Sulo ng Bayan vs.

Araneta
Facts: On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with
the Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan,
against Gregorio Araneta Inc. (GAI), Paradise Farms Inc., National Waterworks &
Sewerage Authority (NAWASA), Hacienda Caretas Inc., and the Register of Deeds of
Bulacan to recover the ownership and possession of a large tract of land in San Jose
del Monte, Bulacan, containing an area of 27,982,250 sq. ms., more or less,
registered under the Torrens System in the name of GAI, et. al.'s predecessors-ininterest (who are members of the corporation). On 2 September 1966, GAI filed a
motion to dismiss the amended complaint on the grounds that (1) the complaint
states no cause of action; and (2) the cause of action, if any, is barred by
prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed
motions to dismiss based on the same grounds. NAWASA did not file any motion to
dismiss. However, it pleaded in its answer as special and affirmative defenses lack
of cause of action by Sulo ng Bayan Inc. and the barring of such action by
prescription and laches. On 24 January 1967, the trial court issued an Order
dismissing the (amended) complaint. On 14 February 1967, Sulo ng Bayan filed a
motion to reconsider the Order of dismissal, arguing among others that the
complaint states a sufficient cause of action because the subject matter of the
controversy in one of common interest to the members of the corporation who are
so numerous that the present complaint should be treated as a class suit. The
motion was denied by the trial court in its Order dated 22 February 1967.
Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, the Court of
Appeals, upon finding that no question of fact was involved in the appeal but only
questions of law and jurisdiction, certified the case to the Supreme Court for
resolution of the legal issues involved in the controversy.
Issue: Whether the corporation (non-stock) may institute an action in behalf of its
individual members for the recovery of certain parcels of land allegedly owned by
said members, among others.
Held: It is a doctrine well-established and obtains both at law and in equity that a
corporation is a distinct legal entity to be considered as separate and apart from the
individual stockholders or members who compose it, and is not affected by the
personal rights, obligations and transactions of its stockholders or members. The
property of the corporation is its property and not that of the stockholders, as
owners, although they have equities in it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its members.
Conversely, a corporation ordinarily has no interest in the individual property of its
stockholders unless transferred to the corporation, "even in the case of a one-man
corporation." The mere fact that one is president of a corporation does not render
the property which he owns or possesses the property of the corporation, since the
president, as individual, and the corporation are separate similarities. Similarly,
stockholders in a corporation engaged in buying and dealing in real estate whose
certificates of stock entitled the holder thereof to an allotment in the distribution of
the land of the corporation upon surrender of their stock certificates were

considered not to have such legal or equitable title or interest in the land, as would
support a suit for title, especially against parties other than the corporation. It must
be noted, however, that the juridical personality of the corporation, as separate and
distinct from the persons composing it, is but a legal fiction introduced for the
purpose of convenience and to subserve the ends of justice. This separate
personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to
work -an injustice, or where necessary to achieve equity. It has not been claimed
that the members have assigned or transferred whatever rights they may have on
the land in question to the corporation. Absent any showing of interest, therefore, a
corporation, has no personality to bring an action for and in behalf of its
stockholders or members for the purpose of recovering property which belongs to
said stockholders or members in their personal capacities.
Cagayan Fishing Development Co., Inc., vs. Sandiko
Facts: Manuel Tabora is the registered owner of four parcels of land. To guarantee
the payment of two loans, Manuel Tabora, executed in favor of PNB two mortgages
over the four parcels of land between August, 1929, and April 1930. Later, a third
mortgage on the same lands was executed also on April, 1930 in favor of Severina
Buzon to whom Tabora was indebted.
On May, 1930, Tabora executed a public document entitled "Escritura de Transpaso
de Propiedad Inmueble" (Exhibit A) by virtue of which the four parcels of land owned
by him was sold to the plaintiff company, said to under process of incorporation.
The plaintiff company filed its article incorporation with the Bureau of Commerce
and Industry only on October, 1930 (Exhibit 2).
A year later, the board of directors of said company adopted a resolution
authorizing its president to sell the four parcels of lands in question to Teodoro
Sandiko. Exhibits B, C and D were thereafter made and executed. Exhibit B is a deed
of sale where the plaintiff sold ceded and transferred to the defendant all its right,
titles, and interest in and to the four parcels of land. Exhibit C is a promissory
note drawn by the defendant in favor of the plaintiff, payable after one year from
the date thereof. Exhibit D is a deed of mortgage executed where the four parcels of
land were given a security for the payment of the promissory note, Exhibit C.
The defendant having failed to pay the sum stated in the promissory note, plaintiff,
brought this action in the Court of First Instance of Manila praying that judgment be
rendered against the defendant for the sum stated in the promissory note. After
trial, the court rendered judgment absolving the defendant. Plaintiff presented a
motion for new trial, which motion was denied by the trial court. After due exception
and notice, plaintiff has appealed to this court and makes an assignment of various
errors.
Issue: Whether Exhibit B, the deed of sale executed in favor of Teodoro Sandiko,
was valid.
Held: No, it was not.

The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff
herein, was affected on May 31, 1930 (Exhibit A) and the actual incorporation of
said company was affected later on October 22, 1930 (Exhibit 2). In other words,
the transfer was made almost five months before the incorporation of the company.
Unquestionably, a duly organized corporation has the power to purchase and hold
such real property as the purposes for which such corporation was formed may
permit and for this purpose may enter into such contracts as may be necessary. But
before a corporation may be said to be lawfully organized, many things have to be
done. Among other things, the law requires the filing of articles of incorporation.
In the case before us it cannot be denied that the plaintiff was not yet incorporated
when it entered into a contract of sale, Exhibit A. Not being in legal existence then,
it did not possess juridical capacity to enter into the contract.
Boiled down to its naked reality, the contract here (Exhibit A) was entered into not
between Manuel Tabora and a non-existent corporation but between the Manuel
Tabora as owner of the fourparcels of lands on the one hand and the same Manuel
Tabora, his wife and others, as mere promoters of a corporation on the other hand.
For reasons that are self-evident, these promoters could not have acted as agent for
a projected corporation since that which no legal existence could have no agent. A
corporation, until organized, has no life and therefore no faculties.
This is not saying that under no circumstances may the acts of promoters of a
corporation be ratified by the corporation if and when subsequently organized.
There are, of course, exceptions, but under the peculiar facts and circumstances of
the present case we decline to extend the doctrine of ratification which would result
in the commission of injustice or fraud to the candid and unwary.