PIERCING THE CORPORATE VEIL: ALTER EGO DOCTRINE

G. C. ARNOLD vs.WILLITS & PATTERSON, LTD.

Facts:
That at the inception C.D. Willits and I. L. Patterson constituted the firm of Willits & Patterson doing business in the
City of San Francisco; that later Patterson retired from the firm, and Willits acquired all of his interests and
thereafter continued the business under the name and style of Willits & Patterson; The plaintiff was then in San
Francisco, and as a result of negotiations the plaintiff and the firm entered into a written contract, known in the
record as Exhibit A, by which the plaintiff was employed as the agent of the firm in the Philippine Islands for certain
purposes for the period of five years at a minimum salary of $200 per month and travelling expenses. Plaintiff
entered upon the discharged of his duties and continued his services in the Philippine Islands to someone for the
period of five years; that on November 10, 1919, and as a result of conferences between Willits and the plaintiff,
Exhibit B was addressed and signed in the manner and form above stated in the City of Manila. A short time prior to
that date Willits organized a corporation in San Francisco, in the State of California, which took over and acquired all
of the assets of the firm's business in California then being conducted under the name and style of Willits &
Patterson; that he subscribed for all of the capital stock of the corporation, and that in truth and in fact he was the
owner of all of its capital stock. After this was done he caused a new corporation to be organized under the laws of
the Philippine Islands with principal office at Manila, which took over and acquired all the business and assets of the
firm of Willits & Patterson in the Philippine Islands, in and to which, in legal effect, he subscribed for all of its capital
stock, and was the owner of all of its stock. After both corporations were organized the above letter was drafted and
signed.

A short time previous to that date, the San Francisco corporation became involved in financial trouble, and all of its
assets were turned over to a "creditors' committee." When this statement was received, the "creditors' committee"
immediately protested its allowance. On January 10, 1922, the plaintiff brought this action to recover from the
defendant the sum of P106,277.50 with legal interest and costs, and written instruments known in the record as
Exhibits A and B were attached to, and made a part of, the complaint.

The plaintiff contends that the signing of Exhibit B in the manner and under the conditions in which it was signed,
and through the subsequent acts and conduct of the parties, was ratified and, in legal effect, became and is now
binding upon the defendant.

Lower court rendered judgment in favor of the defendant as prayed for in its counterclaim, from which the plaintiff
appeals, contending that the trial court erred in not holding that the contract between the parties is that which is
embodied in Exhibits A and B, and that the defendant assumed all partnership obligations, and in failing to render
judgment for the plaintiff, as prayed for, and in dismissing his complaint, and denying plaintiff's motion for a new
trial

HELD:

The proposition that a corporation has an existence separate and distinct from its membership has its limitations. It
must be noted that this separate existence is for particular purposes. It must also be remembered that there can be
no corporate existence without persons to compose it; there can be no association without associates. This
separate existence is to a certain extent a legal fiction. Whenever necessary for the interests of the public or for the
protection or enforcement of the rights of the membership, courts will disregard this legal fiction and operate upon
both the corporation and the persons composing it.

"So long as a proper use is made of the fiction that a corporation is an entity apart from its shareholders, it is
harmless, and, because convenient, should not be called in question; but where it is urged to an end subversive of
its policy, or such is the issue, the fiction must be ignored, and the question determined whether the act in
question, though done by shareholders, that is to say, by the persons uniting in one body, was done simply as
individuals, and with respect to their individual interest as shareholders, or was done ostensibly as such, but, as a
matter of fact, to control the corporation, and affect the transaction of its business, in the same manner as if the act
had been clothed with all the formalities of a corporate act. This must be so, because, the stockholders having a
dual capacity, and capable of acting in either, and a possible interest to conceal their character when acting in their
corporate capacity, the absence of the formal evidence of the character of the act cannot preclude judicial inquiry
on the subject. If it were otherwise, then in that department of the law fraud would enjoy an immunity awarded to it
in no other."

Where the stock of a corporation is owned by one person whereby the corporation functions only for the benefit of
such individual owner, the corporation and the individual should be deemed to be the same. (U. S. Gypsum Co. vs.
Mackay Wall Plaster Co., 199 Pac., 249.)

As a general rule where a corporation, through its proper officers or board, takes and retains the benefits of the
unauthorized act or contract of an officer or agent, with full knowledge of all the material facts, it thereby ratifies
and becomes bound by such act of contract. Thus the corporation is liable on the ground of ratification where, with
knowledge of the facts, it accepts the benefit of services rendered under an unauthorized contract of
employment . . . .
As we analyze the facts Exhibit B was, in legal effect, ratified and approved and is now binding upon the defendant
corporation, and the plaintiff is entitled to recover for his services on that writing as it modified the original contract
Exhibit A.

The judgment of the lower court is reversed, and a money judgment will be entered here in favor of the plaintiff and
against the defendant for the sum of P68,527.50, with thereon at the rate of 6 per cent per annum from the 10th
day of January, 1922. In addition thereto, judgment will be rendered against the defendant in substance and to the
effect that the plaintiff is the owner of an undivided one-half interest in the promissory notes for P75,000 which
were executed by Cruz & Tan Chong Say, as a part of the purchase price of the oil, and that he is entitled to have
and receive one-half of all the proceeds from the notes or either of them, and that also he have judgment against
the defendant for costs. So ordered.

INCORPORATION MATTERS

SECTIONS 10-15, 18-19 CORPORATION CODE

INCORPORATION AND ORGANIZATION

OF PRIVATE CORPORATIONS

INCORPORATION- drafting and execution of Articles of Incorporation by the incorporators and other documents
required for registration of the corporation.
-Filing with the SEC of the Articles of Incorporation, payment of filing and publication fees and Issuance by
the SEC of the certificate of incorporation.

Sec. 10. Number and qualifications of incorporators. - Any number of natural persons not less than five (5) but not
more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private
corporation for any lawful purpose or purposes. Each of the incorporators of stock corporation must own or be a
subscriber to at least one (1) share of the capital stock of the corporation.

Sec. 11. Corporate term. - A corporation shall exist for a period not exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or unless said period is extended. The corporate term as originally stated in
the articles of incorporation may be extended for periods not exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance with this Code; Provided, That no extension can be made
earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for
an earlier extension as may be determined by the Securities and Exchange Commission.

Sec. 12. Minimum capital stock required of stock corporations. - Stock corporations incorporated under this Code
shall not be required to have any minimum authorized capital stock except as otherwise specifically provided for by
special law, and subject to the provisions of the following section.

Sec. 13. Amount of capital stock to be subscribed and paid for the purposes of incorporation. - At least twenty-five
percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the
time of incorporation, and at least twenty-five (25%) per cent of the total subscription must be paid upon
subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of call,
or in the absence of a fixed date or dates, upon call for payment by the board of directors: Provided, however, That
in no case shall the paid-up capital be less than five Thousand (P5,000.00) pesos.

Sec. 14. Contents of the articles of incorporation. - All corporations organized under this code shall file with the
Securities and Exchange Commission articles of incorporation in any of the official languages duly signed and
acknowledged by all of the incorporators, containing substantially the following matters, except as otherwise
prescribed by this Code or by special law:

1. The name of the corporation;

2. The specific purpose or purposes for which the corporation is being incorporated. Where a corporation has more
than one stated purpose, the articles of incorporation shall state which is the primary purpose and which is/are he
secondary purpose or purposes: Provided, That a non-stock corporation may not include a purpose which would
change or contradict its nature as such;

3. The place where the principal office of the corporation is to be located, which must be within the Philippines;

4. The term for which the corporation is to exist;

5. The names, nationalities and residences of the incorporators;

6. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15);
7. The names, nationalities and residences of persons who shall act as directors or trustees until the first regular
directors or trustees are duly elected and qualified in accordance with this Code;

8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines, the
number of shares into which it is divided, and in case the share are par value shares, the par value of each, the
names, nationalities and residences of the original subscribers, and the amount subscribed and paid by each on his
subscription, and if some or all of the shares are without par value, such fact must be stated;

9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of the
contributors and the amount contributed by each; and

10. Such other matters as are not inconsistent with law and which the incorporators may deem necessary and
convenient.
The Securities and Exchange Commission shall not accept the articles of incorporation of any stock corporation
unless accompanied by a sworn statement of the Treasurer elected by the subscribers showing that at least twenty-
five (25%) percent of the authorized capital stock of the corporation has been subscribed, and at least twenty-five
(25%) of the total subscription has been fully paid to him in actual cash and/or in property the fair valuation of
which is equal to at least twenty-five (25%) percent of the said subscription, such paid-up capital being not less
than five thousand (P5,000.00) pesos.

Sec. 15. Forms of Articles of Incorporation. - Unless otherwise prescribed by special law, articles of incorporation of
all domestic corporations shall comply substantially with the following form: XXXXXXXXXXX

Section 18. Corporate name. - No corporate name may be allowed by the Securities and Exchange Commission
if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any
other name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a
change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation
under the amended name. (n)

Section 19. Commencement of corporate existence. - A private corporation formed or organized under this
Code commences to have corporate existence and juridical personality and is deemed incorporated from the date
the Securities and Exchange Commission issues a certificate of incorporation under its official seal; and thereupon
the incorporators, stockholders/members and their successors shall constitute a body politic and corporate under
the name stated in the articles of incorporation for the period of time mentioned therein, unless said period is
extended or the corporation is sooner dissolved in accordance with law.

DEFINITION OF TERMS:

1. Trust Fund Doctrine - the subscribed capital stock of the corporation is a trust fund for the payment of debts of
the corporation which the creditors have the right to look up to satisfy their credits. Corporations may not dissipate
this and the creditors may sue the stockholders directly for their unpaid subscriptions

2. Capital stock - is the amount fixed in the articles of incorporation procured to be subscribed and paid-in. It is
settled that shares issued in excess of the authorized capital stocks are void.

3. Subscription contract. - is the mutual agreement of the corporation and subscriber to take and pay for the stock
of a corporation.

-Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be
formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties
refer to it as a purchase or some other contract. (Sec. 60)

*Section 13-Amount of capital stock to be subscribed and paid for the purposes of incorporation. - At least twenty-
five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at
the time of incorporation, and at least twenty-five (25%) per cent of the total subscription must be paid upon
subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of call,
or in the absence of a fixed date or dates, upon call for payment by the board of directors: Provided, however, That
in no case shall the paid-up capital be less than five Thousand (P5,000.00) pesos.

4. Pre-incorporation subscription - A subscription for shares of stock of a corporation still to be formed shall be
irrevocable for a period of at least six (6) months from the date of subscription, unless all of the other subscribers
consent to the revocation, or unless the incorporation of said corporation fails to materialize within said period or
within a longer period as may be stipulated in the contract of subscription: Provided, That no pre-incorporation
subscription may be revoked after the submission of the articles of incorporation to the Securities and Exchange
Commission (Sec. 61)
5. PAR VALUE SHARE- is one in the certificate of stock of which appears an amount in pesos as the nominal value
of shares. Such par value must be stated in the articles of incorporation and par share cannot be issued at less than
such par value, which can be changed only by an amendment of the articles of incorporation.

6. AUTHORIZED CAPITAL STOCK- the capital stock divided into shares.

-Under section 12, stock corporation incorporated shall not be required to have any minimumauthorized capital
stock except as otherwise specifically provided for by special law and provided that the paid-up capital cannot be
lower than 5000pesos.

*In a nominal practice, SEC will not allow a corporation to be organized with P5000.00 minimum pai-up capital
because it is too thinly capitalized. SEC can do this because as an administrative body that can make rules.

7. ARTICLES OF INCORPORATION- is a basic contract document in corporate law, defining the character of
corporation, and the contractual relationships between the State and the corporation, the stockholder and the State
and between the corporation and its stockholders.
- the document prepared by the persons establishing a corporation and filed with the SEC containing the
matters required by the Code.

8. BY LAWS- are meant to be an intramural document, to govern the relationship between and among the
members of a corporate family.
-are intended merely for the protectionof the corporation, and prescribe regulation, not restrictions

*Section 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 by-laws for its government not inconsistent with this Code. For the adoption of by-laws
by the corporation the affirmative vote of the stockholders representing at least a majority of the outstanding
capital stock, or of at least a majority of the members in case of non-stock corporations, shall be necessary. The by-
laws shall be signed by the stockholders or members voting for them and shall be kept in the principal office of the
corporation, subject to the inspection of the stockholders or members during office hours. A copy thereof, duly
certified to by a majority of the directors or trustees countersigned by the secretary of the corporation, shall be filed
with the Securities and Exchange Commission which shall be attached to the original articles of incorporation.

Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to
incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted to
the Securities and Exchange Commission, together with the articles of incorporation.

In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a
certification that the by-laws are not inconsistent with this Code.

The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of any
bank, banking institution, building and loan association, trust company, insurance company, public utility,
educational institution or other special corporations governed by special laws, unless accompanied by a certificate
of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law.

Section 20. De facto corporations. - The due incorporation of any corporation claiming in good faith to be a
corporation under this Code, and its right to exercise corporate powers, shall not be inquired into collaterally in any
private suit to which such corporation may be a party. Such inquiry may be made by the Solicitor General in a quo
warranto proceeding.

SEVENTH DAY ADVENTIST vs. NORTHEASTERN MINDANAO

Section 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a
result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by
it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of
corporate personality.

On who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the
ground that there was in fact no corporation.

PEOPLE VS GARCIA

LIM TONG VS. PHIL. FISHING GEAR

PIONEER INSURANCE VS COURT OF APPEALS

Section 17. Grounds when articles of incorporation or amendment may be rejected or disapproved. - The
Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto
if the same is not in compliance with the requirements of this Code: Provided, That the Commission shall give the
incorporators a reasonable time within which to correct or modify the objectionable portions of the articles or
amendment. The following are grounds for such rejection or disapproval:

1. That the articles of incorporation or any amendment thereto is not substantially in accordance with the form
prescribed herein;

2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to
government rules and regulations;

3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid is false;

4. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the Constitution.

No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking

institutions, building and loan associations, trust companies and other financial intermediaries, insurance
companies, public utilities, educational institutions, and other corporations governed by special laws shall be
accepted or approved by the Commission unless accompanied by a favorable recommendation of the appropriate
government agency to the effect that such articles or amendment is in accordance with law. (n)

Section 22. Effects on non-use of corporate charter and continuous inoperation of a corporation. - If a corporation
does not formally organize and commence the transaction of its business or the construction of its works within two
(2) years from the date of its incorporation, its corporate powers cease and the corporation shall be deemed
dissolved. However, if a corporation has commenced the transaction of its business but subsequently becomes
continuously inoperative for a period of at least five (5) years, the same shall be a ground for the suspension or
revocation of its corporate franchise or certificate of incorporation. (19a)

This provision shall not apply if the failure to organize, commence the transaction of its businesses or the
construction of its works, or to continuously operate is due to causes beyond the control of the corporation as may
be determined by the Securities and Exchange Commission

SEVENTH DAY ADVENTIST vs. NORTHEASTERN MINDANAO

FACTS: This case involves two supposed transfers of the lot previously owned by the spouses Cosio. The first
transfer was a donation to petitioners alleged predecessors-in-interest in 1959 while the secondtransfer was
through a contract of sale to respondents in 1980. A TCT was later issued in the name of respondents. Claiming to
be the alleged donees successors-in-interest, petitioners filed a case for cancellation of title, quieting of ownership
and possession, declaratory relief and reconveyance with prayer for preliminary injunction and damages against
respondents. Respondents, on the other hand,argued that at the time of the donation, petitioners predecessors-in-
interest has no juridical personalityto accept the donation because it was not yet incorporated. Moreover,
petitioners were not membersof the local church then.

The RTC upheld the sale in favor of respondents, which was affirmed by the Court of Appeals, onthe ground that all
the essential requisites of a contract were present and it also applied theindefeasibility of title.

ISSUE: Whether or not the donation was void.

HELD: Yes, the donation was void because the local church had neither juridical personality nor capacityto accept
such gift since it was inexistent at the time it was made.

The Court denied petitioners contention that there exists a de facto corporation.

While there existed the old Corporation Law (Act 1459), a law under which the local church could have been
organized, petitioners admitted that they did not even attempt to incorporate at that time nor theorganization was
registered at the Securities and Exchange Commission. Hence, petitioners obviously could not have claimed
succession to an entity that never came to exist. And since some of the representatives of petitioner Seventh Day
Adventist Conference Church of Southern Philippines, Inc.were not even members of the local church then, it
necessarily follows that they could not even claim that the donation was particularly for them.

PEOPLE VS GARCIA
PEOPLE OF THE PHILIPPINES
vs.
 ENGR. CARLOS GARCIA

FACTS:
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. 5
Esclada 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.

LIM TONG VS. PHIL. FISHING GEAR

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February
7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein
respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred
pieces of floats worth P68,000 were also sold to the Corporation.[4]

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection
suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was
brought against the three in their capacities as general partners, on the allegation that Ocean Quest Fishing
Corporation was a nonexistent corporation as shown by a Certification from the Securities and Exchange
Commission.[5] On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas,
Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable
time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter
Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present
evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand,
filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.[6] The trial
court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of
P900,000.[7]

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was
entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent.[8]

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the
witnesses presented and (2) on a Compromise Agreement executed by the three[9] in Civil Case No. 1492-MN which
Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of
commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an
injunction and (e) damages.[10] The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00
including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL
Holdings Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the
excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be
shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11]

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint
liability could be presumed from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may
thus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The
appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership
for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate undertaking of the
defendants was to divide the profits among themselves which is what a partnership essentially is x x x. By a
contract of partnership, two or more persons bind themselves to contribute money, property or industry to a
common fund with the intention of dividing the profits among themselves (Article 1767, New Civil Code).[13]

Hence, petitioner brought this recourse before this Court.[14]

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND
PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION
WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIMS GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent, the
Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a
partnership.

This Courts Ruling

The Petition is devoid of merit.

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

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

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed
that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which
provides:

Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of dividing the profits among themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the following factual
findings:[15]

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while
Antonio Chua was already Yaos partner;

(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FB
Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2)
boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other expenses
for the boats would be shouldered by Chua and Yao;

(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the amount of
P1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats,
Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent
Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter
Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c)
declaration of ownership of fishing boats; (4) injunction; and (e) damages.

(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants
the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who
was petitioners brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan
with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the
purchase and the repair of which were financed with borrowed money, fell under the term common fund under
Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided
equally among them also shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets
and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of
their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in
the acquisition of the aforesaid equipment, without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the
fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed
that the proceeds from the sales and operations thereof would be divided among them.

We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus,
the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the
present action is embraced by one of the exceptions to the rule.[16] In assailing the factual findings of the two
lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.

Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was the
Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them,
but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but
an embodiment of the relationship extant among the parties prior to its execution.

A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all relevant
facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In
implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to
appreciate that the CA and the RTC delved into the history of the document and explored all the possible
consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts factual findings
mentioned above nullified petitioners argument that the existence of a partnership was based only on the
Compromise Agreement.

Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua and Yao, not a
partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration
papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own
boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No
lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership
among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which
debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in
their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after
the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own
property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the
name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the
creditor, Jesus Lim.

We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he did not
incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao,
and not to him. Again, we disagree.

Section 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a
result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by
it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of
corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the
ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from
denying its corporate existence. The reason behind this doctrine is obvious - an unincorporated association has no
personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as
provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or
purport to act as its representatives or agents do so without authority and at their own risk. And as it is an
elementary principle of law that a person who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations
and becomes personally liable for contracts entered into or for other acts performed as such agent.[17]

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first
instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying
its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it
received advantages and benefits.

On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a
corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or
took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold.
The only question here is whether petitioner should be held jointly[18] liable with Chua and Yao.
Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible
corporation should be held liable. Since his name does not appear on any of the contracts and since he never
directly transacted with the respondent corporation, ergo, he cannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier
been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ
has effectively stopped his use of the fishing vessel.

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

Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the
benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed
to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate
the ruling of the Court in Alonso v. Villamor:[19]

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

Third Issue: Validity of Attachment

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

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.

PIONEER INSURANCE VS COURT OF APPEALS

TOPIC: When De Facto Partnership Does Not Exist

FACTS:
Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim convinced Constancio Maglana,
Modesto Cervantes, Francisco Cervantes, and Border Machinery and Heavy Equipment Company (BORMAHECO) to
contribute funds and to buy two aircrafts which would form part a corporation which will be the expansion of
Southern Air Lines. Maglana et al then contributed and delivered money to Lim.

But instead of using the money given to him to pay in full the aircrafts, Lim, without the knowledge of Maglana et al,
made an agreement with Pioneer Insurance for the latter to insure the two aircrafts which were brought in
installment from Japan Domestic Airlines (JDA) using said aircrafts as security. So when Lim defaulted from paying
JDA, the two aircrafts were foreclosed by Pioneer Insurance.

It was established that no corporation was formally formed between Lim and Maglana et al.

ISSUE: Whether or not Maglana et al must share in the loss as general partners.

HELD: No. There was no de facto partnership. Ordinarily, when co-investors agreed to do business through a
corporation but failed to incorporate, a de facto partnership would have been formed, and as such, all must share in
the losses and/or gains of the venture in proportion to their contribution. But in this case, it was shown that Lim did
not have the intent to form a corporation with Maglana et al. This can be inferred from acts of unilaterally taking out
a surety from Pioneer Insurance and not using the funds he got from Maglana et al. The record shows that Lim was
acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and
spare parts.

LA CAMPANA FACTORY, INC., and TAN TONG

vs.
KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA (KKM)

FACTS:
Tan Tong, one of the herein petitioners, has since 1932 been engaged in the business of buying and selling gaugau
under the trade name La Campana Gaugau Packing with an establishment in Binondo, Manila, which was later
transferred to Espaa Extension, Quezon City. But on July 6, 1950, Tan Tong, with himself and members of his family
corporation known as La Campana Factory Co., Inc., with its principal office located in the same place as that of La
Campana Gaugau Packing.

About a year before the formation of the corporation, or on July 11, 1949, Tan Tong had entered into a collective
bargaining agreement with the Philippine Legion of Organized Workers, known as PLOW for short, to which the
union of Tan Tong's employees headed by Manuel E. Sadde was then affiliated. Seceding, however, from the PLOW,
Tan Tong's employees later formed their own organization known as Kaisahan Ng Mga Manggagawa Sa La Campana,
one of the herein respondents, and applied for registration in the Department of Labor as an independent entity.
Pending consideration of this application, the Department gave the new organization legal standing by issuing it a
permit as an affiliate to the Kalipunan Ng Mga Manggagawa.

On July 19, 1951, the Kaisahan Ng Mga Manggagawa Sa La Campana, hereinafter to be referred to as the
respondent Kaisahan, which, as of that date, counted with 66 members workers all of them of both La Campana
Gaugau Packing and La Campana Coffee Factory Co., Inc. presented a demand for higher wages and more
privileges, the demand being addressed to La Campana Starch and Coffee Factory, by which name they sought to
designate, so it appears, the La Campana Gaugau Packing and the La Campana Coffee Factory Co., Inc. As the
demand was not granted and an attempt at settlement through the mediation of the Conciliation Service of the
Department of Labor had given no result, the said Department certified the dispute to the Court of Industrial
Relations on July 17, 1951, the case being there docketed as Case No. 584-V.

With the case already pending in the industrial court, the Secretary of Labor, on September 5, 1951, revoked the
Kalipunan Ng Mga Kaisahang Manggagawa's permit as a labor union on the strength of information received that it
was dominated by subversive elements, and, in consequence, on the 20th of the same month, also suspended the
permit of its affiliate, the respondent Kaisahan.

We have it from the court's order of January 15, 1952, which forms one of the annexes to the present petition, that
following the revocation of the Kaisahan's permit, "La Campana Gaugau and Coffee Factory" (obviously the
combined name of La Campana Gaugau Packing and La Campana Coffee Factory Co., Inc,) and the PLOW, which had
been allowed to intervene as a party having an interest in the dispute, filed separate motions for the dismissal of
the case on the following grounds:

1. That the action is directed against two different entities with distinct personalities, with "La Campana Starch
Factory" and the "La Campana Coffee Factory, Inc.";

2. That the workers of the "La Campana Coffee Factory, Inc." are less than thirty-one;

3. That the petitioning union has no legal capacity to sue, because its registration as an organized union has been
revoked by the Department of Labor on September 5, 1951; and

4. That there is an existing valid contract between the respondent "La Campana Gaugau Packing" and the
intervenor PLOW, where-in the petitioner's members are contracting parties bound by said contract.

Several hearings were held on the above motions, in the course of which ocular inspections were also made, and on
the basis of the evidence received and the facts observed in the ocular inspections, the Court of Industrial Relations
denied the said motions in its order of January 14, 1952, because if found as a fact that:

A. While the coffee corporation is a family corporation with Mr. Tan Tong, his wife, and children as the incorporations
and stockhelders (Exhibit 1), the La Campana Gaugau Packing is merely a business name (Exhibit 4).

B. According to the contract of lease (Exhibit 23), Mr. Tan Tong., propriety and manager of the Ka Campana Gaugau
Factory, leased a space of 200 square meters in the bodega housing the gaugau factory to his son Tan Keng Lim,
manager of the La Campana Coffee Factory. But the lease was executed only on September 1, 1951, while the
dispute between the parties was pending before the Court.

C. There is only one entity La Campana Starch and Coffee Factory, as shown by the signboard (Exhibit 1), the
advertisement in the delivery trucks (Exhibit I-1), the packages of gaugau(Exhibit K), and delivery forms (Exhibits J,
J-1, and J-2).

D. All the laborers working in the gaugau or in the coffee factory receive their pay from the same person, the
cashier, Miss Natividad Garcia, secretary of Mr. Tan Tong; and they are transferred from the gaugau to the coffee
and vice-versa as the management so requires.

E. There has been only one payroll for the entire La Campana personnel and only one person preparing the same
Miss Natividad Garcia, secretary of Mr. Tan Tong. But after the case at bar was certified to this Court on July 17,
1951, the company began making separate payrolls for the coffee factory (Exhibits M-2 and M-3, and for the
gaugau factory (Exhibits O-2, O-3 and O-4). It is to be noted that before July 21, 1951, the coffee payrolls all began
with number "41-Maria Villanueva" with 24 or more laborers (Exhibits M and M-1), whereas beginning July 21, 1951,
the payrolls for the coffee factory began with No. 1-Loreta Bernabe with only 14 laborers (Exhibits M-2 and M-3).

F. During the ocular inspection made in the factory on August 26, 1951 the Court has found the following:

In the ground floor and second floor of the gaugau factory there were hundreds of bags of raw coffee behind the
pile of gaugau sacks. There were also women employees working paper wrappers for gaugau, and, in the same
place there were about 3,000 cans to be used as containers for coffee.

The Court found out also that there were 16 trucks used both for the delivery of coffee and gaugau. To show that
those trucks carried both coffee and gaugau, the union president invited the Court to examine the contents of
delivery truck No. T-582 parked in a garage between the gaugau building and the coffee factory, and upon
examination, there were found inside the said truck boxes of gaugau and cans of coffee,

and held that:

. . . there is only one management for the business of gaugau and coffee with whom the laborers are dealing
regarding their work. Hence, the filing of action against the Ka Campana Starch and Coffee Factory is proper and
justified.

With regards to the alleged lack of personality, it is to be noted that before the certification of the case to this Court
on July 17, 1951, the petitioner Kaisahan Ng Mga Manggagawa Sa La Campana, had a separate permit from the
Department of Labor. This permit was suspended on September 30, 1951. (Exhibit M-Intervenor, page 55, of the
record). It is not true that, on July 17, 1951, when this case forwarded to this Court, the petitioner's permit, as an
independent union, had not yet been issued, for the very Exhibit MM-Intervenor regarding the permit, conclusively
shows the preexistence of said permit. (Annex G.)

Their motion for reconsideration of the above order having been denied, Tan Tong and La Campana Coffee Factory,
Inc. (same as La Campana Coffee Factory Co., Inc.), later joined by the PLOW, filed the present petition for certiorari
on the grounds that the Court of Industrial Relations had no jurisdiction to take cognizance of the case, for the
reason, according to them, "(1) that the petitioner La Campana Coffee Factory, Inc. has only 14 employees, only 5
of whom are members of the respondent union and therefore the absence of the jurisdictional number (30) as
provided by sections 1 and 4 of Commonwealth Act No. 103; and, (2) that the suspension of respondent union's
permit by the Secretary of Labor has the effect of taking away the union's right to collective bargaining under
section 2 of Commonwealth Act No. 213 and consequently, its personality to sue for ad in behalf of its members."

As to the first ground, petitioners obviously do not question the fact that the number of employees of the La
Campana Gaugau Packing involved in the case is more than the jurisdictional number (31) required bylaw, but they
do contend that the industrial court has no jurisdiction to try the case as against La Campana Coffee Factory, Inc.
because the latter has allegedly only 14 laborers and only of these are members of the respondent Kaisahan. This
contention loses force when it is noted that, as found by the industrial court and this finding is conclusive upon us
La Campana Gaugau Packing and La Campana Coffee Factory Co. Inc., are operating under one single
management, that is, as one business though with two trade names. True, the coffee factory is a corporation and,
by legal fiction, an entity existing separate and apart fro the persons composing it, that is, Tan Tong and his family.
But it is settled that this fiction of law, which has been introduced as a matter of convenience and to subserve the
ends of justice cannot be invoked to further an end subversive of that purpose.

Disregarding Corporate Entity. The doctrine that a corporation is a legal entity existing separate and apart from
the person composing it is a legal theory introduced for purposes of convenience and to subserve the ends of
justice. The concept cannot, therefore, be extended to a point beyond its reason and policy, and when invoked in
support of an end subversive of this policy, will be disregarded by the courts. Thus, in an appropriate case and in
furtherance of the ends of justice, a corporation and the individual or individuals owning all its stocks and assets will
be treated as identical, the corporate entity being disregarded where used as a cloak or cover for fraud or illegality.
(13 Am. Jur., 160-161.)

. . . A subsidiary or auxiliary corporation which is created by a parent corporation merely as an agency for the latter
may sometimes be regarded as identical with the parent corporation, especially if the stockholders or officers of the
two corporations are substantially the same or their system of operation unified. (Ibid. 162; see Annotation 1 A. L. R.
612, s. 34 A. L. R. 599.)

In the present case Tan Tong appears to be the owner of the gaugau factory. And the coffee factory, though an
incorporated business, is in reality owned exclusively by Tan Tong and his family. As found by the Court of industrial
Relations, the two factories have but one office, one management and one payroll, except after July 17, the day the
case was certified to the Court of Industrial Relations, when the person who was discharging the office of cashier for
both branches of the business began preparing separate payrolls for the two. And above all, it should not be
overlooked that, as also found by the industrial court, the laborers of the gaugau factory and the coffee factory
were interchangeable, that is, the laborers from the gaugau factory were sometimes transferred to the coffee
factory and vice-versa. In view of all these, the attempt to make the two factories appears as two separate
businesses, when in reality they are but one, is but a device to defeat the ends of the law (the Act governing capital
and labor relations) and should not be permitted to prevail.

The second point raised by petitioners is likewise with-out merit. In the first place, there being more than 30
laborers involved and the Secretary of Labor having certified the dispute to the Court of Industrial Relations, that
court duly acquired jurisdiction over the case (International Oil Factory vs. NLU, Inc. 73 Phil., 401; section 4, C. A.
103). This jurisdiction was not when the Department of Labor suspended the permit of the respondent Kaisahan as
a labor organization. For once jurisdiction is acquired by the Court of Industrial Relations it is retained until the case
is completely decided. (Manila Hotel Employees Association vs. Manila Hotel Co. et al., 73 Phil., 374.)

In view of the foregoing, the petition is denied, with costs against the petitioner.

LA CAMPANA COFFEE FACTORY v KAISAHAN NG MANGGAGAWA

Facts:
Tan Tong since 1932 has been engaged in the buying and selling gawgaw under the trade name La Campana
Gawgaw Packing. In 1950, Tan Tong and members of his family organized the family corporation. La Campana
Coffee Factory with its principal office located in Gawgaw Packing. Prior to said information, Tan Tong entered into a
CBA with the labor union of La Campana Gawgaw. Later on, his employees formed Kaisahan ng mga Manggagawa
ng La Campana with an authorization from the DOLE to become an affiliate of the larger union. Kaisahan with 66
members presented a demand for higher wages and more privileges to La Campana Starch and Coffee Factory. The
demand was not granted and the DOLE certified the issue to the CIR. La Campana filed a motion to dismiss alleging
that the action was directed against two different entities with distinct personalities. This was denied, hence this
petition.

Issue:
W/N the CIR has jurisdiction over the case.

Held:
YES. La Compana Gawgaw and La Campana Factory are operating under one single management or as one
business though with two trade names. The coffee factory is a corporation and by legal fiction, an entity separate
and apart from the persons composing it namely, Tan Tong and his family. However, the concept of separate
corporate personality cannot be extended to a point beyond reason and policy when invoked in support of an end
subversive of this policy and will be disregarded by the courts. A subsidiary company which is created merely as an
agent for the latter may sometimes be regarded as identical with the parent corporation especially if the
stockholders or officers of the two corporations are substantially the same or their systems of operation unified. The
facts showed that they had one management, one payroll prepared by the same person, laborers were
interchangeable, there is only one entity as shown by the signboard ad in trucks, packages and delivery forms and
the same place of business. The attempt to make the two factories appear as two separate businesses when in
reality they are but one, is but a device to defeat the ends of the law and should not be permitted to prevail. WHY
PIERCE? So that La Campana cannot evade the jurisdiction of CIR since La Campana Gawgaw has only 14
employees and only 5 are members of Kaisahan.

MARIANO VS PETRON CORPORATION

The Case

For review[1] is the Decision[2] of the Court of Appeals upholding the lease contract between petitioner Romeo D.
Mariano and respondent Petron Corporation.

The Facts

On 5 November 1968,[3] Pacita V. Aure, Nicomedes Aure Bundac, and Zeny Abundo (Aure Group), owners of a 2,064
square meter parcel of land in Tagaytay City[4] (Property), leased the Property to ESSO Standard Eastern, Inc.,
(ESSO Eastern), a foreign corporation doing business in the country through its subsidiary ESSO Standard
Philippines, Inc. (ESSO Philippines). The lease period is 90 years[5] and the rent is payable monthly for the first 10
years, and annually for the remaining period.[6] The lease contract (Contract) contained an assignment veto clause
barring the parties from assigning the lease without prior consent of the other.[7] Excluded from the prohibition
were certain corporations to whom ESSO Eastern may unilaterally assign its leasehold right.[8]

On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine National Oil Corporation (PNOC).[9]
Apparently, the Aure Group was not informed of the sale. ESSO Philippines, whose corporate name was successively
changed to Petrophil Corporation then to Petron Corporation (Petron), took possession of the Property.

On 18 November 1993, petitioner Romeo D. Mariano (petitioner) bought the Property from the Aure Group and
obtained title to the Property issued in his name bearing an annotation of ESSO Easterns lease.[10]

On 17 December 1998, petitioner sent to Petron a notice to vacate the Property. Petitioner informed Petron that
Presidential Decree No. 471 (PD 471),[11] dated 24 May 1974, reduced the Contracts duration from 90 to 25 years,
ending on 13 November 1993.[12] Despite receiving the notice to vacate on 21 December 1998, Petron remained
on the Property.

On 18 March 1999, petitioner sued Petron in the Regional Trial Court of Tagaytay City, Branch 18, (trial court) to
rescind the Contract and recover possession of the Property. Aside from invoking PD 471, petitioner alternatively
theorized that the Contract was terminated on 23 December 1977 when ESSO Eastern sold ESSO Philippines to
PNOC, thus assigning to PNOC its lease on the Property, without seeking the Aure Groups prior consent.
In its Answer, Petron countered that the Contract was not breached because PNOC merely acquired ESSO Easterns
shares in ESSO Philippines, a separate corporate entity. Alternatively, Petron argued that petitioners suit, filed on 18
March 1999, was barred by prescription under Article 1389 and Article 1146(1) of the Civil Code as petitioner should
have sought rescission within four years from PNOCs purchase of ESSO Philippines on 23 December 1977[13] or
before 23 December 1981.[14]

To dispense with the presentation of evidence, the parties submitted a Joint Motion for Judgment (Joint Motion)
containing the following stipulation:

5. On December 23, 1977, the Philippine National Oil Co. (PNOC), a corporation wholly owned by the Philippine
Government, acquired ownership of ESSO Standard Philippines, Inc., including its leasehold right over the land in
question, through the acquisition of its shares of stocks.[15] (Emphasis supplied)

The Ruling of the Trial Court

In its Decision dated 30 May 2000, the trial court ruled for petitioner, rescinded the Contract, ordered Petron to
vacate the Property, and cancelled the annotation on petitioners title of Petrons lease.[16] The trial court ruled that
ESSO Easterns sale to PNOC of its interest in ESSO Philippines included the assignment to PNOC of ESSO Easterns
lease over the Property, which, for lack of the Aure Groups consent, breached the Contract, resulting in its
termination. However, because the Aure Group (and later petitioner) tolerated ESSO Philippines continued use of
the Property by receiving rental payments, the law on implied new lease governs the relationship of the Aure Group
(and later petitioner) and Petron, creating for them an implied new lease terminating on 21 December 1998 upon
Petrons receipt of petitioners notice to vacate.[17]

Petron appealed to the Court of Appeals, distancing itself from its admission in the Joint Motion that in buying ESSO
Philippines from ESSO Eastern, PNOC also acquired ESSO Easterns leasehold right over the Property. Petron again
invoked its separate corporate personality to distinguish itself from PNOC.

The Ruling of the Court of Appeals

In its Decision dated 29 October 2004, the Court of Appeals found merit in Petrons appeal, set aside the trial courts
ruling, declared the Contract subsisting until 13 November 2058[18] and ordered petitioner to pay Petron P300,000
as attorneys fees. The Court of Appeals found no reason to pierce ESSO Philippines corporate veil, treating PNOCs
buy-out of ESSO Philippines as mere change in ESSO Philippines stockholding. Hence, the Court of Appeals rejected
the trial courts conclusion that PNOC acquired the leasehold right over the Property. Alternatively, the Court of
Appeals found petitioners suit barred by the four-year prescriptive period under Article 1389 and Article 1146 (1) of
the Civil Code, reckoned from PNOCs buy-out of ESSO Philippines on 23 December 1977 (for Article 1389) or the
execution of the Contract on 13 November 1968[19] (for Article 1146 [1]).[20]

Petitioner sought reconsideration but the Court of Appeals denied his motion in its Resolution of 26 August 2005.

Hence, this petition.

The Issue

The question is whether the Contract subsists between petitioner and Petron.

The Ruling of the Court

We hold in the affirmative and thus sustain the ruling of the Court of Appeals.

ESSO Eastern Assigned to PNOC its

Leasehold Right over the Property, Breaching the Contract

PNOCs buy-out of ESSO Philippines was total and unconditional, leaving no residual rights to ESSO Eastern.
Logically, this change of ownership carried with it the transfer to PNOC of any proprietary interest ESSO Eastern
may hold through ESSO Philippines, including ESSO Easterns lease over the Property. This is the import of Petrons
admission in the Joint Motion that by PNOCs buy-out of ESSO Philippines [PNOC], x x x acquired ownership of ESSO
Standard Philippines, Inc., including its leasehold right over the land in question, through the acquisition of its
shares of stocks. As the Aure Group gave no prior consent to the transaction between ESSO Eastern and PNOC,
ESSO Eastern violated the Contracts assignment veto clause.
Petrons objection to this conclusion, sustained by the Court of Appeals, is rooted on its reliance on its separate
corporate personality and on the unstated assumption that ESSO Philippines (not ESSO Eastern) initially held the
leasehold right over the Property. Petron is wrong on both counts.

Courts are loathe to pierce the fictive veil of corporate personality, cognizant of the core doctrine in corporation law
vesting on corporations legal personality distinct from their shareholders (individual or corporate) thus facilitating
the conduct of corporate business. However, fiction gives way to reality when the corporate personality is foisted to
justify wrong, protect fraud, or defend crime, thwarting the ends of justice.[21] The fiction even holds lesser sway
for subsidiary corporations whose shares are wholly if not almost wholly owned by its parent company. The
structural and systems overlap inherent in parent and subsidiary relations often render the subsidiary as mere local
branch, agency or adjunct of the foreign parent corporation.[22]

Here, the facts compel the conclusion that ESSO Philippines was a mere branch of ESSO Eastern in the execution
and breach of the Contract. First, by ESSO Easterns admission in the Contract, it is a foreign corporation organized
under the laws of the State of Delaware, U.S.A., duly licensed to transact business in the Philippines, and doing
business therein under the business name and style of Esso Standard Philippines x x x. In effect, ESSO Eastern was
ESSO Philippines for all of ESSO Easterns Philippine business.

Second, the Contract was executed by ESSO Eastern, not ESSO Philippines, as lessee, with the Aure Group as lessor.
ESSO Eastern leased the Property for the use of ESSO Philippines, acting as ESSO Easterns Philippine branch.
Consistent with such status, ESSO Philippines took possession of the Property after the execution of the Contract.
Thus, for purposes of the Contract, ESSO Philippines was a mere alter ego of ESSO Eastern.
The Lessors Continued Acceptance of Lease Payments
Despite Breach of Contract Amounted to Waiver

The breach of contract notwithstanding, we hold that the Contract subsists. Contrary to the trial courts conclusion
that ESSO Easterns violation of the assignment veto clause extinguished the Contract, replaced by a new implied
lease with a monthly term,[23] we hold that the breach merely gave rise to a cause of action for the Aure Group to
seek the lessees ejectment as provided under Article 1673, paragraph 3 of the Civil Code.[24] Although the records
do not show that the Aure Group was formally notified of ESSO Philippines sale to PNOC, the successive changes in
the lessees name (from ESSO Philippines to Petrophil Corporation then to Petron) suffice to alert the Aure Group of a
likely change in the personality of the lessee, which, for lack of the Aure Groups prior consent, was in obvious
breach of the Contract. Thus, the continued receipt of lease payments by the Aure Group (and later by petitioner)
despite the contractual breach amounted to a waiver of their option to eject the lessee.

Petitioners Suit Barred by Prescription

Petitioners waiver of Petrons contractual breach was compounded by his long inaction to seek judicial redress.
Petitioner filed his complaint nearly 22 years after PNOC acquired the leasehold rights to the Property and almost
six years after petitioner bought the Property from the Aure Group. The more than two decades lapse puts this case
well within the territory of the 10 year prescriptive bar to suits based upon a written contract under Article 1144 (1)
of the Civil Code.[25]

WHEREFORE, we DENY the petition. The Decision dated 29 October 2004 and the Resolution dated 26 August 2005
of the Court of Appeals are AFFIRMED.

SO ORDERED.
CAGAYAN FISHsING DEVELOPMENT CO., INC.
vs.
TEODORO SANDIKO

This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the
plaintiff's complaint.

Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of Aparri, Province
of Cagayan, as evidenced by transfer certificate of title No. 217 of the land records of Cagayan, a copy of which is in
evidence as Exhibit 1. To guarantee the payment of a loan in the sum of P8,000, Manuel Tabora, on August 14,
1929, executed in favor of the Philippine National Bank a first mortgage on the four parcels of land above-
mentioned. A second mortgage in favor of the same bank was in April of 1930 executed by Tabora over the same
lands to guarantee the payment of another loan amounting to P7,000. A third mortgage on the same lands was
executed on April 16, 1930 in favor of Severina Buzon to whom Tabora was indebted in the sum of P2,9000. These
mortgages were registered and annotations thereof appear at the back of transfer certificate of title No. 217.
On May 31, 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, in consideration of one peso (P1) subject to the mortgages in favor of the Philippine
National Bank and Severina Buzon and, to the condition that the certificate of title to said lands shall not be
transferred to the name of the plaintiff company until the latter has fully and completely paid Tabora's indebtedness
to the Philippine National Bank.

The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry on October 22, 1930
(Exhibit 2). A year later, on October 28, 1931, the board of directors of said company adopted a resolution (Exhibit
G) authorizing its president, Jose Ventura, to sell the four parcels of lands in question to Teodoro Sandiko for
P42,000. Exhibits B, C and D were thereafter made and executed. Exhibit B is a deed of sale executed before a
notary public by the terms of which the plaintiff sold ceded and transferred to the defendant all its right, titles, and
interest in and to the four parcels of land described in transfer certificate in turn obligated himself to shoulder the
three mortgages hereinbefore referred to. Exhibit C is a promisory note for P25,300. 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 before
a notary public in accordance with which the four parcels of land were given a security for the payment of the
promissory note, Exhibit C. All these three instrument were dated February 15, 1932.

The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934, brought
this action in the Court of First Instance of Manila praying that judgment be rendered against the defendant for the
sum of P25,300, with interest at legal rate from the date of the filing of the complaint, and the costs of the suits.
After trial, the court below, on December 18, 1934, rendered judgment absolving the defendant, with costs against
the plaintiff. Plaintiff presented a motion for new trial on January 14, 1935, which motion was denied by the trial
court on January 19 of the same year. After due exception and notice, plaintiff has appealed to this court and makes
an assignment of various errors.

In dismissing the complaint against the defendant, the court below, reached the conclusion that Exhibit B is invalid
because of vice in consent and repugnancy to law. While we do not agree with this conclusion, we have however
voted to affirm the judgment appealed from the reasons which we shall presently state.

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 (sec.
13, pars. 5 and 9, and sec. 14, Act No. 1459). 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 (secs. 6 et seq.,
Act. No. 1459). Although there is a presumption that all the requirements of law have been complied with (sec. 334,
par. 31 Code of Civil Procedure), in the case before us it can not be denied that the plaintiff was not yet
incorporated when it entered into a contract of sale, Exhibit A. The contract itself referred to the plaintiff as "una
sociedad en vias de incorporacion." It was not even a de facto corporation at the time. Not being in legal existence
then, it did not possess juridical capacity to enter into the contract.

Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As has
already been stated, general law authorizing the formation of corporations are general offers to any persons who
may bring themselves within their provisions; and if conditions precedent are prescribed in the statute, or certain
acts are required to be done, they are terms of the offer, and must be complied with substantially before legal
corporate existence can be acquired. (14 C. J., sec. 111, p. 118.)

That a corporation should have a full and complete organization and existence as an entity before it can enter into
any kind of a contract or transact any business, would seem to be self evident. . . . A corporation, until organized,
has no being, franchises or faculties. Nor do those engaged in bringing it into being have any power to bind it by
contract, unless so authorized by the charter there is not a corporation nor does it possess franchise or faculties for
it or others to exercise, until it acquires a complete existence. (Gent vs. Manufacturers and Merchant's Mutual
Insurance Company, 107 Ill., 652, 658.)

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 four parcels of lands on the one hand and
the same Manuel Tabora, his wife and others, as mere promoters of a corporations 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. It is, as it
were, a child in ventre sa mere. 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
(Fletcher Cyc. of Corps., permanent edition, 1931, vol. I, secs. 207 et seq.), 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.(Massachusetts rule, Abbott vs. Hapgood, 150 Mass.,
248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing English cases; Koppel vs. Massachusetts Brick
Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope Co., vs. U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) It
should be observed that Manuel Tabora was the registered owner of the four parcels of land, which he succeeded in
mortgaging to the Philippine National Bank so that he might have the necessary funds with which to convert and
develop them into fishery. He appeared to have met with financial reverses. He formed a corporation composed of
himself, his wife, and a few others. From the articles of incorporation, Exhibit 2, it appears that out of the P48,700,
amount of capital stock subscribed, P45,000 was subscribed by Manuel Tabora himself and P500 by his wife, Rufina
Q. de Tabora; and out of the P43,300, amount paid on subscription, P42,100 is made to appear as paid by Tabora
and P200 by his wife. Both Tabora and His wife were directors and the latter was treasurer as well. In fact, to this
day, the lands remain inscribed in Tabora's name. The defendant always regarded Tabora as the owner of the lands.
He dealt with Tabora directly. Jose Ventura, president of the plaintiff corporation, intervened only to sign the
contract, Exhibit B, in behalf of the plaintiff. Even the Philippine National Bank, mortgagee of the four parcels of
land, always treated Tabora as the owner of the same. (See Exhibits E and F.) Two civil suits (Nos. 1931 and 38641)
were brought against Tabora in the Court of First Instance of Manila and in both cases a writ of attachment against
the four parcels of land was issued. The Philippine National Bank threatened to foreclose its mortgages. Tabora
approached the defendant Sandiko and succeeded in the making him sign Exhibits B, C, and D and in making him,
among other things, assume the payment of Tabora's indebtedness to the Philippine National Bank. The promisory
note, Exhibit C, was made payable to the plaintiff company so that it may not attached by Tabora's creditors, two of
whom had obtained writs of attachment against the four parcels of land.

If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it did
not possess any resultant right to dispose of them by sale to the defendant, Teodoro Sandiko.

Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan
Fishing Development Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition precedent
(condicion suspensiva), namely, the payment of the mortgage debt of said Tabora to the Philippine National Bank,
and that this condition not having been complied with by the Cagayan Fishing Development Company, Inc., the
transfer was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696; Manresa, vol. 8, p. 141.)
However, having arrived at the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing Development
Company, Inc. was null because at the time it was affected the corporation was non-existent, we deem it
unnecessary to discuss this point.lawphil.net

The decision of the lower court is accordingly affirmed, with costs against the appellant. So ordered.

CAGAYAN FISHING DEVELOPMENT CO., INC.

vs.
TEODORO 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 can not 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 four parcels of lands on the one hand and
the same Manuel Tabora, his wife and others, as mere promoters of a corporations 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.

RIZAL LIGHT VS MORONG RIZAL (see pics)

CARAM, JR. vs. COURT OF APPEALS

Doctrine: A bona fide corporation is liable for its corporate acts as dulyauthorized by its officers and
directors.

Facts: Respondent Alberto Arellano was contracted by Barretto and Garcia(Walang binigay na first names sa case,
damn you Justice Cruz!) to do a project study and other technical services in forming a corporation, which was later
on named Filipinas Orient Airways. The project study was presented by Barretto and Garcia to the Carams. After
seeing the project study, the Carams were convinced to invest and become stockholders of the said company. The
case involves the collection of the unpaid compensation for Arellanos services. The CA decided that the Carams
were jointly and severally liable to Arellano stating that:

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. Hence this petition.

Issue/s:WON the CA was correct in holding the Carams liable?

Held: The Court held that the Carams were not liable.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 service 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.

Dispositive Portion:WHEREFORE, the petition is granted. The petitioners are declarednot liable under the challenged
decision, which is hereby modified accordingly. It is so ordered.