint
against defendant Henri S. Kahn.[11]

In finding for Henri Kahn, the Court of Appeals recognized the juridical
existence of the Federation. It rationalized that since petitioner failed to prove
that Henri Kahn guaranteed the obligation of the Federation, he should not be
held liable for the same as said entity has a separate and distinct personality
from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer
pleaded that the Federation be held liable for the unpaid obligation. The same
was denied by the appellate court in its resolution of 8 February 1995, where it
stated that:

As to the alternative prayer for the Modification of the Decision by expressly

declaring in the dispositive portion thereof the Philippine Football Federation (PFF) as
liable for the unpaid obligation, it should be remembered that the trial court dismissed
the complaint against the Philippine Football Federation, and the plaintiff did not
appeal from this decision. Hence, the Philippine Football Federation is not a party to
this appeal and consequently, no judgment may be pronounced by this Court against
the PFF without violating the due process clause, let alone the fact that the judgment
dismissing the complaint against it, had already become final by virtue of the
plaintiff's failure to appeal therefrom. The alternative prayer is therefore similarly
DENIED.[12]

Petitioner now seeks recourse to this Court and alleges that the
respondent court committed the following assigned errors:[13]
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION
(PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE
RESPONDENT HENRI KAHN WAS THE ONE WHO REPRESENTED THE PFF AS
HAVING A CORPORATE PERSONALITY.
 B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE
RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF
THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND
CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL
PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING THE
OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT
PERSONALLY LIABLE, THE HONORABLE COURT OF APPEALS ERRED IN NOT
EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE
FOR THE OBLIGATION.

The resolution of the case at bar hinges on the determination of the

existence of the Philippine Football Federation as a juridical person. In the
assailed decision, the appellate court recognized the existence of the
Federation. In support of this, the CA cited Republic Act 3135, otherwise
known as the Revised Charter of the Philippine Amateur Athletic Federation,
and Presidential Decree No. 604 as the laws from which said Federation
derives its existence.
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. Section 14 of R.A. 3135 provides:

SEC. 14. Functions, powers and duties of Associations. - The National Sports'
Association shall have the following functions, powers and duties:

1. To adopt a constitution and by-laws for their internal organization and government;

2. To raise funds by donations, benefits, and other means for their purposes.

3. To purchase, sell, lease or otherwise encumber property both real and personal, for
the accomplishment of their purpose;

4. To affiliate with international or regional sports' Associations after due consultation

with the executive committee;

xxx

13. To perform such other acts as may be necessary for the proper accomplishment of
their purposes and not inconsistent with this Act.

Section 8 of P.D. 604, grants similar functions to these sports

associations:
SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National
sports associations shall have the following functions, powers, and duties:

1. Adopt a Constitution and By-Laws for their internal organization and government
which shall be submitted to the Department and any amendment thereto shall take
effect upon approval by the Department:Provided, however, That no team, school,
club, organization, or entity shall be admitted as a voting member of an association
unless 60 per cent of the athletes composing said team, school, club, organization, or
entity are Filipino citizens;

2. Raise funds by donations, benefits, and other means for their purpose subject to the
approval of the Department;

3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for
the accomplishment of their purpose;

4. Conduct local, interport, and international competitions, other than the Olympic and
Asian Games, for the promotion of their sport;

5. Affiliate with international or regional sports associations after due consultation

with the Department;

xxx

13. Perform such other functions as may be provided by law.

The above 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 R.A. 3135 provides:
SEC. 11. National Sports' Association; organization and recognition. - A National
Association shall be organized for each individual sports in the Philippines in the
manner hereinafter provided to constitute the Philippine Amateur Athletic Federation.
Applications for recognition as a National Sports' Association shall be filed with the
executive committee together with, among others, a copy of the constitution and by-
laws and a list of the members of the proposed association, and a filing fee of ten
pesos.

The Executive Committee shall give the recognition applied for if it is satisfied that
said association will promote the purposes of this Act and particularly section three
thereof. No application shall be held pending for more than three months after the
filing thereof without any action having been taken thereon by the executive
committee. Should the application be rejected, the reasons for such rejection shall be
clearly stated in a written communication to the applicant. Failure to specify the
reasons for the rejection shall not affect the application which shall be considered as
unacted upon: Provided, however, That until the executive committee herein provided
shall have been formed, applications for recognition shall be passed upon by the duly
elected members of the present executive committee of the Philippine Amateur
Athletic Federation. The said executive committee shall be dissolved upon the
organization of the executive committee herein provided: Provided, further, That the
functioning executive committee is charged with the responsibility of seeing to it that
the National Sports' Associations are formed and organized within six months from
and after the passage of this Act.

Section 7 of P.D. 604, similarly provides:

SEC. 7. National Sports Associations. - Application for accreditation or recognition as

a national sports association for each individual sport in the Philippines shall be filed
with the Department together with, among others, a copy of the Constitution and By-
Laws and a list of the members of the proposed association.

The Department shall give the recognition applied for if it is satisfied that the national
sports association to be organized will promote the objectives of this Decree and has
substantially complied with the rules and regulations of the
Department: Provided, That the Department may withdraw accreditation or
recognition for violation of this Decree and such rules and regulations formulated by
it.

The Department shall supervise the national sports association: Provided, That the
latter shall have exclusive technical control over the development and promotion of
the particular sport for which they are organized.
 Clearly the above cited provisions 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.[15] 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.[16] 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.
WHEREFORE, the decision appealed from is REVERSED and SET
ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in Civil
Case No. 90-53595 is hereby REINSTATED.
SO ORDERED.
 SECOND DIVISION

G.R. No. 125221 June 19, 1997

REYNALDO M. LOZANO, petitioner,

vs.
HON. ELIEZER R. DE LOS SANTOS, Presiding Judge, RTC, Br. 58, Angeles City; and
ANTONIO ANDA, respondents.

PUNO, J.:

This petition for certiorari seeks to annul and set aside the decision of the Regional Trial Court,
Branch 58, Angeles City which ordered the Municipal Circuit Trial Court, Mabalacat and
Magalang, Pampanga to dismiss Civil Case No. 1214 for lack of jurisdiction.

The facts are undisputed. On December 19, 1995, petitioner Reynaldo M. Lozano filed Civil
Case No. 1214 for damages against respondent Antonio Anda before the Municipal Circuit Trial
Court (MCTC), Mabalacat and Magalang, Pampanga. Petitioner alleged that he was the president
of the Kapatirang Mabalacat-Angeles Jeepney Drivers' Association, Inc. (KAMAJDA) while
respondent Anda was the president of the Samahang Angeles-Mabalacat Jeepney Operators' and
Drivers' Association, Inc. (SAMAJODA); in August 1995, upon the request of the Sangguniang
Bayan of Mabalacat, Pampanga, petitioner and private respondent agreed to consolidate their
respective associations and form the Unified Mabalacat-Angeles Jeepney Operators' and Drivers
Association, Inc. (UMAJODA); petitioner and private respondent also agreed to elect one set of
officers who shall be given the sole authority to collect the daily dues from the members of the
consolidated association; elections were held on October 29, 1995 and both petitioner and private
respondent ran for president; petitioner won; private respondent protested and, alleging fraud,
refused to recognize the results of the election; private respondent also refused to abide by their
agreement and continued collecting the dues from the members of his association despite several
demands to desist. Petitioner was thus constrained to file the complaint to restrain private
respondent from collecting the dues and to order him to pay damages in the amount of
P25,000.00 and attorney's fees of P500.00. 1

Private respondent moved to dismiss the complaint for lack of jurisdiction, claiming that
jurisdiction was lodged with the Securities and Exchange Commission (SEC). The MCTC
denied the motion on February 9, 1996. 2 It denied reconsideration on March 8, 1996. 3

Private respondent filed a petition for certiorari before the Regional Trial Court, Branch 58,
Angeles City. 4 The trial court found the dispute to be intracorporate, hence, subject to the
jurisdiction of the SEC, and ordered the MCTC to dismiss Civil Case No. 1214 accordingly. 5 It
denied reconsideration on May 31, 1996. 6
Hence this petition. Petitioner claims that:

THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
AND SERIOUS ERROR OF LAW IN CONCLUDING THAT THE
SECURITIES AND EXCHANGE COMMISSION HAS JURISDICTION OVER
A CASE OF DAMAGES BETWEEN HEADS/PRESIDENTS OF TWO (2)
ASSOCIATIONS WHO INTENDED TO CONSOLIDATE/MERGE THEIR
ASSOCIATIONS BUT NOT YET [SIC] APPROVED AND REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION.7

The jurisdiction of the Securities and Exchange Commission (SEC) is set forth in Section 5 of
Presidential Decree No. 902-A. Section 5 reads as follows:

Sec. 5. . . . [T]he Securities and Exchange Commission [has] original and

exclusive jurisdiction to hear and decide cases involving:

(a) Devices or schemes employed by or any acts of the board of directors,

business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public and/or of
the stockholders, partners, members of associations or organizations registered
with the Commission.

(b) Controversies arising out of intracorporate or partnership relations, between

and among stockholders, members or associates; between any or all of them and
the corporation, partnership or association of which they are stockholders,
members, or associates, respectively; and between such corporation, partnership
or association and the state insofar as it concerns their individual franchise or
right to exist as such entity.

(c) Controversies in the election or appointment of directors, trustees, officers or

managers of such corporations, partnerships or associations.

(d) Petitions of corporations, partnerships or associations to be declared in the

state of suspension of payments in cases where the corporation, partnership or
association possesses sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due or in cases where
the corporation, partnership or association has no sufficient assets to over its
liabilities, but is under the management of a Rehabilitation Receiver or
Management Committee created pursuant to this Decree.

The grant of jurisdiction to the SEC must be viewed in the light of its nature and function
under the law. 8 This jurisdiction is determined by a concurrence of two elements: (1) the
status or relationship of the parties; and (2) the nature of the question that is the subject of
their controversy. 9
The first element requires that the controversy must arise out of intracorporate or partnership
relations between and among stockholders, members, or associates; between any or all of them
and the corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association and the State
in so far as it concerns their individual franchises. 10 The second element requires that the dispute
among the parties be intrinsically connected with the regulation of the corporation, partnership or
association or deal with the internal affairs of the corporation, partnership or association. 11 After
all, the principal function of the SEC is the supervision and control of corporations, partnership
and associations with the end in view that investments in these entities may be encouraged and
protected, and their entities may be encouraged and protected, and their activities pursued for the
promotion of economic development. 12

There is no intracorporate nor partnership relation between petitioner and private respondent.
The controversy between them arose out of their plan to consolidate their respective jeepney
drivers' and operators' associations into a single common association. This unified association
was, however, still a proposal. It had not been approved by the SEC, neither had its officers and
members submitted their articles of consolidation is accordance with Sections 78 and 79 of the
Corporation Code. Consolidation becomes effective not upon mere agreement of the members
but only upon issuance of the certificate of consolidation by the SEC. 13 When the SEC, upon
processing and examining the articles of consolidation, is satisfied that the consolidation of the
corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it
issues a certificate of consolidation which makes the reorganization official. 14 The new
consolidated corporation comes into existence and the constituent corporations dissolve and
cease to exist. 15

The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly
registered with the SEC, but these associations are two separate entities. The dispute between
petitioner and private respondent is not within the KAMAJDA nor the SAMAJODA. It is
between members of separate and distinct associations. Petitioner and private respondent have no
intracorporate relation much less do they have an intracorporate dispute. The SEC therefore has
no jurisdiction over the complaint.

The doctrine of corporation by estoppel 16 advanced by private respondent cannot override

jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the
parties. 17 It cannot be acquired through or waived, enlarged or diminished by, any act or
omission of the parties, neither can it be conferred by the acquiescence of the court. 18

Corporation by estoppel is founded on principles of equity and is designed to prevent injustice

and unfairness. 19 It applies when persons assume to form a corporation and exercise corporate
functions and enter into business relations with third person. Where there is no third person
involved and the conflict arises only among those assuming the form of a corporation, who
therefore know that it has not been registered, there is no corporation by estoppel. 20

IN VIEW WHEREOF, the petition is granted and the decision dated April 18, 1996 and the order
dated May 31, 1996 of the Regional Trial Court, Branch 58, Angeles City are set aside. The
Municipal Circuit Trial Court of Mabalacat and Magalang, Pampanga is ordered to proceed with
dispatch in resolving Civil Case No. 1214. No costs.

SO ORDERED.
 SECOND DIVISION

G.R. No. 117010 April 18, 1997

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
ENGR. CARLOS GARCIA y PINEDA, PATRICIO BOTERO y VALES, LUISA
MIRAPLES (at large), accused,

PATRICIO BOTERO y VALES, accused-appellant.

PUNO, J.:

Before us is an appeal from the decision of the Regional Trial Court in Criminal Case No. 93871
convicting accused-appellant Patricio Botero of illegal recruitment in large scale and sentencing
him to suffer the penalty of life imprisonment.1

In an Information dated July 21, 1992, accused-appellant Patricio Botero together with Carlos P.
Garcia and Luisa Miraples were charged with the crime of illegal recruitment in large scale
defined by Article 38 (b) and penalized under Article 39 (a) of the Labor Code, as amended by
Presidential Decree Nos. 1920 and 2018, committed as follows:

That on or before March 2, 1992, and subsequently thereafter, in the Municipality

of Mandaluyong, Metro Manila, Philippines, a place within the jurisdiction of this
Honorable Court, the above-named accused, conspiring and confederating
together and mutually helping and aiding each other, representing themselves to
have authority, license and/or permit to contract, enlist and recruit workers for
overseas employment, did then and there willfully, unlawfully and feloniously for
a fee, recruit and promise job placement/employment abroad to the following
individuals, to wit:

1. Gloria Silaras y Barbero

2. Rolando Consigna y Ogana

3. Ma. Carmen Daluaidao

4. Zosimo La Puebla, Jr.

5. Mario Espada y Melodia

6. Arnel Santilla y Villalos

 7. Elsa Delubio

8. Abener Siriban y Abatuan

9. Franklin Cabingan y Casalla

10. Jose Erwin Estinoso

11. Edgardo Belen y Juanillo

12. Ariel Rivada y Pascual

13. Sunny Pinco y Pascua

14. Rolando Santiago y Magno

15. Alfredo Estinoso y Estrada

16. Luisito Vargas y Quizon

without first securing the required license or authority from the Department of
Labor and Employment.

Contrary to law.2 (Emphasis supplied.)

Accused Garcia and Botero pleaded not guilty upon arraignment on January 19, 1993 and March
31, 1993, respectively. Miraples remained at large as the warrant of arrest against her was
returned unserved. A joint trial was conducted against the two (2) accused considering that their
cases involve the same parties and issues.3

Six (6) out of the sixteen (16) complainants testified as prosecution witnesses.4 These
complainants were Edgardo Belen, Gloria Silaras, Alfredo Estinoso, Jose Erwin Esclada, Elsa
Delubio and Ariel Rivada. They testified that on various dates in March 1992, they went to
Ricorn Philippine International Shipping Lines, Inc. (hereinafter Ricorn), an entity which recruits
workers for overseas employment, with office at Rm. 410, Jovan Building, 600 Shaw Blvd.,
Mandaluyong, Metro Manila. They applied as seamen, cook, waiter, chambermaid or
laundrywoman overseas.5Esclada applied to accused Botero. All the other complainants coursed
their application to accused Garcia who represented himself as president of
Ricorn.6 Complainants were required to submit their NBI and police clearance, birth certificate,
passport, seaman's book and Survival of Life at Sea (SOLAS).7 As they did not have the last
three (3) documents, they were asked to pay five thousand pesos (P5,000.00) as processing fee.
They paid to Ricorn's treasurer, Luisa Miraples.8 They were issued receipts signed by Miraples.
The receipts were under Ricorn's heading.9

Garcia and Botero assured complainants of employment after the May 11, 1992 election.
Accused Botero, as the vice-president of Ricorn, followed-up their passports, seaman's book and
SOLAS. He told some applicants to wait for their papers and informed the others that their
papers were in order.

After the election, complainants went back to Ricorn to check on their applications. They
discovered that Ricorn had abandoned its office at Jovan Building for non-payment of
rentals. 10 Hoping against hope, they went back to the building several times to recover their
money. Their persistence was to no avail for Garcia and Botero were nowhere to be found. They
then went to the Mandaluyong Police Station and filed their complaints. 11 They also checked
with the Securities and Exchange Commission (SEC) and discovered that Ricorn was not yet
incorporated. They also found that Ricorn was not licensed by the Department of Labor and
Employment (DOLE) to engage in recruitment activities. 12

Accused Garcia testified that he is an electrical engineer by profession. According to him, the
group of Teresita Celso, Patricio Botero, Alice Mayonte, Luisa Miraples and Edna Hemolaga
approached him at a baptismal party to join Ricorn. He was asked to contribute one hundred
thousand pesos (P100,000.00). He told them he would borrow the money from his brother in the
United States.

In February 1992, accused Garcia saw the group again in a small apartment in San Juan which
they utilized as their office. He met them once more at Ricorn's office at Jovan Bldg. where there
were many applicants for overseas jobs. This time, they asked him to become Ricorn's president
and to contribute only twenty thousand pesos (P20,000.00). He declined the offer. Allegedly, he
already knew that Ricorn was not licensed by the Philippine Overseas Employment Agency
(POEA) or registered as a corporation with the Securities and Exchange Commission (SEC). He
denied he issued receipts to complainants in this case. 13

Accused-appellant Botero is a marine engineer by profession but was working as a barber when
the trial took place. He testified that he became acquainted with Ricorn when he applied for
overseas employment as a machinist. He dealt with accused Garcia who claimed to be the
President of Ricorn. Eventually, he gained the trust of Garcia and became an employee of
Ricorn. Three (3) times a week, he reported for work at Jovan Building. 14 As a former seaman,
he was familiar with the processing of passport, seaman's book and SOLAS. His job consisted in
following-up these documents. He left Ricorn when he discovered it was not licensed by the
POEA nor was it registered with the SEC. 15 He denied he recruited the complainants and
received any money from them. 16 However, on cross-examination, he admitted that in February
1992, he met Garcia in TADE recruitment agency. Garcia convinced him to become one of the
incorporators of Ricorn. He gave money to Garcia for Ricorn's registration with the SEC. They
held office at Jovan Building from March 2, 1992 to April 20, 1992. 17

After trial, accused Garcia and Botero were convicted in a decision dated April 19, 1995, to wit:

WHEREFORE, in view of the foregoing, accused CARLOS P. GARCIA and

PATRICIO BOTERO are found guilty beyond reasonable doubt of the offense of
illegal recruitment on (sic) a large scale constituting economic sabotage under
Article 38 (b) and punishable under Article 39 (a) of the Labor Code as amended
and are sentenced to suffer the penalty of life imprisonment and to pay a fine of
 P100,000.00 each. They are also ordered to indemnify and pay jointly and
severally each of the six (6) complainants the amount of P5,000.00. Both accused
are also ordered to pay the cost of suit.

SO ORDERED. 18

The case against accused Miraples was archived by the court. 19 She has remained at
large.

Only accused Botero, thru counsel, filed a Notice of Appeal. In his Brief, he raises the following
assignments of error, to wit: 20

THE LOWER COURT ERRED IN HOLDING THAT THE EVIDENCE

PRESENTED BY THE PROSECUTION AGAINST ACCUSED-APPELLANT
PATRICIO BOTERO IS SUFFICIENT FOR CONVICTION.

II

THE LOWER COURT ERRED IN NOT HOLDING THAT IN TRUTH AND IN

FACT THE ACCUSED-APPELLANT PATRICIO BOTERO DID NOT
CONSPIRE WITH CO-ACCUSED CARLOS P. GARCIA.

III

THE LOWER COURT ERRED IN NOT HOLDING THAT ACCUSED-

APPELLANT PATRICIO BOTERO IS NOT RESPONSIBLE FOR ILLEGAL
RECRUITMENT ACTIVITIES OF CO-ACCUSED CARLOS P. GARCIA.

IV

THE LOWER COURT ERRED IN GIVING CREDENCE TO THE

TESTIMONY OF JOSE ERWIN ESCLADA WHICH IS NOT ADMISSIBLE
FOR BEING INCONSISTENT , HIGHLY IMPROBABLE AND
EXAGGERATED AND IN NOT GIVING WEIGHT TO THE ACCUSED-
APPELLANT PATRICIO BOTERO'S EVIDENCE.

We sustain appellant's conviction.

Appellant Botero predicates his appeal on the alleged insufficiency of evidence to support his
conviction. More particularly, he assails the credibility of witness Esclada.

Esclada initially testified that he dealt with accused Garcia when he filed his application with
Ricorn as a seaman. On cross-examination, however, he admitted it was really accused Botero
with whom he transacted, viz:
 Q: But I thought you stated earlier on the third time, you talked to
a certain Edna because Carlos Garcia is not around (sic) on the
same time, it was Carlos Garcia who instructed you to give
P5,000.00.

A I have told a lie, sir. My conscience could not take it.

COURT TO THE WITNESS

Q. So, what is the truth now because I will put you in jail?

A. When I applied at Ricorn (Phil.) with Mr. Botero, Mr. Garcia

was not around but it was Botero who said that my papers were
alright. 21

In effect, accused-appellant Botero wants this court to apply the doctrine of falsus in uno, falsus
in omnibus (false in one part, false in everything) and to disregard the entire testimony of
Esclada.

Under present jurisprudence, this maxim of law is rarely adhered to by the courts. 22 It is possible
to admit and lend credence to the testimony of a witness whom the Court has earlier found to
have willfully perjured himself. ". . . (T)he testimony of a witness may be believed in part and
disbelieved in part, depending upon the corroborative evidence and the probabilities and
improbabilities of the case." 23 In the case at bar, we hold that the trial court did not err in giving
credence to the testimony of Esclada against appellant Botero since it was corroborated on its
material points by the testimony of other witnesses. In fact, Esclada's testimony against Botero is
trustworthy as he gave it after his conscience bothered him for not telling the truth.

We reject appellant Botero's pretense that he is also a victim rather than a culprit in this case. He
insist he was a mere applicant of Ricorn and not a conspirator of the other accused who
defrauded the complainants. He claims that even as a Ricorn employee, he merely performed
"minimal activities" like following-up applicants' passports, seaman's book and SOLAS, and
conducting simple interviews. He denies he had a hand in the selection of workers to be
employed abroad. 24 These submissions are at war with the evidence on record. His co-accused
Garcia introduced him to the complainants as the vice-president of Ricorn. He used a table with a
nameplate confirming he was the vice-president of Ricorn. 25 He procured the passports,
seaman's books and SOLAS for the applicants. It was from him that the complainants inquired
about the status of their applications. 26 He also admitted he gave money to accused Garcia for
Ricorn's incorporation.

Beyond any reasonable doubt, appellant Botero engaged in recruitment and placement activities
in that he, through Ricorn, promised the complainants employment abroad. Under the Labor
Code, recruitment and placement refers to "any act of canvassing, enlisting, contracting,
transporting, utilizing, hiring or procuring workers, and includes referrals, contract services,
promising or advertising for employment, locally or abroad whether for profit or not: Provided,
That any person or entity which in any manner, offers or promises for a fee employment to two
or more persons shall be deemed engaged in recruitment, and placement." 27

All the essential elements of the crime of illegal recruitment in large scale are present in this
case, to wit:

(1) the accused engages in the recruitment and placement of workers, as defined
under Article 13 (b) or in any prohibited activities under Article 34 of the Labor
Code;

(2) accused has not complied with the guidelines issued by the Secretary of Labor
and Employment, particularly with respect to the securing of a license or an
authority to recruit and deploy workers, either locally or overseas; and

(3) accused commits the same against three (3) or more persons, individually or as
a group. 28

It is a fact that Ricorn had no license to recruit from DOLE. In the office of Ricorn, a notice was
posted informing job applicants that its recruitment license is still being processed. Yet, Ricorn
already entertained applicants and collected fees for processing their travel documents. 29

For engaging in recruitment of workers without obtaining the necessary license from the POEA,
Boteros should suffer the consequences of Ricorn's illegal act for "(i)f the offender is a
corporation, partnership, association or entity, the penalty shall be imposed upon the officer or
officers of the corporation, partnership, association or entity responsible for violation; . . .
" 30 The evidence shows that appellant Botero was one of the incorporators of Ricorn. For
reasons that cannot be discerned from the records, Ricorn's incorporation was not consummated.
Even then, appellant cannot avoid his liabilities to the public as an incorporator of Ricorn. He
and his co-accused Garcia held themselves out to the public as officers of Ricorn. They received
money from applicants who availed of their services. They are thus estopped from claiming that
they are not liable as corporate officials of Ricorn. 31 Section 25 of the Corporation Code
provides that "(a)ll 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 the 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."

Appellant Botero is guilty of the crime of illegal recruitment in a large scale considering it was
proven that he, together with his cohorts, were able to defraud the six complainant-witnesses in
this case. Under Article 38 (b) of the Labor Code, illegal recruitment in large scale is perpetrated
if committed against three (3) or more persons individually or as a group. And under Article 39
(a) of the same Code, accused-appellant's crime is punishable by life imprisonment and a fine of
one hundred thousand pesos (P100,000.00).

Finally, it is fruitless for appellant to deny he conspired with his co-accused to commit the crime
at bar. The fact that all the accused were co-conspirators in defrauding the complainants could be
inferred from their acts. They played different roles in defrauding complainants: accused Garcia
was the president, appellant Botero was the vice-president and accused-at-large Miraples was the
treasurer of Ricorn. 32 Each one played a part in the recruitment of complainants. They were
indispensable to each other.

IN VIEW WHEREOF, the decision of the Regional Trial Court convicting accused-appellant
Patricio Botero of the crime of illegal recruitment in large scale is affirmed in all respects. Costs
against accused-appellant.

SO ORDERED.
 EN BANC

G.R. No. L-30646 January 30, 1929

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner,

vs.
THE MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said
Company, respondents.

Attorney-General Jaranilla for petitioner.

Jose Abreu for respondents.

JOHNSON, J.:

This is a petition in the Supreme Court of the extraordinary legal writ of mandamus presented by
the Government of the Philippine Islands, praying that the writ be issued to compel the Manila
Railroad Company and Jose Paez, as its manager, to provide and equip the telegraph poles of
said company between the municipality of Paniqui, Province of Tarlac, and the Municipality of
San Fernando, Province of La Union, with crosspieces for six telegraph wires belonging to the
Government, which, it is alleged, are necessary for public service between said municipalities.

The only question raised by the petition is whether the dependant company is required to provide
and equip its telegraph poles with crosspieces to carry six telegraph wires of the Government, or
whether it is only required to furnish poles with crosspieces sufficient to carry four wires only.

It is admitted that the present poles and crosspieces between said municipalities are sufficient to
carry four telegraph wires and that they do now carry four telegraph wires, by virtue of an
agreement between the respondents and the Bureau of the Posts of the Philippine Government. It
is admitted that the poles and not sufficient to carry six telegraph wires.

The petitioner relies upon the provisions of section 84 of act No. 1459. Act No. 1459 is the
General Corporation Law and was adopted by the United States Philippine Commission on
March 1, 1906. (Vol. 5, Pub. Laws, pp. 224-268.) Section 84 of the said Act provides:

The railroad corporation shall establish along the whole length of the road a telegraph
line for the use of the railroad. The posts of this line may be used for Government wires
and shall be of sufficient length and strength and equipped with sufficient crosspiece to
carry the number of wires which the Government may consider necessary for the public
service. The establishment, protection, and maintenance of the wires and stations
necessary for the public service shall be at the cost of the Government. (Vol. 5, P. L., p.
247.)

The plaintiff contends that under said section 84 the defendant company is required to erect and
maintain posts for its telegraph wires, of sufficient length and strength, and equipped with
sufficient crosspieces to carry the number of wires which the Government may consider
necessary for the public service, and that six wires are now necessary for the public service.
The respondents answered by a general and special defense. In their special defense they contend
that section 84 of Act No. 1459 has been repealed by section 1, paragraph 8 of Act No. 1510 of
the United States Philippine Commission (vol. 5, P. L., pp. 350-358), and that under the
provisions of said Act No. 1510 the Government is entitled to place on the poles of the company
four wires only. Act No. 1510 is the charter of the Manila Railroad Company. It was adopted by
the United States Philippine Commission on July 7, 1906. Section 1, paragraph 8, of said Act
No. 1510 provides:

8. The grantee (the Manila Railroad Company) shall have the right to construct and
operate telegraph, telephone, and electrical transmission lines over said railways for the
use of the railways and their business, and also, with the approval of the Secretary of
War, for public service and commercial purposes but these latter privileges shall be
subject to the following provisions:

In the construction of telegraph or telephone lines along the right of way the grantee (the
Manila Railroad Company) shall erect and maintain poles with sufficient space thereon to
permit the Philippine Government, at the expense of said Government, to place, operate,
and maintain four wires for telegraph, telephone, and electrical transmission for any
Government purposes between the termini of the lines of railways main or branch; and
the Philippine Government reserves to itself the right to construct, maintain, and operate
telegraph, telephone, or electrical transmission lines over the right of way of said
railways for commercial military, or government purposes, without unreasonably
interfering with the construction, maintenance, and operation by the grantee of its
railways, telegraph, telephone, and electrical transmission lines.

To answer the question above stated, it becomes necessary to determine whether section 84 of
Act No. 1459 is applicable to the Manila Railroad Company, or whether the manila Railroad
Company is governed by section 1, paragraph 8, of Act No. 1510. As has been said, Act No.
1459 is a general law applicable to corporations generally, while Act No. 1510 is the charter of
the Manila Railroad Company and constitute a contract between it and the Government.

Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and constitute a contract
between it and the Governmemnt, it would seem that the company is governd by its contract and
not by the provisions of any general law upon questions covered by said contract. From a reading
of the said charter or contract it would be seen that there is no indication that the Government
intended to impose upon said company any other conditions as obligations not expressly found in
said charter or contract. If that is true, then certainly the Government cannot impose upon said
company any conditions or obligations found in any general law, which does not expressly
modify said contract.

Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all railways in the
Philippine Islands which did not have a special charter contract. Act No. 1510 applies only to the
Manila Railroad Company, one of the respondents, and being a special charter of said company,
its adoption had the effect of superseding the provisions of the general Corporation Law which
are applicable to railraods in general. The special charter (Act No. 1510) had the effect of
superseding the general Corporation Law upon all matters covered by said special charter. Said
Act, inasmuch as it contained a special provision relating to the erection of telegraph and
telephone poles, and the number of wires which the Government might place thereon,
superseded the general law upon that question.

Act No. 1510 is a special charter of the respondent company. It constitutes a contract between
the respondent company and the state; and the state and the grantee of a charter are equally
bound by its provisions. For the state to impose an obligation or a duty upon the respondent
company, which is not expressly provided for in the charter (Act No. 1510), would amount to a
violation of said contract between the state and the respondent company. The provisions of Act
No. 1459 relating to the number of wires which the Government may place upon the poles of the
company are different and more enerous than the provisions of the charter upon the same
question. Therefore, to allow the plaintiff to require of the respondent company a compliance
with said section 84 of Act No. 1459, would be to require of the respondent company and the
performance of an obligation which is not imposed upon it by its charter. The charter of a
corporation is a contract between three parties: (a) it is a contract between the state and the
corporation to which the charter is granted; (b) it is a contact between the stockholders and the
state and (c) it is also a contract between the corporation and its stockholders. (Cook on
Corporations, vol. 2, sec. 494 and cases cited.)

The question is not whether Act No. 1510 repealed Act No. 1459; but whether, after the adoption
of Act No. 1510, the respondents are obliged to comply with the special provision above
mentioned, contained in Act No. 1459. We must answer that question in the native. Both laws
are still in force, unless otherwise repealed. Act No. 1510 is applicable to respondents upon the
question before us, while Act No. 1459 is not applicable.

The petitioner, in view of all the foregoing facts and the law applicable thereto, has not shown
itself entitled to the remedy prayed for. The prayer of the petition must, therefore, be denied. And
without any finding as to costs, it is so ordered.

Street, Malcolm, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
 EN BANC

G.R. No. 41570 September 6, 1934

RED LINE TRANSPORTATION CO., petitioner-appellant,

vs.
RURAL TRANSIT CO., LTD., respondent-appellee.

L. D. Lockwood for appellant.

Ohnick and Opisso for appellee.

BUTTE, J.:

This case is before us on a petition for review of an order of the Public Service Commission
entered December 21, 1932, granting to the Rural Transit Company, Ltd., a certificate of public
convenience to operate a transportation service between Ilagan in the Province of Isabela and
Tuguegarao in the Province of Cagayan, and additional trips in its existing express service
between Manila Tuguegarao.

On June 4, 1932, the Rural Transit Company, Ltd., a Philippine corporation, filed with the Public
Company Service Commission an application in which it is stated in substance that it is the
holder of a certificate or public convenience to operate a passenger bus service between Manila
and Tuguegarao; that it is the only operator of direct service between said points and the present
authorized schedule of only one trip daily is not sufficient; that it will be also to the public
convenience to grant the applicant a certificate for a new service between Tuguegarao and
Ilagan.

On July 22, 1932, the appellant, Red Line Transportation Company, filed an opposition to the
said application alleging in substance that as to the service between Tuguegarao and Ilagan, the
oppositor already holds a certificate of public convenience and is rendering adequate and
satisfactory service; that the granting of the application of the Rural Transit Company, Ltd.,
would not serve public convenience but would constitute a ruinous competition for the oppositor
over said route.

After testimony was taken, the commission, on December 21, 1932, approved the application of
the Rural Transit Company, Ltd., and ordered that the certificate of public convenience applied
for be "issued to the applicant Rural Transit Company, Ltd.," with the condition, among others,
that "all the other terms and conditions of the various certificates of public convenience of the
herein applicant and herein incorporated are made a part hereof."

On January 14, 1933, the oppositor Red Line Transportation Company filed a motion for
rehearing and reconsideration in which it called the commission's attention to the fact that there
was pending in the Court of First Instance of Manila case N. 42343, an application for the
voluntary dissolution of the corporation, Rural Transit Company, Ltd. Said motion for
reconsideration was set down for hearing on March 24, 1933. On March 23, 1933, the Rural
Transit Company, Ltd., the applicant, filed a motion for postponement. This motion was verified
by M. Olsen who swears "that he was the secretary of the Rural Transit Company, Ltd., in the
above entitled case." Upon the hearing of the motion for reconsideration, the commission
admitted without objection the following documents filed in said case No. 42343 in the Court of
First Instance of Manila for the dissolution of the Rural Transit Company, Ltd. the petition for
dissolution dated July 6, 1932, the decision of the said Court of First Instance of Manila, dated
February 28, 1933, decreeing the dissolution of the Rural Transit Company, Ltd.

At the trial of this case before the Public Service Commission an issue was raised as to who was
the real party in interest making the application, whether the Rural Transit Company, Ltd., as
appeared on the face of the application, or the Bachrach Motor Company, Inc., using name of the
Rural Transit Company, Ltd., as a trade name. The evidence given by the applicant's secretary,
Olsen, is certainly very dubious and confusing, as may be seen from the following:

Q. Will you please answer the question whether it is the Bachrach Motor
Company operating under the trade name of the Rural Transit Company, Limited, or
whether it is the Rural Transit Company, Limited in its own name this application was
filed?

A. The Bachrach Motor Company is the principal stockholder.

Q. Please answer the question.

ESPELETA. Objecion porque la pregunta ya ha sido contestada.

JUEZ. Puede contestar.

A. I do not know what the legal construction or relationship existing between the
two.

JUDGE. I do not know what is in your mind by not telling the real applicant in this case?

A. It is the Rural Transit Company, Ltd.

JUDGE. As an entity by itself and not by the Bachrach Motor Company?

A. I do not know. I have not given that phase of the matter much thought, as in
previous occassion had not necessitated.

JUDGE. In filing this application, you filed it for the operator on that line? Is it not!

A. Yes, sir.

JUDGE. Who is that operator?

A. The Rural Transit Company, Ltd.

 JUDGE. By itself, or as a commercial name of the Bachrach Motor Company?

A. I cannot say.

ESPELETA. The Rural Transit Company, Ltd., is a corporation duly established in

accordance with the laws of the Philippine Islands.

JUDGE. According to the records of this commission the Bachrach Motor Company is
the owner of the certificates and the Rural Transit Company, Ltd., is operating without
any certificate.

JUDGE. If you filed this application for the Rural Transit Company, Ltd., and afterwards
it is found out that the Rural Transit Company, Ltd., is not an operator, everything will be
turned down.

JUDGE. My question was, when you filed this application you evidently made it for the
operator?

A. Yes, sir.

JUDGE. Who was that operator you had in mind?

A. According to the status of the ownership of the certificates of the former Rural
Transit Company, the operator was the operator authorized in case No. 23217 to whom
all of the assets of the former Rural Transit Company were sold.

JUDGE. Bachrach Motor Company?

A. All actions have been prosecuted in the name of the Rural Transit Company,
Ltd.

JUDGE. You mean the Bachrach Motor Company, Inc., doing business under the name
of the Rural Transit Company, Ltd.?

A. Yes, sir.

LOCKWOOD. I move that this case be dismissed, your Honor, on the ground that this
application was made in the name of one party but the real owner is another party.

ESPELETA. We object to that petition.

JUDGE. I will have that in mind when I decide the case. If I agree with you everything
would be finished.

The Bachrach Motor Company, Inc., entered no appearance and ostensibly took no part in the
hearing of the application of the Rural Transit Company, Ltd. It may be a matter of some
surprise that the commission did not on its own motion order the amendment of the application
by substituting the Bachrach Motor Company, Inc., as the applicant. However, the hearing
proceeded on the application as filed and the decision of December 2, 1932, was rendered in
favor of the Rural Transit Company, Ltd., and the certificate ordered to be issued in its name, in
the face of the evidence that the said corporation was not the real party in interest. In its said
decision, the commission undertook to meet the objection by referring to its resolution of
November 26, 1932, entered in another case. This resolution in case No. 23217 concludes as
follows:

Premises considered we hereby authorize the Bachrach Motor Co., Inc., to continue using
the name of "Rural Transit Co., Ltd.," as its trade name in all the applications, motions or
other petitions to be filed in this commission in connection with said business and that
this authority is given retroactive effect as of the date, of filing of the application in this
case, to wit, April 29, 1930.

We know of no law that empowers the Public Service Commission or any court in this
jurisdiction to authorize one corporation to assume the name of another corporation as a trade
name. Both the Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine
corporations and the very law of their creation and continued existence requires each to adopt
and certify a distinctive name. The incorporators "constitute a body politic and corporate under
the name stated in the certificate." (Section 11, Act No. 1459, as amended.) A corporation has
the power "of succession by its corporate name." (Section 13, ibid.) The name of a corporation is
therefore essential to its existence. It cannot change its name except in the manner provided by
the statute. By that name alone is it authorized to transact business. The law gives a corporation
no express or implied authority to assume another name that is unappropriated: still less that of
another corporation, which is expressly set apart for it and protected by the law. If any
corporation could assume at pleasure as an unregistered trade name the name of another
corporation, this practice would result in confusion and open the door to frauds and evasions and
difficulties of administration and supervision. The policy of the law expressed in our corporation
statute and the Code of Commerce is clearly against such a practice. (Cf. Scarsdale Pub. Co.
Colonial Press vs. Carter, 116 New York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish
Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)

The order of the commission of November 26, 1932, authorizing the Bachrach Motor Co.,
Incorporated, to assume the name of the Rural Transit Co., Ltd. likewise in corporated, as its
trade name being void, and accepting the order of December 21, 1932, at its face as granting a
certificate of public convenience to the applicant Rural Transit Co., Ltd., the said order last
mentioned is set aside and vacated on the ground that the Rural Transit Company, Ltd., is not the
real party in interest and its application was fictitious.

In view of the dissolution of the Rural Transit Company, Ltd. by judicial decree of February 28,
1933, we do not see how we can assess costs against said respondent, Rural Transit Company,
Ltd.

Malcolm, Villa-Real, Imperial and Goddard, JJ., concur.