CORPO 6

LOYOLA GRAND VILLAS VS CA

FACTS:
Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was organized on 8
February 1983 as the homeoenwers' association for Loyola Grand Villas. It was
also registered as the sole homeowners' association in the said village with the
Home Financing Corporation (which eventually became Home Insurance
Guarantee Corporation ["HIGC"]). However, the association was not able file its
corporate by-laws.
The LGVHAI officers then tried to registered its By-Laws in 1988, but they failed to
do so. They then discovered that there were two other homeowners' organizations
within the subdivision - the Loyola Grand Villas Homeowners (North) Association,
Inc. [North Association] and herein Petitioner Loyola Grand Villas Homeowners
(South) Association, Inc.["South Association].
Upon inquiry by the LGVHAI to HIGC, it was discovered that LGVHAI was dissolved
for its failure to submit its by-laws within the period required by the Corporation
Code and for its non-user of corporate charter because HIGC had not received any
report on the association's activities. These paved the way for the formation of
the North and South Associations.
LGVHAI then lodged a complaint with HIGC Hearing Officer Danilo Javier, and
questioned the revocation of its registration. Hearing Officer Javier ruled in favor
of LGVHAI, revoking the registration of the North and South Associations.
Petitioner South Association appealed the ruling, contending that LGVHAI's failure
to file its by-laws within the period prescribed by Section 46 of the Corporation
Code effectively automatically dissolved the corporation. The Appeals Board of
the HIGC and the Court of Appeals both rejected the contention of the Petitioner
affirmed the decision of Hearing Officer Javier.
Issue:
W/N LGVHAI's failure to file its by-laws within the period prescribed by Section 46
of the Corporation Code had the effect of automatically dissolving the said
corporation.
Ruling:
No.
The pertinent provision of the Corporation Code that is the focal point of
controversy in this case states:
Sec. 46. Adoption of by-laws. - Every corporation formed under this Code, must
within one (1) month after receipt of official notice of the issuance of its certificate
of incorporation by the Securities and Exchange Commission, adopt a code of bylaws for its government not inconsistent with this Code.
Ordinarily, the word "must" connotes an imposition of duty which must be
enforced. However, the word "must" in a statute, like "shall," is not always
imperative. It may be consistent with an ecercise of discretion. If the language of
a statute, considered as a whole with due regard to its nature and object, reveals
that the legislature intended to use the words "shall" and "must" to be directory,
they should be given that meaning.

The legislative deliberations of the Corporation Code reveals that it was not the
intention of Congress to automatically dissolve a corporation for failure to file the
By-Laws on time.
Moreover, By-Laws may be necessary to govern the corporation, but By-Laws are
still subordinate to the Articles of Incorporation and the Corporation Code. In fact,
there are cases where By-Laws are unnecessary to the corporate existence and to
the valid exercise of corporate powers.
The Corporation Code does not expressly provide for the effects of non-filing of
By-Laws. However, these have been rectified by Section 6 of PD 902-A which
provides that SEC shall possess the power to suspend or revoke, after proper
notice and hearing, the franchise or certificate of registration of corporations upon
failure to file By-Laws within the required period.
This shows that there must be notice and hearing before a corporation is
dissolved for failure to file its By-Laws. Even assuming that the existence of a
ground, the penalty is not necessarily revocation, but may only be suspension.
By-Laws are indispensable to corporations, since they are required by law for an
orderly management of corporations. However, failure to file them within the
period prescribed does not equate to the automatic dissolution of a corporation.
PMI COLLEGE VS NLRC
FACTS:
In 1991, PMI Colleges hired the services of Alejandro Galvan for the latter to teach
in said institution. However, for unknown reasons, PMI defaulted from paying the
remunerations due to Galvan. Galvan made demands but were ignored by PMI.
Eventually, Galvan filed a labor case against PMI. Galvan got a favorable
judgment from the Labor Arbiter; this was affirmed by the National Labor
Relations Commission. On appeal, PMI reiterated, among others, that the
employment of Galvan is void because it did not comply with its by-laws.
Apparently, the by-laws require that an employment contract must be signed by
the Chairman of the Board of PMI. PMI asserts that Galvans employment contract
was not signed by the Chairman of the Board.
ISSUE:
Whether or not Galvans employment contract is void.
HELD:
No. PMI Colleges never even presented a copy of the by-laws to prove the
existence of such provision. But even if it did, the employment contract cannot be
rendered invalid just because it does not bear the signature of the Chairman of
the Board of PMI. By-Laws operate merely as internal rules among the
stockholders, they cannot affect or prejudice third persons who deal with the
corporation, unless they have knowledge of the same. In this case, PMI was not
able to prove that Galvan knew of said provision in the by-laws when he was
employed by PMI.
PENA VS CA
FACTS:

PAMPANGA BUS CO., INC. (PAMBUSCO) is the owner of the three lots in dispute.
PAMBUSCO mortgaged the lots to the Development Bank of the Philippines (DBP),
which were later on foreclosed.
Rosita Pea was awarded the lots in a foreclosure sale for being the highest
bidder. The certificate of sale was later issued to her and registered in her name.
Subsequently, the Board of Directors of PAMBUSCO, through three out of its five
directors, issued a resolution to assign its right of redemption over the lots in
favor of any interested party. The right of redemption was later on assigned to
Marcelino Enriquez, who redeemed the property.
Enriquez then sold the lots to spouses Rising T. Yap and Catalina Lugue-Yap.
Meanwhile, a case involving the validity of the sale to the spouses Yap was
pending, and despite the protestations of Pea as to validity of the PAMBUSCO's
assignment of the right of redemption, the lots were somehow registered in the
name of spouses Yap. Despite the registration of the lots to spouses Yap, Pea
retained possession of the property.
Spouses Yap sought to recover the possession of the lots from Pea. The latter
countered that she is now the legitimate owner of the subject lands for having
purchased the same in a foreclosure proceeding instituted by the DBP against
PAMBUSCO and no valid redemption having been effected within the period
provided by law.
The defense was that since the deed of assignment executed by PAMBUSCO in
favor of Enriquez was void ab initio for being an ultra vires act of its board of
directors and for being without any valuable consideration, it could not have had
any legal effect.
(It should be noted that the by-laws of PAMBUSCO provide that four out of five
directors must be present in a special meeting of the board to constitute a
quorum, and that the corporation has already ceased to operate.)
CFI ruled in favor of Petitioner Pea, but the same was overturned by the CA.
Issue:
W/N there Pea is entitled to the lots.
Ruling:
Yes.
The by-laws of a corporation are its own private laws which substantially have the
same effect as the laws of the corporation. They are in effect, written, into the
charter. In this sense they become part of the fundamental law of the corporation
with which the corporation and its directors and officers must comply.
Apparently, only three (3) out of five (5) members of the board of directors of
respondent PAMBUSCO convened by virtue of a prior notice of a special meeting.
There was no quorum to validly transact business since it is required under its bylaws that at least four (4) members must be present to constitute a quorum in a
special meeting of the board of directors.
Under Section 25 of the Corporation Code of the Philippines, the articles of
incorporation or by-laws of the corporation may fix a greater number than the
majority of the number of board members to constitute the quorum necessary for

the valid transaction of business. Any number less than the number provided in
the articles or by-laws therein cannot constitute a quorum and any act therein
would not bind the corporation; all that the attending directors could do is to
adjourn.
Moreover, the records show that respondent PAMBUSCO ceased to operate for
about 25 years prior to the board meeting. Being a dormant corporation for
several years, it was highly irregular, for a group of three (3) individuals
representing themselves to be the directors of respondent PAMBUSCO to pass a
resolution disposing of the only remaining asset of the corporation in favor of a
former corporate officer.
As a matter of fact, the three (3) alleged directors who attended the special
meeting on November 19, 1974 were not listed as directors of respondent
PAMBUSCO in the latest general information sheet. Similarly, the latest list of
stockholders of respondent PAMBUSCO on file with the SEC does not show that
the said alleged directors were among the stockholders of respondent PAMBUSCO,
in contravention of the rule requiring a director to own one (1) share in their to
qualify as director of a corporation.
Further, under the Corporation Law, the sale or disposition of any and/or
substantially all properties of the corporation requires, in addition to a proper
board resolution, the affirmative votes of the stockholders holding at least twothirds (2/3) of the voting power in the corporation in a meeting duly called for that
purpose. This was not complied with in the case at bar.
At the time of the passage of the questioned resolution, respondent PAMBUSCO
was insolvent and its only remaining asset was its right of redemption over the
subject properties. Since the disposition of said redemption right of respondent
PAMBUSCO by virtue of the questioned resolution was not approved by the
required number of stockholders, the said resolution, as well as the subsequent
assignment and sale, were null and void.
Lastly, for lack of consideration, the assignment should be construed as a
donation. Under Article 725 of the Civil Code, in order to be valid, such a donation
must be made in a public document and the acceptance must be made in the
same or in a separate instrument. In the latter case, the donor shall be notified of
the acceptance in an authentic form and such step must be noted in both
instruments. Since assignment to Enriquez shows that there was no acceptance of
the donation in the same and in a separate document, the said deed of
assignment is thus void ab initio.
SANTOS VS NLRC
Facts:
Melvin D. Millena, on 1 October 1985, was hired to be the project accountant for
Mana Mining and Development Corporation's (MMDC) mining operations in Gatbo,
Bacon, Sorsogon. On 12 August 1986, Millena sent to Mr. Gil Abao, the MMDC
corporate treasurer, a memorandum calling the latter's attention to the failure of
the company to comply with the withholding tax requirements of, and to make the
corresponding monthly remittances to, the Bureau of Internal Revenue (BIR) on
account of delayed payments of accrued salaries to the company's laborers and
employees. In a letter, dated 8 September 1986, Abao advised Millena that it
was the board's decision that it stop porduction (operation) in Sorsogon due to the
upcoming rainy seasons and the deterioration of the peace and order in the said
area; that the corporation will undertake only necessary maintenance and repair
work and will keep overhead down to the minimum manageable level; and that
the corporation will not need a project accountant until the corporaton resumes

full-scale operations. Millena expressed "shock" over the termination of his

employment.
He complained that he would not have resigned from the Sycip, Gores & Velayo
accounting firm, where he was already a senior staff auditor, had it not been for
the assurance of a "continuous job" by MMDC's Eng. Rodillano E. Velasquez.
Millena requested that he be reimbursed the "advances" he had made for the
company and be paid his "accrued salaries/claims." The claim was not heeded. On
October 1986, Millena filed with the NLRC Regional Arbitration, Branch No. V, in
Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13th month pay,
overtime pay, separation pay and incentive leave pay against MMDC and its two
top officials, namely, Benjamin A Santos (the President) and Rodillano A.
Velasquez (the executive vice-president). In his complaint-affidavit (position
paper), submitted on 27 October 1986, Millena alleged, among other things, that
his dismissal was merely an offshoot of his letter of 12 August 1986 to Abao
about the company's inability to pay its workers and to remit withholding taxes to
the BIR. On 27 July 1988, Labor Arbiter Fructouso T. Aurellano, finding no valid
cause for terminating complaint's employment, ruledthat a partial closure of an
establishment due to losses was a retrenchment measure that rendered the
employer liable for unpaid salaries and other monetary claims.
The Labor Arbiter ordered Santos, et. al. to pay Millena the amount of P37,132.25
corresponding to the latter's unpaid salaries and advances: P5,400.00 for
petitioner's 13th month pay; P3,340.95 as service incentive leave pay; and P5,
400.00 as separation pay. Santos, et. al. were further ordered to pay Millena 10%
of the monetary awards as attorney's fees. Alleging abuse of discretion by the
Labor Arbiter, the company and its co-respondents filed a "motion for
reconsideration and /or appeal." 8 The motion/appeal was forthwith indorsed to
the Executive Director of the NLRC in Manila. In a resolution, dated 04 September
1989, the NLRC affirmed the decision of the Labor Arbiter. A writ of execution
correspondingly issued; however, it was returned unsatisfied for the failure of the
sheriff to locate the offices of the corporation in the addressed indicated. Another
writ of execution and an order of garnishment was thereupon served on Santos at
his residence. Contending that he had been denied due process, Santos filed a
motion for reconsideration of the NLRC's resolution along with a prayer for the
quashal of the writ of execution and order of garnishment. He averred that he had
never received any notice, summons or even a copy of the complaint; hence, he
said, the Labor Arbiter at no time had acquired jurisdiction over him. On 16
August 1991, the NLRC dismissed the motion for reconsideration. Santos filed the
petition for certiorari.
Issue:
Whether Santos should be made solidarily liable with MMDC.
Held:
A corporation is a judicial entity with legal personality separated and distinct from
those acting for and in its behalf and, in general, from the people comprising it.
The rule is that obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities. Nevertheless, being a
mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit
done sparingly, the disregard of its independent being and the lifting of the
corporate veil. As a rule, this situation might arise a corporation is used to evade
a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to
carry out similar other unjustifiable aims or intentions, or as a subterfuge to
commit injustice and so circumvent the law. Without necessarily piercing the veil
of corporate fiction, personal civil liability can also be said to lawfully attach to a
corporate director, trustee or officer; to wit: When (1) He assents (a) to a patently

unlawful act of the corporation, or (b) for bad faith or gross negligence in directing
its affairs, or (b) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons; (2) He consents to the issuance of watered stocks
or who, having knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto; (3) He agrees to hold himself personally
and solidarily liable with the corporation; or (4) He is made, by a specific provision
of law, to personally answer for his corporate action. The case of Santos is way of
these exceptional instances. It is not even shown that Santos has had a direct
hand in the dismissal of Millena enough to attribute to Santos a patently unlawful
act while acting for the corporation. Neither can Article 289 of the Labor Code be
applied since this specifically refers only to the imposition of penalties under the
Code. It is undisputed that the termination of Millena's employment has, instead,
been due, collectively, to the need for a further mitigation of losses, the onset of
the rainy season, the insurgency problem, in Sorsogon and the lack of funds to
further support the mining operation in Gatbo. It is basic that a corporation is
invested by law with a personally separate and distinct from those of the persons
composing it as well as from that of any, other legal entity to which it may be
related. Mere ownership by a single stockholder or by another corporation of all
nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personally. Similar to the case of Sunio vs.
National Labor Relations Commission, Santos should not have been made
personally answerable for the payment of Millena's back salaries.
STOCKHOLDERS OF GUANZON VS RGISTER OF DEEDS MANILA
FACTS:
On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc.
executed a certificate of liquidation of the assets of the corporation reciting,
among other things, that by virtue of a resolution of the stockholders adopted on
September 17, 1960, dissolving the corporation, they have distributed among
themselves in proportion to their shareholdings, as liquidating dividends, the
assets of said corporation, including real properties located in Manila.
The certificate of liquidation, when presented to the Register of Deeds of Manila,
was denied registration.
ISSUE:
whether or not that certificate merely involves a distribution of the corporation's
assets or should be considered a transfer or conveyance.
HELD:
We agree with the opinion of these two officials. A corporation is a juridical person
distinct from the members composing it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its members.
While shares of stock constitute personal property they do not represent property
of the corporation. The corporation has property of its own which consists chiefly
of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145
Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the
corporation's property, or the right to share in its proceeds to that extent when
distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala
398, 56 So., 235), but its holder is not the owner of any part of the capital of the
corporation (Bradley v. Bauder 36 Ohio St., 28). Nor is he entitled to the
possession of any definite portion of its property or assets (Gottfried v. Miller, 104
U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or
tenant in common of the corporate property (Halton v. Hohnston, 166 Ala 317, 51
So 992).

On the basis of the foregoing authorities, it is clear that the act of liquidation
made by the stockholders of the F. Guanzon and Sons, Inc. of the latter's assets is
not and cannot be considered a partition of community property, but rather a
transfer or conveyance of the title of its assets to the individual stockholders.
Indeed, since the purpose of the liquidation, as well as the distribution of the
assets of the corporation, is to transfer their title from the corporation to the
stockholders in proportion to their shareholdings, and this is in effect the
purpose which they seek to obtain from the Register of Deeds of Manila, that
transfer cannot be effected without the corresponding deed of conveyance from
the corporation to the stockholders. It is, therefore, fair and logical to consider the
certificate of liquidation as one in the nature of a transfer or conveyance.
MANILA GAS VS CIR
FACTS:
The facts, as stated by the appellant and as accepted by the appellee, may be
summarized as follows: The plaintiff is a corporation organized under the laws of
the Philippine Islands. It operates a gas plant in the City of Manila and furnishes
gas service to the people of the metropolis and surrounding municipalities by
virtue of a franchise granted to it by the Philippine Government. Associated with
the plaintiff are the Islands Gas and Electric Company domiciled in New York,
United States, and the General Finance Company domiciled in Zurich, Switzerland.
Neither of these last mentioned corporations is resident in the Philippines.
For the years 1930, 1931, and 1932, dividends in the sum of P1,348,847.50 were
paid by the plaintiff to the Islands Gas and Electric Company in the capacity of
stockholders upon which withholding income taxes were paid to the defendant
totalling P40,460.03 For the same years interest on bonds in the sum of P411,600
was paid by the plaintiff to the Islands Gas and Electric Company upon which
withholding income taxes were paid to the defendant totalling P12,348. Finally for
the stated time period, interest on other indebtedness in the sum of P131,644,90
was paid by the plaintiff to the Islands Gas and Electric Company and the General
Finance Company respectively upon which withholding income taxes were paid to
the defendant totalling P3,949.34.
Some uncertainty existing regarding the place of payment, we will not go into this
factor of the case at this point, except to remark that the bonds and other tokens
of indebtedness are not to be found in the record. However, Exhibits E, F, and G,
certified correct by the Treasurer of the Manila Gas Corporation, purport to prove
that the place of payment was the United States and Switzerland.
ISSUE:
WON
1. The trial court erred in holding that the dividends paid by the plaintiff
corporation were subject to income tax in the hands of its stockholders, because
to impose the tax thereon would be to impose a tax on the plaintiff, in violation of
the terms of its franchise, and would, moreover, be oppressive and inequitable.
2. The trial court erred in not holding that the interest on bonds and other
indebtedness of the plaintiff corporation, paid by it outside of the Philippine
Islands to corporations not residing therein, were not, on the part of the recipients
thereof, income from Philippine sources, and hence not subject to Philippine
income tax.
HELD:

The approved doctrine is that no state may tax anything not within its jurisdiction
without violating the due process clause of the constitution. The taxing power of a
state does not extend beyond its territorial limits, but within such it may tax
persons, property, income, or business. If an interest in property is taxed, the situs
of either the property or interest must be found within the state. If an income is
taxed, the recipient thereof must have a domicile within the state or the property
or business out of which the income issues must be situated within the state so
that the income may be said to have a situs therein. Personal property may be
separated from its owner, and he may be taxed on its account at the place where
the property is although it is not the place of his own domicile and even though he
is not a citizen or resident of the state which imposes the tax. But debts owing by
corporations are obligations of the debtors, and only possess value in the hands of
the creditors.
These views concerning situs for taxation purposes apply as well to an organized,
unincorporated territory or to a Commonwealth having the status of the
Philippines.
Pushing to one side that portion of Act No. 3761 which permits taxation of interest
on bonds and other indebtedness paid without the Philippine Islands, the question
is if the income was derived from sources within the Philippine Islands.
In the judgment of the majority of the court, the question should be answered in
the affirmative. The Manila Gas Corporation operates its business entirely within
the Philippines. Its earnings, therefore come from local sources. The place of
material delivery of the interest to the foreign corporations paid out of the
revenue of the domestic corporation is of no particular moment. The place of
payment even if conceded to be outside of tho country cannot alter the fact that
the income was derived from the Philippines. The word "source" conveys only one
idea, that of origin, and the origin of the income was the Philippines.
In synthesis, therefore, we hold that conditions have not been provided which
justify the court in passing on the constitutional question suggested; that the facts
while somewhat obscure differ from the facts to be found in the cases relied upon,
and that the Collector of Internal Revenue was justified in withholding income
taxes on interest on bonds and other indebtedness paid to non-resident
corporations because this income was received from sources within the Philippine
Islands as authorized by the Income Tax Law. For the foregoing reasons, the
second assigned error will be overruled.
Before concluding, it is but fair to state that the writer's opinion on the first
subject and the first assigned error herein discussed is accurately set forth, but
that his opinion on the second subject and the second assigned error is not
accurately reflected, because on this last division his views coincide with those of
the appellant. However, in the interest of the prompt disposition of this case, the
decision has been written up in accordance with instructions received from the
court.

MAGSAYSAY VS CA
FACTS:
On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special
administratix of the estate of the late Senator Genaro Magsaysay, brought before
the then Court of First Instance of Olongapo an action against Artemio
Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank

(FILMANBANK) and the Register of Deeds of Zambales, for the annulment of the
Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of
which TCT 3258 was cancelled and TCT 22431 issued in the name of SUBIC), for
the annulment of the Deed of Mortgage executed by SUBIC in favor of
FILMANBANK (dated 28 April 1977 in the amount of P 2,700,000.00), and
cancellation of TCT 22431 by the Register of Deeds, and for the latter to issue a
new title in her favor. On 7 March 1979, Concepcion Magsaysay-Labrador, Soledad
Magsaysay-Cabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes
Magsaysay-Diaz, sisters of the late senator, filed a motion for intervention on the
ground that on 20 June 1978, their brother conveyed to them 1/2 of his
shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around
41 % of the total outstanding shares of such stocks of SUBIC, they have a
substantial and legal interest in the subject matter of litigation and that they have
a legal interest in the success of the suit with respect to SUBIC. On 26 July 1979,
the trial court denied the motion for intervention, and ruled that petitioners have
no legal interest whatsoever in the matter in litigation and their being alleged
assignees or transferees of certain shares in SUBIC cannot legally entitle them to
intervene because SUBIC has a personality separate and distinct from its
stockholders.
On appeal, the Court of Appeals found no factual or legal justification to disturb
the findings of the lower court. The appellate court further stated that whatever
claims the Magsaysay sisters have against the late Senator or against SUBIC for
that matter can be ventilated in a separate proceeding. The motion for
reconsideration of the Magsaysay sisters was denied. Hence, the petition for
review on certiorari.
Issue:
Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested
parties in a case where corporate properties are in dispute.
Held:
Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the
Magsaysay sisters have no legal interest in the subject matter in litigation so as to
entitle them to intervene in the proceedings. To be permitted to intervene in a
pending action, the party must have a legal interest in the matter in litigation, or
in the success of either of the parties or an interest against both, or he must be so
situated as to be adversely affected by a distribution or other disposition of the
property in the custody of the court or an officer thereof . Here, the interest, if it
exists at all, of the Magsaysay sisters is indirect, contingent, remote, conjectural,
consequential and collateral. At the very least, their interest is purely inchoate, or
in sheer expectancy of a right in the management of the corporation and to share
in the profits thereof and in the properties and assets thereof on dissolution, after
payment of the corporate debts and obligations. While a share of stock represents
a proportionate or aliquot interest in the property of the corporation, it does not
vest the owner thereof with any legal right or title to any of the property, his
interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is
owned by the corporation as a distinct legal person.
GOOD EARTH VS CA
Facts:
A lease contract, dated October 16, 1981, was entered into by and between
Roces-Reyes Realty Inc. as lessor, and Good Earth Emporium Inc. (GEE) as lessee
for a term of three years beginning November 1, 1981 and ending October 31,

1984 at a monthly rental of Php65,000. The building which was the subject of the
contract of lease is a five story building located at the corner of Rizal Avenue and
Bustos Street in Sta. Cruz, Manila. From March 1983 up to the complaint was filed,
the lessee had defaulted in the payment of rentals, as a consequence of which,
private respondent Roces-Reyes Realty Inc. filed on October 14, 1984 an
ejectment case against herein petitioners, Good Earth Emporium Inc. and Lim Ka
Ring. After the latter had tendered their responsive pleading, the lower court on
motion of Roces rendered judgement on the pleadings dated April 17, 1984 to
which petitioners were ordered to vacate the premises and surrender the same to
the plaintiffs. On May 16, 1984, Roces filed a motion for execution which was
opposed by petitioners on May 28, 1984 simultaneous with the latters filing of a
notice of appeal. However, on August 15, 1984, GEE thru counsel filed a motion to
withdraw said appeal citing as reason that they are satisfied with the decision of
the lower court.
Issue:
Whether or not the payment made by GEE to the Roces brothers constitute
payment to private respondent corporation which would result to the
extinguishment of the obligation.
Held:
No. Under article 1240 of the civil code of the Philippines Payment shall be made
to the person in whose favor the obligation has been constituted, on his successor
in interest or any person authorized to receive it.
In the case at bar, the supposed payments were not made to Roces-Reyes Realty
Inc. or to its successors in interest nor is there positive evidence that payment
was made to a person authorized to receive it. No such proof was submitted but
merely inferred by the RTC from Marcos Roces having signed the lease contract as
President which was witnessed by Jesus Marcos Roces. The later, however, was no
longer President or even an officer of the Roces-Realty Inc at the time he received
the money and signed the sale with pacto de retro. He, in fact denied being in
possession of authority to receive payment for the respondent corporation nor
does the receipt show that he signed in the same capacity as he did in the lease
contract at a time when he was President for respondent corporation.
A corporation has a personality distinct and separate from its individual
stockholders or members. Being an officer or stockholder of a corporation does
not make ones property also of the corporation, and vice-versa, for they are
separate entities. Share owners are in no legal sense the owners corporate
property which is owned by the corporation as a distinct legal person. As a
consequence of the separate juridical personality of a corporation, the corporate
debt or credit is not the debt or credit of the stockholder, nor is the stockholders
debt or credit that of the corporation.